FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended August 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________________ to ______________________
Commission file number: 1-8308
LUBY'S CAFETERIAS, INC.
______________________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 74-1335253
_________________________ ____________________________________`
(State of Incorporation) (I.R.S. Employer Identification No.)
2211 Northeast Loop 410
Post Office Box 33069
San Antonio, Texas 78265-3069 Area Code 210 654-9000
_______________________________________ _______________________________
(Address of principal executive office) (Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of Class which registered
______________ ______________________
Common Stock ($.32 par value) New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
____
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 No
___ ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the shares of Common Stock of the registrant
held by non-affiliates of the registrant as of November 10, 1998, was
approximately $329,676,000 (based upon the assumption that directors and
officers are the only affiliates).
As of November 10, 1998, there were 22,964,475 shares of the registrant's
Common Stock outstanding, exclusive of 4,438,592 treasury shares.
Portions of the following documents are incorporated by reference into the
designated parts of this Form 10-K: annual report to shareholders for the
fiscal year ended August 31, 1998, (in Part II) and proxy statement relating
to 1999 annual meeting of shareholders (in Part III).
Item 1. Business.
Luby's Cafeterias, Inc. was originally incorporated in Texas in 1959 and
was reincorporated in Delaware on December 31, 1991. The Company's executive
offices are at 2211 Northeast Loop 410, P. O. Box 33069, San Antonio, Texas
78265-3069.
Luby's Cafeterias, 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 composed of
two wholly owned indirect corporate subsidiaries of the Company. All cafeteria
operations are conducted by the partnership. Unless the context indicates
otherwise, the word "Company" as used herein includes the partnership and
the consolidated corporate subsidiaries of Luby's Cafeterias, Inc.
The Company operates 223 cafeteria-style restaurants under the name
"Luby's" located in close proximity to retail centers, business developments,
and residential areas in Arizona, Arkansas, Florida, Kansas, Louisiana,
Mississippi, Missouri, New Mexico, Oklahoma, Tennessee, and Texas. Of the 223
restaurants operated by the Company, 133 are at locations owned by the Company
and 90 are on leased premises.
Strategic Plan
In August 1998 the Company announced plans to close 14 restaurants over
the next year as part of its strategic planning efforts. The strategic plan
includes relocating several restaurants over the next few years, improving
current store sales and profits, creating a more profitable business in
markets outside of Texas, building new restaurants in smaller Texas markets,
and building the food-to-go business. The Company is testing a variety of
initiatives, including expanded beverage offerings, breakfast, extended hours
of operation, and the addition of drive-thru windows to selected restaurants.
Management believes there is excellent potential in smaller Texas
communities for a smaller prototype restaurant. A new prototype is being
developed for introduction later in the current fiscal year.
Marketing
The Company's product strategy is to provide a wide variety of freshly
prepared foods in an attractive and informal environment. The Company's
research has shown that its products appeal to a broad range of value-oriented
consumers with particular success among families with children, seniors,
shoppers, and business people looking for a quick, healthy meal at a
reasonable price.
Prior to 1991 the Company relied primarily on customers' word-of-mouth
recommendations and community relations activities to promote its business,
spending approximately .5% of sales annually on these efforts. In 1991 the
Company began developing a new marketing program. Based on favorable
results of radio and television advertising tests, the marketing budget
increased to approximately two percent of sales. During fiscal 1998, the
Company ran a series of product-specific promotions, including the Chicken
Lover's Special, Seafarer's Special, and Pasta Fest, which were well-received
by customers and positively impacted customer traffic. The Company intends to
increase the marketing budget in fiscal 1999 to approximatley two and one-half
percent of sales and to continue expending the majority of the marketing budget
on television and radio advertising.
Operations
The Company's operations combine the food quality and atmosphere of a
good restaurant with the simplicity and visual food selection of cafeteria
service. Food is prepared in small quantities throughout serving hours, and
frequent quality checks are made. Each cafeteria offers a broad and varied
menu and normally serves 12 to 14 entrees, 12 to 14 vegetable dishes, 15 to 20
salads, and 18 to 20 desserts.
The Company's restaurants cater primarily to shoppers and office or store
personnel for lunch and to families for dinner. The Company's restaurants are
open for lunch and dinner seven days a week. All of the restaurants sell
take-out orders, and most of them have separate food-to-go entrances. Take-
out orders accounted for approximately 11 percent of sales in fiscal 1998.
Each restaurant is operated as a separate unit under the control of a
manager who has responsibility for day-to-day operations, including food
purchasing, menu planning, and personnel employment and supervision. Each
restaurant manager is compensated on the basis of his or her restaurant's
profits. Management believes that granting broad authority to its restaurant
managers and compensating them on the basis of their performance are
significant factors in the profitability of its restaurants. Of the 223
managers employed by the Company, 177 have been with the Company for more than
ten years. Generally, an individual is employed for a period of seven to eight
years before he or she is considered qualified to become a manager.
Each restaurant cooks or prepares substantially all of the food served,
including breads and pastries. The restaurants prepare food from the same
recipes, with minor variations to suit local tastes, although menus are not
uniform in all of the Company's restaurants on any particular day. Menus are
prepared to reflect local and seasonal food preferences and to take advantage
of any special food purchasing opportunities. The restaurants are not dependent
upon any one supplier, and the Company believes that alternative sources of
supply are readily available.
Quality control teams, each consisting of experienced cooks and a
supervisor, help to maintain uniform standards of food preparation. The teams
primarily assist in the training of new personnel during the opening of new
restaurants. The teams also visit the restaurants periodically and work with
the regular staffs to check adherence to the Company's recipes, train
personnel in new techniques, and evaluate procedures for possible use
throughout the Company.
The Company conducts a training program comprised of both on-the-job
training and classroom instruction in its training facilities in
San Antonio. The training program is approximately three months in duration.
Management personnel receive one week of classroom instruction and spend
the remaining time on practical training in operating restaurants. In order to
draw management trainees from regional talent pools, the Company has set
up satellite training schools in several key restaurants to make on-the-job
training more accessible on a local level.
As of August 31, 1998, the Company had approximately 12,800 employees,
consisting of 11,919 nonmanagement restaurant personnel; 739 restaurant
managers, associate managers, and assistant managers; and 142 executive,
administrative, and clerical personnel. Employee relations are considered to
be good, and the Company has never had a strike or work stoppage. The Company
is not subject to any collective bargaining agreements.
Expansion
During the fiscal year ended August 31, 1998, the Company opened five new
restaurants in Phoenix, Arizona; Clearwater, Florida; Meridian, Mississippi; and
Greenville and Tyler, Texas. During the 1998 fiscal year the Company closed
five cafeterias in Little Rock, Arkansas; Leavenworth, Kansas; Albuquerque,
New Mexico; Muskogee, Oklahoma; and Dallas, Texas. There was no net increase
in the number of restaurants for the 1998 fiscal year.
Since August 31, 1998, the Company has opened a new restaurant in
Tulsa, Oklahoma, and has closed seven restaurants in Phoenix and Scottsdale,
Arizona; Wichita, Kansas; Joplin, Missouri; Albuquerque, New Mexico, and
Memphis, Tennessee. During fiscal 1999 the Company expects to open aproximately
six new restaurants, inclusive of the one already opened. The Company expects
to close approximately 12 restaurants during the 1999 fiscal year, inclusive of
the ones already closed.
The Company continually evaluates prospective new restaurant sites and
typically has several sites for new restaurants under active consideration at
any given time. The rate at which new restaurants are opened is governed by
the Company's policy of controlled growth, which takes into account the
resources and capabilities of all departments involved, including real estate,
construction, equipment, and operations. It has been the Company's experience
that new restaurants generally become profitable within a few months after
opening.
The costs of opening new restaurants vary widely, depending on whether the
facilities are to be leased or owned, and if owned, on site acquisition and
construction costs. The Company estimates that in recent years it has cost
$2,500,000 to $2,700,000 to construct, equip, and furnish a new restaurant in a
freestanding building under normal conditions, including land acquisition
costs. The approximate cost to finish out, equip, and furnish a new restaurant
in a leased facility has ranged from $1,200,000 to $1,400,000. The Company is
reviewing its current restaurant design and plans to reduce the size and change
the physical features of the restaurant to make it more appealing to guests. In
addition, the Company is working on plans for an even smaller prototype
(approximately 6,000 square feet) to be built in smaller Texas markets.
Waterstreet Joint Venture
In January 1996 the Company announced a joint venture agreement with
Waterstreet, Inc., a seafood restaurant company operating in Corpus Christi,
Fort Worth, and San Antonio, Texas. The agreement provides for the opening
of up to five "Water Street Seafood Company" restaurants during the term of
the joint venture. Three of the restaurants are open in Austin, Lewisville, and
San Antonio, Texas. One of the restaurants which opened in Houston, Texas, was
subsequently closed.
Service Marks
The Company uses several service marks, including "Luby's" and believes
that such marks are of material importance to its business. The Company has
federal service mark registrations for several of such marks.
The Company is not the sole user of the name "Luby's" in the cafeteria
business. One cafeteria using the name "Luby's" and one cafeteria using the
name "Pat Luby's" are being operated in two different cities in Texas by two
different owners not affiliated with the Company. The Company's legal counsel
is of the opinion that the Company has the paramount right to use the name
"Luby's" as a service mark in the cafeteria business in the United States and
that such other users can be precluded from expanding their use of the name as
a service mark.
Competition and Other Factors
The foodservice business is highly competitive, and there are numerous
restaurants and other foodservice operations in each of the markets where the
Company operates. The quality of the food served, in relation to its price,
and public reputation are important factors in foodservice competition.
Neither the Company nor any of its competitors has a significant share of the
total market in any area in which the Company competes. The Company believes
that its principal competitors are conventional restaurants and other
cafeterias.
The Company's facilities and food products are subject to state and local
health and sanitation laws. In addition, the Company's operations are subject
to federal, state, and local regulations with respect to environmental and
safety matters, including regulations concerning air and water pollution and
regulations under the Americans with Disabilities Act and the Federal
Occupational Safety and Health Act. Such laws and regulations, in the
Company's opinion, have not materially affected its operations, although
compliance has resulted in some increased costs.
Forward-looking Statements
Certain statements in this report are forward-looking statements and
the Company can give no assurance that the expectations or potential occurrences
reflected in such statements will be realized. Efforts to close, sell, or
improve operating results of underperforming stores depend on many factors not
within the Company's control such as the negotiation of settlements of existing
lease obligations under acceptable terms, availability of qualified buyers for
owned locations, customer traffic, and general business conditions.
Item 2. Properties.
The Company owns the underlying land and buildings in which 133 of its
restaurants are located. In addition, the Company owns several restaurant sites
being held for future development and several properties are held for sale.
Of the 223 restaurants operated by the Company, 90 are at locations held
under leases, including 54 in regional shopping malls. Most of the leases
provide for a combination of fixed-dollar and percentage rentals. Most of the
leases require the lessee to pay additional amounts related to property taxes,
hazard insurance, and maintenance of common areas.
See Notes 5 and 8 of Notes to Financial Statements for information
concerning the Company's lease rental expenses, lease commitments, and
construction commitments. Of the 90 restaurant leases, the current terms of 31
expire from 1999 to 2003, 23 from 2004 to 2008, and 36 thereafter.
Seventy-three of the leases can be extended beyond their current terms at the
Company's option.
A typical restaurant seats 250 to 300 guests and contains 9,000 to 10,500
square feet of floor space. Most of the restaurants are located in modern
buildings and all are in good condition. It is the Company's policy to
refurbish and modernize restaurants as necessary to maintain their appearance
and utility. The equipment in all restaurants is well maintained. Several of
the Company's restaurant properties contain excess building space which is
rented to tenants unaffiliated with the Company.
The towns and cities in which the Company's 223 cafeterias are located
are listed below, with numbers in parentheses indicating the number of
units in each locale:
Arizona (12) Baytown (1)
Chandler (1) Beaumont (1)
Glendale (1) Bedford (1)
Mesa (2) Bellmead (1)
Peoria (1) Brownsville (2)
Phoenix (4) Bryan/College Station (2)
Surprise (1) Carrollton (1)
Tucson (2) Conroe (1)
Corpus Christi (4)
Dallas (11)
Arkansas (6) Deer Park (1)
Fayetteville (1) Del Rio (1)
Fort Smith (1) Denton (1)
Hot Springs (1) DeSoto (1)
Little Rock (2) Duncanville (1)
North Little Rock (1) El Paso (5)
Fort Worth (8)
Florida (7) Galveston (1)
Clearwater (2) Garland (1)
Pinellas Park (1) Grand Prairie (1)
St. Petersburg (1) Grapevine (1)
Sebring (1) Greenville (1)
Tampa (2) Harlingen (2)
Houston (31)
Kansas (1) Humble (1)
Mission (1) Irving/Las Colinas (2)
Jacinto City (1)
Kerrville (1)
Louisiana (2) Killeen (1)
Bossier City (1) Kingwood (1)
Shreveport (1) Lake Jackson (1)
Laredo (2)
Mississippi (2) Lewisville (1)
Hattiesburg (1) Longview (1)
Meridian (1) Lubbock (1)
Lufkin (1)
Missouri (3) McAllen (3)
Independence (1) McKinney (1)
Kansas City (2) Mesquite (3)
Midland (1)
Mission (1)
New Mexico (3) New Braunfels (1)
Albuquerque (1) North Richland Hills (1)
Las Cruces (1) Odessa (1)
Santa Fe (1) Orange (1)
Pasadena (1)
Oklahoma (9) Pharr (1)
Bartlesville (1) Plano (2)
Broken Arrow (1) Port Arthur (2)
Oklahoma City (3) Richardson (1)
Shawnee (1) Rosenberg (1)
Tulsa (3) Round Rock (1)
San Angelo (1)
Tennessee (11) San Antonio (21)
Franklin (1) San Marcos (1)
Memphis (4) Sherman (1)
Morristown (1) Stafford (1)
Murfreesboro (1) Sugar Land (1)
Nashville (3) Temple (1)
Oak Ridge (1) Texarkana (1)
The Woodlands (1)
Texas (167) Tomball (1)
Abilene (2) Tyler (3)
Amarillo (2) Victoria (1)
Arlington (3) Waco (1)
Austin (7) Weslaco(1)
The Company's corporate offices are located in a building owned by the
Company containing approximately 40,000 square feet of office space. The
Company utilizes the space for its executive offices and related facilities
The Company maintains public liability insurance and property damage
insurance on its properties in amounts which management believes to be
adequate.
Item 3. Legal Proceedings.
The Company is from time to time subject to pending claims and lawsuits
arising in the ordinary course of business. In the opinion of management,
the ultimate resolution of such claims and lawsuits will not have a material
adverse effect on the Company's operations or consolidated financial position
There are no material legal proceedings to which any director, officer, or
affiliate of the Company, or any associate of any such director or officer,
is a party, or has a material interest, adverse to the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal year
ended August 31, 1998, to a vote of security holders of the Company.
Item 4A. Executive Officers of the Registrant.
Certain information is set forth below concerning the executive officers
of the Company, each of whom has been elected to serve until the 1999 annual
meeting of shareholders and until his or her successor is duly elected and
qualified.
Served as
Officer Positions with Company and
Name Since Principal Occupation Last Five Years Age
________________________ ________ ____________________________________ ___
David B. Daviss 1997 Chairman of the Board (since Oct. 62
1997); Acting Chief Executive
Officer (May-Oct. 1997); Director
since 1984; Chairman of the
Executive Committee and member of
the Corporate Governance Committee;
investor.
Barry J.C. Parker 1997 President, Chief Executive Officer, 51
and Director (since Oct. 1997);
member of the Executive Committee;
Chairman of the Board, President,
and Chief Executive Officer of
County Seat Stores, Inc. (1989-1996);
principal of Hoak Capital Corp. (1997).
Laura M. Bishop 1995 Senior Vice President and Chief 37
Financial Officer (since Jan. 1997);
Vice President-Finance (1996); Vice
President-Financial Planning (1995);
Director of Financial Planning
(1993-1995); Director of Internal
Audit (1992-1993).
Robert P. Burke 1996 Senior Vice President-Marketing 49
(since Jan. 1997); Vice President-
Marketing (1996); Vice President of
Sales and Marketing, Pace Foods/
Campbell Soup Company prior to 1996.
Alan M. Davis 1998 Senior Vice President-Real Estate 46
Development (since May 1988); Vice
President of Real Estate, Boston
Chicken, Inc. and Boston Chicken
Real Estate Investments, Inc.
prior to May 1998. Boston Chicken,
Inc. filed a petition for reorgani-
zation under Chapter 11 of the U.S.
Bankruptcy Code in October 1998.
Sue Elliott 1998 Senior Vice President-Human 48
Resources (since May 1998); Vice
President of Friday's Hospitality
prior to May 1998.
Raymond C. Gabrysch 1988 Senior Vice President-Operations 47
(since Sept. 1997); Senior Vice
President-Human Resources (Jan.-
Aug. 1997); Vice President-Human
Resources (1996); Area Vice
President prior to 1996.
Clyde C. Hays III 1985 Senior Vice President-Operations 47
(since Jan. 1996); Vice President-
Operations prior to 1996.
James R. Hale 1980 Secretary; Member of law firm of 69
Cauthorn Hale Hornberger Fuller
Sheehan & Becker Incorporated.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Stock Prices and Dividends
The Company's common stock is traded on the New York Stock Exchange under
the symbol LUB. The following table sets forth, for the last two fiscal
years, the high and low sales prices on the New York Stock Exchange from the
consolidated transaction reporting system and the per share cash dividends
declared on the common stock.
Fiscal Quarters Quarterly
Ended High Low Cash Dividend
_________________ ______ ______ ______________
November 30, 1996 $24.38 $20.75 $.20
February 28, 1997 22.88 19.88 .20
May 31, 1997 20.63 17.63 .20
August 31, 1997 20.63 18.81 .20
November 30, 1997 21.38 18.88 .20
February 28, 1998 19.69 16.00 .20
May 31, 1998 19.50 17.13 .20
August 31, 1998 18.94 15.25 .20
As of September 11, 1998, there were approximately 5,036 record holders
of the Company's common stock.
Item 6. Selected Financial Data.
<TABLE>
Five Year Summary of Operations
(Thousands of dollars except per share data)
Years ended August 31,
<CAPTION>
1998 1997 1996 1995 1994
________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
Sales $508,871 $495,446 $450,128 $419,024 $390,692
Costs and expenses:
Cost of food 129,126 121,287 110,008 103,611 98,223
Payroll and related costs 155,152 146,940 124,333 113,952 104,543
Occupancy and other operating
expenses 154,501 150,638 132,595 123,907 113,546
General and administrative
expenses 22,061 19,451 20,217 18,672 15,330
Provision for asset impairments
and store closings 36,852 12,432 - - -
________ ________ ________ ________ ________
497,692 450,748 387,153 360,142 331,642
________ ________ ________ ________ ________
Income from operations 11,179 44,698 62,975 58,882 59,050
Other income (expenses):
Interest expense (5,078) (4,037) (2,130) (1,749) -
Interest and other 1,778 2,001 1,697 1,805 1,385
________ ________ ________ ________ ________
(3,300) (2,036) (433) 56 1,385
________ ________ ________ ________ ________
Income before income taxes
and accounting change 7,879 42,662 62,542 58,938 60,435
Provision for income taxes 2,798 14,215 23,334 21,923 22,663
________ ________ ________ ________ ________
Income before accounting
change 5,081 28,447 39,208 37,015 37,772
Cumulative effect of change in
accounting for income taxes - - - - 1,563
________ ________ ________ ________ ________
Net income (a) $ 5,081 $ 28,447 $ 39,208 $ 37,015 $ 39,335
Income per share before accounting
change $ 0.22 $ 1.22 $ 1.66 $ 1.55 $ 1.45
Net income per common share -
basic $ 0.22 $ 1.22 $ 1.66 $ 1.55 $ 1.51
Net income per common share -
assuming dilution $ 0.22 $ 1.21 $ 1.64 $ 1.53 $ 1.49
Cash dividend declared per common
share $ .80 $ .80 $ .74 $ .68 $ .62
At year-end:
Total assets $339,041 $368,778 $335,290 $312,380 $289,668
Long-term debt $ 73,000 $ 84,000 $ 41,000 $ - $ -
Number of cafeterias 229 229 204 187 176
<FN>
(a) Net income in 1994 includes the cumulative effect of change in accounting
for income taxes of $1,563, or $.06 per share.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Liquidity and Capital Resources
During the last three years the Company has funded all capital
expenditures from internally generated funds, cash equivalents, and long-term
debt. Capital expenditures for fiscal 1998 were $26,015,000, a 58% decrease
from fiscal 1997. This decrease resulted from the opening of five new
restaurants in fiscal 1998 as compared to 29 in fiscal 1997, which included two
relocations. Fiscal 1997 capital expenditures included the purchase of 20
locations from Triangle FoodService Corporation, formerly Wyatt Cafeterias,
Inc., for approximately $14 million in cash. After additional capital
expenditures of approximately $5 million to repair and refurbish these units,
15 of the 20 locations were opened as "Luby's" and are included in the 29
openings in fiscal 1997. In addition, during fiscal 1998 the Company purchased
one site as land held for future use compared to eight in fiscal 1997. The
Company also spent approximately $5 million to upgrade the restaurant
information systems during fiscal 1998.
Plans for fiscal 1999 include the opening of approximately six new
restaurants - four on sites owned by the Company and two on land held under
long-term ground leases. The Company also expects fiscal 1999 capital
expenditures to include approximately $12 million related to strategic
initiatives, including food-to-go expansions, new self-service drink stations,
and 10 to 15 remodels with updated design features. In addition, as part of
its strategic initiative to expand into smaller Texas markets, planned
expenditures for fiscal 1999 include approximately $5 million for the opening
of the first location by the end of the fiscal year and the purchase of several
other land sites for fiscal 2000 openings. The Company anticipates that
proceeds from property held for sale will partially offset future capital
requirements.
As part of a joint venture agreement with Waterstreet, Inc. signed in
January 1996, the Company opened two seafood restaurants in fiscal 1998.
During fiscal 1998, the company closed one seafood restaurant which was opened
the prior year. No seafood restaurants are planned to open in fiscal 1999.
These "Water Street Seafood Company" restaurants are leased by the joint
venture from the Company and operated by Waterstreet, Inc.
As of August 31, 1998, the Company owned three undeveloped restaurant
sites, and several land site acquisitions were in varying stages of
negotiation. As a result of more new store openings planned for next year, the
Company expects an increase in total capital expenditures for fiscal 1999.
Construction costs for new restaurants are expected to be funded by cash flow
from operations, cash currently held in cash equivalent investments, and long-
term debt.
The Company generated cash from operations of $47,957,000 in fiscal 1998.
The Company had $73,000,000 outstanding at August 31, 1998, under a
$125,000,000 credit facility with a syndication of four banks. At August 31,
1998, the Company had a working capital deficit of $32,324,000 which compares
to the prior year's working capital deficit of $29,711,000. The working
capital position declined slightly during fiscal 1998 due primarily to the
decrease in cash and cash equivalents of $2,670,000. The Company typically
carries current liabilities in excess of current assets because cash generated
from operating activities is reinvested in capital expenditures.
The Company believes that funds generated from operations and short-term
or long-term financing from external sources, which can be obtained on terms
acceptable to the Company, are adequate for its foreseeable needs.
Results of Operations
Fiscal 1998 Compared to Fiscal 1997
Sales increased $13,425,000, or 3%, due to the addition of five new
restaurants in fiscal 1998 and 27 restaurants in fiscal 1997. This increase
was partially offset by the closing of two restaurants on August 31, 1997, and
three others during fiscal 1998. The average sales volume for all restaurants
that were open in both years increased slightly to $2,250,000 in fiscal 1998
from $2,244,000 in fiscal 1997. The same-store customer counts were down by 1%
but were offset by higher average tray revenues.
Cost of food increased $7,839,000, or 6%, due primarily to the increase in
sales, new menu item testing, and higher fish and other commodity prices
overall. Payroll and related costs increased $8,212,000, or 6%, due primarily
to the increase in sales and the higher Federal minimum wage which increased
first on October 1, 1996, and again on September 1, 1997. Occupancy and other
operating expenses increased $3,863,000, or 3%, due primarily to the increase
in sales and the opening of five new restaurants. This increase was partially
offset by lower managers' salaries, which are based on the profitability of the
restaurants. General and administrative expenses increased $2,610,000, or 13%,
due primarily to higher legal and professional fees associated with the
Company's strategic planning project. In addition, fiscal 1998 included a
higher provision for bonuses since none were incurred in fiscal 1997 and a
higher Company contribution to the profit sharing plan.
As part of its strategic planning efforts, the Company completed an
assessment of underperforming restaurants and recorded a $36.9 million pretax
charge during the fourth quarter of fiscal 1998. The charge included $14.7
million for the closing of 14 underperforming restaurants, $10.7 million for
the write-down of 16 restaurants which will be relocated to optimize their
market potential, and $11.4 million for the write-down of certain restaurant
properties which the Company plans to continue to operate. Additionally, the
Company revised its estimate of the net realizable value of surplus properties
which the Company plans to sell resulting in an additional write-down of $0.1
million. The charge for the closing of the 14 underperforming restaurants and
the restaurants to be relocated related to the write-down of property and
equipment to net realizable value, costs to settle lease obligations, and
severance costs. As of August 31, 1998, two of the 14 restaurants were closed,
and the remaining restaurants are planned for closure during fiscal 1999.
Interest expense of $5,078,000 for fiscal 1998 was incurred in conjunction
with borrowings under the credit facility and is net of $276,000 capitalized on
qualifying properties. The increase over fiscal 1997 of $1,041,000, or 26%,
was due primarily to lower capitalized interest on qualifying properties as a
result of less construction in the current period. The average borrowing rate
was also slightly higher in fiscal 1998.
The provision for income taxes decreased $11,417,000, or 80%, due to lower
income before income taxes. The Company's effective income tax rate increased
from 33.3% in fiscal 1997 to 35.5% in fiscal 1998. The fiscal 1997 rate was
low due to a nonrecurring decrease in the deferred tax liability resulting from
a lower expected state tax rate. The Company anticipates that the effective
tax rate for fiscal 1999 will approximate the rate during fiscal 1998.
Fiscal 1997 Compared to Fiscal 1996
Sales increased $45,318,000, or 10%, due to the addition of 27 new
restaurants in fiscal 1997 and 18 restaurants in fiscal 1996. The average
sales volume of restaurants opened over one year decreased to $2,264,000 in
fiscal 1997 from $2,332,000 in fiscal 1996 due primarily to a negative trend in
customer counts. This trend was a result of intense competition in the
restaurant industry and sales transfer from our established restaurants caused
by the significant number of fiscal 1997 and 1996 openings in our existing
markets. The impact of the same-store customer count decline was partially
offset by a 3.5% increase in average tray revenues. The Company implemented a
price increase on September 15, 1996, to help offset the pressure on profit
margins from the increase in the Federal minimum wage.
Cost of food increased $11,279,000, or 10%, due primarily to the increase
in sales. Payroll and related costs increased $22,607,000, or 18%, due
primarily to the increase in sales, the increase in the Federal minimum wage
which became effective October 1, 1996, and higher wage costs associated with
increased expansion over the prior year. Although a price increase was
implemented to help offset higher wage rates, the decline in same-store sales
experienced during fiscal 1997 resulted in significant pressure on labor costs.
Occupancy and other operating expenses increased $18,043,000, or 14%, due
primarily to the increase in sales and the opening of 27 new restaurants.
Preopening expenses and start-up costs, which are expensed as incurred, totaled
approximately $3 million for new openings in fiscal 1997. The decline in same-
store sales caused fixed costs within this expense category to increase as a
percent of sales. However, managers' salaries, which are based on the
profitability of the restaurants, decreased as a percent of sales due to lower
store profits. General and administrative expenses decreased $766,000, or 4%.
As a result of lower earnings, the Company's contribution to the profit sharing
plan totaled $1.5 million, or $3.6 million less than fiscal 1996. This
decrease was partially offset by retirement costs, executive search firm fees,
and higher legal and professional fees associated with the Company's
restructuring into a holding company. In addition, manager trainee salaries
and moving expenses were higher than fiscal 1996 due to the increased
expansion.
During fiscal 1997 the Company adopted Financial Accounting Standards
No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," and recorded a $12.4 million pretax
charge during the fourth quarter. The charge included $4.6 million for the
closing of four restaurants, $3 million for the write-down of certain cafeteria
properties which the Company plans to continue to operate, the write-down of
$2.1 million for surplus properties the Company plans to sell, $1.4 million for
the write-down of computer hardware, and $1.3 million for various other
charges.
Interest expense of $4,037,000 for fiscal 1997 was incurred in conjunction
with borrowings under the credit facility and is net of $1,029,000 capitalized
on qualifying properties. The increase over fiscal 1996 of $1,907,000, or 86%,
was due to higher average outstanding borrowings relating to the increase in
expansion during fiscal 1997 and the purchase of treasury stock.
The provision for income taxes decreased $9,119,000, or 39%, due to lower
income before income taxes and lower state taxes resulting from the Company's
restructuring into a holding company. The Company's effective income tax rate
decreased from 37.3% in fiscal 1996 to 33.3% in fiscal 1997. A portion of the
decline in the provision for income taxes in fiscal 1997 was nonrecurring since
it resulted from lowering the deferred tax liability based on a lower expected
state tax rate.
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.
The Year 2000
Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognizes a date using
"00" as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, code invoices, or
engage in similar normal business activities. The Company does not expect
that the year 2000 issue will materially affect future financial results.
The Company has formed a Year 2000 committee and has developed a plan
to inventory critical systems and replace or develop solutions to those systems
that are found to have date-related deficiencies. The completion of the
solution phase is estimated to be prior to any anticipated impact on our
systems. The Company is also surveying suppliers and customers to determine
the status of their year 2000 compliance programs.
Forward-Looking Statements
Except for the historical information contained in this annual report,
certain statements made herein are forward looking regarding cash flow from
operations, restaurant openings, operating margins, capital requirements, the
availability of acceptable real estate locations for new restaurants, and other
matters. In addition, efforts to close, sell, or improve operating results of
underperforming stores depend on many factors not within the Company's control
such as the negotiation of settlements of existing lease obligations under
acceptable terms, availability of qualified buyers for owned locations, and
customer traffic. These forward-looking statements involve risks and
uncertainties and, consequently, could be affected by general business
conditions, the impact of competition, the success of operating initiatives,
changes in cost and supply of food and labor, the seasonality of the Company's
business, taxes, inflation, and governmental regulations, which could cause
actual results to differ materially from current plans. Management does not
expect to update such forward-looking statements continually as conditions
change, and readers should consider that such statements pertain only to the
date hereof.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
See information in Item 8 of Part II of this Report appearing
in the Notes to Consolidated Financial Statements under the caption
"Interest-Rate Swap Agreements" in Note 1 and in Note 4.
Item 8. Financial Statements and Supplementary Data.
LUBY'S CAFETERIAS, INC.
FINANCIAL STATEMENTS
Years Ended August 31, 1998, 1997, and 1996
with Report of Independent Auditors
Report of Independent Auditors
The Board of Directors and Shareholders
Luby's Cafeterias, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Luby's
Cafeterias, Inc. and Subsidiaries at August 31, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended August 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Luby's Cafeterias, Inc. and Subsidiaries at August 31, 1998 and 1997, and
the results of its operations and its cash flows for each of the three years
in the period ended August 31, 1998, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements, in
fiscal 1997 the Company changed its method of accounting for the impairment of
long-lived assets and for long-lived assets to be disposed of.
ERNST & YOUNG LLP
San Antonio, Texas
October 5, 1998
<PAGE>
Luby's Cafeterias, Inc.
Consolidated Balance Sheets
August 31,
1998 1997
________ _______
(Thousands of dollars)
Assets
Current assets:
Cash and cash equivalents $ 3,760 $ 6,430
Trade accounts and other receivables 704 510
Food and supply inventories 5,072 4,507
Prepaid expenses 4,375 3,586
Deferred income taxes 1,201 937
________ ________
Total current assets 15,112 15,970
Property held for sale 17,340 12,680
Investments and other assets - at cost:
Land held for future use 1,582 1,582
Other assets 6,410 4,529
________ ________
Total investments and other assets 7,992 6,111
Property, plant, and equipment - at cost, less
accumulated depreciation and amortization 298,597 334,017
________ ________
Total assets $339,041 $368,778
________ ________
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable - trade $ 12,482 $ 13,584
Dividends payable 4,654 4,653
Accrued expenses and other liabilities 28,231 25,038
Income taxes payable 2,069 2,406
________ ________
Total current liabilities 47,436 45,681
Long-term debt 73,000 84,000
Deferred income taxes and other credits 7,019 19,018
Reserve for store closings 6,172 1,239
Commitments and contingencies - -
Shareholders' equity:
Common stock, $.32 par value; authorized
100,000,000 shares, issued 27,403,067 shares 8,769 8,769
Paid-in capital 27,012 26,945
Retained earnings 262,540 276,140
Less cost of treasury stock, 4,132,392
shares in 1998 and 4,136,693 shares in
1997 (92,907) (93,014)
________ ________
Total shareholders' equity 205,414 218,840
________ ________
Total liabilities and shareholders' equity $339,041 $368,778
________ ________
See accompanying notes.
<PAGE>
Luby's Cafeterias, Inc.
Consolidated Statements of Income
Years Ended August 31,
1998 1997 1996
________ ________ ________
(Thousands of dollars except per share data)
Sales $508,871 $495,446 $450,128
Costs and expenses:
Cost of food 129,126 121,287 110,008
Payroll and related costs 155,152 146,940 124,333
Occupancy and other operating
expenses 154,501 150,638 132,595
General and administrative expenses 22,061 19,451 20,217
Provision for asset impairments
and store closings 36,852 12,432 -
________ ________ ________
497,692 450,748 387,153
________ ________ ________
Income from operations 11,179 44,698 62,975
Interest expense (5,078) (4,037) (2,130)
Other income, net 1,778 2,001 1,697
________ ________ ________
Income before income taxes 7,879 42,662 62,542
Provision (benefit) for income taxes:
Current 15,515 17,616 20,940
Deferred (12,717) (3,401) 2,394
________ ________ ________
2,798 14,215 23,334
________ ________ ________
Net income $ 5,081 $ 28,447 $ 39,208
________ ________ ________
Net income per share - basic $ 0.22 $ 1.22 $ 1.66
________ ________ ________
Net income per share - assuming
dilution $ 0.22 $ 1.21 $ 1.64
________ ________ ________
See accompanying notes.
<PAGE>
<TABLE>
Luby's Cafeterias, Inc.
Consolidated Statements of Shareholders' Equity
<CAPTION>
Common Stock Total
Issued Treasury Paid-In Retained Shareholders'
Shares Amount Shares Amount Capital Earnings Equity
__________________________________________________________________________________________
(Amounts in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
August 31, 1995 27,403 $8,769 (4,090) $(91,983) $26,945 $248,973 $192,704
Net income for the
year - - - - - 39,208 39,208
Common stock issued
under employee bene-
fit plans, net of
shares tendered in
partial payment
and including
tax benefits - - 916 20,565 - (3,218) 17,347
Cash dividends,
$.74 per share - - - - - (17,589) (17,589)
Purchases of treasury
stock - - (252) (5,997) - - (5,997)
______ ______ ______ _______ _______ _______ _______
Balance at
August 31, 1996 27,403 8,769 (3,426) (77,415) 26,945 267,374 225,673
Net income for the
year - - - - - 28,447 28,447
Common stock issued
under employee bene-
fit plans, net of
shares tendered in
partial payment and
including tax benefits - - 186 4,319 - (1,027) 3,292
Cash dividends,
$.80 per share - - - - - (18,654) (18,654)
Purchases of treasury
stock - - (897) (19,918) - - (19,918)
______ ______ ______ _______ _______ _______ _______
Balance at
August 31, 1997 27,403 8,769 (4,137) (93,014) 26,945 276,140 218,840
Net income for the
year - - - - - 5,081 5,081
Common stock issued
under employee bene-
fit plans, net of
shares tendered in
partial payment and
including tax benefits - - 5 107 67 (65) 109
Cash dividends,
$.80 per share - - - - - (18,616) (18,616)
______ ______ ______ _______ _______ _______ _______
Balance at
August 31, 1998 27,403 $8,769 (4,132) $(92,907) $27,012 $262,540 $205,414
______ ______ ______ _______ _______ ________ ________
See accompanying notes.
</TABLE>
<PAGE>
Luby's Cafeterias, Inc.
Consolidated Statements of Cash Flows
Years Ended August 31,
1998 1997 1996
________ ________ ________
(Thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,081 $28,447 $ 39,208
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 21,121 20,196 17,693
Provision for asset impairments
and store closings 36,852 12,132 -
Gain on disposal of property
held for sale - - -
(Gain) loss on disposal of
property, plant, and equipment 142 (110) 31
________ ________ ________
Cash provided by operating
activities before changes in
operating assets and liabilities 62,492 60,665 56,932
Changes in operating assets and
liabilities:
(Increase) decrease in trade
accounts and other receivables (194) 31 (230)
(Increase) decrease in food and
supply inventories (565) 10 (483)
Increase in prepaid expenses (789) (391) (346)
Increase in other assets (1,881) (226) (1,115)
Increase (decrease )in accounts
payable-trade (1,102) 174 2,441
Increase (decrease) in accrued
expenses and other liabilities 3,260 817 (337)
Increase (decrease) in income
taxes payable (337) (48) 1,263
Increase (decrease) in deferred
income taxes and other credits (12,263) (3,664) 2,229
Decrease in reserve for store
closings (664) - -
_______ ________ ________
Net cash provided by operating
activities 47,957 57,368 60,354
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of property
held for sale 4,888 - -
Proceeds from disposal of property,
plant, and equipment 73 2,803 153
Purchases of land held for future use (933) (11,649) (5,776)
Purchases of property, plant, and
equipment (25,082) (50,783) (42,753)
_______ ________ ________
Net cash used in investing
activities (21,054) (59,629) (48,376)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock under stock option plans 42 2,878 16,145
Net payments of short-term
borrowings - - (57,000)
Proceeds from long-term debt 908,000 979,000 268,000
Reductions of long-term debt (919,000) (936,000) (227,000)
Purchases of treasury stock - (21,077) (4,839)
Dividends paid (18,615) (18,797) (16,989)
_______ _______ _______
Net cash provided by
(used in) financing activities (29,573) 6,004 (21,683)
_______ _______ _______
Net increase (decrease) in cash
and cash equivalents (2,670) 3,743 (9,705)
Cash and cash equivalents at
beginning of year 6,430 2,687 12,392
________ ________ ________
Cash and cash equivalents at end
of year $ 3,760 $ 6,430 $ 2,687
________ ________ ________
See accompanying notes.
<PAGE>
Luby's Cafeterias, Inc.
Notes to Consolidated Financial Statements
August 31, 1998, 1997, and 1996
1. Nature of Operations and Significant Accounting Policies
Nature of Operations
Luby's Cafeterias, Inc. and Subsidiaries (the Company), based in
San Antonio, Texas, owns and operates restaurants in the southern United
States. As of August 31, 1998, the Company operated a total of 229 units.
The Company locates its restaurants convenient to shopping and business
developments as well as to residential areas. Accordingly, the restaurants
cater primarily to shoppers and store and office personnel at lunch and to
families at dinner.
Principles of Consolidation
Effective February 1, 1997, the Company was restructured into a holding
company. The accompanying consolidated financial statements include the
accounts of Luby's Cafeterias, Inc. and its wholly owned and majority-owned
subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Inventories
The food and supply inventories are stated at the lower of cost
(first-in, first-out) or market.
Property Held for Sale
Property held for sale is stated at the lower of cost or estimated net
realizable value.
Depreciation and Amortization
The Company depreciates the cost of plant and equipment over their
estimated useful lives using both straight-line and accelerated methods.
Leasehold improvements are amortized over the related lease lives, which are
in some cases shorter than the estimated useful lives of the improvements.
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. Impairment losses are also recorded for long-lived assets
that are expected to be disposed of.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid financial instruments purchased with an original maturity of
three months or less to be cash equivalents.
Preopening Expenses
New store preopening costs are expensed as incurred.
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expense as a
percentage of sales approximates two percent for fiscal years 1998, 1997, and
1996.
Income Taxes
Deferred income taxes are computed using the liability method. Under
this method, 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.
Stock-Based Compensation
During 1997 the Company adopted FAS Statement No. 123, "Accounting for
Stock-Based Compensation" (FAS 123), which encourages, but does not require,
the Company to record compensation cost for stock-based compensation plans
at fair value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in APB 25.
Earnings Per Share
During 1998 the Company adopted FAS Statement No. 128, "Earnings Per
Share" (FAS 128). FAS 128 replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants, and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. Earnings per share amounts for all periods have been restated to
conform to the requirements of FAS 128.
Interest-Rate Swap Agreements
The Company enters into interest-rate swap agreements to modify the
interest characteristics of its outstanding debt. Each interest-rate swap
agreement is designated with all or a portion of the principal balance and
term of a specific debt obligation. These agreements involve the exchange of
amounts based on a fixed interest rate for amounts based on variable
interest rates over the life of the agreement without an exchange of the
notional amount upon which the payments are based. The differential to be
paid or received as interest rates change is accrued and recognized as an
adjustment to interest expense related to the debt. The related amount
payable to or receivable from counterparties is included in other
liabilities or assets. The fair values of these agreements are estimated
by obtaining quoted market prices.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, 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.
2. Impairment of Long-Lived Assets
The Company recorded a $36.9 million charge during the fourth quarter
of 1998 related to the adoption of its strategic plan which includes the
disposition, relocation, or write-down of several restaurants that have not
met management's financial return expectations. The charge included $14.7
million for the closing of 14 underperforming restaurants, $10.7 million for
the write-down of 16 restaurants which will be relocated to optimize their
market potential, and $11.4 million for the write-down of certain restaurant
properties which the Company plans to continue to operate. Additionally, the
Company revised its estimate of the net realizable value of surplus properties
which the Company plans to sell resulting in an additional write-down of $0.1
million. The charge for the closing of the 14 underperforming restaurants and
the restaurants to be relocated related to the write-down of property and
equipment to net realizable value, costs to settle lease obligations, and
severance costs. For those assets which the Company plans to continue to
operate, the carrying values were written down to estimated future discounted
cash flows or fully written off in the case of negative future cash flows.
All charges were recorded in the provision for asset impairments and store
closings. The Company expects to dispose of closed restaurant properties and
surplus properties held for sale within two year.
As a result of the Company adopting FAS Statement No. 121, "Accounting
For the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," during 1997, a charge to operating costs of $12.4 million was
recorded. The charge included $4.6 million for the closing of four
underperforming restaurants, $3 million for the write-down of certain
restaurant properties which the Company plans to continue to operate, the
write-down of $2.1 million for surplus properties the Company plans to sell,
$1.4 million for the write-down of computer hardware, and $1.3 million for
various costs consisting primarily of the write-off of development costs
of future sites the Company no longer intends to pursue. The charge for the
restaurant closings and asset impairments was based on the same factors as
discussed above in the 1998 charge. The surplus properties which the Company
previously intended to use for future development are now being actively
marketed and were written down to the lower of their carrying amount or
estimated net realizable value. The Company also made a decision to implement
a new point-of-sale system, and the remaining book value of the old computer
equipment to be replaced was written off. All charges were recorded in the
provision for asset impairments and store closings.
The results of operations from the restaurants to be disposed of are not
material.
3. Property, Plant, and Equipment
The cost and accumulated depreciation of property, plant, and equipment
at August 31, 1998 and 1997, together with the related estimated useful lives
used in computing depreciation and amortization, are reflected below:
Estimated
1998 1997 Useful Lives
________ ________ _______________
(Thousands of dollars)
Land $ 71,244 $ 78,540 -
Restaurant equipment and
furnishings 124,334 124,188 3 to 10 years
Buildings 209,276 222,316 20 to 40 years
Leasehold and leasehold
improvements 41,314 52,833 Term of leases
Office furniture and equipment 4,759 3,540 5 to 10 years
Transportation equipment 738 657 5 years
Construction in progress 3,846 8,788 -
________ ________
455,511 490,862
Less accumulated depreciation
and amortization 156,914 156,845
________ ________
$298,597 $334,017
________ ________
Total interest expense incurred for 1998, 1997, and 1996 was $5,354,000,
$5,066,000, and $3,230,000, respectively, which approximated the amount paid
in each year. The amounts capitalized on qualifying properties in 1998,
1997, and 1996 were $276,000, $1,029,000, and $1,100,000, respectively.
4. Debt
During 1996 the Company entered into a $100 million credit facility
with a syndication of four banks. As part of this credit facility, the
Company has a revolving credit agreement which allows borrowings for varying
periods through February 27, 2001, at the lower of the prime rate or other
rate options available at the time of borrowing. The credit facility
includes a maximum commitment for letters of credit of $20 million. The
credit facility contains business covenants which, among other things, impose
certain financial restrictions on the Company relating primarily to leverage
and net worth.
During 1997 the Company increased the credit facility to $125 million,
extended the agreement through June 30, 2002, and negotiated a facility fee
of .085% on the total commitment. Additionally, the Company entered into two
Interest Rate Protection Agreements (swaps) to fix the rate on a portion of
the floating-rate debt outstanding under its revolving line of credit. The
swaps are fixed-rate agreements in the notional amounts of $30 million and
$15 million. Both swaps have an interest rate of 6.4975% and a termination
date of June 30, 2002. At August 31, 1998, the Company estimates it would
have to pay $1,670,000 to terminate the agreements.
As of August 31, 1998, the balance outstanding under the revolving credit
agreement was $73,000,000 at an interest rate of 6.46%.
At August 31, 1998, letters of credit of approximately $7,234,000 have
been issued as security for the payment of insurance obligations classified as
accrued expenses on the balance sheets.
5. Leases
The Company conducts a major part of its operations from facilities which
are leased under noncancelable lease agreements. Most of the leases are for
periods of ten to 25 years and provide for contingent rentals based on sales
in excess of a base amount. Approximately 80% of the leases contain renewal
options ranging from five to 30 years. Annual future minimum lease payments
under noncancelable operating leases as of August 31, 1998, are as follows:
Years ending August 31: (Thousands of dollars)
1999 $ 6,686
2000 6,607
2001 6,242
2002 5,827
2003 5,523
Thereafter 37,924
_______
Total minimum lease payments $68,809
_______
Total rent expense for operating leases for the years ended August 31,
1998, 1997, and 1996 was as follows:
1998 1997 1996
_______ ________ ________
(Thousands of dollars)
Minimum rentals $7,286 $6,884 $5,807
Contingent rentals 976 996 1,126
______ ______ ______
$8,262 $7,880 $6,933
______ ______ ______
6. Employee Benefit Plans and Agreements
Incentive Compensation
The Company has various incentive compensation plans covering officers
and other key employees that are based upon the achievement of specified
earnings goals and performance factors. Awards under the plans are payable in
cash and/or in shares of common stock. Charges to expense for current and
future distributions under the plans amounted to $658,000, $-0-, and $400,000
in 1998, 1997, and 1996, respectively. During the years ended August 31, 1998,
1997, and 1996, -0-, 4,790, and 10,590 shares of common stock were issued under
the plans out of treasury stock, respectively.
Stock Option Plans
The Company has a Management Incentive Stock Plan to provide for
market-based incentive awards, including stock options, stock appreciation
rights, restricted stock, and performance share awards. Under the terms of
the Management Incentive Stock Plan, nonqualified stock options, incentive
stock options, and other types of awards for not more than 2,700,000 shares of
the Company's common stock may be granted to eligible employees of the
Company, including officers. Stock options may be granted at prices not less
than 100% of fair market value at date of grant. Options granted to the
participants of the plan are exercisable over staggered periods and expire,
depending upon the type of grant, in five to ten years. The plan provides
for various vesting methods, depending upon the category of personnel.
Following is a summary of activity in the stock option plans for the
three years ended August 31, 1998, 1997 and 1996:
Weightd Average
Exercise Price Per
Share-Options Options Options
Outstanding Outstanding Exercisable
________________ ___________ ___________
Balances - August 31, 1995 $19.07 1,747,114 554,836
Granted 21.62 223,648 -
Became exercisable - - 1,167,766
Cancelled or expired 20.59 (53,415) (38,903)
Exercised 18.23 (980,600) (980,600)
_________ _________
Balances - August 31, 1996 20.48 936,747 703,099
Granted 22.90 33,675 -
Became exercisable - - 173,658
Cancelled or expired 21.55 (295,623) (281,723)
Exercised 17.80 (277,501) (277,501)
_________ _________
Balances - August 31, 1997 21.76 397,298 317,533
Granted 19.33 488,498 -
Became exercisable - - 11,119
Cancelled or expired 22.63 (111,175) (92,573)
Exercised 16.25 (10,375) (10,375)
_________ _________
Balances - August 31, 1998 $20.17 764,246 225,704
_________ _________
Exercise prices for options outstanding as of August 31, 1998, ranged
from $16.50 to $23.75 per share. The weighted average remaining contractual
life of these options is 5.8 years. The options exercisable as of August 31,
1998, have a weighted average exercise price of $21.47 per share.
At August 31, 1998 and 1997, the number of stock option shares available
to be granted under the plan was 277,230 and 654,553 shares, respectively.
The Company has elected to follow APB 25, "Accounting for Stock Issued to
Employees." Accordingly, since employee stock options are granted at market
price on the date of grant, no compensation expense is recognized. However,
FAS 123 requires presentation of pro forma net income and earnings per share
as if the Company had accounted for its employee stock options granted under
the fair value method of that statement.
The weighted average fair value of the individual options granted during
1998, 1997, and 1996 is estimated at $3.25, $4.42, and $3.22, respectively, on
the date of grant. The impact on net income is minimal; therefore, the pro
forma disclosure requirements prescribed by FAS 123 are not significant to the
Company. The fair values were determined using a Black-Scholes option pricing
model with the following assumptions:
1998 1997 1996
____ ____ ____
Dividend yield 4.4% 3.5% 3.3%
Volatility .18 .14 .12
Risk-free interest rate 7.0% 7.0% 7.0%
Expected life 5.16 6.86 4.13
Deferred Compensation
Deferred compensation agreements exist for several key management
employees, all of whom are current or former officers. Under the agreements,
the Company is obligated to provide for each such employee or his
beneficiaries, during a period of ten years after the employee's death,
disability, or retirement, annual benefits ranging from $15,500 to $43,400.
The estimated present value of future benefits to be paid is being
accrued over the period from the effective date of the agreements until the
expected retirement dates of the participants. The net expense incurred for
this plan for the years ended August 31, 1998, 1997, and 1996, amounted to
$49,000, $47,000, and $239,000, respectively.
The Company also has a Supplemental Executive Retirement Plan (SERP) for
key executives and officers. The SERP is a "target" benefit plan, with the
annual lifetime benefit based upon a percentage of average salary during the
final five years of service at age 65, offset by several sources of income
including benefits payable under deferred compensation agreements, if
applicable, the profit sharing plan, and Social Security. SERP benefits will
be paid from the Company's assets. The net expense incurred for this plan for
the years ended August 31, 1998 and 1997, was $163,000 and $120,000,
respectively, and the unfunded accumulated benefit obligation as of August 31,
1998 and 1997, was approximately $284,000 and $315,400, respectively.
Profit Sharing
The Company has a profit sharing plan and retirement trust covering
substantially all employees who have attained the age of 21 years and have
completed one year of continuous service. The plan is administered by a
corporate trustee, is a "qualified plan" under Section 401(a) of the Internal
Revenue Code, and provides for the payment of the employee's vested portion of
the plan upon retirement, termination, disability, or death. The plan is
funded by contributions of a portion of the net earnings of the Company. The
plan provides that for each fiscal year in which the Company's net income
(before income taxes and before any contribution to the plan) meets certain
minimum standards, the Company is obligated to contribute to the plan, at a
minimum, an amount equal to a defined percentage of the participants'
compensation. In no event will the required contribution exceed 10% of the
Company's income before income taxes and before any contribution to the plan.
At the discretion of the board of directors, the Company can make a greater
contribution than required, subject to certain limitations. The Company's
annual contribution to the plan amounted to $1,800,000, $1,500,000, and
$5,100,000 for 1998, 1997, and 1996, respectively.
During 1997 the Company established a voluntary 401(k) employee
savings plan to provide substantially all salaried and hourly employees
of the Company an opportunity to accumulate personal funds for their
retirement. These contributions may be made on a before-tax basis to the
plan. The Company does not match the participants' contributions to the
plan.
7. Income Taxes
The tax effect of temporary differences results in deferred income tax
assets and liabilities as of August 31 as follows:
1998 1997
________ ___________
(Thousands of dollars)
Deferred tax assets:
Workers' compensation insurance $ 1,201 $ 937
Deferred compensation 827 651
Asset impairments and store closing reserves 16,135 3,453
_______ _______
Total deferred tax assets 18,163 5,041
Deferred tax liabilities:
Amortization of capitalized interest 414 439
Depreciation and amortization 19,573 18,960
Other 1,523 1,706
_______ _______
Total deferred tax liabilities 21,510 21,105
_______ _______
Net deferred tax liability $ 3,347 $16,064
_______ _______
The reconciliation of the provision for income taxes to the expected
income tax expense (computed using the statutory tax rate) is as follows:
1998 1997 1996
Amount % Amount % Amount %
______ ____ _______ ____ _______ ____
(Thousands of dollars and as a percent of pretax income)
Normally expected
income tax expense $2,758 35.0% $14,932 35.0% $21,890 35.0%
State income taxes 114 1.4 745 1.7 1,488 2.4
Jobs tax credits (26) (.3) (101) (.2) (1) -
Other differences (48) (.6) (1,361) (3.2) (43) (.1)
______ ____ _______ ____ _______ ____
$2,798 35.5% $14,215 33.3% $23,334 37.3%
______ ____ _______ ____ _______ ____
During 1997 the Company restructured into a holding company which
effectively decreased future expected state taxes. The deferred tax assets
and liabilities were reduced accordingly, and the effect on total income tax
expense is included above with "Other differences."
Cash payments for income taxes for 1998, 1997, and 1996 were $15,852,000,
$17,664,000, and $19,677,000, respectively.
8. Commitments and Contingencies
At August 31, 1998, the Company had one restaurant under construction.
The aggregate unexpended cost under the construction contract was
approximately $484,000.
The Company has unconditionally guaranteed a $2,000,000 loan under a line
of credit for an unrelated limited partnership in exchange for advertising
rights and a participation in future profits of the venture.
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, the ultimate resolution of these pending legal
proceedings will not have a material adverse effect on the Company's
operations or consolidated financial position.
9. Common Stock
In 1991 the Board of Directors adopted a Shareholder Rights Plan and
declared a dividend of one common stock purchase right for each outstanding
share of common stock. The rights are not initially exercisable. The rights
may become exercisable under circumstances described in the Plan if any person
or group (an Acquiring Person) becomes the beneficial owner of 15% or more of
the common stock. Once the rights become exercisable, each right will be
exercisable to purchase, for $27.50 (the Purchase Price), one-half of one
share of common stock, par value $.32 per share, of the Company. If any
person becomes the beneficial owner of 15% or more of the common stock, each
right will entitle the holder, other than the Acquiring Person, to purchase
for the Purchase Price a number of shares of the Company's common stock having
a market value of four times the Purchase Price.
The Board of Directors authorized the purchase in the open market of up
to 1,000,000 shares of the Company's outstanding common stock through
December 31, 1998, of which 149,700 shares were purchased in fiscal year 1997.
Under this and previous authorizations, the Company purchased 897,500 and
252,200 shares of its common stock at a cost of $19,918,000 and $5,997,000
during 1997 and 1996, respectively, which are being held as treasury stock.
10. Per Share Information
A reconciliation of the numerators and denominators of basic earnings
per share and diluted earnings per share for the years ended August 31, 1998,
1997, and 996, is shown in the table below.
August 31,
1998 1997 1996
________ __________ __________
(Thousands of dollars except per share data)
Numerator:
Net income $ 5,081 $28,447 $39,208
________ __________ __________
Denominator for basic earnings
per share -
weighted average shares 23,271 23,406 23,689
Effect of dilutive securities:
Employee stock options 2 19 232
________ __________ __________
Denominator for earnings -
per share - assuming
dilution - adjusted
weighted average shares 23,273 23,425 23,921
________ __________ __________
Net income per share - basic $ 0.22 $ 1.21 $ 1.66
Net income per share - assuming
dilution $ 0.22 $ 1.21 $ 1.64
________ __________ __________
11. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities at August 31 consist of:
1998 1997
_______ _______
(Thousands of dollars)
Salaries and bonuses $ 7,520 $ 6,662
Rent 748 721
Taxes, other than income 6,928 7,245
Profit sharing plan 1,864 1,452
Insurance 10,482 7,747
Other 689 1,211
_______ _______
$28,231 $25,038
_______ _______
12. Quarterly Financial Information (Unaudited)
The following is a summary of quarterly unaudited financial information
for 1998 and 1997:
Three Months Ended
November 30, February 28, May 31, August 31,
1997 1998 1998 1998
________ ________ ________ _________
(Thousands of dollars except per share data)
Sales $124,672 $123,204 $131,230 $129,765
Gross profit 53,505 54,913 59,314 56,861
Net income (loss) 6,207 6,941 8,147 (16,214)*
Net income (loss) per
share .27 .30 .35 (.70)*
Three Months Ended
November 30, February 28, May 31, August 31,
1996 1997 1997 1997
________ ________ ________ _________
(Thousands of dollars except per share data)
Sales $122,287 $118,830 $127,630 $126,699
Gross profit 55,887 54,908 59,387 57,037
Net income 8,166 8,404 9,583 2,294*
Net income per share .35 .36 .41 .10*
*See Note 2 for discussion of charges recorded during the fourth quarter of
1998 and 1997.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
There is incorporated in this Item 10 by reference that portion
of the Company's definitive proxy statement for the 1999 annual
meeting of shareholders appearing therein under the captions "Election
of Directors," "Information Concerning Directors and Committees,"
and "Certain Relationships and Related Transactions." See also the
information in Item 4A of Part I of this Report.
Item 11. Executive Compensation.
There is incorporated in this Item 11 by reference that portion
of the Company's definitive proxy statement for the 1999 annual
meeting of shareholders appearing therein under the captions "Executive
Compensation," "Deferred Compensation," "Certain Relationships and
Related Transactions," and "Compensation of Chief Executive Officer."
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
There is incorporated in this Item 12 by reference that portion
of the Company's definitive proxy statement for the 1999 annual
meeting of shareholders appearing therein under the captions
"Principal Shareholders" and "Management Shareholders."
Item 13. Certain Relationships and Related Transactions.
There is incorporated in this Item 13 by reference that portion
of the Company's definitive proxy statement for the 1999 annual
meeting of shareholders appearing therein under the caption "Certain
Relationships and Related Transactions."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents.
1. Financial Statements
The following financial statements are filed as part of this Report:
Consolidated balance sheets at August 31, 1998 and 1997
Consolidated statements of income for each of the three years in the
period ended August 31, 1998
Consolidated statements of shareholders' equity for each of the three
years in the period ended August 31, 1998
Consolidated statements of cash flows for each of the three years in the
period ended August 31, 1998
Notes to consolidated financial statements
Report of independent auditors
2. Financial Statement Schedules
All schedules are omitted since the required information is not present
or is not present in amounts sufficient to require submission of the schedule
or because the information required is included in the financial statements
and notes thereto.
3. Exhibits
The following exhibits are filed as a part of this Report:
2 - Agreement and Plan of Merger dated November 1, 1991, between
Luby's Cafeterias, Inc., a Texas corporation, and Luby's
Cafeterias, Inc., a Delaware corporation (filed as Exhibit 2 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended November 30, 1991, and incorporated herein by reference).
3(a) - Certificate of Incorporation of Luby's Cafeterias, Inc., a
Delaware corporation, as currently in effect (filed as
Exhibit 3(a) to the Company's Quarterly Report on Form 10-Q for
the quarter ended February 28, 1994, and incorporated herein by
reference).
3(b) - Bylaws of Luby's Cafeterias, 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) - 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(f) - 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(g) - ISDA Master Agreement dated June 17, 1997, between Luby's
Cafeterias, Inc. and NationsBank, N.A., with Schedule and
Confirmation dated July 7, 1997 (filed as Exhibit 4(g) to the
Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997, and incorporated herein by reference).
4(h) - ISDA Master Agreement dated July 2, 1997, between Luby's
Cafeterias, Inc. and Texas Commerce Bank National Association,
with Schedule and Confirmation dated July 2, 1997 (filed as
Exhibit 4(h) to the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1997, and incorporated herein by
reference).
4(i) - 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).
10(a) - Form of Deferred Compensation Agreement entered into between
Luby's Cafeterias, Inc. and various officers (filed as Exhibit
10(b) to the Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1981, and incorporated herein by
reference).
10(b) - Form of Amendment to Deferred Compensation Agreement between
Luby's Cafeterias, Inc. and various officers and former officers
adopted January 14, 1997 (filed as Exhibit 10(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
February 28, 1997, and incorporated herein by reference).
10(c) - Incentive Bonus Plan of Luby's Cafeterias, Inc. adopted
October 19, 1983 (filed as Exhibit 10(e) to the Company's Annual
Report on Form 10-K for the fiscal year ended August 31, 1983,
and incorporated herein by reference).
10(d) - Amendment to Incentive Bonus Plan of Luby's Cafeterias, Inc.
adopted January 14, 1997 (filed as Exhibit 10(f) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
February 28, 1997, and incorporated herein by reference).
10(e) Luby's Cafeterias, Inc. Incentive Bonus Plan for Fiscal 1998
adopted January 9, 1998 (filed as Exhibit 10(g) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended February 28, 1998, and incorporated herein by reference).
10(f) - Performance Unit Plan of Luby's Cafeterias, Inc. approved by the
shareholders on January 12, 1984 (filed as Exhibit 10(f) to the
Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1984, and incorporated herein by reference).
10(g) - Amendment to Performance Unit Plan of Luby's Cafeterias, Inc.
adopted January 14, 1997 (filed as Exhibit 10(h) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
February 28, 1997, and incorporated herein by reference).
10(h) - Employment Contract dated January 8, 1988, between Luby's
Cafeterias, Inc. and George H. Wenglein (filed as Exhibit 10(h)
to the Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1988, and incorporated herein by reference).
10(i) - 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(j) - 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(k) - 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(l) - 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(m) 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(n) - Nonemployee Director Stock Option Plan of Luby's Cafeterias,
Inc. approved by the shareholders on January 13, 1995 (filed as
Exhibit 10(h) to the Company's Quarterly Report on Form 10-Q for
the quarter ended February 28, 1995, and incorporated herein by
reference).
10(o) - Amendment to Nonemployee Director Stock Option Plan of Luby's
Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit
10(o) to the Company's Quarterly Report on Form 10-Q for the
quarter ended February 28, 1997, and incorporated herein by
reference).
10(p) - Employment Contract dated January 12, 1996, between Luby's
Cafeterias, Inc. and John B. Lahourcade (filed as Exhibit 10(i)
to the Company's Quarterly Report on Form 10-Q for the quarter
ended February 29, 1996, and incorporated herein by reference).
10(q) - 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(r) - 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(s) 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(t) - Luby's Cafeterias, Inc. Welfare Benefit Plan Trust dated
July 18, 1996 (filed as Exhibit 10(k) to the Company's Annual
Report on Form 10-K for the fiscal year ended August 31, 1996,
and incorporated herein by reference).
10(u) - Retirement Agreement dated March 17, 1997, between Luby's
Cafeterias, Inc. and Ralph Erben (filed as Exhibit 10(t) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
February 28, 1997, and incorporated herein by reference).
10(v) - Employment Agreement dated September 15, 1997, between Luby's
Cafeterias, Inc. and Barry J.C. Parker (filed as Exhibit 10(u)
to the Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1997, and incorporated herein by reference).
10(w) - Term Promissory Note of Barry J.C. Parker in favor of Luby's
Cafeterias, Inc., dated November 10, 1997, in the original
principal sum of $199,999.00 (filed as Exhibit 10(v) to the
Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997, and incorporated herein by reference).
10(x) - Stock Agreement dated November 10, 1997, between Barry J.C.
Parker and Luby's Cafeterias, Inc. (filed as Exhibit 10(w) to
the Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1997, and incorporated herein by reference).
10(y) Luby's Cafeterias, Inc. Nonemployee Director Phantom Stock Plan
adopted March 19, 1998 (filed as Exhibit 10(aa) to the Company's
Quarterly Report on Form 10-Q for the quarter ended February 28,
1998, and incorporated herein by reference).
10(z) Agreement of Resignation, Severance, Confidentiality, Non-
Solicitation, Arbitration and General Release of All Claims
dated April 30, 1998, between Luby's Cafeterias, Inc. and
William E. Robson (filed as Exhibit 10(bb) to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 31,
1998, and incorporated herein by reference).
10(aa) Salary Continuation Agreement dated May 14, 1998, between Luby's
Cafeterias, Inc. and Sue Elliott (filed as Exhibit 10(cc)
to the Company's Quarterly Report on Form 10-Q for the quarter
ended May 31, 1998, and incorporated herein by reference).
10(bb) Salary Continuation Agreement dated June 1, 1998, between
Luby's Cafeterias, Inc. and Alan M. Davis (filed as Exhibit
10(dd) to the Company's Quarterly Report on Form 10-Q for
the quarter ended May 31, 1998, and incorporated herein by
reference).
10(cc) Luby's Incentive Stock Plan adopted October 16, 1998.
10(dd) Executive Bonus Plan for Fiscal 1999 adopted October 16, 1998.
11 - Statement re computation of per share earnings.
21 - Subsidiaries of Luby's Cafeterias, Inc.
27 - Financial Data Schedule.
99(a) - Corporate Governance Guidelines of Luby's Cafeterias, Inc
adopted by the Board of Directors on March 19, 1998 (filed
as Exhibit 99 to the Company's Quarterly Report on Form 10-Q
for the quarter ended February 28, 1998, and incorporated
herein by reference).
99(b) - Consent of Ernst & Young LLP.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter of
the period covered by this Report.
SIGNATURES
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.
Date: November 25, 1998 LUBY'S CAFETERIAS, INC.
(Registrant)
By: BARRY J.C. PARKER
____________________________
Barry J.C. Parker, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature and Date Name and Title
__________________ __________________________
DAVID B. DAVISS David B. Daviss, Chairman
_______________________________ of the Board
November 25, 1998
BARRY J.C. PARKER Barry J.C. Parker, President,
_______________________________ Chief Executive Officer,
November 25, 1998 and Director
LAURA M. BISHOP Laura M. Bishop, Senior Vice
________________________________ President and Chief Financial
November 25, 1998 Officer
PAULA Y. GOLD-WILLIAMS Paula Gold-Williams, Controller
________________________________
November 25, 1998
RONALD K. CALGAARD Ronald K. Calgaard, Director
________________________________
November 25, 1998
LAURO F. CAVAZOS Lauro F. Cavazos, Director
________________________________
November 25, 1998
JUDITH B. CRAVEN Judith B. Craven, Director
________________________________
November 25, 1998
ARTHUR R. EMERSON Arthur R. Emerson, Director
________________________________
November 25, 1998
ROGER R. HEMMINGHAUS Roger R. Hemminghaus, Director
________________________________
November 25, 1998
JOHN B. LAHOURCADE John B. Lahourcade, Director
________________________________
November 25, 1998
WALTER J. SALMON Walter J. Salmon, Director
________________________________
November 25, 1998
GEORGE H. WENGLEIN George H. Wenglein, Director
________________________________
November 25, 1998
JOANNE WINIK Joanne Winik, Director
________________________________
November 25, 1998
EXHIBIT INDEX
Exhibit
2 - Agreement and Plan of Merger dated November 1, 1991, between
Luby's Cafeterias, Inc., a Texas corporation, and Luby's
Cafeterias, Inc., a Delaware corporation (filed as Exhibit 2 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended November 30, 1991, and incorporated herein by reference).
3(a) - Certificate of Incorporation of Luby's Cafeterias, Inc., a
Delaware corporation, as currently in effect (filed as
Exhibit 3(a) to the Company's Quarterly Report on Form 10-Q for
the quarter ended February 28, 1994, and incorporated herein by
reference).
3(b) - Bylaws of Luby's Cafeterias, 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) - 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(f) - 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(g) - ISDA Master Agreement dated June 17, 1997, between Luby's
Cafeterias, Inc. and NationsBank, N.A., with Schedule and
Confirmation dated July 7, 1997 (filed as Exhibit 4(g) to the
Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997, and incorporated herein by reference).
4(h) - ISDA Master Agreement dated July 2, 1997, between Luby's
Cafeterias, Inc. and Texas Commerce Bank National Association,
with Schedule and Confirmation dated July 2, 1997 (filed as
Exhibit 4(h) to the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1997, and incorporated herein by
reference).
4(i) - 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).
10(a) - Form of Deferred Compensation Agreement entered into between
Luby's Cafeterias, Inc. and various officers (filed as Exhibit
10(b) to the Company's Annual Report on Form 10-K for the fiscal
year ended August 31, 1981, and incorporated herein by
reference).
10(b) - Form of Amendment to Deferred Compensation Agreement between
Luby's Cafeterias, Inc. and various officers and former officers
adopted January 14, 1997 (filed as Exhibit 10(b) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
February 28, 1997, and incorporated herein by reference).
10(c) - Incentive Bonus Plan of Luby's Cafeterias, Inc. adopted
October 19, 1983 (filed as Exhibit 10(e) to the Company's Annual
Report on Form 10-K for the fiscal year ended August 31, 1983,
and incorporated herein by reference).
10(d) - Amendment to Incentive Bonus Plan of Luby's Cafeterias, Inc.
adopted January 14, 1997 (filed as Exhibit 10(f) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
February 28, 1997, and incorporated herein by reference).
10(e) Luby's Cafeterias, Inc. Incentive Bonus Plan for Fiscal 1998
adopted January 9, 1998 (filed as Exhibit 10(g) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended February 28, 1998, and incorporated herein by reference).
10(f) - Performance Unit Plan of Luby's Cafeterias, Inc. approved by the
shareholders on January 12, 1984 (filed as Exhibit 10(f) to the
Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1984, and incorporated herein by reference).
10(g) - Amendment to Performance Unit Plan of Luby's Cafeterias, Inc.
adopted January 14, 1997 (filed as Exhibit 10(h) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
February 28, 1997, and incorporated herein by reference).
10(h) - Employment Contract dated January 8, 1988, between Luby's
Cafeterias, Inc. and George H. Wenglein (filed as Exhibit 10(h)
to the Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1988, and incorporated herein by reference).
10(i) - 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(j) - 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(k) - 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(l) - 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(m) 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(n) - Nonemployee Director Stock Option Plan of Luby's Cafeterias,
Inc. approved by the shareholders on January 13, 1995 (filed as
Exhibit 10(h) to the Company's Quarterly Report on Form 10-Q for
the quarter ended February 28, 1995, and incorporated herein by
reference).
10(o) - Amendment to Nonemployee Director Stock Option Plan of Luby's
Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit
10(o) to the Company's Quarterly Report on Form 10-Q for the
quarter ended February 28, 1997, and incorporated herein by
reference).
10(p) - Employment Contract dated January 12, 1996, between Luby's
Cafeterias, Inc. and John B. Lahourcade (filed as Exhibit 10(i)
to the Company's Quarterly Report on Form 10-Q for the quarter
ended February 29, 1996, and incorporated herein by reference).
10(q) - 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(r) - 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(s) 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(t) - Luby's Cafeterias, Inc. Welfare Benefit Plan Trust dated
July 18, 1996 (filed as Exhibit 10(k) to the Company's Annual
Report on Form 10-K for the fiscal year ended August 31, 1996,
and incorporated herein by reference).
10(u) - Retirement Agreement dated March 17, 1997, between Luby's
Cafeterias, Inc. and Ralph Erben (filed as Exhibit 10(t) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
February 28, 1997, and incorporated herein by reference).
10(v) - Employment Agreement dated September 15, 1997, between Luby's
Cafeterias, Inc. and Barry J.C. Parker (filed as Exhibit 10(u)
to the Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1997, and incorporated herein by reference).
10(w) - Term Promissory Note of Barry J.C. Parker in favor of Luby's
Cafeterias, Inc., dated November 10, 1997, in the original
principal sum of $199,999.00 (filed as Exhibit 10(v) to the
Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997, and incorporated herein by reference).
10(x) - Stock Agreement dated November 10, 1997, between Barry J.C.
Parker and Luby's Cafeterias, Inc. (filed as Exhibit 10(w) to
the Company's Annual Report on Form 10-K for the fiscal year
ended August 31, 1997, and incorporated herein by reference).
10(y) Luby's Cafeterias, Inc. Nonemployee Director Phantom Stock Plan
adopted March 19, 1998 (filed as Exhibit 10(aa) to the Company's
Quarterly Report on Form 10-Q for the quarter ended February 28,
1998, and incorporated herein by reference).
10(z) Agreement of Resignation, Severance, Confidentiality, Non-
Solicitation, Arbitration and General Release of All Claims
dated April 30, 1998, between Luby's Cafeterias, Inc. and
William E. Robson (filed as Exhibit 10(bb) to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 31,
1998, and incorporated herein by reference).
10(aa) Salary Continuation Agreement dated May 14, 1998, between Luby's
Cafeterias, Inc. and Sue Elliott (filed as Exhibit 10(cc)
to the Company's Quarterly Report on Form 10-Q for the quarter
ended May 31, 1998, and incorporated herein by reference).
10(bb) Salary Continuation Agreement dated June 1, 1998, between
Luby's Cafeterias, Inc. and Alan M. Davis (filed as Exhibit
10(dd) to the Company's Quarterly Report on Form 10-Q for
the quarter ended May 31, 1998, and incorporated herein by
reference).
10(cc) Luby's Incentive Stock Plan adopted October 16, 1998.
10(dd) Executive Bonus Plan for Fiscal 1999 adopted October 16, 1998.
11 - Statement re computation of per share earnings.
21 - Subsidiaries of Luby's Cafeterias, Inc.
27 - Financial Data Schedule.
99(a) - Corporate Governance Guidelines of Luby's Cafeterias, Inc
adopted by the Board of Directors on March 19, 1998 (filed
as Exhibit 99 to the Company's Quarterly Report on Form 10-Q
for the quarter ended February 28, 1998, and incorporated
herein by reference).
99(b) - Consent of Ernst & Young LLP.
Exhibit 10(cc)
LUBY'S INCENTIVE STOCK PLAN
1. Objectives. The Luby's Incentive Stock Plan (the "Plan") is designed to
benefit the shareholders of the Company by encouraging and rewarding high
levels of performance by individuals who are key to the success of the
Company by increasing the proprietary interest of such individuals in the
Company's growth and success. To accomplish these objectives, the Plan
authorizes incentive Awards through grants of stock options, restricted
stock, and performance shares to those individuals whose judgment,
initiative, and efforts are responsible for the success of the Company.
2. Definitions.
"Award" means any award described in Section 5 of the Plan.
"Award Agreement" means an agreement entered into between the Company and a
Participant, setting forth the terms and conditions applicable to the Award
granted to the Participant.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Committee" means the Compensation Committee of the Board or other committee
designated by the Board to administer the Plan. The Committee shall be
constituted to comply with Rule 16b-3 promulgated under the Securities
Exchange Act of 1934 or any successor rule.
"Common Stock" means the common stock of the Company (par value $.32 per
share) and shall include both treasury shares and authorized but unissued
shares.
"Company" means Luby's Cafeterias, Inc.
"Fair Market Value" means the closing price of the Common Stock as reported
by the composite tape of New York Stock Exchange issues (or such other
reporting system as shall be selected by the Committee) on the relevant date,
or if no sale of Common Stock is reported for such date, the next following
day for which there is a reported sale.
"Participant" means an individual who has been granted an Award pursuant to
the Plan.
"1989 Plan" means the Management Incentive Stock Plan of the Company which
was adopted in 1989.
3. Eligibility. All employees of any of the following entities are eligible
to receive Awards under the Plan: (i) the Company, (ii) any corporation or
other entity that has elected to be taxed as a corporation for federal
income tax purposes (collectively "Entities"), other than the Company, in
an unbroken chain of Entities beginning with the Company if each of the
Entities other than the last Entity in the unbroken chain owns stock or
interests possessing more than fifty percent (50%) of the total combined
voting power of all classes of stock or interests in one of the other
Entities in such chain, (iii) partnerships and any other business entities
in which the Company, directly or indirectly, owns more than fifty percent
(50%) of the capital and profit interests. With regard to the issuance of
incentive stock options, all employees of any of the entities described in
(i) and (ii) are eligible to receive Awards under the Plan.
4. Common Stock Available for Awards. Subject to the adjustment provisions of
Section 10, the number of shares of Common Stock that may be issued for
Awards granted under the Plan is equal to the sum of: (a) 2,000,000 shares;
(b) any shares of Common Stock available for future awards under the 1989
Plan as of the Effective Date; and (c) any shares of Common Stock
represented by awards granted under the 1989 Plan which are forfeited,
expire, or are canceled without delivery of Common Stock after the
Effective Date, or which result in the forfeiture of Common Stock back to
the Company. In no event will the number of shares of Common Stock which
may be issued under the Plan exceed 2,500,000. No Participant may receive,
under the Plan, stock options for more than 100,000 shares in any one year,
except that stock options may be granted to a newly hired employee for not
more than 200,000 shares in the first year of employment. Shares of Common
stock related to Awards which (i) are forfeited, (ii) expire unexercised,
(iii) are settled in such manner that all or some of the shares covered by
an Award are not issued to a Participant, (iv) are exchanged for Awards
that do not involve Common Stock, or (v) are tendered by a Participant upon
exercise of a stock option in payment of all or a portion of the option
price shall be added back to the pool and shall immediately become
available for Awards.
5. Awards. The Committee shall select the persons who are to receive Awards
and shall determine the type or types of Award(s) to be made to each
Participant and shall set forth in the related Award Agreement the terms,
conditions, performance requirements, and limitations applicable to each
Award. Awards may be granted singly, in combination, or in tandem. Awards
may include but are not limited to the following:
(a) Nonqualified Stock Options. A nonqualified stock option is a right to
purchase a specified number of shares of Common Stock at a fixed option
price equal to the Fair Market Value of the Common Stock on the date
the Award is granted, during a specified time, not to exceed ten years,
as the Committee may determine. The option price shall be payable:
(i) in U.S. dollars by personal check, bank draft, or by money order
payable to the order of the Company or by money transfer or direct
account debit; or
(ii) if the Committee so determines, through the delivery of shares of
Common Stock of the Company with a Fair Market Value equal to all
or a portion of the option price for the total number of options
being exercised; or
(iii) by a combination of the methods described in subsections (i) and
(ii) next above.
(b) Incentive Stock Options. An incentive stock option ("ISO") is an Award
which, in addition to being subject to applicable terms, conditions,
and limitations established by the Committee, complies with Section 422
of the Code. Among other limitations, Section 422 of the Code
currently provides (i) that the aggregate Fair Market Value (determined
at the time the option is granted) of Common Stock for which ISOs are
exercisable for the first time by a Participant during any calendar
year shall not exceed $100,000, (ii) that ISOs shall be priced at not
less than 100% of the Fair Market Value on the date of the grant, and
(iii) that ISOs shall be exercisable for a period of not more than ten
years. The Committee may provide that the option price under an ISO
can be paid by one or more of the methods described in subsection
(a) next above.
(c) Restricted Stock. Restricted Stock is Common Stock of the Company that
is subject to restrictions on transfer and/or such other restrictions
on incidents of ownership as the Committee may determine, for a
required period of continued employment of not less than three years as
set by the Committee at the time of Award. Restricted Stock Awards
shall require no payments of consideration by the Participant, either
on the date of grant or the date the restriction(s) are removed, unless
specifically required by the terms of the Award Agreement. The maximum
number of shares of Restricted Stock which may be issued under the Plan
is 200,000.
(d) Performance Shares. A Performance Share is Common Stock of the
Company, or a unit valued by reference to Common Stock, that is subject
to restrictions on transfer and/or such other restrictions on incidents
of ownership as the Committee may determine. The elimination of
restrictions on a Performance Share and the number of shares ultimately
earned by a Participant shall be contingent upon achievement of one or
more performance targets specified by the Committee. Performance
Shares may be paid in Common Stock, cash, or a combination thereof. The
Committee shall establish minimum performance targets with respect to
each Performance Share. Performance targets may be based on financial
criteria consisting of (i) revenue growth, (ii) diluted earnings per
share, (iii) net operating profit after taxes, (iv) cash flow,
(v) economic value added, or (vi) a combination of such criteria. No
Participant may receive, under the Plan, a Performance Share Award for
any award cycle in excess of 25,000 performance units or 25,000 shares
of Common Stock.
6. Certain Changes. Except as may be permitted under the provisions of
Section 10 or Section 11, no stock option issued pursuant to the Plan may
be (i) canceled by the Company or (ii) amended so as to reduce the option
price, unless such cancellation or amendment is approved by the
shareholders of the Company.
7. Award Agreements. Each Award under this Plan shall be evidenced by an
Award Agreement consistent with the provisions of the Plan setting forth
the terms and conditions applicable to the Award. Award Agreements shall
include:
(a) Non-Assignability. A provision that no Award shall be assignable or
transferable except by will or by the laws of descent and distribution
and that during the lifetime of a Participant, the Award shall be
exercised only by such Participant.
(b) Termination of Employment. Provisions governing the disposition of an
Award in the event of the retirement, disability, death, or other
termination of a Participant's employment or relationship to the
Company or any affiliate of the Company.
(c) Rights as a Shareholder. A provision that a Participant shall have no
rights as a shareholder with respect to any shares covered by an Award
until the date the Participant or his nominee becomes the holder of
record. Except as provided in Section 9 hereof, no adjustment shall be
made for dividends or other rights for which the record date is prior
to such date, unless the Award Agreement specifically requires such
adjustment.
(d) Withholding. A provision requiring the withholding of all taxes
required by law from all amounts paid in cash. In the case of payments
of Awards in shares of Common Stock, the Participant may be required to
pay the amount of any taxes required to be withheld prior to receipt of
such shares. A Participant must in all instances pay the required
withholding taxes in cash. The withholding of shares to pay taxes
shall not be permitted.
(e) Other Provisions. Such other terms and conditions, including the
criteria for determining vesting of Awards and the amount or value of
Awards, as the Committee determines to be necessary or appropriate.
Without limiting the generality of the foregoing, any stock option
granted under the Plan may provide, if the Committee so determines,
that upon the occurrence of a "change of control" (as defined in
Section 11) the option shall immediately become exercisable and shall
remain exercisable for a period of one year after termination of the
optionee's employment but not later than the expiration date of the
option.
8. Administration. The Plan shall be administered by the Committee, which
shall have full and exclusive power to interpret the Plan, to grant waivers
of Award restrictions, and to adopt such rules, regulations, and guidelines
for carrying out the Plan as it may deem necessary or proper, all of which
powers shall be executed in the best interests of the Company and in
keeping with the objectives of the Plan. All questions of interpretation
and administration with respect to the Plan and Award Agreements shall be
determined by the Committee, and its determination shall be final and
conclusive. The Committee may delegate to the Chief Executive Officer of
the Company its administrative functions and authority to grant Awards
under the Plan pursuant to such conditions and limitations as the Committee
may establish, except that only the Committee may select, and grant Awards
to, Participants who are subject to Section 16 of the Securities Exchange
Act of 1934.
9. Amendment, Modification, Suspension, or Discontinuance of the Plan. The
Board may amend, modify, suspend, or terminate the Plan for the purpose of
meeting or addressing any changes in legal requirements or for any other
purpose permitted by law. Subject to changes in law or other legal
requirements that would permit otherwise, the Plan may not be amended
without the consent of the holders of a majority of the shares of Common
Stock then outstanding (i) to increase the aggregate number of shares of
Common Stock that may be issued under the Plan (except for adjustments
pursuant to Section 9 of the Plan), (ii) to decrease the option price,
(iii) to materially modify the requirements as to eligibility for
participation in the Plan, (iv) to withdraw administration of the Plan from
the Committee, or (v) to extend the period during which Awards may be
granted.
10. Adjustments. In the event of any change in the outstanding Common Stock of
the Company by reason of a stock split, stock dividend, combination or
reclassification of shares, recapitalization, merger, or similar event, the
Committee may adjust proportionally (a) the number of shares of Common
Stock (i) reserved under the Plan, (ii) for which Awards may be granted to
an individual Participant, and (iii) covered by outstanding Awards
denominated in stock or units of stock; (b) the stock prices related to
outstanding Awards; and (c) the appropriate Fair Market Value and other
price determinations for such Awards. In the event of any other change
affecting the Common Stock or any distribution (other than normal cash
dividends) to holders of Common Stock, such adjustments as may be deemed
equitable by the Committee, including adjustments to avoid fractional
shares, may be made to give proper effect to such event. In the event of a
corporate merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation, the Committee shall be
authorized to issue or assume stock options, whether or not in a
transaction to which Section 424(a) of the Code applies, by means of
substitution of new stock options for previously issued
stock options or an assumption of previously issued stock options. The
issuance of new stock options for previously issued stock options or the
assumption of previously issued stock options in connection with a
corporate merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation shall not reduce the number of
shares of Common stock available for Awards under the Plan.
11. Change of Control. (a) In the event of a change of control of the Company,
or if the Board reaches agreement to merge or consolidate with another
corporation and the Company is not the surviving corporation or if all, or
substantially all, of the assets of the Company are sold, or if the Company
shall make a distribution to shareholders that is nontaxable under the
Code, or if the Company shall dissolve or liquidate (a "Restructuring
Event"), then the Committee may, in its discretion, recommend that the
Board take any of the following actions as a result of, or in anticipation
of, any such Restructuring Event to assure fair and equitable treatment of
Participants:
(i) accelerate time periods for purposes of vesting in, or realizing gain
from, any outstanding Award made pursuant to the Plan;
(ii) offer to purchase any outstanding Award made pursuant to the Plan
from the holder for its equivalent cash value, as determined by the
Committee, as of the date of the Restructuring Event; and
(iii) make adjustments or modifications to outstanding Awards as the
Committee deems appropriate to maintain and protect the rights and
interests of Participants following such Restructuring Event.
(b) Any such action by the Board shall be conclusive and binding on the
Company and all Participants. Notwithstanding the foregoing, the
Committee shall retain full authority to take, in its discretion, any
of the foregoing actions with respect to Awards held by Participants
who are directors, and the Board shall have no authority to act in any
such matter.
(c) For purposes of this Section, "change of control" shall mean (i) the
acquisition by any person of voting shares of the Company, not
acquired directly from the Company, if, as a result of the acquisition,
such person, or any "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934 of which such person is a part, owns at
least 20% of the outstanding voting shares of the Company; or (ii) a
change in the composition of the Board such that within any period of
two consecutive years, persons who (a) at the beginning of such period
constitute the Board or (b) become directors after the beginning of
such period and whose election or nomination for election by the
shareholders of the Company was approved by a vote of at least
two-thirds of the persons who were either directors at the beginning of
such period or whose subsequent election or nomination was previously
approved in accordance with this clause (b), cease to constitute at
least a majority of the Board; or (iii) a merger, consolidation,
reorganization, or similar restructuring involving the Company is
consummated and, as a result, the shareholders of the Company
immediately prior to such event own less than 50% of the voting shares
of the surviving entity outstanding immediately after such event.
12. Unfunded Plan. Insofar as it provides for Awards of cash and Common Stock,
the Plan shall be unfunded. Although bookkeeping accounts may be
established with respect to Participants who are entitled to cash, Common
Stock, or rights thereto under the Plan, any such accounts shall be used
merely as a bookkeeping convenience. The Company shall not be required to
segregate any assets that may at any time be represented by cash, Common
Stock, or rights thereto, nor shall the Plan be construed as providing for
such segregation, nor shall the Company or the Board or the Committee be
deemed to be a trustee of any cash, Common Stock, or rights thereto to be
granted under the Plan. Any liability of the Company or any of its
affiliates to any Participant with respect to a grant of cash, Common
Stock, or rights thereto under the Plan shall be based solely upon any
contractual obligations that may be created by the Plan and any Award
Agreement; no such obligation of the Company or any of its affiliates shall
be deemed to be secured by any pledge or other encumbrance on any property
of the Company. Neither the Company nor the Board nor the Committee shall
be required to give any security or bond for the performance of any
obligation that may be created by the Plan.
13. Right of Discharge Reserved. Nothing in the Plan or in any Award shall
confer upon any employee or other individual the right to continue in the
employment or service of the Company or any affiliate of the Company or
affect any right the Company or any affiliate of the Company may have to
terminate the employment or service of any such employee or other
individual at any time for any reason.
14. Nature of Payments. All Awards made pursuant to the Plan are in
consideration of services performed for the Company or an affiliate of the
Company. Any gain realized pursuant to such Awards constitutes a special
incentive payment to the Participant and shall not be taken into account as
compensation for purposes of any of the employee benefit plans of the
Company or any affiliate of the Company.
15. Limited Stock Purchase Loans. During the period from the Effective Date to
March 25, 1999, the Company may, with the approval of the Committee, make
or guarantee loans to Participants who are officers of the rank of Vice
President and above, for the purpose of purchasing Common Stock. Each such
loan shall be for a maximum of five years, shall not exceed an amount equal
to 50% of the Participant's annual base salary, and shall be subject to
such conditions as the Committee may prescribe with respect to recourse,
interest, security, and payment.
16. Notice. Any notice to the Company required by any of the provisions of the
Plan shall be addressed to the chief human resources officer or to the
Chief Executive Officer of the Company in writing and shall become
effective when it is received by the office of either of them.
17. Governing Law. The Plan shall be governed by, construed and enforced in
accordance with the laws of the State of Texas without regard to the
conflicts of law provisions in any jurisdiction.
18. Effective and Termination Dates. The Plan shall become effective on
January 1, 1999, subject to approval of the shareholders of the Company at
the 1999 annual meeting of shareholders. The Plan shall terminate on
December 31, 2008, unless sooner terminated by the Board, after which no
Awards may be made under the Plan, but any such termination shall not
affect Awards then outstanding or the authority of the Committee to
continue to administer the Plan.
<PAGE>
Exhibit 10(dd)
LUBY'S CAFETERIAS, INC.
INCENTIVE BONUS PLAN FOR FISCAL 1999
1. Purpose. The Incentive Bonus Plan for Fiscal 1999 (the "Plan") of Luby's
Cafeterias, Inc. (the "Company") is intended to provide (i) additional
incentives for Participants to improve their job performance, (ii) drive
the achievement of performance objectives that are aligned with the
Company's strategic plan, and (iii) to retain and attract highly talented
executives.
2. Participants. Participants include the Chief Executive Officer, Senior
Vice Presidents, Vice Presidents, Department Directors, Assistant Vice
Presidents, and Assistant Secretaries.
3. Eligibility. A employee must be a Participant in the Plan for a minimum of
three months during the plan year to be eligible for an award for that plan
year.
4. Target Award Percentages. Award levels are set for each Participant in the
organization based on level of responsibility.
5. Cash Bonus Pool. The Company shall establish a Cash Bonus Pool based upon
the sum of target award percentages multiplied by each Participant's
salary. The target award percentages are set for each level by the
Compensation Committee.
6. Performance Goals. At the recommendation of the Chief Executive Officer,
the Compensation Committee of the Board of Directors has approved certain
Strategic Objectives and a threshold earnings goal for the Company for
fiscal 1999. If the threshold earnings goal is met or exceeded, the
Compensation Committee will then authorize the pool. The amount of the
pool will be determined based on the following:
50% of the Pool: Earnings Per Share versus established goals, according to the
following schedule for 1999:
Performance vs. Goal % of Target Pool Generated
Stretch Performance: 106.5% or more 150% of pool
Performance at Goal: 100% 100% of pool
Threshold: 93.5% of Goal 50% of pool
Straight-line interpolation between or above points
The other 50% of the pool will be based on performance versus the strategic
objectives, as determined by the CEO and approved by the Compensation Committee
of the Board of Directors.
7. Job Performance Evaluations. At the end of each fiscal year, the
management of the Company shall review the job performance of each
Participant during the fiscal year and shall evaluate his or her
performance based upon the achievement of written objectives established
for the year. In addition, each Participant will be evaluated on the basis
of general job performance criteria.
8. Cash Bonuses. Upon completion of the Job Performance Evaluations of all
Participants at the end of the fiscal year, the management of the Company
shall allocate the approved Cash Bonus Pool among the Participants based
upon the evaluations. The Company's evaluation of each Participant's
performance and the Company's determination of the amount to be awarded to
each Participant out of the Cash Bonus Pool shall be final and conclusive
and shall be binding upon all Participants in the Plan. The amount awarded
to each Participant out of the Cash Bonus Pool shall be in addition to his
or her base salary and other benefits.
9. Adjustments for Extraordinary Items. The Compensation Committee of the
Board shall be authorized to made adjustments in the method of calculating
attainment of Performance Goals in recognition of: (i) extraordinary or
non-recurring items, (ii) changes in tax laws, (iii) changes in generally
accepted accounting principles or changes in accounting policies, (iv)
charges related to restructured or discontinued operations, (v) restatement
of prior period financial results, and (vi) any other unusual,
non-recurring gain or loss that is separately identified and quantified in
the Company's financial statements.
10. Withholding Tax. The Company shall have the right to deduct from all
payments made under the Plan any taxes required by law to be withheld with
respect to such payments.
11. Interpretation of the Plan. Any disagreement or dispute with respect to
the interpretation or application of the Plan shall be resolved by the
Executive Committee of the Board of Directors of the Company. The decision
of the Executive Committee with respect to any such matter shall be final
and conclusive and shall be binding upon all Participants in the Plan.
12. Amendment and Discontinuance of the Plan. The Plan may be discontinued or
amended by the Board of Directors of the Company at any time. No
Participant shall be entitled to receive a bonus under the Plan until such
time as the bonus has been awarded by the Board of Directors in accordance
with the Plan.
13. No Right To Continued Employment or Awards. No employee shall have any
claim or right to be made an award, and the making of an award shall not be
construed as giving a participant the right to be retained in the employ of
the Company. Further, the Company expressly reserves the right at any time
to terminate the employment of any Participant free from any liability
under the Plan.
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
Cafeterias, Inc. for the three and twelve months ended August 31, 1998 and
1997.
Three months ended August 31, 1998
23,270,675 x shares outstanding for 92 days 2,140,902,100
Divided by number of days in the period 92
_____________
23,270,675
Twelve months ended August 31, 1998
23,266,374 x shares outstanding for 18 days 418,794,732
23,266,921 x shares outstanding for 17 days 395,537,657
23,268,328 x shares outstanding for 9 days 209,414,952
23,270,675 x shares outstanding for 321 days 7,469,886,675
_____________
8,493,634,016
Divided by number of days in the period 365
_____________
23,270,230
Three months ended August 31, 1997
23,266,374 x shares outstanding for 92 days 2,140,506,408
Divided by number of days in the period 92
_____________
23,266,374
Twelve months ended August 31, 1997
23,892,819 x shares outstanding for 30 days 716,784,570
23,666,720 x shares outstanding for 31 days 733,668,320
23,281,927 x shares outstanding for 30 days 698,457,810
23,329,990 x shares outstanding for 31 days 723,229,690
23,404,092 x shares outstanding for 31 days 725,526,852
23,409,028 x shares outstanding for 28 days 655,452,784
23,410,574 x shares outstanding for 31 days 725,727,794
23,406,574 x shares outstanding for 30 days 702,197,220
23,280,909 x shares outstanding for 31 days 721,708,179
23,266,374 x shares outstanding for 92 days 2,140,506,408
_____________
8,543,259,627
Divided by number of days in the period 365
_____________
23,406,191
Exhibit 21
SUBSIDIARIES OF LUBY'S CAFETERIAS, INC.
1. Luby's Holdings, Inc., a Delaware corporation, doing business under its
corporate name
2. Luby's Limited Partner, Inc., a Delaware corporation, doing business under
its corporate name
3. Luby's Management, Inc., a Delaware corporation, doing business under its
corporate name
4. LUBCO, Inc., a Delaware corporation, doing business under its corporate
name
5. L & W Seafood, Inc., a Delaware corporation, doing business under its
corporate name
6. Luby's Restaurants Limited Partnership, a Texas limited partnership, doing
business under the names "Luby's," "Luby's Cafeteria" and "Luby's
Cafeterias"
7. Luby's Bevco, Inc., a Texas corporation, doing business under its corporate
name
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<CASH> 3,760
<SECURITIES> 0
<RECEIVABLES> 704
<ALLOWANCES> 0
<INVENTORY> 5,072
<CURRENT-ASSETS> 15,112
<PP&E> 455,511
<DEPRECIATION> 156,914
<TOTAL-ASSETS> 339,041
<CURRENT-LIABILITIES> 47,436
<BONDS> 0
0
0
<COMMON> 8,769
<OTHER-SE> 196,645<F1>
<TOTAL-LIABILITY-AND-EQUITY> 339,041
<SALES> 508,871
<TOTAL-REVENUES> 508,871
<CGS> 284,278
<TOTAL-COSTS> 284,278
<OTHER-EXPENSES> 154,501
<LOSS-PROVISION> 36,852
<INTEREST-EXPENSE> 5,078
<INCOME-PRETAX> 7,879
<INCOME-TAX> 2,798
<INCOME-CONTINUING> 5,081
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,081
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
<FN>
<F1>Other stockholders' equity amount is less cost of treasury stock of $92,907.
</FN>
</TABLE>
Exhibit 99(b)
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-36791) pertaining to the Luby's Cafeterias, Inc. Management
Incentive Stock Plan, (Form S-8 No. 33-10559) pertaining to the Luby's
Cafeterias, Inc. Performance Unit Plan, and (Form S-8 No. 333-19283)
pertaining to the Luby's Cafeterias Savings and Investment Plan of Luby's
Cafeterias, Inc. of our report dated October 5, 1998, with respect to the
consolidated financial statements of Luby's Cafeterias, Inc. incorporated by
reference in the Annual Report (Form 10-K) for the year ended August 31, 1998.
ERNST & YOUNG LLP
San Antonio, Texas
November 24, 1998
