<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Quarterly Report under Section 13 or 15 (d) of
The Securities Exchange Act of 1934
For Quarter Ended: Commission File Number
October 9, 1996 0-14370
BUFFETS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1462294
(State of incorporation) (I.R.S. Employer Identification No.)
10260 Viking Drive, Eden Prairie, MN 55344
(Address of principal executive offices)
(612) 942-9760
(Registrant's telephone number)
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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date.
Class Outstanding as of November 20,1996
----- ----------- -- -- -------- -------
Common Stock, $.01 par value 45,086,243 shares
<PAGE>
BUFFETS, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets-
January 3, 1996 and October 9, 1996 . . . . . . . . . 3
Consolidated Statements of Earnings-
Forty Weeks ended October 4, 1995
and October 9, 1996 and Twelve Weeks
ended October 4, 1995 and
October 9, 1996 . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows-
Forty Weeks ended October 4, 1995
and October 9, 1996 . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . 10
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
BUFFETS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 3, OCTOBER 9,
ASSETS 1996 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . $ 14,530 $ 27,217
Short-term investments . . . . . . . . . . . . . . . . . . 27,828
Receivable from landlords. . . . . . . . . . . . . . . . . 3,212 2,154
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . 4,138 3,990
Notes receivable . . . . . . . . . . . . . . . . . . . . . 11
Prepaid rents. . . . . . . . . . . . . . . . . . . . . . . 1,950 1,654
Other current assets . . . . . . . . . . . . . . . . . . . 2,849 1,962
Refundable income taxes. . . . . . . . . . . . . . . . . . 1,829
Deferred income taxes. . . . . . . . . . . . . . . . . . . 6,592 11,145
-------- --------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . 62,939 48,122
-------- --------
PROPERTY AND EQUIPMENT:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,661 15,687
Building . . . . . . . . . . . . . . . . . . . . . . . . . 27,414 49,279
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . 216,452 227,699
Leasehold improvements . . . . . . . . . . . . . . . . . . 170,794 148,242
-------- --------
428,321 440,907
Less accumulated depreciation and amortization . . . . . . 99,748 130,980
-------- --------
328,573 309,927
GOODWILL, net of accumulated amortization of $1,274 and
$1,534, respectively . . . . . . . . . . . . . . . . . . . 5,365 6,055
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . 2,875 2,263
-------- --------
$399,752 $366,367
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . $ 36,732 $ 27,171
Accrued payroll and related benefits . . . . . . . . . . . 14,961 15,475
Accrued rents. . . . . . . . . . . . . . . . . . . . . . . 11,985 18,052
Accrued sales taxes. . . . . . . . . . . . . . . . . . . . 3,609 4,595
Accrued insurance. . . . . . . . . . . . . . . . . . . . . 4,363 4,785
Accrued store closing costs. . . . . . . . . . . . . . . . 1,631 7,777
Other accrued expenses . . . . . . . . . . . . . . . . . . 3,035 1,550
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 620
Current portion of capital leases. . . . . . . . . . . . . 2,012 2,160
Short-term debt. . . . . . . . . . . . . . . . . . . . . . 2,000
-------- --------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . 80,328 82,185
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . 55,500 41,500
LONG-TERM PORTION OF CAPITAL LEASES. . . . . . . . . . . . . 7,143 5,504
DEFERRED INCOME. . . . . . . . . . . . . . . . . . . . . . . 598 342
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . . . . 13,749 3,057
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000 shares
authorized; none issued and outstanding
Common stock, $.01 par value; 60,000 shares
authorized; issued and outstanding 44,833 and
45,073 shares, respectively. . . . . . . . . . . . . . . 448 451
Additional paid-in capital . . . . . . . . . . . . . . . . 114,774 116,058
Retained earnings. . . . . . . . . . . . . . . . . . . . . 127,212 117,270
-------- --------
TOTAL STOCKHOLDERS' EQUITY. . . . . . . . . . . . . . . 242,434 233,779
-------- --------
$399,752 $366,367
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
BUFFETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FORTY WEEKS ENDED TWELVE WEEKS ENDED
--------------------------- ----------------------------
OCTOBER 4, OCTOBER 9, OCTOBER 4, OCTOBER 9,
1995 1996 1995 1996
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
RESTAURANT SALES . . . . . . . . . . . $497,154 $580,663 $162,860 $180,909
RESTAURANT COSTS:
Food costs. . . . . . . . . . . . . 175,808 202,064 57,485 63,334
Labor costs . . . . . . . . . . . . 139,485 166,257 44,844 51,801
Direct and occupancy costs. . . . . 110,339 137,001 36,440 44,028
-------- -------- -------- --------
Total restaurant costs. . . . . . . 425,632 505,322 138,769 159,163
-------- -------- -------- --------
RESTAURANT PROFITS . . . . . . . . . . 71,522 75,341 24,091 21,746
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES . . . . . . 31,158 36,070 10,872 11,663
MERGER AND OTHER RELATED COSTS . . . . 6,584 6,584
DUPLICATE SITE CLOSING COSTS . . . . . 10,702 10,702
IMPAIRMENT OF ASSETS . . . . . . . . . 27,739 27,739
OTHER SITE CLOSING COSTS . . . . . . . 4,547 4,547
-------- -------- -------- --------
40,364 (10,301) 13,219 (39,489)
OTHER INCOME (EXPENSE) NET . . . . . . 637 (941) 196 (427)
-------- -------- -------- --------
EARNINGS (LOSS) BEFORE INCOME
TAX (EXPENSE) BENEFIT. . . . . . . . 41,001 (11,242) 13,415 (39,916)
INCOME TAX (EXPENSE) BENEFIT . . . . . (15,492) 1,300 (5,064) 12,470
-------- -------- -------- --------
NET EARNINGS (LOSS). . . . . . . . . . $ 25,509 ($9,942) $ 8,351 ($27,446)
-------- -------- -------- --------
-------- -------- -------- --------
NET EARNINGS (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE . . . . $.56 ($.22) $.18 ($.60)
-------- -------- -------- --------
-------- -------- -------- --------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING . . . . . . . . . . . . . 45,279 45,490 45,439 45,073
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
BUFFETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FORTY WEEKS ENDED
--------------------------
OCTOBER 4, OCTOBER 9,
1995 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss). . . . . . . . . . . . . . . . . . . . $25,509 $ (9,942)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . 24,535 31,508
Impairment of assets and site closing costs. . . . . . 42,988
Tax benefit from early disposition of common stock . . 199 186
Deferred income. . . . . . . . . . . . . . . . . . . . (256)
Deferred income taxes. . . . . . . . . . . . . . . . . (343) (15,245)
Changes in assets and liabilities:
Inventory. . . . . . . . . . . . . . . . . . . . . . (581) 148
Other current assets . . . . . . . . . . . . . . . . 1,678 1,194
Refundable income taxes. . . . . . . . . . . . . . . 1,829
Other assets . . . . . . . . . . . . . . . . . . . . 196 242
Accounts payable . . . . . . . . . . . . . . . . . . (3,734) (9,561)
Accrued payroll and related benefits . . . . . . . . 955 514
Other accrued expenses . . . . . . . . . . . . . . . 7,077 7,483
Income taxes currently payable . . . . . . . . . . . 1,570 620
-------- --------
Total adjustments. . . . . . . . . . . . . . . . . 31,552 61,650
-------- --------
Net cash provided by operating activities. . . . . 57,061 51,708
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments. . . . . . . . . . . . . . . . . . (8,140) (125,251)
Proceeds from sale of investments. . . . . . . . . . . . . 15,588 153,079
Purchase of minority interest in HTB I . . . . . . . . . . (950)
Capital expenditures, net of retirements
and net receipts from landlords. . . . . . . . . . . . . (76,815) (51,469)
Cash receipts from landlords . . . . . . . . . . . . . . . 4,983 1,960
-------- --------
Net cash used in investing activities. . . . . . . (64,384) (22,631)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of employee's stock options . . . . 1,655 1,101
Payments of long-term debt . . . . . . . . . . . . . . . . (2,000) (14,000)
Net borrowings (payments) on short-term debt . . . . . . . 3,654 (2,000)
Proceeds from borrowings on capital leases . . . . . . . . 10,002
Payments on capital leases . . . . . . . . . . . . . . . . (1,162) (1,491)
-------- --------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . . 12,149 (16,390)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . 4,826 12,687
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . 6,907 14,530
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . $11,733 $27,217
-------- --------
-------- --------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (Net of capitalized interest of $264 and
$252 in 1995 and 1996, respectively). . . . . . . . . . . $ 805 $ 2,300
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 12,792 11,212
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
BUFFETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of Management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position
of Buffets, Inc. and subsidiaries as of October 9, 1996 and the results of
operations for the twelve weeks ended October 4, 1995 and October 9, 1996
and the results of operations and cash flows for the forty weeks ended
October 4, 1995 and October 9, 1996.
The Company's balance sheets as of January 3, 1996, and October 9, 1996,
and the statement of operations for the twelve weeks ended October 9,
1996, have been restated. The restatement had no effect on stockholders'
equity as of October 9, 1996, or previously reported net loss for the
forty weeks ended October 9, 1996. The Company's balance sheets have been
restated to classify deferred rents in a manner consistent with future
presentations and properly reflect the allocation of deferred taxes
between the current deferred income tax asset and the noncurrent deferred
income tax liability. The Company's statement of operations for the twelve
weeks ended October 9, 1996, has been restated to properly record the
intraperiod income tax (expense) benefit for the first three quarters
of 1996.
2. On September 20, 1996, the Company completed the acquisition of HomeTown
Buffet, Inc. ("HomeTown"). The acquisition was accounted for as a pooling
of interests. Accordingly, the historical unaudited consolidated financial
statements for all periods have been restated to include the operations of
HomeTown. In connection with the acquisition, the Company issued
approximately 13,733,700 shares of its common stock and issued options
covering, in the aggregate, approximately 1,967,200 shares of its common
stock in substitution for previously outstanding HomeTown stock options.
In addition, the Company guaranteed the obligations of HomeTown under
HomeTown's outstanding 7% Subordinated Convertible Notes, and Company
common stock will be issued upon any conversion thereof. Approximately
$41.5 million in principal amount of the Notes are currently outstanding.
In connection with the acquisition, the Company incurred approximately
$17,286,000 of merger and merger-related costs, including $6,584,000 for
investment banking, accounting, legal and other merger costs and
$10,702,000 for the closure of five duplicate restaurants and HomeTown's
San Diego headquarters.
3. During the twelve weeks ended October 9, 1996, the Company also recorded
certain charges, including $4,547,000 relating to the closure of three non-
performing restaurants and $27,739,000 relating to the application of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of."
4. These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained in the Company's and HomeTown
Buffets, Inc.'s Annual Report on Form 10-K for the fiscal year ended
January 3, 1996 and with Management's Discussion and Analysis of Financial
Condition and Results of Operations appearing on pages 7 thru 9 of this
quarterly report.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The Company operates on a fifty-two or fifty-three week fiscal year, which ends
on the Wednesday nearest December 31. The Company's first quarter consists of
sixteen weeks; all other quarters include only twelve weeks. When a fifty-three
week year occurs, the Company's fourth quarter consists of thirteen weeks.
The Company completed the acquisition of HomeTown Buffet, Inc., on September 20,
1996. The acquisition of HomeTown was accounted for as a pooling of interests.
Accordingly, all historical financial information for Buffets, Inc. and
subsidiaries have been restated to include the operations of HomeTown as though
the two entities have always been combined.
RESULTS OF OPERATIONS
TWELVE WEEKS ENDED OCTOBER 9, 1996
RESTAURANT SALES. Restaurant sales of $180.9 million during the third quarter
of 1996 represented a 11.0% increase over sales of $162.9 million for the
comparable period of 1995, primarily due to sales generated by new restaurants.
Seven new restaurants opened in the third quarter of 1996, bringing the total
number of Company-owned restaurants to 341 at the end of the quarter. Average
weekly sales per restaurant for the third quarter of 1996 decreased 4.7% to
$44,730 from $46,948 in the comparable period of 1995. Comparable restaurant
sales for the quarter were down 6.8% from the comparable 1995 period. The
Company's price increases have been in line with inflation.
RESTAURANT COSTS. As a percentage of restaurant sales, total restaurant costs
increased to 88.0% for the third quarter of 1996 from 85.2% for the third
quarter of 1995. Food costs as a percentage of restaurant sales decreased
slightly to 35.0% from 35.3%. Labor costs increased to 28.6% in 1996 from 27.5%
in 1995 primarily due to increased wages for management and hourly employees.
Direct and occupancy costs increased to 24.4% from 22.4% in the prior year,
primarily due to increases in various restaurant costs and lower average
restaurant sales volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of restaurant sales decreased to 6.4% in
the third quarter of 1996 from 6.7% in the third quarter of 1995. Such expenses
in absolute terms increased to $11.7 million for the third quarter of 1996 from
$10.9 million for the comparable quarter of 1995. Advertising costs as a
percentage of restaurant sales for the period decreased to 1.3% in 1996 from
2.1% in 1995.
MERGER COSTS, DUPLICATE SITE CLOSING COSTS AND IMPAIRMENT OF ASSETS. Merger
costs were $17,286,000, of which $6,584,000 was for investment banking,
accounting, legal and other merger costs and $10,702,000 was for the closure of
five duplicate restaurants and HomeTown's San Diego headquarters. Non-merger
charges included $4,547,000 relating to the closure of three non-performing
restaurants and $27,739,000 relating to the application of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of." The Company
determined that an impairment write down was necessary for these locations
because of a significant drop in
7
<PAGE>
average weekly sales and corresponding trend of increasing operating losses at
these locations during the first 40 weeks of fiscal 1996 (a period that includes
the fiscal third quarter, which traditionally has been a strong quarter for
sales). The SFAS No. 121 impairment was determined based upon 38 specific
restaurant locations which had incurred operating or cash flow losses. It was
computed using estimated fair value of the assets and the associated future cash
flows of the specific location. HomeTown Buffet represented 27% of the
impairment. Depreciation of the impaired assets and losses from eight
restaurants amounted to $3,777,000 through the third quarter of fiscal year
1996 ($2,342,000 or $.05 per share after taxes).
INCOME TAX (EXPENSE) BENEFIT. Income taxes reflect a tax benefit of $12.5
million, or 31.2% of the loss before income tax benefit for the twelve weeks
ended in 1996. The Company's effective tax rate for 1996 was lower than the
statutory rate primarily due to certain merger related costs which are not
deductible for tax purposes. The Company's effective income tax rate was
37.7% for the third quarter of 1995. This rate is higher then the statutory
rate primarily due to state income taxes.
FORTY WEEKS ENDED OCTOBER 9, 1996.
RESTAURANT SALES. For the first forty weeks in 1996, restaurant sales increased
16.8% to $580.7 million from $497.2 million in 1995, primarily due to the
addition of new restaurants. The Company opened 31 restaurants in the first
forty weeks of 1996 as compared to 33 in the first forty weeks of 1995. The
average weekly sales per restaurant decreased 2.1% to $44,275 from $45,206 in
1995. Comparable restaurant sales were down 3.4%. The Company's price increases
have been in line with inflation.
RESTAURANT COSTS. Restaurant costs for the first forty weeks in 1996 increased
to $505.3 million from $425.6 million in 1995. As a percentage of sales,
restaurant costs increased to 87.0% in 1996 from 85.6% in 1995. Food costs
decreased to 34.8% from 35.4% due primarily to decreases in the costs of fruits,
vegetables, and seafood; labor costs increased to 28.6% from 28.0% due to
increased wages for management and hourly employees; and direct and occupancy
costs increased to 23.6% from 22.2% in 1996 and 1995 primarily due to utility,
repair and maintenance and other costs and lower average restaurant sales
volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the first forty weeks of
1996, selling, general and administrative expenses increased to $36.1 million
from $31.2 million in 1995. As a percentage of sales, selling, general and
administrative expenses decreased slightly to 6.2% in 1996 from 6.3% in 1995.
Advertising expenses as a percentage of sales was 1.2% in 1996 compared to 1.0%
in 1995. The Company expects advertising expenses for the current year as a
percentage of sales to be approximately 1.0%.
INCOME TAX (EXPENSE) BENEFIT. Income taxes reflect a tax benefit of $1.3
million or 11.6% of the loss before income tax benefit for the forty weeks in
1996 compared to 37.8% in the comparable forty weeks of 1995. The Company's
effective tax rate for 1996 was lower than the statutory rate primarily due
to certain merger related costs which are not deductible for tax purposes.
The Company's effective tax rate for 1995 was more than the statutory rate
primarily due to state income taxes.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company currently has a unsecured revolving line of credit of up to
$50 million. The Company is required to pay a quarterly commitment fee equal to
1/4 of 1% per annum of the unused balance. On July 1, 1999, 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
July 1, 2002. As of October 9, 1996, the Company had no borrowings outstanding
under this credit line.
The Company continues to require substantial amounts of capital to fund its
growth. The Company currently expects to open approximately 43 to 45 new
restaurants during 1996, with 31 already opened at October 9, 1996. Seven new
restaurants opened during the quarter and 21 other units were under construction
at quarter end, with approximately 12 to 14 restaurants expected to open during
the fourth quarter.
The Company expects to spend an aggregate of approximately $18 to $20
million during the remainder of 1996 on its restaurants being opened in 1996,
depending on the level of contributions obtained from landlords for leasehold
improvements and the amount of land purchased for freestanding buildings. 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 less than 10% of
1996 new locations will be purchased freestanding units built and owned by the
Company. The Company estimates that approximately 25% of 1996 locations will be
freestanding leased units. Sources of capital for restaurant development
projects 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 at least through fiscal 1997.
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.
FORWARD-LOOKING INFORMATION
This quarterly report contains forward-looking statements, including
statements regarding advertising costs, the number of restaurants expected to be
opened during the remainder of 1996 and the availability of capital resources
necessary to meet requirements through at least fiscal 1997. In addition to the
factors discussed herein, other factors that could cause actual results to
differ materially include adverse weather conditions, the success of the
Company's advertising program, changes in food supply costs and general economic
conditions. In addition, 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 qualified restaurant managers and the availability of capital.
9
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
IN RE BUFFETS, INC. SECURITIES LITIGATION, United States
District Court for the District of Minnesota, Master No. 3-94-
1447, is a consolidation of four separate lawsuits involving
Buffets. 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 Court ordered
the dismissal of the Complaint upon motion by the defendants, but
granted plaintiffs leave to replead. Plaintiffs filed their
Second Amended, Consolidated Class Action Complaint (the "Second
Complaint") on December 11, 1995. Defendants moved to dismiss
the Second Complaint. On September 11, 1996, Judge Michael J.
Davis, of the District Court dismissed the Second Complaint
without prejudice, with leave to plaintiffs to replead within 60
days after September 11, 1996. On Friday, November 8, 1996,
plaintiffs filed their Third Amended, Consolidated Class Action
Complaint (the "Third Complaint").
The Third Complaint is against Buffets and several of its
officers and directors. In the Third Complaint, plaintiffs seek
to represent a putative class consisting of all persons and
entities (excluding defendants and certain others) who purchased
shares of the Buffets Common Stock during the period commencing
October 26, 1993 and ending October 25, 1994 (the "Class
Period"). The Third Complaint alleges that the defendants made
misrepresentations and omissions of material fact during the
Class Period with respect to Buffets operations and restaurant
development activities, as a result of which the price of the
Buffets stock allegedly was artificially inflated during the
Class Period. The Third Complaint further alleges that certain
defendants made sales of Buffets Common Stock during the Class
Period while in possession of material undisclosed information
about the Company's operations and restaurant development
activities. The Third 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
10
<PAGE>
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.
On August 9, 1996, HTB Restaurants, Inc. ("HTB
Restaurants"), a franchisee of HomeTown, along with its parent
entities, Summit Family Restaurants, Inc. and CKE Restaurants,
Inc. (the "Plaintiffs"), filed suit against the Company and
HomeTown in United States District Court for the District of
Utah, Central Division. The suit alleges, among other things,
that the Company and HomeTown have illegally conspired to
restrict competition and to prevent the Plaintiffs from
developing additional HomeTown Buffet restaurants under the
Multiple Unit Agreement between HomeTown and HTB Restaurants (the
"Multiple Unit Agreement"). The continued viability of the
Multiple Unit Agreement, which provides HTB Restaurants with
exclusive HomeTown Buffet restaurant development rights in the
states of Arizona, Colorado, Idaho, Montana, Nevada, New Mexico,
Utah and Wyoming, is the subject of pending arbitration between
HomeTown and HTB Restaurants (see below). The suit includes
claims against the Company and HomeTown for violations of both
federal and state antitrust laws, claims for unfair business
practices, and claims for tortious interference with contract and
economic relations. The suit also alleges claims against
HomeTown for breach of contract and breach of the covenant of
good faith and fair dealing. Plaintiffs seek up to $160 million
in damages and sought to enjoin the merger between the Company
and HomeTown. On September 19, 1996, Judge Dee V. Benson, of the
United States District Court, denied Plaintiffs' motion for
preliminary injunctive relief. The Company and HomeTown intend
to vigorously defend the lawsuit.
HomeTown previously has given HTB Restaurants notice that it
has breached its obligation to develop restaurants under the
Multiple Unit Agreement and, therefore, HTB Restaurants'
exclusive development rights thereunder have terminated. HTB
Restaurants and its parent company, Summit Family Restaurants,
Inc., have commenced an arbitration proceeding against HomeTown
before the American Arbitration Association. The Statement of
Claim alleges that termination of the Multiple Unit Agreement is
wrongful or improper and requests that HomeTown be precluded from
terminating HTB Restaurants' exclusive rights under the Multiple
Unit Agreement. HTB Restaurants and Summit Family Restaurants
have requested from the arbitrator the following alternative
forms of relief: (i) an order voiding all existing franchise
agreements between HomeTown and HTB Restaurants; (ii) an order
permitting termination of the Multiple Unit Agreement but
requiring the payment by HomeTown of $20 million in damages; or
(iii) an order enjoining termination of the Multiple Unit
Agreement, enjoining any construction of any HomeTown Buffet or
Old Country Buffet restaurant in the exclusive territory and
requiring the Company to divest itself of any current
11
<PAGE>
Old Country Buffet restaurants operating in the territory. The
Company and HomeTown believe that the termination of the Multiple
Unit Agreement was proper and, in any event, much of the relief
requested is inappropriate because it involves contracts and
parties not part of the arbitration proceeding. The hearing
before the arbitrator is scheduled to take place on November 25-
27, 1996, in Salt Lake City, Utah.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
A Special Meeting of Shareholders of the Company was held on
September 19, 1996. At the meeting, the shareholders of the
Company approved the issuance of shares of Company Common Stock
in accordance with the terms of the Agreement and Plan of Merger,
dated June 3, 1996, among the Company, HomeTown Buffet, Inc. and
Country Delaware, Inc., by the following votes:
FOR AGAINST ABSTAIN NONVOTES
--- ------- ------- --------
24,574,615 97,616 62,660 0
Item 5. Other Information
None
Item 6. Exhibits and reports on Form 8-K
a) Exhibits
10.1) Amendment No. 1 dated as of September 20, 1996 to Second
Amended and Restated Credit Agreement by and between the Company
and First Bank National Association (1)
10.2) Indenture dated as of November 27, 1995 related to 7%
Convertible Subordinated Notes of HomeTown Buffet, due December
1, 2002 (2)
10.3) First Supplemental Indenture dated as of September 20, 1996
among the Company, HomeTown and Wells Fargo Bank, N.A. (3)
10.4) Employment Agreement dated September 20, 1996, between the
Company and Kerry A. Kramp
10.5) Multiple Unit Agreement dated October 9, 1991 between HTB
Restaurants, Inc. and HomeTown, and amendments thereto. (4)
10.6) Promissory Note issued by Kerry A. Kramp to Registrant and
Pledge Agreement between Kerry A. Kramp to HomeTown, each dated
August 23, 1993. (5)
12
<PAGE>
10.7) Promissory Note issued by Thomas F. Hubbard to HomeTown and
Pledge Agreement between Thomas F. Hubbard and HomeTown, each
dated November 9, 1993. (5)
10.8) Promissory Note dated April 13, 1995 issued by Kerry A.
Kramp. (6)
27) Financial Data Schedule
b) The Company filed a Report on Form 8-K dated September 16, 1996
(regarding an Item 5 disclosure) relating to the Company's Press
Release dated September 16, 1996.
The Company filed a Report on Form 8-K dated September 20, 1996
(regarding an Item 2 disclosure) relating to the acquisition of
HomeTown Buffet, Inc.
- ------------------------------
(1) Incorporated by reference to Exhibit 4.5 to the Company's Registration
Statement on Form 8-A, dated November 8, 1996.
(2) Incorporated by reference to Exhibit 4.6 to the Company's Registration
Statement on Form 8-A, dated November 8, 1996.
(3) Incorporated by reference to Exhibit 4.7 to the Company's Registration
Statement of Form 8-A, dated November 8, 1996.
(4) Incorporated by reference from Exhibits to HomeTown's Registration
Statement on Form S-1, as amended, effective September 22, 1993 (Commission
Registration No. 33-67326). Confidential treatment for a portion of this
agreement has been granted to HomeTown by the Commission.
(5) Incorporated by reference from Exhibits to HomeTown's Registration
Statement on Form S-1, as amended, effective March 23, 1994 (Commission
Registration No. 33-75810).
(6) Incorporated by reference from Exhibits to HomeTown's Annual Report on Form
10-K for the period ended January 3, 1996 filed with the Commission on
March 29, 1996.
13
<PAGE>
SIGNATURES
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.
(Registrant)
March 28, 1997
/s/ Roe H. Hatlen
------------------------------
Roe H. Hatlen
Chairman of the Board,
Chief Executive Officer
(Principal Executive Officer)
/s/ Clark C. Grant
------------------------------
Clark C. Grant
Executive Vice President of
Finance and Administration
and Treasurer
(Principal Financial
Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibits Page
-------- ----
10.4) Employment Agreement dated
September 20, 1996, between the
Company and Kerry A. Kramp . . . . . . . . . . . Filed Electronically
27 Financial Data Schedule . . . . . . . . . . . . Filed Electronically
