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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549 


FORM 10-Q 


 

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

 

For the quarterly period ended May 6, 2015

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)


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  ☒    No   ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    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

Non-accelerated filer

  

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒ 

 

As of June 10, 2015 there were 28,597,902 shares of the registrant’s common stock outstanding.   

 

 
1

 

 

Luby’s, Inc.

Form 10-Q

Quarter ended May 6, 2015

Table of Contents

 

 

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

35

  

  

Item 4 Controls and Procedures

35

 

 

Part II—Other Information

  

 

 

Item 1 Legal Proceedings

36

 

 

Item 1A Risk Factors

36

 

 

Item 6 Exhibits

36

 

 

Signatures

37

 

Additional Information

 

We file reports with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The public may read and copy any materials we file with the SEC at its Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer, and the SEC maintains an Internet site at http://www.sec.gov that contains the reports, proxy and information statements, and other information that we file electronically. Our website address is http://www.lubysinc.com. Please note that our website address is provided as an inactive textual reference only. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The information provided on our website is not part of this report, and is therefore not incorporated by reference unless such information is specifically referenced elsewhere in this report.  

 

 
2

 

 

Part I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Luby’s, Inc.

Consolidated Balance Sheets

(In thousands, except share data)

 

   

May 6,

2015

   

August 27,

2014

 
   

(Unaudited)

         

ASSETS

               

Current Assets:

               

Cash and cash equivalents

  $ 1,575     $ 2,788  

Trade accounts and other receivables, net

    4,220       4,112  

Food and supply inventories

    4,422       5,556  

Prepaid expenses

    4,964       2,815  

Assets related to discontinued operations

    26       52  

Deferred income taxes

    605       587  

Total current assets

    15,812       15,910  

Property held for sale

    6,261       991  

Assets related to discontinued operations

    4,725       4,204  

Property and equipment, net

    205,497       213,492  

Intangible assets, net

    23,014       24,014  

Goodwill

    1,643       1,681  

Deferred income taxes

    13,254       11,294  

Other assets

    3,764       3,849  

Total assets

  $ 273,970     $ 275,435  

LIABILITIES AND SHAREHOLDERS’ EQUITY

               

Current Liabilities:

               

Accounts payable

  $ 19,183     $ 26,269  

Liabilities related to discontinued operations

    469       590  

Accrued expenses and other liabilities

    24,639       23,107  

Total current liabilities

    44,291       49,966  

Credit facility debt

    48,000       42,000  

Liabilities related to discontinued operations

    62       278  

Other liabilities

    7,517       8,167  

Total liabilities

    99,870       100,411  

Commitments and Contingencies

               

SHAREHOLDERS’ EQUITY

               

Common stock, $0.32 par value; 100,000,000 shares authorized; shares issued were 29,097,902 and 28,949,523, respectively; shares outstanding were 28,597,902 and 28,449,523, respectively

    9,311       9,264  

Paid-in capital

    28,410       27,356  

Retained earnings

    141,154       143,179  

Less cost of treasury stock, 500,000 shares

    (4,775

)

    (4,775

)

Total shareholders’ equity

    174,100       175,024  

Total liabilities and shareholders’ equity

  $ 273,970     $ 275,435  

 

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

 
   

May 6,

2015

   

May 7,

2014

   

May 6,

2015

   

May 7,

2014

 
 

(12 weeks)

(12 weeks)

(36 weeks)

(36 weeks)

SALES:

                               

Restaurant sales

  $ 88,788     $ 90,010     $ 254,832     $ 252,891  

Culinary contract services

    3,624       4,534       11,993       12,783  

Franchise revenue

    1,578       1,684       4,764       4,744  

Vending revenue

    112       131       355       358  

TOTAL SALES

    94,102       96,359       271,944       270,776  

COSTS AND EXPENSES:

                               

Cost of food

    25,225       25,754       74,189       72,665  

Payroll and related costs

    30,216       29,971       89,372       87,384  

Other operating expenses

    15,442       15,967       47,144       46,511  

Occupancy costs

    4,759       4,845       14,167       14,374  

Opening costs

    427       334       2,035       1,365  

Cost of culinary contract services

    3,087       3,974       10,369       11,142  

Depreciation and amortization

    4,750       4,674       14,580       13,466  

General and administrative expenses

    7,312       8,342       23,088       24,526  

Provision for asset impairments, net

                218       1,539  

Net gain on disposition of property and equipment

    (609

)

    (1,023

)

    (1,696

)

    (956

)

Total costs and expenses

    90,609       92,838       273,466       272,016  

INCOME (LOSS) FROM OPERATIONS

    3,493       3,521       (1,522

)

    (1,240

)

Interest income

    1       1       3       4  

Interest expense

    (599

)

    (410

)

    (1,624

)

    (955

)

Other income, net

    29       250       301       806  

Income (loss) before income taxes and discontinued operations

    2,924       3,362       (2,842

)

    (1,385

)

Provision (benefit) for income taxes

    395       1,621       (1,326

)

    (853

)

Income (loss) from continuing operations

    2,529       1,741       (1,516

)

    (532

)

Loss from discontinued operations, net of income taxes

    (176

)

    (12

)

    (509

)

    (1,468

)

NET INCOME (LOSS)

  $ 2,353     $ 1,729     $ (2,025

)

  $ (2,000

)

Income (loss) per share from continuing operations:

                               

Basic

  $ 0.09     $ 0.06     $ (0.05

)

  $ (0.02

)

Assuming dilution

    0.09       0.06       (0.05

)

    (0.02

)

Loss per share from discontinued operations:

                               

Basic

  $ (0.01

)

  $     $ (0.02

)

  $ (0.05

)

Assuming dilution

    (0.01

)

          (0.02

)

    (0.05

)

Net income (loss) per share:

                               

Basic

  $ 0.08     $ 0.06     $ (0.07

)

  $ (0.07

)

Assuming dilution

    0.08       0.06       (0.07

)

    (0.07

)

Weighted average shares outstanding:

                               

Basic

    29,009       28,791       28,940       28,777  

Assuming dilution

    29,111       29,476       28,940       28,777  

 

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 27, 2014

    28,950     $ 9,264       (500

)

  $ (4,775

)

  $ 27,356     $ 143,179     $ 175,024  

Net loss

                                  (2,025

)

    (2,025

)

Share-based compensation expense

    48       15                   224             239  

Common stock issued under nonemployee benefit plans

    40       13                   220             233  

Common stock issued under employee benefit plans

    60       19                   610             629  

BALANCE AT MAY 6, 2015

    29,098     $ 9,311       (500

)

  $ (4,775

)

  $ 28,410     $ 141,154     $ 174,100  

 

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

 
   

May 6,

2015

   

May 7,

2014

 
 

(36 weeks)

(36 weeks)

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net loss

  $ (2,025

)

  $ (2,000

)

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

               

Provision for asset impairments, net of gains/losses on property sales

    (1,386

)

    1,352  

Depreciation and amortization

    14,624       13,604  

Amortization of debt issuance cost

    127       78  

Non-cash compensation expense

    862       254  

Share-based compensation expense

    240       573  

Increase in tax benefits from share-based compensation

          (53

)

Deferred tax benefit

    (1,978

)

    (1,889

)

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

    10,464       11,919  

Changes in operating assets and liabilities, net of business acquisition:

               

Decrease (increase) in trade accounts and other receivables

    (108

)

    112  

Decrease (increase) in food and supply inventories

    1,135       (466

)

Decrease (increase) in prepaid expenses and other assets

    (1,979

)

    840  

Decrease in accounts payable, accrued expenses and other liabilities

    (5,350

)

    (617

)

Net cash provided by operating activities

    4,162       11,788  

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Proceeds from disposal of assets and property held for sale

    5,142       2,713  

Purchases of property and equipment

    (16,429

)

    (31,124

)

Decrease in note receivable

    50       23  

Net cash used in investing activities

    (11,237

)

    (28,388

)

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Credit facility borrowings

    80,100       77,800  

Credit facility repayments

    (74,100

)

    (61,000

)

Debt issuance costs

    (253

)

     

Proceeds from exercise of stock options

    115       32  

Tax benefit on stock options

          53  

Net cash provided by financing activities

    5,862       16,885  

Net (decrease) increase in cash and cash equivalents

    (1,213

)

    285  

Cash and cash equivalents at beginning of period

    2,788       1,528  

Cash and cash equivalents at end of period

  $ 1,575     $ 1,813  

Cash paid for:

               

Income taxes

  $     $  

Interest

    1,505       834  

 

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” or “Luby’s”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements that are prepared for the Company’s Annual Report on Form 10-K. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the quarter ended May 6, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending August 26, 2015.

 

The Consolidated Balance Sheet dated August 27, 2014, included in this Quarterly Report on Form 10-Q (this “Form 10-Q”), has been derived from the audited Consolidated Financial Statements as of that date. However, this Form 10-Q does not include all of the information and footnotes required by GAAP for an annual filing of complete 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 27, 2014.

 

The results of operations, assets and liabilities for all units included in the Company’s disposal plans discussed in Note 7 have been reclassified to discontinued operations in the statements of operations and balance sheets for all periods presented.

 

Note 2. 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. Each of the first three quarters of each fiscal year consists of three four-week periods, while the fourth quarter normally consists of four four-week periods. Fiscal years 2015 and 2014 contained 52 weeks. Comparability between quarters may be affected by the varying lengths of the quarters, as well as the seasonality associated with our business segments. Seasonality factors affecting a quarter include timing of holidays, weather and school years. Interim results may not be indicative of full year results.

    

Note 3. 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 the store level profit margin 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 brands are Luby’s Cafeterias, Fuddruckers and Cheeseburger in Paradise, with a couple of non-core restaurant locations under other brand names (i.e., Koo Koo Roo Chicken Bistro and Bob Luby’s Seafood). 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 175 at May 6, 2015 and 174 at August 27, 2014. 

 

 
7

 

 

Culinary Contract Services

 

CCS, branded as Luby’s Culinary Services, consists of a business line servicing healthcare, higher education and corporate dining clients. The healthcare accounts are full service and typically include in-room delivery, catering, vending, coffee service and retail dining. CCS has contracts with long-term acute care hospitals, acute care medical centers, ambulatory surgical centers, behavioral hospitals, business and industry clients, and higher education institutions. 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 costs of CCS on the Consolidated Statements of Operations include all food, payroll and related costs and other operating expenses related to CCS sales.

 

The total number of CCS contracts was 21 at May 6, 2015 and 25 at August 27, 2014.  

 

Franchise Operations

 

We offer franchises for the Fuddruckers brand only. Franchises are sold in markets where expansion is deemed advantageous to the development of the Fuddruckers concept and system of restaurants. Initial franchise agreements have a term of 20 years. Franchise agreements typically grant franchisees an exclusive territorial license to operate a single restaurant within a specified area, usually a four-mile radius surrounding the franchised restaurant.

 

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

 

All franchisees are required to operate their restaurants in accordance with the Company’s standards and specifications for Fuddruckers, 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.

 

We recognize franchise and area development fees as revenue when the Company has performed all material obligations as per the respective agreements upon opening of each franchise restaurant. We accrue franchise and area development fees as an accrued liability until our obligations are met and the revenue is earned.

  

The number of franchised restaurants was 105 at May 6, 2015 and 110 at August 27, 2014.  

 

Licensee

 

In November 1997, a prior owner of the “Fuddruckers—World’s Greatest Hamburgers®” brand granted to a licensee the exclusive right to use the Fuddruckers proprietary marks, trade dress and system to develop Fuddruckers restaurants in a territory consisting of certain countries in Africa, the Middle East and parts of Asia. As of June 2015, this licensee operated 34 restaurants that are licensed to use the Fuddruckers proprietary marks in Saudi Arabia, Egypt, Lebanon, United Arab Emirates, Qatar, Jordan, Bahrain, Kuwait, Morocco and Malaysia. The Company does not receive revenue or royalties from these restaurants. 

 

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

 

 
8

 

 

   

Quarter Ended

   

Three Quarters Ended

 
   

May 6,

2015

   

May 7,

2014

   

May 6,

2015

   

May 7,

2014

 
 

(12 weeks)

(12 weeks)

(36 weeks)

(36 weeks)

   

(In thousands)

 

Sales:

                               

Company-owned restaurants(1)

  $ 88,900     $ 90,141     $ 255,187     $ 253,249  

Culinary contract services

    3,624       4,534       11,993       12,783  

Franchise operations

    1,578       1,684       4,764       4,744  

Total

    94,102       96,359       271,944       270,776  

Segment level profit:

                               

Company-owned restaurants

  $ 13,258     $ 13,604     $ 30,315     $ 32,315  

Culinary contract services

    537       560       1,624       1,641  

Franchise operations

    1,578       1,684       4,764       4,744  

Total

    15,373       15,848       36,703       38,700  

Depreciation and amortization:

                               

Company-owned restaurants

  $ 4,038     $ 4,062     $ 12,510     $ 11,675  

Culinary contract services

    28       93       127       269  

Franchise operations

    177       177       531       531  

Corporate

    507       342       1,412       991  

Total

    4,750       4,674       14,580       13,466  

Capital expenditures:

                               

Company-owned restaurants

  $ 5,023     $ 11,780     $ 15,368     $ 30,277  

Culinary contract services

          43             43  

Franchise operations

                       

Corporate

    418       220       1,061       804  

Total

  $ 5,441     $ 12,043     $ 16,429     $ 31,124  
                                 

Segment level profit

  $ 15,373     $ 15,848     $ 36,703     $ 38,700  

Opening costs

    (427

)

    (334

)

    (2,035

)

    (1,365

)

Depreciation and amortization

    (4,750

)

    (4,674

)

    (14,580

)

    (13,466

)

General and administrative expenses

    (7,312

)

    (8,342

)

    (23,088

)

    (24,526

)

Provision for asset impairments, net

                (218

)

    (1,539

)

Net gain on disposition of property and equipment

    609       1,023       1,696       956  

Interest income

    1       1       3       4  

Interest expense

    (599

)

    (410

)

    (1,624

)

    (955

)

Other income, net

    29       250       301       806  

Income (loss) before income taxes and discontinued operations

  $ 2,924     $ 3,362     $ (2,842

)

  $ (1,385

)

 

   

May 6,

2015

   

August 27,

2014

 

Total assets:

               

Company-owned restaurants(2)

  $ 223,675     $ 222,474  

Culinary contract services

    1,994       2,724  

Franchise operations(3)

    13,350       13,906  

Corporate(4)

    34,951       36,331  

Total

  $ 273,970     $ 275,435  

   

(1)

Includes vending revenue of $112 and $131 thousand for the quarters ended May 6, 2015 and May 7, 2014, respectively and $355 and $358 thousand for the three quarters ended May 6, 2015 and May 7, 2014, respectively. 

(2)

Company-owned restaurants segment includes $10.7 million of Fuddruckers trade name, Cheeseburger in Paradise liquor licenses, and Jimmy Buffett intangibles.

(3)

Franchise operations segment includes approximately $12.4 million in royalty intangibles.

(4)

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

 

 
9

 

 

Note 4. Fair Value Measurements

 

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

 

Non-recurring fair value measurements related to impaired property and equipment consisted of the following for the three quarters ended May 6, 2015 and May 7, 2014, respectively:

 

           

Fair Value

Measurement Using

         
   

Three

Quarters

Ended

May 6,

2015

   

Quoted

Prices in

Active

Markets for

Identical

Assets

(Level 1)

   

Significant

Other

Observable

Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

   

Total

Impairments

 
           

(In thousands)

                 

Continuing Operations

                                       

Property and equipment related to company-owned restaurant assets

  $ 5,043     $     $     $ 5,043     $ (218

)

Discontinued Operations

                                       

Property and equipment related to corporate assets

  $ 1,563     $     $ 660     $ 903     $ (90

)

 

 
10

 

 

           

Fair Value

Measurement Using

         
   

Three

Quarters

Ended

May 7,

2014

   

Quoted

Prices in

Active

Markets for

Identical

Assets

(Level 1)

   

Significant

Other

Observable

Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

   

Total

Impairments

 
           

(In thousands)

                 

Continuing Operations

                                       

Property and equipment related to company- owned restaurant assets

  $ 3,498     $     $     $ 3,498     $ (1,539

)

Discontinued Operations

                                       

Property and equipment related to corporate assets

  $ 1,567     $     $     $ 1,567     $ (762

)

  

 

Note 5. Income Taxes 

 

No cash payments of estimated federal income taxes were made during the quarter ended May 6, 2015. 

 

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.

 

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

 

Note 6. Property and Equipment, Intangible Assets and Goodwill

 

The costs, net of impairment, and accumulated depreciation of property and equipment at May 6, 2015 and August 27, 2014, together with the related estimated useful lives used in computing depreciation and amortization, were as follows:

  

 

   

May 6,
2015

   

August 27,
2014

 

Estimated
Useful Lives

(years)

 
 

(In thousands)

   

Land

  $ 65,218     $ 69,767  

 

Restaurant equipment and furnishings

    140,570       131,932  

3 to 15

 

Buildings

    184,534       181,535  

20 to 33

 

Leasehold and leasehold improvements

    42,785       40,835  

Lesser of lease

term or estimated

useful life

 

Office furniture and equipment

    7,964       7,537  

3 to 10

 

Construction in progress

    771       10,313  

 
      441,842       441,919      

Less accumulated depreciation and amortization

    (236,345

)

    (228,427

)

   

Property and equipment, net

  $ 205,497     $ 213,492      

Intangible assets, net

  $ 23,014     $ 24,014  

21

 

Goodwill

  $ 1,643     $ 1,681  

 

 

 
11

 

 

Intangible assets, net, consist of the Fuddruckers trade name and franchise agreements and the Cheeseburger in Paradise trade name and license agreements and are subject to amortization. The Company believes the Fuddruckers trade 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 and will be amortized over this period of time. The Cheeseburger in Paradise intangible assets, net, have an expected accounting life of 15 years from the date of acquisition.

 

The aggregate amortization expense related to intangible assets subject to amortization was $0.3 million for the quarters ended May 6, 2015 and May 7, 2014. For the three quarters ended May 6, 2015 and May 7, 2014, the aggregate amortization expense was $1.0 million and is expected to be $1.4 million in each of the next five successive years.

 

The following table presents intangible assets as of May 6, 2015 and August 27, 2014:

 

   

May 6, 2015

   

August 27, 2014

 
   

(In thousands)

   

(In thousands)

 
   

Gross

Carrying

Amount

   

Accumulated Amortization

   

Net

Carrying

Amount

   

Gross

Carrying

Amount

   

Accumulated Amortization

   

Net

Carrying

Amount

 

Intangible Assets Subject to Amortization:

                                               
                                                 

Fuddruckers trade name and franchise agreements

  $ 29,607     $ (6,749 )   $ 22,858     $ 29,607     $ (5,767 )   $ 23,840  
                                                 

Cheeseburger in Paradise trade name and license agreements

  $ 416     $ (260 )   $ 156     $ 416     $ (242 )   $ 174  
                                                 

Intangible assets, net

  $ 30,023     $ (7,009 )   $ 23,014     $ 30,023     $ (6,009 )   $ 24,014  

 

The Company recorded an intangible asset for goodwill in the amount of approximately $0.2 million related to the acquisition of substantially all of the assets of Fuddruckers. The Company also recorded an intangible asset for goodwill in the amount of approximately $2.0 million related to the acquisition of Cheeseburger in Paradise. Goodwill is considered to have an indefinite useful life and is not amortized.

 

The Company performs a goodwill impairment test annually and more frequently when negative conditions or a triggering event arise. After an assessment of certain qualitative factors, if it is determined to be more likely than not that the fair value of a reporting unit is less than its carrying amount, entities must perform the quantitative analysis of the goodwill impairment test. Otherwise, the quantitative test(s) become optional. For the initial annual analysis in fiscal 2014, the Company elected to bypass the qualitative assessment and proceeded directly to performing the first step of the goodwill impairment test. In future periods, the Company may determine that facts and circumstances indicate use of the qualitative assessment may be the most reasonable approach. Management will perform its formal annual assessment as of the second quarter each fiscal year and will formally perform additional assessments on an interim basis if an event occurs or circumstances exist that indicate that it is more likely than not that a goodwill impairment exists. The individual restaurant level is the level at which goodwill is assessed for impairment under ASC 350. In accordance with our understanding of ASC 350, we have allocated the goodwill value to each reporting unit in proportion to each location’s fair value at the date of acquisition. Of the 23 locations that were acquired, 5 locations were closed including one location where the option to extend the lease was not exercised. The remaining 18 locations not closed may be converted to Fuddruckers, which was part of a contingency strategy when the acquisition was initially consummated. As we are not moving any of the former Cheeseburger in Paradise restaurants out of their respective market, the goodwill associated with the acquired location and market area is expected to be realized through operating these former Cheeseburger in Paradise branded restaurants as Fuddruckers branded restaurants. The Company has experience converting and opening new restaurant locations and the Fuddruckers brand units have positive cash flow history. This historical data was considered when completing our fair value estimates for recovery of the remaining net book value including goodwill. In addition, we included the incremental conversion costs in our cash flow projections when completing our routine impairment of long-lived assets testing. Management has therefore performed valuations using a discounted cash flow analysis for each of its restaurants to determine the fair value of each reporting unit for comparison with the reporting unit’s carrying value.

 

Since the acquisition of the 23 Cheeseburger in Paradise locations in fiscal year 2013, we implemented many initiatives to improve the food quality and service. Many locations continued to experience sales declines which led to the implementation of our contingency strategy of conversion of certain locations to Fuddruckers restaurants. In considering this change, certain units were determined to be disposed of, 8 locations to remain operating as Cheeseburger in Paradise and other locations to be closed for future conversion. In performing our periodic assessment of long-lived assets and goodwill recoverability, we estimated the fair value of the cash flows at selected units were not sufficient to recover the carrying values of certain locations which resulted in impairment charges including a write-off of approximately $0.5 million in goodwill associated with five Cheeseburger in Paradise locations in fiscal year 2014. As of August 27, 2014 eight locations remained open and operating as Cheeseburger in Paradise locations and ten locations were closed to be converted to new Fuddruckers locations. Four such locations have been converted to Fuddruckers restaurants as of June 11, 2015.

 

Goodwill was approximately $1.6 million as of May 6, 2015 and approximately $1.7 million as of August 27, 2014 and relates to our Company-owned restaurants reportable segment.

 

There were no impairments related to goodwill during the quarter ended May 6, 2015. For the three quarters ended May 6, 2015, management determined approximately $38 thousand in goodwill impairment losses related to one underperforming converted Cheeseburger in Paradise leasehold location.

 

 
12 

 

 

Note 7. Impairment of Long-Lived Assets, Discontinued Operations and Property Held for Sale 

 

Impairment of Long-Lived Assets and Store Closings

 

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

 

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

 

The Company recognized the following impairment charges and gains on disposition of property and equipment included in income from operations:

 

   

Three Quarters Ended

 
   

May 6,

2015

   

May 7,

2014

 
 

(36 weeks)

(36 weeks)

 

(In thousands, except per share data)

Provision for asset impairments

  $ 218     $ 1,539  

Net gain on disposition of property and equipment

    (1,696

)

    (956

)

    $ (1,478

)

  $ 583  

Effect on EPS:

               

Basic

  $ 0.05     $ (0.02

)

Assuming dilution

  $ 0.05     $ (0.02

)

 

The impairment charge for the three quarters ended May 6, 2015 was $0.2 million and primarily related to three Fuddruckers locations and included $38 thousand in goodwill related to one underperforming converted Cheeseburger in Paradise leasehold location.

 

The impairment charge for the three quarters ended May 7, 2014 was $1.5 million and primarily related to assets at two Fuddruckers locations and assets and allocated goodwill at six Cheeseburger in Paradise leasehold locations.

 

The $1.7 million net gain for the three quarters ended May 6, 2015 is related to the sale of property and equipment.

 

The $1.0 million net gain for the three quarters ended May 7, 2014 is related to the sale of property and equipment.

  

 
13 

 

 

Discontinued Operations 

 

As a result of the first quarter fiscal 2010 adoption of the Company’s Cash Flow Improvement and Capital Redeployment Plan (“the Plan”), the Company reclassified 23 operating stores and one previously closed location to discontinued operations. The results of operations, assets and liabilities for all units included in the Plan have been reclassified to discontinued operations in the statement of operations and balance sheets for all periods presented.  

 

On March 21, 2014, the Company adopted a disposal plan for selected under-performing recently acquired leaseholds operating as Cheeseburger in Paradise restaurants. As of May 6, 2015, five Cheeseburger in Paradise locations have been reclassified to discontinued operations in the statements of operations and balance sheet accordingly. 

 

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

 

   

May 6,

2015

   

August 27,

2014

 
 

(in thousands)

Prepaid expenses

  $ 26       52  

Assets related to discontinued operations—current

  $ 26     $ 52  

Property and equipment, net

    3,340       2,817  

Other assets

    1,385       1,387  

Assets related to discontinued operations—non-current

  $ 4,725     $ 4,204  

Accrued expenses and other liabilities

  $ 469       590  

Liabilities related to discontinued operations—current

  $ 469     $ 590  

Other liabilities

  $ 62     $ 278  

Liabilities related to discontinued operations—non-current

  $ 62     $ 278  

 

As of May 6, 2015, the Company had nine restaurant properties classified as discontinued operations assets. The carrying value of three Company-owned properties was $3.3 million at May 6, 2015. The carrying values of one ground lease and five in-line leases were previously impaired to zero.

 

As of August 27, 2014, the Company had nine restaurant properties classified as discontinued operations. The carrying value of the Company-owned properties was $3.4 million at August 27, 2014.

 

 
14

 

 

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

 

The following table sets forth the sales and pretax loss reported for discontinued operations:

 

   

Three Quarters Ended

 
   

May 6,

2015

   

May 7,

2014

 
 

(36 weeks)

(36 weeks)

 

(In thousands, except discontinued locations)

Sales

  $     $ 3,738  
                 

Pretax loss

    (807

)

    (1,985

)

Income tax benefit from discontinued operations

    298       517  

Loss from discontinued operations

    (509

)

    (1,468

)

Discontinued locations closed during the period

          3  

 

The following table summarizes discontinued operations for the first three quarters of fiscal 2015 and 2014:

 

   

Three Quarters Ended

 
   

May 6,

2015

   

May 7,

2014

 
 

(36 weeks)

(36 weeks)

 

(In thousands, except per share data)

Discontinued operating losses

  $ (715

)

  $ (1,217

)

Impairments

    (90

)

    (762

)

Losses

    (2

)

    (6

)

Net loss

  $ (807

)

    (1,985

)

Income tax benefit from discontinued operations

    298       517  

Loss from discontinued operations

  $ (509

)

  $ (1,468

)

Effect on EPS from discontinued operations—basic

  $ (0.02

)

  $ (0.05

)

 

The impairment charges included above relate to properties closed and designated for immediate disposal. The assets of these individual operating units have been written down to their net realizable values. In turn, the related properties have either been sold or are being actively marketed for sale. All dispositions are expected to be completed within one to three years. Within discontinued operations, the Company also recorded the related fiscal year-to-date net operating results, employee terminations and carrying costs of the closed units.

 

Property Held for Sale

 

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

 

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

 

 
15

 

 

 

At May 6, 2015, the Company had five owned properties recorded at approximately $6.3 million in property held for sale. The Company is actively marketing the locations currently classified as property held for sale.

 

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

 

Note 8. Commitments and Contingencies

 

Off-Balance Sheet Arrangements

 

The Company has no off-balance sheet arrangements, except for operating leases as disclosed in Note 13 to the Company’s Annual Report on Form 10-K for the fiscal year ended August 27, 2014.

 

Pending Claims

 

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

 

Construction Activity

 

From time to time, the Company enters into non-cancelable contracts for the construction of its new restaurants. This construction activity exposes the Company to the risks inherent in new construction, including but not limited to rising material prices, labor shortages, delays in getting required permits and inspections, adverse weather conditions, and injuries sustained by workers and contract termination expenses. The Company had no non-cancelable contracts as of May 6, 2015.

 

 Note 9. Related Parties

 

Affiliate Services

 

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

 

Under the terms of the Amended and Restated Master Sales Agreement, the Pappas entities may provide specialized (customized) equipment fabrication and basic equipment maintenance, including stainless steel stoves, shelving, rolling carts, and chef tables. The total costs under the Amended and Restated Master Sales Agreement of custom-fabricated and refurbished equipment in the three quarters ended May 6, 2015 and May 7, 2014 were zero and $4 thousand, respectively. Services provided under this agreement are subject to review and approval by the Finance and Audit Committee of the Board of Directors of the Company (the “Board”).

 

Operating Leases

 

During the third quarter fiscal 2014, a company owned by Messrs. Pappas purchased from the landlord the land underlying an existing leased Fuddruckers restaurant in Houston, Texas. Messrs. Pappas each own a 50% interest in the company that purchased the land. There were no changes to the existing lease. The company is currently obligated to pay $27.56 per square foot, plus maintenance fees, taxes and insurance, during the present term of the lease which expires May 31, 2020 with two five-year options remaining. The Company made payments of $107 thousand and $27 thousand in the three quarters ended May 6, 2015 and May 7, 2014, respectively.

 

 
16

 

 

On November 22, 2006, the Company executed a new lease agreement in connection with the replacement and relocation of the existing Fuddruckers restaurant with a new prototype restaurant in the retail strip center described above. The new restaurant opened in July 2008 and the new lease agreement provides for a primary term of approximately twelve years with two subsequent five-year options. The new lease also gives the landlord an option to buy out the agreement on or after the calendar year 2015 by paying the unamortized cost of the Company’s improvements. The Company is currently obligated to pay rent of $22.00 per square foot plus maintenance, taxes, and insurance during the primary term of the lease. Thereafter, the lease provides for increases in rent at set intervals. The lease agreement was approved by the Finance and Audit Committee and full Board of Directors. The Company made payments, under the lease agreement, of $278 thousand and $241 thousand in the three quarters ended May 6, 2015 and May 7, 2014, respectively.

 

   

Three Quarters Ended

 
   

May 6,

2015

   

May 7,

2014

 
 

(36 weeks)

(36 weeks)

 

(In thousands, except percentages)

AFFILIATED COSTS INCURRED:

               

General and administrative expenses – professional and other costs

  $     $  

Capital expenditures – custom-fabricated and refurbished equipment and furnishings

          4  

Other operating expenses and opening costs, including property leases

    386       276  

Total

  $ 386     $ 280  

RELATIVE TOTAL COMPANY COSTS:

               

General and administrative expenses

  $ 23,088     $ 24,526  

Capital expenditures

    16,429       31,124  

Other operating expenses, occupancy costs and opening costs

    63,346       62,250  

Total

  $ 102,863     $ 117,900  

AFFILIATED COSTS INCURRED AS A PERCENTAGE OF RELATIVE TOTAL COMPANY COSTS

    0.37

%

    0.24

%

 

Board of Directors

 

Christopher J. Pappas is a member of the Board of Directors of Amegy Bank, National Association, which is a lender and syndication agent under the Company’s 2013 Revolving Credit Facility. 

 

Key Management Personnel

 

The Company entered into a new employment agreement with Christopher Pappas on January 24, 2014. The employment agreement was amended on December 1, 2014, to extend the termination date thereof to August 31, 2016, unless earlier terminated. 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 director of the Company and the Company’s Chief Operating Officer, and formerly the Company’s Senior Vice President, Administration, General Counsel and Secretary, is an attorney and stepson of Frank Markantonis, who is a director of the Company.

 

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

 

Note 10. Share-Based Compensation

 

We have two active share-based stock plans: the Employee Stock Plan and the Nonemployee Director Stock Plan. Both plans authorize the granting of stock options, restricted stock and other types of awards consistent with the purpose of the plans.

 

Of the 1.1 million shares approved for issuance under the Nonemployee Director Stock Plan, 0.8 million options, restricted stock units and restricted stock awards were granted, and 0.1 million options were cancelled or expired and added back into the plan. Approximately 0.4 million shares remain available for future issuance as of May 6, 2015. Compensation cost for share-based payment arrangements under the Nonemployee Director Stock Plan, recognized in general and administrative expenses for the three quarters ended May 6, 2015 and May 7, 2014, were approximately $472 thousand and $441 thousand, respectively.

 

 
17

 

 

Of the 2.6 million shares approved for issuance under the Employee Stock Plan, 5.3 million options and restricted stock units were granted, and 3.1 million options and restricted stock units were cancelled or expired and added back into the plan. Approximately 0.4 million shares remain available for future issuance as of May 6, 2015. Compensation cost for share-based payment arrangements under the Employee Stock Plan, recognized in general and administrative expenses for the three quarters ended May 6, 2015 and May 7, 2014, were approximately $543 thousand and $476 thousand, respectively.

 

Stock Options

 

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

 

Option awards under the Nonemployee Director Stock Plan generally vest 100% on the first anniversary of the grant date and expire ten years from the grant date. No options were granted under the Nonemployee Director Stock Plan in the quarter ended May 6, 2015. No options to purchase shares remain outstanding as of May 6, 2015.

 

Beginning in fiscal 2015, options granted under the Employee Stock Plan vest 50% on the first anniversary date of the grant date, 25% on the second anniversary of the grant date and 25% on the third anniversary of the grant date, with all options expiring ten years from the grant date. Previously, options granted to employees under the Employee Stock Plan generally vested 25% on the anniversary date of each grant and expired six years from the date of the grant, and options granted to executive officers under the Employee Stock Plan generally vested 25% on the anniversary date of each grant and expired ten years from the date of the grant. All options granted in fiscal 2015 and fiscal 2014 were granted under the Employee Stock Plan. Options to purchase 1,313,248 shares at option prices of $3.44 to $11.10 per share remain outstanding as of May 6, 2015.

 

A summary of the Company’s stock option activity for the quarter ended May 6, 2015 is presented in the following table:

 

   

Shares

Under

Fixed

Options

   

Weighted-

Average

Exercise

Price

   

Weighted-

Average

Remaining

Contractual

Term

   

Aggregate

Intrinsic

Value

 
                 

(Years)

(In thousands)

Outstanding at August 27, 2014

    800,754     $ 4.95       4.1     $ 635  

Granted

    628,060       4.49              

Exercised

    (33,383

)

    3.46             54  

Forfeited/Expired

    (82,185

)

    5.47              

Outstanding at May 6, 2015

    1,313,246     $ 4.73       6.7     $ 881  

Exercisable at May 6, 2015

    619,696     $ 4.88       3.9     $ 411  

  

The intrinsic value for stock options is defined as the difference between the current market value, or closing price on May 6, 2015, and the grant price on the measurement dates in the table above. 

 

Restricted Stock Units

 

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

 

 
18

 

 

A summary of the Company’s restricted stock unit activity during the quarter ended May 6, 2015 is presented in the following table:

 

   

Restricted

Stock

Units

   

Weighted

Average

Fair Value

   

Weighted-

Average

Remaining

Contractual

Term

 
         

(Per share)

(In years)

Unvested at August 27, 2014

    397,837     $ 6.03       1.6  

Granted

    84,495       4.54          

Vested

    (72,915

)

    4.55          

Forfeited

          5.98       1.7  

Unvested at May 6, 2015

    409,417                  

 

At May 6, 2015, there was approximately $0.9 million of total unrecognized compensation cost related to unvested restricted stock units that is expected to be recognized over a weighted-average period of 1.7 years.

 

Restricted Stock Awards

 

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

 

Note 11. Earnings Per Share

 

Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding and unvested restricted stock for the reporting period. Diluted net income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of diluted net income per share, the basic weighted average number of shares is increased by the dilutive effect of stock options determined using the treasury stock method. Stock options excluded from the computation of net income per share for the quarter ended May 6, 2015 include approximately 366,000 shares with exercise prices exceeding market prices and approximately 85,000 shares whose inclusion would also be anti-dilutive. 

 

 
19

 

 

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

 

   

Quarter Ended

   

Three Quarters Ended

 
   

May 6,

2015

   

May 7,

2014

   

May 6,

2015

   

May 7,

2014

 
 

(12 weeks)

(12 weeks)

(36 weeks)

(36 weeks)

 

(In thousands except per share data)

Numerator:

                               

Income (loss) from continuing operations

  $ 2,529     $ 1,741     $ (1,516

)

  $ (532

)

Loss from discontinued operations

    (176

)

    (12

)

    (509

)

    (1,468

)

Net income (loss)

  $ 2,353     $ 1,729     $ (2,025

)

  $ (2,000

)

Denominator:

                               

Denominator for basic earnings per share – weighted-average shares

    29,009       28,791       28,940       28,777  

Effect of potentially dilutive securities:

                               

Employee and non-employee stock options

    102       685              

Denominator for earnings per share assuming dilution

    29,111       29,476       28,940       28,777  

Income (loss) per share from continuing operations:

                               

Basic

  $ 0.09     $ 0.06     $ (0.05

)

  $ (0.02

)

Assuming dilution

  $ 0.09     $ 0.06     $ (0.05

)

  $ (0.02

)

Loss per share from discontinued operations:

                               

Basic

  $ (0.01

)

  $     $ (0.02

)

  $ (0.05

)

Assuming dilution

  $ (0.01

)

  $     $ (0.02

)

  $ (0.05

)

Net income (loss) per share:

                               

Basic

  $ 0.08     $ 0.06     $ (0.07

)

  $ (0.07

)

Assuming dilution

  $ 0.08     $ 0.06     $ (0.07

)

  $ (0.07

)

  

 

 

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

 

Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the unaudited Consolidated Financial Statements and footnotes for the quarter ended May 6, 2015 included in Item 1 of Part I of this Quarterly Report on Form 10 (this “Form 10-Q”), and the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended August 27, 2014.

 

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

 

 
20

 

 

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

 

   

Quarter Ended

   

Three Quarters Ended

 
   

May 6, 2015

   

May 7, 2014

   

May 6, 2015

   

May 7, 2014

 
 

(12 weeks)

(12 weeks)

(36 weeks)

(36 weeks)

                                 

Restaurant sales

    94.4

%

    93.4

%

    93.7

%

    93.4

%

Culinary contract services

    3.9

%

    4.7

%

    4.4

%

    4.7

%

Franchise revenue

    1.7

%

    1.7

%

    1.8

%

    1.8

%

Vending revenue

    0.1

%

    0.1

%

    0.1

%

    0.1

%

TOTAL SALES

    100.0

%

    100.0

%

    100.0

%

    100.0

%

                                 

STORE COSTS AND EXPENSES:

                               

(as a percentage of restaurant sales)

                               
                                 

Cost of food

    28.4

%

    28.6

%

    29.1

%

    28.7

%

Payroll and related costs

    34.0

%

    33.3

%