LUBY'S, INC. Management's discussion and analysis of financial condition and results of operations should be read in conjunction with the unaudited Consolidated Financial Statements and footnotes for the quarter endedMarch 11, 2020 included in Item 1 of Part I of this Quarterly Report on Form 10 (this "Form 10-Q"), and the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year endedAugust 28, 2019 .
The following presents an analysis of the results and financial condition of our continuing operations. Except where indicated otherwise, the results of discontinued operations are excluded from this discussion.
The following table sets forth selected operating data as a percentage of total sales (unless otherwise noted) for the periods indicated. All information is derived from the accompanying consolidated statements of income.
Percentages in the table on the following page may not total due to rounding.
34
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Quarter Ended Two Quarters Ended
March 11, March 13, March 11, March 13,
2020 2019 2020 2019
(12 weeks) (12 weeks) (28 weeks) (28 weeks)
Restaurant sales 88.1 % 87.8 % 87.9 % 88.2 %
Culinary contract services 10.2 % 10.1 % 10.2 % 9.6 %
Franchise revenue 1.7 % 1.9 % 1.8 % 2.1 %
Vending revenue - % 0.1 % 0.1 % 0.1 %
TOTAL SALES 100.0 % 100.0 % 100.0 % 100.0 %
STORE COSTS AND EXPENSES:
(As a percentage of restaurant sales)
Cost of food 28.8 % 27.8 % 28.7 % 27.6 %
Payroll and related costs 39.4 % 37.8 % 38.8 % 37.9 %
Other operating expenses 16.7 % 17.5 % 17.3 % 17.8 %
Occupancy costs 6.3 % 6.4 % 6.1 % 6.4 %
Vending revenue - % (0.1) % (0.1) % (0.1) %
Store level profit 8.9 % 10.7 % 9.2 % 10.4 %
COMPANY COSTS AND EXPENSES:
(As a percentage of total sales)
Opening costs 0.0 % 0.0 % 0.0 % 0.0 %
Depreciation and amortization 3.9 % 4.3 % 3.9 % 4.6 %
Selling, general and administrative expenses 9.9 % 10.4 % 10.4 % 10.0 %
Other Charges 2.2 % 1.7 % 1.7 % 1.4 %
Provision for asset impairments and restaurant
closings 1.0 % 1.6 % 1.1 % 1.4 %
Net gain on disposition of property and equipment (3.7) % (17.0) % (1.5) % (7.0) %
Culinary Contract Services Costs
(As a percentage of Culinary Contract Services
sales)
Cost of culinary contract services 91.5 % 89.0 % 91.5 % 91.2 %
Culinary segment profit 8.5 % 11.0 % 8.5 % 8.8 %
Franchise Operations Costs
(As a percentage of Franchise revenue)
Cost of franchise operations 35.3 % 17.4 % 34.0 % 14.2 %
Franchise segment profit 64.7 % 82.6 % 66.0 % 85.8 %
(As a percentage of total sales)
Total costs and expenses
INCOME (LOSS) FROM OPERATIONS (3.5) % 11.0 % (5.5) % 1.4 %
Interest income 0.0 % 0.0 % 0.0 % 0.0 %
Interest expense (2.1) % (2.1) % (2.1) % (1.8) %
Other income, net 0.2 % 0.1 % 0.2 % 0.0 %Income (loss) before income taxes and discontinued operations
(5.4) % 9.0 % (7.3) % (0.4) %
Provision for income taxes 0.1 % 0.1 % 0.1 % 0.1 %
Income (loss) from continuing operations (5.5) % 8.9 % (7.4) % (0.5) %
Loss from discontinued operations, net of income
taxes 0.0 % 0.0 % 0.0 % 0.0 %
NET INCOME (LOSS) (5.5) % 8.9 % (7.4) % (0.5) %
35
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Although store level profit, defined as restaurant sales 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 results of our most significant reportable segment. The following
table reconciles between store level profit, a non-GAAP measure, to loss from
continuing operations, a GAAP measure:
Quarter Ended Two Quarters Ended
March 11, March 13, March 11, March 13,
2020 2019 2020 2019
(12 weeks) (12 weeks) (28 weeks) (28 weeks)
(In thousands) (In thousands)
Store level profit $ 5,376 $ 7,006 $ 13,184 $ 16,233 Plus:
Sales from culinary contract services 6,998 7,543 16,772 17,039 Sales from franchise operations 1,158 1,421 2,865 3,644 Less: Opening costs 2 11 14 44 Cost of culinary contract services 6,400 6,717 15,348 15,532 Cost of franchise operations 409 247 974 519 Depreciation and amortization 2,677 3,222 6,440 8,126 Selling, general and administrative expenses 6,816 7,753 16,974 17,763 Other Charges 1,509 1,263 2,748 2,477 Provision for asset impairments and restaurant closings 661 1,195 1,770 2,422 Net gain on disposition of property and equipment (2,527) (12,651) (2,498) (12,501) Interest income (5) (19) (28) (19) Interest expense 1,473 1,554 3,435 3,269 Other income, net (148) (55) (388) (86) Provision for income taxes 62 93 156 213 Income (loss) from continuing operations$ (3,797) $
6,640
The following table shows our restaurant unit count as ofAugust 28, 2019 andMarch 11, 2020 . Restaurant Counts: August 28, FY20 YTDQ2 FY20 YTDQ2 March 11, 2019 Openings Closings 2020 Luby's Cafeterias 79 - (1) 78 Fuddruckers Restaurants 44 - (5) 39 Cheeseburger in Paradise 1 - - 1 Total 124 - (6) 118 36
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Overview
Luby's, Inc. ("Luby's", the "Company", "we", "us", or "our") is a multi-branded company operating in the restaurant industry and in the contract food services industry. Our primary brands include Luby's Cafeteria, Fuddruckers - World's Greatest Hamburgers®, Luby's Culinary Contract Services andCheeseburger in Paradise . We are headquartered inHouston, Texas . Our corporate headquarters is located at13111 Northwest Freeway , Suite 600,Houston, Texas 77040, and our telephone number at that address is (713) 329-6800. Our website is www.lubysinc.com. The information on our website is not, and shall not be deemed to be, a part of this Form 10-Q or incorporated by reference into any of our other filings with theSEC . As ofMarch 11, 2020 , we owned and operated 118 restaurants, of which 78 are traditional cafeterias, 39 are gourmet hamburger restaurants, and one is a casual dining restaurant and bar. These establishments are located in close proximity to retail centers, business developments and residential areas mostly throughoutthe United States . Included in the 118 restaurants that we own and operate are 12 restaurants located at six property locations where we operate a side-by-side Luby's Cafeteria and Fuddruckers on the same property. We refer to these locations as "Combo locations." As ofMarch 11, 2020 , we operated 28 Culinary Contract Services locations. We operated 22 of these locations in theHouston, Texas area, three inDallas, Texas , three in theTexas Lower Rio Grande Valley , two inSan Antonio, Texas , one in northwestTexas one inKansas , and one inNorth Carolina . Luby's Culinary Contract Services currently provides food service management to hospitals, corporate dining facilities, sports stadiums, and a senior care facility.
As of
Recent Developments
Special Committee Update OnJune 3, 2020 , the Company announced that, upon the recommendation of a Special Committee of the Board of Directors, the full Board approved a plan to pursue the sale of the Company's operating divisions and assets, including its real estate assets, and distribute the net proceeds to stockholders after payment of the Company's debts and other obligations. During the sale process, certain of the Company's restaurants will remain open to continue serving our guests. The decision by the Company's Board of Directors follows a comprehensive review of the Company's operations and assets led by a Special Committee, which reviewed a range of strategic alternatives available to the Company with the objective of maximizing stockholder value. The Company has not established a definitive timeframe for completing this process which most likely will lead to the adoption by the Board of Directors of a formal plan of sale and proceeds distribution followed by an orderly wind down of any remaining operations. Such a plan of sale and proceeds distribution, if adopted by the Board, would require stockholder approval. There can be no assurance such a plan of sale and proceeds distribution will be adopted by the Board or approved by stockholders. The Company has retainedDuff & Phelps Securities, LLC to assist it with the sale of Luby's Cafeteria and Culinary Contract Services and has retainedBrookwood Associates LLC to assist it with the sale of Fuddruckers. COVID-19 Pandemic OnMarch 13, 2020 ,President Trump declared a national emergency in response to the novel coronavirus disease ("COVID-19") pandemic. OnMarch 19, 2020 , GovernorGreg Abbott ofTexas issued a public health disaster for the state ofTexas to bring the entire state in line withCDC guidelines including, (1) closing of schools statewide, (2) ban on dine-in eating and gatherings of groups of more than 10 people, and (3) closing of gyms and bars.Governor Abbott followed with an essential services order onMarch 31, 2020 , requiring anyone who is not considered an essential, critical infrastructure worker to stay home except for essential activity, essential businesses, essential government functions and critical care facilities. Most other states, including those states where we operate, have issued similar orders. The governor ofTexas began relaxing some restrictions on businesses operating inTexas beginningMay 1, 2020 , which permitted a gradual reopening of businesses, including restaurants, with modified operations.. 37 -------------------------------------------------------------------------------- The spread of the COVID-19 pandemic has affectedthe United States economy, our operations and those of third parties on which we rely. Beginning onMarch 17, 2020 , we began suspending on-premise dining at our restaurants and substantially all employees at those locations were placed on furlough. ByMarch 31, 2020 we had suspended on-premise dining at all 118 of our company-owned restaurants and had suspended all operations at 50 of our Luby's Cafeteria's, 36 company-owned Fuddruckers restaurants and our oneCheeseburger in Paradise restaurant. The 28 Luby's Cafeteria's and 3 Fuddruckers restaurants that remained open were providing take-out, drive-through and curbside pickup, or delivery with reduced operating hours and on-site staff. In addition, more than 50 percent of our general and administrative staff were placed on furlough and salaries were temporarily reduced by 50 percent for the remaining general and administrative staff and other salaried employees, including all senior management. Furthermore, our franchise owners suspended operations or moved to limited food-to-go operations at their locations, reducing the number of franchise locations in operation to 37 from 90. Beginning inMay 2020 , we began to gradually reopen the dining rooms with state-mandated limits on guest capacity at the 28 Luby's locations and 3 Fuddruckers locations that had been previously operating with food-to-go service only. We also began to reopen restaurants that were temporarily closed. As of the date of this filing, there were 31 Luby's Cafeteria's and 8 Fuddruckers restaurants operating, all of which had their dining rooms open at limited capacity; these restaurants were operating at approximately 75% to 80% of their pre-pandemic weekly sales levels. Additionally, there were 59 franchise locations in operation as of the date of this release. The full extent and duration of the impact of the COVID-19 pandemic on our operations and financial performance is currently unknown, and depends on future developments that are uncertain and unpredictable, including the duration of the spread of the pandemic, its impact of capital and financial markets on a macro-scale and any new information that may emerge concerning the severity of the virus, its spread to other regions, the actions to contain the virus or treat its impact, and consumer attitudes and behaviors, among others. We are currently evaluating the potential short-term and long-term implications of the COVID-19 pandemic on our consolidated financial statements. The potential impacts will occur as early as the third quarter of fiscal 2020, and include, but are not limited to: impairment of long-lived assets, including property and equipment, definite-lived intangible assets and operating lease right-of-use assets related to our restaurants, impairment of goodwill and collectability of receivables. Payroll Protection Plan (PPP) Loan and Credit Facility Debt Modification OnApril 21, 2020 we entered into a promissory note withTexas Capital Bank, N.A. , effectiveApril 12, 2020 that provides for a loan in the amount of$10.0 million (the "PPP Loan") pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). The PPP Loan matures onApril 12, 2022 and bears interest at a rate of 1.0% per annum. Monthly amortized principle and interest payments are deferred for six months after the date of disbursement. The PPP Loan funds were received onApril 21, 2020 . The PPP Loan contains events of default and other provisions customary for a loan of this type. The Payroll Protection Program provides that the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially forgiven in accordance with the terms of CARES Act to the extent applicable. We are not yet able to determine the amount that might be forgiven. Additionally, we entered into the Third Amendment to Credit Agreement, datedApril 21, 2020 (the "Third Amendment"). The Credit Agreement is further described in the Debt section below. 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. Effective with this Third Amendment we have no undrawn borrowing capacity under the Credit Agreement. Going Concern The Company sustained a net loss of approximately$15.2 million and cash flow from operations was a use of cash of approximately$13.1 million in fiscal year endedAugust 28, 2019 . In the two quarters endedMarch 11, 2020 (a period prior to the COVID-19 pandemic), the Company sustained a net loss of$12.1 million and cash flow from operations was a use of cash of$5.9 million . OnMarch 13, 2020 , shortly after the end of the Company's second quarter,President Trump declared a national emergency in response to the COVID-19 pandemic followed by GovernorGreg Abbott ofTexas issuing a public health disaster for the state ofTexas onMarch 19, 2020 . The Company took the necessary actions described "COVID-19 Pandemic", above, which further stressed the liquid financial resources of the Company. In response, the company borrowed the remaining$1.4 million available on its revolving line of credit withMSD Capital , borrowed$2.5 million on its Delayed Draw Term Loan, and applied for and received a$10.0 million PPP Loan as described above. As of the date of this filing, the Company has no undrawn borrowing capacity under the Credit Agreement. Further, the Company does not believe that it would be able to secure any additional debt financing currently. The full extent and duration of the impact of the COVID-19 pandemic on our operations and financial performance is currently unknown. The Company's continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations and its ability to generate proceeds from real estate property sales to meet its obligations. The above conditions and 38 -------------------------------------------------------------------------------- events, in the aggregate, raise substantial doubt about the Company's ability to continue as a going concern. Notwithstanding the aforementioned substantial doubt, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern Management has assessed the Company's ability to continue as a going concern as of the balance sheet date, and for at least one year beyond the financial statement issuance date. The assessment of a company's ability to meet its obligations is inherently judgmental. OnJune 3, 2020 , the Company announced that the Board of Directors of the Company will aggressively pursue a sale of its operations and assets and distribute the net proceeds to our stockholder, after payment of debt and other obligations. This course of action is more fully explained in "Special Committee Update" above. We have not established a timeframe, nor have we committed to a plan, but such a plan could extend beyond one year. Until an actionable plan is approved, we believe we will be able to meet our obligations for the next 12 months when they come due through 1) cash flow from operating certain restaurants, 2) available cash balances, and 3) proceeds generated from real estate property sales as discussed below. Throughout April and May of 2020, the Company reviewed and modified many aspects of its operating plan within its restaurants and corporate overhead. The Company is now operating at an increased level of operational cost efficiency. These efforts are expected to mitigate the adverse impacts of COVID-19. Additionally, the sale of some assets will likely be necessary for the Company to generate cash to fund its operations. The Company has historically been able to successfully generate proceeds from property sales. Although the Company has been successful in these endeavors in the past, there are no assurances the Company will generate sufficient funds to meet all its obligations as they become due. The following conditions were considered in management's evaluation of going concern and its efforts to mitigate that concern: •Revamping restaurant operations to generate cost efficiencies resulting in higher restaurant operating margins even if sales levels do not return to pre-COVID-19 pandemic levels. As the restaurants adapted to the new operating environment, a lower cost labor model was deployed, food costs declined as menu offerings were concentrated among the historically top selling items, and various restaurant service and supplier costs were reevaluated. •Restructuring of corporate overhead earlier in calendar 2020 prior to the pandemic, including a transition to 3rd party provider for certain accounting and payroll function. Significant further restructuring took place in April and May of 2020, as we reviewed all corporate service providers, information technology needs, and personnel requirements to support a reduced level of operations going forward. •Securing the PPP Loan which was necessary for funding continuing operations. We believe that a portion of the loan will be eligible for forgiveness; however, that amount cannot currently be calculated. •Continued efforts to close real estate sales transactions with anticipated aggregate sales proceeds in excess of$20.0 million prior to the end of fiscal 2020. In addition, we have identified other real estate properties that may be sold to generate funds for ongoing operations should the identification of a buyer for one or more of the operating divisions not occur timely. We believe these plans are sufficient to overcome the significant doubt whether we can meet our liquidity needs for the 12 months from the issuance of these financial statements. However, we can not predict with certainty that these efforts will be successful or sufficient. Accounting Periods The Company's fiscal year ends on the last Wednesday in August. Accordingly, each fiscal year normally consists of 13 four-week periods, or accounting periods, accounting for 364 days in the aggregate. However, every fifth or sixth year, we have a fiscal year that consists of 53 weeks, accounting for 371 days in the aggregate. The first fiscal quarter consists of four four-week periods, or 16 weeks, and the remaining three quarters typically includes three four-week periods, or 12 weeks, in length. The fourth fiscal quarter includes 13 weeks in certain fiscal years to adjust for our standard 52 week, or 364 day, fiscal year compared to the 365 day calendar year. Comparability between quarters may be affected by the varying lengths of the quarters, as well as the seasonality associated with the restaurant business. 39 --------------------------------------------------------------------------------
Same-Store Sales
The restaurant business is highly competitive with respect to food quality,
concept, location, price, and service, all of which may have an effect on
same-store sales. Our same-store sales calculation measures the relative
performance of a certain group of restaurants. A restaurant's sales results are
included in the same-store sales calculation in the quarter after a store has
been open for six consecutive fiscal quarters. Stores that close on a permanent
basis (or on a temporary basis for remodeling) are removed from the group in the
quarter when operations cease at the restaurant, but remain in the same-store
group for previously reported quarters. Although management believes this
approach leads to more effective year-over-year comparisons, neither the time
frame nor the exact practice may be similar to those used by other restaurant
companies.
40
--------------------------------------------------------------------------------RESULTS OF OPERATIONS
Quarter Ended
Comparability between quarters is affected by the varying lengths of the
quarters and quarters ending at different points in the calendar year when
seasonal patterns for sales are different. Both the quarter ended
Sales
Quarter Quarter
Ended Ended
March 11, March 13, Increase/
($000s) 2020 2019 (Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Restaurant sales $ 60,391 $ 65,369 $ (4,978) (7.6) %
Culinary contract services 6,998 7,543 (545) (7.2) %
Franchise revenue 1,158 1,421 (263) (18.5) %
Vending revenue 14 90 (76) (84.4) %
TOTAL SALES $ 68,561 $ 74,423 $ (5,862) (7.9) %
The Company has five reportable segments: Luby's cafeterias, Fuddruckers
restaurants, Cheeseburger in Paradise , Fuddruckers franchise operations, and
Culinary contract services.
Company-Owned Restaurants
Restaurant Sales
Quarter Quarter
($000s) Ended Ended
Restaurant Brand March 11, March 13, Increase/(Decrease)
2020 2019 $ Amount % Change
(12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Luby's Cafeterias $ 43,302 $ 44,266 $ (964) (2.2) %
Combo locations 4,653 4,355 298 6.8 %
Luby's cafeteria segment 47,955 48,621 (666) (1.4) %
Fuddruckers restaurants segment 11,789 16,156 (4,367) (27.0) %
Cheeseburger in Paradise segment 647 592 55 9.3 %
Total Restaurant Sales $ 60,391 $ 65,369 $ (4,978) (7.6) %
Total restaurant sales decreased approximately $5.0 million in the quarter ended
March 11, 2020 compared to the quarter ended March 13, 2019 . The decrease in
restaurant sales included an approximate $4.4 million decrease in sales at
stand-alone Fuddruckers restaurants, and approximate $1.0 million decrease in
sales at stand-alone Luby's Cafeterias, and an approximate $0.1 million increase
in sales at Cheeseburger in Paradise restaurants, partially offset by an
approximate $0.3 million increase in sales from Combo locations.
•The approximate $1.0 million sales decrease in sales at stand-alone Luby's
Cafeteria restaurants was the result of the closure of four locations
(accounting for approximately $2.8 million in reduced sales) partially offset by
a 1.3% increase in Luby's Cafeteria same-store sales in the quarter ended
March 11, 2020 compared to the quarter ended March 13, 2019 . The 1.3% increase
in Luby's Cafeteria same-store sales was the result of a 0.7% increase in guest
traffic and a 0.6% increase in average spend per guest.
•The approximate $4.4 million sales decrease at stand-alone Fuddruckers
restaurants was the result of 13 restaurant closings and seven restaurant
transfers to a franchise owner's operations (accounting for approximately $6.0
million of this sales decline combined) partially offset by a 0.4% increase in
same-store sales in the quarter ended March 11 ,
41
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2020 compared to the quarter ended
•The approximate$0.3 million increase in sales from Combo locations reflects a 6.8% increase in sales at the six locations that operated throughout the quarter endedMarch 11, 2020 and the quarter endedMarch 13, 2019 .
•The approximate
Two Quarters Two Quarters
Ended Ended
March 11, March 13, Increase/
($000s) 2020 2019 (Decrease)
(28 weeks) (28 weeks) (28 weeks vs 28 weeks)Restaurant sales$ 143,949 $ 156,468 $ (12,519) (8.0) % Culinary contract services 16,772 17,039 (267) (1.6) % Franchise revenue 2,865 3,644 (779) (21.4) % Vending revenue 124 190 (66) (34.7) % TOTAL SALES$ 163,710 $ 177,341 $ (13,631) (7.7) % The Company has five reportable segments: Luby's cafeterias, Fuddruckers restaurants,Cheeseburger in Paradise , Fuddruckers franchise operations, and Culinary contract services.Company-Owned Restaurants Restaurant Sales Two Quarters ($000s) Ended Two Quarters Ended Restaurant Brand March 11, March 13, Increase/(Decrease) 2020 2019 $ Amount % Change (28 weeks) (28 weeks) (28 weeks vs 28 weeks) Luby's Cafeterias$ 104,086 $ 106,910 $ (2,824) (2.6) % Combo locations 11,012 10,319 $ 693 6.7 % Luby's cafeteria segment 115,098 117,229 $ (2,131) (1.8) % Fuddruckers restaurants segment 27,359 37,689 (10,330) (27.4) % Cheeseburger in Paradise segment 1,492 1,550 (58) (3.7) % Total Restaurant Sales$ 143,949 $ 156,468$ (12,519) (8.0) % Total restaurant sales decreased approximately$12.5 million in the two quarters endedMarch 11, 2020 compared to the two quarters endedMarch 13, 2019 . The decrease in restaurant sales included an approximate$10.3 million decrease in sales at stand-alone Fuddruckers restaurants, and approximate$2.8 million decrease in sales at stand-alone Luby's Cafeterias, and an approximate$0.1 million decrease in sales atCheeseburger in Paradise restaurants, partially offset by an approximate$0.7 million increase in sales from Combo locations. •The approximate$2.8 million sales decrease in sales at stand-alone Luby's Cafeteria restaurants was the result of the closure of 6 locations (accounting for approximately$4.4 million in reduced sales) partially offset by a 1.5% increase in Luby's Cafeteria same-store sales in the two quarters endedMarch 11, 2020 compared to the two quarters endedMarch 13, 2019 . The 1.5% increase in Luby's Cafeteria same-store sales was the result of a 1.4% increase in guest traffic and a 0.1% increase in average spend per guest. •The approximate$10.3 million sales decrease at stand-alone Fuddruckers restaurants was the result of 14 restaurant closings and seven restaurant transfers to a franchise owner's operations (accounting for approximately$10.4 million of this sales decline combined) partially offset by a 0.2% increase in same-store sales in the two quarters ended 42 --------------------------------------------------------------------------------
•The approximate$0.7 million increase in sales from Combo locations reflects a 6.7% increase in sales at the six locations that operated throughout the two quarters endedMarch 11, 2020 and the two quarters endedMarch 13, 2019 . •The approximate$0.1 million decrease inCheeseburger in Paradise restaurants sales in the two quarters endedMarch 11, 2020 compared to the two quarters endedMarch 13, 2019 was the result of a 3.7% decrease at the remaining location. Cost of Food Quarter Quarter Ended Ended Increase/ ($000s) March 11, 2020 March 13, 2019 (Decrease) (12 weeks) (12 weeks) (12 weeks vs 12 weeks) Cost of food: Luby's cafeteria segment$ 13,892 $ 13,797 $ 95 0.7 % Fuddruckers restaurants segment 3,306 4,142 (836) (20.2) % Cheeseburger in Paradise segment 200 207 (7) (3.4) %Total Restaurants $ 17,398 $ 18,146 $ (748) (4.1) % As a percentage of restaurant sales Luby's cafeteria segment 29.0 % 28.4 % 0.6 % Fuddruckers restaurants segment 28.0 % 25.6 % 2.4 % Cheeseburger in Paradise segment 31.0 % 34.9 % (3.9) %Total Restaurants 28.8 % 27.8 % 1.0 % Cost of food 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$0.7 million , or 4.1%, in the quarter endedMarch 11, 2020 compared to the quarter endedMarch 13, 2019 due to operation of 22 fewer locations (primarily Fuddruckers restaurants), partially offset by higher guest traffic levels at continually operated locations as well as higher average food commodity costs. Cost of food is variable and generally fluctuates with sales and guest traffic volume. As a percentage of restaurant sales, food costs increased 1.0% to 28.8% in the quarter endedMarch 11, 2020 compared to 27.8% in the quarter endedMarch 13, 2019 . Cost of food as percentage of sales was impacted by (1) higher food commodity costs, including increases in the cost of beef commodities and (2) a change in the mix of menu offerings purchased by guests as part of the Company's strategy of offering everyday value pricing. 43 --------------------------------------------------------------------------------
Two Quarters Two Quarters
Ended Ended
March 11, March 13, Increase/
($000s) 2020 2019 (Decrease)
(28 weeks) (28 weeks) (28 weeks vs 28 weeks)
Cost of food:
Luby's cafeteria segment $ 33,289 $ 33,051 $ 238 0.7 %
Fuddruckers restaurants segment 7,590 9,695 (2,105) (20.2) %
Cheeseburger in Paradise segment 462 480 (18) (3.4) %
Total Restaurants $ 41,341 $ 43,226 $ (1,885) (4.1) %
As a percentage of restaurant sales
Luby's cafeteria segment 28.9 % 28.2 % 0.7 %
Fuddruckers restaurants segment 27.7 % 25.7 % 2.0 %
Cheeseburger in Paradise segment 31.0 % 31.0 % - %
Total Restaurants 28.7 % 27.6 % 1.1 %
Cost of food 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 $1.9 million , or
4.1%, in the two quarters ended March 11, 2020 compared to the two quarters
ended March 13, 2019 due to operation of 22 fewer locations (primarily
Fuddruckers restaurants), partially offset by higher guest traffic levels at
continually operated locations as well as higher average food commodity
costs. Cost of food is variable and generally fluctuates with sales and guest
traffic volume. As a percentage of restaurant sales, food costs increased 1.1%
to 28.7% in the two quarters ended March 11, 2020 compared to 27.6% in the two
quarters ended March 13, 2019 . Cost of food as percentage of sales was impacted
by (1) higher food commodity costs, including increases in the cost of beef
commodities and (2) a change in the mix of menu offerings purchased by guests as
part of the Company's strategy of offering everyday value pricing.
Payroll and Related Costs
Quarter Quarter
Ended Ended
Increase/
($000s) March 11, 2020 March 13, 2019 (Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Payroll and related Costs:
Luby's Cafeteria Segment $ 19,054 $ 18,382 $ 672 3.7 %
Fuddruckers Restaurants Segment 4,478 6,107 (1,629) (26.7) %
Cheeseburger in Paradise Segment 250 241 9 3.7 %
Total Restaurants $ 23,782 $ 24,730 $ (948) (3.8) %
As a percentage of restaurant sales
Luby's Cafeteria Segment 39.7 % 37.8 % 1.9 %
Fuddruckers Restaurants Segment: 38.0 % 37.8 % 0.2 %
Cheeseburger in Paradise Segment 38.6 % 40.8 % (2.2) %
Total Restaurants 39.4 % 37.8 % 1.6 %
Payroll and related costs decreased approximately $0.9 million , or 3.8%, in the
quarter ended March 11, 2020 compared to the quarter ended March 13, 2019 . The
decrease reflects (1) operating 22 fewer restaurants (reducing cost by
approximately $2.6 million ); partially offset by (2) an increase in hours
deployed with increased guest traffic counts and continuation of elevating guest
service levels; and (3) higher hourly wage rates due to labor marketplace
inflation. As a percentage of restaurant sales, payroll and related costs
increased 1.6% to 39.4% in the quarter ended March 11, 2020 compared to 37.8% in
the quarter
44
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ended March 13, 2019 due primarily to (1) higher hourly wage rates due to labor
market inflation partially offset by (2) the fixed cost component of labor costs
(especially salaried restaurant managers) with increase in same-store sales.
Two Quarters Two Quarters
Ended Ended
March 11, March 13, Increase/
($000s) 2020 2019 (Decrease)
(28 weeks) (28 weeks) (28 weeks vs 28 weeks)
Payroll and related Costs:
Luby's Cafeteria Segment $ 44,591 $ 44,005 $ 586 1.3 %
Fuddruckers Restaurants Segment $ 10,732 $ 14,560 $ (3,828) (26.3) %
Cheeseburger in Paradise Segment $ 592 $ 679 $ (87) (12.8) %
Total Restaurants $ 55,915 $ 59,244 $ (3,329) (5.6) %
As a percentage of restaurant sales
Luby's Cafeteria Segment 38.7 % 37.5 % 1.2 %
Fuddruckers Restaurants Segment: 39.2 % 38.6 % 0.6 %
Cheeseburger in Paradise Segment 39.7 % 43.8 % (4.1) %
Total Restaurants 38.8 % 37.9 % 0.9 %
Payroll and related costs decreased approximately $3.3 million , or 5.6%, in the
two quarters ended March 11, 2020 compared to the two quarters ended March 13,
2019 . The decrease reflects (1) operating 22 fewer restaurants (reducing cost by
approximately $6.3 million ); partially offset by (2) an increase in hours
deployed with increased guest traffic counts and continuation of elevating guest
service levels; and (3) higher hourly wage rates due to labor marketplace
inflation. As a percentage of restaurant sales, payroll and related costs
increased 0.9% to 38.8% in the two quarters ended March 11, 2020 compared to
37.9% in the two quarters ended March 13, 2019 due primarily to (1) higher
hourly wage rates due to labor market inflation; and (2) the impact of a
decrease in average spend per guest as part of a strategy to increase guest
traffic; partially offset by (3) the fixed cost component of labor costs
(especially salaried restaurant managers) with increase in same-store sales.
Other Operating Expenses
Quarter Quarter
Ended Ended
Increase/
($000s) March 11, 2020 March 13, 2019 (Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Other operating expenses:
Luby's Cafeteria Segment $ 7,869 $ 8,189 $ (320) (3.9) %
Fuddruckers Restaurants Segment
(32.5) %
Cheeseburger in Paradise Segment $ 143 $ 183 $ (40)
(21.9) %
Total Restaurants $ 10,065 $ 11,412 $ (1,347) (11.8) %
As a percentage of restaurant sales
Luby's Cafeteria Segment 16.4 % 16.8 % (0.4) %
Fuddruckers Restaurants Segment: 17.4 % 18.8 % (1.4) %
Cheeseburger in Paradise Segment 22.1 % 30.9 % (8.8) %
Total Restaurants 16.7 % 17.5 % (0.8) %
45-------------------------------------------------------------------------------- Other operating expenses include restaurant-related expenses for utilities, repairs and maintenance, local store advertising, property and liability insurance uninsured losses, services and supplies. Other operating expenses decreased approximately$1.3 million , or 11.8%, in the quarter endedMarch 11, 2020 compared to the quarter endedMarch 13, 2019 . Of the approximate$1.3 million decrease in total other operating expenses, an approximate$0.7 million is attributed to store closures and$0.4 million attributable to stores that continue to operate. The$0.4 million decrease in other operating expenses at stores that continue to operate is attributable to (1) an approximate$0.3 million decrease in the costs of utilities (2) an approximate$0.1 decrease in paper supplies expenses. As a percentage of restaurant sales, other operating expenses decreased 0.8%, to 16.7%, in the quarter endedMarch 11, 2020 , compared to 17.5% in the quarter endedMarch 13, 2019 due primarily to the reasons enumerated above. Two Quarters Two Quarters Ended Ended March 11, March 13, Increase/ ($000s) 2020 2019 (Decrease) (28 weeks) (28 weeks) (28 weeks vs 28 weeks) Other operating expenses: Luby's Cafeteria Segment$ 19,424 $ 19,984 $ (560) (2.8) % Fuddruckers Restaurants Segment$ 5,091 $ 7,368 $ (2,277) (30.9) % Cheeseburger in Paradise Segment$ 345 $ 562 $ (217) (38.6) %Total Restaurants $ 24,860 $ 27,914 $ (3,054) (10.9) % As a percentage of restaurant sales Luby's Cafeteria Segment 16.9 % 17.0 % (0.1) % Fuddruckers Restaurants Segment: 18.6 % 19.6 % (1.0) % Cheeseburger in Paradise Segment 23.1 % 36.2 % (13.1) %Total Restaurants 17.3 % 17.8 % (0.5) % Other operating expenses include restaurant-related expenses for utilities, repairs and maintenance, local store advertising, property and liability insurance uninsured losses, services and supplies. Other operating expenses decreased approximately$3.1 million , or 10.9%, in the two quarters endedMarch 11, 2020 compared to the two quarters endedMarch 13, 2019 . Of the approximate$3.1 million decrease in total other operating expenses, an approximate$3.4 million is attributed to store closures offset by$0.3 million increase attributable to stores that continue to operate. The$0.3 million increase in other operating expenses at stores that continue to operate is attributable to (1) an increase of$0.6 million related to lower insurance proceeds (2) an increase of$0.5 million in services including credit card fees and 3rd party delivery fees, (3) an increase of$0.3 million related to local store marketing partially offset by (1) an approximate$0.8 million in utilities and (2) an approximate$0.2 decrease in repairs and maintenance charges. As a percentage of restaurant sales, other operating expenses decreased 0.5%, to 17.3%, in the two quarters endedMarch 11, 2020 , compared to 17.8% in the two quarters endedMarch 13, 2019 due primarily to the reason enumerated above. 46 --------------------------------------------------------------------------------
Occupancy Costs
Quarter Quarter
Ended Ended
Increase/
($000s) March 11, 2020 March 13, 2019 (Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Occupancy costs:
Luby's Cafeteria Segment $ 2,194 $ 2,101 $ 93 4.4 %
Fuddruckers Restaurants Segment
(491) (24.6) %
Cheeseburger in Paradise Segment $ 81 $ 66 $
15 22.7 %
Total Restaurants $ 3,783 $ 4,166 $ (383) (9.2) %
As a percentage of restaurant sales
Luby's Cafeteria Segment 4.6 % 4.3 % 0.3 %
Fuddruckers Restaurants Segment: 12.8 % 12.4 % 0.4 %
Cheeseburger in Paradise Segment 12.5 % 11.2 % 1.3 %
Total Restaurants 6.3 % 6.4 % (0.1) %
Occupancy costs include property lease expense, property taxes, and common area
maintenance charges, property insurance, and permits and licenses. Occupancy
costs decreased approximately $0.4 million , or 9.2%, to approximately $3.8
million in the quarter ended March 11, 2020 compared to the quarter ended
March 13, 2019 . The decrease was primarily due to a decrease in rent and
property taxes associated with operating 22 fewer restaurants in the quarter
ended March 11, 2020 compared to the quarter ended March 13, 2019 , partially
offset by the additional lease expense at three properties that were sold and
leased back. As a percentage of restaurant sales, occupancy costs decreased to
6.3%, in the quarter ended March 11, 2020 compared to 6.4% in the quarter ended
March 13, 2019 primarily as a result of the change in the mix of the portfolio
of owned versus leased stores, the sales and lease back of two properties, as
well as adjustments to property tax estimates.
Two Quarters Two Quarters
Ended Ended
March 11, March 13, Increase/
($000s) 2020 2019 (Decrease)
(28 weeks) (28 weeks) (28 weeks vs 28 weeks)
Occupancy costs:
Luby's Cafeteria Segment $ 4,940 $ 5,042 $ (102) (2.0) %
Fuddruckers Restaurants Segment
$ (1,194) (24.7) %
Cheeseburger in Paradise Segment
$ 28 17.5 %Total Restaurants $ 8,773 $ 10,041 $ (1,268) (12.6) % As a percentage of restaurant sales Luby's Cafeteria Segment 4.3 % 4.3 % - % Fuddruckers Restaurants Segment: 13.3 % 12.8 % 0.5 % Cheeseburger in Paradise Segment 12.6 % 10.3 % 2.3 %Total Restaurants 6.1 % 6.4 % (0.3) % Occupancy costs include property lease expense, property taxes, and common area maintenance charges, property insurance, and permits and licenses. Occupancy costs decreased approximately$1.3 million , or 12.6%, to approximately$8.8 million in the two quarters endedMarch 11, 2020 compared to the two quarters endedMarch 13, 2019 . The decrease was primarily due to a decrease in rent and property taxes associated with operating 28 fewer restaurants in the two quarters endedMarch 11, 2020 compared to the two quarters endedMarch 13, 2019 , partially offset by the additional lease expense at three properties that were sold and leased back. As a percentage of restaurant sales, occupancy costs decreased to 6.1%, in the two quarters 47 -------------------------------------------------------------------------------- endedMarch 11, 2020 compared to 6.4% in the two quarters endedMarch 13, 2019 primarily as a result of the change in the mix of the portfolio of owned versus leased stores, the sales and lease back of three properties, as well as adjustments to property tax estimates.
Franchise Operations
We offer franchises for the Fuddruckers brand. Franchises are sold in markets
where expansion is deemed advantageous to the development of the Fuddruckers
concept and system of restaurants. 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) amortization of initial
and renewal franchise fees and remaining unamortized franchisee fees for
franchise agreements that terminate early. 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.
Quarter Quarter
Ended Ended
March 11, March 13, Increase/
($000s) 2020 2019 (Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks)Franchise revenue$ 1,158 $ 1,421 $ (263) (18.5) % Cost of franchise operations 409 247 162 65.6 % Franchise profit$ 749 $ 1,174 $ (425) (36.2) % Franchise profit as a percentage of franchise revenue 64.7 % 82.6 % (17.9) % Franchise revenue decreased approximately$0.3 million in the quarter endedMarch 11, 2020 compared to the quarter endedMarch 13, 2019 . The$0.3 million decrease in franchise revenue reflects primarily (1) a net decrease in franchise royalties and franchise marketing allocation fund contributions of$182 thousand and (2)$81 thousand lower franchise fees in the quarter endedMarch 11, 2020 compared to the quarter endedMarch 13, 2019 Cost of franchise operations increased approximately$0.2 million in the quarter endedMarch 11, 2020 compared to the quarter endedMarch 13, 2019 . The increase in Cost of franchise operations primarily reflects (1) timing of recognizing marketing and advertising fee expenses; and (2) an increase in wages supporting the franchise network in the quarter endedMarch 11, 2020 . Franchise segment profit, defined as franchise revenue less cost of franchise operations, decreased approximately$0.4 million in the quarter endedMarch 11, 2020 compared to the quarter endedMarch 13, 2019 due primarily to the reasons noted above for the decrease in Franchise revenue and increase in Cost of franchise operations. As ofMarch 11, 2020 , there were 90 Fuddruckers franchise restaurants in operation. Two Quarters Ended Two Quarters Ended March 11, March 13, Increase/ ($000s) 2020 2019 (Decrease) (28 weeks) (28 weeks) (28 weeks vs 28 weeks) Franchise revenue $ 2,865 $ 3,644$ (779) (21.4) % Cost of franchise operations 974 519 455 87.7 % Franchise profit $ 1,891 $ 3,125$ (1,234) (39.5) % Franchise profit as a percentage of franchise revenue 66.0 % 85.8 % (19.8) % 48
-------------------------------------------------------------------------------- Franchise revenue decreased approximately$0.8 million in the two quarters endedMarch 11, 2020 compared to the two quarters endedMarch 13, 2019 . The$0.8 million decrease in franchise revenue reflects primarily (1)$533 thousand lower franchise fees and (2) a net decrease in franchise royalties, franchise marketing allocation fund contributions, and franchise fees of$247 thousand in the two quarters endedMarch 11, 2020 compared to the two quarters endedMarch 13, 2019 Cost of franchise operations increased approximately$0.5 million in the two quarters endedMarch 11, 2020 compared to the two quarters endedMarch 13, 2019 . The increase in Cost of franchise operations primarily reflects (1) timing of recognizing marketing and advertising fee expenses; (2) an increase in wages supporting the franchise network in the two quarters endedMarch 11, 2020 ; and (3) the receipt of funds in the two quarters endedMarch 13, 2019 from vendors in support of a franchise meeting. Franchise segment profit, defined as franchise revenue less cost of franchise operations, decreased approximately$1.2 million in the two quarters endedMarch 11, 2020 compared to the two quarters endedMarch 13, 2019 due primarily to the reasons noted above for the decrease in Franchise revenue and increase in Cost of franchise operations.
Culinary Contract Services
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 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. We operated 33 Culinary Contract Services locations as ofMarch 11, 2020 and 28 as ofMarch 13, 2019 . Quarter Quarter Ended Ended March 11, March 13, Increase/ ($000s) 2020 2019 (Decrease) (12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Culinary contract services sales
(7.2) %
Cost of culinary contract services 6,400 6,717 (317) (4.7) %
Culinary contract services profit
(27.6) %
Culinary contract services profit as a
percentage of Culinary contract services
sales 8.5 % 11.0 % (2.5) %
Culinary contract services sales decreased approximately $0.5 million , or 7.2%,
in the quarter ended March 11, 2020 compared to the quarter ended March 13,
2019 . The $0.5 million sales decrease was primarily related to the decrease in
culinary contract service locations.
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 $0.3 million , or 4.7%, in the quarter ended March 11,
2020 compared to the quarter ended March 13, 2019 . Culinary contract services
segment profit, defined as Culinary contract services sales less Cost of
culinary contract services, decreased to 8.5% in the quarter ended March 11,
2020 from 11.0% in the quarter ended March 13, 2019 due to the change in the mix
of our culinary agreements with clients.
49
--------------------------------------------------------------------------------
Two Quarters Ended Two Quarters Ended
March 11, March 13, Increase/
($000s) 2020 2019 (Decrease)
(28 weeks) (28 weeks) (28 weeks vs 28 weeks)
Culinary contract services sales $ 16,772 $ 17,039 $ (267) (1.6) %
Cost of culinary contract services 15,348 15,532 (184) (1.2) %
Culinary contract services profit $ 1,424 $ 1,507 $ (83) (5.5) %
Culinary contract services profit as a
percentage of Culinary contract services
sales 8.5 % 8.8 % (0.3) %
Culinary contract services sales decreased approximately $0.3 million , or 1.6%,
in the two quarters ended March 11, 2020 compared to the two quarters ended
March 13, 2019 . The $0.3 million sales decrease was primarily related to the
decrease in culinary contract service locations.
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 $0.2 million , or 1.2%, in the two quarters ended
March 11, 2020 compared to the two quarters ended March 13, 2019 . Culinary
contract services segment profit, defined as Culinary contract services sales
less Cost of culinary contract services, decreased to 8.5% in the two quarters
ended March 11, 2020 from 8.8% in the two quarters ended March 13, 2019 due to
the change in the mix of our culinary agreements with clients.
Company-wide Expenses
Opening Costs Opening costs include labor, supplies, occupancy, and other costs necessary to support a restaurant through its opening period. Opening costs were$2 thousand in the quarter endedMarch 11, 2020 compared to$11 thousand in the quarter endedMarch 13, 2019 . The opening costs in the quarter endedMarch 11, 2020 and in the quarter endedMarch 13, 2019 primarily reflects the carrying cost for one location that we lease for a potential future Fuddruckers opening. Opening costs were$14 thousand in the two quarters endedMarch 11, 2020 compared to$44 thousand in the two quarters endedMarch 13, 2019 . The opening costs in the two quarters endedMarch 11, 2020 and in the two quarters endedMarch 13, 2019 primarily reflects the carrying cost for one location that we lease for a potential future Fuddruckers opening.
Depreciation and Amortization Expense
Quarter Quarter
Ended Ended
March 11, March 13, Increase/
($000s) 2020 2019 (Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks)
Depreciation and amortization $ 2,677 $ 3,222 $ (545) (16.9) %
As a percentage of total sales 3.9 % 4.3 % (0.4) %
Depreciation and amortization expense decreased by approximately $0.5 million ,
or 16.9%, in the quarter ended March 11, 2020 compared to the quarter ended
March 13, 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 decreased to 3.9% in the
quarter ended March 11, 2020 , compared to 4.3% in the quarter ended March 13,
2019 .
50--------------------------------------------------------------------------------
Two Quarters Ended Two Quarters Ended
March 11, March 13, Increase/
($000s) 2020 2019 (Decrease)
(28 weeks) (28 weeks) (28 weeks vs 28 weeks)
Depreciation and amortization $ 6,440 $ 8,126 $ (1,686) (20.7) %
As a percentage of total sales 3.9 % 4.6 % (0.7) %
Depreciation and amortization expense decreased by approximately $1.7 million ,
or 20.7%, in the two quarters ended March 11, 2020 compared to the two quarters
ended March 13, 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 decreased to 3.9% in the
two quarters ended March 11, 2020 , compared to 4.6% in the two quarters ended
March 13, 2019 .
Selling, General and Administrative Expenses
Quarter Quarter
Ended Ended
March 11, March 13, Increase/
($000s) 2020 2019 (Decrease)
(12 weeks) (12 weeks) (12 weeks vs 12 weeks)
General and administrative expenses $ 5,386 $ 6,983 $ (1,597) (22.9) %
Marketing and advertising expenses 1,430 770 660 85.7 %
Selling, general and administrative expenses
(12.1) %
As a percentage of total sales 9.9 % 10.4 % (0.5) %
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 approximately $0.9 million , or 12.1%, in
the quarter ended March 11, 2020 compared to the quarter ended March 13, 2019 .
The decrease in selling, general and administrative expenses reflects (1) an
approximate $1.0 million reduction in salaries and benefits expense and (2) an
approximate $0.6 million decrease in other components of Selling, general
administrative expense (professional service fees, travel, supplies, occupancy,
and other general overhead costs) partially offset by (3) an approximate $0.7
million increase in marketing and advertising, including increased expenditures
for various digital media advertising and other efforts to reach our guests and
drive traffic in an effective and efficient manner; . As a percentage of total
revenue, Selling, general and administrative expenses decreased to 9.9% in the
quarter ended March 11, 2020 , compared to 10.4% in the quarter ended March 13,
2019 due to the reasons described above partially offset by the impact of a
decrease in sales resulting from a reduced number of stores in operations.
Two Quarters Two Quarters
Ended Ended
March 11, March 13, Increase/
($000s) 2020 2019 (Decrease)
(28 weeks) (28 weeks) (28 weeks vs 28 weeks)
General and administrative expenses $ 13,884 $ 16,067 $ (2,183) (13.6) %
Marketing and advertising expenses 3,090 1,696 1,394 82.2 %
Selling, general and administrative expenses $ 16,974 $ 17,763 $ (789) (4.4) %
As a percentage of total sales 10.4 % 10.0 % 0.4 %
51-------------------------------------------------------------------------------- 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 approximately$0.8 million , or 4.4%, in the two quarters endedMarch 11, 2020 compared to the two quarters endedMarch 13, 2019 . The decrease in selling, general and administrative expenses reflects (1) an approximate$1.4 million reduction in salaries and benefits expense and (2) an approximate$0.8 million decrease in other components of Selling, general administrative expense (professional service fees, travel, supplies, occupancy, and other general overhead costs) partially offset by (3) an approximate$1.4 million increase in marketing and advertising, including increased expenditures for various digital media advertising and other efforts to reach our guests and drive traffic in an effective and efficient manner; As a percentage of total revenue, Selling, general and administrative expenses increased to 10.4% in the two quarters endedMarch 11, 2020 , compared to 10.0% in the two quarters endedMarch 13, 2019 due to the reasons described above partially offset by the impact of a decrease in sales resulting from a reduced number of stores in operations.
Other Charges
Other charges include those expenses that we consider related to our restructuring efforts or not part of our recurring operations. We have identified these expenses amounting to approximately$1.5 million in the quarter endedMarch 11, 2020 and$1.3 million for the quarter endedMarch 13, 2019 and recorded in Other charges. In the two quarters endedMarch 11, 2020 , we recorded$2.7 million in Other Charges compared to$2.5 million for the two quarters endedMarch 13, 2019 . These expenses were included in our Selling, general, and administrative cost expense line in previously reported quarters of fiscal 2019. Quarter Ended Two Quarters Ended March 11, March 13, March 11, March 13, ($000s) 2020 2019 2020 2019 (In thousands) Proxy communication related $ - 1,061 - 1,802 Employee severances 544 173 1,162 645 Restructuring related 966 30 1,586 30 Total Other charges$ 1,510 $ 1,264 $ 2,748 $ 2,477 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 (approximately$1.1 million in the quarter endedMarch 13, 2019 ) 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. For the two quarters endedMarch 13, 2019 , we had recognized proxy communication related expenses of$1.8 million . In fiscal 2019, we separated 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 ($1.2 million of the$1.3 million in the two quarters endedMarch 13, 2019 ). In fiscal 2020, we separated with an additional number of employees to further streamline our corporate overhead costs. Severance payments to these employees, based on the same criteria as in 2019, resulted in an approximately$0.5 million charge in the quarter endedMarch 11, 2020 . In 2020, severances based on the same criteria as in 2019 for the two quarters endedMarch 11, 2020 , we incurred$1.2 million . Also, in fiscal 2019, we engaged a professional consulting firm to evaluate initiatives to right-size corporate overhead costs and revenue enhancing measures. In addition, we engaged other outside consultants to evaluate various other components of our strategy. We also incurred cost of other outside professionals as we began efforts to transition portions of our accounting, payroll, operational reporting, and other back-office functions to a leading multi-unit restaurant outsourcing firm. The transition was substantially complete by the end of the second fiscal quarter of 2020. Lastly, we incurred expenses related to certain information technology systems that will be replaced by the capabilities of the outsourcing firm. We incurred an expense of$1.0 million for these restructuring efforts in the quarter endedMarch 11, 2020 . For the two quarters endedMarch 11, 2020 , we incurred$1.6 million for these restructuring efforts. 52 --------------------------------------------------------------------------------
Provision for Asset Impairments and Restaurant Closings
The approximate$0.7 million impairment charge for the quarter endedMarch 11, 2020 is related to spare inventory of restaurant equipment and parts at our maintenance facility written down to their estimated fair value. The approximate$1.2 million impairment charge for the quarter endedMarch 13, 2019 is primarily related to two property and one international joint venture, each written down to their fair value as well as net lease termination costs. The approximate$1.8 million impairment charge for the two quarters endedMarch 11, 2020 is related to two property locations where the right of use asset was written off as well as spare inventory of restaurant equipment and parts at our maintenance facility written down to their estimated fair value. The approximate$2.4 million impairment charge for the two quarters endedMarch 13, 2019 is primarily related to assets at eight property locations held for use, and six properties held for sale, and one international joint venture, each written down to their fair value.
Net Loss (Gain) on Disposition of Property and Equipment
Gain on disposition of property and equipment was$2.5 million in the quarter endedMarch 11, 2020 and was primarily related to the sale of two locations partially offset by routine asset activity at other locations. The gain on disposition of property and equipment was approximately$12.7 million in the quarter endedMarch 13, 2019 is primarily related to the sale and leaseback of two property locations where we operate a total of three restaurants, partially offset by net lease termination costs at other locations as well as routine asset retirement activity. Gain on disposition of property and equipment was$2.5 million in the two quarters endedMarch 11, 2020 and was primarily related to the sale of two locations partially offset by routine asset activity at other locations. The gain on disposition of property and equipment was approximately$12.5 million in the two quarters endedMarch 13, 2019 is primarily related to the sale and leaseback of two property locations where we operate a total of three restaurants, partially offset by net lease termination costs at other locations as well as routine asset retirement activity.
Interest Income
Interest income was
Interest income was
Interest Expense
Interest expense was approximately$1.5 million in the quarter endedMarch 11, 2020 and$1.6 million in the quarter endedMarch 13, 2019 . The decrease reflects lower average interest rates partially offset by higher debt balances.. Interest expense was approximately$3.4 million in the two quarters endedMarch 11, 2020 and$3.3 million in the two quarters endedMarch 13, 2019 . The increase reflects higher average debt balance and interest rates in the credit agreement entered into onDecember 13, 2018 , and higher amortization expense related to pre-paid interest and fees associated with the credit agreement entered into onDecember 13, 2018 , partially offset by lower average interest rates in the 2nd quarter.. Other Income, 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 prior to its termination inDecember 2018 . Other income was approximately$0.1 million in the quarter endedMarch 11, 2020 compared to$55 thousand in the quarter endedMarch 13, 2019 . The approximate$0.1 million of other income in the quarter endedMarch 11, 2020 is primarily net rental income and sales tax discount benefit. The$55 thousand of income in the quarter endedMarch 13, 2019 primarily reflects net rental income, partially offset by sales tax discount expense. 53 -------------------------------------------------------------------------------- Other income was approximately$0.4 million in the two quarters endedMarch 11, 2020 compared to$0.1 million in the two quarters endedMarch 13, 2019 . The approximate$0.4 million of other income in the two quarters endedMarch 11, 2020 is primarily net rental income and sales tax discount benefit. The$0.1 million of income in the two quarters endedMarch 13, 2019 primarily reflects net rental income, partially offset by sales tax discount expense, and a decrease to the fair value of our interest rate swap prior to its termination.
Taxes
For the quarter endedMarch 11, 2020 , the income taxes related to continuing operations resulted in a tax provision of approximately$0.1 million compared to a tax provision of approximately$0.1 million for the quarter endedMarch 13, 2019 . The effective tax rate ("ETR") for continuing operations was a negative 1.6% for the quarter endedMarch 11, 2020 and 1.4% for the quarter endedMarch 13, 2019 . The ETR for the quarter endedMarch 11, 2020 and the quarter endedMarch 13, 2019 differs from the federal statutory rate of 21.0% due to management's full valuation allowance conclusion, anticipated federal jobs credits, state income taxes, and other discrete items. For the two quarters endedMarch 11, 2020 , the income taxes related to continuing operations resulted in a tax provision of approximately$0.2 million compared to a tax provision of approximately$0.2 million for the two quarters endedMarch 13, 2019 . The effective tax rate ("ETR") for continuing operations was a negative 1.3% for the two quarters endedMarch 11, 2020 and a negative 33.8% for the two quarters endedMarch 13, 2019 . The ETR for the two quarters endedMarch 11, 2020 and two quarters endedMarch 13, 2019 differs from the federal statutory rate of 21.0% due to management's full valuation allowance conclusion, anticipated federal jobs credits, state income taxes, and other discrete items. Discontinued Operations Discontinued operations resulted in a loss of$6 thousand in the quarter endedMarch 11, 2020 compared to a loss of approximately$8 thousand in the quarter endedMarch 13, 2019 . The loss from discontinued operations in the quarter endedMarch 11, 2020 and in the quarter endedMarch 11, 2020 was related to carrying costs associated with assets related to discontinued operations. Discontinued operations resulted in a loss of$17 thousand in the two quarters endedMarch 11, 2020 compared to a loss of approximately$13 thousand in the two quarters endedMarch 13, 2019 . The loss from discontinued operations in the two quarters endedMarch 11, 2020 and in the two quarters endedMarch 11, 2020 was related to carrying costs associated with assets related to discontinued operations. 54 --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Cash and Cash Equivalents
Our primary sources of short-term and long-term liquidity are cash flows from operations and proceeds from asset sales. Cash and cash equivalents and restricted cash increased approximately$3.0 million atMarch 11, 2020 to$15.8 million from$12.8 million at the beginning of the fiscal year. See Recent Developments section above for a discussion of our liquidity issues as a result of the COVID-19 pandemic. The following table summarizes our cash flows from operating, investing, and financing activities: Two Quarters Ended March 11, March 13, 2020 2019 (28 weeks) (28 weeks) (In thousands) Total cash provided by (used in): Operating activities$ (5,904) $ (7,629) Investing activities 3,963 18,663 Financing activities 4,969 (17)
Net increase in cash and cash equivalents and restricted cash
Operating Activities. Cash used in operating activities was approximately$5.9 million in the two quarters endedMarch 11, 2020 , an approximate$1.7 million improvement from the two quarters endedMarch 13, 2019 . The approximate$1.7 million improvement in cash used in operating activities is due to approximately$5.7 million less cash used for working capital purposes partially offset by an approximate$3.9 million increase in net loss after adjusting for non-cash items. Net loss after adjusting for non-cash items (a use of cash) was approximately$5.1 million in the two quarters endedMarch 11, 2020 , an approximate$3.9 million increase compared to the two quarters endedMarch 13, 2019 . The$3.9 million increase in net loss after adjusting for non-cash items was primarily due to decreased store-level profit from our Company-owned restaurants. Changes in working capital were an approximate$0.8 million use of cash in the two quarters endedMarch 11, 2020 and an approximate$6.5 million use of cash in the two quarters endedMarch 13, 2019 . The approximate$5.7 million decrease in the use of cash between the two quarters endedMarch 11, 2020 and the two quarters endedMarch 13, 2019 is described below. Increases in current asset accounts are a use of cash while decreases in current asset accounts are a source of cash. During the two quarters endedMarch 11, 2020 , the change in trade accounts and other receivables, net, was an approximate$0.5 million source of cash which was an approximate$0.9 million decrease from the use of cash in the two quarters endedMarch 13, 2019 . The change in food and supplies inventory during the two quarters endedMarch 11, 2020 was an approximate$0.1 million source of cash which was an approximate$49 thousand increase from the use of cash in the two quarters endedMarch 13, 2019 . The change in prepaid expenses and other assets was an approximate$0.2 million source of cash during the two quarters endedMarch 11, 2020 , compared to a$1.1 million source of cash in the two quarters endedMarch 13, 2019 . Increase in current liability accounts are a source of cash, while decreases in current liability accounts are a use of cash. During the two quarters endedMarch 11, 2020 , changes in the balances of accounts payable, accrued expenses and other liabilities was an approximate$0.3 million use of cash, compared to a use of cash of approximately$7.1 million during the two quarters endedMarch 13, 2019 . Investing Activities. We generally reinvest available cash flows from operations to maintain and enhance existing restaurants and support Culinary Contract Services. Cash used in investing activities was approximately$4.0 million in the two quarters endedMarch 11, 2020 and an approximate$18.7 million use of cash in the two quarters endedMarch 13, 2019 . Capital expenditures were approximately$1.5 million in the two quarters endedMarch 11, 2020 and approximately$1.8 million in the two quarters endedMarch 13, 2019 . Proceeds from the disposal of assets were approximately$5.5 million in the two quarters endedMarch 11, 2020 and approximately$20.4 million in the two quarters endedMarch 13, 2019 . 55 -------------------------------------------------------------------------------- Financing Activities. Cash provided by financing activities was$5.0 million in the two quarters endedMarch 11, 2020 compared to an approximate$17 thousand use of cash during the two quarters endedMarch 13, 2019 . Cash flows from financing activities was primarily the result of our 2018 Credit Agreement. During the two quarters endedMarch 11, 2020 cash provided by Revolver borrowings was approximately$3.3 million . During the two quarters endedMarch 13, 2019 , cash provided by borrowings on our 2018 Term Loan were approximately$58.4 million , cash used for to repay our 2016 Term Loan was approximately$35.2 million , net repayments on our 2016 Revolver was approximately$20.0 million and cash used for debt issue costs was approximately$3.2 million .
Status of Long-Term Investments and Liquidity
At
Status of Trade Accounts and Other Receivables, Net
We monitor the aging of our receivables, including Fuddruckers franchising related receivables, and record provisions for uncollectable accounts, as appropriate. Credit terms of accounts receivable associated with our CCS business vary from 30 to 45 days based on contract terms.
Capital Expenditures
Capital expenditures consist of purchases of real estate for future restaurant sites, Culinary Contract Services investments, new unit construction, purchases of new and replacement restaurant furniture and equipment, and ongoing remodeling programs. Capital expenditures for the two quarters endedMarch 11, 2020 were approximately$1.5 million primarily related to recurring maintenance of our existing units. We expect to be able to fund all capital expenditures in fiscal 2020 using proceeds from the sale of assets and cash flows from operations. We expect to spend less than$4.5 million on capital expenditures in fiscal 2020. DEBT
The following table summarizes credit facility debt, less current portion at
March 11, August 28,
2020 2019
Long-Term Debt
2018 Credit Agreement - Revolver $ 8,600 $ 5,300
2018 Credit Agreement - Term Loan 45,067 43,399
Total credit facility debt 53,667 48,699
Less:
Unamortized debt issue costs (1,630) (1,887)
Unamortized debt discount (1,202) (1,373)Total credit facility debt, less unamortized debt issuance costs 50,835
45,439
Current portion of credit facility debt 2,567 -
Credit facility debt, less current portion $ 48,268 $ 45,439
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 million consisting of a $10
million revolving credit facility (the "2018 Revolver"), a $10 million delayed
draw term loan ("2018 Delayed Draw Term Loan"), and a $60 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
56
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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 .
Borrowings under the 2018 Revolver, 2018 Delayed Draw Term Loan, and 2018 Term
Loan will 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
March 11, 2020 of approximately $6.1 million is recorded in Restricted cash and
cash equivalents on the Company's consolidated balance sheet. LIBOR is set to
terminate in December, 2021. 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 .
The Company also pays a quarterly commitment fee based on the unused portion of
the 2018 Revolver and the 2018 Delayed Draw Term Loan at 0.50% per annum.
Voluntary prepayments, refinancing and asset dispositions constituting a sale of
all or substantially all assets, under the 2018 Delayed Draw Term Loan and the
2018 Term Loan are subject to a make whole premium during years one and two
equal to the present value of all interest otherwise owed from the date of the
prepayment through the end of year two, a 2.0% fee during year three, and a 1.0%
fee during year four. Finally, the Company paid to the lenders a one-time fee 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.
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 March 11,
2020 , the Company was in full compliance with all covenants with respect to the
2018 Credit Facility.
All amounts owing by the Company under the 2018 Credit Facility are guaranteed
by the subsidiaries of the Company.
As of March 11, 2020 we had approximately $1.7 million committed under letters
of credit, which is used as security for the payment of insurance obligations
and are fully cash collateralized, and approximately $0.1 million in other
indebtedness.
As of June 5, 2020 , the Company was in compliance with all covenants under the
terms of the 2018 Credit Agreement.
See Recent Development section above for discussion of changes in our debt in
response to the COVID-19 pandemic.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The unaudited consolidated financial statements included in Item 1 of Part 1 of this Form 10-Q were prepared in conformity with GAAP. 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. Due to the significant, subjective and complex judgments and estimates used when preparing our unaudited consolidated financial statements, management regularly reviews these assumptions and estimates with theFinance and Audit Committee of our Board. Actual results may differ from these estimates, including our estimates of future cash flows, which are subject to the current economic environment and changes in estimates. Other than the implementation of ASC 842 as discussed in Note 1 and 4 of the accompanying unaudited consolidated financial statements, we had no changes in the critical accounting policies and estimates which were disclosed in our Annual Report on Form 10-K for the fiscal year endedAugust 28, 2019 .
NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 to the accompanying unaudited consolidated financial statements for a
discussion of recent accounting guidance adopted and not yet adopted. We expect
that accounting guidance not yet adopted will not have a significant impact on
our consolidated financial position or results of operations or we are currently
evaluating the impact of adopting the accounting guidance.
57
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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.
FORWARD-LOOKING STATEMENTS
This Form 10-Q 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 (the "Exchange Act"). All statements contained in this Form 10-Q, other than statements of historical facts, are forward-looking statements for purposes of these provisions, including any statements regarding: •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, and expected repayment of debt, •expected sources of funds for working capital requirements, •plans for expansion and revisions to our business, •closing existing units, •effectiveness of management's disposal plans, •future sales of assets and the gains or losses that may be recognized as a result of any such sales, and •continued compliance with the terms of our 2018 Credit Agreement. 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 its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are relevant. Although management believes that its assumptions are reasonable based on information currently available, those assumptions are subject to significant risks and uncertainties, many of which are outside of its control. The following factors, as well as the factors set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year endedAugust 28, 2019 and any other cautionary language in this Form 10-Q, 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 pursue strategic alternatives •general business and economic conditions, •the effects of the COVID-19 pandemic, •the possible inability of the Company to sell itself, its operations or assets on terms deemed to be favorable to the Company or its stockholders, •if presented, whether the Company's stockholders will approve any sale and proceeds distribution plan, •the impact of competition, •decisions made in the allocation of capital resources, •our operating initiatives, changes in promotional, couponing and advertising strategies and the success of management's business plans, •fluctuations in the costs of commodities, including beef, poultry, seafood, dairy, cheese, oils and produce, •ability to raise menu prices and customer 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 health care benefit regulation, •the effects of inflation and changes in our customers' disposable income, spending trends and habits, •the ability to realize property values, •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 inthe United States , 58 --------------------------------------------------------------------------------
•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-Q, 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-Q could have material adverse effect on our business, results of operations, cash flows and financial condition.
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