UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF
THE SECURITIES EXCHANGE ACT OF 1934
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For
the Fiscal Year Ended August 29, 2007
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF
THE SECURITIES EXCHANGE ACT OF 1934
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For
the Transition Period From _____ to ____
Commission
file number 00
1-8308
Luby's,
Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
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74-1335253
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(State
of incorporation)
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(IRS
Employer Identification
Number)
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13111
Northwest Freeway, Suite 600
Houston,
Texas 77040
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(Address
of principal executive offices, including zip
code)
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(713)
329-6800
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(Registrant's
telephone number, including area
code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title
of Class
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Name
of Exchange on
which
registered
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Common
Stock ($0.32 par value per share)
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New
York Stock Exchange
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Common
Stock Purchase Rights
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes
o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
o
No
x
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 and (2) has been subject to such filing requirements for
the
past 90 days. Yes
x
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K.
x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act (check one):
Large
Accelerated Filer
o
Accelerated
Filer
x
Non-Accelerated
Filer
o
Indicate
by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
Yes
o
No
x
The
aggregate market value of the shares of common stock of the registrant held
by
nonaffiliates of the registrant as of February 14, 2007, was approximately
$228,731,769 (based upon the assumption that directors and executive officers
are the only affiliates).
As
of
November 1, 2007, there were 28,404,497 shares of the registrant's common stock
outstanding
.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the following document are incorporated by reference into the designated
parts of this Form 10-K:
Definitive
Proxy Statement relating to 2008 annual meeting of shareholders (in Part
III)
Luby's,
Inc.
Form
10-K
Year
ended August 29, 2007
Table
of Contents
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Page
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Part
I
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Item
1
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4
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Item
1A
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6
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Item
1B
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Unresolved
Staff Comments
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8
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Item
2
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9
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Item
3
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9
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Item
4
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9
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Part
II
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Item
5
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10
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Item
6
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12
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Item
7
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13
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Item
7A
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22
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Item
8
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23
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Item
9
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54
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Item
9A
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54
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Item 9B
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54
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Part
III
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Item 10
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55
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Item 11
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55
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Item 12
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55
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Item 13
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56
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Item 14
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56
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Part
IV
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Item 15
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57
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Signatures
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62
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Additional
Information
Our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on
Form 8-K, and amendments to those reports are available free of charge via
hyperlink on our website at www.lubys.com. We make these reports available
as
soon as reasonably practicable upon filing with the SEC. Information on our
website is not incorporated into this report.
Compliance
with
New York
Stock Exchange
Requirements
We
submitted to the New York Stock Exchange (“NYSE”) the CEO certification required
by Section 303A.12(a) of the NYSE’s Listed Company Manual with respect to our
fiscal year ended August 30, 2006. We expect to submit the CEO
certification with respect to our fiscal year ended August 29, 2007 to the
NYSE
within 30 days after our annual meeting of shareholders.
We
are
filing as an exhibit to this Form 10-K the certifications required by Section
302 of the Sarbanes-Oxley Act of 2002.
FORWARD-LOOKING
STATEMENTS
This
Annual Report on Form 10-K contains statements that are “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
All
statements contained in this Form 10-K, other than statements of historical
facts, are “forward-looking statements” for purposes of these provisions,
including any statements regarding:
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·
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future
operating results;
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·
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future
capital expenditures;
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·
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future
debt, including liquidity and the sources and availability of funds
related to debt;
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·
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projections
regarding the financial performance of our new prototype
restaurant;
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·
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plans
for expansion of our business;
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·
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scheduled
openings of new units;
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future
sales of assets and the gains or losses that may be recognized as
a result
of any such sale; and
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continued
compliance with the terms of our Revolving Credit
Facility.
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In
some
cases, investors can identify these statements by forward-looking words such
as
“anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “outlook,”
“may,” “should,” “will,” and “would” or similar words. Forward-looking
statements are based on certain assumptions and analyses made by management
in
light of their experience and perception of historical trends, current
conditions, expected future developments and other factors we believe are
relevant. Although management believes that their assumptions are reasonable
based on information currently available, those assumptions are subject to
significant risks and uncertainties, many of which are outside of our control.
The following factors, as well as the factors set forth in Item 1A of this
Form
10-K and any other cautionary language in this Form 10-K, provide examples
of
risks, uncertainties, and events that may cause our financial and operational
results to differ materially from the expectations described in our
forward-looking statements:
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general
business and economic conditions;
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the
impact of competition;
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our
operating initiatives;
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fluctuations
in the costs of commodities, including beef, poultry, seafood, dairy,
cheese, oils and produce;
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increases
in utility costs, including the costs of natural gas and other energy
supplies;
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changes
in the availability and cost of
labor;
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the
seasonality of
the business;
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changes
in governmental regulations, including changes in minimum
wages;
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the
affects of inflation;
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the
availability of credit;
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unfavorable
publicity relating to operations, including publicity concerning
food
quality, illness or other health concerns or labor relations;
and
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the
continued service of key management
personnel.
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Each
forward-looking statement speaks only as of the date of this Form 10-K, and
we
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
Investors should be aware that the occurrence of the events described above
and
elsewhere in this Form 10-K could have material adverse effect on our business,
results of operations, cash flows and financial condition.
PART
I
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Item
1.
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Business
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Overview
Luby's,
Inc. (formerly, Luby's Cafeterias, Inc.) was founded in 1947 in San Antonio,
Texas. The company was originally incorporated in Texas in 1959, with nine
cafeterias in various locations, under the name Cafeterias, Inc. It became
a
publicly held corporation in 1973, then changed its name in 1981 to Luby’s
Cafeterias, Inc. and joined the New York Stock Exchange in
1982. Luby’s was reincorporated in Delaware on December 31, 1991 and
was restructured into a holding company on February 1, 1997, at which time
all
of the operating assets were transferred to Luby's Restaurants Limited
Partnership, a Texas limited partnership composed of two wholly owned, indirect
corporate subsidiaries. All restaurant operations are conducted by the
partnership. In this report, unless otherwise specified, “Luby’s,” “we,” “our,”
“us,” and “our company” refer to the partnership and the consolidated corporate
subsidiaries of Luby's, Inc.
As
of
November 1, 2007, we operated 128 restaurants located throughout Texas and
four
other states, as set forth in the table below. These establishments
are located in close proximity to retail centers, business developments and
residential areas. Of the 128 restaurants, 94 are located on property
that we own and 34 are on leased premises.
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Texas:
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Houston
Metro
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40
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Dallas/Fort
Worth Metro
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23
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San
Antonio Metro
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16
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Rio
Grande Valley
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11
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Austin
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7
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Other
Texas Markets
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24
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Other
States
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7
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Total
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128
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For
additional information regarding our restaurant locations, please read
“Properties” in Item 2 of Part I of this report.
We
are
headquartered in Houston, Texas, our largest restaurant market. Our corporate
headquarters is located at 13111 Northwest Freeway, Suite 600, Houston, Texas
77040, and our telephone number at that address is (713) 329-6800. Our website
is www.lubys.com.
Operations
We
provide our customers with quality home-style food, value pricing, and
outstanding customer service. Our cafeteria restaurants feature a unique concept
format in today’s family and casual dining segment of restaurant companies. The
cafeteria food delivery system allows customers to select freshly prepared
items
from the serving line, including entrées, vegetables, salads, desserts, breads
and beverages before transporting their selected items on serving trays to
a
table or booth of their choice in the dining area. Daily, each
restaurant offers 20 to 22 entrées, 12 to 14 vegetable dishes, 12 to 16 salads,
and 16 to 20 varieties of desserts. Food is prepared in small quantities
throughout serving hours, and frequent quality checks are
conducted.
Our
product offerings, convenient cafeteria delivery system and value pricing appeal
to a broad range of customers, including those customers that focus on healthy
choices, quality, variety and affordability. We have had particular success
among families with children, shoppers, travelers, seniors, and business people
looking for a quick, home-style meal at a reasonable price.
Our
restaurants are generally open for lunch and dinner seven days a week and all
of
our restaurants sell food-to-go orders, which accounted for 13.2% of restaurant
sales in fiscal year 2007. Twenty-eight of our restaurants serve breakfast
on
the weekends, accounting for 0.2% of restaurant sales in fiscal year 2007.
Those locations offer a wide array of popular breakfast foods served
buffet-style. We also provide culinary contract services for
organizations that offer on-site food service, such as healthcare facilities.
For more information, please read “Culinary Contract Services”
below.
Food
is
prepared fresh daily at our restaurants. Menus are reviewed periodically and
new
offerings and seasonal food preferences are regularly incorporated.
Each
restaurant is operated as a separate unit under the control of a general manager
who has responsibility for day-to-day operations, including food production
and
personnel employment and supervision. Our philosophy is to grant authority
to
restaurant managers to direct the daily operations of their stores and, in
turn,
to compensate them on the basis of their performance. We believe this strategy
is a significant factor contributing to the profitability of our restaurants.
Each
general manager is supervised by an area leader. Each area leader is responsible
for approximately eight units, depending on location.
Quality
control teams also help maintain uniform standards of food preparation. The
teams visit each restaurant as necessary and work with the staff to confirm
adherence to our recipes, train personnel in new techniques, and implement
systems and procedures used universally throughout our company.
During
fiscal 2007, we spent approximately 1.8% of restaurant sales on traditional
marketing venues, including television and radio advertisements in English
and
Spanish, newsprint, point-of-purchase, sponsorships and local-store
marketing.
We
operate from a centralized purchasing arrangement to obtain the economic benefit
of bulk purchasing and lower prices for most of our menu
offerings. The arrangement involves a competitively selected prime
vendor for each of our three major purchasing regions.
During
the fiscal year ended August 29, 2007, we closed one restaurant upon the
expiration of its lease.
New
Prototype Restaurant
In
fiscal
2007, we introduced our new cafeteria style prototype design, with the opening
of our first new store in over seven years, located in Cypress, Texas, a suburb
north of Houston. This new prototype capitalizes on our core fundamentals of
serving great food made from scratch and a convenient delivery
system. The new restaurant is on pace to generate an annual unit
volume, or AUV, in excess of $3.25 million, an increase of 30% as compared
to
our current AUV of $2.5 million. We anticipate building 45 to 50
of these new stores over the next five years.
The
new
prototype elevates the cafeteria experience with an upscale design and open
floor plan. The restaurant’s exterior incorporates limestone, wood and stucco to
create the appeal of the Texas Hill Country. A vaulted entrance guides customers
through the center of the dining room to the serving line. An open-view kitchen
provides enhanced visibility and ambiance, while oversized windows surrounding
the dining room provide an abundance of natural light. This next generation
cafeteria offers a more contemporary look and feel with classic features that
include granite surfaces, exposed wood ceilings, terrazzo floors and cherry
wood
walls. The restaurant also features a covered seating area on the outdoor
patio.
The
new
prototype provides enhanced food presentation with a granite serving line,
new
chilled salad display case and comfortable, attractive booths and furniture.
The
restaurant includes a dining counter with flat screen televisions and bar-style
seating to accommodate single diners. The dining counter also serves as a
dessert and specialty coffee bar, offering fresh brewed coffees, cappuccinos,
espressos, iced coffees and specialty teas as well as milk shakes and ice cream.
The food to-go area has been improved allowing for curbside pickup, with a
side
entrance and direct access to the dining room and bar area.
Culinary
Contract Services
We
provide food services for healthcare facilities through our culinary contract
services business. We believe this business is a natural extension of
our skill set and provides an opportunity to extend our brand. This business
continues to gain traction and we have grown from one account in the beginning
of 2007 to eight accounts at fiscal year end. These accounts consist of six
contracts with long-term acute facilities, which tend to be smaller facilities,
and two accounts at larger facilities, which include the Baylor College of
Medicine and a Houston-area hospital which we are renovating into a new retail
cafeteria.
Employees
As
of
November 1, 2007, we had a workforce of 7,500 employees consisting of 6,861
non-management restaurant workers, 346 restaurant managers and 293 clerical,
facility services, administrative and executive employees. Employee relations
are considered to be good. We have never had a strike or work stoppage, and
we
are not subject to collective bargaining agreements.
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Item
1A.
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Risk
Factors
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An investment in our common stock involves a high degree of risk. Investors should consider carefully the risks and uncertainties described below, and all other information included in this Annual Report on Form 10-K, before deciding whether to purchase our common stock. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also become important factors that may harm our business, financial condition or results of operations. The occurrence of any of the following risks could harm our business, financial condition and results of operations. The trading price of our common stock could decline due to any of these risks and uncertainties, and investors may lose part or all of their investment.
We
face the risk of adverse publicity and litigation, the cost of which could
have
a material adverse effect on our business and financial
performance.
We
may
from time to time be the subject of complaints or litigation from customers
alleging illness, injury or other food quality, health or operational concerns.
Unfavorable publicity relating to one or more of our restaurants or to the
restaurant industry in general may taint public perception of the Luby's brand.
Multi-unit restaurant businesses can be adversely affected by publicity
resulting from poor food quality, illness or other health concerns or operating
issues stemming from one or a limited number of restaurants.
Publicity
resulting from these allegations may materially adversely affect our business
and financial performance, regardless of whether the allegations are valid
or
whether we are liable. In addition, we are subject to employee claims alleging
injuries, wage and hour violations, discrimination, harassment or wrongful
termination. In recent years, a number of restaurant companies have been subject
to lawsuits, including class action lawsuits, alleging violations of federal
and
state law regarding workplace, employment and similar matters. A number of
these
lawsuits have resulted in the payment of substantial damages by the defendants.
Regardless of whether any claims against us are valid or whether we are
ultimately determined to be liable, claims may be expensive to defend and may
divert time and money away from our operations and hurt our financial
performance. A judgment significantly in excess of our insurance coverage,
if
any, for any claims could materially adversely affect our financial condition
or
results of operations.
We
face intense competition, and if we are unable to compete effectively or if
customer preferences change, our business and financial performance will be
adversely affected.
The
restaurant industry is intensely competitive and is affected by changes in
customer tastes and dietary habits and by national, regional and local economic
conditions and demographic trends. New menu items, concepts, and trends are
constantly emerging. We offer a large variety of
entrées
,
side
dishes and desserts and our continued success depends, in part, on the
popularity of our cuisine and cafeteria-style dining. A change away from this
cuisine or dining style could have a material adverse effect on our results
of
operations. Changing customer preferences, tastes and dietary habits can
adversely impact our business and financial performance. We compete on quality,
variety, value, service, concept, price, and location with well-established
national and regional chains, as well as with locally owned and operated
restaurants. We face significant competition from family-style restaurants,
fast-casual restaurants, and buffets as well as fast food restaurants. In
addition, we also face growing competition as a result of the trend toward
convergence in grocery, deli, and restaurant services, particularly in the
supermarket industry, which offers “convenient meals” in the form of improved
entrées and side dishes from the deli section. Many of our competitors have
significantly greater financial resources than we do. We also compete with
other
restaurants and retail establishments for restaurant sites and personnel. We
anticipate that intense competition will continue. If we are unable to compete
effectively, our business, financial condition, and results of operations would
be materially adversely affected.
Our strategic
growth plan may not be successful.
We
are
currently developing a number of new cafeteria restaurants in Texas, which
we
expect to open during fiscal year 2008 and beyond. Our ability to open and
profitably operate restaurants is subject to various risks such as the
identification and availability of suitable and economically viable locations,
the negotiation of acceptable terms for new locations, the need to obtain all
required governmental permits (including zoning approvals) on a timely basis,
the need to comply with other regulatory requirements, the availability of
necessary contractors and subcontractors, the availability of construction
materials and labor, the ability to meet construction schedules and budgets,
the
ability to manage union activities such as picketing or hand billing which
could
delay construction, increases in labor and building materials costs, the
availability of financing at acceptable rates and terms, changes in weather
or
other acts of God that could result in construction delays and adversely affect
the results of one or more restaurants for an indeterminate amount of time,
our
ability to hire and train qualified management personnel and general economic
and business conditions. At each potential location, we compete with other
restaurants and retail businesses for desirable development sites, construction
contractors, management personnel, hourly employees and other
resources.
If
we are unable to
successfully manage these risks, we could face increased costs and lower than
anticipated revenues and earnings in future periods.
We may be evaluating
acquisitions or engaging in acquisition negotiations at any given
time. We cannot be sure that we will be able to continue to identify
acquisition candidates on commercially reasonable terms or at all. If
we make additional acquisitions, we also cannot be sure that any benefits
anticipated from the acquisition will actually be realized. Likewise,
we cannot be sure that we will be able to obtain necessary financing for
acquisitions. Such financing could be restricted by the terms of our
debt agreements or it could be more expensive than our current
debt. The amount of such debt financing for acquisitions could be
significant and the terms of such debt instruments could be more restrictive
than our current covenants.
Because
our restaurants are concentrated in Texas, regional events can adversely
affect
our financial performance.
Approximately
95% of our restaurants were located in Texas as of November 1, 2007. Our
remaining restaurants are located in Arizona, Arkansas, Louisiana and Oklahoma.
This concentration could adversely affect our financial performance in a
number
of ways. For example, our results of operations may be adversely affected
by
economic conditions in Texas or the southern United States or the occurrence
of
an event of terrorism or natural disaster in any of the communities in which
we
operate. Also, given our geographic concentration, negative publicity relating
to our restaurants could have a more pronounced adverse effect on our overall
revenues than might be the case if our restaurants were more broadly
dispersed. Although we generally maintain property and casualty insurance
to protect against property damage caused by casualties and natural disasters,
inclement weather, flooding, hurricanes and other acts of God, these
events can adversely impact our sales by discouraging potential customers
from going out to eat or by rendering a restaurant inoperable for a significant
amount of time.
An
increase in the
minimum wage could adversely affect
our financial performance.
From
time
to time, the U.S. Congress and state legislature consider increases in the
minimum wage. The restaurant industry is intensely competitive, and if the
minimum wage is increased, we may not be able to transfer all of the resulting
increases in operating costs to our customers in the form of price increases.
In
addition, because our business is labor-intensive, shortages in the labor
pool
or other inflationary pressure could increase labor costs that could adversely
affect our financial performance.
Labor
shortages or increases in labor costs could adversely affect our business
and
results of operations.
Our
success depends in part upon our ability to attract, motivate and retain a
sufficient number of qualified employees, including regional managers,
restaurant general managers and chefs, in a manner consistent with our standards
and expectations. Qualified individuals that we need to fill these positions
are
in short supply and competition for these employees is intense. If we are unable
to recruit and retain sufficient qualified individuals, our operations and
reputation could be adversely affected. Additionally, competition for qualified
employees could require us to pay higher wages, which could result in higher
labor costs. If our labor costs increase, our results of operations will be
negatively affected.
If
we are unable to anticipate and react to changes in food, utility and other
costs, our results of operations could be materially adversely
affected.
Many
of
the food and beverage products we purchase are affected by commodity pricing,
and as such, are subject to price volatility caused by production problems,
shortages, weather or other factors outside of our control. Our profitability
depends, in part, on our successfully anticipating and reacting to changes
in
the prices of commodities. Therefore, we enter into purchase commitments with
suppliers when we believe that it is advantageous for us to do so. Should there
be an adverse change in commodity prices, we may be forced to absorb the
additional costs rather than transfer the resulting increases in commodity
prices to our customers in the form of menu price increases. Our success also
depends, in part, on our ability to absorb increases in utility costs. Our
operating results are affected by fluctuations in the price of utilities. Our
inability to anticipate and respond effectively to an adverse change in any
of
these factors could have a significant adverse effect on our results of
operations.
Our
business is affected by local, state and federal
regulations.
The
restaurant industry is subject to extensive federal, state and local laws and
regulations. We are also subject to licensing and regulation by state and local
authorities relating to health, sanitation, safety and fire standards, building
codes and liquor licenses, federal and state laws governing our relationships
with employees (including the Fair Labor Standards Act and applicable minimum
wage requirements, overtime, unemployment tax rates, family leave, tip credits,
working conditions, safety standards and citizenship requirements), federal
and
state laws which prohibit discrimination and other laws regulating the design
and operation of facilities, such as the Americans With Disabilities Act of
1990.
Our
planned culinary contract services expansion may not be
successful.
Our
success depends on our ability to retain our current clients and renew our
existing client contracts. Our ability to do so generally depends on
a variety of factors, including the quality, price and responsiveness of our
services, as well as our ability to market these services effectively and
differentiate ourselves from our competitors. We cannot assure you
that we will be able to renew existing client contracts at the same or higher
rates or that our current clients will not turn to competitors, cease
operations, elect to self-operate or terminate contracts with us. The
failure to renew a significant number of our existing contracts would have
a
material adverse effect on our business and results of operations.
If
we lose the services of any of our key management personnel, our business
could suffer.
The
success of our business is highly dependent upon our key management personnel,
particularly Christopher J. Pappas, our President and Chief Executive Officer,
and Harris J. Pappas, our Chief Operating Officer. The loss of the services
of
any key management personnel could have a material adverse effect upon our
business.
General
economic factors may adversely affect our results of
operations.
National,
regional and local economic conditions, such as recessionary economic cycles,
a
protracted economic slowdown or a worsening economy, could adversely affect
disposable consumer income and consumer confidence. Unfavorable changes in
these
factors or in other business and economic conditions affecting our customers
could reduce customer traffic in some or all of our restaurants, impose
practical limits on our pricing and increase our costs, any of which could
lower
our profit margins and have a material adverse affect on our results of
operations.
The impact
of
inflation on food, labor and other aspects of our business can negatively affect
our results of operations. Commodity inflation in food, beverages and utilities
can also impact our financial performance. Although we attempt to offset
inflation through periodic menu price increases, cost controls and incremental
improvement in operating margins, we may not be able to completely do so which
could negatively affect our results of operations.
Our
business is subject to seasonal fluctuations, and, as a result, our results
of
operations for any given quarter may not be indicative of the results that
may
be achieved for the full fiscal year.
Our
business is subject to seasonal fluctuations. Historically, our highest earnings
have occurred in the third quarter of the fiscal year, as our revenues in most
of our restaurants have typically been higher during the third quarter of the
fiscal year. Similarly, our results of operations for any single quarter will
not necessarily be indicative of the results that may be achieved for a full
fiscal year.
|
Item
1B.
|
Unresolved
Staff Comments
|
None.
|
Item
2.
|
Properties
|
Our restaurants typically contain 8,000 to 10,500 square feet of floor space and can seat 250 to 300 guests simultaneously.
Our
restaurants are well maintained and in good condition. In order to maintain
appearance and operating efficiency, we periodically refurbish and update our
restaurants and equipment and perform scheduled maintenance.
We
own
the underlying land and buildings in which 94 of our restaurants are located.
Nine of these restaurant properties contain excess building space, which is
leased to tenants unaffiliated with our company.
In
addition to the owned locations, 34 other restaurants are held under leases,
including 10 in regional shopping malls. Most of the leases are fixed-dollar
rentals. Most require us to pay additional amounts related to property taxes,
hazard insurance and maintenance of common areas. Of the 34 restaurant leases,
the current terms of 6 expire before 2010, 18 expire between 2010 and 2014,
and
10 thereafter. Of the 34 restaurant leases, 31 can be extended beyond their
current terms at our option.
We
lease
approximately 25,000 square feet of corporate office space, which extends
through 2011. The corporate office space is located off the Northwest Freeway
in
Houston, Texas in close proximity to many of our Houston restaurant
locations.
We
also
lease warehouse space in the Houston, Texas area as described in
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations - Affiliations and Related Parties - Affiliations” in Item 7 of this
report. See Note 10, “Operating Leases”, of the Notes to Consolidated Financial
Statements in Item 8 of this report for information concerning our lease rental
expenses and lease commitments.
As
of
November 1, 2007, we had one owned property, with a carrying value of
approximately $0.7 million, and three properties located on ground leases,
with
a zero carrying value, that are held for sale.
We
also
have three locations held for future use. Of these, two are owned and
one is a ground lease. All three of these are located in
Texas.
We
maintain public liability insurance and property damage insurance on our
properties in amounts which management believes provide adequate
coverage.
|
Item
3.
|
Legal
Proceedings
|
We
are,
from time to time, subject to claims and lawsuits arising in the ordinary course
of business. In the opinion of management, the ultimate resolution of pending
claims and lawsuits will not have a material adverse effect on our operations
or
consolidated financial position. There are no material legal proceedings to
which any of our directors, officers or affiliates, or any associate of any
such
director or officer, is a party, or has a material interest, adverse to our
company.
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
No
matters were submitted to a vote of our security holders during the fourth
quarter of the fiscal year ended August 29, 2007.
PART
II
|
Item
5.
|
Market
for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity
|
|
Securities
|
Stock
Prices
Our
common stock is traded on the New York Stock Exchange under the symbol “LUB.”
The following table sets forth, for the last two fiscal years, the high and
low
sales prices on the New York Stock Exchange as reported in the consolidated
transaction reporting system.
|
Fiscal
Quarter Ended
|
High
|
Low
|
||||||
|
|
|
|
||||||
|
November
23, 2005
|
$ |
14.32
|
$ |
11.69
|
||||
|
February
15, 2006
|
14.90
|
11.29
|
||||||
|
May
10, 2006
|
16.09
|
11.10
|
||||||
|
August
30, 2006
|
12.03
|
8.18
|
||||||
|
November
22, 2006
|
11.74
|
8.27
|
||||||
|
February
14, 2007
|
11.74
|
10.00
|
||||||
|
May
9, 2007
|
11.19
|
9.47
|
||||||
|
August
29, 2007
|
11.15
|
9.21
|
||||||
As
of
November 1, 2007, there were approximately 2,856 holders of record of our
common stock. No cash dividends have been paid on our common stock since
fiscal
year 2000, and we currently have no intention to pay a cash dividend on our
common stock. On November 1, 2007, the closing price of our common stock
on the
New York Stock Exchange was $10.85.
Equity
Compensation Plans
Securities
authorized under our equity compensation plans as of August 29, 2007, were
as
follows:
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Plan
Category
|
|
Number
of Securities to be
Issued
Upon Exercise of
Outstanding
Options,
Warrants
and Rights
|
|
Weighted-Average
Exercise
Price of
Outstanding
Options,
Warrants
and Rights
|
|
Number
of Securities
Remaining
Available for
Future
Issuance Under Equity
Compensation
Plans
Excluding
Securities Reflected
in
Column (a))
|
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Equity
compensation plans previously approved by security
holders
|
|
|
187,407
|
$
|
8.42
|
|
|
1,838,295
|
|
|
|
Equity
compensation plans not previously approved by security
holders
|
|
|
2,269,625
|
|
5.02
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total
|
|
|
2,457,032
|
$
|
5.28
|
|
|
1,838,295
|
|
|
See
Note11, “Share-Based Compensation,” to the financial
statements.
The
following graph compares the cumulative total stockholder return on our common
stock for the five fiscal years ended August 29, 2007, with the cumulative
total
return on the S&P SmallCap 600 Index and an industry peer group
index. The peer group index consists of Bob Evans Farms, Inc., Ruby
Tuesday Inc., CBRL Group Inc. and O’Charley’s. These companies are
multi-unit family restaurant operators in the mid-price
range.
The
cumulative total shareholder return computations set forth in the performance
graph assume an investment of $100 on August 28, 2002, and the reinvestment
of
all dividends. The returns of each company in the peer group index
have been weighed according to that company’s stock market
capitalization.
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
|||||||||||||||||||
|
Luby’s
Inc.
|
100.00
|
48.80
|
129.49
|
261.78
|
189.46
|
228.33
|
||||||||||||||||||
|
S&P
600 Index – Total Return
|
100.00
|
122.70
|
140.93
|
178.27
|
190.95
|
218.21
|
||||||||||||||||||
| S&P 600 Restaurant Index | 100.00 | 115.98 | 126.76 | 153.72 | 158.58 | 161.60 | ||||||||||||||||||
|
Peer
Group Index Only
|
100.00
|
118.88
|
121.02
|
118.43
|
134.11
|
132.98
|
||||||||||||||||||
|
Peer
Group Index + Luby’s Inc.
|
100.00
|
116.91
|
121.78
|
123.14
|
136.19
|
136.69
|
||||||||||||||||||
|
Item
6.
|
Selected
Financial Data
|
Five-Year
Summary of Operations
|
|
Fiscal
Year Ended
|
|||||||||||||||||||
|
|
August
29,
2007
|
August
30,
2006
|
August
31,
2005
(a)
|
August
25,
2004
|
August
27,
2003
|
|||||||||||||||
|
|
(364
days)
|
(364
days)
|
(371
days)
|
(364
days)
|
(364
days)
|
|||||||||||||||
|
|
(In
thousands except per share data)
|
|||||||||||||||||||
|
Sales
|
|
|
|
|
|
|||||||||||||||
|
Restaurant
sales
|
$ |
318,323
|
$ |
324,640
|
$ |
318,401
|
$ |
294,235
|
$ |
290,512
|
||||||||||
|
Culinary
contract services
|
2,064
|
—
|
—
|
—
|
—
|
|||||||||||||||
|
Total
sales
|
320,387
|
324,640
|
318,401
|
294,235
|
290,512
|
|||||||||||||||
|
|
||||||||||||||||||||
|
Income
from continuing operations
|
11,247
|
21,085
|
8,456
|
6,063
|
2,106
|
|||||||||||||||
|
|
||||||||||||||||||||
|
Loss
from discontinued operations
(c)
|
(384 | ) | (1,524 | ) | (5,008 | ) | (9,185 | ) | (31,827 | ) | ||||||||||
|
|
||||||||||||||||||||
|
Net
income (loss)
|
10,863
|
19,561
|
3,448
|
(3,122 | ) | (29,721 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Income
per share from continuing operations:
|
||||||||||||||||||||
|
B
Basic
|
$ |
0.43
|
$ |
0.81
|
$ |
0.37
|
$ |
0.27
|
$ |
0.09
|
||||||||||
|
Assuming
dilution
|
$ |
0.41
|
$ |
0.77
|
$ |
0.36
|
$ |
0.27
|
$ |
0.09
|
||||||||||
|
|
||||||||||||||||||||
|
Loss
per share from discontinued operation:
|
||||||||||||||||||||
|
Basic
|
$ | (0.01 | ) | $ | (0.06 | ) | $ | (0.22 | ) | $ | (0.41 | ) | $ | (1.42 | ) | |||||
|
Assuming
dilution
|
$ | (0.01 | ) | $ | (0.06 | ) | $ | (0.21 | ) | $ | (0.41 | ) | $ | (1.41 | ) | |||||
|
|
||||||||||||||||||||
|
Net
income (loss) per share
|
||||||||||||||||||||
|
Basic
|
$ |
0.42
|
$ |
0.75
|
$ |
0.15
|
$ | (0.14 | ) | $ | (1.32 | ) | ||||||||
|
Assuming
dilution
|
$ |
0.40
|
$ |
0.71
|
$ |
0.15
|
$ | (0.14 | ) | $ | (1.32 | ) | ||||||||
|
|
||||||||||||||||||||
|
Weighted-average
shares outstanding
|
||||||||||||||||||||
|
Basic
|
26,121
|
26,024
|
22,608
|
22,470
|
22,451
|
|||||||||||||||
|
Assuming
dilution
|
27,170
|
27,444
|
23,455
|
22,679
|
22,532
|
|||||||||||||||
|
|
||||||||||||||||||||
|
Total
assets
|
$ |
219,686
|
$ |
206,699
|
$ |
206,214
|
$ |
232,281
|
$ |
275,675
|
||||||||||
|
|
||||||||||||||||||||
|
Long-term
debt (including net convertible subordinated debt)
(b)
|
$ |
—
|
$ |
—
|
$ |
13,500
|
$ |
53,561
|
$ |
—
|
||||||||||
|
|
||||||||||||||||||||
|
Total
debt
|
$ |
—
|
$ |
—
|
$ |
13,500
|
$ |
53,561
|
$ |
98,532
|
||||||||||
|
|
||||||||||||||||||||
|
Number
of restaurants at fiscal year end
|
128
|
128
|
131
|
138
|
148
|
|||||||||||||||
|
(a)
|
Fiscal
year ended August 30, 2005 consists of 53 weeks, while all other
periods
presented consist of 52 weeks.
|
|
(b)
|
See
“Management's Discussion and Analysis of Financial Condition and Results
of Operations – Debt” in Item 7 of this report and Note 7, “Debt”, of the
Notes to Consolidated Financial Statements in Item 8 of this
report.
|
(c)
Our
business plan, as approved in fiscal year 2003, called for the closure of more
than 50 locations. In accordance with the plan, the
entire
fiscal activity of the
applicable stores closed after the inception of the plan has been reclassified
to discontinued operations.
For
comparison purposes, prior fiscal
years results related to these same locations have also been reclassified to
discontinued
operations.
|
Item
7.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
Management's
discussion and analysis of the financial condition and results of operations
should be read in conjunction with the consolidated financial statements and
footnotes for the fiscal years ended August 29, 2007, August 30, 2006 and August
31, 2005 included in Item 8 of this report.
Overview
We
generate revenues primarily by providing quality home-style food to customers
at
our 128 restaurants located throughout Texas and four other
states. These establishments are located in close proximity to retail
centers, business developments and residential areas. We also provide
culinary contract services for organizations that offer on-site food service,
such as health care facilities. In August 2007, we introduced our new
cafeteria-style prototype design, with the opening of our first new store
in
over seven years. The new restaurant is on pace to generate an annual
unit volume, or AUV, in excess of $3.25 million, an increase of 30% as compared
to our current average AUV of $2.5 million.
Accounting
Periods
Our
fiscal year ends on the last Wednesday in August. As such, 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. Both fiscal
2007
and 2006 were 52-week years, while fiscal 2005 was a 53-week year for us, with
the extra week occurring in the fourth quarter. Comparability between quarters
may be affected by the varying lengths of the quarters, as well as the
seasonality associated with the restaurant business.
Same-Store Sales
The
restaurant business is highly competitive with respect to food quality, concept,
location, price, and service, all of which may have an effect on same-store
sales. Our same-store sales calculation measures the relative performance of
a
certain group of restaurants. To qualify for inclusion in this group, a store
must have been in operation for 18 consecutive accounting periods. Although
management believes this approach leads to more effective year-over-year
comparisons, neither the time frame nor the exact practice may be similar to
those used by other restaurant companies.
Same-store
sales decreased 1.5% for fiscal year 2007. Same-store sales
increased 4.6% and 6.3% for fiscal years 2006 and 2005,
respectively. Our calculation of same-store sales remove the
additional week of sales in fiscal 2005 and compare sales year-over-year
for
periods that include approximately the same calendar dates. This
approach was also applied to same-store sales for fiscal quarters, adjusting
for
the additional week in fiscal fourth quarter 2005. The following
table shows the same-store sales change for comparative historical
quarters:
|
Increase
(Decrease)
|
Fiscal
2007
|
|
Fiscal
2006
|
|
Fiscal
2005
|
||||||||||
|
Q4
|
Q3
|
Q2
|
Q1
|
|
Q4
|
Q3
|
Q2
|
Q1
|
|
Q4
|
Q3
|
Q2
|
Q1
|
||
|
Same-store
sales
|
(2.0)%
|
(1.9)%
|
(3.6)%
|
1.7%
|
|
2.0%
|
4.1%
|
6.7%
|
6.4%
|
|
7.0%
|
6.5%
|
5.7%
|
5.8%
|
|
Hurricane
Impact
Hurricane
Rita impacted a number of our markets during the first quarter of fiscal 2006
as
we were forced to temporarily close many stores due to mandatory evacuations
and
subsequent power outages. We experienced a store closure impact of 236 store
days of operations due to Hurricane Rita. One unit in Port Arthur, Texas
suffered permanent damage and the lease has been terminated. All other
restaurants impacted by the storm suffered minimal damage and were reopened
soon
after the storm passed. The store closure impact on our results of operations
was offset by increased traffic at certain units and catering events relating
to
the hurricane relief effort.
Minimum
Wage Increase Impact
The
new
federal minimum wage increase took effect on July 24, 2007. As a
percentage of total employees, those previously earning below the first increase
in the minimum wage to $5.85 represented less than 5 percent of our total
workforce. While this percentage is relatively small, we expect to
experience a “compression” due to the minimum wage increase, meaning that
wages earned by employees within a certain range of the new minimum
wage would be adjusted over time as the new minimum wage increases are
phased in throughout the next three years. To the extent prevailing
market conditions allow, we intend to adjust menu prices to maintain profit
margins.
Discontinued
Operations
Our
business plan, as approved in fiscal year 2003 and completed in fiscal year
2006, called for the closure of more than 50 locations. In accordance with
the
plan, the entire fiscal activity of the applicable stores closed after the
inception of the plan has been classified as discontinued
operations. Results related to these same locations have also been
classified as discontinued operations for all periods presented.
RESULTS
OF OPERATIONS
Fiscal
2007 (52 weeks) compared to Fiscal 2006 (52 weeks)
Total
sales decreased approximately $4.3 million, or 1.3%, in fiscal 2007 compared
to
fiscal 2006. Restaurant sales decreased $6.3 million,
offset by $2.0 million of culinary
contract services revenue recognized in fiscal 2007.
The $6.3 million decline in restaurant sales included a $1.5 million
reduction in sales related to closed operations. On a
same-store basis, sales decreased approximately $4.9 million, or 1.5%, due
primarily to declines in guest traffic partially offset by higher menu prices
and more favorable menu mix.
Food
costs decreased approximately $0.7 million, or 0.8%, in fiscal 2007 compared
to
fiscal 2006 due to the lower sales volume offset by higher commodity prices
for
beef, seafood, poultry and oils. Our promotion of combination meals
has provided favorable cost structures. As a percentage of
restaurant sales, food costs increased 0.3%, from 26.6% in fiscal 2006 to 26.9%
in fiscal 2007.
Payroll
and related costs decreased approximately $3.8 million, or 3.4%, in fiscal
2007
compared to fiscal 2006. As a percentage of restaurant sales,
these costs decreased 0.6%, from 34.6% in fiscal 2006 to 34.0% in
fiscal 2007, due to reduced restaurant sales and continued focus on labor
productivity.
Other
operating expenses decreased approximately by $0.6 million, or 0.9%, for fiscal
2007 compared to fiscal 2006. As a percentage of restaurant sales, these
costs increased 0.2% and were driven by lower utility and advertising costs,
offset by a $1.1 million insurance recovery associated with a business claim
related to Hurricane Rita, which we recorded as a reduction to
operating expense in the fourth quarter of fiscal 2006.
Depreciation
and amortization expense increased by approximately $0.3 million, or 2.0%,
in
fiscal 2007 compared to fiscal 2006 due to increased capital expenditures in
fiscal 2007.
General
and administrative expenses decreased by approximately $0.5 million, or 2.4%,
in
fiscal 2007 compared to fiscal 2006. As a percentage of total sales,
general and administrative expenses decreased to 6.8% in fiscal 2007 compared
to
6.9% in fiscal 2006, primarily due to lower bonus expense and professional
consulting fees, partially offset by increased share-based compensation
expense.
The
provision for asset impairments and restaurant closings decreased by
approximately $0.3 million in fiscal 2007 compared to fiscal 2006 primarily
due
to asset impairment and lease settlement costs recognized in 2006 offset by
a
2007 lease settlement related to a closed location.
The
net
loss (gain) on disposition of property and equipment decreased by approximately
$0.7 million in fiscal 2007 compared to fiscal 2006. This
decrease is primarily due to the retirement of obsolete equipment that was
identified during our fiscal 2006 review of restaurant equipment at all of
our
restaurants and at our Houston Service Center.
Interest
income increased approximately $0.8 million due to higher cash and short term
investment balances. Interest expense decreased $0.1
million.
Other
income, net, decreased by approximately $0.3 million in fiscal 2007
compared to fiscal 2006, due primarily to a decrease in prepaid state sales
tax discounts resulting from lower sales in fiscal 2007.
The
income tax provision for fiscal 2007 was $6.3 million compared to
recognition of an income tax benefit of $4.5 million in 2006. All of
our net operating losses have been fully utilized and the provision for income
taxes in 2007 is reflective of the tax effect of the pre-tax income for the
year. Our income tax benefit in fiscal 2006 primarily represents the
recognition of tax benefits for net operating losses not recognized in previous
years due to uncertainty regarding our ability to realize them.
The
net
loss from discontinued operations decreased by approximately $1.1 million in
fiscal 2007 compared to fiscal 2006, principally due to lease settlement and
asset impairment costs associated with discontinued operation in
2006.
Fiscal
2006 (52 weeks) compared to Fiscal 2005 (53 weeks)
Sales
increased approximately $6.2 million, or 2.0%, in fiscal 2006 compared to fiscal
2005. On a same-store basis, sales increased approximately $8.5
million, or 2.7%. Excluding the additional, or 53
rd
, week of
sales
included in fiscal year 2005, same-store sales growth for fiscal 2006 was
approximately $14.2 million, or 4.6%.
Food
costs increased approximately $1.3 million, or 1.5%, in fiscal 2006 compared
to
fiscal 2005 due to slightly higher commodity prices for seafood and produce,
which were partially offset by slightly lower commodity prices for poultry
and
dairy. Our promotion of combination meals have provided favorable
cost structures. As a percentage of sales, food costs decreased 0.1%,
from 26.7% in fiscal 2005 to 26.6% in fiscal 2006.
Payroll
and related costs decreased approximately $1.2 million, or 1.1%, in fiscal
2006
compared to fiscal 2005. As a percentage of sales, these costs
decreased 1.0%, from 35.6% in fiscal 2005 to 34.6% in fiscal 2006, due to
operational focus and lower workers’ compensation expense, including the effects
of reduced actuarial estimates of potential losses resulting from favorable
claims experience.
Other
operating expenses increased by approximately $5.0 million, or 7.7%, for fiscal
2006 compared to fiscal 2005. As a percentage of sales these costs increased
1.1%, and were driven by higher utilities costs as well as higher restaurant
supply and repair and maintenance costs, while being partially offset by a
$1.1
million insurance recovery associated with a business interruption claim due
to
Hurricane Rita, recorded as a reduction to operating expense in the fourth
quarter of fiscal 2006.
Depreciation
and amortization expense increased by approximately $0.7 million, or 4.7%,
in
fiscal 2006 compared to fiscal 2005 due to increased capital expenditures in
fiscal 2006.
Relocation
and voluntary severance costs decreased by $0.7 million in fiscal 2006 compared
to fiscal 2005 since no costs of this nature were incurred during fiscal
2006. During fiscal 2005, we incurred costs of approximately $0.7
million related to the relocation of our corporate headquarters to Houston,
Texas.
General
and administrative expenses increased by approximately $2.1 million, or 10.6%,
in fiscal 2006 compared to fiscal 2005. As a percentage of sales,
general and administrative expenses increased to 6.9% in fiscal 2006 compared
to
6.4% in fiscal 2005, primarily due to increased staffing and share-based
compensation expenses.
The
provision for asset impairments and restaurant closings increased by
approximately $0.5 million in fiscal 2006 compared to fiscal
2005. This change is primarily due to asset impairment and lease
settlement costs in fiscal 2006.
The
net
loss (gain) on disposition of property and equipment increased by approximately
$1.6 million in fiscal 2006 compared to fiscal 2005. This change is
primarily due to the retirement of obsolete equipment that was identified during
our fiscal 2006 review of restaurant equipment at all of our restaurants and
at
our Houston Service Center.
Interest
expense, decreased approximately $10.6 million, in fiscal 2006 compared to
fiscal 2005. This decrease was primarily due to an $8.0 million
write-off of the unamortized portion of the discount associated with convertible
subordinated notes upon their conversion to common stock in August 2005, in
combination with the elimination of outstanding debt and lower interest rates
following the refinancing of our outstanding indebtedness in 2005. Interest
income decreased by approximately $0.1 million.
Other
income, net, increased by approximately $0.3 million in fiscal 2006 compared
to
fiscal 2005, primarily due to the increase in prepaid state sales tax discounts
and the write-off of expired gift certificates.
The
income tax benefit for fiscal 2006 primarily represents the recognition of
tax
benefits for net operating losses not recognized in previous years due to
uncertainty regarding our ability to realize them. (See Note 3,
“Income Taxes”, of the Notes to Consolidated Financial Statements in Item 8 of
this report). Unlike recent fiscal years, when income tax
expenses and benefits were not recognized due to unutilized net operating losses
and related valuation allowance, our provision for income taxes in future
periods will be reflective of the tax effect of the pre-tax income (losses)
recognized in those periods once all of our net operating losses are fully
utilized. Additionally, the recently-enacted Texas Franchise Tax will
impact future income tax provisions.
The
net
loss from discontinued operations decreased by approximately $3.5 million in
fiscal 2006 compared to fiscal 2005, principally because we no longer have
any
deferred financing costs or interest associated with closed stores in
2006.
LIQUIDITY
AND CAPITAL RESOURCES
Cash
and Cash Equivalents and Short-Term Investments
Cash
and
cash equivalents and short-term investments increased by $16.4 million from
the
end of fiscal 2006 to August 29, 2007, primarily due to cash flows from
operations partially offset by capital expenditures.
Working
Capital
We
had a
working capital deficit of $1.9 million as of August 29, 2007, which represented
an $15.8 million improvement compared to $17.7 million as of August 30,
2006. We expect to meet our working capital requirements through cash
flows from operations and availability under the Revolving Credit
Facility.
Capital
Expenditures
Capital
expenditures for the fiscal year ended August 29, 2007 were approximately $19.5
million. We primarily used our capital funds to improve our existing operating
units, acquire real estate and develop new units, and invest in our culinary
contract services business. We expect to be able to fund all capital
expenditures in fiscal 2008 using cash flows from operations and our available
credit. We expect to spend approximately $35.0 million to $40.0 million on
capital expenditures in fiscal 2008.
DEBT
2007
Revolving Credit Facility
On
July
13, 2007, we entered into a new $50.0 million unsecured Revolving Credit
Facility (the “2007 Revolving Credit Facility”) with a syndicate of two
banks. The 2007 Revolving Credit Facility may, subject to certain
terms and conditions, be increased by an additional $50.0 million for a total
facility size of $100.0 million. The 2007 Revolving Credit Facility
allows for up to $15.0 million of the available credit to be extended in the
form of letters of credit. All amounts owed by us under the 2007
Revolving Credit Facility are guaranteed by our subsidiaries and must be repaid
in full upon the maturity date on June 30, 2012.
At
any
time throughout the term of the facility, we have the option to elect one of
two
bases of interest rates. One interest rate option is the greater of
(a) the Federal Funds Effective Rate plus 0.50%, or (b) prime, plus, in either
case, an applicable spread that ranges from zero to 0.50% per
annum. The other interest rate option is LIBOR (“London InterBank
Offered Rate”) plus a spread that ranges from 0.75% to 2.00% per
annum. The applicable spread under each option is dependent upon
certain measures of our financial performance at the time of each
election.
We
pay a
quarterly commitment fee based on the unused available balance of the 2007
Revolving Credit Facility, which is also dependent upon our financial
performance, ranging from 0.20% to 0.30% per annum. We also pay
quarterly fees with respect to any letters of credit issued and
outstanding. Finally, we were obligated to pay the lenders a one-time
fee in connection with the closing of the 2007 Revolving Credit
Facility.
The
2007
Revolving Credit Facility contains customary covenants and restrictions on
our
ability to engage in certain activities, including financial performance
covenants and limitations on capital expenditures, asset sales and acquisitions
and contains customary events of default. As of August 29, 2007, we
were in compliance with all covenants.
At
August
29, 2007, we had a total of approximately $2.9 million committed under letters
of credit, issued under the 2007 Revolving Credit Facility, which have been
issued as security for the payment of insurance obligations classified as
accrued expenses on the balance sheet. An additional $12.0 million
may be issued under letters of credit.
2005
Revolving Credit Facility
On
August
31, 2005, we entered into an amended and restated, $45.0 million unsecured
Revolving Credit Facility (the “2005 Revolving Credit Facility”) with a
syndicate of three independent banks.
All
amounts owed by us under the 2005 Revolving Credit Facility were guaranteed
by
our subsidiaries. At August 30, 2006, we had a total of approximately $5.1
million committed under letters of credit that had been issued as security
for the payment of insurance obligations classified as accrued expenses on
the
balance sheet. The available amount, to be issued under letters of
credit, was $4.9 million. On July 12, 2007, we terminated the 2005 Revolving
Credit Facility and paid all outstanding liabilities associated with the
agreement.
COMMITMENTS
AND CONTINGENCIES
Off-Balance
Sheet Arrangements
We have
no off-balance-sheet structured financing arrangements.
Pending
Claims
We
presently, and from time to time, are subject to pending claims and lawsuits
arising in the ordinary course of business. In the opinion of management, the
resolution of any pending legal proceedings will not have a material adverse
effect on our results of operations, financial position, or cash
flows.
Construction
Activity
From
time
to time, we enter into non-cancelable contracts for the construction of our
new
restaurants. This construction activity exposes us 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.
Contractual
Obligations
At
August
29, 2007, we had contractual obligations and other commercial commitments as
described below:
|
|
|
Payments
due by Period
|
|
|||||||||||||
|
Contractual
Obligations
|
|
Total
|
|
Less
than
1
Year
|
|
1-3
Years
|
|
3-5
Years
|
|
After
5
Years
|
|
|||||
|
|
|
(In
thousands)
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Operating
lease obligations
(a)
|
|
$
|
35,882
|
$
|
4,246
|
|
$
|
8,185
|
|
$
|
6,681
|
$
|
16,770
|
|
||
|
|
|
Amount
of Commitment by Expiration Period
|
|
|||||||||||||
|
Other
Commercial Commitments
|
|
Total
|
|
Fiscal
Year
2008
|
|
Fiscal
Years
2009-2010
|
|
Fiscal
Years
2011-2012
|
|
Thereafter
|
|
|||||
|
|
|
(In
thousands)
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Letters
of credit
|
|
$
|
2,892
|
|
$
|
2,892
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
(a)
|
Operating
lease obligations contain rent escalations and renewal options ranging
from five to forty years.
|
We
had no
long-term debt, capital lease or purchase obligations at August 29,
2007.
In
addition to the commitments described above, we enter into a number of
cancelable and noncancelable commitments during each fiscal year. Typically,
these commitments expire within one year and are generally focused on food
inventory. We do not maintain any long-term or exclusive commitments or
arrangements to purchase products from any single supplier. Substantially all
of
our product purchase commitments are cancelable up to 30 days prior to the
vendor's scheduled shipment date.
Long-term
liabilities reflected in our consolidated financial statements as of August
29,
2007 included amounts accrued for benefit payments under our supplemental
executive retirement plan of $
0.2 million,
accrued
insurance reserves of $
2.4
million and
deferred rent liabilities of $
3.4
million.
We
are
also contractually obligated to our Chief Executive Officer and Chief Operating
Officer pursuant to employment agreements. See “Affiliations and Related
Parties” for further information.
AFFILIATIONS
AND RELATED PARTIES
Affiliate
Services
Our
Chief
Executive Officer, Christopher J. Pappas, and our Chief Operating Officer,
Harris J. Pappas, own two restaurant entities (the “Pappas entities”) that may
provide services to Luby's, Inc., and its subsidiaries, as detailed in the
Master Sales Agreement dated December 9, 2005 among us and the Pappas
entities.
Under
the
terms of the 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 Master Sales Agreement of custom-fabricated and refurbished
equipment were $261,000, $107,000, and $174,000 in fiscal year 2007, 2006,
and
2005, respectively. Services provided under this agreement are
subject to review and approval by the Finance and Audit Committee.
Operating
Leases
We
currently lease property from the Pappas entities on a month-to-month basis
that
we refer to as the Houston Service Center, which is used to accommodate our
own
in-house repair and fabrication center. We paid approximately
$82,000, $82,000, and $88,000 in fiscal years 2007, 2006, and 2005,
respectively, pursuant to the terms of this lease.
We
also
lease approximately 27,000 square feet of warehouse space from the Pappas
entities to complement the Houston Service Center, at a monthly rate
of approximately $0.21 per square foot. We paid approximately
$67,000, $67,000, and $72,000 in fiscal years 2007, 2006, and 2005,
respectively, pursuant to the terms of this lease.
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 partner interest
and a 50% general partner interest in the limited partnership. A
third party company manages the center. One of our restaurants has
rented approximately 7% of the space in that center since 1969. No
changes were made to our lease terms as a result of the transfer of ownership
of
the center to the new partnership. We made payments of approximately
$260,000,
$266,000, and $276,000 during fiscal years 2007, 2006, and 2005, respectively,
pursuant to the terms of the lease agreement,
which currently includes an
annual base rate of $14.64 per square foot.
On
November 22, 2006, we executed a new lease agreement with respect to this
property. Effective upon our relocation and occupancy into the new
space, in Spring 2008, the new lease agreement provides for a primary term
of
approximately 12 years with two subsequent five-year options and it 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. We
will owe, under the lease, $16.65 per square foot per year plus maintenance,
taxes, and insurance for the calendar year 2008. Thereafter, the
lease provides for reasonable increases in rent at set intervals which is
accounted for on a straight line basis. The new lease agreement was
approved by the Finance and Audit Committee.
Affiliated
rents paid for the Houston Service Center, the separate storage facility, and
the Houston property lease combined represented 9.4%, 9.8%, and 8.8% of total
rents for continuing operations in fiscal years 2007, 2006, and 2005,
respectively.
The
following table compares current and prior fiscal year-to-date charges incurred
under the Master Sales Agreement affiliated property leases and other related
party agreements to our total capital expenditures, as well as relative general
and administrative expenses and other operating expenses included in continuing
operations:
Pursuant
to the terms of a separate Purchase Agreement dated March 9, 2001, entered
into
by and among the Company, Christopher J. Pappas and Harris J. Pappas, the
Company agreed to submit three persons designated by Christopher J. Pappas
and
Harris J. Pappas as nominees for election at the 2002 Annual Meeting of
Shareholders. Messrs. Pappas designated themselves and Frank Markantonis
as
their nominees for directors, all of whom were subsequently elected. Christopher
J. Pappas and Harris J. Pappas are brothers. As disclosed in the proxy statement
for the February 26, 2004, annual meeting of shareholders, Frank Markantonis
is
an attorney whose principal client is Pappas Restaurants, Inc., an entity
owned
by Harris J. Pappas and Christopher J. Pappas.
As
amended in June 7, 2004, the purchase agreement allows Messrs. Pappas to
continue to nominate persons for election to the board which, if such nominees
are elected, would result in Messrs. Pappas having nominated three of the
then-serving directors of our company. Messrs. Pappas retain their right for
so
long as they both are executive officers of our company.
Christopher
J. Pappas, our President and Chief Executive Officer, is an advisory member
of
the Board of Directors of Amegy Bank, National Association, which is a lender
and Syndication Agent under the 2007 Revolving Credit Facility. We hold, from
time to time, certain short-term investments with Amegy Bank, National
Association. In November 2005, Christopher and Harris Pappas entered
into new employment agreements expiring in August 2008. Both continue
to devote their primary time and business efforts to Luby's, while maintaining
their roles at Pappas Restaurants, Inc. See Note 16, Subsequent
Events, to the financial statements.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our
accounting policies are described in Note 1, “Nature of Operations and
Significant Accounting Policies,” of the Notes to the Consolidated Financial
Statements in Item 8 of this report. The Consolidated Financial Statements
are
prepared in conformity with U.S. generally accepted accounting principles.
Preparation of the financial statements requires us to make judgments, estimates
and assumptions that affect the amounts of assets and liabilities in the
financial statements and revenues and expenses during the reporting periods.
Management believes the following are critical accounting policies due to the
significant, subjective and complex judgments and estimates used when preparing
our consolidated financial statements. Management regularly reviews these
assumptions and estimates with the Finance and Audit Committee of our Board
of
Directors.
Income
Taxes
We
record
the estimated future tax effects of temporary differences between the tax bases
of assets and liabilities and amounts reported in the accompanying consolidated
balance sheets, as well as operating loss and tax credit carrybacks and
carryforwards. We periodically review the recoverability of tax assets recorded
on the balance sheet and provide valuation allowances as management deems
necessary. Management makes judgments as to the interpretation of the tax laws
that might be challenged upon an audit and cause changes to previous estimates
of tax liability. In addition, we operate within multiple taxing jurisdictions
and are subject to audit in these jurisdictions. In management's opinion,
adequate provisions for income taxes have been made for all years. Historically,
the Internal Revenue Service (“IRS”) periodically has reviewed our company. We
are currently under review for the 2002, 2001 and 2000 fiscal years. The IRS
review could result in a reduction of the deductions claimed on our returns
and
additional income taxes due. In August 2006, we settled an IRS audit of the
2003
fiscal year and agreed to a partial reduction of the loss claimed on the federal
income tax return for the year. The result of the audit was a
reduction of $7.4 million in the cumulative net operating losses carried forward
to offset future taxable income. As of August 29, 2007 and August 30,
2006, there were zero and $13.1 million, respectively, in net operating losses
being carried forward.
Impairment
of Long-Lived Assets
We
periodically evaluate long-lived assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. We estimate future cash flows expected to result from the use
and
possible disposition of the asset and will recognize an impairment loss when
the
sum of the undiscounted estimated future cash flows is less than the carrying
amounts of such assets. The estimates of future cash flows, based on reasonable
and supportable assumptions and projections, require management's subjective
judgments. The span of time for which future cash flows are estimated is often
lengthy, which increases the sensitivity to assumptions made. 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 or
appraisals, if available.
Property
Held for Sale
We
also
periodically review long-lived assets against our 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 and actively marketed. Property held for sale is
recorded at amounts not in excess of what management currently expects to
receive upon sale, less costs of disposal. We routinely monitor the estimated
value of property held for sale and record adjustments to these values as
required. We periodically measure and analyze our estimates against third-party
appraisals.
Insurance
and Claims
We
self-insure a significant portion of risks and associated liabilities under
our
employee injury, workers’ compensation and general liability programs. We
maintain insurance coverage with third party carriers to limit our
per-occurrence claim exposure. We have recorded accrued liabilities for
self-insurance based upon analysis of historical data and actuarial estimates,
and we review these amounts on a quarterly basis to ensure that the liability
is
appropriate.
The
significant assumptions made by the actuary to estimate self-insurance reserves,
including incurred but not reported claims, are as follows: (1) historical
patterns of loss development will continue in the future as they have in the
past (Loss Development Method), (2) historical trend patterns and loss cost
levels will continue in the future as they have in the past
(Bornhuetter-Ferguson Method), and (3) historical claim counts and exposures
are
used to calculate historical frequency rates and average claim costs
are analyzed to get a projected severity (Frequency and Severity
Method). The results of these methods are blended by the actuary to
provide the reserves estimates. The third party actuary utilizes
methods and assumptions that are in accordance with generally accepted actuarial
practices and believes the conclusions reached are reasonable.
Actual
workers’ compensation and employee injury claims expense may differ from
estimated loss provisions. The ultimate level of claims under the in-house
safety program are not known, and declines in incidence of claims as well as
claims costs experiences or reductions in reserve requirements under the program
may not continue in future periods.
Share-Based
Compensation
We
adopted the provisions of SFAS No. 123, “Share-Based Payments (Revised 2004)”
(“SFAS 123R”), effective September 1, 2005. Among other things, SFAS 123R
eliminates the ability to account for stock-based compensation using APB 25
and
requires that such transactions be recognized as compensation cost in the income
statement utilizing the fair values on the date of the grant. See Note 1,
“Employee Benefit Plans and Agreements”, of the Notes to Consolidated Financial
Statements in Item 8 of this report for additional information.
NEW
ACCOUNTING PRONOUNCEMENTS
In
May
2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 154,
“Accounting Changes and Error Corrections” (“SFAS 154”). This
statement, which replaces APB Opinion No. 20, “Accounting Changes” and FASB
Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”,
requires that a voluntary change in accounting principle be applied
retroactively to all prior period financial statements presented, unless it
is
impractical to do so. SFAS 154 also provides that a change in method
of depreciating or amortizing a long-lived non-financial asset be accounted
for
as a change in estimate effected by a change in accounting principle, and also
provides that corrections of errors in previously issued financial statements
should be termed a “restatement”. SFAS 154 is effective for fiscal
years beginning after December 15, 2005, which is our fiscal year
2007. The adoption of SFAS 154 did not have a material impact on our
financial position, results of operations or cash flows.
In
June
2006, the Emerging Issues Task Force issued EITF 06-03, “How Taxes Collected
from Customers and Remitted to Governmental Authorities should be presented
in
the Income Statement (That is Gross versus Net Presentation).” We
present sales taxes on a net basis (excluded from revenues). As a
result, implementing this consensus had no impact on our financial position,
results of operations or cash flows, and no additional disclosures were
required. We adopted EITF 06-03 effective August 31,
2006.
In
July
2006, FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income
Taxes – An Interpretation of Financial Accounting Standards Board Statement No.
109” (“FAS 109”) was issued. FIN 48 clarifies the accounting for
income taxes by prescribing the minimum recognition threshold a tax position
is
required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN 48 applies to all tax
positions related to income taxes subject to FAS 109. FIN 48 is
effective for fiscal years beginning after December 15, 2006. We plan
to adopt this guidance effective for fiscal year 2008. The Company is
currently evaluating the impact of adopting FIN 48.
On
September 13, 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin (“SAB”) No. 108, “Considering the Effect of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements.” SAB 108 provides guidance on evaluating the materiality
of prior periods’ misstatements, quantifying the effects of correcting
misstatements in the current period and criteria for restatement of prior
periods. SAB 108 is effective for fiscal years ending after November
15, 2006. We adopted this guidance effective for fiscal
2007. This adoption had no material impact on our financial position,
results of operations or cash flows.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”) effective for fiscal years beginning after November 15,
2007. SFAS 157 enhances the guidance for using fair value to measure
assets and liabilities. In addition, SFAS 157 is expanding
information about the extent to which companies measure assets and liabilities
at fair value, the information used to measure fair value and the effect of
fair
value measurements on earnings. We are currently evaluating the
potential impact, if any, this would have on our financial results for fiscal
2009.
In
February 2007, the FASB issued SFAS No. 159, “Fair Value Option for Financial
Assets and Financial Liabilities – including an Amendment to FASB Statement No.
115, Accounting for Certain Investments in Debt and Equity Securities”, which
permits entities to choose to measure many financial instruments and certain
other items at fair value. We will be required to adopt the
provisions of this standard for fiscal 2009, and we are currently evaluating
the
impact, if any, that it will have on our financial statements.
INFLATION
Our
policy is to maintain stable menu prices without regard to seasonal variations
in food costs. General increases in costs of food, wages, supplies,
transportation and services may require us to increase our menu prices from
time
to time. To the extent prevailing market conditions allow, we intend to adjust
menu prices to maintain profit margins.
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
We
are
exposed to market risk from changes in interest rates affecting our
variable-rate debt. As of August 29, 2007, the total amount of debt subject
to
interest rate fluctuations outstanding under our 2007 Revolving Credit Facility
was zero.
Although
we are not currently using interest rate swaps, we have previously used and
may
in the future use these instruments to manage cash flow risk on a portion of
our
variable-rate debt.
Many
ingredients in the products sold in our restaurants are commodities, subject
to
unpredictable price fluctuations. We attempt to minimize price
volatility by negotiating fixed price contracts for the supply of key
ingredients and in some cases by passing increased commodity costs through
to
the customer by adjusting menu prices or menu offerings. Our
ingredients are available from multiple suppliers so we are not dependant
on a
single vendor for our ingredients.
|
Item
8.
|
Financial
Statements and Supplementary
Data
|
Report
of Management
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f)
and
15d-15(f). Because of its inherent limitations, internal control over financial
reporting may not prevent or detect material misstatements. Also, projections
of
any evaluation of effectiveness to future periods are subject to risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate. Under
the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, management conducted an
evaluation of the effectiveness of our internal control over financial reporting
as of August 29, 2007 based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on that evaluation, our management concluded that
our
internal control over financial reporting was effective as of August 29,
2007.
|
/s/Christopher
J. Pappas
|
/s/K.
Scott Gray
|
|
Christopher
J. Pappas
|
K.
Scott Gray
|
|
President
and Chief Executive Officer
|
Senior
Vice President and Chief Financial
Officer
|
Report
of
Independent Registered Public Accounting Firm
Board
of
Directors and Shareholders
Luby’s,
Inc.
We
have
audited the accompanying consolidated balance sheet of Luby’s, Inc. (a Delaware
corporation) and its subsidiaries as of August 29, 2007, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for
the year ended August 29, 2007.
These financial statements are the
responsibility of the Company's management.
Our responsibility is
to express an opinion on these financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).
Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement.
An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements.
An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We
believe that our audit provides a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Luby’s, Inc. as of August 29, 2007,
and the results of their operations and their cash flows for the year ended
August 29, 2007, in conformity with accounting principles generally accepted
in
the United States of America.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Luby’s, Inc.’s internal
control over financial reporting as of August 29, 2007, based on criteria
established in
Internal Control—Integrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
our
report dated November 6, 2007 expressed an unqualified opinion
thereon.
|
/s/GRANT
THORNTON LLP
|
|
|
|
|
|
Houston,
Texas
|
|
|
November
6, 2007
|
|
Report
of
Independent Registered Public Accounting Firm on
Internal
Control over Financial Reporting
Board
of
Directors and Shareholders
Luby’s,
Inc.
We
have
audited Luby’s, Inc.’s, (a Delaware Corporation) internal control over financial
reporting as of August 29, 2007, based on criteria established in
Internal
Control—Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Luby’s, Inc.’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Report of Management. Our responsibility
is to express an opinion on Luby’s, Inc.’s internal control over financial
reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, Luby’s, Inc. maintained, in all material respects, effective internal
control over financial reporting as of August 29, 2007, based on criteria
established in
Internal Control—Integrated Framework
issued by
COSO
.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet and consolidated
statements of operations, shareholders’ equity and cash flows of Luby’s, Inc.,
as of and for the year ended August 29, 2007 and our report dated November
6,
2007 expressed an unqualified opinion thereon.
|
/s/GRANT
THORNTON LLP
|
|
|
|
|
|
Houston,
Texas
|
|
|
November
6, 2007
|
|
Report
of
Independent Registered Public Accounting Firm
The
Board
of Directors and Shareholders of Luby's, Inc.
We
have
audited the accompanying consolidated balance sheet of Luby's, Inc. (the
Company) as of August 30, 2006 and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the two years
in
the period ended August 30, 2006. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Luby's, Inc. at August
30, 2006 and the consolidated results of its operations and its cash flows
for
each of the two years in the period ended August 30, 2006, in conformity with
U.S. generally accepted accounting principles.
As
discussed in Note 1 to the consolidated financial statements, in fiscal 2006,
Luby’s Inc. changed its method of accounting for share-based compensation in
accordance with guidance provided in the Statement of Financial Accounting
Standards No. 123 (R), “Share-Based Payments”.
|
|
/s/ERNST
& YOUNG LLP
|
|
San
Antonio, Texas
|
|
|
November
6, 2006
|
|
Luby's,
Inc.
Consolidated
Balance Sheets
|
|
|
August
29,
2007
|
|
|
August
30,
2006
|
|
||
|
|
|
(In
thousands, except share data)
|
|
|||||
|
ASSETS
|
|
|
|
|
|
|
||
|
Current
Assets:
|
|
|
|
|
|
|
||
|
Cash
and cash equivalents
|
|
$
|
17,514
|
|
|
$
|
9,715
|
|
|
Short-term
investments
|
|
|
8,600
|
|
|
|
—
|
|
|
Trade
accounts and other receivables, net
|
|
|
1,657
|
|
|
|
1,461
|
|
|
Food
and supply inventories
|
|
|
2,574
|
|
|
|
2,392
|
|
|
Prepaid
expenses
|
|
|
1,398
|
|
|
|
1,609
|
|
|
Deferred
income taxes
|
|
|
624
|
|
|
|
1,160
|
|
|
Total
current assets
|
|
|
32,367
|
|
|
|
16,337
|
|
|
Property
and equipment, net
|
|
|
185,983
|
|
|
|
183,990
|
|
|
Property
held for sale
|
|
|
736
|
|
|
|
1,661
|
|
|
Deferred
income taxes
|
|
|
—
|
|
|
|
3,600
|
|
|
Other
assets
|
|
|
548
|
|
|
|
1,111
|
|
|
Total
assets
|
|
$
|
219,634
|
|
|
$
|
206,699
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
12,882
|
|
|
$
|
10,932
|
|
|
Accrued
expenses and other liabilities
|
|
|
21,400
|
|
|
|
23,119
|
|
|
Total
current liabilities
|
|
|
34,282
|
|
|
|
34,051
|
|
|
Other
liabilities
|
|
|
7,088
|
|
|
|
7,089
|
|
|
Total
liabilities
|
|
|
41,370
|
|
|
|
41,140
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.32 par value; 100,000,000 shares authorized;
Shares
issued were 27,835,901 and 27,748,983, respectively;
Shares
outstanding were 26,159,498 and 26,072,580, respectively
|
|
|
8,907
|
|
|
|
8,880
|
|
|
Paid-in
capital
|
|
|
43,514
|
|
|
|
41,699
|
|
|
Retained
earnings
|
|
|
161,447
|
|
|
|
150,584
|
|
|
Less
cost of treasury stock, 1,676,403 shares
|
|
|
(35,604
|
)
|
|
|
(35,604
|
)
|
|
Total
shareholders' equity
|
|
|
178,264
|
|
|
|
165,559
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
219,634
|
|
|
$
|
206,699
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Luby's,
Inc.
Consolidated
Statements of Operations
|
|
|
Year
Ended
|
|
|||||||||
|
|
|
August
29,
2007
|
|
|
August
30,
2006
|
|
|
August
31,
2005
|
|
|||
|
|
|
(In
thousands except per share data)
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|||
|
SALES:
|
||||||||||||
|
Restaurant
sales
|
|
$
|
318,323
|
|
|
$
|
324,640
|
|
|
$
|
318,401
|
|
|
Culinary
contract services
|
|
|
2,064
|
|
|
|
—
|
|
|
|
—
|
|
|
TOTAL
SALES
|
|
|
320,387
|
|
|
|
324,640
|
|
|
|
318,401
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of food
|
|
|
85,732
|
|
|
|
86,461
|
|
|
|
85,166
|
|
|
Payroll
and related costs
|
|
|
108,381
|
|
|
|
112,220
|
|
|
|
113,435
|
|
|
Other
operating expenses
|
|
|
69,212
|
|
|
|
69,839
|
|
|
|
64,857
|
|
|
Cost
of culinary contract services
|
|
|
1,841
|
|
|
|
—
|
|
|
|
—
|
|
|
Depreciation
and amortization
|
|
|
16,054
|
|
|
|
15,747
|
|
|
|
15,042
|
|
|
Relocation
and voluntary severance
|
|
|
—
|
|
|
|
—
|
|
|
|
669
|
|
|
General
and administrative expenses
|
|
|
21,841
|
|
|
|
22,373
|
|
|
|
20,228
|
|
|
Provision
for asset impairments and restaurant closings
|
|
|
204
|
|
|
|
533
|
|
|
|
35
|
|
|
Net
loss (gain) on disposition of property and equipment
|
|
|
774
|
|
|
|
1,508
|
|
|
|
(43
|
)
|
|
Total
costs and expenses
|
|
|
304,039
|
|
|
|
308,681
|
|
|
|
299,389
|
|
|
INCOME
FROM OPERATIONS
|
|
|
16,348
|
|
|
|
15,959
|
|
|
|
19,012
|
|
|
Interest
income
|
|
|
1,111
|
|
|
|
325
|
|
|
|
192
|
|
|
Interest
expense
|
|
|
(892
|
)
|
|
|
(1,022
|
)
|
|
|
(11,636
|
)
|
|
Other
income, net
|
|
|
954
|
|
|
|
1,289
|
|
|
|
1,006
|
|
|
Income
before income taxes and discontinued operations
|
|
|
17,521
|
|
|
|
16,551
|
|
|
|
8,574
|
|
|
Provision
(benefit) for income taxes
|
|
|
6,274
|
|
|
|
(4,534
|
)
|
|
|
118
|
|
|
Income
from continuing operations
|
|
|
11,247
|
|
|
|
21,085
|
|
|
|
8,456
|
|
|
Discontinued
operations, net of income taxes
|
|
|
(384
|
)
|
|
|
(1,524
|
)
|
|
|
(5,008
|
)
|
|
NET
INCOME
|
|
$
|
10,863
|
|
|
$
|
19,561
|
|
|
$
|
3,448
|
|
|
Income
per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.43
|
|
|
$
|
0.81
|
|
|
$
|
0.37
|
|
|
Assuming
dilution
|
|
$
|
0.41
|
|
|
$
|
0.77
|
|
|
$
|
0.36
|
|
|
Loss
per share from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.22
|
)
|
|
Assuming
dilution
|
|
$
|
(0.01
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.21
|
)
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.42
|
|
|
$
|
0.75
|
|
|
$
|
0.15
|
|
|
Assuming
dilution
|
|
$
|
0.40
|
|
|
$
|
0.71
|
|
|
$
|
0.15
|
|
|
Weighted-average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
26,121
|
|
|
|
26,024
|
|
|
|
22,608
|
|
|
Assuming
dilution
|
|
|
27,170
|
|
|
|
27,444
|
|
|
|
23,455
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Luby's,
Inc.
Consolidated
Statements of Shareholders' Equity
(In
thousands)
|
|
|
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
|
)
|
$
|
39,070
|
|
|
$
|
186,480
|
|
$
|
129,550
|
|
|
Net
income for the year
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
3,448
|
|
|
3,448
|
|
|
Common
stock issued under nonemployee director benefit plans
|
|
|
9
|
|
|
3
|
|
|
31
|
|
|
655
|
|
|
(179
|
)
|
|
|
(393
|
)
|
|
86
|
|
|
Common
stock issued for conversion of subordinated debt
|
|
|
—
|
|
|
—
|
|
|
3,226
|
|
|
68,512
|
|
|
—
|
|
|
|
(58,512
|
)
|
|
10,000
|
|
|
Common
stock issued under employee benefit plans
|
|
|
191
|
|
|
61
|
|
|
—
|
|
|
—
|
|
|
1,141
|
|
|
|
—
|
|
|
1,202
|
|
|
Balance
at August 31, 2005
|
|
|
27,611
|
|
8,835
|
|
|
(1,676
|
)
|
(35,604
|
)
|
40,032
|
|
|
131,023
|
|
144,286
|
|
|||||
|
Net
income for the year
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
19,561
|
|
|
19,561
|
|
|
Common
stock issued under nonemployee director benefit plans
|
|
|
16
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
186
|
|
|
|
—
|
|
|
191
|
|
|
Common
stock issued under employee benefit plans
|
|
|
122
|
|
|
40
|
|
|
—
|
|
|
—
|
|
|
1,046
|
|
|
|
—
|
|
|
1,086
|
|
|
Share-based
compensation expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
435
|
|
|
|
—
|
|
|
435
|
|
|
Balance
at August 30, 2006
|
|
|
27,749
|
|
8,880
|
|
|
(1,676
|
)
|
(35,604
|
)
|
41,699
|
|
|
150,584
|
|
165,559
|
|
|||||
|
Net
income for the year
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
10,863
|
|
|
10,863
|
|
|
Common
stock issued under nonemployee director benefit plans
|
|
|
22
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
215
|
|
|
|
—
|
|
|
221
|
|
|
Tax
benefit on stock option expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
172
|
|
|
|
—
|
|
|
172
|
|
|
Common
stock issued under employee benefit plans
|
|
|
65
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
510
|
|
|
|
—
|
|
|
531
|
|
|
Share-based
compensation expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
918
|
|
|
|
—
|
|
|
918
|
|
|
Balance
at August 29, 2007
|
|
|
27,836
|
|
$
|
8,907
|
|
|
(1,676
|
)
|
$
|
(35,604
|
)
|
$
|
43,514
|
|
|
$
|
161,447
|
|
$
|
178,264
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Luby's,
Inc.
Consolidated
Statements of Cash Flows
|
|
Year
Ended
|
|||||||||||
|
|
August
29,
2007
|
August
30,
2006
|
August
31,
2005
|
|||||||||
|
|
(In
thousands)
|
|||||||||||
|
|
|
|
|
|||||||||
|
Cash
flows from operating activities:
|
|
|
|
|||||||||
|
Net
income
|
$ |
10,863
|
$ |
19,561
|
$ |
3,448
|
||||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
|
Pro
Provision
for asset impairments, net of gains/losses on property
sales
|
820
|
1,871
|
824
|
|||||||||
|
Depreciation
and amortization
|
16,054
|
15,755
|
15,006
|
|||||||||
|
Amortization
of discount on convertible subordinated notes
|
—
|
—
|
7,909
|
|||||||||
|
Amortization
of debt issuance cost
|
585
|
466
|
2,345
|
|||||||||
|
Non-cash
compensation expense
|
221
|
191
|
86
|
|||||||||
|
Share-based
compensation expense
|
918
|
435
|
—
|
|||||||||
|
Tax
benefit on stock option expense
|
(172 | ) |
—
|
—
|
||||||||
|
Deferred
tax provision (benefit)
|
5,137
|
(4,759 | ) |
—
|
||||||||
|
Cash
provided by operating activities before changes in operating assets
and
liabilities
|
34,426
|
33,520
|
29,618
|
|||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Increase
in trade accounts and other receivables, net
|
(196 | ) | (1,310 | ) | (50 | ) | ||||||
|
Increase
in food and supply inventories
|
(182 | ) | (177 | ) | (123 | ) | ||||||
|
(Increase)
decrease in prepaid expenses and other assets
|
230
|
(14 | ) | (609 | ) | |||||||
|
Decrease
in accounts payable, accrued expenses and other
liabilities
|
(813 | ) | (6,424 | ) | (223 | ) | ||||||
|
Decrease
in reserve for store-closings
|
—
|
—
|
(486 | ) | ||||||||
|
Net
cash provided by operating activities
|
33,465
|
25,595
|
28,127
|
|||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Proceeds
from redemption/maturity of short-term investments
|
34,206
|
1,667
|
617
|
|||||||||
|
Purchase
of short-term investments
|
(42,806 | ) |
—
|
—
|
||||||||
|
Proceeds
from disposal of assets and property held for sale
|
1,767
|
7,989
|
17,684
|
|||||||||
|
Purchases
of property and equipment
|
(19,495 | ) | (15,911 | ) | (10,058 | ) | ||||||
|
Net
cash (used in) provided by investing activities
|
(26,328 | ) | (6,255 | ) |
8,243
|
|||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Repayment
of debt
|
—
|
(15,500 | ) | (45,970 | ) | |||||||
|
Proceeds
from issuance of debt
|
—
|
2,000
|
8,000
|
|||||||||
|
Debt
issuance costs
|
(41 | ) |
—
|
(124 | ) | |||||||
|
Tax
benefit on stock option expense
|
172
|
—
|
—
|
|||||||||
|
Proceeds
received on the exercise of employee stock options
|
531
|
1,086
|
1,202
|
|||||||||
|
Net
cash (used in) provided by financing activities
|
662
|
(12,414 | ) | (36,892 | ) | |||||||
|
Net
increase (decrease) in cash and cash equivalents
|
7,799
|
6,926
|
(522 | ) | ||||||||
|
Cash
and cash equivalents at beginning of year
|
9,715
|
2,789
|
3,311
|
|||||||||
|
Cash
and cash equivalents at end of year
|
$ |
17,514
|
$ |
9,715
|
$ |
2,789
|
||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
Luby's,
Inc.
Notes
to Consolidated Financial Statements
Fiscal
Years 2007, 2006 and 2005
|
Note
1.
|
Nature
of Operations and Significant Accounting
Policies
|
Nature
of Operations
Luby's,
Inc. is based in Houston, Texas. As of August 29, 2007, the Company owned and
operated 128 restaurants, with 121 in Texas and the remainder in four other
states. The Company's restaurant locations are convenient to shopping and
business developments as well as to residential areas. Accordingly, the
restaurants appeal primarily to shoppers, travelers, store and office personnel
at lunch and to families at dinner.
Culinary contract
services is
comprised of contract arrangements to manage food services for clients operating
in primarily three lines of business: health care, higher education
and corporate dining.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of Luby's,
Inc. and its wholly owned subsidiaries. Luby's, Inc. was restructured into
a
holding company on February 1, 1997, at which time all of the operating assets
were transferred to Luby's Restaurants Limited Partnership, a Texas limited
partnership composed of two wholly owned, indirect corporate subsidiaries of
the
Company. All restaurant operations are conducted by the partnership. Unless
the
context indicates otherwise, the word “Company” as used herein includes Luby's,
Inc., the partnership and the consolidated corporate subsidiaries of Luby's,
Inc. All significant intercompany accounts and transactions have been eliminated
in consolidation.
Cash
and Cash Equivalents
Cash
and
cash equivalents include highly liquid investments such as money market funds
that have a maturity of three months or less. Amounts receivable from credit
card companies are also considered cash equivalents because they are both
short-term and highly liquid in nature and are typically converted to cash
within three days of the sales transaction.
Allowance
for Doubtful Accounts
Receivables
consist principally of amounts due from culinary contract service clients,
catering customers and restaurant sales to corporations. Receivables
are recorded at the invoiced amount and do not bear interest. The
allowance for doubtful accounts is the Company’s best estimate of the amount of
probable credit losses in the Company’s existing accounts
receivable. The Company determines the allowance based on historical
write-off experience. The Company periodically reviews its allowance
for doubtful accounts. Account balances are charged off against the
allowance after all means of collections have been exhausted and the potential
for recovery is considered remote.
Investments
Short-term
investments include securities of two types. Securities
held-to-maturity are reported at amortized cost. Available-for-sale
securities are reported at fair value with unrealized gains and losses excluded
from earnings and reported in shareholders’ equity. The fair value of
the available-for-sale securities equaled their acquisition cost.
Comprehensive
Income
Comprehensive
income is the same as reported net
income.
Inventories
The
food
and supply inventories are stated at the lower of cost (first-in, first-out)
or
market.
Property
Held for Sale
Property
held for sale is recorded at amounts not in excess of what management currently
expects to receive upon sale, less costs of disposal. The Company routinely
monitors the estimated value of property held for sale and records adjustments
to these values as required. For certain assets impaired, the Company may record
subsequent adjustments for increases in fair value, but not in excess of
cumulative losses previously recognized.
Impairment
of Long-Lived Assets
Impairment
losses are recorded on long-lived assets used in operations when indicators
of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the carrying amount. The Company evaluates
impairments on a restaurant-by-restaurant basis and uses three or more years
of
negative cash flows and other market conditions as indicators of
impairment.
Debt
Issuance Costs
Debt
issuance costs include costs incurred in connection with the arrangement of
long-term financing agreements. These costs are amortized using the
straight-line method over the respective term of the debt to which they
specifically relate.
Fair
Value of Financial Instruments
The
carrying value of cash and cash equivalents, trade accounts and other
receivables, accounts payable and accrued expenses approximates fair value
based
on the short-term nature of these accounts.
Self-Insurance
Accrued Expenses
The
Company self-insures a significant portion of expected losses under its workers'
compensation, work injury, and general liability programs. Accrued liabilities
have been recorded based on estimates of the ultimate costs to settle incurred
claims, both reported and not yet reported. These recorded estimated liabilities
are based on judgments and independent actuarial estimates, which include the
use of claim-development factors based on loss history; economic conditions;
the
frequency or severity of claims and claim development patterns; and claim
reserve management settlement practices.
Revenue
Recognition
Revenue
from restaurant sales is recognized when food and beverage products are sold.
Unearned revenues are recorded as a liability for dining cards that have been
sold but not yet redeemed and are recorded at their expected redemption value.
When dining cards are redeemed, revenue is recognized and unearned revenue
is
reduced.
Revenue
from culinary contract services is recognized when services are provided and
reimbursable costs are incurred within contractual terms.
Cost
of Culinary Services
The
cost
of culinary services includes all food, payroll and related costs, and other
operating expenses related to culinary service sales. All general and
administrative expenses, depreciation and amortization, property disposal,
asset
impairment costs associated with culinary services are reported within those
respective lines as applicable.
Advertising
Expenses
Advertising
costs are expensed as incurred. Total advertising expense was $5.8 million,
$6.7
million, and $6.7 million in fiscal 2007, 2006 and 2005, respectively, of which
zero, $24,000, and $167,000, in fiscal 2007, 2006 and 2005, respectively,
related to stores included in discontinued operations and was reclassified
accordingly.
Depreciation
and Amortization
Property
and equipment are recorded at cost. The Company depreciates the cost of
equipment over its estimated useful life using the straight-line method.
Leasehold improvements are amortized over the lesser of their estimated useful
lives or the related lease terms. Depreciation of buildings is provided on
a
straight-line basis over the estimated useful lives.
Pre-opening
Expenses
Pre-opening
expenses are expenditures related to the opening of new restaurants, other
than
those for capital assets. Such expenditures are charged to expense
when incurred and are classified in the income statement as either cost of
food,
payroll and related costs or other operating expenses as
applicable. Cost of culinary contract services contains the related
costs of food, labor, and operating expenses.
Operating
Leases
The
Company leases restaurant and administrative facilities and administrative
equipment under operating leases. Building lease agreements generally include
rent holidays, rent escalation clauses and contingent rent provisions for a
percentage of sales in excess of specified levels. Contingent rental expenses
are recognized prior to the achievement of a specified target, provided that
the
achievement of the target is considered probable. Most of the Company’s lease
agreements include renewal periods at the Company’s option. The Company
recognizes rent holiday periods and scheduled rent increases on a straight-line
basis over the lease term beginning with the date the Company takes possession
of the leased space. The Company records tenant improvement allowances and
rent
holidays as deferred rent expense on the consolidated statements of
operations.
Income
Taxes
Deferred
income taxes are computed using the liability method. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities (temporary
differences) and are measured using the enacted tax rates and laws that will
be
in effect when the differences are expected to reverse.
Management
makes judgments as to the interpretation of the tax laws that might be
challenged upon an audit and cause changes to previous estimates of tax
liability. In management's opinion, adequate provisions for income taxes have
been made for all years. Historically, the Internal Revenue Service (“IRS”) has
periodically reviewed the Company. The Company is currently under review for
the
2002, 2001 and 2000 fiscal years.
Discontinued
Operations
In
August
2001, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No.
144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” The
Company was required to adopt SFAS No. 144 as of August 29, 2002. The adoption
of SFAS No. 144 extended the reporting of discontinued operations to all
components of an entity from a segment of an entity. Beginning in fiscal 2003,
all qualifying disposal plans were reported as discontinued operations, and
operations related to those disposals in prior years were reclassified as
required. The results of disposal plans prior to the adoption continue to be
included in continuing operations for all periods presented.
Share-Based
Compensation
The
Company adopted the provisions of SFAS No. 123, “Share-Based Payments (Revised
2004)” (“SFAS 123R”), effective September 1, 2005. Among other things, SFAS 123R
eliminates the ability to account for share-based compensation using APB 25
and
requires that such transactions be recognized as compensation cost in the income
statement based on their fair values on the date of the grant. See Note 11,
“Share-Based Compensation”.
Earnings
Per Share
The
Company presents basic income per common share and diluted income per common
share in accordance with SFAS No. 128, “Earnings Per Share.” Basic income per
share is computed by dividing net income by the weighted-average number of
shares outstanding during each period presented. In fiscal year 2005, dilutive
shares had a minimal effect on income per share.
Accounting
Periods
The
Company's fiscal year generally consists of 13 four-week periods ending on
the
last Wednesday in August, accounting for 364 days. 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. Comparability between accounting periods may be affected by
varying lengths of periods as well as seasonality and calendar shifts. Fiscal
year 2005 consisted of 12 four-week periods and one five-week
period.
Use
of Estimates
In
preparing financial statements in conformity with U.S. generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
Reclassifications
Certain
reclassifications of prior period results have been made to conform to the
current year presentation to present interest income and interest expense as
separate line items.
New
Accounting Pronouncements
In
May
2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 154,
“Accounting Changes and Error Corrections” (“SFAS 154”). This
statement, which replaces APB Opinion No. 20, “Accounting Changes” and FASB
Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”,
requires that a voluntary change in accounting principle be applied
retroactively to all prior period financial statements presented, unless it
is
impractical to do so. SFAS 154 also provides that a change in method
of depreciating or amortizing a long-lived non-financial asset be accounted
for
as a change in estimate effected by a change in accounting principle, and also
provides that corrections of errors in previously issued financial statements
should be termed a “restatement”. SFAS 154 is effective for fiscal
years beginning after December 15, 2005, which is the Company’s current fiscal
year 2007. The adoption of SFAS 154 did not have a material impact on
the Company’s financial position, results of operations or cash
flows.
In
June
2006, the Emerging Issues Task Force issued EITF 06-03, “How Taxes Collected
from Customers and Remitted to Governmental Authorities should be presented
in
the Income Statement (That is Gross versus Net Presentation).” The
Company presents sales taxes on a net basis (excluded from
revenues). As a result, implementing this consensus had no impact on
the Company’s financial position, results of operations or cash flows, and no
additional disclosures were required. The Company adopted EITF 06-03
effective August 31, 2006.
In
July
2006, FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income
Taxes – An Interpretation of Financial Accounting Standards Board Statement No.
109” (“FAS 109”) was issued. FIN 48 clarifies the accounting for
income taxes by prescribing the minimum recognition threshold a tax position
is
required to meet before being recognized in the financial
statements. FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN 48 applies to all tax
positions related to income taxes subject to FAS 109. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The
Company plans to adopt this guidance effective for fiscal 2008. The
Company is currently evaluating the impact of adopting FIN 48.
On
September 13, 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin (“SAB”) No. 108, “Considering the Effect of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements.” SAB 108 provides guidance on evaluating the materiality
of prior periods’ misstatements, quantifying the effects of correcting
misstatements in the current period and criteria for restatement of prior
periods. SAB 108 is effective for fiscal years ending after November
15, 2006. The Company adopted this guidance effective for fiscal
2007. This adoption did not have a material impact on its financial
position, results of operations or cash flows.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”) effective for fiscal years beginning after November 15,
2007. SFAS 157 enhances the guidance for using fair value to measure
assets and liabilities. In addition, SFAS 157 is expanding
information about the extent to which companies measure assets and liabilities
at fair value, the information used to measure fair value and the effect of
fair
value measurements on earnings. The Company is currently evaluating
the potential impact, if any, this would have on the Company’s financial results
for fiscal 2009.
In
February 2007, the FASB issued SFAS No. 159, “Fair Value Option for Financial
Assets and Financial Liabilities – including an Amendment to FASB Statement No.
115, Accounting for Certain Investments in Debt and Equity Securities”, which
permits entities to choose to measure many financial instruments and certain
other items at fair value. The Company will be required to adopt the
provisions of this standard for fiscal 2009, and is currently evaluating the
impact, if any, that it will have on its financial statements.
|
Note
2.
|
Cash
and Cash Equivalents, Short-Term Investments and Trade
Receivables
|
The
Company manages its cash and cash equivalents and short-term investments jointly
in order to internally fund operating needs.
|
|
August
29,
2007
|
August
30,
2006
|
||||||
|
|
(In
thousands)
|
|||||||
|
|
|
|
||||||
|
Cash
and cash equivalents
|
$ |
17,514
|
$ |
9,715
|
||||
|
Short-term
investments
|
||||||||
|
Auction
rate
|
6,600
|
—
|
||||||
|
Time
deposits
|
2,000
|
—
|
||||||
|
Total
cash and cash equivalents and short-term investments
|
$ |
26,114
|
$ |
9,715
|
||||
Trade
and
other receivables, net, consist of the following:
|
|
August
29,
2007
|
August
30,
2006
|
||||||
|
|
(In
thousands)
|
|||||||
|
|
|
|
||||||
|
Trade
and other receivables
|
$ |
1,110
|
$ |
1,478
|
||||
|
Trade
receivables, unbilled
|
620
|
—
|
||||||
|
Allowance
for doubtful accounts and reserve for notes receivable, current
portion
|
(73 | ) | (17 | ) | ||||
|
Total,
net
|
$ |
1,657
|
$ |
1,461
|
||||
The
change in allowances for doubtful accounts for each of the years in the three
year period ended is as follows:
|
Year
Ended
|
||||||||||||
|
|
August
29,
2007
|
August
30,
2006
|
August
31,
2005
|
|||||||||
|
|
(In
thousands)
|
|||||||||||
|
|
|
|
||||||||||
|
Beginning
balance
|
$ |
17
|
$ |
14
|
$ |
10
|
||||||
|
Provisions
for doubtful accounts
|
112
|
46
|
27
|
|||||||||
|
Write-offs
|
(56 | ) | (43 | ) | (23 | ) | ||||||
|
Ending
balance
|
$ |
73
|
$ |
17
|
$ |
14
|
||||||
|
Note
3.
|
Income
Taxes
|
The
following is a summarization of deferred income tax assets and liabilities
as of
the current and prior fiscal year-end:
|
|
August
29,
2007
|
August
30,
2006
|
||||||
|
|
(In
thousands)
|
|||||||
|
|
|
|
||||||
|
Deferred
long-term income tax liability
|
$ | (1,001 | ) | $ |
—
|
|||
|
Deferred
short-term income tax liability
|
(52 | ) | (52 | ) | ||||
|
Plus:
Deferred short-term income tax asset
|
676
|
1,212
|
||||||
|
Deferred
long-term income tax asset
|
—
|
3,600
|
||||||
|
Net
deferred income tax asset/(liability)
|
$ | (377 | ) | $ |
4,760
|
|||
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:
|
|
August
29,
2007
|
August
30,
2006
|
||||||
|
|
(In
thousands)
|
|||||||
|
Deferred
income tax assets:
|
|
|
||||||
|
Workers'
compensation, employee injury, and general liability
claims
|
$ |
1,076
|
$ |
1,507
|
||||
|
Deferred
compensation
|
2,022
|
2,471
|
||||||
|
Net
operating losses
|
116
|
4,503
|
||||||
|
General
business credits
|
784
|
1,087
|
||||||
|
Other
|
2,479
|
2,653
|
||||||
|
Total
deferred income tax assets
|
6,477
|
12,221
|
||||||
|
Deferred
income tax liabilities:
|
||||||||
|
Depreciation
and amortization
|
5,714
|
6,372
|
||||||
|
Other
|
1,140
|
1,089
|
||||||
|
Total
deferred income tax liabilities
|
6,854
|
7,461
|
||||||
|
Net
deferred income tax asset/(liability)
|
$ | (377 | ) | $ |
4,760
|
|||
An
analysis of the provision for income taxes for continuing operations is as
follows:
|
|
Year
Ended
|
|||||||||||
|
|
August
29,
2007
|
August
30,
2006
|
August
31,
2005
|
|||||||||
|
|
(In
thousands)
|
|||||||||||
|
Current
income tax expense (benefit)
|
$ |
5,910
|
$ | (355 | ) | $ |
5,571
|
|||||
|
Deferred
income tax expense (benefit)
|
364
|
(4,179 | ) | (5,453 | ) | |||||||
|
Total
income tax expense (benefit)
|
$ |
6,274
|
$ | (4,534 | ) | $ |
118
|
|||||
Relative
only to continuing operations, the reconciliation of the expense (benefit)
for
income taxes to the expected income tax expense (benefit), computed using the
statutory tax rate, was as follows:
|
|
2007
|
2006
|
2005
|
|||||||||||||||||||||
|
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
||||||||||||||||||
|
|
(In
thousands and as a percent of pretax income from continuing
operations)
|
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
||||||||||||||||||
|
Income
tax expense from continuing operations at the federal
rate
|
$ |
6,132
|
35.0 | % | $ |
5,793
|
35.0 | % | $ |
3,001
|
35.0 | % | ||||||||||||
|
Permanent
and other differences:
|
||||||||||||||||||||||||
|
Federal
jobs tax credits (wage deductions)
|
122
|
0.7
|
39
|
0.2
|
130
|
1.5
|
||||||||||||||||||
|
Other
permanent differences
|
252
|
1.4
|
16
|
0.1
|
(150 | ) | (1.7 | ) | ||||||||||||||||
|
Federal
Jobs Tax Credits
|
(349 | ) | (2.0 | ) | ||||||||||||||||||||
|
Other
|
117
|
0.7
|
||||||||||||||||||||||
|
Change
in valuation allowance
|
—
|
—
|
(10,382 | ) | (62.7 | ) | (2,863 | ) | (33.4 | ) | ||||||||||||||
|
Income
tax expense (benefit) from
continuing
operations
|
$ |
6,274
|
35.8 | % | $ | (4,534 | ) | (27.4 | )% |
118
|
1.4 | % | ||||||||||||
For
the fiscal year ended
August 29, 2007,
including both continuing and discontinued operations,
the Company generated gross federal taxable income of approximately $17.0
million which was partially offset by net operating loss (“NOL”) carryforwards
from prior years. The full amount of the $13.1 million NOL
carryforwards from prior years was used to reduce net federal taxable income
in
fiscal 2007. In addition, the Company was able to benefit from the
use of federal jobs tax credits to further reduce federal taxes
payable. However, the Company is still subject to the limitations of
the Alternative Minimum Tax (“AMT”), so not all of the available credits have
been utilized. The unused federal jobs tax credits of approximately
$780,000 can be carried over for possible utilization in future
years. In addition, approximately $373,000 of credits related
to payment of the AMT in prior years were not utilized and will be carried
over
to future years to reduce taxes payable if regular income tax exceeds future
AMT. Income tax payments totaling $477,000 were made during fiscal
2007.
For
the fiscal year ended
August 30, 2006,
including both continuing and discontinued operations,
the Company generated gross taxable income of approximately $11.8 million,
which
was offset by net operating loss carryforwards from prior years. The
remaining NOL carryover at the end of fiscal 2006 was originally calculated
to
be $12.5 million and was adjusted to the final total of $13.1 million when
the
federal income tax return was filed. Income taxes incurred for fiscal
2006 included income tax expense for the AMT liability of approximately
$284,000. The AMT liability may be used as a credit in the future if regular
income tax exceeds future AMT. Income tax payments of $263,000 were
made during fiscal 2006.
For
the
fiscal year ended August 31, 2005, including both continuing and discontinued
operations, the Company generated gross taxable income of approximately $3.0
million which was offset by net operating loss carryforwards from prior years.
However, the Company incurred an AMT liability of approximately $90,000 for
fiscal year 2005. The AMT liability may be used as a credit in the future if
regular income tax exceeds future AMT. No income tax payments were
made during fiscal 2005.
For
fiscal years 2004 and 2003, including both continuing and discontinued
operations, the Company generated net operating loss carryforwards of
approximately $4.0 million and $31.7 million, respectively. The
balance of the net operating loss carryovers at the end of fiscal year 2005
was
approximately $32.3 million; however, as described below, the net operating
loss
carryforwards were reduced as a result of an IRS audit. At the end of
fiscal 2006, remaining federal net operating loss carryovers were approximately
$13.1 million. As discussed above, the federal NOL carryovers were
fully utilized in fiscal 2007.
The
tax
benefits of the operating losses and other deferred tax assets for book purposes
in fiscal years 2004 and 2003 were netted against a valuation allowance because
loss carrybacks were exhausted with the fiscal 2002 tax filing and the future
realization of loss carryforwards and the reversal of deferred tax assets were
uncertain. For book purposes after fiscal year 2004, tax expense and benefits
were offset against the valuation allowance. Tax benefits of $2.9 million in
fiscal 2004 and $1.4 million in fiscal 2003 were realized as a result of
reductions in our income tax valuation allowance by the equivalent amount that
our deferred tax liabilities increased as a result of the adoption of EITF
05-8
“Income Tax Consequences of Issuing Convertible Debt with a Beneficial
Conversion Feature.”
Because
of the Company’s continued financial profitability and expected future results
of operations, it was determined in fiscal year 2006 that it was more likely
than not that the deferred tax assets were realizable and, accordingly, they
were recognized as provided under “SFAS 109 “Accounting for Income
Taxes.” Consequently, during fiscal 2006, the Company offset $4.5
million in fiscal 2006 tax expenses against the valuation
allowance. The remaining balance of the valuation allowance was
reversed as the Company recognized a previously unrecognized non-cash income
tax
benefit of approximately $4.8 million, which includes a $1.5 million favorable
adjustment to that portion of the valuation allowance that had previously been
reserved for the estimated settlement of the fiscal 2003 IRS audit discussed
below.
The
Company's federal income tax returns have been periodically reviewed by the
Internal Revenue Service. In August 2006, the Company settled an IRS
audit of the 2003 fiscal year and agreed to a partial reduction of the loss
claimed on the federal income tax return for the year. The result of
the audit was a reduction of $7.4 million in the cumulative net operating losses
carried forward to offset future taxable income. The total net
operating losses at the end of fiscal 2006 carried forward after the IRS
audit adjustment was approximately $13.1 million. As discussed above,
the federal NOL carryovers were fully utilized in fiscal 2007.
The
IRS
has also reviewed the Company's federal income tax returns for fiscal years
2002, 2001, and 2000. The IRS originally proposed adjustments to
deductions claimed on the returns. An appeal of the IRS adjustments
has been presented to the Congressional Joint Committee on Taxation ("JCT")
for
final review and determination. Although the Company presented
support for the tax positions on the returns, it is possible that the outcome
after the JCT review may result in a reduction of deductions claimed on the
returns and additional income taxes due. The Company has
accrued an estimate of the possible outcome, but it is possible that the final
settlement could vary materially from amounts accrued.
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
4.
|
Property
and Equipment
|
The cost and accumulated depreciation of property and equipment at August 29, 2007 and August 30, 2006, together with the related estimated useful lives used in computing depreciation and amortization, were as follows:
|
August
29,
2007
|
August
30,
2006
|
Estimated
Useful
Lives
|
||||||||||
|
(In
thousands)
|
||||||||||||
|
Land
|
$ |
52,829
|
$ |
53,212
|
─
|
|||||||
|
Restaurant
equipment and furnishings
|
109,674
|
103,855
|
3
to 15 years
|
|||||||||
|
Buildings
|
180,990
|
176,213
|
20
to 33 years
|
|||||||||
|
Leasehold
and leasehold improvements
|
17,730
|
17,389
|
Lesser
of lease term or estimated useful life
|
|||||||||
|
Office
furniture and equipment
|
4,956
|
4,797
|
3
to 10 years
|
|||||||||
|
Construction
in progress
|
752
|
40
|
—
|
|||||||||
|
366,931
|
355,506
|
|||||||||||
|
Less
accumulated depreciation and amortization
|
(180,948 | ) | (171,516 | ) | ||||||||
|
Property
and equipment, net
|
$ |
185,983
|
$ |
183,990
|
||||||||
During
fiscal 2006, the Company reviewed the status of restaurant equipment located
at
all of its restaurants and the capitalized restaurant equipment inventory at
its
Houston Service Center. In conducting this review, the Company
evaluated the condition, location and usefulness of all such assets with respect
to their valuation reflected in the Company’s consolidated statement of
financial position. As a result of this evaluation, the Company
recorded asset retirements, reducing property and equipment by $11.0 million
in
gross book value and $1.3 million in net book value in fiscal 2006. The
resulting $1.3 million charge was reflected in the net loss (gain) on
disposition of property and equipment line item in the Consolidated Statement
of
Operations.
|
Note
5.
|
Current
Accrued Expenses and Other
Liabilities
|
The
following table sets forth current accrued expenses and other liabilities as
of
August 29, 2007 and August 30, 2006:
|
August
29,
2007
|
August
30,
2006
|
|||||||
|
(In
thousands)
|
||||||||
|
Salaries,
compensated absences, incentives, and bonuses
|
$ |
5,354
|
$ |
6,272
|
||||
|
Operating
expenses
|
1,131
|
1,450
|
||||||
|
Unredeemed
gift cards and certificates
|
2,343
|
2,166
|
||||||
|
Taxes,
other than income
|
4,220
|
4,279
|
||||||
|
Accrued
claims and insurance
|
2,598
|
3,650
|
||||||
|
Income
taxes, legal and other
|
5,754
|
5,302
|
||||||
| $ |
21,400
|
$ |
23,119
|
|||||
|
Note
6.
|
Other
Long-Term Liabilities
|
The
following table sets forth other long-term liabilities as of August 29, 2007
and
August 30, 2006:
|
August
29,
2007
|
August
30,
2006
|
|||||||
|
(In
thousands)
|
||||||||
|
Workers
compensation and general liability insurance reserve
|
$ |
2,426
|
$ |
2,631
|
||||
|
Deferred
rent
|
3,371
|
3,741
|
||||||
|
Deferred
compensation
|
261
|
353
|
||||||
|
Deferred
income taxes
|
1,001
|
—
|
||||||
|
Reserve
for store closings
|
—
|
336
|
||||||
|
Other
|
29
|
28
|
||||||
| $ |
7,088
|
$ |
7,089
|
|||||
|
Note
7.
|
Debt
|
2007
Revolving Credit Facility
On
July
13, 2007, the Company entered into a new $50.0 million unsecured Revolving
Credit Facility (the “2007 Revolving Credit Facility”) with a syndicate of two
banks. The 2007 Revolving Credit Facility may, subject to certain
terms and conditions, be increased by an additional $50.0 million for a total
facility size of $100.0 million. The 2007 Revolving Credit Facility
allows for up to $15.0 million of the available credit to be extended in the
form of letters of credit. All amounts owed by the Company under the
2007 Revolving Credit Facility are guaranteed by the Company’s subsidiaries and
must be repaid in full upon the maturity date on June 30, 2012.
At
any
time throughout the term of the facility, the Company has the option to elect
one of two bases of interest rates. One interest rate option is the
greater of (a) the Federal Funds Effective Rate plus 0.5%, or (b) prime, plus,
in either case, an applicable spread that ranges from 0.0% to 0.50% per
annum. The other interest rate option is the London InterBank Offered
Rate (“LIBOR”) plus a spread that ranges from 0.75% to 2.0% per
annum. The applicable spread under each option is dependent upon
certain measures of the Company’s financial performance at the time of each
election.
The
Company pays a quarterly commitment fee based on the unused available balance
of
the 2007 Revolving Credit Facility, which is also dependent upon our financial
performance, ranging from 0.20% to 0.30% per annum. The Company also
pays quarterly fees with respect to any letters of credit issued and
outstanding. Finally, the Company was obligated to pay the lenders a
one-time fee in connection with the closing of the 2007 Revolving Credit
Facility.
The
2007
Revolving Credit Facility contains customary covenants and restrictions on
the
Company’s ability to engage in certain activities, including financial
performance covenants and limitations on capital expenditures, asset sales
and
acquisitions and contains customary events of default. As of November
1, 2007, the Company was in full compliance with all covenants.
At
August
29, 2007, the Company had a total of approximately $3.0 million committed under
letters of credit which have been issued as security for the payment of
insurance obligations classified as accrued expenses on the balance
sheet. An additional $12.0 million may be issued under letters of
credit.
2005
Revolving Credit Facility
On
August
31, 2005, the Company entered into an amended and restated $45.0 million
unsecured Revolving Credit Facility (the “2005 Revolving Credit Facility”) among
the Company and a syndicate of three independent banks. The 2005 Revolving
Credit Facility could subject to certain terms and conditions, be increased
by
an additional $15.0 million for a total facility size of $60.0 million. The
2005
Revolving Credit Facility allowed for up to $10.0 million of the available
credit to be extended in the form of letters of credit. The 2005 Revolving
Credit Facility would have terminated, and all amounts owing thereunder would
be
repaid, on August 31, 2008. As of August 30, 2006, there was no debt outstanding
under this facility.
At
any
time throughout the term of the facility, the Company had the option to elect
one of two bases of interest rates. One interest rate option was the greater
of
(a) the federal funds effective rate plus 0.5%, or (b) prime, plus, in either
case, an applicable spread that ranged from zero to 0.25% per annum. The other
interest rate option was LIBOR plus an applicable spread that ranged from 1.00%
to 1.75% per annum. The applicable spread under each option was dependent upon
certain measures of the Company’s financial performance at the time of
election.
The
Company also paid a quarterly commitment fee based on the unused portion of
the
2005 Revolving Credit Facility, which was also dependent upon the Company’s
financial performance, ranging from 0.25% to 0.35% per annum. The Company was
also obligated to pay certain fees in respect of any letters of credit issued
as
well as an administrative fee to the lender acting as administrative agent.
Finally, the Company was obligated to pay to the lenders a one-time fee in
connection with the closing of the 2005 Revolving Credit Facility.
The
2005
Revolving Credit Facility contained customary covenants and restrictions on
the
Company’s ability to engage in certain activities, including financial
performance covenants and limitations on capital expenditures, asset sales
and
acquisitions and contained customary events of default. The Company was in
full
compliance with all covenants. All amounts owed by the Company under the
Revolving Credit Facility were guaranteed by its subsidiaries.
On
July
12, 2007, the Company terminated the 2005 Revolving Credit Facility and paid
all
outstanding liabilities associated with the agreement.
Interest
Expense
Total
interest expense incurred for fiscal years 2007, 2006 and 2005 was $0.9 million,
$1.2 million and $14.4 million, respectively. Interest paid approximated $0.2
million, $0.8 million and $4.1 million in fiscal 2007, 2006 and 2005,
respectively. Interest expense of approximately zero, $0.1
million and $2.7 million in fiscal years 2007, 2006 and 2005, respectively,
was
allocated to discontinued operations based upon the debt that was required
to be
repaid as a result of the disposal transactions. After the initiation of the
debt refinancing in the fourth quarter of fiscal 2004, only the interest
relating to the term loan is reclassified to discontinued operations. No
interest was capitalized on properties in fiscal years 2007, 2006 or
2005.
|
Note
8.
|
Impairment
of Long-Lived Assets and Store Closings /Discontinued
Operations
|
Impairment
of Long-Lived Assets and Store Closings
In
accordance with Company guidelines, management periodically reviews the
financial performance of each store for indicators of impairment or indicators
that closure would be appropriate. Where indicators are present, such as three
full fiscal years of negative cash flows or other unfavorable market conditions,
the carrying values of assets are written down to the estimated future
discounted cash flows or fully written off in the case of negative cash flows
anticipated in the future. Estimated future cash flows are based upon regression
analyses generated from similar Company restaurants discounted at the Company's
weighted-average cost of capital.
Estimated
lease settlements under the Company’s 2001 disposal plan were originally charged
to expense under “Provision for Asset Impairments and Restaurant Closings.”
Subsequent adjustments to these lease settlements for actual exit costs incurred
are also reflected in the “Provision for Asset Impairments and Restaurant
Closings”.
The
Company recognized the following impairment (credits) charges to income from
operations:
|
Year
Ended
|
||||||||||||
|
August
29,
2007
|
August
30,
2006
|
August
31,
2005
|
||||||||||
|
(364
days)
|
(364
days)
|
(371
days)
|
||||||||||
|
(In
thousands, except per share data)
|
||||||||||||
|
Provision
for asset impairments and restaurant closings
|
$ |
204
|
$ |
533
|
$ |
35
|
||||||
|
Net
loss (gain) on disposition of property and equipment
|
774
|
1,508
|
(43 | ) | ||||||||
| $ |
978
|
$ |
2,041
|
$ | (8 | ) | ||||||
|
Effect
on EPS:
|
||||||||||||
|
Basic
|
$ |
0.04
|
$ |
0.08
|
$ |
—
|
||||||
|
Assuming
dilution
|
$ |
0.04
|
$ |
0.07
|
$ |
—
|
||||||
Discontinued
Operations
From
the
inception of the Company’s business plan in fiscal 2003 through the plan’s
completion as of August 30, 2006, the Company has closed 64 operating stores.
The operating results of these locations have been classified and reported
as
discontinued operations for all periods presented as required by SFAS 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144
establishes a single accounting model for long-lived assets to be disposed
of by
sales and broadens the presentation of discontinued operations to include more
disposal transactions. The Company adopted SFAS No. 144 in the first quarter
of
fiscal 2003, as required.
The
following table sets forth the sales and discontinued operations, net of taxes
reported for all discontinued locations:
|
Year
Ended
|
||||||||||||
|
August
29,
2007
|
August
30,
2006
|
August
31,
2005
|
||||||||||
|
(364
days)
|
(364
days)
|
(371
days)
|
||||||||||
|
(In
thousands, except locations)
|
||||||||||||
|
Sales
|
$ |
—
|
$ |
1,091
|
$ |
4,471
|
||||||
|
Discontinued
operations, net of taxes
|
$ | (384 | ) | $ | (1,524 | ) | $ | (5,008 | ) | |||
|
Effect
on EPS:
|
||||||||||||
|
Basic
|
$ | (0.01 | ) | $ | (0.06 | ) | $ | (0.22 | ) | |||
|
Assuming
dilution
|
$ | (0.01 | ) | $ | (0.06 | ) | $ | (0.21 | ) | |||
|
Locations
closed during year
|
—
|
2
|
7
|
|||||||||
Pursuant
to the Company’s business plan, the Company has continued to apply the proceeds
from the sale of closed restaurants to pay down its senior debt. Of the total
paid down in fiscal 2007, 2006 and 2005, zero, $3.6 million and $13.4 million,
respectively, resulted from sales proceeds related to business plan
assets.
In
accordance with EITF 87-24, “Allocation of Interest to Discontinued Operations,”
interest on debt that is required to be repaid as a result of a disposal
transaction should be allocated to discontinued operations. For fiscal 2007,
2006 and 2005, approximately zero, $137,000 and $2.7 million, respectively,
was
allocated to discontinued operations. The basis of the allocation to
discontinued operations was an application of the credit facility's historical
effective interest rates to the portion of the estimated total debt that equals
the amount related to current and future business plan disposals as explained
in
the previous paragraph.
Relative
to the 2003 business plan, as the Company has formally settled lease
terminations or has reached definitive agreements to terminate leases, the
related charges have been recorded. For fiscal 2007, 2006 and 2005, no lease
exit costs associated with the business plan met these criteria and,
consequently, were not accrued as of that date. Furthermore, the Company did
not
accrue future rental costs in instances where locations closed. However,
management has the ability to sublease at amounts equal to or greater than
the
rental costs. The Company does not accrue employee settlement costs; these
charges are expensed as incurred.
The
following table summarizes discontinued operations for fiscal 2007, 2006 and
2005:
|
Year
Ended
|
||||||||||||
|
August
29,
2007
|
August
30,
2006
|
August
31,
2005
|
||||||||||
|
(364
days)
|
(364
days)
|
(371
days)
|
||||||||||
|
(In
thousands, except per share data)
|
||||||||||||
|
Impairments
|
$ | (157 | ) | $ | (778 | ) | $ | (1,981 | ) | |||
|
Gains
|
25
|
745
|
1,592
|
|||||||||
|
Net
impairments
|
(132 | ) | (33 | ) | (389 | ) | ||||||
|
Other
|
(252 | ) | (1,491 | ) | (4,619 | ) | ||||||
|
Discontinued
operations, net of taxes
|
$ | (384 | ) | $ | (1,524 | ) | $ | (5,008 | ) | |||
|
Effect
on EPS from net impairments - decrease - basic
|
$ | (0.01 | ) | $ |
—
|
$ | (0.02 | ) | ||||
|
Effect
on EPS from discontinued operations - decrease -
basic
|
$ | (0.01 | ) | $ | (0.06 | ) | $ | (0.22 | ) | |||
Within
discontinued operations, the Company offsets gains from applicable property
disposals against total impairments as described above. The amounts in the
table
described as Other include allocated interest, lease settlements, employment
termination and shut-down costs, as well as operating losses through each
restaurant's closing date and carrying costs until the locations are finally
disposed.
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 year. Within discontinued operations,
the Company also recorded the related fiscal year-to-date net operating results,
allocated interest expense, employee terminations, lease settlements, and basic
carrying costs of the closed units.
Property
Held for Sale
At
August
29, 2007, the Company had one owned property and three ground leases recorded
at
$736,000 in property held for sale. The properties are related to prior disposal
plans. The Company is actively marketing the locations currently classified
as
property held for sale.
At
August
30, 2006, the Company had a total of three owned properties and three ground
leases recorded at approximately $1.7 million in property held for
sale. During fiscal year 2007, two owned properties were
sold.
Property
held for sale consists of already-closed restaurant properties. Properties
held
for sale are valued at the lower of net depreciable value or net realizable
value.
The
Company’s results of discontinued operations will be affected to the extent
proceeds from sales exceed or are less than net book value.
A
rollforward of property held for sale for fiscal 2007 and 2006 is provided
below
(in thousands):
|
Balance
as of August 31, 2005
|
$
|
9,346
|
||
|
Net
transfers from property held for sale
|
(1,582
|
)
|
||
|
Disposals
|
(6,686
|
)
|
||
|
Net
increase in net realizable value
|
583
|
|||
|
Balance
as of August 30, 2006
|
1,661
|
|||
|
Disposals
|
(710
|
)
|
||
|
Net
impairment charges
|
(215
|
)
|
||
|
Balance
as of August 29, 2007
|
$
|
736
|
||
|
Note
9.
|
Commitments
and Contingencies
|
Off-Balance-Sheet
Arrangements
With
the
exception of operating leases, the Company has no off-balance sheet structured
financing arrangements.
Pending
Claims
The
Company presently, and from time to time, is subject to pending claims and
lawsuits arising in the ordinary course of business. In the opinion of
management, the resolution of any pending legal proceedings will not have a
material adverse effect on the Company's results of operations, financial
position, or cash flows.
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.
|
Note
10.
|
Operating
Leases
|
The
Company conducts part of its operations from facilities that are leased under
noncancelable lease agreements. Approximately 90% of the leases contain renewal
options ranging from one to thirty years.
A
majority of the leases include periodic escalation clauses. Accordingly, the
Company follows the straight-line rent method of recognizing lease rental
expense, as prescribed by SFAS No. 13, “Accounting for Leases.”
In
fiscal
2005, the Company entered into noncancelable operating lease agreements for
certain office equipment with terms ranging from 54 to 63 months.
Annual
future minimum lease payments under noncancelable operating leases with terms
in
excess of one year as of August 29, 2007 are as follows:
|
Year
Ending:
|
(In
thousands)
|
|||
|
August
27, 2008
|
$
|
4,246
|
||
|
August
26, 2009
|
4,197
|
|||
|
August
25, 2010
|
3,988
|
|||
|
August
31, 2011
|
3,703
|
|||
|
August
29, 2012
|
2,978
|
|||
|
Thereafter
|
16,770
|
|||
|
Total
minimum lease payments
|
$
|
35,882
|
||
Most
of
the leases are for periods of fifteen to thirty years and provide for contingent
rentals based on sales in excess of a base amount.
Total
rent expense for operating leases for the last three fiscal years was as
follows:
|
Year
Ended
|
||||||||||||
|
August
29,
2007
|
August
30,
2006
|
August
31,
2005
|
||||||||||
|
(In
thousands, except percentages)
|
||||||||||||
|
Minimum
rent-facilities
|
$ |
3,670
|
$ |
3,736
|
$ |
4,109
|
||||||
|
Contingent
rentals
|
196
|
249
|
192
|
|||||||||
|
Minimum
rent-equipment
|
517
|
423
|
68
|
|||||||||
|
Total
rent expense (including amounts in discontinued
operations)
|
$ |
4,383
|
$ |
4,408
|
$ |
4,369
|
||||||
|
Percent
of sales
|
1.4 | % | 1.4 | % | 1.4 | % | ||||||
See
Note
12, “Related Parties”, for lease payments associated with related
parties.
|
Note
11.
|
Share-Based
Compensation
|
Stock
Options
The
Company has an Executive Stock Option Plan as well as Incentive Stock Plans
for
officers and employees together (“Employee Stock Plans”) and a Non-employee
Director Stock Option Plan for non-employee directors. These plans authorize
the
granting of stock options, restricted stock, and other types of awards
consistent with the purpose of the plans. The number of shares authorized for
issuance under the Company's plans as of August 29, 2007 totals approximately
5.2 million, of which approximately 1.8 million shares are available for future
issuance. Stock options granted under the Incentive Stock Plans and the
Non-employee Director Stock Option Plan have an exercise price equal to the
market price of the Company's common stock at the date of grant.
Option
awards under the Executive Stock Option Plan vest 50% on the first anniversary
of the grant date, 25% on the second anniversary of the grant date, and the
remaining 25% on the third anniversary of the grant date and expire ten years
from the grant date. Option awards under the Employee Stock Plans generally
vest
25% each year on the anniversary of the grant date and expire six to ten years
from the grant date. Option awards under the Non-employee Director Stock Option
Plan generally vest 100% on the first anniversary of the grant date and expire
ten years from the grant date.
In
connection with their employment agreements effective March 9, 2001, the Chief
Executive Officer and the Chief Operating Officer together were granted
approximately 2.2 million stock options at an exercise price of $5.00 per share,
which was below the quoted market price on the date of grant. The
Chief Executive Officer and the Chief Operating Officer exercised these options
on October 26, 2007. See Note 16, "Subsequent Events".
Effective
September 1, 2005, the Company adopted the fair value recognition provisions
of
SFAS No. 123R using the modified prospective method. Under this method,
compensation cost in fiscal 2006 includes the portion of awards vesting in
the
period for (a) all share-based payments granted prior to, but not vested as
of
August 31, 2005, based on the grant date fair value estimated in accordance
with
the original provisions of SFAS No.123 and (b) all share-based payments granted
subsequent to August 31, 2005, based on the grant date fair value estimated
using the Black-Scholes option pricing model. Before adoption of SFAS No. 123R,
pro forma disclosures reflected the fair value of each option grant estimated
on
the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions:
|
|
Fiscal
Year Ended
|
|
|||||
|
|
|
August
30, 2006
|
|
||||
|
Dividend
yield
|
0.0
|
%
|
|||||
|
Expected
volatility range
|
|
|
35.0
|
%
|
|
to 90.6
|
%
|
|
Risk-free
interest rate range
|
|
|
3.01
|
%
|
|
to 4.44
|
%
|
|
Expected
life (in years)
|
|
|
5.01
|
|
to 8.70
|
||
Results
of prior periods do not reflect any restated amounts, and the Company had no
cumulative effect adjustment upon adoption of SFAS No. 123R under the modified
prospective method. The Company's policy is to recognize compensation cost
for
awards with only service conditions and a graded vesting schedule on a straight
line basis over the requisite service period for the entire award.
The
adoption of SFAS No. 123R increased general and administrative expenses, thereby
decreasing the Company's reported operating income, income before income taxes
and reported net income for fiscal year 2007 and 2006 by approximately $774,000
and $386,000, and reduced both basic and diluted net income per share by $0.03
and $0.01, respectively. The expense, before income tax effect, is reflected
in
general and administrative expenses. The Company's adoption of SFAS No. 123R
did
not affect operating income, income before income taxes, net income, cash flow
from operations, cash flow from financing activities, or basic and diluted
net
income per share in the comparable period of fiscal 2005.
Prior
to
August 31, 2005, the Company accounted for its stock-based compensation under
the recognition and measurement principles of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations, the disclosure-only provisions of SFAS No. 123, "Accounting
for
Stock-Based Compensation" and the disclosures required by SFAS No. 148,
"Accounting for Stock-Based Compensation-Transition and Disclosure." In
accordance with APB Opinion No. 25, no stock-based compensation cost was
reflected in the Company's net income for grants of stock options to employees
because the Company granted stock options with an exercise price equal to the
market value of the stock on the date of grant. The reported stock-based
compensation expense, net of related tax effects, in the table below represents
compensation costs associated with restricted stock grants.
If
the
Company had used the fair value based accounting method for stock compensation
expense prescribed by SFAS Nos. 123 and 148 for fiscal year 2005, the Company's
consolidated net income and net income per share would have been decreased
to
the pro-forma amounts illustrated as follows:
|
August
31,
2005
|
||||
|
(In
thousands, except per
share data
)
|
||||
|
|
|
|
|
|
|
Net
income, as reported
|
$
|
3,448
|
||
|
Add:
Stock-based employee compensation expense included in reported
net income
(loss),
net
of related tax effects
(a)
|
—
|
|||
|
Deduct:
Total stock-based employee compensation expense determined under
fair-value-based method for all awards, net of related tax effects
(a)
|
(277
|
)
|
||
|
Pro
forma net income
|
$
|
3,171
|
||
|
Net
income per share as reported:
|
||||
|
Basic
|
$
|
0.15
|
||
|
Assuming
dilution
|
$
|
0.15
|
||
|
Pro
forma net income per share:
|
||||
|
Basic
|
$
|
0.14
|
||
|
Assuming
dilution
|
$
|
0.14
|
||
|
|
(a)
Income
taxes
were offset by a valuation allowance. See Note 3, “Income Taxes”,
above.
|
Partly
in
anticipation of the adoption of SFAS No.123R, in recent years the Company has
adjusted the mix of employee long-term incentive compensation by reducing stock
options awarded and increasing certain cash-based compensation and other equity
based awards. Compensation cost for share-based payment arrangements recognized
in general and administrative expenses for fiscal 2007 and 2006 was
approximately $774,000 and $386,000 for stock options and $144,000 and $49,000
for restricted stock, respectively.
The
fair
value of each option award is estimated on the date of grant using the
Black-Scholes option pricing model, which determines inputs as shown in the
following table. Because of differences in option terms and historical exercise
patterns among the plans, the Company has segregated option awards into three
homogenous groups for the purpose of determining fair values for its
options. Valuation assumptions are determined separately for the
three groups which represent, respectively, the Executive Stock Option Plan,
the
Employee Stock Plans and the Non-employee Director Stock Option Plan. The
assumptions are as follows:
|
·
|
The
Company estimated volatility using its historical share price performance
over the expected life of the option. Management considered the guidance
in SFAS No. 123R and believes the historical estimated volatility
is
materially indicative of expectations about expected future
volatility.
|
|
·
|
The
Company uses the simplified method outlined in SEC Staff Accounting
Bulletin No. 107 to estimate expected lives for options granted during
the
period.
|
|
·
|
The
risk-free interest rate is based on the U.S. Treasury yield curve
in
effect at the time of grant for the expected term of the
option.
|
|
·
|
The
expected dividend yield is based on the Company's current dividend
yield
and the best estimate of projected dividend yield for future periods
within the expected life of the
option.
|
|
Fiscal
Year Ended
|
||||||||
|
August
29,
2007
|
August
30, 2006
|
|||||||
|
Dividend
yield
|
— | % | — | % | ||||
|
Volatility
|
69.09 | % | 61.90 | % | ||||
|
Risk-free
interest rate
|
4.27 | % | 4.27 | % | ||||
|
Expected
life (in years)
|
4.25
|
4.25
|
||||||
A
summary
of the Company's stock option activity for the three years ended August 29,
2007, August 30, 2006 and August 31, 2005 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 25, 2004
|
3,533,529
|
$ |
7.22
|
4.81
|
$ |
3,962
|
||||||||||
|
Granted
|
16,000
|
6.45
|
||||||||||||||
|
Exercised
|
(190,850 | ) |
6.29
|
|||||||||||||
|
Forfeited/Expired
|
(606,047 | ) |
14.66
|
|||||||||||||
|
Outstanding
at August 31, 2005
|
2,752,632
|
5.65
|
4.92
|
20,747
|
||||||||||||
|
Granted
|
228,900
|
12.84
|
||||||||||||||
|
Exercised
|
(122,450 | ) |
8.87
|
|||||||||||||
|
Forfeited/Expired
|
(128,000 | ) |
11.18
|
|||||||||||||
|
Outstanding
at August 30, 2006
|
2,731,082
|
5.85
|
4.39
|
11,475
|
||||||||||||
|
Granted
|
322,937
|
10.18
|
||||||||||||||
|
Exercised
|
(65,250 | ) |
8.14
|
|||||||||||||
|
Forfeited/Expired
|
(71,292 | ) |
7.10
|
|||||||||||||
|
Outstanding
at August 29, 2007
|
2,917,477
|
$ |
6.25
|
3.76
|
$ |
14,756
|
||||||||||
|
Exercisable
at August 29, 2007
|
2,427,407
|
$ |
5.26
|
3.55
|
$ |
14,446
|
||||||||||
The
weighted-average grant-date fair value of options granted during fiscal year
2007 and 2006 was $5.32 and $6.72 per share, respectively. The
intrinsic value for stock options is defined as the difference between the
current market value and the grant price. The total intrinsic value of options
exercised during fiscal 2007 and 2006 was approximately $155,000 and $496,000,
respectively.
Exercise
prices for options outstanding as of August 29, 2007 and August 30, 2006 range
from $1.98 to $17.125 per share. The weighted-average remaining contractual
life
of these options is 3.76 years. Excluding 2,240,000 executive stock options
with
an exercise price of $5.00 per share, the exercisable options as of August
29,
2007 have a weighted-average exercise price of $8.42 per share.
During
fiscal 2007 and 2006, cash received from options exercised was approximately
$531,000 and $1.1 million, respectively, and the calculated but
unrecognized tax benefit for the tax deductions from stock options exercised
totaled approximately $24,000 and $173,000, respectively.
Options
Outstanding and Exercisable by Price Range
As
of August 29, 2007
|
|
|
|
|
||||||||||||||||||||
|
Options
Outstanding
|
|
Options
Exercisable
|
|
||||||||||||||||||||
|
Range
of
Exercise
Prices
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
$
|
1.9800
|
—
|
$
|
1.9800
|
|
|
22,000
|
|
|
5.42
|
|
$
|
1.9800
|
|
|
22,000
|
|
$
|
1.9800
|
|
|||
|
4.4700
|
—
|
4.4700
|
16,000
|
5.42
|
4.4700
|
16,000
|
4.4700
|
||||||||||||||||
|
|
5.0000
|
—
|
|
5.0000
|
|
|
2,240,000
|
|
|
3.53
|
|
|
5.0000
|
|
|
2,240,000
|
|
|
5.0000
|
|
|||
|
|
5.5200
|
—
|
|
6.7000
|
|
|
74,850
|
|
|
3.06
|
|
|
6.3378
|
|
|
74,850
|
|
|
6.3378
|
|
|||
|
|
10.1800
|
—
|
|
10.1800
|
|
|
311,712
|
|
|
5.14
|
|
|
10.1800
|
|
|
—
|
|
|
—
|
|
|||
|
|
10.2000
|
—
|
|
10.8125
|
|
|
12,333
|
|
|
4.58
|
|
|
10.3987
|
|
|
4,000
|
|
|
10.8125
|
|
|||
|
|
12.3000
|
—
|
|
12.3000
|
|
|
60,250
|
|
|
4.18
|
|
|
12.3000
|
|
|
15,475
|
|
|
12.3000
|
|
|||
|
|
12.9200
|
—
|
|
12.9200
|
|
|
131,000
|
|
|
4.19
|
|
|
12.9200
|
|
|
32,750
|
|
|
12.9200
|
|
|||
|
|
13.4500
|
—
|
|
13.4500
|
|
|
36,000
|
|
|
4.11
|
|
|
13.4500
|
|
|
9,000
|
|
|
13.4500
|
|
|||
|
|
15.4375
|
—
|
|
15.4375
|
|
|
10,000
|
|
|
1.36
|
|
|
15.4375
|
|
|
10,000
|
|
|
15.4375
|
|
|||
|
|
17.1250
|
—
|
|
17.1250
|
|
|
3,332
|
|
|
0.90
|
|
|
17.1250
|
|
|
3,332
|
|
|
17.1250
|
|
|||
|
$
|
1.9800
|
—
|
$
|
17.1250
|
|
|
2,917,477
|
|
|
3.76
|
|
$
|
6.2452
|
|
|
2,427,407
|
|
$
|
5.2643
|
|
|||
At
August
29, 2007 and August 30, 2006, the number of incentive stock option shares
available to be granted under the plans was 1,598,311 and 1,875,000 shares,
respectively.
Restricted
Stock
Restricted
stock grants consist of the Company's common stock and generally vest after
three years, with the exception of grants under the Nonemployee Director Stock
Option Plan, which vest when granted due to the fact that they are granted
in
lieu of a cash payment. All restricted stock grants are cliff-vested.
Restricted stock awards are valued at the average market price of the Company's
common stock at the date of grant.
A
summary
of the Company's restricted stock activity during fiscal 2007 and 2006 is
presented in the following table:
|
Restricted
Stock Units
|
Fair
Value
|
Weighted-Average
Remaining Contractual Term
|
Weighted-Average
Grant Date
|
|||||||||||||
|
(Per
share)
|
(In
years)
|
|||||||||||||||
|
Unvested
at September 1, 2005
|
—
|
$ |
—
|
—
|
—
|
|||||||||||
|
Granted
|
32,175
|
12.24
|
0.79
|
1/12/06
|
||||||||||||
|
Vested
|
(15,825 | ) |
12.17
|
3/06/06
|
||||||||||||
|
Forfeited
|
—
|
—
|
—
|
—
|
||||||||||||
|
Unvested
at August 30, 2006
|
16,350
|
12.32
|
1.55
|
11/21/05
|
||||||||||||
|
Granted
|
46,712
|
10.21
|
1.16
|
12/19/06
|
||||||||||||
|
Vested
|
(21,668 | ) |
10.18
|
2/20/07
|
||||||||||||
|
Forfeited
|
(926 | ) |
11.16
|
1.74
|
5/25/06
|
|||||||||||
|
Unvested
at August 29, 2007
|
40,468
|
11.05
|
1.64
|
6/14/06
|
||||||||||||
At
August
29, 2007 and August 30, 2006, there was approximately $2.4 million and $1.4
million, respectively, of total unrecognized compensation cost related to
unvested share-based compensation arrangements that is expected to be recognized
over a weighted-average period of 2.63 and 2.75 years,
respectively.
Supplemental
Executive Retirement Plan
The
Company has a Supplemental Executive Retirement Plan (“SERP”) designed to
provide benefits for selected officers at normal retirement age with 25 years
of
service equal to 50% of their final average compensation offset by Social
Security, profit sharing benefits, and deferred compensation. None of
the named executive officers participates in the Supplemental Executive
Retirement Plan. Some of the officers designated to participate in
the plan have retired and are receiving benefits under the
plan. Accrued benefits of all actively employed participants become
fully vested upon termination of the plan or a change in control (as defined
in
the plan). The plan is unfunded and the Company is obligated to make
benefit payments solely on a current disbursement basis. On December
6, 2005, the Board of Directors voted to amend the SERP and suspend the further
accrual of benefits and participation. As a result, a curtailment
gain of approximately $88,000 was recognized as required under the provisions
of
SFAS 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits". The net benefit recognized
for this plan for the years ended August 29, 2007, August 30, 2006 and August
31, 2005 was approximately zero, $86,000 and $129,000, respectively, and the
unfunded accrued liability included in “Other Liabilities” on the Company’s
consolidated Balance Sheets as of August 29, 2007 and August 30, 2006 was
approximately $210,000 and $229,000, respectively.
Nonemployee
Director Phantom Stock Plan
Under
the
Company’s Nonemployee Director Phantom Stock Plan (“Phantom Stock Plan”),
nonemployee directors deferred portions of their retainer and meeting fees
which, along with certain matching incentives, were credited to phantom stock
accounts in the form of phantom shares priced at the market value of the
Company’s common stock on the date of grant. Additionally, the phantom stock
accounts were credited with dividends, if any, paid on the common stock
represented by phantom shares. Authorized shares (100,000 shares) under the
Phantom Stock Plan were fully depleted in early fiscal year 2003 and as such,
no
deferrals, incentives or dividends have been credited to phantom stock accounts
since then. As participants cease to be directors, their phantom shares are
converted into an equal number of shares of common stock and issued from the
Company’s treasury stock. As of August 29, 2007, approximately 29,600 phantom
shares remained unissued under the Phantom Stock Plan.
401(k)
Plan
The
Company has a voluntary 401(k) employee savings plan to provide substantially
all employees of the Company an opportunity to accumulate personal funds for
their retirement. These contributions may be made on a pre-tax basis to the
plan
and the Company matches 25% of participants' contributions of up to 4% of their
salary. The net expense recognized in connection with the employer match feature
of the voluntary 401(k) employee savings plan for the years ended August 29,
2007, August 30, 2006 and August 31, 2005, was $185,000, $178,000 and $192,000,
respectively.
|
Note
12.
|
Re
lated
Parties
|
Affiliate
Services
The
Company’s Chief Executive Officer, Christopher J. Pappas, and Chief Operating
Officer, Harris J. Pappas, own two restaurant entities (the “Pappas entities”)
that may provide services to Luby's, Inc. as detailed in the Affiliate Services
Agreement and the Master Sales Agreement. Under the terms of the Affiliate
Services Agreement, the Pappas entities may provide accounting, architectural,
and general business services. No costs were incurred relative to the Affiliate
Services Agreement in fiscal years 2007 and 2006. The total costs incurred
relative to the Affiliate Services Agreement, which expired on December 31,
2005, were $5,000 in fiscal 2005.
Under
the
terms of the 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 Master Sales Agreement of custom-fabricated and refurbished
equipment in fiscal 2007, 2006, and 2005 were approximately $261,000, $107,000,
and $174,000, respectively.
Operating
Leases
The
Company leases property from the Pappas entities, currently on a month-to-month
basis. The leased property, referred to as the Houston Service
Center, is used to accommodate the Company's in-house repair and fabrication
center. The Company paid approximately $82,000, $82,000, and $88,000, in fiscal
2007, 2006, and 2005, respectively, pursuant to the terms of this
lease.
The
Company also leases approximately 27,000 square feet of warehouse space from
the
Pappas entities to complement the Houston Service Center, at a monthly rate
of
approximately $0.21 per square foot. The Company paid approximately
$67,000, $67,000 and $72,000 in fiscal 2007, 2006 and 2005, respectively,
pursuant to the terms of this lease.
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. The Company made payments of approximately
$260,000, $266,000 and $276,000 in fiscal 2007, 2006 and 2005, respectively,
under the lease agreement which currently includes an annual base rate of $14.64
per square foot.
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, which is expected to occur in calendar year 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 will owe, under the
lease, $16.65 per square foot plus maintenance, taxes, and insurance for the
calendar year 2008. Thereafter, the lease provides for reasonable
increases in rent at set intervals. The new lease agreement was
approved by the Finance and Audit Committee.
Affiliated
rents paid for the Houston Service Center, the separate storage facility, and
the Houston property leases combined represented 9.4%, 9.8%, and 8.8% of total
rents for continuing operations for fiscal 2007, 2006, and 2005,
respectively.
Subordinated
Notes
In
the
fourth quarter of fiscal 2001, the Company's President and Chief Executive
Officer, Christopher J. Pappas, and the Company's Chief Operating Officer,
Harris J. Pappas, loaned the Company a total of $10.0 million in exchange for
convertible subordinated notes. The notes, as initially executed, bore interest
at LIBOR plus 2.0%, payable quarterly. During the fourth quarter of fiscal
2004,
these notes were modified in connection with the refinancing of the Company’s
senior debt.
On
June
7, 2005, the subordinated notes became convertible at a price of $3.10 per
share
for approximately 3.2 million shares of common stock. The market price of the
Company's common stock on the commitment date (as determined by the closing
price on the New York Stock Exchange) was $5.63 per share. The difference
between the market price and the lowest possible strike price of $3.10 or $2.53
per share multiplied by the relative number of convertible shares equals
approximately $8.2 million which represents the beneficial conversion feature.
This amount was recorded as both a component of paid-in capital and a discount
from the $10.0 million in subordinated notes. The note discount was being
amortized using the effective interest method as non-cash interest expense
over
the original term of the subordinated notes. On August 30, 2005 the notes were
converted into 3.2 million shares of the Company’s common stock, under the terms
of the amended note agreements. Upon conversion, the unamortized book value
of
the discount of $8.0 million was written off with a charge to interest
expense.
The
shares issued pursuant to the conversion were treasury shares that had
previously been reserved for such a conversion. At conversion, the excess of
the
book value of the treasury shares of $69.0 million over the $10.0 million debt
converted resulted in a $59.0 million charge to retained earnings.
Pursuant
to the terms of a separate Purchase Agreement dated March 9, 2001, entered
into
by and among the Company, Christopher J. Pappas and Harris J. Pappas, the
Company agreed to submit three persons designated by Christopher J. Pappas
and
Harris J. Pappas as nominees for election at the 2002 Annual Meeting of
Shareholders. Messrs. Pappas designated themselves and Frank Markantonis
as
their nominees for directors, all of whom were subsequently elected. Christopher
J. Pappas and Harris J. Pappas are brothers. As disclosed in the proxy statement
for the February 26, 2004, annual meeting of shareholders, Frank Markantonis
is
an attorney whose principal client is Pappas Restaurants, Inc., an entity
owned
by Harris J. Pappas and Christopher J. Pappas.
As
amended in June 2004, the Purchase Agreement allows Messrs. Pappas to continue
to nominate persons for election to the board which, if such nominees are
elected, would result in Messrs. Pappas having nominated three of the
then-serving directors of the Company. Messrs. Pappas retain their right for
so
long as they both are executive officers of the Company.
Christopher
J. Pappas, the Company’s President and Chief Executive Officer, is an advisory
member of the Board of Directors of Amegy Bank, National Association, which
is a
lender and syndication agent under the 2007 Revolving Credit
Facility. In addition, Luby’s had short term investments of $5.0
million with Amegy Bank at August 29, 2007.
Key
Management Personnel
In
November 2005, Christopher and Harris Pappas entered into new employment
agreements that were amended in October 2007 to extend the termination date
to
August 2009. Both continue to devote their primary time and business
efforts to Luby's while maintaining their roles at Pappas Restaurants,
Inc.
Ernest
Pekmezaris, the former Chief Financial Officer of the Company, became a
consultant to the Company on April 20, 2007. Mr. Pekmezaris is also
the Treasurer of Pappas Restaurants, Inc. Compensation for the services provided
by Mr. Pekmezaris to Pappas Restaurants, Inc. is paid entirely by that
entity.
Peter
Tropoli, Senior Vice President, General Counsel and Secretary of the Company,
is
an attorney who, from time to time, has provided litigation services to entities
controlled by Christopher J. Pappas and Harris J. Pappas. Mr. Tropoli is the
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, the Chief Operating Officer.
|
Note
13.
|
Common
Stock
|
In
1991,
the Board of Directors adopted a Shareholder Rights Plan and declared a dividend
of one common stock purchase right for each outstanding share of common stock.
The rights are not initially exercisable. The Company amended the Shareholder
Rights Plan effective January 24, 2007 to extend the expiration date to April
16, 2010. The rights may become exercisable under circumstances described in
the
plan if any person or group becomes the beneficial owner of 15% or more of
the
common stock or announces a tender or exchange offer, the completion of which
would result in the ownership by a person or group of 15% or more of the common
stock (either, an “Acquiring Person”). Once the rights become exercisable, each
right will be exercisable to purchase for $27.50 (the “Purchase Price”),
one-half of one share of common stock, par value $0.32 per share of the Company.
If any person becomes an Acquiring Person each right will entitle the holder
other than the Acquiring Person to acquire for the Purchase Price a number
of
shares of the Company's common stock having a market value of four times the
Purchase Price.
In
connection with the employment of Christopher J. Pappas, the Company's President
and Chief Executive Officer, and Harris J. Pappas, the Company's Chief Operating
Officer, the Shareholder Rights Plan, as amended, exempts from the operation
of
the plan Messrs. Pappas' ownership of the Company's common stock to March 8,
2001 (and certain additional shares permitted to be acquired), shares acquired
and upon their election to convert the subordinated notes on August 31, 2005
and
shares of common stock underlying the options issued on the date of their
employment.
At
August
29, 2007, the Company had approximately 3.1 million shares of common stock
reserved for issuance upon the exercise of outstanding stock
options.
Treasury
Shares
The
Company's treasury shares were reserved for the issuance of shares to Messrs.
Pappas upon exercise of the options granted to them on March 9, 2001, and for
the issuance of shares under the Company's Nonemployee Director Phantom Stock
Plan. The Company has listed on the New York Stock Exchange
additional shares to permit full exercise of Messrs. Pappas
options. See Note 16, "Subsequent Events", to the financial
statements.
|
Note
14.
|
Earnings
Per Share
|
A
reconciliation of the numerators and denominators of basic earnings per share
and earnings per share assuming dilution is shown in the table
below:
|
Year
Ended
|
||||||||||||
|
August
29,
2007
|
August
30,
2006
|
August
31,
2005
|
||||||||||
|
(In
thousands, except per share data)
|
||||||||||||
|
Numerator:
|
||||||||||||
|
Income
from continuing operations
|
$ |
11,247
|
$ |
21,085
|
$ |
8,456
|
||||||
|
Net
income
|
$ |
10,863
|
$ |
19,561
|
$ |
3,448
|
||||||
|
Denominator:
|
||||||||||||
|
Denominator
for basic earnings per share - weighted-average
shares
|
26,121
|
26,024
|
22,608
|
|||||||||
|
Effect
of potentially dilutive securities:
|
||||||||||||
|
Employee
and non-employee stock options
|
982
|
1,377
|
802
|
|||||||||
|
Phantom
stock
|
30
|
30
|
43
|
|||||||||
|
Restricted
stock
|
37
|
13
|
2
|
|||||||||
|
Denominator
for earnings per share assuming dilution
|
27,170
|
27,444
|
23,455
|
|||||||||
|
Income
from continuing operations:
|
||||||||||||
|
Basic
|
$ |
0.43
|
$ |
0.81
|
$ |
0.37
|
||||||
|
Assuming
dilution
(a)
|
$ |
0.41
|
$ |
0.77
|
$ |
0.36
|
||||||
|
Net
income per share:
|
||||||||||||
|
Basic
|
$ |
0.42
|
$ |
0.75
|
$ |
0.15
|
||||||
|
Assuming
dilution
(a)
|
$ |
0.40
|
$ |
0.71
|
$ |
0.15
|
||||||
|
(a)
|
Potentially
dilutive shares that were not included in the computation of net
income
per share because to do so would have been antidilutive amounted
to zero
shares in fiscal 2007, zero shares in fiscal 2006, and 3,219,000
shares in
fiscal 2005 (including the dilutive effect of the convertible subordinated
notes). Additionally, stock options with exercise prices exceeding
current
market prices that were excluded from the computation of net income
per
share amounted to 325,000 shares in fiscal 2007, 207,000 shares in
fiscal
2006 and 484,000 shares in fiscal
2005.
|
|
Note
15.
|
Qua
rterly
Financial Information
|
The
Company's quarterly financial information has been affected by reclassifications
to discontinued operations in accordance with the disposal of operating units
under the Company's business plan. The fiscal year 2007 quarterly financial
information has also been affected by reclassifications to present culinary
contract services revenue and operating expenses on a gross
basis. The following tables summarize quarterly unaudited financial
information for fiscal 2007 and 2006, including those
reclassifications.
|
Quarter
Ended
(a)
|
||||||||||||||||
|
August
29,
2007
|
May
9,
2007
|
February
14,
2007
|
November
22,
2006
|
|||||||||||||
|
(112
days)
|
(84
days)
|
(84
days)
|
(84
days)
|
|||||||||||||
|
(In
thousands except per share data)
|
||||||||||||||||
|
Restaurant
sales
|
$ |
96,728
|
$ |
75,836
|
$ |
72,101
|
$ |
73,658
|
||||||||
|
Culinary
contract services
|
1,576
|
363
|
97
|
28
|
||||||||||||
|
Total
sales
|
98,304
|
76,199
|
72,198
|
73,686
|
||||||||||||
|
Income
from operations
|
5,283
|
5,226
|
2,926
|
2,912
|
||||||||||||
|
Discontinued
operations
|
(106 | ) | (16 | ) | (171 | ) | (92 | ) | ||||||||
|
Net
income
|
3,149
|
3,919
|
1,882
|
1,915
|
||||||||||||
|
Net
income per share:
|
||||||||||||||||
|
Basic
|
0.12
|
0.15
|
0.07
|
0.07
|
||||||||||||
|
Assuming
dilution
|
0.12
|
0.14
|
0.07
|
0.07
|
||||||||||||
|
Quarter
Ended
(a)
|
||||||||||||||||
|
August
30,
2006
|
May
10,
2006
|
February
15,
2006
|
November
23,
2005
|
|||||||||||||
|
(112
days)
|
(84
days)
|
(84
days)
|
(84
days)
|
|||||||||||||
|
(In
thousands except per share data)
|
||||||||||||||||
|
Restaurant
sales
|
$ |
99,070
|
$ |
77,954
|
$ |
75,034
|
$ |
72,582
|
||||||||
|
Culinary
contract services
|
—
|
—
|
—
|
—
|
||||||||||||
|
Total
sales
|
99,070
|
77,954
|
75,034
|
72,582
|
||||||||||||
|
Income
from operations
|
4,946
|
4,283
|
3,296
|
3,341
|
||||||||||||
|
Discontinued
operations
|
(465 | ) |
77
|
(45 | ) | (1,091 | ) | |||||||||
|
Net
income
|
7,140
|
6,902
|
3,296
|
2,223
|
||||||||||||
|
Net
income per share:
|
||||||||||||||||
|
Basic
|
0.27
|
0.26
|
0.13
|
0.09
|
||||||||||||
|
Assuming
dilution
|
0.26
|
0.25
|
0.12
|
0.08
|
||||||||||||
|
(a)
|
The
quarters ended August 29, 2007 and August 30, 2006 consist of four
four-week periods. All other quarters presented represent three
four-week periods.
|
|
Note
16.
|
Subsequent
Events
|
Effective
October 26, 2007, Christopher and Harris Pappas each exercised their options
to
purchase 1,120,000 shares of the Company’s common stock. Of these
2,240,000 shares, 1,676,403 shares were provided from treasury stock and 563,597
shares were newly issued. As a result, total shares issued and
outstanding as of October 30, 2007 were 28,404,457 shares.
On
October 29, 2007, Luby's, Inc. (the "Company") entered into amendments to the
Employment Agreements dated March 9, 2001 between the Company and each of
Christopher J. Pappas and Harris J. Pappas (together, the "Executives") to
extend the term of each agreement by one year to August 31, 2009. The
amendments to the Employment Agreements did not change the annual base salaries
of the Executives and contain no other agreements as to
compensation. The amendments also permit the Executives to solicit
proxies in contested elections of directors and to make acquisition proposals
in
the event that a third party proposes an acquisition of the
Company.
In
conjunction with the amendments to the Employment Agreements, effective as
of
October 29, 2007, the Company entered into an amendment to the Purchase
Agreement, dated as of March 9, 2001, as previously amended, between the Company
and the Executives (the "Purchase Agreement"). The amendment to the
Purchase Agreement increases the maximum number of shares of the Company's
common stock that the Executives are permitted to beneficially own from 28%
to
33% of the total outstanding shares.
In
addition, effective as of October 29, 2007, the Company amended the Rights
Agreement dated as of April 16, 1991, as previously amended, between the Company
and American Stock Transfer & Trust Company, as Rights Agent (the "Rights
Agreement"), to increase the number of shares of common stock that the
Executives are permitted to own without triggering a distribution of common
stock purchase rights in accordance with the Rights Agreement.
These
amendments were unanimously approved by the Company's independent
directors.
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
On
November 17, 2006, our Finance and Audit Committee of the Board of
Directors (the “Audit Committee”) dismissed Ernst & Young LLP (“E&Y”),
our current independent registered public accounting firm.
E&Y’s
reports on our financial statements for the years ended August 30, 2006
and
August 31, 2005 did not contain an adverse opinion or a disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope or accounting
principle. During the fiscal years ended August 30, 2006 and August
31, 2005, and the subsequent interim periods through the date of dismissal,
there were no disagreements with E&Y on any matters of accounting principles
or practices, financial statement disclosure, or auditing scope procedures
which, if not resolved to E&Y’s satisfaction, would have caused E&Y to
make reference in its reports on our financial statements for such
years. During the fiscal years ended August 30, 2006 and August 31,
2005, and the subsequent interim periods through the date of dismissal,
there
were no “reportable events,” as such term is defined in Item 304(a)(1)(v) of
Regulation S-K, except for the material weakness identified as of November
17,
2004 and February 9, 2005, reported by management in Item 4 of its quarterly
reports on Form 10-Q/A and 10-Q both filed on March 29, 2005. The
reports indicate that we did not maintain effective internal control over
financial reporting as of November 17, 2004 and February 9, 2005 due to
our
determination, like many other retail and restaurant companies, 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
U.S.
Generally Accepted Accounting Principles. As a result, we restated
our previously issued fiscal 2005 first quarter Form 10-Q and previously
issued
audited consolidated financial statements for fiscal years 2004, 2003 and
2002.
On
November 17, 2006, the Audit Committee appointed Grant Thornton LLP as
our
independent registered public accounting firm for the fiscal year ended
August
29, 2007.
We
have
had no disagreements with our accountants on any accounting or financial
disclosures.
|
Item
9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Control and Procedures
Our
management, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of our disclosure controls and procedures (as such term is defined in Rule
13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), as of August 29, 2007. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that, as of August 29, 2007,
our disclosure controls and procedures were effective in providing reasonable
assurance that information required to be disclosed by us in the reports that
we
file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms. For
Management’s Report on Internal Control over Financial Report, see “Financial
Statements and Supplementary Data - Report of Management” in Item 8 of this
report.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting during the
year
ended August 29, 2007 that have materially affected, or are reasonably likely
to
materially affect, our internal control over financial reporting.
|
Item
9B.
|
Other
Information
|
None.
PART
III
|
Item
10.
|
Directors,
Executive Officers and Corporate
Governance
|
There
is
incorporated in this Item 10 by reference that portion of our definitive proxy
statement for the 2008 annual meeting of shareholders appearing therein under
the captions “Election of Directors,” “Corporate Governance,” “Section 16(a)
Beneficial Ownership Reporting Compliance,” “Executive Officers,” and “Certain
Relationships and Related Transactions.”
We
have
in place a Policy Guide on Standards of Conduct and Ethics applicable to all
employees, as well as the board of directors, and Supplemental Standards of
Conduct and Ethics for the Chief Executive Officer, Chief Financial Officer,
Controller, and all senior financial officers. This Policy Guide and the
Supplemental Standards were filed as exhibits to the Annual Report on Form
10-K
for the fiscal year ended August 27, 2003 and can be found on our website at
www.lubys.com. We intend to satisfy the disclosure requirement under Item 5.05
of Form 8-K regarding amendments to or waivers from the code of ethics or
supplementary code of ethics by posting such information on our website at
www.lubys.com.
|
Item
11.
|
Executive
Compensation
|
There
is
incorporated in this Item 11 by reference that portion of our definitive proxy
statement for the 2008 annual meeting of shareholders appearing therein under
the captions “Director Compensation,” “Executive Compensation Committee Report,”
“Executive Officers,” and “Certain Relationships and Related
Transactions.”
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
There
is
incorporated in this Item 12 by reference that portion of our definitive proxy
statement for the 2008 annual meeting of shareholders appearing therein under
the captions “Ownership of Equity Securities in the Company” and “Principal
Shareholders.”
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
There
is
incorporated in this Item 13 by reference that portion of our definitive proxy
statement for the 2008 annual meeting of shareholders appearing therein under
the caption “Certain Relationships and Related Transactions.”
|
Item
14.
|
Principal
Accountant Fees and
Services
|
There
is
incorporated in this Item 14 by reference that portion of our definitive proxy
statement for the 2008 annual meeting of shareholders appearing therein under
the caption “Fees Paid To The Independent Auditor.”
PART
IV
|
Item
15.
|
Exhibits,
Financial Statement
Schedules
|
|
1.
|
Financial
Statements
|
The
following financial statements are filed as part of this Report:
Consolidated
balance sheets at August 29, 2007, and August 30, 2006
Consolidated
statements of operations for each of the three years in the period ended August
29, 2007
Consolidated
statements of shareholders' equity for each of the three years in the period
ended August 29, 2007
Consolidated
statements of cash flows for each of the three years in the period ended August
29, 2007
Notes
to
consolidated financial statements
Report
of
Independent Registered Public Accounting Firm
Grant
Thornton LLP
Ernst
&
Young
LLP
|
2.
|
Financial
Statement Schedules
|
All
schedules are omitted since the required information is not present or is not
present in amounts sufficient to require submission of the schedule or because
the information required is included in the financial statements and notes
thereto.
|
3.
|
Exhibits
|
The
following exhibits are filed as a part of this Report:
|
3(a)
|
|
Certificate
of Incorporation of Luby's, Inc. as currently in effect (filed as
Exhibit
3(b) to the Company's Quarterly Report on Form 10-Q for the quarter
ended
February 28, 1999, and incorporated herein by
reference).
|
|
|
|
|
|
3(b)
|
Luby’s,
Inc. Amended and Restated Bylaws dated November 17, 2006, as
currently in effect (filed as Exhibit 3.1 to the Company's Current
Report
on Form 8-K dated November 22, 2006, and incorporated herein by
reference).
|
|
|
4(a)
|
|
Description
of Common Stock Purchase Rights of Luby's Cafeterias, Inc., in Form
8-A
(filed April 17, 1991, effective April 26, 1991, File No. 1-8308,
and
incorporated herein by reference).
|
|
|
|
|
|
4(b)
|
|
Amendment
No. 1 dated December 19, 1991, to Rights Agreement dated April 16,
1991
(filed as Exhibit 4(b) to the Company's Quarterly Report on Form
10-Q for
the quarter ended November 30, 1991, and incorporated herein by
reference).
|
|
|
|
|
|
4(c)
|
|
Amendment
No. 2 dated February 7, 1995, to Rights Agreement dated April 16,
1991
(filed as Exhibit 4(d) to the Company's Quarterly Report on Form
10-Q for
the quarter ended February 28, 1995, and incorporated herein by
reference).
|
|
|
|
|
|
4(d)
|
|
Amendment
No. 3 dated May 29, 1995, to Rights Agreement dated April 16, 1991
(filed
as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for
the
quarter ended May 31, 1995, and incorporated herein by
reference).
|
|
|
|
|
|
4(e)
|
|
Amendment
No. 4 dated March 8, 2001, to Rights Agreement dated April 16, 1991
(filed
as Exhibit 99.1 to Amendment No. 4 to the Company's Registration
Statement on Form 8-A/A on March 22, 2001, and incorporated herein by
reference).
|
|
4(f)
|
Amendment
No. 5 dated February 26, 2004, to Rights Agreement dated April 16,
1991
between Luby's, Inc. and American Stock Transfer & Trust, as Rights
Agent (filed as Exhibit 1 to the Company's Registration Statement
on Form
8-A/A on April 14, 2004, and incorporated herein by
reference).
|
|
|
4(g)
|
Amendment
No. 6 dated March 20, 2006, to Rights Agreement dated April 16, 1991
between Luby's, Inc. and American Stock Transfer & Trust, as Rights
Agent (filed as Exhibit 1 to the Company's Registration Statement
on Form
8-A/A on March 23, 2007, and incorporated herein by
reference).
|
|
|
4(h)
|
Amendment
No. 7 dated October 29, 2007, to Rights Agreement dated April 16,
1991
between Luby's, Inc. and American Stock Transfer & Trust, as Rights
Agent (filed as Exhibit 1 to the Company's Registration Statement
on Form
8-A/A on October 30, 2007, and incorporated herein by
reference).
|
|
|
4(i)
|
Credit
Agreement dated July 13, 2007, among Luby’s, Inc., the lenders party
thereto, Wells Fargo Bank, National Association, as Administrative
Agent,
and Amegy Bank, National Association, as Syndication
Agent.
|
|
|
|
|
|
|
10(a)
|
|
Management
Incentive Stock Plan of Luby's Cafeterias, Inc. (filed as Exhibit
10(i) to
the Company's Annual Report on Form 10-K for the fiscal year ended
August
31, 1989, and incorporated herein by reference).*
|
|
|
|
|
|
10(b)
|
|
Amendment
to Management Incentive Stock Plan of Luby's Cafeterias, Inc. adopted
January 14, 1997 (filed as Exhibit 10(k) to the Company's Quarterly
Report
on Form 10-Q for the quarter ended February 28, 1997, and incorporated
herein by reference).*
|
|
|
|
|
|
10(c)
|
|
Nonemployee
Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted
October 27, 1994 (filed as Exhibit 10(g) to the Company's Quarterly
Report
on Form 10-Q for the quarter ended November 30, 1994, and incorporated
herein by reference).*
|
|
|
|
|
|
10(d)
|
|
Amendment
to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias,
Inc. adopted January 14, 1997 (filed as Exhibit 10(m) to the Company's
Quarterly Report on Form 10-Q for the quarter ended February 28,
1997, and
incorporated herein by reference).*
|
|
|
|
|
|
10(e)
|
|
Amendment
to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias,
Inc. adopted March 19, 1998 (filed as Exhibit 10(o) to the Company's
Quarterly Report on Form 10-Q for the quarter ended February 28,
1998, and
incorporated herein by reference).*
|
|
|
|
|
|
10(f)
|
|
Amended
and Restated Nonemployee Director Stock Option Plan of Luby's, Inc.
approved by the shareholders of Luby's, Inc. on January 14, 2000
(filed as
Exhibit 10(j) to the Company's Quarterly Report on Form 10-Q for
the
quarter ended February 29, 2000, and incorporated herein by
reference).*
|
|
|
|
|
|
10(g)
|
|
Amended
and Restated Non-employee Director Stock Plan of Luby's, Inc. approved
by
the shareholders of Luby's, Inc. on January 20, 2005 (filed as Exhibit
10(ee) to the Company's Quarterly Report on Form 10-Q for the quarter
ended February 9, 2005, and incorporated herein by
reference).*
|
|
10(h)
|
|
Luby's
Cafeterias, Inc. Supplemental Executive Retirement Plan dated May
30, 1996
(filed as Exhibit 10(j) to the Company's Annual Report on Form 10-K
for
the fiscal year ended August 31, 1996, and incorporated herein by
reference).*
|
|
|
|
|
|
10(i)
|
|
Amendment
to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan
adopted
January 14, 1997 (filed as Exhibit 10(r) to the Company's Quarterly
Report
on Form 10-Q for the quarter ended February 28, 1997, and incorporated
herein by reference).*
|
|
|
|
|
|
10(j)
|
|
Amendment
to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan
adopted
January 9, 1998 (filed as Exhibit 10(u) to the Company's Quarterly
Report
on Form 10-Q for the quarter ended February 28, 1998, and incorporated
herein by reference).*
|
|
|
|
|
|
10(k)
|
|
Amendment
to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan
adopted
May 21, 1999 (filed as Exhibit 10(q) to the Company's Quarterly Report
on
Form 10-Q for the quarter ended May 31, 1999, and incorporated herein
by
reference.)*
|
|
|
|
|
|
10(l)
|
|
Luby's
Incentive Stock Plan adopted October 16, 1998 (filed as Exhibit 10(cc)
to
the Company's Annual Report on Form 10-K for the fiscal year ended
August
31, 1998, and incorporated herein by reference).*
|
|
|
|
|
|
10(m)
|
|
Amended
and Restated Luby’s Incentive Stock Plan adopted January 19, 2006 (filed
as Exhibit 10(ee) to the Company's Quarterly Report on Form 10-Q
for the
quarter ended February 15, 2006, and incorporated herein by
reference).*
|
|
10(n)
|
|
Registration
Rights Agreement dated March 9, 2001, by and among Luby's, Inc.,
Christopher J. Pappas, and Harris J. Pappas (filed as Exhibit 10.4
to the
Company's Current Report on Form 8-K dated March 9, 2001, and incorporated
herein by reference).
|
|
10(o)
|
|
Purchase
Agreement dated March 9, 2001, by and among Luby's, Inc. Harris J.
Pappas,
and Christopher J. Pappas (filed as Exhibit 10.1 to the Company's
Current
Report on Form 8-K dated March 9, 2001, and incorporated herein by
reference).
|
|
|
|
|
|
10(p)
|
First
Amendment to Purchase Agreement dated June 7, 2004, by and among
Luby's,
Inc., Harris J. Pappas, and Christopher J. Pappas (filed as Exhibit
4(s)
to the Company's Quarterly Report on Form 10-Q for the quarter ended
May
5, 2004, and incorporated herein by reference).
|
|
|
10(q)
|
Second
Amendment to Purchase Agreement dated June 7, 2004, by and among
Luby's,
Inc., Harris J. Pappas and Christopher J. Pappas (filed as Exhibit
10.3 to
the Company's Current Report on Form 8-K dated October 30, 2007,
and
incorporated herein by reference).
|
|
|
10(r)
|
|
Luby's,
Inc. Stock Option granted to Christopher J. Pappas on March 9, 2001
(filed
as Exhibit 10(w) to the Company's Quarterly Report on Form 10-Q for
the
quarter ended May 31, 2001, and incorporated herein by
reference).*
|
|
10(s)
|
|
Luby's,
Inc. Stock Option granted to Harris J. Pappas on March 9, 2001 (filed
as
Exhibit 10(x) to the Company's Quarterly Report on Form 10-Q for
the
quarter ended May 31, 2001, and incorporated herein by
reference).*
|
|
|
|
|
|
10(t)
|
|
Lease
Agreement dated June 1, 2001, by and between Luby's, Inc. and Pappas
Restaurants, Inc. (filed as Exhibit 10(aa) to the Company's Annual
Report
on Form 10-K for the fiscal year ended August 31, 2001, and incorporated
herein by reference).
|
|
|
|
|
|
10(u)
|
|
Luby's,
Inc. Amended and Restated Nonemployee Director Phantom Stock Plan
effective September 28, 2001 (filed as Exhibit 10(dd) to the Company's
Quarterly Report on Form 10-Q for the quarter ended February 13,
2002, and
incorporated herein by reference).*
|
|
|
|
|
|
10(v)
|
|
Form
of Indemnification Agreement entered into between Luby's, Inc. and
each
member of its Board of Directors initially dated July 23, 2002 (filed
as
Exhibit 10(gg) to the Company's Annual Report on Form 10-K for the
fiscal
year ended August 28, 2002, and incorporated herein by
reference).
|
|
|
|
|
|
10(w)
|
|
Amended
and Restated Affiliate Services Agreement dated July 23, 2002, by
and
among Luby's, Inc., Pappas Restaurants, L.P., and Pappas Restaurants,
Inc.
(filed as Exhibit 10(hh) to the Company's Annual Report on Form 10-K
for
the fiscal year ended August 28, 2002, and incorporated herein by
reference).
|
|
|
|
|
|
10(x)
|
|
Master
Sales Agreement dated July 23, 2002, by and among Luby's, Inc., Pappas
Restaurants, L.P., and Pappas Restaurants, Inc. and Procedure adopted
by
the Finance and Audit Committee of the Board of Directors on July
23,
2002, pursuant to Section 2.3 of the Master Sales Agreement (filed
as
Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the
fiscal
year ended August 28, 2002, and incorporated herein by
reference).
|
|
|
|
|
|
10(y)
|
|
Lease
Agreement dated October 15, 2002, by and between Luby's, Inc. and
Rush
Truck Centers of Texas, L.P. and Amendment dated August 1, 2003,
by and
between Luby's, Inc. and Pappas Restaurants, Inc. (filed as Exhibit
10(gg)
to the Company's Annual Report on Form 10-K/A for the fiscal year
ended
August 27, 2003, and incorporated herein by reference).
|
|
|
|
|
|
10(z)
|
|
Agreement
dated June 7, 2004, by and among Luby's, Inc., Christopher J. Pappas,
and
Harris J. Pappas (filed as Exhibit 4(s) to the Company's Quarterly
Report
on Form 10-Q for the quarter ended May 5, 2004, and incorporated
herein by
reference).
|
|
10(aa)
|
Employment
Agreement dated November 9, 2005, between Luby's, Inc. and Christopher
J.
Pappas (filed as Exhibit 10(y) to the Company’s Annual Report on Form 10-K
for the fiscal year ended August 31, 2005, and incorporated herein
by
reference).*
|
|
|
10(bb)
|
Amendment
No. 1 dated as of October 29, 2007 to Employment Agreement dated
as of
March 9, 2001 between Luby's, Inc. and Christopher J. Pappas (filed
as
Exhibit 10.1 to the Company's Current Report on Form 8-K dated October
30,
2007, and incorporated herein by reference).*
|
|
|
|
|
|
|
10(cc)
|
|
Employment
Agreement dated November 9, 2005, between Luby's, Inc. and Harris
J.
Pappas (filed as Exhibit 10(z) to the Company’s Annual Report on Form 10-K
for the fiscal year ended August 31, 2005, and incorporated herein
by
reference).*
|
|
10(dd)
|
Amendment
No. 1 dated as of October 29, 2007 to Employment Agreement dated
as of
March 9, 2001 between Luby's, Inc. and Harris J. Pappas (filed as
Exhibit
10.2 to the Company's Current Report on Form 8-K dated October 30,
2007,
and incorporated herein by
reference).*
|
|
11
|
|
Statement
regarding computation of Per Share Earnings. **
|
|
|
|
|
|
14(a)
|
|
Policy
Guide on Standards of Conduct and Ethics applicable to all
employees, as well as the board of directors (filed as Exhibit 14(a)
to the Company's Annual Report on Form 10-K for the fiscal year ended
August 27, 2003, and incorporated herein by
reference).
|
|
14(b)
|
|
Supplemental
Standards of Conduct and Ethics for the Chief Executive Officer,
Chief
Financial Officer, Controller, and all senior financial officers
(filed as
Exhibit 14(b) to the Company's Annual Report on Form 10-K for the
fiscal
year ended August 27, 2003, and incorporated herein by
reference).
|
|
|
|
|
|
21
|
|
Subsidiaries
of registrant.
|
|
|
|
|
|
23.1
|
|
Consent
of
Grant Thornton LLP.
|
|
|
|
|
|
23.2
|
Consent
of
Ernst & Young LLP.
|
|
|
31.1
|
|
Rule
13a-14(a)/15d-14(a) certification of the Principal Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
31.2
|
|
Rule
13a-14(a)/15d-14(a) certification of the Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
32.1
|
|
Section
1350 certification of the Principal Executive Officer pursuant to
Section
906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
32.2
|
|
Section
1350 certification of the Principal Financial Officer pursuant to
Section
906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
99(a)
|
|
Corporate
Governance Guidelines of Luby's, Inc., as amended October 28, 2004.
(filed
as Exhibit 99(a) to the Company’s Annual Report on Form 10-K for the
fiscal year ended August 30, 2006, and incorporated herein by
reference.
|
|
*
|
Denotes
management contract or compensatory plan or
arrangement.
|
|
**
|
Information
required to be presented in Exhibit 11 is provided in Note 14 “Per Share
Information” of the Notes to Consolidated Financial Statements under Part
II, Item 8 of this Form 10-K in accordance with the provisions of
FASB
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings
per
Share.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by
the undersigned thereunto duly authorized.
|
November 9,
2007
|
|
LUBY'S,
INC.
|
|
Date
|
|
(Registrant)
|
|
By:
|
/s/Christopher
J. Pappas
|
|
|
|
Christopher
J. Pappas
|
|
|
|
President
and Chief Executive Officer
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature
and Date
|
|
Name
and Title
|
|
|
|
|
|
/s/GASPER
MIR, III
|
|
Gasper
Mir, III, Director and Chairman of the Board
|
|
November
9, 2007
|
|
|
|
|
|
|
|
/s/CHRISTOPHER
J. PAPPAS
|
|
Christopher
J. Pappas, Director, President and Chief Executive
Officer
|
|
November
9, 2007
|
|
|
|
|
|
|
|
/s/HARRIS
J. PAPPAS
|
|
Harris
J. Pappas, Director, and Chief Operating Officer
|
|
November
9, 2007
|
|
|
|
|
|
|
|
/s/K.
SCOTT GRAY
|
|
K.
Scott Gray, Senior Vice President and Chief Financial
Officer
|
|
November
9, 2007
|
|
|
|
|
|
|
|
/s/JUDITH
B. CRAVEN
|
|
Judith
B. Craven, Director
|
|
November
9, 2007
|
|
|
|
|
|
|
|
/s/ARTHUR
R. EMERSON
|
|
Arthur
R. Emerson, Director
|
|
November
9, 2007
|
|
|
|
|
|
|
|
/s/JILL
GRIFFIN
|
|
Jill
Griffin, Director
|
|
November 9,
2007
|
|
|
|
|
|
|
|
/s/J.S.B.
JENKINS
|
|
J.S.B.
Jenkins, Director
|
|
November
9, 2007
|
|
|
|
|
|
|
|
/s/FRANK
MARKANTONIS
|
|
Frank
Markantonis, Director
|
|
November
9, 2007
|
|
|
|
|
|
|
|
/s/JOE
C. MC KINNEY
|
|
Joe
C. McKinney, Director
|
|
November 9,
2007
|
|
|
|
|
|
|
|
/s/JIM
W. WOLIVER
|
|
Jim
W. Woliver, Director
|
|
November
9, 2007
|
|
|
EXHIBIT
INDEX
|
3(a)
|
|
Certificate
of Incorporation of Luby's, Inc. as currently in effect (filed as
Exhibit
3(b) to the Company's Quarterly Report on Form 10-Q for the quarter
ended
February 28, 1999, and incorporated herein by
reference).
|
|
|
|
|
|
3(b)
|
Luby’s,
Inc. Amended and Restated Bylaws dated November 17, 2006, as
currently in effect (filed as Exhibit 3.1 to the Company's Current
Report
on Form 8-K dated November 22, 2006, and incorporated herein by
reference).
|
|
|
4(a)
|
|
Description
of Common Stock Purchase Rights of Luby's Cafeterias, Inc., in Form
8-A
(filed April 17, 1991, effective April 26, 1991, File No. 1-8308,
and
incorporated herein by reference).
|
|
|
|
|
|
4(b)
|
|
Amendment
No. 1 dated December 19, 1991, to Rights Agreement dated April 16,
1991
(filed as Exhibit 4(b) to the Company's Quarterly Report on Form
10-Q for
the quarter ended November 30, 1991, and incorporated herein by
reference).
|
|
|
|
|
|
4(c)
|
|
Amendment
No. 2 dated February 7, 1995, to Rights Agreement dated April 16,
1991
(filed as Exhibit 4(d) to the Company's Quarterly Report on Form
10-Q for
the quarter ended February 28, 1995, and incorporated herein by
reference).
|
|
|
|
|
|
4(d)
|
|
Amendment
No. 3 dated May 29, 1995, to Rights Agreement dated April 16, 1991
(filed
as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for
the
quarter ended May 31, 1995, and incorporated herein by
reference).
|
|
|
|
|
|
4(e)
|
|
Amendment
No. 4 dated March 8, 2001, to Rights Agreement dated April 16, 1991
(filed
as Exhibit 99.1 to Amendment No. 4 to the Company's Registration
Statement
on Form 8-A/A on March 22, 2001, and incorporated herein by
reference).
|
|
|
|
|
|
4(f)
|
|
Amendment
No. 5 dated February 26, 2004, to Rights Agreement dated April 16,
1991
between Luby's, Inc. and American Stock Transfer & Trust, as Rights
Agent (filed as Exhibit 1 to the Company's Registration Statement
on Form
8-A/A on April 14, 2004, and incorporated herein by
reference).
|
|
4(g)
|
Amendment
No. 6 dated March 20, 2006, to Rights Agreement dated April 16, 1991
between Luby's, Inc. and American Stock Transfer & Trust, as Rights
Agent (filed as Exhibit 1 to the Company's Registration Statement
on Form
8-A/A on March 23, 2007, and incorporated herein by
reference).
|
|
|
4(h)
|
Amendment
No. 7 dated October 29, 2007, to Rights Agreement dated April 16,
1991
between Luby's, Inc. and American Stock Transfer & Trust, as Rights
Agent (filed as Exhibit 1 to the Company's Registration Statement
on Form
8-A/A on October 30, 2007, and incorporated herein by
reference).
|
|
|
4(i)
|
Credit
Agreement dated July 13, 2007, among Luby’s, Inc., the lenders party
thereto, Wells Fargo Bank, National Association, as Administrative
Agent,
and Amegy Bank, National Association, as Syndication
Agent.
|
|
|
|
|
|
|
10(a)
|
|
Management
Incentive Stock Plan of Luby's Cafeterias, Inc. (filed as Exhibit
10(i) to
the Company's Annual Report on Form 10-K for the fiscal year ended
August
31, 1989, and incorporated herein by reference).*
|
|
|
|
|
|
10(b)
|
|
Amendment
to Management Incentive Stock Plan of Luby's Cafeterias, Inc. adopted
January 14, 1997 (filed as Exhibit 10(k) to the Company's Quarterly
Report
on Form 10-Q for the quarter ended February 28, 1997, and incorporated
herein by reference).*
|
|
|
|
|
|
10(c)
|
|
Nonemployee
Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted
October 27, 1994 (filed as Exhibit 10(g) to the Company's Quarterly
Report
on Form 10-Q for the quarter ended November 30, 1994, and incorporated
herein by reference).*
|
|
|
|
|
|
10(d)
|
|
Amendment
to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias,
Inc. adopted January 14, 1997 (filed as Exhibit 10(m) to the Company's
Quarterly Report on Form 10-Q for the quarter ended February 28,
1997, and
incorporated herein by reference).*
|
|
|
|
|
|
10(e)
|
|
Amendment
to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias,
Inc. adopted March 19, 1998 (filed as Exhibit 10(o) to the Company's
Quarterly Report on Form 10-Q for the quarter ended February 28,
1998, and
incorporated herein by reference).*
|
|
|
|
|
|
10(f)
|
|
Amended
and Restated Nonemployee Director Stock Option Plan of Luby's, Inc.
approved by the shareholders of Luby's, Inc. on January 14, 2000
(filed as
Exhibit 10(j) to the Company's Quarterly Report on Form 10-Q for
the
quarter ended February 29, 2000, and incorporated herein by
reference).*
|
|
10(g)
|
Amended
and Restated Non-employee Director Stock Plan of Luby's, Inc. approved
by
the shareholders of Luby's, Inc. on January 20, 2005 (filed as Exhibit
10(ee) to the Company's Quarterly Report on Form 10-Q for the quarter
ended February 9, 2005, and incorporated herein by
reference).*
|
|
|
10(h)
|
Luby's
Cafeterias, Inc. Supplemental Executive Retirement Plan dated May
30, 1996
(filed as Exhibit 10(j) to the Company's Annual Report on Form 10-K
for
the fiscal year ended August 31, 1996, and incorporated herein by
reference).*
|
|
|
10(i)
|
|
Amendment
to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan
adopted
January 14, 1997 (filed as Exhibit 10(r) to the Company's Quarterly
Report
on Form 10-Q for the quarter ended February 28, 1997, and incorporated
herein by reference).*
|
|
|
|
|
|
10(j)
|
|
Amendment
to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan
adopted
January 9, 1998 (filed as Exhibit 10(u) to the Company's Quarterly
Report
on Form 10-Q for the quarter ended February 28, 1998, and incorporated
herein by reference).*
|
|
|
|
|
|
10(k)
|
|
Amendment
to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan
adopted
May 21, 1999 (filed as Exhibit 10(q) to the Company's Quarterly Report
on
Form 10-Q for the quarter ended May 31, 1999, and incorporated herein
by
reference.)*
|
|
10(l)
|
Luby's
Incentive Stock Plan adopted October 16, 1998 (filed as Exhibit 10(cc)
to
the Company's Annual Report on Form 10-K for the fiscal year ended
August
31, 1998, and incorporated herein by reference).*
|
|
|
|
|
|
|
10(m)
|
|
Amended
and Restated Luby’s Incentive Stock Plan adopted January 19, 2006 (filed
as Exhibit 10(ee) to the Company's Quarterly Report on Form 10-Q
for the
quarter ended February 15, 2006, and incorporated herein by
reference).*
|
|
|
|
|
|
10(n)
|
|
Registration
Rights Agreement dated March 9, 2001, by and among Luby's, Inc.,
Christopher J. Pappas, and Harris J. Pappas (filed as Exhibit 10.4
to the
Company's Current Report on Form 8-K dated March 9, 2001, and incorporated
herein by reference).
|
|
|
|
|
|
10(o)
|
|
Purchase
Agreement dated March 9, 2001, by and among Luby's, Inc. Harris J.
Pappas,
and Christopher J. Pappas (filed as Exhibit 10.1 to the Company's
Current
Report on Form 8-K dated March 9, 2001, and incorporated herein by
reference).
|
|
|
|
|
|
10(p)
|
First
Amendment to Purchase Agreement dated June 7, 2004, by and among
Luby's,
Inc., Harris J. Pappas, and Christopher J. Pappas (filed as Exhibit
4(s)
to the Company's Quarterly Report on Form 10-Q for the quarter ended
May
5, 2004, and incorporated herein by reference).
|
|
|
10(q)
|
Second
Amendment to Purchase Agreement dated June 7, 2004, by and among
Luby's,
Inc., Harris J. Pappas and Christopher J. Pappas (filed as Exhibit
10.3 to
the Company's Current Report on Form 8-K dated October 30, 2007,
and
incorporated herein by reference).
|
|
|
10(r)
|
|
Luby's,
Inc. Stock Option granted to Christopher J. Pappas on March 9, 2001
(filed
as Exhibit 10(w) to the Company's Quarterly Report on Form 10-Q for
the
quarter ended May 31, 2001, and incorporated herein by
reference).*
|
|
|
|
|
|
10(s)
|
|
Luby's,
Inc. Stock Option granted to Harris J. Pappas on March 9, 2001 (filed
as
Exhibit 10(x) to the Company's Quarterly Report on Form 10-Q for
the
quarter ended May 31, 2001, and incorporated herein by
reference).*
|
|
|
|
|
|
10(t)
|
|
Lease
Agreement dated June 1, 2001, by and between Luby's, Inc. and Pappas
Restaurants, Inc. (filed as Exhibit 10(aa) to the Company's Annual
Report
on Form 10-K for the fiscal year ended August 31, 2001, and incorporated
herein by reference).
|
|
|
|
|
|
10(u)
|
|
Luby's,
Inc. Amended and Restated Nonemployee Director Phantom Stock Plan
effective September 28, 2001 (filed as Exhibit 10(dd) to the Company's
Quarterly Report on Form 10-Q for the quarter ended February 13,
2002, and
incorporated herein by reference).*
|
|
|
|
|
|
10(v)
|
|
Form
of Indemnification Agreement entered into between Luby's, Inc. and
each
member of its Board of Directors initially dated July 23, 2002 (filed
as
Exhibit 10(gg) to the Company's Annual Report on Form 10-K for the
fiscal
year ended August 28, 2002, and incorporated herein by
reference).
|
|
10(w)
|
|
Amended
and Restated Affiliate Services Agreement dated July 23, 2002, by
and
among Luby's, Inc., Pappas Restaurants, L.P., and Pappas Restaurants,
Inc.
(filed as Exhibit 10(hh) to the Company's Annual Report on Form 10-K
for
the fiscal year ended August 28, 2002, and incorporated herein by
reference).
|
|
10(x)
|
|
Master
Sales Agreement dated July 23, 2002, by and among Luby's, Inc., Pappas
Restaurants, L.P., and Pappas Restaurants, Inc. and Procedure adopted
by
the Finance and Audit Committee of the Board of Directors on July
23,
2002, pursuant to Section 2.3 of the Master Sales Agreement (filed
as
Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the
fiscal
year ended August 28, 2002, and incorporated herein by
reference).
|
|
|
|
|
|
10(y)
|
|
Lease
Agreement dated October 15, 2002, by and between Luby's, Inc. and
Rush
Truck Centers of Texas, L.P. and Amendment dated August 1, 2003,
by and
between Luby's, Inc. and Pappas Restaurants, Inc. (filed as Exhibit
10(gg)
to the Company's Annual Report on Form 10-K/A for the fiscal year
ended
August 27, 2003, and incorporated herein by reference).
|
|
|
|
|
|
10(z)
|
|
Agreement
dated June 7, 2004, by and among Luby's, Inc., Christopher J. Pappas,
and
Harris J. Pappas (filed as Exhibit 4(s) to the Company's Quarterly
Report
on Form 10-Q for the quarter ended May 5, 2004, and incorporated
herein by
reference).
|
|
|
|
|
|
10(aa)
|
|
Employment
Agreement dated November 9, 2005, between Luby's, Inc. and Christopher
J.
Pappas. (filed as Exhibit 10(y) to the Company’s Annual Report on Form
10-K for the fiscal year ended August 31, 2005, and incorporated
herein by
reference).*
|
|
|
|
|
|
10(bb)
|
Amendment
No. 1 dated as of October 29, 2007 to Employment Agreement dated
as of
March 9, 2001 between Luby's, Inc. and Christopher J. Pappas (filed
as
Exhibit 10.1 to the Company's Current Report on Form 8-K dated October
30,
2007, and incorporated herein by reference).*
|
|
|
10(cc)
|
|
Employment
Agreement dated November 9, 2005, between Luby's, Inc. and Harris
J.
Pappas (filed as Exhibit 10(z) to the Company’s Annual Report on Form 10-K
for the fiscal year ended August 31, 2005, and incorporated herein
by
reference).*
|
|
|
|
|
|
10(dd)
|
Amendment
No. 1 dated as of October 29, 2007 to Employment Agreement dated
as of
March 9, 2001 between Luby's, Inc. and Harris J. Pappas (filed as
Exhibit
10.2 to the Company's Current Report on Form 8-K dated October 30,
2007,
and incorporated herein by reference).*
|
|
|
11
|
|
Statement
regarding computation of Per Share Earnings.**
|
|
|
|
|
|
14(a)
|
|
Policy
Guide on Standards of Conduct and Ethics applicable to all
employees, as well as the board of directors (filed as Exhibit 14(a)
to the Company's Annual Report on Form 10-K for the fiscal year ended
August 27, 2003, and incorporated herein by
reference).
|
|
|
|
|
|
14(b)
|
|
Supplemental
Standards of Conduct and Ethics for the Chief Executive Officer,
Chief
Financial Officer, Controller, and all senior financial officers
(filed as
Exhibit 14(b) to the Company's Annual Report on Form 10-K for the
fiscal
year ended August 27, 2003, and incorporated herein by
reference).
|
|
|
|
|
|
21
|
|
Subsidiaries
of Registrant.
|
|
|
|
|
|
23.1
|
|
Consent
of
Grant Thornton LLP.
|
|
|
|
|
|
23.2
|
Consent
of
Ernst & Young LLP.
|
|
|
31.1
|
|
Rule
13a-14(a)/15d-14(a) certification of the Principal Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
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|
|
|
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31.2
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|
Rule
13a-14(a)/15d-14(a) certification of the Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
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|
|
|
|
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32.1
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|
Section
1350 certification of the Principal Executive Officer pursuant to
Section
906 of the Sarbanes-Oxley Act of
2002.
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32.2
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Section
1350 certification of the Principal Financial Officer pursuant to
Section
906 of the Sarbanes-Oxley Act of 2002.
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99(a)
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Corporate
Governance Guidelines of Luby's, Inc., as amended October 28, 2004.
(filed
as Exhibit 99(a) to the Company’s Annual Report on Form 10-K for the
fiscal year ended August 30, 2006, and incorporated herein by
reference).
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*
|
Denotes
management contract or compensatory plan or
arrangement.
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**
|
Information
required to be presented in Exhibit 11 is provided in Note 14 “Per Share
Information” of the Notes to Consolidated Financial Statements under Part
II, Item 8 of this Form 10-K in accordance with the provisions of
FASB
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings
per
Share.
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