Delaware

74-1335253

(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 class	Trading Symbol(s)	Name of each exchange at which registered
Common Stock ($0.32 par value per share)	LUB	New York Stock Exchange
Common Stock Purchase Rights	N/A	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

Accelerated filer

x¨

Non-accelerated filer

¨x

Smaller reporting company

x☒

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 July ~~10, 2019,~~15, 2020, there were ~~30,478,972~~ 30,625,470 shares of the registrant’s common stock outstanding.

~~Luby’s, Inc.~~

~~Form 10-Q~~

~~Quarter ended June 5, 2019~~

~~Table of Contents~~

Additional Information

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

Luby’s, Inc.

Form 10-Q

Quarter ended June 3, 2020

Table of Contents

Part I—FINANCIAL INFORMATION

Item 1. Financial Statements

Luby’s, Inc.

Consolidated Balance Sheets

(In thousands, except share data)


	June 5, 2019			August 29, 2018				June 3, 2020		August 28, 2019
	(Unaudited)							(Unaudited)
ASSETS							ASSETS
Current Assets:							Current Assets:
Cash and cash equivalents	$	3,193		$	3,722		Cash and cash equivalents	$	14,122	$	3,640
Restricted cash and cash equivalents	9,588			—			Restricted cash and cash equivalents	7,917		9,116
Trade accounts and other receivables, net	9,667			8,787			Trade accounts and other receivables, net	5,498		8,852
Food and supply inventories	3,874			4,022			Food and supply inventories	2,120		3,432
Prepaid expenses	2,725			3,219			Prepaid expenses	1,399		2,355

Total current assets	29,047			19,750			Total current assets	31,056		27,395
Property held for sale	15,031			19,469			Property held for sale	17,916		16,488
Assets related to discontinued operations	1,813			1,813			Assets related to discontinued operations	1,691		1,813
Property and equipment, net	127,189			138,287			Property and equipment, net	104,288		121,743
Intangible assets, net	17,105			18,179			Intangible assets, net	15,695		16,781
Goodwill	555			555			Goodwill	195		514
Operating lease right-of-use assets							Operating lease right-of-use assets	17,790		—

Other assets	1,326			1,936			Other assets	625		1,266
Total assets	$	192,066		$	199,989		Total assets	$	189,256	$	186,000
LIABILITIES AND SHAREHOLDERS’ EQUITY							LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:							Current Liabilities:
Accounts payable	$	8,475		$	10,457		Accounts payable	$	9,808	$	8,465
Liabilities related to discontinued operations	9			14			Liabilities related to discontinued operations	11		14
Current portion of credit facility debt	—			39,338
Current portion of long-term debt							Current portion of long-term debt	6,386		—
Operating lease liabilities-current							Operating lease liabilities-current	4,412		—
Accrued expenses and other liabilities	24,183			31,755			Accrued expenses and other liabilities	21,360		24,475
Total current liabilities	32,667			81,564			Total current liabilities	41,977		32,954
Credit facility debt, less current portion	41,952			—
Liabilities related to discontinued operations	16			16
Long-term debt, less current portion							Long-term debt, less current portion	57,316		45,439

Operating lease liabilities-noncurrent							Operating lease liabilities-noncurrent	22,771		—
Other liabilities	7,280			5,781			Other liabilities	1,550		6,577
Total liabilities	81,915			87,361			Total liabilities	$	123,614	$	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 30,375,791 and 30,003,642; and shares outstanding were 29,893,592 and 29,503,642, at June 5, 2019 and August 29, 2018, respectively	9,721			9,602
Common stock, 0.32 par value; 100,000,000 shares authorized; shares issued were 30,998,504 and 30,478,972; and shares outstanding were 30,498,504 and 29,978,972 at June 3, 2020 and August 28, 2019, respectively							Common stock, 0.32 par value; 100,000,000 shares authorized; shares issued were 30,998,504 and 30,478,972; and shares outstanding were 30,498,504 and 29,978,972 at June 3, 2020 and August 28, 2019, respectively	$	9,921	$	9,753
Paid-in capital	34,955			33,872			Paid-in capital	35,407		34,870
Retained earnings	70,250			73,929			Retained earnings	25,089		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’ equity	110,151			112,628			Total shareholders’ equity	$	65,642	$	101,030
Total liabilities and shareholders’ equity	$	192,066		$	199,989		Total liabilities and shareholders’ equity	$	189,256	$	186,000


	Balance at August 28, 2019		ASC 842 Adjustment		Balance at August 29, 2019
	(In thousands)
ASSETS
Trade accounts and other receivables, net	$	8,852	$	70	$	8,922
Prepaid expenses	2,355		(225)		2,130
Total Current Assets	27,395		(155)		27,240
Intangible assets, net	16,781		(190)		16,591
Operating lease right-of-use assets, net	—		27,191		27,191
Total Assets	$	186,000	$	26,846	$	212,846
LIABILITIES
Operating lease liabilities-current	$	—	$	8,061	$	8,061
Accrued expenses and other liabilities	24,475		(1,002)		23,473
Total Current Liabilities	32,954		7,059		40,013
Operating lease liabilities-non-current	—		24,360		24,360
Other liabilities	6,577		(5,600)		977
Total Liabilities	$	84,970	$	25,819	$	110,789
SHAREHOLDERS’ EQUITY
Retained earnings	$	61,182	$	1,027	$	62,209
Total Shareholders Equity	101,030		1,027		102,057
Total Liabilities and Shareholders Equity	$	186,000	$	26,846	$	212,846


	June 3, 2020		August 28, 2019
	(in thousands)
Cash and cash equivalents	$	14,122	$	3,640
Restricted cash and cash equivalents	7,917		9,116
Total cash and cash equivalents shown in our consolidated statements of cash flows	$	22,039	$	12,756


	Gift Cards, net of discounts		Franchise Fees
	(In thousands)
Balance at August 28, 2019	$	2,882	$	1,287
Revenue recognized that was included in the contract liability balance at the beginning of the year	(977)		(97)
Increase, net of amounts recognized as revenue during the period	1,498		—
Balance at June 3, 2020	$	3,403	$	1,190


		Franchise Fees
	(In thousands)
Remainder of fiscal 2020		$	7
Fiscal 2021		30
Fiscal 2022		30
Fiscal 2023		30
Fiscal 2024		29
Thereafter		309
Total operating franchise restaurants		435
Franchise restaurants not yet opened⁽¹⁾		755
Total		$	1,190

Quarter Ended Three Quarters Ended
June 5,
2019 June 6,
2018 June 5,
2019 June 6,
2018
(12 weeks) (12 weeks) (40 weeks) (40 weeks)
(In thousands)
Sales:
Company-owned restaurants ⁽¹⁾
$ 65,713
$ 77,921
$ 222,371
$ 257,149
Culinary contract services 7,571
6,639
24,610
19,413
Franchise operations 1,482
1,444
5,126
4,732
Total $ 74,766
$ 86,004
$ 252,107
$ 281,294
Segment level profit:

Company-owned restaurants $ 6,706
$ 6,642
$ 22,938
$ 23,469
Culinary contract services 780
535
2,286
1,300
Franchise operations 1,152
1,103
4,277
3,534
Total $ 8,638
$ 8,280
$ 29,501
$ 28,303
Depreciation and amortization:

Company-owned restaurants $ 2,498
$ 3,381
$ 9,502
$ 11,155
Culinary contract services 25
18
70
54
Franchise operations 177
178
590
592
Corporate 227
473
890
1,601
Total $ 2,927
$ 4,050
$ 11,052
$ 13,402
Capital expenditures:

Company-owned restaurants $ 991
$ 3,152
$ 2,553
$ 9,569
Culinary contract services 12
55
22
185
Corporate 82
493
291
1,976
Total $ 1,085
$ 3,700
$ 2,866
$ 11,730

Loss before income taxes and discontinued operations

Segment level profit $ 8,638
$ 8,280
$ 29,501
$ 28,303
Opening costs (6 ) (85 ) (49 ) (490 )
Depreciation and amortization (2,927 ) (4,050 ) (11,052 ) (13,402 )
Selling, general and administrative expenses (9,426 ) (8,507 ) (29,666 ) (29,219 )
Provision for asset impairments and restaurant closings (675 ) (4,464 ) (3,097 ) (6,716 )
Net gain (loss) on disposition of property and equipment 434
(154 ) 12,935
(172 )
Interest income 11
1
30
12
Interest expense (1,324 ) (1,042 ) (4,593 ) (2,235 )
Other income, net 112
9
198
317
Loss before income taxes and discontinued operations $ (5,163 ) $ (10,012 ) $ (5,793 ) $ (23,602 )


	Quarter Ended						Three Quarters Ended
	June 3, 2020		June 5, 2019		June 3, 2020		June 5, 2019
	(12 weeks)		(12 weeks)		(40 weeks)		(40 weeks)
	(In thousands)
Sales:
Luby's cafeterias	$	12,414	$	49,521	$	127,426	$	166,751
Fuddruckers restaurants	1,411		15,414		28,962		53,292
Cheeseburger in Paradise restaurants	30		778		1,522		2,328
Culinary contract services	4,944		7,571		21,735		24,610
Fuddruckers franchise operations	195		1,482		3,059		5,126
Total	$	18,994	$	74,766	$	182,704	$	252,107
Segment level profit:
Luby's cafeterias	$	(3,191)	$	5,821	$	9,595	$	20,968
Fuddruckers restaurants	(1,818)		859		(1,324)		2,275
Cheeseburger in Paradise restaurants	(141)		26		(236)		(305)
Culinary contract services	251		780		1,675		2,286
Fuddruckers franchise operations	(244)		1,152		1,648		4,277
Total	$	(5,143)	$	8,638	$	11,358	$	29,501
Depreciation and amortization:
Luby's cafeterias	$	1,783	$	1,984	$	5,979	$	7,027
Fuddruckers restaurants	340		497		1,276		2,378
Cheeseburger in Paradise restaurants	22		17		69		97
Culinary contract services	8		25		26		70
Fuddruckers franchise operations	—		177		297		590
Corporate	556		227		1,502		890
Total	$	2,709	$	2,927	$	9,149	$	11,052
Capital expenditures:
Luby's cafeterias	$	369	$	774	$	1,656	$	2,177
Fuddruckers restaurants	17		212		129		360
Cheeseburger in Paradise restaurants	12		5		30		16
Culinary contract services	—		12		—		22
Fuddruckers franchise operations	—		—		9		—
Corporate	2		82		66		291
Total	400		$	1,085	$	1,890	$	2,866

June 5,
2019 August 29,
2018
Total assets: (in thousands)
Company-owned restaurants⁽²⁾
$ 148,800
$ 152,281
Culinary contract services 7,033
4,569
Franchise operations⁽²⁾
10,263
10,212
Corporate 25,970
32,927
Total $ 192,066
$ 199,989

~~(1)~~

Includes vending revenue of approximately $102 thousand and $118 thousand for the quarter ended June 5, 2019 and June 6, 2018, respectively, and amortization of discounts on gift cards sold partially offset by gift card breakage of approximately $131 thousand in the quarter ended June 5, 2019. Includes vending revenue of approximately $292 thousand and $412 thousand for the three quarters ended June 5, 2019 and June 6, 2018, respectively, and amortization of discounts on gift cards sold partially offset by gift card breakage of approximately $375 thousand in the three quarters ended June 5, 2019.


~~(2)~~	Company-owned restaurants segment includes $7.7 million of Fuddruckers trade name, Cheeseburger in Paradise liquor licenses, and Jimmy Buffett intangibles. Franchise operations segment includes approximately $9.4 million in royalty intangibles.


	Quarter Ended								Three Quarters Ended
	June 3, 2020		June 5, 2019		June 3, 2020		June 5, 2019
	(12 weeks)		(12 weeks)		(40 weeks)		(40 weeks)
	(In thousands)
Loss before income taxes and discontinued operations:
Segment level profit	$	(5,143)	$	8,638	$	11,358	$	29,501
Opening costs	—		(6)		(14)		(49)
Depreciation and amortization	(2,709)		(2,927)		(9,149)		(11,052)
Selling, general and administrative expenses	(3,339)		(8,623)		(20,313)		(26,386)
Other charges	(164)		(803)		(2,912)		(3,280)
Provision for asset impairments and restaurant closings	(12,708)		(675)		(14,478)		(3,097)
Net gain on disposition of property and equipment	364		434		2,861		12,935
Interest income	19		11		47		30
Interest expense	(1,641)		(1,324)		(5,076)		(4,593)
Other income, net	402		112		790		198
Total	$	(24,919)	$	(5,163)	$	(36,886)	$	(5,793)



	June 3, 2020		August 28, 2019
	(In thousands)
Total assets:
Luby's cafeterias	$	108,875	$	107,287
Fuddruckers restaurants ⁽¹⁾	16,823		25,725
Cheeseburger in Paradise restaurants ⁽²⁾	518		829
Culinary contract services	5,331		6,703
Fuddruckers franchise operations ⁽³⁾	9,555		10,034
Corporate	48,154		$	35,422
Total	$	189,256	$	186,000

(1) Includes Fuddruckers trade name intangible of $7.1 million and $7.5 million at June 3, 2020 and August 28, 2019, respectively.

(2) Includes Cheeseburger in Paradise liquor licenses, and Jimmy Buffett intangibles of $37 thousand and $46 thousand at June 3, 2020 and August 28, 2019, respectively.

(3) Fuddruckers franchise operations segment includes royalty intangibles of $8.6 million and $9.2 million at June 3, 2020 and August 28, 2019 respectively.

Note ~~6. Derivative Financial Instruments~~8. Other Charges

Other charges includes those expenses that we consider related to our restructuring efforts or are not part of our ongoing operations.

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 did 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 three quarters ended June 5, 2019 and a credit to expense of approximately $0.7 million in the three quarters ended June 6, 2018. The Company terminated its interest rate swap in the quarter ended December 19, 2018 and received approximately $0.3 million in cash proceeds.


	Quarter Ended						Three Quarters Ended
	June 3 2020		June 5 2019		June 3 2020		June 5 2019
	(In thousands)
Proxy communication related	$	—	$	60	$	—	$	1,862
Employee severances	45		—		1,207		645
Restructuring related	119		743		1,705		772
Total Other charges	$	164	$	803	$	2,912	$	3,279

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

Note 7.9. 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~~long-term debt, net of unamortized discounts and debt issue costs, at June ~~5, 2019~~3, 2020 and August ~~29, 2018~~28, 2019 was approximately ~~$42.0~~$63.7 million and ~~$39.3~~$45.4 million, respectively, which approximates fair value because the applicable interest rate is adjusted frequently based on short-term market rates (Level 2).

~~Recurring~~There were no recurring fair value measurements related to assets ~~are presented below:~~

~~Fair Value~~
~~Measurement Using~~

~~June 5, 2019~~

~~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⁾

—

~~(1) The Company~~at June 3, 2020 or June 5, 2019 . We terminated ~~its~~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.

~~(1) The fair value of the interest rate swap was recorded in other assets on our consolidated balance sheet.~~

~~Recurring~~There were no recurring fair value measurements related to liabilities ~~are presented below:~~

~~Fair Value~~
~~Measurement Using~~

~~June 5, 2019~~

~~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⁾

—

~~Monte Carlo Simulation~~

~~(1)~~at June 3, 2020. The fair value of the Company's 2017 Performance Based Incentive Plan liabilities was ~~zero.~~0 at June 5, 2019.

Fair Value
Measurement Using
June 6, 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⁾
$ 229
$ —
$ 229
$ —
Monte Carlo Simulation
Total liabilities at Fair Value $ 229
$ —
$ 229
$ —

(1) The fair value of the Company's 2016 and 2017 Performance Based Incentive Plan liabilities were approximately $167 thousand and $62 thousand, respectively, and was recorded in other liabilities on our consolidated balance sheet.

Non-recurring fair value measurements related to impaired goodwill, operating lease right-of-use assets, property held for sale and property and equipment consisted of the following:


			Fair Value Measurement Using
	June 3, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Impairments⁽⁵⁾
Nonrecurring Fair Value Measurements			(In thousands)
Continuing Operations
Property held for sale ⁽¹⁾	$	3,362	$	—	$	—	$	3,362	$	(14)
Property and equipment related to company-owned restaurants ⁽²⁾	424		—		—		424		(4,888)

Goodwill ⁽³⁾	—		—		—		—		(320)
Operating lease right-of-use assets ⁽⁴⁾	—		—		—		—		(5,447)
Total Nonrecurring Fair Value Measurements	$	3,786	$	—	$	—	$	3,786	$	(10,669)

Fair Value
Measurement Using

June 5, 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⁾
$ 8,030
$ —
$ —
$ 8,030
$ (70 )
Property and equipment related to company-owned restaurants⁽²⁾
704
—
—
704
(3,476 )
Total Nonrecurring Fair Value Measurements $ 8,734
$ —
$ —
$ 8,734
$ (3,546 )
Discontinued Operations
Property held for sale⁽⁵⁾
$ —
$ —
$ —
$ —
$ —

⁽¹⁾ In accordance with Subtopic 360-10, long-lived assets held for sale with a carrying value of approximately ~~$8.1~~$3.4 million were written down to their fair value, less cost to sell, of approximately ~~$8.0~~$3.4 million, resulting in an impairment charge of approximately ~~$0.1 million.~~$14 thousand.

⁽²⁾ In accordance with Subtopic 360-10, long-lived assets held and used with a carrying value of ~~approximately $4.2~~$5.3 million were written down to their fair value of approximately ~~$0.7~~$0.4 million, resulting in an impairment charge of approximately ~~$3.5~~$4.9 million.

⁽³⁾ In accordance with Subtopic 360-20, goodwill with a carrying value of $320 thousand was written down to its fair value of 0 resulting in an impairment charge of approximately $320 thousand.

⁽⁴ In accordance with Subtopic 360-10, operating lease right-to-use assets with a carrying value of approximately $5.4 million were written down to their fair value of 0, resulting in an impairment charge of approximately $5.4 million.

⁽⁵⁾ Total impairments for continuing operations are included in provision for asset impairments and restaurant closings in our consolidated statement of operations for the three quarters ended June ~~5, 2019.~~3, 2020.


			Fair Value Measurement Using
	June 5, 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⁾	$	8,030	$	—	$	—	$	8,030	$	(70)
Property and equipment related to company-owned restaurants ⁽²⁾	704		—		—		704		(3,476)

Total Nonrecurring Fair Value Measurements	$	8,734	$	—	$	—	$	8,734	$	(3,546)

Fair Value
Measurement Using

June 6, 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⁾
$ 9,074
$ —
$ —
$ 9,074
$ (2,808 )
Property and equipment related to company-owned restaurants ⁽²⁾
1,519
—
—
1,519
(2,721 )
Goodwill ⁽³⁾
—
—
—
—
(513 )
Total Nonrecurring Fair Value Measurements $ 10,593
$ —
$ —
$ 10,593
$ (6,042 )
Discontinued Operations
Property held for sale ⁽⁵⁾
$ 1,800
$ —
$ —
$ 1,800
$ (100 )

⁽¹⁾ In accordance with Subtopic 360-10, long-lived assets held for sale with a carrying value of approximately ~~$12.9~~$8.1 million were written down to their fair value, less ~~approximately $1.0 million net proceeds on sales,~~costs to sell, of approximately ~~$9.1~~$8.0 million, resulting in an impairment charge of approximately ~~$2.8 million.~~$70 thousand.

⁽²⁾ In accordance with Subtopic 360-10, long-lived assets held and used with a carrying amount of approximately $4.2 million were written down to their fair value of approximately ~~$1.5~~$0.7 million, resulting in an impairment charge of approximately ~~$2.7~~$3.5 million.

^{(3) In accordance with Subtopic 350-20, goodwill with a carrying value of approximately $513 thousand was written down to}~~zero, resulting in an impairment charge of approximately $513 thousand.~~

~~(4)~~ Total impairments are included in provision for asset impairments and restaurant closings in our unaudited consolidated statement of operations for the three quarters ended June ~~6, 2018.~~5, 2019.

(5) In accordance with Subtopic 205-20, discontinued operations held for sale with a carrying value of approximately $1.9 million were written down to their fair value , less costs to sell, of approximately $1.8 million , resulting in an impairment charge of approximately $0.1 million. This charge is included in loss from discontinued operations, net of income on our unaudited consolidated statement of operations for the three quarters ended June 6, 2018.

Note 8.10. 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.

NoNaN cash payments of estimated federal income taxes were made during the three quarters ended June ~~5, 2019~~3, 2020 and June ~~6, 2018,~~5, 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 June ~~5, 2019,~~3, 2020, management ~~determined that for the three quarters ended June 5, 2019~~continues to maintain a full valuation allowance ~~on the Company's~~against net deferred tax ~~assets was necessary.~~assets.

The effective tax rate ("ETR") for continuing operations was a negative 0.2% for the quarter ended June 3, 2020 and a negative 2.6% for the quarter ended June 5, ~~2019 and a negative 41.2% for the quarter ended June 6, 2018.~~2019. The ETR for the quarter ended June ~~5, 2019~~3, 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 0.6% for the three quarters ended June 3, 2020 and a negative 6.0% for the three quarters ended June 5, ~~2019 and a negative 31.8% for the three quarters ended June 6, 2018.~~2019. The ETR for the three quarters ended June ~~5, 2019~~3, 2020 differs from the federal statutory rate of 21% due to management's 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 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.

On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic. The CARES Act contains numerous tax provisions; however, there was no impact on our income tax provision due to management's full valuation allowance conclusion.

Note 9.11. Property and Equipment, Intangible Assets and Goodwill

The costs, net of impairment, and accumulated depreciation of property and equipment at June ~~5, 2019~~3, 2020 and August ~~29, 2018,~~28, 2019, together with the related estimated useful lives used in computing depreciation and amortization, were as follows:


	June 3, 2020		August 28, 2019		Estimated Useful Lives (years)
	(In thousands)
Land	$	43,350	$	45,845		—
Restaurant equipment and furnishings	60,565		67,015		3	to	15
Buildings	119,811		126,957		20	to	33
Leasehold and leasehold improvements	22,086		22,098		Lesser of lease term or estimated useful life
Office furniture and equipment	3,234		3,364		3	to	10

	249,046		265,279
Less accumulated depreciation and amortization	(144,758)		(143,536)
Property and equipment, net	$	104,288	$	121,743
Intangible assets, net	$	15,695	$	16,781	15	to	21

June 5,
2019 August 29,
2018
Estimated
Useful Lives
(years)
(In thousands)
Land $ 46,336
$ 46,817
—
Restaurant equipment and furnishings 70,181
69,678
3 to 15
Buildings 129,866
131,557
20 to 33
Leasehold and leasehold improvements 23,229
27,172
Lesser of lease term or estimated useful life
Office furniture and equipment 3,405
3,596
3 to 10
273,017
278,820

Less accumulated depreciation and amortization (145,828 ) (140,533 )
Property and equipment, net $ 127,189
$ 138,287

Intangible assets, net $ 17,105
$ 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 ended 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 June 5, 2019. Net proceeds from the sales 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.

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 ~~$1.0~~$1.1 million and ~~$1.1~~$1.0 million for the three quarters ended June ~~5, 2019~~3, 2020 and June ~~6, 2018,~~5, 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 June ~~5, 2019~~3, 2020 and August ~~29, 2018:~~28, 2019:


	June 3, 2020										August 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	$	(13,828)	$	15,658	$	29,486	$	(12,752)	$	16,734

Cheeseburger in Paradise trade name and license agreements	146		(109)		37		146		(99)		47

Intangible assets, net	$	29,632	$	(13,937)	$	15,695	$	29,632	$	(12,851)	$	16,781

June 5, 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 $ 29,486
$ (12,429 ) $ 17,057
$ 29,701
$ (11,653 ) $ 18,048

Cheeseburger in Paradise trade name and license agreements 146
(98 ) 48
206
(75 ) 131

Intangible assets, net $ 29,632
$ (12,527 ) $ 17,105
$ 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~~$195 thousand and $514 thousand as of June ~~5, 2019~~3, 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 ~~brands~~reporting segments that were acquired in fiscal 2010 and fiscal 2013, respectively. The net Goodwill balance at June ~~5, 2019~~3, 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 no$320 thousand and 0 goodwill impairment charges during the three quarters ended June 3, 2020 and June 5, 2019, respectively. The fiscal year 2020 impairment charge were to completely impair the goodwill allocated one Cheeseburger in Paradise restaurant and ~~approximately $0.6 million during the three quarters ended June 6, 2018.~~two Cheeseburger in Paradise restaurants that were converted into Fuddruckers restaurants.

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 ~~compares~~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. 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:


	Three Quarters Ended							Three Quarters Ended
	June 5, 2019			June 6, 2018				June 3, 2020		June 5, 2019
	(40 weeks)			(40 weeks)				(40 weeks)		(40 weeks)
	(In thousands, except per share data)							(In thousands, except per share data)
Provision for asset impairments and restaurant closings	$	3,097		$	6,716		Provision for asset impairments and restaurant closings	$	14,478	$	3,097
Net loss (gain) on disposition of property and equipment	(12,935		)	172
Net gain on disposition of property and equipment							Net gain on disposition of property and equipment	(2,861)		(12,935)

	$	(9,838	)	$	6,888			$	11,617	$	(9,838)
Effect on EPS:							Effect on EPS:
Basic	$	0.33		$	(0.23	)	Basic	$	(0.38)	$	0.33
Assuming dilution	$	0.33		$	(0.23	)	Assuming dilution	$	(0.38)	$	0.33

The ~~approximate~~$14.5 million provision for asset impairments and restaurant closings for the three quarters ended June 3, 2020 was due primarily to the write off of $5.4 million right-of-use asset for 27 of our leased locations where we permanently ceased operations during the period, impairment losses of $4.9 million for property and equipment at 28 of our restaurant locations and $1.2 million for certain surplus equipment written down to fair value, as well as $2.6 million of store closing expenses accrued for the leased locations where we permanently ceased operations

The $2.9 million net gain on disposition of property and equipment for the three quarters ended June 3, 2020 was primarily related to gains on the sale of 2 previously held for sale properties and 1 property previously held for use, partially offset by routine asset retirements.

The $3.1 million ~~impairment charge~~provision for asset impairments and restaurant closings for the three quarters ended June 5, 2019 iswas primarily related to assets at ~~nine~~9 property locations, ~~held for use, six~~6 properties held for sale and 1 international joint venture investment written down to their fair ~~value and one international joint venture investment.~~values.

The approximate $6.7 million impairment charge for the three quarters ended June 6, 2018 is primarily related to assets at ten property locations held for use, ten properties held for sale written down to their fair value, goodwill at 3 locations, and approximately $0.7 million in net lease termination costs at five property locations.

~~The approximate~~ $12.9 million net gain on disposition of property and equipment for the three quarters ended June 5, 2019 is primarily related to gains on the sale and leaseback of ~~two~~2 properties and ~~gains~~the gain on the sale of ~~one~~1 undeveloped property that was held for sale, partially offset by routine asset retirements.

The approximate $0.2 million net loss for the three quarters ended June 6, 2018 is primarily related to asset retirements at six property location closures partially offset by gains on the sale of 3 property locations.

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 June ~~5, 2019, one~~3, 2020, 1 location remains held for sale.

The following table sets forth the assets and liabilities for all discontinued operations:


	June 3, 2020		August 28, 2019
	(In thousands)


Property and equipment	$	1,691	$	1,813

Assets related to discontinued operations—non-current	$	1,691	$	1,813

Accrued expenses and other liabilities	$	11	$	14
Liabilities related to discontinued operations—current	$	11	$	14

June 5,
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 $ 9
$ 14
Liabilities related to discontinued operations—current $ 9
$ 14
Other liabilities $ 16
$ 16
Liabilities related to discontinued operations—non-current $ 16
$ 16

As of June ~~5, 2019,~~3, 2020, we had ~~one~~1 property classified as discontinued operations. The asset carrying value of the owned property was approximately ~~$1.8~~$1.7 million and is included in assets related to discontinued operations. We are actively marketing this property for sale. The asset carrying value at ~~one~~1 other property with a ground lease, included in discontinued operations, was previously impaired to ~~zero.~~0.

The following table sets forth the sales and pretax losses reported from discontinued operations:


	Three Quarters Ended
	June 3, 2020		June 5, 2019
	(40 weeks)		(40 weeks)
	(In thousands)
Sales	$	—	$	—

Pretax loss	$	(23)	$	(18)
Income tax expense from discontinued operations	—		—
Loss from discontinued operations, net of income taxes	$	(23)	$	(18)

Three Quarters Ended
June 5,
2019 June 6,
2018
(40 weeks) (40 weeks)
(In thousands)
Sales $ —
$ —

Pretax loss $ (18 ) $ (73 )
Income tax expense from discontinued operations —
(535 )
Loss from discontinued operations, net of income taxes $ (18 ) $ (608 )

The following table summarizes discontinued operations for the three quarters of fiscal ~~2019~~2020 and ~~2018:~~2019:


	Three Quarters Ended							Three Quarters Ended
	June 5, 2019			June 6, 2018				June 3, 2020		June 5, 2019
	(40 weeks)			(40 weeks)				(40 weeks)		(40 weeks)
	(In thousands, except per share data)							(In thousands, except per share data)
Discontinued operating loss	$	(18	)	$	(14	)	Discontinued operating loss	$	(23)	$	(18)
Impairments	—			(59		)	Impairments	—		—

Pretax loss	(18		)	(73		)	Pretax loss	(23)		(18)
Income tax expense from discontinued operations	—			(535		)	Income tax expense from discontinued operations	—		—
Loss from discontinued operations, net of income taxes	$	(18	)	$	(608	)	Loss from discontinued operations, net of income taxes	$	(23)	$	(18)
Effect on EPS from discontinued operations—basic	$	(0.00	)	$	(0.02	)	Effect on EPS from discontinued operations—basic	$	(0.00)	$	(0.00)



	June 3, 2020		August 28, 2019
Long-Term Debt
2018 Credit Agreement - Revolver	$	10,000	$	5,300
2018 Credit Agreement - Term Loan	46,386		43,399
Total credit facility debt	56,386		48,699
2020 PPP Loan	10,000		—
Total Long-Term Debt	66,386		48,699
Less:
Unamortized debt issue costs	(1,556)		(1,887)
Unamortized debt discount	(1,128)		(1,373)
Total long-term debt, less unamortized debt issuance costs	63,702		45,439
Current portion of credit facility debt	6,386		—
Long-term debt, less current portion	$	57,316	$	45,439


	Units	Weighted Average Fair Value
		(Per share)
Unvested at August 28, 2019	266,443	$	3.68


Forfeited	(85,617)	3.68
Unvested at June 3, 2020	180,826	$	3.68

Note ~~15.~~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~~quarters ended and three quarters ended June 3, 2020 and June 5, 2019 include 1,165,283 shares and 1,464,010 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 Ended						Three Quarters Ended
	June 3, 2020		June 5, 2019		June 3, 2020		June 5, 2019
	(12 weeks)		(12 weeks)		(40 weeks)		(40 weeks)
	(In thousands, except per share data)
Numerator:
Loss from continuing operations	$	(24,972)	$	(5,295)	$	(37,096)	$	(6,139)
Loss from discontinued operations, net of income taxes	(7)		(6)		(23)		(18)
NET INCOME (LOSS)	$	(24,979)	$	(5,301)	$	(37,119)	$	(6,157)
Denominator:
Denominator for basic earnings per share—weighted-average shares	30,398		29,874		30,206		29,732
Effect of potentially dilutive securities:
Employee and non-employee stock options	—		—		—		—
Denominator for earnings per share assuming dilution	30,398		29,874		30,206		29,732

Loss per share from continuing operations:
Basic	$	(0.82)	$	(0.18)	$	(1.23)	$	(0.21)
Assuming dilution	$	(0.82)	$	(0.18)	$	(1.23)	$	(0.21)
Loss per share from discontinued operations:
Basic	$	0.00	$	0.00	$	0.00	$	0.00
Assuming dilution	$	0.00	$	0.00	$	0.00	$	0.00
Loss per share:
Basic	$	(0.82)	$	(0.18)	$	(1.23)	$	(0.21)
Assuming dilution	$	(0.82)	$	(0.18)	$	(1.23)	$	(0.21)

Quarter Ended Three Quarters Ended
June 5,
2019 June 6,
2018 June 5,
2019 June 6,
2018
(12 weeks) (12 weeks) (40 weeks) (40 weeks)
(In thousands, expect per share data)
Numerator:
Loss from continuing operations $ (5,295 ) $ (14,133 ) $ (6,139 ) $ (31,096 )
Loss from discontinued operations, net of income taxes (6 ) (463 ) (18 ) (608 )
NET LOSS $ (5,301 ) $ (14,596 ) $ (6,157 ) $ (31,704 )
Denominator:
Denominator for basic earnings per share—weighted-average shares 29,874
30,005
29,732
29,863
Effect of potentially dilutive securities:
Employee and non-employee stock options

—
—
—
Denominator for earnings per share assuming dilution 29,874
30,005
29,732
29,863
Loss per share from continuing operations:
Basic $ (0.18 ) $ (0.47 ) $ (0.21 ) $ (1.04 )
Assuming dilution $ (0.18 ) $ (0.47 ) $ (0.21 ) $ (1.04 )
Loss per share from discontinued operations:
Basic $ 0.00
$ (0.02 ) $ 0.00
$ (0.02 )
Assuming dilution $ 0.00
$ (0.02 ) $ 0.00
$ (0.02 )
Net loss per share:
Basic $ (0.18 ) $ (0.49 ) $ (0.21 ) $ (1.06 )
Assuming dilution $ (0.18 ) $ (0.49 ) $ (0.21 ) $ (1.06 )

Note ~~16:~~18: 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~~$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~~were 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.

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 June ~~5, 2019~~3, 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 discussion.

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.


	Quarter Ended				Three Quarters Ended					Quarter Ended						Three Quarters Ended
	June 5, 2019		June 6, 2018		June 5, 2019		June 6, 2018			June 3, 2020		June 5, 2019		June 3, 2020		June 5, 2019
	(12 weeks)		(12 weeks)		(40 weeks)		(40 weeks)			(12 weeks)		(12 weeks)		(40 weeks)		(40 weeks)
Restaurant sales	87.8	%	90.5	%	88.1	%	91.3	%	Restaurant sales	72.8	%	87.8	%	86.4	%	88.1	%
Culinary contract services	10.1	%	7.7	%	9.8	%	6.9	%	Culinary contract services	26.1	%	10.1	%	11.9	%	9.8	%
Franchise revenue	2.0	%	1.7	%	2.0	%	1.7	%	Franchise revenue	1.0	%	2.0	%	1.7	%	2.0	%
Vending revenue	0.1	%	0.1	%	0.1	%	0.1	%	Vending revenue	—	%	0.1	%	0.1	%	0.1	%
TOTAL SALES	100.0	%	100.0	%	100.0	%	100.0	%	TOTAL SALES	100.0	%	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 food	28.2	%	28.6	%	27.8	%	28.5	%	Cost of food	29.2	%	28.2	%	28.8	%	27.8	%
Payroll and related costs	38.1	%	37.8	%	37.9	%	37.4	%	Payroll and related costs	39.7	%	38.1	%	38.9	%	37.9	%
Other operating expenses	17.5	%	19.3	%	17.7	%	19.0	%	Other operating expenses	41.7	%	17.5	%	19.4	%	17.7	%
Occupancy costs	6.1	%	5.9	%	6.3	%	6.1	%	Occupancy costs	26.7	%	6.1	%	7.9	%	6.3	%
Vending revenue	(0.2	)%	(0.2	)%	(0.1	)%	(0.2	)%	Vending revenue	—	%	(0.2)	%	(0.1)	%	(0.1)	%
Store level profit	10.2	%	8.5	%	10.3	%	9.1	%	Store level profit	(37.2)	%	10.2	%	5.1	%	10.3	%

COMPANY COSTS AND EXPENSES:									COMPANY COSTS AND EXPENSES:
(As a percentage of total sales)									(As a percentage of total sales)

Opening costs	0.0	%	0.1	%	0.0	%	0.2	%	Opening costs	0.0	%	0.0	%	0.0	%	0.0	%
Depreciation and amortization	3.9	%	4.7	%	4.4	%	4.8	%	Depreciation and amortization	14.3	%	3.9	%	5.0	%	4.4	%
Selling, general and administrative expenses	12.6	%	9.9	%	11.8	%	10.4	%	Selling, general and administrative expenses	17.6	%	11.5	%	11.1	%	10.5	%
Net loss (gain) on disposition of property and equipment	(0.6	)%	0.2	%	(5.1	)%	0.1	%
Other Charges									Other Charges	0.9	%	1.1	%	1.6	%	1.3	%
Provision for asset impairments and restaurant closings									Provision for asset impairments and restaurant closings	66.9	%	0.9	%	7.9	%	1.2	%
Net gain on disposition of property and equipment									Net gain on disposition of property and equipment	(1.9)	%	(0.6)	%	(1.6)	%	(5.1)	%

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 services	89.7	%	91.9	%	90.7	%	93.3	%	Cost of culinary contract services	94.9	%	89.7	%	92.3	%	90.7	%
Culinary segment profit	10.3	%	8.1	%	9.3	%	6.7	%	Culinary segment profit	5.1	%	10.3	%	7.7	%	9.3	%

Franchise Operations Costs									Franchise Operations Costs
(As a percentage of Franchise revenue)									(As a percentage of Franchise revenue)

Cost of franchise operations	22.3	%	23.6	%	16.6	%	25.3	%	Cost of franchise operations	226.4	%	22.3	%	46.1	%	16.6	%
Franchise segment profit	77.7	%	76.4	%	83.4	%	74.7	%	Franchise segment profit	(126.4)	%	77.7	%	53.9	%	83.4	%

(As a percentage of total sales)									(As a percentage of total sales)
Total costs and expenses									Total costs and expenses
LOSS FROM OPERATIONS	(5.3	)%	(10.4	)%	(0.6	)%	(7.7	)%	LOSS FROM OPERATIONS	(124.8)	%	(5.3)	%	(17.9)	%	(0.6)	%
Interest income	0.0	%	0.0	%	0.0	%	0.0	%	Interest income	0.1	%	0.0	%	0.0	%	0.0	%
Interest expense	(1.8	)%	(1.2	)%	(1.8	)%	(0.8	)%	Interest expense	(8.6)	%	(1.8)	%	(2.8)	%	(1.8)	%
Other income, net	0.1	%	0.0	%	0.1	%	0.1	%	Other income, net	2.1	%	0.1	%	0.4	%	0.1	%
Loss before income taxes and discontinued operations	(6.9	)%	(11.6	)%	(2.3	)%	(8.4	)%	Loss before income taxes and discontinued operations	(131.2)	%	(6.9)	%	(20.2)	%	(2.3)	%
Provision for income taxes	0.2	%	4.8	%	0.1	%	2.7	%	Provision for income taxes	0.3	%	0.2	%	0.1	%	0.1	%
Loss from continuing operations	(7.1	)%	(16.4	)%	(2.4	)%	(11.1	)%	Loss from continuing operations	(131.5)	%	(7.1)	%	(20.3)	%	(2.4)	%
Loss from discontinued operations, net of income taxes	(0.0	)%	(0.6	)%	0.0	%	(0.2	)%	Loss from discontinued operations, net of income taxes	0.0	%	0.0	%	0.0	%	0.0	%
NET LOSS	(7.1	)%	(17.0	)%	(2.4	)%	(11.3	)%	NET LOSS	(131.5)	%	(7.1)	%	(20.3)	%	(2.4)	%


	Quarter Ended			Quarter Ended
($000s)	June 3, 2020			June 5, 2019			Increase/ (Decrease)
	(12 weeks)			(12 weeks)			(12 weeks vs 12 weeks)
Cost of food:
Luby's cafeteria segment	$	3,650		$	14,127		$	(10,477)	(74.2)	%
Fuddruckers restaurants segment	366			4,102			(3,736)		(91.1)	%
Cheeseburger in Paradise segment	23			249			(226)		(90.8)	%
Total Restaurants	$	4,039		$	18,478		$	(14,439)	(78.1)	%

As a percentage of restaurant sales
Luby's cafeteria segment	29.4		%	28.5		%			0.9	%
Fuddruckers restaurants segment	26.0		%	26.8		%			(0.8)	%
Cheeseburger in Paradise segment	75.9		%	32.0		%			43.9	%
Total Restaurants	29.2		%	28.2		%			1.0	%


	Three Quarters Ended			Three Quarters Ended
($000s)	June 3, 2020			June 5, 2019			Increase/ (Decrease)
	(40 weeks)			(40 weeks)			(40 weeks vs 40 weeks)
Cost of food:
Luby's cafeteria segment	$	36,938		$	47,181		$	(10,243)	(21.7)	%
Fuddruckers restaurants segment	7,955			13,797			(5,842)		(42.3)	%
Cheeseburger in Paradise segment	485			729			(244)		(33.5)	%
Total Restaurants	$	45,378		$	61,707		$	(16,329)	(26.5)	%

As a percentage of restaurant sales
Luby's cafeteria segment	29.0		%	28.3		%			0.7	%
Fuddruckers restaurants segment	27.7		%	26.0		%			1.7	%
Cheeseburger in Paradise segment	31.8		%	31.3		%			0.5	%
Total Restaurants	28.8		%	27.8		%			1.0	%


	Quarter Ended			Quarter Ended
($000s)	June 3, 2020			June 5, 2019			Increase/ (Decrease)
	(12 weeks)			(12 weeks)			(12 weeks vs 12 weeks)
Payroll and related Costs:
Luby's Cafeteria Segment	$	4,778		$	19,013		$	(14,235)	(74.9)	%
Fuddruckers Restaurants Segment	692			5,738			(5,046)		(87.9)	%
Cheeseburger in Paradise Segment	17			264			(247)		(93.6)	%
Total Restaurants	$	5,487		$	25,015		$	(19,528)	(78.1)	%

As a percentage of restaurant sales
Luby's Cafeteria Segment	38.5		%	38.4		%			0.1	%
Fuddruckers Restaurants Segment:	49.3		%	37.5		%			11.8	%
Cheeseburger in Paradise Segment	56.0		%	34.0		%			22.0	%
Total Restaurants	39.7		%	38.1		%			1.6	%


	Three Quarters Ended			Three Quarters Ended
($000s)	June 3, 2020			June 5, 2019			Increase/ (Decrease)
	(40 weeks)			(40 weeks)			(40 weeks vs 40 weeks)
Payroll and related Costs:
Luby's Cafeteria Segment	$	49,369		$	63,016		$	(13,647)	(21.7)	%
Fuddruckers Restaurants Segment	$	11,424		$	20,298		$	(8,874)	(43.7)	%
Cheeseburger in Paradise Segment	$	609		$	944		$	(335)	(35.5)	%
Total Restaurants	$	61,402		$	84,258		$	(22,856)	(27.1)	%

As a percentage of restaurant sales
Luby's Cafeteria Segment	38.7		%	37.8		%			0.9	%
Fuddruckers Restaurants Segment:	39.7		%	38.3		%			1.4	%
Cheeseburger in Paradise Segment	40.0		%	40.5		%			(0.5)	%
Total Restaurants	38.9		%	37.9		%			1.0	%


	Quarter Ended			Quarter Ended
($000s)	June 3, 2020			June 5, 2019			Increase/ (Decrease)
	(12 weeks)			(12 weeks)			(12 weeks vs 12 weeks)
Other operating expenses:
Luby's Cafeteria Segment	$	5,019		$	8,430		$	(3,411)	(40.5)	%
Fuddruckers Restaurants Segment	$	691		$	2,898		$	(2,207)	(76.2)	%
Cheeseburger in Paradise Segment	$	56		$	163		$	(107)	(65.6)	%
Total Restaurants	$	5,766		$	11,491		$	(5,725)	(49.8)	%

As a percentage of restaurant sales
Luby's Cafeteria Segment	40.5		%	17.0		%			23.5	%
Fuddruckers Restaurants Segment:	49.2		%	18.9		%			30.3	%
Cheeseburger in Paradise Segment	188.7		%	21.0		%			167.7	%
Total Restaurants	41.7		%	17.5		%			24.2	%


	Three Quarters Ended			Three Quarters Ended
($000s)	June 3, 2020			June 5, 2019			Increase/ (Decrease)
	(40 weeks)			(40 weeks)			(40 weeks vs 40 weeks)
Occupancy costs:
Luby's Cafeteria Segment	$	7,080		$	7,173		$	(93)	(1.3)	%
Fuddruckers Restaurants Segment	$	5,126		$	6,656		$	(1,530)	(23.0)	%
Cheeseburger in Paradise Segment	$	264		$	235		$	29	12.3	%
Total Restaurants	$	12,470		$	14,064		$	(1,594)	(11.3)	%

As a percentage of restaurant sales
Luby's Cafeteria Segment	5.6		%	4.3		%			1.3	%
Fuddruckers Restaurants Segment:	17.8		%	12.6		%			5.2	%
Cheeseburger in Paradise Segment	17.3		%	10.1		%			7.2	%
Total Restaurants	7.9		%	6.3		%			1.6	%

Three Quarters Ended Three Quarters Ended
($000s) June 5,
2019 June 6,
2018 Increase/
(Decrease)
(40 weeks) (40 weeks) (40 weeks vs 40 weeks)
General and administrative expenses $ 26,680
$ 26,328
$ 352
1.3 %
Marketing and advertising expenses 2,986
2,891
95
3.3 %
Selling, general and administrative expenses $ 29,666
$ 29,219
$ 447
1.5 %
As a percentage of total sales 11.8 % 10.4 % 1.4 %

Selling, general and administrative expenses ~~increased~~include marketing and advertising expenses, corporate salaries and benefits-related costs, including restaurant area leaders and regional directors, share-based compensation, professional fees, travel and recruiting expenses and other office expenses. Selling, general and administrative expenses decreased approximately $6.1 million, or 23.0%, in the three quarters ended June 3, 2020 compared to the three quarters ended June 5, 2019. The decrease in selling, general and administrative expenses reflects (1) an approximate $4.1 million reduction in salaries and benefits expense, (2) an approximate $1.4 million reduction in services and (3) an approximate $1.0 million decrease in other components of Selling, general administrative expense (travel, supplies, occupancy, and other general overhead costs), partially offset by (4) an approximate $0.4 million ~~or 1.5%,~~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 through the first two quarters offset by decreases in marketing in the third quarter due to reduced marketing spend during COVID-19. As a percentage of total revenue, Selling, general and administrative expenses increased to 11.1% in the three quarters ended June 3, 2020, compared to 10.5% in the three quarters ended June 5, 2019 ~~compared~~due to the reasons described above partially offset by the impact of a decrease in sales resulting from a reduced number of stores in operation and COVID-19 restrictions.

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 $0.2 million in the quarter ended June 3, 2020 and $0.8 million for the quarter ended June 5, 2019 and recorded in Other charges. In the three quarters ended June ~~6, 2018. The increase~~3, 2020, we recorded $2.9 million in ~~selling,~~Other Charges compared to $3.3 million for the three quarters ended June 5, 2019. These expenses were included in our Selling, general, and administrative ~~expenses includes (1) an approximate $2.9~~cost expense line in previously reported quarters of fiscal 2019.


	Quarter Ended						Three Quarters Ended
($000s)	June 3, 2020		June 5, 2019		June 3, 2020		June 5, 2019
	(In thousands)
Proxy communication related	$	—	60		—		1,862
Employee severance	45		—		1,207		645
Restructuring related	119		743		1,705		772
Total Other charges	$	164	$	803	$	2,912	$	3,279

In the first half of fiscal 2019, a shareholder of the company proposed alternative nominees to the Board of Directors and other possible changes to the corporate strategy resulting in a contested proxy at the Company’s annual meeting. We incurred approximately $1.7 million ~~increase~~(approximately $0.1 million in the quarter ended June 5, 2019) in proxy communication expense which was primarily for outside professional services ~~inclusive~~and related costs in order to communicate with shareholders about management's strategy and the experience of ~~approximately $1.7 million in one-time~~the Company's members on the Board of Directors. For the three quarters ended June 5, 2019, we had recognized proxy ~~solicitation and~~ communication ~~costs~~related expenses of $1.9 million. In fiscal 2019, we separated a number of employees as ~~well as approximately $1.1 million in other one-time restructuring related consulting fees surrounding software upgrades, evaluations~~part of our ~~cost structure~~efforts to streamline our corporate overhead costs and ~~revenue enhancing priorities~~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 ~~severance costs; and (2)~~earnings with the organization, resulting in an approximate ~~$0.1~~$1.3 million ~~increase in marketing and advertising expense; mostly offset by (3) an approximate $1.8~~charge ($1.2 million ~~decrease in salaries, benefits, and other compensation expenses; and (4) an approximate $0.5~~of the $1.3 million decrease relate to lower general liability insurance expense, and lower corporate supplies expense; and (5) an approximate $0.3 million reduction in corporate travel expense. As a percentage of total sales, selling, general and administrative expenses increased to 11.8% in the three quarters ended June 5, 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 10.4%~~resulted in an approximately $45 thousand charge in the quarter ended June 3, 2020. In 2020, employee severance based on the same criteria as in 2019 for the three quarters ended June ~~6, 2018.~~3, 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 $0.1 million for these restructuring efforts in the quarter ended June 3, 2020. For the three quarters ended June 3, 2020, we incurred $1.7 million for these restructuring efforts.

Provision for Asset Impairments and Restaurant Closings

The approximate $12.7 million impairment charge for the quarter ended June 3, 2020 is related to the impairment of physical and right-of-use assets for primarily 35 locations closed or negatively impacted as a result of temporary COVID-19 restrictions. The approximate $0.7 million impairment charge for the quarter ended June 5, 2019 is primarily related to one property ~~location held for use~~ written down to its fair value ~~partially offset by a reversal of previously recorded~~as well as net lease termination ~~reserve.~~ costs.

The approximate ~~$4.5~~$14.5 million impairment charge for the ~~quarter~~three quarters ended June ~~6, 2018 was~~3, 2020 is primarily related to ~~assets~~two property locations where the right of use asset was written off as well as spare inventory of restaurant equipment and parts at ~~three property~~

~~locations, goodwill at one location, eight properties held for sale~~our maintenance facility written down to their estimated fair value ~~and net lease termination costs of approximately $0.1 million at five property locations.~~

as well as the approximate 35 locations impaired in the third quarter. The approximate $3.1 million impairment charge for the three quarters ended June 5, 2019 is primarily related to assets at nine 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 $6.7 million impairment charge for the three quarters ended June 6, 2018 is primarily related to assets at ten property locations, goodwill at three locations, ten properties held for sale written down to their fair value, and approximately $0.7 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 $0.4 million in the quarter ended June 3, 2020 and was primarily related to the sale of two locations partially offset by routine asset activity at other locations. The gain on disposition of property and equipment was approximately $0.4 million in the quarter ended June 5, 2019 ~~and~~is primarily related to ~~(1)~~ the sale of one ~~undeveloped~~ property ~~that was previously held for sale; (2) amortization of deferred gain on two other properties that were sold and leased back; and (3) sale of additional property at one location, net of normal~~locations as well as routine asset retirement ~~activity at various properties. The loss~~activity.

Gain on disposition of property and equipment was ~~approximately $0.2~~$2.9 million in the ~~quarter~~three quarters ended June ~~6, 2018~~3, 2020 and was primarily ~~reflects a write-off at one location~~related to the sale of three locations partially offset by ~~the net~~routine asset activity at other locations. The gain ~~on the sale of one property.~~

~~Gain~~ on disposition of property and equipment was approximately $12.9 million in the three quarters ended June 5, 2019 ~~and~~is primarily ~~reflects (1)~~related to the sale and leaseback of two property locations where we operate a total of three restaurants, ~~including a portion related to amortization of deferred gains; (2) sale of one undeveloped property that was previously held for sale; (3)~~ partially offset by net lease termination costs at other locations as well as routine asset retirement activity. ~~The loss on disposition of property and equipment~~

Interest Income

Interest income was ~~approximately $0.2 million~~$19 thousand in the quarter ended June 3, 2020 compared to $11 thousand in the quarter ended June 5, 2019.

Interest income was $47 thousand in the three quarters ended June ~~6, 2018 is primarily related~~3, 2020 compared to ~~asset retirements at six property location closures partially offset by net gains on~~$30 thousand in the ~~sale of~~ three ~~property locations of approximately $0.2 million.~~quarters ended June 5, 2019.

Interest Expense

Interest expense was approximately $1.6 million in the quarter ended June 3, 2020 and $1.3 million in the quarter ended June 5, ~~2019 and $1.0~~2019. The increase reflects higher debt balances.

Interest expense was approximately $5.1 million in the ~~quarter~~three quarters ended June ~~6, 2018.~~3, 2020 and $4.6 million in the three quarters ended June 5, 2019. The increase reflects higher average debt balance and interest rates in the credit agreement entered into on December 13, 2018, and higher amortization expense related to pre-paid interest and fees ~~association~~associated with ~~the credit agreement into on December 13, 2018, as well as marginally higher average debt balances.~~

Interest expense was approximately $4.6 million in the three quarters ended June 5, 2019 compared to $2.2 million in the three quarters ended June 6, 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-paid~~partially offset by lower average interest ~~and fees association with 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.~~rates.

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 $0.4 million in the quarter ended June 3, 2020 compared to $0.1 million in the quarter ended June 5, ~~2019 compared to $9 thousand~~2019. The approximate $0.4 million of other income in the quarter ended June ~~6, 2018.~~3, 2020 is primarily related to the recognition of deferred independent consideration related to the sale of two properties that were cancelled. The ~~approximate~~ $0.1 million of income in the quarter ended June 5, 2019 primarily reflects net rental income and sales tax discount expense.

Other income, net was approximately $0.8 million in the three quarters ended June 3, 2020 compared to $0.2 million in the three quarters ended June 5, 2019. The approximate $0.8 million of other income, net in the three quarters ended June 3, 2020 is primarily the recognition of the deferred independent consideration, net rental income and sales tax discount benefit. The ~~$9 thousand~~$0.2 million of income in the quarter ended June 6, 2018 primarily reflects net rental income and an increase to the fair value of our interest rate swap, partially offset by gift card expenses (specifically the expense of discounting gift card sales).

~~Other~~other income, net ~~was approximately $0.2 million~~ in the three quarters ended June 5, 2019 ~~compared to approximately $0.3 million in the three quarters ended June 6, 2018. The approximate $0.2 million of income in the quarter ended June 5, 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 three quarters ended June 6, 2018 primarily reflects net rental income and an increase in~~decrease to the fair value of our interest rate swap ~~partially offset by gift card expenses (specifically the expense of discounting gift card sales).~~prior to its termination.

Taxes

For the quarter ended June ~~5, 2019,~~3, 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 ~~$4.1~~$0.1 million for the quarter ended June ~~6, 2018.~~5, 2019. The effective tax rate ("ETR") for continuing operations was a negative 0.2% for the quarter ended June 3, 2020 and 2.6% for the quarter ended June 5, ~~2019 and a negative 41.2% for the quarter ended June 6, 2018.~~2019. The ETR for the quarter ended June ~~5, 2019~~3, 2020 and the quarter ended June ~~6, 2018~~5, 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 three quarters ended June ~~5, 2019,~~3, 2020, the income taxes related to continuing operations resulted in a tax provision of approximately ~~$0.3~~$0.2 million compared to a tax provision of approximately ~~$7.5~~$0.3 million for the three quarters ended June ~~6, 2018.~~5, 2019. The ETR for continuing operations was a negative 0.6% for the three quarters ended June 3, 2020 and a negative 6.0% for the three quarters ended June 5, ~~2019 and a negative 31.8% for the three quarters ended June 6, 2018.~~2019. The ETR for the three quarters ended June ~~5, 2019~~3, 2020 and three quarters ended June ~~6, 2018~~5, 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.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in response to the COVID-19 pandemic. The CARES Act contains numerous tax provision, there was no impact on our income tax provision due to management’s full valuation allowance conclusion.

Discontinued Operations

Discontinued operations resulted in a loss of $7 thousand in the quarter ended June 3, 2020 compared to a loss of approximately $6 thousand in the quarter ended June 5, ~~2019 compared to a~~2019. The loss ~~of approximately $0.5 million~~from discontinued operations in the quarter ended June ~~6, 2018. The loss from discontinued operations of $6 thousand~~3, 2020 and in the quarter ended June ~~5, 2019~~3, 2020 was related to carrying costs associated with assets related to discontinued operations. ~~Loss from discontinued~~

Discontinued operations resulted in a loss of ~~approximately $0.5 million~~$23 thousand in the ~~quarter~~three quarters ended June ~~6, 2018 consisted~~3, 2020 compared to a loss of (1) $6 thousand in carrying costs associated with assets related to discontinued operations; (2) a $59 thousand impairment charge for assets related to discontinued operations; and (3) and income tax provision of approximately ~~$0.4 million for assets related to discontinued operations.~~

~~Loss from discontinued operations was~~ $18 thousand in the three quarters ended June 5, ~~2019 compared to a~~2019. The loss ~~of approximately $0.6 million~~from discontinued operations in the three quarters ended June ~~6, 2018. The loss from discontinued operations of $18 thousand~~3, 2020 and in the three quarters ended June ~~5, 2019~~3, 2020 was related to carrying costs associated with assets related to discontinued operations. Loss from discontinued operations of approximately $0.6 million in the three quarters ended June 6, 2018 consisted of (1) $14 thousand in carrying costs associated with assets related to discontinued operations (2) a $59 thousand impairment charge for assets related to discontinued operations; and (3) an approximate $0.5 million income tax provision for assets related to discontinued operations.

LIQUIDITY AND CAPITAL RESOURCES

Cash and Cash Equivalents

Our primary sources of short-term and long-term liquidity are cash flows from operations and ~~our 2018 Credit Facility (as defined below).~~proceeds from asset sales. Cash and cash equivalents and restricted cash increased approximately ~~$9.1~~$9.3 million at June ~~5, 2019~~3, 2020 to ~~$12.8~~$22.0 million from ~~3.7~~$12.8 million at the beginning of the fiscal year. ~~We expect to continue to invest~~See Overview section above for a discussion of our ~~available~~ liquidity ~~to reduce our debt, maintain our existing restaurants and infrastructure and provide working capital requirements~~issues as ~~necessary. We plan to continue~~a result of the ~~level of capital and repair and maintenance expenditures necessary to keep our restaurants attractive and operating efficiently.~~COVID-19 pandemic.

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:


	Three Quarters Ended							Three Quarters Ended
	June 5, 2019			June 6, 2018				June 3, 2020		June 5, 2019
	(40 weeks)			(40 weeks)				(40 weeks)		(40 weeks)
	(In thousands)							(In thousands)
Total cash provided by (used in):							Total cash provided by (used in):
Operating activities	$	(10,881	)	$	(4,878	)	Operating activities	$	(14,095)	$	(10,881)
Investing activities	18,895			(7,611		)	Investing activities	5,690		18,895
Financing activities	1,045			12,902			Financing activities	17,688		1,045
Net increase in cash and cash equivalents and restricted cash	$	9,059		$	413		Net increase in cash and cash equivalents and restricted cash	$	9,283	$	9,059



	~~Page~~

~~Part I—Financial Information~~

~~Item 1 Financial Statements~~	3

~~Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	30

~~Item 3 Quantitative and Qualitative Disclosures About Market Risk~~	49

~~Item 4 Controls and Procedures~~	49

~~Part II—Other Information~~

~~Item 1 Legal Proceedings~~	50

~~Item 1A Risk Factors~~	50

~~Item 5 Other Information~~	50

~~Item 6 Exhibits~~	50

~~Signatures~~	51


			Page

Part I—Financial Information

Item 1 Financial Statements			4

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			36

Item 3 Quantitative and Qualitative Disclosures About Market Risk			60

Item 4 Controls and Procedures			60

Part II—Other Information

Item 1 Legal Proceedings			61

Item 1A Risk Factors			61

Item 5 Other Information			61

Item 6 Exhibits			61

Signatures			62


	Three Quarters Ended							Three Quarters Ended
	June 5, 2019			June 6, 2018				June 3, 2020		June 5, 2019
	(40 weeks)			(40 weeks)				(40 weeks)		(40 weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:							CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(6,157	)	$	(31,704	)	Net loss	$	(37,119)	$	(6,157)
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	(9,838		)	6,599
Provision for asset impairments and net (gains) losses on property sales							Provision for asset impairments and net (gains) losses on property sales	11,617		(9,838)
Depreciation and amortization	11,052			13,402			Depreciation and amortization	9,149		11,052
Amortization of debt issuance cost	1,063			438			Amortization of debt issuance cost	974		1,063
Share-based compensation expense	1,192			1,691			Share-based compensation expense	746		1,192
Deferred tax provision	—			8,026

Cash used in operating activities before changes in operating assets and liabilities	(2,688		)	(1,548		)	Cash used in operating activities before changes in operating assets and liabilities	(14,633)		(2,688)
Changes in operating assets and liabilities:							Changes in operating assets and liabilities:
Decrease (increase) in trade accounts and other receivables	(880		)	143			Decrease (increase) in trade accounts and other receivables	3,424		(880)
Decrease (increase) in food and supply inventories	148			(376		)

Decrease in food and supply inventories							Decrease in food and supply inventories	179		148
Decrease in prepaid expenses and other assets	1,106			575			Decrease in prepaid expenses and other assets	783		1,106
Decrease in operating lease assets							Decrease in operating lease assets	3,954		—

Decrease in operating lease liabilities							Decrease in operating lease liabilities	(5,239)		—
Decrease in accounts payable, accrued expenses and other liabilities	(8,567		)	(3,672		)	Decrease in accounts payable, accrued expenses and other liabilities	(2,563)		(8,567)
Net cash used in operating activities	(10,881		)	(4,878		)	Net cash used in operating activities	(14,095)		(10,881)
CASH FLOWS FROM INVESTING ACTIVITIES:							CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of assets and property held for sale	21,761			3,363			Proceeds from disposal of assets and property held for sale	7,580		21,761
Insurance proceeds	—			756

Purchases of property and equipment	(2,866		)	(11,730		)	Purchases of property and equipment	(1,890)		(2,866)
Net cash provided by (used in) investing activities	18,895			(7,611		)
Net cash provided by investing activities							Net cash provided by investing activities	5,690		18,895
CASH FLOWS FROM FINANCING ACTIVITIES:							CASH FLOWS FROM FINANCING ACTIVITIES:
Revolver borrowings	37,500			83,200			Revolver borrowings	4,700		37,500
Revolver repayments	(55,500		)	(68,600		)	Revolver repayments	—		(55,500)
Proceeds from term loan	58,400			—			Proceeds from term loan	5,000		58,400
Term loan repayments	(36,107		)	(1,415		)	Term loan repayments	(2,012)		(36,107)
Proceeds from PPP Loan							Proceeds from PPP Loan	10,000		—
Debt issuance costs	(3,236		)	(213		)	Debt issuance costs	—		(3,236)
Taxes paid on equity withheld	(12		)	(70		)	Taxes paid on equity withheld	—		(12)
Net cash provided by financing activities	1,045			12,902			Net cash provided by financing activities	17,688		1,045
Net increase in cash and cash equivalents and restricted cash	9,059			413			Net increase in cash and cash equivalents and restricted cash	9,283		9,059
Cash and cash equivalents and restricted cash at beginning of period	3,722			1,096			Cash and cash equivalents and restricted cash at beginning of period	12,756		3,722
Cash and cash equivalents and restricted cash at end of period	$	12,781		$	1,509		Cash and cash equivalents and restricted cash at end of period	$	22,039	$	12,781
Cash paid for:							Cash paid for:
Income taxes	$	510		$	—
Income taxes, net of (refunds)							Income taxes, net of (refunds)	$	13	$	510
Interest	3,255			1,717			Interest	3,955		3,255



	Gift Cards, net of discounts			Franchise Fees
	(In thousands)
Balance at August 30, 2018	$	2,707		$	1,891
Revenue recognized that was included in the contract liability balance at the beginning of the year	(1,163		)	(512		)
Increase (decrease), net of amounts recognized as revenue during the period	1,514			(40		)
Balance at June 5, 2019	$	3,058		$	1,339


	Quarter Ended						Three Quarters Ended
	June 3, 2020		June 5, 2019		June 3, 2020		June 5, 2019
	(in millions)
Revenue from performance obligations:
Satisfied at a point in time	$	15.7	$	69.4	$	167.7	$	234.4
Satisfied over time	3.3		5.4		15.0		17.7
Total Sales	$	19.0	$	74.8	$	182.7	$	252.1



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Common Stock														Total
	Issued				Treasury						Paid-In		Retained	Shareholders’
	Shares	Amount		Shares	Amount		Capital		Earnings		Equity
Balance at August 29, 2018	30,003	$	9,602	(500)	$	(4,775)	$	33,872	$	73,929	$	112,628
Cumulative effect of accounting changes from the adoption of ASC Topic 606	—	—		—	—		—		2,479		2,479
Net loss	—	—		—	—		—		(7,489)		(7,489)
Share-based compensation expense	42	13		—	—		426		—		439
Common stock issued under employee benefit plans	81	26		—	—		(26)		—		—
Common stock issued under nonemployee benefit plans	38	12		—	—		(12)		—		—
Balance at December 19, 2018	30,164	$	9,653	(500)	$	(4,775)	$	34,260	$	68,919	$	108,057
Net income	—	—		—	—		—		6,632		6,632
Share-based compensation expense	98	31		—	—		363		—		394
Common stock issued under employee benefit plans	12	4		—	—		(4)		—		—
Common stock issued under nonemployee benefit plans	15	5		—	—		(5)		—		—
Balance at March 13, 2019	30,289	$	9,693	(500)	$	(4,775)	$	34,614	$	75,551	$	115,083
Net loss	—	—		—	—		—		(5,301)		(5,301)
Share-based compensation expense	86	28		—	—		341		—		369


Balance at June 5, 2019	30,375	$	9,721	(500)	$	(4,775)	$	34,955	$	70,250	$	110,151



		Franchise Fees
	(In thousands)
Remainder of fiscal 2019		$	9
Fiscal 2020		40
Fiscal 2021		40
Fiscal 2022		39
Fiscal 2023		39
Thereafter		401
Total operating franchise restaurants		$	568
Franchise restaurants not yet opened⁽¹⁾		771
Total		$	1,339


Weighted-average remaining lease term						5.85 years

Weighted-average discount rate						9.68%


	12 Weeks Ended		40 Weeks Ended
	June 3, 2020
	(in thousands)
Operating lease expense	$	1,872	$	6,451
Variable lease expense	201		753
Short-term lease expense	43		170
Sublease expense	86		373
Total lease expense	$	2,202	$	7,747


	(in thousands)
Remainder of FY 2020	$	1,283
FY 2021	6,401
FY 2022	5,178
FY 2023	5,400
FY 2024	3,277
Thereafter	17,098
Total lease payments	38,637
Less: imputed interest	(11,454)
Present value of operating lease obligations	$	27,183


Fiscal Year Ending:	(In thousands)
August 26, 2020	$	8,841
August 25, 2021	7,155
August 31, 2022	5,643
August 30, 2023	4,410
August 28, 2024	3,768
Thereafter	10,312
Total minimum lease payments	$	40,129



			Fair Value Measurement Using
	June 6, 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⁾	$	229	$	—	$	229	$	—	Monte Carlo Simulation
Total liabilities at Fair Value	$	229	$	—	$	229	$	—



	June 5, 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	$	29,486	$	(12,429	)	$	17,057	$	29,701	$	(11,653	)	$	18,048

Cheeseburger in Paradise trade name and license agreements	146		(98		)	48		206		(75		)	131

Intangible assets, net	$	29,632	$	(12,527	)	$	17,105	$	29,907	$	(11,728	)	$	18,179


	June 3, 2020		August 28, 2019
Short-term lease liability	$	1,063	$	—
Long-term lease liability	6,399		$	—
Accrued expenses and other liabilities	3,215		$	1,441
Total	$	10,677	$	1,441


	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, 2019	1,387,412	$	4.06	5.7	$	—



Cancelled / Forfeited	(62,129)	$	4.29	—	—
Expired	(160,000)	$	3.44	—	—
Outstanding at June 3, 2020	1,165,283	$	4.13	5.2	$	—
Exercisable at June 3, 2020	1,129,069	$	4.17	5.2	$	—


							Restricted Stock Units	Weighted Average Fair Value		Weighted- Average Remaining Contractual Term
	Restricted Stock Units		Weighted Average Fair Value		Weighted- Average Remaining Contractual Term			(Per share)		(In years)
			(Per share)		(In years)
Unvested at August 29, 2018	517,291		$	3.79	1.8
Unvested at August 28, 2019						Unvested at August 28, 2019	274,009	$	3.40	1.2
Granted						Granted	65,236	$	2.27	—
Vested	(153,757	)	4.66		—	Vested	(152,139)	$	3.96	—
Forfeited	(22,491	)	3.60		—	Forfeited	(13,298)	2.82		—
Unvested at June 5, 2019	341,043		$	3.41	1.3
Unvested at June 3, 2020						Unvested at June 3, 2020	173,808	$	2.57	8.4


	August 29, 2018	FY19 YTD Q3 Openings	FY19 YTD Q3 Closings		June 5, 2019		August 28, 2019	FY20 YTDQ3 Openings	FY20 YTDQ3 Closings	June 3, 2020
Luby’s Cafeterias	84	—	(4	)	80	Luby’s Cafeterias	79	—	(3)	76
Fuddruckers Restaurants	60	—	(11	)	49	Fuddruckers Restaurants	44	—	(13)	31
Cheeseburger in Paradise	2	—	(1	)	1	Cheeseburger in Paradise	1	—	—	1

Total	146	—	(16	)	130	Total	124	—	(16)	108



	Three Quarters Ended			Three Quarters Ended
Restaurant Brand	June 5,			June 6,		Increase/(Decrease)
($000s)	2019			2018		$ Amount			% Change
	(40 weeks)			(40 weeks)		(40 weeks vs 40 weeks)
Luby’s Cafeterias	$	152,214		$	163,757	$	(11,543	)	(7.0	)%
Fuddruckers	53,001			67,476		(14,475		)	(21.5	)%
Combo locations	14,911			16,219		(1,308		)	(8.1	)%
Cheeseburger in Paradise	2,328			9,285		(6,957		)	(74.9	)%
Other Revenue	(375		)			(375		)
Total Restaurant Sales	$	222,079		$	256,737	$	(34,658	)	(13.5	)%




	June 5, 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 - Revolver	2,000			—
2018 Credit Agreement - Term Loan	43,399			—
Total credit facility debt	45,399			39,506
Less:
Unamortized debt issue costs	(2,000		)	(168		)
Unamortized debt discount	(1,447		)	—
Total credit facility debt, less unamortized debt issuance costs	41,952			39,338
Current portion of credit facility debt	—			39,338
Total Credit facility debt, less current portion	$	41,952		$	—


10.1			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).

10.2			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).

10.3			Final Separation Agreement and Release, dated April 24, 2020, by and between Kennedy Scott Gray and Luby's, Inc. (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on June 5, 2020, File No. 1-08308).

31.1			Rule 13a-14(a)/15d-14(a) certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			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.

32.1			Section 1350 certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2			Section 1350 certification of the Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS			XBRL Instance Document

101.SCH			XBRL Schema Document

101.CAL			XBRL Calculation Linkbase Document

101.DEF			XBRL Definition Linkbase Document

101.LAB			XBRL Label Linkbase Document

101.PRE			XBRL Presentation Linkbase Document



		LUBY’S, INC. (Registrant)

~~Date:~~	~~7/15/2019~~		~~By:~~
Date: 7/20/2020	By:		/s/ Christopher J. Pappas
				Christopher J. Pappas
				President and Chief Executive Officer
				(Principal Executive Officer)

Date: 7/20/2020	~~7/15/2019~~By:		~~By:~~	/s/ ~~K. Scott Gray~~Steven Goodweather
				~~K. Scott Gray~~Steven Goodweather
				~~Senior Vice President and~~ Chief Financial Officer and Treasurer
				(Principal Financial ~~and Accounting~~ Officer)