For the quarterly period ended December 15, 2004
Commission file number: 333-116897
| Delaware | 22-3754018 | |
|---|---|---|
| (State or other jurisdiction of | (IRS Employer | |
| incorporation or organization) | Identification No.) |
| 1460 Buffet Way | |
|---|---|
| Eagan, Minnesota | 55121 |
| (Address of principal executive offices) | (Zip Code) |
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 Holdings, Inc.‘s common stock outstanding as of January 12, 2005 was 3,175,135.
| Part I. Financial Information | Page | |||||||
| Item 1. | Financial Statements | |||||||
| Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2004 and December 15, 2004 | 3 | |||||||
| Condensed Consolidated Statements of Operations (Unaudited) -- 12 Weeks and 24 Weeks Ended December 17, 2003 and December 15, 2004 | 4 | |||||||
| Condensed Consolidated Statements of Cash Flows (Unaudited) -- 24 Weeks Ended December 17, 2003 and December 15, 22, 2004 | 5 | |||||||
| Notes to the Condensed Consolidated Financial Statements (Unaudited) | 6 | |||||||
| Item 2. | Management's Discussion and Analysis of Financial Condition and | |||||||
| Results of Operations | 17 | |||||||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 23 | ||||||
| Item 4. | Controls and Procedures | 23 | ||||||
| Part II. Other Information | ||||||||
| Item 1. | Legal Proceedings | 24 | ||||||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 24 | ||||||
| Item 6. | Exhibits | 24 | ||||||
2
| June 30, | December 15, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2004 |
2004 | |||||||
| (Unaudited) | ||||||||
| (In thousands, except share data) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 26,072 | $ | 31,923 | ||||
| Restricted cash and cash equivalents | 16,228 | — | ||||||
| Receivables | 6,963 | 6,033 | ||||||
| Inventories | 18,673 | 18,280 | ||||||
| Prepaid expenses and other current assets | 5,244 | 5,251 | ||||||
| Deferred income taxes | 15,915 | 15,263 | ||||||
| Total current assets | 89,095 | 76,750 | ||||||
| PROPERTY AND EQUIPMENT, net | 149,618 | 143,226 | ||||||
| GOODWILL | 312,163 | 312,163 | ||||||
| DEFERRED INCOME TAXES | 1,033 | 1,672 | ||||||
| OTHER ASSETS, net | 15,622 | 13,893 | ||||||
| Total assets | $ | 567,531 | $ | 547,704 | ||||
| LIABILITIES AND SHAREHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 43,280 | $ | 38,050 | ||||
| Accrued liabilities | 68,663 | 72,449 | ||||||
| Income taxes payable | 4,531 | 3,351 | ||||||
| Current maturities of long-term debt | 2,300 | 2,218 | ||||||
| Total current liabilities | 118,774 | 116,068 | ||||||
| LONG-TERM DEBT, net of current maturities | 496,039 | 478,685 | ||||||
| DEFERRED LEASE OBLIGATIONS | 21,621 | 22,469 | ||||||
| OTHER LONG-TERM LIABILITIES | 7,013 | 6,962 | ||||||
| Total liabilities | 643,447 | 624,184 | ||||||
| SHAREHOLDERS' DEFICIT: | ||||||||
| Preferred stock; $.01 par value, 1,100,000 shares authorized; none | ||||||||
| issued and outstanding as of June 30, 2004 and December 15, 2004 | — | — | ||||||
| Common stock; $.01 par value, 3,600,000 shares authorized; 3,185,672 | ||||||||
| shares issued and outstanding as of June 30, 2004 and 3,152,135 as | ||||||||
| of December 15, 2004 | 32 | 32 | ||||||
| Additional paid in capital | — | 12 | ||||||
| Accumulated deficit | (75,948 | ) | (76,524 | ) | ||||
| Total shareholders' deficit | (75,916 | ) | (76,480 | ) | ||||
| Total liabilities and shareholders' deficit | $ | 567,531 | $ | 547,704 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
| Twelve Weeks Ended |
Twenty Four Weeks Ended | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 17, | December 15, | December 17, | December 15, | |||||||||||
| 2003 |
2004 |
2003 |
2004 | |||||||||||
| (Unaudited) | ||||||||||||||
| (In thousands) | ||||||||||||||
| RESTAURANT SALES | $ | 211,275 | $ | 205,175 | $ | 430,883 | $ | 422,383 | ||||||
| RESTAURANT COSTS: | ||||||||||||||
| Food | 68,949 | 67,197 | 140,209 | 138,240 | ||||||||||
| Labor | 65,117 | 62,586 | 133,519 | 126,892 | ||||||||||
| Direct and occupancy | 49,345 | 50,306 | 100,375 | 102,081 | ||||||||||
| Total restaurant costs | 183,411 | 180,089 | 374,103 | 367,213 | ||||||||||
| ADVERTISING EXPENSES | 6,270 | 5,048 | 11,892 | 10,845 | ||||||||||
| GENERAL AND ADMINISTRATIVE EXPENSES | 9,504 | 10,954 | 18,579 | 20,850 | ||||||||||
| OPERATING INCOME | 12,090 | 9,084 | 26,309 | 23,475 | ||||||||||
| INTEREST EXPENSE | 8,754 | 11,094 | 17,596 | 21,931 | ||||||||||
| INTEREST INCOME | (93 | ) | (181 | ) | (185 | ) | (246 | ) | ||||||
| LOSS RELATED TO REFINANCING | — | 835 | — | 835 | ||||||||||
| LOSS RELATED TO EARLY EXTINGUISHMENT | ||||||||||||||
| OF DEBT | — | — | — | 1,923 | ||||||||||
| OTHER INCOME | (245 | ) | (207 | ) | (843 | ) | (420 | ) | ||||||
| INCOME (LOSS) BEFORE INCOME TAXES | 3,674 | (2,457 | ) | 9,741 | (548 | ) | ||||||||
| INCOME TAX EXPENSE (BENEFIT) | 1,120 | (1,068 | ) | 3,220 | (255 | ) | ||||||||
| Net income (loss) | $ | 2,554 | $ | (1,389 | ) | $ | 6,521 | $ | (293 | ) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
| Twenty Four Weeks Ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| December 17, | December 15, | |||||||
| 2003 |
2004 | |||||||
| (Unaudited) | ||||||||
| (In thousands) | ||||||||
| OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | 6,521 | $ | (293 | ) | |||
| Adjustments to reconcile net income (loss) to net cash | ||||||||
| provided by operating activities: | ||||||||
| Depreciation and amortization | 15,431 | 15,163 | ||||||
| Amortization of debt issuance cost | 613 | 658 | ||||||
| Accretion of original issue discount | 366 | 5,506 | ||||||
| Loss related to early extinguishment of debt | — | 1,923 | ||||||
| Deferred income taxes | 2,037 | 13 | ||||||
| Loss (gain) on disposal of assets | (140 | ) | 1,655 | |||||
| Changes in assets and liabilities: | ||||||||
| Receivables | (313 | ) | 930 | |||||
| Inventories | (474 | ) | 80 | |||||
| Prepaid expenses and other current assets | 2,801 | (7 | ) | |||||
| Accounts payable | (4,621 | ) | (5,230 | ) | ||||
| Accrued and other liabilities | 2,885 | 4,583 | ||||||
| Income taxes payable | 1,424 | (1,180 | ) | |||||
| Net cash provided by operating activities | 26,530 | 23,801 | ||||||
| INVESTING ACTIVITIES: | ||||||||
| Purchase of fixed assets | (17,232 | ) | (10,343 | ) | ||||
| Acquisition of 20% minority interest in Tahoe Joe's Inc. | (370 | ) | — | |||||
| Proceeds from sale of other assets | 1,577 | 900 | ||||||
| Net cash used in investing activities | (16,025 | ) | (9,443 | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Repayment of debt | (1,805 | ) | (8,672 | ) | ||||
| Issuance of stock | — | 13 | ||||||
| Repurchase of stock | (171 | ) | (284 | ) | ||||
| Reduction of restricted cash available for early | ||||||||
| extinguishment of debt | — | 16,228 | ||||||
| Use of restricted cash for early extinguishment of debt | — | (15,736 | ) | |||||
| Debt issuance costs | — | (56 | ) | |||||
| Net cash used in financing activities | (1,976 | ) | (8,507 | ) | ||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 8,529 | 5,851 | ||||||
| CASH AND CASH EQUIVALENTS, beginning of period | 15,855 | 26,072 | ||||||
| CASH AND CASH EQUIVALENTS, end of period | $ | 24,384 | $ | 31,923 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for— | ||||||||
| Interest (net of capitalized interest of $108 and $139) | $ | 15,173 | $ | 14,595 | ||||
| Income taxes | $ | (243 | ) | $ | 911 | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Description of Business
Buffets Holdings, Inc. (Buffets Holdings), a Delaware corporation, was formed to acquire 100 percent of the common stock of Buffets, Inc. and its subsidiaries in a buyout from public shareholders on October 2, 2000. Buffets Holdings, Inc. and Buffets, Inc. are collectively referred to as the Company.
The Company owns and operates a chain of restaurants under the names of Old Country Buffet, Country Buffet, HomeTown Buffet, Granny’s Buffet, Tahoe Joe’s Famous Steakhouse and Soup ‘N Salad Unlimited in the United States. The Company, operating principally in the mid-scale family dining industry segment, owned and operated 353 restaurants (344 family buffet restaurants and nine Tahoe Joe’s Famous Steakhouse Restaurants) and franchised 19 restaurants operating as of December 15, 2004.
Interim Financial Information
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all necessary adjustments, which are of a normal recurring nature, to present fairly the Company’s financial position and the results of its operations and cash flows for the periods presented, in conformity with accounting principles generally accepted in the United States of America and with the regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures, normally included in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such SEC rules and regulations. Operating results for the twenty four weeks ended December 15, 2004 are not necessarily indicative of results that may be expected for the year ending June 29, 2005.
The balance sheet as of June 30, 2004 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and the related notes contained in the Company’s Form 10-K filed with the Securities and Exchange Commission on September 28, 2004 and with Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing on pages 17 through 23 of this report.
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
The Company’s fiscal year is comprised of fifty two, or fifty three, weeks divided into four fiscal quarters of twelve, twelve, sixteen, and twelve or thirteen weeks.
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123(R), “Share-Based Payment”. This statement requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments granted to employees. SFAS No. 123(R) is effective the first reporting period beginning after June 15, 2005. The Company does not believe that the adoption of SFAS No. 123(R) will have a material impact on its results of operations or financial position.
6
The Company accounts for activity under its stock-based employee compensation plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.” Accordingly, the Company does not recognize compensation expense in connection with employee stock option grants because stock options are granted at exercise prices not less than the fair value of the common stock on the date of grant.
The following table shows the effect on net income had the Company applied the fair value expense recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation (in thousands):
| Twelve Weeks Ended |
Twenty Four Weeks Ended | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 17, | December 15, | December 17, | December 15, | |||||||||||
| 2003 |
2004 |
2003 |
2004 | |||||||||||
| Net income (loss) as reported | $ | 2,554 | ||||||||||||