UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM 10-Q
__________________________
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 13, 201911, 2020
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
Commission file number: 001-08308
__________________________
Luby's, Inc.
(Exact name of registrant as specified in its charter)
__________________________
Delaware74-1335253
(State or other jurisdiction of

incorporation or organization)
(IRS Employer

Identification No.)
13111 Northwest Freeway, Suite 600
Houston, Texas
77040
Houston,Texas
(Address of principal executive offices)(Zip Code)
 
(713) 329-6800
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange at which registered
Common Stock ($0.32 par value per share)LUBNew York Stock Exchange
Common Stock Purchase RightsN/ANew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x   No  ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act: 
Large accelerated filer¨Accelerated filerx¨
Non-accelerated filer¨xSmaller reporting companyx☒
Emerging growth company¨☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  x

As of April 17, 2019,May 27, 2020, there were 29,875,791 30,498,404 shares of the registrant’s common stock outstanding. 


1

Explanatory Note

As previously disclosed in the Current Report on Form 8-K filed by Luby’s, Inc. on April 20, 2020, Luby’s, Inc. delayed the filing of this Quarterly Report on Form 10-Q in reliance on the U.S. Securities and Exchange Commission’s order under Section 36 of the Securities Exchange Act of 1934, as amended, and certain rules thereunder (Release No. 34-88465) due to the outbreak of, and local, state and federal governmental responses to, the novel coronavirus pandemic (“COVID-19 pandemic”). Luby’s, Inc.’s operations have experienced disruptions due to the circumstances surrounding the COVID-19 pandemic including, but not limited to, suggested and mandated social distancing and stay home orders, a significant number of temporary store closings, and limited service in other stores. These mandates and orders and the resulting office closures and staff reductions have severely limited access to Luby’s Inc.’s facilities by its financial reporting and accounting staff and impacted its ability to fulfill required preparation and review processes and procedures. In light of the impact of the factors described above, Luby’s, Inc. was unable to compile and review certain information required in order to permit Luby’s, Inc. to timely file this Quarterly Report on Form 10-Q without unreasonable effort or expense.

Luby’s, Inc.
Form 10-Q
Quarter ended March 13, 201911, 2020
Table of Contents
 
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Additional Information
 
We file reports with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. The SEC maintains an Internet site at http://www.sec.gov that contains the reports, proxy and information statements, and other information that we file electronically. Our website address is http://www.lubysinc.com. Please note that our website address is provided as an inactive textual reference only. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The information provided on our website is not part of this report, and is therefore not incorporated by reference unless such information is specifically referenced elsewhere in this report. 

2




Part I—FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
Luby’s, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
 
March 13,
2019		 August 29,
2018		 March 11,
2020		August 28,
2019
 (Unaudited)    (Unaudited) 
ASSETS   ASSETS  
Current Assets:   Current Assets:  
Cash and cash equivalents$3,907
 $3,722
Cash and cash equivalents$7,080  $3,640  
Restricted cash and cash equivalents10,832
 —
Restricted cash and cash equivalents8,704  9,116  
Trade accounts and other receivables, net9,201
 8,787
Trade accounts and other receivables, net8,413  8,852  
Food and supply inventories4,067
 4,022
Food and supply inventories2,392  3,432  
Prepaid expenses2,688
 3,219
Prepaid expenses1,970  2,355  
Total current assets30,695
 19,750
Total current assets28,559  27,395  
Property held for sale14,940
 19,469
Property held for sale13,770  16,488  
Assets related to discontinued operations1,813
 1,813
Assets related to discontinued operations1,813  1,813  
Property and equipment, net130,921
 138,287
Property and equipment, net117,430  121,743  
Intangible assets, net17,286
 18,179
Intangible assets, net16,025  16,781  
Goodwill555
 555
Goodwill514  514  
Operating lease right-of-use assetsOperating lease right-of-use assets24,296  —  
Other assets1,372
 1,936
Other assets890  1,266  
Total assets$197,582
 $199,989
Total assets$203,297  $186,000  
LIABILITIES AND SHAREHOLDERS’ EQUITY   LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current Liabilities:   Current Liabilities:  
Accounts payable$9,192
 $10,457
Accounts payable$7,945  $8,465  
Liabilities related to discontinued operations4
 14
Liabilities related to discontinued operations5  14  
Current portion of credit facility debt—
 39,338
Current portion of credit facility debt2,567  —  
Operating lease liabilities-currentOperating lease liabilities-current5,916  —  
Accrued expenses and other liabilities25,030
 31,755
Accrued expenses and other liabilities24,015  24,475  
Total current liabilities34,226
 81,564
Total current liabilities40,448  32,954  
Credit facility debt, less current portion40,674
 —
Credit facility debt, less current portion48,268  45,439  
Liabilities related to discontinued operations16
 16
Operating lease liabilities-noncurrentOperating lease liabilities-noncurrent23,047  —  
Other liabilities7,583
 5,781
Other liabilities922  6,577  
Total liabilities82,499
 87,361
Total liabilities$112,685  $84,970  
Commitments and Contingencies
 
Commitments and Contingencies
SHAREHOLDERS’ EQUITY   SHAREHOLDERS’ EQUITY  
Common stock, $0.32 par value; 100,000,000 shares authorized; shares issued were 30,289,492 and 30,003,642; and shares outstanding were 29,789,492 and 29,503,642, at March 13, 2019 and August 29, 2018, respectively9,693
 9,602
Common stock, 0.32 par value; 100,000,000 shares authorized; shares issued were 30,751,629 and 30,478,972; and shares outstanding were 30,251,629 and 29,978,972 at March 11, 2020 and August 28, 2019, respectivelyCommon stock, 0.32 par value; 100,000,000 shares authorized; shares issued were 30,751,629 and 30,478,972; and shares outstanding were 30,251,629 and 29,978,972 at March 11, 2020 and August 28, 2019, respectively$9,841  $9,753  
Paid-in capital34,614
 33,872
Paid-in capital35,478  34,870  
Retained earnings75,551
 73,929
Retained earnings50,068  61,182  
Less cost of treasury stock, 500,000 shares(4,775) (4,775)Less cost of treasury stock, 500,000 shares(4,775) (4,775) 
Total shareholders’ equity115,083
 112,628
Total shareholders’ equity$90,612  $101,030  
Total liabilities and shareholders’ equity$197,582
 $199,989
Total liabilities and shareholders’ equity$203,297  $186,000  
  
The accompanying notes are an integral part of these Consolidated Financial Statements.

consolidated financial statements.

3

Luby’s, Inc.
Consolidated Statements of Operations (unaudited)
(In thousands, except per share data)
Quarter Ended Two Quarters Ended Quarter EndedTwo Quarters Ended
March 13,
2019		 March 14,
2018		 March 13,
2019		 March 14,
2018		 March 11,
2020		March 13,
2019		March 11,
2020		March 13,
2019
(12 weeks)
(12 weeks) (28 weeks) (28 weeks) (12 weeks)(12 weeks)(28 weeks)(28 weeks)
SALES:       SALES:  
Restaurant sales$65,369
 $74,352
 $156,468
 $178,934
Restaurant sales$60,391  $65,369  $143,949  $156,468  
Culinary contract services7,543
 5,889
 17,039
 12,774
Culinary contract services6,998  7,543  16,772  17,039  
Franchise revenue1,421
 1,401
 3,644
 3,288
Franchise revenue1,158  1,421  2,865  3,644  
Vending revenue90
 151
 190
 294
Vending revenue14  90  124  190  
TOTAL SALES74,423
 81,793
 177,341
 195,290
TOTAL SALES68,561  74,423  163,710  177,341  
COSTS AND EXPENSES:       COSTS AND EXPENSES:  
Cost of food18,144
 21,181
 43,226
 50,936
Cost of food17,399  18,145  41,341  43,226  
Payroll and related costs24,730
 28,512
 59,244
 66,640
Payroll and related costs23,782  24,730  55,915  59,244  
Other operating expenses11,412
 14,360
 27,914
 33,858
Other operating expenses10,065  11,412  24,860  27,914  
Occupancy costs4,166
 4,707
 10,041
 10,968
Occupancy costs3,783  4,166  8,773  10,041  
Opening costs11
 331
 44
 406
Opening costs2  11  14  44  
Cost of culinary contract services6,717
 5,677
 15,532
 12,009
Cost of culinary contract services6,400  6,717  15,348  15,532  
Cost of franchise operations247
 369
 519
 856
Cost of franchise operations409  247  974  519  
Depreciation and amortization3,222
 3,998
 8,126
 9,351
Depreciation and amortization2,677  3,222  6,440  8,126  
Selling, general and administrative expenses9,017
 9,188
 20,240
 20,712
Selling, general and administrative expenses6,816  7,753  16,974  17,763  
Other ChargesOther Charges1,509  1,263  2,748  2,477  
Provision for asset impairments and restaurant closings1,195
 1,407
 2,422
 2,252
Provision for asset impairments and restaurant closings661  1,195  1,770  2,422  
Net loss (gain) on disposition of property and equipment(12,651) (204) (12,501) 18
Net gain on disposition of property and equipmentNet gain on disposition of property and equipment(2,527) (12,651) (2,498) (12,501) 
Total costs and expenses66,210
 89,526
 174,807
 208,006
Total costs and expenses70,976  66,210  172,659  174,807  
INCOME (LOSS) FROM OPERATIONS8,213
 (7,733) 2,534
 (12,716)INCOME (LOSS) FROM OPERATIONS(2,415) 8,213  (8,949) 2,534  
Interest income19
 5
 19
 11
Interest income5  19  28  19  
Interest expense(1,554) (545) (3,269) (1,194)Interest expense(1,473) (1,554) (3,435) (3,269) 
Other income, net55
 194
 86
 309
Other income, net148  55  388  86  
Income (loss) before income taxes and discontinued operations6,733
 (8,079) (630) (13,590)Income (loss) before income taxes and discontinued operations(3,735) 6,733  (11,968) (630) 
Provision for income taxes93
 3,382
 213
 3,373
Provision for income taxes62  93  156  213  
Income (loss) from continuing operations6,640
 (11,461) (843) (16,963)Income (loss) from continuing operations(3,797) 6,640  (12,124) (843) 
Loss from discontinued operations, net of income taxes(8) (110) (13) (145)Loss from discontinued operations, net of income taxes(6) (8) (17) (13) 
NET INCOME (LOSS)$6,632
 $(11,571) $(856) $(17,108)NET INCOME (LOSS)(3,803) 6,632  (12,141) (856) 
Income (loss) per share from continuing operations:       Income (loss) per share from continuing operations:
Basic$0.22
 $(0.38) $(0.03) $(0.57)Basic$(0.13) $0.22  $(0.40) $(0.03) 
Assuming dilution$0.22
 $(0.38) $(0.03) $(0.57)Assuming dilution$(0.13) $0.22  $(0.40) $(0.03) 
Loss per share from discontinued operations:       Loss per share from discontinued operations:
Basic$(0.00) $(0.01) $(0.00) $(0.00)Basic$0.00  $0.00  $0.00  $0.00  
Assuming dilution$(0.00) $(0.01) $(0.00) $(0.00)Assuming dilution$0.00  $0.00  $0.00  $0.00  
Net income (loss) per share:       Net income (loss) per share:
Basic$0.22
 $(0.39) $(0.03) $(0.57)Basic$(0.13) $0.22  $(0.40) $(0.03) 
Assuming dilution$0.22
 $(0.39) $(0.03) $(0.57)Assuming dilution$(0.13) $0.22  $(0.40) $(0.03) 
Weighted average shares outstanding:       Weighted average shares outstanding:
Basic29,769
 29,950
 29,671
 29,802
Basic30,215  29,769  30,123  29,671  
Assuming dilution29,799
 29,950
 29,671
 29,802
Assuming dilution30,215  29,799  30,123  29,671  
 The accompanying notes are an integral part of these Consolidated Financial Statements.

consolidated financial statements.

4

Luby’s, Inc.
Consolidated Statement of Shareholders’ Equity (unaudited)
(In thousands)

Common Stock  Total
IssuedTreasuryPaid-InRetainedShareholders’
SharesAmountSharesAmountCapitalEarningsEquity
Balance at August 29, 201830,003  $9,602  (500) $(4,775) $33,872  $73,929  $112,628  
Cumulative effect of accounting changes from the adoption of ASC Topic 606—  —  —  —  —  2,479  2,479  
Net loss—  —  —  —  —  (7,489) (7,489) 
Share-based compensation expense42  13  —  —  426  —  439  
Common stock issued under employee benefit plans81  26  —  —  (26) —  —  
Common stock issued under nonemployee benefit plans38  12  —  —  (12) —  —  
Balance at December 19, 201830,164  $9,653  (500) $(4,775) $34,260  $68,919  $108,057  
Net income—  —  —  —  —  6,632  6,632  
Share-based compensation expense98  31  —  —  363  —  394  
Common stock issued under employee benefit plans12  4  —  —  (4) —  —  
Common stock issued under nonemployee benefit plans15  5  —  —  (5) —  —  
Balance at March 13, 201930,289  $9,693  (500) $(4,775) $34,614  $75,551  $115,083  


 Common Stock     Total
 Issued Treasury Paid-In Retained Shareholders’
 Shares
 Amount
 Shares Amount Capital Earnings Equity
Balance at August 30, 201729,624
 $9,480
 (500) $(4,775) $31,850
 107,497
 144,052
Net loss—
 —
 —
 —
 —
 (5,537) (5,537)
Share-based compensation expense30
 10
 —
 —
 857
 —
 867
Common stock issued under employee benefit plans163
 52
 —
 —
 (52) —
 —
Balance at December 20, 201729,817
 $9,542
 (500) $(4,775) $32,655
 $101,960
 $139,382
Net loss—
 —
 —
 —
 —
 (11,571) (11,571)
Share-based compensation expense27
 8
 —
 —
 377
 —
 385
Common stock issued under employee benefit plans20
 7
 —
 —
 (7) —
 —
Common stock issued under nonemployee benefit plans87
 28
 —
 —
 (28) —
 —
Balance at March 14, 201829,951
 $9,585
 (500) $(4,775) $32,997
 $90,389
 $128,196


Common Stock  Total
IssuedTreasuryPaid-InRetainedShareholders’
SharesAmountSharesAmountCapitalEarningsEquity
Balance at August 28, 2019Balance at August 28, 201930,478  $9,753  (500) $(4,775) $34,870  $61,182  $101,030  
Net lossNet loss—  —  —  —  —  (8,338) (8,338) 
Cumulative effect of accounting changes from the adoption of ASC Topic 842Cumulative effect of accounting changes from the adoption of ASC Topic 842—  —  —  —  —  1,027  1,027  
Share-based compensation expenseShare-based compensation expense58  19  —  —  347  —  366  
Common stock issued under employee benefit plansCommon stock issued under employee benefit plans45  15  —  —  (51) —  (36) 
Common stock issued under nonemployee benefit plansCommon stock issued under nonemployee benefit plans64  20—  —  (20) —  —  
Balance at December 18, 2019Balance at December 18, 201930,645  $9,807  (500) $(4,775) $35,146  $53,871  $94,049  
Net lossNet loss—  —  —  —  —  $(3,803) $(3,803) 
Share-based compensation expenseShare-based compensation expense101  32  —  —  334  —  366  
Common stock issued under employee benefit plansCommon stock issued under employee benefit plans6  2  —  —  (2) —  —  
Balance at March 11, 2020Balance at March 11, 202030,752  $9,841  (500) $(4,775) $35,478  $50,068  $90,612  
Common Stock     Total
Issued Treasury Paid-In Retained Shareholders’
Shares Amount Shares Amount Capital Earnings Equity
Balance at August 29, 201830,003
 $9,602
 (500) $(4,775) $33,872
 $73,929
 $112,628
Net loss—
 —
 —
 —
 —
 (7,489) (7,489)
Cumulative effect of accounting changes from the adoption of ASC Topic 606—
 —
 —
 —
 —
 2,479
 2,479
Share-based compensation expense42
 13
 —
 —
 426
 —
 439
Common stock issued under employee benefit plans81
 26
 —
 —
 (26) —
 —
Common stock issued under nonemployee benefit plans38
 12
 —
 —
 (12) —
 —
Balance at December 19, 201830,164
 $9,653
 (500) $(4,775) $34,260
 $68,919
 $108,057
Net Income—
 —
 —
 —
 —
 $6,632
 $6,632
Share-based compensation expense98
 31
 —
 —
 363
 —
 394
Common stock issued under employee benefit plans12
 4
 —
 —
 (4) —
 —
Common stock issued under nonemployee benefit plans15
 5
 —
 —
 (5) —
 —
Balance at March 13, 201930,289
 $9,693
 (500) $(4,775) $34,614
 $75,551
 $115,083
 
The accompanying notes are an integral part of these Consolidated Financial Statements.consolidated financial statements. 

5




Luby’s, Inc.
Consolidated Statements of Cash Flows (unaudited)
(In thousands)
 
Two Quarters Ended Two Quarters Ended
March 13,
2019		 March 14,
2018		 March 11,
2020		March 13,
2019
(28 weeks) (28 weeks) (28 weeks)(28 weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:   CASH FLOWS FROM OPERATING ACTIVITIES:  
Net loss$(856) $(17,108)Net loss$(12,141) $(856) 
Adjustments to reconcile net loss to net cash used in operating activities:   Adjustments to reconcile net loss to net cash used in operating activities:  
Provision for asset impairments and net losses (gains) on property sales(10,079) 2,271
Provision for asset impairments and net (gains) losses on property salesProvision for asset impairments and net (gains) losses on property sales(727) (10,079) 
Depreciation and amortization8,126
 9,351
Depreciation and amortization6,440  8,126  
Amortization of debt issuance cost811
 70
Amortization of debt issuance cost577  811  
Share-based compensation expense823
 1,252
Share-based compensation expense732  823  
Deferred tax provision—
 3,494
Cash used in operating activities before changes in operating assets and liabilities(1,175) (670)Cash used in operating activities before changes in operating assets and liabilities(5,119) (1,175) 
Changes in operating assets and liabilities:   Changes in operating assets and liabilities:  
Increase in trade accounts and other receivables(414) (376)
Decrease (increase) in trade accounts and other receivablesDecrease (increase) in trade accounts and other receivables509  (414) 
Increase in food and supply inventories(45) (188)Increase in food and supply inventories(94) (45) 
Decrease in prepaid expenses and other assets1,115
 218
Decrease in prepaid expenses and other assets197  1,115  
Decrease in operating lease assetsDecrease in operating lease assets2,407  —  
Decrease in operating lease liabilitiesDecrease in operating lease liabilities(3,541) —  
Decrease in accounts payable, accrued expenses and other liabilities(7,110) (1,121)Decrease in accounts payable, accrued expenses and other liabilities(263) (7,110) 
Net cash used in operating activities(7,629) (2,137)Net cash used in operating activities(5,904) (7,629) 
CASH FLOWS FROM INVESTING ACTIVITIES:   CASH FLOWS FROM INVESTING ACTIVITIES:  
Proceeds from disposal of assets and property held for sale20,444
 2,805
Proceeds from disposal of assets and property held for sale5,453  20,444  
Insurance proceeds—
 756
Purchases of property and equipment(1,781) (8,030)Purchases of property and equipment(1,490) (1,781) 
Net cash provided by (used in) investing activities18,663
 (4,469)
Net cash provided by investing activitiesNet cash provided by investing activities3,963  18,663  
CASH FLOWS FROM FINANCING ACTIVITIES:   CASH FLOWS FROM FINANCING ACTIVITIES:  
Revolver borrowings34,500
 47,900
Revolver borrowings3,300  34,500  
Revolver repayments(54,500) (39,300)Revolver repayments—  (54,500) 
Proceeds from term loan58,400
 —
Proceeds from term loan2,500  58,400  
Term loan repayments(35,169) (1,415)Term loan repayments(831) (35,169) 
Debt issuance costs(3,236) —
Debt issuance costs—  (3,236) 
Taxes paid on equity withheld(12) (70)Taxes paid on equity withheld—  (12) 
Net cash provided by (used in) financing activities(17) 7,115
Net cash provided by (used in) financing activities4,969  (17) 
Net increase in cash and cash equivalents and restricted cash11,017
 509
Net increase in cash and cash equivalents and restricted cash3,028  11,017  
Cash and cash equivalents and restricted cash at beginning of period3,722
 1,096
Cash and cash equivalents and restricted cash at beginning of period12,756  3,722  
Cash and cash equivalents and restricted cash at end of period$14,739
 $1,605
Cash and cash equivalents and restricted cash at end of period$15,784  $14,739  
Cash paid for:   Cash paid for:  
Income taxes$51
 $—
Income taxes, net of (refunds)Income taxes, net of (refunds)$7  $51  
Interest1,951
 1,065
Interest2,647  1,951  
 
The accompanying notes are an integral part of these Consolidated Financial Statements.

consolidated financial statements.

6

Luby’s, Inc.
Notes to Consolidated Financial Statements (unaudited)
 
 
Note 1. Basis of Presentation
 
The accompanying unaudited Consolidated Financial Statementsconsolidated financial statements of Luby’s, Inc. (the “Company”, "we", "our", "us", or “Luby’s”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements that are prepared for the Company’sour Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the quarterperiods ended March 13, 201911, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending August 28, 2019.26, 2020.
 
On June 3, 2020, we announced that our Board of Directors approved a course of action whereby we will immediately pursue the sale of our operating divisions and assets, including our real estate assets, or the sale of the Company in its entirety, and distribute the net proceeds to our stockholders after payment of debt and other obligations. During the sale process, certain of our restaurants will remain open to continue to serve our guests.

We have not established a definitive timeframe for completing this process which will most likely lead to the adoption by the Board of Directors of a formal plan of sale and proceeds distribution followed by an orderly wind down of any remaining operations. Such a plan of sale and proceeds distribution will require shareholder approval. There can be no assurance that such a plan of sale and proceeds distribution will be adopted by the Board of Directors or approved by the shareholders.

The Consolidated Balance Sheetaccompanying financial statements have been prepared assuming that the Company will continue as a going concern. See Note 3. Going Concern.

The consolidated balance sheet dated August 29, 2018,28, 2019, included in this Quarterly Report on Form 10-Q (this “Form 10-Q”), has been derived from theour audited Consolidated Financial Statementsconsolidated financial statements as of that date. However, this Form 10-Q does not include all of the information and footnotes required by GAAP for audited, year-end financial statements. Therefore, these financial statements should be read in conjunction with the audited Consolidated Financial Statementsconsolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 29, 2018.

Correction of Immaterial Errors in Previously Issued Financial Statements
In the third quarter of fiscal 2018, we identified an accounting error in Trade accounts and other receivables, net, that overstated Culinary Contract Services (CCS) segment revenues by approximately $1.0 million, in the aggregate, through the second fiscal quarter of 2018. Of the approximate $1.0 million aggregate error, approximately $0.1 million related to fiscal 2017 and approximately $0.5 million and $0.4 million related to the first and second quarters of fiscal 2018, respectively.
The error resulted from a duplication in the general ledger of certain sales within our CCS segment. While this error was not material to any previously issued annual or quarterly interim consolidated financial statements, management concluded that correcting the cumulative error and related tax effects would be material to the Company's consolidated financial statements for the fiscal quarter ended June 6, 2018.
Accordingly, the Company revised its consolidated financial statements for the quarters ended December 20, 2017 and March 14, 2018, to correct these errors. The prior period error corrections did not change the cash flows provided by or used in operating, investing, or financing activities previously reported.
Recently Adopted Accounting Pronouncements
We transitioned to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”) from ASC Topic 605, Revenue Recognition and ASC Topic 953-605, Franchisors - Revenue Recognition (together, the “Previous Standards”) on August 30, 2018. Our transition to ASC 606 represents a change in accounting principle. ASC 606 eliminates industry-specific guidance and provides a single model for recognizing revenue from contracts with customers. The core principle of ASC 606 is that a reporting entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the reporting entity expects to be entitled for the exchange of those goods or services.

We adopted ASC 606 using the modified retrospective method applied to contracts that were not completed at August 29, 2018. Due to the short term nature of a significant portion of our contracts with customers, we have elected to apply the practical expedients under ASC 606 to:  (1) not adjust the consideration for the effects of a significant financing component, (2) recognize incremental costs of obtaining a contract as expense when incurred and (3) not disclose the value of our unsatisfied performance obligations for contracts with an original expected duration of one year or less.

The adoption of ASC 606 did not have an impact on the recognition of revenues from our primary source of revenue from our Company owned restaurants (except for recognition of breakage and discounts on gift cards, as discussed below), revenues from our culinary contract services, vending revenue or ongoing franchise royalty fees, which are based on a percentage of franchisee sales. The adoption did impact the recognition of initial franchise fees and area development fees and gift card breakage.
The adoption of ASC 606 requires us to recognize initial and renewal franchise and development fees on a straight-line basis over the term of the franchise agreement, which is usually 20 years. Historically, we have recognized revenue from initial franchise and development fees upon the opening of a franchised restaurant when we have completed all our material obligations and initial services.


Additionally, ASC 606 requires gift card breakage to be recognized as revenue in proportion to the pattern of gift card redemptions exercised by our customers. Historically, we recorded breakage income within other (expense) income (and not within revenue) when it was deemed remote that the unused gift card balance will be redeemed.
Upon adoption of ASC 606 we changed our reporting of marketing and advertising fund (“MAF”) contributions from franchisees and the related marketing and advertising expenditures. Under the Previous Standards, we did not reflect MAF contributions from franchisees and MAF expenditures in our statements of operations. Although the gross amounts of our revenues and expenses are impacted by the recognition of franchisee MAF fund contributions and related expenditures of MAF funds we manage, increases to gross revenues and expenses did not result in a material net impact to our statement of operations.
Our consolidated financial statements reflect the application of ASC 606 beginning in fiscal year 2019, while our consolidated financial statements for prior periods were prepared under the guidance of the Previous Standards. The $2.5 million cumulative effect of our adoption of ASC 606 is reflected as an increase to August 30, 2018 Shareholders’ equity with a corresponding decrease to accrued expenses and other liabilities and was comprised of (1) a reduction to accrued expense and other liabilities of $3.1 million to adjust the unused gift card liability balance as if the gift card breakage guidance had been applied prior to August 30, 2018 and (2) an increase to accrued expense and other liabilities of $0.6 million to adjust the unearned franchise fees for the fees received through the end of FY 2018 that would have been deferred and recognized over the term of the franchise agreement if the new guidance had been applied prior to August 30, 2018.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. This update provides clarification regarding how certain cash receipts and disbursements are presented and classified in the statement of cash flows. The update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. We adopted ASU 2016-15 on August 30, 2018 using the retrospective method of adoption. The adoption of this standard did not have a material impact on our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash. This update addresses the diversity in practice on how to classify and present changes in restricted cash or restricted cash equivalents in the statement of cash flows. The update requires that a statement of cash flows explain the change during the period in restricted cash or restricted cash equivalents in addition to changes in cash and cash equivalents. Entities are also required to disclose information about the nature of the restrictions and amounts described as restricted cash and restricted cash equivalents. Also, when cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line on the balance sheet, an entity must reconcile these amounts to the total shown on the statement of cash flows. We adopted ASU 2016-18 effective August 30, 2018 using the retrospective method of adoption. Our adoption of ASU 2016-18 represents a change in accounting principle. Our consolidated statement of cash flow for the quarter ended December 20, 2017 has been revised to reflect the application of ASU 2016-18. See Note 16 for the reconciliation and disclosures regarding the restrictions required by this update. The adoption of this standard did not have a material impact on our consolidated financial statements.
New Accounting Pronouncements - "to be Adopted"
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). In January, July and December 2018, the FASB issued ASU 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01, which were targeted improvements to ASU 2016-02 (collectively, with ASU 2016-02, “ASC 842”) and provided entities with an additional (and optional) transition method to adopt the new lease standard. ASC 842 requires a lessee to recognize a liability to make lease payments and a corresponding right-of-use asset on the balance sheet, as well as provide additional disclosures about the amount, timing and uncertainty of cash flows arising from leases. ASC 842 is effective for annual and interim periods beginning after December 15, 2018, which will require us to adopt the new standard in the first quarter of fiscal 2020. ASC 842 may be adopted using the modified retrospective method, which requires application to all comparative periods presented (the “comparative method”) or alternatively, as of the effective date of initial application without restating comparative period financial statements (the “effective date method”). The new standard also provides several practical expedients and policies that companies may elect under either transition method. Based on a preliminary assessment, we expect that most of our operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon adoption, resulting in a significant increase in the assets and liabilities on our consolidated balance sheet. We are continuing our assessment of the impact of adoption, which may identify additional impacts to our consolidated financial statements. We have not yet determined the method we will use to adopt ASC 842.
Subsequent Events
We evaluate events subsequent to March 13, 2019 through the date the financial statements are issued to determine if the nature and significance of the events warrant inclusion in our consolidated financial statements.





Note 2. Revenue Recognition

Restaurant Sales
Restaurant sales consist of sales of food and beverage products to restaurant guests at our Luby’s Cafeteria, Fuddruckers and Cheeseburger in Paradise restaurants. Revenue from restaurant sales is recognized at the point of sale and is presented net of discounts, coupons, employee meals and complimentary meals. Sales taxes that we collect and remit to the appropriate taxing authority related to these sales are excluded from revenue.
We sell gift cards to our customers in our venues and through certain third-party distributors. These gift cards do not expire and do not incur a service fee on unused balances. Sales of gift cards to our restaurant customers are initially recorded as a contract liability, included in accrued expenses and other liabilities, at their expected redemption value. When gift cards are redeemed, we recognize revenue and reduce the contract liability. Discounts on gift cards sold by third parties are recorded as a reduction to accrued expenses and other liabilities and are recognized, as a reduction to revenue, over a period that approximates redemption patterns. The portion of gift cards sold to customers that is never redeemed is commonly referred to as gift card breakage. Under ASC 606 we recognize gift card breakage revenue in proportion to the pattern of gift card redemptions exercised by our customers, using an estimated breakage rate based on our historical experience. Under the Previous Standards, we recognized gift card breakage income within other (expense) income (and not within revenue) when it was deemed remote that the unused gift card balance would be redeemed.
Culinary contract services revenue
Our Culinary Contract Services segment provides food, beverage and catering services to our clients at their locations. Depending on the type of client and service, we are either paid directly by our client and/or directly by the customer to whom we have been provided access by our client.
We typically use one of the following types of client contracts:
Fee-Based Contracts. Revenue from fee-based contracts is based on our costs incurred and invoiced to the client along with the agreed management fee, which may be calculated as a fixed dollar amount or a percentage of sales or other variable measure. Some fee-based contracts entitle us to receive incentive fees based upon our performance under the contract, as measured by factors such as sales, operating costs and client satisfaction surveys. This potential incentive revenue is allocated entirely to the management services performance obligation. We recognize revenue from our management fee and payroll cost reimbursement over time as the services are performed. We recognize revenue from our food and 3rd party purchases reimbursement at the point in time when the vendor delivers the goods or performs the services.
Profit and Loss Contracts. Revenue from profit and loss contracts consist primarily of sales made to consumers, typically with little or no subsidy charged to clients. Revenue is recognized at the point of sale to the consumer. Sales taxes that we collect and remit to the appropriate taxing authority related to these sales are excluded from revenue.
As part of client contracts, we sometimes make payments to clients, such as concession rentals, vending commissions and profit share. These payments are accounted for as operating costs when incurred.
Revenue from the sale of frozen foods includes royalty fees based on a percentage of frozen food sales and is recognized at the point in time when product is delivered by our contracted manufacturers to the retail outlet.
Franchise revenues
Franchise revenues consist primarily of royalties, marketing and advertising fund (“MAF”) contributions, initial and renewal franchise fees, and upfront fees from area development agreements related to our Fuddruckers restaurant brand. Our performance obligations under franchise agreements consist of: (1) a franchise license, including a license to use our brand and MAF management, (2) pre-opening services, such as training and inspections and (3) ongoing services, such as development of training materials and menu items as well as restaurant monitoring and inspections. These performance obligations are highly interrelated, so we do not consider them to be individually distinct. We account for them under ASC 606 as a single performance obligation, which is satisfied over time by providing a right to use our intellectual property over the term of each franchise agreement.
Royalties, including franchisee MAF contributions, are calculated as a percentage of franchise restaurant sales. MAF contributions paid by franchisees are used for the creation and development of brand advertising, marketing and public relations, merchandising research and related programs, activities and materials. The initial franchisee fee is payable upon execution of the franchise agreement and the renewal fee is due and payable at the expiration of the initial term of the franchise agreement. Our franchise agreement royalties, including advertising fund contributions, represent sales-based royalties that are related entirely to our performance obligation under the franchise agreement and are recognized as franchise sales occur.


Initial and renewal franchise fees and area development fees are recognized as revenue over the term of the respective agreement. Area development fees are not distinct from franchise fees, so upfront fees paid by franchisees for exclusive development rights are deferred and apportioned to each franchise restaurant opened by the franchisee. The pro-rata amount apportioned to each restaurant is accounted for as an initial franchise fee.
Under the Previous Standards, initial franchise fees and area development fees were recognized as revenue when the related restaurant commenced operations and we completed all material pre-opening services and conditions. Renewal franchise fees were recognized as revenue upon execution of a new franchise agreement. MAF contributions from franchisees and the related MAF expenditures were accounted for on a net basis in our Consolidated Balance Sheets.
Revenue from vending machine sales is recorded at the point in time when the sale occurs.
Contract Liabilities
Contract liabilities consist of (1) deferred revenue resulting from initial and renewal franchise fees and upfront area development fees paid by franchisees, which are generally recognized on a straight-line basis over the term of the underlying agreement, (2) liability for unused gift cards and (3) unamortized discount on gift cards sold to 3rd party retailers. These contract liabilities are included in accrued expenses and other liabilities in our consolidated balance sheets. The following table reflects the change in contract liabilities between the date of adoption (August 30, 2018) and March 13, 2019 (in thousands):
  Gift Cards, net of discounts Franchise Fees
  (In thousands)
Balance at August 30, 2018 $2,707
 $1,891
Revenue recognized that was included in the contract liability balance at the beginning of the year (990) (503)
Increase (decrease), net of amounts recognized as revenue during the period 1,633
 (20)
Balance at March 13, 2019 $3,350
 $1,368
The following table illustrates the estimated revenues expected to be recognized in the future related to our deferred franchise fees that are unsatisfied (or partially unsatisfied) as of March 13, 2019 (in thousands):
  Franchise Fees
 (In thousands)
Remainder of fiscal 2019 $18
Fiscal 2020 40
Fiscal 2021 40
Fiscal 2022 40
Fiscal 2023 39
Thereafter 401
Total operating franchise restaurants $578
Franchise restaurants not yet opened(1)
 790
Total $1,368
(1) Amortization of the deferred franchise fees will begin when the restaurant commences operations and revenue will be recognized straight-line over the franchise term (which is typically 20 years). If the franchise agreement is terminated, the deferred franchise fee will be recognized in full in the period of termination.
Disaggregation of Total Revenues
For the two quarters ended March 13, 2019, total sales of $177.3 million was comprised of revenue from performance obligations satisfied over time of $12.3 million and revenue from performance obligations satisfied at a point in time of $165.0 million. For the quarter ended March 13, 2019, total sales of $74.4 million was comprised of revenue from performance obligations satisfied over time of $5.2 million and revenue from performance obligations satisfied at a point in time of $69.2 million. See Note 4. Reportable Segments for disaggregation of revenue by reportable segment.


With the exception of the cumulative effect adjustment described in Note 1, the adoption of ASC 606 did not have a material effect on our consolidated financial statements for the two quarters ended March 13,28, 2019.

Note 3. Accounting Periods

The Company’s fiscal year ends on the last Wednesday in August. Accordingly, each fiscal year normally consists of 13 four-week periods, or accounting periods, accounting for 364 days in the aggregate. However, every fifth or sixth year, we have a fiscal year that consists of 53 weeks, accounting for 371 days in the aggregate. The first fiscal quarter consists of four four-week periods, or 16 weeks, and the remaining three quarters typically include three four-week periods, or 12 weeks, in length. The fourth fiscal quarter includes 13 weeks in certain fiscal years to adjust for our standard 52 week, or 364 day, fiscal year compared to the 365 day calendar year.


Reportable Segments
Each restaurant is an operating segment because operating results and cash flow can be determined for each restaurant. We aggregate our operating segments into reportable segments by restaurant brand due to the nature of the products and services, the production processes, the customers, the methods used to distribute the products and services, the similarity of store level profit margins and the nature of the regulatory environment are alike. The Company has 5 reportable segments: Luby’s cafeterias, Fuddruckers restaurants, Cheeseburger in Paradise restaurant, Fuddruckers franchise operations, and Culinary Contract Services (“CCS”).

Prior to the fourth quarter of fiscal 2019 our internal organization and reporting structure supported three reportable segments; Company-owned restaurants, Franchise operations and Culinary Contract Services. The Company-owned restaurants consisted of the three brands discussed above, which were aggregated into one reportable segment.  In the fourth quarter of fiscal 2019 we re-evaluated and disaggregated the Company-owned restaurants into three reportable segments based on brand name.  As such, as of the fourth quarter 2019, our five reportable segments are Luby’s cafeterias, Fuddruckers restaurants, Cheeseburger in Paradise restaurants, Fuddruckers franchise operations and Culinary Contract Services. Management believes this change better reflects the priorities and decision-making analysis around the allocation of our resources and better aligns to the economic characteristics within similar restaurant brands. We began reporting on the new structure in the fourth quarter of fiscal 2019 as reflected in our Annual Report on Form 10-K. The segment data for the comparable periods of fiscal 2019 has been recast to conform to the current period presentation. Recasting this historical information did not have an impact on the consolidated financial performance of Luby’s Inc. for any of the periods presented.
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Other Charges

Other charges includes those expenses that we consider related to our restructuring efforts or are not part of our recurring operations. These expenses were included in our Selling, general, and administrative cost expense line in previously reported quarters of fiscal 2019. See Note 8 to these unaudited consolidated financial statements.

Recently Adopted Accounting Pronouncements
On August 29, 2019, the first day of fiscal 2020, (the "Effective Date") we adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), along with related clarifications and improvements (“ASC 842”). ASC 842 requires lessees to recognize, on their consolidated balance sheet, a liability for lease obligations, which represents the discounted obligation to make future lease payments, and a corresponding right-of-use asset. The guidance requires lessors to classify leases as sales-type, direct financing or operating. The pronouncement also requires disclosure of key information about leasing arrangements that is intended to give financial statement users the ability to assess the amount, timing, and potential uncertainty of cash flows related to leases. We have implemented a new lease tracking and accounting system in connection with the adoption of ASC 842.

We elected the optional transition method to apply ASC 842 as of the effective date and therefore, we have not applied the standard to the comparative periods presented on our consolidated financial statements. We also elected the package of practical expedients that allowed us not to reassess previous accounting conclusions regarding lease identification, initial direct costs and classification for existing or expired leases as of the effective date. We did not elect the practical expedient that would have permitted us to use hindsight when determining the lease term, including option periods, and impairment of operating lease assets.

We have made an accounting policy election to account for lease components and non-lease components as a single lease component for all underlying classes of assets where (1) the lease component is predominant, (2) the lease component, if accounted for separately, would be classified as an operating lease and (3) the timing and pattern of the lease component and non-lease component are the same. We have also elected the short-term lease recognition exemption for all of our leases that allows us to not recognize right-of-use assets and related liabilities for leases with an initial term of 12 months or less and that do not include an option to purchase the underlying asset that we are reasonably certain to exercise. Our transition to ASC 842 represents a change in accounting principle.

Upon adoption of ASC 842, we recorded operating lease liabilities of approximately $32.5 million based on the present value of the remaining lease payments using discount rates as of the effective date. The current portion of the operating lease liabilities recorded was approximately $8.1 million. In addition, we recorded operating lease right-of-use assets of approximately $27.2 million , calculated as the initial amount of the operating lease liability, adjusted for amounts reclassified from other lease related asset and liability accounts (such as prepaid rent, favorable and unfavorable lease intangibles and straight-line rent timing differences), in accordance with the new guidance, and impairment of certain right-of-use assets recognized as a charge to retained earnings as of the effective date.

On the effective date, we recorded the $1.0 million net cumulative effect of the adoption as an increase to retained earnings. Included in the net cumulative effect was an adjustment of approximately $2.0 million to clear the unamortized balance for deferred gains from sale / leaseback transactions. For most future sale / leaseback transactions, the gain (adjusted for any off-market items) will be recognized immediately in the period that the sale / leaseback transaction occurs.

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The impact of adopting ASC 842 on effected lines of our opening consolidated balance sheet was as follows:
Balance at August 28, 2019ASC 842 AdjustmentBalance at August 29, 2019
(In thousands)
ASSETS
Trade accounts and other receivables, net$8,852  $70  $8,922  
Prepaid expenses2,355  (225) 2,130  
Total Current Assets27,395  (155) 27,240  
Intangible assets, net16,781  (190) 16,591  
Operating lease right-of-use assets, net—  27,191  27,191  
Total Assets$186,000  $26,846  $212,846  
LIABILITIES
Operating lease liabilities-current$—  $8,061  $8,061  
Accrued expenses and other liabilities24,475  (1,002) 23,473  
Total Current Liabilities32,954  7,059  40,013  
Operating lease liabilities-non-current—  24,360  24,360  
Other liabilities6,577  (5,600) 977  
Total Liabilities$84,970  $25,819  $110,789  
SHAREHOLDERS’ EQUITY
Retained earnings$61,182  $1,027  $62,209  
Total Shareholders Equity101,030  1,027  102,057  
Total Liabilities and Shareholders Equity$186,000  $26,846  $212,846  
New Accounting Pronouncements - "to be Adopted"

There are no issued accounting pronouncements that we have yet to adopt that we believe would have a material effect on our financial statements.

Subsequent Events
We evaluated events subsequent to March 11, 2020 through the date the financial statements were issued to determine if the nature and significance of the events warrant inclusion in our consolidated financial statements. See Note 2. for subsequent events disclosures.

Note 2. Subsequent Events

COVID-19 Pandemic
On March 13, 2020, President Trump declared a national emergency in response to the novel coronavirus disease ("COVID-19") pandemic. On March 19, 2020, Governor Greg Abbott of Texas issued a public health disaster for the state of Texas to bring the entire state in line with CDC guidelines including, (1) closing of schools statewide, (2) ban on dine-in eating and gatherings of groups of more than 10 people, and (3) closing of gyms and bars. Governor Abbott followed with an essential services order on March 31, 2020, requiring anyone who is not considered an essential, critical infrastructure worker to stay home except for essential activity, essential businesses, essential government functions and critical care facilities. Most other states, including those states where we operate, have issued similar orders. The governor of Texas began relaxing some restrictions on businesses operating in Texas beginning May 1, 2020, which permitted a gradual reopening of businesses, including restaurants, with modified operations..
The spread of the COVID-19 pandemic has affected the United States economy, our operations and those of third parties on which we rely. Beginning on March 17, 2020, we began suspending on-premise dining at our restaurants and substantially all employees at those locations were placed on furlough. By March 31, 2020 we had suspended on-premise dining at all 118 of our company-owned restaurants and had suspended all operations at 50 of our Luby's Cafeteria's, 36 company-owned Fuddruckers restaurants and our 1 Cheeseburger in Paradise restaurant. The 28 Luby's Cafeteria's and 3 Fuddruckers
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restaurants that remained open were providing take-out, drive-through and curbside pickup, or delivery with reduced operating hours and on-site staff. In addition, more than 50 percent of our general and administrative staff were placed on furlough and salaries were temporarily reduced by 50 percent for the remaining general and administrative staff and other salaried employees, including all senior management. Furthermore, our franchise owners suspended operations or moved to limited food-to-go operations at their locations, reducing the number of franchise locations in operation to 37 by early April 2020 from 90 prior to the COVID-19 pandemic.
Beginning in May 2020, we began to gradually reopen the dining rooms with state-mandated limits on guest capacity at the 28 Luby's locations and 3 Fuddruckers locations that had been previously operating with food-to-go service only. We also began to reopen restaurants that were temporarily closed. As of the date of this filing, there were 31 Luby's Cafeteria's and 8 Fuddruckers restaurants operating, all of which had their dining rooms open at limited capacity. There were 59 franchise locations in operation as of the date of this filing.
The full extent and duration of the impact of the COVID-19 pandemic on our operations and financial performance is currently unknown, and depends on future developments that are uncertain and unpredictable, including the duration of the spread of the pandemic, its impact of capital and financial markets on a macro-scale and any new information that may emerge concerning the severity of the virus, its spread to other regions, the actions to contain the virus or treat its impact, and consumer attitudes and behaviors, among others.
We are currently evaluating the potential short-term and long-term implications of the COVID-19 pandemic on our consolidated financial statements. The potential impacts will occur as early as the third quarter of fiscal 2020, and include, but are not limited to: impairment of long-lived assets, including property and equipment, definite-lived intangible assets and operating lease right-of-use assets related to our restaurants, impairment of goodwill and collectability of receivables.
See Note 3. Going Concern.
Payroll Protection Plan (PPP) Loan and Credit Facility Debt Modification
On April 21, 2020 we entered into a promissory note with Texas Capital Bank, N.A., effective April 12, 2020 that provides for a loan in the amount of $10.0 million (the "PPP loan") pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). The PPP Loan matures on April 12, 2022 and bears interest at a rate of 1.0% per annum. Monthly amortized principle and interest payments are deferred for six months after the date of disbursement. The PPP Loan funds were received on April 21, 2020. The PPP Loan contains events of default and other provisions customary for a loan of this type. The Payroll Protection Program provides that the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially forgiven in accordance with the terms of CARES Act to the extent applicable. We are not yet able to determine the amount that might be forgiven.
Additionally, we entered into the Third Amendment to Credit Agreement, dated April 21, 2020 (the "Third Amendment"). The Credit Agreement is further described at Note 15. Debt. The Third Amendment permitted us to incur indebtedness under the PPP Loan and terminated the $5.0 million undrawn portion of the delayed draw term loan upon receipt of the PPP Loan.
Note 3. Going Concern

The Company sustained a net loss of approximately $15.2 million and cash flow from operations was a use of cash of approximately $13.1 million in fiscal year ended August 28, 2019. In the two quarters ended March 11, 2020 (a period prior to the COVID-19 pandemic), the Company sustained a net loss of $12.1 million and cash flow from operations was a use of cash of $5.9 million. On March 13, 2020, shortly after the end of the Company's second quarter, President Trump declared a national emergency in response to the COVID-19 pandemic followed by Governor Greg Abbott of Texas issuing a public health disaster for the state of Texas on March 19, 2020. The Company took the necessary actions described in "Note 2. Subsequent Events" which further stressed the liquid financial resources of the Company. In response, the company borrowed the remaining $1.4 million available on its revolving line of credit with MSD Capital, borrowed $2.5 million on its Delayed Draw Term Loan, and applied for and received a $10.0 million PPP Loan as described in "Note 2. Subsequent Events". As of the date of this filing, the Company has no undrawn borrowing capacity under the Credit Agreement. Further, the Company does not believe that it would be able to secure any additional debt financing currently.
The full extent and duration of the impact of the COVID-19 pandemic on our operations and financial performance is currently unknown. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations and its ability to generate proceeds from real estate property sales to meet its obligations. The above conditions and events, in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern. Notwithstanding the aforementioned substantial doubt, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result
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should the Company be unable to continue as a going concern Management has assessed the Company’s ability to continue as a going concern as of the balance sheet date, and for at least one year beyond the financial statement issuance date. The assessment of a company’s ability to meet its obligations is inherently judgmental.
On June 3, 2020, the Company announced that the Board of Directors of the Company will aggressively pursue a sale of its operations and assets and distribute the net proceeds to our stockholder, after payment of debt and other obligations. This course of action is more fully explained in "Note 1 - Basis of Presentation". We have not established a timeframe, nor have we committed to a plan, but such a plan could extend beyond one year. Until an actionable plan is approved, we believe we will be able to meet our obligations for the next 12 months when they come due through 1) cash flow from operating certain restaurants, 2) available cash balances, and 3) proceeds generated from real estate property sales as discussed below.
Throughout April and May of 2020, the Company reviewed and modified many aspects of its operating plan within its restaurants and corporate overhead. The Company is now operating at an increased level of operational cost efficiency. These efforts are expected to mitigate the adverse impacts of COVID-19. Additionally, the sale of some assets will likely be necessary for the Company to generate cash to fund its operations. The Company has historically been able to successfully generate proceeds from property sales. Although the Company has been successful in these endeavors in the past, there are no assurances the Company will generate sufficient funds to meet all its obligations as they become due. The following conditions were considered in management’s evaluation of going concern and its efforts to mitigate that concern:
•Revamping restaurant operations to generate cost efficiencies resulting in higher restaurant operating margins even if sales levels do not return to pre-COVID-19 pandemic levels. As the restaurants adapted to the new operating environment, a lower cost labor model was deployed, food costs declined as menu offerings were concentrated among the historically top selling items, and various restaurant service and supplier costs were reevaluated.
•Restructuring of corporate overhead earlier in calendar 2020 prior to the pandemic, including a transition to 3rd party provider for certain accounting and payroll function. Significant further restructuring took place in April and May of 2020, as we reviewed all corporate service providers, information technology needs, and personnel requirements to support a reduced level of operations going forward.
•Securing the PPP Loan which was necessary for funding continuing operations. We believe that a portion of the loan will be eligible for forgiveness; however, that amount cannot currently be calculated.
•Continued efforts to close real estate sales transactions with anticipated aggregate sales proceeds in excess of $20.0 million prior to the end of fiscal 2020. In addition, the we have identified other real estate properties that may be sold to generate funds for ongoing operations should the identification of a buyer for one or more of the operating divisions not occur timely.
We believe these plans are sufficient to overcome the significant doubt whether we can meet our liquidity needs for the 12 months from the issuance of these financial statements. However, we can not predict with certainty that these efforts will be successful or sufficient.

Note 4. Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within our consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:
March 11,
2020		August 28,
2019
(in thousands)
Cash and cash equivalents$7,080  $3,640  
Restricted cash and cash equivalents8,704  9,116  
Total cash and cash equivalents shown in our consolidated statements of cash flows$15,784  $12,756  

Amounts included in restricted cash represent those required to be set aside for (1) maximum amount of interest payable in the next 12 months under the 2018 Credit Agreement (see Note 15), (2) collateral for letters of credit issued for potential insurance obligations, which letters of credit expire within 12 months and (3) prefunding of the credit limit under our corporate purchasing card program.

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Note 4.5. Revenue Recognition

Restaurant Sales
Restaurant sales consist of sales of food and beverage products to restaurant guests at our Luby’s cafeterias and our Fuddruckers and Cheeseburger in Paradise restaurants. Revenue from restaurant sales is recognized at the point of sale and is presented net of discounts, coupons, employee meals and complimentary meals. Sales taxes that we collect and remit to the appropriate taxing authority related to these sales are excluded from revenue.
We sell gift cards to our customers in our venues and through certain third-party distributors. These gift cards do not expire and do not incur a service fee on unused balances. Sales of gift cards to our restaurant customers are initially recorded as a contract liability, included in accrued expenses and other liabilities, at their expected redemption value. When gift cards are redeemed, we recognize revenue and reduce the contract liability. Discounts on gift cards sold by third parties are recorded as a reduction to accrued expenses and other liabilities and are recognized, as a reduction to revenue, over a period that approximates redemption patterns. The portion of gift cards sold to customers that are never redeemed is commonly referred to as gift card breakage. We recognize gift card breakage revenue in proportion to the pattern of gift card redemptions exercised by our customers, using an estimated breakage rate based on our historical experience.
Culinary contract services revenue
Our Culinary Contract Services segment provides food, beverage and catering services to our clients at their locations. Depending on the type of client and service, we are either paid directly by our client and/or directly by the customer to whom we have been provided access by our client.
We typically use one of the following types of client contracts:
Fee-Based Contracts Revenue from fee-based contracts is based on our costs incurred and invoiced to the client for reimbursement along with the agreed management fee, which may be calculated as a fixed dollar amount or a percentage of sales or other variable measure. Some fee-based contracts entitle us to receive incentive fees based upon our performance under the contract, as measured by factors such as sales, operating costs and client satisfaction surveys. This potential incentive revenue is allocated entirely to the management services performance obligation. We recognize revenue from our management fee and payroll cost reimbursement over time as the services are performed. We recognize revenue from our food and 3rd party purchases reimbursement at the point in time when the vendor delivers the goods or performs the services.
Profit and Loss Contracts Revenue from profit and loss contracts consist primarily of sales made to consumers, typically with little or no subsidy charged to clients. Revenue is recognized at the point of sale to the consumer. Sales taxes that we collect and remit to the appropriate taxing authority related to these sales are excluded from revenue.
As part of client contracts, we sometimes make payments to clients, such as concession rentals, vending commissions and profit share. These payments are accounted for as operating costs when incurred.
Revenue from the sale of frozen foods includes royalty fees based on a percentage of frozen food sales and is recognized at the point in time when product is delivered by our contracted manufacturers to the retail outlet.
Franchise revenues
Franchise revenues consist primarily of royalties, marketing and advertising fund (“MAF”) contributions, initial and renewal franchise fees, and upfront fees from area development agreements related to our Fuddruckers restaurant brand. Our performance obligations under franchise agreements consist of: (1) a franchise license, including a license to use our brand and MAF management, (2) pre-opening services, such as training and inspections and (3) ongoing services, such as development of training materials and menu items as well as restaurant monitoring and inspections. These performance obligations are highly interrelated, so we do not consider them to be individually distinct. We account for them as a single performance obligation, which is satisfied over time by providing a right to use our intellectual property over the term of each franchise agreement.
Royalties, including franchisee MAF contributions, are calculated as a percentage of franchise restaurant sales. MAF contributions paid by franchisees are used for the creation and development of brand advertising, marketing and public relations, merchandising research and related programs, activities and materials. The initial franchisee fee is payable upon execution of the franchise agreement and the renewal fee is due and payable at the expiration of the initial term of the franchise agreement. Our franchise agreement royalties, including advertising fund contributions, represent sales-based royalties that are related entirely to our performance obligation under the franchise agreement and are recognized as franchise sales occur.
Initial and renewal franchise fees and area development fees are recognized as revenue over the term of the respective agreement. Area development fees are not distinct from franchise fees, so upfront fees paid by franchisees for exclusive
12

development rights are deferred and apportioned to each franchise restaurant opened by the franchisee. The pro-rata amount apportioned to each restaurant is accounted for as an initial franchise fee.
Revenue from vending machine sales is recorded at the point in time when the sale occurs.
Contract Liabilities
Contract liabilities consist of (1) deferred revenue resulting from initial and renewal franchise fees and upfront area development fees paid by franchisees, which are generally recognized on a straight-line basis over the term of the underlying agreement, (2) liability for unused gift cards and (3) unamortized discount on gift cards sold to 3rd party retailers. These contract liabilities are included in accrued expenses and other liabilities in our consolidated balance sheets. The following table reflects the change in contract liabilities:
Gift Cards, net of discountsFranchise Fees
(In thousands)
Balance at August 28, 2019$2,882  $1,287  
Revenue recognized that was included in the contract liability balance at the beginning of the year(978) (20) 
Increase, net of amounts recognized as revenue during the period1,455  —  
Balance at March 11, 2020$3,359  $1,267  

The following table illustrates the estimated revenues expected to be recognized in the future related to our deferred franchise fees that are unsatisfied (or partially unsatisfied) as of March 11, 2020:
Franchise Fees
(In thousands)
Remainder of fiscal 2020$17 
Fiscal 202138 
Fiscal 202238 
Fiscal 202338 
Fiscal 202438 
Thereafter343 
Total operating franchise restaurants512 
Franchise restaurants not yet opened(1)
755 
Total$1,267 

(1) Amortization of the deferred franchise fees will begin when the restaurant commences operations and revenue will be recognized straight-line over the franchise term (which is typically 20 years). If the franchise agreement is terminated, the deferred franchise fee will be recognized in full in the period of termination.







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Disaggregation of Total Revenues (in millions):
Quarter EndedTwo Quarters Ended
March 11, 2020March 13, 2019March 11, 2020March 13, 2019
(in millions)
Revenue from performance obligations:
Satisfied at a point in time$63.8  $69.2  $152.0  $165.0  
Satisfied over time4.8  5.2  11.7  12.3  
Total Sales$68.6  $74.4  $163.7  $177.3  

See Note 7. Reportable Segments for disaggregation of revenue by reportable segment.

Note 6. Leases

Lessee
We determine if a contract contains a lease at the inception date of the contract. Our material operating leases consist of restaurant locations and administrative facilities ("Property Leases"). U.S. GAAP requires that our leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the date on which the leased asset is available for our use (the “Commencement Date”) and the lease term used in the evaluation includes the non-cancellable period for which we have the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option would result in an economic penalty (the "Reasonably Certain Lease Term"). Our lease agreements generally contain a primary term of five to 30 years with one or more options to renew or extend the lease generally from one to five years each. In addition to leases for our restaurant locations and administrative facilities, we also lease vehicles and administrative equipment under operating leases. As of March 11, 2020, we did not have any finance leases.
At the inception of a new lease, we recognize an operating lease liability and a corresponding right of use asset, which are calculated as the the present value of the total fixed lease payments over the reasonably certain lease term using discount rates as of the effective date.
Property lease agreements may include rent holidays, rent escalation clauses and contingent rent provisions based on a percentage of sales in excess of specified levels. Contingent rental expenses (“variable lease cost”) are recognized prior to the achievement of a specified target, provided that the achievement of the target is considered probable. Most of our lease agreements include renewal periods at our option. We include the rent holiday periods and scheduled rent increases in our calculation of straight-line rent expense.
Lease cost for operating leases is recognized on a straight-line basis and includes the amortization of the right-of-use asset and interest expense related to the operating lease liability. We use the reasonably certain lease term in our calculation of straight-line rent expense. We expense rent from commencement date through restaurant open date as opening expense. Once a restaurant opens for business, we record straight-line rent expense plus any additional variable contingent rent expense (such as common area maintenance, insurance and property tax costs) to the extent it is due under the lease agreement as occupancy expense for our restaurants and selling, general and administrative expense for our corporate office and support facilities. The interest expense related to the lease liability for abandoned leases is recorded to provision for asset impairments and store closings. Rental expense for lease properties that are subsequently subleased to franchisees or other third parties is recorded as other income.
We make judgments regarding the reasonably certain lease term for each property lease, which can impact the classification and accounting for a lease as a finance lease or an operating lease, the rent holiday and/or escalations in payments that are taken into consideration when calculating straight-line rent, and the term over which leasehold improvements for each restaurant are amortized. These judgments may produce materially different amounts of depreciation, amortization and rent expense than would be reported if different assumed lease terms were used.
The discount rate used to determine the present value of the lease payments is the Company’s estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as the Company generally cannot determine the interest rate implicit in the lease.
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Lessor
We occasionally lease or sublease certain restaurant properties to our franchisees or to third parties. The lease descriptions, terms, variable lease payments and renewal options are generally similar to our lessee leases described above. Similar to our lessee accounting, we elected the lessor practical expedient that allows us to not separate non-lease components from lease components in regard to all property leases where we are the lessor. As of March 11, 2020, we did not have any sales-type or direct financing leases.
Supplemental balance sheet information related to our leases was as follows:
Operating LeasesClassificationMarch 11, 2020
(in thousands)
Right-of-use assetsOperating lease right-of-use assets$24,296 
Current lease liabilitiesOperating lease liabilities-current$5,916 
Non-current lease liabilitiesOperating lease liabilities-noncurrent23,047 
Total lease liabilities$28,963 
Weighted-average lease terms and discount rates at March 11, 2020 were as follows:
Weighted-average remaining lease term6.02 years
Weighted-average discount rate9.6%
Components of lease expense were as follows:
12 Weeks Ended28 Weeks Ended
March 11, 2020
(in thousands)
Operating lease expense$1,874  $4,412  
Variable lease expense257  553  
Short-term lease expense62  125  
Sublease expense161  382  
Total lease expense$2,354  $5,472  
Operating lease income is included in other income on our consolidated statements of operations and was comprised of:
12 Weeks Ended28 Weeks Ended
March 11, 2020
(in thousands)
Operating lease income$213  $503  
Sublease income114  286  
Variable lease income33  109  
Total lease income$360  $898  
Supplemental disclosures of cash flow information related to leases were as follows:
12 Weeks Ended28 Weeks Ended
March 11, 2020
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities$2,431  $5,282  
Right-of-use assets obtained in exchange for lease liabilities$903  $903  
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Operating lease obligations maturities in accordance with Topic 842 as of March 11, 2020 were as follows:
(in thousands)
Remainder of FY 2020$3,323 
FY 20218,273 
FY 20226,066 
FY 20235,133 
FY 20244,244 
Thereafter11,855 
Total lease payments38,894 
Less: imputed interest(9,931)
Present value of operating lease obligations$28,963 
The operating lease obligation and rent expense tables above include amounts related to two leases with related parties, which are further described at "Note 14. Related Parties".
Annual future minimum lease payments under non-cancelable operating leases with terms in excess of one year as of August 28, 2019 in accordance with the previous lease accounting standard (ASC 840) are as follows:
Fiscal Year Ending:(In thousands)
August 26, 2020$8,841 
August 25, 20217,155 
August 31, 20225,643 
August 30, 20234,410 
August 28, 20243,768 
Thereafter10,312 
Total minimum lease payments$40,129 

Note 7. Reportable Segments
 
As more fully discussed at "Note 1. Basis of Presentation", in the fourth quarter of fiscal 2019, the Company reevaluated its reportable segments and has disaggregated its Company-owned restaurants into 3 reportable segments; Luby’s cafeterias, Fuddruckers restaurants and Cheeseburger in Paradise restaurants. We began reporting on the new structure in the fourth quarter of fiscal 2019. The Companysegment data for the comparable periods presented has threebeen recast to conform to the current period presentation. We have 5 reportable segments: Company-ownedLuby’s cafeterias, Fuddruckers restaurants, Cheeseburger in Paradise restaurants, Fuddruckers franchise operations, and Culinary Contract Services (“CCS”), and Franchise Operations.contract services.
 
Company-owned restaurants
 
Company-owned restaurants consists of several brands which are aggregatedLuby’s cafeterias, Fuddruckers restaurants and Cheeseburger in Paradise restaurant reportable segments. We consider each restaurant to be an operating segment because operating results and cash flow can be determined for each restaurant. We aggregate our operating segments into one reportable segmentsegments by restaurant brand because the nature of the products and services, the production processes, the customers, the methods used to distribute the products and services, the long-term store level profit margins, and the nature of the regulatory environment and store level profit margins are similar. The chief operating decision maker analyzes Company-owned restaurants at store level profit which is defined as restaurant sales and vending revenue, less cost of food, payroll and related costs, other operating expenses and occupancy costs. The primary brands areAll Company-owned Luby’s Cafeterias,cafeterias, Fuddruckers - World’s Greatest Hamburgers® and Cheeseburger in Paradise. All company-ownedParadise restaurants are casual dining restaurants. Each restaurant is an operating

The Luby’s cafeterias segment because operatingincludes the results and cash flow can be determined for each restaurant.
of our company-owned Luby’s Cafeterias restaurants. The total number of Company-owned restaurants was 136Luby’s cafeterias at March 13,11, 2020 and August 28, 2019 were 78 and 14679, respectively.

The Fuddruckers restaurant segment includes the results of our company-owned Fuddruckers restaurants. The total number of Fuddruckers restaurants at March 11, 2020 and August 29, 2018.28, 2019 were 39 and 44, respectively.


The Cheeseburger in Paradise restaurant segment includes the results of our Cheeseburger in Paradise restaurants. The total number of Cheeseburger in Paradise restaurants at both March 11, 2020 and August 28, 2019 was 1.
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Culinary Contract Services ("CCS")
 
CCS, branded as Luby’s Culinary Services, isconsists of a business line servicing healthcare, sport stadiums, corporate dining clients, and sales through retail grocery stores. The healthcare accounts are full service and typically include in-room delivery, catering, vending, coffee service, and retail dining. CCS hashad contracts with long-term acute care hospitals, acute care medical centers, ambulatory surgical centers, retail grocery stores, behavioral hospitals, a senior living facility, sports stadiums, a senior care facility, government, and business and industry clients. CCS has the unique ability to deliver quality services that include facility design and procurement as well as nutrition and branded food services to our clients. The cost of Culinary Contract Servicesculinary contract services on the Consolidated Statementsour consolidated statements of Operationsoperations includes all food, payroll and related costs, other operating expenses, and other direct general and administrative expenses related to CCS sales. The total number of CCS locations was 33contracts at March 13,11, 2020 and August 28, 2019 were 28 and 28 at August 29, 2018.31, respectively.


CCS began selling Luby's Famous Fried Fish, and Macaroni & Cheese and Chicken Tetrazzini in February 2017, and December 2016, and May, 2019, respectively, in the freezer section of H-E-B stores, a Texas-born retailer. H-E-B stores now stock the family-sized versions of Luby's Classic Macaroni and Cheese , Chicken Tetrazzini, and Luby's Jalapeño Macaroni and Cheese varietiesFried Fish. HEB also stocks single serve versions of these three items as well as Luby's Fried Fish.Jalapeno Macaroni and Cheese.


Fuddruckers Franchise Operations
 
We only offer franchises for the Fuddruckers brand. Franchises are sold in markets where expansion is deemed advantageous to the development of the Fuddruckers concept and system of restaurants. Initial franchise agreements generally have a term of 20 years. Franchise agreements typically grant franchisees an exclusive territorial license to operate a single restaurant within a specified area.
 
Franchisees bear all direct costs involved in the development, construction, and operation of their restaurants. In exchange for a franchise fee, the Company provideswe provide franchise assistance to franchisees in the following areas: site selection, prototypical architectural plans, interior and exterior design and layout, training, marketing and sales techniques, assistance by a Fuddruckers “opening team” at the time a franchised restaurant opens, as well asand operations and accounting and operational guidelines set forth in various policies and procedures manuals.
  
All franchisees are required to operate their restaurants in accordance with Fuddruckers’Fuddruckers standards and specifications, including controls over menu items, food quality, and preparation. The Company requires the successful completion of its training program by a minimum of three managers for each franchised restaurant. In addition, franchised restaurants are evaluated regularly by the


Company for compliance with franchise agreements, including standards and specifications through the use of periodic, unannounced, on-site inspections and standardstandards evaluation reports.
 
The number of franchised restaurants was 102 at March 13,11, 2020 and August 28, 2019 were 90 and 105 at August 29, 2018.  102, respectively.
Licensee
In November 1997, a prior owner of the Fuddruckers – World’s Greatest Hamburgers® brand granted to a licensee the exclusive right to use the Fuddruckers proprietary marks, trade dress and system to develop Fuddruckers restaurants in a territory consisting of certain countries in Africa, the Middle East and parts of Asia. As of January 2019, this licensee operated 33 restaurants that are licensed to use the Fuddruckers Proprietary Marks in Saudi Arabia, Egypt, United Arab Emirates, Qatar, Jordan, and Bahrain. The Company does not receive revenue or royalties from these restaurants.


Segment Table


The table on the following page showstables below show segment financial information. The table also lists total assets for each reportable segment. Corporate assets include cash and cash equivalents, restricted cash, property and equipment, assets related to discontinued operations, property held for sale, deferred tax assets, and prepaid expenses.



17

 Quarter Ended Two Quarters Ended
 March 13,
2019		 March 14,
2018		 March 13,
2019		 March 14,
2018
 (12 weeks) (12 weeks) (28 weeks) (28 weeks)
 (In thousands)    
Sales:       
Company-owned restaurants (1)
$65,459
 $74,503
 $156,658
 $179,228
Culinary contract services7,543
 5,889
 17,039
 12,774
Franchise operations1,421
 1,401
 3,644
 3,288
Total$74,423
 $81,793
 $177,341
 $195,290
Segment level profit:    
 
Company-owned restaurants$7,007
 $5,743
 $16,233
 $16,826
Culinary contract services826
 212
 1,507
 765
Franchise operations1,174
 1,032
 3,125
 2,432
Total$9,007
 $6,987
 $20,865
 $20,023
Depreciation and amortization:    
 
Company-owned restaurants$2,613
 $3,319
 $7,004
 $7,772
Culinary contract services24
 18
 46
 37
Franchise operations177
 178
 413
 414
Corporate408
 483
 663
 1,128
Total$3,222
 $3,998
 $8,126
 $9,351
Capital expenditures:    
 
Company-owned restaurants$498
 $2,993
 $1,562
 $6,417
Culinary contract services(44) 22
 10
 130
Corporate208
 690
 209
 1,483
Total$662
 $3,705
 $1,781
 $8,030
     
 
Income (loss) before income taxes and discontinued operations    
 
Segment level profit$9,007
 $6,987
 $20,865
 $20,023
Opening costs(11) (331) (44) (406)
Depreciation and amortization(3,222) (3,998) (8,126) (9,351)
Selling, general and administrative expenses(9,017) (9,188) (20,240) (20,712)
Provision for asset impairments and restaurant closings(1,195) (1,407) (2,422) (2,252)
Net gain (loss) on disposition of property and equipment12,651
 204
 12,501
 (18)
Interest income19
 5
 19
 11
Interest expense(1,554) (545) (3,269) (1,194)
Other income, net55
 194
 86
 309
Income (loss) before income taxes and discontinued operations$6,733
 $(8,079) $(630) $(13,590)
 Quarter EndedTwo Quarters Ended
 March 11, 2020March 13, 2019March 11, 2020March 13, 2019
 (12 weeks)(12 weeks)(28 weeks)(28 weeks)
(In thousands)
Sales:
Luby's cafeterias$47,886  $48,621  $115,031  $117,229  
Fuddruckers restaurants11,872  16,246  27,551  37,879  
Cheeseburger in Paradise restaurants647  592  1,492  1,550  
Culinary contract services6,998  7,543  16,772  17,039  
Fuddruckers franchise operations1,158  1,421  2,865  3,644  
Total$68,561  $74,423  $163,711  $177,341  
Segment level profit:  
Luby's cafeterias$4,877  $6,153  $12,786  $15,148  
Fuddruckers restaurants527  959  494  1,416  
Cheeseburger in Paradise restaurants(28) (106) (95) (331) 
Culinary contract services598  826  1,424  1,507  
Fuddruckers franchise operations749  1,174  1,890  3,125  
Total$6,723  $9,006  $16,499  $20,865  
Depreciation and amortization:  
Luby's cafeterias$1,738  $2,039  $4,182  $5,042  
Fuddruckers restaurants387  548  937  1,881  
Cheeseburger in Paradise restaurants19  26  47  81  
Culinary contract services5  24  17  46  
Fuddruckers franchise operations178  177  414  413  
Corporate350  408  843  663  
Total$2,677  $3,222  $6,440  $8,126  
Capital expenditures:  
Luby's cafeterias$414  $447  $1,238  $1,404  
Fuddruckers restaurants90  39  139  148  
Cheeseburger in Paradise restaurants—  11  2  11  
Culinary contract services—  (44) —  9  
Fuddruckers franchise operations—  —  14  —  
Corporate41  209  97  209  
Total545  $662  $1,490  $1,781  
 March 13,
2019		 August 29,
2018
Total assets:   
Company-owned restaurants(2)
$152,855
 $151,511
Culinary contract services6,175
 4,569
Franchise operations(2)
10,979
 10,982
Corporate27,573
 32,927
Total$197,582
 $199,989




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(1)Includes vending revenue of approximately $90 thousand and $151 thousand for the quarter ended March 13, 2019 and March 14, 2018, respectively, and amortization of discounts on gift cards sold partially offset by gift card breakage of approximately $100 thousand in the quarter ended March 13, 2019. Includes vending revenue of approximately $190 thousand and $294 thousand for the two quarters ended March 13, 2019 and March 14, 2018, respectively, and amortization of discounts on gift cards sold partially offset by gift card breakage of approximately $244 thousand in the two quarters ended March 13, 2019.
(2)Company-owned restaurants segment includes $7.8 million of Fuddruckers trade name, Cheeseburger in Paradise liquor licenses, and Jimmy Buffett intangibles. Franchise operations segment includes approximately $9.5 million in royalty intangibles.



Quarter EndedTwo Quarters Ended
March 11, 2020March 13, 2019March 11, 2020March 13, 2019
(12 weeks)(12 weeks)(28 weeks)(28 weeks)
(In thousands)
Income (loss) before income taxes and discontinued operations:  
Segment level profit$6,723  $9,006  $16,499  $20,865  
Opening costs(2) (11) (14) (44) 
Depreciation and amortization(2,677) (3,222) (6,440) (8,126) 
Selling, general and administrative expenses(6,816) (7,753) (16,974) (17,763) 
Other charges(1,509) (1,263) (2,748) (2,477) 
Provision for asset impairments and restaurant closings(661) (1,195) (1,770) (2,422) 
Net gain on disposition of property and equipment2,527  12,651  2,498  12,501  
Interest income5  19  28  19  
Interest expense(1,473) (1,554) (3,435) (3,269) 
Other income, net148  55  388  86  
Total$(3,735) $6,733  $(11,968) $(630) 


 March 11, 2020August 28, 2019
 (In thousands)
Total assets:
Luby's cafeterias$106,132  $107,287  
Fuddruckers restaurants (1)
37,984  25,725  
Cheeseburger in Paradise restaurants (2)
363  829  
Culinary contract services7,212  6,703  
Fuddruckers franchise operations (3)
9,494  10,034  
Corporate42,112  $35,422  
Total$203,297  $186,000  

(1) Includes Fuddruckers trade name intangible of 7.2 million and 7.5 million at March 11, 2020 and August 28, 2019, respectively.
(2) Includes Cheeseburger in Paradise liquor licenses, and Jimmy Buffett intangibles of $45 thousand and $46 thousand at March 11, 2020 and August 28, 2019, respectively.
(3) Fuddruckers franchise operations segment includes royalty intangibles of $8.8 million and $9.2 million at March 11, 2020 and August 28, 2019 respectively.


19

Note 5. Derivative Financial Instruments8. Other Charges

The Company enters into derivative instruments, from time to time, to manage its exposure to changes in interest rates on a percentage of its long-term variable rate debt. On December 14, 2016, the Company entered into an interest rate swap, pay fixed - receive floating, with a constant notional amount of $17.5 million. The fixed swap rate we paid was 1.965% and the variable rate we received was one-month LIBOR. The term of the interest rate swap was 5 years. The Company does not apply hedge accounting treatment to this derivative, therefore, changes in fair value of the instrument were recognized in Other income (expense), net. The changes in the interest rate swap fair value resulted in an expense of approximately $0.1 million during the two quarters ended March 13, 2019 and a credit to expense of approximately $0.2 million in the two quarters ended March 14, 2018. The Company terminated its interest rate swap in the quarter ended December 19, 2018 and received approximately $0.3 million in cash proceeds.

The Company does not hold or use derivative instruments for trading purposes.

Note 6. Fair Value Measurements
GAAP establishes a framework for using fair value to measure assets and liabilities, and expands disclosure about fair value measurements. Fair value measurements guidance applies whenever other authoritative accounting guidance requires or permits assets or liabilities to be measured at fair value.
GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value. These tiers include:

Level 1: Defined as observable inputs such as quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2: Defined as pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2charges includes those financial instrumentsexpenses that are valued using models or other valuation methodologies. These models are primarily industry-standard models thatwe consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures.

Level 3: Defined as pricing inputs that are unobservable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

The fair values of the Company's cash and cash equivalents, restricted cash and cash equivalents, trade receivables and other receivables, net, and accounts payable approximate their carrying value due to their short duration. The carrying value of the Company's total credit facility debt, net of unamortized discounts and debt issue costs, at March 13, 2019 and August 29, 2018 was approximately $40.7 million and $39.3 million, respectively, which approximates fair value because the applicable interest rate is adjusted frequently based on short-term market rates (Level 2).

 Recurring fair value measurements related to assetsour restructuring efforts or are presented below:not part of our ongoing operations.

Quarter EndedTwo Quarters Ended
March 11
2020		March 13
2019		March 11
2020		March 13
2019
(In thousands)
Proxy communication related$—  $1,061  $—  $1,802  
Employee severances544  173  1,162  645  
Restructuring related966  30  1,586  30  
Total Other charges$1,510  $1,264  $2,748  $2,477  

20
Fair Value
Measurement Using
March 13, 2019Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Valuation Method
Recurring Fair Value - Assets(In thousands)
Continuing Operations:
Derivative - Interest Rate Swap(1)
$—
$—
$—
$—
(1) The Company terminated its interest rate swap in the first quarter of fiscal 2019 and received cash proceeds of approximately $0.3 million which is recorded in Other income.



   Fair Value Measurement Using  
 March 14, 2018 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) 
Significant Unobservable Inputs
(Level 3)
 Valuation Method
Recurring Fair Value - Assets  (In thousands)  
Continuing Operations:         
Derivative - Interest Rate Swap(1)
$361
 — $361
 —
 Discounted Cash Flow
(1) The fair value of the interest rate swap is recorded in Other Assets on the company's Consolidated Balance Sheet.

Recurring fair value measurements related to liabilities are presented below:
Fair Value
Measurement Using
March 13, 2019Quoted
Prices in
Active
Markets for
Identical
Liabilities
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Valuation Method
Recurring Fair Value - Liabilities(In thousands)
Continuing Operations:
TSR Performance Based Incentive Plan(1)
$—
$—
$—
$—
Monte Carlo Simulation
(1) The fair value of the Company's 2017 Performance Based Incentive Plan liabilities was zero. See Note 13 to the Company's consolidated financial statements in this Form 10-Q for further discussion of Performance Based Incentive Plan.

   Fair Value
Measurement Using		  
 March 14, 2018 Quoted
Prices in
Active
Markets for
Identical
Liabilities
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)		 Valuation Method
Recurring Fair Value - Liabilities  (In thousands)    
Continuing Operations:         
TSR Performance Based Incentive Plan(1)
$357
 $—
 $357
 $—
 Monte Carlo Simulation
Total liabilities at Fair Value$357
 $—
 $357
 $—
  
(1) The fair value of the Company's 2016 and 2017 Performance Based Incentive Plan liabilities were approximately $0.2 million and $0.1 million, respectively, and is recorded in Other liabilities on the Company's Consolidated Balance Sheet. See Note 13 to the Company's consolidated financial statements in this Form 10-Q for further discussion of Performance Based Incentive Plan.










Non-recurring fair value measurements related to impaired property held for sale and property and equipment consisted of the following:
   
Fair Value
Measurement Using
  
 March 13, 2019 
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Impairments(3)
Nonrecurring Fair Value Measurements  (In thousands)    
Continuing Operations         
Property held for sale(1)
$6,573
 $—
 $—
 $6,573
 $(62)
Property and equipment related to company-owned restaurants(2)
704
 —
 —
 704
 (1,129)
Total Nonrecurring Fair Value Measurements$7,277
 $—
 $—
 $7,277
 $(1,191)
(1) In accordance with Subtopic 360-10, long-lived assets held for sale with a carrying value of approximately $6.6 million were written down to their fair value, less cost to sell, of approximately $6.6 million, resulting in an impairment charge of less than $0.1 million.
(2) In accordance with Subtopic 360-10, long-lived assets held and used with a carrying value of approximately $1.8 million were written down to their fair value of approximately $0.7 million, resulting in an impairment charge of approximately $1.1 million.
(3) Total impairments for continuing operations are included in Provision for asset impairments and restaurant closings in the Company's Consolidated Statement of Operations for the two quarters ended March 13, 2019.

   
Fair Value
Measurement Using
  
 March 14, 2018 
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Impairments(4)
Nonrecurring Fair Value Measurements  (In thousands)    
Continuing Operations         
Property held for sale(1)
$2,331
 $—
 $—
 $2,331
 $(298)
Property and equipment related to company-owned restaurants (2)
1,519
 —
 —
 1,519
 (1,116)
Goodwill (3)
—
 —
 —
 —
 (273)
Total Nonrecurring Fair Value Measurements$3,850
 $—
 $—
 $3,850
 $(1,687)
(1) In accordance with Subtopic 360-10, long-lived assets held for sale with a carrying value of approximately $2.6 million were written down to their fair value, less costs to sell, of approximately $2.3 million, resulting in an impairment charge of approximately $0.3 million.
(2) In accordance with Subtopic 360-10, long-lived assets held and used with a carrying amount of approximately $2.6 million were written down to their fair value of approximately $1.5 million, resulting in an impairment charge of approximately $1.1 million.
(3) In accordance with Subtopic 350-20, goodwill with a carrying value of approximately $273 thousand was written down to zero, resulting in an impairment charge of approximately $273 thousand.
(4) Total impairments are included in Provision for asset impairments and restaurant closings in the Company's Consolidated Statement of Operations in the two quarters ended March 14, 2018.

Note 7. Income Taxes
The effects of the U.S. tax reform legislation that is commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) on the Company's income tax accounts were reflected in the fiscal 2018 financial statements as determined based on available information,


subject to interpretation in accordance with the SEC's Staff Accounting Bulletin No. 118 ("SAB 118"). SAB 118 provides guidance on accounting for the effects of the Tax Act where such determinations are incomplete; however, the Company has completed its determination of the effects of the Tax Act on its income tax accounts.



No cash payments of estimated federal income taxes were made during the two quarters ended March 13, 2019 and March 14, 2018, respectively. Deferred tax assets and liabilities are recorded based on differences between the financial reporting basis and the tax basis of assets and liabilities using currently enacted rates and laws that will be in effect when the differences are expected to reverse.
Deferred tax assets are recognized to the extent future taxable income is expected to be sufficient to utilize those assets prior to their expiration. If current available evidence and information raises doubt regarding the realization of the deferred tax assets, on a more likely than not basis, a valuation allowance is necessary. In evaluating our ability to realize the Company's deferred tax assets, the Company considered available positive and negative evidence, scheduled reversals of deferred tax liabilities, tax-planning strategies, and results of recent operations. As of March 13, 2019, management determined that for the two quarters ended March 13, 2019 a full valuation allowance on the Company's net deferred tax assets was necessary.

The effective tax rate ("ETR") for continuing operations was 1.4% for the quarter ended March 13, 2019 and a negative 41.9% for the quarter ended March 14, 2018. The ETR for the quarter ended March 13, 2019 differs from the federal statutory rate of 21% due to management's full valuation allowance conclusion, anticipated federal jobs credits, state income taxes, and other discrete items.

The effective tax rate ("ETR") for continuing operations was a negative 33.8% for the two quarters ended March 13, 2019 and a negative 24.8% for the two quarters ended March 14, 2018. The ETR for the two quarters ended March 13, 2019 differs from the federal statutory rate of 21% due to full management's valuation allowance conclusion, anticipated federal jobs credits, state income taxes, and other discrete items.

Management believes that adequate provisions for income taxes have been reflected in the financial statements and is not aware of any significant exposure items that have not been reflected in the financial statements. Amounts considered probable of settlement within one year have been included in the accrued expenses and other liabilities in the accompanying Consolidated Balance Sheet.
Note 8.9. Fair Value Measurements

GAAP establishes a framework for using fair value to measure assets and liabilities, and expands disclosure about fair value measurements. Fair value measurements guidance applies whenever other authoritative accounting guidance requires or permits assets or liabilities to be measured at fair value.
GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value. These tiers include:

•Level 1: Defined as observable inputs such as quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
◦
•Level 2: Defined as pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures.
◦
•Level 3: Defined as pricing inputs that are unobservable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

The fair values of the Company's cash and cash equivalents, restricted cash and cash equivalents, trade receivables and other receivables, net, and accounts payable approximate their carrying value due to their short duration. The carrying value of the Company's total credit facility debt, net of unamortized discounts and debt issue costs, at March 11, 2020 and August 28, 2019 was approximately $50.8 million and $45.4 million, respectively, which approximates fair value because the applicable interest rate is adjusted frequently based on short-term market rates (Level 2).

There were no recurring fair value measurements related to assets at March 11, 2020 or March 13, 2019 . We terminated our interest rate swap in the first quarter of fiscal 2019 and received cash proceeds of approximately $0.3 million which is recorded in other income.

There were no recurring fair value measurements related to liabilities at March 11, 2020. The fair value of the Company's 2017 Performance Based Incentive Plan liabilities was 0 at March 13, 2019.

Non-recurring fair value measurements related to impaired property held for sale and property and equipment consisted of the following:
  Fair Value
Measurement Using		 
 March 11, 2020Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Total
Impairments(3)
Nonrecurring Fair Value Measurements (In thousands)  
Continuing Operations     
Property held for sale (1)
$3,362  $—  $—  $3,362  $(14) 
Operating lease right-of-use assets (2)
—  —  —  —  (1,181) 
Total Nonrecurring Fair Value Measurements$3,362  $—  $—  $3,362  $(1,195) 
(1) In accordance with Subtopic 360-10, long-lived assets held for sale with a carrying value of approximately $3.4 million were written down to their fair value, less cost to sell, of approximately $3.4 million, resulting in an impairment charge of approximately $14 thousand.
(2) In accordance with Subtopic 360-10, operating lease right-to-use assets with a carrying value of approximately $1.2 million were written down to their fair value of 0, resulting in an impairment charge of approximately $1.2 million.
(3) Total impairments for continuing operations are included in provision for asset impairments and restaurant closings in our consolidated statement of operations for the two quarters ended March 11, 2020.
21


  Fair Value
Measurement Using		 
 March 13, 2019Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Total
Impairments(3)
Nonrecurring Fair Value Measurements (In thousands)  
Continuing Operations
Property held for sale (1)
$6,573  $—  $—  $6,573  $(62) 
Property and equipment related to company-owned restaurants (2)
704  —  —  704  (1,129) 
Total Nonrecurring Fair Value Measurements$7,277  $—  $—  $7,277  $(1,191) 
(1) In accordance with Subtopic 360-10, long-lived assets held for sale with a carrying value of approximately $6.6 million were written down to their fair value, less costs to sell, of approximately $6.6 million, resulting in an impairment charge of approximately $62 thousand.
(2) In accordance with Subtopic 360-10, long-lived assets held and used with a carrying amount of approximately $1.8 million were written down to their fair value of approximately $0.7 million, resulting in an impairment charge of approximately $1.1 million.
(3) Total impairments are included in provision for asset impairments and restaurant closings in our unaudited consolidated statement of operations for the two quarters ended March 13, 2019.

22

Note 10. Income Taxes
NaN cash payments of estimated federal income taxes were made during the two quarters ended March 11, 2020 and March 13, 2019, respectively. Deferred tax assets and liabilities are recorded based on differences between the financial reporting basis and the tax basis of assets and liabilities using currently enacted rates and laws that will be in effect when the differences are expected to reverse.
Deferred tax assets are recognized to the extent future taxable income is expected to be sufficient to utilize those assets prior to their expiration. If current available evidence and information raises doubt regarding the realization of the deferred tax assets, on a more likely than not basis, a valuation allowance is necessary. In evaluating our ability to realize the Company's deferred tax assets, the Company considered available positive and negative evidence, scheduled reversals of deferred tax liabilities, tax-planning strategies, and results of recent operations. As of March 11, 2020, management continues to maintain a full valuation allowance against net deferred tax assets.

The effective tax rate ("ETR") for continuing operations was a negative 1.6% for the quarter ended March 11, 2020 and 1.4% for the quarter ended March 13, 2019. The ETR for the quarter ended March 11, 2020 differs from the federal statutory rate of 21% due to management's full valuation allowance conclusion, anticipated federal jobs credits, state income taxes, and other discrete items.

The ETR for continuing operations was a negative 1.3% for the two quarters ended March 11, 2020 and a negative 33.8% for the two quarters ended March 13, 2019. The ETR for the two quarters ended ended March 11, 2020 differs from the federal statutory rate of 21% due to management's full valuation allowance conclusion, anticipated federal jobs credits, state income taxes, and other discrete items.

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 our consolidated financial statements. Amounts considered probable of settlements within one year have been included in the accrued expenses and other liabilities in the accompanying consolidated balance sheet.
Note 11. Property and Equipment, Intangible Assets and Goodwill
 
The costs, net of impairment, and accumulated depreciation of property and equipment at March 13, 201911, 2020 and August 29, 2018,28, 2019, together with the related estimated useful lives used in computing depreciation and amortization, were as follows:
 
March 11,
2020		August 28,
2019		Estimated
Useful Lives
(years)
 (In thousands)   
Land$45,822  $45,845   — 
Restaurant equipment and furnishings68,437  67,015  3to15
Buildings127,011  126,957  20to33
Leasehold and leasehold improvements22,164  22,098  Lesser of lease term or estimated useful life
Office furniture and equipment3,315  3,364  3to10
 266,749  265,279     
Less accumulated depreciation and amortization(149,319) (143,536)    
Property and equipment, net$117,430  $121,743     
Intangible assets, net$16,025  $16,781  15to21
 March 13,
2019		 August 29,
2018		 
Estimated
Useful Lives
(years)
 (In thousands)      
Land$46,677
 $46,817
   —  
Restaurant equipment and furnishings70,676
 69,678
 3 to 15
Buildings130,521
 131,557
 20 to 33
Leasehold and leasehold improvements23,638
 27,172
 Lesser of lease term or estimated useful life
Office furniture and equipment3,413
 3,596
 3 to 10
 274,925
 278,820
      
Less accumulated depreciation and amortization(144,004) (140,533)      
Property and equipment, net$130,921
 $138,287
      
Intangible assets, net$17,286
 $18,179
 15 to 21




During the quarter ended March 13, 2019, the Company completed the sale of two properties with a total net sales price of approximately $19.6 million. The properties sold had been included in the previously announced asset sales program. The sales included lease back periods of 36 and 60 months and average annual lease payments of approximately $450 thousand and $295 thousand, respectively. The Company recorded a total net gain on the two sales of approximately $15.3 million of which $12.9 million was recognized in the quarter ending March 13, 2019 and the remainder will be recognized over the respective lease back periods. The deferred gain on the sale of the two properties is included in Other Liabilities on our consolidated balance sheet at March 13, 2019. Net proceeds from the sale were used in accordance with the 2018 Credit Agreement, to reduce the balance on its outstanding 2018 Term Loan (as defined below) and for general business purposes.
Intangible assets, net, includes the Fuddruckers trade name and franchise agreements and are amortized. The Company believes the Fuddruckers brand name has an expected accounting life of 21 years from the date of acquisition based on the expected use of its assets and the restaurant environment in which it is being used. The trade name represents a respected brand with customer loyalty and the Company intends to cultivate and protect the use of the trade name. The franchise agreements, after considering renewal periods, have an estimated accounting life of 21 years from the date of acquisition, July 2010, and will be amortized over this period of time.
 
23

Intangible assets, net, also includes the license agreement and trade name related to Cheeseburger in Paradise and the value of the acquired licenses and permits allowing the sales of beverages with alcohol. These assets have an expected useful life of 15 years from the date of acquisition, December 2012.
 
The aggregate amortization expense related to intangible assets subject to amortization was approximately $0.8 million and $0.7 million for the two quarters ended March 13, 201911, 2020 and March 14, 2018,13, 2019, respectively. The aggregate amortization expense related to intangible assets subject to amortization is expected to be approximately $1.4 million in each of the next five successive fiscal years.
 
The following table presents intangible assets as of March 13, 201911, 2020 and August 29, 2018:28, 2019:
 
 March 11, 2020August 29, 2018
 (In thousands)(In thousands)
 Gross
Carrying
Amount		Accumulated
Amortization		Net
Carrying
Amount		Gross
Carrying
Amount		Accumulated
Amortization		Net
Carrying
Amount
Intangible Assets Subject to Amortization:      
Fuddruckers trade name and franchise agreements$29,486  $(13,506) $15,980  $29,486  $(12,752) $16,734  
Cheeseburger in Paradise trade name and license agreements146  (101) 45  146  (99) 47  
Intangible assets, net$29,632  $(13,607) $16,025  $29,632  $(12,851) $16,781  
 March 13, 2019 
August 29, 2018(1)
 (In thousands) (In thousands)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Intangible Assets Subject to Amortization:           
            
Fuddruckers trade name and franchise agreements$29,831
 $(12,591) $17,240
 $29,701
 $(11,653) $18,048
            
Cheeseburger in Paradise trade name and license agreements76
 (30) 46
 206
 (75) 131
            
Intangible assets, net$29,907
 $(12,621) $17,286
 $29,907
 $(11,728) $18,179
(1) The amounts as of August 29, 2018 reflect a reclassification of amounts from the Cheeseburger in Paradise trade name and license agreements to the Fuddruckers trade name and franchise agreements lines on the table, netting to approximately $88 thousand.  


Goodwill, net of accumulated impairments of approximately $1.9 million, was approximately $555$514 thousand as of March 13, 201911, 2020 and August 29, 2018, respectively, and relates to our Company-owned restaurants reportable segment.28, 2019, respectively. Goodwill has been allocated and impairment is assessed at the reporting level, which is the individual restaurants within our Fuddruckers and Cheeseburger in Paradise brandsreporting segments that were acquired in fiscal 2010 and fiscal 2013, respectively. The net Goodwill balance at March 13, 201911, 2020 is comprised of amounts assigned to one Cheeseburger in Paradise restaurant that is still operated by us, and the goodwill from the Fuddruckers acquisition in 2010. The Company performs a goodwill impairment test annually as of the end of the second fiscal quarter of each year and more frequently when negative conditions or a triggering event arises. Management prepares valuations for each of its restaurants using a discounted cash flow analysis (Level 3 inputs) to determine the fair value of each reporting unit for comparison with the reporting unit's carrying value in determining if there has been an impairment of goodwill at the reporting level.
 
The Company recorded no0 goodwill impairment charges during the two quarters ended March 13, 201911, 2020 and March 14, 2018, respectively.13, 2019.




Note 9. Impairment of Long-Lived Assets, Discontinued Operations, Property Held for Sale and Store Closings
Impairment of Long-Lived Assets and Store Closings
The Company periodically evaluates long-lived assets held for use and held for sale whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. The Company analyzes historical cash flows of operating locations and compares results of poorer performing locations to more profitable locations. The Company also analyzes lease terms, condition of the assets and related need for capital expenditures or repairs, as well as construction activity and the economic and market conditions in the surrounding area.

For assets held for use, the Company estimates future cash flows using assumptions based on possible outcomes of the areas analyzed. If the estimated undiscounted future cash flows are less than the carrying value of the location’s assets, the Company records an impairment loss based on an estimate of discounted cash flows. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgments. Assumptions and estimates used include operating results, changes in working capital, discount rate, growth rate, anticipated net proceeds from disposition of the property and, if applicable, lease terms. The span of time for which future cash flows are estimated is often lengthy, increasing the sensitivity to assumptions made. The time span could be 20 to 25 years for newer properties, but only 5 to 10 years for older properties. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluation of long-lived assets can vary within a wide range of outcomes. The Company considers the likelihood of possible outcomes in determining the best estimate of future cash flows. The measurement for such an impairment loss is then based on the fair value of the asset as determined by discounted cash flows.
The Company recognized the following impairment charges to income from operations:
 Two Quarters Ended
 March 13,
2019		 March 14,
2018
 (28 weeks) (28 weeks)
 (In thousands, except per share data)
Provision for asset impairments and restaurant closings$2,422
 $2,252
Net loss (gain) on disposition of property and equipment(12,501) 18
    
 $(10,079) $2,270
Effect on EPS:   
Basic$0.34
 $(0.08)
Assuming dilution$0.34
 $(0.08)
The approximate $2.4 million impairment charge for the two quarters ended March 13, 2019 is primarily related to assets at eight property locations held for use, six properties held for sale written down to their fair value and one international joint venture investment.

The approximate $2.3 million impairment charge for the two quarters ended March 14, 2018 is primarily related to assets at seven property locations held for use, three properties held for sale written down to their fair value, goodwill at 2 locations, and approximately $0.6 million in net lease termination costs at five property locations.
The approximate $12.5 million net gain for the two quarters ended March 13, 2019 is primarily related to gains on the sale and leaseback of two properties partially offset by routine asset retirements.
The approximate $18 thousand net loss for the two quarters ended March 14, 2018 is primarily related to asset retirements at six property location closures partially offset by gains on the sale of two property locations.
Discontinued Operations 


As a result of the first quarter fiscal 2010 adoption of the Company’s Cash Flow Improvement and Capital Redeployment Plan, the Company reclassified 24 Luby’s Cafeterias to discontinued operations. As of March 13, 2019, one location remains held for sale.

The following table sets forth the assets and liabilities for all discontinued operations:
 March 13,
2019		 August 29,
2018
 (In thousands)
Property and equipment$1,813
 $1,813
Assets related to discontinued operations—non-current$1,813
 $1,813
Accrued expenses and other liabilities$4
 $14
Liabilities related to discontinued operations—current$4
 $14
Other liabilities$16
 $16
Liabilities related to discontinued operations—non-current$16
 $16

As of March 13, 2019, under both closure plans, the Company had one property classified as discontinued operations. The asset carrying value of the owned property was approximately $1.8 million and is included in assets related to discontinued operations. The Company is actively marketing this property for sale. The asset carrying value at one other property with a ground lease, included in discontinued operations, was previously impaired to zero.
The following table sets forth the sales and pretax losses reported from discontinued operations:
 Two Quarters Ended
 March 13,
2019		 March 14,
2018
 (28 weeks) (28 weeks)
 (In thousands)
Sales$—
 $—
    
Pretax loss$(13) $(8)
Income tax expense from discontinued operations—
 (137)
Loss from discontinued operations, net of income taxes$(13) $(145)

The following table summarizes discontinued operations for the two quarters of fiscal 2019 and 2018: 
 Two Quarters Ended
 March 13,
2019		 March 14,
2018
 (28 weeks) (28 weeks)
 (In thousands, except per share data)
Discontinued operating loss$(13) $(8)
Impairments—
 —
Pretax loss(13) (8)
Income tax expense from discontinued operations—
 (137)
Loss from discontinued operations, net of income taxes$(13) $(145)
Effect on EPS from discontinued operations—basic$(0.00) $(0.00)


Property Held for Sale
The Company 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, actively marketed and recorded at fair value less transaction costs. The Company analyzes market conditions each reporting period and records additional impairments due to declines in market values of like assets. The fair value of the property is determined by observable inputs such as appraisals and prices of comparable properties in active markets for assets like the Company’s. Gains are not recognized until the properties are sold.
Property held for sale includes unimproved land, closed restaurant properties, properties with operating restaurants the Board approved for sale, and related equipment for locations not classified as discontinued operations. The specific assets are valued at the lower of net depreciable value or net realizable value.
At March 13, 2019, the Company had 13 owned properties with a carrying value of approximately $14.9 million in property held for sale. The pretax profit (loss) for the disposal group of locations operating for the two quarters ended ended March 13, 2019 and March 14, 2018 was a pretax income of approximately $12.8 million and $0.5 million, respectively. Included in the pretax income for the disposal group of locations was net gains on disposal of assets of approximately $12.9 million and $0.2 million, respectively for the two quarters ended March 13, 2019 and March 14, 2018.
At August 29, 2018, the Company had 15 owned properties, of which two restaurants are located on one property, with a carrying value of approximately $19.5 million in property held for sale. The pretax loss for the disposal group of locations operating in fiscal 2018 was approximately $1.2 million.
The Company is actively marketing the locations currently classified as property held for sale.

Abandoned Leased Facilities - Reserve for Store Closings

As of March 13, 2019, the Company classified 11 restaurant leased locations in Arizona, Florida, Illinois, Indiana, Maryland, New York, Oklahoma, Texas and Virginia as abandoned. Although the Company remains obligated under the terms of the leases for the rent and other costs that may be associated with the leases, the Company decided to cease operations and has no foreseeable plans to occupy the spaces as a company restaurant in the future. During the two quarters ended March 13, 2019, the Company recorded an increase to the liability for lease termination expense and a charge to earnings, in provision for asset impairments and restaurant closings of approximately $0.2 million. The liability is equal to the total amount of rent and other direct costs for the remaining period of time the properties will be unoccupied plus the present value, calculated using a credit-adjusted risk free rate, of the amount by which the rent paid by the Company to the landlord exceeds any rent paid to the Company by a tenant under a sublease over the remaining period of the lease terms. Accrued lease termination expense was approximately $2.0 million as of March 13, 2019 and August 29, 2018, respectively. 

Note 10.12. Impairment of Long-Lived Assets, Discontinued Operations, Property Held for Sale and Store Closings
Impairment of Long-Lived Assets and Store Closings
We periodically evaluate long-lived assets held for use and held for sale whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. We analyze historical cash flows of operating locations and compare results of poorer performing locations to more profitable locations. We also analyze lease terms, condition of the assets and related need for capital expenditures or repairs, as well as construction activity and the economic and market conditions in the surrounding area.

For assets held for use, we estimate future cash flows using assumptions based on possible outcomes of the areas analyzed. If the estimated undiscounted future cash flows are less than the carrying value of the location’s assets, we record an impairment loss based on an estimate of discounted cash flows. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgments. Assumptions and estimates used include operating results, changes in working capital, discount rate, growth rate, anticipated net proceeds from disposition of the property and, if applicable, lease terms. The span of time for which future cash flows are estimated is often lengthy, increasing the sensitivity to assumptions made. The time span could be 20 to 25 years for newer properties, but only 5 to 10 years for older properties.
24

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. We consider the likelihood of possible outcomes in determining the best estimate of future cash flows. The measurement for such an impairment loss is then based on the fair value of the asset as determined by discounted cash flows.
We recognized the following impairment charges to income from operations:
 Quarter Ended
 March 11,
2020		March 13,
2019
 (28 weeks)(28 weeks)
 (In thousands, except per share data)
Provision for asset impairments and restaurant closings$1,770  $2,422  
Net gain on disposition of property and equipment(2,498) (12,501) 
 $(728) $(10,079) 
Effect on EPS:  
Basic$0.02  $0.34  
Assuming dilution$0.02  $0.34  
The $1.8 million provision for asset impairments and restaurant closings for the two quarters ended March 11, 2020 was due primarily to the impairment of certain surplus equipment written down to fair value and the right-of-use asset for two of our leased locations where we ceased operations during the period.

The $2.5 million net gain on disposition of property and equipment for the two quarters ended March 11, 2020 was primarily related to gains on the sale of 2 previously held for sale properties partially offset by routine asset retirements.

The $2.4 million provision for asset impairments and restaurant closings for the two quarters ended March 13, 2019 was primarily related to assets at 8 property locations, 6 properties held for sale and 1 international joint venture investment written down to their fair values.

The $12.5 million net gain on disposition of property and equipment for the two quarters ended March 13, 2019 is primarily related to gains on the sale and leaseback of 2 properties partially offset by routine asset retirements.

Discontinued Operations 
As a result of the first quarter fiscal 2010 adoption of our Cash Flow Improvement and Capital Redeployment Plan, we reclassified 24 Luby’s Cafeterias to discontinued operations. As of March 11, 2020, 1 location remains held for sale.

The following table sets forth the assets and liabilities for all discontinued operations:
 March 11,
2020		August 28,
2019
 (In thousands)
Property and equipment$1,813  $1,813  
Assets related to discontinued operations—non-current$1,813  $1,813  
Accrued expenses and other liabilities$5  $14  
Liabilities related to discontinued operations—current$5  $14  

As of March 11, 2020, we had 1 property classified as discontinued operations. The asset carrying value of the owned property was approximately $1.8 million and is included in assets related to discontinued operations. We are actively marketing this property for sale. The asset carrying value at 1 other property with a ground lease, included in discontinued operations, was previously impaired to 0.
25

The following table sets forth the sales and pretax losses reported from discontinued operations:
 Two Quarters Ended
 March 11,
2020		March 13,
2019
 (28 weeks)(28 weeks)
 (In thousands)
Sales$—  $—  
Pretax loss$(17) $(13) 
Income tax expense from discontinued operations—  —  
Loss from discontinued operations, net of income taxes$(17) $(13) 

The following table summarizes discontinued operations for the two quarters of fiscal 2020 and 2019: 
 Two Quarters Ended
 March 11,
2020		March 13,
2019
 (28 weeks)(28 weeks)
 (In thousands, except per share data)
Discontinued operating loss$(17) $(13) 
Impairments—  —  
Pretax loss(17) (13) 
Income tax expense from discontinued operations—  —  
Loss from discontinued operations, net of income taxes$(17) $(13) 
Effect on EPS from discontinued operations—basic$(0.00) $(0.00) 
Property Held for Sale
We periodically review long-lived assets against our plans to retain or ultimately dispose of properties. If we decide to dispose of a property, it will be moved to property held for sale, actively marketed and recorded at fair value less transaction costs. We analyze market conditions each reporting period and record additional impairments due to declines in market values of like assets. The fair value of the property is determined by observable inputs such as appraisals and prices of comparable properties in active markets for assets like ours. Gains are not recognized until the properties are sold.
Property held for sale includes unimproved land, closed restaurant properties, properties with operating restaurants that our Board of Directors has approved for sale, and related equipment for locations not classified as discontinued operations. The specific assets are valued at the lower of net depreciated value or net realizable value.
At March 11, 2020, and August 28, 2019 we had 12 and 14 owned properties with a carrying value of approximately $13.8 million and $16.5 million, respectively, in property held for sale. During the two quarters ended March 11, 2020, 2 properties were sold that were previously classified as held for sale. The pretax profit (loss) for the disposal group of 12 locations operating for the two quarters ended March 11, 2020 and March 13, 2019 was a pretax gain of approximately $0.1 million and a pretax loss of approximately $0.1 million, respectively.
We are actively marketing the locations currently classified as property held for sale.

Abandoned Leased Facilities - Liability for Store Closings

As of March 11, 2020, we classified 10 leased restaurants located in Arizona, California, Illinois, Maryland, and Texas as abandoned. Although we remain obligated under the terms of the leases for the rent and other costs that may be associated with the leases, we decided to cease operations and we have no foreseeable plans to occupy the spaces as a company restaurant in the future. In connection with the adoption of ASC 842 (see Note 1.), we reclassified the rent portion of the liability for store closings in the amount of $1.0 million to operating lease liabilities-current. During the two quarters ended March 11, 2020, 3 of the leases we considered abandoned as of August 28, 2019 expired and the operating lease liability-current of approximately $0.6 million for these 3 locations was reclassified to the liability for store closings. The liability at March 11,
26

2020 is equal to our estimate of direct costs for the remaining period of time the properties will be unoccupied as well as unpaid rent and direct costs for the 3 expired leases discussed above. Accrued lease termination expense liability was approximately $1.0 million and $1.4 million as of March 11, 2020 and August 28, 2019, respectively. 

Note 13. Commitments and Contingencies
 
Off-Balance Sheet Arrangements
 
The Company has no off-balance sheet arrangements, except for operating leases.arrangements. 
 
Pending Claims
 
From time to time, the Company is subject to various private lawsuits, administrative proceedings, and claims that arise in the ordinary course of its business. A number of these lawsuits, proceedings, and claims may exist at any given time. These matters typically involve claims from guests, employees, and others related to issues common to the restaurant industry. The Company currently believes that the final disposition of these types of lawsuits, proceedings, and claims will not have a material adverse effect on the Company’s financial position, results of operations, or liquidity. It is possible, however, that the Company’s future results of operations for a particular fiscal quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, proceedings, or claims.




Cheeseburger in Paradise Royalty Commitment


The license agreement and trade name relates to a perpetual license to use intangible assets including trademarks, service marks and publicity rights related to Cheeseburger in Paradise owned by Jimmy Buffett and affiliated entities. In return, the Company pays a royalty fee of 2.5% of gross sales, less discounts, at the Company's operating Cheeseburger in Paradise location to an entity owned or controlled by Jimmy Buffett. The trade name represents a respected brand with positive customer loyalty, and the Company intends to cultivate and protect the use of the trade name.
 
Note 11.14. Related Parties

Affiliate Services
 
Christopher J. Pappas, the Company’s Chief Executive Officer, and Harris J. Pappas, former director, and Chief Operating Officer of the Company, own two2 restaurant entities (the “Pappas entities”) that from time to time may provide services to the Company and its subsidiaries, as detailed in the Amended and Restated Master Sales Agreement dated August 2, 2017 among the Company and the Pappas entities. Collectively, Messrs. Pappas and the Pappas entities own greater than 5 percent of the Company's common stock.
 
Under the terms of the Amended and Restated Master Sales Agreement, the Pappas entities may provide specialized (customized) equipment fabrication and basic equipment maintenance, including stainless steel stoves, shelving, rolling carts, and chef tables. The Company incurred 0 and $13 thousand under the Amended and Restated Master Sales Agreement for custom-fabricated and refurbished equipment in the two quarters ended March 11, 2020 and March 13, 2019, and incurred two thousand dollars in costs in the two quarters ended March 14, 2018.respectively. Services provided under this agreement are subject to review and approval by the Finance and Audit Committee of the Board.our Board of Directors.
 
Operating Leases
 
In the third quarter of fiscal 2004, Messrs. Pappas became partners in a limited partnership which purchased a retail strip center in Houston, Texas. Messrs. Pappas collectively own a 50% limited partnership interest and a 50% general partnership interest in the limited partnership. A third party company manages the center. One of the Company’s restaurants has rented approximately 7% of the space in that center since July 1969. No changes were made to the Company’s lease terms as a result of the transfer of ownership of the center to the new partnership.
 
On November 22, 2006, the Company executed a new lease agreement with respect to this shopping center. Effective upon the Company’s relocation and occupancy into the new space in July 2008, the new lease agreement provides for a primary term of approximately 12 years with two2 subsequent five-yearfive-year options and gives the landlord an option to buy out the tenant on or after the calendar year 2015 by paying the then unamortized cost of improvements to the tenant. The Company pays rent of $22.00 per square foot plus maintenance, taxes, and insurance during the remaining primary term of the lease. Thereafter, the lease provides for increases in rent at set intervals. The new lease agreement was approved by the Finance and Audit Committee.Committee of our Board of Directors.
27

 
In the third quarter of fiscal 2014, on March 12, 2014, the Company executed a new lease agreement for one of the Company's Houston Fuddruckers locations with Pappas Restaurants, Inc. for one of our Fuddruckers locations in Houston, Texas. The lease provides for a primary term of approximately six years with two2 subsequent five-yearfive-year options. Pursuant to the lease agreement, the Company paid $27.56$28.53 per square foot plus maintenance, taxes, and insurance from March 12, 2014 until November 30, 2016.May 31, 2020. Currently, the lease agreement provides for increases in rent at set intervals. The new lease agreement was approved by the Finance and Audit Committee.Committee of our Board of Directors.


For the two quarters ended March 11, 2020 and March 13, 2019, and March 14, 2018, affiliated costsrents incurred as a percentage of relative total Company cost was 0.54%0.58% and 0.42%0.57%, respectively. Rent payments under the two lease agreements described above were $314$300 thousand and $285$314 thousand, respectively.


Key Management Personnel
 
The Company entered into a new employment agreement with Christopher Pappas on December 11, 2017. The newUnder the employment agreement, contains a termination datethe initial term of Mr. Pappas' employment ended on August 28, 2019.2019 and automatically renews for additional one year periods, unless terminated in accordance with its terms. Mr. Pappas continues to devote his primary time and business efforts to the Company while maintaining his role at Pappas Restaurants, Inc.
Peter Tropoli, a former director The employment agreement was unanimously approved by the Executive Compensation Committee (the “Committee”) of our Board of Directors as well as by the full Board. Effective August 1, 2018, the Company and the Company’s General Counsel and Secretary, is an attorney and stepson of Frank Markantonis, who is a director of the Company.Christopher J. Pappas agreed to reduce his fixed annual base salary to one dollar.
 


Paulette Gerukos, Vice President of Human Resources of the Company, is the sister-in-law of Harris J. Pappas.

Note 12.15. Debt


The following table summarizes credit facility debt, less current portion at March 13, 201911, 2020 and August 29, 2018:28, 2019 (in thousands): 
  
 March 11,
2020		August 28,
2019
Long-Term Debt
2018 Credit Agreement - Revolver$8,600  $5,300  
2018 Credit Agreement - Term Loan45,067  43,399  
Total credit facility debt53,667  48,699  
Less:
Unamortized debt issue costs(1,630) (1,887) 
Unamortized debt discount(1,202) (1,373) 
Total credit facility debt, less unamortized debt issuance costs50,835  45,439  
Current portion of credit facility debt2,567  —  
Credit facility debt, less current portion$48,268  $45,439  
  
 March 13,
2019		 August 29,
2018
Long-Term Debt   
2016 Credit Agreement - Revolver$—
 $20,000
2016 Credit Agreement - Term Loan—
 19,506
2018 Credit Agreement - Term Loan44,337
 —
Total credit facility debt44,337
 39,506
Less:   
Unamortized debt issue costs(2,143) (168)
Unamortized debt discount(1,520) —
Total credit facility debt, less unamortized debt issuance costs40,674
 39,338
Current portion of credit facility debt—
 39,338
Credit facility debt, less current portion$40,674
 $—


2018 Credit Agreement
On December 13, 2018, the Company entered into a credit agreement (the(as amended by the First Amendment (as defined below), the “2018 Credit Agreement”) among the Company, the lenders from time to time party thereto, and a subsidiary of MSD Capital, MSD PCOF Partners VI, LLC (“MSD”), as Administrative Agent, pursuant to which the lenders party thereto agreed to make loans to the Company from time to time up to an aggregate principal amount of $80.0$80 million consisting of a $10.0$10 million revolving credit facility (the “2018 Revolver”), a $10.0$10 million delayed draw term loan (“2018 Delayed Draw Term Loan”), and a $60.0$60 million term loan (the “2018 Term Loan”, and together with the 2018 Revolver and the 2018 Delayed Draw Term Loan, the “2018 Credit Facility”). The 2018 Credit Facility terminates on, and all amounts owing thereunder must be repaid on, December 13, 2023.
On July 31, 2019, the Company entered into the First Amendment to the 2018 Credit Agreement (the “First Amendment”) to extend the 2018 Delayed Draw Term Loan expiration date for up to one year to the earlier to occur of (a) the date on which the commitments under the 2018 Delayed Draw Term Loan have been terminated or reduced to zero in accordance with the terms
28

of the 2018 Credit Agreement and (b) September 13, 2020. On December 18, 2019, the Company entered into the Second Amendment to the 2018 Credit Agreement which did not change any terms of the agreement permanently. The amendment only decreased the amount of mandatory prepayment related to the sale of two properties in the .quarter ended March 11, 2020. See Note 2. Subsequent Events for discussion of Third Amendment entered subsequent to the end of the second quarter of fiscal 2020..
Borrowings under the 2018 Revolver, 2018 Delayed Draw Term Loan, and 2018 Term Loan will bear interest at the London InterBank Offered Rate ("LIBOR") plus 7.75% per annum. Interest is payable quarterly and accrues daily. Under the terms of the 2018 Credit Agreement, the maximum amount of interest payable, based on the aggregate principal amount of $80.0 million and interest rates in effect at December 13, 2018, in the next 12 months was required to be pre-fundedprefunded at the closing date of the 2018 Credit Agreement. The pre-fundedprefunded amount at March 11, 2020 of approximately $8.4$6.1 million is recorded in Restrictedrestricted cash and cash equivalents on the Company's Balance Sheet.consolidated balance sheet. LIBOR is set to terminate in December, 2021. We expect to agree to a replacement rate with MSD prior to the LIBOR termination.
The 2018 Credit Facility is subject to the following minimum amortization payments: 1st anniversary: $10.0 million; 2nd anniversary: $10.0 million; 3rd anniversary: $15.0 million; and 4th anniversary: $15.0 million.
The Company also pays a quarterly commitment fee based on the unused portion of the 2018 Revolver and the 2018 Delayed Draw Term Loan at 0.50% per annum. Voluntary prepayments, refinancing and asset dispositions constituting a sale of all or substantially all assets, under the 2018 Delayed Draw Term Loan and the 2018 Term Loan are subject to a make whole premium during years one and two equal to the present value of all interest otherwise owed from the date of the pre-paymentprepayment through the end of year two, a 2.0% fee during year three, and a 1.0% fee during year four. Finally, the Company paid to the lenders a one-time fee of $1.6 million in connection with the closing of the 2018 Credit Facility.
Indebtedness under the 2018 Credit Facility is secured by a security interest in, among other things, all of the Company’s present and future personal property (other than certain excluded assets), all of the personal property of its guarantors (other than certain excluded assets) and all Mortgaged Property (as defined in the 2018 Credit Agreement) of the Company and its subsidiaries.
The 2018 Credit Facility contains customary covenants and restrictions on the Company’s ability to engage in certain activities, including financial performance covenants, asset sales and acquisitions, and contains customary events of default. Specifically, among other things, the Company is required to maintain minimum Liquidity (as defined in the 2018 Credit Agreement) of $3.0 million as of the last day of each fiscal quarter and a minimum Asset Coverage Ratio (as defined in the 2018 Credit Agreement) of 2.50 to 1.00. As of March 13, 2019,11, 2020, the Company was in full compliance with all covenants with respect to the 2018 Credit Facility.
All amounts owing by the Company under the 2018 Credit Facility are guaranteed by the subsidiaries of the Company.


As of March 13, 2019,11, 2020 we had no amounts due within the next 12 months under the 2018 Credit Facility due to principal repayments in excess of the required minimum during the quarter ended March 13, 2019. We had approximately $1.3$1.7 million committed under letters of credit, which isare used as security for the payment of insurance obligations and are fully cash collateralized, and approximately $0.2$0.1 million in other indebtedness.
As of April 22, 2019,June 5, 2020, the Company was in compliance with all covenants under the terms of the 2018 Credit Agreement.
2016 Credit Agreement
On November 8, 2016, the Company entered into a $65.0 million Senior Secured Credit Facility with Wells Fargo Bank, National Association, as Administrative Agent and Cadence Bank, NA and Texas Capital Bank, NA, as lenders (“2016 Credit Agreement”). The 2016 Credit Agreement, prior to the amendments discussed below, was comprised of a $30.0 million 5-year Revolver (the “Revolver”) and a $35.0 million 5-year Term Loan (the “Term Loan”), and it also included sub-facilities for swingline loans and letters of credits. The original maturity date of the 2016 Credit Agreement was November 8, 2021.
Borrowings under the Revolver and Term Loan bore interest at 1) a base rate equal to the greater of (a) the federal funds effective rate plus one-half of 1% (the “Base Rate”), (b) prime and (c) LIBOR for an interest period of 1 month, plus, in any case, an applicable spread that ranges from 1.50% to 2.50% per annum the (“Applicable Margin”), or (2) the London InterBank Offered Rate (“LIBOR”), as adjusted for any Eurodollar reserve requirements, plus an applicable spread that ranges from 2.50% to 3.50% per annum. Borrowings under the swingline loan bore interest at the Base Rate plus the Applicable Margin. The applicable spread under each option was dependent upon certain measures of the Company’s financial performance at the time of election. Interest was payable quarterly, or in more frequent intervals if LIBOR applies.
The Company was obligated to pay to the Administrative Agent for the account of each lender a quarterly commitment fee based on the average daily unused amount of the commitment of such lender, ranged from 0.30% to 0.35% per annum depending upon the Company's financial performance.
The proceeds of the 2016 Credit Agreement were available for the Company to (i) pay in full all indebtedness outstanding under the 2013 Credit Agreement as of November 8, 2016, (ii) pay fees, commissions, and expenses in connection with our repayment of the 2013 Credit Agreement, initial extensions of credit under the 2016 Credit Agreement, and (iii) for working capital and general corporate purposes of the Company.
The 2016 Credit Agreement, as amended, contained the customary covenants.
The 2016 Credit Agreement was secured by an all asset lien on all of the Company's real property and also included customary events of default. If a default occurred and was continuing, the lenders’ commitments under the 2016 Credit Agreement may have been immediately terminated, and, or the Company may have been required to repay all amounts outstanding under the 2016 Credit Agreement.
On December 13, 2018, the 2016 Credit Agreement was terminated with all outstanding amounts paid in full.
Note 13. Share-Based Compensation
We have two active share based stock plans, the Luby's Incentive Stock Plan, as amended and restated effective December 5, 2015 (the "Employee Stock Plan") and the Nonemployee Director Stock Plan, as amended and restated effective February 9, 2018. Both plans authorize the granting of stock options, restricted stock, and other types of awards consistent with the purpose of the plans.
Of the aggregate 2.1 million shares approved for issuance under the Nonemployee Director Stock Plan, as amended, 1.4 million options, restricted stock units and restricted stock awards have been granted to date, and 0.1 million options were canceled or expired and added back into the plan, since the plan’s inception. Approximately 0.8 million shares remain available for future issuance as of March 13, 2019. Compensation costs for share-based payment arrangements under the Nonemployee Director Stock Plan, recognized in selling, general and administrative expenses for the two quarters ended March 13, 2019 and March 14, 2018 was approximately $289 thousand and $321 thousand, respectively and approximately $168 thousand and $169 thousand, respectively, for the quarters ended March 13, 2019 and March 14, 2018.

Of the aggregate 4.1 million shares approved for issuance under the Employee Stock Plan, as amended, 7.3 million options and restricted stock units have been granted to date, and 4.1 million options and restricted stock units were canceled or expired and added back into the plan, since the plan’s inception in 2005. Approximately 0.9 million shares remain available for future issuance as of March 13, 2019. Compensation costs for share-based payment arrangements under the Employee Stock Plan, recognized in selling, general and administrative expenses for the quarters ended ended March 13, 2019 and March 14, 2018 was approximately $113 thousand and $167 thousand, respectively and approximately $296 thousand and $455 thousand, respectively, for the two quarters ended March 13, 2019 and March 14, 2018, respectively.


Stock Options
Stock options granted under either the Employee Stock Plan or the Nonemployee Director Stock Plan have exercise prices equal to the market price of the Company’s common stock at the date of the grant.
Option awards under the Nonemployee Director Stock Plan generally vest 100% on the first anniversary of the grant date and expire ten years from the grant date. No options were granted under the Nonemployee Director Stock Plan in the two quarters ended March 13, 2019. No options to purchase shares were outstanding under this plan as of March 13, 2019.
Options granted under the Employee Stock Plan generally vest 50% on the first anniversary date of the grant date, 25% on the second anniversary of the grant date and 25% on the third anniversary of the grant date, with all options expiring ten years from the grant date. No options were granted in the two quarters ended March 13, 2019. Options to purchase 1,464,010 shares at option prices of $2.82 to $5.95 per share remain outstanding as of March 13, 2019.
A summary of the Company’s stock option activity for the two quarters ended March 13, 2019 is presented in the following table:
 
Shares
Under
Fixed
Options
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
   (Per share) (In years) (In thousands)
Outstanding at August 29, 20181,653,414
 $4.10
 6.5
 $—
Forfeited(102,102) 4.10
 —
 —
Expired(87,302) 5.54
 —
 —
Outstanding at March 13, 20191,464,010
 $4.01
 6.3
 $—
Exercisable at March 13, 20191,217,957
 $4.19
 5.8
 $—

The intrinsic value for stock options is defined as the difference between the current market value, or closing price on March 13, 2019, and the grant price on the measurement dates in the table above.

At March 13, 2019, there was approximately $0.2 million of total unrecognized compensation cost related to unvested options that are expected to be recognized over a weighted-average period of 1.5 years.
Restricted Stock Units
Grants of restricted stock units consist of the Company’s common stock and generally vest after three years. All restricted stock units are cliff-vested. Restricted stock units are valued at the closing market price of the Company’s common stock at the date of grant.
A summary of the Company’s restricted stock unit activity during the two quarters ended March 13, 2019 is presented in the following table:
 
Restricted
Stock
Units
 
Weighted
Average
Fair Value
 
Weighted-
Average
Remaining
Contractual
Term
   (Per share) (In years)
Unvested at August 29, 2018517,291
 $3.79
 1.8
Vested(153,757) 4.66
 —
Forfeited(22,491) 3.60
 —
Unvested at March 13, 2019341,043
 $3.41
 1.5


At March 13, 2019, there was approximately $0.5 million of total unrecognized compensation cost related to unvested restricted stock units that is expected to be recognized over a weighted-average period of 1.5 years.

Performance Based Incentive Plan

For fiscal years 2015 - 2018, the Company approved a Total Shareholder Return ("TSR") Performance Based Incentive Plan (“Plan”). Each Plan’s award value varies from 0% to 200% of a base amount, as a result of the Company’s TSR performance in comparison to its peers over the respective measurement period. Each Plan’s vesting period is three years.
The Plans for fiscal years 2015 - 2017 provides for a right to receive an unspecified number of shares of common stock under the Employee Stock Plan based on the total shareholder return ranking compared to a selection of peer companies over the three-year vesting period, for each plan year. The number of shares at the end of the three-year period will be determined as the award value divided by the closing stock price on the last day of each fiscal year. Each three-year measurement period is designated a plan year name based on year one of the measurement period. Since the plans provide for an undeterminable number of awards, the plans are accounted for as liability based plans. The liability valuation estimate for each plan year has been determined based on a Monte Carlo simulation model. Based on this estimate, management accrues expense ratably over the three-year service periods. A valuation estimate of the future liability associated with each fiscal year's performance award plan is performed periodically with adjustments made to the outstanding liability at each reporting period to properly state the outstanding liability for all plan years in the aggregate as of the respective balance sheet date. As of March 13, 2019, the valuation estimate which represents the fair value of the performance awards liability for the 2017 plan year, resulted in an approximate $21 thousand decrease in the aggregate liability. The 2015 TSR Plan vested for each active participant on August 30, 2017 and a total of 187,883 shares were awarded, in the fiscal quarter ended December 20, 2017, under the Plan at 50% of the original target. The fair value of the 2015 Plan's liability in the amount of $496 thousand was converted to equity and the number of shares awarded for the 2015 TSR Plan was based on the Company's stock price at closing on the last day of fiscal 2017. The fair value of the 2016 TSR Plan was zero at the end of the three-year measurement period and at August 29, 2018 the 2016 TSR Plan was terminated with no shares vested due to the relative ranking of the Company's stock performance. The number of shares at the end of each plan's three-year periods will be determined as the award value divided by the Company's closing stock price on the last day of the plan's fiscal year.
The 2018 TSR Performance Based Incentive Plan provides for a specified number of shares of common stock under the Employee Stock Plan based on the total shareholder return ranking compared to a selection of peer companies over a three-year cycle. The Fair Value of the 2018 TSR Plan has been determined based on a Monte Carlo simulation model for the three-year period. The target number of shares for distribution at 100% of the plan was 373,294 on the grant date. The 2018 TSR Plan is accounted for as an equity award since the Plan provides for a specified number of shares. The expense for this Plan year is amortized over the three-year period based on 100% target award.
Non-cash compensation expense related to the Company's TSR Performance Based Incentive Plans, recorded in Selling, general and administrative expenses, was approximately $237 thousand and $72 thousand in the two quarters ended March 13, 2019 and March 14, 2018, respectively, and approximately $118 thousand and $(44) thousand for the quarters ended March 13, 2019 and March 14, 2018.
A summary of the Company’s restricted stock Performance Based Incentive Plan activity during the two quarters ended March 13, 2019 is presented in the following table:
 Units Weighted
Average
Fair Value
   (Per share)
Unvested at August 29, 2018373,294
 $3.68
Forfeited(19,864) 3.68
Unvested at March 13, 2019353,430
 $3.68

At March 13, 2019, there was approximately $0.7 million of total unrecognized compensation cost related to 2018 TSR Performance Based Incentive Plan that is expected to be recognized over a weighted-average period of 1.4 years.



Restricted Stock Awards
Under the Nonemployee Director Stock Plan, directors are granted restricted stock in lieu of cash payments, for all or a portion of their compensation as directors. Directors may receive a 20% premium of additional restricted stock by opting to receive stock over a minimum required amount of stock, in lieu of cash. The number of shares granted is valued at the average of the high and low price of the Company’s stock at the date of the grant. Restricted stock awards vest when granted because they are granted in lieu of a cash payment. However, directors are restricted from selling their shares until after the third anniversary of the date of the grant.
Note 14.16. Share-Based Compensation
We have 2 active share based stock plans, the Luby's Incentive Stock Plan, as amended and restated effective December 5, 2015 (the "Employee Stock Plan") and the Non-employee Director Stock Plan, as amended and restated effective February 9, 2018. Both plans authorize the granting of stock options, restricted stock, and other types of awards consistent with the purpose of the plans.
Of the aggregate 2.1 million shares approved for issuance under the Non-employee Director Stock Plan, as amended, 1.8 million options, restricted stock units and restricted stock awards have been granted to date, and 0.1 million options were canceled or expired and added back into the plan since the plan’s inception. As of March 11, 2020, approximately 0.4 million shares remain available for future issuance. Compensation costs for share-based payment arrangements under the Non-employee Director Stock Plan, recognized in selling, general and administrative expenses, for the two quarters ended March 11, 2020 and March 13, 2019 was approximately $390 thousand and $289 thousand, respectively, and approximately $237 thousand and $168 thousand for the quarters ended March 11, 2020 and March 13, 2019, respectively.

29

Of the aggregate 4.1 million shares approved for issuance under the Employee Stock Plan, as amended, 7.3 million options and restricted stock units have been granted to date, and 4.5 million options and restricted stock units were canceled or expired and added back into the plan since the plan’s inception in 2005. As of March 11, 2020, approximately 1.4 million shares remain available for future issuance. Compensation costs for share-based payment arrangements under the Employee Stock Plan, recognized in selling, general and administrative expenses, for the two quarters ended March 11, 2020 and March 13, 2019 was approximately $136 thousand and $296 thousand, respectively, and approximately $40 thousand and $113 thousand, respectively, for the quarters ended March 11, 2020 and March 13, 2019.
Stock Options
Stock options granted under either the Employee Stock Plan or the Non-employee Director Stock Plan have exercise prices equal to the market price of the Company’s common stock at the date of the grant.
Option awards under the Non-employee Director Stock Plan generally vest 100% on the first anniversary of the grant date and expire ten years from the grant date. NaN options were granted under the Non-employee Director Stock Plan in the two quarters ended March 11, 2020. NaN options to purchase shares were outstanding under this plan as of March 11, 2020.
Options granted under the Employee Stock Plan generally vest 50% on the first anniversary date of the grant date, 25% on the second anniversary of the grant date and 25% on the third anniversary of the grant date, with all options expiring ten years from the grant date. NaN options were granted in the two quarters ended March 11, 2020. Options to purchase 1,174,247 shares at option prices of $2.82 to $5.95 per share remain outstanding as of March 11, 2020.
A summary of the Company’s stock option activity for the two quarters ended March 11, 2020 is presented in the following table:
 Shares
Under
Fixed
Options		Weighted-
Average
Exercise
Price		Weighted-
Average
Remaining
Contractual
Term		Aggregate
Intrinsic
Value
  (Per share)(In years)(In thousands)
Outstanding at August 28, 20191,387,412  $4.06  5.7$—  
Cancelled / Forfeited(53,165) $4.54  —  —  
Expired(160,000) $3.44  —  —  
Outstanding at March 11, 20201,174,247  $4.12  5.9$—  
Exercisable at March 11, 20201,108,153  $4.20  5.8$—  

The intrinsic value for stock options is defined as the difference between the current market value, or closing price on March 11, 2020, and the grant price on the measurement dates in the table above.

At March 11, 2020, there was approximately $46 thousand of total unrecognized compensation cost related to unvested options that are expected to be recognized over a weighted-average period of 0.7 years.
Restricted Stock Units
Grants of restricted stock units consist of the Company’s common stock and generally vest after three years. All restricted stock units are cliff-vested. Restricted stock units are valued at the closing market price of the Company’s common stock at the date of grant.
A summary of the Company’s restricted stock unit activity during the two quarters ended March 11, 2020 is presented in the following table:
30

 Restricted
Stock
Units		Weighted
Average
Fair Value		Weighted-
Average
Remaining
Contractual
Term
  (Per share)(In years)
Unvested at August 28, 2019274,009  $3.40  1.2
Granted65,236  $2.27  —  
Vested(121,111) $4.27  —  
Unvested at March 11, 2020  218,134  $2.62  2.1
At March 11, 2020, there was approximately $0.2 million of total unrecognized compensation cost related to unvested restricted stock units that is expected to be recognized over a weighted-average period of 2.1 years.

Performance Based Incentive Plan

The 2018 TSR Performance Based Incentive Plan (the "2018 TSR Plan") provides for a specified number of shares of common stock under the Employee Stock Plan based on the total shareholder return ranking compared to a selection of peer companies over a period of three years. The grant date fair value of the 2018 TSR Plan was determined based on a Monte Carlo simulation model for a period of three years. The target number of shares for distribution at 100% of the award was 373,294 on the grant date. The 2018 TSR Plan is accounted for as an equity award since it provides for a specified number of shares. The expense for this plan year is amortized over a period of three years based on 100% target award.
Non-cash compensation expense related to the Company's TSR Performance Based Incentive Plans, recorded in selling, general and administrative expenses, was approximately $207 thousand and $237 thousand in the two quarters ended March 11, 2020 and March 13, 2019, respectively, and approximately $89 thousand and $118 thousand, respectively in the quarters ended March 11, 2020 and March 13, 2019.
A summary of the Company’s restricted stock Performance Based Incentive Plan activity during the two quarters ended March 11, 2020 is presented in the following table:
UnitsWeighted
Average
Fair Value
  (Per share)
Unvested at August 28, 2019266,443  $3.68  
Unvested at March 11, 2020266,443  $3.68  

At March 11, 2020, there was approximately $0.2 million of total unrecognized compensation cost related to 2018 TSR Performance Based Incentive Plan that is expected to be recognized over a weighted-average period of 0.5 years.

Restricted Stock Awards
Under the Non-employee Director Stock Plan, directors may be granted restricted stock in lieu of cash payments, for all or a portion of their compensation as directors. Directors may receive a 20% premium of additional restricted stock by opting to receive stock over a minimum required amount of stock, in lieu of cash. The number of shares granted is valued at the average of the high and low price of the Company’s stock at the date of the grant. Restricted stock awards vest when granted because they are granted in lieu of a cash payment. However, directors are restricted from selling their shares until after the third anniversary of the date of the grant. 
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Note 17. Earnings Per Share

Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of diluted net income per share, the basic weighted average number of shares is increased by the dilutive effect of stock options determined using the treasury stock method. Stock options excluded from the computation of net income per share for the quarter and two quarters ended ended March 11, 2020 and March 13, 2019 and the quarter ended March 11, 2020 include 1,174,247 shares, 1,464,010 shares and 1,174,247 shares, respectively with exercise prices exceeding market prices whose inclusion would also be anti-dilutive. 


The components of basic and diluted net loss per share are as follows:
 
 Quarter EndedTwo Quarters Ended
 March 11,
2020		March 13,
2019		March 11,
2020		March 13,
2019
 (12 weeks)(12 weeks)(28 weeks)(28 weeks)
 (In thousands, except per share data)
Numerator:  
Loss from continuing operations$(3,797) $6,640  $(12,124) $(843) 
Loss from discontinued operations, net of income taxes(6) (8) (17) (13) 
NET INCOME (LOSS)$(3,803) $6,632  $(12,141) $(856) 
Denominator:  
Denominator for basic earnings per share—weighted-average shares30,215  29,769  30,123  29,671  
Effect of potentially dilutive securities:  
Employee and non-employee stock options—  30  —  —  
Denominator for earnings per share assuming dilution30,215  29,799  30,123  29,671  
  
Income (loss) per share from continuing operations:
Basic$(0.13) $0.22  $(0.40) $(0.03) 
Assuming dilution$(0.13) $0.22  $(0.40) $(0.03) 
Loss per share from discontinued operations:
Basic$0.00  $0.00  $0.00  $0.00  
Assuming dilution$0.00  $0.00  $0.00  $0.00  
Net income (loss) per share:
Basic$(0.13) $0.22  $(0.40) $(0.03) 
Assuming dilution$(0.13) $0.22  $(0.40) $(0.03) 

32

 Quarter Ended Two Quarters Ended
 March 13,
2019		 March 14,
2018		 March 13,
2019		 March 14,
2018
 (12 weeks) (12 weeks) (28 weeks) (28 weeks)
 (In thousands, expect per share data)
Numerator:       
Income (loss) from continuing operations$6,640
 $(11,461) $(843) $(16,963)
Loss from discontinued operations, net of income taxes(8) (110) (13) (145)
NET INCOME (LOSS)$6,632
 $(11,571) $(856) $(17,108)
Denominator:       
Denominator for basic earnings per share—weighted-average shares29,769
 29,950
 29,671
 29,802
Effect of potentially dilutive securities:       
Employee and non-employee stock options30
 —
 —
 —
Denominator for earnings per share assuming dilution29,799
 29,950
 29,671
 29,802
Income (loss) per share from continuing operations:       
Basic$0.22
 $(0.38) $(0.03) $(0.57)
Assuming dilution$0.22
 $(0.38) $(0.03) $(0.57)
Loss per share from discontinued operations:       
Basic$(0.00) $(0.01) $(0.00) $(0.00)
Assuming dilution$(0.00) $(0.01) $(0.00) $(0.00)
Net income (loss) per share:       
Basic$0.22
 $(0.39) $(0.03) $(0.57)
Assuming dilution$0.22
 $(0.39) $(0.03) $(0.57)




Note 15: Shareholder Rights Plan
On February 15, 2018, the Board of Directors adopted a shareholder rights plan with a 10% triggering threshold and declared a dividend distribution of one right initially representing the right to purchase one half of a share of Luby’s common stock, upon specified terms and conditions. The rights plan was effective immediately.
The Board adopted the shareholder rights plan in view of the concentrated ownership of Luby’s common stock as a means to ensure that all of Luby’s stockholders are treated equally. The shareholder rights plan is designed to limit the ability of any person or group to gain control of Luby’s without paying all of Luby’s stockholders a premium for that control. The shareholder rights plan was not adopted in response to any specific takeover bid or other plan or proposal to acquire control of Luby’s.
If a person or group acquires 10% or more of the outstanding shares of Luby’s common stock (including in the form of synthetic ownership through derivative positions), each right will entitle its holder (other than such person or members of such group) to purchase, for $12, a number of shares of Luby’s common stock having a then-current market value of twice such price. The rights plan exempts any person or group owning 10% or more (35.5% or more in the case of Harris J. Pappas, Christopher J. Pappas and their respective affiliates and associates) of Luby’s common stock immediately prior to the adoption of the rights plan. However, the rights will be exercisable if any such person or group acquires any additional shares of Luby’s common stock (including through derivative positions) other than as a result of equity grants made by Luby’s to its directors, officers or employees in their capacities as such.
Prior to the acquisition by a person or group of beneficial ownership of 10% or more of the outstanding shares of Luby’s common stock, the rights are redeemable for 1 cent per right at the option of Luby’s Board of Directors.
The dividend distribution was made on February 28, 2018 to stockholders of record on that date. Unless and until a triggering event occurs and the rights become exercisable, the rights will trade with shares of Luby’s common stock.
Luby’s financial condition, operations, and earnings per share was not affected by the adoption of the shareholder rights plan.
On February 11, 2019, the Board of Directors approved the first amendment to the shareholder rights plant extending the term of the shareholder rights plan to February 15, 2020.



Note 16. Cash, Cash Equivalents18: Shareholder Rights Plan
On February 15, 2018, the Board of Directors adopted a shareholder rights plan with a 10% triggering threshold and Restricted Cash

declared a dividend distribution of one right initially representing the right to purchase one half of a share of Luby’s common stock, upon specified terms and conditions. The rights plan was effective immediately.
The following table providesBoard adopted the shareholder rights plan in view of the concentrated ownership of Luby’s common stock as a reconciliationmeans to ensure that all of cash, cash equivalents,Luby’s stockholders are treated equally. The shareholder rights plan is designed to limit the ability of any person or group to gain control of Luby’s without paying all of Luby’s stockholders a premium for that control. The shareholder rights plan was not adopted in response to any specific takeover bid or other plan or proposal to acquire control of Luby’s.
If a person or group acquires 10% or more of the outstanding shares of Luby’s common stock (including in the form of synthetic ownership through derivative positions), each right will entitle its holder (other than such person or members of such group) to purchase, for $12, a number of shares of Luby’s common stock having a then-current market value of twice such price. The rights plan exempts any person or group owning 10% or more (35.5% or more in the case of Harris J. Pappas, Christopher J. Pappas and restricted cash reported within the statementstheir respective affiliates and associates) of financial position that sumLuby’s common stock immediately prior to the totaladoption of the samerights plan. However, the rights will be exercisable if any such amounts shownperson or group acquires any additional shares of Luby’s common stock (including through derivative positions) other than as a result of equity grants made by Luby’s to its directors, officers or employees in their capacities as such.
Prior to the statementacquisition by a person or group of cash flows:
 March 13,
2019		 August 29,
2018
 (in thousands)
Cash and cash equivalents$3,907
 $3,722
Restricted cash and cash equivalents10,832
 —
Total cash and cash equivalents shown in the statement of cash flows$14,739
 $3,722

Amounts included in restricted cash represent those required to be set aside for (1) maximum amountbeneficial ownership of interest payable in the next 12 months under the 2018 Credit Agreement (see Note 12), (2) collateral for letters of credit issued for potential insurance obligations, which letters of credit expire in 2019 and (3) pre-funding10% or more of the credit limit under our corporate purchasing card program.outstanding shares of Luby’s common stock, the rights are redeemable for $0.01 per right at the option of Luby’s Board of Directors.
The dividend distribution was made on February 28, 2018 to stockholders of record on that date. Unless and until a triggering event occurs and the rights become exercisable, the rights will trade with shares of Luby’s common stock.

Luby’s financial condition, operations, and earnings per share was not affected by the adoption of the shareholder rights plan.
On February 11, 2019, the Board of Directors approved the first amendment to the shareholder rights plan extending the term of the shareholder rights plan to February 15, 2020.
On February 14, 2020, the Board of Directors approved the second amendment to the shareholder rights plan extending the term of the plan to February 15, 2021.

33



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the unaudited Consolidated Financial Statements and footnotes for the quarter ended March 13, 201911, 2020 included in Item 1 of Part I of this Quarterly Report on Form 10 (this “Form 10-Q”), and the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended August 29, 2018.28, 2019.
 
The following presents an analysis of the results and financial condition of our continuing operations. Except where indicated otherwise, the results of discontinued operations are excluded from this discussiondiscussion.


The following table sets forth selected operating data as a percentage of total sales (unless otherwise noted) for the periods indicated. All information is derived from the accompanying consolidated statements of income.


Percentages in the table on the following page may not total due to rounding.



34

Quarter Ended Two Quarters Ended Quarter EndedTwo Quarters Ended
March 13,
2019		 March 14,
2018		 March 13,
2019		 March 14,
2018		 March 11,
2020		March 13,
2019		March 11,
2020		March 13,
2019
(12 weeks) (12 weeks) (28 weeks) (28 weeks)(12 weeks)(12 weeks)(28 weeks)(28 weeks)
Restaurant sales87.8 % 90.9 % 88.2 % 91.6 %Restaurant sales88.1 %87.8 %87.9 %88.2 %
Culinary contract services10.1 % 7.2 % 9.6 % 6.5 %Culinary contract services10.2 %10.1 %10.2 %9.6 %
Franchise revenue1.9 % 1.7 % 2.1 % 1.7 %Franchise revenue1.7 %1.9 %1.8 %2.1 %
Vending revenue0.1 % 0.2 % 0.1 % 0.2 %Vending revenue— %0.1 %0.1 %0.1 %
TOTAL SALES100.0 % 100.0 % 100.0 % 100.0 %TOTAL SALES100.0 %100.0 %100.0 %100.0 %
       
STORE COSTS AND EXPENSES:       STORE COSTS AND EXPENSES:  
(As a percentage of restaurant sales)       (As a percentage of restaurant sales)  
       
Cost of food27.8 % 28.5 % 27.6 % 28.5 %Cost of food28.8 %27.8 %28.7 %27.6 %
Payroll and related costs37.8 % 38.3 % 37.9 % 37.2 %Payroll and related costs39.4 %37.8 %38.8 %37.9 %
Other operating expenses17.5 % 19.3 % 17.8 % 18.9 %Other operating expenses16.7 %17.5 %17.3 %17.8 %
Occupancy costs6.4 % 6.3 % 6.4 % 6.1 %Occupancy costs6.3 %6.4 %6.1 %6.4 %
Vending revenue(0.1)% (0.2)% (0.1)% (0.2)%Vending revenue— %(0.1)%(0.1)%(0.1)%
Store level profit10.7 % 7.7 % 10.4 % 9.4 %Store level profit8.9 %10.7 %9.2 %10.4 %
       
COMPANY COSTS AND EXPENSES:       COMPANY COSTS AND EXPENSES:  
(As a percentage of total sales)       (As a percentage of total sales)  
       
Opening costs0.0 % 0.4 % 0.0 % 0.2 %Opening costs0.0 %0.0 %0.0 %0.0 %
Depreciation and amortization4.3 % 4.9 % 4.6 % 4.8 %Depreciation and amortization3.9 %4.3 %3.9 %4.6 %
Selling, general and administrative expenses12.1 % 11.2 % 11.4 % 10.6 %Selling, general and administrative expenses9.9 %10.4 %10.4 %10.0 %
Net loss (gain) on disposition of property and equipment(17.0)% (0.2)% (7.0)% 0.0 %
Other ChargesOther Charges2.2 %1.7 %1.7 %1.4 %
Provision for asset impairments and restaurant closingsProvision for asset impairments and restaurant closings1.0 %1.6 %1.1 %1.4 %
Net gain on disposition of property and equipmentNet gain on disposition of property and equipment(3.7)%(17.0)%(1.5)%(7.0)%
       
Culinary Contract Services Costs       Culinary Contract Services Costs  
(As a percentage of Culinary Contract Services sales)       (As a percentage of Culinary Contract Services sales)  
       
Cost of culinary contract services89.0 % 96.4 % 91.2 % 94.0 %Cost of culinary contract services91.5 %89.0 %91.5 %91.2 %
Culinary segment profit11.0 % 3.6 % 8.8 % 6.0 %Culinary segment profit8.5 %11.0 %8.5 %8.8 %
       
Franchise Operations Costs       Franchise Operations Costs  
(As a percentage of Franchise revenue)
       
(As a percentage of Franchise revenue)
  
       
Cost of franchise operations17.4 % 26.3 % 14.2 % 26.0 %Cost of franchise operations35.3 %17.4 %34.0 %14.2 %
Franchise segment profit82.6 % 73.7 % 85.8 % 74.0 %Franchise segment profit64.7 %82.6 %66.0 %85.8 %
       
(As a percentage of total sales)       (As a percentage of total sales)  
Total costs and expensesTotal costs and expenses
INCOME (LOSS) FROM OPERATIONS11.0 % (9.5)% 1.4 % (6.5)%INCOME (LOSS) FROM OPERATIONS(3.5)%11.0 %(5.5)%1.4 %
Interest income0.0 % 0.0 % 0.0 % 0.0 %Interest income0.0 %0.0 %0.0 %0.0 %
Interest expense(2.1)% (0.7)% (1.8)% (0.6)%Interest expense(2.1)%(2.1)%(2.1)%(1.8)%
Other income, net0.1 % 0.2 % 0.0 % 0.2 %Other income, net0.2 %0.1 %0.2 %0.0 %
Income (loss) before income taxes and discontinued operations9.0 % (9.9)% (0.4)% (7.0)%Income (loss) before income taxes and discontinued operations(5.4)%9.0 %(7.3)%(0.4)%
Provision for income taxes0.1 % 4.1 % 0.1 % 1.7 %Provision for income taxes0.1 %0.1 %0.1 %0.1 %
Income (loss) from continuing operations8.9 % (14.0)% (0.5)% (8.7)%Income (loss) from continuing operations(5.5)%8.9 %(7.4)%(0.5)%
Loss from discontinued operations, net of income taxes(0.0)% (0.1)% 0.0 % (0.1)%Loss from discontinued operations, net of income taxes0.0 %0.0 %0.0 %0.0 %
NET INCOME (LOSS)8.9 % (14.1)% (0.5)% (8.8)%NET INCOME (LOSS)(5.5)%8.9 %(7.4)%(0.5)%

35






Although store level profit, defined as restaurant sales less cost of food, payroll and related costs, other operating expenses, and occupancy costs is a non-GAAP measure, we believe its presentation is useful because it explicitly shows the results of our most significant reportable segment. The following table reconciles between store level profit, a non-GAAP measure, to loss from continuing operations, a GAAP measure:
Quarter Ended Two Quarters Ended Quarter EndedTwo Quarters Ended
March 13,
2019		 March 14,
2018		 March 13,
2019		 March 14,
2018		 March 11,
2020		March 13,
2019		March 11,
2020		March 13,
2019
(12 weeks) (12 weeks) (28 weeks) (28 weeks) (12 weeks)(12 weeks)(28 weeks)(28 weeks)
(In thousands) (In thousands) (In thousands)(In thousands)
Store level profit$7,007
 $5,743
 $16,233
 $16,826
Store level profit$5,376  $7,006  $13,184  $16,233  
       
Plus:       Plus:    
Sales from culinary contract services7,543
 5,889
 17,039
 12,774
Sales from culinary contract services6,998  7,543  16,772  17,039  
Sales from franchise operations1,421
 1,401
 3,644
 3,288
Sales from franchise operations1,158  1,421  2,865  3,644  
       
Less:       Less:    
Opening costs11
 331
 44
 406
Opening costs2  11  14  44  
Cost of culinary contract services6,717
 5,677
 15,532
 12,009
Cost of culinary contract services6,400  6,717  15,348  15,532  
Cost of franchise operations247
 369
 519
 856
Cost of franchise operations409  247  974  519  
Depreciation and amortization3,222
 3,998
 8,126
 9,351
Depreciation and amortization2,677  3,222  6,440  8,126  
Selling, general and administrative expenses9,017
 9,188
 20,240
 20,712
Selling, general and administrative expenses6,816  7,753  16,974  17,763  
Other ChargesOther Charges1,509  1,263  2,748  2,477  
Provision for asset impairments and restaurant closings1,195
 1,407
 2,422
 2,252
Provision for asset impairments and restaurant closings661  1,195  1,770  2,422  
Net loss (gain) on disposition of property and equipment(12,651) (204) (12,501) 18
Net gain on disposition of property and equipmentNet gain on disposition of property and equipment(2,527) (12,651) (2,498) (12,501) 
Interest income(19) (5) (19) (11)Interest income(5) (19) (28) (19) 
Interest expense1,554
 545
 3,269
 1,194
Interest expense1,473  1,554  3,435  3,269  
Other income, net(55) (194) (86) (309)Other income, net(148) (55) (388) (86) 
Provision for income taxes93
 3,382
 213
 3,373
Provision for income taxes62  93  156  213  
Income (loss) from continuing operations$6,640
 $(11,461) $(843) $(16,963)Income (loss) from continuing operations$(3,797) $6,640  $(12,124) $(843) 
  
The following table shows our restaurant unit count as of August 29, 201828, 2019 and March 13, 2019.11, 2020.
 
Restaurant Counts:
 
August 29,
2018		 FY19 YTD Q2
Openings		 FY19 YTD Q2
Closings		 March 13,
2019		 August 28,
2019		FY20 YTDQ2
Openings		FY20 YTDQ2
Closings		March 11,
2020
Luby’s Cafeterias84
 —
 (3) 81
Luby’s Cafeterias79  —  (1) 78  
Fuddruckers Restaurants60
 —
 (6) 54
Fuddruckers Restaurants44  —  (5) 39  
Cheeseburger in Paradise2
 —
 (1) 1
Cheeseburger in Paradise1  —  —  1  
Total146
 —
 (10) 136
Total124  —  (6) 118  
 

















36


Overview
 
Luby’s, Inc. (“Luby’s”, the “Company”, "we", "us", or "our") is a multi-branded company operating in the restaurant industry and in the contract food services industry. Our primary brands include Luby’s Cafeteria, Fuddruckers - World’s Greatest Hamburgers®, Luby’s Culinary Contract Services and Cheeseburger in Paradise.
Our Company’s vision is that our guests, employees and shareholders stay loyal to our restaurant brands and value them as a significant part of their lives. We want our company’s performance to make it a leader in our industry.
 
We are headquartered in Houston, Texas. Our corporate headquarters is located at 13111 Northwest Freeway, Suite 600, Houston, Texas 77040, and our telephone number at that address is (713) 329-6800. Our website is www.lubysinc.com. The information on our website is not, and shall not be deemed to be, a part of this Form 10-Q or incorporated by reference into any of our other filings with the SEC.
 
As of March 13, 2019,11, 2020, we owned and operated 136118 restaurants, of which 8178 are traditional cafeterias, 5439 are gourmet hamburger restaurants, and one is a casual dining restaurant and bar. These establishments are located in close proximity to retail centers, business developments and residential areas mostly throughout the United States. Included in the 136118 restaurants that we own and operate are 12 restaurants located at six property locations where we operate a side-by-side Luby’s Cafeteria and Fuddruckers on the same property. We refer to these locations as “Combo locations.”
 
As of March 13, 2019,11, 2020, we operated 3328 Culinary Contract Services locations. We operated 2422 of these locations in the Houston, Texas area, three in Dallas, Texas, three in the Texas Lower Rio Grande Valley, two in Dallas, Texas, and two in San Antonio, Texas, and one in northwest Texas. Outside of Texas we operated one locationin Kansas, and one in North Carolina. Luby’s Culinary Contract Services currently provides food service management to hospitals, corporate dining facilities, sports stadiums, and a senior care facility.
 
As of March 13, 2019,11, 2020, we had 41 franchisees37 franchise owners operating 10290 Fuddruckers restaurants. Our largest five6 franchise owners own five to twelve restaurants each. Fifteeneach and 12 franchise owners each own two to four restaurants. The 2119 remaining franchise owners each own one restaurant.

Recent Developments

Special Committee Update
On June 3, 2020, the Company announced that, upon the recommendation of a Special Committee of the Board of Directors, the full Board approved a plan to pursue the sale of the Company’s operating divisions and assets, including its real estate assets, and distribute the net proceeds to stockholders after payment of the Company’s debts and other obligations.During the sale process, certain of the Company’s restaurants will remain open to continue serving our guests.The decision by the Company’s Board of Directors follows a comprehensive review of the Company’s operations and assets led by a Special Committee, which reviewed a range of strategic alternatives available to the Company with the objective of maximizing stockholder value.
The Company has not established a definitive timeframe for completing this process which most likely will lead to the adoption by the Board of Directors of a formal plan of sale and proceeds distribution followed by an orderly wind down of any remaining operations. Such a plan of sale and proceeds distribution, if adopted by the Board, would require stockholder approval.There can be no assurance such a plan of sale and proceeds distribution will be adopted by the Board or approved by stockholders.The Company has retained Duff & Phelps Securities, LLC to assist it with the sale of Luby’s Cafeteria and Culinary Contract Services and has retained Brookwood Associates LLC to assist it with the sale of Fuddruckers.

COVID-19 Pandemic
On March 13, 2020, President Trump declared a national emergency in response to the novel coronavirus disease ("COVID-19") pandemic. On March 19, 2020, Governor Greg Abbott of Texas issued a public health disaster for the state of Texas to bring the entire state in line with CDC guidelines including, (1) closing of schools statewide, (2) ban on dine-in eating and gatherings of groups of more than 10 people, and (3) closing of gyms and bars. Governor Abbott followed with an essential services order on March 31, 2020, requiring anyone who is not considered an essential, critical infrastructure worker to stay home except for essential activity, essential businesses, essential government functions and critical care facilities. Most other states, including those states where we operate, have issued similar orders. The governor of Texas began relaxing some restrictions on businesses operating in Texas beginning May 1, 2020, which permitted a gradual reopening of businesses, including restaurants, with modified operations..
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The spread of the COVID-19 pandemic has affected the United States economy, our operations and those of third parties on which we rely. Beginning on March 17, 2020, we began suspending on-premise dining at our restaurants and substantially all employees at those locations were placed on furlough. By March 31, 2020 we had suspended on-premise dining at all 118 of our company-owned restaurants and had suspended all operations at 50 of our Luby's Cafeteria's, 36 company-owned Fuddruckers restaurants and our one Cheeseburger in Paradise restaurant. The 28 Luby's Cafeteria's and 3 Fuddruckers restaurants that remained open were providing take-out, drive-through and curbside pickup, or delivery with reduced operating hours and on-site staff. In addition, more than 50 percent of our general and administrative staff were placed on furlough and salaries were temporarily reduced by 50 percent for the remaining general and administrative staff and other salaried employees, including all senior management. Furthermore, our franchise owners suspended operations or moved to limited food-to-go operations at their locations, reducing the number of franchise locations in operation to 37 from 90.
Beginning in May 2020, we began to gradually reopen the dining rooms with state-mandated limits on guest capacity at the 28 Luby's locations and 3 Fuddruckers locations that had been previously operating with food-to-go service only. We also began to reopen restaurants that were temporarily closed. As of the date of this filing, there were 31 Luby's Cafeteria's and 8 Fuddruckers restaurants operating, all of which had their dining rooms open at limited capacity; these restaurants were operating at approximately 75% to 80% of their pre-pandemic weekly sales levels. Additionally, there were 59 franchise locations in operation as of the date of this release.
The full extent and duration of the impact of the COVID-19 pandemic on our operations and financial performance is currently unknown, and depends on future developments that are uncertain and unpredictable, including the duration of the spread of the pandemic, its impact of capital and financial markets on a macro-scale and any new information that may emerge concerning the severity of the virus, its spread to other regions, the actions to contain the virus or treat its impact, and consumer attitudes and behaviors, among others.
We are currently evaluating the potential short-term and long-term implications of the COVID-19 pandemic on our consolidated financial statements. The potential impacts will occur as early as the third quarter of fiscal 2020, and include, but are not limited to: impairment of long-lived assets, including property and equipment, definite-lived intangible assets and operating lease right-of-use assets related to our restaurants, impairment of goodwill and collectability of receivables.
Payroll Protection Plan (PPP) Loan and Credit Facility Debt Modification
On April 21, 2020 we entered into a promissory note with Texas Capital Bank, N.A., effective April 12, 2020 that provides for a loan in the amount of $10.0 million (the "PPP Loan") pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). The PPP Loan matures on April 12, 2022 and bears interest at a rate of 1.0% per annum. Monthly amortized principle and interest payments are deferred for six months after the date of disbursement. The PPP Loan funds were received on April 21, 2020. The PPP Loan contains events of default and other provisions customary for a loan of this type. The Payroll Protection Program provides that the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially forgiven in accordance with the terms of CARES Act to the extent applicable. We are not yet able to determine the amount that might be forgiven.
Additionally, we entered into the Third Amendment to Credit Agreement, dated April 21, 2020 (the "Third Amendment"). The Credit Agreement is further described in the Debt section below. The Third Amendment permitted us to incur indebtedness under the PPP Loan and terminated the $5.0 million undrawn portion of the delayed draw term loan upon receipt of the PPP Loan. Effective with this Third Amendment we have no undrawn borrowing capacity under the Credit Agreement.
Going Concern
The Company sustained a net loss of approximately $15.2 million and cash flow from operations was a use of cash of approximately $13.1 million in fiscal year ended August 28, 2019. In the two quarters ended March 11, 2020 (a period prior to the COVID-19 pandemic), the Company sustained a net loss of $12.1 million and cash flow from operations was a use of cash of $5.9 million. On March 13, 2020, shortly after the end of the Company's second quarter, President Trump declared a national emergency in response to the COVID-19 pandemic followed by Governor Greg Abbott of Texas issuing a public health disaster for the state of Texas on March 19, 2020. The Company took the necessary actions described "COVID-19 Pandemic", above, which further stressed the liquid financial resources of the Company. In response, the company borrowed the remaining $1.4 million available on its revolving line of credit with MSD Capital, borrowed $2.5 million on its Delayed Draw Term Loan, and applied for and received a $10.0 million PPP Loan as described above. As of the date of this filing, the Company has no undrawn borrowing capacity under the Credit Agreement. Further, the Company does not believe that it would be able to secure any additional debt financing currently.
The full extent and duration of the impact of the COVID-19 pandemic on our operations and financial performance is currently unknown. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations and its ability to generate proceeds from real estate property sales to meet its obligations. The above conditions and
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events, in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern. Notwithstanding the aforementioned substantial doubt, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern Management has assessed the Company’s ability to continue as a going concern as of the balance sheet date, and for at least one year beyond the financial statement issuance date. The assessment of a company’s ability to meet its obligations is inherently judgmental.
On June 3, 2020, the Company announced that the Board of Directors of the Company will aggressively pursue a sale of its operations and assets and distribute the net proceeds to our stockholder, after payment of debt and other obligations. This course of action is more fully explained in "Special Committee Update" above. We have not established a timeframe, nor have we committed to a plan, but such a plan could extend beyond one year. Until an actionable plan is approved, we believe we will be able to meet our obligations for the next 12 months when they come due through 1) cash flow from operating certain restaurants, 2) available cash balances, and 3) proceeds generated from real estate property sales as discussed below.
Throughout April and May of 2020, the Company reviewed and modified many aspects of its operating plan within its restaurants and corporate overhead. The Company is now operating at an increased level of operational cost efficiency. These efforts are expected to mitigate the adverse impacts of COVID-19. Additionally, the sale of some assets will likely be necessary for the Company to generate cash to fund its operations. The Company has historically been able to successfully generate proceeds from property sales. Although the Company has been successful in these endeavors in the past, there are no assurances the Company will generate sufficient funds to meet all its obligations as they become due. The following conditions were considered in management’s evaluation of going concern and its efforts to mitigate that concern:
•Revamping restaurant operations to generate cost efficiencies resulting in higher restaurant operating margins even if sales levels do not return to pre-COVID-19 pandemic levels. As the restaurants adapted to the new operating environment, a lower cost labor model was deployed, food costs declined as menu offerings were concentrated among the historically top selling items, and various restaurant service and supplier costs were reevaluated.
•Restructuring of corporate overhead earlier in calendar 2020 prior to the pandemic, including a transition to 3rd party provider for certain accounting and payroll function. Significant further restructuring took place in April and May of 2020, as we reviewed all corporate service providers, information technology needs, and personnel requirements to support a reduced level of operations going forward.
•Securing the PPP Loan which was necessary for funding continuing operations. We believe that a portion of the loan will be eligible for forgiveness; however, that amount cannot currently be calculated.
•Continued efforts to close real estate sales transactions with anticipated aggregate sales proceeds in excess of $20.0 million prior to the end of fiscal 2020. In addition, we have identified other real estate properties that may be sold to generate funds for ongoing operations should the identification of a buyer for one or more of the operating divisions not occur timely.
We believe these plans are sufficient to overcome the significant doubt whether we can meet our liquidity needs for the 12 months from the issuance of these financial statements. However, we can not predict with certainty that these efforts will be successful or sufficient.
Accounting Periods
The Company’s fiscal year ends on the last Wednesday in August. Accordingly, each fiscal year normally consists of 13 four-week periods, or accounting periods, accounting for 364 days in the aggregate. However, every fifth or sixth year, we have a fiscal year that consists of 53 weeks, accounting for 371 days in the aggregate. The first fiscal quarter consists of four four-week periods, or 16 weeks, and the remaining three quarters typically includes three four-week periods, or 12 weeks, in length. The fourth fiscal quarter includes 13 weeks in certain fiscal years to adjust for our standard 52 week, or 364 day, fiscal year compared to the 365 day calendar year. Comparability between quarters may be affected by the varying lengths of the quarters, as well as the seasonality associated with the restaurant business.
 
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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. Our same-store sales calculation measures the relative performance of a certain group of restaurants. A restaurant’s sales results are included in the same-store sales calculation in the quarter after a store has been open for six consecutive fiscal quarters. Stores that close on a permanent basis (or on a temporary basis for remodeling) are removed from the group in the quarter when operations cease at the restaurant, but remain in the same-store group for previously reported quarters. 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.




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RESULTS OF OPERATIONS
 
Quarter Ended March 13, 201911, 2020 Compared to Quarter Ended March 14, 201813, 2019
 
Comparability between quarters is affected by the varying lengths of the quarters and quarters ending at different points in the calendar year when seasonal patterns for sales are different. Both the quarter ended March 13, 201911, 2020 and the quarter ended March 14, 201813, 2019 consisted of 12 weeks.


Sales
 Quarter
Ended		Quarter
Ended
($000s)March 11,
2020		March 13,
2019		Increase/
(Decrease)
 (12 weeks)(12 weeks)(12 weeks vs 12 weeks)
Restaurant sales$60,391  $65,369  $(4,978) (7.6)%
Culinary contract services6,998  7,543  (545) (7.2)%
Franchise revenue1,158  1,421  (263) (18.5)%
Vending revenue14  90  (76) (84.4)%
TOTAL SALES$68,561  $74,423  $(5,862) (7.9)%
 Quarter
Ended		 Quarter
Ended		  
($000s)March 13,
2019		 March 14,
2018		 Increase/
(Decrease)
 (12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Restaurant sales$65,369
 $74,352
 $(8,983) (12.1)%
Culinary contract services7,543
 5,889
 1,654
 28.1 %
Franchise revenue1,421
 1,401
 20
 1.4 %
Vending revenue90
 151
 (61) (40.4)%
TOTAL SALES$74,423
 $81,793
 $(7,370) (9.0)%

 Two Quarters Ended Two Quarters Ended  
($000s)March 13,
2019		 March 14,
2018		 Increase/
(Decrease)
 (28 weeks) (28 weeks) (28 weeks vs 28 weeks)
Restaurant sales$156,468
 $178,934
 $(22,466) (12.6)%
Culinary contract services17,039
 12,774
 4,265
 33.4 %
Franchise revenue3,644
 3,288
 356
 10.8 %
Vending revenue190
 294
 (104) (35.4)%
TOTAL SALES$177,341
 $195,290
 $(17,949) (9.2)%




The Company has threefive reportable segments: Company-ownedLuby's cafeterias, Fuddruckers restaurants, Cheeseburger in Paradise, Fuddruckers franchise operations, and culinaryCulinary contract services.
 
Company-Owned Restaurants
 
Restaurant Sales
($000s)
Quarter
Ended
 
Quarter
Ended
  ($000s) Quarter
Ended		Quarter
Ended
Restaurant BrandMarch 13, March 14, Increase/(Decrease)Restaurant BrandMarch 11,March 13,Increase/(Decrease)
2019 2018 $ Amount % Change20202019$ Amount% Change
(12 weeks) (12 weeks) (12 weeks vs 12 weeks) (12 weeks)(12 weeks)(12 weeks vs 12 weeks)
Luby’s Cafeterias$44,366
 $47,261
 $(2,895)
(6.1)% Luby’s Cafeterias$43,302  $44,266  $(964) (2.2)%
Fuddruckers16,156
 19,941
 (3,785)
(19.0)%
Combo locations4,355
 4,685
 (330)
(7.0)% Combo locations4,653  4,355  298  6.8 %
Cheeseburger in Paradise592
 2,465
 (1,873)
(76.0)%
Other Revenue(100) —
 (100)  
Luby's cafeteria segmentLuby's cafeteria segment47,955  48,621  (666) (1.4)%
Fuddruckers restaurants segmentFuddruckers restaurants segment11,789  16,156  (4,367) (27.0)%
Cheeseburger in Paradise segmentCheeseburger in Paradise segment647  592  55  9.3 %
Total Restaurant Sales$65,369
 $74,352
 $(8,983)
(12.1)%Total Restaurant Sales$60,391  $65,369  $(4,978) (7.6)%
 

Total restaurant sales decreased approximately $5.0 million in the quarter ended March 11, 2020 compared to the quarter ended March 13, 2019. The decrease in restaurant sales included an approximate $4.4 million decrease in sales at stand-alone Fuddruckers restaurants, and approximate $1.0 million decrease in sales at stand-alone Luby's Cafeterias, and an approximate $0.1 million increase in sales at Cheeseburger in Paradise restaurants, partially offset by an approximate $0.3 million increase in sales from Combo locations.



•The approximate $2.9$1.0 million sales decrease in sales at stand-alone Luby's Cafeteria restaurants was the result of the closure of sevenfour locations over the prior year and(accounting for approximately $2.8 million in reduced sales) partially offset by a 2.2% decrease1.3% increase in Luby’s Cafeteria same-store sales in the quarter ended March 13, 201911, 2020 compared to the quarter ended March 14, 2018.13, 2019. The 2.2% decrease1.3% increase in Luby's Cafeteria same-store sales was the result of a 4.0% decrease0.7% increase in guest traffic partially offset byand a 1.9%0.6% increase in average spend per guest.

•The approximate $3.8$4.4 million sales decrease at stand-alone Fuddruckers restaurants was the result of 13 restaurant closings and seven restaurant transfers to a franchise owner's operations (accounting for approximately $6.0 million of this sales decline combined) partially offset by a 0.4% increase in same-store sales in the quarter ended March 11,
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2020 compared to the quarter ended March 13, 2019. The 0.4% increase in same-store sales was the result of a 0.3% increase in guest traffic and a 0.1% increase in average spend per guest.

•The approximate $0.3 million increase in sales from Combo locations reflects a 6.8% increase in sales at the six locations that operated throughout the quarter ended March 11, 2020 and the quarter ended March 13, 2019.

•The approximate $0.1 million increase in Cheeseburger in Paradise restaurants sales in the quarter ended March 11, 2020 compared to the quarter ended March 13, 2019 was the result of a 9.4% increase at the remaining location.


 Two Quarters EndedTwo Quarters Ended
($000s)March 11,
2020		March 13,
2019		Increase/
(Decrease)
 (28 weeks)(28 weeks)(28 weeks vs 28 weeks)
Restaurant sales$143,949  $156,468  $(12,519) (8.0)%
Culinary contract services16,772  17,039  (267) (1.6)%
Franchise revenue2,865  3,644  (779) (21.4)%
Vending revenue124  190  (66) (34.7)%
TOTAL SALES$163,710  $177,341  $(13,631) (7.7)%

The Company has five reportable segments: Luby's cafeterias, Fuddruckers restaurants, Cheeseburger in Paradise, Fuddruckers franchise operations, and Culinary contract services.
Company-Owned Restaurants
Restaurant Sales
($000s) Two Quarters EndedTwo Quarters Ended
Restaurant BrandMarch 11,March 13,Increase/(Decrease)
20202019$ Amount% Change
 (28 weeks)(28 weeks)(28 weeks vs 28 weeks)
   Luby’s Cafeterias$104,086  $106,910  $(2,824) (2.6)%
   Combo locations11,012  10,319  $693  6.7 %
Luby's cafeteria segment115,098  117,229  $(2,131) (1.8)%
Fuddruckers restaurants segment27,359  37,689  (10,330) (27.4)%
Cheeseburger in Paradise segment1,492  1,550  (58) (3.7)%
Total Restaurant Sales$143,949  $156,468  $(12,519) (8.0)%
Total restaurant sales decreased approximately $12.5 million in the two quarters ended March 11, 2020 compared to the two quarters ended March 13, 2019. The decrease in restaurant sales included an approximate $10.3 million decrease in sales at stand-alone Fuddruckers restaurants, and approximate $2.8 million decrease in sales at stand-alone Luby's Cafeterias, and an approximate $0.1 million decrease in sales at Cheeseburger in Paradise restaurants, partially offset by an approximate $0.7 million increase in sales from Combo locations.

•The approximate $2.8 million sales decrease in sales at stand-alone Luby's Cafeteria restaurants was the result of the closure of 6 locations (accounting for approximately $4.4 million in reduced sales) partially offset by a 1.5% increase in Luby’s Cafeteria same-store sales in the two quarters ended March 11, 2020 compared to the two quarters ended March 13, 2019. The 1.5% increase in Luby's Cafeteria same-store sales was the result of a 1.4% increase in guest traffic and a 0.1% increase in average spend per guest.

•The approximate $10.3 million sales decrease at stand-alone Fuddruckers restaurants was the result of 14 restaurant closings and seven restaurant transfers to a 5.3% decreasefranchise owner's operations (accounting for approximately $10.4 million of this sales decline combined) partially offset by a 0.2% increase in same-store sales in the quartertwo quarters ended
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March 11, 2020 compared to the two quarters ended March 13, 2019 compared to the quarter ended March 14, 2018.2019. The 5.3% decrease0.2% increase in same-store sales was the result of a 9.3% decrease1.6% increase in guest traffic, partially offset by a 4.4% increase1.4% decrease in average spend per guest. All six

•The approximate $0.7 million increase in sales from Combo locations are includedreflects a 6.7% increase in our same-store grouping and sales at this group of restaurants decreased 7.0% in the quartersix locations that operated throughout the two quarters ended March 11, 2020 and the two quarters ended March 13, 2019 compared to the quarter ended March 14, 2018. 2019.

•The approximate $1.9$0.1 million decrease in Cheeseburger in Paradise restaurants sales in the quartertwo quarters ended March 13, 2019 compared to the quarter ended March 14, 2018 was primarily the result of seven store closures. Other revenue in the quarter ended March 13, 2019 reflects a $0.1 million net reduction in revenue due to amortization of the discounts on gift cards sold to third parties, partially offset by recognizing revenue associated with gift card breakage.

 Two Quarters Ended Two Quarters Ended  
Restaurant BrandMarch 13, March 14, Increase/(Decrease)
($000s) 2019 2018 $ Amount % Change
 (28 weeks) (28 weeks) (28 weeks vs 28 weeks)
Luby’s Cafeterias$107,153
 $114,689
 $(7,536) (6.6)%
Fuddruckers37,689
 46,854
 (9,165) (19.6)%
Combo locations10,319
 11,398
 (1,079) (9.5)%
Cheeseburger in Paradise1,550
 5,993
 (4,443) (74.1)%
Other Revenue(243)   (243)  
Total Restaurant Sales$156,468
 $178,934
 $(22,466) (12.6)%

The approximate $7.5 million sales decrease in stand-alone Luby's Cafeteria restaurants was the result of a 2.6% decrease in same-store sales and the closure of seven locations (accounting for approximately $4.5 million of this sales decline)11, 2020 compared to the two quarters ended March 14, 2018. The 2.6% decrease in Luby's Cafeteria same-store sales13, 2019 was the result of a 7.8% decrease in guest traffic partially offset by a 5.6% increase in average spend per guest. The approximate $9.2 million sales3.7% decrease at stand-alone Fuddruckersthe remaining location.

Cost of Food
 Quarter
Ended		Quarter
Ended
($000s)March 11, 2020March 13, 2019Increase/
(Decrease)
 (12 weeks)(12 weeks)(12 weeks vs 12 weeks)
Cost of food:
Luby's cafeteria segment$13,892  $13,797  $95  0.7 %
Fuddruckers restaurants segment3,306  4,142  (836) (20.2)%
Cheeseburger in Paradise segment200  207  (7) (3.4)%
Total Restaurants$17,398  $18,146  $(748) (4.1)%
As a percentage of restaurant sales
Luby's cafeteria segment29.0 %28.4 %0.6 %
Fuddruckers restaurants segment28.0 %25.6 %2.4 %
Cheeseburger in Paradise segment31.0 %34.9 %(3.9)%
Total Restaurants28.8 %27.8 %1.0 %


Cost of food is comprised of the cost associated with the sale of food and beverage products that are consumed while dining in our restaurants, wasas take-out, and as catering. Cost of food decreased approximately $0.7 million, or 4.1%, in the result of 17 restaurant closures (accounting for approximately $6.5 million of this sales decline) and a same-store sales decrease of 8.8%. Fuddruckers same-store sales decrease of 8.8% was the result of a 13.9% decrease in guest traffic offset by a 6.0% increase in average spend per guest. The approximate $1.1 million decrease in sales at our Combo locations was duequarter ended March 11, 2020 compared to a 9.5% decrease in same-store sales. The approximate $4.4 million decrease in Cheeseburger in Paradise restaurants sales in the quarter ended March 13, 2019 compareddue to the quarter ended March 14, 2018 was primarily the resultoperation of seven store closures. Other revenue22 fewer locations (primarily Fuddruckers restaurants), partially offset by higher guest traffic levels at continually operated locations as well as higher average food commodity costs. Cost of food is variable and generally fluctuates with sales and guest traffic volume. As a percentage of restaurant sales, food costs increased 1.0% to 28.8% in the quarter ended March 14, 2018 reflects a $0.1 million net reduction of revenue due to amortization of the contract liability associated with discounts on gift cards sold to third parties, partially offset by recognizing revenue associated with gift card breakage. Other revenue in the two quarters ended March 13, 2019 reflects an approximate $0.2 million net reduction in revenue due to amortization of the discounts on gift cards sold to third parties, partially offset by recognizing revenue associated with gift card breakage.

Cost of Food
 
Quarter 
Ended
 
Quarter 
Ended
  
($000s)March 13,
2019		 March 14,
2018		 Increase/
(Decrease)
 (12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Cost of food$18,144
 $21,181
 $(3,037) (14.3)%
As a percentage of restaurant sales27.8% 28.5%   (0.7)%
Cost of food decreased approximately $3.0 million, or 14.3%, in the quarter ended March 13, 201911, 2020 compared to the quarter ended March 14, 2018 with lower guest traffic levels and operations at 27 fewer locations. As a percentage of restaurant sales,


cost of food decreased 0.7% to 27.8% in the quarter ended March 13, 2019 compared to 28.5%2019. Cost of food as percentage of sales was impacted by (1) higher food commodity costs, including increases in the quarter ended March 14, 2018 due in part to higher menu pricingcost of beef commodities and changes(2) a change in the mix of menu offerings purchased by guests as well as further focus on efficient operations, including minimizing waste.part of the Company's strategy of offering everyday value pricing.




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Two Quarters Ended Two Quarters Ended   Two Quarters EndedTwo Quarters Ended
($000s)March 13,
2019		 March 14,
2018		 Increase/
(Decrease)		($000s)March 11,
2020		March 13,
2019		Increase/
(Decrease)
(28 weeks) (28 weeks) (28 weeks vs 28 weeks) (28 weeks)(28 weeks)(28 weeks vs 28 weeks)
Cost of food$43,226
 $50,936
 $(7,710) (15.1)%
Cost of food:Cost of food:
Luby's cafeteria segmentLuby's cafeteria segment$33,289  $33,051  $238  0.7 %
Fuddruckers restaurants segmentFuddruckers restaurants segment7,590  9,695  (2,105) (20.2)%
Cheeseburger in Paradise segmentCheeseburger in Paradise segment462  480  (18) (3.4)%
Total RestaurantsTotal Restaurants$41,341  $43,226  $(1,885) (4.1)%
As a percentage of restaurant sales27.6% 28.5%   (0.9)%As a percentage of restaurant sales
Luby's cafeteria segmentLuby's cafeteria segment28.9 %28.2 %0.7 %
Fuddruckers restaurants segmentFuddruckers restaurants segment27.7 %25.7 %2.0 %
Cheeseburger in Paradise segmentCheeseburger in Paradise segment31.0 %31.0 %— %
Total RestaurantsTotal Restaurants28.7 %27.6 %1.1 %

Cost of food is comprised of the cost associated with the sale of food and beverage products that are consumed while dining in our restaurants, as take-out, and as catering. Cost of food decreased approximately $7.7$1.9 million, or 15.1%4.1%, forin the two quarters ended March 11, 2020 compared to the two quarters ended March 13, 2019 compareddue to the two quarters ended March 14, 2018 with loweroperation of 22 fewer locations (primarily Fuddruckers restaurants), partially offset by higher guest traffic levels at continually operated locations as well as higher average food commodity costs. Cost of food is variable and operations at 31 fewer locations.generally fluctuates with sales and guest traffic volume. As a percentage of restaurant sales, cost of food decreased 0.9%costs increased 1.1% to 28.7% in the two quarters ended March 11, 2020 compared to 27.6% in the two quarters ended March 13, 2019 compared to 28.5%2019. Cost of food as percentage of sales was impacted by (1) higher food commodity costs, including increases in the two quarters ended March 14, 2018 due in part to higher menu pricingcost of beef commodities and changes(2) a change in the mix of menu offerings purchased by guests as well as further focus on efficient operations, including minimizing waste.part of the Company's strategy of offering everyday value pricing.




Payroll and Related Costs
 Quarter
Ended		Quarter
Ended
($000s)March 11, 2020March 13, 2019Increase/
(Decrease)
 (12 weeks)(12 weeks)(12 weeks vs 12 weeks)
Payroll and related Costs:
Luby's Cafeteria Segment$19,054  $18,382  $672  3.7 %
Fuddruckers Restaurants Segment4,478  6,107  (1,629) (26.7)%
Cheeseburger in Paradise Segment250  241  9  3.7 %
Total Restaurants$23,782  $24,730  $(948) (3.8)%
As a percentage of restaurant sales
Luby's Cafeteria Segment39.7 %37.8 %1.9 %
Fuddruckers Restaurants Segment:38.0 %37.8 %0.2 %
Cheeseburger in Paradise Segment38.6 %40.8 %(2.2)%
Total Restaurants39.4 %37.8 %1.6 %
 
Quarter 
Ended
 
Quarter 
Ended
  
($000s)March 13,
2019		 March 14,
2018		 Increase/
(Decrease)
 (12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Payroll and related costs$24,730
 $28,512
 $(3,782) (13.3)%
As a percentage of restaurant sales37.8% 38.3%   (0.5)%


Payroll and related costs decreased approximately $3.8$0.9 million, or 3.8%, in the quarter ended March 13, 201911, 2020 compared to the quarter ended March 14, 2018.13, 2019. The decrease reflects (1) operating 2722 fewer restaurants (reducing cost by approximately $3.4$2.6 million) and inclusion of a $0.6 million reduction to workers' compensation liability estimates,; partially offset by (2) an increase in hours deployed with increased guest traffic counts and continuation of elevating guest service levels; and (3) higher averagehourly wage rates.rates due to labor marketplace inflation. As a percentage of restaurant sales, payroll and related costs decreased 0.5%increased 1.6% to 39.4% in the quarter ended March 11, 2020 compared to 37.8% in the quarter
44

ended March 13, 2019 compareddue primarily to 38.3% in the quarter ended March 14, 2018(1) higher hourly wage rates due to (1) a $0.6 million reduction to workers' compensation liability estimates (or 0.9% as a percent of restaurant sales);labor market inflation partially offset by (2) the fixed cost component of labor costs (especially salaried restaurant managers) with declinesincrease in same-store sales; and (3) an environment of rising hourly wage rates. Excluding the impact of the $0.6 million reduction to workers' compensation expense, payroll and related costs were 38.7% as a percent of restaurant sales.



Two Quarters Ended Two Quarters Ended   Two Quarters EndedTwo Quarters Ended
($000s)March 13,
2019		 March 14,
2018		 Increase/
(Decrease)		($000s)March 11,
2020		March 13,
2019		Increase/
(Decrease)
(28 weeks) (28 weeks) (28 weeks vs 28 weeks) (28 weeks)(28 weeks)(28 weeks vs 28 weeks)
Payroll and related costs$59,244
 $66,640
 $(7,396) (11.1)%
Payroll and related Costs:Payroll and related Costs:
Luby's Cafeteria SegmentLuby's Cafeteria Segment$44,591  $44,005  $586  1.3 %
Fuddruckers Restaurants SegmentFuddruckers Restaurants Segment$10,732  $14,560  $(3,828) (26.3)%
Cheeseburger in Paradise SegmentCheeseburger in Paradise Segment$592  $679  $(87) (12.8)%
Total RestaurantsTotal Restaurants$55,915  $59,244  $(3,329) (5.6)%
As a percentage of restaurant sales37.9% 37.2%   0.7 %As a percentage of restaurant sales
Luby's Cafeteria SegmentLuby's Cafeteria Segment38.7 %37.5 %1.2 %
Fuddruckers Restaurants Segment:Fuddruckers Restaurants Segment:39.2 %38.6 %0.6 %
Cheeseburger in Paradise SegmentCheeseburger in Paradise Segment39.7 %43.8 %(4.1)%
Total RestaurantsTotal Restaurants38.8 %37.9 %0.9 %


Payroll and related costs decreased approximately $7.4$3.3 million, or 5.6%, in the two quarters ended March 13, 201911, 2020 compared to the two quarters ended March 14, 2018 due to13, 2019. The decrease reflects (1) operating 3122 fewer restaurants (reducing cost by approximately $6.7$6.3 million), lower associate hours scheduled and deployed on the decreased level of guest traffic, reduced overtime hours deployed,; partially offset by (2) an increase in hours deployed with increased guest traffic counts and continuation of elevating guest service levels; and (3) higher average hourly wage rates. The two quarters ended March 13, 2019 also includes an approximate $0.6 million reduction in workers' compensation liability estimates.rates due to labor marketplace inflation. As a percentage of restaurant sales, payroll and related costs increased


0.7%, 0.9% to 38.8% in the two quarters ended March 11, 2020 compared to 37.9% in the two quarters ended March 13, 2019 compareddue primarily to 37.2% in the two quarters ended March 14, 2018(1) higher hourly wage rates due to (1)labor market inflation; and (2) the impact of a decrease in average spend per guest as part of a strategy to increase guest traffic; partially offset by (3) the fixed cost component of labor costs (especially salaried restaurant managers) with declinesincrease in same-store sales; and (2) an environment of rising hourly wage rates; partially offset by (3) a $0.6 million reduction to workers' compensation liability estimates (or 0.4% as a percent of restaurant sales).sales.





Other Operating Expenses
 Quarter
Ended		Quarter
Ended
($000s)March 11, 2020March 13, 2019Increase/
(Decrease)
 (12 weeks)(12 weeks)(12 weeks vs 12 weeks)
Other operating expenses:
Luby's Cafeteria Segment$7,869  $8,189  $(320) (3.9)%
Fuddruckers Restaurants Segment$2,053  $3,040  $(987) (32.5)%
Cheeseburger in Paradise Segment$143  $183  $(40) (21.9)%
Total Restaurants$10,065  $11,412  $(1,347) (11.8)%
As a percentage of restaurant sales
Luby's Cafeteria Segment16.4 %16.8 %(0.4)%
Fuddruckers Restaurants Segment:17.4 %18.8 %(1.4)%
Cheeseburger in Paradise Segment22.1 %30.9 %(8.8)%
Total Restaurants16.7 %17.5 %(0.8)%


45
 
Quarter 
Ended
 
Quarter 
Ended
  
($000s)March 13,
2019		 March 14,
2018		 Increase/
(Decrease)
 (12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Other operating expenses$11,412
 $14,360
 $(2,948) (20.5)%
As a percentage of restaurant sales17.5% 19.3%   (1.8)%


Other operating expenses include restaurant-related expenses for utilities, repairs and maintenance, local store advertising, property and liability insurance uninsured losses, above insurance deductibles, services and supplies. Other operating expenses decreased approximately $2.9$1.3 million, or 20.5%11.8%, in the quarter ended March 13, 201911, 2020 compared to the quarter ended March 14, 2018, due primarily to (1) an approximate $1.0 million decrease in restaurant supplies; (2) an approximate $0.8 million decrease in repairs and maintenance; (3) an approximate $0.4 million decrease in restaurant services; (4) benefit from an approximate $0.3 million increase in insurance recoveries; (5) benefit from the absence of approximately $0.1 million in post-hurricane related repair and other expenses incurred in the quarter ended March 14, 2018; (6) an approximate $0.1 million decrease in local store marketing; and (7) a $0.1 million decrease in net other miscellaneous expenses, including reduction in royalty expense with the closure of Cheeseburger in Paradise restaurants.13, 2019. Of the approximate $2.9$1.3 million decrease in total other operating expenses, approximately $1.9an approximate $0.7 million is attributed to store closures and approximately $1.0$0.4 million is attributedattributable to stores that continue to operate; the $1.0operate. The $0.4 million reductiondecrease in total other operating expenses at stores that continue to operate is mostly attributable to lower restaurant(1) an approximate $0.3 million decrease in the costs of utilities (2) an approximate $0.1 decrease in paper supplies expense and lower repairs and maintenance expense.expenses. As a percentage of restaurant sales, other operating expenses decreased 1.8%0.8%, to 16.7%, in the quarter ended March 11, 2020, compared to 17.5%, in the quarter ended March 13, 2019 compared to 19.3% in the quarter ended March 14, 2018 due primarily to (1) reductions in restaurant supplies expenses at continually operated stores; (2) reductions in repairs and maintenance at continually operated stores and to a lesser extent at closed stores; and 3) benefit from an approximate $0.3 million increase in insurance recoveries.the reasons enumerated above.



Two Quarters Ended Two Quarters Ended   Two Quarters EndedTwo Quarters Ended
($000s)March 13,
2019		 March 14,
2018		 Increase/
(Decrease)		($000s)March 11,
2020		March 13,
2019		Increase/
(Decrease)
(28 weeks) (28 weeks) (28 weeks vs 28 weeks) (28 weeks)(28 weeks)(28 weeks vs 28 weeks)
Other operating expenses$27,914
 $33,858
 $(5,944) (17.6)%
Other operating expenses:Other operating expenses:
Luby's Cafeteria SegmentLuby's Cafeteria Segment$19,424  $19,984  $(560) (2.8)%
Fuddruckers Restaurants SegmentFuddruckers Restaurants Segment$5,091  $7,368  $(2,277) (30.9)%
Cheeseburger in Paradise SegmentCheeseburger in Paradise Segment$345  $562  $(217) (38.6)%
Total RestaurantsTotal Restaurants$24,860  $27,914  $(3,054) (10.9)%
As a percentage of restaurant sales17.8% 18.9%   (1.1)%As a percentage of restaurant sales
Luby's Cafeteria SegmentLuby's Cafeteria Segment16.9 %17.0 %(0.1)%
Fuddruckers Restaurants Segment:Fuddruckers Restaurants Segment:18.6 %19.6 %(1.0)%
Cheeseburger in Paradise SegmentCheeseburger in Paradise Segment23.1 %36.2 %(13.1)%
Total RestaurantsTotal Restaurants17.3 %17.8 %(0.5)%



Other operating expenses include restaurant-related expenses for utilities, repairs and maintenance, local store advertising, property and liability insurance uninsured losses, services and supplies. Other operating expenses decreased by approximately $5.9$3.1 million, or 17.6%10.9%, in the two quarters ended March 13, 201911, 2020 compared to the two quarters ended March 14, 2018, due primarily to (1) an approximate $2.0 million decrease in restaurant supplies; (2) an approximate $1.1 million decrease in repairs and maintenance; (3) an approximate $1.1 million decrease in restaurant services; (4) benefit from an approximate $0.3 million increase in insurance recoveries; (5) benefit from the absence of approximately $0.5 million in post-hurricane related repair and other expenses incurred in the quarter ended March 14, 2018; (6) an approximate $0.2 million decrease in local store marketing; (7) an approximate $0.6 million increase in insurance recoveries and lower uninsured losses; and (8) an approximate $0.1 million reduction in royalty expense with the closure of Cheeseburger in Paradise restaurants.13, 2019. Of the approximate $5.9$3.1 million decrease in total other operating expenses, approximately $4.1an approximate $3.4 million is attributed to store closures and approximately $1.8offset by $0.3 million is attributedincrease attributable to stores that continue to operate; the $1.8operate. The $0.3 million reductionincrease in total other operating expenses at stores that continue to operate is mostly attributable to (1) an increase of $0.6 million related to lower restaurant supplies expense, lowerinsurance proceeds (2) an increase of $0.5 million in services including credit card fees and 3rd party delivery fees, (3) an increase of $0.3 million related to local store marketing partially offset by (1) an approximate $0.8 million in utilities and (2) an approximate $0.2 decrease in repairs and maintenance expense, and to a lesser extent lower restaurant services expense, and lower uninsured losses expense, partially offset by higher electricity utility expense.charges. As a percentage of restaurant sales, other operating expenses decreased 1.1%0.5%, to 17.3%, in the two quarters ended March 11, 2020, compared to 17.8%, in the two quarters ended March 13, 2019 compareddue primarily to the reason enumerated above.



46

18.9% for the two quarters ended March 14, 2018 due to cost decreases enumerated above for continually operated stores, partially offset by higher electricity utility expense.

Occupancy Costs
Quarter 
Ended
 
Quarter 
Ended
 
 Quarter
Ended		Quarter
Ended
($000s)March 13,
2019		 March 14,
2018		 Increase/
(Decrease)		($000s)March 11, 2020March 13, 2019Increase/
(Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks) (12 weeks)(12 weeks)(12 weeks vs 12 weeks)
Occupancy costs$4,166
 $4,707
 $(541) (11.5)%
Occupancy costs:Occupancy costs:
Luby's Cafeteria SegmentLuby's Cafeteria Segment$2,194  $2,101  $93  4.4 %
Fuddruckers Restaurants SegmentFuddruckers Restaurants Segment$1,508  $1,999  $(491) (24.6)%
Cheeseburger in Paradise SegmentCheeseburger in Paradise Segment$81  $66  $15  22.7 %
Total RestaurantsTotal Restaurants$3,783  $4,166  $(383) (9.2)%
As a percentage of restaurant sales6.4% 6.3%   0.1 %As a percentage of restaurant sales
Luby's Cafeteria SegmentLuby's Cafeteria Segment4.6 %4.3 %0.3 %
Fuddruckers Restaurants Segment:Fuddruckers Restaurants Segment:12.8 %12.4 %0.4 %
Cheeseburger in Paradise SegmentCheeseburger in Paradise Segment12.5 %11.2 %1.3 %
Total RestaurantsTotal Restaurants6.3 %6.4 %(0.1)%
 
Occupancy costs include property lease expense, property taxes, and common area maintenance charges, and property insurance, expense.and permits and licenses. Occupancy costs decreased approximately $0.5$0.4 million, or 9.2%, to approximately $4.2$3.8 million in the quarter ended March 13, 201911, 2020 compared to the quarter ended March 14, 2018.13, 2019. The decrease was primarily due to a decrease in rent and property taxes associated with 27operating 22 fewer restaurants in the quarter ended March 13, 201911, 2020 compared to the quarter ended March 14, 2018.13, 2019, partially offset by the additional lease expense at three properties that were sold and leased back. As a percentage of restaurant sales, occupancy costs increased 0.1%decreased to 6.3%, in the quarter ended March 11, 2020 compared to 6.4%, in the quarter ended March 13, 2019 compared to 6.3% in the quarter ended March 14, 2018 primarily as a result of the change in the mix of the portfolio of owned versus leased stores, after the closuresales and lease back of 27 locations and sale of certain owned property locationstwo properties, as well as adjustments to property tax estimates.



Two Quarters Ended Two Quarters Ended   Two Quarters EndedTwo Quarters Ended
($000s)March 13,
2019		 March 14,
2018		 Increase/
(Decrease)		($000s)March 11,
2020		March 13,
2019		Increase/
(Decrease)
(28 weeks) (28 weeks) (28 weeks vs 28 weeks) (28 weeks)(28 weeks)(28 weeks vs 28 weeks)
Occupancy costs$10,041
 $10,968
 $(927) (8.5)%
Occupancy costs:Occupancy costs:
Luby's Cafeteria SegmentLuby's Cafeteria Segment$4,940  $5,042  $(102) (2.0)%
Fuddruckers Restaurants SegmentFuddruckers Restaurants Segment$3,645  $4,839  $(1,194) (24.7)%
Cheeseburger in Paradise SegmentCheeseburger in Paradise Segment$188  $160  $28  17.5 %
Total RestaurantsTotal Restaurants$8,773  $10,041  $(1,268) (12.6)%
As a percentage of restaurant sales6.4% 6.1%   0.3 %As a percentage of restaurant sales
Luby's Cafeteria SegmentLuby's Cafeteria Segment4.3 %4.3 %— %
Fuddruckers Restaurants Segment:Fuddruckers Restaurants Segment:13.3 %12.8 %0.5 %
Cheeseburger in Paradise SegmentCheeseburger in Paradise Segment12.6 %10.3 %2.3 %
Total RestaurantsTotal Restaurants6.1 %6.4 %(0.3)%

Occupancy costs include property lease expense, property taxes, and common area maintenance charges, property insurance, and permits and licenses. Occupancy costs decreased approximately $0.9$1.3 million, or 12.6%, to approximately $10.0$8.8 million in the two quarters ended March 13, 201911, 2020 compared to the two quarters ended March 14, 2018.13, 2019. The decrease was primarily due to a decrease in rent and property taxes associated with operating 3128 fewer restaurants in the two quarters ended March 13, 201911, 2020 compared to the two quarters ended March 14, 2018.13, 2019, partially offset by the additional lease expense at three properties that were sold and leased back. As a percentage of restaurant sales, occupancy costs increased 0.3%decreased to 6.1%, in the two quarters
47

ended March 11, 2020 compared to 6.4%, in the two quarters ended March 13, 2019 compared to 6.1% in the two quarters ended March 14, 2018 primarily as a result of the change in the mix of the portfolio of owned versus leased stores, after the closuresales and lease back of 31 locations and sale of certain owned property locationsthree properties, as well as adjustments to property tax estimates.



Franchise Operations


We offer franchises for the Fuddruckers brand. Franchises are sold in markets where expansion is deemed advantageous to the development of the Fuddruckers concept and system of restaurants. Franchise revenue includes (1) royalties paid to us as the franchisor for the Fuddruckers brand; (2) funds paid to us as the franchisor for pooled advertising expenditures; and (3) amortization of initial and renewal franchise fees paid to us when franchise units are openedand remaining unamortized franchisee fees for business or transferred to new owners and when franchise agreements are renewed or certain milestones in franchise agreements are reached.that terminate early. Cost of franchise operations includes the direct costs associated with supporting franchisees with opening new Fuddruckers franchised restaurants and the corporate overhead expenses associated with generating franchise revenue. These corporate expenses primarily include the salaries and benefits, travel and related expenses, and other expenses for employees whose primary job function involves supporting our franchise owners and the development of new franchise locations.


Beginning with the first quarter fiscal 2019, as a result of our adoption of the new revenue accounting standards more fully described in Note 1 to our unaudited financial statements:
We recognize as revenue the amounts due to us from franchisees for pooled advertising expenditures.
 Quarter
Ended		Quarter
Ended
($000s)March 11,
2020		March 13,
2019		Increase/
(Decrease)
 (12 weeks)(12 weeks)(12 weeks vs 12 weeks)
Franchise revenue$1,158  $1,421  $(263) (18.5)%
Cost of franchise operations409  247  162  65.6 %
Franchise profit$749  $1,174  $(425) (36.2)%
Franchise profit as a percentage of franchise revenue64.7 %82.6 %(17.9)%
We recognize initial and renewal franchise fees evenly over the term of franchise area development agreements.



 
Quarter 
Ended
 
Quarter 
Ended
 
($000s)March 13,
2019		 March 14,
2018		 Increase/
(Decrease)
 (12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Franchise revenue$1,421
 $1,401
 $20
 1.4 %
Cost of franchise operations247
 369
 (122) (33.1)%
Franchise profit$1,174
 $1,032
 $142
 13.8 %
Franchise profit as a percentage of franchise revenue82.6% 73.7%   8.9 %


Franchise revenue increased $20 thousanddecreased approximately $0.3 million in the quarter ended March 13, 201911, 2020 compared to the quarter ended March 14, 2018.13, 2019. The $20 thousand increase$0.3 million decrease in franchise revenue reflects primarily (1) an increase in fees earned upon reaching certain milestones in franchise development agreements; and (2) recognizing as revenue funds paid to us as franchisor for pooled advertising expenditures; partially offset by (3) a declinenet decrease in franchise royalties on fewerand franchise locationsmarketing allocation fund contributions of $182 thousand and (2) $81 thousand lower franchise fees in operation.the quarter ended March 11, 2020 compared to the quarter ended March 13, 2019


Cost of franchise operations decreasedincreased approximately $0.1$0.2 million in the quarter ended March 13, 201911, 2020 compared to the quarter ended March 14, 2018.13, 2019. The increase in Cost of franchise operations primarily reflects (1) timing of recognizing marketing and advertising fee expenses; and (2) an increase in wages supporting the franchise network in the quarter ended March 11, 2020. Franchise segment profit, defined as franchise revenue less cost of franchise operations, increased $0.1decreased approximately $0.4 million in the quarter ended March 13, 201911, 2020 compared to the quarter ended March 14, 201813, 2019 due primarily to the reasons noted above for the decrease in Franchise revenue and increase in Cost of franchise operations.

As of March 11, 2020, there were 90 Fuddruckers franchise restaurants in operation.


 Two Quarters EndedTwo Quarters Ended
($000s)March 11,
2020		March 13,
2019		Increase/
(Decrease)
 (28 weeks)(28 weeks)(28 weeks vs 28 weeks)
Franchise revenue$2,865  $3,644  $(779) (21.4)%
Cost of franchise operations974  519  455  87.7 %
Franchise profit$1,891  $3,125  $(1,234) (39.5)%
Franchise profit as a percentage of franchise revenue66.0 %85.8 %(19.8)%

48

Franchise revenue decreased approximately $0.8 million in the two quarters ended March 11, 2020 compared to the two quarters ended March 13, 2019. The $0.8 million decrease in franchise revenue reflects primarily (1) higher$533 thousand lower franchise fees earned;and (2) recognition as revenue, funds paida net decrease in franchise royalties, franchise marketing allocation fund contributions, and franchise fees of $247 thousand in the two quarters ended March 11, 2020 compared to us as the franchisor for pooled advertising expenditures; and (3) a reduction in costtwo quarters ended March 13, 2019

Cost of franchise operations with a reduction in franchise sales and support headcount and travel expenses. One international franchise locationincreased approximately $0.5 million in the country of Colombia closed intwo quarters ended March 11, 2020 compared to the quartertwo quarters ended March 13, 2019.

 Two Quarters Ended Two Quarters Ended  
($000s)March 13,
2019		 March 14,
2018		 Increase/
(Decrease)
 (28 weeks) (28 weeks) (28 weeks vs 28 weeks)
Franchise revenue$3,644
 $3,288
 $356
 10.8 %
Cost of franchise operations519
 856
 (337) (39.4)%
Franchise profit$3,125
 $2,432
 $693
 28.5 %
Franchise profit as a percentage of franchise revenue85.8% 74.0%   11.8 %

Franchise revenue increased $0.4 million The increase in Cost of franchise operations primarily reflects (1) timing of recognizing marketing and advertising fee expenses; (2) an increase in wages supporting the franchise network in the two quarters ended March 11, 2020; and (3) the receipt of funds in the two quarters ended March 13, 2019 from vendors in support of a franchise meeting. Franchise segment profit, defined as franchise revenue less cost of franchise operations, decreased approximately $1.2 million in the two quarters ended March 11, 2020 compared to the two quarters ended March 14, 2018. The $0.4 million13, 2019 due primarily to the reasons noted above for the decrease in Franchise revenue and increase in franchise revenue reflects (1) an approximate $0.5 million increase in franchise fees earned; and (2) recognition of approximately $0.2 million of revenue related to funds paid to us as the franchisor for pooled advertising expenditures; partially offset by (3) an approximate $0.3 million decline in franchise royalties on fewer franchise locations in operation.



Cost of franchise operations decreased approximately $0.3 million, or 39.4%, in the two quarters ended March 13, 2019 compared to the two quarters ended March 14, 2018. Franchise profit, defined as Franchise revenue less Cost of franchise operations, increased approximately $0.7 million in the two quarters ended March 13, 2019 compared to the two quarters ended March 14, 2018. due primarily to a $0.4 million increase in franchise revenue discussed above combined with a $0.3 million reduction in franchise costs. Two franchise locations opened and five locations closed in the two quarters ended March 13, 2019.operations.



Culinary Contract Services
 
Culinary Contract Services is a business line servicing healthcare, sport stadiums, corporate dining clients, and sales through retail grocery stores. The healthcare accounts are full service and typically include in-room delivery, catering, vending, coffee service, and retail dining. Culinary Contract Services has contracts with long-term acute care hospitals, acute care medical centers, ambulatory surgical centers, behavioral hospitals, sports stadiums, and business and industry clients. Culinary Contract Services has the unique ability to deliver quality services that include facility design and procurement as well as nutrition and branded food services to our clients. We operated 33 Culinary Contract Services locations at the end of the quarter ended March 13, 2019 and 24 at the end of the quarter ended March 14, 2018. We focus on clients who are able to enter into agreements in which all operating costs are reimbursed to us and we generally charge a fixed fee. Thesefee as opposed to agreements where we retain all revenues and operating costs and we are exposed to the variability of the operating results of the location. The fixed fee agreements typically present lower financial risk to the company. We operated 33 Culinary Contract Services locations as of March 11, 2020 and 28 as of March 13, 2019.


Quarter 
Ended
 
Quarter 
Ended
 
 Quarter
Ended		Quarter
Ended
($000s)March 13,
2019		 March 14,
2018		 Increase/
(Decrease)		($000s)March 11,
2020		March 13,
2019		Increase/
(Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks) (12 weeks)(12 weeks)(12 weeks vs 12 weeks)
Culinary contract services sales$7,543
 $5,889
 $1,654
 28.1%Culinary contract services sales$6,998  $7,543  $(545) (7.2)%
Cost of culinary contract services6,717
 5,677
 1,040
 18.3%Cost of culinary contract services6,400  6,717  (317) (4.7)%
Culinary contract services profit$826
 $212
 $614
 289.6%Culinary contract services profit$598  $826  $(228) (27.6)%
Culinary contract services profit as a percentage of Culinary contract services sales11.0% 3.6%   7.4%Culinary contract services profit as a percentage of Culinary contract services sales8.5 %11.0 %(2.5)%
 
Culinary contract services sales increaseddecreased approximately $1.7$0.5 million, or 28.1%7.2%, in the quarter ended March 13, 201911, 2020 compared to the quarter ended March 14, 2018.13, 2019. The $1.7$0.5 million sales increase consisted of (1) an increasedecrease was primarily related to the decrease in sales of approximately $1.1 million from newer accounts that have been in operation less than a full year (2) approximately $0.3 million from a location that was transferred from our restaurant business segment to our culinary contract services business segment; and (3) approximately $0.3 million increase in sales from locations continually operated over the prior full year.service locations.
 
Cost of culinary contract services includes the food, payroll and related costs, other direct operating expenses, and corporate overhead expenses associated with generating Culinary Contract Services sales. Cost of culinary contract services increaseddecreased approximately $1.0$0.3 million, or 18.3%4.7%, in the quarter ended March 13, 201911, 2020 compared to the quarter ended March 14, 2018.13, 2019. Culinary contract services segment profit, defined as Culinary contract services sales less Cost of culinary contract services, increaseddecreased to 8.5% in the quarter ended March 11, 2020 from 11.0% in the quarter ended March 13, 2019 from 3.6% in the quarter ended March 14, 2018 due to the change in the mix of our culinary agreements with clients.




49

Two Quarters Ended Two Quarters Ended   Two Quarters EndedTwo Quarters Ended
($000s)March 13,
2019		 March 14,
2018		 Increase/
(Decrease)		($000s)March 11,
2020		March 13,
2019		Increase/
(Decrease)
(28 weeks) (28 weeks) (28 weeks vs 28 weeks) (28 weeks)(28 weeks)(28 weeks vs 28 weeks)
Culinary contract services sales$17,039
 $12,774
 $4,265
 33.4%Culinary contract services sales$16,772  $17,039  $(267) (1.6)%
Cost of culinary contract services15,532
 12,009
 3,523
 29.3%Cost of culinary contract services15,348  15,532  (184) (1.2)%
Culinary contract services profit$1,507
 $765
 $742
 97.0%Culinary contract services profit$1,424  $1,507  $(83) (5.5)%
Culinary contract services profit as a percentage of Culinary contract services sales8.8% 6.0%   2.8%Culinary contract services profit as a percentage of Culinary contract services sales8.5 %8.8 %(0.3)%

Culinary Contract Servicescontract services sales increaseddecreased approximately $4.3$0.3 million, or 33.4%1.6%, in the two quarters ended March 13, 201911, 2020 compared to the two quarters ended March 14, 2018.13, 2019. The $4.3$0.3 million sales increase consisted of 1) an increasedecrease was primarily related to the decrease in sales of approximately $3.2 million from newer accounts that were not in operation for the entire two quarters ended March 14, 2018; 2) approximately $0.7 million from a location that was transferred from our restaurant business segment to our culinary contract services business segment; and 3) approximately $0.7 million increase in sales from locations continually operated over the prior full year; partially offset by loss of sales of approximately $0.3 million for locations that ceased operations.service locations.
 
Cost of Culinary Contract Servicesculinary contract services includes the food, payroll and related costs, other direct operating expenses, and corporate overhead expenses associated with generating Culinary Contract Services sales. Cost of Culinary Contract Services increasedculinary contract services decreased approximately $3.5$0.2 million, or 29.3%1.2%, in the two quarters ended March 13, 201911, 2020 compared to the two quarters ended March 14, 2018, consistent with an increase in Culinary Contract Services sales.13, 2019. Culinary contract services segment profit, defined as Culinary contract services sales less Cost of culinary contract services, increaseddecreased to 8.5% in the two quarters ended March 11, 2020 from 8.8% in the two quarters ended March 13, 2019 from 6.0% in the quarter ended March 14, 2018 due to the change in the mix of our culinary agreements with clients.


Company-wide Expenses
 
Opening Costs
Opening costs include labor, supplies, occupancy, and other costs necessary to support a restaurant through its opening period. Opening costs were $2 thousand in the quarter ended March 11, 2020 compared to $11 thousand in the quarter ended March 13, 2019 compared to $0.3 million2019. The opening costs in the quarter ended March 14, 2018. The $11 thousand11, 2020 and in opening costs for the quarter ended March 13, 2019 related to one location that we lease for a potential future Fuddruckers opening. The approximate $0.3 million in opening costs for the quarter ended March 14, 2018 included the re-opening costs associated with one Fuddruckers location that was damaged during Hurricane Harvey and subsequently restored and re-opened for business in the quarter ended March 14, 2018 as well asprimarily reflects the carrying costscost for one location where we previously operated a Cheeseburger in Paradise restaurant and one location that we lease for a potential future Fuddruckers opening.



Opening costs were $14 thousand in the two quarters ended March 11, 2020 compared to $44 thousand in the two quarters ended March 13, 2019. The opening costs in the two quarters ended March 11, 2020 and in the two quarters ended March 13, 2019 primarily reflects the carrying cost for one location that we lease for a potential future Fuddruckers opening.

Depreciation and Amortization Expense
Quarter 
Ended
 
Quarter 
Ended
 
 Quarter
Ended		Quarter
Ended
($000s)March 13,
2019		 March 14,
2018		 Increase/
(Decrease)		($000s)March 11,
2020		March 13,
2019		Increase/
(Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks) (12 weeks)(12 weeks)(12 weeks vs 12 weeks)
Depreciation and amortization$3,222
 $3,998
 $(776) (19.4)%Depreciation and amortization$2,677  $3,222  $(545) (16.9)%
As a percentage of total sales4.3% 4.9%   (0.6)%As a percentage of total sales3.9 %4.3 %(0.4)%
 
Depreciation and amortization expense decreased by approximately $0.8$0.5 million, or 19.4%16.9%, in the quarter ended March 13, 201911, 2020 compared to the quarter ended March 14, 201813, 2019 due primarily to certain assets reaching the end of their depreciable lives and the removal of certain assets upon sale. As a percentage of total revenue, depreciationDepreciation and amortization expense decreased to 3.9% in the quarter ended March 11, 2020, compared to 4.3% in the quarter ended March 13, 2019, compared to 4.9% in the quarter ended March 14, 2018.2019.





50

Two Quarters Ended Two Quarters Ended   Two Quarters EndedTwo Quarters Ended
($000s)March 13,
2019		 March 14,
2018		 Increase/
(Decrease)		($000s)March 11,
2020		March 13,
2019		Increase/
(Decrease)
(28 weeks) (28 weeks) (28 weeks vs 28 weeks) (28 weeks)(28 weeks)(28 weeks vs 28 weeks)
Depreciation and amortization$8,126
 $9,351
 $(1,225) (13.1)%Depreciation and amortization$6,440  $8,126  $(1,686) (20.7)%
As a percentage of total sales4.6% 4.8%   (0.2)%As a percentage of total sales3.9 %4.6 %(0.7)%

Depreciation and amortization expense decreased by approximately $1.2$1.7 million, or 13.1%20.7%, in the two quarters ended March 13, 201911, 2020 compared to the two quarters ended March 14, 201813, 2019 due primarily to certain assets reaching the end of their depreciable lives and the removal of certain assets upon sale. As a percentage of total revenue, Depreciation and amortization expense decreased to 3.9% in the two quarters ended March 11, 2020, compared to 4.6% in the two quarters ended March 13, 2019.






Selling, General and Administrative Expenses
Quarter 
Ended
 
Quarter 
Ended
 
 Quarter
Ended		Quarter
Ended
($000s)March 13,
2019		 March 14,
2018		 Increase/
(Decrease)		($000s)March 11,
2020		March 13,
2019		Increase/
(Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks) (12 weeks)(12 weeks)(12 weeks vs 12 weeks)
General and administrative expenses$8,247
 $8,457
 $(210) (2.5)%General and administrative expenses$5,386  $6,983  $(1,597) (22.9)%
Marketing and advertising expenses770
 731
 39
 5.3 %Marketing and advertising expenses1,430  770  660  85.7 %
Selling, general and administrative expenses$9,017
 $9,188
 $(171) (1.9)%Selling, general and administrative expenses$6,816  $7,753  $(937) (12.1)%
As a percentage of total sales12.1% 11.2%   0.9 %As a percentage of total sales9.9 %10.4 %(0.5)%
 
Selling, general and administrative expenses include marketing and advertising expenses, corporate salaries and benefits-related costs, including restaurant area leaders and regional directors, share-based compensation, marketing and advertising expenses, professional fees, travel and recruiting expenses and other office expenses. Selling, general and administrative expenses decreased approximately $0.2$0.9 million, or 1.9%12.1%, in the quarter ended March 13, 201911, 2020 compared to the quarter ended March 14, 2018.13, 2019. The decrease in selling, general and administrative expenses reflects (1) an approximate $0.6$1.0 million decreasereduction in salarysalaries and benefits expenses on reduced headcount;expense and (2) an approximate a $0.6 million decrease in other corporatecomponents of Selling, general administrative expense (professional service fees, travel, supplies, occupancy, and other general overhead expenses, including lower general liability insurance expense, lower corporate travel expense, and lower recruiting expenses;costs) partially offset by (3) a $1.0an approximate $0.7 million increase in outsidemarketing and advertising, including increased expenditures for various digital media advertising and other efforts to reach our guests and drive traffic in an effective and efficient manner; . As a percentage of total revenue, Selling, general and administrative expenses decreased to 9.9% in the quarter ended March 11, 2020, compared to 10.4% in the quarter ended March 13, 2019 due to the reasons described above partially offset by the impact of a decrease in sales resulting from a reduced number of stores in operations.


 Two Quarters EndedTwo Quarters Ended
($000s)March 11,
2020		March 13,
2019		Increase/
(Decrease)
 (28 weeks)(28 weeks)(28 weeks vs 28 weeks)
General and administrative expenses$13,884  $16,067  $(2,183) (13.6)%
Marketing and advertising expenses3,090  1,696  1,394  82.2 %
Selling, general and administrative expenses$16,974  $17,763  $(789) (4.4)%
As a percentage of total sales10.4 %10.0 %0.4 %
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Selling, general and administrative expenses include marketing and advertising expenses, corporate salaries and benefits-related costs, including restaurant area leaders and regional directors, share-based compensation, professional services, inclusivefees, travel and recruiting expenses and other office expenses. Selling, general and administrative expenses decreased approximately $0.8 million, or 4.4%, in the two quarters ended March 11, 2020 compared to the two quarters ended March 13, 2019. The decrease in selling, general and administrative expenses reflects (1) an approximate $1.4 million reduction in salaries and benefits expense and (2) an approximate $0.8 million decrease in other components of one-time proxy solicitationSelling, general administrative expense (professional service fees, travel, supplies, occupancy, and communication costs.other general overhead costs) partially offset by (3) an approximate $1.4 million increase in marketing and advertising, including increased expenditures for various digital media advertising and other efforts to reach our guests and drive traffic in an effective and efficient manner; As a percentage of total revenue, Selling, general and administrative expenses increased to 12.1%10.4% in the quartertwo quarters ended March 13, 2019,11, 2020, compared to 11.2% in the quarter ended March 14, 2018 due in large part to the reduction in sales from operating fewer restaurants.



 Two Quarters Ended Two Quarters Ended  
($000s)March 13,
2019		 March 14,
2018		 Increase/
(Decrease)
 (28 weeks) (28 weeks) (28 weeks vs 28 weeks)
General and administrative expenses$18,544
 $18,549
 $(5) (0.0)%
Marketing and advertising expenses1,696
 2,163
 (467) (21.6)%
Selling, general and administrative expenses$20,240
 $20,712
 $(472) (2.3)%
As a percentage of total sales11.4% 10.6%   0.8 %



Selling, general and administrative expenses decreased approximately $0.5 million, or 2.3%,10.0% in the two quarters ended March 13, 2019 compareddue to the reasons described above partially offset by the impact of a decrease in sales resulting from a reduced number of stores in operations.

Other Charges

Other charges include those expenses that we consider related to our restructuring efforts or not part of our recurring operations. We have identified these expenses amounting to approximately $1.5 million in the quarter ended March 11, 2020 and $1.3 million for the quarter ended March 13, 2019 and recorded in Other charges. In the two quarters ended March 14, 2018. The decrease11, 2020, we recorded $2.7 million in selling,Other Charges compared to $2.5 million for the two quarters ended March 13, 2019. These expenses were included in our Selling, general, and administrative expenses includes (1) an approximate $1.2 million decreasecost expense line in salaries, benefits,previously reported quarters of fiscal 2019.
Quarter EndedTwo Quarters Ended
($000s)March 11,
2020		March 13,
2019		March 11,
2020		March 13,
2019
(In thousands)
Proxy communication related$—  1,061  —  1,802  
Employee severances544  173  1,162  645  
Restructuring related966  30  1,586  30  
Total Other charges$1,510  $1,264  $2,748  $2,477  

In the first half of fiscal 2019, a shareholder of the company proposed alternative nominees to the Board of Directors and other compensation expenses, (2) an approximate $0.5 million decreasepossible changes to the corporate strategy resulting in marketing expenses primarily as a comparison to prior year when sports team sponsorships comprised a greater portion of our marketing expenditures; (3) an approximate $0.5 million decrease in other corporate overhead expenses, including lower general liability insurance expense, lower corporate travel expense, and lower corporate supplies expense; partially offset by acontested proxy at the Company’s annual meeting. We incurred approximately $1.7 million increase(approximately $1.1 million in the quarter ended March 13, 2019) in proxy communication expense which was primarily for outside professional services inclusiveand related costs in order to communicate with shareholders about management's strategy and the experience of approximately $1.7the Company's members on the Board of Directors. For the two quarters ended March 13, 2019, we had recognized proxy communication related expenses of $1.8 million. In fiscal 2019, we separated a number of employees as part of our efforts to streamline our corporate overhead costs and to support a reduced number of restaurants in operation. Employees who were separated from the company were paid severance based on the number of years of service and earnings with the organization, resulting in an approximate $1.3 million in one-time proxy solicitation and communication costs. As a percentagecharge ($1.2 million of total sales, selling, general and administrative expenses increased to 11.4%the $1.3 million in the two quarters ended March 13, 2019). In fiscal 2020, we separated with an additional number of employees to further streamline our corporate overhead costs. Severance payments to these employees, based on the same criteria as in 2019, compared to 10.6%resulted in an approximately $0.5 million charge in the quarter ended March 11, 2020. In 2020, severances based on the same criteria as in 2019 for the two quarters ended March 14, 2018.11, 2020, we incurred $1.2 million. Also, in fiscal 2019, we engaged a professional consulting firm to evaluate initiatives to right-size corporate overhead costs and revenue enhancing measures. In addition, we engaged other outside consultants to evaluate various other components of our strategy. We also incurred cost of other outside professionals as we began efforts to transition portions of our accounting, payroll, operational reporting, and other back-office functions to a leading multi-unit restaurant outsourcing firm. The transition was substantially complete by the end of the second fiscal quarter of 2020. Lastly, we incurred expenses related to certain information technology systems that will be replaced by the capabilities of the outsourcing firm. We incurred an expense of $1.0 million for these restructuring efforts in the quarter ended March 11, 2020. For the two quarters ended March 11, 2020, we incurred $1.6 million for these restructuring efforts.

52


Provision for Asset Impairments and Restaurant Closings


The approximate $0.7 million impairment charge for the quarter ended March 11, 2020 is related to spare inventory of restaurant equipment and parts at our maintenance facility written down to their estimated fair value. The approximate $1.2 million impairment charge for the quarter ended March 13, 2019 is primarily related to two property locations and one international joint venture, investment, each written down to their fair value as well as net lease termination costs.

The approximate $1.4$1.8 million impairment charge for the quartertwo quarters ended March 14, 2018 was the result of an impairment charge for seven11, 2020 is related to two property locations (onewhere the right of which is included in property held for sale) eachuse asset was written off as well as spare inventory of restaurant equipment and parts at our maintenance facility written down to itstheir estimated fair value and goodwill at two properties.

value. The approximate $2.4 million impairment charge for the two quarters ended March 13, 2019 is primarily related to assets at eight property locations held for use, and six properties held for sale, and one international joint venture, investment, each written down to their fair value. The approximate $2.3 million impairment charge for the two quarters ended March 14, 2018 is primarily related to assets at seven property locations, goodwill at two locations, and three properties held for sale written down to their fair value, as well as approximately $0.6 million in net lease termination costs at five property locations.


Net Loss (Gain) on Disposition of Property and Equipment
 
Gain on disposition of property and equipment was approximately $12.7$2.5 million in the quarter ended March 13, 201911, 2020 and was primarily related to the sale and leaseback of two property locations where we operate a total of three restaurants, partially offset by net lease termination costsroutine asset activity at other locations. The gain on disposition of property and equipment was approximately $0.2$12.7 million in the quarter ended March 14, 2018 and primarily reflects the net gain on the sale of one property.

Gain on disposition of property and equipment was approximately $12.5 million in the two quarters ended March 13, 2019 andis primarily reflectsrelated to the sale and leaseback of two property locations where we operate a total of three restaurants, partially offset by net lease termination costs at other locations as well as routine asset retirement activity.

Gain on disposition of property and equipment was $2.5 million in the two quarters ended March 11, 2020 and was primarily related to the sale of two locations partially offset by routine asset activity at other locations. The lossgain on disposition of property and equipment was approximately $18 thousand$12.5 million in the two quarters ended March 14, 201813, 2019 is primarily related to asset retirements at sixthe sale and leaseback of two property location closureslocations where we operate a total of three restaurants, partially offset by net gains on the sale of two property locations.lease termination costs at other locations as well as routine asset retirement activity.



Interest Income

Interest income was $5 thousand in the quarter ended March 11, 2020 compared to $19 thousand in the quarter ended March 13, 2019 and $52019.

Interest income was $28 thousand in the quartertwo quarters ended March 14, 2018.

Interest income was11, 2020 compared to $19 thousand in the two quarters ended March 13, 2019 and $11 thousand in the two quarters ended March 14, 2018.2019.


Interest Expense
 
Interest expense was approximately $1.5 million in the quarter ended March 11, 2020 and $1.6 million in the quarter ended March 13, 2019 and $0.52019. The decrease reflects lower average interest rates partially offset by higher debt balances..
Interest expense was approximately $3.4 million in the quartertwo quarters ended March 14, 2018.11, 2020 and $3.3 million in the two quarters ended March 13, 2019. The increase reflects higher average debt balances, higherbalance and interest rates in the credit agreement entered into on December 13, 2018, and higher amortization expense related to pre-paid interest and fees associationassociated with the credit agreement into on December 13, 2018.

Interest expense was approximately $3.3 million in the two quarters ended March 13, 2019 compared to $1.2 million in the two quarters ended March 14, 2018. The increase in interest expense reflects higher average debt balances, higher interest rates in the credit agreement entered into on December 13, 2018, and higher amortization expense related to pre-paidpartially offset by lower average interest and fees association withrates in the credit agreement into on December 13, 2018, as well as acceleration of the expensing of deferred financing fees associated with our previous debt agreement.2nd quarter..




Other Income, Net
 
Other income, net, consisted primarily of the following components: net rental property income and expenses relating to property for which we are the landlord; prepaid sales tax discounts earned through our participation in state tax prepayment programs; oil and gas royalty income; and changes in the fair value of our interest rate swap agreement.prior to its termination in December 2018.


Other income net, was approximately $0.1 million in the quarter ended March 11, 2020 compared to $55 thousand in the quarter ended March 13, 2019 compared to approximately $0.22019. The approximate $0.1 million of other income in the quarter ended March 14, 2018.11, 2020 is primarily net rental income and sales tax discount benefit. The $55 thousand of income in the quarter ended March 13, 2019 is primarily reflects net rental income, partially offset by sales tax discount expense.

53

Other income was approximately $0.4 million in the two quarters ended March 11, 2020 compared to $0.1 million in the two quarters ended March 13, 2019. The $0.2approximate $0.4 million of other income in the quartertwo quarters ended March 14, 201811, 2020 is primarily reflects an increase to the fair valuenet rental income and sales tax discount benefit. The $0.1 million of our interest rate swap, partially offset by gift card expenses (specifically the expense of discounting gift card sales).

Other income net, was $86 thousand in the two quarters ended March 13, 2019 compared to approximately $0.3 million in the two quarters ended March 14, 2018. The $86 thousand of income in the quarter ended March 13, 2019 is primarily reflects net rental income, partially offset by sales tax discount expense, and a reduction in the fair value of our interest rate swap. The $0.3 million of income in the two quarters ended March 14, 2018 primarily reflects an increase indecrease to the fair value of our interest rate swap and net rental income, partially offset by gift card expenses (specifically the expense of discounting gift card sales).prior to its termination.


Taxes
 
For the quarter ended March 13, 2019,11, 2020, the income taxes related to continuing operations resulted in a tax provision of approximately $0.1 million compared to a tax provision of approximately $3.4$0.1 million for the quarter ended March 14, 2018.
13, 2019. The effective tax rate ("ETR") for continuing operations was a negative 1.6% for the quarter ended March 11, 2020 and 1.4% for the quarter ended March 13, 2019 and a negative 41.9% for the quarter ended March 14, 2018.2019. The ETR for the quarter ended March 13, 201911, 2020 and the quarter ended March 14, 201813, 2019 differs from the federal statutory rate of 21.0% due to management's full valuation allowance conclusion, anticipated federal jobs credits, state income taxes, and other discrete items.


For the two quarters ended March 13, 2019,11, 2020, the income taxes related to continuing operations resulted in a tax provision of approximately $0.2 million compared to a tax provision of approximately $3.4$0.2 million for the two quarters ended March 14, 2018.13, 2019. The effective tax rate ("ETR") for continuing operations was a negative 1.3% for the two quarters ended March 11, 2020 and a negative 33.8% for the two quarters ended March 13, 2019 and a negative 24.8% for the two quarters ended March 14, 2018.2019. The ETR for the two quarters ended March 13, 201911, 2020 and two quarters ended March 14, 201813, 2019 differs from the federal statutory rate of 21.0% due to management's full valuation allowance conclusion, anticipated federal jobs credits, state income taxes, and other discrete items.




Discontinued Operations
 
Discontinued operations resulted in a loss of $6 thousand in the quarter ended March 11, 2020 compared to a loss of approximately $8 thousand in the quarter ended March 13, 2019 compared to a2019. The loss of $110 thousandfrom discontinued operations in the quarter ended March 14, 2018. The loss from discontinued operations of $8 thousand11, 2020 and in the quarter ended March 13, 201911, 2020 was related to carrying costs associated with assets related to discontinued operations.  Loss from discontinued

Discontinued operations resulted in a loss of $110$17 thousand in the quartertwo quarters ended March 14, 2018 consisted11, 2020 compared to a loss of (1) $6 thousand in carrying costs associated with assets related to discontinued operations and (2) an income tax provision of $104 thousand for assets related to discontinued operations.

Loss from discontinued operations wasapproximately $13 thousand in the two quarters ended March 13, 2019 compared to a2019. The loss of $145 thousandfrom discontinued operations in the two quarters ended March 14, 2018. The loss from discontinued operations of $13 thousand11, 2020 and in the two quarters ended March 13, 201911, 2020 was related to carrying costs associated with assets related to discontinued operations.  Loss from discontinued operations of $145 thousand in the two quarters ended March 14, 2018 consisted of (1) $8 thousand in carrying costs associated with assets related to discontinued operations and (2) an income tax provision of $137 thousand.

54




LIQUIDITY AND CAPITAL RESOURCES
 
Cash and Cash Equivalents
 
General.Our primary sources of short-term and long-term liquidity are cash flows from operations and our 2018 Credit Facility (as defined below). During the two quarters ended March 13, 2019, cash provided by investing activities of approximately $18.7 million was partially offset by cash used in operating activities of approximately $7.6 million, and cash used in financing activities of $17 thousand.proceeds from asset sales. Cash and cash equivalents and restricted cash increased approximately $11.0$3.0 million inat March 11, 2020 to $15.8 million from $12.8 million at the two quarters ended March 13, 2019 compared tobeginning of the fiscal year. See Recent Developments section above for a $0.5 million increase in the two quarters ended March 14, 2018. We plan to continue the level of capital and repair and maintenance expenditures necessary to keep our restaurants attractive and operating efficiently.
Our cash requirements consist principally of:
capital expenditures for recurring maintenancediscussion of our restaurant property and equipment, restaurant renovations and upgrades, new construction, information technology and culinary contract services development; andliquidity issues as a result of the COVID-19 pandemic.
payments to reduce our debt; and
working capital primarily for our Company-owned restaurants and obligations under our Culinary Contract Services agreements.

As is common in the restaurant industry, we maintain relatively low levels of accounts receivable and inventories, and our vendors grant trade credit for purchases such as food and supplies. However, higher levels of accounts receivable are typical for culinary contract services and franchises. We also strategically invest in our business through the addition of new units and refurbishment of existing units, which are reflected as long-term assets. 


The following table summarizes our cash flows from operating, investing, and financing activities:
 
Two Quarters Ended Two Quarters Ended
March 13,
2019		 March 14,
2018		 March 11,
2020		March 13,
2019
(28 weeks) (28 weeks) (28 weeks)(28 weeks)
(In thousands) (In thousands)
Total cash provided by (used in):   Total cash provided by (used in):  
Operating activities$(7,629) $(2,137)Operating activities$(5,904) $(7,629) 
Investing activities18,663
 (4,469)Investing activities3,963  18,663  
Financing activities(17) 7,115
Financing activities4,969  (17) 
Net increase in cash and cash equivalents and restricted cash$11,017
 $509
Net increase in cash and cash equivalents and restricted cash$3,028  $11,017  
 
Operating Activities. Cash used in operating activities was approximately $7.6$5.9 million in the two quarters ended March 13, 2019,11, 2020, an approximate $5.5$1.7 million increaseimprovement from the two quarters ended March 14, 2018.13, 2019. The approximate $5.5$1.7 million increaseimprovement in cash used in operating activities is due to an approximate $5.0approximately $5.7 million increase inless cash used for working capital purposes andpartially offset by an approximate $0.5$3.9 million increase in net loss after adjusting for non-cash items.
  
Net loss after adjusting for non-cash items (a use of cash) was approximately $1.2$5.1 million in the two quarters ended March 13, 2019,11, 2020, an approximate $0.5$3.9 million increase compared to the two quarters ended March 14, 2018.13, 2019. The $0.5$3.9 million increase in net loss after adjusting for non-cash items was primarily due to decreased store-level profit from our Company-owned restaurants.
 


Changes in working capital were an approximate $0.8 million use of cash in the two quarters ended March 11, 2020 and an approximate $6.5 million use of cash in the two quarters ended March 13, 2019 and an2019. The approximate $1.5$5.7 million decrease in the use of cash inbetween the two quarters ended March 14, 2018. The approximate $5.0 million increase in the use of cash was due to greater reductions in our accounts payable11, 2020 and accrued balances (in part due to the operation of 31 fewer restaurants) between the two quarters ended March 13, 2019 and the two quarters ended March 14, 2018.is described below.


Increases in current asset accounts are a use of cash while decreases in current asset accounts are a source of cash. During the two quarters ended March 13, 2019,11, 2020, the change in trade accounts and other receivables, net, was an approximate $0.4$0.5 million usesource of cash which was a $38 thousand increasean approximate $0.9 million decrease from the use of cash in the two quarters ended March 14, 2018.13, 2019. The change in food and supplies inventory during the two quarters ended March 13, 201911, 2020 was a $45 thousand usean approximate $0.1 million source of cash which was an approximate $0.1 million decrease $49 thousand increase from the use of cash in the two quarters ended March 14, 2018.13, 2019. The change in prepaid expenses and other assets was an approximate $1.1$0.2 million source of cash during the two quarters ended March 13, 2019,11, 2020, compared to a $0.2$1.1 million source of cash in the two quarters ended March 14, 2018.13, 2019.
 
Increase in current liability accounts are a source of cash, while decreases in current liability accounts are a use of cash. During the two quarters ended March 13, 2019,11, 2020, changes in the balances of accounts payable, accrued expenses and other liabilities was an approximate $7.1$0.3 million use of cash, compared to a use of cash of approximately $1.1$7.1 million during the two quarters ended March 14, 2018.13, 2019.
 
Investing Activities. We generally reinvest available cash flows from operations to maintain and enhance existing restaurants and support Culinary Contract Services. Cash provided byused in investing activities was approximately $18.7$4.0 million in the two quarters ended March 13, 201911, 2020 and an approximate $4.5$18.7 million use of cash in the two quarters ended March 14, 2018.13, 2019. Capital expenditures were approximately $1.5 million in the two quarters ended March 11, 2020 and approximately $1.8 million in the two quarters ended March 13, 2019 and2019. Proceeds from the disposal of assets were approximately $8.0$5.5 million in the two quarters ended March 14, 2018. Proceeds from the disposal of assets were11, 2020 and approximately $20.4 million in the two quarters ended March 13, 2019 and approximately $2.82019.
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Financing Activities. Cash provided by financing activities was $5.0 million in the two quarters ended March 14, 2018. Insurance proceeds received as a result11, 2020 compared to an approximate $17 thousand use of claims made from property damage caused by Hurricane Harvey were approximately $0.8 million in the two quarters ended March 14, 2018.
Financing Activities. Cash used in financing activities was $17 thousand incash during the two quarters ended March 13, 2019 compared to an approximate $7.1 million source of cash during the two quarters ended March 14, 2018.2019. Cash flows from financing activities was primarily the result of our 2018 Credit Agreement. During the two quarters ended March 13, 2019, net11, 2020 cash provided by our 2018 Term Loan was $58.4 million, cash used in Revolver borrowings was approximately $20.0 million, cash used for Term Loan re-payments was approximately $35.2 million, cash used for debt issuance costs was approximately $3.2 million, and cash used for equity shares withheld to cover taxes was $12 thousand.$3.3 million. During the two quarters ended March 14, 2018,13, 2019, cash provided by borrowings on our Revolver2018 Term Loan were approximately $8.6$58.4 million, cash used for to repay our 2016 Term Loan re-payments was approximately $1.4$35.2 million, net repayments on our 2016 Revolver was approximately $20.0 million and cash used for equity shares withheld to cover taxesdebt issue costs was $70 thousand.approximately $3.2 million.
 
Status of Long-Term Investments and Liquidity
 
At March 13, 2019,11, 2020, we did not hold any long-term investments.


Status of Trade Accounts and Other Receivables, Net
 
We monitor the aging of our receivables, including Fuddruckers franchising related receivables, and record provisions for uncollectable accounts, as appropriate. Credit terms of accounts receivable associated with our CCS business vary from 30 to 45 days based on contract terms.
 
Working Capital
Current assets increased approximately $10.9 million in the two quarters ended March 13, 2019 compared to an increase of approximately $1.6 million in the two quarters ended March 14, 2018. In the two quarters ended March 13, 2019, restricted cash (See Note 16) increased approximately $10.8 million, cash and cash equivalents increased approximately $0.2 million, food and supplies inventory increased $45 thousand, trade accounts and other receivables, net, increased approximately $0.4 million; partially offset by decreases in prepaid expenses of approximately $0.5 million. In the two quarters ended March 14, 2018, trade accounts and other receivables, net increased approximately $1.8 million, cash and cash equivalents increased approximately $0.5 million, and food and supplies inventory increased approximately $0.2 million; partially offset by decreases in prepaid expenses of approximately $0.5 million and insurance receivables of approximately $0.4 million.


Current liabilities decreased approximately $47.3 million in the two quarters ended March 13, 2019 compared to an increase of approximately $1.4 million in the two quarters ended March 14, 2018. In the two quarters ended March 13, 2019, current portion of credit facility debt decreased approximately $39.3 million, unredeemed gift cards decreased approximately $2.5 million, accrued taxes other than income taxes decreased approximately $1.6 million (primarily due to timing of property taxes), accounts payable decreased approximately $1.3 million, accrued salaries and incentives decreased approximate $1.4 million, accrued claims and insurance decreased approximately $0.9 million, accrued operating expenses decreased approximately $0.2 million; partially offset by increases in income taxes, legal, and other of approximately $0.2 million. In the two quarters ended March 14, 2018, accrued claims and insurance increased approximately $1.2 million, accounts payable increased approximately $0.8 million, unredeemed gift cards increased approximately $0.7 million, salaries and incentives increased approximately $0.5 million, and income taxes legal and other increased approximately $0.2 million; partially offset by decreases in accrued taxes other than income taxes of approximately $1.5 million, deferred income taxes of approximately $0.4 million, and accrued operating expenses of approximately $0.1 million.

Capital Expenditures
 
Capital expenditures consist of purchases of real estate for future restaurant sites, Culinary Contract Services investments, new unit construction, purchases of new and replacement restaurant furniture and equipment, and ongoing remodeling programs. Capital expenditures for the two quarters ended March 13, 201911, 2020 were approximately $1.8$1.5 million primarily related to recurring maintenance of our existing units. We expect to be able to fund all capital expenditures in fiscal 20192020 using proceeds from the sale of assets and cash flows from operations and our 2018 Credit Agreement. operations. We expect to spend less than $6.0$4.5 million on capital expenditures in fiscal 2019.2020. 

DEBT


The following table summarizes credit facility debt, less current portion at March 13, 201911, 2020 and August 29, 2018: 
 
 March 11,
2020		August 28,
2019
Long-Term Debt
2018 Credit Agreement - Revolver$8,600  $5,300  
2018 Credit Agreement - Term Loan45,067  43,399  
Total credit facility debt53,667  48,699  
Less:
Unamortized debt issue costs(1,630) (1,887) 
Unamortized debt discount(1,202) (1,373) 
Total credit facility debt, less unamortized debt issuance costs50,835  45,439  
Current portion of credit facility debt2,567  —  
Credit facility debt, less current portion$48,268  $45,439  
  
 March 13,
2019		 August 29,
2018
Long Term Debt(In thousands)
2016 Credit Agreement - Revolver$—
 $20,000
2016 Credit Agreement - Term Loan—
 19,506
2018 Credit Agreement - Term Loan44,337
 —
Total credit facility debt44,337
 39,506
Less:   
Unamortized debt issue costs(2,143) (168)
Unamortized debt discount(1,520) —
Total credit facility debt, less unamortized debt issuance costs40,674
 39,338
Current portion of credit facility debt—
 39,338
Total Credit facility debt, less current portion$40,674
 $—

2018 Credit Agreement
On December 13, 2018, wethe Company entered into a credit agreement (the(as amended by the First Amendment (as defined below), the “2018 Credit Agreement”) among the Company, the lenders from time to time party thereto, and a subsidiary of MSD Capital, MSD PCOF Partners VI, LLC (“MSD”), as Administrative Agent, pursuant to which the lenders party thereto agreed to make loans to the Company from time to time up to an aggregate principal amount of $80.0$80 million consisting of a $10.0$10 million revolving credit facility (the “2018 Revolver”), a $10.0$10 million delayed draw term loan (“2018 Delayed Draw Term Loan”), and a $60.0$60 million term loan (the “2018 Term Loan”, and together with the 2018 Revolver and the 2018 Delayed Draw Term Loan, the “2018 Credit Facility”). The 2018 Credit Facility terminates on, and all amounts owing thereunder must be repaid on, December 13, 2023.
On July 31, 2019, the Company entered into the First Amendment to the 2018 Credit Agreement (the “First Amendment”) to extend the 2018 Delayed Draw Term Loan expiration date for up to one year to the earlier to occur of (a) the date on which the
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commitments under the 2018 Delayed Draw Term Loan have been terminated or reduced to zero in accordance with the terms of the 2018 Credit Agreement and (b) September 13, 2020.
Borrowings under the 2018 Revolver, 2018 Delayed Draw Term Loan, and 2018 Date Term Loan will bear interest at the London InterBank Offered Rate ("LIBOR") plus 7.75% per annum. Interest is payable quarterly and accrues daily. Under the terms of the 2018 Credit Agreement, the maximum amount of interest payable, based on the aggregate principal amount of $80.0 million and interest rates in effect at December 13, 2018, in the next 12 months was required to be pre-fundedprefunded at the closing date of the 2018 Credit Agreement. The pre-fundedprefunded amount at March 11, 2020 of approximately $8.4$6.1 million is recorded in Restricted cash and cash equivalents on the Company's Balance Sheet.


consolidated balance sheet. LIBOR is set to terminate in December, 2021. We expect to agree to a replacement rate with MSD prior to the LIBOR termination.
The 2018 Credit Facility is subject to the following minimum amortization payments: 1st anniversary: $10.0 million; 2nd anniversary: $10.0 million; 3rd anniversary: $15.0 million; and 4th anniversary: $15.0 million.
We payThe Company also pays a quarterly commitment fee based on the unused portion of the 2018 Revolver and the 2018 Delayed Draw Term Loan at 0.50% per annum. Voluntary prepayments, refinancing and asset dispositions constituting a sale of all or substantially all assets, under the 2018 Delayed Draw Term Loan and the 2018 Term Loan are subject to a make whole premium during years one and two equal to the present value of all interest otherwise owed from the date of the pre-paymentprepayment through the end of year two, a 2.0% fee during year three, and a 1.0% fee during year four. Finally, the Company paid to the lenders a one-time fee of $1.6 million in connection with the closing of the 2018 Credit Facility.
Indebtedness under the 2018 Credit Facility is secured by a security interest in, among other things, all of ourthe Company’s present and future personal property (other than certain excluded assets), all of the personal property of ourits guarantors (other than certain excluded assets) and all Mortgaged Property (as defined in the 2018 Credit Agreement) of oursthe Company and ourits subsidiaries.
The 2018 Credit Facility contains customary covenants and restrictions on ourthe Company’s ability to engage in certain activities, including financial performance covenants, asset sales and acquisitions, and contains customary events of default. Specifically, among other things, we arethe Company is required to maintain minimum Liquidity (as defined in the 2018 Credit Agreement) of $3.0 million as of the last day of each fiscal quarter and a minimum Asset Coverage Ratio (as defined in the 2018 Credit Agreement) of 2.50 to 1.00. As of March 13, 2019, we were11, 2020, the Company was in full compliance with all covenants with respect to the 2018 Credit Facility.
All amounts owing by usthe Company under the 2018 Credit Facility are guaranteed by us and allthe subsidiaries of our subsidiaries.the Company.
As of March 13, 2019,11, 2020 we had approximately $1.3$1.7 million committed under letters of credit, which we useis used as security for the payment of insurance obligations and are fully cash collateralized, and approximately $0.2$0.1 million in other indebtedness.
As of April 22, 2019, we wereJune 5, 2020, the Company was in compliance with all covenants under the terms of the 2018 Credit Agreement.
2016 Credit AgreementSee Recent Development section above for discussion of changes in our debt in response to the COVID-19 pandemic.
On November 8, 2016, we entered into a $65.0 million Senior Secured Credit Facility with Wells Fargo Bank, National Association, as Administrative Agent and Cadence Bank, NA and Texas Capital Bank, NA, as lenders (“2016 Credit Agreement”).
On December 13, 2018, the 2016 Credit Agreement was terminated with all outstanding amounts paid in full.
See Note 12 of the accompanying unaudited Consolidated Financial Statements for more details regarding the Company's credit agreements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
The Consolidated Financial Statementsunaudited consolidated financial statements included in Item 1 of Part 1 of this Form 10-Q were prepared in conformity with GAAP. 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. Due to the significant, subjective and complex judgments and estimates used when preparing our Consolidated Financial Statements,unaudited consolidated financial statements, management regularly reviews these assumptions and estimates with the Finance and Audit Committee of our Board. Management believes the following are critical accounting policies used in the preparation of these financial statements. Actual results may differ from these estimates, including our estimates of future cash flows, which are subject to the current economic environment and changes in estimates. Other than the implementation of ASC 606842 as discussed in Note 1 and 24 of the accompanying unaudited consolidated financial statements, we had no changes in ourthe critical accounting policies and estimates which were disclosed in our Annual Report on Form 10-K for the fiscal year ended August 29, 2018.28, 2019.   
 
NEW ACCOUNTING PRONOUNCEMENTS
 
See Note 1 to the accompanying unaudited Consolidated Financial Statementsconsolidated financial statements for a discussion of recent accounting guidance adopted and not yet adopted. The adoptedWe expect that accounting guidance discussed in Note 1 didnot yet adopted will not have a significant impact on our consolidated financial position or results of operations. The Company either expects that the accounting guidance not yet adopted will not have a significant impact on the Company’s consolidated financial position or results of operations or iswe are currently evaluating the impact of adopting the accounting guidance.


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INFLATION
 
It is generally our policy to maintain stable menu prices without regard to seasonal variations in food costs. Certain increases in costs of food, wages, supplies, transportation and services may require us to increase our menu prices from time to time. To the extent prevailing market conditions allow, we intend to adjust menu prices to maintain profit margins.


FORWARD-LOOKING STATEMENTS
 
This Form 10-Q 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 (the “Exchange Act”). All statements contained in this Form 10-Q, other than statements of historical facts, are forward-looking statements for purposes of these provisions, including any statements regarding:
 
•future operating results,
•future capital expenditures and expected sources of funds for capital expenditures,
•future debt, including liquidity and the sources and availability of funds related to debt, and expected repayment of debt,
•expected sources of funds for working capital requirements,
plans for our new prototype restaurants,
•plans for expansion and revisions to our business,
scheduled openings of new units,
•closing existing units,
•effectiveness of management's disposal plans,
•future sales of assets and the gains or losses that may be recognized as a result of any such sales, and
•continued compliance with the terms of our 2018 Credit Agreement.


In some cases, investors 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 management in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are relevant. Although management believes that its assumptions are reasonable based on information currently available, those assumptions are subject to significant risks and uncertainties, many of which are outside of its control. The following factors, as well as the factors set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended August 29, 201828, 2019 and any other cautionary language in this Form 10-Q, provide examples of risks, uncertainties, and events that may cause our financial and operational results to differ materially from the expectations described in our forward-looking statements:
 
•our ability to pursue strategic alternatives
•general business and economic conditions,
•the effects of the COVID-19 pandemic,
•the possible inability of the Company to sell itself, its operations or assets on terms deemed to be favorable to the Company or its stockholders,
•if presented, whether the Company’s stockholders will approve any sale and proceeds distribution plan,
•the impact of competition,
•decisions made in the allocation of capital resources,
•our operating initiatives, changes in promotional, couponing and advertising strategies and the success of management’s business plans,
•fluctuations in the costs of commodities, including beef, poultry, seafood, dairy, cheese, oils and produce,
•ability to raise menu prices and customer acceptance of changes in menu items,
•increases in utility costs, including the costs of natural gas and other energy supplies,
•changes in the availability and cost of labor, including the ability to attract qualified managers and team members,
•the seasonality of the business,
•collectability of accounts receivable,
•changes in governmental regulations, including changes in minimum wages and health care benefit regulation,
•the effects of inflation and changes in our customers’ disposable income, spending trends and habits,
•the ability to realize property values,
•the availability and cost of credit,
•the effectiveness of our credit card controls and PCIPayment Card Industry ("PCI") compliance,
•weather conditions in the regions in which our restaurants operate,
•costs relating to legal proceedings,
•impact of adoption of new accounting standards,
•effects of actual or threatened future terrorist attacks in the United States,
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•unfavorable publicity relating to 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 of the date of this Form 10-Q, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Investors should be aware that the occurrence of the events described above and elsewhere in this Form 10-Q could have material adverse effect on our business, results of operations, cash flows and financial condition.  




Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
We are exposedAs a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to interest rate risk due to changes in interest rates affecting our variable-rate debt. As of March 13, 2019, the total amount of debt subject to interest rate fluctuations outstanding under our 2018 Credit Facility was $44.3 million . Assuming an average debt balance with interest rate exposure of $44.3 million, a 100 basis point increase in prevailing interest rates would increase our annual interest expense by $0.4 million.provide this information.
 
We have exposure to various foreign currency exchange rate fluctuations for revenues generated by our operations outside of the United States, which can adversely impact our net income and cash flows. Sales to customers and royalties from franchisees outside the contiguous United States as a percentage of our total revenues were not significant in the quarter ended March 13, 2019 and March 14, 2018, respectively.

Many ingredients in the products sold in our restaurants are commodities subject to unpredictable price fluctuations. We attempt to minimize price volatility by negotiating fixed price contracts for the supply of key ingredients and in some cases by passing increased commodity costs through to the customer by adjusting menu prices or menu offerings. Our ingredients are available from multiple suppliers so we are not dependent on a single vendor for our ingredients.
Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
Management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), as of March 13, 2019.11, 2020. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 13, 2019,11, 2020, our disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
 
Changes in Internal Control over Financial Reporting
 
There wereDuring the quarter ended March 11, 2020 we outsourced certain of our accounting and payroll processing functions to a 3rd party accounting service provider. In conjunction with this transition, we modified the design, operation and documentation of our internal control over financial reporting.

With the exception of the transition described above, there was no changeschange in our internal control over financial reporting during the quarter ended March 13, 2019 that have11, 2020, which materially affected, or arewas reasonably likely to materially affect, our internal control over financial reporting.

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Part II—OTHER INFORMATION
 
Item 1. Legal Proceedings
 
There have been no material changes to our legal proceedings as disclosed in “Legal Proceedings” in Item 3 of Part I of our Annual Report on Form 10-K for the fiscal year ended August 29, 2018.28, 2019.
 
Item 1A. Risk Factors
 
There have been no material changes during the quarter ended March 13, 201911, 2020 to the Risk Factors discussed in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended August 29, 2018.28, 2019, except as reported on the Current Report on Form 8-K dated April 4, 2020.
 
Item 5. Other Information


None

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Item 6. Exhibits
FirstSecond Amendment to Rights Agreement, dated as of February 11, 2019,14, 2020, by and between Luby’s, Inc. and American Stock Transfer & Trust Company, LLC, as rights agent (incorporated by reference to Exhibit 4.24.3 to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 12, 2019,14, 2020, File No. 1-08308).
Promissory Note, effective as of April 12, 2020, between Luby’s, Inc., as borrower, and Texas Capital Bank, N.A., as lender (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 23, 2020, File No. 1-08308).
Third Amendment to Credit Agreement, dated as of April 21, 2020, among the Company, the lenders from time to time party thereto, and MSD PCOF Partners VI, LLC, as Administrative Agent (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 23, 2020, File No. 1-08308).
Final Separation Agreement and Release, dated April 24, 2020, by and between Kennedy Scott Gray and Luby's, Inc.
Rule 13a-14(a)/15d-14(a) certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Rule 13a-14(a)/15d-14(a) certification of the Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Section 1350 certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Section 1350 certification of the Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document
101.SCHXBRL Schema Document
101.CALXBRL Calculation Linkbase Document
101.DEFXBRL Definition Linkbase Document
101.LABXBRL Label Linkbase Document
101.PREXBRL Presentation Linkbase Document



61

SIGNATURES
 
Pursuant to the requirements 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.
 
LUBY’S, INC.
(Registrant)
Date:4/22/2019By:
Date: 6/5/2020By:/s/ Christopher J. Pappas
Christopher J. Pappas
President and Chief Executive Officer
(Principal Executive Officer)
Date: 6/5/20204/22/2019By:By:/s/ K. Scott GraySteven Goodweather
K. Scott GraySteven Goodweather
Senior Vice President and Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)


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