Notes to Consolidated Financial Statements
Fiscal Years 2020 and 2019
Note 1. Nature of Operations and Significant Accounting Policies
Nature of Operations
Luby’s, Inc. (the "Company", "we", "our", "us", or "Luby's") is based in Houston, Texas. As of August 26, 2020, we owned and operated 85 restaurants, with 78 in Texas and the remainder in other states. In addition, we have royalty arrangements with 71 Fuddruckers franchises as of August 26, 2020 located primarily throughout the United States. Culinary Contract Services consists of contract arrangements to manage food services for clients operating in primarily four lines of business: healthcare; senior living; business; and venues.
Reclassifications
Certain reclassifications were made to prior year consolidated financial statements.
On the consolidated statement of operations for the fiscal year ended August 28, 2019, we reclassified $506 thousand from Other charges to Selling, general and administrative expenses to correct an allocation error. The reclassification had no effect on Total costs and expenses or any other financial statement line item.
On the consolidated statement of cash flows for the fiscal year ended August 28, 2019, we reclassified $196 thousand to Provision for doubtful accounts from Decrease (increase) in trade accounts and other receivables to conform to current fiscal year presentation. The reclassification had no effect on Net cash used in operating activities.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Luby’s, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Going Concern Basis and Liquidation Accounting
The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern.
As further described at Note 2. Subsequent Events, on November 17, 2020 our shareholders approved the Plan of Liquidation ("Plan of Liquidation" or "Plan"). We have determined, as a result, that liquidation is imminent, as defined at ASC 205-30 Financial Statement Presentation, Liquidation Basis of Accounting. Accordingly, we will change our basis of accounting from the going concern basis to the liquidation basis effective November 17, 2020.
The liquidation basis of accounting differs significantly from the going concern basis presented in these consolidated financial statements, as summarized below.
The liquidation basis of accounting requires a statement of net assets in liquidation, a statement of changes in net assets in liquidation and all disclosures necessary to present relevant information about our expected resources in liquidation. The liquidation basis of accounting may only be applied prospectively from the day liquidation becomes imminent and the initial statement of changes in net assets in liquidation may present only changes in net assets that occurred during the period since that date.
Under the liquidation basis of accounting, assets are measured at the amount of their estimated cash proceeds or other consideration from liquidation and may include previously unrecognized assets that we may expect to either sell in the course of our liquidation or use in settling liabilities, such as trademarks or other intangibles.
The liquidation basis of accounting requires us to accrue and present separately, without discounting, the estimated disposal and other costs, including any costs associated with the sale or settlement of our assets and liabilities and the estimated operating income or loss that we reasonably expect to incur, including providing for federal income taxes during the remaining expected duration of the liquidation period. In addition, deferred tax assets, which include net operating losses and other tax credits may be realized partially or in full, subject to IRS limitations, to offset taxable income we expect to generate from the liquidation process.
Under the liquidation basis of accounting, we will recognize liabilities as they would have been under the going concern basis and they will not be reduced to expected settlement values prior to settlement.
Most of the line items on our consolidated balance sheet under the going concern basis of accounting will be adjusted under the liquidation basis of accounting, as described above.
The unaudited consolidated financial statements for the first quarter of fiscal 2021 will contain a summary of the adjustments made to our balance sheet accounts as of November 17, 2020 (under the going concern basis of accounting) to the initial Statement of Net Assets and Liabilities in Liquidation as of that same date.
Accounting Periods
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.
Subsequent Events
Events subsequent to the Company’s fiscal year ended August 26, 2020 through the date of issuance of the financial statements are evaluated to determine if the nature and significance of the events warrant inclusion in the Company’s consolidated financial statements. See Note 2. Subsequent Events
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, similarity of store level profit margins and the nature of the regulatory environment are alike. For the fiscal years ended August 26, 2020 and August 28, 2019 we had five reportable segments: Luby’s cafeterias, Fuddruckers restaurants, Cheeseburger in Paradise restaurants, Fuddruckers franchise operations, and Culinary Contract Services (“CCS”).
Cash and Cash Equivalents and Restricted Cash and Cash Equivalents
Cash and cash equivalents and restricted cash and cash equivalents include highly liquid investments such as money market funds that have a maturity of three months or less. Our bank account balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 at each institution. Amounts in transit from credit card companies are also considered cash equivalents because they are both short-term and highly liquid in nature and are typically converted to cash within three days of the sales transaction.
Trade Accounts and Other Receivables, net
Receivables consist principally of amounts due from franchises, culinary contract service clients, catering customers and restaurant food sales to corporations. Receivables are recorded at the invoiced amount. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance based on historical loss experience for CCS clients, catering customers and restaurant sales to corporations and, for CCS receivables and franchise royalty and marketing and advertising receivables. We also consider the franchisees’ and CCS clients’ unsecured default status. We periodically review our allowance for doubtful accounts. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Inventories
Food and supply inventories are stated at the lower of cost (first-in, first-out) or net realizable value.
Property Held for Sale
We periodically review long-lived assets against its plans to retain or ultimately dispose of properties. If we decide to dispose of a property, it will be moved to property held for sale and actively marketed. Property held for sale is recorded at amounts not in excess of what management currently expects to receive upon sale, less costs of disposal. Depreciation on assets moved to property held for sale is discontinued and gains are not recognized until the properties are sold.
Impairment of Long-Lived Assets
Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount. We evaluate impairments on a restaurant-by-restaurant basis and use cash flow results and other market conditions as indicators of impairment.
Debt Issuance Costs
Debt issuance costs include costs incurred in connection with the arrangement of long-term financing agreements. The debt issuance costs associated with our term loans are presented on our consolidated balance sheet as a direct deduction from long-term debt. The debt issuance costs associated with our revolving credit facility are included in other assets on our consolidated balance sheet. These costs are amortized using the effective interest method over the respective term of the debt to which they specifically relate.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, trade accounts and other receivables, accounts payable and accrued expenses approximates fair value based on the short-term nature of these accounts. The carrying value of credit facility debt also approximates fair value based on its recent renewal.
Self-Insurance Accrued Expenses
We self-insure a significant portion of expected losses under its workers’ compensation, employee injury and general liability programs. Accrued liabilities have been recorded based on estimates of the ultimate costs to settle incurred claims, both reported and not yet reported. These recorded estimated liabilities are based on judgments and independent actuarial estimates, which include the use of claim development factors based on loss history; economic conditions; the frequency or severity of claims and claim development patterns; and claim reserve management settlement practices.
We maintain a self-insured health benefit plan which provides medical and prescription drug benefits to certain of our employees electing coverage under the plan. Our exposure is limited by individual and aggregate stop loss limits per third party insurance carriers. We record expenses under the plan based on estimates of the costs of expected claims, administrative costs and stop-loss insurance premiums. Our self-insurance expense is accrued based upon the aggregate of the expected liability for reported claims and the estimated liability for claims incurred but not reported, based on historical claims experience provided by our third party insurance advisors, adjusted as necessary based upon management’s reasoned judgment. Actual employee medical claims expense may differ from estimated loss provisions based on historical experience.
Revenue Recognition
See Note 6. Revenue Recognition.
Cost of CCS
The cost of CCS includes all food, payroll and related expenses, other operating expenses, and selling, general and administrative expenses related to culinary contract service sales. All depreciation and amortization, property disposal, and asset impairment expenses associated with CCS are reported within those respective lines as applicable.
Cost of Franchise Operations
The cost of franchise operations includes all food, payroll and related expenses, other operating expenses, and selling, general and administrative expenses related to franchise operations sales. All depreciation and amortization, property disposal, and asset impairment expenses associated with franchise operations are reported within those respective lines as applicable.
Marketing and Advertising Expenses
Marketing and advertising costs are expensed as incurred. Total advertising expense included in other operating expenses and selling, general and administrative expense was $3.9 million and $4.0 million in fiscal 2020 and 2019, respectively. We record advertising attributable to local store marketing and local community involvement efforts in other operating expenses and we record advertising attributable to our brand identity, our promotional offers, and our other marketing messages intended to drive guest awareness of our brands, in selling, general, and administrative expenses. We believe this separation of our marketing and advertising costs assists with measurement of the profitability of individual restaurant locations by associating only the local store marketing efforts with the operations of each restaurant.
Marketing and advertising expense included in other operating expenses attributable to local store marketing was $0.5 million and $0.1 million in fiscal 2020 and 2019, respectively.
Marketing and advertising expense included in selling, general and administrative expense was $3.4 million and $3.9 million in fiscal 2020 and 2019, respectively.
Depreciation and Amortization
Property and equipment are recorded at cost. We depreciate the cost of equipment over its estimated useful life using the straight-line method. Leasehold improvements are amortized over the lesser of their estimated useful lives or the related lease terms. Depreciation of buildings is provided on a straight-line basis over the estimated useful lives.
Opening Costs
Opening costs are expenditures related to the opening of new restaurants through its opening periods, other than those for capital assets. Such costs are charged to expense when incurred.
Other Charges
Other charges includes those expenses that we consider related to our restructuring efforts that are not part of our recurring operations.
Other charges were comprised of::
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
August 26, 2020
|
|
August 28, 2019
|
|
|
(in thousands)
|
|
OTHER CHARGES:
|
|
|
|
|
Proxy Communication Related
|
$
|
—
|
|
|
$
|
1,740
|
|
|
Employee Severances
|
1,332
|
|
|
820
|
|
|
Restructuring Related
|
2,069
|
|
|
1,204
|
|
|
Total Other Charges
|
$
|
3,401
|
|
|
$
|
3,764
|
|
Operating Leases
See Note 7. Leases.
Income Taxes
The estimated future income tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit carrybacks and carryforwards are recorded. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities (temporary differences) and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established against deferred tax assets when the Company determines, based on the weight of available evidence, that they are more likely to not be realized than realized. In the event the Company subsequently determines that it would be able to realize deferred income tax assets in excess of their net recorded amount, the Company would reduce the valuation allowance, which would reduce the provision for income taxes. During fiscal 2018, we concluded to increase the valuation allowance to reduce fully the Company’s net deferred tax asset balances, net of deferred tax liabilities, including through the fiscal year ended August 26, 2020. The Plan of Liquidation (see Note 2. Subsequent Events) may or may not impact this determination in future periods.
We make judgments regarding the interpretation of tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions as well as by the Internal Revenue Service (“IRS”). In management’s opinion, adequate provisions for income taxes have been made for all open tax years. The potential outcomes of examinations are regularly assessed in determining the adequacy of the provision for income taxes and income tax liabilities. We believe that adequate provisions have been made for reasonably possible outcomes related to uncertain tax matters.
Discontinued Operations
We will report the disposal of a component or a group of components of the Company in discontinued operations if the disposal of the components or group of components represents a strategic shift that has or will have a major effect on the Company’s operations and financial results.
Share-Based Compensation
Share-based compensation expense is estimated for equity awards at fair value at the grant date. The Company determines fair value of restricted stock awards based on the average of the high and low price of its common stock on the date awarded by the Board of Directors. The Company determines the fair value of stock option awards using a Black-Scholes option pricing model. The Black-Scholes option pricing model requires various judgmental assumptions including the expected dividend yield, stock price volatility, and the expected life of the award. If any of the assumptions used in the model change significantly, share-based compensation expense may differ materially in the future, from that recorded in the current period. The fair value of performance share based award liabilities are estimated based on a Monte Carlo simulation model. For further discussion, see Note 18. Share-Based and Other Compensation.
Earnings Per Share
Basic income per share is computed by dividing net income by the weighted-average number of shares outstanding, including restricted stock units, during each period presented. For the calculation of diluted net income per share, the basic weighted average number of shares is increased by the dilutive effect of stock options, determined using the treasury stock method.
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from these estimates.
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 $32.4 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.
Note 2. Subsequent Events
Plan of Liquidation
On November 17, 2020, the Company convened a special meeting of the stockholders. At this meeting, the stockholders approved the Company’s Plan of Liquidation that provides for the sale of the Company’s assets and distribution of the net proceeds to the Company’s stockholders, after which the Company will be dissolved. The Company’s stockholders also approved, (1) authority to reduce the size of the Board of Directors, (2) to permit action of stockholders by written consent, and (3) a ratification of the Company’s existing Rights Agreement, often referred to as a “poison pill.”
The Plan of Liquidation outlines an orderly sale of the Company's businesses, operations, and real estate, and an orderly wind down of any remaining operations. The Company intends to attempt to convert all of its assets into cash, satisfy or resolve its remaining liabilities and obligations, including contingent liabilities and claims and costs associated with the liquidation of the Company, and then file a certificate of dissolution. The assets to be sold include operating divisions Luby’s Cafeterias, Fuddruckers, and the Company’s Culinary Contract Services business, as well as the Company’s real estate. The Company currently anticipates that its common stock will be delisted from the NYSE upon the filing of the certificate of dissolution, which is not expected to occur until the earlier of the completion of all or substantially all of the asset sales or three years, but the delisting of its common stock may occur sooner in accordance with applicable rules of the NYSE.
The Company cannot predict with any precision the timing or amount of any distributions to stockholders, as uncertainties exist as to the value it may receive upon the sale of assets pursuant to its monetization strategy, the net value of any remaining assets after such sales are completed, the ultimate amount of expenses associated with implementing its monetization strategy, liabilities, operating costs and amounts to be set aside for claims, obligations and provisions during the liquidation and winding-up process and the related timing to complete such transactions and overall process.
PPP Loan
On November 12, 2020, we submitted an application to Texas Capital Bank N.A. ("TCB") for full forgiveness of our PPP Loan (see Note 3. COVID-19 Pandemic and Note 15. Debt). Notwithstanding our application for loan forgiveness, we are unable to predict the actual amount of loan forgiveness the SBA will approve.
Note 3. 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 three 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 three 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 eight Fuddruckers restaurants operating and as of August 26, 2020 there were 60 Luby's Cafeteria's and 24 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 and 64 operating as of August 26, 2020 .
We considered the disruptions to our operations and cash flows from the COVID-19 pandemic, beginning in the third quarter of this fiscal year, to be triggering events for purposes of testing our long-lived assets, as well as goodwill, for impairment. See "Note 16. 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 beginning in 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.
Payroll Protection Plan (PPP) Loan and Credit Facility Debt Modification
As more fully discussed at "Note 15. Debt", on April 12, 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. On November 12, 2020, we applied for full forgiveness of our PPP Loan. See Note 2. Subsequent Events.
Note 4. 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 for the 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. For the full fiscal year ended August 26, 2020 we sustained a net loss of $29.5 million and our cash flow from operations was a use of cash of $21.6 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 3. COVID-19 Pandemic" which further stressed the liquid financial resources of the Company. In the third quarter of fiscal year 2020, 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, also with MSD Capital, and applied for and received a $10.0 million PPP Loan as described in "Note 3. 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.
On November 17, 2020, at a special meeting of the stockholders, the stockholders approved the Company’s plan of liquidation and dissolution "Plan of Liquidation" that provides for the sale of the Company’s assets and distribution of the net proceeds to the Company’s stockholders, after which the Company will be dissolved. See Note 2. Subsequent Events. The Company cannot predict with any precision the timing or amount of any distributions to stockholders under the Plan of Liquidation and as such, this shareholder-approved Plan could extend beyond 12 months. While the Company proceeds under this Plan, 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 property sales as discussed below.
Since the onset of the COVID-19 Pandemic, we have reviewed and modified many aspects of our operating plan for our restaurants and corporate overhead. Our 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. The proceeds were used for qualifying expenses under the CARES Act. On November 12, 2020, we submitted an application to TCB for full forgiveness of our PPP Loan. Notwithstanding our application for loan forgiveness, we are unable to predict the actual amount of loan forgiveness the SBA will approve. See Note 2. Subsequent Events.
•During the fiscal year ended August 26, 2020 we received approximately $24.9 million proceeds from property sales, of which $11.8 million was used to pay down our Term Loan, including the minimum principal payments due in the next 12 months, and $13.1 million was used to fund operating expenses and provide liquidity.
We believe these plans are sufficient to overcome the substantial doubt as to whether we can meet our liquidity needs for the 12 months from the issuance of these financial statements.
Note 5. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 26,
2020
|
|
August 28,
2019
|
|
|
(In thousands)
|
|
Cash and cash equivalents
|
$
|
15,069
|
|
|
$
|
3,640
|
|
|
Restricted cash and cash equivalents
|
6,756
|
|
|
9,116
|
|
|
Total cash and cash equivalents shown in the statement of cash flows
|
$
|
21,825
|
|
|
$
|
12,756
|
|
Amounts included in restricted cash represent amounts 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 in less than 12 months and (3) pre-funding of the credit limit under our corporate purchasing card program.
Note 6. Revenue Recognition
Restaurant Sales
Restaurant sales consist of sales of food and beverage products to restaurant guests at our Luby’s Cafeteria, 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. Under ASC 606 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 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 third 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 under ASC 606 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 unless the franchise agreement is terminated early, in which case the remaining initial or renewal franchise fee is fully recognized in the period of termination. 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 third 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 between the date of adoption (August 30, 2018) and August 26, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gift Cards, net of discounts
|
|
Franchise Fees
|
|
|
|
(In thousands)
|
|
Balance at August 30, 2018
|
|
$
|
2,707
|
|
|
$
|
1,891
|
|
|
Revenue recognized that was included in the contract liability balance at the beginning of the year
|
|
(1,308)
|
|
|
(564)
|
|
|
Increase (decrease), net of amounts recognized as revenue during the period
|
|
1,481
|
|
|
(40)
|
|
|
Balance at August 28, 2019
|
|
$
|
2,880
|
|
|
$
|
1,287
|
|
|
Revenue recognized that was included in the contract liability balance at the beginning of the year
|
|
(1,011)
|
|
|
(128)
|
|
|
Increase, net of amounts recognized as revenue during the period
|
|
1,541
|
|
|
—
|
|
|
Balance at August 26, 2020
|
|
$
|
3,410
|
|
|
$
|
1,159
|
|
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 August 26, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise Fees
|
|
|
|
|
(In thousands)
|
|
Fiscal 2021
|
|
|
|
$
|
32
|
|
|
Fiscal 2022
|
|
|
|
32
|
|
|
Fiscal 2023
|
|
|
|
32
|
|
|
Fiscal 2024
|
|
|
|
32
|
|
|
Fiscal 2025
|
|
|
|
32
|
|
|
Thereafter
|
|
|
|
244
|
|
|
Total operating franchise restaurants
|
|
|
|
404
|
|
|
Franchise restaurants not yet opened(1)
|
|
|
|
755
|
|
|
Total
|
|
|
|
$
|
1,159
|
|
(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
For the fiscal year ended August 26, 2020, total sales of $214.0 million was comprised of revenue from performance obligations satisfied over time of $18.5 million and revenue from performance obligations satisfied at a point in time of $195.5 million. For the fiscal year ended August 28, 2019, total sales of $323.5 million was comprised of revenue from performance obligations satisfied over time of $23.0 million and revenue from performance obligations satisfied at a point in time of $300.5 million.
See Note 8. Reportable Segments for disaggregation of revenue by reportable segment.
Note 7. 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 August 26, 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.
During the fiscal year ended August 26, 2020, we entered into six sale and leaseback transactions with unaffiliated third parties. The lease terms ranged between 9 months and 12 months and there are no renewal or purchase options at the end of the lease term. Gross sales proceeds were $19.3 million and we recognized $11.1 million net gain on disposition of property and equipment for the sales and leaseback transactions. We have 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 (see Note 1. Nature of Operations and Significant Accounting Policies). As such, no right-of-use assets or lease liabilities were added to our consolidated balance sheet as a result of the sale and short-term leaseback transactions.
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 August 26, 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
|
|
August 26, 2020
|
|
|
|
|
|
|
(In thousands)
|
|
|
Right-of-use assets
|
|
Operating lease right-of-use assets
|
|
$
|
16,756
|
|
|
|
|
|
|
|
|
|
|
Current lease liabilities
|
|
Operating lease liabilities - current
|
|
$
|
3,903
|
|
|
|
Non-current lease liabilities
|
|
Operating lease liabilities - non-current
|
|
17,797
|
|
|
|
Total lease liabilities
|
|
|
|
$
|
21,700
|
|
|
Weighted-average lease terms and discount rates at August 26, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term
|
|
5.73 years
|
|
|
|
|
|
|
|
Weighted-average discount rate
|
|
9.57%
|
|
Components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
|
|
|
|
|
|
August 26, 2020
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Operating lease expense
|
|
$
|
7,700
|
|
|
|
|
|
|
|
Variable lease expense
|
|
933
|
|
|
|
|
|
|
|
Short-term lease expense
|
|
247
|
|
|
|
|
|
|
|
Sublease expense
|
|
412
|
|
|
|
|
|
|
|
Total lease expense
|
|
$
|
9,292
|
|
|
|
|
|
|
Operating lease income is included in other income on our consolidated statements of operations and was comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
|
|
|
|
|
|
August 26, 2020
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Operating lease income
|
|
$
|
734
|
|
|
|
|
|
|
|
Sublease income
|
|
412
|
|
|
|
|
|
|
|
Variable lease income
|
|
136
|
|
|
|
|
|
|
|
Total lease income
|
|
$
|
1,282
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information related to leases were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 Weeks Ended
|
|
|
|
|
|
|
|
|
August 26, 2020
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
$
|
9,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease liabilities
|
|
$
|
1,868
|
|
|
|
|
|
|
Operating lease obligations maturities in accordance with Topic 842 as of August 26, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
FY 2021
|
|
$
|
5,804
|
|
|
|
|
|
FY 2022
|
|
4,357
|
|
|
|
|
|
FY 2023
|
|
4,782
|
|
|
|
|
|
FY 2024
|
|
3,136
|
|
|
|
|
|
FY 2025
|
|
4,021
|
|
|
|
|
|
Thereafter
|
|
7,324
|
|
|
|
|
|
Total lease payments
|
|
29,424
|
|
|
|
|
|
Less: imputed interest
|
|
(7,724)
|
|
|
|
|
|
Present value of operating lease obligations
|
|
$
|
21,700
|
|
|
|
|
The operating lease obligation and rent expense tables above include amounts related to two leases with related parties, which are further described at "Note 19. 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 8. Reportable Segments
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 and Cheeseburger in Paradise 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, 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 segment includes the results of our company-owned Luby’s Cafeterias restaurants. The total number of Luby’s restaurants at the end of fiscal 2020 and 2019 were 61 and 79, respectively. Included in the count at the end of fiscal 2020 is five Combo units, where a Luby's cafeteria and a Fuddruckers restaurant occupy the same location.
The Fuddruckers segment includes the results of our company-owned Fuddruckers restaurants. The total number of Fuddruckers restaurants at the end of fiscal 2020 and 2019 were 24 and 44, respectively.
The Cheeseburger and Paradise segment includes the results of our Cheeseburger in Paradise restaurants. The total number of Cheeseburger in Paradise restaurants at the end of fiscal 2020 and 2019 were zero and one, respectively.
Culinary Contract Services
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 the end of fiscal 2020 and 2019 were 26 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 at the end of fiscal 2020 and 2019 were 71 and 102, respectively.
Segment Table
The tables below present financial information as required by ASC 280 for segment reporting. ASC 280 requires depreciation and amortization be disclosed for each reportable segment, even if not used by the chief operating decision maker. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
August 26, 2020
|
|
August 28, 2019
|
|
|
|
(In thousands)
|
|
Sales:
|
|
|
|
|
|
Luby's cafeterias
|
$
|
149,691
|
|
|
$
|
214,074
|
|
|
|
Fuddruckers restaurants(1)
|
32,428
|
|
|
67,710
|
|
|
|
Cheeseburger in Paradise restaurants
|
1,522
|
|
|
3,108
|
|
|
|
Culinary contract services
|
26,747
|
|
|
31,888
|
|
|
|
Fuddruckers franchise operations
|
3,634
|
|
|
6,690
|
|
|
|
Total
|
$
|
214,022
|
|
|
$
|
323,470
|
|
|
|
Segment level profit:
|
|
|
|
|
|
Luby's cafeterias
|
$
|
12,087
|
|
|
$
|
25,423
|
|
|
|
Fuddruckers restaurants
|
(2,196)
|
|
|
2,702
|
|
|
|
Cheeseburger in Paradise restaurants
|
(308)
|
|
|
(240)
|
|
|
|
Culinary contract services
|
2,529
|
|
|
3,334
|
|
|
|
Fuddruckers franchise operations
|
2,093
|
|
|
5,057
|
|
|
|
Total
|
$
|
14,205
|
|
|
$
|
36,276
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
Luby's cafeterias
|
$
|
7,598
|
|
|
$
|
8,886
|
|
|
|
Fuddruckers restaurants
|
1,507
|
|
|
2,844
|
|
|
|
Cheeseburger in Paradise restaurants
|
77
|
|
|
117
|
|
|
|
Culinary contract services
|
34
|
|
|
82
|
|
|
|
Fuddruckers franchise operations
|
298
|
|
|
767
|
|
|
|
Corporate
|
2,000
|
|
|
1,302
|
|
|
|
Total
|
$
|
11,514
|
|
|
$
|
13,998
|
|
|
|
Total assets:
|
|
|
|
|
|
Luby's cafeterias
|
$
|
90,349
|
|
|
$
|
107,287
|
|
|
|
Fuddruckers restaurants (2)
|
26,502
|
|
|
25,725
|
|
|
|
Cheeseburger in Paradise restaurants (3)
|
164
|
|
|
829
|
|
|
|
Culinary contract services
|
4,744
|
|
|
6,703
|
|
|
|
Fuddruckers franchise operations (4)
|
8,973
|
|
|
10,034
|
|
|
|
Corporate
|
46,671
|
|
|
35,422
|
|
|
|
Total
|
$
|
177,403
|
|
|
$
|
186,000
|
|
|
(1) Includes vending revenue of $130 thousand and $379 thousand for the years ended August 26, 2020 and August 28, 2019, respectively.
(2) Includes Fuddruckers trade name intangible of $6.9 million and $7.5 million at August 26, 2020 and August 28, 2019, respectively.
(3) Includes Cheeseburger in Paradise liquor licenses, and Jimmy Buffett intangibles of $34 thousand and $46 thousand at August 26, 2020 and August 28, 2019, respectively.
(4) Fuddruckers franchise operations segment includes royalty intangibles of $8.4 million and $9.2 million at August 26, 2020 and August 28, 2019, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
August 26, 2020
|
|
August 28, 2019
|
|
|
|
(In thousands)
|
|
Capital expenditures:
|
|
|
|
|
|
Luby's cafeterias
|
$
|
1,841
|
|
|
$
|
3,195
|
|
|
|
Fuddruckers restaurants
|
148
|
|
|
513
|
|
|
|
Cheeseburger in Paradise restaurants
|
34
|
|
|
16
|
|
|
|
|
|
|
|
|
|
Fuddruckers franchise operations
|
9
|
|
|
—
|
|
|
|
Corporate
|
88
|
|
|
263
|
|
|
|
Total
|
$
|
2,120
|
|
|
$
|
3,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
August 26, 2020
|
|
August 28, 2019
|
|
|
|
(In thousands)
|
|
Loss before income taxes and discontinued operations:
|
|
|
|
|
|
Segment level profit
|
$
|
14,205
|
|
|
$
|
36,276
|
|
|
|
Opening costs
|
(14)
|
|
|
(56)
|
|
|
|
Depreciation and amortization
|
(11,514)
|
|
|
(13,998)
|
|
|
|
Selling, general and administrative expenses
|
(24,571)
|
|
|
(34,685)
|
|
|
|
Other charges
|
(3,401)
|
|
|
(3,764)
|
|
|
|
Net provision for asset impairments and restaurant closings
|
(10,193)
|
|
|
(5,603)
|
|
|
|
Net gain on disposition of property and equipment
|
11,557
|
|
|
12,832
|
|
|
|
Interest income
|
60
|
|
|
30
|
|
|
|
Interest expense
|
(6,388)
|
|
|
(5,977)
|
|
|
|
Other income, net
|
1,195
|
|
|
195
|
|
|
|
Total
|
$
|
(29,064)
|
|
|
$
|
(14,750)
|
|
|
Note 9. Fair Value Measurement
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 statements require or permit 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 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.
There were no recurring fair value measurements related to assets at August 26, 2020 or August 28, 2019. We terminated the interest rate swap in the first quarter of fiscal 2019 and received proceeds of approximately $0.3 million.
There were no recurring fair value measurements related to liabilities at August 26, 2020 or August 28, 2019.
Non-recurring fair value measurements related to impaired property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
|
|
|
|
Fiscal Year Ended August 26, 2020
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total Impairments (5)
|
|
Nonrecurring Fair Value Measurements
|
(In thousands)
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
Property and equipment related to Company-owned restaurants(1)
|
$
|
481
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
481
|
|
|
$
|
(4,831)
|
|
|
Goodwill(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(320)
|
|
|
Property held for sale(3)
|
3,362
|
|
|
—
|
|
|
—
|
|
|
3,362
|
|
|
(14)
|
|
|
Operating lease right-of-use assets(4)
|
272
|
|
|
—
|
|
|
—
|
|
|
272
|
|
|
(5,380)
|
|
|
Total Nonrecurring Fair Value Measurements
|
$
|
4,115
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,115
|
|
|
$
|
(10,545)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) In accordance with Subtopic 360-10, long-lived assets held and used with a carrying amount of $5.3 million were written down to their fair value of $0.5 million, resulting in an impairment charge of $4.8 million.
(2) In accordance with Subtopic 350-20, goodwill with a carrying amount of $0.3 million was written down to its implied fair value of zero resulting in an impairment charge of $0.3 million.
(3) In accordance with Subtopic 360-10, long-lived assets held for sale with carrying values of $3.4 million were written down to their fair value, less cost to sell, of $3.4 million, resulting in an impairment charge of $14 thousand.
(4) In accordance with Subtopic 360-10, operating lease right-of-use assets with a carrying value of $5.7 million were written down to their fair value of $0.3 million, resulting in an impairment charge of $5.4 million.
(5) Total impairments are included in provision for asset impairments and restaurant closings in the our consolidated statement of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
Measurement Using
|
|
|
|
|
Fiscal Year Ended August 28, 2019
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
Impairments(4)
|
|
Nonrecurring Fair Value Measurements
|
|
|
(In thousands)
|
|
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
Property and equipment related to Company-owned restaurants(1)
|
$
|
1,220
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,220
|
|
|
$
|
(5,627)
|
|
|
Goodwill(2)
|
514
|
|
|
—
|
|
|
—
|
|
|
514
|
|
|
(41)
|
|
|
Property held for sale(3)
|
8,030
|
|
|
—
|
|
|
—
|
|
|
8,030
|
|
|
(124)
|
|
|
Total Nonrecurring Fair Value Measurements
|
$
|
9,764
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,764
|
|
|
$
|
(5,792)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) In accordance with Subtopic 360-10, long-lived assets held and used with a carrying amount of $7.2 million were written down to their fair value of $1.2 million, resulting in an impairment charge of $5.6 million.
(2) In accordance with Subtopic 350-20, goodwill with a carrying amount of $0.6 million was written down to its implied fair value of $0.5 million, resulting in an impairment charge of $41 thousand.
(3) In accordance with Subtopic 360-10, long-lived assets held for sale with carrying values of $8.2 million were written down to their fair value, less costs to sell, of $8.0 million resulting in an impairment charge of approximately $0.1 million.
(4) Total impairments are included in Provision for asset impairments and restaurant closings in our consolidated statement of operations.
Note 10. Trade Receivables and Other
Trade and other receivables, net, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 26,
2020
|
|
August 28,
2019
|
|
|
(In thousands)
|
|
Trade and other receivables
|
$
|
4,037
|
|
|
$
|
6,326
|
|
|
Franchise royalties and marketing and advertising receivables
|
957
|
|
|
1,040
|
|
|
Unbilled revenue
|
1,677
|
|
|
1,913
|
|
|
Allowance for doubtful accounts
|
(579)
|
|
|
(427)
|
|
|
Total Trade accounts and other receivables, net
|
$
|
6,092
|
|
|
$
|
8,852
|
|
CCS receivable balance at August 26, 2020 was $3.1 million, primarily the result of 28 contracts with balances of $0.1 million to $0.7 million per contract entity. These 28 contracts collectively represented 47% of the Company’s total accounts receivables. Contract payment terms for its CCS customers’ receivables are due within 30 to 45 days. Unbilled revenue, was $1.7 million at August 26, 2020 and $1.9 million at August 28, 2019. CCS contracts are billed on a calendar month end basis and represent the total balance of unbilled revenue.
The Company recorded receivables related to Fuddruckers franchise operations royalty and marketing and advertising payments from the franchisees, as required by their franchise agreements. Franchise royalty and marketing and advertising fund receivables balance at August 26, 2020 was $1.0 million. At August 26, 2020, the Company had 71 operating franchise restaurants with no significant concentration of accounts receivables.
The change in allowances for doubtful accounts for each of the years in the two-year periods ended as of the dates below is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
August 26,
2020
|
|
August 28,
2019
|
|
|
|
(In thousands)
|
|
Beginning balance
|
$
|
427
|
|
|
$
|
231
|
|
|
|
Provisions for doubtful accounts, net of reversals
|
1,624
|
|
|
196
|
|
|
|
Write-offs(1)
|
(1,472)
|
|
|
—
|
|
|
|
Ending balance
|
$
|
579
|
|
|
$
|
427
|
|
|
(1) The $1.5 million Balance Sheet write-off in fiscal 2020 is comprised of $0.3 million of CCS customer accounts, $0.4 million of receivables from franchisees and $0.8 million of other receivables (including $0.4 million of former tenant accounts) that were reserved in fiscal years 2018 through and including 2020.
Note 11. Income Taxes
The following table details the categories of total income tax assets and liabilities for both continuing and discontinued operations resulting from the cumulative tax effects of temporary differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 26,
2020
|
|
August 28,
2019
|
|
|
(In thousands)
|
|
Deferred income tax assets:
|
|
|
|
|
Workers’ compensation, employee injury, and general liability claims
|
$
|
562
|
|
|
$
|
395
|
|
|
Deferred compensation
|
162
|
|
|
193
|
|
|
Net operating losses
|
9,916
|
|
|
5,541
|
|
|
General business and foreign tax credits
|
12,105
|
|
|
12,529
|
|
|
Depreciation, amortization and impairments
|
3,125
|
|
|
8,561
|
|
|
Interest expense
|
1,886
|
|
|
—
|
|
|
Lease liabilities
|
4,731
|
|
|
—
|
|
|
Straight-line rent, dining cards, accruals, and other
|
1,413
|
|
|
2,594
|
|
|
Subtotal
|
33,900
|
|
|
29,813
|
|
|
Valuation allowance
|
(29,478)
|
|
|
(28,865)
|
|
|
Total deferred income tax assets
|
4,422
|
|
|
948
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
Property taxes and other
|
769
|
|
|
948
|
|
|
Lease assets
|
3,653
|
|
|
—
|
|
|
Total deferred income tax liabilities
|
4,422
|
|
|
948
|
|
|
Net deferred income tax asset
|
$
|
—
|
|
|
$
|
—
|
|
At August 26, 2020, the Company considered the deferred tax assets not to be realizable and maintains a full valuation allowance against the Company’s net deferred tax asset balance. The most significant deferred tax asset prior to valuation allowance is the Company’s general business tax credits carryovers to future years of $12.1 million. This item may be carried forward up to twenty years for possible utilization in the future. The carryover of general business tax credits, beginning in fiscal 2002, will begin to expire at the end of fiscal 2022 through 2039, if not utilized by then.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future, as well as from tax net operating losses and tax credit carryovers. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will be realized. In evaluating our ability to recover our deferred tax assets, we consider available positive and negative evidence, including scheduled reversals of deferred tax liabilities, tax-planning strategies and existing business conditions, including amendment to our credit agreement(s) to avoid default and results of recent operations. In the third quarter of fiscal 2018, management concluded that a full valuation allowance on the Company's net deferred tax assets was necessary. As of August 26, 2020, the Company continues to maintain a full valuation allowance against the net deferred tax asset balance. The Plan of Liquidation (see Note 2. Subsequent Events) may or may not impact this determination in future periods.
An analysis of the provision for income taxes for continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 26,
2020
|
|
August 28,
2019
|
|
|
(In thousands)
|
|
Current federal and state income tax expense
|
$
|
327
|
|
|
$
|
418
|
|
|
Current foreign income tax expense
|
30
|
|
|
51
|
|
|
|
|
|
|
|
Provision for income taxes
|
$
|
357
|
|
|
$
|
469
|
|
Relative only to continuing operations, the reconciliation of the expense for income taxes to the expected income tax expense, computed using the statutory tax rate, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
August 26,
2020
|
|
August 28,
2019
|
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
|
(in thousands, except percentages)
|
|
Income tax benefit from continuing operations at the federal rate
|
$
|
(6,104)
|
|
|
21.0
|
%
|
|
$
|
(3,098)
|
|
|
21.0
|
%
|
|
Permanent and other differences:
|
|
|
|
|
|
|
|
|
Federal jobs tax credits (wage deductions)
|
—
|
|
|
—
|
|
|
89
|
|
|
(0.6)
|
|
|
Stock options and restricted stock
|
17
|
|
|
(0.1)
|
|
|
19
|
|
|
(0.1)
|
|
|
Other permanent differences
|
3
|
|
|
—
|
|
|
31
|
|
|
(0.2)
|
|
|
State income tax, net of federal benefit
|
189
|
|
|
(0.7)
|
|
|
273
|
|
|
(1.9)
|
|
|
General Business Tax Credits
|
—
|
|
|
—
|
|
|
(422)
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
580
|
|
|
(1.9)
|
|
|
117
|
|
|
(0.8)
|
|
|
Change in valuation allowance
|
5,672
|
|
|
(19.5)
|
|
|
3,460
|
|
|
(23.5)
|
|
|
Provision for income taxes from continuing operations
|
$
|
357
|
|
|
(1.2)
|
%
|
|
$
|
469
|
|
|
(3.2)
|
%
|
For the fiscal year ended August 26, 2020, including both continuing and discontinued operations, the Company is estimated to report a federal taxable loss of $19.3 million. For the fiscal year ended August 28, 2019, including both continuing and discontinued operations, the Company generated federal taxable loss of $5.1 million.
Our income tax filings are periodically examined by various federal and state jurisdictions. There are no open examinations by federal and state income tax jurisdiction. The Company's U.S. federal income tax return remains open to examination for fiscal 2017 through fiscal 2019.
There were no payments of federal income taxes in fiscal 2020 or fiscal 2019. The Company has income tax filing requirements in over 30 states. State income tax payments were $0.4 million and $0.4 million in fiscal 2020 and 2019, respectively.
The following table is a reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of fiscal 2019 and 2020 (in thousands):
|
|
|
|
|
|
|
|
Balance as of August 29, 2018
|
$
|
25
|
|
|
Decrease based on prior year tax positions
|
—
|
|
|
Interest Expense
|
—
|
|
|
Balance as of August 28, 2019
|
$
|
25
|
|
|
Decrease based on prior year tax positions
|
—
|
|
|
Interest Expense
|
—
|
|
|
Balance as of August 26, 2020
|
$
|
25
|
|
The unrecognized tax benefits would favorably affect the Company’s effective tax rate in future periods if they are recognized. There is no interest associated with unrecognized benefits as of August 26, 2020. The Company has included interest or penalties related to income tax matters as part of income tax expense. It is reasonably possible that the amount of unrecognized tax benefits with respect to our uncertain tax positions could significantly increase or decrease within 12 months. However, based on the current status of examinations, it is not possible to estimate the future impact, if any, to recorded uncertain tax positions as of August 26, 2020.
Management believes that adequate provisions for income taxes have been reflected in the financial statements and is not aware of any significant exposure items that have not been reflected in the financial statements. Amounts considered probable of settlement within one year have been included in the accrued expenses and other liabilities in the accompanying consolidated balance sheet.
Note 12. Property and Equipment, Intangible Assets and Goodwill
The cost, net of impairment, and accumulated depreciation of property and equipment at August 26, 2020 and August 28, 2019, together with the related estimated useful lives used in computing depreciation and amortization, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 26, 2020
|
|
August 28, 2019
|
|
Estimated
Useful Lives (years)
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
Land
|
$
|
42,572
|
|
|
$
|
45,845
|
|
|
|
|
—
|
|
|
|
Restaurant equipment and furnishings
|
60,685
|
|
|
67,015
|
|
|
3
|
|
to
|
|
15
|
|
Buildings
|
114,909
|
|
|
126,957
|
|
|
20
|
|
to
|
|
33
|
|
Leasehold and leasehold improvements
|
20,429
|
|
|
22,098
|
|
|
|
|
Lesser of lease term or
estimated useful life
|
|
|
|
Office furniture and equipment
|
3,178
|
|
|
3,364
|
|
|
3
|
|
to
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241,773
|
|
|
265,279
|
|
|
|
|
|
|
|
|
Less accumulated depreciation and amortization
|
(141,174)
|
|
|
(143,536)
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
$
|
100,599
|
|
|
$
|
121,743
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
$
|
15,343
|
|
|
$
|
16,781
|
|
|
15
|
|
to
|
|
21
|
|
Goodwill
|
$
|
195
|
|
|
$
|
514
|
|
|
|
|
|
|
|
Depreciation expense for the fiscal years 2020 and 2019, was $10.1 million and $12.6 million, respectively.
Intangible assets, net, consist primarily of the Fuddruckers trade name and franchise agreements and will be amortized. The Company believes the Fuddruckers brand name has an expected accounting life of 21 years from the date of acquisition based on the expected use of its assets and the restaurant environment in which it is being used. The trade name represents a respected brand with customer loyalty and the Company intends to cultivate and protect the use of the trade name. The franchise agreements, after considering renewal periods, have an estimated accounting life of 21 years from the date of acquisition, July 2010, and will be amortized over this period of time.
Intangible assets, net, also includes the license agreement and trade name related to Cheeseburger in Paradise and the value of the acquired licenses and permits allowing the sales of beverages with alcohol. These assets have an expected accounting life of 15 years from the date of acquisition December 2012.
The aggregate amortization expense related to intangible assets subject to amortization for fiscal 2020 and 2019 was $1.4 million and $1.4 million, respectively. The aggregate amortization expense related to intangible assets subject to amortization is expected to be $1.4 million in each of the next five successive years.
The following table presents intangible assets as of August 26, 2020 and August 28, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 26, 2020
|
|
August 28, 2019
|
|
|
(In thousands)
|
|
(In thousands)
|
|
|
Gross
Carrying
Amount
|
|
Accumulated Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated Amortization
|
|
Net
Carrying
Amount
|
|
Intangible Assets Subject to Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuddruckers trade name and franchise agreements
|
$
|
29,496
|
|
|
$
|
(14,189)
|
|
|
$
|
15,307
|
|
|
$
|
29,486
|
|
|
$
|
(12,752)
|
|
|
$
|
16,734
|
|
|
Cheeseburger in Paradise trade name and license agreements
|
146
|
|
|
(110)
|
|
|
36
|
|
|
146
|
|
|
(99)
|
|
|
47
|
|
|
Intangible assets, net
|
$
|
29,642
|
|
|
$
|
(14,299)
|
|
|
$
|
15,343
|
|
|
$
|
29,632
|
|
|
$
|
(12,851)
|
|
|
$
|
16,781
|
|
Goodwill, net of accumulated impairments of $2.0 million and $1.7 million in fiscal 2020 and 2019, respectively, was $0.2 million as of August 26, 2020 and $0.5 million as of August 28, 2019. Goodwill has been allocated to and impairment is assessed at the reporting unit level, which is the individual restaurants within our Fuddruckers and Cheeseburger in Paradise restaurant segments that were acquired in fiscal 2010 and fiscal 2013, respectively. The net Goodwill balance at the end of fiscal 2020 is comprised of amounts assigned to one Cheeseburger in Paradise restaurants that were converted to Fuddruckers restaurants, and the goodwill from the Fuddruckers acquisition in 2010. The Company performs a goodwill impairment test annually as of the end of the second quarter of each year and more frequently when negative conditions or a triggering event arise. Management prepares valuations for each of its restaurants using a discounted cash flow analysis (Level 3 inputs) to determine the fair value of each reporting unit for comparison with the reporting unit’s carrying value in determining if there has been an impairment of goodwill at the reporting unit level. Due to the effects of the COVID-19 pandemic on our operations, we identified a triggering event in the third quarter of fiscal 2020. We performed an impairment test of goodwill and recorded an impairment loss related to our Cheeseburger in Paradise restaurants of $0.3 million.
The Company recorded goodwill impairment charges of $320 thousand and $41 thousand in fiscal 2020 and 2019, respectively.
Note 13. Current Accrued Expenses and Other Liabilities
The following table sets forth current accrued expenses and other liabilities as of August 26, 2020 and August 28, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 26,
2020
|
|
August 28,
2019
|
|
|
(In thousands)
|
|
Salaries, compensated absences, incentives, and bonuses
|
$
|
1,506
|
|
|
$
|
4,318
|
|
|
Operating expenses
|
831
|
|
|
925
|
|
|
Unredeemed gift and dining cards
|
4,084
|
|
|
3,862
|
|
|
Taxes, other than income
|
7,265
|
|
|
9,056
|
|
|
Accrued claims and insurance
|
1,753
|
|
|
1,796
|
|
|
Income taxes, legal and other(1)
|
4,130
|
|
|
4,518
|
|
|
Total
|
$
|
19,569
|
|
|
$
|
24,475
|
|
(1) Income taxes, legal and other includes accrued lease termination costs. See Note 16 to our consolidated financial statements in this Form 10-K for further discussion of lease termination costs.
Note 14. Other Long-Term Liabilities
The following table sets forth other long-term liabilities as of August 26, 2020 and August 28, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 26,
2020
|
|
August 28,
2019
|
|
|
(In thousands)
|
|
Workers’ compensation and general liability insurance reserve
|
$
|
754
|
|
|
$
|
736
|
|
|
Vehicle loans payable
|
30
|
|
|
73
|
|
|
Deferred rent and landlord reimbursement
|
774
|
|
|
1,726
|
|
|
Unfavorable lease and deferred straight line rent liability
|
—
|
|
|
1,984
|
|
|
Deferred compensation
|
24
|
|
|
80
|
|
|
|
|
|
|
|
Deferred gain on sale / leaseback transactions
|
—
|
|
|
1,969
|
|
|
Other
|
48
|
|
|
9
|
|
|
Total
|
$
|
1,630
|
|
|
$
|
6,577
|
|
Note 15. Debt
The following table summarizes credit facility debt, less current portion at August 26, 2020 and August 28, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 26,
2020
|
|
August 28,
2019
|
|
Long-Term Debt
|
|
|
|
|
2018 Credit Agreement - Revolver
|
$
|
10,000
|
|
|
$
|
5,300
|
|
|
2018 Credit Agreement - Term Loan
|
36,583
|
|
|
43,399
|
|
|
Total credit facility debt
|
46,583
|
|
|
48,699
|
|
|
2020 PPP Loan
|
10,000
|
|
|
—
|
|
|
Total Long-Term Debt
|
56,583
|
|
|
48,699
|
|
|
Less:
|
|
|
|
|
Unamortized debt issue costs
|
(1,410)
|
|
|
(1,887)
|
|
|
Unamortized debt discount
|
(1,055)
|
|
|
(1,373)
|
|
|
Total long-term debt, less unamortized debt issuance costs
|
54,118
|
|
|
45,439
|
|
|
Current portion of credit facility debt
|
—
|
|
|
—
|
|
|
Long-term debt, less current portion
|
$
|
54,118
|
|
|
$
|
45,439
|
|
PPP Loan
On April 21, 2020, the Company entered into a promissory note with TCB, effective April 12, 2020, that provides for a loan in the amount of $10.0 million (the “PPP Loan”) pursuant to the Payroll Protection Program (“PPP”), established under the CARES Act. The PPP Loan is subject to forgiveness under the PPP upon the Company’s request to the extent that the proceeds are used to pay expenses permitted by the PPP, including payroll costs, covered rent and mortgage obligations, and covered utility payments. Amounts outstanding under the loan bear a fixed interest rate of 1.0% per annum with a maturity date of April 12, 2022, two years from the commencement date.
On June 5, 2020, the Paycheck Protection Program Flexibility Act (the “new Act”) was signed into law and made significant changes to the PPP to provide additional relief for borrowers under the PPP. The new Act increased flexibility for businesses that were unable to operate as normal due to COVID-19 related restrictions. The new Act extended the period that businesses have to use PPP funds to qualify for loan forgiveness to 24 weeks, up from 8 weeks under the original rules, relaxed the requirements that loan recipients must adhere to in order to qualify for loan forgiveness, and extended the payment deferral period to the earlier of the date when the amount of loan forgiveness is determined by the SBA and lender or 10 months after the 24 week covered period ends. Initially, all payments were to be deferred for six months. Under the new Act, payments are deferred until the SBA remits any loan forgiveness amount to the lender, TCB in the case of the Company. Interest accrues over the entire period of the PPP Loan for the portion of the PPP that is not ultimately forgiven.
On November 12, 2020, the Company submitted an application for forgiveness of the entire amount due on the loan. Notwithstanding our application for loan forgiveness, we are unable to predict the actual amount of loan forgiveness the SBA will approve. As of August 26, 2020, we had $10.0 million outstanding under the PPP Loan and we were in full compliance with all covenants with respect to the PPP Loan.
2018 Credit Agreement
On December 13, 2018, the Company entered into a credit agreement (as amended by the First Amendment (as defined below), the “2018 Credit Agreement”) among the Company, the lenders from time to time party thereto, and a subsidiary of MSD Capital, MSD PCOF Partners VI, LLC (“MSD”), as Administrative Agent, pursuant to which the lenders party thereto agreed to make loans to the Company from time to time up to an aggregate principal amount of $80.0 million consisting of a $10.0 million revolving credit facility (the “2018 Revolver”), a $10.0 million delayed draw term loan (“2018 Delayed Draw Term Loan”), and a $60.0 million term loan (the “2018 Term Loan”, and together with the 2018 Revolver and the 2018 Delayed Draw Term Loan, the “2018 Credit Facility”). The 2018 Credit Facility terminates on, and all amounts owing thereunder must be repaid on December 13, 2023.
On July 31, 2019, the Company entered into the First Amendment to the 2018 Credit Agreement (the “First Amendment”) to extend the 2018 Delayed Draw Term Loan expiration date for up to one year to the earlier to occur of (a) the date on which the commitments under the 2018 Delayed Draw Term Loan have been terminated or reduced to zero in accordance with the terms of the 2018 Credit Agreement and (b) September 13, 2020. On December 18, 2019, the Company entered into the Second
Amendment to the 2018 Credit Agreement which did not change any terms of the agreement permanently. The amendment only decreased the amount of mandatory prepayment related to the sale of two properties in the quarter ended March 11, 2020. We entered into the Third Amendment to Credit Agreement, dated April 21, 2020 (the "Third Amendment"). The Third Amendment permitted us to incur indebtedness under the PPP Loan and terminated the $5.0 million undrawn portion of the delayed draw term loan upon receipt of the PPP Loan. On August 21, 2020, the Company entered into Fourth Amendment to the 2018 Credit Agreement that decreased the amount of mandatory prepayments related to the sale of two properties in the quarter ended August, 26, 2020. No other terms of the agreement were changed permanently by this amendment.
Borrowings under the 2018 Revolver, 2018 Delayed Draw Term Loan, and 2018 Term Loan bear interest at the London InterBank Offered Rate ("LIBOR") plus 7.75% per annum. Interest is payable quarterly and accrues daily. Under the terms of the 2018 Credit Agreement, the maximum amount of interest payable, based on the aggregate principal amount of $80.0 million and interest rates in effect at December 13, 2018, in the next 12 months was required to be prefunded at the closing date of the 2018 Credit Agreement. The prefunded amount at August 26, 2020 of approximately $4.2 million is recorded in restricted cash and cash equivalents on the Company's consolidated balance sheet. LIBOR is set to terminate in December, 2021. We expect to agree to a replacement rate with MSD prior to the LIBOR termination.
The 2018 Credit Facility is subject to the following minimum amortization payments: 1st anniversary: $10.0 million; 2nd anniversary: $10.0 million; 3rd anniversary: $15.0 million; and 4th anniversary: $15.0 million.
As of August 26, 2020 we had no amounts due within the next 12 months under the 2018 Credit Facility due to principal repayments from proceeds on asset sales in excess of the required amounts.
The Company also pays a quarterly commitment fee based on the unused portion of the 2018 Revolver and the 2018 Delayed Draw Term Loan at 0.5% per annum. Voluntary prepayments, refinancing and asset dispositions constituting a sale of all or substantially all assets, under the 2018 Delayed Draw Term Loan and the 2018 Term Loan are subject to a make whole premium during years one and two equal to the present value of all interest otherwise owed from the date of the prepayment through the end of year two, a 2% fee during year three, and a 1% fee during year four. The mandatory prepayments, described below, are not subject to the make whole premium. Finally, the Company paid to the lenders a one-time fee of $1.6 million in connection with the closing of the 2018 Credit Facility.
Indebtedness under the 2018 Credit Facility is secured by a security interest in, among other things, all of the Company’s present and future personal property (other than certain excluded assets), all of the personal property of its guarantors (other than certain excluded assets) and all Mortgaged Property (as defined in the 2018 Credit Agreement) of the Company and its subsidiaries. Under the 2018 Credit Facility, 80% of net proceeds from asset sales, including real property sales, are applied a mandatory prepayments of our 2018 Term Loan.
The 2018 Credit Facility contains customary covenants and restrictions on the Company’s ability to engage in certain activities, including financial performance covenants, asset sales and acquisitions, and contains customary events of default. Specifically, among other things, the Company is required to maintain minimum Liquidity (as defined in the 2018 Credit Agreement) of $3.0 million as of the last day of each fiscal quarter and a minimum Asset Coverage Ratio (as defined in the 2018 Credit Agreement) of 2.50 to 1.00. As of August 26, 2020, the Company was in full compliance with all covenants with respect to the 2018 Credit Facility.
All amounts owing by the Company under the 2018 Credit Facility are guaranteed by the subsidiaries of the Company.
As of August 26, 2020, we had approximately $1.8 million committed under letters of credit, which are used as security for the payment of insurance obligations and are fully cash collateralized, and approximately $30 thousand in other indebtedness.
As of December 9, 2020, the Company was in compliance with all covenants under the terms of the 2018 Credit Agreement.
2016 Credit Agreement
On December 13, 2018, the 2016 Credit Agreement was terminated with all outstanding amounts paid in full.
Interest Expense
Total interest expense incurred for fiscal 2020 and 2019 was $6.4 million and $6.0 million, respectively. No interest expense was allocated to discontinued operations in fiscal 2020 or 2019. No interest was capitalized on properties in fiscal 2020 or 2019.
Note 16. Impairment of Long-Lived Assets, Store Closings, Discontinued Operations and Property Held for Sale
Impairment of Long-Lived Assets and Store Closings
We periodically evaluate long-lived assets held for use and held for sale whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. We analyze historical cash flows of operating locations and compare results of poorer performing locations to more profitable locations. We also analyze lease terms, condition of the assets and related need for capital expenditures or repairs, as well as construction activity and the economic and market conditions in the surrounding area.
We periodically evaluate our intangible assets, primarily the Fuddruckers trademarks and franchise agreements, to determine if events or changes in circumstances such as economic or market conditions indicate that the carrying amount of the assets may not be recoverable. We analyze historical cash flows of operating locations to determine trends that would indicate a need for impairment. We also analyze royalties and collectability from our franchisees to determine if there are trends that would indicate a need for impairment. Due to the effects of the COVID-19 pandemic on our operations, we identified a triggering event in the third quarter of fiscal 2020 and determined that no impairment provision was necessary.
For assets held for use, we estimate future cash flows using assumptions based on possible outcomes of the areas analyzed. If the estimated undiscounted future cash flows are less than the carrying value of the location’s assets, we record an impairment loss based on an estimate of discounted cash flows. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgments. Assumptions and estimates used include operating results, changes in working capital, discount rate, growth rate, anticipated net proceeds from disposition of the property and if applicable, lease terms. The span of time for which future cash flows are estimated is often lengthy, increasing the sensitivity to assumptions made. The time span is longer and could be 20 to 25 years for newer properties, but only 5 to 10 years for older properties. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluation of long-lived assets can vary within a wide range of outcomes. The Company considers the likelihood of possible outcomes in determining the best estimate of future cash flows. The measurement for such an impairment loss is then based on the fair value of the asset as determined by discounted cash flows.
The Company recognized the following impairment charges and gains on asset disposals to income from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
August 26, 2020
|
|
August 28, 2019
|
|
|
|
(In thousands, except per share data)
|
|
Net provision for asset impairments and restaurant closings
|
$
|
10,193
|
|
|
$
|
5,603
|
|
|
|
Net gain on disposition of property and equipment
|
(11,557)
|
|
|
(12,832)
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
(1,364)
|
|
|
$
|
(7,229)
|
|
|
|
Effect on EPS:
|
|
|
|
|
|
Basic
|
$
|
0.05
|
|
|
$
|
0.24
|
|
|
|
Assuming dilution
|
$
|
0.05
|
|
|
$
|
0.24
|
|
|
The $10.2 million provision for asset impairments and restaurant closings in fiscal 2020 is primarily related to the write off of $5.4 million of right-of-use assets for 24 of our leased locations where we permanently ceased operations during the period, impairment losses of $4.8 million on 24 of our restaurant locations and $0.3 million on the remaining goodwill related to Cheeseburger in Paradise, $1.2 million for certain surplus equipment written down to fair value, as well as $1.8 million of store closing expenses. These losses were partially offset by $3.3 million net gain on the termination of 17 leases for locations where we permanently ceased operations and negotiated buyouts of the leases. See Abandoned Lease Facilities - Liability for Store Closing section of this Note 16, below.
The $11.6 million net gain on disposition of property and equipment in fiscal 2020 is primarily related to $8.4 million gains on the sales of seven previously held for sale properties and $3.9 million gains on two previously held for use properties, partially offset by routine asset retirements.
The $12.8 million net gain on disposition of property and equipment in fiscal 2019 is primarily related to the $12.9 million gain on the sale of two properties, partially offset by asset retirements at three locations.
The $5.6 million provision from asset impairments and restaurant closings in fiscal 2019 is primarily related to assets impaired at nine property locations, goodwill at one property location, seven properties held for sale written down to their fair value, and a reserve for eight restaurant closings of $0.2 million.
Discontinued Operations
As a result of the first quarter fiscal 2010 adoption of the Company’s Cash Flow Improvement and Capital Redeployment Plan, the Company reclassified 24 Luby’s Cafeterias to discontinued operations. As of August 26, 2020, one location remains held for sale.
The following table sets forth the assets and liabilities for all discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 26,
2020
|
|
August 28,
2019
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
$
|
1,715
|
|
|
$
|
1,813
|
|
|
|
|
|
|
|
Assets related to discontinued operations—non-current
|
$
|
1,715
|
|
|
$
|
1,813
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
17
|
|
|
14
|
|
|
Liabilities related to discontinued operations—current
|
$
|
17
|
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
As of August 26, 2020, under both closure plans, the Company had one property classified as discontinued operations. The asset carrying value of the owned property was $1.7 million and is included in assets related to discontinued operations. The Company is actively marketing this property for sale.
The following table sets forth the sales and pretax losses reported for all discontinued locations in fiscal 2020 and fiscal 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
August 26,
2020
|
|
August 28,
2019
|
|
|
|
(In thousands, except locations)
|
|
Sales
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
$
|
(29)
|
|
|
$
|
(7)
|
|
|
|
Income tax benefit on discontinued operations
|
$
|
—
|
|
|
$
|
—
|
|
|
|
Loss on discontinued operations
|
$
|
(29)
|
|
|
$
|
(7)
|
|
|
|
Discontinued locations closed during the period
|
—
|
|
|
—
|
|
|
The following table summarizes discontinued operations for fiscal 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
August 26,
2020
|
|
August 28,
2019
|
|
|
|
(In thousands, except per share data)
|
|
Discontinued operating losses
|
$
|
(29)
|
|
|
$
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(29)
|
|
|
$
|
(7)
|
|
|
|
Income tax benefit (expense) from discontinued operations
|
—
|
|
|
—
|
|
|
|
Loss from discontinued operations, net of income taxes
|
$
|
(29)
|
|
|
$
|
(7)
|
|
|
|
Effect on EPS from discontinued operations—decrease—basic
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
Property Held for Sale
We periodically review long-lived assets against its plans to retain or ultimately dispose of properties. If we decide to dispose of a property, it will be reclassified to property held for sale and actively marketed. The Company analyzes market conditions each reporting period and records additional impairments due to declines in market values of like assets. The fair value of the property is determined by observable inputs such as appraisals and prices of comparable properties in active markets for assets like the Company’s. Gains are not recognized until the properties are sold.
Property held for sale includes unimproved land, closed restaurant properties and related equipment for locations not classified as discontinued operations. The specific assets are valued at the lower of net depreciable value or net realizable value. The Company actively markets all locations classified as property held for sale.
At August 26, 2020, the Company had 10 owned properties recorded at $11.2 million in property held for sale.
At August 28, 2019, the Company had 14 owned properties recorded at $16.5 million in property held for sale.
The pretax profit (loss) for the 10 held for sale locations was $(0.5) million and $0.2 million in fiscal 2020 and 2019, respectively.
The Company’s results of continuing operations will be affected to the extent proceeds from sales exceed or are less than net book value.
A roll forward of property held for sale for fiscal 2020, and 2019 is provided below (in thousands):
|
|
|
|
|
|
|
|
Balance as of August 29, 2018
|
$
|
19,469
|
|
|
Disposals
|
(6,036)
|
|
|
Net transfers to property held for sale
|
3,055
|
|
|
|
|
|
Balance as of August 28, 2019
|
$
|
16,488
|
|
|
Disposals
|
(9,590)
|
|
|
Net transfers to (from) property held for sale
|
4,351
|
|
|
|
|
|
Balance as of August 26, 2020
|
$
|
11,249
|
|
Abandoned Leased Facilities - Liability for Store Closing
As of August 26, 2020 and August 28, 2019, we classified 18 and 11 leased restaurants locations as abandoned. During fiscal 2020 we abandoned an additional 24 leased restaurants and we settled and terminated 17 leased restaurants. Although we remain obligated under the terms of the leases for the rent and other costs that may be associated with the leases, we decided to cease operations and we have no foreseeable plans to occupy the spaces as a company restaurant in the future. The total liability represents the present value of the total amount of rent and other direct costs (such as common area costs, property taxes, and insurance allocated by the landlord) for the remaining lease term less the present value of any sublease income expected to be collected.
The liability for our abandoned leases were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
August 26, 2020
|
August 28, 2019
|
|
Short-term lease liability
|
$
|
365
|
|
$
|
—
|
|
|
Long-term lease liability
|
2,348
|
|
—
|
|
|
Accrued expenses and other liabilities
|
2,088
|
|
1,441
|
|
|
Total
|
$
|
4,801
|
|
$
|
1,441
|
|
Note 17. Commitments and Contingencies
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Claims
From time to time, the Company is subject to various other private lawsuits, administrative proceedings and claims that arise in the ordinary course of its business. A number of these lawsuits, proceedings and claims may exist at any given time. These matters typically involve claims from guests, employees and others related to issues common to the restaurant industry. The Company currently believes that the final disposition of these types of lawsuits, proceedings, and claims will not have a material adverse effect on the Company’s financial position, results of operations, or liquidity. It is possible, however, that the Company’s future results of operations for a particular quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, proceedings, or claims.
Construction Activity
From time to time, the Company enters into non-cancelable contracts for the construction of its new restaurants or restaurant remodels. This construction activity exposes the Company to the risks inherent in this industry including but not limited to rising material prices, labor shortages, delays in getting required permits and inspections, adverse weather conditions, and injuries sustained by workers. The Company had no non-cancelable construction contracts as of August 26, 2020.
Cheeseburger in Paradise, Royalty Commitment
The license agreement and trade name relates to a perpetual license to use intangible assets including trademarks, service marks and publicity rights related to Cheeseburger in Paradise owned by Jimmy Buffett and affiliated entities. In return, the Company will pay a royalty fee of 2.5% of gross sales, less discounts, at the Company's operating Cheeseburger in Paradise locations to an entity owned or controlled by Jimmy Buffett. The trade name represents a respected brand with positive customer loyalty, and the Company intends to cultivate and protect the use of the trade name.
Note 18. Share-Based and Other Compensation
We have two active share-based stock plans, the Luby's Incentive Stock Plan, as amended and restated effective December 5, 2015 (the "Employee Stock Plan") and the Nonemployee Director Stock Plan. Both plans authorize the granting of stock options, restricted stock, and other types of awards consistent with the purpose of the plans.
Of the aggregate 2.1 million shares approved for issuance under the Nonemployee Director Stock Plan, (which amount includes shares authorized under the original plan and shares authorized pursuant to the amended and restated plan effective as of February 9, 2018), 2.2 million options, restricted stock units and restricted stock awards were granted, 0.1 million options expired or were canceled and added back into the plan, since the plans inception. Approximately 49 thousand shares remain available for future issuance as of August 26, 2020. Compensation cost for share-based payment arrangements under the Nonemployee Director Stock Plan, recognized in selling, general and administrative expenses for fiscal 2020 and 2019 was $0.8 million and $0.6 million, respectively.
Of the 4.1 million shares approved for issuance under the Employee Stock Plan (which amount includes shares authorized under the original plan and shares authorized pursuant to the amended and restated plan effective as of December 5, 2015), 7.4 million options and restricted stock units were granted, 5.2 million options and restricted stock units were canceled or expired and added back into the plan, since the plans inception in 2005. Approximately 1.8 million shares remain available for future issuance as of August 26, 2020. Compensation cost for share-based payment arrangements under the Employee Stock Plan, recognized in selling, general and administrative expenses for fiscal 2020 and 2019 was $0.3 million and $0.6 million, respectively.
Stock Options
Stock options granted under either the Employee Stock Plan or the Nonemployee Director Stock Plan have exercise prices equal to the market price of the Company’s common stock at the date of the grant. The market price under the Employee Stock Plan is the closing price at the date of the grant. The market price under the Nonemployee Director Plan is the average of the high and the low price on the date of the grant.
Option awards under the Nonemployee Director Stock Plan generally vest 100% on the first anniversary of the grant date and expire ten years from the grant date. No options were granted under the Nonemployee Director Stock Plan in fiscal 2020 or 2019. No options to purchase shares remain outstanding under this plan, as of August 26, 2020.
Options granted under the Employee Stock Plan generally vest 50% on the first anniversary of grant date, 25% on the second anniversary of the grant date and 25% on the third anniversary of the grant date, with all options expiring ten years from the grant date. No options were granted under the Employee Stock Plan in fiscal 2020 or 2019. Options to purchase 860,501 shares at options prices from $2.82 to $5.95 per share remain outstanding as of August 26, 2020.
The Company has segregated option awards into two homogeneous groups for the purpose of determining fair values for its options because of differences in option terms and historical exercise patterns among the plans. Valuation assumptions are determined separately for the two groups which represent, respectively, the Employee Stock Plan and the Nonemployee Director Stock Option Plan. The assumptions are as follows:
•The Company estimated volatility using its historical share price performance over the expected life of the option. Management believes the historical estimated volatility is materially indicative of expectations about expected future volatility.
•The Company uses an estimate of expected lives for options granted during the period based on historical data.
•The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option.
•The expected dividend yield is based on the Company’s current dividend yield and the best estimate of projected dividend yield for future periods within the expected life of the option.
A summary of the Company’s stock option activity for fiscal 2020 and 2019 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Under
Fixed
Options
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
(Per share)
|
|
(In Years)
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at August 29, 2018
|
1,653,414
|
|
|
$
|
4.10
|
|
|
6.4
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited / Cancelled
|
(178,700)
|
|
|
3.68
|
|
|
—
|
|
|
—
|
|
|
Expired
|
(87,302)
|
|
|
5.54
|
|
|
—
|
|
|
—
|
|
|
Outstanding at August 28, 2019
|
1,387,412
|
|
|
$
|
4.06
|
|
|
5.7
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited / Cancelled
|
(366,911)
|
|
|
4.31
|
|
|
—
|
|
|
—
|
|
|
Expired
|
(160,000)
|
|
|
3.44
|
|
|
—
|
|
|
—
|
|
|
Outstanding at August 26, 2020
|
860,501
|
|
|
$
|
4.07
|
|
|
5.0
|
|
$
|
—
|
|
|
Exercisable at August 26, 2020
|
824,287
|
|
|
$
|
4.12
|
|
|
4.9
|
|
$
|
—
|
|
The intrinsic value for stock options is defined as the difference between the market value at August 26, 2020 and the grant price.
At August 26, 2020, there was $10 thousand of total unrecognized compensation cost related to unvested options that are expected to be recognized over a weighted-average period of 0.3 years.
No options were granted in fiscal 2019 and fiscal 2020. During fiscal 2019 and 2020, no options were exercised.
Restricted Stock Units
Grants of restricted stock units consist of the Company’s common stock and generally vest after three years. All restricted stock units are cliff-vested. Restricted stock units are valued at market price of the Company’s common stock at the date of grant. The market price under the Employee Stock Plan is the closing price at the date of the grant. The market price under the Nonemployee Director Plan is the average of the high and the low price on the date of the grant.
A summary of the Company’s restricted stock unit activity during fiscal years 2019 and 2020 and is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
Units
|
|
Weighted
Average
Fair Value
|
|
Weighted-
Average
Remaining
Contractual Term
|
|
|
|
|
(Per share)
|
|
(In years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at August 29, 2018
|
517,291
|
|
|
$
|
3.79
|
|
|
1.8
|
|
Granted
|
4,410
|
|
|
1.15
|
|
|
—
|
|
|
Vested
|
(153,757)
|
|
|
4.66
|
|
|
—
|
|
|
Forfeited
|
(93,935)
|
|
|
3.41
|
|
|
—
|
|
|
Unvested at August 28, 2019
|
274,009
|
|
|
$
|
3.39
|
|
|
1.2
|
|
Granted
|
65,236
|
|
|
2.27
|
|
|
—
|
|
|
Vested
|
(152,139)
|
|
|
3.96
|
|
|
—
|
|
|
Forfeited
|
(13,298)
|
|
|
2.82
|
|
|
—
|
|
|
Unvested at August 26, 2020
|
173,808
|
|
|
$
|
2.57
|
|
|
2.0
|
At August 26, 2020, there was $0.2 million of total unrecognized compensation cost related to unvested restricted stock units that is expected to be recognized over a weighted-average period of 2.0 years.
Performance Based Incentive Plan
For fiscal years 2015 - 2018, the Company approved a Total Shareholder Return ("TSR") Performance Based Incentive Plan (“Plan”). Each Plan’s award value varies from 0% to 200% of a base amount, as a result of the Company’s TSR performance in comparison to its peers over the respective measurement period. Each Plan’s vesting period is three years.
The Plans for fiscal years 2015 - 2017 provided for a right to receive an unspecified number of shares of common stock under the Employee Stock Plan based on the total shareholder return ranking compared to a selection of peer companies over the three-year vesting period, for each plan year. The number of shares at the end of the three-year period was determined as the award value divided by the closing stock price on the last day of each fiscal year, accordingly. Each three-year measurement period is designated a plan year name based on year one of the measurement period. Since the plans provide for an indeterminate number of awards, the plans are accounted for as liability based plans. The liability valuation estimate for each plan year has been determined based on a Monte Carlo simulation model. Based on this estimate, management accrues expense ratably over the three-year service periods. A valuation estimate of the future liability associated with each fiscal year's performance award plan is performed periodically with adjustments made to the outstanding liability at each reporting period to properly state the outstanding liability for all plan years in the aggregate as of the respective balance sheet date.
The 2015 TSR Performance Based Incentive Plan vested for each active participant on August 30, 2017 and a total of 187,883 shares were awarded under the Plan at 50% of the original target. The fair value of the 2015 plan's liability in the amount of $496 thousand was converted to equity and the number of shares awarded for the 2015 TSR Performance Based Incentive Plan was based on the Company's stock price at closing on the last day of fiscal 2017.
The fair value of the 2016 TSR Performance Based Incentive Plan was zero at the end of the three-year measurement period and at August 28, 2019 no shares vested due to the relative ranking of the Company's stock performance.
The fair value of the 2017 TSR Performance Based Incentive Plan was zero at the end of the three-year measurement period and at August 26, 2020 no shares vested due to the relative ranking of the Company's stock performance.
The 2018 TSR Performance Based Incentive Plan provided for a specified number of shares of common stock under the Employee Stock Plan based on the total shareholder return ranking compared to a selection of peer companies over a three-year cycle. The Fair Value of the 2018 Plan has been determined based on a Monte Carlo simulation model for the three-year period. The target number of shares for distribution at 100% of the plan was 373,294. The 2018 TSR Performance Based Incentive Plan was accounted for as an equity award since the Plan provides for a specified number of shares. The expense for this Plan year is amortized over the three-year period based on 100% target award.
Non-cash compensation expense related to the Company's TSR Performance Based Incentive Plans in fiscal 2020 and 2019 was a credit to expense of $0.1 million, and $0.3 million, respectively, and is recorded in selling, general and administrative expenses on our consolidated statement of operations.
A summary of the Company’s restricted stock Performance Based Incentive Plan activity during fiscal 2020 is presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units
|
|
Weighted Average Fair Value
|
|
|
|
|
(Per share)
|
|
Unvested at August 29,2018
|
373,294
|
|
|
$
|
3.68
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
(106,851)
|
|
|
3.68
|
|
|
Unvested at August 28, 2019
|
266,443
|
|
|
$
|
3.68
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
(266,443)
|
|
|
3.68
|
|
|
Unvested at August, 26, 2020
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
Restricted Stock Awards
Under the Nonemployee Director Stock Plan, directors are granted restricted stock in lieu of cash payments, for all or a portion of their compensation as directors. Directors may receive a 20% premium of additional restricted stock by opting to receive stock over a minimum required amount of stock, in lieu of cash. The number of shares granted is valued at the average of the high and low price of the Company’s stock at the date of the grant. Restricted stock awards vest when granted because they are granted in lieu of a cash payment. However, directors are restricted from selling their shares until after the third anniversary of the date of the grant.
Cash and Restricted Share Bonus Plan
On August 12 2020, the Board of Directors approved a bonus opportunity agreement by which five members of management, including the Chief Operating Officer, the Chief Financial Officer and the Chief Accounting Officer are eligible to receive both a cash bonus and a restricted stock award bonus (collectively, the "retention awards"). The retention awards are intended to retain certain key employees in their roles with the Company and to carry out the Plan of Dissolution. A portion of the retention awards is earned for each of the closing of the sale of (1) our CCS business line, (2) the Fuddruckers business line and (3) 30 or more of our Luby's Cafeterias (each being a "Triggering Event"). The cash bonus will be paid on the next payroll cycle following such Triggering Event. The restricted stock award will be considered earned as of such Triggering Event and shall vest on the 1st anniversary of the Triggering Event, unless the individual's employment with us is terminated prior to the restriction lapsing. The total cash bonus available to be earned is $0.2 million. The total number of restricted stock available to be earned is 127,000 shares. The grant date for the restricted stock award was August 25, 2020 and the grant date fair value was $139 thousand, based on the average share price of our common stock on the grant date of $1.095. The grant date fair value will be recognized as compensation expense over the one year period from the Triggering Event to the vest date.
Supplemental Executive Retirement Plan
The Company has an unfunded Supplemental Executive Retirement Plan (“SERP”). In 2005, the Board of Directors voted to amend the SERP and suspend the further accrual of benefits and participation. The net benefit recognized for the SERP for the years ended August 26, 2020 and August 28, 2019 was zero, and the unfunded accrued liability included in “Other Liabilities” on the Company’s consolidated Balance Sheets as of August 26, 2020 and August 28, 2019 was $24 thousand and $32 thousand, respectively.
Nonemployee Director Phantom Stock Plan
The Company has a Nonemployee Director Phantom Stock Plan (“Phantom Stock Plan”). Authorized shares under the Phantom Stock Plan were fully depleted in early fiscal 2003; since that time, no deferrals, incentives or dividends have been credited to phantom stock accounts. As participants cease to be directors, their phantom shares are converted into an equal number of shares of common stock and issued from the Company’s treasury stock. As of August 26, 2020, 6,332 phantom shares remained outstanding and unconverted under the Phantom Stock Plan.
401(k) Plan
The Company has a voluntary 401(k) employee savings plan to provide substantially all employees of the Company an opportunity to accumulate personal funds for their retirement. Through March 18, 2020, we matched 25% of participants’ contributions made to the plan up to 6% of their salary. We suspended Company matching March 19, 2020 in response to the effect of the COVID-19 Pandemic on our operations, as more fully described at Note 3. COVID-19 Pandemic. The net expense recognized in connection with the employer match feature of the voluntary 401(k) employee savings plan for the fiscal years ended August 26, 2020 and August 28, 2019 was $0.2 million and $0.3 million, respectively.
Severance Agreements
On August 12, 2020, the Board of Directors approved severance agreements for eight members of management, including the Chief Operating Officer, the Chief Financial Officer and the Chief Accounting Officer. The agreements provide for a separation payment upon (1) termination by the Company of employment without cause (as defined in the severance agreement), (2) resignation for Good Reason (as defined in the Appendix to the severance agreement), in either case the individual ceases to be an employed by us or a successor to all or part of our business. The separation payment will not be paid if the individual is offered, but declines comparable employment with a successor. The separation payment is calculated as a percentage of the individual's annual base salary, ranging from 25% to 100%. The total amount of severance that would be paid as of August 26, 2020 is $1.0 million.
Note 19. Related Parties
Affiliate Services
The Company’s Chief Executive Officer, Christopher J. Pappas, and Harris J. Pappas, a former Director of the Company, own two restaurant entities (the “Pappas entities”) that may, from time to time, provide services to the Company and its subsidiaries, as detailed in the Amended and Restated Master Sales Agreement dated August 2, 2017 among the Company and the Pappas entities. Collectively, Messrs. Pappas and the Pappas entities own greater than 5% of the Company's common stock.
Under the terms of the Amended and Restated Master Sales Agreement, the Pappas entities may provide specialized (customized) equipment fabrication and basic equipment maintenance, including stainless steel stoves, shelving, rolling carts, and chef tables. The Company incurred $8 thousand and $19 thousand under the Amended and Restated Master Sales Agreement for custom-fabricated and refurbished equipment in fiscal 2020 and 2019, respectively. Services provided under this agreement are subject to review and approval by the Finance and Audit Committee of the Company’s Board of Directors.
Operating Leases
In the third quarter of fiscal 2004, Messrs. Pappas became partners in a limited partnership which purchased a retail strip center in Houston, Texas. Messrs. Pappas collectively own a 50% limited partnership interest and a 50% general partnership interest in the limited partnership. A third party company manages the center. One of the Company’s restaurants has rented 7% of the space in that center since July 1969. No changes were made to the Company’s lease terms as a result of the transfer of ownership of the center to the new partnership.
On November 22, 2006, the Company executed a new lease agreement with respect to this shopping center. Effective upon the Company’s relocation and occupancy into the new space in July 2008, the new lease agreement provides for a primary term of 12 years with two subsequent five-year options and gives the landlord an option to buy out the tenant on or after the calendar year 2015 by paying the then unamortized cost of improvements to the tenant. The Company pays rent of $22.00 per square foot plus maintenance, taxes, and insurance during the remaining primary term of the lease. Thereafter, the lease provides for increases in rent at set intervals. The new lease agreement was approved by the Finance and Audit Committee. Due to the COVID-19 pandemic, the landlord agreed to abate the rent for April, 2020. We entered into an amendment to the lease, effective July 1, 2020, whereby (1) the lease will early terminate on December 31, 2020, (2) the rent for May and June of 2020 is abated and (3) commencing July 1, 2020 through the early termination date, the monthly rent is a fixed gross amount. The amendment was approved by the Finance and Audit Committee of our Board of Directors.
In the third quarter of fiscal 2014, on March 12, 2014, the Company executed a new lease agreement for one of the Company’s Houston Fuddruckers locations with Pappas Restaurants, Inc. The lease provides for a primary term of six years with two subsequent five-year options. Pursuant to the new ground lease agreement, the Company pays rent of $28.53 per square foot plus maintenance, taxes, and insurance from March 12, 2014 until May 31, 2020. Thereafter, the new ground lease agreement provides for increases in rent at set intervals. In December 2019 we exercised the first five-year renewal option, effective June 1, 2020. The renewal was approved by the Finance and Audit Committee of our Board of Directors. Due to the COVID-19 pandemic, Pappas Restaurants, Inc. agreed to abate the rent for April and May of 2020.
For the fiscals years ended August 26, 2020 and August 28, 2019, affiliated rents incurred as a percentage of total Company cost was 0.52% and 0.57%, respectively. Rent payments under the two lease agreements described above were $411 thousand and $593 thousand in fiscal 2020 and 2019, respectively.
Key Management Personnel
The Company entered into a new employment agreement with Christopher Pappas on December 11, 2017. Under the employment agreement, the initial term of Mr. Pappas' employment ended on August 28, 2019 and automatically renews for additional one year periods, unless terminated in accordance with its terms. Mr. Pappas continues to devote his primary time and business efforts to the Company while maintaining his role at Pappas Restaurants, Inc. The Employment Agreement was unanimously approved by the Compensation Committee (the “Committee”) of the Board as well as by the full Board. Effective August 1, 2018, the Company and Christopher J. Pappas agreed to reduce his fixed annual base salary to one dollar.
Paulette Gerukos, Vice President of Human Resources of the Company, is the sister-in-law of Harris J. Pappas.
Note 20. Common Stock
At August 26, 2020, the Company had 500,000 shares of common stock reserved for issuance upon the exercise of outstanding stock options.
Treasury Shares
In February 2008, the Company acquired 500,000 treasury shares for $4.8 million.
Note 21. Earnings Per Share
A reconciliation of the numerators and denominators of basic earnings per share and earnings per share assuming dilution is shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
August 26,
2020
|
|
August 28,
2019
|
|
|
|
(In thousands, except per share data)
|
|
Numerator:
|
|
|
|
|
|
Loss from continuing operations
|
$
|
(29,421)
|
|
|
$
|
(15,219)
|
|
|
|
Net Loss
|
$
|
(29,450)
|
|
|
$
|
(15,226)
|
|
|
|
Denominator:
|
|
|
|
|
|
Denominator for basic earnings per share—weighted-average shares
|
30,294
|
|
|
29,786
|
|
|
|
Effect of potentially dilutive securities:
|
|
|
|
|
|
Employee and non-employee stock options
|
—
|
|
|
—
|
|
|
|
Denominator for earnings per share assuming dilution
|
30,294
|
|
|
29,786
|
|
|
|
Loss from continuing operations:
|
|
|
|
|
|
Basic
|
$
|
(0.97)
|
|
|
$
|
(0.51)
|
|
|
|
Assuming dilution (a)
|
$
|
(0.97)
|
|
|
$
|
(0.51)
|
|
|
|
Net loss per share:
|
|
|
|
|
|
Basic
|
$
|
(0.97)
|
|
|
$
|
(0.51)
|
|
|
|
Assuming dilution (a)
|
$
|
(0.97)
|
|
|
$
|
(0.51)
|
|
|
(a) Potentially dilutive shares, not included in the computation of net income per share because to do so would have been anti-dilutive, totaled 76,572 shares in fiscal 2020 and 63,000 shares in fiscal 2019. Additionally, stock options with exercise prices exceeding market close prices that were excluded from the computation of net income per share amounted to 860,501 shares in fiscal 2020 and 1,387,000 shares in fiscal 2019.
Note 22. Shareholder Rights Plan
On February 15, 2018, the Board of Directors adopted a rights plan with a 10% triggering threshold and declared a dividend distribution of one right initially representing the right to purchase one half of a share of Luby’s common stock, upon specified terms and conditions. The rights plan was effective immediately.
The Board adopted the rights plan in view of the concentrated ownership of Luby’s common stock as a means to ensure that all of Luby’s stockholders are treated equally. The rights plan is designed to limit the ability of any person or group to gain control of Luby’s without paying all of Luby’s stockholders a premium for that control. The rights plan was not adopted in response to any specific takeover bid or other plan or proposal to acquire control of Luby’s.
If a person or group acquires 10% or more of the outstanding shares of Luby’s common stock (including in the form of synthetic ownership through derivative positions), each right will entitle its holder (other than such person or members of such group) to purchase, for $12.00, a number of shares of Luby’s common stock having a then-current market value of twice such price. The rights plan exempts any person or group owning 10% or more (35.5% or more in the case of Harris J. Pappas, Christopher J. Pappas and their respective affiliates and associates) of Luby’s common stock immediately prior to the adoption of the rights plan. However, the rights will be exercisable if any such person or group acquires any additional shares of Luby’s common stock (including through derivative positions) other than as a result of equity grants made by Luby’s to its directors, officers or employees in their capacities as such.
Prior to the acquisition by a person or group of beneficial ownership of 10% or more of the outstanding shares of Luby’s common stock, the rights are redeemable for 1 cent per right at the option of Luby’s Board of Directors.
The dividend distribution was made on February 28, 2018 to stockholders of record on that date. Unless and until a triggering event occurs and the rights become exercisable, the rights will trade with shares of Luby’s common stock.
Luby’s financial condition, operations, and earnings per share was not affected by the adoption of the rights plan.
On February 11, 2019, the Board of Directors approved the first amendment to the shareholder rights plan extending the term of the plan to February 15, 2020. On February 14, 2020, the Board of Directors approved the second amendment to the shareholder rights plan extending the term of the plan to February 15, 2021. See Note 2. Subsequent Events.
Note 23. Quarterly Financial Information
The following tables summarize quarterly unaudited financial information for fiscal 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
August 26,
2020
|
|
June 3,
2020
|
|
March 11,
2020
|
|
December 18,
2019
|
|
|
(84 days)
|
|
(84 days)
|
|
(84 days)
|
|
(112 days)
|
|
|
(In thousands, except per share data)
|
|
Restaurant sales
|
$
|
25,729
|
|
|
$
|
13,832
|
|
|
$
|
60,392
|
|
|
$
|
83,558
|
|
|
Franchise revenue
|
576
|
|
|
193
|
|
|
1,158
|
|
|
1,707
|
|
|
Culinary contract services
|
5,012
|
|
|
4,963
|
|
|
6,998
|
|
|
9,774
|
|
|
Vending revenue
|
—
|
|
|
6
|
|
|
14
|
|
|
110
|
|
|
Total sales
|
$
|
31,317
|
|
|
$
|
18,994
|
|
|
$
|
68,562
|
|
|
$
|
95,149
|
|
|
Income (loss) from continuing operations
|
7,674
|
|
|
(24,972)
|
|
|
(3,796)
|
|
|
(8,327)
|
|
|
Loss from discontinued operations
|
(5)
|
|
|
(7)
|
|
|
(6)
|
|
|
(11)
|
|
|
Net income (loss)
|
$
|
7,669
|
|
|
$
|
(24,979)
|
|
|
$
|
(3,802)
|
|
|
$
|
(8,338)
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.25
|
|
|
$
|
(0.82)
|
|
|
$
|
(0.13)
|
|
|
$
|
(0.28)
|
|
|
Assuming dilution
|
$
|
0.25
|
|
|
$
|
(0.82)
|
|
|
$
|
(0.13)
|
|
|
$
|
(0.28)
|
|
|
Costs and Expenses (as a percentage of restaurant sales)
|
|
|
|
|
|
|
|
Cost of food
|
27.7
|
%
|
|
29.2
|
%
|
|
28.8
|
%
|
|
28.7
|
%
|
|
Payroll and related costs
|
32.8
|
%
|
|
39.7
|
%
|
|
39.4
|
%
|
|
38.5
|
%
|
|
Other operating expenses
|
23.2
|
%
|
|
41.7
|
%
|
|
16.7
|
%
|
|
17.7
|
%
|
|
Occupancy costs
|
10.3
|
%
|
|
26.7
|
%
|
|
6.3
|
%
|
|
6.0
|
%
|
Results for the quarter ended August 26, 2020 includes:
(1) $4.3 million net gain in Provision for asset impairments and store closings is due to the termination of 17 leases for locations where we permanently ceased operations and negotiated buyouts of the leases.
(2) $8.7 million net gain on disposition of property and equipment, primarily due to the gain on the sale of five properties previously held for sale and one property previously held for use, partially offset by routine asset retirements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
August 28, 2019
|
|
June 5,
2019
|
|
March 13,
2019
|
|
December 19,
2018
|
|
|
(84 days)
|
|
(84 days)
|
|
(84 days)
|
|
(112 days)
|
|
|
(In thousands, except per share data)
|
|
Restaurant sales
|
$
|
62,434
|
|
|
$
|
65,611
|
|
|
$
|
65,370
|
|
|
$
|
91,098
|
|
|
Franchise revenue
|
1,563
|
|
|
1,482
|
|
|
1,421
|
|
|
2,224
|
|
|
Culinary contract services
|
7,278
|
|
|
7,571
|
|
|
7,543
|
|
|
9,496
|
|
|
Vending revenue
|
88
|
|
|
102
|
|
|
90
|
|
|
99
|
|
|
Total sales
|
$
|
71,363
|
|
|
$
|
74,766
|
|
|
74,424
|
|
|
$
|
102,917
|
|
|
Income (loss) from continuing operations
|
(9,081)
|
|
|
(5,295)
|
|
|
6,640
|
|
|
(7,483)
|
|
|
Income (loss) from discontinued operations
|
12
|
|
|
(6)
|
|
|
(8)
|
|
|
(5)
|
|
|
Net income (loss)
|
$
|
(9,069)
|
|
|
$
|
(5,301)
|
|
|
$
|
6,632
|
|
|
$
|
(7,488)
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.30)
|
|
|
$
|
(0.18)
|
|
|
$
|
0.22
|
|
|
$
|
(0.25)
|
|
|
Assuming dilution
|
$
|
(0.30)
|
|
|
$
|
(0.18)
|
|
|
$
|
0.22
|
|
|
$
|
(0.25)
|
|
|
Costs and Expenses (as a percentage of restaurant sales)
|
|
|
|
|
|
|
|
Cost of food
|
28.5
|
%
|
|
28.2
|
%
|
|
27.8
|
%
|
|
27.5
|
%
|
|
Payroll and related costs
|
38.8
|
%
|
|
38.1
|
%
|
|
37.8
|
%
|
|
37.9
|
%
|
|
Other operating expenses
|
18.4
|
%
|
|
17.5
|
%
|
|
17.5
|
%
|
|
18.1
|
%
|
|
Occupancy costs
|
6.5
|
%
|
|
6.1
|
%
|
|
6.4
|
%
|
|
6.4
|
%
|