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 24, 2008
 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)
 (651) 994-8608
 
 þ o
  Large accelerated filer oAccelerated filer oNon-accelerated filer þ(Do not check if a smaller reporting company)Smaller reporting company o o þ




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TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATION (UNAUDITED)Item 1.
    
    Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of July 2, 2008
and September 24, 2008
    
    
    3Condensed Consolidated Statements of Operations  Twelve
Weeks Ended September 19, 2007 and September 24, 2008
    
    
    4Condensed Consolidated Statements of Cash Flows  Twelve
Weeks Ended September 19, 2007 and September 24, 2008
    
    
    5Notes to the Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    29Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    44Item 4.
    
    Controls and Procedures
    
    
    45PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    46Item 1A.
    
    Risk Factors
    
    
    47Item 3.
    
    Defaults Upon Senior Securities
    
    
    49Item 5.
    
    Other Information
    
    
    49Item 6.
    
    Exhibits
    
    
    49




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PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements
 BUFFETS HOLDINGS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In Thousands, Except Share Data)
 July 2,
    
    
    September 24,2008
    
    
    2008ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    68,671
    
    
    $
    46,875Receivables
    
    
    8,064
    
    
    
    8,268Income tax receivables
    
    
    3,680
    
    
    
    3,557Inventories
    
    
    30,400
    
    
    
    36,546Restricted cash
    
    
    2,377
    
    
    
    2,556Prepaid expenses and other current assets
    
    
    40,077
    
    
    
    34,420Assets held for sale
    
    
    2,132
    
    
    
    Total current assets
    
    
    155,401
    
    
    
    132,222PROPERTY AND EQUIPMENT, net
    
    
    198,612
    
    
    
    181,924GOODWILL
    
    
    136,127
    
    
    
    134,774OTHER INTANGIBLE ASSETS
    
    
    60,648
    
    
    
    60,542OTHER ASSETS, net
    
    
    28,979
    
    
    
    29,298Total assets
    
    $
    579,767
    
    
    $
    538,760LIABILITIES AND SHAREHOLDERS DEFICITLIABILITIES NOT SUBJECT TO COMPROMISECURRENT LIABILITIES:Accounts payable
    
    $
    46,323
    
    
    $
    44,446Accrued liabilities
    
    
    77,647
    
    
    
    81,395Income taxes payable
    
    
    255
    
    
    
    257Short-term debt
    
    
    81,250
    
    
    
    80,300Current maturities of long-term debt
    
    
    199,631
    
    
    
    199,631Total current liabilities
    
    
    405,106
    
    
    
    406,029DEFERRED LEASE OBLIGATIONS
    
    
    44,971
    
    
    
    45,949DEFERRED INCOME TAXES
    
    
    22,793
    
    
    
    22,793LONG-TERM TAXES PAYABLE
    
    
    243
    
    
    
    529OTHER LONG-TERM LIABILITIES
    
    
    6,745
    
    
    
    7,763Total liabilities not subject to compromise
    
    
    479,858
    
    
    
    483,063LIABILITIES SUBJECT TO COMPROMISE
    
    
    830,684
    
    
    
    839,118SHAREHOLDERS DEFICIT:Preferred stock; $.01 par value, 1,100,000
shares authorized; none issued and outstanding
as of July 2, 2008 and September 24, 2008
    
    
    
    
    
    
    Common stock; $.01 par value, 3,600,000 shares
authorized; 3,104,510 shares issued and
outstanding as of July 2, 2008 and September
24, 2008
    
    
    31
    
    
    
    31Additional paid in capital
    
    
    82
    
    
    
    82Accumulated deficit
    
    
    (730,888
    )
    
    
    (783,534
    )Total shareholders deficit
    
    
    (730,775
    )
    
    
    (783,421
    )Total liabilities and shareholders deficit
    
    $
    579,767
    
    
    $
    538,760
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 3




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##### 



BUFFETS HOLDINGS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In Thousands)
 Twelve Weeks EndedSeptember 19,
    
    
    September 24,2007
    
    
    2008RESTAURANT SALES
    
    $
    384,711
    
    
    $
    324,320RESTAURANT COSTS:Food
    
    
    132,900
    
    
    
    113,567Labor
    
    
    114,352
    
    
    
    95,773Direct and occupancy
    
    
    99,865
    
    
    
    88,672Total restaurant costs
    
    
    347,117
    
    
    
    298,012ADVERTISING EXPENSES
    
    
    9,867
    
    
    
    10,384GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    16,376
    
    
    
    12,752CLOSED RESTAURANT COSTS, net
    
    
    69
    
    
    
    (433
    )IMPAIRMENT OF ASSETS
    
    
    
    
    
    
    15,483LOSS ON LITIGATION SETTLEMENTS
    
    
    54
    
    
    
    MERGER INTEGRATION COSTS
    
    
    1,633
    
    
    
    OPERATING INCOME (LOSS)
    
    
    9,595
    
    
    
    (11,878
    )OTHER (INCOME) EXPENSE
    
    
    (270
    )
    
    
    149INTEREST INCOME
    
    
    (161
    )
    
    
    INTEREST EXPENSE
    
    
    20,757
    
    
    
    18,805REORGANIZATION ITEMS, net
    
    
    
    
    
    
    22,306LOSS RELATED TO REFINANCING
    
    
    5
    
    
    
    LOSS BEFORE INCOME TAXES
    
    
    (10,736
    )
    
    
    (53,138
    )INCOME TAX BENEFIT
    
    
    (4,960
    )
    
    
    (492
    )Net loss
    
    $
    (5,776
    )
    
    $
    (52,646
    )
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 4




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BUFFETS HOLDINGS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands)
 Twelve Weeks EndedSeptember 19,
    
    
    September 24,2007
    
    
    2008OPERATING ACTIVITIES:Net loss
    
    $
    (5,776
    )
    
    $
    (52,646
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    10,041
    
    
    
    9,461Amortization of debt issuance cost
    
    
    1,180
    
    
    
    2,727Loss (gain) on disposal of assets
    
    
    45
    
    
    
    (96
    )Reorganization items, net
    
    
    
    
    
    
    22,306Cash reorganization items
    
    
    
    
    
    
    (5,116
    )Impairment of assets
    
    
    
    
    
    
    15,483Deferred income taxes
    
    
    (1,493
    )
    
    
    Changes in assets and liabilities:Receivables
    
    
    2,236
    
    
    
    (204
    )Inventories
    
    
    107
    
    
    
    (6,534
    )Prepaid expenses and other current assets
    
    
    (890
    )
    
    
    10,922Accounts payable
    
    
    (3,764
    )
    
    
    (2,577
    )Accrued and other liabilities
    
    
    (7,892
    )
    
    
    282Income taxes receivable/payable
    
    
    (3,313
    )
    
    
    (556
    )Net cash used in operating activities
    
    
    (9,519
    )
    
    
    (6,548
    )INVESTING ACTIVITIES:Proceeds from disposal of assets
    
    
    
    
    
    
    648Proceeds from sale of assets held for sale
    
    
    8,813
    
    
    
    Cash reorganization items
    
    
    
    
    
    
    668Acquisitions, net of liabilities assumed and cash acquired
    
    
    (1
    )
    
    
    Purchase of property and equipment
    
    
    (11,383
    )
    
    
    (7,633
    )Collections on notes receivable
    
    
    501
    
    
    
    1Purchase of other assets
    
    
    (685
    )
    
    
    (503
    )Net cash used in investing activities
    
    
    (2,755
    )
    
    
    (6,819
    )FINANCING ACTIVITIES:Repayment of DIP financing
    
    
    
    
    
    
    (950
    )Repayment of term loan funding
    
    
    (1,325
    )
    
    
    Proceeds from revolver facility
    
    
    20,500
    
    
    
    Debt issuance costs
    
    
    (15
    )
    
    
    Increase in restricted cash
    
    
    
    
    
    
    (179
    )Prefunded letters of credit
    
    
    
    
    
    
    (7,539
    )Utility deposits
    
    
    
    
    
    
    (9
    )Cash reorganization items
    
    
    
    
    
    
    248Net cash provided by (used in) financing activities
    
    
    19,160
    
    
    
    (8,429
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    6,886
    
    
    
    (21,796
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    4,670
    
    
    
    68,671CASH AND CASH EQUIVALENTS, end of period
    
    $
    11,556
    
    
    $
    46,875SUPPLEMENTAL CASH FLOW INFORMATION:Cash paid during the period for:Interest (net of capitalized interest of $98 for both years)
    
    $
    30,830
    
    
    $
    10,887Income taxes
    
    $
    473
    
    
    $
    189
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 5




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BUFFETS HOLDINGS, INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Voluntary Chapter 11 Filing
    
    
    authorization to pay pre-petition and post-petition employee wages and salaries and
related benefits during the Bankruptcy,
    
    authorization to give administrative priority status to the post-petition claims of
certain critical vendors and subsequent approval to pay undisputed pre-petition claims of
those vendors for goods delivered, received or accepted by the Debtors within the 20 days
before the Petition Date in an amount not to exceed $35.0 million, so long as those vendors
continued to provide goods to the Company, and
    
    authorization for
the continued use of the Debtors cash management system.
  6




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Financial Reporting by Entities in Reorganization Under the Bankruptcy Code.
 2. Nature of Organization
 Company Background
   7




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Description of Business
 ® ® ® ® ® ® SM ® ®
 Interim Financial Information
    Principles of Consolidation
  Fiscal Year
  8




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3. Summary of Significant Accounting Policies
 Inventories
   Property and Equipment
   Long-Lived Assets
    9




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Goodwill and Other Intangible Assets
    Closed Restaurant Reserve
  Liabilities Subject to Compromise
  Reorganization Items
  Segment Reporting
  10




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Use of Estimates
  4. Recent Accounting Pronouncements
 Determination of
the Useful Life of Intangible Assets Goodwill
and Other Intangible Assets
 Business Combinations Non-controlling Interest in Consolidated Financial Statements, an amendment of ARB No. 51.
 The Fair Value Option for Financial Assets and
Liabilities.
 Fair Value Measurements. Effective date of FASB Statement No. 157,
 11




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5. Property and Equipment
  July 2,
    
    
    September 24,2008
    
    
    2008Land
    
    $
    9,299
    
    
    $
    9,299Buildings
    
    
    6,513
    
    
    
    5,586Equipment
    
    
    232,417
    
    
    
    225,151Leasehold improvements
    
    
    165,208
    
    
    
    155,558Assets to be sold
    
    
    14,833
    
    
    
    16,364Accumulated depreciation and amortization
    
    
    (229,658
    )
    
    
    (230,034
    )$
    198,612
    
    
    $
    181,924
  Accounting for Impairment or Disposal of Long-Lived Assets.
 6. Other Intangible Assets
  July 2, 2008
    
    
    September 24, 2008Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortized Intangible Assets:Leasehold interests
    
    $
    1,982
    
    
    $
    438
    
    
    $
    1,982
    
    
    $
    491Recipes
    
    
    2,602
    
    
    
    442
    
    
    
    2,602
    
    
    
    495$
    4,584
    
    
    $
    880
    
    
    $
    4,584
    
    
    $
    986Unamortized Intangible Assets:Trademarks
    
    $
    56,600
    
    
    
    
    
    
    $
    56,600Liquor licenses
    
    
    344
    
    
    
    
    
    
    
    344$
    56,944
    
    
    
    
    
    
    $
    56,944
    12




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7. Accrued Liabilities
  July 2,
    
    
    September 24,2008
    
    
    2008Accrued compensation
    
    $
    25,643
    
    
    $
    24,318Workers compensation claims reserve
    
    
    22,696
    
    
    
    22,390Accrued sales, use and property taxes
    
    
    16,132
    
    
    
    14,056Insurance claims reserve
    
    
    4,245
    
    
    
    5,084Accrued interest
    
    
    387
    
    
    
    5,659Accrued litigation reserve
    
    
    242
    
    
    
    267Unearned revenue (gift cards/certificates)
    
    
    4,811
    
    
    
    4,169Closed restaurant reserve, current portion
    
    
    874
    
    
    
    160Accrued other
    
    
    2,617
    
    
    
    5,292$
    77,647
    
    
    $
    81,395
 Closed Restaurant Reserve
 Accounting for Costs
Associated with Exit or Disposal Activities.
   July 2,
    
    
    September 24,2008
    
    
    2008BALANCE, beginning of period (current and non-current in aggregate)
    
    $
    1,654
    
    
    $
    1,688Additions:Lease obligations charged to earnings
    
    
    1,825
    
    
    
    509Lease obligations charged to goodwill
    
    
    48
    
    
    
    Employee termination benefits charged to earnings
    
    
    1,385
    
    
    
    187Employee termination benefits charged to goodwill
    
    
    218
    
    
    
    Reductions:Cash payments:Lease termination costs and obligations
    
    
    1,839
    
    
    
    96Employee severance benefits
    
    
    1,603
    
    
    
    187BALANCE, end of period (current and non-current in aggregate)
    
    $
    1,688
    
    
    $
    2,101
   July 2,
    
    September 24,2008
    
    2008Number of restaurants:Expected to close as of the beginning of the period
    
    
    5
    
    
    
    20Closed during the period
    
    
    (78
    )
    
    
    (11
    )Identified for closure during the period
    
    
    93
    
    
    
    2Expected to close as of the end of the period
    
    
    20
    
    
    
    11
 13




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July 2,
    
    September 24,2008
    
    2008Number of employees:Expected to be terminated as of the beginning of the period
    
    
    175
    
    
    
    700Terminated during the period
    
    
    (2,730
    )
    
    
    (385
    )Identified for termination during the period
    
    
    3,255
    
    
    
    70Expected to be terminated as of the end of the period
    
    
    700
    
    
    
    385
  2009
    
    $
    1602010
    
    
    1602011
    
    
    1602012
    
    
    1602013
    
    
    160Thereafter
    
    
    1,301$
    2,101
   8. Debt
  DEBT NOT SUBJECT TO COMPROMISESuper-Secured borrowings consist of the following:DIP Facility New Money Loan, interest at LIBOR, with a 4.0% floor and 5.0%
ceiling, plus 7.25%, due January 22, 2009 (interest at 11.25% as of September
24, 2008)
    
    $
    80,300DIP facility Rollover Loan, interest at LIBOR plus 7.25%, due January 22, 2009
(interest at 9.74% as of September 24, 2008)
    
    
    199,631Total debt not subject to compromise
    
    
    279,931DEBT SUBJECT TO COMPROMISESecured borrowings consist of the following:Revolving credit facility, interest at LIBOR plus 7.25%, due October 31, 2008
(interest at 9.74% as of September 24, 2008)
    
    
    26,752Letter of credit facility, interest at LIBOR plus 7.25%, due October 31, 2008
(interest at 9.74% as of September 24, 2008)
    
    
    5,936Term loan, interest at LIBOR plus 7.25%, due January 22, 2009
(interest at 9.74% as of September 24, 2008)
    
    
    353,945Unsecured borrowings consist of the following:Senior notes, interest at 12.50%, due November 1, 2014
    
    
    300,000Total debt subject to compromise
    
    
    686,633Total debt
    
    $
    966,564
 14




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Post-Petition Financing
 Debtor-In-Possession Credit Agreement
        15




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Pre-Petition Financing
 Credit Facility
      16




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12 1/2% Senior Notes
   17




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9. Liabilities Subject to Compromise
   1 2
  July 2,
    
    
    September 24,2008
    
    
    2008Accounts payable
    
    $
    32,928
    
    
    $
    32,414Accrued liabilities
    
    
    87,405
    
    
    
    98,673Debt
    
    
    686,633
    
    
    
    686,633Long-term taxes payable
    
    
    23,565
    
    
    
    21,245Other long-term liabilities
    
    
    153
    
    
    
    153Total Liabilities Subject to Compromise
    
    $
    830,684
    
    
    $
    839,118
  10. Reorganization Items
  Professional fees
    
    $
    8,114Lease rejection costs
    
    
    11,850Closed store costs
    
    
    1,461Other
    
    
    881Total reorganization items, net
    
    $
    22,306
 18




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11. Income Taxes
    12. Related-Party Transactions
    19




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13. Commitments and Contingencies
 Litigation
     20




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14. Subsequent Events
 Departure
of Directors and Certain Officers
  Reorganization Under Chapter 11 of the U.S. Bankruptcy Code
     21




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15. Condensed Consolidating Financial Statements
 1 2
  22




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CONDENSED CONSOLIDATING BALANCE SHEET
As of July 2, 2008
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited) (In Thousands)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    36
    
    
    $
    60,330
    
    
    $
    8,305
    
    
    $
    
    
    
    $
    68,671Receivables
    
    
    (6,585
    )
    
    
    943
    
    
    
    35,206
    
    
    
    (21,500
    )
    
    
    8,064Income tax receivables
    
    
    
    
    
    
    3,680
    
    
    
    
    
    
    
    
    
    
    
    3,680Inventories
    
    
    
    
    
    
    868
    
    
    
    29,532
    
    
    
    
    
    
    
    30,400Restricted cash
    
    
    
    
    
    
    2,377
    
    
    
    
    
    
    
    
    
    
    
    2,377Prepaid expenses and other current assets
    
    
    
    
    
    
    30,639
    
    
    
    14,670
    
    
    
    (5,232
    )
    
    
    40,077Assets held for sale
    
    
    
    
    
    
    
    
    
    
    2,132
    
    
    
    
    
    
    
    2,132Total current assets
    
    
    (6,549
    )
    
    
    98,837
    
    
    
    89,845
    
    
    
    (26,732
    )
    
    
    155,401PROPERTY AND EQUIPMENT, net
    
    
    
    
    
    
    5,980
    
    
    
    192,632
    
    
    
    
    
    
    
    198,612GOODWILL
    
    
    
    
    
    
    94,644
    
    
    
    41,483
    
    
    
    
    
    
    
    136,127OTHER INTANGIBLE ASSETS
    
    
    
    
    
    
    
    
    
    
    60,648
    
    
    
    
    
    
    
    60,648INVESTMENT IN SUBSIDIARIES
    
    
    (818,878
    )
    
    
    1,786
    
    
    
    
    
    
    
    817,092
    
    
    
    OTHER ASSETS, net
    
    
    38
    
    
    
    172,308
    
    
    
    28,126
    
    
    
    (171,493
    )
    
    
    28,979Total assets
    
    $
    (825,389
    )
    
    $
    373,555
    
    
    $
    412,734
    
    
    $
    618,867
    
    
    $
    579,767LIABILITIES AND SHAREHOLDERS
EQUITY (DEFICIT)LIABILITIES NOT SUBJECT TO COMPROMISECURRENT LIABILITIES:Accounts payable
    
    $
    
    
    
    $
    59,728
    
    
    $
    (813,726
    )
    
    $
    800,321
    
    
    $
    46,323Accrued liabilities
    
    
    
    
    
    
    39,967
    
    
    
    37,680
    
    
    
    
    
    
    
    77,647Income taxes payable
    
    
    
    
    
    
    255
    
    
    
    
    
    
    
    
    
    
    
    255Short-term debt
    
    
    
    
    
    
    81,250
    
    
    
    79,138
    
    
    
    (79,138
    )
    
    
    81,250Current maturities of long-term debt
    
    
    
    
    
    
    199,631
    
    
    
    194,441
    
    
    
    (194,441
    )
    
    
    199,631Total current liabilities
    
    
    
    
    
    
    380,831
    
    
    
    (502,467
    )
    
    
    526,742
    
    
    
    405,106LONG-TERM DEBT, net of current maturities
    
    
    
    
    
    
    
    
    
    
    149,800
    
    
    
    (149,800
    )
    
    
    DEFERRED LEASE OBLIGATIONS
    
    
    
    
    
    
    2,643
    
    
    
    42,328
    
    
    
    
    
    
    
    44,971DEFERRED INCOME TAXES
    
    
    
    
    
    
    22,793
    
    
    
    
    
    
    
    
    
    
    
    22,793LONG-TERM TAXES PAYABLE
    
    
    
    
    
    
    243
    
    
    
    
    
    
    
    
    
    
    
    243OTHER LONG-TERM LIABILITIES
    
    
    
    
    
    
    2,560
    
    
    
    4,185
    
    
    
    
    
    
    
    6,745Total liabilities not subject to compromise
    
    
    
    
    
    
    409,070
    
    
    
    (306,154
    )
    
    
    376,942
    
    
    
    479,858LIABILITIES SUBJECT TO COMPROMISE
    
    
    
    
    
    
    782,363
    
    
    
    717,102
    
    
    
    (668,781
    )
    
    
    830,684SHAREHOLDERS EQUITY (DEFICIT)Common stock
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31Additional paid in capital
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82Retained earnings (accumulated deficit)
    
    
    (825,502
    )
    
    
    (817,878
    )
    
    
    1,786
    
    
    
    910,706
    
    
    
    (730,888
    )Accumulated other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total shareholders equity (deficit)
    
    
    (825,389
    )
    
    
    (817,878
    )
    
    
    1,786
    
    
    
    910,706
    
    
    
    (730,775
    )Total liabilities and shareholders equity
(deficit)
    
    $
    (825,389
    )
    
    $
    373,555
    
    
    $
    412,734
    
    
    $
    618,867
    
    
    $
    579,767
 23




---



##### 



CONDENSED CONSOLIDATING BALANCE SHEET
As of September 24, 2008
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited) (In Thousands)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    35
    
    
    $
    38,695
    
    
    $
    8,145
    
    
    $
    
    
    
    $
    46,875Receivables
    
    
    (6,584
    )
    
    
    (32,286
    )
    
    
    30,026
    
    
    
    17,112
    
    
    
    8,268Income tax receivables
    
    
    
    
    
    
    3,557
    
    
    
    
    
    
    
    
    
    
    
    3,557Inventories
    
    
    
    
    
    
    872
    
    
    
    35,674
    
    
    
    
    
    
    
    36,546Restricted cash
    
    
    
    
    
    
    2,556
    
    
    
    
    
    
    
    
    
    
    
    2,556Prepaid expenses and other current assets
    
    
    
    
    
    
    31,839
    
    
    
    6,162
    
    
    
    (3,581
    )
    
    
    34,420Total current assets
    
    
    (6,549
    )
    
    
    45,233
    
    
    
    80,007
    
    
    
    13,531
    
    
    
    132,222PROPERTY AND EQUIPMENT, net
    
    
    
    
    
    
    5,901
    
    
    
    176,023
    
    
    
    
    
    
    
    181,924GOODWILL, net
    
    
    
    
    
    
    94,644
    
    
    
    40,130
    
    
    
    
    
    
    
    134,774OTHER INTANGIBLE ASSETS
    
    
    
    
    
    
    
    
    
    
    60,542
    
    
    
    
    
    
    
    60,542INVESTMENT IN SUBSIDIARIES
    
    
    (852,208
    )
    
    
    (5,364
    )
    
    
    
    
    
    
    857,572
    
    
    
    OTHER ASSETS, net
    
    
    38
    
    
    
    172,633
    
    
    
    27,099
    
    
    
    (170,472
    )
    
    
    29,298Total assets
    
    $
    (858,719
    )
    
    $
    313,047
    
    
    $
    383,801
    
    
    $
    700,631
    
    
    $
    538,760LIABILITIES AND SHAREHOLDERS
EQUITY (DEFICIT)LIABILITIES NOT SUBJECT TO COMPROMISECURRENT LIABILITIES:Accounts payable
    
    $
    
    
    
    $
    19,828
    
    
    $
    (834,377
    )
    
    $
    858,995
    
    
    $
    44,446Accrued liabilities
    
    
    
    
    
    
    46,251
    
    
    
    35,144
    
    
    
    
    
    
    
    81,395Income taxes payable
    
    
    
    
    
    
    257
    
    
    
    
    
    
    
    
    
    
    
    257Short-term debt
    
    
    
    
    
    
    80,300
    
    
    
    78,212
    
    
    
    (78,212
    )
    
    
    80,300Current maturities of long-term debt
    
    
    
    
    
    
    199,631
    
    
    
    194,441
    
    
    
    (194,441
    )
    
    
    199,631Total current liabilities
    
    
    
    
    
    
    346,267
    
    
    
    (526,580
    )
    
    
    586,342
    
    
    
    406,029LONG-TERM DEBT, net of current maturities
    
    
    
    
    
    
    
    
    
    
    149,800
    
    
    
    (149,800
    )
    
    
    DEFERRED LEASE OBLIGATIONS
    
    
    
    
    
    
    2,237
    
    
    
    43,712
    
    
    
    
    
    
    
    45,949DEFERRED INCOME TAXES
    
    
    
    
    
    
    22,793
    
    
    
    
    
    
    
    
    
    
    
    22,793LONG-TERM TAXES PAYABLE
    
    
    
    
    
    
    529
    
    
    
    
    
    
    
    
    
    
    
    529OTHER LONG-TERM LIABILITIES
    
    
    
    
    
    
    2,519
    
    
    
    5,244
    
    
    
    
    
    
    
    7,763Total liabilities not subject to compromise
    
    
    
    
    
    
    374,345
    
    
    
    (327,824
    )
    
    
    436,542
    
    
    
    483,063LIABILITIES SUBJECT TO COMPROMISE
    
    
    
    
    
    
    790,910
    
    
    
    716,989
    
    
    
    (668,781
    )
    
    
    839,118SHAREHOLDERS EQUITY (DEFICIT)Common stock
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31Additional paid in capital
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82Retained earnings (accumulated deficit)
    
    
    (858,832
    )
    
    
    (852,208
    )
    
    
    (5,364
    )
    
    
    932,870
    
    
    
    (783,534
    )Total shareholders equity (deficit)
    
    
    (858,719
    )
    
    
    (852,208
    )
    
    
    (5,364
    )
    
    
    932,870
    
    
    
    (783,421
    )Total liabilities and shareholders equity
(deficit)
    
    $
    (858,719
    )
    
    $
    313,047
    
    
    $
    383,801
    
    
    $
    700,631
    
    
    $
    538,760
 24




---



##### 



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Twelve Weeks Ended September 19, 2007
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited) (In Thousands)RESTAURANT SALES
    
    $
    
    
    
    $
    10,047
    
    
    $
    374,664
    
    
    $
    
    
    
    $
    384,711RESTAURANT COSTS:Food
    
    
    
    
    
    
    3,605
    
    
    
    129,295
    
    
    
    
    
    
    
    132,900Labor
    
    
    
    
    
    
    2,934
    
    
    
    111,418
    
    
    
    
    
    
    
    114,352Direct and occupancy
    
    
    
    
    
    
    1,505
    
    
    
    98,360
    
    
    
    
    
    
    
    99,865Total restaurant costs
    
    
    
    
    
    
    8,044
    
    
    
    339,073
    
    
    
    
    
    
    
    347,117ADVERTISING EXPENSES
    
    
    
    
    
    
    9,718
    
    
    
    149
    
    
    
    
    
    
    
    9,867GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    
    
    
    
    (15,491
    )
    
    
    32,019
    
    
    
    (152
    )
    
    
    16,376CLOSED RESTAURANT COSTS
    
    
    
    
    
    
    
    
    
    
    69
    
    
    
    
    
    
    
    69LOSS ON LITIGATION SETTLEMENT
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    54MERGER INTEGRATION COSTS
    
    
    
    
    
    
    789
    
    
    
    844
    
    
    
    
    
    
    
    1,633OPERATING INCOME
    
    
    
    
    
    
    6,933
    
    
    
    2,510
    
    
    
    152
    
    
    
    9,595OTHER INCOME
    
    
    
    
    
    
    (275
    )
    
    
    (147
    )
    
    
    152
    
    
    
    (270
    )INTEREST INCOME
    
    
    
    
    
    
    (163
    )
    
    
    4
    
    
    
    (2
    )
    
    
    (161
    )INTEREST EXPENSE
    
    
    
    
    
    
    20,746
    
    
    
    20,278
    
    
    
    (20,267
    )
    
    
    20,757LOSS RELATED TO REFINANCING
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5LOSS BEFORE INCOME TAXES AND EQUITY
IN NET LOSS OF SUBSIDIARIES
    
    
    
    
    
    
    (13,380
    )
    
    
    (17,625
    )
    
    
    20,269
    
    
    
    (10,736
    )INCOME TAX EXPENSE (BENEFIT)
    
    
    
    
    
    
    (5,035
    )
    
    
    75
    
    
    
    
    
    
    
    (4,960
    )Net loss before equity in net loss of subsidiaries
    
    
    
    
    
    
    (8,345
    )
    
    
    (17,700
    )
    
    
    20,269
    
    
    
    (5,776
    )Equity in net loss of subsidiaries
    
    
    (5,776
    )
    
    
    (17,700
    )
    
    
    
    
    
    
    23,476
    
    
    
    Net loss
    
    $
    (5,776
    )
    
    $
    (26,045
    )
    
    $
    (17,700
    )
    
    $
    43,745
    
    
    $
    (5,776
    )
 25




---



##### 



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Twelve Weeks Ended September 24, 2008
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited) (In Thousands)RESTAURANT SALES
    
    $
    
    
    
    $
    9,532
    
    
    $
    314,788
    
    
    $
    
    
    
    $
    324,320RESTAURANT COSTS:Food
    
    
    
    
    
    
    3,396
    
    
    
    110,171
    
    
    
    
    
    
    
    113,567Labor
    
    
    
    
    
    
    2,775
    
    
    
    92,998
    
    
    
    
    
    
    
    95,773Direct and occupancy
    
    
    
    
    
    
    1,548
    
    
    
    87,124
    
    
    
    
    
    
    
    88,672Total restaurant costs
    
    
    
    
    
    
    7,719
    
    
    
    290,293
    
    
    
    
    
    
    
    298,012ADVERTISING EXPENSES
    
    
    
    
    
    
    10,381
    
    
    
    3
    
    
    
    
    
    
    
    10,384GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    
    
    
    
    (8,652
    )
    
    
    21,556
    
    
    
    (152
    )
    
    
    12,752CLOSED RESTAURANT COSTS, net
    
    
    
    
    
    
    
    
    
    
    (433
    )
    
    
    
    
    
    
    (433
    )IMPAIRMENT OF ASSETS
    
    
    
    
    
    
    
    
    
    
    15,483
    
    
    
    
    
    
    
    15,483OPERATING INCOME (LOSS)
    
    
    
    
    
    
    84
    
    
    
    (12,114
    )
    
    
    (152
    )
    
    
    (11,878
    )OTHER (INCOME) EXPENSE
    
    
    
    
    
    
    41
    
    
    
    (44
    )
    
    
    152
    
    
    
    149INTEREST INCOME
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    13
    
    
    
    INTEREST EXPENSE
    
    
    
    
    
    
    18,805
    
    
    
    18,329
    
    
    
    (18,329
    )
    
    
    18,805REORGANIZATION ITEMS, net
    
    
    
    
    
    
    8,762
    
    
    
    13,544
    
    
    
    
    
    
    
    22,306LOSS BEFORE INCOME TAXES AND EQUITY IN NET LOSS OF
SUBSIDIARIES
    
    
    
    
    
    
    (27,511
    )
    
    
    (43,943
    )
    
    
    18,316
    
    
    
    (53,138
    )INCOME TAX BENEFIT
    
    
    
    
    
    
    (320
    )
    
    
    (172
    )
    
    
    
    
    
    
    (492
    )Net loss before equity in net loss of subsidiaries
    
    
    
    
    
    
    (27,191
    )
    
    
    (43,771
    )
    
    
    18,316
    
    
    
    (52,646
    )Equity in net loss of subsidiaries
    
    
    (52,646
    )
    
    
    (43,771
    )
    
    
    
    
    
    
    96,417
    
    
    
    Net loss
    
    $
    (52,646
    )
    
    $
    (70,962
    )
    
    $
    (43,771
    )
    
    $
    114,733
    
    
    $
    (52,646
    )
 26




---



##### 



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Twelve Weeks Ended September 19, 2007
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited) (In Thousands)OPERATING ACTIVITIES:Net loss
    
    $
    (5,776
    )
    
    $
    (26,045
    )
    
    $
    (17,700
    )
    
    $
    43,745
    
    
    $
    (5,776
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation and amortization
    
    
    
    
    
    
    645
    
    
    
    9,396
    
    
    
    
    
    
    
    10,041Amortization of debt issuance costs
    
    
    
    
    
    
    1,180
    
    
    
    1,149
    
    
    
    (1,149
    )
    
    
    1,180Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    45Deferred income taxes
    
    
    
    
    
    
    (1,493
    )
    
    
    
    
    
    
    
    
    
    
    (1,493
    )Equity in earnings of subsidiaries
    
    
    5,776
    
    
    
    17,700
    
    
    
    
    
    
    
    (23,476
    )
    
    
    Changes in assets and liabilities:Receivables
    
    
    
    
    
    
    17,288
    
    
    
    (15,052
    )
    
    
    
    
    
    
    2,236Inventories
    
    
    
    
    
    
    2
    
    
    
    105
    
    
    
    
    
    
    
    107Prepaid expenses and other current assets
    
    
    
    
    
    
    442
    
    
    
    (1,332
    )
    
    
    
    
    
    
    (890
    )Due from parent
    
    
    6,274
    
    
    
    (6,274
    )
    
    
    
    
    
    
    
    
    
    
    Accounts payable
    
    
    
    
    
    
    (4,825
    )
    
    
    1,061
    
    
    
    
    
    
    
    (3,764
    )Accrued and other liabilities
    
    
    
    
    
    
    (12,329
    )
    
    
    4,437
    
    
    
    
    
    
    
    (7,892
    )Income taxes receivable/payable
    
    
    (6,274
    )
    
    
    2,961
    
    
    
    
    
    
    
    
    
    
    
    (3,313
    )Net cash used in operating activities
    
    
    
    
    
    
    (10,748
    )
    
    
    (17,891
    )
    
    
    19,120
    
    
    
    (9,519
    )INVESTING ACTIVITIES:Proceeds from sale leaseback transaction
    
    
    
    
    
    
    
    
    
    
    8,813
    
    
    
    
    
    
    
    8,813Acquisitions, net of liabilities
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Purchase of property and equipment
    
    
    
    
    
    
    (497
    )
    
    
    (10,886
    )
    
    
    
    
    
    
    (11,383
    )Corporate cash advances (payments)
    
    
    
    
    
    
    
    
    
    
    459
    
    
    
    (459
    )
    
    
    Collection of notes receivable
    
    
    
    
    
    
    501
    
    
    
    
    
    
    
    
    
    
    
    501Purchase of other assets
    
    
    
    
    
    
    (126
    )
    
    
    (559
    )
    
    
    
    
    
    
    (685
    )Net cash used in investing activities
    
    
    
    
    
    
    (122
    )
    
    
    (2,174
    )
    
    
    (459
    )
    
    
    (2,755
    )FINANCING ACTIVITIES:Repayment of debt
    
    
    
    
    
    
    (1,325
    )
    
    
    (1,291
    )
    
    
    1,291
    
    
    
    (1,325
    )Proceeds from revolver facility
    
    
    
    
    
    
    20,500
    
    
    
    19,967
    
    
    
    (19,967
    )
    
    
    20,500Debt issuance costs
    
    
    
    
    
    
    (15
    )
    
    
    (15
    )
    
    
    15
    
    
    
    (15
    )Net cash provided by financing activities
    
    
    
    
    
    
    19,160
    
    
    
    18,661
    
    
    
    (18,661
    )
    
    
    19,160NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    
    
    
    
    8,290
    
    
    
    (1,404
    )
    
    
    
    
    
    
    6,886CASH AND CASH EQUIVALENTS, beginning of period
    
    
    37
    
    
    
    (1,852
    )
    
    
    6,485
    
    
    
    
    
    
    
    4,670CASH AND CASH EQUIVALENTS, end of period
    
    $
    37
    
    
    $
    6,438
    
    
    $
    5,081
    
    
    $
    
    
    
    $
    11,556
 27




---



##### 



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Twelve Weeks Ended September 24, 2008
 Subsidiary
    
    
    SubsidiaryParent
    
    
    Issuer
    
    
    Guarantors
    
    
    Eliminations
    
    
    Consolidated(Unaudited) (In Thousands)OPERATING ACTIVITIES:Net loss
    
    $
    (52,646
    )
    
    $
    (70,962
    )
    
    $
    (43,771
    )
    
    $
    114,733
    
    
    $
    (52,646
    )Adjustments to reconcile net loss to net
cash used in operating activities:Depreciation and amortization
    
    
    
    
    
    
    505
    
    
    
    8,956
    
    
    
    
    
    
    
    9,461Amortization of debt issuance costs
    
    
    
    
    
    
    2,727
    
    
    
    2,656
    
    
    
    (2,656
    )
    
    
    2,727Loss (gain) on disposal of assets
    
    
    
    
    
    
    40
    
    
    
    (136
    )
    
    
    
    
    
    
    (96
    )Reorganization items
    
    
    
    
    
    
    8,758
    
    
    
    13,548
    
    
    
    
    
    
    
    22,306Cash reorganization items
    
    
    
    
    
    
    (5,065
    )
    
    
    (51
    )
    
    
    
    
    
    
    (5,116
    )Impairment of assets
    
    
    
    
    
    
    
    
    
    
    15,483
    
    
    
    
    
    
    
    15,483Equity in earnings of subsidiaries
    
    
    52,646
    
    
    
    43,771
    
    
    
    
    
    
    
    (96,417
    )
    
    
    Changes in assets and liabilities:Receivables
    
    
    (1
    )
    
    
    (7,520
    )
    
    
    7,317
    
    
    
    
    
    
    
    (204
    )Inventories
    
    
    
    
    
    
    (4
    )
    
    
    (6,530
    )
    
    
    
    
    
    
    (6,534
    )Prepaid expenses and other current assets
    
    
    
    
    
    
    (3,434
    )
    
    
    14,356
    
    
    
    
    
    
    
    10,922Accounts payable
    
    
    
    
    
    
    (1,576
    )
    
    
    (1,001
    )
    
    
    
    
    
    
    (2,577
    )Accrued and other liabilities
    
    
    
    
    
    
    13,051
    
    
    
    (12,769
    )
    
    
    
    
    
    
    282Income taxes receivable/payable
    
    
    
    
    
    
    (556
    )
    
    
    
    
    
    
    
    
    
    
    (556
    )Net cash used in operating activities
    
    
    (1
    )
    
    
    (20,265
    )
    
    
    (1,942
    )
    
    
    15,660
    
    
    
    (6,548
    )INVESTING ACTIVITIES:Proceeds from disposal of assets
    
    
    
    
    
    
    
    
    
    
    668
    
    
    
    
    
    
    
    668Impairment of assets
    
    
    
    
    
    
    
    
    
    
    648
    
    
    
    
    
    
    
    648Purchase of property and equipment
    
    
    
    
    
    
    (490
    )
    
    
    (7,143
    )
    
    
    
    
    
    
    (7,633
    )Corporate cash advances (payments)
    
    
    
    
    
    
    
    
    
    
    16,585
    
    
    
    (16,585
    )
    
    
    Collections on notes receivable
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Purchase of other assets
    
    
    
    
    
    
    
    
    
    
    (503
    )
    
    
    
    
    
    
    (503
    )Net cash provided by (used in)
investing activities
    
    
    
    
    
    
    (498
    )
    
    
    10,255
    
    
    
    (16,585
    )
    
    
    (6,819
    )FINANCING ACTIVITIES:Repayments of DIP financing
    
    
    
    
    
    
    (950
    )
    
    
    (925
    )
    
    
    925
    
    
    
    (950
    )Increase in restricted cash
    
    
    
    
    
    
    (179
    )
    
    
    
    
    
    
    
    
    
    
    (179
    )Prefunded letters of credit
    
    
    
    
    
    
    
    
    
    
    (7,539
    )
    
    
    
    
    
    
    (7,539
    )Utility deposits
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Cash reorganization items
    
    
    
    
    
    
    248
    
    
    
    
    
    
    
    
    
    
    
    248Net cash used in financing activities
    
    
    
    
    
    
    (881
    )
    
    
    (8,473
    )
    
    
    925
    
    
    
    (8,429
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (1
    )
    
    
    (21,635
    )
    
    
    (160
    )
    
    
    
    
    
    
    (21,796
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    36
    
    
    
    60,330
    
    
    
    8,305
    
    
    
    
    
    
    
    68,671CASH AND CASH EQUIVALENTS, end of period
    
    $
    35
    
    
    $
    38,695
    
    
    $
    8,145
    
    
    $
    
    
    
    $
    46,875
 28




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 You should read the following discussion in conjunction with our unaudited 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 elsewhere in this filing. Historical
results will not be indicative of future results due to the Bankruptcy discussed in Note 1 
Voluntary Chapter 11 Filing.
 Overview
 ® ® ® ® ®
 Restaurants operating as of July 2, 2008
    
    
    569For the twelve week period ended September 24, 2008:Restaurants opened
    
    
    Restaurants closed
    
    
    (11
    )Restaurants operating as of September 24, 2008
    
    
    558
 ®
    29




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##### 




    
    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 cards when the gift cards are redeemed at our restaurants. Until redemption, the unearned
revenue from the sale of gift cards is included in Accrued Liabilities on our accompanying
unaudited condensed consolidated balance sheets.
 
    
    Restaurant costs reflect only direct restaurant operating costs, including food, labor and
direct and occupancy costs. Food costs include the cost of food and non-alcoholic beverages
consumed within the restaurants. Labor costs include compensation and benefits for both hourly
and restaurant management employees. Direct and occupancy costs consist primarily of supplies,
maintenance, utilities, rent, real estate taxes, insurance, depreciation and amortization.
 
    
    Advertising expenses reflect all advertising and promotional costs, including directly
related general and administrative 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 the 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.
 
    
    Loss on litigation settlements represents the costs associated with the settlement of a class
action lawsuit against our wholly-owned subsidiaries, HomeTown Buffet, Inc. and OCB Restaurant
Company, LLC.
 
    
    Merger integration costs represent professional fees, performance bonuses and employee travel
and expenses related to integration activities associated with the Ryans acquisition.
 
    
    Other income primarily reflects franchise fees earned. Our franchise income includes royalty
fees and initial franchise fees received from our franchisees. We recognize royalty fees in
Other Income on our accompanying unaudited condensed consolidated statements of operations
based on the sales reported at the franchise restaurants.
 
    
    Interest income reflects interest earned on our short-term investments, exclusive of any
excess earnings associated with excess cash from our $85.0 million New Money Loan.
 
    
    Interest expense reflects interest costs associated with our debt and amortization of debt
issuance cost.
 
    
    Loss related to refinancing for fiscal year 2008 represents transaction costs associated with
amendments to Buffets current Pre-Petition Credit Facility.
 
    
    Reorganization items are expense or income items that were incurred or realized due to the
Bankruptcy. These items include professional fees and similar types of expenses incurred
directly related to the Bankruptcy, loss accruals or gains or losses resulting from activities
of the reorganization process, costs and claims, which stem from the rejection of leases and
other executory contracts, and interest earned on excess cash accumulated during the
Bankruptcy.
 
    
    Income tax benefit reflects the current and deferred tax benefit determined in accordance
with the provisions of SFAS 109, Accounting for Income Taxes.
 30




---



##### 



Recent Developments
 Departure
of Directors and Certain Officers
  Reorganization Under Chapter 11 of the U.S. Bankruptcy Code
     Forbearance Agreement
  Lease Modifications
  31




---



##### 



Vendor Bankruptcy
  Going Concern
  Critical Accounting Policies
   Long-Lived Assets
   32




---



##### 



Goodwill and Other Intangible Assets
    Insurance Reserves
  Closed Restaurant Reserve
  33




---



##### 



Liabilities Subject to Compromise
  Reorganization Items
  Income Taxes
  Accounting for Income Taxes. Accounting for Contingencies,
 Gift Cards and Gift Certificates
  34




---



##### 



Lease Accounting
  Accounting for Leases.
 Merger Integration Costs
  35




---



##### 



Results of Operations
 The following discussion reflects our historical results for the twelve-week periods ended
September 19, 2007 and September 24, 2008. Our future results may not be consistent with our
historical results due to the Bankruptcy. The following discussion should be read in conjunction
with our unaudited condensed consolidated financial statements and related notes included elsewhere
in this report.
 Twelve Weeks EndedSeptember 19,
    
    September 24,2007
    
    2008(Dollars in Thousands)Significant items that impacted results of operations:Closed restaurant costs(1)
    
    $
    69
    
    
    $
    (433
    )Impairment of assets(2)
    
    
    
    
    
    
    15,483Merger and integration costs(3)
    
    
    1,633
    
    
    
    
 
 (1)
    
    Closed restaurant costs were $0.1 million for the twelve-weeks ended September 19, 2007 as
compared to a gain of $0.4 million for the twelve-weeks ended September 24, 2008. During the
first quarter of fiscal year 2008, we closed one underperforming restaurant in the normal
business course. During the first quarter of fiscal year 2009, we closed eleven restaurants,
of which ten were part of the Chapter 11 reorganization process. As a result, costs associated
with these ten closures were recognized as Reorganization Items, net in the accompanying
unaudited condensed consolidated statement of operations. The $0.4 million gain related to
closed restaurants shown in the table above relates to proceeds received from the sale of our
leasehold interest in one closed restaurant, offset by costs related to the closure of that
store and additional costs incurred on previously closed restaurants. See Note 10 
Reorganization Items to our accompanying unaudited condensed consolidated financial
statements for further discussion of costs related to the ten restaurant closures.(2)
    
    We test property and equipment, as well as goodwill and other intangibles, annually or
whenever events or circumstances indicate that the carrying amount of a restaurants assets
may not be recoverable. Assets are grouped and evaluated for impairment at the lowest level
for which there are identifiable cash flows, namely as individual restaurants. During the
first quarter of fiscal year 2009, we recognized losses of approximately $15.5 million related
to impairments of the carrying value of our long-lived assets for 49 restaurants, as the
carrying value of these long-lived assets exceeded their fair value. No impairment was
recorded during the first quarter of fiscal year 2008.(3)
    
    Merger integration costs represent professional fees and employee travel and expenses related
to integration activities associated with the Ryans acquisition. 36




---



##### 



Twelve Weeks Ended September 24, 2008 Compared To Twelve Weeks Ended September 19, 2007:
  Twelve Weeks EndedSeptember 19, 2007
    
    
    September 24, 2008(Dollars in Thousands)Restaurant sales
    
    $
    384,711
    
    
    
    100.0
    %
    
    $
    324,320
    
    
    
    100.0
    %Restaurant costs:Food
    
    
    132,900
    
    
    
    34.5
    
    
    
    113,567
    
    
    
    35.0Labor
    
    
    114,352
    
    
    
    29.7
    
    
    
    95,773
    
    
    
    29.5Direct and occupancy
    
    
    99,865
    
    
    
    26.0
    
    
    
    88,672
    
    
    
    27.3Total restaurant costs
    
    
    347,117
    
    
    
    90.2
    
    
    
    298,012
    
    
    
    91.9Advertising expenses
    
    
    9,867
    
    
    
    2.6
    
    
    
    10,384
    
    
    
    3.2General and administrative expenses
    
    
    16,376
    
    
    
    4.3
    
    
    
    12,752
    
    
    
    3.9Closed restaurant costs
    
    
    69
    
    
    
    0.0
    
    
    
    (433
    )
    
    
    (0.1
    )Impairment of assets
    
    
    
    
    
    
    0.0
    
    
    
    15,483
    
    
    
    4.8Loss on litigation settlements
    
    
    54
    
    
    
    0.0
    
    
    
    
    
    
    
    0.0Merger integration costs
    
    
    1,633
    
    
    
    0.4
    
    
    
    
    
    
    
    0.0Operating income (loss)
    
    
    9,595
    
    
    
    2.5
    
    
    
    (11,878
    )
    
    
    (3.7
    )Other (income) expense
    
    
    (270
    )
    
    
    (0.1
    )
    
    
    149
    
    
    
    (0.0
    )Interest income
    
    
    (161
    )
    
    
    (0.0
    )
    
    
    
    
    
    
    (0.0
    )Interest expense
    
    
    20,757
    
    
    
    5.4
    
    
    
    18,805
    
    
    
    5.8Reorganization costs
    
    
    
    
    
    
    0.0
    
    
    
    22,306
    
    
    
    6.9Loss related to refinancing
    
    
    5
    
    
    
    0.0
    
    
    
    
    
    
    
    0.0Loss before income taxes
    
    
    (10,736
    )
    
    
    (2.8
    )
    
    
    (53,138
    )
    
    
    (16.4
    )Income tax benefit
    
    
    (4,960
    )
    
    
    (1.3
    )
    
    
    (492
    )
    
    
    (0.2
    )Net loss
    
    $
    (5,776
    )
    
    
    (1.5
    )
    
    $
    (52,646
    )
    
    
    (16.2
    )
 Certain Percentage Amounts Do Not Sum To Total Due To Rounding.
 Restaurant Sales.
  Food costs.
 Labor costs.
 37




---



##### 



Direct and occupancy costs.
 Advertising Expenses.
 General and Administrative Expenses.
 Interest Expense.
 Reorganization items, net.
 Income Taxes.
  Liquidity and Capital Resources
   1 2 1 2
 38




---



##### 



Operating Activities.
 Investing Activities.
 Financing Activities.
 Income Tax Refunds.
 Future Capital Expenditures.
 
    
    Spend approximately $15.0 million to $17.0 million on restaurant remodeling and improvement costs that will be capitalized.
These capital improvements will depend on the specific needs of the restaurants and cash availability. 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.
 39




---



##### 




    
    Spend approximately $12.0 million to $12.0 million on capital improvements for restaurants throughout our system. These
capital improvements will depend on the specific needs of the restaurants and the availability of liquidity through our
existing credit lines.
 Vendor Bankruptcy.
  Post-Petition Financing
 Debtor-in-Possession Credit Agreement
     40




---



##### 



Pre-Petition Financing
 Credit Facility
   41




---



##### 



12 1/2% Senior Notes
    42




---



##### 



Contractual Obligations
  Payments Due by Fiscal Year2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    Thereafter
    
    
    Total(in thousands)Long-term debt (1)
    
    $
    653,945
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    653,945Interest (2)
    
    
    94,750
    
    
    
    37,500
    
    
    
    37,500
    
    
    
    56,250
    
    
    
    37,500
    
    
    
    12,500
    
    
    
    276,000Operating leases (3)
    
    
    69,584
    
    
    
    88,228
    
    
    
    82,953
    
    
    
    74,517
    
    
    
    68,889
    
    
    
    656,168
    
    
    
    1,040,339Advisory fees (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase obligations (5)
    
    
    29,459
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,459FIN 48 reserves (6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash
obligations
    
    $
    847,738
    
    
    $
    125,728
    
    
    $
    120,453
    
    
    $
    130,767
    
    
    $
    106,389
    
    
    $
    668,668
    
    
    $
    1,998,743
 
 (1)
    
    Long-term debt payments for fiscal year 2009 shows the entire principal amount outstanding on
the term loan portion of the Buffets Pre-Petition Credit Facility and the aggregate balance
of Buffets 12 1/2% Senior Notes as currently due as a result of the Bankruptcy.(2)
    
    Amounts represent contractual interest payments on Buffets 12 1/2% Senior Notes. It is
expected that this unsecured liability will be settled under the terms of the Bankruptcy
Court. As a result, we ceased accruing interest on these notes as of the Petition Date. See
Note 9  Liabilities Subject to Compromise to our accompanying consolidated financial
statements for details on actual interest amounts recorded. Also included is $1.0 million in
interest expense related to the pending settlement of the interest rate swap. See Note 8 
Debt to our accompanying unaudited condensed consolidated financial statements for details.
Interest payments on Buffets variable-rate Pre-Petition Credit Facility and DIP Credit
Agreement are excluded. The borrowings under these facilities bear interest at LIBOR plus a
margin of 7.25% and mature on January 22, 2009. Of these borrowings, only the $85.0 million
New Money Loan is subject to a 4.0% floor and a 5.0% ceiling. The interest rate at LIBOR plus
7.25% was 9.74% as of September 24, 2008. See Note 8 Debt to our accompanying consolidated
financial statements for details of our debt obligations.(3)
    
    Operating leases is comprised of minimum rents and contingent rents. Operating leases have
not been reduced by minimum sublease rentals of approximately $0.1 million. During fiscal year
2008, we renegotiated several of our existing real property leases to reduce minimum rent
payments and/or lease term. Annual savings from these lease modifications are expected to be
approximately $2.5 million to $3.0 million and are reflected in the table above. During the
first quarter of fiscal year 2009, the Bankruptcy Court approved several motions requesting
the renegotiation of certain of our existing real property leases, reducing both minimum rent
payments and lease term. Annual savings from these lease modifications are expected to be
approximately $3.0 million to $3.5 million and are also included in the table above.
Throughout the Bankruptcy, our obligations under our lease arrangements may continue to change
significantly.(4)
    
    As a result of the Bankruptcy, we were required to refrain from making payments under the
Caxton-Iseman Party agreement. In January 2008, as a result of the resignation of David S.
Lobel from our Board of Directors, the management agreement with Sentinel Capital Partners,
L.L.C. was terminated. We do not anticipate making any additional payments under these
agreements and no amounts related to these agreements have been included in the table above.
See Note 12  Related Party Transactions for further details on these agreements. 43




---



##### 



(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 us. Accordingly, certain procurement arrangements that indicate that
we are to purchase future items are included, but only to the extent they include a recourse
provision for our failure to purchase. As a result of the Bankruptcy, our obligations under
our purchase agreements may significantly change in the future.(6)
    
    The Company has determined that all of its liabilities for uncertain tax positions under FIN
48 are long-term in nature. The Company is not able to reasonably estimate the timing of the
long-term payments or the amount by which the liability will increase or decrease over time.
Therefore, the liability for uncertain tax positions of $21.8 million is excluded from the
table above. See Note 11  Income Taxes to our accompanying consolidated financial
statements for further details. Seasonality and Quarterly Fluctuations
  Forward-Looking Statements and Risk Factors
  Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risks. 1 2
 Food Commodity Risks.
 44




---



##### 



Item 4. Controls and Procedures
 Disclosure Controls and Procedures
         Managements Report on Internal Control Over Financial Reporting
  Internal ControlIntegrated Framework
 45




---



##### 



Changes in Internal Control over Financial Reporting
  PART II. OTHER INFORMATION
 Item 1. Legal Proceedings
     46




---



##### 



Item 1A. Risk Factors
 As discussed above, on January 22, 2008, the Company filed a voluntary petition under Chapter
11 of the Bankruptcy Code. The following risk factors have been included as a result of the
Bankruptcy and should be read in conjunction with the Risk Factors set forth in the Companys Form
10-K for fiscal year 2008.
 The Company filed for reorganization under Chapter 11 of the Bankruptcy Code on January 22, 2008
and is subject to the risks and uncertainties associated with the Bankruptcy.
    47




---



##### 



Not obtaining timely approval and confirmation of our Plan of Reorganization could adversely affect
our operating results.
  The DIP Credit Agreement includes financial and other covenants that impose substantial
restrictions on the Debtors financial and business operations.
   We are dependent on timely delivery of fresh ingredients by our suppliers. We are also
substantially dependent on a limited number of food distributors.
  48




---



##### 



We face uncertainty regarding the adequacy of our capital resources and liquidity.
   Item 3. Defaults Upon Senior Securities
 1 2 1 2
 Item 5. Other Information
  Item 6. Exhibits
  49




---



##### 



SIGNATURES
  BUFFETS HOLDINGS, INC.Date: November 6, 2008
    By:
    /s/ R. Michael Andrews, Jr.R. Michael Andrews, Jr.Chief Executive Officer
(Principal Executive Officer)Date: November 6, 2008
    By:
    /s/ A. Keith WallA. Keith WallChief Financial Officer
(Principal Financial and Accounting Officer) 50




---



##### 



INDEX TO EXHIBITS
 ExhibitNumber
    
    Description10.1
    
    DIP Forbearance Agreement, dated September 26, 2008 (incorporated
by reference to Exhibit 10.1 to Buffets Holdings, Inc.s Current
Report on Form 8-K (SEC file No. 333-116897)).10.2
    
    DIP Limited Waiver, dated October 14, 2008 (incorporated by
reference to Exhibit 10.2 to Buffets Holdings, Inc.s Current
Report on Form 8-K (SEC file No. 333-116897)).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.
 51