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 margins 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 136 at March 13, 2019 and 146 at August 29, 2018.

Culinary Contract Services

CCS, branded as Luby’s Culinary Services, is a business line servicing healthcare, sport stadiums, corporate dining clients, and sales through retail grocery stores. The healthcare accounts are full service and typically include in-room delivery, catering, vending, coffee service, and retail dining. CCS has contracts with long-term acute care hospitals, acute care medical centers, ambulatory surgical centers, retail grocery stores, behavioral hospitals, sports stadiums, a senior care facility, government, 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 includes all food, payroll and related costs, other operating expenses, and other direct general and administrative expenses related to CCS sales. The total number of CCS locations was 33 at March 13, 2019 and 28 at August 29, 2018.

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 of Luby's Classic Macaroni and Cheese and Luby's Jalapeño Macaroni and Cheese varieties as well as Luby's Fried Fish.

Franchise Operations

We offer franchises for the Fuddruckers brand. Franchises are sold in markets where expansion is deemed advantageous to the development of the Fuddruckers concept and system of restaurants. 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, as well as accounting and operational 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 102 at March 13, 2019 and 105 at August 29, 2018.

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 January 2019, this licensee operated 33 restaurants that are licensed to use the Fuddruckers Proprietary Marks in Saudi Arabia, Egypt, United Arab Emirates, Qatar, Jordan, and Bahrain. 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, restricted cash, property and equipment, assets related to discontinued operations, property held for sale, deferred tax assets, and prepaid expenses.



	Quarter Ended						Two Quarters Ended
	March 13, 2019			March 14, 2018			March 13, 2019			March 14, 2018
	(12 weeks)			(12 weeks)			(28 weeks)			(28 weeks)
	(In thousands)
Sales:
Company-owned restaurants ⁽¹⁾	$	65,459		$	74,503		$	156,658		$	179,228
Culinary contract services	7,543			5,889			17,039			12,774
Franchise operations	1,421			1,401			3,644			3,288
Total	$	74,423		$	81,793		$	177,341		$	195,290
Segment level profit:
Company-owned restaurants	$	7,007		$	5,743		$	16,233		$	16,826
Culinary contract services	826			212			1,507			765
Franchise operations	1,174			1,032			3,125			2,432
Total	$	9,007		$	6,987		$	20,865		$	20,023
Depreciation and amortization:
Company-owned restaurants	$	2,613		$	3,319		$	7,004		$	7,772
Culinary contract services	24			18			46			37
Franchise operations	177			178			413			414
Corporate	408			483			663			1,128
Total	$	3,222		$	3,998		$	8,126		$	9,351
Capital expenditures:
Company-owned restaurants	$	498		$	2,993		$	1,562		$	6,417
Culinary contract services	(44		)	22			10			130
Corporate	208			690			209			1,483
Total	$	662		$	3,705		$	1,781		$	8,030

Income (loss) before income taxes and discontinued operations
Segment level profit	$	9,007		$	6,987		$	20,865		$	20,023
Opening costs	(11		)	(331		)	(44		)	(406		)
Depreciation and amortization	(3,222		)	(3,998		)	(8,126		)	(9,351		)
Selling, general and administrative expenses	(9,017		)	(9,188		)	(20,240		)	(20,712		)
Provision for asset impairments and restaurant closings	(1,195		)	(1,407		)	(2,422		)	(2,252		)
Net gain (loss) on disposition of property and equipment	12,651			204			12,501			(18		)
Interest income	19			5			19			11
Interest expense	(1,554		)	(545		)	(3,269		)	(1,194		)
Other income, net	55			194			86			309
Income (loss) before income taxes and discontinued operations	$	6,733		$	(8,079	)	$	(630	)	$	(13,590	)



	March 13, 2019		August 29, 2018
Total assets:
Company-owned restaurants⁽²⁾	$	152,855	$	151,511
Culinary contract services	6,175		4,569
Franchise operations⁽²⁾	10,979		10,982
Corporate	27,573		32,927
Total	$	197,582	$	199,989

(1)

Includes vending revenue of approximately $90 thousand and $151 thousand for the quarter ended March 13, 2019 and March 14, 2018, respectively, and amortization of discounts on gift cards sold partially offset by gift card breakage of approximately $100 thousand in the quarter ended March 13, 2019. Includes vending revenue of approximately $190 thousand and $294 thousand for the two quarters ended March 13, 2019 and March 14, 2018, respectively, and amortization of discounts on gift cards sold partially offset by gift card breakage of approximately $244 thousand in the two quarters ended March 13, 2019.


(2)	Company-owned restaurants segment includes $7.8 million of Fuddruckers trade name, Cheeseburger in Paradise liquor licenses, and Jimmy Buffett intangibles. Franchise operations segment includes approximately $9.5 million in royalty intangibles.