UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
__________________________
FORM 10-Q
__________________________
xQUARTERLY 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
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period From to  
Commission file number: 001-08308 
__________________________
Luby's, Inc.
(Exact name of registrant as specified in its charter)
__________________________
Delaware74-1335253
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
    
13111 Northwest Freeway, Suite 600
Houston, Texas
77040
(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 filerx
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 29,503,64229,762,888 shares of the registrant’s common stock outstanding. 


Luby’s, Inc.
Form 10-Q
Quarter ended June 6,December 19, 2018
Table of Contents
 
 Page
  
  
  
    
    
    
  
  
  
  
  
  
  



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 equivalents11,103
 
Trade accounts and other receivables, net7,868
 8,011
8,054
 8,787
Food and supply inventories4,830
 4,453
4,144
 4,022
Prepaid expenses3,356
 3,431
1,580
 3,219
Total current assets17,563
 16,991
33,546
 19,750
Property held for sale22,042
 3,372
19,469
 19,469
Assets related to discontinued operations1,813
 2,755
1,813
 1,813
Property and equipment, net146,488
 172,814
133,587
 138,287
Intangible assets, net18,508
 19,640
17,660
 18,179
Goodwill555
 1,068
555
 555
Deferred income taxes
 7,254
Other assets1,982
 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 operations9
 367
21
 14
Credit facility debt44,028
 
Current portion of credit facility debt10,000
 39,338
Accrued expenses and other liabilities28,092
 28,076
30,732
 31,755
Total current liabilities88,359
 44,380
49,027
 81,564
Credit facility debt, less current portion
 30,698
46,097
 
Liabilities related to discontinued operations16
 16
16
 16
Other liabilities6,537
 7,311
5,694
 5,781
Total liabilities94,912
 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, respectively9,592
 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, respectively9,653
 9,602
Paid-in capital33,429
 31,850
34,260
 33,872
Retained earnings75,793
 107,497
68,919
 73,929
Less cost of treasury stock, 500,000 shares(4,775) (4,775)(4,775) (4,775)
Total shareholders’ equity114,039
 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 EndedQuarter 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 services6,639
 4,515
 19,413
 12,117
9,496
 6,884
Franchise revenue1,444
 1,477
 4,732
 5,167
2,224
 1,887
Vending revenue118
 133
 412
 417
99
 143
TOTAL SALES86,004
 88,719
 281,294
 289,442
102,918
 113,497
COSTS AND EXPENSES:          
Cost of food22,255
 22,922
 73,190
 76,353
25,083
 29,754
Payroll and related costs29,392
 29,519
 96,032
 97,486
34,513
 38,126
Other operating expenses15,023
 13,796
 48,881
 47,207
16,502
 19,499
Occupancy costs4,609
 4,923
 15,577
 16,720
5,875
 6,261
Opening costs85
 134
 490
 431
33
 75
Cost of culinary contract services6,104
 4,194
 18,113
 10,966
8,815
 6,332
Cost of franchise operations341
 361
 1,198
 1,378
273
 488
Depreciation and amortization4,050
 4,639
 13,402
 15,977
4,903
 5,353
Selling, general and administrative expenses8,507
 6,764
 29,219
 29,531
11,224
 11,525
Provision for asset impairments and restaurant closings4,464
 869
 6,716
 7,120
1,227
 845
Net loss (gain) on disposition of property and equipment154
 (195) 172
 219
Net loss on disposition of property and equipment149
 222
Total costs and expenses94,984
 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 income1
 3
 12
 5

 6
Interest expense(1,042) (569) (2,235) (1,898)(1,713) (649)
Other income (expense), net9
 (173) 317
 (312)
Income (loss) before income taxes and discontinued operations(10,012) 54
 (23,602) (16,151)
Provision for income taxes4,121
 431
 7,494
 2,576
Other income, net30
 115
Loss before income taxes and discontinued operations(7,362) (5,511)
Provision (benefit) for income taxes121
 (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:          
Basic30,005
 29,536
 29,863
 29,453
30,059
 29,691
Assuming dilution30,005
 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     TotalCommon Stock     Total
Issued Treasury Paid-In Retained Shareholders’Issued Treasury Paid-In Retained Shareholders’
Shares Amount Shares Amount Capital Earnings EquityShares Amount Shares Amount Capital Earnings Equity
Balance at August 30, 201729,624
 $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 expense81
 25
 
 
 1,666
 
 1,691
30
 10
 
 
 857
 
 867
Common stock issued under employee benefit plans183
 59
 
 
 (59) 
 
163
 52
 
 
 (52) 
 
Common stock issued under nonemployee benefit plans87
 28
 
 
 (28) 
 
Balance at June 6, 201829,975
 $9,592
 (500) $(4,775) $33,429
 $75,793
 $114,039
Balance at December 20, 201729,817
 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, 201830,003
 $9,602
 (500) $(4,775) $33,872
 $73,929
 $112,628
Net loss
 
 
 
 
 (7,489) (7,489)
Cumulative effect of accounting changes from the adoption of ASC Topic 606
 
 
 
 
 2,479
 2,479
Share-based compensation expense42
 13
 
 
 426
 
 439
Common stock issued under employee benefit plans81
 26
 
 
 (26) 
 
Common stock issued under nonemployee benefit plans38
 12
 
 
 (12) 
 
Balance at December 19, 201830,164
 $9,653
 (500) $(4,775) $34,260
 $68,919
 $108,057
 
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 EndedQuarter 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 sales6,599
 7,338
1,376
 1,067
Depreciation and amortization13,402
 15,977
4,903
 5,353
Amortization of debt issuance cost438
 316
449
 40
Share-based compensation expense1,691
 1,203
439
 867
Deferred tax provision8,026
 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 receivables407
 
Decrease (Increase) in food and supply inventories(376) 68
Decrease (Increase) in prepaid expenses and other assets575
 (5)
Insurance proceeds276
 
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 receivables733
 (307)
Increase in food and supply inventories(123) (290)
Decrease in prepaid expenses and other assets1,881
 441
Increase (decrease) in accounts payable, accrued expenses and other liabilities(912) 1,905
Net cash provided by operating activities1,257
 3,482
CASH FLOWS FROM INVESTING ACTIVITIES:      
Proceeds from disposal of assets and property held for sale3,363
 3,640
171
 185
Insurance proceeds756
 

 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 borrowings83,200
 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 activities12,902
 2,785
15,737
 30
Net increase (decrease) in cash and cash equivalents413
 (13)
Cash and cash equivalents at beginning of period1,096
 1,339
Cash and cash equivalents at end of period$1,509
 $1,326
Net increase (decrease) in cash and cash equivalents and restricted cash16,046
 (284)
Cash and cash equivalents and restricted cash at beginning of period3,722
 1,096
Cash and cash equivalents and restricted cash at end of period$19,768
 $812
Cash paid for:      
Income taxes$
 $
$29
 $
Interest1,717
 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, managementwe 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. Foraggregate, 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 twoOf the approximate $1.0 million aggregate error, approximately $0.1 million related to fiscal quarters ended March 14, 2018 current assets were overstated by2017 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 recordedrelated to the Company'sfirst 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 duplicatedcertain 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 amendmentscore 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 intendedan 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 continueentity expects to operate as a going concern, except in limited circumstances. The going concern basisbe 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 effectiveASC 606 using the modified retrospective method applied to contracts that were not completed at August 31, 201729, 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 disclosuresfor 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 Measurement2016-15, Statement of InventoryCash 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 costprovides clarification regarding how certain cash receipts and net realizable value. Net realizable value is defined as the estimated selling pricesdisbursements are presented and classified in the ordinary coursestatement of business, less reasonably predictable costscash 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 provisionsreducing 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 adoptionstandard 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 MarchNovember 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting2016-18, Statement of Cash Flows (Topic 718).230), Restricted Cash. This update was issued as part ofaddresses the FASB’s simplification initiativediversity in practice on how to classify and affects all entities that issue share-based payment awards to their employees. The amendmentspresent changes in this update cover such areas as the recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits onrestricted 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 paidtotal shown on the statement of cash flows. This update isWe 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 inAugust 30, 2018 using the first quarterretrospective method of fiscal 2018. The impact on the Company’s consolidated financial statements from interim periodadoption. 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 numberadoption of awards for which the requisite service period willthis 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 updateIn 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 requiresasset on the balance sheet, as well as provide additional disclosures about the amount, timing and uncertainty of cash flows arising from leases. This updateASC 842 is effective for annual and interim periods beginning after December 15, 2018, which will require us to adopt these provisionsthe new standard in the first quarter of fiscal 2020. This standard requires adoption based upon aASC 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 beginningalternatively, as of the earliesteffective 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 expectswe expect that most of itsour operating lease commitments will be subject to the new guidancestandard and recognized as operating lease liabilities and right–of-useright-of-use assets upon adoption, resulting in a significant increase in the assets and liabilities on our consolidated balance sheet. The Company isWe are continuing itsour assessment of the impact of adoption, which may identify additional impacts this standardto our consolidated financial statements. We have not yet determined the method we will haveuse 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 – Extinguishmentpoint of Liabilities: Recognitionsale and is presented net of Breakage for Certain Prepaid Stored–Value Products,” which is intendeddiscounts, coupons, employee meals and complimentary meals. Sales taxes that we collect and remit to eliminate current and future diversity in practicethe appropriate taxing authority related to derecognition of prepaid stored–value product liabilitythese 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 expectincur a service fee on unused balances. Sales of gift cards to our restaurant customers are initially recorded as a contract liability, included in accrued expenses and other liabilities, at their expected redemption value. When gift cards are redeemed, we recognize revenue and reduce the contract liability. Discounts on gift cards sold by third parties are recorded as a reduction to accrued expenses and other liabilities and are recognized, as a reduction to revenue, over a period that approximates redemption patterns. The portion of gift cards sold to customers that is never redeemed is commonly referred to as gift card breakage. Under ASC 606 we recognize gift card breakage revenue in proportion to the pattern of gift card redemptions exercised by our customers, using an estimated breakage rate based on our historical experience. Under the Previous Standards, we recognized gift card breakage income within other (expense) income (and not within revenue) when it was deemed remote that the unused gift card balance would be redeemed.
Culinary contract services revenue
Our Culinary Contract Services segment provides food, beverage and catering services to our clients at their locations. Depending on the type of client and service, we are either paid directly by our client and/or directly by the customer to whom we have been provided access by our client.
We typically use one of the following types of client contracts:
Fee-Based Contracts. Revenue from fee-based contracts is based on our costs incurred and invoiced to the client along with the agreed management fee, which may be calculated as a fixed dollar amount or a percentage of sales or other variable measure. Some fee-based contracts entitle us to receive incentive fees based upon our performance under the contract, as measured by factors such as sales, operating costs and client satisfaction surveys. This potential incentive revenue is allocated entirely to the management services performance obligation. We recognize revenue from our management fee and payroll cost reimbursement over time as the services are performed. We recognize revenue from our food and 3rd party purchases reimbursement at the point in time when the vendor delivers the goods or performs the services.
Profit and Loss Contracts. Revenue from profit and loss contracts consist primarily of sales made to consumers, typically with little or no subsidy charged to clients. Revenue is recognized at the point of sale to the consumer. Sales taxes that we collect and remit to the appropriate taxing authority related to these sales are excluded from revenue.
As part of client contracts, we sometimes make payments to clients, such as concession rentals, vending commissions and profit share. These payments are accounted for as operating costs when incurred.
Revenue from the sale of frozen foods includes royalty fees based on a percentage of frozen food sales and is recognized at the point in time when product is delivered by our contracted manufacturers to the retail outlet.
Franchise revenues
Franchise revenues consist primarily of royalties, marketing and advertising fund (“MAF”) contributions, initial and renewal franchise fees, and upfront fees from area development agreements related to our Fuddruckers restaurant brand. Our performance


obligations under franchise agreements consist of: (1) a franchise license, including a license to use our brand and MAF management, (2) pre-opening services, such as training and inspections and (3) ongoing services, such as development of training materials and menu items as well as restaurant monitoring and inspections. These performance obligations are highly interrelated, so we do not consider them to be individually distinct. We account for them under ASC 606 as a single performance obligation, which is satisfied over time by providing a right to use our intellectual property over the term of each franchise agreement.
Royalties, including franchisee MAF contributions, are calculated as a percentage of franchise restaurant sales. MAF contributions paid by franchisees are used for the creation and development of brand advertising, marketing and public relations, merchandising research and related programs, activities and materials. The initial franchisee fee is payable upon execution of the franchise agreement and the renewal fee is due and payable at the expiration of the initial term of the franchise agreement. Our franchise agreement royalties, including advertising fund contributions, represent sales-based royalties that are related entirely to our performance obligation under the franchise agreement and are recognized as franchise sales occur.
Initial and renewal franchise fees and area development fees are recognized as revenue over the term of the respective agreement. Area development fees are not distinct from franchise fees, so upfront fees paid by franchisees for exclusive development rights are deferred and apportioned to each franchise restaurant opened by the franchisee. The pro-rata amount apportioned to each restaurant is accounted for as an initial franchise fee.
Under the Previous Standards, initial franchise fees and area development fees were recognized as revenue when the related restaurant commenced operations and we completed all material pre-opening services and conditions. Renewal franchise fees were recognized as revenue upon execution of a new franchise agreement. MAF contributions from franchisees and the related MAF expenditures 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 3rd party retailers. These contract liabilities are included in accrued expenses and other liabilities in our consolidated balance sheets. The following table reflects the change in contract liabilities between the date of adoption (August 30, 2018) and 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 impacteffect 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 marginmargins 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 160140 at June 6,December 19, 2018 and 167146 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 includeincludes 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 andas 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 109103 at June 6,December 19, 2018 and 113105 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 services6,639
 4,515
 19,413
 12,117
9,496
 6,884
Franchise operations1,444
 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 services535
 321
 1,300
 1,151
681
 552
Franchise operations1,103
 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 services18
 13
 54
 51
22
 19
Franchise operations178
 178
 592
 592
236
 237
Corporate473
 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 services55
 
 185
 
54
 107
Corporate493
 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 income1
 3
 12
 5

 6
Interest expense(1,042) (569) (2,235) (1,898)(1,713) (649)
Other income (expense), net9
 (173) 317
 (312)
Income (loss) before income taxes and discontinued operations$(10,012) $54
 $(23,602) $(16,151)
Other income, net30
 115
Loss before income taxes and discontinued operations$(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 services5,599
 3,342
4,100
 4,569
Franchise operations(3)
11,240
 11,325
10,993
 10,982
Corporate32,030
 21,800
37,484
 32,927
Total$208,951
 $226,457
$208,891
 $199,989
(1)Includes vending revenue of $118approximately $99 thousand and $133$143 thousand for the quartersquarter ended June 6,December 19, 2018 and June 7,December 20, 2017, respectively, and $412amortization of discounts on gift cards sold partially offset by gift card breakage of approximately $(144) thousand and $417 thousand forin the three quartersquarter 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 ispaid was 1.965%, plus an applicable margin. The and the variable rate we receive isreceived 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 arewere recognized in Other income (expense), net. The changes in the interest rate swap fair value resulted in a credit toan expense of approximately $0.7$0.1 million during the three quartersquarter ended June 6,December 19, 2018 and ana credit to expense of approximately $0.2 million in the three quartersquarter 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, 2018Quoted
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 theCompany 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, 2018Quoted
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 werewas 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 MethodDecember 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 Flow93
 
 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 quartersquarter 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 quartersquarter ended June 7,December 20, 2017.

Note 8.7. Income Taxes
 
On December 22, 2017, President Donald J. Trump signed into lawThe 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 estimatehas 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 quartersquarter 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 furnishings71,655
 73,411
 3 to 1569,427
 69,678
 3 to 15
Buildings135,297
 153,041
 20 to 33131,399
 131,557
 20 to 33
Leasehold and leasehold improvements27,136
 26,953
 Lesser of lease term or estimated useful life24,769
 27,172
 Lesser of lease term or estimated useful life
Office furniture and equipment3,604
 3,684
 3 to 103,452
 3,596
 3 to 10
Construction in progress35
 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 ofincludes 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, 2017December 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 agreements357
 (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 understandingAugust 29, 2018 reflect a reclassification of ASC 350, we have allocatedamounts 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 restaurantstrade name and oflicense agreements to the restaurants closed for conversionFuddruckers 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 EndedQuarter 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 equipment172
 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 quartersquarter ended June 6,December 19, 2018 is primarily related to assets at tensix property locations, goodwilland 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, tentwo 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 quartersquarter 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 quartersquarter ended June 7,December 20, 2017 is primarily related to routine asset retirements partially offset by the gain on the sale of oneat 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 liabilities9
 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 EndedQuarter 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 threefirst quarters of fiscal 20182019 and 2017:2018: 
Three Quarters EndedQuarter 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 atwith 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 four15 owned properties recorded atwith 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 seven18 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 quartersquarter ended June 6,December 19, 2018, the Company recorded an increase to the liability for lease termination expense and chargeda charge to earnings, in Provisionprovision 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 locationslocation 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 quartersquarter ended June 6,December 19, 2018 and June 7, 2017, respectively. The Company also incurred $2 thousand of other operating expenses from the Pappas entitiesno costs in the three quartersquarter 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 EndedQuarter 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 leases470
 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 expenditures11,730
 10,114
1,119
 4,325
Other operating expenses, occupancy costs and opening costs64,948
 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 costs0.48% 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 Loan25,170
 
Total credit facility debt44,170
 
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 Loan60,000
 
Total credit facility debt60,000
 39,506
Less:   
Unamortized debt issue costs(2,309) (168)
Unamortized debt discount(1,594) 
Total credit facility debt, less unamortized debt issuance costs56,097
 39,338
Current portion of credit facility debt10,000
 39,338
Credit facility debt, less current portion$46,097
 $

Consent and Waiver to 20162018 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. Pursuantpursuant 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 defaultsone-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 failureclosing of the Company to perform, observe or comply with any covenant, agreement or term contained2018 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 occurrencepersonal property of any additional Default or Event of Defaultits 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.
PursuantThe 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 advisoris 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 infull compliance with all covenants with respect to the 2018 Credit Facility.


All amounts owing by the Company under the terms2018 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 outstandingcommitted under letters of credit, which it uses as security for the payment of insurance obligations.
Management has identifiedobligations 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 beenwas in compliance with the Company’s Lease Adjusted Leverage Ratio and Fixed Charge Coverage Ratioall 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 Secured2016 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 amountRevolver 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 highestgreater 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 eachany case, the Applicable Margin, which rangedan applicable spread that ranges from 1.50% to 2.50% per annum. The other interest rate option isannum the LIBOR(“Applicable Margin”), or (2) the London InterBank Offered Rate (“LIBOR”), as adjusted for any Eurodollar reserve requirements, plus the Applicable Margin, which rangedan 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 Marginapplicable spread under each option iswas dependent upon our CTLALcertain measures of the Company’s financial performance at the most recenttime 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 areCompany 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 includesincluded customary events of default. If a default occursoccurred 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 million2016 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 theas amended, and restated plan effective as of February 9, 2018), 1.3 million options, restricted stock units and restricted stock awards werehave 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 costcosts 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 werehave been granted to date, and 3.84.1 million options and restricted stock units were canceled or expired and added back into the plan, since the plan’s inception in 2005. Approximately 0.60.9 million shares remain available for future issuance as of June 6,December 19, 2018. Compensation costcosts 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 quartersquarter 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. AllNo options were granted in the three quartersquarter ended June 6, 2018 were granted under the Employee Stock Plan.December 19, 2018. Options to purchase 1,668,1331,494,129 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, 20171,345,916
 $4.64
 6.4
 $
Granted449,410
 2.82
 
 
Forfeited(82,392) 3.88
 
 
Expired(44,801) 7.89
 
 
Outstanding at June 6, 20181,668,133
 $4.10
 6.8
 $
Exercisable at June 6, 20181,080,822
 $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, 20181,653,414
 $4.10
 6.5
 $
Forfeited(71,983) 3.86
 
 
Expired(87,302) 5.54
 
 
Outstanding at December 19, 20181,494,129
 $4.02
 6.5
 $
Exercisable at December 19, 20181,248,076
 $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 1.81.7 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 quartersquarter 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, 2017404,364
 $4.54
 1.8
Granted244,748
 2.83
 
Vested(99,495) 4.42
 
Forfeited(32,326) 3.87
 
Unvested at June 6, 2018517,291
 $3.79
 2.0
 
Restricted
Stock
Units
 
Weighted
Average
Fair Value
 
Weighted-
Average
Remaining
Contractual
Term
   (Per share) (In years)
Unvested at August 29, 2018517,291
 $3.79
 1.8
Vested(124,618) 4.88
 
Forfeited(22,491) 3.60
 
Unvested at December 19, 2018370,182
 $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 2.01.6 years.

Performance Based Incentive Plan

For fiscal years 2015 - 2018, Thethe 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 allthe 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'sPlan'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 quartersquarter ended June 6,December 19, 2018 is presented in the following table:
 Units Weighted
Average
Fair Value
   (Per share)
Unvested at August 30, 20170
 $
Granted561,177
 3.33
Vested(187,883) 2.64
Unvested at June 6, 2018373,294
 $3.68
 Units Weighted
Average
Fair Value
   (Per share)
Unvested at August 29, 2018373,294
 $3.68
Forfeited(19,864) 3.68
Unvested at December 19, 2018353,430
 $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 2.21.7 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 1,668,1331,494,129 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 EndedQuarter 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 shares30,005
 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 dilution30,005
 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 issuanceadoption 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 equivalents11,103
 
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 EndedQuarter 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 sales90.5 % 93.1 % 91.3 % 93.9 %88.5 % 92.1 % 
Culinary contract services7.7 % 5.1 % 6.9 % 4.2 %9.2 % 6.1 % 
Franchise revenue1.7 % 1.7 % 1.7 % 1.8 %2.2 % 1.7 % 
Vending revenue0.1 % 0.1 % 0.1 % 0.1 %0.1 % 0.1 % 
TOTAL SALES100.0 % 100.0 % 100.0 % 100.1 %100.0 % 100.0 % 
           
STORE COSTS AND EXPENSES:           
(As a percentage of restaurant sales)           
           
Cost of food28.6 % 27.8 % 28.5 % 28.1 %27.5 % 28.5 % 
Payroll and related costs37.8 % 35.7 % 37.4 % 35.9 %37.9 % 36.5 % 
Other operating expenses19.3 % 16.7 % 19.0 % 17.4 %18.1 % 18.6 % 
Occupancy costs5.9 % 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 profit8.5 % 14.0 % 9.1 % 12.7 %10.1 % 10.6 % 
           
COMPANY COSTS AND EXPENSES:           
(As a percentage of total sales)           
           
Opening costs0.1 % 0.2 % 0.2 % 0.1 %0.0 % 0.1 % 
Depreciation and amortization4.7 % 5.2 % 4.8 % 5.5 %4.8 % 4.7 % 
Selling, general and administrative expenses9.9 % 7.6 % 10.4 % 10.2 %10.9 % 10.2 % 
Net loss (gain) on disposition of property and equipment0.2 % (0.2)% 0.1 % 0.1 %
Net loss on disposition of property and equipment0.1 % 0.2 % 
           
Culinary Contract Services Costs           
(As a percentage of Culinary Contract Services sales)           
           
Cost of culinary contract services91.9 % 92.9 % 93.3 % 90.5 %92.8 % 92.0 % 
Culinary segment profit8.1 % 7.1 % 6.7 % 9.5 %7.2 % 8.0 % 
           
Franchise Operations Costs           
(As a percentage of Franchise revenue)
           
           
Cost of franchise operations23.6 % 24.4 % 25.3 % 26.7 %12.3 % 25.9 % 
Franchise segment profit76.4 % 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 income0.0 % 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), net0.0 % (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 taxes4.8 % 0.5 % 2.7 % 0.9 %
Other income, net0.0 % 0.1 % 
Loss before income taxes and discontinued operations(7.2)% (4.9)% 
Provision (benefit) for income taxes0.1 % (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 EndedQuarter 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 services6,639
 4,515
 19,413
 12,117
9,496
 6,884
 
Sales from franchise operations1,444
 1,477
 4,732
 5,167
2,224
 1,887
 
           
Less:           
Opening costs85
 134
 490
 431
33
 75
 
Cost of culinary contract services6,104
 4,194
 18,113
 10,966
8,815
 6,332
 
Cost of franchise operations341
 361
 1,198
 1,378
273
 488
 
Depreciation and amortization4,050
 4,639
 13,402
 15,977
4,903
 5,353
 
Selling, general and administrative expenses8,507
 6,764
 29,219
 29,531
11,224
 11,525
 
Provision for asset impairments and restaurant closings4,464
 869
 6,716
 7,120
1,227
 845
 
Net loss (gain) on disposition of property and equipment154
 (195) 172
 219
Net loss on disposition of property and equipment149
 222
 
Interest income(1) (3) (12) (5)
 (6) 
Interest expense1,042
 569
 2,235
 1,898
1,713
 649
 
Other income (expense), net(9) 173
 (317) 312
Provision for income taxes4,121
 431
 7,494
 2,576
Other income, net(30) (115) 
Provision (benefit) for income taxes121
 (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, 201729, 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 Cafeterias88
 
 (2) 86
84
 
 (2) 82
Fuddruckers Restaurants71
 
 (4) 67
60
 
 (3) 57
Cheeseburger in Paradise8
 
 (1) 7
2
 
 (1) 1
Total167
 
 (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 160140 restaurants, of which 8682 are traditional cafeterias, 6757 are gourmet hamburger restaurants, and seven areone is a casual dining restaurantsrestaurant 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 160140 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, twothree in the Texas Lower Rio Grande Valley, and onetwo 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 109103 Fuddruckers restaurants. Our largest sixfive 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 4016 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 services6,639
 4,515
 2,124
 47.0 %
Franchise revenue1,444
 1,477
 (33) (2.2)%
Vending revenue118
 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 services19,413
 12,117
 7,296
 60.2 %
Franchise revenue4,732
 5,167
 (435) (8.4)%
Vending revenue412
 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 services9,496
 6,884
 2,612
 37.9 %
Franchise revenue2,224
 1,887
 337
 17.9 %
Vending revenue99
 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 BrandJune 6, June 7, Increase/(Decrease)December 19, December 20, Increase/(Decrease)
2018 2017 $ Amount % Change2018 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)%
Fuddruckers20,622
 23,713
 (3,091) (13.0)%21,533
 26,914
 (5,381)(909)(20.0)%
Combo locations4,821
 4,988
 (167) (3.3)%5,964
 6,712
 (748)(909)(11.1)%
Cheeseburger in Paradise3,293
 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 foursix locations over the prior year partially offset byand a 2.4% increase3.0% 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% increase3.0% 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 five14 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 oneseven store closure fromclosures 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 BrandJune 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)%
Fuddruckers67,476
 75,321
 (7,845) (10.4)%
Combo locations16,219
 16,565
 (346) (2.1)%
Cheeseburger in Paradise9,285
 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 sales28.6% 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 ten23 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 sales28.5% 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 andmix 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 sales37.8% 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 ten23 fewer restaurants, mostlypartially 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 sales37.4% 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 sales19.3% 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 increaseddecreased 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 increasedecrease 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 restockinsurance 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 withinsurance losses above deductibles in the operation ofquarter 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 reductionlocations 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 sales19.0% 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 millionreductions 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 expenseinsurance recoveries in the quarter ended December 19, 2018 compared to the three quartersquarter 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 partDecember 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 refreshedinsurance losses above deductibles incurred in the three quartersprior 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 sales5.9% 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 sales6.1% 6.2%   (0.1)%

Occupancy costs decreased approximately $1.1 millionDecember 20, 2017 due in large part to approximately $15.6 millionan increase in property tax expense at certain locations as well as a change in the three quarters ended June 6, 2018 compared tomix of portfolio of owned versus leases stores after the three quarters ended June 7, 2017. The decrease was primarily due to a decrease in rentclosure 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 brandbrand; (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 operations341
 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 revenue76.4% 75.6%   0.8 %87.7% 74.1%   13.6 %

Franchise revenue decreased $33 thousandincreased $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 operations1,198
 1,378
 (180) (13.1)%
Franchise profit$3,534
 $3,789
 $(255) (6.7)%
Franchise profit as a percentage of franchise revenue74.7% 73.3%   1.4 %

Franchisedevelopment agreements; and (2) recognizing as revenue decreased $0.4 million in the three quarters ended June 6, 2018 comparedfunds 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 decreaseus 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 Franchisefranchise revenue less Costcost of franchise operations, decreased $13 thousandincreased $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 franchiseefees 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 services6,104
 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 sales8.1% 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 Culinaryculinary contract services revenue was primarily the result of a change in the mix of our Culinaryculinary 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, increaseddecreased 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 services18,113
 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 sales6.7% 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 withrelated to one Fuddruckers location that was damaged during Hurricane Harvey and subsequently restored and re-openedwe lease for business just prior toa potential future Fuddruckers opening. The $75 thousand in opening costs in the quarter ended June 6, 2018 as well asDecember 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 sales4.7% 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 decreasedincreased 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 sales4.8% 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 expenses728
 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 sales9.9% 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 increaseddecreased 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 increasedecrease 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, 2018prior year when sports team sponsorships comprised a non-cash reductiongreater 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 $0.5our 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 expenses2,891
 4,635
 (1,744) (37.6)%
Selling, general and administrative expenses$29,219
 $29,531
 $(312) (1.1)%
As a percentage of total sales10.4% 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 quartersquarter 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 closingsimpairment charge for the quarter ended June 6,December 19, 2018 wasis primarily related to assets at threesix property locations, goodwill at one location, eightand 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 andas well as net lease termination costs of approximately $0.1 million, at five property locations. The approximate $0.9 million impairment charge forin 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 gainloss 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 ourthe amended credit agreement in place through December 13, 2018, and acceleration of the expensing of deferred financing fees related to shortening the maturity inas 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 expenseincome in the quarter ended June 7,December 20, 2017. IncreaseHigher 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 ourdiscounts. In addition gift card liabilityexpenses (specifically the expense of discounting gift card sales) is recorded as a reduction to restaurant sales in the quarter ended June 7, 2017.

OtherDecember 19, 2018 compared to recorded in other income net, in the three quartersquarter ended June 6, 2018 was approximately $0.3 millionDecember 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 provisionbenefit 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 Loan2018 Credit Facility (as defined below). During the three quartersquarter 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 quartersquarter ended June 6,December 19, 2018 compared to a $13 thousand$0.3 million decrease in the three quartersquarter 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 activities12,902
 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 activities15,737
 30
Net increase (decrease) in cash and cash equivalents and restricted cash$16,046
 $(284)
 
Operating Activities. Cash used inprovided by operating activities was approximately $4.9$1.3 million in the three quartersquarter ended June 6,December 19, 2018, an approximate $8.6$2.2 million decrease from the three quartersquarter 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 byand an approximate $1.6$0.1 million decrease in cash usedprovided by changes in operating assets and liabilities for the three quartersquarter 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 quartersquarter ended June 6,December 19, 2018, an approximate $10.1$2.1 million decrease compared to a source of cash in the three quartersquarter 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 usesource of cash in the three quartersquarter ended June 6,December 19, 2018 and an approximate $4.9$1.7 million usesource of cash in the three quartersquarter ended June 7,December 20, 2017. The approximate $1.6$0.1 million decrease in the usesource of cash was due to differences in the change in asset and liability balances between the three quartersquarter ended June 6,December 19, 2018 and the three quartersquarter 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 quartersquarter 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 quartersquarter 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 quartersquarter ended June 6,December 19, 2018, compared to a $5 thousand use$0.4 million source of cash in the three quartersquarter 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 quartersquarter 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 usesource of cash of approximately $4.5$1.9 million during the three quartersquarter 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 quartersquarter ended June 6,December 19, 2018 and approximately $6.5$3.8 million in the three quartersquarter ended June 7,December 20, 2017. Capital expenditures were approximately $11.7$1.1 million in the three quartersquarter ended June 6,December 19, 2018 and approximately $10.1$4.3 million in the three quartersquarter ended June 7,December 20, 2017. Proceeds from the disposal of assets were approximately $3.4$0.2 million in the three quartersquarter ended June 6,December 19, 2018 and approximately $3.6$0.2 million in the three quartersquarter 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 quartersquarter ended June 6, 2018.December 20, 2017.
 
Financing Activities. Cash provided by financing activities was approximately $12.9$15.7 million in the three quartersquarter ended June 6,December 19, 2018 compared to an approximate $2.8 million$30 thousand source of cash during the three quartersquarter ended June 7,December 20, 2017. Cash flows from financing activities was primarily the result of borrowings and repayments related to the 2016our 2018 Credit Facility, as amended; our Revolver and our Term Loan.Agreement. During the three quartersquarter 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-paymentre-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 quartersquarter ended June 6,December 19, 2018 compared to an increase of approximately $0.8$0.5 million in the three quartersquarter ended June 7,December 20, 2017. In the three quartersquarter ended June 6,December 19, 2018, food and supplies inventoryrestricted 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 receivablesprepaid expenses of approximately $0.4 million and prepaid expensesinsurance 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 taxescash and cash equivalents of approximately $0.4 million and food and supplies inventory of approximately $0.1$0.3 million.
 
Current liabilities increaseddecreased approximately $44.0$32.5 million in the three quartersquarter ended June 6,December 19, 2018 compared to a decreasean increase of approximately $1.1$2.9 million in the three quartersquarter ended June 7,December 20, 2017. In the three quartersquarter ended June 6,December 19, 2018, current portion credit facility debt increaseddecreased 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 cardsaccrued 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 otheraccounts 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 quartersquarter 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 20182019 using proceeds from the sale of assets, cash flows from operations and our 20162018 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 Loan25,170
 
Total credit facility debt44,170
 
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 Loan60,000
 
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 20162018 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. Pursuantpursuant 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.
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 waiverone-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 toexcluded 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.
PursuantThe 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 advisorare 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 April1.00. 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
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 periodwere 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 our 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 16, 2018, we are infull compliance with all covenants with respect to the 2018 Credit Facility.
All amounts owing by us under the terms2018 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 outstandingcommitted under letters of credit, which we use as security for the payment of insurance obligations.
Management has identifiedobligations 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 beenwere in compliance with the Lease Adjusted Leverage Ratio and Fixed Charge Coverage Ratioall 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.
The 2016 Credit Agreement also provided for the issuance of letters of credit in an aggregate amountRevolver 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 19, 2018, we have the option to elect one of two bases of interest rates. One interest rate option is the highestgreater 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 eachany case, the Applicable Margin, which rangedan applicable spread that ranges from 1.50% to 2.50% per annum. The other interest rate option isannum the LIBOR(“Applicable Margin”), or (2) the London InterBank Offered Rate (“LIBOR”), as adjusted for any Eurodollar reserve requirements, plus the Applicable Margin, which rangedan 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 Marginapplicable spread under each option iswas dependent upon our CTLALcertain measures of the Company’s financial performance at the most recenttime 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 arewere 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.
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 our real property and also includesincluded customary events of default. If a default occursoccurred and iswas continuing, the lenders’ commitments under the 2016 Credit Agreement may behave been immediately terminated, and, or we may behave been required to repay all amounts outstanding under the 2016 Credit Agreement.
As of June 6,On December 13, 2018, we had $44.2 millionthe 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 we use as security for the payment of insurance obligations, and approximately $0.2 million in other indebtedness.full.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
The Consolidated Financial Statements included in Item 1 of Part 1 of this Form 10-Q were prepared in conformity with GAAP. Preparation of the financial statements requires us to make judgments, estimates and assumptions that affect the amounts of assets and liabilities in the financial statements and revenues and expenses during the reporting periods. Due to the significant, subjective and complex judgments and estimates used when preparing our Consolidated Financial Statements, management regularly reviews these assumptions and estimates with the Finance and Audit Committee of our Board. Management believes the following are critical accounting policies used in the preparation of these financial statements. Actual results may differ from these estimates, including our estimates of future cash flows, which are subject to the current economic environment and changes in estimates. WeOther than the implementation of ASC 606 as discussed in Note 1 and 2 of the accompanying unaudited consolidated financial statements, we had no changes in our critical accounting policies and estimates which were disclosed in our Annual Report on Form 10-K for the fiscal year ended August 30, 2017.29, 2018.   
 


NEW ACCOUNTING PRONOUNCEMENTS
 
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 appliedSee Note 1 to the franchise’s restaurant sales each fiscal period. Royalties are accrued as earnedaccompanying Consolidated Financial Statements for a discussion of recent accounting guidance adopted 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 obligationsyet adopted. The adopted accounting guidance discussed 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 doesdid 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 requires a lessee to recognize on the balance sheet a liability to make lease payments and a corresponding right-of-use asset. The update also requires additional disclosures about the amount, timing and uncertainty of cash flows arising from leases. This update is effective for annual and interim periods beginning after December 15, 2018, which will require us to adopt these provisions in the first quarter of fiscal 2020. This standard requires adoption based upon a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with optional practical expedients. Based on a preliminary assessment, the Company expects that most of its operating lease commitments will be subject to the new guidance and recognized as operating lease liabilities and right–of-use assets upon adoption, resulting in a significant increase in the assets and liabilities on our consolidated balance sheet. The Company is continuing its assessment, which may identify additional impacts this standard will have on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016–04, “Liabilities – Extinguishment of Liabilities: Recognition of Breakage for Certain Prepaid Stored–Value Products,” which is intended to eliminate current and future diversity in practice related to derecognition of prepaid stored–value product liability 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 are evaluating the impact on the Company's consolidated financial statements and do not expect the adoption to have a material impact on our consolidated financial statements.
In August 2016,position or results of operations. The Company either expects that the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). This update provides clarification regarding how certain cash receipts and cash payment are presented and classified in the statement of cash flows. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This update is effective for annual and interim periods beginning after December 15, 2017, whichaccounting guidance not yet adopted 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 materialsignificant impact on ourthe Company’s consolidated financial statements.
In February 2018,position or results of operations or is currently evaluating the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassificationimpact of Certain Tax Effects from Accumulated Other Comprehensive Income. This update allows companiesadopting 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.accounting guidance.

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


FORWARD-LOOKING STATEMENTS
 
This Form 10-Q contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements contained in this Form 10-Q, other than statements of historical facts, are forward-looking statements for purposes of these provisions, including any statements regarding:
 
future operating results,
future capital expenditures and expected sources of funds for capital expenditures,
future debt, including liquidity and the sources and availability of funds related to debt, and expected repayment of debt, as well as our ability to refinance the existing credit facility or enter into a new credit facility on a timely basis,
expected sources of funds for working capital requirements,
plans for our new prototype restaurants,
plans for expansion of our business,
scheduled openings of new units,
closing existing units,
future sales of assets and the gains or losses that may be recognized as a result of any such sales, and
continued compliance with the terms of our 20162018 Credit Facility,Agreement, as amended.



In some cases, investors can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “outlook,” “may,” “should,” “will,” and “would” or similar words. Forward-looking statements are based on certain assumptions and analyses made by management in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are relevant. Although management believes that its assumptions are reasonable based on information currently available, those assumptions are subject to significant risks and uncertainties, many of which are outside of its control. The following factors, as well as the factors set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended August 31, 201629, 2018 and any other cautionary language in this Form 10-Q, provide examples of risks, uncertainties, and events that may cause our financial and operational results to differ materially from the expectations described in our forward-looking statements:
 
general business and economic conditions,
the impact of competition,
our operating initiatives, changes in promotional, couponing and advertising strategies and the success of management’s business plans,
fluctuations in the costs of commodities, including beef, poultry, seafood, dairy, cheese, oils and produce,
ability to raise menu prices and customer acceptance of changes in menu items,
increases in utility costs, including the costs of natural gas and other energy supplies,
changes in the availability and cost of labor, including the ability to attract qualified managers and team members,
the seasonality of the business,
collectability of accounts receivable,
changes in governmental regulations, including changes in minimum wages and health care benefit regulation,
the effects of inflation and changes in our customers’ disposable income, spending trends and habits,
the ability to realize property values,
the availability and cost of credit,
effectiveness of the Cheeseburger in Paradise conversions to Fuddruckers restaurants,
the effectiveness of our credit card controls and PCI compliance,
weather conditions in the regions in which our restaurants operate,
costs relating to legal proceedings,
impact of adoption of new accounting standards,
effects of actual or threatened future terrorist attacks in the United States,
unfavorable publicity relating to operations, including publicity concerning food quality, illness or other health concerns or labor relations, and
the continued service of key management personnel.

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



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
We are exposed to interest rate risk due to changes in interest rates affecting our variable-rate debt, borrowings under our Credit Agreement.debt. As of June 6,December 19, 2018, the total amount of debt subject to interest rate fluctuations outstanding under our Revolver and Term Loan2018 Credit Facility was $26.7$60.0 million. Assuming an average debt balance with interest rate exposure of $26.7$60.0 million, a 100 basis point increase in prevailing interest rates would increase our annual interest expense by $0.3$0.6 million. The interest rate on our remaining $17.5 million in outstanding debt is fixed plus an applicable margin based on our CTLAL at each determination date, beginning December 14, 2016, under the terms of our interest rate swap agreement. Under the terms of our Credit Agreement, we are required to manage interest rate risk, utilizing interest rate swaps, on at least 50% of our Credit Agreement variable rate debt (Term Loan). Prior to November 8, 2016, we did not utilize any interest rate swaps to manage interest rate risk on our variable rate 2013 Credit Facility debt.
 
We have exposure to various foreign currency exchange rate fluctuations for revenues generated by our operations outside of the United States, which can adversely impact our net income and cash flows. Sales to customers and royalties from franchisees outside the contiguous United States as a percentage of our total revenues was approximately 0.13%0.09% and 0.13%0.10% in the quarter ended June 6,December 19, 2018 and June 7, 2017, respectively, and 0.13% and 0.11% in the three quarters ended June 6, 2018 and June 7,December 20, 2017, respectively.

Many ingredients in the products sold in our restaurants are commodities subject to unpredictable price fluctuations. We attempt to minimize price volatility by negotiating fixed price contracts for the supply of key ingredients and in some cases by


passing increased commodity costs through to the customer by adjusting menu prices or menu offerings. Our ingredients are available from multiple suppliers so we are not dependent on a single vendor for our ingredients.
 
Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
Management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act), as of June 6,December 19, 2018. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 6,December 19, 2018, our disclosure controls and procedures were effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
 
Changes in Internal Control over Financial Reporting 
 
There were no changes in our internal control over financial reporting during the three quartersquarter ended June 6,December 19, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Part II—OTHER INFORMATION
 
Item 1. Legal Proceedings
 
There have been no material changes to our legal proceedings as disclosed in “Legal Proceedings” in Item 3 of Part I of our Annual Report on Form 10-K for the fiscal year ended August 30, 2017.29, 2018.
 
Item 1A. Risk Factors
 
The following risk factor should be read in conjunction withThere have been no material changes during the quarter ended December 19, 2018 to the Risk Factors discussed in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended August 30, 2017.

We have been harmed in the past and may be harmed in the future by security risks we face in connection with our electronic processing and transmission of confidential customer and employee information or cyber attacks targeting our system in exchange for “ransom” payments.
We accept electronic payment cards for payment in our restaurants. During fiscal 2017, approximately 75% of our restaurant sales were attributable to credit and debit card transactions, and credit and debit card usage could continue to increase. A number of retailers have experienced actual or potential security breaches in which credit and debit card information may have been stolen, including a number of highly publicized incidents with well-known retailers in recent years. In addition, we have been the victim of a cyber attack by hackers who deployed a version of the SamSam ransomware that encrypted electronic files, locking us out of many of our point-of-sale and other systems. These hackers requested a “ransom” payment in exchange for restoring access to these encrypted files. Such attacks, while they did not provide the hackers with access to confidential customer and employee information, did adversely affect our profits due to our temporary inability to operate our restaurants and increased costs associated further protecting and restoring our computer systems. While we have taken preventative measures, no assurances can be provided that we will not be the subject of cyber attacks again in the future.
We may in the future become subject to additional claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit card information, and we may also be subject to lawsuits or other proceedings in the future relating to these types of incidents. Proceedings related to theft of credit or debit card information may be brought by payment card providers, banks and credit unions that issue cards, cardholders (either individually or as part of a class action lawsuit) and federal and state regulators. Any such proceedings could distract our management from running our business and cause us to incur significant unplanned losses and expenses. Consumer perception of our brand could also be negatively affected by these events, which could further adversely affect our results and prospects.
We also are required to collect and maintain personal information about our employees, and we collect information about customers as part of some of our marketing programs as well. The collection and use of such information is regulated at the federal and state levels, and the regulatory environment related to information security and privacy is increasingly demanding. At the same time, we are relying increasingly on cloud computing and other technologies that result in third parties holding significant amounts of customer or employee information on our behalf. If the security and information systems of ours or of outsourced third party providers we use to store or process such information are compromised or if we, or such third parties, otherwise fail to comply with these laws and regulations, we could face litigation and the imposition of penalties that could adversely affect our financial performance. Our reputation as a brand or as an employer could also be adversely affected from these types of security breaches or regulatory violations, which could impair our sales or ability to attract and keep qualified employees.



Non-performance under the debt covenants in our Credit Agreement or Waiver thereto could adversely affect our ability to continue as a going concern.

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 refinance or otherwise repay our current Credit Agreement.  While the Company has obtained a Waiver of the default from the lenders under the Credit Agreement until August 10, 2018, announced a limited asset sales plan intended to help reduce the Company’s outstanding debt and engaged a third-party financial adviser to assist with refinancing such outstanding debt, there is no guarantee that we will be able to comply with the terms of the Waiver or with the financial covenants under the Credit Agreement once the Waiver expires.  Our failure to comply with the financial covenants under the Credit Agreement once the Waiver has expired or to receive a new waiver from the lenders under the Credit Agreement could result in an event of default, which would have a material adverse effect on our financial condition and could cause us to seek bankruptcy protection, be unable to pay our debts when they become due or otherwise become insolvent because, among other things, our lenders:
may declare any outstanding principal and the interest accrued thereon under the Credit Agreement to be due and payable, and we may not have sufficient cash to repay that indebtedness;
may foreclose against the assets securing our borrowings; and
will be under no obligation to extend further credit to us.29, 2018.
 
Item 5. Other Information

The information set forth under "Part I - Item I - Note 1 - Subsequent Events" is hereby incorporated by reference herein. The foregoing description of the Waiver does not purport to be complete and is qualified in its entirety by reference to the Amendment filed herewith.None

Item 6. Exhibits
Consent and Waiver, by andCredit Agreement, dated as of December 13, 2018, among the Company, each other Credit Party party thereto, the Lenders party thereto and Wells Fargo as Administrative Agent for the Lenders,lenders from time, (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 17,December 14, 2018, File No. 1-08308).
  
Rule 13a-14(a)/15d-14(a) certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
Rule 13a-14(a)/15d-14(a) certification of the Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
Section 1350 certification of the Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
Section 1350 certification of the Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
101.INSXBRL Instance Document
  
101.SCHXBRL Schema Document
  
101.CALXBRL Calculation Linkbase Document
  
101.DEFXBRL Definition Linkbase Document
  
101.LABXBRL Label Linkbase Document
  
101.PREXBRL Presentation Linkbase Document


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
   
LUBY’S, INC.
(Registrant)
       
Date:7/23/20181/28/2019By:/s/ Christopher J. Pappas
     Christopher J. Pappas
     President and Chief Executive Officer
     (Principal Executive Officer)
       
Date:7/23/20181/28/2019By:/s/ K. Scott Gray
     K. Scott Gray
     Senior Vice President and Chief Financial Officer
     (Principal Financial and Accounting Officer)

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