Reportable Segments

The Company has three reportable segments: Company-owned restaurants, Culinary Contract Services (“CCS”), and Franchise Operations.

Company-owned restaurants

Company-owned restaurants consists of several brands which are aggregated into one reportable segment because the nature of the products and services, the production processes, the customers, the methods used to distribute the products and services, the nature of the regulatory environment, and store level profit margin are similar. The chief operating decision maker analyzes Company-owned restaurants at store level profit which is revenue less cost of food, payroll and related costs, other operating expenses, and occupancy costs. The primary brands are Luby’s Cafeterias, Fuddruckers - World’s Greatest Hamburgers^® and Cheeseburger in Paradise. All company-owned restaurants are casual dining restaurants. Each restaurant is an operating segment because operating results and cash flow can be determined for each restaurant.

The total number of Company-owned restaurants was 160 at March 14, 2018 and 167 at August 30, 2017.

Culinary Contract Services

CCS, branded as Luby’s Culinary Contract Services, consists of a business line servicing healthcare, sport stadiums, corporate dining clients, and sales through retail grocery stores. The healthcare accounts are full service and typically include in-room delivery, catering, vending, coffee service, and retail dining. CCS has contracts with long-term acute care hospitals, acute care medical centers, ambulatory surgical centers, behavioral hospitals, a sports stadium, and business and industry clients. CCS has the unique ability to deliver quality services that include facility design and procurement as well as nutrition and branded food services to our clients. The cost of Culinary Contract Services on the Consolidated Statements of Operations include all food, payroll and related costs, other operating expenses, and other direct general and administrative expenses related to CCS sales.

CCS began selling Luby's Famous Fried Fish and Macaroni & Cheese in February 2017 and December 2016, respectively, in the freezer section of H-E-B stores, a Texas-born retailer. H-E-B stores now stock the family-sized versions (approximately five servings) of Luby's Classic Macaroni and Cheese and Luby's Jalapeño Macaroni and Cheese varieties and Luby's Fried Fish (two regular size fillets that provide four LuAnn-sized portions).

The total number of CCS locations was 24 at March 14, 2018 and 25 at August 30, 2017.

Franchise Operations

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

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

All franchisees are required to operate their restaurants in accordance with Fuddruckers’ standards and specifications, including controls over menu items, food quality, and preparation. The Company requires the successful completion of its training program by a minimum of three managers for each franchised restaurant. In addition, franchised restaurants are evaluated regularly by the Company for compliance with franchise agreements, including standards and specifications through the use of periodic, unannounced, on-site inspections, and standard evaluation reports.

The number of franchised restaurants was 110 at March 14, 2018 and 113 at August 30, 2017.

Licensee

In November 1997, a prior owner of the Fuddruckers – World’s Greatest Hamburgers^® brand granted to a licensee the exclusive right to use the Fuddruckers proprietary marks, trade dress and system to develop Fuddruckers restaurants in a territory consisting of certain countries in Africa, the Middle East and parts of Asia. As of March 2018, this licensee operated 36 restaurants that are licensed to use the Fuddruckers Proprietary Marks in Saudi Arabia, Egypt, United Arab Emirates, Qatar, Jordan, Bahrain, and Kuwait. The Company does not receive revenue or royalties from these restaurants.

Segment Table

The table on the following page shows segment financial information. The table also lists total assets for each reportable segment. Corporate assets include cash and cash equivalents, property and equipment, assets related to discontinued operations, property held for sale, deferred tax assets, and prepaid expenses.



	Quarter Ended						Two Quarters Ended
	March 14, 2018			March 15, 2017			March 14, 2018			March 15, 2017
	(12 weeks)			(12 weeks)			(28 weeks)			(28 weeks)
	(In thousands)
Sales:
Company-owned restaurants ⁽¹⁾	$	74,503		$	81,189		$	179,228		$	189,431
Culinary contract services	6,276			3,306			13,796			7,602
Franchise operations	1,401			1,819			3,288			3,691
Total	$	82,180		$	86,314		$	196,312		$	200,724
Segment level profit:
Company-owned restaurants	$	5,743		$	10,226		$	16,826		$	22,822
Culinary contract services	599			346			1,787			831
Franchise operations	1,032			1,383			2,432			2,675
Total	$	7,374		$	11,955		$	21,045		$	26,328
Depreciation and amortization:
Company-owned restaurants	$	3,319		$	3,981		$	7,772		$	9,435
Culinary contract services	18			15			37			38
Franchise operations	178			178			414			414
Corporate	483			614			1,128			1,451
Total	$	3,998		$	4,788		$	9,351		$	11,338
Capital expenditures:
Company-owned restaurants	$	2,993		$	2,783		$	6,417		$	7,333
Culinary contract services	22			—			130			—
Franchise operations	—			—			—			—
Corporate	690			199			1,483			629
Total	$	3,705		$	2,982		$	8,030		$	7,962

Loss before income taxes and discontinued operations:
Segment level profit	$	7,374		$	11,955		$	21,045		$	26,328
Opening costs	(331		)	(132		)	(406		)	(298		)
Depreciation and amortization	(3,998		)	(4,788		)	(9,351		)	(11,338		)
Selling, general and administrative expenses	(9,188		)	(9,008		)	(20,712		)	(22,767		)
Provision for asset impairments and restaurant closings	(1,407		)	(5,963		)	(2,252		)	(6,250		)
Net (loss) gain on disposition of property and equipment	204			(329		)	(18		)	(414		)
Interest income	5			1			11			3
Interest expense	(545		)	(727		)	(1,194		)	(1,330		)
Other income (expense), net	194			(242		)	309			(139		)
Loss before income taxes and discontinued operations	$	(7,692	)	$	(9,233	)	$	(12,568	)	$	(16,205	)



	March 14, 2018		August 30, 2017
Total assets:
Company-owned restaurants⁽²⁾	$	183,344	$	189,990
Culinary contract services	7,004		3,342
Franchise operations⁽³⁾	11,743		11,325
Corporate	17,621		21,800
Total	$	219,712	$	226,457


(1)	Includes vending revenue of $151 thousand and $125 thousand for the quarters ended March 14, 2018 and March 15, 2017, respectively, and $294 thousand and $284 thousand for the two quarters ended March 14, 2018 and March 15, 2017, respectively.


(2)	Company-owned restaurants segment includes $8.7 million of Fuddruckers trade name, Cheeseburger in Paradise liquor licenses, and Jimmy Buffett intangibles.


(3)	Franchise operations segment includes approximately $10.2 million in royalty intangibles.