-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C330Da0gD9ZqXLUUt6jQL1pj2xi+ki/DEKYZPtk4KO00k84cxXmmbjtjpaRz+D1P 6+qUzlLGNrvSWbdqH/TNDQ== 0000016099-99-000017.txt : 19991125 0000016099-99-000017.hdr.sgml : 19991125 ACCESSION NUMBER: 0000016099-99-000017 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991124 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LUBYS CAFETERIAS INC CENTRAL INDEX KEY: 0000016099 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 741335253 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08308 FILM NUMBER: 99764182 BUSINESS ADDRESS: STREET 1: 2211 NE LOOP 410 STREET 2: P O BOX 33069 CITY: SAN ANTONIO STATE: TX ZIP: 78265-3069 BUSINESS PHONE: 2106549000 FORMER COMPANY: FORMER CONFORMED NAME: CAFETERIAS INC DATE OF NAME CHANGE: 19810126 10-K 1 FORM 10-K TEXT FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended August 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _________________ to ______________________ Commission file number: 1-8308 LUBY'S, INC. ______________________________________________________________________________ (Exact name of registrant as specified in its charter) Delaware 74-1335253 _________________________ ____________________________________ (State of Incorporation) (I.R.S. Employer Identification No.) 2211 Northeast Loop 410 Post Office Box 33069 San Antonio, Texas 78265-3069 Area Code 210 654-9000 _______________________________________ _______________________________ (Address of principal executive office) (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: Name of exchange on Title of Class which registered ______________ ______________________ Common Stock ($.32 par value) New York Stock Exchange Common Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None ____ 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 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 the 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. [X] The aggregate market value of the shares of Common Stock of the registrant held by non-affiliates of the registrant as of November 16, 1999, was approximately $256,515,000 (based upon the assumption that directors and officers are the only affiliates). As of November 16, 1999, there were 22,420,375 shares of the registrant's Common Stock outstanding, exclusive of 4,982,692 treasury shares. Portions of the following document are incorporated by reference into the designated parts of this Form 10-K: proxy statement relating to 2000 annual meeting of shareholders (in Part III). Item 1. Business. Luby's, Inc. (formerly, Luby's Cafeterias, Inc.) was originally incorporated in Texas in 1959 and was reincorporated in Delaware on December 31, 1991. The Company's executive offices are at 2211 Northeast Loop 410, P. O. Box 33069, San Antonio, Texas 78265-3069. Luby's, Inc. was restructured into a holding company on February 1, 1997, at which time all of the operating assets were transferred to Luby's Restaurants Limited Partnership, a Texas limited partnership composed of two wholly owned indirect corporate subsidiaries of the Company. All restaurant operations are conducted by the partnership. Unless the context indicates otherwise, the word "Company" as used herein includes the partnership and the consolidated corporate subsidiaries of Luby's, Inc. The Company operates 226 cafeteria-style restaurants under the name "Luby's" located in close proximity to retail centers, business developments, and residential areas in Arizona, Arkansas, Florida, Louisiana, Mississippi, Missouri, New Mexico, Oklahoma, Tennessee, and Texas. Of the 226 restaurants operated by the Company, 136 are at locations owned by the Company and 90 are on leased premises. Strategic Plan In 1998 the Company began implementation of a long-range strategic plan to improve its operations and enhance its future prospects. The plan involved the closing of 14 underperforming units, 12 of which were closed prior to the beginning of the current fiscal year. The plan also includes relocating several restaurants over the next few years, improving current store sales and profits, creating a more profitable business in markets outside of Texas, building new restaurants in smaller Texas markets, and building the food-to-go business. The Company is testing a variety of initiatives, including expanded beverage and menu offerings, breakfast, extended hours of operation, and the addition of drive-thru windows to selected restaurants. The Company's restaurants constructed prior to 1999 typically contain 9,000 to 10,500 square feet of floor space and seat 250 to 300 guests. The Company has redesigned its standard restaurant building to be more contemporary and more efficient and to appeal to a wider range of customers. The new prototype building, which contains 8,600 square feet of floor space and seats 214 guests, is now in use at five locations. The Company, as part of its strategic plan, has also developed a new prototype restaurant building for smaller markets which contains 6,000 square feet of floor space and seats 170 guests. One restaurant utilizing the small- market prototype is in operation, with several more scheduled to open later in the current fiscal year. Marketing The Company's product strategy is to provide a wide variety of freshly cooked foods in an attractive and informal environment. The Company's research has shown that its products appeal to a broad range of value-oriented consumers with particular success among families with children, seniors, shoppers, and business people looking for a quick, homestyle meal at a reasonable price. During fiscal 1999 the Company spent approximately 2.4% of sales on marketing, including radio and television advertising and product-specific promotions. The marketing budget for fiscal 2000 is approximately 2.5% of sales, with most of the amount allocated to radio and television advertising. Operations The Company's operations provide customers with a wide variety of great tasting food served cafeteria-style at reasonable prices. Food is prepared in small quantities throughout serving hours, and frequent quality checks are made. Each restaurant offers a broad and varied menu and normally serves 12 to 14 entrees, 12 to 14 vegetable dishes, 15 to 20 salads, and 18 to 20 desserts. The Company's restaurants cater primarily to shoppers and office or store personnel for lunch and to families for dinner. The Company's restaurants are open for lunch and dinner seven days a week. All of the restaurants sell take- out orders, and most of them have separate food-to-go entrances. Take-out orders accounted for approximately 12% of sales in fiscal 1999. During fiscal 1999 the Company tested the addition of drive-thru windows, and the results were a resounding success. By the end of fiscal 1999, 15 restaurants had drive-thrus, and the Company plans to remodel 45 to 50 of the existing restaurants to include drive-thrus and expanded food-to-go areas. The Company believes there is excellent potential for growth in the Company's food- to-go business. Each restaurant is operated as a separate unit under the control of a manager who has responsibility for day-to-day operations, including menu planning and personnel employment and supervision. Each restaurant manager is compensated on the basis of his or her restaurant's profits. Management believes that granting broad authority to its restaurant managers and compensating them on the basis of their performance are significant factors in the profitability of its restaurants. Of the 226 senior managers employed by the Company, 173 have been with the Company for more than ten years. Generally, an individual is employed for a period of seven to eight years before he or she is considered qualified to become a senior manager. In 1999 the Company implemented a centralized purchasing arrangement to obtain the economies of bulk purchasing and volume pricing for most of the food products used in the Company's restaurants. The arrangement involves a prime vendor for each of the Company's three major market segments. The Company believes that alternative sources of supply are readily available in the event the centralized purchasing arrangement is terminated. Each restaurant cooks or prepares substantially all of the food served, including breads and pastries. The restaurants prepare food from the same recipes, with minor variations to suit local tastes, although menus are not uniform in all of the Company's restaurants on any particular day. Menus are prepared to reflect local and seasonal food preferences and to take advantage of any special food purchasing opportunities. Quality control teams, each consisting of experienced cooks and a supervisor, help to maintain uniform standards of food preparation. The teams primarily assist in training new personnel during the opening of new restaurants. The teams also visit the restaurants periodically and work with the regular staffs to check adherence to the Company's recipes, train personnel in new techniques, and evaluate procedures for possible use throughout the Company. The Company conducts a training program comprised of both on-the-job training and classroom instruction in its training facilities in San Antonio. The training program is approximately three months in duration. Management personnel receive one week of classroom instruction and spend the remaining time on practical training in operating restaurants. In order to draw management trainees from regional talent pools, the Company has set up satellite training schools in several key restaurants to make on-the-job training more accessible on a local level. As of August 31, 1999, the Company had approximately 14,000 employees, consisting of 13,070 nonmanagement restaurant personnel; 800 restaurant managers, associate managers, and assistant managers; and 130 executive, administrative, and clerical personnel. Employee relations are considered to be good, and the Company has never had a strike or work stoppage. The Company is not subject to any collective bargaining agreements. Expansion During the fiscal year ended August 31, 1999, the Company opened four new restaurants in Tulsa, Oklahoma, and Georgetown, Houston, and Seguin, Texas. One unit in Abilene, Texas, was relocated from a leased location to an owned site. Ten underperforming units were closed during the fiscal year. Since August 31, 1999, the Company has opened three new restaurants in Allen, Plano, and Garland, Texas. During fiscal 2000, the Company expects to relocate four restaurants and to open approximately 14 new restaurants, including the three already opened. The Company continually evaluates prospective new restaurant sites and typically has several sites for new restaurants under active consideration at any given time. The rate at which new restaurants are opened is governed by the Company's policy of controlled growth, which takes into account the resources and capabilities of all departments involved, including real estate, construction, equipment, and operations. It has been the Company's experience that new restaurants generally become profitable within a few months after opening. The costs of opening new restaurants vary widely, depending on whether the facilities are to be leased or owned, and if owned, on site acquisition and construction costs. The Company estimates that in recent years it has cost $2,500,000 to $2,700,000 to construct, equip, and furnish a new restaurant in a freestanding building under normal conditions, including land acquisition costs. The approximate cost to finish out, equip, and furnish a new restaurant in a leased facility has ranged from $1,200,000 to $1,400,000. The Company anticipates that such costs will be slightly higher for its new large prototype due to higher real estate costs for prime sites and approximately 30% lower for its new small market prototype. Waterstreet Joint Venture In January 1996 the Company announced a joint venture agreement with Waterstreet, Inc., a seafood restaurant company operating in Corpus Christi, Fort Worth and San Antonio, Texas. The agreement provides for the opening of up to five "Water Street Seafood Company" restaurants during the term of the joint venture. Four restaurants were opened by the joint venture, two of which were subsequently closed. Service Marks The Company uses several service marks, including "Luby's," and believes that such marks are of material importance to its business. The Company has federal service mark registrations for several of such marks. The Company is not the sole user of the name "Luby's" in the restaurant business. One restaurant using the name "Luby's" and one restaurant using the name "Pat Luby's" are being operated in two different cities in Texas by two different owners not affiliated with the Company. The Company's legal counsel is of the opinion that the Company has the paramount right to use the name "Luby's" as a service mark in the restaurant business in the United States and that such other users can be precluded from expanding their use of the name as a service mark. Competition and Other Factors The foodservice business is highly competitive, and there are numerous restaurants and other foodservice operations in each of the markets where the Company operates. The quality of the food served, in relation to its price, and public reputation are important factors in foodservice competition. Neither the Company nor any of its competitors has a significant share of the total market in any area in which the Company competes. The Company's primary competitors include contemporary family-style and casual dining restaurants, buffets, and quick-service restaurants in the home-meal-replacement category. The Company's facilities and food products are subject to state and local health and sanitation laws. In addition, the Company's operations are subject to federal, state, and local regulations with respect to environmental and safety matters, including regulations concerning air and water pollution and regulations under the Americans with Disabilities Act and the Federal Occupational Safety and Health Act. Such laws and regulations, in the Company's opinion, have not materially affected its operations, although compliance has resulted in some increased costs. Forward-Looking Statements Certain statements made in this report are forward looking regarding cash flow from operations, restaurant openings, operating margins, capital requirements, the availability of acceptable real estate locations for new restaurants, and other matters. In addition, efforts to close, sell, or improve operating results of underperforming stores depend on many factors not within the Company's control such as the negotiation of settlements of existing lease obligations under acceptable terms, availability of qualified buyers for owned locations, and customer traffic. These forward-looking statements involve risks and uncertainties and, consequently, could be affected by general business conditions, the impact of competition, the success of operating initiatives, changes in cost and supply of food and labor, the seasonality of the Company's business, taxes, inflation, and governmental regulations, which could cause actual results to differ materially from current plans. Item 2. Properties. The Company owns the underlying land and buildings in which 136 of its restaurants are located. In addition, the Company owns several restaurant sites being held for future development and several properties are held for sale. Of the 226 restaurants operated by the Company, 90 are at locations held under leases, including 52 in regional shopping malls. Most of the leases provide for a combination of fixed-dollar and percentage rentals. Most of the leases require the lessee to pay additional amounts related to property taxes, hazard insurance, and maintenance of common areas. See Notes 5 and 8 of Notes to Financial Statements for information concerning the Company's lease rental expenses, lease commitments, and construction commitments. Of the 90 restaurant leases, the current terms of 32 expire from 2000 to 2004, 25 from 2005 to 2009, and 33 thereafter. Seventy-two of the leases can be extended beyond their current terms at the Company's option. Most of the restaurants are located in modern buildings and all are in good condition. It is the Company's policy to refurbish and modernize restaurants as necessary to maintain their appearance and utility. The equipment in all restaurants is well maintained. Several of the Company's restaurant properties contain excess building space which is rented to tenants unaffiliated with the Company. The towns and cities in which the Company's 226 restaurants are located are listed below, with numbers in parentheses indicating the number of units in each locale: Arizona (12) Chandler (1) Glendale (1) Mesa (2) Peoria (1) Phoenix (4) Surprise (1) Tucson (2) Arkansas (5) Fayetteville (1) Fort Smith (1) Little Rock (2) North Little Rock (1) Florida (7) Clearwater (2) Pinellas Park (1) St. Petersburg (1) Sebring (1) Tampa (2) Louisiana (2) Bossier City (1) Shreveport (1) Mississippi (2) Hattiesburg (1) Meridian (1) Missouri (2) Independence (1) Kansas City (1) New Mexico (3) Albuquerque (1) Las Cruces (1) Santa Fe (1) Oklahoma (9) Bartlesville (1) Broken Arrow (1) Oklahoma City (3) Shawnee (1) Tulsa (3) Tennessee (11) Franklin (1) Memphis (4) Morristown (1) Murfreesboro (1) Nashville (3) Oak Ridge (1) Texas (173) Abilene (2) Allen (1) Amarillo (2) Arlington (3) Austin (7) Baytown (1) Beaumont (1) Bedford (1) Bellmead (1) Brownsville (2) Bryan (1) Carrollton (1) College Station (1) Conroe (1) Corpus Christi (4) Dallas (11) Deer Park (1) Del Rio (1) Denton (1) DeSoto (1) Duncanville (1) El Paso (5) Fort Worth (8) Galveston (1) Garland (2) Georgetown (1) Grand Prairie (1) Grapevine (1) Greenville (1) Harlingen (2) Houston (32) Humble (1) Irving/Las Colinas (2) Jacinto City (1) Kerrville (1) Killeen (1) Kingwood (1) Lake Jackson (1) Laredo (2) Lewisville (1) Longview (1) Lubbock (1) Lufkin (1) McAllen (3) McKinney (1) Mesquite (3) Midland (1) Mission (1) New Braunfels (1) North Richland Hills (1) Odessa (1) Orange (1) Pasadena (1) Pharr (1) Plano (3) Port Arthur (2) Richardson (1) Rosenberg (1) Round Rock (1) San Angelo (1) San Antonio (21) San Marcos (1) Seguin (1) Sherman (1) Stafford (1) Sugar Land (1) Temple (1) Texarkana (1) The Woodlands (1) Tomball (1) Tyler (3) Victoria (1) Waco (1) Weslaco (1) The Company's corporate offices are located in a building owned by the Company containing approximately 40,000 square feet of office space. The Company utilizes the space for its executive offices and related facilities. The Company maintains public liability insurance and property damage insurance on its properties in amounts which management believes to be adequate. Item 3. Legal Proceedings. The Company is from time to time subject to pending claims and lawsuits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of such claims and lawsuits will not have a material adverse effect on the Company's operations or consolidated financial position. There are no material legal proceedings to which any director, officer, or affiliate of the Company, or any associate of any such director or officer, is a party, or has a material interest, adverse to the Company. Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted during the fourth quarter of the fiscal year ended August 31, 1999, to a vote of security holders of the Company. Item 4A. Executive Officers of the Registrant. Certain information is set forth below concerning the executive officers of the Company, each of whom has been elected to serve until the 2000 annual meeting of shareholders and until his or her successor is duly elected and qualified. Served as Officer Positions with Company and Name Since Principal Occupation Last Five Years Age ________________________ ________ ____________________________________ ___ David B. Daviss 1997 Chairman of the Board (since Oct. 63 1997); Acting Chief Executive Officer (May-Oct. 1997); Director since 1984; Chairman of the Executive Committee and member of the Corporate Governance Committee; investor. Barry J.C. Parker 1997 President, Chief Executive Officer, 52 and Director (since Oct. 1997); member of the Executive Committee; Chairman of the Board, President, and Chief Executive Officer of County Seat Stores, Inc. (1989-1996); principal of Hoak Capital Corporation (1997). Laura M. Bishop 1995 Senior Vice President and Chief 38 Financial Officer (since Jan. 1997); Vice President-Finance (1996); Vice President-Financial Planning (1995); Director of Financial Planning (1993-1995). Robert P. Burke 1996 Senior Vice President-Marketing 50 (since Jan. 1997); Vice President- Marketing (1996); Vice President of Sales and Marketing, Pace Foods/ Campbell Soup Company prior to 1996. Alan M. Davis 1998 Senior Vice President-Real Estate 47 Development (since May 1988); Vice President of Real Estate, Boston Chicken, Inc. and Boston Chicken Real Estate Investments, Inc. prior to May 1998. Sue Elliott 1998 Senior Vice President-Human 49 Resources (since May 1998); Vice President of Friday's Hospitality prior to May 1998. Raymond C. Gabrysch 1988 Senior Vice President-Operations 48 (since Sept. 1997); Senior Vice President-Human Resources (Jan.- Aug. 1997); Vice President-Human Resources (1996); Area Vice President prior to 1996. Clyde C. Hays III 1985 Senior Vice President-Operations 48 (since Jan. 1996); Vice President- Operations prior to 1996. James R. Hale 1980 Secretary; Member of law firm of 70 Cauthorn Hale Hornberger Fuller Sheehan & Becker Incorporated. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Stock Prices and Dividends The Company's common stock is traded on the New York Stock Exchange under the symbol LUB. The following table sets forth, for the last two fiscal years, the high and low sales prices on the New York Stock Exchange from the consolidated transaction reporting system and the per share cash dividends declared on the common stock. Fiscal Quarters Quarterly Ended High Low Cash Dividend _________________ ______ ______ ______________ November 30, 1997 $21.38 $18.88 $.20 February 28, 1998 19.69 16.00 .20 May 31, 1998 19.50 17.13 .20 August 31, 1998 18.94 15.25 .20 November 30, 1998 16.25 13.38 .20 February 28, 1999 16.00 13.59 .20 May 31, 1999 18.63 13.50 .20 August 31, 1999 17.13 13.31 .20 As of September 10, 1999, there were approximately 4,690 record holders of the Company's common stock. Item 6. Selected Financial Data. Five-Year Summary of Operations (Thousands of dollars except per share data) Years ended August 31,
1999 1998 1997 1996 1995 ________ ________ ________ ________ ________ Sales $501,493 $508,871 $495,446 $450,128 $419,024 Costs and expenses: Cost of food 122,418 129,126 121,287 110,008 103,611 Payroll and related costs 154,817 155,152 146,940 124,333 113,952 Occupancy and other operating expenses 155,828 154,501 150,638 132,595 123,907 General and administrative expenses 22,031 22,061 19,451 20,217 18,672 Provision for asset impairments and store closings - 36,852 12,432 - - ________ ________ ________ ________ ________ 455,094 497,692 450,748 387,153 360,142 ________ ________ ________ ________ ________ Income from operations 46,399 11,179 44,698 62,975 58,882 ________ ________ ________ ________ ________ Other income (expenses): Interest expense (4,761) (5,078) (4,037) (2,130) (1,749) Interest and other 1,846 1,778 2,001 1,697 1,805 ________ ________ ________ ________ ________ (2,915) (3,300) (2,036) (433) 56 ________ ________ ________ ________ ________ Income before income taxes 43,484 7,879 42,662 62,542 58,938 Provision for income taxes 14,871 2,798 14,215 23,334 21,923 ________ ________ ________ ________ ________ Net income $ 28,613 $ 5,081 $ 28,447 $ 39,208 $ 37,015 ________ ________ ________ ________ ________ Net income per common share - basic $ 1.27 $ 0.22 $ 1.22 $ 1.66 $ 1.55 ________ ________ ________ ________ ________ Net income per common share - assuming dilution $ 1.26 $ 0.22 $ 1.21 $ 1.64 $ 1.53 ________ ________ ________ ________ ________ Cash dividend declared per common share $ .80 $ .80 $ .80 $ .74 $ .68 ________ ________ ________ ________ ________ At year-end: Total assets $346,025 $339,041 $368,778 $335,290 $312,380 Long-term debt $ 78,000 $ 73,000 $ 84,000 $ 41,000 $ - Number of cafeterias 223 229 229 204 187
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources During the last three years the Company has funded all capital expenditures from internally generated funds, cash equivalents, and long-term debt. Capital expenditures for fiscal 1999 were $38,699,000, a 49% increase from fiscal 1998. The increase in fiscal 1999 resulted in part from the opening of four new restaurants and six restaurants under construction at August 31, 1999, as compared to the opening of five new restaurants in fiscal 1998 and one restaurant under construction at August 31, 1998. As part of the Company's strategic initiative to expand into smaller Texas markets, included in the four new restaurants in fiscal 1999 is the Company's first small prototype restaurant. Fiscal 1999 capital expenditures also included approximately $7 million relating to other strategic initiatives, primarily food-to-go expansions in several restaurants and new self-service drink stations and condiment stands in all restaurants. In addition, during fiscal 1999 the Company purchased ten sites as land held for future use compared to one in fiscal 1998. Capital expenditures for fiscal 2000 are expected to approximate $60 million. Plans for fiscal 2000 include the opening of approximately 14 new restaurants and the relocation of four restaurants - 14 on sites owned by the Company and four on land held under long-term ground leases. As of August 31, 1999, the Company owned five undeveloped restaurant sites, and several land site acquisitions were in varying stages of negotiation. As part of the Company's strategic plan, fiscal 2000 capital expenditures also include approximately $16 million related to food-to-go expansions with the addition of drive-thrus and 10 to 15 remodels that will incorporate the Company's new updated design features. Construction costs for new restaurants, food-to-go expansions, and remodels are expected to be funded by cash flow from operations and long-term debt. The Company also anticipates that proceeds from property held for sale will partially offset future capital requirements. The Company generated cash from operations of $55,274,000 in fiscal 1999. The Company had $78,000,000 outstanding at August 31, 1999, under a $125,000,000 credit facility with a syndication of four banks. At August 31, 1999, the Company had a working capital deficit of $39,748,000 which compares to the prior year's working capital deficit of $32,324,000. The working capital position declined during fiscal 1999 due primarily to the decrease in cash and cash equivalents of $3,474,000 and the increase in accounts payable of $7,204,000, partially offset by the decrease in accrued expenses and other liabilities. The Company typically carries current liabilities in excess of current assets because cash generated from operating activities is reinvested in capital expenditures. The Board of Directors authorized the purchase in the open market of up to 1,000,000 shares of the Company's outstanding common stock through December 31, 1998. During fiscal 1999 the Company purchased 850,300 shares of its common stock at a cost of $12,919,000, which are being held as treasury stock. The Company believes that funds generated from operations and short-term or long-term financing from external sources, which can be obtained on terms acceptable to the Company, are adequate for its foreseeable needs. Results of Operations Fiscal 1999 Compared to Fiscal 1998 Sales decreased $7,378,000, or 1%, due to the closing of ten restaurants in fiscal 1999 and five restaurants in fiscal 1998. This decrease was partially offset by the opening of four new restaurants during fiscal 1999 and five during fiscal 1998. The average sales volume for all restaurants that were open in both years increased slightly to $2,255,000 in fiscal 1999 from $2,253,000 in fiscal 1998. Cost of food decreased $6,708,000, or 5%, due primarily to the savings associated with the consolidation of our purchasing under a prime vendor program and the decline in sales. As a percentage of sales, food costs were lower versus the prior year due to various additional factors including increased drink sales from new self-serve drink counters and other sales mix changes, the impact of a new manager compensation plan which provides more of an incentive to improve margins at all sales volumes, and certain menu price increases. Although total sales declined, payroll and related costs remained fairly flat due to higher hourly wage rates related to tight labor markets for entry-level employees. Occupancy and other operating expenses increased $1,327,000, or 1%, due to an increase in advertising expenditures, higher food-to-go packaging costs, and higher costs associated with the rollout of a new uniform program for all hourly employees. This increase was partially offset by fewer restaurants and lower depreciation expense associated with store closings and asset impairments. General and administrative expenses declined slightly due to the recording of a lump sum severance agreement and professional fees associated with the company's strategic plan recorded in the prior year which were offset by higher corporate salaries and benefits associated with the addition of new positions to support the implementation of the Company's strategic plan and costs relating to increased recruiting and training efforts for store management in the current year. As part of its strategic planning efforts, the Company completed an assessment of underperforming restaurants and recorded a $36.9 million pretax charge during the fourth quarter of fiscal 1998 for stores to be closed, relocated, or impaired. As of August 31, 1999, the Company had closed 12 of the 14 restaurants designated for closure in 1998 and had relocated one of the 16 restaurants designated for relocation. Plans for the closing and relocation of the remaining restaurants are in different stages of negotiation and planning. At August 31, 1999 and 1998, the Company had a reserve for store closings of $5.1 million and $6.2 million, respectively, for settlement of lease obligations, professional fees, severance costs, and other costs related to the closings of restaurants. During 1999 and 1998 the Company charged $830,000 and $664,000, respectively, against these reserves for settlement of lease obligations, severance costs, and professional fees. Additionally, the Company reduced its liability by $275,000 in 1999, which is included in other income, as a result of a favorable change in management's estimate of lease settlement costs. See further discussion in Note 2 of the Consolidated Financial Statements. Interest expense of $4,761,000 for fiscal 1999 was incurred in conjunction with borrowings under the credit facility and is net of $409,000 capitalized on qualifying properties. The decrease from fiscal 1998 of $317,000, or 6%, was due primarily to higher capitalized interest on qualifying properties as a result of more construction in the current period. The average borrowing rate was also slightly lower in fiscal 1999. The provision for income taxes increased $12,073,000 due to higher income before income taxes. The Company's effective income tax rate decreased from 35.5% in fiscal 1998 to 34.2% in fiscal 1999 due primarily to higher than expected tax credits. The Company anticipates that the effective tax rate for fiscal 2000 will be approximately 35%. Fiscal 1998 Compared to Fiscal 1997 Sales increased $13,425,000, or 3%, due to the addition of five new restaurants in fiscal 1998 and 27 restaurants in fiscal 1997. This increase was partially offset by the closing of two restaurants on August 31, 1997, and three others during fiscal 1998. The average sales volume for all restaurants that were open in both years increased slightly to $2,250,000 in fiscal 1998 from $2,244,000 in fiscal 1997. Cost of food increased $7,839,000, or 6%, due primarily to the increase in sales, new menu item testing, and higher fish and other commodity prices overall. Payroll and related costs increased $8,212,000, or 6%, due primarily to the increase in sales and the higher federal minimum wage which increased first on October 1, 1996, and again on September 1, 1997. Occupancy and other operating expenses increased $3,863,000, or 3%, due primarily to the increase in sales and the opening of five new restaurants. This increase was partially offset by lower managers' salaries, which are based on the profitability of the restaurants. General and administrative expenses increased $2,610,000, or 13%, due primarily to higher legal and professional fees associated with the Company's strategic planning project. In addition, fiscal 1998 included a higher provision for bonuses since none were incurred in fiscal 1997 and a higher Company contribution to the profit sharing plan. As part of its strategic planning efforts, the Company completed an assessment of underperforming restaurants and recorded a $36.9 million pretax charge during the fourth quarter of fiscal 1998. The charge included $14.7 million for the closing of 14 underperforming restaurants, $10.7 million for the write-down of 16 restaurants which will be relocated to optimize their market potential, and $11.4 million for the write-down of certain restaurant properties which the Company plans to continue to operate. Additionally, the Company revised its estimate of the net realizable value of surplus properties which the Company plans to sell resulting in an additional write-down of $0.1 million. The charge for the closing of the 14 underperforming restaurants and the restaurants to be relocated related to the write-down of property and equipment to net realizable value, costs to settle lease obligations, and severance costs. As of August 31, 1998, two of the 14 restaurants were closed, and the remaining restaurants are planned for closure during fiscal 1999. Interest expense of $5,078,000 for fiscal 1998 was incurred in conjunction with borrowings under the credit facility and is net of $276,000 capitalized on qualifying properties. The increase over fiscal 1997 of $1,041,000, or 26%, was due primarily to lower capitalized interest on qualifying properties as a result of less construction in the current period. The average borrowing rate was also slightly higher in fiscal 1998. The provision for income taxes decreased $11,417,000, or 80%, due to lower income before income taxes. The Company's effective income tax rate increased from 33.3% in fiscal 1997 to 35.5% in fiscal 1998. The fiscal 1997 rate was low due to a nonrecurring decrease in the deferred tax liability resulting from a lower expected state tax rate. Inflation The Company's policy is to maintain stable menu prices without regard to seasonal variations in food costs. General increases in costs of food, wages, supplies, and services make it necessary for the Company to increase its menu prices from time to time. To the extent prevailing market conditions allow, the Company intends to adjust menu prices to maintain profit margins. The Year 2000 During 1998 the Company, in the ordinary course of business, decided to migrate its information technology from internally developed systems to commercially available products. This decision was made for a variety of business reasons, and the new systems are designed to provide the infrastructure to support corporate and restaurant-based systems. The newly implemented systems are Year 2000 compliant. The transition to the new technology was completed in January 1999. The Company believes the Year 2000 will not pose significant operational problems for its computer systems. The cost of the Year 2000 project is estimated to be $200,000, primarily for services and costs of updating some existing software. The Company has established a committee which initiated communications with various third parties with which it has significant relationships to determine their readiness with respect to the Year 2000 issue. These third parties include food and paper distributors, banks, and other entities. Based on responses received from these third parties, it appears that the Year 2000 issues are being addressed. The Company has not been informed of significant Year 2000 issues by third parties with which it has material relationships. The Company intends to continue communications and monitor Year 2000 concerns that might develop. The Company has obtained assurances that our primary food and paper distributors will have ample stock on hand should any secondary distributors experience unanticipated Year 2000 issues. Based on our findings and discussions with all significant vendors, the Company believes the likelihood is remote that its vendors have not fully addressed the Year 2000 issues. However, despite the Company's diligent preparation, some of its vendors may fail to perform effectively or may fail to timely or completely deliver products or services. In those circumstances, the Company expects to be able to conduct normal business operations and to be able to obtain necessary products from alternative vendors; however, there would be some disruption which could have an adverse effect on the Company's consolidated financial position, results of operations, and cash flows. Forward-Looking Statements Except for the historical information contained in this annual report, certain statements made herein are forward looking regarding cash flow from operations, restaurant openings, operating margins, capital requirements, the availability of acceptable real estate locations for new restaurants, and other matters. In addition, efforts to close, sell, or improve operating results of underperforming stores depend on many factors not within the Company's control such as the negotiation of settlements of existing lease obligations under acceptable terms, availability of qualified buyers for owned locations, and customer traffic. These forward-looking statements involve risks and uncertainties and, consequently, could be affected by general business conditions, the impact of competition, the success of operating initiatives, changes in cost and supply of food and labor, the seasonality of the Company's business, taxes, inflation, and governmental regulations, which could cause actual results to differ materially from current plans. Management does not expect to update such forward-looking statements continually as conditions change, and readers should consider that such statements pertain only to the date hereof. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. See information in Item 8 of Part II of this Report appearing in the Notes to Consolidated Financial Statements under the caption "Interest-Rate Swap Agreements" in Note 1 and in Note 4. Item 8. Financial Statements and Supplementary Data. LUBY'S, INC. FINANCIAL STATEMENTS Years Ended August 31, 1999, 1998, and 1997 with Report of Independent Auditors Report of Independent Auditors The Board of Directors and Shareholders Luby's, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Luby's, Inc. and Subsidiaries at August 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended August 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Luby's, Inc. and Subsidiaries at August 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 1999, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP San Antonio, Texas October 5, 1999 Luby's, Inc. Consolidated Balance Sheets August 31, 1999 1998 ________ _______ (Thousands of dollars) Assets Current assets: Cash and cash equivalents $ 286 $ 3,760 Trade accounts and other receivables 584 704 Food and supply inventories 3,686 5,072 Prepaid expenses 4,552 4,375 Deferred income taxes 956 1,201 ________ ________ Total current assets 10,064 15,112 Property held for sale 12,322 17,340 Investments and other assets: Land held for future use 3,739 1,582 Other assets 5,482 6,410 ________ ________ Total investments and other assets 9,221 7,992 Property, plant, and equipment - at cost, less accumulated depreciation and amortization 314,418 298,597 ________ ________ Total assets $346,025 $339,041 ________ ________ Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 19,686 $ 12,482 Dividends payable 4,484 4,654 Accrued expenses and other liabilities 25,260 28,231 Income taxes payable 382 2,069 ________ ________ Total current liabilities 49,812 47,436 Long-term debt 78,000 73,000 Deferred income taxes and other credits 9,942 7,019 Reserve for store closings 5,067 6,172 Commitments and contingencies - - Shareholders' equity: Common stock, $.32 par value; authorized 100,000,000 shares, issued 27,403,067 shares 8,769 8,769 Paid-in capital 27,096 27,012 Retained earnings 273,165 262,540 Less cost of treasury stock, 4,982,692 shares in 1999 and 4,132,392 shares in 1998 (105,826) (92,907) ________ ________ Total shareholders' equity 203,204 205,414 ________ ________ Total liabilities and shareholders' equity $346,025 $339,041 ________ ________ See accompanying notes. Luby's, Inc. Consolidated Statements of Income Years Ended August 31, 1999 1998 1997 ________ ________ ________ (Thousands of dollars except per share data) Sales $501,493 $508,871 $495,446 Costs and expenses: Cost of food 122,418 129,126 121,287 Payroll and related costs 154,817 155,152 146,940 Occupancy and other operating expenses 155,828 154,501 150,638 General and administrative expenses 22,031 22,061 19,451 Provision for asset impairments and store closings - 36,852 12,432 ________ ________ ________ 455,094 497,692 450,748 ________ ________ ________ Income from operations 46,399 11,179 44,698 Interest expense (4,761) (5,078) (4,037) Other income, net 1,846 1,778 2,001 ________ ________ ________ Income before income taxes 43,484 7,879 42,662 Provision (benefit) for income taxes: Current 11,558 15,515 17,616 Deferred 3,313 (12,717) (3,401) ________ ________ ________ 14,871 2,798 14,215 ________ ________ ________ Net income $ 28,613 $ 5,081 $ 28,447 ________ ________ ________ Net income per share - basic $ 1.27 $ 0.22 $ 1.22 ________ ________ ________ Net income per share - assuming dilution $ 1.26 $ 0.22 $ 1.21 ________ ________ ________ See accompanying notes. Luby's, Inc. Consolidated Statements of Shareholders' Equity
Common Stock Total Issued Treasury Paid-In Retained Shareholders' Shares Amount Shares Amount Capital Earnings Equity __________________________________________________________________________________________ (Amounts in thousands except per share data) Balance at August 31, 1996 27,403 $8,769 (3,426) $ (77,415) $26,945 $267,374 $225,673 Net income for the year - - - - - 28,447 28,447 Common stock issued under employee bene- fit plans, net of shares tendered in partial payment and including tax benefits - - 186 4,319 - (1,027) 3,292 Cash dividends, $.80 per share - - - - - (18,654) (18,654) Purchases of treasury stock - - (897) (19,918) - - (19,918) ______ ______ ______ _______ _______ _______ _______ Balance at August 31, 1997 27,403 8,769 (4,137) (93,014) 26,945 276,140 218,840 Net income for the year - - - - - 5,081 5,081 Common stock issued under employee bene- fit plans, net of shares tendered in partial payment and including tax benefits - - 5 107 67 (65) 109 Cash dividends, $.80 per share - - - - - (18,616) (18,616) ______ ______ ______ _______ _______ _______ _______ Balance at August 31, 1998 27,403 8,769 (4,132) (92,907) 27,012 262,540 205,414 Net income for the year - - - - - 28,613 28,613 Common stock issued under employee bene- fit plans, net of shares tendered in partial payment and including tax benefits - - - - 84 - 84 Cash dividends, $.80 per share - - - - - (17,988) (17,988) Purchases of treasury stock - - (851) (12,919) - - (12,919) ______ ______ ______ _______ _______ ________ ________ Balance at August 31, 1999 27,403 $8,769 (4,983) $(105,826) $27,096 $273,165 $203,204 ______ ______ ______ _______ _______ ________ ________ See accompanying notes.
Luby's, Inc. Consolidated Statements of Cash Flows Years Ended August 31, 1999 1998 1997 ________ ________ ________ (Thousands of dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $28,613 $ 5,081 $ 28,447 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 20,025 21,121 20,196 Provision for asset impairments and store closings - 36,852 12,132 Gain on disposal of property held for sale (382) (704) - (Gain) loss on disposal of property, plant, and equipment 84 142 (110) Settlements associated with store closings (275) - - ________ ________ _______ Cash provided by operating activities before changes in operating assets and liabilities 48,065 62,492 60,665 Changes in operating assets and liabilities: (Increase) decrease in trade accounts and other receivables 120 (194) 31 (Increase) decrease in food and supply inventories 1,386 (565) 10 Increase in prepaid expenses (177) (789) (391) (Increase) decrease in other assets 912 (1,881) (226) Increase (decrease )in accounts payable 7,204 (1,102) 174 Increase (decrease) in accrued expenses and other liabilities (2,887) 3,260 817 Decrease in income taxes payable (1,687) (337) (48) Increase (decrease) in deferred income taxes and other credits 3,168 (12,263) (3,664) Decrease in reserve for store closings (830) (664) - _______ ________ ________ Net cash provided by operating activities 55,274 47,957 57,368 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from disposal of property held for sale 5,850 4,888 - Proceeds from disposal of property, plant, and equipment 178 73 2,803 Purchases of land held for future use (6,926) (933) (11,649) Purchases of property, plant, and equipment (31,773) (25,082) (50,783) _______ ________ ________ Net cash used in investing activities (32,671) (21,054) (59,629) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock under stock option plan - 42 2,878 Net borrowings (payments) under revolving credit agreement 5,000 (11,000) 43,000 Purchases of treasury stock (12,919) - (21,077) Dividends paid (18,158) (18,615) (18,797) _______ _______ _______ Net cash provided by (used in) financing activities (26,077) (29,573) 6,004 _______ _______ _______ Net increase (decrease) in cash and cash equivalents (3,474) (2,670) 3,743 Cash and cash equivalents at beginning of year 3,760 6,430 2,687 ________ ________ ________ Cash and cash equivalents at end of year $ 286 $ 3,760 $ 6,430 ________ ________ ________ See accompanying notes. Luby's, Inc. Notes to Consolidated Financial Statements August 31, 1999, 1998, and 1997 1. Nature of Operations and Significant Accounting Policies Nature of Operations Luby's, Inc. and Subsidiaries (the Company), based in San Antonio, Texas, owns and operates restaurants in the southern United States. As of August 31, 1999, the Company operated a total of 223 units. The Company locates its restaurants convenient to shopping and business developments as well as to residential areas. Accordingly, the restaurants cater primarily to shoppers and store and office personnel at lunch and to families at dinner. Principles of Consolidation Effective February 1, 1997, the Company was restructured into a holding company. The accompanying consolidated financial statements include the accounts of Luby's, Inc. and its wholly owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Inventories The food and supply inventories are stated at the lower of cost (first-in, first-out) or market. Property Held for Sale Property held for sale is stated at the lower of cost or estimated net realizable value. Depreciation and Amortization The Company depreciates the cost of plant and equipment over their estimated useful lives using both straight-line and accelerated methods. Leasehold improvements are amortized over the related lease lives, which are in some cases shorter than the estimated useful lives of the improvements. Long-Lived Assets Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount. The Company evaluates impairments on a restaurant-by-restaurant basis and uses three or more years of negative cash flows as an indicator of impairment. Impairment losses are also recorded for long-lived assets that are expected to be disposed of. Statement of Cash Flows For purposes of the statement of cash flows, the Company considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents. Preopening Expenses New store preopening costs are expensed as incurred. Advertising Expenses Advertising costs are expensed as incurred. Advertising expense as a percentage of sales approximates 2.4% for fiscal year 1999 and 2.0% for fiscal years 1998 and 1997. Income Taxes Deferred income taxes are computed using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities (temporary differences) and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Stock-Based Compensation During 1997 the Company adopted FAS Statement No. 123, "Accounting for Stock-Based Compensation" (FAS 123), which encourages, but does not require, the Company to record compensation cost for stock-based compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in APB 25. Earnings Per Share During 1998 the Company adopted FAS Statement No. 128, "Earnings Per Share" (FAS 128). FAS 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share, respectively. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. Earnings per share amounts for all periods have been restated to conform to the requirements of FAS 128. Interest-Rate Swap Agreements The Company enters into interest-rate swap agreements to modify the interest characteristics of its outstanding debt. Each interest-rate swap agreement is designated with all or a portion of the principal balance and term of a specific debt obligation. These agreements involve the exchange of amounts based on a fixed interest rate for amounts based on variable interest rates over the life of the agreement without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment to interest expense related to the debt. The related amount payable to or receivable from counterparties is included in other liabilities or assets. The fair values of these agreements are estimated by obtaining quoted market prices. Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from these estimates. New Accounting Pronouncements In June 1998 the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 2000. Because of the Company's minimal use of derivatives, management does not anticipate that the adoption of the new statement will have a significant effect on earnings or the financial position of the Company. 2. Impairment of Long-Lived Assets and Store Closings In 1998 and 1997 the Company recorded a charge to operating costs of $36.9 million and $12.4 million, respectively, for asset impairments and store closings. In 1998 the charge related to the adoption of the Company's strategic plan which included the disposition or relocation of several restaurants that had not met management's financial return expectations, and led management to exit or scale down the Company's presence in certain markets and reevaluate the market potential of certain locations. The 1997 charge related to asset impairments that were recognized upon the initial adoption of FAS Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (FAS 121). The 1998 charge included $14.7 million for the closing of 14 underperforming restaurants, $10.7 million for the asset impairment and other costs of 16 restaurants which will be relocated to optimize their market potential, and $11.4 million for the write-down of certain restaurant properties the Company plans to continue to operate. Additionally, the Company revised its estimate of the net realizable value of surplus properties which the Company plans to sell, resulting in an additional write-down of $0.1 million. The 1997 charge included $4.6 million for the closing of four underperforming restaurants, $3.0 million for the write-down of certain properties which the Company planned to continue to operate, $2.1 million for the write-down of surplus properties the Company plans to sell, $1.4 million for the write-down of computer hardware which was replaced by a new point-of-sale system, and $1.3 million for various costs consisting primarily of the write-off of development costs of future sites the Company no longer intends to pursue. All charges were recorded in the provision for asset impairments and store closings. Charges for the closing of the underperforming restaurants and the restaurants to be relocated include the write-down of property and equipment to net realizable value, costs to settle lease obligations, professional fees, and severance costs. For those assets the Company plans to continue to operate, the carrying values were written down to estimated future discounted cash flows or fully written off in the case of negative future cash flows. The surplus properties which the Company previously intended to use for future development are now being actively marketed and were written down to the lower of their carrying amount or estimated net realizable value. At August 31, 1999 and 1998, the Company had a reserve for store closings of $5.1 million and $6.2 million, respectively, for settlement of lease obligations, professional fees, severance costs, and other costs related to the closings of restaurants. During 1999 and 1998 the Company charged $830,000 and $664,000, respectively, against these reserves for settlement of lease obligations, severance costs, and professional fees. Additionally, the Company reduced its liability by $275,000 in 1999, which is included in other income, as a result of a favorable change in management's estimate of lease settlement costs. The Company expects to utilize the remaining reserves for lease and other costs associated with anticipated settlement agreements in 2000 and beyond. As of August 31, 1999, the Company had closed 12 of the 14 restaurants designated for closure in 1998 and had relocated one of the 16 restaurants designated for relocation. Plans for the closing and relocation of the remaining restaurants are in different stages of negotiation and planning. Each of the four restaurants designated for closing in 1997 has been closed. As of August 31, 1999, the Company is responsible for minimum rent obligations of approximately $6,943,000 related to restaurants designated for closure, but lease termination settlements have not been completed. The results of operations from the restaurants to be disposed of are not material. 3. Property, Plant, and Equipment The cost and accumulated depreciation of property, plant, and equipment at August 31, 1999 and 1998, together with the related estimated useful lives used in computing depreciation and amortization, are reflected below: Estimated 1999 1998 Useful Lives ________ ________ _______________ (Thousands of dollars) Land $ 75,446 $ 71,244 - Restaurant equipment and furnishings 130,533 124,334 3 to 15 years Buildings 221,024 209,276 20 to 40 years Leasehold and leasehold improvements 42,727 41,314 Term of leases Office furniture and equipment 9,599 4,759 5 to 10 years Transportation equipment 772 738 5 years Construction in progress 7,812 3,846 - ________ ________ 487,913 455,511 Less accumulated depreciation and amortization 173,495 156,914 ________ ________ $314,418 $298,597 ________ ________ Total interest expense incurred for 1999, 1998, and 1997 was $5,170,000, $5,354,000, and $5,066,000, respectively, which approximated the amount paid in each year. The amounts capitalized on qualifying properties in 1999, 1998, and 1997 were $409,000, $276,000, and $1,029,000, respectively. 4. Debt During 1996 the Company entered into a $100 million credit facility with a syndication of four banks. As part of this credit facility, the Company has a revolving credit agreement which allows borrowings for varying periods through February 27, 2001, at the lower of the prime rate or other rate options available at the time of borrowing. The credit facility includes a maximum commitment for letters of credit of $20 million. The credit facility contains business covenants which, among other things, impose certain financial restrictions on the Company relating primarily to leverage and net worth. During 1997 the Company increased the credit facility to $125 million, extended the agreement through June 30, 2002, and negotiated a facility fee of .085% on the total commitment. Additionally, the Company entered into two Interest Rate Protection Agreements (swaps) to fix the rate on a portion of the floating-rate debt outstanding under its revolving line of credit. The swaps are fixed-rate agreements in the notional amounts of $30 million and $15 million. Both swaps have an interest rate of 6.50% and a termination date of June 30, 2002. At August 31, 1999, these swaps were in a net unfavorable position of approximately $190,000. As of August 31, 1999, the balance outstanding under the revolving credit agreement is $78,000,000 at an interest rate of 6.2%. At August 31, 1999, letters of credit of approximately $8,652,000 have been issued as security for the payment of insurance obligations classified as accrued expenses on the balance sheets. 5. Leases The Company conducts part of its operations from facilities which are leased under noncancelable lease agreements. Most of the leases are for periods of ten to twenty-five years and provide for contingent rentals based on sales in excess of a base amount. Approximately 80% of the leases contain renewal options ranging from five to thirty years. Annual future minimum lease payments under noncancelable operating leases as of August 31, 1999, are as follows: Years ending August 31: (Thousands of dollars) 2000 $ 7,059 2001 6,579 2002 6,147 2003 6,010 2004 5,705 Thereafter 38,241 _______ Total minimum lease payments $69,741 _______ Total rent expense for operating leases for the years ended August 31, 1999, 1998, and 1997, was as follows: 1999 1998 1997 _______ ________ ________ (Thousands of dollars) Minimum rentals $7,052 $7,286 $6,884 Contingent rentals 843 976 996 ______ ______ ______ $7,895 $8,262 $7,880 ______ ______ ______ 6. Employee Benefit Plans and Agreements Incentive Compensation The Company has various incentive compensation plans covering officers and other key employees that are based upon the achievement of specified earnings goals and performance factors. Awards under the plans are payable in cash and/or in shares of common stock. Charges to expense for distributions under the plans amounted to $355,000, $658,000, and $-0- in 1999, 1998, and 1997, respectively. During the year ended August 31, 1997, 4,790 shares of common stock were issued under the plans out of treasury stock. Stock Option Plan The Company has an Incentive Stock Plan (Stock Plan) to provide for market- based incentive awards, including stock options, stock appreciation rights, restricted stock, and performance share awards. Stock options may be granted at prices not less than 100% of fair market value at date of grant. Options granted to the participants of the plan are exercisable over staggered periods and expire, depending upon the type of grant, in five to ten years. The plan provides for various vesting methods, depending upon the category of personnel. During 1999 the Company authorized 2,000,000 shares of the Company's common stock for the Stock Plan. Under the terms of the Stock Plan, including the 1999 authorization, nonqualified stock options, incentive stock options, and other types of awards for not more than 4,800,000 shares of the Company's common stock may be granted to eligible employees of the Company, including officers. Following is a summary of activity in the stock option plan for the three years ended August 31, 1999, 1998, and 1997: Weighted Average Exercise Price Per Share-Options Options Options Outstanding Outstanding Exercisable ________________ ___________ ___________ Balances - August 31, 1996 $20.48 936,747 703,099 Granted 22.90 33,675 - Became exercisable - - 173,658 Canceled or expired 21.55 (295,623) (281,723) Exercised 17.80 (277,501) (277,501) _________ _________ Balances - August 31, 1997 21.76 397,298 317,533 Granted 19.33 488,498 - Became exercisable - - 11,119 Canceled or expired 22.63 (111,175) (92,573) Exercised 16.25 (10,375) (10,375) _________ _________ Balances - August 31, 1998 20.17 764,246 225,704 Granted 15.18 1,532,732 - Became exercisable - - 113,732 Canceled or expired 19.49 (260,350) (161,662) Exercised - - - _________ _________ Balances - August 31, 1999 $16.47 2,036,628 177,774 _________ _________ Exercise prices for options outstanding as of August 31, 1999, range from $13.94 to $23.75 per share. The weighted average remaining contractual life of these options is 5.2 years. The options exercisable as of August 31, 1999, have a weighted average exercise price of $20.59 per share. At August 31, 1999 and 1998, the number of stock option shares available to be granted under the plans was 1,004,423 and 277,230 shares, respectively. The Company has elected to follow APB 25, "Accounting for Stock Issued to Employees." Accordingly, since employee stock options are granted at market price on the date of grant, no compensation expense is recognized. However, FAS 123 requires presentation of pro forma net income and earnings per share as if the Company had accounted for its employee stock options granted under the fair value method of that statement. The weighted average fair value of the individual options granted during 1999, 1998, and 1997 is estimated as $3.00, $3.25, and $4.42, respectively, on the date of grant. The impact on net income is minimal; therefore, the pro forma disclosure requirements prescribed by FAS 123 are not significant to the Company. The fair values were determined using a Black-Scholes option pricing model with the following assumptions: 1999 1998 1997 ____ ____ ____ Dividend yield 5.20% 4.40% 3.50% Volatility .19 .18 .14 Risk-free interest rate 7.00% 7.00% 7.00% Expected life 6.07 5.16 6.86 Deferred Compensation The Company has a Supplemental Executive Retirement Plan (SERP) for key executives and officers. The SERP is a "target" benefit plan, with the annual lifetime benefit based upon a percentage of average salary during the final five years of service at age 65, offset by several sources of income including benefits payable under deferred compensation agreements, if applicable, the profit sharing plan, and Social Security. SERP benefits will be paid from the Company's assets. The net expense incurred for this plan for the years ended August 31, 1999, 1998, and 1997 was $150,000, $163,000, and $120,000, respectively, and the unfunded accumulated benefit obligation as of August 31, 1999, 1998, and 1997 was approximately $564,000, $447,000, and $315,000, respectively. During 1997 the Company established a voluntary 401(k) employee savings plan to provide substantially all salaried and hourly employees of the Company an opportunity to accumulate personal funds for their retirement. These contributions may be made on a before-tax basis to the plan. The Company does not match the participants' contributions to the plan. During 1999 the Company established a nonqualified deferred compensation plan for highly compensated executives allowing deferral of a portion of their annual salary and up to 100% of bonuses before taxes. The Company does not match any deferral amounts and retains ownership of all assets until distributed. The liability under this deferred compensation plan at August 31, 1999, was approximately $39,000. Profit Sharing The Company has a profit sharing plan and retirement trust covering substantially all employees who have attained the age of 21 years and have completed one year of continuous service. The plan is administered by a corporate trustee, is a "qualified plan" under Section 401(a) of the Internal Revenue Code, and provides for the payment of the employee's vested portion of the plan upon retirement, termination, disability, or death. The plan is funded by contributions of a portion of the net earnings of the Company. The plan provides that for each fiscal year in which the Company's net income (before income taxes and before any contribution to the plan) meets certain minimum standards, the Company is obligated to contribute to the plan, at a minimum, an amount equal to a defined percentage of the participants' compensation. In no event will the required contribution exceed 10% of the Company's income before income taxes and before any contribution to the plan. At the discretion of the board of directors, the Company can make a greater contribution than required, subject to certain limitations. The Company's annual contribution to the plan amounted to $1,700,000, $1,800,000, and $1,500,000 for 1999, 1998, and 1997, respectively. 7. Income Taxes The tax effect of temporary differences results in deferred income tax assets and liabilities as of August 31 as follows: 1999 1998 ________ ___________ (Thousands of dollars) Deferred tax assets: Workers' compensation insurance $ 956 $ 1,201 Deferred compensation 775 827 Asset impairments and store closing reserves 14,523 16,135 _______ _______ Total deferred tax assets 16,254 18,163 Deferred tax liabilities: Amortization of capitalized interest 495 414 Depreciation and amortization 20,544 19,573 Other 1,875 1,523 _______ _______ Total deferred tax liabilities 22,914 21,510 _______ _______ Net deferred tax liability $ 6,660 $ 3,347 _______ _______ The reconciliation of the provision for income taxes to the expected income tax expense (computed using the statutory tax rate) is as follows: 1999 1998 1997 Amount % Amount % Amount % ______ ____ _______ ____ _______ ____ (Thousands of dollars and as a percent of pretax income) Normally expected income tax expense $15,219 35.0% $2,758 35.0% $14,932 35.0% State income taxes 156 .4 114 1.4 745 1.7 Jobs tax credits (155) (.4) (26) (.3) (101) (.2) Other differences (349) (.8) (48) (.6) (1,361) (3.2) ______ ____ _______ ____ _______ ____ $14,871 34.2% $2,798 35.5% $14,215 33.3% ______ ____ _______ ____ _______ ____ During 1997 the Company restructured into a holding company which effectively decreased future expected state taxes. The deferred tax assets and liabilities were reduced accordingly, and the effect on total income tax expense is included above with "Other differences." Cash payments for income taxes for 1999, 1998, and 1997 were $13,245,000, $15,852,000, and $17,664,000, respectively. 8. Commitments and Contingencies At August 31, 1999, the Company had six restaurants and several restaurant remodels under construction. The aggregate unexpended cost under the construction contracts was approximately $3,450,000. The Company has guaranteed loan balances outstanding at August 31, 1999, of $1,867,000 relating to purchases of Company stock made by officers of the Company under an officer loan program. Under the program, shares were purchased by officers; and funding, if necessary, was obtained from an unrelated third party. The Company is presently, and from time to time, subject to pending claims and lawsuits arising in the ordinary course of business. In the opinion of management, the ultimate resolution of these pending legal proceedings will not have a material adverse effect on the Company's operations or consolidated financial position. 9. Common Stock In 1991 the Board of Directors adopted a Shareholder Rights Plan and declared a dividend of one common stock purchase right for each outstanding share of common stock. The rights are not initially exercisable. The rights may become exercisable under circumstances described in the plan if any person or group (an Acquiring Person) becomes the beneficial owner of 15% or more of the common stock. Once the rights become exercisable, each right will be exercisable to purchase, for $27.50 (the Purchase Price), one-half of one share of common stock, par value $.32 per share, of the Company. If any person becomes the beneficial owner of 15% or more of the common stock, each right will entitle the holder, other than the Acquiring Person, to purchase for the Purchase Price a number of shares of the Company's common stock having a market value of four times the Purchase Price. The Board of Directors periodically authorizes the purchase in the open market of shares of the Company's outstanding common stock. Under such authorizations, the Company purchased 850,300, -0-, and 897,500 shares of its common stock at a cost of $12,919,000, $-0-, and $19,918,000 during 1999, 1998, and 1997, respectively, which are being held as treasury stock. 10. Per Share Information A reconciliation of the numerators and denominators of basic earnings per share and diluted earnings per share for the years ended August 31, 1999, 1998, and 1997, is shown in the table below. August 31, 1999 1998 1997 ________ __________ __________ (Thousands of dollars except per share data) Numerator: Net income $28,613 $ 5,081 $28,447 ________ __________ __________ Denominator for basic earnings per share - weighted average shares 22,614 23,270 23,406 Effect of dilutive securities: Employee stock options 23 2 19 ________ __________ __________ Denominator for earnings - per share - assuming dilution - adjusted weighted average shares 22,637 23,272 23,425 ________ __________ __________ Net income per share - basic $ 1.27 $ 0.22 $ 1.22 Net income per share - assuming dilution $ 1.26 $ 0.22 $ 1.21 ________ __________ __________ 11. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities at August 31 consist of: 1999 1998 _______ _______ (Thousands of dollars) Salaries and bonuses $ 6,815 $ 7,520 Rent 702 748 Taxes, other than income 6,428 6,928 Profit sharing plan 1,713 1,864 Insurance 9,134 10,482 Other 468 689 _______ _______ $25,260 $28,231 _______ _______ 12. Quarterly Financial Information (Unaudited) The following is a summary of quarterly unaudited financial information for 1999 and 1998: Three Months Ended November 30, February 28, May 31, August 31, 1998 1999 1999 1999 ________ ________ ________ _________ (Thousands of dollars except per share data) Sales $125,708 $123,771 $127,084 $124,930 Gross profit 53,790 57,214 58,435 54,819 Net income 5,672 7,219 8,776 6,946 Net income per share .25 .32 .39 .31 Three Months Ended November 30, February 28, May 31, August 31, 1997 1998 1998 1998 ________ ________ ________ _________ (Thousands of dollars except per share data) Sales $124,672 $123,204 $131,230 $129,765 Gross profit 53,505 54,913 59,314 56,861 Net income (loss) 6,207 6,941 8,147 (16,214)* Net income (loss) per share .27 .30 .35 (.70)* *See Note 2 for discussion of charges recorded during the fourth quarter of 1998. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. There is incorporated in this Item 10 by reference that portion of the Company's definitive proxy statement for the 2000 annual meeting of Shareholders appearing therein under the captions "Election of Directors," "Information Concerning Directors and Committees," and "Certain Relationships and Related Transactions." See also the information in Item 4A of Part I of this Report. Item 11. Executive Compensation. There is incorporated in this Item 11 by reference that portion of the Company's definitive proxy statement for the 2000 annual meeting of shareholders appearing therein under the captions "Executive Compensation," "Deferred Compensation," "Certain Relationships and Related Transactions," and "Compensation of Chief Executive Officer." Item 12. Security Ownership of Certain Beneficial Owners and Management. There is incorporated in this Item 12 by reference that portion of the Company's definitive proxy statement for the 2000 annual meeting of Shareholders appearing therein under the captions "Principal Shareholders" and "Management Shareholders." Item 13. Certain Relationships and Related Transactions. There is incorporated in this Item 13 by reference that portion of the Company's definitive proxy statement for the 2000 annual meeting of shareholders appearing therein under the caption "Certain Relationships and Related Transactions." PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) Documents. 1. Financial Statements The following financial statements are filed as part of this Report: Consolidated balance sheets at August 31, 1999 and 1998 Consolidated statements of income for each of the three years in the period ended August 31, 1999 Consolidated statements of shareholders' equity for each of the three years in the period ended August 31, 1999 Consolidated statements of cash flows for each of the three years in the period ended August 31, 1999 Notes to consolidated financial statements Report of independent auditors 2. Financial Statement Schedules All schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto. 3. Exhibits The following exhibits are filed as a part of this Report: 3(a) Certificate of Incorporation of Luby's, Inc., as currently in effect (filed as Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference). 3(b) Bylaws of Luby's, Inc. as currently in effect (filed as Exhibit 3(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference). 4(a) Description of Common Stock Purchase Rights of Luby's Cafeterias, Inc., in Form 8-A (filed April 17, 1991, effective April 26, 1991, File No. 1-8308, and incorporated herein by reference). 4(b) Amendment No. 1 dated December 19, 1991, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1991, and incorporated herein by reference). 4(c) Amendment No. 2 dated February 7, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference). 4(d) Amendment No. 3 dated May 29, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995, and incorporated herein by reference). 4(e) Credit Agreement dated February 27, 1996, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference). 4(f) First Amendment to Credit Agreement dated January 24, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 4(g) ISDA Master Agreement dated June 17, 1997, between Luby's Cafeterias, Inc. and NationsBank, N.A., with Schedule and Confirmation dated July 7, 1997 (filed as Exhibit 4(g) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference). 4(h) ISDA Master Agreement dated July 2, 1997, between Luby's Cafeterias, Inc. and Texas Commerce Bank National Association, with Schedule and Confirmation dated July 2, 1997 (filed as Exhibit 4(h) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference). 4(i) Second Amendment to Credit Agreement dated July 3, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(i) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference). 10(a) Form of Deferred Compensation Agreement entered into between Luby's Cafeterias, Inc. and various officers (filed as Exhibit 10(b) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1981, and incorporated herein by reference).* 10(b) Form of Amendment to Deferred Compensation Agreement between Luby's Cafeterias, Inc. and various officers and former officers adopted January 14, 1997 (filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(c) Luby's Cafeterias, Inc. Incentive Bonus Plan for Fiscal 1998 adopted January 9, 1998 (filed as Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* 10(d) Performance Unit Plan of Luby's Cafeterias, Inc. approved by the shareholders January 12, 1984 (filed as Exhibit 10(f) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1984, and incorporated herein by reference).* 10(e) Amendment to Performance Unit Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(h) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(f) Management Incentive Stock Plan of Luby's Cafeterias, Inc. (filed as Exhibit 10(i) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1989, and incorporated herein by reference).* 10(g) Amendment to Management Incentive Stock Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(k) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(h) Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted October 27, 1994 (filed as Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1994, and incorporated herein by reference).* 10(i) Amendment to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(m) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(j) Amendment to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted March 19, 1998 (filed as Exhibit 10(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* 10(k) Nonemployee Director Stock Option Plan of Luby's Cafeterias, Inc. approved by the shareholders January 13, 1995 (filed as Exhibit 10(h) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference).* 10(l) Amendment to Nonemployee Director Stock Option Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(m) Employment Contract dated January 12, 1996, between Luby's Cafeterias, Inc. and John B. Lahourcade (filed as Exhibit 10(i) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference).* 10(n) Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan dated May 30, 1996 (filed as Exhibit 10(j) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference).* 10(o) Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 14, 1997 (filed as Exhibit 10(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(p) Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 9, 1998 (filed as Exhibit 10(u) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* 10(q) Employment Agreement dated September 15, 1997, between Luby's Cafeterias, Inc. and Barry J.C. Parker (filed as Exhibit 10(u) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference).* 10(r) Amendment dated January 8, 1999, to Employment Agreement between Luby's Cafeterias, Inc. and Barry J.C. Parker (filed as Exhibit 10(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference).* 10(s) Amendment dated October 15, 1999, to Employment Agreement between Luby's, Inc., and Barry J.C. Parker.* 10(t) Term Promissory Note of Barry J.C. Parker in favor of Luby's Cafeterias, Inc., dated November 10, 1997, in the original principal sum of $199,999.00 (filed as Exhibit 10(v) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference).* 10(u) Stock Agreement dated November 10, 1997, between Barry J.C. Parker and Luby's Cafeterias, Inc. (filed as Exhibit 10(w) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference).* 10(v) Luby's Cafeterias, Inc. Nonemployee Director Phantom Stock Plan adopted March 19, 1998 (filed as Exhibit 10(aa) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* 10(w) Salary Continuation Agreement dated May 14, 1998, between Luby's Cafeterias, Inc. and Sue Elliott (filed as Exhibit 10(cc) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1998, and incorporated herein by reference).* 10(x) Salary Continuation Agreement dated June 1, 1998, between Luby's Cafeterias, Inc. and Alan M. Davis (filed as Exhibit 10(dd) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1998, and incorporated herein by reference).* 10(y) Luby's Incentive Stock Plan adopted October 16, 1998 (filed as Exhibit 10(cc) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1998, and incorporated herein by reference).* 10(z) Incentive Bonus Plan for Fiscal 1999 adopted October 16, 1998 (filed as Exhibit 10(dd) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1998, and incorporated herein by reference).* 10(aa) Form of Change in Control Agreement entered into between Luby's, Inc., and Barry J.C. Parker, President and Chief Executive Officer, as of January 8, 1999 (filed as Exhibit 10(z) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference).* 10(bb) Form of Change in Control Agreement entered into between Luby's, Inc., and each of its Senior Vice Presidents as of January 8, 1999 (filed as Exhibit 10(aa) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference).* 10(cc) Luby's, Inc. Deferred Compensation Plan effective June 1, 1999 (filed as Exhibit 10(cc) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference). 10(dd) Luby's, Inc. Incentive Bonus Plan for Fiscal 2000.* 11 Statement re computation of per share earnings. 21 Subsidiaries of Luby's, Inc. (filed as Exhibit 21 to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1998, and incorporated herein by reference). 27 Financial Data Schedule. 99(a) Corporate Governance Guidelines of Luby's Cafeterias, Inc., as amended January 7, 1999 (filed as Exhibit 99(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference). 99(b) Consent of Ernst & Young LLP. *Denotes management contract or compensatory plan or arrangement. (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the last quarter of the period covered by this Report. 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. Date: November 24, 1999 LUBY'S, INC. (Registrant) By: BARRY J.C. PARKER ____________________________ Barry J.C. Parker, President and Chief Executive Officer 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 and Date Name and Title __________________ __________________________ DAVID B. DAVISS David B. Daviss, Chairman _______________________________ of the Board November 24, 1999 BARRY J.C. PARKER Barry J.C. Parker, President, _______________________________ Chief Executive Officer, November 24, 1999 and Director LAURA M. BISHOP Laura M. Bishop, Senior Vice ________________________________ President and Chief Financial November 24, 1999 Officer PAULA Y. GOLD-WILLIAMS Paula Gold-Williams, Controller ________________________________ November 24, 1999 RONALD K. CALGAARD Ronald K. Calgaard, Director ________________________________ November 24, 1999 LAURO F. CAVAZOS Lauro F. Cavazos, Director ________________________________ November 24, 1999 JUDITH B. CRAVEN Judith B. Craven, Director ________________________________ November 24, 1999 ARTHUR R. EMERSON Arthur R. Emerson, Director ________________________________ November 24, 1999 ROGER R. HEMMINGHAUS Roger R. Hemminghaus, Director ________________________________ November 24, 1999 JOHN B. LAHOURCADE John B. Lahourcade, Director ________________________________ November 24, 1999 WALTER J. SALMON Walter J. Salmon, Director ________________________________ November 24, 1999 GEORGE H. WENGLEIN George H. Wenglein, Director ________________________________ November 24, 1999 JOANNE WINIK Joanne Winik, Director ________________________________ November 24, 1999 EXHIBIT INDEX Exhibit 3(a) Certificate of Incorporation of Luby's, Inc., as currently in effect (filed as Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference). 3(b) Bylaws of Luby's, Inc. as currently in effect (filed as Exhibit 3(c) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference). 4(a) Description of Common Stock Purchase Rights of Luby's Cafeterias, Inc., in Form 8-A (filed April 17, 1991, effective April 26, 1991, File No. 1-8308, and incorporated herein by reference). 4(b) Amendment No. 1 dated December 19, 1991, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1991, and incorporated herein by reference). 4(c) Amendment No. 2 dated February 7, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference). 4(d) Amendment No. 3 dated May 29, 1995, to Rights Agreement dated April 16, 1991 (filed as Exhibit 4(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1995, and incorporated herein by reference). 4(e) Credit Agreement dated February 27, 1996, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(e) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference). 4(f) First Amendment to Credit Agreement dated January 24, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 4(g) ISDA Master Agreement dated June 17, 1997, between Luby's Cafeterias, Inc. and NationsBank, N.A., with Schedule and Confirmation dated July 7, 1997 (filed as Exhibit 4(g) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference). 4(h) ISDA Master Agreement dated July 2, 1997, between Luby's Cafeterias, Inc. and Texas Commerce Bank National Association, with Schedule and Confirmation dated July 2, 1997 (filed as Exhibit 4(h) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference). 4(i) Second Amendment to Credit Agreement dated July 3, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. (filed as Exhibit 4(i) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference). 10(a) Form of Deferred Compensation Agreement entered into between Luby's Cafeterias, Inc. and various officers (filed as Exhibit 10(b) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1981, and incorporated herein by reference).* 10(b) Form of Amendment to Deferred Compensation Agreement between Luby's Cafeterias, Inc. and various officers and former officers adopted January 14, 1997 (filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(c) Luby's Cafeterias, Inc. Incentive Bonus Plan for Fiscal 1998 adopted January 9, 1998 (filed as Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* 10(d) Performance Unit Plan of Luby's Cafeterias, Inc. approved by the shareholders January 12, 1984 (filed as Exhibit 10(f) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1984, and incorporated herein by reference).* 10(e) Amendment to Performance Unit Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(h) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(f) Management Incentive Stock Plan of Luby's Cafeterias, Inc. (filed as Exhibit 10(i) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1989, and incorporated herein by reference).* 10(g) Amendment to Management Incentive Stock Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(k) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(h) Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted October 27, 1994 (filed as Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1994, and incorporated herein by reference).* 10(i) Amendment to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(m) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(j) Amendment to Nonemployee Director Deferred Compensation Plan of Luby's Cafeterias, Inc. adopted March 19, 1998 (filed as Exhibit 10(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* 10(k) Nonemployee Director Stock Option Plan of Luby's Cafeterias, Inc. approved by the shareholders January 13, 1995 (filed as Exhibit 10(h) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1995, and incorporated herein by reference).* 10(l) Amendment to Nonemployee Director Stock Option Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(o) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(m) Employment Contract dated January 12, 1996, between Luby's Cafeterias, Inc. and John B. Lahourcade (filed as Exhibit 10(i) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference).* 10(n) Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan dated May 30, 1996 (filed as Exhibit 10(j) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference).* 10(o) Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 14, 1997 (filed as Exhibit 10(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference).* 10(p) Amendment to Luby's Cafeterias, Inc. Supplemental Executive Retirement Plan adopted January 9, 1998 (filed as Exhibit 10(u) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* 10(q) Employment Agreement dated September 15, 1997, between Luby's Cafeterias, Inc. and Barry J.C. Parker (filed as Exhibit 10(u) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference).* 10(r) Amendment dated January 8, 1999, to Employment Agreement between Luby's Cafeterias, Inc. and Barry J.C. Parker (filed as Exhibit 10(r) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference).* 10(s) Amendment dated October 15, 1999, to Employment Agreement between Luby's, Inc., and Barry J.C. Parker.* 10(t) Term Promissory Note of Barry J.C. Parker in favor of Luby's Cafeterias, Inc., dated November 10, 1997, in the original principal sum of $199,999.00 (filed as Exhibit 10(v) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference).* 10(u) Stock Agreement dated November 10, 1997, between Barry J.C. Parker and Luby's Cafeterias, Inc. (filed as Exhibit 10(w) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1997, and incorporated herein by reference).* 10(v) Luby's Cafeterias, Inc. Nonemployee Director Phantom Stock Plan adopted March 19, 1998 (filed as Exhibit 10(aa) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1998, and incorporated herein by reference).* 10(w) Salary Continuation Agreement dated May 14, 1998, between Luby's Cafeterias, Inc. and Sue Elliott (filed as Exhibit 10(cc) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1998, and incorporated herein by reference).* 10(x) Salary Continuation Agreement dated June 1, 1998, between Luby's Cafeterias, Inc. and Alan M. Davis (filed as Exhibit 10(dd) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1998, and incorporated herein by reference).* 10(y) Luby's Incentive Stock Plan adopted October 16, 1998 (filed as Exhibit 10(cc) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1998, and incorporated herein by reference).* 10(z) Incentive Bonus Plan for Fiscal 1999 adopted October 16, 1998 (filed as Exhibit 10(dd) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1998, and incorporated herein by reference).* 10(aa) Form of Change in Control Agreement entered into between Luby's, Inc., and Barry J.C. Parker, President and Chief Executive Officer, as of January 8, 1999 (filed as Exhibit 10(z) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference).* 10(bb) Form of Change in Control Agreement entered into between Luby's, Inc., and each of its Senior Vice Presidents as of January 8, 1999 (filed as Exhibit 10(aa) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference).* 10(cc) Luby's, Inc. Deferred Compensation Plan effective June 1, 1999 (filed as Exhibit 10(cc) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference). 10(dd) Luby's, Inc. Incentive Bonus Plan for Fiscal 2000.* 11 Statement re computation of per share earnings. 21 Subsidiaries of Luby's, Inc. (filed as Exhibit 21 to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1998, and incorporated herein by reference). 27 Financial Data Schedule. 99(a) Corporate Governance Guidelines of Luby's Cafeterias, Inc., as amended January 7, 1999 (filed as Exhibit 99(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1999, and incorporated herein by reference). 99(b) Consent of Ernst & Young LLP. *Denotes management contract or compensatory plan or arrangement. EX-10 2 AMD. TO CEO'S SALARY AGREEMNT; INCENTIVE BONUS PLN Exhibit 10(s) Luby's, Inc. 2211 Northeast Loop 410 San Antonio, Texas 78217-4673 210/654-9000 Mailing Address: P. O. Box 33069 San Antonio, Texas 78265-3069 October 15, 1999 Mr. Barry J.C. Parker President and Chief Executive Officer Luby's, Inc. P. O. Box 33069 San Antonio, Texas 78265-3069 Dear Mr. Parker: Pursuant to authorization by the Board of Directors of Luby's, Inc. (the "Company") on this date, this letter will confirm that your employment agreement with the Company dated September 15, 1997, is hereby amended to increase your minimum base salary to $405,000 per year ($33,750 per month) effective as of November 1, 1999. Sincerely, DAVID B. DAVISS _____________________ Chairman of the Board Accepted and agreed to: BARRY J.C. PARKER __________________ Barry J.C. Parker Exhibit 10(dd) LUBY'S, INC. INCENTIVE BONUS PLAN FOR FISCAL YEAR 2000 1. Purpose. The Incentive Bonus Plan for Fiscal 2000 (the "Plan") of Luby's, Inc. (the "Company") is intended to provide (i) additional incentives for Participants to improve their job performance (ii) drive the achievement of performance objectives that are aligned with the Company's strategic plan, and (iii) to retain and attract highly talented executives. 2. Participants. Participants include the Chief Executive Officer, Senior Vice Presidents, Vice Presidents, Departmental Directors, Assistant Vice Presidents, and Assistant Secretaries. 3. Eligibility. An employee must be a Participant in the Plan for a minimum of three months during the Plan Year to be eligible for an award for that plan year. 4. Target Award Percentages. Award Levels are set for each Participant in the organization based on level of responsibility. 5. Cash Bonus Pool. The Company shall establish a Cash Bonus Pool based upon the sum of target award percentages multiplied by each Participant's salary. The target award percentages are set for each level by the Compensation Committee. 6. Performance Goals. At the recommendation of the Chief Executive Officer, the Compensation Committee of the Board of Directors has approved certain Strategic Objectives and a threshold earnings goal for the Company for fiscal 2000. The amount of the pool will be determined based on the following: 50% of the Pool: Earnings Per Share versus established goals, according to the following schedule for 2000: Performance vs. Goal % of Target Pool Generated Stretch Performance: 107% or more 150% of pool Performance at Goal: 100% 100% of pool Threshold Goal: 93% of Goal 50% of pool *Straight line interpolation between or above points The other 50% of the pool will be based on performance versus the strategic objectives as determined by the CEO and approved by the Compensation Committee of the Board of Directors. 7. Job Performance Evaluations. At the end of each fiscal year, the management of the Company shall review the job performance of each Participant during the fiscal year and shall evaluate his or her performance based upon the achievement of written objectives established for the year. In addition, each Participant will be evaluated on the basis of general job performance criteria. 8. Cash Bonuses. Upon completion of the Job Performance Evaluations of all Participants at the end of the fiscal year, the management of the Company shall allocate the approved Cash Bonus Pool among the Participants based upon the evaluations. The Company's evaluation of each Participant's performance and the Company's determination of the amount to be awarded to each Participant out of the Cash Bonus Pool shall be final and conclusive and shall be binding upon all Participants in the Plan. The amount awarded to each Participant out of the Cash Bonus Pool shall be in addition to his or her base salary and other benefits. 9. Adjustments for Extraordinary Items. The Compensation Committee of the Board shall be authorized to make adjustments in the method of calculating attainment of Performance Goals in recognition of: (i) extraordinary or nonrecurring items, (ii) changes in tax or other laws, (iii) changes in generally accepted accounting principles or changes in accounting policies, (iv) charges related to restructured or discontinued operations, (v) restatement of prior period financial results, and (vi) any other unusual, nonrecurring gain or loss that is separately identified and quantified in the Company's financial statements. 10. Withholding Tax. The Company shall have the right to deduct from all payments made under the Plan any taxes required by law to be withheld with respect to such payments. 11. Interpretation of the Plan. Any disagreement or dispute with respect to the interpretation or application of the Plan shall be resolved by the Executive Committee of the Board of Directors of the Company. The decision of the Executive Committee with respect to any such matter shall be final and conclusive and shall be binding upon all participants in the Plan. 12. Amendment and Discontinuance of the Plan. The Plan may be discontinued or amended by the Board of Directors of the Company at any time. No participant shall be entitled to receive a bonus under the Plan until such time as the bonus has been awarded by the Board of Directors in accordance with the plan. 13. No Right To Continued Employment or Awards. No employee shall have any claim or right to be made an award, and the making of an award shall not be construed as giving a participant the right to be retained in the employ of the Company. Further, the Company expressly reserves the right at any time to terminate the employment of any Participant free from any liability under the Plan. EX-11 3 COMPUTATION OF PER SHARE EARNINGS Exhibit 11 COMPUTATION OF PER SHARE EARNINGS The following is a computation of the weighted average number of shares outstanding which is used in the computation of per share earnings for Luby's, Inc. for the three and twelve months ended August 31, 1999 and 1998. Three months ended August 31, 1999 22,420,375 x shares outstanding for 92 days 2,062,674,500 Divided by number of days in the period 92 _____________ 22,420,375 Twelve months ended August 31, 1999 23,270,675 x shares outstanding for 52 days 1,210,075,100 23,163,097 x shares outstanding for 9 days 208,467,873 22,870,798 x shares outstanding for 30 days 686,123,940 22,626,065 x shares outstanding for 31 days 701,408,015 22,420,375 x shares outstanding for 243 days 5,448,151,125 _____________ 8,254,226,053 Divided by number of days in the period 365 _____________ 22,614,318 Three months ended August 31, 1998 23,270,675 x shares outstanding for 92 days 2,140,902,100 Divided by number of days in the period 92 _____________ 23,270,675 Twelve months ended August 31, 1998 23,266,374 x shares outstanding for 18 days 418,794,732 23,266,921 x shares outstanding for 17 days 395,537,657 23,268,328 x shares outstanding for 9 days 209,414,952 23,270,675 x shares outstanding for 321 days 7,469,886,675 _____________ 8,493,634,016 Divided by number of days in the period 365 _____________ 23,270,230 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 YEAR AUG-31-1999 AUG-31-1999 286 0 584 0 3,686 10,064 487,913 173,495 346,025 49,812 0 0 0 8,769 194,435 346,025 501,493 501,493 277,235 277,235 155,828 0 4,761 43,484 14,871 28,613 0 0 0 28,613 1.27 1.26 Other stockholders' equity amount is less cost of treasury stock of $105,826.
EX-99 5 CONSENT Exhibit 99(b) Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-36791) pertaining to the Luby's Cafeterias, Inc. Management Incentive Stock Plan, (Form No. 1.333-70315) pertaining to the Luby's Incentive Stock Plan, (Form No. 33-10559) pertaining to the Luby's Cafeterias, Inc. Performance Unit Plan, and (Form S-8 No. 333-19283) pertaining to the Luby's Cafeterias Savings and Investment Plan of Luby's Cafeterias, Inc. of our report dated October 5, 1999, with respect to the consolidated financial statements of Luby's, Inc. incorporated by reference in the Annual Report (Form 10-K) for the year ended August 31, 1999. ERNST & YOUNG LLP San Antonio, Texas November 23, 1999 -----END PRIVACY-ENHANCED MESSAGE-----