BUFFETS INC, 10-K, 1995-03-24

BUFFETS INC
10-K, 1995-03-24
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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934

For the fiscal year ended: Commission file number:
December 28, 1994 0-14370
BUFFETS, INC.
(Exact name of registrant as specified in its charter)

Minnesota 41-1462294
(State of incorporation) (IRS Employer Identification No.)

10260 Viking Drive, Eden Prairie, Minnesota 55344
(Address of principal executive offices)

(612) 942-9760
(Registrant's telephone number)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.01 per share

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 (or for such shorter period that the
registrant was required to file such reports), 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 (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of 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 voting stock held by
non-affiliates of the registrant was approximately $261,505,764 at March 20,
1995, based on the closing sale price for such date as reported on The Nasdaq
Stock Market.

On March 20, 1995, there were 30,993,571 shares of common stock of the
Company, par value $.01 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's Proxy Statement for its 1995 Annual Meeting to be
held May 9, 1995 are incorporated by reference in Part III. Portions of
Registrant's Annual Report to Shareholders for fiscal year ended December 28,
1994 (the "1994 Annual Report") are incorporated by reference in Parts II and
IV.

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PART I

ITEM 1. BUSINESS

General

Buffets, Inc., a Minnesota corporation, was organized in 1983. Its executive
offices are located at 10260 Viking Drive, Eden Prairie, Minnesota 55344.
References herein to the "Company" are to Buffets, Inc. and its subsidiaries,
Evergreen Buffets Inc., OCB Restaurant Co., OCB Realty Co., OCB Purchasing Co.,
OCB Property Co., Texas Buffets, Inc. (until it merged into OCB Restaurant Co.
in July 1994), and Southland Buffets, Inc. (until its merger into the Company in
May 1992), unless the context indicates otherwise.

The Company is principally engaged in the development and operation of
"buffet" restaurants under the name "Old Country Buffet" ("Country Buffet" in
the state of Colorado). The Company obtained a federal trademark registration
covering the words "Old Country Buffet" in June of 1985.

The Company presently operates 225 company-owned restaurants in 31 states
(including 17 opened since year end). The Company contemplates that
approximately 35 to 40 Company-owned restaurants will be opened in 1995. In
addition, six franchised Old Country Buffet restaurants are in operation in
Nebraska and Oklahoma.

The Company's restaurants offer a wide variety of freshly prepared menu items,
including soups, salads, entrees, vegetables, non-alcoholic beverages and
desserts, presented in a self-service buffet format in which customers select
the items and portions of their choice. The restaurants' typical dinner entrees
include chicken, carved roast beef and ham, and two or three other hot entrees
such as casseroles, shrimp and fish. Chicken, fish and two or three other
entrees usually are offered at lunch. The Company's restaurants utilize uniform
menus, recipes and ingredient specifications, except for certain variations
adopted in response to regional preferences.

The Company's restaurants range in size from approximately 8,000 to 13,850
square feet, seat from 260 to 390 people, and generally include areas that can
be partitioned to accommodate private meetings and group outings. The decor is
attractive and informal. To date, the Company has located its restaurants
primarily within or adjacent to strip or neighborhood shopping centers. The
Company's restaurants generally are open from 11:00 a.m. to 8:00 p.m. or 9:00
p.m. A majority of the Company's restaurants also serve breakfast from 8:00
a.m. to 11:00 a.m. on weekends.

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Scatter System Format

Menu items generally are presented to diners using a "scatter system" rather
than a conventional straight buffet serving line. Under the scatter system, six
to eight separate food islands or counters are used to present various courses
of each meal to diners (for example, salads on one island, desserts on another),
with diners able to proceed directly to those islands presenting the menu items
they desire at the time. The scatter system promotes easier food access and has
helped reduce the long lines that often occurred during peak hours in the
Company's restaurants utilizing the conventional straight-line serving format.
The scatter system was introduced by the Company in August 1989 and has been
utilized in all of its restaurants developed since March 1990. In addition,
because of the success of the scatter system, the Company pursued a remodeling
program from February 1990 through 1994 with the goal of converting
substantially all of its 71 then-existing restaurants from the conventional
straight-line format to the scatter system. To date, the Company's experience
with converted restaurants indicates that these restaurants generally achieve
higher sales following conversion.

Small Batch Preparation

To ensure freshness, hot foods and bakery items are prepared repeatedly
throughout the day in relatively small batches. Restaurant managers closely
monitor the servicing area for the quality and availability of all items. The
Company believes the freshness achieved through small batch preparation
contributes significantly to the high quality of its food.

All-Inclusive Price

The Company's restaurants currently charge, depending on the market area,
$4.99 to $5.79 for lunch Monday through Saturday and $6.49 to $7.59 for dinner
Monday through Sunday. On Saturday and Sunday, certain restaurants serve
breakfast at prices ranging from $4.99 to $5.99. Reduced prices are available
to senior citizens who purchase an annual senior club card for $1.00 per year
and to children under the age of ten or twelve depending on the market area.
Children's prices for all meals are $.35 to $.55 per year of their age from two
through ten or twelve. Customers pay prior to entering the dining area and are
assisted to tables by restaurant employees. They may return for second helpings
and additional beverages and desserts without additional charge.

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Restaurant Operations and Controls

GENERAL. In order to maintain a consistently high level of food quality and
service in all of its restaurants, the Company has established uniform
operational standards which are implemented by the managers of each restaurant.
All restaurants are required to be operated in accordance with rigorous
standards and specifications relating to the quality of ingredients, preparation
of food, maintenance of premises and employee conduct.

MENU SELECTION AND PURCHASING. Headquarters personnel prepare and
periodically revise standard recipes and menus and a list of approved
ingredients and supplies based upon the quality, availability, cost and customer
acceptance of various menu items. Food quality is maintained through
centralized coordination with suppliers and frequent restaurant visits by
district managers and other management personnel.

The Company purchases its food and beverage inventories and restaurant
supplies from independent suppliers approved by headquarters personnel, who
negotiate quality specifications, delivery schedules and pricing and payment
terms (typically 28 days) directly with the suppliers. Although all supplier
invoices are paid from Company headquarters, restaurant managers place orders
for inventories and supplies with, and receive shipments directly from,
suppliers. Restaurant managers approve invoices before forwarding them to
Company headquarters for payment. To date, the Company has not experienced any
difficulties in obtaining food and beverage inventories or restaurant supplies,
and the Company does not anticipate that any material difficulties will develop
in the foreseeable future.

RESTAURANT MANAGEMENT. Each restaurant typically employs a general manager,
an associate general manager, and one to three assistant managers. Each of the
Company's restaurant general managers has primary responsibility for day-to-day
operations in one of the Company's restaurants, including customer relations,
food service, cost controls, restaurant maintenance, personnel relations,
implementation of Company policies and the restaurant's profitability. A
substantial portion of each general manager's and associate general manager's
compensation depends directly on the restaurant's profitability. In addition,
restaurant managers receive stock options under the Company's current stock
option program entitling them to acquire an equity interest in the Company. The
Company believes that its compensation policies have been important in
attracting, motivating and retaining qualified operating personnel.

Each restaurant general manager reports to a district manager, each of whom in
turn reports to a regional director (currently six persons). Each regional
director reports to the Company's Executive Vice President of Operations.

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The Company maintains centralized financial and accounting controls for its
restaurants. On a daily basis, restaurant managers forward customer counts,
sales, labor costs and deposit information to Company headquarters. On a weekly
basis, restaurant managers forward a summarized profit and loss statement, sales
report, and supplier invoices. Payroll data is forwarded every two weeks.

MANAGEMENT TRAINING. All new managers are required to complete an extensive
nine-week training program which focuses on the operating skills and management
functions necessary to successfully manage an Old Country Buffet restaurant.
This training is broken down into three phases. Phase one starts the program
with the first two weeks spent in a Company restaurant learning skills needed
for hourly positions. Phase two, the next four weeks of the program, is
conducted at the Company's training center located in Eden Prairie, Minnesota.
At the training center, managers-in-training participate in a series of
seminars designed to further develop skills in food production, personnel
management, and professional development. Phase three, the remaining three
weeks of training, is spent in a Company restaurant using the management and
operational skills learned at the training center under actual restaurant
conditions. Training and development of managers continues beyond the first nine
weeks. Managers continue to phase four, a self paced training program designed
to further develop their proficiency in management supervisory skills. Before a
manager is promoted to General Manager the phase four program must be completed.
The Company currently requires all new managers to have at least two years'
prior management experience or the equivalent in education.

Franchising and Joint Ventures

There currently are six franchised Old Country Buffet restaurants in Nebraska
and Oklahoma, owned by two franchisees. The Company's franchise agreements
generally have initial terms of 15 years and require the franchisee to pay an
initial fee of $25,000 and continuing royalties equal to four percent of the
franchisee's sales. The Company has an agreement with each franchisee whereby
the Company has options exercisable at various times over the next several years
to repurchase the Old Country Buffet restaurants developed by such franchisee at
a predetermined formula price based principally on restaurant gross sales.

The Company has taken advantage of joint venture opportunities from time to
time, principally as a means of entering new geographic markets. The Company
currently has only one 90%-owned joint venture subsidiary, developing and
operating Old Country Buffet restaurants in Washington and Oregon (established
in November 1988). Similar to the Company's repurchase options with its
franchisees, the Company has included a mechanism for repurchasing the minority
interest in its existing joint venture subsidiary at a predetermined formula
price based principally on restaurant gross sales.

The Company at present is not actively seeking to grant additional franchises
or enter into additional joint ventures.

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Competition

The food service industry is highly competitive. Menu, price, service,
convenience, location and ambience are all important competitive factors, with
the relative importance of many such factors varying among different segments of
the consuming public.

By providing a wide variety of food and beverages at reasonable prices in an
attractive and informal environment, the Company seeks to appeal to a broad
range of value-oriented consumers. The Company believes that its primary
competitors in this market segment are other buffet and cafeteria restaurants,
and traditional casual dining restaurants with full menus and table service. The
Company believes that its success to date has been due to its particular
approach combining pleasant ambience, high food quality, breadth of menu,
cleanliness and reasonable prices with satisfactory levels of service and
convenience.

The Company believes its sales may be somewhat seasonal, with a lower
percentage of annual sales occurring in most of its current market areas during
the winter months.

Advertising and Promotion

To date the Company has relied primarily on customers' word-of-mouth
recommendations to promote its business. As a result, prior to 1993, annual
advertising costs never exceeded 1.1% of restaurant sales, such costs being
incurred primarily for menu cards, brochures and a limited amount of local
newspaper, radio and television advertising. Based on favorable results, the
Company increased its rate of expenditures on advertising to 1.4% of restaurant
sales in 1993, primarily for increased radio and television advertising. The
Company lowered its spending to 1.3% in 1994 due to the decision in the fourth
quarter to spend those dollars in food and labor to better serve the guest. The
Company expects to spend approximately 1.0% on advertising in 1995. The Company
is prepared to increase its advertising expenditures in the future if it
determines that further increases are likely to generate sufficient additional
revenues. The Company believes its senior citizen discount program has
encouraged many senior citizens to eat at the Company's restaurants.

Regulation

The Company's restaurants must be constructed to meet federal, state and local
building and zoning requirements and must be operated in accordance with state
and local regulations relating to the preparation and serving of food. The
Company is also subject to various federal and state labor laws which govern its
relationships with its employees, including those relating to minimum wages,
overtime and other working conditions. Environmental regulations have not had a
material effect on the operations of the Company. The Company to date has been
successful in obtaining all necessary permits and licenses and complying with
applicable regulations, and does not expect to encounter any material
difficulties in the future with respect to these matters.

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Trademarks

In June 1985, the Company obtained a federal trademark registration covering
the words "Old Country Buffet." The Company has subsequently obtained trademark
protection for additional marks used in its business. Generally, federal
registration of a trademark gives the registrant the exclusive use of the
trademark in the United States in connection with the goods or services
associated with the trademark, subject to the common law rights of any other
person who began using the trademark (or a confusingly similar mark) prior to
the date of federal registration. Because of the common law rights of such a
pre-existing restaurant in certain portions of Colorado, the Company's
restaurants in that state use the name "Country Buffet." The Company intends to
take appropriate steps to develop and protect its marks.

Employees

As of March 8, 1995, the Company employed approximately 15,915 persons,
including 915 supervisory and administrative, 250 managerial, and 14,750
restaurant employees. Approximately 75% of the Company's restaurant employees
work part-time. Relations with employees have been satisfactory and no work
stoppages due to labor disputes have occurred. The Company anticipates that its
work force will increase by more than 15% by the end of 1995.

Restaurant Development

GENERAL. The Company opened 34 restaurants in 1994 and expects to open
approximately 35 to 40 restaurants in 1995, of which 17 were open as of March
20, 1995. The Company intends to pursue expansion during 1995 in both existing
and new markets.

The ability of the Company to open new restaurants depends on a number of
factors, including its ability to find suitable locations and negotiate
acceptable leases and land purchases, its ability to attract and retain a
sufficient number of qualified restaurant managers, and the availability of
capital. The Company actively and continuously attempts to identify and
negotiate leases and land purchases for additional new locations, and expects
that it will be able to achieve its intended development schedule for 1995,
though there is no assurance that this will be the case.

GEOGRAPHIC EXPANSION STRATEGY. The Company initially concentrated its
restaurant development in the Midwest, and then after several years expanded to
other regions of the country. The Company currently operates in 31 states and
opened its first restaurants in Kentucky, New Jersey and North Carolina during
1994. The Company attempts to cluster its restaurants in geographic areas to
achieve economies of scale in costs of supervision, marketing and purchasing.

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SITE SELECTION CRITERIA. The primary criteria considered by the Company in
selecting new locations are a high level of customer traffic, convenience to
both lunch and dinner customers in demographic groups (such as families and
senior citizens) that tend to favor the Company's restaurants, and the occupancy
cost of the proposed restaurant. The Company has found that these criteria
frequently are satisfied by well-located strip shopping centers that benefit
from cotenancy with strong national retailers and visibility to high traffic
roads. All but 35 of the Company's current restaurants are located in such
centers. Twenty of the other 35 restaurants are located in regional or other
enclosed shopping malls and fifteen are located in free-standing structures. The
Company anticipates that free-standing locations will likely comprise a larger
percentage of its new restaurants in the future. The Company typically requires
a population density of at least 100,000 within five miles of each new location,
and currently is concentrating its development efforts on urban areas that can
accommodate a number of Company restaurants. Because an Old Country Buffet
restaurant typically draws a significant volume of customers and because of the
Company's financial strength, the Company often has been able to negotiate
favorable lease terms.

RESTAURANT CONSTRUCTION. In an effort to better control costs and improve
quality, the Company is closely involved in the construction of its restaurants,
and also in the acquisition and installation of fixtures and equipment. The
Company acts as its own general contractor, using restaurant designs prepared by
the Company's own architectural staff. The Company normally satisfies the
equipment and other restaurant supply needs of its new restaurants from
inventory acquired directly from manufacturers and stored at the Company's
warehouse in Eden Prairie, Minnesota. Restaurants located in shopping centers
typically open approximately 11 weeks after construction begins, while
free-standing restaurants typically open approximately 17 weeks after
construction begins. The average cost to develop an Old Country Buffet
restaurant located in a shopping center during fiscal 1994 was approximately
$615,000 for leasehold improvements (net of landlord contributions); and
approximately $644,000 for equipment and furnishings. Free-standing owned
restaurants developed in 1994 and the first part of 1995 entailed an average
land cost of $606,000 and a projected average building cost of $1,200,000. It
is expected the increased development of free-standing restaurants will increase
the average cost per unit and associated capital requirements in 1995.

ITEM 2. PROPERTIES

The Company's executive offices are located in approximately 30,000 square
feet of leased space in Eden Prairie, Minnesota, for a term ending October 31,
1997. The Company also leases a 22,200 square foot warehouse and training
center in Eden Prairie, Minnesota for a term ending January 31, 1997. The
Company owns a 72,000 square foot facility in Marshfield, Wisconsin which it
utilizes for the fabrication of cabinetry and fixtures for restaurants.

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Most of the Company's restaurants are located in leased facilities, although
land purchases for free-standing restaurants are increasingly being relied upon
in instances where more competitive locations can be acquired. Fifteen
restaurants are located in free-standing buildings, 20 are located in regional
or other enclosed shopping malls, and the rest are located in strip or
neighborhood shopping centers. Most of the leases provide for a minimum annual
rent and additional rent calculated as a percentage of restaurant sales,
generally 3% to 5%, if the rents so calculated exceed the minimum. The initial
terms of the Company's leases generally range from ten to fifteen years, and the
leases usually have renewal options for additional five to ten year periods.

The Company owns substantially all of the equipment, furniture and fixtures in
its restaurants. Leasehold improvements made by the Company in leased premises
usually become the property of the landlord upon expiration or termination of
the lease. To date, most of the Company's strip mall landlords have agreed to
bear a portion of the cost of leasehold improvements by way of either rent
concessions or cash contributions.

ITEM 3. LEGAL PROCEEDINGS

IN RE BUFFETS, INC. SECURITIES LITIGATION, United States District Court for
the District of Minnesota, Master No. 3-94-1447. This action is a consolidation
of four separate lawsuits. The first lawsuit was commenced by ZSA Asset
Allocation Fund and ZSA Equity Fund on or about November 7, 1994. Three other
substantially similar actions were filed shortly thereafter by alleged
shareholders Marc Kushner, Trustee for Service Lamp Corp. Profit Sharing Plan,
Jerrine Fernandes, and John J. Nuttall. By Pretrial Order No. 1, entered in
early January 1995, the District Court ordered that the four lawsuits be
consolidated into the single pending action and that plaintiffs serve and file a
Consolidated Amended Class Action Complaint (the "Complaint"), which was served
on or about January 31, 1995. The Complaint is against the Company and several
of its officers and directors. In the Complaint, plaintiffs seek to represent a
putative class consisting of all persons and entities (excluding defendants and
certain others) who purchased shares of the Company's Common Stock during the
period commencing October 26, 1993 and ending October 25, 1994 (the "Class
Period").

The Complaint alleges that the defendants made misrepresentations and
omissions of material fact during the Class Period with respect to the Company's
operations and restaurant development activities, as a result of which the price
of the Company's stock allegedly was artificially inflated during the Class
Period. The Complaint further alleges that certain defendents made sales of
Common Stock of the Company during the Class Period while in possession of
material undisclosed information about the Company's operations and restaurant
development activities. The Complaint alleges that the defendents' conduct
violated the Securities Exchange Act of 1934 and seeks compensatory damages in
an unspecified amount, prejudgment interest, and an award of attorneys' fees,
costs and expenses. On March 14, 1995 the defendents filed a joint motion to
dismiss the Complaint. This motion will be briefed by the parties and is
scheduled to be definitively submitted to the Court on or about May 1, 1995 for
its decision. Management of the Company believes that

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the action is without merit and intends to defend it vigorously. Although the
outcome of this proceeding cannot be predicted with certainty, the Company's
management believes that while the outcome may have a material effect on
earnings in a particular period, the outcome should not have a material effect
on the financial condition of the Company.

From time to time, the Company is involved in litigation relating to claims
arising from its operations in the normal course of business. Neither the
Company nor any of its subsidiaries is currently a party to any legal
proceedings the adverse outcome of which would, in management's opinion, have a
material adverse effect on the Company's results of operations or financial
position.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders of the Company during
the fourth quarter of the fiscal year covered by this report.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.

The executive officers are elected annually by the Board of Directors to serve
until the next annual meeting of the Board. The following table contains
information regarding the present executive officers, and all persons chosen to
become executive officers, of the Company.

Executive Principal Occupation and
Officer Business Experience
Name and Age Since For Last Five Years
-------------------------------------------------------------------------------
Roe H. Hatlen (51) 1983 Founder and Chairman and Chief
Executive Officer of the Company
since December 1983; President of
the Company, May 1989 to
August 1992; Treasurer of the
Company, November 1983 to
May 1986.

Clark C. Grant (43) 1986 Executive Vice President of
Finance and Administration since
December 1994 and Treasurer of
the Company since May 1986;
Vice President of Finance of
the Company, January 1991 to
December 1994; Controller of
the Company, July 1984
to April 1989.

Craig V. Abraham (39) 1991 Vice President of Construction
of the Company since January
1991; Director of Development of
the Company, July 1986 to January
1991; Construction Supervisor of
the Company, April 1985 to July
1986.

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Executive Principal Occupation and
Officer Business Experience
Name and Age Since For Last Five Years
-------------------------------------------------------------------------------
Jean C. Rostollan (43) 1991 Executive Vice President of
Purchasing since December 1994
and Assistant Secretary of the
Company since February 1992;
Vice President of Purchasing
and Distribution of the
Company, September 1992 to
December 1994; Vice President
of Purchasing and Marketing of
the Company, January 1991 to
August 1992; Director of
Purchasing and Marketing of
the Company, June 1987 to
January 1991; Director of
Purchasing of the Company,
October 1986 to June 1987.

Rick H. White (37) 1993 Executive Vice President of
Operations of the Company
since December 1994;
Vice President of Operations
of the Company, September 1992
to December 1994; Regional
Director of the Company,
October 1990 to August 1992;
District Manager of the
Company, February 1988 to
September 1990; Restaurant
General Manager of the
Company, January 1986 to
February 1988.

Marguerite C. Nesset (38) 1994 Vice President of Accounting
since July 1994 and Controller
of the Company since April
1989; Assistant Controller
of the Company, April 1987 to
April 1989.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The information set forth under the caption "Market for the Company's Common
Stock and Related Stockholder Matters" on page 19 of the 1994 Annual Report is
incorporated herein by reference.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The information set forth under the caption, "Selected Consolidated Financial
Data" on page 4 of the 1994 Annual Report is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

The information set forth under the caption "Management's Discussion and
Analysis of Results of Operations and Financial Condition" on pages 5 through 8
of the Company's 1994 Annual Report is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required under this Item 8 is incorporated herein by
reference to pages 9 through 19 of the Company's 1994 Annual Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Incorporated herein by reference to the sections captioned "Number and
Election of Directors", and "Certain Information Regarding Board of Directors of
the Company" in the Proxy Statement for Annual Meeting of Shareholders to be
filed with the Securities and Exchange Commission within 120 days of the close
of the fiscal year ended December 28, 1994. For information concerning
executive officers, see Item 4A of this Annual Report on Form 10-K.

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ITEM 11. EXECUTIVE COMPENSATION.

Incorporated herein by reference to the section captioned "Compensation of
Executive Officers" in the Proxy Statement for Annual Meeting of Shareholders to
be filed with the Securities and Exchange Commission within 120 days of the
close of the fiscal year ended December 28, 1994; provided, however, that the
subsection thereof entitled "Compensation Committee Report on Executive
Compensation" is not incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Incorporated herein by reference to the similarly captioned section in the
Proxy Statement for Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission within 120 days of the close of the fiscal
year ended December 28, 1994.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) The following documents are filed as part of this
Report.

1. Financial Statements

Consolidated Balance Sheets at December 29, 1993 and
December 28, 1994*

Consolidated Statements of Earnings for the Years Ended
December 30, 1992, December 29, 1993 and December 28, 1994*

Consolidated Statements of Stockholders' Equity for the
Years Ended December 30, 1992, December 29, 1993, and
December 28, 1994*

Consolidated Statements of Cash Flows for the Years Ended
December 30, 1992, December 29, 1993, and December 28, 1994*

Notes to Consolidated Financial Statements*

Independent Auditors' Report*

-------------------------

*Incorporated herein by reference to pages 9 through 19 of the Company's 1994
Annual Report

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2. Supplemental Financial Schedules

None

3. Exhibits

3 (a) Composite Amended and Restated Articles
of Incorporation (1)

3 (b) By-laws of the Company (2)

10(a) 1985 Stock Option Plan (3)*

10(b) 1988 Stock Option Plan (4)*

10(c) Amended and Restated Credit Agreement by and between
First Bank National Association and the Company dated as
of April 16, 1993 (1)

10(d) Amendment No. 1 to Amended and Restated Credit Agreement
dated as of June 29, 1993 between the Company and First
Bank National Association (5)

10(e) Letter dated July 8, 1993 from First Bank National
Association to the Company amending Amended and Restated
Credit Agreement (5)

10(f) Amendment No. 2 to Amended and Restated Credit Agreement
dated as of March 24, 1994 between the Company and First
Bank National Association (6)

10(g) Amendment No. 3 to Amended and Restated Credit Agreement
dated as of April 8, 1994 between the Company and First
Bank National Association (6)

10(h) Amendment No. 4 to Amended and Restated Credit Agreement
dated as of June 30, 1994 between the Company and First
Bank National Association (7)

10(i) Separation Agreement and Release dated March 2, 1995
between the Company and Joseph A. Conti, Sr.*

11 Statement Regarding Computation of Per Share Earnings

13 Annual Report to Shareholders for the fiscal year ended
December 28, 1994

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21 Subsidiaries of the Company

23 Consent of Deloitte & Touche, LLP March 23, 1995

27 Financial Data Schedule

*Management contract or compensatory plan or arrangement required to be filed
pursuant Item 14(c) of Form 10-K.

-------------------------------
(1) Incorporated by reference to Exhibits to the Registration Statement on Form
S-3 dated June 2, 1993 (Registration No. 33-63694.)

(2) Incorporated by reference to Exhibits to Annual Report on Form 10-K for
fiscal year ended December 29, 1993.

(3) Incorporated by reference to Exhibits to the Registration Statement on Form
S-1 of the Company, File No. 33-171.

(4) Incorporated by reference to Exhibits to Annual Report on Form 10-K for
fiscal year ended December 30, 1992.

(5) Incorporated by reference to Exhibits to the Quarterly Report on Form 10-Q
for the quarter ended July 14, 1993.

(6) Incorporated by reference to Exhibits to the Quarterly Report on Form 10-Q
for the quarter ended April 20, 1994.

(7) Incorporated by reference to Exhibits to the Quarterly Report on Form 10-Q
for the quarter ended July 13, 1994.

(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the last quarter of the
period covered by this Report.

ANNUAL REPORT AND PROXY STATEMENT

With the exception of the matters specifically incorporated herein by
reference to the Company's 1994 Annual Report to Shareholders or to the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
May 9, 1995, no other portions of such 1994 Annual Report to Shareholders or
Proxy Statement are deemed to be filed as part of this Annual Report on Form
10-K.

15
<PAGE>

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.

Buffets, Inc.

MARCH 23, 1995 By /s/ Roe H. Hatlen
-----------------
Date Roe H. Hatlen
Chairman of the Board

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 CAPACITY DATE

/s/ Roe H. Hatlen Chairman of the Board March 23, 1995
------------------------ and Chief Executive --------------
Roe H. Hatlen Officer, (Principal
Executive Officer)

/s/ Clark C. Grant Executive Vice President March 23, 1995
------------------------ of Finance and --------------
Clark C. Grant Administration and
Treasurer,
(Principal Financial
Officer)

/s/ Marguerite C. Nesset Vice President and March 23, 1995
------------------------ Controller (Principal --------------
Marguerite C. Nesset Accounting Officer)

/s/ Alan S. McDowell Director March 23, 1995
------------------------ --------------
Alan S. McDowell

/s/ Raymond A. Lipkin Director March 23, 1995
------------------------ --------------
Raymond A. Lipkin

/s/ Keith H. Erickson Director March 23, 1995
------------------------ --------------
Keith H. Erickson

/s/ David Michael Winton Director March 23, 1995
------------------------ --------------
David Michael Winton

16
<PAGE>

EXHIBIT INDEX

Exhibits Page
-------- ----
3 (a) Composite Amended and Restated Articles
of Incorporation (1)

3 (b) By-laws of the Company (2)

10(a) 1985 Stock Option Plan (3)

10(b) 1988 Stock Option Plan (4)

10(c) Amended and Restated Credit Agreement by and
between First Bank National Association and
the Company dated as of April 16, 1993 (1).

10(d) Amendment No. 1 to Amended and Restated Credit
Agreement dated as of June 29, 1993 between
the Company and First Bank National
Association (5).

10(e) Letter dated July 8, 1993 from First Bank
National Association to the Company amending
Amended and Restated Credit Agreement (5).

10(f) Amendment No. 2 to Amended and Restated Credit
Agreement dated as of March 24, 1994 between
the Company and First Bank National
Association (6).

10(g) Amendment No. 3 to Amended and Restated Credit
Agreement dated as of April 8, 1994 between
the Company and First Bank National
Association (6).

10(h) Amendment No.4 to Amended and Restated Credit
Agreement dated as of June 30, 1994 between
the Company and First Bank National
Association (7).

10(i) Separation Agreement and Release dated
March 2, 1995 between the Company and
Joseph A. Conti, Sr..............................

11 Statement Regarding Computation of Per
Share Earnings...................................

13 Annual Report to Shareholders for the fiscal year
ended December 28, 1994..........................

<PAGE>

21 Subsidiaries of the Company......................

23 Consent of Deloitte & Touche, LLP ...............

27 Financial Data Schedule .........................

--------------------
(1) Incorporated by reference to Exhibits to the Registration
Statement on Form S-3 dated June 2, 1993 (Registration No.
33-63694.)

(2) Incorporated by reference to Exhibits to Annual Report on
Form 10-K for fiscal year ended December 29, 1993.

(3) Incorporated by reference to Exhibits to the Registration
Statement on Form S-1 of the Company, File No. 33-171.

(4) Incorporated by reference to Exhibits to Annual Report on
Form 10-K for fiscal year ended December 30, 1992.

(5) Incorporated by reference to Exhibits to Quarterly Report
on Form 10-Q for the quarter ended July 14, 1993.

(6) Incorporated by reference to Exhibits to Quarterly Report
on Form 10-Q for the quarter ended April 20, 1994.

(7) Incorporated by reference to Exhibits to Quarterly Report
on Form 10-Q for the quarter ended July 13, 1994.

<PAGE>

EXHIBIT 10(i)

SEPARATION AGREEMENT AND RELEASE

This Agreement is entered into by and between Buffets, Inc. ("Buffets") and
Joseph A. Conti, Sr. ("Conti").

WHEREAS, Conti has been employed by Buffets as its President and Chief
Operating Officer; and

WHEREAS, Buffets desires to terminate Conti's employment with Buffets; and

WHEREAS, the parties have agreed to a full and complete settlement of all
matters relating to Conti's termination and departure from Buffets;

NOW, THEREFORE, in consideration of the promises and obligations contained
in this Separation Agreement and Release, the parties agree as follows:

1. Conti's termination of employment with Buffets will be effective as of
December 2, 1994.

2. Conti will, if convenient to him and not inconsistent with any new
employment, provide advice and assistance as needed and to aid in a successful
transition.

3. Any Agreements Not to Compete which Conti has signed, including non-
compete agreements contained in executed stock option agreements, will continue
to be valid and effective pursuant to the terms and provisions of such
agreements to the same extent, but only to the same extent, as they were prior
to the execution of this agreement.

4. Conti agrees that he will not knowingly recruit or hire any employees
of Buffets or any employee of any franchisee or subsidiary of Buffets, employed
as of December 2, 1994, for a period of two years after December 2, 1994 without
the written consent of Buffets.

5. Conti will surrender any confidential materials, recipes, manuals or
any other confidential documents in his possession or under his control.

6. In consideration of and as payment for the obligations and
responsibilities of Conti, as provided herein, Buffets will pay Conti $11,666.67
per month for 12 months beginning December 16, 1994 and on the 16th of each
month

<PAGE>

thereafter, through and including November 16, 1995, for a total of $140,000.00.
Payment shall be by check payable to Joseph Conti, Jr. It is agreed and
understood that the monthly payments provided for herein constitute severance
pay and include accrued vacation, and shall be subject to appropriate
withholding. Conti will be solely responsible for paying any taxes due and
owing over and above the amounts withheld.

7. Buffets will continue to pay the employer portion of the cost of
family health insurance under the company plan for a period of 6 months from the
date of Conti's termination. Conti will continue to be responsible for paying
the employee portion of the premium.

8. Buffets will continue to provide and pay for life insurance and long
term disability insurance benefits currently available to Conti under the
company plans, for a period of six months from the date of Conti's termination,
provided he is eligible for such benefits under the terms and conditions of the
life insurance and long term disability insurance policies after termination
from employment.

9. It is agreed and understood that there are certain stock options
granted and currently exercisable by Conti which will terminate three months
after the date of Conti's termination. Conti's rights with respect to
exercising options to purchase company stock will be governed by the terms of
the stock option agreements and the applicable stock option plans.

10. Conti acknowledges that he has been privy to certain confidential
information and trade secrets, including operations manuals and recipes
concerning Buffets and its operations, and further acknowledges that said
information and trade secrets are valuable and unique assets of Buffets and are
vital to its continued growth and success. Accordingly, Conti agrees not to
give such information, trade secrets, operations manuals, recipes or any
proprietary information to any other person or to use them for himself or for
others after he has ceased working for Buffets.

11. To the extent permitted by law and by Buffets' articles of
incorporation and bylaws, Buffets will continue to advance Conti's legal fees
and costs for services rendered by Faegre & Benson in the joint defense of
personal and corporate claims incurred in connection with the consolidated
lawsuit pending against Buffets in United States District Court, District of
Minnesota, in which Conti is named as an individual defendant. Those
consolidated lawsuit is captioned:

IN RE BUFFETS, INC. SECURITIES LITIGATION
Master File No. 3-94-1447

<PAGE>

Conti will continue to cooperate with and assist Buffets in the defense of these
lawsuits as needed.

To the extent permitted by law and by Buffets' articles of incorporation
and bylaws, Conti will be indemnified in respect of any legal fees, costs,
settlements, or judgments related to the above-captioned matter to the same
extent as the Buffets officer or director who receives the greatest indemnity
protection.

12. Buffets will furnish Conti with a letter of recommendation, the
contents of which will be mutually agreed upon between the parties.

13. Conti acknowledges that this Separation Agreement and Release confirm
his termination from employment with Buffets and that this Separation Agreement
and Release is entered into knowingly and voluntarily, with full recognition and
acceptance of the consequences of such act and that he will not seek or apply
for employment with Buffets in the future and Buffets is under no obligation to
offer reemployment to Conti in any capacity whatsoever.

14. Conti acknowledges that he is not asserting any legal claims or causes
of action against Buffets in connection with his departure from Buffets and in
consideration of the above payments and obligations to him from Buffets, Conti
hereby releases and discharges Buffets and its insurers, affiliates, employees,
officers, directors and agents from any and all claims, causes of action,
complaints, and/or liabilities arising out of or relating to Conti's employment
or termination of employment with Buffets including any claims, demands, or
actions for constructive discharge, wrongful discharge, breach of contract,
tortious interference with contract, intentional infliction of emotional
distress, harassment, claims under the Employee Retirement Income Security Act,
Title VII of the Civil Rights Act of 1964, the Federal Age Discrimination in
Employment Act, Chapter 363 of the Minnesota Human Rights Act, the Americans
With Disabilities Act of 1990 and any other federal, state or local statute or
regulation regarding employment, discharge in employment, or the termination of
employment in the common law of the State of Minnesota, but not releasing any
claims for performance of the terms of this Separation Agreement.

15. Conti and Buffets agree that the existence of this Separation
Agreement and Release, its provisions, terms and conditions are to be held in
strict confidence. Conti and Buffets agree not to disclose the terms of this
Separation Agreement and Release, except as required by law, to any individual,
except Conti's attorney, immediate family members, counselors, accountants,
financial or tax advisers, all of whom shall be bound by the same conditions of
confidentiality or as may be required by law or agreed to in writing by Buffets.
It is further agreed that the disclosure of

<PAGE>

the terms of this agreement will only be made to such Buffets officers,
directors, employees and other agents as have a legitimate need to know the
terms in the course of performing duties for Buffets, or as may be required by
law or as agreed to in writing by Conti.

16. It is agreed and understood that Buffets may discontinue the payments
provided for in paragraphs 6, 7, 8 and 11 of this Agreement if it reasonably
determines that Conti has failed to meet any of his obligations or
responsibilities hereunder or in the event he breaches any agreements made
herein.

17. This Agreement will be construed and interpreted in accordance with
the laws of the State of Minnesota.

Dated: 3-2-95 /s/ Joseph Conti, Jr.
------------------------ ---------------------------------------
Joseph Conti, Jr.

BUFFETS, INC.

Dated: 2/28/95 By: /s/ Roe H. Hatlen
------------------------ ---------------------------------------
Roe Hatlen
Its Chairman and Chief Executive Officer

<PAGE>

ACKNOWLEDGEMENT

STATE OF ARIZONA )
) ss.
COUNTY OF PIMA )

On this 2nd day of March, 1995, before me a notary public within and for
said County, personally appeared Joseph Conti, Jr., to me known to be the person
described herein, and who executed the foregoing instrument, and acknowledged
that he executed the same as his free act and deed.

/s/ Elaine [Illegible]
-----------------------------------
Notary Public

My Commission Expires:

My Commission Expires Sept. 30, 1995
-----------------------------------------

<PAGE>
EXHIBIT 11

BUFFETS, INC. AND SUBSIDIARIES

CALCULATION OF PRIMARY EARNINGS PER SHARE (1)
(In thousands, except per share amounts)

<TABLE>
<CAPTION>
January 2, January 1, December 30, December 29, December 28,
1991 1992 1992 1993 1994
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net earnings $ 7,981 $11,107 $15,220 $20,300 $22,476
------- ------- ------- ------- -------
Weighted average number of
common shares 28,258 28,672 28,924 29,858 30,850

Dilutive effect of stock
options outstanding after
application of treasury
stock method 548 580 770 918 725
------- ------- ------- ------- -------
28,806 29,252 29,694 30,776 31,575
------- ------- ------- ------- -------

Net earnings, based upon
weighted average number of
common and common
equivalent shares
outstanding $.28 $.38 $.51 $.66 $.71
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>

CALCULATION OF FULLY DILUTED EARNINGS PER SHARE (1) (2)
(In thousands, except per share amounts)

Dilutive effect of stock
options outstanding after
application of treasury
stock method 558 918 830 1,294 725
------- ------- ------- ------- -------
28,816 29,590 29,754 31,152 31,575
------- ------- ------- ------- -------

Net earnings, based upon
weighted average number of
common and common
equivalent $.28 $.38 $.51 $.65 $.71
------- ------- ------- ------- -------
------- ------- ------- ------- -------
<FN>
(1) The number of shares have been restated to give effect to
the following stock splits:

3-for-2 stock split effected on November 15, 1991
2-for-1 stock split effected on May 28, 1993

(2) Fully diluted earnings per share are based upon the more
dilutive of the market price of the stock at the close of
the period or the average market price during the period.
</TABLE>

<PAGE>
---------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Year (52-53 Weeks) Ended
-------------------------------------------------------------------------
January 2, January 1, December 30, December 29, December 28,
1991 1992 1992 1993 1994
----------- ----------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RESTAURANT DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Restaurant sales........................ $ 145,236 $ 196,212 $ 247,474 $ 334,896 $ 409,744
Restaurant costs........................ 123,172 164,418 204,400 276,469 344,382
----------- ----------- ------------- ------------- -------------
Restaurant profits...................... 22,064 31,794 43,074 58,427 65,362

Selling, general and administrative
expenses.............................. 9,825 13,633 18,149 25,017 29,362
Other income............................ 852 226 275 370 851
----------- ----------- ------------- ------------- -------------
Earnings before income taxes............ 13,091 18,387 25,200 33,780 36,851
Income taxes............................ 5,110 7,280 9,980 13,480 14,375
----------- ----------- ------------- ------------- -------------
Net earnings............................ $ 7,981 $ 11,107 $ 15,220 $ 20,300 $ 22,476
----------- ----------- ------------- ------------- -------------
----------- ----------- ------------- ------------- -------------
Net earnings per share.................. $.28 $.38 $.51 $.66 $.71
----------- ----------- ------------- ------------- -------------
----------- ----------- ------------- ------------- -------------

Weighted average common and common
equivalent shares outstanding......... 28,806 29,252 29,694 30,776 31,576

BALANCE SHEET DATA:
Property/equipment(net)................. $ 49,098 $ 66,423 $ 94,414 $ 130,771 $ 183,100
Total assets............................ 60,478 79,952 112,667 159,788 208,526
Long-term debt.......................... 4,000 5,000 12,000 -- 7,000
Stockholders' equity.................... 37,616 50,896 69,136 115,911 141,522

RESTAURANT DATA:
Restaurants opened or acquired during
period................................ 19 20 26 40 34
Restaurants open (end of period):
Company-owned......................... 88 108 134 174 208
Franchised............................ 6 6 6 6 6
----------- ----------- ------------- ------------- -------------
Total............................... 94 114 140 180 214

Average weekly sales of Company-owned
restaurants open during period........ $ 37,375 $ 39,240 $ 40,925 $ 42,695 $ 42,615
</TABLE>

------------------------------

4
<PAGE>
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

RESULTS OF OPERATIONS:

The Company opened its
first restaurant on March
22, 1984. The number of
restaurants operated by the
Company has grown to 208 at
December 28, 1994. Certain
information concerning the
operating results of the
Company is presented in the
table below.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------

Fifty-Two Weeks Ended
-------------------------------------
December December December
30, 29, 28,
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Restaurant sales................... 100.0% 100.0% 100.0%
----------- ----------- -----------
Restaurant costs:
Food costs....................... 35.1 34.3 34.3
Labor costs...................... 26.6 26.4 26.9
Direct and occupancy costs....... 20.9 21.8 22.8
----------- ----------- -----------
Total restaurant costs......... 82.6 82.5 84.0
----------- ----------- -----------
Restaurant profits................. 17.4 17.5 16.0

Selling, general and administrative
expenses......................... 7.3 7.5 7.2
Other income....................... .1 .1 .2
----------- ----------- -----------
Earnings before income taxes....... 10.2 10.1 9.0
Income taxes....................... 4.0 4.0 3.5
----------- ----------- -----------
Net earnings....................... 6.2% 6.1% 5.5%
----------- ----------- -----------
----------- ----------- -----------
Number of Company-owned restaurants
open at end of period............ 134 174 208

Average weekly sales of Company-
owned restaurants open during
period........................... $ 40,925 $ 42,695 $ 42,615
</TABLE>

Restaurant sales include only sales of restaurants owned by the Company and
its subsidiaries. Restaurant costs reflect only direct restaurant operating
costs, including food, labor, and direct and occupancy costs. Labor costs
include compensation and benefits for both hourly and restaurant management
employees. Direct and occupancy costs consist primarily of costs of supplies,
maintenance, utilities, rent, real estate taxes, insurance
and depreciation. Selling, general and administrative expenses reflect all costs
not directly related to the operation of restaurants, consisting primarily of
corporate administrative compensation and overhead, district and regional
management compensation and related management expenses, advertising and
promotional costs and the costs of recruiting, training and supervising
restaurant management personnel.

------------------------------

5
<PAGE>
RESTAURANT SALES

Restaurant sales for 1994 increased $74.8 million or 22.3% over sales in 1993,
which in turn had increased by $87.4 million or 35.3% over those achieved in
1992. The increases in revenues during the three years have been mostly due to
sales generated by new restaurants and increased revenues in restaurants
converted from the traditional "straight line" to the Company's "scatter
system". In 1994 the Company opened 34 restaurants, compared with 40 new
restaurants in 1993 and 26 in 1992. The Company anticipates opening 35 to 40 new
restaurants in 1995. The number of conversions to the "scatter system" were 3,
42 and 13, for 1994, 1993 and 1992, respectively. Thus, out of 208 restaurants
open at the end of 1994, 100 had been opened during the three-year period and 58
had been converted from the "straight line" to the "scatter system" format
during the period. Of the two remaining "straight line" restaurants, one is
scheduled for conversion and the other will be converted when it is relocated in
1995. The Company's price increases have been nominal for the past three years.
Average weekly sales per restaurant decreased .2% from 1993 to 1994 and
increased 4.3% in 1992 and 1993. Comparable sales per restaurant decreased 1.5%
from 1993 to 1994. The Company manages its business on average weekly sales,
rather than comparable restaurant sales, as the best measure of comparative unit
sales performance. In contrast to comparable sales, which would exclude the 38%,
70% and 51%, for 1994, 1993 and 1992 respectively, of the Company's restaurants
that had been open (or converted to the "scatter system") for less than two full
years at the end of each fiscal year, the average weekly sales statistic
reflects the performance of the Company's restaurants, both new and old.
The Company believes its sales may be slightly seasonal, with a lower
percentage of annual sales occurring in most of its current market areas during
the winter months.

RESTAURANT COSTS

As a percentage of restaurant sales, total restaurant costs increased to 84.0%
in 1994 from 82.5% in 1993 and 82.6% in 1992. Food costs as a percentage of
sales did not change in 1994 from 1993. Food costs as a percentage of sales
decreased in 1993 from 1992 due to consolidating purchasing programs to maximize
favorable market/commodity conditions and the changing of product mix in the
restaurants. Labor costs as a percentage of sales increased .5% to 26.9% in 1994
from 26.4% in 1993, which in turn had decreased from 26.6% in 1992. The increase
in labor cost in the past fiscal year was primarily due to increases in
management and employee wages as a result of a more competitive labor market and
increased training and staffing of hourly employees to better serve the
customer. These increases were partially offset by decreases in workers'
compensation insurance rates in 1994. The Company is currently significantly
increasing training costs for hourly employees to improve customers' dining
experience.
Direct and occupancy costs as a percentage of sales increased to 22.8% in 1994
from 21.8% in 1993 and increased from 20.9% in 1992. The increase in direct and
occupancy costs from 1993 to 1994 resulted from an increase in a variety of
costs including a $1.5 million charge for the closing of two under-performing
restaurants, and an increase of $550,000 in insurance cost. The increase in
direct and occupancy costs in 1993 over 1992 resulted principally from increased
costs from store remodels and other small increases in various direct costs. The
Company's policy of expensing all pre-opening costs when incurred adversely
affects restaurant costs and restaurant profits during the periods when new
restaurants are developed and opened. However, most restaurants are profitable
within the first month after opening.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses increased $4.3 million but
decreased as a percentage of sales to 7.2% in 1994 from 7.5% in 1993. Selling,
general and administrative expenses in 1993 had increased $6.9 million, and had
increased as a percentage of sales to 7.5% from 7.3% in 1992. The decrease in
selling, general and administrative expenses as a percentage of sales for 1994
from 1993 was due primarily to a decrease in management training expenditures to
$5.0 million from $5.7 million the prior year. Management training costs were
1.2% of sales in 1994 versus 1.7% of sales in 1993. The Company intends to
increase training expenses in 1995 to approximately 1.4% of sales to provide
additional management training for current management in addition to training
new managers to staff the Company's growing number of restaurants. Advertising
costs represented 1.3% of sales during 1994, compared with 1.4% of sales during
1993 and less than 1.1% of sales during 1992.

------------------------------

6
<PAGE>
INCOME TAXES

Income taxes were 39.0% of earnings before taxes in 1994, 39.9% in 1993 and
39.6% in 1992. The decrease in 1994 resulted from lower effective state income
tax rates. On December 31, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes". This
statement supersedes Accounting Principles Board Opinion No. 11, "Accounting for
Income Taxes". The adoption of SFAS No. 109 had no material effect on the
Company's consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

The Company's restaurants generate cash immediately through sales. New
restaurants are generally profitable shortly after opening. The Company does not
have significant assets in the form of trade receivables or inventory, and often
receives several weeks of trade credit from food and supply purveyors;
therefore, the Company's operations generate substantial amounts of cash which
is available to fund new restaurants. The investment of cash flow from
operations in restaurant property and equipment results in a "working capital
deficit" (current liabilities exceeding current assets) which, to a considerable
extent, represents interest-free financing from trade creditors that the Company
intends to continue to utilize.
In fiscal 1994, net cash provided by operating activities increased by $10.2
million to $56.8 million, as compared with $46.6 million in 1993 and $35.1
million in 1992. The increases in net cash provided by operations resulted
almost entirely from increases in depreciation and amortization and accounts
payable from the addition of 34, 40, and 26 restaurants in 1994, 1993 and 1992
respectively. The increasing number of restaurants also was the primary cause of
increases in the various current assets and current liabilities.
On July 2, 1993, the Company completed the offering of 1,437,500 shares of
common stock and received net proceeds of $24.6 million. Following the
completion of this offering, the Company used a portion of the net proceeds to
repay the balance of $12 million outstanding on its line of credit; the
remaining offering proceeds were invested in short-term cash equivalents.
The Company has a $40 million unsecured revolving line of credit. The Company
is required to pay a quarterly commitment fee equal to 1/4 of 1% per annum on
the unused balance. At December 28, 1994, the Company had borrowings of $7
million under the line of credit bearing interest at the bank's published
reference rate of 8.5% per annum.
The Company requires significant amounts of capital to fund its growth. During
1995, the Company currently expects to open approximately 35 to 40 new
restaurants. The Company expects to spend approximately $55 to $65 million in
aggregate on these new restaurants and an additional $15 to $20 million in 1995
for restaurants that are not expected to open until early 1996, depending upon
the level of contributions obtained from landlords for leasehold improvements
and the number of freestanding Company-owned sites.
The Company has traditionally grown without purchasing land and constructing
its own freestanding restaurants. In order to obtain the optimal locations for
expansion during 1994, the Company began obtaining land and building
freestanding restaurants. Based on its 1994 experience, the Company anticipates
that, as it further pursues the development of freestanding locations, the cost
per location and related cash requirements will increase substantially over
prior years and these costs will not be offset by landlord contributions that
typically have been associated with strip mall locations. The capital
expenditure required for a freestanding location can be over 100% greater than
for a mall location. The Company estimates that 25% of 1995 new locations will
be purchased freestanding units. The Company estimates that another 25% of 1995
locations will be freestanding leased units.
Sources of capital for these restaurants to be opened in 1995 and early 1996
are anticipated to be funds provided by operations, credit received from trade
suppliers, landlord contributions to leasehold improvements, and current bank
financing. The Company believes that these sources will be adequate to finance
operations and the additional restaurants included in the Company's restaurant
development plans for 1995 and early 1996. However, in order to remain prepared
for further significant growth in future years, the Company will continue to
evaluate its financing needs and seek additional funding if appropriate. The
Company has not paid any cash dividends on its common stock and, pursuant to its
credit agreement, is restricted from declaring or paying cash dividends without
the approval of the Company's lender. The Board of Directors intends to retain
earnings for the foreseeable future for use in the expansion of the Company's
business.

------------------------------

7
<PAGE>
EXTERNAL FACTORS AFFECTING FUTURE PERFORMANCE

The primary inflationary factors affecting the Company's operations are food
and labor costs. A large number of the Company's non-management restaurant
personnel are paid at or near the minimum wage level and, accordingly, changes
in minimum wage rates affect the Company's labor costs. The cost impact of
possible federal health care reform legislation and the Company's ability to
recover such cost increases in the form of higher prices is not determinable at
this time. Relatively few employees qualify for medical benefits under the
Company's current benefit plans.
The Company does not have any post-employment, retirement, or welfare
benefits; therefore, Statements of Financial Accounting Standards No. 106 and
No. 112 have no impact on the consolidated financial statements.

SHAREHOLDERS' SUIT

The Company and certain of its directors and executive officers have been
named as defendants in a consolidated amended class action complaint (the
"complaint") brought on behalf of a putative class of all purchasers of Common
Stock of the Company from October 26, 1993 through October 25, 1994 (the "class
period"). The complaint alleges that the defendants made misrepresentations and
omissions of material fact during the class period with respect to the Company's
operations and restaurant development activities, as a result of which the price
of the Company's stock allegedly was artificially inflated during the class
period. The complaint further alleges that certain defendants made sales of
Common Stock of the Company during the class period while in possession of
material undisclosed information about the Company's operations and restaurant
development activities. The complaint alleges that the defendants' conduct
violated the Securities Exchange Act of 1934 and seeks compensatory damages in
an unspecified amount, prejudgment interest and an award of attorneys fees,
costs and expenses. Management of the Company believes that the action is
without merit and intends to defend it vigorously. Although the outcome of this
proceeding cannot be predicted with certainty, the Company's management believes
that while the outcome may have a material effect on earnings in a particular
period, the outcome should not have a material effect on the financial condition
of the Company.

BUSINESS ACQUISITIONS AND INVESTMENTS

On February 4, 1994, the Company acquired the remaining 10% minority interest
in Texas Buffets, Inc.'s outstanding common stock in exchange for 3,585 shares
of the Company's common stock with a market value of $100,000 and the
cancellation of a receivable of $55,000 due to the Company from the minority
shareholder.
On May 13, 1992, the Company acquired the 20% minority interest in Southland
Buffets, Inc.'s outstanding common stock in exchange for 55,161 shares of the
Company's common stock with a market value of $1.7 million and the cancellation
of a receivable of $314,000 due to the Company from the minority shareholder.

------------------------------

8
<PAGE>
---------------------------------
BUFFETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS

--------------------------------------------------------------------------------

<S> <C> <C> <C>
RESTAURANT SALES....................................... $ 247,474 $ 334,896 $ 409,744

RESTAURANT COSTS:
Food costs........................................... 86,775 114,927 140,689
Labor costs.......................................... 65,853 88,523 110,165
Direct and occupancy costs........................... 51,772 73,019 93,528
-------------- -------------- --------------
RESTAURANT PROFITS..................................... 43,074 58,427 65,362
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........... 18,149 25,017 29,362
-------------- -------------- --------------
24,925 33,410 36,000
OTHER INCOME (EXPENSE):
Franchise fees and royalties......................... 375 393 430
Interest income...................................... 89 236 507
Interest expense..................................... (40) (170) (12)
Other................................................ (149) (89) (74)
-------------- -------------- --------------
275 370 851
-------------- -------------- --------------
EARNINGS BEFORE INCOME TAXES........................... 25,200 33,780 36,851

INCOME TAXES (NOTE E).................................. 9,980 13,480 14,375
-------------- -------------- --------------
NET EARNINGS........................................... $ 15,220 $ 20,300 $ 22,476
-------------- -------------- --------------
-------------- -------------- --------------

NET EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE..................................... $.51 $.66 $.71
-------------- -------------- --------------
-------------- -------------- --------------
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING........................ 29,694 30,776 31,576
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

See notes to consolidated financial statements.

------------------------------

9
<PAGE>
---------------------------------
BUFFETS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
December 29, December 28,
1993 1994
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 12,193 $ 6,822
Receivable from landlords............................ 4,947 4,291
Inventory............................................ 1,848 2,438
Notes receivable..................................... 173 133
Other current assets................................. 1,071 1,587
Deferred income taxes (NOTE E)....................... 4,023 5,249
------------- -------------
TOTAL CURRENT ASSETS............................... 24,255 20,520
------------- -------------
PROPERTY AND EQUIPMENT:
Land................................................. 3,936
Building............................................. 8,013
Equipment............................................ 109,500 141,261
Leasehold improvements............................... 69,143 95,852
------------- -------------
178,643 249,062
Less accumulated depreciation and amortization....... 47,872 65,962
------------- -------------
130,771 183,100
GOODWILL, net of accumulated amortization of $828 and
$1,046 respectively.................................. 4,537 4,319
OTHER ASSETS........................................... 225 587
------------- -------------
$ 159,788 $ 208,526
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $ 14,427 $ 21,757
Accrued payroll and related benefits................. 8,242 10,308
Accrued rents........................................ 5,790 7,685
Accrued sales taxes.................................. 1,430 1,998
Other accrued expenses............................... 3,650 6,584
Income taxes......................................... 651 356
------------- -------------
TOTAL CURRENT LIABILITIES.......................... 34,190 48,688

LONG-TERM DEBT (NOTE B)................................ 7,000
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES......... 565 544
DEFERRED INCOME TAXES (NOTE E)......................... 9,122 10,772
COMMITMENTS AND CONTINGENCIES (NOTE D)
STOCKHOLDERS' EQUITY (NOTE C):
Preferred stock, $.01 par value; authorized 5,000
shares; none issued and outstanding
Common stock, $.01 par value; authorized 60,000
shares; issued and outstanding
30,665 and 30,939 shares, respectively............. 307 309
Additional paid-in capital........................... 46,025 49,158
Retained earnings.................................... 69,579 92,055
------------- -------------
TOTAL STOCKHOLDERS' EQUITY......................... 115,911 141,522
------------- -------------
$ 159,788 $ 208,526
------------- -------------
------------- -------------
</TABLE>

See notes to consolidated financial statements.

------------------------------

10
<PAGE>
---------------------------------
BUFFETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings Total
------- ----------- --------- ---------
(IN THOUSANDS)

<S> <C> <C> <C> <C>
BALANCES, January 1, 1992................. $ 288 $ 16,549 $ 34,059 $ 50,896
Net earnings............................ 15,220 15,220
Common stock issued under employees'
stock option plans.................... 803 803
Tax benefit from early disposition of
common stock issued under employees'
stock option plans (NOTE E)........... 493 493
Common stock issued for acquisition of
Southland Buffets, Inc................ 2 1,722 1,724
------- ----------- --------- ---------

BALANCES, December 30, 1992............... 290 19,567 49,279 69,136
Net earnings............................ 20,300 20,300
Common stock issued under employees'
stock option plans.................... 3 1,118 1,121
Tax benefit from early disposition of
common stock issued under employees'
stock option plans (NOTE E)........... 770 770
Sale of common stock less related
expenses of $213...................... 14 24,570 24,584
------- ----------- --------- ---------

BALANCES, December 29, 1993............... 307 46,025 69,579 115,911
Net earnings............................ 22,476 22,476
Common stock issued under employees'
stock option plans.................... 2 1,943 1,945
Tax benefit from early disposition of
common stock issued under employees'
stock option plans (NOTE E)........... 1,090 1,090
Common stock issued for acquisition of
Texas Buffets, Inc.................... 100 100
------- ----------- --------- ---------

BALANCES, December 28, 1994............... $ 309 $ 49,158 $ 92,055 $ 141,522
------- ----------- --------- ---------
------- ----------- --------- ---------
</TABLE>

See notes to consolidated financial statements.

------------------------------

11
<PAGE>
---------------------------------
BUFFETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Fifty-Two Weeks Ended
------------------------------------------------
December 30, December 29, December 28,
1992 1993 1994
-------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................ $ 15,220 $ 20,300 $ 22,476
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization......... 11,324 15,629 19,673
Tax benefit from early disposition of
common stock........................ 493 770 1,090
Deferred income taxes................. 680 804 424
Changes in assets and liabilities net
of acquisitions:
Inventory........................... (375) (322) (590)
Other current assets................ 693 (409) (531)
Refundable income taxes............. 120
Other assets........................ 239 86 (289)
Accounts payable.................... 1,327 4,407 7,330
Accrued payroll and related
benefits.......................... 2,201 2,188 2,066
Other accrued expenses.............. 2,621 3,001 5,397
Income taxes currently payable...... 521 130 (295)
-------------- -------------- --------------
Total adjustments................. 19,844 26,284 34,275
-------------- -------------- --------------
Net cash provided by operating
activities...................... 35,064 46,584 56,751

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................... (44,514) (59,729) (79,072)
Cash received from landlords............ 3,707 6,727 8,005
Purchase of Evergreen Buffets Inc....... (200)
-------------- -------------- --------------
Net cash used in investing
activities...................... (41,007) (53,002) (71,067)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of employee stock
options............................... 803 1,121 1,945
Payments of long-term debt.............. (12,000)
Borrowings under long-term debt......... 7,000 7,000
Proceeds from stock offering less
related expenses of $213.............. 24,584
-------------- -------------- --------------
Net cash provided by financing
activities...................... 7,803 13,705 8,945
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. 1,860 7,287 (5,371)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR..................................... 3,046 4,906 12,193
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF
YEAR..................................... $ 4,906 $ 12,193 $ 6,822
-------------- -------------- --------------
-------------- -------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Business acquisitions (NOTE F)
Cash paid during the year for:
Interest (net of capitalized interest of
$110, $170, and $63 in 1992, 1993, and
1994, respectively)................... $ 12 $ 207 $ 1
Income taxes............................ 8,166 11,776 13,156
</TABLE>

See notes to consolidated financial statements.

------------------------------

12
<PAGE>
---------------------------------
BUFFETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 30, 1992 (52 WEEKS),
DECEMBER 29, 1993 (52 WEEKS) AND DECEMBER 28, 1994 (52 WEEKS)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS:

Buffets, Inc. and subsidiaries (the Company) owns and operates a chain of
buffet restaurants under the name of Old Country Buffet and Country Buffet. The
Company had 208 Company-owned restaurants and 6 franchised restaurants operating
as of December 28, 1994. In addition to initial franchise fees, franchisees pay
royalties based on gross sales.

CONSOLIDATION:

The consolidated financial statements include the accounts of Buffets, Inc.,
its majority-owned subsidiary, Evergreen Buffets Inc. (Evergreen) and its
subsidiaries OCB Restaurant Co., OCB Realty Co., OCB Purchasing Co., OCB
Property Co. All significant intercompany transactions have been eliminated.

FISCAL YEAR:

The Company's fiscal year, which ends on the Wednesday nearest December 31, is
comprised of fifty-two or fifty-three weeks divided into four periods of
sixteen, twelve, twelve and twelve or thirteen weeks, respectively. The fiscal
years ended December 30, 1992, December 29, 1993 and December 28, 1994 were
fifty-two week years.

RECEIVABLES FROM LANDLORDS:

The portions of costs for leasehold improvements remaining to be reimbursed by
landlords at year end are recorded as receivables.

INVENTORIES:

Inventories, which consist primarily of food, are stated at the lower of cost
or market. Cost is determined by the first-in, first-out method.

PROPERTY AND EQUIPMENT:

Property and equipment are stated at cost. Depreciation is provided using the
straight-line method for financial reporting purposes and accelerated methods
for income tax reporting purposes. Equipment is depreciated over estimated
useful lives, ranging from three to ten years.
Leasehold improvements are amortized over the terms of the related leases,
generally ten to twenty-five years. Buildings are depreciated over estimated
useful lives, generally 39 1/2 years.

GOODWILL:

Goodwill is amortized on a straight-line basis over twenty-three to
twenty-five years.

---------------------------------

13
<PAGE>
NET EARNINGS PER SHARE:

Net earnings per common and common equivalent share are computed on the basis
of the weighted average number of common shares outstanding during each year
adjusted for incremental shares assumed issued on the exercise of stock options.
Earnings per share assuming full dilution would be substantially the same.

PRE-OPENING COSTS:

Costs incurred in connection with the opening of new restaurants are expensed
as incurred.

CASH EQUIVALENTS:

The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.

POST EMPLOYMENT AND POSTRETIREMENT BENEFITS:

The Company does not provide post-employment or postretirement benefits.

INCOME TAXES:

The Company adopted Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes" in 1993. Under SFAS No. 109, the deferred tax
provision is determined under the liability method. Under this method, deferred
tax assets and liabilities are recognized based on differences between the
financial statement and tax bases of assets and liabilities using presently
enacted tax rates.

B. DEBT

The Company has a $40 million unsecured revolving line of credit which expires
April 30, 1997. On May 1, 1997, providing no default or event of default has
occurred and is continuing, the line of credit is convertible, at the Company's
option, to a three year term loan, maturing on April 30, 2000. Among other
things, pursuant to the agreement with the lender, the Company is required to
maintain specified levels of net worth, is limited in net capital expenditures
to $80 million in 1995, is required to meet various financial performance
criteria, and is restricted from declaring or paying cash dividends to
shareholders without the lender's approval. As of December 28, 1994, the Company
had borrowings of $7 million under the line of credit bearing interest at the
bank's published reference rate of 8.5% per annum. Quarterly, the Company is
required to pay a commitment fee equal to 1/4 of 1% per annum on the unused
balance of the revolving line of credit.

Letters of credit are issued by the Company during the ordinary course of
business through a major domestic bank as required by certain insurance
policies. As of December 28, 1994 and December 29, 1993 the Company had
outstanding letters of credit for $4.9 million and $1.9 million respectively.

C. STOCKHOLDERS' EQUITY

AUTHORIZED SHARES:

The Company has 65 million authorized shares, consisting of 5 million shares
of preferred stock with rights and preferences to be established by the Board of
Directors and 60 million shares of common stock.

STOCK SPLITS:

On May 28, 1993 the Company effected a two-for-one stock split. All common
share, common per share, and dollar amounts in the consolidated financial
statements have been restated to give retroactive effect to the stock split.

---------------------------------

14
<PAGE>
STOCK OPTIONS:

Under the Company's 1985 and 1988 Stock Option Plans (the Plans), 5.3 million
shares were reserved for future grants. The stock options generally become
exercisable in 20% increments on five anniversary dates after the date of grant.

Changes in outstanding stock options under the Plans since 1992 were as
follows:

<TABLE>
<CAPTION>
Average Options
price outstanding
----------- -----------
<S> <C> <C>
Balance at January 1, 1992........................................................ $ 8.22 1,958,208
Granted......................................................................... 15.25 614,000
Cancelled....................................................................... 9.58 (254,436)
Exercised....................................................................... 5.10 (157,324)
-----------
Balance at December 30, 1992...................................................... 10.29 2,160,448
Granted......................................................................... 16.50 1,161,150
Cancelled....................................................................... 13.68 (261,200)
Exercised....................................................................... 6.88 (178,204)
-----------
Balance at December 29, 1993...................................................... 12.70 2,882,194
Granted......................................................................... 19.46 707,700
Cancelled....................................................................... 16.33 (443,240)
Exercised....................................................................... 7.58 (270,810)
-----------
Balance at December 28, 1994...................................................... $ 14.27 2,875,844
----------- -----------
----------- -----------
Exercisable at December 28, 1994.................................................. $ 11.55 1,033,510
----------- -----------
----------- -----------
</TABLE>

The options granted under the Plans are exercisable at not less than 100% of
the fair market value ($.3951 to $24.6250) as of the dates of grant. Options for
the remaining 1,842,334 shares that were not exercisable as of December 28,
1994, will become exercisable through 1999. As of December 28, 1994, there were
279,348 shares available for future grants under the Plans.

D. COMMITMENTS AND CONTINGENCIES

COMMITMENTS:

The Company conducts most of its operations from leased restaurant facilities,
all of which are classified as operating leases. The following is a schedule of
future minimum rental payments required under noncancelable operating leases as
of December 28, 1994 (in thousands):

<TABLE>
<S> <C>
1995....................................................................... $ 21,903
1996....................................................................... 22,953
1997....................................................................... 23,214
1998....................................................................... 23,380
1999....................................................................... 23,784
Thereafter................................................................. 198,013
---------
$ 313,247
---------
---------
</TABLE>

---------------------------------

15
<PAGE>
Certain of these leases require additional rent based on a percentage of net
sales and may require additional payments for real estate taxes and common area
maintenance on the properties. Many of these leases also contain renewal
options.

Rent expense was as follows (in thousands):

<TABLE>
<CAPTION>
Fifty-Two Weeks Ended
-------------------------------------------
December 30, December 29, December 28,
1992 1993 1994
------------- ------------- -------------
<S> <C> <C> <C>
Minimum rents...................... $ 11,432 $ 15,634 $ 19,276
Percentage rents................... 962 1,281 1,410
------------- ------------- -------------
$ 12,394 $ 16,915 $ 20,686
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

CONTINGENCIES:

The Company is involved in various legal actions arising in the normal course
of business. Management is of the opinion that their outcome will not have a
significant effect on the Company's consolidated financial statements.

---------------------------------

16
<PAGE>
E. INCOME TAXES

The provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
Fifty-Two Weeks Ended
-------------------------------------------
December 30, December 29, December 28,
1992 1993 1994
------------- ------------- -------------
<S> <C> <C> <C>
Federal:
Current............................................... $ 7,145 $ 9,716 $ 10,639
Deferred.............................................. 552 684 354
------ ------------- -------------
7,697 10,400 10,993
State:
Current............................................... 1,662 2,190 2,222
Deferred.............................................. 128 120 70
------ ------------- -------------
1,790 2,310 2,292
Tax benefit from early disposition of common stock...... 493 770 1,090
------ ------------- -------------
$ 9,980 $ 13,480 $ 14,375
------ ------------- -------------
------ ------------- -------------
</TABLE>

Deferred income taxes are provided to record the income tax effect of
temporary differences that occur when transactions are reported in one period
for financial purposes and in another period for tax purposes. The tax effect of
the temporary differences giving rise to the Company's deferred tax assets and
liabilities are as follows (in thousands):

<TABLE>
<CAPTION>
December 29, 1993 December 28, 1994
---------------------- ----------------------
Current Long Term Current Long Term
Assets Liability Assets Liability
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Depreciation........................................... $ 9,122 $ 10,772
Deferred rent.......................................... $ 1,750 $ 2,400
Self-insurance reserve................................. 808 1,062
Accrued workers' compensation.......................... 1,131 1,391
Accrued vacation....................................... 327 393
Other.................................................. 7 3
--------- ----------- --------- -----------
$ 4,023 $ 9,122 $ 5,249 $ 10,772
--------- ----------- --------- -----------
--------- ----------- --------- -----------
</TABLE>

The following is a reconciliation of the expected ordinary federal income tax
(at statutory rates) to the actual income tax provided (in thousands):

<TABLE>
<CAPTION>
Fifty-Two Weeks Ended
-------------------------------------------
December 30, December 29, December 28,
1992 1993 1994
------------- ------------- -------------
<S> <C> <C> <C>
Expected ordinary federal income tax.................... $ 8,568 $ 11,824 $ 12,898
State income taxes, net of federal tax benefit.......... 1,213 1,689 1,490
General business credits................................ (118) (265) (527)
Other................................................... 317 232 514
------ ------------- -------------
$ 9,980 $ 13,480 $ 14,375
------ ------------- -------------
------ ------------- -------------
</TABLE>

---------------------------------

17
<PAGE>
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes", effective December 31, 1992. This Statement
supersedes Accounting Principles Board Opinion No. 11, "Accounting for Income
Taxes". There was no significant cumulative effect of adopting SFAS No. 109 on
the Company's consolidated financial statements as of December 30, 1992 or on
earnings for the year ended December 29, 1993.

F. SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES

The acquisition of the minority interest in Southland Buffets, Inc. during
1992 and Texas Buffets, Inc. in 1994 involved the following non-cash items (in
thousands):

<TABLE>
<CAPTION>
Southland Texas
----------- ---------
<S> <C> <C>
Goodwill.................................... $ 1,066
Non-compete................................. 250
Minority interest........................... 722 $ 155
Cancellation of receivable.................. (314) (55)
Common shares issued........................ (1,724) (100)
----------- ---------
$ 0 $ 0
----------- ---------
----------- ---------
</TABLE>

G. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
Year (52 Weeks) Ended December 28, 1994
--------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- --------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Restaurant sales.................................... $ 112,488 $ 98,922 $ 100,512 $ 97,822
Restaurant profits.................................. 18,053 18,790 17,084 11,435
Earnings before income taxes........................ 10,044 11,560 9,833 5,414
Net earnings........................................ $ 6,024 $ 6,944 $ 6,098 $ 3,410
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Net earnings per share.............................. $.19 $.22 $.19 $.11
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Weighted average common and common equivalent
shares............................................ 31,994 31,603 31,510 31,157
---------- --------- ---------- ---------
---------- --------- ---------- ---------
</TABLE>

<TABLE>
<CAPTION>
Year (52 Weeks) Ended December 29, 1993
------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Restaurant sales....................................... $ 88,426 $ 77,686 $ 84,998 $ 83,786
Restaurant profits..................................... 14,369 14,443 15,518 14,097
Earnings before income taxes........................... 7,574 8,497 9,654 8,055
Net earnings........................................... $ 4,559 $ 5,142 $ 5,648 $ 4,951
--------- --------- --------- ---------
--------- --------- --------- ---------
Net earnings per share................................. $.15 $.17 $.18 $.16
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common and common equivalent shares... 29,770 30,238 31,570 31,860
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

---------------------------------

18
<PAGE>
---------------------------------
INDEPENDENT AUDITORS' REPORT

Stockholders and Board of Directors
Buffets, Inc.

We have audited the accompanying consolidated balance sheets of Buffets, Inc.
and subsidiaries (the Company) as of December 29, 1993 and December 28, 1994 and
the related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years (52 weeks) in the period ended December 28,
1994. These consolidated 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 consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated 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 financial position of Buffets,
Inc. and subsidiaries as of December 29,
1993 and December 28, 1994 and the results of their operations and their cash
flows for each of the three years (52 weeks) in the period ended December 28,
1994 in conformity with generally accepted accounting principles.
As discussed in Note E to the consolidated financial statements, effective
December 31, 1992 the Company changed its method of accounting for income taxes
to conform with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes".

/s/ Deloitte & Touche, LLP

Minneapolis, Minnesota
February 10, 1995

---------------------------------
STOCK INFORMATION

MARKET FOR THE COMPANY'S
COMMON STOCK AND RELATED
STOCKHOLDER MATTERS

The Company's common stock trades on The Nasdaq Stock Market under the symbol
"BOCB". As of March 14, 1995, the approximate number of holders of the Company's
common stock was 11,342, based upon the number of record holders and an estimate
of individual participants in security position listings.
The following table sets forth the range of high and low closing sale prices
reported on The Nasdaq Stock Market for the period from January 1, 1993 to the
end of the calendar year corresponding to the fiscal year covered by this
report. The amounts represent prices between dealers in securities, without
adjustments for retail markups, markdowns or commissions. Stock prices have been
retroactively restated to give effect to the two-for-one stock split effected in
1993.

<TABLE>
<CAPTION>
High Low
--------- ---------
<S> <C> <C>
Calendar 1993
First Quarter.......... $ 17 3/8 $ 13 1/4
Second Quarter......... 20 1/4 13 3/4
Third Quarter.......... 22 1/2 17 1/2
Fourth Quarter......... 26 1/4 20 1/4
Calendar 1994
First Quarter.......... $ 27 1/2 $ 21 1/2
Second Quarter......... 24 1/2 16
Third Quarter.......... 21 3/4 15
Fourth Quarter......... 16 3/4 7 7/8
</TABLE>

The Company has not paid any cash dividends on its common stock and, pursuant
to its credit agreement, is restricted from declaring or paying cash dividends
without the approval of the Company's lender. The Board of Directors intends to
retain earnings for the foreseeable future for use in the expansion of the
Company's business.

------------------------------

<PAGE>

EXHIBIT 21

Subsidiaries of Buffets, Inc.

State of
Name of Subsidiaries Incorporation Doing Business As
-------------------- ------------- ------------------
Evergreen Buffets Inc. Oregon Old Country Buffet
OCB Restaurant Co. Minnesota Old Country Buffet
OCB Realty Co. Minnesota
OCB Purchasing Co. Minnesota
OCB Property Co. Minnesota

<PAGE>

EXHIBIT 23

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in the Registration Statement of
Buffets, Inc. on Form S-8 related to the 1988 Incentive Stock Option Plan and
1985 Stock Option Plan of our report dated February 10, 1995, appearing in and
incorporated by reference in the Annual Report on Form 10-K of Buffets, Inc. and
Subsidiaries for the year ended December 28, 1994.

/s/ Deloitte & Touche, LLP

Deloitte & Touche, LLP
Minneapolis, Minnesota
March 23, 1995

<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of December 28, 1994 and the Consolidated
Statement of Earning for the period ended December 28, 1994 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1994
<PERIOD-START> DEC-29-1993
<PERIOD-END> DEC-28-1994
<CASH> 6,822
<SECURITIES> 0
<RECEIVABLES> 4,291
<ALLOWANCES> 0
<INVENTORY> 2,438
<CURRENT-ASSETS> 20,520
<PP&E> 249,062
<DEPRECIATION> 65,962
<TOTAL-ASSETS> 208,526
<CURRENT-LIABILITIES> 48,688
<BONDS> 0
<COMMON> 309
0
0
<OTHER-SE> 141,213
<TOTAL-LIABILITY-AND-EQUITY> 208,526
<SALES> 409,744
<TOTAL-REVENUES> 409,744
<CGS> 140,689
<TOTAL-COSTS> 344,382
<OTHER-EXPENSES> 29,362
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> 36,851
<INCOME-TAX> 14,375
<INCOME-CONTINUING> 22,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,476
<EPS-PRIMARY> .71
<EPS-DILUTED> .71

</TABLE>

<PAGE>

Faegre & Benson
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
(612) 336-3000

March 23, 1995

Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549

Re: Buffets, Inc.
File No. 0-14370

Ladies and Gentlemen:

On behalf of Buffets, Inc., a Minnesota corporation (the
"Company"), we hereby transmit for filing, pursuant to the Electronic Data
Gathering, Analysis and Retrieval System, an Annual Report on Form 10-K for
the fiscal year ended December 28, 1994 (the "Form 10-K"), including the
exhibits referred to therein.

The filing fee in the amount of $250 has been wired to the the
account of the Securities and Exchange Commission (the "Commission") at
Mellon Bank.

We are advised by management of the Company the financial
statements incorporated by reference in the Form 10-K do not reflect a
change from the preceding year in any accounting principles or practices or
in the method of applying any such principles or practices.

By copy of this letter, we are also filing three complete copies
of the Form 10-K, including the exhibits referred to therein, with The
Nasdaq Stock Market, and are requesting that they confirm such filing by
stamping the enclosed copy of this letter and returning it to me in the
enclosed self-addressed stamped envelope.

Very truly yours,

/s/ Joseph C. Baker

Joseph C. Baker

cc: Clark C. Grant
The Nasdaq Stock Market