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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 ____________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended August 26, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period From              to             
 ____________________________________ 
Commission file number 001-08308 
Luby's, Inc.
 (Exact name of registrant as specified in its charter)
Delaware74-1335253
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification Number)
 
13111 Northwest Freeway, Suite 600
Houston, Texas 77040
(Address of principal executive offices, including zip code)
 
(713) 329-6800
(Registrant’s telephone number, including area code) 
Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange at which registered
Common Stock ($0.32 par value per share)LUBNew York Stock Exchange
Common Stock Purchase RightsN/ANew York Stock Exchange
 
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   ☐    No  
 
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  ☐    No  
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒   No  ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filer  
Non-accelerated filerSmaller reporting company   
Emerging growth company   
 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
 
The aggregate market value of the shares of common stock of the registrant held by non-affiliates of the registrant as of March 11, 2020, was approximately $36,624,000 (based upon the assumption that directors and executive officers are the only affiliates).
 
As of November 24, 2020, there were 30,678,769 shares of the registrant’s common stock outstanding.

Documents incorporated by reference: None
1



Luby’s, Inc.
Form 10-K
Year ended August 26, 2020
Table of Contents
 Page
    
    
    
    
    
      
      
      
      
      
      
      
      
      
      
     
    


2


Additional Information 
We file reports with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. The SEC maintains an Internet site at http://www.sec.gov that contains the reports, proxy and information statements, and other information that we file electronically. Our website address is www.lubysinc.com. Please note that our website address is provided as an inactive textual reference only. We make available free of charge through our website the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The information provided on our website is not part of this report, and is therefore not incorporated by reference unless such information is specifically referenced elsewhere in this report. 
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 28, 2019. We expect to submit the CEO certification with respect to our fiscal year ended August 26, 2020 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.

3


FORWARD-LOOKING STATEMENTS

This Annual Report on this "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:
the implementation of the Plan of Liquidation (as defined herein), including the timing and amount of any liquidating distribution made in connection with the Plan of Liquidation.
future sales of assets in accordance with the Plan of Liquidation and the amount of proceeds that we may receive as a result of any such sales;
future operating results;
future capital expenditures, and expected sources of funds for capital expenditures;
future debt, including liquidity and the sources and availability of funds related to debt, the expected repayment of debt and the expected sources of funds for working capital requirements;
closing existing units; and
continued compliance with the terms of our 2018 Credit Agreement and our PPP Loan.
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 our 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: 
our ability to successfully implement the Plan of Liquidation;
the duration of the COVID-19 pandemic and its impact on our business and general business and economic conditions;
the impact of competition;
decisions made in the allocation of capital resources;
fluctuations in the costs of commodities, including beef, poultry, seafood, dairy, cheese, oils and produce;
ability to raise menu prices and customers acceptance of changes in menu items;
increases in utility costs, including the costs of natural gas and other energy supplies;
changes in the availability and cost of labor, including the ability to attract qualified managers and team members;
the seasonality of the business;
collectability of accounts receivable;
changes in governmental regulations, including changes in minimum wages and healthcare benefit regulation;
the effects of inflation and changes in our customers’ disposable income, spending trends and habits;
the availability and cost of credit;
the effectiveness of our credit card controls and Payment Card Industry ("PCI") compliance;
weather conditions in the regions in which our restaurants operate;
costs relating to legal proceedings;
impact of adoption of new accounting standards;
effects of actual or threatened future terrorist attacks in the United States;
unfavorable publicity relating to operations, including publicity concerning food quality, illness or other health concerns or labor relations; and
the continued service of key management personnel.
Each forward-looking statement speaks only as of the date of this Form 10-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.

4


PART I
 
Item 1. Business
In this Form 10-K, unless otherwise specified, “Luby’s,” “we,” “our,” “us” and “Company” refer to Luby’s, Inc., Luby's Fuddruckers Restaurants, LLC, a Texas Limited Liability Company ("LFR") and the consolidated subsidiaries of Luby’s, Inc. References to “Luby’s Cafeteria” refer specifically to the Luby’s Cafeteria brand restaurant.
Plan of Liquidation and Dissolution
At a special meeting of stockholders held on November 17, 2020, the Company's shareholders approved the Company’s Plan of Liquidation and Dissolution (the “Plan of Liquidation” or the “Plan”) that provides for the sale of the Company’s assets and distribution of the net proceeds to the Company’s stockholders, after which the Company will be dissolved.
The Plan of Liquidation outlines an orderly sale of the Company's businesses, operations, and real estate, and an orderly wind down of any remaining operations. The Company intends to attempt to convert all of its assets into cash, satisfy or resolve its remaining liabilities and obligations, including contingent liabilities and claims and costs associated with the liquidation of the Company, and then file a certificate of dissolution. The assets to be sold include operating divisions Luby’s Cafeterias, Fuddruckers, and the Company’s Culinary Contract Services business, as well as the Company’s real estate. The Company currently anticipates that its common stock will be delisted from the NYSE upon the filing of the certificate of dissolution, which is not expected to occur until the earlier of the completion of the asset sales or three years, but the delisting of its common stock may occur sooner in accordance with applicable rules of the NYSE.
The Company cannot predict the timing or amount of any distributions to stockholders, as uncertainties exist as to the value it may receive upon the sale of assets pursuant to its monetization strategy, the net value of any remaining assets after such sales are completed, the ultimate amount of expenses associated with implementing its monetization strategy, liabilities, operating costs and amounts to be set aside for claims, obligations and provisions during the liquidation and winding-up process and the related timing to complete such transactions and overall process.
The Company does not intend to comment on or disclose developments regarding the process unless it deems further disclosure appropriate or required. Please see "Risk factors" in Item 1A.
Overview
Luby’s, Inc. operates as a multi-branded company in the restaurant industry and in the contract food services industry. The Company’s core brands include Luby’s Cafeteria, Fuddruckers - World’s Greatest Hamburgers® and Luby’s Culinary Contract Services.
The Company is headquartered in Houston, Texas with its corporate headquarters is located at 13111 Northwest Freeway, Suite 600, Houston, Texas 77040, telephone number (713) 329-6800. The Company website is www.lubysinc.com. The information on the Company website is not, and shall not be deemed to be, a part of this annual report on Form 10-K or incorporated into any of our other filings with the SEC.
As of November 24, 2020, the Company operated 84 restaurants located throughout the United States. These establishments are located in close proximity to retail centers, business developments and residential areas. Of the 84 restaurants, 47 are located on Company owned property and 32 are located on property leased. Four of our owned locations and one of our leased locations consist of a side-by-side Luby’s Cafeteria and Fuddruckers restaurant, to which we refer herein as a “Combo location.” The Combo location properties are included in both the Luby's Cafeterias count and the Fuddruckers Restaurants count but only one location for each Combo location is included in the total restaurant count.
Luby’s Cafeterias
Luby’s Cafeteria’s product offerings are home-style items priced to appeal to a broad range of customers, including those customers that focus on fast wholesome choices, quality, variety, and affordability. Luby’s has had particular success among families with children, shoppers, travelers, seniors, and business people looking for a quick, freshly prepared meal at a fair price. All of our restaurants sell food-to-go orders and third party delivery orders which comprised approximately 26% of our Luby's Cafeteria restaurant sales in fiscal 2020.
Fuddruckers
Fuddruckers serves the World’s Greatest Hamburgers®. While Fuddruckers’ signature burgers and fries account for the majority of its restaurant sales, its menu also includes exotic burgers, such as buffalo and elk, chicken breast sandwiches, hot dogs, a variety of salads, chicken tenders, hand breaded onion rings, soft drinks, handmade milkshakes, and bakery items.
Fuddruckers Franchising
Fuddruckers offers franchises in markets where it deems expansion to be advantageous to the development of the Fuddruckers concept and system of restaurants. A standard franchise agreement generally has an initial term of 20 years. Franchise agreements typically grant franchisees an exclusive territorial license to operate a single restaurant within a specified area,
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usually a four-mile radius surrounding the franchised restaurant. All franchisees are required to operate their restaurants in accordance with Fuddruckers standards and specifications, including controls over menu items, food quality and preparation.
Culinary Contract Services
The Culinary Contract Services (“CCS”) segment consists of a business line servicing long-term acute care hospitals, acute care medical centers, ambulatory surgical centers, retail grocery stores, behavioral hospitals, sports stadiums, senior living facilities, government, and business and industry clients, primarily in Texas. The healthcare accounts are full service and typically include in-room delivery, catering, vending, coffee service, and retail dining.
For additional information regarding our business segments, please read Notes 1 and 8 to the consolidated financial statements included in Part II, Item 8 of this Form 10-K.
Real Estate
The Company owns the underlying land and buildings on 42 of our Luby’s Cafeteria and nine of our Fuddruckers restaurants. Additionally, the Company owns 18 locations that are non-operating at this time.
Other Assets and Liabilities
The Company also owns the Koo Koo Roo brand name and certain rights to the Cheeseburger in Paradise brand name.
The Company’s liabilities as of August 26, 2020 are disclosed in the consolidated financial statements included in Item 8. of this Annual Report. They primarily consist of various current liabilities (such as accounts payables, accrued expenses, current portion of long-term liabilities, and other current liabilities), long-term debt, non-current operating lease liabilities, and certain other liabilities.
Under the Plan, the Company intends to attempt to convert all of its assets into cash, satisfy or resolve its remaining liabilities and obligations, including contingent liabilities and claims and costs associated with the liquidation of the Company.
Intellectual Property
Luby’s, Inc. owns or is licensed to use valuable intellectual property including trademarks, service marks, patents, copyrights, trade secrets and other proprietary information, including the Luby’s and Fuddruckers logos, trade names and trademarks, which are of material importance to our business. Depending on the jurisdiction, trademarks, and service marks generally are valid as long as they are used and/or registered. Patents, copyrights, and licenses are of varying durations. The success of our business depends on the continued ability to use existing trademarks, service marks, and other components of our brands in order to increase brand awareness and further develop branded products. We take prudent actions to protect our intellectual property.
Employees
As of November 24, 2020, we had an active workforce of 3,074 employees consisting of restaurant management employees, non-management restaurant employees, CCS management employees, CCS non-management employees, and office and facility service 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.
Item 1A. Risk Factors
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 Form 10-K, before deciding whether to invest in 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.
Risks Related to the Plan of Liquidation and the Liquidation
We may not be able to pay liquidating distributions to our stockholders at the times and in the amounts expected.
We cannot predict the timing or amount of any liquidating distributions, as uncertainties exist as to the value we may receive upon the sale of our assets pursuant to our monetization strategy, the net value of any remaining assets after such sales are completed, the ultimate amount of our expenses associated with implementing our monetization strategy, liabilities, the operating costs and amounts to be set aside for claims, obligations and provisions during the liquidation and winding-up process, and the related timing to complete such transactions. These and other factors make it impossible to predict with certainty the actual net cash amount that will ultimately be available for distribution to stockholders or the timing of any such distributions.
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The amount of cash available to distribute to stockholders depends on our ability to successfully execute our monetization strategy and dispose of all or substantially all of our assets.
Our efforts to enhance stockholder value through our monetization strategy may not be successful, which would significantly reduce the cash available for distribution to stockholders. We cannot assure you that our efforts to enhance stockholder value through the conduct of our monetization strategy will succeed. There will be risks associated with any potential divestiture transaction, including whether we will attract potential acquirers for the Company’s businesses or its assets, and whether offers made by such potential acquirers, if any, will be at valuations that we deem reasonable. Moreover, we are not able to predict how long it will take to implement our monetization strategy, the delay of which may impact the timing of the dissolution. The timing and terms of any transaction in furtherance of our monetization strategy will depend on a variety of factors, many of which are beyond our control. A delay in, or failure to complete, any such transaction could have a material effect on our stock price and the amount of any potential distributions to stockholders.
In addition, our ability to successfully complete our monetization strategy could be materially negatively affected by economic conditions generally, including public health risks related to COVID-19. We are exploring and evaluating potential transactions, the success or timing of which may be impacted by the effects of the COVID-19 pandemic. In order to successfully monetize our assets, we must identify and complete one or more transactions with third parties. Our businesses and assets and the availability of potential buyers of our businesses and assets may be significantly impacted by public health issues or pandemics, including COVID-19. For example, the shutdown orders across the various jurisdictions in which we or our franchises operate and other effects of COVID-19 have resulted in, and may continue to cause, decreased demand, and consequently decreased revenues, from the operation of our businesses. The uncertain severity and impact of COVID-19 could result in reduced demand to purchase our businesses and assets by third parties or reduced values such parties may ascribe to our businesses and assets.
Even if we are able to identify potential transactions in furtherance of our monetization strategy, such buyers may be operationally constrained or unable to locate financing on attractive terms or at all, which risk may be heightened due to the uncertainty of COVID-19 and its impact. If financing is unavailable to potential buyers of our businesses or assets, or if potential buyers are unwilling to engage in transactions due to the uncertainty in the market, our ability to complete such transactions would be significantly impaired.
Any negative impact on such third parties due to any of the foregoing events could cause costly delays and have a material adverse effect on our ability to return value to stockholders, including our ability to realize full value from a sale or other disposition of our businesses and assets as part of our monetization strategy. Any such negative impacts could also reduce the amount of cash we are able to distribute to stockholders.
Notwithstanding stockholder approval of the Plan of Liquidation, the Board may determine not to proceed with the dissolution or may amend or modify the Plan of Liquidation without further stockholder approval.
Notwithstanding stockholder approval of the Plan of Liquidation, the Board may determine, in the exercise of its fiduciary duties, not to proceed with the dissolution or to amend or modify the Plan of Liquidation to the extent permitted by Delaware law without the necessity of further stockholder approval. If the Board elects to pursue any alternative to the Plan of Liquidation, stockholders may not receive any of the funds that might otherwise be available for distribution to stockholders. Similarly, pursuant to our monetization strategy, the Board may ultimately determine that the sale of the whole Company is advisable and in the best interests of the Company and its stockholders. We cannot assure you that the sale of the whole Company will result in the same amount of distributable cash proceeds to stockholders compared to the dissolution. After the effective date of the filing of the certificate of dissolution, revocation of the dissolution would require stockholder approval under Delaware law.
If we fail to retain sufficient funds to pay the liabilities actually owed to our creditors, each stockholder receiving liquidating distributions could be liable for payment to our creditors for such stockholders pro rata share of any shortfall, up to the amount actually distributed to such stockholder in connection with the dissolution.
Under Delaware law, in the event we fail to retain sufficient funds to pay the expenses and liabilities actually owed to our creditors, each stockholder could be held liable for payment to our creditors for claims brought during the three-year period after the effective date, up to the lesser of (1) such stockholder’s pro rata share of amounts owed to creditors in excess of the contingency reserve and (2) the amounts previously received by such stockholder in dissolution from us and from any liquidating trust or trusts. Accordingly, in such event, a stockholder could be required to return part or all of the distributions previously made to such stockholder in the dissolution, and a stockholder could receive nothing from us under the Plan of Liquidation, but no stockholder will be liable for claims against the Company in excess of the amounts distributed to such stockholder. Moreover, in the event a stockholder has paid taxes on amounts previously received, a repayment of all or a portion of such amount could result in a stockholder incurring a net tax cost if the stockholder’s repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable.

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Risks Related to our Business and Industry
We have incurred indebtedness under the CARES Act which may be subject to audit, may not be forgivable and may eventually have to be repaid. Any repayment of such indebtedness may limit the funds available to us and may restrict our flexibility in operating our business or otherwise adversely affect our net assets and liabilities in liquidation.
On April 21, 2020, the Company entered into a promissory note with Texas Capital Bank, N.A ("TCB") that provides for a loan in the amount of $10.0 million (the “PPP Loan”) pursuant to the Payroll Protection Program (“PPP”), established under the CARES Act. The PPP Loan is subject to forgiveness under the PPP upon the Company’s request to the extent that the proceeds are used to pay expenses permitted by the PPP, including payroll costs, covered rent and mortgage obligations, and covered utility payments. Amounts outstanding under the loan bear a fixed interest rate of 1.0% per annum with a maturity date of April 12, 2022, two years from the commencement date.
The U.S. Department of the Treasury has announced that it will conduct audits for PPP loans that exceed $2 million. Should we be audited or reviewed by the U.S. Department of the Treasury or the SBA as a result of the PPP Loan or filing an application for forgiveness or otherwise, such audit or review could result in the diversion of management’s time and attention, generate negative publicity and cause us to incur legal and reputational costs. If we were to be audited and receive an adverse outcome in such an audit, we could be required to return the full amount of the PPP Loan and may potentially be subject to civil and criminal fines and penalties. We may not have the resources to repay the PPP Loan if required to do so by the federal government.
On November 12, 2020, the Company submitted an application for forgiveness of the entire amount due on the loan. The Company cannot provide assurance that the principal and interest amounts under the PPP Loan will be forgiven. If all or substantially all of the PPP Loan is not forgiven or it is subsequently determined that it must be repaid, we may be required to use a substantial portion of our cash flows from operations or proceeds from the sale of our assets to pay interest and principal on the PPP Loan. Any such repayment of the PPP Loan will reduce the funds available to us for working capital and other corporate purposes and may limit our ability to obtain additional financing for working capital or divert funds that are otherwise necessary to run our business or that would otherwise be distributable to stockholders pursuant to the Plan of Liquidation. We cannot assure you that our business will generate sufficient cash flow from operations or that future financing will be available to us in amounts sufficient to enable us to make required and timely repayments on our indebtedness, or to fund our operations. Additionally, though we believe we are eligible for the PPP Loan under the PPP, our receipt of the PPP Loan could result in negative publicity, or expose us to liability under the federal False Claims Act, which prohibits the known filing of a false claim or the known use of false statements to obtain payment from the federal government, if it is determined that we were in fact not eligible to take the PPP Loan in the first instance.
General economic and business conditions as well as those specific to the restaurant industry may adversely affect our business and our net assets and liabilities in liquidation.
Our business results depend on a number of industry-specific and general economic factors, many of which are beyond our control, such as the COVID-19 pandemic which affected the restaurant industry business conditions in the United States. These factors include consumer income, interest rates, inflation, consumer credit availability, consumer debt levels, tax rates and policy, unemployment trends, and other matters that influence consumer confidence and spending. The restaurant industry is affected by changes in national, regional and local economic conditions, seasonal fluctuation of sales volumes, and consumer spending patterns. Discretionary consumer spending, which is critical to our success, is influenced by general economic conditions and the availability of discretionary income. A deterioration in the global or local economy or other economic conditions affecting disposable consumer income, such as unemployment levels, reduced home values, investment losses, inflation, business conditions, fuel and other energy costs, consumer debt levels, lack of available credit, consumer confidence, interest rates, tax rates and changes in tax laws, may reduce consumer confidence and affected consumers’ ability or desire to spend disposable income. This may adversely affect our business by reducing overall consumer spending or by causing customers to reduce the frequency with which they dine out or to shift their spending to our competitors, any of which could result in lower revenues, increased costs, reduced traffic, or limits on pricing, any of which could have a material adverse effect on our business and our net assets and liabilities in liquidation.
Regional events can adversely affect our financial performance.
Many of our restaurants and franchises are located in Texas. Our business may be adversely affected by economic conditions in Texas 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 pronounced adverse effect on our overall revenues. 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
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impact our sales by discouraging potential customers from going out to eat or by rendering a restaurant or CCS location inoperable for a significant amount of time.
We face intense competition, and if we are unable to compete effectively or if customer preferences change, our business, financial performance and net assets and liabilities in liquidation may 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. Our Luby’s Cafeteria brand 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 financial performance. Our Fuddruckers brand offers grilled-to-order burgers that feature always fresh and never frozen, 100% premium-cut beef with no fillers or additives and sesame-topped buns baked from scratch on-site throughout the day. While burgers are the signature, the engaging menu offers variety for many tastes with an array of sandwiches, and salads. Changing customer preferences, tastes and dietary habits can adversely affect 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, delicatessen, and restaurant services, particularly in the supermarket industry, which offers “convenient meals” in the form of improved entrées and side dishes from the delicatessen 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 performance, and net assets and liabilities in liquidation may be adversely affected.
Our ability to service our debt obligations is primarily dependent upon our future financial performance and asset sales.
 As of August 26, 2020, we had net assets (shareholders’ equity) of $74 million compared to:
$56.6 million of long-term debt comprised of $36.6 million Term Loans, a $10.0 million Revolver and a $10.0 million PPP Loan, and
$29.4 million minimum operating and capital lease commitments
Our ability to meet our debt service obligations depends on our ability to generate positive cash flows from operations and proceeds from assets sales.
If we are unable to service our debt obligations, we may have to:
sell assets;
restructure or refinance our debt; or
sell equity securities.
Our debt, and the covenants contained in the instruments governing our debt, could:
result in a reduction of our credit rating, which would make it more difficult for us to obtain additional financing on acceptable terms;
require us to dedicate a substantial portion of our cash flows from operating activities to the repayment of our debt and the interest associated with our debt;
limit our operating flexibility due to financial and other restrictive covenants, including restrictions on capital investments, debt levels, incurring additional debt and creating liens on our properties;
place us at a competitive disadvantage compared with our competitors that have relatively less debt;
expose us to interest rate risk because certain of our borrowings are at variable rates of interest; and
make us more vulnerable to downturns in our business. 
If we are unable to service our debt obligations, we may not be able to sell equity securities, sell additional assets, or restructure or refinance our debt. Our ability to generate sufficient cash flow from operating activities to pay the principal of and interest on our indebtedness is subject to market conditions and other factors which are beyond our control. 
We may not be able to fully utilize our net operating losses ("NOLs").
As of August 26, 2020, we had approximately $9.9 million of deferred tax assets related to our NOL carryforwards. The Company anticipates utilizing a portion, if not all, of its NOLs in connection with the anticipated sales of the Company’s assets and businesses pursuant to the Plan of Liquidation. If the Company is unsuccessful in completing the anticipated sales of the Company’s assets or otherwise limited in its ability to use its NOLs, the Company may be unable to utilize a portion or all of its
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NOLs and the net proceeds of the sales of our assets and businesses being available to distribute to shareholders may be less than anticipated.
The impact of inflation may adversely affect our financial performance.
The impact of inflation on food, labor and other aspects of our business can adversely affect our results of operations. Commodity inflation in food, beverages, and utilities can also impact our financial performance. Although we attempt to offset the effects of inflation through periodic menu price increases, cost controls, and incremental improvement in operating margins, we may not be able to completely eliminate such effects, which could adversely affect our financial performance and our net assets and liabilities in liquidation.
We face the risk of adverse publicity and litigation, 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 Cafeteria and Fuddruckers brands. 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 business, financial performance and net assets and liabilities in liquidation. 
We may be harmed by security risks we face in connection with our electronic processing and transmission of confidential customer and employee information.
We accept electronic payment cards for payment in our restaurants. During fiscal 2020, approximately 76% of our restaurant sales were attributable to credit and debit card transactions, and credit and debit card usage could continue to increase. A number of retailers have experienced actual or potential security breaches in which credit and debit card information may have been stolen, including a number of highly publicized incidents with well-known retailers in recent years. In addition, in 2018, we were the victim of a cyber attack by hackers who deployed a version of the SamSam ransomware that encrypted electronic files, locking us out of many of our point-of-sale and other systems. These hackers requested a “ransom” payment in exchange for restoring access to these encrypted files. Such attacks, while they did not provide the hackers with access to confidential customer and employee information, did adversely affect our profits due to our temporary inability to operate our restaurants and increased costs associated further protecting and restoring our computer systems. While we have taken preventative measures, no assurances can be provided that we will not be the subject of cyber attacks again in the future.
We may in the future become subject to additional claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit card information, and we may also be subject to lawsuits or other proceedings in the future relating to these types of incidents. Proceedings related to theft of credit or debit card information may be brought by payment card providers, banks and credit unions that issue cards, cardholders (either individually or as part of a class action lawsuit) and federal and state regulators. Any such proceedings could distract our management from running our business and cause us to incur significant unplanned losses and expenses. Consumer perception of our brand could also be negatively affected by these events, which could further adversely affect our results and prospects.
We also are required to collect and maintain personal information about our employees, and we collect information about customers as part of some of our marketing programs as well. The collection and use of such information is regulated at the federal and state levels, and the regulatory environment related to information security and privacy is increasingly demanding. At the same time, we are relying increasingly on cloud computing and other technologies that result in third parties holding significant amounts of customer or employee information on our behalf. If the security and information systems of ours or of outsourced third party providers we use to store or process such information are compromised or if we, or such third parties, otherwise fail to comply with these laws and regulations, we could face litigation and the imposition of penalties that could adversely affect our financial performance. Our reputation as a brand or as an employer could also be adversely affected from these types of security breaches or regulatory violations, which could impair our sales or ability to attract and keep qualified employees.
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Labor shortages or increases in labor costs could adversely affect our business, financial performance and net assets and liabilities in liquidation.
Our successful implementation of our monetization plan 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. Given the announced Plan of Liquidation, we have found it difficult to recruit and retain qualified individuals. If we are unable to recruit and retain sufficient qualified individuals, our operations and reputation could be adversely affected, which may adversely affect the value of our business and ability to realize the proceeds for the sale of our assets to allow us to distribute the proceeds to stockholders. Additionally, competition for qualified employees could require us to pay higher wages, which could result in higher labor costs. Our financial condition and announcement of our process of exploring strategic alternatives may result in difficulties in retaining and attracting qualified employees. Any increase in labor costs could adversely affect our results of operations.
The success of our business is highly dependent upon our key management personnel. The loss of the services of any key management personnel could have a material adverse effect upon our business. The process of exploring strategic alternatives may impair our ability to retain and motivate key management personnel. 
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. If commodity prices were to increase, we may be forced to absorb the additional costs rather than transfer these increases 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 material adverse effect on our financial performance.
Failure to collect account receivables could adversely affect our financial performance and net asset and liabilities in liquidation.
A portion of our accounts receivable is concentrated in our CCS operations among several customers. In addition, our franchises generate significant accounts receivables. Failure to collect from several of these accounts receivable could adversely affect our financial performance and net assets and liabilities in liquidation.
Our business is subject to seasonal fluctuations, and, as a result, our financial performance 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 that period. Similarly, our financial performance for any single quarter will not necessarily be indicative of the results that may be achieved for a full fiscal year.
We may not be able to adequately protect our intellectual property, which could harm the value of our brands and adversely affect our business.
Our ability to successfully implement our business plan depends in part on our ability to further build brand recognition using our trademarks, service marks, trade dress and other proprietary intellectual property, including our name and logos, and the unique ambience of our restaurants. If our efforts to protect our intellectual property are inadequate, or if any third party misappropriates or infringes on our intellectual property, either in print or on the internet, the value of our brands may be harmed, which could have a material adverse effect on our business and might prevent our brands from achieving or maintaining market acceptance. We may also encounter claims from prior users of similar intellectual property in areas where we operate or intend to conduct operations. This could harm our image, brand or competitive position and cause us to incur significant penalties and costs.
Risks Related to Governmental Laws and Regulations
Our business is subject to extensive federal, state and local laws and 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, healthcare, employee medical plans, 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, healthcare and citizenship requirements), federal and state laws which prohibit
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discrimination, potential healthcare benefits legislative mandates, and other laws regulating the design and operation of facilities, such as the Americans With Disabilities Act of 1990. 
As a publicly traded corporation, we are subject to various rules and regulations as mandated by the SEC and the NYSE. Failure to timely comply with these rules and regulations could result in penalties and negative publicity.
We are subject to federal regulation and certain state laws which govern the offer and sale of franchises. Many state franchise laws contain provisions that supersede the terms of franchise agreements, including provisions concerning the termination or non-renewal of a franchise. Some state franchise laws require that certain materials be registered before franchises can be offered or sold in that state. The failure to obtain or retain licenses or approvals to sell franchises could adversely affect us and the franchisees.
We are subject to risks related to the provision of employee healthcare benefits, worker’s compensation and employee injury claims.
We maintain a self-insured health benefit plan which provides medical and prescription drug benefits to certain of our employees electing coverage under the plan. Our exposure is limited by individual and aggregate stop-loss limits. We record expenses under the plan based on estimates of the costs of expected claims, administrative costs and stop-loss insurance premiums. Self-insurance costs are accrued based upon the aggregate of the expected liability for reported claims and the estimated liability for claims incurred but not reported, based on information on historical claims experience provided by our third party insurance advisors, adjusted as necessary based upon management’s reasoned judgment. Actual employee medical claims expense may differ from estimated loss provisions based on historical experience. In the event our cost estimates differ from actual costs, we could incur additional unplanned costs, which could adversely impact our financial performance and our net assets and liabilities in liquidation.
Workers’ compensation coverage is provided through “self-insurance” by LFR. We record expenses under the plan based on estimates of the costs of expected claims, administrative costs, stop-loss insurance premiums, and expected trends. These estimates are then adjusted each year to reflect actual costs incurred. Actual costs under these plans are subject to variability that is dependent upon demographics and the actual costs of claims made. In the event our cost estimates differ from actual costs, we could incur additional unplanned costs, which could adversely impact our financial performance and our net assets and liabilities in liquidation.
In March 2010, comprehensive healthcare reform legislation under the Patient Protection and Affordable Care Act (the "Affordable Care Act") and Healthcare Education and Affordability Reconciliation Act was passed and signed into law. Among other things, the healthcare reform legislation includes mandated coverage requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded, and imposes new and significant taxes on health insurers and healthcare benefits. Although requirements were phased in over a period of time, the most impactful provisions began in the third quarter of fiscal 2015.
Due to the breadth and complexity of the healthcare reform legislation, the lack of implementing regulations in some cases, and interpretive guidance, and the phased-in nature of the implementation, it is difficult to predict the overall impact of the healthcare reform legislation on our business and the businesses of our franchisees over the coming years. Possible adverse effects of the healthcare reform legislation include reduced revenues, increased costs and exposure to expanded liability and requirements for us to revise the ways in which we conduct business or risk of loss of business. It is also possible that healthcare plans offered by other companies with which we compete for employees will make us less attractive to our current or potential employees. And in any event, implementing the requirements of the Affordable Care Act has imposed some additional administrative costs on us, and those costs may increase over time. In addition, financial performance and net assets and liabilities in liquidation could be materially adversely affected. Our franchisees face the potential of similar adverse effects, and many of them are small business owners who may have significant difficulty absorbing the increased costs.
An increase in the minimum wage and regulatory mandates could adversely affect our financial performance.
From time to time, the U.S. Congress and state legislatures have increased and will 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 and net assets and liabilities in liquidation.
Risks Related to Franchises
Termination of franchise agreements may disrupt restaurant performance.
Our franchise agreements are subject to termination by us in the event of default by the franchisee after applicable cure periods. Upon the expiration of the initial term of a franchise agreement, the franchisee generally has an option to renew the franchise agreement for an additional term. There is no assurance that franchisees will meet the criteria for renewal or will desire or be able to renew their franchise agreements. If not renewed, a franchise agreement, and payments required there under, will
12


terminate. We may be unable to find a new franchisee to replace a non-renewing franchisee. Furthermore, while we will be entitled to terminate franchise agreements following a default that is not cured within the applicable grace period, if any, the disruption to the performance of the restaurants could adversely affect our business and cash flows.
Franchisees may breach the terms of their franchise agreements in a manner that adversely affects the reputation of our brands.
Franchisees are required to conform to specified product quality standards and other requirements pursuant to their franchise agreements in order to protect our brands and to optimize restaurant performance. However, franchisees may receive through the supply chain or produce sub-standard food or beverage products, which may adversely impact the reputation of our brands. Franchisees may also breach the standards set forth in their respective franchise agreements. Any negative actions could have a corresponding material adverse effect on our business and cash flows.
General Risk Factors
The price of our common stock may experience volatility.
The market price of our common stock can be volatile as we execute the Plan of Liquidation, which may continue or become more severe if and when a transaction or business arrangement is announced or we announce that we are no longer exploring strategic alternatives.
Item 1B. Unresolved Staff Comments 
None. 
Item 2. Properties
As of November 24, 2020, we operated 84 restaurants at 78 property locations. Five of the operating locations are Combo locations and are considered two restaurants. One leased property location has a Luby's Cafeteria and a Fuddruckers Restaurant in separate buildings. Luby’s Cafeterias have seating capacity for 250 to 300 customers at each location while Fuddruckers locations generally seat 125 to 200 customers.
We own the underlying land and buildings on which 42 of our Luby’s Cafeteria and nine of our Fuddruckers restaurants are located. Two of these restaurant properties contain excess building space or an extra building on the property which have seven tenants unaffiliated with Luby’s, Inc.
The following table summarizes our owned properties as of November 24, 2020:
Number of Properties
Operating Restaurants:
Luby's cafeterias38 
Fuddruckers restaurants
Combos
   Total Operating Properties47 
Non-operating held for sale18 
   Total65 

In addition to the owned locations, 18 Luby’s Cafeteria restaurants and 15 Fuddruckers restaurants are held under 32 leases as of November 24, 2020. One of the 32 leases includes two restaurants at one leased location: one Luby's Cafeteria and one Fuddruckers restaurant. The majority of the leases are fixed-dollar rentals, which require us to pay additional amounts related to property taxes, hazard insurance, and maintenance of common areas. Of the 32 restaurant leases, the current terms of eight expire in less than one year, 15 expire between one and five years, and nine expire thereafter. Additionally, 25 leases can be extended beyond their current terms at our option.
At November 24, 2020, we have leases on 11 restaurant properties where we have ceased operations. Although the Company remains obligated under the terms of the leases for the rent and other costs that may be associated with the leases, the Company has ceased operations and has no foreseeable plans to occupy the spaces as a company restaurant in the future.
We also have two leased locations that have two third party tenants.
Our corporate office lease of approximately 26,000 square feet of office space runs through June 2022.
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We also lease approximately 60,000 square feet of warehouse space for in-house repair, fabrication and storage in Houston, Texas and an executive suite in North Andover, Massachusetts, where we have additional legal personnel.
We maintain general liability insurance and property damage insurance on all properties in amounts which management believes provide adequate coverage.
Item 3. Legal Proceedings
From time to time, we are subject to various private lawsuits, administrative proceedings and claims that arise in the ordinary course of our business. A number of these lawsuits, proceedings and claims may exist at any given time. These matters typically involve claims from guests, employees and others related to issues common to the restaurant industry. We currently believe that the final disposition of these types of lawsuits, proceedings, and claims will not have a material adverse effect on our financial position, results of operations, or liquidity. It is possible, however, that our future results of operations for a particular fiscal quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, proceedings, or claims. 
Item 4. Mine Safety Disclosures 
Not applicable.


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PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 
Market Information
Our common stock is traded on the NYSE under the symbol “LUB.” As of November 24, 2020, there were 1,912 holders of record of our common stock.
Equity Compensation Plans
Securities authorized under our equity compensation plans as of August 26, 2020, 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 holders860,501 $4.07 1,884,983 
Equity compensation plans not previously approved by security holders (1)
6,332 — — 
Total866,833 $4.07 1,884,983 
(1)  Represents the Luby’s, Inc. Nonemployee Director Phantom Stock Plan.
See Note 18. “Share-Based and Other Compensation,” to our Consolidated Financial Statements included in Item 8 of Part II of this report.
Stock Performance Graph
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.



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Item 6. Selected Financial Data 
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
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 26, 2020 (“fiscal 2020”) and August 28, 2019, (“fiscal 2019”) included in Part II, Item 8 of this Form 10-K.
Although store level profit, defined as restaurant sales plus vending revenue less cost of food, payroll and related costs, other operating expenses, and occupancy costs is a non-GAAP measure, we believe its presentation is useful because it explicitly shows the aggregated results of our restaurant brand reportable segments. The following table reconciles between store level profit, a non-GAAP measure to loss from continuing operations, a GAAP measure: 
 
Fiscal Year Ended
 August 26, 2020August 28, 2019
 (52 weeks)(52 weeks)
 (In thousands)
Store level profit$9,585 $27,885 
Plus:
Sales from culinary contract services26,747 31,888 
Sales from franchise operations3,634 6,690 
Less:
Opening costs14 56 
Cost of culinary contract services24,218 28,554 
Cost of franchise operations1,543 1,633 
Depreciation and amortization11,514 13,998 
Selling, general and administrative expenses(1)
24,571 34,685 
Other charges3,401 3,764 
Net provision for asset impairments and restaurant closings10,193 5,603 
Net gain on disposition of property and equipment(11,557)(12,832)
Interest income(60)(30)
Interest expense6,388 5,977 
Other income, net(1,195)(195)
Provision for income taxes357 469 
Loss from continuing operations$(29,421)$(15,219)

(1) Marketing and advertising expense included in Selling, general and administrative expenses was $3.4 million in fiscal 2020 and $3.9 million in fiscal 2019.
The following table shows our restaurant unit count as of August 26, 2020 and August 28, 2019.
Restaurant Counts: 
 Fiscal 2020 Year BeginFiscal 2020 OpeningsFiscal 2020 ClosingsFiscal 2020 Year End
Luby’s Cafeterias(1)
79 — (18)61 
Fuddruckers Restaurants(1)
44 — (20)24 
Cheeseburger in Paradise1 — (1) 
Total124  (39)85 
  (1) Includes five restaurants that are part of Combo locations.
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Overview
Description of the business
During the fiscal year ended August 26, 2020, we operated with five reportable operating segments: Luby's Cafeterias, Fuddruckers Restaurants, Cheeseburger in Paradise, Fuddruckers Franchise Operations, and Culinary Contract Services. We generate revenues primarily by providing quality food to customers at our 61 Luby’s branded restaurants located mostly in Texas, 24 Fuddruckers restaurants located throughout the United States, and 71 Fuddruckers franchises located primarily in the United States. Included in the Luby's Cafeterias and Fuddruckers restaurants segment are five locations where we operate both a Luby's Cafeteria and a Fuddruckers restaurant. In addition to our restaurant business model, we also provide culinary contract services for organizations that offer on-site food service, such as healthcare facilities, colleges and universities, sports stadiums, businesses and institutions, as well as sales through retail grocery outlets.
Plan of Liquidation and Dissolution
At a special meeting of stockholders held on November 17, 2020, the Company's shareholders approved the Company’s Plan of Liquidation and Dissolution (the “Plan of Liquidation” or the “Plan”) that provides for the sale of the Company’s assets and distribution of the net proceeds to the Company’s stockholders, after which the Company will be dissolved.
The Plan of Liquidation outlines an orderly sale of the Company's businesses, operations, and real estate, and an orderly wind down of any remaining operations. The Company intends to attempt to convert all of its assets into cash, satisfy or resolve its remaining liabilities and obligations, including contingent liabilities and claims and costs associated with the liquidation of the Company, and then file a certificate of dissolution. The assets to be sold include operating divisions Luby’s Cafeterias, Fuddruckers, and the Company’s Culinary Contract Services business, as well as the Company’s real estate. The Company currently anticipates that its common stock will be delisted from the NYSE upon the filing of the certificate of dissolution, which is not expected to occur until the earlier of the completion of the asset sales or three years, but the delisting of its common stock may occur sooner in accordance with applicable rules of the NYSE.
The Company cannot predict the timing or amount of any distributions to stockholders, as uncertainties exist as to the value it may receive upon the sale of assets pursuant to its monetization strategy, the net value of any remaining assets after such sales are completed, the ultimate amount of expenses associated with implementing its monetization strategy, liabilities, operating costs and amounts to be set aside for claims, obligations and provisions during the liquidation and winding-up process and the related timing to complete such transactions and overall process.
The Company does not intend to comment on or disclose developments regarding the process unless it deems further disclosure appropriate or required. Please see "Risk factors" in Item 1A.
Accounting Periods 
Our fiscal year ends on the last Wednesday in August. Accordingly, each fiscal year normally consists of 13 four-week periods, or accounting periods, accounting for 364 days in the aggregate. However, every fifth or sixth year, we have a fiscal year that consists of 53 weeks, accounting for 371 days in the aggregate. Our first quarter consists of four four-week periods, while our last three quarters normally consist of three four-week periods. 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 
As a result of the COVID-19 pandemic, we do not believe that a comparison of year-to-year restaurant sales is meaningful, and therefore, same-store sales are not presented in this Annual Report on Form 10-K.
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RESULTS OF OPERATIONS 
Fiscal 2020 (52 weeks) compared to Fiscal 2019 (52 weeks)
Sales 
 Fiscal Year 2020 EndedFiscal Year 2019 EndedFiscal 2020 vs Fiscal 2019
($000s)August 26, 2020August 28, 2019Higher/(Lower)
 (52 weeks)(52 weeks)
Restaurant sales$183,511 $284,513 (35.5)%
Culinary contract services26,747 31,888 (16.1)%
Franchise revenue3,634 6,690 (45.7)%
Vending revenue130 379 (65.7)%
TOTAL SALES$214,022 $323,470 (33.8)%
 
Total company sales decreased approximately $109.4 million, or 33.8%, in fiscal 2020 compared to fiscal 2019, consisting primarily of an approximate $101.0 million decrease in restaurant sales and an approximate $0.2 million decrease in vending revenue. Culinary contract services sales decreased by an approximate $5.1 million. Franchise revenue decreased $3.1 million.
In fiscal 2019 and fiscal 2020, we operated with five reportable operating segments: Luby's Cafeterias, Fuddruckers Restaurants, Cheeseburger in Paradise, Fuddruckers Franchise Operations, and Culinary Contract Services.
Company-Owned Restaurants
Restaurant Sales
Restaurant BrandsFiscal Year 2020 EndedFiscal Year 2019 EndedFiscal 2020 vs Fiscal 2019
($000s)August 26, 2020August 28, 2019Higher/(Lower)
 (52 weeks)(52 weeks)
   Luby’s cafeterias$137,061 $194,615 (29.6)%
   Combo locations12,699 19,459 (34.7)%
Luby's cafeteria segment$149,760 $214,074 (30.0)%
Fuddruckers restaurants segment32,229 67,331 (52.1)%
Cheeseburger in Paradise segment1,522 3,108 (51.0)%
Total Restaurant Sales$183,511 $284,513 (35.5)%
 
Total restaurant sales decreased approximately $101.0 million in fiscal 2020 compared to fiscal 2019. The decrease in restaurant sales included an approximate $57.6 million decrease in sales at stand-alone Luby’s Cafeterias, an approximate $35.1 million decrease in sales at stand-alone Fuddruckers restaurants, an approximate $6.8 million decrease in sales from Combo locations, and an approximate $1.6 million decrease at sales from our Cheeseburger in Paradise restaurants.
The approximate $57.6 million decrease in sales at stand-alone Luby’s includes the reduction of 23 operating restaurants accounting for $19.5 million lower sales. Sales at stores that did not close on a permanent basis decreased $38.1 million. The number of store days where restaurants were open declined 15.0% as stores were temporarily closed due to the pandemic. As of the last week of fiscal 2020, sales at operating stores decreased 18% compared to the same week of fiscal 2019.
The approximate $35.1 million decrease in sales at stand-alone Fuddruckers restaurants reflects primarily the reduction of 36 operating restaurants accounting for a decrease of $25.5 million. The stores that did not close on a permanent basis accounted for a decrease of $9.6 million due to fewer operating days due to the pandemic. Store days at these locations declined 22.7% due to temporary closures from the pandemic. As of the last week of the fiscal 2020, sales at operating stores decreased 37% compared to the same week of fiscal 2019.
The approximate $6.8 million decrease in sales from Combo locations reflects a decline of $0.8 million due to the permanent closure of one location. The remaining decline was due to a reduction in operating store days for the remaining locations of 29.3%.
The approximate $1.6 million decrease in sales from our Cheeseburger in Paradise reflects the reduction of two operating restaurants as we have closed all remaining units as of August 26, 2020.
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Cost of Food 
 Fiscal Year 2020 EndedFiscal Year 2019 EndedFiscal 2020 vs Fiscal 2019
($000s)August 26, 2020August 28, 2019Higher/(Lower)
 (52 weeks)(52 weeks)
Cost of food:
Luby's cafeteria segment$43,012 $60,801 $(17,789)
Fuddruckers restaurants segment9,007 17,712 (8,705)
Cheeseburger in Paradise segment486 966 (480)
Total Restaurants$52,505 $79,479 $(26,974)
As a percentage of restaurant sales
Luby's cafeteria segment28.7 %28.4 %0.3 %
Fuddruckers restaurants segment27.9 %26.3 %1.6 %
Cheeseburger in Paradise segment31.9 %31.1 %0.8 %
Total Restaurants28.6 %27.9 %0.7 %
 
Cost of food, which is comprised of the cost associated with the sale of food and beverage products that are consumed while dining in our restaurants, as take-out, and as catering. Cost of food decreased approximately $27.0 million, or 33.9%, in fiscal 2020 compared to fiscal 2019. Cost of food is variable and generally fluctuates with sales and guest traffic volume. As a percentage of restaurant sales, food costs increased 0.7% to 28.6% in fiscal 2020 compared to 27.9% in fiscal 2019. The Cost of food as percentage of sales was impacted in part by the write off of food inventories for stores closed due to the pandemic. For stores that are not permanently closed, as a result of the pandemic, we have tried to simplify the menu and reduce waste to reduce food cost as a percentage of sales.
The cost of food as a percentage of restaurant sales in the Luby's cafeteria segment increased 0.3% to 28.7% in fiscal 2020 compared to fiscal 2019 due in part to the reasons and initiatives stated above. The cost of food as a percentage of restaurant sales for the Fuddruckers restaurants segment increased 1.6% in fiscal 2020 compared to fiscal 2019. The cost of food as a percentage of restaurant sales for the Cheeseburger in Paradise segment increased 0.8% in fiscal 2020 compared to fiscal 2019.
Payroll and Related Costs 
 Fiscal Year 2020 EndedFiscal Year 2019 EndedFiscal 2020 vs Fiscal 2019
($000s)August 26, 2020August 28, 2019Higher/(Lower)
 (52 weeks)(52 weeks)
Payroll and related Costs:
Luby's cafeteria segment$56,405 $81,342 $(24,937)
Fuddruckers restaurants segment12,820 25,938 (13,118)
Cheeseburger in Paradise segment608 1,229 (621)
Total Restaurants$69,833 $108,509 $(38,676)
As a percentage of restaurant sales
Luby's cafeteria segment37.7 %38.0 %(0.3)%
Fuddruckers restaurants segment39.8 %38.5 %1.3 %
Cheeseburger in Paradise segment39.9 %39.5 %0.4 %
Total Restaurants38.1 %38.1 %0.0 %
 
Payroll and related costs includes restaurant-level hourly wages, including overtime pay, and pay while training, as well as management salaries and incentive payments. Payroll and related costs also include the payroll taxes, workers’ compensation expense, group health insurance costs, and 401(k) matching expense for all restaurant-level hourly and management employees.
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Payroll and related costs decreased approximately $38.7 million, or 35.6%, in fiscal 2020 compared to fiscal 2019 due in part to operating 61 fewer restaurants accounting for $18.3 million in lower payroll and related costs (closure of 22 restaurants in fiscal 2019 and 39 restaurants in fiscal 2020). For stores that continue to operate, payroll and related expense decreased $20.4 million. The decrease in payroll and related expenses for stores that continue to operate primarily reflected a reduction in scheduled hours as a result of a decline in guest traffic. As a percentage of restaurant sales, payroll and related costs remained flat at 38.1% in fiscal 2020 compared to fiscal 2019, due primarily to a right-sizing of staff for reduced guest count during the pandemic.
Payroll and related costs as a percentage of restaurant sales in the Luby's cafeteria segment decreased 0.3% to 37.7% in fiscal 2020 compared to fiscal 2019. Payroll and related costs as a percentage of restaurant sales in the Fuddruckers restaurants segment increased 1.3% to 39.8% in fiscal 2020 compared to fiscal 2019. At the end of fiscal 2020, the average number of work hours scheduled and deployed for Fuddruckers restaurant operating was decreased 49% compared to the end of fiscal 2019. Cheeseburger in Paradise segment increased 0.4% to 39.9% in fiscal 2020 compared to fiscal 2019.
Other Operating Expenses 
 Fiscal Year 2020 EndedFiscal Year 2019 EndedFiscal 2020 vs Fiscal 2019
($000s)August 26, 2020August 28, 2019Higher/(Lower)
 (52 weeks)(52 weeks)
Other operating expenses:
Luby's cafeteria segment$29,370 $37,192 $(7,822)
Fuddruckers restaurants segment6,769 12,829 (6,060)
Cheeseburger in Paradise segment449 865 (416)
Total Restaurants$36,588 $50,886 $(14,298)
As a percentage of restaurant sales
Luby's cafeteria segment19.6 %17.4 %2.2 %
Fuddruckers restaurants segment21.0 %19.1 %1.9 %
Cheeseburger in Paradise segment29.5 %27.8 %1.7 %
Total Restaurants19.9 %17.9 %2.0 %

Other operating expenses primarily include restaurant-related expenses for utilities, repairs and maintenance, advertising, insurance, and services. Other operating expenses decreased approximately $14.3 million, or 28.1%, in fiscal 2020 compared to fiscal 2019. Of the approximate $14.3 million decrease in total other operating expenses, approximately $8.6 million is attributed to store closures and approximately $5.7 million is attributed to stores that continue to operate after temporary closures and reduced operations due to the pandemic. The $5.7 million reduction in other operating expenses at stores that continue to operate is attributable to (1) an approximate $2.5 million reduction in restaurant supplies expense; (2) an approximate $2.4 million reduction in utilities expense; (3) an approximate $1.3 million reduction in repairs expense; partially offset by $0.5 million net increase in other charges primarily due to insurance recoveries in fiscal year 2019. As a percentage of restaurant sales, Other operating expenses increased 2.0% to 19.9% in fiscal 2020 compared to 17.9% in fiscal 2019. The 2.0% increase in Other operating expenses as a percentage of restaurant sales was due to the net expense items enumerated above and negative impact of closures from the pandemic.
Other operating expense as a percentage of restaurant sales in the Luby's cafeteria segment increased 2.2% to 19.6% in fiscal 2020 compared to fiscal 2019 primarily due to (1) increased cost for certain services provided to the cafeteria restaurants, including an increase in delivery fees related to increased usage of third-party delivery platforms and (2) an increase in utilities as a percentage of sales due in part to the requirement to maintain utilities at stores that are closed. Other operating expense as a percentage of restaurant sales in the Fuddruckers restaurants segment increased 1.9% to 21.0% in fiscal 2020 compared to fiscal 2019 primarily due to (1) increased cost for certain services provided to the cafeteria restaurants, including an increase in delivery fees related to increased usage of third-party delivery platforms and (2) an increase in utilities as a percent of sales due in part to the requirement to maintain utilities at stores that are closed. Other operating expense as a percentage of restaurant sales in the Cheeseburger in Paradise segment increased 1.7% to 29.5% in fiscal 2020 compared to fiscal 2019 due primarily to wind down operational costs for locations that closed, including utilities expense and certain restaurant service costs.
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Occupancy Costs
 Fiscal Year 2020 EndedFiscal Year 2019 EndedFiscal 2020 vs Fiscal 2019
($000s)August 26, 2020August 28, 2019Higher/(Lower)
 (52 weeks)(52 weeks)
Occupancy costs:
Luby's cafeteria segment$8,815 $9,315 $(500)
Fuddruckers restaurants segment6,027 8,529 (2,502)
Cheeseburger in Paradise segment288 289 (1)
Total Restaurants$15,130 $18,133 $(3,003)
As a percentage of restaurant sales
Luby's cafeteria segment5.9 %4.4 %1.5 %
Fuddruckers restaurants segment18.7 %12.7 %6.0 %
Cheeseburger in Paradise segment18.9 %9.3 %9.6 %
Total Restaurants8.2 %6.4 %1.8 %
 
Occupancy costs include property lease expense, property taxes, and common area maintenance charges, property insurance, and permits and licenses. Occupancy costs decreased $3.0 million in fiscal 2020 compared to fiscal 2019. The decrease was primarily due to a decrease in rent and property taxes associated with operating 61 fewer restaurants in fiscal 2020 compared to fiscal 2019 (closure of 22 restaurants in fiscal 2019 and closure of 39 restaurants in fiscal 2020). As a percentage of restaurant sales, occupancy costs increased 1.8%, to 8.2%, in fiscal 2020 compared to 6.4% in fiscal 2019 primarily as a result of store closures before the end of the lease. The company is actively negotiating settlements with landlords at locations that are not planned to be reopened. As of the end of fiscal 2020, the company had negotiated early terminations at 18 locations. A significantly higher percentage of our Fuddruckers restaurants are leased properties as compared to our Luby's cafeterias. As a result, our Fuddruckers restaurant segment's occupancy costs as a percentage of sales is higher than our Luby's cafeterias.
Fuddruckers Franchise Segment Profit
 
 Fiscal Year 2020 EndedFiscal Year 2019 EndedFiscal 2020 vs Fiscal 2019
($000s)August 26, 2020August 28, 2019Higher/(Lower)
 (52 weeks)(52 weeks)
Franchise revenue$3,634 $6,690 (45.7)%
Cost of franchise operations1,543 1,633 (5.5)%
Franchise operations segment profit$2,091 $5,057 (58.7)%
Franchise profit as percent of Franchise revenue57.5 %75.6 %(18.1)%
 
We offer franchises for the Fuddruckers brand. Franchises are sold in markets where expansion is deemed advantageous to the development of the Fuddruckers concept and system of restaurants. Franchise revenue includes (1) royalties paid to us as the franchisor for the Fuddruckers brand; (2) funds paid to us as the franchisor for pooled advertising expenditures; and (3) franchise fees paid to us when franchise units are opened for business or transferred to new owners and when franchise agreements are renewed or certain milestones in franchise agreements are reached. Cost of franchise operations includes the direct costs associated with supporting franchisees with opening new Fuddruckers franchised restaurants and the corporate overhead expenses associated with generating franchise revenue. These corporate expenses primarily include the salaries and benefits, travel and related expenses, and other expenses for employees whose primary job function involves supporting our franchise owners and the development of new franchise locations.
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Franchise revenue decreased approximately $3.1 million, or 45.7%, in fiscal 2020 compared to fiscal 2019. The $3.1 million decrease in franchise revenue reflects (1) an approximate $2.4 million decrease in franchise royalties due to temporary or permanent closures from the pandemic and we waived royalty payments from the franchisees for two accounting periods (eight weeks) in the quarter ended June 3, 2020; (2) $0.5 million lower amortization of franchise fees due to closures; and (3) an approximate $0.2 million decline in marketing fees collected from the franchise network.
Cost of franchise operations decreased approximately $0.1 million, or 5.5%, in fiscal 2020 compared to fiscal 2019. The decrease was due primarily to (1) recording an expense in fiscal 2020 related to pooled advertising expenditures, and lower labor charges as most franchise support personnel were furloughed due the pandemic.
Franchise operations segment profit, defined as Franchise revenue less Cost of franchise operations, decreased approximately $3.0 million in in fiscal 2020 compared to fiscal 2019, due primarily to the $3.1 million decrease in franchise revenue partially offset by the $0.1 million decrease in franchise costs, both discussed above.
We ended fiscal 2020 with 71 Fuddruckers franchise restaurants.
Culinary Contract Services Segment Profit
Culinary Contract Services is a business line servicing healthcare, sport stadiums, corporate dining clients, and sales through retail grocery stores. The healthcare accounts are full service and typically include in-room delivery, catering, vending, coffee service, and retail dining. Culinary Contract Services has contracts with long-term acute care hospitals, acute care medical centers, ambulatory surgical centers, behavioral hospitals, sports stadiums, and business and industry clients. Culinary Contract Services has the unique ability to deliver quality services that include facility design and procurement as well as nutrition and branded food services to our clients. We operated 26 Culinary Contract Services locations at the end of fiscal 2020 and 31 at the end of fiscal 2019. We focus on clients who are able to enter into agreements in which all operating costs are reimbursed to us and we generally charge a fixed fee as opposed to agreements where we retain all revenues and operating costs and we are exposed to the variability of the operating results of the location. The fixed fee agreements typically present lower financial risk to the company.
 Fiscal Year 2020 EndedFiscal Year 2019 EndedFiscal 2020 vs Fiscal 2019
($000s)August 26, 2020August 28, 2019Higher/(Lower)
 (52 weeks)(52 weeks)
Culinary contract services$26,747 $31,888 (16.1)%
Cost of culinary contract services24,218 28,554 (15.2)%
CCS segment profit$2,529 $3,334 (24.1)%
Culinary contract profit as percent of Culinary contract services sales9.5 %10.5 %(1.0)%
 
Culinary contract services revenue decreased $5.1 million, or 16.1%, in fiscal 2020 compared to fiscal 2019. The $5.1 million decrease in revenue was primarily due to closure or reduced operations at most culinary contract services units as a result of the pandemic.
Cost of culinary contract services includes the food, payroll and related costs, other direct operating expenses, and corporate overhead expenses associated with generating Culinary contract services sales. Cost of culinary contract services decreased approximately $4.3 million, or 15.2%, in fiscal 2020 compared to fiscal 2019 due primarily to a net decrease in culinary contract sales volume and by reductions of corporate overhead expenses required to support this business segment. CCS segment profit (defined as Culinary contract services revenue less Cost of culinary contract services) decreased in dollar terms by approximately $0.8 million and decreased as a percent of Culinary contract services revenue to 9.5% in fiscal 2020 from 10.5% in fiscal 2019, due primarily to the change in the mix of culinary contract service agreements with clients.
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Opening Costs
Opening costs includes labor, supplies, occupancy, and other costs necessary to support the restaurant through its opening period. Opening costs were $14 thousand in fiscal 2020 compared to approximately $56 thousand in fiscal 2019. Opening costs of $14 thousand in fiscal 2020 included the carrying cost of land for one location where we previously intended to open a combo restaurant and one location that we lease where we previously intended to open a Fuddruckers restaurant.
Depreciation and Amortization
 
 Fiscal Year 2020 EndedFiscal Year 2019 EndedFiscal 2020 vs Fiscal 2019
($000s)August 26, 2020August 28, 2019Higher/(Lower)
 (52 weeks)(52 weeks)
Depreciation and amortization$11,514 $13,998 (17.7)%
As a percentage of total sales5.4 %4.3 %1.1 %
 
Depreciation and amortization expense decreased $2.5 million in fiscal 2020 compared to fiscal 2019 due primarily to certain assets reaching the end of their depreciable lives and the removal of certain assets upon sale. As a percentage of total revenue, depreciation and amortization expense increased to 5.4% in fiscal 2020, compared to 4.3% in fiscal 2019.
Selling, General and Administrative Expenses
 
 Fiscal Year 2020 EndedFiscal Year 2019 EndedFiscal 2020 vs Fiscal 2019
($000s)August 26, 2020August 28, 2019Higher/(Lower)
 (52 weeks)(52 weeks)
General and administrative expenses$21,166 $30,763 (31.2)%
Marketing and advertising expenses3,405 3,922 (13.2)%
Selling, general and administrative expenses$24,571 $34,685 (29.2)%
As percent of total sales11.5 %10.7 %0.8 %
 
Selling, general and administrative expenses include marketing and advertising expenses, corporate salaries and benefits-related costs, including restaurant area leaders and regional directors, share-based compensation, professional fees, travel and recruiting expenses and other office expenses. Selling, general and administrative expenses decreased by approximately $10.1 million, or 29.2%, in fiscal 2020 compared to fiscal 2019. The approximate $10.1 million decrease in Selling, general and administrative expenses include (1) an approximate $6.3 million decrease in salaries, benefits, and other compensation expenses; (2) an approximate $2.0 million reduction in outside services expense; (3) an approximate $0.7 million decrease related to lower travel expense; (4) an approximate $0.5 million decrease in marketing and advertising expense; (5) an approximate $0.5 million decrease in other expenses, including lower auto expense, bank fees and recruiting. As a percentage of total sales, Selling, general and administrative expenses were 11.5% in fiscal 2020 and 10.7% in fiscal 2019.


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Other Charges
Other charges includes those expenses that we consider related to our restructuring efforts are not part of our recurring operations. We have identified these expenses amounting to approximately $3.4 million in fiscal 2020 and recorded in Other charges.
Fiscal Year 2020 EndedFiscal Year 2019 EndedFiscal 2020 vs Fiscal 2019
($000s)August 26, 2020August 28, 2019Higher/(Lower)
(52 weeks)(52 weeks)
Other Charges:
Proxy Communication Related$— $1,740 $(1,740)
Employee Severances1,332 820 512 
Restructuring Related2,069 1,204 865 
Total Other Charges$3,401 $3,764 $(363)

In the first half of fiscal 2019, a shareholder of the Company proposed alternative nominees to the Board of Directors and other possible changes to the corporate strategy resulting in a contested proxy at the company's annual meeting. We incurred approximately $1.7 million in proxy communication expense which was primarily for outside professional services and related costs in order to communicate with shareholders about management's strategy and the experience of the Company's members on the Board of Directors.
In fiscal 2020, we separated with a number of employees as part of our efforts to streamline our corporate overhead costs and to support a reduced number of restaurants in operation. Employees who were separated from the company were paid severance based on the number of years of service and earnings with the organization, resulting in an approximate $1.3 million charge. In fiscal 2019, employee severance charges were $0.8 million.
Also, in fiscal 2020 and 2019, we engaged professional consulting firms to support the Special Committee of the Board of Directors, to evaluate initiatives to right-size corporate overhead costs and revenue enhancing measures, and to evaluate various other components of our strategy. We also incurred cost of other outside professionals to complete the transition of portions of our accounting, payroll, operational reporting, and other back-office functions to a leading multi-unit restaurant outsourcing firm. We incurred an expense of $2.1 million for these restructuring efforts in 2020 compared to $1.2 million in 2019.
Net Provision for Asset Impairments and Restaurant Closings
The $10.2 million provision for asset impairments and restaurant closings in fiscal 2020 is primarily related to the write-off of $5.4 million of right-of-use assets for 24 of our leased locations where we permanently ceased operations during the period, impairment losses of $4.8 million on 24 of our restaurant locations and $0.3 million on the remaining goodwill related to Cheeseburger in Paradise, $1.2 million for certain surplus equipment written down to fair value, as well as $1.8 million of store closing expenses. These losses were partially offset by a $3.3 million net gain on the termination of 17 leases for locations where we permanently ceased operations and negotiated buyouts of the leases. The $5.6 million provision from asset impairments and restaurant closings in fiscal 2019 is primarily related to assets impaired at nine property locations, impairment of goodwill that had been allocated to one property location, seven properties held for sale written down to their fair value, and a reserve for eight restaurant closings of $0.2 million. 
Net Gain on Disposition of Property and Equipment
The $11.6 million net gain on disposition of property and equipment in fiscal 2020 is primarily related to $8.4 million gains on the sales of seven previously held for sale properties and $3.9 million gains on two previously held for use properties, partially offset by routine asset retirements. The approximate $12.8 million net gain on disposition of property and equipment in fiscal 2019 is primarily reflects (1) the sale and leaseback of two property locations where we operate a total of three restaurants, including a portion related to amortization of deferred gains; (2) sale of one undeveloped property that was previously held for sale; (3) partially offset by net lease termination costs at other locations as well as routine asset retirement activity.
Interest Income
Interest income was $60 thousand in fiscal 2020 compared to $30 thousand in fiscal 2019 due to higher net cash balances, including required restricted cash balances.
 
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Interest Expense
Interest expense was approximately $6.4 million in fiscal 2020 compared to $6.0 million in fiscal 2019. The increase in interest expense reflects higher average debt balances, partially offset by lower interest rates in the credit agreement entered into on December 13, 2018, and higher amortization expense related to pre-paid interest and fees association with the credit agreement entered into on December 13, 2018, as well as acceleration of the expensing of deferred financing fees associated with our previous debt agreement. Interest paid in cash was $5.3 million in fiscal 2020 and $4.5 million in fiscal 2019.
Other Income (Expense), Net 
Other income, net, consisted primarily of the following components: net rental property income and expenses relating to property for which we are the landlord; prepaid sales tax discounts earned through our participation in state tax prepayment programs; oil and gas royalty income; and changes in the fair value of our interest rate swap agreement prior to its termination in December 2018.
Other income was approximately $1.2 million in fiscal 2020 compared to approximately $0.2 million in fiscal 2019. The approximate $1.2 million of income in fiscal 2020 is primarily net rental income, partially offset by sales tax discount expense and a reduction in the fair value of our interest rate swap in the first quarter fiscal 2019. The approximate $0.2 million of income in fiscal 2019 primarily reflects net rental income and an increase in the fair value of our interest rate swap, partially offset by gift card expenses (specifically the expense of discounting gift card sales).
Taxes
The income tax provision related to continuing operations for fiscal 2020 was approximately $0.4 million compared to an income tax provision of approximately $0.5 million for fiscal 2019. The income tax provision in fiscal 2020 reflects $0.3 million of current state income tax and $0.1 million of international withholding taxes. The income tax provision in fiscal 2019 reflects $0.4 million of current state income tax and $0.1 million of international withholding taxes.
The effective tax rate ("ETR") for continuing operations was a negative 1.2% for fiscal 2020 and a negative 3.2% for fiscal 2019. The ETR for fiscal 2020 differs from the federal statutory rate of 21% due to the change in the deferred tax valuation allowance, state income taxes and other discrete items. The ETR for fiscal 2019 differs from the federal statutory rate due to the change in the deferred tax valuation allowance, the federal jobs credits, state income taxes and other discrete items.
Discontinued Operations
 
Fiscal Year Ended
($000s) 
August 26, 2020August 28, 2019
 (52 weeks)(52 weeks)
Discontinued operating losses$(29)$(7)
Pretax loss$(29)$(7)
Income tax benefit (expense) from discontinued operations— — 
Loss from discontinued operations, net of income taxes$(29)$(7)
  
The loss from discontinued operations, net of income taxes was $29 thousand in fiscal 2020 compared to a loss of approximately $7 thousand in fiscal 2019. The loss of $29 thousand in fiscal 2020 primarily reflected net occupancy cost associated with assets that were related to discontinued operations. The loss of $7 thousand in fiscal 2019 included carrying costs (typically rent, property taxes, utilities, and maintenance) associated with assets that were related to discontinued operations.
 
LIQUIDITY AND CAPITAL RESOURCES
Cash and Cash Equivalents
In fiscal 2020 and 2019 our primary sources of short-term and long-term liquidity were proceeds from asset sales, our 2018 and 2016 Credit Facilities and, in fiscal 2020, our PPP Loan. Cash and cash equivalents and restricted cash increased approximately $9.1 million from $12.8 million at the end of fiscal 2019 to $21.8 million at the end of fiscal 2020. We expect to continue to invest our available liquidity to reduce our debt, maintain our existing restaurants and infrastructure and provide working capital requirements as necessary. We plan to continue a level of capital and repair and maintenance expenditures to keep our restaurants attractive and operating efficiently. Based upon our level of past and projected capital requirements, we expect that proceeds from the sale of assets, cash on hand and cash flows from operations, will be sufficient to meet our capital expenditures and working capital requirements during the next twelve months.
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As is common in the restaurant industry, we maintain relatively low levels of accounts receivable and inventories and our vendors grant trade credit for purchases such as food and supplies. However, higher levels of accounts receivable are typical in our CCS business segment and Fuddruckers franchise business segment.
The following table summarizes our cash flows from operating, investing and financing activities: 
 Fiscal Year Ended
(000's)August 26, 2020August 28, 2019
(52 weeks)(52 weeks)
Total cash provided by (used in):  
Operating activities$(21,597)$(13,130)
Investing activities22,782 17,849 
Financing activities7,884 4,315 
Increase in cash and cash equivalents$9,069 $9,034 
 
Operating Activities. Cash flow from operating activities decreased from a use of cash of $13.1 million in fiscal 2019 to a use of cash of $21.6 million in fiscal 2020. The $8.5 million decrease in operating cash flow was primarily due to $9.6 million more cash used in operations before changes in operating assets and liabilities, partially offset by $1.2 million less cash used in changes in operating assets and liabilities.
The $9.6 million higher cash used in operating activities before changes in operating assets and liabilities primarily reflects the effect of a larger net loss in fiscal 2020 as compared to fiscal 2019.
Investing Activities. Cash provided by investing activities was $22.8 million in fiscal 2020, an increase of $4.9 million compared to cash provided by investing activities of $17.8 million in fiscal 2019, primarily due to the proceeds from disposal of assets and property held for sale. We used cash to invest $2.1 million in the purchase of property and equipment in fiscal 2020, a decrease of $1.9 million from our investment of $4.0 million in fiscal 2020. Proceeds from disposal of assets and property held for sale was $24.9 million in fiscal 2020, an increase of $3.1 million from proceeds of $21.8 million in fiscal 2019. The purchases of property and equipment of $2.1 million in fiscal 2020 included $2.0 million for our Company-owned restaurants and $0.1 million in corporate related capital expenditures. The purchases of property and equipment of $4.0 million in fiscal 2019 included $3.7 million for our Company-owned restaurants, $0.3 million in corporate related capital expenditures.
Financing Activities. Cash provided by financing activities was $7.9 million in fiscal 2020, an increase of $3.6 million from cash provided by financing activities of $4.3 million in fiscal 2019.
The $7.9 million cash provided by financing activities in fiscal 2020 consisted of revolver borrowings of $4.7 million, term loan borrowings of $5.0 million and proceeds from our PPP Loan of $10.0 million, partially offset by repayments of our term loan of $11.8 million.
The $4.3 million cash provided by financing activities in fiscal 2019 was primarily the result of borrowing and repayment activity on our 2016 Credit Facility, as amended, through December 13, 2018 and our 2018 Credit Facility thereafter. Net cash provided by our 2018 term loan was $58.4 million and by our revolver borrowings was $42.3 million. Cash was used for revolver repayments of $57.0 million, for repayments of our 2016 term loan of $36.1 million and for debt issue costs of $3.3 million.
STATUS OF LONG-TERM INVESTMENTS AND LIQUIDITY 
At August 26, 2020, we did not hold any long-term investments.
STATUS OF TRADE ACCOUNTS AND OTHER RECEIVABLES, NET 
We monitor the aging of our receivables, including Fuddruckers franchising related receivables, and record provisions for uncollectability, as appropriate. Credit terms of accounts receivable associated with our CCS business vary from 30 to 45 days based on contract terms. 
WORKING CAPITAL
At fiscal year-end 2020, current assets increased $3.8 million including an increase of $11.4 million in cash and a decrease in restricted cash of $2.4 million. Trade accounts and other receivables decreased $2.8 million, food and supply inventory decreased $1.8 million and prepaid expenses decreased $0.8 million. These decreases reflect the lower activity levels in all business segments at the end of fiscal 2020 compared to the end of fiscal 2019.  
At fiscal year-end 2020, current liabilities decreased $2.7 million due primarily to a $4.9 million decrease in accrued expenses and other liabilities and a $1.7 million decrease in accounts payable, partially offset by an increase in operating lease liabilities
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current of $3.9 million. The decreases reflect the lower activity levels in all our reportable segments at the end of fiscal 2020 as compared to fiscal 2019. The increase in operating lease liabilities current includes $8.1 million related to the cumulative effect of adopting the new lease accounting standard as more fully described at Note 1 to the consolidated financial statements included in Item 8. of this Form 10-K.
CAPITAL EXPENDITURES 
Capital expenditures for fiscal 2020 were approximately $2.1 million primarily related to recurring maintenance of our restaurant properties and information technology infrastructure. In fiscal 2021, we expect to invest up to $3.0 million for recurring maintenance for our restaurant properties, depending on the timing of the execution of our Plan of Liquidation. We expect to be able to fund all planned capital expenditures in fiscal 2021 using cash on hand, cash flows from operations and proceeds from the sale of assets.
DEBT
PPP Loan
On April 21, 2020, the Company entered into a promissory note with Texas Capital Bank, N.A ("TCB"), effective April 12, 2020, that provides for a loan in the amount of $10.0 million (the “PPP Loan”) pursuant to the Payroll Protection Program (“PPP”), established under the CARES Act. The PPP Loan is subject to forgiveness under the PPP upon the Company’s request to the extent that the proceeds are used to pay expenses permitted by the PPP, including payroll costs, covered rent and mortgage obligations, and covered utility payments. Amounts outstanding under the loan bear a fixed interest rate of 1.0% per annum with a maturity date of April 12, 2022, two years from the commencement date.
On June 5, 2020, the Paycheck Protection Program Flexibility Act (the “new Act”) was signed into law and made significant changes to the PPP to provide additional relief for borrowers under the PPP. The new Act increased flexibility for businesses that were unable to operate as normal due to COVID-19 related restrictions. The new Act extended the period that businesses have to use PPP funds to qualify for loan forgiveness to 24 weeks, up from 8 weeks under the original rules, relaxed the requirements that loan recipients must adhere to in order to qualify for loan forgiveness, and extended the payment deferral period to the earlier of the date when the amount of loan forgiveness is determined by the SBA and lender or 10 months after the 24 week covered period ends. Initially, all payments were to be deferred for six months. Under the new Act, payments are deferred until the SBA remits any loan forgiveness amount to the lender, TCB in the case of the Company. Interest accrues over the entire period of the PPP Loan for the portion of the PPP that is not ultimately forgiven.
On November 12, 2020, the Company submitted an application for forgiveness of the entire amount due on the loan. Notwithstanding our application for loan forgiveness, we are unable to predict the actual amount of loan forgiveness the SBA will approve. As of August 26, 2020, we had $10.0 million outstanding under the PPP Loan and we were in full compliance with all covenants with respect to the PPP Loan. See Item 1A. Risk Factors of this Annual Report on Form 10-K.
2018 Credit Agreement
On December 13, 2018, the Company entered into a credit agreement (as amended by the First Amendment (as defined below), the “2018 Credit Agreement”) among the Company, the lenders from time to time party thereto, and a subsidiary of MSD Capital, MSD PCOF Partners VI, LLC (“MSD”), as Administrative Agent, pursuant to which the lenders party thereto agreed to make loans to the Company from time to time up to an aggregate principal amount of $80.0 million consisting of a $10.0 million revolving credit facility (the “2018 Revolver”), a $10.0 million delayed draw term loan (“2018 Delayed Draw Term Loan”), and a $60.0 million term loan (the “2018 Term Loan”, and together with the 2018 Revolver and the 2018 Delayed Draw Term Loan, the “2018 Credit Facility”). The 2018 Credit Facility terminates on, and all amounts owing thereunder must be repaid on December 13, 2023.
On July 31, 2019, the Company entered into the First Amendment to the 2018 Credit Agreement (the “First Amendment”) to extend the 2018 Delayed Draw Term Loan expiration date for up to one year to the earlier to occur of (a) the date on which the commitments under the 2018 Delayed Draw Term Loan have been terminated or reduced to zero in accordance with the terms of the 2018 Credit Agreement and (b) September 13, 2020. On December 18, 2019, the Company entered into the Second Amendment to the 2018 Credit Agreement which did not change any terms of the agreement permanently. The amendment only decreased the amount of mandatory prepayment related to the sale of two properties in the quarter ended March 11, 2020. We entered into the Third Amendment to Credit Agreement, dated April 21, 2020 (the "Third Amendment"). The Third Amendment permitted us to incur indebtedness under the PPP Loan and terminated the $5.0 million undrawn portion of the delayed draw term loan upon receipt of the PPP Loan. On August 21, 2020, the Company entered into Fourth Amendment to the 2018 Credit Agreement that decreased the amount of mandatory prepayments related to the sale of two properties in the quarter ended August 26, 2020. No other terms of the agreement were changed permanently by this amendment.
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Borrowings under the 2018 Revolver, 2018 Delayed Draw Term Loan, and 2018 Term Loan bear interest at the London InterBank Offered Rate ("LIBOR") plus 7.75% per annum. Interest is payable quarterly and accrues daily. Under the terms of the 2018 Credit Agreement, the maximum amount of interest payable, based on the aggregate principal amount of $80.0 million and interest rates in effect at December 13, 2018, in the next 12 months was required to be prefunded at the closing date of the 2018 Credit Agreement. The prefunded amount at August 26, 2020 of approximately $4.2 million is recorded in restricted cash and cash equivalents on the Company's consolidated balance sheet. LIBOR was expected to terminate in December, 2021, however, for U.S. dollar LIBOR, it is now expected that the relevant date may be deferred to June 30, 2023. We expect to agree to a replacement rate with MSD prior to the LIBOR termination.
The 2018 Credit Facility is subject to the following minimum amortization payments: 1st anniversary: $10.0 million; 2nd anniversary: $10.0 million; 3rd anniversary: $15.0 million; and 4th anniversary: $15.0 million.
As of August 26, 2020, we had no amounts due in the next 12 months under the 2018 Credit Facility due to principal repayments from proceeds on assert sales in excess of the required amounts.
The Company also pays a quarterly commitment fee based on the unused portion of the 2018 Revolver and the 2018 Delayed Draw Term Loan at 0.5% per annum. Voluntary prepayments, refinancing and asset dispositions constituting a sale of all or substantially all assets, under the 2018 Delayed Draw Term Loan and the 2018 Term Loan are subject to a make whole premium during years one and two equal to the present value of all interest otherwise owed from the date of the prepayment through the end of year two, a 2% fee during year three, and a 1% fee during year four. Mandatory prepayments, discussed below, are not subject to the make whole premium. Finally, the Company paid to the lenders a one-time fee of $1.6 million in connection with the closing of the 2018 Credit Facility.
Indebtedness under the 2018 Credit Facility is secured by a security interest in, among other things, all of the Company’s present and future personal property (other than certain excluded assets), all of the personal property of its guarantors (other than certain excluded assets) and all Mortgaged Property (as defined in the 2018 Credit Agreement) of the Company and its subsidiaries. Under the 2018 Credit Facility, 80% of net proceeds from asset sales, including real property sales, are applied as mandatory prepayments of our 2018 Term Loan.
The 2018 Credit Facility contains customary covenants and restrictions on the Company’s ability to engage in certain activities, including financial performance covenants, asset sales and acquisitions, and contains customary events of default. Specifically, among other things, the Company is required to maintain minimum Liquidity (as defined in the 2018 Credit Agreement) of $3.0 million as of the last day of each fiscal quarter and a minimum Asset Coverage Ratio (as defined in the 2018 Credit Agreement) of 2.50 to 1.00. As of August 26, 2020, the Company was in full compliance with all covenants with respect to the 2018 Credit Facility.
All amounts owed by the Company under the 2018 Credit Facility are guaranteed by the subsidiaries of the Company.
As of August 26, 2020 we had approximately $46.6 million outstanding under the 2018 Credit Facility, approximately $1.8 million committed under letters of credit, which are used as security for the payment of insurance obligations and are fully cash collateralized.
As of December 9, 2020, the Company was in compliance with all covenants under the terms of the 2018 Credit Agreement.
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COMMITMENTS AND CONTINGENCIES
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements. 
Claims 
From time to time, we are subject to various other private lawsuits, administrative proceedings and claims that arise in the ordinary course of our business. A number of these lawsuits, proceedings and claims may exist at any given time. These matters typically involve claims from guests, employees and others related to issues common to the restaurant industry. We currently believe that the final disposition of these types of lawsuits, proceedings and claims will not have a material adverse effect on our financial position, results of operations or liquidity. It is possible, however, that our future results of operations for a particular quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, proceedings or claims. 
Construction Activity
From time to time, we enter into non-cancelable contracts for the construction of our new restaurants and restaurant remodels. This construction activity exposes us to the risks inherent in this industry including but not limited to rising material prices, labor shortages, delays in getting required permits and inspections, adverse weather conditions, and injuries sustained by workers. 
Contractual Obligations
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide the contractual obligations table.

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AFFILIATIONS AND RELATED PARTIES
Affiliate Services
The Company’s Chief Executive Officer, Christopher J. Pappas, and Harris J. Pappas, a former Director of the Company, own two restaurant entities (the “Pappas entities”) that may, from time to time, provide services to the Company and its subsidiaries, as detailed in the Amended and Restated Master Sales Agreement dated August 2, 2017 among the Company and the Pappas entities. Collectively, Messrs. Pappas and the Pappas entities own greater than 5% of the Company's common stock.
Under the terms of the Amended and Restated Master Sales Agreement, the Pappas entities may provide specialized (customized) equipment fabrication and basic equipment maintenance, including stainless steel stoves, shelving, rolling carts, and chef tables. The Company incurred $8 thousand and $19 thousand under the Amended and Restated Master Sales Agreement for custom-fabricated and refurbished equipment in fiscal 2020 and 2019, respectively. Services provided under this agreement are subject to review and approval by the Finance and Audit Committee of the Company’s Board of Directors.
Operating Leases
In the third quarter of fiscal 2004, Messrs. Pappas became partners in a limited partnership which purchased a retail strip center in Houston, Texas. Messrs. Pappas collectively own a 50% limited partnership interest and a 50% general partnership interest in the limited partnership. A third party company manages the center. One of the Company’s restaurants has rented 7% of the space in that center since July 1969. No changes were made to the Company’s lease terms as a result of the transfer of ownership of the center to the new partnership.
On November 22, 2006, the Company executed a new lease agreement with respect to this shopping center. Effective upon the Company’s relocation and occupancy into the new space in July 2008, the new lease agreement provides for a primary term of 12 years with two subsequent five-year options and gives the landlord an option to buy out the tenant on or after the calendar year 2015 by paying the then unamortized cost of improvements to the tenant. The Company pays rent of $22.00 per square foot plus maintenance, taxes, and insurance during the remaining primary term of the lease. Thereafter, the lease provides for increases in rent at set intervals. The new lease agreement was approved by the Finance and Audit Committee. Due to the COVID-19 pandemic, the landlord agreed to abate the rent for April, 2020. We entered into an amendment to the lease, effective July 1, 2020, whereby (1) the lease will early terminate on December 31, 2020, (2) the rent for May and June of 2020 is abated and (3) commencing July 1, 2020 through the early termination date, the monthly rent is a fixed gross amount. The amendment was approved by the Finance and Audit Committee of our Board of Directors.
In the third quarter of fiscal 2014, on March 12, 2014, the Company executed a new lease agreement for one of the Company’s Houston Fuddruckers locations with Pappas Restaurants, Inc. The lease provides for a primary term of six years with two subsequent five-year options. Pursuant to the new ground lease agreement, the Company pays rent of $28.53 per square foot plus maintenance, taxes, and insurance from March 12, 2014 until May 31, 2020. Thereafter, the new ground lease agreement provides for increases in rent at set intervals. In December 2019 we exercised the first five-year renewal option, effective June 1, 2020. The renewal was approved by the Finance and Audit Committee of our Board of Directors. Due to the COVID-19 pandemic, Pappas Restaurants, Inc. agreed to abate the rent for April and May of 2020.
For the fiscals years ended August 26, 2020 and August 28, 2019, affiliated rents incurred as a percentage of total Company cost was 0.52% and 0.57%, respectively. Rent payments under the two lease agreements described above were $411 thousand and $593 thousand in fiscal 2020 and 2019, respectively.


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The following table compares current and prior two fiscal years charges incurred under the Amended and Restated Master Sales Agreement, affiliated property leases, and other related party agreements to our total capital expenditures, as well as relative Selling, general and administrative expenses, and other operating expenses included in continuing operations:
 
Fiscal Year Ended
 August 26,
2020
August 28,
2019
 (364 days)(364 days)
 (In thousands, except percentages)
AFFILIATED COSTS INCURRED:  
Selling, general and administrative expenses—professional and other costs$— $— 
Capital expenditures—custom-fabricated and refurbished equipment19 
Other operating expenses, occupancy costs and opening costs, including property leases411 593 
Total$419 $612 
RELATIVE TOTAL COMPANY COSTS:  
Selling, general and administrative expenses$24,571 $34,179 
Capital expenditures2,120 3,987 
Other operating expenses, occupancy costs and opening costs51,732 68,710 
Total$78,423 $106,876 
AFFILIATED COSTS INCURRED AS A PERCENTAGE OF RELATIVE TOTAL COMPANY COSTS0.53 %0.57 %

Key Management Personnel
The Company entered into a new employment agreement with Christopher Pappas on December 11, 2017. Under the employment agreement, the initial term of Mr. Pappas' employment ended on August 28, 2019 and automatically renews for additional one year periods, unless terminated in accordance with its terms. Mr. Pappas continues to devote his primary time and business efforts to the Company while maintaining his role at Pappas Restaurants, Inc. The Employment Agreement was unanimously approved by the Executive Compensation Committee (the “Committee”) of the Board as well as by the full Board. Effective August 1, 2018, the Company and Christopher J. Pappas agreed to reduce his fixed annual base salary to one dollar.
Paulette Gerukos, Vice President of Human Resources of the Company, is the sister-in-law of Harris J. Pappas.

 
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our accounting policies are described in Note 1, “Nature of Operations and Significant Accounting Policies,” to our Consolidated Financial Statements included in Item 8 of Part II of this report. The Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States. 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 
Our income tax expense, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best estimate of current and future taxes to be paid. We are subject to income taxes in the United States and a limited number of foreign jurisdictions, involving franchised locations in Panama, Mexico, and Canada. Significant judgments and estimates are required in the determination of the consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future, as well as from tax Net Operating Losses ("NOL") and tax credit carryovers. We establish a valuation allowance when we no longer consider it more likely than not that a deferred tax asset will be realized. In evaluating our ability to recover our deferred tax assets, we consider available positive and negative evidence, including scheduled reversals of deferred tax liabilities, tax-planning strategies and existing business conditions, including the results of recent operations. In the third quarter of fiscal 2018, management concluded that a full valuation allowance on the Company's net deferred tax assets was necessary. As of August 26, 2020, the Company continues to maintain a full valuation allowance against the Company's net deferred tax asset balance.
The composition of the Company’s deferred tax assets, excluding the offsetting impact of the valuation allowance, includes income tax NOL’s and tax credits of approximately $22.0 million, comprised of approximately $9.9 million relating to income tax NOL’s and $12.1 million relating to tax credit carryover, which expire in varying amounts between fiscal 2022 through 2039, except for the portion of the tax NOL's that have an indefinite carryforward period. At this time, management is uncertain as to the realization of these deferred tax assets, which is otherwise dependent on numerous factors, including our ability to generate sufficient taxable income prospectively and, if necessary, gains on sale of owned property locations, prior to expiration of the tax NOL’s and tax credit carryovers.
Management makes judgments regarding the interpretation of tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. We operate within multiple taxing jurisdictions and are subject to examination in these tax jurisdictions, as well as by the Internal Revenue Service (“IRS”). In management’s opinion, adequate provisions for income taxes have been made for all open income tax periods. The potential outcomes of examinations are regularly assessed in determining the adequacy of the provision for income taxes and income tax liabilities. Management believes that adequate provisions have been made for reasonable and foreseeable outcomes related to uncertain tax matters.
However, as the result of the approval by our stockholders on November 17, 2020 of our Plan of Liquidation, the anticipated sales of the our assets, are anticipated to utilize some, or perhaps all, of our NOLs. There can be no assurance that we will be successful in those anticipated sales or that we will utilize some of all of our NOLs.
Impairment of Long-Lived Assets
We periodically evaluate long-lived assets held for use and held for sale, whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable. We analyze historical cash flows of operating locations and compare results of poorer performing locations to more profitable locations. We also analyze lease terms, condition of the assets and related need for capital expenditures or repairs, construction activity in the surrounding area as well as the economic and market conditions in the surrounding area.
For assets held for use, we estimate future cash flows using assumptions based on possible outcomes of the areas analyzed. If the undiscounted future cash flows are less than the carrying value of our location’s assets, we record an impairment based on an estimate of discounted cash flows. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management’s subjective judgments. Assumptions and estimates used include operating results, changes in working capital, discount rate, growth rate, anticipated net proceeds from disposition of the property and if applicable, lease terms. The span of time for which future cash flows are estimated is often lengthy, increasing the sensitivity to assumptions made. We estimate future cash flows over the remaining service life of the operating location, 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.
32


We operated 84 restaurants as of August 26, 2020 and periodically experience unanticipated changes in our assumptions and estimates. Those changes could have a significant impact on discounted cash flow models with a corresponding significant impact on the measurement of an impairment. Gains are not recognized until the assets are disposed. 
We evaluate the useful lives of our other intangible assets, primarily the Fuddruckers trademarks and franchise agreements to determine if they are definite or indefinite-lived. Reaching a determination of useful life requires significant judgments and assumptions regarding the future effects of obsolescence, contract term, demand, competition, other economic factors (such as the stability of the industry, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets. 
We periodically evaluate our intangible assets, primarily the Fuddruckers trademarks and franchise agreements, to determine if events or changes in circumstances such as economic or market conditions indicate that the carrying amount of the assets may not be recoverable. We analyze historical cash flows of operating locations to determine trends that would indicate a need for impairment. We also analyze royalties and collectability from our franchisees to determine if there are trends that would indicate a need for impairment.
Notwithstanding all of the above, on November 17, 2020, our stockholders approved our Plan of Liquidation and Dissolution. Effective on that date, we will adopt generally accepted accounting principles as applied to liquidation (“Liquidation Basis of Accounting”). We will present our consolidated financial statements under the Liquidation Basis of Accounting in our quarterly report for the first quarter of fiscal year 2021. Impairment under a going concern will not be presented, but expected realizable net assets values will be.
Property Held for Sale 
We 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 analyze market conditions each reporting period and record additional impairments due to declines in market values of like assets. The fair value of the property is determined by observable inputs such as appraisals and prices of comparable properties in active markets for assets like ours. Gains are not recognized until the properties are sold.
Notwithstanding the above, on November 17, 2020 our stockholders approved our Plan of Liquidation and Dissolution. Effective on that date, all of our properties are for sale. Also, effective that date, we will adopt the Liquidation Basis of Accounting and we will present our consolidated financial statements under the Liquidation Basis of Accounting in our quarterly report for the first quarter of fiscal year 2021, at which time all properties will presented at their expected net realizable values.
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.
Actual workers’ compensation, employee injury and general liability 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.
We maintain a self-insured health benefit plan which provides medical and prescription drug benefits to certain of our employees electing coverage under the plan. Our exposure is limited by individual and aggregate stop loss limits per third party insurance carriers. Our self-insurance expense is accrued based upon the aggregate of the expected liability for reported claims and the estimated liability for claims incurred but not reported, based on historical claims experience provided by our third party insurance advisors, adjusted as necessary based upon management’s reasoned judgment. Actual employee medical claims expense may differ from estimated loss provisions based on historical experience. The liabilities for these claims are included as a component of accrued expenses and other liabilities on our consolidated balance sheets. 
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SHARE-BASED COMPENSATION 
Share-based compensation is recognized as compensation expense in the income statement utilizing the fair value on the date of the grant. The fair value of performance share based award liabilities are estimated based on a Monte Carlo simulation model. The fair value of restricted stock units is valued at the closing market price of our common stock at the date of grant. The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. Assumptions for volatility, forfeitures, expected option life, risk free interest rate, and dividend yield are used in the model.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 to the accompanying Consolidated Financial Statements for a discussion of recent accounting guidance adopted and not yet adopted. Except as disclosed in Note 1, the adopted accounting guidance discussed in Note 1 did not have a significant impact on our consolidated financial position or results of operations. 
INFLATION 
It is generally our policy to maintain stable menu prices without regard to seasonal variations in food costs. Certain increases in costs of food, wages, supplies, transportation and services may require us to increase our menu prices from time to time. To the extent prevailing market conditions allow, we intend to adjust menu prices to maintain profit margins.  
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

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Item  8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
Board of Directors and Shareholders
Luby’s, Inc.
 
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Luby’s, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of August 26, 2020 and August 28, 2019, the related consolidated statements of operations, shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 26, 2020 and August 28, 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Plan of liquidation and dissolution
As discussed in Note 2 to the consolidated financial statements, on November 17, 2020, the stockholders of the Company approved a plan of liquidation. Pursuant to the plan of liquidation, the Company expects to convert all of its assets into cash, pay or provide for its liabilities and expenses, distribute the remaining net proceeds to its stockholders and dissolve. Due to the approval of the plan of liquidation, the Company expects to change its basis of accounting to the liquidation basis of accounting effective November 17, 2020. The financial statements presented herein have been prepared under the going concern basis of accounting and do not include any adjustments that might result from the adoption of the liquidation basis of accounting.
Adoption of new accounting standard
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases on August 29, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases. The Company adopted the new lease standard using the optional transition method.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2007.

Houston, Texas
December 9, 2020


35


Luby’s, Inc.
Consolidated Balance Sheets
 
 August 26,
2020
August 28,
2019
 (In thousands, except share data)
ASSETS  
Current Assets:  
Cash and cash equivalents$15,069 $3,640 
Restricted Cash and cash equivalents6,756 9,116 
Trade accounts and other receivables, net6,092 8,852 
Food and supply inventories1,653 3,432 
Prepaid and other assets1,577 2,355 
Total current assets31,147 27,395 
Property held for sale11,249 16,488 
Assets related to discontinued operations1,715 1,813 
Property and equipment, net100,599 121,743 
Intangible assets, net15,343 16,781 
Goodwill195 514 
Operating lease right-of-use assets16,756 — 
Other assets399 1,266 
Total assets$177,403 $186,000 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current Liabilities:  
Accounts payable$6,770 $8,465 
Liabilities related to discontinued operations17 14 
Operating lease liabilities - current3,903 — 
Accrued expenses and other liabilities19,569 24,475 
Total current liabilities30,259 32,954 
Long-term debt, less current portion54,118 45,439 
Operating lease liabilities - non-current17,797 — 
Other liabilities1,630 6,577 
Total liabilities103,804 84,970 
Commitments and Contingencies
SHAREHOLDERS’ EQUITY  
Common stock, $0.32 par value;100,000,000 shares authorized; Shares issued were 31,125,470 and 30,478,972 and shares outstanding were 30,625,470 and 29,978,972 at August 26, 2020 and August 28, 2019, respectively;
9,960 9,753 
Paid-in capital35,655 34,870 
Retained earnings32,759 61,182 
Less cost of treasury stock, 500,000 shares
(4,775)(4,775)
Total shareholders’ equity73,599 101,030 
Total liabilities and shareholders’ equity$177,403 $186,000 
 
The accompanying notes are an integral part of these Consolidated Financial Statements.

36


Luby’s, Inc.
Consolidated Statements of Operations
 
 Year Ended
 August 26, 2020August 28, 2019
 
(In thousands, except per share data)
SALES:  
Restaurant sales$183,511 $284,513 
Culinary contract services26,747 31,888 
Franchise revenue3,634 6,690 
Vending revenue130 379 
TOTAL SALES214,022 323,470 
COSTS AND EXPENSES:  
Cost of food52,505 79,479 
Payroll and related costs69,833 108,509 
Other operating expenses36,588 50,886 
Occupancy costs15,130 18,133 
Opening costs14 56 
Cost of culinary contract services24,218 28,554 
Cost of franchise operations1,543 1,633 
Depreciation and amortization11,514 13,998 
Selling, general and administrative expenses24,571 34,685 
Other charges3,401 3,764 
Net provision for asset impairments and restaurant closings10,193 5,603 
Net gain on disposition of property and equipment(11,557)(12,832)
Total costs and expenses237,953 332,468 
LOSS FROM OPERATIONS(23,931)(8,998)
Interest income60 30 
Interest expense(6,388)(5,977)
Other income, net1,195 195 
Loss before income taxes and discontinued operations(29,064)(14,750)
Provision for income taxes357 469 
Loss from continuing operations(29,421)(15,219)
Loss from discontinued operations, net of income taxes(29)(7)
NET LOSS$(29,450)$(15,226)
Loss per share from continuing operations:  
Basic$(0.97)$(0.51)
Assuming dilution$(0.97)$(0.51)
Loss per share from discontinued operations:  
Basic$0.00 $0.00 
Assuming dilution$0.00 $0.00 
Net loss per share:  
Basic$(0.97)$(0.51)
Assuming dilution$(0.97)$(0.51)
Weighted-average shares outstanding:  
Basic30,294 29,786 
Assuming dilution30,294 29,786 

 The accompanying notes are an integral part of these Consolidated Financial Statements.
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Luby’s, Inc.
Consolidated Statements of Shareholders’ Equity
(In thousands)
  
 Common Stock   
 IssuedTreasury   
 SharesAmountSharesAmountPaid-In
Capital
Retained
Earnings
Total
Shareholders’
Equity
Balance at August 29, 201830,003 $9,602 (500)$(4,775)$33,872 $73,929 $112,628 
Net loss for the year— — — — — (15,226)(15,226)
Cumulative effect of accounting changes from the adoption of ASC Topic 606
— — — — — 2,479 2,479 
Common stock issued under nonemployee director benefit plans53 17 — — (17)— — 
Common stock issued under employee benefit plans93 30 — — (30)— — 
Share-based compensation expense329 104 — — 1,045 — 1,149 
Balance at August 28, 201930,478 $9,753 (500)$(4,775)$34,870 $61,182 $101,030 
Net loss for the year— — — — — (29,450)(29,450)
Cumulative effect of accounting changes from the adoption of ASC Topic 842
— — — — — 1,027 1,027 
Common stock issued under nonemployee director benefit plans64 20 — — (20)— — 
Common stock issued under employee benefit plans73 24 — — (66)— (42)
Share-based compensation expense509 163 — — 871 — 1,034 
Balance at August 26, 202031,124 $9,960 (500)$(4,775)$35,655 $32,759 $73,599 
 
The accompanying notes are an integral part of these Consolidated Financial Statements.
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Luby’s, Inc.
Consolidated Statements of Cash Flows

 Year Ended
 August 26, 2020August 28, 2019
 (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net loss$(29,450)$(15,226)
Adjustments to reconcile net loss to net cash used in operating activities:  
Net provision for asset impairments and restaurant closings10,193 5,603 
Net gain on disposition of property and equipment(11,557)(12,832)
Depreciation and amortization11,514 13,998 
Amortization of debt issuance cost1,212 1,317 
Share-based compensation expense1,034 1,140 
Provision for doubtful accounts1,624 196 
Cash used in operating activities before changes in operating assets and liabilities(15,430)(5,804)
Changes in operating assets and liabilities:  
Decrease (increase) in trade accounts and other receivables1,206 (261)
Decrease in food and supply inventories345 590 
Decrease in prepaid expenses and other assets651 1,657 
Decrease in operating lease assets5,054 — 
Decrease in operating lease liabilities(10,862)— 
Decrease in accounts payable, accrued expenses and other liabilities(2,561)(9,312)
Net cash used in operating activities(21,597)(13,130)
CASH FLOWS FROM INVESTING ACTIVITIES:  
Proceeds from disposal of assets and property held for sale24,902