UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


 ____________________________________
FORM 10-K

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

For the Fiscal Year Ended August 26, 2015

29, 2018 

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

For the Transition Period From              to             


 ____________________________________
Commission file number 001-08308

Luby’s,Luby's, Inc.

(Exact name of registrant as specified in its charter)

Delaware

74-1335253

Delaware74-1335253
(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification Number)

13111 Northwest Freeway, Suite 600

Houston, Texas 77040

(Address of principal executive offices, including 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

Name of Each Exchange onwhich registered

Common Stock ($0.32 par value per share)

New York Stock Exchange

Common Stock Purchase Rights
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ☐    No  

x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  

x

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


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

x

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. (Check one):

Large accelerated filer  ☐

Accelerated filer  

x

Non-accelerated filer  ☐

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

The aggregate market value of the shares of common stock of the registrant held by nonaffiliates of the registrant as of February 11, 2015,March 15, 2017, was approximately $98,945,391$53,432,298 (based upon the assumption that directors and executive officers are the only affiliates).

As of November 3, 2015,7, 2018, there were 28,651,97029,550,002 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE


Portions of the following document are incorporated by reference into the designated parts of this Form 10-K:

Definitive Proxy Statement relating to 20162019 annual meeting of shareholders (in Part III)

Additional Information

We file reports with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer, and the SEC maintains an Internet site athttp://www.sec.gov that contains the reports, proxy and information statements, and other information that we file electronically. Our website address iswww.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 the 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.

Compliance with New York Stock Exchange Requirements

We submitted to the New York Stock Exchange (“NYSE”) the CEO certification required by Section 303A.12(a) of the NYSE’s Listed Company Manual with respect to our fiscal year ended August 27, 2014.30, 2017. We expect to submit the CEO certification with respect to our fiscal year ended August 26, 201529, 2018 to the NYSE within 30 days after our annual meeting of shareholders. We are filing as an exhibit to this Form 10-K the certifications required by Section 302 of the Sarbanes-Oxley Act of 2002.




FORWARD-LOOKING STATEMENTS
 

FORWARD-LOOKING STATEMENTS

This Annual Report on “Form(this "Form 10-K”) contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements contained in this Form 10-K, other than statements of historical facts, are “forward-looking statements” for purposes of these provisions, including any statements regarding:

future operating results;

future capital expenditures, including expected reductions in capital expenditures;

future debt, including liquidity and the sources and availability of funds related to debt;

plans for our new prototype restaurants;

plans for expansion of our business;

scheduled openings of new units;

closing existing units;

effectiveness of management’s disposal plans;

future sales of assets and the gains or losses that may be recognized as a result of any such sales; and

continued compliance with the terms of our 2013 Credit Facility, as amended.


future operating results;
future capital expenditures, including expected reductions in capital expenditures;
future debt, including liquidity and the sources and availability of funds related to debt;
plans for our new prototype restaurants;
plans for expansion of our business;
scheduled openings of new units;
closing existing units;
effectiveness of management’s disposal plans;
future sales of assets and the gains or losses that may be recognized as a result of any such sales; and
continued compliance with the terms of our 2016 Credit Agreement.

In some cases, investors can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “outlook,” “may” “should,” “will,” and ���would”“would” or similar words. Forward-looking statements are based on certain assumptions and analyses made by management in light of their experience and perception of historical trends, current conditions, expected future developments and other factors we believe are relevant. Although management believes that our assumptions are reasonable based on information currently available, those assumptions are subject to significant risks and uncertainties, many of which are outside of our control. The following factors, as well as the factors set forth in Item 1A of this Form 10-K and any other cautionary language in this Form 10-K, provide examples of risks, uncertainties, and events that may cause our financial and operational results to differ materially from the expectations described in our forward-looking statements:

general business and economic conditions;

the impact of competition;

our operating initiatives, changes in promotional, couponing and advertising strategies and the success of management’s business plans;

fluctuations in the costs of commodities, including beef, poultry, seafood, dairy, cheese, oils and produce;

ability to raise menu prices and customers acceptance of changes in menu items;

increases in utility costs, including the costs of natural gas and other energy supplies;

changes in the availability and cost of labor, including the ability to attract qualified managers and team members;

the seasonality of the business;

collectability of accounts receivable;

changes in governmental regulations, including changes in minimum wages and healthcare benefit regulation;

the effects of inflation and changes in our customers’ disposable income, spending trends and habits;

the ability to realize property values;

the availability and cost of credit;

weather conditions in the regions in which our restaurants operate;

costs relating to legal proceedings;

impact of adoption of new accounting standards;

effects of actual or threatened future terrorist attacks in the United States;

unfavorable publicity relating to operations, including publicity concerning food quality, illness or other health concerns or labor relations; and

the continued service of key management personnel.

general business and economic conditions;
the impact of competition;
our operating initiatives, changes in promotional, couponing and advertising strategies, and the success of management’s business plans;
fluctuations in the costs of commodities, including beef, poultry, seafood, dairy, cheese, oils and produce;
ability to raise menu prices and customers acceptance of changes in menu items;
increases in utility costs, including the costs of natural gas and other energy supplies;
changes in the availability and cost of labor, including the ability to attract qualified managers and team members;
the seasonality of the business;
collectability of accounts receivable;
changes in governmental regulations, including changes in minimum wages and healthcare benefit regulation;
the effects of inflation and changes in our customers’ disposable income, spending trends and habits;
the ability to realize property values;
the availability and cost of credit;
weather conditions in the regions in which our restaurants operate;
costs relating to legal proceedings;
impact of adoption of new accounting standards;
effects of actual or threatened future terrorist attacks in the United States;
unfavorable publicity relating to operations, including publicity concerning food quality, illness or other health concerns or labor relations; and
the continued service of key management personnel.

Each forward-looking statement speaks only as of the date of this Form 10-K, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Investors should be aware that the occurrence of the events described above and elsewhere in this Form 10-K could have material adverse effect on our business, results of operations, cash flows, and financial condition.




PART I
 

PART I

Item 1. Business

Overview

Luby’s, Inc. is a multi-branded company operating in the restaurant industry and in the contract food services industry. Our primary brands include Luby’s Cafeteria, Fuddruckers - World’s Greatest Hamburgers®and Luby’s Culinary Contract Services. Other brands weWe also operate includeanother brand named Cheeseburger in Paradise and Bob Luby’s Seafood.Paradise.

In this Form 10-K, unless otherwise specified, “Luby’s,” “we,” “our,” “us” and “Company” refer to Luby’s, Inc., LFRLuby's Fuddruckers Restaurants, LLC, a Texas Limited Liability Company ("LFR") and the consolidated subsidiaries of Luby’s, Inc. References to “Luby’s Cafeteria” refer specifically to the Luby’s Cafeteria brand restaurant.

Our Company’s vision is that our guests, employees and shareholders are extremelystay loyal to our restaurant brands and value them as a significant part of their lives. We want our company’s performance to make it a leader wherever it operates and in its sector of our industry.

We are headquartered in Houston, Texas. Our corporate headquarters is located at 13111 Northwest Freeway, Suite 600, Houston, Texas 77040, and our telephone number at that address is (713) 329-6800. Our website is www.lubysinc.com. The information on our website is not, and shall not be deemed to be, a part of this annual report on Form 10-K or incorporated into any of our other filings with the SEC.

As of November 3, 2015,7, 2018, we operated 179142 restaurants located throughout the United States, as set forth in the table below. These establishments are located in close proximity to retail centers, business developments and residential areas. Of the 179142 restaurants, 9377 are located on property that we own and 8665 are located on property that we lease. Six locations consist of a side-by-side Luby’s Cafeteria and Fuddruckers restaurant, to which we refer herein to as a “Combo location”.

 Total

Total

Texas:
 

Texas:

Houston Metro
47

Houston Metro

54

San Antonio Metro

1617

Rio Grande Valley

1213

Dallas/Fort Worth Metro

1214

Austin

9
Other Texas Markets16
California10

Other Texas Markets

20

California

10

Maryland

6

Arizona

5

Illinois

4

Virginia

4

Georgia

Illinois3

Indiana

Georgia
3
Mississippi2

Mississippi

Other States
82

Wisconsin

Total
1422

Other States

13

Total

179

As of November 3, 2015,7, 2018, we operated 2530 locations through our Culinary Contract Services (“CCS”). Of the 25 locations, 18 are in Texas: 15 in Houston, 2 in Austin and 1 in Dallas. For the remaining 7 CCS locations, we operate 2 in Louisiana and 1 each in Florida, Massachusetts, Missouri, North Carolina and Oklahoma. CCS provides food service management to healthcare, educational and corporate dining facilities.


Total
Texas:
Houston Metro22
San Antonio Metro2
Rio Grande Valley3
Dallas/Fort Worth Metro2
Greensboro, NC1
Total30



As of November 3, 2015,7, 2018, we had 5141 franchisees operating 107104 Fuddruckers restaurants in locations as set forth in the table below. Our largest fivesix franchisees own five to eleven12 restaurants each. ThirteenFourteen franchise owners each own two to four restaurants. The thirty-threetwenty-one remaining franchise owners each own one restaurant.

 
Fuddruckers
Franchises

Fuddruckers
Franchises

Texas:
 

Texas:

Dallas/Fort Worth Metro
8
Other Texas Markets10
California7
Connecticut1
Delaware1
Florida10
Georgia3
Iowa1
Louisiana3
Maryland1
Massachusetts4
Michigan4
Missouri3
Montana4
Nebraska1
Nevada3
New Jersey2
New Mexico4
North Carolina1
North Dakota1
Oklahoma1
Oregon1
Pennsylvania5
South Carolina8
South Dakota1
Tennessee2
Virginia3
International: 

Dallas/Fort Worth Metro

Canada
210

Other Texas Markets

Colombia
210

California

8

Florida

7

Georgia

Mexico3

Louisiana

Panama3

Maryland

2

Massachusetts

4

Michigan

4

Missouri

3

Montana

4

Nebraska

Puerto Rico1

Nevada

Total
1042

New Jersey

2

New Mexico

4

North Carolina

2

North Dakota

2

Oregon

1

Pennsylvania

4

South Carolina

7

South Dakota

2

Tennessee

3

Virginia

2

Wisconsin

2

Other States

4

International:

Canada

1

Chile

1

Colombia

1

Dominican Republic

1

Italy

3

Mexico

1

Panama

1

Poland

1

Puerto Rico

1

Total

107

In November 1997, a prior owner of the Fuddruckers - World’s Greatest Hamburgers®brand granted to a licensee the exclusive right to use the Fuddruckers proprietary marks, trade dress, and system to develop Fuddruckers restaurants in a territory consisting of certain countries in Africa, the Middle East, and parts of Asia. As of November 3, 2015,7, 2018, this licensee operates 3533 restaurants that are licensed to use the Fuddruckers Proprietary Marksproprietary marks in Saudi Arabia, Egypt, Lebanon, United Arab Emirates, Qatar, Jordan, Bahrain, Kuwait, Morocco and Malaysia.Kuwait. The Company does not receive revenue or royalties from these restaurants.


For additional information regarding our restaurant locations, please read “Properties” in Item 2 of Part I of this report.



Luby’s, Inc. (formerly, Luby’s Cafeterias, Inc.) was founded in 1947 in San Antonio, Texas. The Company was originally incorporated in Texas in 1959, with nine cafeterias in various locations, under the name Cafeterias, Inc. It became a publicly held corporation in 1973, and became listed on the New York Stock ExchangeNYSE in 1982.


Luby’s, Inc. was reincorporated in Delaware on December 31, 1991 and was restructured into a holding company on February 1, 1997, at which time all of the operating assets were transferred to Luby’s Restaurants Limited Partnership, a Texas limited partnership composed of two wholly owned, indirect subsidiaries. On July 9, 2010, Luby’s Restaurants Limited Partnership was converted into Luby’s Fuddruckers Restaurants, LLC, a Texas limited liability company (“LFR”).LFR. All restaurant operations are conducted by LFR.

On July 26, 2010, we, through our subsidiary, LFR, completed the acquisition of substantially all of the assets of Fuddruckers, Inc., Magic Brands, LLC and certain of their affiliates (collectively, “Fuddruckers”) for approximately $63.1 million in cash. LFR also assumed certain of Fuddruckers’ obligations, real estate leases and contracts. Upon the completion of the acquisition, LFR became the owner and operator of 56 Fuddruckers locations and three Koo Koo Roo Chicken Bistro (“Koo Koo Roo”) locations with franchisees operating an additional 130 Fuddruckers locations.

On December 6, 2012, we completed the acquisition of all of the Membership Units of Paradise Restaurant Group, LLC and certain of their affiliates, collectively known as Cheeseburger in Paradise, for approximately $10.3 million in cash plus customary working capital adjustments. We assumed certain of Cheeseburger in Paradise obligations, real estate leases and contracts and became the owners of 23 full service Cheeseburger in Paradise restaurants located in 14 states.

On August 27, 2014, the Company completed an internal restructuring of certain affiliates of the Luby’s Cafeteria business, whereby these companies were merged with and into LFR, as the successor. The principal purpose of these events was to simplify the Luby’s corporate structure. Following these events, the Company’s restaurant operations continue to be conducted by LFR and Paradise Cheeseburger, LLC. Our operating restaurant locations remain unchanged by these events.

Luby’s Cafeteria Operations

At Luby’s Cafeterias, our mission is to serve our guests convenient, great tasting meals in a friendly environment that makes everyone feel welcome and at home. We do things The Luby’s Way, which means we cook to orderin small batches from scratch using real food, real ingredients prepared fresh daily, and our employees and our company get involved and support the fabric of our local communities. We buy local produce as much as possible. We promise to breathe life into the experience of dining out and make every meal meaningful. We were founded in San Antonio, Texas in 1947.

Our cafeteria food delivery model allows customers to select freshly-prepared items from our serving line including entrées, vegetables, salads, desserts, breads and beverages before transporting their selected items on serving trays to a table or booth of their choice in the dining area. Each restaurant offers 15 to 22 entrées, 12 to 14 vegetable dishes, 8 to 10 salads, and 10 to 12 varieties of desserts daily.

Luby’s Cafeteria’s product offerings are Americana-themed home-style classic made-from-scratch favorites priced to appeal to a broad range of customers, including those customers that focus on fast wholesome choices, quality, variety, and affordability. We have had particular success among families with children, shoppers, travelers, seniors, and business people looking for a quick, freshly prepared meal at a fair price. All of our restaurants sell food-to-go orders.

orders which comprise approximately 13% of our Luby's Cafeteria restaurant sales.

Menus are reviewed periodically and new offerings and seasonal food preferences are regularly incorporated. Each restaurant is operated as a separate unit under the control of a general manager who has responsibility for day-to-day operations, including food production and personnel employment and supervision. Restaurants generally have a staff of oneled by a general manager, onean associate manager and one to two assistant managers including wait staff.managers. We grant authority to our restaurant managers to direct the daily operations of their stores and, in turn, we compensate them on the basis of their performance. We believe this strategy is a significant factor contributing to the profitability of our restaurants. Each general manager is supervised by an area leader. Each area leader is responsible for approximately 7 to 10 units, depending on location.

the area supervised.

In fiscal 2018, we closed four Luby's Cafeterias. The number of Luby’s restaurants, which includes one Bob Luby’s Seafood restaurant,Cafeterias was 9484 at fiscal year-end 2015.

New Luby’s Restaurants

In 2007, we developed and opened an updated prototype ground-up new construction Luby's Cafeteria. Since then we have rebuilt three locations and newly developed four locations according to this prototype.

In 2012, we opened a prototype ground-up new construction combination Luby’s and Fuddruckers restaurant location featuring a Luby’s Cafeteria and a Fuddruckers Restaurant on the same property with a common wall but separate kitchens and dining areas (“Combo location”). Since 2012, we have built five more Combo locations; four in fiscal year 2014 and one in fiscal year 2015.

2018.


 

Fuddruckers

We anticipate using and further modifying both of these prototype designs as we execute our strategy to build new restaurants in markets where we believe we can achieve superior restaurant cash flows.

Fuddruckers

At Fuddruckers, our mission is to serve the World’s Greatest Hamburgers® using only 100% fresh, never frozen, all American premium beef, buns baked daily in our kitchens, and the freshest, highest quality ingredients on our “you top it” produce bar. With a focus on excellent food, attentive guest service and an inviting atmosphere, we are committed to making every guest happy, one burger at a time! Fuddruckers restaurants feature casual, welcoming dining areas where Americana-themed décor is featured. Fuddruckers was founded in San Antonio, Texas in 1980.

While Fuddruckers’ signature burgerburgers and fries accountsaccount for the majority of its restaurant sales, its menu also includes exotic burgers, such as buffalo and elk, steak sandwiches, various grilled and breaded chicken breast sandwiches, hot dogs, a variety of salads, chicken tenders, fish sandwiches, hand breaded onion rings, soft drinks, handmade milkshakes, and bakery items. BeerA variety of over 100 carbonated soft drinks including our own unique Sweet Cherry Cream Soda, which is exclusively offered at Fuddruckers restaurants, along with other varieties such as Powerade®, and flavored waters are offered through Coke Freestyle® self-service dispensers. Additionally, beer and wine are served and, generally, account for less than 2% of restaurant sales.

Food-to-go sales comprise approximately 8% of Fuddruckers restaurant sales.

Restaurants generally have a total staff of one general manager with two or three assistant managers and 25 to 45 other associates, includinga number of full-time and part-time associates working in overlapping shifts. Since Fuddruckers generally utilizes a self-service concept, similar to fast casual, it typically does not employ waiters or waitresses. Fuddruckers restaurant operations are currently divided into a total of ten geographic areas, each supervised by an area leader. On average, each area leader supervises five to nine restaurants.

In fiscal year 2015,2018, we opened nine newclosed 11 Company-owned Fuddruckers restaurants. The number of Fuddruckers restaurants was 60 at fiscal year-end 2015, was 75.

In 2014,2018.

Cheeseburger in Paradise
Cheeseburger in Paradise is known for its inviting beach-party atmosphere, its big, juicy burgers, salads, coastal fare, and other tasty and unique items. Cheeseburger in Paradise is a full-service island-themed restaurant and bar developed in collaboration with legendary entertainer Jimmy Buffet based on one of his most popular songs. The restaurants also feature a unique tropical-themed island bar with many televisions and tasty “boat drinks.” As of our fiscal year-end 2018, we openedoperated two of the original Cheeseburger in Paradise locations.

Culinary Contract Services
Our CCS segment consists of a business line servicing long-term acute care hospitals, acute care medical centers, ambulatory surgical centers, retail grocery stores, behavioral hospitals, sports stadiums, senior living facilities, government, and business and industry clients. The healthcare accounts are full service and typically include in-room delivery, catering, vending, coffee service, and retail dining. Our mission is to re-define the contract food industry by providing tasty and healthy menus with customized solutions for healthcare, senior living, business and industry and higher education facilities. We seek to provide the quality of a restaurant dining experience in an institutional setting. At fiscal year-end 2018, we had contracts with 11 long-term acute care hospitals, seven acute care hospitals, three business and industry clients, three sport stadiums, one prototype ground-up new construction Fuddruckers Restaurant in Houston, Texas.

governmental facility, one medical office building, one senior living facility, and one freestanding coffee venue located inside an office building. We have the unique ability to deliver quality services that include facility design and procurement as well as nutrition and branded food services to our clients.


Franchising

Fuddruckers offers franchises in markets where it deems expansion to be advantageous to the development of the Fuddruckers concept and system of restaurants. A standard franchise agreement generally has an initial term of 20 years. Franchise agreements typically grant franchisees an exclusive territorial license to operate a single restaurant within a specified area, usually a four-mile radius surrounding the franchised restaurant. Luby’s management will continue developing its relationships with our franchisees over the coming years and beyond.

Franchisees bear all direct costs involved in the development, construction and operation of their restaurants. In exchange for a franchise fee, we provide franchise assistance in the following areas: site selection, prototypical architectural plans, interior and exterior design and layout, training, marketing and sales techniques, assistance by a Fuddruckers “opening team” at the time a franchised restaurant opens, and operations and accounting guidelines set forth in various policies and procedures manuals.



All franchisees are required to operate their restaurants in accordance with Fuddruckers standards and specifications, including controls over menu items, food quality and preparation. We require the successful completion of our training program by a minimum of three managers for each franchised restaurant. In addition, franchised restaurants are evaluated regularly for compliance with franchise agreements, including standards and specifications through the use of periodic, unannounced on-site inspections, and standards evaluation reports.

The number of franchised restaurants was 106105 at fiscal year-end 20152018 and 110113 at fiscal year-end 2014.

Cheeseburger in Paradise

At fiscal year-end 2015, we operated eight of the original Cheeseburger in Paradise locations, completed six conversions to Fuddruckers restaurants, have selected four additional locations expected to be converted into Fuddruckers, two locations sub-leased to franchisees and another three locations which we expect to dispose. Cheeseburger in Paradise is known for its inviting beach-party atmosphere, its big, juicy burgers, salads, coastal fare and other tasty and unique items. Cheeseburger in Paradise is a full-service island-themed restaurant and bar developed ten years ago in collaboration with legendary entertainer Jimmy Buffet based on one of his most popular songs. The restaurants also feature a unique tropical-themed island bar with many televisions and tasty “boat drinks.”

2017.

For additional information regarding our business segments, please read Notes 1 and 24 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.


Strategic Focus

Our strategic focus is to generate consistent and sustainable same-store sales growth and improved store level profit. We want our company’s performance to make it a leader wherever it operates and in its sector of our industry. We strive to provide attractive returns on shareholder capital. From an operating standpoint, we support this strategic focus through the following:

1.Consistently successful execution: Every day, with every guest, at every restaurant we operate.

2.Growing our human capital: Our team members are the most critical factor in ensuring our Company’s success. Our relentless focus as a company must be inspiring and developing our team members to delight our guests.

3.Raising awareness of our brand: Our restaurants provide guests in our local communities with memories of family, friends, childhood, a great date, a memorable birthday, or a significant accomplishment. The most reliable ways to grow and sustain our business is to perpetuate word of mouth and remain involved in the community. We must share our story with our guests in our restaurants. This allows new guests to learn our brand story and also reaffirms it with legacy and loyal guests. Loyal guests spread and preach the word about our brand. Our most loyal guests typically agree to be in our E-club so we can communicate with them and reward them.

4.Improving restaurant appearances: We recognize the importance of remodeling our legacy restaurants to remain relevant and appealing to keep loyal guests coming back and draw in new guests.

5.Effective cost management:  We evaluate each area of our business to assess that we are spending and investing at appropriate levels. This includes restaurant operating costs and corporate overhead costs. Within our restaurants, we seek opportunities with our food and supplies purchasing, menu offerings, labor productivity, and contracts with restaurant service providers to maintain an appropriate restaurant level cost structure. Within our corporate overhead, we seek opportunities to leverage technology and efficient work processes to maintain a stream-lined corporate overhead.

We remain focused on the key drivers of our businesses to achieve operational excellence of our brands and to efficiently manage costs to grow profitability and enhance shareholder value.

Intellectual Property
 

Intellectual Property

Luby’s, Inc. owns or is licensed to use valuable intellectual property including trademarks, service marks, patents, copyrights, trade secrets and other proprietary information, including the Luby’s and Fuddruckers logos, trade names and trademarks, which are of material importance to our business. Depending on the jurisdiction, trademarks, and service marks generally are valid as long as they are used and/or registered. Patents, copyrights, and licenses are of varying durations. The success of our business depends on the continued ability to use existing trademarks, service marks, and other components of our brands in order to increase brand awareness and further develop branded products. We take prudent actions to protect our intellectual property.

Culinary Contract Services

Our Culinary Contract Services segment consists of a business line servicing healthcare, higher education and corporate dining clients. The healthcare accounts are full service and typically include in-room delivery, catering, vending, coffee service and retail dining. Our mission is to re-define the contract food industry by providing tasty and healthy menus with customized solutions for healthcare, senior living, business and industry and higher education facilities.  We seek to provide the quality of a restaurant dining experience in an institutional setting.

Employees
As of November 3, 2015, we had contracts with 16 long-term acute care hospitals, three acute care hospitals, one behavioral hospital, one children’s hospital, two business and industry clients, one medical office building and one freestanding coffee venue located inside an office building. We have the unique ability to deliver quality services that include facility design and procurement as well as nutrition and branded food services to our clients. We anticipate allocating capital expenditures as needed to further develop our CCS business in fiscal year 2016.

Employees

As of November 3, 2015,7, 2018, we had an active workforce of 8,3526,589 employees consisting of restaurant management employees, non-management restaurantsrestaurant employees, CCS management employees, CCS non-management employees, and office and facility service employees. Employee relations are considered to be good. We have never had a strike or work stoppage, and we are not subject to collective bargaining agreements.




Item 1A. Risk Factors

An investment in our common stock involves a high degree of risk. Investors should consider carefully the risks and uncertainties described below, and all other information included in this Form 10-K, before deciding whether to invest in our common stock. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also become important factors that may harm our business, financial condition or results of operations. The occurrence of any of the following risks could harm our business, financial condition, and results of operations. The trading price of our common stock could decline due to any of these risks and uncertainties, and investors may lose part or all of their investment.

General economic


Our operating losses and working capital and liquidity deficiency raise substantial doubt about our ability to continue as a going concern.

The Company sustained a net loss of approximately $33.6 million in fiscal 2018. Cash flow from operations has declined to a use of cash of approximately $8.5 million in fiscal 2018. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations and its ability to obtain alternative financing to refund and repay the current debt owed under it's Credit Agreement. The above conditions raise substantial doubt about the Company’s ability to continue as a going concern.

Our ability to service our debt obligations is primarily dependent upon our future financial performance.
As of August 29, 2018, we had shareholders’ equity of approximately $113 million compared to approximately:

$39.5 million of short-term debt comprised of $19.5 million Term Loan and $20.0 million Revolver;
$53.0 million of minimum operating and capital lease commitments; and
$1.3 million of standby letters of credit.
Our ability to meet our debt service obligations depends on our ability to generate positive cash flows from operations and proceeds from assets held for sale.

If we are unable to service our debt obligations, we may have to:

delay spending on maintenance projects and other capital projects, including new restaurant development;
sell assets;
restructure or refinance our debt; or
sell equity securities.
 Our debt, and the covenants contained in the instruments governing our debt, could:

result in a reduction of our credit rating, which would make it more difficult for us to obtain additional financing on acceptable terms;
require us to dedicate a substantial portion of our cash flows from operating activities to the repayment of our debt and the interest associated with our debt;
limit our operating flexibility due to financial and other restrictive covenants, including restrictions on capital investments, debt levels, incurring additional debt and creating liens on our properties;
place us at a competitive disadvantage compared with our competitors that have relatively less debt;
expose us to interest rate risk because certain of our borrowings are at variable rates of interest; and
make us more vulnerable to downturns in our business.
If we are unable to service our debt obligations, we may not be able to sell equity securities, sell additional assets, or restructure or refinance our debt. Our ability to generate sufficient cash flow from operating activities to pay the principal of and interest on our indebtedness is subject to market conditions and other factors which are beyond our control.

Non-performance under the debt covenants in our revolving credit facility could adversely affect our ability to respond to changes in our business.
As of June 6, 2018, the Company was not in compliance with certain of its Credit Agreement financial covenants. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations and obtain alternative financing to refinance or otherwise repay our current Credit Agreement. While the


Company has obtained a Waiver of the default from the lenders under the Credit Agreement until December 31, 2018, announced a limited asset sales plan intended to help reduce the Company’s outstanding debt and engaged a third-party financial adviser to assist with refinancing such outstanding debt, there is no guarantee that we will be able to comply with the terms of the Waiver or with the financial covenants under the Credit Agreement once the Waiver expires. Our failure to comply with the financial covenants under the Credit Agreement once the Waiver has expired or to receive a new waiver from the lenders under the Credit Agreement could result in an event of default, which would have a material adverse effect on our financial condition and could cause us to seek bankruptcy protection, be unable to pay our debts when they become due or otherwise become insolvent because, among other things, our lenders: may declare any outstanding principal and the interest accrued thereon under the Credit Agreement to be due and payable, and we may not have sufficient cash to repay that indebtedness; may foreclose against the assets securing our borrowings; and will be under no obligation to extend further credit to us. For a more detailed discussion of our credit agreement please review the footnotes to our financial statements located in Part II, Item 8 of this Form 10-K.
The impact of inflation may adversely affect our results of operations.


The impact of inflation on food, labor and other aspects of our business can adversely affect our results of operations. Commodity inflation in food, beverages, and utilities can also impact our financial performance. Although we attempt to offset the effects of inflation through periodic menu price increases, cost controls, and incremental improvement in operating margins, we may not be able to completely eliminate such effects, which could adversely affect our results of operations.

Our ability to service our debt obligations is primarily dependent upon our future financial performance.

As of August 26, 2015, we had shareholders’ equity of approximately $175 million compared to approximately:

$37.5 million of long-term debt;

$63.4 million of minimum operating and capital lease commitments; and

$1.1 million of standby letters of credit.

Our ability to meet our debt service obligations depends on our ability to generate positive cash flows from operations and proceeds for assets held for sale.


If we are unable to service our debt obligations, we may have to:

delay spending on maintenance projects and other capital projects, including new restaurant development;

sell assets;

restructure or refinance our debt; or

sell equity securities.

Our debt, and the covenants contained in the instruments governing our debt, could:

result in a reduction of our credit rating, which would make it more difficult for us to obtain additional financing on acceptable terms;

require us to dedicate a substantial portion of our cash flows from operating activities to the repayment of our debt and the interest associated with our debt;

limit our operating flexibility due to financial and other restrictive covenants, including restrictions on incurring additional debt and creating liens on our properties;

place us at a competitive disadvantage compared with our competitors that have relatively less debt;

expose us to interest rate risk because certain of our borrowings are at variable rates of interest; and

make us more vulnerable to downturns in our business.

If we are unable to service our debt obligations, we may not be able to sell equity securities, sell additional assets or restructure or refinance our debt. Our ability to generate sufficient cash flow from operating activities to pay the principal of and interest on our indebtedness is subject to market conditions and other factors which are beyond our control.

We face the risk of adverse publicity and litigation, which could have a material adverse effect on our business and financial performance.

We may from, time to time, be the subject of complaints or litigation from customers alleging illness, injury or other food quality, health or operational concerns. Unfavorable publicity relating to one or more of our restaurants or to the restaurant industry in general may taint public perception of the Luby’s Cafeteria and Fuddruckers brands. Multi-unit restaurant businesses can be adversely affected by publicity resulting from poor food quality, illness, or other health concerns or operating issues stemming from one or a limited number of restaurants. Publicity resulting from these allegations may materially adversely affect our business and financial performance, regardless of whether the allegations are valid or whether we are liable. In addition, we are subject to employee claims alleging injuries, wage and hour violations, discrimination, harassment or wrongful termination. In recent years, a number of restaurant companies have been subject to lawsuits, including class action lawsuits, alleging violations of federal and state law regarding workplace, employment, and similar matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. Regardless of whether any claims against us are valid or whether we are ultimately determined to be liable, claims may be expensive to defend, and may divert time and money away from our operations and hurt our financial performance. A judgment significantly in excess of our insurance coverage, if any, for any claims could materially adversely affect our financial condition or results of operations.


We are subject to risks related to the provision of employee healthcare benefits, worker’s compensation and employee injury claims.

Health

Effective January 1, 2018, we maintain a self-insured health benefit plan which provides medical and prescription drug benefits to certain of our employees electing coverage under the plan. Our exposure is limited by individual and aggregate stop-loss limits. We record expenses under the plan based on estimates of the costs of expected claims, administrative costs and stop-loss insurance coverage is provided through fully-insured contracts with insurance carriers.  Insurance premiumspremiums. Self-insurance costs are a shared cost betweenaccrued based upon the Company and covered employees.  Theaggregate of the expected liability for covered healthreported claims is borneand the estimated liability for claims incurred but not reported, based on information on historical claims experience provided by our third party insurance advisors, adjusted as necessary based upon management’s reasoned judgment. Actual employee medical claims expense may differ from estimated loss provisions based on historical experience. In the insurance carriers per the terms of each policy contract.

event our cost estimates differ from actual costs, we could incur additional unplanned costs, which could adversely impact our financial condition.

Workers’ Compensationcompensation coverage is provided through “self-insurance” by Luby’s Fuddruckers Restaurants, LLC.LFR. We record expenses under the plan based on estimates of the costs of expected claims, administrative costs, stop-loss insurance premiums, and expected trends. These estimates are then adjusted each year to reflect actual costs incurred. Actual costs under these plans are subject to variability that is dependent upon demographics and the actual costs of claims made. In the event our cost estimates differ from actual costs, we could incur additional unplanned costs, which could adversely impact our financial condition.



In March 2010, comprehensive healthcare reform legislation under the Patient Protection and Affordable Care Act ( the(the "Affordable Care Act") and Healthcare Education and Affordability Reconciliation Act was passed and signed into law. Among other things, the healthcare reform legislation includes mandated coverage requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded, and imposes new and significant taxes on health insurers and healthcare benefits. Although requirements were phased in over a period of time, the most impactful provisions began in the third quarter of fiscal 2015.


Due to the breadth and complexity of the healthcare reform legislation, the lack of implementing regulations in some cases, and interpretive guidance, and the phased-in nature of the implementation, it is difficult to predict the overall impact of the healthcare reform legislation on our business and the businesses of our franchisees over the coming years. Possible adverse effects of the healthcare reform legislation include reduced revenues, increased costs and exposure to expanded liability and requirements for us to revise the ways in which we conduct business or risk of loss of business. It is also possible that healthcare plans offered by other companies with which we compete for employees will make us less attractive to our current or potential employees. And in any event, implementing the requirements of the Affordable Care Act has imposed some additional administrative costs on us, and those costs may increase over time. In addition, our results of operations, financial position and cash flows could be materially adversely affected. Our franchisees face the potential of similar adverse effects, and many of them are small business owners who may have significant difficulty absorbing the increased costs.  

We face intense competition, and if we are unable to compete effectively or if customer preferences change, our business, financial condition and results of operations may be adversely affected.

The restaurant industry is intensely competitive and is affected by changes in customer tastes and dietary habits and by national, regional and local economic conditions and demographic trends. New menu items, concepts, and trends are constantly emerging. Our Luby’s Cafeteria and Fuddruckers brandsbrand offer a large variety of entrées, side dishes and desserts and our continued success depends, in part, on the popularity of our cuisine and cafeteria-style dining. A change away from this cuisine or dining style could have a material adverse effect on our results of operations. Our Fuddruckers brand offers grilled-to-order burgers that feature always fresh and never frozen, 100% premium-cut beef with no fillers or additives and sesame-topped buns baked from scratch on-site throughout the day. While burgers are the signature, the engaging menu offers variety for many tastes with an array of sandwiches, and salads. Changing customer preferences, tastes and dietary habits can adversely affect our business and financial performance. We compete on quality, variety, value, service, concept, price, and location with well-established national and regional chains, as well as with locally owned and operated restaurants. We face significant competition from family-style restaurants, fast-casual restaurants, and buffets as well as fast food restaurants. In addition, we also face growing competition as a result of the trend toward convergence in grocery, delicatessen, and restaurant services, particularly in the supermarket industry, which offers “convenient meals” in the form of improved entrées and side dishes from the delicatessen section. Many of our competitors have significantly greater financial resources than we do. We also compete with other restaurants and retail establishments for restaurant sites and personnel. We anticipate that intense competition will continue. If we are unable to compete effectively, our business, financial condition, and results of operations may be adversely affected.

Our growth plan may not be successful.

Depending on future economic conditions, we may not be able to open new restaurants in current or future fiscal years. Our ability to open and profitably operate new restaurants is subject to various risks such as the identification and availability of suitable and economically viable locations, the negotiation of acceptable terms for the purchase or lease of new locations, the need to obtain all required governmental permits (including zoning approvals) on a timely basis, the need to comply with other regulatory requirements, the availability of necessary contractors and subcontractors, the availability of construction materials and labor, the ability to meet construction schedules and budgets, the ability to manage union activities such as picketing or hand billing which could delay construction, increases in labor and building materials costs, the availability of financing at acceptable rates and terms, changes in weather or other acts of God that could result in construction delays and adversely affect the results of one or more restaurants for an indeterminate amount of time, our ability to hire and train qualified management personnel and general economic and business conditions. At each potential location, we compete with other restaurants and retail businesses for desirable development sites, construction contractors, management personnel, hourly employees and other resources.



If we are unable to successfully manage these risks, we could face increased costs and lower than anticipated revenues and earnings in future periods. We may be evaluating acquisitions or engaging in acquisition negotiations at any given time. We cannot be sure that we will be able to continue to identify acquisition candidates on commercially reasonable terms or at all. If we make additional acquisitions, we also cannot be sure that any benefits anticipated from the acquisition will actually be realized. Likewise, we cannot be sure that we will be able to obtain necessary financing for acquisitions. Such financing could be restricted by the terms of our debt agreements or it could be more expensive than our current debt. The amount of such debt financing for acquisitions could be significant and the terms of such debt instruments could be more restrictive than our current covenants. In addition, a prolonged economic downturn would adversely affect our ability to open new stores or upgrade existing units and we may not be able to maintain the existing number of restaurants in future fiscal years. We may not be able to renew existing leases and various other risks could cause a decline in the number of restaurants in future fiscal years, which could adversely affect our results of operations.


Non-performance under the debt covenants in our revolving credit facility could adversely affect our ability to respond to changes in our business.

As of August 26, 2015, we had outstanding long-term debt of $37.5 million. Our debt covenants require certain minimum levels of financial performance as well as certain financial ratios, which can limit our credit availability. To provide for our reduced credit requirements going forward, we amended our credit agreement on October 2, 2015, to, among other things, reduce the facility size to $60.0 million. For a more detailed discussion of our credit facility please review the footnotes to our financial statements located in Part II, Item 8 of this Form 10-K. Our failure to comply with these covenants could result in an event of default that, if not cured or waived, could result in the acceleration of our loans outstanding and affect our ability to refinance by the termination date of September 1, 2017.

Regional events can adversely affect our financial performance.

Many of our restaurants and franchises are located in Texas, California and in the northern United States. Our results of operations may be adversely affected by economic conditions in Texas, California or the northern United States or the occurrence of an event of terrorism or natural disaster in any of the communities in which we operate. Also, given our geographic concentration, negative publicity relating to our restaurants could have a pronounced adverse effect on our overall revenues. Although we generally maintain property and casualty insurance to protect against property damage caused by casualties and natural disasters, inclement weather, flooding, hurricanes, and other acts of God, these events can adversely impact our sales by discouraging potential customers from going out to eat or by rendering a restaurant or CCS location inoperable for a significant amount of time.

An increase in the minimum wage and regulatory mandates could adversely affect our financial performance.

From time to time, the U.S. Congress and state legislatures have increased and will consider increases in the minimum wage. The restaurant industry is intensely competitive, and if the minimum wage is increased, we may not be able to transfer all of the resulting increases in operating costs to our customers in the form of price increases. In addition, because our business is labor intensive, shortages in the labor pool or other inflationary pressure could increase labor costs that could adversely affect our results of operations.

We may be required to recognize additional impairment charges.

We assess our long-lived assets in accordance with generally accepted accounting principles in the United States (“GAAP”) and determine when they are impaired. Based on market conditions and operating results, we may be required to record additional impairment charges, which would reduce expected earnings for the periods in which they are recorded.

We may not be able to realize our deferred tax assets.

Our ability to realize our deferred tax assets is dependent on our ability to generate taxable income in the future. If we are unable to generate enough taxable income in the future, we may be required to establish a valuation allowance related to our net deferred tax assets which would reduce expected earnings for the periods in which they are recorded.

We may be harmed by security risks we face in connection with our electronic processing and transmission of confidential customer and employee information.

We accept electronic payment cards for payment in our restaurants. During 2015,fiscal 2018, approximately 70%73% of our restaurant sales were attributable to credit and debit card transactions, and credit and debit card usage could continue to increase. A number of retailers have experienced actual or potential security breaches in which credit and debit card information may have been stolen, including a number of highly publicized incidents with well-known retailers in recent years.

In addition, we have previously been the victim of a cyber attack by hackers who deployed a version of the SamSam ransomware that encrypted electronic files, locking us out of many of our point-of-sale and other systems. These hackers requested a “ransom” payment in exchange for restoring access to these encrypted files. Such attacks, while they did not provide the hackers with access to confidential customer and employee information, did adversely affect our profits due to our temporary inability to operate our restaurants and increased costs associated further protecting and restoring our computer systems. While we have taken preventative measures, no assurances can be provided that we will not be the subject of cyber attacks again in the future.

We may in the future become subject to additional claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit card information, and we may also be subject to lawsuits or other proceedings in the future relating to these types of incidents. Proceedings related to theft of credit or debit card information may be brought by payment card providers, banks and credit unions that issue cards, cardholders (either individually or as part of a class action lawsuit) and federal and state regulators. Any such proceedings could distract our management from running our business and cause us to incur significant unplanned losses and expenses. Consumer perception of our brand could also be negatively affected by these events, which could further adversely affect our results and prospects.




We also are required to collect and maintain personal information about our employees, and we collect information about customers as part of some of our marketing programs as well. The collection and use of such information is regulated at the federal and state levels, and the regulatory environment related to information security and privacy is increasingly demanding. At the same time, we are relying increasingly on cloud computing and other technologies that result in third parties holding significant amounts of customer or employee information on our behalf. If the security and information systems of ours or of outsourced third party providers we use to store or process such information are compromised or if we, or such third parties, otherwise fail to comply with these laws and regulations, we could face litigation and the imposition of penalties that could adversely affect our financial performance. Our reputation as a brand or as an employer could also be adversely affected from these types of security breaches or regulatory violations, which could impair our sales or ability to attract and keep qualified employees.

Labor shortages or increases in labor costs could adversely affect our business and results of operations and the pace of new restaurant openings.

Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including regional managers, restaurant general managers and chefs, in a manner consistent with our standards and expectations. Qualified individuals that we need to fill these positions are in short supply and competition for these employees is intense. If we are unable to recruit and retain sufficient qualified individuals, our operations and reputation could be adversely affected. Additionally, competition for qualified employees could require us to pay higher wages, which could result in higher labor costs. Any increase in labor costs could adversely affect our results of operations.

If we are unable to anticipate and react to changes in food, utility and other costs, our results of operations could be materially adversely affected.

Many of the food and beverage products we purchase are affected by commodity pricing, and as such, are subject to price volatility caused by production problems, shortages, weather or other factors outside of our control. Our profitability depends, in part, on our successfully anticipating and reacting to changes in the prices of commodities. Therefore, we enter into purchase commitments with suppliers when we believe that it is advantageous for us to do so. If commodity prices were to increase, we may be forced to absorb the additional costs rather than transfer these increases to our customers in the form of menu price increases. Our success also depends, in part, on our ability to absorb increases in utility costs. Our operating results are affected by fluctuations in the price of utilities. Our inability to anticipate and respond effectively to an adverse change in any of these factors could have a material adverse effect on our results of operations.

Our business is subject to extensive federal, state and local laws and regulations.

The restaurant industry is subject to extensive federal, state and local laws and regulations. We are also subject to licensing and regulation by state and local authorities relating to health, healthcare, employee medical plans, sanitation, safety and fire standards, building codes and liquor licenses, federal and state laws governing our relationships with employees (including the Fair Labor Standards Act and applicable minimum wage requirements, overtime, unemployment tax rates, family leave, tip credits, working conditions, safety standards, healthcare and citizenship requirements), federal and state laws which prohibit discrimination, potential healthcare benefits legislative mandates, and other laws regulating the design and operation of facilities, such as the Americans With Disabilities Act of 1990.

As a publicly traded corporation, we are subject to various rules and regulations as mandated by the SEC and the NYSE. Failure to timely comply with these rules and regulations could result in penalties and negative publicity.

We are subject to federal regulation and certain state laws which govern the offer and sale of franchises. Many state franchise laws contain provisions that supersede the terms of franchise agreements, including provisions concerning the termination or non-renewal of a franchise. Some state franchise laws require that certain materials be registered before franchises can be offered or sold in that state. The failure to obtain or retain licenses or approvals to sell franchises could adversely affect us and the franchisees.



Termination of franchise agreements may disrupt restaurant performance.

Our franchise agreements are subject to termination by us in the event of default by the franchisee after applicable cure periods. Upon the expiration of the initial term of a franchise agreement, the franchisee generally has an option to renew the franchise agreement for an additional term. There is no assurance that franchisees will meet the criteria for renewal or will desire or be able to renew their franchise agreements. If not renewed, a franchise agreement, and payments required there under, will terminate. We may be unable to find a new franchisee to replace a non-renewing franchisee. Furthermore, while we will be entitled to terminate franchise agreements following a default that is not cured within the applicable grace period, if any, the disruption to the performance of the restaurants could adversely affect our business and revenues.


Franchisees may breach the terms of their franchise agreements in a manner that adversely affects the reputation of our brands.

Franchisees are required to conform to specified product quality standards and other requirements pursuant to their franchise agreements in order to protect our brands and to optimize restaurant performance. However, franchisees may receive through the supply chain or produce sub-standard food or beverage products, which may adversely impact the reputation of our brands. Franchisees may also breach the standards set forth in their respective franchise agreements. Any negative actions could have a corresponding material adverse effect on our business and revenues.

We might not fully realize the benefits from the acquisition of Cheeseburger in Paradise.

On December 6, 2012, we completed the acquisition of all the Membership Units of Paradise Restaurants Group, LLC and certain of their affiliates, collectively known as Cheeseburger in Paradise. The integration of the Cheeseburger in Paradise restaurants into our operations has presented significant difficulties and has not resulted in realization of the full benefits of synergies, cost savings and operational efficiencies that we expected. We closed 15 locations in fiscal 2014. Additionally, we converted three locations in each fiscal year, 2014 and 2015, to Fuddruckers restaurants and plan to convert four more locations into Fuddruckers restaurants.Several factors could result in not realizing the benefits from the acquisition of Cheeseburger in Paradise:  (1) the remaining eight Cheeseburger in Paradise locations that we continue to operate do not achieve sufficient cash flows; (2) the locations that we select to convert from Cheeseburger in Paradise restaurants to Fuddruckers restaurants do not realize cash flows sufficient to justify the additional investment of capital necessary to renovate the restaurants and if the cash flows operating as Fuddruckers restaurants do not achieve cash flows commensurate with other company-operated Fuddruckers restaurants; and (3) locations that we select for disposal result in “carrying costs” (generally lease, property, tax, and maintenance expenses) for a significant period of time prior to disposal, or we are not able to dispose the locations on favorable terms.

Our planned CCS expansion may not be successful.

Successful expansion of our CCS operations depends on our ability to obtain new clients as well as retain and renew our existing client contracts. Our ability to do so generally depends on a variety of factors, including the quality, price and responsiveness of our services, as well as our ability to market these services effectively and differentiate ourselves from our competitors. We may not be able to renew existing client contracts at the same or higher rates or our current clients may turn to competitors, cease operations, or elect to self-operate or terminate contracts with us. The failure to renew a significant number of our existing contracts could have a material adverse effect on our business and results of operations.

Failure to collect account receivables could adversely affect our results of operations.

A portion of our accounts receivable is concentrated in our CCS operations among several customers. In addition, our franchises generate significant accounts receivables. Failure to collect from several of these accounts receivable could adversely affect our results of operations.

If we lose the services of any of our key management personnel, our business could suffer.

The success of our business is highly dependent upon our key management personnel, particularly Christopher J. Pappas, our President and Chief Executive Officer, and Peter Tropoli,Benjamin T. Coutee, our Chief Operating Officer. The loss of the services of any key management personnel could have a material adverse effect upon our business.

Our business is subject to seasonal fluctuations, and, as a result, our results of operations for any given quarter may not be indicative of the results that may be achieved for the full fiscal year.

Our business is subject to seasonal fluctuations. Historically, our highest earnings have occurred in the third quarter of the fiscal year, as our revenues in most of our restaurants have typically been higher during the third quarter of the fiscal year. Similarly, our results of operations for any single quarter will not necessarily be indicative of the results that may be achieved for a full fiscal year.

Economic factors affecting financial institutions could affect our access to capital.

Our existing revolving

We refinanced our 2013 Credit Facility on November 8, 2016 to a new senior secured credit facilityagreement. The 2016 Credit Agreement, as amended, matures in September 2017 and weMay 1, 2019. We may not be able to amend or renew the new facility with terms and conditions consistent with the existing facility.

favorable to our operating needs.


We may not be able to adequately protect our intellectual property, which could harm the value of our brands and adversely affect our business.

Our ability to successfully implement our business plan depends in part on our ability to further build brand recognition using our trademarks, service marks, trade dress and other proprietary intellectual property, including our name and logos, and the unique ambience of our restaurants. If our efforts to protect our intellectual property are inadequate, or if any third party misappropriates or infringes on our intellectual property, either in print or on the internet, the value of our brands may be harmed, which could have a material adverse effect on our business and might prevent our brands from achieving or maintaining market acceptance. We may also encounter claims from prior users of similar intellectual property in areas where we operate or intend to conduct operations. This could harm our image, brand or competitive position and cause us to incur significant penalties and costs. 

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

As of November 3, 2015,7, 2018, we operated 179142 restaurants at 173136 property locations. Six of the operating locations are Combo locations and are considered two restaurants. Two operating locations are primarily Luby’s Cafeterias, but also serve Fuddruckers hamburgers. One operating location is a Bob Luby’s Seafood Grill. Luby’s Cafeterias have seating capacity for 250 to 300 customers at each location while Fuddruckers locations generally seat 125 to 200 customers and Cheeseburger in Paradise locations generally seat 180 to 220.

We own the underlying land and buildings on which 7059 of our Luby’s Cafeteria and 2318 of our Fuddruckers restaurants are located. FiveTwo of these restaurant properties contain excess building space or an extra building on the property which have 127 tenants unaffiliated with Luby’s, Inc.

In addition to the owned locations, 2423 Luby’s Cafeteria restaurants, 5441 Fuddruckers restaurants, and 81 Cheeseburger in Paradise restaurants are held under 8564 leases. One of the 64 leases includes two restaurants at one Combo location: one Luby's Cafeteria and one Fuddruckers restaurant. The majority of the leases are fixed-dollar rentals, which require us to pay additional amounts related to property taxes, hazard insurance, and maintenance of common areas. Of the 8564 restaurant leases, the current terms of 26thirteen expire in less than one year, 35 expire between 2015one and 2017,five years, and 5916 expire thereafter. Additionally, 6847 leases can be extended beyond their current terms at our option. One of the leased properties has extra building space and currently has one tenant that offsets approximately $99,895 of lease and other expenses annually.

As of November 3, 2015, we have 3 leased properties we plan to develop for future use.

As of November 3, 2015,7, 2018, we had threefour owned non-operating properties with a carrying value of approximately $3.1$3.9 million and 11 operating properties with a carrying value of approximately $15.6 million related to continuing operations recorded in property held for sale. In addition, we havehad one owned and two leased propertiesproperty with a carrying value of approximately $1.9$1.8 million that are included in assets related to discontinued operations. Leased properties in discontinued operations have a carrying value of zero.

We currently have twoone owned other-use properties; oneproperty which is used as a bake shop that supports the baked products forcentral bakery supporting our operating restaurants. The other owned property is leased to a Fuddruckers franchisee.

We also have threefour leased locations that have twothree third party tenants and twothree Fuddruckers franchisees.

In addition to the two owned other-use properties, we have

Our corporate office lease of approximately 31,00026,000 square feet of corporate office space under leaseruns through 2016. The space is located on the Northwest Freeway in Houston, Texas in close proximity to many of our Houston restaurant locations.

December 2021.

We also lease approximately 60,000 square feet of warehouse space for in-house repair, fabrication and storage in Houston, Texas. In addition, we lease approximately 3,200630 square feet of warehouse and office space in Arlington, Texas.

We also leaseFarmers Branch, Texas and an executive suite in North Andover, MA forwhere we have additional legal personnel.

We maintain general liability insurance and property damage insurance on all properties in amounts which management believes provide adequate coverage.




Item 3. Legal Proceedings

From time to time, we are subject to various private lawsuits, administrative proceedings and claims that arise in the ordinary course of our business. A number of these lawsuits, proceedings and claims may exist at any given time. These matters typically involve claims from guests, employees and others related to issues common to the restaurant industry. We currently believe that the final disposition of these types of lawsuits, proceedings, and claims will not have a material adverse effect on our financial position, results of operations, or liquidity. It is possible, however, that our future results of operations for a particular fiscal quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, proceedings, or claims.

Item 4. Mine Safety Disclosures

Not applicable.

 
Not applicable.




PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Stock Prices

Our common stock is traded on the NYSE under the symbol “LUB.” The following table sets forth, for the last two fiscal years, the high and low sales prices on the NYSE as reported in the consolidated transaction reporting system.

Fiscal Quarter Ended

 

High

  

Low

 

November 20, 2013

  8.23   6.49 

February 12, 2014

  9.15   6.00 

May 7, 2014

  6.91   4.93 

August 27, 2014

  6.01   4.83 

November 19, 2014

  5.58   4.75 

February 11, 2015

  5.33   4.37 

May 6, 2015

  5.93   4.78 

August 26, 2015

  5.30   4.52 

Fiscal Quarter Ended High Low
December 21, 2016 4.50
 4.03
March 15, 2017 4.33
 3.30
June 7, 2017 3.41
 2.46
August 30, 2017 3.12
 2.63
December 20, 2017 2.87
 2.36
March 14, 2018 3.20
 2.60
June 6, 2018 3.06
 2.35
August 29, 2018 2.89
 2.00
As of November 3, 2015,7, 2018, there were 2,2011,975 holders of record of our common stock. No cash dividends have been paid on our common stock since fiscal year 2000, and we currently have no intention to pay a cash dividend on our common stock. On November 3, 2015,7, 2018, the closing price of our common stock on the NYSE was $4.91.

$1.41.




Equity Compensation Plans

Securities authorized under our equity compensation plans as of August 26, 2015,29, 2018, were as follows:

  

(a)

  

(b)

  

(c)

 

Plan Category

 

Number of

Securitiesto be

Issued Upon

Exercise of

Outstanding

Options,
Warrants and

Rights

  

Weighted-

Average
Exercise Price of
Outstanding

Options,
Warrants and

Rights

  

Number of

Securities
Remaining

Available for

Future Issuance

Under Equity

Compensation

Plans Excluding

Securities

Reflected in

Column (a)

 

Equity compensation plans previously approved by security holders

  594,549  $4.94   789,952 

Equity compensation plans not previously approved by security holders(1)

  29,627   0   0 

Total

  624,176  $4.71   789,952 

  (a) (b) (c)
Plan Category 
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Warrants and
Rights
 
Weighted-
Average
Exercise Price of
Outstanding
Options,
Warrants and
Rights
 
Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans Excluding
Securities
Reflected in
Column (a)
Equity compensation plans previously approved by security holders 1,066,103
 $4.53
 1,612,652
Equity compensation plans not previously approved by security holders (1)
 17,801
 0
 0
Total 1,083,904
 $4.47
 1,612,652
(1) Represents the Luby’s, Inc. Non-employeeNonemployee Director Phantom Stock Plan.

See Note 14,16, “Share-Based Compensation,” to our Consolidated Financial Statements included in Item 8 of Part II of this report.

The following graph compares the cumulative total stockholder return on our common stock for the five fiscal years ended August 26, 2015,29, 2018, with the cumulative total return on the S&P SmallCap 600 Index and an industry peer group index. The old peer group index consists of Bob Evans Farms, Inc., CBRL Group, Inc., Darden Restaurants, Inc., Denny’s Corporation, FrischDiversified Restaurant Group,Holdings, Inc., and Red Robin Gourmet Burgers and Ruby Tuesday Inc. The new peer group index consists of Bob Evans Farms, Inc., CBRL Group, Inc., Denny’s Corporation, Frisch Restaurant Group, Red Robin Gourmet Burgers, Ruby Tuesday Inc. as well as Darden Restaurants, Inc.Burgers. These companies are multi-unit family and casual dining restaurant operators in the mid-price range.


The cumulative total shareholder return computations set forth in the performance graph assume an investment of $100 on August 25, 2010,29, 2013, and the reinvestment of all dividends. The returns of each company in the peer group index have been weighed according to that company’s stock market capitalization.

  

2010

  

2011

  

2012

  

2013

  

2014

  

2015

 

Luby’s, Inc.

  100.00   92.87   128.79   147.97   110.62   95.11 

S&P 500 Index—Total Return

  100.00   118.50   140.20   166.15   207.51   205.46 

S&P 500 Restaurant Index

  100.00   134.54   146.65   175.32   191.32   223.83 

New Peer Group Index Only

  100.00   119.15   139.86   155.90   160.34   229.81 

New Peer Group Index + Luby’s Inc.

  100.00   118.69   139.65   155.74   159.45   227.34 

Old Peer Group Index Only

  100.00   115.38   145.42   207.55   204.13   280.64 

Old Peer Group Index + Luby’s Inc.

  100.00   114.28   144.55   204.65   199.66   271.60 



chart-f17e7d5cdc8e5abf837a15.jpg

 
  2013 2014 2015 2016 2017 2018
Luby’s, Inc. 100.00
 74.76
 64.28
 62.07
 36.41
 28.14
S&P 500 Index—Total Return 100.00
 124.89
 123.66
 141.50
 163.53
 197.61
S&P 500 Restaurant Index 100.00
 109.12
 127.67
 141.05
 169.16
 181.31
Peer Group Index Only 100.00
 102.87
 148.01
 149.08
 192.47
 245.57
Peer Group Index + Luby’s, Inc. 100.00
 102.39
 146.51
 147.52
 189.49
 241.33



Item  6. Selected Financial Data

Five-Year Summary of Operations

  

Fiscal Year Ended

 
  

August 26,
201
5

  

August 27,
201
4

  

August 28,
201
3

  

August29,
201
2

  

August31,
201
1

 
 

(364 days)

(364 days)

(364 days)

(364 days)

(371days)

 

(In thousands, except per share data)

Sales

                    

Restaurant sales

 $370,192  $368,267  $360,001  $324,536  $325,383 

Culinary contract services

  16,401   18,555   16,693   17,711   15,619 

Franchise revenue

  6,961   7,027   6,937   7,232   7,092 

Vending revenue

  531   532   565   618   654 

Total sales

  394,085   394,381   384,196   350,097   348,748 

Income (loss) from continuing operations

  (1,372

)

  (1,613

)

  4,547   7,398   2,572 

Income (loss) from discontinued operations (a)

  (702

)

  (1,834

)

  (1,386

)

  (645

)

  301 

Net income (loss)

 $(2,074

)

 $(3,447

)

 $3,161  $6,753  $2,873 

Income (loss) per share from continuing operations:

                    

Basic

 $(0.05

)

 $(0.06

)

 $0.16  $0.26  $0.09 

Assuming dilution

 $(0.05

)

 $(0.06

)

 $0.16  $0.26  $0.09 

Income (loss) per share from discontinued operation:

                    

Basic

 $(0.02

)

 $(0.06

)

 $(0.05

)

 $(0.02

)

 $0.01 

Assuming dilution

 $(0.02

)

 $(0.06

)

 $(0.05

)

 $(0.02

)

 $0.01 

Net income (loss) per share:

                    

Basic

 $(0.07

)

 $(0.12

)

 $0.11  $0.24  $0.10 

Assuming dilution

 $(0.07

)

 $(0.12

)

 $0.11  $0.24  $0.10 

Weighted-average shares outstanding:

                    

Basic

  28,974   28,812   28,618   28,351   28,237 

Assuming dilution

  28,974   28,812   28,866   28,429   28,297 

Total assets

 $264,258  $275,435  $250,645  $230,889  $228,102 

Total debt

 $37,500  $42,000  $19,200  $13,000  $21,500 

Number of restaurants at fiscal year end

  177   174   180   154   156 

Number of franchised restaurants at fiscal year end

  106   110   116   125   122 

Number of Culinary Contract Services contracts at fiscal year end

  23   25   21   18   22 

Costs and Expenses

                    

(As a percentage of restaurant sales)

                    

Cost of food

  28.9

%

  28.9

%

  28.6

%

  27.9

%

  28.9

%

Payroll and related costs

  34.5

%

  34.2

%

  34.1

%

  34.3

%

  35.2

%

Other operating expenses

  17.0

%

  16.8

%

  16.4

%

  15.4

%

  16.1

%

Occupancy costs

  5.7

%

  5.9

%

  6.0

%

  5.9

%

  5.9

%

(a)

For comparison purposes, fiscal 2013 and 2012 results have been adjusted to reflect the reclassification of certain Cheeseburger in Paradise leasehold locations to discontinued operations. See Note 11 to our consolidated financial statements in Part II, Item 8 in this Form 10-K for further discussion of discontinued operations.

FIVE-YEAR SUMMARY OF OPERATIONS
  Fiscal Year Ended
  August 29, 2018 August 30, 2017 August 31, 2016 August 26, 2015 August 27, 2014
  (364 days) (364 days) (371 days) (364 days) (364 days)
  (In thousands, except per share data)
Sales          
Restaurant sales $332,518
 $350,818
 $378,111
 $370,192
 $369,808
Culinary contract services 25,782
 17,943
 16,695
 16,401
 18,555
Franchise revenue 6,365
 6,723
 7,250
 6,961
 7,027
Vending revenue 531
 547
 583
 531
 532
Total sales 365,196
 376,031
 402,639
 394,085
 395,922
Provision for asset impairments and restaurant closings 8,917
 10,567
 1,442
 636
 2,717
Loss from continuing operations (32,954) (22,796) (10,256) (1,616) (2,011)
Loss from discontinued operations (614) (466) (90) (458) (1,436)
Net Loss $(33,568) $(23,262) $(10,346) $(2,074) $(3,447)
Loss per share from continuing operations:          
Basic $(1.10) $(0.77) $(0.35) $(0.05) $(0.06)
Assuming dilution $(1.10) $(0.77) $(0.35) $(0.05) $(0.06)
Loss per share from discontinued operation:          
Basic $(0.02) $(0.02) $(0.00) $(0.02) $(0.06)
Assuming dilution $(0.02) $(0.02) $(0.00) $(0.02) $(0.06)
Loss per share:          
Basic $(1.12) $(0.79) $(0.35) $(0.07) $(0.12)
Assuming dilution $(1.12) $(0.79) $(0.35) $(0.07) $(0.12)
Weighted-average shares outstanding:          
Basic 29,901
 29,476
 29,226
 28,974
 28,812
Assuming dilution 29,901
 29,476
 29,226
 28,974
 28,812
Total assets $199,989
 $226,457
 $252,225
 $264,258
 $275,435
Total debt $39,506
 $30,985
 $37,000
 $37,500
 $42,000
Number of restaurants at fiscal year end 146
 167
 175
 177
 174
Number of franchised restaurants at fiscal year end 105
 113
 113
 106
 110
Number of Culinary Contract Services contracts at fiscal year end 28
 25
 24
 23
 25
Costs and Expenses          
(As a percentage of restaurant sales)          
Cost of food 28.3% 28.1% 28.3% 28.9% 28.9%
Payroll and related costs 37.4% 35.9% 35.2% 34.5% 34.3%
Other operating expenses 18.7% 17.7% 16.1% 17.1% 16.8%
Occupancy costs 6.1% 6.2% 5.9% 5.7% 6.0%



Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of the financial condition and results of operations should be read in conjunction with the consolidated financial statements and footnotes for the fiscal years ended August 26, 201529, 2018 (“fiscal 2015”2018”), August 27, 2014,30, 2017, (“fiscal 2014”2017”), and August 28, 201331, 2016 (“fiscal 2013”2016”) included in Part II, Item 8 of this Form 10-K.


The table on the following tablepage sets forth selected operating data as a percentage of total revenues (unless otherwise noted) for the periods indicated. All information is derived from the accompanying Consolidated Statements of Operations. Percentages may not add due to rounding.

  

FiscalYear Ended

 
  

August 26,
201
5

  

August 27,
201
4

  

August 28,
201
3

 
  

(52 weeks)

  

(52 weeks)

  

(52 weeks)

 
             

Restaurant sales

  93.9

%

  93.4

%

  93.7

%

Culinary contract services

  4.2

%

  4.7

%

  4.3

%

Franchise revenue

  1.8

%

  1.8

%

  1.8

%

Vending revenue

  0.1

%

  0.1

%

  0.1

%

TOTAL SALES

  100

%

  100

%

  100

%

             

STORE COSTS AND EXPENSES:

            

(As a percentage of restaurant sales)

            
             

Cost of food

  28.9

%

  28.9

%

  28.6

%

Payroll and related costs

  34.5

%

  34.2

%

  34.1

%

Other operating expenses

  17.0

%

  16.8

%

  16.4

%

Occupancy costs

  5.7

%

  5.9

%

  6.0

%

Vending revenue

  (0.1

)%

  (0.1

)%

  (0.2

)%

Store level profit

  14.0

%

  14.4

%

  15.0

%

             

COMPANY COSTS AND EXPENSES:

            

(As a percentage of total sales)

            
             

Opening costs

  0.7

%

  0.5

%

  0.2

%

Depreciation and amortization

  5.4

%

  5.1

%

  4.8

%

Selling, general and administrative expenses

  9.8

%

  10.3

%

  9.4

%

Provision for asset impairments

  0.2

%

  0.6

%

  0.2

%

Net gain on disposition of property and equipment

  (1.0

)%

  (0.6

)%

  (0.4

)%

             

Culinary Contract Services Costs

            

(As a percentage ofculinary contract servicessales)

            
             

Cost of culinary contract services

  90.1

%

  90.8

%

  93.5

%

Culinary income

  9.9

%

  9.2

%

  6.5

%

             

Franchise Operations Costs

            

(As a percentage offranchise operations)

            
             

Cost of franchise operations

  24.0

%

  24.7

%

  23.5

%

Franchise income

  76.0

%

  75.3

%

  76.5

%

             

(As a percentage of total sales)

            

INCOME (LOSS) FROM OPERATIONS

  (0.1

)%

  (0.8

)%

  1.6

%

Interest income

  0.0

%

  0.0

%

  0.0

%

Interest expense

  (0.6

)%

  (0.3

)%

  (0.2

)%

Other income, net

  0.1

%

  0.3

%

  0.3

%

Income (loss) before income taxes and discontinued operations

  (0.6

)%

  (0.8

)%

  1.6

%

Provision (benefit) for income taxes

  (0.3

)%

  (0.4

)%

  0.5

%

Income (loss) from continuing operations

  (0.3

)%

  (0.4

)%

  1.2

%

Loss from discontinued operations, net of income taxes

  (0.2

)%

  (0.5

)%

  (0.4

)%

NET INCOME (LOSS)

  (0.5

)%

  (0.9

)%

  0.8

%

 


  
Fiscal Year Ended
  August 29,
2018
 August 30,
2017
 August 31,
2016
  (52 weeks) (52 weeks) (53 weeks)
Restaurant sales 91.1 % 93.3 % 93.9 %
Culinary contract services 7.1 % 4.8 % 4.1 %
Franchise revenue 1.7 % 1.8 % 1.8 %
Vending revenue 0.1 % 0.1 % 0.1 %
TOTAL SALES 100.0 % 100.0 % 100.0 %
       
STORE COSTS AND EXPENSES:      
(As a percentage of restaurant sales)      
       
Cost of food 28.3 % 28.1 % 28.3 %
Payroll and related costs 37.4 % 35.9 % 35.2 %
Other operating expenses 18.7 % 17.7 % 16.1 %
Occupancy costs 6.1 % 6.2 % 5.9 %
Vending revenue (0.2)% (0.2)% (0.2)%
Store level profit 9.5 % 12.2 % 14.7 %
       
COMPANY COSTS AND EXPENSES (as a percentage of total sales)
      
       
Opening costs 0.2 % 0.1 % 0.2 %
Depreciation and amortization 4.8 % 5.4 % 5.4 %
Selling, general and administrative expenses 10.6 % 10.1 % 10.5 %
Provision for asset impairments and restaurant closings 2.7 % 3.0 % 0.4 %
Net Gain on disposition of property and equipment (1.6)% (0.5)% (0.2)%
       
Culinary Contract Services Costs (as a percentage of Culinary contract services sales)
    
       
Cost of culinary contract services 93.7 % 87.9 % 89.6 %
Culinary income 6.3 % 12.1 % 10.4 %
       
Franchise Operations Costs (as a percentage of Franchise revenue)
      
       
Cost of franchise operations 24.0 % 25.8 % 25.9 %
Franchise income 76.0 % 74.2 % 74.1 %
       
(As a percentage of total sales)      
LOSS FROM OPERATIONS (6.1)% (4.6)% (0.8)%
Interest income 0.0 % 0.0 % 0.0 %
Interest expense (0.9)% (0.6)% (0.6)%
Other income (expense), net 0.1 % (0.1)% 0.0 %
Loss before income taxes and discontinued operations (6.9)% (5.3)% (1.4)%
Provision for income taxes 2.1 % 0.6 % 1.2 %
Loss from continuing operations (9.0)% (5.9)% (2.6)%
Loss from discontinued operations, net of income taxes (0.2)% (0.1)% 0.0 %
NET LOSS (9.2)% (6.0)% (2.6)%



Although store level profit, defined as restaurant sales plus vending revenue less cost of food, payroll and related costs, other operating expenses, and occupancy costs is a non-GAAP measure, we believe its presentation is useful because it explicitly shows the results of our most significant reportable segment. The following table reconciles between store level profit, a non-GAAP measure to incomeloss from continuing operations, a GAAP measure:

  

FiscalYear Ended

 
  

August 26,
201
5

  

August 27,
201
4

  

August 28,
201
3

 
  

(52 weeks)

  

(52 weeks)

  

(52 weeks)

 
   (In thousands) 

Store level profit

 $51,909  $52,918  $53,984 
             

Plus:

            

Sales from culinary contract services

  16,401   18,555   16,693 

Sales from franchise revenue

  6,961   7,027   6,937 
             

Less:

            

Opening costs

  2,686   2,164   783 

Cost of culinary contract services

  14,786   16,847   15,604 

Cost of franchise operations

  1,668   1,733   1,629 

Depreciation and amortization

  21,367   20,062   18,376 

Selling, general and administrative expenses

  38,758   40,686   36,123 

Provision for asset impairments

  636   2,498   615 

Net gain on disposition of property and equipment

  (3,994

)

  (2,357

)

  (1,723

)

Interest income

  (4

)

  (6

)

  (9

)

Interest expense

  2,336   1,247   920 

Other income, net

  (520

)

  (1,101

)

  (1,026

)

Provision (benefit) for income taxes

  (1,076

)

  (1,660

)

  1,775 

Income (loss) from continuing operations

 $(1,372

)

 $(1,613

)

 $4,547 

  
Fiscal Year Ended
  August 29, 2018 August 30, 2017 August 31, 2016
  (52 weeks) (52 weeks) (53 weeks)
  (In thousands)
Store level profit $31,648
 $42,943
 $55,419
       
Plus:      
Sales from culinary contract services 25,782
 17,943
 16,695
Sales from franchise operations 6,365
 6,723
 7,250
       
Less:      
Opening costs 554
 492
 787
Cost of culinary contract services 24,161
 15,774
 14,955
Cost of franchise operations 1,528
 1,733
 1,877
Depreciation and amortization 17,453
 20,438
 21,889
Selling, general and administrative expenses(1)
 38,725
 37,878
 42,422
Provision for asset impairments and restaurant closings 8,917
 10,567
 1,442
Net Gain on disposition of property and equipment (5,357) (1,804) (684)
Interest income (12) (8) (4)
Interest expense 3,348
 2,443
 2,247
Other income (expense), net (298) 454
 (186)
Provision for income taxes 7,730
 2,438
 4,875
Loss from continuing operations $(32,954) $(22,796) $(10,256)
(1) Marketing and advertising expense included in Selling, general and administrative expenses was $3.5 million, $5.1 million, and $5.6 million in fiscal 2018, 2017, and 2016, respectively
The following table shows our restaurant unit count as of August 26, 201529, 2018 and August 27, 2014.

30, 2017.

Restaurant Counts:

  

Fiscal2015

Year Begin

  

Fiscal 2015

Openings

  

Fiscal 2015

Closings

  

Fiscal2015

Year End

 

Luby’s Cafeterias(1)

  94   1   (2

)

  93 

Fuddruckers Restaurants(1)

  71   9   (5

)

  75 

Cheeseburger in Paradise

  8         8 

Other restaurants(2)

  1         1 

Total

  174   10   (7

)

  177 

  Fiscal 2018 Year Begin Fiscal 2018 Openings Fiscal 2018 Closings Fiscal 2018 Year End
Luby’s Cafeterias(1)
 88
 
 (4) 84
Fuddruckers Restaurants(1)
 71
 
 (11) 60
Cheeseburger in Paradise 8
 
 (6) 2
Total 167
 
 (21) 146
 

 (1)

(1)Includes 6 restaurants that are part of Combo locations

(2)Other restaurants include one Bob Luby’s Seafood





Overview
 

Overview

Description of the business

We generate revenues primarily by providing quality food to customers at our 9484 Luby’s branded restaurants located mostly in Texas, 7560 Fuddruckers restaurants located throughout the United States, 82 Cheeseburger in Paradise restaurants primarily located in the eastern United States,New Jersey and 106Nebraska, and 105 Fuddruckers franchises located primarily in the United States. On July 26, 2010, we became a multi-brand restaurant company with a national footprint through the acquisition of substantially all of the assets of Fuddruckers. The Fuddruckers acquisition added 59 Company-operated restaurants and a franchise network of 130 franchisee-operated units. This acquisition further expanded our family-friendly, value-oriented portfolio of restaurants located in close proximity to retail centers, business developments and residential areas. On December 6, 2012, we further expanded our brand family with the addition of the Cheeseburger in Paradise brand. This added full service restaurant and bar locations that complemented our core family-friendly brands and provided an entry point to operate at, or acquire a valuable leasehold interest in, 23 new locations at a cost of less than $0.5 million per location. In addition to our restaurant business model, we also provide culinary contract services for organizations that offer on-site food service, such as healthcare facilities, colleges and universities, sports stadiums, businesses and institutions, as well as businesses and institutions.

sales through retail grocery outlets.

Business Strategy

In fiscal 2015,2018, we continued our focus on enhancing the guest experience at each of our restaurant brands, executing our growth plan for our Culinary Contract Services segment, and supporting our Fuddruckers franchise network for future growth. In the latter part of the fiscal year, in light of continued sales weakness at our Fuddruckers brand and further profitability declines at each restaurant brand, it became necessary to address short-term liquidity. Management's short-term action plan included accelerating the closure of underperforming restaurant locations, selling owned property at certain locations, and taking other steps in order to re-finance our debt load and provide financial liquidity. All steps taken in accordance with the short-term action plan are with the aim of re-establishing a solid foundation with a portfolio of restaurants and business segments that can successfully restore future profitability.

At our Company-owned restaurants, we focused on menu innovation and variety across the weeks and the seasons. We furthered our efforts in attracting and retaining the most talented individuals to serve and engage with our guests in both restaurant management roles and front-line hourly restaurant team member roles. We have an experienced culinary team that vigorously pursues culinary innovation enhancements. Our marketing initiatives centered around developing a more personal and direct connection with our guests, deploying technology where it makes most sense. Over the last year, we have transitioned much of our strategic focus centered around constructing, staffing, opening,advertising and operatingmessaging away from traditional medium such as television advertising toward digital media as we transition to the next phase of our loyalty and recognition programs. We continue to make these investments as part of our long-term strategy to increase our brand awareness and motivate new and more frequent guest visits. As we continued to evaluate our portfolio of restaurant locations, we closed 21 restaurants so that resources could be focused on the locations that exhibit the most promise for enhanced profitability. Over the long term, our strategy is to continue to refine our restaurant protoype design and build new restaurants in our coremarkets where we believe we can achieve superior restaurant brands. Of particular focus was the opening ofcash flows.

In fiscal 2018, our sixth Combo location with a side-by-side Luby’s Cafeteria and Fuddruckers. To support improvement in guest traffic and sales we continued to re-invest in our core restaurant brands through exterior and interior remodels. Our Fuddruckers franchise business segment continued supporting our loyal franchisees and developingwe continued to pursue opportunities to re-franchise company-owned Fuddruckers locations as part of our franchisee pipeline both domestically and internationally.strategy to grow franchise revenues. Our contractCulinary Contract Services segment continues its focus on expanding the number of locations that we serve and developing business partnerships for the long-term.

To improvelong-term, while servicing our performance inexisting agreements with our Company-operated restaurants,customized and high-level of client service. We are working to ensure that we are strengtheninghave the right corporate headcount and overhead to support each of our business through leadership development ofsegments while balancing our restaurant employees. To complement focuscorporate overhead costs: on our people,this front, we have continued to enhance our product offerings to drive frequencymade significant strides in reducing overhead costs, including reduced headcount, corporate travel expense, and loyalty. This included steps taken to improve the customer experience through enacted process improvements aimed at increasing our guest satisfaction. We have also taken additional steps to manage selling, general, and administrative expenses through enhanced cost controls company-wide leading to improved profitability. We also reduced our debt levels in fiscal 2015 through moderating our capital investments and through the sale of under-performing assets.

associated other overhead costs.




Financial and Operation Highlights for Fiscal 2015

Financial Performance

Total Company sales decreased approximately $0.3 million, or 0.1%, in fiscal 2015 compared to fiscal 2014, consisting primarily of a $2.2 million decrease in culinary contract services sales mostly offset by a $1.9 million increase in restaurant sales. The other components of total sales are franchise revenue and vending revenue. The $1.9 million increase in restaurant sales consisted of a $13.1 million increase in sales at Combo locations and a $7.2 million increase in sales at stand-alone Fuddruckers restaurants locations, partially offset by a $13.3 million decrease in sales at Cheeseburger in Paradise locations and a $4.2 million decrease in sales at stand-alone Luby’s Cafeterias largely due to unit closures. Fiscal 2014 also included a $0.9 million sales contribution from Koo Koo Roo locations that ceased operations prior to start of fiscal 2015.

Total segment profit decreased $1.1 million to $58.8 million in fiscal 2015 compared to $59.9 million in fiscal 2014. The $1.1 million decrease in total segment profit resulted from a decrease of $1.0 million in Company-owned restaurant segment profit and a $0.1 million decrease in culinary contract services segment profit. The $1.0 million decrease in Company-owned restaurant segment profit resulted from restaurant sales and vending income increasing $1.9 million and the cost of food, payroll and related costs, other operating expenses, and occupancy costs increasing $2.9 million.

Income or loss from Continuing Operations was a loss of $1.4 million in fiscal 2015 compared to a loss of $1.6 million in fiscal 2014.

2018
 
Financial Performance

Total company sales decreased approximately $10.8 million, or 2.9%, in fiscal 2018 compared to fiscal 2017, consisting primarily of an approximate $18.3 million decrease in restaurant sales, an approximate $7.8 million increase in Culinary contract services sales, an approximate $0.4 million decrease in franchise revenue, and a less than $0.1 million decrease in vending revenue. The decrease in restaurant sales included an approximate $4.0 million decrease in sales at stand-alone Luby's Cafeterias, an approximate $10.5 million decrease in sales at stand-alone Fuddruckers restaurants, an approximate $0.4 million decrease at sales from our Combo locations, and an approximate $3.4 million decrease in sales from Cheeseburger in Paradise restaurants.


Total segment profit decreased approximately $12.0 million to approximately $38.1 million in fiscal 2018 compared to approximately $50.1 million in fiscal 2017. The approximate $12.0 million decrease in total segment profit resulted from a decrease of approximately $11.3 million in Company-owned restaurant segment profit, an approximate $0.2 million decrease in franchise segment profit and an approximate $0.5 million decrease in Culinary contract services segment profit. The approximate $11.3 million decrease in Company-owned restaurant segment profit resulted from restaurant sales and vending income decreasing approximately $18.3 million with the cost of food, payroll and related costs, other operating expenses, and occupancy costs decreasing approximately $7.0 million.

Loss before income taxes and discontinued operations included non-cash charges for asset impairments and restaurant closings of approximately $8.9 million and approximately $10.6 million in fiscal 2018 and fiscal 2017, respectively. Net loss included non-tax charges for deferred tax asset valuation allowance increases of approximately $8.4 million and $9.5 million in fiscal 2018 and fiscal 2017, respectively.

The loss from continuing operations was approximately $33.0 million in fiscal 2018 compared to a loss of approximately $22.8 million in fiscal 2017.

Operational Endeavors and MilestoneMilestones

Core restaurant brands.Our core Luby’s Cafeteria and Fuddruckers brands continued to develop and evolve. While our core menu remains stable at our Luby’s Cafeterias, we introduce and rotate new menu offerings throughout the year to remain relevant to both our existing customer base and attract new customers. We offer a range of price points which include premium items featured on weekend nights as well as more price-sensitive manager specials throughout the week. In fiscal 2015, we also continued to promote our made-from-scratch cooking with many locally-sourced “from the farm” ingredients at our Luby’s Cafeterias with our “The Luby’s Way” slogan. “The Luby’s Way” signifies that we are dedicated to serving our guests only the best hand-crafted recipes, prepared fresh each day in our kitchens. We support local farmers and use only the freshest produce and highest quality ingredients.  

At Fuddruckers, we continue to evolve The World’s Greatest Hamburgers®, with new specialty burger combinations and toppings and expanded offerings beyond the core hamburger. In fiscal 2015, we continued our enhanced guest service program whereby a designated restaurant employee engages guests throughout the dining room and ensures that all elements of the dining experience occur at our high standard. We continued to focus on speed of service and an enhanced ordering experience. To elevate the Fuddruckers brand, we partnered with the Houston Texans National Football League team, which has provided Fuddruckers with increased media mentions and exposure to past, present and future customers. We are also making investments in new technologies through the introduction of a new point of sale system which accepts Apple Pay, features kitchen displays programmed to measure speed of service consistently across all locations, and has been integrated with the new Fuddruckers online ordering app. We continued to measure guest satisfaction through a number of survey and other guest interactions that helped us identify areas of excellence and areas for improvement. In total, we opened nine company-owned Fuddruckers in fiscal 2015 and sales at same-store Fuddruckers restaurants grew 1.1% in fiscal year 2015 compared to fiscal year 2014.  We continued to invest in training and leadership development programs to further enhance our service culture throughout each of our restaurant brands. We are confident the focus on great food and enhanced service will in the long run lead to increased guest frequency and loyalty.

Franchise Network.As of August 26, 2015, we supported a franchise network of 106 Fuddruckers franchise locations with 77 locations under development agreements, of which 23 are scheduled to open by the end of fiscal 2017.  For fiscal 2015, our franchisees opened eight new Fuddruckers restaurants (two of which were acquired from us as the franchisor).  Five of the opened locations were in the United States, one in Panama, one in Chile, and one in Poland.  For fiscal 2015, there were 12 Fuddruckers franchise locations that closed as franchise-operated restaurants (two of which were acquired by us as the franchisor).  Our franchise network generated approximately $7.0 million in revenue in fiscal year 2015.

Culinary Contract Services.Our CCS business generated $16.4 million in revenue during fiscal 2015 compared to $18.6 million in revenue during fiscal 2014. The $2.2 million decrease in CCS revenue was a result of operating fewer locations and ceasing operations at two high sale volume locations. We view this area as a long-term growth business that generally requires less capital investment and produces favorable percentage returns on invested capital.

Cheeseburger in Paradise Location Strategy.At Cheeseburger in Paradise, we initiated a strategic plan in fiscal 2014 to revitalize the brand and improve results that included closing underperforming units, converting certain locations to Fuddruckers and launching initiatives to improve restaurant performance at the remaining units. As of our fiscal year-end, we operated eight of the original Cheeseburger in Paradise locations, completed six conversions to Fuddruckers restaurants, selected four additional locations expected to be converted into Fuddruckers, two locations sub-leased to franchisees and another three locations which we expect to dispose. At the core eight locations that we operate with the Cheeseburger in Paradise brand, our focus is on building customer loyalty step by step.

New RestaurantOpenings.In fiscal year 2015, we opened ten restaurants.  Two of these restaurants were at our sixth Combo location, located in Jackson, Mississippi.  These six Combo locations are a key component of our long term growth strategy.  In addition to the Combo locations, we opened eight stand-alone Fuddruckers restaurants. These eight Fuddruckers locations consisted of (1) three locations that were previously operated as Cheeseburger in Paradise restaurants; (2) one location that was converted from our previously operated Koo Koo Roo brand; (3) three locations acquired from our franchisees and (4) one location in newly constructed retail space. During fiscal 2015, we also closed a total of seven restaurants. These seven closures consisted of two Luby’s Cafeteria locations and five Fuddruckers restaurant locations (two of which were acquired by one of our franchisees). 

Capital Spending. Purchases of property and equipment were $20.4 million in fiscal 2015 down from $46.2 million in fiscal 2014. These capital investments were funded through a combination of cash from operations, sale of property and utilization of our revolving credit facility. Capital investments in fiscal 2015 included (1) $2.4 million on new restaurant development; (2) $3.2 million on the purchase of parcels of land for current and future development; (3) $7.8 million on the remodeling of existing restaurants and conversion of Cheeseburger in Paradise restaurants and one Koo Koo Roo restaurant into Fuddruckers restaurants and (4) $7.0 million for recurring capital expenditures and technology infrastructure investments. Our debt balance at the end of fiscal 2015 was $37.5 million. We remain committed to maintaining the attractiveness of all of our restaurant locations where we anticipate operating over the long term. In fiscal 2016, we anticipate making capital investments of up to $20 million, excluding the purchase of land, for recurring maintenance of all of our restaurant properties, for point of sale hardware associated with our technology infrastructure, and to fund our on-going remodeling program.


Core restaurant brands. In fiscal 2018, we continued to promote our "made–from–scratch" cooking with many locally-sourced “from the farm” ingredients at our Luby’s Cafeterias with our “The Luby’s Way” slogan. “The Luby’s Way” signifies that we are dedicated to serving our guests only the best hand-crafted recipes, prepared fresh each day in our kitchens. We support local farmers and use only the freshest produce and highest quality ingredients. We have introduced new seasonal menu offerings throughout the year that showcase our 70-year history of "made-from-scratch" cooking expertise. Our guests were presented with new offerings at each section of the cafeteria line: fresh colorful vegetable presentations, expanded and refreshed cold sides, and new recipes and presentations for carved turkey, roast beef, salmon, and chicken. We introduce and rotate new menu offerings throughout the year to remain relevant to both our existing customer base and attract new customers. From a marketing and promotion standpoint, we initiated steps to gain an even better understanding of our guests and laid the groundwork for leveraging technology to improve and personalize the guest experience. We will be using these insights to refine our brand positioning strategies going forward. Our decline in Company-owned restaurant segment profitability primarily occurred during the second and third quarters, due to changes in product offerings and discounts, increased investment in our labor, and operating expenses. We moved away from certain discounting and promotional offers we had been using in the past. While transitioning to this approach of less discounting, it had the intended effect of increasing our average spend per guest. The offsetting decreases in guest traffic resulted in a net decrease in same-store sales.


At Fuddruckers, we continue to evolve the World’s Greatest Hamburgers®, with new specialty burger combinations and toppings. In fiscal 2018, we continued to focus on speed of service and the ordering experience. We also began testing a simplified menu at Company–owned locations designed to enhance quality and execution for our guests. We furthered our use of technology to reach our guests utilizing new digital media campaigns and targeted advertising to guests' mobile devices. We continued to measure guest satisfaction through surveys and other guest interactions that helped us identify areas of excellence and areas for improvement. We are confident the focus on great food and enhanced service will in the long run lead to increased guest frequency and loyalty.



Franchise Network. As of August 29, 2018, we supported a franchise network of 105 Fuddruckers franchise locations with an additional 44 locations under development agreements. For fiscal 2018, our franchisees opened four new Fuddruckers restaurants. Three of the opened locations were in the United States (Florida and Pennsylvania) and one in Mexico. For fiscal 2018, there were 12 Fuddruckers franchise locations that closed as franchise-operated restaurants. Our franchise network generated approximately $6.4 million in revenue in fiscal 2018.

Culinary Contract Services. Our Culinary Contract Services segment generated approximately $25.8 million in revenue during fiscal 2018 compared to approximately $17.9 million in revenue during fiscal 2017. The approximate $7.8 million increase in revenue was primarily due to a net increase in the number of locations in operation and higher sales volume locations replacing lower sales volume locations. We view this area as a long-term growth business that generally requires less capital investment and produces favorable percentage returns on invested capital.

Cheeseburger in Paradise. Despite previous efforts to revitalize the Cheeseburger in Paradise brand and improve financial results, we determined that the best course of action was to cease operations at most of our Cheeseburger in Paradise restaurants. As part of our all overall plan to close under-performing restaurants that do not meet our profitability targets on a sustained basis, we elected to reduce Cheeseburger in Paradise to two locations at our fiscal year-end 2018. Subsequent to the end of fiscal year 2018, we elected to close one of those Cheeseburger in Paradise locations. As of November 7, 2018, we operate one Cheeseburger in Paradise location.

Capital Spending. Purchases of property and equipment were approximately $13.2 million in fiscal 2018, up from approximately $12.5 million in fiscal 2017. These capital investments were funded through a combination of cash from operations, sale of property, and utilization of our revolving credit facility. Capital investments in fiscal 2018 included (1) approximately $1.1 million on information technology infrastructure maintenance and upgrade projects; (2) approximately $2.1 million on the rebuilding and refurbishing and updating of restaurants, mostly related to restorations after hurricane and flood damage incurred in August 2017; and (3) approximately $10.0 million for recurring capital expenditures. Our debt balance at the end of fiscal 2018 was approximately $39.5 million. We remain committed to maintaining the attractiveness of all of our restaurant locations where we anticipate operating over the long term. In fiscal 2019, we anticipate making capital investments of up to $8.0 million for recurring maintenance of all of our restaurant properties and for point of sale hardware associated with our technology infrastructure.

Our long-term plan continues to focus on expanding each of our core brands, including the Fuddruckers franchise network, as well as growing our CCSculinary contract service business. We are also committed to reducing our debt balances and making capital investments with suitable return characteristics. We plan to use cash generated from operations, combined with our borrowing capacity, when necessary, in order to seize these capital investment opportunities. We believeAs we improve and elevate our operational execution has improved through our commitment to higher operating standards, and we believe that we are well-positioned to enhance shareholder value over the long term.

Accounting Periods

Our fiscal year ends on the last Wednesday in August. Accordingly, each fiscal year normally consists of 13 four-week periods, or accounting periods, accounting for 364 days in the aggregate. However, every fifth or sixth year, we have a fiscal year that consists of 53 weeks, accounting for 371 days in the aggregate. Fiscal year 2011 was the last2016 is such fiscala year that contained 53 weeks.weeks, accounting for 371 days in the aggregate. In fiscal year 2015, and prior, each of the first three quarters of each fiscal year consisted of three four-week periods, while the fourth quarter normally consisted of four four-week periods. Beginning in fiscal year 2016, the first quarter will consistconsisted of four four-week periods, while the last three quarters will normally consist of three four-week periods. However, fiscal year 2016 is a fiscal year consisting of 53 weeks, accounting for 371 days in the aggregate. As such, the fourth quarter of fiscal year 2016 will contain one five-week period, resulting in a 13-week fourth quarter, or 91 days in the aggregate. Comparability between quarters may be affected by the varying lengths of the quarters, as well as the seasonality associated with the restaurant business.

Same-Store Sales

The restaurant business is highly competitive with respect to food quality, concept, location, price, and service, all of which may have an effect on same-store sales. Our same-store sales calculation measures the relative performance of a certain group of restaurants. A store is included in this group of restaurants after it has been open for six complete consecutive quarters. The Cheeseburger in Paradise stores that were acquired in December 2012 were included in the same store metric beginning with the first quarter fiscal 2015. Stores that close on a permanent basis (or on a temporary basis for remodeling) are removed from the group in the fiscal quarter when operations cease at the restaurant, but remain in the same-store group for previously reported fiscal quarters. Although management believes this approach leads to more effective year-over-year comparisons, neither the time frame nor the exact practice may be similar to those used by other restaurant companies. Same-store sales at our restaurant units increaseddecreased 0.5% for fiscal 2015 and were unchanged2018, decreased 3.4% for fiscal 20142017, and increased 0.7% for fiscal 2013.

2016.



The following table shows the same-store sales change for comparative historical quarters:

   Fiscal 2015   Fiscal 2014   Fiscal 2013 
Increase (Decrease)  Q4   Q3   Q2   Q1   Q4   Q3   Q2   Q1   Q4   Q3   Q2   Q1 
Same-store sales  0.7

%

  (1.1

)%

  2.5

%

  (0.1

)%

  (1.0

)%

  0.3

%

  2.5

%

  (1.3

)%

  0.5

%

  (0.1

)%

  (0.6

)%

  0.2

%

Discontinued Operations

On March 24, 2014, the Company announced that it has initiated a plan focused on improving cash flow from the recently acquired Cheeseburger in Paradise leasehold units. This underperforming Cheeseburger in Paradise leasehold disposal plan called for five or more locations to be closed by the end of fiscal 2014. In accordance with the plan, the entire fiscal activity of the applicable locations closed after the inception of the plan has been classified as discontinued operations. Results related to these same locations have also been classified as discontinued operations for all periods presented.

 
  Fiscal 2018 Fiscal 2017 Fiscal 2016
Increase (Decrease) Q4
 Q3
 Q2
 Q1
 Q4
 Q3
 Q2
 Q1
 Q4
 Q3
 Q2
 Q1
Same-store sales 1.2% (0.9)% (3.7)% 0.8% (5.2)% (2.7)% (3.8)% (2.3)% (0.5)% (0.6)% 2.2% 1.4%

RESULTS OF OPERATIONS 

Fiscal 20152018 (52 weeks) compared to Fiscal 20142017 (52 weeks) and Fiscal 2016 (53 weeks)
Sales

Sales

  

Fiscal Year

2015 Ended

  

Fiscal Year

2014 Ended

  

Fiscal 2015 vs

Fiscal 2014

  

Fiscal Year

2013 Ended

  

Fiscal 2014 vs

 Fiscal 2013

 

($000s)

 

August 26,

2015

  

August 27,

2014

  

Increase/

(Decrease)

  

August 28,

2013

  

Increase/

(Decrease)

 
  (52 weeks)  (52 weeks)  (52 vs 52 weeks)  

(52 weeks)

  

(52 vs 52 weeks)

 
                     

Restaurant sales

 $370,192  $368,267   0.5

%

 $360,001   2.3

%

Culinary contract services

  16,401   18,555   (11.6

)%

  16,693   11.2

%

Franchise revenue

  6,961   7,027   (0.9

)%

  6,937   1.3

%

Vending revenue

  531   532   (0.3

)%

  565   (5.7

)%

Total

 $394,085  $394,381   (0.1

)%

 $384,196   2.7

%

 Fiscal Year 2018 Ended Fiscal Year 2017 Ended Fiscal 2018 vs Fiscal 2017 Fiscal Year 2016 Ended Fiscal 2017 vs Fiscal 2016
($000s)August 29, 2018 August 30, 2017 Higher/(Lower) August 31, 2016 Higher/(Lower)
 (52 weeks) (52 weeks) (52 vs 52 weeks) (53 weeks) (52 vs 53 weeks)
Restaurant sales$332,518
 $350,818
 (5.2)% $378,111
 (7.2)%
Culinary contract services25,782
 17,943
 43.7 % 16,695
 7.5 %
Franchise revenue6,365
 6,723
 (5.3)% 7,250
 (7.3)%
Vending revenue531
 547
 (2.9)% 583
 (6.2)%
TOTAL SALES$365,196
 $376,031
 (2.9)% $402,639
 (6.6)%
Total company sales decreased approximately $0.3$10.8 million, or 0.1%2.9%, in fiscal 20152018 compared to fiscal 2014,2017, consisting primarily of a $2.2an approximate $18.3 million decrease in restaurant sales, an approximate $7.8 million increase in Culinary contract services sales, offset by a $1.9an approximate $0.4 million increasedecrease in restaurant sales. The other components of total sales are franchise revenue, and less than a $0.1 million decrease in vending revenue.


Total company sales increased $10.2decreased approximately $26.6 million, or 2.7%6.6%, in fiscal 20142017 compared to fiscal 2013,2016, consisting primarily of an $8.3approximate $27.3 million decrease in restaurant sales, an approximate $0.5 million decrease in franchise revenue, an approximate $1.2 million increase in restaurantCulinary contract service sales, and a $1.9less than $0.1 million increasedecrease in culinary contract service sales. The other componentsvending revenue. Fiscal 2016 contained one additional week of operations during which approximately $6.7 million in restaurant sales were generated and approximately $7.1 million in total sales are franchise revenue and vending revenue.

were generated.

The Company operates with three reportable operating segments: Company-owned restaurants, franchise operations,Restaurants, Franchise Operations, and Culinary Contract Services.

Company-Owned Restaurants

Restaurant Sales

Restaurant Brand

 

Fiscal

2015

($000s)

  

Fiscal

2014

($000s)

  

Fiscal 2015 H/(L)

Than Fiscal 2014

 
      

$ Amount

  

% Change

 

Luby’s Cafeterias

 $226,970  $231,131  $(4,161

)

  (1.8

)%

Fuddruckers

  101,290   94,101   7,189   7.6

%

Combo locations

  23,734   10,603   13,131   123.8

%

Cheeseburger in Paradise

  18,198   31,515   (13,317

)

  (42.3

)%

Koo Koo Roo

     917   (917

)

  (100.0

)%

Total Restaurant Sales

 $370,192  $368,267  $1,925   0.5

%

Restaurant BrandFiscal Year 2018 Ended Fiscal Year 2017 Ended Fiscal 2018 vs Fiscal 2017 Fiscal Year 2016 Ended Fiscal 2017 vs Fiscal 2016
 August 29, 2018 August 30, 2017 Higher/(Lower) August 31, 2016 Higher/(Lower)
 (52 weeks) (52 weeks) (52 vs 52 weeks) (53 weeks) (52 vs 53 weeks)
Luby’s Cafeterias$210,972
 $214,976
 (1.9)% $229,880
 (6.5)%
Fuddruckers Restaurants87,618
 98,115
 (10.7)% 106,456
 (7.8)%
Combo locations20,886
 21,304
 (2.0)% 23,107
 (7.8)%
Cheeseburger in Paradise13,042
 16,423
 (20.6)% 18,668
 (12.0)%
Restaurant Sales$332,518
 $350,818
 (5.2)% $378,111
 (7.2)%


Total restaurant sales increaseddecreased approximately $1.9$18.3 million in fiscal 20152018 compared to fiscal 2014.2017. The increasedecrease in restaurant sales included a $13.1an approximate $4.0 million increasedecrease in sales at stand-alone Luby’s Cafeterias, an approximate $10.5 million decrease in sales at stand-alone Fuddruckers restaurants, an approximate $0.4 million decrease in sales from Combo locations, and a $7.2 million increase in sales at stand-alone Fuddruckers restaurants, mostly offset by a $13.3an approximate $3.4 million decrease at sales from our Cheeseburger in Paradise restaurants and a $4.2restaurants.

The approximate $4.0 million decrease in sales at stand-alone Luby’s Cafeterias. Fiscal 2014 also includedreflects the reduction of eight operating restaurants, partially offset by a $0.91.5% increase in same-store stand-alone Luby's Cafeteria sales. The 1.5% increase in same-store sales includes a 7.8% increase in average spend per guest partially offset by a 5.8% decrease in guest traffic.

The approximate $10.5 million decrease in sales contributionat stand-alone Fuddruckers restaurants reflects a net reduction of 15 operating restaurants and a 3.6% decrease in same-store stand-alone Fuddruckers sales. The 3.6% decrease in same-store sales includes a 8.2% decrease in guest traffic partially offset by a 5.0% increase in average spend per guest.

The approximate $0.4 million decrease in sales from Koo Koo RooCombo locations that ceased operations prior to startreflects a 2.0% decrease in sales at the six locations in operation throughout fiscal 2018 and fiscal 2017.

The approximate $3.4 million decrease in sales from our Cheeseburger in Paradise reflects a 11.0% decrease in same-store sales (seven locations in the first three fiscal quarters of fiscal 2015.2018 and two stores in the fourth quarter of fiscal 2018). The $13.1closure of six stores reduced sales by approximately $2.1 million increase in Combo locationwhereby five of the six closures took place near the end of fiscal 2018.

Total restaurant sales reflects a greater number of weeks of operations for these locationsdecreased approximately $27.3 million in fiscal 20152017 compared to fiscal 2014 as our Combo locations grew from one at the beginning of fiscal 2014 to a total of six locations by the third quarter fiscal 2015.2016. The $7.2decrease in restaurant sales included an approximate $14.9 million increasedecrease in sales at Fuddruckers includes a $5.2stand-alone Luby’s Cafeterias, an approximate $8.4 million increasedecrease in sales at seven locations that were previously operated as one of our other restaurant brands (six previously operated as Cheeseburgerstand-alone Fuddruckers restaurants, an approximate $1.8 million decrease in Paradisesales from Combo locations, and one previously operated as a Koo Koo Roo location). The $13.3an approximate $2.2 million decrease at sales from our Cheeseburger in Paradise restaurants primarilyrestaurants. The approximate $27.3 million decrease in total restaurant sales reflects fewercomparison to fiscal 2016 which included one additional week of operations. Fiscal 2017 was comprised of a typical 52 weeks of operation for this brand in fiscal 2015 compared to fiscal 2014 as 15 Cheeseburger in Paradise in restaurants were closed for conversion or disposal at various points2016 which was comprised of 53 weeks. The additional week of operations in fiscal 2014. 2016 generated approximately $6.7 million in restaurant sales.

The $4.2approximate $14.9 million decrease in sales at our stand-alone Luby’s Cafeterias primarily reflects the closurethat fiscal 2016 included one additional week of three locationsoperations which generated approximately $4.1 million in sales in fiscal 2014 and one location2016, a 3.3% decrease in fiscal 2015, partially offset by the opening of one new location in fiscal 2014same-store stand-alone Luby's Cafeteria sales, and a 0.6% increasereduction of six operating restaurants. The 3.3% decrease in same-store Luby’s Cafeteria sales.


On a same store basis, restaurant sales increased 0.5% for fiscal 2015 compared to fiscal 2014. Same store sales at our Luby’s Cafeterias increased 0.6% and same store sales at our Fuddruckers restaurants increased 1.1% in fiscal 2015 compared to fiscal 2014, while same store sales at our Cheeseburger in Paradise location decreased 2.9% and our one Combo included in the same-store group decreased 1.8%. The 0.6% increase in same store sales at our Luby’s Cafeteria restaurants includes a 1.6% increase in average guest spend offset by a 1.0%5.6% decrease in guest traffic for fiscal 2015 compared to fiscal 2014. The 1.1% increase in same-store sales at our Fuddruckers restaurants reflects anpartially offset by a 2.3% increase in average guest spend with a constant level of guest traffic for fiscal 2015 compared to fiscal 2014.

Restaurant sales increased approximately $8.3 million in fiscal 2014 compared to fiscal 2013. per guest.


The increase in restaurant sales included a $5.3 million increase in sales from Combo locations, a $4.0 million increase in sales at stand-alone Luby’s Cafeteria branded restaurants and a $1.4approximate $8.4 million decrease in sales at stand-alone Fuddruckers restaurants. Also includedrestaurants includes approximately $1.9 million in sales generated in the additional week in fiscal 2016, a 1.8% decrease in same-store stand-alone Fuddruckers sales, and a net reduction of six operating restaurants. The 1.8% decrease in same-store sales includes a 4.6% decrease in guest traffic partially offset by a 2.8% increase in restaurantaverage spend per guest.

The approximate $1.8 million decrease in sales isfrom Combo locations includes approximately $0.4 million in sales generated in the additional week in fiscal 2016 and a $1.95.3% decrease in sales at the six locations in operation throughout fiscal 2016 and fiscal 2017.

The approximate $2.2 million increase atdecrease in sales from our Cheeseburger in Paradise restaurants which primarily reflects more weeks of operation for this brandincludes approximately $0.3 million in sales generated in the additional week in fiscal 2014 compared to fiscal 2013;2016 and a $1.6 million10.5% decrease in sales at our Koo Koo Roo brand reflecting fewer weeks ofthe eight locations in operation for this brand inthroughout fiscal 2014 compared to2016 and fiscal 2013.

On a same store basis, restaurant sales were unchanged for fiscal 2014 compared to fiscal 2013. Same store sales at our Luby’s Cafeteria restaurants increased 1.4% in fiscal 2014 compared to fiscal 2013 while same store sales at our Fuddruckers restaurants decreased 3.5%. The increase in same store sales at our Luby’s Cafeteria restaurants reflects the benefits realized from remodeled stores and the relocation of one store into a newly constructed building on a pad site in front of the previous mall location as well as favorable customer responses to our new and existing menu offerings. The decline in same-store sales at our Fuddruckers restaurants partially reflects a continued very competitive burger segment of the restaurant industry despite increased marketing efforts and service improvements. The decrease in same store sales followed three years of increasing same stores for the Fuddruckers brand.

2017.




Cost of Food

  

Fiscal Year

2015Ended

  

Fiscal Year

2014 Ended

  

Fiscal 2015

vs

Fiscal 2014

  

Fiscal Year

2013 Ended

  

Fiscal 2014

vs

Fiscal 2013

 

($000s)

 

August 26,

2015

  

August 27,

2014

  

Increase/

(Decrease)

  

August 28,

2013

  

Increase/

(Decrease)

 
  

(52 weeks)

  (52 weeks)  

(52 vs 52 weeks)

  

(52 weeks)

  

(52 vs 52 weeks)

 
                     

Cost of food

 $107,053  $106,254   0.8

%

 $103,052   3.1

%

As a percent of restaurant sales

  28.9

%

  28.9

%

  0.0

%

  28.6

%

  0.3

%

 Fiscal Year 2018 Ended Fiscal Year 2017 Ended Fiscal 2018 vs Fiscal 2017 Fiscal Year 2016 Ended Fiscal 2017 vs Fiscal 2016
($000s)August 29, 2018 August 30, 2017 Higher/(Lower) August 31, 2016 Higher/(Lower)
 (52 weeks) (52 weeks) (52 vs 52 weeks) (53 weeks) (52 vs 53 weeks)
Cost of food$94,238
 $98,714
 (4.5)% $106,980
 (7.7)%
As a percentage of restaurant sales28.3% 28.1% 0.2 % 28.3% (0.2)%
Cost of food, which is comprised of the cost associated with the sale of food and beverage products that are consumed while dining in our restaurants, as take-out, and as catering. Cost of food increaseddecreased approximately $0.8$4.5 million, or 0.8%4.5%, in fiscal 20152018 compared to fiscal 2014.2017. Cost of food is variable and generally fluctuates with sales volume. As a percentage of restaurant sales, food costs was 28.9%increased 0.2% to 28.3% in fiscal 2015 and2018 compared to 28.1% in fiscal 2014.2017. The Cost of food as percentage of sales was unchanged as we were able to offsetimpacted by several offsetting factors: (1) higher food commodity costs driven in large part by higher freight charges and (2) changes in product offerings (for a portion of the fiscal year) with generally higher food ingredient costs, partially offset by (3) higher menu price increasespricing.
Cost of food decreased approximately $8.3 million, or 7.7%, in fiscal 2017 compared to fiscal 2016. Cost of food is variable and generally fluctuates with sales volume. As a percentage of restaurant sales, food costs decreased 0.2%% to 28.1%% in fiscal 2017 compared to 28.3% in fiscal 2016. The Cost of food as percentage of sales decreased with lower average food commodity costs, higher realized average menu prices, and continued careful food cost controls. At our Luby’s Cafeterias we experienced an approximate 3% increase1% decrease in the cost of our basket of food commodity purchases, occurring as a result of significantdecreases in the cost in our primary commodities of beef and poultry as well as in our other commodities of eggs and oils and shortenings partially offset by increases in the cost of seafood, dairy and butter, and fresh produce. At our Fuddruckers, the cost of our basket of food commodity purchases was stable, with modest increases in the cost of beef, cheese and to a lesser extent poultrydairy, and eggs, partiallyproduce offset by the reductionsdecreases in the cost of seafood, cheese, oilspoultry, pork, and shortening. Average spend per Luby’s Cafeteria guest increased 1.6% as the result of selected menu price increases and changesdough used in the mixproduction of menu items offered and selected by our guests, thus offsetting the higher food commodity costs. At our Fuddruckers restaurants we experienced an approximate 8% increase in our basket of food commodity purchases, with significant increases in the cost of beef having the greatest impact. Our cost of food, however, was also impacted by significantly higher poultry, and eggs costs, partially offset by lower costs for seafood, pork, and oils and shortenings. Average spend per Fuddruckers guest increased 1.1% as the result of selected menu price increases and changes in the mix of menu items offered and selected by our guests which partially offset the higher food commodity costs.

Cost of food increased approximately $3.2 million, or 3.1%, in fiscal 2014 compared to fiscal 2013. Cost of food is variable and generally fluctuate with sales volume. As a percentage of restaurant sales, food costs increased 0.3% to 28.9% in fiscal 2014 compared to 28.6% in fiscal 2013. The Cost of food as percentage of sales increased primarily from higher food commodity costs which impacted each of our restaurant brands. At our Luby’s Cafeteria restaurants we were able to offset a 3% increase in our basket of food commodity purchases with effective food controls on the cafeteria line and managing the mix of menu items offered by us and selected by our guests. The 3% increase in our basket of food commodity purchases at our Luby’s Cafeteria restaurants occurred as a result of commodity price increase in beef, poultry, dairy, butter, and cheese; these increases were partially offset by decrease in seafood and oils and shortenings. At Fuddruckers, our basket of food commodity purchases also increased 3%, driven almost entirely from beef prices increasing approximately 10% for the fiscal year as beef prices spiked in the last several months of fiscal 2014. Cost of food as a percentage of sales increased 60 basis points at our Fuddruckers restaurants and are attributed to this increase in food commodity prices offset by careful control of food product.

buns.


 

Payroll and Related Costs

  

Fiscal Year

2015 Ended

  

Fiscal Year

2014 Ended

  

Fiscal 2015

vs

Fiscal 2014

  

Fiscal Year

2013 Ended

  

Fiscal 2014

vs

Fiscal 2013

 

($000s)

 

August 26,

2015

  

August 27,

2014

  

Increase/

(Decrease)

  

August 28,

2013

  

Increase/

(Decrease)

 
  

(52 weeks)

  (52 weeks)  

(52 vs 52 weeks)

  

(52 weeks)

  

(52 vs 52 weeks)

 
                     

Payroll and related costs

 $127,694  $126,046   1.3

%

 $122,865   2.6

%

As a percent of restaurant sales

  34.5

%

  34.2

%

  0.3

%

  34.1

%

  0.1

%

 Fiscal Year 2018 Ended Fiscal Year 2017 Ended Fiscal 2018 vs Fiscal 2017 Fiscal Year 2016 Ended Fiscal 2017 vs Fiscal 2016
($000s)August 29, 2018 August 30, 2017 Higher/(Lower) August 31, 2016 Higher/(Lower)
 (52 weeks) (52 weeks) (52 vs 52 weeks) (53 weeks) (52 vs 53 weeks)
Payroll and related costs$124,478
 $125,997
 (1.2)% $132,960
 (5.2)%
As a percentage of restaurant sales37.4% 35.9% 1.5 % 35.2% 0.7 %
Payroll and related costs includes restaurant-level hourly wages, including overtime pay, and pay while training, as well as management salaries and incentive payments. Payroll and related costs also include the payroll taxes, workers’ compensation expense, group health insurance costs, and 401(k) matching expense for all restaurant-level hourly and management employees. Payroll and related costs increaseddecreased approximately $1.6$1.5 million, or 1.3%1.2%, in fiscal 20152018 compared to fiscal 2014.2017 due in part to (1) operating 29 fewer restaurants (net reduction of eight restaurants in fiscal 2017 and reduction of 21 restaurants in fiscal 2018); partially offset by (2) an approximate $1.0 million increase in workers' compensation expense; and (3) higher average wage rates reflective of market pressures. Payroll and related costs as a percentage of restaurant sales increased 0.3%,1.5% due to (1) primarily as a resultthe fixed cost component of higher management labor costs as management positions were filled to ensure management coverage necessary to meet our guest service levels andwith lower same-store sales levels; (2) due to higher average management wages.

hourly wage rates reflective of market pressures; and (3) an approximate $1.0 million increase in workers' compensation expense.



Payroll and related costs increaseddecreased approximately $3.2$7.0 million, or 2.6%5.2%, in fiscal 20142017 compared to fiscal 2013. Hourly labor costs increased approximately $0.9 million2016 due in part to (1) operating ten fewer restaurants; (2) an additional week of operations in fiscal 2014 compared to fiscal 2013 due to (1) the addition of four new restaurants2016; (3) an approximate $0.7 million decrease in the side-by-side Luby’s Cafeterias and Fuddruckers configuration; (2) more operating weeks for the Cheeseburger in Paradise brand and (3) higher group health insurance costsworkers' compensation expense; partially offset by (4) the closure of four Luby’s Cafeteria restaurants and (5) continued enhanced labor scheduling processes at each of our restaurant brands with Fuddruckers realizing the greatest impact from these improvements. Management labor costs increased approximately $2.3 million in fiscal 2014 compared to fiscal 2013 due to the store openings and increased operating weeks for the Cheeseburger in Paradise brand, offset by store closures as enumerated above.higher average wage rates. Payroll and related costs also included an approximate $0.4 million increase in group health insurance costs. Asas a percentage of restaurant sales payroll and relatedincreased 0.7% due to (1) the fixed cost component of labor costs increased 0.1% to 34.2% in fiscal 2014 compared to 34.1% in fiscal 2013.

(mainly management labor) with lower same-store sales levels; (2) higher average hourly wage rates reflective of market pressures; (3) higher average restaurant management compensation; partially offset by (4) lower workers' compensation insurance expense.


Other Operating Expenses

   

Fiscal Year

2015 Ended 

   

Fiscal Year

2014 Ended 

   

Fiscal 2015

vs

Fiscal 2014 

   

Fiscal Year

2013 Ended 

   

Fiscal 2014

vs

Fiscal 2013

 
($000s)  

August 26,

2015

   

August 27,

2014

   

Increase/

(Decrease)

   

August 28,

2013

   

 Increase/

(Decrease)

 
   (52 weeks)   (52 weeks)    (52 vs 52 weeks)    (52 weeks)    (52 vs 52 weeks) 
                     

Other operating expenses

 $63,090  $61,700   2.3

%

 $58,985   4.6

%

As a percent of restaurant sales

  17.0

%

  16.8

%

  0.2

%

  16.4

%

  0.4

%

 Fiscal Year 2018 Ended Fiscal Year 2017 Ended Fiscal 2018 vs Fiscal 2017 Fiscal Year 2016 Ended Fiscal 2017 vs Fiscal 2016
($000s)August 29, 2018 August 30, 2017 Higher/(Lower) August 31, 2016 Higher/(Lower)
 (52 weeks) (52 weeks) (52 vs 52 weeks) (53 weeks) (52 vs 53 weeks)
Other operating expenses$62,286
 $61,924
 0.6% $60,961
 1.6%
As a percentage of restaurant sales18.7% 17.7% 1.0% 16.1% 1.6%
Other operating expenses primarily include restaurant-related expenses for utilities, repairs and maintenance, advertising, insurance, and services. Other operating expenses increased approximately $1.4$0.4 million, or 2.3%0.6%, in fiscal 20152018 compared to fiscal 2014.2017. As a percentage of restaurant sales, Other operating expenses increased 0.2%1.0% to 17.0 %18.7% in fiscal 20152018 compared to 16.8%17.7% in fiscal 2014.2017. The 0.2% increase in Other operating expenses as a percentage of restaurant sales was due to a 0.5% increase in repairs and maintenance cost and a 0.1% increase in marketing and advertising costs, partially offset by a decrease of 0.4% in utilities costs as a percentage of restaurant sales due to lower average utility rates.


Other operating expenses increased approximately $2.7 million, or 4.6%, in fiscal 2014 compared to fiscal 2013. As a percentage of restaurant sales, Other operating expenses increased 0.4% to 16.8% in fiscal 2014 compared to 16.4% in fiscal 2013. The 0.4%1.0% increase in Other operating expenses as a percentage of restaurant sales was due to (1) a 0.5% increase in restaurant supplies related to efforts within fiscal 2018 to refresh, restock, and upgrade kitchen and dining room supplies in order to enhance the guest experience as well as increased food-to-go packaging costs with the growth in food-to-go sales through third party delivery services; (2) a 0.3% increase in repairs and maintenance expense; (3) a 0.2% increase in utilities expense on higher electricity utility rates; and (4) 0.2% increase in other expenses primarily related to post-hurricane Harvey related costs as well as increased reserves for doubtful accounts.


Other operating expenses increased approximately $1.0 million, or 1.6%, in fiscal 2017 compared to fiscal 2016. As a percentage of restaurant sales, dueOther operating expenses increased 1.6% to higher average utility rates; (2) a 0.3%17.7% in fiscal 2017 compared to 16.1% in fiscal 2016. The 1.6% increase in restaurant services and other restaurantOther operating expenses as a percentage of restaurant sales was due primarily to higher credit card transaction fees from increased credit card usage; increased restaurant network and technology costs; offset by (3)(1) a 0.2% decrease0.6% increase in restaurant services including higher computer network connectivity, point of sale software, food-to-go delivery charges to third parties, increased store security costs, and higher fees associated with armored car services; (2) a 0.6% increase in repairs and maintenance costs; (3) a 0.3% increase in utilities costs due to higher average utility rates; and certain property insurance costs as(4) a percentage of0.1% increase in restaurant sales.

supplies expense with typical inflationary cost increases on lower same-store sales volumes.



Occupancy Costs

   

Fiscal Year

2015 Ended  

   

Fiscal Year

2014 Ended 

   

Fiscal 2015

vs 

Fiscal 2014

   

Fiscal Year

2013 Ended

   

Fiscal 2014

vs

Fiscal 2013

 
($000s)  

August 26,

2015

   

August 27,

2014

   

Increase/

(Decrease)

   

August 28,

2013

   

Increase/

(Decrease)

 
   (52 weeks)   (52 weeks)   (52 vs 52 weeks)   (52 weeks)    (52 vs 52 weeks) 
                     

Occupancy cost

 $20,977  $21,881   (4.1

)%

 $21,680   0.9

%

As a percent of restaurant sales

  5.7

%

  5.9

%

  (0.2

)%

  6.0

%

  (0.1

)%

 Fiscal Year 2018 Ended Fiscal Year 2017 Ended Fiscal 2018 vs Fiscal 2017 Fiscal Year 2016 Ended Fiscal 2017 vs Fiscal 2016
($000s)August 29, 2018 August 30, 2017 Higher/(Lower) August 31, 2016 Higher/(Lower)
 (52 weeks) (52 weeks) (52 vs 52 weeks) (53 weeks) (52 vs 53 weeks)
Occupancy costs$20,399
 $21,787
 (6.4)% $22,374
 (2.6)%
As a percentage of restaurant sales6.1% 6.2% (0.1)% 5.9% 0.3 %
Occupancy costs include property lease expense, property taxes, and common area maintenance charges, property insurance, and permits and licenses. Occupancy costs decreased $0.9$1.4 million in fiscal 20152018 compared to fiscal 2014, in large part2017 due to closureprimarily operating 29 fewer restaurants (net reduction of eight restaurants in fiscal 2017 and reduction of 21 restaurants in fiscal 2018). Of the net reduction of 29 restaurants, 19 were properties that we leased.


Occupancy costs decreased $0.6 million in fiscal 2017 compared to fiscal 2016 due to primarily operating seven fewer leased locations.restaurant locations (one of which is now sub-leased to a Fuddruckers franchise operator) and one additional week of operations in fiscal 2016. The occupancy costs of closed locations previously operated as Cheeseburger in Paradise, but selected for conversion to Fuddruckers restaurants in fiscal 20152017 or beyond have beenwere classified as a pre-opening costscost and reflected in our Opening costs expense line.

Occupancy costs increased approximately $0.2 million in fiscal 2014 compared to fiscal 2013, in large part due to higher property tax expenses at certain locations offset by lower overall rental expenses. The lower overall rental expenses were due in large part to closing three Koo Koo Roo branded restaurant locations and recording accelerated rental expense in prior fiscal 2013. Permitting and licensing expenses were also reduced in fiscal 2014 compared to fiscal 2013.




 

Franchise Operations Segment Profit

   

Fiscal Year

2015 Ended 

   

Fiscal Year

2014 Ended 

   

Fiscal 2015

vs

Fiscal 2014 

   

Fiscal Year

2013 Ended 

   

Fiscal 2014

vs

Fiscal 2013

 
($000s)  

August 26,

2015

   

August 27,

2014

   

Increase/

(Decrease)

   

August 28,

2013

   

Increase/

(Decrease)

 
   (52 weeks)   (52 weeks)   (52 vs 52 weeks)   (52 weeks)   (52 vs 52 weeks) 
                     

Franchise revenue

 $6,961  $7,027   (0.9

)%

 $6,937   1.3

%

Cost of franchise revenue

  1,668   1,733   (3.7

)%

  1,629   6.3

%

Franchise profit

 $5,293  $5,294   (0.0

)%

 $5,308   (0.2

)%

Franchise profit as percent of franchise revenue

  76.0

%

  75.3

%

  0.7

%

  76.5

%

  (1.2

)%

 Fiscal Year 2018 Ended Fiscal Year 2017 Ended Fiscal 2018 vs Fiscal 2017 Fiscal Year 2016 Ended Fiscal 2017 vs Fiscal 2016
($000s)August 29, 2018 August 30, 2017 Higher/(Lower) August 31, 2016 Higher/(Lower)
 (52 weeks) (52 weeks) (52 vs 52 weeks) (53 weeks) (52 vs 53 weeks)
Franchise revenue$6,365
 $6,723
 (5.3)% $7,250
 (7.3)%
Cost of franchise operations1,528
 1,733
 (11.8)% 1,877
 (7.7)%
Franchise profit$4,837
 $4,990
 (3.1)% $5,373
 (7.1)%
Franchise profit as percent of Franchise revenue76.0% 74.2% 1.8 % 74.1% 0.1 %
We offer franchises for the Fuddruckers brand. Franchises are sold in markets where expansion is deemed advantageous to the development of the Fuddruckers concept and system of restaurants. Franchise revenue includes (1) franchise royalties and (2) franchise and area development agreement fees. Franchise revenue decreased $66 thousandapproximately $0.4 million, or 5.3%, in fiscal 20152018 compared to fiscal 20142017 which included a $131 thousandan approximate $0.2 million decrease in franchise royalties offset by a $65 thousand increaseand an approximate $0.2 million decrease in franchise fees. During the year,The approximate $0.2 million decrease in franchise royalties was due primarily to a net decrease of eight franchise locations openedin operation and there were tena 1.4% decrease in domestic franchise units that closed on a permanent basissame-store sales. The approximate $0.2 million decrease in franchise fees was due to fewer openings and two that were converted to company operated locations. We ended fiscal 2015lower fees earned associated with 106 Fuddruckersfranchisees not fully achieving timetables for store openings under development agreements. Cost of franchise restaurants.


Franchise revenue increased $91 thousandoperations decreased approximately $0.2 million, or 11.8%, in fiscal 20142018 compared to fiscal 2013 which included2017, primarily as a $125 thousand increaseresult of decreased overhead cost to support franchise operations and the opening of fewer franchise locations. Franchisees opened four locations in fiscal 2018 (two in Florida, one in Pennsylvania, and one in Mexico). Franchise profit, defined as Franchise revenue less Cost of franchise feesoperations, decreased approximately $0.2 million in fiscal 2018 compared to fiscal 2017. During fiscal 2018, we opened the four franchise locations enumerated above and a $34 thousand decrease in franchise royalties. During the year, there were 12 franchise units that closed on a permanent basis. We ended fiscal 20142018 with 110105 Fuddruckers franchise restaurants. Two franchisee-operated


Franchise revenue decreased approximately $0.5 million in fiscal 2017 compared to fiscal 2016 which included an approximate $0.6 million decrease in franchise royalties, partially offset by an approximate $0.1 million increase in franchise fees. Cost of franchise operations decreased approximately $0.1 million, or 7.7%%, in fiscal 2017 compared to fiscal 2016, primarily as a result of decreased overhead cost to support franchise operations and the opening of fewer franchise locations. Franchisees opened four international locations (one in Panama; one in Colombia; one in the Dominican Republic; and one in Canada) in fiscal 2017. Franchise profit, defined as Franchise revenue less Cost of franchise operations, decreased approximately $0.4 million in fiscal 2017 compared to fiscal 2016. During fiscal 2017, we opened the eight franchise locations enumerated above and two franchisee-operated locationsthere were also eight franchise units that closed subsequent to the end of theon a permanent basis. We ended fiscal year on August 27, 2014. As of November 4, 2014, we had 1102017 with 113 Fuddruckers franchise restaurants.




Culinary Contract Services

CCS Segment Profit

Culinary Contract Services is a business line servicing healthcare, higher education, and corporate dining clients.clients, government buildings, sports stadiums, and sales through retail grocery outlets. The healthcare accounts are full service and typically include in-room delivery, catering, vending, coffee service and retail dining. Retail grocery outlet sales are through H-E-B stores, a Texas-born retailer, where we sell family-sized versions of Luby's Famous Macaroni & Cheese (two varieties) and Luby's famous Fried Fish in the freezer section.



This Culinary Contract Services business linesegment varied between 22 and 28 client locations in fiscal 2018 and between 23 and 25 client locations through fiscal 2015 and between 21 and 26 client locations in fiscal 2014.2017. In fiscal 2015,2018 and fiscal 2017, we continued concentrating on clients able to enter into agreements where all operating costs are reimbursed to us and we generally charge a generally fixed fee. These agreements typically present lower financial risk to the company.  

 Fiscal Year 2018 Ended Fiscal Year 2017 Ended Fiscal 2018 vs Fiscal 2017 Fiscal Year 2016 Ended Fiscal 2017 vs Fiscal 2016
($000s)August 29, 2018 August 30, 2017 Higher/(Lower) August 31, 2016 Higher/(Lower)
 (52 weeks) (52 weeks) (52 vs 52 weeks) (53 weeks) (52 vs 53 weeks)
Culinary contract services$25,782
 $17,943
 43.7 % $16,695
 7.5%
Cost of culinary contract services24,161
 15,774
 53.2 % 14,955
 5.5%
Culinary contract profit$1,621
 $2,169
 (25.3)% $1,740
 24.7%
Culinary contract profit as percent of Culinary contract services sales6.3% 12.1% (5.8)% 10.4% 1.7%
Culinary Contract Services Revenue

  

Fiscal Year

2015 Ended

  

Fiscal Year

2014 Ended

  

Fiscal 2015

vs

Fiscal 2014

  

Fiscal Year

2013 Ended

  

Fiscal 2014

vs

Fiscal 2013

 

($000s)

 

August 26,

2015

  

August 27,

2014

  

Increase/

(Decrease)

  

August 28,

2013

  

Increase/

(Decrease)

 
  (52 weeks)  (52 weeks)  (52 vs 52 weeks)  (52 weeks)  (52 vs 52 weeks) 
                     

Culinary contract services sales

 $16,401  $18,555   (11.6)% $16,693   11.2

%

Cost of culinary contract services

  14,786   16,847   (12.2)%  15,604   8.0

%

Culinary contract profit

 $1,615  $1,708   (5.4)% $1,089   56.9

%

Culinary contract profit as percent of culinary contract sales

  9.9

%

  9.2

%

  0.6%  6.5

%

  2.7

%

Culinary Contract Servicescontract services revenue decreased $2.2increased $7.8 million, or 11.6%43.7%, in fiscal 20152018 compared to fiscal 2014. While the number of locations has varied, we believe we now operate with a stronger mix of clients.2017. The decrease$7.8 million increase in revenue was primarily due to ceasing operations(1) 15 new locations opening since the beginning of fiscal 2017 contributing a total of $10.4 million in increased sales; and (2) an increase of $0.5 million at two higher volume locations onlythat were in operation throughout fiscal 2017 and fiscal 2018; partially offset by newer smaller volume locations.

(3) the closure of nine locations which reduced sales by $3.1 million. Cost of Culinary Contract Servicesculinary contract services includes the food, payroll and related costs, other direct operating expenses associated with generating culinary contract sales, and the direct overhead costs (primarily salary and related costs) associated with the management of this business segment. Cost of Culinary Contract Services decreasedculinary contract services increased approximately $2.1$8.4 million, or 12.2%53.2%, in fiscal 20152018 compared to fiscal 20142017 due primarily to a decreasenet increase in culinary contract sales volume.volume and an increase in corporate overhead supporting the Culinary Contract Services business segment. Profit in our culinary contract servicesCulinary Contract Services business segment (defined as Culinary Contract Servicescontract cervices revenue less costCost of Culinary Contract Services)culinary contract services) decreased in dollar terms by approximately $0.1$0.5 million but increasedand decreased as a percent of Culinary contract services revenue to 6.3% in fiscal 2018 from 12.1% in fiscal 2017.

Culinary contract services revenue increased $1.2 million, or 7.5%, in fiscal 2017 compared to fiscal 2016. The $1.2 million, increase in revenue was primarily due to (1) twelve new locations opening since the beginning of fiscal 2016 contributing a total of $6.2 million in sales; partially offset by (2) the closure of nine locations which reduced sales by $4.6 million; and (3) a reduction of $0.4 million in sales from locations that were in operation throughout fiscal 2016 and fiscal 2017. Cost of culinary contract services includes the food, payroll and related costs, other direct operating expenses associated with generating culinary contract sales, and the direct overhead costs (primarily salary and related costs) associated with the management of this business segment. Cost of culinary contract services increased approximately $0.8 million, or 5.5%, in fiscal 2017 compared to fiscal 2016 due primarily to a net increase in culinary contract sales volume, partially offset by an additional week of operations in fiscal 2016. Profit in our Culinary Contract Services business segment (defined as Culinary contract cervices revenue less Cost of culinary contract services) increased in dollar terms by approximately $0.4 million and increased as a percent of Culinary contract services revenue to 9.9%12.1% in fiscal 20152017 from 9.2%10.4% in fiscal year 2014.

2016.



Opening Costs

Opening costs includes labor, supplies, occupancy, and other costs necessary to support the restaurant through its opening period. Opening costs were approximately $2.7$0.6 million in fiscal 20152018 compared to approximately $2.2$0.5 million in fiscal 2014. 2017 and approximately $0.8 million in fiscal 2016.

Opening costs of $0.6 million in fiscal 20152018 included the costre-opening costs associated with one Fuddruckers location that was damaged during Hurricane Harvey and subsequently restored and re-opened for business in fiscal 2018 as well as the carrying costs for one location where we previously operated a Cheeseburger in Paradise restaurant and one location that we lease for a potential future Fuddruckers opening.



Opening costs of $0.5 million in fiscal 2017 included the costs of opening one ComboFuddruckers location comprising a total of 2 restaurants, 9 stand-alone Fuddruckers restaurants, including one that opened just prior to the start of fiscal 2015. Opening costs in fiscal 2015 also includedand the carrying costs (mainly rent, property taxes, and utilities) for seventwo locations that were selected for possible conversion from Cheeseburger in Paradise restaurants to Fuddruckers; three of these locations opened as a Fuddruckers during fiscal 2015, two of these locations opened as a Fuddruckers subsequent to end of fiscal 2016. restaurants.

Opening costs of $0.8 million in fiscal 2014,2016 included the cost associated withcosts of opening four Combothree Fuddruckers locations comprising a total of eight restaurants, six stand-alone Fuddruckers restaurants, and one stand-alone Luby’s Cafeteria. Also included in Opening costs were the carrying costs (mainly rent, property taxes, and utilities) for property slatedtwo locations that were selected for development. Opening costspossible conversion from Cheeseburger in fiscal 2013 included the cost associated with opening one Combo location, comprising twoParadise restaurants and five stand-aloneto Fuddruckers restaurants. Also included in Opening costs are the carrying costs for property slated for development.



Depreciation and Amortization

   

Fiscal Year

2015 Ended 

   

Fiscal Year

2014 Ended 

   

Fiscal 2015

vs

Fiscal 2014 

   

Fiscal Year

2013 Ended 

   

Fiscal 2014

vs

Fiscal 2013

 
($000s)  

August 26,

2015

   

August 27,

2014

   

Increase/

(Decrease)

   

August 28,

2013

   

Increase/

(Decrease)

 
   (52 weeks)   (52 weeks)   (52 vs 52 weeks)   (52 weeks)   (52 vs 52 weeks) 
                     

Depreciation and amortization

 $21,367  $20,062   6.5

%

 $18,376   9.2

%

As a percent of total sales

  5.4

%

  5.1

%

  0.3

%

  4.8

%

  0.3

%

 Fiscal Year 2018 Ended Fiscal Year 2017 Ended Fiscal 2018 vs Fiscal 2017 Fiscal Year 2016 Ended Fiscal 2017 vs Fiscal 2016
($000s)August 29, 2018 August 30, 2017 Higher/(Lower) August 31, 2016 Higher/(Lower)
 (52 weeks) (52 weeks) (52 vs 52 weeks) (53 weeks) (52 vs 53 weeks)
Depreciation and amortization$17,453
 $20,438
 (14.6)% $21,889
 (6.6)%
As a percentage of total sales4.8% 5.4% (0.6)% 5.4% 0.0 %
Depreciation and amortization expense increased $1.3decreased $3.0 million in fiscal 20152018 compared to fiscal 20142017 due primarily to certain assets reaching the investments madeend of their depreciable lives and the removal of certain assets upon sale.
Depreciation and amortization expense decreased $1.5 million in new locations as well as the capital we have used for remodeling existing locations as well as depreciation associated with additional infrastructure and technology assets. The increase in depreciationfiscal 2017 compared to fiscal 2016 due primarily to investments made in new locations as well as the capital we have used for remodeling existing locations was mostly offset by certain existing assets reaching the end of their depreciable lives during fiscal 2015.

Depreciation and amortization expense increased $1.7 million in fiscal 2014 compared to fiscal 2013 due primarily to the investments made in new locations as well as the capital we have used for remodeling existing locations and to a lesser extent the full year impact of depreciating assets acquired with the Cheeseburger in Paradise brand in prior fiscal 2013 as well as depreciation associated with additional infrastructure and technology assets. The increase in depreciation due to investments made in new locations as well as the capital we have used for remodeling existing locations was mostly offset by certain existing assets reaching the end of their depreciable lives during fiscal 2014.

lives.


Selling, General and Administrative Expenses

   

Fiscal Year

2015 Ended 

   

Fiscal Year

2014 Ended 

   

Fiscal 2015

vs

Fiscal 2014

   

Fiscal Year

2013 Ended

   

Fiscal 2014

vs

Fiscal 2013

 
($000s)  

August 26,

2015

   

August 27,

2014

   

Increase/

(Decrease)

   

August 28,

2013

   

Increase/

(Decrease)

 
   (52 weeks)   (52 weeks)   (52 vs 52 weeks)   (52 weeks)   (52 vs 52 weeks) 
                     

Selling, general and administrative expenses

 $35,557  $36,814   (3.4)% $33,017   11.5%

Marketing and advertising expenses

  3,201   3,872   (17.3)%  3,106   24.7%

Selling, general and administrative expenses

 $38,758  $40,686   (4.7)% $36,123   12.6%

As percent of total sales

  9.8%  10.3%  (0.5)%  9.4%  0.9%

 Fiscal Year 2018 Ended Fiscal Year 2017 Ended Fiscal 2018 vs Fiscal 2017 Fiscal Year 2016 Ended Fiscal 2017 vs Fiscal 2016
($000s)August 29, 2018 August 30, 2017 Higher/(Lower) August 31, 2016 Higher/(Lower)
 (52 weeks) (52 weeks) (52 vs 52 weeks) (53 weeks) (52 vs 53 weeks)
General and administrative expenses$35,201
 $32,746
 7.5 % $36,808
 (11.0)%
Marketing and advertising expenses3,524
 5,132
 (31.3)% 5,614
 (8.6)%
Selling, general and administrative expenses$38,725
 $37,878
 2.2 % $42,422
 (10.7)%
As percent of total sales10.6% 10.1% 0.5 % 10.5% (0.4)%
Selling, general and administrative expenses include 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 increased by approximately $0.8 million, or 2.2%, in fiscal 2018 compared to fiscal 2017. The approximate $0.8 million increase in Selling, general and administrative expenses include (1) an approximate $1.9 million increase in outside professional service fees which includes increased information technology consulting to supplement our in-house information technology staff and increased spending for marketing consulting, and outside legal fees; (2) an approximate $0.8 million increase in salaries and benefits expense mostly related to one-time employee separation costs as we reduced our restaurant count and corporate overhead staffing levels; partially offset by (3) an approximate $1.6 million reduction in marketing and advertising expenses due to re-directing marketing investment away from more costly broad channels, such as television advertising, toward more focused and economical channels for our brands, such as digital media; and (4) an approximate $0.3 million reduction in corporate travel expense, corporate occupancy costs, bank charges, and other various corporate overhead costs. As a percentage of total sales, Selling, general and administrative expenses increased to 10.6% in fiscal 2018 compared to 10.1% in fiscal 2017 primarily due to net increases in the expenses enumerated above.



Selling, general and administrative expenses decreased by approximately $1.9$4.5 million, or 4.7%10.7%, in fiscal 20152017 compared to fiscal 2014. The2016. Decreases in Selling, general and administrative expenses include (1) an approximate $3.5 million decrease wasin salaries, benefits, and other compensation expenses due primarilyto reduced headcount, significantly reduced bonus and incentive expense (including an adjustment to the estimated fair value of performance awards under an incentive compensation plan), and to a lesser extent, one less operating week in fiscal 2017 compared to fiscal 2016; (2) an approximate $0.7 million decrease in corporate employee travel costs; and (3) an approximate $0.5 million reduction in marketing and advertising costs, partially offset by (4) an approximate $0.1 million increase in corporate supplies expense and other overhead expenses, net of a reduction in outside professional services costs, decreased marketing and advertising expense, lower expenditures for corporate supplies, lower health insurance costs, lower general liability insurance costs and a reduction in other corporate overhead costs; these cost reductions were partially offset by higher compensation expenses.service fees As a percentage of total sales, Selling, general and administrative expenses decreased to 9.8%10.1% in fiscal 20152017 compared to 10.3%10.5% in fiscal 20142016 primarily due to net decreases in the expenses enumerated above while total revenue remained relatively constant.

Selling, generalabove.


Provision for Asset Impairments and administrative expenses increased byRestaurant Closings

The provision for asset impairment and restaurant closings of approximately $4.6$8.9 million or 12.6% in fiscal 2014 compared2018 is primarily related to fiscal 2013. The increase was due primarilyassets impaired at 21 property locations, goodwill at three property locations, ten properties held for sale written down to an increase in salarytheir fair value, and benefits expense, outside professional services costs, technology and infrastructure costs and corporate travel costs. As a percentagereserve for 15 restaurant closings of total sales, selling, general and administrative expenses increased to 10.3% in fiscal 2014 compared to 9.4% in fiscal 2013 primarily due to increases in the expenses enumerated above increasing at a greater rate than our ability to grow total sales in fiscal 2014.

approximately $1.3 million.

Provision for asset impairments

The asset impairment of approximately $0.6$10.6 million in fiscal 2015 reflects the impairment2017 is primarily related to assets impaired at 17 property locations, goodwill at six property locations, five properties held for sale written down to their fair value, and a reserve for 10 restaurant closings of three leased Fuddruckers locations.

approximately $0.5 million.

The asset impairment of approximately $2.5$1.4 million in fiscal 20142016 reflects the(1) a $1.2 million impairment for one owned Fuddruckers location and three leased Fuddruckers locations; (2) a $0.2 million charge for restaurant closings related to three Fuddruckers locations and one Luby's Cafeteria location; and (3) a $38 thousand impairment of one operating Luby’s Cafeteria, two operating Fuddruckers restaurants, two operating Cheeseburger in Paradise restaurantsGoodwill. The $0.2 million charge for restaurant closings includes the total amount of rent and nine closed Cheeseburger in Paradise restaurants.

The asset impairmentother direct costs for the remaining period of approximately $0.6 million in fiscal 2013 is related to one property held for sale, one operating Fuddruckers restaurant and one operating Koo Koo Roo Chicken Bistro ®restaurant as well as a reductiontime the properties will be unoccupied plus the value of the estimated fair valueamount by which the rent we pay to the landlord exceeds any rent paid to us by a tenant under a sublease over the remaining period of used assets to be refurbished and reused.

the lease terms.


Net Loss (Gain)Gain on Disposition of Property and Equipment

The approximate $5.4 million net gain on disposition of property and equipment in fiscal 2018 is primarily related to the gain on the sale of 10 properties of approximately $4.9 million and approximately $1.3 million of insurance proceeds received for property and equipment damaged by Hurricane Harvey, partially offset by lease termination costs at eight restaurant location closures and routine asset retirements. 

The disposition of property and equipment in fiscal 20152017 resulted in a net gain of approximately $4.0$1.8 million, which included (1) the gain on the dispositionsale of three owned Luby’s Cafeteria locations; (2)properties where we operated a cafeteria up until the gain ontime of the sale of two owned properties which we previously leased to a tenant offset by (3)(2) normal asset retirement activity in our restaurants.

at operating locations and costs associated with disposal of assets at one leased property we operated up until the time of lease termination.


The disposition of property and equipment in fiscal 20142016 resulted in a net gain of approximately $2.4$0.7 million, which included (1) the gain on the dispositionsale of two owned Luby’s Cafeteria locationsone property where we operated a cafeteria up until the time of the sale offset by (2) normal asset retirement activity in our restaurants.

The disposition of property and equipmentactivity.

Interest Income
Interest income was $12 thousand in fiscal 2013 resulted2018 compared to $8 thousand in a net gain of approximately $1.7 million, which included (1) proceeds from the eminent domain disposition of part of a parking lot at a Luby’s Cafeteria location; (2) the gain on disposal at a Koo Koo Roo leased locationfiscal 2017, and (3) a payment received for exiting a lease at one cafeteria location priorcompared to the contractual lease expiration date offset by (4) normal asset retirement activity in our restaurants.

Interest Income

Interest income was $4 thousand in fiscal 2015 compared to $6 thousand in fiscal 2014, and compared to $9 thousand in fiscal 2013.

2016.

Interest Expense


Interest expense in fiscal 20152018 increased approximately $1.1$0.9 million compared to fiscal 2014onhigher2017 on higher average debt balances.balances and higher average interest rates inherent in our amended credit agreement and acceleration of deferred financing fees related to shortening the maturity in our amended credit agreement in the quarter ended June 6, 2018 exceeding the acceleration of deferred financing fees related to the extinguishment of debt in the quarter ended March 15, 2017. Interest expense in fiscal 20142017 increased approximately $0.3$0.2 million compared to fiscal 20132016 on marginally higher average debt balances.

balances and higher average interest rates.




Other Income (Expense), Net

Other income (expense), 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; anddiscounts; oil and gas royalty income; and dining card sales discounts. 

Other income (expense), net, was income of approximately $0.3 million in fiscal 2018 compared to expense of approximately $0.5 million in fiscal 20152017 and $1.1income of approximately $0.2 million in fiscal 2014. The decrease was2016. Other income (expense), net, increased approximately $0.8 million in fiscal 2018 compared to fiscal 2017 primarily related to (1) an increase in discountsthe fair value of our interest rate swap; and (2) higher net rental income; partially offset by (3) greater gift card related expense and comparison to sale of pre-paida fiscal 2017 reduction in our gift cards.card liability. Other income (expense), net, wasdecreased approximately $1.0$0.6 million in fiscal 2013.

2017 compared to fiscal 2016 primarily related to (1) recording a net reduction in the fair value of our interest rate swap agreement; (2) lower rental net income; and (3) a decrease in sales tax discounts as we did not participate in state tax prepayment programs to the full extent in fiscal 2017.

Taxes

The income tax benefitprovision related to continuing operations for fiscal 20152018 was approximately $1.1$7.7 million compared to an income tax benefitprovision of approximately $1.7$2.4 million for fiscal 2014.2017 and an income tax provision of approximately $4.9 million for fiscal 2016. The income tax benefitprovision in fiscal 20152018, reflects the impact of U.S. tax effectreform that is commonly referred to as Tax Cuts and Jobs Act (the "Tax Act"), of $3.2 million in deferred income taxes, and additional $4.1 million of deferred income tax provision including a valuation allowance increase and $0.4 million of current state income taxes. The income tax provision in fiscal 2017 reflects recording a deferred tax asset valuation allowance of $9.5 million partially offset by recording a tax benefit related to the pre-tax loss for the year adjusted for state income taxes and general business tax credits. The income tax provision in fiscal 2016 reflects recording a deferred tax asset valuation allowance of $6.9 million partially offset by recording a tax benefit related to the pre-tax loss for the year adjusted for state income taxes, and general business and foreign tax credits.

The incomeeffective tax expense related torate ("ETR") from continuing operations was a negative 30.6%, a negative 12.0%, and a negative 90.4% for fiscal 20132018, 2017, and 2016, respectively. The Tax Act lowered the federal statutory tax rate from 35% to 21% effective January 1, 2018. In accordance with the application of IRC Section 15, the Company's federal statutory tax rate for fiscal 2018 was $1.8 million.

25%, representing a blended tax rate for the current fiscal year. The ETR for the year ended August 29, 2018 differs from the blended federal statutory rate of 25%, due to the change in valuation allowance, the impact upon enactment of the Tax Act, the federal job credits, state income taxes, and other discrete items. The ETR for the year ended August 30, 2017 and the year ended August 31, 2016 differs from the federal statutory rate of 34% due to the change in valuation allowance, federal jobs credits, state income taxes and other discrete items.

Discontinued Operations
  
Fiscal Year Ended
($000s) 
 August 29, 2018 August 30, 2017 August 31, 2016
  (52 weeks) (52 weeks) (53 weeks)
Discontinued operating losses $(21) $(28) $(161)
Impairments (59) 
 
Gains 
 
 25
Pretax loss $(80) $(28) $(136)
Income tax benefit (expense) from discontinued operations (534) (438) 46
Loss from discontinued operations, net of income taxes $(614) $(466) $(90)
  


Discontinued Operations

  

FiscalYear Ended

 
($000s)  

August 26,
201
5

  

August 27,
201
4

  

August 28,
201
3

 
  

(52 weeks)

  

(52 weeks)

  

(52 weeks)

 
             

Discontinued operating losses

 $(1,135

)

 $(1,608

)

 $(1,268

)

Impairments

  (90

)

  (1,199

)

  (663

)

Net gains (losses)

  117   (6

)

  5 

Pretax loss

 $(1,108

)

 $(2,813

)

 $(1,926

)

Income tax benefit from discontinued operations

  406   979   540 

Loss from discontinued operations

 $(702

)

 $(1,834

)

 $(1,386

)

The loss from discontinued operations, net of income taxes was $0.7approximately $0.6 million in fiscal 20152018 compared to a loss of $1.8approximately $0.5 million in fiscal 2014.2017 and a loss of approximately $0.1 million in fiscal 2016. The loss of $0.7approximately $0.6 million in fiscal 20152018 included (1) $1.1less than $0.1 million in “carrying costs” (typically rent, property taxes, utilities, and maintenance) associated with assets that were related to discontinued operations; (2) less than $0.1 million impairment charges of approximately $0.1 million for certain assets related to discontinued operations; and (3) approximatelyan approximate $0.5 million income tax provision related to increasing the deferred tax asset valuation allowance associated with discontinued operations. The loss of $0.5 million in fiscal 2017 included (1) less than $0.1 million gain on sale of assetin “carrying costs” associated with assets that were related to discontinued operations; offset by (4) aoperations and (2) an approximate $0.4 million income tax benefitprovision related to increasing the deferred tax asset valuation allowance associated with discontinued operations. The loss of $1.8approximately $0.1 million in fiscal 20142016 included (1) $1.6approximately $0.2 million in “carrying costs” (typically rent, property taxes, utilities, and maintenance)carrying costs associated with assets that were related to discontinued operations; partially offset by (2) impairment chargesa less than $0.1 million gain on sale of $1.2 million for certain assets that were related to discontinued operations; offset byand (3) a $1.0less than $0.1 million income tax benefit related to discontinued operations. The loss of $1.4 million in fiscal 2013 included (1) $1.3 million in “carrying costs” (typically rent, property taxes, utilities, and maintenance) associated with assets that were related to discontinued operations; (2) impairment charges of $0.6 million for certain assets related to discontinued operations; offset by (3) a $0.5 million income tax benefit related to discontinued operations.

LIQUIDITY AND CAPITAL RESOURCES

Cash and Cash Equivalents
General.

General.Our primary sources of short-term and long-term liquidity are cash flows from operations and our revolving credit facility.

Cash and cash equivalents decreasedincreased approximately $1.3$2.6 million as of the end of fiscal 20152018 compared to the end of fiscal 2014.2017. Cash provided by operatinginvesting activities of approximately $10.3$3.0 million and cash provided by financing activities of approximately $8.1 million was offset by cash used in operating activities of approximately $8.5 million.

Cash used in operating activities of approximately $8.5 million in fiscal 2018 was a decrease of approximately $18.1 million from a source of cash of approximately $9.6 million in fiscal 2017. Net cash provided by investing activities, in fiscal 2018, was approximately $3.0 million representing an approximate $6.2 million increase from net cash used in investing activities of approximately $7.0$3.2 million in fiscal 2017. Cash flows from financing activities was a source of cash, in fiscal 2018, of approximately $8.1 million and cash used in financing activitiesan increase of approximately $4.6 million.

Cash flow$14.7 million from operations was favorably impacted by increased restaurant salesthe use of cash of approximately $6.6 million in fiscal 2015 compared2017. Our total outstanding debt increased to approximately $39.5 million at the end of fiscal 2014 but unfavorably impacted by increased cost2018 from approximately $31.0 million at the end of food, payroll and related costs and other operating costs. We decreased our net borrowings from our revolving credit facility in fiscal 2015 compared to fiscal 20142017 primarily due to decreasesthe use of cash and decline in our capital expenditurescash provided by operating activities before changes in operating assets and the utilizationliabilities of netapproximately $12.3 million partially offset by proceeds from property sales. We plan to continue the level of capital expenditures necessary to keep our restaurants attractive and operating efficiently.

Cash and cash equivalents increaseddecreased approximately $1.3$0.2 million as of the end of fiscal 20142017 compared to the end of fiscal 2013.2016. Cash provided by operating activities of approximately $20.4 million and cash provided by financing activities of $22.9$9.6 million was offset by cash used in investing activities of approximately $42.0$3.2 million and cash used in financing activities of approximately $6.6 million.


Cash flow from operations was unfavorably impacted by decreased restaurant sales and increased other operating expenses in fiscal 2017 compared to fiscal 2016 but favorably impacted by increased total revenue in fiscal 2014 compared to fiscal 2013 but unfavorably impacted by increaseddecreased cost of food, payroll and related costs, occupancy costs and other operatingoccupancy costs. We increaseddecreased our net borrowings from our revolving credit2016 Credit facility in fiscal 20142017 compared to fiscal 20132016 primarily due to increasesdecreases in our capital expenditures. We plan to continueexpenditures and proceeds on the levelsale of capital expenditures necessary to keep our restaurants attractive and operating efficiently.

properties.

Our cash requirements for fiscal 20152018 consisted principally of:

payments to reduce our debt;

capital expenditures for construction, restaurant renovations and upgrades, information technology and culinary contract services development; and

working capital primarily for our company-owned restaurants and culinary contract services agreements.


capital expenditures for recurring maintenance of our restaurant property and equipment, restaurant renovations and upgrades, new construction, and information technology;
payments to reduce our debt; and
working capital primarily for our Company-owned restaurants and obligations under our CCS agreements.
 

Based upon our level of past and projected capital requirements, we expect that proceeds from the sale of assets and cash flows from operations, combined with other financing alternatives in place or available, will be sufficient to meet our capital expenditures and working capital requirements during the next twelve months.

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 servicesin our CCS business segment and franchises.Franchise Operations business segment. We also continually invest in our business through the addition of new restaurant units and refurbishment of existing restaurant units, which are reflected as long-term assets.



The following table summarizes our cash flows from operating, investing and financing activities:

  

Fiscal Year Ended

 
  

August 26,
201
5

  

August 27,
201
4

  

August 27,
201
3

 
 

(In thousands)

Total cash provided by (used in):

            

Operating activities

 $10,316  $20,439  $29,442 

Investing activities

  (7,043

)

  (42,031

)

  (35,467

)

Financing activities

  (4,560

)

  22,852   6,330 

Increase (decrease) in cash and cash equivalents

 $(1,287

)

 $1,260  $305 

  Fiscal Year Ended
  August 29, 2018 August 30, 2017 August 31, 2016
  (52 weeks) (52 weeks) (53 weeks)
  (In thousands)
Total cash provided by (used in):      
Operating activities $(8,453) $9,640
 $13,859
Investing activities 3,014
 (3,216) (13,442)
Financing activities 8,065
 (6,667) (579)
Increase (Decrease) in cash and cash equivalents $2,626
 $(243) $(162)
Operating Activities.Cash flow from operating activities decreased from a source of cash of approximately $20.4$9.6 million in fiscal 20142017 to a use of cash of approximately $10.3$8.5 million in fiscal 2015.2018. The $10.1$18.1 million decrease in operating cash provided by operating activitiesflow was primarily due to a $0.3an approximate $12.3 million decrease in cash provided by operations before changes in operating assets and liabilities and a $9.8an approximate $5.8 million decreaseincrease in cash provided byused in changes in operating assets and liabilities.

The $0.3$12.3 million decrease in cash provided by operating activities before changes in operating assets and liabilities was primarily due to a $1.0uses of cash from an approximate $12.0 million decrease total in company-owned restauranttotal segment level profit, $1.1an approximate $0.9 million increase in interest expense, an approximate $0.2 million increase in discounts on the sale of gift cards, and an approximately $0.1approximate $0.2 million decrease in CCS segment level profitsales tax discounts as a result of discontinuing the prepayment of certain sales taxes partially offset $1.9by a source of cash of an approximate $1.0 million decreaseincrease in selling, general and administrative expenses.

the fair value of our interest rate swap.


The $9.8$5.8 million decreaseincrease in cash provided byused in changes in operating assets and liabilities was primarily due to approximately $9.2an approximate $7.7 million decrease in the change of accounts payable, accrued expenses and other liabilities, approximately $1.2partially offset by an approximate $1.3 million increasedecrease in prepaid expenses and other liabilities and approximately $1.0 million increase inthe change of trade accounts receivable and other receivables, offset by approximately $1.6an approximate $0.3 million decrease in the change of food and supply inventories, and an approximate $0.3 million decrease in the change of prepaid expenses and other assets, in fiscal 20152018 compared to fiscal 2014.

2017.

Cash flow from operating activities decreased from $29.4approximately $13.8 million in fiscal 20132016 to $20.4approximately $9.6 million in fiscal 2014.2017. The $9.0$4.2 million decrease in cash flow fromprovided by operating activities was primarily due to approximately $7.2an approximate $8.3 million decrease in cash provided by operations before changes in operating assets and liabilities and approximately $1.8offset by an approximate $4.1 million decrease in cash provided byused in changes in operating assets and liabilities.

Investing Activities.We generally reinvest available cash flows from operations to develop new restaurants, maintain and enhance existing restaurants, and to support culinary contract services. Cash used by investing activities was approximately $7.0 million in fiscal 2015 compared to cash used in investing activities of approximately $42.0 million in fiscal 2014. In fiscal 2015, proceeds from disposal of assets and property held for sale was $13.3 million including $1.6 million related to discontinued operations. In fiscal 2015, purchases of property and equipment was approximately $20.4 million, including $19.7 million in capital expenditures related to company-owned restaurants and $0.7 million in corporate related capital expenditures. Company-owned restaurant capital expenditures included purchases of new equipment and new restaurant construction.CCS. Our capital expenditure program includes, among other things, investments in new restaurants, restaurant remodeling, and information technology enhancements. Company-owned restaurant capital expenditures included purchases of new equipment, restaurant renovations and upgrades and new restaurant construction.


Cash usedprovided by investing activities was approximately $42.0$3.0 million in fiscal 20142018, an increase of approximately $6.2 million compared to cash used in investing activities of approximately $35.5$3.2 million in fiscal 2013. In fiscal 2014,2017, primarily due to the proceeds from disposal of assets and property held for sale and proceeds from property and equipment insurance claims. We invested approximately $13.2 million in the purchase of property and equipment in fiscal 2018, an increase of $0.7 million from our investment of approximately $12.5 million in fiscal 2017. Proceeds from disposal of assets and property held for sale was approximately $4.1$14.2 million including $0.4in fiscal 2018, an increase of $4.9 million from proceeds of approximately $9.3 million in fiscal 2017. Proceeds on property and equipment insurance claims of approximately $2.1 million was a source of cash in fiscal 2018. The purchases of property and equipment of approximately $13.2 million in fiscal 2018 included approximately $11.1 million in capital expenditures related to discontinued operations.Company-owned restaurants, approximately $1.9 million in corporate related capital expenditures, and approximately $0.2 million in Culinary Contract Services. The purchases of property and equipment of approximately $12.5 million in fiscal 2017 included $11.4 million in capital expenditures related to Company-owned restaurants and $1.1 million in corporate related capital expenditures.


Cash used in investing activities was approximately $3.2 million in fiscal 2017 compared to cash used in investing activities of approximately $13.4 million in fiscal 2016. In fiscal 2014,2017, proceeds from disposal of assets and property held for sale was approximately $9.3 million. In fiscal 2017, purchases of property and equipment was approximately $46.2$12.5 million, including $42.5$11.4 million in capital expenditures related to company-ownedCompany-owned restaurants $3.6and approximately $1.1 million in corporate related capital expenditures and $0.1 million in capital expenditures related to CCS. Company-owned restaurant capital expenditures included purchases of new equipment and new restaurant construction. Our capital expenditure program includes, among other things, investments in new restaurants and CCS locations, restaurant remodeling, and information technology enhancements.

expenditures.

Financing Activities.Cash used in financing activities was approximately $4.6 million in fiscal 2015 and in fiscal 2014 cash provided by financing activities was approximately $22.9$8.1 million in fiscal 2018, an increase of $14.7 million from cash used in financing activities of approximately $6.6 million in fiscal 2017. Cash flows from financing activities was primarily the result of borrowings and repayments related to the 2016 Credit facility, as amended; our Revolver and our Term Loan. During fiscal 2018, cash provided by Revolver borrowings was approximately $15.6 million, our Term Loan repayments was approximately $7.0 million, cash used for debt issuance costs was approximately $0.4 million, and cash used for equity shares withheld to cover taxes was approximately $0.1 million.

In fiscal 2015,2017, we decreased debt from $42.0$37.0 million at August 27, 2014the end of fiscal 2016 to $37.5$31.0 million at August 26, 2015.the end of fiscal 2017. In fiscal 2015,2017, we paid approximately $0.3 million$652 thousand in debt issuance costs and received approximately $0.2 million in proceeds from the exercise of employee stock options.

In fiscal 2014 we increased debt from $19.2 million at August 28, 2013 to $42.0 million at August 27, 2014. In fiscal 2014, we paid approximately $0.1 million in debt issuance costs and received approximately $0.1 million in proceeds from the exercise of employee stock options.

Status of Long-Term Investments and Liquidity

costs.

STATUS OF LONG-TERM INVESTMENTS AND LIQUIDITY
At August 26, 2015,29, 2018, we did not hold any long-term investments.

Status of Trade Accounts and Other Receivables, Net

STATUS OF TRADE ACCOUNTS AND OTHER RECEIVABLES, NET
We monitor the aging of our receivables, including Fuddruckers franchising related receivables, and record provisions for uncollectability, as appropriate. Credit terms of accounts receivable associated with our CCS business vary from 30 to 45 days based on contract terms.

Working Capital

Current

WORKING CAPITAL
At fiscal year-end 2018, current assets decreased $0.8increased approximately $2.8 million including a $1.3an increase of approximately $2.6 million decrease in cash. Trade accounts and other receivables increased approximately $1.7 million while insurance receivables, food and supply inventory, and prepaid expenses increased $1.1decreased approximately $0.9 million, $0.4 million and $0.5$0.2 million, respectively. Food and supply inventories decreased $1.1 million. The $1.1$1.7 million increase in trade accounts and other receivables was primarily due to increases in receivables related to our culinary contract services. The $0.5$0.9 million increasedecrease in prepaid expenses was primarily dueinsurance receivables related to prepayment of sales taxes and discountsinsurance proceeds received on the sale of gift cards.two properties damaged by flooding during Hurricane Harvey. The $1.1$0.4 million decrease in food and supply inventory was primarily due to a reduction inlower spending for restaurant supplies.

Current liabilities decreased $5.6 million due to a $6.1supplies and food supplies on lower sales volumes and the $0.2 million decrease in accounts payableprepaid expenses was primarily due to reduction in prepayments of expenses.

At fiscal year-end 2018, current liabilities increased approximately $37.2 million due primarily to an approximate $39.3 million increase in Credit facility debt and an approximate $3.3 million increase in accrued expenses and other liabilities partially offset by an approximate $5.4 million decrease in accounts payable. The increase of $0.5 million.approximately $39.3 million in Credit facility debt was due to the reclassification of Credit facility debt from long-term to short-term due to the maturity of the loans on May 1, 2019 and the approximate $3.3 million increase in accrued expenses and other liabilities is primarily a result of lease termination costs reserves of approximately $1.5 million, self-insured medical claims reserves of approximately $0.9 million, accrued salaries and incentives of approximately $0.7 million, accrued professional fees of approximately $0.4 million, insurance claims of approximately $0.4 million, accrued interest expense of approximately $0.3 million, worker's compensation claims reserves of approximately $0.2 million, and accrued travel costs of approximately $0.1 million, partially offset by decreases in deferred income taxes of approximately $0.4 million, accrued property taxes of approximately $0.2 million, accrued legal and professional fees of approximately $0.1 million, and unredeemed gift cards of approximately $0.1 million, The $6.1$5.4 million decrease in accounts payable was due to a $1.5an approximate $1.9 million decrease in checks in transit, an approximate $3.2 million decrease in trade payables, and a $4.6an approximate $0.3 million decrease in accrued purchases. The increase of $0.5 million in accrued expenses and other liabilities is a result of increases in unredeemed gift cards of $1.3 million, taxes other than income taxes of $0.6 million partially offset by decreases in accruals for expenses in salaries and incentives of $1.1 million and income taxes, legal and other of $0.3 million.

CApital Expenditures



CAPITAL EXPENDITURES
Capital expenditures consist of purchases of real estate for future restaurant sites, culinary contract services investments, new unit construction, purchases of new and replacement restaurant furniture and equipment, and ongoing remodeling programs. Capital expenditures for fiscal 20152018 were approximately $20.4$13.2 million consisting of (1) approximately $1.1 million in information technology infrastructure maintenance and upgrade projects; (2) approximately $2.1 million in the rebuilding and refurbishing and updating of restaurants, mostly related primarily to existing restaurant remodels,restorations after hurricane and flood damage incurred in August 2017; and (3) approximately $10.0 million in recurring capital expenditures. In fiscal 2019, we expect to invest up to $8.0 million for recurring maintenance offor our existing units, investments in newrestaurant properties and information technology and new restaurant construction.investments. We expect to be able to fund all capital expenditures in fiscal 20162019 using cash flows from operations, proceeds from the sale of assets, and our available credit. In fiscal year

DEBT

Senior Secured Credit Agreement
On November 8, 2016, we expect to invest less than $20.0 million, excluding the purchase of land for development, and not to exceed $25.0 million in capital expenditures.

DEBT

Revolving Credit Facility

In August 2013, we entered into a $70.0$65.0 million revolving credit facilitySenior Secured Credit Facility with Wells Fargo Bank, National Association, as Administrative Agent and AmegyCadence Bank, National Association,NA and Texas Capital Bank, NA, as Syndication Agent. The following description summarizes the material terms of the revolving credit facility, as subsequently amended on March 21, 2014, November 7, 2014 and October 2, 2015, (the revolving credit facility is referred to as the “2013lenders (“2016 Credit Facility”Agreement”). The 20132016 Credit FacilityAgreement, prior to amendments discussed below, is governed by the credit agreement dated ascomprised of August 14, 2013a $30.0 million 5-year Revolver (the “2013 Credit Agreement”“Revolver”) among us, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as Administrative Agent, and Amegy Bank, National Association, as Syndication Agent.a $35.0 million 5-year Term Loan (the “Term Loan”). The maturity date of the 20132016 Credit FacilityAgreement is September 1, 2017.

November 8, 2021. For this section of the form 10-K, capitalized terms that are used but not otherwise defined shall have the meanings given to such terms in the 2016 Credit Agreement.

The 2013Term Loan and/or Revolver commitments may be increased by up to an additional $10 million in the aggregate.
The 2016 Credit FacilityAgreement also provides for the issuance of letters of credit in a maximuman aggregate amount equal to the lesser of $5.0 million outstandingand the Revolving Credit Commitment, which was $30 million as of August 14, 2013 and $15.0 million outstanding at any one time with prior written consent of the Administrative Agent and the Issuing Bank. At August 26, 2015, under the 2013November 8, 2016. The 2016 Credit Facility, the total available borrowing capacity was up to $30.7 million after applying the Lease Adjusted Leverage Ratio limitation.


Pursuant to the October 2, 2015 amendment, the total aggregate amount of the lenders’ commitments was lowered to $60.0 million from $70.0 million. After applying the Lease Adjusted Leverage Ratio Limitation, the available borrowing capacity was $20.7 million.

The 2013 Credit FacilityAgreement is guaranteed by all of our present subsidiaries and will be guaranteed by our future subsidiaries. In addition to the bank’s increased commitment under the 2013 Credit Agreement, it may be increased to a maximum commitment of $90.0 million.

At any time throughout the term of the 20132016 Credit Facility,Agreement, we have the option to elect one of two basisbases of interest rates. One interest rate option is the greaterhighest of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.50% and (c) 30-day LIBOR plus 1%, or (b) prime, plus, in eithereach case, an applicable spread thatthe Applicable Margin, which ranges from 0.75%1.50% to 2.25%2.50% per annum. The other interest rate option is LIBOR plus the London InterBank Offered Rate plus a spread thatApplicable Margin, which ranges from 2.50% to 4.00%3.50% per annum. The applicable spreadApplicable Margin under each option is dependent upon the ratio of our debt to EBITDAConsolidated Total Lease Adjusted Leverage Ratio ("CTLAL") at the most recent quarterly determination date.

The Term Loan amortizes 7.0% per year (35.0% in 5 years) which includes the quarterly payment of principal. As of August 30, 2017, the Company has prepaid its required principal payments through the second calendar quarter of 2019. On December 14, 2016, we entered into an interest rate swap with a notional amount of $17.5 million, representing 50% of the initial outstanding Term Loan.
We are obligated to pay to the Administrative Agent for the account of each lender a quarterly commitment fee based on the average daily unused amount of the commitment of such lender, ranging from 0.30% to 0.40%0.35% per annum depending on the Total Leverage RatioCTLAL at the most recent quarterly determination date.

The proceeds of the 20132016 Credit FacilityAgreement are available for our general corporate purposes and general working capital purposes and capital expenditures.

Borrowingsus to (i) pay in full all indebtedness outstanding under the 2013 Credit Facility are subject to mandatoryAgreement as of November 8, 2016, (ii) pay fees, commissions, and expenses in connection with our repayment with the proceeds of sales of certain of our real property, subject to certain exceptions.

The 2013 Credit Facility is secured by a perfected first priority lien on certain of our real property and all of the material personal property owned by us or any of our subsidiaries, other than certain excluded assets (as defined in the Credit Agreement). At August 26, 2015, the carrying value of the collateral securing the 2013 Credit Facility was $116.7 million.

Agreement, initial extensions of credit under the 2016 Credit Agreement, and (iii) for working capital and general corporate purposes of the Company.

The 20132016 Credit Agreement, as amended, contains the following covenants among others:

Debt Service Coverage Ratio of not less than (i) 1.10 to 1.00 at all times during the first, second and third fiscal quarters of the Borrower’s fiscal year 2015, (ii) 1.25 to 1.00 at all times during the fourth fiscal quarter of the Borrower’s fiscal year 2015, and (iii) 1.50 to 1.00 at all times thereafter.

Lease Adjusted Leverage Ratio of not more than (i) 5.75 to 1.00 at all times during the first, second and third fiscal quarters of the Borrower’s fiscal year 2015, (ii) 5.50 to 1.00 at all times during the fourth fiscal quarter of the Borrower’s fiscal year 2015, (iii) 5.25 to 1.00 at all times during the first fiscal quarter of the Borrower’s fiscal year 2016, (iv) 5.00 to 1.00 at all times during the second fiscal quarter of the Borrower’s fiscal year 2016, and (v) 4.75 to 1.00 at all times thereafter.

capital expenditures limited to $25.0 million per year, 

restrictions on incurring liens on certain of our property and the property of our subsidiaries,

restrictions on transactions with affiliates and materially changing our business,

restrictions on making certain investments, loans, advances and guarantees,

restrictions on selling assets outside the ordinary course of business,

prohibitions on entering into sale and leaseback transactions,

restrictions on certain acquisitions of all or a substantial portion of the assets, property and/or equity interests of any person, including share repurchases and dividends.

At February 12, 2014,

CTLAL of not more than (i) 5.00 to 1.00, at the end of each fiscal quarter, through and including the third fiscal quarter of the Borrower’s fiscal 2018, and (ii) 4.75 to 1.00 thereafter,
Consolidated Fixed Charge Coverage Ratio of not less than 1.25 to 1.00, at the end of each fiscal quarter,
Limit on Growth Capital Expenditures so long as the resultCTLAL is at least 0.25X less than the then-applicable permitted maximum CTLAL,
restrictions on mergers, acquisitions, consolidations, and asset sales,
restrictions on the payment of losses incurred fromdividends, redemption of stock, and other distributions,
restrictions on incurring indebtedness, including certain guarantees, and capital lease obligations,
restrictions on incurring liens on certain of our recently acquired leaseholds operating as Cheeseburger in Paradise restaurants, we reportedproperty and the property of our second consecutive quarterly net profit belowsubsidiaries,
restrictions on transactions with affiliates and materially changing our required minimum net profit as defined inbusiness,


restrictions on making certain investments, loans, advances, and guarantees,
restrictions on selling assets outside the credit agreement. As partordinary course of business,
prohibitions on entering into sale and leaseback transactions, and
restrictions on certain acquisitions of all or a substantial portion of the March 21, 2014 amendment we received a waiverassets, property and/or equity interests of non-compliance related to this minimum consecutive quarterly net profit debt covenant for the second quarter fiscal 2014. any person, including share repurchases and dividends.

The November 2014 amendment revised the net profit, debt service, lease adjusted leverage ratio, borrowing rates, provided for a $25.0 million annual capital expenditure limit, and required liens to be perfected on2016 Credit Agreement is secured by substantially all real property by January 31, 2015. As part of the October 2, 2015 amendment,personal property, including without limitation the Net Profit – Two Consecutive Quarters covenant was removed.

We wereequity interest in compliance with the covenants contained in the 2013 Credit Agreement as amended aseach of August 26, 2015.

our subsidiaries. The 20132016 Credit Agreement also includes customary events of default. If a default occurs and is continuing, the lenders’ commitments under the 20132016 Credit FacilityAgreement may be immediately terminated and/or we may be required to repay all amounts outstanding under the 20132016 Credit Facility.

Agreement.
Second Amendment to 2016 Credit Agreement
On April 20, 2018, the Company entered into the Second Amendment to the 2016 Credit Agreement, effective as of March 14, 2018. The amendment accelerates the maturity date of the Credit Agreement to May 1, 2019, approximately 9 months after the balance sheet date, August 29, 2018. The amendment included the following changes:

Aggregate commitments under the senior secured revolving credit facility (“Revolver”) were reduced from $30.0 million to $27.0 million beginning August 29, 2018.

Changed the maturity date of the Revolver and Term Loan to May 1, 2019.
Reduced the letter of credit sub-limit from $5.0 million to $2.0 million.
Interest rate on LIBOR Rate Loans (LIBOR + Applicable Margin) changed to the following:
LIBOR + 4.50%     April 20, 2018 - June 30, 2018
LIBOR + 4.75%     July 1, 2018 - September 30, 2018
LIBOR + 5.00%    October 1, 2018 - December 31, 2018
LIBOR + 5.25%    January 1, 2019 - March 31, 2019
LIBOR + 5.50%    April 1, 2019 - Maturity Date
Interest rate margin on Base Rate Loans changed to the following:
100 basis points less than the Applicable Margin for LIBOR Rate Loans
Maximum Consolidated Total Lease-Adjusted Leverage Ratio (“CTLAL”) is changed to 6.50 to 1.00 at March 14, 2018; 6.75 to 1.00 at June 6, 2018 and August 29, 2018; and 6.50 to 1.00 at each measurement period in fiscal 2019.
Minimum Consolidated EBITDA covenant required at $7.0 million (thirteen consecutive accounting periods) tested monthly, prior to the second fiscal quarter fiscal 2019 and $7.5 million for each fiscal quarter thereafter (consisting of thirteen consecutive accounting periods).
Minimum liquidity covenant requiring for at least $2.0 million in liquidity at all times.
Maximum annual maintenance capital expenditures not to exceed $9.6 million for the fiscal year ending August 29, 2018 and $8.5 million in fiscal 2019.
Within 30 days of the date of amendment, a senior security interest in and lien on any of the Company's real estate properties identified by the Administrative Agent and loan to value ratio of 0.50 to 1.00 on collateral real estate.
Excess liquidity provision requiring any consolidated cash balances of the Borrower and its Subsidiaries in excess of $1.0 million, as reported in the 13-week cash flow reports, used to repay Revolving Credit Loans.

Management has identified approximately 14 owned properties inclusive of assets currently classified as Assets related to discontinued operations and Property held for sale on the Company’s Balance Sheet, as of June 6, 2018, as part of a limited asset disposal plan to accelerate repayment of its outstanding term loans. The Board approved the limited asset sales plan on April 18, 2018. The Company estimates that such additional limited asset sales plan will be implemented over the course of the next 18 months. These asset disposal plans, in conjunction with other operational changes, are designed to lower the outstanding debt and to improve the Company’s financial condition as the Company pursues a new credit facility.
As of March 14, 2018, the Company would not have been in compliance with the Company’s Lease Adjusted Leverage Ratio and Fixed Charge Coverage Ratio covenants of the Credit Agreement prior to the Second Amendment thereto, which became effective on March 14, 2018. At any determination date, if the results of the Company's covenants exceed the maximums or minimums permitted under its 2016 Credit Agreement, the Company would be considered in default under the terms of the agreement which could cause a substantial financial burden by requiring the Company to repay the debt earlier than otherwise anticipated. Due to negative results in the first three quarters of fiscal 2018, continued under performance in the current fiscal year could cause the Company's financial ratios to exceed the permitted limits under the terms of the Credit Agreement.



Third Amendment to 2016 Credit Agreement

On August 24, 2018, the Company entered into the Third Amendment to Credit Agreement (the “Third Amendment”) amending the Credit Agreement dated as of November 8, 2016, as amended by the Second Amendment to Credit Agreement dated as of April 20, 2018 (together, with the Third Amendment, the “Credit Agreement”), by and among the Company, the other credit parties party thereto, the lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent for the lenders (the “Administrative Agent”).

The Third Amendment amended the interest rate on LIBOR rate loans (LIBOR + applicable margin) to (i) LIBOR + 6.50% from the effective date of the Third Amendment through the date the term loan has been paid in full in cash and (ii) LIBOR + 5.50% from the date following the date the term loan has been paid in full in cash and thereafter. The interest rate on base rate loans is 100 basis points less than the applicable margin for LIBOR rate loans.

Pursuant to the Third Amendment, the lenders agreed to waive the existing events of default as of the effective date of the Third Amendment resulting from any breach of certain financial covenants or the limitation on maintenance capital expenditures, in each case that may have occurred during the period from and including May 9, 2018 until the effective date of the Third Amendment, and any related events of default. Additionally, the lenders agreed to waive the requirements that the Company comply with certain financial covenants until December 31, 2018.

The Third Amendment requires the Company to make mandatory principal prepayments upon certain asset dispositions as follows: (i) 50% of the first $12.0 million of net cash proceeds from asset dispositions received by the Company; (ii) 75% of the next $8.0 million of net cash proceeds from asset dispositions received by the Company; and (iii) 100% of all net cash proceeds in excess of the first $20.0 million of net cash proceeds from asset dispositions received by the Company, in each case from and after the effective date of the Third Amendment.

Additionally, the Company agreed to grant liens on additional properties of the Company to secure borrowings under the Credit Agreement.

At August 29, 2018, the Company had approximately $8.5 million available to borrow under the Revolver in the 2016 Credit Agreement.

As of August 26, 2015,29, 2018, under the 2016 Credit Agreement, we had $37.5$39.5 million in total outstanding loans and $1.1approximately $1.3 million committed under letters of credit, which were issuedis used as security for the payment of insurance obligations, and $0.7approximately $0.2 million in capital lease commitments.

other indebtedness.

2013 Credit Facility
We were party to a revolving credit agreement with Wells Fargo Bank, National Association, as Administrative Agent, and ZB, N.A. dba Amegy Bank (formerly Amegy Bank, N.A.), as Syndication Agent (the “2013 Credit Facility”). The 2013 Credit Facility matured and was refunded on November 8, 2016, through the entering of the 2016 Credit Agreement, and there were no amounts outstanding under the 2013 Credit Facility at August 30, 2017.
COMMITMENTS AND CONTINGENCIES

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements except for operating leases for our corporate office, facility service warehouse and certain restaurant properties.

Claims

From time to time, we are subject to various other private lawsuits, administrative proceedings and claims that arise in the ordinary course of our business. A number of these lawsuits, proceedings and claims may exist at any given time. These matters typically involve claims from guests, employees and others related to issues common to the restaurant industry. We currently believe that the final disposition of these types of lawsuits, proceedings and claims will not have a material adverse effect on our financial position, results of operations or liquidity. It is possible, however, that our future results of operations for a particular quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, proceedings or claims.



Construction Activity

From time to time, we enter into non-cancelable contracts for the construction of our new restaurants.restaurants and restaurant remodels. This construction activity exposes us to the risks inherent in new constructionthis industry including but not limited to rising material prices, labor shortages, delays in getting required permits and inspections, adverse weather conditions, and injuries sustained by workers.

Contractual Obligations

At August 26, 2015,29, 2018, we had contractual obligations and other commercial commitments as described below:

  

Payments due by Period

 

Contractual Obligations

 

Total

  

Less than

1 Year

  

1-3 Years

  

3-5 Years

  

After
5 Years

 
 

(In thousands)

Long-term debt(a)

 $37,500  $  $37,500  $  $ 

Capital lease and other obligations(b)

  750   459   291       

Operating lease obligations(c)

  62,657   11,996   16,971   11,844   21,846 

Uncertain tax positions liability(d)

  63   63          

Total

 $100,970  $12,518  $54,762  $11,844  $21,846 

  

Amount of Commitment by Expiration Period

 

Other Commercial Commitments

 

Total

  

Fiscal
201
6

  

Fiscal
201
7-2018

  

Fiscal
201
8-2019

  

Thereafter

 
 

(In thousands)

Letters of credit

 $1,085  $1,085  $  $  $ 

 Payments due by Period
Contractual ObligationsTotal 
Less than
1 Year
 1-3 Years 3-5 Years 
After
5 Years
 (In thousands)
Revolver$20,000
 $20,000
 $
 $
 $
Term Loan19,506
 19,506
 
 
 
Capital lease and other obligations(1)
201
 64
 132
 5
 
Operating lease obligations (2)
52,815
 10,790
 15,464
 9,921
 16,640
Uncertain tax positions liability (3)
25
 25
 
 
 
Total$92,547
 $50,385
 $15,596
 $9,926
 $16,640
 Amount of Commitment by Expiration Period
Other Commercial CommitmentsTotal 
Fiscal
2019
 
Fiscal
2020-2021
 
Fiscal
2021-2022
 Thereafter
 (In thousands)
Letters of credit$1,287
 $1,287
 $
 $
 $

(a)

Long-term debt consists of amounts owed on the 2013CreditFacility.

(b)

(1)

Capital lease obligations contain leases for equipment ranging from one to two years and note relating to Fuddruckers Tulsa purchase plus interestnotes on note.

automobile purchases.

(c)

(2)Operating lease obligations contain rent escalations and renewal options ranging from one to twenty-five years.

(d)

(3)The timing and amounts of future cash payments related to these liabilities are uncertain.


In addition to the commitments described above, we enter into a number of cancelable and noncancelable commitments during each fiscal year. Typically, these commitments expire within one year and are generally focused on food inventory. We do not maintain any long-term or exclusive commitments or arrangements to purchase products from any single supplier. Substantially all of our product purchase commitments are cancelable up to 30 days prior to the vendor’s scheduled shipment date.

Long-term liabilities reflected in our consolidated financial statements as of August 26, 201529, 2018 included amounts accrued for benefit payments under our supplemental executive retirement plan of $0.1 million,$39 thousand, accrued non-cash compensation of $0.1 million,approximately $21 thousand, accrued insurance reserves of $0.8approximately $1.0 million, and deferred rent liabilities of $2.6approximately $2.1 million.


We are also contractually obligated to our Chief Executive Officer pursuant to an employment agreement. See “Affiliations and Related Parties” below for further information.



AFFILIATIONS AND RELATED PARTIES 

Affiliate Services

Our Chief Executive Officer, Christopher J. Pappas, and one of our directors and our former Chief Operating Officer, Harris J. Pappas, own two restaurant entities (the “Pappas entities”) that may from time to time provide services to Luby’s, Inc. and its subsidiaries, as detailed in the Amended and Restated Master Sales Agreement dated November 8, 2013 among us and the Pappas entities (the “Master Sales Agreement”).

Under the terms of the Amended and Restated Master Sales Agreement, the Pappas entities maycontinue to provide specialized (customized) equipment fabrication, primarily for new construction, and basic equipment maintenance, including stainless steel stoves, shelving, rolling carts, and chef tables. The total costs under the Amended and Restated Master Sales Agreement of custom-fabricated and refurbished equipment were zero, $4,000, and zero in fiscal 2015, 20142018, 2017, and 2013,2016 were approximately $31 thousand, $4 thousand, and $2 thousand, respectively. The Company also incurred $2 thousand of other operating expenses in fiscal 2018 from the Pappas entities. Services provided under this agreement are subject to review and approval by the Finance and Audit Committee of ourthe Company’s Board of Directors.

Operating Leases

In the third quarter of the fiscal year 2004, Messrs. Pappas became partners in a limited partnership which purchased a retail strip center in Houston, Texas. Messrs. Pappas collectively own a 50% limited partner interest and a 50% general partner interest in the limited partnership. An independentA third party company manages the center. One of the Company’s restaurants has rented approximately 7% of the space in that center since July 1969. No changes were made to the Company’s lease terms as a result of the transfer of ownership of the center to the new partnership.

On November 22, 2006, due to the approaching expiration of the previous lease, the Company executed a new lease agreement with respect to this property, which provides, effectiveproperty. Effective upon the Company’s relocation and occupancy into the new space in July 2008, the new lease agreement provides for a primary term of approximately 12 years with two subsequent five-year options. The new lease also givesgave the landlord an option to buy out the tenant on or after the calendar year 2015 by paying the then unamortized cost of improvements to the tenant. The Company is currently obligated to paypaid rent of $22.00 per square foot plus maintenance, taxes, and insurance for the remaining primary term of the lease. Thereafter, the lease provides for reasonable increases in rent at set intervals. The Company has made payments of approximately $416,000, $388,000$460 thousand, $419 thousand, and $425,000 during$417 thousand, in fiscal years 2015, 20142018, 2017, and 2013,2016, respectively. The new lease agreement was approved by the Finance and Audit Committee of our Board of Directors.

In the third quarter of the fiscal year 2014, on March 12, 2014, the Company executed a new lease agreement whichfor one of the Company’s Houston Fuddruckers location was purchased from a prior landlord bylocations with Pappas Restaurants, Inc., a 100% undivided interest. No changes were made to our lease terms as a result of the transfer of ownership. The lease provides for a primary term of approximately 6six years with two subsequent five-year options. Pursuant to the new ground lease agreement, the Company is currently obligated to pay $27.56paid $28.06 per square foot plus maintenance, taxes, and insurance from March 12, 2014 until November 30, 2016.May 31, 2020. Thereafter, the new ground lease agreement provides for reasonable increases in rent at set intervals. The Company made payments of $159,900$168 thousand, $162 thousand, and $79,950 during$160 thousand, in fiscal years 20152018, 2017, and 2014,2016, respectively.

Affiliated rents paid for these Houston property leases represented 3.1%, 2.7%, 2.1% and 2.0%2.6% of the total rents for continuing operations in fiscal 2015, 20142018, 2017, and 2013,2016, respectively.




The following table compares current and prior two fiscal years charges incurred under the Amended and Restated Master Sales Agreement, affiliated property leases, and other related party agreements to our total capital expenditures, as well as relative selling,Selling, general and administrative expenses, and other operating expenses included in continuing operations: 

  

FiscalYear Ended

 
  

August 26,
201
5

  

August 27,
201
4

  

August 28,
201
3

 
 

(364 days)

(364 days)

(364 days)

 

(In thousands)

AFFILIATED COSTS INCURRED:

            

Selling, general and administrative expenses—professional and other costs

 $1  $  $46 

Capital expenditures—custom-fabricated and refurbished equipment

     4    

Other operating expenses, occupancy costs and opening costs, including property leases

  576   468   425 

Total

 $577  $472  $471 

RELATIVE TOTAL COMPANY COSTS:

            

Selling, general and administrative expenses

 $38,758  $40,686  $36,123 

Capital expenditures

  20,378   46,184   31,339 

Other operating expenses, occupancy costs and opening costs

  86,753   85,745   81,448 

Total

 $145,889  $172,615  $148,910 

AFFILIATED COSTS INCURRED AS A PERCENTAGE OF RELATIVE TOTAL COMPANY COSTS

  0.40

%

  0.27

%

  0.32

%

 
Fiscal Year Ended
 August 29,
2018
 August 30,
2017
 August 31,
2016
 (364 days) (364 days) (371 days)
 (In thousands, except percentages)
AFFILIATED COSTS INCURRED:     
Selling, general and administrative expenses—professional and other costs$
 $1
 $1
Capital expenditures—custom-fabricated and refurbished equipment31
 4
 2
Other operating expenses, occupancy costs and opening costs, including property leases628
 581
 577
Total$659
 $586
 $580
RELATIVE TOTAL COMPANY COSTS:     
Selling, general and administrative expenses$38,725
 $37,878
 $42,422
Capital expenditures13,247
 12,502
 18,253
Other operating expenses, occupancy costs and opening costs83,239
 84,203
 84,122
Total$135,211
 $134,583
 $144,797
AFFILIATED COSTS INCURRED AS A PERCENTAGE OF RELATIVE TOTAL COMPANY COSTS0.49% 0.44% 0.40%
The Company entered into a new employment agreement with Christopher Pappas on January 24, 2014. The employment agreement was amended on December 1, 2014,August 2, 2017, to extend the termination date thereof to August 31, 2016, unless earlier terminated.29, 2018. The employment agreement was restated on December 11, 2017 to extend the termination date thereof to August 28, 2019. Mr. Pappas continues to devote his primary time and business efforts to the Company while maintaining his role at Pappas Restaurants, Inc. The Employment Agreement was unanimously approved by the Executive Compensation Committee (the “Committee”) of the Board as well as by the full Board.

On January 25, 2013, the Board approved the renewal of a consultant agreement with Ernest Pekmezaris, the Company’s former Chief Financial Officer. Under the agreement, Mr. Pekmezaris furnished to Effective August 1, 2018, the Company advisory and consulting services relatedChristopher J. Pappas agreed to finance and accounting matters and other related consulting services. The agreement expired on July 31, 2013. Mr. Pekmezaris is also the Treasurer of Pappas Restaurants, Inc. Compensation for the services provided by Mr. Pekmezarisreduce his fixed annual base salary to Pappas Restaurants, Inc. is paid entirely by that entity.

one dollar.

Peter Tropoli, oura director of the Company served as the Company's Chief Operating Officer a member of our Board, and formerly our Senior Vice President, Administration,until October 22, 2018. On October 22, 2018, he was appointed as General Counsel and Secretary, which was a role he formerly served. He continues to serve as a director of the Company. He is an attorney and stepson of Frank Markantonis, who is a director of Luby’s, Inc.

the Company.


Paulette Gerukos, our Vice President of Human Resources, is the sister-in-law of Harris J. Pappas, who is a director of Luby’s, Inc.

the Company.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our accounting policies are described in Note 1, “Nature of Operations and Significant Accounting Policies,” to our Consolidated Financial Statements included in Item 8 of Part II of this report. The Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States. Preparation of the financial statements requires us to make judgments, estimates and assumptions that affect the amounts of assets and liabilities in the financial statements and revenues and expenses during the reporting periods. Management believes the following are critical accounting policies due to the significant, subjective and complex judgments and estimates used when preparing our consolidated financial statements. Management regularly reviews these assumptions and estimates with the Finance and Audit Committee of our Board of Directors.


Income Taxes
 

Income Taxes

Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid. We are subject to income taxes in the United States and a limited number of foreign jurisdictions, involving franchised locations in South America, Mexico, Dominican Republic, Canada, Poland and Italy. Significant judgments and estimates are required in the determination of the consolidated income tax expense. On December 22, 2017, President Donald J. Trump signed into law U.S. tax reform legislation that is commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The enactment date occurred during the second quarter of fiscal 2018 and the impact on our income tax accounts of the Tax Act are accounted for in the period of enactment, in accordance with ASC 740. The Tax Act makes broad and complex changes to the U.S. tax code and most notably to the Company, the Tax Act lowered the federal statutory tax rate from 35% to 21% effective January 1, 2018. In accordance with the application of IRC Section 15, the Company's federal statutory tax rate for fiscal 2018 was 25 percent, representing a blended tax rate for the current fiscal year based on the number of days in the fiscal year before and after the effective date. For subsequent years, the Company's federal statutory tax rate is anticipated to be 21%. The Company was also required to remeasure its deferred tax assets and liabilities using the new federal statutory tax rate in the second quarter of fiscal year 2018, upon enactment of the Tax Act. At that time, the Company's net deferred tax asset balance was $7.8 million, and the Tax Act reduction in the federal statutory tax rate resulted in a one-time non-cash reduction to the Company's net deferred tax balance of approximately $3.2 million with a corresponding income tax provision increase in the second quarter of fiscal 2018. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future, as well as from tax Net Operating Losses ("NOL") and tax credit carryovers. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will be realized. In evaluating our ability to recover our deferred tax assets, we consider available positive and negative evidence, including scheduled reversals of deferred tax liabilities, tax-planning strategies projected future taxable income,and existing business conditions, including amendment to our credit agreement(s) to avoid default and results of recent operations.

Positive

We evaluated new negative evidence that we consider includesduring the third quarter of fiscal 2018, in connection with our response to a default in certain of the Company’s historyCredit Agreement financial covenants, a condition that raised substantial doubt as to the Company continuing as a going concern for a reasonable period of realizing fullytime. This circumstance and its tax NOL and tax credit carryovers prior to expiration andadded negative evidence, supported management’s conclusion that a full valuation allowance on the considered use of tax-planning strategies. The latter includes the acceleration of unrealized gains from our owned property locations through sale or exchange, if and when necessary on a selective basis, which we consider to be a significant piece of positive evidence. We regularly evaluate our portfolio owned properties, long-lived assets and their relative values, for many different business purposes, and have estimated the resulting unrealizedCompany’s net gains thereon to be of sufficient measure to recover our deferred tax assets includingin the amount of $25.3 million was necessary during the third quarter of fiscal 2018. Management's conclusion for a full valuation allowance reduces fully the Company’s net deferred tax NOL and tax credit carryovers. Assessments regarding our owned property locations involve the usebalances, net of significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. Tax-planning strategies involving the acceleration of unrealized gains, as well as the reversals of our deferred tax liabilities, arethrough and including the fiscal year ended August 29, 2018.
The composition of the same character and should reverse in both the same period and jurisdiction as the temporary differences giving rise to the deferred tax. In evaluating negative evidence, we consider three years of cumulative operating income (loss). A significant contributor to the Company’s three year cumulative loss involves a number of underperforming locations, principally all of which have been disposed of under the Company’s disposal plan.

The Company has recorded a deferred tax assetassets, excluding the offsetting impact of $10.8the valuation allowance, includes income tax NOL’s and tax credits of approximately $16.5 million, reflecting the benefit of $0.8approximately $4.4 million inrelating to income tax NOLNOL’s and $10.0$12.1 million relating to tax credit carryover, which expire in varying amounts between fiscal year 2022 through 2034. Realization2038. At this time, the management is uncertain as to the realization of these deferred tax assets, which is otherwise dependent on generatingnumerous factors, including our ability to generate sufficient taxable income prospectively, and if necessary gain on sale of owned property locations, prior to expiration of the tax NOLNOL’s and tax credit carryovers. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of unrealized appreciation of owned properties during the carryforward period are reduced or we are unable to generate positive cash flows from operations and proceeds from assets held for sale. 

Management makes judgments regarding the interpretation of tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. We operate within multiple taxing jurisdictions and are subject to examination in these tax jurisdictions, as well as by the Internal Revenue Service (“IRS”). In management’s opinion, adequate provisions for income taxes have been made for all open income tax periods. The potential outcomes of examinations are regularly assessed in determining the adequacy of the provision for income taxes and income tax liabilities. Management believes that adequate provisions have been made for reasonable and foreseeable outcomes related to uncertain tax matters.

Tangible Property Regulations

In September 2013, the U.S. Treasury issued final regulations addressing the tax consequences associated with the acquisition, production and improvement of tangible property and which are generally effective for taxable years beginning on or after January 1, 2014, which for the Company is its year beginning August 28, 2014. We believe our accounting policies comply with the requirements of the repair regulations and there is no materials impact on our Consolidated Financial Statements.




Impairment of Long-Lived Assets

We periodically evaluate long-lived assets held for use and held for sale, whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. We analyze historical cash flows of operating locations and compare results of poorer performing locations to more profitable locations. We also analyze lease terms, condition of the assets and related need for capital expenditures or repairs, construction activity in the surrounding area as well as 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 undiscounted future cash flows are less than the carrying value of our location’s assets, we record an impairment based on an estimate of discounted cash flows. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgments. Assumptions and estimates used include operating results, changes in working capital, discount rate, growth rate, anticipated net proceeds from disposition of the property and if applicable, lease terms. The span of time for which future cash flows are estimated is often lengthy, increasing the sensitivity to assumptions made. The time span is longer and could be 20 to 25 years for newer properties, but only 5 to 10 years for older properties. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluation of long-lived assets can vary within a wide range of outcomes. 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 operated 179142 restaurants as of November 3, 20157, 2018 and periodically experience unanticipated changes in our assumptions and estimates. Those changes could have a significant impact on discounted cash flow models with a corresponding significant impact on the measurement of an impairment. Gains are not recognized until the assets are disposed.

We evaluate the useful lives of our other intangible assets, primarily the Fuddruckers trademarks and franchise agreements to determine if they are definite or indefinite-lived. Reaching a determination of useful life requires significant judgments and assumptions regarding the future effects of obsolescence, contract term, demand, competition, other economic factors (such as the stability of the industry, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets.

We periodically evaluate our intangible assets, primarily the Fuddruckers trademarks and franchise agreements, to determine if events or changes in circumstances such as economic or market conditions indicate that the carrying amount of the assets may not be recoverable. We analyze historical cash flows of operating locations to determine trends that would indicate a need for impairment. We also analyze royalties and collectability from our franchisees to determine if there are trends that would indicate a need for impairment.

Property Held for Sale

We periodically review long-lived assets against our plans to retain or ultimately dispose of properties. If we decide to dispose of a property, it will be moved to property held for sale and actively marketed. Property held for sale is recorded at amounts not in excess of what management currently expects to receive upon sale, less costs of disposal. We analyze market conditions each reporting period and record additional impairments due to declines in market values of like assets. The fair value of the property is determined by observable inputs such as appraisals and prices of comparable properties in active markets for assets like ours. Gains are not recognized until the properties are sold.

Insurance and Claims

We self-insure a significant portion of risks and associated liabilities under our employee injury, workers’ compensation and general liability programs. We maintain insurance coverage with third party carriers to limit our per-occurrence claim exposure. We have recorded accrued liabilities for self-insurance based upon analysis of historical data and actuarial estimates, and we review these amounts on a quarterly basis to ensure that the liability is appropriate.

The significant assumptions made by the actuary to estimate self-insurance reserves, including incurred but not reported claims, are as follows: (1) historical patterns of loss development will continue in the future as they have in the past (Loss Development Method), (2) historical trend patterns and loss cost levels will continue in the future as they have in the past (Bornhuetter-Ferguson Method), and (3) historical claim counts and exposures are used to calculate historical frequency rates and average claim costs are analyzed to get a projected severity (Frequency and Severity Method). The results of these methods are blended by the actuary to provide the reserves estimates.



Actual workers’ compensation, employee injury and general liability claims expense may differ from estimated loss provisions. The ultimate level of claims under the in-house safety program are not known, and declines in incidence of claims as well as claims costs experiences or reductions in reserve requirements under the program may not continue in future periods.


Share-Based CompensationPrior to January 1, 2018, employee health insurance coverage was offered through fully-insured contracts with insurance carriers and the liability for covered health claims was borne by the insurance carriers per the terms of each policy contract. Effective January 1, 2018, we maintain a self-insured health benefit plan which provides medical and prescription drug benefits to certain of our employees electing coverage under the plan. Our exposure is limited by individual and aggregate stop loss limits per 3

rd party insurance carriers. Our self-insurance expense is accrued based upon the aggregate of the expected liability for reported claims and the estimated liability for claims incurred but not reported, based on historical claims experience provided by our 3rd party insurance advisors, adjusted as necessary based upon management’s reasoned judgment. Actual employee medical claims expense may differ from estimated loss provisions based on historical experience. The liabilities for these claims are included as a component of Accrued expenses and other liabilities on our consolidated balance sheets.

SHARE-BASED COMPENSATION
Share-based compensation is recognized as compensation expense in the income statement utilizing the fair value on the date of the grant. The fair value of performance share based award liabilities are estimated based on a Monte Carlo simulation model. The fair value of restricted stock units is valued at the closing market price of our common stock at the date of grant. The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. Assumptions for volatility, forfeitures, expected option life, risk free interest rate, and dividend yield are used in the model.


NEW ACCOUNTING PRONOUNCEMENTS

In July 2012,

See Note 1 to the accompanying Consolidated Financial Accounting Standards Board (”FASB”) issued Accounting Standards Update (“ASU”) No. 2012-02, Testing Indefinite-Lived Intangible AssetsStatements for Impairment (Topic 350). This pronouncement was issued to simplify how entities test for impairmenta discussion of indefinite-lived intangible assets. Under this pronouncement, an entity has the option first to assess qualitative factors to determine whether it is more likely thanrecent accounting guidance adopted and not that an indefinite-lived intangible asset is impaired. In conclusion of this assessment, if an entity finds that it is not more likely that not than an indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amountyet adopted. The adopted accounting guidance discussed in accordance with Accounting Standards Codification (“ASC”) Topic 350, “Intangibles—Goodwill and Other.” This pronouncement is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 with early adoption permitted. The adoption of this pronouncementNote 1 did not have a materialsignificant impact on our consolidated financial position or results of operations. The Company either expects that the accounting guidance not yet adopted will not have a significant impact on the Company’s consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220), which updated guidance amending the reportingposition or results of amounts reclassified out of accumulated other comprehensive income. These amendments do not change the current requirements for reporting net incomeoperations or other comprehensive income in the financial statements. However, the guidance requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component, either on the face of the financial statement where net income is presented or in the notes to the financial statements. This guidance is effective for fiscal periods beginning after December 15, 2012, and is to be applied prospectively. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-04, Liabilities (Topic 405), which provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. Examples of obligations within this guidance are debt arrangements, other contractual obligations and settled litigation and judicial rulings. The pronouncement is effective for fiscal years and interim periods within those fiscal years, after December 15, 2013. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

In April 2013, the FASB issued ASU No. 2013-007, Liquidation Basis of Accounting (Topic 205), which requires a company to prepare its financial statements using liquidation basis of accounting (LBA) when liquidation is imminent. The pronouncement is effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740), which provides that an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance or a tax provision or the tax law does not require the entity to use and the entity does not intend to use the deferred tax asset for such purposes, then the unrecognized tax benefit should be presented as a liability. The pronouncement is effective for fiscal years and interim periods within those fiscal years, after December 15, 2013. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

In April 2014, the FASB issued ASU No 2014-08. The amendments in ASU 2014-08 change the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in U.S. GAAP. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The pronouncement is effective for fiscal years and interim periods within those fiscal years, after December 31, 2015. We arecurrently evaluating the impact onof adopting the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This update provides a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. This update is effective for annual and interim periods beginning after December 15, 2016, which will require us to adopt these provisions in the first quarter of fiscal 2018. Early application is not permitted. This update permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect this guidance will have on our consolidated financial statements and related disclosures. We are evaluating the impact on the Company’s consolidated financial statements and have not yet selected a transition method.

accounting guidance.

INFLATION
 

In August 2014, the FASB issued ASU No 2014-15. The amendments in ASU 2014-15 are intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The pronouncement is effective for fiscal years and interim periods within those fiscal years, after December 31, 2016. The adoption of this pronouncement is not expected to have a material impact on the Company’s financial statements.

INFLATION

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




Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to marketinterest rate risk fromdue to changes in interest rates affecting our variable-rate debt.debt, Term Loan and borrowings under our 2016 Revolver. As of fiscal year-end 2015,2018, the total amount of debt subject to interest rate fluctuations outstanding under our Amended New Credit FacilityRevolver and Term Loan was $37.5approximately $22.0 million. Assuming an average debt balance with interest rate exposure of $37.5approximately $22.0 million, a 1.0%100 basis point increase in prevailing interest rates would increase our annual interest expense by $0.4approximately $0.2 million.

We The interest rate on our remaining $17.5 million in outstanding debt is fixed plus an applicable margin based on our CTLAL at each determination date, beginning December 14, 2016, under the terms of our interest rate swap agreement. Under the terms of our 2016 Credit Agreement, we are required to manage interest rate risk, utilizing interest rate swaps, on at least 50% of our 2016 Credit Agreement variable rate debt ("Term Loan"). Prior to November 8, 2016, we did not currently usingutilize any interest rate swaps to manage interest rate risk on our variable-ratevariable rate 2013 Credit Facility debt.

We have exposure to various foreign currency exchange rate fluctuations for revenues generated by our operations outside of the United States, which can adversely impact our net income and cash flows. Approximately 0.10%, 0.12%, 0.08% and 0.06%0.14% of our total revenues in 2015, 2014fiscal 2018, 2017, and 2013,2016, respectively, were derived from sales to customers and royalties from franchisees outside the contiguous United States. All of this business is conducted in the local currency of the country the franchise operates. We do not enter into financial instruments to manage this foreign currency exchange risk.

Many ingredients in the products sold in our restaurants are commodities, subject to unpredictable price fluctuations. We attempt to minimize price volatility by negotiating fixed price contracts for the supply of key ingredients and in some cases by passing increased commodity costs through to the customer by adjusting menu prices or menu offerings. Our ingredients are available from multiple suppliers so we are not dependantdependent on a single vendor for our ingredients. 




Item  8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders

Luby’s, Inc.

We have audited the accompanying consolidated balance sheets of Luby’s, Inc. (a Delaware corporation) (and subsidiaries)and subsidiaries (the "Company") as of August 26, 201529, 2018 and August 27, 2014, and30, 2017, the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended August 26, 2015. 29, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 29, 2018 and August 30, 2017, and the results of its operations and its cash flows for each of the three years in the period ended August 29, 2018, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of August 29, 2018, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated November 16, 2018 expressed an unqualified opinion.
Going concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company sustained a net loss of approximately $33.6 million and net cash used in operating activities of approximately $8.5 million. The Company’s term and revolving debt of approximately $39.5 million is due May 1, 2019. The Company was in default of certain debt covenants of its term and revolving credit agreements maturing on May 1, 2019. On August 24, 2018, the lenders agreed to waive the existing events of default resulting from any breach of certain financial covenants or the limitation on maintenance capital expenditures, in each case that may have occurred during the period from and including May 9, 2018 until August 24, 2018, and any related events of default. Additionally, the lenders agreed to waive the requirements that the Company comply with certain financial covenants until December 31, 2018, at which time the Company will be in default without an additional waiver or alternative financing. These conditions, along with other matters as set forth in Note 2 raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP
Houston, Texas
November 16, 2018


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Luby’s, Inc.
We have audited the internal control over financial reporting of Luby’s, Inc. (a Delaware corporation) and subsidiaries (the "Company") as of August 29, 2018, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the consolidated financial statements referred to above present fairly,Company maintained, in all material respects, theeffective internal control over financial position of Luby’s, Inc. and subsidiariesreporting as of August 26, 2015 and August 27, 2014, and the results of their operations and their cash flows for each of the three years29, 2018, based on criteria established in the period ended August 26, 2015 in conformity with accounting principles generally accepted in the United States of America.

2013 Internal Control-Integrated Framework issued by COSO.


We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control overconsolidated financial reportingstatements of the Company as of and for the year ended August 26, 2015, based on criteria established inInternal Control—Integrated Framework-2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),29, 2018, and our report dated November 9, 201516, 2018 expressed an unqualified opinion.

/s/ GRANT THORNTON LLP

Houston, Texas

November 9, 2015

opinion on those financial statements.

Basis for opinion

Report of Independent Registered Public Accounting Firm 

Board of Directors and Shareholders

Luby’s, Inc.

We have audited the internal control over financial reporting of Luby’s, Inc. (a Delaware corporation) (and its subsidiaries) (the "Company") as of August 26, 2015, based on criteria established inInternal Control—Integrated Framework-2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

The Company'sCompany’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Overover Financial Reporting. Our responsibility is to express an opinion on the Company'sCompany’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 26, 2015, based on criteria established inInternal Control—Integrated Framework-2013 issued by the Committee of Sponsoring Organization of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended August 26, 2015, and our report dated November 9, 2015 expressed an unqualified opinion on those financial statements.

/s/ GRANT THORNTON LLP 

Houston, Texas

November 9, 2015

 
Houston, Texas
November 16, 2018



Luby’s, Inc.

Consolidated Balance Sheets

  

August 26,
201
5

  

August 27,
201
4

 
 

(In thousands, except share data)

ASSETS

        

Current Assets:

        

Cash and cash equivalents

 $1,501  $2,788 

Trade accounts and other receivables, net

  5,175   4,112 

Food and supply inventories

  4,483   5,556 

Prepaid expenses

  3,388   2,815 

Assets related to discontinued operations

  24   52 

Deferred income taxes

  577   587 

Total current assets

  15,148   15,910 

Property held for sale

  4,536   991 

Assets related to discontinued operations

  4,014   4,204 

Property and equipment, net

  199,859   213,492 

Intangible assets, net

  22,570   24,014 

Goodwill

  1,643   1,681 

Deferred income taxes

  12,917   11,294 

Other assets

  3,571   3,849 

Total assets

 $264,258  $275,435 

LIABILITIES AND SHAREHOLDERS’ EQUITY

        

Current Liabilities:

        

Accounts payable

 $20,173  $26,269 

Liabilities related to discontinued operations

  417   590 

Accrued expenses and other liabilities

  23,958   23,107 

Total current liabilities

  44,548   49,966 

Credit facility debt

  37,500   42,000 

Liabilities related to discontinued operations

  190   278 

Other liabilities

  7,361   8,167 

Total liabilities

  89,599   100,411 

Commitments and Contingencies

        

SHAREHOLDERS’ EQUITY

        

Common stock, $0.32 par value; 100,000,000 shares authorized; Shares issued were 29,134,603 and 28,949,523, respectively; Shares outstanding were 28,634,603 and 28,449,523, respectively

  9,323   9,264 

Paid-in capital

  29,006   27,356 

Retained earnings

  141,105   143,179 

Less cost of treasury stock, 500,000 shares

  (4,775

)

  (4,775

)

Total shareholders’ equity

  174,659   175,024 

Total liabilities and shareholders’ equity

 $264,258  $275,435 

 August 29,
2018
August 30,
2017
 (In thousands, except share data)
ASSETS  
Current Assets:  
Cash and cash equivalents$3,722
$1,096
Trade accounts and other receivables, net8,787
8,011
Food and supply inventories4,022
4,453
Prepaid expenses3,219
3,431
Total current assets19,750
16,991
Property held for sale19,469
3,372
Assets related to discontinued operations1,813
2,755
Property and equipment, net138,287
172,814
Intangible assets, net18,179
19,640
Goodwill555
1,068
Deferred income taxes
7,254
Other assets1,936
2,563
Total assets$199,989
$226,457
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current Liabilities:  
Accounts payable$10,457
$15,937
Liabilities related to discontinued operations14
367
Current portion of credit facility debt39,338

Accrued expenses and other liabilities31,755
28,076
Total current liabilities81,564
44,380
Credit facility debt, less current portion
30,698
Liabilities related to discontinued operations16
16
Other liabilities5,781
7,311
Total liabilities87,361
82,405
Commitments and Contingencies

SHAREHOLDERS’ EQUITY  
Common stock, $0.32 par value; 100,000,000 shares authorized; Shares issued were 30,003,642 and 29,624,083, respectively; Shares outstanding were 29,503,642 and 29,124,083, respectively9,602
9,480
Paid-in capital33,872
31,850
Retained earnings73,929
107,497
Less cost of treasury stock, 500,000 shares(4,775)(4,775)
Total shareholders’ equity112,628
144,052
Total liabilities and shareholders’ equity$199,989
$226,457
The accompanying notes are an integral part of these Consolidated Financial Statements.




Luby’s, Inc.

Consolidated Statements of Operations

  

Year Ended

 
  

August 26,
201
5

  

August 27,
201
4

  

August 28,
201
3

 
 

(In thousands, except per share data)

SALES:

            

Restaurant sales

 $370,192  $368,267  $360,001 

Culinary contract services

  16,401   18,555   16,693 

Franchise revenue

  6,961   7,027   6,937 

Vending revenue

  531   532   565 

TOTAL SALES

  394,085   394,381   384,196 

COSTS AND EXPENSES:

            

Cost of food

  107,053   106,254   103,052 

Payroll and related costs

  127,694   126,046   122,865 

Other operating expenses

  63,090   61,700   58,985 

Occupancy costs

  20,977   21,881   21,680 

Opening costs

  2,686   2,164   783 

Cost of culinary contract services

  14,786   16,847   15,604 

Cost of franchise operations

  1,668   1,733   1,629 

Depreciation and amortization

  21,367   20,062   18,376 

Selling, general and administrative expenses

  38,758   40,686   36,123 

Provision for asset impairments

  636   2,498   615 

Net gain on disposition of property and equipment

  (3,994

)

  (2,357

)

  (1,723

)

Total costs and expenses

  394,721   397,514   377,989 

INCOME (LOSS) FROM OPERATIONS

  (636

)

  (3,133

)

  6,207 

Interest income

  4   6   9 

Interest expense

  (2,336

)

  (1,247

)

  (920

)

Other income, net

  520   1,101   1,026 

Income (loss) before income taxes and discontinued operations

  (2,448

)

  (3,273

)

  6,322 

Provision (benefit) for income taxes, net

  (1,076

)

  (1,660

)

  1,775 

Income (loss) from continuing operations

  (1,372

)

  (1,613

)

  4,547 

Loss from discontinued operations, net of income taxes

  (702

)

  (1,834

)

  (1,386

)

NET INCOME (LOSS)

 $(2,074

)

 $(3,447

)

 $3,161 

Income (loss) per share from continuing operations:

            

Basic

 $(0.05

)

 $(0.06

)

 $0.16 

Assuming dilution

 $(0.05

)

 $(0.06

)

 $0.16 

Loss per share from discontinued operations:

            

Basic

 $(0.02

)

 $(0.06

)

 $(0.05

)

Assuming dilution

 $(0.02

)

 $(0.06

)

 $(0.05

)

Net income (loss) per share:

            

Basic

 $(0.07

)

 $(0.12

)

 $0.11 

Assuming dilution

 $(0.07

)

 $(0.12

)

 $0.11 

Weighted-average shares outstanding:

            

Basic

  28,974   28,812   28,618 

Assuming dilution

  28,974   28,812   28,866 

 Year Ended
 August 29, 2018 August 30, 2017 August 31, 2016
 
(In thousands, except per share data)
SALES:     
Restaurant sales$332,518
 $350,818
 $378,111
Culinary contract services25,782
 17,943
 16,695
Franchise revenue6,365
 6,723
 7,250
Vending revenue531
 547
 583
TOTAL SALES365,196
 376,031
 402,639
COSTS AND EXPENSES:     
Cost of food94,238
 98,714
 106,980
Payroll and related costs124,478
 125,997
 132,960
Other operating expenses62,286
 61,924
 60,961
Occupancy costs20,399
 21,787
 22,374
Opening costs554
 492
 787
Cost of culinary contract services24,161
 15,774
 14,955
Cost of franchise operations1,528
 1,733
 1,877
Depreciation and amortization17,453
 20,438
 21,889
Selling, general and administrative expenses38,725
 37,878
 42,422
Provision for asset impairments and restaurant closings8,917
 10,567
 1,442
Net Gain on disposition of property and equipment(5,357) (1,804) (684)
Total costs and expenses387,382
 393,500
 405,963
LOSS FROM OPERATIONS(22,186) (17,469) (3,324)
Interest income12
 8
 4
Interest expense(3,348) (2,443) (2,247)
Other income (expense), net298
 (454) 186
Loss before income taxes and discontinued operations(25,224) (20,358) (5,381)
Provision for income taxes7,730
 2,438
 4,875
Loss from continuing operations(32,954) (22,796) (10,256)
Loss from discontinued operations, net of income taxes(614) (466) (90)
NET LOSS$(33,568) $(23,262) $(10,346)
Loss per share from continuing operations:     
Basic$(1.10) $(0.77) $(0.35)
Assuming dilution$(1.10) $(0.77) $(0.35)
Loss per share from discontinued operations:     
Basic$(0.02) $(0.02) $(0.00)
Assuming dilution$(0.02) $(0.02) $(0.00)
Net loss per share:     
Basic$(1.12) $(0.79) $(0.35)
Assuming dilution$(1.12) $(0.79) $(0.35)
Weighted-average shares outstanding:     
Basic29,901
 29,476
 29,226
Assuming dilution29,901
 29,476
 29,226
The accompanying notes are an integral part of these Consolidated Financial Statements.



Luby’s, Inc.

Consolidated Statements of Shareholders’ Equity

(In thousands)

  

Common Stock

             
  

Issued

  

Treasury

             
  

Shares

  

Amount

  

Shares

  

Amount

  

Paid-In
Capital

  

Retained
Earnings

  

Total
Shareholders’
Equity

 

Balance at August 29, 2012

  28,677  $9,176   (500

)

 $(4,775

)

 $24,532  $143,465  $172,398 

Net income for the year

                 3,161   3,161 

Common stock issued under nonemployee director benefit plans

  28   9         19      28 

Common stock issued under employee benefit plans

  80   26         350      376 

Increase in excess tax benefits from share-based compensation

              64      64 

Share-based compensation expense

  19   6         1,100      1,106 

Balance at August 28, 2013

  28,804  $9,217   (500

)

 $(4,775

)

 $26,065  $146,626  $177,133 

Net loss for the year

                 (3,447

)

  (3,447

)

Common stock issued under nonemployee director benefit plans

  31   10         17      27 

Common stock issued under employee benefit plans

  63   20         78      98 

Increase in excess tax benefits from share-based compensation

              50      50 

Share-based compensation expense

  52   17         1,146      1,163 

Balance at August 27, 2014

  28,950  $9,264   (500

)

 $(4,775

)

 $27,356  $143,179  $175,024 

Net loss for the year

                 (2,074

)

  (2,074

)

Common stock issued under nonemployee director benefit plans

  40   13         (13

)

      

Common stock issued under employee benefit plans

  82   26         164      190 

Increase in excess tax benefits from share-based compensation

              5      5 

Share-based compensation expense

  63   20         1,494      1,514 

Balance at August 26, 2015

  29,135  $9,323   (500

)

 $(4,775

)

 $29,006  $141,105  $174,659 

 Common Stock      
 Issued Treasury      
 Shares Amount Shares Amount 
Paid-In
Capital
 
Retained
Earnings
 
Total
Shareholders’
Equity
Balance at August 26, 201529,135
 $9,323
 (500) $(4,775) $29,006
 $141,105
 $174,659
Net loss for the year
 
 
 
 
 (10,346) (10,346)
Common stock issued under nonemployee director benefit plans60
 19
 
 
 (19) 
 
Common stock issued under employee benefit plans177
 57
 
 
 25
 
 82
Increase in excess tax benefits from share-based compensation
 
 
 
 (119) 
 (119)
Share-based compensation expense68
 22
 
 
 1,455
 
 1,477
Balance at August 31, 201629,440
 $9,421
 (500) $(4,775) $30,348
 $130,759
 $165,753
Net loss for the year
 
 
 
 
 (23,262) (23,262)
Common stock issued under nonemployee director benefit plans83
 26
 
 
 (26) 
 
Common stock issued under employee benefit plans7
 2
 
 
 (2) 
 
Share-based compensation expense94
 31
 
 
 1,530
 
 1,561
Balance at August 30, 201729,624
 $9,480
 (500) $(4,775) $31,850
 $107,497
 $144,052
Net loss for the year
 
 
 
 
 (33,568) (33,568)
Common stock issued under nonemployee director benefit plans87
 28
 
 
 (28) 
 
Common stock issued under employee benefit plans183
 59
 
 
 (59) 
 
Share-based compensation expense109
 35
 
 
 2,109
 
 2,144
Balance at August 29, 201830,003
 $9,602
 (500) $(4,775) $33,872
 $73,929
 $112,628
The accompanying notes are an integral part of these Consolidated Financial Statements.



Luby’s, Inc.

Consolidated Statements of Cash Flows

  

Year Ended

 
  

August 26,
201
5

  

August 27,
201
4

  

August 28,
201
3

 
 

(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

            

Net income (loss)

 $(2,074

)

 $(3,447

)

 $3,161 

Adjustments to reconcile net income to net cash provided by operating activities:

            

Provision for asset impairments and gains on property sales

  (3,385

)

  1,347   (451

)

Depreciation and amortization

  21,431   20,221   18,571 

Amortization of debt issuance cost

  204   123   112 

Non-cash compensation expense

  190   125   404 

Share-based compensation expense

  1,514   1,163   1,106 

Tax benefit on share-based compensation

  (5

)

  (50

)

  (64

)

Deferred tax expense (benefit)

  (1,996

)

  (3,348

)

  522 

Cash provided by operating activities before changes in operating asset and liabilities

  15,879   16,134   23,361 

Changes in operating assets and liabilities:

            

Decrease (increase) in trade accounts and other receivables

  (1,063

)

  (29

)

  10 

Decrease (increase) in food and supply inventories

  1,073   (530

)

  (903

)

Decrease (increase) in prepaid expenses and other assets

  (268

)

  917   356 

Increase (decrease) in accounts payable, accrued expenses and other liabilities

  (5,305

)

  3,947   6,618 

Net cash provided by operating activities

  10,316   20,439   29,442 

CASH FLOWS FROM INVESTING ACTIVITIES:

            

Repayment of note receivable

  57   23   80 

Acquisition of Cheeseburger in Paradise

 

      (10,169

)

Proceeds from disposal of assets and property held for sale

  13,278   4,130   5,961 

Purchases of property and equipment

  (20,378

)

  (46,184

)

  (31,339

)

Net cash used in investing activities

  (7,043

)

  (42,031

)

  (35,467

)

CASH FLOWS FROM FINANCING ACTIVITIES:

            

Credit facility borrowings

  108,000   105,900   69,700 

Credit facility repayments

  (112,500

)

  (83,100

)

  (63,500

)

Debt issuance costs

  (255

)

  (123

)

  (338

)

Tax benefit on share-based compensation

  5   50   64 

Proceeds received on the exercise of employee stock options

  190   125   404 

Net cash provided by (used in) financing activities

  (4,560

)

  22,852   6,330 

Net increase (decrease) in cash and cash equivalents

  (1,287

)

  1,260   305 

Cash and cash equivalents at beginning of year

  2,788   1,528   1,223 

Cash and cash equivalents at end of year

 $1,501  $2,788  $1,528 

 Year Ended
 August 29, 2018 August 30, 2017 August 31, 2016
 (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:     
Net loss$(33,568) $(23,262) $(10,346)
Adjustments to reconcile net loss to net cash provided (used) in operating activities:     
Provision for asset impairments and net loss (gain) on property dispositions3,619
 8,762
 734
Depreciation and amortization17,453
 20,438
 21,906
Amortization of debt issuance cost534
 348
 313
Share-based compensation expense2,144
 1,561
 1,477
Excess tax deficit from share-based compensation
 
 119
Deferred tax provision8,192
 2,792
 4,707
Cash provided (used) in operating activities before changes in operating assets and liabilities(1,626) 10,639
 18,910
Changes in operating assets and liabilities:     
Increase in trade accounts and other receivables(775) (2,092) (744)
Decrease (increase) in food and supply inventories432
 143
 (616)
Decrease in prepaid expenses and other assets808
 504
 215
Increase (decrease) in accounts payable, accrued expenses and other liabilities(7,292) 446
 (3,906)
Net cash provided (used) in operating activities(8,453) 9,640
 13,859
CASH FLOWS FROM INVESTING ACTIVITIES:     
Proceeds from disposal of assets and property held for sale14,191
 9,286
 4,794
Insurance proceeds2,070
 
 
Repayment of note receivable
 
 17
Purchases of property and equipment(13,247) (12,502) (18,253)
Net cash provided (used) in investing activities3,014
 (3,216) (13,442)
CASH FLOWS FROM FINANCING ACTIVITIES:     
Revolver borrowings147,600
 107,800
 106,000
Revolver repayments(132,000) (140,400) (106,500)
Debt issuance costs(386) (652) (42)
Proceeds on term loan
 35,000
 
Term loan repayments(7,079) (8,415) 
Excess tax deficit from share-based compensation
 
 (119)
Tax paid on equity withheld(70) 
 
Proceeds received on the exercise of employee stock options
 
 82
Net cash provided (used) in financing activities8,065
 (6,667) (579)
Net increase (decrease) in cash and cash equivalents2,626
 (243) (162)
Cash and cash equivalents at beginning of period1,096
 1,339
 1,501
Cash and cash equivalents at end of period$3,722
 $1,096
 $1,339
Cash paid for:     
Income taxes$426
 $411
 $357
Interest2,499
 1,787
 1,873
The accompanying notes are an integral part of these Consolidated Financial Statements. 



Luby’s, Inc.

Notes to Consolidated Financial Statements

Fiscal Years 2015, 20142018, 2017, and 20132016

Note 1. Nature of Operations and Significant Accounting Policies

Nature of Operations

Luby’s, Inc. is based in Houston, Texas. As of August 26, 2015,29, 2018, the Company owned and operated 177146 restaurants, with 128114 in Texas and the remainder in other states. In addition, the Company received royalties from 106105 franchises as of August 26, 201529, 2018 located primarily throughout the United States. The Company’s owned and franchised restaurant locations are convenient to shopping and business developments, as well as, to residential areas. Accordingly, the restaurants appeal to a variety of customers at breakfast, lunch, and dinner. Culinary Contract Services consists of contract arrangements to manage food services for clients operating in primarily threefour lines of business: healthcare, higher educationhealthcare; senior living; business; and corporate dining.

Reclassification of Certain Expenses

Marketing expenses and other certain non-store specific restaurant business segment costs have been reclassified from Payroll and related costs and Other operating expenses to Selling, general, and administrative expenses. The occupancy costs (mainly rent expense and property tax expense) for our centralized bakery and facility service center locations have also moved to Selling, general, and administrative expenses. Insurance costs directly associated with our restaurant property locations have been reclassified from Other operating expenses to Occupancy costs. Direct costs associated with our Culinary Contract Services business segment have been reclassified to Cost of culinary contract services. Direct costs associated with our Franchise Operations business segment have bene reclassified to a new expense line Cost of franchise operations.

venues.
 

Below is a summary of the reclassified expenses:

  

Year Ended

 
  

August 27,
201
4

  

August 28,
201
3

 
 

(364 days)

(364 days)

 

(In thousands)

Payroll and related costs

        

Payroll and related costs (previous classification)

 $127,792  $123,864 

Management training reclassification

  (1,746

)

  (999

)

Payroll and related costs (as reported)

  126,046   122,865 
         

Other operating expenses

        

Other operating expenses (previous classification)

  68,820   64,918 

Restaurant level marketing expense reclassification

  (3,775

)

  (3,043

)

Non-store specific travel and insurance expense reclassification1

  (3,345

)

  (2,890

)

Other operating expenses (as reported)

  61,700   58,985 
         

Occupancy costs

        

Occupancy costs (previous classification)

  21,060   21,012 

Property insurance expense reclassification

  1,107   979 

Centralized Bakery and Facility Service Center occupancy reclassification

  (286

)

  (311

)

Occupancy costs

  21,881   21,680 
         

Selling, general and administrative

        

General and administrative costs (previous classification)

  35,038   32,217 

Restaurant level marketing expense reclassification

  3,775   3,043 

Management training reclassification

  1,699   999 

Centralized bakery and Facility Service Center occupancy reclassification

  286   311 

Non-store specific travel and insurance expense reclassification

  2,186   1,895 

Culinary services administration costs reclassification

  (618

)

  (707

)

Franchise administration costs reclassification

  (1,680

)

  (1,635

)

Selling, general and administrative (as reported)

  40,686   36,123 
         

Cost of culinary contract services

        

Cost of culinary contract services (previous classification)

  16,177   14,874 

Culinary services administration costs reclassification2

  670   730 

Cost of culinary contract services (as reported)

  16,847   15,604 
         

Cost of franchise operations

        

Cost of franchise operations (previous reclassification)

      

Franchise administration costs reclassification3

  1,733   1,629 

Cost of franchise operations (as reported)

  1,733   1,629 

1Reflects property and general liability insurance reclassified to Other operating expenses and corporate insurance reclassified to Selling, general and administrative expenses

2Includes costs previously classified in General and administrative expenses ($618 and $707 in fiscal 2014 and 2013, respectively) and costs previously in Payroll and related costs, Other operating expenses and Occupancy costs

3 Includes costs previously classified in General and administrative expenses ($1,680 and $1,635 in fiscal 2014 and 2013, respectively) and costs previously in Payroll and related costs and Other operating expenses


Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Luby’s, Inc. and its wholly owned subsidiaries. Luby’s, Inc. was restructured into a holding company on February 1, 1997, at which time all of the operating assets were transferred to Luby’s Restaurants Limited Partnership, a Texas limited partnership consisting of two wholly owned, indirect corporate subsidiaries of the Company. On July 9, 2010, Luby’s Restaurants Limited Partnership was converted into Luby’s Fuddruckers Restaurants, LLC, a Texas limited liability company (“LFR”). Unless the context indicates otherwise, the word “Company” as used herein includes Luby’s, Inc., LFR, and the consolidated subsidiaries of Luby’s, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.  

Reportable Segments

Each restaurant is an operating segment because operating results and cash flow can be determined for each restaurant which is regularly reviewed by the chief operating decision maker. The Company has three reportable segments: Company-owned restaurants, franchise operations, and Culinary Contract Services (“CCS”). Company-owned restaurants are aggregated into one reportable segment because the nature of the products and services, the production processes, the customers, the methods used to distribute the products and services, and the nature of the regulatory environment are alike.

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments such as money market funds that have a maturity of three months or less. All of theThe Company’s bank account balances are insured by the Federal Deposit Insurance Corporation.Corporation (“FDIC”) up to $250,000 at each institution. However, balances in money market fund accounts are not insured. Amounts in transit from credit card companies are also considered cash equivalents because they are both short-term and highly liquid in nature and are typically converted to cash within three days of the sales transaction.

Trade Accounts and Other Receivables, net

Receivables consist principally of amounts due from franchises, culinary contract service clients, catering customers and restaurant food sales to corporations. Receivables are recorded at the invoiced amount. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical loss experience for contract serviceCCS clients, catering customers and restaurant sales to corporations. The Company determines the allowancecorporations and, for CCS receivables and franchise royalty and marketing and advertising receivables, based onthe Company also considers the franchisees’ and CCS clients’ unsecured default status. The Company periodically reviews its allowance for doubtful accounts. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Inventories

Food and supply inventories are stated at the lower of cost (first-in, first-out) or market.  

net realizable value.  






Property Held for Sale

The Company periodically reviews long-lived assets against its plans to retain or ultimately dispose of properties. If the Company decides to dispose of a property, it will be moved to property held for sale and actively marketed. Property held for sale is recorded at amounts not in excess of what management currently expects to receive upon sale, less costs of disposal. GainsDepreciation on assets moved to property held for sale is discontinued and gains are not recognized until the properties are sold.

Impairment of Long-Lived Assets

Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount. The Company evaluates impairments on a restaurant-by-restaurant basis and uses cash flow results and other market conditions as indicators of impairment.


Debt Issuance Costs

Debt issuance costs include costs incurred in connection with the arrangement of long-term financing agreements. The debt issuance costs associated with the Term Loan are presented on the Balance Sheet as a direct deduction from long-term debt. The debt issue costs associated with the Revolver are presented on the Balance Sheet as an asset. These costs are amortized using the effective interest method over the respective term of the debt to which they specifically relate.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, trade accounts and other receivables, accounts payable and accrued expenses approximates fair value based on the short-term nature of these accounts. The carrying value of credit facility debt also approximates fair value based on its recent renewal.

Self-Insurance Accrued Expenses

The Company self-insures a significant portion of expected losses under its workers’ compensation, employee injury and general liability programs. Accrued liabilities have been recorded based on estimates of the ultimate costs to settle incurred claims, both reported and not yet reported. These recorded estimated liabilities are based on judgments and independent actuarial estimates, which include the use of claim development factors based on loss history; economic conditions; the frequency or severity of claims and claim development patterns; and claim reserve management settlement practices.


Effective January 1, 2018, we maintain a self-insured health benefit plan which provides medical and prescription drug benefits to certain of our employees electing coverage under the plan. Our exposure is limited by individual and aggregate stop loss limits per 3rd party insurance carriers. We record expenses under the plan based on estimates of the costs of expected claims, administrative costs and stop-loss insurance premiums. Our self-insurance expense is accrued based upon the aggregate of the expected liability for reported claims and the estimated liability for claims incurred but not reported, based on historical claims experience provided by our 3rd party insurance advisors, adjusted as necessary based upon management’s reasoned judgment. Actual employee medical claims expense may differ from estimated loss provisions based on historical experience.
Revenue Recognition

Revenue from restaurant sales is recognized when food and beverage products are sold. Unearned revenues are recorded as a liability for dininggift cards that have been sold but not yet redeemed and are recorded at their expected redemption value. When dininggift cards are redeemed, revenue is recognized, and unearned revenue is reduced.

Revenue from culinary contract services is recognized when services are provided and reimbursable costs are incurred within contractual terms.

Revenue from franchise royalties is recognized each fiscal period based on contractual royalty rates applied to the franchise’s restaurant sales each fiscal period. Royalties are accrued as earned and are calculated each period based on the franchisee’s reported sales. Area development fees and franchise fees are recognized as revenue when the Company has performed all material obligations and initial services. Area development fees are recognized proportionately with the opening of each new restaurant, which generally occurs upon the opening of the new restaurant. Until earned, these fees are accounted for as an accrued liability.



Cost of CCS

The cost of CCS includes all food, payroll and related expenses, other operating expenses, and selling, general and administrative expenses related to culinary contract service sales. All depreciation and amortization, property disposal, and asset impairment expenses associated with CCS are reported within those respective lines as applicable.

Cost of Franchise Operations

The cost of franchise operations includes all food, payroll and related expenses, other operating expenses, and selling, general and administrative expenses related to franchise operations sales. All depreciation and amortization, property disposal, and asset impairment expenses associated with franchise operations are reported within those respective lines as applicable.

Marketing and Advertising Expenses

Advertising

Marketing and advertising costs are expensed as incurred. Total advertising expense included in other operating expenses and selling, general and administrative expense was $4.4$4.1 million, $4.7$5.7 million, and $3.9$6.3 million in fiscal 2015, 20142018, 2017, and 2013,2016, respectively.  We record advertising attributable to local store marketing and local community involvement efforts in other operating expenses; we record advertising attributable to our brand identity, our promotional offers, and our other marketing messages intended to drive guest awareness of our brands, in selling, general, and administrative expenses.  We believe this separation of our marketing and advertising costs assists with measurement of the profitability of individual restaurant locations by associating only the local store marketing efforts with the operations of each restaurant.

Advertising

Marketing and advertising expense included in other operating expenses attributable to local store marketing was $1.2$0.6 million, $0.8$0.6 million, and $0.8$0.7 million in fiscal 2015, 20142018, 2017, and 2013,2016, respectively.


Advertising

Marketing and advertising expense included in selling, general and administrative expense was $3.2$3.5 million, $3.9$5.1 million, and $3.1$5.6 million in fiscal 2015, 20142018, 2017, and 2013,2016, respectively.

Depreciation and Amortization

Property and equipment are recorded at cost. The Company depreciates the cost of equipment over its estimated useful life using the straight-line method. Leasehold improvements are amortized over the lesser of their estimated useful lives or the related lease terms. Depreciation of buildings is provided on a straight-line basis over the estimated useful lives.

Opening Costs

Opening costs are expenditures related to the opening of new restaurants through its opening periods, other than those for capital assets. Such costs are charged to expense when incurred.

Operating Leases

The Company leases restaurant and administrative facilities and administrative equipment under operating leases. Building lease agreements generally include rent holidays, rent escalation clauses and contingent rent provisions for a percentage of sales in excess of specified levels. Contingent rental expenses are recognized prior to the achievement of a specified target, provided that the achievement of the target is considered probable. Most of the Company’s lease agreements include renewal periods at the Company’s option. The Company recognizes rent holiday periods and scheduled rent increases on a straight-line basis over the lease term beginning with the date the Company takes possession of the leased space.  

Income Taxes

The estimated future income tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit carrybacks and carryforwards are recorded. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities (temporary differences) and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not a portion or all of the deferred tax asset will not be recognized.

During fiscal 2018, management concluded to increase their valuation allowance to reduce fully the Company’s net deferred tax asset balances, net of deferred tax liabilities, including through the fiscal year ended August 29, 2018.



Management makes judgments regarding the interpretation of tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions as well as by the Internal Revenue Service (“IRS”). In management’s opinion, adequate provisions for income taxes have been made for all open tax years. The potential outcomes of examinations are regularly assessed in determining the adequacy of the provision for income taxes and income tax liabilities. Management believes that adequate provisions have been made for reasonably possible outcomes related to uncertain tax matters.

Sales Taxes

GAAP provides that a company may adopt a policy of presenting sales taxes either gross within revenue or on a net basis.

The Company presents thesesales taxes on a net basis (excluded from revenue).

Discontinued Operations

Management evaluates unit closures for presentation in discontinued operations following guidance from ASC 205-20-55. To qualify for presentation as a discontinued operation, management determines if the closure or exit of a business location or activity meets the following conditions: (1) the operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction and (2) there will not be any significant continuing involvement in the operations of the component after the disposal transaction. To evaluate whether these conditions are met, management considers whether the cash flows lost will not be recovered and generated by the ongoing entity, the level of guest traffic and sales transfer, the significance of the number of locations closed and expectancy of cash flow replacement by sales from new and existing locations, as well as the level of continuing involvement in the disposed operation. Operating and non-operating results of these locations are then classified and reported as discontinued operations of all periods presented.

As of fiscal 2016, management evaluates unit closures for presentation in discontinued operations following guidance from ASU 2014-08. Beginning in fiscal 2016, in accordance with ASU No. 2014-08, the Company will only report the disposal of a component or a group of components of the Company in discontinued operations if the disposal of the components or group of components represents a strategic shift that has or will have a major effect on the Company’s operations and financial results. Adoption of this standard did not have a material impact on our consolidated financial statements.

Share-Based Compensation
 

Share-Based Compensation

Share-based compensation expense is estimated for equity awards at fair value at the grant date. The Company determines fair value of restricted stock awards based on the average of the high and low price of its common stock on the date awarded by the Board of Directors. The Company determines the fair value of stock option awards using a Black-SholesBlack-Scholes option pricing model. The Black-SholesBlack-Scholes option pricing model requires various judgmental assumptions including the expected dividend yield, stock price volatility, and the expected life of the award. If any of the assumptions used in the model change significantly, share-based compensation expense may differ materially in the future, from that recorded in the current period. The fair value of performance share based award liabilities are estimated based on a Monte Carlo simulation model. For further discussion, see Note 14,16, “Share-Based Compensation,” below.

Earnings Per Share

Basic income per share is computed by dividing net income by the weighted-average number of shares outstanding, including restricted stock units, during each period presented. For the calculation of diluted net income per share, the basic weighted average number of shares is increased by the dilutive effect of stock options, determined using the treasury stock method.

Accounting Periods

The Company’s fiscal year ends on the last Wednesday in August. Accordingly, each fiscal year normally consists of 13 four-week periods, or accounting periods, accounting for 364 days in the aggregate. However, every fifth or sixth year, we have a fiscal year that consists of 53 weeks, accounting for 371 days in the aggregate; fiscal year 2016 will bewas such a year. Each of the first three quarters of each fiscal year, consistsprior to fiscal 2016, consisted of three four-week periods, while the fourth quarter normally consists of four four-week periods. However, the fourth quarter of fiscal year 2011, as a result of the additional week, consisted of three four-week periods and one five-week period, accounting for 17 weeks, or 119 days, in the aggregate. Fiscal 2013 and 2012 both contained 52 weeks. Comparability between quarters may be affected by the varying lengths of the quarters, as well as the seasonality associated with the restaurant business.



Beginning in fiscal 2016, we will changechanged our fiscal quarter ending dates with the first fiscal quarter end beingwas extended by one accounting period and the fiscal fourth quarter beingwas reduced by one accounting period. The purpose of this change is in part to minimize the Thanksgiving calendar shift by extending the first fiscal quarter until after Thanksgiving. With this change in fiscal quarter ending dates, our first quarter will beis 16 weeks, and the remaining three quarters will typically be 12 weeks in length. The fourth fiscal quarter will be 13 weeks in certain fiscal years to adjust for our standard 52 week, or 364 day, fiscal year compared to the 365 day calendar year. Fiscal 2016 iswas such a year where the fourth quarter will haveincluded 13 weeks, resulting in a 53 week fiscal year. Comparability between quarters may be affected by varying lengths of the quarters, as well as the seasonality associated with the restaurant business.

Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from these estimates.


Correction of Immaterial Errors in Previously Issued Financial Statements
In the third quarter of fiscal 2018, management identified an accounting error in Trade accounts and other receivables, net that overstated Culinary Contract Services (CCS) segment revenues by approximately $1.0 million, in the aggregate, through the second fiscal quarter of 2018. Of the $1.0 million aggregate error, $0.1 million related to fiscal 2017 and $0.9 million related to the first and second quarters of fiscal 2018.
The error resulted from a duplication in the general ledger of certain sales with our CCS segment. While this error was not material to any previously issued annual or quarterly interim consolidated financial statements, management concluded that correcting the cumulative error and related tax effects would be material to the Company's consolidated financial statements for the fiscal quarter ended June 6, 2018.
Accordingly, the Company revised its consolidated financial statements for the quarters ended December 20, 2017 and March 14, 2018, to correct these errors. The prior period error corrections did not change the cash flows provided by or used in operating, investing, or financing activities previously reported.
Recently Adopted Accounting Pronouncements
In August 2014, the FASB issued ASU No 2014-15. The amendments in ASU 2014-15 are intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The Company adopted ASU 2014-15 in the quarter ended December 20, 2017. The provisions of ASU 2014-15 present that the Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations and obtain alternative financing to refund and repay the current debt owed under its Credit Agreement. Current conditions raise substantial doubt about the Company’s ability to continue as a going concern. See Note 2. Management's Assessment of Going Concern for further discussion on the impact to the Company.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (Topic 330). This update requires inventory within the scope of the standard to be measured at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company adopted ASU 2015-11 in the quarter ended December 20, 2017. The provisions of ASU 2015-11 did not have a material effect on the Company's financial condition, results of operations, or cash flows.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740). This update requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. The Company adopted ASU 2015-17 in the quarter ended December 20, 2017. The provisions of ASU 2015-17 did not have a material effect on the Company's financial condition, results of operations, or cash flows.


In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718). This update was issued as part of the FASB’s simplification initiative and affects all entities that issue share-based payment awards to their employees. The amendments in this update cover such areas as the recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits on the statement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover income taxes and still qualify for equity classification and the classification of those taxes paid on the statement of cash flows. The Company adopted ASU 2016-09 in the quarter ended December 20, 2017. The provisions of ASU 2016-09 did not have a material effect on the Company's financial condition, results of operations, or cash flows.
New Accounting Pronouncements - "to be Adopted"
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers(Topic 606). This update provides a single, comprehensive revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services.
During 2015, 2016, and 2017, the FASB issued various amendments which provide additional clarification and implementation guidance on ASU 2014-09 (collectively, with ASU 2014-09, “ASC 606”). Specifically, these amendments clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements, clarify how an entity should identify performance obligations and licensing implementation guidance, as well as account for shipping and handling fees and freight service, assess collectability, present sales tax, treat non-cash consideration, and account for completed and modified contracts at the time of transition. The new guidance requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition.
The effective date and transition requirements for ASC 606 is for fiscal years, and for interim periods within those years, beginning after December 15, 2017. The guidance allows for either a full retrospective or modified retrospective transition method. We will adopt this guidance effective with the first quarter of fiscal year 2019, which is the first fiscal quarter of the annual reporting period beginning after December 15, 2017. We will apply the modified retrospective transition method, which involves recording a cumulative adjustment for the impact of transitioning to the new guidance on the transition date and disclosing in the year of adoption the amount by which each financial statement line item was affected by applying ASC 606 and an explanation of significant changes. We will use the practical expedient to apply ASC 606 only to contracts not completed by the beginning of fiscal year 2019 (the date of the initial application of ASC 606 and amendments).
We do not expect the adoption of ASC 606 to have an impact on its recognition of revenues from Company owned stores (except for recognition of breakage on gift card sales discussed below), revenues from our culinary contract services, vending revenueor ongoing franchise royalty fees, which are based on a percentage of franchise sales.
We expect the adoption of ASC 606 will require us to recognize initial and renewal franchise and development fees on a straight-line basis over the term of the franchise agreement, which is usually 20 years. Historically, we have recognized revenue from initial franchise and development fees upon the opening of a franchised restaurant when we have completed all our material obligations and initial services. We do not expect this change to have a material impact on our franchise revenues. The cumulative effect adjustment to be recorded to retained earnings upon adoption is expected to consist of an increase in current accrued expenses and other liabilities of approximately $0.6 million associated with the fees received through the end of fiscal year 2018 that would have been deferred and recognized over the term of each respective franchise agreement if the new guidance had been applied in the past. This liability will be recognized as revenue in future periods over the remaining term of the respective franchise agreements.
ASC 606 will also change our reporting of marketing and advertising fund (“MAF”) contributions from franchisees and the related marketing and advertising expenditures. Under the current guidance, we do not reflect MAF contributions from franchisees and MAF expenditures in our statements of operations. Although the gross amounts of our revenues and expenses will be impacted by the recognition of franchisee MAF fund contributions and related expenditures of MAF funds we manage, increases to gross revenues and expenses will not result in a material net impact to our statement of operations.
Additionally, ASC 606 requires gift card breakage to be recognized as revenue in proportion to the pattern of gift card redemptions exercised by our customers. Currently, we record breakage income within other (expense) income (and not within revenue) when it is deemed remote that the unused gift card balance will be redeemed. We do not expect this change to have a material impact on our Company owned store revenues. The cumulative effect adjustment to be recorded to retained earnings upon adoption is expected to consist of a reduction to current accrued expenses and other liabilities within a range of approximately $2.0 million to $3.1 million associated with the adjustment to unearned gift card revenue if the new guidance had been applied in the past.
We are further evaluating the effect this guidance will have on our consolidated financial statements and related disclosures.



In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). In January and July 2018, The FASB issued ASC 2018-01, 2018-10 and 2018-11, which were targeted improvements to ASU 2016-02 (collectively, with ASC 2016-02, “ASC 842”) and provided entities with an additional (and optional) transition method to adopt the new leases standard. ASC 842 requires a lessee to recognize on the balance sheet a liability to make lease payments and a corresponding right-of-use asset. The update also requires additional disclosures about the amount, timing and uncertainty of cash flows arising from leases. This update is effective for annual and interim periods beginning after December 15, 2018, which will require us to adopt these provisions in the first quarter of fiscal 2020, and requires a modified retrospective transition approach with application in all comparative periods presented (the “comparative method”), or alternatively, as of the effective date as the date of initial application without restating comparative period financial statements (the “effective date method”). The new guidance also provides several practical expedients and policies that companies may elect under either transition method. Based on a preliminary assessment, the Company expects that most of its operating lease commitments will be subject to the new guidance and recognized as operating lease liabilities and right-of-use assets upon adoption, resulting in a significant increase in the assets and liabilities on our consolidated balance sheet. The Company is continuing its assessment of the impact of adoption, which may identify additional impacts this standard will have on its consolidated financial statements and related disclosures and has not yet determined the method of adoption.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). This update provides clarification regarding how certain cash receipts and cash payment are presented and classified in the statement of cash flows. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This update is effective for annual and interim periods beginning after December 15, 2017, which will require us to adopt these provisions in the first quarter of fiscal 2019 using a retrospective approach. Early adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
Subsequent Events

Events subsequent to the Company’s fiscal year ended August 26, 201529, 2018 through the date of issuance of the financial statements are evaluated to determine if the nature and significance of the event warrantsevents warrant inclusion in the Company’s annual report.

consolidated financial statements.






Note 2. Acquisitions

Cheeseburger in Paradise

Management's Assessment of Going Concern


The Company throughsustained a subsidiary, Paradise Cheeseburgers, LLC, purchased 100%net loss of approximately $33.6 million and cash flow from operations was a use of cash of approximately $8.5 million in fiscal 2018. The working capital deficit is magnified by the reclassification of the membership unitsCompany's approximate $39.5 million debt under its Credit Agreement (as defined below) from long-term to short-term due to the debt's May 1, 2019 maturity date. Pursuant to the Third Amendment, the lenders agreed to waive the existing events of Paradisedefault as of the effective date of the Third Amendment resulting from any breach of certain financial covenants or the limitation on maintenance capital expenditures, in each case that may have occurred during the period from and including May 9, 2018 until the effective date of the Third Amendment, and any related events of default. Additionally, the lenders agreed to waive the requirements that the Company comply with certain financial covenants until December 31, 2018, at which time the Company will be in default without an additional waiver or alternative financing.
The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations and its ability to obtain alternative financing to refund and repay the current debt owed under it's Credit Agreement. The above conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the above condition raises substantial doubt about the Company’s ability to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
Management has assessed the Company’s ability to continue as a going concern as of the balance sheet date, and for at least one year beyond the financial statement issuance date. The assessment of a company’s ability to meet its obligations is inherently judgmental. Without additional funding and the sale of assets, the Company may not have sufficient available cash to meet its obligations coming due in the ordinary course of business within one year of the financial statement issuance date. Although the Company has historically been able to successfully secure funding and execute alternative cash management plans to meet its obligations as they become due, there are no assurances that the Company will complete its refinancing. The following conditions were considered in management’s evaluation of going concern:
The Company announced on September 14, 2018 that it expects proceeds from the asset sales program initiated in April 2018 and expanded in July 2018 to be between $25.0 million and $45.0 million. The sales of eight owned properties were completed as of August 29, 2018 with proceeds received totaling $11.6 million. As noted below, these proceeds were and proceeds from future sales will be used to make prepayments on the Company’s outstanding term loan and revolver under the 2016 Credit Agreement.
On August 24, 2018, the Company entered into the Third Amendment of the 2016 Credit Agreement with the lenders and other counterparties, as further discussed in Note 12. Debt. Pursuant to this Third Amendment:
the lenders agreed to waive the existing conditions of default through the date of the Third Amendment,
the lenders agreed to waive the requirement to comply with certain financial covenants until December 31, 2018,
the Company is required to make partial mandatory prepayments from the proceeds of certain asset dispositions from and after the effective date of the Third Amendment, and
The Company has engaged a third-party financial advisor to assist management in pursuing financing transactions per conditions set forth in the debt waiver.

Note 3. Hurricane Harvey

Hurricane Harvey struck the Texas Gulf Coast on August 26, 2017. It meandered along the upper Texas coast for several days bringing unprecedented rain fall resulting in torrential flooding throughout the Greater Houston area. Over 55 Luby’s and Fuddruckers locations in the Texas Gulf Coast region were temporarily closed over varying lengths of time due to the storm. Restaurant Group, LLCsales were negatively impacted by approximately 200 operating days in the aggregate. Two Fuddruckers locations, in the Houston region, were closed on a more than temporary basis, due to extensive flooding which required reconstruction and affiliated companies which operate Cheeseburger in Paradise brand restaurants (collectively, “Cheeseburger in Paradise”) on December 6, 2012 for $10.2renovation. The Company estimates that it incurred over approximately $2.0 million in cash.lost sales from the store closures in fiscal 2017. The Company assumed $2.4estimates that Loss before income taxes and discontinued operations was negatively impacted by approximately $1.5 million in fiscal 2017 due to the reduced sales and increased costs incurred as a result of Cheeseburgerthe hurricane. In fiscal 2018, the Company additionally incurred an approximate $0.7 million in Paradise obligations, real estate leasesdirect costs for repairs and contracts. Theother costs related to the hurricane. As of August 29, 2018, the Company funded the purchase with existing cash reserves and borrowings from its credit facility.

has recovered approximately $2.1 million in insurance proceeds, which includes 1) approximately $0.5 million, in business interruption recovery that was recognized to Other operating expenses, 2) approximately $0.3 million that was recognized as a reduction to Other operating expenses as reimbursement of certain direct


The Company has accounted for

expenses incurred due to the fiscal 2013 acquisitionstorm and 3) approximately $1.3 million that was recognized, less the net book value of Cheeseburger in Paradise using the acquisition method and, accordingly, the results of operations related to this acquisition have been included in the consolidated results of the Company since the acquisition date. The Company incurred $0.4 million in acquisition costs which were expensed as incurred and classified as selling, general and administrative expenses on the consolidated statements of operations.

The allocation of the purchase price for the acquisition requires extensive use of accounting estimates and judgments to allocate the purchase price to tangible and intangible assets acquired and liabilities assumed based on respective fair values. The purchase price for the Company’s acquisition of Cheeseburger in Paradise and the assumption of liabilities is based on estimates of fair values at the acquisition date. The Company’s fair value estimates for the purchase price allocation may change during the allowable period, which is up to one year from the acquisition date to provide sufficient time to develop fair value estimates. The fair values that take longer to estimate and are more likely to change include property and equipment, intangible assets and leases.

Such valuations require significant estimates and assumptions. The Company believes the fair values assigned to the assets acquired and liabilities assumed are basedas Net gain on reasonable assumptions.

The following table summarizes the estimated fair values of net assets acquired and liabilities assumed, in thousands:

Cash and cash equivalents

 $58 

Accounts receivable

  93 

Inventories

  561 

Other current assets

  376 

Property and equipment

  6,374 

Liquor licenses and permits

  188 

Favorable leases

  2,646 

License agreement and trade name

  254 

Goodwill

  1,975 

Accrued liabilities

  (2,356

)

Net acquisition cost

 $10,169 

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

The Company will amortize the fair value allocated to the license agreement and trade name over an expected accounting life of 15 years based on the expected use of its assets and the restaurant environment in which it is being used. The Company recorded approximately $14 thousand of amortization expense for the fiscal year ended August 26, 2015, which is classified as depreciation and amortization expense in the accompanying consolidated statement of operations. Because the value of these assets will be amortized using the straight-line method over 15 years, the annual amortization will be $14 thousand in future years.

A portion of the acquired lease portfolio contained favorable leases. Acquired lease terms were compared to current market lease terms to determine if the acquired leases were below or above the current rates tenants would pay for similar leases. The favorable lease assets totaled $2.4 million, $2.6 million and $2.6 million in fiscal years 2015, 2014 and 2013, respectively, and are recorded in other assets. After considering renewal periods, the favorable lease assets have an estimated weighted average life of approximately 18.1 years, 19.1 years and 20.3 years at the end of the fiscal years 2015, 2014 and 2013, respectively. There were determined to be no unfavorable leases. The favorable leases are amortized to rent expense on a straight line basis over the lives of the related leases. The Company recorded $120 thousand, $126 thousand and $88 thousand of amortization for fiscal years ended 2015, 2014 and 2013, respectively, which is classified as additional rent expense in the accompanying consolidated statement of operations.


The following table shows the prospective amortization of the favorable lease asset:

  

Fiscal Year Ended

 
  

August 31,
2016

  

August 30,
2017

  

August 29,
2018

  

August 28,
2019

  

August 26,
2020

 
  

(In thousands)

 

Favorable

 $121  $121  $121  $121  $121 

Annual depreciation expense will be approximately $0.5 million of the $6.4 milliondisposition of property and equipment.

The Company also recorded an intangible asset for goodwill in the amount of $2.0 million. In fiscal 2015, the Company impaired goodwill $38 thousand. Goodwill is considered to have an indefinite useful life and is not amortized but is tested for impairment at least annually. The total amount of goodwill is expected to be deductible for income tax purposes.

The following unaudited pro forma information assumes the Cheeseburger in Paradise acquisition occurred as of the beginning of the fiscal year ended August 29, 2012. The unaudited pro forma data is presented for informational purposes only and does not purport to be indicative of the results of future operations of the Company or of the results that would have actually been attained had the acquisition taken place at the beginning of the fiscal year ended August 29, 2012.

  

Year Ended

 
  

August 28,

2013

  

August 29,

2012

 
  

(Unaudited)

  

(Unaudited)

 
  

(In thousands, except per share data)

 

Pro forma total sales

 $401,960  $403,572 

Pro forma income from continuing operations

  3,397   8,494 

Pro forma net income

  2,274   7,734 

Pro forma income from continuing operations per share

        

Basic

  0.12   0.30 

Diluted

  0.12   0.30 

Pro forma net income per share

        

Basic

  0.08   0.27 

Diluted

  0.08   0.27 

Included in the Consolidated Statement of Operations for fiscal 2013 were actual restaurant sales for Cheeseburger in Paradise of $35.7 million and loss from operations for Cheeseburger in Paradise of $1.8 million. Excluding first year integration costs of $0.7 million after-tax, the loss from operations related to Cheeseburger in Paradise included in the Consolidated Statement of Operations for the year ended August 28, 2013 was $1.1 million.


Note 3.4. Reportable Segments

The Company has three reportable segments: Company-owned restaurants, franchise operations and Culinary Contract Services.

Company-owned restaurants

Company-owned restaurants consists of several brands which are aggregated into one reportable segment due to the following:because of the nature of the products and services, the production processes, the customers, the methods used to distribute the products and services, the nature of the regulatory environment, and store level profit margin isare similar. The chief operating decision maker analyzes Company-owned restaurant store level profit which is defined as restaurant sales and vending revenue, less cost of food, payroll and related costs, and other operating expenses, and occupancy costs. The primary brands are Luby’s Cafeteria, Fuddruckers - World’s Greatest Hamburgers®, and Cheeseburger in Paradise with a couple of non-core restaurant locations under other brand names. Both Luby’s Cafeteria and FuddruckersParadise. All Company-owned restaurants are casual dining counter service restaurants. Each restaurant is an operating segment because operating results and cash flow can be determined for each restaurant.

The total number of Company-owned restaurants at the end of fiscal years 2015, 20142018, 2017, and 20132016 were 177, 174146, 167, and 180,175, respectively.


Culinary Contract Services

CCS, operation, branded as Luby’s Culinary Contract Services, consists of a business line servicing healthcare, higher education andsport stadiums, corporate dining clients.clients, and sales through retail grocery stores. The healthcare accounts are full service and typically include in-room delivery, catering, vending, coffee service, and retail dining. CCS had contracts with long-term acute care hospitals, acute care medical centers, ambulatory surgical centers, retail grocery stores, behavioral hospitals, a senior living facility, sports stadiums, government, and business and industry clients, and higher education institutions. Culinary Contract Servicesclients. CCS has the unique ability to deliver quality services that include facility design and procurement as well as nutrition and branded food services to our clients. The costsCost of Culinary Contract Services on the Consolidated Statements of Operations includes all food, payroll and related costs, other operating expenses, and other direct general and administrative expenses related to Culinary Contract ServicesCCS sales.

The total number of Culinary Contract ServicesCCS contracts at the end of fiscal 2015, 20142018, 2017, and 20132016 were 23,28, 25, and 21,24, respectively.

Franchising


CCS began selling Luby's Famous Macaroni & Cheese and Fried Fish in December 2016 and February 2017, respectively, in the freezer section of H-E-B stores, a Texas-born retailer. H-E-B stores now stock the family-sized versions (approximately five servings) of Luby's Classic Macaroni and Cheese and Luby's Jalapeño Macaroni and Cheese varieties and Luby's Fried Fish (two regular size fillets that provide four LuAnn-sized portions).
Franchise Operations
We only offer franchises for the Fuddruckers brand. Franchises are sold in markets where expansion is deemed advantageous to the development of the Fuddruckers concept and system of restaurants. Initial franchise agreements have a term of 20 years. Franchise agreements typically grant franchisees an exclusive territorial license to operate a single restaurant within a specified area, usually a four-mile radius surrounding the franchised restaurant.

Franchisees bear all direct costs involved in the development, construction, and operation of their restaurants. In exchange for a franchise fee, the Company provides franchise assistance in the following areas: site selection, prototypical architectural plans, interior and exterior design and layout, training, marketing and sales techniques, assistance by a Fuddruckers “opening team” at the time a franchised restaurant opens, and operations and accounting guidelines set forth in various policies and procedures manuals.

All franchisees are required to operate their restaurants in accordance with Fuddruckers standards and specifications, including controls over menu items, food quality, and preparation. The Company requires the successful completion of its training program by a minimum of three managers for each franchised restaurant. In addition, franchised restaurants are evaluated regularly by the Company for compliance with franchise agreements, including standards and specifications through the use of periodic, unannounced, on-site inspections and standards evaluation reports.

The number of franchised restaurants at the end of fiscal 2015, 20142018, 2017, and 20132016 were 106, 110, 116,105, 113, and 113, respectively.





Segment Table

The table belowon the following page shows financial information as required by ASC 280 for segment reporting. ASC 280 requires depreciation and amortization be disclosed for each reportable segment, even if not used by the chief operating decision maker. The table also lists total assets for each reportable segment. Corporate assets include cash and cash equivalents, tax refunds receivable, property and equipment, assets related to discontinued operations, property held for sale, deferred tax assets, and prepaid expenses.

  

Fisal Year Ended

 
  

August 26,
201
5

  

August 27,
2014

  

August 28,
2013

 
 

(In thousands)

Sales:

            

Company-owned restaurants(1)

 $370,723  $368,799  $360,566 

Culinary contract services

  16,401   18,555   16,693 

Franchise operations

  6,961   7,027   6,937 

Total

 $394,085  $394,381  $384,196 

Segment level profit:

            

Company-owned restaurants

 $51,909  $52,918  $53,984 

Culinary contract services

  1,615   1,708   1,089 

Franchise operations

  5,293   5,294   5,308 

Total

 $58,817  $59,920  $60,381 

Depreciation and amortization:

            

Company-owned restaurants

 $18,080  $17,357  $16,417 

Culinary contract services

  164   409   440 

Franchise operations

  767   767   767 

Corporate

  2,356   1,529   752 

Total

 $21,367  $20,062  $18,376 

Total assets:

            

Company-owned restaurants(2)

 $218,492  $220,793  $203,850 

Culinary contract services

  1,644   2,724   3,547 

Franchise operations (3)

  13,034   13,906   14,674 

Corporate(4)

  31,088   38,012   28,574 

Total

 $264,258  $275,435  $250,645 

Capital expenditures:

            

Company-owned restaurants

 $19,726  $43,075  $30,741 

Culinary contract services

  18   64   95 

Franchise operations

         

Corporate

  634   3,045   503 

Total

 $20,378  $46,184  $31,339 

Income (loss) before income taxes and discontinued operations:

            

Segment level profit

 $58,817  $59,920  $60,381 

Opening costs

  (2,686

)

  (2,164

)

  (783

)

Depreciation and amortization

  (21,367

)

  (20,062

)

  (18,376

)

Selling, general and administrative expenses

  (38,758

)

  (40,686

)

  (36,123

)

Provision for asset impairments

  (636

)

  (2,498

)

  (615

)

Net gain on disposition of property and equipment

  3,994   2,357   1,723 

Interest income

  4   6   9 

Interest expense

  (2,336

)

  (1,247

)

  (920

)

Other income, net

  520   1,101   1,026 

Total

 $(2,448

)

 $(3,273

)

 $6,322 

(1)  

Includes vending revenue of $531, $532 and $565 thousand for the year ended August 26, 2015, August 27, 2014 and August 28, 2013, respectively. 

(2)  

Company-owned restaurants segment includes $10.6 million of Fuddruckers trade name, Cheeseburger in Paradise liquor licenses, and Jimmy Buffett intangibles.

(3)  

Franchise operations segment includes approximately $12.2 million in royalty intangibles.

(4)  

Goodwill was disclosed in corporate segment in our fiscal 2014 Annual Report on Form 10-K and our first quarter fiscal 2015 Quarterly Report on Form 10-Q. The current draft reflects a revised classification of goodwill into the Company-owned restaurants segment.




 
Fiscal Year Ended
 August 29, 2018 August 30, 2017 August 31, 2016
 (In thousands)
Sales:     
Company-owned restaurants(1)
$333,049
 $351,365
 $378,694
Culinary contract services25,782
 17,943
 16,695
Franchise operations6,365
 6,723
 7,250
Total$365,196
 $376,031
 $402,639
Segment level profit:     
Company-owned restaurants$31,648
 $42,943
 $55,419
Culinary contract services1,621
 2,169
 1,740
Franchise operations4,837
 4,990
 5,373
Total$38,106
 $50,102
 $62,532
Depreciation and amortization:     
Company-owned restaurants$14,741
 $16,948
 $18,181
Culinary contract services71
 64
 103
Franchise operations769
 770
 784
Corporate1,872
 2,656
 2,821
Total$17,453
 $20,438
 $21,889
Total assets:     
Company-owned restaurants(2)
$151,511
 $189,990
 $211,182
Culinary contract services4,569
 3,342
 3,390
Franchise operations (3)
10,982
 11,325
 12,266
Corporate32,927
 21,800
 25,387
Total$199,989
 $226,457
 $252,225
Capital expenditures:     
Company-owned restaurants$11,109
 $11,374
 $17,258
Culinary contract services235
 3
 28
Corporate1,903
 1,125
 967
Total$13,247
 $12,502
 $18,253
Loss before income taxes and discontinued operations:     
Segment level profit$38,106
 $50,102
 $62,532
Opening costs(554) (492) (787)
Depreciation and amortization(17,453) (20,438) (21,889)
Selling, general and administrative expenses(38,725) (37,878) (42,422)
Provision for asset impairments and restaurant closings(8,917) (10,567) (1,442)
Net gain on disposition of property and equipment5,357
 1,804
 684
Interest income12
 8
 4
Interest expense(3,348) (2,443) (2,247)
Other income (expense), net298
 (454) 186
Total$(25,224) $(20,358) $(5,381)
(1) Includes vending revenue of $531 thousand, $547 thousand, and $583 thousand for the years ended August 29, 2018, August 30, 2017, and August 31, 2016, respectively. 
(2) Company-owned restaurants segment includes $8.4 million of Fuddruckers trade name, Cheeseburger in Paradise liquor licenses, and Jimmy Buffett intangibles.
(3) Franchise operations segment includes approximately $9.9 million in royalty intangibles.


Note 5. Derivative Financial Instruments

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 rate we pay is 1.965% and the variable rate we receive is one-month LIBOR. The term of the interest rate swap is 5 years. The Company does not apply hedge accounting treatment to this derivative; therefore, changes in fair value of the instrument are recognized in Other income (expense), net. The changes in the interest rate swap fair value resulted in income of approximately $701 thousand and an expense of approximately $266 thousand in fiscal 2018 and 2017, respectively.

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

Note 4.6. Fair Value Measurement

GAAP establishes a framework for using fair value to measure assets and liabilities, and expands disclosure about fair value measurements. Fair value measurements guidance applies whenever other statements require or permit assetassets or liabilities to be measured at fair value.

GAAPestablishes 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.


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.

Recurring fair value measurements related to assets are presented below:

   Fair Value
Measurement Using
  
 Fiscal Year Ended August 29, 2018 Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 Significant
Other
Observable
Inputs
(Level 2)
 Significant
Unobservable
Inputs
(Level 3)
 Valuation Method
Recurring Fair Value - Assets  (In thousands)    
Continuing Operations:         
Derivative - Interest Rate Swap(1)
$435
 $
 $435
 $
 Discounted Cash Flow
(1) The fair value of the interest rate swap is recorded in Other assets on the Company's Consolidated Balance Sheet.



Recurring fair value measurements related to liabilities are presented below:
   Fair Value
Measurement Using
  
 Fiscal Year Ended August 29, 2018 Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 Significant
Other
Observable
Inputs
(Level 2)
 Significant
Unobservable
Inputs
(Level 3)
 Valuation Method
Recurring Fair Value - Liabilities  (In thousands)    
Continuing Operations:         
TSR Performance Based Incentive Plan(1)
$21
 $
 $21
 $
 Monte Carlo Approach
(1) The fair value of the Company's 2017 Performance Based Incentive Plan liabilities was approximately $21 thousand. See Note 16 to the Company's consolidated financial statements in Part II, Item 8 in this Form 10-K for further discussion of Performance Based Incentive Plan.
   Fair Value
Measurement Using
  
 Fiscal Year Ended August 30, 2017 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 - Liabilities  (In thousands)    
Continuing Operations:         
TSR Performance Based Incentive Plan(1)
$831
 $
 $831
 $
 Monte Carlo Approach
Derivative - Interest Rate Swap(2)
$266
 $
 $266
 $
 Discounted Cash Flow
(1) The fair value of the Company's 2015, 2016 and 2017 Performance Based Incentive Plan liabilities were approximately $496 thousand $265 thousand, and $70 thousand, respectively. See Note 16 to the Company's consolidated financial statements in Part II, Item 8 in this Form 10-K for further discussion of Performance Based Incentive Plan.
(2) The fair value of the interest rate swap is recorded in Other liabilities on the Company's Consolidated Balance Sheet.



Non-recurring fair value measurements related to impaired property and equipment consistedconsist of the following:

      

Fair Value
Measurement Using

     
  

FiscalYear Ended

August 26, 2015

  

Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)

  

Significant
Other
Observable
Inputs
(Level 2)

  

Significant
Unobservable
Inputs
(Level 3)

  

Total
Impairments

 
      

(In thousands)

         

Continuing Operations

                    

Property and equipment related to company-owned restaurants

 $5,282  $  $  $5,282  $(636

)

                     

Discontinued Operations

                    

Property and equipment related to corporateassets

 $903  $  $  $903  $(90

)

  
   
Fair Value
Measurement Using
  
 Fiscal Year Ended August 29, 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 and equipment related to Company-owned restaurants(1)
$1,519
 $
 $
 $1,519
 $(4,052)
Goodwill(2)

 
 
 
 (513)
Property held for sale(3)
5,132
 
 
 5,132
 (3,062)
Total Nonrecurring Fair Value Measurements$6,651
 $
 $
 $6,651
 $(7,627)
(1) In accordance with Subtopic 360-10, long-lived assets held and used with a carrying amount of approximately $5.6 million were written down to their fair value of approximately $1.5 million, resulting in an impairment charge of approximately $4.1 million.
(2) In accordance with Subtopic 350-20, goodwill with a carrying amount of approximately $513 thousand was written down to its implied fair value of zero, resulting in an impairment charge of approximately $513 thousand. See Note 9 and Note 13 to the Company's consolidated financial statements in this Form 10-K for further discussion of goodwill.
(3) In accordance with Subtopic 360-10, long-lived assets held for sale with carrying values of approximately $12.9 million were written down to their fair value, less costs to sell, of approximately $5.1 million, resulting in an impairment charge of approximately $3.1 million. Proceeds on the sale of six properties previously recorded in Property held for sale amounted to approximately $4.7 million.
(4) Total impairments are included in Provision for asset impairments and restaurant closings in the Company's Consolidated Statement of Operations for the fiscal year ended 2018.

      

Fair Value
Measurement Using

     
  

FiscalYear Ended

August 27, 2014

  

Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)

  

Significant
Other
Observable
Inputs
(Level 2)

  

Significant
Unobservable
Inputs
(Level 3)

  

Total
Impairments

 
  

(In thousands)

     

Continuing Operations

                    

Property and equipment related to company-owned restaurants

 $6,446        $6,446  $(2,498

)

                  $(2,498

)

Discontinued Operations

                    

Property and equipment related to corporate assets

 $1,144        $1,144  $(1,200

)

      

Fair Value
Measurement Using

     
  

FiscalYear Ended

August 28, 2013

  

Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)

  

Significant
Other
Observable
Inputs
(Level 2)

  

Significant
Unobservable
Inputs
(Level 3)

  

Total
Impairments

 
      

(In thousands)

         

Continuing Operations

                    

Property and equipment related to company-owned restaurants

 $722  $  $  $722  $(462

)

Property and equipment related to corporate assets

 $447  $  $  $447  $(153

)

                  $(615

)

Discontinued Operations

                    

Property and equipment related to corporate assets

 $3,159  $  $  $3,159  $(663

)

   Fair Value
Measurement Using
  
 Fiscal Year Ended August 30, 2017 Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 Significant
Other
Observable
Inputs
(Level 2)
 Significant
Unobservable
Inputs
(Level 3)
 
Total
Impairments
(4)
Nonrecurring Fair Value Measurements(In thousands)  
Continuing Operations:         
Property and equipment related to Company-owned restaurants(1)
$5,519
 $
 $
 $5,519
 $(8,571)
Goodwill(2)

 
 
 
 (537)
Property held for sale(3)
3,372
 
 
 3,372
 (977)
Total Nonrecurring Fair Value Measurements$8,891
 $
 $
 $8,891
 $(10,085)
(1) In accordance with Subtopic 360-10, long-lived assets held and used with a carrying amount of approximately $14.1 million were written down to their fair value of approximately $5.5 million, resulting in an impairment charge of approximately $8.6 million.
(2) In accordance with Subtopic 350-20, goodwill with a carrying amount of approximately $537 thousand was written down to its implied fair value of zero, resulting in an impairment charge of approximately $537 thousand. See Note 9 and Note 13 to the Company's consolidated financial statements in this Form 10-K for further discussion of goodwill.
(3) In accordance with Subtopic 360-10, long-lived assets held for sale with carrying values of approximately $5.5 million were written down to their fair value, less cost to sell, of approximately $3.4 million, resulting in an impairment charge of approximately $1.0 million. Proceeds on the sale of one property previously recorded in Property held for sale amounted to approximately $1.2 million.
(4) Total impairments are included in Provision for asset impairments and restaurant closings in the Company's Consolidated Statement of Operations for the fiscal year ended 2018.



Note 5.7. Trade Receivables and Other

Trade and other receivables, net, consist of the following:

  

August 26,
201
5

  

August 27,
201
4

 
 

(In thousands)

Trade and other receivables

 $4,150  $2,940 

Franchise royalties and marketing and advertising receivables

  706   705 

Trade receivables, unbilled

  874   979 

Allowance for doubtful accounts

  (555

)

  (512

)

Total, net

 $5,175  $4,112 

 
 August 29,
2018
 August 30,
2017
 (In thousands)
Trade and other receivables$6,697
 $5,966
Franchise royalties and marketing and advertising receivables764
 687
Unbilled revenue1,557
 1,633
Allowance for doubtful accounts(231) (275)
Total Trade accounts and other receivables, net$8,787
 $8,011

The Company does not have a concentration of credit risk in total trade and other receivables, net.

CCS receivable balance at August 26, 201529, 2018 was $3.0$6.7 million, primarily the result of 1012 contracts with balances of $0.01approximately $0.1 million to $0.1approximately $3.6 million per contract entity. The Company had certain customer’s contracts whose accounts receivable balancesThese 12 collectively represented approximately 30%67% of the Company’s total accounts receivables. Contract payment terms for its CCS customers’ receivables are due within 30 to 45 days.

Unbilled revenue, was approximately $1.6 million at August 29, 2018 and approximately $1.6 million at August 30, 2017. CCS contracts are billed on a calendar month end basis and represent the total balance of Unbilled revenue.

The Company recorded receivables related to Fuddruckers franchise operations royalty and marketing and advertising payments from the franchisees, as required by their franchise agreements. Franchise royalty and marketing and advertising fund receivables balance at August 26, 201529, 2018 was $0.7approximately $0.8 million. At August 26, 2015,29, 2018, the Company had 106105 operating franchise restaurants with no concentration of accounts receivable.

The change in allowances for doubtful accounts for each of the years in the three-year periods ended as of the dates below is as follows:

  

FiscalYear Ended

 
  

August 26,
201
5

  

August 27,
2014

  

August 28,
2013

 
 

(In thousands)

Beginning balance

 $512  $586  $678 

Provisions for doubtful accounts

  51   61   (1

)

Write-offs

  (8

)

  (135

)

  (91

)

Ending balance

 $555  $512  $586 

 
Fiscal Year Ended
 August 29,
2018
 August 30,
2017
 August 31,
2016
 (In thousands)
Beginning balance$275
 $81
 $555
Provisions (reversal) for doubtful accounts464
 200
 (18)
Write-offs(1)(2)
(508) (6) (456)
Ending balance$231
 $275
 $81
(1) The approximate $0.5 million Balance Sheet write-off in fiscal 2018 primarily resulted from uncollectable receivables at seven Culinary Contract Services accounts reserved in fiscal years 2015 through and including 2018.
(2) The approximate $0.5 million Balance Sheet write-off in fiscal 2016 resulted from uncollectable receivables at three Culinary Contract Services accounts reserved for in fiscal 2011, 2012, and 2013.



Note 6.8. Income Taxes

The following table details the categories of total income tax assets and liabilities for both continuing and discontinued operations resulting from the cumulative tax effects of temporary differences:

  

August 26,
201
5

  

August 27,
2014

 
 

(In thousands)

Deferred income tax assets:

        

Workers’ compensation, employee injury, and general liability claims

 $342  $158 

Deferred compensation

  137   354 

Net operating losses

  808   5 

General business and foreign tax credits

  10,011   8,911 

Depreciation, amortization and impairments

  1,484   1,379 

Straight-line rent, dining cards, accruals, and other

  3,930   3,719 

Total deferred income tax assets

  16,712   14,526 

Deferred income tax liabilities:

        

Property taxes and other

  1,765   1,576 

Total deferred income tax liabilities

  1,765   1,576 

Net deferred income tax asset

 $14,947  $12,950 

 August 29,
2018
 August 30,
2017
 (In thousands)
Deferred income tax assets:   
Workers’ compensation, employee injury, and general liability claims$507
 $486
Deferred compensation280
 437
Net operating losses4,401
 2,140
General business and foreign tax credits12,105
 11,599
Depreciation, amortization and impairments6,796
 7,515
Straight-line rent, dining cards, accruals, and other2,917
 4,392
Subtotal27,006
 26,569
Valuation allowance(25,873) (16,871)
Total deferred income tax assets1,133
 9,698
Deferred income tax liabilities:   
Property taxes and other1,133
 1,916
Total deferred income tax liabilities1,133
 1,916
Net deferred income tax asset$
 $7,782
On December 22, 2017, President Donald J. Trump signed into law U.S. tax reform legislation that is commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The enactment date occurred during the second quarter of fiscal 2018 and the impact on our income tax accounts of the Tax Act are accounted for in the period of enactment, in accordance with ASC 740. The Tax Act makes broad and complex changes to the U.S. tax code and most notably to the Company, the Tax Act lowered the federal statutory tax rate from 35% to 21% effective January 1, 2018. In accordance with the application of IRC Section 15, the Company's federal statutory tax rate for fiscal 2018 was 25%, representing a blended tax rate for the current fiscal year based on the number of days in the fiscal year before and after the effective date. For subsequent years, the Company's federal statutory tax rate is anticipated to be 21%. The Company hadwas also required to remeasure its deferred tax assets and liabilities using the new federal statutory tax rate in the second quarter of fiscal 2018, upon enactment of the Tax Act. At that time, the Company's deferred tax balance was $7.8 million, and the Tax Act reduction in the federal statutory tax rate resulted in a one-time non-cash reduction to the Company's net deferred tax balance of approximately $3.2 million with a corresponding increase to the provision for income taxes in the second quarter of fiscal 2018.
The effects of the Tax Act on the Company's income tax accounts were reflected in the fiscal 2018 financial statements as determined or as reasonably estimated provisional amounts 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 was able to determine a provisional estimate of the effects of the Tax Act on its income tax accounts.
The Company currently considers the deferred tax assets not to be realizable and maintains a full valuation allowance against the Company’s net deferred tax asset balance at August 26, 2015 of approximately $16.7 million, the29, 2018. The most significant of which includedeferred tax asset prior to valuation allowance is the Company’s general business tax credits carryovers to future years of approximately $9.6 million of deferred tax assets, combined.$11.6 million. This item may be carried forward up to twenty years for possible utilization in the future. The carryover of general business tax credits, beginning in fiscal 2002, will begin to expire at the end of fiscal 2022 through 2034,2038, if not utilized by then.

Management has evaluated both positive and negative evidence, including its forecasts of the Company’s future operational performance and taxable income, adjusted by varying probability factors, in making a determination as to whether it is more likely than not that all or some portion of the deferred tax assets will be realized.


Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future, as well as from tax NOLnet operating losses and tax credit carryovers. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will be realized. In evaluating our ability to recover our deferred tax assets, we consider available positive and negative evidence, including scheduled reversals of deferred tax liabilities, tax-planning strategies projected future taxable income,and existing business conditions, including amendment to our credit agreement(s) to avoid default and results of recent operations.



Positive

We evaluated new negative evidence that we consider includesduring the third quarter of fiscal 2018, in connection with our response to a default in certain of the Company’s historyCredit Agreement financial covenants, a condition that raised substantial doubt as to the Company continuing as a going concern for a reasonable period of realizing fullytime. This circumstance and its tax NOL and tax credit carryovers prior to expiration andadded negative evidence, supported management’s conclusion that a full valuation allowance on the considered use of tax-planning strategies. The later includes the acceleration of unrealized gains from our owned property locations through sale or exchange, if and when necessary on a selective basis, which we consider to be a significant piece of positive evidence. We regularly evaluate our portfolio of owned properties, long-lived assets and their relative values, for many different business purposes, and have estimated the resulting unrealizedCompany’s net gains thereon to be of sufficient measure to recover our deferred tax assets includingin the amount of $25.3 million was necessary during the third quarter of fiscal 2018. Management's conclusion for a full valuation allowance reduces fully the Company’s net deferred tax NOL and tax credit carryovers. Tax-planning strategies involving the accelerationbalances, net of unrealized gains, as well as the reversals of our deferred tax liabilities, are ofthrough and including the same character and should reverse in both the same period and jurisdiction as the temporary differences giving rise to the deferred tax. In evaluating negative evidence, we consider three years of cumulative operating income (loss). A significant contributor to the Company’s threefiscal year cumulative loss involves a number of underperforming locations, principally all of which have been disposed of under the Company’s disposal plan. The Company has recorded a deferred tax asset of $10.8 million reflecting the benefit of $0.8 million in tax NOL and $10.0 tax credit carryovers, which expire in varying amounts between fiscal 2022 and 2034. Realization is dependent on generating sufficient taxable income, and if necessary gain on sale of owned properties, prior to expiration of the tax NOL and tax credit carryovers. Management believes it is more likely than not that all of the deferred tax asset will be realized.

ended August 29, 2018.


An analysis of the provision for income taxes for continuing operations is as follows:

  

August 26,
201
5

  

August 27,
2014

  

August 28,
2013

 
 

(In thousands)

Current federal and state income tax expense

 $523  $371  $614 

Current foreign income tax expense

  63   87   89 

Deferred income tax expense (benefit)

  (1,662

)

  (2,118

)

  1,072 

Total income tax expense (benefit)

 $(1,076

)

 $(1,660

)

 $1,775 

 August 29,
2018
 August 30,
2017
 August 31,
2016
 (In thousands)
Current federal and state income tax expense$405
 $329
 $128
Current foreign income tax expense71
 84
 82
Deferred income tax expense7,254
 2,025
 4,665
Provision for income taxes$7,730
 $2,438
 $4,875
Relative only to continuing operations, the reconciliation of the expense (benefit) for income taxes to the expected income tax expense, (benefit), computed using the statutory tax rate, was as follows:

  

FiscalYear Ended

 
  

August 26,
201
5

  

August 27,
201
4

  

August 28,
201
3

 
  

Amount

  

%

  

Amount

  

%

  

Amount

  

%

 
 

(In thousands and as a percent of pretax income from continuing operations)

Income tax expense (benefit) from continuing operations at the federal rate

 $(832

)

  34.0

%

 $(1,120

)

  34.0

%

 $2,149   34.0

%

Permanent and other differences:

                        

Federal jobs tax credits (wage deductions)

  302   (12.3

)

  404   (12.3

)

  355   5.6 

Stock options and restricted stock

  74   (3.0

)

  54   (1.7

)

  50   0.8 

Other permanent differences

  60   (2.5

)

  185   (5.6

)

  68   1.1 

State income tax, net of federal benefit

  200   (8.2

)

  52   (1.6

)

  338   5.3 

General Business Tax Credits

  (888

)

  36.3   (1,187

)

  36.1   (1,043

)

  (16.5

)

Other

  8   (0.3

)

  (48

)

  1.5   (142

)

  (2.2

)

Income tax expense (benefit) from continuing operations

 $(1,076

)

  44.0

%

 $(1,660

)

  50.4

%

 $1,775   28.1

%

 
Fiscal Year Ended
 August 29,
2018
 August 30,
2017
 August 31,
2016
 Amount % Amount % Amount %
 (In thousands and as a percent of pretax loss from continuing operations)
Income tax benefit from continuing operations at the federal rate$(6,405) 25.4 % $(6,922) 34.0 % $(1,830) 34.0 %
Permanent and other differences:           
Federal jobs tax credits (wage deductions)129
 (0.5) 200
 (1.0) 226
 (4.2)
Stock options and restricted stock67
 (0.3) 129
 (0.6) 165
 (3.1)
Other permanent differences41
 (0.2) 62
 (0.3) 74
 (1.4)
State income tax, net of federal benefit145
 (0.6) (45) 0.2
 94
 (1.7)
General Business Tax Credits(506) 2.0
 (589) 2.9
 (665) 12.4
Impact of U.S. Tax Reform3,167
 (12.6) 
 
 
 
Other487
 (1.8) 84
 (0.4) (94) 1.7
Change in valuation allowance10,605
 (42.0) 9,519
 (46.8) 6,905
 (128.3)
Provision for income taxes from continuing operations$7,730
 (30.6)% $2,438
 (12.0)% $4,875
 (90.6)%
For the fiscal year ended August 26, 2015,29, 2018, including both continuing and discontinued operations, the Company is estimated to report a federal taxable incomeloss of approximately $4.7$14.2 million. The Company will be able to utilize NOL carryovers from prior years to reduce the current year federal income tax liability to zero.

For the fiscal year ended August 27, 2014,30, 2017, including both continuing and discontinued operations, the Company generated federal taxable loss of approximately $6.5$3.0 million.

For the fiscal year ended August 28, 2013,31, 2016, including both continuing and discontinued operations, the Company generated federal taxable income of approximately $4.1$3.1 million. The Company utilized NOL carryovers from prior years to reduce the current year federal tax liability to zero.


The IRS has periodically reviewed the Company’s federal

Our income tax returns. The IRS concluded a review of thefilings are periodically examined by various federal income tax return for fiscal year 2008 on March 12, 2011. The IRS made no changes to the return. The State of Texas examined the franchise tax filings for report years 2008 through 2011 based on accounting years 2007 through 2010 resulting in additional taxes of $33,000.and state jurisdictions. The State of Louisiana is currently examining income tax returns for fiscal years 20132014 and 2014.

Prior to fiscal 2010, the Company operated in five states and was subject to state and local2015.



There were no payments of federal income taxes in addition to federal income taxes. With the acquisition of Fuddruckers restaurants at the end of fiscal 2010 and Cheeseburger in Paradise in fiscal 2013, the2016, 2017 or 2018. The Company has income tax filing requirements in over 30 states.

There were no payments of federal income taxes in fiscal 2013, 2014 or 2015. State income tax payments were approximately $0.5$0.4 million, each year during$0.4 million, and $0.4 million in fiscal 2013, 20142018, 2017, and 2015.

2016, respectively.

The following table is a reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of fiscal years 2013, 20142016, 2017 and 20152018 (in thousands):

Balance at August 29, 2012

 $970 

Decrease based on prior year tax positions

  (273

)

Interest Expense

  72 

Balance as of August 28, 2013

 $769 

Decrease based on prior year tax positions

  (707

)

Interest Expense

   

Balance as of August 27, 2014

 $62 

Interest Expense

  1 

Balance as of August 26, 2015

 $63 

Balance as of August 26, 2015$63
Decrease based on prior year tax positions(18)
Interest Expense
Balance as of August 31, 2016$45
Decrease based on prior year tax positions(20)
Interest Expense
Balance as of August 30, 2017$25
Decrease based on prior year tax positions
Interest Expense
Balance as of August 29, 2018$25
The unrecognized tax benefits would favorably affect the Company’s effective tax rate in future periods if they are recognized. The estimate ofThere is no interest associated with unrecognized benefits is approximately $1 thousand as of August 26, 2015.29, 2018. The Company has included interest or penalties related to income tax matters as part of income tax expense (or benefit).

expense.

It is reasonably possible that the amount of unrecognized tax benefits with respect to our uncertain tax positions could significantly increase or decrease within 12 months. However, based on the current status of examinations, it is not possible to estimate the future impact, if any, to recorded uncertain tax positions as of August 26, 2015.

29, 2018.

Management believes that adequate provisions for income taxes have been reflected in the financial statements and is not aware of any significant exposure items that have not been reflected in the financial statements. Amounts considered probable of settlement within one year have been included in the accrued expenses and other liabilities in the accompanying consolidated balance sheet.

Tangible Property Regulations

In September 2013, the U.S. Treasury issued final regulations addressing the tax consequences associated with the acquisition, production and improvement of tangible property and which are generally effective for taxable years beginning on or after January 1, 2014, which for the Company was its year beginning August 28, 2014. The Company plans to timely adopt these regulations and, at this time, has not evaluated the impact of these regulations on its consolidated financial statements.


Note 7.9. Property and Equipment, Intangible Assets and Goodwill

The cost, net of impairment, and accumulated depreciation of property and equipment at August 26, 201529, 2018 and August 27, 2014,30, 2017, together with the related estimated useful lives used in computing depreciation and amortization, were as follows:

  

August 26,
201
5

  

August 27,
2014

  

Estimated
Useful Lives (years)

 
 

(In thousands)

      

Land

 $63,298  $69,767      

Restaurant equipment and furnishings

  85,642   77,967   3to15 

Buildings

  159,391   156,308   20to33 

Leasehold and leasehold improvements

  29,229   26,389    

Lesser of lease term or

estimated useful life

 

Office furniture and equipment

  3,559   2,997   3to10 

Construction in progress

  504   10,313      
   341,623   343,741       

Less accumulated depreciation and amortization

  (141,764

)

  (130,249

)

      

Property and equipment, net

 $199,859  $213,492       

Intangible assets, net

 $22,570  $24,014    21  

Goodwill

 $1,643  $1,681       

 August 29, 2018 August 30, 2017 
Estimated
Useful Lives (years)
 (In thousands)      
Land$46,817
 $60,414
     
Restaurant equipment and furnishings69,678
 73,411
 3 to 15
Buildings131,557
 153,041
 20 to 33
Leasehold and leasehold improvements27,172
 26,953
   Lesser of lease term or
estimated useful life
  
Office furniture and equipment3,596
 3,684
 3 to 10
Construction in progress
 35
     
 278,820
 317,538
      
Less accumulated depreciation and amortization(140,533) (144,724)      
Property and equipment, net$138,287
 $172,814
      
Intangible assets, net$18,179
 $19,640
 15 to 21
Goodwill$555
 $1,068
      


Depreciation expense for the fiscal years 2018, 2017, and 2016 was $16.1 million, $19.0 million, and $20.5 million, respectively.

Intangible assets, net, consist primarily of the Fuddruckers trade name and franchise agreements and will be amortized. The Company believes the Fuddruckers brand name has an expected accounting life of 21 years from the date of acquisition based on the expected use of its assets and the restaurant environment in which it is being used. The trade name represents a respected brand with customer loyalty and the Company intends to cultivate and protect the use of the trade name. The franchise agreements, after considering renewal periods, have an estimated accounting life of 21 years from the date of acquisition, July 2010, and will be amortized over this period of time.

Intangible assets, net, also includes the license agreement and trade name related to Cheeseburger in Paradise and the value of the acquired licenses and permits allowing the sales of beverages with alcohol. These assets have an expected accounting life of 15 years from the date of acquisition December 6, 2012.

The aggregate amortization expense related to intangible assets subject to amortization for fiscal years 2015, 20142018, 2017, and 20132016 was approximately $1.4 million, $1.5$1.4 million, and $1.6$1.4 million, 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 years.

The following table presents intangible assets as of August 26, 201529, 2018 and August 27, 2014:

  

August 26, 2015

  

August 27, 2014

 
  

(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

 $29,607  $(7,166

)

 $22,441  $29,607  $(5,767

)

 $23,840 
                         

Cheeseburger in Paradise trade name and license agreements

 $416  $(287

)

 $129  $416  $(242

)

 $174 
                         

Intangible assets, net

 $30,023  $(7,453

)

 $22,570  $30,023  $(6,009

)

 $24,014 

30, 2017:
 
 August 29, 2018 August 30, 2017
 (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
 $(11,350) $18,136
 $29,486
 $(9,943) $19,543
Cheeseburger in Paradise trade name and license agreements$421
 $(378) $43
 $421
 $(324) $97
Intangible assets, net$29,907
 $(11,728) $18,179
 $29,907
 $(10,267) $19,640

The Company recorded an intangible asset for goodwill in the amount

Goodwill, net of accumulated impairments of approximately $0.2$1.6 million relatedand $1.1 million in fiscal 2018 and 2017, respectively, was approximately $0.6 million as of August 29, 2018 and $1.1 million as of August 30, 2017 and relates to our Company-owned restaurants reportable segment. Goodwill has been allocated to and impairment is assessed at the reporting unit level, which is the individual restaurants within our Fuddruckers and Cheeseburger in Paradise brands that were acquired in fiscal 2010 and fiscal 2013, respectively. The net Goodwill balance at the end of fiscal 2018 is comprised of amounts assigned to the acquisition of substantially all of the assets of Fuddruckers. The Company also recorded an intangible asset for goodwill in the amount of approximately $2.0 million related to the acquisition ofone Cheeseburger in Paradise. GoodwillParadise restaurant that is consideredstill operated by us, two Cheeseburger in Paradise restaurants that were converted to have an indefinite useful lifeFuddruckers restaurants, and is not amortized.

the goodwill from the Fuddruckers acquisition in 2010. The Company performs a goodwill impairment test annually as of the end of the second quarter of each year and more frequently when negative conditions or a triggering event arise. After an assessmentManagement prepares valuations for each of certain qualitative factors, if it is determined to be more likely than not that the fair value of a reporting unit is less than its carrying amount, entities must perform the quantitative analysis of the goodwill impairment test. Otherwise, the quantitative test(s) become optional. For the annual analysis in fiscal years 2014 and 2015, the Company elected to bypass the qualitative assessment and proceeded directly to performing the first step of the goodwill impairment test. In future periods, the Company may determine that facts and circumstances indicate use of the qualitative assessment may be the most reasonable approach. Management performed its formal annual assessment as of the second quarter each fiscal year. The individual restaurant level is the level at which goodwill is assessed for impairment under ASC 350. In accordance with our understanding of ASC 350, we have allocated the goodwill value to each reporting unit in proportion to each location’s fair value at the date of acquisition. The result of these assessments were impairment of goodwill of $38 thousand and $0.5 million in fiscal years 2015 and 2014, respectively. The Company will formally perform additional assessments on an interim basis if an event occurs or circumstances exist that indicate that it is more likely than not that a goodwill impairment exists. As of November 3, 2015, of the 23 locations that were acquired, eight locations remain operating as Cheeseburger in Paradise restaurants eight locations were closed and converted to Fuddruckers restaurants, two locations where the option to extend the lease was not exercised, two locations subleased to franchisees and three closed and held for future use. The remaining three locations closed may also be converted to Fuddruckers, which continues as a contingency strategy from when the acquisition was initially consummated. As we are not moving any of the former Cheeseburger in Paradise restaurants out of their respective market, the goodwill associated with the acquired location and market area is expected to be realized through operating these former Cheeseburger in Paradise branded restaurants as Fuddruckers branded restaurants. The Company has experience converting and opening new restaurant locations and the Fuddruckers brand units have positive cash flow history. This historical data was considered when completing our fair value estimates for recovery of the remaining net book value including goodwill. In addition, we included the incremental conversion costs in our cash flow projections when completing our routine impairment of long-lived assets testing. Management has therefore performed valuations using a discounted cash flow analysis for each of its restaurants(Level 3 inputs) to determine the fair value of each reporting unit for comparison with the reporting unit’s carrying value.

Goodwill wasvalue in determining if there has been an impairment of goodwill at the reporting unit level.


The Company recorded goodwill impairment charges of approximately $1.6 million as of August 26, 2015$513 thousand, $537 thousand, and approximately $1.7 million as of August 27, 2014$38 thousand in fiscal 2018, 2017, and relates to our Company-owned restaurants reportable segment.

2016, respectively.

Note 8.10. Current Accrued Expenses and Other Liabilities

The following table sets forth current accrued expenses and other liabilities as of August 26, 201529, 2018 and August 27, 2014:

  

August 26,
2015

  

August 27,
2014

 
 

(In thousands)

Salaries, compensated absences, incentives, and bonuses

 $5,435  $6,504 

Operating expenses

  1,118   1,280 

Unredeemed gift cards and certificates

  5,472   4,144 

Taxes, other than income

  7,760   6,943 

Accrued claims and insurance

  1,267   1,076 

Income taxes, legal and other

  2,906   3,160 

Total

 $23,958  $23,107 

30, 2017:
 


 August 29,
2018
 August 30,
2017
 (In thousands)
Salaries, compensated absences, incentives, and bonuses(1)
$6,073
 $5,339
Operating expenses1,068
 1,041
Unredeemed gift cards7,213
 7,298
Taxes, other than income9,247
 9,423
Accrued claims and insurance2,958
 1,505
Income taxes, legal and other(2)
5,196
 3,470
Total$31,755
 $28,076
(1) Salaries, compensated absences, incentives, and bonuses include the award value of the 2015 Performance Based Incentive Plan liability in the amount of $496 thousand at August 30, 2017.
(2) Income taxes, legal and other includes accrued lease termination costs. See Note 13 to our consolidated financial statements in Part II, Item 8 in this Form 10-K for further discussion of lease termination costs.

Note 9.11. Other Long-Term Liabilities

The following table sets forth other long-term liabilities as of August 26, 201529, 2018 and August 27, 2014:

  

August 26,
201
5

  

August 27,
2014

 
 

(In thousands)

Workers’ compensation and general liability insurance reserve

 $846  $729 

Capital leases

  291   758 

Deferred rent and unfavorable leases

  5,849   6,450 

Deferred compensation

  222   125 

Other

  153   105 

Total

 $7,361  $8,167 

30, 2017:

 August 29,
2018
 August 30,
2017
 (In thousands)
Workers’ compensation and general liability insurance reserve$1,002
 $923
Capital leases137
 109
Deferred rent and unfavorable leases4,380
 5,297
Deferred compensation(1)
106
 426
Fair value derivative - Interest Rate Swap
 266
Other156
 290
Total$5,781
 $7,311
(1) Deferred compensation includes 2017 Performance Based Incentive Plan liabilities in the amount of approximately $21 thousand at August 29, 2018 and 2016 and 2017 Performance Based Incentive Plan liabilities in the amount of approximately $266 thousand and approximately $70 thousand, respectively, at August 30, 2017.
Note 10.12. Debt

Revolving


The following table summarizes credit facility debt, less current portion at August 29, 2018 and August 30, 2017.

    
 August 29,
2018
 August 30, 2017
 (In thousands)
Long-Term Debt   
2016 Credit Agreement - Revolver20,000
 4,400
2016 Credit Agreement - Term Loan19,506
 26,585
Total credit facility debt39,506
 30,985
Less unamortized debt issue costs(168) (287)
Total credit facility debt, less unamortized debt issuance costs39,338
 30,698
Current portion of credit facility debt39,338
 
Total Credit facility debt, less current portion$
 $30,698



Senior Secured Credit Facility

In August 2013,Agreement

On November 8, 2016, the Company entered into a revolving credit facility$65.0 million Senior Secured Credit Facility with Wells Fargo Bank, National Association, as Administrative Agent and AmegyCadence Bank, National Association,NA and Texas Capital Bank, NA, as Syndication Agent. The following description summarizes the material terms of the revolving credit facility, as subsequently amended on March 21, 2014, November 7, 2014 and October 2, 2015, (the revolving credit facility is referred to as the “2013lenders (“2016 Credit Facility”Agreement”). The 20132016 Credit FacilityAgreement, prior to the amendments discussed below, is governed by the credit agreement dated ascomprised of August 14, 2013a $30.0 million 5-year Revolver (the “2013 Credit Agreement”“Revolver”) among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as Administrative Agent, and Amegy Bank, National Association, as Syndication Agent.a $35.0 million 5-year Term Loan (the “Term Loan”). The maturity date of the 20132016 Credit FacilityAgreement is September 1, 2017.

The aggregate amountNovember 8, 2021. For this section of the lenders’form 10-K, capitalized terms that are used but not otherwise defined shall have the meanings give to such terms in the 2016 Credit Agreement.

The Term Loan and/or Revolver commitments undermay be increased by up to an additional $10.0 million in the 2013aggregate.
The 2016 Credit Facility was $70.0 million as of August 28, 2013. The 2013 Credit FacilityAgreement also provides for the issuance of letters of credit in a maximuman aggregate amount equal to the lesser of $5.0 million outstandingand the Revolving Credit Commitment, which was $30.0 million as of August 14, 2013 and $15.0 million outstanding at any one time with prior written consent of the Administrative Agent and the Issuing Bank. At August 26, 2015, under the 2013November 8, 2016. The 2016 Credit Facility, the total available borrowing capacity was up to $30.7 million after applying the Lease Adjusted Leverage Ratio Limitation.

Pursuant to the October 2, 2015 amendment, the total aggregate amount of lenders’ commitments was lowered to $60.0 million from $70.0 million. After applying the Lease Adjusted Leverage Ratio Limitation, the available borrowing capacity was $20.7 million.

The 2013 Credit FacilityAgreement is guaranteed by all of the Company’s present subsidiaries and will be guaranteed by ourthe Company's future subsidiaries. In addition to the bank’s increased commitment under the 2013 Credit Agreement, it may be increased to a maximum commitment of $90 million.

At any time throughout the term of the 20132016 Credit Facility,Agreement, the Company has the option to elect one of two bases of interest rates. One interest rate option is the greaterhighest of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus 0.50% and (c) 30-day LIBOR plus 1.00%, or (b) prime, plus, in eithereach case, an applicable spread thatthe Applicable Margin, which ranges from 0.75%1.50% to 2.25%2.50% per annum. The other interest rate option is LIBOR plus the London InterBank Offered Rate plus a spread thatApplicable Margin, which ranges from 2.50% to 4.0%3.50% per annum. The applicable spreadApplicable margin under each option is dependent upon the ratio of our debt to EBITDACompany's Consolidated Total Lease Adjusted Leverage Ratio ("CTLAL") at the most recent quarterly determination date.

The Term Loan amortizes 7.00% per year (35% in 5 years) which includes the quarterly payment of principal. On December 14, 2016, The Company entered into an interest rate swap with a notional amount of $17.5 million, representing 50% of the initial outstanding Term Loan.
The Company is obligated to pay to the Administrative Agent for the account of each lender a quarterly commitment fee based on the average daily unused amount of the commitment of such lender, ranging from 0.30% to 0.40%0.35% per annum depending on the Total Leverage RatioCTLAL at the most recent quarterly determination date.

The proceeds of the 20132016 Credit FacilityAgreement are available for the Company’s general corporate purposes and general working capital purposes and capital expenditures.

BorrowingsCompany to (i) pay in full all indebtedness outstanding under the 2013 Credit Facility are subject to mandatory repaymentAgreement as of November 8, 2016, (ii) pay fees, commissions, and expenses in connection with the proceedsCompany's repayment of sales of certain of the Company’s real property, subject to certain exceptions.

The 2013 Credit Facility is secured by a perfected first priority lien on certain of the Company’s real property and all of the material personal property owned by the Company or any of its subsidiaries, other than certain excluded assets (as defined in the 2013 Credit Agreement). At August 26, 2015,Agreement, initial extensions of credit under the carrying value2016 Credit Agreement, and (iii) for working capital and general corporate purposes of the collateral securing the 2013 Credit Facility was $116.7 million.

Company.

The 20132016 Credit Agreement, as amended, contains the following covenants among others:

Debt Service Coverage Ratio of not less than (i) 1.10 to 1.00 at all times during the first, second and third fiscal quarters of the Borrower’s fiscal year 2015, (ii) 1.25 to 1.00 at all times during the fourth fiscal quarter of the Borrower’s fiscal year 2015, and (iii) 1.50 to 1.00 at all times thereafter.

Lease Adjusted Leverage Ratio of not more than (i) 5.75 to 1.00 at all times during the first, second and third fiscal quarters of the Borrower’s fiscal year 2015, (ii) 5.50 to 1.00 at all times during the fourth fiscal quarter of the Borrower’s fiscal year 2015, (iii) 5.25 to 1.00 at all times during the first fiscal quarter of the Borrower’s fiscal year

CTLAL of not more than (i) 5.00 to 1.00 at all times through and including the third fiscal quarter of the Borrower’s fiscal 2018, and (ii) 4.75 to 1.00 at all times thereafter,
Consolidated Fixed Charge Coverage Ratio of not less than 1.25 to 1.00, at the end of each fiscal quarter,
Limit on Growth Capital Expenditures so long as the CTLAL is at least 0.25x less than the then-applicable permitted maximum CTLAL,
restrictions on mergers, acquisitions, consolidations and asset sales,
restrictions on the payment of dividends, redemption of stock and other distributions,
restrictions on incurring indebtedness, including certain guarantees and capital lease obligations,
restrictions on incurring liens on certain of our property and the property of our subsidiaries,
restrictions on transactions with affiliates and materially changing our business,
restrictions on making certain investments, loans, advances and guarantees,
restrictions on selling assets outside the ordinary course of business,
prohibitions on entering into sale and leaseback transactions, and
restrictions on certain acquisitions of all or a substantial portion of the assets, property and/or equity interests of any person, including share repurchases and dividends.

The 2016 (iv) 5.00 to 1.00 at all times during the second fiscal quarter of the Borrower’s fiscal year 2016, and (v) 4.75 to 1.00 at all times thereafter.

capital expenditures limited to $25.0 million per year,

restrictions on incurring indebtedness, including certain guarantees and capital lease obligations,

restrictions on incurring liens on certain of our property and the property of our subsidiaries,

restrictions on transactions with affiliates and materially changing our business,

restrictions on making certain investments, loans, advances and guarantees,

restrictions on selling assets outside the ordinary course of business,

prohibitions on entering into sale and leaseback transactions,

restrictions on certain acquisitions of all or a substantial portion of the assets, property and/or equity interests of any person, including share repurchases and dividends.

The Company was in compliance with the covenants contained in the Credit Agreement asis secured by substantially all of August 26, 2015.

the Company’s personal property, including without limitation the equity interest in each subsidiary of the Company. The 20132016 Credit Agreement also includes customary events of default. If a default occurs and is continuing, the lenders’ commitments under the 20132016 Credit FacilityAgreement may be immediately terminated and/or the companyCompany may be required to repay all amounts outstanding under the 20132016 Credit Facility.

Agreement.



Second Amendment to 2016 Credit Agreement
On April 20, 2018, the Company entered into the Second Amendment to the 2016 Credit Agreement, effective as of March 14, 2018 (as amended, the "Credit Agreement). The amendment accelerates the maturity date of the Credit Agreement to May 1, 2019, approximately 9 months after the balance sheet date, August 29, 2018. The amendment included the following changes:

Aggregate commitments under the senior secured revolving credit facility (“Revolver”) were reduced from $30.0 million to $27.0 million beginning August 29, 2018.
Changed the maturity date of the Revolver and Term Loan to May 1, 2019.
Reduced the letter of credit sub-limit from $5.0 million to $2.0 million.
Interest rate on LIBOR Rate Loans (LIBOR + Applicable Margin) changed to the following:
LIBOR + 4.50%     April 20, 2018 - June 30, 2018
LIBOR + 4.75%     July 1, 2018 - September 30, 2018
LIBOR + 5.00%    October 1, 2018 - December 31, 2018
LIBOR + 5.25%    January 1, 2019 - March 31, 2019
LIBOR + 5.50%    April 1, 2019 - Maturity Date
Interest rate margin on Base Rate Loans changed to the following:
100 basis points less than the Applicable Margin for LIBOR Rate Loans
Maximum Consolidated Total Lease-Adjusted Leverage Ratio (“CTLAL”) is changed to 6.50 to 1.00 at March 14, 2018; 6.75 to 1.00 at June 6, 2018 and August 29, 2018; and 6.50 to 1.00 at each measurement period in fiscal 2019.
Minimum Consolidated EBITDA covenant required at $7.0 million (thirteen consecutive accounting periods) tested monthly, prior to the second fiscal quarter fiscal 2019 and $7.5 million for each fiscal quarter thereafter (consisting of thirteen consecutive accounting periods).
Minimum liquidity covenant requiring for at least $2.0 million in liquidity at all times.
Maximum annual maintenance capital expenditures not to exceed $9.6 million for the fiscal year ending August 29, 2018 and $8.5 million in fiscal 2019.
Within 30 days of the date of amendment, a senior security interest in and lien on any of the Company's real estate properties identified by the Administrative Agent and loan to value ratio of 0.50 to 1.00 on collateral real estate.
Excess liquidity provision requiring any consolidated cash balances of the Borrower and its Subsidiaries in excess of $1.0 million, as reported in the 13-week cash flow reports, used to repay Revolving Credit Loans.

Management has identified approximately 14 owned properties inclusive of assets currently classified as Assets related to discontinued operations and Property held for sale on the Company’s Balance Sheet, as of June 6, 2018, as part of a limited asset disposal plan to accelerate repayment of its outstanding term loans. The Board approved the limited asset sales plan on April 18, 2018. The Company estimates that such additional limited asset sales plan will be implemented over the course of the next 18 months. These asset disposal plans, in conjunction with other operational changes, are designed to lower the outstanding debt and to improve the Company’s financial condition as the Company pursues a new credit facility.
As of March 14, 2018, the Company would not have been in compliance with the Company’s Lease Adjusted Leverage Ratio and Fixed Charge Coverage Ratio covenants of the Credit Agreement prior to the Second Amendment thereto, which became effective on March 14, 2018. At any determination date, if the results of the Company's covenants exceed the maximums or minimums permitted under its 2016 Credit Agreement, the Company would be considered in default under the terms of the agreement which could cause a substantial financial burden by requiring the Company to repay the debt earlier than otherwise anticipated. Due to negative results in the first three quarters of fiscal 2018, continued under performance in the current fiscal year could cause the Company's financial ratios to exceed the permitted limits under the terms of the Credit Agreement.
Third Amendment to 2016 Credit Agreement
On August 24, 2018, the Company entered into the Third Amendment to Credit Agreement (the “Third Amendment”) amending the Credit Agreement dated as of November 8, 2016, as amended by the Second Amendment to Credit Agreement dated as of April 20, 2018 (together, with the Third Amendment, the “Credit Agreement”), by and among the Company, the other credit parties party thereto, the lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent for the lenders (the “Administrative Agent”).

The Third Amendment amended the interest rate on LIBOR rate loans (LIBOR + applicable margin) to (i) LIBOR + 6.50% from the effective date of the Third Amendment through the date the term loan has been paid in full in cash and (ii) LIBOR + 5.50% from the date following the date the term loan has been paid in full in cash and thereafter. The interest rate on base rate loans is 100 basis points less than the applicable margin for LIBOR rate loans.



Pursuant to the Third Amendment, the lenders agreed to waive the existing events of default as of the effective date of the Third Amendment resulting from any breach of certain financial covenants or the limitation on maintenance capital expenditures, in each case that may have occurred during the period from and including May 9, 2018 until the effective date of the Third Amendment, and any related events of default. Additionally, the lenders agreed to waive the requirements that the Company comply with certain financial covenants until December 31, 2018, at which time the Company will be in default without an additional waiver or alternative financing.

The Third Amendment requires the Company to make mandatory principal prepayments upon certain asset dispositions as follows: (i) 50% of the first $12.0 million of net cash proceeds from asset dispositions received by the Company; (ii) 75% of the next $8.0 million of net cash proceeds from asset dispositions received by the Company; and (iii) 100% of all net cash proceeds in excess of the first $20.0 million of net cash proceeds from asset dispositions received by the Company, in each case from and after the effective date of the Third Amendment.

Additionally, the Company agreed to grant liens on additional properties of the Company to secure borrowings under the Credit Agreement.

At August 29, 2018, the Company had approximately $8.5 million available to borrow under the Revolver in the 2016 Credit Agreement.

As of August 26, 2015,29, 2018, under the 2016 Credit Agreement, the Company had $37.5$39.5 million in total outstanding loans and $1.1approximately $1.3 million committed under letters of credit, which the company reissuedis used as security for the payment of insurance obligations, and $0.7approximately $0.2 million in capital lease commitments.

other indebtedness.

2013 Credit Agreement

We were party to a revolving credit agreement with Wells Fargo Bank, National Association, as Administrative Agent, and ZB, N.A. dba Amegy Bank (formerly Amegy Bank, N.A.), as Syndication Agent (the “2013 Credit Facility”). The 2013 Credit Facility matured and was refunded on November 8, 2016, through the entering of the 2016 Credit Agreement, and there were no amounts outstanding under the 2013 Credit Facility at August 30, 2017.

Interest Expense

Total interest expense incurred for fiscal 2015, 20142018, 2017, and 20132016 was $2.3approximately $3.3 million, $1.2$2.4 million, and $0.9$2.2 million, respectively. Interest paid was approximately $2.1$2.5 million, $1.4$1.8 million, and $0.8$1.9 million in fiscal 2015, 20142018, 2017, and 2013,2016, respectively. No interest expense was allocated to discontinued operations in fiscal 2015, 20142018, 2017, or 2013. Interest2016. No interest was capitalized on properties in fiscal 2015, 2014 and 2013, in the amounts of $80, $269 thousand and zero, respectively.

2018, 2017, or 2016.

Note 11.13. Impairment of Long-Lived Assets, Store Closings, Discontinued Operations and Property Held for Sale

Impairment of Long-Lived Assets and Store Closings

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

For assets held for use, the Company estimates future cash flows using assumptions based on possible outcomes of the areas analyzed. If the undiscounted future cash flows are less than the carrying value of the location’s assets, the Company records an impairment loss based on an estimate of discounted cash flows. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgments. Assumptions and estimates used include operating results, changes in working capital, discount rate, growth rate, anticipated net proceeds from disposition of the property and if applicable, lease terms. The span of time for which future cash flows are estimated is often lengthy, increasing the sensitivity to assumptions made. The time span is longer and could be 20 to 25 years for newer properties, but only 5 to 10 years for older properties. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluation of long-lived assets can vary within a wide range of outcomes. The Company considers the likelihood of possible outcomes in determining the best estimate of future cash flows. The measurement for such an impairment loss is then based on the fair value of the asset as determined by discounted cash flows.




The Company recognized the following impairment charges (credits) to income from operations:

  

FiscalYear Ended

 
  

August 26,
201
5

  

August 27,
2014

  

August 28,
2013

 
 

(In thousands, except per share data)

Provision for asset impairments

 $636  $2,498  $615 

Net gain on disposition of property and equipment

  (3,994

)

  (2,357

)

  (1,723

)

             
  $(3,358

)

 $141  $(1,108

)

Effect on EPS:

            

Basic

 $0.12  $  $0.04 

Assuming dilution

 $0.12  $  $0.04 

 
Fiscal Year Ended
 August 29, 2018 August 30, 2017 August 31, 2016
 (In thousands, except per share data)
Provision for asset impairments and restaurant closings$8,917
 $10,567
 $1,442
Net gain on disposition of property and equipment(5,357) (1,804) (684)
      
Total$3,560
 $8,763
 $758
Effect on EPS:     
Basic$(0.12) $(0.29) $(0.03)
Assuming dilution$(0.12) $(0.29) $(0.03)
The $0.6approximate $8.9 million impairment charge in fiscal 20152018 is primarily related to assets impaired at 21 property locations, goodwill at three operating Fuddruckers restaurants.

property locations, ten properties held for sale written down to their fair value, and a reserve for 15 restaurant closings of approximately $1.3 million.


The $2.5approximate $5.4 million net gain on disposition of property and equipment in fiscal 2018 is primarily related to the gain on the sale of ten properties of approximately $4.9 million, and approximately $1.3 million of insurance proceeds received for property and equipment damaged by Hurricane Harvey, partially offset by asset retirements at eight restaurant location closures. 

The approximate $10.6 million impairment charge in fiscal 20142017 is primarily related to one operating Luby’s Cafeteria, two operating Fuddruckers restaurants, two operating Cheeseburgerassets impaired at 17 property locations, goodwill at six property location, five properties held for sale written down to their fair value, and a reserve for ten restaurant closings of approximately $482 thousand.

The approximate $1.8 million net gain on disposition of property and equipment in Paradise restaurants and nine closed Cheeseburger in Paradise restaurants.

fiscal 2017 is primarily related to the gain on the sale of six properties of approximately $2.4 million partially offset by routine asset retirements. 

The $0.6approximate $1.4 million impairment charge in fiscal 20132016 is primarily related to four property locations, goodwill at one property heldlocation, and a reserve for four restaurant closings of approximately $202 thousand.

The approximate $0.7 million net gain on disposition of property and equipment in fiscal 2016 is primarily related to the gain on the sale one operating Fuddruckers restaurant and one operating Koo Koo Roo Chicken Bistro ®restaurant as well as a reduction of the estimated fair valuetwo properties of used assets to be refurbished and reused.

approximately $1.0 million partially offset by routine asset retirements.

Discontinued Operations

On March 21, 2014, the Board of Directors of the Company approved a plan focused on improving cash flow from the acquired Cheeseburger in Paradise leasehold locations. On March 24, 2014, the Company announced that it has initiated a plan focused on improving cash flow from the recently acquired Cheeseburger in Paradise leasehold locations. This underperforming Cheeseburger in Paradise leasehold disposal plan called for five or more units to be closed by the end of Fiscal 2014 and disposed of within 12 months.or converted to Fuddruckers restaurants. As of August 26, 2015, five29, 2018, no locations have been closed for disposal and reclassified toremain classified as discontinued operations.

operations in this plan.

As a result of the first quarter fiscal year 2010 adoption of the Company’s Cash Flow Improvement and Capital Redeployment Plan, the Company reclassified 24 Luby’s Cafeterias to discontinued operations. As of August 26, 2015, two locations remain,29, 2018, one is under lease to a third party and onelocation remains held for sale.

We believe the majority of cash flows lost will not be recovered by ongoing operations and the majority of sales lost by closing will not be recovered. In addition, there will not be any ongoing involvement or significant cash flows from the closed stores. Stores we close, but do not classify as discontinued operations, follow the implementation guidance in ASC 205-20-55 because cash flows are expected to be generated by the ongoing entity. There is some migration of customer traffic to existing or new locations, and ultimately the majority of sales lost by closing these stores are expected to be eventually replaced by sales from new locations.

The results of operations, assets and liabilities for all units included in the Plan have been reclassified to discontinued operations in the statement of operations and balance sheets for all periods presented.

 

Assets related to discontinued operations include accounts receivable, accrued liabilities, prepaid expenses, deferred taxes, unimproved land, closed restaurant properties and related equipment for locations classified as discontinued operations. The following table sets forth the assets and liabilities for all discontinued operations:

  

August 26,
201
5

  

August 27,
2014

 
 

(In thousands)

Prepaid expenses

 $24  $52 

Assets related to discontinued operations—current

 $24  $52 

Property and equipment

 $2,211  $2,817 

Other assets

  1,803   1,387 

Assets related to discontinued operations—non-current

 $4,014  $4,204 

Deferred income taxes

 $343  $308 

Accrued expenses and other liabilities

  74   282 

Liabilities related to discontinued operations—current

 $417  $590 

Other liabilities

 $190  $278 

Liabilities related to discontinued operations—non-current

 $190  $278 



 August 29,
2018
 August 30,
2017
 (In thousands)
Property and equipment$1,813
 $1,872
Deferred tax assets
 883
Assets related to discontinued operations—non-current$1,813
 $2,755
Deferred income taxes$
 $354
Accrued expenses and other liabilities14
 13
Liabilities related to discontinued operations—current$14
 $367
Other liabilities$16
 $16
Liabilities related to discontinued operations—non-current$16
 $16
As of August 26, 2015,29, 2018, under both closure plans, the Company had six propertiesone property classified as discontinued operations assets and theoperations. The asset carrying value of the owned propertiesproperty was $1.9approximately $1.8 million and is included in assets related to discontinued operations. The asset carrying values of theCompany is actively marketing this property for sale and has one property with a ground leases werelease previously impaired to zero.

The Company is actively marketing all but one of these properties for sale and the Company’s results of discontinued operations will be affected by the disposal of properties related to discontinued operations to the extent proceeds from the sales exceed or are less than net book value.

The following table sets forth the sales and pretax losses reported for all discontinued locations:

  

FiscalYear Ended

 
  

August 26,
201
5

  

August 27,
2014

  

August 28,
2013

 
 

(In thousands, except locations)

Sales

 $  $4,691  $6,153 
             

Pretax loss

 $(1,108

)

 $(2,813

)

 $(1,926

)

Income tax benefit on discontinued operations

 $406  $979  $540 

Loss on discontinued operations

 $(702

)

 $(1,834

)

 $(1,386

)

Discontinued locations closed during the period

  0   5   0 

 
Fiscal Year Ended
 August 29,
2018
 August 30,
2017
 August 31,
2016
 (In thousands, except locations)
Sales$
 $
 $
      
Pretax loss$(80) $(28) $(136)
Income tax benefit on discontinued operations$(534) $(438) $46
Loss on discontinued operations$(614) $(466) $(90)
Discontinued locations closed during the period0
 0
 0
The following table summarizes discontinued operations for fiscal 2015, 20142018, 2017, and 2013:

  

FiscalYear Ended

 
  

August 26,
201
5

  

August 27,
2014

  

August 28,
2013

 
 

(In thousands, except per share data)

Discontinued operating losses

 $(1,135

)

 $(1,607

)

 $(1,268

)

Impairments

  (90

)

  (1,199

)

  (663

)

Gains (losses)

  117   (7

)

  5 

Net loss

 $(1,108

)

 $(2,813

)

 $(1,926

)

Income tax benefit from discontinued operations

  406   979   540 

Loss from discontinued operations

 $(702

)

 $(1,834

)

 $(1,386

)

Effect on EPS from discontinued operations—decrease—basic

 $(0.02

)

 $(0.06

)

 $(0.05

)

2016:

 
Fiscal Year Ended
 August 29,
2018
 August 30,
2017
 August 31,
2016
 (In thousands, except per share data)
Discontinued operating losses$(21) $(28) $(161)
Impairments(59) 
 
Gains
 
 25
Net loss$(80) $(28) $(136)
Income tax benefit (expense) from discontinued operations(534) (438) 46
Loss from discontinued operations, net of income taxes$(614) $(466) $(90)
Effect on EPS from discontinued operations—decrease—basic$(0.02) $(0.02) $(0.00)
Within discontinued operations, the Company offsets gains from applicable property disposals against total impairments. The amounts in the table described as “Other” include employment termination and shut-down costs, as well as operating losses through each restaurant’s closing date and carrying costs until the locations are finally disposed.


The impairment charges included above relate to properties closed and designated for immediate disposal. The assets of these individual operating units have been written down to their net realizable values. In turn, the related properties have either been sold or are being actively marketed for sale. All dispositions are expected to be completed within one to two years. Within


discontinued operations, the Company also recorded the related fiscal year-to-date net operating results, employee terminations and basic carrying costs of the closed units.

Property Held for Sale

The Company periodically reviews long-lived assets against its plans to retain or ultimately dispose of properties. If the Company decides to dispose of a property, it will be reclassified to property held for sale and actively marketed. The Company analyzes market conditions each reporting period and records additional impairments due to declines in market values of like assets. The fair value of the property is determined by observable inputs such as appraisals and prices of comparable properties in active markets for assets like the Company’s. Gains are not recognized until the properties are sold.

Property held for sale includes unimproved land, closed restaurant properties and related equipment for locations not classified as discontinued operations. The specific assets are valued at the lower of net depreciable value or net realizable value. The Company actively markets all locations classified as property held for sale.

At August 26, 2015,29, 2018, the Company had 15 owned properties recorded at approximately $19.5 million in property held for sale. The pretax profit (loss) for the disposal group of locations operating in fiscal 2018, 2017, and 2016 was approximately $(1.2) million, $1.3 million, and $2.2 million, respectively.
At August 30, 2017, the Company had four owned properties recorded at approximately $4.5$3.4 million in property held for sale.

At August 27, 2014, the Company had one owned properties recorded at approximately $1.0 million in property held for sale.

At August 28, 2013, the Company had one owned property recorded at approximately $0.4 million in property held for sale.

The Company’s results of continuing operations will be affected to the extent proceeds from sales exceed or are less than net book value.

A roll forward of property held for sale for fiscal 2015, 20142018, 2017, and 20132016 is provided below(in thousands):

Balance as of August 29, 2012

 $602 

Disposals

  0 

Net impairment charges

  (153

)

Balance as of August 28, 2013

 $449 

Disposals

  (449

)

Net transfers to property held for sale

  991 

Balance as of August 27, 2014

 $991 

Disposals

  (3,203

)

Net transfers to property held for sale

  6,748 

Balance as of August 26, 2015

 $4,536 
Balance as of August 26, 2015$4,536
Disposals(1,488)
Net transfers to property held for sale2,937
Adjustment to fair value$(463)
Balance as of August 31, 2016$5,522
Disposals(1,173)
Net transfers to property held for sale0
Adjustment to fair value(977)
Balance as of August 30, 2017$3,372
Disposals(7,916)
Net transfers to property held for sale27,075
Adjustment to fair value(3,062)
Balance as of August 29, 2018$19,469

Abandoned Leased Facilities - Reserve for Store Closing

As of August 29, 2018, the Company classified seventeen leased locations in Arizona, Arkansas, Florida, Illinois, Indiana, Maryland, New York, Oklahoma, Texas, Virginia and Wisconsin as abandoned. Although the Company remains obligated under the terms of the leases for the rent and other costs that may be associated with the leases, the Company decided to cease operations and has no foreseeable plans to occupy the spaces as a company restaurant in the future. Therefore, the Company recorded a charge to earnings, in provision for asset impairments and restaurant closings for fiscal years 2018, 2017, and 2016 of approximately $1.3 million, $0.5 million, and $0.2 million, respectively. The liability is equal to the total amount of rent and other direct costs for the remaining period of time the properties will be unoccupied plus the present value, calculated using a credit-adjusted risk free rate, of the amount by which the rent paid by the Company to the landlord exceeds any rent paid to the Company by a tenant under a sublease over the remaining period of the lease terms. Accrued lease termination expense was approximately $2.0 million and $0.5 million as of August 29, 2018 and August 30, 2017, respectively.



Note 12.14. Commitments and Contingencies

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements, except for operating leases for the Company’s corporate office, facility service warehouse, and certain restaurant properties.

Claims

From time to time, the Company is subject to various other private lawsuits, administrative proceedings and claims that arise in the ordinary course of its business. A number of these lawsuits, proceedings and claims may exist at any given time. These matters typically involve claims from guests, employees and others related to issues common to the restaurant industry. The Company currently believes that the final disposition of these types of lawsuits, proceedings, and claims will not have a material adverse effect on the Company’s financial position, results of operations, or liquidity. It is possible, however, that the Company’s future results of operations for a particular quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, proceedings, or claims.


Construction Activity
 

Construction Activity

From time to time, the Company enters into non-cancelable contracts for the construction of its new restaurants.restaurants or restaurant remodels. This construction activity exposes the Company to the risks inherent in new constructionthis industry including but not limited to rising material prices, labor shortages, delays in getting required permits and inspections, adverse weather conditions, and injuries sustained by workers. The Company hashad no non-cancelable contracts as of August 26, 2015.

29, 2018.

Cheeseburger in Paradise, Royalty Commitment

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

Note 13.15. Operating Leases

The Company conducts part of its operations from facilities that are leased under non-cancelable lease agreements. Lease agreements generally contain a primary term of five to 30 years with options to renew or extend the lease from one to 25 years. As of August 26, 2015,29, 2018, the Company has lease agreements for 9588 properties which include the Company’s corporate office, facility service warehouseswarehouse, two remote office spaces, and restaurant properties. The leasing terms of the 9588 properties consist of 1013 properties expiring in less than one year, 6050 properties expiring between one and five years and the remaining 25 properties having current terms that are greater than five years. Of the 9588 leased properties, 7374 properties have options remaining to renew or extend the lease.

A majority of the leases include periodic escalation clauses. Accordingly, the Company follows the straight-line rent method of recognizing lease rental expense.

As of August 26, 2015,29, 2018, the Company has entered into noncancelable operating lease agreements for certain office equipment with terms ranging from 36 to 7260 months.



Annual future minimum lease payments under noncancelable operating leases with terms in excess of one year as of August 26, 201529, 2018 are as follows:

Year Ending:

(In thousands)

August 31, 2016

  11,996 

August 30, 2017

  9,232 

August 29, 2018

  7,739 

August 28, 2019

  6,808 

August 26, 2020

  5,036 

Thereafter

  21,846 

Total minimum lease payments

 $62,657 

Fiscal Year Ending:(In thousands)
August 28, 2019$10,790
August 26, 20208,572
August 25, 20216,892
August 31, 20225,522
August 30, 20234,399
Thereafter16,640
Total minimum lease payments$52,815
Most of the leases are for periods of fifteenfive to thirty30 years and some leases provide for contingent rentals based on sales in excess of a base amount.

As of August 29, 2018, aggregate future minimum rentals to be received under non-cancelable subleases was approximately $3.9 million.

Total rent expense for operating leases for the last three fiscal years2018, 2017, and 2016 was as follows:

  

Year Ended

 
  

August 26,
201
5

  

August 27,
2014

  

August 28,
2013

 
 

(In thousands, except percentages)

Minimum rent-facilities

 $12,521  $13,160  $13,718 

Contingent rentals

  129   251   182 

Minimum rent-equipment

  805   829   818 

Total rent expense (including amounts in discontinued operations)

 $13,455  $14,240  $14,718 

Percent of sales

  3.4

%

  3.6

%

  3.8

%

See Note 15, “Related Parties,” for

 Year Ended
 August 29,
2018
 August 30,
2017
 August 31,
2016
 (In thousands, except percentages)
Minimum rent-facilities$10,584
 $11,849
 $12,341
Contingent rentals77
 86
 164
Minimum rent-equipment801
 758
 712
Total rent expense (including amounts in discontinued operations)$11,462
 $12,693
 $13,217
Percent of sales3.1% 3.4% 3.3%
The future minimum lease payments associatedpayment table and the total rent expense table above include amounts related to two leases with related parties.

parties, which are further described at Note 17. Related Parties.

Note 14.16. Share-Based Compensation

We have two active share-based stock plans, the EmployeeLuby's Incentive Stock Plan, as amended and restated effective December 5, 2015 (the "Employee Stock Plan") and the Nonemployee Director Stock Plan. Both plans authorize the granting of stock options, restricted stock, and other types of awards consistent with the purpose of the plans.

Of the 1.1aggregate 2.1 million shares approved for issuance under the Nonemployee Director Stock Plan, 0.8(which amount includes shares authorized under the original plan and shares authorized pursuant to the amended and restated plan effective as of February 9, 2018), 1.3 million options, restricted stock units and restricted stock awards were granted, 0.1 million options were cancelled or expired and added back into the plan.plan, since the plans inception. Approximately 0.40.9 million shares remain available for future issuance as of August 26, 2015. In 2015, the Company approved a Total Shareholder Return, “TSR”, Performance Based Incentive Plan which provides for a right to receive an unspecified number of shares of common stock under the Employee Stock Plan based on the total shareholder return ranking compared to a selection of peer companies over a three-year cycle. The award value varies from 0% to 200% of a base amount, as a result of the Company’s TSR performance in comparison to its peers over the measurement period. The fair value of the performance shares liability at the end of Fiscal 2017, of $0.5 million, has been determined based on a Monte Carlo simulation model. Based on this estimate, management will accrue expense ratably over the three-year service period. As of August 26, 2015, the Company has recorded $0.1 million in non-cash compensation expense in selling, general and administrative expenses related to its TSR Performance Based Incentive Plan. The number of shares at the end of the three-year period will be determined as the award value divided by the closing stock price on the last day of fiscal 2017. A valuation estimate of the future liability associated with each fiscal year's performance award plan will be performed periodically with adjustments made to the outstanding liability at each reporting period, as appropriate.29, 2018. Compensation cost for share-based payment arrangements under the Nonemployee Director Stock Plan, recognized in selling, general and administrative expenses for fiscal years 2015, 20142018, 2017, and 20132016 was approximately $0.5 million, $0.7 million, $0.6and $0.7 million, and $0.3 million, respectively.

Of the 2.64.1 million shares approved for issuance under the Employee Stock Plan 5.2(which amount includes shares authorized under the original plan and shares authorized pursuant to the amended and restated plan effective as of December 5, 2015), 7.2 million options and restricted stock units were granted, 3.03.8 million options and restricted stock units were cancelled or expired and added back into the plan.plan, since the plans inception in 2005. Approximately 0.40.7 million shares remain available for future issuance as of August 26, 2015.29, 2018. Compensation cost for share-based payment arrangements under the Employee Stock Plan, recognized in selling, general and administrative expenses for fiscal years 2015, 20142018, 2017, and 20132016 was approximately $0.9 million, $0.7$0.9 million, and $0.8$1.0 million, respectively.

Included in these costs for fiscal 2016 was approximately $252 thousand, which represented accelerated share-based compensation expense as a result of the rescission of 312,663 stock options.




Stock Options

Stock options granted under either the Employee Stock Plan or the Nonemployee Director Stock Plan have exercise prices equal to the market price of the Company’s common stock at the date of the grant. The market price under the Employee Stock Plan is the closing price at the date of the grant. The market price under the Nonemployee Director Plan is the average of the high and the low price on the date of the grant.

Option awards under the Nonemployee Director Stock Plan generally vest 100% on the first anniversary of the grant date and expire ten years from the grant date. No options were granted under the Nonemployee Director Stock Plan in fiscal years 2015, 20142018, 2017, or 2013.2016. No options to purchase shares remain outstanding under this plan, as of August 26, 2015.

29, 2018.

Options granted under the Employee Stock Plan generally vest 25% on the anniversary date of each grant and expire six years from the date of the grant. However, options granted to executive officers under the Employee Stock Plan vest 50% on the first anniversary date of the grant date, 25% on the second anniversary of the grant date and the remaining 25% vest on the third anniversary of the grant date, and expirewith all options expiring ten years from the grant date. All options granted in fiscal years 2015, 20142018, 2017, and 20132016 were granted under the Employee Stock Plan. Options to purchase 1,288,0991,653,414 shares at options prices from $3.44$2.82 to $11.10$5.95 per share remain outstanding as of August 26, 2015.

29, 2018.

The Company has segregated option awards into two homogenous groups for the purpose of determining fair values for its options because of differences in option terms and historical exercise patterns among the plans. Valuation assumptions are determined separately for the two groups which represent, respectively, the Employee Stock PlansPlan and the Nonemployee Director Stock Option Plan. The assumptions are as follows:

The Company estimated volatility using its historical share price performance over the expected life of the option. Management believes the historical estimated volatility is materially indicative of expectations about expected future volatility.

The Company uses an estimate of expected lives for options granted during the period based on historical data.

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option.

The expected dividend yield is based on the Company’s current dividend yield and the best estimate of projected dividend yield for future periods within the expected life of the option.


The Company estimated volatility using its historical share price performance over the expected life of the option. Management believes the historical estimated volatility is materially indicative of expectations about expected future volatility.
The Company uses an estimate of expected lives for options granted during the period based on historical data.
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option.
The expected dividend yield is based on the Company’s current dividend yield and the best estimate of projected dividend yield for future periods within the expected life of the option.
 

The fair value of each option award is estimated on the date of the grant using the Black-Scholes option pricing model which determine inputs as shown in the following table for options granted under the Employee Stock Plan:

  

FiscalYear Ended

 
  

August 26,
201
5

  

August 27,
2014

  

August 28,
2013

 
 

(In thousands, except percentages)

Dividend yield

  0

%

     0

%

Volatility

  42.30

%

     44.49

%

Risk-free interest rate

  1.41

%

     0.72

%

Expected life (in years)

  5.61      4.25 

No options were granted during fiscal year ended August 27, 2014.

 
Fiscal Year Ended
 August 29,
2018
 August 30,
2017
 August 31,
2016
 (In thousands, except percentages)
Dividend yield0% 0% 0%
Volatility34.80% 37.65% 39.64%
Risk-free interest rate2.19% 1.99% 1.82%
Expected life (in years)5.87
 5.87
 5.58


A summary of the Company’s stock option activity for the three fiscal years ended August 26, 2015, August 27, 20142018, 2017, and August 28, 20132016 is presented in the following table:  

  

Shares

Under
Fixed

Options

  

Weighted-

Average
Exercise

Price

  

Weighted-

Average
Remaining
Contractual

Term

  

Aggregate

Intrinsic
Value

 
         

(Years)

(In thousands)

Outstanding at August 29, 2012

  1,177,769  $6.30   3.1  $1,500 

Granted

  109,335   5.95   0   0 

Exercised

  (93,973

)

  4.29   0   0 

Forfeited/Expired

  (310,363

)

  9.85   0   0 

Outstanding at August 28, 2013

  882,768  $5.23   4.7  $2,042 

Exercised

  (29,253

)

  4.27   0   0 

Forfeited/Expired

  (52,761

)

  10.30   0   0 

Outstanding at August 27, 2014

  800,754  $4.95   4.1  $583 

Granted

  628,060   4.49   0   0 

Exercised

  (57,007

)

  3.45   0   0 

Forfeited/Expired

  (83,708

)

  5.47   0   0 

Outstanding at August 26, 2015

  1,288,099  $4.76   6.5  $350 

Exercisable at August 26, 2015

  594,549  $4.94   3.7  $240 

 Shares
Under
Fixed
Options
 Weighted-
Average
Exercise
Price
 Weighted-
Average
Remaining
Contractual
Term
 Aggregate
Intrinsic
Value
     (Years) (In thousands)
Outstanding at August 26, 20151,288,099
 $4.76
 6.5
 $350
Granted279,944
 4.89
 
 
Exercised(21,249) 3.51
 
 
Forfeited(55,893) 4.80
 
 
Expired(9,000) 3.44
 
 
Outstanding at August 31, 20161,169,238
 $4.76
 6.6
 $178
Granted295,869
 4.26
 
 
Cancelled(9,290) 4.49
 
 
Forfeited(55,893) 4.80
 
 
Expired(37,689) 5.39
 
 
Outstanding at August 30, 20171,345,916
 $4.64
 6.4
 $0
Granted449,410
 2.82
 
 
Forfeited(97,111) 4.02
 
  
Expired(44,801) 7.89
 
 
Outstanding at August 29, 20181,653,414
 $4.10
 6.5
 $0
Exercisable at August 29, 20181,066,103
 $4.53
 5.2
 $0
The intrinsic value for stock options is defined as the difference between the current market value at August 29, 2018 and the grant price.

At August 26, 2015,29, 2018, there was approximately $0.7$0.3 million of total unrecognized compensation cost related to unvested options that are expected to be recognized over a weighted-average period of 2.21.7 years.

The weighted-average grant-date fair value of options granted during fiscal years 20152018, 2017, and 20132016 was $1.83$1.05, $1.66, and $2.44$1.92 per share, respectively. There was no grant of options during fiscal year 2014.

During fiscal years 2015, 20142017 and 2013,2018, no options were exercised. During fiscal 2016 cash received from options exercised was approximately $190,000, $125,000 and $404,000, respectively.

$82 thousand.



Restricted Stock Units

Grants of restricted stock units consist of the Company’s common stock and generally vest after three years. All restricted stock units are cliff-vested. Restricted stock units are valued at market price of the Company’s common stock at the date of grant. The market price under the Employee Stock Plan is the closing price at the date of the grant. The market price under the Nonemployee Director Plan is the average of the high and the low price on the date of the grant.


A summary of the Company’s restricted stock unit activity during fiscal years is presented in the following table:

  

Restricted Stock
Units

  

Weighted
Average
Fair Value

  

Weighted-
Average
Remaining
Contractual Term

 
     

(Per share)

(In years)

Unvested at August 29, 2012

  163,946  $4.83   1.8 

Granted

  274,290   6.17  

 

Vested

  (14,000

)

  3.46  

 

Unvested at August 28, 2013

  424,236  $5.74   2.1 

Granted

  63,238   7.09  

 

Vested

  (80,233

)

  5.39  

 

Forfeited

  (9,404

)

  5.79  

 

Unvested at August 27, 2014

  397,837  $6.03   1.6 

Granted

  84,495   4.54  

 

Vested

  (72,915

)

  4.55  

 

Forfeited

  0  

  

 

Unvested at August 26, 2015

  409,417  $5.98   1.6 

 
Restricted Stock
Units
 
Weighted
Average
Fair Value
 
Weighted-
Average
Remaining
Contractual Term
   (Per share) (In years)
Unvested at August 26, 2015409,417
 $5.98
 1.6
Granted172,212
 4.87
 
Vested(257,482) 6.19
 
Forfeited(9,314) 5.37
 
Unvested at August 31, 2016314,833
 $5.23
 1.9
Granted200,549
 4.26
 
Vested(92,058) 6.30
 
Forfeited(18,960) 4.55
 
Unvested at August 30, 2017404,364
 $4.54
 1.8
Granted244,748
 2.83
 
Vested(99,495) 4.42
 
Forfeited(32,326) 3.87
 
Unvested at August 29, 2018517,291
 $3.79
 1.8
At August 26, 2015,29, 2018, there was approximately $1.8$0.8 million of total unrecognized compensation cost related to unvested restricted stock units that is expected to be recognized over a weighted-average period of 1.61.8 years.


Performance Based Incentive Plan

For fiscal years 2015 - 2018, The Company approved a Total Shareholder Return ("TSR") Performance Based Incentive Plan (“Plan”). Each Plan’s award value varies from 0% to 200% of a base amount, as a result of the Company’s TSR performance in comparison to its peers over the respective measurement period. Each Plan’s vesting period is three years.


The Plans for fiscal years 2015 - 2017 provides for a right to receive an unspecified number of shares of common stock under the Employee Stock Plan based on the total shareholder return ranking compared to a selection of peer companies over the three-year vesting period, for each plan year. The number of shares at the end of the three-year period will be determined as the award value divided by the closing stock price on the last day of each fiscal year, accordingly. Each three-year measurement period is designated a plan year name based on year one of the measurement period. Since the plans provide for an undeterminable number of awards, the plans are accounted for as liability based plans. The liability valuation estimate for each plan year has been determined based on a Monte Carlo simulation model. Based on this estimate, management accrues expense ratably over the three-year service periods. A valuation estimate of the future liability associated with each fiscal year's performance award plan is performed periodically with adjustments made to the outstanding liability at each reporting period to properly state the outstanding liability for all plan years in the aggregate as of the respective balance sheet date. As of August 29, 2018, the valuation estimate which represents the fair value of the performance awards liability for all plan years 2016 and 2017, resulted in an approximate $0.3 million decrease in the aggregate liability. The 2015 TSR Performance Based Incentive Plan vested for each active participant on August 30, 2017 and a total of 187,883 shares were awarded under the Plan at 50% of the original target. The fair value of the 2015 plan's liability in the amount of $496 thousand was converted to equity and the number of shares awarded for the 2015 TSR Performance Based Incentive Plan was based on the Company's stock price at closing on the last day of fiscal 2017. The fair value of the 2016 TSR Plan was zero at the end of the three-year measurement period and at August 29, 2018 no shares vested due to the relative ranking of the Company's stock performance. The number of shares at the end of each plan's three-year periods will be determined as the award value divided by the Company's closing stock price on the last day of the plan's fiscal year.
The 2018 TSR Performance Based Incentive Plan provides for a specified number of shares of common stock under the Employee Stock Plan based on the total shareholder return ranking compared to a selection of peer companies over a three-year cycle. The Fair Value of the 2018 Plan has been determined based on a Monte Carlo simulation model for the three-year period. The target number of shares for distribution at 100% of the plan is 373,294. The 2018 TSR Performance Based Incentive Plan is accounted for as an equity award since the Plan provides for a specified number of shares. The expense for this Plan year is amortized over the three-year period based on 100% target award.
Non-cash compensation expense related to the Company's TSR Performance Based Incentive Plans in fiscal 2018, 2017, and 2016 was a credit to expense of $15 thousand, and expenses of $38 thousand, and approximately $684 thousand, respectively, and is recorded in Selling, general and administrative expenses.
A summary of the Company’s restricted stock Performance Based Incentive Plan activity during fiscal 2018 is presented in the following table:

  Units Weighted Average Fair Value
   (Per share)
Unvested at August 30, 2017
 
Granted561,177
 3.33
Vested(187,883) 2.64
Forfeited
 
Unvested at August 29, 2018373,294
 3.68

At August 29, 2018, there was approximately $1.1 million of total unrecognized compensation cost related to 2018 TSR Performance Based Incentive Plan that is expected to be recognized over a weighted-average period of 2.0 years.

Restricted Stock Awards

Under the Nonemployee Director Stock Plan, directors are granted restricted stock in lieu of cash payments, for all or a portion of their compensation as directors. Directors may optreceive a 20% premium of additional restricted stock by opting to receive 20% more shares of restricted stock awards by accepting more than theover a minimum required amount of stock, insteadin lieu of cash. The number of shares granted is valued at the average of the high and low price of the Company’s stock at the date of the grant. Restricted stock awards vest when granted because they are granted in lieu of a cash payment. However, directors are restricted from selling their shares until after the third anniversary of the date of the grant.



Supplemental Executive Retirement Plan

The Company has aan unfunded Supplemental Executive Retirement Plan (“SERP”) designed to provide benefits for selected officers at normal retirement age with 25 years of service equal to 50% of their final average compensation offset by Social Security, profit sharing benefits, and deferred compensation. None of the Company’s executive officers participates in the Supplemental Executive Retirement Plan. Some of the officers designated to participate in the plan have retired and are receiving benefits under the plan. Accrued benefits of all actively employed participants become fully vested upon termination of the plan or a change in control (as defined in the plan). The plan is unfunded and the Company is obligated to make benefit payments solely on a current disbursement basis. On December 6,In 2005, the Board of Directors voted to amend the SERP and suspend the further accrual of benefits and participation. As a result, a curtailment gain of approximately $88,000 was recognized. The net benefit recognized for the SERP for the years ended August 26, 2015,29, 2018, August 27, 201430, 2017, and August 28, 2013,31, 2016, was zero, and the unfunded accrued liability included in “Other Liabilities” on the Company’s consolidated Balance Sheets as of August 26, 201529, 2018 and August 27, 201430, 2017 was approximately $71,000$39 thousand and $83,000,$45 thousand, respectively.

Nonemployee Director Phantom Stock Plan

Under the

The Company’s has a Nonemployee Director Phantom Stock Plan (“Phantom Stock Plan”), nonemployee directors deferred portions of their retainer and meeting fees which, along with certain matching incentives, were credited to phantom stock accounts in the form of phantom shares priced at the market value of the Company’s common stock on the date of grant. Additionally, the phantom stock accounts were credited with dividends, if any, paid on the common stock represented by phantom shares.. Authorized shares (100,000 shares) under the Phantom Stock Plan were fully depleted in early fiscal year 2003; since that time, no deferrals, incentives or dividends have been credited to phantom stock accounts. As participants cease to be directors, their phantom shares are converted into an equal number of shares of common stock and issued from the Company’s treasury stock. As of August 26, 2015, 29,62729, 2018, 17,801 phantom shares remained unissuedoutstanding and unconverted under the Phantom Stock Plan.


401(k) Plan
 

401(k) Plan

The Company has a voluntary 401(k) employee savings plan to provide substantially all employees of the Company an opportunity to accumulate personal funds for their retirement. The Company matches 25% of participants’ contributions made to the plan up to 6% of their salary. The net expense recognized in connection with the employer match feature of the voluntary 401(k) employee savings plan for the years ended August 26, 2015,29, 2018, August 27, 201430, 2017, and August 28, 2013,31, 2016, was $261,000, $501,000approximately $243 thousand, $359 thousand, and $421,000,$350 thousand, respectively.

Note 15.17. Related Parties

Affiliate Services

The Company’s Chief Executive Officer, Christopher J. Pappas, and Harris J. Pappas, a Director of the Company, own two restaurant entities (the “Pappas entities”) that may, from time to time, provide services to the Company and its subsidiaries, as detailed in the Amended and Restated Master Sales Agreement dated December 9, 2005August 2, 2017 among the Company and the Pappas entities.

Under the terms of the Amended and Restated Master Sales Agreement, the Pappas entities continue to provide specialized (customized) equipment fabrication, primarily for new construction, and basic equipment maintenance, including stainless steel stoves, shelving, rolling carts, and chef tables. The total costs under the Master Sales Agreement of custom-fabricated and refurbished equipment in fiscal 2015, 20142018, 2017, and 20132016 were approximately zero, $4,000$31 thousand, $4 thousand, and zero,$2 thousand, respectively. The decreaseCompany also incurred $2 thousand of other operating expenses in fiscal 2013 was primarily due to fewer restaurant openings in fiscal year 2013 than fiscal 2012.2018 from the Pappas entities. Services provided under this agreement are subject to review and approval by the Finance and Audit Committee of the Company’s Board of Directors.

Operating Leases

In the third quarter of fiscal 2004, Messrs. Pappas became partners in a limited partnership which purchased a retail strip center in Houston, Texas. Messrs. Pappas collectively own a 50% limited partnership interest and a 50% general partnership interest in the limited partnership. A third party company manages the center. One of the Company’s restaurants has rented approximately 7% of the space in that center since July 1969. No changes were made to the Company’s lease terms as a result of the transfer of ownership of the center to the new partnership. The Company made payments of approximately $416,000 $388,000 and $426,000 in fiscal years 2015, 2014 and 2013, respectively, under the lease agreement which currently includes an annual base rate of $22.00 per square foot.


On November 22, 2006, the Company executed a new lease agreement with respect to this shopping center. Effective upon the Company’s relocation and occupancy into the new space in July 2008, the new lease agreement provides for a primary term of approximately 12 years with two subsequent five-year options and gives the landlord an option to buy out the tenant on or after the calendar year 2015 by paying the then unamortized cost of improvements to the tenant. The Company is currently obligated to paypaid rent of $22.00 per square foot plus maintenance, taxes, and insurance during the remaining primary term of the lease. Thereafter, the lease provides for reasonable increases in rent at set intervals. The Company made payments of approximately $460 thousand, $419 thousand, and $417 thousand, in fiscal 2018, 2017, and 2016, respectively, under the lease agreement. The new lease agreement was approved by the Finance and Audit Committee.



In the third quarter of fiscal year 2014, on March 12, 2014, the Company executed a new lease agreement whichfor one of the Company’s Houston Fuddruckers location was purchased from a prior landlord bylocations with Pappas Restaurants, Inc., a 100% undivided interest. No changes were made to our lease terms as a result of the transfer of ownership. The lease provides for a primary term of approximately six years with two subsequent five-year options. Pursuant to the new ground lease agreement, the Company is currently obligated to pay $27.56paid rent of $28.06 per square foot plus maintenance, taxes, and insurance from March 12, 2014 until November 30. 2016.May 31, 2020. Thereafter, the new ground lease agreement provides for reasonable increases in rent at set intervals. The Company made payments of $159,900$168 thousand, $162 thousand, and $79,950 during$160 thousand, in fiscal years 20152018, 2017, and 2014,2016, respectively.

Affiliated rents paid for the Houston property lease represented 3.1%, 2.7%, 2.1% and 2.0%2.6% of total rents for continuing operations for fiscal years 2015, 20142018, 2017, and 2013,2016, respectively.

Board of Directors

Pursuant to the terms of a separate Purchase Agreement dated March 9, 2001, entered into by and among the Company, Christopher J. Pappas and Harris J. Pappas, the Company agreed to submit three persons designated by Christopher J. Pappas and Harris J. Pappas as nominees for election at the 2002 Annual Meeting of Shareholders. Messrs. Pappas designated themselves and Frank Markantonis as their nominees for directors, all of whom were subsequently elected. Christopher J. Pappas and Harris J. Pappas are brothers and Frank Markantonis is an attorney whose principal client is Pappas Restaurants, Inc., an entity owned by Harris J. Pappas and Christopher J. Pappas.


Christopher J. Pappas is a member of the Advisory Board of Directors of Amegy Bank, National Association,a Division of ZB, N.A. (formerly, Amegy Bank, N.A.), which iswas a lender and syndication agent under the Company’s 2013 Revolving Credit Facility.

This facility matured and was refunded on November 8, 2016, through the entering of the 2016 Credit Agreement, and there were no amounts outstanding under the 2013 Credit Facility at August 30, 2017.

Key Management Personnel

In December 2014, Christopher Pappas and the

The Company entered into an amendment to Mr. Pappas’ existinga new employment agreement to extend thewith Christopher Pappas on December 11, 2017. The new employment agreement contains a termination date thereof toof August 2016.28, 2019. Mr. Pappas continues to devote his primary time and business efforts to the Company while maintaining his role at Pappas Restaurants, Inc.

On December 20, 2011, the Board of Directors of the Company approved the renewal of a consultant agreement with Ernest Pekmezaris, the Company’s former Chief Financial Officer. The agreement expired on July 31, 2013. Under the agreement, Mr. Pekmezaris furnished to the Company advisory and consulting services related to finance and accounting matters and other related consulting services. Mr. Pekmezaris is also the Treasurer of Pappas Restaurants, Inc. Compensation for the services provided by Mr. Pekmezaris to Pappas Restaurants, Inc. is paid entirely by that entity.

Peter Tropoli, a director of the Company and the Company’s Chief Operating Officer, and formerly the Company’s Senior Vice President, Administration, General Counsel and Secretary, is an attorney and stepson of Frank Markantonis, who is a director of the Company.

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

Note 16.18. Common Stock

At August 26, 2015,29, 2018, the Company had 500,000 shares of common stock reserved for issuance upon the exercise of outstanding stock options.

Treasury Shares

In February 2008, the Company acquired 500,000 treasury shares for $4.8 million.



Note 17.19. Earnings Per Share

A reconciliation of the numerators and denominators of basic earnings per share and earnings per share assuming dilution is shown in the table below:

  

FiscalYear Ended

 
  

August 26,
201
5

  

August 27,
2014

  

August 28,
2013

 
 

(In thousands, except per share data)

Numerator:

            

Income (loss) from continuing operations

 $(1,372

)

 $(1,613

)

 $4,547 

Net income (loss)

 $(2,074

)

 $(3,447

)

 $3,161 

Denominator:

            

Denominator for basic earnings per share—weighted-average shares

  28,974   28,812   28,618 

Effect of potentially dilutive securities:

            

Employee and non-employee stock options

        248 

Denominator for earnings per share assuming dilution

  28,974   28,812   28,866 

Income (loss) from continuing operations:

            

Basic

 $(0.05

)

 $(0.06

)

 $0.16 

Assuming dilution(a)

 $(0.05

)

 $(0.06

)

 $0.16 

Net income (loss) per share:

            

Basic

 $(0.07

)

 $(0.12

)

 $0.11 

Assuming dilution(a)

 $(0.07

)

 $(0.12

)

 $0.11 

(a)

Potentially dilutive shares not included in the computation of net income per share because to do so would have been antidilutive amounted to77,000 in fiscal year 2015,180,000 in fiscal year 2014 and zero shares in fiscal year 2013. Additionally, stock options with exercise prices exceeding market close prices that were excluded from the computation of net income per share amounted to415,000 shares in fiscal year 2015,143,000 shares in fiscal year 2014 and67,000 shares in fiscal year 2013.

 
 
Fiscal Year Ended
 August 29,
2018
 August 30,
2017
 August 31,
2016
 (In thousands, except per share data)
Numerator:     
Loss from continuing operations$(32,954) $(22,796) $(10,256)
NET LOSS$(33,568) $(23,262) $(10,346)
Denominator:     
Denominator for basic earnings per share—weighted-average shares29,901
 29,476
 29,226
Effect of potentially dilutive securities:     
Employee and non-employee stock options
 
 
Denominator for earnings per share assuming dilution29,901
 29,476
 29,226
Loss from continuing operations:     
Basic$(1.10) $(0.77) $(0.35)
Assuming dilution (a)
$(1.10) $(0.77) $(0.35)
Net loss per share:     
Basic$(1.12) $(0.79) $(0.35)
Assuming dilution (a)
$(1.12) $(0.79) $(0.35)
(a) Potentially dilutive shares, not included in the computation of net income per share because to do so would have been antidilutive, totaled no shares in fiscal 2018, 3,000 shares in fiscal 2017, and 55,000 shares in fiscal 2016. Additionally, stock options with exercise prices exceeding market close prices that were excluded from the computation of net income per share amounted to 1,653,000 shares in fiscal 2018, 1,346,000 shares in fiscal 2017, and 494,000 shares in fiscal 2016.

Note 20. Shareholder Rights Plan
On February 15, 2018, the Board of Directors adopted a rights plan with a 10% triggering threshold and declared a dividend distribution of one right initially representing the right to purchase one half of a share of Luby’s common stock, upon specified terms and conditions. The rights plan was effective immediately.
The Board adopted the rights plan in view of the concentrated ownership of Luby’s common stock as a means to ensure that all of Luby’s stockholders are treated equally. The rights plan is designed to limit the ability of any person or group to gain control of Luby’s without paying all of Luby’s stockholders a premium for that control. The rights plan was not adopted in response to any specific takeover bid or other plan or proposal to acquire control of Luby’s.
If a person or group acquires 10% or more of the outstanding shares of Luby’s common stock (including in the form of synthetic ownership through derivative positions), each right will entitle its holder (other than such person or members of such group) to purchase, for $12.00, a number of shares of Luby’s common stock having a then-current market value of twice such price. The rights plan exempts any person or group owning 10% or more (35.5% or more in the case of Harris J. Pappas, Christopher J. Pappas and their respective affiliates and associates) of Luby’s common stock immediately prior to the adoption of the rights plan. However, the rights will be exercisable if any such person or group acquires any additional shares of Luby’s common stock (including through derivative positions) other than as a result of equity grants made by Luby’s to its directors, officers or employees in their capacities as such.
Prior to the acquisition by a person or group of beneficial ownership of 10% or more of the outstanding shares of Luby’s common stock, the rights are redeemable for 1 cent per right at the option of Luby’s Board of Directors.
The dividend distribution was made on February 28, 2018 to stockholders of record on that date. Unless and until a triggering event occurs and the rights become exercisable, the rights will trade with shares of Luby’s common stock.
Luby’s financial condition, operations, and earnings per share was not affected by the adoption of the rights plan.



Note 18.21. Quarterly Financial Information

The following tables summarize quarterly unaudited financial information for fiscal years 20152018 and 2014.

  

Quarter Ended(a)

 
  

August 26,
2015

  

May6,
201
5

  

February 11,
201
5

  

November19,
2014

 
 

(112 days)

(84 days)

(84 days)

(84 days)

 

(In thousands, except per share data)

Restaurant sales

 $115,361  $88,788  $85,486  $80,557 

Franchise revenue

  2,197   1,578   1,605   1,581 

Culinary contract services

  4,408   3,624   3,771   4,598 

Vending revenue

  175   112   119   125 

Total sales

  122,141   94,102   90,981   86,861 

Income (loss) from continuing operations

  141   2,532   (1,229

)

  (2,816

)

Loss from discontinued operations

  (190

)

  (179

)

  (130

)

  (203

)

Net income (loss)

  (49

)

  2,353   (1,359

)

  (3,019

)

Net income (loss) per share:

                

Basic

     0.08   (0.05

)

  (0.11

)

Assuming dilution

     0.08   (0.05

)

  (0.11

)

Costs and Expenses

                

(As a percentage of restaurant sales)

                

Cost of food

  28.5

%

  28.4

%

  29.8

%

  29.2

%

Payroll and related costs

  34.3

%

  33.8

%

  34.5

%

  35.6

%

Other operating expenses

  17.7

%

  16.1

%

  16.6

%

  17.6

%

Occupancy costs

  5.4

%

  5.4

%

  5.8

%

  6.1

%

  

Quarter Ended(a)

 
  

August 27,
2014

  

May 7,
2014

  

February 12,
2014

  

November 20,
2013

 
 

(112 days)

(84 days)

(84 days)

(84 days)

 

(In thousands, except per share data)

Restaurant sales

 $115,375  $90,010  $82,930  $79,952 

Franchise revenue

  2,284   1,684   1,545   1,514 

Culinary contract services

  5,772   4,534   3,979   4,270 

Vending revenue

  174   131   115   112 

Total sales

  123,605   96,359   88,569   85,848 

Income (loss) from continuing operations

  (1,081

)

  1,742   (1,581

)

  (693

)

Loss from discontinued operations

  (366

)

  (12

)

  (603

)

  (853

)

Net income (loss)

  (1,447

)

  1,730   (2,184

)

  (1,546

)

Net income (loss) per share:

                

Basic

  (0.05

)

  0.06   (0.08

)

  (0.05

)

Assuming dilution

  (0.05

)

  0.06   (0.08

)

  (0.05

)

Costs and Expenses

                

(As a percentage of restaurant sales)

                

Cost of food

  29.1

%

  28.6

%

  29.0

%

  28.6

%

Payroll and related costs

  34.5

%

  32.9

%

  34.9

%

  34.7

%

Other operating expenses

  17.5

%

  15.8

%

  16.3

%

  17.2

%

Occupancy costs

  6.1

%

  5.5

%

  6.2

%

  6.0

%

(a)

The quarters endedAugust 26, 2015 and August27, 2014 consists of four four-week periods. All other quarters presented represent three four-week periods.

2017.
 
Quarter Ended (1)
 August 29,
2018
 June 6,
2018
 March 14,
2018
 December 20,
2017
 (84 days) (84 days) (84 days) (112 days)
 (In thousands, except per share data)
Restaurant sales$75,782
 $77,803
 $74,351
 $104,582
Franchise revenue1,633
 1,444
 1,401
 1,887
Culinary contract services6,369
 6,639
 5,889
 6,885
Vending revenue119
 118
 151
 143
Total sales$83,903
 $86,004
 $81,792
 $113,497
Loss from continuing operations(1,858) (14,133) (11,461) (5,502)
Loss from discontinued operations(6) (463) (110) (35)
Net loss$(1,864) $(14,596) $(11,571) $(5,537)
Net loss per share:       
Basic$(0.06) $(0.48) $(0.39) $(0.19)
Assuming dilution$(0.06) $(0.48) $(0.39) $(0.19)
Costs and Expenses (as a percentage of restaurant sales)
      
Cost of food27.8% 28.6% 28.5% 28.5%
Payroll and related costs37.5% 37.8% 38.3% 36.5%
Other operating expenses17.7% 19.3% 19.3% 18.6%
Occupancy costs6.4% 5.9% 6.3% 6.0%
(1) Quarterly results reflect corrections of immaterial errors as disclosed in Note 1 to our consolidated financial statements in Part II, Item 8 in this Form 10-K.
 Quarter Ended
 August 30, 2017 June 7,
2017
 March 15,
2017
 December 21,
2016
 (91 days) (84 days) (84 days) (112 days)
 (In thousands, except per share data)
Restaurant sales$79,078
 $82,594
 $81,064
 $108,082
Franchise revenue1,556
 1,477
 1,819
 1,871
Culinary contract services5,825
 4,515
 3,306
 4,297
Vending revenue130
 133
 125
 159
Total sales$86,589
 $88,719
 86,314
 $114,409
Loss from continuing operations(4,069) (377) (12,836) (5,514)
Loss from discontinued operations(32) (19) (343) (72)
Net loss$(4,101) $(396) $(13,179) $(5,586)
Net loss per share:       
Basic$(0.14) $(0.01) $(0.45) $(0.19)
Assuming dilution$(0.14) $(0.01) $(0.45) $(0.19)
Costs and Expenses (as a percentage of restaurant sales)
      
Cost of food28.3% 27.8% 27.9% 28.5%
Payroll and related costs36.1% 35.7% 36.1% 35.8%
Other operating expenses18.6% 16.7% 17.0% 18.2%
Occupancy costs6.4% 6.0% 6.6% 6.0%



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

We have had no disagreements with our accountants on any accounting or financial disclosures.

Item 9A. Controls and Procedures

Evaluation of Disclosure Control and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of August 26, 2015.29, 2018. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of August 26, 2015,29, 2018, our disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect material misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework-2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, we concluded that our internal control over financial reporting was effective as of August 26, 2015.

29, 2018.

Grant Thornton LLP, the independent registered public accounting firm that audited the Consolidated Financial Statements included in this report, has also audited the effectiveness our internal control over financial reporting as of August 26, 2015,29, 2018, as stated in their attestation report which is included under Item 8 of this report.

Attestation Report of the Registered Public Accounting Firm

Included in Item 8 of this report.

Changes in Internal Control over Financial Reporting

Except as noted above, there were no changes in our internal control over financial reporting during the quarter ended August 26, 201529, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None  

None.
  



PART III

Item 10. Directors, Executive Officers and Corporate Governance


There is incorporated in this Item 10 by reference that portion of our definitive proxy statement for the 20162019 annual meeting of shareholders appearing therein under the captions “Election of Directors,” “Corporate Governance,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Executive Officers,” and “Certain Relationships and Related Transactions.”

We have in place a Policy Guide on Standards of Conduct and Ethics applicable to all employees, as well as the boardBoard of directors,Directors, and Supplemental Standards of Conduct and Ethics for the Chief Executive Officer, Chief Financial Officer, Controller, and all senior financial officers. This Policy Guide and the Supplemental Standards were filed as exhibits to the Annual Report on Form 10-K for the fiscal year ended August 26, 2003 and can be found on our website at www.lubys.com. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendments to or waivers from the code of ethics or supplementary code of ethics by posting such information on our website at www.lubys.com.

Item 11. Executive Compensation

There is incorporated in this Item 11 by reference that portion of our definitive proxy statement for the 20162019 annual meeting of shareholders appearing therein under the captions “Compensation Discussion and Analysis—Executive Compensation,” “—Executive Compensation Committee Report,” “—Compensation Tables and Information,” “—Director Compensation,” and “Corporate Governance—Executive Compensation Committee—Compensation Committee Interlocks.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

There is incorporated in this Item 12 by reference that portion of our definitive proxy statement for the 20162019 annual meeting of shareholders appearing therein under the captions “Ownership of Equity Securities in the Company” and “Principal Shareholders.”

Item 13. Certain Relationships and Related Transactions, and Director Independence

There is incorporated in this Item 13 by reference that portion of our definitive proxy statement for the 20162019 annual meeting of shareholders appearing therein under the captions, “Corporate Governance Guidelines—Director Independence” and “Certain Relationships and Related Transactions.”

Item 14. Principal Accountant Fees and Services

There is incorporated in this Item 14 by reference that portion of our definitive proxy statement for the 20162019 annual meeting of shareholders appearing therein under the caption “Fees Paid To The Independent Registered Public Accounting Firm.”  



PART IV
 

PART IV

Item 15. Exhibits, Financial Statement Schedules

1.

Financial Statements

The following financial statements are filed as part of this Report:

Consolidated balance sheets at August 26, 201529, 2018 and August 27, 2014.

30, 2017.

Consolidated statements of operations for each of the three years in the period ended August 26, 2015.

29, 2018.

Consolidated statements of shareholders’ equity for each of the three years in the period ended August 26, 2015. 

29, 2018. 

Consolidated statements of cash flows for each of the three years in the period ended August 26, 2015.

29, 2018.

Notes to consolidated financial statements

Reports of Independent Registered Public Accounting Firm Grant Thornton LLP

2.

Financial Statement Schedules

All schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto.

3.

Exhibits

The following exhibits are filed as a part of this Report:

3(a)

3(a)

3(b)

  

3(c)

  

4(a)

3(d)

Rights Agreement dated January 27, 2011 between

4(b)

First Amendment to Rights Agreement, dated as of December 3, 2013, between Luby’s, Inc. and American Stock Transfer & Trust Company, LLC (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on December 3, 2013 (File No. 001-08308)).

10(a)

Credit Agreement dated as of November 9, 2009, among the Company, the lenders party thereto, Wells Fargo Bank, National Association, as Administrative Agent, and Amegy Bank, National Association, as Syndication Agent (incorporated by reference to Exhibit 4(l) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 26, 2009, filed November 9, 2009 (File No. 001-08308)).

10(b)

First Amendment to Credit Agreement, dated as of January 31, 2010, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as Administrative Agent, and Amegy Bank National Association, as Syndication Agent (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 10, 2010, filed on March 19, 2010 (File No. 001-08308)).

10(c)

Second Amendment to Credit Agreement, dated as of July 26, 2010, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on July 27, 2010 (File No. 001-08308)).


10(d)

Third Amendment to Credit Agreement, dated as of September 30, 2010, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent (incorporated by reference to Exhibit 4(f) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 25, 2010, filed on November 8, 2010 (File No. 001-08308)).

10(e)

Fourth Amendment to Credit Agreement, dated as of October 30, 2010, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent (incorporated by reference to Exhibit 4(g) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 25, 2010, filed on November 8, 2010 (File No. 001-08308)).

10(f)

Fifth Amendment to Credit Agreement, dated, effective as of August 25, 2011, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent31, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 30, 201131, 2018 (File No. 001-08308)).

  

10(g)

4

Sixth Amendment to Credit

  


10(h)

Seventh Amendment to Credit Agreement, dated as of February 14, 2013, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 13, 2013, filed on March 25, 2013 (File No. 001-08308)).

10(i)

10(a)

Credit Agreement, dated as of August 14, 2013, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 19, 2013 (File No. 001-08308)).

10(j)

First Amendment to Credit Agreement, dated as March 21, 2014, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 27, 2014 (File No. 001-08308)).

10(k)

Second Amendment to Credit Agreement, dated as November 7, 2014, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on November 12, 2014 (File No. 001-08308)).

10(l)

Third Amendment to Credit Agreement, dated as October 2, 2015, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 6, 2015 (File No. 001-08308)).

10(m)

Nonemployee Director Deferred Compensation Plan of Luby’s Cafeterias, Inc. adopted October 27, 1994 (incorporated by reference to Exhibit 10(g) to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 1994, filed on January 11, 1995 (File No. 001-08308)).*

10(n)

Amendment to Nonemployee Director Deferred Compensation Plan of Luby’s Cafeterias, Inc. adopted January 14, 1997 (incorporated by reference to Exhibit 10(m) to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, filed on April 11, 1997 (File No. 001-08308)).*

10(o)

Amendment to Nonemployee Director Deferred Compensation Plan of Luby’s Cafeterias, Inc. adopted March 19, 1998 (filed as Exhibit 10(o) to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, filed on April 13, 1998 (File No. 001-08308)).*

10(p)

Amended and Restated Nonemployee Director Stock Plan of Luby’s, Inc. adopted January 20, 2005, as amended January 24, 2007, as amended April 14, 2008 (filed as Exhibit 10(f) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 27, 2008, filed on November 7, 2008 (File No. 001-08308)).*


10(q)

10(r)

10(b)

Luby’s Cafeterias, Inc. Supplemental Executive Retirement Plan dated May 30, 1996 (incorporated by reference to Exhibit 10(j) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 1996, filed on November 26, 1996 (File No. 001-08308)).*

10(s)

Amendment to Luby’s Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 14, 1997 (incorporated by reference to Exhibit 10(r) to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, filed on April 11, 1997 (File No. 001-08308)).*

10(t)

Amendment to Luby’s Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 9, 1998 (incorporated by reference to Exhibit 10(u) to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, filed April 13, 1998 (File No. 001-08308)).*

10(u)

Amendment to Luby’s Cafeterias, Inc. Supplemental Executive Retirement Plan adopted May 21, 1999 (incorporated by reference to Exhibit 10(q) to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, filed July 14, 1999 (File No. 001-08308)).*

10(v)

Luby’s Incentive Stock Plan adopted October 16, 1998 (incorporated by reference to Exhibit 10(cc) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 1998, filed November 25, 1998 (File No. 001-08308)).*

10(w)

Amended and Restated Luby’s Incentive Stock Plan adopted January 19, 2006 (incorporated by reference to Exhibit 10(ee) to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 15, 2006, filed March 28, 2006 (File No. 001-08308)).*

10(x)

10(y)

Asset Purchase Agreement, dated as of June 23, 2010, by and among Luby’s, Inc., Fuddruckers, Inc., Magic Brands, LLC, Atlantic Restaurant Ventures, Inc., R. Wes, Inc., Fuddruckers of Howard County, LLC and Fuddruckers of White Marsh, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 29, 2010 (File No. 001-08308)).

    

10(z)

10(c)

Amendment to Asset Purchase Agreement, dated as of July 26, 2010, by and among Luby’s Fuddruckers Restaurants, LLC, Fuddruckers, Inc., Magic Brands, LLC, Atlantic Restaurant Ventures, Inc., R. Wes, Inc., Fuddruckers of Howard County, LLC and Fuddruckers of White Marsh, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 27, 2010 (File No. 001-08308)).

10(aa)

10(bb)

10(d)

10(cc)

10(e)

10(dd)

10(f)


10(ee)

Amended and Restated Master Sales Agreement effective May 28, 2015, by and among Luby’s, Inc., Pappas Restaurants, L.P., and Pappas Restaurants, Inc.


  

10(ff)

10(g)

10(gg)

First Amendment to Employment Agreement dated December 1, 2014, between Luby’s, Inc. and Christopher J. Pappas (incorporated by reference to Exhibit 10.1 to the Company’sCompany's Current Report on Form 8-K filed on December 3, 201412, 2017 (File No. 001-08308)).*

    

10(hh)

10(h)

10(ii)

10(i)

11

10(j)

14(a)

10(k)

10(l)
10(m)
10(n)


10(o)
10(p)
10(q)
10(r)
10(s)
10(t)
14(a)

14(b)

21

23.1

31.1

31.2

32.1

32.2

  

99(a)



101.INS

101.INSXBRL 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



__________________________  

*

*Denotes management contract or compensatory plan or arrangement.

**

Information required to be presented in Exhibit 11 is provided in Note 17 “Earnings Per Share” of the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K in accordance with the provisions of FASB Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share.





SIGNATURES
 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

November 9, 2015

Date

LUBY’S, INC.

(Registrant)

November 16, 2018

By:

LUBY’S, INC.

Date(Registrant)
By:/s/    CHRISTOPHER J. PAPPAS        

Christopher J. Pappas

President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature and Title

Date

/S/    GASPER MIR, III

November 9, 2015

16, 2018

Gasper Mir, III, Director and Chairman of the Board

/S/    CHRISTOPHER J. PAPPAS

November 9, 2015

16, 2018

Christopher J. Pappas, Director, President and Chief
Executive Officer
(Principal Executive Officer)

/S/    PETER TROPOLI 

November 9, 2015

Peter Tropoli, Director and Chief Operating Officer

/S/    K. SCOTT GRAY 

November 9, 2015

16, 2018

K. Scott Gray, Senior Vice President and Chief Financial

Officer, and Principal Accounting Officer
(Principal Financial and Accounting Officer)

/S/    HARRIS J. PAPPAS

November 9, 2015

Harris J. Pappas, Director

/S/    JUDITH B. CRAVEN

November 9, 2015

Judith B. Craven, Director

/S/     ARTHUR R. EMERSON 

November 9, 2015

Arthur R. Emerson, Director

/S/    JILL GRIFFIN

November 9, 2015

Jill Griffin, Director

/S/    J.S.B. JENKINS

November 6 2015

J.S.B. Jenkins, Director

/S/    FRANK MARKANTONIS 

November 9, 2015

Frank Markantonis, Director

/S/    JOE C. MCKINNEY 

November 9, 2015

Joe C. McKinney, Director


EXHIBIT INDEX

3(a)

Amended and Restated Certificate of Incorporation of Luby’s, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 11, 2009, filed on March 20, 2009 (File No. 001-08308)).

3(b)

Bylaws of Luby’s, Inc., as amended through July 9, 2008 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on July 14, 2008 (File No. 001-08308)).

  

3(c)

/S/    PETER TROPOLI 

Amendment to Bylaws of Luby’s, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 6, 2015 (File No. 001-08308)).

November 16, 2018
Peter Tropoli, Director
    

 4(a)

/S/    HARRIS J. PAPPAS

Rights Agreement dated January 27, 2011 between Luby’s, Inc. and American Stock Transfer & Trust Company, LLC, as Rights Agent (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on February 2, 2011 (File No. 001-08308)).

November 16, 2018

Harris J. Pappas, Director

4(b)

First Amendment to Rights Agreement, dated as of December 3, 2013, between Luby’s, Inc. and American Stock Transfer & Trust Company, LLC (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on December 3, 2013 (File No. 001-08308)).

10(a)

Credit Agreement dated as of November 9, 2009, among the Company, the lenders party thereto, Wells Fargo Bank, National Association, as Administrative Agent, and Amegy Bank, National Association, as Syndication Agent (incorporated by reference to Exhibit 4(l) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 26, 2009, filed November 9, 2009 (File No. 001-08308)).

    

10(b)

/S/    GERALD W. BODZY

First Amendment to Credit Agreement, dated as of January 31, 2010, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as Administrative Agent, and Amegy Bank National Association, as Syndication Agent (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 10, 2010, filed on March 19, 2010 (File No. 001-08308)).

November 16, 2018
Gerald W. Bodzy, Director
  

10(c)

/S/    JUDITH B. CRAVEN

Second Amendment to Credit Agreement, dated as of July 26, 2010, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on July 27, 2010 (File No. 001-08308)).

November 16, 2018
Judith B. Craven, Director
    

10(d)

/S/    JILL GRIFFIN

Third Amendment to Credit Agreement, dated as of September 30, 2010, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent (incorporated by reference to Exhibit 4(f) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 25, 2010, filed on November 8, 2010 (File No. 001-08308)).

16, 2018
Jill Griffin, Director
    

10(e)

/S/    FRANK MARKANTONIS 

Fourth Amendment to Credit Agreement, dated as of October 30, 2010, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent (incorporated by reference to Exhibit 4(g) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 25, 2010, filed on November 8, 2010 (File No. 001-08308)).

16, 2018
Frank Markantonis, Director
    

10(f)

/S/    JOE C. MCKINNEY 

Fifth Amendment to Credit Agreement, dated as of August 25, 2011, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 30, 2011 (File No. 001-08308)).

November 16, 2018
Joe C. McKinney, Director 

10(g)

Sixth Amendment to Credit Agreement, dated as of October 20, 2011, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent (incorporated by reference to Exhibit 4(i) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 29, 2012, filed on November 13, 2012 (File No. 001-08308)).

10(h)

Seventh Amendment to Credit Agreement, dated as of February 14, 2013, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 13, 2013, filed on March 25, 2013 (File No. 001-08308)).


10(i)

Credit Agreement, dated as of August 14, 2013, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 19, 2013 (File No. 001-08308)).

10(j)

First Amendment to Credit Agreement, dated as March 21, 2014, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 27, 2014 (File No. 001-08308)).

10(k)

Second Amendment to Credit Agreement, dated as November 7, 2014, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on November 12, 2014 (File No. 001-08308)).

10(l)

Third Amendment to Credit Agreement, dated as October 2, 2015, among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association, as administrative agent, and Amegy Bank National Association, as syndication agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 6, 2015 (File No. 001-08308)).

10(m)

Nonemployee Director Deferred Compensation Plan of Luby’s Cafeterias, Inc. adopted October 27, 1994 (incorporated by reference to Exhibit 10(g) to the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 1994, filed on January 11, 1995 (File No. 001-08308)).*

10(n)

Amendment to Nonemployee Director Deferred Compensation Plan of Luby’s Cafeterias, Inc. adopted January 14, 1997 (incorporated by reference to Exhibit 10(m) to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, filed on April 11, 1997 (File No. 001-08308)).*

10(o)

Amendment to Nonemployee Director Deferred Compensation Plan of Luby’s Cafeterias, Inc. adopted March 19, 1998 (filed as Exhibit 10(o) to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, filed on April 13, 1998 (File No. 001-08308)).*

10(p)

Amended and Restated Nonemployee Director Stock Plan of Luby’s, Inc. adopted January 20, 2005, as amended January 24, 2007, as amended April 14, 2008 (filed as Exhibit 10(f) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 27, 2008, filed on November 7, 2008 (File No. 001-08308)).*

10(q)

Second Amended and Restated Nonemployee Director Stock Plan of Luby’s, Inc. adopted January 25, 2013 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 13, 2013, filed March 25, 2013 (File No. 001-08308)).*

10(r)

Luby’s Cafeterias, Inc. Supplemental Executive Retirement Plan dated May 30, 1996 (incorporated by reference to Exhibit 10(j) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 1996, filed on November 26, 1996 (File No. 001-08308)).*

10(s)

Amendment to Luby’s Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 14, 1997 (incorporated by reference to Exhibit 10(r) to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, filed on April 11, 1997 (File No. 001-08308)).*

10(t)

Amendment to Luby’s Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 9, 1998 (incorporated by reference to Exhibit 10(u) to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, filed April 13, 1998 (File No. 001-08308)).*

10(u)

Amendment to Luby’s Cafeterias, Inc. Supplemental Executive Retirement Plan adopted May 21, 1999 (incorporated by reference to Exhibit 10(q) to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, filed July 14, 1999 (File No. 001-08308)).*

10(v)

Luby’s Incentive Stock Plan adopted October 16, 1998 (incorporated by reference to Exhibit 10(cc) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 1998, filed November 25, 1998 (File No. 001-08308)).*

10(w)

Amended and Restated Luby’s Incentive Stock Plan adopted January 19, 2006 (incorporated by reference to Exhibit 10(ee) to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 15, 2006, filed March 28, 2006 (File No. 001-08308)).*


98

10(x)

Registration Rights Agreement dated March 9, 2001, by and among Luby’s, Inc., Christopher J. Pappas, and Harris J. Pappas (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed March 15, 2001 (File No. 001-08308)).

10(y)

Asset Purchase Agreement, dated as of June 23, 2010, by and among Luby’s, Inc., Fuddruckers, Inc., Magic Brands, LLC, Atlantic Restaurant Ventures, Inc., R. Wes, Inc., Fuddruckers of Howard County, LLC and Fuddruckers of White Marsh, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 29, 2010 (File No. 001-08308)).

10(z)

Amendment to Asset Purchase Agreement, dated as of July 26, 2010, by and among Luby’s Fuddruckers Restaurants, LLC, Fuddruckers, Inc., Magic Brands, LLC, Atlantic Restaurant Ventures, Inc., R. Wes, Inc., Fuddruckers of Howard County, LLC and Fuddruckers of White Marsh, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 27, 2010 (File No. 001-08308)).

10(aa)

Luby’s, Inc. Amended and Restated Nonemployee Director Phantom Stock Plan effective September 28, 2001 (incorporated by reference to Exhibit 10(dd) to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 13, 2002, filed on March 29, 2002 (File No. 001-08308)).*

10(bb)

Form of Indemnification Agreement entered into between Luby’s, Inc. and each member of its Board of Directors initially dated July 23, 2002 (incorporated by reference to Exhibit 10(gg) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 28, 2002, filed on November 27, 2002 (File No. 001-08308)).

10(cc)

Amended and Restated Master Sales Agreement effective November 16, 2011, by and among Luby’s, Inc., Pappas Restaurants, L.P., and Pappas Restaurants, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 9, 2012, filed on June 15, 2012 (File No. 001-08308)).

10(dd)

Amended and Restated Master Sales Agreement effective November 8, 2013, by and among Luby’s, Inc., Pappas Restaurants, L.P., and Pappas Restaurants, Inc. (incorporated by reference to Exhibit 10 (u) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 28, 2013, filed on November 12, 2013 (File No. 001-08308)).

10(ee)

Amended and Restated Master Sales Agreement effective May 28, 2015, by and among Luby’s, Inc., Pappas Restaurants, L.P., and Pappas Restaurants, Inc.

10(ff)

Employment Agreement dated January 24, 2014, between Luby’s, Inc. and Christopher J. Pappas (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 27, 2014 (File No. 001-08308)).*

10(gg)

First Amendment to Employment Agreement dated December 1, 2014, between Luby’s, Inc. and Christopher J. Pappas (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 3, 2014 (File No. 001-08308)).*

10(hh)

Form of Restricted Stock Award Agreement pursuant to the Luby’s Incentive Stock Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 16, 2007 (File No. 001-08308)).

10(ii)

Form of Incentive Stock Option Award Agreement pursuant to the Luby’s Incentive Stock Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 16, 2007 (File No. 001-08308)).

11

Statement regarding computation of Per Share Earnings.**

14(a)

Policy Guide on Standards of Conduct and Ethics applicable to all employees, as well as the board of directors (incorporated by reference to Exhibit 14(a) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 26, 2003, filed on November 25, 2003 (File No. 001-08308)).

14(b)

Supplemental Standards of Conduct and Ethics for the Chief Executive Officer, Chief Financial Officer, Controller, and all senior financial officers (incorporated by reference to Exhibit 14(b) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 26, 2003, filed on November 25, 2003 (File No. 001-08308)).

21

Subsidiaries of the Company.

23.1

Consent of Grant Thornton LLP.


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 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 Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99(a)

Corporate Governance Guidelines of Luby’s, Inc., as amended October 28, 2004 (incorporated by reference to Exhibit 99(a) to the Company’s Annual Report on Form 10-K for the fiscal year ended August 29, 2007, filed on November 9, 2007 (File No. 001-08308)).

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


*

Denotes management contract or compensatory plan or arrangement.

**

Information required to be presented in Exhibit 11 is provided in Note 17 “Earnings Per Share” of the Notes to Consolidated Financial Statements under Part II, Item 8 of this Form 10-K in accordance with the provisions of FASB Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share.

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