UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

__________________________

FORM 10-Q

__________________________



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

For the quarterly period ended ~~June 6,~~December 19, 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, Inc.

(Exact name of registrant as specified in its charter)

__________________________



Delaware	74-1335253
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

13111 Northwest Freeway, Suite 600 Houston, Texas	77040
(Address of principal executive offices)	(Zip Code)

(713) 329-6800

(Registrant’s telephone number, including area code)

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

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

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



Large accelerated filer	¨	Accelerated 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

As of ~~July 11, 2018,~~January 23, 2019, there were ~~29,503,642~~29,762,888 shares of the registrant’s common stock outstanding.

Luby’s, Inc.

Form 10-Q

Quarter ended ~~June 6,~~December 19, 2018

Table of Contents

Additional Information

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

Part I—FINANCIAL INFORMATION

Item 1. Financial Statements

Luby’s, Inc.

Consolidated Balance Sheets

(In thousands, except share data)


	June 6, 2018			August 30, 2017			December 19, 2018			August 29, 2018
	(Unaudited)						(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	1,509		$	1,096		$	8,665		$	3,722
Restricted cash and cash equivalents							11,103			—
Trade accounts and other receivables, net	7,868			8,011			8,054			8,787
Food and supply inventories	4,830			4,453			4,144			4,022
Prepaid expenses	3,356			3,431			1,580			3,219
Total current assets	17,563			16,991			33,546			19,750
Property held for sale	22,042			3,372			19,469			19,469
Assets related to discontinued operations	1,813			2,755			1,813			1,813
Property and equipment, net	146,488			172,814			133,587			138,287
Intangible assets, net	18,508			19,640			17,660			18,179
Goodwill	555			1,068			555			555
Deferred income taxes	—			7,254
Other assets	1,982			2,563			2,261			1,936
Total assets	$	208,951		$	226,457		$	208,891		$	199,989
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	16,230		$	15,937		$	8,274		$	10,457
Liabilities related to discontinued operations	9			367			21			14
Credit facility debt	44,028			—
Current portion of credit facility debt							10,000			39,338
Accrued expenses and other liabilities	28,092			28,076			30,732			31,755
Total current liabilities	88,359			44,380			49,027			81,564
Credit facility debt, less current portion	—			30,698			46,097			—
Liabilities related to discontinued operations	16			16			16			16
Other liabilities	6,537			7,311			5,694			5,781
Total liabilities	94,912			82,405			100,834			87,361
Commitments and Contingencies
SHAREHOLDERS’ EQUITY
Common stock, $0.32 par value; 100,000,000 shares authorized; shares issued were 29,975,193 and 29,624,083, respectively; shares outstanding were 29,475,193 and 29,124,083, respectively	9,592			9,480
Common stock, $0.32 par value; 100,000,000 shares authorized; shares issued were 30,164,360 and 30,003,642; and shares outstanding were 29,664,360 and 29,503,642, at December 19, 2018 and August 29, 2018, respectively							9,653			9,602
Paid-in capital	33,429			31,850			34,260			33,872
Retained earnings	75,793			107,497			68,919			73,929
Less cost of treasury stock, 500,000 shares	(4,775		)	(4,775		)	(4,775		)	(4,775		)
Total shareholders’ equity	114,039			144,052			108,057			112,628
Total liabilities and shareholders’ equity	$	208,951		$	226,457		$	208,891		$	199,989

The accompanying notes are an integral part of these Consolidated Financial Statements.

Luby’s, Inc.

Consolidated Statements of Operations (unaudited)

(In thousands, except per share data)


	Quarter Ended						Three Quarters Ended						Quarter Ended
	June 6, 2018			June 7, 2017			June 6, 2018			June 7, 2017			December 19, 2018			December 20, 2017
	(12 weeks)			(12 weeks)			(40 weeks)			(40 weeks)			(16 weeks)			(16 weeks)
SALES:
Restaurant sales	$	77,803		$	82,594		$	256,737		$	271,741		$	91,099		$	104,583
Culinary contract services	6,639			4,515			19,413			12,117			9,496			6,884
Franchise revenue	1,444			1,477			4,732			5,167			2,224			1,887
Vending revenue	118			133			412			417			99			143
TOTAL SALES	86,004			88,719			281,294			289,442			102,918			113,497
COSTS AND EXPENSES:
Cost of food	22,255			22,922			73,190			76,353			25,083			29,754
Payroll and related costs	29,392			29,519			96,032			97,486			34,513			38,126
Other operating expenses	15,023			13,796			48,881			47,207			16,502			19,499
Occupancy costs	4,609			4,923			15,577			16,720			5,875			6,261
Opening costs	85			134			490			431			33			75
Cost of culinary contract services	6,104			4,194			18,113			10,966			8,815			6,332
Cost of franchise operations	341			361			1,198			1,378			273			488
Depreciation and amortization	4,050			4,639			13,402			15,977			4,903			5,353
Selling, general and administrative expenses	8,507			6,764			29,219			29,531			11,224			11,525
Provision for asset impairments and restaurant closings	4,464			869			6,716			7,120			1,227			845
Net loss (gain) on disposition of property and equipment	154			(195		)	172			219
Net loss on disposition of property and equipment													149			222
Total costs and expenses	94,984			87,926			302,990			303,388			108,597			118,480
INCOME (LOSS) FROM OPERATIONS	(8,980		)	793			(21,696		)	(13,946		)
LOSS FROM OPERATIONS													(5,679		)	(4,983		)
Interest income	1			3			12			5			—			6
Interest expense	(1,042		)	(569		)	(2,235		)	(1,898		)	(1,713		)	(649		)
Other income (expense), net	9			(173		)	317			(312		)
Income (loss) before income taxes and discontinued operations	(10,012		)	54			(23,602		)	(16,151		)
Provision for income taxes	4,121			431			7,494			2,576
Other income, net													30			115
Loss before income taxes and discontinued operations													(7,362		)	(5,511		)
Provision (benefit) for income taxes													121			(9		)
Loss from continuing operations	(14,133		)	(377		)	(31,096		)	(18,727		)	(7,483		)	(5,502		)
Loss from discontinued operations, net of income taxes	(463		)	(19		)	(608		)	(434		)	(6		)	(35		)
NET LOSS	$	(14,596	)	$	(396	)	$	(31,704	)	$	(19,161	)	$	(7,489	)	$	(5,537	)
Loss per share from continuing operations:
Basic	$	(0.47	)	$	(0.01	)	$	(1.04	)	$	(0.64	)	$	(0.25	)	$	(0.19	)
Assuming dilution	$	(0.47	)	$	(0.01	)	$	(1.04	)	$	(0.64	)	$	(0.25	)	$	(0.19	)
Loss per share from discontinued operations:
Basic	$	(0.02	)	$	(0.00	)	$	(0.02	)	$	(0.01	)	$	(0.00	)	$	(0.00	)
Assuming dilution	$	(0.02	)	$	(0.00	)	$	(0.02	)	$	(0.01	)	$	(0.00	)	$	(0.00	)
Net loss per share:
Basic	$	(0.49	)	$	(0.01	)	$	(1.06	)	$	(0.65	)	$	(0.25	)	$	(0.19	)
Assuming dilution	$	(0.49	)	$	(0.01	)	$	(1.06	)	$	(0.65	)	$	(0.25	)	$	(0.19	)
Weighted average shares outstanding:
Basic	30,005			29,536			29,863			29,453			30,059			29,691
Assuming dilution	30,005			29,536			29,863			29,453			30,059			29,691

The accompanying notes are an integral part of these Consolidated Financial Statements.

Luby’s, Inc.

Consolidated Statement of Shareholders’ Equity (unaudited)

(In thousands)


	Common Stock														Total			Common Stock										Total
	Issued			Treasury					Paid-In			Retained			Shareholders’			Issued		Treasury				Paid-In		Retained		Shareholders’
	Shares	Amount		Shares		Amount			Capital			Earnings			Equity			Shares	Amount	Shares		Amount		Capital		Earnings		Equity
Balance at August 30, 2017	29,624	$	9,480	(500	)	$	(4,775	)	$	31,850		$	107,497		$	144,052		29,624	9,480	(500	)	(4,775	)	31,850		107,497		144,052
Net loss	—	—		—		—			—			(31,704		)	(31,704		)	—	—	—		—		—		(5,537	)	(5,537	)
Share-based compensation expense	81	25		—		—			1,666			—			1,691			30	10	—		—		857		—		867
Common stock issued under employee benefit plans	183	59		—		—			(59		)	—			—			163	52	—		—		(52	)	—		—
Common stock issued under nonemployee benefit plans	87	28		—		—			(28		)	—			—
Balance at June 6, 2018	29,975	$	9,592	(500	)	$	(4,775	)	$	33,429		$	75,793		$	114,039
Balance at December 20, 2017																		29,817	9,542	(500	)	(4,775	)	32,655		101,960		139,382



	Common Stock														Total
	Issued			Treasury					Paid-In			Retained			Shareholders’
	Shares	Amount		Shares		Amount			Capital			Earnings			Equity
Balance at August 29, 2018	30,003	$	9,602	(500	)	$	(4,775	)	$	33,872		$	73,929		$	112,628
Net loss	—	—		—		—			—			(7,489		)	(7,489		)
Cumulative effect of accounting changes from the adoption of ASC Topic 606	—	—		—		—			—			2,479			2,479
Share-based compensation expense	42	13		—		—			426			—			439
Common stock issued under employee benefit plans	81	26		—		—			(26		)	—			—
Common stock issued under nonemployee benefit plans	38	12		—		—			(12		)	—			—
Balance at December 19, 2018	30,164	$	9,653	(500	)	$	(4,775	)	$	34,260		$	68,919		$	108,057

The accompanying notes are an integral part of these Consolidated Financial Statements.

Luby’s, Inc.

Consolidated Statements of Cash Flows (unaudited)

(In thousands)


	Three Quarters Ended						Quarter Ended
	June 6, 2018			June 7, 2017			December 19, 2018			December 20, 2017
	(40 weeks)			(40 weeks)			(16 weeks)			(16 weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(31,704	)	$	(19,161	)	$	(7,489	)	$	(5,537	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for asset impairments and net losses (gains) on property sales	6,599			7,338			1,376			1,067
Depreciation and amortization	13,402			15,977			4,903			5,353
Amortization of debt issuance cost	438			316			449			40
Share-based compensation expense	1,691			1,203			439			867
Deferred tax provision	8,026			2,922			—			(57		)
Cash provided by (used in) operating activities before changes in operating assets and liabilities	(1,548		)	8,595			(322		)	1,733
Changes in operating assets and liabilities:
Increase in trade accounts and other receivables	(264		)	(460		)
Decrease in insurance receivables	407			—
Decrease (Increase) in food and supply inventories	(376		)	68
Decrease (Increase) in prepaid expenses and other assets	575			(5		)
Insurance proceeds	276			—
Decrease in accounts payable, accrued expenses and other liabilities	(3,948		)	(4,522		)
Net cash provided by (used in) operating activities	(4,878		)	3,676
Decrease (increase) in trade accounts and other receivables							733			(307		)
Increase in food and supply inventories							(123		)	(290		)
Decrease in prepaid expenses and other assets							1,881			441
Increase (decrease) in accounts payable, accrued expenses and other liabilities							(912		)	1,905
Net cash provided by operating activities							1,257			3,482
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of assets and property held for sale	3,363			3,640			171			185
Insurance proceeds	756			—			—			344
Purchases of property and equipment	(11,730		)	(10,114		)	(1,119		)	(4,325		)
Net cash used in investing activities	(7,611		)	(6,474		)	(948		)	(3,796		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Revolver borrowings	83,200			94,400			18,506			22,900
Revolver repayments	(68,600		)	(122,900		)	(38,500		)	(22,800		)
Proceeds from term loan	—			35,000			58,400			—
Term loan repayments	(1,415		)	(3,063		)	(19,506		)	—
Debt issuance costs	(213		)	(652		)	(3,155		)	—
Taxes paid for shares withheld	(70		)	—
Taxes paid on equity withheld							(8		)	(70		)
Net cash provided by financing activities	12,902			2,785			15,737			30
Net increase (decrease) in cash and cash equivalents	413			(13		)
Cash and cash equivalents at beginning of period	1,096			1,339
Cash and cash equivalents at end of period	$	1,509		$	1,326
Net increase (decrease) in cash and cash equivalents and restricted cash							16,046			(284		)
Cash and cash equivalents and restricted cash at beginning of period							3,722			1,096
Cash and cash equivalents and restricted cash at end of period							$	19,768		$	812
Cash paid for:
Income taxes	$	—		$	—		$	29		$	—
Interest	1,717			1,228			1,637			515

The accompanying notes are an integral part of these Consolidated Financial Statements.

Luby’s, Inc.

Notes to Consolidated Financial Statements (unaudited)

Note 1. Basis of Presentation

The accompanying unaudited Consolidated Financial Statements of Luby’s, Inc. (the “Company”, "we", "our", "us", or “Luby’s”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements that are prepared for the Company’s Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the quarter ended ~~June 6,~~December 19, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending August ~~29, 2018.~~28, 2019.

The Consolidated Balance Sheet dated August ~~30, 2017,~~29, 2018, included in this Quarterly Report on Form 10-Q (this “Form 10-Q”), has been derived from the audited Consolidated Financial Statements as of that date. However, this Form 10-Q does not include all of the information and footnotes required by GAAP for audited, year-end financial statements. Therefore, these financial statements should be read in conjunction with the audited Consolidated Financial Statements and footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended August ~~30, 2017.~~29, 2018.

Correction of Immaterial Errors in Previously Issued Financial Statements

In the third quarter of fiscal 2018, ~~management~~we identified an accounting error in Trade accounts and other receivables, net, that overstated Culinary Contract Services (CCS) segment revenues by approximately $1.0 million, in the ~~aggregate. For~~aggregate, through the fourth fiscal quarter of 2017, current assets was overstated by approximately $0.1 million and net loss was understated by approximately $0.1 million. Based on the immateriality of the error to the fiscal fourth quarter and fiscal 2017 the correction for the error impacting fiscal 2017 was recorded in the firstsecond fiscal quarter of 2018. ~~The two~~Of the approximate $1.0 million aggregate error, approximately $0.1 million related to fiscal ~~quarters ended March 14, 2018 current assets were overstated by~~2017 and approximately ~~$0.9~~$0.5 million and ~~net loss was understated by approximately $0.9~~$0.4 million ~~or $0.03 per share. The amounts invoiced to each client were correct in each period, however, certain amounts recorded~~related to the ~~Company's~~first and second quarters of fiscal 2018, respectively.

The error resulted from a duplication in the general ledger ~~from point~~ of ~~sale transactions, from one client's location, were duplicated~~certain sales with ~~the amounts included on invoices submitted to that client.~~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 ~~current~~ fiscal quarter ended June 6, 2018.

Management evaluated the cumulative impact of the errors on prior periods under the guidance in ASC 250-10 relating to SEC Staff Accounting Bulletin (“SAB”) Topic1.M, Assessing Materiality. The Company also evaluated the impact of correcting the errors through an adjustment to its financial statements and concluded, based on the guidance within ASC 250-10 relating to SAB Topic 1.N, ~~Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, to revise its previously issued financial statements to reflect the impact of the correction of these errors when it files subsequent reports on Form 10-Q and Form 10-K.~~ Accordingly, the Company revised its consolidated financial statements for the quarters ended December 20, 2017 ~~(which includes the approximate $0.1 million correction with respect to fiscal 2017)~~ and March 14, 2018, to correct these errors. The prior period error corrections did not change the ~~net~~ cash flows provided by or used in operating, investing, or financing activities previously reported.

Recently Adopted Accounting Pronouncements

~~In August 2014,~~We transitioned to the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) ~~issued~~ Accounting Standards ~~Update ("ASU"~~Codification (“ASC”) ~~No. 2014-15.~~Topic 606, Revenue from Contracts with Customers (“ASC 606”) from ASC Topic 605, Revenue Recognition and ASC Topic 953-605, Franchisors - Revenue Recognition (together, the “Previous Standards”) on August 30, 2018. Our transition to ASC 606 represents a change in accounting principle. ASC 606 eliminates industry-specific guidance and provides a single model for recognizing revenue from contracts with customers. The ~~amendments~~core principle of ASC 606 is that a reporting entity should recognize revenue to depict the transfer of promised goods and services to customers in ~~ASU 2014-15 are intended~~an amount that reflects the consideration 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 thatwhich the reporting ~~organization will continue~~entity expects to ~~operate as a going concern, except in limited circumstances. The going concern basis~~be entitled for the exchange 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 concernthose goods 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, which required us to adopt these provisions in the first quarter of fiscal 2018. services.

We adopted ~~this pronouncement effective~~ASC 606 using the modified retrospective method applied to contracts that were not completed at August ~~31, 2017~~29, 2018. Due to the short term nature of a significant portion of our contracts with customers, we have elected to apply the practical expedients under ASC 606 to: (1) not adjust the consideration for the effects of a significant financing component, (2) recognize incremental costs of obtaining a contract as expense when incurred and (3) not disclose the value of our unsatisfied performance obligations for contracts with an original expected duration of one year or less.

The adoption of ASC 606 did not have an impact on the recognition of revenues from our primary source of revenue from our Company owned restaurants (except for recognition of breakage and discounts on gift cards, as discussed below), revenues from our culinary contract services, vending revenue or ongoing franchise royalty fees, which are based on a percentage of franchisee sales. The adoption did impact the recognition of initial franchise fees and area development fees and gift card breakage.

The adoption of ASC 606 requires us to recognize initial and renewal franchise and development fees on a straight-line basis over the term of the franchise agreement, which is usually 20 years. Historically, we have recognized revenue from initial franchise

and development fees upon the opening of a franchised restaurant when we have completed all our material obligations and initial services.

Additionally, ASC 606 requires gift card breakage to be recognized as revenue in proportion to the pattern of gift card redemptions exercised by our customers. Historically, we recorded breakage income within other (expense) income (and not within revenue) when it was deemed remote that the unused gift card balance will be redeemed.

Upon adoption of ASC 606 we changed our reporting of marketing and advertising fund (“MAF”) contributions from franchisees and the related marketing and advertising expenditures. Under the Previous Standards, we did not reflect MAF contributions from franchisees and MAF expenditures in our statements of operations. Although the gross amounts of our revenues and expenses are impacted by the recognition of franchisee MAF fund contributions and related expenditures of MAF funds we manage, increases to gross revenues and expenses did not result in a material net impact to our statement of operations.

Our consolidated financial statements reflect the application of ASC 606 beginning in fiscal year 2019, while our consolidated financial statements ~~or disclosures~~for prior periods were prepared under the guidance of the Previous Standards. The $2.5 million cumulative effect of our adoption of ASC 606 is reflected as an increase to ~~our consolidated financial statements.~~

August 30, 2018 Shareholders’ equity with a corresponding decrease to accrued expenses and other liabilities and was comprised of (1) a reduction to accrued expense and other liabilities of $3.1 million to adjust the unused gift card liability balance as if the gift card breakage guidance had been applied prior to August 30, 2018 and (2) an increase to accrued expense and other liabilities of $0.6 million to adjust the unearned franchise fees for the fees received through the end of FY 2018 that would have been deferred and recognized over the term of the franchise agreement if the new guidance had been applied prior to August 30, 2018.

In ~~July 2015,~~August 2016, the FASB issued ASU ~~2015-11, Simplifying the Measurement~~2016-15, Statement of ~~Inventory~~Cash Flows (Topic ~~330).~~230) Classification of Certain Cash Receipts and Cash Payments. This update ~~requires inventory within the scope of the standard to be measured at the lower of cost~~provides clarification regarding how certain cash receipts and ~~net realizable value. Net realizable value is defined as the estimated selling prices~~disbursements are presented and classified in the ~~ordinary course~~statement of ~~business, less reasonably predictable costs~~cash flows. The update addresses eight specific cash flow issues with the objective of ~~completion, disposal, and transportation. This update is effective for annual and interim periods beginning after December 15, 2016, which required us to adopt these provisions~~reducing the existing diversity in ~~the first quarter of fiscal 2018.~~practice. We adopted ASU 2016-15 on August 30, 2018 using the retrospective method of adoption. The adoption of this ~~pronouncement in the first quarter of fiscal 2018 and the adoption~~standard did not have ~~an impact on our consolidated financial statements or disclosures to our consolidated financial statements.~~

~~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. This update is effective for annual and interim periods beginning after December 15, 2016, which required us to adopt these provisions in the first quarter of fiscal 2018. The interim period adoption of this guidance had an immaterialmaterial impact on our consolidated financial statements.

In ~~March~~November 2016, the FASB issued ASU ~~2016-09, Improvements to Employee Share-Based Payment Accounting~~2016-18, Statement of Cash Flows (Topic ~~718).~~230), Restricted Cash. This update ~~was issued as part of~~addresses the ~~FASB’s simplification initiative~~diversity in practice on how to classify and ~~affects all entities that issue share-based payment awards to their employees. The amendments~~present changes in ~~this update cover such areas as the recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits on~~restricted cash or restricted cash equivalents in the statement of cash flows. The update requires that a statement of cash flows explain the change during the period in restricted cash or restricted cash equivalents in addition to changes in cash and cash equivalents. Entities are also required to disclose information about the nature of the restrictions and amounts described as restricted cash and restricted cash equivalents. Also, when cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line on the balance sheet, an ~~accounting policy election for forfeitures,~~entity must reconcile these amounts to the ~~amount an employer can withhold to cover income taxes and still qualify for equity classification and the classification of those taxes paid~~total shown on the statement of cash flows. ~~This update is~~We adopted ASU 2016-18 effective ~~for annual and interim periods for fiscal years beginning after December 15, 2016, which required us to adopt these provisions in~~August 30, 2018 using the ~~first quarter~~retrospective method of ~~fiscal 2018. The impact on the Company’s consolidated financial statements from interim period~~adoption. Our adoption of ASU ~~2016-09 was immaterial.~~2016-18 represents a change in accounting principle. Our consolidated statement of cash flow for the quarter ended December 20, 2017 has been revised to reflect the application of ASU 2016-18. See Note 16 for the reconciliation and disclosures regarding the restrictions required by this update. The ~~Company maintains its accounting policy for forfeitures and continues to estimate the total number~~adoption of ~~awards for which the requisite service period will~~this standard did not ~~be rendered for book expense purposes.~~

have a material impact on our consolidated financial statements.

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 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 reporting periods beginning after December 15, 2017, including interim periods within that reporting period, which will require us to adopt these provisions in the first quarter of fiscal 2019. Early application is not permitted. This update permits the use of either the retrospective or cumulative effect transition method. Further, in March 2016, the FASB issued ASU No. 2016–08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” which clarifies the guidance in ASU No. 2014–09 for evaluating when another party, along with the entity, is involved in providing a good or service to a customer. In April 2016, the FASB issued ASU No. 2016–10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing,” which clarifies the guidance in ASU No. 2014–09 regarding assessing whether promises to transfer goods or services are distinct, and whether an entity's promise to grant a license provides a customer with a right to use or right to access the entity's intellectual property. The Company plans to adopt the standard in the first quarter of fiscal 2019, which is the first fiscal quarter of the annual reporting period beginning after December 15, 2017. The Company will adopt Topic 606 beginning with its fiscal first quarter 2019 and will apply the guidance retrospectively to each prior period presented. 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. We do not expect the adoption of this pronouncement to effect this policy. 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. We do anticipate the recognition of these elements as separate performance obligations in adopting the new revenue standard. As a result, the Company expects the franchise fee recognition policy to change to recognition over the term of the franchisee agreement and does not expect the impact of recognizing initial franchise fees over the franchise agreement period to have a material effect on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ~~This update~~In January, July and December 2018, the FASB issued ASU 2018-01, 2018-10, 2018-11 and 2018-20, which were targeted improvements to ASU 2016-02 (collectively, with ASU 2016-02, “ASC 842”) and provided entities with an additional (and optional) transition method to adopt the new lease standard. ASC 842 requires a lessee to recognize ~~on the balance sheet~~ a liability to make lease payments and a corresponding right-of-use ~~asset. The update also requires~~asset on the balance sheet, as well as provide additional disclosures about the amount, timing and uncertainty of cash flows arising from leases. ~~This update~~ASC 842 is effective for annual and interim periods beginning after December 15, 2018, which will require us to adopt ~~these provisions~~the new standard in the first quarter of fiscal 2020. ~~This standard requires adoption based upon a~~ASC 842 may be adopted using the modified retrospective ~~transition approach for leases existing at,~~method, which requires application to all comparative periods presented (the “comparative method”) or ~~entered into~~

~~after, the beginning~~alternatively, as of the ~~earliest~~effective date of initial application without restating comparative period ~~presented in the~~ financial statements ~~with optional~~(the “effective date method”). The new standard also provides several practical ~~expedients.~~expedients and policies that companies may elect under either transition method. Based on a preliminary assessment, ~~the Company expects~~we expect that most of ~~its~~our operating lease commitments will be subject to the new ~~guidance~~standard and recognized as operating lease liabilities and ~~right–of-use~~right-of-use assets upon adoption, resulting in a significant increase in the assets and liabilities on our consolidated balance sheet. ~~The Company is~~We are continuing ~~its~~our assessment of the impact of adoption, which may identify additional impacts ~~this standard~~to our consolidated financial statements. We have not yet determined the method we will ~~have~~use to adopt ASC 842.

Subsequent Events

Subsequent to December 19, 2018, the Company completed the sale of an additional property with a sale price of approximately $11.8 million. The property that was sold was included in the previously announced asset sales program. The sale included a lease back period of three years and an average annual lease payment of approximately $450 thousand. The Company expects to record a net gain on the sale of approximately $8.5 million of which $7.3 million will be recognized in the second quarter fiscal 2019 and the remainder will be recognized over the lease back period. Net proceeds from the sale were used in accordance with the 2018 Credit Agreement, to reduce the balance on its outstanding 2018 Term Loan (as defined below) and for general business purposes. As of January 28, 2019, the Company's outstanding loans under the 2018 Credit Agreement amounted to approximately $50.9 million.

We evaluate events subsequent to December 19, 2018 through the date the financial statements are issued to determine if the nature and significance of the events warrant inclusion in our consolidated financial ~~statements and related disclosures.~~statements.

Note 2. Revenue Recognition

~~In March 2016,~~Restaurant Sales

Restaurant sales consist of sales of food and beverage products to restaurant guests at our Luby’s Cafeteria, Fuddruckers and Cheeseburger in Paradise restaurants. Revenue from restaurant sales is recognized at the ~~FASB issued ASU No. 2016–04, “Liabilities – Extinguishment~~point of ~~Liabilities: Recognition~~sale and is presented net of ~~Breakage for Certain Prepaid Stored–Value Products,” which is intended~~discounts, coupons, employee meals and complimentary meals. Sales taxes that we collect and remit to ~~eliminate current and future diversity in practice~~the appropriate taxing authority related to ~~derecognition of prepaid stored–value product liability~~these sales are excluded from revenue.

We sell gift cards to our customers in a way that aligns with the new revenue recognition guidance. The update is effective for fiscal years beginning after December 15, 2017; however, early application is permitted. We are evaluating the impact on the Company's consolidated financial statementsour venues and through certain third-party distributors. These gift cards do not expire and do not ~~expect~~incur a service fee on unused balances. Sales of gift cards to our restaurant customers are initially recorded as a contract liability, included in accrued expenses and other liabilities, at their expected redemption value. When gift cards are redeemed, we recognize revenue and reduce the contract liability. Discounts on gift cards sold by third parties are recorded as a reduction to accrued expenses and other liabilities and are recognized, as a reduction to revenue, over a period that approximates redemption patterns. The portion of gift cards sold to customers that is never redeemed is commonly referred to as gift card breakage. Under ASC 606 we recognize gift card breakage revenue in proportion to the pattern of gift card redemptions exercised by our customers, using an estimated breakage rate based on our historical experience. Under the Previous Standards, we recognized gift card breakage income within other (expense) income (and not within revenue) when it was deemed remote that the unused gift card balance would be redeemed.

Culinary contract services revenue

Our Culinary Contract Services segment provides food, beverage and catering services to our clients at their locations. Depending on the type of client and service, we are either paid directly by our client and/or directly by the customer to whom we have been provided access by our client.

We typically use one of the following types of client contracts:

Fee-Based Contracts. Revenue from fee-based contracts is based on our costs incurred and invoiced to the client along with the agreed management fee, which may be calculated as a fixed dollar amount or a percentage of sales or other variable measure. Some fee-based contracts entitle us to receive incentive fees based upon our performance under the contract, as measured by factors such as sales, operating costs and client satisfaction surveys. This potential incentive revenue is allocated entirely to the management services performance obligation. We recognize revenue from our management fee and payroll cost reimbursement over time as the services are performed. We recognize revenue from our food and 3^rd party purchases reimbursement at the point in time when the vendor delivers the goods or performs the services.

Profit and Loss Contracts. Revenue from profit and loss contracts consist primarily of sales made to consumers, typically with little or no subsidy charged to clients. Revenue is recognized at the point of sale to the consumer. Sales taxes that we collect and remit to the appropriate taxing authority related to these sales are excluded from revenue.

As part of client contracts, we sometimes make payments to clients, such as concession rentals, vending commissions and profit share. These payments are accounted for as operating costs when incurred.

Revenue from the sale of frozen foods includes royalty fees based on a percentage of frozen food sales and is recognized at the point in time when product is delivered by our contracted manufacturers to the retail outlet.

Franchise revenues

Franchise revenues consist primarily of royalties, marketing and advertising fund (“MAF”) contributions, initial and renewal franchise fees, and upfront fees from area development agreements related to our Fuddruckers restaurant brand. Our performance

obligations under franchise agreements consist of: (1) a franchise license, including a license to use our brand and MAF management, (2) pre-opening services, such as training and inspections and (3) ongoing services, such as development of training materials and menu items as well as restaurant monitoring and inspections. These performance obligations are highly interrelated, so we do not consider them to be individually distinct. We account for them under ASC 606 as a single performance obligation, which is satisfied over time by providing a right to use our intellectual property over the term of each franchise agreement.

Royalties, including franchisee MAF contributions, are calculated as a percentage of franchise restaurant sales. MAF contributions paid by franchisees are used for the creation and development of brand advertising, marketing and public relations, merchandising research and related programs, activities and materials. The initial franchisee fee is payable upon execution of the franchise agreement and the renewal fee is due and payable at the expiration of the initial term of the franchise agreement. Our franchise agreement royalties, including advertising fund contributions, represent sales-based royalties that are related entirely to our performance obligation under the franchise agreement and are recognized as franchise sales occur.

Initial and renewal franchise fees and area development fees are recognized as revenue over the term of the respective agreement. Area development fees are not distinct from franchise fees, so upfront fees paid by franchisees for exclusive development rights are deferred and apportioned to each franchise restaurant opened by the franchisee. The pro-rata amount apportioned to each restaurant is accounted for as an initial franchise fee.

Under the Previous Standards, initial franchise fees and area development fees were recognized as revenue when the related restaurant commenced operations and we completed all material pre-opening services and conditions. Renewal franchise fees were recognized as revenue upon execution of a new franchise agreement. MAF contributions from franchisees and the related MAF expenditures we accounted for on a net basis in our Consolidated Balance Sheets.

Revenue from vending machine sales is recorded at the point in time when the sale occurs.

Contract Liabilities

Contract liabilities consist of (1) deferred revenue resulting from initial and renewal franchise fees and upfront area development fees paid by franchisees, which are generally recognized on a straight-line basis over the term of the underlying agreement, (2) liability for unused gift cards and (3) unamortized discount on gift cards sold to 3^rd party retailers. These contract liabilities are included in accrued expenses and other liabilities in our consolidated balance sheets. The following table reflects the change in contract liabilities between the date of adoption (August 30, 2018) and December 19, 2018 (in thousands):



	Gift Cards, net of discounts			Franchise Fees
	(In thousands)
Balance at August 30, 2018	$	2,707		$	1,891
Revenue recognized that was included in the contract liability balance at the beginning of the year	(635		)	(464		)
Increase, net of amounts recognized as revenue during the period	2,022			35
Balance at December 19, 2018	$	4,094		$	1,462

The following table illustrated the estimated revenues expected to be recognized in the future related to our deferred franchise fees that are unsatisfied (or partially unsatisfied) as of December 19, 2018 (in thousands):



		Franchise Fees
	(In thousands)
Remainder of fiscal 2019		$	29
Fiscal 2020		41
Fiscal 2021		41
Fiscal 2022		41
Fiscal 2023		41
Thereafter		424
Total operating franchise restaurants		$	617
Franchise restaurants not yet opened⁽¹⁾		845
Total		$	1,462

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

Disaggregation of Total Revenues

For the quarter ended December 19, 2018, total sales of $102.9 million was comprised of revenue from performance obligations satisfied over time of $7.1 million and revenue from performance obligations satisfied at a point in time of $95.8 million. See Note 4. Reportable Segments for disaggregation of revenue by reportable segment.

With the exception of the cumulative effect adjustment described in Note 1, the adoption toof ASC 606 did not have a material ~~impact~~effect on our consolidated financial ~~statements.~~

~~In August 2016,~~statements for the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). This update provides clarification regarding how certain cash receipts and cash payments 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 afterquarter ended 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.

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This update allows companies the option to reclassify to retained earnings the tax effects related to items in Accumulated other comprehensive income (loss) as a result of the Tax Cuts and Jobs Act that was enacted on December 22, 2017. This update is effective in fiscal years, including interim periods, beginning after December 15, 2018, and early adoption is permitted. This guidance should be applied either in the period of adoption or retrospectively to each period in which the effects of the change in the U.S. federal income tax rate in the Tax Cuts and Jobs Act is recognized. The Company is still completing its assessment of the impacts including the timing of adoption.

~~Subsequent Events~~

On July 12, 2018, we entered into a Consent and Waiver (the "Waiver") to the credit agreement (the "Credit Agreement") among the Company, the lenders from time to time party thereto, Wells Fargo Bank, National Association ("Wells Fargo"), as Administrative Agent, Swingline Lender, Issuing Lender, Sole Lead Arranger and Sole Bookrunner, and Cadence Bank, N.A. and Texas Capital Bank, N.A., as Co-Syndication Agents. Pursuant to the Waiver, the lenders agreed to a waiver of certain existing defaults with respect to certain financial covenants. The waiver is effective as of May 9, 2018 until the earliest to occur of (i) August 10, 2018, (ii) our failure to perform, observe or comply with any covenant, agreement or term contained in the Waiver or (iii) the occurrence of any additional Default or Event of Default (as defined in the Credit Agreement) (the "Compliance Waiver Period").

Pursuant to the Waiver, among other things, we will be required to retain an independent financial adviser to investigate a refinancing or other alternative transactions, the proceeds which will be applied to, among other things, repay the amounts owed under the Credit Agreement. The Waiver further provides that during the Compliance Waiver Period, notwithstanding anything to the contrary in the Credit Agreement, the lenders may make available to the Company Revolving Credit Loans and Letters of Credit under the Credit Agreement, provided, that during the Compliance Waiver Period (i) the Applicable Margin for LIBOR Rate Loans shall be 5.50% and the Applicable Margin for Base Rate Loans shall be 4.5%, (ii) the Interest Period for any Base Rate Loans converted into LIBOR Rate Loans or for any LIBOR Rate Loans borrowed or continued as a LIBOR Rate Loan under the Revolving Credit Facility in each case during the Compliance Waiver Period shall not be longer than one (1) month and (iii) the Revolving Credit Outstandings shall at no time exceed $29.0 million (as those terms are defined in the Credit Agreement).19, 2018.

~~Note 2. Management's Assessment of Going Concern~~

The Company sustained a net loss of approximately $14.6 million and approximately $31.7 million in the quarter ended and three quarters ended June 6, 2018, respectively. Cash flow from operations has declined to a use of cash of approximately $4.9 million in the three quarters ended June 6, 2018. The working capital deficit is magnified by the reclassification of the Company's approximate $44.0 million debt under it's Credit Agreement (as defined below) from long-term to short-term due to the debt's May 1, 2019 maturity date. As of June 6, 2018, the Company was in default of 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 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 condensed 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 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, 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. However, the Company has historically been able to successfully secure funding and execute alternative cash management plans to meet its obligations as they become due. The following conditions were considered in management’s evaluation of going concern:

The Company announced on April 18, 2018, it 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 part of a limited asset disposal plan to accelerate repayment of its outstanding term loans. The Board of Directors of the Company (the "Board"), approved the limited asset sales plan on April 18, 2018. The Company has identified additional owned properties, in the event it is determined necessary to sell, to reduce the outstanding debt to near zero.

~~The Company obtained a waiver and consent for testing all Credit Agreement covenants until August 10, 2018, from the lenders.~~

Management's plan includes immediate further negotiation of terms and conditions of further debt compliance waivers beyond August 10, 2018. These conditions will include certain milestones of management's plans to utilize existing real estate as collateral to maintain the necessary credit availability while executing on its' refinancing plan before the maturity date of the credit agreement, as amended.

~~The Company has engaged a third-party financial advisor to assist management in pursuing financing transactions.~~

Note 3. Accounting Periods

The Company’s fiscal year ends on the last Wednesday in August. Accordingly, each fiscal year normally consists of 13 four-week periods, or accounting periods, accounting for 364 days in the aggregate. However, every fifth or sixth year, we have a fiscal year that consists of 53 weeks, accounting for 371 days in the ~~aggregate; fiscal year 2016 was such a year.~~aggregate. The first fiscal quarter consists of four four-week periods, or 16 weeks, and the remaining three quarters typically include three four-week periods, or 12 weeks, in length. The fourth fiscal quarter includes 13 weeks in certain fiscal years to adjust for our standard 52 week, or 364 day, fiscal year compared to the 365 day calendar year.

~~Note 4. 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 sales 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 require reconstruction and renovation. The Company estimates that it incurred over approximately $2.0 million in lost sales from the store closures in fiscal 2017. The Company estimates 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 the hurricane. During the three quarters ended June 6, 2018, the Company additionally incurred an approximate $0.7 million in direct costs for repairs and other costs related to the hurricane. The Company has open insurance claims related to hurricane damages and losses. As of June 6, 2018, the Company has recovered approximately $1.0 million in insurance proceeds, which includes approximately $0.3 million recognized as a reduction to Other operating expenses as reimbursement of certain direct expenses incurred due to the storm and an approximate $0.3 million recognized as a reduction to one property's assets retirement upon its closure and reported in Net loss (gain) on disposition of property and equipment, as an advance against total claims for estimated damages and losses related to the hurricane.

Note 5.4. Reportable Segments

The Company has three reportable segments: Company-owned restaurants, Culinary Contract Services (“CCS”), and Franchise Operations.

Company-owned restaurants

Company-owned restaurants consists of several brands which 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, the nature of the regulatory environment, and store level profit ~~margin~~margins are similar. The chief operating decision maker analyzes Company-owned restaurants at store level profit which is revenue less cost of food, payroll and related costs, other operating expenses, and occupancy costs. The primary brands are Luby’s Cafeterias, Fuddruckers - World’s Greatest Hamburgers^® and Cheeseburger in Paradise. All company-owned restaurants are casual dining 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 was ~~160~~140 at ~~June 6,~~December 19, 2018 and ~~167~~146 at August ~~30, 2017.~~29, 2018.

Culinary Contract Services

CCS, branded as Luby’s Culinary Contract Services, consists of a business line servicing healthcare, sport stadiums, corporate dining clients, and sales through retail grocery stores. The healthcare accounts are full service and typically include in-room delivery, catering, vending, coffee service, and retail dining. CCS has contracts with long-term acute care hospitals, acute care medical centers, ambulatory surgical centers, retail grocery stores, behavioral hospitals, sports stadiums, a senior care facility, government, and business and industry clients. CCS has the unique ability to deliver quality services that include facility design and procurement as well as nutrition and branded food services to our clients. The cost of Culinary Contract Services on the Consolidated Statements of Operations ~~include~~includes all food, payroll and related costs, other operating expenses, and other direct general and administrative expenses related to CCS sales. The total number of CCS locations was 30 at December 19, 2018 and 28 at August 29, 2018.

CCS began selling Luby's Famous Fried Fish and Macaroni & Cheese in February 2017 and December 2016, 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~~as well as Luby's Fried ~~Fish (two regular size fillets that provide four LuAnn-sized portions).~~Fish.

~~The total number of CCS locations was 25 at June 6, 2018 and 25 at August 30, 2017.~~

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.

Franchisees bear all direct costs involved in the development, construction, and operation of their restaurants. In exchange for a franchise fee, the Company provides assistance to franchisees in the following areas: site selection, prototypical architectural plans, interior and exterior design and layout, training, marketing and sales techniques, assistance by a Fuddruckers “opening team” at the time a franchised restaurant opens, 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 standard evaluation reports.

The number of franchised restaurants was ~~109~~103 at ~~June 6,~~December 19, 2018 and ~~113~~105 at August ~~30, 2017.~~29, 2018.

Licensee

In November 1997, a prior owner of the Fuddruckers – World’s Greatest Hamburgers^® brand granted to a licensee the exclusive right to use the Fuddruckers proprietary marks, trade dress and system to develop Fuddruckers restaurants in a territory consisting of certain countries in Africa, the Middle East and parts of Asia. As of ~~June 2018,~~January 2019, this licensee operated 3633 restaurants that are licensed to use the Fuddruckers Proprietary Marks in Saudi Arabia, Egypt, United Arab Emirates, Qatar, Jordan, ~~Bahrain,~~ and ~~Kuwait.~~Bahrain. The Company does not receive revenue or royalties from these restaurants.

Segment Table

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


	Quarter Ended						Three Quarters Ended
��													Quarter Ended
	June 6, 2018			June 7, 2017			June 6, 2018			June 7, 2017			December 19, 2018			December 20, 2017
	(12 weeks)			(12 weeks)			(40 weeks)			(40 weeks)			(16 weeks)			(16 weeks)
	(In thousands)												(In thousands)
Sales:
Company-owned restaurants ⁽¹⁾	$	77,921		$	82,727		$	257,149		$	272,158		$	91,198		$	104,726
Culinary contract services	6,639			4,515			19,413			12,117			9,496			6,884
Franchise operations	1,444			1,477			4,732			5,167			2,224			1,887
Total	$	86,004		$	88,719		$	281,294		$	289,442		$	102,918		$	113,497
Segment level profit:
Company-owned restaurants	$	6,642		$	11,567		$	23,469		$	34,392		$	9,225		$	11,086
Culinary contract services	535			321			1,300			1,151			681			552
Franchise operations	1,103			1,116			3,534			3,789			1,951			1,399
Total	$	8,280		$	13,004		$	28,303		$	39,332		$	11,857		$	13,037
Depreciation and amortization:
Company-owned restaurants	$	3,381		$	3,825		$	11,155		$	13,260		$	4,389		$	4,451
Culinary contract services	18			13			54			51			22			19
Franchise operations	178			178			592			592			236			237
Corporate	473			623			1,601			2,074			256			646
Total	$	4,050		$	4,639		$	13,402		$	15,977		$	4,903		$	5,353
Capital expenditures:
Company-owned restaurants	$	3,152		$	1,630		$	9,569		$	8,963		$	1,065		$	3,424
Culinary contract services	55			—			185			—			54			107
Corporate	493			522			1,976			1,151			—			794
Total	$	3,700		$	2,152		$	11,730		$	10,114		$	1,119		$	4,325

Income (loss) before income taxes and discontinued operations
Loss before income taxes and discontinued operations
Segment level profit	$	8,280		$	13,004		$	28,303		$	39,332		$	11,857		$	13,037
Opening costs	(85		)	(134		)	(490		)	(431		)	(33		)	(75		)
Depreciation and amortization	(4,050		)	(4,639		)	(13,402		)	(15,977		)	(4,903		)	(5,353		)
Selling, general and administrative expenses	(8,507		)	(6,764		)	(29,219		)	(29,531		)	(11,224		)	(11,525		)
Provision for asset impairments and restaurant closings	(4,464		)	(869		)	(6,716		)	(7,120		)	(1,227		)	(845		)
Net (loss) gain on disposition of property and equipment	(154		)	195			(172		)	(219		)
Net loss on disposition of property and equipment													(149		)	(222		)
Interest income	1			3			12			5			—			6
Interest expense	(1,042		)	(569		)	(2,235		)	(1,898		)	(1,713		)	(649		)
Other income (expense), net	9			(173		)	317			(312		)
Income (loss) before income taxes and discontinued operations	$	(10,012	)	$	54		$	(23,602	)	$	(16,151	)
Other income, net													30			115
Loss before income taxes and discontinued operations													$	(7,362	)	$	(5,511	)


	June 6, 2018		August 30, 2017		December 19, 2018		August 29, 2018
Total assets:
Company-owned restaurants⁽²⁾	$	160,082	$	189,990	$	156,314	$	151,511
Culinary contract services	5,599		3,342		4,100		4,569
Franchise operations⁽³⁾	11,240		11,325		10,993		10,982
Corporate	32,030		21,800		37,484		32,927
Total	$	208,951	$	226,457	$	208,891	$	199,989

(1)

Includes vending revenue of ~~$118~~approximately $99 thousand and ~~$133~~$143 thousand for the ~~quarters~~quarter ended ~~June 6,~~December 19, 2018 and ~~June 7,~~December 20, 2017, respectively, and ~~$412~~amortization of discounts on gift cards sold partially offset by gift card breakage of approximately $(144) thousand ~~and $417 thousand for~~in the ~~three quarters~~quarter ended ~~June 6, 2018 and June 7, 2017, respectively.~~December 19, 2018.


(2)	Company-owned restaurants segment includes ~~$8.6~~$8.1 million of Fuddruckers trade name, Cheeseburger in Paradise liquor licenses, and Jimmy Buffett intangibles.


(3)	Franchise operations segment includes approximately ~~$10.1~~$9.7 million in royalty intangibles.

Note 6.5. 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 swap rate we ~~pay is~~paid was 1.965%~~, plus an applicable margin. The~~ and the variable rate we ~~receive is~~received was one-month LIBOR. The term of the interest rate swap iswas 5 years. The Company does not apply hedge accounting treatment to this derivative, therefore, changes in fair value of the instrument ~~are~~were recognized in Other income (expense), net. The changes in the interest rate swap fair value resulted in ~~a credit to~~an expense of approximately ~~$0.7~~$0.1 million during the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018 and ana credit to expense of approximately $0.2 million in the ~~three quarters~~quarter ended ~~June 7,~~December 20, 2017. The Company terminated its interest rate swap in the quarter ended December 19, 2018 and received approximately $0.3 million in cash proceeds.

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

Note 7.6. Fair Value Measurements

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

GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value. These tiers include:

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

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

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

The fair values of the Company's cash and cash equivalents, restricted cash and cash equivalents, trade receivables and other receivables, net, and accounts payable approximate their carrying value due to their short duration. The carrying value of the Company's total credit facility debt, net of unamortized discounts and debt issue costs, at December 19, 2018 and August 29, 2018 was approximately $56.1 million and $39.3 million, respectively, which approximates fair value because the applicable interest rate is adjusted frequently based on short-term market rates (Level 2).

Recurring fair value measurements related to assets are presented below:

Fair Value
Measurement Using
June 6, 2018 Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Valuation Method
Recurring Fair Value - Assets (In thousands)
Continuing Operations:
Derivative - Interest Rate Swap⁽¹⁾
$ 435
$ —
$ 435
$ —
Discounted Cash Flow

Fair Value
Measurement Using

December 19, 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⁾

—

(1) The ~~fair value of the~~Company terminated its interest rate swap in the first quarter of fiscal 2019 and received cash proceeds of approximately $0.3 million which is recorded in Other ~~assets on the Company's Consolidated Balance Sheets.~~

income.

Recurring fair value measurements related to liabilities are presented below:

Fair Value
Measurement Using
June 6, 2018 Quoted
Prices in
Active
Markets for
Identical
Liabilities
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Valuation Method
Recurring Fair Value - Liabilities (In thousands)
Continuing Operations:
TSR Performance Based Incentive Plan⁽¹⁾
$ 229
$ —
$ 229
$ —
Monte Carlo Simulation

Fair Value
Measurement Using

December 19, 2018

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

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Valuation Method

Recurring Fair Value - Liabilities

(In thousands)

Continuing Operations:

TSR Performance Based Incentive Plan⁽¹⁾

—

Monte Carlo Simulation

(1) The fair value of the Company's ~~2016 and~~ 2017 Performance Based Incentive Plan liabilities ~~were~~was approximately ~~$167 thousand and $62 thousand, respectively, and is recorded in Other liabilities on the Company's Consolidated Balance Sheet.~~zero. See Note 1413 to the Company's consolidated financial statements in this Form 10-Q for further discussion of Performance Based Incentive Plan.


			Fair Value Measurement Using									Fair Value Measurement Using
	June 7, 2017		Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Valuation Method	December 20, 2017		Quoted Prices in Active Markets for Identical Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Valuation Method
Recurring Fair Value - Liabilities			(In thousands)									(In thousands)
Continuing Operations:
TSR Performance Based Incentive Plan⁽¹⁾	$	464	$	—	$	464	$	—	Monte Carlo Simulation	$	452	$	—	$	452	$	—	Monte Carlo Simulation
Derivative - Interest Rate Swap⁽²⁾	221		—		221		—		Discounted Cash Flow	93		—		93		—		Discounted Cash Flow
Total liabilities at Fair Value	$	685	$	—	$	685	$	—		$	545	$	—	$	545	$	—

(1) The fair value of the Company's ~~2015,~~ 2016 and 2017 Performance Based Incentive Plan liabilities were approximately ~~$117 thousand, $270 thousand,~~$0.4 million and ~~$77 thousand,~~$0.1 million, respectively, and is recorded in Other liabilities on the Company's Consolidated Balance Sheet. See Note 13 to the Company's consolidated financial statements in this Form 10-Q for further discussion of Performance Based Incentive Plan.

(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 held for sale and property and equipment ~~and goodwill~~ consisted of the following:


			Fair Value Measurement Using											Fair Value Measurement Using
	June 6, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Impairments⁽⁴⁾			December 19, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Impairments⁽³⁾
Nonrecurring Fair Value Measurements			(In thousands)											(In thousands)
Continuing Operations
Property held for sale⁽¹⁾	$	9,074	$	—	$	—	$	9,074	$	(2,808	)	$	8,374	$	—	$	—	$	8,374	$	(76	)
Property and equipment related to company-owned restaurants⁽²⁾	1,519		—		—		1,519		(2,721		)	—		—		—		—		(1,145		)
Goodwill ⁽³⁾	—		—		—		—		(513		)
Total Nonrecurring Fair Value Measurements	$	10,593	$	—	$	—	$	10,593	$	(6,042	)	$	8,374	$	—	$	—	$	8,374	$	(1,221	)
Discontinued Operations
Property held for sale⁽⁵⁾	$	1,800	$	—	$	—	$	1,800	$	(100	)

(1) In accordance with Subtopic 360-10, long-lived assets held for sale with a carrying value of approximately ~~$12.9~~$8.5 million were written down to their fair value, less ~~approximately $1.0 million proceeds on sales and~~ cost to sell, of approximately ~~$9.1~~$8.4 million, resulting in an impairment charge of approximately ~~$2.8~~$0.1 million.

(2) In accordance with Subtopic 360-10, long-lived assets held and used with a carrying amount of approximately ~~$4.2~~$1.1 million were written down to their fair value of approximately ~~$1.5 million, resulting in an impairment charge of approximately $2.7 million.~~

~~(3) In accordance with Subtopic 350-20, goodwill with a carrying value of approximately $0.5 million was written down to~~ zero, resulting in an impairment charge of approximately ~~$0.5~~$1.1 million.

~~(4)~~(3) Total impairments for continuing operations are included in Provision for asset impairments and restaurant closings in the Company's Consolidated Statement of Operations for the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018.

(5) In accordance with Subtopic 205-20, discontinued operations held for sale with a carrying value of approximately $1.9 million were written down to their fair value, less costs to sell, of approximately $1.8 million, resulting in an impairment charge of approximately $0.1 million. This charge is included in Loss for discontinued operations on the Company's Statement of Operations for the three quarters ended June 6, 2018.


			Fair Value Measurement Using											Fair Value Measurement Using
	June 7, 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⁾			December 20, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Impairments⁽³⁾
Nonrecurring Fair Value Measurements			(In thousands)											(In thousands)
Continuing Operations
Property held for sale⁽¹⁾	$	3,626	$	—	$	—	$	3,626	$	(735	)	$	1,626	$	—	$	—	$	1,626	$	(153	)
Property and equipment related to company-owned restaurants ⁽²⁾	1,410		—		—		1,410		(5,476		)	236		—		—		236		(547		)
Goodwill ⁽³⁾	—		—		—		—		(537		)
Total Nonrecurring Fair Value Measurements	$	5,036	$	—	$	—	$	5,036	$	(6,748	)	$	1,862	$	—	$	—	$	1,862	$	(700	)

(1) In accordance with Subtopic 360-10, long-lived assets held for sale with a carrying value of approximately ~~$5.5~~$1.8 million were written down to their fair value, less ~~approximately $1.2 million proceeds on sales and~~ costs to sell, of approximately ~~$3.6~~$1.6 million, resulting in an impairment charge of approximately ~~$0.7~~$0.2 million.

(2) In accordance with Subtopic 360-10, long-lived assets held and used with a carrying amount of approximately ~~$6.9~~$0.8 million were written down to their fair value of approximately ~~$1.4~~$0.2 million, resulting in an impairment charge of approximately ~~$5.5~~$0.6 million.

(3) ~~In accordance with Subtopic 350-20, goodwill with a carrying value of approximately $0.5 million was written down to zero, resulting in an impairment charge of approximately $0.5 million.~~

~~(4)~~ Total impairments are included in Provision for asset impairments and restaurant closings in the Company's Consolidated Statement of Operations in the ~~three quarters~~quarter ended ~~June 7,~~December 20, 2017.

Note 8.7. Income Taxes

~~On December 22, 2017, President Donald J. Trump signed into law~~The effects of the 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 percent to 21 percent effective January 1, 2018. In accordance with the application of IRC Section 15, the Company's federal statutory tax rate for fiscal 2018 is now 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 will be 21 percent. The Company was also required to remeasure its temporary differences using the new federal statutory tax rate in the period in which the Tax Act was enacted. The Company's deferred tax position is a net asset and as a result, the reduction in the federal statutory tax rate resulted in a one-time non-cash adjustment 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~~has completed its determination of the effects of the Tax Act on its income tax accounts.

No cash payments of estimated federal income taxes were made during the ~~three~~ quarters ended ~~June 6,~~December 19, 2018 and ~~June 7,~~December 20, 2017, respectively. Deferred tax assets and liabilities are recorded based on differences between the financial reporting basis and the tax basis of assets and liabilities using currently enacted rates and laws that will be in effect when the differences are expected to reverse.

Deferred tax assets are recognized to the extent future taxable income is expected to be sufficient to utilize those assets prior to their expiration. If current available evidence and information raises doubt regarding the realization of the deferred tax assets, on a more likely than not basis, a valuation allowance is necessary. In evaluating our ability to realize the Company's deferred tax assets, the Company considered available positive and negative evidence, ~~including a debt covenant waiver,~~ scheduled reversals of deferred tax liabilities, tax-planning strategies, and results of recent operations. As of ~~June 6,~~December 19, 2018, management determined that for the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018 a full valuation allowance on the Company's net deferred tax assets was necessary. ~~Management's~~

The effective tax rate ("ETR") for continuing operations was a negative 1.6% for the quarter ended December 19, 2018 and a positive 0.2% for the quarter ended December 20, 2017. The ETR for the quarter ended December 19, 2018 differs from the federal statutory rate of 21% due to management's valuation allowance ~~for deferred tax assets considered the entire net deferred tax assets deemed to not be realizable.~~conclusions, anticipated federal jobs credits, state income taxes, and other discrete items.

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

Note 9.8. Property and Equipment, Intangible Assets and Goodwill

The costs, net of impairment, and accumulated depreciation of property and equipment at ~~June 6,~~December 19, 2018 and August ~~30, 2017,~~29, 2018, together with the related estimated useful lives used in computing depreciation and amortization, were as follows:


	June 6, 2018			August 30, 2017			Estimated Useful Lives (years)			December 19, 2018			August 29, 2018			Estimated Useful Lives (years)
	(In thousands)									(In thousands)
Land	$	49,687		$	60,414			—		$	46,817		$	46,817			—
Restaurant equipment and furnishings	71,655			73,411			3	to	15	69,427			69,678			3	to	15
Buildings	135,297			153,041			20	to	33	131,399			131,557			20	to	33
Leasehold and leasehold improvements	27,136			26,953			Lesser of lease term or estimated useful life			24,769			27,172			Lesser of lease term or estimated useful life
Office furniture and equipment	3,604			3,684			3	to	10	3,452			3,596			3	to	10
Construction in progress	35			35				—
	287,414			317,538						275,864			278,820
Less accumulated depreciation and amortization	(140,926		)	(144,724		)				(142,277		)	(140,533		)
Property and equipment, net	$	146,488		$	172,814					$	133,587		$	138,287
Intangible assets, net	$	18,508		$	19,640		15	to	21	$	17,660		$	18,179		15	to	21

Intangible assets, net, ~~consist of~~includes the Fuddruckers trade name and franchise agreements and are amortized. The Company believes the Fuddruckers brand name has an expected accounting life of 21 years from the date of acquisition ~~July 26, 2010,~~ based on the expected use of its assets and the restaurant environment in which it is being used. The trade name represents a respected brand with customer loyalty and the Company intends to cultivate and protect the use of the trade name. The franchise agreements, after considering renewal periods, have an estimated accounting life of 21 years from the date of acquisition, July 2010, and will be amortized over this period of time.

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

The aggregate amortization expense related to intangible assets subject to amortization was approximately ~~$1.1~~$0.4 million for the ~~three~~ quarters ended ~~June 6,~~December 19, 2018 and ~~approximately $1.1 million for three quarters ended June 7,~~December 20, 2017, respectively. The

aggregate amortization expense related to

intangible assets subject to amortization is expected to be approximately $1.4 million in each of the next five successive fiscal years.

The following table presents intangible assets as of ~~June 6,~~December 19, 2018 and August ~~30, 2017:~~29, 2018:


	June 6, 2018							August 30, 2017							December 19, 2018								August 29, 2018⁽¹⁾
	(In thousands)							(In thousands)							(In thousands)								(In thousands)
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		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	$	(11,025	)	$	18,461	$	29,486	$	(9,943	)	$	19,543	$	29,831	$	(12,218	)		$	17,613	$	29,701	$	(11,653	)	$	18,048

Cheeseburger in Paradise trade name and license agreements	357		(310		)	47		416		(319		)	97		76		(29		)	��	47		206		(75		)	131

Intangible assets, net	$	29,843	$	(11,335	)	$	18,508	$	29,902	$	(10,262	)	$	19,640	$	29,907	$	(12,247	)		$	17,660	$	29,907	$	(11,728	)	$	18,179

~~In fiscal 2010, the Company recorded an intangible asset for goodwill in the amount of approximately $0.2 million related to the acquisition of substantially all of the assets of Fuddruckers.~~(1) The Company also recorded, in fiscal 2013, an intangible asset for goodwill in the amount of approximately $2.0 million related to the acquisition of Cheeseburger in Paradise. Goodwill is considered to have an indefinite useful life and is not amortized. Management performs its formal annual assessmentamounts 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~~August 29, 2018 reflect a reclassification of ~~ASC 350, we have allocated~~amounts from the goodwill value to each reporting unit in proportion to each location’s fair value at the date of acquisition. The Company performs 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. The result of these second quarter and interim assessments in the three quarters ended June 6, 2018 and the three quarters ended June 7, 2017 was impairment of goodwill of approximately $0.5 million and $0.5 million, respectively. As of June 6, 2018, of the 23 Cheeseburger in Paradise ~~locations that were acquired, seven locations remain operating as Cheeseburger in Paradise restaurants~~trade name and oflicense agreements to the ~~restaurants closed for conversion~~Fuddruckers trade name and franchise agreements lines on the table, netting to Fuddruckers, three locations remain operating as a Fuddruckers restaurant. Five locations were removed due to their lease term expiring, four locations were subleased to franchisees, and the remaining four were closed and held for future use.approximately $88 thousand.

Goodwill, net of accumulated impairments of approximately $1.6 million, was approximately $0.6 million as of ~~June 6,~~December 19, 2018 and ~~net of accumulated impairments of approximately $1.1 million, was approximately $1.1 million as of~~ August ~~30, 2017,~~29, 2018, respectively, and relates to our Company-owned restaurants reportable segment. Goodwill has been allocated and impairment is assessed at the reporting level, which is the individual restaurants within our Fuddruckers and Cheeseburger in Paradise Brands that were acquired in fiscal 2010 and fiscal 2013, respectively. The net Goodwill balance at December 19, 2018 is comprised of amounts assigned to one Cheeseburger in Paradise restaurant that is still operated by us, two Cheeseburger in Paradise restaurants that were converted to Fuddruckers restaurants, and the goodwill from the Fuddruckers acquisition in 2010. The Company performs a goodwill impairment test annually as of the end of the second fiscal quarter of each year and more frequently when negative conditions or a triggering event arises. Management prepares valuations for each of its restaurants using a discounted cash flow analysis (Level 3 inputs) to determine the fair value of each reporting unit for comparison with the reporting unit's carrying value in determining if there has been an impairment of goodwill at the reporting level.

The Company recorded no goodwill impairment charges during the quarters ended December 19, 2018 and December 20, 2017, respectively.

Note ~~10.~~9. Impairment of Long-Lived Assets, Discontinued Operations, Property Held for Sale and Store Closings

Impairment of Long-Lived Assets and Store Closings

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

For assets held for use, the Company estimates future cash flows using assumptions based on possible outcomes of the areas analyzed. If the undiscounted future cash flows are less than the carrying value of the location’s assets, the Company records an impairment loss based on an estimate of discounted cash flows. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgments. Assumptions and estimates used include operating results, changes in working capital, discount rate, growth rate, anticipated net proceeds from disposition of the property and, if applicable, lease terms. The span of time for which future cash flows are estimated is often lengthy, increasing

the sensitivity to assumptions made. The time span could be 20 to 25 years for newer properties, but only 5 to 10 years for older properties. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluation of

long-lived assets can vary within a wide range of outcomes. The Company considers the likelihood of possible outcomes in determining the best estimate of future cash flows. The measurement for such an impairment loss is then based on the fair value of the asset as determined by discounted cash flows.

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


	Three Quarters Ended						Quarter Ended
	June 6, 2018			June 7, 2017			December 19, 2018			December 20, 2017
	(40 weeks)			(40 weeks)			(16 weeks)			(16 weeks)
	(In thousands, except per share data)						(In thousands, except per share data)
Provision for asset impairments and restaurant closings	$	6,716		$	7,120		$	1,227		$	845
Net loss on disposition of property and equipment	172			219			149			222

	$	6,888		$	7,339		$	1,376		$	1,067
Effect on EPS:
Basic	$	(0.23	)	$	(0.25	)	$	(0.05	)	$	(0.04	)
Assuming dilution	$	(0.23	)	$	(0.25	)	$	(0.05	)	$	(0.04	)

The approximate ~~$6.7~~$1.2 million impairment charge for the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018 is primarily related to assets at ~~ten~~six property locations, ~~goodwill~~and six properties held for sale written down to their fair value.

The approximate $0.8 million impairment charge for the quarter ended December 20, 2017 is primarily related to assets at three property locations, ~~ten~~two properties held for sale written down to their fair value, and approximately ~~$0.7 million in net lease termination costs at five property locations.~~

The approximate $7.1 million impairment charge for the three quarters ended June 7, 2017 is primarily related to assets at 14 locations, goodwill at six property locations, five properties held for sale written down to their fair value, and approximately $0.4$0.1 million in net lease termination costs at four property locations.

The approximate ~~$0.2~~$0.1 million net loss for the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018 is primarily related to routine asset ~~retirements at six property location closures partially offset by net gains on the sale of three property locations of approximately $0.2 million.~~retirements.

The approximate $0.2 million net loss for the ~~three quarters~~quarter ended ~~June 7,~~December 20, 2017 is primarily related to routine asset retirements ~~partially offset by the gain on the sale of one~~at two property ~~of approximately $0.4 million.~~location closures and other routine asset retirements.

Discontinued Operations

On March 21, 2014, the Board approved a plan focused on improving cash flow from the acquired Cheeseburger in Paradise leasehold locations. This underperforming Cheeseburger in Paradise leasehold disposal plan called for certain Cheeseburger in Paradise restaurants closure or conversion to Fuddruckers restaurants. As of June 6, 2018, no locations remain classified as discontinued operations in this plan.

As a result of the first quarter fiscal 2010 adoption of the Company’s Cash Flow Improvement and Capital Redeployment Plan, the Company reclassified 24 Luby’s Cafeterias to discontinued operations. As of ~~June 6,~~December 19, 2018, one location remains held for sale.

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


	June 6, 2018		August 30, 2017		December 19, 2018		August 29, 2018
	(In thousands)				(In thousands)
Property and equipment	$	1,813	$	1,872	$	1,813	$	1,813
Deferred tax assets	—		883
Assets related to discontinued operations—non-current	$	1,813	$	2,755	$	1,813	$	1,813
Deferred income taxes	$	—	$	354
Accrued expenses and other liabilities	9		13		$	21	$	14
Liabilities related to discontinued operations—current	$	9	$	367	$	21	$	14
Other liabilities	$	16	$	16	$	16	$	16
Liabilities related to discontinued operations—non-current	$	16	$	16	$	16	$	16

As of ~~June 6,~~December 19, 2018, under both closure plans, the Company had one property classified as discontinued operations. The asset carrying value of the owned property was approximately $1.8 million and is included in assets related to discontinued operations. The Company is actively marketing this property for sale. The asset carrying value at one other property with a ground lease, included in discontinued operations, was previously impaired to zero.

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


	Three Quarters Ended						Quarter Ended
	June 6, 2018			June 7, 2017			December 19, 2018			December 20, 2017
	(40 weeks)			(40 weeks)			(16 weeks)			(16 weeks)
	(In thousands, except discontinued locations)						(In thousands, except discontinued locations)
Sales	$	—		$	—		$	—		$	—

Pretax loss	$	(73	)	$	(20	)	$	(6	)	$	(2	)
Income tax expense from discontinued operations	(535		)	(414		)	—			(33		)
Loss from discontinued operations, net of income taxes	$	(608	)	$	(434	)	$	(6	)	$	(35	)

The following table summarizes discontinued operations for the ~~three~~first quarters of fiscal ~~2018~~2019 and ~~2017:~~2018:


	Three Quarters Ended						Quarter Ended
	June 6, 2018			June 7, 2017			December 19, 2018			December 20, 2017
	(40 weeks)			(40 weeks)			(16 weeks)			(16 weeks)
	(In thousands, except per share data)						(In thousands, except per share data)
Discontinued operating loss	$	(14	)	$	(20	)	$	(6	)	$	(2	)
Impairments	(59		)	—			—			—
Pretax loss	(73		)	(20		)	(6		)	(2		)
Income tax expense from discontinued operations	(535		)	(414		)	—			(33		)
Loss from discontinued operations, net of income taxes	$	(608	)	$	(434	)	$	(6	)	$	(35	)
Effect on EPS from discontinued operations—basic	$	(0.02	)	$	(0.01	)	$	(0.00	)	$	(0.00	)

Property Held for Sale

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

Property held for sale includes unimproved land, closed restaurant properties, properties with operating restaurants the Board approved for sale, and related equipment for locations not classified as discontinued operations. The specific assets are valued at the lower of net depreciable value or net realizable value.

At ~~June 6,~~December 19, 2018, the Company had 1815 owned properties, of which two restaurants are located on one property, ~~recorded at~~with a carrying value of approximately ~~$22.0~~$19.5 million in property held for sale. The pretax profit (loss) for the disposal group of locations operating for the fiscal quarters ended December 19, 2018 and ~~year to date periods presented were $(2.0)~~December 20, 2017 was a pretax loss of approximately $0.1 million and ~~$(2.0)~~a pretax profit of approximately $0.4 million, ~~for the periods ended June 6, 2018 and $0.5 million and $1.0 million for the periods ended June 7, 2017,~~ respectively.

At August ~~30, 2017,~~29, 2018, the Company had ~~four~~15 owned properties ~~recorded at~~with a carrying value of approximately ~~$3.4~~$19.5 million in property held for sale. The pretax loss for the disposal group of locations operating in fiscal 2018 was approximately $1.2 million.

The Company is actively marketing the locations currently classified as property held for sale.

Abandoned Leased Facilities - Reserve for Store Closings

As of ~~June 6,~~December 19, 2018, the Company classified ~~seven~~18 restaurant leased locations in ~~Arkansas,~~Arizona, Florida, Illinois, Indiana, Maryland, New York, Oklahoma, Texas and Virginia as abandoned. Although the Company remains obligated under the terms of the leases for the rent and other costs that may be associated with the leases, the Company decided to cease operations and has no foreseeable plans to occupy the spaces as a company restaurant in the future. During the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018, the Company recorded an increase to the liability for lease termination expense and ~~charged~~a charge to earnings, in ~~Provision~~provision for asset impairments and restaurant closings of approximately ~~$0.7~~$0.1 million. The liability is equal to the total amount of rent and other direct costs for the remaining period of time the properties will be unoccupied plus the present value, calculated using a credit-adjusted risk free rate, of the amount by which the rent paid by the Company to the landlord exceeds any rent paid to the Company by a tenant under a sublease over the remaining period of the lease terms. Accrued lease termination expense was approximately ~~$1.0~~$1.9 million and ~~$0.5~~$2.0 million as of ~~June 6,~~December 19, 2018 and August ~~30, 2017,~~29, 2018, respectively.

Note ~~11.~~10. Commitments and Contingencies

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements, except for operating leases.

Pending Claims

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

Construction Activity

From time to time, the Company enters into non-cancelable contracts for the construction of its new restaurants. This construction activity exposes the Company to the risks inherent in this industry, including but not limited to rising material prices, labor shortages, delays in getting required permits and inspections, adverse weather conditions, and injuries sustained by workers, and contract termination expenses. The Company had no non-cancelable contracts commitment as of ~~June 6,~~December 19, 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 pays a royalty fee of 2.5% of gross sales, less discounts, at the Company's operating Cheeseburger in Paradise ~~locations~~location to an entity owned or controlled by Jimmy Buffett. The trade name represents a respected brand with positive customer loyalty, and the Company intends to cultivate and protect the use of the trade name.

Note ~~12.~~11. Related Parties

Affiliate Services

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

Under the terms of the Amended and Restated Master Sales Agreement, the Pappas entities may provide specialized (customized) equipment fabrication and basic equipment maintenance, including stainless steel stoves, shelving, rolling carts, and chef tables. The Company incurred ~~$31 thousand and $4~~$13 thousand under the Amended and Restated Master Sales Agreement for custom-fabricated and refurbished equipment in the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018 and ~~June 7, 2017, respectively. The Company also~~ incurred ~~$2 thousand of other operating expenses from the Pappas entities~~no costs in the ~~three quarters~~quarter ended ~~June 6, 2018.~~December 20, 2017. Services provided under this agreement are subject to review and approval by the Finance and Audit Committee of the Board.

Operating Leases

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

On November 22, 2006, the Company executed a new lease agreement with respect to this shopping center. Effective upon the Company’s relocation and occupancy into the new space in July 2008, the new lease agreement provides for a primary term of approximately 12 years with 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 paid rent of $22.00 per square foot plus maintenance, taxes, and insurance during the remaining primary term of the lease. Thereafter, the lease provides for increases in rent at set intervals. The Company made payments of approximately ~~$0.3 million~~$154 thousand and approximately ~~$0.3 million~~$110 thousand in the ~~three~~ quarters ended ~~June 6,~~December 19, 2018 and ~~June 7,~~December 20, 2017, respectively. The new lease agreement was approved by the Finance and Audit Committee.

In the third quarter of fiscal 2014, on March 12, 2014, the Company executed a new lease agreement for one of the Company's Houston Fuddruckers locations with Pappas Restaurants, Inc. The lease provides for a primary term of approximately six years with two subsequent five-year options. Pursuant to the lease agreement, the Company paid $27.56 per square foot plus maintenance, taxes, and insurance from March 12, 2014 until November 30, 2016. Currently, the lease agreement provides for increases in rent at set intervals. The Company made payments of approximately ~~$0.1 million~~$55 thousand and approximately ~~$0.1 million~~$44 thousand in the ~~three~~ quarters ended ~~June 6,~~December 19, 2018 and ~~June 7,~~December 20, 2017, respectively.


	Three Quarters Ended						Quarter Ended
	June 6, 2018			June 7, 2017			December 19, 2018			December 20, 2017
	(40 weeks)			(40 weeks)			(16 weeks)			(16 weeks)
	(In thousands, except percentages)						(In thousands, except percentages)
Affiliated costs incurred:
Capital expenditures	$	34		$	4		$	13		$	—
Other operating expenses, occupancy costs and opening costs, including property leases	470			431			209			154
Total	$	504		$	435		$	222		$	154
Relative total Company costs:
Selling, general and administrative expenses	$	29,219		$	29,531		$	11,224		$	11,525
Capital expenditures	11,730			10,114			1,119			4,325
Other operating expenses, occupancy costs and opening costs	64,948			64,358			22,410			25,835
Total	$	105,897		$	104,003		$	34,753		$	41,685
Affiliated costs incurred as a percentage of relative total Company costs	0.48		%	0.42		%	0.64		%	0.37		%

Key Management Personnel

The Company entered into a new employment agreement with Christopher Pappas on December 11, 2017. The new employment agreement contains a termination date of 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.

Peter Tropoli, a former 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 ~~13.~~12. Debt

The following table summarizes credit facility debt, less current portion at ~~June 6,~~December 19, 2018 and August ~~30, 2017:~~29, 2018:

June 6,
2018 August 30,
2017
Short-Term Debt (In thousands)
Credit Agreement - Revolver $ 19,000
$ —
Credit Agreement - Term Loan 25,170
—
Total credit facility debt 44,170
—
Less unamortized debt issue costs (142 ) —
Credit facility debt $ 44,028
$ —
Long-Term Debt
Credit Agreement - Revolver $ —
$ 4,400
Credit Agreement - Term Loan —
26,585
Total credit facility debt —
30,985
Less unamortized debt issue costs —
(287 )
Total credit facility debt, less unamortized debt issuance costs —
30,698
Current portion of credit facility debt —
—
Credit facility debt, less current portion $ —
$ 30,698




	December 19, 2018			August 29, 2018
Long-Term Debt
2016 Credit Agreement - Revolver	$	—		$	20,000
2016 Credit Agreement - Term Loan	—			19,506
2018 Credit Agreement - Term Loan	60,000			—
Total credit facility debt	60,000			39,506
Less:
Unamortized debt issue costs	(2,309		)	(168		)
Unamortized debt discount	(1,594		)	—
Total credit facility debt, less unamortized debt issuance costs	56,097			39,338
Current portion of credit facility debt	10,000			39,338
Credit facility debt, less current portion	$	46,097		$	—

~~Consent and Waiver to 2016~~2018 Credit Agreement

On ~~July 12,~~December 13, 2018, the Company entered into a ~~Consent and Waiver (the "Waiver") to the~~ credit agreement (the ~~"Credit Agreement"~~“2018 Credit Agreement”) among the Company, the lenders from time to time party thereto, ~~Wells Fargo Bank, National Association ("Wells Fargo"~~and MSD PCOF Partners VI, LLC (“MSD”), as Administrative Agent, ~~Swingline Lender, Issuing Lender, Sole Lead Arranger and Sole Bookrunner, and Cadence Bank, N.A. and Texas Capital Bank, N.A., as Co-Syndication Agents. Pursuant~~pursuant to which the lenders party thereto agreed to make loans to the ~~Waiver,~~Company from time to time up to an aggregate principal amount of $80.0 million, consisting of a $10.0 million revolving credit facility (the “2018 Revolver”), a $10.0 million delayed draw term loan (“2018 Delayed Draw Term Loan”), and a $60.0 million term loan (the “2018 Term Loan”, and together with the 2018 Revolver and the 2018 Delayed Draw Term Loan, the “2018 Credit Facility”). The 2018 Credit Facility terminates on, and all amounts owing thereunder must be repaid on, December 13, 2023.

Borrowings under the 2018 Revolver, 2018 Delayed Draw Term Loan, and 2018 Date Term Loan will bear interest at the London InterBank Offered Rate plus 7.75% per annum. Interest is payable quarterly and accrues daily. Under the terms of the 2018 Credit Agreement, the maximum amount of interest payable, based on the aggregate principal amount of $80.0 million and interest rates in effect at December 13, 2018, in the next 12 months was required to be pre-funded at the closing date of the 2018 Credit Agreement. The pre-funded amount of approximately $8.4 million is recorded in Restricted cash and cash equivalents on the Company's Balance Sheet.

The 2018 Credit Facility is subject to the following amortization payments: 1st anniversary: $10.0 million; 2nd anniversary: $10.0 million; 3rd anniversary: $15.0 million; and 4th anniversary: $15.0 million.

The Company also pays a quarterly commitment fee based on the unused portion of the 2018 Revolver and the 2018 Delayed Draw Term Loan at 0.50% per annum. Voluntary prepayments, refinancing and asset dispositions constituting a sale of all or substantially all assets, under the 2018 Delayed Draw Term Loan and the 2018 Term Loan are subject to a make whole premium during years one and two, a 2.0% fee during year three, and a 1.0% fee during year four. Finally, the Company is obligated to pay to the lenders ~~agreed to~~ a ~~waiver of certain existing defaults~~one-time fee in connection with ~~respect to certain financial covenants. The waiver is effective as of May 9, 2018 until~~ the ~~earliest to occur of (i) August 10, 2018, (ii) the failure~~closing of the ~~Company to perform, observe or comply with any covenant, agreement or term contained~~2018 Credit Facility.

Indebtedness under the 2018 Credit Facility is secured by a security interest in, among other things, all of the ~~Waiver or (iii)~~Company’s present and future personal property (other than certain excluded assets), all of the ~~occurrence~~personal property of ~~any additional Default or Event of Default~~its guarantors (other than certain excluded assets) and all Mortgaged Property (as defined in the 2018 Credit Agreement) ~~(the "Compliance Waiver Period").~~of the Company and its subsidiaries.

~~Pursuant~~The 2018 Credit Facility contains customary covenants and restrictions on the Company’s ability to ~~the Waiver,~~engage in certain activities, including financial performance covenants, asset sales and acquisitions, and contains customary events of default. Specifically, among other things, the Company ~~has retained an independent financial advisor~~is required to pursue refinancing transactions, the proceeds which will be applied to, among other things, repay the amounts owed under the Credit Agreement. The Waiver further provides that during the Compliance Waiver Period, notwithstanding anything to the contrary in the Credit Agreement, the lenders may make available to the Company Revolving Credit Loans and Letters of Credit under the Credit Agreement, provided, that during the Compliance Waiver Period (i) the Applicable Margin for LIBOR Rate Loans shall be 5.50% and the Applicable Margin for Base Rate Loans shall be 4.50%, (ii) the Interest Period for any Base Rate Loans converted into LIBOR Rate Loans or for any LIBOR Rate Loans borrowed or continued as a LIBOR Rate Loan under the Revolving Credit Facility in each case during the Compliance Waiver Period shall not be longer than one (1) month and (iii) the Revolving Credit Outstandings shall at no time exceed $29.0 millionmaintain minimum Liquidity (as ~~those terms are~~ defined in the 2018 Credit Agreement).

~~Amendment~~ of $3.0 million as of the last day of each fiscal quarter and a minimum Asset Coverage Ratio (as defined in the 2018 Credit Agreement) of 2.50 to ~~2016 Credit Agreement~~

~~On April 20,~~1.00. As of December 19, 2018, the Company amended our 2016 Credit Agreement (as defined below) 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 11 months after the balance sheet date, June 6, 2018. The amendment included the following changes:

~~Aggregate commitments under the senior secured revolving credit facility (“Revolver”) will be 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 periodwas 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.

~~As of July 23, 2018, the Company is in~~full compliance with all covenants with respect to the 2018 Credit Facility.

All amounts owing by the Company under the ~~terms~~2018 Credit Facility are guaranteed by the subsidiaries of the ~~Waiver and had $4.0 million of availability under the Revolver.~~Company.

As of ~~July 23,~~December 19, 2018, the Company had $60.0 million in total outstanding loans and approximately $1.3 million ~~in outstanding~~committed under letters of credit, which it uses as security for the payment of insurance ~~obligations.~~

~~Management has identified~~obligations and are fully cash collateralized, and 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,$0.2 million 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.~~indebtedness.

As of ~~March 14, 2018,~~January 28, 2019, the Company ~~would not have been~~was in compliance with ~~the Company’s Lease Adjusted Leverage Ratio and Fixed Charge Coverage Ratio~~all 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.

~~Senior Secured~~2016 Credit Agreement

On November 8, 2016, wethe Company entered into a $65.0 million Senior Secured Credit Facility with Wells Fargo Bank, National Association, as Administrative Agent and Cadence Bank, NA and Texas Capital Bank, NA, as lenders (“2016 Credit Agreement”). The 2016 Credit Agreement, ~~as amended,~~prior to the amendments discussed below, was comprised of a $30.0 million 5-year Revolver (the “Revolver”) and a $35.0 million 5-year Term Loan (the “Term Loan”)., and it also included sub-facilities for swingline loans and letters of credits. The original maturity date of the 2016 Credit Agreement was November 8, 2021. ~~For this section of this Form 10-Q, capitalized terms that are used but not otherwise defined shall have~~

Borrowings under the ~~meanings given to such terms in the 2016 Credit Agreement.~~

~~The 2016 Credit Agreement also provided for the issuance of letters of credit in an aggregate amount~~Revolver and Term Loan bore interest at 1) a base rate equal to the lesser of $5.0 million and the Revolving Credit Commitment, which was $30.0 million as of June 6, 2018. The 2016 Credit Agreement is guaranteed by all of the Company’s present subsidiaries and will be guaranteed by our future subsidiaries.

~~Until April 20, 2018, we have the option to elect one of two bases of interest rates. One interest rate option is the highest~~greater of (a) the ~~Prime Rate,~~federal funds effective rate plus one-half of 1% (the “Base Rate”), (b) ~~the Federal Funds Rate plus 0.50%~~prime and (c) ~~30-day~~ LIBOR ~~plus 1.00%,~~for an interest period of 1 month, plus, in ~~each~~any case, ~~the Applicable Margin, which ranged~~an applicable spread that ranges from 1.50% to 2.50% per ~~annum. The other interest rate option is~~annum the ~~LIBOR~~(“Applicable Margin”), or (2) the London InterBank Offered Rate (“LIBOR”), as adjusted for any Eurodollar reserve requirements, plus ~~the Applicable Margin, which ranged~~an applicable spread that ranges from 2.50% to 3.50% per annum. Borrowings under the swingline loan bore interest at the Base Rate plus the Applicable Margin. The ~~Applicable Margin~~applicable spread under each option iswas dependent upon ~~our CTLAL~~certain measures of the Company’s financial performance at the ~~most recent~~time of election. Interest was payable quarterly, ~~determination date.~~or in more frequent intervals if LIBOR applies.

The Term Loan amortized 7.0% per year (35.0% in 5 years) which includes the quarterly payment of principal. As of March 14, 2018, we have prepaid the required principal payments through March 30, 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~~Company was obligated to pay to the Administrative Agent for the account of each lender a quarterly commitment fee based on the average daily unused amount of the commitment of such lender, ranged from 0.30% to 0.35% per annum depending onupon the ~~CTLAL at the most recent quarterly determination date.~~Company's financial performance.

The proceeds of the 2016 Credit Agreement were available for usthe Company to (i) pay in full all indebtedness outstanding under the 2013 Credit Agreement as of November 8, 2016, (ii) pay fees, commissions, and expenses in connection with our repayment of the 2013 Credit Agreement, initial extensions of credit under the 2016 Credit Agreement, and (iii) for working capital and general corporate purposes of the Company.

The 2016 Credit Agreement, as amended, contained the ~~following covenants among others:~~

~~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 year 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 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.~~

customary covenants.

The 2016 Credit Agreement iswas secured by an all asset lien on all of the Company's real property and also ~~includes~~included customary events of default. If a default ~~occurs~~occurred and iswas continuing, the lenders’ commitments under the 2016 Credit Agreement may behave been immediately terminated, and, or the Company may behave been required to repay all amounts outstanding under the 2016 Credit Agreement.

~~As of June 6,~~On December 13, 2018, the ~~Company had $44.2 million~~2016 Credit Agreement was terminated with all outstanding amounts paid in total outstanding loans and approximately $1.3 million committed under letters of credit, which it uses as security for the payment of insurance obligations, and approximately $0.2 million in other indebtedness.full.

Note ~~14.~~13. Share-Based Compensation

We have two active share based stock plans, the Luby's Incentive Stock Plan, as amended and restated effective December 5, 2015 (the "Employee Stock Plan") and the Nonemployee Director Stock ~~Plan.~~Plan, as amended and restated effective February 9, 2018. Both plans authorize the granting of stock options, restricted stock, and other types of awards consistent with the purpose of the plans.

Of the aggregate 2.1 million shares approved for issuance under the Nonemployee Director Stock Plan, ~~(which amount includes shares authorized under the original plan and shares authorized pursuant to the~~as amended, ~~and restated plan effective as of February 9, 2018),~~ 1.3 million options, restricted stock units and restricted stock awards ~~were~~have been granted to date, and 0.1 million options were canceled or expired and added back into the plan, since the plan’s inception. Approximately 1.0 million shares remain available for future issuance as of ~~June 6,~~December 19, 2018. Compensation ~~cost~~costs for share-based payment arrangements under the Nonemployee Director Stock Plan, recognized in selling, general and administrative expenses for the ~~three~~ quarters ended ~~June 6,~~December 19, 2018 and ~~June 7,~~December 20, 2017 were approximately ~~$0.4 million~~$122 thousand and ~~$0.5 million,~~$152 thousand, respectively.

Of the aggregate 4.1 million shares approved for issuance under the Employee Stock Plan, as amended, 7.3 million options and restricted stock units ~~were~~have been granted to date, and ~~3.8~~4.1 million options and restricted stock units were canceled or expired and added back into the plan, since the plan’s inception in 2005. Approximately ~~0.6~~0.9 million shares remain available for future issuance as of ~~June 6,~~December 19, 2018. Compensation ~~cost~~costs for share-based payment arrangements under the Employee Stock Plan, recognized in selling, general and administrative expenses ~~was approximately $0.7 million~~ for the ~~three~~ quarters ended ~~June 6,~~December 19, 2018 and ~~June 7,~~December 20, 2017 were approximately $184 thousand and $289 thousand, respectively.

Stock Options

Stock options granted under either the Employee Stock Plan or the Nonemployee Director Stock Plan have exercise prices equal to the market price of the Company’s common stock at the date of the grant.

Option awards under the Nonemployee Director Stock Plan generally vest 100% on the first anniversary of the grant date and expire ten years from the grant date. No options were granted under the Nonemployee Director Stock Plan in the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018. No options to purchase shares were outstanding under this plan as of ~~June 6,~~December 19, 2018.

Options granted under the Employee Stock Plan generally vest 50% on the first anniversary date of the grant date, 25% on the second anniversary of the grant date and 25% on the third anniversary of the grant date, with all options expiring ten years from the grant date. ~~All~~No options were granted in the ~~three quarters~~quarter ended ~~June 6, 2018 were granted under the Employee Stock Plan.~~December 19, 2018. Options to purchase ~~1,668,133~~1,494,129 shares at option prices of $2.82 to $5.95 per share remain outstanding as of ~~June 6,~~December 19, 2018.

A summary of the Company’s stock option activity for the quarter ended ~~June 6,~~December 19, 2018 is presented in the following table:

Shares
Under
Fixed
Options

Weighted-
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value
(Per share) (In years) (In thousands)
Outstanding at August 30, 2017 1,345,916
$ 4.64
6.4
$ —
Granted 449,410
2.82
—
—
Forfeited (82,392 ) 3.88
—
—
Expired (44,801 ) 7.89
—
—
Outstanding at June 6, 2018 1,668,133
$ 4.10
6.8
$ —
Exercisable at June 6, 2018 1,080,822
$ 4.54
5.5
$ —



	Shares Under Fixed Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
			(Per share)		(In years)	(In thousands)
Outstanding at August 29, 2018	1,653,414		$	4.10	6.5	$	—
Forfeited	(71,983	)	3.86		—	—
Expired	(87,302	)	5.54		—	—
Outstanding at December 19, 2018	1,494,129		$	4.02	6.5	$	—
Exercisable at December 19, 2018	1,248,076		$	4.20	6.1	$	—

The intrinsic value for stock options is defined as the difference between the current market value, or closing price on ~~June 6,~~December 19, 2018, and the grant price on the measurement dates in the table above.

At ~~June 6,~~December 19, 2018, there was approximately ~~$0.4~~$0.2 million of total unrecognized compensation cost related to unvested options that are expected to be recognized over a weighted-average period of ~~1.8~~1.7 years.

Restricted Stock Units

Grants of restricted stock units consist of the Company’s common stock and generally vest after three years. All restricted stock units are cliff-vested. Restricted stock units are valued at the closing market price of the Company’s common stock at the date of grant.

A summary of the Company’s restricted stock unit activity during the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018 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 30, 2017 404,364
$ 4.54
1.8
Granted 244,748
2.83
—
Vested (99,495 ) 4.42
—
Forfeited (32,326 ) 3.87
—
Unvested at June 6, 2018 517,291
$ 3.79
2.0



	Restricted Stock Units		Weighted Average Fair Value		Weighted- Average Remaining Contractual Term
			(Per share)		(In years)
Unvested at August 29, 2018	517,291		$	3.79	1.8
Vested	(124,618	)	4.88		—
Forfeited	(22,491	)	3.60		—
Unvested at December 19, 2018	370,182		$	3.44	1.6

At ~~June 6,~~December 19, 2018, there was approximately ~~$0.9~~$0.6 million of total unrecognized compensation cost related to unvested restricted stock units that is expected to be recognized over a weighted-average period of ~~2.0~~1.6 years.

Performance Based Incentive Plan

For fiscal years 2015 - 2018, ~~The~~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.~~year. Each three-year measurement period is designated a plan year name based on year one of the measurement period. Since the plans provide for an undeterminable number of awards, the plans are accounted for as liability based plans. The liability valuation estimate for each plan year has been determined based on a Monte Carlo simulation model. Based on this estimate, management accrues expense ratably over the three-year service periods. A valuation estimate of the future liability associated with each fiscal year's performance award plan is performed periodically with adjustments made to the outstanding liability at each reporting period to properly state the outstanding liability for all plan years in the aggregate as of the respective balance sheet date. As of ~~June 6,~~December 19, 2018, the valuation estimate which represents the fair value of the performance awards liability for ~~all~~the 2017 plan ~~years 2016 and 2017,~~year, resulted in an approximate ~~$0.1 million~~$21 thousand 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, in the fiscal quarter ended December 20, 2017, under the Plan at 50% of the original target. The fair value of the 2015 ~~plan's~~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 the 2016 TSR Plan was terminated with no shares vested due to the relative ranking of the Company's stock performance. The number of shares at the end of each plan's three-year periods will be determined as the award value divided by the Company's closing stock price on the last day of the plan's fiscal year.

The 2018 TSR Performance Based Incentive Plan provides for a specified number of shares of common stock under the Employee Stock Plan based on the total shareholder return ranking compared to a selection of peer companies over a three-year cycle. The Fair Value of the 2018 TSR Plan has been determined based on a Monte Carlo simulation model for the three-year period. The target number of shares for distribution at 100% of the plan 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 was approximately ~~$69~~$120 thousand and ~~a credit of $329~~$117 thousand in the ~~three~~ quarters ended ~~June 6,~~December 19, 2018 and ~~June 7,~~December 20, 2017, respectively, and is recorded in Selling, general and administrative expenses.

A summary of the Company’s restricted stock Performance Based Incentive Plan activity during the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018 is presented in the following table:

Units Weighted
Average
Fair Value
(Per share)
Unvested at August 30, 2017 0
$ —
Granted 561,177
3.33
Vested (187,883 ) 2.64
Unvested at June 6, 2018 373,294
$ 3.68



	Units		Weighted Average Fair Value
			(Per share)
Unvested at August 29, 2018	373,294		$	3.68
Forfeited	(19,864	)	3.68
Unvested at December 19, 2018	353,430		$	3.68

At ~~March 14,~~December 19, 2018, there was approximately ~~$1.2~~$0.9 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 ~~2.2~~1.7 years.

Restricted Stock Awards

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

Note ~~15.~~14. Earnings Per Share

Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding and unvested restricted stock for the reporting period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of diluted net income per share, the basic weighted average number of shares is increased by the dilutive effect of stock options determined using the treasury stock method. Stock options excluded from the computation of net income per share for the quarter ended ~~June 6,~~December 19, 2018 include ~~1,668,133~~1,494,129 shares with exercise prices exceeding market prices and no shares whose inclusion would also be anti-dilutive.

The components of basic and diluted net loss per share are as follows:


	Quarter Ended						Three Quarters Ended						Quarter Ended
	June 6, 2018			June 7, 2017			June 6, 2018			June 7, 2017			December 19, 2018			December 20, 2017
	(12 weeks)			(12 weeks)			(40 weeks)			(40 weeks)			(16 weeks)			(16 weeks)
	(In thousands, expect per share data)												(In thousands, expect per share data)
Numerator:
Loss from continuing operations	$	(14,133	)	$	(377	)	$	(31,096	)	$	(18,727	)	$	(7,483	)	$	(5,502	)
Loss from discontinued operations, net of income taxes	(463		)	(19		)	(608		)	(434		)	(6		)	(35		)
NET LOSS	$	(14,596	)	$	(396	)	$	(31,704	)	$	(19,161	)	$	(7,489	)	$	(5,537	)
Denominator:
Denominator for basic earnings per share—weighted-average shares	30,005			29,536			29,863			29,453			30,059			29,691
Effect of potentially dilutive securities:
Employee and non-employee stock options	—			—			—			—			—			—
Denominator for earnings per share assuming dilution	30,005			29,536			29,863			29,453			30,059			29,691
Loss per share from continuing operations:
Basic	$	(0.47	)	$	(0.01	)	$	(1.04	)	$	(0.64	)	$	(0.25	)	$	(0.19	)
Assuming dilution	$	(0.47	)	$	(0.01	)	$	(1.04	)	$	(0.64	)	$	(0.25	)	$	(0.19	)
Loss per share from discontinued operations:
Basic	$	(0.02	)	$	(0.00	)	$	(0.02	)	$	(0.01	)	$	(0.00	)	$	(0.00	)
Assuming dilution	$	(0.02	)	$	(0.00	)	$	(0.02	)	$	(0.01	)	$	(0.00	)	$	(0.00	)
Net loss per share:
Basic	$	(0.49	)	$	(0.01	)	$	(1.06	)	$	(0.65	)	$	(0.25	)	$	(0.19	)
Assuming dilution	$	(0.49	)	$	(0.01	)	$	(1.06	)	$	(0.65	)	$	(0.25	)	$	(0.19	)

Note ~~16:~~15: 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 iswas 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 ~~$12.0,~~$12, a number of shares of Luby’s common stock having a then-current market value of twice such price. The rights plan exempts any person or group owning 10% or more (35.5% or more in the case of Harris J. Pappas, Christopher J. Pappas and their respective affiliates and associates) of Luby’s common stock immediately prior to the ~~issuance~~adoption of ~~this press release.~~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 16. Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statements of financial position that sum to the total of the same such amounts shown in the statement of cash flows:



	December 19, 2018		August 29, 2018
	(in thousands)
Cash and cash equivalents	$	8,665	$	3,722
Restricted cash and cash equivalents	11,103		—
Total cash and cash equivalents shown in the statement of cash flows	$	19,768	$	3,722

Amounts included in restricted cash represent those required to be set aside for (1) maximum amount of interest payable in the next 12 months under the 2018 Credit Agreement (see Note 12), (2) collateral for letters of credit issued for potential insurance obligations, which letters of credit expire in 2019 and (3) pre-funding of the credit limit under our corporate purchasing card program.

Note 17. Going Concern

The accompanying financial statements have been prepared assuming that the Company will 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. Based on an evaluation of both qualitative and quantitative information, including available liquidity under our 2018 Credit Facility, related to known conditions and events in the aggregate it is probable that the Company will be able to meet its obligations as they become due within one year after the date of the financial statements are issued.

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

Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the unaudited Consolidated Financial Statements and footnotes for the quarter ended ~~June 6,~~December 19, 2018 included in Item 1 of Part I of this Quarterly Report on Form 10 (this “Form 10-Q”), and the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended August ~~30, 2017.~~29, 2018.

The following presents an analysis of the results and financial condition of our continuing operations. Except where indicated otherwise, the results of discontinued operations are excluded from this discussion.

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

Percentages may not total due to rounding.


	Quarter Ended				Three Quarters Ended				Quarter Ended
	June 6, 2018		June 7, 2017		June 6, 2018		June 7, 2017		December 19, 2018		December 20, 2017
	(12 weeks)		(12 weeks)		(40 weeks)		(40 weeks)		(16 weeks)		(16 weeks)
Restaurant sales	90.5	%	93.1	%	91.3	%	93.9	%	88.5	%	92.1	%
Culinary contract services	7.7	%	5.1	%	6.9	%	4.2	%	9.2	%	6.1	%
Franchise revenue	1.7	%	1.7	%	1.7	%	1.8	%	2.2	%	1.7	%
Vending revenue	0.1	%	0.1	%	0.1	%	0.1	%	0.1	%	0.1	%
TOTAL SALES	100.0	%	100.0	%	100.0	%	100.1	%	100.0	%	100.0	%

STORE COSTS AND EXPENSES:
(As a percentage of restaurant sales)

Cost of food	28.6	%	27.8	%	28.5	%	28.1	%	27.5	%	28.5	%
Payroll and related costs	37.8	%	35.7	%	37.4	%	35.9	%	37.9	%	36.5	%
Other operating expenses	19.3	%	16.7	%	19.0	%	17.4	%	18.1	%	18.6	%
Occupancy costs	5.9	%	6.0	%	6.1	%	6.2	%	6.4	%	6.0	%
Vending revenue	(0.2	)%	(0.2	)%	(0.2	)%	(0.2	)%	(0.1	)%	(0.1	)%
Store level profit	8.5	%	14.0	%	9.1	%	12.7	%	10.1	%	10.6	%

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

Opening costs	0.1	%	0.2	%	0.2	%	0.1	%	0.0	%	0.1	%
Depreciation and amortization	4.7	%	5.2	%	4.8	%	5.5	%	4.8	%	4.7	%
Selling, general and administrative expenses	9.9	%	7.6	%	10.4	%	10.2	%	10.9	%	10.2	%
Net loss (gain) on disposition of property and equipment	0.2	%	(0.2	)%	0.1	%	0.1	%
Net loss on disposition of property and equipment									0.1	%	0.2	%

Culinary Contract Services Costs
(As a percentage of Culinary Contract Services sales)

Cost of culinary contract services	91.9	%	92.9	%	93.3	%	90.5	%	92.8	%	92.0	%
Culinary segment profit	8.1	%	7.1	%	6.7	%	9.5	%	7.2	%	8.0	%

Franchise Operations Costs
(As a percentage of Franchise revenue)

Cost of franchise operations	23.6	%	24.4	%	25.3	%	26.7	%	12.3	%	25.9	%
Franchise segment profit	76.4	%	75.6	%	74.7	%	73.3	%	87.7	%	74.1	%

(As a percentage of total sales)
INCOME (LOSS) FROM OPERATIONS	(10.4	)%	0.9	%	(7.7	)%	(4.8	)%
LOSS FROM OPERATIONS									(5.5	)%	(4.4	)%
Interest income	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%
Interest expense	(1.2	)%	(0.6	)%	(0.8	)%	(0.7	)%	(1.7	)%	(0.6	)%
Other income (expense), net	0.0	%	(0.2	)%	0.1	%	(0.1	)%
Income (loss) before income taxes and discontinued operations	(11.6	)%	0.1	%	(8.4	)%	(5.6	)%
Provision for income taxes	4.8	%	0.5	%	2.7	%	0.9	%
Other income, net									0.0	%	0.1	%
Loss before income taxes and discontinued operations									(7.2	)%	(4.9	)%
Provision (benefit) for income taxes									0.1	%	(0.1	)%
Loss from continuing operations	(16.4	)%	(0.4	)%	(11.1	)%	(6.5	)%	(7.3	)%	(4.8	)%
Loss from discontinued operations, net of income taxes	(0.5	)%	(0.0	)%	(0.2	)%	(0.1	)%	(0.0	)%	(0.0	)%
NET LOSS	(17.0	)%	(0.4	)%	(11.3	)%	(6.6	)%	(7.3	)%	(4.9	)%

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


	Quarter Ended						Three Quarters Ended						Quarter Ended
	June 6, 2018			June 7, 2017			June 6, 2018			June 7, 2017			December 19, 2018			December 20, 2017
	(12 weeks)			(12 weeks)			(40 weeks)			(40 weeks)			(16 weeks)			(16 weeks)
	(In thousands)						(In thousands)						(In thousands)
Store level profit	$	6,642		$	11,567		$	23,469		$	34,392		$	9,225		$	11,086

Plus:
Sales from culinary contract services	6,639			4,515			19,413			12,117			9,496			6,884
Sales from franchise operations	1,444			1,477			4,732			5,167			2,224			1,887

Less:
Opening costs	85			134			490			431			33			75
Cost of culinary contract services	6,104			4,194			18,113			10,966			8,815			6,332
Cost of franchise operations	341			361			1,198			1,378			273			488
Depreciation and amortization	4,050			4,639			13,402			15,977			4,903			5,353
Selling, general and administrative expenses	8,507			6,764			29,219			29,531			11,224			11,525
Provision for asset impairments and restaurant closings	4,464			869			6,716			7,120			1,227			845
Net loss (gain) on disposition of property and equipment	154			(195		)	172			219
Net loss on disposition of property and equipment													149			222
Interest income	(1		)	(3		)	(12		)	(5		)	—			(6		)
Interest expense	1,042			569			2,235			1,898			1,713			649
Other income (expense), net	(9		)	173			(317		)	312
Provision for income taxes	4,121			431			7,494			2,576
Other income, net													(30		)	(115		)
Provision (benefit) for income taxes													121			(9		)
Loss from continuing operations	$	(14,133	)	$	(377	)	$	(31,096	)	$	(18,727	)	$	(7,483	)	$	(5,502	)

The following table shows our restaurant unit count as of August ~~30, 2017~~29, 2018 and ~~June 6,~~December 19, 2018.

Restaurant Counts:


	August 30, 2017	FY18 YTDQ3 Openings	FY18 YTDQ3 Closings		June 6, 2018	August 29, 2018	FY19 Q1 Openings	FY19 Q1 Closings		December 19, 2018
Luby’s Cafeterias	88	—	(2	)	86	84	—	(2	)	82
Fuddruckers Restaurants	71	—	(4	)	67	60	—	(3	)	57
Cheeseburger in Paradise	8	—	(1	)	7	2	—	(1	)	1
Total	167	—	(7	)	160	146	—	(6	)	140

Overview

Luby’s, Inc. (“Luby’s”, the “Company”, "we", "us", or ~~“Company”~~"our") is a multi-branded company operating in the restaurant industry and in the contract food services industry. Our primary brands include Luby’s Cafeteria, Fuddruckers - World’s Greatest Hamburgers^®, Luby’s Culinary Contract Services and Cheeseburger in Paradise.

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

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

As of ~~June 6,~~December 19, 2018, we owned and operated ~~160~~140 restaurants, of which 8682 are traditional cafeterias, 6757 are gourmet hamburger restaurants, and ~~seven are~~one is a casual dining ~~restaurants~~restaurant and ~~bars.~~bar. These establishments are located in close proximity to retail centers, business developments and residential areas mostly throughout the United States. Included in the ~~160~~140 restaurants that we own and operate are 12 restaurants located at six property locations where we operate a side-by-side Luby’s Cafeteria and Fuddruckers on the same property. We refer to these locations as “Combo locations.”

As of ~~June 6,~~December 19, 2018, we operated 2530 Culinary Contract Services locations. We operated 1922 of these locations in the Houston, Texas area, ~~two in San Antonio, Texas, two~~three in the Texas Lower Rio Grande Valley, ~~and one~~two in Dallas, Texas, and two in San Antonio, Texas. Outside of Texas we operated one location in North Carolina. Luby’s Culinary Contract Services currently provides food service management to hospitals, corporate dining facilities, sports stadiums, and a senior care facility.

As of ~~June 6,~~December 19, 2018, we had 4441 franchisees operating ~~109~~103 Fuddruckers restaurants. Our largest ~~six~~five franchise owners own five to twelve restaurants each. Fifteen franchise owners each own two to four restaurants. The 2321 remaining franchise owners each own one restaurant.

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 2016 was such a year.~~aggregate. The first fiscal quarter consists of four four-week periods, or 16 weeks, and the remaining three quarters typically includes three four-week periods, or 12 weeks, in length. The fourth fiscal quarter includes 13 weeks in certain fiscal years to adjust for our standard 52 week, or 364 day, fiscal year compared to the 365 day calendar year. Comparability between quarters may be affected by the varying lengths of the quarters, as well as the seasonality associated with the restaurant business.

Same-Store Sales

The restaurant business is highly competitive with respect to food quality, concept, location, price, and service, all of which may have an effect on same-store sales. Our same-store sales calculation measures the relative performance of a certain group of restaurants. A restaurant’s sales results are included in the same-store sales calculation in the quarter after a store has been open for six consecutive fiscal quarters. Stores that close on a permanent basis (or on a temporary basis for remodeling) are removed from the group in the quarter when operations cease at the restaurant, but remain in the same-store group for previously reported quarters. Although management believes this approach leads to more effective year-over-year comparisons, neither the time frame nor the exact practice may be similar to those used by other restaurant companies.

RESULTS OF OPERATIONS

Quarter Ended ~~June 6,~~December 19, 2018 Compared to Quarter Ended ~~June 7,~~December 20, 2017 ~~and Three Quarters Ended ended June 6, 2018 Compared to Three Quarters Ended ended June 7, 2017~~

Comparability between quarters is affected by the varying lengths of the quarters and quarters ending at different points in the calendar year when seasonal patterns for sales are different. Both the quarter ended ~~June 6,~~December 19, 2018 and the quarter ended ~~June 7,~~December 20, 2017 consisted of ~~12 weeks. The three quarters ended June 6, 2018 and the three quarters ended June 7, 2017 consisted of 40~~16 weeks.

Sales

Quarter
Ended Quarter
Ended
($000s) June 6,
2018 June 7,
2017 Increase/
(Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Restaurant sales $ 77,803
$ 82,594
$ (4,791 ) (5.8 )%
Culinary contract services 6,639
4,515
2,124
47.0 %
Franchise revenue 1,444
1,477
(33 ) (2.2 )%
Vending revenue 118
133
(15 ) (11.3 )%
TOTAL SALES $ 86,004
$ 88,719
$ (2,715 ) (3.1 )%

Total sales decreased approximately $2.7 million, or 3.1%, in the quarter ended June 6, 2018 compared to the quarter ended June 7, 2017, consisting primarily of an approximate $4.8 million decrease in restaurant sales, partially offset by an approximate $2.1 million increase in Culinary Contract Services sales. The other components of total sales are franchise revenue and vending revenue, which decreased $33 thousand and $15 thousand, respectively, in the quarter ended June 6, 2018 compared to the quarter ended June 7, 2017.

Three Quarters Ended Three Quarters Ended
($000s) June 6,
2018 June 7,
2017 Increase/
(Decrease)
(40 weeks) (40 weeks) (40 weeks vs 40 weeks)
Restaurant sales $ 256,737
$ 271,741
$ (15,004 ) (5.5 )%
Culinary contract services 19,413
12,117
7,296
60.2 %
Franchise revenue 4,732
5,167
(435 ) (8.4 )%
Vending revenue 412
417
(5 ) (1.2 )%
TOTAL SALES $ 281,294
$ 289,442
$ (8,148 ) (2.8 )%

Total sales decreased approximately $8.1 million, or 2.8%, in the three quarters ended June 6, 2018 compared to the three quarters ended June 7, 2017, consisting primarily of an approximate $15.0 million decrease in restaurant sales and an approximate $0.4 million decrease in franchise revenue, partially offset by an approximate $7.3 million increase in Culinary Contract Services sales. The other component of total sales is vending revenue, which decreased $5 thousand in the three quarters ended June 6, 2018 compared to the three quarters ended June 7, 2017.



	Quarter Ended		Quarter Ended
($000s)	December 19, 2018		December 20, 2017		Increase/ (Decrease)
	(16 weeks)		(16 weeks)		(16 weeks vs 16 weeks)
Restaurant sales	$	91,099	$	104,583	$	(13,484	)	(12.9	)%
Culinary contract services	9,496		6,884		2,612			37.9	%
Franchise revenue	2,224		1,887		337			17.9	%
Vending revenue	99		143		(44		)	(30.8	)%
TOTAL SALES	$	102,918	$	113,497	$	(10,579	)	(9.3	)%

The Company has three reportable segments: Company-owned restaurants, franchise operations, and culinary contract services.

Company-Owned Restaurants

Restaurant Sales


($000s)	Quarter Ended		Quarter Ended							Quarter Ended			Quarter Ended
Restaurant Brand	June 6,		June 7,		Increase/(Decrease)					December 19,			December 20,		Increase/(Decrease)
	2018		2017		$ Amount			% Change		2018			2017		$ Amount					% Change
	(12 weeks)		(12 weeks)		(12 weeks vs 12 weeks)					(16 weeks)			(16 weeks)		(16 weeks vs 16 weeks)
Luby’s Cafeterias	$	49,067	$	49,746	$	(679	)	(1.4	)%	$	62,786		$	67,430	$	(4,644	)	(909	)	(6.9	)%
Fuddruckers	20,622		23,713		(3,091		)	(13.0	)%	21,533			26,914		(5,381		)	(909	)	(20.0	)%
Combo locations	4,821		4,988		(167		)	(3.3	)%	5,964			6,712		(748		)	(909	)	(11.1	)%
Cheeseburger in Paradise	3,293		4,147		(854		)	(20.6	)%	959			3,527		(2,568		)	(909	)	(72.8	)%
Restaurant Sales	$	77,803	$	82,594	$	(4,791	)	(5.8	)%
Other Revenue										(143		)	—		(143		)
Total Restaurant Sales										$	91,099		$	104,583	$	(13,484	)	(909	)	(12.9	)%

Restaurant sales decreased approximately $4.8 million in the quarter ended June 6, 2018, compared to the quarter ended June 7, 2017. Sales at stand-alone Luby's Cafeteria restaurants decreased approximately $0.7 million to approximately $49.1 million; sales from stand-alone Fuddruckers locations decreased approximately $3.1 million to approximately $20.6 million; sales at Combo locations decreased approximately $0.2 million to approximately $4.8 million; and sales at Cheeseburger in Paradise restaurants decreased approximately $0.9 million to approximately $3.3 million.

The approximate ~~$0.7~~$4.6 million sales decrease in stand-alone Luby's Cafeteria restaurants was the result of the closure of ~~four~~six locations over the prior year ~~partially offset by~~and a ~~2.4% increase~~3.0% decrease in Luby’s same-store sales in the quarter ended ~~June 6,~~December 19, 2018 compared to the quarter ended ~~June 7,~~December 20, 2017. The ~~2.4% increase~~3.0% decrease in Luby's Cafeteria same-store sales was the result of a ~~9.7%~~10.5% decrease in guest traffic, partially offset by a 8.4% increase in average spend per ~~guest, partially offset by a 6.6% decrease in guest traffic.~~guest. The approximate ~~$3.1~~$5.4 million sales decrease at stand-alone Fuddruckers restaurants was the result of ~~five~~14 restaurant closings and a ~~5.8%~~11.2% decrease in same-store sales in the quarter ended ~~June 6,~~December 19, 2018 compared to the quarter ended ~~June 7,~~December 20, 2017. The ~~5.8%~~11.2% decrease in same-store sales was the result of a ~~9.6%~~17.1% decrease in guest traffic, partially offset by a ~~4.2%~~7.1% increase in average spend per guest. All six Combo locations are included in our same-store grouping and sales at this group of restaurants decreased ~~3.3%~~11.1% in the quarter ended ~~June 6,~~December 19, 2018 compared to the quarter ended ~~June 7,~~December 20, 2017. The approximate ~~$0.9~~$2.6 million decrease in Cheeseburger in Paradise restaurants sales in the quarter ended ~~June 6,~~December 19, 2018 compared to the quarter ended ~~June 7,~~December 20, 2017 was primarily the result of ~~one~~seven store ~~closure from~~closures since the first quarter fiscal 2018 ended December 20, ~~2017, and an 11.7% decrease at the remaining seven stores that are included in our same-store grouping.~~

Three Quarters Ended Three Quarters Ended
Restaurant Brand June 6, June 7, Increase/(Decrease)
($000s) 2018 2017 $ Amount % Change
(40 weeks) (40 weeks) (40 weeks vs 40 weeks)
Luby’s Cafeterias $ 163,757
$ 168,061
$ (4,304 ) (2.6 )%
Fuddruckers 67,476
75,321
(7,845 ) (10.4 )%
Combo locations 16,219
16,565
(346 ) (2.1 )%
Cheeseburger in Paradise 9,285
11,794
(2,509 ) (21.3 )%
Total Restaurant Sales $ 256,737
$ 271,741
$ (15,004 ) (5.5 )%

~~Restaurant sales decreased approximately $15.0 million in the three quarters ended June 6, 2018, compared to the three quarters ended June 7,~~ 2017. Sales at stand-alone Luby's Cafeteria restaurants decreased approximately $4.3 million to approximately $163.8 million; sales from stand-alone Fuddruckers locations decreased approximately $7.8 million to approximately $67.5 million; sales at Combo locations decreased approximately $0.3 million to approximately $16.2 million; and sales at Cheeseburger in Paradise restaurants decreased approximately $2.5 million to approximately $9.3 million.

The approximate $4.3 million sales decrease in stand-alone Luby's Cafeteria restaurants was the result of the closure of six locations over the prior year, partially offset by a 0.8% increase in same-store sales in the three quarters ended June 6, 2018 compared to the three quarters ended June 7, 2017. The 0.8% increase in Luby's Cafeteria same-store sales was the result of a a 7.0% increase in average spend per guest partially offset by a 5.8% decrease in guest traffic. The approximate $7.8 million sales decrease at stand-alone Fuddruckers restaurants was the result of nine store closures and a same-store sales decrease of 3.6% in the three quarters ended June 6, 2018 compared to the three quarters ended June 7, 2017, partially offset by the opening of one location. Fuddruckers same-store sales decrease of 3.6% was the result of a 8.1% decline in guest traffic, partially offset by a 4.9% increase in average spend per guest. The approximate $0.3 million decrease in sales at our Combo locations was due to a 2.1% decrease in same-store sales in the three quarters ended June 6, 2018 compared to the three quarters ended June 7, 2017. The approximate $2.5 million decrease in Cheeseburger in Paradise restaurants sales in the three quarters ended June 6, 2018 compared to the three quarters ended June 7, 2017 was the result of one store closure, and an 11.8% decrease at the remaining seven stores that are included in our same-store grouping.

Cost of Food


	Quarter Ended			Quarter Ended								Quarter Ended			Quarter Ended
($000s)	June 6, 2018			June 7, 2017			Increase/ (Decrease)					December 19, 2018			December 20, 2017			Increase/ (Decrease)
	(12 weeks)			(12 weeks)			(12 weeks vs 12 weeks)					(16 weeks)			(16 weeks)			(16 weeks vs 16 weeks)
Cost of food	$	22,255		$	22,922		$	(667	)	(2.9	)%	$	25,083		$	29,754		$	(4,671	)	(15.7	)%
As a percentage of restaurant sales	28.6		%	27.8		%				0.8	%	27.5		%	28.5		%				(1.0	)%

Cost of food decreased approximately ~~$0.7~~$4.7 million, or ~~2.9%~~15.7%, in the quarter ended ~~June 6,~~December 19, 2018 compared to the quarter ended ~~June 7,~~December 20, 2017 with lower guest traffic levels and operations at ~~ten~~23 fewer locations. As a percentage of restaurant sales, cost of food ~~increased 0.8%~~decreased 1.0% to ~~28.6%~~27.5% in the quarter ended ~~June 6,~~December 19, 2018 compared to ~~27.8%~~28.5% in the quarter ended ~~June 7,~~December 20, 2017 due in part to higher ~~average food commodity prices.~~

Three Quarters Ended Three Quarters Ended
($000s) June 6,
2018 June 7,
2017 Increase/
(Decrease)
(40 weeks) (40 weeks) (40 weeks vs 40 weeks)
Cost of food $ 73,190
$ 76,353
$ (3,163 ) (4.1 )%
As a percentage of restaurant sales 28.5 % 28.1 % 0.4 %

~~Cost of food decreased approximately $3.2 million, or 4.1%,~~menu pricing and changes in the ~~three quarters ended June 6, 2018 compared to the three quarters ended June 7, 2017 with lower guest traffic levels and~~mix of menu offerings as well as further focus on efficient operations, at ten fewer locations. As a percentage of restaurant sales, cost of food increased 0.4% to 28.5% in the three quarters ended June 6, 2018 compared to 28.1% in the three quarters ended June 7, 2017 due in part to higher average food commodity prices.including minimizing waste.

Payroll and Related Costs


	Quarter Ended			Quarter Ended								Quarter Ended			Quarter Ended
($000s)	June 6, 2018			June 7, 2017			Increase/ (Decrease)					December 19, 2018			December 20, 2017			Increase/ (Decrease)
	(12 weeks)			(12 weeks)			(12 weeks vs 12 weeks)					(16 weeks)			(16 weeks)			(16 weeks vs 16 weeks)
Payroll and related costs	$	29,392		$	29,519		$	(127	)	(0.4	)%	$	34,513		$	38,126		$	(3,613	)	(9.5	)%
As a percentage of restaurant sales	37.8		%	35.7		%				2.1	%	37.9		%	36.5		%				1.4	%

Payroll and related costs decreased approximately ~~$0.1~~$3.6 million in the quarter ended ~~June 6,~~December 19, 2018 compared to the quarter ended ~~June 7,~~December 20, 2017. The decrease reflects operating ~~ten~~23 fewer restaurants, ~~mostly~~partially offset by higher average wage ~~rates and increased deployment of hours compared to the quarter ended June 7, 2017.~~rates. As a percentage of restaurant sales, payroll and related costs increased ~~2.1%~~1.4% to ~~37.8%~~37.9% in the quarter ended ~~June 6,~~December 19, 2018 compared to ~~35.7%~~36.5% in the quarter ended ~~June 7,~~December 20, 2017

due primarily to the fixed cost component of labor costs (especially salaried restaurant managers) with declines in ~~part to (1) a greater deployment of hours, including increased usage of overtime, and increased investment in training programs, in order to enhance the level of guest service; and (2)~~same-store sales as well as an environment of rising hourly wage rates that exceeded our ability to grow sales sufficiently through menu pricing. ~~Additionally, restaurant labor costs have a fixed cost component that results in higher payroll and related costs as a percentage of restaurant sales when same-store sales decline.~~

Three Quarters Ended Three Quarters Ended
($000s) June 6,
2018 June 7,
2017 Increase/
(Decrease)
(40 weeks) (40 weeks) (40 weeks vs 40 weeks)
Payroll and related costs $ 96,032
$ 97,486
$ (1,454 ) (1.5 )%
As a percentage of restaurant sales 37.4 % 35.9 % 1.5 %

Payroll and related costs decreased approximately $1.5 million in the three quarters ended June 6, 2018 compared to the three quarters ended June 7, 2017. The decrease reflects operating ten fewer restaurants, partially offset by higher average wage rates and increased deployment of hours compared to the three quarters ended June 7, 2017. Additionally, the three quarters ended June 7, 2017 included an approximate $0.5 million reduction in workers' compensation liability estimates. As a percentage of restaurant sales, payroll and related costs increased 1.5%, to 37.4% in the three quarters ended June 6, 2018 compared to 35.9% in the three quarters ended June 7, 2017 due to (1) a greater deployment of hours, including increased usage of overtime, and increased investment in training programs, in order to enhance the level of guest service; (2) an environment of rising hourly wage rates that exceeded our ability to grow sales sufficiently through menu pricing; and (3) comparison with a $0.5 million reduction in workers' compensation liability estimates in the three quarters ended June 7, 2017. Additionally, restaurant labor costs have a fixed cost component that results in higher payroll and related costs as a percentage of restaurant sales when same-store sales decline.

Other Operating Expenses


	Quarter Ended			Quarter Ended							Quarter Ended			Quarter Ended
($000s)	June 6, 2018			June 7, 2017			Increase/ (Decrease)				December 19, 2018			December 20, 2017			Increase/ (Decrease)
	(12 weeks)			(12 weeks)			(12 weeks vs 12 weeks)				(16 weeks)			(16 weeks)			(16 weeks vs 16 weeks)
Other operating expenses	$	15,023		$	13,796		$	1,227	8.9	%	$	16,502		$	19,499		$	(2,997	)	(15.4	)%
As a percentage of restaurant sales	19.3		%	16.7		%			2.6	%	18.1		%	18.6		%				(0.5	)%

Other operating expenses ~~primarily~~ include restaurant-related expenses for utilities, repairs and maintenance, local store advertising, property and liability insurance losses above insurance deductibles, services and supplies. Other operating expenses ~~increased~~decreased approximately ~~$1.2~~$3.0 million, or ~~8.9%~~15.4%, in the quarter ended ~~June 6,~~December 19, 2018 compared to the quarter ended ~~June 7,~~December 20, 2017, due primarily to (1) an approximate ~~$0.9~~$1.0 million ~~increase~~decrease in restaurant supplies; (2) an approximate $0.7 million decrease in restaurant services; (3) the absence of approximately $0.5 million in post-hurricane related repair and other expenses incurred in the quarter ended December 20, 2017; (4) an approximate $0.3 million decrease in repairs and ~~maintenance compared to the quarter ended June 7, 2017 when certain maintenance was deferred; (2)~~maintenance; (5) an approximate ~~$0.5 million~~$0.2 increase in ~~restaurant supplies as part of efforts to restock~~insurance recoveries and ~~refresh kitchen and dining room supplies as well as increased usage of cleaning supplies as stores were refreshed; partially offset by (3)~~ an approximate $0.2 million decrease in ~~utility expense with~~insurance losses above deductibles in the ~~operation of~~quarter ended December 19, 2018 compared to the quarter ended December 20, 2017; and (6) an approximate $0.1 million decrease in local store advertising. The decrease in restaurant supplies, restaurant services and local store marketing can be largely attributable to operating 23 fewer restaurant ~~locations. A reduction~~locations in ~~restaurant services expense associated with operating fewer restaurants was mostly offset by higher other operating expenses, including increases in bad debt reserves.~~the quarter ended December 19, 2018 compared to the quarter ended December 20, 2017. As a percentage of restaurant sales, other operating expenses ~~increased 2.6%~~decreased 0.5%, to ~~19.3%~~18.1%, in the quarter ended ~~June 6,~~December 19, 2018, compared to ~~16.7%~~18.6% in the quarter ended ~~June 7, 2017 due primarily to cost increases enumerated above on lower overall same-store sales volumes.~~

Three Quarters Ended Three Quarters Ended
($000s) June 6,
2018 June 7,
2017 Increase/
(Decrease)
(40 weeks) (40 weeks) (40 weeks vs 40 weeks)
Other operating expenses $ 48,881
$ 47,207
$ 1,674
3.5 %
As a percentage of restaurant sales 19.0 % 17.4 % 1.6 %

~~Other operating expenses increased by approximately $1.7 million, or 3.5%, in the three quarters ended June 6, 2018 compared to the three quarters ended June 7,~~December 20, 2017 due primarily to (1) ~~an approximate $1.0 million~~reductions in restaurant supplies and local store marketing to a greater extent than the reduction in sales from restaurants that ceased operations; (2) the absence of hurricane related restoration expenses incurred in the prior year quarter ended December 20, 2017; (3) the increase in ~~repairs and maintenance expense~~insurance recoveries in the quarter ended December 19, 2018 compared to the ~~three quarters~~quarter ended ~~June 7, 2017 when certain maintenance was deferred (2) an approximate $0.6 million expense related to net uninsured losses; (3) an approximate $1.0 million increase in restaurant supplies as part~~December 20, 2017; and (4) the absence of ~~efforts to restock and refresh kitchen and dining room supplies as well as increased usage of cleaning supplies as stores were refreshed~~insurance losses above deductibles incurred in the ~~three quarters~~prior year quarter ended June 6, 2018; (4) an approximate $0.3 million increase in third party delivery fees on increased sales through this channel; partially offset by (5) approximately $0.3 million lower credit card fees on lower sales volumes; (6) an approximate $0.6 million decrease in utilities expense with the operation of fewer restaurants; and (7) an approximate $0.3 million decrease related to lower other restaurant services costs including computer networking costs. As a percentage of restaurant sales, other operating expenses increased 1.6%, to 19.0%, in the three quarters ended June 6, 2018, compared to 17.4% for the three quarters ended June 7, 2017 due primarily to the net cost increases enumerated above on lower overall same-store sales volumes.December 20, 2017.

Occupancy Costs


	Quarter Ended			Quarter Ended								Quarter Ended			Quarter Ended
($000s)	June 6, 2018			June 7, 2017			Increase/ (Decrease)					December 19, 2018			December 20, 2017			Increase/ (Decrease)
	(12 weeks)			(12 weeks)			(12 weeks vs 12 weeks)					(16 weeks)			(16 weeks)			(16 weeks vs 16 weeks)
Occupancy costs	$	4,609		$	4,923		$	(314	)	(6.4	)%	$	5,875		$	6,261		$	(386	)	(6.2	)%
As a percentage of restaurant sales	5.9		%	6.0		%				(0.1	)%	6.4		%	6.0		%				0.4	%

Occupancy costs include property lease expense, property taxes, common area maintenance charges, and property insurance expense. Occupancy costs decreased approximately ~~$0.3~~$0.4 million to approximately ~~$4.6~~$5.9 million in the quarter ended ~~June 6,~~December 19, 2018 compared to the quarter ended ~~June 7,~~December 20, 2017. The decrease was primarily due to a decrease in rent and property taxes associated with fewer restaurants in the quarter ended ~~June 6,~~December 19, 2018 compared to the quarter ended ~~June 7,~~December 20, 2017. As a percentage of restaurant sales, occupancy costs ~~decreased 0.1%~~increased 0.4%, to ~~5.9%~~6.4%, in the quarter ended ~~June 6,~~December 19, 2018 compared to 6.0% in the quarter ended ~~June 7, 2017.~~

Three Quarters Ended Three Quarters Ended
($000s) June 6,
2018 June 7,
2017 Increase/
(Decrease)
(40 weeks) (40 weeks) (40 weeks vs 40 weeks)
Occupancy costs $ 15,577
$ 16,720
$ (1,143 ) (6.8 )%
As a percentage of restaurant sales 6.1 % 6.2 % (0.1 )%

~~Occupancy costs decreased approximately $1.1 million~~December 20, 2017 due in large part to ~~approximately $15.6 million~~an increase in property tax expense at certain locations as well as a change in the ~~three quarters ended June 6, 2018 compared to~~mix of portfolio of owned versus leases stores after the ~~three quarters ended June 7, 2017. The decrease was primarily due to a decrease in rent~~closure of 23 locations and sale of certain owned property taxes associated with operating fewer restaurants in the three quarters ended June 6, 2018 compared to the three quarters ended June 7, 2017. As a percentage of restaurant sales, other occupancy costs decreased 0.1%, to 6.1%, in the three quarters ended June 6, 2018 compared to 6.2% in the three quarters ended June 7, 2017.

locations.

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. Franchise revenue includes (1) royalties paid to us as the franchisor for the Fuddruckers ~~brand~~brand; (2) funds paid to us as the franchisor for pooled advertising expenditures; and ~~(2)~~(3) franchise fees paid to us when franchise units are opened for business or transferred to new owners and when franchise agreements are ~~renewed.~~renewed or certain milestones in franchise agreements are reached. Cost of franchise operations includes the direct costs associated with supporting franchisees with opening new Fuddruckers franchised restaurants and the corporate overhead expenses associated with generating franchise revenue. These corporate expenses primarily include the salaries and benefits, travel and related expenses, and other expenses for employees whose primary job function involves supporting our franchise owners and the development of new franchise locations.

Beginning with the first quarter fiscal 2019, as a result of our adoption of the new revenue accounting standards more fully described in Note 1 to our unaudited financial statements:

We recognize as revenue the amounts due to us from franchisees for pooled advertising expense.

We recognize initial and renewal franchise fees evenly over the term of franchise area development agreements.


	Quarter Ended			Quarter Ended								Quarter Ended			Quarter Ended
($000s)	June 6, 2018			June 7, 2017			Increase/ (Decrease)					December 19, 2018			December 20, 2017			Increase/ (Decrease)
	(12 weeks)			(12 weeks)			(12 weeks vs 12 weeks)					(16 weeks)			(16 weeks)			(16 weeks vs 16 weeks)
Franchise revenue	$	1,444		$	1,477		$	(33	)	(2.2	)%	$	2,224		$	1,887		$	337		17.9	%
Cost of franchise operations	341			361			(20		)	(5.5	)%	273			488			(215		)	(44.1	)%
Franchise profit	$	1,103		$	1,116		$	(13	)	(1.2	)%	$	1,951		$	1,399		$	552		39.5	%
Franchise profit as a percentage of franchise revenue	76.4		%	75.6		%				0.8	%	87.7		%	74.1		%				13.6	%

Franchise revenue ~~decreased $33 thousand~~increased $0.3 million in the quarter ended ~~June 6,~~December 19, 2018 compared to the quarter ended ~~June 7,~~December 20, 2017. The ~~$33 thousand decrease~~$0.3 million increase in franchise revenue ~~primarily~~ reflects ~~reduced~~(1) an increase in fees earned upon termination of franchise ~~royalty income with the operation of fewer franchise locations.~~

Three Quarters Ended Three Quarters Ended
($000s) June 6,
2018 June 7,
2017 Increase/
(Decrease)
(40 weeks) (40 weeks) (40 weeks vs 40 weeks)
Franchise revenue $ 4,732
$ 5,167
$ (435 ) (8.4 )%
Cost of franchise operations 1,198
1,378
(180 ) (13.1 )%
Franchise profit $ 3,534
$ 3,789
$ (255 ) (6.7 )%
Franchise profit as a percentage of franchise revenue 74.7 % 73.3 % 1.4 %

~~Franchise~~development agreements; and (2) recognizing as revenue ~~decreased $0.4 million in the three quarters ended June 6, 2018 compared~~funds paid to ~~the three quarters ended June 7, 2017. The $0.4 million decrease includes an approximate $0.3 million decrease in non-royalty related fee income and an approximate $0.1 million decrease~~us as franchisor for pooled advertising expenditures; partially offset by (3) a decline in franchise royalties in the three quarters ended June 6, 2018 compared to the three quarters ended June 7, 2017. The decrease in non-royalty fee income reflects primarily franchise development fees of approximately $0.3 million that were realized in the quarter ended March 15, 2017 and a reduction in new franchise openings. The decrease in franchise royalties is due toon fewer franchise locations in ~~operation and same-store sales declines at franchise locations.~~

operation.

Cost of Franchise Operations

Cost of franchise operations includes the direct costs associated with supporting franchisees with opening new Fuddruckers franchised restaurants and the corporate overhead expenses associated with generating franchise revenue. These corporate expenses primarily include the salaries and benefits, travel and related expenses, and other expenses for employees whose primary job function involves supporting our franchise owners and the development of new franchise locations.

Cost of franchise operations decreased ~~$20~~$215 thousand in the quarter ended ~~June 6,~~December 19, 2018 compared to the quarter ended ~~June 7,~~December 20, 2017. Franchise segment profit, defined as ~~Franchise~~franchise revenue less ~~Cost~~cost of franchise operations, ~~decreased $13 thousand~~increased $0.6 million in the quarter ended ~~June 6,~~December 19, 2018 compared to the quarter ended ~~June 7,~~December 20, 2017 due primarily to the ~~lower~~(1) higher franchise ~~revenue. A franchisee~~fees earned; (2) recognition as revenue, funds paid to us as the franchisor for pooled advertising expenditures; and (3) a reduction in cost of franchise operations with a reduction in franchise sales and support headcount and travel expenses. Two franchise locations opened (one international location in Panama and one domestic location in Georgia) and four franchise locations closed ~~one location (in the Dominican Republic)~~(one in each of Florida, Pennsylvania, Wisconsin, and Texas) in the quarter ended ~~June 6,~~December 19, 2018.

Cost of franchise operations decreased $180 thousand, or 13.1%, in the three quarters ended June 6, 2018 compared to the three quarters ended June 7, 2017. Franchise profit, defined as Franchise revenue less Cost of franchise operations, decreased approximately $0.3 million in the three quarters ended June 6, 2018 compared to the three quarters ended June 7, 2017 due primarily to a $435 thousand decrease in franchise revenue discussed above, partially offset by $180 thousand reduction in franchise costs as a result of lower franchise support headcount and reduced travel costs. Franchisees opened four locations and closed eight locations in the three quarters ended June 6, 2018.

Culinary Contract Services

Culinary Contract Services is a business line servicing healthcare, sport stadiums, corporate dining clients, and sales through retail grocery stores. The healthcare accounts are full service and typically include in-room delivery, catering, vending, coffee service, and retail dining. Culinary Contract Services has contracts with long-term acute care hospitals, acute care medical centers, ambulatory surgical centers, behavioral hospitals, a sports stadium, and business and industry clients. Culinary Contract Services has the unique ability to deliver quality services that include facility design and procurement as well as nutrition and branded food services to our clients. We operated 2530 Culinary Contract Services locations at the end of the quarter ended ~~June 6,~~December 19, 2018 and 2522 at the end of the quarter ended ~~June 7,~~December 20, 2017. We focus on clients who are able to enter into agreements in which all operating costs are reimbursed to us and we generally charge a fixed fee. These agreements typically present lower financial risk to the company.


	Quarter Ended			Quarter Ended							Quarter Ended			Quarter Ended
($000s)	June 6, 2018			June 7, 2017			Increase/ (Decrease)				December 19, 2018			December 20, 2017			Increase/ (Decrease)
	(12 weeks)			(12 weeks)			(12 weeks vs 12 weeks)				(16 weeks)			(16 weeks)			(16 weeks vs 16 weeks)
Culinary contract services sales	$	6,639		$	4,515		$	2,124	47.0	%	$	9,496		$	6,884		$	2,612	37.9	%
Cost of culinary contract services	6,104			4,194			1,910		45.5	%	8,815			6,332			2,483		39.2	%
Culinary contract profit	$	535		$	321		$	214	66.7	%	$	681		$	552		$	129	23.4	%
Culinary contract services profit as a percentage of Culinary contract services sales	8.1		%	7.1		%			1.0	%	7.2		%	8.0		%			(0.8	)%

Culinary contract services sales increased approximately ~~$2.1~~$2.6 million, or ~~47.0%~~37.9%, in the quarter ended ~~June 6,~~December 19, 2018 compared to the quarter ended ~~June 7,~~December 20, 2017. The increase in ~~Culinary~~culinary contract services revenue was primarily the result of a change in the mix of our ~~Culinary~~culinary agreements with clients. New locations contributed approximately ~~$2.6~~$2.5 million in revenue ~~which was partially offset by a $0.4 million decease in revenue from locations that ceased operations~~ and ~~an approximate $0.1 million decease in revenue at~~ locations continually operated over the prior full ~~year.~~year increased revenue approximately $0.4 million. These increases were partially offset by a $0.3 million decrease in revenue from locations that ceased operations.

Cost of culinary contract services includes the food, payroll and related costs, other direct operating expenses, and corporate overhead expenses associated with generating Culinary Contract Services sales. Cost of culinary contract services increased approximately ~~$1.9~~$2.5 million, or ~~45.5%~~39.2%, in the quarter ended ~~June 6,~~December 19, 2018 compared to the quarter ended ~~June 7,~~December 20, 2017. Culinary contract services segment profit, defined as Culinary contract services sales less Cost of culinary contract services, ~~increased~~decreased to ~~8.1%~~7.2% in the quarter ended ~~June 6,~~December 19, 2018 from ~~7.1%~~8.0% in the quarter ended ~~June 7,~~December 20, 2017 due to the change in the mix of our culinary agreements with clients.

Three Quarters Ended Three Quarters Ended
($000s) June 6,
2018 June 7,
2017 Increase/
(Decrease)
(40 weeks) (40 weeks) (40 weeks vs 40 weeks)
Culinary contract services sales $ 19,413
$ 12,117
$ 7,296
60.2 %
Cost of culinary contract services 18,113
10,966
7,147
65.2 %
Culinary contract profit $ 1,300
$ 1,151
$ 149
12.9 %
Culinary contract services profit as a percentage of Culinary contract services sales 6.7 % 9.5 % (2.8 )%

Culinary contract services sales increased approximately $7.3 million, or 60.2%, in the three quarters ended June 6, 2018 compared to the three quarters ended June 7, 2017. The increase in Culinary contract services revenue was primarily the result of a change in the mix of our culinary agreements with clients and the addition of retail sales of our Luby's Fried Fish and Luby's Macaroni and Cheese in the frozen section of retail grocery stores, partially offset certain locations ceasing operations.

Cost of culinary contract services includes the food, payroll and related costs, other direct operating expenses, and corporate overhead expenses associated with generating Culinary contract services sales. Cost of culinary contract services increased approximately $7.1 million, or 65.2%, in the three quarters ended June 6, 2018 compared to the three quarters ended June 7, 2017, consistent with an increase in Culinary contract services sales. Culinary contract services profit margin, defined as Culinary contract services sales less Cost of culinary contract services, decreased to 6.7% in the three quarters ended June 6, 2018 from 9.5% in the three quarters ended June 7, 2017.

Company-wide Expenses

Opening Costs

Opening costs include labor, supplies, occupancy, and other costs necessary to support the restaurant through its opening period. Opening costs were ~~approximately $0.1 million~~$33 thousand in the quarter ended ~~June 6,~~December 19, 2018 compared to ~~approximately $0.1 million~~$75 thousand in the quarter ended ~~June 7,~~December 20, 2017. The ~~approximate $0.1 million~~$33 thousand in opening costs for the quarter ended ~~June 6,~~December 19, 2018 ~~included the re-opening costs associated with~~related to one ~~Fuddruckers~~ location that ~~was damaged during Hurricane Harvey and subsequently restored and re-opened~~we lease for ~~business just prior to~~a potential future Fuddruckers opening. The $75 thousand in opening costs in the quarter ended ~~June 6, 2018 as well as~~December 20, 2017 reflects 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. The approximate $0.1 million in opening costs in the quarter ended June 7, 2017 reflects costs associated with the opening of one new Fuddruckers restaurant and the carrying costs for one location where we previously operated a Cheeseburger in Paradise restaurant.

Opening costs were approximately $0.5 million in the three quarters ended June 6, 2018 compared to approximately $0.4 million in the three quarters ended June 7, 2017. The approximate $0.5 million in opening costs in the three quarters ended June 6, 2018 included the re-opening costs associated with one Fuddruckers location that was damaged during Hurricane Harvey and subsequently restored and re-opened for business just prior to the quarter ended June 6, 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. The approximate $0.4 million in opening costs in the three quarters ended June 7, 2017 included the carrying costs for two locations where we previously operated as Cheeseburger in Paradise restaurants and the opening costs for one Fuddruckers that opened in the quarter ended June 7, 2017

Depreciation and Amortization Expense


	Quarter Ended			Quarter Ended								Quarter Ended			Quarter Ended
($000s)	June 6, 2018			June 7, 2017			Increase/ (Decrease)					December 19, 2018			December 20, 2017			Increase/ (Decrease)
	(12 weeks)			(12 weeks)			(12 weeks vs 12 weeks)					(16 weeks)			(16 weeks)			(16 weeks vs 16 weeks)
Depreciation and amortization	$	4,050		$	4,639		$	(589	)	(12.7	)%	$	4,903		$	5,353		$	(450	)	(8.4	)%
As a percentage of total sales	4.7		%	5.2		%				(0.5	)%	4.8		%	4.7		%				0.1	%

Depreciation and amortization expense decreased by approximately ~~$0.6~~$0.5 million, or ~~12.7%~~8.4%, in the quarter ended ~~June 6,~~December 19, 2018 compared to the quarter ended ~~June 7,~~December 20, 2017 due primarily to ~~reduced capital investment,~~ certain assets reaching the end of their depreciable lives and the removal of certain assets upon sale. As a percentage of total revenue, depreciation and amortization expense ~~decreased~~increased to 4.8% in the quarter ended December 19, 2018, compared to 4.7% in the quarter ended ~~June 6, 2018, compared to 5.2% in the quarter ended June 7,~~December 20, 2017.

Three Quarters Ended Three Quarters Ended
($000s) June 6,
2018 June 7,
2017 Increase/
(Decrease)
(40 weeks) (40 weeks) (40 weeks vs 40 weeks)
Depreciation and amortization $ 13,402
$ 15,977
$ (2,575 ) (16.1 )%
As a percentage of total sales 4.8 % 5.5 % (0.7 )%

Depreciation and amortization expense decreased by approximately $2.6 million, or 16.1%, in the three quarters ended June 6, 2018 compared to the three quarters ended June 7, 2017 due primarily to reduced capital investment and certain assets reaching the end of their depreciable lives.

Selling, General and Administrative Expenses


	Quarter Ended			Quarter Ended								Quarter Ended			Quarter Ended
($000s)	June 6, 2018			June 7, 2017			Increase/ (Decrease)					December 19, 2018			December 20, 2017			Increase/ (Decrease)
	(12 weeks)			(12 weeks)			(12 weeks vs 12 weeks)					(16 weeks)			(16 weeks)			(16 weeks vs 16 weeks)
General and administrative expenses	$	7,779		$	5,946		$	1,833		30.8	%	$	10,299		$	10,093		$	206		2.0	%
Marketing and advertising expenses	728			818			(90		)	(11.0	)%	925			1,432			(507		)	(35.4	)%
Selling, general and administrative expenses	$	8,507		$	6,764		$	1,743		25.8	%	$	11,224		$	11,525		$	(301	)	(2.6	)%
As a percentage of total sales	9.9		%	7.6		%				2.3	%	10.9		%	10.2		%				0.7	%

Selling, general and administrative expenses include corporate salaries and benefits-related costs, including restaurant area leaders, share-based compensation, marketing and advertising expenses, professional fees, travel and recruiting expenses and other office expenses. Selling, general and administrative expenses ~~increased~~decreased approximately ~~$1.7~~$0.3 million, or ~~25.8%~~2.6%, in the quarter ended ~~June 6,~~December 19, 2018 compared to the quarter ended ~~June 7,~~December 20, 2017. The ~~increase~~decrease in Selling, general and administrative expenses reflects (1) a $0.5 million decrease in salary and benefits expenses, net of severance expenses associated with reductions in corporate staffing positions; (2) a $0.5 million decrease in marketing expenses as expenditures transition to lower cost digital media strategies as well as comparison to ~~the quarter ended June 6, 2018~~prior year when sports team sponsorships comprised a ~~non-cash reduction~~greater portion of ~~approximately $1.2 million to the estimated fair value of performance awards under an incentive compensation plan was recorded and (2) an approximate $0.5~~our marketing expenditures; partially offset by (3) a $0.7 million increase in outside professional ~~service fees which includes increased information technology consulting to supplement our in-house information technology staff.~~services, inclusive of various additional advisory and consultant fees. As a percentage of total revenue, Selling, general and administrative expenses increased to ~~9.9%~~10.9% in the quarter ended ~~June 6, 2018, compared to 7.6% in the quarter ended June 7, 2017.~~

Three Quarters Ended Three Quarters Ended
($000s) June 6,
2018 June 7,
2017 Increase/
(Decrease)
(40 weeks) (40 weeks) (40 weeks vs 40 weeks)
General and administrative expenses $ 26,328
$ 24,896
$ 1,432
5.8 %
Marketing and advertising expenses 2,891
4,635
(1,744 ) (37.6 )%
Selling, general and administrative expenses $ 29,219
$ 29,531
$ (312 ) (1.1 )%
As a percentage of total sales 10.4 % 10.2 % 0.2 %

Selling, general and administrative expenses decreased approximately $0.3 million, or 1.1%, in the three quarters ended June 6, 2018 compared to the three quarters ended June 7, 2017. The decrease in selling, general and administrative expenses includes (1) an approximate $1.7 million decrease 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, as well as changes in the timing of marketing spend through the fiscal year partially offset by an approximate $1.4 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. Reductions in corporate travel expense, corporate occupancy costs and other corporate overhead expenses were offset by an increase related to changes in the fair value of performance awards under an incentive compensation plan. Selling, general and administrative expenses as a percentage of total revenue increased to 10.4% in the three quarters ended June 6,December 19, 2018, compared to 10.2% in the ~~three quarters~~quarter ended ~~June 7, 2017.~~December 20, 2017 due in large part to the reduction in sales from operating fewer restaurants.

Provision for Asset Impairments and Restaurant Closings

The approximate ~~$4.5~~$1.2 million ~~provision for asset impairments and restaurant closings~~impairment charge for the quarter ended ~~June 6,~~December 19, 2018 ~~was~~is primarily related to assets at ~~three~~six property locations, ~~goodwill at one location, eight~~and six properties held for sale written down to their fair value. The approximate $0.8 million impairment charge for the quarter ended December 20, 2017 was the result of an impairment charge for five property locations (two of which were included in property held for sale) each written down to its fair value ~~and~~as well as net lease termination costs of approximately $0.1 million, ~~at five property locations. The approximate~~ ~~$0.9 million impairment charge for~~in the quarter ended June 7, 2017 was the result of an impairment charge of approximately $0.3 million at one location, three properties held for sale written down by $0.3 million to their fair value, and net lease termination costs of approximately $0.3 million at four properties.

The approximate $6.7 million impairment charge for the three quarters ended June 6, 2018 is primarily related to assets at ten property locations, goodwill at three locations, ten properties held for sale written down to their fair value, and approximately $0.7 million in net lease termination costs at five property locations. The approximate $7.1 million impairment charge for the three quarters ended June 7, 2017 is primarily related to assets at 14 locations, goodwill at six locations, five properties held for sale written down to their fair value, and approximately $0.4 million in lease termination costsaggregate, at four property locations.

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

Loss on disposition of property and equipment was approximately ~~$0.2~~$0.1 million in the quarter ended ~~June 6,~~December 19, 2018 and primarily reflects ~~a write-off at one location partially offset by the net gain on the sale of one property.~~routine asset retirement activity. The ~~gain~~loss on disposition of property and equipment was approximately $0.2 million in the quarter ended ~~June 7,~~December 20, 2017 and primarily reflects ~~the gain on the sale of one property that we had previously operated as a Luby's cafeteria.~~

The approximate $0.2 million net loss in the three quarters ended June 6, 2018 is primarily related to asset retirements at six property location closures partially offset by net gains on the sale of three property locations of approximately $0.2 million. The approximate $0.2 million net loss for the three quarters ended June 7, 2017 is primarily related to routine asset ~~retirements partially offset by the gain on the sale of one property of approximately $0.4 million.~~retirement activity.

Interest Income

Interest income was $1zero in the quarter ended December 19, 2018 and $6 thousand in the quarter ended ~~June 6, 2018 and $3 thousand in the quarter ended June 7,~~December 20, 2017. ~~Interest income was $12 thousand in the three quarters ended June 6, 2018 and $5 thousand in the three quarters ended June 7, 2017.~~

Interest Expense

Interest expense was approximately ~~$1.0~~$1.7 million in the quarter ended ~~June 6,~~December 19, 2018 and $0.6 million in the quarter ended ~~June 7,~~December 20, 2017. The increase reflects higher average debt balances, higher interest rates inherent in ~~our~~the amended credit agreement in place through December 13, 2018, and acceleration of the expensing of deferred financing fees ~~related to shortening the maturity in~~as a result of refinancing our ~~amended credit agreement.~~

Interest expense increased $0.3 million to approximately $2.2 million in the three quarters ended June 6, 2018 compared to the three quarters ended June 7, 2017. The increase in interest expense reflects higher average debt balances, higher 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.on December 13, 2018.

Other Income, Net

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

Other income, net, was $9$30 thousand of income in the quarter ended ~~June 6,~~December 19, 2018 compared to approximately ~~$0.2~~$0.1 million of ~~expense~~income in the quarter ended ~~June 7,~~December 20, 2017. ~~Increase~~Higher net rental income was partially offset by changes in the fair value of our interest rate swap and ~~higher net rental income was partially offset by~~ lower prepaid sales tax ~~discounts and comparison to reduction in our~~discounts. In addition gift card ~~liability~~expenses (specifically the expense of discounting gift card sales) is recorded as a reduction to restaurant sales in the quarter ended ~~June 7, 2017.~~

~~Other~~December 19, 2018 compared to recorded in other income ~~net,~~ in the ~~three quarters~~quarter ended ~~June 6, 2018 was approximately $0.3 million~~December 20, 2017 as a result of income compared to approximately $0.3 million of expense in the three quarters ended June 7, 2017. Increase in the fair value of our interest rate swap and higher net rental income was partially offset by greater gift card related expense and comparison to reduction in our gift card liability.new revenue accounting.

Taxes

For the quarter ended ~~June 6,~~December 19, 2018, the income taxes related to continuing operations resulted in a tax provision of approximately ~~$4.1~~$0.1 million compared to a tax ~~provision~~benefit of approximately ~~$0.4 million~~$9 thousand for the quarter ended ~~June 7, 2017. The Tax Cuts and Jobs Act of 2017 (the "Tax Act") was enacted on~~ December 22, 2017 with an effective date of January 1, 2018. The enactment date occurred prior to the end of the second quarter of fiscal 2018 and therefore the federal statutory rate changes stipulated by the Tax Act were reflected in the second quarter of fiscal 2018. The Tax Act lowered the federal statutory rate from 35.0% to 21.0% effective January 1, 2018. This resulted in a one-time non-cash reduction of approximately $3.2 million to our net deferred tax asset with a corresponding increase to the provision for income taxes in the fiscal quarter ended March 14, 2018. For the three quarters ended June 6, 2018, the income taxes related to continuing operations resulted in a tax provision of approximately $7.5 million compared to a tax provision of approximately $2.6 million for the three quarters ended June 7,20, 2017.

The effective tax rate ("ETR") for continuing operations was a negative ~~41.2%~~1.6% for the quarter ended ~~June 6,~~December 19, 2018 and ~~790.6%~~a positive 0.2% for the quarter ended ~~June 6, 2018.~~December 20, 2017. The ETR for the quarter ended ~~June 6,~~December 19, 2018 differs from the federal statutory rate of ~~25.0%~~21.0% due to management's valuation allowance conclusions, anticipated federal jobs credits, state income taxes, and other discrete items.

Discontinued Operations

Discontinued operations resulted in a loss of ~~$0.5 million~~$6 thousand in the quarter ended ~~June 6,~~December 19, 2018 compared to a loss of ~~$19~~$35 thousand in the quarter ended ~~June 7,~~December 20, 2017. The loss from discontinued operations of ~~$0.5 million~~$6 thousand in the quarter ended ~~June 6,~~December 19, 2018 was related to ~~(1) $6 thousand in~~ carrying costs associated with ~~assets related to discontinued operations; (2) a $59 thousand impairment charge for assets related to discontinued operations; and (3) and income tax provision of approximately $0.4 million for~~ assets related to discontinued operations. Loss from discontinued operations of ~~$19~~$35 thousand in the quarter ended ~~June 7,~~December 20, 2017 consisted of (1) $9$2 thousand in carrying costs associated with assets related to discontinued operations and (2) an income tax provision of ~~$10~~$33 thousand ~~for assets related to discontinued operations.~~

Discontinued operations resulted in a loss of approximately $0.6 million in the three quarters ended June 6, 2018 compared to a loss of approximately $0.4 million in the three quarters ended June 7, 2017. The loss from discontinued operations of approximately $0.6 million in the three quarters ended June 6, 2018 was related to (1) $14 thousand in carrying costs associated with assets related to discontinued operations (2) a $59 thousand impairment charge for assets related to discontinued operations; and (3) an approximate $0.5 million income tax provision for assets related to discontinued operations. Loss from discontinued operations of approximately $0.4 million in the three quarters ended June 7, 2017 consisted of (1) $20 thousand in carrying costs associated with assets related to discontinued operations and (2) an income tax provision of approximately $0.4 million for assets related to discontinued operations.

LIQUIDITY AND CAPITAL RESOURCES

Cash and Cash Equivalents

General. Our primary sources of short-term and long-term liquidity are cash flows from operations ~~our Revolver (as defined below),~~ and our ~~Term Loan~~2018 Credit Facility (as defined below). During the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018, cash provided by financing activities of approximately ~~$12.9~~$15.7 million and cash provided by operating activities of approximately $1.3 million was offset by cash used in ~~operating activities of approximately $4.9 million and cash used in~~ investing activities of approximately ~~$7.6~~$0.9 million. Cash and cash equivalents and restricted cash increased approximately ~~$0.4~~$16.0 million in the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018 compared to a ~~$13 thousand~~$0.3 million decrease in the ~~three quarters~~quarter ended ~~June 7,~~December 20, 2017. We plan to continue the level of capital and repair and maintenance expenditures necessary to keep our restaurants attractive and operating efficiently.

Our cash requirements consist principally of:

capital expenditures for recurring maintenance of our restaurant property and equipment, restaurant renovations and upgrades, new construction, information technology and culinary contract services development; and

payments to reduce our debt; and

working capital primarily for our Company-owned restaurants and obligations under our Culinary Contract Services agreements.

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

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

Three Quarters Ended
June 6,
2018 June 7,
2017
(40 weeks) (40 weeks)
(In thousands)
Total cash provided by (used in):
Operating activities $ (4,878 ) $ 3,676
Investing activities (7,611 ) (6,474 )
Financing activities 12,902
2,785
Net increase (decrease) in cash and cash equivalents $ 413
$ (13 )



	Quarter Ended
	December��19, 2018			December 20, 2017
	(16 weeks)			(16 weeks)
	(In thousands)
Total cash provided by (used in):
Operating activities	$	1,257		$	3,482
Investing activities	(948		)	(3,796		)
Financing activities	15,737			30
Net increase (decrease) in cash and cash equivalents and restricted cash	$	16,046		$	(284	)

Operating Activities. Cash ~~used in~~provided by operating activities was approximately ~~$4.9~~$1.3 million in the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018, an approximate ~~$8.6~~$2.2 million decrease from the ~~three quarters~~quarter ended ~~June 7,~~December 20, 2017. The approximate ~~$8.6~~$2.2 million decrease in cash provided by operating activities is due to an approximate ~~$10.1~~$2.1 million decrease in cash provided by operations before changes in operating assets and liabilities ~~partially offset by~~and an approximate ~~$1.6~~$0.1 million decrease in cash ~~used~~provided by changes in operating assets and liabilities for the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018.

Cash used in operating activities before changes in operating assets and liabilities was approximately ~~$1.5~~$0.3 million in the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018, an approximate ~~$10.1~~$2.1 million decrease compared to a source of cash in the ~~three quarters~~quarter ended ~~June 7,~~December 20, 2017. The ~~$10.1~~$2.1 million decrease in cash provided by operating activities before changes in operating assets and liabilities was primarily due to decreased store-level profit from our Company-owned restaurants.

Changes in operating assets and liabilities was an approximate ~~$3.3~~$1.6 million ~~use~~source of cash in the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018 and an approximate ~~$4.9~~$1.7 million ~~use~~source of cash in the ~~three quarters~~quarter ended ~~June 7,~~December 20, 2017. The approximate ~~$1.6~~$0.1 million decrease in the ~~use~~source of cash was due to differences in the change in asset and liability balances between the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018 and the ~~three quarters~~quarter ended ~~June 7,~~December 20, 2017.

Increases in current asset accounts are a use of cash while decreases in current asset accounts are a source of cash. During the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018, the change in trade accounts and other receivables, net, was an approximate ~~$0.3~~$0.7 million source of cash which was an approximate $1.0 million increase from the use of cash in the quarter ended December 20, 2017. The change in food and supplies inventory during the quarter ended December 19, 2018 was an approximate $0.1 million use of cash which was an approximate $0.2 million decrease from the use of cash in the ~~three quarters~~quarter ended June 7, 2017. The change in insurance receivables was an approximate $0.4 million source of cash which was an approximate $0.4 million increase from the three quarters ended June 7, 2017. The change in food and supplies inventory during the three quarters ended June 6, 2018 was an approximate $0.4 million use of cash which was an approximate $0.4 million decrease from the source of cash in the three quarters ended June 7,December 20, 2017. The change in prepaid expenses and other assets was an approximate ~~$0.6~~$1.9 million source of cash during the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018, compared to a ~~$5 thousand use~~$0.4 million source of cash in the ~~three quarters~~quarter ended ~~June 7, 2017. The change in insurance proceeds was an approximate $0.3 million source of cash which was an approximate $0.3 million increase from the three quarters ended June 7,~~December 20, 2017.

Increase in current liability accounts are a source of cash, while decreases in current liability accounts are a use of cash. During the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018, changes in the balances of accounts payable, accrued expenses and other liabilities was an approximate ~~$3.9~~$0.9 million use of cash, compared to a ~~use~~source of cash of approximately ~~$4.5~~$1.9 million during the ~~three quarters~~quarter ended ~~June 7,~~December 20, 2017.

Investing Activities. We generally reinvest available cash flows from operations to develop new restaurants, maintain and enhance existing restaurants and support Culinary Contract Services. Cash used in investing activities was approximately ~~$7.6~~$0.9 million in the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018 and approximately ~~$6.5~~$3.8 million in the ~~three quarters~~quarter ended ~~June 7,~~December 20, 2017. Capital expenditures were approximately ~~$11.7~~$1.1 million in the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018 and approximately ~~$10.1~~$4.3 million in the ~~three quarters~~quarter ended ~~June 7,~~December 20, 2017. Proceeds from the disposal of assets were approximately ~~$3.4~~$0.2 million in the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018 and approximately ~~$3.6~~$0.2 million in the ~~three quarters~~quarter ended ~~June 7,~~December 20, 2017. Insurance proceeds received as a result of claims made from property damage caused by Hurricane Harvey were approximately ~~$0.8~~$0.3 million in the ~~three quarters~~quarter ended ~~June 6, 2018.~~December 20, 2017.

Financing Activities. Cash provided by financing activities was approximately ~~$12.9~~$15.7 million in the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018 compared to an approximate ~~$2.8 million~~$30 thousand source of cash during the ~~three quarters~~quarter ended ~~June 7,~~December 20, 2017. Cash flows from financing activities was primarily the result of ~~borrowings and repayments related to the 2016~~our 2018 Credit ~~Facility, as amended; our Revolver and our Term Loan.~~Agreement. During the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018, net cash provided by our 2018 Term Loan was $58.4 million, cash used in Revolver borrowings was approximately ~~$14.6~~$20.0 million, our Term Loan ~~pre-payment~~re-payment was approximately ~~$1.4~~$19.5 million, cash used for debt issuance costs was approximately ~~$0.2~~$3.2 million, and cash used for equity shares withheld to cover taxes was $8 thousand. During the quarter ended December 20, 2017, borrowings on our Revolver exceeded repayments by approximately $0.1 million and cash used for equity shares withheld to cover taxes was approximately $0.1 million. During the three quarters ended June 7, 2017, borrowings on our Term Loan and Revolver exceeded repayments of the 2013 Credit Facility and Revolver by approximately $3.4 million and cash used for debt issuance costs was approximately $0.7 million.$70 thousand.

Status of Long-Term Investments and Liquidity

At ~~June 6,~~December 19, 2018, we did not hold any long-term investments.

Status of Trade Accounts and Other Receivables, Net

We monitor the aging of our receivables, including Fuddruckers franchising related receivables, and record provisions for uncollectable accounts, as appropriate. Credit terms of accounts receivable associated with our CCS business vary from 30 to 45 days based on contract terms.

Working Capital

Current assets increased approximately ~~$0.6~~$13.8 million in the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018 compared to an increase of approximately ~~$0.8~~$0.5 million in the ~~three quarters~~quarter ended ~~June 7,~~December 20, 2017. In the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018, ~~food and supplies inventory~~restricted cash (See Note 16) increased approximately ~~$0.4~~$11.1 million, cash and cash equivalents increased approximately ~~$0.4~~$4.9 million, food and supplies inventory increased approximately $0.1 million; partially offset by decreases in prepaid expenses of approximately $1.6 million and trade accounts and other receivables, net, of approximately $0.7 million. In the quarter ended December 20, 2017, trade accounts and other receivables, net, increased approximately $1.2 million, food and supplies inventory increased approximately $0.3 million; partially offset by decreases in ~~insurance receivables~~prepaid expenses of approximately $0.4 million and ~~prepaid expenses~~insurance receivables of approximately ~~$0.1 million. In the three quarters ended June 7, 2017, prepaid expenses increased approximately $0.8~~$0.3 million ~~trade accounts~~ and ~~other receivables, net increased approximately $0.5 million; partially offset by a decrease in deferred income taxes~~cash and cash equivalents of approximately ~~$0.4 million and food and supplies inventory of approximately $0.1~~$0.3 million.

Current liabilities ~~increased~~decreased approximately ~~$44.0~~$32.5 million in the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018 compared to ~~a decrease~~an increase of approximately ~~$1.1~~$2.9 million in the ~~three quarters~~quarter ended ~~June 7,~~December 20, 2017. In the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018, current portion credit facility debt ~~increased~~decreased approximately ~~$44.0~~$29.3 million, ~~(which is a reclassification of Credit facility debt from long-term to short-term due to the maturity of the loans on May 1, 2019),~~unredeemed gift cards decreased approximately $2.3 million, accounts payable decreased approximately $2.2 million, accrued salaries and incentives decreased approximately $1.3 million, accrued claims and insurance decreased approximately $0.6 million, income taxes legal and other decreased approximately $0.1 million, and accrued operating expenses decreased approximately $0.1 million; partially offset by accrued taxes other than income taxes increased approximately ~~$0.7~~$3.4 million ~~accounts payable~~(primarily due to the timing of states sales tax payments). In the quarter ended December 20, 2017, unredeemed gift cards increased approximately $1.7 million, accrued taxes other than income taxes increased approximately $1.0 million, current portion of credit facility debt increased approximately $0.3 million, salaries and incentives increased approximately ~~$0.3~~$0.2 million, and ~~unredeemed gift cards~~accrued professional fees and accrued claims combined increased approximately ~~$0.1~~$0.2 million; partially offset by decreases in ~~accrued taxes other than income taxes of approximately $0.8 million,~~ deferred income taxes of approximately ~~$0.4~~$0.3 million, ~~income taxes legal and other~~accounts payable of approximately ~~$0.2~~$0.1 million, and accrued operating expenses of approximately $0.1 million. We plan to refinance our credit facility debt within the next nine months, reduce the principal amount outstanding, and extend the maturity date beyond one year. In the three quarters ended June 7, 2017, salaries and incentives increased approximately $1.1 million, unredeemed gift cards increased approximately $0.7 million, current portion of credit facility debt increased approximately $0.6 million, accrued expenses increased approximately $0.3 million; partially offset by decreases in accounts payable of approximately $2.8 million, accrued taxes other than income taxes decreased approximately $1.0 million.

Capital Expenditures

Capital expenditures consist of purchases of real estate for future restaurant sites, Culinary Contract Services investments, new unit construction, purchases of new and replacement restaurant furniture and equipment, and ongoing remodeling programs. Capital expenditures for the ~~three quarters~~quarter ended ~~June 6,~~December 19, 2018 were approximately ~~$11.7~~$1.1 million and related to recurring maintenance of our existing units, existing restaurant remodels and rollout of new point of sale and network equipment, improvement of our culinary contract services business and the development of future restaurant sites. We expect to be able to fund all capital expenditures in fiscal ~~2018~~2019 using proceeds from the sale of assets, cash flows from operations and our ~~2016~~2018 Credit Agreement. We expect to spend less than ~~$14.0~~$8.0 million on capital expenditures in fiscal ~~2018.~~2019.

DEBT

The following table summarizes credit facility debt, less current portion at ~~June 6,~~December 19, 2018 and August ~~30, 2017:~~29, 2018:



	June 6, 2018			August 30, 2017			December 19, 2018			August 29, 2018
Short Term Debt	(In thousands)
2016 Credit Agreement - Revolver	$	19,000		$	—
2016 Credit Agreement - Term Loan	25,170			—
Total credit facility debt	44,170			—
Less unamortized debt issue costs	(142		)	—
Credit facility debt	$	44,028		$	—
Long Term Debt							(In thousands)
2016 Credit Agreement - Revolver	$	—		$	4,400		$	—		$	20,000
2016 Credit Agreement - Term Loan	—			26,585			—			19,506
2018 Credit Agreement - Term Loan							60,000			—
Total credit facility debt	—			30,985			60,000			39,506
Less unamortized debt issue costs	—			(287		)
Less:
Unamortized debt issue costs							(2,309		)	(168		)
Unamortized debt discount							(1,594		)	—
Total credit facility debt, less unamortized debt issuance costs	—			30,698			56,097			39,338
Current portion of credit facility debt	—			—			10,000			39,338
Total	$	—		$	30,698
Total Credit facility debt, less current portion							$	46,097		$	—

~~Consent and Waiver to 2016~~2018 Credit Agreement

On ~~July 12,~~December 13, 2018, we entered into a ~~Consent and Waiver (the "Waiver") to the~~ credit agreement (the ~~"Credit Agreement"~~“2018 Credit Agreement”) among the Company, the lenders from time to time party thereto, ~~Wells Fargo Bank, National Association ("Wells Fargo"~~and MSD PCOF Partners VI, LLC (“MSD”), as Administrative Agent, ~~Swingline Lender, Issuing Lender, Sole Lead Arranger and Sole Bookrunner, and Cadence Bank, N.A. and Texas Capital Bank, N.A., as Co-Syndication Agents. Pursuant~~pursuant to which the lenders party thereto agreed to make loans to the ~~Waiver,~~Company from time to time up to an aggregate principal amount of $80.0 million, consisting of a $10.0 million revolving credit facility (the “2018 Revolver”), a $10.0 million delayed draw term loan (“2018 Delayed Draw Term Loan”), and a $60.0 million term loan (the “2018 Term Loan”, and together with the 2018 Revolver and the 2018 Delayed Draw Term Loan, the “2018 Credit Facility”). The 2018 Credit Facility terminates on, and all amounts owing thereunder must be repaid on, December 13, 2023.

We pay a quarterly commitment fee based on the unused portion of the 2018 Revolver and the 2018 Delayed Draw Term Loan at 0.50% per annum. Voluntary prepayments, refinancing and asset dispositions constituting a sale of all or substantially all assets, under the 2018 Delayed Draw Term Loan and the 2018 Term Loan are subject to a make whole premium during years one and two, a 2.0% fee during year three, and a 1.0% fee during year four. Finally, the Company is obligated to pay to the lenders ~~agreed to~~ a ~~waiver~~one-time fee in connection with the closing of the 2018 Credit Facility.

Indebtedness under the 2018 Credit Facility is secured by a security interest in, among other things, all of our present and future personal property (other than certain ~~existing defaults with respect to~~excluded assets), all of the personal property of our guarantors (other than certain financial covenants. The waiver is effective as of May 9, 2018 until the earliest to occur of (i) August 10, 2018, (ii) our failure to perform, observe or comply with any covenant, agreement or term contained in the Waiver or (iii) the occurrence of any additional Default or Event of Defaultexcluded assets) and all Mortgaged Property (as defined in the 2018 Credit Agreement) ~~(the "Compliance Waiver Period").~~of ours and our subsidiaries.

~~Pursuant~~The 2018 Credit Facility contains customary covenants and restrictions on our ability to ~~the Waiver,~~engage in certain activities, including financial performance covenants, asset sales and acquisitions, and contains customary events of default. Specifically, among other things, we ~~have retained an independent financial advisor~~are required to pursue refinancing transactions, the proceeds which will be applied to, among other things, repay the amounts owed under the Credit Agreement. The Waiver further provides that during the Compliance Waiver Period, notwithstanding anything to the contrary in the Credit Agreement, the lenders may make available to the Company Revolving Credit Loans and Letters of Credit under the Credit Agreement, provided, that during the Compliance Waiver Period (i) the Applicable Margin for LIBOR Rate Loans shall be 5.50% and the Applicable Margin for Base Rate Loans shall be 4.50%, (ii) the Interest Period for any Base Rate Loans converted into LIBOR Rate Loans or for any LIBOR Rate Loans borrowed or continued as a LIBOR Rate Loan under the Revolving Credit Facility in each case during the Compliance Waiver Period shall not be longer than one (1) month and (iii) the Revolving Credit Outstandings shall at no time exceed $29.0 millionmaintain minimum Liquidity (as ~~those terms are~~ defined in the 2018 Credit Agreement).

~~Amendment~~ of $3.0 million as of the last day of each fiscal quarter and a minimum Asset Coverage Ratio (as defined in the 2018 Credit Agreement) of 2.50 to ~~2016 Credit Agreement~~

~~On April~~1.00. As of December 19, 2018, we amended our 2016 Credit Agreement (as defined below) effective as of March 14, 2018 (as amended, our "Credit Agreement"). The amendment accelerates the maturity date of the Credit Agreement to May 1, 2019, approximately 11 months after the balance sheet date, June 6, 2018. The amendment included the following changes:

~~Aggregate commitments under the senior secured revolving credit facility (“Revolver”) will be 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~~

~~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 our real estate properties identified by the Administrative Agent and loan to value ratio of 0.50 to 1.00 on collateral real estate.

~~As of July 16, 2018, we are in~~full compliance with all covenants with respect to the 2018 Credit Facility.

All amounts owing by us under the ~~terms~~2018 Credit Facility are guaranteed by us and all of ~~the Waiver and had $4.0 million of availability under~~ our ~~Revolver.~~subsidiaries.

As of ~~July 16,~~December 19, 2018, we had $60.0 million in total outstanding loans and approximately $1.3 million ~~in outstanding~~committed under letters of credit, which we use as security for the payment of insurance ~~obligations.~~

~~Management has identified~~obligations and are fully cash collateralized, and approximately 14 owned properties inclusive of assets currently classified as Assets related to discontinued operations and Property held for sale on our Balance Sheet, as of June 6, 2018, as part of a limited asset disposal plan to accelerate repayment of our outstanding term loans. The Board approved the limited asset sales plan on April 18, 2018. We estimate that such additional limited asset sales plan will be implemented over the course of the next 18 months. These asset disposal plans,$0.2 million in ~~conjunction with~~ other ~~operational changes, are designed to lower the outstanding debt and to improve our financial condition as we pursue a new credit facility.~~indebtedness.

As of ~~March 14, 2018,~~January 28, 2019, we ~~would not have been~~were in compliance with ~~the Lease Adjusted Leverage Ratio and Fixed Charge Coverage Ratio~~all covenants of our Credit Agreement prior to the Second Amendment thereto, which became effective on March 14, 2018. At any determination date, if the results of our covenants exceed the maximums or minimums permitted under our 2016 Credit Agreement, we would be considered in default under the terms of the ~~agreement which could cause a substantial financial burden by requiring us to repay our 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 our financial ratios to exceed the permitted limits under the terms of the~~ Credit Agreement.

~~Senior Secured~~

2016 Credit Agreement

On November 8, 2016, we entered into a $65.0 million Senior Secured Credit Facility with Wells Fargo Bank, National Association, as Administrative Agent and Cadence Bank, NA and Texas Capital Bank, NA, as lenders (“2016 Credit Agreement”). The 2016 Credit Agreement, ~~as amended,~~prior to the amendments discussed below, was comprised of a $30.0 million 5-year Revolver (the “Revolver”) and a $35.0 million 5-year Term Loan (the “Term Loan”)., and it also included sub-facilities for swingline loans and letters of credits. The original maturity date of the 2016 Credit Agreement was November 8, 2021. ~~For this section of this Form 10-Q, capitalized terms that are used but not otherwise defined shall have~~

Borrowings under the ~~meanings given to such terms in the 2016 Credit Agreement.~~

~~Until April 19, 2018, we have the option to elect one of two bases of interest rates. One interest rate option is the highest~~greater of (a) the ~~Prime Rate,~~federal funds effective rate plus one-half of 1% (the “Base Rate”), (b) ~~the Federal Funds Rate plus 0.50%~~prime and (c) ~~30-day~~ LIBOR ~~plus 1%,~~for an interest period of 1 month, plus, in ~~each~~any case, ~~the Applicable Margin, which ranged~~an applicable spread that ranges from 1.50% to 2.50% per ~~annum. The other interest rate option is~~annum the ~~LIBOR~~(“Applicable Margin”), or (2) the London InterBank Offered Rate (“LIBOR”), as adjusted for any Eurodollar reserve requirements, plus ~~the Applicable Margin, which ranged~~an applicable spread that ranges from 2.50% to 3.50% per annum. Borrowings under the swingline loan bore interest at the Base Rate plus the Applicable Margin. The ~~Applicable Margin~~applicable spread under each option iswas dependent upon ~~our CTLAL~~certain measures of the Company’s financial performance at the ~~most recent~~time of election. Interest was payable quarterly, ~~determination date.~~

~~The Term Loan amortized 7.0% per year (35.0%~~or in 5 years) which includes the quarterly payment of principal. As of March 14, 2018, we have prepaid the required principal payments through March 30, 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.

more frequent intervals if LIBOR applies.

We ~~are~~were obligated to pay to the Administrative Agent for the account of each lender a quarterly commitment fee based on the average daily unused amount of the commitment of such lender, ranged from 0.30% to 0.35% per annum depending onupon the ~~CTLAL at the most recent quarterly determination date.~~Company's financial performance.

The proceeds of the 2016 Credit Agreement were available for us to (i) pay in full all indebtedness outstanding under the 2013 Credit Agreement as of November 8, 2016, (ii) pay fees, commissions, and expenses in connection with our repayment of the 2013 Credit Agreement, initial extensions of credit under the 2016 Credit Agreement, and (iii) for our working capital and general corporate ~~purposes of the Company.~~purposes.