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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended July 2, 2003

Commission file number: 333-98301


BUFFETS, INC.
(Exact name of registrant as specified in its charter)



Minnesota 41-1462294
- ------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)


1460 Buffet Way
Eagan, Minnesota 55121
- ------------------------------- -------------------------
(Address of principal (Zip Code)
executive offices)

Registrant's telephone number, including area code: (651) 994-8608
--------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]

Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]

The number of shares of Buffets, Inc.'s common stock outstanding as of September
30, 2003 was 100.




TABLE OF CONTENTS

ITEM PAGE
---- ----
PART I
1. Business 1
2. Properties 12
3. Legal Proceedings 15
4. Submission of Matters to a Vote of Security Holders 15
PART II
5. Market for the Registrant's Common Stock and Related
Stockholder Matters 15
6. Selected Financial Data 16
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
7A. Quantitative and Qualitative Disclosures About
Market Risks 30
8. Financial Statements and Supplementary Data 32
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 67
9A. Controls and Procedures 67
PART III
10. Directors and Executive Officers of the Registrant 68
11. Executive Compensation 70
12. Security Ownership of Certain Beneficial Owners
and Management 71
13. Certain Relationships and Related Transactions 72
PART IV
15. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 74



PART I

ITEM 1. BUSINESS

OUR COMPANY

We are one of the largest restaurant operators in the United States and a
leader in the buffet/ cafeteria segment of the restaurant industry, as measured
in both sales and number of restaurants. Our restaurants are principally
operated under the names Old Country Buffet and HomeTown Buffet. As of July 2,
2003, we had 372 company-owned restaurants and 23 franchised locations in 38
states.

We maintain a consistent level of food quality and service in all of our
restaurants through uniform operational standards initiated at the corporate
level. Freshness is maintained by preparing food in small batches of six to
eight servings at a time, with preparations scheduled by monitoring current
customer traffic and applying our food production forecasting model. Our buffet
restaurants utilize uniform menus, recipes and ingredient specifications, except
for minor differences relating to regional preferences. We offer approximately
100 menu items at each meal, including entrees, soups, salads, fresh vegetables,
non-alcoholic beverages and desserts. Typical entrees include chicken, carved
roast beef, ham, shrimp, fish and casseroles.

Our buffet restaurants use an all-inclusive pricing strategy designed to
provide dining value to our customers. As of July 2, 2003, the meal price at our
buffet restaurants for dinner ranged from $8.19 to $9.59 and for lunch from
$6.19 to $6.99, with discounts offered to senior citizens and children. The
average guest check in our buffet restaurants for fiscal 2003 was $6.82. In
order to further enhance our guests' dining experience, we have focused on
providing a level of customer service designed to supplement the self-service
buffet format, including such features as limited table-side service and our
scatter bar format.

Our buffet restaurants average approximately 9,900 square feet in size and
can generally seat between 225 and 400 people. On average, our buffet
restaurants served approximately 7,050 customers per week in fiscal 2003. While
we attract a broad variety of customers, including singles, families and senior
citizens, our customer surveys indicate that approximately two-thirds of our
guests are married and over half are between the ages of 25 and 54 years old
(the largest segment of the population within the United States).

We have a national footprint of restaurant locations, which are
strategically concentrated in particular regions to maximize penetration within
those markets and achieve operating and advertising synergies. For example, our
television advertising program in 38 designated market areas provided media
coverage for 63% of our buffet restaurants in fiscal 2003. In addition, our
restaurants are located in high customer traffic venues and include both
freestanding units and units located in strip shopping centers and malls. As of
July 2, 2003, 68% of our restaurants were located in strip shopping centers or
malls and 32% were freestanding units.

OUR BACKGROUND

We were founded in 1983 to develop buffet-style restaurants under the name
Old Country Buffet. In October 1985, Buffets successfully completed an initial
public offering with seven restaurants, and by 1988 had 47 company-owned units
and nine franchised units. In September 1996, Buffets merged with Hometown
Buffets, Inc., a similar publicly-held scatter-bar, buffet-style restaurant
company established and developed by one of our co-founders. The merger provided
us with additional management expertise and depth, and increased purchasing
power and marketing efficiencies. The merger also added 80 company-owned
restaurants in 11 states and 19 franchised restaurants in

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eight states, bringing the total number of restaurants to 346 company-owned
restaurants and 24 franchised restaurants in 36 states at December 31, 1996.

On October 2, 2000, Buffets Holdings, Inc. (Buffets Holdings), a company
organized by Caxton-Iseman Capital, Inc., acquired Buffets in a buyout from
public shareholders. Caxton-Iseman Investments L.P. and other investors,
including members of management, made an equity investment in Buffets Holdings
and became the beneficial owners of 100% of the common stock of Buffets.

RESTAURANT OPERATIONS AND CONTROLS

In order to maintain a consistently high level of food quality and service
in all of our restaurants, we have established uniform operational standards.
These standards are implemented and enforced by the managers of each restaurant.
We require all restaurants to be operated in accordance with rigorous standards
and specifications relating to the quality of ingredients, preparation of food,
maintenance of premises and employee conduct.

Each buffet restaurant typically employs a Senior General Manager or General
Manager, Kitchen Manager, Service Manager and one or two assistant managers.
Each of our restaurant General Managers has primary responsibility for
day-to-day operations in one of our restaurants, including customer relations,
food service, cost controls, restaurant maintenance, personnel relations,
implementation of our policies and the restaurant's profitability. A portion of
each general manager's and other restaurant managers' compensation depends
directly on the restaurant's profitability. Bonuses are paid to buffet
restaurant managers each period based on a formula percentage of controllable
restaurant profit. Since 1997, we have had an annual Founders Club program,
rewarding managers with, for example, trips or cars when they exceed specified
operating benchmarks. Additionally, the "PRIDE" bonus program, begun in 1997,
provides financial incentives to eligible General Managers making a three-year
service commitment in a single restaurant. We believe that our compensation
policies have been important in attracting, motivating and retaining qualified
operating personnel.

Each buffet restaurant general manager reports to an Area Manager or a
District Representative, each of whom in turn reports to a Regional Vice
President. Each Regional Vice President reports to one of two Vice Presidents of
Operations, who in turn report to our Chief Executive Officer. Our Tahoe Joe's
Famous Steakhouse restaurants, and some test efforts, are supervised by Division
Heads reporting directly to our Chief Executive Officer.

We maintain centralized financial and accounting controls for all of our
restaurants. On a daily basis, restaurant managers forward customer counts,
sales, labor costs and deposit information to our headquarters. On a weekly
basis, restaurant managers forward a summarized profit and loss statement, sales
report, supplier invoices and payroll data.

MANAGEMENT TRAINING

We have a series of training programs that are designed to provide managers
with the appropriate knowledge and skills necessary to be successful in their
current positions. All new restaurant managers hired from outside our
organization and hourly employees considered for promotion to restaurant
management are required to complete nine days of classroom training at our
corporate headquarters in Eagan, Minnesota. After their initial instruction, new
management candidates continue their training for four weeks in one of our
certified training restaurants. The information covered in manager training
includes basic management skills, food production, labor management, operating
programs and human resource management.

2



Advancement is tied to both current operational performance and training.
Individuals designated for promotion to the position of General Manager attend a
specialized eight-day training program conducted at our corporate headquarters.
This program focuses on advanced management skills with emphasis on team
building and performance accountability.

In addition to these programs, we conduct a variety of field training
efforts for store management covering topics such as new product procedures,
food safety and management development.

RESEARCH AND DEVELOPMENT, MENU SELECTION AND PURCHASING

The processes of developing new food offerings and establishing standard
recipes and product specifications are handled on an interdisciplinary team
basis at our headquarters. Specialists drawn from the Research and Development,
Marketing, Operations and Purchasing Departments lead this effort. Before new
items are introduced or existing products are modified, a program of testing
within limited markets is undertaken to assess customer acceptance and
operational feasibility. Food quality is maintained through centralized supplier
coordination suppliers and frequent restaurant visits by Area Directors,
District Representatives and other management personnel.

New product activity includes an ongoing roll-out of new items to keep the
guest experience fresh. Additionally, we have periodic theme promotions, wherein
a specific cuisine, such as Italian, Asian, Seafood or Mexican, is highlighted
on a given night. Each spring and fall, a seasonal menu is introduced to provide
variety and more seasonally appropriate food. Furthermore, although most of the
menu is similar for all buffet restaurants, individual restaurants have the
option to customize a portion of the menu to satisfy local preferences.

Headquarters personnel negotiate major product purchases directly with
manufacturers on behalf of all of our restaurants for food, beverage and supply
purchasing, including quality specifications, delivery schedules and pricing
and payment terms. Each restaurant manager places orders for inventories and
supplies with, and receives shipments directly from, distributors and local
suppliers approved by us. Restaurant managers approve all invoices before
forwarding them to our headquarters for payment. To date, we have not
experienced any material difficulties in obtaining food and beverage
inventories or restaurant supplies.

FRANCHISING AND JOINT VENTURES

We currently franchise 23 buffet restaurants under the Old Country Buffet
and HomeTown Buffet names. Franchisees must operate their restaurants in
compliance with our operating and recipe manuals. Franchisees are not required
to purchase food products or other supplies through us or our suppliers. Each
franchised restaurant is required at all times to have a designated Manager and
Assistant Manager who have completed the required manager training program.

During 1998, we entered into a joint venture, Tahoe Joe's Inc., which owned
and operated our Tahoe Joe's Famous Steakhouses. During August 2003, subsequent
to our fiscal 2003 year-end, we exercised our call option to acquire the
remaining 20% interest in Tahoe Joe's Inc. from the minority holder for
$370,000. At present, we are not actively seeking to enter into additional joint
ventures. We may, however, continue to utilize joint ventures from time to time
to test new restaurant concepts.

ADVERTISING AND PROMOTION

We market our buffet restaurants through a two-tiered marketing approach
including mass media advertising and

3



community based marketing. Mass media advertising, predominantly television, is
used when we can receive a profitable return on expenditures. Our mass media mix
includes television advertisements and the limited use of print advertisements,
radio advertisements and tour bus marketing. Approximately 63% of our buffet
restaurants are in markets supported by television advertisements.

Community based marketing is the responsibility of each individual store.
Our local marketing efforts are designed to build relationships with the
community. Most restaurants employ a dedicated community marketing
representative who participates in an array of local events. Our community
representatives participated in more than 16,000 local events nationwide in
fiscal 2003, reaching over six million people.

COMPETITION

The food service industry is highly competitive. Menu, price, service,
convenience, location and ambiance are all important competitive factors. The
relative importance of many such factors varies among different segments of the
consuming public. By providing a wide variety of food and beverages at
reasonable prices in an attractive and informal environment, we seek to appeal
to a broad range of value-oriented consumers. We believe that our primary
competitors in this industry segment are other buffet and cafeteria restaurants,
as well as traditional family and casual dining restaurants with full menus and
table service. Secondary competition arises from many other sources, including
home meal replacement and fast food. We believe that our success to date has
been due to our particular approach combining pleasant ambiance, high food
quality, wide menu breadth, cleanliness, reasonable prices, and satisfactory
levels of service and convenience.

REGULATION

Each of our restaurants is subject to licensing and regulation by the
health, sanitation, safety, building and fire agencies of the respective states
and municipalities in which they are located. A failure to comply with one or
more regulations could result in the imposition of sanctions, including the
closing of facilities for an indeterminate period of time or third-party
litigation, any of which could have a material adverse effect on us and our
results of operations. Additionally, our restaurants must be constructed to meet
federal, state and local building and zoning requirements.

We are also subject to laws and regulations governing our relationships with
employees, including minimum wage requirements, overtime, reporting of tip
income, work and safety conditions and regulations governing employment. Because
a significant number of our employees are paid at rates tied to the federal
minimum wage, an increase in such minimum wage would increase our labor costs.
An increase in the federal minimum wage , state-specific minimum wages, or
employee benefits costs could have a material adverse effect on us and our
results of operations.

Additionally, our operations are regulated pursuant to state and local
sanitation and public health laws. Operating restaurants utilize electricity and
natural gas, which are subject to various federal and state regulations
concerning the allocation and pricing of energy. Our operating costs have been
and will continue to be affected by increases in the cost of energy. These
energy costs have undergone large cyclical swings in recent years and have had a
disproportionate impact in our most favorable markets.

Each of our Tahoe Joe's Famous Steakhouse restaurants is further subject to
licensing and regulation by a number of governmental authorities, including
alcoholic beverage control agencies, in the state, county and municipality in
which the restaurant is located. Difficulties or failures in obtaining the
required licenses or approvals could delay

4



or prevent the opening of a new restaurant in a particular area. Alcoholic
beverage control regulations require restaurants to apply to a state authority
and, in some locations, to county or municipal authorities for a license or
permit to sell alcoholic beverages on the premises and to provide service for
extended hours and on Sundays. Typically, licenses or permits must be renewed
annually and may be revoked or suspended for cause at any time. Alcoholic
beverage control regulations relate to numerous aspects of a restaurant's
operations, including the minimum age of patrons and employees, the hours of
operation, advertising, and the wholesale purchasing, inventory control and
handling, storage and dispensing of alcoholic beverages.

In California, we may be subject to "dram-shop" statutes, which generally
provide a person injured by an intoxicated patron the right to recover damages
from an establishment that wrongfully served alcoholic beverages to the
intoxicated person. We carry liquor liability coverage as part of our existing
comprehensive general liability insurance.

ENVIRONMENTAL MATTERS

Our operations are also subject to federal, state and local laws and
regulations relating to environmental protection, including regulation of
discharges into the air and water. Under various federal, state and local laws,
an owner or operator of real estate may be liable for the costs of removal or
remediation of hazardous or toxic substances on or in such property. Such
liability may be imposed without regard to whether the owner or operator knew
of, or was responsible for, the presence of such hazardous or toxic substances.
Although we are not aware of any material environmental conditions on our
properties that require remediation under federal, state or local law, we have
not conducted a comprehensive environmental review of our properties or
operations. No assurance can be given that we have identified all of the
potential environmental liabilities at our properties or that such liabilities
would not have a material adverse effect on our financial condition.

EMPLOYEES

As of July 2, 2003, we had approximately 23,000 employees. Except for
approximately 350 corporate employees who primarily worked at our corporate
headquarters, our employees worked at our 372 company-owned restaurants.
Generally, each buffet restaurant operates with three to five salaried managers
and assistant managers and approximately 56 hourly employees. Our employees are
not unionized. We have never experienced any significant work stoppages and
believe that our employee relations are good.

Our average wage costs have been reasonably stable for the past two fiscal
years largely due to macro-economic conditions. Historically, in times of
increasing average wage costs, we have been able to offset wage cost increases
through increased efficiencies in operations and, as necessary, through retail
price increases. There can be no assurance that we will continue to be able to
offset wage cost increases in the future.

RISK FACTORS/FORWARD-LOOKING STATEMENTS

This report, together with the Company's other ongoing securities filings,
press releases, conference calls and discussions with securities analysts and
other communications contains certain forward-looking statements that involve
risks and uncertainties. These statements relate to the Company's future plans,
objectives, expectations and intentions. These statements may be identified by
the Company using words such as "expects," "anticipates," "intends," "plans" and
similar expressions. The Company's actual results could differ materially from
those disclosed in these statements, due to various factors, including the
following risk factors. The Company assumes no obligation to publicly release
the results of any revision or updates to forward-looking statements or these
risk

5



factors to reflect future events or unanticipated occurrences.

OUR CORE BUFFETS RESTAURANTS ARE A MATURING RESTAURANT CONCEPT AND ACCORDINGLY
EXPOSE US TO VARIOUS VULNERABILITIES, INCLUDING CONSUMER PREFERENCES.

We have been operating our core buffet restaurant concept for 20 years, and
our restaurant locations have a median age of approximately nine years. As a
result, we are exposed to vulnerabilities associated with a mature concept.
These include vulnerability to innovations by competitors, out-positioning in
markets where the demographics have shifted since the original openings, changes
in consumer preferences, sales declines in the event we ever suspend or reduce
our marketing and higher capital requirements both for maintenance and repair as
well as refurbishments. Additionally, factors such as traffic patterns and the
type, number and location of competing restaurants may adversely affect the
performance of individual restaurants. Adverse changes in any of these factors
could reduce guest traffic or impose practical limits on pricing, which could
harm our earnings, financial condition, operating results or cash flow.

A SUSTAINED OR FURTHER DOWNTURN IN THE ECONOMY COULD ADVERSELY AFFECT OUR
BUSINESS OPERATIONS AND FINANCIAL CONDITION.

Sales in the casual dining sector are affected by general economic
conditions. Our profits are dependent on discretionary spending by consumers,
particularly by consumers living in the communities in which our restaurants
are located. We have experienced a decline in sales over the last several
periods due to the downturn of the economy on both a national and local scale.
Should this economic downturn continue or worsen, we may continue to experience
a decline in our sales, which would have an adverse affect on our business.

WE FACE INTENSE COMPETITION IN THE RESTAURANT INDUSTRY.

We operate in a highly competitive industry. Price, restaurant location,
food quality, service and attractiveness of facilities are important aspects of
competition, and the competitive environment is often affected by factors beyond
a particular restaurant management's control, including changes in the public's
taste and eating habits, population and traffic patterns and economic
conditions. Our restaurants compete with a large number of other restaurants,
including national and regional restaurant chains and franchised restaurant
operations, as well as locally-owned, independent restaurants. Many of our
competitors have greater financial resources than we have. In addition, the
restaurant industry has few non-economic barriers to entry. Therefore, new
competitors may emerge at any time. Competitive pressures may have the effect of
limiting our ability to increase prices, with consequent pressure on operating
earnings. This environment makes it more difficult for us to continue to provide
high service levels while maintaining our reputation for superior value without
adversely affecting operating margins. We cannot assure you that we will be able
to compete successfully against our competitors in the future or that
competition will not have a material adverse effect on our operations.

In addition, we are required to respond to various consumer preferences,
tastes and eating habits; demographic trends and traffic patterns; increases in
food and labor costs; and national, regional and local economic conditions. In
addition to other restaurants in the casual dining and mid-scale industries,
our competitors include restaurants in the quick-service industry. In the past,
several quick-service restaurant companies have experienced flat growth rates
and declines in average sales per restaurant, in response to which some of these
companies have adopted "discount-pricing" strategies. These strategies could
have the effect of drawing customers away from companies, such as ours, that do
not engage in discount pricing and could also negatively impact the operating
margins of competitors that do attempt to match competitors' price reductions.

6



Continuing or sustained price discounting in the fast food industry may
adversely affect the revenues and profitability of our restaurants.

WE MAY NOT BE ABLE TO OPEN NEW RESTAURANTS PROFITABLY ACCORDING TO OUR PLANS,
WHICH COULD NEGATIVELY AFFECT OUR GROWTH STRATEGY.

We have historically added, and plan to continue to add, new restaurants
each year either through new construction, acquisition or both. We have
traditionally used cash flow from operations as the primary funding for
restaurant additions. We cannot guarantee that this source of capital will be
sufficient to attain the desired development levels if adverse changes occur
affecting our revenues, profitability or cash flow from operations. In addition,
our recent focus on developing freestanding locations rather than mall locations
has reduced the frequency and amount of landlord contributions towards
construction costs. This reduction, when coupled with the inherently higher cost
structure of freestanding construction, increases our capital requirements for
development. Other variables that affect our restaurant development include:

o competition for restaurant sites,

o whether we will be able to identify suitable locations with acceptable
land covenants and signage restrictions at acceptable cost or at all,

o when appropriate sites become available,

o whether we will be able to negotiate acceptable leases or land purchases,

o how quickly we can obtain required permits,

o the availability of construction labor and materials, and

o how quickly we can staff the new restaurants.

These factors could make it difficult for us to open new restaurants in
accordance with our schedule.

ANY NEW OPERATIONAL APPROACHES OR RESTAURANT CONCEPTS THAT WE LAUNCH IN THE
FUTURE MAY NOT BE SUCCESSFUL.

As part of our research and development activities, we seek to enhance our
food offerings, food preparation systems and general service delivery of our
existing restaurant concepts. These developments may not be well received by our
customers and may adversely affect our restaurant sales. In addition, from time
to time, we launch new restaurant concepts on our own or through acquisitions or
joint ventures. During the early period of a new restaurant concept's life, it
is often unclear whether it will turn into a major expansion vehicle or merely
be a limited unit test of short duration. As a result, we may have difficulty in
accurately assessing the long-term potential of a new restaurant concept's life.
Similarly, our current capital-intensive tests involving the reimaging of
existing restaurants may not yield the anticipated benefits or returns on
investments.

WE ARE DEPENDENT ON ATTRACTING AND RETAINING QUALIFIED EMPLOYEES.

We operate in the service sector and are therefore extremely dependent upon
the availability of qualified restaurant personnel. Availability of staff varies
widely from location to location. If restaurant management and

7



staff turnover trends increase, we would suffer higher direct costs associated
with recruiting and retaining replacement personnel. Moreover, we could suffer
from significant indirect costs, including restaurant disruptions due to
management changeover, increased above-store management staffing and potential
delays in new store openings due to staff shortages. Competition for qualified
employees exerts pressure on wages paid to attract qualified personnel,
resulting in higher labor costs, together with greater expense to recruit and
train them.

The operation of buffet style restaurants is materially different from other
restaurant concepts. Consequently, the retention of executive management
familiar with our core buffet business is important to our continuing success.
The departure of one or more key operations executives or the departure of
multiple executives in a short time period could have an adverse impact on our
business.

INCREASING LABOR COSTS COULD ADVERSELY AFFECT OUR PROFITABILITY.

We are dependent upon an available labor pool of unskilled and semi-skilled
employees, many of whom are hourly employees whose wages may be impacted by an
increase in the federal or state minimum wage. Numerous proposals have been made
at federal and state levels to increase minimum wage levels. An increase in the
minimum wage may create pressure to increase the pay scale for our employees. A
shortage in the labor pool or other general inflationary pressures or changes
could also increase our labor costs. The imposition of compulsory health care
benefits, as being considered by the California legislature, could dramatically
alter our cost of labor. Any increases in labor costs could have a material
adverse effect on our results of operations and could decrease our profitability
and cash available to service our debt obligations, if we were unable to recover
these increases by raising the prices we charge our customers or realizing
additional operational efficiencies.

WE ARE DEPENDENT ON TIMELY DELIVERY OF FRESH INGREDIENTS BY OUR SUPPLIERS.

Our restaurant operations are dependent on timely deliveries of fresh
ingredients, including fresh produce, dairy products and meat. We depend
exclusively on third party distributors and suppliers for such deliveries. The
number of distributors and suppliers capable of servicing our distribution needs
has declined recently, reducing our bargaining leverage and increasing
vulnerability to distributor interruptions. If our food quality declines due to
the lack of, or lower quality of, our ingredients or due to interruptions in the
flow of fresh ingredients and similar factors, customer traffic may decline and
negatively affect our restaurants' results.

NEGATIVE PUBLICITY RELATING TO ONE OF OUR RESTAURANTS, INCLUDING OUR FRANCHISED
RESTAURANTS, COULD REDUCE SALES AT SOME OR ALL OF OUR OTHER RESTAURANTS.

We are, from time to time, faced with negative publicity relating to food
quality, restaurant facilities, health inspection scores, employees
relationships or other matters at one of our restaurants. Adverse publicity may
negatively affect us, regardless of whether the allegations are valid or whether
we are liable. In addition, the negative impact of adverse publicity relating to
one restaurant may extend far beyond the restaurant involved to affect some or
all of our other restaurants. The risk of negative publicity is particularly
great with respect to our 23 franchised restaurants because we are limited in
the manner in which we can regulate them, especially on a real-time basis. If a
franchised restaurant fails to meet our franchise operating standards, our own
restaurants could be adversely affected due to customer confusion or negative
publicity. A similar risk exists with respect to totally unrelated food service
businesses, if customers mistakenly associate such unrelated businesses with our
own operations.

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FOOD-BORNE ILLNESS INCIDENTS COULD REDUCE OUR RESTAURANT SALES.

We cannot guarantee that our internal controls and training will be fully
effective in preventing all food-borne illnesses. Furthermore, our reliance on
third party food processors makes it difficult to monitor food safety compliance
and increases the risk that food-borne illness would affect multiple locations
rather than single restaurants. Some food borne illness incidents could be
caused by third party food suppliers and transporters outside of our control.
New illnesses resistant to our current precautions may develop in the future, or
diseases with long incubation periods could arise, such as Bovine Spongiform
Encephalopathy, that could give rise to claims or allegations on a retroactive
basis. One or more instances of food-borne illness in one of our restaurants or
a franchised restaurant could negatively affect our restaurant sales and
conceivably have a national impact if highly publicized. This risk exists even
if it were later determined that the illness was wrongly attributed to one of
our restaurants.

WE ARE VULNERABLE TO INFLATION AND TO FLUCTUATIONS IN THE COST, AVAILABILITY AND
QUALITY OF OUR INGREDIENTS.

The cost, availability and quality of the ingredients we use to prepare our
food are subject to a range of factors, many of which are beyond our control.
Fluctuations in weather, supply and demand and economic and political conditions
could adversely affect the cost, availability and quality of our ingredients. We
have no control over fluctuations in the price and availability of ingredients
or variations in product specifications caused by these factors. Historically,
when operating expenses increased due to inflation or increases in food costs,
we recovered increased costs by increasing our menu prices. However, we may not
be able to recover increased costs in the future because competition may limit
or prohibit such future increases.

OUR RESTAURANT SALES ARE SUBJECT TO SEASONALITY AND MAJOR WORLD EVENTS.

Our restaurant sales volume fluctuates seasonally. Overall, restaurant sales
are generally higher in the summer months and lower in the winter months.
Positive or negative trends in weather conditions can have a strong influence on
our business. This effect is heightened because many of our restaurants are in
geographic areas that experience extremes in weather, including severe winter
conditions and tropical storm patterns. Additionally, major world events,
including war, the Olympics and terrorist attacks may adversely affect our
business. For example, our sales were down 3.1% in the two weeks immediately
following the terrorist attacks of September 11, 2001.

WE COULD HAVE SPECIAL CHARGES IF SPECIFIC ASSETS ARE UNDER PERFORMING OR IF WE
CONCLUDE THAT THERE IS A NEED TO CLOSE SPECIFIC RESTAURANTS.

Impairment charges are required by accounting principles when an asset, such
as a restaurant, performs so poorly that we determine that the estimated future
cash flows will be insufficient to recover the asset's value as stated in our
accounting records. We periodically review the operating results of individual
restaurants to determine if impairment charges on under-performing assets are
necessary. In addition, we expect that we will close some under-performing
restaurants from time to time in the future. We will incur special charges
relating to the closing of restaurants, including lease termination costs.
Impairment charges and other special charges will reduce our profits.

WE FACE RISKS BECAUSE OF THE NUMBER OF RESTAURANTS THAT WE LEASE.

Our success depends in part on our ability to secure leases in desired
locations at rental rates we believe to be reasonable. We currently lease all of
our restaurants located in strip shopping centers and malls and we lease the
land for 117 of our freestanding restaurants. By December 2007, approximately
100 of our current leases will have

9



expiring base lease terms and be subject to renewal consideration. Each lease
agreement provides that the lessor may terminate the lease for a number of
reasons, including our default in any payment of rent or taxes or our breach of
any covenant or agreement in the lease. Termination of any of our leases could
harm our results of operations and, as with a default under any of the Company's
indebtedness, could have a material adverse impact on the Company's liquidity.
Although we believe that we will be able to renew our existing leases, we can
offer no assurances that we will succeed in obtaining extensions in the future
at rental rates that we believe to be reasonable or at all. Moreover, if some
locations should prove to be unprofitable, we could remain obligated for lease
payments even if we decided to withdraw from those locations. See "Item 2 --
Properties."

WE FACE RISKS ASSOCIATED WITH GOVERNMENT REGULATIONS.

We are subject to extensive government regulation at a federal, state and
local government level. These include, but are not limited to, regulations
relating to the sale of food in all of our restaurants and of alcoholic
beverages in our Tahoe Joe's Famous Steakhouse restaurants. We are required to
obtain and maintain governmental licenses, permits and approvals. Difficulty or
failure in obtaining them in the future could result in delaying or canceling
the opening of new restaurants. Local authorities may suspend or deny renewal of
our governmental licenses if they determine that our operations do not meet the
standards for initial grant or renewal. This risk would be even higher if there
were a major change in the licensing requirements affecting our types of
restaurants.

The Federal Americans with Disabilities Act prohibits discrimination on the
basis of disability in public accommodations and employment. Mandated
modifications to our facilities in the future to make different accommodations
for disabled persons could result in material unanticipated expense.

Application of state "Dram Shop" statutes, which generally provide a person
injured by an intoxicated patron the right to recover damages from an
establishment that wrongfully served alcoholic beverages to the intoxicated
person, to our operations, or liabilities otherwise associated with liquor
service in our Tahoe Joe's Famous Steakhouse restaurants, could negatively
affect our financial condition if not otherwise insured under our general
liability insurance policy.

ADVERSE CHANGES IN EMPLOYMENT LAWS MAY AFFECT OUR BUSINESS.

Various federal and state labor laws govern the relationship with our
employees and affect operating costs. These laws include minimum wage
requirements, overtime, unemployment tax rates, workers' compensation rates and
citizenship requirements. Significant additional government-imposed increases in
the following areas could materially affect our business, financial condition,
operating results or cash flow:

o minimum wages,

o mandated health benefits,

o paid leaves of absence,

o tax reporting, and

o revisions in the tax payment requirements for employees who receive
gratuities.

10



WE FACE RISKS ASSOCIATED WITH ENVIRONMENTAL LAWS.

We are subject to federal, state and local laws, regulations and ordinances
that:

o govern activities or operations that may have adverse environmental
effects, such as discharges to air and water, as well as handling and
disposal practices for solid and hazardous wastes, and

o impose liability for the costs of cleaning up, and damage resulting
from, sites of past spills, disposals or other releases of hazardous
materials.

In particular, under applicable environmental laws, we may be
responsible for remediation of environmental conditions and may be subject to
associated liabilities, including liabilities resulting from lawsuits brought by
private litigants, relating to our restaurants and the land on which our
restaurants are located, regardless of whether we lease or own the restaurants
or land in question and regardless of whether such environmental conditions were
created by us or by a prior owner or tenant. We cannot assure you that
environmental conditions relating to our prior, existing or future restaurants
or restaurant sites will not have a material adverse affect on us.

ANY NEGATIVE DEVELOPMENT RELATING TO OUR SELF-SERVICE FOOD SERVICE APPROACH
WOULD HAVE A MATERIAL ADVERSE IMPACT ON OUR PRIMARY BUSINESS.

Our buffet restaurants utilize a service format that is heavily dependent
upon self-service by our customers. Food tampering by customers or other events
affecting the self-service format could cause regulatory changes or changes in
our business pattern or customer perception. Any development that would
materially impede or prohibit our continued use of a self-service food service
approach, or reduce the appeal of self-service to our guests, would have a
material adverse impact on our primary business.

WE MAY NOT BE ABLE TO PROTECT OUR TRADEMARKS AND OTHER PROPRIETARY RIGHTS.

We believe that our trademarks and other proprietary rights are important to
our success and our competitive position. Accordingly, we devote substantial
resources to the establishment and protection of our trademarks and proprietary
rights. However, the actions taken by us may be inadequate to prevent imitation
of our brands and concepts by others or to prevent others from claiming
violations of their trademarks and proprietary rights by us. In addition, others
may assert rights in our trademarks and other proprietary rights. Our exclusive
rights to our trademarks are subject to the common law rights of any other
person who began using the trademark (or a confusingly similar mark) prior to
the date of federal registration. For example, because of the common law rights
of such a pre-existing restaurant in portions of Colorado and Wyoming, our
restaurants in those states use the name "Country Buffet." Future actions by
third parties may diminish the strength of our restaurant concepts' trademarks
and decrease our competitive strength and performance.

CAXTON-ISEMAN INVESTMENTS L.P. CONTROLS OUR COMPANY AND ITS INTERESTS MAY
CONFLICT WITH YOURS.

All of our outstanding shares of capital stock are held by Buffets Holdings.
Through its ownership of 77.0% of the outstanding common stock of Buffets
Holdings, Caxton-Iseman Investments L.P. controls, and will likely continue to
exercise control over, our business by virtue of its voting power with respect
to the election of Buffets Holdings' directors. Caxton-Iseman Investments L.P.
may authorize actions that are not in your best interests, and, in general, its
interests may not be fully aligned with yours.

11



ITEM 2. PROPERTIES

RESTAURANT LOCATIONS

Our restaurants are located in both urban and suburban areas in a variety of
strip shopping centers, malls and freestanding buildings. We lease all of our
restaurant locations located in strip shopping centers and malls. Of the 118
restaurants located in freestanding buildings, we own the building and land for
one of the restaurants. The remaining 117 restaurants are operated in
company-funded leasehold improvements located on leased land or in facilities
where we lease both the underlying land and the leasehold improvements.

Our leases are generally for 10- or 15-year terms, with two to four options
exercisable at our discretion to renew for a period of five years each. The
leases provide for rent to be paid on a monthly basis.

12



As of July 2, 2003, we and our franchisees operated 395 locations as
follows:


NUMBER OF NUMBER OF
COMPANY-OPERATED FRANCHISED TOTAL NUMBER OF
STATE RESTAURANTS RESTAURANTS RESTAURANTS
----- ----------- ---------- -----------
Arizona............. 4 8 12
California.......... 94 1 95
Colorado............ 12 2 14
Connecticut......... 6 -- 6
Delaware............ 1 -- 1
Florida............. 2 -- 2
Georgia............. 1 -- 1
Idaho............... 1 -- 1
Illinois............ 33 -- 33
Indiana............. 13 -- 13
Iowa................ 5 -- 5
Kansas.............. 3 1 4
Kentucky............ 4 -- 4
Maine............... 1 -- 1
Maryland............ 7 -- 7
Massachusetts....... 9 1 10
Michigan............ 22 -- 22
Minnesota........... 15 -- 15
Missouri............ 12 -- 12
Montana............. 1 -- 1
Nebraska............ -- 3 3
New Jersey.......... 8 -- 8
New Mexico.......... -- 2 2
New York............ 16 -- 16
North Carolina...... 1 -- 1
Ohio................ 21 -- 21
Oklahoma............ 2 1 3
Oregon.............. 7 -- 7
Pennsylvania........ 22 -- 22
Rhode Island........ 1 -- 1
South Carolina...... 2 -- 2
Tennessee........... 1 -- 1
Texas............... 5 -- 5
Utah................ -- 3 3
Virginia............ 11 -- 11
Washington.......... 16 -- 16
Wisconsin........... 12 -- 12
Wyoming............. 1 1 2
--- --- ---
Total............... 372 23 395

Our corporate headquarters is located in leased facilities in Eagan,
Minnesota.

13



The following table sets forth information concerning our owned property as
follows:

LOCATION ACRES USE AND OWNERSHIP
- ------------------------------------ ------ ----------------------------
Houston, Texas...................... 1.75 Former HomeTown Buffet
property marketed for sale.
Coon Rapids, Minnesota.............. 2.00 OCB Restaurant Co. property
under development for future
buffet restaurant.
Lee's Summit, Missouri.............. 1.53 OCB Restaurant Co.
undeveloped property marketed
for sale.
Marshfield, Wisconsin............... 5.04 Cabinet shop owned by OCB
Restaurant Co.
Laguna Woods, California............ 1.13 HomeTown Buffet restaurant.

NEW RESTAURANT DEVELOPMENT

Our ability to open new restaurants, and the allocation of new restaurants
among our currently available and future concepts, depends on a number of
factors, including our ability to find suitable locations and negotiate
acceptable leases and land purchases, our ability to attract and retain a
sufficient number of qualified restaurant managers, the comparative potential
return and risk associated with the particular restaurant concept and the
availability of capital.

We actively and continuously attempt to identify and negotiate leases and
land purchases for additional new locations. In an effort to better control
costs and improve quality, we are closely involved in the construction of our
restaurants and the acquisition and installation of fixtures and equipment.
Restaurants located in shopping centers typically open approximately 14 weeks
after construction begins, while freestanding restaurants typically open
approximately 18 weeks after construction begins. Freestanding restaurants
opened in fiscal 2003 cost an average of approximately $2.3 million for
buildings or leasehold improvements, equipment and furnishings. Similar
improvements for shopping center locations cost approximately $2.1 million.

TRADEMARKS AND OTHER INTELLECTUAL PROPERTY

As of July 2, 2003, we had restaurants operating under the following
trademarks or service marks (the number within parentheses below represents the
number of restaurants):

o Old Country Buffet (229),

o HomeTown Buffet (132),

o Tahoe Joe's Famous Steakhouse (8),

o Country Roadhouse Buffet & Grill (1),

o Granny's Buffet (1), and

o Soup 'N Salad Unlimited (1).

We have registered with the United States Patent and Trademark Office the
above trademarks and service marks. In general, our trademarks and registered
service marks are valid and enforceable as long as the marks are used in

14



connection with our restaurants and services and the required registration
renewals are filed. We regard our service marks and trademarks as having
significant value and being an important factor in the development of our buffet
and other restaurant concepts. Our policy is to pursue and maintain registration
of our service marks and trademarks whenever possible and to oppose vigorously
any infringement or dilution of our service marks and trademarks.

We also have a proprietary interest in many of our recipes.

ITEM 3. LEGAL PROCEEDINGS

We are not a party to and do not have any property that is the subject of
any legal proceedings pending or, to our knowledge, threatened, other than
ordinary routine litigation incidental to our business and proceedings which are
not material or as to which we believe we have adequate insurance.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders of the Company
during the fiscal year covered by this report.


PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

All of our outstanding Common Stock is, as of the date of filing of this
report, owned by Buffets Holdings, Inc. See Item 12, Security Ownership of
Certain Beneficial Owners and Management. There is no market for our Common
Stock.

15



ITEM 6. SELECTED FINANCIAL DATA



PREDECESSOR SUCCESSOR
--------------------------- ------------------------------------------------------------------------------
PERIOD FROM PERIOD FROM 26-WEEK
DECEMBER 30, OCTOBER 2, TRANSITIONAL
FISCAL YEAR 1999 2000 FISCAL YEAR 28 WEEKS PERIOD 50 WEEKS FISCAL YEAR
ENDED THROUGH THROUGH ENDED ENDED ENDED ENDED ENDED
DECEMBER 29, OCTOBER 1, JANUARY 3, JANUARY 2, JULY 18, JULY 3, JULY 3, JULY 2,
1999 2000 2001 2002 2001 2002 2002 2003
------------ ------------ ----------- ----------- --------- ------------ --------- -----------
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE GUEST CHECK AND AVERAGE WEEKLY SALES)

OPERATING DATA:
Restaurant sales...... $ 936,854 $ 781,153 $ 239,370 $1,044,734 $ 567,821 $527,084 $1,003,997 $ 985,286
Restaurant costs...... 798,985 656,843 204,379 886,069 482,124 444,917 849,155 850,840
Advertising expenses.. 23,761 21,888 5,726 27,640 15,776 14,349 26,280 28,589
General and
administrative
expenses............. 47,857 39,217 12,204 50,320 26,291 25,554 49,308 45,382
Goodwill amortization. 637 878 2,543 10,942 6,155 -- 4,967 --
Impairment of assets.. 1,966 -- -- -- -- -- -- 4,803
Gain on sale of
Original Roadhouse
Grill restaurants.... -- -- -- -- -- -- -- (7,088)
Loss on sale
leaseback
transactions......... -- -- -- -- -- -- -- 5,856
Acquisition-related
costs................ -- 14,902 -- -- -- -- -- --
--------- --------- --------- ---------- --------- -------- --------- ---------

Operating income...... $ 63,648 $ 47,425 $ 14,518 $ 69,763 $ 37,475 $ 42,264 $ 74,287 $ 56,904
========= ========= ========= ========== ========= ======== ========= =========
Net income (loss)..... $ 42,442 $ 31,245 $ 579 $ 12,708 $ 5,883 $ (7,028) $ (203) $ 13,016
========= ========= ========= ========== ========= ======== ========= =========

CASH FLOW AND OTHER
FINANCIAL DATA:
Capital
expenditures(1)...... $ 74,230 $ 35,596 $ 14,389 $ 38,096 $ 20,352 $ 14,280 $ 32,318 $ 25,722
Depreciation and
amortization......... 43,026 32,368 11,311 53,404 29,007 20,409 44,808 36,885
Cash flow from
operating activities. 90,561 87,822 25,347 69,003 35,560 39,658 74,552 57,656
Cash flow from (used
in) investing
activities........... (74,230) (37,013) 4,540 2,575 (21,190) (11,337) 10,977 26,662
Cash flow from (used
in) financing
activities........... (38,129) 1,534 (138,794) (59,719) (14,000) (47,572) (93,291) (76,875)

BALANCE SHEET DATA (AT
END OF PERIOD)
Total assets.......... $ 477,635 $ 530,846 $ 683,823 $ 637,778 $ 670,358 $615,626 $ 615,626 $ 552,986
Total debt(2)......... 42,151 41,133 405,074 348,220 392,172 466,217 466,217 393,758

SUPPLEMENTAL DATA(3):
Number of
company-owned
restaurants (at end
of period)........... 403 404 406 401 408 393 393 372
Average guest check... $ 6.42 $ 6.61 $ 6.73 $ 6.89 $ 6.84 $ 7.03 $ 7.00 $ 7.13
Average weekly sales.. $ 46,323 $ 48,540 $ 45,464 $ 49,368 $ 49,822 $ 51,044 $ 49,973 $ 48,953
Same store sales
change............... 1.9% 3.1% 0.2% 2.1% 2.4% 0.2% (0.9)% (4.2)%


- ----------

(1) Capital expenditures include restaurant facilities acquired through business
combinations in fiscal 1999.
(2) Total debt represents the amount of our long-term debt and capital lease
obligations, including current maturities.
(3) Reflects data relating to all of our company-owned restaurants.

16




ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH "SELECTED
FINANCIAL DATA" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES
INCLUDED ELSEWHERE IN THIS REPORT. SOME OF THE STATEMENTS IN THE FOLLOWING
DISCUSSION ARE FORWARD-LOOKING STATEMENTS. SEE "RISK FACTORS/FORWARD-LOOKING
STATEMENTS."

GENERAL

We are one of the largest restaurant operators in the United States and the
leader in the buffet/cafeteria segment of the restaurant industry, as measured
in both sales and number of restaurants. As of July 2, 2003, we operated 372
restaurants in 35 states comprised of 364 buffet restaurants and eight Tahoe
Joe's Famous Steakhouse(R) restaurants. The buffet restaurants are principally
operated under the Old Country Buffet(R) or HomeTown Buffet(R) brands. We also
franchise 23 buffet restaurants in ten states.

We were founded in 1983 to develop buffet-style restaurants under the name
Old Country Buffet. In October 1985, we completed our initial public offering
and were listed on the Nasdaq National Market. In September 1996, we merged with
HomeTown Buffet, Inc., which was developed by one of our co-founders and had 80
company-owned HomeTown Buffet restaurants in 11 states and 19 franchised
restaurants in eight states. In October 2000, Buffets was acquired by Buffets
Holdings, Inc., a company organized by Caxton-Iseman Capital, in a buyout from
public shareholders. Due to the effects of this transaction on the recorded
bases of goodwill, intangibles, property and shareholder's equity, our financial
statements prior to and subsequent to this transaction are not comparable.
Periods prior to October 2, 2000 represent the accounts of the predecessor.
Accordingly, the historical financial information for fiscal 2000 in this
prospectus is presented in two periods -- the period from December 30, 1999 to
October 1, 2000 and the period from October 2, 2000 to January 3, 2001.

Our fiscal year is comprised of 52 or 53 weeks divided into four fiscal
quarters of 12, 12, 16 and 12 or 13 weeks. Beginning July 3, 2002, we changed
our fiscal year so that it ends on the Wednesday nearest June 30 of each year.
The fiscal year 2002 transition period consisted of 26 weeks and was divided
into two periods of 16 and 10 weeks. Prior to that, our fiscal year ended on the
Wednesday nearest December 31 of each year and each fiscal year was divided into
periods of 16, 12, 12 and 12 or 13 weeks.

The following is a description of the line items from our consolidated
statements of operations:

o Restaurant sales reflect the recognition of 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
when the gift certificates are redeemed at our restaurants. Until
redemption, the unearned revenue from the sale of gift certificates is
included in accrued liabilities on our consolidated balance sheets. Our
franchise income includes royalty fees and initial franchise fees
received from our franchisees. Management recognizes royalty fees as
other income based on the sales reported at the franchise restaurants.

17



o 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.

o Advertising expenses reflect all advertising and promotional costs.

o 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.

o Goodwill amortization through January 2, 2002, reflects the amortization
of the excess of cost over fair market value of assets and is recognized
on a straight-line basis, over a 30-year life.

o Impairment of assets reflect fair market adjustments to the carrying
value of long-lived assets.

o Gain on sale of Original Roadhouse Grill restaurants reflects the net
proceeds from the sale of 13 Original Roadhouse Grill restaurants less
the net asset write-down associated with this transaction.

o Loss on the sale leaseback transactions reflects transaction costs and
impairment losses associated with the sale of leasehold interests and
leasehold improvements.

o Acquisition-related costs reflect transaction and other costs associated
with our buyout from public shareholders in October 2000.

o Interest expense reflects interest costs associated with our debt,
amortization of debt issuance costs and accretion of original issuance
discount on our subordinated notes and bonds.

o Interest income reflects interest earned on our short-term investments.

o Loss related to refinancing reflects transaction and other costs
associated with a recapitalization of the Company on June 28, 2002.

o Other income primarily reflects franchise fees earned, less minority
interest associated with our Tahoe Joe's joint venture.

o Income tax expense (benefit) reflects the current and deferred tax
provision (benefit) determined in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes."

18



CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements have been prepared in accordance with
accounting policies generally accepted in the United States of America. The
preparation of our financial statements requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. On an ongoing basis, management evaluates its estimates and
assumptions, including those related to recoverability of long-lived assets,
revenue recognition and goodwill. Management bases its estimates and assumptions
on historical experience and on various other factors that are believed to be
reasonable at the time the estimates and assumptions are made. Actual results
may differ from these estimates and assumptions under different circumstances or
conditions.

We believe the following critical accounting policies affect management's
significant estimates and assumptions used in the preparation of our
consolidated financial statements.

RECOVERABILITY OF LONG-LIVED ASSETS

The Company periodically evaluates long-lived assets and goodwill related to
those assets for impairment whenever events or changes in circumstances indicate
the carrying value amount of an asset or group of assets may not be recoverable.
The Company considers a history of operating losses and the other factors
described to be its primary indicator of potential impairment. Assets are
grouped and evaluated for impairment at the lowest level for which there are
identifiable cash flows, namely individual restaurants. A restaurant is deemed
to be impaired if a forecast of undiscounted future operating cash flows
directly related to the restaurant, including disposal value, if any, are less
than its carrying amount. If a restaurant is determined to be impaired, the loss
is measured as the amount by which the carrying amount of the restaurant exceeds
its fair value. Fair value is based on quoted market prices in active markets,
if available. If quoted market prices are not available, an estimate of fair
value is based on the best information available, including prices for similar
assets or the results of valuation techniques such as discounted estimated
future cash flows as if the decision to continue to use the impaired restaurant
was a new investment decision. The Company generally measures fair value by
discounting estimated future cash flows. Considerable management judgment is
necessary to estimate discounted future cash flows. Accordingly, actual results
could vary significantly from such estimates. We expensed approximately $5.6
million during 2003 relating to the impairment of long-lived assets of 39
restaurants. This amount was partially offset by an approximate $0.8 million
reduction in lease obligation accrual assumptions in accrued store closing
costs, based on the Company receiving greater than planned sublease and other
cash receipts. In addition, we recognized approximately $5.9 million in
impairments on 18 restaurants as part of the loss on the sale leaseback
transactions completed during 2003.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of our acquisition cost over the fair market
value of the net assets acquired. We amortized that goodwill on a straight-line
basis over a 30-year life through the end of the fiscal year ended January 2,
2002. However, on January 3, 2002, we began applying the new rules on accounting
for goodwill and other intangible assets issued by the Financial Accounting
Standards Board in SFAS No. 142 "Goodwill and Other Intangible Assets." As a
result of the application of these new rules, amortization of goodwill was
reduced by approximately $5.0 million

19



for the year ended July 2, 2003, because intangible assets with indefinite
lives, such as goodwill, are no longer amortized. There were no impairments to
goodwill and other intangible assets identified for the year ended July 2, 2003.

RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION REFLECTS OUR HISTORICAL RESULTS FOR THE PERIOD FROM
OCTOBER 2, 2000 TO JANUARY 3, 2001, THE FISCAL YEAR ENDED JANUARY 2, 2002, THE
28-WEEK PERIOD ENDED JULY 18, 2001, THE 26-WEEK TRANSITIONAL PERIOD ENDED JULY
3, 2002, THE 50-WEEK PERIOD ENDED JULY 3, 2002 AND THE FISCAL YEAR ENDED JULY 2,
2003.

ON OCTOBER 2, 2000, BUFFETS HOLDINGS, INC., A COMPANY ORGANIZED BY
CAXTON-ISEMAN CAPITAL, INC., ACQUIRED US IN A BUYOUT FROM PUBLIC SHAREHOLDERS.
PERIODS PRIOR TO OCTOBER 2, 2000 REPRESENT THE ACCOUNTS OF THE PREDECESSOR WHILE
PERIODS SUBSEQUENT TO OCTOBER 2, 2000 REPRESENT THE ACCOUNTS OF THE SUCCESSOR.
DUE TO THE EFFECTS OF THIS TRANSACTION ON THE RECORDED BASES OF GOODWILL,
INTANGIBLES, PROPERTY AND SHAREHOLDER'S EQUITY, OUR FINANCIAL STATEMENTS FOR THE
PREDECESSOR AND THE SUCCESSOR ARE NOT COMPARABLE. ACCORDINGLY, THE FOLLOWING
DISCUSSION DOES NOT COMPARE THE HISTORICAL RESULTS OF THE PREDECESSOR AND THE
SUCCESSOR.

OUR FUTURE RESULTS MAY NOT BE CONSISTENT WITH OUR HISTORICAL RESULTS. THE
FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS REPORT.

20




FOR THE 50-WEEK PERIOD ENDED JULY 3, 2002 (SUCCESSOR) COMPARED TO THE YEAR
ENDED JULY 2, 2003 (SUCCESSOR)

The following table sets forth our results of operations based on the
percentage relationship of the items listed to our restaurant sales during the
periods shown:




(SUCCESSOR) (SUCCESSOR)
50-WEEK PERIOD FISCAL YEAR
ENDED ENDED
JULY 3, 2002 JULY 2, 2003
----------------- -----------------
(DOLLARS IN THOUSANDS)

Restaurant sales.................................... $ 1,003,997 100.0% $ 985,286 100.0%
Restaurant costs.................................... 849,155 84.6 850,840 86.4
Advertising expenses................................ 26,280 2.6 28,589 2.9
General and administrative expenses................. 49,308 4.9 45,382 4.6
Goodwill amortization............................... 4,967 0.5 -- --
Impairment of assets................................ -- -- 4,803 0.5
Gain on sale of Original Roadhouse Grill
restaurants ....................................... -- -- (7,088) (0.7)
Loss on sale leaseback transactions................. -- -- 5,856 0.6
-------------- -------------
Operating income.................................... 74,287 7.4 56,904 5.8
Interest expense.................................... 33,595 3.3 40,146 4.1
Interest income..................................... (587) (0.1) (307) --
Loss related to refinancing......................... 38,476 3.8 -- --
Other income........................................ (1,145) (0.1) (1,270) (0.1)
--------------- -------------
Income before income taxes.......................... 3,948 0.4 18,335 1.9
Income tax expense.................................. 4,151 0.4 5,319 0.5
-------------- -------------
Net income (loss)................................. $ (203) -- $ 13,016 1.3
============== =============
CERTAIN PERCENTAGE AMOUNTS DO NOT SUM TO TOTAL DUE TO ROUNDING.


RESTAURANT SALES. Restaurant sales for the fiscal year ended July 2, 2003
decreased $18.7 million, or 1.9%, compared with the 50 weeks ended July 3, 2002.
The decline was principally attributable to a 2.0% reduction in average weekly
sales between the respective periods coupled with a net capacity reduction of
291 operating weeks due to 14 unit closings and the sale of 13 Original
Roadhouse Grill units, partially offset by 6 unit openings. Same-store sales for
the 2003 fiscal year declined by 4.2%, reflecting a 1.5% increase in pricing and
a 5.7% decline in guest traffic. The decline in sales is due in part to the
general economic downturn, as well as increased competition partially from the
quick service industry in the form of discounting.

The Company currently expects same-store sales for the first quarter of the
2004 fiscal year (the 12-week period ending September 24, 2003) to decline by
approximately 2% to 3% versus the comparable period in 2003 primarily due to the
continued downturn in the economy.

RESTAURANT COSTS. Restaurant costs for 2003 increased by 1.8% as a
percentage of sales compared with the comparative prior year period primarily
due to expanded and enriched menu offerings, increased workers compensation and
utility costs and leverage issues attributable to reasonably fixed costs on a
declining sales base. We currently expect restaurant costs to increase modestly
as a percentage of sales during the first quarter of fiscal 2004 primarily due
to additional menu enhancements which will impact both food and labor costs.

21



ADVERTISING EXPENSES. Advertising costs increased 0.3% as a percentage of
sales for fiscal 2003 versus the comparative period in 2002. We increased
advertising weights in prime time, late news and Hispanic television in a number
of markets to provide greater media exposure. We expect advertising costs for
the first quarter of fiscal 2004 to approximate those experienced in fiscal
2003, measured as a percentage of sales.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased 0.3% as a percentage of sales during fiscal 2003 compared to the 50
weeks ended July 3, 2002. The decrease was largely attributable to reduced bonus
expense and a workforce reduction of approximately 70 non-store employees.
General and administrative expenses are expected to improve approximately 30 to
40 basis points, as a percentage of sales, during the first quarter of 2004
compared to fiscal year 2003.

GOODWILL AMORTIZATION. Goodwill amortization expense was no longer
recognized as of January 1, 2002 due to the adoption as of that date of SFAS No.
142, "Goodwill and Intangible Assets," and its non-amortization provisions for
goodwill.

IMPAIRMENT OF ASSETS. During fiscal 2003, we impaired approximately $4.8
million of long-lived assets for 27 restaurants.

GAIN ON SALE OF ORIGINAL ROADHOUSE GRILL RESTAURANTS. On June 5, 2003, we
sold 13 Original Roadhouse Grill restaurants for approximately $28.4 million in
net proceeds. The gain associated with the sale of these restaurants
approximated $7.1 million.

LOSS ON SALE LEASEBACK TRANSACTIONS. During fiscal 2003, we entered into
three sale leaseback transactions whereby we transferred our leasehold interests
and leasehold improvements with respect to 30 restaurants to a third party for
net proceeds of approximately $26.1 million. We simultaneously entered into
long-term leases for those restaurants with an aggregate initial annual rent of
approximately $3.7 million. In connection with these sale leaseback
transactions, we recorded a loss of approximately $5.9 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 $3.6 million. The
deferred gain will be accreted over the life of the respective restaurant
leases, ranging from 17 to 25 years.

INTEREST EXPENSE. Interest expense increased 0.8% as a percentage of sales
during fiscal 2003 versus the comparable prior year period primarily due to
higher weighted average outstanding debt balances.

INTEREST INCOME. Interest income declined 0.1% as a percentage of sales
during fiscal 2003 compared to the 50 weeks ended July 3, 2002, largely due to
lower weighted average cash equivalent balances.

LOSS RELATED TO REFINANCING. Loss related to refinancing consisted of $20.5
million for the prepayment and make-whole redemption fees, $11.0 million
write-off of financing costs related to the retired debt, $4.1 million of
unamortized debt discount related to the 16% and 14% senior subordinated notes,
$2.1 million paid to the holders of the common stock warrants and $.8 million in
expenses.

22



OTHER INCOME. Other income was flat as a percentage of sales between the
respective periods.

INCOME TAXES. Income taxes increased 0.1% as a percentage of sales for
fiscal 2003 compared to the comparable prior year period. The effective tax rate
of 29.0% for the current year compared with 105.1% for the prior year period was
largely attributable to the elimination of goodwill amortization due to the
adoption of SFAS No. 142.

FOR THE 26-WEEK TRANSITIONAL PERIOD ENDED JULY 3, 2002 (SUCCESSOR) COMPARED TO
THE 28 WEEKS ENDED JULY 18, 2001 (SUCCESSOR)

The following table sets forth our results of operations based on the
percentage relationship of the items listed to our restaurant sales during the
periods shown:




(SUCCESSOR)
(SUCCESSOR) 26-WEEK
28 WEEKS TRANSITIONAL
ENDED PERIOD ENDED
JULY 18, 2001 JULY 3, 2002
----------------------- ----------------------
(DOLLARS IN THOUSANDS)

Restaurant sales............................ $ 567,821 100.0% $ 527,084 100.0%
Restaurant costs............................ 482,124 84.9 444,917 84.4
Advertising expenses........................ 15,776 2.8 14,349 2.7
General and administrative expenses......... 26,291 4.6 25,554 4.9
Goodwill amortization....................... 6,155 1.1 -- --
----------- -----------
Operating income............................ 37,475 6.6 42,264 8.0
Interest expense............................ 24,876 4.4 15,076 2.9
Interest income............................. (312) (0.1) (212) (0.1)
Loss related to refinancing................. -- -- 38,476 7.3
Other income................................ (758) (0.1) (598) (0.1)
----------- -----------
Income (loss) before income taxes........... 13,669 2.4 (10,478) (2.0)
Income tax expense (benefit)................ 7,786 1.4 (3,450) (0.7)
----------- -----------
Net income (loss)...................... $ 5,883 1.0 $ (7,028) (1.3)
=========== ===========


RESTAURANT SALES. Restaurant sales for the 26-week transitional period ended
July 3, 2002 declined $40.7 million, or 7.2%, compared with the 28 weeks ended
July 18, 2001. The decline in sales was mostly due to the reduced number of
operating weeks in 2002 versus the comparable period in 2001 associated with our
year-end change (two fewer weeks in 2002). Average weekly sales for fiscal 2002
of $51,044 were up 2.5% over average weekly sales for the comparable 28-week
period for 2001. Same-store sales for fiscal 2002 were up 0.2% over the
comparable period in 2001, reflecting a 2.1% increase in pricing and a 1.9%
decline in guest traffic.

RESTAURANT COSTS. Restaurant costs for fiscal 2002 improved by 0.5% as a
percentage of sales compared with the prior year period primarily due to a
decrease in food costs, partially offset by an increase in restaurant management
compensation and an increase in workers compensation insurance. The food cost
reduction was primarily attributable to significant improvement in meat prices
experienced during fiscal 2002 as compared to large price spikes incurred in the
first half of 2001.

23



ADVERTISING EXPENSES. Advertising costs ran relatively constant as a
percentage of sales, approximately 2.7% of sales in fiscal 2002 versus 2.8% in
the comparable period in 2001. Approximately 78% of our buffet units received
advertising support in fiscal 2002. Same store sales among units receiving
advertising support were up 1.9% for fiscal 2002, versus overall system results
of only a 0.2% increase.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were 4.9% of sales for fiscal 2002 compared with a total of 4.6% for the
comparable prior year period primarily due to increased incentive compensation
costs and some severance arrangements.

GOODWILL AMORTIZATION. Goodwill amortization expense decreased 1.1% as a
percentage of sales in fiscal 2002 versus the prior year period due to the
adoption in January 2002 of SFAS No. 142, "Goodwill and Intangible Assets," and
its non-amortization provisions for goodwill.

INTEREST EXPENSE. Interest expense decreased 1.5% as a percentage of sales
during the 26 weeks ended July 3, 2002 versus the comparable prior year period
due to lower weighted average outstanding debt balances coupled with a decrease
in the senior credit facility's variable interest rates.

INTEREST INCOME. Interest income was flat as a percentage of sales between
the respective periods.

LOSS RELATED TO REFINANCING. Loss related to refinancing consisted of $20.5
million for the prepayment and make-whole redemption fees, $11.0 million
write-off of financing costs related to the retired debt, $4.1 million of
unamortized debt discount related to the 16% and 14% senior subordinated notes,
$2.1 million paid to the holders of the common stock warrants and $.8 million in
expenses.

OTHER INCOME. Other income was flat as a percentage of sales when comparing
the 26 weeks ended July 3, 2002 to the comparable prior year period.

INCOME TAXES. Income taxes decreased 2.1% as a percentage of sales for the
26 weeks ended July 3, 2002 compared to the 28 weeks ended July 3, 2001
principally due to a $24.1 million decrease in pretax income. The effective tax
rate for the current period was 32.9% compared with 57.0% for the prior year
period, largely due to a decrease in goodwill amortization associated with the
buyout from public shareholders.

24




FOR THE 52 WEEKS ENDED JANUARY 2, 2002 (SUCCESSOR) COMPARED TO THE PERIOD
FROM OCTOBER 2, 2000 TO JANUARY 3, 2001 (SUCCESSOR)

The following table sets forth our results of operations based on the
percentage relationship of the items listed to our restaurant sales during the
periods shown:




(SUCCESSOR) (SUCCESSOR)
PERIOD FROM 52 WEEKS
OCTOBER 2, 2000 ENDED
TO JANUARY 3, 2001 JANUARY 2, 2002
------------------------- ------------------------

Restaurant sales............................. $ 239,370 100.0% $ 1,044,734 100.0%
Restaurant costs............................. 204,379 85.4 886,069 84.8
Advertising expenses......................... 5,726 2.4 27,640 2.6
General and administrative expenses.......... 12,204 5.1 50,320 4.8
Goodwill amortization........................ 2,543 1.1 10,942 1.1
------------ -------------
Operating income............................. 14,518 6.1 69,763 6.7
Interest expense............................. 13,078 5.5 43,405 4.2
Interest income.............................. (267) (0.1) (698) (0.1)
Other income................................. (340) (0.1) (1,040) (0.1)
------------ -------------
Income before income taxes................... 2,047 0.9 28,096 2.7
Income tax expense........................... 1,468 0.6 15,388 1.5
------------ -------------
Net income.............................. $ 579 0.2 $ 12,708 1.2
============ =============
CERTAIN PERCENTAGE AMOUNTS DO NOT SUM TO TOTAL DUE TO ROUNDING


RESTAURANT SALES. Restaurant sales for the 52 weeks ended January 2, 2002
were approximately $1.04 billion compared to approximately $239.4 million for
the period from October 2, 2000 to January 3, 2001. Average weekly sales for
fiscal 2001 were $49,368 versus $45,464 for the period from October 2, 2000 to
January 3, 2001 reflecting, in large part, the seasonality of our average
restaurant's sales. Comparable store sales for fiscal 2001 improved 2.1%,
comprised of a 2.6% increase in same store average guest checks and a 0.5%
decline in comparable guest traffic. Comparable store sales improved 0.2% during
the period from October 2, 2000 to January 3, 2001, reflecting a 2.4% increase
in comparable store guest checks and a 2.2% decrease in same store guest counts.

RESTAURANT COSTS. Restaurant costs for the 52 weeks ended January 2, 2002
improved 0.6% as a percentage of sales compared to the period from October 2,
2000 to January 3, 2001. Food costs decreased 0.4% as a percentage of sales
between fiscal 2001 and the fourth quarter of fiscal 2000 partially due to
negotiated savings coupled with improved fixed cost leverage during the peak
sales months in late spring and summer. Labor costs improved 0.5% as a
percentage of sales during fiscal 2001 relative to the period from October 2,
2000 to January 3, 2001, primarily because the fixed managerial salaries are
leveraged more efficiently during the peak sales months in the late spring and
summer. Direct and occupancy costs increased 0.3% as a percentage of sales
principally due to increased utility rates experienced during the first half of
fiscal 2001.

ADVERTISING EXPENSES. Advertising and media costs increased 0.3% as a
percentage of sales during fiscal 2001 relative to the period from October 2,
2000 to January 3, 2001 due to the seasonality of the advertising programs.

25



GENERAL AND ADMINISTRATIVE COSTS. General and administrative expenses
decreased 0.2% as a percentage of sales during fiscal 2001 relative to the
period from October 2, 2000 to January 3, 2001 principally due to fixed cost
leverage gains during the peak sales months in late spring and summer.

GOODWILL AMORTIZATION. Goodwill amortization was flat as a percentage of
sales during fiscal 2001 relative to the period from October 2, 2000 to January
3, 2001 as both periods reflected amortization of the new, recorded basis in
goodwill associated with the effects of the buyout from public shareholders.

INTEREST EXPENSE. Interest expense decreased 1.3% as a percentage of sales
between fiscal 2001 and the fourth quarter of fiscal 2000 in large part due to
debt principal paydowns made during fiscal 2001 coupled with a decrease in the
senior credit facility's variable interest rates.

INTEREST INCOME. Interest income was flat as a percentage of sales between
fiscal 2001 and the period from October 2, 2000 to January 3, 2001.

OTHER INCOME. Other income was flat as a percentage of sales between fiscal
2001 and the period from October 2, 2000 to January 3, 2001.

INCOME TAXES. Income taxes increased 0.9% as a percentage of sales for
fiscal 2001 as compared to the period from October 2, 2000 to January 3, 2001,
principally due to the increase in pretax income.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows generated from operating activities provide us with a significant
source of liquidity. Since most of our sales are for cash or credit with
settlement within a few days and most vendors are paid on typical terms ranging
from approximately 14 to 35 days, we operate on a significant working capital
deficit. In addition to cash flows from operations, a revolving credit facility
is available to us for general corporate purposes as revolving credit loans or
as swing-line loans. Letters of credit issued under the revolving loan facility
or the letter of credit facility are also available to us to support payment
obligations incurred for our general corporate purposes. Historically, our
capital requirements have been for the development and construction of new
restaurants, restaurant refurbishment, the installation of new corporate
information systems and debt service obligations. We expect these requirements
to continue in the foreseeable future.

Net cash provided by operating activities was $57.7 million for fiscal 2003,
$39.7 million for the 26-week transitional period ended July 3, 2002, $69.0
million for fiscal 2001, $25.3 million for the period from October 2, 2000 to
January 3, 2001 and $87.8 million for the period from December 30, 1999 to
October 1, 2000. Net cash provided by operating activities exceeded the net
income for the periods due principally to the effect of depreciation and
amortization, an increase in accrued and other liabilities for 2000 and 2001,
net losses related to refinancing for 2002, and impairment of assets and losses
on sale leaseback transactions in 2003. Net cash provided by operating
activities in 2003 was partially reduced by a $17 million payment of accrued
redemption fees associated with the recapitalization of the Company in June
2002.

Net cash provided by investment activities was $26.7 million for the year
ended July 2, 2003, $2.6 million for fiscal 2001 and $4.5 million for the period
October 2, 2000 to January 3, 2001. Net cash

26


used in investment activities was $11.3 million for the 26 weeks ended July 3,
2002. The Company completed the sale and leaseback of certain leasehold
interests and leasehold improvements with respect to 23 restaurant locations
in 2001, one location in 2002 and 30 locations in 2003. Net proceeds from the
transactions were approximately $39.1 million in 2001, $2.3 million in 2002
and $26.1 million in 2003. The aggregate initial annual rent associated with
the sale and leaseback transactions was $3.2 million in 2001, $0.2 million in
2002 and $3.7 million in 2003. The Company did not recognize a gain or loss on
these transactions in 2001 or 2002, but recorded a loss of $5.9 million in 2003.
The losses primarily reflected 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 $3.6
million in 2003. This deferred gain is being accreted over the life of the
respective restaurant leases, ranging from 17 to 25 years. In addition, the
Company completed the sale of 13 Original Roadhouse Grill restaurants in 2003
for approximately $28.4 million in net proceeds, of which $2.5 million
represented a long-term note receivable. Capital expenditures totaled $25.7
million for fiscal 2003, $14.3 million for the 26 weeks ended July 3, 2002,
$38.1 million for fiscal 2001 and $14.4 million for the period from October 2,
2000 to January 3, 2001.

Net cash used in financing activities totaled $76.9 million for fiscal 2003,
$47.6 million for the 26 weeks ended July 3, 2002 and $59.7 million for fiscal
2001, and $138.8 million for the period from October 2, 2000 to January 3, 2001.
On June 28, 2002, we entered into new debt agreements to refinance our existing
debt, make a distribution to Buffets Holdings, and repurchase our outstanding
preferred stock warrants. We received $466.2 million in gross proceeds from the
issuance of 11 1/4% senior subordinated notes due July 15, 2010 in the principal
amount of $230 million, net of discount of $8.8 million, and $245.0 million
borrowed under a new $295.0 million senior credit facility. We incurred $14.1
million in transaction fees related to the refinancing transactions. The net
proceeds from the new debt agreements, cash on hand and a $17 million short-term
redemption fee note payable were used to (i) repay the remaining principal
indebtedness under our former credit facility, $212.4 million, (ii) redeem the
$80.0 million aggregate principal amount of our 14% senior subordinated notes
due September 29, 2008, (iii) redeem the $15.0 million aggregate principal
amount of Buffets Holdings' 16% senior subordinated notes due September 29, 2008
and $2.2 million in deferred interest, (iv) pay $4.3 million in accrued
interest, (v) pay $20.5 million in prepayment and make-whole redemption fees,
(vi) make a $141.2 million distribution to Buffets Holdings, and (vii) pay $7.2
million to repurchase the preferred stock warrants. In connection with the
transactions, we incurred a loss of $38.5 million. The loss related to
refinancing consisted of $20.5 million for the prepayment and make-whole
redemption fees, $11.0 million in write-offs of financing costs related to the
retired debt, $4.1 million of unamortized debt discount write-offs related to
the 16% and 14% senior subordinated notes, $2.1 million paid to the holders of
the common stock warrants, and $0.8 million in expenses. As of July 2, 2003, our
debt was $393.8 million, of which $171.8 million was senior indebtedness.
Financing activities in fiscal 2001 and 2003 consisted primarily of scheduled
and accelerated repayments of debt.

In connection with the redemption of our 14% senior subordinated notes and
Buffets Holdings' 16% senior subordinated notes, we agreed to pay $18.0 million
of redemption fees, of which $1.0 million was paid at closing out of the net
proceeds of the offering of the initial notes and was accounted for as part of
the transaction fees and expenses relating to the Refinancing Transactions. An
additional $5.0 million of redemption fees was paid on each of September 30,
2002 and December 31, 2002. The final payment of $7.0 million was made on
February 4, 2003. The redemption fees were included in accrued liabilities on
our balance sheet until these periodic

27



installment payments were paid from our cash flow from operations. The
redemption fees were recognized as a loss related to refinancing in the 26-week
transitional period ended July 3, 2002.

As previously discussed, on June 28, 2002, we entered into a senior credit
facility which provided for total borrowings of up to $295 million, including
(i) a $245 million term loan, (ii) a $30 million revolving credit facility, of
which up to $20 million is available in the form of letters of credit, and (iii)
a separate $20 million letter of credit facility. The terms of the senior credit
facility permit us to borrow, subject to availability and certain conditions,
incremental term loans or to issue additional notes in an aggregate amount up to
$25 million. The Company has the option of tying its borrowings to LIBOR or a
base rate when calculating the interest rate for the term loan. The base rate is
the greater of Credit Suisse First Boston's prime rate, or the federal funds
effective rate plus one-half of 1 percent. The term loan matures on June 28,
2009 while the revolving facility and the letter of credit facility mature on
June 28, 2007. The borrowings due under the term loan are payable in equal
quarterly installments in an annual amount equal to 1% of the term loan during
each of the first six years of the loan (beginning on September 30, 2002), with
the remaining balance payable due in equal quarterly installments during the
seventh year of the loan. The term loan is secured by substantially all of our
assets other than those of our Tahoe Joe's Inc. subsidiary. Buffets Holdings,
Inc. has also guaranteed the repayment of the senior credit facility. Buffets
Holdings, Inc., the sole shareholder of the Company, has guaranteed the
repayment of the Credit Facility. Pursuant to the Credit Facility's requirement,
the Company purchased an interest rate cap with a notional value of $15,000,000
and a 5% LIBOR strike price that expires on June 30, 2004. Availability under
the senior credit facility depends upon our continued compliance with certain
covenants and financial ratios including leverage, interest coverage and fixed
charge coverage as specifically defined in the senior Credit Agreement dated
June 28, 2002. The Company was in compliance with all financial ratio covenants
as of July 2, 2003. The financial ratio covenant requirements increase over
time, however, as set forth in the senior Credit Agreement.

As of July 2, 2003, we had approximately $27.1 million in outstanding
letters of credit, which expire through May 2, 2004. As of July 2, 2003, the
total borrowing availability under the revolving credit facility was $21 million
and the total borrowing capacity under the letter of credit facility was
approximately $1.9 million.

Also as discussed above, on June 28, 2002, we issued $230.0 aggregate
principal amount of our 11 1/4% senior subordinated notes due July 15, 2010.
Gross proceeds from the offering of the notes were approximately $221.2 million.
Interest is payable semi-annually on January 15 and July 15 of each year. Except
in the event of an initial public offering, we are not entitled to redeem the
notes prior to July 15, 2006, after which we can choose to redeem some or all of
the notes at specified redemption prices. The indenture governing the notes
contains covenants limiting our ability to (1) incur additional indebtedness,
(2) pay dividends on our capital stock or redeem, repurchase or retire our
capital stock or subordinated indebtedness, (3) make investments, (4) create
restrictions on the payment of dividends, (5) engage in transactions with
affiliates, (6) sell assets, and (7) consolidate, merge or transfer assets. The
payment of principal, premium and interest on the notes is fully and
unconditionally guaranteed, jointly and severally, by some of our wholly-owned
subsidiaries, namely Distinctive Dining, Inc., Hometown Buffet, Inc.,
OCB Purchasing Co., OCB Restaurant Co. and Restaurant Innovations, Inc.

During the first quarter of fiscal 2004, we do not plan to open any new
restaurants. We estimate that we will spend approximately $8 million in the
aggregate on the construction of new restaurants,

28



remodeling for existing facilities and corporate and system investments.

For the next twelve months, we believe that cash flow from operations and
available borrowing capacity will be adequate to finance these development
plans, our on-going operations as well as our debt service obligations. In
addition, we may fund restaurant openings through credit received by trade
suppliers and landlord contributions.

SEASONALITY AND QUARTERLY FLUCTUATIONS

Our sales are seasonal, with a lower percentage of annual sales occurring in
most of our current market areas during the winter months. Our restaurant sales
may also be affected by unusual weather patterns, major world events or matters
of public interest that compete for customers' attention. Generally, restaurant
sales per unit are lower in the winter months, our third fiscal quarter ending
in late April of each year. The impact of these reduced average weekly sales
will be mitigated in our future quarterly data presentations through the
inclusion of 16 weeks in the quarter ending in late April of each year, compared
to only 12 or 13 weeks in each of the other fiscal quarters.

NEW ACCOUNTING STANDARDS

In July, 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred, rather than when a company commits to an exit
plan as was previously required. We adopted SFAS No. 146 effective January 1,
2003. Its adoption did not have a material impact on our consolidated results of
operations, financial position or cash flow for 2003.

29



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

INTEREST RATE RISKS. We have interest rate exposure relating to the variable
portion of our long-term obligations. Our 11 1/4% senior subordinated notes are
fixed and the interest rates on the term loans under our senior credit facility
are variable. A 1% change in interest rates on our variable rate debt would have
resulted in our interest rate expense fluctuating by approximately $2.2 million
for fiscal 2003. Our interest rate risk is mitigated, in part, by an interest
rate cap purchased on November 25, 2002 with a notional value of $15 million and
a 5% LIBOR strike price that expires on June 30, 2004.

FOOD COMMODITY RISKS. Many of the food products purchased by us are affected
by commodity pricing and are, therefore, subject to price volatility caused by
weather, production problems, delivery difficulties and other factors that are
outside our control. To control this risk in part, we have fixed price purchase
commitments with terms of one year or less for some key food and supplies from
vendors who supply our national food distributor. In addition, we believe that
substantially all of our food and supplies are available from several sources,
which helps to control food commodity risks. We believe we have the ability to
increase menu prices, or vary the menu items offered, if needed, in response to
food product price increases within the range that has been experienced
historically. To compensate for a hypothetical price increase of 10% for food
and beverages, we would need to increase menu prices by an average of
approximately 3% percent. Our average price increases were approximately 2% for
fiscal 2003. Accordingly, we believe that a hypothetical 10% increase in food
product costs would not have a material effect on our operating results.

CONTRACTUAL OBLIGATIONS

The following table provides aggregate information about our material
contractual payment obligations and the fiscal year in which these payments are
due:




PAYMENTS DUE BY FISCAL YEAR

2004 2005 2006 2007 THEREAFTER TOTAL
--------- --------- -------- --------- ---------- -----------
(IN THOUSANDS)

Long-term debt(1)........... $ 1,735 $ 1,735 $1,735 $ 1,735 $ 394,862 $ 401,802
Operating leases(2)......... 53,036 51,526 49,413 47,317 355,176 556,468
Advisory fees(3)............ 3,295 3,265 3,140 3,027 -- 12,727
--------- --------- -------- -------- ----------- -----------
Total contractual cash
obligations........... $ 58,066 $ 56,526 $ 54,288 $ 52,079 $ 750,038 $ 970,997
========= ========= ======== ======== =========== ===========
- ----------



(1) Long-term debt payments for fiscal 2004 and beyond represent the required
debt payments on our credit facility and the notes.

(2) Operating leases is comprised of minimum rents and contingent rents.
Operating leases have not been reduced by minimum sublease rentals of
approximately $20,013,000. See Note 10 to our consolidated financial
statements included elsewhere in this report for details of our operating
lease obligations.

30



(3) 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
Caxton-Iseman Capital. See "Certain Relationships and Related Transactions."
Under the terms of these agreements, Mr. Hatlen and Sentinel Capital are
each paid a fixed-price annual fee. The fee of Caxton-Iseman is calculated
as a percentage of our earnings before interest, taxes, depreciation and
amortization, which in fiscal 2003 resulted in a payment of $2.8 million.
This figure has been used as an estimate for our obligations under that
agreement for fiscal 2004 and each fiscal year thereafter. The agreements
with Caxton-Iseman 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.

OTHER COMMERCIAL COMMITMENTS

The following table provides aggregate information about our commercial
commitments and the fiscal year in which they expire:

AMOUNT OF COMMITMENT EXPIRATION BY FISCAL YEAR



2004 2005 2006 2007 THEREAFTER TOTAL
--------- ------- -------- ------- ------------- ----------
(IN THOUSANDS)

Letters of credit(1)............. $ 27,116 $ -- $ -- $ -- $ -- $ 27,116
Management loan guarantees(2)....
-- -- -- -- 499 499
--------- ------- -------- ------- ------------- ----------
Total commercial commitments
$ 27,116 $ -- $ -- $ -- $ 499 $ 27,615
========= ======= ======== ======= ============= ==========


- ----------


(1) Our outstanding letters of credit are payable at various times with final
payments becoming due in May 2004. As of July 2, 2003, the total borrowing
availability under the revolving credit facility was $21,000,000 and the
total borrowing capacity under the letter of credit facility was
$1,883,640.

(2) The management loan guarantees comprise our guarantee on loans provided by
U.S. Bank to certain members of management. See "Certain Relationships and
Related Transactions."

31



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


INDEX TO FINANCIAL STATEMENTS

BUFFETS, INC. AND SUBSIDIARIES

PAGE
----
Independent Auditors' Report........................................... 33

Consolidated Balance Sheets as of January 2, 2002,
July 3, 2002 and July 2, 2003.......................................... 34

Consolidated Statements of Operations for the Period
from December 30, 1999 through October 1, 2000, for the
Period from October 2, 2000 through January 3, 2001, for
the Year Ended January 2, 2002, for the Twenty-Six Week
Transitional Period Ended July 3, 2002 and for the Year
Ended July 2, 2003..................................................... 35

Consolidated Statements of Shareholder's Equity (Deficit)
for the Period from December 30, 1999 through October 1, 2000,
for the Period from October 2, 2000 through January 3, 2001,
for the Year Ended January 2, 2002, for the Twenty-Six Week
Transitional Period Ended July 3, 2002 and for the Year
Ended July 2, 2003..................................................... 36

Consolidated Statements of Cash Flows for the Period from
December 30, 1999 through October 1, 2000, for the
Period from October 2, 2000 through January 3, 2001,
for the Year Ended January 2, 2002, for the Twenty-Six
Week Transitional Period Ended July 3, 2002 and for the
Year Ended July 2, 2003................................................ 37

Notes to Consolidated Financial Statements............................. 39

32



INDEPENDENT AUDITORS' REPORT




To the Shareholder of Buffets, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Buffets,
Inc. (a Minnesota corporation) and Subsidiaries (the Company) as of July 2,
2003, July 3, 2002 and January 2, 2002, and the related consolidated statements
of operations, shareholder's equity (deficit) and cash flows for the year ended
July 2, 2003, the twenty-six week transitional period ended July 3, 2002, the
year ended January 2, 2002, the period from inception (October 2, 2000) through
January 3, 2001 and the period from December 30, 1999 through October 1, 2000
(Predecessor Company). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Buffets, Inc. and Subsidiaries as of July 2,
2003, July 3, 2002 and January 2, 2002, and the results of their operations and
their cash flows for the year ended July 2, 2003, the twenty-six week
transitional period ended July 3, 2002, the year ended January 2, 2002, the
period from inception (October 2, 2000) through January 3, 2001, the period from
December 30, 1999 through October 1, 2000 (Predecessor Company), in conformity
with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Minneapolis, Minnesota
September 15, 2003

33




BUFFETS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



JANUARY 2, JULY 3, JULY 2,
2002 2002 2003
---------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................... $ 27,555 $ 8,304 $ 15,747
Receivables.................................................... 8,093 8,694 6,586
Inventories.................................................... 18,439 18,632 18,462
Prepaid expenses and other current assets...................... 8,529 10,086 8,039
Assets held for sale........................................... -- -- 1,390
Deferred income taxes.......................................... 15,027 19,000 15,216
-------- -------- --------
Total current assets................................... 77,643 64,716 65,440
PROPERTY AND EQUIPMENT, net...................................... 203,742 198,350 154,140
GOODWILL, net.................................................... 312,163 312,163 312,163
ASSETS HELD FOR SALE............................................. 28,352 24,952 --
DEFERRED INCOME TAXES............................................ 1,000 -- 2,932
OTHER ASSETS, net................................................ 14,878 15,445 18,311
-------- -------- --------
Total assets........................................... $637,778 $615,626 $552,986
======== ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable............................................... $ 29,028 $ 37,419 $ 43,777
Accrued liabilities (Note 3)................................... 83,654 92,442 77,407
Income taxes payable........................................... 5,123 2,804 4,787
Current maturities of long-term debt........................... 42,224 2,450 1,735
-------- -------- --------
Total current liabilities.............................. 160,029 135,115 127,706
LONG-TERM DEBT, net of current maturities........................ 305,996 463,767 392,023
DEFERRED INCOME TAXES............................................ -- 175 --
DEFERRED LEASE OBLIGATIONS....................................... 18,463 18,829 19,713
OTHER LONG-TERM LIABILITIES...................................... 4,632 4,525 7,889
-------- -------- --------
Total liabilities...................................... 489,120 622,411 547,331
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDER'S EQUITY (DEFICIT):
Common stock, $.01 par value, 100 shares authorized; 100
shares issued and outstanding............................... -- -- --
Additional paid-in capital..................................... 135,371 -- --
Retained earnings (accumulated deficit)........................ 13,287 (6,785) 5,655
-------- -------- --------
Total shareholder's equity (deficit)................... 148,658 (6,785) 5,655
-------- -------- --------
Total liabilities and shareholder's equity (deficit)... $637,778 $615,626 $552,986
======== ======== ========

The accompanying notes are an integral part of these consolidated financial statements.



34



BUFFETS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS




(PREDECESSOR) (SUCCESSOR)
FOR THE (SUCCESSOR) FOR THE
PERIOD FOR THE PERIOD TWENTY-
FROM FROM INCEPTION (SUCCESSOR) SIX WEEK (SUCCESSOR)
DECEMBER 30, (OCTOBER 2, FOR THE YEAR TRANSITIONAL FOR THE YEAR
1999 THROUGH 2000) THROUGH ENDED PERIOD ENDED ENDED
OCTOBER 1, JANUARY 3, JANUARY 2, JULY 3, JULY 2,
2000 2001 2002 2002 2003
------------ ------------- ------------ ------------ ------------
(IN THOUSANDS)

RESTAURANT SALES........................... $ 781,153 $ 239,370 $1,044,734 $ 527,084 $ 985,286
RESTAURANT COSTS:
Food..................................... 246,404 75,756 326,271 163,649 311,891
Labor.................................... 239,950 75,972 326,423 164,264 313,532
Direct and occupancy..................... 170,489 52,651 233,375 117,004 225,417
--------- --------- ---------- --------- ---------
Total restaurant costs........... 656,843 204,379 886,069 444,917 850,840
ADVERTISING EXPENSES....................... 21,888 5,726 27,640 14,349 28,589
GENERAL AND ADMINISTRATIVE
EXPENSES................................. 39,217 12,204 50,320 25,554 45,382
GOODWILL AMORTIZATION...................... 878 2,543 10,942 -- --
IMPAIRMENT OF ASSETS....................... -- -- -- -- 4,803
GAIN ON SALE OF ORIGINAL ROADHOUSE GRILL
RESTAURANTS................................ -- -- -- -- (7,088)
LOSS ON SALE LEASEBACK TRANSACTIONS........
-- -- -- -- 5,856
ACQUISITION-RELATED
COSTS.................................... 14,902 -- -- -- --
--------- --------- ---------- --------- ---------
OPERATING INCOME........................... 47,425 14,518 69,763 42,264 56,904
INTEREST EXPENSE........................... 1,970 13,078 43,405 15,076 40,146
INTEREST INCOME............................ (4,638) (267) (698) (212) (307)
LOSS RELATED TO
REFINANCING.............................. -- -- -- 38,476 --
OTHER INCOME............................... (1,126) (340) (1,040) (598) (1,270)
--------- --------- ---------- --------- ---------
INCOME (LOSS) BEFORE INCOME
TAXES.................................... 51,219 2,047 28,096 (10,478) 18,335
INCOME TAX EXPENSE
(BENEFIT)................................ 19,974 1,468 15,388 (3,450) 5,319
--------- --------- ---------- --------- ---------
Net income (loss)................ $ 31,245 $ 579 $ 12,708 $ (7,028) $ 13,016
========= ========= ========== ========= =========

The accompanying notes are an integral part of these consolidated financial statements.



35




BUFFETS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)





COMMON STOCK RETAINED
----------------------- EARNINGS
ADDITIONAL (ACCUMULATED
SHARES AMOUNT PAID-IN CAPITAL DEFICIT) TOTAL
---------- ------ --------------- ------------ -----
(IN THOUSANDS, EXCEPT SHARE DATA)

BALANCE, DECEMBER 29, 1999(PREDECESSOR)......... 41,545,359 $ 415 $ 111,152 $194,816 $306,383
Net income.................................... -- -- -- 31,245 31,245
Common stock issued under employees'
stock option plans.......................... 313,435 3 2,549 -- 2,552
Tax benefit from early disposition of
common stock issued under employees'
stock option plans.......................... -- -- 6,231 -- 6,231
------------ ----- --------- -------- ----------
BALANCE, OCTOBER 1, 2000 (PREDECESSOR).......... 41,858,794 $ 418 $ 119,932 $226,061 $ 346,411
============ ===== ========= ======== ==========

BALANCE, OCTOBER 2, 2000 (SUCCESSOR)............ 100 $ -- $ 135,371 $ -- $ 135,371
Net income.................................... -- -- -- 579 579
------------ ----- --------- -------- ----------
BALANCE, JANUARY 3, 2001 (SUCCESSOR)............ 100 -- 135,371 579 135,950
Net income.................................... -- -- -- 12,708 12,708
------------ ----- --------- -------- ----------
BALANCE, JANUARY 2, 2002 (SUCCESSOR)........... 100 -- 135,371 13,287 148,658
Redemption of stock warrants.................. -- -- (4,060) (3,140) (7,200)
Capital distribution.......................... -- -- (131,311) (9,904) (141,215)
Net loss...................................... -- -- -- (7,028) (7,028)
------------ ----- --------- -------- ----------
BALANCE, JULY 3, 2002 (SUCCESSOR)............... 100 -- -- (6,785) (6,785)
Capital distribution.......................... -- -- -- (576) (576)
Net income.................................... -- -- -- 13,016 13,016
------------ ----- --------- -------- ----------
BALANCE. JULY 2, 2003 (SUCCESSOR) 100 $ -- $ -- $ 5,655 $ 5,655
============ ===== ========= ======== ==========

The accompanying notes are an integral part of these consolidated financial statements.



36




BUFFETS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS




(PREDECESSOR) (SUCCESSOR) (SUCCESSOR)
FOR THE PERIOD FOR THE PERIOD FOR THE TWENTY- (SUCCESSOR)
FROM FROM INCEPTION (SUCCESSOR) SIX WEEK FOR THE
DECEMBER 30, (OCTOBER 2, FOR THE YEAR TRANSITIONAL YEAR
1999 THROUGH 2000) THROUGH ENDED PERIOD ENDED ENDED
OCTOBER 1, JANUARY 3, JANUARY 2. JULY 3, JULY 2,
2000 2001 2002 2002 2003
------------- -------------- ------------ -------------- ----------
(IN THOUSANDS)

OPERATING ACTIVITIES:
Net income (loss)....................... $ 31,245 $ 579 $ 12,708 $ (7,028) $ 13,016
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities-
Depreciation and amortization......... 32,368 11,311 53,404 20,409 36,885
Amortization of debt issuance costs... 174 1,042 3,905 1,617 1,182
Net loss related to refinancing:
Write-off of debt issuance costs.... -- -- -- 11,022 --
Accrued redemption fees............. -- -- -- 17,000 --
Original issue discount expensed.... -- -- -- 4,107 --
Accretion of original issue discount. -- 179 773 357 739
Deferred interest..................... -- 310 1,269 614 --
Impairment of assets.................. -- -- -- -- 4,803
Asset write-downs..................... -- -- 491 -- --
Tax benefit from early disposition of
common stock......................... 6,231 -- -- -- --
Deferred income taxes................. (7,968) 1,377 21 (2,798) 677
Gain on sale of Original Roadhouse
Grill restaurants.................... -- -- -- -- (7,088)
Loss on disposal of assets............ 544 -- 361 89 565
Loss on sale leaseback transactions... -- -- -- -- 5,856
Changes in assets and liabilities:
Receivables......................... 3,299 (3,147) (1,150) (859) 2,250
Inventories......................... 341 235 690 (193) 170
Prepaid expenses and other assets... (1,832) 383 (1,571) (1,557) 2,047
Accounts payable.................... 3,511 5,456 (7,939) 6,399 8,350
Accrued and other liabilities....... 14,204 7,531 2,837 (7,202) (13,779)
Income taxes payable/refundable..... 5,705 91 3,204 (2,319) 1,983
-------- --------- -------- -------- --------
Net cash provided by operating
activities......................... 87,822 25,347 69,003 39,658 57,656
-------- --------- -------- -------- --------
INVESTING ACTIVITIES:
Proceeds from sale leaseback transactions -- 19,601 39,075 2,281 26,117
Proceeds from sale of Original Roadhouse
Grill restaurants...................... -- -- -- -- 25,850
Purchase of fixed assets................ (35,596) (14,389) (38,096) (14,280) (25,722)
Proceeds from sale of other assets...... -- -- 1,651 1,130 971
Purchase of other assets................ (1,417) (672) (55) (468) (554)
-------- --------- -------- -------- --------
Net cash provided by (used in)
Investing activities........... (37,013) 4,540 2,575 (11,337) 26,662
-------- --------- -------- -------- --------



37



BUFFETS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)




(PREDECESSOR) (SUCCESSOR) (SUCCESSOR)
FOR THE PERIOD FOR THE PERIOD FOR THE TWENTY-
FROM FROM INCEPTION (SUCCESSOR) SIX WEEK (SUCCESSOR)
DECEMBER 30, (OCTOBER 2, FOR THE YEAR TRANSITIONAL FOR THE YEAR
1999 THROUGH 2000) THROUGH ENDED PERIOD ENDED ENDED
OCTOBER 1, JANUARY 3, JANUARY 2, JULY 3, JULY2,
2000 2001 2002 2002 2003
------------- ------------- ------------ --------------- ------------
(IN THOUSANDS)

FINANCING ACTIVITIES:
Repayment of debt..................... (332) (48,819) (53,896) (353,298) (73,198)
Payments of capital leases............ (686) -- -- -- --
Repurchase of common stock............ -- (596,473) -- -- --
Issuance of common stock, net......... -- 124,202 -- -- --
Proceeds from exercise of employee stock --
options.............................. 2,552 -- -- --
Proceeds from (repayment of) revolving --
credit facility...................... -- 5,000 (5,000) --
Proceeds from issuance of subordinated --
notes................................ -- 95,000 -- 221,217
Proceeds from Credit Facility......... -- 310,000 -- 245,000 --
Capital distributions................. -- -- -- (148,415) (576)
Transaction-related costs............. -- (12,009) -- -- --
Debt issuance costs................... -- (15,695) (823) (12,076) (3,101)
-------- --------- -------- --------- ---------
Net cash provided by (used in)
Financing activities......... 1,534 (138,794) (59,719) (47,572) (76,875)
-------- --------- -------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS.
52,343 (108,907) 11,859 (19,251) 7,443
CASH AND CASH EQUIVALENTS, beginning of
period............................... 72,260 124,603 15,696 27,555 8,304
-------- --------- -------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period
$124,603 $ 15,696 $ 27,555 $ 8,304 $ 15,747
======== ========= ======== ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for-
Interest (net of capitalized interest
of $368, $170, $369, $158 and $288,
respectively)..................... $ 2,457 $ 10,288 $ 35,546 $ 16,526 $ 26,956
======== ========= ======== ========= =========
Income taxes........................ $ 16,039 $ 602 $ 11,725 $ 1,587 $ 3,351
======== ========= ======== ========= =========
Non-cash investing activities during the
period for-
Note receivable on sale of Original
Roadhouse Grill restaurants........ $ -- $ -- $ -- $ -- $ 2,500
======== ========= ======== ========= =========

The accompanying notes are an integral part of these consolidated financial statements.



38




BUFFETS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1 NATURE OF ORGANIZATION

COMPANY BACKGROUND

Buffets Holdings, Inc. (Buffets Holdings), a Delaware corporation, was
formed to acquire 100 percent of the common stock of Buffets, Inc. and its
subsidiaries (the Company) in a buyout (the Acquisition) from public
shareholders. On October 2, 2000, pursuant to a sale agreement dated September
29, 2000 between Buffets Holdings and Caxton-Iseman Investments LLP
(Caxton-Iseman), Buffets Holdings acquired the common stock of Buffets, Inc. for
a total of $639.8 million funded by (i) $85 million in cash held by the Company,
(ii) $310 million borrowed under a $340 million senior credit agreement, (iii)
14 percent senior subordinated notes due September 29, 2008 in the principal
amount of $80 million, (iv) 16 percent senior subordinated notes due September
29, 2008 in the principal amount of $15 million, (v) warrants to purchase
205,696 shares of common stock and 61,709 shares of preferred stock, (vi) $20
million in proceeds from the sale and leaseback of the Company's Eagan,
Minnesota, headquarters facility, and (vii) $130 million of capital
contributions from Caxton-Iseman, Sentinel Capital and members of management.

The Acquisition was accounted for using the purchase method of accounting.
Accordingly, the assets acquired and liabilities assumed by Buffets Holdings
were recorded at fair value as of the date of the Acquisition. The excess of the
purchase price over the fair value of the assets acquired and liabilities
assumed totaling $325.5 million was recorded as goodwill and pushed down to the
Company. In addition, $14.9 million of acquisition-related costs were recognized
as a charge to the statement of operations for the period from December 30, 1999
through October 1, 2000. These charges were comprised of approximately $6.9
million of transaction-related costs, $3 million in public shareholder
litigation settlements and $5 million in risk reserve adjustments. The public
shareholder litigation settlements and the risk reserve requirements were
included in acquisition-related costs because they were required as a condition
of closing the buyout from public shareholders.

On June 28, 2002, the Company entered into new debt agreements to refinance
its existing debt, make a distribution to Buffets Holdings, and repurchase its
outstanding preferred stock warrants. The Company received $466.2 million in
gross proceeds from the issuance of 11 1/4% senior subordinated notes due July
15, 2010 in the principal amount of $230 million, net of discount of $8.8
million, and $245.0 million borrowed under a new $295.0 million senior credit
facility. The Company incurred $14.1 million in transaction fees related to the
refinancing transactions. The net proceeds from the new debt agreements, cash on
hand and a $17 million short-term redemption fee payable were used to (i) repay
the remaining principal indebtedness under the Company's former credit facility
of $212.4 million, (ii) redeem the $80.0 million aggregate principal amount of
its 14% senior subordinated notes due September 29, 2008, (iii) redeem the $15.0
million aggregate principal amount of Buffets Holdings' 16% senior subordinated
notes due September 29, 2008 and $2.2 million in deferred interest, (iv) pay
$4.3 million in accrued interest, (v) pay $20.5 million in prepayment and
make-whole redemption fees, (vii) make a $141.2 million distribution to Buffets
Holdings, and (viii) pay $7.2 million to repurchase Buffets Holdings' preferred
stock warrants. In connection with the transactions, the Company incurred a loss
of $38.5 million. The loss related to

39



refinancing consisted of $20.5 million for the prepayment and make-whole
redemption fees, $11.0 million write-off of financing costs related to the
retired debt, $4.1 million of unamortized debt discount related to the 16%
and 14% senior subordinated notes, $2.1 million paid to the holders of the
common stock warrants, and $0.8 million in expenses.

DESCRIPTION OF BUSINESS

The Company owns and operates a chain of restaurants under the names of Old
Country Buffet, Country Buffet, HomeTown Buffet, Granny's Buffet, Country
Roadhouse Buffet & Grill, Tahoe Joe's Famous Steakhouse and Soup 'N Salad
Unlimited in the United States. Until June 2003, the Company also operated 13
Original Roadhouse Grill restaurants. The Company, operating principally in the
mid-scale family dining industry segment, owned and operated 372 restaurants
(364 family buffet restaurants) and franchised 23 restaurants operating as of
July 2, 2003.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions have been
eliminated in consolidation.

FISCAL YEAR

Beginning July 3, 2002, the Company changed its fiscal year so that it ends
on the Wednesday nearest June 30 of each year. The Company's new fiscal year is
comprised of 52 or 53 weeks divided into four fiscal quarters of 12, 12, 16, and
12 or 13 weeks, respectively. Prior to July 3, 2002, its fiscal year ended on
the Wednesday nearest December 31 of each year and was comprised of 52 or 53
weeks divided into four fiscal quarters of 16, 12, 12, and 12 or 13 weeks,
respectively. All references herein to "2003" represent the 52-week period ended
July 3, 2003. All references herein to "2002" represent the 26-week period ended
July 3, 2002. All references herein to "2001" represent the 52-week period ended
January 2, 2002.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Investments with original maturities of three months or less are considered
to be cash equivalents and are recorded at cost, which approximates market
value. Cash equivalents consist principally of commercial paper and money market
funds.

RECEIVABLES

Receivables primarily consist of credit card receivables, landlord
receivables and vendor rebates. Landlord receivables represent the portion of
costs for leasehold improvements remaining to be reimbursed by landlords at
year-end. Vendor rebates result from discounts on purchases negotiated with the
vendors. Rebates are recorded as a reduction to food costs in the statement of
operations as the associated food cost is recognized.

40



INVENTORIES

Inventories, consisting primarily of food, beverage, china and smallwares
for each restaurant location, are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method for food and beverage inventories.
China and smallwares are stated at their original cost and subsequent additions
and replacements are expensed as purchased.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is provided using
the straight-line method for financial reporting purposes and accelerated
methods for income tax reporting purposes. Equipment is depreciated over
estimated useful lives, ranging from 3 to 10 years. Leasehold improvements are
amortized over the terms of the related leases, generally 10 to 15 years.
Buildings are depreciated over estimated useful lives, generally 39 1/2 years.

Maintenance and repairs are charged to expense as incurred. Major
improvements, which extend the useful life of an item, are capitalized and
depreciated. The cost and accumulated depreciation of property and equipment
retired or otherwise disposed of are removed from the related accounts, and any
residual values are charged or credited to income.

Property and equipment was as follows (in thousands):

JANUARY 2, JULY 3, JULY 2,
2002 2002 2003
------------ ----------- -----------
Land............................ $ 745 $ 1,662 $ 1,669
Buildings....................... -- 174 2,696
Equipment....................... 104,505 111,611 117,928
Leasehold improvements.......... 144,571 148,210 121,140
Less- Accumulated depreciation
and amortization............. 46,079 63,307 89,293
------------ ----------- -----------
$ 203,742 $ 198,350 $ 154,140
============ =========== ===========

The Company sold 23 restaurant locations in 2001, one location in 2002 and
30 locations in 2003. The Company leased the restaurants back applying
provisions of Statement of Financial Accounting Standards (SFAS) No. 98,
"Accounting for Leases." Net proceeds from the transactions were approximately
$39.1 million in 2001, $2.3 million in 2002 and $26.1 million in 2003. The
aggregate initial annual rent associated with the sale and leaseback
transactions was $3.2 million in 2001, $0.2 million in 2002 and $3.7 million in
2003. The Company did not recognize a gain or loss on these transactions in 2001
or 2002, but recorded a loss of $5.9 million in 2003. The losses primarily
reflected 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 $3.6 million in 2003. This
deferred gain is being accreted over the life of the respective restaurant
leases, ranging from 17 to 25 years. The Company does not have any continuing
involvement with these sale and leaseback locations. These leases are accounted
for as operating leases.

41



GOODWILL

Goodwill, a result of the Acquisition, represents the excess of cost over
net assets acquired. Goodwill was amortized on a straight-line basis over 15 to
30 years until the adoption of Statement of Financial Accounting Standards
(SFAS) No. 142, "Goodwill and Other Intangible Assets", on January 3, 2002.
Accumulated amortization for goodwill was $13.5 million as of January 2, 2002
and July 3, 2002. There were no goodwill impairment charges for any of the
periods presented.

Based on the Company's current cash flows, the fair value of its goodwill
exceeds the carrying amount of this asset. The effect of SFAS No. 142 on the
results of operations for the period from December 30, 1999 through October 1,
2000, the period from inception (October 2, 2000) through January 3, 2001, 2001,
2002 and 2003 was as follows (in thousands):




(SUCCESSOR)
(PREDECESSOR) FOR THE PERIOD (SUCCESSOR)
FOR THE PERIOD FROM FOR THE 26-
FROM INCEPTION (SUCCESSOR) WEEK (SUCCESSOR)
DECEMBER 30, (OCTOBER 2 FOR THE YEAR TRANSITIONAL FOR THE YEAR
1999 THROUGH 2000) THROUGH ENDED PERIOD ENDED ENDED
OCTOBER 1, JANUARY 3, JANUARY 2, JULY 3, JULY 2,
2000 2001 2002 2002 2003
------------- ------------- ------------ ------------ ------------

Reported net income
(loss)............ $ 31,245 $ 579 $12,708 $ (7,028) $ 13,016
Add: goodwill
Amortization...... 878 2,543 10,942 -- --
Add: liquor license
Amortization...... 10 2 23 -- --
-------- ------ ------- -------- --------
Adjusted net income
(loss).......... $ 32,133 $3,124 $23,673 $ (7,028) $ 13,016
======== ====== ======= ======== =========


ASSETS HELD FOR SALE

Assets held for sale include net assets such as land, buildings and
equipment that are in the process of being sold and are recorded at the lower of
carrying value or fair market value less costs to sell based upon valuation
estimates from brokers and negotiations with prospective purchasers, as follows
(dollars in thousands):




CARRYING AMOUNTS AS OF
----------------------
DESCRIPTION OF ASSETS TO BE FACTS AND CIRCUMSTANCES LEADING TO JANUARY 2, JULY 3, JULY 2,
DISPOSED EXPECTED DISPOSAL 2002 2002 2003
- --------------------------- ---------------------------------- ---------- ------ ------

Undeveloped properties Decision not to develop; sold two properties $ 1,843 $ 1,843 $ 698
in 2003
Non-restaurant property Decision to reduce fixed overhead; changed
decision in 2003 due to increased utilization 929 929 --
Restaurant in Texas Decision to sell underperforming restaurant 692 692 692
Restaurant in Oregon Decision to perform sale leaseback
transaction; sold in 2002 2,281 -- --
Original Roadhouse Grill Decision to sell brand to reduce debt burden;
restaurants sold in 2003 22,607 21,488 --
------- ------- -------
$28,352 $24,952 $ 1,390
======= ======= =======



42



The expected disposal dates of the assets to be disposed were uncertain
prior to 2003, thereby resulting in their non-current classification for those
periods. The Company recorded an adjustment to direct and occupancy costs to
reduce the carrying amount of the non-restaurant property, upon the decision to
retain the facility, of approximately $0.1 million in 2003. The restaurants held
for sale had revenues of approximately $38.6 million and operating income of
approximately $3.2 million for 2003. The sale of the Original Roadhouse Grill
restaurants in June 2003 resulted in a gain of approximately $7.1 million, which
has been presented as a separate line item in the accompanying consolidated
statements of operations.

OTHER ASSETS

Other assets consist principally of debt issuance costs, notes receivable
and other intangibles net of accumulated amortization of $5.1 million, $0.1
million and $1.3 million as of January 2, 2002, July 3, 2002 and July 2, 2003,
respectively. Debt issuance costs, associated with a refinancing transaction
completed on June 28, 2002, represent the costs incurred to enter into the
senior credit agreement and issue the senior subordinated notes. The debt
issuance costs are being amortized over the terms of the financing arrangements
using the effective interest method. Other intangibles include trademarks,
franchise fees and liquor licenses. Trademarks and franchise fees are being
amortized on a straight-line basis over 10 years. Liquor licenses are not
amortized, as they have indefinite lives. Notes receivable principally arose
from the sale of certain restaurant facilities. Long-term and short-term notes
receivable collectively totaled $1.6 million as of January 2, 2002, $0.8 million
as of July 3, 2002 and $3.4 million as of July 2, 2003. The notes receivable had
due dates between 2004 and 2008.

The gross carrying amount and accumulated amortization of each major
intangible asset class was as follows (in thousands):





FRANCHISE FEES TRADEMARKS LIQUOR LICENSES TOTAL
----------------------- ----------------------- ---------------------- ----------------------
GROSS GROSS GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION AMOUNT AMORTIZATION AMOUNT AMORTIZATION
-------- ------------ -------- ------------ -------- ------------ -------- ------------

BALANCE, January 2, 2002. $ 69 $ (21) $ 34 $ (10) $ 469 $ (25) $ 572 $ (56)
FY 2002 Activity:
Amortization........... -- (9) -- (4) -- -- -- (13)
Reductions ............ -- -- -- -- (12) -- (12) --
---- ----- ---- ----- ----- ----- ----- -----
BALANCE, July 3, 2002.... 69 (30) 34 (14) 457 (25) 560 (69)
FY 2003 Activity:
Amortization........... -- (14) -- (7) -- -- -- (21)
Reductions............. -- -- -- -- (140) -- (140) --
---- ----- ---- ----- ----- ----- ----- -----
BALANCE, July 2, 2003.... $ 69 $ (44) $ 34 $ (21) $ 317 $ (25) $ 420 $ (90)
==== =====- ==== =====- ===== =====- ===== =====-





The estimated amortization expense for each of the next two years is
approximately $20,000 at which time franchise fees and trademarks are expected
to be fully amortized.

RECOVERABILITY OF LONG-LIVED ASSETS

The Company periodically evaluates long-lived assets and goodwill related to
those assets for impairment whenever events or changes in circumstances indicate
the carrying value amount of an asset or group of assets may not be recoverable.
The Company considers a history of operating losses and the other factors
described to be its primary indicator of potential impairment. Assets are
grouped and evaluated for impairment at the lowest level for which there are
identifiable cash flows, namely individual restaurants. A restaurant is deemed
to be impaired if a forecast of undiscounted

43



future operating cash flows directly related to the restaurant, including
disposal value, if any, are less than its carrying amount. If a restaurant is
determined to be impaired, the loss is measured as the amount by which the
carrying amount of the restaurant exceeds its fair value. Fair value is based
on quoted market prices in active markets, if available. If quoted market prices
are not available, an estimate of fair value is based on the best information
available, including prices for similar assets or the results of valuation
techniques such as discounted estimated future cash flows as if the decision to
continue to use the impaired restaurant was a new investment decision. The
Company generally measures fair value by discounting estimated future cash
flows. Considerable management judgment is necessary to estimate discounted
future cash flows. Accordingly, actual results could vary significantly from
such estimates. There were no impairment charges in 2000 or 2001. During 2002,
the Company expensed approximately $1.1 million relating to the impairment of
assets associated with 12 restaurants (see footnote 3). During 2003, the Company
expensed approximately $4.8 million relating to the impairment of long-lived
assets for 27 restaurants, as well as an additional $0.8 million related to the
impairment of assets associated with 12 restaurants (see footnote 3).

PRE-OPENING COSTS

Costs incurred in connection with the opening of new restaurants are
expensed as incurred in accordance with Statement of Position (SOP) 98-5,
"Reporting on the Costs of Start-up Activities." SOP 98-5 requires companies to
expense as incurred all start-up and pre-opening costs that are not otherwise
capitalized as long-lived assets.

ADVERTISING EXPENSES

Advertising costs are charged to expense as incurred.

INCOME TAXES

The Company utilizes SFAS No. 109, "Accounting for Income Taxes." Under
SFAS No. 109, the deferred tax provision is determined under the liability
method. Under this method, deferred tax assets and liabilities are recognized
based on differences between the financial statement and tax bases of assets
and liabilities using presently enacted tax rates.

JOINT VENTURES

As of July 2, 2003, the Company had one joint venture, Tahoe Joe's Inc.,
which owned and operated our Tahoe Joe's Famous Steakhouses. The Company had an
80% interest in Tahoe Joe's Inc., and a call option with respect to the
remaining 20% interest of the minority holder. The minority holder had a
corresponding put option with respect to his shares. The Company exercised its
call option with respect to the minority holder's share subsequent to year-end
and purchased the 20% interest of the minority holder for $370,000 (see footnote
13).

REVENUE RECOGNITION

The Company's restaurant sales include proceeds from the sale of food and
beverages at Company-owned restaurants.

44



The Company recognizes franchise income for royalty fees and initial
franchise fees received from franchisees. Initial fees are recognized as income
when required obligations under the terms of the franchise agreement are
fulfilled. Royalty fees are based on gross sales and are recognized in income as
sales are generated. Franchise income was $1.2 million for the period from
December 30, 1999 through October 1, 2000, $0.3 million for the period from
inception (October 2, 2000) through January 3, 2001, $1.3 million for 2001, $0.7
million for 2002 and $1.2 million for 2003. Franchise income is included in
other income in the accompanying consolidated statements of operations.

The Company sells gift cards at its restaurants. Revenues are recognized
upon the redemption of the gift cards. Unearned revenue represents gift cards
sold and not yet redeemed and is included in accrued liabilities in the
accompanying consolidated balance sheets.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash and cash equivalents,
receivables, notes receivable, accounts payable and long-term debt for which
current carrying amounts are equal to or approximate fair market values. The
following methods were used in estimating the fair value of each class of
financial instrument:

For cash equivalents, receivables and accounts payable the carrying amounts
approximate fair value because of the short duration of these financial
instruments. The fair value of notes receivable is estimated based on the
present value of expected future cash flows discounted at the interest rate
currently offered by the Company which approximates rates currently being
offered by local lending institutions for loans of similar terms to companies of
comparable credit risk. The fair value of long-term debt is estimated by
discounting future cash flows for these instruments using the Company's expected
borrowing rate for debt of comparable risk and maturity.

SEGMENT REPORTING

The Company operates principally in the mid-scale family dining industry
segment in the United States, providing similar products to similar customers.
The company's restaurants possess similar economic characteristics resulting in
similar long-term expected financial performance characteristics. Revenues are
derived principally from food and beverage sales. The Company does not rely on
any major customers as a source of revenue. Management believes that the Company
meets the criteria for aggregating its operations into a single reporting
segment.

RECLASSIFICATIONS

Certain amounts shown in the prior-period consolidated financial statements
have been

45



reclassified to conform with the current year consolidated financial
statement presentation. These reclassifications had no effect on net income or
shareholder's equity as previously presented.

3 RECENT ACCOUNTING PRONOUNCEMENTS

In July, 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". This statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred, rather than when a company commits to an exit
plan as was previously required. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company adopted SFAS
No. 146 effective January 1, 2003. SFAS No. 146 had no impact on our
consolidated results of operations, financial position or cash flow for 2003.

4 ACCRUED LIABILITIES

Accrued liabilities consisted of the following (in thousands):

JANUARY 2, JULY 3, JULY 2,
2002 2002 2003
--------- --------- ---------
Accrued compensation............... $ 20,043 $ 21,764 $ 20,599
Redemption fee payable............. -- 17,000 --
Accrued workers' compensation...... 12,749 13,468 16,894
Accrued insurance.................. 9,883 10,203 8,513
Accrued store closing costs........ 9,378 7,091 2,782
Unearned revenue................... 8,063 5,306 4,521
Accrued sales taxes................ 5,058 4,454 3,921
Accrued other...................... 18,480 13,156 20,177
--------- --------- ---------
$ 83,654 $ 92,442 $ 77,407
========= ========= =========

All of the store closing activity recorded in the store closing cost accrual
as of July 2, 2003 relates to store closings identified and recognized prior to
December 31, 2002. The Company provided for these store closing costs,
specifically identified and approved for closure in the succeeding year, in
accordance with EITF 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)" and EITF 95-3, "Recognition of Liabilities
in Connection with a Purchase Business Combination". The store closing costs are
principally comprised of lease termination costs and obligations net of sublease
and other cash receipts and employee termination benefits as summarized below
(in thousands):




JANUARY 2, JULY 3, JULY 2,
2002 2002 2003
-------- -------- ---------

Lease termination costs and obligations, net of
sublease and other cash receipts................... $ 9,198 $ 6,926 $ 2,782
Employee termination benefits........................ 180 165 --
------- -------- ---------
Total accrued store closing costs............... $ 9,378 $ 7,091 $ 2,782
======= ======== =========



46



The following table summarizes store closing reserve activity by type of
cost for the past two fiscal years (in thousands):




(SUCCESSOR)
FOR THE
TWENTY-SIX (SUCCESSOR)
WEEK TRANSITIONAL FOR THE YEAR
PERIOD ENDED ENDED
JULY 3, 2002 JULY 2, 2003
------------ ------------

BALANCE, beginning of year................................. $ 9,378 $ 7,091
Additions:
Lease obligations charged to earnings (as direct
and occupancy costs).................................. 450 167
Employee termination benefits charged to earnings
(as direct and occupancy costs)....................... 112 83
Reductions:
Cash payments:
Lease termination costs and obligations............. 1,630 3,471
Employee severance benefits......................... 127 248
Change in lease obligation accrual assumptions........ 1,092 840
--------- --------
BALANCE, end of year....................................... $ 7,091 $ 2,782
========= ========



The change in accrual assumptions is based on the Company receiving greater
than planned sublease and other cash receipts during 2002 and 2003. The expense
recovery was included in the same line item in the statement of operations as
the Company's impairment of underperforming restaurant properties.

The following table summarizes planned and actual store closing activity for
the past two fiscal years:




(SUCCESSOR)
FOR THE TWENTY-SIX
WEEK TRANSITIONAL (SUCCESSOR)
PERIOD ENDED FOR THE YEAR ENDED
JULY 3, 2002 JULY 2, 2003
------------ ------------

Number of stores:
Expected to close as of the beginning of the period...... 12 13
Closed during the period.............................. 9 14
Identified for closure during the period............. 10 4
--- ---
Expected to close as of the end of the period............ 13 3
=== ===
Number of employees:
Expected to be terminated as of the beginning of
the period............................................ 420 455
Terminated during the period............................. 310 490
Identified for termination during the period............. 350 140
Expected to be terminated as of the end of the period.... 455 105



47




The remaining store closing reserves are expected to be paid, or incurred,
by year as follows (in thousands):

2004............ $ 1,625
2005............ 215
2006............ 191
2007............ 175
2008............ 165
Thereafter...... 411
--------
$ 2,782

5 LONG-TERM DEBT

Long-term debt outstanding was as follows (in thousands):



JANUARY 2, JULY 3, JULY 2,
2002 2002 2003
---------- ---------- ----------

Credit Facility:
Revolving credit facility................................. $ -- $ -- $ --
Tranche A, interest at LIBOR plus 3.25%, due
Quarterly through September 30, 2005 (interest rates
from 5.8% to 7.0% as of January 2, 2002)............... 117,762 -- --
Tranche B, interest at LIBOR plus 3.75%, due
Quarterly through March 31, 2007 (interest rates
from 6.3% to 7.5% as of January 2, 2002)............... 138,342 -- --
Term loan, interest at LIBOR plus 3.50%, due
Quarterly through June 28, 2009 (interest rate
at 4.6% as of July 2, 2003)............................ -- 245,000 171,802
---------- ---------- ----------
Total Credit Facility............................. 256,104 245,000 171,802
Senior subordinated notes, interest at 14% and 16%,
due September 29, 2008, net of discount of $4,464 at
January 2, 2002.......................................... 92,116 -- --
Senior subordinated notes, interest at 11.25%, due
July 15, 2010, net of discount of $8,783 at July
3, 2002 and $8,044 at July 2, 2003........................ -- 221,217 221,956
---------- ---------- ----------
Total long-term debt.............................. 348,220 466,217 393,758
Less-- Current maturities................................... 42,224 2,450 1,735
---------- ---------- ----------
$ 305,996 $ 463,767 $ 392,023
========== ========== ==========



As of July 2, 2003, future maturities of long-term debt by year were as
follows (in thousands):

2004.............. $ 1,735
2005.............. 1,735
2006.............. 1,735
2007.............. 1,735
2008.............. 1,735
Thereafter........ 393,127
------------
$ 401,802

48



CREDIT FACILITY

On June 28, 2002, the Company entered into a new senior credit facility (the
Credit Facility) which provided for total borrowings of up to $295,000,000,
including (i) a $245,000,000 term loan, (ii) a $30,000,000 revolving credit
facility, of which up to $20,000,000 is available in the form of letters of
credit, and (iii) a separate $20,000,000 letter of credit facility. The terms of
the Credit Facility permit the Company to borrow, subject to availability and
certain conditions, incremental term loans or to issue additional notes in an
aggregate amount up to $25.0 million. The term loan matures on June 28, 2009
while the revolving facility and the letter of credit facility mature on June
28, 2007. The borrowings due under the term loan are payable in equal quarterly
installments in an annual amount equal to 1% of the outstanding term loan
balance during each of the first six years of the loan (beginning on September
30, 2002), with the remaining balance payable in equal quarterly installments
during the seventh year of the loan. The term loan is secured by substantially
all of the Company's assets, other than those of our Tahoe Joe's Inc. subsidiary
(see footnote 11 for further discussion of our guarantor and non-guarantor
subsidiaries). Buffets Holdings has also guaranteed the repayment of the Credit
Facility. The Credit Facility requires the Company to maintain certain financial
ratios including leverage, interest coverage and fixed charge coverage. The
Company was in compliance with all covenants as of July 2, 2003.

As of July 2, 2003, the Company had $27,116,360 in outstanding letters of
credit, which expire through May 2, 2004. As of July 2, 2003, the total
borrowing availability under the revolving credit facility was $21,000,000 and
the total borrowing capacity under the letter of credit facility was $1,883,640.

The Company has the option of tying its borrowings to LIBOR or a base rate
when calculating the interest rate for the term loan. The base rate is the
greater of Credit Suisse First Boston's prime rate, or the federal funds
effective rate plus one-half of 1 percent.

11 1/4% SENIOR SUBORDINATED NOTES

On June 28, 2002, the Company issued 11 1/4% senior subordinated notes in
the principal amount of $230 million due July 15, 2010. Such notes were issued
at a 96.181% discount, resulting in an effective yield of 12% to the initial
principal amount. Interest is payable semi-annually on January 15 and July 15 of
each year through July 15, 2010. Accretion of the original issue discount was
approximately $10,000 during 2002 and is included in interest expense in the
accompanying consolidated statements of operations. Except in the event of an
initial public offering, we are not entitled to redeem the notes at our option
prior to July 15, 2006. The redemption price during the first twelve-month
period following July 15, 2006 is 105.625%. The redemption price declines by
1.875% per year until July 15, 2009, at which point there is no redemption price
premium. In the event of an initial public offering prior to July 15, 2006, we
may redeem up to 35% of the aggregate principal amount of the notes at a
redemption price of 111.25%.

6 SHAREHOLDER'S EQUITY (DEFICIT)

AUTHORIZED SHARES

The Company has 100 authorized shares of common stock.

49



STOCK WARRANTS

On October 2, 2000, the Company issued $80 million principal amount of 14%
senior subordinated notes due September 29, 2008, with detachable warrants to
purchase 173,218 shares of Buffets Holdings' common stock and 51,965 shares of
Buffets Holdings' preferred stock. Contemporaneously, Buffets Holdings issued
$15 million principal amount of 16% senior subordinated notes due September 29,
2008, with detachable warrants to purchase 32,478 shares of common stock and
9,744 shares of preferred stock. Such warrants were valued collectively at $5.4
million. On June 28, 2002, all preferred stock warrants were redeemed in
conjunction with the refinancing transactions, leaving 205,696 common stock
warrants outstanding. The common stock warrants have an exercise price of $.01
per share and expire on September 29, 2010.

7 RETIREMENT PLAN

The Company has a 401(k) plan covering all employees with one year of
service, age 21 or older, who worked at least 1,000 hours in the prior year. The
Company's discretionary contributions to the plan are determined annually by the
board of directors and are used to match a portion of employees' voluntary
contributions. Participants are 100 percent vested in their own contributions
immediately and are vested in the Company's contributions 20 percent per year of
service with the Company, such that they are fully vested at the end of five
years of service with the Company. The Board of Directors authorized and
recognized matching contributions of $0.8 million for the combined period from
December 30, 1999 through January 3, 2001 and $0.9 million for 2001. These
contributions were paid during the first quarter of the succeeding fiscal year.
There were no matching contributions for 2002. The 2003 matching contribution
will not be authorized until the end of the 2003 calendar year. The Company has
no accrual as of July 2, 2003 for 2003 matching contributions.

8 INCOME TAXES

The income tax expense (benefit) consisted of the following (in thousands):





(PREDECESSOR) (SUCCESSOR) (SUCCESSOR)
FOR THE PERIOD FOR THE PERIOD FOR THE
FROM FROM INCEPTION (SUCCESSOR) TWENTY-SIX WEEK (SUCCESSOR)
DECEMBER 30, (OCTOBER 2, FOR THE YEAR TRANSITIONAL FOR THE YEAR
1999 THROUGH 2000) THROUGH ENDED PERIOD ENDED ENDED
OCTOBER 1, JANUARY 3, JANUARY 2, JULY 3, JULY 2,
2000 2001 2002 2002 2003
------------- -------------- ------------ -------------- -----------

Federal:
Current.......... $ 18,452 $ (460) $ 11,966 $ (1,046) $ 3,209
Deferred......... (6,744) 1,212 18 (2,448) 1,130
-------- ------- -------- -------- --------
11,708 752 11,984 (3,494) 4,339
State:
Current.......... 3,259 551 3,401 394 1,433
Deferred......... (1,224) 165 3 (350) (453)
-------- ------- -------- -------- ---------
2,035 716 3,404 44 980
Tax effect from early
Disposition of
Common stock..... 6,231 -- -- -- --
-------- ------- -------- -------- --------
Income tax expense
(benefit)..... $ 19,974 $ 1,468 $ 15,388 $ (3,450) $ 5,319
======== ======= ======== ======== ========



50



Deferred income taxes are provided to record the income tax effect of
temporary differences that occur when transactions are reported in one period
for financial statement purposes and in another period for tax purposes. The
tax effect of the temporary differences giving rise to the Company's deferred
tax assets and liabilities was as follows (in thousands):




JANUARY 2, 2002 JULY 3, 2002 JULY 2, 2003
----------------------- ------------------------ ----------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT CURRENT NON-CURRENT
ASSET ASSET ASSET LIABILITY ASSET ASSET
------ ----------- ------- ----------- ------- -----------

Property and equipment........... $ -- $ (9,657) $ -- $ (9,091) $ -- $ (5,476)
Deferred rent.................... -- 7,124 -- 7,227 -- 7,586
Self-insurance reserve........... 3,349 -- 2,975 -- 1,832 --
Accrued workers'compensation 4,642 -- 4,929 -- 6,341 --
Accrued payroll and related benefits
2,373 -- 3,034 -- 3,303 --
Accrued store closing costs...... 3,611 -- 2,729 -- 1,120 --
Net operating loss and tax credit
carryforwards.................. -- 100 4,564 -- 1,934 --
Deferred gain on sale leaseback
transaction.................... -- 1,620 -- 1,576 -- 1,495
Goodwill......................... -- 1,312 -- (112) -- (569)
Other............................ 1,052 501 769 225 686 (104)
-------- -------- -------- -------- -------- ---------
Total.................. $ 15,027 $ 1,000 $ 19,000 $ (175) $ 15,216 $ 2,932
======== ======== ======== ======== ======== ========


A reconciliation of the Company's income tax expense (benefit) at the
federal statutory rate to the reported income tax expense (benefit) was as
follows (in thousands):




(SUCCESSOR)
FOR THE
(PREDECESSOR) PERIOD (SUCCESSOR)
FOR THE FROM FOR THE
PERIOD INCEPTION (SUCCESSOR) TWENTY-SIX (SUCCESSOR)
FROM (OCTOBER 2, FOR THE YEAR WEEK FOR THE
DECEMBER 30, 2000) YEAR TRANSITIONAL YEAR
1999, THROUGH THROUGH ENDED PERIOD ENDED
OCTOBER 1, JANUARY 2, JANUARY 2, JULY 3, JULY 2,
2000 2001 2002 2002 2003
------------- ---------- ------------ ------------ ----------

Federal income tax expense
(benefit) at statutory
rate of 35%................. $ 17,927 $ 716 $ 9,834 $(3,667) $ 6,417
State income taxes, net of
federal benefit............. 1,323 549 2,204 29 666
General business credits...... (821) (272) (932) (656) (1,769)
Goodwill amortization......... 45 808 3,767 -- --
Other......................... 1,500 (333) 515 844 5
-------- ------- -------- ------- --------
Income tax expense
(benefit)................ $ 19,974 $ 1,468 $ 15,388 $(3,450) $ 5,319
======== ======= ======== ======= ========



51



9 RELATED-PARTY TRANSACTIONS

The Company entered an advisory agreement with Caxton-Iseman, a majority
shareholder with approximately 77% of Buffets Holdings' outstanding common stock
under its control, under which Caxton-Iseman provides various advisory services
to the Company in exchange for an annual advisory fee equal to 2% of the
Company's annual consolidated earnings before interest, taxes, depreciation and
amortization. Caxton-Iseman receives an additional fee for advisory services
relating to particular financial transactions equal to 1% of the transaction
value. Total expenses under these arrangements were $0.4 million for the period
from inception (October 2, 2000) through January 3, 2001, $2.9 million for 2001,
$1.2 million for 2002 and $2.8 million for 2003. There were no expenses under
these arrangements for fiscal 1999 or the period from December 30, 1999 through
October 1, 2000.

The Company also entered into an agreement with Caxton-Iseman relating to
services provided by them in connection with the buyout from public shareholders
on October 1, 2000. Under the agreement, the Company paid Caxton-Iseman $6.4
million.

The Company entered an advisory agreement with Sentinel Capital Partners,
L.L.C., a minority shareholder with approximately 6.9% of Buffets Holdings'
outstanding common stock under its control, under which Sentinel Capital
provides various advisory services to the Company for an annual advisory fee of
$200,000. Under this agreement, the Company paid $50,000 for the period from
inception (October 2, 2000) through January 3, 2001, $200,000 in 2001,
approximately $108,000 in 2002 and $200,000 in 2003. There were no expenses
under these arrangements for fiscal 1999 or the period from December 30, 1999
through October 1, 2000.

Roe H. Hatlen, a founder of the Company, former Chief Executive Officer and
Chairman of the Board of Directors, and a current member on Buffets Holdings'
Board of Directors, entered into an advisory arrangement with the Company and
Buffets Holdings that expires in December of 2005. Under his advisory agreement,
Mr. Hatlen received $325,000 in fiscal 2001, $150,000 in fiscal 2002 and
$283,000 in fiscal 2003. He will receive $268,000 in fiscal 2004, $238,000 in
fiscal 2005 and $113,000 in fiscal 2006. In addition, Mr. Hatlen will receive
health, medical and other benefits comparable to those made available to our
management employees through the end of calendar year 2005. Mr. Hatlen purchased
approximately 5.0% of the shares in Buffets Holdings common stock and
approximately 3.4% of the shares of Buffets Holdings preferred stock. 32,501
shares of the acquired, outstanding shares are subject to vesting over three
years at the rate of one-third for each year that Mr. Hatlen completes as a
member of Buffets Holdings' Board of Directors. Buffets Holdings has certain
rights to repurchase, at various prices depending on whether Mr. Hatlen is
terminated with cause or without cause, the unvested shares of its common stock
if Mr. Hatlen ceases to serve as a member of Buffets Holdings' Board of
Directors.

C. Dennis Scott, a founder of the Company and former Vice Chairman, entered
into an advisory arrangement with the Company and Buffets Holdings that expires
in 2005. Under Mr. Scott's advisory agreement, he received no cash compensation
after fiscal 2000. Mr. Scott purchased approximately 0.5% of the shares of
Buffets Holdings common stock. These shares are subject to Buffets Holdings'
right to repurchase these shares upon Mr. Scott's termination as an advisor to
Buffets Holdings at various prices depending on whether Mr. Scott is terminated
with or without cause. Mr. Scott retains an office in San Diego at the Company's
expense and receives health, medical and other benefits comparable to those made
available to Company management through

52



the end of calendar year 2005. Mr. Scott is required to provide services to the
Company for no more than two days per month.

Robert M. Rosenberg, a director of the Buffets Holdings' Board of Directors,
provided various advisory services to the Company for an advisory fee of $35,000
during fiscal 2003.

Buffets Holdings has entered into stockholder agreements with certain
members of management. These agreements govern the five-year vesting of Buffets
Holdings common stock, transfer restrictions and agreements not to compete with
us for two years after their employment terminates. Some management investors
obtained recourse loans to purchase shares in Buffets Holdings which were
guaranteed by the Company. Each of the management investors pledged his, or her,
respective ownership interests in the shares of Buffets Holdings and executed a
promissory note in favor of Buffets Holdings, whereby each agreed to repay the
corresponding amount of the guaranty, together with interest at fixed rates
ranging between 6% and 7% per annum at the earliest of (1) seven years, (2)
termination of employment with the Company or (3) the sale, disposition or other
transfer of the management investor's ownership interest in the shares. The
guarantees totaled $1.2 million as of January 2, 2002, $0.5 million as of July
3, 2002 and $0.5 million at July 2, 2003.

An officer was advanced $315,000 on February 20, 2002 for a homestead
purchase. Interest was payable annually at a rate equal to the Company's
interest rate on its senior secured borrowing, up to a maximum of 12% per annum.
The principal plus accrued but unpaid interest was repaid in 2003 upon the
officer's resignation.

10 COMMITMENTS AND CONTINGENCIES

LITIGATION

The Company is involved in various legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial position or the results of operations.

OPERATING LEASES

The Company conducts most of its operations from leased restaurant
facilities, all of which are classified as operating leases.

The following is a schedule of future minimum lease payments required under
noncancellable operating leases as of July 2, 2003 (in thousands):

2004....................................................... $ 53,036
2005....................................................... 51,526
2006....................................................... 49,413
2007....................................................... 47,317
2008....................................................... 45,367
Thereafter................................................. 309,809
------------
Total future minimum lease payments.............. $ 556,468
============

53



Minimum payments have not been reduced by minimum sublease rentals of
approximately $20,013,000.

Certain of these leases require additional rent based on a percentage of net
sales and may require additional payments for real estate taxes and common area
maintenance on the properties. Many of these leases also contain renewal options
exercisable at the election of the Company. Under the provisions of certain
leases, there are certain escalations in payments over the base lease term as
well as renewal periods which have been reflected in rent expense on a
straight-line basis over the life of the anticipated terms. Differences between
minimum lease payments and straight-line rent expense are reflected as deferred
lease obligations in the accompanying consolidated balance sheets.

Rent expense was as follows (in thousands):



(SUCCESSOR)
FOR THE
(PREDECESSOR) PERIOD (SUCCESSOR)
FOR THE FROM FOR THE
PERIOD INCEPTION (SUCCESSOR) TWENTY-SIX (SUCCESSOR)
FROM (OCTOBER 2, FOR THE YEAR WEEK FOR THE
DECEMBER 30, 2000) YEAR TRANSITIONAL YEAR
1999, THROUGH THROUGH ENDED PERIOD ENDED
OCTOBER 1, JANUARY 2, JANUARY 2, JULY 3, JULY 2,
2000 2001 2002 2002 2003
------------- --------- ------------ ------------ ----------

Minimum rents............ $ 31,851 $ 9,931 $ 43,732 $ 23,510 $ 49,315
Contingent rents......... 624 237 1,343 943 2,207
Less: Sublease rents..... (388) (157) (721) (440) (1,388)
Deferred rents........... 756 205 835 890 1,530
Percentage rents......... 2,186 239 2,559 1,419 1,955
-------- --------- -------- --------- --------
$ 35,029 $ 10,455 $ 47,748 $ 26,322 $ 53,619
======== ========= ======== ========= ========


11 CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

As a result of the Company's decision to refinance a portion of its
existing long-term debt with senior subordinated notes in fiscal 2003 (see
footnote 5) which are fully and unconditionally guaranteed, jointly and
severally, on a senior subordinated unsecured basis by the following
wholly-owned subsidiaries of Buffets, Inc.: HomeTown Buffets, Inc.,
OCB Restaurant Co., OCB Purchasing Co., Restaurant Innovations, Inc., and
Distinctive Dining, Inc., the condensed consolidating financial statements for
Buffets, Inc. and the Subsidiary Guarantors are presented below. The
guarantees by these subsidiary guarantors will be senior to any of their
existing and future subordinated obligations, equal in right of payment with
any of their existing and future senior subordinated indebtedness and
subordinated to any of their existing and future senior indebtedness. There
are no restrictions on the Company's ability to obtain funds from its
subsidiaries.

The only existing subsidiary of Buffets, Inc. that has not guaranteed the
senior subordinated notes is Tahoe Joe's, Inc., which is minor (the subsidiary's
total assets, shareholder's equity, revenues, income from operations and cash
flows from operations are less than 3% of the Company's consolidated amounts)
for purposes of the Securities and Exchange Commission's rules regarding
presentation of the condensed consolidating financial statements below. As such,
the financial position, results of operations and cash flow information of Tahoe
Joe's, Inc. have been included in the Subsidiary Guarantors column.

54



CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 2, 2002


PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------
(IN THOUSANDS)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................... $ 15,672 $ 11,883 $ -- $ 27,555
Receivables.................................. 541 201,677 (194,125) 8,093
Inventories.................................. 702 17,737 18,439
Prepaid expenses and other current assets.... 3,987 4,542 -- 8,529
Deferred income taxes........................ 15,008 19 -- 15,027
---------- -------- ---------- --------
Total current assets...................... 35,910 235,858 (194,125) 77,643
PROPERTY AND EQUIPMENT, net.................... 10,979 192,763 -- 203,742
GOODWILL, net.................................. 18,730 293,433 -- 312,163
ASSETS HELD FOR SALE........................... -- 28,352 -- 28,352
DEFERRED INCOME TAXES.......................... 1,000 -- -- 1,000
OTHER ASSETS, net.............................. 145,604 6,775 (137,501) 14,878
---------- -------- ---------- --------
Total assets.............................. $ 212,223 $757,181 $ (331,626) $637,778
========== ======== ========== ========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable............................. $ 219,854 $ 2,345 $ (193,171) $ 29,028
Accrued liabilities.......................... 42,952 40,694 8 83,654
Income taxes payable......................... 5,123 -- -- 5,123
Current maturities of long-term debt......... 2,533 39,691 -- 42,224
---------- -------- ---------- --------
Total current liabilities................. 270,462 82,730 (193,163) 160,029
LONG-TERM DEBT, net of current maturities...... 18,360 287,636 -- 305,996
DEFERRED LEASE OBLIGATIONS..................... 376 18,087 -- 18,463
OTHER LONG-TERM LIABILITIES.................... 3,967 326 339 4,632
---------- -------- ---------- --------
Total liabilities......................... 293,165 388,779 (192,824) 489,120
---------- -------- ---------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY (DEFICIT):
Common stock................................. -- -- -- --
Additional paid-in capital................... 73,243 199,494 (137,366) 135,371
Retained earnings (accumulated deficit)...... (154,185) 168,908 (1,436) 13,287
---------- -------- ---------- --------
Total shareholder's equity (deficit)...... (80,942) 368,402 (138,802) 148,658
---------- -------- ---------- --------
Total liabilities and shareholder's
equity (deficit)......................... $ 212,223 $757,181 $ (331,626) $637,778
========== ======== ========== ========



55



CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JULY 3, 2002



PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------
(IN THOUSANDS)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................... $ 227 $ 8,077 $ -- $ 8,304
Receivables.................................. 26,837 337,871 (356,014) 8,694
Inventories.................................. 721 17,911 -- 18,632
Prepaid expenses and other current assets.... 5,438 4,648 -- 10,086
Deferred income taxes........................ 17,514 1,486 -- 19,000
--------- -------- ---------- --------
Total current assets...................... 50,737 369,993 (356,014) 64,716
PROPERTY AND EQUIPMENT, net.................... 11,491 186,859 -- 198,350
GOODWILL, net.................................. 18,730 293,433 -- 312,163
ASSETS HELD FOR SALE........................... -- 24,952 -- 24,952
OTHER ASSETS, net.............................. 412,192 5,755 (402,502) 15,445
--------- -------- ---------- --------
Total assets.............................. $ 493,150 $880,992 $ (758,516) $615,626
========= ======== ========== ========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable............................. $ 391,901 $ 2,243 $ (356,725) $ 37,419
Accrued liabilities.......................... 56,729 35,713 -- 92,442
Income taxes payable......................... 2,900 -- (96) 2,804
Current maturities of long-term debt......... 147 2,303 -- 2,450
--------- -------- ---------- --------
Total current liabilities................. 451,677 40,259 (356,821) 135,115
LONG-TERM DEBT, net of current maturities...... 27,826 700,941 (265,000) 463,767
DEFERRED INCOME TAXES.......................... 175 -- -- 175
DEFERRED LEASE OBLIGATIONS..................... 387 18,442 -- 18,829
OTHER LONG-TERM LIABILITIES.................... 3,885 104 536 4,525
--------- -------- ---------- --------
Total liabilities......................... 483,950 759,746 (621,285) 622,411
--------- -------- ---------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY (DEFICIT):
Common stock................................. -- -- -- --
Additional paid-in capital................... 82,311 199,494 (281,805) --
Retained earnings (accumulated deficit)...... (73,111) (78,248) 144,574 (6,785)
--------- -------- ---------- --------
Total shareholder's equity (deficit)...... 9,200 121,246 (137,231) (6,785)
--------- -------- ---------- --------
Total liabilities and shareholder's
equity (deficit)......................... $ 493,150 $880,992 $ (758,516) $615,626
========= ======== ========== ========


56




CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JULY 2, 2003



PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------
(IN THOUSANDS)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................... $ 8,511 $ 7,236 $ -- $ 15,747
Receivables.................................. 14,965 341,403 (349,782) 6,586
Inventories.................................. 824 17,638 -- 18,462
Prepaid expenses and other current assets.... 2,981 5,058 -- 8,039
Assets held for sale......................... -- 1,390 -- 1,390
Deferred income taxes........................ 13,730 1,486 -- 15,216
---------- -------- ---------- --------
Total current assets...................... 41,011 374,211 (349,782) 65,440
PROPERTY AND EQUIPMENT, net.................... 10,427 143,713 -- 154,140
GOODWILL, net.................................. 18,730 293,433 -- 312,163
ASSETS HELD FOR SALE........................... -- -- -- --
DEFERRED INCOME TAXES.......................... 2,932 -- -- 2,932
OTHER ASSETS, net.............................. 415,127 5,686 (402,502) 18,311
---------- -------- ---------- --------
Total assets.............................. $ 488,227 $817,043 $ (752,284) $552,986
========== ======== ========== ========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable............................. $ 391,486 $ 2,909 $ (350,618) $ 43,777
Accrued liabilities.......................... 49,865 27,542 -- 77,407
Income taxes payable......................... 3,401 1,386 -- 4,787
Current maturities of long-term debt......... 104 1,631 -- 1,735
---------- -------- ---------- --------
Total current liabilities................. 444,856 33,468 (350,618) 127,706
LONG-TERM DEBT, net of current maturities...... 23,521 633,502 (265,000) 392,023
DEFERRED LEASE OBLIGATIONS..................... 573 19,140 -- 19,713
OTHER LONG-TERM LIABILITIES.................... 3,687 3,101 1,101 7,889
---------- -------- ---------- --------
Total liabilities......................... 472,637 689,211 (614,517) 547,331
---------- -------- ---------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDER'S EQUITY (DEFICIT):
Common stock................................. -- -- -- --
Additional paid-in capital................... 82,311 199,494 (281,805) --
Retained earnings (accumulated deficit)...... (66,721) (71,662) 144,038 5,655
---------- -------- ---------- --------
Total shareholder's equity (deficit)...... 15,590 127,832 (137,767) 5,655
---------- -------- ---------- --------
Total liabilities and shareholder's
equity (deficit)......................... $ 488,227 $817,043 $ (752,284) $552,986
========== ======== ========== ========


57



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 30, 1999 THROUGH OCTOBER 1, 2000



PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------
(IN THOUSANDS)

RESTAURANT SALES.................................... $32,497 $748,656 $ -- $781,153
RESTAURANT COSTS:
Food.............................................. 10,655 235,749 -- 246,404
Labor............................................. 10,593 229,357 -- 239,950
Direct and occupancy.............................. 4,080 166,409 -- 170,489
------- -------- ------ --------
Total restaurant costs......................... 25,328 631,515 -- 656,843
ADVERTISING EXPENSES................................ 868 21,020 -- 21,888
GENERAL AND ADMINISTRATIVE EXPENSES................. 1,631 37,775 (189) 39,217
GOODWILL AMORTIZATION............................... 53 825 -- 878
ACQUISITION-RELATED COSTS........................... 13,006 1,896 -- 14,902
------- -------- ------ --------
OPERATING INCOME (LOSS)............................. (8,389) 55,625 189 47,425
INTEREST EXPENSE.................................... 120 1,850 -- 1,970
INTEREST INCOME..................................... (280) (4,358) -- (4,638)
OTHER INCOME........................................ (314) (886) 74 (1,126)
------- -------- ------ --------
INCOME (LOSS) BEFORE INCOME TAXES................... (7,915) 59,019 115 51,219
INCOME TAX EXPENSE (BENEFIT)........................ (3,015) 22,989 -- 19,974
------- -------- ------ --------
Net income (loss).............................. $(4,900) $ 36,030 $ 115 $ 31,245
======= ======== ====== ========




CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 2000) THROUGH JANUARY 3, 2001



PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------
(IN THOUSANDS)

RESTAURANT SALES.................................... $ 9,709 $229,661 $ -- $239,370
RESTAURANT COSTS:
Food.............................................. 3,263 72,493 -- 75,756
Labor............................................. 3,233 72,739 -- 75,972
Direct and occupancy.............................. 1,294 51,357 -- 52,651
------- -------- ---- --------
Total restaurant costs......................... 7,790 196,589 -- 204,379
ADVERTISING EXPENSES................................ 217 5,509 -- 5,726
GENERAL AND ADMINISTRATIVE EXPENSES................. 494 11,774 (64) 12,204
GOODWILL AMORTIZATION............................... 153 2,390 -- 2,543
------- -------- ---- --------
OPERATING INCOME.................................... 1,055 13,399 64 14,518
INTEREST EXPENSE.................................... 786 12,292 -- 13,078
INTEREST INCOME..................................... (17) (250) -- (267)
OTHER INCOME........................................ (90) (233) (17) (340)
------- -------- ---- --------
INCOME BEFORE INCOME TAXES.......................... 376 1,590 81 2,047
INCOME TAX EXPENSE.................................. 169 1,299 -- 1,468
------- -------- ---- --------
Net income..................................... $ 207 $ 291 $ 81 $ 579
======= ======== ==== ========



58



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 2, 2002



PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------
(IN THOUSANDS)

RESTAURANT SALES.................................... $40,483 $1,004,251 $ -- $ 1,044,734
RESTAURANT COSTS:
Food.............................................. 13,487 312,784 -- 326,271
Labor............................................. 13,066 313,357 -- 326,423
Direct and occupancy.............................. 5,256 228,119 -- 233,375
------- ---------- ------ ------------
Total restaurant costs......................... 31,809 854,260 -- 886,069
ADVERTISING EXPENSES................................ 1,017 26,623 -- 27,640
GENERAL AND ADMINISTRATIVE EXPENSES................. 1,949 48,672 (301) 50,320
GOODWILL AMORTIZATION............................... 657 10,285 -- 10,942
------- ---------- ------ ------------
OPERATING INCOME.................................... 5,051 64,411 301 69,763
INTEREST EXPENSE.................................... 2,611 40,794 -- 43,405
INTEREST INCOME..................................... (49) (649) -- (698)
OTHER INCOME........................................ (420) (638) 18 (1,040)
------- ---------- ------ ------------
INCOME BEFORE INCOME TAXES.......................... 2,909 24,904 283 28,096
INCOME TAX EXPENSE.................................. 1,406 13,982 -- 15,388
------- ---------- ------ ------------
Net income..................................... $ 1,503 $ 10,922 $ 283 $ 12,708
======= ========== ====== ============



CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE TWENTY-SIX WEEK TRANSITIONAL PERIOD ENDED JULY 3, 2002



PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------
(IN THOUSANDS)

RESTAURANT SALES.................................... $ 20,196 $ 506,888 $ -- $ 527,084
RESTAURANT COSTS:
Food.............................................. 6,669 156,980 -- 163,649
Labor............................................. 6,414 157,850 -- 164,264
Direct and occupancy.............................. 2,517 114,487 -- 117,004
--------- --------- ------ ---------
Total restaurant costs......................... 15,600 429,317 -- 444,917
ADVERTISING EXPENSES................................ 525 13,824 -- 14,349
GENERAL AND ADMINISTRATIVE EXPENSES................. 979 24,718 (143) 25,554
--------- --------- ------ ---------
OPERATING INCOME.................................... 3,092 39,029 143 42,264
INTEREST EXPENSE.................................... 908 14,168 -- 15,076
INTEREST INCOME..................................... (16) (196) -- (212)
LOSS RELATED TO REFINANCING......................... 38,476 -- -- 38,476
OTHER INCOME........................................ (236) (559) 197 (598)
--------- --------- ------ ---------
INCOME BEFORE INCOME TAXES.......................... (36,040) 25,616 (54) (10,478)
INCOME TAX EXPENSE (BENEFIT)........................ (11,866) 8,416 -- (3,450)
--------- --------- ------ ---------
Net income (loss).............................. $ (24,174) $ 17,200 $ (54) $ (7,028)
========= ========= ====== =========



59




CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 2, 2003



PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------
(IN THOUSANDS)

RESTAURANT SALES.................................... $ 38,983 $ 946,303 $ -- $ 985,286
RESTAURANT COSTS:
Food.............................................. 13,122 298,769 -- 311,891
Labor............................................. 12,570 300,962 -- 313,532
Direct and occupancy.............................. 5,189 220,228 -- 225,417
---------- ----------- ---------- ------------
Total restaurant costs......................... 30,881 819,959 -- 850,840
ADVERTISING EXPENSES................................ 1,131 27,458 -- 28,589
GENERAL AND ADMINISTRATIVE EXPENSES................. 1,796 43,586 -- 45,382
IMPAIRMENT OF ASSETS................................ -- 4,803 -- 4,803
GAIN ON SALE OF ORIGINAL ROADHOUSE GRILL RESTAURANTS
-- (7,088) -- (7,088)
LOSS ON SALE LEASEBACK TRANSACTIONS................. -- 5,856 -- 5,856
---------- ----------- ---------- ------------
OPERATING INCOME.................................... 5,175 51,729 -- 56,904
INTEREST EXPENSE.................................... 2,409 38,826 (1,089) 40,146
INTEREST INCOME..................................... (307) -- -- (307)
OTHER INCOME........................................ (1,270) -- -- (1,270)
---------- ----------- ---------- ------------
INCOME BEFORE INCOME TAXES.......................... 4,343 12,903 1,089 18,335
INCOME TAX EXPENSE.................................. 955 4,364 -- 5,319
---------- ----------- ---------- ------------
Net income..................................... $ 3,388 $ 8,539 $ 1,089 $ 13,016
========== =========== ========== ============


60




CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM DECEMBER 30, 1999 THROUGH OCTOBER 1, 2000



PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------
(IN THOUSANDS)

OPERATING ACTIVITIES:
Net income (loss)..................................... $ (4,900) $ 36,030 $ 115 $ 31,245
Adjustments to reconcile net income (loss) to
Net cash provided by operating activities:
Depreciation and amortization...................... 1,422 30,946 -- 32,368
Amortization of debt issuance costs................ 174 -- -- 174
Tax benefit from early disposition of common stock. 6,231 -- -- 6,231
Deferred income taxes.............................. 1,202 (9,170) -- (7,968)
Loss on disposal of assets......................... -- 544 -- 544
Changes in assets and liabilities:
Receivables...................................... 536 2,763 -- 3,299
Inventories...................................... (556) 897 -- 341
Prepaid expenses and other assets................ (1,240) (592) -- (1,832)
Accounts payable................................. 3,365 146 -- 3,511
Accrued and other liabilities.................... 2,830 11,374 -- 14,204
Income taxes payable/refundable.................. 5,705 -- -- 5,705
--------- -------- ------ --------
Net cash provided by operating activities..... 14,769 72,938 115 87,822
--------- -------- ------ --------
INVESTING ACTIVITIES:
Purchase of fixed assets.............................. (2,543) (33,053) -- (35,596)
Corporate cash advances (payments).................... 41,464 (41,349) (115) --
Purchase of other assets.............................. -- (1,417) -- (1,417)
--------- -------- ------ --------
Net cash provided by (used in) investing
activities ................................... 38,921 (75,819) (115) (37,013)
--------- -------- ------ --------
FINANCING ACTIVITIES:
Repayment of debt..................................... -- (332) -- (332)
Payments of capital leases............................ -- (686) -- (686)
Proceeds from exercise of employee stock options...... 2,552 -- -- 2,552
--------- -------- ------ --------
Net cash provided by (used in) financing
activities................................... 2,552 (1,018) -- 1,534
--------- -------- ------ --------
NET CHANGE IN CASH AND CASH EQUIVALENTS................. 56,242 (3,899) -- 52,343
CASH AND CASH EQUIVALENTS, beginning of period..........
72,237 23 -- 72,260
--------- -------- ------ --------
CASH AND CASH EQUIVALENTS, end of period................ $ 128,479 $ (3,876) $ -- $124,603
========= ======== ====== ========


61



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (OCTOBER 2, 2000) THROUGH JANUARY 3, 2001



PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------
(IN THOUSANDS)

OPERATING ACTIVITIES:
Net income................................................. $ 207 $ 291 $ 81 $ 579
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization........................... 534 10,777 -- 11,311
Amortization of debt issuance costs..................... 63 979 -- 1,042
Accretion of original issue discount.................... 11 168 -- 179
Deferred interest....................................... 19 291 -- 310
Deferred income taxes................................... 159 1,218 -- 1,377
Changes in assets and liabilities:
Receivables........................................... (2,213) (934) -- (3,147)
Inventories........................................... 235 -- 235
Prepaid expenses and other assets..................... (292) 675 -- 383
Accounts payable...................................... (2,513) 7,969 -- 5,456
Accrued and other liabilities......................... 11,662 (4,142) 11 7,531
Income taxes payable/refundable....................... 91 -- -- 91
---------- --------- ---- ---------
Net cash provided by operating activities.......... 7,728 17,527 92 25,347
---------- --------- ---- ---------
INVESTING ACTIVITIES:
Proceeds from sale leaseback transaction................... 19,601 -- -- 19,601
Purchase of fixed assets................................... (223) (14,166) -- (14,389)
Corporate cash advances (payments)......................... 334,525 (334,433) (92) --
Purchase of other assets................................... -- (672) -- (672)
---------- --------- ---- ---------
Net cash provided by (used in) investing
activities........................................ 353,903 (349,271) (92) 4,540
---------- --------- ---- ---------
FINANCING ACTIVITIES:
Repayment of debt.......................................... (2,929) (45,890) -- (48,819)
Repurchase of common stock................................. (596,473) -- -- (596,473)
Proceeds from issuance of common stock, net................ 124,202 -- -- 124,202
Proceeds from revolving Credit Facility.................... 300 4,700 -- 5,000
Proceeds from issuance of subordinated notes............... 5,700 89,300 -- 95,000
Proceeds from Credit Facility.............................. 18,600 291,400 -- 310,000
Transaction-related costs.................................. (12,009) -- -- (12,009)
Debt issuance costs........................................ (15,695) -- -- (15,695)
---------- --------- ---- ---------
Net cash provided by (used in) financing
activities........................................ (478,304) 339,510 -- (138,794)
---------- --------- ---- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS...................... (116,673) 7,766 -- (108,907)
CASH AND CASH EQUIVALENTS, beginning of period............... 128,479 (3,876) -- 124,603
---------- --------- ---- ---------
CASH AND CASH EQUIVALENTS, end of period..................... $ 11,806 $ 3,890 $ -- $ 15,696
========== ========= ==== =========



62



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JANUARY 2, 2002



PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------
(IN THOUSANDS)

OPERATING ACTIVITIES:
Net income............................................... $ 1,503 $ 10,922 $ 283 $ 12,708
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization......................... 3,113 50,291 -- 53,404
Amortization of debt issuance costs................... 234 3,671 -- 3,905
Accretion of original issue discount.................. 46 727 -- 773
Deferred interest..................................... 76 1,193 -- 1,269
Deferred income taxes................................. 2 19 -- 21
Asset writedown....................................... -- 491 -- 491
Loss on disposal of assets............................ -- 361 -- 361
Changes in assets and liabilities:
Receivables......................................... 2,071 (3,221) -- (1,150)
Inventories......................................... 30 660 -- 690
Prepaid expenses and other assets................... (1,068) (503) -- (1,571)
Accounts payable.................................... 22,141 (30,080) -- (7,939)
Accrued and other liabilities....................... 3,181 (341) (3) 2,837
Income taxes payable/refundable..................... 3,204 -- -- 3,204
--------- -------- ------ --------
Net cash provided by operating activities........ 34,533 34,190 280 69,003
--------- -------- ------ --------
INVESTING ACTIVITIES:
Proceeds from sale leaseback transaction................. -- 39,075 -- 39,075
Purchase of fixed assets................................. (8,228) (29,868) -- (38,096)
Corporate cash advances (payments)....................... (18,856) 19,136 (280) --
Proceeds from sale of other assets....................... -- 1,651 -- 1,651
Purchase of other assets................................. -- (55) -- (55)
--------- -------- ------ --------
Net cash provided by (used in) investing
activities...................................... (27,084) 29,939 (280) 2,575
--------- -------- ------ --------
FINANCING ACTIVITIES:
Repayment of debt........................................ (3,234) (50,662) -- (53,896)
Repayment of revolving credit facility................... (300) (4,700) -- (5,000)
Debt issuance costs...................................... (49) (774) -- (823)
--------- -------- ------ --------
Net cash used in financing activities............ (3,583) (56,136) -- (59,719)
--------- -------- ------ --------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................... 3,866 7,993 -- 11,859
CASH AND CASH EQUIVALENTS, beginning of period............. 11,806 3,890 -- 15,696
--------- -------- ------ --------
CASH AND CASH EQUIVALENTS, end of period................... $ 15,672 $ 11,883 $ -- $ 27,555
========= ======== ====== ========



63





CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWENTY-SIX WEEK TRANSITIONAL PERIOD ENDED JULY 3, 2002




PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------
(IN THOUSANDS)

OPERATING ACTIVITIES:
Net income (loss)......................................... $ (24,174) $ 17,200 $ (54) $ (7,028)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 1,726 18,683 -- 20,409
Amortization of debt issuance costs.................... 97 1,520 -- 1,617
Net loss related to refinancing:
Write-off of debt issuance costs..................... 11,022 -- -- 11,022
Accrued redemption fees.............................. 17,000 -- -- 17,000
Original issue discount expensed..................... 4,107 -- -- 4,107
Accretion of original issue discount................... 21 336 -- 357
Deferred interest...................................... 37 577 -- 614
Deferred income taxes.................................. (168) (2,630) -- (2,798)
Loss on disposal of assets............................. -- 89 -- 89
Changes in assets and liabilities:
Receivables.......................................... 368 (1,377) 150 (859)
Inventories.......................................... (19) (174) -- (193)
Prepaid expenses and other assets.................... (1,449) (108) -- (1,557)
Accounts payable..................................... 8,493 (2,094) -- 6,399
Accrued and other liabilities........................ 13,777 (20,979) -- (7,202)
Income taxes payable/refundable...................... (2,223) -- (96) (2,319)
---------- --------- ----- ---------
Net cash provided by operating activities......... 28,615 11,043 -- 39,658
---------- --------- ----- ---------
INVESTING ACTIVITIES:
Proceeds from sale leaseback transaction.................. 2,281 -- -- 2,281
Purchase of fixed assets.................................. (2,226) (12,054) -- (14,280)
Corporate cash advances (payments)........................ 109,601 (109,601) -- --
Proceeds from sale of other assets........................ -- 1,130 -- 1,130
Purchase of other assets.................................. -- (468) -- (468)
---------- --------- ----- ---------
Net cash provided by (used in) investing
activities....................................... 109,656 (120,993) -- (11,337)
---------- --------- ----- ---------
FINANCING ACTIVITIES:
Repayment of debt......................................... (21,198) (332,100) -- (353,298)
Proceeds from issuance of subordinated notes, net......... 13,273 207,944 -- 221,217
Proceeds from Credit Facility............................. 14,700 230,300 -- 245,000
Capital distributions..................................... (148,415) -- -- (148,415)
Debt issuance costs....................................... (12,076) -- -- (12,076)
---------- --------- ----- ---------
Net cash used in financing activities............. (153,716) 106,144 -- (47,572)
---------- --------- ----- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS..................... (15,445) (3,806) -- (19,251)
CASH AND CASH EQUIVALENTS, beginning of period.............. 15,672 11,883 -- 27,555
---------- --------- ----- ---------
CASH AND CASH EQUIVALENTS, end of period.................... $ 227 $ 8,077 $ -- $ 8,304
========== ========= ===== =========



64



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JULY 2, 2003



PARENT SUBSIDIARY
COMPANY GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ------------ ------------
(IN THOUSANDS)

OPERATING ACTIVITIES:
Net income............................................... $ 3,388 $ 8,539 $ 1,089 $ 13,016
Adjustments to reconcile net income to net
Cash provided by operating activities:
Depreciation and amortization......................... 3,510 33,375 -- 36,885
Amortization of debt issuance costs................... 71 1,111 -- 1,182
Accretion of original issue discount.................. 44 695 -- 739
Impairment of assets.................................. -- 4,803 -- 4,803
Deferred income taxes................................. 41 636 -- 677
Gain on sale of Original Roadhouse Grill restaurants.. -- (7,088) -- (7,088)
Loss on disposal of assets............................ -- 565 -- 565
Loss on sale leaseback transactions................... -- 5,856 -- 5,856
Changes in assets and liabilities:
Receivables......................................... 4,759 (1,324) (1,185) 2,250
Inventories......................................... (103) 273 -- 170
Prepaid expenses and other assets................... 2,457 (410) -- 2,047
Accounts payable.................................... 7,684 666 -- 8,350
Accrued and other liabilities....................... (5,608) (8,171) -- (13,779)
Income taxes payable/refundable..................... 501 1,386 96 1,983
---------- ------------ ---------- ------------
Net cash provided by operating activities........ 16,744 40,912 -- 57,656
---------- ------------ ---------- ------------
INVESTING ACTIVITIES:
Proceeds from sale leaseback transactions................ -- 26,117 -- 26,117
Proceeds from sale of Original Roadhouse Grill
restaurants............................................. -- 25,850 -- 25,850
Purchase of fixed assets................................. (2,423) (23,299) -- (25,722)
Corporate cash advances.................................. (883) 883 -- --
Proceeds from sale of other assets....................... -- 971 -- 971
Purchase of other assets................................. -- (554) -- (554)
---------- ------------ ---------- ------------
Net cash provided by (used in) investing
activities...................................... (3,306) 29,968 -- 26,662
---------- ------------ ---------- ------------
FINANCING ACTIVITIES:
Repayment of debt........................................ (4,392) (68,806) -- (73,198)
Capital distributions.................................... (576) -- -- (576)
Debt issuance costs...................................... (186) (2,915) -- (3,101)
---------- ------------ ---------- ------------
Net cash used in financing activities............ (5,154) (71,721) -- (76,875)
---------- ------------ ---------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................... 8,284 (841) -- 7,443
CASH AND CASH EQUIVALENTS, beginning of period............. 227 8,077 -- 8,304
---------- ------------ ---------- ------------
CASH AND CASH EQUIVALENTS, end of period................... $ 8,511 $ 7,236 $ -- $ 15,747
========== ============ ========== ============


65




12 TRANSITION PERIOD DISCLOSURE (UNAUDITED)

The following unaudited information for the twenty-eight week period ended
July 28, 2001 and the fifty-week period ended July 3, 2003 are included for
comparison purposes (in thousands).

(SUCCESSOR)
FOR THE (SUCCESSOR)
TWENTY-EIGHT FOR THE FIFTY-
WEEK PERIOD WEEK PERIOD
ENDED ENDED
JULY 28, 2001 JULY 3, 2002
--------------- --------------
RESTAURANT SALES........................ $ 567,821 $ 1,003,997
RESTAURANT COSTS:
Food.................................. 179,989 309,863
Labor................................. 176,608 314,079
Direct and occupancy.................. 125,527 225,213
--------------- --------------
Total restaurant costs........ 482,124 849,155
ADVERTISING EXPENSES.................... 15,776 26,280
GENERAL AND ADMINISTRATIVE EXPENSES..... 26,291 49,308
GOODWILL AMORTIZATION................... 6,155 4,967
--------------- --------------
OPERATING INCOME........................ 37,475 74,287
INTEREST EXPENSE........................ 24,876 33,595
INTEREST INCOME......................... (312) (587)
OTHER INCOME............................ (758) (1,145)
LOSS RELATED TO REFINANCING............. -- 38,476
--------------- --------------
INCOME BEFORE INCOME TAXES.............. 13,669 3,948
INCOME TAX EXPENSE...................... 7,786 4,151
--------------- --------------
Net income....................... $ 5,883 $ (203)
=============== ==============

13 SUBSEQUENT EVENTS

During August 2003, the Company exercised its call option to acquire the
remaining 20% interest in Tahoe Joe's Inc. from the minority holder for
$370,000.

14 INTERIM FINANCIAL RESULTS (UNAUDITED)

The following table sets forth certain unaudited quarterly information for
each of the eight fiscal quarters for the 50-week period ended July 3, 2002 and
the year ended July 2, 2003 (in thousands). In management's opinion, this
unaudited quarterly information has been prepared on a consistent basis with the
audited financial statements and includes all necessary adjustments, consisting
only of normal recurring adjustments, that management considers necessary for a
fair presentation of the unaudited quarterly results when read in conjunction
with the Consolidated Financial Statements and Notes. The Company believes that
quarter-to-quarter comparisons of its financial results are not necessarily
indicative of future performance.

66







FOR THE FIFTY-WEEK PERIOD ENDED JULY 3, 2002 FOR THE YEAR ENDED JULY 2, 2003
----------------------------------------------- -----------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------

Revenues................ $ 245,245 $ 231,668 $ 320,755 $ 206,329 $ 235,498 $ 221,189 $ 293,684 $ 234,915
Operating income........ 16,979 15,044 23,870 18,394 17,188 4,937 14,398 20,381
Income (loss) before
income taxes........... 8,086 6,340 13,824 (24,302) 7,617 (4,560) 2,456 12,822
Net income (loss)....... 3,699 3,126 8,418 (15,446) 4,892 (2,514) 1,708 8,930


Quarterly operating income for the year ended July 2, 2003 was impacted by
certain unusual and infrequent transactions including: a $5.4 million loss on
sale and leaseback of restaurants during the second quarter, and a $4.8 million
asset impairment charge, a $7.1 million gain on the sale of 13 Original
Roadhouse Grill restaurants, and a $0.4 million loss on sale and leaseback of
restaurants that occurred during the fourth quarter.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and regulations, and that the
information is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate, to allow
timely decisions regarding required disclosures based closely on the definition
of "disclosure controls and procedures" in Rule 13a-15(e) of the Securities
Exchange Act of 1934. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired objectives, and management was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.

As of July 2, 2003, we carried out an evaluation, under the supervision and
with the participation of our management, including our chief executive officer
and our chief financial and chief accounting officer of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on this
evaluation, we concluded that our disclosure controls and procedures were
effective.

67




CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

During the twelve weeks ended July 2, 2003, there were no significant
changes in our internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information regarding our directors and
executive officers:



NAME AGE POSITION
- --------------------- ----- -----------------------------------

Frederick J. Iseman........... 51 Chairman of the Board and Director of Buffets
Kerry A. Kramp................ 48 President, Chief Executive Officer and Director of Buffets
Glenn D. Drasher.............. 52 Executive Vice President of Marketing
R. Michael Andrews, Jr........ 39 Executive Vice President and Chief Financial Officer
H. Thomas Mitchell............ 46 Executive Vice President, General Counsel and Secretary
K. Michael Shrader............ 60 Executive Vice President of Human Resources
Jean C. Rostollan............. 51 Executive Vice President of Purchasing
Roe H. Hatlen................. 59 Vice Chairman of the Board and Director of Buffets
Steven M. Lefkowitz........... 39 Director of Buffets
Robert A. Ferris.............. 61 Director of Buffets
David S. Lobel................ 50 Director of Buffets
Robert M. Rosenberg........... 65 Director of Buffets


Frederick J. Iseman has served as Chairman of the Board and as a director
of our company and as Chairman of the Board and as a director of Buffets
Holdings since October 2000. Mr. Iseman is currently Chairman and Managing
Partner of Caxton-Iseman Capital, Inc., a private investment firm, which was
founded by Mr. Iseman in 1993. Prior to establishing Caxton-Iseman Capital,
Mr. Iseman founded Hambro-Iseman Capital Partners, a merchant banking firm,
in 1990. From 1988 to 1990, Mr. Iseman was a member of Hambro International
Venture Fund. Mr. Iseman is Chairman of the Board and a director of
Anteon International Corporation, a director of Vitality Beverages, Inc. and
a member of the Advisory Board of Duke Street Capital and STAR Funds.

Kerry A. Kramp has served as our President and Chief Executive Officer since
May 2000 and as a director of our company and as a director of Buffets Holdings
since October 2000. Prior to that date, he had served as our President and Chief
Operating Officer since our merger with HomeTown Buffet in 1996. Mr. Kramp was
President and a director of HomeTown Buffet from 1995 through our merger in
1996.

Glenn D. Drasher has served as our Executive Vice President of Marketing
since 1997. He has over 25 years of operational, marketing and executive
restaurant industry experience. From 1994 until he joined us, Mr. Drasher was
Executive Vice President for Country Kitchen International and Vice President of
Marketing for Country Hospitality Worldwide, both divisions of The Carlson
Company.

R. Michael Andrews, Jr. has served as our Executive Vice President and Chief
Financial Officer since April 2000. Prior to joining us, Mr. Andrews served as
Chief Financial Officer of Eerie World

68



Entertainment, the parent company to Jekyll & Hyde Clubs, from 1999 to 2000. He
was Chief Financial Officer of Don Pablo's Restaurants from 1998 to 1999.
Previously, Mr. Andrews was with KPMG Peat Marwick LLP for approximately 12
years, serving most recently as Senior Manager.

H. Thomas Mitchell has served as our Executive Vice President, General
Counsel and Secretary since 1998. He joined our company in 1994 and has 13 years
of executive restaurant industry experience and 19 years of legal practice. Mr.
Mitchell served in the further capacity of Chief Administrative Officer from
1998 until 2000.

K. Michael Shrader has served as our Executive Vice President of Human
Resources since our merger with HomeTown Buffet in 1996. Mr. Shrader is
responsible for all human resource functions, including employee and
organization development, staffing, training, human resource systems,
compensation, benefits, employment-related dispute resolution and risk
management.

Jean C. Rostollan has served as our Executive Vice President of Purchasing
since 1994. Ms. Rostollan joined our company in 1986 and has 17 years of
executive restaurant industry experience.

Roe H. Hatlen co-founded our company and has served as the Vice-Chairman of
the Board and as a director of our company since June 2002 and as the
Vice-Chairman of the Board and as a director of Buffets Holdings since October
2000. He served as our Chairman and Chief Executive Officer from our inception
in 1983 through May 2000 and as President from May 1989 to September 1992. He is
a member of the Board of Regents of Pacific Lutheran University.

Steven M. Lefkowitz has served as a director of our company and of Buffets
Holdings since October 2000. Mr. Lefkowitz is a Managing Director of
Caxton-Iseman Capital, Inc. and has been employed by Caxton-Iseman Capital since
1993. From 1988 to 1993, Mr. Lefkowitz was employed by Mancuso & Company, a
private investment firm, and served in several positions including Vice
President and as a Partner of Mancuso Equity Partners. Mr. Lefkowitz is also
director of Anteon International Corporation and Vitality Beverages, Inc.

Robert A. Ferris has served as a director of our company since June 2002 and
of Buffets Holdings since October 2000. Mr. Ferris is a Managing Director of
Caxton-Iseman Capital, Inc. and has been employed by Caxton-Iseman Capital since
March 1998. From 1981 to February 1998, Mr. Ferris was a General Partner of
Sequoia Associates, a private investment firm headquartered in Menlo Park,
California. Prior to founding Sequoia Associates, Mr. Ferris was a Vice
President of Arcata Corporation, a New York Stock Exchange-listed company. Mr.
Ferris currently is a director of Anteon International Corporation.

David S. Lobel has served as a director of our company since June 2002 and
of Buffets Holdings since October 2000. Mr. Lobel is currently Managing Partner
of Sentinel Capital Partners, a private equity investment firm founded by Mr.
Lobel in 1995. Prior to establishing Sentinel Capital Partners, Mr. Lobel spent
15 years at First Century Partners, Smith Barney's venture capital affiliate.
Mr. Lobel joined First Century in 1981 and served as a general partner of funds
managed by First Century from 1983 until his departure in 1995. From 1979 to
1981, Mr. Lobel was a consultant at Bain & Company.

Robert M. Rosenberg has served as a director of our company since June 2002
and of Buffets Holdings since May 2001. He is the retired Chief Executive
Officer of Dunkin' Donuts, a position

69



he held from 1963 until his retirement in 1998. He has been a member of the
Board of Directors of Sonic Corp. since 1993 and a member of the Board of
Directors of Domino's Pizza since 1999.

BOARD OF DIRECTORS

Our seven-member Board of Directors is comprised of-- Frederick J. Iseman,
Kerry A. Kramp, Roe H. Hatlen, Steven M. Lefkowitz, Robert A. Ferris,
David S. Lobel and Robert M. Rosenberg. The board typically meets in joint
session with the Buffets Holdings' board of directors. Our Board of
Directors has three committees -- the audit committee, the compensation
committee and the executive committee.

Messrs. Hatlen, Lefkowitz and Rosenberg serve on the audit committee, which
meets with financial management, the internal auditors and the independent
auditors to review internal accounting controls and accounting, auditing, and
financial reporting matters. Messrs. Ferris, Kramp, Lefkowitz and Lobel serve on
the compensation committee, which reviews the compensation of our executive
officers, executive bonus allocations and other compensation matters. Messrs.
Iseman and Kramp serve on the executive committee, which has been formed to take
action on matters relating to the general governance of our company when the
board is not otherwise meeting.

The directors, with the exception of Robert Rosenberg, receive no cash
compensation for serving on the board except for reimbursement of reasonable
expenses incurred in attending meetings. Mr. Rosenberg receives a $3,500 fee for
each board meeting attended.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth information relating to the compensation
awarded to, earned by or paid to our President and Chief Executive Officer,
Kerry A. Kramp, and each of the five other most highly compensated executive
officers whose individual compensation exceeded $100,000 during the 26-week
transitional period ended July 3, 2002 and the fiscal year ended July 2, 2003
for services rendered to us.




ANNUAL COMPENSATION
------------------------------------------------------
FISCAL OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)
--------------------------- ---- --------- -------- ---------------

Kerry A. Kramp............................................ 2003 472,500 50,000 20,023
President, Chief Executive Officer and Director 2002 253,558 114,071 4,743
David Goronkin............................................ 2003 316,000 -- 8,063
Chief Operating Officer and Director 2002 169,593 72,656 2,799
Glenn D. Drasher.......................................... 2003 222,560 -- 8,626
Executive Vice President of Marketing 2002 119,511 35,820 1,958
R. Michael Andrews, Jr.................................... 2003 216,000 75,000 18,104
Executive Vice President and Chief Financial Officer 2002 115,692 34,765 5,165
H. Thomas Mitchell........................................ 2003 192,400 50,000 7,937
Executive Vice President, General Counsel and Secretary 2002 103,315 17,695 138
Jean C. Rostollan......................................... 2003 192,400 -- 6,569
Executive Vice President of Purchasing 2002 84,730 17,530 4,862

David Goronkin, former Chief Operating Officer and Director, resigned from
both positions in April 2003.



70



EMPLOYEE BENEFIT PLANS

We have a 401(k) plan covering all of our employees who have been employed
for at least one year, are 21 years or older and worked at least 1,000 hours in
the previous year. Our discretionary contributions to the plan are determined
annually by our Board of Directors and are used to match a portion of our
employees' voluntary contributions. Our partial matching contributions to the
401(k) fund vest over a five-year period so long as the employee remains
employed by us. We made matching contributions of $0.9 million in fiscal 2001
and $0.8 million in fiscal 2000. These contributions were paid during the first
quarter of the succeeding fiscal year. There were no matching contributions for
2002. The 2003 matching contribution will not be authorized by the board of
directors until the end of the 2003 calendar year. The Company has no accrual as
of July 2, 2003 for 2003 matching contributions.

EMPLOYMENT AGREEMENTS

Kerry A. Kramp, Glenn D. Drasher, R. Michael Andrews, Jr.,
H. Thomas Mitchell, K. Michael Shrader and Jean C. Rostollan each entered into
a severance protection agreement with us dated as of September 29, 2000.
Each agreement entitles the executive to continue to receive his or her
salary, medical and health benefits, group term life insurance and long term
disability coverage on the same basis as prior to termination of employment
with us for 52 weeks following termination of employment with us for any
reason other than for cause, disability or death and execution of a release
attached to the agreements. The executives have no duty to mitigate the
amounts payable under the agreements.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Buffets Holdings is the sole holder of all 100 issued and outstanding shares
of our common stock. The address of Buffets Holdings is 1460 Buffet Way, Eagan,
Minnesota, 55121.

The following table sets forth the number and percentage of outstanding
Buffets Holdings' common stock beneficially owned by (1) the named executive
officers and each director of Buffets individually, (2) all named executive
officers and directors as a group and (3) the stockholders of Buffets Holdings
known to us to be the beneficial owner of more than 5% of Buffets Holdings'
common stock as of July 2, 2003. Except as noted below, the address of each
principal stockholder of Buffets Holdings is c/o Buffets, Inc., 1460 Buffet Way,
Eagan, Minnesota, 55121.

71







NAME OF BENEFICIAL OWNER SHARES PERCENTAGE
- ------------------------------------------- ------ ----------

Caxton-Iseman Investments L.P.(1)......................................... 2,501,438 77.0%
Sentinel Capital Partners II, L.P.(2)..................................... 225,106 6.9
Frederick J. Iseman(1).................................................... 2,501,438 77.0
Kerry A. Kramp............................................................ 130,000 4.0
R. Michael Andrews, Jr.................................................... 40,625 1.3
Roe H. Hatlen(3).......................................................... 162,952 5.0
Robert M. Rosenberg....................................................... 4,610 0.1
Steven M. Lefkowitz....................................................... -- --
Robert A. Ferris.......................................................... -- --
David S. Lobel............................................................ -- --
All named executive officers and directors as a group (8 persons)......... 3,064,731 94.3
- ----------


(1) By virtue of Mr. Iseman's indirect control of Caxton-Iseman Investments
L.P., he is deemed to beneficially own the 2,501,438 shares of common stock
held by that entity. The address of Caxton-Iseman Investments L.P. and Mr.
Iseman is c/o Caxton-Iseman Capital, Inc., 667 Madison Avenue, New York, New
York, 10021.

(2) The address of Sentinel Capital Partners II, L.P. is 777 Third Avenue, 32nd
Floor, New York, New York, 10017.

(3) Mr. Hatlen has sole voting and dispositive power over 65,012 shares of
common stock. Mr. Hatlen may be deemed to be the beneficial owner of 67,518
shares of common stock held by the Lars C. Hatlen Trust, the Erik R. Hatlen
Trust and Kari E. Hatlen, each such entity or person owning 22,506 shares of
common stock. By virtue of Mr. Hatlen's control over Eventyr Investments, he
is deemed to beneficially own the 30,422 shares of common stock held by that
entity.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

FOUNDER ADVISORY AGREEMENTS

Roe H. Hatlen has entered into an advisory arrangement with us and Buffets
Holdings that expires in 2005. Under his advisory agreement, Mr. Hatlen received
$283,000 in fiscal 2003. He will receive $268,000 in fiscal 2004, $238,000 in
fiscal 2005 and $113,000 in fiscal 2006. In addition, Mr. Hatlen will receive
health, medical and other benefits comparable to those made available to our
management employees through calendar 2005. Mr. Hatlen purchased approximately
5.0% of the shares of Buffets Holdings common stock (1.0% of the outstanding
shares of Buffets Holdings common stock acquired by Mr. Hatlen was subject to
vesting) and approximately 3.4% of the shares of Buffets Holdings preferred
stock. 32,501 shares of Buffets Holdings common stock are subject to vesting
over three years at the rate of one-third for each year Mr. Hatlen completes as
a member of Buffets Holdings' board of directors. Buffets Holdings has rights to
repurchase, at various prices depending on whether Mr. Hatlen is terminated with
cause or without cause, the unvested shares of its common stock if Mr. Hatlen
ceases to serve as a member of Buffets Holdings' board of directors.

72



CAXTON-ISEMAN CAPITAL ADVISORY AGREEMENT

We entered an advisory agreement with Caxton-Iseman Capital under which
Caxton-Iseman Capital provides various advisory services to us in exchange for
an annual advisory fee equal to 2% of our annual consolidated earnings before
interest, taxes, depreciation and amortization and an additional 1% fee for
advisory services relating to particular transactions. Under this agreement, we
paid $2.8 million in fiscal 2003, $1.2 million in fiscal 2002, $2.9 million in
fiscal 2001 and $0.4 million in the period from October 2, 2000 to January 3,
2001.

BOARD OF DIRECTORS ADVISORY AGREEMENT

We entered into an advisory agreement with Robert M. Rosenberg, under which
he provided various advisory services to us for an advisory fee of $35,000
during fiscal 2003.

SENTINEL CAPITAL ADVISORY AGREEMENT

We entered into an advisory agreement with Sentinel Capital Partners,
L.L.C., under which Sentinel Capital provides various advisory services to us
for an annual advisory fee of $200,000. Under this agreement, we paid $200,000
in fiscal 2003.

GUARANTEES, PROMISSORY NOTES AND PLEDGE AGREEMENTS

As part of the buyout from public shareholders on October 2, 2000, some of
our management investors obtained recourse loans from U.S. Bank, which allowed
them to purchase shares in Buffets Holdings. In connection with these management
investor loans, we provided guarantees of these loans to U.S. Bank and we paid
interest to U.S. Bank at prime plus 1% on these loans. Concurrently, each of the
management investors pledged his, or her, respective ownership interests in the
shares of Buffets Holdings and executed a promissory note in favor of Buffets
Holdings, whereby each agreed to repay the corresponding amount of the
guarantee, together with interest at fixed rates ranging between 6% and 7% per
annum, at the earliest of (1) seven years, (2) termination of employment with
our company or (3) the sale, disposition or other transfer of the management
investor's ownership interests in the shares. The aggregate amount of the
guarantees was approximately $0.5 million as of July 2, 2003, including a
guarantee to R. Michael Andrews, Jr. of $203,081.

David Goronkin was advanced $315,000 on February 20, 2002 for the purchase
of homestead property in Minnesota. Interest was payable annually at a rate
equal to the company's interest rate on its senior secured borrowing, up to a
maximum of 12% per annum. The principal plus accrued but unpaid interest was
repaid upon his resignation.

73



PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Documents filed as part of this report:

1. The following Financial Statements of the Company are included in
Part II, Item 8 of this Annual Report on Form 10-K:

Report of Independent Auditors

Consolidated Balance Sheets as of January 2, 2002,
July 3, 2002 and July 2, 2003

Consolidated Statements of Operations for the Period
from December 30, 1999 through October 1, 2000, for
the Period from October 2, 2000 through January 3,
2001, for the Year Ended January 2, 2002, for the
wenty-Six Week Transitional Period Ended July 3,
2002 and for the Year Ended July 2, 2003

Consolidated Statements of Shareholder's Equity
(Deficit) for the Period from December 30, 1999
through October 1, 2000, for the Period from October
2, 2000 through January 3, 2001, for the Year Ended
January 2, 2002, for the Twenty-Six Week Transitional
Period Ended July 3, 2002 and for the Year Ended July
2, 2003

Consolidated Statements of Cash Flows for the Period
from December 30, 1999 through October 1, 2000, for
the Period from October 2, 2000 through January 3,
2001, for the Year Ended January 2, 2002, for the
Twenty-Six Week Transitional Period Ended July 3,
2002 and for the Year Ended July 2, 2003

Notes to Consolidated Financial Statements

2. Schedules to Financial Statements:

All financial statement schedules have been omitted
because they are either inapplicable or the
information required is provided in the Company's
Consolidated Financial Statements and Notes thereto,
included in Part II, Item 8 of this Annual Report on
Form 10-K.

3. Index to Exhibits

3.1 Articles of Incorporation of Buffets, Inc.
(incorporated by reference to Exhibit 3.1 to our
registration statement on Form S-4, filed with the
Commission on August 16, 2002).
3.2 Bylaws of Buffets, Inc. (incorporated by reference to
Exhibit 3.2 to our registration statement on Form S-4,
filed with the Commission on

74



August 16, 2002).
4.1 Indenture, dated as of June 28, 2002, among
Buffets, Inc., the Guarantors and U.S. Bank
National Association, as Trustee
(incorporated by reference to Exhibit 4.1 to
our registration statement on Form S-4,
filed with the Commission on August 16, 2002).
4.2 Form of Exchange Note (incorporated by
reference to Exhibit A to Exhibit 4.1 to our
registration statement on Form S-4, filed
with the Commission on August 16, 2002).
4.3 Registration Rights Agreement, dated as of
June 28, 2002, among Buffets, Inc., the
Guarantors and Credit Suisse First Boston
Corporation (incorporated by reference to
Exhibit 4.3 to our registration statement on
Form S-4, filed with the Commission on
August 16, 2002)
10.1 Credit Agreement, dated as of June 28, 2002,
among Buffets, Inc., Buffets Holdings, Inc.,
the lenders party thereto and Credit Suisse
First Boston, as administrative agent and as
collateral agent for the lenders
(incorporated by reference to Exhibit 10.1
to our registration statement on Form S-4,
filed with the Commission on August 16, 2002) .
10.2 Management and Fee Agreement, dated October
2, 2000, by and among Buffets, Inc. and
Caxton-Iseman Capital, Inc. (incorporated by
reference to Exhibit 10.2 to our
registration statement on Form S-4, filed
with the Commission on August 16, 2002).
10.3 Management and Fee Agreement, dated October
2, 2000, by and among Buffets, Inc. and
Sentinel Capital Partners, L.L.C.
(incorporated by reference to Exhibit 10.3
to our registration statement on Form S-4,
filed with the Commission on August 16, 2002).
10.4 Advisory Agreement, dated September 28,
2000, by and among Buffets Holdings, Inc.,
Buffets, Inc. and Roe E. Hatlen
(incorporated by reference to Exhibit 10.4
to our registration statement on Form S-4,
filed with the Commission on August 16, 2002).
10.5 Advisory Agreement, dated September 28,
2000, by and among Buffets Holdings, Inc.,
Buffets, Inc. and C. Dennis Scott
(incorporated by reference to Exhibit 10.5
to our registration statement on Form S-4,
filed with the Commission on August 16, 2002).
10.6 Guaranty, dated September 28, 2000, from
Buffets, Inc. to U.S. Bank National
Association in connection with a Promissory
Note and Pledge Agreement by and among U.S.
Bank National Association and David Goronkin
(incorporated by reference to Exhibit 10.7
to our registration statement on Form S-4,
filed with the Commission on August 16, 2002).
10.7 Guaranty, dated September 28, 2000, from
Buffets, Inc. to U.S. Bank National
Association in connection with a Promissory
Note and Pledge Agreement by and among U.S.
Bank National Association and R. Michael
Andrews, Jr. (incorporated by reference to
Exhibit 10.8 to our registration statement
on Form S-4, filed with the Commission

75



on August 16, 2002).
10.8 Promissory Note and Pledge Agreement, dated
February 20, 2002, among David Goronkin,
Pamela Goronkin and Buffets, Inc.
(incorporated by reference to Exhibit 10.9
to our registration statement on Form S-4,
filed with the Commission on August 16, 2002).
10.9 Severance Protection Agreements, dated September
29, 2000, between Buffets, Inc. and each of
Kerry A. Kramp, David Goronkin, R. Michael
Andrews, Jr., Glenn D. Drasher, K. Michael Shrader
and H. Thomas Mitchell (incorporated by reference to
Exhibit 10.10 to our registration statement on Form
S-4, filed with the Commission on August 16, 2002).
10.9.1 Severance Protection Agreement, dated September 29,
2000, between Buffets, Inc. and Jean C. Rostollan.
21 List of Subsidiaries of Buffets, Inc.
(incorporated by reference to Exhibit 21 to our
registration statement on Form S-4, filed with the
Commission on August 16, 2002).
24 Powers of Attorney (included on signature pages).
31 .1 Sarbanes-Oxley Act Section 302 Certification of Chief
Executive Officer.
31 .2 Sarbanes-Oxley Act Section 302 Certification of Chief
Financial Officer.
32 .1 Sarbanes-Oxley Act Section 906 Certifications of Chief
Executive Officer.
32 .2 Sarbanes-Oxley Act Section 906 Certifications of Chief
Financial Officer.

(b) Reports on Form 8-K:

1. On May 8, 2003, we filed a current report on Form 8-K (Item 9)
announcing financial results for the third quarter ended
April 9, 2003.

2. On June 9, 2003, we filed a current report on Form 8-K (Items 5
and 7) announcing the sale of certain assets and same store sale
projections.

76




SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



BUFFETS, INC.



Date: September 30, 2003 By: /s/ Kerry A. Kramp
----------------------------------
Kerry A. Kramp
Chief Executive Officer


By: /s/ R. Michael Andrews, Jr.
----------------------------------
R. Michael Andrews, Jr.
Chief Financial Officer
(Principal Financial and
Accounting Officer)

77



POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below hereby constitutes and appoints Kerry A. Kramp or R. Michael Andrews, Jr.
or either of them his true and lawful agent, proxy and attorney-in-fact, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this
report filed pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, and to file the same with all exhibits thereto,
and the other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
things requisite and necessary to be done, as fully to all intents and purposes
as such person might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
and the foregoing Power of Attorney have been signed by the following persons in
the capacities and on the dates indicated.



SIGNATURE TITLE DATE
- --------- ----- ----

/s/Kerry A. Kramp President, Chief Executive Officer September 30, 2003
- --------------------------- (Principal Executive Officer) and
Kerry A. Kramp Director

/s/R. Michael Andrews, Jr. Executive Vice President and Chief September 30, 2003
- --------------------------- Financial Officer (Principal
R. Michael Andrews, Jr. Financial and Accounting Officer

/s/Robert A. Ferris Director September 30, 2003
- ---------------------------
Robert A. Ferris

/s/Roe H. Hatlen Director (Vice Chairman of the September 30, 2003
- --------------------------- Board of Directors
Roe H. Hatlen

/s/Frederick J. Iseman Director (Chairman of the Board of September 30, 2003
- --------------------------- Directors)
Frederick J. Iseman

/s/Steven M. Lefkowitz Director September 30, 2003
- ---------------------------
Steven M. Lefkowitz

/s/David S. Lobel Director September 30, 2003
- ---------------------------
David S. Lobel

/s/Robert M. Rosenberg Director September 30, 2003
- ---------------------------
Robert M. Rosenberg



78