Company Quick10K Filing
Quick10K
Lubys
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$1.41 30 $42
10-Q 2019-06-05 Quarter: 2019-06-05
10-Q 2019-03-13 Quarter: 2019-03-13
10-Q 2018-12-19 Quarter: 2018-12-19
10-K 2018-08-29 Annual: 2018-08-29
10-Q 2018-06-06 Quarter: 2018-06-06
10-Q 2018-03-14 Quarter: 2018-03-14
10-Q 2017-12-20 Quarter: 2017-12-20
10-K 2017-08-30 Annual: 2017-08-30
10-Q 2017-06-07 Quarter: 2017-06-07
10-Q 2017-03-15 Quarter: 2017-03-15
10-Q 2016-12-21 Quarter: 2016-12-21
10-K 2016-08-31 Annual: 2016-08-31
10-Q 2016-06-01 Quarter: 2016-06-01
10-Q 2016-03-09 Quarter: 2016-03-09
10-Q 2015-12-16 Quarter: 2015-12-16
10-K 2015-08-26 Annual: 2015-08-26
10-Q 2015-05-06 Quarter: 2015-05-06
10-Q 2015-02-11 Quarter: 2015-02-11
10-Q 2014-11-19 Quarter: 2014-11-19
10-K 2014-08-27 Annual: 2014-08-27
10-Q 2014-05-07 Quarter: 2014-05-07
10-Q 2014-02-12 Quarter: 2014-02-12
8-K 2019-08-01 Enter Agreement, Officers, Amend Bylaw, Other Events, Exhibits
8-K 2019-07-15 Earnings, Exhibits
8-K 2019-06-18 Officers
8-K 2019-04-22 Earnings, Exhibits
8-K 2019-02-11 Enter Agreement, Shareholder Rights, Exhibits
8-K 2019-01-31 Officers
8-K 2019-01-28 Earnings, Exhibits
8-K 2019-01-28 Earnings, Exhibits
8-K 2019-01-25 Other Events, Exhibits
8-K 2019-01-25 Other Events, Exhibits
8-K 2019-01-25 Shareholder Vote
8-K 2019-01-25 Shareholder Vote
8-K 2019-01-18 Other Events, Exhibits
8-K 2018-12-24 Other Events, Exhibits
8-K 2018-12-13 Enter Agreement, Leave Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-11-29 Enter Agreement, Other Events, Exhibits
8-K 2018-11-12 Earnings, Exhibits
8-K 2018-10-22 Officers, Regulation FD, Exhibits
8-K 2018-08-30 Amend Bylaw, Exhibits
8-K 2018-08-24 Enter Agreement, Exhibits
8-K 2018-08-15 Enter Agreement, Exhibits
8-K 2018-08-10 Enter Agreement, Exhibits
8-K 2018-08-06 Officers
8-K 2018-07-16 Earnings, Exhibits
8-K 2018-07-12 Enter Agreement, Other Events, Exhibits
8-K 2018-02-15 Enter Agreement, Shareholder Rights, Regulation FD, Exhibits
8-K 2018-02-09 Shareholder Vote
ABMD Abiomed 11,820
FTAI Fortress Transportation & Infrastructure Investors 1,350
IMOS Chipmos Technologies 604
CPTA Capitala Finance 144
DXLG Destination Xl Group 96
RVLT Revolution Lighting Technologies 5
MTSL MER Telemanagement Solutions 3
HCT Healthcare Trust 0
EMYB Embassy Bancorp 0
KNWN Know Labs 0
LUB 2019-06-05
Part I-Financial Information
Item 1. Financial Statements
Note 1. Basis of Presentation
Note 2. Cash, Cash Equivalents and Restricted Cash
Note 3. Revenue Recognition
Note 4. Accounting Periods
Note 5. Reportable Segments
Note 6. Derivative Financial Instruments
Note 7. Fair Value Measurements
Note 8. Income Taxes
Note 9. Property and Equipment, Intangible Assets and Goodwill
Note 11. Commitments and Contingencies
Note 12. Related Parties
Note 13. Debt
Note 14. Share-Based Compensation
Note 15. Earnings per Share
Note 16: Shareholder Rights Plan
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part Ii-Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex31-1_060519.htm
EX-31.2 ex31-2_060519.htm
EX-32.1 ex32-1_060519.htm
EX-32.2 ex32-2_060519.htm

Lubys Earnings 2019-06-05

LUB 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 lub_060519xfy19q3x10qdocum.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 
__________________________
FORM 10-Q
__________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 5, 2019
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)
__________________________
Delaware
74-1335253
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
  
  
13111 Northwest Freeway, Suite 600
Houston, Texas
77040
(Address of principal executive offices)
(Zip Code)
 
(713) 329-6800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange at which registered
Common Stock ($0.32 par value per share)
LUB
New York Stock Exchange
Common Stock Purchase Rights
N/A
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x   No  ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act: 
Large accelerated filer
¨
Accelerated filer
x
Non-accelerated filer
¨
Smaller reporting company
x
 
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  x
As of July 10, 2019, there were 30,478,972 shares of the registrant’s common stock outstanding. 

1



Luby’s, Inc.
Form 10-Q
Quarter ended June 5, 2019
Table of Contents
 



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



2



Part I—FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
Luby’s, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
 
 
June 5,
2019
 
August 29,
2018
 
 (Unaudited)
 
 
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
3,193

 
$
3,722

Restricted cash and cash equivalents
9,588

 

Trade accounts and other receivables, net
9,667

 
8,787

Food and supply inventories
3,874

 
4,022

Prepaid expenses
2,725

 
3,219

Total current assets
29,047

 
19,750

Property held for sale
15,031

 
19,469

Assets related to discontinued operations
1,813

 
1,813

Property and equipment, net
127,189

 
138,287

Intangible assets, net
17,105

 
18,179

Goodwill
555

 
555

Other assets
1,326

 
1,936

Total assets
$
192,066

 
$
199,989

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
8,475

 
$
10,457

Liabilities related to discontinued operations
9

 
14

Current portion of credit facility debt

 
39,338

Accrued expenses and other liabilities
24,183

 
31,755

Total current liabilities
32,667

 
81,564

Credit facility debt, less current portion
41,952

 

Liabilities related to discontinued operations
16

 
16

Other liabilities
7,280

 
5,781

Total liabilities
81,915

 
87,361

Commitments and Contingencies

 

SHAREHOLDERS’ EQUITY
 
 
 
Common stock, $0.32 par value; 100,000,000 shares authorized; shares issued were 30,375,791 and 30,003,642; and shares outstanding were 29,893,592 and 29,503,642, at June 5, 2019 and August 29, 2018, respectively
9,721

 
9,602

Paid-in capital
34,955

 
33,872

Retained earnings
70,250

 
73,929

Less cost of treasury stock, 500,000 shares
(4,775
)
 
(4,775
)
Total shareholders’ equity
110,151

 
112,628

Total liabilities and shareholders’ equity
$
192,066

 
$
199,989

  
The accompanying notes are an integral part of these consolidated financial statements.

3



Luby’s, Inc.
Consolidated Statements of Operations (unaudited)
(In thousands, except per share data)
 
Quarter Ended
 
Three Quarters Ended
 
June 5,
2019
 
June 6,
2018
 
June 5,
2019
 
June 6,
2018
 
(12 weeks)

(12 weeks)
 
(40 weeks)
 
(40 weeks)
SALES:
 
 
 
 
 
 
 
Restaurant sales
$
65,611

 
$
77,803

 
$
222,079

 
$
256,737

Culinary contract services
7,571

 
6,639

 
24,610

 
19,413

Franchise revenue
1,482

 
1,444

 
5,126

 
4,732

Vending revenue
102

 
118

 
292

 
412

TOTAL SALES
74,766

 
86,004

 
252,107

 
281,294

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Cost of food
18,478

 
22,255

 
61,707

 
73,190

Payroll and related costs
25,015

 
29,392

 
84,258

 
96,032

Other operating expenses
11,491

 
15,023

 
39,404

 
48,881

Occupancy costs
4,023

 
4,609

 
14,064

 
15,577

Opening costs
6

 
85

 
49

 
490

Cost of culinary contract services
6,791

 
6,104

 
22,324

 
18,113

Cost of franchise operations
330

 
341

 
849

 
1,198

Depreciation and amortization
2,927

 
4,050

 
11,052

 
13,402

Selling, general and administrative expenses
9,426

 
8,507

 
29,666

 
29,219

Provision for asset impairments and restaurant closings
675

 
4,464

 
3,097

 
6,716

Net loss (gain) on disposition of property and equipment
(434
)
 
154

 
(12,935
)
 
172

Total costs and expenses
78,728

 
94,984

 
253,535

 
302,990

LOSS FROM OPERATIONS
(3,962
)
 
(8,980
)
 
(1,428
)
 
(21,696
)
Interest income
11

 
1

 
30

 
12

Interest expense
(1,324
)
 
(1,042
)
 
(4,593
)
 
(2,235
)
Other income, net
112

 
9

 
198

 
317

Loss before income taxes and discontinued operations
(5,163
)
 
(10,012
)
 
(5,793
)
 
(23,602
)
Provision for income taxes
132

 
4,121

 
346

 
7,494

Loss from continuing operations
(5,295
)
 
(14,133
)
 
(6,139
)
 
(31,096
)
Loss from discontinued operations, net of income taxes
(6
)
 
(463
)
 
(18
)
 
(608
)
NET LOSS
$
(5,301
)
 
$
(14,596
)
 
$
(6,157
)
 
$
(31,704
)
Loss per share from continuing operations:
 
 
 
 
 
 
 
Basic
$
(0.18
)
 
$
(0.47
)
 
$
(0.21
)
 
$
(1.04
)
Assuming dilution
$
(0.18
)
 
$
(0.47
)
 
$
(0.21
)
 
$
(1.04
)
Loss per share from discontinued operations:
 
 
 
 
 
 
 
Basic
$
0.00

 
$
(0.02
)
 
$
0.00

 
$
(0.02
)
Assuming dilution
$
0.00

 
$
(0.02
)
 
$
0.00

 
$
(0.02
)
Net loss per share:
 
 
 
 
 
 
 
Basic
$
(0.18
)
 
$
(0.49
)
 
$
(0.21
)
 
$
(1.06
)
Assuming dilution
$
(0.18
)
 
$
(0.49
)
 
$
(0.21
)
 
$
(1.06
)
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
29,874

 
30,005

 
29,732

 
29,863

Assuming dilution
29,874

 
30,005

 
29,732

 
29,863

 The accompanying notes are an integral part of these consolidated financial statements.

4



Luby’s, Inc.
Consolidated Statement of Shareholders’ Equity (unaudited)
(In thousands)
 
Common Stock
 
 
 
 
 
Total
 
Issued
 
Treasury
 
Paid-In
 
Retained
 
Shareholders’
 
Shares

 
Amount

 
Shares
 
Amount
 
Capital
 
Earnings
 
Equity
Balance at August 30, 2017
29,624

 
$
9,480

 
(500
)
 
$
(4,775
)
 
$
31,850

 
107,497

 
144,052

Net loss

 

 

 

 

 
(5,537
)
 
(5,537
)
Share-based compensation expense
30

 
10

 

 

 
857

 

 
867

Common stock issued under employee benefit plans
163

 
52

 

 

 
(52
)
 

 

Balance at December 20, 2017
29,817

 
$
9,542

 
(500
)
 
$
(4,775
)
 
$
32,655

 
$
101,960

 
$
139,382

Net loss

 

 

 

 

 
(11,571
)
 
(11,571
)
Share-based compensation expense
27

 
8

 

 

 
377

 

 
385

Common stock issued under employee benefit plans
20

 
7

 

 

 
(7
)
 

 

Common stock issued under nonemployee benefit plans
87

 
28

 

 

 
(28
)
 

 

Balance at March 14, 2018
29,951

 
$
9,585

 
(500
)
 
$
(4,775
)
 
$
32,997

 
$
90,389

 
$
128,196

Net loss

 

 

 

 

 
(14,596
)
 
(14,596
)
Share-based compensation expense
24

 
7

 

 

 
432

 

 
439

Balance at June 6, 2018
29,975

 
$
9,592

 
(500
)
 
$
(4,775
)
 
$
33,429

 
$
75,793

 
$
114,039

 
Common Stock
 
 
 
 
 
Total
 
Issued
 
Treasury
 
Paid-In
 
Retained
 
Shareholders’
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Earnings
 
Equity
Balance at August 29, 2018
30,003

 
$
9,602

 
(500
)
 
$
(4,775
)
 
$
33,872

 
$
73,929

 
$
112,628

Net loss

 

 

 

 

 
(7,489
)
 
(7,489
)
Cumulative effect of accounting changes from the adoption of ASC Topic 606

 

 

 

 

 
2,479

 
2,479

Share-based compensation expense
42

 
13

 

 

 
426

 

 
439

Common stock issued under employee benefit plans
81

 
26

 

 

 
(26
)
 

 

Common stock issued under nonemployee benefit plans
38

 
12

 

 

 
(12
)
 

 

Balance at December 19, 2018
30,164

 
$
9,653

 
(500
)
 
$
(4,775
)
 
$
34,260

 
$
68,919

 
$
108,057

Net Income

 

 

 

 

 
$
6,632

 
$
6,632

Share-based compensation expense
98

 
31

 

 

 
363

 

 
394

Common stock issued under employee benefit plans
12

 
4

 

 

 
(4
)
 

 

Common stock issued under nonemployee benefit plans
15

 
5

 

 

 
(5
)
 

 

Balance at March 13, 2019
30,289

 
$
9,693

 
(500
)
 
$
(4,775
)
 
$
34,614

 
$
75,551

 
$
115,083

Net loss


 


 
 
 


 


 
$
(5,301
)
 
(5,301
)
Share-based compensation expense
86

 
$
28

 
 
 
$

 
$
341

 
$

 
369

Balance at June 5, 2019
30,375

 
$
9,721

 
(500
)
 
$
(4,775
)
 
$
34,955

 
$
70,250

 
$
110,151

 
The accompanying notes are an integral part of these consolidated financial statements. 

5



Luby’s, Inc.
Consolidated Statements of Cash Flows (unaudited)
(In thousands)
 
 
Three Quarters Ended
 
June 5,
2019
 
June 6,
2018
 
(40 weeks)
 
(40 weeks)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net loss
$
(6,157
)
 
$
(31,704
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Provision for asset impairments and net losses (gains) on property sales
(9,838
)
 
6,599

Depreciation and amortization
11,052

 
13,402

Amortization of debt issuance cost
1,063

 
438

Share-based compensation expense
1,192

 
1,691

Deferred tax provision

 
8,026

Cash used in operating activities before changes in operating assets and liabilities
(2,688
)
 
(1,548
)
Changes in operating assets and liabilities:
 
 
 
Decrease (increase) in trade accounts and other receivables
(880
)
 
143

Decrease (increase) in food and supply inventories
148

 
(376
)
Decrease in prepaid expenses and other assets
1,106

 
575

Decrease in accounts payable, accrued expenses and other liabilities
(8,567
)
 
(3,672
)
Net cash used in operating activities
(10,881
)
 
(4,878
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Proceeds from disposal of assets and property held for sale
21,761

 
3,363

Insurance proceeds

 
756

Purchases of property and equipment
(2,866
)
 
(11,730
)
Net cash provided by (used in) investing activities
18,895

 
(7,611
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Revolver borrowings
37,500

 
83,200

Revolver repayments
(55,500
)
 
(68,600
)
Proceeds from term loan
58,400

 

Term loan repayments
(36,107
)
 
(1,415
)
Debt issuance costs
(3,236
)
 
(213
)
Taxes paid on equity withheld
(12
)
 
(70
)
Net cash provided by financing activities
1,045

 
12,902

Net increase in cash and cash equivalents and restricted cash
9,059

 
413

Cash and cash equivalents and restricted cash at beginning of period
3,722

 
1,096

Cash and cash equivalents and restricted cash at end of period
$
12,781

 
$
1,509

Cash paid for:
 
 
 
Income taxes
$
510

 
$

Interest
3,255

 
1,717

 
The accompanying notes are an integral part of these consolidated financial statements.

6



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 our 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 and three quarters ended June 5, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending August 28, 2019.
 
The consolidated balance sheet dated August 29, 2018, included in this Quarterly Report on Form 10-Q (this “Form 10-Q”), has been derived from our 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 29, 2018.

Recently Adopted Accounting Pronouncements
We transitioned to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”) from ASC Topic 605, Revenue Recognition and ASC Topic 953-605, Franchisors - Revenue Recognition (together, the “Previous Standards”) on August 30, 2018. Our transition to ASC 606 represents a change in accounting principle. ASC 606 eliminates industry-specific guidance and provides a single model for recognizing revenue from contracts with customers. The core principle of ASC 606 is that a reporting entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the reporting entity expects to be entitled for the exchange of those goods or services.

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

The adoption of ASC 606 did not have an impact on the recognition of revenues from our primary source of revenue from our Company owned restaurants (except for recognition of breakage and discounts on gift cards, as discussed below), revenues from our culinary contract services, vending revenue or ongoing franchise royalty fees, which are based on a percentage of franchisee sales. The adoption did impact the recognition of initial franchise fees and area development fees and gift card breakage.
The adoption of ASC 606 requires us to recognize initial and renewal franchise and development fees on a straight-line basis over the term of the franchise agreement, which is usually 20 years. Historically, we have recognized revenue from initial franchise and development fees upon the opening of a franchised restaurant when we have completed all our material obligations and initial services.
Additionally, ASC 606 requires gift card breakage to be recognized as revenue in proportion to the pattern of gift card redemptions exercised by our customers. Historically, we recorded breakage income within other (expense) income (and not within revenue) when it was deemed remote that the unused gift card balance will be redeemed.
Upon adoption of ASC 606 we changed our reporting of marketing and advertising fund (“MAF”) contributions from franchisees and the related marketing and advertising expenditures. Under the Previous Standards, we did not reflect MAF contributions from franchisees and MAF expenditures in our statements of operations. Although the gross amounts of our revenues and expenses are impacted by the recognition of franchisee MAF fund contributions and related expenditures of MAF funds we manage, increases to gross revenues and expenses did not result in a material net impact to our statement of operations.
Our consolidated financial statements reflect the application of ASC 606 beginning in fiscal year 2019, while our consolidated financial statements for prior periods were prepared under the guidance of the Previous Standards. The $2.5 million cumulative effect of our adoption of ASC 606 is reflected as an increase to our 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

7



$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 fiscal year 2018 that would have been deferred and recognized over the term of the franchise agreement if the new guidance had been applied prior to August 30, 2018.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. This update provides clarification regarding how certain cash receipts and disbursements are presented and classified in the statement of cash flows. The update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. We adopted ASU 2016-15 on August 30, 2018 using the retrospective method of adoption. The adoption of this standard did not have a material impact on our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash. This update addresses the diversity in practice on how to classify and present changes in restricted cash or restricted cash equivalents in the statement of cash flows. The update requires that a statement of cash flows explain the change during the period in restricted cash or restricted cash equivalents in addition to changes in cash and cash equivalents. Entities are also required to disclose information about the nature of the restrictions and amounts described as restricted cash and restricted cash equivalents. Also, when cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line on the balance sheet, an entity must reconcile these amounts to the total shown on the statement of cash flows. We adopted ASU 2016-18 effective August 30, 2018 using the retrospective method of adoption. Our adoption of ASU 2016-18 represents a change in accounting principle. Our consolidated statement of cash flow for the three quarters ended June 6, 2018 has been revised to reflect the application of ASU 2016-18. See Note 2 for the reconciliation and disclosures regarding the restrictions required by this update. The adoption of this standard did not have a material impact on our consolidated financial statements.
New Accounting Pronouncements - "to be Adopted"
 
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Subsequently, the FASB issued ASU 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01, which were targeted improvements to ASU 2016-02 (collectively, with ASU 2016-02, “ASC 842”) and provided entities with an additional (and optional) transition method to adopt the new lease standard. ASC 842 requires a lessee to recognize a liability to make lease payments and a corresponding right-of-use asset on the balance sheet, as well as provide additional disclosures about the amount, timing and uncertainty of cash flows arising from leases. ASC 842 is effective for annual and interim periods beginning after December 15, 2018. ASC 842 may be adopted using the modified retrospective method, which requires application to all comparative periods presented (the “comparative method”) or alternatively, as of the effective date of initial application without restating comparative period financial statements (the “effective date method”). We will adopt ASC 842 in the first quarter of fiscal year 2020 using the effective date method. The ASC 842 also provides several practical expedients and policies that companies may elect under either transition method.
We are implementing a new lease tracking and accounting system in connection with the adoption of ASC 842. Based on a preliminary assessment, we expect that most of our operating lease commitments will be subject to the new standard and we will record operating lease liabilities and right-of-use assets upon adoption, resulting in a significant increase in the assets and liabilities on our consolidated balance sheet. We expect to elect the package of practical expedients which will allow us not to reassess previous accounting conclusions regarding lease identification and classification for existing or expired leases as of the date of adoption. We also expect to elect the short-term lease recognition exemption, which provides the option to not recognize right-of-use assets and related liabilities for leases with terms of 12 months or less. We are continuing our assessment of the other practical expedients and policy elections available under ASC 842. We are continuing our assessment of the impact of adoption, which may identify additional impacts to our consolidated financial statements.
Subsequent Events
We evaluated events subsequent to June 5, 2019 through the date the financial statements were issued to determine if the nature and significance of the events warrant inclusion in our consolidated financial statements.
Note 2. Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within our consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:

8



 
June 5,
2019
 
August 29,
2018
 
(in thousands)
Cash and cash equivalents
$
3,193

 
$
3,722

Restricted cash and cash equivalents
9,588

 

Total cash and cash equivalents shown in the statement of cash flows
$
12,781

 
$
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 13), (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 3. Revenue Recognition

Restaurant Sales
Restaurant sales consist of sales of food and beverage products to restaurant guests at our Luby’s Cafeteria, Fuddruckers and Cheeseburger in Paradise restaurants. Revenue from restaurant sales is recognized at the point of sale and is presented net of discounts, coupons, employee meals and complimentary meals. Sales taxes that we collect and remit to the appropriate taxing authority related to these sales are excluded from revenue.
We sell gift cards to our customers in our venues and through certain third-party distributors. These gift cards do not expire and do not incur a service fee on unused balances. Sales of gift cards to our restaurant customers are initially recorded as a contract liability, included in accrued expenses and other liabilities, at their expected redemption value. When gift cards are redeemed, we recognize revenue and reduce the contract liability. Discounts on gift cards sold by third parties are recorded as a reduction to accrued expenses and other liabilities and are recognized, as a reduction to revenue, over a period that approximates redemption patterns. The portion of gift cards sold to customers that are 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.

9



Franchise revenues
Franchise revenues consist primarily of royalties, marketing and advertising fund (“MAF”) contributions, initial and renewal franchise fees, and upfront fees from area development agreements related to our Fuddruckers restaurant brand. Our performance obligations under franchise agreements consist of: (1) a franchise license, including a license to use our brand and MAF management, (2) pre-opening services, such as training and inspections and (3) ongoing services, such as development of training materials and menu items as well as restaurant monitoring and inspections. These performance obligations are highly interrelated, so we do not consider them to be individually distinct. We account for them under ASC 606 as a single performance obligation, which is satisfied over time by providing a right to use our intellectual property over the term of each franchise agreement.
Royalties, including franchisee MAF contributions, are calculated as a percentage of franchise restaurant sales. MAF contributions paid by franchisees are used for the creation and development of brand advertising, marketing and public relations, merchandising research and related programs, activities and materials. The initial franchisee fee is payable upon execution of the franchise agreement and the renewal fee is due and payable at the expiration of the initial term of the franchise agreement. Our franchise agreement royalties, including advertising fund contributions, represent sales-based royalties that are related entirely to our performance obligation under the franchise agreement and are recognized as franchise sales occur.
Initial and renewal franchise fees and area development fees are recognized as revenue over the term of the respective agreement. Area development fees are not distinct from franchise fees, so upfront fees paid by franchisees for exclusive development rights are deferred and apportioned to each franchise restaurant opened by the franchisee. The pro-rata amount apportioned to each restaurant is accounted for as an initial franchise fee.
Under the Previous Standards, initial franchise fees and area development fees were recognized as revenue when the related restaurant commenced operations and we completed all material pre-opening services and conditions. Renewal franchise fees were recognized as revenue upon execution of a new franchise agreement. MAF contributions from franchisees and the related MAF expenditures were accounted for on a net basis in our consolidated balance sheets.
Revenue from vending machine sales is recorded at the point in time when the sale occurs.
Contract Liabilities
Contract liabilities consist of (1) deferred revenue resulting from initial and renewal franchise fees and upfront area development fees paid by franchisees, which are generally recognized on a straight-line basis over the term of the underlying agreement, (2) liability for unused gift cards and (3) unamortized discount on gift cards sold to 3rd party retailers. These contract liabilities are included in accrued expenses and other liabilities in our consolidated balance sheets. The following table reflects the change in contract liabilities between the date of adoption (August 30, 2018) and June 5, 2019:
 
 
Gift Cards, net of discounts
 
Franchise Fees
 
 
(In thousands)
Balance at August 30, 2018
 
$
2,707

 
$
1,891

Revenue recognized that was included in the contract liability balance at the beginning of the year
 
(1,163
)
 
(512
)
Increase (decrease), net of amounts recognized as revenue during the period
 
1,514

 
(40
)
Balance at June 5, 2019
 
$
3,058

 
$
1,339

The following table illustrates the estimated revenues expected to be recognized in the future related to our deferred franchise fees that are unsatisfied (or partially unsatisfied) as of June 5, 2019 (in thousands):

10



 
 
Franchise Fees
 
(In thousands)
Remainder of fiscal 2019
 
$
9

Fiscal 2020
 
40

Fiscal 2021
 
40

Fiscal 2022
 
39

Fiscal 2023
 
39

Thereafter
 
401

Total operating franchise restaurants
 
$
568

Franchise restaurants not yet opened(1)
 
771

Total
 
$
1,339

(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 three quarters ended June 5, 2019, total sales of $252.1 million was comprised of revenue from performance obligations satisfied over time of $17.7 million and revenue from performance obligations satisfied at a point in time of $234.4 million. For the quarter ended June 5, 2019, total sales of $74.8 million was comprised of revenue from performance obligations satisfied over time of $5.4 million and revenue from performance obligations satisfied at a point in time of $69.4 million. See Note 5. Reportable Segments for disaggregation of revenue by reportable segment.
With the exception of the cumulative effect adjustment described in Note 1, the adoption of ASC 606 did not have a material effect on our consolidated financial statements for the three quarters ended June 5, 2019.

Note 4. Accounting Periods
 
The Company’s fiscal year ends on the last Wednesday in August. Accordingly, each fiscal year normally consists of 13 four-week periods, or accounting periods, accounting for 364 days in the aggregate. However, every fifth or sixth year, we have a fiscal year that consists of 53 weeks, accounting for 371 days in the aggregate. The first fiscal quarter consists of four four-week periods, or 16 weeks, and the remaining three quarters typically include three four-week periods, or 12 weeks, in length. The fourth fiscal quarter includes 13 weeks in certain fiscal years to adjust for our standard 52 week, or 364 day, fiscal year compared to the 365 day calendar year.

Note 5. 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 margins are similar. The chief operating decision maker analyzes Company-owned restaurants at store level profit which is revenue less cost of food, payroll and related costs, other operating expenses, and occupancy costs. The primary brands are Luby’s Cafeterias, Fuddruckers - World’s Greatest Hamburgers® and Cheeseburger in Paradise. All company-owned restaurants are casual dining restaurants. Each restaurant is an operating segment because operating results and cash flow can be determined for each restaurant.
 
The total number of Company-owned restaurants was 130 at June 5, 2019 and 146 at August 29, 2018.


11



Culinary Contract Services
 
CCS, branded as Luby’s Culinary 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. 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, 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 includes all food, payroll and related costs, other operating expenses, and other direct general and administrative expenses related to CCS sales. The total number of CCS locations was 32 at June 5, 2019 and 28 at August 29, 2018.

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

Franchise Operations
 
We offer franchises for the Fuddruckers brand. Franchises are sold in markets where expansion is deemed advantageous to the development of the Fuddruckers concept and system of restaurants. 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, as well as accounting and operational 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 107 at June 5, 2019 and 105 at August 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 January 2019, this licensee operated 33 restaurants that are licensed to use the Fuddruckers Proprietary Marks in Saudi Arabia, Egypt, United Arab Emirates, Qatar, Jordan, and Bahrain. The Company does not receive revenue or royalties from these restaurants.

Segment Table

The table on the following page 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.

12



 
 
Quarter Ended
 
Three Quarters Ended
 
June 5,
2019
 
June 6,
2018
 
June 5,
2019
 
June 6,
2018
 
(12 weeks)
 
(12 weeks)
 
(40 weeks)
 
(40 weeks)
 
(In thousands)
Sales:
 
 
 
 
 
 
 
Company-owned restaurants (1)
$
65,713

 
$
77,921

 
$
222,371

 
$
257,149

Culinary contract services
7,571

 
6,639

 
24,610

 
19,413

Franchise operations
1,482

 
1,444

 
5,126

 
4,732

Total
$
74,766

 
$
86,004

 
$
252,107

 
$
281,294

Segment level profit:
 
 
 
 

 

Company-owned restaurants
$
6,706

 
$
6,642

 
$
22,938

 
$
23,469

Culinary contract services
780

 
535

 
2,286

 
1,300

Franchise operations
1,152

 
1,103

 
4,277

 
3,534

Total
$
8,638

 
$
8,280

 
$
29,501

 
$
28,303

Depreciation and amortization:
 
 
 
 

 

Company-owned restaurants
$
2,498

 
$
3,381

 
$
9,502

 
$
11,155

Culinary contract services
25

 
18

 
70

 
54

Franchise operations
177

 
178

 
590

 
592

Corporate
227

 
473

 
890

 
1,601

Total
$
2,927

 
$
4,050

 
$
11,052

 
$
13,402

Capital expenditures:
 
 
 
 

 

Company-owned restaurants
$
991

 
$
3,152

 
$
2,553

 
$
9,569

Culinary contract services
12

 
55

 
22

 
185

Corporate
82

 
493

 
291

 
1,976

Total
$
1,085

 
$
3,700

 
$
2,866

 
$
11,730

 
 
 
 
 

 

Loss before income taxes and discontinued operations
 
 
 
 

 

Segment level profit
$
8,638

 
$
8,280

 
$
29,501

 
$
28,303

Opening costs
(6
)
 
(85
)
 
(49
)
 
(490
)
Depreciation and amortization
(2,927
)
 
(4,050
)
 
(11,052
)
 
(13,402
)
Selling, general and administrative expenses
(9,426
)
 
(8,507
)
 
(29,666
)
 
(29,219
)
Provision for asset impairments and restaurant closings
(675
)
 
(4,464
)
 
(3,097
)
 
(6,716
)
Net gain (loss) on disposition of property and equipment
434

 
(154
)
 
12,935

 
(172
)
Interest income
11

 
1

 
30

 
12

Interest expense
(1,324
)
 
(1,042
)
 
(4,593
)
 
(2,235
)
Other income, net
112

 
9

 
198

 
317

Loss before income taxes and discontinued operations
$
(5,163
)
 
$
(10,012
)
 
$
(5,793
)
 
$
(23,602
)
 
June 5,
2019
 
August 29,
2018
Total assets:
(in thousands)
Company-owned restaurants(2)
$
148,800

 
$
152,281

Culinary contract services
7,033

 
4,569

Franchise operations(2)
10,263

 
10,212

Corporate
25,970

 
32,927

Total
$
192,066

 
$
199,989

(1)
Includes vending revenue of approximately $102 thousand and $118 thousand for the quarter ended June 5, 2019 and June 6, 2018, respectively, and amortization of discounts on gift cards sold partially offset by gift card breakage of approximately $131 thousand in the quarter ended June 5, 2019. Includes vending revenue of approximately $292 thousand and $412 thousand for the three quarters ended June 5, 2019 and June 6, 2018, respectively, and amortization of discounts on gift cards sold partially offset by gift card breakage of approximately $375 thousand in the three quarters ended June 5, 2019.
(2)
Company-owned restaurants segment includes $7.7 million of Fuddruckers trade name, Cheeseburger in Paradise liquor licenses, and Jimmy Buffett intangibles. Franchise operations segment includes approximately $9.4 million in royalty intangibles.

13



Note 6. 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 paid was 1.965% and the variable rate we received was one-month LIBOR. The term of the interest rate swap was 5 years. The Company did not apply hedge accounting treatment to this derivative; therefore, changes in fair value of the instrument were recognized in Other income (expense), net. The changes in the interest rate swap fair value resulted in an expense of approximately $0.1 million during the three quarters ended June 5, 2019 and a credit to expense of approximately $0.7 million in the three quarters ended June 6, 2018. The Company terminated its interest rate swap in the quarter ended December 19, 2018 and received approximately $0.3 million in cash proceeds.

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

Note 7. Fair Value Measurements
 
GAAP establishes a framework for using fair value to measure assets and liabilities, and expands disclosure about fair value measurements. Fair value measurements guidance applies whenever other authoritative accounting guidance requires or permits assets or liabilities to be measured at fair value.
 
GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value. These tiers include:

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

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

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

The fair values of the Company's cash and cash equivalents, restricted cash and cash equivalents, trade receivables and other receivables, net, and accounts payable approximate their carrying value due to their short duration. The carrying value of the Company's total credit facility debt, net of unamortized discounts and debt issue costs, at June 5, 2019 and August 29, 2018 was approximately $42.0 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 5, 2019
 
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Valuation Method
Recurring Fair Value - Assets
 
 
(In thousands)
 
 
Continuing Operations:
 
 
 
 
 
 
 
 
 
Derivative - Interest Rate Swap(1)
$

 
$

 
$

 
$

 
 
(1) The Company terminated its interest rate swap in the first quarter of fiscal 2019 and received cash proceeds of approximately $0.3 million which is recorded in other income.

14



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

Recurring fair value measurements related to liabilities are presented below:
 
 
 
Fair Value
Measurement Using
 
 
 
June 5, 2019
 
Quoted
Prices in
Active
Markets for
Identical
Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Valuation Method
Recurring Fair Value - Liabilities
 
 
(In thousands)
 
 
 
 
Continuing Operations:
 
 
 
 
 
 
 
 
 
TSR Performance Based Incentive Plan(1)
$

 
$

 
$

 
$

 
Monte Carlo Simulation
(1) The fair value of the Company's 2017 Performance Based Incentive Plan liabilities was zero.

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

 
$

 
$
229

 
$

 
Monte Carlo Simulation
Total liabilities at Fair Value
$
229

 
$

 
$
229

 
$

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









15



Non-recurring fair value measurements related to impaired property held for sale and property and equipment consisted of the following:
 
 
 
 
Fair Value
Measurement Using
 
 
 
June 5, 2019
 
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Impairments(3)
Nonrecurring Fair Value Measurements
 
 
(In thousands)
 
 
 
 
Continuing Operations
 
 
 
 
 
 
 
 
 
Property held for sale(1)
$
8,030

 
$

 
$

 
$
8,030

 
$
(70
)
Property and equipment related to company-owned restaurants(2)
704

 

 

 
704

 
(3,476
)
Total Nonrecurring Fair Value Measurements
$
8,734

 
$

 
$

 
$
8,734

 
$
(3,546
)
Discontinued Operations
 
 
 
 
 
 
 
 
 
Property held for sale(5)
$

 
$

 
$

 
$

 
$

(1) In accordance with Subtopic 360-10, long-lived assets held for sale with a carrying value of approximately $8.1 million were written down to their fair value, less cost to sell, of approximately $8.0 million, resulting in an impairment charge of approximately $0.1 million.
(2) In accordance with Subtopic 360-10, long-lived assets held and used with a carrying value of approximately $4.2 million were written down to their fair value of approximately $0.7 million, resulting in an impairment charge of approximately $3.5 million.
(3) Total impairments for continuing operations are included in provision for asset impairments and restaurant closings in our consolidated statement of operations for the three quarters ended June 5, 2019.


16



 
 
 
Fair Value
Measurement Using
 
 
 
June 6, 2018
 
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Impairments(4)
Nonrecurring Fair Value Measurements
 
 
(In thousands)
 
 
 
 
Continuing Operations
 
 
 
 
 
 
 
 
 
Property held for sale(1)
$
9,074

 
$

 
$

 
$
9,074

 
$
(2,808
)
Property and equipment related to company-owned restaurants (2)
1,519

 

 

 
1,519

 
(2,721
)
Goodwill (3)

 

 

 

 
(513
)
Total Nonrecurring Fair Value Measurements
$
10,593

 
$

 
$

 
$
10,593

 
$
(6,042
)
Discontinued Operations
 
 
 
 
 
 
 
 
 
Property held for sale (5)
$
1,800

 
$

 
$

 
$
1,800

 
$
(100
)
(1) In accordance with Subtopic 360-10, long-lived assets held for sale with a carrying value of approximately $12.9 million were written down to their fair value, less approximately $1.0 million net proceeds on sales, of approximately $9.1 million, resulting in an impairment charge of approximately $2.8 million.
(2) In accordance with Subtopic 360-10, long-lived assets held and used with a carrying amount of approximately $4.2 million were written down to their fair value of approximately $1.5 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 $513 thousand was written down to zero, resulting in an impairment charge of approximately $513 thousand.
(4) Total impairments are included in provision for asset impairments and restaurant closings in our unaudited consolidated statement of operations for the three quarters ended June 6, 2018.
(5) In accordance with Subtopic 205-20, discontinued operations held for sale with a carrying value of approximately $1.9 million were written down to their fair value , less costs to sell, of approximately $1.8 million , resulting in an impairment charge of approximately $0.1 million. This charge is included in loss from discontinued operations, net of income on our unaudited consolidated statement of operations for the three quarters ended June 6, 2018.

Note 8. Income Taxes
 
The effects of the U.S. tax reform legislation that is commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) on the Company's income tax accounts were reflected in the fiscal 2018 financial statements as determined based on available information, subject to interpretation in accordance with the SEC's Staff Accounting Bulletin No. 118 ("SAB 118"). SAB 118 provides guidance on accounting for the effects of the Tax Act where such determinations are incomplete; however, the Company has completed its determination of the effects of the Tax Act on its income tax accounts.

No cash payments of estimated federal income taxes were made during the three quarters ended June 5, 2019 and June 6, 2018, respectively. Deferred tax assets and liabilities are recorded based on differences between the financial reporting basis and the tax basis of assets and liabilities using currently enacted rates and laws that will be in effect when the differences are expected to reverse.
 
Deferred tax assets are recognized to the extent future taxable income is expected to be sufficient to utilize those assets prior to their expiration. If current available evidence and information raises doubt regarding the realization of the deferred tax assets, on a more likely than not basis, a valuation allowance is necessary. In evaluating our ability to realize the Company's deferred tax assets, the Company considered available positive and negative evidence, scheduled reversals of deferred tax liabilities, tax-planning strategies, and results of recent operations. As of June 5, 2019, management determined that for the three quarters ended June 5, 2019 a full valuation allowance on the Company's net deferred tax assets was necessary.

The effective tax rate ("ETR") for continuing operations was a negative 2.6% for the quarter ended June 5, 2019 and a negative 41.2% for the quarter ended June 6, 2018. The ETR for the quarter ended June 5, 2019 differs from the federal statutory rate of 21% due to management's full valuation allowance conclusion, anticipated federal jobs credits, state income taxes, and other discrete items.


17



The ETR for continuing operations was a negative 6.0% for the three quarters ended June 5, 2019 and a negative 31.8% for the three quarters ended June 6, 2018. The ETR for the three quarters ended June 5, 2019 differs from the federal statutory rate of 21% due to full management's valuation allowance conclusion, anticipated federal jobs credits, state income taxes, and other discrete items.

Management believes that adequate provisions for income taxes have been reflected in the financial statements and is not aware of any significant exposure items that have not been reflected in our consolidated financial statements. Amounts considered probable of settlements within one year have been included in the accrued expenses and other liabilities in the accompanying consolidated balance sheet.
 
Note 9. Property and Equipment, Intangible Assets and Goodwill
 
The costs, net of impairment, and accumulated depreciation of property and equipment at June 5, 2019 and August 29, 2018, together with the related estimated useful lives used in computing depreciation and amortization, were as follows:
 
 
June 5,
2019
 
August 29,
2018
 
Estimated
Useful Lives
(years)
 
(In thousands)
 
 
 
 
 
 
Land
$
46,336

 
$
46,817

 
 
 
 
 
Restaurant equipment and furnishings
70,181

 
69,678

 
3
 
to
 
15
Buildings
129,866

 
131,557

 
20
 
to
 
33
Leasehold and leasehold improvements
23,229

 
27,172

 
Lesser of lease term or estimated useful life
Office furniture and equipment
3,405

 
3,596

 
3
 
to
 
10
 
273,017

 
278,820

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

 
$
138,287

 
 
 
 
 
 
Intangible assets, net
$
17,105

 
$
18,179

 
15
 
to
 
21


During the quarter ended March 13, 2019, the Company completed the sale of two properties with a total net sales price of approximately $19.6 million. The properties sold had been included in the previously announced asset sales program. The sales included lease back periods of 36 and 60 months and average annual lease payments of approximately $450 thousand and $295 thousand, respectively. The Company recorded a total net gain on the two sales of approximately $15.3 million of which $12.9 million was recognized in the quarter ended March 13, 2019 and the remainder will be recognized over the respective lease back periods. The deferred gain on the sale of the two properties is included in other liabilities on our consolidated balance sheet at June 5, 2019. Net proceeds from the sales were used in accordance with the 2018 Credit Agreement, to reduce the balance on its outstanding 2018 Term Loan (as defined below) and for general business purposes.
Intangible assets, net, includes the Fuddruckers trade name and franchise agreements and are amortized. The Company believes the Fuddruckers brand name has an expected accounting life of 21 years from the date of acquisition based on the expected use of its assets and the restaurant environment in which it is being used. The trade name represents a respected brand with customer loyalty and the Company intends to cultivate and protect the use of the trade name. The franchise agreements, after considering renewal periods, have an estimated accounting life of 21 years from the date of acquisition, July 2010, and will be amortized over this period of time.
 
Intangible assets, net, also includes the license agreement and trade name related to Cheeseburger in Paradise and the value of the acquired licenses and permits allowing the sales of beverages with alcohol. These assets have an expected useful life of 15 years from the date of acquisition, December 2012.
 
The aggregate amortization expense related to intangible assets subject to amortization was approximately $1.0 million and $1.1 million for the three quarters ended June 5, 2019 and June 6, 2018, 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.
 

18



The following table presents intangible assets as of June 5, 2019 and August 29, 2018:
 
 
June 5, 2019
 
August 29, 2018(1)
 
(In thousands)
 
(In thousands)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Intangible Assets Subject to Amortization:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fuddruckers trade name and franchise agreements
$
29,486

 
$
(12,429
)
 
$
17,057

 
$
29,701

 
$
(11,653
)
 
$
18,048

 
 
 
 
 
 
 
 
 
 
 
 
Cheeseburger in Paradise trade name and license agreements
146

 
(98
)
 
48

 
206

 
(75
)
 
131

 
 
 
 
 
 
 
 
 
 
 
 
Intangible assets, net
$
29,632

 
$
(12,527
)
 
$
17,105

 
$
29,907

 
$
(11,728
)
 
$
18,179

(1) The amounts as of August 29, 2018 reflect a reclassification of amounts from the Cheeseburger in Paradise trade name and license agreements to the Fuddruckers trade name and franchise agreements lines on the table, netting to approximately $88 thousand.  

Goodwill, net of accumulated impairments of approximately $1.9 million, was approximately $555 thousand as of June 5, 2019 and August 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 June 5, 2019 is comprised of amounts assigned to one Cheeseburger in Paradise restaurant that is still operated by us, and the goodwill from the Fuddruckers acquisition in 2010. The Company performs a goodwill impairment test annually as of the end of the second fiscal quarter of each year and more frequently when negative conditions or a triggering event arises. Management prepares valuations for each of its restaurants using a discounted cash flow analysis (Level 3 inputs) to determine the fair value of each reporting unit for comparison with the reporting unit's carrying value in determining if there has been an impairment of goodwill at the reporting level.
 
The Company recorded no goodwill impairment charges during the three quarters ended June 5, 2019 and approximately $0.6 million during the three quarters ended June 6, 2018.

Note 10. Impairment of Long-Lived Assets, Discontinued Operations, Property Held for Sale and Store Closings
 
Impairment of Long-Lived Assets and Store Closings
 
We periodically evaluate long-lived assets held for use and held for sale whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. We analyze historical cash flows of operating locations and compares results of poorer performing locations to more profitable locations. We also analyze lease terms, condition of the assets and related need for capital expenditures or repairs, as well as construction activity and the economic and market conditions in the surrounding area.

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

19



 
 
Three Quarters Ended
 
June 5,
2019
 
June 6,
2018
 
(40 weeks)
 
(40 weeks)
 
(In thousands, except per share data)
Provision for asset impairments and restaurant closings
$
3,097

 
$
6,716

Net loss (gain) on disposition of property and equipment
(12,935
)
 
172

 
 
 
 
 
$
(9,838
)
 
$
6,888

Effect on EPS:
 
 
 
Basic
$
0.33

 
$
(0.23
)
Assuming dilution
$
0.33

 
$
(0.23
)
 
The approximate $3.1 million impairment charge for the three quarters ended June 5, 2019 is primarily related to assets at nine property locations held for use, six properties held for sale written down to their fair value and one international joint venture investment.

The approximate $6.7 million impairment charge for the three quarters ended June 6, 2018 is primarily related to assets at ten property locations held for use, ten properties held for sale written down to their fair value, goodwill at 3 locations, and approximately $0.7 million in net lease termination costs at five property locations.
 
The approximate $12.9 million net gain for the three quarters ended June 5, 2019 is primarily related to gains on the sale and leaseback of two properties and gains on the sale of one undeveloped property that was held for sale, partially offset by routine asset retirements.
 
The approximate $0.2 million net loss for the three quarters ended June 6, 2018 is primarily related to asset retirements at six property location closures partially offset by gains on the sale of 3 property locations.
 
Discontinued Operations 
 
As a result of the first quarter fiscal 2010 adoption of our Cash Flow Improvement and Capital Redeployment Plan, we reclassified 24 Luby’s Cafeterias to discontinued operations. As of June 5, 2019, one location remains held for sale.

The following table sets forth the assets and liabilities for all discontinued operations:
 
 
June 5,
2019
 
August 29,
2018
 
(In thousands)
Property and equipment
$
1,813

 
$
1,813

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

 
$
1,813

Accrued expenses and other liabilities
$
9

 
$
14

Liabilities related to discontinued operations—current
$
9

 
$
14

Other liabilities
$
16

 
$
16

Liabilities related to discontinued operations—non-current
$
16

 
$
16


As of June 5, 2019, we 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. We are 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.
 

20



The following table sets forth the sales and pretax losses reported from discontinued operations:
 
 
Three Quarters Ended
 
June 5,
2019
 
June 6,
2018
 
(40 weeks)
 
(40 weeks)
 
(In thousands)
Sales
$

 
$

 
 
 
 
Pretax loss
$
(18
)
 
$
(73
)
Income tax expense from discontinued operations

 
(535
)
Loss from discontinued operations, net of income taxes
$
(18
)
 
$
(608
)

The following table summarizes discontinued operations for the three quarters of fiscal 2019 and 2018
 
Three Quarters Ended
 
June 5,
2019
 
June 6,
2018
 
(40 weeks)
 
(40 weeks)
 
(In thousands, except per share data)
Discontinued operating loss
$
(18
)
 
$
(14
)
Impairments

 
(59
)
Pretax loss
(18
)
 
(73
)
Income tax expense from discontinued operations

 
(535
)
Loss from discontinued operations, net of income taxes
$
(18
)
 
$
(608
)
Effect on EPS from discontinued operations—basic
$
(0.00
)
 
$
(0.02
)
  
Property Held for Sale
 
We periodically review long-lived assets against its plans to retain or ultimately dispose of properties. If we decide to dispose of a property, it will be moved to property held for sale, actively marketed and recorded at fair value less transaction costs. We analyze market conditions each reporting period and record additional impairments due to declines in market values of like assets. The fair value of the property is determined by observable inputs such as appraisals and prices of comparable properties in active markets for assets like ours. Gains are not recognized until the properties are sold.
 
Property held for sale includes unimproved land, closed restaurant properties, properties with operating restaurants 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 5, 2019, we had 13 owned properties with a carrying value of approximately $15.1 million in property held for sale. During the three quarters ended June 5, 2019, two properties were sold that were previously classified as held for sale. The pretax profit (loss) for the disposal group of locations operating for the three quarters ended June 5, 2019 and June 6, 2018 was a pretax income of approximately $13.1 million and a pretax loss of $0.9 million, respectively. Included in the pretax income (loss) for the three quarters ended June 5, 2019 and June 6, 2018 was net gains of $13.1 million and $0.3 million, respectively.
 
At August 29, 2018, we had 15 owned properties, of which two restaurants are located on one property, with a carrying value of approximately $19.5 million in property held for sale. The pretax loss for the disposal group of locations operating in fiscal 2018 was approximately $1.2 million.
 
We are actively marketing the locations currently classified as property held for sale.


21



Abandoned Leased Facilities - Reserve for Store Closings

As of June 5, 2019, we classified as abandoned 8 leased restaurants locationed in Arizona, Florida, Illinois, Maryland, Texas and Virginia . Although we remain obligated under the terms of the leases for the rent and other costs that may be associated with the leases, we decided to cease operations and we have no foreseeable plans to occupy the spaces as a company restaurant in the future. During the three quarters ended June 5, 2019, we recorded a decrease to the liability for lease termination expense and a credit to earnings, in provision for asset impairments and restaurant closings of approximately $0.5 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 we paid by to the landlord exceeds any rent paid to us by a tenant under a sublease over the remaining period of the lease terms. Accrued lease termination expense liability was approximately $1.7 million and $2.1 million as of June 5, 2019 and August 29, 2018, respectively. 

Note 11. 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.

Cheeseburger in Paradise, Royalty Commitment

The license agreement and trade name relates to a perpetual license to use intangible assets including trademarks, service marks and publicity rights related to Cheeseburger in Paradise owned by Jimmy Buffett and affiliated entities. In return, the Company pays a royalty fee of 2.5% of gross sales, less discounts, at the Company's operating Cheeseburger in Paradise location to an entity owned or controlled by Jimmy Buffett. The trade name represents a respected brand with positive customer loyalty, and the Company intends to cultivate and protect the use of the trade name.
 
Note 12. Related Parties
 
Affiliate Services
 
Christopher J. Pappas, the Company’s Chief Executive Officer, and Harris J. Pappas, former director and Chief Operating Officer of the Company, own 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. Collectively, Messrs. Pappas and the Pappas entities own greater than 5 percent of the Company's common stock.
 
Under the terms of the Amended and Restated Master Sales Agreement, the Pappas entities may provide specialized (customized) equipment fabrication and basic equipment maintenance, including stainless steel stoves, shelving, rolling carts, and chef tables. The Company incurred $15 thousand and $31 thousand under the Amended and Restated Master Sales Agreement for custom-fabricated and refurbished equipment in the three quarters ended June 5, 2019 and June 6, 2018, respectively, and incurred $2 thousand dollars in other operating costs in the three quarters ended June 6, 2018. Services provided under this agreement are subject to review and approval by the Finance and Audit Committee of the Board.
 

22



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 pays rent of $22.00 per square foot plus maintenance, taxes, and insurance during the remaining primary term of the lease. Thereafter, the lease provides for increases in rent at set intervals. The new lease agreement was approved by the Finance and Audit Committee.
 
In the third quarter of fiscal 2014, on March 12, 2014, the Company executed a new lease agreement with Pappas Restaurants, Inc. for one of our Fuddruckers locations in Houston, Texas. The lease provides for a primary term of approximately six years with 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 new lease agreement was approved by the Finance and Audit Committee.

For the three quarters ended June 5, 2019 and June 6, 2018, affiliated costs incurred as a percentage of relative total Company cost was 0.55% and 0.47%, respectively. Rent payments under the two lease agreements described above were $454 thousand and $470 thousand, respectively.

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 and officer of the Company, is an attorney and stepson of Frank Markantonis, who is a director of the Company. Effective June 13, 2019, Mr. Tropoli resigned from the Company and is no longer our General Counsel and Corporate Secretary.
 
Paulette Gerukos, Vice President of Human Resources of the Company, is the sister-in-law of Harris J. Pappas.

23



Note 13. Debt

The following table summarizes credit facility debt, less current portion at June 5, 2019 and August 29, 2018
 
 
 
June 5,
2019
 
August 29,
2018
Long-Term Debt
 
 
 
2016 Credit Agreement - Revolver
$

 
$
20,000

2016 Credit Agreement - Term Loan

 
19,506

2018 Credit Agreement - Revolver
2,000

 

2018 Credit Agreement - Term Loan
43,399

 

Total credit facility debt
45,399

 
39,506

Less:
 
 
 
Unamortized debt issue costs
(2,000
)
 
(168
)
Unamortized debt discount
(1,447
)
 

Total credit facility debt, less unamortized debt issuance costs
41,952

 
39,338

Current portion of credit facility debt

 
39,338

Credit facility debt, less current portion
$
41,952

 
$


2018 Credit Agreement
On December 13, 2018, the Company entered into a credit agreement (the “2018 Credit Agreement”) among the Company, the lenders from time to time party thereto, and MSD PCOF Partners VI, LLC (“MSD”), as Administrative Agent, pursuant to which the lenders party thereto agreed to make loans to the Company from time to time up to an aggregate principal amount of $80.0 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 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 $6.9 million is recorded in Restricted cash and cash equivalents on the Company's consolidated balance sheet.
The 2018 Credit Facility is subject to the following minimum amortization payments: 1st anniversary: $10.0 million; 2nd anniversary: $10.0 million; 3rd anniversary: $15.0 million; and 4th anniversary: $15.0 million.
The Company also pays a quarterly commitment fee based on the unused portion of the 2018 Revolver and the 2018 Delayed Draw Term Loan at 0.50% per annum. Voluntary prepayments, refinancing and asset dispositions constituting a sale of all or substantially all assets, under the 2018 Delayed Draw Term Loan and the 2018 Term Loan are subject to a make whole premium during years one and two equal to the present value of all interest otherwise owed from the date of the pre-payment through the end of year two, a 2.0% fee during year three, and a 1.0% fee during year four. Finally, the Company paid to the lenders a one-time fee in connection with the closing of the 2018 Credit Facility.
Indebtedness under the 2018 Credit Facility is secured by a security interest in, among other things, all of the Company’s present and future personal property (other than certain excluded assets), all of the personal property of its guarantors (other than certain excluded assets) and all Mortgaged Property (as defined in the 2018 Credit Agreement) of the Company and its subsidiaries.
The 2018 Credit Facility contains customary covenants and restrictions on the Company’s ability to engage in certain activities, including financial performance covenants, asset sales and acquisitions, and contains customary events of default. Specifically, among other things, the Company is required to maintain minimum Liquidity (as defined in the 2018 Credit Agreement) of $3.0 million as of the last day of each fiscal quarter and a minimum Asset Coverage Ratio (as defined in the 2018 Credit Agreement) of 2.50 to 1.00. As of June 5, 2019, the Company was in full compliance with all covenants with respect to the 2018 Credit Facility.
All amounts owing by the Company under the 2018 Credit Facility are guaranteed by the subsidiaries of the Company.
As of June 5, 2019, we had no amounts due within the next 12 months under the 2018 Credit Facility due to principal repayments in excess of the required minimum as of June 5, 2019. As of June 5, 2019 we had approximately $1.3 million committed under

24



letters of credit, which is used as security for the payment of insurance obligations and are fully cash collateralized, and approximately $0.1 million in other indebtedness.
As of July 15, 2019, the Company was in compliance with all covenants under the terms of the 2018 Credit Agreement.
2016 Credit Agreement
On November 8, 2016, the Company entered into a $65.0 million Senior Secured Credit Facility with Wells Fargo Bank, National Association, as Administrative Agent and Cadence Bank, NA and Texas Capital Bank, NA, as lenders (“2016 Credit Agreement”). The 2016 Credit Agreement, prior to the amendments discussed below, was comprised of a $30.0 million 5-year Revolver (the “Revolver”) and a $35.0 million 5-year Term Loan (the “Term Loan”), and it also included sub-facilities for swingline loans and letters of credits. The original maturity date of the 2016 Credit Agreement was November 8, 2021.
Borrowings under the Revolver and Term Loan bore interest at 1) a base rate equal to the greater of (a) the federal funds effective rate plus one-half of 1% (the “Base Rate”), (b) prime and (c) LIBOR for an interest period of 1 month, plus, in any case, an applicable spread that ranges from 1.50% to 2.50% per annum the (“Applicable Margin”), or (2) the London InterBank Offered Rate (“LIBOR”), as adjusted for any Eurodollar reserve requirements, plus an applicable spread that ranges from 2.50% to 3.50% per annum. Borrowings under the swingline loan bore interest at the Base Rate plus the Applicable Margin. The applicable spread under each option was dependent upon certain measures of the Company’s financial performance at the time of election. Interest was payable quarterly, or in more frequent intervals if LIBOR applies.
The Company was obligated to pay to the Administrative Agent for the account of each lender a quarterly commitment fee based on the average daily unused amount of the commitment of such lender, ranged from 0.30% to 0.35% per annum depending upon the Company's financial performance.
The proceeds of the 2016 Credit Agreement were available for the Company to (i) pay in full all indebtedness outstanding under the 2013 Credit Agreement as of November 8, 2016, (ii) pay fees, commissions, and expenses in connection with our repayment of the 2013 Credit Agreement, initial extensions of credit under the 2016 Credit Agreement, and (iii) for working capital and general corporate purposes of the Company.
The 2016 Credit Agreement, as amended, contained the customary covenants and was secured by an all asset lien on all of the Company's real property and also included customary events of default. On December 13, 2018, the 2016 Credit Agreement was terminated with all outstanding amounts paid in full.
Note 14. Share-Based Compensation
 
We have two active share based stock plans, the Luby's Incentive Stock Plan, as amended and restated effective December 5, 2015 (the "Employee Stock Plan") and the Nonemployee Director Stock Plan, as amended and restated effective February 9, 2018. Both plans authorize the granting of stock options, restricted stock, and other types of awards consistent with the purpose of the plans.
 
Of the aggregate 2.1 million shares approved for issuance under the Nonemployee Director Stock Plan, as amended, 1.5 million options, restricted stock units and restricted stock awards have been granted to date, and 0.1 million options were canceled or expired and added back into the plan, since the plan’s inception. Approximately 0.7 million shares remain available for future issuance as of June 5, 2019. Compensation costs for share-based payment arrangements under the Nonemployee Director Stock Plan, recognized in selling, general and administrative expenses for the three quarters ended June 5, 2019 and June 6, 2018 was approximately $440 thousand and $432 thousand, respectively, and approximately $151 thousand and $111 thousand for the quarters ended June 5, 2019 and June 6, 2018, 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 have been granted to date, and 4.1 million options and restricted stock units were canceled or expired and added back into the plan, since the plan’s inception in 2005. Approximately 0.9 million shares remain available for future issuance as of June 5, 2019. Compensation costs for share-based payment arrangements under the Employee Stock Plan, recognized in selling, general and administrative expenses for the three quarters ended June 5, 2019 and June 6, 2018 was approximately $397 thousand and $659 thousand, respectively, and approximately $101 thousand and $204 thousand for the quarters ended June 5, 2019 and June 6, 2018, respectively.
 

25



Stock Options
 
Stock options granted under either the Employee Stock Plan or the Nonemployee Director Stock Plan have exercise prices equal to the market price of the Company’s common stock at the date of the grant.
 
Option awards under the Nonemployee Director Stock Plan generally vest 100% on the first anniversary of the grant date and expire ten years from the grant date. No options were granted under the Nonemployee Director Stock Plan in the three quarters ended June 5, 2019. No options to purchase shares were outstanding under this plan as of June 5, 2019.
 
Options granted under the Employee Stock Plan generally vest 50% on the first anniversary date of the grant date, 25% on the second anniversary of the grant date and 25% on the third anniversary of the grant date, with all options expiring ten years from the grant date. No options were granted in the three quarters ended June 5, 2019. Options to purchase 1,464,010 shares at option prices of $2.82 to $5.95 per share remain outstanding as of June 5, 2019.
 
A summary of the Company’s stock option activity for the three quarters ended June 5, 2019 is presented in the following table:
 
 
Shares
Under
Fixed
Options
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
 
 
 
(Per share)
 
(In years)
 
(In thousands)
Outstanding at August 29, 2018
1,653,414

 
$
4.10

 
6.5

 
$

Forfeited
(102,102
)
 
4.10

 

 

Expired
(87,302
)
 
5.54

 

 

Outstanding at June 5, 2019
1,464,010

 
$
4.01

 
6.0

 
$

Exercisable at June 5, 2019
1,217,957

 
$
4.19

 
5.6

 
$


The intrinsic value for stock options is defined as the difference between the current market value, or closing price on June 5, 2019, and the grant price on the measurement dates in the table above.

At June 5, 2019, there was approximately $0.2 million of total unrecognized compensatio