LUBYS INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended February 9, 2005
or


o		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 1-8308

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 Number)

13111 Northwest Freeway, Suite 600
Houston, Texas 77040

(Address of principal executive offices, including zip code)

(713) 329-6800

(Registrant’s telephone number, including area code)

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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

As of March 1, 2005, there were 22,631,858 shares of the registrant’s Common Stock outstanding, which does not include 4,902,209 treasury shares.

Page 1

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements

Luby’s, Inc.
Consolidated Balance Sheets
(In thousands except share and per share amounts)


				August 25,
				2004
	February 9,			(Restated,
	2005			see Note 2)
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents (see Note 4)	$	3,813		$	1,211
Short-term investments (see Note 4)		6,588			4,384
Trade accounts and other receivables, net (see Note 9)		486			101
Food and supply inventories		2,025			2,092
Prepaid expenses		1,449			1,028
Deferred income taxes (see Note 5)		296			1,073

Total current assets		14,657			9,889
Property, plant, and equipment — net (see Note 6)		189,845			194,042
Property held for sale (see Note 8)		17,028			24,594
Investments and other assets		3,065			3,756

Total assets	$	224,595		$	232,281


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	13,533		$	15,888
Accrued expenses and other liabilities		16,287			18,006

Total current liabilities		29,820			33,894
Credit facility debt		32,000			28,000
Term debt (see Note 7)		14,560			23,470
Convertible subordinated notes, net-related party (see Note 7)		1,927			2,091
Other liabilities		9,475			9,715
Deferred income taxes (see Note 5)		4,487			5,061
Reserve for restaurant closings (see Note 8)		500			500
Commitments and contingencies (see Note 9)		—			—

Total liabilities		92,769			102,731


SHAREHOLDERS’ EQUITY

Common stock, $.32 par value; authorized 100,000,000 shares, issued 27,534,067 shares at February 9, 2005 and 27,410,567 shares at August 25, 2004, respectively		8,811			8,771
Paid-in capital		43,541			43,564
Retained earnings		183,590			181,986
Less cost of treasury stock, 4,902,209 shares at February 9, 2005 and 4,933,063 shares at August 25, 2004 in 2004		(104,116	)		(104,771	)

Total shareholders’ equity		131,826			129,550

Total liabilities and shareholders’ equity	$	224,595		$	232,281

See accompanying notes.

Page 3

Luby’s, Inc.
Consolidated Statements of Operations (unaudited)
(In thousands except share and per share data)


	Quarter Ended						Two Quarters Ended
				February 11,						February 11,
				2004						2004
	February 9,			(Restated,			February 9,			(Restated,
	2005			see Note 2)			2005			see Note 2)
	(84 days)			(84 days)			(168 days)			(168 days)
SALES	$	72,953		$	69,110		$	142,565		$	135,847

COSTS AND EXPENSES:
Cost of food		19,625			18,604			39,127			36,629
Payroll and related costs		19,023			19,234			37,719			37,847
Occupancy and other operating expenses		22,293			21,354			45,514			42,516
Depreciation and amortization		3,605			3,841			7,177			7,736
Relocation and voluntary severance costs		308			—			580			—
General and administrative expenses		4,701			5,085			8,783			9,712
Provision for asset impairments and restaurant closings (see Note 8)		221			1,063			221			1,339


		69,776			69,181			139,121			135,779

INCOME (LOSS) FROM OPERATIONS		3,177			(71	)		3,444			68
Interest expense		(976	)		(2,104	)		(1,662	)		(4,377	)
Other income, net		243			302			190			493

Income (loss) from continuing operations before income taxes		2,444			(1,873	)		1,972			(3, 816	)
Provision (benefit) for income taxes (see Note 5)		—			—			—			—

Income (loss) from continuing operations		2,444			(1,873	)		1,972			(3,816	)
Discontinued operations, net of taxes (see Note 8)		183			(3,156	)		(368	)		(5,546	)


NET INCOME (LOSS)	$	2,627		$	(5,029	)	$	1,604		$	(9,362	)

Income (loss) per share - before discontinued operations - basic	$	0.11		$	(0.08	)	$	0.09		$	(0.17	)
- assuming dilution^(a)		0.09			(0.08	)		0.07			(0.17	)

Income (loss) per share - from discontinued operations - basic	$	0.01		$	(0.14	)	$	(0.02	)	$	(0.25	)
- assuming dilution^(a)		0.01			(0.14	)		(0.01	)		(0.25	)

Net income (loss) per shared
- - basic	$	0.12		$	(0.22	)	$	0.07		$	(0.42	)
- assuming dilution^(a)		0.10			(0.22	)		0.06			(0.42	)

Weighted average shares outstanding:
- basic		22,609			22,470			22,551			22,470
- assuming dilution		26,533			22,470			26,558			22,470

(a)

In loss periods, earnings per share assuming dilution equals basic earnings per share since potentially dilutive securities are antidilutive.

See accompanying notes.

Page 4

Luby’s, Inc.
Consolidated Statements of Cash Flows (unaudited)
(In thousands)


	Two Quarters Ended
				February 11,
				2004
	February 9,			(Restated,
	2005			see Note 2)
	(84 days)			(84 days)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	1,604		$	(9,362	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:		—			—
Provision for (reversal of) asset impairments, net of gains on property sales - discontinued operations		(2,024	)		2,202
Provision for asset impairments		—			1,342
Depreciation and amortization — discontinued operations		236			343
Depreciation and amortization — continuing operations		7,177			7,736
Amortization of discount on convertible subordinated notes		(164	)		1,135
Loss on disposal of property, plant, and equipment		280			38
Noncash executive compensation expense		—			587

Cash provided by operating activities before changes in operating assets and liabilities		7,109			4,021
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts and other receivables		(385	)		174
Decrease in food and supply inventories		67			31
(Increase) decrease in prepaid expenses		(421	)		678
Decrease in other assets		691			383
Increase (decrease) in accounts payable		(2,355	)		722
Decrease in accrued expenses, other liabilities and deferred income taxes		(1,675	)		(4,334	)
Increase (decrease) in reserve for restaurant closings		—			(863	)

Net cash provided by operating activities		3,031			812


CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in short-term investments		(2,204	)		4,192
Proceeds from disposal of property held for sale		9,952			9,657
Purchases of property, plant, and equipment		(3,939	)		(2,568	)
Proceeds from disposal of property, plant, and equipment		—			40

Net cash provided by investing activities		3,809			11,321


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on line of credit, net		4,000			—
Repayment of term debt		(8,910	)		—
Repayment of credit facility		—			(11,533	)
Proceeds received on exercise of stock options		672			—

Net cash used in financing activities		(4,238	)		(11,533	)

Net increase in cash		2,602			600
Cash at beginning of period		1,211			871

Cash at end of period	$	3,813		$	1,471

See accompanying notes.

Page 6

Luby’s, Inc.
Notes to Consolidated Financial Statements (unaudited)
February 9, 2005

Note 1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Luby’s, Inc. (the “Company” 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 as are prepared for the Company’s Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter and fiscal year-to-date ended February 9, 2005, are not necessarily indicative of the results that may be expected for the fiscal year ending August 31, 2005.

The balance sheet dated August 25, 2004, and included in this Form 10-Q, has been derived from the audited financial statements at that date. However, this Form 10-Q does not include all of the information and footnotes required by U.S. generally accepted accounting principles for an annual filing of complete financial statements. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and footnotes included in Luby’s Annual Report on Forms 10-K and 10-K/A for the year ended August 25, 2004.

Certain accounts and prior period results have been restated to provide more meaningful comparability to the Company’s current information. Prior period results have been reclassified to show the retroactive effect of discontinued operations per the Company’s business plan. As stores are closed in the future and presented in discontinued operations, quarterly and annual financial amounts, where applicable, will be reclassified for further comparability.

Note 2. Restatement of Financial Statements

The Company completed a review of its historical lease accounting methods to determine whether these methods were in accordance with the views expressed by the Office of the Chief Accountant of the Securities and Exchange Commission (“SEC”) on February 7, 2005 in a letter to the American Institute of Certified Public Accountants and other recent interpretations regarding certain operating lease accounting issues and their application under U.S. Generally Accepted Accounting Principles (“GAAP”). As a result of its review, the Company determined that its historical methods of accounting for scheduled rent increases, and of determining lives used in the calculation of depreciation of leasehold improvements for certain leased properties, were not in accordance with GAAP.

As previously reported, the Company historically recognized scheduled rent increases as they occurred over the lease term. The Company annually reviewed its lease accounting expense calculations to determine whether the amounts it calculated were materially in accordance with GAAP. However, under current interpretations of GAAP, the Company has determined that the lease term used in calculating straight-line rent expense should commence on the date the Company takes possession of the leased space, which is generally six months prior to a store’s opening date. Additionally, the Company has determined that rent expense should be recorded on a straight-line basis over lease periods that are consistent with or greater than the number of periods over which depreciation of leasehold improvements is recorded. Historically, the life used for rent expense purposes in some instances was shorter than the life used for depreciation purposes. Excluding tax impacts, the Company has recorded adjustments to “Other liabilities,” “Property and equipment-at cost, net,” and “Retained earnings” on the consolidated balance sheets and to “Occupancy and other operating expenses,” “Depreciation and amortization,” “Provision for asset impairments and restaurant closings” and “Discontinued operations, net of taxes” on the consolidated statements of operations to correct historical accounting methods.

The Company has restated the consolidated statements of operations and cash flows for periods ended February 11, 2004, August 25, 2004 and November 17, 2004

Following is a summary of the effects of these accounting corrections on the consolidated balance sheet as of August 25, 2004 and the consolidated statements of operations for the periods ended February 11, 2004 (in thousands):

Page 7


	Previously
August 25, 2004	Reported		Adjustments			Restated

Property and equipment-at cost, net	$	196,541	$	(2,499	)	$	194,042
Total assets		234,780		(2,499	)		232,281
Accrued expenses and other liabilities		25,280		(7,274	)		18,006
Total current liabilities		41,168		(7,274	)		33,894
Other liabilities		5,385		4,330			9,715
Long-term deferred income tax liability		1,073		(3,988	)		(2,213	)
Total liabilities		101,687		1,044			102,731
Retained earnings		185,529		(3,543	)		181,986
Total shareholders’ equity		133,093		(3,543	)		129,550
Total liabilities and shareholders’ equity	$	234,780	$	(2,499	)	$	232,281


	Previously
Fiscal quarter ended February 11, 2004	Reported			Adjustments			Restated

Occupancy and other operating expenses	$	21,376		$	(22	)	$	21,354
Depreciation and amortization		3,806			35			3,841
Income (loss) from operations		(58	)		(13	)		(71	)
Income (loss) before income taxes		(1,860	)		(13	)		(1.873	)
Income (loss) from continuing operations		(1,860	)		(13	)		(1,873	)
Discontinued operations, net of taxes		(3,182	)		26			(3,156	)
Net income (loss)		(5,042	)		13			(5,029	)

Page 8


	Previously
Two fiscal quarters ended February 11, 2004	Reported			Adjustments			Restated

Occupancy and other operating expenses	$	42,570		$	(54	)	$	42,516
Depreciation and amortization		7,666			70			7,736
Income (loss) from operations		84			(16	)		68
Income (loss) before income taxes		(3,800	)		(16	)		(3,816	)
Income (loss) from continuing operations		(3,800	)		(16	)		(3,816	)
Discontinued operations, net of taxes		(5,708	)		162			(5,546	)
Net income (loss)		(9,508	)		146			(9,362	)

These accounting corrections had no effect on net cash (used in) provided by operating activities, investing activities or financing activities, as stated in the consolidated statements of cash flows, for either of the periods ended February 11, 2004.

Note 3. Accounting Periods

The Company’s fiscal year ends on the last Wednesday in August. As such, each fiscal year normally consists of 13 four-week periods, accounting for 364 days. Because the Company’s normal 364-day fiscal year is not aligned with the number of days in each calendar year, occasionally the last Wednesday in August occurs five weeks after the end of the prior period. As is the case with fiscal year 2005, this results in a fiscal year consisting of 12 four-week periods and one five-week period (371 days). Comparability between accounting periods is affected by varying lengths of the periods, as well as the seasonality associated with the restaurant business.

Note 4. Cash and Cash Equivalents and Short-Term Investments

The Company manages its cash and cash equivalents and short-term investments jointly in order to internally fund operating needs. Short-term investments as of February 9, 2005, and August 25, 2004, consisted primarily of money market funds and time deposits. As of February 9, 2005, approximately $2.3 million of the Company’s $6.6 million in short-term investments was pledged as collateral for four separate letters of credit. There have been no draws upon these letters of credit.

Page 9


	February 9,		August 25,
	2005		2004
	(In thousands)
Cash and cash equivalents	$	3,813	$	1,211
Short-term investments		6,588		4,384


Total cash and short-term investments	$	10,401	$	5,595

Note 5. Income Tax

Following is a summarization of deferred income tax assets and liabilities as of the current quarter and prior fiscal year-end:


	February 9,			August 25,
	2005			2004
	(In thousands)
Deferred long-term income tax liability		(4,487	)		(5,061	)
Plus: Deferred short-term income tax asset		296			1,073

Net deferred income tax liability	$	(4,191	)	$	(3,988	)

The following table details the categories of income tax assets and liabilities resulting from the cumulative tax effects of temporary differences as of the end of each period presented:


	February 9,			August 25,
	2005			2004
	(In thousands)
Deferred income tax assets:
Workers’ compensation, employee injury, and general liability claims	$	2,270		$	2,552
Deferred compensation		2,262			2,302
Asset impairments and restaurant closure reserves		9,957			14,636
Net operating losses		20,573			16,032
General Business Credits		529			529
Other		1,435			1,557

Subtotal		37,026			37,608
Valuation allowance		(17,972	)		(18,432	)

Total deferred income tax assets		19,054			19,176


Deferred income tax liabilities:
Depreciation and amortization		20,665			21,293
Other		2,580			1,871

Total deferred income tax liabilities		23,245			23,164

Net deferred income tax liability	$	4,191		$	3,988

Page 10


			Page
Part I — Financial Information


Item 1 Financial Statements			3

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			20

Item 3 Quantitative and Qualitative Disclosures about Market Risk			27

Item 4 Controls and Procedures			27

Part II — Other Information


Item 4 Submission of Matters to a Vote of Security Holders			28

Item 6 Exhibits			29

Signatures			30
Amended and Restated Non-Employee Director Stock Plan
Certification of Principal Executive Officer Pursuant to Section 302
Certification of the Principal Financial Officer Pursuant to Section 302
Certification of Principal Executive Officer Pursuant to Section 906
Certification of Principal Financial Officer Pursuant to Section 906


	Quarter Ended												Two Quarters Ended
	February 9,						February 11,						February 9,						February 11,
	2005						2004						2005						2004
	Amount			%			Amount			%			Amount			%			Amount			%
	(In thousands and as a percent of pretax income)
Income tax expense (benefit) from continuing operations at federal rate	$	855			35.0	%	$	(656	)		(35.0	)%	$	690			35.0	%	$	(1,336	)		(35.0	)%

Permanent and other differences		32			1.3			214			11.4			142			7.2			430			11.3

Change in valuation allowance		(887	)		(36.3	)		441			23.6			(832	)		(42.2	)		906			23.7

Income tax expense (benefit) from continuing operations	$	—			—	%	$	—			—	%	$	—			—	%	$	—			—	%

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	Common Stock															Total
	Issued				Treasury						Paid-In			Retained		Shareholders’
	Shares		Amount		Shares			Amount			Capital			Earnings		Equity

BALANCE AT AUGUST 25, 2004		27,411	$	8,771		(4,933	)	$	(104,771	)	$	43,564		$	181,986	$	129,550
Net income (loss) for the year to date		—		—		—			—			—			1,604		1,604
Common stock issued under nonemployee director benefit plans		—		—		31			655			(655	)		—		—
Common stock issued under employee benefit plans		123		40		—			—			632			—		672

BALANCE AT February 9, 2005		27,534	$	8,811		(4,902	)	$	(104,116	)	$	43,541		$	183,590	$	131,826