Note 1 - Nature of Operations and Significant Accounting Policies

12 Months Ended

Aug. 27, 2014

Disclosure Text Block [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note 1. Nature of Operations and Significant Accounting Policies

Nature of Operations

Luby’s, Inc. is based in Houston, Texas. As of August 27, 2014, the Company owned and operated 174 restaurants, with 127 in Texas and the remainder in other states. In addition, the Company received royalties from 110 franchises as of August 27, 2014 located primarily throughout the United States. The Company’s owned and franchised restaurant locations are convenient to shopping and business developments as well as to residential areas. Accordingly, the restaurants appeal to a variety of customers at breakfast, lunch and dinner. Culinary Contract Services consists of contract arrangements to manage food services for clients operating in primarily three lines of business: health care, higher education and corporate dining.

Correction of Immaterial Errors in Previously Issued Financial Statements

In the second quarter of fiscal 2014, we identified accounting errors in prepaid assets and payroll related liabilities. The Company did not expense amounts related to these accounts properly in the appropriate prior periods. The errors impacted all prior reporting periods beginning in 2007. While these errors were not material to any previously issued annual or quarterly consolidated financial statements, management concluded that correcting the cumulative errors and related tax effects would have been material to consolidated financial statements for the three months and six months ended February 12, 2014 and to the expected results of operations for the fiscal year ending August 27, 2014. Management evaluated the cumulative impact of the errors on prior periods under the guidance in ASC 250-10 relating to SEC Staff Accounting Bulletin (“SAB”) Topic1.M, Assessing Materiality. The Company also evaluated the impact of correcting the errors through an adjustment to its financial statements and concluded, based on the guidance within ASC 250-10 relating to SAB Topic 1.N, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, to revise its previously issued financial statements to reflect the impact of the correction of these errors when it files subsequent reports on Form 10-Q and Form 10-K. Accordingly, the Company revised its consolidated financial statements for the quarters ended February 12, 2014 and May 7, 2014 and for the years ended August 29, 2012 and August 28, 2013, to correct these errors. The prior period error corrections did not change the net cash flows provided by or used in operating, investing or financing activities previously reported. The cumulative effect on retained earnings as of August 31, 2011, was a reduction of $160,000, as reflected in the Statement of Shareholders Equity as of August 27, 2014. 

Consolidated Balance Sheet.

The following tables presents the impact of the accounting errors on the Company’s previously-reported consolidated balance sheet for the year ended August 28, 2013 and August 29, 2012.

	Balance Sheet August 28, 2013 (In thousands)
	As Reported			Reclassifications1			Adjustments			Revised
ASSETS
Current Assets:
Cash and cash equivalents	$	1,528		$	-		$	-		$	1,528
Trade accounts and other receivables, net		4,083			-			-			4,083
Food and supply inventories		5,026			(118	)		-			4,908
Prepaid expenses		3,183			(57	)		141			3,267
Assets related to discontinued operations		21			175			-			196
Deferred income taxes		1,436			-			199			1,635
Total current assets		15,277			-			340			15,617
Property held for sale		449			-			-			449
Assets related to discontinued operations		4,189			29			-			4,218
Property and equipment, net		190,519			(22	)		-			190,497
Intangible assets, net		25,517			-			-			25,517
Goodwill		2,169			-			-			2,169
Deferred income taxes		7,923			-			-			7,923
Other assets		4,262			(7	)		-			4,255
Total assets	$	250,305		$	-		$	340		$	250,645
LIABILITIES AND SHAREHOLDER EQUITY
Current Liabilities:
Accounts payable	$	23,655		$	-		$	-		$	23,655
Liabilities related to discontinued operations		440			87			-			527
Accrued expenses and other liabilities		21,178			(87	)		726			21,817
Total current liabilities		45,273			-			726			45,999
Credit facility debt		19,200			-			-			19,200
Liabilities related to discontinued operations		304			144			-			448
Other liabilities		8,010			(145	)		-			7,865
Total liabilities		72,787			(1	)		726			73,512
SHAREHOLDER'S EQUITY
Common Stock		9,217			-			-			9,217
Paid-in capital		26,065			-			-			26,065
Retained earnings		147,011			1			(386	)		146,626
Less cost of treasury stock		(4,775	)		-			-			(4,775	)
Total shareholders' equity		177,518			1			(386	)		177,133
Total liabilities and shareholders' equity	$	250,305		$	-		$	340		$	250,645

(1) The results of operations, assets and liabilities for all units included in the Company's disposal plans discussed in Note 11 have been reclassified to discontinued operations in the statements of operations and balance sheets for all periods presented. Some table rows may not sum due to rounding.

	Balance Sheet August 29, 2012 (In thousands)
	As Reported			Reclassifications(1)			Adjustments			Revised
ASSETS
Current Assets:
Cash and cash equivalents	$	1,223		$	-		$	-		$	1,223
Trade accounts and other receivables, net		4,000			-			-			4,000
Food and supply inventories		3,561			-			-			3,561
Prepaid expenses		3,010			11			(262	)		2,759
Assets related to discontinued operations		40			(11	)		-			29
Deferred income taxes		1,932			-			135			2,067
Total current assets		13,766			-			(127	)		13,639
Property held for sale		602			-			-			602
Assets related to discontinued operations		4,824			20			-			4,844
Property and equipment, net		173,653			(20	)		-			173,633
Intangible assets, net		26,679			-			-			26,679
Goodwill		195			-			-			195
Deferred income taxes		9,354			-			-			9,354
Other assets		1,944			-			-			1,944
Total assets	$	231,017		$	-		$	(127	)	$	230,890
LIABILITIES AND SHAREHOLDER EQUITY
Current Liabilities:
Accounts payable	$	14,849		$	1		$	-		$	14,850
Liabilities related to discontinued operations		411			2			-			413
Accrued expenses and other liabilities		20,677			(2	)		135			20,810
Total current liabilities		35,937			1			135			36,073
Credit facility debt		13,000			-			-			13,000
Liabilities related to discontinued operations		1,133			(78	)		-			1,055
Other liabilities (1)		8,288			77			-			8,364
Total liabilities (1)		58,358		$	-			135			58,492
SHAREHOLDER'S EQUITY
Common Stock		9,176			-			-			9,176
Paid-in capital		24,532			-			-			24,532
Retained earnings (1)		143,726			-			(262	)		143,465
Less cost of treasury stock		(4,775	)		-			-			(4,775	)
Total shareholders' equity		172,659			-			(262	)		172,398
Total liabilities and shareholders' equity	$	231,017		$	-		$	(127	)	$	230,890

(1) The results of operations, assets and liabilities for all units included in the Company's disposal plans discussed in Note 11 have been reclassified to discontinued operations in the statements of operations and balance sheets for all periods presented. Some table rows may not sum due to rounding.

Consolidated Statements of Operations

The following table presents the impact of the accounting errors on the Company’s previously-reported consolidated Statement of operations for the fiscal year ended August 28, 2013:

	Fiscal Year Ended August 28, 2013 (In thousands)
	As Reported		Reclassifications(1)			Adjustments			Revised
Restaurant sales	$	366,155	$	(6,154	)	$	—		$	360,001
Cost of food		104,993		(1,923	)		—			103,070
Payroll and related costs		126,306		(2,500	)		58			123,864
Other operating expenses		66,382		(1,497	)		33			64,918
Occupancy costs		21,537		(525	)		—			21,012
General and administrative expenses		32,121		3			93			32,217
Provision for income taxes		1,839		—			(64	)		1,775
Income from continuing operations		4,222		445			(120	)		4,547

⁽¹⁾  Certain reclassification of amounts have been made to conform with the current year presentation for comparative purposes. The results of operations, assets and liabilities for all units included in the Company’s disposal plans discussed in Note 11 have been reclassified to discontinued operations in the statements of operations and balance sheets for all periods presented. Occupancy costs have been reclassified from Other operating expenses to a separate line item on the Consolidated Statements of Operations and group insurance, employer 401(k) matching and employee meal costs have been reclassified from Other operating expenses to Payroll and related costs to provide comparability to financial results reported by our peers in the industry.  

The following table presents the impact of the accounting errors on the Company’s previously-reported consolidated Statement of operations for the fiscal year ended August 29, 2012:

	Fiscal Year Ended August 29, 2012 (In thousands)
	As Reported		Reclassifications(1)			Adjustments			Revised
Restaurant sales	$	324,536	$	-		$	-		$	324,536
Cost of foods		90,416		-			-			90,416
Payroll and related costs		110,161		2,095			23			112,279
Other operating expenses		74,084		(20,078	)		1			54,007
Occupancy costs		-		18,097			-			18,097
General and administrative expenses		30,678		-			130			30,808
Provision (benefit) for income taxes		1,706		-			(52	)		1,654
Income (loss) from continuing operations		7,558		(58	)		(102	)		7,398

⁽¹⁾  Certain reclassification of amounts have been made to conform with the current year presentation for comparative purposes. The results of operations, assets and liabilities for all units included in the Company’s disposal plans discussed in Note 11 have been reclassified to discontinued operations in the statements of operations and balance sheets for all periods presented. Occupancy costs have been reclassified from Other operating expenses to a separate line item on the Consolidated Statement of Operations and group insurance, employer 401k matching and employee meal costs have been reclassified from Other operating expenses to Payroll and related costs to provide comparability to financial results reported by our peers in the industry.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Luby’s, Inc. and its wholly owned subsidiaries. Luby’s, Inc. was restructured into a holding company on February 1, 1997, at which time all of the operating assets were transferred to Luby’s Restaurants Limited Partnership, a Texas limited partnership consisting of two wholly owned, indirect corporate subsidiaries of the Company. On July 9, 2010, Luby’s Restaurants Limited Partnership was converted into Luby’s Fuddruckers Restaurants, LLC, a Texas limited liability company (“LFR”). Unless the context indicates otherwise, the word “Company” as used herein includes Luby’s, Inc., LFR and the consolidated subsidiaries of Luby’s, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.

Reportable Segments

Each restaurant is an operating segment because operating results and cash flow can be determined for each restaurant which is regularly reviewed by the chief operating decision maker. The Company has three reportable segments: Company-owned restaurants, franchise operations and Culinary Contract Services (“CCS”). Company-owned restaurants 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 and the nature of the regulatory environment are alike.

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments such as money market funds that have a maturity of three months or less. All of the Company’s bank account balances are insured by the Federal Deposit Insurance Corporation. However, balances in money market fund accounts are not insured. Amounts in transit from credit card companies are also considered cash equivalents because they are both short-term and highly liquid in nature and are typically converted to cash within three days of the sales transaction.

Trade Accounts and Other Receivables, net

Receivables consist principally of amounts due from franchises, culinary contract service clients, catering customers and restaurant food sales to corporations. Receivables are recorded at the invoiced amount. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical loss experience for contract service clients, catering customers and restaurant sales to corporation. The Company determines the allowance for CCS receivables and franchise royalty and marketing and advertising receivables based on the franchisees’ and CCS clients’ unsecured default status. The Company periodically reviews its allowance for doubtful accounts. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Inventories

Food and supply inventories are stated at the lower of cost (first-in, first-out) or market.  

Property Held for Sale

The Company periodically reviews long-lived assets against its plans to retain or ultimately dispose of properties. If the Company decides to dispose of a property, it will be moved to property held for sale and actively marketed. Property held for sale is recorded at amounts not in excess of what management currently expects to receive upon sale, less costs of disposal. The Company analyzes market conditions each reporting period and record additional impairments due to declines in market values of like assets. The fair value of the property is determined by observable inputs such as appraisals and prices of comparable properties in active markets for assets like the Company’s. Gains are not recognized until the properties are sold.

Impairment of Long-Lived Assets

Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount. The Company evaluates impairments on a restaurant-by-restaurant basis and uses cash flow results and other market conditions as indicators of impairment.

Debt Issuance Costs

Debt issuance costs include costs incurred in connection with the arrangement of long-term financing agreements. These costs are amortized using the effective interest method over the respective term of the debt to which they specifically relate.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, trade accounts and other receivables, accounts payable and accrued expenses approximates fair value based on the short-term nature of these accounts. The carrying value of credit facility debt also approximates fair value based on its recent renewal.

Self-Insurance Accrued Expenses

The Company self-insures a significant portion of expected losses under its workers’ compensation, work injury and general liability programs. Accrued liabilities have been recorded based on estimates of the ultimate costs to settle incurred claims, both reported and not yet reported. These recorded estimated liabilities are based on judgments and independent actuarial estimates, which include the use of claim development factors based on loss history; economic conditions; the frequency or severity of claims and claim development patterns; and claim reserve management settlement practices.

Revenue Recognition

Revenue from restaurant sales is recognized when food and beverage products are sold. Unearned revenues are recorded as a liability for dining cards that have been sold but not yet redeemed and are recorded at their expected redemption value. When dining cards are redeemed, revenue is recognized and unearned revenue is reduced.

Revenue from culinary contract services is recognized when services are provided and reimbursable costs are incurred within contractual terms.

Revenue from franchise royalties is recognized each fiscal period based on contractual royalty rates applied to the franchise’s restaurant sales each fiscal period. Start up fees paid by franchisees prior to the restaurant’s opening are deferred until the obligations to the franchisee have been satisfied, generally when the restaurant opens.

Cost of CCS

The cost of CCS includes all food, payroll and related costs, and other operating expenses related to culinary contract service sales. All general and administrative expenses, depreciation and amortization, property disposal, asset impairment costs associated with CCS are reported within those respective lines as applicable.

Advertising Expenses

Advertising costs are expensed as incurred. Total advertising expense included in Other operating expenses was $4.6 million, $3.9 million and $2.4 million in fiscal 2014, 2013 and 2012, respectively.  

Depreciation and Amortization

Property and equipment are recorded at cost. The Company depreciates the cost of equipment over its estimated useful life using the straight-line method. Leasehold improvements are amortized over the lesser of their estimated useful lives or the related lease terms. Depreciation of buildings is provided on a straight-line basis over the estimated useful lives.

Opening Costs

Opening costs are expenditures related to the opening of new restaurants through its opening periods, other than those for capital assets. Such costs are charged to expense when incurred.

Operating Leases

The Company leases restaurant and administrative facilities and administrative equipment under operating leases. Building lease agreements generally include rent holidays, rent escalation clauses and contingent rent provisions for a percentage of sales in excess of specified levels. Contingent rental expenses are recognized prior to the achievement of a specified target, provided that the achievement of the target is considered probable. Most of the Company’s lease agreements include renewal periods at the Company’s option. The Company recognizes rent holiday periods and scheduled rent increases on a straight-line basis over the lease term beginning with the date the Company takes possession of the leased space.

Income Taxes

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 carrybacks and carryforwards are recorded. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities (temporary differences) and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not a portion or all of the deferred tax asset will not be recognized.

Management makes judgments regarding the interpretation of tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions as well as by the Internal Revenue Service (“IRS”). In management’s opinion, adequate provisions for income taxes have been made for all open tax years. The potential outcomes of examinations are regularly assessed in determining the adequacy of the provision for income taxes and income tax liabilities. Management believes that adequate provisions have been made for reasonably possible outcomes related to uncertain tax matters.

Sales Taxes

GAAP provides that a company may adopt a policy of presenting taxes either gross within revenue or on a net basis. The Company presents these taxes on a net basis (excluded from revenue).

Discontinued Operations

Management evaluates unit closures for presentation in discontinued operations following guidance from ASC 205-20-55. To qualify for presentation as a discontinued operation, management determines if the closure or exit of a business location or activity meets the following conditions: (1) the operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction and (2) there will not be any significant continuing involvement in the operations of the component after the disposal transaction. To evaluate whether these conditions are met, management considers whether the cash flows lost will not be recovered and generated by the ongoing entity, the level of guess traffic and sales transfer, the significance of the number of locations closed and expectancy of cash flow replacement by sales from new and existing locations, as well as the level of continuing involvement in the disposed operation. Operating and non-operating results of these locations are then classified and reported as discontinued operations of all periods presented.

Share-Based Compensation

Share-based compensation expense is estimated for equity awards at fair value at the grant date. The Company determines fair value of restricted stock awards based on the average of the high and low price of its common stock on the date awarded by the Board of Directors. The Company determines the fair value of stock option awards using a Black-Sholes option pricing model. The Black-Sholes option pricing model requires various judgmental assumptions including the expected dividend yield, stock price volatility and the expected life of the award. If any of the assumptions used in the model change significantly, share-based compensation expense may differ materially in the future, from that recorded in the current period. For further discussion, see Note 14, “Share-Based Compensation,” below.

Earnings Per Share

Basic income per share is computed by dividing net income by the weighted-average number of shares outstanding, including restricted stock units, during each period presented. For the calculation of diluted net income per share, the basic weighted average number of shares is increased by the dilutive effect of stock options, determined using the treasury stock method.

Accounting Periods

The Company’s fiscal year ends on the last Wednesday in August. Accordingly, each fiscal year normally consists of 13 four-week periods, or accounting periods, accounting for 364 days in the aggregate. However, every fifth or sixth year, we have a fiscal year that consists of 53 weeks, accounting for 371 days in the aggregate; fiscal year 2011 was such a year. Each of the first three quarters of each fiscal year consists of three four-week periods, while the fourth quarter normally consists of four four-week periods. However, the fourth quarter of fiscal year 2011, as a result of the additional week, consisted of three four-week periods and one five-week period, accounting for 17 weeks, or 119 days, in the aggregate. Fiscal 2013 and 2012 both contained 52 weeks. Comparability between quarters may be affected by the varying lengths of the quarters, as well as the seasonality associated with the restaurant business.

Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from these estimates.

Subsequent Events

Events subsequent to the Company’s fiscal year ended August 27, 2014 through the date of issuance of the financial statements are evaluated to determine if the nature and significance of the event warrants inclusion in the Company’s annual report.