SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15 (d) of
The Securities Exchange Act of 1934
For Quarter Ended: Commission File Number
July 15, 1998 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 AUGUST 3,1998
----- -------------------------------
Common Stock, $.01 par value 45,686,215 shares
1
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BUFFETS, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets-
December 31, 1997 and July 15, 1998............................. 3
Consolidated Statements of Operations- Twenty-Eight Weeks
ended July 16, 1997 and July 15, 1998 and Twelve Weeks ended
July 16, 1997 and July 15, 1998 ................................ 4
Consolidated Statements of Cash Flows-
Twenty-Eight Weeks ended July 16, 1997
and July 15, 1998............................................... 5
Notes to Consolidated Financial Statement ...................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................ 7
PART II. OTHER INFORMATION ..............................................12
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
BUFFETS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
DECEMBER 31, JULY 15,
1997 1998
------------ --------
(in thousands, except par value amounts)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 43,030 $ 79,977
Receivable from landlords ....................................... 1,430 1,358
Inventory ...................................................... 4,934 3,971
Prepaid rents.................................................... 2,133
Other current assets ............................................ 1,986 1,793
Refundable income taxes.......................................... 1,313
Deferred income taxes ........................................... 12,418 12,762
-------- --------
TOTAL CURRENT ASSETS ........................................ 65,111 101,994
PROPERTY AND EQUIPMENT:
Land............................................................ 15,688 15,688
Building........................................................ 31,773 32,460
Equipment ...................................................... 246,006 256,457
Leasehold improvements ......................................... 203,874 212,932
-------- --------
497,341 517,537
Less accumulated depreciation and amortization ................. 166,694 187,701
-------- --------
330,647 329,836
GOODWILL, net of accumulated amortization of $1,965 and
$2,161, respectively ........................................... 5,624 8,958
OTHER ASSETS ...................................................... 2,194 1,914
-------- --------
$403,576 $442,702
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................... $ 29,910 $ 28,474
Accrued payroll and related benefits ........................... 15,520 17,690
Accrued rents .................................................. 15,640 16,161
Accrued sales taxes ............................................ 3,393 5,224
Accrued insurance............................................... 5,561 6,429
Accrued store closing costs..................................... 7,955 7,664
Other accrued expenses ......................................... 5,310 7,213
Income taxes payable............................................ 10,729
Current portion of capital leases............................... 2,239 2,087
-------- --------
TOTAL CURRENT LIABILITIES ................................... 85,528 101,671
LONG-TERM DEBT .................................................... 41,500 41,500
LONG-TERM PORTION OF CAPITAL LEASES................................ 2,954 1,772
DEFERRED INCOME ................................................... 212
DEFERRED INCOME TAXES ............................................. 6,695 6,522
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized 5,000 shares;
none issued and outstanding
Common stock, $.01 par value; authorized 60,000 shares;
issued and outstanding 45,371 and
45,683 shares, respectively ................................. 454 457
Additional paid-in capital ..................................... 117,626 120,714
Retained earnings .............................................. 148,607 170,066
-------- --------
TOTAL STOCKHOLDERS' EQUITY .................................. 266,687 291,237
-------- --------
$403,576 $442,702
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
BUFFETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
TWENTY-EIGHT WEEKS ENDED TWELVE WEEKS ENDED
JULY 16, JULY 15, JULY 16, JULY 15,
1997 1998 1997 1998
-------- -------- -------- -------
(in thousands, except per share amount)
<S> <C> <C> <C> <C>
RESTAURANT SALES....................... $431,277 $461,408 $190,536 $204,579
RESTAURANT COSTS:
Food costs ................... 147,531 150,029 63,752 65,473
Labor costs .................. 129,913 138,689 56,112 60,178
Direct and occupancy costs ... 104,719 106,838 45,768 46,966
-------- -------- -------- --------
Total restaurant costs ....... 382,163 395,556 165,632 172,617
-------- -------- -------- --------
RESTAURANT PROFITS .................... 49,114 65,852 24,904 31,962
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ...... 24,111 31,455 10,841 13,562
OTHER SITE CLOSING COSTS .............. 200
-------- -------- -------- --------
25,003 34,197 14,063 18,400
OTHER (EXPENSE) INCOME ................ (632) 697 (147) 453
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES .......... 24,371 34,894 13,916 18,853
INCOME TAXES .......................... 9,504 13,435 5,424 7,259
-------- -------- -------- --------
NET EARNINGS .......................... $ 14,867 $ 21,459 $ 8,492 $ 11,594
======== ======== ======== ========
EARNINGS PER SHARE:
Basic......................... $.33 $.47 $.19 $.25
======== ======== ======== ========
Diluted....................... $.32 $.45 $.18 $.24
======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
ASSUMED OUTSTANDING:
Basic......................... 45,203 45,471 45,219 45,567
Diluted....................... 49,028 49,972 49,070 50,506
</TABLE>
See Notes to Consolidated Financial Statements.
4
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BUFFETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
TWENTY-EIGHT WEEKS ENDED
JULY 16, JULY 15,
1997 1998
------- -------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings ............................................... $14,867 $21,459
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization ............................ 21,735 22,499
Impairment of assets and site closing costs............... 200
Tax benefit from early disposition of
common stock........................................... 143 557
Deferred income........................................... (212) (212)
Deferred income taxes .................................... 212 (517)
Changes in assets and liabilities net of acquisitions:
Inventory ............................................. (379) 1,036
Other current assets .................................. 2,072 (1,940)
Refundable income taxes................................ 1,313
Other assets .......................................... (2) 95
Accounts payable ...................................... (2,870) (1,669)
Accrued payroll and related benefits .................. 1,893 2,170
Accrued store closing costs............................ (840) (291)
Other accrued expenses ................................ 4,215 5,106
Income taxes payable .................................. 5,855 10,729
------- -------
Total adjustments ..................................... 31,822 39,076
------- -------
Net cash provided by operating activities.............. 46,689 60,535
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net of retirements ................... (29,571) (20,358)
Purchase of eleven restaurants.............................. (5,557)
Cash received from landlords ............................... 2,409 1,127
------- -------
Net cash used in investing activities ................. (27,162) (24,788)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of employee stock options............ 198 2,534
Payments on capital leases.................................. (1,098) (1,334)
------- -------
Net cash (used in) provided by
financing activities ................................. (900) 1,200
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS .............................. 18,627 36,947
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ......................... 10,772 43,030
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................. $29,399 $79,977
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of capitalized interest of $142
and $149 in 1997 and 1998, respectively).................... $ 1,922 $ 1,846
Income taxes ............................................... 3,294 1,353
</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 July 15, 1998 and the
results of operations for the twelve weeks ended July 16, 1997 and July
15, 1998 and the results of operations and cash flows for the
twenty-eight weeks ended July 16, 1997 and July 15, 1998.
2. These statements should be read in conjunction with the Notes to
Consolidated Financial Statements contained in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 and
with Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing on pages 7 through 12 of this quarterly
report.
3. Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." For the
periods presented, comprehensive income is the same as net earnings.
4. On May 11, 1998, the Company reached an agreement in principle to
purchase 11 Country Harvest Buffet restaurants from Country Harvest
Buffet Restaurants, Inc. of Seattle, Washington. The transaction closed
on June 29, 1998, and became effective on June 30, 1998.
5. Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings
per share assumes conversion of convertible subordinated notes as of
the beginning of the year and exercise of stock options using the
treasury stock method, if dilutive. The following is a reconciliation
of the numerators and denominators used to calculate diluted earnings
per share:
<TABLE>
Twenty-Eight Twenty-Eight Twelve Twelve
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
July 16, July 15, July 16, July 15,
1997 1998 1997 1998
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net earnings ..................... $14,867 $21,459 $ 8,492 $11,594
Interest on convertible
subordinated notes (after tax)... 954 962 409 412
------- ------- ------- -------
Income available to common
shareholders and assumed
conversion ...................... $15,821 $22,421 $ 8,901 $12,006
======= ======= ======= =======
Weighted average common
shares outstanding............... 45,203 45,471 45,219 45,567
Dilutive effect of:
Convertible subordinated notes... 3,556 3,556 3,556 3,556
Stock options.................... 269 945 295 1,383
------- -------- ------- -------
Common shares assuming dilution... 49,028 49,972 49,070 50,506
======= ======== ======= =======
</TABLE>
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 are comprised of twelve weeks. When a
fifty-three week year occurs, the Company's fourth quarter consists of thirteen
weeks.
RESULTS OF OPERATIONS
TWELVE WEEKS ENDED JULY 15, 1998
- --------------------------------
RESTAURANT SALES. Restaurant sales of $204.6 million during the second quarter
of 1998 represented a 7.4% increase over sales of $190.5 million for the
comparable period of 1997, primarily due to sales generated by new restaurants,
and a comparable restaurant sales increase of 2.5%. One new restaurant opened in
the second quarter of 1998 compared to two during the second quarter of 1997,
bringing the total number of Company-owned restaurants to 376 at the end of the
quarter, including the acquisition of eleven Country Harvest restaurants, (246
Old Country Buffet, 113 HomeTown Buffet, 4 Original Roadhouse Grill, 11 Country
Harvest, 1 PIZZAPLAY, and 1 Country Roadhouse Buffet & Grill), compared to 357
restaurants open at the end of the second quarter of 1997. Average weekly sales
per restaurant for the second quarter of 1998 increased 2.2% to $46,532 from
$45,543 in the comparable period of 1997. The seven new restaurants opened
during 1998 generated average weekly sales of $55,686 during the second quarter.
The Company's price increases have been close to the inflation rate.
RESTAURANT COSTS. As a percentage of restaurant sales, total restaurant costs
decreased to 84.4% for the second quarter of 1998 from 86.9% for the second
quarter of 1997. Food costs as a percentage of restaurant sales decreased to
32.0% from 33.5%, due primarily to a reduction in the cost of various meat
products; and labor costs remained constant at 29.4%. Direct and occupancy costs
decreased as a percentage of restaurant sales to 23.0% in 1998 from 24.0% in
1997, due to decreases in various restaurant costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses as a percentage of restaurant sales increased to 6.6% in
the second quarter of 1998 from 5.7% in the second quarter of 1997. Such
expenses in absolute terms increased 25.1% to $13.6 million for the second
quarter of 1998 from $10.8 million for the comparable period of 1997, primarily
due to a increase in advertising expense in the 1998 quarter. The Company
7
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is anticipating doubling its marketing spending in 1998 versus the prior year,
to approximately $18.0 million which includes the development of four new
television commercials which started airing in March of 1998.
INCOME TAXES. Income taxes were 38.5% of earnings before income taxes for the
1998 quarter and 39.0% in the 1997 quarter.
TWENTY-EIGHT WEEKS ENDED JULY 15, 1998
- --------------------------------------
RESTAURANT SALES. For the first twenty-eight weeks of 1998, restaurant sales
increased 7.0% to $461.4 million from $431.3 million in 1997, primarily due to
sales generated by new restaurants, and comparable sales increased by 2.8%.
Seven new restaurants opened in the first half of 1998, compared to 12 new
restaurants opened in the first half of 1997. The average weekly sales per
restaurant in the 1998 period increased by 2.7% to $45,312 from $44,139 in 1997.
RESTAURANT COSTS. Restaurant costs for the first twenty-eight weeks in 1998
increased to $395.6 million from $382.2 million in 1997. As a percentage of
restaurant sales, the 1998 period costs were 85.7% and the 1997 period costs
were 88.6%. Food costs decreased to 32.5% from 34.2% for the comparable periods;
and labor costs remained constant at 30.1%. Direct and occupancy costs decreased
to 23.1% in the first twenty-eight weeks of 1998 from 24.3% in the comparable
period in 1997, due to decreases in various restaurant costs including
janitorial and repair and maintenance expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the first twenty-eight weeks
of 1998, selling, general and administrative expenses increased to $31.5 million
from $24.1 million in 1997. This increase was primarily due to a increase in
advertising expense in 1998. As a percentage of sales, selling, general and
administrative expenses increased to 6.8% in the 1998 period from 5.6% in the
1997 period. This increase was attributable to higher advertising costs, which
for the first twenty-eight weeks of 1998 were 1.9% of restaurant sales compared
to .7% in the comparable 1997 period.
INCOME TAXES. Income taxes were 38.5% of earnings before income taxes for the
1998 period and 39.0% for the 1997 period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's restaurants generate cash immediately through sales. New
restaurants are generally profitable shortly after opening. The Company does not
have significant assets in the form
8
<PAGE>
of trade receivables or inventory, and often receives several weeks of trade
credit from food and supply purveyors; therefore, the Company's operations
generate substantial cash which is available to fund new restaurants. The
investment of cash flow from operations in restaurant property and equipment may
result in a "working capital deficit" (current liabilities exceeding current
assets) which, to a considerable extent, represents interest-free financing from
trade creditors that the Company intends to continue to utilize.
The Company currently has an unsecured revolving line of credit of up to
$50 million with interest payable at the option of the Company, at the
applicable "eurodollar rate", "certificate of deposit rate", or the "reference
rate" of the bank at the time of the advance. The Company is also required to
pay a commitment fee equal to 1/4 of 1% per annum of the unused balance, payable
quarterly in arrears. 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
July 15, 1998, the Company had no borrowings outstanding under this credit line.
In 1995, HomeTown Buffet, Inc., a wholly-owned subsidiary of the Company
("HomeTown"), issued $41.5 million in aggregate principal amount of 7.0%
subordinated convertible notes due on December 1, 2002. Interest is payable
semi-annually on June 1 and December 1, commencing June 1, 1996. The notes are
convertible into shares of the Company's common stock at a conversion price of
$11.67, subject to adjustment under certain conditions, at any time until
maturity. The notes are subordinated in right of payment to all existing and
future senior indebtedness 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.
The Company continues to require substantial amounts of capital to fund its
growth. On June 30, 1998 the Company completed the acquisition of eleven Country
Harvest restaurants from Country Harvest Buffet Restaurants, Inc. The Company
anticipates that most of these restaurants will be converted to one of the
Company's other existing restaurant concepts.
The Company currently expects to open an additional 12 to 14 new
restaurants in 1998 and convert two restaurants, principally from Old Country
Buffets to Country Roadhouse Buffet and Grills, with nine new restaurants
already opened (excluding the Country Harvest acquisitions) and one conversion
completed on August 5, 1998.
9
<PAGE>
On May 12, 1998, the Company's Board of Directors authorized the
expenditure of up to $40 million for the purchase of outstanding shares of the
Company's common stock, to be effected from time to time in transactions on the
Nasdaq National Market or otherwise. To date, no such transactions have
transpired, and there is currently no certainty that such purchases will occur,
or at what level.
The Company expects to spend an aggregate of approximately $40 to $45
million during 1998 on its restaurants being opened in 1998 depending on the
level of contributions obtained from landlords for leasehold improvements and
the amount of land purchased for freestanding buildings, and the start of
construction at a new corporate office located in Eagan, Minnesota. It will also
incur costs in remodeling and converting the 11 acquired Country Harvest
Restaurants, although those costs are not currently estimable. 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 that 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
approximately 50% of 1998 new locations will be freestanding units, and of the
freestanding restaurants virtually all will be ground leased rather than owned.
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, purchase
shares of the Company's common stock and the additional restaurants and
restaurant conversions included in the Company's restaurant development plans
for at least through fiscal 1998 and fiscal 1999, subject to the factors
described below in the section captioned "Forward-looking Information." 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.
NON-PERFORMING RESTAURANTS
The Company evaluates impairment of individual restaurants whenever
events or changes in circumstances indicate the carrying amount of a restaurant
may not be recoverable. If individual restaurant sales during the third quarter
do not meet management's expectations, it is reasonably possible although not
currently quantifiable that the Company will incur impairment charges. The
Company has reviewed all underperforming locations and is considering options
for these locations including expanding advertising or conversion to a different
brand or concept.
10
<PAGE>
YEAR 2000 COMPLIANCE
All major internal information systems have been replaced due to the
Company's growth in the last four years. Year 2000 issues were addressed when
selecting and implementing these systems. All hardware, software, phone and
security systems have been reviewed for year 2000 compliance. The Company will
continue to invest in technology to accommodate the Company's future growth.
Compliance with year 2000 is a byproduct of these upgrades.
ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which is effective for the Company
beginning January 1, 1998. SFAS No. 131 redefines how operating segments are
determined and requires disclosures of certain financial and descriptive
information about a company's operating segments. The adoption of SFAS No. 131
will result in the Company continuing to operating in one segment, the casual
dining restaurant segment.
FORWARD-LOOKING INFORMATION
Certain statements in this Quarterly Report (which are summarized below)
and in the Company's press releases and oral statements made by or with the
approval of the Company's executive officers constitute or will constitute
"forward-looking statements." All forward-looking statements involve risks and
uncertainties, and actual results may be materially different. The following
factors are among those that could cause the Company's actual results to differ
materially from those set forth in such forward-looking statements.
The ability of the Company to open new restaurants, and the allocation
of new restaurants among the Company's currently available and future concepts,
depends on a number of factors, including its ability to find suitable locations
and negotiate acceptable leases and land purchases, its ability to attract and
retain a sufficient number of qualified restaurant managers, the comparative
potential return and risk associated with the particular restaurant concept, and
the availability of capital. The proportion of new restaurants that will be
freestanding units, either owned or leased, rather than in-line mall locations
will depend upon the availability and cost of suitable mall locations. The costs
of restaurant development and conversion will depend upon the level of
contributions from landlords for leasehold improvements, the actual number of
freestanding sites utilized in such development and whether such sites involve
land purchases, the cost of building supplies and general construction risks and
costs.
11
<PAGE>
The ultimate level of television advertising expenditures in 1998 will
be contingent upon the effectiveness of the commercials, the availability and
cost of advertising air time, and changes in the Company's marketing priorities.
The Company's ability to generate revenue as currently expected, unexpected
expenses and the need for additional funds to react to changes in the
marketplace, including unexpected increases in personnel costs and food supply
costs, may impact whether the Company has sufficient cash resources to fund its
restaurant and corporate office development and restaurant conversion plans for
1998 and early 1999 and purchase outstanding shares of the Company's stock. The
prospect of future restaurant conversions is contingent upon the costs of the
conversions, the financial return anticipated with such conversions, and the
availability of viable alternative concepts. The Company periodically reviews
the operating results of individual restaurants to determine if impairment
charges on underperforming assets are necessary, and the need for restaurant
closings, and it is reasonable to expect that such actions will be required from
time to time in the future. There is no certainty that currently available
sources of cash will remain available to the Company over time.
Other factors that could cause actual results of the Company to differ
materially from those contained in any such forward-looking statements include
general economic conditions, the actions of existing and future competitors,
weather factors, the success of conversions, unforseen health and safety
developments regarding restaurant operations, and regulatory constraints. The
Company assumes no obligation to publicly release the results of any revision or
updates to these forward-looking statements to reflect future events or
unanticipated occurrences.
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. This action is a consolidation of four
separate lawsuits. The first lawsuit was commenced by ZSA Asset
Allocation Fund and ZSA Equity Fund on or about November 7, 1994.
Three other substantially similar actions were filed shortly
thereafter by alleged shareholders Marc Kushner, Trustee for
Service Lamp Corp. Profit Sharing Plan, Jerrine Fernandes, and
John J. Nuttall. By Pretrial Order No. 1, entered in early
January 1995, the District Court ordered that the four lawsuits
be consolidated into the single pending action and that
plaintiffs serve and file a Consolidated Amended
12
<PAGE>
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, the District Court dismissed
the Second Complaint without prejudice, with leave to plaintiffs
to replead. On November 8, 1996, plaintiffs filed their Third
Amended, Consolidated Class Action Complaint (the "Third
Complaint"). Defendants moved to dismiss the Third Complaint. By
Memorandum Opinion and Order filed on January 6, 1998, the
District Court denied defendants' motion to dismiss the
plaintiff's Corrected, Third Amended, Consolidated Class Action
Complaint.
The Third Complaint is against the Company and several of
its current and former 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 Company's 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 the
Company's operations and restaurant development activities, as a
result of which the price of the Company's stock allegedly was
artificially inflated during the Class Period. The Third
Complaint further alleges that certain defendants made sales of
Common Stock of the Company during the Class Period while in
possession of material undisclosed information about the
Company's operations and restaurant development activities. The
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 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.
13
<PAGE>
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on May
12, 1998. At the meeting the number of directors of the Company
was set at six, six directors were elected, the two stock option
matters were approved and the appointment of Deloitte & Touche
LLP as the Company's independent auditors for the current year
was approved, by the following votes:
ELECTION OF DIRECTORS FOR WITHHOLD NONVOTES
--------------------- ---------- -------- --------
Walter R. Barry, Jr. 40,006,854 250,069 0
Marvin W. Goldstein 40,006,364 250,559 0
Roe H. Hatlen 40,007,854 249,069 0
Alan S. McDowell 40,007,464 249,459 0
C. Dennis Scott 40,007,689 249,234 0
Michael T. Sweeney 40,006,864 250,059 0
FOR AGAINST ABSTAIN NONVOTES
---------- ---------- ------- --------
Amending the Buffets, 30,090,251 10,095,528 71,143 1
Inc. 1995 Stock
Option Plan
FOR AGAINST ABSTAIN NONVOTES
---------- --------- ------- --------
Approval of Buffets, 36,961,005 3,144,838 51,079 1
Inc. Non-Employee
Director Stock Option
Plan
FOR AGAINST ABSTAIN NONVOTES
---------- ------- ------- --------
Approval of auditors 40,175,354 33,875 47,694 0
Item 5. Other Information
None
Item 6. Exhibits and reports on Form 8-K
a) Exhibits
3(a) Composite Amended and Restated Articles of
Incorporation (1)
3(b) By-laws of the Company (2)
14
<PAGE>
4(a) Form of Rights Agreement, dated as of October 24,
1995 between the Company and the American Stock
Transfer and Trust Company, as Rights Agent (3)
27 Financial Data Schedule
b) Reports on 8-K
None
(1) Incorporated by reference to Exhibit 4.1 to Registration Statement on Form
S-3 dated June 2, 1993 (Registration No. 33- 63694).
(2) Incorporated by reference to Exhibit 3(b) to Annual Report on Form 10-K
for the fiscal year ended December 29, 1993.
(3) Incorporated by reference to Exhibit 1 to Report on Form 8-K dated October
24, 1995.
15
<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)
August 6, 1998
/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)
16
<PAGE>
EXHIBIT INDEX
EXHIBITS PAGE
3(a) Composite Amended and Restated
Articles of Incorporation............Incorporated by Reference
3(b) By-laws of the Company...............Incorporated by Reference
4(a) Form of Rights Agreement, dated as of
October 24, 1995 between the Company
and the American Stock Transfer and
Trust Company, as Rights Agent.......Incorporated by Reference
27 Financial Data Schedule..............Filed Electronically
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE PERIOD ENDED JULY 15, 1998.
</LEGEND>
<CIK> 0000750274
<NAME> Buffets, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUL-15-1998
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<SECURITIES> 0
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<CURRENT-LIABILITIES> 101,671
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0
0
<COMMON> 457
<OTHER-SE> 290,780
<TOTAL-LIABILITY-AND-EQUITY> 442,702
<SALES> 461,408
<TOTAL-REVENUES> 461,408
<CGS> 395,556
<TOTAL-COSTS> 395,556
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 1,854
<INCOME-PRETAX> 34,894
<INCOME-TAX> 13,435
<INCOME-CONTINUING> 21,459
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<NET-INCOME> 21,459
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<EPS-DILUTED> .45
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