UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FORM 10-K
[X]
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) | |
| OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Fiscal Year Ended August 25, 200431, 2005
[ ]
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) | |
| OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the Transition Period From _____ to ____
Commission file number1-8308 Luby's, Inc.
(Exact name of registrant as specified in its charter)Delaware | | 74-1335253 |
| | |
(State of incorporation) | | (IRS Employer Identification Number) |
| | |
Through December 3, 2004:
2211 Northeast Loop 410
San Antonio, Texas 78217
After December 3, 2004:
13111 Northwest Freeway, Suite 600
Houston, Texas 77040 |
|
(Address of principal executive offices, including zip code) |
(210) 654-9000
| www.lubys.com
(713) 329-6800 |
|
(Registrant's telephone number, including area code, and Website)code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of Class | | Name of Exchange on
which registered |
Common Stock Par Value ($.32 par value) value per share) | | New York Stock Exchange |
| | |
| | |
Common Stock Purchase Rights | | New York Stock Exchange |
| | |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X xNo o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]The aggregate market value
x Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the shares of Common Stock of the registrant held by nonaffiliates of the registrant as of October 20, 2004, was approximately $134,131,624 (based upon the assumption that directors and executive officers are the only affiliates)Exchange Act).The aggregate market value of the shares of Common Stock of the registrant held by nonaffiliates of the registrant as of February 11, 2004, was approximately $78,838,744 (based upon the assumption that directors and executive officers are the only affiliates).
Yes
o No x
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X xNo o
The aggregate market value of the shares of common stock of the registrant held by nonaffiliates of the registrant as of February 9, 2005, was approximately $130,315,279 (based upon the assumption that directors and executive officers are the only affiliates).
As of
October 20, 2004,November 7, 2005, there were
22,480,00425,964,505 shares of the registrant's
Common Stockcommon stock outstanding, which does not include
4,933,0631,676,403 treasury shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference into the designated parts of this Form 10-K:
Definitive Proxy Statement relating to 20052006 annual meeting of shareholders (in Part III) Luby's, Inc.
Form 10-K
Year ended August 25, 2004
31, 2005
The Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports are available free of charge via hyperlink on its website at www.lubys.com. The Company makes these reports available as soon as reasonably practicable upon filing with the SEC. Information on the Company's website is not incorporated into this report.
Compliance with New York Stock Exchange Requirements As required by the New York Stock Exchange (“NYSE”) Listed Company Manual, the CEO of the Company submitted the previous year’s certification to the NYSE certifying that the CEO is not aware of any violation by the Company of the NYSE corporate governance listing standards as of the date of that certification.
The Company is filing as an exhibit to this Form 10-K the certifications required by Section 302 of the Sarbanes-Oxley Act of 2002.
Item 1. Business
OverviewOverview
Luby's, Inc. (formerly, Luby's Cafeterias, Inc.) was originally incorporated in Texas in 1959 and was reincorporated in Delaware on December 31, 1991.
Until December 3, 2004, the Company's administrative offices will be located at 2211 Northeast Loop 410, P. O. Box 33069, San Antonio, Texas 78265-3069. On December 3, 2004, the Company will relocate itsThe Company’s corporate offices
toare located at 13111 Northwest Freeway, Suite 600, Houston, Texas
77040.77040 and its telephone number at that address is (713) 329-6800.
Luby's, Inc. was restructured into a holding company on February 1, 1997, at which time all of the operating assets were transferred to Luby's Restaurants Limited Partnership, a Texas limited partnership composed of two wholly owned, indirect corporate subsidiaries of the Company. All restaurant operations are conducted by the partnership. Unless the context indicates otherwise, the word
"Company"“Company”, as used herein includes the partnership and the consolidated corporate subsidiaries of Luby's, Inc.
The Company operates under only one business segment.
As of
October 20, 2004,November 7, 2005, the Company operated
136131 restaurants under the name
"Luby's."“Luby's.” These establishments are located in close proximity to retail centers, business developments, and residential areas throughout five states (listed under Item 2). Of the
136131 restaurants,
9493 are
at locationslocated on properties owned by the Company and
4238 are on leased premises. Two of the restaurants primarily serve seafood,
one is a steak buffet, threefour are full-time buffets,
11seven are cafeteria-style restaurants with all-you-can-eat options, and
119118 are traditional cafeterias.
Operations
The Company's operations provide guests with a wide variety of delicious, home-style food, with the majority of locations serving
cafeteria-style.food in a cafeteria-style manner. Daily, each restaurant offers 20 to 22 entrees, 12 to 14 vegetable dishes, 12 to 16 salads, and 16 to 20 varieties of desserts. Food is prepared in small quantities throughout serving hours, and frequent quality checks are conducted.
The Company's historical marketing research has shown that its products appeal to a broad range of value-oriented consumers with particular success among families with children, seniors, shoppers, travelers, and business people looking for a quick, home-style meal at a reasonable price. During fiscal
2004,2005, the Company spent approximately
1.3%1.9% of its sales on traditional marketing venues, including television, newsprint, radio, point-of-purchase, and local-store marketing.
The Company has invested in distinctive store marquees to enhance guest awareness of specific store promotions, with marquees at 99 operating locations as of the end of fiscal 2004.
Luby's restaurants are generally open for lunch and dinner seven days a week. All of the restaurants sell take-out orders, and many of them have separate food-to-go entrances, which provide guests the option of enjoying complete and flavorful meals at the office or at home. Take-out orders accounted for
13.7%14.3% of
total sales in fiscal
2004. Breakfast is served2005. Twenty-five of the Luby’s restaurants serve breakfast on
the weekends,
in 34 of its restaurants, accounting for
1.2%1.0% of
sales.total sales in fiscal 2005. Those locations offer a wide array of popular breakfast foods served
buffet style.buffet-style. They also
havefeature made-to-order
omelette,omelet, pancake, and waffle stations.
The Company operates from a centralized purchasing arrangement to obtain the economic benefit of bulk purchasing and lower prices for most of its food products. The arrangement involves a competitively selected prime vendor for each of its three major purchasing regions.
Food is prepared fresh daily at the Company's restaurants. Menus are reviewed periodically by a committee of managers and chefs. The committee introduces newly developed recipes to ensure offerings are varied and that seasonal food preferences are incorporated.
Quality control teams also help to maintain uniform standards of food preparation. The teams visit each restaurant as necessary and work with the staff to confirm adherence to Company recipes, train personnel in new techniques, and implement systems and procedures used universally throughout the Company.
During the fiscal year ended August 31, 2005, the Company closed seven underperforming units.
As of November 7, 2005, the Company had a workforce of 7,680, consisting of 7,200 non-management restaurant workers; 330 restaurant managers, associate managers, and assistant managers; and 150 clerical, administrative, and
executive employees. Each restaurant is operated as a separate unit under the control of a general manager who has responsibility for day-to-day operations, including food production and personnel employment and supervision. The
Company'sCompany’s philosophy is to grant authority to its restaurant managers to direct the daily operations of their stores and, in turn, to compensate them on the basis of their performance, believing this strategy to be a significant factor in restaurant profitability.
Of the total numberThe majority of general managers employed by the
Company, 95company, 89, as of November 7, 2005, have
been employed for more than ten
years. The Company operates from a centralized purchasing arrangement to obtainyears of experience at Luby’s. This large percentage of tenured general managers enhances the economic benefit of bulk purchasing and lower prices for most of its food products. The arrangement involves a competitively selected prime vendor for each of its three major purchasing regions.
Foods are prepared fresh daily at the Company's restaurants. Menus are reviewed periodically by a committee of managers and chefs. The committee introduces newly developed recipes to ensure offerings are varied and that seasonal food preferences are incorporated.
Quality control teams also help to maintain uniform standards of food preparation. The teams visit each restaurant as necessary and work with the staff to check adherence to Company recipes, train personnel in new techniques, and implement systems and procedures used universally throughout the Company.
During the fiscal year ended August 25, 2004, the Company closed approximately 10 underperforming units, of which approximately four were adopted into its business plan. Additionally, three stores closed in fiscal 2003 were also adopted into the plan.
As of the fiscal year-end, the Company had a workforce of approximately 7,400, consisting of 6,800 nonmanagement restaurant workers; 400 restaurant managers, associate managers, and assistant managers; and 200 clerical, administrative, and executive employees.Company’s execution. Employee relations are considered to be good. The Company has never had a strike or work stoppage and is not subject to collective bargaining agreements.
Service Marks
The Company uses several service marks, including
"Luby's,"“Luby's,” and believes that such marks are of material importance to its business. The Company has federal registrations for its service marks as deemed appropriate.
The Company is not the sole user of the name Luby's in the cafeteria business. A cafeteria using the name Luby's is being operated in Texas by an unaffiliated company. The Company's legal counsel is of the opinion that the Company has the paramount right to use the name Luby's as a service mark in the United States and that the other user could be precluded from expanding its use of the name as a service mark.
Competition
An investment in our common stock involves a high degree of risk. You should consider carefully the risks and Other Factors
uncertainties described below, and all other information included in this Annual Report on Form 10-K, before you decide whether to purchase our common stock. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also become important factors that may harm our business, financial condition or results of operations. The foodserviceoccurrence of any of the following risks could harm our business, financial condition and results of operations. The trading price of our common stock could decline due to any of these risks and uncertainties, and you may lose part or all of your investment.
We face intense competition, and if we are unable to compete effectively, our business and financial performance will be adversely affected.
The restaurant industry is
highlyintensely competitive and
thereis affected by changes in customer tastes and dietary habits and by national, regional and local economic conditions and demographic trends. New menu items, concepts, and trends are
numerousconstantly emerging. We compete on quality, variety, value, service, concept, price, and location with well-established national and regional chains, as well as with locally owned and operated restaurants. We face significant competition from family-style restaurants, fast-casual restaurants, and
other foodservice operations in eachbuffets as well as fast food restaurants. In addition, we also face growing competition as a result of the
markets where the Company operates. The quality of food served,trend toward convergence in
relation to pricegrocery, deli, and
public reputation, is an important factor in foodservice competition. Neither the Company nor any of its competitors has a significant share of the total market in any area in which the Company competes. The Company believes that its principal competitors include family-style and fast-casual restaurants, buffets, and quick-service establishmentsrestaurant services, particularly in the
home-meal-replacement category. The Company's facilitiessupermarket industry, which offers “convenient meals” in the form of improved entrées and side dishes from the deli section. Many of our competitors have significantly greater financial resources than we do. We also compete with other restaurants and retail establishments for restaurant sites and personnel. We anticipate that intense competition will continue. If we are unable to compete effectively, our business, financial condition, and results of operations would be materially adversely affected.
Changes in customer preferences for cafeteria-style dining could adversely affect our financial performance.
Changing customer preferences, tastes and dietary habits can adversely impact our business and financial performance. We offer a large variety of entrees, side dishes and desserts and our continued success depends, in part, on the popularity of our cuisine and cafeteria-style dining. A change away from this cuisine or dining style could have a material adverse effect on our results of operations. In addition, we may lose customers as a result of price increases.
We face the risk of adverse publicity and litigation, the cost of which could have a material adverse effect on our business and financial performance.
We may from time to time be the subject of complaints or litigation from customers alleging illness, injury or other food productsquality, health or operational concerns. Publicity resulting from these allegations may materially adversely affect us, regardless of whether the allegations are valid or whether we are liable. In addition, we are subject to employee claims alleging injuries, wage and hour violations, discrimination, harassment or wrongful termination. In recent years, a number of restaurant companies have been subject to lawsuits, including class action lawsuits,
alleging violations of federal and state law regarding workplace, employment and similar matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. Regardless of whether any claims against us are valid or whether we are ultimately determined to be liable, claims may be expensive to defend and may divert time and money away from our operations and hurt our financial performance. A judgment significantly in excess of our insurance coverage, if any, for any claims could materially adversely affect our financial condition or results of operations.
Unfavorable publicity relating to one or more of our restaurants may taint public perception of the Luby's brand. Multi-unit restaurant businesses can be adversely affected by publicity resulting from poor food quality, illness or other health concerns or operating issues stemming from one or a limited number of restaurants.
Our business is affected by local, state and local health and sanitation laws. In addition, the Company's operations arefederal regulations.
The restaurant industry is subject to extensive federal, state and local laws and regulations. The development and operation of restaurants depend to a significant extent on the selection and acquisition of suitable sites, which are subject to zoning, land use, environmental, traffic and other regulations and requirements. We are also subject to licensing and regulation by state and local authorities relating to health, sanitation, safety and fire standards, building codes and liquor licenses, federal and state laws governing our relationships with respect to environmentalemployees (including the Fair Labor Standards Act and applicable minimum wage requirements, overtime, unemployment tax rates, family leave, tip credits, working conditions, safety matters, including regulations concerning airstandards and water pollutioncitizenship requirements), federal and regulations understate laws which prohibit discrimination and other laws regulating the design and operation of facilities, such as the Americans withWith Disabilities Act of 1990. In addition, we are subject to a variety of federal, state and the federal Occupational Safety and Health Act. Over the years, suchlocal laws and regulations relating to the use, storage, discharge, emission, and disposal of hazardous materials. The impact of current laws and regulations, the effect of future changes in laws or regulations that impose additional requirements and the consequences of litigation relating to current or future laws and regulations could increase our compliance and other costs of doing business and therefore, have resultedan adverse effect on our results of operations. Failure to comply with the laws and regulatory requirements of federal, state and local authorities could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability.
If we are unable to anticipate and react to changes in food, utility and other costs, our results of operations could be materially adversely affected.
Many of the food and beverage products we purchase are affected by commodity pricing, and as such, are subject to price volatility caused by production problems, shortages, weather or other factors outside of our control. Our profitability depends, in part, on our successfully anticipating and reacting to changes in the prices of commodities. Therefore, we enter into purchase commitments with suppliers when we believe that it is advantageous for us to do so. Should there be an adverse change in commodity prices, we may be forced to absorb the additional costs rather than transfer the resulting increases in commodity prices to our customers in the form of price increases. Our success also depends, in part, on our ability to absorb increases in utility costs. Our operating results are affected by fluctuations in the price of utilities. Our inability to anticipate and respond effectively to an adverse change in any of these factors could have a significant adverse effect on our results of operations.
Because our restaurants are concentrated in Texas, regional events can adversely affect our financial performance.
Approximately 94% of our restaurants were located in Texas as of November 7, 2005. Our remaining restaurants are located in Arizona, Arkansas, Louisiana, and Oklahoma. This concentration could adversely affect our financial performance in a number of ways. For example, our results of operations may be adversely affected by economic conditions in Texas or the Southern United States or the occurrence of an event of terrorism or natural disaster in any of the communities in which we operate. Also, given our geographic concentration, adverse publicity relating to our restaurants could have a more pronounced adverse effect on our overall revenues than might be the case if our restaurants were more broadly dispersed.
Inclement weather can adversely affect our financial performance.
Many of our restaurants are located in the Texas Gulf Coast region. Although we generally maintain property and casualty insurance to protect against property damage caused by casualties and natural disasters, inclement weather, flooding, hurricanes and other acts of God can adversely impact our sales in several ways. For example, poor weather typically discourages potential customers from going out to eat. In addition, a restaurant that is damaged by a natural disaster can be inoperable for a significant amount of time.
Our planned expansion may not be successful.
We plan to begin development of two new cafeteria restaurants in Texas, which we currently expect to open in 2007. Our ability to open and profitably operate restaurants is subject to various risks such as the identification and availability of suitable and economically viable locations, the negotiation of acceptable lease or purchase terms for new locations, the need to obtain all required governmental permits (including zoning approvals) on a timely basis, the need to comply with other regulatory requirements, the availability of necessary contractors and subcontractors, the availability of construction materials and labor, the ability to meet construction schedules and budgets, the ability to manage union activities such as picketing or hand billing which could delay construction, increases in labor and building materials costs, the availability of financing at acceptable rates and terms, changes in weather or other acts of God that could result in construction delays and adversely affect the results of one or more restaurants for an indeterminate amount of time, our ability to hire and train qualified management personnel and general economic and business conditions. At each potential location, we compete with other restaurants and retail businesses for desirable development sites, construction contractors, management personnel, hourly employees and other resources. If we are unable to successfully manage these risks, we could face increased costs and lower than anticipated revenues and earnings in future periods.
If we lose the services of any of our key management personnel, our business could suffer.
The success of our business is highly dependent upon our key management personnel, particularly Christopher J. Pappas, our President and Chief Executive Officer, and Harris J. Pappas, our Chief Operating Officer. The loss of the services of any of our key management personnel could have a materially adverse effect upon our business.
Labor shortages or increases in labor costs could harm our business.
Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including regional managers, restaurant general managers and chefs, in a manner consistent with our standards and expectations. Qualified individuals that we need to fill these positions are in short supply and competition for these employees is intense. If we are unable to recruit and retain sufficient qualified individuals, our operations and reputation could be adversely affected. Additionally, competition for qualified employees could require us to pay higher wages, which could result in higher labor costs. If our labor costs increase, our results of operations will be negatively affected.
Our business is subject to seasonal fluctuations, and, as a result, our results of operations for any given quarter may not be indicative of the results that may be achieved for the full fiscal year.
Our business is subject to seasonal fluctuations. Historically, our highest earnings have occurred in the third quarter of the fiscal year, as our revenues in most of our restaurants have typically been absorbed byhigher during the Company,third quarter of the fiscal year. Similarly, our results of operations for any single quarter will not necessarily be indicative of the results that may be achieved for a full fiscal year.
General economic factors may adversely affect our results of operations.
National, regional and local economic conditions, such as recessionary economic cycles, a protracted economic slowdown or a worsening economy, could adversely affect disposable consumer income and consumer confidence. Unfavorable changes in
turn, improving its compliance.these factors or in other business and economic conditions affecting our customers could reduce customer traffic in some or all of our restaurants, impose practical limits on our pricing and increase our costs, any of which could lower our profit margins and have a material adverse affect on our results of operations.
An increase in the minimum wage could adversely affect our financial performance.
From time to time, the U.S. Congress considers an increase in the federal minimum wage. The restaurant industry is intensely competitive, and if the federal minimum wage is increased, we may not be able to transfer all of the resulting increases in operating costs to our customers in the form of price increases. In addition, since our business is labor-intensive, shortages in the labor pool or other inflationary pressure could increase labor costs, which could harm our financial performance.
Inflation can negatively affect our financial performance.
The impact of inflation on food, labor and other aspects of our business can negatively affect our results of operations. Commodity inflation in food, beverages and utilities can also impact our financial performance. Although we attempt to offset inflation through periodic menu price increases, cost controls and incremental improvement in operating margins, we may not be able to completely do so which could negatively affect our results of operations.
The Company's restaurants typically contain 8,000 to 10,500 square feet of floor space and can seat 250 to 300 guests simultaneously.
Luby's restaurants are well maintained and in good condition. In order to maintain appearance and
utility,operating efficiency, the Company refurbishes and updates its restaurants and equipment and performs scheduled maintenance.
As of
October 20, 2004,November 7, 2005, the Company's restaurants
arewere regionally located as follows: two in Arizona, two in Arkansas, two in Louisiana,
threetwo in Oklahoma, and
127123 in Texas.
The Company owns the underlying land and buildings in which
9493 of its restaurants are located.
SeveralNine of these restaurant properties contain excess building space, which is rented to tenants unaffiliated with the Company.
In addition to the owned locations, 4238 other restaurants are held under leases, including 1714 in regional shopping malls. Most of the leases provide for a combination of fixed-dollar and percentage rentals. Many require the Company to pay additional amounts related to property taxes, hazard insurance, and maintenance of common areas. Of the 38 restaurant leases, the current terms of 16 expire before 2010, 13 expire between 2010 to 2014, and nine thereafter. Of the 38 restaurant leases, 36 can be extended beyond their current terms at the Company's option. The Company leases approximately 25,000 square feet of corporate office space, which lease extends through 2011. The corporate office space is located off the Northwest Freeway in Houston, Texas in close proximity to many of its Houston restaurant locations. The Company also leases warehouse space in the Houston, Texas area (See “Affiliations and Related Parties - Affiliations”). See Note 911, “Operating Leases” of the Notes to Consolidated Financial Statements for information concerning the Company's lease rental expenses and lease commitments. Of the 42 restaurant leases, the current terms
As of
23 expire before 2010, ten from 2010 to 2014, and nine thereafter. Thirty-six of the leases can be extended beyond their current terms at the Company's option.In addition to the properties currently in operation,November 7, 2005, the Company also has 26 locationshad eleven owned properties, with a carrying value of $8.3 million, and five properties located on ground leases on the market for sale.
The Company is moving its corporate offices from San Antonio, Texas, to Houston, Texas, with the relocation expected to be completed by December 3, 2004. After the relocation, the Company's primary administrative offices will consist of 26,000 square feet of leased space located at 13111 Northwest Freeway in Houston, Texas.
The Company maintains public liability insurance and property damage insurance on its properties in amounts which management believes to be adequate.
Item 3. Legal Proceedings
The Company is from time to time subject to
pending claims and lawsuits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of
suchpending claims and lawsuits will not have a material adverse effect on the Company's operations or consolidated financial position. There are no material legal proceedings to which any director, officer, or affiliate of the Company, or any associate of any such director or officer, is a party, or has a material interest, adverse to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
| Submission of Matters to a Vote of Security Holders |
No matter was submitted during the fourth quarter of the fiscal year ended August
25, 2004,31, 2005, to a vote of security holders of the Company.
Item 4A. Executive Officers of the Registrant
| Executive Officers of the Registrant |
Certain information is set forth below concerning the executive officers of the Company, each of whom has been elected to serve until his successor is duly elected and qualified:
Name
| |
Served as Officer Since
| |
Positions with Company and
Principal Occupation Last Five Years
| |
Age
|
| | | | | | |
| | | | | | |
Christopher J. Pappas | | 2001 | | President and CEO (since March 2001), CEO of Pappas Restaurants, Inc. | | 57 |
| | | | | | |
Harris J. Pappas | | 2001 | | Chief Operating Officer (since March 2001), President of Pappas Restaurants, Inc. | | 60 |
| | | | | | |
Ernest Pekmezaris | | 2001 | | Senior Vice President and CFO (since March 2001), Treasurer and former CFO of Pappas Restaurants, Inc. | | 60 |
| | | | | | |
Peter Tropoli | | 2001 | | Senior Vice President-Administration and General Counsel (since March 2001), attorney in private practice. | | 32 |
Name | | Served as Officer Since | | Positions with Company and Principal Occupation Last Five Years | | Age |
| | | | | | | |
| Christopher J. Pappas | | 2001 | | President and CEO (since March 2001), CEO of Pappas Restaurants, Inc. | | 58 |
| | | | | | | |
| Harris J. Pappas | | 2001 | | Chief Operating Officer (since March 2001), President of Pappas Restaurants, Inc. | | 61 |
| | | | | | | |
| Ernest Pekmezaris | | 2001 | | Senior Vice President and CFO (since March 2001), Treasurer and former CFO of Pappas Restaurants, Inc. | | 61 |
| | | | | | | |
| Peter Tropoli | | 2001 | | Senior Vice President-Administration and General Counsel (since March 2001), attorney in private practice. | | 33 |
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
| Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Stock Prices
The Company's common stock is traded on the New York Stock Exchange under the symbol
LUB.“LUB.” The following table sets forth, for the last two fiscal years, the high and low sales prices on the New York Stock Exchange
fromas reported in the consolidated transaction reporting system.
Fiscal Quarter Ended
|
High
|
Low
|
| | |
November 20, 2002 | $5.53 | $3.55 |
February 12, 2003 | 4.50 | 1.10 |
May 7, 2003 | 2.80 | .95 |
August 27, 2003 | 2.98 | 1.75 |
November 19, 2003 | 3.69 | 2.28 |
February 11, 2004 | 3.94 | 3.27 |
May 5, 2004 | 6.37 | 3.60 |
August 25, 2004 | 6.95 | 4.85 |
There were no sales of unregistered securities or issuer purchases of equity securities in fiscal 2004.
Fiscal Quarter Ended | | High | | Low | |
| | | | | | |
| November 19, 2003 | | $ | 3.69 | | $ | 2.28 | |
| February 11, 2004 | | | 3.94 | | | 3.27 | |
| May 5, 2004 | | | 6.37 | | | 3.60 | |
| August 25, 2004 | | | 6.95 | | | 4.85 | |
| November 17, 2004 | | | 8.08 | | | 6.05 | |
| February 9, 2005 | | | 7.99 | | | 5.75 | |
| May 4, 2005 | | | 8.39 | | | 5.95 | |
| August 31, 2005 | | | 14.80 | | | 7.70 | |
As of
October 20, 2004,November 7, 2005, there were approximately
3,3443,384 holders of record
holders of the Company's common stock.
No cash dividends have been paid on the Company’s common stock in the past two fiscal years and the Company currently has no intention to pay a cash dividend on the Company’s common stock. The Company’s Revolving Credit Facility imposes limitations on the Company’s ability to pay cash dividends.
Selected Financial DataFive-Year Summary of Operations
| Year Ended |
| |
| August 25, | August 27, | | August 28, | | August 31, | | August 31, |
| | 2004 | | | 2003 | | | | 2002 | | | | 2001 | | | | 2000 | |
| |
| (364 days) | (364 days) | | (362 days) | | (365 days) | | (366 days) |
| (In thousands except per share data) |
| | | | | | | | | | | | | | | | | | | |
SALES | $ | 308,817 | | | $ | 303,959 | | | $ | 318,656 | | | $ | 367,109 | | | $ | 383,976 | |
COSTS AND EXPENSES: | | | | | | | | | | | | | | | | | | | |
Cost of food | | 83,200 | | | | 82,563 | | | | 80,841 | | | | 90,911 | | | | 95,573 | |
Payroll and related costs | | 85,431 | | | | 87,503 | | | | 100,899 | | | | 127,884 | | | | 117,722 | |
Occupancy and other operating expenses | | 94,666 | | | | 91,325 | | | | 94,981 | | | | 107,478 | | | | 101,751 | |
Depreciation and amortization | | 16,876 | | | | 17,464 | | | | 17,472 | | | | 17,846 | | | | 17,093 | |
Voluntary severance costs | | 860 | | | | - | | | | - | | | | - | | | | - | |
General and administrative expenses | | 19,750 | | | | 23,313 | | | | 21,196 | | | | 25,261 | | | | 20,978 | |
Provision for asset impairments and
restaurant closings | | 727 | | | | 2,100 | | | | 271 | | | | 30,402 | | | | 11,141 | |
| | | | | | | | | | | | | | | | | | | |
| | 301,510 | | | | 304,268 | | | | 315,660 | | | | 399,782 | | | | 364,258 | |
| | | | | | | | | | | | | | | | | | | |
INCOME (LOSS) FROM OPERATIONS | | 7,307 | | | | (309 | ) | | | 2,996 | | | | (32,673 | ) | | | 19,718 | |
Interest expense | | (8,094 | ) | | | (7,610 | ) | | | (7,676 | ) | | | (8,135 | ) | | | (3,529 | ) |
Other income, net | | 2,691 | | | | 7,071 | | | | 2,368 | | | | 2,162 | | | | 2,202 | |
| | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes | | 1,904 | | | | (848 | ) | | | (2,312 | ) | | | (38,646 | ) | | | 18,391 | |
Provision (benefit) for income taxes | | - | | | | - | | | | (38 | ) | | | (13,351 | ) | | | 6,485 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Income (loss) from continuing operations | | 1,904 | | | | (848 | ) | | | (2,274 | ) | | | (25,295 | ) | | | 11,906 | |
Discontinued operations, net of taxes | | (8,343 | ) | | | (32,246 | ) | | | (7,379 | ) | | | (6,586 | ) | | | (2,781 | ) |
| | | | | | | | | | | | | | | | | | | |
NET INCOME (LOSS) | $ | (6,439 | ) | | $ | (33,094 | ) | | $ | (9,653 | ) | | $ | (31,881 | ) | | $ | 9,125 | |
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Income (loss) per share from continuing operations: | | | | | | | | | | | | | | | | | | | |
Basic | $ | 0.08 | | | $ | (0.04 | ) | | $ | (0.10 | ) | | $ | (1.13 | ) | | $ | 0.53 | |
Assuming dilution | $ | 0.08 | | | $ | (0.04 | ) | | $ | (0.10 | ) | | $ | (1.13 | ) | | $ | 0.53 | |
Income (loss) per share from discontinued operations: | | | | | | | | | | | | | | | | | | | |
Basic | | (0.37 | ) | | | (1.43 | ) | | | (0.33 | ) | | | (0.29 | ) | | | (0.12 | ) |
Assuming dilution | | (0.37 | ) | | | (1.43 | ) | | | (0.33 | ) | | | (0.29 | ) | | | (0.12 | ) |
| | | | | | | | | | | | | | | | | | | |
Net income (loss) per share: | | | | | | | | | | | | | | | | | | | |
Basic | $ | (0.29 | ) | | $ | (1.47 | ) | | $ | (0.43 | ) | | $ | (1.42 | ) | | $ | 0.41 | |
Assuming dilution | $ | (0.29 | ) | | $ | (1.47 | ) | | $ | (0.43 | ) | | $ | (1.42 | ) | | $ | 0.41 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Cash dividend declared per | | | | | | | | | | | | | | | | | | | |
common share | $ | 0.00 | | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.00 | | | $ | 0.70 | |
| | | | | | | | | | | | | | | | | | | |
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At year-end: | | | | | | | | | | | | | | | | | | | |
Total assets | $ | 234,780 | | | $ | 278,284 | | | $ | 342,479 | | | $ | 353,864 | | | $ | 370,843 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Long-term debt (including net
convertible subordinated debt) (a) | $ | 53,561 | | | $ | - | | | $ | 5,883 | | | $ | 127,401 | | | $ | 116,000 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Total debt | $ | 53,561 | | | $ | 98,532 | | | $ | 124,331 | | | $ | 127,401 | | | $ | 116,000 | |
| | | | | | | | | | | | | | | | | | | |
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Weighted-average shares outstanding
Basic | 22,470 | | | 22,451 | | | 22,428 | | | 22,422 | | | 22,420 | |
Assuming dilution | 22,619 | | | 22,451 | | | 22,428 | | | 22,422 | | | 22,421 | |
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| | | | | | | | | | | | | | | | | | | |
| |
Number of restaurants | | 138 | | | | 148 | | | | 196 | | | | 213 | | | | 231 | |
| | | | | | | | | | | | | | | | | | | |
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| |
(a) | See the Debt section of Management's Discussion and Analysis and Note 6 of the Notes to Consolidated Financial Statements. |
Five-Year Summary Notes continued on next page.
| | | Fiscal Year Ended | |
| | | August 31, 2005 (a) | | August 25, 2004 (As adjusted) | | August 27, 2003 (As adjusted) | | August 28, 2002 (As adjusted) | | August 31, 2001 (As adjusted) | |
| | | (371 days) | | (364 days) | | (364 days) | | (362 days) | | (365 days) | |
| | | (In thousands except per share data) | |
| | | | | | | | | | | | |
| SALES | | $ | 322,151 | | $ | 297,849 | | $ | 291,740 | | $ | 307,250 | | $ | 354,265 | |
| COSTS AND EXPENSES: | | | | | | | | | | | | | | | | |
| Cost of food | | | 86,280 | | | 79,923 | | | 78,921 | | | 77,775 | | | 87,702 | |
| Payroll and related costs | | | 115,481 | | | 112,961 | | | 114,655 | | | 128,680 | | | 155,665 | |
| Other operating expenses | | | 64,796 | | | 59,447 | | | 55,342 | | | 59,282 | | | 71,267 | |
| Depreciation and amortization | | | 15,054 | | | 16,259 | | | 17,204 | | | 17,251 | | | 17,635 | |
| Relocation and voluntary severance costs | | | 669 | | | 860 | | | - | | | - | | | - | |
| General and administrative expenses | | | 20,750 | | | 19,748 | | | 23,301 | | | 21,183 | | | 25,253 | |
| (Reversal of ) provision for asset impairments and restaurant closings/(gains on sales), net | | | (632 | ) | | 413 | | | 1,175 | | | 271 | | | 30,240 | |
| | | | 302,398 | | | 289,611 | | | 290,598 | | | 304,442 | | | 387,762 | |
| INCOME (LOSS) FROM OPERATIONS | | | 19,753 | | | 8,238 | | | 1,142 | | | 2,808 | | | (33,497 | ) |
| Interest expense | | | (11,636 | ) | | (8,094 | ) | | (7,610 | ) | | (7,676 | ) | | (8,135 | ) |
| Other income, net | | | 574 | | | 2,689 | | | 7,069 | | | 2,365 | | | 2,160 | |
| Income (loss) before income taxes | | | 8,691 | | | 2,833 | | | 601 | | | (2,503 | ) | | (39,472 | ) |
| Provision (benefit) for income taxes | | | 117 | | | (2,856 | ) | | (1,441 | ) | | (726 | ) | | (13,668 | ) |
| Income (loss) from continuing operations | | | 8,574 | | | 5,689 | | | 2,042 | | | (1,777 | ) | | (25,804 | ) |
| Discontinued operations, net of taxes | | | (5,126 | ) | | (8,811 | ) | | (31,763 | ) | | (7,699 | ) | | (5,743 | ) |
| NET INCOME (LOSS) | | $ | 3,448 | | $ | (3,122 | ) | $ | (29,721 | ) | $ | (9,476 | ) | $ | (31,547 | ) |
| Income (loss) per share from continuing operations: | | | | | | | | | | | | | | | | |
| Basic | | $ | 0.38 | | $ | 0.25 | | $ | 0.09 | | $ | (0.08 | ) | $ | (1.15 | ) |
| Assuming dilution | | $ | 0.37 | | $ | 0.25 | | $ | 0.09 | | $ | (0.08 | ) | $ | (1.15 | ) |
| Loss per share from discontinued operations: | | | | | | | | | | | | | | | | |
| Basic | | $ | (0.23 | ) | $ | (0.39 | ) | $ | (1.41 | ) | $ | (0.34 | ) | $ | (0.26 | ) |
| Assuming dilution | | $ | (0.22 | ) | $ | (0.39 | ) | $ | (1.41 | ) | $ | (0.34 | ) | $ | (0.26 | ) |
| Net income (loss) per share: | | | | | | | | | | | | | | | | |
| Basic | | $ | 0.15 | | $ | (0.14 | ) | $ | (1.32 | ) | $ | (0.42 | ) | $ | (1.41 | ) |
| Assuming dilution | | $ | 0.15 | | $ | (0.14 | ) | $ | (1.32 | ) | $ | (0.42 | ) | $ | (1.41 | ) |
| Cash dividend declared per common share | | $ | - | | $ | - | | $ | - | | $ | - | | $ | - | |
| At year-end: | | | | | | | | | | | | | | | | |
| Total assets | | $ | 206,214 | | $ | 232,281 | | $ | 275,675 | | $ | 339,474 | | $ | 351,209 | |
Long-term debt (including net convertible subordinated debt) (b) | | $ | 13,500 | | $ | 53,561 | | $ | - | | $ | 5,883 | | $ | 127,401 | |
| Total debt | | $ | 13,500 | | $ | 53,561 | | $ | 98,532 | | $ | 124,331 | | $ | 127,401 | |
| Weighted-average shares outstanding | | | | | | | | | | | | | | | | |
| Basic | | | 22,608 | | | 22,470 | | | 22,451 | | | 22,428 | | | 22,422 | |
Assuming dilution (c) | | | 23,455 | | | 22,679 | | | 22,532 | | | 22,428 | | | 22,422 | |
| Number of restaurants at year end | | | 131 | | | 138 | | | 148 | | | 196 | | | 213 | |
(a) | Fiscal year ended August 31, 2005 consists of 53 weeks, while all other periods presented consist of 52 weeks. |
(b) | See the “Debt” sections of Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 8 of the Notes to Consolidated Financial Statements. |
(c) | Potentially dilutive shares that were not included in the computation of net income (loss) per share because to do so would have been antidilutive amounted to 3,219,000 shares in fiscal 2005, 2,216,000 in fiscal 2004, and 2,000,000 in fiscal 2003 (including the dilutive effect of the convertible subordinated notes). Additionally, stock options with exercise prices exceeding current market prices that were excluded from the computation of net income (loss) per share amounted to 484,000 shares in fiscal 2005, 2,495,000 shares in fiscal 2004 and 4,078,000 shares in fiscal 2003. |
Five-Year Summary of Operations
(continued)Note: In fiscal
Note: Fiscal year 2002, the year in which the Company moved from 12 calendar months to 13 four-week periods. The first period of fiscal year 2002 began September 1, 2001, and covered 26 days. All subsequent periods covered 28 days. Fiscal year 2002, the Company's conversion year from months to periods, was 362 days in length. Fiscal 2003 and most years thereafter are2004 were each 364 days in length.Note: Fiscal 2005, however, was a 53 week year and was 371 days in length. The quarter ended August 31, 2005, consisted of three four-week periods and one five-week period.
Note: The above selected financial data are derived from the Company’s consolidated financial statements and have been adjusted for the retrospective application required under EITF 05-8, “Income Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature,”(“EITF 05-8”) adopted by the Company, effective for the fiscal year ended August 31, 2005. Retroactive adoption of EITF 05-8 required the recording of increased income tax benefits, which resulted in increased income from continuing operations and net income of $2.9 million in fiscal 2004, $1.4 million in fiscal 2003, $169,000 in fiscal 2002 and $28,000 in fiscal 2001. The adoption had no impact on fiscal 2005. See further discussion in Note 2 of the Notes to the consolidated financial statements, “Change in Method of Accounting for Deferred Income Taxes Related to the Beneficial Conversion Feature of Subordinated Debt” in Item 8, “Financial Statements and Summary Data” of this Form 10-K.
Note: Store management compensation has been reclassified from “Other Operating Expenses” to “Payroll and Related Costs” to provide comparability to financial results reported by our peers in the industry. All prior period results reported have been reclassified to conform to the current year presentation.
Below is a summary of the reclassified expenses:
| | | Fiscal Year Ended | |
| | | August 31, 2005 | | August 25, 2004 | | August 27, 2003 | | August 28, 2002 | | August 31, 2001 | |
| | | (371 days) | | (364 days) | | (364 days) | | (362 days) | | (365 days) | |
| | | (In thousands) | |
| | | | | | | | | | | | |
Payroll and related costs | | | | | | | | | | | |
| Payroll and related costs (previous classification) | | $ | 81,759 | | $ | 82,163 | | $ | 83,676 | | $ | 97,068 | | $ | 123,630 | |
| Manager compensation reclassification | | | 33,722 | | | 30,798 | | | 30,979 | | | 31,612 | | | 32,035 | |
| Payroll and related costs (as reported) | | $ | 115,481 | | $ | 112,961 | | $ | 114,655 | | $ | 128,680 | | $ | 155,665 | |
Other operating expenses | | | | | | | | | | | | | | | | |
| Other operating expenses (previous classification) | | $ | 98,518 | | $ | 90,245 | | $ | 86,321 | | $ | 90,894 | | $ | 103,302 | |
| Manager compensation reclassification | | | (33,722 | ) | | (30,798 | ) | | (30,979 | ) | | (31,612 | ) | | (32,035 | ) |
| Other operating expenses (as reported) | | $ | 64,796 | | $ | 59,447 | | $ | 55,342 | | $ | 59,282 | | $ | 71,267 | |
Note: The Company's business plan, as approved in fiscal 2003, called for the closure of approximately 50 locations. In accordance with the plan, the entire fiscal activity of the applicable stores closed throughafter the endinception of the 2004 fiscal year wereplan have been reclassified to discontinued operations. For comparison purposes, in prior fiscal years the entire activity for theresults related to these same locations closed in fiscal 2003 and fiscal 2004 hashave also been reclassified to discontinued operations.Item 7.
Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
Certain Reclassification of Expenses
Store management compensation has been reclassified from “Other Operating Expenses” to “Payroll and Related Costs” to provide comparability to financial results reported by our peers in the industry. All prior period results reported have been reclassified to conform to current year presentation (See Item 6. Selected Financial Data-Five -Year Summary of Operations).
The Company's business plan, as approved in fiscal 2003, called for the closure of approximately 50 locations. In accordance with the plan, the entire fiscal activity of the applicable stores closed after the inception of the plan have been reclassified to discontinued operations. For comparison purposes, prior fiscal years results related to these same locations have also been reclassified to discontinued operations.
Same-Store Sales
The restaurant business is highly competitive with respect to food quality, concept, location, price, and service, all of which may have an effect on same-store sales. The Company's same-store sales calculation measures the relative performance of a certain group of restaurants. Specifically, to qualify for inclusion in this group, a store must have been in operation for 18 consecutive accounting periods. Although management believes this approach leads to more effective year-over-year comparisons, neither the time frame nor the exact practice may be similar to those used by other restaurant companies.
The following shows the same-store sales change for comparative historical quarters:
| Fiscal 2005 | | Fiscal 2004 | | Fiscal 2003 |
Q4(a) | Q3 | Q2 | Q1 | | Q4 | Q3 | Q2 | Q1 | | Q4 | Q3 | Q2 | Q1 |
| (17 wks) | (12 wks) | (12 wks) | (12 wks) | | (16 wks) | (12 wks) | (12 wks) | (12 wks) | | (16 wks) | (12 wks) | (12 wks) | (12 wks) |
| 13.8% | 6.5% | 5.8% | 4.5% | | 4.2% | 5.3% | 1.0% | (2.8)% | | (3.7)% | (5.8)% | (3.8)% | (7.0)% |
(a) | Reflects 17 weeks of sales activity. Excluding the seventeenth week for comparability with the sixteen-week fourth quarter of 2004, the same-store sales change for the fourth quarter of fiscal 2005 was an increase of 7.2%. |
Fiscal 2005 (53 weeks) Compared to Fiscal 2004 (52 weeks)
Sales increased $24.3 million, or 8.2%, in fiscal 2005 compared to fiscal 2004, $6.1 million of the increase is attributable to an additional week of sales or a 53rd week included in fiscal year 2005 versus fiscal year 2004 which was 52 weeks in length. Excluding the additional week, same-store sales growth for fiscal 2005 was 6.1%. Marketing promotions, continued customer appeal of the new combination meals, and improved product and service execution all contributed to the Company’s same-store sales growth.
All of the Company’s sales during fiscal 2005 were characterized as same-store sales. In fiscal 2005, seven units were closed and reclassified to discontinued operations.
Cost of food increased $6.4 million, or 8.0%, and was relatively flat as a percentage of sales in fiscal 2005 compared to fiscal 2004. Higher commodity prices for beef, fresh produce, and dairy were slightly offset by lower poultry prices and the continued rollout of new combination meals with favorable costs structures.
Payroll and related costs increased $2.5 million, or 2.2%, in fiscal 2005 compared to fiscal 2004. As a percentage of sales, payroll and related costs were 35.9% in fiscal 2005 compared to 37.9% in fiscal 2004. The decrease as a percentage of sales was primarily the result of a reduction in worker compensation expense and enhanced productivity due to higher sales and effective labor deployment. The reduction in workers compensation expense was due to revised reserve requirements resulting from reductions in recent claims experience. Such favorable reserve revisions are not expected to recur in fiscal 2006. These reductions in expense were partially offset by greater store management compensation expense.
Other operating expenses increased $5.3 million, or 9.0%, in fiscal 2005 compared to fiscal 2004. As a percentage of sales, other operating expenses increased 0.2%. This increase was driven primarily by increased advertising costs associated with the Company’s television marketing campaign and increased utility costs due to rising natural gas prices, which are expected to continue rising in fiscal 2006. These increases were partially offset by lower repairs and maintenance and insurance costs.
Depreciation and amortization expense decreased $1.2 million, or 7.4%, in fiscal 2005 compared to fiscal 2004. This decrease was a result of a reduction in the depreciable base of the Company’s property and equipment.
Relocation and voluntary severance costs related to the relocation of the corporate offices to Houston, Texas decreased as the majority of the cost associated with the relocation included voluntary severance costs accrued for in fiscal 2004. The remaining relocation costs were expensed as incurred in fiscal 2005. See Note 6 of the Notes to Consolidated Financial Statements for more information.
General and administrative expenses increased $1.0 million, or 5.1%, in fiscal 2005 compared to fiscal 2004. This increase was driven primarily by professional service costs related to compliance with the Sarbanes-Oxley Act of 2002 and consulting fees associated with the implementation of new point-of-sale and accounting systems. As a percentage of sales, general and administrative expenses were 6.4% in fiscal 2005 compared to 6.6% in fiscal 2004.
The provision for asset impairments and restaurant closings/(gains on sales), net decreased by $1.0 million as a result of the significant impairment charges incurred in fiscal 2004 compared to fiscal 2005. Fiscal 2005’s provision is the result of favorable adjustments of previously recorded provisions for two store locations and a gain on the sale of the San Antonio, Texas corporate office.
Interest expense increased $3.5 million, or 43.8%, primarily due to a $7.9 million write-off of the unamortized portion of the discount associated with the convertible subordinated notes, which were converted to common stock in August 2005. This increase is offset partially by a $4.4 million decrease in interest expense due primarily to the continued reduction in outstanding debt under the line of credit.
Other income decreased $2.1 million primarily due to gains on the sale of assets in fiscal 2004 versus fiscal 2005. The Company owns several long-lived assets that are classified as “held for sale” as a result of disposal activities that were initiated prior to the initial application of SFAS 144. Accordingly, gains and losses realized on the sales of these assets are classified as other income, net, in compliance with SFAS 121, under the transition guidance provided in Paragraph 51 of SFAS 144.
The provision for income taxes in fiscal 2005 included a $117,000 provision for alternative minimum tax. For fiscal 2004, the Company recognized a $2.9 million tax benefit related to a reduction in the income tax valuation allowance triggered by the establishment of a deferred tax liability for the modification of the beneficial conversion feature on convertible subordinated debt. Additionally, because the Company’s loss carryforward more than offset fiscal 2004 income from continuing operations, no income tax was provided for this income.
The loss from discontinued operations decreased by $3.7 million in fiscal 2005 compared to fiscal 2004 primarily due to significant losses and impairments associated with discontinued operations incurred and taken in fiscal 2004 related to store closures. During fiscal 2005, impairments and losses associated with discontinued operations were offset by gains recognized on the sale of related properties.
Fiscal 2004 Compared to Fiscal 2003
Sales increased
$4.8$6.1 million, or
1.6%2.1%, in fiscal 2004 compared to fiscal 2003.
Of the increase, $6.6 million was due to a 2.2% increase in same-store sales. (SeeSame-Store Salesunder Trends and Uncertainties for the definition of same-store sales.) This increase was offset by a
$1.8 million decrease in sales
of $1.8 million related to five stores closed prior to the adoption of the
2003 business plan, which
therefore were not reclassified
intoas discontinued operations. Despite store closures and the effects of increased competition in the marketplace, sales performance has improved. Promotions, new combination meals, and improved product and service execution have all contributed to this overall increase in sales.
Cost of food increased
$637,000,$1.0 million, or
0.8%1.3%, principally due to the increase in sales in fiscal 2004 compared to fiscal 2003. Upward pressure on beef pricing due to lower production numbers, reduced cattle weights, and an overall higher demand has negatively impacted food cost. Despite general commodity increases in food pricing, specifically related to the beef and dairy markets, food costs have
experienced a slight decline asdeclined slightly. As a percentage of sales,
which decreased from 27.2%cost of food was 26.8% in fiscal 2004 compared to
26.9%.27.1% in fiscal 2003. Management's discipline in the utilization of monthly budgeting and protein tracking tools in combination with various promotional offerings have assisted in reducing food costs. More specifically, food costs have declined in a higher commodity climate due to improved execution at each location in combination with carefully selected entree offerings for promotions which overall have very attractive cost structures.
Payroll and related costs decreased
$2.1$1.7 million, or
2.4%1.5%,
and asin fiscal 2004 compared to fiscal 2003. As a percentage of sales,
decreased from 28.8%payroll and related costs were 37.9% in fiscal 2004 compared to
27.7%.39.3% in fiscal 2003. The decrease
iswas due to continued improvements made in labor deployment and efficiency as a result of various Company initiatives to better manage labor costs, offset by an increase in estimated workers' compensation costs.
Occupancy and
Other operating expenses increased $4.1 million, or 7.4%, in fiscal 2004 compared to fiscal 2003. As a percentage of sales, other operating expenses increased $3.3 million, or 3.7%,1.0%. The increase was primarily due primarily to increased advertising expense and higher insurance costs. Occupancy and other operating expenses, as a percentage of sales, increased 0.7% to 30.7%resulting from 30.0%. Thethe launch of the Company's new marketing campaign, featuring television advertising,advertising. The new
marketing campaign led to an increase in marketing costs.
Insurance costs increased as a result of higherHigher cost of insurance coverage and related
premiums.premiums also contributed to the increase in other operating expenses. These increases were primarily offset by a reduction in property tax expense due to store closures and related property sales.
Depreciation and amortization expense decreased
$588,000,$945,000, or
3.4%5.5%,
in fiscal 2004 compared to fiscal 2003 due to fewer depreciable properties resulting from impairments and property sales.
Due to the current-year accrual of voluntary severance costs in relation to the relocation of the corporate offices from San Antonio, Texas, to Houston, Texas, voluntary severance costs increased by $860,000. See Note
56 “Current Accrued Expenses and Other Liabilities”, of the Notes to Consolidated Financial Statements for more information.
General and administrative expenses decreased $3.6 million, or
15.3%. As a percentage of sales, general and administrative expenses decreased 1.3% to 6.4%15.2%, in fiscal 2004 compared to
7.7%.fiscal 2003. This decrease
iswas due to fewer regional management positions
due toas a result of store closures. It is also a result of lower professional and consulting services fees associated with a fixed-asset cost-segregation study on tax depreciation and consulting fees related to the
debt refinancing,business plan, both of which occurred
fiscal 2003. As a percentage of sales, general and administrative expenses were 6.6% in
the prior year.fiscal 2004 compared to 8.0% in fiscal 2003.
The provision for asset impairments and restaurant
closingsclosings/(gains on sales), net decreased by
$1.4 million$762,000 primarily due to a gain realized on the sale of a property which had been previously impaired, coupled with significant impairment charges incurred in the prior year.
ThisFiscal 2004’s provision included write-downs to currently operating restaurants of
$1.2 million$900,000 offset by a gain of $500,000 related to one property sale.
Interest expense increased $484,000, or 6.4%, due to the accelerated amortization of the subordinated debt discount resulting from the amended subordinated note agreements, coupled with an increase in the effective interest rate on outstanding debt prior to the debt refinancing in June 2004. Subsequent to the debt refinancing, interest expense has declined principally due to lower amortization of the discount on the restructured subordinated debt, coupled with the effect of a lower senior debt balance.
Other income decreased $4.4 million primarily due to gains on sales of assets recognized in the prior year, which reflected the sale of five previously closed stores. These gains were partially offset by a loan commitment fee expensed in fiscal 2003.
No provision The Company owns several long-lived assets that are classified as “held for sale” as a result of disposal activities that were initiated prior to the initial application of SFAS 144. Accordingly, gains and losses realized on the sales of these assets are classified as other income, taxesnet, in compliance with SFAS 121, under the transition guidance provided in Paragraph 51 of SFAS 144.
For fiscal 2004, the Company recognized a $2.9 million tax benefit related to a reduction in the income tax valuation allowance triggered by the establishment of a deferred tax liability for the modification of the beneficial conversion feature on
continuing operationsits convertible subordinated debt. A $1.4 million tax benefit was
provided forrecognized in fiscal
2004 because2003 as tax benefits associated with the
Company's loss carryforward was sufficient toCompany’s operating losses were partially offset
by the establishment of an income
from continuing operations.tax valuation allowance against the Company’s deferred tax assets.
The loss from discontinued operations decreased by
$23.9$23.0 million principally due to numerous impairment charges incurred in the prior year on various locations which were closed as a part of the Company's business plan offset by ongoing periodic property maintenance costs incurred until the properties are sold.
Fiscal 2003 Compared to Fiscal 2002
Sales decreased $14.7 million, or 4.6%, in fiscal 2003 compared to fiscal 2002. Of the total decline, $11.8 million was due to the closure of 20 restaurants since August 31, 2001, that were not included in the business plan and therefore were not reclassified into discontinued operations, and $7.5 million was due to a 2.5% decrease in same-store sales. These decreases were offset by the positive impact of two additional days of sales of $2.0 million and the opening of three restaurants since August 28, 2002, that accounted for $2.6 million in sales.EBITDAThe cost of food increased $1.7 million, or 2.1%, and as a percentage of sales increased from 25.4% to 27.2% in fiscal 2003 compared to fiscal 2002. Early in the fiscal year, the increase in food cost was related primarily to efforts to implement value offerings for the Company's guests. Those offerings were a planned part of the Company's strategy aimed at increasing value while maintaining quality. Also in the beginning of the year, fresh produce pricing was negatively impacted by increased transportation costs due to the higher cost of diesel fuel. Toward the end of the year, upward pressure on beef pricing due to lower availability, reduced cattle weights, and an overall higher demand negatively impacted food cost. These increases completely offset reductions due to store closures. Even so, the increases were partially mitigated in the later part of the year by targeted cost control programs.
Payroll and related costs decreased $13.4 million, or 13.3%, and as a percentage of sales decreased from 31.7% to 28.8%. The decrease was due primarily to improved labor deployments and efficiencies resulting from various Company initiatives to manage labor costs, lower workers' compensation cost estimates resulting from the Company's in-house training and safety programs, and stores closed prior to the adoption of the business plan.
Occupancy and other operating expenses decreased $3.7 million, or 3.8%. As a percentage of sales, occupancy and other operating expenses increased 0.2% to 30.0% compared to 29.8%. Several factors contributed to this fluctuation. Net repairs and maintenance costs decreased primarily due to increased efficiencies from the Company's in-house repair program as provided by its in-house service center. Food-to-go packaging costs further declined due to less expensive packaging. These decreases were partially offset by property/employee insurance, which increased principally due to premium increases for owned properties coupled with pass-through insurance adjustments from landlords of leased properties, as well as premium increases for directors' and officers' liability.
Depreciation and amortization expense was approximately equal to the prior fiscal year, with a slight decrease of $8,000.
General and administrative expenses increased $2.1 million, or 10.0%. Several factors contributed to this increase. As a percentage of sales, general and administrative expenses increased 1.0% to 7.7%, compared to 6.7%. Professional fees increased principally due to a fixed-asset, cost-segregation study on tax depreciation. Consulting costs increased principally due to fees paid to outside firms relating to the Company's bank group. Excluding those items, the Company showed higher year-over-year general and administrative expenses because of the increased investment in support personnel to improve its focus on operational efficiencies and facilities maintenance.
Interest expense was approximately equal to the prior fiscal year, with only a slight decrease of $66,000. The payoff of loans on officers' life insurance policies, which were surrendered during the prior year, in addition to amortization of the loss on interest rate swaps and principal reductions on the outstanding bank debt, contributed to this decrease. These decreases were partially offset by an increase in the effective interest rate on outstanding debt coupled with an increase in the amortization of the discount on the subordinated notes. Approximately $2.7 million and $2.6 million were reclassified from interest expense to discontinued operations in fiscal 2003 and 2002, respectively. These reclassifications related to the launch of the Company's business plan whereby the proceeds from certain properties closed and sold are committed to paying down debt.
Other income increased $4.7 million primarily due to gains on the sales of assets, which reflect the sale of nine previously closed stores. These gains were partially offset by a loan commitment fee expensed in fiscal 2003.
The income tax benefit decreased by $38,000. No benefit was recorded in fiscal 2003 because the realization of loss carryforward utilization is uncertain.
The loss from discontinued operations increased by $24.9 million principally due to approximately $19.8 million in noncash impairments, with the remainder in carrying costs, allocated bank debt interest, and certain settlement fees incurred on various locations closed as part of the Company's business plan. The impairment charges included reductions in the fourth quarter of 2003 from gains on the disposal of properties previously held for sale.
Relative to prior closure plans, the Company had a reserve for restaurant closings of approximately $1.7 million and $3.1 million at August 27, 2003, and August 28, 2002, respectively. Excluding certain lease termination settlements, all material cash outlays required for the store closings originally planned as of August 31, 2001, were made prior to August 27, 2003. See further discussion in Note 7 of the Notes to Consolidated Financial Statements.
EBITDA
The Company's operating performance is evaluated using several measures. One of those measures, EBITDA, is
a non-GAAP financial measure that is derived from the Income (Loss) From Operations,
which is a GAAP measurement. EBITDA has historically been used by the Company's lenders to measure compliance with certain financial debt covenants. The Company's
senior debt agreements defineRevolving Credit Facility generally defines EBITDA as the consolidated income (loss) from operations set forth in the Company's consolidated statements of operations before depreciation, amortization, other noncash expenses, interest expense, taxes, noncash income and extraordinary gains or losses, and other nonrecurring items of income or expense as approved by the required lenders.
EBITDA is the denominator used in determining all of the financial covenant ratios that are measured against predefined limits for compliance under the Company’s Revolving Credit Facility. (See “Debt,” Note 8 of Notes to Consolidated Financial Statements). Noncompliance with any of the financial covenants would constitute an event of default under the Company’s Revolving Credit Facility, requiring the Company to obtain replacement financing to repay amounts owed under these agreements and to meet future working capital requirements. Management believes that such replacement financing would be available and that the cost of such financing would not have a significant effect on the Company’s liquidity or results of operations.
The Company believes that EBITDA provides a meaningful measure of liquidity, providing additional information regarding the Company’s cash earnings from ongoing operations and the Company’s ability to service its long-term debt and other fixed obligations.
EBITDA increased by
$5.9$8.4 million from fiscal 2004 to 2005 compared to an increase of $5.6 million from fiscal 2003 to
2004 compared to a decrease of $1.5 million from fiscal 2002 to 2003.2004. These net changes were due to various
applicable reasons noted
in the Results of Operations section above. Prior year amounts have been reclassified to conform to the current year presentation.
| Year Ended |
| | | | | | | | | | |
| August 25, | | August 27, | August 28, |
| 2004 | | 2003 | 2002 |
| | | | | | | | | | |
| (364 days) | | (364 days) | (362 days) |
| (In thousands) |
| | | | | | | | | | |
Income (loss) from operations | $ | 7,307 | | | $ | (309 | ) | $ | 2,996 | |
Plus excluded items: | | | | | | | | | | |
Provision for asset impairments and restaurant closings | | 727 | | | | 2,100 | | | 271 | |
Depreciation and amortization | | 16,876 | | | | 17,464 | | | 17,472 | |
Noncash executive compensation expense | | 679 | | | | 1,310 | | | 1,310 | |
Voluntary severance costs | | 860 | | | | - | | | - | |
| | | | | | | | | | |
EBITDA | $ | 26,449 | | | $ | 20,565 | | $ | 22,049 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The following table reconciles the Company’s non-GAAP financial measure, EBITDA, with Income from Operations, prepared in accordance with GAAP.
| | | Fiscal Year Ended | |
| | | August 31, 2005 | | August 25, 2004 (As adjusted) | | August 27 2003 (As adjusted) | |
| | | (371 days) | | (364 days) | | (364 days) | |
| | | (In thousands) | |
| | | | | | | | |
| Income from operations | | $ | 19,753 | | $ | 8,238 | | | 1,142 | |
| Plus excluded items: | | | | | | | | | | |
| (Reversal of) provision for asset impairments and restaurant closings/(gains on sales), net | | | (632 | ) | | 413 | | | 1,175 | |
| Relocation and voluntary severance costs | | | 669 | | | 860 | | | - | |
| Depreciation and amortization | | | 15,054 | | | 16,259 | | | 17,204 | |
| Noncash executive compensation expense | | | - | | | 679 | | | 1,310 | |
| EBITDA | | $ | 34,844 | | $ | 26,449 | | $ | 20,831 | |
As noted previously, prior year amounts have been reclassified to conform to the current year presentation, including the applicable reclassifications of store activity discontinued in accordance with the implementation of the business plan. While the Company and many in the financial community consider EBITDA to be an important measure of operating performance, it should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance prepared in accordance with U.S. generally accepted accounting principles, such as operating income and net income. In addition, the Company's definition of EBITDA is not necessarily comparable to similarly titled measures reported by other companies.
LIQUIDITY AND CAPITAL RESOURCES
Cash and Cash Equivalents and Working Capital
Cash and cash equivalents
increaseddecreased by
$340,000$522,000 and short-term investments decreased by $617,000 from the end of the
precedingprior fiscal year to August
25, 2004,31, 2005, primarily
due to improved cash management strategies. Short-term investments decreased by $16.1 million due to payments made to reduce the
seniorCompany’s debt.
The Company received a comprehensive income tax refund of $13.4 million in the third quarter of fiscal 2003 that resulted from changes in tax legislation that extended carrybacks of net operating losses. In addition, the refund was higher than the original fiscal 2002 estimate primarily due to increases in tax depreciation relative to an updated cost-segregation study.
The Company had a working capital deficit of
$31.3$26.2 million as of August 31, 2005, compared to $24.0 million as of August 25,
2004, compared to $112.2 million as of August 27, 2003.2004. The
improvementdecrease was primarily attributable to the
reclassificationuse of
cash, as the
debtCompany continued to
long-term liabilities subsequent to the debt refinancing. Excluding the reclassification of the senior debt and subordinated notes explained in theDebt section below, the Company's working capital deficit increased $17.7 million. That increase in the deficit was primarily attributable to debt paydown and refinancing.pay down its debt. The Company's working capital requirements are expected to be met through cash flows from operations and the
available line of credit.Revolving Credit Facility.
Capital expenditures for the fiscal year ended August 25, 2004,31, 2005, were $8.9$10.1 million. Consistent with prior fiscal years, the Company used most of its capital funds to maintain its investment in existing operating units. Based on the business plan, theThe Company again expects to be able to fund all capital expenditures in Fiscal 2005fiscal 2006 using cash flows from operations and the Revolving Credit Facility. Under the Company’s new credit facility, $25.0 million plus a limited unused prior-year carryover amount, subject to certain terms, are available for funding capital expenditures in fiscal 2006. The Company expects to spend approximately $12$16 million to $14$18 million on such capital expenditures in fiscal 2006.
DEBT
Revolving Credit Facility
On August 31, 2005, Luby’s, Inc. entered into an amended and restated, $45.0 million unsecured Revolving Credit Facility (the “Revolving Credit Facility”) among Luby’s, Inc. and a syndicate of three independent banks. The Revolving Credit Facility may, subject to certain terms and conditions, be increased by an additional $15.0 million for a total facility size of $60.0 million.
DEBT
Previous Senior Debt
During The Revolving Credit Facility allows for up to $10.0 million of the mid-1990's,available credit to be extended in the form of letters of credit. The Revolving Credit Facility terminates on, and all amounts owing thereunder must be repaid on, August 31, 2008.
At any time throughout the term of the loan, the Company entered intohas the option to elect one of two bases of interest rates. One interest rate option is the greater of (a) the federal funds effective rate plus 0.5%, or (b) prime, plus, in either case, an applicable spread that ranges from 0% to 0.25% per annum. The other interest rate option is LIBOR (London InterBank Offered Rate) plus an applicable spread that ranges from 1.00% to 1.75% per annum. The applicable spread under each option is dependent upon certain measures of the Company’s financial performance at the time of election.
The Company also pays a
revolving linequarterly commitment fee based on the unused portion of the Revolving Credit Facility, which is also dependent upon the Company’s financial performance, ranging from 0.25% to 0.35% per annum. The Company also is obligated to pay certain fees in respect of any letters of credit
with a group of four banks. The line was primarily used for financing long-term objectives, including capital acquisitions and a stock repurchase program. These large demands of cash contributedissued as well as an administrative fee to the
capacity under that credit facility being fully exhausted in fiscal 2001.From March 2001 until the fourth quarter of fiscal 2004,lender acting as administrative agent. Finally, the Company financed capital acquisitions and working capital needs through careful cash management and the provision of an additional $10 million in subordinate financing from the Company's CEO and the COO. The additional subordinate financing was funded toward the end of fiscal 2001. Although no further borrowings were allowed under the senior credit facility, the bank group subsequently authorized an extension of its maturity date, allowing the Company time to seek a replacement to the credit facility that would provide the financing on more favorable terms. During this period, the Company implemented a new business plan that included the closure of certain underperforming stores and the use of proceeds from resulting property salesobligated to pay down the line of credit.
New Senior Debt
The Company's failure to arrange replacement financing by the extended maturity date of the credit facility causedlenders a technical default under that facility. However in the fourth quarter of fiscal 2004, the Company successfully refinanced the senior credit facility with two new instruments. The first is a secured, three-year line of credit for $50 million. Of the total line, only $36.3 million was originally drawnone-time fee in connection with the refinancing. This instrument was funded by a new groupclosing of independent lenders.
In additionthe Revolving Credit Facility.
The Revolving Credit Facility contains customary covenants and restrictions on the Company’s ability to
the new lineengage in certain activities, including financial performance covenants and limitations on capital expenditures, asset sales and acquisitions, and contains customary events of
credit,default. As of November 7, 2005, the Company
concurrently negotiated another secured, three-year term loan for $27.9 million. The term loan was funded by a third-party financial institution not related to any member of the bank group that funded the new line of credit. Under the term-loan agreement, no periodic principal payments are required other than net proceeds from properties currently marked for sale. Any balance remaining at the loan's maturity must be paid in full. In the fourth quarter of fiscal 2004, as a result of the refinancing, the Company's new senior debt was in good standing. Pursuant tofull compliance with all covenants.
All amounts owed by Luby’s, Inc. under the
terms of the Subordination and Intercreditor Agreement dated June 7, 2004, if the new senior debt were to be in default at some time in the future, Chris and Harris Pappas have a contractual right (but no obligation) to purchase those loans.At August 25, 2004, the Company's outstanding senior debt balance was $51.5 million. FromRevolving Credit Facility are guaranteed by its new revolving line of credit, thesubsidiaries.
The Company
had an outstanding debt balance of $28.0 million. This level is down $8.3 million from its original drawn amount of $36.3 million, which occurred in June 2004. Of the $8.3 million reduction, $2.7 million was derived from a sale leaseback of one property, and $5.6 million was from excess cash. From its term loan, the Company had an outstanding debt balance of $23.5 million. This level is down $4.4 million from its original note balance of $27.9 million, which also occurred in June 2004. The reduction was primarily
made withused proceeds received on the sale of
properties. Ofproperties, operating cash flows, short-term investments and the
$50new facility to pay off its prior term loan and prior line of credit. As of November 7, 2005, the Company had total debt of $12.5 million
total commitmentoutstanding under the
line of credit, $20.8 million was available to the Company at August 25, 2004.Revolving Credit Facility.
Additionally, as of August
25, 2004,31, 2005, the Company
hashad approximately
$2.2$1.7 million
availablecommitted under letters of credit through a separate
arrangement with another bank. Both the new linearrangement.
Conversion of credit and the term loan contain financial performance covenants, provisions limiting the use of the Company's cash, and descriptions of certain events of default that could be triggered by changes in the Company's relationship with its CEO and its COO. As the focus continues toward further strengthening operational and financial performance, management believes that the two new debt instruments will provide the proper level of financing to improve its liquidity. Additionally, the Company expects to be able to maintain compliance with the specific requirements of each agreement. As ofSubordinated Notes
On August
25, 2004, $195.5 million of the Company's total book value, or 83.3% of its total assets, was pledged as collateral. These pledged assets included the Company's owned real estate, improvements, equipment, and fixtures. Subordinated Notes
As mentioned earlier, in the fourth quarter of fiscal 2001, the Company's CEO,31, 2005, Christopher J. Pappas, the Company’s President and Chief Executive Office, and Harris J. Pappas, the Company's COO, formally loaned the Company a total of $10 million in exchange for convertible subordinated notes. While certain termsCompany’s Chief Operating Officer, each voluntarily converted all of the originalconvertible senior subordinated notes have since been modified, they are still in place asheld into common stock of August 25, 2004, with maturity datesthe Company. Each of June 6, 2011. Atthem converted $5.0 million principal amount of convertible senior subordinated notes at a stated conversion price of $5.00 per shares, the notes are convertible into 2.0 million shares of the Company's common stock. As a result of the amended subordinated note agreements, at the earlier of June 7, 2005, a default under the senior debt, or a "change in control" as defined in the amended notes, the conversion price will lower to $3.10 per share for 3.2 million shares.
Because the stated conversion price represented a discount from the market price ($5.63) of the Company's common stock on the commitment date, a beneficial conversion feature of $8.2 million was created. This was recorded as a discount to debt with an offset to paid-in capital. The discount is being amortized over the term of the notes through noncash charges to interest expense amounting to approximately $1.2 million per year.
The Company has agreed to reserve shares held in treasury for issuance to the holders of the subordinated notes upon conversion of the debt. The Company's treasury shares have also been reserved for two other purposes - the issuance of shares to Messrs. Pappas upon exercise of the options granted to them on March 9, 2001, and for shares issuable under the Company's Nonemployee Director Phantom Stock Plan. In accordance with an agreement between Messrs. Pappas and the Company dated June 7, 2004, Chris and Harris Pappas have agreed to limit their exercise of stock options to a number that will ensure the "net treasury shares available" are not exceeded. Pursuant to the terms of that agreement, the Company indicated that it will use reasonable efforts to list on the New York Stock Exchange additional shares which would permit full exercise of those options. "Net Treasury Shares Available" is defined in the debt agreements as the number ofinto 1,612,903 shares of common stock then held byof the Company. In connection with this conversion, the Company in treasury, minusrecognized a one time non-cash charge of approximately $8.0 million representing the number of shares of common stock issuable or issued after June 7, 2004, under the Nonemployee Director Phantom Stock Plan, minus the number of shares of common stock issuable or issued upon conversionwrite-off of the subordinated notes, calculated assumingunamortized portion of the lowestdiscount associated with the conversion price stated infeature of the convertible senior subordinated notes.
COMMITMENTS AND CONTINGENCIES
Officer Loans
In fiscal 1999, the Company guaranteed loans relating to purchases of Luby's stock by various officers of the CompanyThe shares issued pursuant to the terms ofconversion were treasury shares that had previously been reserved for such a shareholder-approved plan. Under the officer loan program, shares were purchased and funding was provided by bank loans to the participating officers. Per the original terms of the guaranteed loan agreements, these instruments only required annual interest to be paid by the individual debtors, with the entire principal balances due upon their respective original maturity dates, which occurred during the period from January through March of 2004. As of August 25, 2004, the total of the principal balances due under these loans was approximately $1.0 million. The purchased Company stock has been and can be used by borrowers to satisfy a portion of their loan obligation. As of August 25, 2004, based on the market price on that day, approximately $315,000, or 30.9% of the note balances, co uld have been covered by stock, while approximately $705,000, or 69.1%, would have remained outstanding.conversion.
COMMITMENTS AND CONTINGENCIESIn connection with the renegotiation of its senior debt, the Company arranged for the issuance of a letter of credit, entered into on June 7, 2004, for approximately $1.2 million. That amount is intended as an estimate to cover principal and cumulative accrued interest that was due as of September 30, 2004. After that date, JPMorgan Chase Bank can use the letter of credit to draw on the current line of credit to pay down any portion of the unpaid officer loans, as well as the accrued interest, for any loans that are in default. As of the date of this report, JPMorgan Chase Bank has not taken any action to draw upon the letter of credit.
In anticipation of the maturity of its obligation to purchase the loans, the Company worked out settlement agreements with several of the debtors pursuant to which the Company would contribute up to $530,000 under the terms of the settlement agreement. As of August 25, 2004, the Company has recognized a liability of $530,000 in accrued expenses and other liabilities.
Off-Balance-Sheet Arrangements
The Company has no off-balance-sheet structured financing arrangements; however, underarrangements.
Pending Claims
Three wage and hour investigations by the termsU.S. Department of applicable SEC rules,Labor related to the application of wait staff tip pool sums have recently been consolidated in the Houston district. The Company has not yet received sufficient data to determine the financial impact to the Company, if any, or the probable outcome of the matter. As with all such matters, the Company intends to vigorously defend its position.
The Company is presently, and from time to time becomes, subject to claims and lawsuits arising in the ordinary course of business. In the opinion of management, the resolution of any pending legal proceedings will not have a material adverse effect on the Company's obligation to repurchaseoperations or consolidated financial position.
Surety Bonds
At August 31, 2005, surety bonds in the
officer loans could be deemed a guarantee contract, whichamount of $5.0 million have been issued as security for the
SEC considers an off-balance-sheet arrangement. Ifpayment of insurance obligations classified as accrued expenses and other liabilities on the
Company is required to purchase the officer loans, it would have a maximum cash payout exposure of approximately $1.2 million. balance sheet.
Contractual Obligations
As of
At August
25, 2004,31, 2005, the Company had contractual obligations and other commercial commitments as described
below. | Payments due by Period |
| |
| | Less than | | | | | | After |
Contractual Obligations | Total | 1 Year | | 2-3 Years | | 4-5 Years | | 5 Years |
| |
| (In thousands) |
| | | | | | | | | | | | | | | | | | | |
Long-term debt obligations | $ | 61,470 | | | $ | - | | | $ | 51,470 | | | $ | - | | | $ | 10,000 | (a) |
Capital lease obligations | | - | | | | - | | | | - | | | | - | | | | - | |
Operating lease obligations | | 30,938 | | | | 4,186 | | | | 7,410 | | | | 5,902 | | | | 13,440 | |
Purchase obligations | | - | | | | - | | | | - | | | | - | | | | - | |
Other long-term obligations | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | | | |
Total | $ | 92,408 | | | $ | 4,186 | | | $ | 58,880 | | | $ | 5,902 | | | $ | 23,440 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Amount of Commitment by Expiration Period |
| |
| | Fiscal Year | | Fiscal Years | | Fiscal Years | | |
Other Commercial Commitments | Total | 2005 | | 2006-2007 | | 2008-2009 | | Thereafter(b) |
| |
| (In thousands) |
| | | | | | | | | | | | | | | | | | | |
Letters of credit | $ | 3,432 | | | $ | 3,432 | | | $ | - | | | $ | - | | | $ | - | |
Surety bonds(b) | | 6,016 | | | | - | | | | - | | | | - | | | | 6,016 | |
| | | | | | | | | | | | | | | | | | | |
Total | $ | 9,448 | | | $ | 3,432 | | | $ | - | | | $ | - | | | $ | 6,016 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | Payments due by Period | |
| Contractual Obligations | | Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | After 5 Years | |
| | | (In thousands) | |
| | | | | | | | | | | | |
| Long-term debt obligations | | $ | 13,500 | | $ | - | | $ | 13,500 | | $ | - | | $ | - | |
| Capital lease obligations | | | - | | | - | | | - | | | - | | | - | |
Operating lease obligations (a) | | | 37,651 | | | 4,203 | | | 7,933 | | | 6,964 | | | 18,451 | |
| Purchase obligations | | | - | | | - | | | - | | | - | | | - | |
| Other long-term obligations | | | - | | | - | | | - | | | - | | | - | |
| Total | | $ | 51,151 | | $ | 4,203 | | $ | 21,433 | | $ | 6,964 | | $ | 18,451 | |
| | | Amount of Commitment by Expiration Period | |
| Other Commercial Commitments | | Total | | Fiscal Year 2005 | | Fiscal Years 2006-2007 | | Fiscal Years 2008-2009 | | Thereafter | |
| | | (In thousands) | |
| | | | | | | | | | | | |
| Letters of credit | | $ | 1,659 | | $ | 1,659 | | $ | - | | $ | - | | $ | - | |
Surety bonds (b) | | | 4,997 | | | - | | | - | | | - | | | 4,997 | |
| Total | | $ | 6,656 | | $ | 1,659 | | $ | - | | $ | - | | $ | 4,997 | |
| The note holders have the optionOperating lease obligations contain rent escalations and renewal options ranging from five to convert the subordinated notes to common stock prior to the expiration date.
thirty years. |
| Surety bonds have been placedserve as a means of collateral for certain prior year workers' compensation policies. These surety bonds have an effective date of June 1, 2002, and remain in full force and effect until cancelled. Effective September 29, 2004,The Company expects to convert the surety bonds were reduced to approximately $5 million, commensurate with a decreaseletters of credit early in collateral requirements. fiscal 2006. |
In addition to the commitments represented in the above tables, the Company enters into a number of cancelable and noncancelable commitments during the year. Typically, these commitments are for less than a year in duration and are generally focused on food inventory. The Company does not maintain any long-term or exclusive commitments or arrangements to purchase products from any single supplier. Substantially all of the Company's product purchase commitments are cancelable up to 30 days prior to the vendor's scheduled shipment date.
Long-term liabilities reflected in the Company's consolidated financial statements as of August
25, 2004,31, 2005, included deferred income taxes ($
1.15.0 million),
deferred gain on the sale of propertynote payable ($
382,000)28,000), amounts accrued for benefit payments under the Company's supplemental executive retirement plan ($
488,000)337,000) and deferred compensation agreements ($
551,000)304,000), accrued insurance reserves ($
3.93.1 million),
deferred rent liabilities ($4.1 million) and
reservereserves for restaurant closings ($
500,000)14,000).
The Company is also contractually obligated to the chief executive officer and the chief operating officer pursuant to employment agreements. See the
Related Parties section
of "Affiliationsentitled “Affiliations and Related
Parties"Parties - Related Parties” for further information.
AFFILIATIONS AND RELATED PARTIES
Affiliations
The Company entered into an Affiliate Services Agreement effective August 31, 2001, with two companies, Pappas Partners, L.P. and Pappas Restaurants, Inc., which are restaurant entities owned by Christopher J. Pappas and Harris J.
Pappas.Pappas, the Company’s CEO and COO, respectively. That agreement
aswas amended on July 23, 2002,
limitedto limit the scope of expenditures therein to professional and consulting
services. The Company completed this amendment due toservices because there had been a significant decline in the use of professional and consulting services from Pappas entities.
Additionally, on July 23, 2002, the Company entered into a Master Sales Agreement with the same Pappas entities. Through this agreement, the Company contractually separated the design and fabrication of equipment and furnishings from the Affiliate Services Agreement. The Master Sales Agreement covers the costs incurred for modifications to existing equipment, as well as custom fabrication, including stainless steel stoves, shelving, rolling carts, and chef tables. These items are custom-designed and built to fit the designated kitchens and are also engineered to give a longer service life than comparably manufactured equipment.
The pricing of equipment, repair, and maintenance is set and evaluated periodically and is considered by management to be primarily at or below market for comparable goods and services. To assist in periodically monitoring pricing of the transactions associated with the Master Sales Agreement and the Affiliate Services Agreement, the Finance and Audit Committee of the Company's Board of Directors has periodically in the past used independent valuation consultants.
As part of the affiliation with the Pappas entities, the Company leases a facility, the Houston Service Center, in which Luby's has installed a centralized restaurant service center to support field operations. The building at this location has 22,253 square feet of warehouse space and 5,664 square feet of office space. It is leased from the Pappas entities by the Company at an approximate monthly rate of $0.24 per square foot. From this center, Luby's repair and service teams are dispatched to the Company's restaurants when facility or equipment maintenance and servicing are needed. The facility is also used for repair and storage of new and used equipment. The amount paid by the Company pursuant to the terms of this lease was approximately
$88,000, $82,000,
$79,000, and
$78,000$79,000 for fiscal
2005, 2004,
and 2003,
and 2002, respectively.
The Company previously leased a location from an unrelated third party. That location is used to house increased equipment inventories due to store closures under the business plan. The Company considered it more prudent to lease this location rather than to pursue purchasing a storage facility, as its strategy is to focus its capital expenditures on its operating restaurants. In a separate transaction, the third-party property owner sold the location to the Pappas entities during the fourth quarter of fiscal 2003, with the Pappas entities becoming the Company's landlord for that location effective August 1, 2003. The storage site complements the Houston Service Center with approximately 27,000 square feet of warehouse space at an approximate monthly rate of $0.21 per square foot. The amount paid by the Company pursuant to the terms of this lease was approximately
$72,000 and $69,000 for fiscal
2004.2005 and 2004, respectively
In another separate contract, pursuant to the terms of a ground lease dated March 25, 1994, the Company paid rent to PHCG Investments for a Luby's restaurant the Company operated in Dallas, Texas, until that location was closed early in the third quarter of fiscal 2003. Christopher J. Pappas and Harris J. Pappas are general partners of PHCG Investments. Preceding the store's closure, the Company entered into a lease termination agreement with a third party unaffiliated with the Pappas entities. That agreement severed the Company's interest in the PHCG property in exchange for a payment of cash to the Company.
TheAt that time, the Company
also obtained the right to remove fixtures and equipment from the premises, and it was released from any future obligations under the lease agreement. The closing of the transaction was completed during the third quarter of fiscal 2003, resulting inrecognized a gain of $735,000
andas “Other Income, Net,” which represented the
gross proceeds were used to pay down debt.excess of the cash received over the carrying amount of the Company’s investment in the related assets. The amount paid by the Company pursuant to the terms of this lease before its termination was approximately $42,000
and $85,000 in fiscal
2003 and 2002, respectively.2003. No costs were incurred under this lease in fiscal
2004.2004 or 2005.
Late in the third quarter of fiscal 2004, ChrisChristopher and Harris Pappas became limited partners in a limited partnership which purchased a retail strip center in Houston, Texas. Messrs. Pappas own a 50% limited partnership interest. Neither of Messrs. Pappas own anyinterest and a 50% general partnership interest in the general partner of the limited partnership. The general partner of the limited partnership controls the operational decisions of the partnership. One of the Company's restaurants has rented approximately 7% of the space in that center since July of 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. The amount paid by the Company pursuant to the terms of this lease since the Pappas's inclusion as limited partners was approximately $167,000 and $56,000 in fiscal 2004. Management is under instruction that no amendments can be made to this lease without the approval2005 and 2004, respectively.
Affiliated rents paid for the Houston Service Center, the separate storage facility, the Dallas property, and the Houston property leases combined represented
4.8%8.4%,
2.8%5.6%, and
3.3%3.7% of total rents for continuing operations for fiscal
2005, 2004,
and 2003,
and 2002, respectively.
The following compares current and prior fiscal year-to-date charges incurred under the Master Sales Agreement, the Affiliate Services Agreement, and affiliated property leases to the Company's total capital expenditures, as well as relative general and administrative expenses and occupancy and other operating expenses included in continuing operations:
| Year Ended |
| | | | | | | | | | |
| August 25, | | August 27, | August 28, |
| 2004 | | 2003 | 2002 |
| | | | | | | | | | |
| (364 days) | | (364 days) | (362 days) |
| (In thousands) |
| | | | | | | | | | |
AFFILIATED COSTS INCURRED: | | | | | | | | | | |
General and administrative expenses - professional and other costs | $ | 1 | | | $ | - | | | 8 | |
Capital expenditures - custom-fabricated and refurbished equipment | | 113 | | | | 174 | | | 506 | |
Occupancy and other operating expenses, including property leases | | 170 | | | | 136 | | | 130 | |
Less pass-through amounts to third parties | | - | | | | - | | | (154 | ) |
| | | | | | | | | | |
Total | $ | 284 | | | $ | 310 | | $ | 490 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
RELATIVE TOTAL COMPANY COSTS: | | | | | | | | | | |
General and administrative expenses | $ | 19,750 | | | $ | 23,313 | | $ | 21,196 | |
Capital expenditures | | 8,921 | | | | 9,057 | | | 13,097 | |
Occupancy and other operating expenses | | 94,666 | | | | 91,325 | | | 94,981 | |
| | | | | | | | | | |
Total | $ | 123,337 | | | $ | 123,695 | | $ | 129,274 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
AFFILIATED COSTS INCURRED AS A PERCENTAGE OF
RELATIVE TOTAL COMPANY COSTS | | | | | | | | | | |
Fiscal year to date | | 0.23 | % | | | 0.25 | % | | 0.38 | % |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Inception to date | | 0.29 | % | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | Year Ended | |
| | | August 31, 2005 | | August 25, 2004 | | August 27, 2003 | |
| | | (371 days) | | (364 days) | | (364 days) | |
| | | (In thousands) | |
| AFFILIATED COSTS INCURRED: | | | | | | | |
| General and administrative expenses - professional and other costs | | $ | 5 | | $ | 1 | | $ | - | |
| Capital expenditures - custom-fabricated and refurbished equipment | | | 176 | | | 113 | | | 174 | |
| Other operating expenses, including property leases | | | 345 | | | 170 | | | 136 | |
| Total | | $ | 526 | | $ | 284 | | $ | 310 | |
| RELATIVE TOTAL COMPANY COSTS: | | | | | | | | | | |
| General and administrative expenses | | $ | 20,750 | | $ | 19,748 | | $ | 23,301 | |
| Capital expenditures | | | 10,058 | | | 8,921 | | | 9,057 | |
| Other operating expenses | | | 64,796 | | | 59,447 | | | 55,342 | |
| Total | | $ | 95,604 | | $ | 88,116 | | $ | 87,700 | |
| AFFILIATED COSTS INCURRED AS A PERCENTAGE OF RELATIVE TOTAL COMPANY COSTS | | | | | | | | | | |
| Fiscal year to date | | | 0. 55 | % | | 0.32 | % | | 0.35 | % |
| Inception to date | | | 0.34 | % | | | | | | |
Christopher J. Pappas, the Company’s President and Chief Executive Officer, is a member of the Board of Directors of Amegy Bank, National Association, which is a lender under, and Documentation Agent of, the Revolving Credit Facility.
Related Parties
In June 2004, new two-year employment contracts were finalized for
ChrisChristopher and Harris Pappas. As in the past
threefour years, they will both continue to devote their primary time and business efforts to Luby's, while maintaining their roles at Pappas Restaurants, Inc.
TRENDS
CRITICAL ACCOUNTING POLICIES AND UNCERTAINTIESSame-Store SalesESTIMATES
The restaurant business is highly competitive with respect to food quality, concept, location, price,
Our accounting policies are described in Note 1, “Nature of Operations and
service, all of which may have an effect on same-store sales. The Company's same-store sales calculation measures the relative performance of a certain group of restaurants. Specifically, to qualify for inclusion in this group, a store must have been in operation for 18 consecutive accounting periods. Although management believes this approach leads to more effective year-over-year comparisons, neither the time frame nor the exact practice may be similar to those used by other restaurant companies.The following shows the same-store sales change for comparative historical quarters:
Fiscal 2004 | | Fiscal 2003 | | Fiscal 2002 |
| | | | | | | | | | | | | |
Q4 | Q3 | Q2 | Q1 | | Q4 | Q3 | Q2 | Q1 | | Q4 | Q3 | Q2 | Q1 |
| | | | | | | | | | | | | |
3.8% | 4.8% | 1.3% | (2.2)% | | (2.4)% | (3.2)% | (0.6)% | (5.1)% | | (13.0)% | (13.2)% | (8.6)% | (2.7)% |
The first quarter of fiscal 2002 includes September 11, 2001. In the third and fourth quarters of fiscal 2002, the Company was able to maintain its comparative cash flow level with declining sales by lowering operating costs. Even with national economic issues, such as military operations overseas and continued concerns about domestic terrorism, there was less quarterly same-store sales variability in fiscal 2003 than in the prior fiscal year.
In fiscal 2004, the Company chose a strategy based on offering bundled combination meals in lieu of all-you-can-eat promotions offered in the prior year. The strategic change began to show positive results in the second quarter and continued through the fiscal year-end. Additionally, the Company's holiday promotions, which included a focus on Thanksgiving and Christmas in the second quarter and an emphasis on the entire Lenten season in the third quarter, were critical in positively improving the Company's same-store sales performance.
The Company is constantly seeking additional opportunities to lower costs and increase sales. Notwithstanding the positive results of the most recent three quarters, consistent future declines in same-store sales could cause a reduction in operating cash flow. Considering that the prior defaults on the Company's original credit facility were eliminated in the fourth quarter of fiscal 2004 with new alternate financing as described previously, significant problems with the new instruments are not currently anticipated. If, however, severe declines in cash flows were to develop in the future, the new financing agreements could be negatively affected. As a possible result, the lenders may choose to accelerate the maturity of any outstanding obligation, pursue foreclosure on assets pledged as collateral, and terminate their agreement.
Existing Programs
In addition to those described earlier, the Company has initiated a number of programs since March 2001. These programs, as listed below, were intended to address the decline in total and same-store sales, while prudently managing costs and increasing overall profitability:
-
| Food excellence;
|
-
| Service excellence;
|
-
| Labor efficiency and cost control;
|
-
| Increased emphasis on value, including combination meals;
|
-
| Increased emphasis on employee training and development;
|
-
| Targeted marketing, especially directed at families;
|
-
| Closure of certain underperforming restaurants;
|
-
| Increased emphasis on in-house safety training, accident prevention, and claims management; and
|
-
| New product development.
|
Impairment
Statement of FinancialSignificant Accounting Standards (SFAS) No. 144 requires the Company to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company considers a history of operating losses or negative cash flows and unfavorable changes in market conditions to be its main indicators of potential impairment. Assets are generally evaluated for impairment at the restaurant level. If a restaurant does not meet its financial investment objectives or continues to incur negative cash flows or operating losses, an impairment charge may be recognized in future periods.
Insurance and Claims
Workers' compensation and employee injury claims expense increased in comparison with the prior fiscal year due to a revision in reserve estimates resulting from the use of more comparable Texas nonsubscriber work injury loss history by the Company's provider of actuarial estimates. Actual claims settlements and expenses may differ from estimated loss provisions. The Company cannot make any assurances as to the ultimate level of claims under the in-house safety program or whether declines in incidence of claims as well as claims costs experienced under the program will continue in future periods.
The Company may be the subject of claims or litigation from guests and employees alleging injuries as a result of its operations. In addition, unfavorable publicity from such allegations could have an adverse impact on financial results, regardless of their validity or ultimate outcome.
Minimum Wage and Labor Costs
From time to time, the U.S. Congress considers an increase in the federal minimum wage. The restaurant industry is intensely competitive, and in such case, the Company may not be able to transfer all of the resulting increases in operating costs to its guests in the form of price increases. In addition, since the Company's business is labor-intensive, shortages in the labor pool or other inflationary pressure could increase labor costs.
RESERVE FOR RESTAURANT CLOSINGS
The Company's reserve for restaurant closings is associated with prior disposal plans. The reserve declined from $1.7 million at August 27, 2003, to $500,000 at August 25, 2004, primarily due to the payment of and reductions in certain accrued lease settlement costs of approximately $1.2 million. (See Note 7Policies,” of the Notes to the Consolidated Financial Statements.)
CRITICAL ACCOUNTING POLICIES
The Company has identifiedConsolidated Financial Statements are prepared in conformity with generally accepted accounting principles. Preparation of the financial statements requires us to make judgments, estimates and assumptions that affect the amounts of assets and liabilities in the financial statements and revenues and expenses during the reporting periods. We believe the following are the Company’s critical accounting policies as critical to its business and the understanding of its results of operations. The Company believes it is improbable that materially different amounts would be reported relatingdue to the accounting policies described below if other acceptable approaches were adopted. However,significant, subjective and complex judgments and estimates used when preparing our consolidated financial statements. We regularly review our assumptions and estimates with the applicationFinance and Audit Committee of these accounting policies, as described below, involve the exerciseCompany’s Board of judgment and use of assumptions as to future uncertainties; therefore, actual results could differ from estimates generated from their use.
Directors.
Income Taxes
The Company records the estimated future 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. The Company periodically reviews the recoverability of tax assets recorded on the balance sheet and provides valuation allowances as management deems necessary. Management makes judgments as to the interpretation of the 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. In management's opinion, adequate provisions for income taxes have been made for all years. Historically, the Company has been periodically reviewed by the Internal Revenue
Service.Service (“IRS”). The Company is currently under
revi ewreview for the
2003, 2002, 2001, and 2000 fiscal years.
The IRS review may possibly result in a reduction of the cumulative net operating losses ($10.2 million at August 31, 2005) that are currently being carried forward to offset future taxable income.
Impairment of Long-Lived Assets
The Company periodically evaluates long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverablerecoverable. The Company estimates future cash flows expected to result from the use and possible disposition of the asset and will recognize an impairment loss when the sum of the undiscounted estimated future cash flows is less than the carrying amounts of such
assets .assets. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management's subjective judgments. The
span of time
periods for
estimatingwhich future cash flows
are estimated is often lengthy, which increases the sensitivity to assumptions made. 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
f lows.flows. The measurement for such an impairment loss is then based on the fair value of the asset as determined by discounted cash flows or appraisals, if available.
Property Held for Sale
The Company also periodically reviews long-lived assets against its plans to retain or ultimately dispose of properties. If the Company decides 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. The Company routinely monitors the estimated value of property held for sale and records adjustments to these values as required. The Company
will periodically
measuremeasures and
analyzeanalyzes its estimates against third-party appraisals.
Insurance and Claims
The Company periodically reviewsself-insures a significant portion of risks and associated liabilities under its workers'employee injury, workers compensation work injury, and general liability reservesprograms. The Company maintains insurance coverage with third party carriers to ensure reasonableness.limit its per-occurrence claim exposure. Accrued claims' liabilities arehave been recorded for the estimated ultimate costs to settle both reported claimsbased upon analysis of historical data and claims incurred but not reported. Theseactuarial estimates, are based on actuarially determined ultimate cost estimates adjusted for factors and circumstances surrounding all current and prior year claims as periodicallyis reviewed by the Company's internal risk management staff. Assumptions and judgments are used in evaluating the effectCompany on a quarterly basis to ensure that the factorsliability is appropriate.
Actual workers’ compensation and
circumstances surrounding reportedemployee injury claims
have onexpense may differ from estimated
loss provisions. The company cannot make any assurances as to the ultimate level of claims
costs. Unexpected changes in claim-estimate-related factors and actuarial estimates could result in costs that are materially different than initially reported. The Company's ongoingunder the in-house safety
andprogram or whether declines in incidence of claims
as well as claims costs experiences or reductions in reserve requirements under the program
focuses on safety training and rigorous scrutiny of new claims, wh ich has reduced costs significantlywill continue in
comparison to plans previously administered by third parties. The possibility exists that future
claims-related liabilities could increase due to unforeseen circumstances.periods.
Stock-Based Compensation
The Company accounts for its employee stock compensation plans using the intrinsic-value method of accounting set forth in Accounting Principles Board Opinion No. 25,
"Accounting“Accounting for Stock Issued to Employees,
"” and the related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock.
NEW ACCOUNTING PRONOUNCEMENTS SFAS No. 148, "Accounting123, “Accounting for Stock-Based Compensation,” as amended by SFAS 148, requires pro forma disclosures of net income and earnings per share for companies not adopting its fair value accounting method for stock-based employee compensation. The pro forma disclosures presented in Note 12 - TransitionEmployee Benefit Plans and Disclosure, an amendment of FASB Statement No. 123," was issued in December 2002 and is effective for fiscal years ending after December 15, 2002. SFAS No. 148 provides alternative methods of transition for a voluntary change toAgreements use the fair value method of accountingSFAS 123 to measure compensation expense for stock-based employee compensation. In addition, this pronouncement amendscompensation plans.
The Company will adopt the disclosure requirementsprovisions of SFAS No. 123, “Share-Based Payments (Revised 2004)”, effective September 1, 2005. Among other things, SFAS 123R eliminates the ability to require more prominent disclosureaccount for stock-based compensation using APB 25 and requires that such transactions be recognized as compensation cost in both annualthe income statement on their fair values on the date of the grant. See Note 12 - Employee Benefit Plans and Agreements - for additional information.
In November 2004, the Emerging Issues Task Force (EITF”) reached a consensus on EITF 03-13, “Applying the Conditions in Paragraph 42 of FABS Statement No. 144 in Determining Whether to Report Discontinued Operations,” which provides guidance on how to evaluate the discontinued operations criteria. The consensus should be applied in fiscal periods beginning after December 15, 2004. The Company plans to apply the consensus effective fiscal year 2006. The application is not expected to have a significant effect on reporting of discontinued operations.
In October 2005, the FASB issued FASB Staff Position No. 13-1 (“FSP 13-1”), which addresses the accounting for rental costs associated with building and ground operating leases that are incurred during a construction period. The FASB decided that such rental costs incurred during a construction period shall be recognized as rental expense. A lessee shall cease capitalizing rental costs as of the effective date of FSP 13-1 for operating lease arrangements entered into prior to the effective date of FSP 13-1. The guidance in FSP 13-1 shall be applied to the first reporting period beginning after December 15, 2005. Early adoption is permitted for financial statements or interim financial statements aboutthat have not yet been issued. Because it has been the methodCompany’s practice to charge rental costs during construction periods to expense, the adoption of FSP 13-1 will not have an impact on the Company’s financial position, results of operations or cash flows.
In May 2005 the FASB issued FASB Statement No. 154, “Accounting Changes and Error Corrections”. Statement 154 replaces APB No. 20, “Accounting Changes”, and FASB Statement No. 3, “Reporting Changes in Interim Financial Statements”. FASB No. 154 changes the accounting for,
stock-based employee compensation and
reporting of, a change in accounting principle. FASB No. 154 requires retrospective application to prior period’s financial statements of voluntary changes in accounting principle and changes required by new accounting standards when the
effectstandard does not include specific transition provisions, unless it is impractical to do so. FASB No. 154 is effective for accounting changes and corrections of
the method used on reported results. The Company currently plans to continue to apply the intrinsic-value-based method to account for stock options and is complying with the disclosure requirements of SFAS No. 148.errors in fiscal years beginning after December 15, 2005.
The Company's policy is to maintain stable menu prices without regard to seasonal variations in food costs. General increases in costs of food, wages, supplies,
transportation, and services make it necessary for the Company to increase its menu prices from time to time. To the extent prevailing market conditions allow, the Company intends to adjust menu prices to maintain profit margins.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements contained in this Form 10-K, other than statements of historical facts, are “forward-looking statements” for purposes of these provisions, including any statements regarding:
| · | the Company’s future operating results; |
| · | the Company’s future capital expenditures; |
| · | reducing the Company’s debt, including the Company’s liquidity and the sources and availability of funds to reduce its debt; |
| · | future sales of the Company’s assets and the gains or losses that the Company may recognize as a result of any such sale; and |
| · | the Company’s continued compliance with the terms of its Revolving Credit Facility. |
In some cases, you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “outlook,” “may,” “should,” “will,” and “would” or similar words. Forward-looking statements are based on certain assumptions and analyses made by the Company’s management in light of their experience and perception of historical trends, current conditions, expected future developments and other factors
they believe are relevant. Although management believes that their assumptions are reasonable based on information currently available, those assumptions are subject to significant risks and uncertainties, many of which are outside of the Company’s control. The Company wishes to caution readersfollowing factors, as well as the factors set forth in Item 1A of this Form 10-K and any other cautionary language in this Form 10-K, provide examples of risks, uncertainties, and events that various factors couldmay cause its actualthe Company’s financial and operational results to differ materially from those indicated bythe expectations described in the Company’s forward-looking statements made from time to time in news releases, reports, proxy statements, registration statements, and other written communications (including the preceding sections of this Management's Discussion and Analysis),statements:
| · | general business and economic conditions; |
| · | the impact of competition; |
| · | the Company’s operating initiatives; |
| · | fluctuations in the costs of commodities, including beef, poultry, seafood, dairy, cheese and produce; |
| · | increases in utility costs, including the costs of natural gas and other energy supplies; |
| · | changes in the availability and cost of labor; |
| · | the seasonality of the Company’s business; |
| · | changes in governmental regulations, including changes in minimum wages; |
| · | the affects of inflation; |
| · | the availability of credit; |
| · | unfavorable publicity relating to the Company’s operations, including publicity concerning food quality, illness or other health concerns or labor relations; and |
| · | the continued service of key management personnel. |
Each forward-looking statement speaks only as
well as oral statements made from time to time by representatives of the
Company. Except for historical information, matters discussed in such oral and written communications are forward-looking statements that involve risks and uncertainties, including but not limited to general business conditions, the impactdate of
competition, the success of operating initiatives, changes in the cost and supply of food and labor, the seasonality of the Company's business, taxes, inflation, governmental regulations, and the availability of credit, as well as other risks and uncertaintie s disclosed in periodic reports onthis Form 10-K, and
the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should be aware that the occurrence of the events described above and elsewhere in this Form
10-Q.Item 7A. Quantitative10-K could have material adverse effect on the Company’s business, results of operations, cash flows and Qualitative Disclosures About Market Risk
financial condition.
| Quantitative and Qualitative Disclosures About Market Risk |
The Company is exposed to market risk from changes in interest rates affecting its variable-rate debt. As of August
25, 2004, $61.531, 2005, $13.5 million, the total amount of debt subject to interest rate fluctuations, was outstanding under its
senior debt and subordinated notes.Revolving Credit Facility. Assuming a consistent level of debt, a 1% change in interest rates effective from the beginning of the year would result in an increase or decrease in annual interest expense of approximately
$615,000. $135,000.
Although the Company is not currently using interest rate swaps, it has previously used and may in the future use these instruments to manage cash flow risk on a portion of its variable-rate debt.
Item 8. | Financial Statements and Supplementary Data |
Report of Management
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect material misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Statements and Supplementary DataOfficer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of August 31, 2005 based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of August 31, 2005.
Management’s assessment of the effectiveness of our internal control over financial reporting as of August 31, 2005 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included elsewhere herein.
| /s/Christopher J. Pappas | /s/Ernest Pekmezaris |
| Christopher J. Pappas | Ernest Pekmezaris |
| President and Chief Executive Officer | Senior Vice President and Chief Financial Officer |
LUBY'S, INC.
FINANCIAL STATEMENTS
Years Ended August 31, 2005, August 25, 2004 and August 27, 2003 and August 28, 2002
with Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Luby's, Inc.
We have audited the accompanying consolidated balance sheets of Luby's, Inc.
at(The “Company”) as of August 31, 2005, and August 25, 2004,
and August 27, 2003, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended August
25, 2004.31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Luby's, Inc. at August
25, 2004,31, 2005 and August
27, 2003,25, 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended August
25, 2004,31, 2005, in conformity with U.S. generally accepted accounting principles.
As discussed in Note
12 to the consolidated financial statements, in
20032005, the Company
was required to changechanged its method of accounting
for discontinued operations./s/ERNST & YOUNG LLP
San Antonio, Texasto recognize deferred taxes associated with the beneficial conversion feature on the Company’s convertible subordinated debt.
October 13, 2004
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of August 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report, dated November 4, 2005, expressed an unqualified opinion thereon.
| /s/ERNST & YOUNG LLP |
| San Antonio, Texas | |
| November 4, 2005 | |
Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting
The Board of Directors and Shareholders of Luby's, Inc.
We have audited management’s assessment included in the accompanying Report of Management, that Luby’s, Inc. maintained effective internal control over financial reporting as of August 31, 2005, based on criteria established in Internal Control -Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Luby’s, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that Luby’s Inc. maintained effective internal control over financial reporting as of August 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Luby’s Inc. maintained, in all material respects, effective internal control over financial reporting as of August 31, 2005, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Luby’s, Inc. as of August 31, 2005 and August 25, 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended August 31, 2005 of Luby’s, Inc., and our report, dated November 4, 2005, expresses an unqualified opinion thereon.
| /s/ERNST & YOUNG LLP |
| San Antonio, Texas | |
| November 4, 2005 | |
Luby's, Inc.
Consolidated Balance Sheets | August 25, | August 27, |
| | 2004 | | | | 2003 | |
| | | | | | | |
| (In thousands) |
ASSETS | | | | | | | |
Current Assets: | | | | | | | |
Cash and cash equivalents | $ | 1,211 | | | $ | 871 | |
Short-term investments (see Note 2) | | 4,384 | | | | 20,498 | |
Trade accounts and other receivables | | 101 | | | | 283 | |
Food and supply inventories | | 2,092 | | | | 1,798 | |
Prepaid expenses | | 1,028 | | | | 3,485 | |
Deferred income taxes (see Note 3) | | 1,073 | | | | 180 | |
| | | | | | | |
Total current assets | | 9,889 | | | | 27,115 | |
Property held for sale | | 24,594 | | | | 32,946 | |
Investments and other assets | | 3,756 | | | | 547 | |
Property and equipment - at cost, net (see Note 4) | | 196,541 | | | | 217,676 | |
| | | | | | | |
Total assets | $ | 234,780 | | | $ | 278,284 | |
| | | | | | | |
| | | | | | | | |
| | | | | | | |
| | | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | |
Current Liabilities: | | | | | | | |
Accounts payable | $ | 15,888 | | | $ | 12,488 | |
Accrued expenses and other liabilities (see Note 5) | | 25,280 | | | | 28,257 | |
Convertible subordinated notes, net - related party (see Note 6) | | - | | | | 6,973 | |
Credit-facility debt (see Note 6) | | - | | | | 91,559 | |
| | | | | | | |
Total current liabilities | | 41,168 | | | | 139,277 | |
Line of credit debt (see Note 6) | | 28,000 | | | | - | |
Term debt (see Note 6) | | 23,470 | | | | - | |
Convertible subordinated notes, net - related party (see Note 6) | | 2,091 | | | | - | |
Other liabilities | | 5,385 | | | | 5,252 | |
Deferred income taxes (see Note 3) | | 1,073 | | | | 180 | |
Reserve for restaurant closings (see Note 7) | | 500 | | | | 1,663 | |
Commitments and contingencies (see Note 8) | | - | | | | - | |
| | | | | | | |
Total liabilities | | 101,687 | | | | 146,372 | |
| | | | | | | |
| | | | | | | |
SHAREHOLDERS' EQUITY | | | | | | | |
Common stock, $.32 par value; authorized 100,000,000 shares, issued
27,410,567 and 27,403,067 shares in fiscal 2004 and 2003, respectively | | 8,771 | | | | 8,769 | |
Paid-in capital | | 43,564 | | | | 36,916 | |
Deferred compensation | | - | | | | (679 | ) |
Retained earnings | | 185,529 | | | | 191,968 | |
Less cost of treasury stock, 4,933,063 and 4,946,771 shares in fiscal
2004 and 2003, respectively | | (104,771 | ) | | | (105,062 | ) |
| | | | | | | |
Total shareholders' equity | | 133,093 | | | | 131,912 | |
| | | | | | | |
Total liabilities and shareholders' equity | $ | 234,780 | | | $ | 278,284 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
See accompanying notes. | | | | | | | |
| | | August 31, 2005 | | August 25, 2004 (As adjusted) | |
| | | (In thousands, except share data) | |
| ASSETS | | | | | |
| Current Assets: | | | | | |
| Cash and cash equivalents | | $ | 2,789 | | $ | 3,311 | |
| Short-term investments (see Note 3) | | | 1,667 | | | 2,284 | |
| Trade accounts and other receivables, net | | | 151 | | | 101 | |
| Food and supply inventories | | | 2,215 | | | 2,092 | |
| Prepaid expenses | | | 1,639 | | | 1,028 | |
| Deferred income taxes (see Note 4) | | | 865 | | | 1,073 | |
| Total current assets | | | 9,326 | | | 9,889 | |
| Property, plant, and equipment, net (see Note 5) | | | 186,009 | | | 194,042 | |
| Property held for sale | | | 9,346 | | | 24,594 | |
| Other assets | | | 1,533 | | | 3,756 | |
| Total assets | | $ | 206,214 | | $ | 232,281 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | |
| Current Liabilities: | | | | | | | |
| Accounts payable | | $ | 17,759 | | $ | 16,821 | |
| Accrued expenses and other liabilities (see Note 6) | | | 17,720 | | | 17,073 | |
| Total current liabilities | | | 35,479 | | | 33,894 | |
| Credit-facility debt (see Note 8) | | | 13,500 | | | 28,000 | |
| Term debt (see Note 8) | | | - | | | 23,470 | |
| Convertible subordinated notes, net - related party (see Note 8) | | | - | | | 2,091 | |
| Other liabilities (see Note 7) | | | 7,910 | | | 10,215 | |
| Deferred income taxes (see Note 4) | | | 5,039 | | | 5,061 | |
| Total liabilities | | | 61,928 | | | 102,731 | |
| SHAREHOLDERS' EQUITY | | | | | | | |
| Common stock, $.32 par value; authorized 100,000,000 shares, issued 27,610,708 shares and 27,410,567 shares at August 31, 2005 and August 25, 2004, respectively | | | 8,835 | | | 8,771 | |
| Paid-in capital | | | 40,032 | | | 39,070 | |
| Retained earnings | | | 131,023 | | | 186,480 | |
| Less cost of treasury stock, 1,676,403 shares and 4,933,063 shares at August 31, 2005 and August 25, 2004, respectively | | | (35,604 | ) | | (104,771 | ) |
| Total shareholders' equity | | | 144,286 | | | 129,550 | |
| Total liabilities and shareholders' equity | | $ | 206,214 | | $ | 232,281 | |
See accompanying notes.
Luby's, Inc.
Consolidated Statements of Operations | Year Ended | |
| | | | | | | | | | | |
| August 25, | | August 27, | | August 28, |
| | 2004 | | | | 2003 | | | | 2002 | |
| | | | | | | | | | | |
| (In thousands except per share data) |
| | | | | | | | | | | |
SALES | $ | 308,817 | | | $ | 303,959 | | | $ | 318,656 | |
COSTS AND EXPENSES: | | | | | | | | | | | |
Cost of food | | 83,200 | | | | 82,563 | | | | 80,841 | |
Payroll and related costs | | 85,431 | | | | 87,503 | | | | 100,899 | |
Occupancy and other operating expenses | | 94,666 | | | | 91,325 | | | | 94,981 | |
Depreciation and amortization | | 16,876 | | | | 17,464 | | | | 17,472 | |
Voluntary severance costs (see Note 5) | | 860 | | | | - | | | | - | |
General and administrative expenses | | 19,750 | | | | 23,313 | | | | 21,196 | |
Provision for asset impairments and restaurant closings (see Note 7) | | 727 | | | | 2,100 | | | | 271 | |
| | | | | | | | | | | |
| | 301,510 | | | | 304,268 | | | | 315,660 | |
| | | | | | | | | | | |
INCOME (LOSS) FROM OPERATIONS | | 7,307 | | | | (309 | ) | | | 2,996 | |
Interest expense | | (8,094 | ) | | | (7,610 | ) | | | (7,676 | ) |
Other income, net | | 2,691 | | | | 7,071 | | | | 2,368 | |
| | | | | | | | | | | |
Income (loss) before income taxes | | 1,904 | | | | (848 | ) | | | (2,312 | ) |
Provision (benefit) for income taxes (see Note 3): | | | | | | | | | | | |
Current | | - | | | | - | | | | (2,255 | ) |
Deferred | | - | | | | - | | | | 2,217 | |
| | | | | | | | | | | |
| | - | | | | - | | | | (38 | ) |
| | | | | | | | | | | |
Income (loss) from continuing operations | | 1,904 | | | | (848 | ) | | | (2,274 | ) |
Discontinued operations, net of taxes (see Note 7) | | (8,343 | ) | | | (32,246 | ) | | | (7,379 | ) |
| | | | | | | | | | | |
NET INCOME (LOSS) | $ | (6,439 | ) | | $ | (33,094 | ) | | $ | (9,653 | ) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Income (loss) per share from continuing operations:
Basic (see Note 15) | $ | 0.08 | | | $ | (0.04 | ) | | $ | (0.10 | ) |
Assuming dilution(see Note 15) | | 0.08 | | | | (0.04 | ) | | | (0.10 | ) |
Income (loss) per share from discontinued operations:
Basic(see Note 15) | | (0.37 | ) | | | (1.43 | ) | | | (0.33 | ) |
Assuming dilution (see Note 15) | | (0.37 | ) | | | (1.43 | ) | | | (0.33 | ) |
Net income (loss) per share:
Basic (see Note 15) | | (0.29 | ) | | | (1.47 | ) | | | (0.43 | ) |
Assuming dilution (see Note 15) | $ | (0.29 | ) | | $ | (1.47 | ) | | $ | (0.43 | ) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Weighted-average shares outstanding:
Basic | 22,470 | | | 22,451 | | | | 22,428 | |
Assuming dilution | 22,619 | | | 22,451 | | | | 22,428 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
See accompanying notes. | | | | | | | | | | | |
| | | Year Ended | |
| | | August 31, 2005 | | August 25, 2004 (As adjusted) | | August 27, 2003 (As adjusted) | |
| | | (In thousands except per share data) | |
| | | | | | | | |
| SALES | | $ | 322,151 | | $ | 297,849 | | $ | 291,740 | |
| COSTS AND EXPENSES: | | | | | | | | | | |
| Cost of food | | | 86,280 | | | 79,923 | | | 78,921 | |
| Payroll and related costs | | | 115,481 | | | 112,961 | | | 114,655 | |
| Other operating expenses | | | 64,796 | | | 59,447 | | | 55,342 | |
| Depreciation and amortization | | | 15,054 | | | 16,259 | | | 17,204 | |
| Relocation and voluntary severance costs (see Note 6) | | | 669 | | | 860 | | | - | |
| General and administrative expenses | | | 20,750 | | | 19,748 | | | 23,301 | |
| (Reversal of) provision for asset impairments and restaurant closings/(gains on sales), net (see Note 9) | | | (632 | ) | | 413 | | | 1,175 | |
| | | | 302,398 | | | 289,611 | | | 290,598 | |
| INCOME FROM OPERATIONS | | | 19,753 | | | 8,238 | | | 1,142 | |
| Interest expense | | | (11,636 | ) | | (8,094 | ) | | (7,610 | ) |
| Other income, net | | | 574 | | | 2,689 | | | 7,069 | |
| Income before income taxes | | | 8,691 | | | 2,833 | | | 601 | |
| Provision (benefit) for income taxes (see Note 4) | | | 117 | | | (2,856 | ) | | (1,441 | ) |
| Income from continuing operations | | | 8,574 | | | 5,689 | | | 2,042 | |
| Discontinued operations, net of taxes (see Note 9) | | | (5,126 | ) | | (8,811 | ) | | (31,763 | ) |
| NET INCOME (LOSS) | | $ | 3,448 | | $ | (3,122 | ) | $ | (29,721 | ) |
| Income per share from continuing operations: | | | | | | | | | | |
| Basic (see Note 15) | | $ | 0.38 | | $ | 0.25 | | $ | 0.09 | |
| Assuming dilution(see Note 15) | | $ | 0.37 | | $ | 0.25 | | $ | 0.09 | |
| Loss per share from discontinued operations: | | | | | | | | | | |
| Basic (see Note 15) | | $ | (0.23 | ) | $ | (0.39 | ) | $ | (1.41 | ) |
| Assuming dilution (see Note 15) | | $ | (0.22 | ) | $ | (0.39 | ) | $ | (1.41 | ) |
| Net income (loss) per share: | | | | | | | | | | |
| Basic (see Note 15) | | $ | 0.15 | | $ | (0.14 | ) | $ | (1.32 | ) |
| Assuming dilution (see Note 15) | | $ | 0.15 | | $ | (0.14 | ) | $ | (1.32 | ) |
| Weighted-average shares outstanding: | | | | | | | | | | |
| Basic | | | 22,608 | | | 22,470 | | | 22,451 | |
| Assuming dilution | | | 23,455 | | | 22,679 | | | 22,532 | |
See accompanying notes.
Luby's, Inc.
Consolidated Statements of Shareholders' Equity (In thousands) | | | | | | | | | | | | | Accumulated | | |
| | Common Stock | | | | | | | | Other | | Total |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Issued | | | Treasury | | Paid-In | | Deferred | | Retained | | Comprehensive | | Shareholders' |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares | | Amount | | | Shares | | | Amount | | Capital | | Compensation | | Earnings | | Income (Loss) | | Equity |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at August 31, 2001 | | 27,403 | | $ | 8,769 | | | (4,980 | ) | | $ | (105,771 | ) | | $ | 37,181 | | $ | (3,299 | ) | | $ | 234,715 | | | $ | (592 | ) | | $ | 171,003 | |
Net income (loss) for the year | | - | | | - | | | - | | | | - | | | | - | | | - | | | | (9,653 | ) | | | - | | | | (9,653 | ) |
Reclassification adjustment for loss recognized
on termination of interest rate swaps, net of
taxes of $318 | | - | | | - | | | - | | | | - | | | | - | | | - | | | | - | | | | 592 | | | | 592 | |
Noncash stock compensation expense | | - | | | - | | | - | | | | - | | | | - | | | 1,310 | | | | - | | | | - | | | | 1,310 | |
Common stock issued under nonemployee director
benefit plans | | - | | | - | | | 10 | | | | 214 | | | | 154 | | | - | | | | - | | | | - | | | | 368 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at August 28, 2002 | | 27,403 | | $ | 8,769 | | | (4,970 | ) | | $ | (105,557 | ) | | $ | 37,335 | | $ | (1,989 | ) | | $ | 225,062 | | | $ | - | | | $ | 163,620 | |
Net income (loss) for the year | | - | | | - | | | - | | | | - | | | | - | | | - | | | | (33,094 | ) | | | - | | | | (33,094 | ) |
Noncash stock compensation expense | | - | | | - | | | - | | | | - | | | | - | | | 1,310 | | | | - | | | | - | | | | 1,310 | |
Common stock issued under nonemployee director
benefit plans | | - | | | - | | | 23 | | | | 495 | | | | (419 | ) | | - | | | | - | | | | - | | | | 76 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at August 27, 2003 | | 27,403 | | $ | 8,769 | | | (4,947 | ) | | $ | (105,062 | ) | | $ | 36,916 | | $ | (679 | ) | | $ | 191,968 | | | $ | - | | | $ | 131,912 | |
Net income (loss) for the year | | - | | | - | | | - | | | | - | | | | - | | | - | | | | (6,439 | ) | | | - | | | | (6,439 | ) |
Noncash stock compensation expense | | - | | | - | | | - | | | | - | | | | - | | | 679 | | | | - | | | | - | | | | 679 | |
Net change in value of beneficial conversion feature
on the convertible subordinated notes | | - | | | - | | | - | | | | - | | | | 6,901 | | | - | | | | - | | | | - | | | | 6,901 | |
Common stock issued under nonemployee director
benefit plans | | - | | | 2 | | | 14 | | | | 291 | | | | (291 | ) | | - | | | | - | | | | - | | | | 2 | |
Common stock issued under employee benefit plans | | 8 | | | - | | | - | | | | - | | | | 38 | | | - | | | | - | | | | - | | | | 38 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at August 25, 2004 | | 27,411 | | $ | 8,771 | | | (4,933 | ) | | $ | (104,771 | ) | | $ | 43,564 | | $ | - | | | $ | 185,529 | | | $ | - | | | $ | 133,093 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | | | | | | | Total | |
| | | Issued | | Treasury | | Paid-In | | Deferred | | Retained | | Shareholders' | |
| | | Shares | | Amount | | Shares | | Amount | | Capital | | Compensation | | Earnings | | Equity | |
| Balance at August 28, 2002 (As adjusted) | | | 27,403 | | $ | 8,769 | | | (4,970 | ) | $ | (105,557 | ) | $ | 35,697 | | $ | (1,989 | ) | $ | 219,323 | | $ | 156,243 | |
| Net loss for the year | | | - | | | - | | | - | | | - | | | - | | | - | | | (29,721 | ) | | (29,721 | ) |
| Noncash stock compensation expense | | | - | | | - | | | - | | | - | | | - | | | 1,310 | | | - | | | 1,310 | |
| Common stock issued under nonemployee director benefit plans | | | - | | | - | | | 23 | | | 495 | | | (419 | ) | | - | | | - | | | 76 | |
| Balance at August 27, 2003 (As adjusted) | | | 27,403 | | $ | 8,769 | | | (4,947 | ) | $ | (105,062 | ) | $ | 35,278 | | $ | (679 | ) | $ | 189,602 | | $ | 127,908 | |
| Net loss for the year | | | - | | | - | | | - | | | - | | | - | | | - | | | (3,122 | ) | | (3,122 | ) |
| Noncash stock compensation expense | | | - | | | - | | | - | | | - | | | - | | | 679 | | | - | | | 679 | |
| Net change in value of beneficial conversion feature on the convertible subordinated notes, net of taxes | | | - | | | - | | | - | | | - | | | 4,045 | | | - | | | - | | | 4,045 | |
| Common stock issued under nonemployee director benefit plans | | | - | | | 2 | | | 14 | | | 291 | | | (291 | ) | | - | | | - | | | 2 | |
| Common stock issued under employee benefit plans | | | 8 | | | - | | | - | | | - | | | 38 | | | - | | | - | | | 38 | |
| Balance at August 25, 2004 (As adjusted) | | | 27,411 | | $ | 8,771 | | | (4,933 | ) | $ | (104,771 | ) | $ | 39,070 | | $ | - | | $ | 186,480 | | $ | 129,550 | |
| Net income for the year | | | - | | | - | | | - | | | - | | | - | | | - | | | 3,448 | | | 3,448 | |
| Common stock issued under nonemployee director benefit plans | | | 9 | | | 3 | | | 31 | | | 655 | | | (179 | ) | | - | | | (393 | ) | | 86 | |
| Common stock issued for conversion of subordinated debt | | | - | | | - | | | 3,226 | | | 68,512 | | | - | | | - | | | (58,512 | ) | | 10,000 | |
| Common stock issued under employee benefit plans | | | 191 | | | 61 | | | - | | | - | | | 1,141 | | | - | | | - | | | 1,202 | |
| Balance at August 31, 2005 | | | 27,611 | | $ | 8,835 | | | (1,676 | ) | $ | (35,604 | ) | $ | 40,032 | | $ | - | | $ | 131,023 | | $ | 144,286 | |
See accompanying notes.
Luby's, Inc.
Consolidated Statements of Cash Flows | Year Ended | |
| | | | | | | | | | | |
| August 25, | | August 27, | | August 28, |
| | 2004 | | | | 2003 | | | | 2002 | |
| | | | | | | | | | | |
| (In thousands) |
| | | | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | | |
Net income (loss) | $ | (6,439 | ) | | $ | (33,094 | ) | | $ | (9,653 | ) |
Adjustments to reconcile net income (loss) to net cash (used in) provided by
operating activities: | | | | | | | | | | | |
Provision for (reversal of) asset impairments, net of gains on property sales -
discontinued operations | | 2,147 | | | | 17,013 | | | | 43 | |
Provision for (reversal of) asset impairments and restaurant closings | | 727 | | | | 2,100 | | | | 271 | |
Depreciation and amortization - continuing operations | | 16,876 | | | | 17,464 | | | | 17,472 | |
Depreciation and amortization - discontinued operations | | 335 | | | | 2,619 | | | | 4,170 | |
Amortization of deferred loss on interest rate swaps | | - | | | | - | | | | 910 | |
Amortization of discount on convertible subordinated notes | | 2,020 | | | | 1,090 | | | | 482 | |
Amortization of debt issuance cost | | 302 | | | | - | | | | - | |
(Gain) loss on disposal of property held for sale | | - | | | | (3,222 | ) | | | (1,330 | ) |
(Gain) loss on disposal of property and equipment | | (2,154 | ) | | | (3,364 | ) | | | 270 | |
Noncash nonemployee directors' fees | | - | | | | 76 | | | | 313 | |
Noncash executive compensation expense | | 679 | | | | 1,310 | | | | 1,310 | |
| | | | | | | | | | | |
Cash (used in) provided by operating activities before changes in
operating assets and liabilities | | 14,493 | | | | 1,992 | | | | 14,258 | |
Changes in operating assets and liabilities: | | | | | | | | | | | |
(Increase) decrease in trade accounts and other receivables | | 182 | | | | (98 | ) | | | 173 | |
(Increase) decrease in food and supply inventories | | (294 | ) | | | 399 | | | | 504 | |
(Increase) decrease in income tax receivable | | - | | | | 7,245 | | | | (637 | ) |
(Increase) decrease in prepaid expenses | | 2,457 | | | | (1,818 | ) | | | 1,098 | |
(Increase) decrease in other assets | | 408 | | | | (201 | ) | | | 251 | |
Increase (decrease) in accounts payable | | 3,225 | | | | (6,589 | ) | | | 5,381 | |
Increase (decrease) in accrued expenses and other liabilities | | (2,844 | ) | | | 6,632 | | | | (9,560 | ) |
Increase (decrease) in deferred income taxes | | - | | | | (2,734 | ) | | | 4,791 | |
Increase (decrease) in reserve for restaurant closings | | (1,163 | ) | | | (210 | ) | | | (1,651 | ) |
| | | | | | | | | | | |
Net cash (used in) provided by operating activities | | 16,464 | | | | 4,618 | | | | 14,608 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Cash flows from investing activities: | | | | | | | | | | | |
(Increase) decrease in short-term investments | | 16,114 | | | | 3,624 | | | | (4,138 | ) |
Proceeds from disposal of property held for sale | | 17,067 | | | | 19,178 | | | | 3,609 | |
Proceeds from disposal of property and equipment | | 3,585 | | | | 7,813 | | | | - | |
Purchases of property and equipment | | (8,921 | ) | | | (9,057 | ) | | | (13,097 | ) |
| | | | | | | | | | | |
Net cash (used in) provided by investing activities | | 27,845 | | | | 21,558 | | | | (13,626 | ) |
| | | | | | | | | | | |
| | | | | | | | | | | |
Cash flows from financing activities: | | | | | | | | | | | |
Repayment of debt | | (104,290 | ) | | | (26,889 | ) | | | (3,552 | ) |
Issuance of debt | | 64,200 | | | | - | | | | - | |
Debt issuance cost | | (3,920 | ) | | | - | | | | - | |
Proceeds received on the exercise of employee stock options | | 41 | | | | - | | | | 55 | |
| | | | | | | | | | | |
Net cash (used in) provided by financing activities | | (43,969 | ) | | | (26,889 | ) | | | (3,497 | ) |
| | | | | | | | | | | |
Net increase (decrease) in cash | | 340 | | | | (713 | ) | | | (2,515 | ) |
Cash and cash equivalents at beginning of year | | 871 | | | | 1,584 | | | | 4,099 | |
| | | | | | | | | | | |
Cash and cash equivalents at end of year | $ | 1,211 | | | $ | 871 | | | $ | 1,584 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
See accompanying notes. | | | | | | | | | | | |
| | | Year Ended | |
| | | August 31, 2005 | | August 25, 2004 (As adjusted) | | August 27, 2003 (As adjusted) | |
| | | (In thousands) | |
| | | | | | | | |
| Cash flows from operating activities: | | | | | | | |
| Net income (loss) | | $ | 3,448 | | $ | (3,122 | ) | $ | (29,721 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | |
| Provision for asset impairments, net of gains on property sales - discontinued operations | | | 389 | | | 1,895 | | | 16,613 | |
| Provision for (reversal of) asset impairments and restaurant closings/(gains on sales), net | | | (189 | ) | | 727 | | | 1,821 | |
| Depreciation and amortization - continuing operations | | | 15,054 | | | 16,259 | | | 17,204 | |
| Depreciation and amortization - discontinued operations | | | (48 | ) | | 1,094 | | | 3,162 | |
| Amortization of discount on convertible subordinated notes | | | 7,909 | | | 2,020 | | | 1,090 | |
| Amortization of debt issuance cost | | | 2,345 | | | 302 | | | - | |
| Gain on disposal of property held for sale | | | - | | | - | | | (3,222 | ) |
| Loss (gain) on disposal of property and equipment | | | 624 | | | (2,154 | ) | | (3,364 | ) |
| Noncash nonemployee directors' fees | | | 86 | | | - | | | 76 | |
| Reduction in the amount of income tax valuation allowance required (Note 2) | | | - | | | (2,856 | ) | | (1,441 | ) |
| Noncash executive compensation expense | | | - | | | 679 | | | 1,310 | |
| Cash provided by operating activities before changes in operating assets and liabilities | | | 29,618 | | | 14,844 | | | 3,528 | |
| Changes in operating assets and liabilities: | | | | | | | | | | |
| (Increase) decrease in trade accounts and other receivables | | | (50 | ) | | 182 | | | (98 | ) |
| (Increase) decrease in food and supply inventories | | | (123 | ) | | (294 | ) | | 399 | |
| Decrease in income tax receivable | | | - | | | - | | | 7,245 | |
| (Increase) decrease in prepaid expenses | | | (611 | ) | | 2,457 | | | (1,818 | ) |
| Decrease (increase) in other assets | | | 2 | | | 408 | | | (201 | ) |
| Increase (decrease) in accounts payable | | | 938 | | | 2,292 | | | (6,589 | ) |
| Decrease in accrued expenses and other liabilities | | | (1,347 | ) | | (2,262 | ) | | (2,183 | ) |
| Increase in deferred income taxes | | | 186 | | | - | | | 4,545 | |
| Decrease in reserve for store closings | | | (486 | ) | | (1,163 | ) | | (210 | ) |
| Net cash provided by operating activities | | | 28,127 | | | 16,464 | | | 4,618 | |
| Cash flows from investing activities: | | | | | | | | | | |
| Proceeds from redemption of short-term investments | | | 617 | | | - | | | - | |
| Purchases of short-term investments | | | - | | | - | | | (2,285 | ) |
| Proceeds from disposal of property held for sale | | | 17,684 | | | 17,068 | | | 19,178 | |
| Proceeds from disposal of property, plant and equipment | | | - | | | 3,585 | | | 7,813 | |
| Purchases of property, plant and equipment | | | (10,058 | ) | | (8,921 | ) | | (9,057 | ) |
| Net cash provided by investing activities | | | 8,243 | | | 11,732 | | | 15,649 | |
| Cash flows from financing activities: | | | | | | | | | | |
| Repayment of debt | | | (45,970 | ) | | (104,290 | ) | | (26,889 | ) |
| Proceeds from issuance of debt | | | 8,000 | | | 64,200 | | | - | |
| Debt issuance cost | | | (124 | ) | | (3,920 | ) | | - | |
| Proceeds received on the exercise of employee stock options | | | 1,202 | | | 41 | | | - | |
| Net cash used in financing activities | | | (36,892 | ) | | (43,969 | ) | | (26,889 | ) |
| Net decrease in cash | | | (522 | ) | | (15,773 | ) | | (6,622 | ) |
| Cash and cash equivalents at beginning of year | | | 3,311 | | | 19,084 | | | 25,706 | |
| Cash and cash equivalents at end of year | | $ | 2,789 | | $ | 3,311 | | $ | 19,084 | |
See accompanying notes.
Luby's, Inc.
Notes to Consolidated Financial Statements Fiscal Years
2005, 2004
2003, and
2002Note 1. 2003
Note 1. | Nature of Operations and Significant Accounting Policies |
Nature of Operations and Significant Accounting PoliciesNature of Operations
Luby's, Inc.
, is based in
San Antonio, Texas (through December 3, 2004, thereafter, in Houston,
Texas).Texas. As of August
25, 2004,31, 2005, the Company owned and operated
138131 restaurants, with
128123 in Texas and the remainder in four other states. The Company's
restaurantsrestaurant locations are
located convenient to shopping and business developments as well as to residential areas. Accordingly, the restaurants appeal primarily to shoppers, travelers, store and office personnel at lunch, and to families at dinner.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Luby's, Inc. and its wholly owned subsidiaries. Luby's, Inc. was restructured into a holding company on February 1, 1997, at which time all of the operating assets were transferred to Luby's Restaurants Limited Partnership, a Texas limited partnership composed of two wholly owned, indirect corporate subsidiaries of the Company. All restaurant operations are conducted by the partnership. Unless the context indicates otherwise, the word
"Company"“Company” as used herein includes Luby's, Inc., the partnership, and the consolidated corporate subsidiaries of Luby's, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments such as money market funds that have a maturity of three months or less. Amounts receivable 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.
The food and supply inventories are stated at the lower of cost (first-in, first-out) or market.
Property Held for Sale
As further discussed in Note 7, property
Property held for sale is recorded at amounts not in excess of what management currently expects to receive upon sale, less costs of disposal. The Company routinely monitors the estimated value of property held for sale and records adjustments to these values as required.
Debt Issuance Costs
Debt issuance costs include costs incurred For certain assets impaired, the Company may record subsequent adjustments for increases in connection with the refinancing of the Company's debt in fiscal year 2004. These costs are amortized using the effective interest method over the respective term of the debt to which they specifically relate.
Financial Instruments
The estimated fair value, of financial instruments held by the Company approximates the carrying value.
Self-Insurance Accruals
The Company self-insures a significant portion of expected losses under our workers' compensation, work 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, and settlement practices.
Comprehensive Income
Comprehensive income (loss) includes adjustments for certain revenues, expenses, gains, and losses that are excluded from net income in accordance with U.S. generally accepted accounting principles, such as adjustments to the interest rate swaps.
Revenue Recognition
Revenue from restaurant sales is recognized when food and beverage products are sold. Unearned revenues are recorded as a liability for dining cards that have been sold but not yet redeemed and are recorded at their expected redemption value. When dining cards are redeemed, revenue is recognized and unearned revenue is reduced.
Advertising Expenses
Advertising costs are expensed as incurred. Management changed its strategic focus in fiscal 2004 to an increased emphasis in this area. Total advertising expense was $4.1 million, $1.1 million, and $889,000 in fiscal 2004, 2003, and 2002, respectively,excess of which $54,000, $120,000, and $0 in fiscal 2004. 2003, and 2002, respectively, related to stores included in discontinued operations and was reclassified accordingly.
Depreciation and Amortization cumulative losses previously recognized.
The Company depreciates the cost of plant and equipment over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over the related lease lives, which are in some cases shorter than the estimated useful lives of the improvements. 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. The Company evaluates impairments on a restaurant-by-restaurant basis and uses three or more years of negative cash flows and other market conditions as indicators of impairment.
Debt issuance costs include costs incurred in connection with the arrangement of long-term financing agreements. These costs are amortized using the effective interest method over the respective term of the debt to which they specifically relate.
Financial Instruments
The estimated fair value of financial instruments held by the Company approximates the carrying value.
Self-Insurance Accrued Expenses
The Company self-insures a significant portion of expected losses under our workers' compensation, work 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, and settlement practices.
Revenue Recognition
Revenue from restaurant sales is recognized when food and beverage products are sold. Unearned revenues are recorded as a liability for dining cards that have been sold but not yet redeemed and are recorded at their expected redemption value. When dining cards are redeemed, revenue is recognized and unearned revenue is reduced.
Advertising Expenses
Advertising costs are expensed as incurred. Management changed its strategic focus in fiscal 2004 to an increased emphasis in this area. Total advertising expense was $6.3 million, $4.1 million, and $1.1 million in fiscal 2005, 2004, and 2003, respectively, of which $91,000, $198,000, and $158,000, in fiscal 2005, 2004, and 2003, respectively, related to stores included in discontinued operations and was reclassified accordingly.
Depreciation and Amortization
Property, plant and equipment are recorded at cost. The Company depreciates the cost of plant and equipment over their estimated useful lives 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 (generally 20 to 33 years, not to exceed 25 years for buildings located on leased properties).
Operating Leases
The Company leases restaurant and administrative facilities and administrative equipment under operating leases. Building lease agreements generally include rent holidays, rent escalation clauses and contingent rent provisions for a percentage of sales in excess of specified levels. Contingent rental expenses 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 the Company’s option. We recognize rent holiday periods and scheduled rent increases on a straight-line basis over the lease term beginning with the date the Company takes possession of the leased space. We record tenant improvement allowances and rent holidays as deferred rent expense on the consolidated statements of operations.
Income Taxes
Deferred income taxes are computed using the liability method. Under this method, 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.
Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In management's opinion, adequate provisions for income taxes have been made for all years. Historically, the Company has been periodically reviewed by the Internal Revenue Service. The Company is currently under review for the
2003, 2002, 2001, and 2000 fiscal years.
Discontinued Operations
In August 2001, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting“Accounting for the Impairment or Disposal of Long-Lived Assets."” The Company was required to adopt SFAS No. 144 as of August 29, 2002. The adoption of SFAS No. 144 extended the reporting of discontinued operations to all components of an entity from a segment of an entity. Beginning in fiscal 2003, all qualifying disposal plans were reported as discontinued operations, and operations related to those disposals in prior years were reclassified as required. The results of disposal plans prior to the adoption continue to be included in continuing operations for all periods presented.
Stock-Based Compensation
The Company accounts for its employee
Employee compensation expense under the stock
compensationoption plans
usingis reported only if options are granted below market price at grant date in accordance with the intrinsic value method of
accounting set forth in Accounting Principles Board Opinion
(APB) No. 25,
"Accounting“Accounting for Stock Issued to Employees,
"” and
related interpretations by accounting standards setters. When the
related interpretations. Accordingly, compensation cost forexercise price of the Company’s employee stock options
is measured asequals the
excess, if any, of the quoted market price of the
Company'sunderlying stock
aton the date of the grant, no compensation expense is recognized on options granted. Compensation expense for non-vested stock awards is based on the market price of the stock on the date of grant
and is recognized ratably over the
amount an employee must pay to acquireservice period of the
stock.The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had converted to the fair-value method of expensing stock options, as alternatively allowed under SFAS No. 123:
| August 25, | | August 27, | | August 28, |
| 2004 | | 2003 | | 2002 |
| | | | | | | | | | | |
| (In thousands) |
| | | | | | | | | | | |
Net income (loss), as reported | $ | (6,439 | ) | | $ | (33,094 | ) | | $ | (9,653 | ) |
Add: Stock-based employee compensation expense included | | | | | | | | | | | |
in reported net income (loss), net of related tax effects(a) | | 679 | | | | 1,310 | | | | 852 | |
Deduct: Total stock-based employee compensation expense determined | | | | | | | | | | | |
under fair-value-based method for all awards, net of related tax effects(a) | | (1,208 | ) | | | (2,861 | ) | | | (3,662 | ) |
| | | | | | | | | | | |
Pro forma net income (loss) | $ | (6,968 | ) | | $ | (34,645 | ) | | $ | (12,463 | ) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Earnings per share as reported: | | | | | | | | | | | |
Basic | $ | (0.29 | ) | | $ | (1.47 | ) | | $ | (0.43 | ) |
Assuming dilution | $ | (0.29 | ) | | $ | (1.47 | ) | | $ | (0.43 | ) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Pro forma earnings per share: | | | | | | | | | | | |
Basic | $ | (0.31 | ) | | $ | (1.54 | ) | | $ | (0.56 | ) |
Assuming dilution | $ | (0.31 | ) | | $ | (1.54 | ) | | $ | (0.56 | ) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
(a)
| Income taxes have been offset by a valuation allowance. See Note 3 of Notes to Consolidated Financial Statements.
|
| |
Derivative Financial Instruments award.
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and its amendments, Statement Nos. 137 and 138, on September 1, 2000. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at fair value. The Company did not have any derivative instruments in fiscal 2004 or 2003.Earnings Per Share
The Company presents basic income (loss) per common share and diluted loss per common share in accordance with SFAS No. 128,
"Earnings“Earnings Per Share.
" The convertible subordinated notes have been excluded from the calculation of potentially dilutive shares since they are antidilutive.” Basic income (loss) per share is computed by dividing net income (loss) by the weighted-average number of shares outstanding during each period presented. In fiscal years
2005, 2004,
2003, and
2002,2003, dilutive shares had a minimal effect on income (loss) per share.
Accounting Periods
The Company's fiscal year
generally consists of 13 four-week periods ending on the last Wednesday in August.
Fiscal year 2005 consists of 12 four-week periods and one five-week period.
Use of Estimates
In preparing financial statements in conformity with U.S. generally accepted accounting principles, 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.
ReclassificationsNew Accounting Pronouncements
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
Store management compensation has been reclassified from “Other Operating Expenses” to “Payroll and
Disclosure, an amendment of FASB Statement No. 123," was issuedRelated Costs” to provide comparability to financial results reported by our peers in
December 2002 and is effective for fiscal years ending after December 15, 2002. SFAS No. 148 provides alternative methods of transition for a voluntary change to the
fair value method of accounting for stock-based employee compensation. In addition, this pronouncement amends the disclosure requirements of SFAS No. 123 to require more prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company currently plans to continue to apply the intrinsic-value based method to account for stock options and is complying with the disclosure requirements of SFAS No. 148.Reclassifications
Where applicable,industry. All prior period results reported have been reclassified to show the retroactive effect of discontinued operations per the business plan. Reclassification facilitates more meaningful comparabilityconform to the current year presentation.
Below is a summary of the reclassified expenses:
| | | Fiscal Year Ended | |
| | | August 31, 2005 | | August 25, 2004 | | August 27, 2003 | |
| | | (371 days) | | (364 days) | | (364 days) | |
| | | (In thousands) | |
| Payroll and related costs | | | | | | | |
| Payroll and related costs (previous classification) | | $ | 81,759 | | $ | 82,163 | | $ | 83,676 | |
| Manager compensation reclassification | | | 33,722 | | | 30,798 | | | 30,979 | |
| Payroll and related costs (as reported) | | $ | 115,481 | | $ | 112,961 | | $ | 114,655 | |
| Other operating expenses | | | | | | | | | | |
| Other operating expenses (previous classification) | | $ | 98,518 | | $ | 90,245 | | $ | 86,321 | |
| Manager compensation reclassification | | | (33,722 | ) | | (30,798 | ) | | (30,979 | ) |
| Other operating expenses (as reported) | | $ | 64,796 | | $ | 59,447 | | $ | 55,342 | |
The Company's current information. Asbusiness plan, as approved in fiscal 2003, called for the closure of approximately 50 locations. In accordance with the plan, the entire fiscal activity of the applicable stores are closed inafter the future and presented ininception of the plan have been reclassified to discontinued operations, quarterly and annual financial amounts, where applicable, will beoperations. For comparison purposes, prior fiscal years results related to these same locations have also been reclassified for further comparability.to discontinued operations. Certain other reclassifications of prior period results have been made to conform to the current year presentation.
New Accounting Pronouncements
SFAS No. 123, “Accounting for Stock-Based Compensation, as amended by SFAS 148, requires pro forma disclosures of net income and earnings per share for companies not adopting its fair value accounting method for stock-based employee compensation. The pro forma disclosures presented in Note 2. Cash12 - Employee Benefit Plans and Cash EquivalentsAgreements use the fair value method of SFAS 123 to measure compensation expense for stock-based employee compensation plans.
The Company expects to adopt the provisions of SFAS No. 123, “Share-Based Payments (Revised 2004)”, on September 1, 2005. Among other things, SFAS 123R eliminates the ability to account for stock-based compensation using APB 25 and
Short-Term Investmentsrequires that such transactions be recognized as compensation cost in the income statement at their fair values on the date of the grant. See Note 12 - Employee Benefit Plans and Agreements for additional information.
In November 2004, the Emerging Issues Task Force reached a consensus on EITF 03-13, “Applying the Conditions in Paragraph 42 of FABS Statement No. 144 in Determining Whether to Report Discontinued Operations,” which provides guidance on how to evaluate the discontinued operations criteria. The consensus should be applied in fiscal periods beginning after December 15, 2004. The Company plans to apply the consensus effective fiscal year 2006. The application is not expected to have a significant effect on reporting of discontinued operations.
In October 2005, the FASB issued FASB Staff Position No. SFAS 13-1 (“FSP 13-1”), which addresses the accounting for rental costs associated with building and ground operating leases that are incurred during a construction period. The FASB decided that such rental costs incurred during a construction period shall be recognized as rental expense. A lessee should cease capitalizing rental costs as of the effective date of ESP 13-1. The guidance in FSP 13-1 shall be applied to the first reporting period beginning after December 15, 2005. Early adoption is permitted for financial statements or interim financial statements that have not yet been issued. A lessee shall cease capitalizing rental costs as of the effective date of FSP 13-1 for operating lease arrangements entered into prior to the effective date of FSP 13-1. Because it has been the Company’s practice to charge rental cost incurred during construction periods to expense, the adoption of FSP 13-1 will not have an impact on the Company’s financial position, results of operations or cash flows.
In May 2005 the FASB issued FASB Statement No. 154, Accounting Changes and Error Corrections. Statement 154 replaces APB No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Changes in Interim Financial Statements. FASB No. 154 changes the accounting for, and reporting of, a change in accounting principle. FASB No. 154 requires retrospective application to prior period’s financial statements of voluntary changes in accounting principle and changes required by new accounting standards when the standard does not include specific transition provisions, unless it is impractical to do so. FASB No. 154 is effective for accounting changes and corrections of errors in fiscal years beginning after December 15, 2005.
Note 2. | Change in Method of Accounting for Deferred Income Taxes Related to the Beneficial Conversion Feature of Subordinated Debt |
In September 2005, the FASB approved EITF Issue 05-8, “Income Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature” (“EIFT 05-8”). EITF 05-8 provides (i) that the recognition of a beneficial conversion feature creates a difference between the book basis and tax basis (“basis difference”) of a convertible debt instrument, (ii) that basis difference is a temporary difference for which a deferred tax liability should be recorded and (iii) the effect of recognizing the deferred tax liability should be charged to equity in accordance with SFAS No. 109. EITF 05-8 is effective for financial statements for periods beginning after December 15, 2005, and must be adopted through retrospective application to all periods presented, with early adoption permitted. As a result, EITF 05-8 applies to debt instruments that were converted or extinguished in prior periods as well as to those currently outstanding. The Company has adopted EITF 05-8 and applied it retrospectively to all periods presented herein and all prior periods. Accordingly, effective fiscal year 2001, a deferred tax liability has been recorded, offset by a charge to paid-in capital, for the temporary difference created by the beneficial conversion feature recognized in connection with the Company’s convertible subordinated debt. The tax effect of subsequent changes to the beneficial conversion feature have also been recorded to the deferred tax liability, with offsetting entries to paid-in capital or income tax expense/benefit, as appropriate.
The retrospective adoption of EITF 05-8 had no impact on periods prior to fiscal 2001. Adjustments for fiscal years 2002 and 2001 included income tax benefits of approximately $169,000 and $28,000, respectively, with commensurate reductions in losses from continuing operations and net losses reported for those years. Tax benefits of $2.9 million in fiscal 2004 and $1.4 million in fiscal 2003 were realized as a result of reductions in our income tax valuation allowance by the equivalent amount that our deferred tax liabilities increased as a result of the adoption of EITF 05-8. There were no adjustments to the consolidated statement of operations for fiscal year 2005 pertaining to the application of the new standard. Following is a summary of the effects of the adjustments on the consolidated statements of operations for the two fiscal years ended August 25, 2004 (in thousands):
| Fiscal Year Ended August 25, 2004 | | Previously Reported | | Adjustments | | As adjusted | |
| | | | | | | | |
| Income before income taxes | | $ | 2,833 | | $ | - | | $ | 2,833 | |
| Benefit for income taxes | | | - | | | (2,856 | ) | | (2,856 | ) |
| Income from continuing operations | | | 2,833 | | | 2,856 | | | 5,689 | |
| Discontinued operations, net of taxes | | | (8,811 | ) | | - | | | (8,811 | ) |
| Net loss | | | (5,978 | ) | | 2,856 | | | (3,122 | ) |
| Income per share from continuing operations: | | | | | | | | | | |
| Basic | | | 0.13 | | | 0.12 | | | 0.25 | |
| Assuming dilution | | | 0.12 | | | 0.13 | | | 0.25 | |
| Loss per share from discontinued operations: | | | | | | | | | | |
| Basic | | | (0.39 | ) | | - | | | (0.39 | ) |
| Assuming dilution | | | (0.39 | ) | | - | | | (0.39 | ) |
| Net loss per share: | | | | | | | | | | |
| Basic | | | (0.27 | ) | | 0.13 | | | (0.14 | ) |
| Assuming dilution | | | (0.26 | ) | | 0.12 | | | (0.14 | ) |
| Fiscal Year Ended August 27, 2003 | | Previously Reported | | Adjustments | | As adjusted | |
| | | | | | | | |
| Income before income taxes | | $ | 601 | | $ | - | | $ | 601 | |
| Benefit for income taxes | | | - | | | (1,441 | ) | | (1,441 | ) |
| Income from continuing operations | | | 601 | | | 1,441 | | | 2,042 | |
| Discontinued operations, net of taxes | | | (31,763 | ) | | - | | | (31,763 | ) |
| Net loss | | | (31,162 | ) | | 1,441 | | | (29,721 | ) |
| Income per share from continuing operations: | | | | | | | | | | |
| Basic | | | 0.03 | | | 0.06 | | | 0.09 | |
| Assuming dilution | | | 0.03 | | | 0.06 | | | 0.09 | |
| Loss per share from discontinued operations: | | | | | | | | | | |
| Basic | | | (1.41 | ) | | - | | | (1.41 | ) |
| Assuming dilution | | | (1.41 | ) | | - | | | (1.41 | ) |
| Net loss per share: | | | | | | | | | | |
| Basic | | | (1.39 | ) | | 0.07 | | | (1.32 | ) |
| Assuming dilution | | $ | (1.39 | ) | $ | 0.07 | | $ | (1.32 | ) |
Following is a summary of the effects of these adjustments on the consolidated balance sheet as of August 25, 2004 (in thousands):
| August 25, 2004 | | Previously Reported | | Adjustments | | As adjusted | |
| | | | | | | | |
| Total assets | | $ | 232,281 | | $ | - | | $ | 232,281 | |
| Total liabilities | | | 102,731 | | | - | | | 102,731 | |
| Paid-in capital | | | 43,564 | | | (4,494 | ) | | 39,070 | |
| Retained earnings | | | 181,986 | | | 4,494 | | | 186,480 | |
| Total shareholders’ equity | | | 129,550 | | | - | | | 129,550 | |
| Total liabilities and shareholders’ equity | | $ | 232,281 | | $ | - | | $ | 232,281 | |
Note 3. | Cash and Cash Equivalents and Short-Term Investments |
The Company manages its cash and cash equivalents and short-term investments jointly in order to internally fund operating needs. Short-term investments as of August
25, 2004,31, 2005, and August
27, 2003,25, 2004, consisted primarily of
money market funds andheld-to-maturity time
deposits. As of August 25, 2004, approximately $2.2 million of the $4.4 million of the Company's short-term investments wasdeposits, which were pledged as collateral for four separate letters of credit.
There have been no draws upon theseDuring 2005, approximately $617,000 was drawn against one of the letters of credit.
| August 25, | | August 27, |
| | 2004 | | | | 2003 | |
| | | | | | | |
| (In thousands) |
Cash and cash equivalents | $ | 1,211 | | | $ | 871 | |
Short-term investments | | 4,384 | | | | 20,498 | |
| | | | | | | |
Total cash and cash equivalents and
short-term investments | $ | 5,595 | | | $ | 21,369 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | August 31, 2005 | | August 25, 2004 | |
| | | (In thousands) | |
| | | | | | | | |
| Cash and cash equivalents | | $ | 2,789 | | $ | 3,311 | |
| Short-term investments | | | 1,667 | | | 2,284 | |
| Total cash and cash equivalents and short-term investments | | $ | 4,456 | | $ | 5,595 | |
The Company's combined cash and cash equivalents and short-term investments balance declined from
$21.4 million as of August 27, 2003, to $5.6 million as of August 25,
2004.2004, to $4.5 million as of August 31, 2005. The decline was primarily attributed to
a $19.8an approximately $38.0 million
net debt paydown in fiscal
2004. Note 3. Income Taxes
2005 and purchases of assets of approximately $10.1 million, offset by proceeds from the sale of assets of closed stores of approximately $17.7 million (including $4.1 million in net proceeds from the sale of the San Antonio, Texas corporate office) and cash flows from operations.
The following is a summarization of deferred income tax assets and liabilities as of the current and prior fiscal year-end:
| August 25, | | August 27, |
| | 2004 | | | | 2003 | |
| | | | | | | |
| (In thousands) |
Deferred long-term income tax liability | $ | (1,073 | ) | | $ | (180 | ) |
Plus: Deferred short-term income tax asset | | 1,073 | | | | 180 | |
| | | | | | | |
Net deferred income tax liability | $ | - | | | $ | - | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | August 31, 2005 | | August 25, 2004 | |
| | | (In thousands) | |
| | | | | | |
| Deferred long-term income tax liability | | $ | (5,039 | ) | $ | (5,061 | ) |
| Plus: Deferred short-term income tax asset | | | 865 | | | 1,073 | |
| Net deferred income tax liability | | $ | (4,174 | ) | $ | (3,988 | ) |
The following table details the categories of income tax assets and liabilities resulting from the cumulative tax effects of temporary differences as of the end of each period presented:
| August 25, | | August 27, |
| | 2004 | | | | 2003 | |
| | | | | | | |
| (In thousands) |
Deferred income tax assets: | | | | | | | |
Workers' compensation, employee injury, and
general liability claims | $ | 2,552 | | | $ | 2,429 | |
Deferred compensation | | 2,302 | | | | 2,283 | |
Asset impairments and restaurant closure reserves | | 15,313 | | | | 20,224 | |
Net operating losses | | 16,032 | | | | 11,086 | |
General business credits | | 529 | | | | 384 | |
| | | | | | | |
Subtotal | | 36,728 | | | | 36,406 | |
Valuation allowance | | (19,269 | ) | | | (17,643 | ) |
| | | | | | | |
Total deferred income tax assets | | 17,459 | | | | 18,763 | |
Deferred income tax liabilities: | | | | | | | |
Depreciation and amortization | | 15,588 | | | | 15,965 | |
Other | | 1,871 | | | | 2,798 | |
| | | | | | | |
Total deferred income tax liabilities | | 17,459 | | | | 18,763 | |
| | | | | | | |
Net deferred income tax liability | $ | - | | | $ | - | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | August 31, 2005 | | August 25, 2004 (As adjusted) | |
| | | (In thousands) | |
| Deferred income tax assets: | | | | | |
| Workers' compensation, employee injury, and general liability claims | | $ | 2,085 | | $ | 2,552 | |
| Deferred compensation | | | 2,277 | | | 2,302 | |
| Net operating losses | | | 10,235 | | | 16,032 | |
| General business credits | | | 940 | | | 529 | |
| Other | | | 1,345 | | | 1,557 | |
| Subtotal | | | 16,882 | | | 22,972 | |
| Valuation allowance | | | (13,577 | ) | | (15,664 | ) |
| Total deferred income tax assets | | | 3,305 | | | 7,308 | |
| Deferred income tax liabilities: | | | | | | | |
| Depreciation and amortization | | | 5,406 | | | 6,657 | |
| Discount on subordinated debt | | | - | | | 2,768 | |
| Other | | | 2,073 | | | 1,871 | |
| Total deferred income tax liabilities | | | 7,479 | | | 11,296 | |
| Net deferred income tax liability | | $ | (4,174 | ) | $ | (3,988 | ) |
Relative only to continuing operations, the reconciliation of the expense (benefit) for income taxes to the expected income tax expense (benefit)
-, computed using the statutory tax rate,
- was as follows:
| 2004 | | 2003 | | 2002 |
| | | | | |
| Amount | | % | | Amount | | % | | Amount | | % |
| | | | | |
| (In thousands and as a percent of pretax income) |
| | | | | | | | | | | | | | | | | | | | | | | |
Income tax expense (benefit)
from continuing operations
at the federal rate | $ | 666 | | | | 35.0 | % | | $ | (297 | ) | | | (35.0 | )% | | $ | (809 | ) | | | (35.0 | )% |
Permanent and other differences | | 773 | | | | 40.6 | | | | 470 | | | | 55.4 | | | | 771 | | | | 33.4 | |
Change in valuation allowance | | (1,439 | ) | | | (75.6 | ) | | | (173 | ) | | | (20.4 | ) | | | - | | | | - | |
| | | | | |
Income tax expense (benefit)
from continuing operations | $ | - | | | | - | % | | $ | - | | | | - | % | | $ | (38 | ) | | | (1.6 | )% |
| | | | | |
| | | | | |
| | | | | |
| | | 2005 | | 2004 (As adjusted) | | 2003 (As adjusted) | |
| | | Amount | | % | | Amount | | % | | Amount | | % | |
| | | (In thousands and as a percent of pretax income) | |
| | | | | | | | | | | | | | |
| Income tax expense from continuing operations at the federal rate | | $ | 3,042 | | | 35.0 | % | $ | 991 | | | 35.0 | % | $ | 210 | | | 35.0 | % |
| Permanent and other differences | | | | | | | | | | | | | | | | | | | |
| Federal jobs tax credits | | | 130 | | | 1.5 | | | 51 | | | 1.8 | | | 76 | | | 12.6 | |
| Other permanent differences | | | (150 | ) | | (1.7 | ) | | 15 | | | 0.5 | | | 11 | | | 1.8 | |
| Alternative minimum tax | | | 117 | | | 1.3 | | | - | | | - | | | - | | | - | |
| Change in valuation allowance | | | (3,022 | ) | | (34.8 | ) | | (3,913 | ) | | (138.1 | ) | | (1,738 | ) | | (289.2 | ) |
| Income tax expense (benefit) from continuing operations | | $ | 117 | | | 1.3 | % | $ | (2,856 | ) | | (100.8) | % | $ | (1,441 | ) | | (239.8 | )% |
For the fiscal year ended August 25, 2004,31, 2005, including both continuing and discontinued operations, the Company generated gross taxable income of approximately $6.2 million which will be offset by net operating loss carryforwards from prior years. However, the Company will incur an Alternative Minimum Tax (“AMT”) liability of approximately $117,000 for fiscal year 2005. The AMT liability may be used as a credit in the future if regular income tax exceeds future AMT.
For the 2004 fiscal year, including both continuing and discontinued operations, the Company generated net operating losses of approximately $14.1$4.0 million, which will fully expire in 2024 if not utilized. The tax benefitInitial estimates of the losses for book purposes was netted against a valuation allowance because loss carrybacks2004 were exhaustedapproximately $14.1 million and were adjusted with the fiscal 2002filing of the final tax filing, making the realizationreturn for that period.
For the 2003 fiscal year, including both continuing and discontinued operations, the Company generated gross taxable operating losses of approximately $31.7 million, which will fully expire in 2023 if not utilized. Due to the
Company'sCompany’s cumulative loss
carryforward position, no federal income taxes were paid in fiscal 2004 or fiscal 2003.
The tax benefit of the operating losses for book purposes in fiscal years 2004 and 2003 was netted against a valuation allowance because loss carrybacks were exhausted with the fiscal 2002 tax filing and the future realization of loss carryforwards was uncertain. For book purposes in fiscal years after 2004, tax expense and benefits will be offset against the valuation allowance until such time as the future realization of loss carryforwards becomes reasonably certain. Tax benefits of $2.9 million in fiscal 2004 and $1.4 million in fiscal 2003 were realized as a result of reductions in our income tax valuation allowance by the equivalent amount that our deferred tax liabilities increased as a result of the adoption of EITF 05-8.
The Company's federal income tax returns have been periodically reviewed by the Internal Revenue Service. The Company's
2003, 2002, 2001, and 2000 returns are currently under review. 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.
Note 4. Property and Equipment
The IRS review may possibly result in a reduction of the cumulative net operating losses that are currently being carried forward to offset future taxable income.
Note 5. | Property, Plant and Equipment |
The cost and accumulated depreciation of property,
plant and equipment at August
25, 2004,31, 2005, and August
27, 2003,25, 2004, together with the related estimated useful lives used in computing depreciation and amortization, were as follows:
| August 25, | | August 27, | Estimated |
| | 2004 | | | | 2003 | | Useful Lives |
| | | | | | | | |
| (In thousands) | |
Land | $ | 51,536 | | | $ | 55,259 | | ─ |
Restaurant equipment and furnishings | | 107,481 | | | | 108,183 | | 3 to 15 years |
Buildings | | 180,210 | | | | 191,521 | | 20 to 33 years |
Leasehold and leasehold improvements | | 20,207 | | | | 21,989 | | Term of leases |
Office furniture and equipment | | 6,845 | | | | 11,710 | | 5 to 10 years |
Transportation equipment | | 421 | | | | 574 | | 5 years |
| | | | | | | | |
| | 366,700 | | | | 389,236 | | |
Less accumulated depreciation and
amortization | | (170,159 | ) | | | (171,560 | ) | |
| | | | | | | | |
Property and equipment | $ | 196,541 | | | $ | 217,676 | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Note 5. Current Accrued Expenses and Other Liabilities
| | | August 31, 2005 | | August 25, 2004 | | Estimated Useful Lives | |
| | | (In thousands) | | | |
| Land | | $ | 50,791 | | $ | 51,536 | | | ─ | |
| Restaurant equipment and furnishings | | | 109,488 | | | 107,481 | | | 3 to 15 years | |
| Buildings | | | 175,912 | | | 180,210 | | | 20 to 33 years | |
| Leasehold and leasehold improvements | | | 18,738 | | | 20,859 | | | Lesser of lease term or estimated useful life | |
| Office furniture and equipment | | | 4,745 | | | 6,845 | | | 5 to 10 years | |
| Transportation equipment | | | 405 | | | 421 | | | 5 years | |
| | | | 360,079 | | | 367,352 | | | | |
| Less accumulated depreciation and amortization | | | (174,070 | ) | | (173,310 | ) | | | |
| Property and equipment | | $ | 186,009 | | $ | 194,042 | | | | |
Note 6. | Current Accrued Expenses and Other Liabilities |
Current accrued expenses and other liabilities as of the current and prior fiscal year-end consisted of:
| August 25, | | August 27, |
| | 2004 | | | | 2003 | |
| | | | | | | |
| (In thousands) |
| | | | | | | |
Salaries, compensated absences, incentives, and bonuses | $ | 5,669 | | | $ | 5,476 | |
Voluntary severance costs | | 860 | | | | - | |
Taxes, other than income | | 4,074 | | | | 6,951 | |
Accrued claims and insurance | | 5,979 | | | | 5,584 | |
Income taxes | | 7,274 | | | | 7,279 | |
Rent, legal, and other | | 1,424 | | | | 2,967 | |
| | | | | | | |
| $ | 25,280 | | | $ | 28,257 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | August 31, 2005 | | August 25, 2004 | |
| | | (In thousands) | |
| | | | | | |
| Salaries, compensated absences, incentives, and bonuses | | $ | 5,115 | | $ | 4,736 | |
| Voluntary severance costs | | | 86 | | | 860 | |
| Taxes, other than income | | | 5,584 | | | 4,074 | |
| Accrued claims and insurance | | | 4,616 | | | 5,979 | |
| Rent, legal, and other | | | 2,202 | | | 1,424 | |
| Federal income tax payable | | | 117 | | | - | |
| | | $ | 17,720 | | $ | 17,073 | |
During the third quarter of fiscal 2004, Luby's announced it
willwould consolidate all of the Company's corporate operations in one city by moving its corporate headquarters to Houston, Texas. This move
will bewas completed by the end of the 2004 calendar year. In
conjunction with the move, the Company offered voluntary severance agreements to certain employees. In accordance with SFAS No. 88,
"Employers“Employers Accounting for Settlements and Curtailments of Defined
benefitBenefit Pension Plans and for Termination Benefits,
"” the Company recorded,
in fiscal year 2004, a liability and reported in accrued expenses and other liabilities and recognized an expense in the Company's consolidated statements of operations of $860,000 under voluntary severance costs. The liability and related expense represent the cost to the Company for the voluntary severance agreements accepted by employees during the fourth quarter of fiscal 2004.
Other relatedSubsequent relocation costs
are expected to be incurred
within the next two fiscal quarters and will bewere recognized in accordance with SFAS No. 146,
" Accounting “Accounting for
Cos tsCosts Associated with Exit or Disposal Activities,
” and
Expensedexpensed as
Incurred."Note 6. Debt
incurred.
Recent favorable claims experience resulted in a significant reduction in the Company’s reserve requirements for accrued claims and insurance. The Company does not anticipate any significant adjustments to these reserve requirements for fiscal 2006.
Note 7. | Other Long-term Liabilities |
Long-term other liabilities as of the current and prior fiscal year-end consisted of:
| | | August 31, 2005 | | August 25, 2004 | |
| | | (In thousands) | |
| Workers compensation and general liability insurance reserve | | $ | 3,086 | | $ | 3,936 | |
| Note payable | | | 28 | | | 28 | |
| Deferred rent | | | 4,141 | | | 4,712 | |
| Deferred compensation | | | 641 | | | 1,039 | |
| Reserve for store closings | | | 14 | | | 500 | |
| | | $ | 7,910 | | $ | 10,215 | |
Previous Senior Debt
During the mid-1990's, the Company entered into a revolving
line of creditline-of-credit with a group of four banks. The line was primarily used for financing long-term objectives, including capital acquisitions and a stock repurchase program. These large demands of cash contributed to the capacity under that
credit facilityline-of-credit being fully exhausted in fiscal
2001.Since that2001, at which time management has financed the Company's capital acquisitions and working capital needs through careful cash management and the provision ofCompany received an additional $10 million in subordinate financing from the Company'sits CEO and the COO. The additional subordinate financing was funded toward the end of fiscal 2001. Although no further borrowings were allowed under the senior credit facility, the bank group subsequently authorized an extension of its maturity date through April 2003.
In fiscal 2003, well before the scheduled maturity date of the line of credit, management began working on a partial refinancing arrangement with an alternate lender. Early in the second quarter of that year, those efforts led to the Company executing a commitment letter with a third-party financial institution to refinance $80 million of the credit facility. In response to that commitment, the bank group provided a waiver and amendment that stipulated the new $80 million financing be completed and funded by January 31, 2003. The Company, however, chose not to finalize that financing arrangement because of changes in the proposed agreement terms that the Company believed were not in its best interest. The inability to fund the $80 million by January 31, 2003, led to a default under the line of credit.
Even though the lack of partial refinancing caused a technical default in fiscal 2003, the Company was consistently in compliance with its financial performance covenants. Additionally, no default in interest payments due under the credit facility occurred.
The Business Plan Facilitates Transition to Reduced Debt and New FinancingCOO (see “Subordinate Notes” herein).
In addition to the Company's primary goal to successfully negotiate suitable replacement debt, management has also been concentrating on implementing its business plan. With its focus on returning the Company to profitability, this plan was approved in March of fiscal 2003 and is still in effect. As a complement to the profit objective, the plan called for the closure of certain underperforming stores. Through fiscal 2004, 55 restaurants have been closed in accordance with the plan. In turn, in the cases where the locations were owned, the proceeds from any property sales were used to pay down the line of credit.
New Senior Debt
In the fourth quarter of fiscal 2004, the Company successfully refinanced its existing senior credit facility with two new instruments. The first
iswas a secured, three-year line of credit for $50 million. Of the total line, only $36.3 million was originally drawn in connection with the refinancing. This instrument was funded by a new
group of independent lenders. JPMorgan Chase Bank is the only lender from the prior bank group that is participating in the new line of credit. Similar to the prior credit facility, the new bank group that is funding this instrument is also a syndicate of four
independent banks.
At any time throughout the term of the loan, the Company has the option to elect one of two bases of interest rates. One interest rate option is the greater of the federal funds effective rate plus 0.5% or prime increased by an applicable spread that ranges from 1.5% to 2.5%. The other interest rate option is LIBOR (London InterBank Offered Rate) increased by an applicable spread that ranges from 3.0% to 4.0%. The applicable spread under each option is dependent upon certain measures of the Company's financial performance at the time of election. Quarterly, the Company also pays a commitment fee on the unused portion of the line of credit. Again, dependent upon the Company's performance, the rate varies from 0.5% to 0.75%.
In addition to the
new line of credit, the Company concurrently negotiated another secured, three-year term loan for $27.9 million. The term loan was funded by a third-party financial institution not related to any member of the bank group that funded the
new line of credit.
Primarily proceeds from property sales of under performing units, along with cash flows from operations and new financing were used to pay down debt through August 31, 2005.
Revolving Credit Facility
On August 31, 2005, Luby’s, Inc. entered into an amended and restated, $45.0 million unsecured Revolving Credit Facility (the “Revolving Credit Facility”) among Luby’s, Inc. and a syndicate of three independent banks. The Revolving Credit Facility may, subject to certain terms and conditions, be increased by an additional $15.0 million for a total facility size of $60.0 million. The Revolving Credit Facility allows for up to $10.0 million of the available credit to be extended in the form of letters of credit. The Revolving Credit Facility terminates on, and all amounts owing thereunder must be repaid on, August 31, 2008.
At any time throughout the term of the loan, the Company has the option to elect one of two bases of interest rates. One interest rate underoption is the term loangreater of (a) the federal funds effective rate plus 0.5%, or (b) prime, plus, in either case, an applicable spread that ranges from 0% to 0.25% per annum. The other interest rate option is LIBOR (London InterBank Offered Rate) plus an applicable spread that ranges from its highest level1.00% to 1.75% per annum. The applicable spread under each option is dependent upon certain measures of 7.5%the Company’s financial performance at the loan's inception totime of election.
The Company also pays a quarterly commitment fee based on the
lowest levelunused portion of
6.0%,the Revolving Credit Facility, which is
effective when 75%also dependent upon the Company’s financial performance, ranging from 0.25% to 0.35% per annum. The Company also is obligated to pay certain fees in respect of
the loan's outstanding balance has been paid down. No periodic principal payments are required other than net proceeds from properties currently marked for sale, and any
balance remaining at the loan's maturity must be paid in full. During the fourth quarter of fiscal 2004, $2.1 million in proceeds from property sales were used to reduce the Company's balance under its prior credit facility. To complete the refinancing, the Company used $15.4 million of its cash and short-term investments to satisfy the remaining balance outstanding under the prior credit facility and pay refinancing costs on the new senior debt. In the fourth quarter of fiscal 2004, as a result of the refinancing, the Company's new senior debt was in good standing. Pursuant to the terms of the Subordination and Intercreditor Agreement dated June 7, 2004, if the new senior debt were to be in default at some time in the future, Chris and Harris Pappas have a contractual right (but no obligation) to purchase those loans.
Both the line of credit and the term loan allow for $11 million in annual capital expenditures plus 50% of the unused prior-year allowance. Both agreements allow for additional spending if the Company surpasses certain financial ratios.
At August 25, 2004, the Company's outstanding senior debt balance was $51.5 million. From its new revolving line of credit, the Company had an outstanding debt balance of $28.0 million. This level is down $8.3 million from its original drawn amount of $36.3 million, which occurred in June 2004. Of the $8.3 million reduction, $2.7 million was derived from a sale leaseback of one property, and $5.6 million was from excess cash. From its term loan, the Company had an outstanding debt balance of $23.5 million. This level is down $4.4 million from its original note balance of $27.9 million, which also occurred in June 2004. The reduction was primarily made with proceeds received on the sale of properties. Of the $50 million total commitment under the line of credit, $20.8 million was available to the Company at August 25, 2004.
Additionally, as of August 25, 2004, the Company has approximately $2.2 million available under letters of credit through a separate arrangement with another bank.
The interest rate applicableissued as well as an administrative fee to the revolving linelender acting as administrative agent. Finally, the Company was obligated to pay to the lenders a one-time fee in connection with the closing of credit was LIBOR plus 3.75% at August 25, 2004. the Revolving Credit Facility.
The
interest rateRevolving Credit Facility contains customary covenants and restrictions on the
term loan at August 25, 2004, was LIBOR plus 7.5%. Comparatively, at the end of fiscal 2003, the credit-facility debt had an interest rate of prime plus 4.0%.The Company's outstanding senior debt at August 27, 2003, was $91.6 million comparedCompany’s ability to $51.5 million at August 25, 2004. The $40.1 million reduction was due to $20.3 millionengage in proceeds from property sales and $19.8 million from excess cash reserves.
Both the new line of credit and the term loan containcertain activities, including financial performance covenants provisions limiting the use of the Company's cash, and descriptions of certainlimitations on capital expenditures, asset sales and acquisitions, and contains customary events of default that could be triggered by changes in the Company's relationship with its CEO and its COO. Provisions limiting the usedefault. As of the Company's cash include a maximum annual capital expenditure (as mentioned above); the exclusion ofNovember 7, 2005, the Company to directly purchase any equity interests or any other securities of any unrelated Company (except those permitted investments); a maximum annual expenditure for both capital and operating leases; and the Company may declare and pay dividends on its common stock payablewas in additional shares of its common stock, but not in cash. As the focus continues toward further strengthening operational and financial performance, management believes that the two new debt instruments will provide the proper level of financing to improve its liquidity. Additi onally, the Company expects to be able to maintainfull compliance with the specific requirements of each agreement.
As of August 25, 2004, $195.5 million of the Company's total book value, or 83.3% of its total assets, was pledged as collateral. These pledged assets included the Company's owned real estate, improvements, equipment, and fixtures.
For information on the letter of credit issuedall covenants.
All amounts owed by Luby’s, Inc. under the
line of credit for officer loans currentlyRevolving Credit Facility are guaranteed by
the Company for any notes still in default as of September 30, 2004, see Note 8.its subsidiaries.
Subordinated Notes
As mentioned earlier, in
In the fourth quarter of fiscal 2001, the Company's
President and CEO, Christopher J. Pappas, and
Harris J. Pappas, the Company's COO,
formallyHarris J. Pappas, loaned the Company a total of $10 million in exchange for convertible subordinated notes. The notes, as
formallyinitially executed, bore interest at LIBOR plus 2.0%, payable quarterly.
Between the fourth quarter of fiscal 2003 and During the fourth quarter of fiscal 2004, these notes were modified in connection with the refinancing of the Company’s senior debt.
On June 7, 2005, the subordinated notes
were in default becausebecame convertible at a price of
cross-default provisions that were tied to the Company's original credit facility. The subordinated notes were amended during the fourth quarter of fiscal 2004, in conjunction with refinancing the senior debt. The Company paid the lenders all of the previously accrued interest that could not be paid while the senior debt was in default. As a result of these developments, the Company's subordinated notes are no longer in default.The original notes were convertible into the Company's common stock at $5.00 per share for 2.0 million shares. This arrangement created a beneficial conversion feature recorded as a discount to debt with an offset to paid-in capital. The Company has amortized the discount on the original notes through increased noncash charges to interest expense since its origination in fiscal 2001. For accounting purposes, the modification of these notes requires the original beneficial conversion feature to be extinguished and the unamortized portion of the original discount to be accelerated; the net effect of which resulted in a $125,000 financial benefit in the fourth quarter of fiscal 2004.
The interest on the modified seven-year notes is prime plus 5.0% for as long as the senior debt equals or exceeds $60 million. When the senior debt is reduced below $60 million, interest will be prime plus 4.0%. In either case, the rate cannot exceed 12.0% or the maximum legal rate.
As a result of the amended subordinated note agreements, at the earlier of June 7, 2005, a default under the senior debt, or a "change in control" as defined in the amended notes, the conversion price will lower to $3.10 per share for approximately 3.2 million shares.shares of common stock. The per share market price of the Company's common stock on the commitment date (as determined by the closing price on the New York Stock Exchange) was $5.63.$5.63 per share. The difference between the market price and the lowest possible strike price of $3.10, or $2.53 per share, multiplied by the relative number of convertible shares equals approximately $8.2 million, which represents the new beneficial conversion feature. Consistent with the original accounting treatment, thisThis amount will bewas recorded as both a component of paid-in capital and a discount from the $10 million in subordinated notes. The new note discount will bewas being amortized using the effective interest method as noncashnon-cash interest expense over the original term of the subordinated notes. T he annual effectOn August 31, 2005 the notes were converted into 3.2 million shares of this amortization will be approximately $1.2 million.
The carryingthe Company’s common stock, under the terms of the amended note agreements discussed further herein. Upon conversion, the unamortized book value of the notes, net of the unamortized discount at August 25, 2004,($7.9 million) was approximately $2.1 million, while at August 27, 2003, was approximately $7.0 million.
written off with a charge to interest expense.
The Company has agreed to reserve shares held in treasury for issuanceissued pursuant to the holders of the subordinated notes upon conversion of the debt. The Company'swere treasury shares have alsothat had previously been reserved for two other purposes -such a conversion. At conversion, the issuance of shares to Messrs. Pappas upon exerciseexcess of the options granted to them on March 9, 2001, and for shares issuable underbook value of the Company's Nonemployee Director Phantom Stock Plan. In accordance with an agreement between Messrs. Pappas and the Company dated June 7, 2004, Chris and Harris Pappas have agreed to limit their exercise of stock options to a number that will ensure the "net treasury shares available" are not exceeded. Pursuant($69 million) over the $10 million debt converted resulted in a $59 million charge to retained earnings.
Schedule of Outstanding Debt
| | | Year Ended | |
| | | August 31, 2005 | | August 25, 2004 | |
| | | (In thousands) | |
| | | | | | |
| Line of credit | | $ | 13,500 | | $ | 28,000 | |
| Term loan | | | - | | | 23,470 | |
| Subordinated notes | | | - | | | 10,000 | |
| Total debt | | | 13,500 | | | 61,470 | |
| Less discount on subordinated notes | | | - | | | (7,909 | ) |
| Total | | $ | 13,500 | | $ | 53,561 | |
The Company’s total outstanding debt of $13.5 million as of August 31, 2005, is due and payable on August 31, 2008, under the terms of
that agreement, the
Company indicated that it will use reasonable efforts to list on the New York Stock Exchange additional shares which would permit full exercise of those options. "Net Treasury Shares Available" is defined in the debt agreements as the number o f shares of common stock then held by the Company in treasury, minus the number of shares of common stock issuable or issued after the June 7, 2004, under the Nonemployee Director Phantom Stock Plan, minus the number of shares of common stock issuable or issued upon conversion of the subordinated notes, calculated assuming the lowest conversion price stated in the subordinated notes.Schedule of Outstanding Debt |
| | | |
| August 25, 2004 |
| | | |
| (In thousands) |
| | | |
Line of credit | $ | 28,000 | |
Term loan | | 23,470 | |
Subordinate notes | | 10,000 | |
| | | |
Total debt | | 61,470 | |
Less discount on subordinate notes | | (7,909 | ) |
| | | |
Total | | 53,561 | |
| | | |
| | | |
| | | |
The long-term debt repayments are due as follows: |
| |
| (In thousands) |
| | | |
2005 | $ | - | |
2006 | | - | |
2007 | | 51,470 | |
2008 | | - | |
2009 | | - | |
Thereafter | | 10,000 | |
| | | |
| $ | 61,470 | |
| | | |
| | | |
| | | |
Revolving Credit Facility.
Interest Expense
Total interest expense incurred for
2005, 2004,
and 2003
and 2002 was
$10.2$14.4 million, $10.3 million, and $10.3 million, respectively.
Excluding the deferred interest payments and the debt discount amortization on the Company's subordinated notes described above, interestInterest paid approximated
$4.1 million, $7.9 million,
$8.8 million, and
$9.8$8.8 million in fiscal
2005, 2004,
and 2003,
and 2002, respectively.
Unamortized debt issuance costs amounting to $2.3 million, incurred in connection with previous senior debt, were written off in the fourth quarter of 2005, upon the full repayment of that debt.
Interest expense of approximately
$2.7 million, $2.2 million,
$2.7 million, and
$2.6$2.7 million in fiscal years
2005, 2004,
2003, and
2002,2003, respectively, has been allocated to discontinued operations based upon the debt that is required to be repaid as a result of the disposal transactions. After the initiation of the debt refinancing in the fourth quarter of fiscal 2004, only the interest relating to the term loan is reclassified to discontinued operations. No interest was capitalized on qualifying properties in
2005, 2004,
2003, or
2002.Note 7. 2003.
Note 9. | Impairment of Long-Lived Assets and Store Closings /Discontinued Operations |
Impairment of Long-Lived Assets and Store Closings /Discontinued Operations Impairment of Long-Lived Assets and Store Closings
In accordance with Company guidelines, management periodically reviews the financial performance of each store for indicators of impairment or indicators that closure would be appropriate. Where indicators are present, such as three full fiscal years of negative cash flows or other unfavorable market conditions, the carrying values of assets are written down to the estimated future discounted cash flows or fully written off in the case of negative cash flows anticipated in the future. Estimated future cash flows are based upon regression analyses generated from similar Company restaurants, discounted at the Company's weighted-average cost of capital.
Estimated lease settlements under the Company’s 2001 disposal plan were originally charged to expense under “Provision for Asset Impairments and Restaurant Closings.” Subsequent adjustments to these lease settlements for actual exit costs incurred are also reflected in the “Provision for Asset Impairments and Restaurant Closings.”
The Company
incurredrecognized the following impairment
(credits)/charges to income from operations:
| Year Ended |
| | | | | | | | | | |
| August 25, | | August 27, | August 28, |
| 2004 | | 2003 | 2002 |
| | | | | | | | | | |
| (364 days) | | (364 days) | (362 days) |
| (In thousands) |
| | | | | | | | | | |
Provision for asset impairments
and restaurant closings | $ | 727 | | | $ | 2,100 | | $ | 271 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
EPS decrease - basic | $ | 0.03 | | | $ | 0.09 | | $ | 0.01 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | Year Ended | |
| | | August 31, 2005 | | August 25, 2004 | | August 27, 2003 | |
| | | (371 days) | | (364 days) | | (364 days) | |
| | | (In thousands, except per share data) | |
| | | | | | | | |
| (Reversal of) provision for asset impairments and restaurant closings/(gains on sales), net | | $ | (632 | ) | $ | 413 | | $ | 1,175 | |
The
$1.0 million favorable change from fiscal
year 2004 to fiscal year 2005 is attributed to a gain on the sale of the corporate office building in San Antonio, Texas and the settlement of a lease on a previously closed restaurant in Lubbock, Texas, both of which occurred during fiscal 2005. The reduction in impairment charges from fiscal year 2003 to
fiscal year 2004
is primarily the result of
$1.4 million related to a
decreasegain recognized in
impairments. Fiscal 2004
principally includes reductions in property values that resulted from changes in market conditions offset by an impairment reversal onfor the
disposalsale of a property that
washad previously
written down.been impaired.
Discontinued Operations
From the inception of the current business plan in fiscal 2003
tothrough August
25, 2004,31, 2005, the Company
has closed
5562 operating stores. The operating results of these locations have been reclassified and reported as discontinued operations for all periods presented as required by Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting“Accounting for the Impairment or Disposal of Long-Lived Assets.
"” SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of by sales and broadens the presentation of discontinued operations to include more disposal transactions. The Company adopted SFAS No. 144 in the first quarter of fiscal 2003, as required. The following are the sales and pretax losses reported for all discontinued locations:
| Year Ended |
| | | | | | | | | | |
| August 25, | | August 27, | August 28, |
| 2004 | | 2003 | 2002 |
| | | | | | | | | | |
| (364 days) | | (364 days) | (362 days) |
| (In thousands) |
| | | | | | | | | | |
Sales | $ | 4,175 | | | $ | 55,512 | | $ | 80,409 | |
Pretax losses | | (8,343 | ) | | | (32,246 | ) | | (12,047 | ) |
During fiscal 2003, after the original designation of stores to be closed, two were removed from the list and replaced by two other locations. Specifically, one in Bossier City, Louisiana, and one in Houston, Texas, were neutrally exchanged for one location in San Antonio, Texas, and one in Lufkin, Texas. In the first quarter of fiscal 2004, a prior joint-venture seafood location was adopted into the plan. Then in the second quarter of fiscal 2004, two additional locations - Garland, Texas, and New Braunfels, Texas - were also adopted into the plan. In the third quarter of fiscal 2004, Nacogdoches, Texas, and Texarkana, Texas, were adopted into the plan. In the fourth quarter of fiscal 2004, the Company's location in Seguin, Texas, was closed and adopted into the plan.
| | | Year Ended | |
| | | August 31, 2005 | | August 25, 2004 | | August 27, 2003 | |
| | | (371 days) | | (364 days) | | (364 days) | |
| | | (In thousands, except locations) | |
| | | | | | | | |
| Sales | | $ | 4,471 | | $ | 15,143 | | $ | 67,731 | |
| Pretax losses | | $ | (5,126 | ) | $ | (8,811 | ) | $ | (31,763 | ) |
| Discontinued locations closed during year | | | 7 | | | 10 | | | 45 | |
Pursuant to the business plan and expectations of its bank group, the Company has continued to apply the proceeds from the sale of closed restaurants to pay down its senior debt. Of the total paid down in fiscal
2005, 2004 and 2003,
$13.4 million, $15.3 million and $10.6 million, respectively, resulted from sales proceeds related to business plan assets.
OfProceeds from the
total amount noted on the balance sheetsale of properties held for sale as of August
25, 2004, the Company31, 2005, may also
had 22 properties recorded at $19.8 million in property held for sale, which related to the business plan. Management therefore estimates the total amount of proceeds to be applied to
outstandingpay down senior debt,
forbut under the
current fiscal year and future business plan disposals wasterms of the
combined amount of $35.1 million ($15.3 million and $19.8 million noted herein).Company’s new credit facility, there is no requirement to do so.
In accordance with EITF 87-24,
"Allocation“Allocation of Interest to Discontinued Operations,
"” interest on debt that is required to be repaid as a result of a disposal transaction should be allocated to discontinued operations. For fiscal
2005, 2004,
and 2003,
and 2002, respectively,
$2.7 million, $2.2 million,
and $2.7 million
and $2.6 million waswere allocated to discontinued operations. The basis of the allocation to discontinued operations was an application of the credit facility's historical effective interest rates to the portion of the estimated total debt that equals the amount related to current and future business plan disposals as explained in the previous paragraph.
Relative to the business plan, as the Company has formally settled lease terminations or has reached definitive agreements to terminate leases, the related charges have been recorded. For fiscal
2004,2005, no lease exit costs associated with the business plan met
thisthese criteria and, consequently, were not accrued as of that date. Furthermore, the Company did not accrue future rental costs in instances where locations closed; however, management has the ability to sublease at amounts equal to or greater than the rental costs. The Company does not accrue employee settlement costs; these charges are expensed as incurred.
The following summarizes discontinued operations for fiscal years
2005, 2004,
2003, and
2002: | Year Ended |
| | | | | | | | | | |
| August 25, | | August 27, | August 28, |
| 2004 | | 2003 | 2002 |
| | | | | | | | | | |
| (364 days) | | (364 days) | (362 days) |
| (In thousands) |
| | | | | | | | | | |
Impairments | $ | (6,237 | ) | | $ | (19,776 | ) | $ | - | |
Gains | | 4,090 | | | | 2,190 | | | - | |
| | | | | | | | | | |
Net impairments | | (2,147 | ) | | | (17,586 | ) | | - | |
Other | | (6,196 | ) | | | (14,660 | ) | | (7,379 | ) |
| | | | | | | | | | |
Discontinued operations, net of taxes | | (8,343 | ) | | | (32,246 | ) | | (7,379 | ) |
| | | | | | | | | | |
Effect on EPS from net impairments -
decrease (increase) - basic | $ | (0.10 | ) | | $ | (0.78 | ) | $ | - | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Effect on EPS from discontinued operations -
decrease (increase) - basic | $ | (0.37 | ) | | $ | (1.43 | ) | $ | (0.33 | ) |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
2003:
| | | Year Ended | |
| | | August 31, 2005 | | August 25, 2004 | | August 27, 2003 | |
| | | (371 days) | | (364 days) | | (364 days) | |
| | | (In thousands, except per share data) | |
| Impairments | | $ | (1,981 | ) | $ | (5,985 | ) | $ | (19, 376 | ) |
| Gains | | | 1,592 | | | 4,090 | | | 2,190 | |
| Net impairments | | | (389 | ) | | (1,895 | ) | | (17,186 | ) |
| Other | | | (4,737 | ) | | (6,916 | ) | | (14,577 | ) |
| Discontinued operations, net of taxes | | | (5,126 | ) | | (8,811 | ) | | (31,763 | ) |
| Effect on EPS from net impairments - decrease - basic | | $ | (0.02 | ) | $ | (0.08 | ) | $ | (0.77 | ) |
| | | | | | | | | | | |
| Effect on EPS from discontinued operations - decrease - basic | | $ | (0.23 | ) | $ | (0.39 | ) | $ | (1.41 | ) |
Within discontinued operations, the Company offsets gains from applicable property disposals against total impairments as noted above. The amounts in the table noted as Other actually include several items. Those items include allocated interest, lease settlements, employment termination and shut-down costs, as well as operating losses through each restaurant's closing date and carrying costs until the locations are finally disposed of.
The impairment charges included above relate to properties closed and designated for immediate disposal. The assets of these individual operating units have been written down to their net realizable values. In turn, the related properties have either been sold or are being actively marketed for sale. All dispositions are expected to be completed within one year. Within discontinued operations, the Company also recorded the related fiscal year-to-date net operating results, allocated interest expense, employee terminations, lease settlements, and basic carrying costs of the closed units.
Property Held for Sale
At August 25, 2004,31, 2005, the Company had a total of twelve properties recorded at $9.3 million in property held for sale. Of the twelve total properties, two are related to prior disposal plans. In the fourth quarter of fiscal 2005, one property in Oklahoma City, Oklahoma was transferred to property held for sale. At the beginning of the year, the Company had a total of 26 properties recorded at $24.6 million in property held for sale, including the 22 properties and $19.8 million mentioned in the previous section of this note. Of the 26 total properties, three are related to prior disposal plans and one is the corporate office property in San Antonio, Texas. sale.
The Company is actively marketing the locations currently classified
inas property held for sale. When sold, proceeds from properties that have been identified as held for sale, shall be used to reduce outstanding debt. All property held for sale
and will use the proceeds to pay down debt as those transactions are completed. In the third quarterconsists of fiscal 2004, one property in Dallas, Texas, formerly designated as a propertyalready-closed restaurant properties. Property held for sale was transferredis valued at the lower of net depreciable value or net realizable value.
The Company’s results of operations (“Other income, net”) will be affected to
property held for future use as it was expected to be used in another capacity. In the
fourth quarterextent proceeds from the sale of
fiscal 2004, the property was transferred out of property held for future use back to propertyassets held for sale
asunder the
Company determined thatprior disposal plans exceed or are less than net book value. For all other properties held for sale, the
property would bestCompany’s results of discontinued operations will be
utilized by being sold, withaffected to the
extent proceeds
being used to pay down debt. from the sales exceed or are less than net book value.
A rollforward of property held for sale for fiscal 20032004 and 20042005 is provided below:Property Held for Sale |
| | | |
Balance as of August 28, 2002 | $ | 8,144 | |
Net transfers to/from property held for sale | | 51,062 | |
Disposals | | (13,876 | ) |
Net impairment charges | | (12,384 | ) |
| | | |
Balance as of August 27, 2003 | | 32,946 | |
Net transfers to/from property held for sale | | 11,366 | |
Disposals | | (13,253 | ) |
Net impairment charges | | (6,465 | ) |
| | | |
Balance as of August 25, 2004 | $ | 24,594 | |
| | | |
| | | |
| | | |
below (in thousands):
| Property Held for Sale | |
| Balance as of August 27,2003 | | $ | 32,946 | |
| Net transfers to/from property held for sale | | | 11,366 | |
| Disposals | | | (13,253 | ) |
| Net impairment charges | | | (6,465 | ) |
| Balance as of August 25,2004 | | | 24,594 | |
| Net transfers to/from property held for sale | | | 1,693 | |
| Disposals | | | (17,088 | ) |
| Net increase in net realizable value | | | 147 | |
| Balance as of August 31, 2005 | | $ | 9,346 | |
Reserve for Restaurant Closings
At
August 31, 2005, and August 25, 2004,
and August 27, 2003, the Company had a reserve for restaurant closings of
$14,450 and $500,000,
and $1.7 million, respectively.respectively, included in “Other Liabilities” on the Company’s consolidated balance sheet. The reserve balances as of the end of both periods related to the 2001 asset disposal plan and were comprised of estimated lease settlement costs. The settlement costs were accrued in accordance with EITF 94-3,
"Liability“Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity,
"” which was appropriate for disposal plans initiated before the Company's fiscal 2003 adoption of SFAS No. 146,
"Accounting“Accounting for Costs Associated with Exit or Disposal Activities.
"” Since the implementation of SFAS No. 146, lease settlement costs have been expensed as incurred.
Relative to the fiscal 2001 disposal plan, the following summarizes the amounts recognized as cash payments, including actual lease settlements, as well as other reductions. Other reductions include certain accrual reversals for settlements that have been more favorable than originally expected and were recorded in discontinued operations after their eventual closure.
| Reserve Balance
(2001 Disposal Plan) |
| | | | | | | | | | |
| Lease Settlement | | Other Exit | |
| Costs | | Costs | Total Reserve |
| | | | | | | | | | |
| (In thousands) |
| | | | | | | | | | |
Balances at August 31, 2001 | $ | 4,206 | | | $ | 300 | | $ | 4,506 | |
Additions (reductions) | | (373 | ) | | | - | | | (373 | ) |
Cash payments | | (856 | ) | | | (163 | ) | | (1,019 | ) |
| | | | | | | | | | |
Balances at August 28, 2002 | | 2,977 | | | | 137 | | | 3,114 | |
Additions (reductions) | | (1,163 | ) | | | (78 | ) | | (1,241 | ) |
Cash payments | | (151 | ) | | | (59 | ) | | (210 | ) |
| | | | | | | | | | |
Balances at August 27, 2003 | | 1,663 | | | | - | | | 1,663 | |
Additions (reductions) | | (518 | ) | | | - | | | (518 | ) |
Cash payments | | (645 | ) | | | - | | | (645 | ) |
| | | | | | | | | | |
Balances at August 25, 2004 | $ | 500 | | | $ | - | | $ | 500 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Note 8. Commitments and Contingencies
Officer Loans
| | | Reserve Balance (2001 Disposal Plan) | |
| | | Lease Settlement Costs | | Other Exit Costs | | Total Reserve | |
| | | (In thousands) | |
| | | | | | | | |
| Balances at August 31, 2001 | | $ | 4,206 | | $ | 300 | | $ | 4,506 | |
| Additions (reductions) | | | (373 | ) | | - | | | (373 | ) |
| Cash payments | | | (856 | ) | | (163 | ) | | (1,019 | ) |
| Balances at August 28, 2002 | | | 2,977 | | | 137 | | | 3,114 | |
| Additions (reductions) | | | (1,163 | ) | | (78 | ) | | (1,241 | ) |
| Cash payments | | | (151 | ) | | (59 | ) | | (210 | ) |
| Balances at August 27, 2003 | | | 1,663 | | | - | | | 1,663 | |
| Additions (reductions) | | | (518 | ) | | - | | | (518 | ) |
| Cash payments | | | (645 | ) | | - | | | (645 | ) |
| Balances at August 25, 2004 | | $ | 500 | | $ | - | | $ | 500 | |
| Additions (reductions) | | | (195 | ) | | - | | | (195 | ) |
| Cash payments | | | (291 | ) | | - | | | (291 | ) |
| Balances at August 31, 2005 | | $ | 14 | | $ | - | | $ | 14 | |
In fiscal 1999, the Company guaranteed loansTable of approximately $1.9 million relating to purchases of Luby's stock by various officers of the Company pursuant to the terms of a shareholder-approved plan. Under the officer loan program, shares were purchased and funding was obtained by the participating officers from JPMorgan Chase Bank, one of the four members of the original bank group that participated in the Company's credit facility. Per the original terms of the guaranteed loan agreements, these instruments only required annual interest to be paid by the individual debtors, with the entire principal balances due upon their respective original maturity dates, which occurred during the period from January through March of 2004.ContentsIn fiscal 2004, principal balances in the amount of $595,000 were paid by certain individual note holders. Accordingly, the combined principal balances of these notes were reduced from $1.6 million to $1.0 million from August 27, 2003, to August 25, 2004, respectively.
The purchased Company stock has been and can be used by borrowers to satisfy a portion of their loan obligation. As of August 25, 2004, based on the market price on that day, approximately $315,000, or 30.9% of the note balances, could have been covered by stock, while approximately $705,000, or 69.1%, would have remained outstanding.
The underlying guarantee on these loans includes a cross-default provision. The Company received notice in 2003 from JPMorgan Chase Bank that the default in the Company's credit facility led to a default in the officer loans. On July 10, 2003, JPMorgan Chase Bank notified the Company that although it reserved all rights and remedies, it did not elect to pursue those rights and remedies in order to allow further discussions among the bank group. This notice did not constitute a waiver.
As of the end of fiscal 2004, certain individual note holders have negotiated with JPMorgan Chase Bank for loan extensions that will mature during the first calendar quarter of 2005. Accordingly, approximately $118,000 of the total loan balances are not overdue.
Since the development of the cross-default, the Company has been working constructively with JPMorgan Chase Bank to rectify the status of all officer loans. Accordingly, related to the renegotiation of its senior debt, the Company developed an interim solution. This solution is the issuance of a letter of credit entered into on June 7, 2004, for approximately $1.2 million. That amount is intended as an estimate to cover principal and cumulative accrued interest that was due by the note holders as of September 30, 2004. After that date, if the loans are still in default, JPMorgan Chase Bank can use the letter of credit to draw on the current line of credit to pay down any portion of the unpaid officer loans, as well as the accrued interest. As of the date of this report, JPMorgan Chase Bank has not taken any action to draw upon the letter of credit.
In anticipation of the maturity of its obligation to purchase the loans, the Company worked out settlement agreements with several of the debtors pursuant to which the Company would contribute up to $530,000 under the terms of the settlement agreement. As of August 25, 2004, the Company has recognized a liability of $530,000 in accrued expenses and other liabilities.
Note 10. | Commitments and Contingencies |
Off-Balance-Sheet Arrangements
The Company has no off-balance-sheet structured financing arrangements; however, underarrangements.
Pending Claims
Three wage and hour investigations by the
termsU.S. Department of
applicable SEC rules,Labor related to the
Company's obligationapplication of wait staff tip pool sums have recently been consolidated in the Houston district. The Company has not yet received sufficient data to
repurchasedetermine the
officer loans could be deemed a guarantee contract, which the SEC considers an off-balance-sheet arrangement. Iffinancial impact to the Company,
is requiredif any, or the probable outcome of the matter. As with all such matters, the Company intends to
purchase the officer loans, it would have a maximum cash payout exposure of approximately $1.2 million. Pending Claimsvigorously defend its position.
The Company is presently, and from time to time, subject to pending claims and lawsuits arising in the ordinary course of business. In the opinion of management, the resolution of any pending legal proceedings will not have a material adverse effect on the Company's operations or consolidated financial position.
Surety Bonds
At
At August
25, 2004,31, 2005, surety bonds in the amount of
$6.0$5.0 million have been issued as security for the payment of insurance obligations classified as accrued expenses on the balance sheet.
Effective September 29, 2004, the bonds were reduced to approximately $5 million, commensurate with a decrease in collateral requirements.Note 9. Leases
The Company conducts part of its operations from facilities that are leased under noncancelable lease agreements. Approximately
85.7%88% of the leases contain renewal options ranging from
fiveone to thirty years.
Most leases include periodic escalation clauses. In accordance with those clauses, the Company records increases in rent expense as they become applicable. Accordingly, the Company does not followfollows the straight-line rent method of recognizing lease rental expense, as prescribed by SFAS No. 13, under generally accepted accounting principles; however, management does not believe“Accounting for Leases.”
In fiscal 2005, the
variationCompany entered into noncancelable operating lease agreements for certain office equipment, with terms ranging from
the straight-line method is material48 to
the Company's results of operations and financial position.60 months.
Annual future minimum lease payments under noncancelable operating leases
with terms in excess of one year as of August
25, 2004,31, 2005, are as follows:
Year Ending: | (In thousands) |
| |
August 31, 2005 | | $ | 4,186 | | |
August 30, 2006 | | | 3,836 | | |
August 29, 2007 | | | 3,574 | | |
August 27, 2008 | | | 3,311 | | |
August 26, 2009 | | | 2,591 | | |
Thereafter | | | 13,440 | | |
| | | | | |
Total minimum lease payments | | $ | 30,938 | | |
| | | | | |
| | | | | |
| | | | | |
| Year Ending: | | (In thousands) | |
| August 30, 2006 | | | 4,203 | |
| August 29, 2007 | | | 4,045 | |
| August 27, 2008 | | | 3,888 | |
| August 26, 2009 | | | 3,683 | |
| August 25, 2010 | | | 3,281 | |
| Thereafter | | | 18,451 | |
| Total minimum lease payments | | $ | 37,651 | |
Most of the leases are for periods of ten to twenty-five years and provide for contingent rentals based on sales in excess of a base amount. Total rent expense for operating leases for the last three fiscal years was as follows:
| Year Ended |
| | | | | | | | | | | |
| August 25, | | August 27, | | August 28, |
| | 2004 | | | | 2003 | | | | 2002 | |
| | | | | | | | | | | |
| (In thousands) | |
| | | | | | | | | | | |
Minimum rentals | $ | 4,926 | | | $ | 6,112 | | | $ | 6,512 | |
Contingent rentals | | 290 | | | | 507 | | | | 770 | |
| | | | | | | | | | | |
Total rent expense (including
amounts in discontinued
operations) | $ | 5,216 | | | $ | 6,619 | | | $ | 7,282 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Percent of sales | | 1.7 | % | | | 2.1 | % | | | 2.2 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | Year Ended | |
| | | August 31, 2005 | | August 25, 2004 | | August 27, 2003 | |
| | | (In thousands, except percentages) | |
| | | | | | | | |
| | | | | | | | |
| Minimum rent-facilities | | $ | 4,109 | | $ | 4,574 | | $ | 4,576 | |
| Contingent rentals | | | 192 | | | 290 | | | 507 | |
| Minimum rent-equipment | | | 68 | | | - | | | - | |
| Total rent expense (including amounts in discontinued operations) | | $ | 4,369 | | $ | 4,864 | | $ | 5,083 | |
| Percent of sales | | | 1.4 | % | | 1.6 | % | | 1.7 | % |
See Note 13 for lease payments associated with related parties.
Note 10. Employee Benefit Plans
Sales and AgreementsLeaseback
In June 2004, the Company executed a sale and leaseback of land and improvements at one of its Corpus Christi locations with a third party buyer. This particular location featured a restaurant, as well as additional shopping center space leased to tenants. The Company sold the entire property but only leased back the restaurant. The terms of the lease provide for a primary term of five years commencing July 1, 2005, a basic monthly rental of $7,500. The lease also provides for two five-year renewal option periods.
Proceeds received on the sale of the property totaled $2.85 million and the total gain on the property was $2.37 million. In accordance with FAS 13, the present value of the minimum lease payments, an amount totaling $395,000, was booked as a deferred rent liability to be amortized over the five-year primary term life of the lease. The remaining balance of the gain, $1.98 million, was recognized as other income in fiscal year 2004.
Note 12. | Employee Benefit Plans and Agreements |
Executive Stock Options
In connection with their employment agreements effective March 9, 2001, the CEO and the COO were granted approximately 2.2 million stock options at a strike price of $5.00 per share, which was below the quoted market price on the date of grant. From that date through fiscal 2004, the Company recognized a total of $5.2 million in noncash compensation expense associated with these options.
TotalsTotal expenses of
$0, $679,000,
$1.3 million, and $1.3 million were recognized in fiscal
2005, 2004,
and 2003,
and 2002, respectively.
The Company has agreed to reserve shares held in treasury for issuance upon exercise of these options. In accordance with an agreement between Messrs. Pappas and the Company dated June 7, 2004,
ChrisChristopher and Harris Pappas have agreed to limit their exercise of stock options to a number that will ensure the
"net“net treasury shares
available"available” are not exceeded. Pursuant to the terms of that agreement, the Company indicated that it will use reasonable efforts to list on the New York Stock Exchange additional shares which would permit full exercise of the options. (See the
Subordinated Notes section
of Management'sentitled “Management's Discussion and Analysis of Financial Condition and Results of Operations
- Subordinated Notes” for definition of
"net“net treasury
shares"shares”.)
As of November 7, 2005, neither individual has exercised any of these options.
All Stock Options
The Company has
an incentive stock
planplans to provide for market-based incentive awards, including stock options, stock appreciation rights, and restricted stock. Under
this plan,these plans, stock options may be granted at prices not less than 100% of fair market value on the date of grant. Options granted to the participants of the
planplans are exercisable over staggered periods and expire, depending upon the type of grant, in five to ten years. The
plan providesplans provide for various vesting methods, depending upon the category of personnel.
During 1999,
Under the Company authorized 2.0 millionCompany’s Nonemployee Director Stock Option Plan, as previously amended and restated, (the “Option Plan”), nonemployee directors are periodically awarded restricted stock and granted nonqualified options to purchase shares of the Company'sCompany’s common stock at an option price equal to 100% of fair market value on the date of grant. A total of 400,000 shares of common stock have been authorized for issuance under the Option Plan. Each option terminates upon the expiration of ten years from the date of grant or one year after the optionee ceases to be a new plan. Under its terms, includingdirector, whichever first occurs. An option may not be exercised prior to the 1999 authorization,expiration of one year from the date of grant, subject to certain exceptions specified in the Option Plan. As of August 31, 2005, 116,332 options were outstanding under the Option Plan, and 262,477 common shares remained available for issuance under the Option Plan.
Altogether, under the executive stock options and the stock plans, nonqualified stock options, incentive stock options, and other types of awards for not more than
4.95.1 million shares of the Company's common stock may be granted to eligible employees
and nonemployee directors of the Company.
As previously stated, the Company also granted 2.2 million options to the CEO and the COO in conjunction with their employment agreements. Neither individual has exercised any of those options. The following is a summary of activity in the Company's
incentive stock
planoption plans and the executive stock options for the three years ended August
31, 2005, August 25, 2004,
and August 27,
2003, and August 28, 2002: | Weighted- | | |
| Average Exercise | | |
| Price Per Share - | | Options |
| Options Outstanding | | Outstanding |
| | | |
| | | | | | |
Balances at August 31, 2001 | $ | 8.93 | | | 4,506,241 | |
Granted | | 6.21 | | | 133,500 | |
Cancelled or expired | | 14.10 | | | (435,306 | ) |
Exercised | | 5.44 | | | (10,100 | ) |
| | | | | | |
Balances at August 28, 2002 | | 8.31 | | | 4,194,335 | |
Granted | | 1.98 | | | 28,000 | |
Cancelled or expired | | 12.49 | | | (302,737 | ) |
Exercised | | - | | | - | |
| | | | | | |
Balances at August 27, 2003 | | 7.96 | | | 3,919,598 | |
Granted | | 4.47 | | | 20,000 | |
Cancelled or expired | | 14.30 | | | (399,569 | ) |
Exercised | | 5.44 | | | (7,500 | ) |
| | | | | | |
Balances at August 25, 2004 | $ | 7.22 | | | 3,532,529 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | Weighted- Average Exercise Price Per Share - Options Outstanding | | Options Outstanding | |
| | | | | | |
| Balances at August 28, 2002 | | $ | 8.31 | | | 4,195,335 | |
| Granted | | | 1.98 | | | 28,000 | |
| Cancelled or expired | | | 12.49 | | | (302,737 | ) |
| Exercised | | | -- | | | - | |
| Balances at August 27, 2003 | | | 7.96 | | | 3,920,598 | |
| Granted | | | 4.47 | | | 20,000 | |
| Cancelled or expired | | | 14.30 | | | (399,569 | ) |
| Exercised | | | 5.44 | | | (7,500 | ) |
| Balances at August 25, 2004 | | | 7.22 | | | 3,533,529 | |
| Granted | | | 6.45 | | | 16,000 | |
| Cancelled or expired | | | 14.66 | | | (606,047 | ) |
| Exercised | | | 6.29 | | | (190,850 | ) |
| Balances at August 31, 2005 | | $ | 5.65 | | | 2,752,632 | |
Balances of Exercisable Options as of: | |
| | | |
August 31, 2001
| $1,441,490
| |
August 28, 2002 | 2,242,095
| | 2,243,095 | |
August 27, 2003 | 3,029,098
| | 3,030,098 | |
August 25, 2004 | 3,394,029
| | 3,395,029 | |
| August 31, 2005 | | | 2,721,382 | |
Exercise prices for options outstanding as of August
25, 2004,31, 2005, range from $1.98 to
$22.75$21.625 per share. The weighted-average remaining contractual life of these options is
4.84.9 years. Excluding 2,240,000 executive stock options with an exercise price of $5.00 per share, the exercisable options as of August
25, 2004,31, 2005, have a weighted-average exercise price of
$11.69$8.62 per share.
Options Outstanding and Exercisable by Price Range
As of August 25, 2004 | | | | | | | |
Options Outstanding | Options Exercisable |
| | | | | | | |
| | | | Weighted- | | | | |
| | Number | | Average | Weighted- | Number | | Weighted- |
Range of | Outstanding | | Remaining | Average | Exercisable | | Average |
Exercise Prices | As of 8/25/04 | | Contractual Life | Exercise Price | As of 8/25/04 | | Exercise Price |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
$ | 1.9800 | | - | $ | 4.4700 | | | 46,000 | | | | 8.90 | | $ | 3.0626 | | | 26,000 | | | $ | 1.9800 | |
| | 5.0000 | | - | | 5.0000 | | | 2,240,000 | | | | 6.54 | | | 5.0000 | | | 2,240,000 | | | | 5.0000 | |
| | 5.4375 | | - | | 6.7000 | | | 365,150 | | | | 2.88 | | | 5.6647 | | | 268,650 | | | | 5.6555 | |
| | 7.8125 | | - | | 14.3750 | | | 402,345 | | | | 1.45 | | | 11.5311 | | | 380,345 | | | | 11.6896 | |
| | 14.4375 | | - | | 15.4375 | | | 434,576 | | | | 0.53 | | | 15.3221 | | | 434,576 | | | | 15.3221 | |
| | 15.9375 | | - | | 15.9375 | | | 11,127 | | | | 0.58 | | | 15.9375 | | | 11,127 | | | | 15.9375 | |
| | 17.1250 | | - | | 17.1250 | | | 18,332 | | | | 1.31 | | | 17.1250 | | | 18,332 | | | | 17.1250 | |
| | 20.2500 | | - | | 20.2500 | | | 5,000 | | | | 2.39 | | | 20.2500 | | | 5,000 | | | | 20.2500 | |
| | 21.6250 | | - | | 21.6250 | | | 5,000 | | | | 1.38 | | | 21.6250 | | | 5,000 | | | | 21.6250 | |
| | 22.7500 | | - | | 22.7500 | | | 4,999 | | | | 0.39 | | | 22.7500 | | | 4,999 | | | | 22.7500 | |
| | | | | | | |
$ | 1.9800 | | - | $ | 22.7500 | | | 3,532,529 | | | | 4.80 | | $ | 7.2248 | | | 3,394,029 | | | $ | 7.2745 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
31, 2005
| | | | |
| Options Outstanding | | Options Exercisable | |
Range of Exercise Prices | | Number Outstanding | | Weighted Average Remaining Contractual Life | | Weighted Average Exercise Price | | Number Exercisable | | Weighted Average Exercise Price | |
| | | | | | | | | | | | | | | | |
| $ | 1.9800 | | - | | $ | 4.4700 | | | 42,000 | | | 7.88 | | $ | 3.0471 | | | 42,000 | | $ | 3.0471 | |
| | 5.0000 | | - | | | 5.0000 | | | 2,240,000 | | | 5.52 | | | 5.0000 | | | 2,240,000 | | | 5.0000 | |
| | 5.4375 | | - | | | 9.4200 | | | 291,500 | | | 2.47 | | | 6.7921 | | | 260,250 | | | 6.8472 | |
| | 9.7500 | | - | | | 10.8125 | | | 38,000 | | | 1.18 | | | 10.1069 | | | 38,000 | | | 10.1069 | |
| | 11.5625 | | - | | | 11.5625 | | | 5,000 | | | 0.22 | | | 11.5625 | | | 5,000 | | | 11.5625 | |
| | 12.0625 | | - | | | 12.0625 | | | 107,800 | | | 0.12 | | | 12.0625 | | | 107,800 | | | 12.0625 | |
| | 15.4375 | | - | | | 15.4375 | | | 15,000 | | | 3.36 | | | 15.4375 | | | 15,000 | | | 15.4375 | |
| | 17.1250 | | - | | | 17.1250 | | | 3,332 | | | 2.90 | | | 17.1250 | | | 3,332 | | | 17.1250 | |
| | 20.2500 | | - | | | 20.2500 | | | 5,000 | | | 1.37 | | | 20.2500 | | | 5,000 | | | 20.2500 | |
| | 21.6250 | | - | | | 21.6250 | | | 5,000 | | | 0.37 | | | 21.6250 | | | 5,000 | | | 21.6250 | |
| $ | 1.9800 | | - | | $ | 21.6250 | | | 2,752,632 | | | 4.92 | | $ | 5.6484 | | | 2,721,382 | | $ | 5.6406 | |
At
August 31, 2005 and August 25, 2004,
and August 27, 2003, the number of incentive stock option shares available to be granted under the plans was
1,315,2021,907,250 and
935,9661,315,202 shares, respectively.
The Company accounts for its employee stock compensation plans using the intrinsic value method of accounting set forth in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and the related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock.
The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had converted to the fair-value method of expensing stock options, as alternatively allowed under SFAS No. 123:
| | | August 31, 2005 | | August 25, 2004 (As adjusted) | | August 27, 2003 (As adjusted) | |
| | | (In thousands, except per share data) | |
| | | | | | | | |
| Net income (loss), as reported | | $ | 3,448 | | $ | (3,122 | ) | $ | (29,721 | ) |
Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax effects (a) | | | - | | | 679 | | | 1,310 | |
Deduct: Total stock-based employee compensation expense determined under fair-value-based method for all awards, net of related tax effects (a) | | | (277 | ) | | (1,208 | ) | | (2,861 | ) |
| Pro forma net income (loss) | | $ | 3,171 | | $ | (3,651 | ) | $ | (31,272 | ) |
| Net income (loss) per share as reported: | | | | | | | | | | |
| Basic | | $ | 0.15 | | $ | (0.14 | ) | $ | (1.32 | ) |
| Assuming dilution | | $ | 0.15 | | $ | (0.14 | ) | $ | (1.32 | ) |
| Pro forma net income (loss) per share: | | | | | | | | | | |
| Basic | | $ | 0.14 | | $ | (0.16 | ) | $ | (1.39 | ) |
| Assuming dilution | | $ | 0.14 | | $ | (0.16 | ) | $ | (1.39 | ) |
(a)Income taxes have been offset by a valuation allowance. See Note 4 of Notes to Consolidated Financial Statements.
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, “Share-Based Payments (Revised 2004).” SFAS 123R establishes standards for the accounting for transactions in which an entity (i) exchanges its equity instruments for goods or services, or (ii) incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of the equity instruments. SFAS 123R eliminates the ability to account for stock-based compensation using APB 25 and requires that such transactions be recognized as compensation cost in the income statement based on their fair values on the date of the grant. The Company will transition to fair-value based accounting for stock-based compensation using a modified version of prospective application (“modified prospective application”). Under modified prospective application, as it is applicable to the Company, SFAS 123R applies to new awards and to awards modified, repurchased, or cancelled after September 1, 2005. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered (generally referring to non-vested awards) that are outstanding as of September 1, 2005 must be recognized as the remaining requisite service is rendered during the period of and/or the periods after the adoption of SFAS 123R. The attribution of compensation cost for those earlier awards will be based on the same method and on the same grant-date fair values previously determined for the pro forma disclosures required for companies that did not adopt the fair value accounting method for stock-based employee compensation. Based on the stock-based compensation awards outstanding as of August 31, 2005 for which the requisite service is not expected to be fully rendered prior to September 1, 2005, the Company expects additional pre-tax, quarterly compensation cost recognized beginning in the first quarter of fiscal year 2006 as a result of the adoption of SFAS 123R to be immaterial. Future levels of compensation cost recognized related to stock-based compensation awards (including the aforementioned expected costs during the period of adoption) may be impacted by new awards and/or modifications, repurchases and cancellations of existing awards before and after the adoption of this standard.
The weighted-average fair value of the individual options granted during
2005, 2004,
2003, and
20022003 was estimated at
$2.69, $2.32,
$0.94, and
$2.55,$0.94, respectively, on the date of grant. The fair values were determined using a Black-Scholes option pricing model with the following assumptions:
| 2004 | | | 2003 | | 2002 |
| | | | | | |
Dividend yield | - | % | | - | % | | - | % |
Volatility | .57 | | | 0.51 | | | 0.35 | |
Risk-free interest rate | 3.01 | % | | 3.02 | % | | 3.56 | % |
Expected life | 5.00 | | | 5.00 | | | 6.18 | |
| | | 2005 | | 2004 | | 2003 | |
| Dividend yield | | | - | % | | - | % | | - | % |
| Volatility | | | 0.75 | | | 0.57 | | | 0.51 | |
| Risk-free interest rate | | | 3.70 | % | | 3.01 | % | | 3.02 | % |
| Expected life | | | 5.00 | | | 5.00 | | | 5.00 | |
Supplemental Executive Retirement Plan
The Company has a Supplemental Executive Retirement Plan (SERP) for key executives and officers. The SERP is a "target"“target” benefit plan, with the annual lifetime benefit based upon a percentage of average salary during the final five years of service at age 65, offset by several sources of income including benefits payable under deferred compensation agreements, if applicable, and Social Security. SERP benefits will be paid from the Company's assets. The net expense (benefit) incurred for this plan for the years ended August 31, 2005, August 25, 2004, and August 27, 2003, and August 28, 2002, was $(129,000), $(188,000), $67,000, and $64,000,$67,000, respectively, and the unfunded accrued pension liability, included in “Other Liabilities” on the Company’s consolidated balance sheet, as of August 31, 2005, August 25, 2004, and August 27, 2003, and August 28, 2002, was approximately $337,000, $488,000, and $709,000, respectively.
Nonemployee Director Phantom Stock Plan
Under the Company’s Nonemployee Director Phantom Stock Plan (“Phantom Stock Plan”), nonemployee directors deferred portions of their retainer and
$665,000, respectively. meeting fees which, along with certain matching incentives, were credited to phantom stock accounts in the form of phantom shares priced at the market value of the Company’s common stock on the date of grant. Additionally, the phantom stock accounts were credited with dividends, if any, paid on the common stock represented by phantom shares. Authorized shares (100,000 shares) under the Phantom Stock Plan were fully depleted in early fiscal year 2003 and as such, no deferrals, incentives or dividends have been credited to phantom stock accounts since then. 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 31, 2005, approximately 29,600 phantom shares remained unissued 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. These contributions may be made on a pre-tax basis to the plan, and the Company matches 25% of participants' contributions of up to 4% of their salary. The net expense recognized in connection with the employer match feature of the voluntary 401(k) employee savings plan for the years ended August
31, 2005, August 25, 2004,
and August 27, 2003,
was $192,000, $201,000, and
August 28, 2002, was $201,000, $252,000,
and $311,000, respectively.
Deferred Compensation Plans
During 1999, the Company established a nonqualified deferred compensation plan for highly compensated executives which was terminated in fiscal 2004. The plan allowed deferral of a portion of annual salary and up to 100% of bonuses before taxes. The Company did not match any deferral amounts and retained ownership of all assets until distributed. The
liability under this deferred compensation plan at August 25, 2004, August 27, 2003, and August 28, 2002, was approximately $0, $57,000, and $54,000, respectively. The funds from the terminated plan were distributed in fiscal 2004.
The Company continued to make payments to former employees or their beneficiaries under a previous plan that provides retirement, death, and disability benefits for certain highly compensated executives. All benefits under this plan were fully accrued prior to fiscal year 2000, and future benefits payable amount to approximately
$521,000$273,000 as of August
25, 2004.31, 2005.
Profit Sharing Plan
In fiscal 2004, the Company terminated its profit sharing and retirement plan (the Plan) and is in the process of making distributions to all Plan participants. The Plan covered substantially all employees who had attained the age of 21 years and had completed one year of continuous service. It was administered by a corporate trustee, was a
"qualified plan"“qualified plan” under Section 401(a) of the Internal Revenue Code, and provided for the payment of the employee's vested portion of the Plan upon retirement, termination, disability, or death. The Plan had been funded by contributions of a portion of the net earnings of the Company and was amended effective August 31, 2001, to make all contributions discretionary. No annual contributions to the Plan were made in fiscal
2005, 2004,
2003, or
2002.Note 11. Derivative Financial Instruments
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," and its amendments, Statement Nos. 137 and 138, on September 1, 2000. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Pursuant to this Standard, the Company designated its Interest Rate Protection Agreements (Swaps) as cash flow hedge instruments. Swaps were used to manage exposure to interest rate movement by effectively changing the variable rate to a fixed rate. The critical terms of the Swaps and the interest-bearing debt associated with the Swaps were the same; therefore, the Company concluded that there was no ineffectiveness in the hedge relationship. Due to declining interest rates and in anticipation of additional future unfavorable interest rate changes, the Company terminated the Swaps on July 2, 2001, for a cash payment of $1.3 m illion, including accrued interest of $163,000. Changes in fair value of the Swaps were recognized in other comprehensive income (loss), net of tax effects, until the hedged items were recognized in earnings.
In accordance with SFAS No. 133, the loss of $1.1 million was recognized as interest expense over the original term of the Swaps (through June 30, 2002). At August 28, 2002, there was no balance in accumulated other comprehensive loss.
Note 12. Comprehensive Income (Loss)
As noted above, due to the decline in interest rates and in anticipation of additional unfavorable interest rate changes, the Company terminated the Swaps on July 2, 2001. The loss associated with the termination was recognized as interest expense over the original term of the Swaps, through June 30, 2002. At August 28, 2002, there was no balance in accumulated other comprehensive loss. The Company did not acquire any additional swaps in fiscal 2003 or 2004.
The Company's comprehensive (loss) was comprised of net (loss) and adjustments to derivative financial instruments. The components of the comprehensive (loss) were as follows:
| August 25, | | August 27, | | August 28, |
| 2004 | | 2003 | | 2002 |
| | | | | | | | | | | |
| (In thousands) |
| | | | | | | | | | | |
Net (loss) | $ | (6,439 | ) | | $ | (33,094 | ) | | $ | (9,653 | ) |
Other comprehensive (loss), net of taxes: | | | | | | | | | | | |
Reclassification adjustment for loss recognized on termination of
interest rate swaps, net of taxes of $318 | | - | | | | - | | | | 592 | |
| | | | | | | | | | | |
Comprehensive income (loss) | $ | (6,439 | ) | | $ | (33,094 | ) | | $ | (9,061 | ) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Note 13. Related Parties
2003.
Affiliate Services
The CEO and COO of the Company, Christopher J. Pappas and Harris J. Pappas, respectively, own two restaurant entities that may provide services to Luby's, Inc. as detailed in the Affiliate Services Agreement and the Master Sales Agreement. Under the terms of the Affiliate Services Agreement, the Pappas entities may provide accounting, architectural, and general business services.
The total costs under the Affiliate Services Agreement in fiscal 2004 were $1,000. No costs were incurred relative to the Affiliate Services Agreement in fiscal 2003.
CostsThe total costs incurred
relative to the Affiliate Services Agreements were $5,000 and $1,000 in fiscal
2002 were $8,000.2005 and 2004, respectively.
Under the terms of the 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 total costs under the Master Sales Agreement of custom-fabricated and refurbished equipment in fiscal
2005, 2004,
2003, and
20022003 were approximately
$176,000, $113,000,
and $174,000,
and $506,000, respectively.
Operating Leases
In a separate contract from the Affiliate Services Agreement and the Master Sales Agreement, the Company entered into a three-year lease which commenced on June 1, 2001, and expired on May 31, 2004. This lease is currently on a month-to-month basis. The leased property, referred to as the Houston Service Center, is used to accommodate the Company's own in-house repair and fabrication center. The amount paid by the Company pursuant to the terms of this lease was approximately
$88,000, $82,000,
and $79,000,
$78,000 in fiscal
2005, 2004,
and 2003,
and 2002, respectively.
From an unrelated third party, the Company previously leased a location used to house increased equipment inventories due to store closures under the business plan. The Company considered it more prudent to lease this location rather than to pursue purchasing a storage facility, as its strategy is to focus its capital expenditures on its operating restaurants. In a separate transaction, the third-party property owner sold the location to the Pappas entities during the fourth quarter of fiscal 2003, with the Pappas entities becoming the Company's landlord for that location effective August 1, 2003. The storage site complements the Houston Service Center with approximately 27,000 square feet of warehouse space at an approximate monthly rate of $0.21 per square foot. The amount paid by the Company pursuant to the terms of this lease was approximately
$72,000 and $69,000 in fiscal
2004.2005 and 2004, respectively.
In another separate contract, pursuant to the terms of a ground lease dated March 25, 1994, the Company paid rent to PHCG Investments for a Luby's restaurant the Company operated in Dallas, Texas, until that location was closed early in the third quarter of fiscal 2003. Christopher J. Pappas and Harris J. Pappas are general partners of PHCG Investments. Preceding the store's closure, the Company entered into a lease termination agreement with a third party unaffiliated with the Pappas entities. That agreement severed the Company's interest in the PHCG property in exchange for a payment of cash to the Company.
TheAt that time, the Company
also obtained the right to remove fixtures and equipment from the premises, and it was released from any future obligations under the lease agreement. The closing of the transaction was completed during the third quarter of fiscal 2003, resulting inrecognized a gain of $735,000
andas “Other Income, Net”, which represented the
gross proceeds were used to pay down debt.excess of the cash received over the carrying amount of the Company’s investment in the related assets. The amount paid by the Company pursuant to the terms of this lease before its termination was approximately $42,000
and $85,000 in fiscal
2003 and 2002, respectively.2003. No costs were incurred under this lease in fiscal
2004.2004 or 2005.
Late in the third quarter of fiscal 2004,
ChrisChristopher J. and Harris
J. Pappas became
limited partners in a limited partnership which purchased a retail strip center in Houston, Texas. Messrs. Pappas own a 50% limited partnership
interest. Neither of Messrs. Pappas own any interest in theand a 50% general
partner of the limited partnership. The general partner of the limited partnership
controls the operational decisions of the partnership.interest. One of the Company's restaurants has rented approximately 7% of the space in that center since July
of 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. The amount paid by the Company pursuant to the terms of this lease
since the Pappas's inclusion as limited partners was
approximately $167,000 and $56,000
infor fiscal
2004. Management is under instruction that no amendments can be made to this lease without the approval of the Finance2005 and
Audit Committee.fiscal 2004, respectively.
Affiliated rents paid for the Houston Service Center, the separate storage facility, the Dallas property, and the Houston property leases combined represented
4.8%8.4%,
2.8%5.6%, and
3.3%3.7% of total rents for continuing operations for fiscal
2005, 2004,
and 2003,
and 2002, respectively.
Subordinated Notes
Refer to Note
68 for information on the subordinated notes.
Board of Directors
Pursuant to the terms of a separate Purchase Agreement dated March 9, 2001, entered into by and among the Company, Christopher J. Pappas and Harris J. Pappas, the Company agreed to submit three persons designated by Christopher J. Pappas and Harris J. Pappas as nominees for election at the 2002 Annual Meeting of Shareholders. Messrs. Pappas designated themselves and Frank Markantonis as their nominees for directors, all of whom were subsequently elected. Christopher J. Pappas and Harris J. Pappas are brothers. As disclosed in the proxy statement for the February 26, 2004, annual meeting of shareholders, Frank Markantonis is an attorney whose principal client is Pappas Restaurants, Inc., an entity owned by Harris J. Pappas and Christopher J. Pappas.
Under the terms of the amended Purchase Agreement dated June 7, 2004, the right to nominate directors for election was modified to provide that Messrs. Pappas may continue to nominate persons for election to the board which, if such nominees are elected, would result in Messrs. Pappas having nominated three of the then-serving directors of the Company. Messrs. Pappas retain their right for so long as either they both are executive officers of the Company or continue to holdCompany.
Christopher J. Pappas, the
subordinated notes described previously.Company’s President and Chief Executive Officer, is a member of the Board of Directors of Amegy Bank, National Association, which is a lender under, and Documentation Agent of, the Revolving Credit Facility.
Key Management Personnel
As of
June 2004,November 2005, new
two-yearthree-year employment contracts were finalized for Christopher J. Pappas and Harris J. Pappas.
Ernest Pekmezaris, Chief Financial Officer of the Company, is also the Treasurer of Pappas Restaurants, Inc. Compensation for the services provided by Mr. Pekmezaris to Pappas Restaurants, Inc. is paid entirely by that entity.
Peter Tropoli, Senior Vice President-Administration and General Counsel of the Company, is an attorney who, from time to time, has provided litigation services to entities controlled by Christopher J. Pappas and Harris J. Pappas. Mr. Tropoli is the stepson of Frank Markantonis, who, as previously mentioned, is a director of the Company.
Paulette Gerukos,
DirectorVice President of Human Resources of the Company, is the sister-in-law of Harris J. Pappas, the Chief Operating Officer.
Note 14. Common Stock
In 1991, the Board of Directors adopted a Shareholder Rights Plan and declared a dividend of one common stock purchase right for each outstanding share of common stock. The rights are not initially exercisable. The Company amended the Shareholder Rights Plan effective February 27, 2004, to extend the expiration date to April 16, 2007. The rights may become exercisable under circumstances described in the plan if any person or group becomes the beneficial owner of 15% or more of the common stock or announces a tender or exchange offer, the completion of which would result in the ownership by a person or group of 15% or more of the common stock (either, an Acquiring Person). Once the rights become exercisable, each right will be exercisable to purchase, for $27.50 (the Purchase Price), one-half of one share of common stock, par value $.32 per share, of the Company. If any person becomes an Acquiring Person, each right will entitle the holder, other than the Acquiring Person, to acquire for the Purchase Price a number of shares of the Company's common stock having a market value of four times the Purchase Price.
In connection with the employment of Christopher J. Pappas, the Company's President and Chief Executive Officer, and Harris J. Pappas, the Company's Chief Operating Officer, the Shareholder Rights Plan,
wasas amended,
to exemptexempts from the operation of the plan Messrs. Pappas' ownership of the Company's common stock
which was acquired prior to March 8, 2001 (and certain additional shares permitted to be acquired)
and upon their election to convert the subordinated notes on August 31, 2005, and certain shares of common stock which may be acquired in connection with options issued on the date of their
employment and the convertible notes subsequently purchased from the Company. employment.
In the past, the Board of Directors periodically authorized the purchase, in the open market, of shares of the Company's outstanding common stock. The most recent authorization was a purchase of 850,300 shares of the Company's common stock at a cost of $12,919,000 in 1999, which are being held as treasury stock. There have been no treasury shares purchased since 1999.
The Company has approximately 3.53.2 million shares of common stock reserved for issuance upon the exercise of outstanding stock options and 3.2 millionoptions.
Treasury Shares
The Company's treasury shares
have been reserved for
issuance upon the
recent conversion of subordinated
notes.debt (See Note 15. Per Share Information
8, “Debt”) and for two other purposes - the issuance of shares to Messrs. Pappas upon exercise of the options granted to them on March 9, 2001, and for shares issuable under the Company's Nonemployee Director Phantom Stock Plan. In accordance with their agreement with the Company dated June 7, 2004, Messrs. Pappas have agreed to limit their exercise of stock options to a number that will ensure the “net treasury shares available” are not exceeded. Pursuant to the terms of that agreement, the Company indicated that it will use reasonable efforts to list on the New York Stock Exchange additional shares which would permit full exercise of those options. “Net Treasury Shares Available” is defined in the debt agreements as the number of shares of common stock then held by the Company in treasury, minus the number of shares of common stock issuable or issued after June 7, 2004, under the Nonemployee Director Phantom Stock Plan, minus the number of shares of common stock issuable or issued upon conversion of the subordinated notes, as calculated assuming the lowest conversion price stated in the subordinated notes.
Note 15. | Per Share Information |
A reconciliation of the numerators and denominators of basic earnings per share and earnings per share assuming dilution is shown in the table below:
| Year Ended |
| | | | | | | | | | | |
| August 25, | | August 27, | | August 28, |
| 2004 | | 2003 | | 2002 |
| | | | | | | | | | | |
| (In thousands) |
Numerator: | | | | | | | | | | | |
Income (loss) from continuing operations | $ | 1,904 | | | $ | (848 | ) | | $ | (2,274 | ) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net Income (loss) | $ | (6,439 | ) | | $ | (33,094 | ) | | $ | (9,653 | ) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Denominator: | | | | | | | | | | | |
Denominator for basic earnings per | | | | | | | | | | | |
share - weighted-average shares | | 22,470 | | | | 22,451 | | | | 22,428 | |
Effect of potentially dilutive securities: | | | | | | | | | | | |
Employee and nonemployee stock options | | 149 | | | | - | | | | - | |
| | | | | | | | | | | |
Denominator for earnings per share- | | | | | | | | | | | |
assuming dilution - adjusted | | | | | | | | | | | |
weighted-average shares | | 22,619 | | | | 22,451 | | | | 22,428 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Income (loss) from continuing operations: | | | | | | | | | | | |
Basic | $ | 0.08 | | | $ | (0.04 | ) | | $ | (0.10 | ) |
Assuming dilution | $ | 0.08 | | | $ | (0.04 | ) | | $ | (0.10 | ) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net income (loss) per share: | | | | | | | | | | | |
Basic | $ | (0.29 | ) | | $ | (1.47 | ) | | $ | (0.43 | ) |
Assuming dilution(a) | $ | (0.29 | ) | | $ | (1.47 | ) | | $ | (0.43 | ) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | Year Ended | |
| | | August 31, 2005 | | August 25, 2004 (As adjusted) | | August 27, 2003 (As adjusted) | |
| | | (In thousands, except per share data) | |
| Numerator: | | | | | | | |
| Income from continuing operations | | $ | 8,574 | | $ | 5,689 | | $ | 2,042 | |
| Net income (loss) | | $ | 3,448 | | $ | (3,122 | ) | $ | (29,721 | ) |
| Denominator: | | | | | | | | | | |
| Denominator for basic earnings per share - weighted-average shares | | | 22,608 | | | 22,470 | | | 22,451 | |
| Effect of potentially dilutive securities: | | | | | | | | | | |
| Employee and nonemployee stock options | | | 802 | | | 149 | | | 1 | |
| Phantom stock | | | 43 | | | 60 | | | 80 | |
| Restricted stock | | | 2 | | | - | | | - | |
| | | | | | | | | | | |
| Denominator for earnings per share -assuming dilution | | | 23,455 | | | 22,679 | | | 22,532 | |
| Income from continuing operations: | | | | | | | | | | |
| Basic | | $ | 0.38 | | $ | 0.25 | | $ | 0.09 | |
Assuming dilution (a) | | $ | 0.37 | | $ | 0.25 | | $ | 0.09 | |
| Net income (loss) per share: | | | | | | | | | | |
| Basic | | $ | 0.15 | | $ | (0.14 | ) | $ | (1.32 | ) |
Assuming dilution (a) | | $ | 0.15 | | $ | (0.14 | ) | $ | (1.32 | ) |
| SincePotentially dilutive shares that were not included in the subordinated notes are antidilutive, theycomputation of net income (loss) per share because to do so would have been antidilutive amounted to 3,219,000 shares in fiscal 2005, 2,216,000 in fiscal 2004, and 2,000,000 in fiscal 2003 (including the dilutive effect of the convertible subordinated notes). Additionally, stock options with exercise prices exceeding current market prices that were excluded from the calculationcomputation of dilutive shares.
|
(b)
| Potentially dilutivenet income (loss) per share amounted to 484,000 shares in fiscal 20032005, 2,495,000 shares in fiscal 2004 and 2002 amounted to 1,058 and 178,2484,078,000 shares respectively. However, due to loss positions, there was no dilutive effect in those years.
fiscal 2003. |
Note 16. Quarterly Financial Information (Unaudited)
Note 16. | Quarterly Financial Information (Unaudited) |
The
sales and gross profit components of the Company's quarterly financial
statements haveinformation has been affected by reclassifications to discontinued operations in accordance with the disposal of operating units under the Company's business plan.
Even so, the Company's net income (loss) per share for each quarter is consistent with previous quarterly filings. The following is a summary of quarterly unaudited financial information for
20042005 and
2003,2004, including those
reclassifications: | Quarter Ended |
| | | | | | | |
| August 25, | | May 5, | | February 11, | | November 19, |
| 2004 | | | 2004 | | 2004 | | 2003 |
| | | | | | | |
| (112 days) | | (84 days) | | (84 days) | | (84 days) |
| (In thousands except per share data) |
| | | | | | | | | | | | | | | |
Sales | $ | 96,019 | | | $ | 74,124 | | | $ | 70,549 | | | $ | 68,125 | |
Gross profit | | 43,022 | | | | 34,659 | | | | 31,863 | | | | 30,643 | |
Income (loss) from continuing operations | | 3,315 | | | | 2,514 | | | | (1,897 | ) | | | (2,028 | ) |
Discontinued operations | | (627 | ) | | | (2,133 | ) | | | (3,145 | ) | | | (2,438 | ) |
Net income (loss) | | 2,688 | | | | 381 | | | | (5,042 | ) | | | (4,466 | ) |
Net income (loss) per share: | | | | | | | | | | | | | | | |
Basic and assuming dilution | | 0.12 | | | | 0.02 | | | | (0.22 | ) | | | (0.20 | ) |
| |
| Quarter Ended |
| | | | | | | |
| August 27, | | May 7, | | February 12, | | November 20, |
| 2003 | | | 2003 | | 2003 | | 2002 |
| | | | | | | |
| (112 days) | | (84 days) | | (84 days) | | (84 days) |
| (In thousands except per share data) |
| | | | | | | | | | | | | | | |
Sales | $ | 92,517 | | | $ | 70,871 | | | $ | 70,352 | | | $ | 70,219 | |
Gross profit | | 42,081 | | | | 31,614 | | | | 30,520 | | | | 29,678 | |
Income (loss) from continuing operations | | 1,499 | | | | (2,080 | ) | | | (587 | ) | | | 320 | |
Discontinued operations | | (3,096 | ) | | | (22,910 | ) | | | (2,818 | ) | | | (3,422 | ) |
Net income (loss) | | (1,597 | ) | | | (24,990 | ) | | | (3,405 | ) | | | (3,102 | ) |
Net income (loss) per share: | | | | | | | | | | | | | | | |
Basic and assuming dilution | | (0.07 | ) | | | (1.11 | ) | | | (0.15 | ) | | | (0.14 | ) |
Amounts indicated may not foot due to quarterly rounding.
Eachreclassifications and restatements.
| | Quarter Ended (a) | |
| | August 31, 2005 (b) | | May 4, 2005 | | February 9, 2005 | | November 17, 2004 | |
| | (119 days) | | (84 days) | | (84 days) | | (84 days) | |
| | (In thousands except per share data) | |
| | | |
| Sales | | $ | 105,423 | | $ | 76,241 | | $ | 71,904 | | $ | 68,583 | |
Gross profit (c) | | | 40,754 | | | 29,228 | | | 26,591 | | | 23,817 | |
| Income (loss) from continuing operations | | | 188 | | | 6,060 | | | 2,733 | | | (407 | ) |
| Discontinued operations | | | (2,048 | ) | | (2,356 | ) | | (106 | ) | | (616 | ) |
| Net (loss) income | | | (1,860 | ) | | 3,704 | | | 2,627 | | | (1,023 | ) |
| Net (loss) income per share: | | | | | | | | | | | | | |
| Basic | | | (0.08 | ) | | 0.16 | | | 0.12 | | | (0.05 | ) |
| Assuming dilution | | | (0.08 | ) | | 0.15 | | | 0.11 | | | (0.05 | ) |
| | | Quarter Ended (a) | |
| | | August 25, 2004 (As adjusted) | | May 5, 2004 (As adjusted) | | February 11, 2004 (As adjusted) | | November 19, 2003 (As adjusted) | |
| | | (112 days) | | (84 days) | | (84 days) | | (84 days) | |
| | | (In thousands except per share data) | |
| | | | | | | | | | |
| Sales | | $ | 92,646 | | $ | 71,572 | | $ | 67,996 | | $ | 65,635 | |
Gross profit (c) | | | 31,921 | | | 26,427 | | | 23,767 | | | 22,850 | |
| Income (loss) from continuing operations | | | 6,394 | | | 2,680 | | | (1,498 | ) | | (1,887 | ) |
| Discontinued operations | | | (529 | ) | | (2,305 | ) | | (3,531 | ) | | (2,446 | ) |
| Net income (loss) | | | 5,865 | | | 375 | | | (5,029 | ) | | (4,333 | ) |
| Net income (loss) per share: | | | | | | | | | | | | | |
| Basic | | | 0.26 | | | 0.02 | | | (0.22 | ) | | (0.19 | ) |
| Assuming dilution | | | 0.25 | | | 0.02 | | | (0.22 | ) | | (0.19 | ) |
(a) | The quarter ended August 31, 2005, consists of four four-week periods and one five-week period and the quarter ended August 25, 2004, consist of four four-week periods. All other quarters presented represent three four-week periods. |
(b) | Results include a writeoff of $7.9 million associated with the conversion of the Company’s convertible subordinated debt (see Note 8. “Debt”). |
(c) | Represents “Sales” less “Cost of Food” and “Payroll and Related Costs”, as classified in the Consolidated Statement of Operation for each period presented. |
| Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
Evaluation of Disclosure Control and Procedures
The Company’s management, under the supervision and with the participation of the
quarters ended August 25, 2004,Company’s Chief Executive Officer and
August 27, 2003, consist of four four-week periods. All other quarters presented represent three four-week periods. Results forChief Financial Officer, has evaluated the
quarter ended August 25, 2004, include an accrual for the increase in estimated workers' compensation costs ($1.0 million) and nonrecurring expenses related to voluntary severance costs ($860,000). Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
In fiscal 2003, the Company established an internal Disclosure Committee. The President and CEO, as well as the CFO, with the assistanceeffectiveness of the committee, maintainCompany’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of August 31, 2005. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, are designed to ensure thatas of August 31, 2005, the Company’s disclosure controls and procedures were effective in recording, processing, summarizing and reporting information required to be disclosed by the Company in the Company'sreports that it files or submits under the Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC'sSEC’s rules and forms. This collective group accumulatesFor Management’s Report on Internal Control over Financial Report see Item 8. Financial Statements and reviews this information, as appropriate, to allow timely decisions regarding required disclosure, applying its judgmentSupplementary Data - Report of Management.
Changes in assessing the costs and benefits of such controls and procedures which, by their nature, can provide only reasonable assurance regarding management's control objectives. Management has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. The Company's President and CEO and the CFO participated and provided input into this process. Based upon the foregoing, these senior officers concluded that as of August 25, 2004, the Company's disclosure controls and proceduresInternal Control over Financial Reporting
There were
effective in timely alerting them to material information relating to the Company required to be disclosed.There have been no significant changes in the Company's internal controlscontrol over financial reporting during the quarter ended August 31, 2005 that have materially affected, or in other factors which could significantlyare reasonably likely to materially affect, the Company's internal controls subsequent to the date the President and CEO and the CFO carried out their evaluation.
control over financial reporting.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
| Directors and Executive Officers of the Registrant |
There is incorporated in this Item 10 by reference that portion of the Company's definitive proxy statement for the
20052006 annual meeting of shareholders appearing therein under the captions
"Election“Election of Directors,
" "Information” “Information Concerning Meetings, Committees of the Board, and Compensation of Directors - Finance and Audit Committee,
" "Section” ”Section 16(a) Beneficial Ownership Reporting Compliance,
"” and
"Corporate“Corporate Governance.
"” Information regarding executive officers of the Company is set forth in Item 4A of Part I of this Report.
The Company has in place a Policy Guide on Standards of Conduct and Ethics applicable to all employees, as well as the board of directors, and Supplemental Standards of Conduct and Ethics for the CEO, CFO, Controller, and all senior financial officers. This Policy Guide and the Supplemental Standards were filed as exhibits to the Annual Report on Form 10-K for the fiscal year ended August 27, 2003. The Company intends to satisfy the disclosure requirement under Item
105.05 of Form 8-K regarding amendments to or waivers from the code of ethics or supplementary code of ethics by posting such information on the Company's website at www.lubys.com.
Item 11. Executive Compensation
There is incorporated in this Item 11 by reference that portion of the Company's definitive proxy statement for the
20052006 annual meeting of shareholders appearing therein under the captions
"Compensation“Compensation of Directors,
" "Executive” “Executive Compensation Committee Report,
" "Executive” “Executive Compensation,
" "Deferred” “Deferred Compensation,
" and "Certain” and”“Certain Relationships and Related Transactions.
" Item 12. Security Ownership of Certain Beneficial Owners and Management and”
Related Stockholder Matters | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
There is incorporated in this Item 12 by reference that portion of the Company's definitive proxy statement for the 2005 annual meeting of shareholders appearing therein under the captions
"Ownership“Ownership of Equity Securities in the
Company"Company” and
"Principal“Principal Shareholders.
" ”
Securities authorized under equity compensation plans as of August
25, 2004,31, 2005, were as follows:
| | | (a) | | (b) | | (c) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Plan Category
| |
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
| |
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights
| |
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
|
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
Equity compensation
plans approved by
security holders | | | 1,154,029 | | |
$
| 11.69 | | | 1,315,202 | | |
| | | | | | | | | | | | | |
Equity compensation
plans not approved
by security holders | | | 2,300,477 | | | | 5.07 | | | - | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total | | | 3,454,506 | | | $ | 7.28 | | | 1,315,202 | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | (a) | | (b) | | (c) | |
| | | | | | | | |
| Plan Category | | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans Excluding Securities Reflected in Column (a)) | |
| | | | | | | | |
| Equity compensation plans previously approved by security holders | | | 481,382 | | $ | 8.62 | | | 1,907,250 | |
| Equity compensation plans not previously approved by security holders | | | 2,269,625 | | | 5.02 | | | - | |
| | | | | | | | | | | |
| Total | | | 2,751,007 | | $ | 5.65 | | | 1,907,250 | |
Item 13. | Certain Relationships and Related Transactions |
There is incorporated in this Item 13 by reference that portion of the Company's definitive proxy statement for the
20052006 annual meeting of shareholders appearing therein under the caption
"Certain“Certain Relationships and Related Transactions.
" Item 14. Principal Accountant Fees and Services
”
| Principal Accountant Fees and Services |
There is incorporated in this Item 14 by reference that portion of the Company's definitive proxy statement for the
20052006 annual meeting of shareholders appearing therein under the caption
"Principal“Principal Accountant Fees and Services.
"”
PART IV
Item 15. Exhibits and Financial Statement Schedules
1. Financial Statements
The following financial statements are filed as part of this Report:
Consolidated balance sheets at August 25, 2004, and August 27, 2003
Consolidated statements of operations for each of the three years in the period ended August 25, 2004
Consolidated statements of shareholders' equity for each of the three years in the period ended August 25, 2004
Consolidated statements of cash flows for each of the three years in the period ended August 25, 2004
Notes to consolidated financial statements
Report of Independent Registered Public Accounting Firm
2. Financial Statement Schedules
All schedules are omitted since the required information is not present or is not present in amounts sufficient to
require submission of the schedule or because the information required is included in the financial statements
and notes thereto. 3. Exhibits
The following exhibits are filed as a part of this Report:
| Exhibits and Financial Statement Schedules |
| The following financial statements are filed as part of this Report: |
| Consolidated balance sheets at August 31, 2005, and August 25, 2004 |
| Consolidated statements of operations for each of the three years in the period ended August 31, 2005 |
| Consolidated statements of shareholders' equity for each of the three years in the period ended August 31, 2005 |
| Consolidated statements of cash flows for each of the three years in the period ended August 31, 2005 |
| Notes to consolidated financial statements |
| Attestation Reports of Independent Registered Public Accounting Firm |
2. | Financial Statement Schedules |
| All schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto. |
| The following exhibits are filed as a part of this Report: |
| 3(a) | | Certificate of Incorporation of Luby's, Inc. as currently in effect (filed as Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference). |
| | | |
3(b) | | Bylaws of Luby's, Inc. as currently in effect (filed as Exhibit 3(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference). |
| | | |
4(a) | | Description of Common Stock Purchase Rights of Luby's Cafeterias, Inc., in Form 8-A (filed April 17, 1991, effective April 26, 1991, File No. 1-8308, and incorporated herein by reference). |
| | | |
4(b) | | Amendment No. 1 dated December 19, 1991, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1991, and incorporated herein by reference). |
| | | |
4(c) | | Amendment No. 2 dated February 7, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference). |
| | | |
4(d) | | Amendment No. 3 dated May 29, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995, and incorporated herein by reference). |
| | | |
4(e) | | Amendment No. 4 dated March 8, 2001, to Rights Agreement dated April 16, 1991 (filed as Exhibit 99.1 to the Company's Report on Form 8-A12B/A on March 22, 2001, and incorporated herein by reference). |
| 4(f) | | Credit Agreement dated August 31, 2005, among Luby's, Inc., the lenders party thereto, Wells Fargo Bank, National Association and Amegy Bank, National Association, as Documentation Agents, and JPMorgan Chase Bank, National Association, as Administrative Agent. |
| | | |
4(f)
10(a) | | Credit Agreement dated February 27, 1996, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference).
|
| | |
4(g)
| | First Amendment to Credit Agreement dated January 24, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).
|
| | |
4(h)
| | Second Amendment to Credit Agreement dated July 3, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(i) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference).
|
| | |
4(i)
| | Third Amendment to Credit Agreement dated October 27, 2000, among Luby's, Inc., Certain Lenders, and Bank of America, N.A. (filed as Exhibit 4(j) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2000, and incorporated herein by reference).
|
| | |
4(j)
| | Fourth Amendment to Credit Agreement dated July 9, 2001, among Luby's, Inc., Bank of America, N.A., and other creditors of its bank group (filed as Exhibit 4(l) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).
|
| | |
4(k)
| | Deed of Trust, Assignment, Security Agreement, and Financing Statement dated July 2001, executed as part of the Fourth Amendment to Credit Agreement (filed as Exhibit 4(m) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).
|
| | |
4(l)
| | Subordination and Intercreditor Agreement dated June 29, 2001, between Harris J. Pappas and Christopher J. Pappas, Bank of America, N.A. [as the bank group agent], and Luby's, Inc. (filed as Exhibit 4(n) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).
|
| | |
4(m)
| | Convertible Subordinated Promissory Note dated June 29, 2001, between Christopher J. Pappas and Luby's, Inc. in the amount of $1,500,000 (filed as Exhibit 4(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).
|
| | |
4(n)
| | Convertible Subordinated Promissory Note dated June 29, 2001, between Harris J. Pappas and Luby's, Inc. in the amount of $1,500,000 (filed as Exhibit 4(p) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).
|
| | |
4(o)
| | Convertible Subordinated Promissory Note dated June 29, 2001, between Christopher J. Pappas and Luby's, Inc. in the amount of $3,500,000 (filed as Exhibit 4(q) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).
|
| | |
4(p)
| | Convertible Subordinated Promissory Note dated June 29, 2001, between Harris J. Pappas and Luby's, Inc. in the amount of $3,500,000 (filed as Exhibit 4(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).
|
| | |
4(q)
| | Fifth Amendment to Credit Agreement dated December 5, 2001, among Luby's, Inc., Bank of America, N.A., and other creditors of its bank group (filed as Exhibit 4(s) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, and incorporated herein by reference).
|
| | |
4(r)
| | Sixth Amendment to Credit Agreement dated November 25, 2002, among Luby's, Inc., Bank of America, N.A., and other creditors of its bank group (filed as Exhibit 4(t) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference).
|
| | |
4(s)
| | Amended and Restated Convertible Subordinated Promissory Note Due 2011 dated June 7, 2004, between Christopher J. Pappas and Luby's, Inc. (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference).
|
4(t)
| | Amended and Restated Convertible Subordinated Promissory Note Due 2011 dated June 7, 2004, between Harris J. Pappas and Luby's, Inc. (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference).
|
| | |
4(u)
| | Credit Agreement dated June 7, 2004, among Luby's, Inc., JPMorgan Chase Bank, and certain lenders (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference).
|
| | |
4(v)
| | Term Loan Agreement dated June 7, 2004, among Luby's, Inc., Guggenheim Corporate Funding, LLC, and certain lenders (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference).
|
| | |
4(w)
| | Subordination and Intercreditor Agreement dated June 7, 2004, among Luby's, Inc., JPMorgan Chase Bank, Harris J. Pappas, and Christopher J. Pappas (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference).
|
| | |
4(x)
| | Intercreditor Agreement dated June 7, 2004, among Luby's, Inc., JPMorgan Chase Bank, and Guggenheim Corporate Funding, LLC (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference).
|
| | |
4(y)
| | Amendment No. 5 to Rights Agreement effective February 27, 2004, between Luby's, and American Stock Transfer & Trust, as Rights Agent
|
| | |
10(a)
| | Management Incentive Stock Plan of Luby's Cafeterias, Inc. (filed as Exhibit 10(i) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1989, and incorporated herein by reference).* |
| | | |
10(b) | | Amendment to Management Incentive Stock Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(k) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* |
| | | |
10(c) | | Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted October 27, 1994 (filed as Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1994, and incorporated herein by reference).* |
| | | |
10(d) | | Amendment to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(m) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* |
| | | |
10(e) | | Amendment to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted March 19, 1998 (filed as Exhibit 10(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* |
| | | |
10(f) | | Amended and Restated Nonemployee Director Stock Option Plan of Luby's, Inc. approved by the shareholders of Luby's, Inc. on January 14, 2000 (filed as Exhibit 10(j) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 2000, and incorporated herein by reference).* |
| | | |
10(g) | | Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan dated May 30, 1996 (filed as Exhibit 10(j) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference).* |
| | | |
10(h) | | Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 14, 1997 (filed as Exhibit 10(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* |
| | | |
| 10(i) | | |
| | |
10(i)
| | Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 9, 1998 (filed as Exhibit 10(u) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* |
| | | |
10(j) | | Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted May 21, 1999 (filed as Exhibit 10(q) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference.)* |
| | | |
10(k) | | Luby's Incentive Stock Plan adopted October 16, 1998 (filed as Exhibit 10(cc) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1998, and incorporated herein by reference).* |
| | | |
10(l) | | Registration Rights Agreement dated March 9, 2001, by and among Luby's, Inc., Christopher J. Pappas, and Harris J. Pappas (filed as Exhibit 10.4 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference). |
| | | |
10(m) | | Purchase Agreement dated March 9, 2001, by and among Luby's, Inc. Harris J. Pappas, and Christopher J. Pappas (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference). |
| | | |
10(n) | | Employment Agreement dated March 9, 2001, between Luby's, Inc. and Christopher J. Pappas (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference).*
|
| | |
10(o)
| | Employment Agreement dated March 9, 2001, between Luby's, Inc. and Harris J. Pappas (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference).*
|
| | |
10(p)
| | Luby's, Inc. Stock Option granted to Christopher J. Pappas on March 9, 2001 (filed as Exhibit 10(w) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).* |
| 10(o) | | |
10(q)
| | Luby's, Inc. Stock Option granted to Harris J. Pappas on March 9, 2001 (filed as Exhibit 10(x) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).* |
| | | |
10(r)
10(p) | | Affiliate Services Agreement dated August 31, 2001, by and among Luby's, Inc., Christopher J. Pappas, Harris J. Pappas, Pappas Restaurants, L.P., and Pappas Restaurants, Inc. (filed as Exhibit 10(y) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, refiled as Exhibit 10(y) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 13, 2002, to include signature reference and an exhibit that were inadvertently omitted, and incorporated herein by reference). |
| | | |
10(s)
10(q) | | Lease Agreement dated June 1, 2001, by and between Luby's, Inc. and Pappas Restaurants, Inc. (filed as Exhibit 10(aa) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, and incorporated herein by reference). |
| | | |
10(t)
10(r) | | Luby's, Inc. Amended and Restated Nonemployee Director Phantom Stock Plan effective September 28, 2001 (filed as Exhibit 10(dd) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 13, 2002, and incorporated herein by reference).* |
| | | |
10(u)
10(s) | | Final Severance Agreement and Release between Luby's, Inc. and S. Darrell Wood effective July 28, 2002 (filed as Exhibit 10(ee) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference).*
|
| | |
10(v)
| | Consultant Agreement dated August 30, 2002, between Luby's Restaurants Limited Partnership and S. Darrell Wood (filed as Exhibit 10(ff) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference).*
|
10(w)
| | Form of Indemnification Agreement entered into between Luby's, Inc. and each member of its Board of Directors initially dated July 23, 2002 (filed as Exhibit 10(gg) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference). |
| | | |
10(x)
10(t) | | Amended and Restated Affiliate Services Agreement dated July 23, 2002, by and among Luby's, Inc., Pappas Restaurants, L.P., and Pappas Restaurants, Inc. (filed as Exhibit 10(hh) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference). |
| | | |
10(y)
10(u) | | Master Sales Agreement dated July 23, 2002, by and among Luby's, Inc., Pappas Restaurants, L.P., and Pappas Restaurants, Inc. and Procedure adopted by the Finance and Audit Committee of the Board of Directors on July 23, 2002, pursuant to Section 2.3 of the Master Sales Agreement (filed as Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference). |
| | | |
10(z)
10(v) | | Lease Agreement dated October 15, 2002, by and between Luby's, Inc. and Rush Truck Centers of Texas, L.P. and Amendment dated August 1, 2003, by and between Luby's, Inc. and Pappas Restaurants, Inc. (filed as Exhibit 10(gg) to the Company's Annual Report on Form 10-K/A for the fiscal year ended August 27, 2003, and incorporated herein by reference). |
| | | |
10(aa)
10(w) | | Agreement dated June 7, 2004, by and among Luby's, Inc., Christopher J. Pappas, and Harris J. Pappas (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference). |
| | | |
10(bb)
10(x) | | First Amendment to Purchase Agreement dated June 7, 2004, by and among Luby's, Inc., Harris J. Pappas, and Christopher J. Pappas (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference). |
| | | |
10(cc)
10(y) | | Employment Agreement dated June 7, 2004,November 9, 2005, between Luby's, Inc. and Christopher J. Pappas (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference).* Pappas. |
| | | |
10(dd)
10(z) | | Employment Agreement dated June 7, 2004,November 9, 2005, between Luby's, Inc. and Harris J. Pappas (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference).* Pappas. |
| | | |
14(a)
11 | | Statement regarding computation of Per Share Earnings. ** |
| | |
| 14(a) | | Policy Guide on Standards of Conduct and Ethics applicable to all employees, as well as the board of directors (filed as Exhibit 14(a) to the Company's Annual Report on Form 10-K for the fiscal year ended August 27, 2003, and incorporated herein by reference). |
| 14(b) | | |
14(b)
| | Supplemental Standards of Conduct and Ethics for the CEO, CFO, Controller, and all senior financial officers (filed as Exhibit 14(b) to the Company's Annual Report on Form 10-K for the fiscal year ended August 27, 2003, and incorporated herein by reference). |
| | | |
23
21 | | ConsentSubsidiaries of Ernst & Young LLP.
registrant. |
| | | |
31
23 | | Certifications byConsent of Ernst & Young LLP.
|
| | |
| 31.1 | | Rule 13a-14(a)/15d-14(a) certification of the ChiefPrincipal Executive Officer and Chiefpursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 31.2 | | Rule 13a-14(a)/15d-14(a) certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
32
32.1 | | Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adoptedcertification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
| | | |
99(a)
32.2 | | Section 1350 certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
| 99(a) | | Corporate Governance Guidelines of Luby's, Inc., as amended March 5, 2003 (filed as Exhibit 99(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 13, 2003, and incorporated herein by reference). |
| * | Denotes management contract or compensatory plan or arrangement. |
| ** | | |
| | Information required to be presented in Exhibit 11 is provided in note 8 to the consolidated financial statements under Part II, Item 8 of this Form 10-K in accordance with the provisions of FASB Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share. |
* Denotes management contract or compensatory plan or arrangement.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
November 5, 2004 11, 2005 | | LUBY'S, INC. |
| | |
Date | | (Registrant) |
By:/s/Christopher J. Pappas
| By: |
/s/Christopher J. Pappas
| |
| Christopher J. Pappas | |
| President and Chief Executive Officer | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | |
| | |
/s/GASPER MIR, III | | Gasper Mir, III, Director and Chairman of the Board |
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November 5, 2004 11, 2005 | | |
| | |
/s/CHRISTOPHER J. PAPPAS | | Christopher J. Pappas, Director, President and Chief Executive Officer |
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November 5, 2004 11, 2005 | | |
| | |
/s/HARRIS J. PAPPAS | | Harris J. Pappas, Director, and Chief Operating Officer |
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November 5, 2004 11, 2005 | | |
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/s/ERNEST PEKMEZARIS | | Ernest Pekmezaris, Senior Vice President and Chief Financial Officer |
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November 5, 2004 11, 2005 | | |
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/s/JUDITH B. CRAVEN
| | Judith B. Craven, Director
|
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November 5, 2004
| | |
| | |
/s/ARTHUR R. EMERSON JUDITH B. CRAVEN | | Arthur R. Emerson,Judith B. Craven, Director
|
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November 5, 2004 11, 2005 | | |
| | |
/s/JILL GRIFFIN
| | Jill Griffin, Director
|
| | |
November 5, 2004
| | |
| | |
/s/ROGERARTHUR R. HEMMINGHAUS EMERSON | | RogerArthur R. Hemminghaus,Emerson, Director
|
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November 5, 2004 11, 2005 | | |
| | |
/s/J.S.B. JENKINS
| | J.S.B. Jenkins, Director
|
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November 5, 2004
| | |
| | |
/s/FRANK MARKANTONIS JILL GRIFFIN | | Frank Markantonis,Jill Griffin, Director
|
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November 5, 2004 11, 2005 | | |
| | |
/s/JOE C. MC KINNEY
| | Joe C. McKinney, Director
|
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November 5, 2004
| | |
| | |
/s/JOANNE WINIK J.S.B. JENKINS | | Joanne Winik,J.S.B. Jenkins, Director
|
| | |
November 5, 2004 11, 2005 | | |
| | |
/s/FRANK MARKANTONIS | | Frank Markantonis, Director |
| November 11, 2005 | | |
| | |
| /s/JOE C. MC KINNEY | | Joe C. McKinney, Director |
| November 11, 2005 | | |
| | |
| /s/JIM W. WOLIVER | | Jim W. Woliver, Director |
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November 5, 2004 11, 2005 | | |
3(a) | | Certificate of Incorporation of Luby's, Inc. as currently in effect (filed as Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference). |
| | | |
3(b) | | Bylaws of Luby's, Inc. as currently in effect (filed as Exhibit 3(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference). |
| | | |
4(a) | | Description of Common Stock Purchase Rights of Luby's Cafeterias, Inc., in Form 8-A (filed April 17, 1991, effective April 26, 1991, File No. 1-8308, and incorporated herein by reference). |
| | | |
4(b) | | Amendment No. 1 dated December 19, 1991, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1991, and incorporated herein by reference). |
| | | |
4(c) | | Amendment No. 2 dated February 7, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference). |
| | | |
4(d) | | Amendment No. 3 dated May 29, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995, and incorporated herein by reference). |
| | | |
4(e) | | Amendment No. 4 dated March 8, 2001, to Rights Agreement dated April 16, 1991 (filed as Exhibit 99.1 to the Company's Report on Form 8-A12B/A on March 22, 2001, and incorporated herein by reference). |
| | | |
4(f) | | Credit Agreement, dated February 27, 1996,August 31, 2005, among Luby's Cafeterias,Luby’s, Inc., Certain Lenders,the lenders party thereto, Wells Fargo Bank, National Association and NationsBank of Texas, N.A. (filedAmegy Bank, National Association, as Exhibit 4(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996,Documentation Agents, and incorporated herein by reference). JPMorgan Chase Bank, National Association, as Administrative Agent. |
| | | |
4(g)
10(a) | | First Amendment to Credit Agreement dated January 24, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).
|
| | |
4(h)
| | Second Amendment to Credit Agreement dated July 3, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(i) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference).
|
| | |
4(i)
| | Third Amendment to Credit Agreement dated October 27, 2000, among Luby's, Inc., Certain Lenders, and Bank of America, N.A. (filed as Exhibit 4(j) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2000, and incorporated herein by reference).
|
| | |
4(j)
| | Fourth Amendment to Credit Agreement dated July 9, 2001, among Luby's, Inc., Bank of America, N.A., and other creditors of its bank group (filed as Exhibit 4(l) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).
|
| | |
4(k)
| | Deed of Trust, Assignment, Security Agreement, and Financing Statement dated July 2001, executed as part of the Fourth Amendment to Credit Agreement (filed as Exhibit 4(m) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).
|
| | |
4(l)
| | Subordination and Intercreditor Agreement dated June 29, 2001, between Harris J. Pappas and Christopher J. Pappas, Bank of America, N.A. [as the bank group agent], and Luby's, Inc. (filed as Exhibit 4(n) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).
|
| | |
| | |
4(m)
| | Convertible Subordinated Promissory Note dated June 29, 2001, between Christopher J. Pappas and Luby's, Inc. in the amount of $1,500,000 (filed as Exhibit 4(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).
|
| | |
4(n)
| | Convertible Subordinated Promissory Note dated June 29, 2001, between Harris J. Pappas and Luby's, Inc. in the amount of $1,500,000 (filed as Exhibit 4(p) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).
|
| | |
4(o)
| | Convertible Subordinated Promissory Note dated June 29, 2001, between Christopher J. Pappas and Luby's, Inc. in the amount of $3,500,000 (filed as Exhibit 4(q) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).
|
| | |
4(p)
| | Convertible Subordinated Promissory Note dated June 29, 2001, between Harris J. Pappas and Luby's, Inc. in the amount of $3,500,000 (filed as Exhibit 4(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).
|
| | |
4(q)
| | Fifth Amendment to Credit Agreement dated December 5, 2001, among Luby's, Inc., Bank of America, N.A., and other creditors of its bank group (filed as Exhibit 4(s) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, and incorporated herein by reference).
|
| | |
4(r)
| | Sixth Amendment to Credit Agreement dated November 25, 2002, among Luby's, Inc., Bank of America, N.A., and other creditors of its bank group (filed as Exhibit 4(t) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference).
|
| | |
4(s)
| | Amended and Restated Convertible Subordinated Promissory Note Due 2011 dated June 7, 2004, between Christopher J. Pappas and Luby's, Inc. (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference).
|
| | |
4(t)
| | Amended and Restated Convertible Subordinated Promissory Note Due 2011 dated June 7, 2004, between Harris J. Pappas and Luby's, Inc. (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference).
|
| | |
4(u)
| | Credit Agreement dated June 7, 2004, among Luby's, Inc., JPMorgan Chase Bank, and certain lenders (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference).
|
| | |
4(v)
| | Term Loan Agreement dated June 7, 2004, among Luby's, Inc., Guggenheim Corporate Funding, LLC, and certain lenders (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference).
|
| | |
4(w)
| | Subordination and Intercreditor Agreement dated June 7, 2004, among Luby's, Inc., JPMorgan Chase Bank, Harris J. Pappas, and Christopher J. Pappas (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference).
|
| | |
4(x)
| | Intercreditor Agreement dated June 7, 2004, among Luby's, Inc., JPMorgan Chase Bank, and Guggenheim Corporate Funding, LLC (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference).
|
| | |
4(y)
| | Amendment No. 5 to Rights Agreement effective February 27, 2004, between Luby's, and American Stock Transfer & Trust, as Rights Agent
|
| | |
10(a)
| | Management Incentive Stock Plan of Luby's Cafeterias, Inc. (filed as Exhibit 10(i) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1989, and incorporated herein by reference).* |
| | | |
| 10(b) | | |
| | |
10(b)
| | Amendment to Management Incentive Stock Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(k) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* |
| | | |
10(c)
| | |
| 10(c) | | Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted October 27, 1994 (filed as Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1994, and incorporated herein by reference).* |
| | | |
10(d) | | Amendment to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(m) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* |
| | | |
10(e) | | Amendment to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted March 19, 1998 (filed as Exhibit 10(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* |
| | | |
10(f) | | Amended and Restated Nonemployee Director Stock Option Plan of Luby's, Inc. approved by the shareholders of Luby's, Inc. on January 14, 2000 (filed as Exhibit 10(j) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 2000, and incorporated herein by reference).* |
| | | |
10(g) | | Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan dated May 30, 1996 (filed as Exhibit 10(j) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference).* |
| 10(h) | | |
10(h)
| | Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 14, 1997 (filed as Exhibit 10(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* |
| | | |
10(i) | | Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 9, 1998 (filed as Exhibit 10(u) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* |
| | | |
10(j) | | Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted May 21, 1999 (filed as Exhibit 10(q) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference.)* |
| | | |
10(k) | | Luby's Incentive Stock Plan adopted October 16, 1998 (filed as Exhibit 10(cc) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1998, and incorporated herein by reference).* |
| | | |
10(l) | | Registration Rights Agreement dated March 9, 2001, by and among Luby's, Inc., Christopher J. Pappas, and Harris J. Pappas (filed as Exhibit 10.4 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference). |
| | | |
10(m) | | Purchase Agreement dated March 9, 2001, by and among Luby's, Inc. Harris J. Pappas, and Christopher J. Pappas (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference). |
| | | |
10(n) | | Employment Agreement dated March 9, 2001, between Luby's, Inc. and Christopher J. Pappas (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference).*
|
| | |
10(o)
| | Employment Agreement dated March 9, 2001, between Luby's, Inc. and Harris J. Pappas (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference).*
|
| | |
| | |
10(p)
| | Luby's, Inc. Stock Option granted to Christopher J. Pappas on March 9, 2001 (filed as Exhibit 10(w) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).* |
| | | |
10(q)
| | |
| 10(o) | | Luby's, Inc. Stock Option granted to Harris J. Pappas on March 9, 2001 (filed as Exhibit 10(x) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).* |
| | | |
10(r)
10(p) | | Affiliate Services Agreement dated August 31, 2001, by and among Luby's, Inc., Christopher J. Pappas, Harris J. Pappas, Pappas Restaurants, L.P., and Pappas Restaurants, Inc. (filed as Exhibit 10(y) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, refiled as Exhibit 10(y) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 13, 2002, to include signature reference and an exhibit that were inadvertently omitted, and incorporated herein by reference). |
| | | |
10(s)
10(q) | | Lease Agreement dated June 1, 2001, by and between Luby's, Inc. and Pappas Restaurants, Inc. (filed as Exhibit 10(aa) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, and incorporated herein by reference). |
| | | |
10(t)
10(r) | | Luby's, Inc. Amended and Restated Nonemployee Director Phantom Stock Plan effective September 28, 2001 (filed as Exhibit 10(dd) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 13, 2002, and incorporated herein by reference).* |
| | | |
10(u)
10(s) | | Final Severance Agreement and Release between Luby's, Inc. and S. Darrell Wood effective July 28, 2002 (filed as Exhibit 10(ee) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference).*
|
| | |
10(v)
| | Consultant Agreement dated August 30, 2002, between Luby's Restaurants Limited Partnership and S. Darrell Wood (filed as Exhibit 10(ff) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference).*
|
| | |
10(w)
| | Form of Indemnification Agreement entered into between Luby's, Inc. and each member of its Board of Directors initially dated July 23, 2002 (filed as Exhibit 10(gg) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference). |
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10(x)
10(t) | | Amended and Restated Affiliate Services Agreement dated July 23, 2002, by and among Luby's, Inc., Pappas Restaurants, L.P., and Pappas Restaurants, Inc. (filed as Exhibit 10(hh) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference). |
| 10(u) | | |
10(y)
| | Master Sales Agreement dated July 23, 2002, by and among Luby's, Inc., Pappas Restaurants, L.P., and Pappas Restaurants, Inc. and Procedure adopted by the Finance and Audit Committee of the Board of Directors on July 23, 2002, pursuant to Section 2.3 of the Master Sales Agreement (filed as Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference). |
| | | |
10(z)
10(v) | | Lease Agreement dated October 15, 2002, by and between Luby's, Inc. and Rush Truck Centers of Texas, L.P. and Amendment dated August 1, 2003, by and between Luby's, Inc. and Pappas Restaurants, Inc. (filed as Exhibit 10(gg) to the Company's Annual Report on Form 10-K/A for the fiscal year ended August 27, 2003, and incorporated herein by reference). |
| | | |
10(aa)
10(w) | | Agreement dated June 7, 2004, by and among Luby's, Inc., Christopher J. Pappas, and Harris J. Pappas (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference). |
| | | |
10(bb)
10(x) | | First Amendment to Purchase Agreement dated June 7, 2004, by and among Luby's, Inc., Harris J. Pappas, and Christopher J. Pappas (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference). |
10(cc)
| | Employment Agreement dated June 7, 2004, between Luby's, Inc. and Christopher J. Pappas (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference).*
|
| | | |
10(dd)
10(y) | | Employment Agreement dated June 7, 2004,November 9, 2005, between Luby's, Inc. and HarrisChristopher J. Pappas (filed as Exhibit 4(s) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 5, 2004, and incorporated herein by reference).* Pappas* |
| | | |
14(a)
10(z) | | Employment Agreement dated November 9, 2005, between Luby's, Inc. and Harris J. Pappas* |
| | |
| 11 | | Statement regarding computation of Per Share Earnings.** |
| | |
| 14(a) | | Policy Guide on Standards of Conduct and Ethics applicable to all employees, as well as the board of directors (filed as Exhibit 14(a) to the Company's Annual Report on Form 10-K for the fiscal year ended August 27, 2003, and incorporated herein by reference). |
| | | |
14(b) | | Supplemental Standards of Conduct and Ethics for the CEO, CFO, Controller, and all senior financial officers (filed as Exhibit 14(b) to the Company's Annual Report on Form 10-K for the fiscal year ended August 27, 2003, and incorporated herein by reference). |
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23
21 | | ConsentSubsidiaries of Ernst & Young LLP.
Registrant |
| | | |
31
23 | | Certifications byConsent of Ernst & Young LLP.
|
| | |
| 31.1 | | Rule 13a-14(a)/15d-14(a) certification of the ChiefPrincipal Executive Officer and Chiefpursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| 31.2 | | Rule 13a-14(a)/15d-14(a) certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
32
32.1 | | Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adoptedcertification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
| | | |
99(a)
32.2 | | Section 1350 certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
| 99(a) | | Corporate Governance Guidelines of Luby's, Inc., as amended March 5, 2003 (filed as Exhibit 99(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 13, 2003, and incorporated herein by reference). |
| * | Denotes management contract or compensatory plan or arrangement. |
| ** | | |
| | Information required to be presented in Exhibit 11 is provided in note 8 to the consolidated financial statements under Part II, Item 8 of this Form 10-K in accordance with the provisions of FASB Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share. |
* Denotes management contract or compensatory plan or arrangement.
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