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, 1997 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 CAFETERIAS, 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. [ ] The aggregate market value of the shares of Common Stock of the registrant held by non-affiliates of the registrant as of November 12, 1997, was approximately $431,453,000 (based upon the assumption that directors and officers are the only affiliates). As of November 12, 1997, there were 23,270,675 shares of the registrant's Common Stock outstanding, exclusive of 4,132,392 treasury shares. Portions of the following documents are incorporated by reference into the designated parts of this Form 10-K: annual report to shareholders for the fiscal year ended August 31, 1997, (in Part II) and proxy statement relating to 1998 annual meeting of shareholders (in Part III). Item 1. Business. Luby's Cafeterias, Inc. (the "Company") operates 232 cafeterias under the name "Luby's" located in suburban shopping areas in Arizona, Arkansas, Florida, Kansas, Louisiana, Mississippi, Missouri, New Mexico, Oklahoma, Tennessee, and Texas. Of the 232 cafeterias operated by the Company, 135 are at locations owned by the Company and 97 are on leased premises. 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. The Company 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 cafeteria 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 Cafeterias, Inc. Marketing The Company's product strategy is to provide a wide variety of freshly prepared 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 senior citizens, families with children, shoppers, and business people looking for a quick, healthy meal at a reasonable price. Prior to 1991 the Company relied primarily on customers' word-of-mouth recommendations and community relations activities to promote its business, spending approximately .5% of sales annually on these efforts. In 1991 the Company began developing a new marketing program. Based on favorable results of radio and television advertising tests, the marketing budget increased and currently approximates two percent of sales. The Company intends to continue expending the majority of the marketing budget on television and radio advertising, as well as supporting the increased local marketing activities of the individual cafeterias. Operations The Company's operations combine the food quality and atmosphere of a good restaurant with the simplicity and visual food selection of cafeteria service. Food is prepared in small quantities throughout serving hours, and frequent quality checks are made. Each cafeteria offers a broad and varied menu and normally serves 12 to 14 entrees, 12 to 14 vegetable dishes, 22 to 25 salads, and 18 to 20 desserts. The Company's cafeterias cater primarily to shoppers and office or store personnel for lunch and to families for dinner. The Company's cafeterias are open for lunch and dinner seven days a week. All of the cafeterias sell take-out orders, and most of them have separate food to go entrances. Take- out orders accounted for approximately 11 percent of sales in fiscal 1997. Each cafeteria is operated as a separate unit under the control of a manager who has responsibility for day-to-day operations, including food purchasing, menu planning, and personnel employment and supervision. Each cafeteria manager is compensated on the basis of his or her cafeteria's profits. Management believes that granting broad authority to its cafeteria managers and compensating them on the basis of their performance are significant factors in the profitability of its cafeterias. Of the 232 cafeteria managers employed by the Company, 177 have been with the Company for more than ten years. Generally, an individual is employed for a period of seven to ten years before he or she is considered qualified to become a cafeteria manager. Each cafeteria cooks or prepares substantially all of the food served, including breads and pastries. The cafeterias prepare food from the same recipes, with minor variations to suit local tastes, although menus are not uniform in all of the Company's cafeterias on any particular day. Menus are prepared to reflect local and seasonal food preferences and to take advantage of any special food purchasing opportunities. Substantially all of the food served by each cafeteria is purchased from local suppliers. None of the cafeterias are dependent upon any one supplier, and the Company believes that alternative sources of supply are readily available. Quality control teams, each consisting of experienced cooks and a supervisor, help to maintain uniform standards of food preparation. The teams primarily assist in the training of new personnel during the opening of new cafeterias. The teams also visit the cafeterias 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 cafeterias. In order to draw management trainees from regional talent pools, the Company has set up satellite training schools in several key cafeterias to make on-the-job training more accessible on a local level. As of August 31, 1997, the Company had approximately 13,000 employees, consisting of 12,104 nonmanagement cafeteria personnel; 754 cafeteria managers, associate managers, and assistant managers; and 142 executive, administrative, and clerical personnel. Employee relations are considered to be good, and the Company has never had a strike or work stoppage. Expansion During the fiscal year ended August 31, 1997, the Company relocated two cafeterias in Longview and San Antonio, Texas, closed two cafeterias in Dallas, Texas, and Topeka, Kansas, and opened 27 new cafeterias in Peoria, Arizona; Hot Springs and Little Rock, Arkansas; St. Petersburg, Florida; Joplin, Missouri; Albuquerque, New Mexico; Memphis, Tennessee; and Abilene, Austin, College Station, Dallas, Del Rio, Houston, Irving, Jacinto City, Laredo, McAllen, Mesquite, Orange, Rosenberg, and San Antonio, Texas. Included in the new units were 15 cafeteria locations acquired from Triangle FoodService Corporation (formerly Wyatt Cafeterias, Inc.). The net increase in the number of cafeterias for the 1997 fiscal year was 25. Since August 31, 1997, the Company has closed two cafeterias in Leavenworth, Kansas, and Muskogee, Oklahoma, and has opened five new cafeterias in Phoenix, Arizona; Clearwater, Florida; Meridian, Mississippi; and Greenville and Tyler, Texas. During fiscal year 1998, the Company expects to open a total of approximately seven new cafeterias. The Company continually evaluates prospective new cafeteria sites and typically has several sites for new cafeterias under active consideration at any given time. The rate at which new cafeterias 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 cafeterias generally become profitable within a few months after opening. The costs of opening new cafeterias 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 cafeteria in a freestanding building under normal conditions, including land acquisition costs. The approximate cost to finish out, equip, and furnish a new cafeteria in a leased facility has ranged from $1,200,000 to $1,400,000. 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. Two of the restaurants have been opened in Houston and San Antonio, Texas. Two others are under construction in Austin and Lewisville, Texas. 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 cafeteria business. One cafeteria using the name "Luby's" and one cafeteria 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 cafeteria 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 food service business is highly competitive, and there are numerous restaurants and other food service 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 food service 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 believes that its principal competitors are conventional restaurants and other cafeterias. 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. Item 2. Properties. The Company owns the underlying land and buildings in which 135 of its cafeterias are located. In addition, the Company owns several cafeteria sites being held for future development. Of the 232 cafeterias operated by the Company, 97 are at locations held under leases, including 61 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 97 cafeteria leases, the current terms of 30 expire from 1998 to 2002, 22 from 2003 to 2007, and 45 thereafter. Eighty of the leases can be extended beyond their current terms at the Company's option. A typical cafeteria seats 250 to 300 guests and contains 9,000 to 10,500 square feet of floor space. Most of the cafeterias are located in modern buildings and all are in good condition. It is the Company's policy to refurbish and modernize cafeterias as necessary to maintain their appearance and utility. The equipment in all cafeterias is well maintained. Several of the Company's cafeteria properties contain excess building space which is rented to tenants unaffiliated with the Company. The towns and cities in which the Company's 232 cafeterias are located are listed below, with numbers in parentheses indicating the number of units in each locale: Arizona (14) Baytown (1) Chandler (1) Beaumont (1) Glendale (1) Bedford (1) Mesa (2) Bellmead (1) Peoria (1) Brownsville (2) Phoenix (5) Bryan/College Station (2) Scottsdale (1) Carrollton (1) Surprise (1) Conroe (1) Tucson (2) Corpus Christi (4) Dallas (12) Arkansas (7) Deer Park (1) Fayetteville (1) Del Rio (1) Fort Smith (1) Denton (1) Hot Springs (1) DeSoto (1) Little Rock (3) Duncanville (1) North Little Rock (1) El Paso (5) Fort Worth (9) Florida (7) Galveston (1) Clearwater (2) Garland (1) Pinellas Park (1) Grand Prairie (1) St. Petersburg (1) Grapevine (1) Sebring (1) Greenville (1) Tampa (2) Harlingen (2) Houston (31) Kansas (3) Humble (1) Mission (1) Irving/Las Colinas (2) Wichita (2) Jacinto City (1) Kerrville (1) Louisiana (2) Killeen (1) Bossier City (1) Kingwood (1) Shreveport (1) Lake Jackson (1) Laredo (2) Mississippi (2) Lewisville (1) Hattiesburg (1) Longview (1) Meridian (1) Lubbock (1) Lufkin (1) Missouri (4) McAllen (3) Independence (1) McKinney (1) Joplin (1) Mesquite (3) Kansas City (2) Midland (1) Mission (1) New Mexico (5) New Braunfels (1) Albuquerque (3) Odessa (1) Las Cruces (1) Orange (1) Santa Fe (1) Pasadena (1) Pharr (1) Oklahoma (8) Plano (2) Bartlesville (1) Port Arthur (2) Broken Arrow (1) Richardson (1) Oklahoma City (3) Rosenberg (1) Shawnee (1) Round Rock (1) Tulsa (2) San Angelo (1) San Antonio (21) Tennessee (12) San Marcos (1) Franklin (1) Sherman (1) Memphis (5) Stafford (1) Morristown (1) Sugar Land (1) Murfreesboro (1) Temple (1) Nashville (3) Texarkana (1) Oak Ridge (1) The Woodlands (1) Tomball (1) Texas (168) Tyler (3) Abilene (2) Victoria (1) Amarillo (2) Waco (1) Arlington (3) Weslaco (1) Austin (7) 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, 1997, 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 1998 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. 64 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, 50 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 Corp. (1997) William E. Robson 1982 Executive Vice President-Operations 56 and Director (since 1993); Senior Vice President-Operations 1992-1995; Senior Vice President-Operations Development prior to 1992. Clyde C. Hays III 1985 Senior Vice President-Operations 46 (since Jan. 1996); Vice President- Operations 1993-1995; Area Vice President prior to 1993. Raymond C. Gabrysch 1988 Senior Vice President-Operations 46 (since Sept. 1997); Senior Vice President-Human Resources (Jan.- Aug. 1997); Vice President-Human Resources (1996); Area Vice President prior to 1996. Laura M. Bishop 1995 Senior Vice President and Chief 36 Financial Officer (since Jan. 1997); Vice President-Finance (1996); Vice President-Financial Planning (1995); Director of Financial Planning (1993-1995); Director of Internal Audit (1992-1993). Robert P. Burke 1996 Senior Vice President-Marketing 48 (since Jan. 1997); Vice President- Marketing 1996; Vice President of Sales and Marketing, Pace Foods/ Campbell Soup Company prior to 1996. Ronald E. Riemenschneider 1990 Vice President and Treasurer (since 39 1995); Controller 1990-1995. James R. Hale 1980 Secretary; Member of law firm of 68 Cauthorn Hale Hornberger Fuller Sheehan & Becker Incorporated since 1992; member of law firm of Cox & Smith Incorporated prior to 1992. 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, 1995 $22.88 $19.88 $.18 February 29, 1996 23.00 20.13 .18 May 31, 1996 25.25 20.38 .18 August 31, 1996 25.25 22.50 .20 November 30, 1996 24.38 20.75 .20 February 28, 1997 22.88 19.88 .20 May 31, 1997 20.63 17.63 .20 August 31, 1997 20.63 18.81 .20 As of September 12, 1997, there were approximately 4,733 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, 1997 1996 1995 1994 1993 ________ ________ ________ ________ ________ Sales $495,446 $450,128 $419,024 $390,692 $367,757 Costs and expenses: Cost of food 121,287 110,008 103,611 98,223 92,957 Payroll and related costs 146,940 124,333 113,952 104,543 99,233 Occupancy and other operating expenses 150,638 132,595 123,907 113,546 104,958 General and administrative expenses 19,451 20,217 18,672 15,330 15,967 Provision for asset impairments and store closings 12,432 - - - - ________ ________ ________ ________ ________ 450,748 387,153 360,142 331,642 313,115 Income from operations 44,698 62,975 58,882 59,050 54,642 Other income (expenses): Interest expense (4,037) (2,130) (1,749) - - Interest and other 2,001 1,697 1,805 1,385 1,574 ________ ________ ________ ________ ________ (2,036) (433) 56 1,385 1,574 ________ ________ ________ ________ ________ Income before income taxes and accounting change 42,662 62,542 58,938 60,435 56,216 Provision for income taxes 14,215 23,334 21,923 22,663 20,687 ________ ________ ________ ________ ________ Income before accounting change 28,447 39,208 37,015 37,772 35,529 Cumulative effect of change in accounting for income taxes - - - 1,563 - ________ ________ ________ ________ ________ Net income (a) $ 28,447 $ 39,208 $ 37,015 $ 39,335 $ 35,529 Income per share before accounting change $ 1.22 $ 1.66 $ 1.55 $ 1.45 $ 1.31 Net income per common share $ 1.22 $ 1.66 $ 1.55 $ 1.51 $ 1.31 Cash dividend declared per common share $ .80 $ .74 $ .68 $ .62 $ .56 At year-end: Total assets $368,778 $335,290 $312,380 $289,668 $302,099 Long-term debt $ 84,000 $ 41,000 $ - $ - $ - Number of cafeterias 229 204 187 176 168 <FN> (a) Net income in 1994 includes the cumulative effect of change in accounting for income taxes of $1,563, or $.06 per share. 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, short-term borrowings, and long-term debt. Capital expenditures for fiscal 1997 were $62,432,000, a 29% increase from fiscal 1996. This increase resulted from the opening of 29 new cafeterias in fiscal 1997, including two relocations, as compared to 19 in fiscal 1996, which included one relocation. Fiscal 1997 capital expenditures included the purchase of 20 locations from Triangle FoodService Corporation, formerly Wyatt Cafeterias, Inc., for approximately $14 million in cash. After additional capital expenditures of approximately $5 million to repair and refurbish these units, 15 of the 20 locations were opened as "Luby's" and are included in the 29 new openings in fiscal 1997. In addition, the Company purchased eight sites as land held for future use, which was the same number of land sites purchased during fiscal 1996. Plans for fiscal 1998 include the opening of approximately seven new cafeterias: five on sites owned by the Company, one on land held under a long-term ground lease, and one in a regional shopping mall. In addition to the recurring capital expenditures in existing locations, the Company expects fiscal 1998 capital expenditures to include approximately $5 to $6 million related to upgrading the cafeteria information systems. During the fourth quarter of fiscal 1997, the Company identified several properties which it no longer intends to use for future cafeteria development; therefore, the sites are now held for sale. The Company anticipates that proceeds from the sale of these properties will partially offset future capital requirements. As part of a joint venture agreement with Waterstreet, Inc. signed in January 1996, the Company opened one seafood restaurant in fiscal 1997 on property held under a long-term ground lease. Two seafood restaurants are planned to open in fiscal 1998, both on sites owned by the Company. These Water Street Seafood Company restaurants will be leased by the joint venture from the Company and operated by Waterstreet, Inc. As of August 31, 1997, the Company owned three undeveloped cafeteria sites, and several land site acquisitions were in varying stages of negotiation. As a result of fewer new store openings planned for next year, the Company expects a decrease in total capital expenditures for fiscal 1998. Construction costs for new cafeterias and seafood restaurants are expected to be funded by cash flow from operations, cash currently held in cash equivalent investments, and long-term debt. The Company generated cash from operations of $57,368,000 in fiscal 1997. The Company had a balance of $84,000,000 outstanding at August 31, 1997, under a $125,000,000 credit facility with a syndication of four banks. At August 31, 1997, the Company had a working capital deficit of $29,711,000 which compares to the prior year's working capital deficit of $35,096,000. The working capital position improved during fiscal 1997 due primarily to the increase in cash and cash equivalents of $3,743,000. 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, of which 149,700 shares were purchased in fiscal 1997. Under this and a previous authorization, the Company purchased a total of 897,500 shares of its common stock during fiscal 1997 at a cost of $19,918,000, 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 1997 Compared to Fiscal 1996 Sales increased $45,318,000, or 10%, due to the addition of 27 new cafeterias in fiscal 1997 and 18 cafeterias in fiscal 1996. The average sales volume of cafeterias opened over one year decreased to $2,264,000 in fiscal 1997 from $2,332,000 in fiscal 1996 due primarily to a negative trend in customer counts. This trend was a result of intense competition in the restaurant industry and sales transfer from our established cafeterias caused by the significant number of fiscal 1997 and 1996 openings in our existing markets. The impact of the same-store customer count decline was partially offset by a 3.5% increase in average tray revenues. The Company implemented a price increase on September 15, 1996, to help offset the pressure on profit margins from the increase in the Federal minimum wage. Cost of food increased $11,279,000, or 10%, due primarily to the increase in sales. Payroll and related costs increased $22,607,000, or 18%, due primarily to the increase in sales, the increase in the Federal minimum wage which became effective October 1, 1996, and higher wage costs associated with increased expansion over the prior year. Although a price increase was implemented to help offset higher wage rates, the decline in same-store sales experienced during fiscal 1997 resulted in significant pressure on labor costs. With the subsequent increase of the Federal minimum wage on September 1, 1997, the Company expects continued pressure on labor costs during fiscal 1998. This should be partially mitigated by fewer new store openings since labor costs are typically higher during the first year of operation. Occupancy and other operating expenses increased $18,043,000, or 14%, due primarily to the increase in sales and the opening of 27 new cafeterias. Preopening expenses and start-up costs, which are expensed as incurred, totaled approximately $3 million for new openings in fiscal 1997. The decline in same-store sales caused fixed costs within this expense category to increase as a percent of sales. However, managers' salaries, which are based on the profitability of the cafeterias, decreased as a percent of sales due to lower store profits. General and administrative expenses decreased $766,000, or 4%. As a result of lower earnings, the Company's contribution to the profit sharing plan totaled $1.5 million, or $3.6 million less than fiscal 1996. This decrease was partially offset by retirement costs, executive search firm fees, and higher legal and professional fees associated with the Company's restructuring into a holding company. In addition, manager trainee salaries and moving expenses were higher than fiscal 1996 due to the increased expansion. During fiscal 1997 the Company adopted Financial Accounting Standards No. 121 (FAS 121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and recorded a $12.4 million pretax charge during the fourth quarter. The charge included $4.6 million for the closing of four cafeterias, $3 million for the write-down of certain cafeteria properties which the Company plans to continue to operate, the write-down of $2.1 million for surplus properties the Company plans to sell, $1.4 million for the write-down of computer hardware, and $1.3 million for various other charges. Interest expense of $4,037,000 for fiscal 1997 was incurred in conjunction with borrowings under the credit facility and is net of $1,029,000 capitalized on qualifying properties. The increase over fiscal 1996 of $1,907,000, or 86%, was due to higher average outstanding borrowings relating to the increase in expansion during fiscal 1997 and the purchase of treasury stock. The provision for income taxes decreased $9,119,000, or 39%, due to lower income before income taxes and lower state taxes resulting from the Company's restructuring into a holding company. The Company's effective income tax rate decreased from 37.3% in fiscal 1996 to 33.3% in fiscal 1997. A portion of the decline in the provision for income taxes in fiscal 1997 is nonrecurring since it resulted from lowering the deferred tax liability based on a lower expected state tax rate. The Company anticipates that the effective tax rate will be approximately 35.6% for fiscal 1998. Fiscal 1996 Compared to Fiscal 1995 Sales increased $31,104,000, or 7%, due in part to the addition of 18 new cafeterias in fiscal 1996 and 11 cafeterias in fiscal 1995. The average sales volume of cafeterias opened over one year increased slightly to $2,332,000 in fiscal 1996 from $2,321,000 in fiscal 1995 due primarily to higher average tray revenues over the prior year. The same-store customer count trend was negative for the first time since 1992. This decline was not wholly unexpected because all but four of the fiscal 1996 openings occurred in existing markets. Accordingly, our market share improved in these areas; however, customer traffic and sales at established cafeterias were negatively impacted. This, combined with increased competition and the lack of full recovery from the peso devaluation in fiscal 1995, resulted in the negative same-store customer count trend. Cost of food increased $6,397,000, or 6%, due primarily to the increase in sales. Food cost margins improved from the price increase on the Lu Ann Platter, which took effect on December 1, 1995. Payroll and related costs increased $10,381,000, or 9%, due primarily to the increase in sales, higher wages for hourly employees in existing cafeterias, and higher wage costs associated with increased expansion over the prior year. Occupancy and other operating expenses increased $8,688,000, or 7%, due primarily to the increase in sales and the opening of 18 new cafeterias. General and administrative expenses increased $1,545,000, or 8%, due primarily to two additional area vice president positions, higher management trainee salaries, and higher moving expenses, all associated with the increased expansion. Interest expense of $2,130,000 for fiscal 1996 was incurred in conjunction with borrowings under the credit facility and is net of $1,100,000 capitalized on qualifying properties. The increase over fiscal 1995 of $381,000, or 22%, was due to higher average outstanding borrowings. The provision for income taxes increased $1,411,000, or 6%, due to higher income before income taxes. The Company's effective income tax rate increased slightly from 37.2% in fiscal 1995 to 37.3% in fiscal 1996. New Accounting Pronouncements In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings Per Share, which is required to be adopted for financial statements issued after December 15, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating basic earnings per share, the dilutive effect of stock options will be excluded. The change is not expected to have a material impact on the Company's earnings per share. 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. 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. 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. 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 under the caption "Debt" in Note 4. Item 8. Financial Statements and Supplementary Data. LUBY'S CAFETERIAS, INC. FINANCIAL STATEMENTS Years Ended August 31, 1997, 1996, and 1995 with Report of Independent Auditors Report of Independent Auditors The Board of Directors and Shareholders Luby's Cafeterias, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Luby's Cafeterias, Inc. and Subsidiaries at August 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended August 31, 1997. 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 Cafeterias, Inc. and Subsidiaries at August 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 1997, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, in fiscal 1997 the Company changed its method of accounting for the impairment of long-lived assets and for long-lived assets to be disposed of in accordance with Financial Accounting Standard No. 121. ERNST & YOUNG LLP San Antonio, Texas October 6, 1997 Luby's Cafeterias, Inc. Consolidated Balance Sheets August 31, 1997 1996 ________ _______ (Thousands of dollars) Assets Current assets: Cash and cash equivalents $ 6,430 $ 2,687 Trade accounts and other receivables 510 541 Food and supply inventories 4,507 4,517 Prepaid expenses 3,586 3,195 Deferred income taxes 937 418 ________ ________ Total current assets 15,970 11,358 Property held for sale 12,680 - Investments and other assets - at cost: Land held for future use 1,582 8,040 Other assets 4,529 4,303 ________ ________ Total investments and other assets 6,111 12,343 Property, plant, and equipment - at cost, less accumulated depreciation and amortization 334,017 311,589 ________ ________ Total assets $368,778 $335,290 ________ ________ Liabilities and Shareholders' Equity Current liabilities: Accounts payable - trade $ 13,584 $ 14,568 Dividends payable 4,653 4,796 Accrued expenses and other liabilities 25,038 24,336 Income taxes payable 2,406 2,754 ________ ________ Total current liabilities 45,681 46,454 Long-term debt 84,000 41,000 Deferred income taxes and other credits 20,257 22,163 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 26,945 26,945 Retained earnings 276,140 267,374 Less cost of treasury stock, 4,136,693 shares in 1997 and 3,425,525 shares in 1996 (93,014) (77,415) ________ ________ Total shareholders' equity 218,840 225,673 ________ ________ Total liabilities and shareholders' equity $368,778 $335,290 ________ ________ See accompanying notes. Luby's Cafeterias, Inc. Consolidated Statements of Income Years Ended August 31, 1997 1996 1995 ________ ________ ________ (Thousands of dollars except per share data) Sales $495,446 $450,128 $419,024 Costs and expenses: Cost of food 121,287 110,008 103,611 Payroll and related costs 146,940 124,333 113,952 Occupancy and other operating expenses 150,638 132,595 123,907 General and administrative expenses 19,451 20,217 18,672 Provision for asset impairments and store closings 12,432 - - ________ ________ ________ 450,748 387,153 360,142 ________ ________ ________ Income from operations 44,698 62,975 58,882 Interest expense (4,037) (2,130) (1,749) Other income, net 2,001 1,697 1,805 ________ ________ ________ Income before income taxes 42,662 62,542 58,938 Provision (benefit) for income taxes: Current 17,616 20,940 21,750 Deferred (3,401) 2,394 173 ________ ________ ________ 14,215 23,334 21,923 ________ ________ ________ Net income $ 28,447 $ 39,208 $ 37,015 ________ ________ ________ Net income per share $ 1.22 $ 1.66 $ 1.55 ________ ________ ________ See accompanying notes. Luby's Cafeterias, 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, 1994 27,403 $8,769 (2,285) $(51,202) $26,945 $229,014 $213,526 Net income for the year - - - - - 37,015 37,015 Common stock issued under employee bene- fit plans, net of shares tendered in partial payment - - 195 4,395 - (1,086) 3,309 Cash dividends, $.675 per share - - - - - (15,970) (15,970) Purchases of treasury stock - - (2,000) (45,176) - - (45,176) ______ ______ ______ _______ _______ _______ _______ Balance at August 31, 1995 27,403 8,769 (4,090) (91,983) 26,945 248,973 192,704 Net income for the year - - - - - 39,208 39,208 Common stock issued under employee bene- fit plans, net of shares tendered in partial payment and including tax benefits - - 916 20,565 - (3,218) 17,347 Cash dividends, $.74 per share - - - - - (17,589) (17,589) Purchases of treasury stock - - (252) (5,997) - - (5,997) ______ ______ ______ _______ _______ _______ _______ 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 ______ ______ ______ _______ _______ ________ ________ See accompanying notes. Luby's Cafeterias, Inc. Consolidated Statements of Cash Flows Years Ended August 31, 1997 1996 1995 ________ ________ ________ (Thousands of dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $28,447 $ 39,208 $ 37,015 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 20,196 17,693 16,417 Provision for asset impairments and store closings 12,132 - - Gain on disposal of land held for future use - - (106) (Gain) loss on disposal of property, plant, and equipment (110) 31 (313) ________ ________ ________ Cash provided by operating activities before changes in operating assets and liabilities 60,665 56,932 53,013 Changes in operating assets and liabilities: (Increase) decrease in trade accounts and other receivables 31 (230) (36) (Increase) decrease in food and supply inventories 10 (483) (183) Increase in prepaid expenses (391) (346) (9) Increase in other assets (226) (1,115) (353) Increase in accounts payable-trade 174 2,441 1,368 Increase (decrease) in accrued expenses and other liabilities 817 (337) 3,082 Increase (decrease) in income taxes payable (48) 1,263 (479) Increase (decrease) in deferred income taxes and other credits (3,664) 2,229 (5) _______ ________ ________ Net cash provided by operating activities 57,368 60,354 56,398 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from disposal of land held for future use - - 495 Proceeds from disposal of property, plant, and equipment 2,803 153 474 Purchases of land held for future use (11,649) (5,776) (7,531) Purchases of property, plant, and equipment (50,783) (42,753) (29,715) _______ ________ ________ Net cash used in investing activities (59,629) (48,376) (36,277) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock under stock option plans 2,878 16,145 3,196 Net proceeds (payments) of short-term borrowings - (57,000) 40,000 Proceeds from long-term debt 979,000 268,000 - Reductions of long-term debt (936,000) (227,000) - Purchases of treasury stock (21,077) (4,839) (45,916) Dividends paid (18,797) (16,989) (15,918) _______ _______ _______ Net cash provided by (used in) financing activities 6,004 (21,683) (18,638) _______ _______ _______ Net increase (decrease) in cash and cash equivalents 3,743 (9,705) 1,483 Cash and cash equivalents at beginning of year 2,687 12,392 10,909 ________ ________ ________ Cash and cash equivalents at end of year $ 6,430 $ 2,687 $ 12,392 ________ ________ ________ See accompanying notes. Luby's Cafeterias, Inc. Notes to Consolidated Financial Statements August 31, 1997, 1996, and 1995 1. Significant Accounting Policies Nature of Operations Luby's Cafeterias, Inc. and Subsidiaries (the Company), based in San Antonio, Texas, owns and operates cafeterias in the southern United States. As of August 31, 1997, the Company operated a total of 229 units. The Company locates its cafeterias convenient to shopping and business developments as well as to residential areas. Accordingly, the cafeterias cater primarily to shoppers, store and office personnel at lunchtime, 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 Cafeterias, 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 During 1997 the Company adopted FAS Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of." 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. Impairment losses are also recorded for long-lived 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 two percent for fiscal years 1997, 1996, and 1995. 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. The disclosure requirements prescribed by FAS 123 are not significant to the Company. 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 interested 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. 2. Impairment of Long-Lived Assets As a result of the Company adopting Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," during 1997, a charge to operating costs of $12.4 million was recorded. The charge included $4.6 million for the closing of four cafeterias, $3 million for the write-down of certain cafeteria properties which the Company plans to continue to operate, the write-down of $2.1 million for surplus properties the Company plans to sell, $1.4 million for the write-down of computer hardware, and $1.3 million for various other charges. For those assets which 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. All charges were recorded in the provision for asset impairments and store closings. 3. Property, Plant, and Equipment The cost and accumulated depreciation of property, plant, and equipment at August 31, 1997 and 1996, together with the related estimated useful lives used in computing depreciation and amortization, are reflected below: Estimated 1997 1996 Useful Lives ________ ________ _______________ (Thousands of dollars) Land $ 78,540 $ 74,699 - Cafeteria equipment and furnishings 124,188 117,227 3 to 10 years Buildings 222,316 209,404 20 to 40 years Leasehold and leasehold improvements 52,833 46,403 Term of leases Office furniture and equipment 3,540 2,536 5 to 10 years Transportation equipment 657 688 5 years Construction in progress 8,788 7,506 - ________ ________ 490,862 458,463 Less accumulated depreciation and amortization 156,845 146,874 ________ ________ $334,017 $311,589 ________ ________ Total interest expense incurred for 1997, 1996, and 1995 was $5,066,000, $3,230,000, and $2,644,000, respectively, which approximated the amount paid in each year. The amounts capitalized on qualifying properties in 1997, 1996, and 1995 were $1,029,000, $1,100,000, and $895,000, 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 6.4975% and a termination date of June 30, 2002. At August 31, 1997, the Company estimates it would have to pay $300,000 to terminate the agreements. As of August 31, 1997, the balance outstanding under the revolving credit agreement was $84,000,000 at an interest rate of 5.95%. At August 31, 1997, letters of credit of approximately $5,659,000 have been issued as security for the payment of insurance obligations classified as accrued expenses on the balance sheets. 5. Leases The Company conducts a major part of its operations from facilities which are leased under noncancelable lease agreements. Most of the leases are for periods of ten to 25 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 30 years. Annual future minimum lease payments under noncancelable operating leases as of August 31, 1997, are as follows: Years ending August 31: (Thousands of dollars) 1998 $ 7,353 1999 7,290 2000 7,069 2001 6,791 2002 6,294 Thereafter 48,302 _______ Total minimum lease payments $83,099 _______ Total rent expense for operating leases for the years ended August 31, 1997, 1996, and 1995 was as follows: 1997 1996 1995 _______ ________ ________ (Thousands of dollars) Minimum rentals $6,884 $5,807 $5,477 Contingent rentals 996 1,126 1,229 ______ ______ ______ $7,880 $6,933 $6,706 ______ ______ ______ 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 current and future distributions under the plans amounted to $-0-, $400,000, and $431,000 in 1997, 1996, and 1995, respectively. During the years ended August 31, 1997, 1996, and 1995, 4,790, 10,590, and 4,820 shares of common stock were issued under the plans out of treasury stock, respectively. Stock Option Plans The Company has a Management Incentive Stock Plan to provide for market-based incentive awards, including stock options, stock appreciation rights, restricted stock, and performance share awards. Under the terms of the Management Incentive Stock Plan, nonqualified stock options, incentive stock options, and other types of awards for not more than 2,700,000 shares of the Company's common stock may be granted to eligible employees of the Company, including officers. 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 seven years. The plan provides for various vesting methods, depending upon the category of personnel. Following is a summary of activity in the stock option plans for the three years ended August 31, 1997, 1996, and 1995: Common Option Price Shares Options Options Per Share Reserved Outstanding Exercisable ________________ _________ ___________ ___________ Balances - August 31, 1994 $15.00 to $23.25 2,463,328 1,916,234 225,762 Granted 22.75 to 23.75 - 136,100 - Became exercisable 15.00 to 23.75 - - 582,379 Cancelled or expired 15.00 to 23.75 - (95,467) (43,552) Exercised 15.00 to 21.75 (209,753) (209,753) (209,753) _________ _________ _______ Balances - August 31, 1995 15.00 to 23.75 2,253,575 1,747,114 554,836 Granted 21.00 to 21.63 - 223,648 - Became exercisable 15.00 to 23.75 - - 1,167,766 Cancelled or expired 16.42 to 23.75 - (53,415) (38,903) Exercised 15.00 to 23.25 (980,600) (980,600) (980,600) _________ _________ ________ Balances - August 31, 1996 15.00 to 23.75 1,272,975 936,747 703,099 Granted 20.25 to 23.13 - 33,675 - Became exercisable 21.00 to 23.73 - - 173,658 Cancelled or expired 17.75 to 23.75 - (295,623) (281,723) Exercised 15.00 to 23.25 (277,501) (277,501) (277,501) _________ _________ ________ Balances - August 31, 1997 $16.25 to $23.75 995,474 397,298 317,533 _________ _________ ________ Deferred Compensation Deferred compensation agreements exist for several key management employees, all of whom are current or former officers. Under the agreements, the Company is obligated to provide for each such employee or his beneficiaries, during a period of ten years after the employee's death, disability, or retirement, annual benefits ranging from $15,500 to $43,400. The estimated present value of future benefits to be paid is being accrued over the period from the effective date of the agreements until the expected retirement dates of the participants. The net expense incurred for this plan for the years ended August 31, 1997, 1996, and 1995 amounted to $47,000, $239,000, and $79,000, respectively. The Company also 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, 1997 and 1996, was $120,000 and $80,000, respectively, and the unfunded accumulated benefit obligation as of August 31, 1997 and 1996, was approximately $315,400 and $250,000, respectively. 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. The Company's annual contribution to the plan amounted to $1,500,000, $5,100,000, and $4,888,000, for 1997, 1996, and 1995, 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. 7. Income Taxes The tax effect of temporary differences results in deferred income tax assets and liabilities as of August 31 as follows: 1997 1996 ________ ___________ (Thousands of dollars) Deferred tax assets: Workers' compensation insurance $ 937 $ 418 Deferred compensation 651 779 Asset impairments and store closing reserves 3,453 - _______ _______ Total deferred tax assets 5,041 1,197 Deferred tax liabilities: Amortization of capitalized interest 439 494 Depreciation and amortization 18,960 19,085 Other 1,706 1,083 _______ _______ Total deferred tax liabilities 21,105 20,662 _______ _______ Net deferred tax liability $16,064 $19,465 _______ _______ The reconciliation of the provision for income taxes to the expected income tax expense (computed using the statutory tax rate) is as follows: 1997 1996 1995 Amount % Amount % Amount % _______ ____ _______ ____ _______ ____ (Thousands of dollars and as a percent of pretax income) Normally expected income tax expense $14,932 35.0% $21,890 35.0% $20,628 35.0% State income taxes 745 1.7 1,488 2.4 1,616 2.7 Jobs tax credits (101) (.2) (1) - (151) (.2) Other differences (1,361) (3.2) (43) (.1) (170) (.3) _______ _____ _______ ____ ______ ____ $14,215 33.3% $23,334 37.3% $21,923 37.2% _______ _____ _______ ____ _______ ____ 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 1997, 1996, and 1995 were $17,664,000, $19,677,000, and $22,229,000, respectively. 8. Commitments and Contingencies At August 31, 1997, the Company had seven restaurants under construction. The aggregate unexpended costs under the construction contracts were approximately $2,935,000. The Company has unconditionally guaranteed a $2,000,000 loan under a line of credit for an unrelated limited partnership in exchange for advertising rights and a participation in future profits of the venture. 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 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, of which 149,700 shares were purchased in fiscal year 1997. Under this and previous authorizations, the Company purchased 897,500 and 252,200 shares of its common stock at a cost of $19,918,000 and $5,997,000 during 1997 and 1996, respectively, which are being held as treasury stock. 10. Per Share Information The weighted average number of shares used in the net income per share computation was 23,406,191 for 1997, 23,688,813 for 1996, and 23,908,087 for 1995. 11. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities at August 31 consisted of: 1997 1996 _______ _______ (Thousands of dollars) Salaries and bonuses $ 6,662 $ 6,185 Rent 721 777 Taxes, other than income 7,245 5,742 Profit sharing plan 1,452 5,057 Insurance 7,747 6,273 Other 1,211 302 _______ _______ $25,038 $24,336 _______ _______ 12. Quarterly Financial Information (Unaudited) The following is a summary of quarterly unaudited financial information for 1997 and 1996: Three Months Ended November 30, February 28, May 31, August 31, 1996 1997 1997 1997 ________ ________ ________ _________ (Thousands of dollars except per share data) Sales $122,287 $118,830 $127,630 $126,699 Gross profit 55,887 54,908 59,387 57,037 Net income 8,166 8,404 9,583 2,294 Net income per share .35 .36 .41 .10 Three Months Ended November 30, February 29, May 31, August 31, 1995 1996 1996 1996 ________ ________ ________ _________ (Thousands of dollars except per share data) Sales $108,337 $108,835 $117,132 $115,824 Gross profit 51,027 52,634 57,140 54,986 Net income 8,565 9,322 10,964 10,357 Net income per share .37 .40 .46 .43 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 1998 annual meeting of shareholders appearing therein under the captions "Election of Directors," "Information Concerning Directors and Executive Officers," 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 1998 annual meeting of shareholders appearing therein under the captions "Executive Compensation," "Deferred Compensation," and "Certain Relationships and Related Transactions." 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 1998 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 1998 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, 1997 and 1996 Consolidated statements of income for each of the three years in the period ended August 31, 1997 Consolidated statements of shareholders' equity for each of the three years in the period ended August 31, 1997 Consolidated statements of cash flows for each of the three years in the period ended August 31, 1997 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: 2 - Agreement and Plan of Merger dated November 1, 1991, between Luby's Cafeterias, Inc., a Texas corporation, and Luby's Cafeterias, Inc., a Delaware corporation (filed as Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1991, and incorporated herein by reference). 3(a) - Certificate of Incorporation of Luby's Cafeterias, Inc., a Delaware corporation, as in effect February 28, 1994 (filed as Exhibit 3(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 3(b) - Bylaws of Luby's Cafeterias, Inc., as currently in effect (filed as Exhibit 3(c) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996, 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. 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. 4(i) - Second Amendment to Credit Agreement dated July 3, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. 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) - Annual Incentive Plan for Area Vice Presidents of Luby's Cafeterias, Inc. adopted October 19, 1983 (filed as Exhibit 10(d) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1983, and incorporated herein by reference). 10(d) - Amendment to Annual Incentive Plan for Area Vice Presidents of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(e) - Incentive Bonus Plan of Luby's Cafeterias, Inc. adopted October 19, 1983 (filed as Exhibit 10(e) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1983, and incorporated herein by reference). 10(f) - Amendment to Incentive Bonus Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(g) - Performance Unit Plan of Luby's Cafeterias, Inc. approved by the shareholders on 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(h) - 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(i) - Employment Contract dated January 8, 1988, between Luby's Cafeterias, Inc. and George H. Wenglein (filed as Exhibit 10(h) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1988, and incorporated herein by reference). 10(j) - 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(k) - 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(l) - 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(m) - 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(n) - Nonemployee Director Stock Option Plan of Luby's Cafeterias, Inc. approved by the shareholders on 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(o) - 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(p) - 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(q) - 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(r) - 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(s) - Luby's Cafeterias, Inc. Welfare Benefit Plan Trust dated July 18, 1996 (filed as Exhibit 10(k) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference). 10(t) - Retirement Agreement dated March 17, 1997, between Luby's Cafeterias, Inc. and Ralph Erben (filed as Exhibit 10(t) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(u) - Employment Agreement dated September 15, 1997, between Luby's Cafeterias, Inc. and Barry J.C. Parker. 10(v) - 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. 10(w) - Stock Agreement dated November 10, 1997, between Barry J.C. Parker and Luby's Cafeterias, Inc. 11 - Statement re computation of per share earnings. 21 - Subsidiaries of Luby's Cafeterias, Inc. 27 - Financial Data Schedule. 99 - Consent of Ernst & Young LLP. (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 25, 1997 LUBY'S CAFETERIAS, INC. (Registrant) By: DAVID B. DAVISS ___________________________ David B. Daviss, Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature and Date Name and Title DAVID B. DAVISS David B. Daviss, Chairman _______________________________ of the Board November 25, 1997 BARRY J.C. PARKER Barry J.C. Parker, President, _______________________________ Chief Executive Officer, November 25, 1997 and Director WILLIAM E. ROBSON William E. Robson, Executive Vice ________________________________ President-Operations and November 25, 1997 Director LAURA M. BISHOP Laura M. Bishop, Senior Vice ________________________________ President and Chief Financial November 25, 1997 Officer RONALD E. RIEMENSCHNEIDER Ronald E. Riemenschneider, Vice ________________________________ President, Treasurer, and November 25, 1997 Principal Accounting Officer LAURO F. CAVAZOS Lauro F. Cavazos, Director ________________________________ November 25, 1997 ROGER R. HEMMINGHAUS Roger R. Hemminghaus, Director ________________________________ November 25, 1997 JOHN B. LAHOURCADE John B. Lahourcade, Director ________________________________ November 25, 1997 WALTER J. SALMON Walter J. Salmon, Director ________________________________ November 25, 1997 GEORGE H. WENGLEIN George H. Wenglein, Director ________________________________ November 25, 1997 JOANNE WINIK Joanne Winik, Director ________________________________ November 25, 1997 EXHIBIT INDEX Exhibit 2 Agreement and Plan of Merger dated November 1, 1991, between Luby's Cafeterias, Inc., a Texas corporation, and Luby's Cafeterias, Inc., a Delaware corporation (filed as Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 1991, and incorporated herein by reference). 3(a) Certificate of Incorporation of Luby's Cafeterias, Inc., a Delaware corporation, as in effect February 28, 1994 (filed as Exhibit 3(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1994, and incorporated herein by reference). 3(b) Bylaws of Luby's Cafeterias, Inc., as currently in effect (filed as Exhibit 3(c) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996, 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. 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. 4(i) Second Amendment to Credit Agreement dated July 3, 1997, among Luby's Cafeterias, Inc., Certain Lenders, and NationsBank of Texas, N.A. 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) Annual Incentive Plan for Area Vice Presidents of Luby's Cafeterias, Inc. adopted October 19, 1983 (filed as Exhibit 10(d) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1983, and incorporated herein by reference). 10(d) Amendment to Annual Incentive Plan for Area Vice Presidents of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(d) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(e) Incentive Bonus Plan of Luby's Cafeterias, Inc. adopted October 19, 1983 (filed as Exhibit 10(e) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1983, and incorporated herein by reference). 10(f) Amendment to Incentive Bonus Plan of Luby's Cafeterias, Inc. adopted January 14, 1997 (filed as Exhibit 10(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(g) Performance Unit Plan of Luby's Cafeterias, Inc. approved by the shareholders on 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(h) 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(i) Employment Contract dated January 8, 1988, between Luby's Cafeterias, Inc. and George H. Wenglein (filed as Exhibit 10(h) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1988, and incorporated herein by reference). 10(j) 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(k) 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(l) 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(m) 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(n) Nonemployee Director Stock Option Plan of Luby's Cafeterias, Inc. approved by the shareholders on 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(o) 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(p) 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(q) 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(r) 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(s) Luby's Cafeterias, Inc. Welfare Benefit Plan Trust dated July 18, 1996 (filed as Exhibit 10(k) to the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1996, and incorporated herein by reference). 10(t) Retirement Agreement dated March 17, 1997, between Luby's Cafeterias, Inc. and Ralph Erben (filed as Exhibit 10(t) to the Company's Quarterly Report on Form 10-Q for the quarter ended February 28, 1997, and incorporated herein by reference). 10(u) Employment Agreement dated September 15, 1997, between Luby's Cafeterias, Inc. and Barry J.C. Parker. 10(v) 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. 10(w) Stock Agreement dated November 10, 1997, between Barry J.C. Parker and Luby's Cafeterias, Inc. 11 Statement re computation of per share earnings. 21 Subsidiaries of Luby's Cafeterias, Inc. 27 Financial Data Schedule. 99 Consent of Ernst & Young LLP.