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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended: Commission file number:
December 29, 1999 0-14370
BUFFETS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1462294
(State of incorporation) (IRS Employer Identification No.)
1460 Buffet Way, Eagan, MN 55121
(Address of principal executive offices) (Zip code)
(651) 994-8608
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.01 per share
Preferred Share Purchase Rights
7% Convertible Subordinated Notes due 2002
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the shares of voting stock held by
non-affiliates of the registrant was approximately $336,931,000 at March 21,
2000, based on the closing sale price for that date as reported on The NASDAQ
National Market.
On March 21, 2000, there were 41,546,812 shares of common stock of the
Company, par value $.01 per share, outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for its 2000 Annual Meeting to
be held May 9, 2000 are incorporated by reference in Part III. Portions of
Registrant's Annual Report to Shareholders for the fiscal year ended December
29, 1999 (the "1999 Annual Report") are incorporated by reference in Parts I, II
and IV.
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PART I
ITEM 1. BUSINESS
GENERAL
Buffets, Inc., a Minnesota corporation ("Buffets" or the "Company"),
was organized in 1983. Its executive offices are located at 1460 Buffet Way,
Eagan, Minnesota 55121. In September 1996, Buffets acquired HomeTown Buffet,
Inc., a Delaware corporation ("HomeTown Buffet"), as discussed below. References
herein to the "Company" are to Buffets, Inc. and its subsidiaries,
Dinertainment, Inc., Distinctive Dining, Inc., HomeTown Buffet, Inc., OCB
Restaurant Co., OCB Realty Co., OCB Purchasing Co., OCB Property Co., Restaurant
Innovations, Inc. and Tahoe Joe's, Inc. unless the context indicates otherwise.
On September 20, 1996, HomeTown Buffet merged with Country Delaware,
Inc., a Delaware corporation and a wholly-owned subsidiary of the Company, with
HomeTown Buffet as the surviving corporation (the "Merger"). Under the Merger,
HomeTown Buffet became a wholly-owned subsidiary of the Company. In connection
with the Merger, which was accounted for as a pooling of interests, the Company
issued a total of 13,733,728 shares of its common stock in exchange for all
outstanding shares of HomeTown Buffet common stock (at an exchange ratio of 1.17
shares of Company common stock for each share of HomeTown Buffet common stock).
The Company also assumed options covering, in the aggregate, 1,967,167 shares of
the Company's common stock in substitution for previously outstanding options to
acquire shares of HomeTown Buffet's common stock. In addition, the Company
guaranteed the obligations of HomeTown Buffet under its outstanding 7%
Subordinated Convertible Notes, and the Company's common stock will be issued
upon any conversion thereof. Approximately $41.5 million in principal amount of
these notes were outstanding at the time of the Merger.
The Company is principally engaged in the development and operation of buffet
style restaurants under the names Old Country Buffet(R) ("OLD COUNTRY BUFFET")
("COUNTRY BUFFET" in the states of Colorado and Wyoming), HomeTown Buffet(R)
("HOMETOWN BUFFET") and Granny's Buffet ("GRANNY'S BUFFET"). The Company
obtained a federal trademark registration covering the words OLD COUNTRY BUFFET
in June of 1985. Under the Merger, the Company gained access to a perpetual
license to the HOMETOWN BUFFET mark, including a California state trademark
registration and a U.S. trademark application pending to register HOMETOWN
BUFFET. The Company obtained federal trademark registration of the name "THE
ORIGINAL ROADHOUSE GRILL" in June of 1999 and the name "COUNTRY ROADHOUSE BUFFET
& GRILL" in February of 2000. The
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trademark Country Harvest Buffet(R) is licensed to the Company by Country
Harvest Buffet Restaurants, Inc. for possible use at certain restaurants
acquired from that company. "Tahoe Joe's" is a registered trademark of Tahoe
Joe's, Inc. The trademark "Granny's Buffet" was purchased pursuant to the
Granny's Buffet acquisition.
As of March 22, 2000, the Company operated 403 Company-owned
restaurants (253 OLD COUNTRY BUFFET, 126 HOMETOWN BUFFET, 11 Original Roadhouse
Grill(R) ("ORIGINAL ROADHOUSE GRILL"), six Granny's Buffet(R) ("GRANNY'S
BUFFET"), three Country Roadhouse Buffet & Grill(R) ("COUNTRY ROADHOUSE BUFFET
& GRILL"), three Tahoe Joe's Famous Steakhouse(R) ("TAHOE JOE'S FAMOUS
STEAKHOUSE"), and one Soup `N Salad Unlimited(SM) (SOUP `N SALAD)) in 38 states
(including two new openings and the sale of two restaurants since fiscal
year-end 1999). The Company contemplates that approximately 16 to 22 (eight to
ten buffet style restaurants and eight to twelve non-core buffet restaurants)
primarily freestanding Company-owned restaurants will be opened in 2000. In
addition, the Company has 24 franchised restaurants (five OLD COUNTRY BUFFET and
19 HOMETOWN BUFFET) in operation in ten states.
The Company's buffet restaurants offer a wide variety of freshly
prepared menu items, currently including soups, salads, entrees, vegetables,
non-alcoholic beverages and desserts, presented in a self-service buffet format
in which customers select the items and portions of their choice. The
restaurants' typical dinner entrees currently include chicken, carved roast beef
and ham, and two or three other hot entrees such as casseroles, shrimp and fish.
Chicken, fish and two or three other entrees usually are offered at lunch. The
Company's restaurants utilize uniform menus, recipes and ingredient
specifications, except for certain variations adopted in response to regional
preferences.
The Company's buffet restaurants have an average size of approximately
10,000 square feet, seat from 225 to 600 people, and generally include areas
that can be partitioned to accommodate private meetings and group outings. The
decor is attractive and informal. To date, the Company has located its
restaurants primarily within or adjacent to strip or neighborhood shopping
centers and, to a lesser extent, regional malls. The Company has 114
freestanding locations, 25 of which it owns. The Company's buffet restaurants
generally are open from 11:00 a.m. to 8:00 p.m. or 9:00 p.m. A majority of the
Company's buffet restaurants also serve breakfast from 8:00 a.m. to 11:30 a.m.
on weekends.
SCATTER SYSTEM FORMAT
Buffet items generally are presented to diners using a "scatter system"
rather than a conventional straight buffet serving
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line. Under the scatter system, six to eight separate food islands or counters
are typically used to present various courses of each meal to diners (for
example, salads on one island, desserts on another), with diners able to proceed
directly to those islands presenting the menu items they desire at the time. The
scatter system promotes easier food access and has helped reduce the long lines
that often occurred during peak hours in the Company's restaurants originally
utilizing the conventional straight-line serving format.
SMALL BATCH PREPARATION
To ensure freshness, hot foods and bakery items are prepared repeatedly
throughout the day in relatively small batches. Restaurant managers closely
monitor the servicing area for the quality and availability of all items. The
Company believes the freshness achieved through small batch preparation
contributes significantly to the high quality of its food.
ALL-INCLUSIVE PRICE
Depending on the market area, the Company's buffet restaurants
currently charge an all-inclusive price of $5.89 to $6.59 for lunch, Monday
through Saturday, and $6.99 to $9.19 for dinner Monday through Sunday. On
Saturday and Sunday, certain restaurants serve breakfast at prices ranging from
$5.89 to $6.69. Reduced prices are available to senior citizens who purchase an
annual senior club card for $1.00 per year and to children under the age of ten
or twelve depending on the market area. Children's prices for all meals are $.45
to $.70 per year of their age from two through ten or twelve depending on the
market and in limited markets $2.59 to $4.49 depending on age. Customers pay
prior to entering the dining area and are assisted to tables by restaurant
employees. They may return for second helpings and additional beverages and
desserts without additional charge. This all-inclusive pricing approach exists
at virtually all of the Company's buffet restaurants, although alternative
pricing and service arrangements are occasionally implemented on a test basis.
BUFFET RESTAURANT OPERATIONS AND CONTROLS
GENERAL. In order to maintain a consistently high level of food quality
and service in all of its restaurants, the Company has established uniform
operational standards which are implemented by the managers of each restaurant.
All restaurants are required to be operated in accordance with rigorous
standards and specifications relating to the quality of ingredients, preparation
of food, maintenance of premises and employee conduct.
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MENU SELECTION AND PURCHASING. Headquarters personnel prepare and
periodically revise standard recipes and menus and a list of approved
ingredients and supplies based upon the quality, availability, cost and customer
acceptance of various menu items. Food quality is maintained through centralized
coordination with suppliers and frequent restaurant visits by District
Representatives and other management personnel.
The Company purchases its food and beverage inventories and restaurant
supplies from independent suppliers approved by headquarter personnel, who
negotiate quality specifications, delivery schedules and pricing and payment
terms (typically 28 days) directly with the suppliers. Although all supplier
invoices are paid from Company headquarters, restaurant managers place orders
for inventories and supplies with, and receive shipments directly from,
suppliers. Restaurant managers approve invoices before forwarding them to
Company headquarters for payment. To date, the Company has not experienced any
difficulties in obtaining food and beverage inventories or restaurant supplies,
and the Company does not anticipate that any material difficulties will develop
in the foreseeable future.
RESTAURANT MANAGEMENT. Each buffet restaurant typically employs a
Senior General Manager or General Manager, Kitchen Manager, Service Manager, and
one to two assistant managers. Each of the Company's restaurant General Managers
has primary responsibility for day-to-day operations in one of the Company's
restaurants, including customer relations, food service, cost controls,
restaurant maintenance, personnel relations, implementation of Company policies
and the restaurant's profitability. A portion of each general manager's and
other restaurant manager's compensation depends directly on the restaurant's
profitability. In addition, restaurant managers may be eligible to received
stock options under the Company's current stock option program entitling them to
acquire an equity interest in the Company. In 1997, the Company also implemented
a "PRIDE" program providing financial incentives to General Managers making a
three year service commitment in a single restaurant. The program was designed
to enhance the retention of restaurant managers and to build a sense of
proprietorship. The Company believes that its compensation policies have been
important in attracting, motivating and retaining qualified operating personnel.
Each restaurant general manager reports to a District Representative,
each of whom in turn reports to a Regional Director (currently 12 persons). Each
Regional Director reports to one of four divisional heads (two divisional Vice
Presidents and two Senior Regional Directors), who in turn report to the
Company's Executive Vice President of Operations.
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The Company maintains centralized financial and accounting controls for
its restaurants. On a daily basis, restaurant managers forward customer counts,
sales, labor costs and deposit information to Company headquarters. On a weekly
basis, restaurant managers forward a summarized profit and loss statement, sales
report, and supplier invoices. Payroll data is generally forwarded every two
weeks.
MANAGEMENT TRAINING. The Company has a series of training programs that
are designed to provide managers with the appropriate knowledge and skills
necessary to be successful in their current position. All new restaurant
managers hired from outside the Company and hourly employees considered for
promotion to restaurant management are required to complete nine days of
classroom training at the corporate headquarters in Eagan, Minnesota. After
their initial instruction, new management candidates then continue their
training for two to four weeks in a certified training restaurant in the field.
The information covered includes basic management skills, food production, labor
management, operating programs and human resource management.
Advancement is tied to both current operational performance and
training. Individuals designated for promotion to the position of General
Manager attend a specialized 8 day training program conducted at the corporate
headquarters. This program focuses on advanced management skills with emphasis
on team building and performance accountability.
In addition to these programs, a series of field seminars are conducted
for all existing management covering topics from ServSafe, the Company's food
safety procedures, to management and human resource skills.
OTHER (NON-BUFFET) RESTAURANT CONCEPTS.
The Company currently operates four restaurant concepts, comprising 18
restaurants, that differ from the core buffet business. The newest concept, SOUP
`N SALAD UNLIMITED opened in December 1999. It is a limited buffet, offering
assorted soups, salads, breads and sandwiches. The Company purchased two TAHOE
JOE'S FAMOUS STEAKHOUSES in April 1999 and has opened one additional unit in
2000. The three Tahoe Joe's Famous Steakhouses are upscale casual dining
restaurants featuring steaks, seafood, and various other entrees served in large
portions in a fun atmosphere. Three COUNTRY ROADHOUSE BUFFET & GRILLs are
currently in operation, featuring many of the elements of the Company's buffet
restaurants, while adding display cooking of grill offerings in a relaxed
country atmosphere. The 11 Company operated ORIGINAL
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ROADHOUSE GRILL restaurants do not utilize buffet style food service, but
instead feature steaks, seafood and other entrees ordered from a menu and then
prepared using an "on display" grill. At the commencement of HomeTown's
development activities involving its ORIGINAL ROADHOUSE GRILL restaurants, it
engaged a predecessor in interest to Roadhouse Grill, Inc. to provide certain
consulting services in exchange for the payment of defined consulting fees. That
agreement was terminated by the mutual agreement of the parties in March, 1998
and the Company and Roadhouse Grill, Inc. are free to develop their respective
variant on the ROADHOUSE GRILL theme without restriction. The Company agreed, as
part of the termination understanding, to rename its existing and future
ROADHOUSE GRILL restaurants with an alternative name that adds one or more words
before "ROADHOUSE" or "ROADHOUSE GRILL" and subsequently adopted the ORIGINAL
ROADHOUSE GRILL tradename. The ORIGINAL ROADHOUSE GRILL and the Tahoe Joe's
Famous Steakhouse restaurants are currently the Company's only units serving
alcohol. The real estate leases for the buffet restaurants generally reserve the
right to serve alcohol although this privilege has not been exercised to date.
FRANCHISING AND JOINT VENTURES
OLD COUNTRY BUFFET FRANCHISES. There are currently five franchised OLD
COUNTRY BUFFET restaurants in Nebraska and Oklahoma, owned by two franchisees.
The Company's OLD COUNTRY BUFFET franchise agreements generally have initial
terms of 15 years and require the franchisee to pay an initial fee of $25,000
and continuing royalties equal to four percent of the franchisee's sales. The
Company has an agreement with each franchisee whereby the Company has options
exercisable at various times over the next several years to repurchase the Old
Country Buffet restaurants developed by such franchisee at a predetermined
formula price based principally on restaurant gross sales.
HOMETOWN BUFFET FRANCHISES. HomeTown Buffet has three franchisees: HTB
Restaurants, Inc. ("HTB Restaurants"), Chi-Chi's, Inc. ("Chi-Chi's") and Carlton
A. Hargrave, Inc. ("Hargrave").
With respect to each franchised restaurant, HTB Restaurants and
HomeTown Buffet entered into a separate franchise agreement. HTB Restaurants
paid an initial franchise fee for each new HOMETOWN BUFFET restaurant opened and
a percentage royalty fee based on gross sales. Under its agreements with HTB
Restaurants, HomeTown Buffet has a right of first refusal with respect to the
sale of the HOMETOWN BUFFET restaurants operated by HTB Restaurants and any
transfer of franchise rights granted by HomeTown to HTB Restaurants would
require HomeTown Buffet's consent, which may not be unreasonably withheld.
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In May 1993, Chi-Chi's opened a HOMETOWN BUFFET restaurant in Peabody,
Massachusetts. Chi-Chi's opened a second franchised unit in March 1994 in
Wichita, Kansas.
Hargrave operates a single franchised restaurant in Calexico,
California, which opened in December 1993. HomeTown Buffet served as general
contractor for the restaurant and in connection with the construction loaned
Hargrave approximately $150,000. The loan was fully paid in 1994. In April 1995
HomeTown Buffet made a loan to Hargrave in the principal amount of $100,000 and
an additional $100,000 in October 1995 under a promissory note that permits
Hargrave to borrow up to $200,000 in principal amount. The note provides for
interest to be paid at 1% above the announced reference rate of USBank. All
outstanding principal and interest on the note was due on December 31, 1995 and
remains due and payable at this time. HomeTown Buffet agreed to defer Hargrave's
franchise royalty payments, commencing April 1995. Hargrave resumed paying
franchise royalty payments starting July 17, 1997 with prior unpaid royalties
still due and payable.
HomeTown Buffet's standard franchise agreement has a 15-year term (with
two five-year renewal options) and provides for a one-time payment to HomeTown
Buffet of an initial franchise fee and a continuing royalty fee at a variable
rate of between 2% and 4% of gross sales. HomeTown Buffet collects weekly sales
reports from its franchisees as well as periodic and annual financial
statements.
Each HOMETOWN BUFFET franchisee is responsible for selecting the
location for its restaurant, subject to HomeTown Buffet approval. HomeTown
Buffet considers such factors as demographics, competition, traffic volume and
patterns, parking, site layout, size and other physical characteristics in
approving proposed sites. In addition, all site and building plans and
specifications must be approved by HomeTown Buffet.
Franchisees must operate their HOMETOWN BUFFET restaurants in
compliance with HomeTown Buffet's operating and recipe manuals. Franchisees are
not required to purchase food products or other supplies through HomeTown
Buffet's or the Company's suppliers. Each franchised restaurant is required at
all times to have a designated Manager and Assistant Manager who have completed
the required manager training program. For the opening of a restaurant, HomeTown
Buffet provides consultation and makes its personnel generally available to a
franchisee. In addition, HomeTown Buffet sends a team of personnel to the
restaurant for up to two weeks to assist the franchisee and its managers in the
opening, the initial marketing and training effort as well as the overall
operation of the restaurant.
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The HOMETOWN BUFFET franchisees do not currently have any contractual
rights to develop additional HomeTown Buffet restaurants, and they and their
affiliates are constrained from certain development activities involving other
buffet restaurants.
HomeTown Buffet may terminate a franchise agreement for a number of
reasons, including a franchisee's failure to pay royalty fees when due, failure
to comply with applicable laws, or repeated failure to comply with one or more
requirements of the franchise agreement. Many state franchise laws limit the
ability of a franchisor to terminate or refuse to renew a franchise. Generally,
a franchisee may terminate a franchise agreement only if HomeTown Buffet
violates a material and substantial provision of the agreement and fails to
remedy the violation within a specified period.
JOINT VENTURES. The Company has taken advantage of joint venture
opportunities from time to time, principally as a means of entering new
geographic markets or testing new restaurant concepts.
On March 7, 1997, the Company used this approach to test a new
restaurant concept under the tradename PIZZAPLAY. The PIZZAPLAY concept combines
Italian-style buffet service with family oriented games. One location opened
December 2, 1997 in Columbus, Ohio and was closed in early 1999. The Company
holds 80% of the outstanding capital stock of Dinertainment, Inc., the
subsidiary that operated the one PIZZAPLAY restaurant.
On April 7, 1999 the Company acquired an 80% interest in Tahoe Joe's
Inc., an operator of two restaurants and the Tahoe Joe's Famous Steakhouse
concept for approximately $6.8 million, net of liabilities and cash acquired.
One additional restaurant has been opened in 2000.
The Company at present is not actively seeking to grant additional
franchises or enter into additional joint ventures relating to its various
restaurant concepts. It may, however, continue to utilize joint ventures from
time to time to test new restaurant concepts.
COMPETITION
The food service industry is highly competitive. Menu, price, service,
convenience, location and ambiance are all important competitive factors, with
the relative importance of many such factors varying among different segments of
the consuming public.
By providing a wide variety of food and beverages at
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reasonable prices in an attractive and informal environment, the Company seeks
to appeal to a broad range of value-oriented consumers. The Company believes
that its primary competitors in this industry segment are other buffet and
cafeteria restaurants, and traditional family and casual dining restaurants with
full menus and table service. Secondary competition arises from many other
sources including but not limited to home meal replacement, fast food, and
others. The Company believes that its success to date has been due to its
particular approach combining pleasant ambiance, high food quality, breadth of
menu, cleanliness and reasonable prices with satisfactory levels of service and
convenience.
Sales are seasonal, with a lower percentage of annual sales occurring
in most of its current market areas during the winter months. Sales may also be
affected by unusual weather patterns or matters of public interest that compete
for the customers' attention.
ADVERTISING AND PROMOTION
The Company's advertising spending was 1.3% and 2.0% of restaurant
sales during 1997 and 1998, respectively. In 1999, the Company increased its
advertising to 2.4% of restaurant sales and expects to increase spending to
approximately 2.7% of restaurant sales in 2000.
REGULATION
The Company's restaurants must be constructed to meet federal, state
and local building and zoning requirements and must be operated in accordance
with state and local regulations relating to the preparation and serving of
food. The Company is also subject to various federal and state labor laws which
govern its relationships with its employees, including those relating to minimum
wages, overtime and other working conditions. Environmental regulations have not
had a material effect on the operations of the Company. The Company to date has
been successful in obtaining all necessary permits and licenses and complying
with applicable regulations, and does not expect to encounter any material
difficulties in the future with respect to these matters, subject to the
discussion in the section below captioned "RISK FACTORS ASSOCIATED WITH
REGULATION."
TRADEMARKS
In June 1985, the Company obtained a federal trademark registration
covering the words "Old Country Buffet." As previously stated, the Company has
subsequently obtained trademark
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protection for additional marks used in its business, including exclusive
license rights to the trademarks of HOMETOWN BUFFET in connection with the
Merger, ORIGINAL ROADHOUSE GRILL, COUNTRY ROADHOUSE BUFFET & GRILL, and PIZZA
PLAY. Generally, federal registration of a trademark gives the registrant the
exclusive use of the trademark in the United States in connection with the goods
or services associated with the trademark, subject to the common law rights of
any other person who began using the trademark (or a confusingly similar mark)
prior to the date of federal registration. Because of the common law rights of
such a pre-existing restaurant in certain portions of Colorado and Wyoming, the
Company's restaurants in those states use the name "Country Buffet." The Company
filed application for federal registration of the trademark "SOUP 'N SALAD
UNLIMITED" "Tahoe Joe's" is registered trademark of Tahoe Joe's, Inc. The
trademark "Granny's Buffet" was purchased pursuant to the Granny's Buffet
acquisition. The Company intends to take appropriate steps to develop and
protect its various marks.
EMPLOYEES
As of February 23, 2000, the Company employed approximately 25,000
persons, including approximately 440 supervisory and administrative, 1,835
managerial, and 22,725 restaurant employees. Approximately 58% of the Company's
restaurant employees work part-time. Relations with employees have been
satisfactory and no work stoppages due to labor disputes have occurred. The
Company anticipates that its work force will increase by approximately 5% by the
end of 2000, subject to unexpected turnover levels, availability of qualified
personnel and changes in restaurant development plans.
RESTAURANT DEVELOPMENT
GENERAL. The Company opened or acquired 25 restaurants and closed eight
in 1999 and expects to open or acquire approximately 16 to 22 primarily
freestanding restaurants in 2000 (approximately eight to ten buffet restaurants
and eight to twelve non-core buffet restaurants. When freestanding units
predominate the overall new unit development, such as is expected in 2000, the
Company can expect to realize higher development costs associated with the cost
of land, greater expense for constructing the building shell, and incrementally
higher expenditures for labor, materials, and general construction risks.
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
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comparative potential return and risk associated with the particular restaurant
concept, and the availability of capital. The Company actively and continuously
attempts to identify and negotiate leases and land purchases for additional new
locations, and expects that it will be able to achieve its intended development
schedule for 2000, though there is no assurance that this will be the case.
GEOGRAPHIC EXPANSION STRATEGY. The Company initially concentrated its
restaurant development in the Midwest and then after several years expanded to
other regions of the country. The Merger strengthened the Company's presence in
California and other key markets. The Company currently operates in 38 states,
41 states including franchised restaurants. The Company generally attempts to
cluster its restaurants in geographic areas to achieve economies of scale in
costs of supervision, marketing and purchasing.
SITE SELECTION CRITERIA. The primary criteria typically considered by
the Company in selecting new locations are a high level of customer traffic,
convenience to both lunch and dinner customers in demographic groups (such as
families and senior citizens) that tend to favor the Company's restaurants, and
the occupancy cost of the proposed restaurant. The Company has historically
found that these criteria frequently are satisfied by well-located strip
shopping centers that benefit from cotenancy with strong national retailers and
visibility to high traffic roads. All but 153 of the Company's current
restaurants are located in such centers. Thirty-nine of the other 153
restaurants are located in regional or other enclosed shopping malls and 114 are
located in freestanding structures. The Company predominately pursues
freestanding locations when the projected return on investment falls within
acceptable ranges or unique market positioning objectives are involved. The
Company typically requires a population density of at least 100,000 within five
miles of each new location, and currently is concentrating its development
efforts on urban areas that can accommodate a number of Company restaurants. The
Company has developed a small market prototype for test in four markets with a
population of at least 75,000. There is no certainty that the test will prove
successful or that the smaller prototype unit will be developed beyond the test
restaurant. Because OLD COUNTRY BUFFET or HOMETOWN BUFFET restaurants typically
draw a significant volume of customers, and because of the Company's financial
strength, the Company often has been able to negotiate favorable lease terms.
RESTAURANT CONSTRUCTION. In an effort to better control costs and
improve quality, the Company is closely involved in the construction of its
restaurants, and also in the acquisition and
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installation of fixtures and equipment. The Company, through its subsidiary OCB
Realty Co., generally acts as its own general contractor, using restaurant
designs prepared by the Company's own staff with final documents completed by an
outside architectural firm. The Company normally satisfies the equipment and
other restaurant supply needs of its new restaurants by purchasing from
equipment suppliers. Restaurants located in shopping centers typically open
approximately 11 weeks after construction begins, while freestanding restaurants
typically open approximately 17 weeks after construction begins. Freestanding
restaurants opened in 1999 cost an average of approximately $1,235,000 for
building and leasehold improvements and approximately $666,000 for equipment and
furnishings. It is expected that restaurants opening in 2000 will be primarily
freestanding buildings.
FORWARD-LOOKING INFORMATION
This Form 10-K, together with the Company's other ongoing securities
filings, press releases, conference calls and discussions with securities
analysts and other communications contains certain forward-looking statements
that involve risks and uncertainties. These statements relate to the Company's
future plans, objectives, expectations and intentions. These statements may be
identified by the Company using words such as "expects," "anticipates,"
"intends," "plans" and similar expressions. The Company's actual results could
differ materially from those disclosed in these statements, to various factors,
including the following "RISK FACTORS" and factors set forth elsewhere in this
Form 10-K. The Company assumes no obligation to publicly release the results of
any revision or updates to forward-looking statements or these risk factors to
reflect future events or unanticipated occurrences.
RISK FACTORS
Current and prospective shareholders should carefully consider the
following risk factors before trading in the Company's securities. This list of
risk factors is not exclusive. If any of the following risks actually occur,
they could have a material negative effect on the Company's business, financial
condition, operating results or cash flows. This could cause the trading price
of the Company's securities to decline, and security holders may lose part or
all of their investment in the Company.
RISKS ASSOCIATED WITH NEW DEVELOPMENT
The Company has historically added restaurants each year either through
new construction, acquisition, or both. It
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currently expects that this practice will continue in 2000 to the extent
described above in the section captioned "Restaurant Development." However, a
large number of variables affect restaurant development and the Company cannot
predict with certainty the ultimate level of restaurant additions, if any, in
any particular fiscal year. This is due to the unique aspects associated with
development transactions, such as the date sites become available, the speed
with which the Company can obtain required permits, the availability of
construction labor and materials, and how quickly the new restaurants can be
staffed. These factors also make it difficult to predict when new restaurants
will open and produce revenue.
Variables influencing new restaurant additions include the level of
success in identifying suitable locations and the negotiation of acceptable
leases and land purchases. This may become more difficult as competition
heightens for optimal sites. Other variables include, but are not limited to,
general competitive factors, land covenants restricting the Company's use of
sites, and signage restrictions imposed by land owners or governmental entities.
Traditionally, the Company has used cash flow from operations as its
primary funding for restaurant additions. The Company cannot guarantee that this
source of capital will be sufficient to attain the desired development levels if
adverse changes occur affecting revenues, profitability or cash flow from
operations. The Company's recent focus on freestanding rather than mall
locations has reduced the frequency and amount of landlord contributions towards
construction costs, reducing the capital available for development. The
Company's ability to purchase (rather than build) additional restaurants also
depends on the factors described in this section, as well as other factors.
These factors include the Company's ability to convert purchased restaurants to
one of the Company's existing restaurant concepts and to integrate them into the
Company's business or, alternatively, to successfully operate the acquired
business using its existing format.
Acquisitions involve a number of risks that could adversely affect the
Company's operating results, including the diversion of management's attention,
the assimilation of the operations and personnel of the acquired companies, the
amortization of acquired intangible assets and the potential loss of key
employees and established customers. No assurances can be given that any
acquisition or investment by the Company will not materially and adversely
affect the Company or that any such acquisition will enhance the Company's
business. If the Company ever determines to make major acquisitions of other
businesses or assets, the Company may be required to sell additional equity or
debt securities or
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obtain additional credit facilities. The sales, if any, of additional equity or
convertible debt securities could result in additional dilution to the Company's
stockholders.
RESTAURANT OPERATIONAL RISKS
The Company's restaurant operations are affected by changes in the cost
of food and labor and its ability to anticipate such changes. Operations depend
upon the complete and timely delivery of food and non-food items to the
restaurants. Consequently, interruptions in the flow of such products,
variations in product specifications, changes in product costs and similar
factors can have a material impact on the Company's results.
There have been historical instances of other reputable food service
companies being materially and adversely impacted by food-borne illness
incidents. Some of these incidents have involved third party food suppliers and
transporters outside of their reasonable control. The Company has rigorous
internal standards, training and other programs to attempt to minimize the risk
of these occurrences. However, the Company cannot guarantee that these efforts
will be fully effective in preventing all food-borne illnesses. New illnesses
resistant to current precautions may also develop in the future.
The Company also shares a risk common to all multi-unit food service
businesses. Specifically, one or more instances of food-borne illness in a
Company or franchised restaurant, poor health inspection scores, or negative
publicity can have a material negative impact extending far beyond the
restaurant involved to affect some or all of the Company's other foodservice
operations. This risk exists even if it is later determined that the incidents
were wrongly attributed to the Company's restaurants, or that the negative
publicity was false or misleading.
The Company's buffet restaurants utilize a service format that is
heavily dependent upon self-service by its customers. Any development that would
materially impede or prohibit the Company's continued use of a self service food
service approach would have a material adverse impact on the Company's primary
business.
The Company has an active Research and Development Department. The R&D
function exists to enhance the food offerings, food preparation systems, and
general service delivery of the Company's existing restaurant concepts. It is
also utilized to create new restaurant concepts for test. Innovations may also
arise as the result of acquisitions or joint ventures. New restaurant concepts
share a common characteristic due to their lack of a track record, that of
unpredictable long term potential. Consequently, during
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the early period of a new restaurant concept's life it is often unclear whether
it will turn into a major expansion vehicle or merely be a limited-unit test of
short duration.
The Company believes that it has been benefitted by television
marketing programs in recent years. Marketing programs are generally most
effective in the period immediately following their introduction when they
initiate trial usage by new customers. In the markets where the Company utilize
television marketing, virtually all have received coverage for more than a year.
It is therefore possible that future advertising in these markets will be less
successful than when the programs were first aired. The final level of
television advertising expenditures in 2000 will depend on the effectiveness of
the commercials, the availability and cost of advertising air time, and changes
in the Company's marketing priorities.
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. Impairment
charges reduce the profits of the Company. They are required by accounting
principles when an asset, such as a restaurant, performs so poorly that the
Company determines that the asset is worth less than its value as stated in the
Company's accounting records.
The Company's sales volumes fluctuate seasonally, and are generally
higher in the summer months and lower in the winter months overall.
The Company has not experienced a significant overall impact from
inflation. If operating expenses increase due to inflation, the Company recovers
increased costs by increasing menu prices. However, competition may limit or
prohibit future such increases, as discussed in the section below entitled
"COMPETITIVE RISKS."
Previous results at the Company's restaurants and at the Company
overall may not be indicative of future performance, as a result of any or all
of the risk factors discussed in the various sections in this Form 10-K
incorporating the words "RISK FACTORS."
HUMAN RESOURCE RELATED RISKS
The Company operates in the service sector and is extremely dependent
upon the availability of qualified restaurant personnel. Availability of staff
varies widely from location to location. Difficulty in recruiting and retaining
personnel can increase the cost of restaurant operations and temporarily delay
the openings of
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new restaurants. It can also cause higher employee turnover in the affected
restaurants. Additionally, competition for qualified employees exerts pressure
on wages paid to attract qualified personnel, resulting in higher labor costs,
together with greater expense to recruit and train them.
The operation of buffet style restaurants is materially different than
certain other restaurant concepts. Consequently, the retention of executive
management that is familiar with the Company's core business is important to the
Company's continuing success. The departure of multiple executives in a short
period of time could have an adverse impact on the Company's business.
The Company strives to maintain favorable relations with its employees
through various programs and initiatives. It believes that these efforts have
contributed to the organization's historical success as well as having
contributed to the absence of any collective bargaining. Adverse developments in
these areas could negatively affect the Company's business.
Various employment related legal risks also exist, which are discussed
in more detail in the sections below entitled "REGULATORY FACTORS" and
"LITIGATION RISKS."
RISKS ASSOCIATED WITH NON-COMPANY OWNED RESTAURANT OPERATIONS
The Company is limited in the manner in which it can regulate its
franchised restaurants, especially in real-time. If a franchised restaurant
fails to meet the Company's franchisor operating standards, the Company's own
restaurants could be adversely affected due to customer confusion or negative
publicity. A similar risk exists with respect to totally unrelated foodservice
businesses if customers mistakenly associate such unrelated businesses with the
Company's own operations.
RISKS ASSOCIATED WITH GENERAL CONDITIONS
The confidence of consumers generally, together with changes in
consumer preferences, can have a significant impact on the Company's results.
Positive or negative trends in weather condition can have an exceptionally
strong influence on the Company's business. This effect is heightened by the
fact that most of the Company's restaurants are in geographic areas experiencing
extremes in weather. The Company's success also depends to a significant extent
on factors affecting discretionary consumer spending, including economic
conditions, disposable consumer income and consumer confidence. Adverse changes
in these factors could reduce guest traffic or impose practical limits on
pricing, either of which could materially adversely affect the
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Company's business, financial condition, operating results or cash flows.
COMPETITIVE RISKS
The Company operates in a highly competitive industry. Competitive
pressures may have the affect of limiting the Company's ability to increase
prices, with consequent pressure on operating earnings. This environment makes
it more difficult for the Company to continue to provide high service levels
while maintaining the Company's reputation for superior value, without adversely
affecting operating margins.
REGULATORY FACTORS
The Company is subject to extensive government regulation at a federal,
state and local government level. These include, but are not limited to,
regulations relating to the sale of food (and alcoholic beverages in the
Company's full service restaurants). In the past, the Company has been able to
obtain and maintain necessary governmental licenses, permits and approvals.
However, difficulty or failure in obtaining them in the future could result in
delaying or canceling the opening of new restaurants. Local authorities may
suspend or deny renewal of the Company's governmental licenses if they determine
that the Company's conduct does not meet the standards for initial grant or
renewal. Although the Company has satisfied governmental licensing requirements
for its existing restaurants, the Company cannot be sure that these approvals
will be forthcoming at future locations. This risk would be even higher if there
was a major change in the licensing requirements affecting the Company's types
of restaurants.
The Company is also subject to certain states' "dram shop" statutes
with respect to its restaurants that serve alcohol. These statutes generally
provide a person injured by an intoxicated person the right to recover damages
from an establishment that served alcoholic beverages to the intoxicated person.
The Company carries liquor liability coverage as part of its existing
comprehensive general liability insurance. If the Company were to significantly
expand the number of restaurants serving alcohol, an adverse trend in alcohol
related judgments in excess of the Company's insurance coverage, or the
Company's failure to obtain and maintain insurance coverage, could materially
and adversely affect the Company.
Various federal and state labor laws govern the Company's relationship
with its employees and affect operating costs. These laws include minimum wage
requirements, overtime, unemployment tax rates, workers' compensation rates,
citizenship requirements and
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sales taxes. Significant additional government-imposed increases in the
following areas could materially adversely affect the Company's business,
financial condition, operating results or cash flow:
* minimum wages
* mandated health benefits
* paid leaves of absence
* increased tax reporting
* revisions in the tax payment requirements for employees who
receive gratuities
The Federal Americans with Disabilities Act prohibits discrimination on
the basis of disability in public accommodations and employment. The Company
believes that its restaurants are designed to be accessible to the disabled.
However, mandated modifications to the Company's facilities to make different
accommodations for disabled persons could result in material unanticipated
expense.
The Company is subject to federal, state and local laws, regulations
and ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes, and (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous materials resulting from, sites
of past spills, disposals or other releases of hazardous materials (together,
"Environmental Laws"). In particular under applicable Environmental Laws, the
Company may be responsible for remediation of environmental conditions and maybe
subject to associated liabilities (including liabilities resulting from lawsuits
brought by private litigants) relating to its restaurants and the land on which
its restaurants are located, regardless of whether the Company leases or owns
the restaurants or land in question and regardless of whether such environmental
conditions were created by the Company or by a prior owner or tenant. There can
be no assurance that environmental conditions relating to prior, existing or
future restaurants or restaurant sites will not have a material adverse affect
on the Company.
LITIGATION RISKS
The Company is from time to time the subject of complaints or
litigation from guests alleging illness, injury or other loss associated with
the Company's restaurants. Adverse publicity resulting from these allegations
may materially adversely affect the Company and the Company's restaurants. This
may be true whether or not the allegations are valid or the Company is liable.
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In addition, employee claims against the Company based on, among other things,
discrimination, harassment or wrongful termination may divert the Company's
financial and management resources that would otherwise be used to benefit the
future performance of the Company's operations. The Company has been subject to
these employee claims from time to time, and a significant increase in the
number of these claims or successful claims could materially adversely affect
the Company's business, financial condition, operating results or cash flows.
The Company is currently defending a lawsuit based on alleged violations of the
securities laws by the Company. See "LEGAL PROCEEDINGS" below for a discussion
of this lawsuit and the related risks.
YEAR 2000 ISSUE RISKS
Computer programs have historically been written to abbreviate dates by
using two digits instead of four digits to identify a particular year. The
so-called "year-2000 problem" or "millennium bug" is the inability of computer
software or hardware (collectively, "Systems") to recognize or properly process
dates ending in "00" and dates after the year 2000. Significant attention was
focused on the year 2000 to update or replace such Systems in order to avoid
System failures, miscalculations, or business interruptions that might otherwise
result.
As of March 13, 2000, the Company has not experienced and does not
anticipate any adverse effects on the Company's Systems and operations as a
result of year-2000 issues. Further, as of March 13, 2000, the Company has not
experienced any operating problems or product failures as a result of year-2000
issues with its vendors, service providers, or customers.
The "year-2000" project costs for 1997, 1998 and 1999 total $3.4
million of which $2.0 million were hardware and software upgrades and $1.4
million were consultant fees.
RISKS ASSOCIATED WITH PURCHASING, OWNING, OR SELLING THE COMPANY'S SECURITIES
The Company's securities currently trade publicly on the NASDAQ
National Market. The market price of the Company's securities fluctuate
significantly. These price changes do not necessarily correlate to movements in
the overall stock market. The stock market has from time to time experienced
extreme price and volume fluctuations, which has often been unrelated or
disproportionate to the operating performance of particular companies.
Fluctuations or decreases in the trading price of the Company's securities may
adversely affect the ability of security
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holders to trade in the Company's securities. In addition, such fluctuations
could adversely affect the Company's ability to raise capital through future
equity financing should the Company determine at some point that it is in its
best interest to do so.
ITEM 2. PROPERTIES
The Company has completed development and moved into a new
Company-owned corporate headquarters building located in Eagan, Minnesota as of
March 13, 2000. The facility replaces three leased buildings whose leases expire
April 30, 2000. The new building contains approximately 100,000 square feet and
consolidates the executive offices, training facility, and warehouse. The costs
associated with the building, improvements, equipment and fixtures for the Eagan
facility total $15.7 million. The building is situated on one of four parcels
acquired in 1995 for $2.1 million, including improvement costs. The Company also
owns a 72,000 square foot facility in Marshfield, Wisconsin that it utilizes for
the fabrication of cabinetry, fixtures and upholstery of chairs and booths for
its restaurants. The Company operates a regional and executive office in San
Diego, California. This office is comprised of approximately 2,800 square feet.
Its lease expires October 24, 2001, with one two-year extension available.
Until 2001, the Company remains obligated under certain leases related
to approximately 32,000 square feet of office space in San Diego, California,
previously utilized by HomeTown Buffet as its headquarters. All of that space
has been sublet to third parties. However, the amount of rent receivable by the
Company pursuant to such subleases is less than the rent payable by the Company
pursuant to the principal leases.
Most of the Company's restaurants are located in leased facilities,
although the Company has increasingly considered land purchases for freestanding
restaurants in instances where an acceptable return or market positioning
justifies the additional investment. One hundred fourteen restaurants are
located in freestanding buildings, 39 are located in regional or other enclosed
shopping malls, and 250 are located in strip or neighborhood shopping centers.
Most of the leases provide for a minimum annual rent and additional rent
calculated as a percentage of restaurant sales, generally 3% to 5%, if the rents
so calculated exceed the minimum. The initial terms of the Company's leases
generally range from ten to fifteen years, and the leases usually have renewal
options for additional periods of five to fifteen years.
The Company owns substantially all of the equipment, furniture and
fixtures in its restaurants. Leasehold improvements made by
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the Company in leased premises usually become the property of the landlord upon
expiration or termination of the lease. Historically most of the Company's strip
mall landlords contributed towards a portion of the cost of leasehold
improvements by way of either rent concessions or cash contributions.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal actions arising in the normal
course of business. Management is of the opinion that their outcome will not
have a significant effect on the Company's consolidated financial statements.
The Company and seven of its present and/or former directors and
executive officers have been named as defendants in a Corrected, Third Amended,
Consolidated Class Action Complaint (the "third complaint") brought on behalf of
a putative class of all purchasers of common stock of the Company from October
26, 1993 through October 25, 1994 (the "class period") in the United States
District Court for the District of Minnesota. 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. Plaintiffs
allege that the defendants' conduct violated the Securities Exchange Act of 1934
and seek damages of approximately $90 million and an award of attorneys fees,
costs and expenses.
The defendants have answered the third complaint, denying all liability
and raising various affirmative defenses. Discovery was substantially completed
as of February 26, 1999. By Order entered on June 17, 1999, as amended by Order
dated August 18, 1999, the District Court certified the proposed plaintiff
class.
Management of the Company continues to believe that the action is
without merit and is vigorously defending it. On May 28, 1999, the defendants
moved for summary judgment on all claims. Plaintiffs also moved for partial
summary judgement against the Company and Mr. Hatlen for a portion of the class
period. The District Court heard oral argument on the respective motions on
December 10, 1999, but has not yet ruled on the motions.
The defendants have given notice of the plaintiffs' claim to its
insurance carrier. The insurance company is reimbursing the
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defendants for a portion of the costs of defense under a reservation of rights.
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 probability of a material effect on the
financial condition of the Company, not covered by insurance, is slight.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the fiscal year covered by this report.
ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT.
The officers of the Company are elected annually by the Board of
Directors to serve until the next annual meeting of the Board. Sixteen officers
were so elected by the Board of Directors in 1999, including ten executive
officers (currently, those designated as Senior Vice President or higher) who
serve on the Company's "Executive Committee." The following table contains
information regarding the executive officers, and all persons chosen to become
executive officers, of the Company.
Executive Principal Occupation and
Officer Business Experience
Name and Age Since For Last Five Years
- --------------------------------------------------------------------------------
Glenn D. Drasher (48) 1997 Executive Vice President of
Marketing of the Company since
January 1997; Executive Vice
President of Country Kitchen
International, family dining
restaurants, June 1996 to January
1997; Vice President of Marketing
of Country Hospitality, September
1993 to June 1996.
David Goronkin (37) 1996 Executive Vice President of
Operations for the Company since
September 1996; Vice President of
Operations of HomeTown Buffet, May
1996 to September 1996; Director
of Operations of HomeTown Buffet,
November 1994 to May 1996.
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Executive Principal Occupation and
Officer Business Experience
Name and Age Since For Last Five Years
- --------------------------------------------------------------------------------
Clark C. Grant (48) 1986 Senior Vice President of Finance
since March 1998; Treasurer of the
Company since May 1986; Executive
Vice President of Finance and
Administration, December 1994 to
March 1998.
Roe H. Hatlen (56) 1983 Co-Founder of the Company;
Chairman and Chief Executive
Officer of the Company since
December 1983.
Kerry A. Kramp (44) 1996 President of the Company since
September 1996, Chief Operating
Officer since August 1998 and
Director since February 2000;
President of HomeTown Buffet from
December 1995 to September 1996
and its Chief Operating Officer
from May 1995 to September 1996;
Vice President of Operations of
HomeTown Buffet from February 1992
to December 1995.
H. Thomas Mitchell (43) 1998 Executive Vice President and Chief
Administrative Officer since March
1998; General Counsel and
Secretary of the Company since
June 1995; Vice President from
June 1995 to March 1998; Corporate
Counsel from June 1994 to June
1995.
Jean C. Rostollan (48) 1991 Executive Vice President of
Purchasing since September 1996;
Assistant Secretary of the Company
since February 1992; Executive
Vice President of Development and
Purchasing, December 1994 to
September 1996.
Executive Principal Occupation and
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Officer Business Experience
Name and Age Since For Last Five Years
- --------------------------------------------------------------------------------
C. Dennis Scott (53) 1996 Co-Founder and Vice Chairman since
September 1996; Chief Operating
Officer of the Company from
September 1996 to August 1998;
Co-Founder of HomeTown Buffet;
Director and Chief Executive
Officer of HomeTown Buffet or its
predecessor companies since 1989.
K. Michael Shrader (56) 1996 Executive Vice President of Human
Resources and Training of the
Company since March 1997; Vice
President of Human Resources of
the Company, September 1996 to
March 1997; Vice President of
Human Resources of HomeTown
Buffet, January 1996 to September
1996; Director of Human Resources
of HomeTown Buffet, August 1995 to
January 1996; Selection Analyst,
the Gallup Organization, February
1995 to August 1995; Self-employed
business consultant, March 1993 to
February 1995.
Neal L. Wichard (57) 1996 Senior Vice President of Real
Estate of the Company since
September 1996; Co-Founder of
HomeTown Buffet; Vice Chairman of
HomeTown Buffet, October 1995 to
September 1996; Secretary and
Director of HomeTown Buffet, July
1990 to September 1996; Executive
Vice President of HomeTown Buffet,
July 1990 to October 1995.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTER
The information set forth under the caption "Market for the Company's
Common Stock and Related Stockholder Matters" on page 25 of the Company's 1999
Annual Report is incorporated herein by reference.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information set forth under the caption, "Selected Consolidated
Financial Data" on page 4 of the Company's 1999 Annual Report is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The information set forth under the caption "Management's Discussion
and Analysis of Results of Operations and Financial Condition" on pages 5
through 10 of the Company's 1999 Annual Report is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information set forth under the caption "Quantitative and
Qualitative Disclosure About Market Risk" on page 10 of the Company's 1999
Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required under this Item 8 is incorporated herein by
reference to pages 11 through 25 of the Company's 1999 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated herein by reference to the sections captioned "Number and
Election of Directors," "Certain Information Regarding the Board of Directors of
the Company" and "Compliance With Section 16(a) of the Securities Exchange Act
of 1934" in the Proxy Statement for the Annual Meeting of Shareholders to be
filed with
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the Securities and Exchange Commission within 120 days of the close
of the fiscal year ended December 29, 1999. For information concerning executive
officers, see Item 4A of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated herein by reference to the section captioned
"Compensation of Executive Officers" in the Proxy Statement for the Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
within 120 days of the close of the fiscal year ended December 29, 1999;
provided, however, that the subsection thereof entitled "Compensation Committee
Report on Executive Compensation" is not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Incorporated herein by reference to the similarly captioned section in
the Proxy Statement for the Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission within 120 days of the close of the fiscal
year ended December 29, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated herein by reference to the section captioned "Certain
Transactions" in the Proxy Statement for the Annual Meeting of Shareholders to
be filed with the Securities and Exchange Commission within 120 days of the
close of the fiscal year ended December 29, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) The following documents are filed as part of this Report.
1. Financial Statements
Consolidated Balance Sheets at December 30, 1998 and December
29, 1999*
Consolidated Statements of Operations for the Years Ended
December 31, 1997, December 30, 1998, and December 29, 1999*
Consolidated Statements of Stockholders' Equity for
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the Years Ended December 31, 1997, December 30, 1998 and
December 29, 1999*
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, December 30, 1998 and December 29, 1999*
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, December 30, 1998 and December 29, 1999*
Notes to Consolidated Financial Statements*
Independent Auditors' Report of Deloitte & Touche LLP*
- ----------------------
*Incorporated herein by reference to pages 11 through 25 of the Company's 1999
Annual Report
2. Supplemental Financial Schedules
None
3. Exhibits
2 Agreement and Plan of Merger by and among the
Company, Country Delaware, Inc., and HomeTown Buffet
(1)
3(a) Composite Amended and Restated Articles of
Incorporation. (2)
3(b) By-laws of the Company. (3)
3(c) Form of Rights Agreement, dated as of October 24,
1995 between the Company and the American Stock
Transfer & Trust Company, as Rights Agent. (4)
4(a) Indenture dated as of November 27, 1995 related to 7%
Convertible Subordinated Notes of HomeTown Buffet due
2002. (5)
4(b) First Supplemental Indenture dated as of September
20, 1996 among the Company, HomeTown Buffet and Wells
Fargo Bank, N.A. (6)
10(a) 1985 Stock Option Plan. (7)*
10(b) 1988 Stock Option Plan. (8)*
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30
10(c) 1995 Stock Option Plan. (9) The number of shares
available for grant was increased to 2,500,000 on May
12, 1998. (10)*
10(d) 1997 Non-Employee Director Stock Option Plan. (10)*
10(e) 1999 Stock Option Plan.(11)*
10(f) 2000 Omnibus Stock Plan.*
10(g) Second Amended and Restated Credit Agreement by and
between the Company and First Bank National
Association, now USBank National Association. (12)
10(h) 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, now USBank National Association. (13)
10(i) Amendment No. 2 dated as of May 28, 1997 to Second
Amended and Restated Credit Agreement by and between
the Company and First Bank National Association, now
USBank National Association. (14)
10(j) Amendment No. 3 dated as of September 12, 1997 to
Second Amended and Restated Credit Agreement by and
between the Company and First Bank National
Association, now USBank National Association. (15)
10(k) Letter dated as of January 14, 1998 to Second Amended
and Restated Credit Agreement by and between the
Company and First Bank National Association, now
USBank National Association. (16)
10(l) Amendment No. 4 dated as of October 1, 1998 to Second
Amended and Restated Credit Agreement by and between
the Company and USBank National Association. (17)
10(m) Amendment No. 5 dated June 30, 1999 to Second Amended
and Restated Credit Agreement by and between the
Company and USBank National Association. (18)
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31
10(n) Amendment No. 6 dated July 14, 1999 to Second Amended
and Restated Credit Agreement by and between the
company and USBank National Association. (19)
10(o) Management Bonus Program. (20)*
10(p) 1991 HomeTown Buffet Stock Option Plan, as amended.
(21)*
10(q) Consolidating Promissory Note issued by Kerry A.
Kramp to the Company and related Stock Pledge
Agreement, each dated December 31, 1996. (22)*
10(r) Promissory Note issued by Michael Shrader to HomeTown
Buffet and related Pledge Agreement, each dated
August 7, 1996. (23)*
10(s) Employment Agreement with Kerry A. Kramp dated
September 20, 1996. (24)*
10(t) Form of Franchise Agreement. (25)*
10(u) Management Agreement with Roe H. Hatlen dated as of
February 15, 2000.*
10(v) Management Agreement with C. Dennis Scott dated as of
February 15, 2000.*
10(w) Management Agreement with Kerry A. Kramp dated as of
February 15, 2000.*
10(x) Management Agreement with David Goronkin dated as of
February 15, 2000.*
13 Annual Report to Shareholders for the fiscal year
ended December 29, 1999.
21 Subsidiaries of the Company.
23(a) Consent of Deloitte & Touche LLP.
27(a) Financial Data Schedule.
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32
* Management contract or compensatory plan or arrangement required to be
filed pursuant to Item 14(c) of Form 10-K.
(1) Incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K
dated June 3, 1996.
(2) Incorporated by reference to Exhibits to Registration Statement on Form
S-3 dated June 2, 1993 (Registration No. 33-63694).
(3) Incorporated by reference to Exhibits to Annual Report on Form 10-K for
fiscal year ended December 29, 1993.
(4) Incorporated by reference to Exhibits to Report on Form 8-K, dated
October 24, 1995.
(5) Incorporated by reference to Exhibit 4.6 to Registration Statement on
Form 8-A dated November 7, 1996.
(6) Incorporated by reference to Exhibit 4.7 to Registration Statement on
Form 8-A dated November 7, 1996.
(7) Incorporated by reference to Exhibits to Registration Statement on Form
S-1 dated October 25, 1985 (Registration No. 33-171).
(8) Incorporated by reference to Exhibits to Annual Report on Form 10-K for
fiscal year ended December 30, 1992.
(9) Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q
for the quarter ended October 4, 1995.
(10) Incorporated by reference to the Proxy Statement for the May 12, 1998
Annual Meeting of Shareholders.
(11) Incorporated by reference to Exhibit 99 to Registration Statement on
Form S-8 dated February 15, 2000.
(12) Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form
10-Q for the quarter ended April 24, 1996.
(13) Incorporated by reference to Exhibit 4.5 to Registration Statement on
Form 8-A dated November 7, 1996.
(14) Incorporated by reference to Exhibit 10.1 to Registration Statement on
Form 8-A dated April 23, 1997.
(15) Incorporated by reference to Exhibit 10(b) to the Company's
32
33
Quarterly Report on Form 10-Q for the period ended October 8, 1997.
(16) Incorporated by reference to Exhibit 10(I) to Annual Report on Form
10-K for fiscal year ended December 31, 1997.
(17) Incorporated by reference to Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q for the period ended October 7, 1998.
(18) Incorporated by reference to Exhibit 10(a) to Quarterly Report on Form
10-Q for the quarter ended July 14, 1999.
(19) Incorporated by reference to Exhibit 10(b) to Quarterly Report on Form
1-Q for the quarter ended July 14, 1999.
(20) Incorporated by reference to Exhibit 10(j) to Annual Report on Form
10-K for fiscal year ended December 31, 1997.
(21) Incorporated by reference to Exhibit 10.1 to HomeTown Buffet's
Quarterly Report on Form 10-Q for the period ended April 24, 1996 (File
No. 0-22402).
(22) Incorporated by reference to Exhibit 10(h) to Annual Report on Form
10-K for fiscal year ended January 1, 1997.
(23) Incorporated by reference to Exhibit 10(k) to Annual Report on Form
10-K for fiscal year ended January 1, 1997.
(24) Incorporated by reference to Exhibit 10.4 of the Company's Quarterly
Report on Form 10-Q for the period ended October 9, 1996.
(25) Incorporated by reference from Exhibits to HomeTown Buffet's
Registration Statement on Form S-1, as amended, effective September 22,
1993 (Registration No. 33-67326).
(b) Reports on Form 8-K.
The Company filed no Current Reports on Form 8-K during the fourth
quarter of the fiscal year ended December 29, 1999.
33
34
ANNUAL REPORT AND PROXY STATEMENT
With the exception of the matters specifically incorporated herein by
reference to the Company's 1999 Annual Report to Shareholders or to the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
May 9, 2000, no other portions of the 1999 Annual Report to Shareholders or
Proxy Statement are deemed to be filed as part of this Annual Report on Form
10-K.
34
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Buffets, Inc.
March 28, 2000 By /s/ Roe H. Hatlen
- ------------------- -----------------------
Date Roe H. Hatlen
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Capacity Date
- ----------- ---------- -------
/s/ Roe H. Hatlen Chairman of the Board March 28, 2000
- ------------------------ and Chief Executive
Roe H. Hatlen Officer (Principal
Executive Officer)
/s/ Clark C. Grant Senior Vice President March 28, 2000
- ------------------------ of Finance and Treasurer
Clark C. Grant (Principal Financial
Officer)
/s/ Marguerite C. Nesset Vice President of March 28, 2000
- ------------------------ Accounting and
Marguerite C. Nesset Controller (Principal
Accounting Officer)
/s/ C. Dennis Scott Vice Chairman of March 28, 2000
- ------------------------ the Board and Director
C. Dennis Scott
/s/ Kerry A. Kramp President, Chief March 28, 2000
- ------------------------ Operating Officer and
Kerry A. Kramp Director
/s/ Walter R. Barry, Jr. Director March 28, 2000
- ------------------------
Walter R. Barry, Jr.
/s/ Marvin W. Goldstein Director March 28, 2000
- ------------------------
Marvin W. Goldstein
/s/ Alan S. McDowell Director March 28, 2000
- ------------------------
Alan S. McDowell
/s/ Michael T. Sweeney Director March 28, 2000
- ------------------------
Michael T. Sweeney
35
36
EXHIBIT INDEX
EXHIBITS
2 Agreement and Plan of Merger by and among
the Company, Country Delaware, Inc.,
and HomeTown Buffet, Inc..........................................Incorporated by Reference
3(a) Composite Amended and Restated Articles
of Incorporation..................................................Incorporated by Reference
3(b) By-laws of the Company............................................Incorporated by Reference
3(c) Form of Rights Agreement, dated as of
October 24, 1995 between the Company
and the American Stock Transfer & Trust
Company, as Rights Agent .........................................Incorporated by Reference
4(a) Indenture dated as of November 27, 1995
related to 7% Convertible Subordinated
Notes of HomeTown Buffet due 2002.................................Incorporated by Reference
4(b) First Supplemental Indenture dated as
of September 20, 1996 among the Company,
HomeTown Buffet and Wells Fargo Bank, N.A.........................Incorporated by Reference
10(a) 1985 Stock Option Plan............................................Incorporated by Reference
10(b) 1988 Stock Option Plan............................................Incorporated by Reference
10(c) 1995 Stock Option Plan............................................Incorporated by Reference
10(d) 1997 Non-Employee Director Stock Option
Plan .........................................................Incorporated by Reference
10(e) 1999 Stock Option Plan............................................Incorporated by Reference
10(f) 2000 Omnibus Stock Plan ..........................................Filed Electronically
10(g) Second Amended and Restated Credit
Agreement by and between the Company
and First Bank National Association,
now USBank National Association...................................Incorporated by Reference
10(h) Amendment No. 1 dated as of September 20,
1996 to Second Amended and Restated Credit
Agreement by and between the Company
First Bank National Association, now
USBank National Association.......................................Incorporated by Reference
10(i) Amendment No. 2 dated as of May 28, 1997
to Second Amended and Restated Credit
Agreement by and between the Company
and First Bank National Association,
now USBank National Association...................................Incorporated by Reference
37
10(j) Amendment No. 3 dated as of September 12,
1997 to Second Amended and Restated Credit
Agreement by and between the Company and
First Bank National Association, now
USBank National Association.......................................Incorporated by Reference
10(k) Letter dated as of January 14, 1998 to
Second Amended and Restated Credit Agreement
by and between the Company and First Bank
National Association, now USBank
National Association..............................................Incorporated by Reference
10(l) Amendment No. 5 dated June 30, 1999 to
Second Amended and Restated Credit Agreement
by and between the Company and USBank
National Association..............................................Incorporated by Reference
10(m) Amendment No. 6 dated July 14, 1999 to
Second Amended and Restated Credit Agreement
by and between the Company and USBank
National Association..............................................Incorporated by Reference
10(n) Amendment No. 4 dated as of October 1,
1998 to Second Amended and Restated Credit
Agreement by and between the Company and
USBank National Association.......................................Incorporated by Reference
10(o) Management Bonus Program..........................................Incorporated by Reference
10(p) 1991 HomeTown Buffet Stock Option Plan,
as amended........................................................Incorporated by Reference
10(q) Promissory Note issued by Kerry A. Kramp
to the consolidating Company and
related Stock Pledge Agreement, each
dated December 31, 1996...........................................Incorporated by Reference
10(r) Promissory Note issued by Michael Shrader
to HomeTown Buffet and related Pledge
Agreement, each dated August 7, 1996..............................Incorporated by Reference
10(s) Employment Agreement with Kerry A. Kramp
dated September 20, 1996..........................................Incorporated by Reference
10(t) Form of Franchise Agreement.......................................Incorporated by Reference
10(u) Management Agreement with Roe H.
Hatlen dated as of February 15, 2000..............................Filed Electronically
10(v) Management Agreement with C. Dennis
Scott dated as of February 15, 2000...............................Filed Electronically
10(w) Management Agreement with Kerry A.
Kramp dated as of February 15, 2000...............................Filed Electronically
10(x) Management Agreement with David
Goronkin dated as of February 15, 2000............................Filed Electronically
13 Annual Report to Shareholders for the
fiscal year ended December 29, 1999...............................Filed Electronically
38
21 Subsidiaries of the Company.......................................Filed Electronically
23(a) Consent of Deloitte & Touche LLP..................................Filed Electronically
27(a) Financial Data Schedule...........................................Filed Electronically