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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM 10-Q
__________________________
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended June 03, 2020
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the Transition Period From to
Commission file number: 001-08308
__________________________
Luby's, Inc.
(Exact name of registrant as specified in its charter)
__________________________
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Delaware |
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74-1335253 |
(State or other jurisdiction of
incorporation or organization) |
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(IRS Employer
Identification No.) |
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13111 Northwest Freeway, Suite 600 |
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77040 |
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Houston |
, |
Texas |
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(Address of principal executive offices) |
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(Zip Code) |
(713) 329-6800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange at which registered |
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Common Stock ($0.32 par value per share) |
LUB |
New York Stock Exchange |
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Common Stock Purchase Rights |
N/A |
New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing
requirements for the past 90
days. Yes x No
☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes x No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer |
¨ |
Accelerated filer |
¨ |
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Non-accelerated filer |
x |
Smaller reporting company |
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Emerging growth company |
☐ |
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
¨
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Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange
Act). Yes ☐ No x
As of July 15, 2020, there were
30,625,470
shares of the registrant’s common stock
outstanding.
Additional Information
We file reports with the Securities and Exchange Commission (the
“SEC”), including annual reports on Form 10-K, quarterly reports on
Form 10-Q, and current reports on Form 8-K. The SEC maintains an
Internet site at
http://www.sec.gov
that contains the reports, proxy and information statements, and
other information that we file electronically. Our website address
is
http://www.lubysinc.com.
Please note that our website address is provided as an inactive
textual reference only. We make available free of charge through
our website our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and all amendments to those
reports as soon as reasonably practicable after such material is
electronically filed with or furnished to the SEC. The information
provided on our website is not part of this report, and is
therefore not incorporated by reference unless such information is
specifically referenced elsewhere in this
report.
Luby’s, Inc.
Form 10-Q
Quarter ended June 3, 2020
Table of Contents
Part I—FINANCIAL INFORMATION
Item 1. Financial Statements
Luby’s, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
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June 3,
2020 |
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August 28,
2019 |
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(Unaudited) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
$ |
14,122 |
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$ |
3,640 |
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Restricted cash and cash equivalents |
7,917 |
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9,116 |
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Trade accounts and other receivables, net |
5,498 |
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8,852 |
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Food and supply inventories |
2,120 |
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3,432 |
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Prepaid expenses |
1,399 |
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2,355 |
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Total current assets |
31,056 |
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27,395 |
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Property held for sale |
17,916 |
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16,488 |
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Assets related to discontinued operations |
1,691 |
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1,813 |
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Property and equipment, net |
104,288 |
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121,743 |
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Intangible assets, net |
15,695 |
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16,781 |
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Goodwill |
195 |
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514 |
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Operating lease right-of-use assets |
17,790 |
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— |
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Other assets |
625 |
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1,266 |
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Total assets |
$ |
189,256 |
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$ |
186,000 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current Liabilities: |
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Accounts payable |
$ |
9,808 |
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$ |
8,465 |
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Liabilities related to discontinued operations |
11 |
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14 |
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Current portion of long-term debt |
6,386 |
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— |
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Operating lease liabilities-current |
4,412 |
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— |
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Accrued expenses and other liabilities |
21,360 |
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24,475 |
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Total current liabilities |
41,977 |
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32,954 |
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Long-term debt, less current portion |
57,316 |
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45,439 |
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Operating lease liabilities-noncurrent |
22,771 |
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— |
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Other liabilities |
1,550 |
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6,577 |
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Total liabilities |
$ |
123,614 |
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$ |
84,970 |
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Commitments and Contingencies |
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SHAREHOLDERS’ EQUITY |
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Common stock, 0.32 par value; 100,000,000 shares authorized; shares
issued were 30,998,504 and 30,478,972; and shares outstanding were
30,498,504 and 29,978,972 at June 3, 2020 and August 28,
2019, respectively
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$ |
9,921 |
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$ |
9,753 |
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Paid-in capital |
35,407 |
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34,870 |
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Retained earnings |
25,089 |
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61,182 |
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Less cost of treasury stock, 500,000 shares
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(4,775) |
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(4,775) |
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Total shareholders’ equity |
$ |
65,642 |
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$ |
101,030 |
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Total liabilities and shareholders’ equity |
$ |
189,256 |
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$ |
186,000 |
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The accompanying notes are an integral part of these consolidated
financial statements.
Luby’s, Inc.
Consolidated Statements of Operations (unaudited)
(In thousands, except per share data)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
Three Quarters Ended |
|
|
|
|
June 3,
2020 |
|
June 5,
2019 |
|
June 3,
2020 |
|
June 5,
2019 |
|
|
(12 weeks) |
|
(12 weeks) |
|
(40 weeks) |
|
(40 weeks) |
|
SALES: |
|
|
|
|
|
|
|
|
Restaurant sales |
$ |
13,832 |
|
|
$ |
65,611 |
|
|
$ |
157,781 |
|
|
$ |
222,079 |
|
|
Culinary contract services |
4,963 |
|
|
7,571 |
|
|
21,735 |
|
|
24,610 |
|
|
Franchise revenue |
193 |
|
|
1,482 |
|
|
3,058 |
|
|
5,126 |
|
|
Vending revenue |
6 |
|
|
102 |
|
|
130 |
|
|
292 |
|
|
TOTAL SALES |
18,994 |
|
|
74,766 |
|
|
182,704 |
|
|
252,107 |
|
|
COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
Cost of food |
4,039 |
|
|
18,478 |
|
|
45,378 |
|
|
61,707 |
|
|
Payroll and related costs |
5,487 |
|
|
25,015 |
|
|
61,402 |
|
|
84,258 |
|
|
Other operating expenses |
5,766 |
|
|
11,491 |
|
|
30,625 |
|
|
39,404 |
|
|
Occupancy costs |
3,696 |
|
|
4,023 |
|
|
12,470 |
|
|
14,064 |
|
|
Opening costs |
— |
|
|
6 |
|
|
14 |
|
|
49 |
|
|
Cost of culinary contract services |
4,712 |
|
|
6,791 |
|
|
20,060 |
|
|
22,324 |
|
|
Cost of franchise operations |
437 |
|
|
330 |
|
|
1,411 |
|
|
849 |
|
|
Depreciation and amortization |
2,709 |
|
|
2,927 |
|
|
9,149 |
|
|
11,052 |
|
|
Selling, general and administrative expenses |
3,339 |
|
|
8,623 |
|
|
20,313 |
|
|
26,386 |
|
|
Other Charges |
164 |
|
|
803 |
|
|
2,912 |
|
|
3,280 |
|
|
Provision for asset impairments and restaurant closings |
12,708 |
|
|
675 |
|
|
14,478 |
|
|
3,097 |
|
|
Net gain on disposition of property and equipment |
(364) |
|
|
(434) |
|
|
(2,861) |
|
|
(12,935) |
|
|
Total costs and expenses |
42,693 |
|
|
78,728 |
|
|
215,351 |
|
|
253,535 |
|
|
LOSS FROM OPERATIONS |
(23,699) |
|
|
(3,962) |
|
|
(32,647) |
|
|
(1,428) |
|
|
Interest income |
19 |
|
|
11 |
|
|
47 |
|
|
30 |
|
|
Interest expense |
(1,641) |
|
|
(1,324) |
|
|
(5,076) |
|
|
(4,593) |
|
|
Other income, net |
402 |
|
|
112 |
|
|
790 |
|
|
198 |
|
|
Loss before income taxes and discontinued operations |
(24,919) |
|
|
(5,163) |
|
|
(36,886) |
|
|
(5,793) |
|
|
Provision for income taxes |
53 |
|
|
132 |
|
|
210 |
|
|
346 |
|
|
Loss from continuing operations |
(24,972) |
|
|
(5,295) |
|
|
(37,096) |
|
|
(6,139) |
|
|
Loss from discontinued operations, net of income taxes |
(7) |
|
|
(6) |
|
|
(23) |
|
|
(18) |
|
|
NET LOSS |
(24,979) |
|
|
(5,301) |
|
|
(37,119) |
|
|
(6,157) |
|
|
Loss per share from continuing operations: |
|
|
|
|
|
|
|
|
Basic |
$ |
(0.82) |
|
|
$ |
(0.18) |
|
|
$ |
(1.23) |
|
|
$ |
(0.21) |
|
|
Assuming dilution |
$ |
(0.82) |
|
|
$ |
(0.18) |
|
|
$ |
(1.23) |
|
|
$ |
(0.21) |
|
|
Loss per share from discontinued operations: |
|
|
|
|
|
|
|
|
Basic |
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
Assuming dilution |
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
Loss per share: |
|
|
|
|
|
|
|
|
Basic |
$ |
(0.82) |
|
|
$ |
(0.18) |
|
|
$ |
(1.23) |
|
|
$ |
(0.21) |
|
|
Assuming dilution |
$ |
(0.82) |
|
|
$ |
(0.18) |
|
|
$ |
(1.23) |
|
|
$ |
(0.21) |
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
30,398 |
|
|
29,874 |
|
|
30,206 |
|
|
29,732 |
|
|
Assuming dilution |
30,398 |
|
|
29,874 |
|
|
30,206 |
|
|
29,732 |
|
The accompanying notes are an integral part of these
consolidated financial statements.
Luby’s, Inc.
Consolidated Statement of Shareholders’ Equity
(unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Issued |
|
|
|
Treasury |
|
|
|
Paid-In |
|
Retained |
|
Shareholders’ |
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Equity |
|
Balance at August 29, 2018 |
30,003 |
|
|
$ |
9,602 |
|
|
(500) |
|
|
$ |
(4,775) |
|
|
$ |
33,872 |
|
|
$ |
73,929 |
|
|
$ |
112,628 |
|
|
Cumulative effect of accounting changes from the adoption of
ASC Topic 606
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2,479 |
|
|
2,479 |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(7,489) |
|
|
(7,489) |
|
|
Share-based compensation expense |
42 |
|
|
13 |
|
|
— |
|
|
— |
|
|
426 |
|
|
— |
|
|
439 |
|
|
Common stock issued under employee benefit plans |
81 |
|
|
26 |
|
|
— |
|
|
— |
|
|
(26) |
|
|
— |
|
|
— |
|
|
Common stock issued under nonemployee benefit plans |
38 |
|
|
12 |
|
|
— |
|
|
— |
|
|
(12) |
|
|
— |
|
|
— |
|
|
Balance at December 19, 2018 |
30,164 |
|
|
$ |
9,653 |
|
|
(500) |
|
|
$ |
(4,775) |
|
|
$ |
34,260 |
|
|
$ |
68,919 |
|
|
$ |
108,057 |
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
6,632 |
|
|
6,632 |
|
|
Share-based compensation expense |
98 |
|
|
31 |
|
|
— |
|
|
— |
|
|
363 |
|
|
— |
|
|
394 |
|
|
Common stock issued under employee benefit plans |
12 |
|
|
4 |
|
|
— |
|
|
— |
|
|
(4) |
|
|
— |
|
|
— |
|
|
Common stock issued under nonemployee benefit plans |
15 |
|
|
5 |
|
|
— |
|
|
— |
|
|
(5) |
|
|
— |
|
|
— |
|
|
Balance at March 13, 2019 |
30,289 |
|
|
$ |
9,693 |
|
|
(500) |
|
|
$ |
(4,775) |
|
|
$ |
34,614 |
|
|
$ |
75,551 |
|
|
$ |
115,083 |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(5,301) |
|
|
(5,301) |
|
|
Share-based compensation expense |
86 |
|
|
28 |
|
|
— |
|
|
— |
|
|
341 |
|
|
— |
|
|
369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 5, 2019 |
30,375 |
|
|
$ |
9,721 |
|
|
(500) |
|
|
$ |
(4,775) |
|
|
$ |
34,955 |
|
|
$ |
70,250 |
|
|
$ |
110,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Issued |
|
|
|
Treasury |
|
|
|
Paid-In |
|
Retained |
|
Shareholders’ |
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Equity |
|
Balance at August 28, 2019 |
30,478 |
|
|
$ |
9,753 |
|
|
(500) |
|
|
$ |
(4,775) |
|
|
$ |
34,870 |
|
|
$ |
61,182 |
|
|
$ |
101,030 |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(8,338) |
|
|
(8,338) |
|
|
Cumulative effect of accounting changes from the adoption of
ASC Topic 842
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,027 |
|
|
1,027 |
|
|
Share-based compensation expense |
58 |
|
|
19 |
|
|
— |
|
|
— |
|
|
347 |
|
|
— |
|
|
366 |
|
|
Common stock issued under employee benefit plans |
45 |
|
|
15 |
|
|
— |
|
|
— |
|
|
(51) |
|
|
— |
|
|
(36) |
|
|
Common stock issued under nonemployee benefit plans |
64 |
|
|
20 |
|
— |
|
|
— |
|
|
(20) |
|
|
— |
|
|
— |
|
|
Balance at December 18, 2019 |
30,645 |
|
|
$ |
9,807 |
|
|
(500) |
|
|
$ |
(4,775) |
|
|
$ |
35,146 |
|
|
$ |
53,871 |
|
|
$ |
94,049 |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,803) |
|
|
$ |
(3,803) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
101 |
|
|
32 |
|
|
— |
|
|
— |
|
|
334 |
|
|
— |
|
|
366 |
|
|
Common stock issued under employee benefit plans |
6 |
|
|
2 |
|
|
— |
|
|
— |
|
|
(2) |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 11, 2020 |
30,752 |
|
|
$ |
9,841 |
|
|
(500) |
|
|
$ |
(4,775) |
|
|
$ |
35,478 |
|
|
$ |
50,068 |
|
|
$ |
90,612 |
|
|
Net loss |
— |
|
|
$ |
— |
|
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(24,979) |
|
|
(24,979) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
225 |
|
|
72 |
|
|
|
|
— |
|
|
(58) |
|
|
— |
|
|
14 |
|
|
Common stock issued under employee benefit plans |
22 |
|
|
8 |
|
|
|
|
— |
|
|
(13) |
|
|
— |
|
|
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 3, 2020 |
30,999 |
|
|
$ |
9,921 |
|
|
(500) |
|
|
$ |
(4,775) |
|
|
$ |
35,407 |
|
|
$ |
25,089 |
|
|
$ |
65,642 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
Luby’s, Inc.
Consolidated Statements of Cash Flows (unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Quarters Ended |
|
|
|
|
June 3,
2020 |
|
June 5,
2019 |
|
|
(40 weeks) |
|
(40 weeks) |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
Net loss |
$ |
(37,119) |
|
|
$ |
(6,157) |
|
|
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
Provision for asset impairments and net (gains) losses on property
sales |
11,617 |
|
|
(9,838) |
|
|
Depreciation and amortization |
9,149 |
|
|
11,052 |
|
|
Amortization of debt issuance cost |
974 |
|
|
1,063 |
|
|
Share-based compensation expense |
746 |
|
|
1,192 |
|
|
|
|
|
|
Cash used in operating activities before changes in operating
assets and liabilities |
(14,633) |
|
|
(2,688) |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
Decrease (increase) in trade accounts and other
receivables |
3,424 |
|
|
(880) |
|
|
|
|
|
|
Decrease in food and supply inventories |
179 |
|
|
148 |
|
|
Decrease in prepaid expenses and other assets |
783 |
|
|
1,106 |
|
|
Decrease in operating lease assets |
3,954 |
|
|
— |
|
|
|
|
|
|
Decrease in operating lease liabilities |
(5,239) |
|
|
— |
|
|
Decrease in accounts payable, accrued expenses and other
liabilities |
(2,563) |
|
|
(8,567) |
|
|
Net cash used in operating activities |
(14,095) |
|
|
(10,881) |
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
Proceeds from disposal of assets and property held for
sale |
7,580 |
|
|
21,761 |
|
|
|
|
|
|
Purchases of property and equipment |
(1,890) |
|
|
(2,866) |
|
|
Net cash provided by investing activities |
5,690 |
|
|
18,895 |
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
Revolver borrowings |
4,700 |
|
|
37,500 |
|
|
Revolver repayments |
— |
|
|
(55,500) |
|
|
Proceeds from term loan |
5,000 |
|
|
58,400 |
|
|
Term loan repayments |
(2,012) |
|
|
(36,107) |
|
|
Proceeds from PPP Loan |
10,000 |
|
|
— |
|
|
Debt issuance costs |
— |
|
|
(3,236) |
|
|
Taxes paid on equity withheld |
— |
|
|
(12) |
|
|
Net cash provided by financing activities |
17,688 |
|
|
1,045 |
|
|
Net increase in cash and cash equivalents and restricted
cash |
9,283 |
|
|
9,059 |
|
|
Cash and cash equivalents and restricted cash at beginning of
period |
12,756 |
|
|
3,722 |
|
|
Cash and cash equivalents and restricted cash at end of
period |
$ |
22,039 |
|
|
$ |
12,781 |
|
|
Cash paid for: |
|
|
|
|
Income taxes, net of (refunds) |
$ |
13 |
|
|
$ |
510 |
|
|
Interest |
3,955 |
|
|
3,255 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
Luby’s, Inc.
Notes to Consolidated Financial Statements (unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements of
Luby’s, Inc. (the “Company”, "we", "our", "us", or “Luby’s”) have
been prepared in accordance with U.S. generally accepted accounting
principles (“GAAP”) for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements that
are prepared for our Annual Report on Form 10-K. In the opinion of
management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the periods ended June 3, 2020
are not necessarily indicative of the results that may be expected
for the fiscal year ending August 26, 2020.
On June 3, 2020, we announced that our Board of Directors approved
a course of action whereby we will immediately pursue the sale of
our operating divisions and assets, including our real estate
assets, or the sale of the Company in its entirety, and distribute
the net proceeds to our stockholders after payment of debt and
other obligations. During the sale process, many of our restaurants
will remain open.
We have not established a definitive timeframe for completing this
process which will most likely lead to the adoption by the Board of
Directors of a formal plan of sale and proceeds distribution
followed by an orderly wind down of any remaining operations. Such
a plan of sale and proceeds distribution will require shareholder
approval. There can be no assurance that such a plan of sale and
proceeds distribution will be adopted by the Board of Directors or
approved by the shareholders.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. See Note 3.
Going Concern.
The consolidated balance sheet dated August 28, 2019, included
in this Quarterly Report on Form 10-Q (this “Form 10-Q”), has been
derived from our audited consolidated financial statements as of
that date. However, this Form 10-Q does not include all of the
information and footnotes required by GAAP for audited, year-end
financial statements. Therefore, these financial statements should
be read in conjunction with the audited consolidated financial
statements and footnotes included in the Company’s Annual Report on
Form 10-K for the fiscal year ended August 28,
2019.
The Company’s fiscal year ends on the last Wednesday in August.
Accordingly, each fiscal year normally consists of 13 four-week
periods, or accounting periods, accounting for 364 days in the
aggregate. However, every fifth or sixth year, we have a fiscal
year that consists of 53 weeks, accounting for 371 days in the
aggregate. The first fiscal quarter consists of four four-week
periods, or 16 weeks, and the remaining three quarters typically
include three four-week periods, or 12 weeks, in length. The fourth
fiscal quarter includes 13 weeks in certain fiscal years to adjust
for our standard 52 week, or 364 day, fiscal year compared to the
365 day calendar year.
Reportable Segments
Each restaurant is an operating segment because operating results
and cash flow can be determined for each restaurant. We aggregate
our operating segments into reportable segments by restaurant brand
due to the nature of the products and services, the production
processes, the customers, the methods used to distribute the
products and services, the similarity of store level profit margins
and the nature of the regulatory environment are alike. The Company
has five reportable segments: Luby’s cafeterias, Fuddruckers
restaurants, Cheeseburger in Paradise restaurant, Fuddruckers
franchise operations, and Culinary Contract Services
(“CCS”).
Prior to the fourth quarter of fiscal 2019 our internal
organization and reporting structure supported three reportable
segments; Company-owned restaurants, Franchise operations and
Culinary Contract Services. The Company-owned restaurants consisted
of the three brands discussed above, which were aggregated into one
reportable segment. In the fourth quarter of fiscal 2019 we
re-evaluated and disaggregated the Company-owned restaurants into
three reportable segments based on brand name. As such, as of
the fourth quarter 2019, our five reportable segments are Luby’s
cafeterias, Fuddruckers restaurants, Cheeseburger in Paradise
restaurants, Fuddruckers franchise operations and Culinary Contract
Services. Management believes this change better reflects the
priorities and decision-making analysis around the allocation of
our resources and better aligns to the economic characteristics
within similar restaurant brands. We began reporting on the new
structure in the fourth quarter of fiscal 2019 as reflected in our
Annual Report on Form 10-K. The segment data for the comparable
periods of fiscal 2019 has been recast to conform to the current
period presentation. Recasting this historical information did not
have an impact on the consolidated financial performance of Luby’s
Inc. for any of the periods presented.
Other Charges
Other charges includes those expenses that we consider related to
our restructuring efforts or are not part of our recurring
operations. These expenses were included in our Selling, general,
and administrative cost expense line in previously reported
quarters of fiscal 2019. See Note 8 to these unaudited consolidated
financial statements.
Recently Adopted Accounting Pronouncements
On August 29,
2019, the first day of fiscal 2020, (the "Effective Date") we
adopted Accounting Standards Update (“ASU”) 2016-02, Leases
(Topic 842), along with related clarifications and improvements
(“ASC 842”). ASC 842 requires lessees to recognize, on their
consolidated balance sheet, a liability
for lease obligations, which represents the discounted
obligation to make future lease payments, and a
corresponding right-of-use asset. The guidance requires lessors to
classify leases as sales-type, direct financing or
operating. The pronouncement also requires disclosure of key
information about leasing arrangements that is intended to give
financial statement users the ability to assess the amount, timing,
and potential uncertainty of cash flows related to leases. We
have implemented a new lease tracking and accounting system in
connection with the adoption of ASC 842.
We elected the optional transition method to apply ASC 842 as of
the effective date and therefore, we have not applied the standard
to the comparative periods presented on our consolidated financial
statements. We also elected the package of practical expedients
that allowed us not to reassess previous accounting conclusions
regarding lease identification, initial direct costs and
classification for existing or expired leases as of the effective
date. We did not elect the practical expedient that would have
permitted us to use hindsight when determining the lease term,
including option periods, and impairment of operating lease
assets.
We have made an accounting policy election to account for lease
components and non-lease components as a single lease component for
all underlying classes of assets where (1) the lease component is
predominant, (2) the lease component, if accounted for separately,
would be classified as an operating lease and (3) the timing and
pattern of the lease component and non-lease component are the
same. We have also elected the short-term lease recognition
exemption for all of our leases that allows us to not recognize
right-of-use assets and related liabilities for leases with an
initial term of 12 months or less and that do not include an option
to purchase the underlying asset that we are reasonably certain to
exercise. Our transition to ASC 842 represents a change in
accounting principle.
Upon adoption of
ASC 842, we recorded operating lease liabilities of
approximately $32.5 million based on the present value of the
remaining lease payments using discount rates as of the effective
date. The current portion of the operating lease liabilities
recorded was approximately $8.1 million. In addition, we recorded
operating lease right-of-use assets of approximately $27.2 million,
calculated as the initial amount of the operating lease liability,
adjusted for amounts reclassified from other lease related asset
and liability accounts (such as prepaid rent, favorable and
unfavorable lease intangibles and straight-line rent timing
differences), in accordance with the new guidance, and impairment
of certain right-of-use assets recognized as a charge to retained
earnings as of the effective date.
On the effective date, we recorded the $1.0 million net cumulative
effect of the adoption as an increase to retained earnings.
Included in the net cumulative effect was an adjustment of
approximately $2.0 million to clear the unamortized balance for
deferred gains from sale / leaseback transactions. For most future
sale / leaseback transactions, the gain (adjusted for any
off-market items) will be recognized immediately in the period that
the sale / leaseback transaction occurs.
The impact of adopting
ASC 842 on effected lines of our opening consolidated
balance sheet was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 28, 2019 |
ASC 842 Adjustment |
Balance at August 29, 2019 |
|
|
(In thousands) |
|
|
|
ASSETS |
|
|
|
|
Trade accounts and other receivables, net |
$ |
8,852 |
|
$ |
70 |
|
$ |
8,922 |
|
|
Prepaid expenses |
2,355 |
|
(225) |
|
2,130 |
|
|
Total Current Assets |
27,395 |
|
(155) |
|
27,240 |
|
|
Intangible assets, net |
16,781 |
|
(190) |
|
16,591 |
|
|
Operating lease right-of-use assets, net |
— |
|
27,191 |
|
27,191 |
|
|
Total Assets |
$ |
186,000 |
|
$ |
26,846 |
|
$ |
212,846 |
|
|
LIABILITIES |
|
|
|
|
Operating lease liabilities-current |
$ |
— |
|
$ |
8,061 |
|
$ |
8,061 |
|
|
Accrued expenses and other liabilities |
24,475 |
|
(1,002) |
|
23,473 |
|
|
Total Current Liabilities |
32,954 |
|
7,059 |
|
40,013 |
|
|
Operating lease liabilities-non-current |
— |
|
24,360 |
|
24,360 |
|
|
Other liabilities |
6,577 |
|
(5,600) |
|
977 |
|
|
Total Liabilities |
$ |
84,970 |
|
$ |
25,819 |
|
$ |
110,789 |
|
|
SHAREHOLDERS’ EQUITY |
|
|
|
|
Retained earnings |
$ |
61,182 |
|
$ |
1,027 |
|
$ |
62,209 |
|
|
Total Shareholders Equity |
101,030 |
|
1,027 |
|
102,057 |
|
|
Total Liabilities and Shareholders Equity |
$ |
186,000 |
|
$ |
26,846 |
|
$ |
212,846 |
|
New Accounting Pronouncements - "to be Adopted"
There are no issued accounting pronouncements that we have yet to
adopt that we believe would have a material effect on our financial
statements.
Subsequent Events
We evaluated events subsequent to June 3, 2020 through the
date the financial statements were issued to determine if the
nature and significance of the events warrant inclusion in our
consolidated financial statements.
Note 2. COVID-19 Pandemic
COVID-19 Pandemic
On March 13, 2020, President Donald Trump declared a national
emergency in response to the novel coronavirus disease ("COVID-19")
pandemic. On March 19, 2020, Governor Greg Abbott of Texas issued a
public health disaster for the state of Texas to bring the entire
state in line with CDC guidelines including, (1) closing of schools
statewide, (2) ban on dine-in eating and gatherings of groups of
more than 10 people, and (3) closing of gyms and bars. Governor
Abbott followed with an essential services order on March 31, 2020,
requiring anyone who is not considered an essential, critical
infrastructure worker to stay home except for essential activity,
essential businesses, essential government functions and critical
care facilities. Most other states, including those states where we
operate, issued similar orders. The governor of Texas began
relaxing some restrictions on businesses operating in Texas
beginning May 1, 2020, which permitted a gradual reopening of
businesses, including restaurants, with modified
operations..
The spread of COVID-19 has affected the United States economy, our
operations and those of third parties on which we rely. Beginning
on March 17, 2020, we began suspending on-premise dining at our
restaurants and substantially all employees at those locations were
placed on furlough. By March 31, 2020 we had suspended
on-premise dining at all 118 of our company-owned restaurants and
had suspended all operations at 50 of our Luby's Cafeteria's, 36
company-owned Fuddruckers restaurants and our
one
Cheeseburger in Paradise restaurant. The 28 Luby's Cafeteria's and
3 Fuddruckers restaurants that remained open were providing
take-out, drive-through and curbside pickup, or delivery with
reduced operating hours and on-site staff. In
addition, more than 50 percent of our general and administrative
staff were placed on furlough and salaries were temporarily reduced
by 50 percent for the remaining general and administrative staff
and other salaried employees, including all senior management.
Furthermore, our franchise owners suspended operations or moved to
limited food-to-go operations at their locations, reducing the
number of franchise locations in operation to 37 by early April
2020 from 90 prior to the COVID-19 pandemic.
Beginning in May 2020, we began to gradually reopen the dining
rooms with state-mandated limits on guest capacity at the 28 Luby's
locations and 3 Fuddruckers locations that had been previously
operating with food-to-go service only. We also began to reopen
restaurants that were temporarily closed. As of June 3, 2020,
there were 31 Luby's Cafeteria's and 8 Fuddruckers restaurants
operating, all of which had their dining rooms open at limited
capacity. There were 59 franchise locations in operation as of
June 3, 2020. We are continuing the gradual reopening of our
restaurants and as of the date of this filing there were 46 Luby's
Cafeteria's and 17 Fuddruckers Restaurants operating with dining
rooms open at limited capacity and there were 64 franchise
locations in operation.
We considered the disruptions to our operations and cash flows from
the COVID-19 pandemic, beginning in this fiscal quarter, to be
triggering events for purposes of testing our long-lived assets, as
well as goodwill, for impairment. See "Note 12. Impairment of
Long-Lived Assets, Discontinued Operations and Property Held for
Sale."
The full extent and duration of the impact of the COVID-19 pandemic
on our operations and financial performance is currently unknown,
and depends on future developments that are uncertain and
unpredictable, including the duration of the spread of the
pandemic, its impact on capital and financial markets on a
macro-scale and any new information that may emerge concerning the
severity of the virus, its spread to other regions, the actions to
contain the virus or treat its impact, and consumer attitudes and
behaviors, among others. The COVID-19 pandemic has materially
disrupted our operations and cash flows for the third quarter of
fiscal 2020 and has resulted in the recording of additional
non-cash impairment charges related to our property and equipment
and operating lease right-of-use assets related to our restaurants
and goodwill.
Given the uncertainty regarding the spread of this virus and the
timing of the economic recovery, the COVID-19 pandemic could
continue to materially impact our results of operations and cash
flows.
See Note 3. Going Concern.
Payroll Protection Plan (PPP) Loan and Credit Facility Debt
Modification
As more fully discussed at "Note 15. Debt", in the third quarter of
fiscal 2020 we entered into a promissory note in the amount of
$10.0 million (the "PPP Loan"). In conjunction with the entering
into the PPP Loan, we amended our credit facility to permit us to
incur indebtedness under the PPP Loan and to terminate the $5.0
million undrawn portion of the delayed draw term loan upon receipt
of the PPP Loan.
Note 3. Going Concern
We sustained a net loss of $15.2 million and cash flow from
operations was a use of cash of $13.1 million in fiscal year ended
August 28, 2019. In the
two quarters ended March 11, 2020
(a period prior to the COVID-19 pandemic), we sustained a net loss
of $12.1 million and cash flow from operations was a use of cash of
$5.9 million. In the
quarter ended
June 3, 2020 we sustained a net loss of $25.0 million and for
the
three quarters ended
June 3, 2020 our cash flow from operations was a use of cash
of $14.1 million. On March 13, 2020, shortly after the end of our
second quarter, President Donald Trump declared a national
emergency in response to the COVID-19 pandemic followed by Governor
Greg Abbott of Texas issuing a public health disaster for the state
of Texas on March 19, 2020. We took the necessary actions described
in "Note 2. COVID-19 Pandemic" which further stressed the liquid
financial resources of the Company. We borrowed the remaining $1.4
million available on our revolving line of credit with MSD Capital,
borrowed $2.5 million on our Delayed Draw Term Loan, and applied
for and received a $10.0 million PPP Loan as described in "Note 2.
COVID-19 Pandemic". As of the date of this filing, we have no
undrawn borrowing capacity under our credit facility. Further, we
do not believe that we are currently able to secure any additional
debt financing.
The full extent and duration of the impact of the COVID-19 pandemic
on our operations and financial performance is currently unknown.
The Company’s continuation as a going concern is dependent on its
ability to generate sufficient cash flows from operations and its
ability to generate proceeds from real estate property sales to
meet its obligations. The above conditions and events, in the
aggregate, raise substantial doubt about our ability to continue as
a going concern. Notwithstanding the aforementioned substantial
doubt, the accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going
concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of
liabilities that may result should the Company be unable to
continue as a going concern Management has assessed the Company’s
ability to continue as
a going concern as of the balance sheet date, and for at least one
year beyond the financial statement issuance date. The assessment
of a company’s ability to meet its obligations is inherently
judgmental.
On June 3, 2020, the Company announced that the Board of Directors
of the Company will aggressively pursue a sale of the Company's
operations and assets and distribute the net proceeds to our
stockholders, after payment of debt and other obligations. This
course of action is more fully explained in "Note 1 - Basis of
Presentation". We have not established a timeframe, nor have we
committed to a specific plan, but such a plan could extend beyond
one year. Until a
formal plan of sale and proceeds distribution
is approved, we believe we will be able to meet our obligations for
the next 12 months when they come due through (1) cash flow from
operating certain restaurants, (2) available cash balances, and (3)
proceeds generated from real estate property sales as discussed
below.
Since the onset of the COVID-19 Pandemic, we have reviewed and
modified many aspects of our operating plan within our restaurants
and corporate overhead. The Company is now operating at an
increased level of operational cost efficiency. These efforts are
expected to partially mitigate the adverse impacts of the COVID-19
pandemic. Additionally, the sale of some assets will likely be
necessary for the Company to generate cash to fund its operations.
The Company has historically been able to successfully generate
proceeds from property sales. Although the Company has been
successful in these endeavors in the past, there are no assurances
the Company will generate sufficient funds to meet all its
obligations as they become due. The following conditions were
considered in management’s evaluation of going concern and its
efforts to mitigate that concern:
•Revamped
restaurant operations to generate cost efficiencies, which resulted
in higher restaurant operating margins even while sales levels have
not returned to pre-COVID-19 pandemic levels. As the restaurants
adapted to the new operating environment, a lower cost labor model
was deployed, food costs declined as menu offerings were
concentrated among the historically top selling items, and various
restaurant service and supplier costs were
reevaluated.
•Restructured
corporate overhead earlier in calendar 2020 prior to the COVID-19
pandemic, including a transition to third party provider for
certain accounting and payroll functions. Significant further
restructuring took place in April, May and June of 2020, as we
reviewed all corporate service providers, information technology
needs, and personnel requirements to support a reduced level of
operations going forward.
•Secured
the PPP Loan which was necessary for funding continuing operations.
We believe that a portion of the PPP loan will be eligible for
forgiveness; however, that amount cannot currently be
calculated.
•In
addition to the approximate $7.2 million proceeds from property
sales achieved in fiscal 2020 through the third quarter, we
generated an additional $10.7 million proceeds from property sales
in June 2020 and anticipate an additional $9.2 million in proceeds
from property sales before the end of fiscal 2020 in
August.
We believe these plans are sufficient to overcome the significant
doubt whether we can meet our liquidity needs for the 12 months
from the issuance of these financial statements. However, we cannot
predict with certainty that these efforts will be successful or
sufficient.
Note 4. Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash
equivalents, and restricted cash reported within our consolidated
balance sheets that sum to the total of the same such amounts shown
in the consolidated statements of cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 3,
2020 |
|
August 28,
2019 |
|
|
(in thousands) |
|
|
|
Cash and cash equivalents |
$ |
14,122 |
|
|
$ |
3,640 |
|
|
Restricted cash and cash equivalents |
7,917 |
|
|
9,116 |
|
|
Total cash and cash equivalents shown in our consolidated
statements of cash flows |
$ |
22,039 |
|
|
$ |
12,756 |
|
Amounts included in restricted cash represent those required to be
set aside for (1) maximum amount of interest payable in the next 12
months under the 2018 Credit Agreement (see "Note 15. Debt"), (2)
collateral for letters of credit issued for potential insurance
obligations, which letters of credit expire within 12 months and
(3) prefunding of the credit limit under our corporate purchasing
card program.
Note 5. Revenue Recognition
Restaurant Sales
Restaurant sales consist of sales of food and beverage products to
restaurant guests at our Luby’s Cafeterias and our Fuddruckers and
Cheeseburger in Paradise restaurants. Revenue from restaurant sales
is recognized at the point of sale and is presented net of
discounts, coupons, employee meals and complimentary meals. Sales
taxes that we collect and remit to the appropriate taxing authority
related to these sales are excluded from revenue.
We sell gift cards to our customers in our venues and through
certain third-party distributors. These gift cards do not expire
and do not incur a service fee on unused balances. Sales of gift
cards to our restaurant customers are initially recorded as a
contract liability, included in accrued expenses and other
liabilities, at their expected redemption value. When gift cards
are redeemed, we recognize revenue and reduce the contract
liability. Discounts on gift cards sold by third parties are
recorded as a reduction to accrued expenses and other liabilities
and are recognized as a reduction to revenue over a period that
approximates redemption patterns. The portion of gift cards sold to
customers that are never redeemed is commonly referred to as gift
card breakage. We recognize gift card breakage revenue in
proportion to the pattern of gift card redemptions exercised by our
customers, using an estimated breakage rate based on our historical
experience.
Culinary contract services revenue
Our Culinary Contract Services segment provides food, beverage and
catering services to our clients at their locations. Depending on
the type of client and service, we are either paid directly by our
client and/or directly by the customer to whom we have been
provided access by our client.
We typically use one of the following types of client
contracts:
Fee-Based Contracts
Revenue from fee-based contracts is based on our costs incurred and
invoiced to the client for reimbursement along with the agreed
management fee, which may be calculated as a fixed dollar amount or
a percentage of sales or other variable measure. Some fee-based
contracts entitle us to receive incentive fees based upon our
performance under the contract, as measured by factors such as
sales, operating costs and client satisfaction surveys. This
potential incentive revenue is allocated entirely to the management
services performance obligation. We recognize revenue from our
management fee and payroll cost reimbursement over time as the
services are performed. We recognize revenue from our food and
3rd
party purchases reimbursement at the point in time when the vendor
delivers the goods or performs the services.
Profit and Loss Contracts
Revenue from profit and loss contracts consist primarily of sales
made to consumers, typically with little or no subsidy charged to
clients. Revenue is recognized at the point of sale to the
consumer. Sales taxes that we collect and remit to the appropriate
taxing authority related to these sales are excluded from
revenue.
As part of client contracts, we sometimes make payments to clients,
such as concession rentals, vending commissions and profit share.
These payments are accounted for as operating costs when
incurred.
Revenue from the sale of frozen foods includes royalty fees based
on a percentage of frozen food sales and is recognized at the point
in time when product is delivered by our contracted manufacturers
to the retail outlet.
Franchise revenues
Franchise revenues consist primarily of royalties, marketing and
advertising fund (“MAF”) contributions, initial and renewal
franchise fees, and upfront fees from area development agreements
related to our Fuddruckers restaurant brand. Our performance
obligations under franchise agreements consist of: (1) a franchise
license, including a license to use our brand and MAF management,
(2) pre-opening services, such as training and inspections and (3)
ongoing services, such as development of training materials and
menu items as well as restaurant monitoring and inspections. These
performance obligations are highly interrelated, so we do not
consider them to be individually distinct. We account for them as a
single performance obligation, which is satisfied over time by
providing a right to use our intellectual property over the term of
each franchise agreement.
Royalties, including franchisee MAF contributions, are calculated
as a percentage of franchise restaurant sales. MAF contributions
paid by franchisees are used for the creation and development of
brand advertising, marketing and public relations, merchandising
research and related programs, activities and materials. The
initial franchisee fee is payable upon execution of the franchise
agreement and the renewal fee is due and payable at the expiration
of the initial term of the franchise agreement. Our franchise
agreement royalties, including advertising fund contributions,
represent sales-based royalties that are related entirely to our
performance obligation under the franchise agreement and are
recognized as franchise sales occur.
Initial and renewal franchise fees and area development fees are
recognized as revenue over the term of the respective agreement.
Area development fees are not distinct from franchise fees, so
upfront fees paid by franchisees for exclusive
development rights are deferred and apportioned to each franchise
restaurant opened by the franchisee. The pro-rata amount
apportioned to each restaurant is accounted for as an initial
franchise fee.
Revenue from vending machine sales is recorded at the point in time
when the sale occurs.
Contract Liabilities
Contract liabilities consist of (1) deferred revenue resulting from
initial and renewal franchise fees and upfront area development
fees paid by franchisees, which are generally recognized on a
straight-line basis over the term of the underlying agreement, (2)
liability for unused gift cards and (3) unamortized discount on
gift cards sold to 3rd
party retailers. These contract liabilities are included in accrued
expenses and other liabilities in our consolidated balance sheets.
The following table reflects the change in contract
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gift Cards, net of discounts |
|
Franchise Fees |
|
|
|
(In thousands) |
|
|
|
Balance at August 28, 2019 |
|
$ |
2,882 |
|
|
$ |
1,287 |
|
|
Revenue recognized that was included in the contract liability
balance at the beginning of the year |
|
(977) |
|
|
(97) |
|
|
Increase, net of amounts recognized as revenue during the
period |
|
1,498 |
|
|
— |
|
|
Balance at June 3, 2020 |
|
$ |
3,403 |
|
|
$ |
1,190 |
|
The following table illustrates the estimated revenues expected to
be recognized in the future related to our deferred franchise fees
that are unsatisfied (or partially unsatisfied) as of June 3,
2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise Fees |
|
|
|
|
(In thousands) |
|
|
Remainder of fiscal 2020 |
|
|
|
$ |
7 |
|
|
Fiscal 2021 |
|
|
|
30 |
|
|
Fiscal 2022 |
|
|
|
30 |
|
|
Fiscal 2023 |
|
|
|
30 |
|
|
Fiscal 2024 |
|
|
|
29 |
|
|
Thereafter |
|
|
|
309 |
|
|
Total operating franchise restaurants |
|
|
|
435 |
|
|
Franchise restaurants not yet opened(1)
|
|
|
|
755 |
|
|
Total |
|
|
|
$ |
1,190 |
|
(1)
Amortization of the deferred franchise fees will begin when the
restaurant commences operations and revenue will be recognized
straight-line over the franchise term (which is typically 20
years). If the franchise agreement is terminated, the deferred
franchise fee will be recognized in full in the period of
termination.
Disaggregation of Total Revenues (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
Three Quarters Ended |
|
|
|
June 3, 2020 |
June 5, 2019 |
|
June 3, 2020 |
June 5, 2019 |
|
|
(in millions) |
|
|
|
|
|
Revenue from performance obligations: |
|
|
|
|
|
|
Satisfied at a point in time |
$ |
15.7 |
|
$ |
69.4 |
|
|
$ |
167.7 |
|
$ |
234.4 |
|
|
Satisfied over time |
3.3 |
|
5.4 |
|
|
15.0 |
|
17.7 |
|
|
Total Sales |
$ |
19.0 |
|
$ |
74.8 |
|
|
$ |
182.7 |
|
$ |
252.1 |
|
See "Note 7. Reportable Segments" for disaggregation of revenue by
reportable segment.
Note 6. Leases
Lessee
We determine if a contract contains a lease at the
inception date of the contract. Our material operating leases
consist of restaurant locations and administrative facilities
("Property Leases"). U.S. GAAP requires that
our leases be evaluated and classified as operating or
finance leases for financial reporting purposes. The
classification evaluation begins at the date on which the leased
asset is available for our use (the “Commencement Date”) and
the lease term used in the evaluation includes the
non-cancellable period for which we have the right to use the
underlying asset, together with renewal option periods when the
exercise of the renewal option is reasonably certain and failure to
exercise such option would result in an economic penalty (the
"Reasonably Certain Lease Term"). Our lease agreements generally
contain a primary term of
five to 30 years with one or more options to renew or extend
the lease generally from
one to five years each. In addition to leases for
our restaurant locations and administrative facilities, we
also lease vehicles and administrative equipment under
operating leases. As of June 3, 2020, we did not have any
finance leases.
At the inception of a new lease, we recognize an operating lease
liability and a corresponding right of use asset, which are
calculated as the present value of the total fixed lease payments
over the reasonably certain lease term using discount rates as of
the effective date.
Property lease agreements may include rent holidays, rent
escalation clauses and contingent rent provisions based on a
percentage of sales in excess of specified levels. Contingent
rental expenses (“variable lease cost”) are recognized prior to the
achievement of a specified target, provided that the achievement of
the target is considered probable. Most of our lease agreements
include renewal periods at our option. We include the rent holiday
periods and scheduled rent increases in our calculation of
straight-line rent expense.
Lease cost for operating leases is recognized on a straight-line
basis and includes the amortization of the right-of-use asset and
interest expense related to the operating lease liability. We use
the reasonably certain lease term in our calculation of
straight-line rent expense. We expense rent from commencement date
through restaurant open date as opening expense. Once a restaurant
opens for business, we record straight-line rent expense plus any
additional variable contingent rent expense (such as common area
maintenance, insurance and property tax costs) to the extent it is
due under the lease agreement as occupancy expense for
our restaurants and selling, general and administrative expense for
our corporate office and support facilities. The interest expense
related to the lease liability for abandoned leases is recorded to
provision for asset impairments and store closings. Rental expense
for lease properties that are subsequently subleased to franchisees
or other third parties is recorded as other income.
We make judgments regarding the reasonably
certain lease term for each property lease, which
can impact the classification and accounting for
a lease as a finance lease or an operating lease, the
rent holiday and/or escalations in payments that are taken into
consideration when calculating straight-line rent, and the term
over which leasehold improvements for each restaurant are
amortized. These judgments may produce materially different amounts
of depreciation, amortization and rent expense than would be
reported if different assumed lease terms were
used.
The discount rate used to determine the present value of
the lease payments is the Company’s estimated
collateralized incremental borrowing rate, based on the yield curve
for the respective lease terms, as the Company generally
cannot determine the interest rate implicit in
the lease.
Lessor
We occasionally lease or sublease certain restaurant
properties to our franchisees or to third parties.
The lease descriptions, terms,
variable lease payments and renewal options are generally
similar to our lessee leases described above. Similar to our
lessee accounting, we elected the lessor practical expedient that
allows us to not separate non-lease components
from lease components in regard to all property
leases where we are the lessor. As of June 3, 2020, we did not
have any sales-type or direct financing leases.
Supplemental balance sheet information related to our leases was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases |
|
Classification |
|
June 3, 2020 |
|
|
|
|
|
|
(in thousands) |
|
|
Right-of-use assets |
|
Operating lease right-of-use assets |
|
$ |
17,790 |
|
|
|
|
|
|
|
|
|
|
Current lease liabilities |
|
Operating lease liabilities-current |
|
$ |
4,412 |
|
|
|
Non-current lease liabilities |
|
Operating lease liabilities-noncurrent |
|
22,771 |
|
|
|
Total lease liabilities |
|
|
|
$ |
27,183 |
|
|
Weighted-average lease terms and discount rates at June 3,
2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term |
|
5.85 years |
|
|
|
|
|
|
|
Weighted-average discount rate |
|
9.68% |
|
Components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Weeks Ended |
|
40 Weeks Ended |
|
|
|
|
|
|
June 3, 2020 |
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
Operating lease expense |
|
$ |
1,872 |
|
|
$ |
6,451 |
|
|
|
|
|
Variable lease expense |
|
201 |
|
|
753 |
|
|
|
|
|
Short-term lease expense |
|
43 |
|
|
170 |
|
|
|
|
|
Sublease expense |
|
86 |
|
|
373 |
|
|
|
|
|
Total lease expense |
|
$ |
2,202 |
|
|
$ |
7,747 |
|
|
|
|
Operating lease income is included in other income on our
consolidated statements of operations and
was comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Weeks Ended |
|
40 Weeks Ended |
|
|
|
|
|
|
June 3, 2020 |
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
Operating lease income |
|
$ |
121 |
|
|
$ |
623 |
|
|
|
|
|
Sublease income |
|
86 |
|
|
373 |
|
|
|
|
|
Variable lease income |
|
26 |
|
|
134 |
|
|
|
|
|
Total lease income |
|
$ |
233 |
|
|
$ |
1,130 |
|
|
|
|
Supplemental disclosures of cash flow information related to leases
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Weeks Ended |
|
40 Weeks Ended |
|
|
|
|
|
|
June 3, 2020 |
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease
liabilities |
|
$ |
1,338 |
|
|
$ |
6,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease
liabilities |
|
$ |
1,038 |
|
|
$ |
1,941 |
|
|
|
|
Operating lease obligations maturities in accordance with Topic 842
as of June 3, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
Remainder of FY 2020 |
|
$ |
1,283 |
|
|
|
|
|
FY 2021 |
|
6,401 |
|
|
|
|
|
FY 2022 |
|
5,178 |
|
|
|
|
|
FY 2023 |
|
5,400 |
|
|
|
|
|
FY 2024 |
|
3,277 |
|
|
|
|
|
Thereafter |
|
17,098 |
|
|
|
|
|
Total lease payments |
|
38,637 |
|
|
|
|
|
Less: imputed interest |
|
(11,454) |
|
|
|
|
|
Present value of operating lease obligations |
|
$ |
27,183 |
|
|
|
|
The operating lease obligation and rent expense tables above
include amounts related to two leases with related parties, which
are further described at "Note 14. Related Parties".
Annual future minimum lease payments under non-cancelable operating
leases with terms in excess of one year as of August 28, 2019 in
accordance with the previous lease accounting standard (ASC 840)
are as follows:
|
|
|
|
|
|
|
Fiscal Year Ending: |
(In thousands) |
|
August 26, 2020 |
$ |
8,841 |
|
|
August 25, 2021 |
7,155 |
|
|
August 31, 2022 |
5,643 |
|
|
August 30, 2023 |
4,410 |
|
|
August 28, 2024 |
3,768 |
|
|
Thereafter |
10,312 |
|
|
Total minimum lease payments |
$ |
40,129 |
|
Note 7. Reportable Segments
As more fully discussed at "Note 1. Basis of Presentation", in the
fourth quarter of fiscal 2019, the Company reevaluated its
reportable segments and has disaggregated its Company-owned
restaurants into three reportable segments; Luby’s cafeterias,
Fuddruckers restaurants and Cheeseburger in Paradise restaurants.
We began reporting on the new structure in the fourth quarter of
fiscal 2019. The segment data for the comparable periods presented
has been recast to conform to the current period presentation. We
have five reportable segments: Luby’s Cafeterias, Fuddruckers
Restaurants, Cheeseburger in Paradise Restaurants, Fuddruckers
franchise operations, and Culinary contract services.
Company-owned restaurants
Company-owned restaurants consists of Luby’s Cafeterias,
Fuddruckers Restaurants and Cheeseburger in Paradise Restaurant
reportable segments. We consider each restaurant to be an operating
segment because operating results and cash flow can be determined
for each restaurant. We aggregate our operating segments into
reportable segments by restaurant brand because the nature of the
products and services, the production processes, the customers, the
methods used to distribute the products and services, the long-term
store level profit margins, and the nature of the regulatory
environment are similar. The chief operating decision maker
analyzes store level profit which is defined as restaurant sales
and vending revenue, less cost of food, payroll and related costs,
other operating expenses and occupancy costs. All Company-owned
Luby’s cafeterias, Fuddruckers and Cheeseburger in Paradise
restaurants are casual dining restaurants.
The Luby’s Cafeterias segment includes the results of our
company-owned Luby’s Cafeterias restaurants. The total number of
Luby’s cafeterias operating at June 3, 2020 and August 28,
2019 were 31 and 79, respectively.
The Fuddruckers Restaurant segment includes the results of our
company-owned Fuddruckers restaurants. The total number of
Fuddruckers restaurants operating at June 3, 2020 and August
28, 2019 were 8 and 44, respectively.
The Cheeseburger in Paradise Restaurant segment includes the
results of our Cheeseburger in Paradise restaurants. The total
number of Cheeseburger in Paradise restaurants operating at
June 3, 2020 and August 28, 2019 was zero and 1,
respectively.
Culinary Contract Services ("CCS")
CCS, branded as Luby’s Culinary Services, consists of a business
line servicing healthcare, sport stadiums, corporate dining
clients, and sales through retail grocery stores. The healthcare
accounts are full service and typically include in-room delivery,
catering, vending, coffee service, and retail dining. CCS had
contracts with long-term acute care hospitals, acute care medical
centers, ambulatory surgical centers, retail grocery stores,
behavioral hospitals, a senior living facility, sports stadiums,
government, and business and industry clients. CCS has the unique
ability to deliver quality services that include facility design
and procurement as well as nutrition and branded food services to
our clients. The cost of culinary contract services on our
consolidated statements of operations includes all food, payroll
and related costs, other operating expenses, and other direct
general and administrative expenses related to CCS sales. The total
number of CCS contracts at June 3, 2020 and August 28, 2019
were 27 and 31, respectively.
CCS began selling Luby's Famous Fried Fish, Macaroni & Cheese
and Chicken Tetrazzini in February 2017, December 2016, and May,
2019, respectively, in the freezer section of H-E-B stores, a
Texas-born retailer. H-E-B stores now stock the family-sized
versions of Luby's Classic Macaroni and Cheese , Chicken
Tetrazzini, and Luby's Fried Fish. HEB also stocks single serve
versions of these three items as well as Jalapeno Macaroni and
Cheese.
Fuddruckers Franchise Operations
We only offer franchises for the Fuddruckers brand. Franchises are
sold in markets where expansion is deemed advantageous to the
development of the Fuddruckers concept and system of restaurants.
Initial franchise agreements generally have a term of 20 years.
Franchise agreements typically grant franchisees an exclusive
territorial license to operate a single restaurant within a
specified area.
Franchisees bear all direct costs involved in the development,
construction, and operation of their restaurants. In exchange for a
franchise fee, we provide franchise assistance in the following
areas: site selection, prototypical architectural plans, interior
and exterior design and layout, training, marketing and sales
techniques, assistance by a Fuddruckers “opening team” at the time
a franchised restaurant opens, and operations and accounting
guidelines set forth in various policies and procedures
manuals.
All franchisees are required to operate their restaurants in
accordance with Fuddruckers standards and specifications, including
controls over menu items, food quality, and preparation. The
Company requires the successful completion of its training program
by a minimum of three managers for each franchised restaurant. In
addition, franchised restaurants are evaluated regularly by the
Company for compliance with franchise agreements, including
standards and specifications through the use of periodic,
unannounced, on-site inspections and standards evaluation
reports.
The number of franchised restaurants operating at June 3, 2020
and August 28, 2019 were 59 and 102, respectively.
Segment Table
The tables below show segment financial information. The table also
lists total assets for each reportable segment. Corporate assets
include cash and cash equivalents, restricted cash, property
and equipment, assets related to discontinued operations, property
held for sale, deferred tax assets, and prepaid
expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
Three Quarters Ended |
|
|
|
|
June 3, 2020 |
|
June 5, 2019 |
|
June 3, 2020 |
|
June 5, 2019 |
|
|
(12 weeks) |
|
(12 weeks) |
|
(40 weeks) |
|
(40 weeks) |
|
|
(In thousands) |
|
|
|
|
|
|
|
Sales: |
|
|
|
|
|
|
|
|
Luby's cafeterias |
$ |
12,414 |
|
|
$ |
49,521 |
|
|
$ |
127,426 |
|
|
$ |
166,751 |
|
|
Fuddruckers restaurants |
1,411 |
|
|
15,414 |
|
|
28,962 |
|
|
53,292 |
|
|
Cheeseburger in Paradise restaurants |
30 |
|
|
778 |
|
|
1,522 |
|
|
2,328 |
|
|
Culinary contract services |
4,944 |
|
|
7,571 |
|
|
21,735 |
|
|
24,610 |
|
|
Fuddruckers franchise operations |
195 |
|
|
1,482 |
|
|
3,059 |
|
|
5,126 |
|
|
Total |
$ |
18,994 |
|
|
$ |
74,766 |
|
|
$ |
182,704 |
|
|
$ |
252,107 |
|
|
Segment level profit: |
|
|
|
|
|
|
|
|
Luby's cafeterias |
$ |
(3,191) |
|
|
$ |
5,821 |
|
|
$ |
9,595 |
|
|
$ |
20,968 |
|
|
Fuddruckers restaurants |
(1,818) |
|
|
859 |
|
|
(1,324) |
|
|
2,275 |
|
|
Cheeseburger in Paradise restaurants |
(141) |
|
|
26 |
|
|
(236) |
|
|
(305) |
|
|
Culinary contract services |
251 |
|
|
780 |
|
|
1,675 |
|
|
2,286 |
|
|
Fuddruckers franchise operations |
(244) |
|
|
1,152 |
|
|
1,648 |
|
|
4,277 |
|
|
Total |
$ |
(5,143) |
|
|
$ |
8,638 |
|
|
$ |
11,358 |
|
|
$ |
29,501 |
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
Luby's cafeterias |
$ |
1,783 |
|
|
$ |
1,984 |
|
|
$ |
5,979 |
|
|
$ |
7,027 |
|
|
Fuddruckers restaurants |
340 |
|
|
497 |
|
|
1,276 |
|
|
2,378 |
|
|
Cheeseburger in Paradise restaurants |
22 |
|
|
17 |
|
|
69 |
|
|
97 |
|
|
Culinary contract services |
8 |
|
|
25 |
|
|
26 |
|
|
70 |
|
|
Fuddruckers franchise operations |
— |
|
|
177 |
|
|
297 |
|
|
590 |
|
|
Corporate |
556 |
|
|
227 |
|
|
1,502 |
|
|
890 |
|
|
Total |
$ |
2,709 |
|
|
$ |
2,927 |
|
|
$ |
9,149 |
|
|
$ |
11,052 |
|
|
Capital expenditures: |
|
|
|
|
|
|
|
|
Luby's cafeterias |
$ |
369 |
|
|
$ |
774 |
|
|
$ |
1,656 |
|
|
$ |
2,177 |
|
|
Fuddruckers restaurants |
17 |
|
|
212 |
|
|
129 |
|
|
360 |
|
|
Cheeseburger in Paradise restaurants |
12 |
|
|
5 |
|
|
30 |
|
|
16 |
|
|
Culinary contract services |
— |
|
|
12 |
|
|
— |
|
|
22 |
|
|
Fuddruckers franchise operations |
— |
|
|
— |
|
|
9 |
|
|
— |
|
|
Corporate |
2 |
|
|
82 |
|
|
66 |
|
|
291 |
|
|
Total |
400 |
|
|
$ |
1,085 |
|
|
$ |
1,890 |
|
|
$ |
2,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
Three Quarters Ended |
|
|
|
|
June 3, 2020 |
|
June 5, 2019 |
|
June 3, 2020 |
|
June 5, 2019 |
|
|
(12 weeks) |
|
(12 weeks) |
|
(40 weeks) |
|
(40 weeks) |
|
|
(In thousands) |
|
|
|
|
|
|
|
Loss before income taxes and discontinued operations: |
|
|
|
|
|
|
|
|
Segment level profit |
$ |
(5,143) |
|
|
$ |
8,638 |
|
|
$ |
11,358 |
|
|
$ |
29,501 |
|
|
Opening costs |
— |
|
|
(6) |
|
|
(14) |
|
|
(49) |
|
|
Depreciation and amortization |
(2,709) |
|
|
(2,927) |
|
|
(9,149) |
|
|
(11,052) |
|
|
Selling, general and administrative expenses |
(3,339) |
|
|
(8,623) |
|
|
(20,313) |
|
|
(26,386) |
|
|
Other charges |
(164) |
|
|
(803) |
|
|
(2,912) |
|
|
(3,280) |
|
|
Provision for asset impairments and restaurant closings |
(12,708) |
|
|
(675) |
|
|
(14,478) |
|
|
(3,097) |
|
|
Net gain on disposition of property and equipment |
364 |
|
|
434 |
|
|
2,861 |
|
|
12,935 |
|
|
Interest income |
19 |
|
|
11 |
|
|
47 |
|
|
30 |
|
|
Interest expense |
(1,641) |
|
|
(1,324) |
|
|
(5,076) |
|
|
(4,593) |
|
|
Other income, net |
402 |
|
|
112 |
|
|
790 |
|
|
198 |
|
|
Total |
$ |
(24,919) |
|
|
$ |
(5,163) |
|
|
$ |
(36,886) |
|
|
$ |
(5,793) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 3, 2020 |
|
August 28, 2019 |
|
|
|
(In thousands) |
|
|
|
|
Total assets: |
|
|
|
|
|
Luby's cafeterias |
$ |
108,875 |
|
|
$ |
107,287 |
|
|
|
Fuddruckers restaurants
(1)
|
16,823 |
|
|
25,725 |
|
|
|
Cheeseburger in Paradise restaurants
(2)
|
518 |
|
|
829 |
|
|
|
Culinary contract services |
5,331 |
|
|
6,703 |
|
|
|
Fuddruckers franchise operations
(3)
|
9,555 |
|
|
10,034 |
|
|
|
Corporate |
48,154 |
|
|
$ |
35,422 |
|
|
|
Total |
$ |
189,256 |
|
|
$ |
186,000 |
|
|
(1) Includes Fuddruckers trade name intangible of $7.1 million and
$7.5 million at June 3, 2020 and August 28, 2019,
respectively.
(2) Includes Cheeseburger in Paradise liquor licenses, and Jimmy
Buffett intangibles of $37 thousand and $46 thousand at
June 3, 2020 and August 28, 2019, respectively.
(3) Fuddruckers franchise operations segment includes royalty
intangibles of $8.6 million and $9.2 million at June 3, 2020
and August 28, 2019 respectively.
Note 8. Other Charges
Other charges includes those expenses that we consider related to
our restructuring efforts or are not part of our ongoing
operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
Three Quarters Ended |
|
|
|
|
June 3
2020 |
|
June 5
2019 |
|
June 3
2020 |
|
June 5
2019 |
|
|
(In thousands) |
|
|
|
|
|
|
|
Proxy communication related |
$ |
— |
|
|
$ |
60 |
|
|
$ |
— |
|
|
$ |
1,862 |
|
|
Employee severances |
45 |
|
|
— |
|
|
1,207 |
|
|
645 |
|
|
Restructuring related |
119 |
|
|
743 |
|
|
1,705 |
|
|
772 |
|
|
Total Other charges |
$ |
164 |
|
|
$ |
803 |
|
|
$ |
2,912 |
|
|
$ |
3,279 |
|
Note 9. Fair Value Measurements
GAAP establishes a framework for using fair value to measure assets
and liabilities, and expands disclosure about fair value
measurements. Fair value measurements guidance applies whenever
other authoritative accounting guidance requires or permits assets
or liabilities to be measured at fair value.
GAAP establishes a three-tier fair value hierarchy, which
prioritizes the inputs used to measure fair value. These tiers
include:
•Level
1: Defined as observable inputs such as quoted prices in active
markets for identical assets or liabilities as of the reporting
date. Active markets are those in which transactions for the asset
or liability occur in sufficient frequency and volume to provide
pricing information on an ongoing basis.
◦
•Level
2: Defined as pricing inputs other than quoted prices in active
markets included in Level 1, which are either directly or
indirectly observable as of the reporting date. Level 2 includes
those financial instruments that are valued using models or other
valuation methodologies. These models are primarily
industry-standard models that consider various assumptions,
including quoted forward prices for commodities, time value,
volatility factors, and current market and contractual prices for
the underlying instruments, as well as other relevant economic
measures.
◦
•Level
3: Defined as pricing inputs that are unobservable from objective
sources. These inputs may be used with internally developed
methodologies that result in management’s best estimate of fair
value.
The fair values of the Company's cash and cash equivalents,
restricted cash and cash equivalents, trade receivables and other
receivables, net, and accounts payable approximate their carrying
value due to their short duration. The carrying value of the
Company's total long-term debt, net of unamortized discounts and
debt issue costs, at June 3, 2020 and August 28, 2019 was
approximately $63.7 million and $45.4 million, respectively, which
approximates fair value because the applicable interest rate is
adjusted frequently based on short-term market rates (Level
2).
There were no recurring fair value measurements related to assets
at June 3, 2020 or June 5, 2019 . We terminated our
interest rate swap in the first quarter of fiscal 2019 and received
cash proceeds of approximately $0.3 million which is recorded in
other income.
There were no recurring fair value measurements related to
liabilities at June 3, 2020. The fair value of the Company's
2017 Performance Based Incentive Plan liabilities was zero at
June 5, 2019.
Non-recurring fair value measurements related to impaired goodwill,
operating lease right-of-use assets, property held for sale and
property and equipment consisted of the following: