##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 20, 2006
 Commission file number: 333-116897
 BUFFETS HOLDINGS, INC.
  Delaware
    
    22-3754018(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)1460 Buffet WayEagan, Minnesota
    
    55121(Address of principal
    
    (Zip Code)executive offices)
 (651) 994-8608
 þ o
  o o þ
 o þ




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##### 



BUFFETS HOLDINGS, INC.
TABLE OF CONTENTS
 PagePart I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets (Unaudited) as of June 28,
2006 and September 20, 2006
    
    
    3Condensed Consolidated Statements of Operations (Unaudited)  12
Weeks Ended September 21, 2005 and September 20, 2006
    
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited)  12
Weeks Ended September 21, 2005 and September 20, 2006
    
    
    5Notes to the Condensed Consolidated Financial Statements (Unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    32Part II. Other InformationItem 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    32Amendment No. 2 to the Amended and Restated Credit AgreementCertification of Principal Executive Officer - Section 302Certification of Principal Financial Officer - Section 302
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 BUFFETS HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 28,
    
    
    September 20,2006
    
    
    2006(Unaudited)(In thousands, except share data)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    20,219
    
    
    $
    8,061Receivables
    
    
    4,879
    
    
    
    4,485Inventories
    
    
    18,926
    
    
    
    18,820Prepaid expenses and other current assets
    
    
    5,384
    
    
    
    4,563Deferred income taxes
    
    
    10,324
    
    
    
    10,324Total current assets
    
    
    59,732
    
    
    
    46,253PROPERTY AND EQUIPMENT, net
    
    
    141,404
    
    
    
    143,172GOODWILL
    
    
    312,163
    
    
    
    312,163DEFERRED INCOME TAXES
    
    
    13,683
    
    
    
    13,683OTHER ASSETS, net
    
    
    11,514
    
    
    
    15,326Total assets
    
    $
    538,496
    
    
    $
    530,597LIABILITIES AND SHAREHOLDERS DEFICITCURRENT LIABILITIES:Accounts payable
    
    $
    48,101
    
    
    $
    43,315Accrued liabilities
    
    
    68,344
    
    
    
    62,686Income taxes payable
    
    
    6,977
    
    
    
    2,014Current maturities of long-term debt
    
    
    1,862
    
    
    
    7,862Total current liabilities
    
    
    125,284
    
    
    
    115,877LONG-TERM DEBT, net of current maturities
    
    
    460,652
    
    
    
    463,934DEFERRED LEASE OBLIGATIONS
    
    
    28,356
    
    
    
    28,435OTHER LONG-TERM LIABILITIES
    
    
    7,355
    
    
    
    6,642Total liabilities
    
    
    621,647
    
    
    
    614,888SHAREHOLDERS DEFICIT:Preferred stock; $.01 par value, 1,100,000 shares
authorized; none issued and outstanding as of June
28, 2006 and September 20, 2006
    
    
    
    
    
    
    Common stock; $.01 par value, 3,600,000 shares
authorized; 3,104,510 shares issued and
outstanding as of June 28, 2006 and 3,104,510 as
of September 20, 2006
    
    
    31
    
    
    
    31Additional paid in capital
    
    
    5
    
    
    
    5Accumulated deficit
    
    
    (83,187
    )
    
    
    (84,327
    )Total shareholders deficit
    
    
    (83,151
    )
    
    
    (84,291
    )Total liabilities and shareholders deficit
    
    $
    538,496
    
    
    $
    530,597
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##### Table of Contents



BUFFETS HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Twelve Weeks EndedSeptember 21,
    
    
    September 20,2005
    
    
    2006(Unaudited)(In thousands)RESTAURANT SALES
    
    $
    226,738
    
    
    $
    221,276RESTAURANT COSTS:Food
    
    
    74,775
    
    
    
    76,554Labor
    
    
    64,142
    
    
    
    62,693Direct and occupancy
    
    
    53,099
    
    
    
    53,486Total restaurant costs
    
    
    192,016
    
    
    
    192,733ADVERTISING EXPENSES
    
    
    7,183
    
    
    
    7,227GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    10,046
    
    
    
    9,728CLOSED RESTAURANT COSTS
    
    
    256
    
    
    
    742MERGER INTEGRATION COSTS
    
    
    
    
    
    
    440OPERATING INCOME
    
    
    17,237
    
    
    
    10,406INTEREST EXPENSE
    
    
    11,868
    
    
    
    13,228INTEREST INCOME
    
    
    (82
    )
    
    
    (28
    )LOSS RELATED TO REFINANCING
    
    
    647
    
    
    
    243OTHER INCOME
    
    
    (197
    )
    
    
    (202
    )INCOME (LOSS) BEFORE INCOME TAXES
    
    
    5,001
    
    
    
    (2,835
    )INCOME TAX EXPENSE (BENEFIT)
    
    
    1,877
    
    
    
    (1,695
    )Net income (loss)
    
    $
    3,124
    
    
    $
    (1,140
    )
  4




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##### Table of Contents



BUFFETS HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Twelve Weeks EndedSeptember 21,
    
    
    September 20,2005
    
    
    2006(Unaudited)(In thousands)OPERATING ACTIVITIES:Net income (loss)
    
    $
    3,124
    
    
    $
    (1,140
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    7,275
    
    
    
    7,384Amortization of debt issuance cost
    
    
    353
    
    
    
    413Accretion of original issue discount
    
    
    3,072
    
    
    
    3,748Loss on disposal of assets
    
    
    24
    
    
    
    249Changes in assets and liabilities:Receivables
    
    
    (105
    )
    
    
    394Inventories
    
    
    (11
    )
    
    
    172Prepaid expenses and other current assets
    
    
    1,274
    
    
    
    190Accounts payable
    
    
    (4,631
    )
    
    
    (4,786
    )Accrued and other liabilities
    
    
    (4,303
    )
    
    
    (6,335
    )Income taxes payable
    
    
    (323
    )
    
    
    (4,963
    )Net cash provided by (used in) operating activities
    
    
    5,749
    
    
    
    (4,674
    )INVESTING ACTIVITIES:Acquisitions, net of liabilities assumed
    
    
    
    
    
    
    (3,468
    )Purchase of property and equipment
    
    
    (5,751
    )
    
    
    (6,836
    )Collections on notes receivable
    
    
    183
    
    
    
    697Purchase of other assets
    
    
    (438
    )
    
    
    (3,411
    )Net cash used in investing activities
    
    
    (6,006
    )
    
    
    (13,018
    )FINANCING ACTIVITIES:Repayment of debt
    
    
    (504
    )
    
    
    (466
    )Proceeds from revolving credit facility
    
    
    
    
    
    
    6,000Net cash provided by (used in) financing activities
    
    
    (504
    )
    
    
    5,534NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (761
    )
    
    
    (12,158
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    20,662
    
    
    
    20,219CASH AND CASH EQUIVALENTS, end of period
    
    $
    19,901
    
    
    $
    8,061SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid during the period for Interest (net of capitalized interest of $73 and $77)
    
    $
    14,088
    
    
    $
    14,769Income taxes
    
    $
    2,199
    
    
    $
    3,268
  5




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##### Table of Contents



BUFFETS HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Nature of Organization
 Company Background
  Description of Business
 â â â SM â
 ® ® ® ®
 Interim Financial Information
    Principles of Consolidation
  6




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##### Table of Contents



Fiscal Year
  2. Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes
- an Interpretation of FASB Statement No. 109, Accounting for Income Taxes.
 3. Stock-Based Compensation
       7




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##### Table of Contents



Equity Participation Plan
    Cash and Phantom Incentive Unit Award Agreements
    8




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##### Table of Contents



Cash Appreciation Plan
      4. Other Assets
  9




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##### Table of Contents



Franchise fees
    
    
    Trademarks
    
    
    Liquor licenses
    
    
    TotalGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationBALANCE, June 28, 2006
    
    $
    69
    
    
    $
    (69
    )
    
    $
    34
    
    
    $
    (34
    )
    
    $
    345
    
    
    $
    (25
    )
    
    $
    448
    
    
    $
    (128
    )FY 2007 Activity:Additions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    
    
    
    
    48
    
    
    
    Amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BALANCE, September 20, 2006
    
    $
    69
    
    
    $
    (69
    )
    
    $
    34
    
    
    $
    (34
    )
    
    $
    393
    
    
    $
    (25
    )
    
    $
    496
    
    
    $
    (128
    )
 5. Accrued Liabilities
  June 28,
    
    
    September 20,2006
    
    
    2006Accrued compensation
    
    $
    17,634
    
    
    $
    16,036Accrued workers compensation
    
    
    12,520
    
    
    
    12,126Accrued interest
    
    
    13,552
    
    
    
    7,926Accrued insurance
    
    
    8,178
    
    
    
    8,402Accrued sales, use and property taxes
    
    
    6,348
    
    
    
    8,713Unearned revenue
    
    
    3,998
    
    
    
    3,475Closed restaurant reserve
    
    
    1,685
    
    
    
    1,184Accrued other
    
    
    4,429
    
    
    
    4,824$
    68,344
    
    
    $
    62,686
 6. Long-Term Debt
  Buffets, Inc.Credit Facility:Revolving credit facility, interest at LIBOR plus 3.25%, due
September 29, 2006 (interest rate at 8.58% as of September 20,
2006)
    
    $
    6,000Term loan, interest at LIBOR plus 3.50%, due quarterly through
June 28, 2009 (interest rate at 8.99% as of September 20, 2006)
    
    
    181,587Total Credit Facility
    
    
    187,587Senior subordinated notes, interest at 11.25%, due July 15,
2010, net of discount of $3,990
    
    
    180,675Total long-term debt at Buffets, Inc.
    
    
    368,262
 Buffets Holdings, Inc.Senior discount notes, interest at 13.875%, due December 15,
2010, net of discount of $28,466
    
    
    103,534Grand total long-term debt
    
    
    471,796Less  Current maturities
    
    
    7,862$
    463,934
  10




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##### Table of Contents



Credit Facility
  1 2
   111/4% Senior Subordinated Notes
 1 4
 1 4
 13 7 ¤ 8 % Senior Discount Notes
 7 ¤ 8 7 ¤ 8 7 ¤ 8 7 ¤ 8
 11




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##### Table of Contents



7 8
 7. Acquisition
  8. Related-Party Transactions
      12




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##### Table of Contents



9. Litigation
   10. Condensed Consolidating Financial Statements
 1 4
  13




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##### Table of Contents



Condensed Consolidating Balance Sheet
As of June 28, 2006
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In thousands)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    37
    
    
    $
    14,068
    
    
    $
    6,114
    
    
    $
    
    
    
    $
    20,219Receivables
    
    
    1,777
    
    
    
    485
    
    
    
    278,857
    
    
    
    (276,240
    )
    
    
    4,879Inventories
    
    
    
    
    
    
    845
    
    
    
    18,081
    
    
    
    
    
    
    
    18,926Prepaid expenses and other current assets
    
    
    3
    
    
    
    4,772
    
    
    
    609
    
    
    
    
    
    
    
    5,384Deferred income taxes
    
    
    64
    
    
    
    8,774
    
    
    
    1,486
    
    
    
    
    
    
    
    10,324Total current assets
    
    
    1,881
    
    
    
    28,944
    
    
    
    305,147
    
    
    
    (276,240
    )
    
    
    59,732PROPERTY AND EQUIPMENT, net
    
    
    
    
    
    
    5,307
    
    
    
    136,097
    
    
    
    
    
    
    
    141,404GOODWILL, net
    
    
    
    
    
    
    18,730
    
    
    
    293,433
    
    
    
    
    
    
    
    312,163DEFERRED INCOME TAXES
    
    
    6,140
    
    
    
    7,543
    
    
    
    
    
    
    
    
    
    
    
    13,683OTHER ASSETS, net
    
    
    2,203
    
    
    
    141,401
    
    
    
    5,212
    
    
    
    (137,302
    )
    
    
    11,514Total assets
    
    $
    10,224
    
    
    $
    201,925
    
    
    $
    739,889
    
    
    $
    (413,542
    )
    
    $
    538,496LIABILITIES AND SHAREHOLDERS EQUITY
(DEFICIT)CURRENT LIABILITIES:Accounts payable
    
    
    
    
    
    
    325,540
    
    
    
    2,788
    
    
    
    (280,227
    )
    
    
    48,101Accrued liabilities
    
    
    
    
    
    
    44,013
    
    
    
    24,331
    
    
    
    
    
    
    
    68,344Income taxes payable
    
    
    (36
    )
    
    
    7,013
    
    
    
    
    
    
    
    
    
    
    
    6,977Current maturities of long-term debt
    
    
    
    
    
    
    112
    
    
    
    1,750
    
    
    
    
    
    
    
    1,862Total current liabilities
    
    
    (36
    )
    
    
    376,678
    
    
    
    28,869
    
    
    
    (280,227
    )
    
    
    125,284LONG-TERM DEBT, net of current maturities
    
    
    99,991
    
    
    
    21,640
    
    
    
    339,021
    
    
    
    
    
    
    
    460,652DEFERRED LEASE OBLIGATIONS
    
    
    
    
    
    
    1,948
    
    
    
    26,408
    
    
    
    
    
    
    
    28,356OTHER LONG-TERM LIABILITIES
    
    
    
    
    
    
    3,024
    
    
    
    4,331
    
    
    
    
    
    
    
    7,355Total liabilities
    
    
    99,955
    
    
    
    403,290
    
    
    
    398,629
    
    
    
    (280,227
    )
    
    
    621,647COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS EQUITY (DEFICIT)Common stock
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31Additional paid in capital
    
    
    5
    
    
    
    82,311
    
    
    
    199,244
    
    
    
    (281,555
    )
    
    
    5Retained earnings (accumulated deficit)
    
    
    (89,767
    )
    
    
    (283,676
    )
    
    
    142,016
    
    
    
    148,240
    
    
    
    (83,187
    )Total shareholders equity (deficit)
    
    
    (89,731
    )
    
    
    (201,365
    )
    
    
    341,260
    
    
    
    (133,315
    )
    
    
    (83,151
    )Total liabilities and shareholders
equity (deficit)
    
    $
    10,224
    
    
    $
    201,925
    
    
    $
    739,889
    
    
    $
    (413,542
    )
    
    $
    538,496
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##### Table of Contents



Condensed Consolidating Balance Sheet
As of September 20, 2006
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)(In thousands)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    37
    
    
    $
    4,560
    
    
    $
    3,464
    
    
    $
    
    
    
    $
    8,061Receivables
    
    
    1,777
    
    
    
    2,431
    
    
    
    283,865
    
    
    
    (283,588
    )
    
    
    4,485Inventories
    
    
    
    
    
    
    844
    
    
    
    17,976
    
    
    
    
    
    
    
    18,820Prepaid expenses and other current
assets
    
    
    2
    
    
    
    2,880
    
    
    
    1,681
    
    
    
    
    
    
    
    4,563Deferred income taxes
    
    
    64
    
    
    
    10,260
    
    
    
    
    
    
    
    
    
    
    
    10,324Total current assets
    
    
    1,880
    
    
    
    20,975
    
    
    
    306,986
    
    
    
    (283,588
    )
    
    
    46,253PROPERTY AND EQUIPMENT, net
    
    
    
    
    
    
    4,746
    
    
    
    138,426
    
    
    
    
    
    
    
    143,172GOODWILL, net
    
    
    
    
    
    
    18,730
    
    
    
    293,433
    
    
    
    
    
    
    
    312,163DEFERRED INCOME TAXES
    
    
    6,140
    
    
    
    7,543
    
    
    
    
    
    
    
    
    
    
    
    13,683OTHER ASSETS, net
    
    
    2,109
    
    
    
    143,978
    
    
    
    6,541
    
    
    
    (137,302
    )
    
    
    15,326Total assets
    
    $
    10,129
    
    
    $
    195,972
    
    
    $
    745,386
    
    
    $
    (420,890
    )
    
    $
    530,597LIABILITIES AND SHAREHOLDERS EQUITY
(DEFICIT)CURRENT LIABILITIES:Accounts payable
    
    
    
    
    
    
    327,829
    
    
    
    3,213
    
    
    
    (287,727
    )
    
    
    43,315Accrued liabilities
    
    
    
    
    
    
    38,142
    
    
    
    24,544
    
    
    
    
    
    
    
    62,686Income taxes payable
    
    
    (2,032
    )
    
    
    4,046
    
    
    
    
    
    
    
    
    
    
    
    2,014Current maturities of long-term debt
    
    
    
    
    
    
    472
    
    
    
    7,390
    
    
    
    
    
    
    
    7,862Total current liabilities
    
    
    (2,032
    )
    
    
    370,489
    
    
    
    35,147
    
    
    
    (287,727
    )
    
    
    115,877LONG-TERM DEBT, net of current maturities
    
    
    103,534
    
    
    
    21,624
    
    
    
    338,776
    
    
    
    
    
    
    
    463,934DEFERRED LEASE OBLIGATIONS
    
    
    
    
    
    
    2,038
    
    
    
    26,397
    
    
    
    
    
    
    
    28,435OTHER LONG-TERM LIABILITIES
    
    
    
    
    
    
    2,976
    
    
    
    3,666
    
    
    
    
    
    
    
    6,642Total liabilities
    
    
    101,502
    
    
    
    397,127
    
    
    
    403,986
    
    
    
    (287,727
    )
    
    
    614,888COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS EQUITY (DEFICIT)Common stock
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31Additional paid in capital
    
    
    5
    
    
    
    82,311
    
    
    
    199,244
    
    
    
    (281,555
    )
    
    
    5Retained earnings (accumulated deficit)
    
    
    (91,409
    )
    
    
    (283,466
    )
    
    
    142,156
    
    
    
    148,392
    
    
    
    (84,327
    )Total shareholders equity (deficit)
    
    
    (91,373
    )
    
    
    (201,155
    )
    
    
    341,400
    
    
    
    (133,163
    )
    
    
    (84,291
    )Total liabilities and shareholders
equity (deficit)
    
    $
    10,129
    
    
    $
    195,972
    
    
    $
    745,386
    
    
    $
    (420,890
    )
    
    $
    530,597
 15




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##### Table of Contents



Condensed Consolidating Statement of Operations
For the Twelve Weeks Ended September 21, 2005
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In thousands)RESTAURANT SALES
    
    $
    
    
    
    $
    10,531
    
    
    $
    216,207
    
    
    $
    
    
    
    $
    226,738RESTAURANT COSTS:Food
    
    
    
    
    
    
    3,744
    
    
    
    71,031
    
    
    
    
    
    
    
    74,775Labor
    
    
    
    
    
    
    3,100
    
    
    
    61,042
    
    
    
    
    
    
    
    64,142Direct and occupancy
    
    
    
    
    
    
    1,501
    
    
    
    51,598
    
    
    
    
    
    
    
    53,099Total restaurant costs
    
    
    
    
    
    
    8,345
    
    
    
    183,671
    
    
    
    
    
    
    
    192,016ADVERTISING EXPENSES
    
    
    
    
    
    
    334
    
    
    
    6,849
    
    
    
    
    
    
    
    7,183GENERAL AND ADMINISTRATIVE
EXPENSES
    
    
    1
    
    
    
    467
    
    
    
    9,578
    
    
    
    
    
    
    
    10,046CLOSED RESTAURANT COSTS
    
    
    
    
    
    
    
    
    
    
    256
    
    
    
    
    
    
    
    256OPERATING INCOME (LOSS)
    
    
    (1
    )
    
    
    1,385
    
    
    
    15,853
    
    
    
    
    
    
    
    17,237INTEREST EXPENSE
    
    
    2,979
    
    
    
    533
    
    
    
    8,356
    
    
    
    
    
    
    
    11,868INTEREST INCOME
    
    
    
    
    
    
    (82
    )
    
    
    
    
    
    
    
    
    
    
    (82
    )LOSS RELATED TO REFINANCING
    
    
    
    
    
    
    647
    
    
    
    
    
    
    
    
    
    
    
    647OTHER INCOME
    
    
    
    
    
    
    (197
    )
    
    
    
    
    
    
    
    
    
    
    (197
    )INCOME (LOSS) BEFORE
INCOME TAXES
    
    
    (2,980
    )
    
    
    484
    
    
    
    7,497
    
    
    
    
    
    
    
    5,001INCOME TAX EXPENSE
(BENEFIT)
    
    
    (579
    )
    
    
    149
    
    
    
    2,307
    
    
    
    
    
    
    
    1,877Net income (loss)
    
    $
    (2,401
    )
    
    $
    335
    
    
    $
    5,190
    
    
    $
    
    
    
    $
    3,124
 16




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##### Table of Contents



Condensed Consolidating Statement of Operations
For the Twelve Weeks Ended September 20, 2006
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)(In thousands)RESTAURANT SALES
    
    $
    
    
    
    $
    10,493
    
    
    $
    210,783
    
    
    $
    
    
    
    $
    221,276RESTAURANT COSTS:Food
    
    
    
    
    
    
    3,761
    
    
    
    72,793
    
    
    
    
    
    
    
    76,554Labor
    
    
    
    
    
    
    3,074
    
    
    
    59,619
    
    
    
    
    
    
    
    62,693Direct and occupancy
    
    
    
    
    
    
    1,491
    
    
    
    51,995
    
    
    
    
    
    
    
    53,486Total restaurant costs
    
    
    
    
    
    
    8,326
    
    
    
    184,407
    
    
    
    
    
    
    
    192,733ADVERTISING EXPENSES
    
    
    
    
    
    
    343
    
    
    
    6,884
    
    
    
    
    
    
    
    7,227GENERAL AND ADMINISTRATIVE
EXPENSES
    
    
    1
    
    
    
    461
    
    
    
    9,266
    
    
    
    
    
    
    
    9,728CLOSED RESTAURANT COSTS
    
    
    
    
    
    
    
    
    
    
    742
    
    
    
    
    
    
    
    742MERGER INTEGRATION COSTS
    
    
    
    
    
    
    440
    
    
    
    
    
    
    
    
    
    
    
    440OPERATING INCOME (LOSS)
    
    
    (1
    )
    
    
    923
    
    
    
    9,484
    
    
    
    
    
    
    
    10,406INTEREST EXPENSE
    
    
    3,637
    
    
    
    575
    
    
    
    9,016
    
    
    
    
    
    
    
    13,228INTEREST INCOME
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    
    
    
    
    (28
    )LOSS RELATED TO REFINANCING
    
    
    
    
    
    
    243
    
    
    
    
    
    
    
    
    
    
    
    243OTHER INCOME
    
    
    
    
    
    
    (202
    )
    
    
    
    
    
    
    
    
    
    
    (202
    )INCOME (LOSS) BEFORE
INCOME TAXES
    
    
    (3,638
    )
    
    
    335
    
    
    
    468
    
    
    
    
    
    
    
    (2,835
    )INCOME TAX EXPENSE
(BENEFIT)
    
    
    (1,996
    )
    
    
    126
    
    
    
    175
    
    
    
    
    
    
    
    (1,695
    )Net income (loss)
    
    $
    (1,642
    )
    
    $
    209
    
    
    $
    293
    
    
    $
    
    
    
    $
    (1,140
    )
 17




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##### Table of Contents



Condensed Consolidating Statement of Cash Flows
For the Twelve Weeks Ended September 21, 2005
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In thousands)OPERATING ACTIVITIES:Net income (loss)
    
    $
    (2,401
    )
    
    $
    335
    
    
    $
    5,190
    
    
    $
    
    
    
    $
    3,124Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:Depreciation and amortization
    
    
    
    
    
    
    649
    
    
    
    6,626
    
    
    
    
    
    
    
    7,275Amortization of debt issuance costs
    
    
    82
    
    
    
    16
    
    
    
    255
    
    
    
    
    
    
    
    353Accretion of original issue discount
    
    
    2,896
    
    
    
    11
    
    
    
    165
    
    
    
    
    
    
    
    3,072Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    24Changes in assets and liabilities:Receivables
    
    
    
    
    
    
    20,432
    
    
    
    (20,385
    )
    
    
    (152
    )
    
    
    (105
    )Inventories
    
    
    
    
    
    
    (4
    )
    
    
    (7
    )
    
    
    
    
    
    
    (11
    )Prepaid expenses and other current assets
    
    
    2
    
    
    
    2,547
    
    
    
    (1,275
    )
    
    
    
    
    
    
    1,274Accounts payable
    
    
    
    
    
    
    (4,597
    )
    
    
    (34
    )
    
    
    
    
    
    
    (4,631
    )Accrued and other liabilities
    
    
    
    
    
    
    (4,893
    )
    
    
    590
    
    
    
    
    
    
    
    (4,303
    )Income taxes payable/refundable
    
    
    (579
    )
    
    
    256
    
    
    
    
    
    
    
    
    
    
    
    (323
    )Net cash provided by (used in)
operating activities
    
    
    
    
    
    
    14,752
    
    
    
    (8,851
    )
    
    
    (152
    )
    
    
    5,749INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    
    
    
    
    (339
    )
    
    
    (5,412
    )
    
    
    
    
    
    
    (5,751
    )Collection of notes receivable
    
    
    
    
    
    
    183
    
    
    
    
    
    
    
    
    
    
    
    183Corporate cash advances (payments)
    
    
    
    
    
    
    (12,308
    )
    
    
    12,156
    
    
    
    152
    
    
    
    Proceeds from sale (purchase) of other assets
    
    
    
    
    
    
    (183
    )
    
    
    (255
    )
    
    
    
    
    
    
    (438
    )Net cash provided by (used in) investing
activities
    
    
    
    
    
    
    (12,647
    )
    
    
    6,489
    
    
    
    152
    
    
    
    (6,006
    )FINANCING ACTIVITIES:Repayment of debt
    
    
    
    
    
    
    (30
    )
    
    
    (474
    )
    
    
    
    
    
    
    (504
    )Net cash used in financing activities
    
    
    
    
    
    
    (30
    )
    
    
    (474
    )
    
    
    
    
    
    
    (504
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    
    
    
    
    2,075
    
    
    
    (2,836
    )
    
    
    
    
    
    
    (761
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    49
    
    
    
    14,154
    
    
    
    6,459
    
    
    
    
    
    
    
    20,662CASH AND CASH EQUIVALENTS, end of period
    
    $
    49
    
    
    $
    16,229
    
    
    $
    3,623
    
    
    $
    
    
    
    $
    19,901
 18




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##### Table of Contents



Condensed Consolidating Statement of Cash Flows
For the Twelve Weeks Ended September 20, 2006
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)(In thousands)OPERATING ACTIVITIES:Net income (loss)
    
    $
    (1,642
    )
    
    $
    209
    
    
    $
    293
    
    
    $
    
    
    
    $
    (1,140
    )Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:Depreciation and amortization
    
    
    
    
    
    
    684
    
    
    
    6,700
    
    
    
    
    
    
    
    7,384Amortization of debt issuance costs
    
    
    94
    
    
    
    19
    
    
    
    300
    
    
    
    
    
    
    
    413Accretion of original issue discount
    
    
    3,543
    
    
    
    12
    
    
    
    193
    
    
    
    
    
    
    
    3,748Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    249
    
    
    
    
    
    
    
    249Changes in assets and liabilities:Receivables
    
    
    
    
    
    
    9,205
    
    
    
    (8,659
    )
    
    
    (152
    )
    
    
    394Inventories
    
    
    
    
    
    
    1
    
    
    
    171
    
    
    
    
    
    
    
    172Prepaid expenses and other current assets
    
    
    1
    
    
    
    1,195
    
    
    
    (1,006
    )
    
    
    
    
    
    
    190Accounts payable
    
    
    
    
    
    
    (5,211
    )
    
    
    425
    
    
    
    
    
    
    
    (4,786
    )Accrued and other liabilities
    
    
    
    
    
    
    (5,829
    )
    
    
    (506
    )
    
    
    
    
    
    
    (6,335
    )Income taxes payable/refundable
    
    
    (1,996
    )
    
    
    (2,967
    )
    
    
    
    
    
    
    
    
    
    
    (4,963
    )Net cash provided by (used in)
operating activities
    
    
    
    
    
    
    (2,682
    )
    
    
    (1,840
    )
    
    
    (152
    )
    
    
    (4,674
    )INVESTING ACTIVITIES:Acquisitions, net of liabilities assumed
    
    
    
    
    
    
    
    
    
    
    (3,468
    )
    
    
    
    
    
    
    (3,468
    )Purchase of property and equipment
    
    
    
    
    
    
    (123
    )
    
    
    (6,713
    )
    
    
    
    
    
    
    (6,836
    )Collection of notes receivable
    
    
    
    
    
    
    697
    
    
    
    
    
    
    
    
    
    
    
    697Corporate cash advances (payments)
    
    
    
    
    
    
    (4,835
    )
    
    
    4,683
    
    
    
    152
    
    
    
    Proceeds from sale (purchase) of other assets
    
    
    
    
    
    
    (2,897
    )
    
    
    (514
    )
    
    
    
    
    
    
    (3,411
    )Net cash provided by (used in) investing
activities
    
    
    
    
    
    
    (7,158
    )
    
    
    (6,012
    )
    
    
    152
    
    
    
    (13,018
    )FINANCING ACTIVITIES:Repayment of debt
    
    
    
    
    
    
    (28
    )
    
    
    (438
    )
    
    
    
    
    
    
    (466
    )Proceeds from revolving credit facility
    
    
    
    
    
    
    360
    
    
    
    5,640
    
    
    
    
    
    
    
    6,000Net cash provided by (used in) financing
activities
    
    
    
    
    
    
    332
    
    
    
    5,202
    
    
    
    
    
    
    
    5,534NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    
    
    
    
    (9,508
    )
    
    
    (2,560
    )
    
    
    
    
    
    
    (12,158
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    37
    
    
    
    14,068
    
    
    
    6,114
    
    
    
    
    
    
    
    20,219CASH AND CASH EQUIVALENTS, end of period
    
    $
    37
    
    
    $
    4,560
    
    
    $
    3,464
    
    
    $
    
    
    
    $
    8,061
 19




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##### Table of Contents



11. Subsequent Events
 Merger Transaction
 ® ® ® ®
  1 2
 
    
    secured a new $640.0 million senior secured credit agreement (the Credit Agreement) comprised of (i) a $530.0 million
senior secured term loan (the Term Facility), (ii) a $40.0 million senior secured revolving credit facility (the Revolving
Facility), and (iii) a $70.0 million senior secured pre-funded synthetic letter of credit facility (the Synthetic
Letter of Credit Facility), and
    
    received $300.0 million from the issuance of its 121/2% senior notes due 2014 (the 121/2% Senior Notes).
 1 2
 
    
    pay $704.6 million to purchase the outstanding shares of Ryans common stock,
    
    repay $146.9 million of Ryans outstanding debt (including accrued interest and break fees),
    
    repay $196.9 million of existing indebtedness of Buffets, Inc. under its existing credit facility (including accrued
interest and break fees),
    
    repurchase or redeem $194.9 million of Buffets, Inc.s 111/4% senior subordinated notes (including accretion of original
issue discount and early redemption premiums),
    
    repurchase $121.4 million of the Companys
137/8 % senior discount notes (including
accretion of original issue discount and early redemption premiums), and
    
    pay approximately $45.1 million for transaction fees and expenses.
    20




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##### Table of Contents



121/2%
 121/2% 121/2% 121/2% 121/2% 121/2% 121/2% 121/2% 121/2% 121/2%
     21




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 You should read the following discussion in conjunction with our condensed consolidated
financial statements and related notes included elsewhere in this report. Unless the context
indicates or requires otherwise, (i) the term Buffets Holdings refers to Buffets Holdings, Inc.;
(ii) the term Buffets refers to Buffets, Inc., our principal operating subsidiary; (iii) the
terms we, our, ours, and the Company refer to Buffets Holdings, Inc. and its subsidiaries.
Some of the statements in the following discussion are forward-looking statements. See
Forward-Looking Statements and Risk Factors. Historical results will not be indicative of future
results due to the consummation of the merger transaction with Ryans Restaurant Group, Inc.
(Ryans).
 Overview
 â â
 â â
 ® ® ® ®
     22




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##### Table of Contents




    
    We recognize as restaurant sales the proceeds from the sale of food and beverages at our company-owned restaurants at
the time of such sale. We recognize the proceeds from the sale of gift certificates/cards when the gift
certificates/cards are redeemed at our restaurants. Until redemption, the unearned revenue from the sale of gift
certificates/cards is included in accrued liabilities on our consolidated balance sheets. Our franchise income includes
royalty fees and initial franchise fees received from our franchisee. We recognize royalty fees as other income based
on the sales reported at the franchise restaurants.
    
    Restaurant costs reflect only direct restaurant operating costs, including food, labor and direct and occupancy costs.
Labor costs include compensation and benefits for both hourly and restaurant management employees. Direct and occupancy
costs consist primarily of costs of supplies, maintenance, utilities, rent, real estate taxes, insurance, depreciation
and amortization.
    
    Advertising expenses reflect all advertising and promotional costs.
    
    General and administrative expenses reflect all costs, other than advertising expenses, not directly related to the
operation of restaurants. These expenses consist primarily of corporate administrative compensation and overhead,
district and regional management compensation and related management expenses and the costs of recruiting, training and
supervising restaurant management personnel.
    
    Closed restaurant costs represent costs associated with store closure of underperforming restaurants, including, but
not limited to lease termination costs and obligations and employee termination costs.
    
    Merger integration costs represent professional fees and employee travel and expenses related to integration activities
associated with the merger with Ryans.
    
    Interest expense reflects interest costs associated with our debt, amortization of debt issuance cost and accretion of
original issuance discount on our 111/4% senior subordinated notes and 137/8% senior
discount notes.
    
    Interest income reflects interest earned on our short-term investments.
    
    Loss related to refinancing for fiscal years 2005 and 2006 represents transaction costs associated with amendments to
Buffets, Inc.s Amended and Restated Credit Agreement.
    
    Other income primarily reflects franchise fees earned.
    
    Income tax expense (benefit) reflects the current and deferred tax provision (benefit) determined in accordance with
the provisions of Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
 Recent Developments
 Merger Transaction
   23




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##### Table of Contents



1 2
 
    
    secured a new $640.0 million senior secured credit agreement comprised of (i) a $530.0 million senior secured term
loan, (ii) a $40.0 million senior secured revolving credit facility, and (iii) a $70.0 million senior secured
pre-funded synthetic letter of credit facility, and
    
    received $300.0 million from the issuance of its 121/2% senior notes due 2014.
 1 2
 
    
    pay $704.6 million to purchase the outstanding shares of Ryans common stock,
    
    repay $146.9 million of Ryans outstanding debt (including accrued interest and break fees),
    
    repay $196.9 million of existing indebtedness of Buffets, Inc. under its existing credit facility (including accrued
interest and break fees),
    
    repurchase $194.9 million of Buffets, Inc.s 111/4% senior subordinated notes (including accretion of original issue
discount and early redemption premiums),
    
    repurchase $121.4 million of the Companys 137/8% senior discount notes (including
accretion of original issue discount and early redemption premiums), and
    
    pay approximately $45.1 million for transaction fees and expenses.
   Litigation Challenging the Merger
    Critical Accounting Policies
  24




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##### Table of Contents



Long-Lived Assets
   Goodwill
  Insurance Reserves
  Closed Restaurant Reserve
   25




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##### Table of Contents



Income Taxes
   Gift Cards
  Share Based Compensation
     Results of Operations
 The following discussion reflects our historical results for the 12-week periods ended
September 21, 2005 and September 20,
2006. Our future results may not be consistent with our historical results. The following
discussion should be read in conjunction with our condensed consolidated financial statements and
related notes included elsewhere in this report.
 26




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##### Table of Contents



Twelve Weeks EndedSeptember 21,
    
    September 20,2005
    
    2006(dollars in thousands)Significant items that impacted results of operations:Closed restaurant costs (1)
    
    $
    256
    
    
    $
    742Merger integration costs (2)
    
    
    
    
    
    
    440
 
 (1)
    
    Closed restaurant costs were $0.7 million during the first quarter of fiscal 2007 as compared
to $0.3 million for the comparable prior year period. The increase was due in large part due
to the closure of three under performing restaurants in the first twelve weeks of fiscal 2007
compared with zero store closures in the comparable prior year period. We incurred cash
charges related to these closures of approximately $0.9 million. These charges included
approximately $0.7 million related to lease termination costs and obligations, $0.1 million
related to employee termination costs and $0.1 million related to other associated costs. The
prior year costs represent charges related to stores that had previously closed.(2)
    
    Merger integration costs represent professional fees and employee travel and expenses related
to integration activities associated with the merger with Ryans.  Twelve Weeks EndedSeptember 21, 2005
    
    
    September 20, 2006(dollars in thousands)Restaurant sales
    
    $
    226,738
    
    
    
    100.0
    %
    
    $
    221,276
    
    
    
    100.0
    %Restaurant costs
    
    
    192,016
    
    
    
    84.7
    
    
    
    192,733
    
    
    
    87.1Advertising expenses
    
    
    7,183
    
    
    
    3.2
    
    
    
    7,227
    
    
    
    3.3General and administrative
expenses
    
    
    10,046
    
    
    
    4.4
    
    
    
    9,728
    
    
    
    4.4Closed restaurant costs
    
    
    256
    
    
    
    0.1
    
    
    
    742
    
    
    
    0.3Merger integration costs
    
    
    
    
    
    
    
    
    
    
    440
    
    
    
    0.2Operating income
    
    
    17,237
    
    
    
    7.6
    
    
    
    10,406
    
    
    
    4.7Interest expense
    
    
    11,868
    
    
    
    5.2
    
    
    
    13,228
    
    
    
    6.0Interest income
    
    
    (82
    )
    
    
    (0.0
    )
    
    
    (28
    )
    
    
    (0.0
    )Loss related to refinancing
    
    
    647
    
    
    
    0.3
    
    
    
    243
    
    
    
    0.1Other income
    
    
    (197
    )
    
    
    (0.1
    )
    
    
    (202
    )
    
    
    (0.1
    )Income (loss) before income taxes
    
    
    5,001
    
    
    
    2.2
    
    
    
    (2,835
    )
    
    
    (1.3
    )Income tax expense (benefit)
    
    
    1,877
    
    
    
    0.8
    
    
    
    (1,695
    )
    
    
    (0.8
    )Net income (loss)
    
    $
    3,124
    
    
    
    1.4
    
    
    $
    (1,140
    )
    
    
    (0.5
    )
 Certain percentage amounts do not sum to total due to rounding.
 Restaurant Sales.
 Restaurant Costs.
 Advertising Expenses.
 27




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##### Table of Contents



General and Administrative Expenses.
 Interest Expense. 7 8
 Income Taxes. 7 8
 Liquidity and Capital Resources
 1 2
   Operating Activities.
 Investing Activities.
 28




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##### Table of Contents



Financing Activities.
 Future Capital Expenditures.
 
    
    Open one new restaurant with capital outlay of approximately $2.5 million.
    
    Spend approximately $16.0 million on remodeling and improvement costs that will be capitalized. Remodels incorporate
design elements to update the décor of our existing facilities including a lighter, more contemporary interior design
and expanded dessert displays. Other improvement costs include a variety of outlays such as new carpet, equipment and
minor leasehold improvements and display grill installations.
    
    Spend approximately $1.0 million on miscellaneous corporate and information systems investments.
    
    Spend approximately $15.0 million on the repair and maintenance of our existing restaurant locations that will be
expensed. This will encompass expenditures to keep equipment in good working order and leasehold improvements in good
condition, without substantially extending the economic lives of the underlying assets.
    
    On August 1, 2006, our subsidiary, OCB Restaurant Company, LLC, acquired certain assets and liabilities of Norths
Restaurants, Inc. (Norths), primarily comprised of five buffet restaurants in California and Oregon. The purchase
price was $3.3 million. In addition, we incurred $0.2 million of transaction costs. During the remainder of fiscal 2007, we plan to
spend approximately $3.0 million to convert three of these units to HomeTown Buffet® restaurants and one unit to a
Tahoe Joes Famous Steakhouse® restaurant.
    
    Spend approximately $10.0 million to $12.0 million
on the integration of Ryans and approximately $25.0 million on capital
improvements specifically related to the restaurants we acquired in the Ryans acquisition.
 Merger Transaction
     Sale-Leaseback Transaction
  29




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##### Table of Contents



Credit Facilities and Other Long Term Debt
 Credit Agreement
    121/2% Senior Notes
 121/2% 1 2
 121/2% 121/2% 121/2% 121/2% 121/2% 121/2% 121/2% 121/2% 121/2%
 30




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##### Table of Contents



Seasonality and Quarterly Fluctuations
  Forward-Looking Statements and Risk Factors
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risks. 1 4 7 8
 Food Commodity Risks.
 31




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Changes in Internal Control
  
 PART II. OTHER INFORMATION
 
 ITEM 5. OTHER INFORMATION
 Voluntary Filer. www.sec.gov
 
 ITEM 6. EXHIBITS
  32




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##### Table of Contents



SIGNATURES
  BUFFETS HOLDINGS, INC.Date:  November 6, 2006
    By:
    /s/ R. Michael Andrews, Jr.R. Michael Andrews, Jr.Chief Executive Officer
(Principal Executive Officer)By:
    /s/ A. Keith WallA. Keith WallChief Financial Officer
(Principal Financial and Accounting Officer) 33




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##### Table of Contents



INDEX TO EXHIBITS
 Exhibit Number
    
    Description2.1*
    
    Agreement and Plan of Merger dated
as of July 24, 2006 among Ryans Restaurant Group, Inc. and
Buffets Southeast, Inc. (incorporated by reference to Buffets
Holdings, Inc.s Current Report on Form 8-K filed with the
Commission on July 25, 2006 (SEC file No. 033-116897)).10.1
    
    Amendment No. 2, dated as of September 13, 2006, to
the Amended and Restated Credit Agreement dated as of
February 20, 2004, among Buffets, Inc., Buffets
Holdings, Inc., the Lenders from time to time party
thereto and Credit Suisse (formerly known as Credit
Suisse First Boston), as Administrative Agent and
Collateral Agent.31.1
    
    Certification of Principal Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Principal Financial
and Accounting Officer pursuant to
Section 302 of the Sarbanes-Oxley Act
of 2002.
 
 *
    
    Previously provided or incorporated by reference. 34