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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
[X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) |
|
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended February 12, 2003, or
[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) |
|
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period From _____ to _____
Commission file number 1-8308
Luby's, Inc.
Delaware |
|
74-1335253 |
(State or other jurisdiction of |
|
(IRS Employer Identification Number) |
|
|
|
2211 Northeast Loop 410 |
(Address of principal executive offices, including zip code) |
(210) 654-9000 |
www.lubys.com |
(Registrant's telephone number, including area code, and Website) |
|
|
(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes
X NoIndicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes
No XAs of March 19, 2003, there were 22,456,296 shares of the registrant's Common Stock outstanding, which does not include 4,946,771 treasury shares.
Luby's, Inc.
Part I - Financial Information |
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3 |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
14 |
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23 |
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23 |
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Part II - Other Information |
Page |
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24 |
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24 |
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24 |
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26 |
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31 |
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Additional Information |
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Additional Company information and access to Annual Reports and SEC filings can be obtained online free of charge at www.lubys.com. |
Part I - FINANCIAL INFORMATION
Luby's, Inc.
Consolidated Balance Sheets
(In thousands)
February 12, |
August 28, |
|||||||||||||||||||
2003 |
2002 |
|||||||||||||||||||
(unaudited) |
||||||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets: |
||||||||||||||||||||
Cash |
$ |
191 |
$ |
1,584 |
||||||||||||||||
Short-term investments (see Note 3) |
14,941 |
24,122 |
||||||||||||||||||
Trade accounts and other receivables |
295 |
185 |
||||||||||||||||||
Food and supply inventories |
2,304 |
2,197 |
||||||||||||||||||
Prepaid expenses |
1,730 |
1,667 |
||||||||||||||||||
Income tax receivable |
7,245 |
7,245 |
||||||||||||||||||
Deferred income taxes (see Note 4) |
2,726 |
2,726 |
||||||||||||||||||
Total current assets |
29,432 |
39,726 |
||||||||||||||||||
Property held for sale |
5,574 |
8,144 |
||||||||||||||||||
Investments and other assets |
4,170 |
4,642 |
||||||||||||||||||
Property, plant, and equipment -- at cost, net (see Note 5) |
282,973 |
289,967 |
||||||||||||||||||
Total assets |
$ |
322,149 |
$ |
342,479 |
||||||||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||
Accounts payable |
$ |
19,004 |
$ |
19,077 |
||||||||||||||||
Accrued expenses and other liabilities |
17,812 |
21,735 |
||||||||||||||||||
Current portion of debt (see Note 6) |
108,628 |
118,448 |
||||||||||||||||||
Total current liabilities |
145,444 |
159,260 |
||||||||||||||||||
Convertible subordinated notes, net - related party (see Note 6) |
6,105 |
5,883 |
||||||||||||||||||
Accrued claims and insurance |
4,403 |
5,142 |
||||||||||||||||||
Deferred income taxes and other credits (see Note 4) |
5,366 |
5,460 |
||||||||||||||||||
Reserve for restaurant closings (see Note 7) |
3,037 |
3,114 |
||||||||||||||||||
Total liabilities |
164,355 |
178,859 |
||||||||||||||||||
Commitments and contingencies (see Note 8) |
||||||||||||||||||||
SHAREHOLDERS' EQUITY |
||||||||||||||||||||
Common stock, $.32 par value, authorized 100,000,000 shares, issued |
8,769 |
8,769 |
||||||||||||||||||
Paid-in capital |
36,916 |
37,335 |
||||||||||||||||||
Deferred compensation |
(1,384 |
) |
(1,989 |
) |
||||||||||||||||
Retained earnings |
218,556 |
225,062 |
||||||||||||||||||
Less cost of treasury shares, 4,946,771 and 4,970,024, in fiscal 2003 and 2003, |
(105,063 |
) |
(105,557 |
) |
||||||||||||||||
Total shareholders' equity |
157,794 |
163,620 |
||||||||||||||||||
Total liabilities and shareholders' equity |
$ |
322,149 |
$ |
342,479 |
||||||||||||||||
See accompanying notes |
Luby's, Inc.
Consolidated Statements of Operations (unaudited)
(In thousands)
Quarter Ended |
Two Quarters Ended |
||||||||||||||
February 12, |
February 13, |
February 12, |
February 13, |
||||||||||||
2003 |
2002 |
2003 |
2002 |
||||||||||||
(84 days) |
(84 days) |
(168 days) |
(166 days) |
||||||||||||
SALES |
$ |
88,263 |
$ |
91,257 |
$ |
176,492 |
$ |
186,452 |
|||||||
COSTS AND EXPENSES: |
|||||||||||||||
Cost of food |
25,563 |
22,540 |
50,581 |
47,190 |
|||||||||||
Payroll and related costs |
26,040 |
30,330 |
53,716 |
64,923 |
|||||||||||
Occupancy and other operating expenses |
33,826 |
34,208 |
68,196 |
70,593 |
|||||||||||
General and administrative expenses |
5,353 |
5,360 |
10,720 |
10,708 |
|||||||||||
Provision for asset impairments and |
138 |
-- |
(25 |
) |
130 |
||||||||||
90,920 |
92,438 |
183,188 |
193,544 |
||||||||||||
INCOME (LOSS) FROM OPERATIONS |
(2,657 |
) |
(1,181 |
) |
(6,696 |
) |
(7,092 |
) |
|||||||
Interest expense |
(2,173 |
) |
(2,413 |
) |
(4,177 |
) |
(4,983 |
) |
|||||||
Other income, net |
1,425 |
309 |
4,367 |
757 |
|||||||||||
INCOME (LOSS) BEFORE INCOME TAXES |
(3,405 |
) |
(3,285 |
) |
(6,506 |
) |
(11,318 |
) |
|||||||
Provision (Benefit) For Income Taxes |
-- |
(1,123 |
) |
-- |
(3,811 |
) |
|||||||||
NET INCOME (LOSS) |
$ |
(3,405 |
) |
$ |
(2,162 |
) |
$ |
(6,506 |
) |
$ |
(7,507 |
) |
|||
NET INCOME (LOSS) PER SHARE -- |
$ |
(0.15 |
) |
$ |
(0.09 |
) |
$ |
(0.29 |
) |
$ |
(0.33 |
) |
|||
See accompanying notes. |
Luby's, Inc.
Consolidated Statements of Shareholders' Equity (unaudited)
(In thousands)
Common Stock |
Total |
|||||||||||||||||||||||||||||||||||||||||||||||||||||
Issued |
Treasury |
Paid-In |
Deferred |
Retained |
Shareholders' |
|||||||||||||||||||||||||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
Capital |
Compensation |
Earnings |
Equity |
|||||||||||||||||||||||||||||||||||||||||||||||
BALANCE AT AUGUST 28, 2002 |
27,403 |
$ |
8,769 |
(4,970 |
) |
$ |
(105,557 |
) |
$ |
37,335 |
$ |
(1,989 |
) |
$ |
225,062 |
$ |
163,620 |
|||||||||||||||||||||||||||||||||||||
Net income (loss) for the year to date |
(6,506 |
) |
(6,506 |
) |
||||||||||||||||||||||||||||||||||||||||||||||||||
Executive compensation expense |
605 |
605 |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued under nonemployee director benefit |
23 |
494 |
(419 |
) |
75 |
|||||||||||||||||||||||||||||||||||||||||||||||||
BALANCE AT FEBRUARY 12, 2003 |
27,403 |
$ |
8,769 |
(4,947 |
) |
$ |
(105,063 |
) |
$ |
36,916 |
$ |
(1,384 |
) |
$ |
218,556 |
$ |
157,794 |
|||||||||||||||||||||||||||||||||||||
See accompanying notes. |
Luby's, Inc.
Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Two Quarters Ended |
|||||||||||||||||||||||||||||
February 12, |
February 13, |
||||||||||||||||||||||||||||
2003 |
2002 |
||||||||||||||||||||||||||||
(168 days) |
(166 days) |
||||||||||||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|||||||||||||||||||||||||||||
Net income (loss) |
$ |
(6,506 |
) |
$ |
(7,507 |
) |
|||||||||||||||||||||||
Adjustments to reconcile net income (loss) to net cash |
|||||||||||||||||||||||||||||
Depreciation and amortization |
10,066 |
9,934 |
|||||||||||||||||||||||||||
Amortization of deferred loss on interest rate swaps |
-- |
496 |
|||||||||||||||||||||||||||
Amortization of discount on convertible subordinated notes |
222 |
222 |
|||||||||||||||||||||||||||
Provision for (reversal of) asset impairments and restaurant closings |
(25 |
) |
130 |
||||||||||||||||||||||||||
(Gain) loss on disposal of property held for sale |
(3,223 |
) |
(110 |
) |
|||||||||||||||||||||||||
(Gain) loss on disposal of property, plant, and equipment |
(1,110 |
) |
94 |
||||||||||||||||||||||||||
Noncash nonemployee directors' fees |
75 |
115 |
|||||||||||||||||||||||||||
Noncash executive compensation expense |
605 |
601 |
|||||||||||||||||||||||||||
Cash (used in) provided by operating activities before |
104 |
3,975 |
|||||||||||||||||||||||||||
Changes in operating assets and liabilities: |
|||||||||||||||||||||||||||||
(Increase) decrease in trade accounts and other receivables |
(110 |
) |
145 |
||||||||||||||||||||||||||
(Increase) decrease in food and supply inventories |
(107 |
) |
34 |
||||||||||||||||||||||||||
(Increase) decrease in income tax receivable |
-- |
(6,829 |
) |
||||||||||||||||||||||||||
(Increase) decrease in prepaid expenses |
(63 |
) |
(29 |
) |
|||||||||||||||||||||||||
(Increase) decrease in investments and other assets |
472 |
133 |
|||||||||||||||||||||||||||
Increase (decrease) in accounts payable |
(73 |
) |
6,759 |
||||||||||||||||||||||||||
Increase (decrease) in accrued claims and insurance, accrued |
(4,662 |
) |
(5,679 |
) |
|||||||||||||||||||||||||
Increase (decrease) in deferred income taxes and other credits |
(94 |
) |
2,951 |
||||||||||||||||||||||||||
Increase (decrease) in reserve for restaurant closings |
(77 |
) |
(258 |
) |
|||||||||||||||||||||||||
Net cash (used in) provided by operating activities |
$ |
(4,610 |
) |
$ |
1,202 |
||||||||||||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|||||||||||||||||||||||||||||
(Increase) decrease in short-term investments |
$ |
9,181 |
$ |
2,331 |
|||||||||||||||||||||||||
Proceeds from disposal of property held for sale |
6,916 |
1,093 |
|||||||||||||||||||||||||||
Purchases of property, plant, and equipment |
(6,043 |
) |
(6,097 |
) |
|||||||||||||||||||||||||
Proceeds from disposal of property, plant, and equipment |
2,983 |
-- |
|||||||||||||||||||||||||||
Net cash provided by (used in) investing activities |
13,037 |
(2,673 |
) |
||||||||||||||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|||||||||||||||||||||||||||||
Issuance (repayment) of debt, net |
(9,820 |
) |
(1,056 |
) |
|||||||||||||||||||||||||
Net cash provided by (used in) financing activities |
(9,820 |
) |
(1,056 |
) |
|||||||||||||||||||||||||
Net increase (decrease) in cash |
(1,393 |
) |
(2,527 |
) |
|||||||||||||||||||||||||
Cash at beginning of period |
1,584 |
4,099 |
|||||||||||||||||||||||||||
Cash at end of period |
$ |
191 |
$ |
1,572 |
|||||||||||||||||||||||||
See accompanying notes |
Luby's, Inc.
Notes to Consolidated Financial Statements (unaudited)
February 12, 2003
Note 1. Basis of Presentation
The accompanying unaudited financial statements are presented in accordance with the requirements of Form 10-Q and, consequently, do not include all of the disclosures normally required by accounting principles generally accepted in the United States. All adjustments which are, in the opinion of management, necessary to a fair presentation of the results for the interim periods have been made. All such adjustments are of a normal recurring nature. The results for the interim periods are not necessarily indicative of the results to be expected for the full year.
These financial statements should be read in conjunction with the consolidated financial statements and footnotes included in Luby's Annual Report on Form 10-K for the year ended August 28, 2002. The accounting policies used in preparing these consolidated financial statements are the same as those described in Luby's Annual Report on Form 10-K.
Note 2. Accounting Period Change
Beginning with the 2002 fiscal year, the Company changed its accounting intervals from 12 calendar months to 13 four-week periods. To properly accommodate this change, the first period in fiscal 2002 began September 1, 2001, and covered 26 days; subsequent periods covered 28 days. The first, second, third, and fourth quarters of fiscal year 2002 included 82, 84, 84, and 112 days, respectively. Fiscal year 2003 and most years going forward will be 364 days in length, comparatively, with the first and second quarters covering 84 days each.
Note 3. Short-Term Investments
The Company's balance in short-term investments was $14.9 million and $24.1 million as of February 12, 2003, and August 28, 2002, respectively. As of both period-ends, cash resources were invested in money-market funds and time deposits. As of February 12, 2003, approximately $1.1 million of the Company's short-term investments was also pledged as collateral to two separate letters of credit.
Note 4. Income Tax
Following is a summarization of deferred income tax assets and liabilities as of the current quarter and the prior fiscal year:
February 12, |
August 28, |
||||||||||||||||
2003 |
2002 |
||||||||||||||||
(In thousands) |
|||||||||||||||||
Net deferred long-term income tax liability |
$ |
(5,366 |
) |
$ |
(5,460 |
) |
|||||||||||
Other credits |
1,559 |
1,653 |
|||||||||||||||
Net deferred long-term income tax liability |
(3,807 |
) |
(3,807 |
) |
|||||||||||||
Net deferred short-term income tax asset |
2,726 |
2,726 |
|||||||||||||||
Net deferred income tax liability |
$ |
(1,081 |
) |
$ |
(1,081 |
) |
|||||||||||
The tax effect of temporary differences results in the following deferred income tax assets and liabilities as of the current quarter and the prior fiscal year:
February 12, |
August 28, |
|||||||||||||||
2003 |
2002 |
|||||||||||||||
(In thousands) |
||||||||||||||||
Deferred tax assets: |
||||||||||||||||
Workers' compensation, employee injury, and general liability claims |
$ |
3,197 |
$ |
3,501 |
||||||||||||
Deferred compensation |
1,944 |
1,806 |
||||||||||||||
Asset impairments and restaurant closure reserves |
16,907 |
19,243 |
||||||||||||||
Net operating loss |
2,158 |
-- |
||||||||||||||
Other |
88 |
-- |
||||||||||||||
Subtotal |
24,294 |
24,550 |
||||||||||||||
Valuation allowance |
(2,158 |
) |
-- |
|||||||||||||
Total deferred tax assets |
22,136 |
24,550 |
||||||||||||||
Deferred tax liabilities: |
||||||||||||||||
Depreciation and amortization, including amortization of capitalized interest |
23,217 |
23,650 |
||||||||||||||
Other |
-- |
1,981 |
||||||||||||||
Total deferred tax liabilities |
23,217 |
25,631 |
||||||||||||||
Net deferred tax liability |
$ |
(1,081 |
) |
$ |
(1,081 |
) |
||||||||||
The reconciliation of the benefit for income taxes to the expected income tax benefit computed using the statutory tax rate is as follows:
Quarter Ended |
Two Quarters Ended |
||||||||||||||||||||||||||||
February 12, |
February 13, |
February 12, |
February 13, |
||||||||||||||||||||||||||
Amount |
% |
Amount |
% |
Amount |
% |
Amount |
% |
||||||||||||||||||||||
(In thousands and as a percent of pretax income) |
|||||||||||||||||||||||||||||
Normally expected |
$ |
(1,192 |
) |
(35.0 |
)% |
$ |
(1,150 |
) |
(35.0 |
)% |
$ |
(2,277 |
) |
(35.0 |
)% |
$ |
(3,961 |
) |
(35.0 |
)% |
|||||||||
State income taxes |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
|||||||||||||||||||||
Jobs tax credits |
(51 |
) |
(1.5 |
) |
(96 |
) |
(2.9 |
) |
(101 |
) |
(1.6 |
) |
(191 |
) |
(1.7 |
) |
|||||||||||||
Other differences |
111 |
3.3 |
123 |
3.7 |
220 |
3.4 |
341 |
3.0 |
|||||||||||||||||||||
Valuation allowance |
1,132 |
33.2 |
-- |
-- |
2,158 |
33.2 |
-- |
-- |
|||||||||||||||||||||
$ |
-- |
-- |
% |
$ |
(1,123 |
) |
(34.2 |
)% |
$ |
-- |
-- |
% |
$ |
(3,811 |
) |
(33.7 |
)% |
||||||||||||
The Company generated an operating loss carry-forward of approximately $11.8 million for the two quarters ended February 12, 2003. The tax benefit for book purposes of $2.2 million was netted against a valuation allowance because loss carry-backs will be exhausted with the fiscal 2002 tax filing, making the realization of loss carry-forward utilization uncertain.
Note 5. Property, Plant, and Equipment
The cost and accumulated depreciation of property, plant, and equipment at February 12, 2003, and August 28, 2002, together with the related estimated useful lives used in computing depreciation and amortization, were as follows:
February 12, |
August 28, |
Estimated |
|||||||||||||||||
2003 |
2002 |
Useful Lives |
|||||||||||||||||
(In thousands) |
|||||||||||||||||||
Land |
$ |
72,364 |
$ |
73,664 |
─ |
||||||||||||||
Restaurant equipment and furnishings |
139,455 |
138,846 |
3 to 15 years |
||||||||||||||||
Buildings |
235,954 |
236,806 |
20 to 40 years |
||||||||||||||||
Leasehold and leasehold improvements |
31,765 |
33,107 |
Term of leases |
||||||||||||||||
Office furniture and equipment |
12,510 |
12,330 |
5 to 10 years |
||||||||||||||||
Transportation equipment |
730 |
811 |
5 years |
||||||||||||||||
492,778 |
495,564 |
||||||||||||||||||
Less accumulated depreciation and |
(209,805 |
) |
(205,597 |
) |
|||||||||||||||
$ |
282,973 |
$ |
289,967 |
|
|||||||||||||||
Note 6. Debt
Credit-Facility Debt
At August 28, 2002, the Company had a credit-facility balance of $118.4 million with the bank group (a syndicate of four banks). In accordance with provisions of that credit facility, the Company paid the outstanding balance down by $9.8 million during the first two quarters of fiscal 2003 from proceeds received from the sale of real and personal property. As a result, the balance was lowered to $108.6 million at the end of the second quarter of fiscal 2003. The interest rate was prime plus 3.5% and prime plus 1.5% at February 12, 2003, and August 28, 2002, respectively.
In the second quarter of fiscal 2003, the Company executed a commitment letter with a third-party lender for an $80 million loan. Its purpose was to replace that amount of debt in the existing credit facility. The bank group of the credit facility amended its agreement with the Company to require that all the funds provided by the prospective lender be used to pay down the current debt.
Subsequently, the Company did not finalize an agreement with the third-party lender because of unacceptable changes in the structure of the proposed loan. Consequently, the Company was in default under the existing credit facility as of January 31, 2003, not as a result of noncompliance with financial performance covenants, but because the replacement financing could not be finalized. The Company is current on all interest payments due under the credit facility.
As of February 12, 2003, $237.8 million of the Company's total book value, or 73.9% of its total assets, including the Company's owned real estate, improvements, equipment, and fixtures, was pledged as collateral under the credit facility. Although the current lenders have reserved all rights and remedies they may have in connection with the January 31, 2003, default - including the right to demand immediate repayment of the entire outstanding balance or the right to pursue foreclosure on the assets pledged as collateral - they have not announced any intention to take such action.
Management has been actively communicating with the bank group while developing a new two-year business plan focused on returning the Company to profitability. The Company has also engaged the financial advisory firms of Morgan Joseph & Co. and ING Capital LLC ("Morgan-ING") to review the new business plan and assist in coordinating its implementation with the group which holds the Company's debt. The Morgan-ING team may also assist the Company in exploring additional financing options that add value to the new business plan.
After thorough review of several strategic alternatives, including the proposed new business plan and after consultation with the Morgan-ING advisors, the Company's Board of Directors approved the plan on March 29, 2003. Subsequent to the approval decision, management initiated immediate implementation of the plan. Specifically, the plan calls for closure of approximately 50 of the Company's operating stores. In cases where those properties are owned by the Company, the proceeds from the sale of the properties are to be used to pay down bank debt under the existing agreement. The first 30 restaurants will be closed between March 31 and April 3, 2003. Most of the remaining locations are leased units that will close as soon as commercially feasible after negotiations with landlords or at the end of lease terms that expire in the near future.
Initially, cash resources will be reduced under the new plan, especially relative to lease settlements and termination costs. The Company will be able to use its expected $7.2 million tax refund to lessen the burden but will also need to pursue other options, which may include retaining a portion of cash from proceeds from the sale of property. Such an allowance will be subject to approval by the current credit-facility bank group.
The credit agreement includes a provision for the issuance of letters of credit in the amount of $1.2 million. There is no room to borrow additional funds under the current debt agreement.
Subordinated Debt
On March 9, 2001, the Company's CEO and COO, Christopher J. Pappas and Harris J. Pappas, respectively, committed to lending the Company a total of $10 million in exchange for convertible subordinated notes that were funded in the fourth quarter of fiscal 2001. The notes, as formally executed, bear interest at LIBOR plus 2%, payable quarterly, and have a stated redemption date of March 1, 2011. Interest through September 1, 2003, may be paid in a combination of cash, common stock, or both at the Company's election, subject to certain restrictions on the amount of stock issued. All interest to date has been paid in cash. Interest incurred after September 1, 2003, must be paid in cash.
Notwithstanding any accrued interest that may also be converted to stock, the notes are convertible into the Company's common stock at $5.00 per share for 2.0 million shares at the option of the holders at any time after January 2, 2003, and prior to the stated redemption date. The per share market price of the Company's stock on the commitment date (as determined by the closing price on the New York Stock Exchange on the date of issue) was $7.34. The difference between the market price and strike price of $5.00, or $2.34 per share, multiplied by the 2.0 million convertible shares equaled approximately $4.7 million. Under the Company's adopted intrinsic value method, applicable accounting principles require that this amount, which represents the beneficial conversion feature, be recorded as both a component of paid-in capital and a discount from the $10 million.
The conversion feature is being amortized over the term of the notes. The carrying value of the notes at February 12, 2003, net of the unamortized discount, was approximately $6.1 million. The comparative carrying value of the notes at August 28, 2002, was approximately $5.9 million.
Note 7. Impairment of Long-Lived Assets and Store Closings
Fiscal 2003 Year-to-Date
Impairment costs in the second quarter of fiscal 2003 were $138,000, which related to a decrease in the expected value of a property held for sale. Year-to-date, this cost was completely offset by first-quarter increases in the expected value of three different properties held for sale. In no case were assets written above original impaired values. Two of the four related properties with adjusted values have been sold, and one is under contract to be sold, with an expected closing date scheduled within the next 90 days.
Fiscal 2002 Year-to-Date
During the first two quarters of fiscal 2002, the Company recorded a pretax charge to operating costs of $130,000 related to employee termination costs for 11 of 17 restaurants that met the Company's criteria for closure in fiscal 2001. The employees of those 11 units received notification during the first quarter of fiscal 2002, and each unit was subsequently closed. Termination costs for four other locations were not considered individually significant and were recorded to payroll and related costs in fiscal 2002. The two remaining locations were still in operation at the end of the quarter.
Operating Results for Restaurants Designated for Closure in Fiscal 2001 with a Remaining Reserve as
of February 12, 2003
Of the 17 restaurants designated for closure in fiscal 2001, two were to be fully reconcepted, while two others continue to operate as cafeterias. The operating results of the cafeterias were as follows:
Quarter Ended |
Two Quarters Ended |
||||||||||||||
February 12, |
February 13, |
February 12, |
February 13, |
||||||||||||
2003 |
2002 |
2003 |
2002 |
||||||||||||
(84 days) |
(84 days) |
(168 days) |
(166 days) |
||||||||||||
Sales |
$ |
557 |
$ |
1,546 |
$ |
1,215 |
$ |
4,394 |
|||||||
Operating loss |
(369 |
) |
(676 |
) |
(839 |
) |
(1,993 |
) |
|||||||
Fiscal 2001 Reserve for Restaurant Closings
Excluding lease termination settlements, it is anticipated that all material cash outlays required for the store closings planned as of August 31, 2001, will be made prior to the end of fiscal 2003. The following is a summary for the quarterly period ended February 12, 2003, for amounts recognized as accrued expenses together with cash payments made against such accruals under the fiscal year 2001 plan:
Reserve |
|||||||||||
Lease |
|||||||||||
Settlement |
Other |
Total |
|||||||||
Costs |
Exit Costs |
Reserve |
|||||||||
(In thousands) |
|||||||||||
As of August 28, 2002 |
$ |
2,977 |
$ |
137 |
$ |
3,114 |
|||||
Additions (reductions) |
-- |
-- |
-- |
||||||||
Cash payments |
-- |
(77 |
) |
(77 |
) |
||||||
As of February 12, 2003 |
$ |
2,977 |
$ |
60 |
$ |
3,037 |
|||||
Note 8. Commitments and Contingencies
Officer Loans
In fiscal 1999, the Company guaranteed loans of approximately $1.9 million relating to purchases of Luby's stock by various officers of the Company pursuant to the terms of a shareholder-approved plan. Under the officer loan program, shares were purchased and funding was obtained from JPMorgan Chase Bank, one of the four members of the bank group that participate in the Company's credit facility. These instruments only require annual interest to be paid by the individual noteholders, and the entire principal balance is due at maturity in fiscal 2004. As of both February 12, 2003, and February 13, 2002, the notes had an outstanding balance of approximately $1.6 million. The Company has received notice from JPMorgan Chase Bank that the underlying guarantee on these loans includes a cross-default provision; consequently, the January 31, 2003, default in the Company's credit facility has led to a default in the officer loans. JPMorgan Ch
ase Bank has requested that the Company repurchase the notes; however, such action cannot be completed without consultation with the entire bank group. The Company is therefore working constructively with all members of the bank group in an effort to cure both defaults and satisfactorily meet lender expectations.
In the event of individual noteholder default, the Company would purchase the loans from JPMorgan Chase Bank, become holder of the notes, record the receivables, and pursue collection. The purchased Company stock has been and can be used by borrowers to satisfy a portion of their loan obligation. As of February 12, 2003, based on the market price on that day, approximately $120,000, or 7.4% of the note balances, could have been covered by stock, while approximately $1.5 million, or 92.6%, would have remained outstanding.
Pending Claims
As reported in previous filings, a lawsuit was filed by two former Luby's assistant managers claiming violation of the Fair Labor Standards Act and the commission of certain fraudulent acts. An agreement to resolve this matter has been made between the parties, and the judge has signed an order preliminarily approving the settlement of class claims, sending of notice, plan of allocation, attorney's fees and expenses, and conditionally granted final approval of same.
The Company is presently, and from time to time, subject to pending claims and lawsuits arising in the ordinary course of business. In the opinion of management, other than the litigation described above, the resolution of all other pending legal proceedings will not have a material adverse effect on the Company's operations or consolidated financial position.
Note 9. Deferred Compensation - Executive Stock Options
In connection with their employment agreements effective March 9, 2001, the CEO and the COO were granted approximately 2.2 million stock options at a strike price of $5.00 per share, which was below the quoted market price on the date of grant. From that date through fiscal 2004, the Company will recognize a total of $5.2 million in noncash compensation expense associated with these options. A total of $605,000 and $601,000 was recognized for the first two quarters of fiscal 2003 and 2002, respectively. Of the $5.2 million to be recognized, $3.8 million has been recognized through February 12, 2003, while $1.4 million remains to be amortized.
Note 10. Related Parties
Affiliate Services
The CEO and COO of the Company, Christopher J. Pappas and Harris J. Pappas, respectively, own two restaurant entities that provide services to Luby's, Inc. as detailed in the Affiliate Services Agreement and the Master Sales Agreement. Under the terms of the agreements, the Pappas entities have provided specialized (customized) equipment fabrication; basic equipment maintenance; and accounting, architectural, and general business services. More specifically, the Master Sales Agreement includes the costs incurred for modifications to existing equipment, as well as custom-fabrication, including stainless steel stoves, shelving, rolling carts, and chef tables. The total cost of the custom-fabricated and refurbished equipment for the first two quarters of fiscal 2003 and 2002 was approximately $99,000 and $301,000, respectively. As of the report date, all amounts charged under the agreements through February 12, 2003, have been paid.
The Finance and Audit Committee of the Company's Board of Directors uses independent valuation consultants to assist in periodically monitoring pricing of the transactions associated with the Master Sales Agreement and the Affiliate Services Agreement. The Company's external auditors performed agreed upon procedures related to the affiliate services. The scope and sufficiency of such procedures are determined by management and the Board of Directors, and results are submitted to the Board for its use in evaluating the fairness of the transactions.
Operating Leases
In a separate contract from the Affiliate Services Agreement and the Master Sales Agreement, the Company entered into a three-year lease which commenced on June 1, 2001, and ends May 31, 2004. The leased property is used to accommodate the Company's own in-house repair and fabrication center. The amount paid by the Company pursuant to the terms of this lease was approximately $40,000 for each of the two-quarter periods ended February 12, 2003, and February 13, 2002.
In another separate contract, pursuant to the terms of a ground lease dated March 25, 1994, the Company paid rent to PHCG Investments for a Luby's restaurant operating in Dallas, Texas. Christopher J. Pappas and Harris J. Pappas are general partners of PHCG Investments. The amount paid by the Company to PHCG Investments pursuant to the terms of the lease agreement was approximately $42,000 for the two quarters ended February 12, 2003, and for the same period in fiscal 2002. Rents paid for both leases combined represent 2.4% of total rents paid by the Company for the two quarters ended February 12, 2003.
Relative to the PHCG Investments lease, in the first quarter of fiscal 2003, the Company entered into a termination agreement with a third party unaffiliated with the Pappas entities to sever its interest in the PHCG property in exchange for a payment of cash, the right to remove fixtures and equipment from the premises, and the release of any future obligations under the lease agreement now owned by PHCG Investments. The closing of the transaction was completed subsequent to the end of the second quarter of fiscal 2003, resulting in a gain of $735,000, while the gross proceeds were used to pay down debt.
Subordinated Debt
As described in Note 7 in the section entitled "Subordinated Debt," the CEO and the COO loaned the Company a total of $10 million in the form of convertible subordinated notes to support the Company's future operating cash needs. The entire balance was outstanding as of February 12, 2003.
Board of Directors
Pursuant to the terms of a separate Purchase Agreement dated March 9, 2001, entered into by and among the Company, Christopher J. Pappas and Harris J. Pappas, the Company agreed to submit three persons designated by Messrs. Pappas as nominees for election for directors. They designated themselves and Frank Markantonis as their nominees for directors, all of whom were subsequently elected. Christopher J. Pappas and Harris J. Pappas are brothers. As disclosed in the proxy statement for the January 31, 2003, annual meeting of shareholders, Frank Markantonis is an attorney whose principal client is Pappas Restaurants, Inc., an entity owned by Harris J. Pappas and Christopher J. Pappas.
Key Management Personnel
Ernest Pekmezaris, the Chief Financial Officer of the Company, is also the Treasurer of Pappas Restaurants, Inc. Compensation for the services provided by Mr. Pekmezaris to Pappas Restaurants, Inc. is paid entirely by that entity.
Peter Tropoli, the Senior Vice President-Administration of the Company, is an attorney who, from time to time, has provided litigation services to entities controlled by Christopher J. Pappas and Harris J. Pappas. Mr. Tropoli is the stepson of Frank Markantonis, who, as previously mentioned, is a director of the Company.
Paulette Gerukos, Administration Assistant of the Human Resources Department of the Company, is the sister-in-law of Harris J. Pappas, the Chief Operating Officer.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and footnotes for the two quarters ended February 12, 2003, and the audited financial statements filed on Form 10-K for the fiscal year ended August 28, 2002.
Overview
As of February 12, 2003, the Company operated 193 restaurants under the name "Luby's." These establishments are located in close proximity to retail centers, business developments, and residential areas throughout ten states (six in Arizona, five in Arkansas, one in Florida, two in Louisiana, two in Mississippi, two in Missouri, two in New Mexico, seven in Oklahoma, seven in Tennessee, and 159 in Texas). Of the 193 restaurants, 124 are at locations owned by the Company and 69 are on leased premises. Additionally, two of the restaurants primarily serve seafood, one is a steak buffet, 46 are full-time all-you-can-eat concepts, and 144 are traditional cafeterias. For additional information concerning Company restaurants, also see The New Business Plan/Debt under the Liquidity and Capital Resources section below.
RESULTS OF OPERATIONS
Quarter ended February 12, 2003, compared to the quarter ended February 13, 2002
Sales decreased $3.0 million, or 3.3%, in the second quarter of fiscal 2003 compared to the second quarter of fiscal 2002. Of the total decline, $3.4 million was due to the closure of twelve restaurants since November 21, 2001, and $0.5 million was due to a 0.6% decrease in same-store sales. These contributors to the total decline were offset by the opening of three restaurants since November 21, 2001, that accounted for $0.9 million in sales.
Cost of food increased $3.0 million, or 13.4%, and as a percentage of sales increased from 24.7% to 29.0% in the current quarter in comparison with the same period last year. New "all-you-can-eat" offerings and buffets at selected locations have contributed to higher food costs. This increase in food cost was a planned part of a Company strategy aimed at increasing value while maintaining quality.
Payroll and related costs decreased $4.3 million, or 14.1%, in the current quarter due primarily to restaurant closures, various Company initiatives to reduce labor costs, and lower workers' compensation expense. Of the total reduction, $3.1 million was due to lower wages and associated payroll taxes resulting from numerous store closures coupled with various Company initiatives to reduce labor costs. An additional $1.2 million of the total decline was due to lower workers' compensation costs resulting from the new in-house training and safety programs.
Occupancy and other operating expenses decreased $382,000, or 1.1%. Although the dollar decrease is primarily due to store closures, other factors contributed to the fluctuation. Utility costs decreased principally due to lower commodity prices. Food-to-go packaging costs further declined due to less expensive packaging and a program to redirect these customers at many locations to inside dining. These were partially offset by property/employee insurance, which increased principally due to premium increases for owned properties coupled with pass-through insurance adjustments from landlords of leased properties.
General and administrative expenses were approximately equal to the prior year, with only a slight decrease of $7,000, or 0.1%. Small variances exist among these expenses which, when taken as a whole, are not significant.
The provision for asset impairments and restaurant closings increased by $138,000 primarily due to the write-down of properties held for sale to the appraisal values. No provision for asset impairments and restaurant closings was recorded in the second quarter of fiscal 2002.
Interest expense decreased $240,000, or 9.9%, due primarily to fully exhausted amortization of the loss of interest rate swaps and payment reductions in the line of credit. These factors were offset by amortization of amendment fees for the credit facility.
Other income increased by $1.1 million primarily due to gains on the sale of assets, which reflect the sale of three previously closed stores. These gains were partially offset by a loan commitment fee expensed in the current quarter.
The income tax benefit decreased by $1.1 million. While loss carry-backs are no longer available, the Company could use certain existing assets in a tax strategy that would support the recording of an estimated tax benefit in the current quarter. However, one was not recorded because loss carry-forward utilization is not certain.
The Company had a reserve for restaurant closings of $3.0 million and $3.1 million at February 12, 2003, and August 28, 2002, respectively. Excluding lease termination settlements, it is anticipated that all material cash outlays required for the store closings planned as of August 31, 2001, will be made prior to the end of fiscal 2003.
Two quarters ended February 12, 2003, compared to the two quarters ended February 13, 2002
Sales decreased $10.0 million, or 5.3%, for the first two quarters of fiscal 2003 compared to the first two quarters of fiscal 2002. Of the total decline, $8.1 million was due to the closure of 23 restaurants since August 31, 2001, and $5.5 million was due to a 3.1% decrease in same-store sales. These contributors to the total decline were offset by the positive impact of two additional days of sales of $2.3 million and the opening of three restaurants since August 31, 2001, that accounted for $1.3 million in sales.
Cost of food increased $3.4 million, or 7.2%, and as a percentage of sales increased from 25.3% to 28.7% for the first two quarters of fiscal 2003 in comparison with the same period last year. New "all-you-can-eat" offerings and buffets at selected locations have contributed to higher food costs. Again, this increase in food cost was a planned part of a Company strategy aimed at providing value and quality to the customer.
Payroll and related costs decreased $11.2 million, or 17.3%, due primarily to previous restaurant closures, various Company initiatives to reduce labor costs, and lower workers' compensation expense in the first two quarters of fiscal 2003. Of the total reduction, $8.5 million was due to lower wages and associated payroll taxes resulting from numerous store closures coupled with various Company initiatives to reduce labor costs. An additional $2.7 million of the total decline was due to lower workers' compensation costs resulting from the new in-house training and safety programs.
Occupancy and other operating expenses decreased $2.4 million, or 3.4%. Although the dollar decrease is primarily due to store closures, other factors contributed to the fluctuation. Utility costs decreased principally due to lower commodity prices. Repair and maintenance costs decreased primarily due to more efficiencies from the Company's in-house repair program as provided by its in-house service center. Food-to-go packaging costs further declined due to less expensive packaging and a program to redirect these customers at many locations to inside dining. These again were offset by property/employee insurance, which increased principally due to premium increases for owned properties coupled with pass-through insurance adjustments from landlords of leased properties.
General and administrative expenses were approximately equal to the prior year, with only a slight increase of $12,000, or 0.1%. Small variances exist among these expenses which, when taken as a whole, are not significant.
The provision for asset impairments and restaurant closings was credited a net $25,000 for the first two quarters of fiscal 2003. This related to new and pending property sales contracts that were more favorable than previously obtained appraisals. Those amounts were partially offset by a write-down of another property held for sale. Costs in the first two quarters of fiscal 2002 were $130,000, which related to employee terminations.
Interest expense decreased $806,000, or 16.2%, due primarily to lower effective interest rates on outstanding debt, the payoff of the loans on surrendered officers' life insurance policies, fully exhausted amortization of the loss of interest rate swaps, and payment reductions in the line of credit. These factors were offset by amortization of amendment fees for the credit facility.
Other income increased by $3.6 million primarily due to gains on the sales of assets, which reflect the sale of five previously closed stores. These gains were partially offset by a loan commitment fee expensed in fiscal 2003.
The income tax benefit decreased by $3.8 million. While loss carry-backs are no longer available, the Company could use certain existing assets in a tax strategy that would support the recording of an estimated tax benefit in the current quarter. However, one was not recorded because loss carry-forward utilization is not certain.
EBITDA
EBITDA increased by $377,000 for the first two quarters of fiscal 2003 in comparison with the same period of the prior fiscal year.
Two Quarters Ended |
|||||||||||||||
February 12, |
February 13, |
||||||||||||||
2003 |
2002 |
||||||||||||||
(168 days) |
(166 days) |
||||||||||||||
(In thousands) |
|||||||||||||||
Income (loss) from operations |
$ |
(6,696 |
) |
$ |
(7,092 |
) |
|||||||||
Less excluded items: |
|||||||||||||||
Provision for asset impairments and restaurant closings |
(25 |
) |
130 |
||||||||||||
Depreciation and amortization |
10,066 |
9,934 |
|||||||||||||
Noncash executive compensation expense |
605 |
601 |
|||||||||||||
EBITDA |
$ |
3,950 |
$ |
3,573 |
|||||||||||
The Company's operating performance is evaluated using several measures, one of which is EBITDA. The Company defines EBITDA as income from operations before interest, taxes, depreciation and amortization, and the noncash portion of the CEO's and the COO's stock option compensation. While the Company and many in the financial community consider EBITDA to be an important measure of operating performance, it should be considered in addition to, but not as a substitute for or superior to, other measures of financial performance prepared in accordance with accounting principles generally accepted in the United States, such as operating income and net income. In addition, the Company's definition of EBITDA is not necessarily comparable to similarly titled measures reported by other companies.
LIQUIDITY AND CAPITAL RESOURCES
Cash and Working Capital
Excluding the reclassification of the credit-facility balance as explained in The New Business Plan/Debt section below, the Company had a working capital deficit of $7.4 million at February 12, 2003, in comparison to a working capital deficit of $1.1 million at August 28, 2002. The increase in the deficit was primarily attributable to a reduction in short-term investments.
Capital expenditures for fiscal 2003 are expected to approximate $13 million. Management continues to focus on improving the appearance, functionality, and sales at existing restaurants. These efforts also include, where feasible, remodeling certain locations to other dining concepts. During the current quarter, the Company remodeled and reopened another previously closed location as a seafood restaurant. The new dining themes for the other two planned remodels in fiscal 2003 are still under consideration.
The New Business Plan/Debt
During 1994, the Company acquired a revolving line of credit from a bank group to primarily be used for financing long-term objectives, including capital acquisitions and a stock repurchase program. Capacity under that credit facility was fully exhausted during fiscal 2001. Since then, management has financed its capital acquisitions and working capital needs through careful cash management and the provision of an additional $10 million in financing by the Company's CEO and the COO.
At that same time, management recognized the need to arrange long-term financing that would better match long-term assets with the existing debt. Accordingly, early in the second quarter of fiscal 2003, the Company executed a commitment letter with a third-party lender for an $80 million loan to replace that amount of debt in the existing credit facility. Simultaneously, when the current bank group provided a recent waiver and amendment, it also added a stipulation that required the new $80 million financing be completed and funded by January 31, 2003. However, the Company was unable to finalize the new financing arrangement because of changes in the proposed agreement terms that were not in the best interest of the Company. This led to a default under the credit facility that the Company is currently focused on rectifying. Even though the lack of replacement financing has caused a default, the Company was in compliance with its financ ial performance covenants at the end of the quarter and no default in interest payments has occurred as of the report date. As of March 31, 2003, the existing bank group has taken no action other than to notify the Company that it reserves all rights and remedies they may have.
Management has been actively communicating with the credit-facility bank group, while working on its new two-year business plan focused on returning the Company to profitability. The Company also engaged the financial advisory firms of Morgan Joseph & Co. and ING Capital LLC ("Morgan-ING") to review the new business plan and assist in coordinating its implementation. The Morgan-ING team may also assist the Company in exploring additional financing options that add value to the new business plan.
After thorough review of several strategic alternatives, including the proposed new business plan and after consultation with the Morgan-ING advisors, the Company's Board of Directors approved the plan on March 29, 2003. Subsequent to the approval decision, management initiated immediate implementation of the plan. Specifically, it calls for closure of approximately 50 of the Company's operating stores. In cases where those properties are owned by the Company, the proceeds from the sale of the properties are to be used to pay down bank debt under the existing agreement. The first 30 restaurants will be closed between March 31 and April 3, 2003. Most of the remaining locations are leased units that will close as soon as commercially feasible after negotiations with landlords or at the end of lease terms that expire in the near future.
Over a time span starting in the third quarter of fiscal 2003 through the fourth quarter of fiscal 2004, the Company expects to report net losses from discontinued operations due to its decision to close the locations specified in the new business plan. General estimates have been formulated for the related net losses. The timing and actual incurred costs may differ from these estimates as plan specifics are finalized. The total current loss estimate of approximately $27 million includes net impairment charges associated with reducing applicable property values down to their net realizable values, employee termination costs, lease settlements, legal and professional fees, basic carrying costs while properties are being marketed, and other related charges.
Initially, cash resources will be reduced under the new plan, especially relative to lease settlements and termination costs. The Company will be able to use its expected $7.2 million tax refund to lessen the burden but will also need to pursue other options, which may include retaining a portion of cash from proceeds from the sale of property. Such an allowance will be subject to approval by the current credit-facility bank group.
Updated information about the financial costs of the new plan will be provided in the Company's fiscal 2003 third-quarter filing since the plan was approved in that quarter. Those financials will include costs incurred to date.
Credit-Facility Debt
At August 28, 2002, the Company had a credit-facility balance of $118.4 million with the bank group (a syndicate of four banks). In accordance with provisions of that credit facility, the Company paid the outstanding balance down by $9.8 million from proceeds received from the sale of real and personal property. As a result, the balance was lowered to $108.6 million at the end of the second quarter of fiscal 2003. The interest rate was prime plus 3.5% and prime plus 1.5% at February 12, 2003, and August 28, 2002, respectively. The Company is current on all interest payments due under the credit facility.
As of February 12, 2003, $237.8 million of the Company's total book value, or 73.9% of its total assets, including the Company's owned real estate, improvements, equipment, and fixtures, was pledged as collateral under the credit facility. Although the current lenders have reserved all rights and remedies they may have as a result of the January 31, 2003, default - including the right to demand immediate repayment of the entire outstanding balance or the right to pursue foreclosure on the assets pledged as collateral - they have not announced any intention to take such action. (Also see the section above.)
The credit agreement includes a provision for the issuance of letters of credit in the amount of $1.2 million. There is no room to borrow additional funds under the current debt agreement.
Subordinated Debt
On March 9, 2001, the Company's CEO and COO, Christopher J. Pappas and Harris J. Pappas, respectively, committed to lending the Company a total of $10 million in exchange for convertible subordinated notes that were funded in the fourth quarter of fiscal 2001. The notes, as formally executed, bear interest at LIBOR plus 2%, payable quarterly, and have a stated redemption date of March 1, 2011. Interest through September 1, 2003, may be paid in a combination of cash, common stock, or both at the Company's election, subject to certain restrictions on the amount of stock issued. All interest to date has been paid in cash. Interest incurred after September 1, 2003, must be paid in cash.
Notwithstanding any accrued interest that may also be converted to stock, the notes are convertible into the Company's common stock at $5.00 per share for 2.0 million shares at the option of the holders at any time after January 2, 2003, and prior to the stated redemption date. The per share market price of the Company's stock on the commitment date (as determined by the closing price on the New York Stock Exchange on the date of issue) was $7.34. The difference between the market price and strike price of $5.00, or $2.34 per share, multiplied by the 2.0 million convertible shares equaled approximately $4.7 million. Under the Company's adopted intrinsic value method, applicable accounting principles require that this amount, which represents the beneficial conversion feature, be recorded as both a component of paid-in capital and a discount from the $10 million.
The conversion feature is being amortized over the term of the notes. The carrying value of the notes at August 28, 2002, net of the unamortized discount, was approximately $5.9 million. The comparative carrying value of the notes at February 12, 2003, was approximately $6.1 million.
COMMITMENTS AND CONTINGENCIES
In fiscal 1999, the Company guaranteed loans of approximately $1.9 million relating to purchases of Luby's stock by various officers of the Company pursuant to the terms of a shareholder-approved plan. Under the officer loan program, shares were purchased and funding was obtained from JPMorgan Chase Bank, one of the four members of the bank group that participate in the Company's credit facility. These instruments only require annual interest to be paid by the individual noteholders, and the entire principal balance is due at maturity in fiscal 2004. As of both February 12, 2003, and February 13, 2002, the notes had an outstanding balance of approximately $1.6 million. The Company has received notice from JPMorgan Chase Bank that the underlying guarantee on these loans includes a cross-default provision; consequently, the January 31, 2003, default in the Company's credit facility has led to a default in the officer loans. &n bsp;JPMorgan Chase Bank has requested that the Company repurchase the notes; however, such action cannot be completed without consultation with the entire bank group. The Company is therefore working constructively with all members of the bank group in an effort to cure both defaults and satisfactorily meet lender expectations.
In the event of individual noteholder default, the Company would purchase the loans from JPMorgan Chase Bank, become holder of the notes, record the receivables, and pursue collection. The purchased Company stock has been and can be used by borrowers to satisfy a portion of their loan obligation. As of February 12, 2003, based on the market price on that day, approximately $120,000, or 7.4% of the note balances, could have been covered by stock, while approximately $1.5 million, or 92.6%, would have remained outstanding.
AFFILIATE SERVICES
The Company entered into an Affiliate Services Agreement effective August 31, 2001, with two companies, Pappas Partners, L.P. and Pappas Restaurants, Inc., which are restaurant entities owned by Christopher J. Pappas and Harris J. Pappas. That agreement, as amended on July 23, 2002, limited the scope of expenditures therein to professional and consulting services. The Company completed this amendment due to a significant decline in the use of professional and consulting services from Pappas entities.
Additionally, on July 23, 2002, the Company entered into a Master Sales Agreement with the same Pappas entities. Through this agreement, the Company contractually separated the design and fabrication of equipment and furnishings from the Affiliate Services Agreement. The Master Sales Agreement covers the costs incurred for modifications to existing equipment, as well as custom fabrication, including stainless steel stoves, shelving, rolling carts, and chef tables. These items are custom-designed and built to fit the designated kitchens and are also engineered to give a longer service life than comparably manufactured equipment.
The pricing of equipment, repair, and maintenance is set and evaluated periodically and is considered by management to be primarily at or below market for comparable goods and services. The Finance and Audit Committee of the Company's Board of Directors also uses independent valuation consultants to assist in periodically monitoring pricing of the transactions associated with the Master Sales Agreement and the Affiliate Services Agreement. The Company's external audit firm performed its examination according to agreed upon procedures. The scope and sufficiency of such procedures are determined by management and the Board of Directors, and the results are submitted to the Board for its use in evaluating the fairness of the transactions.
As part of the affiliation with the Pappas entities, the Company leases a facility, the Houston Service Center, in which Luby's has established a centralized restaurant service center to support field operations. The building at this location has 21,000 square feet of warehouse space and 5,664 square feet of office space. It is leased from the Pappas entities by the Company at a monthly rate of $.24 per square foot. From this center, Luby's repair and service teams are dispatched to the Company's restaurants when facility or equipment maintenance and servicing are needed. The facility is also used for repair and storage of new and used equipment.
In another separate contract, pursuant to the terms of a ground lease dated March 25, 1994, the Company paid rent to PHCG Investments for a Luby's restaurant operating in Dallas, Texas. Christopher J. Pappas and Harris J. Pappas are general partners of PHCG Investments. The amount paid by the Company to PHCG Investments pursuant to the terms of the lease agreement was approximately $42,000 for the two quarters ended February 12, 2003, and for the same period in fiscal 2002. Rents paid for both leases combined represent 2.4% of total rents paid by the Company for the two quarters ended February 12, 2003.
Relative to the PHCG Investments lease, in the first quarter of fiscal 2003, the Company entered into a termination agreement with a third party unaffiliated with the Pappas entities to sever its interest in the PHCG property in exchange for a payment of cash, the right to remove fixtures and equipment from the premises, and the release of any future obligations under the lease agreement now owned by PHCG Investments. The closing of the transaction was completed subsequent to the end of the second quarter of fiscal 2003, resulting in a gain of $735,000, while the gross proceeds were used to pay down debt.
The following compares inception-to-date charges incurred under the Master Sales Agreement, the Affiliate Services Agreement, and affiliated property leases to total general and administrative expenses, capital expenditures, and occupancy and other operating expenses:
Two Quarters Ended |
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February 12, |
February 13, |
|||||||||||||||
(168 days) |
(166 days) |
|||||||||||||||
(In thousands) |
||||||||||||||||
Affiliate Services Incurred Costs: |
||||||||||||||||
General and administrative expenses -- professional services |
$ |
-- |
$ |
8 |
||||||||||||
Capital expenditures -- custom-fabricated and refurbished equipment |
99 |
301 |
||||||||||||||
Occupancy and other operating expenses, including property leases |
85 |
98 |
||||||||||||||
Less pass-through amounts to third parties |
-- |
(95 |
) |
|||||||||||||
Total |
$ |
184 |
$ |
312 |
||||||||||||
Applicable Total Company Costs: |
||||||||||||||||
General and administrative expenses |
$ |
10,720 |
$ |
10,708 |
||||||||||||
Capital expenditures |
6,043 |
6,097 |
||||||||||||||
Occupancy and other operating expenses |
68,196 |
70,593 |
||||||||||||||
Total |
$ |
84,959 |
$ |
87,398 |
||||||||||||
Affiliate Services Incurred Costs As a Percentage of Applicable |
||||||||||||||||
Two Quarters to Date |
0.22 |
% |
0.36 |
% |
||||||||||||
Inception to Date |
0.18 |
% |
||||||||||||||
TRENDS AND UNCERTAINTIES
Same-Store Sales
The following shows the same-store sales change for the comparative historical quarters:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2003 |
|
Fiscal 2002 |
|
Fiscal 2001 |
||||||||||
|
Q2 |
|
Q1 |
|
|
Q4 |
Q3 |
Q2 |
Q1 |
|
Q4 |
Q3 |
Q2 |
Q1 |
|
(0.6)% |
|
(5.1)% |
|
|
(13.0)% |
(13.2)% |
(8.6)% |
(2.7)% |
|
1.9% |
(0.4)% |
(5.3)% |
(6.8)% |
The Company enacted price increases in the third and fourth quarters of fiscal 2001. The first quarter of fiscal 2002 includes September 11, 2001. In the third and fourth quarters of fiscal 2002, the Company was able to maintain its comparative cash flow level with declining sales by lowering operating costs.
The Company continues to seek additional opportunities to lower costs; however, continued declines in net same-store sales could reduce operating cash flow. If more severe declines in cash flow were to develop without offsetting reductions in uses of cash, the Company's ability to maintain compliance with the financial performance covenants of the amended credit facility may be impaired. In such an event, the lender would have the right to terminate the credit facility, accelerate the maturity of any outstanding obligation under that facility, and pursue foreclosure on assets pledged as collateral.
Existing Programs
- |
Food excellence; |
- |
Service excellence; |
- |
Labor efficiency and cost control; |
- |
Emphasis on value, including all-you-can-eat promotions; |
- |
Increased emphasis on employee training and development; |
- |
Targeted marketing, especially directed at families; |
- |
Closure of certain underperforming restaurants; |
- |
New concept conversions; and |
- |
Continued emphasis on in-house safety training, accident prevention, and claims management. |
In the third quarter of fiscal 2003, the Company initiated a new two-year business plan that calls for the closure of approximately 50 underperforming restaurants, 30 of which are to occur by April 3, 2003. Under the new plan, whereby approximately 140 locations will remain in operation, the primary focus will be on stores in the Texas markets. At these locations, the existing programs mentioned above will continue to be emphasized.
Impairment
Insurance and Claims
The Company may be the subject of claims or litigation from guests and employees alleging injuries as a result of its operations. In addition, unfavorable publicity from such allegations could have an adverse impact on financial results, regardless of their validity or ultimate outcome.
Minimum Wage and Labor Costs
CRITICAL ACCOUNTING POLICIES
The Company has identified the following policies as critical to its business and the understanding of its results of operations. The Company believes it is improbable that materially different amounts would be reported relating to the accounting policies described below if other acceptable approaches were adopted. However, the application of these accounting policies, as described below, involve the exercise of judgment and use of assumptions as to future uncertainties; therefore, actual results could differ from estimates generated from their use.
Income Taxes
The Company records the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of tax assets recorded on the balance sheet and provides valuation allowances as management deems necessary. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management's opinion, adequate provisions for income taxes have been made for all years.
Impairment of Long-Lived Assets
The Company periodically evaluates long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing impairment reviews of such restaurants, the Company estimates future cash flows expected to result from the use of the asset and the possible residual value associated with their eventual disposition. The estimates of future cash flows, based on reasonable and supportable assumptions and projections, require management's subjective judgments. The time periods for estimating future cash flows is often lengthy, which increases the sensitivity to assumptions made. Depending on the assumptions and estimates used, the estimated future cash flows projected in the evaluation of long-lived assets can vary within a wide range of outcomes. The Company considers the likelihood of possible outcomes in determining the best estimate of future cash flows.
Insurance and Claims
The Company periodically reviews its workers' compensation and general liability reserves to ensure reasonableness. In fiscal 2001, the Company initiated an in-house safety and claims program focused on safety training and rigorous scrutiny of new claims, which has reduced costs significantly. Consistent with the prior year, the Company's liability is based upon estimates obtained from an actuary, internal risk management staff, and external adjusters. Assumptions and judgments are used in evaluating these costs. The possibility exists that future claims-related liabilities could increase due to unforeseen circumstances.
OTHER
Inflation
The Company's policy is to maintain stable menu prices without regard to seasonal variations in food costs. General increases in costs of food, wages, supplies, and services make it necessary for the Company to increase its menu prices from time to time. To the extent prevailing market conditions allow, the Company intends to adjust menu prices to maintain profit margins.
Forward-Looking Statements
The Company wishes to caution readers that various factors could cause its actual financial and operational results to differ materially from those indicated by forward-looking statements made from time to time in news releases, reports, proxy statements, registration statements, and other written communications (including the preceding sections of this Management's Discussion and Analysis), as well as oral statements made from time to time by representatives of the Company. Except for historical information, matters discussed in such oral and written communications are forward-looking statements that involve risks and uncertainties, including but not limited to general business conditions; the impact of competition; the success of operating initiatives; changes in the cost and supply of food, labor, and other operating expenses; the seasonality of the Company's business, taxes, inflation, and governmental regulations; and the cooperation of the Company's lenders and the avail
ability of credit; as well as other risks and uncertainties disclosed in periodic reports on Form 10-K and Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates affecting its variable-rate debt. As of February 12, 2003, $108.6 million was outstanding under its credit facility at prime plus 3.5%. Additionally, the Company had $10 million in notes which bear interest at LIBOR plus 2%. The total amount of debt subject to interest rate fluctuations was $118.6 million. Assuming a consistent level of debt, a 1% change in interest rates effective from the beginning of the year would result in an increase or decrease in the year-to-date interest expense of $547,000 and annual interest expense of $1.2 million. Although the Company is not currently using interest rate swaps, it has previously used and may in the future use these instruments to manage cash flow risk on a portion of its variable-rate debt.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its President and CEO and its CFO, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures which, by their nature, can provide only reasonable assurance regarding management's control objectives.
During the 45 days prior to March 31, 2003, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. The Company's President and CEO and the CFO participated and provided input into this process. Based upon the foregoing, these senior officers concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company's Exchange Act reports.
There have been no significant changes in the Company's internal controls or in other factors which could significantly affect internal controls subsequent to the date the President and CEO and the CFO carried out their evaluation.
As reported in previous filings, a lawsuit was filed by two former Luby's assistant managers claiming violation of the Fair Labor Standards Act and the commission of certain fraudulent acts. An agreement to resolve this matter has been made between the parties, and the judge has signed an order preliminarily approving the settlement of class claims, sending of notice, plan of allocation, attorney's fees and expenses, and conditionally granted final approval of same.
Item 3. Defaults Upon Senior Securities
During the second quarter of fiscal 2003, the Company sought $80 million in replacement debt with a new third-party lender. In a waiver and credit-facility amendment also completed in the second quarter, the current credit-facility lenders included requirements that the $80 million financing be completed by January 31, 2003. Due to unacceptable changes in the terms of the new third-party financing, the new loan transaction could not be completed. This resulted in a default in the credit facility and caused a cross-default in officer loans guaranteed by the Company and held by one of the financial institutions participating in the Company's credit facility. The Company is not in default of either its normal periodic financial covenants or with interest payment requirements. The bank group has formally reserved all of its rights and remedies associated with the credit facility, while the financial institution that funded the officer loans has requested that the Company repurchase the notes. However, use of the Company's cash resources to acquire the notes cannot be completed without consultation with the entire bank group. The Company is therefore working constructively with all members of the bank group in an effort to cure both defaults and satisfactorily meet lender expectations.
With the assistance of financial advisors, the Company's Board of Directors approved a new two-year business plan on March 29, 2003, that is intended to return the Company to profitability and reduce debt, while developing and implementing additional financing options acceptable to its current lenders.
Item 4. Submission of Matters to a Vote of Security Holders
(a) |
|
The 2003 annual meeting of shareholders of Luby's, Inc. was held on January 31, 2003. |
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|
|
|
||||||
(b) |
|
The directors elected at the meeting were Jill Griffin, J.S.B. Jenkins, Joe McKinney, Harris J. Pappas, and Joanne Winik. The other directors whose terms continued after the meeting are Judith B. Craven; Arthur R. Emerson; Roger R. Hemminghaus; Robert T. Herres; Frank Markantonis; Christopher J. Pappas; Gasper Mir, III; and Jim W. Woliver. |
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|
|
|
||||||
(c) |
|
The matters voted upon at the meeting were (i) the election of five directors to serve until the 2006 Annual Meeting of Shareholders; (ii) the approval of the appointment of Ernst & Young LLP as independent auditors for the 2003 fiscal year; and (iii) to act upon one nonbinding shareholder proposal to declassify the election of directors. |
||||||
|
|
|
||||||
(d) |
|
With respect to the election of directors, the results of the voting were: |
||||||
|
|
|
||||||
|
Nominee |
Shares Voted For |
Shares Abstained |
Broker Nonvotes |
||||
|
Jill Griffin |
17,935,255 |
|
2,450,963 |
0 |
|||
|
J.S.B. Jenkins |
17,936,827 |
|
2,449,391 |
0 |
|||
|
Joe McKinney |
17,936,595 |
|
2,449,623 |
0 |
|||
|
Harris J. Pappas |
17,927,239 |
|
2,458,979 |
0 |
|||
|
Joanne Winik |
17,523,736 |
|
2,862,483 |
0 |
|||
|
|
|
|
|
|
|||
(e) |
|
With respect to the approval of the appointment of auditors, the results of the voting were: |
||||||
|
Shares voted "for" |
20,049,700 |
|
|
||||
|
Shares voted "against" |
258,938 |
|
|
||||
|
Shares abstaining |
38,320 |
|
|
||||
|
Broker nonvotes |
48,264 |
|
|
||||
|
|
|
|
|
|
|||
(f) |
|
With respect to the nonbinding shareholder proposal to declassify the election of directors, the results were: |
||||||
|
Shares voted "for" |
9,120,320 |
|
|
||||
|
Shares voted "against" |
5,951,719 |
|
|
||||
|
Shares abstaining |
379,189 |
|
|
||||
|
Broker nonvotes |
4,940,994 |
|
|
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
The following exhibits are filed as a part of this Report:
3(a) |
|
Certificate of Incorporation of Luby's, Inc. as currently in effect (filed as Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference). |
|
|
|
3(b) |
|
Bylaws of Luby's, Inc. as currently in effect (filed as Exhibit 3(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference). |
|
|
|
4(a) |
|
Description of Common Stock Purchase Rights of Luby's Cafeterias, Inc., in Form 8-A (filed April 17, 1991, effective April 26, 1991, File No. 1-8308, and incorporated herein by reference). |
|
|
|
4(b) |
|
Amendment No. 1 dated December 19, 1991, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1991, and incorporated herein by reference). |
|
|
|
4(c) |
|
Amendment No. 2 dated February 7, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference). |
|
|
|
4(d) |
|
Amendment No. 3 dated May 29, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995, and incorporated herein by reference). |
|
|
|
4(e) |
|
Amendment No. 4 dated March 8, 2001, to Rights Agreement dated April 16, 1991 (filed as Exhibit 99.1 to the Company's Report on Form 8-A12B/A on March 22, 2001, and incorporated herein by reference). |
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4(f) |
|
Credit Agreement dated February 27, 1996, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference). |
|
|
|
4(g) |
|
First Amendment to Credit Agreement dated January 24, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). |
|
|
|
4(h) |
|
Second Amendment to Credit Agreement dated July 3, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(i) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference). |
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|
4(i) |
|
Third Amendment to Credit Agreement dated October 27, 2000, among Luby's, Inc., Certain Lenders, and Bank of America, N.A. (filed as Exhibit 4(j) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2000, and incorporated herein by reference). |
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4(j) |
|
Fourth Amendment to Credit Agreement dated July 9, 2001, among Luby's, Inc., Bank of America, N.A. and other creditors of its bank group (filed as Exhibit 4(l) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). |
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|
|
4(k) |
|
Deed of Trust, Assignment, Security Agreement, and Financing Statement dated July 2001, executed as part of the Fourth Amendment to Credit Agreement (filed as Exhibit 4(m) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). |
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4(l) |
|
Subordination and Intercreditor Agreement dated June 29, 2001, between Harris J. Pappas and Christopher J. Pappas, Bank of America, N.A. [as the bank group agent], and Luby's, Inc. (filed as Exhibit 4(n) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). |
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4(m) |
|
Convertible Subordinated Promissory Note dated June 29, 2001, between Christopher J. Pappas and Luby's, Inc. in the amount of $1,500,000 (filed as Exhibit 4(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). |
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|
|
4(n) |
|
Convertible Subordinated Promissory Note dated June 29, 2001, between Harris J. Pappas and Luby's, Inc. in the amount of $1,500,000 (filed as Exhibit 4(p) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). |
|
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|
4(o) |
|
Convertible Subordinated Promissory Note dated June 29, 2001, between Christopher J. Pappas and Luby's, Inc. in the amount of $3,500,000 (filed as Exhibit 4(q) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). |
|
|
|
4(p) |
|
Convertible Subordinated Promissory Note dated June 29, 2001, between Harris J. Pappas and Luby's, Inc. in the amount of $3,500,000 (filed as Exhibit 4(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). |
|
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|
4(q) |
|
Fifth Amendment to Credit Agreement dated December 5, 2001, among Luby's, Inc., Bank of America, N.A. and other creditors of its bank group (filed as Exhibit 4(s) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, and incorporated herein by reference). |
|
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|
4(r) |
|
Sixth Amendment to Credit Agreement dated November 25, 2002, by and among Luby's, Inc., Bank of America, N.A. and other creditors of its bank group (filed as Exhibit 4(t) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference). |
|
|
|
10(a) |
|
Management Incentive Stock Plan of Luby's Cafeterias, Inc. (filed as Exhibit 10(i) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1989, and incorporated herein by reference).* |
|
|
|
10(b) |
|
Amendment to Management Incentive Stock Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(k) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* |
|
|
|
10(c) |
|
Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted October 27, 1994 (filed as Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1994, and incorporated herein by reference).* |
|
|
|
10(d) |
|
Amendment to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(m) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* |
|
|
|
10(e) |
|
Amendment to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted March 19, 1998 (filed as Exhibit 10(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* |
|
|
|
10(f) |
|
Amended and Restated Nonemployee Director Stock Option Plan of Luby's, Inc. approved by the shareholders of Luby's, Inc. on January 14, 2000 (filed as Exhibit 10(j) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 2000, and incorporated herein by reference).* |
|
|
|
10(g) |
|
Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan dated May 30, 1996 (filed as Exhibit 10(j) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference).* |
|
|
|
10(h) |
|
Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 14, 1997 (filed as Exhibit 10(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* |
|
|
|
10(i) |
|
Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 9, 1998 (filed as Exhibit 10(u) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* |
|
|
|
10(j) |
|
Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted May 21, 1999 (filed as Exhibit 10(q) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference.)* |
|
|
|
10(k) |
|
Severance Agreement between Luby's, Inc. and Barry J.C. Parker dated December 19, 2000 (filed as Exhibit 10(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 2000, and incorporated herein by reference.)* |
|
|
|
10(l) |
|
Luby's Incentive Stock Plan adopted October 16, 1998 (filed as Exhibit 10(cc) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1998, and incorporated herein by reference).* |
|
|
|
10(m) |
|
Form of Change in Control Agreement entered into between Luby's, Inc. and each of its Senior Vice Presidents as of January 8, 1999 (filed as Exhibit 10(aa) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1999, and incorporated herein by reference).* |
|
|
|
10(n) |
|
Luby's, Inc. Deferred Compensation Plan effective June 1, 1999 (filed as Exhibit 10(cc) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference).* |
|
|
|
10(o) |
|
Registration Rights Agreement dated March 9, 2001, by and among Luby's, Inc., Christopher J. Pappas, and Harris J. Pappas (filed as Exhibit 10.4 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference). |
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|
|
10(p) |
|
Purchase Agreement dated March 9, 2001, by and among Luby's, Inc., Harris J. Pappas, and Christopher J. Pappas (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference). |
|
|
|
10(q) |
|
Employment Agreement dated March 9, 2001, between Luby's, Inc. and Christopher J. Pappas (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference).* |
|
|
|
10(r) |
|
Employment Agreement dated March 9, 2001, between Luby's, Inc. and Harris J. Pappas (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference).* |
|
|
|
10(s) |
|
Luby's, Inc. Incentive Bonus Plan for Fiscal 2001 (filed as Exhibit 10(z) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2000, and incorporated herein by reference).* |
|
|
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10(t) |
|
Luby's, Inc. Stock Option granted to Christopher J. Pappas on March 9, 2001 (filed as Exhibit 10(w) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).* |
|
|
|
10(u) |
|
Luby's, Inc. Stock Option granted to Harris J. Pappas on March 9, 2001 (filed as Exhibit 10(x) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).* |
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10(v) |
|
Affiliate Services Agreement dated August 31, 2001, by and among Luby's, Inc., Christopher J. Pappas, Harris J. Pappas, Pappas Restaurants, L.P., and Pappas Restaurants, Inc. (filed as Exhibit 10(y) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, refiled as Exhibit 10(y) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 13, 2002, to include signature reference and an exhibit that were inadvertently omitted, and incorporated herein by reference). |
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10(w) |
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Ground Lease for a cafeteria site dated March 25, 1994, by and between Luby's Cafeterias, Inc. and PHCG Investments, as amended by Lease Amendment dated July 6, 1994 (filed as Exhibit 10(z) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, and incorporated herein by reference). |
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10(x) |
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Lease Agreement for dated June 1, 2001, by and between Luby's, Inc. and Pappas Restaurants, Inc. (filed as Exhibit 10(aa) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, and incorporated herein by reference). |
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10(y) |
|
Final Severance Agreement and Release between Luby's, Inc. and Alan M. Davis dated July 20, 2001 (filed as Exhibit 10(bb) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, and incorporated herein by reference). While in search for new executive management, the Company entered into an employment agreement with Mr. Davis in January 2001. The value of that one-year contract was a year's salary upon termination. After new management was secured, the Company finalized the exhibited agreement that provides for the payment of monthly consulting fees to Mr. Davis until July 2002, but releases the Company from all prior employment commitments.* |
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|
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10(z) |
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Consultant Agreement between Luby's Restaurants Limited Partnership and Alan M. Davis dated July 20, 2001 (filed as Exhibit 10(cc) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, and incorporated herein by reference).* |
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|
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10(aa) |
|
Luby's, Inc. Amended and Restated Nonemployee Director Phantom Stock Plan effective September 28, 2001 (filed as Exhibit 10(dd) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 13, 2002, and incorporated herein by reference).* |
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|
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10(bb) |
|
Final Severance Agreement and Release between Luby's, Inc. and S. Darrell Wood effective July 28, 2002 (filed as Exhibit 10(ee) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference).* |
|
|
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10(cc) |
|
Consultant Agreement dated August 30, 2002, between Luby's Restaurants Limited Partnership and Stephen Darrell Wood (filed as Exhibit 10(ff) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference).* |
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|
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10(dd) |
|
Form of Indemnification Agreement entered into between Luby's, Inc. and each member of its Board of Directors initially dated July 23, 2002 (filed as Exhibit 10(gg) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference). |
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|
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10(ee) |
|
Amended and Restated Affiliate Services Agreement dated July 23, 2002, by and among Luby's, Inc., Pappas Restaurants, L.P., and Pappas Restaurants, Inc. (filed as Exhibit 10(hh) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference). |
|
|
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10(ff) |
Master Sales Agreement dated July 23, 2002, by and among Luby's, Inc., Pappas Restaurants, L.P., and Pappas Restaurants, Inc. and Procedure adopted by the Finance and Audit Committee of the Board of Directors on July 23, 2002, pursuant to Section 2.3 of the Master Sales Agreement (filed as Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference). |
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11 |
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Statement re computation of per share earnings. |
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99(a) |
|
Corporate Governance Guidelines of Luby's, Inc., as amended March 5, 2003. |
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|
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99(b) |
|
Certifications by the CEO and the CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
*Denotes management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter for which this report is filed.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
LUBY'S, INC. |
|
(Registrant) |
Date: March 31, 2003 |
By: |
/s/Christopher J. Pappas |
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Christopher J. Pappas |
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President and |
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Chief Executive Officer |
Date: March 31, 2003 |
By: |
/s/Ernest Pekmezaris |
|||
Ernest Pekmezaris |
|||||
Senior Vice President and |
|||||
Chief Financial Officer |
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Christopher J. Pappas, certify that:
1. |
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I have reviewed this quarterly report on Form 10-Q of Luby's, Inc.; |
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2. |
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Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
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3. |
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Based on my knowledge, the consolidated financial statements, and other financial information included in this quarterly report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
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4. |
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The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
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|
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|
||||||
a) |
|
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
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b) |
|
evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of the quarterly report (the "Evaluation Date"); and |
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c) |
|
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
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5. |
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The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): |
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|
||||||
a) |
|
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and |
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b) |
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and |
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6. |
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The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
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Date: |
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March 31, 2003 |
|
|||||
/s/Christopher J. Pappas |
||||||||
Christopher J. Pappas |
||||||||
President and |
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Chief Executive Officer |
Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Ernest Pekmezaris, certify that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of Luby's, Inc.; |
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|
||||||
2. |
|
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
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3. |
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Based on my knowledge, the consolidated financial statements, and other financial information included in this quarterly report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
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||||||
4. |
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The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
||||||
|
|
|
||||||
a) |
|
designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
||||||
|
|
|
||||||
b) |
|
evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of the quarterly report (the "Evaluation Date"); and |
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|
||||||
c) |
|
presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
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5. |
|
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): |
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|
|
|
||||||
a) |
|
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and |
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|
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|
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b) |
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and |
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6. |
|
The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
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Date: |
|
March 31, 2003 |
|
|||||
/s/Ernest Pekmezaris |
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Ernest Pekmezaris |
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Senior Vice President and |
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Chief Financial Officer |
EXHIBIT INDEX
The following exhibits are filed as a part of this Report:
3(a) |
|
Certificate of Incorporation of Luby's, Inc. as currently in effect (filed as Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference). |
|
|
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3(b) |
|
Bylaws of Luby's, Inc. as currently in effect (filed as Exhibit 3(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference). |
|
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4(a) |
|
Description of Common Stock Purchase Rights of Luby's Cafeterias, Inc., in Form 8-A (filed April 17, 1991, effective April 26, 1991, File No. 1-8308, and incorporated herein by reference). |
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4(b) |
|
Amendment No. 1 dated December 19, 1991, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1991, and incorporated herein by reference). |
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4(c) |
|
Amendment No. 2 dated February 7, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference). |
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4(d) |
|
Amendment No. 3 dated May 29, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995, and incorporated herein by reference). |
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4(e) |
|
Amendment No. 4 dated March 8, 2001, to Rights Agreement dated April 16, 1991 (filed as Exhibit 99.1 to the Company's Report on Form 8-A12B/A on March 22, 2001, and incorporated herein by reference). |
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4(f) |
|
Credit Agreement dated February 27, 1996, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference). |
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4(g) |
|
First Amendment to Credit Agreement dated January 24, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). |
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4(h) |
|
Second Amendment to Credit Agreement dated July 3, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(i) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference). |
|
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4(i) |
|
Third Amendment to Credit Agreement dated October 27, 2000, among Luby's, Inc., Certain Lenders, and Bank of America, N.A. (filed as Exhibit 4(j) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2000, and incorporated herein by reference). |
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4(j) |
|
Fourth Amendment to Credit Agreement dated July 9, 2001, among Luby's, Inc., Bank of America, N.A. and other creditors of its bank group (filed as Exhibit 4(l) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). |
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4(k) |
|
Deed of Trust, Assignment, Security Agreement, and Financing Statement dated July 2001, executed as part of the Fourth Amendment to Credit Agreement (filed as Exhibit 4(m) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). |
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4(l) |
|
Subordination and Intercreditor Agreement dated June 29, 2001, between Harris J. Pappas and Christopher J. Pappas, Bank of America, N.A. [as the bank group agent], and Luby's, Inc. (filed as Exhibit 4(n) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). |
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4(m) |
|
Convertible Subordinated Promissory Note dated June 29, 2001, between Christopher J. Pappas and Luby's, Inc. in the amount of $1,500,000 (filed as Exhibit 4(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). |
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4(n) |
|
Convertible Subordinated Promissory Note dated June 29, 2001, between Harris J. Pappas and Luby's, Inc. in the amount of $1,500,000 (filed as Exhibit 4(p) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). |
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4(o) |
|
Convertible Subordinated Promissory Note dated June 29, 2001, between Christopher J. Pappas and Luby's, Inc. in the amount of $3,500,000 (filed as Exhibit 4(q) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). |
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|
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4(p) |
|
Convertible Subordinated Promissory Note dated June 29, 2001, between Harris J. Pappas and Luby's, Inc. in the amount of $3,500,000 (filed as Exhibit 4(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference). |
|
|
|
4(q) |
|
Fifth Amendment to Credit Agreement dated December 5, 2001, among Luby's, Inc., Bank of America, N.A. and other creditors of its bank group (filed as Exhibit 4(s) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, and incorporated herein by reference). |
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4(r) |
|
Sixth Amendment to Credit Agreement dated November 25, 2002, by and among Luby's, Inc., Bank of America, N.A. and other creditors of its bank group (filed as Exhibit 4(t) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference). |
|
|
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10(a) |
|
Management Incentive Stock Plan of Luby's Cafeterias, Inc. (filed as Exhibit 10(i) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1989, and incorporated herein by reference).* |
|
|
|
10(b) |
|
Amendment to Management Incentive Stock Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(k) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* |
|
|
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10(c) |
|
Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted October 27, 1994 (filed as Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1994, and incorporated herein by reference).* |
|
|
|
10(d) |
|
Amendment to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(m) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* |
|
|
|
10(e) |
|
Amendment to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted March 19, 1998 (filed as Exhibit 10(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* |
|
|
|
10(f) |
|
Amended and Restated Nonemployee Director Stock Option Plan of Luby's, Inc. approved by the shareholders of Luby's, Inc. on January 14, 2000 (filed as Exhibit 10(j) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 2000, and incorporated herein by reference).* |
|
|
|
10(g) |
|
Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan dated May 30, 1996 (filed as Exhibit 10(j) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference).* |
|
|
|
10(h) |
|
Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 14, 1997 (filed as Exhibit 10(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* |
|
|
|
10(i) |
|
Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 9, 1998 (filed as Exhibit 10(u) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* |
|
|
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10(j) |
|
Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted May 21, 1999 (filed as Exhibit 10(q) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference.)* |
|
|
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10(k) |
|
Severance Agreement between Luby's, Inc. and Barry J.C. Parker dated December 19, 2000 (filed as Exhibit 10(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 2000, and incorporated herein by reference.)* |
|
|
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10(l) |
|
Luby's Incentive Stock Plan adopted October 16, 1998 (filed as Exhibit 10(cc) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1998, and incorporated herein by reference).* |
|
|
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10(m) |
|
Form of Change in Control Agreement entered into between Luby's, Inc. and each of its Senior Vice Presidents as of January 8, 1999 (filed as Exhibit 10(aa) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1999, and incorporated herein by reference).* |
|
|
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10(n) |
|
Luby's, Inc. Deferred Compensation Plan effective June 1, 1999 (filed as Exhibit 10(cc) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference).* |
|
|
|
10(o) |
|
Registration Rights Agreement dated March 9, 2001, by and among Luby's, Inc., Christopher J. Pappas, and Harris J. Pappas (filed as Exhibit 10.4 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference). |
|
|
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10(p) |
|
Purchase Agreement dated March 9, 2001, by and among Luby's, Inc., Harris J. Pappas, and Christopher J. Pappas (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference). |
|
|
|
10(q) |
|
Employment Agreement dated March 9, 2001, between Luby's, Inc. and Christopher J. Pappas (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference).* |
|
|
|
10(r) |
|
Employment Agreement dated March 9, 2001, between Luby's, Inc. and Harris J. Pappas (filed as Exhibit 10.3 to the Company's Current Report on Form 8-K dated March 9, 2001, and incorporated herein by reference).* |
|
|
|
10(s) |
|
Luby's, Inc. Incentive Bonus Plan for Fiscal 2001 (filed as Exhibit 10(z) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2000, and incorporated herein by reference).* |
|
|
|
10(t) |
|
Luby's, Inc. Stock Option granted to Christopher J. Pappas on March 9, 2001 (filed as Exhibit 10(w) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).* |
|
|
|
10(u) |
|
Luby's, Inc. Stock Option granted to Harris J. Pappas on March 9, 2001 (filed as Exhibit 10(x) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2001, and incorporated herein by reference).* |
|
|
|
10(v) |
|
Affiliate Services Agreement dated August 31, 2001, by and among Luby's, Inc., Christopher J. Pappas, Harris J. Pappas, Pappas Restaurants, L.P., and Pappas Restaurants, Inc. (filed as Exhibit 10(y) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, refiled as Exhibit 10(y) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 13, 2002, to include signature reference and an exhibit that were inadvertently omitted, and incorporated herein by reference). |
|
|
|
10(w) |
|
Ground Lease for a cafeteria site dated March 25, 1994, by and between Luby's Cafeterias, Inc. and PHCG Investments, as amended by Lease Amendment dated July 6, 1994 (filed as Exhibit 10(z) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, and incorporated herein by reference). |
|
|
|
10(x) |
|
Lease Agreement for dated June 1, 2001, by and between Luby's, Inc. and Pappas Restaurants, Inc. (filed as Exhibit 10(aa) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, and incorporated herein by reference). |
|
|
|
10(y) |
|
Final Severance Agreement and Release between Luby's, Inc. and Alan M. Davis dated July 20, 2001 (filed as Exhibit 10(bb) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, and incorporated herein by reference). While in search for new executive management, the Company entered into an employment agreement with Mr. Davis in January 2001. The value of that one-year contract was a year's salary upon termination. After new management was secured, the Company finalized the exhibited agreement that provides for the payment of monthly consulting fees to Mr. Davis until July 2002, but releases the Company from all prior employment commitments.* |
|
|
|
10(z) |
|
Consultant Agreement between Luby's Restaurants Limited Partnership and Alan M. Davis dated July 20, 2001 (filed as Exhibit 10(cc) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001, and incorporated herein by reference).* |
|
|
|
10(aa) |
|
Luby's, Inc. Amended and Restated Nonemployee Director Phantom Stock Plan effective September 28, 2001 (filed as Exhibit 10(dd) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 13, 2002, and incorporated herein by reference).* |
|
|
|
10(bb) |
|
Final Severance Agreement and Release between Luby's, Inc. and S. Darrell Wood effective July 28, 2002 (filed as Exhibit 10(ee) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference).* |
|
|
|
10(cc) |
|
Consultant Agreement dated August 30, 2002, between Luby's Restaurants Limited Partnership and Darrell Wood (filed as Exhibit 10(ff) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference).* |
|
|
|
10(dd) |
|
Form of Indemnification Agreement entered into between Luby's, Inc. and each member of its Board of Directors initially dated July 23, 2002 (filed as Exhibit 10(gg) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference). |
|
|
|
10(ee) |
|
Amended and Restated Affiliate Services Agreement dated July 23, 2002, by and among Luby's, Inc., Pappas Restaurants, L.P., and Pappas Restaurants, Inc. (filed as Exhibit 10(hh) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference). |
|
|
|
10(ff) |
Master Sales Agreement dated July 23, 2002, by and among Luby's, Inc., Pappas Restaurants, L.P., and Pappas Restaurants, Inc. and Procedure adopted by the Finance and Audit Committee of the Board of Directors on July 23, 2002, pursuant to Section 2.3 of the Master Sales Agreement (filed as Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended August 28, 2002, and incorporated herein by reference). |
|
|
|
|
11 |
|
Statement re computation of per share earnings. |
|
|
|
99(a) |
|
Corporate Governance Guidelines of Luby's, Inc., as amended March 5, 2003. |
|
|
|
99(b) |
|
Certifications by the CEO and the CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
*Denotes management contract or compensatory plan or arrangement.
Exhibit 11
COMPUTATION OF PER SHARE EARNINGS
The following is a computation of the weighted-average number of shares outstanding which is used in the computation of per share earnings for Luby's, Inc. for the quarters ended February 12, 2003, and February 13, 2002.
Quarter ended February 12, 2003: |
||
22,448,574 x shares outstanding for 72 days |
1,616,297,328 |
|
22,456,296 x shares outstanding for 12 days |
269,475,552 |
|
Total |
1,885,772,880 |
|
Divided by total number of days |
84 |
|
Weighted-average number of shares outstanding - basic |
22,449,677 |
|
Quarter ended February 13, 2002: |
||
22,422,943 x shares outstanding for 36 days |
807,225,948 |
|
22,423,043 x shares outstanding for 48 days |
1,076,306,064 |
|
Total |
1,883,532,012 |
|
Divided by total number of days |
84 |
|
Weighted-average number of shares outstanding - basic |
22,423,000 |
|
Two Quarters ended February 12, 2003: |
||
22,443,043 x shares outstanding for 58 days |
1,301,116,494 |
|
22,448,574 x shares outstanding for 98 days |
2,199,960,252 |
|
22,456,296 x shares outstanding for 12 days |
269,475,552 |
|
Total |
3,770,552,298 |
|
Divided by total number of days |
168 |
|
Weighted-average number of shares outstanding - basic |
22,443,764 |
|
Two Quarters ended February 13, 2002: |
||
22,422,943 x shares outstanding for 118 days |
2,645,907,274 |
|
22,423,043 x shares outstanding for 48 days |
1,076,306,064 |
|
Total |
3,722,213,338 |
|
Divided by total number of days |
166 |
|
Weighted-average number of shares outstanding - basic |
22,422,972 |
|
LUBY'S, INC.
CORPORATE GOVERNANCE GUIDELINES
ROLE AND RESPONSIBILITIES OF BOARD |
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1. |
Ethical Business Environment |
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The Board believes that the long-term success of Luby's is dependent on the maintenance of an ethical business environment that focuses on adherence to both the letter and spirit of the law and regulations and the highest standards of corporate citizenship. |
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2. |
Oversight |
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The Board acknowledges that Luby's has many different stakeholders. However, the paramount duty of Luby's Board and management is to the shareholders; the interests of other stakeholders are relevant as a derivative of the duty to shareholders. The Board is the ultimate decision making body except for those matters reserved by law to the shareholders. The management team is charged by the Board with the management of Luby's affairs. The Board monitors corporate performance against business plans on a regular basis to evaluate whether the business is being properly managed. |
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3. |
Senior Management |
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The Board selects and regularly evaluates the CEO. The appointment and regular evaluation of a Chief Operating Officer, if any, will be made by the Board in collaboration with the CEO. The Board determines the CEO's compensation and reviews and approves the salaries of senior management named in the Summary Compensation Table of the Proxy Statement. The Board also reviews and approves management's recommendations for threshold, target, and stretch points for the annual Incentive Bonus Plan. It periodically reviews succession planning and management development with the CEO. |
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4. |
Strategy |
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The Board ensures that a strategic planning process is in place, is used, and produces sound choices. It reviews and approves major corporate strategies and monitors the implementation of current strategic initiatives to assess whether they are on schedule, on budget, and producing effective results. |
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5. |
Material Transactions |
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The Board reviews and approves significant capital allocations and expenditures and material transactions not in the ordinary course of business. |
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6. |
Internal Controls, Reporting, and Compliance |
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The Board satisfies itself as to the adequacy of internal controls, risk management, financial reporting, and compliance with laws and regulations. |
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7. |
Corporate Governance |
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The Board nominates directors to serve on the Board and ensures that the structure and practices of the Board provide for sound corporate governance. |
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COMPOSITION OF THE BOARD |
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8. |
Independent Director |
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An "Independent Director" is a person who is not a current and, generally, not a former member of management and has no relationship or activity that could affect or appear to affect his or her ability to exercise independent judgment as a director. The Board Governance Committee reviews the circumstances in each case and determines when a Board member or candidate is not independent. The Board will seek to maintain a substantial majority of independent directors. Various regulatory agencies have adopted differing concepts of independence (e.g. SEC, NYSE, IRS). These external definitions are not part of these Guidelines and should be consulted only for the specific purposes for which they were intended. |
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9. |
Number of Directors |
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The Board believes that the number of directors should not be less than nine or more than twelve. The Board may adjust the number upward to accommodate an outstanding potential candidate or during periods of transition when new directors may overlap with retiring directors. |
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10. |
Membership Criteria |
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The Board Governance Committee is responsible for recommending to the Board the appropriate skills and characteristics for prospective Board candidates in the context of the current Board makeup and the perceived needs of Luby's at that point in time. This assessment should include issues of general business experience, specialized knowledge, functional skills, other Board and time commitments, personal characteristics, age, independence, and diversity |
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11. |
Screening, Selection, and Invitation to Serve |
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Luby's Bylaws provide that director candidates standing for election by the shareholders shall be nominated by the Board or by a shareholder as provided in the Bylaws. Vacancies in the Board shall be filled by selection of the current directors. The Board Governance Committee is responsible for screening potential candidates with input from all Board members. The Chairman will coordinate the extension of an invitation to Board membership. |
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12. |
Directors Who Change Principal Job Responsibility |
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Directors who have a significant change in their professional roles and responsibilities, such as retirement or a change in employer, should submit a letter to the Chairman of the Board explaining the circumstances. The Board, through its Board Governance Committee, should review the circumstances and decide whether it is in the best interest of Luby's that the director continue to serve. |
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13. |
Retirement Age and Term Limits |
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A director shall not be eligible to stand for election or reelection to the Board after reaching the age of 70 years. Except for incumbent directors as of March 19, 1998, who were then 70 years of age or older, a director will offer his or her resignation from the Board upon reaching the age of 70 years effective at the next annual meeting of shareholders. The Board has not established term limits for directors; however, the Board Governance Committee should consider each Director's contribution to the Board every three years, prior to his of her nomination for reelection by the shareholders. |
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14. |
Chairman/CEO |
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Corporate policy allows for separation of the office of Chairman and CEO. This policy is intended to preserve flexibility for the board of directors regarding the selection of Chairman and CEO and the independence of those positions. |
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15. |
Lead Director |
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If the offices of the CEO and Chairman are not separate or if the Chairman is not considered by the Board to be an independent director, the independent directors will elect one of their number to serve as Lead Director. The Lead Director will chair meetings of independent directors, will facilitate communications between other members of the Board and the CEO and Chairman, and will assume other duties which the independent directors as a whole may designate from time to time. Directors are always free to communicate directly with the CEO and Chairman. |
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16. |
Limitations on Tenure as Independent Chair or Lead Director |
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An Independent Chair or Lead Director serves at the pleasure of the Board. It is the sense of the Board that a director's service as Independent Chair or Lead Director should generally not extend beyond the annual meeting of shareholders after three consecutive years of service. |
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17. |
Board Meetings |
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Article III of Luby's Bylaws spells out required procedures for calling and conducting meetings of the Board in order to conduct corporate business. The Board sets the number and schedule of Regular Board meetings for the entire year at the annual meeting of the Board in January. Currently the Board has five Regular Meetings each year. The Chairman, the CEO, or a majority of directors may call Special Meetings of the Board as necessary. |
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FUNCTIONING OF THE BOARD |
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18. |
Board Agendas |
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The CEO in conjunction with the Chairman and committee chairs will establish and publish an agenda for each meeting of the Board. Board members may suggest items for inclusion on the agenda and may raise for discussion at any Board meeting subjects not on the agenda. |
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19. |
Board Materials Distributed in Advance |
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Information and data that are important to the Board's understanding of the business of the meeting and presentations on special subjects should, when practical, be distributed at least one week in advance of the meeting to permit directors to prepare for the meeting. This will conserve Board meeting time and allow discussion to focus on questions and analysis of these materials. Management will try to keep materials as brief as possible while still providing the desired information. Lengthy reports or documents, when practical, should be accompanied by executive summaries. Directors are encouraged to comment on the adequacy and effectiveness of materials provided. |
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20. |
Attendance of Nondirectors at Board Meetings |
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The CEO may invite members of senior management who are not Board members to regularly participate in portions of the Board meeting. Further, the Board encourages the participation at Board meetings of managers who can provide additional insight into items being discussed or who have substantial future potential in the Company and who should be given exposure to the Board. Portions of all Board meetings will be reserved for private deliberation among Board members. |
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21. |
Meetings of Independent Directors |
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Independent directors will meet in executive session at the conclusion of the regularly scheduled board meetings as a matter of practice whenever requested by an individual board member, either in advance of or during board deliberations. They may also meet at other times when the need to do so is established by the Chairman or lead outside director, as appropriate, or upon the Board's own motion. The Chairman/Lead outside director is responsible for keeping the CEO fully informed of any substantive deliberations in such executive sessions. These meetings may include a discussion with the CEO. |
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FUNCTIONING OF COMMITTEES OF THE BOARD |
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22. |
Board Committees |
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The current standing committees of the Board are: Executive, Finance and Audit, Personnel and Administrative Policy, Executive Compensation, and Board Governance. From time to time the Board may create a new or disband an existing Committee depending on particular interests of the Board, issues facing the Company, or legal requirements. |
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23. |
Committee Charters |
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Each Committee should, with leadership from its Chair, maintain a charter describing its duties and responsibilities. Charters developed or amended will be reviewed by the Board Governance Committee and approved by the full Board. |
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24. |
Assignment and Rotation of Committee Membership |
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The Board Governance Committee in consultation with the Chairman and the CEO, and individual Board members, will assign Board members and chairs to various Committees, subject to Board approval. Assignments must comply with various applicable regulations (e.g. SEC, NYSE, IRS) and, in so far as is possible, with the desires of individual members insofar as possible. Consideration should be given to rotating committee membership and chairs from time to time generally on a three to five year schedule. |
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25. |
Scheduling of Committee Meetings and Committee Agendas |
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The Chair of each Committee, in collaboration with management and the Chairman of the Board, determine the frequency, length, and agenda of each meeting of the Committee. |
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26. |
Committee Reports to the Board |
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The Chair of each Committee, with the support of management, will report to the full Board as soon as practical following a Committee meeting all significant matters discussed and will present recommendations of the committee to the Board for action, review, or approval, as appropriate, at each Board meeting. Minutes of all Committee meetings will be distributed to all Board members. |
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MISCELLANEOUS |
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27. |
Board Access to Management |
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Board members have access to Luby's management, as necessary to fulfill their obligations as members of the board, and will keep the CEO, COO, or the chairman informed of any contacts of substance and concerns that may arise therefrom. Board members should use judgment to insure that this contact is not distracting to business operations or that it could be perceived as infringing on the responsibilities of the CEO. Correspondence from a Board member to a member of management should be copied to the CEO and Chairman. This provision excludes administrative matters handled through designated board points of contact. |
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28. |
Communications with the Public and Various Constituencies |
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The CEO is responsible for establishing effective communications with Luby's various constituencies, i.e. press, shareholders, potential investors, customers, communities, suppliers, creditors, and corporate partners. Management speaks for Luby's, and Board members should communicate with these constituencies only with the consent and generally at the request of management. |
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29. |
Assessing Board Performance |
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Approximately annually, the Board Governance Committee will survey Board members on their perceptions of the performance and effectiveness of the Board and solicit suggestions for improving its performance. The objective is to increase the effectiveness of the Board and not to evaluate individual Board members. The results of this survey will be reported to the Executive committee which will report, in turn to the full board with the results and recommended action the committee deems appropriate. |
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30. |
Board Compensation |
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Luby's policy is to compensate nonmanagement directors competitively relative to companies of comparable size. The Executive Compensation Committee will annually recommend to the full Board for its consideration director compensation for the next year. |
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31. |
Stock Ownership Guidelines for Directors |
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The Board believes that each Luby's director should accumulate a meaningful investment in Luby's stock and has established guidelines for share ownership. Currently, directors are expected to accumulate, over time, common shares with a market value of at least $100,000. Luby's has established a tax deferred Nonemployee Director Phantom Stock Plan. Beginning in 1999 and until the ownership guidelines are met or until the number of shares under the Nonemployee Director Phantom Stock Plan has been fully depleted, the nonemployee director will receive at least $10,000 of the annual retainer in phantom stock units to be redeemed for a like number of common shares when he or she ceases for any reason to be a director |
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32. |
Review of Guidelines |
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The Executive Committee is responsible for periodic review of these Guidelines, as well as consideration of other corporate governance issues that may, from time to time, merit consideration of the entire Board. |
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33. |
Intent |
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These Guidelines are intended to be a statement of general principles to guide the Board in formulating corporate policy. The Guidelines are not rules or bylaws. They may be amended from time to time by the Board. In addition, the Board may on occasion depart from the Guidelines when circumstances indicate that a departure is in the best interest of the Company and its shareholders. |
Exhibit 99(b)
Certification Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Luby's, Inc. on Form 10-Q for the fiscal quarter ended February 12, 2003, as filed with the Securities and Exchange Commission on the date hereof, I, Christopher J. Pappas, President and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: |
March 31, 2003 |
/s/Christopher J. Pappas |
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Christopher J. Pappas |
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President and |
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Chief Executive Officer |
Certification Pursuant to
18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Luby's, Inc. on Form 10-Q for the fiscal quarter ended February 12, 2003, as filed with the Securities and Exchange Commission on the date hereof, I, Ernest Pekmezaris, Senior Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: |
March 31, 2003 |
/s/Ernest Pekmezaris |
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Ernest Pekmezaris |
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Senior Vice President and |
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Chief Financial Officer |