##### 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 April 4, 2007
 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 executive offices)
    
    (Zip Code)
  o þ
   o o þ
 o þ




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##### 



BUFFETS HOLDINGS, INC.
TABLE OF CONTENTS
 PagePart I. Financial Information
    
    
    3Item 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets (Unaudited) as of June 28, 2006 and April 4, 2007
    
    
    3Condensed Consolidated Statements of Operations (Unaudited)  16 Weeks and 40 Weeks Ended April 5, 2006 and April 4, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited)  16 Weeks and 40 Weeks Ended April 5, 2006 and April 4, 2007
    
    
    5Notes to the Condensed Consolidated Financial Statements (Unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    43Item 4. Controls and Procedures
    
    
    43Part II. Other Information
    
    
    44Item 1. Legal Proceedings
    
    
    44Item 1A. Risk Factors
    
    
    44Item 6. Exhibits
    
    
    46Articles of OrganizationBylawsThird Supplemental IndentureAmendment AgreementSupplement No. 2Certification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
  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,
    
    
    April 4,2006
    
    
    2007(Unaudited)(In thousands, except share data)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    20,219
    
    
    $
    8,367Receivables
    
    
    4,879
    
    
    
    8,698Inventories
    
    
    18,926
    
    
    
    32,297Prepaid expenses and other current assets
    
    
    5,384
    
    
    
    20,316Deferred income taxes
    
    
    10,324
    
    
    
    15,117Assets held for sale
    
    
    
    
    
    
    44,108Total current assets
    
    
    59,732
    
    
    
    128,903PROPERTY AND EQUIPMENT, net
    
    
    141,404
    
    
    
    237,616GOODWILL
    
    
    312,163
    
    
    
    516,018OTHER INTANGIBLE ASSETS
    
    
    320
    
    
    
    84,530DEFERRED INCOME TAXES
    
    
    13,683
    
    
    
    OTHER ASSETS, net
    
    
    11,194
    
    
    
    38,353Total assets
    
    $
    538,496
    
    
    $
    1,005,420LIABILITIES AND SHAREHOLDERS DEFICITCURRENT LIABILITIES:Accounts payable
    
    $
    48,101
    
    
    $
    69,695Accrued liabilities
    
    
    68,344
    
    
    
    135,663Income taxes payable
    
    
    6,977
    
    
    
    14,751Short-term debt
    
    
    
    
    
    
    28,500Current maturities of long-term debt
    
    
    1,862
    
    
    
    5,300Total current liabilities
    
    
    125,284
    
    
    
    253,909LONG-TERM DEBT, net of current maturities
    
    
    460,652
    
    
    
    823,375DEFERRED INCOME TAXES
    
    
    
    
    
    
    18,069DEFERRED LEASE OBLIGATIONS
    
    
    28,356
    
    
    
    34,166OTHER LONG-TERM LIABILITIES
    
    
    7,355
    
    
    
    9,525Total liabilities
    
    
    621,647
    
    
    
    1,139,044COMMITMENTS AND CONTINGENCIES (Note 13)SHAREHOLDERS DEFICIT:Preferred stock; $.01 par value, 1,100,000
shares authorized; none issued and
outstanding as of June 28, 2006 and April 4,
2007
    
    
    
    
    
    
    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 April 4, 2007
    
    
    31
    
    
    
    31Additional paid in capital
    
    
    5
    
    
    
    5Accumulated deficit
    
    
    (83,187
    )
    
    
    (133,660
    )Total shareholders deficit
    
    
    (83,151
    )
    
    
    (133,624
    )Total liabilities and shareholders deficit
    
    $
    538,496
    
    
    $
    1,005,420
  3




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BUFFETS HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Sixteen Weeks Ended
    
    
    Forty Weeks EndedApril 5,
    
    
    April 4,
    
    
    April 5,
    
    
    April 4,2006
    
    
    2007
    
    
    2006
    
    
    2007(Unaudited)
    
    
    (Unaudited)(In thousands)
    
    
    (In thousands)RESTAURANT SALES
    
    $
    292,584
    
    
    $
    509,202
    
    
    $
    737,596
    
    
    $
    1,028,369RESTAURANT COSTS:Food
    
    
    100,956
    
    
    
    176,372
    
    
    
    249,932
    
    
    
    355,556Labor
    
    
    85,317
    
    
    
    155,314
    
    
    
    213,005
    
    
    
    308,530Direct and occupancy
    
    
    69,520
    
    
    
    130,741
    
    
    
    175,436
    
    
    
    259,930Total restaurant costs
    
    
    255,793
    
    
    
    462,427
    
    
    
    638,373
    
    
    
    924,016ADVERTISING EXPENSES
    
    
    7,338
    
    
    
    7,919
    
    
    
    24,238
    
    
    
    22,868GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    13,094
    
    
    
    22,300
    
    
    
    33,196
    
    
    
    46,313CLOSED RESTAURANT COSTS
    
    
    4,413
    
    
    
    1,363
    
    
    
    5,511
    
    
    
    2,922IMPAIRMENT OF ASSETS
    
    
    
    
    
    
    
    
    
    
    1,350
    
    
    
    MERGER INTEGRATION COSTS
    
    
    
    
    
    
    3,485
    
    
    
    
    
    
    
    6,999SHAREHOLDERS RIGHTS REPURCHASE
    
    
    757
    
    
    
    
    
    
    
    757
    
    
    
    LOSS ON LITIGATION SETTLEMENT
    
    
    
    
    
    
    6,045
    
    
    
    
    
    
    
    6,045LOSS ON SALE LEASEBACK TRANSACTIONS
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,498OPERATING INCOME
    
    
    11,189
    
    
    
    5,663
    
    
    
    34,171
    
    
    
    16,708INTEREST EXPENSE
    
    
    16,319
    
    
    
    28,380
    
    
    
    40,100
    
    
    
    58,994INTEREST INCOME
    
    
    (135
    )
    
    
    (60
    )
    
    
    (338
    )
    
    
    (138
    )LOSS RELATED TO REFINANCING
    
    
    
    
    
    
    840
    
    
    
    647
    
    
    
    41,125OTHER INCOME
    
    
    (293
    )
    
    
    (194
    )
    
    
    (777
    )
    
    
    (692
    )LOSS BEFORE INCOME TAXES
    
    
    (4,702
    )
    
    
    (23,303
    )
    
    
    (5,461
    )
    
    
    (82,581
    )INCOME TAX BENEFIT
    
    
    (3,413
    )
    
    
    (8,906
    )
    
    
    (3,377
    )
    
    
    (32,108
    )Net loss
    
    $
    (1,289
    )
    
    $
    (14,397
    )
    
    $
    (2,084
    )
    
    $
    (50,473
    )
  4




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##### Table of Contents



BUFFETS HOLDINGS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Forty Weeks EndedApril 5,
    
    
    April 4,2006
    
    
    2007(Unaudited)(In thousands)OPERATING ACTIVITIES:Net loss
    
    $
    (2,084
    )
    
    $
    (50,473
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    24,221
    
    
    
    30,674Amortization of debt issuance cost
    
    
    1,178
    
    
    
    2,826Accretion of original issue discount
    
    
    10,257
    
    
    
    5,623Loss related to refinancing:Write off of debt issuance costs
    
    
    
    
    
    
    8,686Refinancing premiums expensed
    
    
    
    
    
    
    31,599Loss on disposal of assets
    
    
    1,011
    
    
    
    710Impairment of assets
    
    
    1,350
    
    
    
    Loss on sale leaseback transactions
    
    
    
    
    
    
    2,498Deferred tax benefit
    
    
    
    
    
    
    (35,610
    )Changes in assets and liabilities:Receivables
    
    
    1,576
    
    
    
    556Inventories
    
    
    (168
    )
    
    
    (56
    )Prepaid expenses and other current assets
    
    
    (1,564
    )
    
    
    9,663Accounts payable
    
    
    (1,039
    )
    
    
    7,539Accrued and other liabilities
    
    
    (4,388
    )
    
    
    5,901Income taxes payable
    
    
    (5,750
    )
    
    
    (26,343
    )Net cash provided by (used in) operating activities
    
    
    24,600
    
    
    
    (6,207
    )INVESTING ACTIVITIES:Proceeds from sale leaseback transactions
    
    
    
    
    
    
    8,608Proceeds from sale of assets held for sale
    
    
    
    
    
    
    5,057Acquisitions, net of liabilities assumed
    
    
    
    
    
    
    (168,794
    )Purchase of property and equipment
    
    
    (23,441
    )
    
    
    (26,322
    )Collections on notes receivable
    
    
    1,039
    
    
    
    713(Purchase) Proceeds from sale of other assets
    
    
    (430
    )
    
    
    314Net cash used in investing activities
    
    
    (22,832
    )
    
    
    (180,424
    )FINANCING ACTIVITIES:Repayment of previous term loan facility
    
    
    (17,016
    )
    
    
    (182,053
    )Repurchase
of 111/4% senior subordinated notes
    
    
    
    
    
    
    (180,778
    )Repurchase
of 137/8% senior discount notes
    
    
    
    
    
    
    (105,306
    )Repayment of Ryans debt
    
    
    
    
    
    
    (145,000
    )Proceeds from term loan funding
    
    
    
    
    
    
    530,000Repayment of term loan funding
    
    
    
    
    
    
    (1,325
    )Proceeds from new revolver facility
    
    
    
    
    
    
    23,500Proceeds from 121/2% senior note issuance
    
    
    
    
    
    
    300,000Proceeds from promissory note
    
    
    
    
    
    
    5,000Debt issuance costs
    
    
    
    
    
    
    (36,705
    )Payment of refinancing premiums
    
    
    
    
    
    
    (32,554
    )Purchase of treasury stock
    
    
    (10
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (17,026
    )
    
    
    174,779NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (15,258
    )
    
    
    (11,852
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    20,662
    
    
    
    20,219CASH AND CASH EQUIVALENTS, end of period
    
    $
    5,404
    
    
    $
    8,367SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid during the period for Interest (net of capitalized interest of $243 and $295)
    
    $
    37,149
    
    
    $
    49,218Income taxes
    
    $
    2,372
    
    
    $
    29,814
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BUFFETS HOLDINGS, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1. Nature of Organization
 Company Background
  Description of Business
 SM
 Buffets Franchise Holdings, LLC
   Merger with Ryans Restaurant Group, Inc.
    
    
    securing a new $640.0 million senior secured credit agreement (the Credit Facility)
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 (see Note 9
for details regarding the subsequent conversion of this facility to a synthetic revolving
facility), and
 
    
    issuing $300.0 million of its 121/2% senior notes due 2014
(the
121/2% Senior Notes) pursuant
to an indenture dated November 1, 2006 (the Indenture).
 6




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##### Table of Contents



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 breakage fees),
    
    repay $196.4 million of existing indebtedness of Buffets, Inc. under its existing credit facility (including accrued
interest and breakage fees),
    
    repurchase or redeem $195.3 million of Buffets, Inc.s 111/4% senior subordinated notes (including accretion of original
issue discount and early redemption premiums),
    
    repurchase $121.5 million of Buffets Holdings 137/8% senior discount notes (including accretion
of original issue discount and early redemption premiums), and
    
    pay approximately $46.1 million for transaction fees and expenses.
   Interim Financial Information
   7




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Principles of Consolidation
  Fiscal Year
  Reclassification
  2. Summary of Significant Accounting Policies
 Segment Reporting
  Goodwill and Other Intangible Assets
   3. Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes  an
Interpretation of FASB Statement No. 109 (FIN 48), Accounting for Income Taxes.
 8




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##### Table of Contents



4. Stock-Based Compensation
       5. Property and Equipment
  June 28,
    
    
    April 4,2006
    
    
    2007Land
    
    $
    762
    
    
    $
    11,017Buildings
    
    
    3,082
    
    
    
    32,911Equipment
    
    
    151,622
    
    
    
    224,886Leasehold improvements
    
    
    155,034
    
    
    
    160,526Accumulated depreciation and amortization
    
    
    (169,096
    )
    
    
    (191,724
    )$
    141,404
    
    
    $
    237,616
  9




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##### Table of Contents



Sale Leaseback Transaction
     6. Other Intangible Assets
 June 28, 2006
    
    
    April 4, 2007Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortized Intangible Assets:Leasehold interests
    
    $
    
    
    
    $
    
    
    
    $
    2,323
    
    
    $
    155Recipes
    
    
    
    
    
    
    
    
    
    
    2,602
    
    
    
    101$
    
    
    
    $
    
    
    
    $
    4,925
    
    
    $
    256Unamortized Intangible Assets:Trademarks
    
    $
    
    
    
    
    
    
    
    $
    79,440Liquor licenses
    
    
    320
    
    
    
    
    
    
    
    421$
    320
    
    
    
    
    
    
    $
    79,861
   10




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##### Table of Contents



7. Other Assets
 June 28,
    
    
    April 4,2006
    
    
    2007Debt issuance costs
    
    $
    9,308
    
    
    $
    34,500Deposits
    
    
    477
    
    
    
    3,536Other long-term assets
    
    
    1,409
    
    
    
    317$
    11,194
    
    
    $
    38,353
 1 2
   8. Accrued Liabilities
  June 28,
    
    
    April 4,2006
    
    
    2007Accrued compensation
    
    $
    17,634
    
    
    $
    34,839Accrued workers compensation
    
    
    12,520
    
    
    
    22,413Accrued sales, use and property taxes
    
    
    6,348
    
    
    
    17,619Accrued insurance
    
    
    8,178
    
    
    
    17,451Accrued interest
    
    
    13,552
    
    
    
    15,144Accrued litigation reserve
    
    
    504
    
    
    
    7,862Unearned revenue
    
    
    3,998
    
    
    
    5,893Deferred compensation
    
    
    
    
    
    
    5,335Accrued severance reserve
    
    
    79
    
    
    
    3,025Closed restaurant reserve
    
    
    1,685
    
    
    
    1,420Accrued other
    
    
    3,846
    
    
    
    4,662$
    68,344
    
    
    $
    135,663
  Closed Restaurant Reserve
   11




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June 28,
    
    
    April 4,2006
    
    
    2007BALANCE, beginning of period (current and noncurrent in aggregate)
    
    $
    1,499
    
    
    $
    2,776Additions:Lease obligations charged to earnings
    
    
    4,847
    
    
    
    1,910Lease obligations charged to goodwill
    
    
    
    
    
    
    156Employee termination benefits charged to earnings
    
    
    444
    
    
    
    171Employee termination benefits charged to goodwill
    
    
    
    
    
    
    211Reductions:Cash payments:Lease termination costs and obligations
    
    
    3,570
    
    
    
    3,041Employee severance benefits
    
    
    444
    
    
    
    382BALANCE, end of period (current and noncurrent in aggregate)
    
    $
    2,776
    
    
    $
    1,801
   June 28,
    
    April 4,2006
    
    2007Number of restaurants:Expected to close as of the beginning of the period
    
    
    4
    
    
    
    1Closed during the period
    
    
    19
    
    
    
    26Identified for closure during the period
    
    
    16
    
    
    
    29Expected to close as of the end of the period
    
    
    1
    
    
    
    4
 June 28,
    
    April 4,2006
    
    2007Number of employees:Expected to be terminated as of the beginning of the period
    
    
    140
    
    
    
    35Terminated during the period
    
    
    665
    
    
    
    910Identified for termination during the period
    
    
    560
    
    
    
    1,015Expected to be terminated as of the end of the period
    
    
    35
    
    
    
    140
  2007
    
    $
    3762008
    
    
    1,1982009
    
    
    1972010
    
    
    202011
    
    
    10Thereafter
    
    
    $
    1,801
  12




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9. Debt
  Short-Term borrowings consist of the following:Revolving credit facility, interest at LIBOR plus 3.25%, due April 30, 2007 (interest rate at 8.57% as of
April 4, 2007)
    
    $
    23,500Promissory note, interest at 1-month LIBOR plus 1.60%, due May 31, 2007 (interest at 6.92% as of April 4, 2007)
    
    
    5,000Current maturities of long-term debt
    
    
    5,300Total short-term borrowings
    
    $
    33,800Long-Term borrowings consist of the following:Term loan, interest at LIBOR plus 2.75%, due quarterly through March 31, 2013 with remaining balance due
November 1, 2013 (interest rate at 8.11% as of April 4, 2007)
    
    
    528,675Senior
notes, interest at 12.50%, due November 1, 2014
    
    
    300,000828,675Less  Current maturities of long-term debt
    
    
    (5,300
    )Total long-term debt
    
    $
    823,375
  2007
    
    $
    2008
    
    
    6,6252009
    
    
    5,3002010
    
    
    5,3002011
    
    
    3,975Thereafter
    
    
    807,475$
    828,675
 Merger Related Refinancing
 1 2 1 4 7
 Credit Facility
     13




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##### Table of Contents



121/2% Senior Notes
 1 2 1 2 1 2 1 2
 1 2 1 2 1 2 1 2 1 2 1 2 1 2
  10. Acquisitions
 Ryans
Restaurant Group, Inc.
   14




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##### Table of Contents



November 1,2006(in thousands)Cash
    
    $
    559,406Assets held for sale
    
    
    49,165Deferred tax assets
    
    
    7,320Other current assets
    
    
    43,095Property, plant & equipment
    
    
    107,344Goodwill
    
    
    203,855Other intangible assets
    
    
    83,030Other assets
    
    
    4,037Total assets acquired
    
    
    1,057,252Accounts payable
    
    
    13,998Current portion of long-term debt
    
    
    33,036Income taxes payable
    
    
    34,117Accrued liabilities
    
    
    66,839Deferred tax liability
    
    
    69,889Long-term debt
    
    
    111,964Other long-term liabilities
    
    
    2,627Total liabilities assumed
    
    
    332,470Net assets acquired
    
    
    724,782Less cash acquired
    
    
    559,406Net cash paid
    
    $
    165,376
     15




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##### Table of Contents



Sixteen Weeks Ended
    
    Forty Weeks EndedApril 5, 2006
    
    April 4, 2007
    
    April 5, 2006
    
    April 4, 2007Revenue
    
    $
    506,301
    
    
    $
    509,217
    
    
    $
    1,351,150
    
    
    $
    1,321,529Net loss
    
    
    (5,678
    )(1)
    
    
    (14,397
    )(2)
    
    
    (20,548
    )(3)
    
    
    (61,716
    )(4)
 
 (1)
    
    Pro forma net loss is increased by additional rent expense of $16.5 million related to the Sale
Leaseback Transaction, as adjusted for depreciation expense on assets sold in the Sale Leaseback
Transaction, and additional interest expense of $8.5 million. Pro forma net loss is reduced by
general and administrative expense synergies of $0.7 million and an increase in tax benefit of $9.2
million assuming a 37.8% tax rate.(2)
    
    There are no pro forma adjustments necessary for the sixteen weeks ended April 4, 2007 given
that Ryans operating results are included in the condensed consolidated statement of operations
for the full sixteen-week period. Pro forma net loss has not been adjusted for nonrecurring items
including loss on litigation of $6.0 million, merger integration costs of approximately $3.5
million and loss related to refinancing of $0.8 million.(3)
    
    Pro forma net loss is increased by additional rent expense of $41.3 million related to the Sale
Leaseback Transaction, as adjusted for depreciation expense on assets sold in the Sale Leaseback
Transaction, and additional interest expense of $20.7 million. Pro forma net loss is reduced by
general and administrative expense synergies of $1.8 million and an increase in tax benefit of
$22.8 million assuming a 37.8% tax rate.(4)
    
    Pro forma net loss is increased by additional rent expense of $18.6 million related to the Sale
Leaseback Transaction, as adjusted for depreciation expense on assets sold in the Sale Leaseback
Transaction, additional interest expense of $7.5 million and an increase in tax expense of $7.1
million assuming a 37.8% tax rate. Pro forma net loss is reduced by general and administrative
expense synergies of $1.1 million and the elimination of Ryans loss on sale leaseback of $43.8
million during the period preceding the merger. Pro forma net loss has not been adjusted for loss
on sale leaseback of $2.5 million, loss on litigation settlement of $6.0 million, merger
integration costs of $7.1 million, and the loss related to refinancing of $42.6 million. Norths Restaurants, Inc.
  11. Income Taxes
 7 8
 12. Related-Party Transactions
  16




---



##### Table of Contents



13. Commitments and Contingencies
 Litigation
   17




---



##### Table of Contents



Operating Leases
   2007
    
    $
    18,8852008
    
    
    111,9382009
    
    
    109,4882010
    
    
    104,0022011
    
    
    97,968Thereafter
    
    
    1,338,281Total future minimum lease payments
    
    $
    1,780,562
  18




---



##### Table of Contents



For the
    
    
    For the 40Year Ended
    
    
    Weeks EndedJune 28,
    
    
    April 4,2006
    
    
    2007Minimum rents
    
    $
    50,192
    
    
    $
    63,922Contingent rents
    
    
    3,708
    
    
    
    2,767Less: Sublease rents
    
    
    (2,357
    )
    
    
    (1,773
    )Deferred rents
    
    
    1,123
    
    
    
    5,983Percentage rents
    
    
    2,296
    
    
    
    1,463$
    54,962
    
    
    $
    72,362
  14. Condensed Consolidating Financial Statements
 1 2
  19




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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
    
    
    
    
    
    
    
    312,163OTHER INTANGIBLE ASSETS
    
    
    
    
    
    
    
    
    
    
    320
    
    
    
    
    
    
    
    320DEFERRED INCOME TAXES
    
    
    6,140
    
    
    
    7,543
    
    
    
    
    
    
    
    
    
    
    
    13,683OTHER ASSETS, net
    
    
    2,203
    
    
    
    141,401
    
    
    
    4,892
    
    
    
    (137,302
    )
    
    
    11,194Total 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 CONTINGENCIESSHAREHOLDER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
 20




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##### Table of Contents



Condensed Consolidating Balance Sheet
As of April 4, 2007
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)(In thousands)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    37
    
    
    $
    488
    
    
    $
    7,842
    
    
    $
    
    
    
    $
    8,367Receivables
    
    
    12,911
    
    
    
    27,973
    
    
    
    730,538
    
    
    
    (762,724
    )
    
    
    8,698Inventories
    
    
    
    
    
    
    845
    
    
    
    31,452
    
    
    
    
    
    
    
    32,297Prepaid expenses and other current assets
    
    
    
    
    
    
    6,746
    
    
    
    13,570
    
    
    
    
    
    
    
    20,316Assets held for sale
    
    
    
    
    
    
    
    
    
    
    44,108
    
    
    
    
    
    
    
    44,108Deferred income taxes
    
    
    64
    
    
    
    13,567
    
    
    
    1,486
    
    
    
    
    
    
    
    15,117Total current assets
    
    
    13,012
    
    
    
    49,619
    
    
    
    828,996
    
    
    
    (762,724
    )
    
    
    128,903PROPERTY AND EQUIPMENT, net
    
    
    
    
    
    
    4,771
    
    
    
    232,845
    
    
    
    
    
    
    
    237,616GOODWILL, net
    
    
    
    
    
    
    11,868
    
    
    
    504,150
    
    
    
    
    
    
    
    516,018OTHER INTANGIBLE ASSETS
    
    
    
    
    
    
    
    
    
    
    84,530
    
    
    
    
    
    
    
    84,530DEFERRED INCOME TAXES
    
    
    
    
    
    
    (24,209
    )
    
    
    24,209
    
    
    
    
    
    
    
    OTHER ASSETS, net
    
    
    38
    
    
    
    463,579
    
    
    
    5,726
    
    
    
    (430,990
    )
    
    
    38,353Total assets
    
    $
    13,050
    
    
    $
    505,628
    
    
    $
    1,680,456
    
    
    $
    (1,193,714
    )
    
    $
    1,005,420LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)CURRENT LIABILITIES:Accounts payable
    
    
    
    
    
    
    825,010
    
    
    
    7,979
    
    
    
    (763,294
    )
    
    
    69,695Accrued liabilities
    
    
    
    
    
    
    59,843
    
    
    
    75,820
    
    
    
    
    
    
    
    135,663Income taxes payable
    
    
    1,778
    
    
    
    12,973
    
    
    
    
    
    
    
    
    
    
    
    14,751Short-term debt
    
    
    
    
    
    
    655
    
    
    
    27,845
    
    
    
    
    
    
    
    28,500Current maturities of long-term debt
    
    
    
    
    
    
    122
    
    
    
    5,178
    
    
    
    
    
    
    
    5,300Total current liabilities
    
    
    1,778
    
    
    
    898,603
    
    
    
    116,822
    
    
    
    (763,294
    )
    
    
    253,909LONG-TERM DEBT, net of current maturities
    
    
    
    
    
    
    18,938
    
    
    
    954,237
    
    
    
    (149,800
    )
    
    
    823,375DEFERRED INCOME TAXES
    
    
    (6,140
    )
    
    
    
    
    
    
    24,209
    
    
    
    
    
    
    
    18,069DEFERRED LEASE OBLIGATIONS
    
    
    
    
    
    
    2,231
    
    
    
    31,935
    
    
    
    
    
    
    
    34,166OTHER LONG-TERM LIABILITIES
    
    
    
    
    
    
    2,893
    
    
    
    6,632
    
    
    
    
    
    
    
    9,525Total liabilities
    
    
    (4,362
    )
    
    
    922,665
    
    
    
    1,133,835
    
    
    
    (913,094
    )
    
    
    1,139,044COMMITMENTS AND CONTINGENCIESSHAREHOLDERS EQUITY (DEFICIT)Common stock
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31Additional paid in capital
    
    
    5
    
    
    
    82,311
    
    
    
    198,174
    
    
    
    (280,485
    )
    
    
    5Retained earnings (accumulated deficit)
    
    
    17,376
    
    
    
    (499,348
    )
    
    
    348,447
    
    
    
    (135
    )
    
    
    (133,660
    )Total shareholders equity (deficit)
    
    
    17,412
    
    
    
    (417,037
    )
    
    
    546,621
    
    
    
    (280,620
    )
    
    
    (133,624
    )Total liabilities and shareholders equity (deficit)
    
    $
    13,050
    
    
    $
    505,628
    
    
    $
    1,680,456
    
    
    $
    (1,193,714
    )
    
    $
    1,005,420
 21




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##### Table of Contents



Condensed Consolidating Statement of Operations
For the Sixteen Weeks Ended April 5, 2006
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In thousands)RESTAURANT SALES
    
    $
    
    
    
    $
    13,359
    
    
    $
    279,225
    
    
    $
    
    
    
    $
    292,584RESTAURANT COSTS:Food
    
    
    
    
    
    
    4,769
    
    
    
    96,187
    
    
    
    
    
    
    
    100,956Labor
    
    
    
    
    
    
    4,000
    
    
    
    81,317
    
    
    
    
    
    
    
    85,317Direct and occupancy
    
    
    
    
    
    
    2,016
    
    
    
    67,504
    
    
    
    
    
    
    
    69,520Total restaurant costs
    
    
    
    
    
    
    10,785
    
    
    
    245,008
    
    
    
    
    
    
    
    255,793ADVERTISING EXPENSES
    
    
    
    
    
    
    334
    
    
    
    7,004
    
    
    
    
    
    
    
    7,338GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    2
    
    
    
    597
    
    
    
    12,495
    
    
    
    
    
    
    
    13,094SHAREHOLDERS RIGHTS REPURCHASE
    
    
    757
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    757CLOSED RESTAURANT COSTS
    
    
    
    
    
    
    
    
    
    
    4,413
    
    
    
    
    
    
    
    4,413OPERATING INCOME (LOSS)
    
    
    (759
    )
    
    
    1,643
    
    
    
    10,305
    
    
    
    
    
    
    
    11,189INTEREST EXPENSE
    
    
    3,971
    
    
    
    741
    
    
    
    11,607
    
    
    
    
    
    
    
    16,319INTEREST INCOME
    
    
    
    
    
    
    (135
    )
    
    
    
    
    
    
    
    
    
    
    (135
    )OTHER INCOME
    
    
    
    
    
    
    (293
    )
    
    
    
    
    
    
    
    
    
    
    (293
    )INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (4,730
    )
    
    
    1,330
    
    
    
    (1,302
    )
    
    
    
    
    
    
    (4,702
    )INCOME TAX EXPENSE (BENEFIT)
    
    
    (3,303
    )
    
    
    466
    
    
    
    (576
    )
    
    
    
    
    
    
    (3,413
    )Net income (loss)
    
    $
    (1,427
    )
    
    $
    864
    
    
    $
    (726
    )
    
    $
    
    
    
    $
    (1,289
    )
 22




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##### Table of Contents



Condensed Consolidating Statement of Operations
For the Forty Weeks Ended April 5, 2006
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In thousands)RESTAURANT SALES
    
    $
    
    
    
    $
    33,985
    
    
    $
    703,611
    
    
    $
    
    
    
    $
    737,596RESTAURANT COSTS:Food
    
    
    
    
    
    
    12,106
    
    
    
    237,826
    
    
    
    
    
    
    
    249,932Labor
    
    
    
    
    
    
    10,099
    
    
    
    202,906
    
    
    
    
    
    
    
    213,005Direct and occupancy
    
    
    
    
    
    
    4,887
    
    
    
    170,549
    
    
    
    
    
    
    
    175,436Total restaurant costs
    
    
    
    
    
    
    27,092
    
    
    
    611,281
    
    
    
    
    
    
    
    638,373ADVERTISING EXPENSES
    
    
    
    
    
    
    1,117
    
    
    
    23,121
    
    
    
    
    
    
    
    24,238GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    5
    
    
    
    1,529
    
    
    
    31,662
    
    
    
    
    
    
    
    33,196SHAREHOLDERS RIGHTS REPURCHASE
    
    
    757
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    757CLOSED RESTAURANT COSTS
    
    
    
    
    
    
    
    
    
    
    5,511
    
    
    
    
    
    
    
    5,511IMPAIRMENT OF ASSETS
    
    
    
    
    
    
    
    
    
    
    1,350
    
    
    
    
    
    
    
    1,350OPERATING INCOME (LOSS)
    
    
    (762
    )
    
    
    4,247
    
    
    
    30,686
    
    
    
    
    
    
    
    34,171INTEREST EXPENSE
    
    
    9,928
    
    
    
    1,810
    
    
    
    28,362
    
    
    
    
    
    
    
    40,100INTEREST INCOME
    
    
    
    
    
    
    (338
    )
    
    
    
    
    
    
    
    
    
    
    (338
    )LOSS RELATED TO REFINANCING
    
    
    
    
    
    
    647
    
    
    
    
    
    
    
    
    
    
    
    647OTHER INCOME
    
    
    
    
    
    
    (777
    )
    
    
    
    
    
    
    
    
    
    
    (777
    )INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (10,690
    )
    
    
    2,905
    
    
    
    2,324
    
    
    
    
    
    
    
    (5,461
    )INCOME TAX EXPENSE (BENEFIT)
    
    
    (5,356
    )
    
    
    1,099
    
    
    
    880
    
    
    
    
    
    
    
    (3,377
    )Net income (loss)
    
    $
    (5,334
    )
    
    $
    1,806
    
    
    $
    1,444
    
    
    $
    
    
    
    $
    (2,084
    )
 23




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##### Table of Contents



Condensed Consolidating Statement of Operations
For the Sixteen Weeks Ended April 4, 2007
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)(In thousands)RESTAURANT SALES
    
    $
    
    
    
    $
    12,745
    
    
    $
    496,457
    
    
    $
    
    
    
    $
    509,202RESTAURANT COSTS:Food
    
    
    
    
    
    
    4,633
    
    
    
    171,739
    
    
    
    
    
    
    
    176,372Labor
    
    
    
    
    
    
    3,920
    
    
    
    151,394
    
    
    
    
    
    
    
    155,314Direct and occupancy
    
    
    
    
    
    
    2,051
    
    
    
    128,690
    
    
    
    
    
    
    
    130,741Total restaurant costs
    
    
    
    
    
    
    10,604
    
    
    
    451,823
    
    
    
    
    
    
    
    462,427ADVERTISING EXPENSES
    
    
    
    
    
    
    148
    
    
    
    7,771
    
    
    
    
    
    
    
    7,919GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    
    
    
    
    549
    
    
    
    21,751
    
    
    
    
    
    
    
    22,300CLOSED RESTAURANT COSTS
    
    
    
    
    
    
    
    
    
    
    1,363
    
    
    
    
    
    
    
    1,363MERGER INTEGRATION COSTS
    
    
    
    
    
    
    2,580
    
    
    
    905
    
    
    
    
    
    
    
    3,485LOSS ON LITIGATION SETTLEMENT
    
    
    
    
    
    
    6,045
    
    
    
    
    
    
    
    
    
    
    
    6,045OPERATING INCOME (LOSS)
    
    
    
    
    
    
    (7,181
    )
    
    
    12,844
    
    
    
    
    
    
    
    5,663INTEREST EXPENSE
    
    
    
    
    
    
    1,702
    
    
    
    26,678
    
    
    
    
    
    
    
    28,380INTEREST INCOME
    
    
    
    
    
    
    (60
    )
    
    
    
    
    
    
    
    
    
    
    (60
    )LOSS RELATED TO REFINANCING
    
    
    
    
    
    
    840
    
    
    
    
    
    
    
    
    
    
    
    840OTHER INCOME
    
    
    
    
    
    
    (194
    )
    
    
    
    
    
    
    
    
    
    
    (194
    )INCOME (LOSS) BEFORE INCOME TAXES
    
    
    
    
    
    
    (9,469
    )
    
    
    (13,834
    )
    
    
    
    
    
    
    (23,303
    )INCOME TAX EXPENSE (BENEFIT)
    
    
    (18,371
    )
    
    
    7,867
    
    
    
    1,598
    
    
    
    
    
    
    
    (8,906
    )Net income (loss)
    
    $
    18,371
    
    
    $
    (17,336
    )
    
    $
    (15,432
    )
    
    $
    
    
    
    $
    (14,397
    )
 24




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##### Table of Contents



Condensed Consolidating Statement of Operations
For the Forty Weeks Ended April 4, 2007
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)(In thousands)RESTAURANT SALES
    
    $
    
    
    
    $
    33,331
    
    
    $
    995,038
    
    
    $
    
    
    
    $
    1,028,369RESTAURANT COSTS:Food
    
    
    
    
    
    
    11,998
    
    
    
    343,558
    
    
    
    
    
    
    
    355,556Labor
    
    
    
    
    
    
    10,039
    
    
    
    298,491
    
    
    
    
    
    
    
    308,530Direct and occupancy
    
    
    
    
    
    
    2,161
    
    
    
    257,769
    
    
    
    
    
    
    
    259,930Total restaurant costs
    
    
    
    
    
    
    24,198
    
    
    
    899,818
    
    
    
    
    
    
    
    924,016ADVERTISING EXPENSES
    
    
    
    
    
    
    741
    
    
    
    22,127
    
    
    
    
    
    
    
    22,868GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    3
    
    
    
    1,501
    
    
    
    44,809
    
    
    
    
    
    
    
    46,313CLOSED RESTAURANT COSTS
    
    
    
    
    
    
    
    
    
    
    2,922
    
    
    
    
    
    
    
    2,922MERGER INTEGRATION COSTS
    
    
    
    
    
    
    5,815
    
    
    
    1,184
    
    
    
    
    
    
    
    6,999LOSS ON LITIGATION SETTLEMENT
    
    
    
    
    
    
    6,045
    
    
    
    
    
    
    
    
    
    
    
    6,045LOSS ON SALE LEASEBACK TRANSACTIONS
    
    
    
    
    
    
    
    
    
    
    2,498
    
    
    
    
    
    
    
    2,498OPERATING INCOME (LOSS)
    
    
    (3
    )
    
    
    (4,969
    )
    
    
    21,680
    
    
    
    
    
    
    
    16,708INTEREST EXPENSE
    
    
    5,455
    
    
    
    3,212
    
    
    
    50,327
    
    
    
    
    
    
    
    58,994INTEREST INCOME
    
    
    
    
    
    
    (138
    )
    
    
    
    
    
    
    
    
    
    
    (138
    )LOSS RELATED TO REFINANCING
    
    
    18,044
    
    
    
    23,081
    
    
    
    
    
    
    
    
    
    
    
    41,125OTHER INCOME
    
    
    
    
    
    
    (692
    )
    
    
    
    
    
    
    
    
    
    
    (692
    )INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (23,502
    )
    
    
    (30,432
    )
    
    
    (28,647
    )
    
    
    
    
    
    
    (82,581
    )INCOME TAX EXPENSE (BENEFIT)
    
    
    (11,431
    )
    
    
    (11,121
    )
    
    
    (9,556
    )
    
    
    
    
    
    
    (32,108
    )Net income (loss)
    
    $
    (12,071
    )
    
    $
    (19,311
    )
    
    $
    (19,091
    )
    
    $
    
    
    
    $
    (50,473
    )
 25




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##### Table of Contents



Condensed Consolidating Statement of Cash Flows
For the Forty Weeks Ended April 5, 2006
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(In thousands)OPERATING ACTIVITIES:Net income (loss)
    
    $
    (5,334
    )
    
    $
    1,806
    
    
    $
    1,444
    
    
    $
    
    
    
    $
    (2,084
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    2,214
    
    
    
    22,007
    
    
    
    
    
    
    
    24,221Amortization of debt issuance costs
    
    
    272
    
    
    
    54
    
    
    
    852
    
    
    
    
    
    
    
    1,178Accretion of original issue discount
    
    
    9,656
    
    
    
    36
    
    
    
    565
    
    
    
    
    
    
    
    10,257Impairment of assets
    
    
    
    
    
    
    
    
    
    
    1,350
    
    
    
    
    
    
    
    1,350Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    1,011
    
    
    
    
    
    
    
    1,011Changes in assets and liabilities:Receivables
    
    
    (8
    )
    
    
    39,840
    
    
    
    (37,751
    )
    
    
    (505
    )
    
    
    1,576Inventories
    
    
    
    
    
    
    (2
    )
    
    
    (166
    )
    
    
    
    
    
    
    (168
    )Prepaid expenses and other current assets
    
    
    
    
    
    
    2,338
    
    
    
    (3,902
    )
    
    
    
    
    
    
    (1,564
    )Accounts payable
    
    
    
    
    
    
    (1,243
    )
    
    
    204
    
    
    
    
    
    
    
    (1,039
    )Accrued and other liabilities
    
    
    
    
    
    
    (6,883
    )
    
    
    2,495
    
    
    
    
    
    
    
    (4,388
    )Income taxes payable/refundable
    
    
    (5,356
    )
    
    
    (394
    )
    
    
    
    
    
    
    
    
    
    
    (5,750
    )Net cash provided by (used in) operating activities
    
    
    (770
    )
    
    
    37,766
    
    
    
    (11,891
    )
    
    
    (505
    )
    
    
    24,600INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    
    
    
    
    (1,514
    )
    
    
    (21,927
    )
    
    
    
    
    
    
    (23,441
    )Corporate cash advances (payments)
    
    
    
    
    
    
    (48,184
    )
    
    
    47,679
    
    
    
    505
    
    
    
    Collection of notes receivable
    
    
    
    
    
    
    1,039
    
    
    
    
    
    
    
    
    
    
    
    1,039Purchase of other assets
    
    
    (2
    )
    
    
    
    
    
    
    (428
    )
    
    
    
    
    
    
    (430
    )Net cash provided by (used in) investing activities
    
    
    (2
    )
    
    
    (48,659
    )
    
    
    25,324
    
    
    
    505
    
    
    
    (22,832
    )FINANCING ACTIVITIES:Repayment of debt
    
    
    
    
    
    
    (1,021
    )
    
    
    (15,995
    )
    
    
    
    
    
    
    (17,016
    )Capital Distributions
    
    
    770
    
    
    
    (770
    )
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Net cash used in financing activities
    
    
    760
    
    
    
    (1,791
    )
    
    
    (15,995
    )
    
    
    
    
    
    
    (17,026
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (12
    )
    
    
    (12,684
    )
    
    
    (2,562
    )
    
    
    
    
    
    
    (15,258
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    49
    
    
    
    14,154
    
    
    
    6,459
    
    
    
    
    
    
    
    20,662CASH AND CASH EQUIVALENTS, end of period
    
    $
    37
    
    
    $
    1,470
    
    
    $
    3,897
    
    
    $
    
    
    
    $
    5,404
 26




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##### Table of Contents



Condensed Consolidating Statement of Cash Flows
For the Forty Weeks Ended April 4, 2007
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited)(In thousands)OPERATING ACTIVITIES:Net income (loss)
    
    $
    (12,071
    )
    
    $
    (19,311
    )
    
    $
    (19,091
    )
    
    $
    
    
    
    $
    (50,473
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    2,245
    
    
    
    28,429
    
    
    
    
    
    
    
    30,674Amortization of debt issuance costs
    
    
    140
    
    
    
    62
    
    
    
    2,624
    
    
    
    
    
    
    
    2,826Loss related to refinancing:Write-off of debt issuance costs
    
    
    1,992
    
    
    
    154
    
    
    
    6,540
    
    
    
    
    
    
    
    8,686Refinancing premiums expensed
    
    
    16,052
    
    
    
    358
    
    
    
    15,189
    
    
    
    
    
    
    
    31,599Deferred income taxes
    
    
    
    
    
    
    (819
    )
    
    
    (34,791
    )
    
    
    
    
    
    
    (35,610
    )Accretion of original issue discount
    
    
    5,315
    
    
    
    7
    
    
    
    301
    
    
    
    
    
    
    
    5,623Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    710
    
    
    
    
    
    
    
    710Loss on sale leaseback transaction
    
    
    
    
    
    
    2,498
    
    
    
    
    
    
    
    
    
    
    
    2,498Changes in assets and liabilities:Receivables
    
    
    (12,903
    )
    
    
    142,055
    
    
    
    (132,013
    )
    
    
    3,417
    
    
    
    556Inventories
    
    
    
    
    
    
    
    
    
    
    (56
    )
    
    
    
    
    
    
    (56
    )Prepaid expenses and other current assets
    
    
    3
    
    
    
    (2,687
    )
    
    
    12,347
    
    
    
    
    
    
    
    9,663Due from parent
    
    
    (108
    )
    
    
    
    
    
    
    108
    
    
    
    
    
    
    
    Accounts payable
    
    
    1,877
    
    
    
    14,469
    
    
    
    (8,807
    )
    
    
    
    
    
    
    7,539Accrued and other liabilities
    
    
    
    
    
    
    16,994
    
    
    
    (11,093
    )
    
    
    
    
    
    
    5,901Income taxes payable/refundable
    
    
    1,814
    
    
    
    5,960
    
    
    
    (34,117
    )
    
    
    
    
    
    
    (26,343
    )Net cash provided by (used in) operating activities
    
    
    2,111
    
    
    
    161,985
    
    
    
    (173,720
    )
    
    
    3,417
    
    
    
    (6,207
    )INVESTING ACTIVITIES:Proceeds from sale leaseback transactions
    
    
    
    
    
    
    8,608
    
    
    
    
    
    
    
    
    
    
    
    8,608Proceeds from sale of assets held for sale
    
    
    
    
    
    
    5,057
    
    
    
    
    
    
    
    
    
    
    
    5,057Issuance of notes receivable to Ryans
    
    
    
    
    
    
    (149,800
    )
    
    
    
    
    
    
    149,800
    
    
    
    Acquisitions, net of liabilities assumed
    
    
    
    
    
    
    (165,376
    )
    
    
    (3,418
    )
    
    
    
    
    
    
    (168,794
    )Purchase of property and equipment
    
    
    
    
    
    
    (1,036
    )
    
    
    (25,286
    )
    
    
    
    
    
    
    (26,322
    )Collection of notes receivable
    
    
    
    
    
    
    713
    
    
    
    
    
    
    
    
    
    
    
    713Corporate cash advances (payments)
    
    
    
    
    
    
    380,337
    
    
    
    (376,920
    )
    
    
    (3,417
    )
    
    
    Proceeds from sale of other assets
    
    
    33
    
    
    
    
    
    
    
    281
    
    
    
    
    
    
    
    314Net cash provided by (used in) investing activities
    
    
    33
    
    
    
    78,503
    
    
    
    (405,343
    )
    
    
    146,383
    
    
    
    (180,424
    )FINANCING ACTIVITIES:Repayment of previous term loan facility
    
    
    
    
    
    
    (4,187
    )
    
    
    (177,866
    )
    
    
    
    
    
    
    (182,053
    )Repurchase
of 111/4% senior subordinated notes
    
    
    
    
    
    
    (4,158
    )
    
    
    (176,620
    )
    
    
    
    
    
    
    (180,778
    )Repurchase
of 137/8% senior discount notes
    
    
    (105,306
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (105,306
    )Repayment of Ryans debt
    
    
    
    
    
    
    (145,000
    )
    
    
    
    
    
    
    
    
    
    
    (145,000
    )Proceeds from new term loan funding
    
    
    
    
    
    
    12,190
    
    
    
    517,810
    
    
    
    
    
    
    
    530,000Payments on new term loan funding
    
    
    
    
    
    
    (30
    )
    
    
    (1,295
    )
    
    
    
    
    
    
    (1,325
    )Proceeds from new revolver facility
    
    
    
    
    
    
    540
    
    
    
    22,960
    
    
    
    
    
    
    
    23,500Proceeds from 121/2% senior note issuance
    
    
    
    
    
    
    6,900
    
    
    
    293,100
    
    
    
    
    
    
    
    300,000Proceeds from promissory note
    
    
    
    
    
    
    115
    
    
    
    4,885
    
    
    
    
    
    
    
    5,000Debt issuance costs
    
    
    
    
    
    
    (844
    )
    
    
    (35,861
    )
    
    
    
    
    
    
    (36,705
    )Payment of refinancing premiums
    
    
    (16,052
    )
    
    
    (380
    )
    
    
    (16,122
    )
    
    
    
    
    
    
    (32,554
    )Dividends
    
    
    119,214
    
    
    
    (119,214
    )
    
    
    
    
    
    
    
    
    
    
    Issuance of notes receivable from parent
    
    
    
    
    
    
    
    
    
    
    149,800
    
    
    
    (149,800
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (2,144
    )
    
    
    (254,068
    )
    
    
    580,791
    
    
    
    (149,800
    )
    
    
    174,779NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    
    
    
    
    (13,580
    )
    
    
    1,728
    
    
    
    
    
    
    
    (11,852
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    37
    
    
    
    14,068
    
    
    
    6,114
    
    
    
    
    
    
    
    20,219CASH AND CASH EQUIVALENTS, end of period
    
    $
    37
    
    
    $
    488
    
    
    $
    7,842
    
    
    $
    
    
    
    $
    8,367
 27




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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) and the related refinancing of our indebtedness and Ryans indebtedness.
 Overview
  Restaurants operating as of June 28, 2006
    
    
    338For the 40 week period ended April 4, 2007:Restaurants opened
    
    
    Restaurants closed
    
    
    26Restaurants acquired
    
    
    332Restaurants operating as of April 4, 2007
    
    
    644
     28




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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 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.
    
    Impairment of assets reflects fair market adjustments to the carrying value of long-lived assets, primarily comprised of
leasehold improvements and equipment.
    
    Merger integration costs represent professional fees and employee travel and expenses related to integration activities
associated with the merger with Ryans.
    
    Shareholders rights repurchase reflects the costs associated with the repurchase of certain rights associated with shares
of common stock previously held by former management shareholders who separated from the company.
    
    Loss on litigation settlement represents the costs associated with the settlement of a class action lawsuit against
HomeTown Buffet, Inc. and OCB Restaurant Company, LLC.
    
    Loss on sale leaseback transaction reflects transaction costs and net impairment losses associated with the sale and
leaseback of the leasehold interests and leasehold improvements of seven restaurants relating to the November 1, 2006
refinancing.
    
    Interest expense reflects interest costs associated with our debt and amortization of debt issuance cost. Interest expense
also reflects accretion of original issuance discount on our 111/4% senior subordinated notes and 137/8
% senior discount notes, which were repurchased on November 1, 2006.
    
    Interest income reflects interest earned on our short-term investments.
    
    Loss related to refinancing for fiscal years 2006 and 2007 represents transaction costs associated with amendments to
Buffets Amended and Restated Credit Agreement in fiscal year 2006, repurchasing or redeeming our 111/4% senior subordinated
notes and 137/8 % senior discount notes on November 1, 2006 and transaction costs associated with an
amendment to our credit facility in March 2007.
    
    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.
 29




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##### Table of Contents



Recent Developments
 Merger with Ryans Restaurant Group, Inc.
    
    
    securing a new $640.0 million senior secured credit agreement (the
Credit Facility) comprised of (i) a $530.0 million senior secured
term loan facility (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 (see Note 9 to our condensed consolidated financial
statements for details regarding the subsequent conversion of this
facility to a synthetic revolving facility), and
    

   issuing $300.0 million of its 121/2% Senior Notes due 2014
(the
121/2%
Senior Notes) pursuant to an indenture, dated as of November 1, 2006
(the Indenture).
 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 breakage fees),
    
    repay $196.4 million of existing indebtedness of Buffets, Inc. under its existing credit facility (including accrued
interest and breakage fees),
    
    repurchase $195.3 million of Buffets 111/4% senior subordinated notes (including accretion of original issue discount and
early redemption premiums),
    
    repurchase $121.5 million of Buffets Holdings 137/8% senior discount notes (including accretion of
original issue discount and early redemption premiums), and
    
    pay approximately $46.1 million for transaction fees and expenses.
   30




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##### Table of Contents



Litigation Challenging the Merger
   Critical Accounting Policies
   Long-Lived Assets
    31




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##### Table of Contents



Goodwill and Other Intangible Assets
  Insurance Reserves
  Closed Restaurant Reserve
   Income Taxes
   32




---



##### Table of Contents



Gift Cards
  Share Based Compensation
     Lease Accounting
  Merger Integration Costs
  33




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##### Table of Contents



Results of Operations
 The following discussion reflects our historical results for the 16-week periods ended April
5, 2006 and April 4, 2007. Our operating results include the impact of Ryans operations and the
impact of the related refinancing of our indebtedness and Ryans indebtedness for the entire
sixteen-week period ended April 4, 2007, but exclude the impact of Ryans operations and related
refinancing for the sixteen weeks ended April 5, 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.
 Sixteen Weeks EndedApril 5,
    
    April 4,2006
    
    2007(dollars in thousands)Significant items that impacted results of operations:Shareholders rights repurchase (1)
    
    $
    757
    
    
    $
    Closed restaurant costs (2)
    
    
    4,413
    
    
    
    1,363Merger integration costs (3)
    
    
    
    
    
    
    3,485Loss on litigation settlement (4)
    
    
    
    
    
    
    6,045Loss related to refinancing (5)
    
    
    
    
    
    
    840
 
 (1)
    
    Shareholders rights repurchase reflects the costs of the repurchase of certain rights
associated with shares of common stock previously held by former management shareholders who
separated from the Company.(2)
    
    Closed restaurant costs were approximately $1.4 million and $4.4 million for the third
quarter of fiscal 2007 and fiscal 2006, respectively. We closed fourteen underperforming
restaurants in the sixteen-week period ended April 4, 2007. Charges related to thirteen
restaurants were treated as a liability assumed pursuant to EITF 95-3, Recognition of
Liabilities in Connection with a Purchase Business Combination. See Note 10 to the condensed
consolidated financial statements elsewhere in this report for further discussion of our
merger with Ryans. For the remaining one restaurant, cash charges were incurred related to
this restaurant closure of approximately $0.2 million. This charge included approximately $0.1
million related to lease termination costs and obligations and $0.1 million related to
employee termination costs and other associated costs. In addition, non-cash charges related
to this closure were approximately $0.1 million. The remaining charges of approximately $1.1
million relate to changes in reserve estimates related to previously closed stores,
terminations of sublease agreements and other related costs.We closed sixteen underperforming restaurants in the sixteen-week period ended April 5, 2006.
We incurred cash charges related to these store closures of approximately $3.8 million. These
charges includes approximately $3.2 million related to lease termination costs and obligations,
$0.4 million related to employee termination costs and $0.2 million related to other associated
costs. Non-cash charges related to these closures were approximately $0.1 million.(3)
    
    Merger integration costs represent professional fees and employee travel and expenses related
to integration activities associated with the merger with Ryans.(4)
    
    Loss on litigation settlement represents the costs associated with the settlement of a class
action lawsuit against HomeTown Buffet, Inc. and OCB Restaurant Company, LLC. The precise
terms of the settlement are subject to continuing negotiation, and the final settlement is
subject to court approval. While we are currently not able to predict the outcome of this
action or precisely estimate a range of possible loss, we estimate that should the court
approve the settlement agreement, the company will pay approximately $6.0 million to resolve
this matter.(5)
    
    Loss related to refinancing represents transaction fees incurred in conjunction with an
amendment to our Credit Facility in March 2007. See Liquidity and Capital Resources
elsewhere in this report for further details regarding this amendment. 34




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##### Table of Contents



Sixteen Weeks EndedApril 5, 2006
    
    
    April 4, 2007(dollars in thousands)Restaurant sales
    
    $
    292,584
    
    
    
    100.0
    %
    
    $
    509,202
    
    
    
    100.0
    %Restaurant costs
    
    
    255,793
    
    
    
    87.4
    
    
    
    462,427
    
    
    
    90.8Advertising expenses
    
    
    7,338
    
    
    
    2.5
    
    
    
    7,919
    
    
    
    1.6General and administrative expenses
    
    
    13,094
    
    
    
    4.5
    
    
    
    22,300
    
    
    
    4.4Shareholders rights repurchase
    
    
    757
    
    
    
    0.3
    
    
    
    
    
    
    
    Closed restaurant costs
    
    
    4,413
    
    
    
    1.5
    
    
    
    1,363
    
    
    
    0.3Merger integration costs
    
    
    
    
    
    
    
    
    
    
    3,485
    
    
    
    0.7Loss on litigation settlement
    
    
    
    
    
    
    
    
    
    
    6,045
    
    
    
    1.2Operating income
    
    
    11,189
    
    
    
    3.8
    
    
    
    5,663
    
    
    
    1.1Interest expense
    
    
    16,319
    
    
    
    5.6
    
    
    
    28,380
    
    
    
    5.6Interest income
    
    
    (135
    )
    
    
    (0.0
    )
    
    
    (60
    )
    
    
    (0.0
    )Loss related to refinancing
    
    
    
    
    
    
    
    
    
    
    840
    
    
    
    0.2Other income
    
    
    (293
    )
    
    
    (0.1
    )
    
    
    (194
    )
    
    
    (0.0
    )Loss before income taxes
    
    
    (4,702
    )
    
    
    (1.6
    )
    
    
    (23,303
    )
    
    
    (4.6
    )Income tax benefit
    
    
    (3,413
    )
    
    
    (1.2
    )
    
    
    (8,906
    )
    
    
    (1.7
    )Net loss
    
    $
    (1,289
    )
    
    
    (0.4
    )
    
    $
    (14,397
    )
    
    
    (2.8
    )
 Certain percentage amounts do not sum to total due to rounding.
 Restaurant Sales.
  Restaurant Costs.
   35




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##### Table of Contents



Advertising Expenses.
 General and Administrative Expenses.
 Interest Expense.
 Income
Taxes. 7 8
 The following discussion reflects our historical results for the 40-weeks periods ended April 5,
2006 and April 4, 2007. Our operating results include the impact of Ryans operations from November
1, 2006, the merger date, to April 4, 2007 and the impact of the related refinancing of our
indebtedness and Ryans indebtedness. 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.
 Forty Weeks EndedApril 5,
    
    April 4,2006
    
    2007(dollars in thousands)Significant items that impacted results of operations:Shareholders rights repurchase (1)
    
    $
    757
    
    
    $
    Closed restaurant costs (2)
    
    
    5,511
    
    
    
    2,922Impairment of assets (3)
    
    
    1,350
    
    
    
    Loss related to refinancing (4)
    
    
    647
    
    
    
    41,125Merger integration costs (5)
    
    
    
    
    
    
    6,999Loss on litigation settlement (6)
    
    
    
    
    
    
    6,045Loss on sale leaseback transactions (7)
    
    
    
    
    
    
    2,498
 
 (1)
    
    Shareholders rights repurchase reflects the costs of the repurchase of certain rights
associated with shares of common stock previously held by former management shareholders who
separated from the Company.(2)
    
    Closed restaurant costs were $2.9 million during the first forty weeks of fiscal 2007 as
compared to $5.5 million for the comparable prior year period. The decrease was due in large
part due to the closure of six under performing Old Country Buffet® and HomeTown Buffet®
restaurants in the first forty weeks of fiscal 2007 compared with eighteen store closures in
the comparable prior year period. Cash charges were incurred related to these restaurant
closures of approximately $1.5 million. These charges included approximately $1.1 million
related to lease termination costs and obligations, $0.2 million related to
employee termination costs and $0.2 million related to other associated costs. In addition,
non-cash charges related to these closures were approximately $0.3 million. The remaining
charges of approximately $1.1 million relate to changes in reserve estimates related to
previously closed stores, terminations of sublease agreements and other related costs. In
addition, the Company closed twenty Ryans® and Fire Mountain® restaurants between November 1,
2006 (acquisition date) and April 4, 2007. Charges related to these twenty restaurants were
charged to goodwill pursuant to EITF 95-3, Recognition of Liabilities in Connection with a
Purchase Business Combination. See Note 10 to the condensed consolidated financial statements
elsewhere in this report for further discussion of the Companys merger with Ryans. 36




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##### Table of Contents



(3)
    
    During the first forty weeks of fiscal 2006, we recognized a loss of approximately $1.4
million related to impairments of the carrying value of our long-lived assets for sixteen
under-performing restaurants.(4)
    
    Effective as of July 28, 2005, we entered into Amendment No. 1, dated as of April 6, 2005, to
Buffets, Inc.s Amended and Restated Credit Agreement, dated as of February 20, 2004. In
connection with this amendment, we incurred $0.6 million in transaction fees during the first
quarter of fiscal 2006. On November 1, 2006, due to the merger with Ryans, we refinanced our
long-term debt. In connection with this refinancing, we wrote off approximately $30.6 million
of cumulative debt discount related to our senior subordinated notes and senior discount notes
and approximately $8.7 million of debt issuance costs related to the predecessor Credit
Facility, senior subordinated notes and senior discount notes. The remaining charges represent
transaction fees, including $0.8 million incurred in conjunction with an amendment to our
Credit Facility in March 2007. See Liquidity and Capital Resources elsewhere in this report
for further details regarding this amendment.(5)
    
    Merger integration costs represent professional fees, employee travel and expenses and other
charges related to integration activities associated with the merger with Ryans.(6)
    
    Loss on litigation settlement represents the costs associated with the settlement of a class
action lawsuit against HomeTown Buffet, Inc. and OCB Restaurant Company, LLC. The precise
terms of the settlement are subject to continuing negotiation, and the final settlement is
subject to court approval. While we are currently not able to predict the outcome of this
action or precisely estimate a range of possible loss, we estimate that should the court
approve the settlement agreement, the company will pay approximately $6.0 million to resolve
this matter.(7)
    
    During the first forty weeks of fiscal 2007, we entered into a sale leaseback transaction
whereby we transferred our leasehold interests and leasehold improvements with respect to
seven restaurants to a third party for net proceeds of approximately $8.4 million. We
simultaneously entered into long-term leases for those restaurants with an aggregate initial
annual rent of approximately $0.9 million. In connection with this sale leaseback transaction,
we recorded a loss of approximately $2.5 million primarily to reflect the impairment of
certain of the properties for which the net proceeds were less than the book value of the
leasehold assets. In addition, the net proceeds for certain of the properties were greater
than the book value of the leasehold assets resulting in a deferred gain of approximately $0.9
million. The deferred gain will be accreted over the life of the respective restaurant leases,
ranging from 19 to 21 years.  Forty Weeks EndedApril 5, 2006
    
    
    April 4, 2007(dollars in thousands)Restaurant sales
    
    $
    737,596
    
    
    
    100.0
    %
    
    $
    1,028,369
    
    
    
    100.0
    %Restaurant costs
    
    
    638,373
    
    
    
    86.5
    
    
    
    924,016
    
    
    
    89.9Advertising expenses
    
    
    24,238
    
    
    
    3.3
    
    
    
    22,868
    
    
    
    2.2General and administrative expenses
    
    
    33,196
    
    
    
    4.5
    
    
    
    46,313
    
    
    
    4.5Closed restaurant costs
    
    
    5,511
    
    
    
    0.7
    
    
    
    2,922
    
    
    
    0.3Impairment of assets
    
    
    1,350
    
    
    
    0.2
    
    
    
    
    
    
    
    Merger integration costs
    
    
    
    
    
    
    
    
    
    
    6,999
    
    
    
    0.7Shareholders rights repurchase
    
    
    757
    
    
    
    0.1
    
    
    
    
    
    
    
    Loss on litigation settlement
    
    
    
    
    
    
    
    
    
    
    6,045
    
    
    
    0.6Loss on sale leaseback transactions
    
    
    
    
    
    
    
    
    
    
    2,498
    
    
    
    0.2Operating income
    
    
    34,171
    
    
    
    4.6
    
    
    
    16,708
    
    
    
    1.6Interest expense
    
    
    40,100
    
    
    
    5.4
    
    
    
    58,994
    
    
    
    5.7Interest income
    
    
    (338
    )
    
    
    (0.0
    )
    
    
    (138
    )
    
    
    0.0Loss related to refinancing
    
    
    647
    
    
    
    0.1
    
    
    
    41,125
    
    
    
    4.0Other income
    
    
    (777
    )
    
    
    (0.1
    )
    
    
    (692
    )
    
    
    (0.1
    )Loss before income taxes
    
    
    (5,461
    )
    
    
    (0.7
    )
    
    
    (82,581
    )
    
    
    (8.0
    )Income tax expense (benefit)
    
    
    (3,377
    )
    
    
    (0.5
    )
    
    
    (32,108
    )
    
    
    (3.1
    )Net loss
    
    $
    (2,084
    )
    
    
    (0.3
    )
    
    $
    (50,473
    )
    
    
    (4.9
    )
 Certain percentage amounts do not sum to total due to rounding.
 37




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##### Table of Contents



Restaurant Sales.
  Restaurant Costs.
    Advertising Expenses.
 General and Administrative Expenses.
 38




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##### Table of Contents



Interest Expense.
 Income Taxes. 7 8
 Liquidity and Capital Resources
 1 2
   Operating Activities.
 Investing Activities.
 39




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##### Table of Contents



Financing Activities. 1 2 1 4 7 8 1 2
 Future Capital Expenditures.
 §
    
    Open two new Tahoe Joes Famous Steakhouse® restaurants with combined capital outlay of
approximately $4.5 million.
 §
    
    Spend approximately $10.0-$15.0 million on remodeling and improvement costs that will be
capitalized. Our remodel projects incorporate design elements to update the décor of our
existing facilities including a lighter, more contemporary interior design and expanded
dessert displays. Our other improvement costs include a variety of outlays such as new carpet,
equipment and minor leasehold improvements and display grill installations.
 §
    
    Spend approximately $0.5 million on miscellaneous corporate and information systems
investments.
 Integration Costs.
 Tax Payment
 Repayment of Promissory Note.
 Credit Facilities and Other Long Term Debt
 Credit Facility
     40




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##### Table of Contents



121/2% Senior Notes
 1 2 1 2 1 2 1 2
 1 2 1 2 1 2 1 2 1 2 1 2 1 2
  Contractual Obligations
  Payments Due by Fiscal Year2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter
    
    
    Total(in thousands)Long-term debt(1)
    
    $
    
    
    
    $
    6,625
    
    
    $
    5,300
    
    
    $
    5,300
    
    
    $
    3,975
    
    
    $
    807,475
    
    
    $
    828,675Interest (2)
    
    
    
    
    
    
    37,500
    
    
    
    37,500
    
    
    
    37,500
    
    
    
    37,500
    
    
    
    144,063
    
    
    
    294,063Operating leases(3)
    
    
    18,885
    
    
    
    111,938
    
    
    
    109,488
    
    
    
    104,002
    
    
    
    97,968
    
    
    
    1,338,281
    
    
    
    1,780,562Advisory fees(4)
    
    
    877
    
    
    
    3,800
    
    
    
    3,800
    
    
    
    3,800
    
    
    
    3,800
    
    
    
    
    
    
    
    16,077Purchase obligations(5)
    
    
    14,004
    
    
    
    23,340
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,344Total contractual cash obligations
    
    $
    33,766
    
    
    $
    183,203
    
    
    $
    156,088
    
    
    $
    150,602
    
    
    $
    143,243
    
    
    $
    2,289,819
    
    
    $
    2,956,721
 
 (1)
    
    Long-term debt payments for fiscal years 2007 through 2011 represent the required principal
payments on Buffets Term Facility. Long-term debt payments in the Thereafter column
represent the remaining principal amounts due on Buffets Term Facility and the aggregate
balance of Buffets 121/2% Senior Notes. Debt payments could be accelerated upon violation of
debt covenants. We believe the likelihood of debt covenant violations to be remote. See Note 9
to our condensed consolidated financial statements included elsewhere in this report for
details of our long-term obligations. 41




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##### Table of Contents



(2)
    
    Amounts represent contractual interest payments on Buffets 121/2% Senior Notes. We pay
interest on our 121/2% Senior Notes on January 1 and July 1 of each year. Interest payments on
Buffets variable-rate Term Facility are excluded. The borrowings under the Term Facility and Synthetic Revolving Facility bear interest at an adjusted
LIBOR rate plus a margin of either 2.50%, 2.75% or 3.00% in the case of Eurodollar borrowings and at a
certain alternate base rate plus a margin of either 1.50%, 1.75% or 2.00% in the case of alternate base
borrowings, depending on Buffets leverage ratio, and borrowings under the Revolving Facility bear interest
at an adjusted LIBOR rate plus a margin of 3.25% or at an alternate base rate plus a margin of 2.25%.
 The Term Facility matures on November 1, 2013. Interest payments are due
quarterly. The interest rate, at LIBOR plus 2.75%, was 8.11% as of April 4, 2007. The
borrowings due under the Term Facility are payable in equal quarterly installments in an
annual amount equal to 1% of the term loan during each of the first six and a half years of
the loan, with the remaining balance payable due on November 1, 2013. See Note 9 to our
condensed consolidated financial statements included elsewhere in this report for details of
our long-term obligations.(3)
    
    Operating leases is comprised of minimum rents and contingent rents. Operating leases have
not been reduced by minimum sublease rentals of approximately $8.9 million. See Note 13 to our
condensed consolidated financial statements included elsewhere in this report for details of
our operating lease obligations.(4)
    
    The advisory fees comprise our contractual obligation to pay annual advisory fees to each of
Roe H. Hatlen, Sentinel Capital Partners, L.L.C. and the Caxton-Iseman Party. See Certain
Relationships and Related Transactions. Under the terms of these agreements, Mr. Hatlen and
Sentinel Capital are each paid a fixed annual fee. The fee of the Caxton-Iseman Party is
calculated as a percentage of our earnings before interest, taxes, depreciation and
amortization and is estimated to be approximately $3.6 million per year. The fee paid to
Sentinel Capital Partners, L.L.C. is fixed at $0.2 million per year. The agreements with the
Caxton-Iseman Party and Sentinel Capital are of perpetual duration, and hence no estimate of
the aggregate amount of future obligations (represented in the Thereafter column, above) is
provided.(5)
    
    In determining purchase obligations for this table we used our interpretation of the
definition set forth in the SEC Final Rule, Disclosure in Managements Discussion and Analysis
about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations, which states, a
purchase obligation is defined as an agreement to purchase goods or services that is
enforceable and legally binding on the registrant and that specifies all significant terms,
including: fixed minimum quantities to be purchased; fixed, minimum or variable/price
provisions, and the approximate timing of the transaction. In applying this definition, we
have only included purchase obligations to the extent the failure to perform would result in
formal recourse against the Company. Accordingly, certain procurement arrangements that
indicate we are to purchase future items are included, but only to the extent they include a
recourse provision for our failure to purchase. Other Commercial Commitments
  Amount of Commitment Expiration by Fiscal Year
 2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    Total(in thousands)Letters of credit(1)
    
    $
    16,775
    
    
    $
    49,701
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    66,476Total commercial commitments
    
    $
    16,775
    
    
    $
    49,701
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    66,476
 
 (1)
    
    Our outstanding letters of credit expire at various times with final expirations in April
2008. As of April 4, 2007, total letter of credit borrowing availability was $20.0 million,
which is comprised of additional availability of $3.5 million under our Synthetic Letter of
Credit Facility and $16.5 million available through a sub facility to our Revolving Facility
in the form of letters of credit. Seasonality and Quarterly Fluctuations
  42




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##### Table of Contents



Forward-Looking Statements and Risk Factors
    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risks. 1 2
 Food Commodity Risks.
 
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  43




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##### Table of Contents



Changes in Internal Control
  
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Employee Litigation
   
 ITEM 1A. RISK FACTORS
 Risks Relating to Our Business
 We are dependent on timely delivery of fresh ingredients by our suppliers. We are also
substantially dependent on a single food supplier.
   44




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##### Table of Contents



Our restaurant sales are subject to seasonality and major world events.
  Our business is affected by changes in consumer preferences and consumer discretionary spending.
   Current restaurant locations may become unattractive, and attractive new locations may not be
available for a reasonable price, if at all.
  Food-borne illness incidents could result in liability to us and could reduce our restaurant
sales.
   Complaints or litigation may hurt us.
  45




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##### Table of Contents



We are controlled by a single shareholder and its interests may conflict with yours.
  
 ITEM 6. EXHIBITS
  46




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##### Table of Contents



SIGNATURES
  BUFFETS HOLDINGS, INC.Date: May 21, 2007
    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) 47




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Description3.1
    
    Articles of Organization of Buffets Franchise Holdings, LLC .3.2
    
    Bylaws of Buffets Franchise Holdings, LLC.4.1
    
    Third Supplemental Indenture, dated as of March 14, 2007, by and among Buffets, Inc., Buffets
Franchise Holdings, LLC and U.S. Bank National Association, as trustee.10.1
    
    Amendment Agreement, dated as of March 13, 2007, to the Credit Agreement, dated as of November 1,
2006, among Buffets, Inc., Buffets Holdings, Inc., Buffets, Inc.s subsidiaries named therein, the
lenders named therein, and Credit Suisse as Administrative Agent .10.2
    
    Supplement No. 2 dated as of March 13, 2007, to the Guarantee and Collateral Agreement dated as of
November 1, 2006, among Buffets, Inc., Buffets Holdings, Inc., Buffets, Inc.s subsidiaries named
therein and Credit Suisse.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 2002.32.1**
    
    Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2**
    
    Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Previously provided or incorporated by reference.**
    
    Shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of
1934, or otherwise subject to the liability of that Section. Such exhibits shall not be deemed
incorporated by reference into any filing under the Securities Act of 1933 or Securities
Exchange Act of 1934. 48