<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 20, 1996
BUFFETS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 0-14370 41-1462294
- ------------------------ ------------------------ -------------------
(State of Incorporation) (Commission file number) (I.R.S. Employer
Identification No.)
10260 Viking Drive
Eden Prairie, Minnesota 55344
- -------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(612) 942-9760
------------------------------
(Registrant's telephone number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 20, 1996, HomeTown Buffet, Inc., a Delaware corporation
("HomeTown"), merged with Country Delaware, Inc., a Delaware corporation and
a wholly-owned subsidiary of the Registrant, with HomeTown as the surviving
corporation (the "Merger"). Pursuant to the Merger, HomeTown became a
wholly-owned subsidiary of the Registrant. Following the acquisition, the
Registrant intends to continue HomeTown's business of operating fixed-price,
scatter bar, buffet restaurants.
In connection with the acquisition, which will be accounted for as a
pooling of interests, the Registrant issued a total of 13,733,728 shares of its
common stock in exchange for all outstanding shares of HomeTown common stock (at
an exchange ratio of 1.17 shares of Registrant common stock for each share of
HomeTown common stock). The Registrant also assumed options covering, in the
aggregate, 1,967,167 shares of the Registrant's common stock in substitution for
previously outstanding options to acquire shares of HomeTown's common stock. In
addition, the Registrant has guaranteed the obligations of HomeTown under
HomeTown's outstanding 7% Subordinated Convertible Notes ("the Notes"), and
the Registrant's common stock will be issued upon any conversion thereof.
Approximately $41.5 million in principal amount of the Notes are currently
outstanding.
Additional information regarding the terms of the acquisition are
included in the Agreement and Plan of Merger and the Press Release included
herein as exhibits.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following information follows or is attached hereto as an exhibit:
(a) FINANCIAL STATEMENTS OF HOMETOWN
The following financial statements of HomeTown (Commission file
no. 0-22402) are incorporated herein by reference to HomeTown's
Annual Report on Form 10-K for the fiscal year ended December 31,
1995, and are included herein as Exhibit 99.2:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
The following financial statements of HomeTown (Commission file
no. 0-22402), are incorporated herein by reference to HomeTown's
Quarterly Report on Form 10-Q for the period ended July 17, 1996,
as amended, and are included herein as Exhibit 99.3:
2
<PAGE>
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) PRO FORMA FINANCIAL INFORMATION OF REGISTRANT AND HOMETOWN
Description of Unaudited Pro Forma Condensed Combining
Consolidated Financial Statements
Unaudited Pro Forma Condensed Combining Consolidated Balance
Sheet as of July 17, 1996
Unaudited Pro Forma Condensed Combining Consolidated Statements
of Earnings for the Twenty-Eight Weeks ended July 17, 1996 and
July 12, 1995 and for the Years ended January 3, 1996,
December 28, 1994 and December 29, 1993
Notes to Unaudited Pro Forma Condensed Combining Financial
Statements
(c) EXHIBITS
2. Agreement and Plan of Merger dated June 3, 1996 by and
among Buffets, Inc., Country Delaware, Inc. and HomeTown
Buffet, Inc., incorporated by reference to Exhibit 2.1 of
Registrant's Current Report on Form 8-K dated June 3,
1996.
The Registrant hereby agrees to furnish supplementally a
copy of any omitted schedule or exhibit to the Commission
upon request.
23. Consent of KPMG Peat Marwick LLP (relating to audited
financial statements of HomeTown).
99.1. Joint Press Release of the Registrant and HomeTown dated
September 20, 1996.
99.2 Financial Statements of HomeTown (from Annual Report on
Form 10-K for fiscal year ended December 31, 1995).
99.3 Financial Statements of HomeTown (from Quarterly Report on
Form 10-Q/A for period ended July 17, 1996).
3
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINING CONSOLIDATED FINANCIAL
STATEMENTS
The unaudited pro forma condensed combining balance sheet combines Buffets,
Inc.'s consolidated balance sheet as of July 17, 1996 with HomeTown's
consolidated balance sheet as of that date, giving effect to the Merger as if
it occurred on July 17, 1996. The unaudited pro forma condensed combining
statements of earnings combine Buffets' consolidated statements of earnings
for the twenty-eight weeks ended July 17, 1996 and July 12, 1995 and the
three years (52-53 weeks) in the period ended January 3, 1996 with HomeTown's
consolidated statements of income for the same periods, giving effect to the
Merger as if it had occurred at the beginning of each period presented on a
pooling-of-interest basis. The historical information of Buffets has been
derived from the unaudited condensed consolidated financial statements for
the twenty-eight weeks ended July 17, 1996 and July 12, 1995 and the audited
consolidated financial statements for each of the three years (52-53 weeks)
in the period ended January 3, 1996, and should be read in conjunction with
such financial statements and notes thereto. The historical financial
information of HomeTown has been derived from the unaudited condensed
consolidated financial statements for the twenty-eight weeks ended July 17,
1996 and July 12, 1995 and the audited consolidated financial statements for
each of the three years (52-53 weeks) in the period ended January 3, 1996
which are incorporated by reference herein and should be read in conjunction
with such financial statements and notes thereto. In the opinion of the
managements of Buffets and HomeTown, the above-mentioned unaudited interim
condensed consolidated financial statements of the respective companies
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for unaudited interim
periods. The pro forma information is presented for illustrative purposes
only and is not necessarily indicative of the consolidated financial position
or operating results that would have occurred had the Merger been consummated
at the beginning of the periods presented, nor is it indicative of future
operating results or financial position.
4
<PAGE>
BUFFETS AND HOMETOWN
UNAUDITED PRO FORMA CONDENSED COMBINING CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JULY 17, 1996
------------------------------------------------------
HISTORICAL PRO FORMA
------------------------ --------------------------
BUFFETS HOMETOWN ADJUSTMENTS COMBINED
--------- ---------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 20,584 $ 3,172 $ - $ 23,756
Short-term investments - 14,958 - 14,958
Receivables 2,186 2,321 - 4,507
Inventory 2,934 1,152 - 4,086
Prepaid expenses 1,077 1,080 - 2,157
Other current assets 1,261 1,471 - 2,732
Deferred income taxes 6,312 - (469) 5,843
--------- --------- --------- ----------
TOTAL CURRENT ASSETS 34,354 24,154 (469) 58,039
PROPERTY AND EQUIPMENT, net 223,497 119,275 - 342,772
OTHER ASSETS 5,673 3,283 - 8,956
--------- --------- --------- ----------
TOTAL ASSETS $ 263,524 $ 146,712 $ (469) $ 409,767
--------- --------- --------- ----------
--------- --------- --------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 21,160 $ 8,437 $ - $ 29,597
Accrued liabilities 33,582 8,130 3,600 45,312
Income taxes 4,555 - - 4,555
Deferred income taxes - 469 (469) -
Current maturities of long-term debt - 2,111 - 2,111
--------- --------- --------- ----------
TOTAL CURRENT LIABILITIES 59,297 19,147 3,131 81,575
LONG-TERM DEBT 5,000 47,545 - 52,545
DEFERRED INCOME TAXES 12,641 1,930 - 14,571
OTHER 387 1,790 - 2,177
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 313 117 20 450
Additional paid-in capital 53,233 62,265 (20) 115,478
Retained earnings 132,653 13,918 (3,600) 142,971
--------- --------- --------- ----------
TOTAL STOCKHOLDERS' EQUITY 186,199 76,300 (3,600) 258,899
--------- --------- --------- ----------
$ 263,524 $ 146,712 $ (469) $ 409,767
--------- --------- --------- ----------
--------- --------- --------- ----------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combining Financial
Statements.
5
<PAGE>
BUFFETS AND HOMETOWN
UNAUDITED PRO FORMA CONDENSED COMBINING CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
TWENTY-EIGHT WEEKS ENDED JULY 17, 1996
------------------------------------------------------
HISTORICAL PRO FORMA
------------------------- --------------------------
BUFFETS HOMETOWN ADJUSTMENTS COMBINED
--------- ---------- ------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
RESTAURANT SALES $ 287,386 $ 112,368 $ - $ 399,754
RESTAURANT COSTS:
Food costs 98,988 39,741 - 138,729
Labor costs 82,011 32,445 - 114,456
Direct and occupancy costs 68,707 24,267 - 92,974
--------- --------- --------- ---------
Total restaurant costs 249,706 96,453 - 346,159
--------- --------- --------- ---------
RESTAURANT PROFITS 37,680 15,915 - 53,595
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 15,846 8,563 - 24,409
--------- --------- --------- ---------
21,834 7,352 - 29,186
OTHER INCOME (EXPENSE), net 372 (883) (511)
--------- --------- --------- ---------
EARNINGS BEFORE INCOME TAXES 22,206 6,469 - 28,675
INCOME TAXES 8,440 2,588 - 11,028
--------- --------- --------- ---------
NET EARNINGS $ 13,766 $ 3,881 $ - $ 17,647
--------- --------- --------- ---------
--------- --------- --------- ---------
NET EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.44 $ 0.32 $ - $ 0.39
--------- --------- --------- ---------
--------- --------- --------- ---------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 31,550 12,024 2,044 45,618
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combining Financial
Statements.
6
<PAGE>
BUFFETS AND HOMETOWN
UNAUDITED PRO FORMA CONDENSED COMBINING CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
TWENTY-EIGHT WEEKS ENDED JULY 12, 1995
------------------------------------------------------
HISTORICAL PRO FORMA
-------------------------- --------------------------
BUFFETS HOMETOWN ADJUSTMENTS COMBINED
----------- ------------ ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
RESTAURANT SALES $ 261,372 $ 72,923 $ - $ 334,295
RESTAURANT COSTS:
Food costs 91,337 26,580 - 117,917
Labor costs 73,668 20,973 - 94,641
Direct and occupancy costs 59,256 14,642 - 73,898
--------- --------- --------- ---------
Total restaurant costs 224,261 62,195 - 286,456
--------- --------- --------- ---------
RESTAURANT PROFITS 37,111 10,728 - 47,839
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 14,034 6,253 - 20,287
--------- --------- --------- ---------
23,077 4,475 - 27,552
OTHER INCOME 118 321 439
--------- --------- --------- ---------
EARNINGS BEFORE INCOME TAXES 23,195 4,796 - 27,991
INCOME TAXES 8,815 1,775 - 10,590
--------- --------- --------- ---------
NET EARNINGS $ 14,380 $ 3,021 $ - $ 17,401
--------- --------- --------- ---------
--------- --------- --------- ---------
NET EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.46 $ 0.25 $ - $ 0.38
--------- --------- --------- ---------
--------- --------- --------- ---------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 31,231 11,947 2,031 45,209
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combining Financial
Statements.
7
<PAGE>
BUFFETS AND HOMETOWN
UNAUDITED PRO FORMA CONDENSED COMBINING CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FIFTY-THREE WEEKS ENDED JANUARY 3, 1996
-------------------------------------------------------
HISTORICAL PRO FORMA
-------------------------- --------------------------
BUFFETS HOMETOWN ADJUSTMENTS COMBINED
------------ ---------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
RESTAURANT SALES $ 509,928 $ 151,517 $ - $ 661,445
RESTAURANT COSTS:
Food costs 179,758 54,512 - 234,270
Labor costs 141,400 43,332 - 184,732
Direct and occupancy costs 118,656 30,188 - 148,844
------------ ------------ ------------ ------------
Total restaurant costs 439,814 128,032 - 567,846
------------ ------------ ------------ ------------
RESTAURANT PROFITS 70,114 23,485 - 93,599
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 27,309 12,970 - 40,279
------------ ------------ ------------ ------------
42,805 10,515 - 53,320
OTHER INCOME (net) 477 96 573
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES 43,282 10,611 - 53,893
INCOME TAXES 16,450 4,050 - 20,500
------------ ------------ ------------ ------------
NET EARNINGS $ 26,832 $ 6,561 $ - $ 33,393
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.86 $ 0.55 $ - $ 0.74
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 31,312 11,959 2,033 45,304
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combining Financial
Statements.
8
<PAGE>
BUFFETS AND HOMETOWN
UNAUDITED PRO FORMA CONDENSED COMBINING CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FIFTY-TWO WEEKS ENDED DECEMBER 28,1994
-------------------------------------------------------
HISTORICAL PRO FORMA
-------------------------- --------------------------
BUFFETS HOMETOWN ADJUSTMENTS COMBINED
------------ ---------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
RESTAURANT SALES $ 409,744 $ 74,715 $ - $ 484,459
RESTAURANT COSTS:
Food costs 140,689 27,010 - 167,699
Labor costs 110,165 22,001 - 132,166
Direct and occupancy costs 93,528 14,320 - 107,848
------------ ------------ ------------ ------------
Total restaurant costs 344,382 63,331 - 407,713
------------ ------------ ------------ ------------
RESTAURANT PROFITS 65,362 11,384 - 76,746
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 29,362 71721 - 37,083
------------ ------------ ------------ ------------
36,000 3,663 - 39,663
OTHER INCOME (net) 851 1,735 - 2,586
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES 36,851 5,398 - 42,249
INCOME TAXES 14,375 1,754 - 16,129
------------ ------------ ------------ ------------
NET EARNINGS $ 22,476 $ 3,644 $ - $ 26,120
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.71 $ 0.31 $ - $ 0.58
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 31,576 11,722 1,993 45,291
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combining Financial
Statements.
9
<PAGE>
BUFFETS AND HOMETOWN
UNAUDITED PRO FORMA CONDENSED COMBINING CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FIFTY-TWO WEEKS ENDED DECEMBER 29,1993
-------------------------------------------------------
HISTORICAL PRO FORMA
-------------------------- --------------------------
BUFFETS HOMETOWN ADJUSTMENTS COMBINED
------------ ---------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
RESTAURANT SALES $ 334,896 $ 34,684 $ - $ 369,580
RESTAURANT COSTS:
Food costs 114,927 12,721 - 127,648
Labor costs 88,523 10,168 98,691
Direct and occupancy costs 73,019 6,684 - 79,703
------------ ------------ ------------ ------------
Total restaurant costs 276,469 29,573 - 306,042
------------ ------------ ------------ ------------
RESTAURANT PROFITS 58,427 5,111 - 63,538
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 25,017 3,319 - 28,336
------------ ------------ ------------ ------------
33,410 1,792 - 35,202
OTHER INCOME (net) 370 516 - 886
------------ ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES 33,780 2,308 - 36,088
INCOME TAXES 13,480 369 - 13,849
------------ ------------ ------------ ------------
NET EARNINGS $ 20,300 $ 1,939 $ - $ 22,239
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET EARNINGS APPLICABLE
TO COMMON SHAREHOLDERS $ 20,300 $ 1,078 $ - $ 21,378
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.66 $ 0.21 $ - $ 0.58
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 30,776 5,225 888 36,889
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combining Financial
Statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINING FINANCIAL STATEMENTS
Note A: On September 20, 1996, pursuant to the previously announced Agreement
and Plan of Merger, dated June 3, 1996, HomeTown merged with Country
Delaware, Inc., a wholly-owned subsidiary of Buffets, with HomeTown as the
surviving corporation. Pursuant to the Merger, HomeTown became a
wholly-owned subsidiary of Buffets. The transaction will be accounted for as
a pooling of interests.
In connection with the acquisition, Buffets issued a total of 13,733,728 shares
of its common stock in exchange for all outstanding shares of HomeTown common
stock (at an exchange ratio of 1.17 shares of Buffets common stock for each
share of HomeTown common stock). Buffets also assumed options covering, in the
aggregate, 1,967,167 shares of Buffets' common stock in substitution for
previously outstanding options to acquire shares of HomeTown's common stock. In
addition, Buffets has guaranteed the obligations of HomeTown under HomeTown's
outstanding 7% Subordinated Convertible Notes, and Buffets' common stock will be
issued upon any conversion thereof. Approximately $41.5 million in principal
amount of the Notes are currently outstanding.
10
<PAGE>
The unaudited pro forma condensed consolidated combining balance sheet
includes the financial statements of Buffets and HomeTown at July 17, 1996,
as if the Merger had occurred on July 17, 1996 and an anticipated charge for
Merger-related expenses totaling approximately $3.6 million. Such
Merger-related expenses include only financial advisory fees, legal and
accounting expenses and other miscellaneous transaction costs; they do not
include any severance payments to be made to HomeTown employees in connection
with the Merger, any costs relating to possible restaurant conversions or
closures or any costs that may arise in connection with the Merger.
The unaudited pro forma condensed combining consolidated statements of earnings
set forth the results of operations for the period ended as if the Merger had
occurred at the beginning of such period. The unaudited pro forma condensed
combining consolidated statements of earnings do not reflect the non-recurring
Merger related expenses, any severance payments to be made to HomeTown employees
in connection with the Merger, any costs relating to possible restaurant
conversions or closures or any costs that may arise in connection with the
Merger. These expenses excluded from the unaudited pro forma condensed
combining consolidated statements of earnings will be recorded as incurred.
The pro forma combined per share amounts in the unaudited pro forma condensed
combining consolidated statements of earnings are based upon the historical
weighted average number of shares of common stock and dilutive common stock
equivalents of Buffets outstanding during each period presented. In
addition, the shares of Buffets common stock to be issued in connection with
the Merger, based on the equivalent weighted average shares and the dilutive
common share equivalents of HomeTown outstanding during each period
presented, are treated as outstanding during such period.
The unaudited pro forma condensed combining consolidated financial statements
are intended for information purposes and are not necessarily indicative of
the future consolidated financial position or future results of operations of
the combined entity. These unaudited pro forma condensed combining
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in Buffets' Annual Report on
Form 10-K for the fiscal year ended January 3, 1996 (which incorporates by
reference certain portions of Buffets' 1995 Annual Report to Shareholders,
including financial statements and accompanying information, and certain
portions of Buffets' definitive proxy statement for Buffets' 1996 Annual
Meeting of Shareholders), Buffets' Quarterly Report on Form 1O-Q for the
quarter ended July 17, 1996, Buffets Amendment No. 1 thereto on Form 10-Q/A,
Buffets' Current Reports on Form 8-K dated June 3, 1996 and August 8, 1996,
HomeTown's Annual Report on Form 10-K for the fiscal year ended January 3,
1996 (which incorporates by reference certain portions of HomeTown's
definitive proxy statement for HomeTown's 1996 Annual Meeting of
Stockholders), HomeTown's Quarterly Report on Form 10-Q for the quarter ended
July 17, 1996, HomeTown's Amendment No. 1 thereto on Form 10-Q/A, and
HomeTown's Current Report on Form 8-K dated August 8, 1996.
Note B: The unaudited pro forma condensed combining financial statements do not
include adjustments to conform the accounting policies of HomeTown to those
followed by Buffets. The nature and extent of such adjustments, if any, will be
based upon further study and analysis and are not expected to be significant in
relationship to the consolidated financial statements of Buffets.
Note C: Certain financial statement balances of HomeTown have been reclassified
to conform with the Buffets financial statement presentation.
11
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
Date: October 4, 1996 By: /s/ ROE H. HATLEN
-------------------------------
Roe H. Hatlen, Chairman and
Chief Executive Officer
12
<PAGE>
EXHIBIT INDEX
EXHIBIT
2. Agreement and Plan of Merger dated June 3, 1996 by and among Buffets,
Inc., Country Delaware, Inc. and HomeTown Buffet, Inc., incorporated by
reference to Exhibit 2.1 of Registrant's Current Report on Form 8-K
dated June 3, 1996.
23. Consent of KPMG Peat Marwick LLP (relating to audited financial
statements of HomeTown).
99.1. Joint Press Release of the Registrant and HomeTown dated September 20,
1996.
99.2 Financial Statements of HomeTown (from Annual Report on Form 10-K for
fiscal year ended December 31, 1995).
99.3 Financial Statements of HomeTown (from Quarterly Report on Form 10-Q/A
for period ended July 17, 1996).
13
<PAGE>
KPMG PEAT MARWICK LLP
EXHIBIT 23
The Board of Directors
HomeTown Buffet, Inc.:
We consent to the use of your report included herein as part of Exhibit 99.2 and
incorporated herein by reference in HomeTown Buffet, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.
San Diego, California
October 4, 1996
<PAGE>
EXHIBIT 99.1
Buffets, Inc. HomeTown Buffet, Inc.
10260 Viking Drive 9171 Towne Centre Drive, Suite 575
Eden Prairie, MN 55344 San Diego, CA 92122
Contact: Clark C. Grant Contact: Brad Thies
E.V.P. of Finance, Treasurer General Counsel
- -------------------------- FOR IMMEDIATE RELEASE ---------------------------
September 20, 1996
BUFFETS, INC. AND HOMETOWN BUFFET, INC.
COMPLETE MERGER
Eden Prairie, Minnesota and San Diego, California . . . . . Buffets, Inc.
(NASDAQ: BOCB), and HomeTown Buffet, Inc., today jointly announced that they had
completed the combination of the two companies through the merger of a wholly-
owned subsidiary of Buffets into HomeTown. With the completion of the Merger,
HomeTown shareholders automatically became shareholders of Buffets and HomeTown
became a wholly-owned subsidiary of Buffets.
Pursuant to the Merger, each outstanding share of HomeTown Common Stock has been
converted into 1.17 shares of Buffets Common Stock. In addition, Buffets has
guaranteed the obligations of HomeTown under HomeTown's outstanding 7%
Subordinated Convertible Notes, and Buffets Common Stock will be issued upon
conversion thereof; approximately $41.5 million in principal amount of the Notes
are currently outstanding.
The Merger reunites the two co-founders of Buffets and creates the twenty-fifth
largest U.S. restaurant chain, with combined sales of $661 million in 1995. Roe
H. Hatlen will continue as the Chairman and Chief Executive Officer of Buffets
and C. Dennis Scott, the Chairman and Chief Executive Officer of HomeTown, will
serve as Vice Chairman and Chief Operating Officer of Buffets.
Buffets currently operates 257 Old Country Buffet restaurants and franchises six
Old Country Buffets. HomeTown operates 81 HomeTown Buffets, two Roadhouse
Grills and franchises 19 HomeTown Buffets. The combined entity will operate
restaurants in 32 states.
In an effort to enhance the timelines and efficiency of its stockholder
communications, Buffets, Inc. offers automated shareholder information toll-
free. You can hear selected information by calling 1-888-731-9401.
Alternatively, to receive a release via fax, please call "Company News On-Call"
1-800-758-5804 extension 122825 or on the Internet at:
http://www.prnewswire.com
14
<PAGE>
EXHIBIT 99.2
INDEPENDENT AUDITORS' REPORT
The Board of Directors
HomeTown Buffet, Inc.:
We have audited the accompanying consolidated balance sheets of HomeTown Buffet,
Inc. and Subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity (deficit) and cash flows
for each of the years in the three-year period ended December 31, 1995. 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
HomeTown Buffet, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
San Diego, California
KPMG Peat Marwick LLP
February 16, 1996,
except as to note 6
which is as of March 8, 1996.
15
<PAGE>
HOMETOWN BUFFET, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
Fiscal Year
-----------
ASSETS 1995 1994
-------- --------
Current assets:
Cash and cash equivalents. . . . . . . . . . . . $ 1,155 $ 85
Short-term investments . . . . . . . . . . . . . 27,828 11,051
Receivables. . . . . . . . . . . . . . . . . . . 2,830 3,384
Inventories. . . . . . . . . . . . . . . . . . . 1,094 672
Prepaid expenses . . . . . . . . . . . . . . . . 865 317
Pre-opening costs. . . . . . . . . . . . . . . . 1,784 1,787
-------- --------
Total current assets . . . . . . . . . . . . . 35,556 17,296
Property and equipment, net. . . . . . . . . . . . 107,946 65,426
Other assets . . . . . . . . . . . . . . . . . . . 2,355 878
-------- --------
$145,857 $ 83,600
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade. . . . . . . . . . . . . . . $ 12,357 $ 9,267
Accrued expenses . . . . . . . . . . . . . . . . . . 5,453 5,289
Deferred income taxes. . . . . . . . . . . . . . . . 542 611
Current portion of capital leases. . . . . . . . . . 2,012 196
Short-term debt. . . . . . . . . . . . . . . . . . . 2,000 1,036
-------- --------
Total current liabilities. . . . . . . . . . . . . 22,364 16,399
Deferred income taxes. . . . . . . . . . . . . . . . . 1,530 234
Long-term portion of capital leases. . . . . . . . . . 7,143 593
Other liabilities. . . . . . . . . . . . . . . . . . . 1,102 828
Long-term debt . . . . . . . . . . . . . . . . . . . . 41,500 --
Redeemable preferred stock, $.01 par value.
Authorized 5,000,000; no shares issued and
outstanding. . . . . . . . . . . . . . . . . . . . . -- --
Stockholders' equity:
Common stock, $.01 par value. Authorized
20,000,000 shares; 11,581,779 shares and
11,524,064 shares issued and outstanding at the
of end of fiscal 1995 and 1994, respectively . . . 116 115
16
<PAGE>
Additional paid-in capital . . . . . . . . . . . . . 62,065 61,955
Retained earnings. . . . . . . . . . . . . . . . . . 10,037 3,476
-------- --------
Total stockholders' equity . . . . . . . . . . . . 72,218 65,546
-------- --------
Commitment and contingencies
$145,857 $ 83,600
-------- --------
-------- --------
See accompanying notes to consolidated financial statements.
17
<PAGE>
HOMETOWN BUFFET, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the fiscal years ended
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Net restaurant sales . . . . . . . . . . . . . . . . $ 151,517 $ 74,715 $ 34,684
Franchise income, net (primarily related party). . . 882 906 420
----------- ----------- -----------
Total revenues . . . . . . . . . . . . . . . . . . 152,399 75,621 35,104
----------- ----------- -----------
Cost and expenses:
Cost of restaurant sales . . . . . . . . . . . . . . 54,512 27,010 12,721
Restaurant operating expenses:
Labor. . . . . . . . . . . . . . . . . . . . . . . 43,332 22,001 10,168
Occupancy and other. . . . . . . . . . . . . . . . 23,001 11,383 5,379
General and administrative expenses. . . . . . . . . 10,259 6,669 2,714
Depreciation and amortization. . . . . . . . . . . . 9,898 3,989 1,910
----------- ----------- -----------
Total costs and expenses . . . . . . . . . . . . . 141,002 71,052 32,892
----------- ----------- -----------
Income from operations . . . . . . . . . . . . . . 11,397 4,569 2,212
Interest expense . . . . . . . . . . . . . . . . . . . (1,291) (126) (153)
Interest income. . . . . . . . . . . . . . . . . . . . 441 869 216
Other income, net. . . . . . . . . . . . . . . . . . . 64 86 34
----------- ----------- -----------
Net income before income taxes and minority
interest . . . . . . . . . . . . . . . . . . . . 10,611 5,398 2,309
Income taxes . . . . . . . . . . . . . . . . . . . . . 4,050 1,754 369
----------- ----------- -----------
Net income before minority interest. . . . . . . . 6,561 3,644 1,940
Minority interest. . . . . . . . . . . . . . . . . . . -- -- (1)
----------- ----------- -----------
Net income . . . . . . . . . . . . . . . . . . . . $ 6,561 $ 3,644 $ 1,939
----------- ----------- -----------
----------- ----------- -----------
Net income per common and common
equivalent shares. . . . . . . . . . . . . . . . . . $ 0.55 $ 0.31 $ 0.21
----------- ----------- -----------
----------- ----------- -----------
Weighted average common and common
equivalent shares. . . . . . . . . . . . . . . . . . 11,958,554 11,722,087 5,225,322
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
HOMETOWN BUFFET, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the fiscal years ended
(Dollars in thousands)
<TABLE>
<CAPTION>
Total
Retained stockholders'
Common Stock Additional paid-in earnings equity
Shares Amount capital (deficit) (deficit)
------------------------ ------------------ --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES, end of fiscal
1992 . . . . . . . . . . . . . . . . . . 2,734,515 $ 18 $ 1,421 $ (2,107) $ (668)
Increase in aggregate
redemption preference. . . . . . . . . -- -- (861) -- (861)
Stock options exercised. . . . . . . . . 6,150 -- 11 -- 11
Exercise of stock warrants . . . . . . . 150,000 1 299 -- 300
Initial public offering, net of
expense. . . . . . . . . . . . . . . . 3,450,000 23 31,546 -- 31,569
Conversion of redeemable
preferred stock into common. . . . . . 3,900,000 26 11,670 -- 11,696
Net income . . . . . . . . . . . . . . . -- -- -- 1,939 1,939
Three-for-two stock split. . . . . . . . -- 34 (34) -- --
---------- ----- -------- -------- --------
BALANCES, end of fiscal
1993 . . . . . . . . . . . . . . . . . 10,240,665 102 44,052 (168) 43,986
Stock options exercised. . . . . . . . . 158,399 2 351 -- 353
Sale of common stock . . . . . . . . . . 1,125,000 11 17,552 -- 17,563
Net income . . . . . . . . . . . . . . . -- -- -- 3,644 3,644
---------- ----- -------- -------- --------
BALANCES, end of fiscal
1994 . . . . . . . . . . . . . . . . . 11,524,064 115 61,955 3,476 65,546
Stock options exercised. . . . . . . . . 57,715 1 110 -- 111
Net income . . . . . . . . . . . . . . . -- -- -- 6,561 6,561
---------- ----- -------- -------- --------
BALANCES, end of fiscal
1995 . . . . . . . . . . . . . . . . . 11,581,779 $ 116 $ 62,065 $ 10,037 $ 72,218
---------- ----- -------- -------- --------
---------- ----- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
HOMETOWN BUFFET, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the fiscal years ended
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 6,561 $ 3,644 $ 1,939
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . 9,898 3,989 1,910
Amortization of premium/discount in investments. . . . 135 332 69
Minority interest. . . . . . . . . . . . . . . . . . . -- -- 1
Changes in assets and liabilities:
Receivables. . . . . . . . . . . . . . . . . . . . . 554 (2,453) (82)
Inventories. . . . . . . . . . . . . . . . . . . . . (422) (385) (154)
Prepaid expenses . . . . . . . . . . . . . . . . . . (548) (139) (25)
Pre-opening costs. . . . . . . . . . . . . . . . . . (2,476) (2,286) (670)
Other assets . . . . . . . . . . . . . . . . . . . . (32) (274) (231)
Accounts payable, trade. . . . . . . . . . . . . . . 3,090 5,260 936
Accrued expenses . . . . . . . . . . . . . . . . . . 164 3,337 947
Deferred income taxes. . . . . . . . . . . . . . . . 1,227 845 --
Other liabilities. . . . . . . . . . . . . . . . . . 274 417 400
-------- -------- --------
Net cash provided by operating activities. . . . . 18,425 12,287 5,040
-------- -------- --------
Cash flows from investing activities:
Purchase of short-term investments . . . . . . . . . . . . (123,468) (35,889) (22,514)
Maturity of short-term investments . . . . . . . . . . . . 106,556 40,751 7,200
Sale of equipment held for disposal. . . . . . . . . . . . -- -- 17
Purchase of property and equipment . . . . . . . . . . . . (39,818) (47,249) (12,166)
-------- -------- --------
Net cash used in investing activities. . . . . . . (56,730) (42,387) (27,463)
-------- -------- --------
Cash flows from financing activities:
Sale of common stock . . . . . . . . . . . . . . . . . . . 111 17,916 31,880
Debt offering expenses . . . . . . . . . . . . . . . . . . (319) -- --
Proceeds from borrowings . . . . . . . . . . . . . . . . . 22,564 1,028 --
Proceeds from long-term debt offering. . . . . . . . . . . 40,255 -- --
Payments on borrowings . . . . . . . . . . . . . . . . . . (21,600) -- (562)
Payments on borrowings from related party. . . . . . . . . -- -- (500)
Payments on capital leases . . . . . . . . . . . . . . . . (1,636) (189) (122)
-------- -------- --------
Net cash provided by financing activities. . . . . 39,375 18,755 30,696
-------- -------- --------
Increase (decrease) in cash and cash equivalents . . . . . . 1,070 (11,345) 8,273
Cash and cash equivalents at beginning of year . . . . . . . 85 11,430 3,157
-------- -------- --------
Cash and cash equivalents at end of year . . . . . . . . . . $ 1,155 $ 85 $ 11,430
-------- -------- --------
-------- -------- --------
Supplemental disclosure of cash flow information:
Cash paid for:
Interest . . . . . . . . . . . . . . . . . . . . . . . $ 1,173 $ 127 $ 153
-------- -------- --------
-------- -------- --------
Income taxes . . . . . . . . . . . . . . . . . . . . . $ 2,499 $ 335 $ 238
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 1993, 1994 AND 1995
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
HomeTown Buffet, Inc. (the "Company") owns and operates a restaurant chain
under the name HomeTown Buffet and one steakhouse restaurant, Roadhouse Grill.
As of the end of fiscal 1995, the Company had 69 Company-owned Hometown Buffet
restaurants in operation in California, Connecticut, Illinois, Kansas, Kentucky,
New Jersey, Ohio, Oklahoma, Oregon, Rhode Island and Texas and 19 franchised
restaurants.
The Company's HomeTown Buffet restaurants feature a "scatter bar" buffet
system with up to eight separate food islands, offering a wide variety of fresh
"made in the kitchen" menu items. Roadhouse Grill is a dinnerhouse featuring a
variety of steak dinners in a country western atmosphere.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its 80% owned subsidiaries, HTB Ventures I, Inc. and HTB Ventures II, Inc.
through the termination dates (see note 8). All significant inter-company
balances and transactions have been eliminated in consolidation.
FISCAL YEAR
The Company's fiscal year ends on the Wednesday nearest December 31 and is
comprised of 52 or 53 weeks divided into four periods of 16, 12, 12, and 12 or
13 weeks, respectively. Fiscal years in 1995, 1994 and 1993, were comprised of
53, 52, and 52 weeks, respectively; and ended on January 3, 1996, December 28,
1994, and December 29, 1993, respectively. For convenience the Company has
indicated in these consolidated financial statements and notes to consolidated
financial statements that its fiscal years ended December 31.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments purchased with an
original maturity of three months or less.
SHORT-TERM INVESTMENTS
21
<PAGE>
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (Statement
115), effective January 1, 1994. There was no material impact as a result of
adopting Statement 115 in 1994 to the Company's consolidated financial position
or results of operations.
At December 31, 1995, short-term investments have been categorized as held-
to-maturity and are, as a result, recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Management determines the
appropriate classification of its investments in debt and equity securities at
the time of purchase and reevaluates such determination at each balance sheet
date.
INVENTORIES
Inventories consist principally of provisions for the restaurants and are
stated at the lower of cost or market, determined by using the first-in, first-
out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost net of accumulated depreciation.
Furniture, fixtures, and equipment under capital leases are stated at the lower
of the present value of the minimum lease payments at the beginning of the lease
term or the fair value of the leased assets at the inception of the lease.
Construction in progress consists of costs incurred for assets not yet placed in
service. Depreciation is calculated on the straight-line method over estimated
useful lives ranging from three to 32 years for financial reporting purposes and
statutory methods for income tax reporting purposes. Leasehold improvements are
amortized over the shorter of the estimated useful life of the asset or the term
of the related lease, generally 15 to 20 years. Depreciation begins on
construction in progress at the time the related assets are placed in service.
Maintenance and repairs, including the replacement of minor items, are expensed
as incurred.
OTHER ASSETS
Other assets consist primarily of deposits, organization costs, and debt
offering cost. The organization costs are amortized on a straight-line basis
over a 60-month period. The debt offering costs are being amortized over seven
years using the effective interest method.
FRANCHISE INCOME, NET
Franchise royalties, which are based upon a percentage of sales, are
recognized as revenue on the accrual basis. Initial franchise fees are included
in franchise revenue when the franchised restaurant commences operations. Fees
received pursuant to multiple unit development agreements that grant a
franchisee the right to develop franchise restaurants in future periods in
22
<PAGE>
specified geographic areas are deferred and recognized as income on a pro rata
basis as each franchise restaurant subject to the development agreement
commences operations. Net franchise income represents franchise revenue less
direct franchise expenses.
PRE-OPENING COSTS
Hiring, training, and other direct costs incurred in connection with
opening each new restaurant are capitalized and amortized over the first 12
months of the restaurant's operations.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under this method, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARES
Net income per share is computed using the weighted average number of
common and dilutive common equivalent shares assumed to be outstanding during
the period. Common equivalent shares consist of options and warrants to
purchase common stock. The options and warrants are anti-dilutive in those
periods where net losses are reported and are, therefore, assumed to be common
stock equivalents only in those periods where net income is reported. The
redeemable preferred stock was anti-dilutive in all periods while outstanding.
Redemption preferences associated with the redeemable preferred stock are
deducted from net income or added to net loss in arriving at earnings or loss
applicable to common stock. The redeemable preferred stock automatically
converted to common stock simultaneously with the closing of the initial public
offering of the Company's common stock on September 30, 1993. At that time
accretion of the redemption preference ceased.
Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common and common equivalent shares that were issued or became
issuable during the 12 months immediately preceding the initial public offering
have been included in the calculation as if they were outstanding for all
periods prior to the initial public offering (using the treasury stock method
and the initial public offering price).
23
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents; short-term investments,
receivables accounts payable trade; accrued expenses and short-term debt
approximate fair value because of the short-term nature of such items. The
carrying amounts of long-term debt approximate fair value because the rates are
comparable to rates and maturities for similar debt instruments.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from these estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the fiscal 1995, 1994 and 1993
consolidated financial statements to conform with the current presentation.
NOTE 2: RECEIVABLES
Receivables consist of the following (in thousands):
1995 1994
---- ----
Landlords $1,184 $ 2,802
Franchisees and employees 566 65
Other 1,080 517
------- -------
Total receivables $ 2,830 $ 3,384
------- -------
------- -------
24
<PAGE>
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
1995 1994
---- ----
Land $ 5,526 $ 4,035
Buildings and improvements 29,029 16,372
Leasehold improvements 30,540 17,288
Furniture, fixtures, and equipment 52,198 31,160
Construction in progress 3,1991 1,817
--------- --------
120,492 70,672
Less accumulated depreciation and amortization 12,546 5,246
--------- --------
Net property and equipment $ 107,946 $ 65,426
--------- --------
--------- --------
NOTE 4: SHORT-TERM INVESTMENTS
At December 31, 1995, the Company had $27,828,000 in short-term
investments, primarily commercial paper, classified as held-to-maturity
securities. The estimated fair value of each investment approximates the
amortized cost. All debt securities held at the end of fiscal 1995
contractually mature within one year.
NOTE 5: ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
1995 1994
---- ----
Payroll and related taxes and fringes $ 2,359 $ 3,534
Other 3,094 1,755
------- -------
Total accrued expenses $ 5,453 $ 5,289
------- -------
------- -------
NOTE 6: LINE OF CREDIT
The Company has a two year $10,000,000 unsecured revolving line of credit
with a bank. This line had expired at year-end, however, the Company renewed
the line on March 8, 1996 and the amended credit line expires on April 30, 1998.
Interest is payable monthly at the bank's reference rate (8.5% at the end of
fiscal 1995). The Company paid a $18,000 commitment fee at the time of the
renewal and pays a fee of 0.25% on the unused balance each quarter. An amount
of $2,000,000 was outstanding against this line of credit at the end of fiscal
1955.
25
<PAGE>
Note 7: LONG-TERM DEBT
In 1995, the Company issued $41,500,000 of 7.0% Convertible Subordinated
Debentures due on December 1, 2002. Interest is payable semi-annually on
June 1 and December 1, commencing June 1, 1996. The debentures are
convertible into shares of the Company's Common Stock at a conversion price
of $13.65, subject to adjustment under certain conditions, commencing 60 days
after issuance and continuing until maturity. The debentures are
subordinated in right of payment to all existing and future senior
indebtedness, as defined in trust indenture of the Company. The notes are
redeemable in whole or in part, at the option of the Company, at any time on
or after December 2, 1998.
NOTE 8: CORPORATE JOINT VENTURES
In October 1993, the Company formed two joint ventures, HTB Ventures I,
Inc. ("HTB I") and HTB Ventures II, Inc. ("HTB II"). HTB I was formed to
establish and operate HomeTown Buffet restaurants in states including, but not
limited to, Illinois and Ohio. The total capital of HTB I included an $800,000
stock subscription receivable from the Company and a $200,000 promissory note
from the private investor. The promissory note is secured by the investor's
stock in HTB I and bears interest equal to the prime rate of United States
National Bank of Oregon (8.5% at December 31, 1995) plus one half percent, not
to exceed 10%. The interest rate is adjusted quarterly. Principal and interest
are payable on the earlier of October 2003 or the date of the initial sale or
transfer of any of the shares of HTB I by the investor.
In October 1993, the Company also formed HTB II to establish and operate
HomeTown Buffet restaurants in states including, but not limited to, Missouri,
Kentucky, and Kansas. The total capital of HTB II included an $800,000 cash
investment by the Company and a $200,000 promissory note from the private
investor with the same terms as those described above.
The Company has the option to purchase the remaining interests in HTB I and
HTB II, exercisable within ninety days after the end of fiscal 1996 and after
each subsequent fiscal year. Each outside private investor has the option to
require the Company to purchase the remaining interests in HTB I or HTB II, as
the case may be, exercisable within 90 days after the end of fiscal 1997 and
after each subsequent fiscal year. The related stockholder agreements provide
for the formula of determining the purchase prices.
For financial reporting purposes the assets, liabilities, results of
operations and cash flows of HTB I and HTB II are included in the Company's
consolidated financial statements and the outside investors' interests are
reflected as minority interest.
HTB II was terminated in April 1995 and HTB I was terminated in February
1996. Under the termination agreement for HTB II, the Company acquired the
minority interest in that joint
26
<PAGE>
venture and assumed 100% ownership of the two restaurants that were operated by
that joint venture in consideration for the forgiveness of the principal and
interest on the initial promissory note from the investor. The terms of the
termination agreement for HTB I were substantially the same terms as for HTB II,
except that in addition to the forgiveness of the principal and interest on the
initial promissory note from the investor, the Company paid additional cash
consideration of $950,000.
NOTE 9: REDEEMABLE PREFERRED STOCK
The Company had 5,000,000 shares of preferred stock authorized at the end
of fiscal 1995, 1994 and 1993. The stock has a par value of $.01. Previously
outstanding shares were issued in redeemable Series A and B.
During 1993, all Series A and Series B preferred stock converted to common
stock in conjunction with the closing of the initial public offering of the
Company's common stock and the accretion of aggregate redemption preferences
then ceased.
NOTE 10: STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
On March 30, 1994, the Company completed a secondary public offering of
1,125,000 shares of common stock at $16.75 per share. Net proceeds to the
Company were $17,563,000 after underwriting discounts and offering expenses. On
September 30, 1993, the Company completed an initial public offering of
3,450,000 shares of common stock at $10 per share (figures have been adjusted
for stock split). Net proceeds to the Company were $31,569,000 after
underwriting discounts and offering expenses.
STOCK OPTION PLAN
The Plan permits grants of incentive stock options and other compensation
to employees, officers, directors and others (including consultants and
nonemployee agents) who the Board of Directors believes have made or will make
an important contribution to the Company or its subsidiaries, except that only
employees are eligible to receive statutory incentive options. The Board of
Directors has reserved 1,600,000 shares for issuance under the Plan. Such
options may be granted from time-to-time at the discretion of the Board of
Directors at option prices equal to the fair market value of the shares at the
date of grant for incentive stock options. The option price may be less than
fair market value for non-statutory stock options granted. The fair market
27
<PAGE>
value is determined by the Board of Directors on the date of grant. Options
generally have a 10 year term and vest over a five year period.
A summary of stock option plan activity follows:
Number of Price range
--------- -----------
Shares
------
Outstanding options, end of fiscal 1992 576,000 $ 1.67 - $3.67
Granted 288,450 3.34 - 18.51
Exercised (6,150) 1.67 - 3.34
Canceled (7,950) 1.67 - 18.51
---------
Outstanding options, end of fiscal 1993 850,350 1.67 - 18.51
Granted 283,725 10.75 - 16.68
Exercised (158,399) 1.67 - 6.00
Canceled (40,666) 3.34 - 18.51
---------
Outstanding options, end of fiscal 1994 935,010 1.67 - 18.51
Granted 415,600 10.25 - 12.50
Exercised (57,715) 1.67 - 6.00
Canceled (61,850) 1.67 - 18.51
---------
Outstanding options, end of fiscal 1995 1,231,045 1.67 - 18.51
---------
---------
At the end of fiscal 1995, 326,880 of the options granted under the stock option
plan were exercisable at prices ranging from $1.67 to $18.51.
During fiscal years 1995, 1994 and 1993, 40,000 stock options at $11.25,
12,400 stock options at $13.25; and 3,750 stock options at $6.00; respectively,
were granted outside the stock option plan. All options granted outside the
plan were outstanding at the end of fiscal 1995, and 54,979 of these options
were exercisable at prices ranging from of $6.00 to $13.25.
28
<PAGE>
NOTE 11: INCOME TAXES
As discussed in Note 1, the Company adopted the asset and liability method of
accounting for income taxes, effective at the beginning of fiscal 1993. There
was no cumulative effect of adopting this method on the Company's consolidated
financial statements.
Income taxes consist of the following (in thousands):
Fiscal Year
1995 1994 1993
---- ---- ----
Current:
Federal . . . . . . . . . . . . . . . . $ 2,374 $ 838 $289
State . . . . . . . . . . . . . . . . . 449 71 80
------- ------- ----
Total current. . . . . . . . . . . 2,823 909 369
------- ------- ----
Deferred:
Federal . . . . . . . . . . . . . . . . 838 436 --
State . . . . . . . . . . . . . . . . . 389 409 --
------- ------- ----
Total deferred . . . . . . . . . . 1,227 845 --
------- ------- ----
Total . . . . . . . . . . . . . . . . . $ 4,050 $ 1,754 $369
------- ------- ----
------- ------- ----
Income tax rates differ from the amount computed by applying the federal
statutory income tax rate to net income before taxes as follows (in
percentages):
Fiscal Year
1995 1994 1993
---- ---- ----
Tax computed at federal statutory rate . . 34.0% 34.0% 34.0%
State income taxes, net of
federal effect. . . . . . . . . . . . . . 5.3 5.9 2.3
Alternative minimum tax. . . . . . . . . . 7.7 15.5 12.5
Tax benefit from net operating
loss utilized . . . . . . . . . . . . . . (7.6) (29.5) (40.0)
Other . . . . . . . . . . . . . . . . . (1.2) 6.6 7.2
----- ----- -----
Effective tax rate. . . . . . . . . . . 38.2% 32.5% 16.0%
----- ----- -----
----- ----- -----
29
<PAGE>
The deferred income taxes result from temporary differences in assets and
liabilities for tax and financial reporting purposes and consists of (in
thousands):
Fiscal Year
1995 1994 1993
---- ---- ----
Accrued liabilities. . . . . . . . . . . . $ (98) $ (28) $ (70)
Alternative minimum tax credits. . . . . . (856) (657) (289)
Tax basis depreciation, amortization and
operating lease expenses. . . . . . . . . 1,677 1,370 292
Pre-opening costs. . . . . . . . . . . . . (37) 571 72
Net operating loss carryforward. . . . . . 532 (228) 640
Valuation allowance. . . . . . . . . . . . -- (140) (652)
Other . . . . . . . . . . . . . . . . . 9 (43) 7
------- ------ -----
Total. . . . . . . . . . . . . . . . . $ 1,227 $ 845 $ --
------- ------ -----
------- ------ -----
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The tax effects of
significant items comprising the Company's deferred tax asset and liability are
as follows (in thousands):
Fiscal Year
1995 1994 1993
---- ---- ----
Deferred tax liabilities:
Tax basis depreciation, amortization
and operating lease expenses. . . . . . $ 3,435 $ 1,758 $ 388
Pre-opening costs . . . . . . . . . . . . 698 735 164
Other . . . . . . . . . . . . . . . . . . -- -- 37
------- ------- ------
------- ------- ------
Total deferred tax liability . . . . . . . 4,133 2,493 589
------- ------- ------
Deferred tax assets:
Accrued liabilities. . . . . . . . . . . 213 115 87
Alternative minimum tax credits. . . . . 1,802 946 289
Net operating loss carryforward. . . . . 46 578 350
Valuation allowance. . . . . . . . . . . -- -- (140)
Other . . . . . . . . . . . . . . . . . -- 9 3
------- ------- ------
Total deferred tax asset . . . . . . . . . 2,061 1,648 589
------- ------- ------
Net deferred tax liability . . . . . . . $ 2,072 $ 845 $ --
------- ------- ------
------- ------- ------
Based on the level of historical taxable income and projections for future
taxable income over the periods in which the deferred tax assets are deductible,
management believes it is more likely
30
<PAGE>
than not that the Company will realize the benefits of these deferred tax
assets. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income during
the carryforward period are reduced.
The valuation allowance for deferred tax assets as of January 1, 1994 was
$140,000. The net change in the total valuation allowance during fiscal 1994
was a decrease of $140,000.
At the end of fiscal 1995, the Company had approximately $702,000 of tax basis
net operating loss carry-forwards for Oregon state to offset against future
income taxes. These carryforwards expire in 2007.
NOTE 12: SUMMARY OF NON-CASH FINANCING AND INVESTING ACTIVITIES
During fiscal 1995, the Company incurred capital lease obligations totaling
$10,002,000 for furniture, fixtures and equipment. During fiscal 1993, the
Company incurred capital lease obligations totaling $1,100,000 for furniture,
fixtures and equipment.
NOTE 13: RELATED PARTY TRANSACTIONS
The Company engaged in the following related party transactions during the
three years ended at or as of the end of fiscal 1995:
In November 1991, the Company entered into a franchise and exclusive area
development agreement with a stockholder of the Company. Under the terms of the
development agreement, this stockholder obtained the exclusive rights to develop
and operate HomeTown Buffet restaurants as a franchisee in four states. During
fiscal 1992, this agreement was amended to expand the number of states to eight.
Under the terms of the agreement, the stockholder is required to open a minimum
of 17 restaurants in the eight states over the first four years of the agreement
to maintain its exclusivity to the territory.
The Company has recorded $10,000 of deferred revenues as of the end of fiscal
1995, related to this agreement, which will be recognized with the next
franchise opening. Approximately $624,000, $625,000, and $294,000 of net
franchise income was recognized based on the sales performance of the franchised
locations during fiscal years 1995, 1994 and 1993, respectively.
In August 1993, the Company loaned $85,000 to the President and Chief
Operating Officer. The loan was made pursuant to a promissory note that bears
interest at a floating rate equal to the prevailing prime rate plus 1% per
annum, requires monthly installment payments over five years beginning in August
1995 and is fully due and payable in August 2000. The loan is immediately due
and payable if he ceases to be employed by the Company. In April 1995, the
Company loaned an additional $25,000. This loan bears interest at the
prevailing prime rate plus 1% per
31
<PAGE>
annum, requires monthly installment payments and is due and payable on the
earlier of December 31, 1996 or upon his ceasing to be employed by the Company.
Included in receivables at the end of 1995 is $122,000 related to these amounts
and the related accrued interest.
During 1995, the Company loaned $200,000 to one of its franchisees. The note
provides for interest to be paid at 1% above the announced reference rate for US
Bank of Oregon. In addition, the Company agreed to defer royalty payments
commencing April 1995. This agreement and note expired on December 31, 1995 and
the Company is currently negotiating an amended repayment schedule.
NOTE 14: COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company conducts a major portion of its operations from leased
restaurant facilities, all of which are classified as operating leases with
various expiration dates through 2020. The Company also leases certain
furniture, fixtures and equipment under capital lease agreements. Amortization
of assets held under capital leases is included in depreciation expense.
Furniture, fixtures and equipment include the following capital lease amounts at
the end of fiscal 1995 and 1994 (in thousands):
1995 1994
---- ----
Furniture, fixtures and equipment $ 13,068 $ 1,100
Less accumulated amortization (2,298) (286)
-------- -------
$ 10,770 $814
-------- -------
-------- -------
Future minimum lease payments under these leases for the next five fiscal years
and thereafter, are as follows
(in thousands):
Capital Operating
leases leases
--------- -----------
Fiscal year ending
1996. . . . . . . . . . . . . . . . . . . . . . . $ 2,819 $ 7,023
1997. . . . . . . . . . . . . . . . . . . . . . . 2,806 7,540
1998. . . . . . . . . . . . . . . . . . . . . . . 2,603 7,635
1999. . . . . . . . . . . . . . . . . . . . . . . 2,307 7,753
2000. . . . . . . . . . . . . . . . . . . . . . . 647 7,695
Thereafter. . . . . . . . . . . . . . . . . . . . -- 79,175
------- ---------
Total minimum lease payments . . . . . . . . . 11,182 $ 116,821
---------
---------
32
<PAGE>
Less amount representing interest (at
rates ranging from 6.38% to 11.8%). . . . . . . (2,027)
-------
Present value of net minimum
capital lease . . . . . . . . . . . . . . . . 9,155
Less current portion of capital leases. . . . . . (2,012)
-------
Long-term portion of capital leases . . . . . . . $ 7,143
-------
-------
Future minimum lease payments under operating leases include amounts for
signed leases for restaurants not yet open as of the end of fiscal 1995.
In addition, certain operating leases require additional rent based on a
percentage of 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):
Fiscal Year
1995 1994 1993
---- ---- ----
Minimum rents. . . . . . . . . . . . . . . $ 4,893 $ 2,465 $1,438
Percentage rents . . . . . . . . . . . . . 463 389 275
------- ------- -------
$ 5,356 $ 2,854 $ 1,713
------- ------- -------
------- ------- -------
CONTINGENCIES
The Company is involved in various legal actions outstanding in the
normal course of business. After taking into consideration legal counsel's
evaluation of such actions, management is of the opinion that their outcomes
will not have a material effect on the Company's consolidated financial position
or results of operations.
33
<PAGE>
EXHIBIT 99.3
<TABLE>
<CAPTION>
HomeTown Buffet, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
July 17, January 3,
Assets 1996 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents ................. $ 3,172 $ 1,155
Short-term investments .................... 14,958 27,828
Receivables ............................... 2,321 2,830
Inventories ............................... 1,152 1,094
Prepaid expenses .......................... 1,080 865
Pre-opening costs ......................... 1,471 1,784
-------- --------
Total current assets .................... 24,154 35,556
Property and equipment, net ................. 119,275 107,946
Other assets ................................ 3,283 2,355
-------- --------
$146,712 $145,857
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, trade .................... $ 8,437 $ 12,357
Accrued expenses ........................... 8,130 5,453
Deferred income taxes ...................... 469 542
Current portion of capital leases .......... 2,111 2,012
Short-term debt ............................ 0 2,000
-------- --------
Total current liabilities ................. 19,147 22,364
Deferred income taxes ....................... 1,930 1,530
Long-term portion of capital leases ......... 6,045 7,143
Other liabilities ........................... 1,790 1,102
Long-term debt .............................. 41,500 41,500
Stockholders' equity:
Common stock, $.01 par value.
Authorized 20,000,000 shares;
11,654,379 shares and 11,581,779
shares issued and outstanding at the
end of second quarter 1996 and fiscal
1995, respectively ......................... 117 116
Additional paid-in capital ................. 62,265 62,065
Retained earnings .......................... 13,918 10,037
-------- --------
Total stockholders' equity ................ 76,300 72,218
-------- --------
$ 146,712 $ 145,857
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
HomeTown Buffet, Inc. and Subsidiaries
Consolidated Income Statements
(In thousands, except per share data)
(Unaudited)
Twelve Weeks Twenty-Eight
Ended Weeks Ended
----------------- -----------------
July 17, July 12, July 17, July 12,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Net restaurant sales ............................. $50,965 $34,589 $112,368 $72,923
Franchise income, net (primarily related party) .. 225 226 569 507
------- ------- ------- -------
Total revenues ................................ 51,190 34,815 112,937 73,430
------- ------- ------- -------
Costs and expenses:
Cost of restaurant sales ......................... 17,767 12,551 39,741 26,580
Restaurant operating expenses:
Labor .......................................... 14,473 9,687 32,445 20,973
Occupancy and other ............................ 8,253 5,372 18,084 11,172
General and administrative expenses .............. 3,096 2,233 7,146 4,838
Depreciation and amortization .................... 3,396 2,278 7,600 4,885
------- ------- ------- -------
Total costs and expenses ...................... 46,985 32,121 105,016 68,448
------- ------- ------- -------
Income from operations ........................ 4,205 2,694 7,921 4,982
Interest expense ................................. (900) (230) (2,114) (410)
Interest income .................................. 244 86 643 195
Other income (expense), net ...................... (5) 28 19 29
------- ------- ------- -------
Net income before income taxes .............. 3,544 2,578 6,469 4,796
Income taxes ..................................... 1,418 954 2,588 1,775
------- ------- ------- -------
Net income .................................. $ 2,126 $ 1,624 $ 3,881 $ 3,021
======= ======= ======= =======
Net income per common and
common equivalent shares $ 0.18 $ 0.14 $ 0.32 $ 0.25
======= ======= ======= =======
Weighted average common and common
equivalent shares 12,091 11,976 12,024 11,947
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
HomeTown Buffet, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Twenty-Eight
Weeks Ended
---------------------
July 17, July 12,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 3,881 $ 3,021
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization .......................... 7,600 4,885
Amortization of premium/discount on investments ........ 0 (41)
Changes in assets and liabilities:
Receivables ............................................ 509 1,832
Inventories ............................................ (58) (161)
Prepaid expenses ....................................... (215) (304)
Pre-opening costs ...................................... (958) (1,035)
Other assets ........................................... (998) 122
Accounts payable, trade ................................ (3,920) (3,827)
Accrued expenses. ...................................... 2,677 1,404
Deferred income taxes .................................. 327 379
Other liabilities ...................................... 688 193
-------- --------
Net cash provided by operating activities............... 9,533 6,468
-------- --------
Cash flows from investing activities:
Purchase of investments ................................ (106,349) (5,645)
Proceeds from sale of investments ...................... 119,219 11,185
Purchase of property and equipment ..................... (17,588) (22,880)
-------- --------
Net cash used in investing activities .................. (4,718) (17,340)
-------- --------
Cash flows from financing activities:
Sale of common stock ................................... 201 84
Proceeds on borrowings ................................. 3,000 20,831
Payments on borrowings ................................. (5,000) (9,375)
Payments on capital leases ............................. (999) (699)
-------- --------
Net cash provided by financing activities .............. (2,798) 10,841
-------- --------
Increase/(decrease) in cash and cash equivalents ...... 2,017 (31)
Cash and cash equivalents at beginning of period ....... 1,155 85
-------- --------
Cash and cash equivalents at end of period ............. $ 3,172 $ 54
======== ========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest ............................................... $ 1,672 $ 410
Income taxes ........................................... $ 1,824 $ 1,435
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
HomeTown Buffet, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. In the opinion of Management, the accompanying unaudited consolidated
Financial Statements contain all adjustments, which are of a normal
recurring nature, necessary to present fairly the financial position
as of July 17, 1996 and the results of operations for the twelve weeks
ended July 17, 1996 and July 12, 1995 and the results of operations
and cash flows for the twenty-eight weeks ended July 17, 1996 and July
12, 1995. The results of operations for the twelve weeks and
twenty-eight weeks are not necessarily indicative of the results for
the entire fiscal year ending January 1, 1997.
These financial statements have been prepared by HomeTown Buffet, Inc.
(the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such regulations, although the
Company believes the disclosures provided are adequate to prevent the
information presented from being misleading.
These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's
Annual Report for the fiscal year ended January 3, 1996.
2. Primary and fully diluted net income per share are computed using the
weighted average number of common and dilutive common equivalent
shares assumed to be outstanding during the period. Common equivalent
shares consist of options to purchase common shares. The treasury
stock method was used to calculate the common equivalent number of
shares from options.
6
