As filed with the Securities and
Exchange Commission on June 4,
2010
No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
LRI HOLDINGS, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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5812
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20-5894571
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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3011 Armory Drive,
Suite 300
Nashville, Tennessee
37204
(615) 885-9056
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
G. Thomas Vogel
President and Chief Executive
Officer
LRI Holdings, Inc.
3011 Armory Drive,
Suite 300
Nashville, Tennessee
37204
(615) 885-9056
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
With copies to:
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Joshua N. Korff, Esq.
Jason K. Zachary, Esq.
Kirkland & Ellis LLP
601 Lexington Avenue
New York, New York 10022
(212) 446-4800
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Jeffrey M. Stein, Esq.
Keith M. Townsend, Esq.
King & Spalding LLP
1180 Peachtree Street, N.E.
Atlanta, Georgia 30309
(404) 572-4600
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after this
Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box: o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer x
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Amount of
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Title of Each Class of
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Aggregate
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Registration
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Securities to be Registered
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Offering Price(1)(2)
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Fee(3)
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Class A common stock, $0.01 par value per share
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$
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200,000,000
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$
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14,260
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(1)
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Includes the offering price of
shares of Class A common stock that may be sold if the
over-allotment option granted by us and the selling stockholders
to the underwriters is exercised in full.
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(2)
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Estimated solely for the purpose of
calculating the registration fee pursuant to Rule 457(o)
under the Securities Act of 1933, as amended.
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(3)
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This fee is offset by a fee of
$37,450, which was previously paid in connection with the
Registration Statement on
Form S-1
(File
No. 333-135766)
filed by Logans Roadhouse, Inc. on July 14, 2006. No
securities were issued or sold under the registration statement.
Pursuant to Rule 457(p) under the Securities Act of 1933,
as amended, such unused filing fee may be applied to the filing
fee payable pursuant to this Registration Statement.
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The registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and
may be changed. These securities may not be sold until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell nor does it seek an offer to buy these securities
in any jurisdiction where the offer or sale is not permitted.
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SUBJECT
TO COMPLETION, DATED JUNE 4, 2010
PROSPECTUS
Shares
LRI
Holdings, Inc.
Class A
Common Stock
This is an initial
public offering of shares of Class A common stock of LRI
Holdings, Inc. We are
offering shares
of our Class A common stock, and the selling stockholders
identified in this prospectus are offering an
additional shares
of Class A common stock. We will not receive any of the
proceeds from the sale of the shares being sold by the selling
stockholders in this offering.
Prior to this
offering, there has been no public market for our Class A
common stock. The initial public offering price per share of the
Class A common stock is expected to be between
$ and
$ . We intend to apply to list our
Class A common stock on The NASDAQ Global Select Market
under the symbol LGNS.
The underwriters
have an option to purchase a maximum
of
additional shares from us and the selling stockholders to cover
over-allotment of shares. The underwriters can exercise this
option at any time within 30 days from the date of this
prospectus.
Investing in our
Class A common stock involves risks. See Risk
Factors beginning on page 12.
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Proceeds,
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Proceeds,
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Before
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Underwriting
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Before
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Expenses to
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Price to
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Discounts and
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Expenses
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the Selling
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Public
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Commissions
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to Us
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Stockholders
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Per Share
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$
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$
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$
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$
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Total
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$
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$
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$
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$
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Delivery of the
shares of Class A common stock will be made on or
about ,
2010.
Neither the
Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
Credit
Suisse
The date of this
prospectus
is ,
2010
TABLE OF
CONTENTS
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Page
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ii
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ii
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1
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12
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112
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F-1
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EX-23.1 |
You should rely only on the information contained in this
prospectus or in any free-writing prospectus we may specifically
authorize to be delivered or made available to you. We have not,
the selling stockholders have not and the underwriters have not
authorized anyone to provide you with additional or different
information. We and the selling stockholders are offering to
sell, and seeking offers to buy, shares of our Class A
common stock only in jurisdictions where such offers and sales
are permitted. The information in this prospectus or any
free-writing prospectus is accurate only as of its date,
regardless of its time of delivery or the time of any sale of
shares of our Class A common stock. Our business, financial
condition, results of operations and prospects may have changed
since that date.
Until ,
2010 (25 days after the date of this prospectus), all
dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This delivery requirement is in addition to the
dealers obligation to deliver a prospectus when acting as
an underwriter and with respect to their unsold allotments or
subscriptions.
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MARKET
DATA AND FORECASTS
Unless otherwise indicated, information in this prospectus
concerning economic conditions, our industry, our markets and
our competitive position is based on information from
independent industry analysts and publications, including
KNAPP-TRACKtm,
as well as our own estimates and research. Our estimates are
derived from publicly available information released by
third-party sources, as well as data from our internal research,
and are based on such data and our knowledge of our industry,
which we believe to be reasonable. However, neither we, the
selling stockholders nor the underwriters have independently
verified any third-party data or guaranteed the accuracy and
completeness of such information. None of the independent
industry publications used in this prospectus were prepared on
our behalf, and none of the sources cited in this prospectus
have consented to the inclusion of any data from their reports,
nor have we sought consent from any of them.
TRADEMARKS
AND TRADENAMES
This prospectus includes our trademarks, such as Logans
Roadhouse®
and the design, our stylized logos set forth on the cover and
back pages of this prospectus,
Logans®
and the design, The
Logan®,
Onion
Brewski®,
Brewski
Onions®,
Peanut
Shooter®,
Roadies®
and The Real American
Roadhouse®,
as well as the peanut man logo and the trade dress element
consisting of the bucket used in connection with our
restaurant services, which are protected under applicable
intellectual property laws and are the property of LRI Holdings,
Inc. or its subsidiaries. This prospectus may also contain
trademarks, service marks, tradenames and copyrights of other
companies, which are the property of their respective owners.
Solely for convenience, trademarks, service marks and tradenames
referred to in this prospectus may appear without the
®,tm
or
sm
symbols, but such references are not intended to indicate, in
any way, that we will not assert, to the fullest extent under
applicable law, our rights or the right of the applicable
licensor to these trademarks, service marks and tradenames.
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PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. This summary does not contain all of the
information that you should consider in making your investment
decision. You should read the following summary together with
the entire prospectus, including the more detailed information
regarding our company, the Class A common stock being sold
in this offering and our consolidated financial statements and
the related notes appearing elsewhere in this prospectus. You
should also carefully consider, among other things, the matters
discussed in the sections entitled Risk Factors and
Managements Discussion and Analysis of Financial
Condition and Results of Operations in this prospectus
before deciding to invest in our Class A common stock. Some
of the statements in this prospectus constitute forward-looking
statements. See Forward-Looking Statements.
Except where the context otherwise requires or where
otherwise indicated, the terms Logans
Roadhouse, we, us,
our, our company and our
business refer to LRI Holdings, Inc., in each case
together with its predecessors and its consolidated subsidiaries
as a combined entity.
In this summary, we provide a number of key performance
indicators used by management and others in the restaurant
industry. These key performance indicators are discussed in more
detail in the section entitled Managements
Discussion and Analysis of Financial Condition and Results of
Operations Key Performance Indicators. Our
fiscal year ends on the Sunday that is closest to July 31 of the
applicable year. Our most recent fiscal year ended on
August 2, 2009.
Our
Company
Logans Roadhouse is a casual dining restaurant concept
that recreates a traditional American roadhouse atmosphere by
offering customers value-oriented, high quality,
craveable meals. Our restaurants are branded as The
Real American Roadhouse, drawing their inspiration from the
hospitable tradition and distinctive atmosphere of a 1930s
and 1940s Historic Route 66 style roadhouse. As of
May 2, 2010, we have grown our restaurant base to 211
Logans Roadhouse restaurants. Of these 211 restaurants, we
own and operate 185 restaurants with the additional 26
restaurants operated by two franchisees.
Our menu features an assortment of fresh, aged Black Angus beef
that is primarily hand-cut on premises, specially seasoned, and
grilled to order over mesquite wood. In addition, we offer a
wide variety of seafood, ribs, chicken and vegetable dishes,
including our signature Santa Fe Tilapia and Famous Baby
Back Ribs. We also offer a distinctive selection of unique items
such as our Smokin Hot Grilled Wings, Roadies and Health
Nuts! menu, as well as a broad assortment of timeless classics,
including steak burgers, salads, sandwiches and our
made-from-scratch yeast rolls.
Our restaurants provide a rockin, upbeat atmosphere
combined with friendly service from a lively staff, and our
interactive jukeboxes play a mix of blues, rock and new country
music. While dining or waiting for a table, our customers are
encouraged to enjoy bottomless buckets of roasted
in-shell peanuts and to toss the shells on the floor. Our
restaurants are open for both lunch and dinner seven days a week.
Our change in comparable restaurant sales has outperformed the
KNAPP-TRACKtm
index of casual dining restaurants for 17 consecutive quarters.
We believe our change in comparable restaurant sales has
outperformed our primary competitors in the bar &
grill and steakhouse segments since December 31, 2006. In
our most recent quarterly period, comparable restaurant sales
increased 1.2%. Over the last four fiscal years ended
August 2, 2009, we have grown by 53 new company-owned
restaurants and have grown our total revenue and Adjusted EBITDA
(a non-GAAP financial measure) at compound annual growth rates
of 9.2% and 18.0%, respectively. For the 39 weeks ended
May 2, 2010, our total revenues, Adjusted EBITDA and net
income were $416.0 million, $56.5 million and
$15.1 million, respectively, an increase of
$12.3 million, $7.0 million and $17.9 million
over the prior year comparable period. See
Summary Historical Consolidated Financial and
Operating Data for a discussion of Adjusted EBITDA, a
presentation of the most directly comparable U.S. GAAP
financial measure and a reconciliation of the differences
between Adjusted EBITDA and the most directly comparable
U.S. GAAP financial measure, net income.
1
Our
Strengths
Our core strengths include the following:
Offering Great Steaks and Other High Quality Menu
Items. We are committed to serving fresh food,
including specially seasoned, aged Black Angus beef,
always-fresh, never-frozen chicken breast entrées, high
quality seafood, hearty steak burgers and farm-fresh salads. We
believe the freshness and distinctive flavor profiles of our
signature dishes, coupled with the breadth of our menu,
differentiates us from our competitors.
Abundance and Affordability. Our entrée
portions are generous and include a choice of two side items,
all at affordable prices. Our roasted in-shell peanuts and
made-from-scratch yeast rolls are both complimentary. During the
39 weeks ended May 2, 2010, our comparable restaurant
average checks were $11.76 and $13.29 for lunch and dinner,
respectively. We believe our average check is lower than that of
substantially all of our primary competitors in the
bar & grill and steakhouse segments.
Unique Customer Experience. Our customers have
come to expect a dining experience centered around our inviting
roadhouse atmosphere and hospitable service. Our restaurants
have a relaxed, come-as-you-are environment where we encourage
our customers to throw their peanut shells on the floor. Our
Real American Roadhouse theme is enhanced by the interaction of
servers with our customers, combined with jukeboxes in our
restaurants that continuously play an upbeat mix of toe
tappin music. We are committed to providing friendly
roadside hospitality to our customers and creating a brand of
service that is warm, welcoming, personalized and attentive.
Attractive Unit Level Economics. Our
restaurants generated average unit volumes of $3.0 million
in fiscal year 2009. We reduced our restaurant prototype from
8,000 square feet to 6,500 square feet, which improved
new unit investment costs without sacrificing the number of
tables, customer experience or sales potential. In addition, we
enhanced our new unit selection process, which improved the
performance and consistency of our recent new unit openings. Our
revised site selection process incorporates internally
identified site characteristics and a sales risk assessment
model. We intend to continue to focus on new unit investment
costs and improving our site selection process over time to
maintain strong unit level returns.
Efficient Cost Structure. Our efficient cost
structure allows us to offer our customers compelling price
points without compromising customer experience or
profitability. Our restaurant operating margins improved from
13.4% in fiscal year 2008 to 16.4% during the 39 weeks
ended May 2, 2010. This increase in restaurant-level
profitability is a result of our focus on food and labor costs,
operational improvements and reduced commodity costs. We also
drive food cost control through our in-restaurant meat cutting
process, cross utilization of products and efficient cooking
methods. During the same period, we also streamlined our
corporate overhead structure. Through these efforts, we reduced
our general and administrative expenses as a percentage of total
revenues from 5.0% in fiscal year 2008 to 4.1% during the
39 weeks ended May 2, 2010. We believe we can continue
to leverage our cost structure as we pursue our growth strategy.
Proven Management Team. Our senior management
team has an average of eight years of experience with us and an
average of 25 years of relevant industry experience with
leading casual dining chains. Our management depth goes beyond
the corporate office. Our regional and general managers have
long tenures with us, and we have a track-record for promoting
management personnel from within. We believe our
managements experience at all levels has allowed us to
continue to grow our restaurant base while improving operations
and driving efficiencies.
Our
Growth Strategy
Our growth strategies include the following:
New Restaurant Development. We believe
differentiated, moderately-priced roadhouse concepts remain
under-penetrated relative to the bar & grill and
steakhouse segments. We are primarily focused on maintaining
disciplined growth of our brand by strategically opening
additional company-owned restaurants to backfill existing
states. We also believe the broad appeal of The Real American
Roadhouse concept enhances the portability of our restaurants,
which will also allow us to pursue company-owned restaurant
openings in
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adjacent states and grow our footprint over time. The geographic
portability of our concept is illustrated by the fact that our
top quartile units by average unit volumes for the 39 weeks
ended May 2, 2010, operated across 15 states. We plan
to open 15 company-owned restaurants during fiscal year
2011 and believe we can achieve a long-term annual company-owned
restaurant growth rate of approximately 10%.
Comparable Restaurant Sales Growth. We believe
we will be able to generate comparable restaurant sales growth
through the following strategies:
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Menu Innovation. The Real American Roadhouse
concept provides a broad platform from which to expand our menu.
We have successfully introduced new menu items such as our
Roadies, our Health Nuts! menu (offering 12 items with under 550
calories), our Bleu Cheese Sirloin, our Cinnamon Roll Sundae and
our Loaded Sweet Potato. We believe our customers appreciate the
introduction of new items on an ongoing basis. Our goal is to
add four to eight new menu items each year.
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Increasing Our Average Check. Our relatively
low average check versus our primary competitors in the
bar & grill and steakhouse segments gives us the
ability to selectively implement moderate pricing increases
without impacting our value proposition. Additionally, we expect
to grow sales by responsibly increasing alcoholic beverage
sales. Our alcoholic beverage sales were 7.4% of total sales for
the 39 weeks ended May 2, 2010, compared to
approximately 9% before fiscal year 2008, which we believe
corresponded to the onset of the economic downturn.
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Promoting Our Brand. We intend to focus our
marketing efforts on driving repeat visits from frequent
customers and attracting new customers. We use various marketing
programs, including television, radio and print advertising as
well as various local marketing efforts. We also promote our
brand using a combination of in-restaurant sales initiatives,
including specials and happy hours, table-top merchandising,
outdoor banners, gift cards and our on-line loyalty club. We
believe that our brand awareness will continue to increase as we
backfill units in existing states and expand into adjacent
states.
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Emphasizing Excellent Operations and Customer
Satisfaction. We intend to improve upon our
strong customer satisfaction by continuing to focus on
delivering a superior customer experience. Our servers are
generally limited to serving no more than four tables at a time,
allowing them to provide attentive service to our customers. We
receive approximately 120,000 phone survey results from
customers each year and these surveys have shown an
800 basis point improvement in the top rating of overall
customer satisfaction scores since 2006. We will continue to
invest in our in-restaurant execution through annual operational
programs to improve our customer experience.
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Our
Principal Stockholders
Following completion of this offering, funds advised by
Bruckmann, Rosser, Sherrill & Co., Management, L.P.,
Black Canyon Capital LLC and Canyon Capital Advisors LLC, will
own
approximately %, %
and %, respectively, of our
outstanding Class A common stock,
or %, %
and %, respectively, if the
underwriters option to purchase additional shares is fully
exercised. As a result, funds advised by Bruckmann, Rosser,
Sherrill & Co., Management, L.P. acting together with
funds advised by Black Canyon Capital LLC and Canyon Capital
Advisors, LLC will be able to control virtually all significant
corporate matters and transactions. See Risk
Factors Risks Related to This Offering and Ownership
of Our Class A Common Stock.
Bruckmann, Rosser, Sherrill & Co., Management, L.P.,
which together with its affiliates, we refer to as
BRS, is a New York based private equity firm with
previous investments and remaining committed capital totaling
$1.4 billion. Bruckmann, Rosser, Sherrill & Co.,
Management, L.P. partners with management teams to create
financial and operational value over the long term for the
benefit of its investors, focusing on investments in middle
market consumer goods and services businesses. Companies that
possess existing or emerging strong market positions and are
well-positioned for accelerated long-term growth are best
positioned to benefit from the firms support and
expertise. Bruckmann, Rosser, Sherrill & Co.,
Management, L.P. and its principals have extensive experience in
the restaurant industry, having completed 16 restaurant
investments to
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date, including add-on acquisitions. Since 1996, Bruckmann,
Rosser, Sherrill & Co., Management, L.P. has purchased
over 40 portfolio companies for aggregate consideration of over
$6.4 billion.
Black Canyon Capital LLC, which together with its affiliates, we
refer to as Black Canyon, is a Los Angeles based
private capital firm that invests in control and non-control
equity and structured debt securities. Since being founded in
2004, Black Canyon has invested over $1 billion across
diverse industries including restaurants, consumer goods,
business services, health care services, media and manufacturing.
Canyon Capital Advisors LLC, which together with its affiliates,
we refer to as Canyon Capital, is an investment
advisor registered with the Securities and Exchange Commission
based in Los Angeles.
Company
History and Information
We opened our first restaurant in Lexington, Kentucky in 1991
and operated as a public company from July 1995 through our
acquisition by Cracker Barrel Old Country Store, Inc. (formerly
CBRL Group, Inc.), which we refer to as Cracker
Barrel, in February 1999. From February 1999 to December
2006, we were a wholly-owned subsidiary of Cracker Barrel. In
December 2006, BRS, Black Canyon, Canyon Capital and their
co-investors, together with our executive officers and other
members of management, through LRI Holdings, Inc., acquired
Logans Roadhouse, Inc. from Cracker Barrel, which we refer
to as the Acquisition.
LRI Holdings, Inc. was incorporated in Delaware in October 2006.
Our principal executive office is located at 3011 Armory Drive,
Suite 300, Nashville, Tennessee 37204. Our telephone number
is
(615) 885-9056,
and our website address is www.logansroadhouse.com. The
information contained on our website, however, is not deemed to
be, and you should not consider such information to be part of
this prospectus.
Risk
Factors
Investing in shares of our Class A common stock involves a
high degree of risk. You should consider the information under
the caption Risk Factors beginning on page 12
of this prospectus in deciding whether to purchase the
Class A common stock we and the selling stockholders are
offering. Risks relating to our business include, among others:
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our ability to successfully execute our growth strategy and
other initiatives intended to enhance long-term stockholder
value;
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the adverse effect of macroeconomic conditions on sales and
profits of existing restaurants or on our ability to open new
restaurants;
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intense competition in the restaurant industry;
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changes in consumer preferences related to potential negative
publicity regarding food safety and health concerns, including
E. coli bacteria, hepatitis A, mad cow disease,
foot-and-mouth
disease, avian influenza, peanut and other food allergens, and
other public health concerns;
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changes in our costs, including food (especially beef), labor,
utilities, insurance and taxes;
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supply and delivery shortages or disruptions; and
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our concentration of restaurants in the Southeast and Southwest
United States.
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4
The
Offering
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Class A common stock offered by us |
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shares |
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Class A common stock offered by the selling stockholders |
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shares |
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Class A common stock outstanding immediately after this
offering |
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shares
or shares,
if the over-allotment option is exercised in full |
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Use of proceeds |
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We estimate that the proceeds to us from this offering, after
deducting estimated underwriting discounts and commissions and
offering expenses payable by us, will be approximately
$ million, assuming the
shares offered by us are sold for
$ per share, the midpoint of the
price range set forth on the cover of this prospectus. |
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We intend to use the proceeds from the sale of Class A
common stock by us in this offering, together with cash on hand,
to prepay our outstanding senior subordinated unsecured
mezzanine term notes, including a prepayment premium and accrued
and unpaid interest on such notes, to redeem all of our
outstanding Series A preferred stock, including accumulated
dividends, to pay BRS and Black Canyon a termination and
transaction fee in connection with the termination of the
management and consulting services agreement and to pay other
fees and expenses incurred in connection with this offering. See
Use of Proceeds and Description of Certain
Indebtedness. |
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We will not receive any of the proceeds from the sale of shares
of Class A common stock by the selling stockholders. |
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Principal stockholders |
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Upon completion of this offering, BRS, Black Canyon and Canyon
Capital will, acting together, own a controlling interest in us.
We currently intend to avail ourselves of the controlled
company exemption under the corporate governance rules of
The NASDAQ Stock Market. |
|
Dividend policy |
|
We currently expect to retain all available funds and any future
earnings to fund the development and growth of our business and
to repay indebtedness; therefore, we do not anticipate paying
any cash dividends in the foreseeable future. Our ability to pay
dividends on our Class A common stock is limited by our
existing credit agreements and may be further restricted by the
terms of any of our future debt or preferred securities. See
Dividend Policy. |
|
Proposed symbol for trading on The NASDAQ Global Select Market |
|
LGNS |
5
Unless otherwise indicated, all information in this prospectus
relating to the number of shares of Class A common stock to
be outstanding immediately after this offering:
|
|
|
|
|
gives effect to
(i) a -for-1
Class A common stock split that will occur prior to the
completion of this offering and (ii) the redemption of all
of our outstanding Series A preferred stock;
|
|
|
|
assumes the effectiveness of our amended and restated
certificate of incorporation and amended and restated by-laws,
which we will adopt prior to the completion of this offering;
|
|
|
|
excludes
(i) shares
of Class A common stock issuable upon the exercise of
outstanding stock options at an exercise price of
$ per share and
(ii) shares
of our Class A common stock reserved for future grants
under our new equity compensation plan we plan to adopt in
connection with this offering; and
|
|
|
|
assumes (i) no exercise by the underwriters of their option
to purchase up
to additional
shares from us and (ii) an initial public offering price of
$ per share, the midpoint of the
price range set forth on the cover of this prospectus.
|
Certain monetary amounts, percentages and other figures included
in this prospectus have been subject to rounding adjustments.
Accordingly, figures shown as totals in certain tables may not
be the arithmetic aggregation of the figures that precede them,
and figures expressed as percentages in the text may not total
100% or, as applicable, when aggregated may not be the
arithmetic aggregation of the percentages that precede them.
6
SUMMARY
HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table provides a summary of our historical
consolidated financial and operating data for the periods and at
the dates indicated. The statement of income (loss) data and the
per share data presented below for the period from July 29,
2006 through December 5, 2006 (Predecessor) and the period
from December 6, 2006 through July 29, 2007 and the
fiscal years ended August 3, 2008 (53 weeks) and
August 2, 2009 (Successor) and selected balance sheet data
presented below as of August 2, 2009 have been derived from
our audited consolidated financial statements included elsewhere
in this prospectus. The summary consolidated financial data for
the 39 weeks ended May 3, 2009 and the 39 weeks ended
May 2, 2010 and as of May 2, 2010 have been derived
from our unaudited condensed consolidated financial statements
included elsewhere in this prospectus. The unaudited condensed
consolidated financial statements have been prepared on the same
basis as our audited consolidated financial statements and, in
the opinion of our management, reflect all adjustments,
consisting of normal recurring adjustments, necessary for a fair
presentation of this data. The results for any interim period
are not necessarily indicative of the results that may be
expected for a full year.
On December 6, 2006, BRS, Black Canyon, Canyon Capital and
their co-investors, together with our executive officers and
other members of management, through LRI Holdings, Inc.,
acquired Logans Roadhouse, Inc. All periods prior to the
Acquisition are referred to as Predecessor, and all periods
including and after the Acquisition are referred to as
Successor. The consolidated financial statements for all
Successor periods are not comparable to those of the Predecessor
period. See Managements Discussion and Analysis of
Financial Condition and Results of Operations
Matters Affecting Comparability of Results for additional
information regarding the Acquisition and other items that
affect the comparability of financial results across periods.
The historical results presented below are not necessarily
indicative of the results to be expected for any future period.
This information should be read in conjunction with Risk
Factors, Selected Historical Consolidated Financial
and Operating Data, Managements Discussion and
Analysis of Financial Condition and Results of Operations,
and our consolidated financial statements and the related notes
included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 29, 2006
|
|
|
|
December 6,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
2006 through
|
|
|
Fiscal Year Ended
|
|
|
39 Weeks Ended
|
|
|
|
December 5,
|
|
|
|
July 29,
|
|
|
August 3,
|
|
|
August 2,
|
|
|
May 3,
|
|
|
May 2,
|
|
|
|
2006
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands, except share, per share and restaurant
data)
|
|
Statement of Income (Loss) Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
153,663
|
|
|
|
$
|
321,421
|
|
|
$
|
529,424
|
|
|
$
|
533,248
|
|
|
$
|
402,047
|
|
|
$
|
414,483
|
|
Franchise fees and royalties
|
|
|
851
|
|
|
|
|
1,697
|
|
|
|
2,574
|
|
|
|
2,248
|
|
|
|
1,656
|
|
|
|
1,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
154,514
|
|
|
|
|
323,118
|
|
|
|
531,998
|
|
|
|
535,496
|
|
|
|
403,703
|
|
|
|
416,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
49,527
|
|
|
|
|
104,881
|
|
|
|
176,010
|
|
|
|
172,836
|
|
|
|
131,383
|
|
|
|
130,220
|
|
Labor and other related expenses
|
|
|
48,580
|
|
|
|
|
97,641
|
|
|
|
164,074
|
|
|
|
161,173
|
|
|
|
121,049
|
|
|
|
123,945
|
|
Occupancy costs
|
|
|
5,768
|
|
|
|
|
22,365
|
|
|
|
37,952
|
|
|
|
39,923
|
|
|
|
29,701
|
|
|
|
31,677
|
|
Other restaurant operating expenses
|
|
|
26,116
|
|
|
|
|
47,335
|
|
|
|
80,255
|
|
|
|
79,263
|
|
|
|
59,919
|
|
|
|
60,472
|
|
Depreciation and amortization
|
|
|
5,631
|
|
|
|
|
9,351
|
|
|
|
16,146
|
|
|
|
17,206
|
|
|
|
12,906
|
|
|
|
12,761
|
|
Pre-opening expenses
|
|
|
699
|
|
|
|
|
3,008
|
|
|
|
3,170
|
|
|
|
2,137
|
|
|
|
1,797
|
|
|
|
1,791
|
|
General and administrative
|
|
|
11,996
|
|
|
|
|
19,209
|
|
|
|
26,538
|
|
|
|
25,126
|
|
|
|
18,534
|
|
|
|
17,219
|
|
Impairment and store closing charges
|
|
|
|
|
|
|
|
|
|
|
|
6,622
|
|
|
|
23,187
|
|
|
|
23,258
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
148,317
|
|
|
|
|
303,790
|
|
|
|
510,767
|
|
|
|
520,851
|
|
|
|
398,547
|
|
|
|
378,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 29, 2006
|
|
|
|
December 6,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
2006 through
|
|
|
Fiscal Year Ended
|
|
|
39 Weeks Ended
|
|
|
|
December 5,
|
|
|
|
July 29,
|
|
|
August 3,
|
|
|
August 2,
|
|
|
May 3,
|
|
|
May 2,
|
|
|
|
2006
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands, except share, per share and restaurant
data)
|
|
Income from operations
|
|
|
6,197
|
|
|
|
|
19,328
|
|
|
|
21,231
|
|
|
|
14,645
|
|
|
|
5,156
|
|
|
|
37,926
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
5,533
|
|
|
|
|
15,101
|
|
|
|
22,618
|
|
|
|
20,557
|
|
|
|
15,258
|
|
|
|
14,246
|
|
Other expense (income), net
|
|
|
|
|
|
|
|
313
|
|
|
|
2,631
|
|
|
|
1,543
|
|
|
|
2,335
|
|
|
|
(496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
664
|
|
|
|
|
3,914
|
|
|
|
(4,018
|
)
|
|
|
(7,455
|
)
|
|
|
(12,437
|
)
|
|
|
24,176
|
|
Provision for (benefit from) income taxes
|
|
|
(422
|
)
|
|
|
|
566
|
|
|
|
(3,392
|
)
|
|
|
(5,484
|
)
|
|
|
(9,617
|
)
|
|
|
9,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1,086
|
|
|
|
|
3,348
|
|
|
|
(626
|
)
|
|
|
(1,971
|
)
|
|
|
(2,820
|
)
|
|
|
15,114
|
|
Undeclared preferred dividend
|
|
|
|
|
|
|
|
(5,552
|
)
|
|
|
(9,605
|
)
|
|
|
(10,568
|
)
|
|
|
(7,887
|
)
|
|
|
(8,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
1,086
|
|
|
|
$
|
(2,204
|
)
|
|
$
|
(10,231
|
)
|
|
$
|
(12,539
|
)
|
|
$
|
(10,707
|
)
|
|
$
|
6,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
1,086
|
|
|
|
$
|
(2.28
|
)
|
|
$
|
(10.57
|
)
|
|
$
|
(12.95
|
)
|
|
$
|
(11.06
|
)
|
|
$
|
6.39
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
1,000
|
|
|
|
|
968,000
|
|
|
|
968,000
|
|
|
|
968,000
|
|
|
|
968,000
|
|
|
|
968,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurants open (end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned
|
|
|
143
|
|
|
|
|
156
|
|
|
|
170
|
|
|
|
177
|
|
|
|
176
|
|
|
|
185
|
|
Total
|
|
|
169
|
|
|
|
|
182
|
|
|
|
196
|
|
|
|
203
|
|
|
|
202
|
|
|
|
211
|
|
Average unit volumes (in millions)
|
|
$
|
1.0
|
|
|
|
$
|
2.1
|
|
|
$
|
3.2
|
|
|
$
|
3.0
|
|
|
$
|
2.3
|
|
|
$
|
2.3
|
|
Restaurant operating margin(1)
|
|
|
15.4
|
%
|
|
|
|
15.3
|
%
|
|
|
13.4
|
%
|
|
|
15.0
|
%
|
|
|
14.9
|
%
|
|
|
16.4
|
%
|
Adjusted EBITDA(2)
|
|
$
|
12,391
|
|
|
|
$
|
39,694
|
|
|
$
|
54,987
|
|
|
$
|
65,117
|
|
|
$
|
49,457
|
|
|
$
|
56,495
|
|
Adjusted EBITDA margin(3)
|
|
|
8.0
|
%
|
|
|
|
12.3
|
%
|
|
|
10.3
|
%
|
|
|
12.2
|
%
|
|
|
12.3
|
%
|
|
|
13.6
|
%
|
Capital expenditures
|
|
$
|
15,637
|
|
|
|
$
|
31,864
|
|
|
$
|
37,372
|
|
|
$
|
27,039
|
|
|
$
|
17,965
|
|
|
$
|
16,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable Restaurant Data(4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in comparable restaurant sales
|
|
|
0.6
|
%
|
|
|
|
1.8
|
%
|
|
|
0.8
|
%
|
|
|
(2.8
|
)%
|
|
|
(1.7
|
)%
|
|
|
(1.3
|
)%
|
Average check
|
|
$
|
12.76
|
|
|
|
$
|
12.95
|
|
|
$
|
13.01
|
|
|
$
|
12.79
|
|
|
$
|
12.85
|
|
|
$
|
12.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2, 2010
|
|
|
|
August 2, 2009
|
|
|
Actual
|
|
|
As Adjusted(5)
|
|
|
|
(In thousands)
|
|
|
Selected Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13,069
|
|
|
$
|
45,111
|
|
|
$
|
|
|
Total assets
|
|
|
408,256
|
|
|
|
425,705
|
|
|
|
|
|
Total long-term debt, including current portion
|
|
|
220,063
|
|
|
|
219,028
|
|
|
|
|
|
|
|
|
(1)
|
|
Restaurant operating margin
represents net sales less (i) cost of goods sold,
(ii) labor and other related expenses, (iii) occupancy
costs and (iv) other restaurant operating expenses, divided
by net sales. Restaurant operating margin is a supplemental
measure of operating performance of our company-owned
restaurants that does not represent and should not be considered
as an alternative to net income or net sales as determined by
U.S. generally accepted accounting principles, or U.S. GAAP, and
our calculation thereof may not be comparable to that reported
by other companies. Restaurant operating margin has limitations
as an analytical tool, and you should not consider it in
isolation, or as a substitute for analysis of our results as
reported under U.S. GAAP. Management believes restaurant
operating margin is an important component of financial results
because it is a widely used metric within the restaurant
industry to evaluate restaurant-level productivity, efficiency
and performance. Management uses restaurant operating margin as
a key metric to evaluate our financial performance compared with
our competitors, to evaluate the profitability of incremental
sales and to evaluate our performance across periods.
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
December 6,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 29, 2006
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
through
|
|
|
Fiscal Year Ended
|
|
|
39 Weeks Ended
|
|
|
|
December 5,
|
|
|
|
July 29,
|
|
|
August 3,
|
|
|
August 2,
|
|
|
May 3,
|
|
|
May 2,
|
|
|
|
2006
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Net sales(A)
|
|
$
|
153,663
|
|
|
|
$
|
321,421
|
|
|
$
|
529,424
|
|
|
$
|
533,248
|
|
|
$
|
402,047
|
|
|
$
|
414,483
|
|
Restaurant operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
49,527
|
|
|
|
|
104,881
|
|
|
|
176,010
|
|
|
|
172,836
|
|
|
|
131,383
|
|
|
|
130,220
|
|
Labor and other related expenses
|
|
|
48,580
|
|
|
|
|
97,641
|
|
|
|
164,074
|
|
|
|
161,173
|
|
|
|
121,049
|
|
|
|
123,945
|
|
Occupancy costs
|
|
|
5,768
|
|
|
|
|
22,365
|
|
|
|
37,952
|
|
|
|
39,923
|
|
|
|
29,701
|
|
|
|
31,677
|
|
Other restaurant operating expenses
|
|
|
26,116
|
|
|
|
|
47,335
|
|
|
|
80,255
|
|
|
|
79,263
|
|
|
|
59,919
|
|
|
|
60,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant operating profit(B)
|
|
$
|
23,672
|
|
|
|
$
|
49,199
|
|
|
$
|
71,133
|
|
|
$
|
80,053
|
|
|
$
|
59,995
|
|
|
$
|
68,169
|
|
Restaurant operating
margin(B¸A)
|
|
|
15.4
|
%
|
|
|
|
15.3
|
%
|
|
|
13.4
|
%
|
|
|
15.0
|
%
|
|
|
14.9
|
%
|
|
|
16.4
|
%
|
|
|
(2) |
Adjusted EBITDA represents earnings before interest, tax,
depreciation and amortization adjusted to reflect the additions
and eliminations described in the table below. Adjusted EBITDA
is a supplemental measure of operating performance that does not
represent and should not be considered as an alternative to net
income or cash flow from operations as determined under
U.S. GAAP, and our calculation thereof may not be
comparable to that reported by other companies. Adjusted EBITDA
has limitations as an analytical tool, and you should not
consider it in isolation, or as a substitute for analysis of our
results as reported under U.S. GAAP. Some of the
limitations are:
|
|
|
|
|
|
Adjusted EBITDA does not reflect
our cash expenditures, or future requirements for, capital
expenditures or contractual commitments;
|
|
|
|
Adjusted EBITDA does not reflect
changes in, or cash requirements for, our working capital needs;
|
|
|
|
Adjusted EBITDA does not reflect
the significant interest expense, or the cash requirements
necessary to service interest or principal payments on our
indebtedness;
|
|
|
|
although depreciation and
amortization are non-cash charges, the assets being depreciated
and amortized will often have to be replaced in the future, and
Adjusted EBITDA does not reflect any cash requirements for such
replacements; and
|
|
|
|
other companies in the restaurant
industry may calculate Adjusted EBITDA differently than we do,
limiting its usefulness as a comparative measure.
|
Because of these limitations,
Adjusted EBITDA should not be considered as a measure of
discretionary cash available to us to invest in the growth of
our business. We compensate for these limitations by relying
primarily on our U.S. GAAP results and using Adjusted
EBITDA only supplementally. We further believe that our
presentation of this non-GAAP financial measure provides
information that is useful to analysts and investors because it
is an important indicator of the strength of our operations and
the performance of our core business.
As noted in the table below,
Adjusted EBITDA includes adjustments for restaurant impairments,
pre-opening expenses, hedging expenses and losses on property
sales. It is reasonable to expect that these items will occur in
future periods. However, we believe these adjustments are
appropriate partly because the amounts recognized can vary
significantly from period to period and complicate comparisons
of our internal operating results and operating results of other
restaurant companies over time. In addition, Adjusted EBITDA
includes adjustments for other items, which we do not expect to
regularly record following this offering, including sponsor
management fees, tradename impairment, restructuring costs and
costs related to the Acquisition. Each of the normal recurring
adjustments and other adjustments described in this paragraph
help to provide management with a measure of our core operating
performance over time by removing items that are not related to
day-to-day restaurant level operations.
We also adjust for non-recurring
Predecessor costs, which will not be recorded again following
this offering.
Management and our principal
stockholders use Adjusted EBITDA:
|
|
|
|
|
as a measure of operating
performance to assist us in comparing the operating performance
of our restaurants on a consistent basis because it removes the
impact of items not directly resulting from our core operations;
|
|
|
|
for planning purposes, including
the preparation of our internal annual operating budgets and
financial projections;
|
|
|
|
to evaluate the performance and
effectiveness of our operational strategies;
|
|
|
|
to provide enhanced comparability
between our historical results during the Predecessor period and
results that reflect the new capital structure in the Successor
periods;
|
9
|
|
|
|
|
to calculate management and
consulting fee payments to our principal stockholders; and
|
|
|
|
to calculate incentive compensation
payments for our employees, including assessing performance
under our annual incentive compensation plan.
|
In addition, Adjusted EBITDA is
used by investors as a supplemental measure to evaluate the
overall operating performance of companies in the restaurant
industry. Management believes that investors understanding
of our performance is enhanced by including this non-GAAP
financial measure as a reasonable basis for comparing our
ongoing results of operations. Many investors are interested in
understanding the performance of our business by comparing our
results from ongoing operations from one period to the next and
would ordinarily add back items that are not part of normal
day-to-day
operations of our business. By providing this non-GAAP financial
measure, together with reconciliations, we believe we are
enhancing investors understanding of our business and our
results of operations, as well as assisting investors in
evaluating how well we are executing strategic initiatives.
We also present Adjusted EBITDA
because it is based on Consolidated EBITDA, a
measure which is used in calculating financial ratios in
material debt covenants in our senior secured credit facility.
As of May 2, 2010, we had $133.2 million of
outstanding borrowings under the term loan and the ability to
borrow up to an additional $30.0 million under the
revolving credit facility. Failure to comply with our material
debt covenants could cause an acceleration of outstanding
amounts under the term loan and restrict us from borrowing
amounts under the revolving credit facility to fund our future
liquidity requirements. For the period ending May 2, 2010,
we were required to maintain a fixed charge coverage ratio
(ratio of Consolidated EBITDA plus cash rent expense to debt
service requirements plus cash rent expense) of 1.20:1 and a
total leverage ratio (ratio of adjusted debt to Consolidated
EBITDA) of less than 5.50:1. Our fixed charge coverage ratio and
leverage ratio as of May 2, 2010 were 1.78:1 and 2.97:1,
respectively. We believe that presenting Adjusted EBITDA is
appropriate to provide additional information to investors about
how the covenants in those agreements operate. Our senior
secured credit facility may permit us to exclude other non-cash
charges and specified non-recurring expenses to net income in
calculating Consolidated EBITDA in future periods, which are not
reflected in the Adjusted EBITDA data presented in this
prospectus. The material covenants in our senior secured credit
facility are discussed further in Description of Certain
Indebtedness and Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
The following table sets forth a
reconciliation of net income (loss), the most directly
comparable U.S. GAAP financial measure, to Adjusted EBITDA.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Successor
|
|
|
|
July 29 2006
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
December 6, 2006
|
|
|
Fiscal Year Ended
|
|
|
39 Weeks Ended
|
|
|
|
December 5,
|
|
|
|
through July 29,
|
|
|
August 3,
|
|
|
August 2,
|
|
|
May 3,
|
|
|
May 2,
|
|
|
|
2006
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands)
|
|
Net income (loss)
|
|
$
|
1,086
|
|
|
|
$
|
3,348
|
|
|
$
|
(626
|
)
|
|
$
|
(1,971
|
)
|
|
$
|
(2,820
|
)
|
|
$
|
15,114
|
|
Net interest expense
|
|
|
5,533
|
|
|
|
|
15,102
|
|
|
|
22,618
|
|
|
|
20,557
|
|
|
|
15,258
|
|
|
|
14,246
|
|
Income tax expense
|
|
|
(422
|
)
|
|
|
|
566
|
|
|
|
(3,392
|
)
|
|
|
(5,484
|
)
|
|
|
(9,617
|
)
|
|
|
9,062
|
|
Depreciation and amortization
|
|
|
5,631
|
|
|
|
|
9,351
|
|
|
|
16,146
|
|
|
|
17,206
|
|
|
|
12,906
|
|
|
|
12,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
11,828
|
|
|
|
$
|
28,367
|
|
|
$
|
34,746
|
|
|
$
|
30,308
|
|
|
$
|
15,727
|
|
|
$
|
51,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sponsor management fees(a)
|
|
|
|
|
|
|
|
865
|
|
|
|
1,250
|
|
|
|
1,486
|
|
|
|
1,142
|
|
|
|
1,199
|
|
Non-cash asset write-off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename impairment(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,781
|
|
|
|
16,781
|
|
|
|
|
|
Restaurant impairment(c)
|
|
|
|
|
|
|
|
|
|
|
|
6,622
|
|
|
|
6,252
|
|
|
|
6,375
|
|
|
|
|
|
Loss on disposal of property and equipment(d)
|
|
|
444
|
|
|
|
|
554
|
|
|
|
977
|
|
|
|
877
|
|
|
|
463
|
|
|
|
545
|
|
Restructuring costs(e)
|
|
|
|
|
|
|
|
|
|
|
|
683
|
|
|
|
892
|
|
|
|
839
|
|
|
|
|
|
Pre-opening expenses (excluding rent)(f)
|
|
|
450
|
|
|
|
|
2,364
|
|
|
|
2,561
|
|
|
|
1,443
|
|
|
|
1,159
|
|
|
|
1,483
|
|
Hedging expenses(g)
|
|
|
|
|
|
|
|
313
|
|
|
|
2,631
|
|
|
|
1,543
|
|
|
|
2,335
|
|
|
|
(496
|
)
|
Losses on sales of property(h)
|
|
|
2,579
|
|
|
|
|
|
|
|
|
1,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash rent adjustment(i)
|
|
|
(268
|
)
|
|
|
|
3,422
|
|
|
|
3,599
|
|
|
|
4,505
|
|
|
|
3,687
|
|
|
|
2,475
|
|
Acquisition related costs(j)
|
|
|
1,232
|
|
|
|
|
3,848
|
|
|
|
613
|
|
|
|
187
|
|
|
|
162
|
|
|
|
83
|
|
Non-recurring Predecessor costs(k)
|
|
|
1,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
sale-leaseback
rent adjustment(l)
|
|
|
(5,593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other adjustments(m)
|
|
|
92
|
|
|
|
|
(39
|
)
|
|
|
99
|
|
|
|
843
|
|
|
|
787
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
12,391
|
|
|
|
$
|
39,694
|
|
|
$
|
54,987
|
|
|
$
|
65,117
|
|
|
$
|
49,457
|
|
|
$
|
56,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Sponsor management fees consist of
fees paid to BRS and Black Canyon under the management and
consulting services agreement. We will terminate this agreement
in connection with the completion of this offering. See
Certain Relationships and Related Party Transactions.
|
|
(b)
|
|
We recorded an impairment charge in
fiscal year 2009 related to our tradename. See Note 6 to
our consolidated financial statements for additional details.
|
10
|
|
|
(c)
|
|
Restaurant impairment charges were
recorded in connection with the determination that the carrying
value of certain of our restaurants exceeded their estimated
fair value. See Note 8 to our consolidated financial
statements for additional details.
|
|
(d)
|
|
Loss on disposal of property and
equipment consists of the loss on disposal or retirement of
assets that are not fully depreciated.
|
|
(e)
|
|
Restructuring costs include
severance and other related costs resulting from the
restructuring of our corporate office in late fiscal year 2008
and early fiscal year 2009.
|
|
(f)
|
|
Pre-opening expenses (excluding
rent) include expenses directly associated with the opening of a
new restaurant. See Note 2 to our consolidated financial
statements for additional details.
|
|
(g)
|
|
Hedging expenses relate to fair
market value changes of an interest rate swap and the related
interest. See Note 10 to our consolidated financial
statements for additional details.
|
|
(h)
|
|
We recognized losses in connection
with the sale-leaseback of six restaurants in the period ended
December 5, 2006 and two restaurants in fiscal year 2008
due to the fair value of the property sold being less than the
undepreciated cost of the property. See Note 13 to our
consolidated financial statements for additional details.
|
|
(i)
|
|
Non-cash rent adjustments represent
the non-cash rent expense calculated as the difference in
U.S. GAAP rent expense in any year and amounts payable in
cash under the leases during the year. In measuring our
operational performance, we focus on our cash rent payments. See
Note 2 to our consolidated financial statements for
additional details.
|
|
(j)
|
|
Acquisition related costs include:
(i) expenses related to purchase accounting recognized in
connection with the Acquisition, (ii) retention payments
made to certain members of our management in connection with the
Acquisition (U.S. GAAP expense recognized after award
payment), and (iii) legal, professional and other fees
incurred as a result of the Acquisition and related transactions.
|
|
(k)
|
|
Non-recurring Predecessor costs
include (i) an allocation of Cracker Barrel corporate
overhead costs for presentation as a stand-alone entity and
(ii) an allocation of stock option expense on shares of
Cracker Barrel stock recognized in accordance with applicable
accounting guidance.
|
|
(l)
|
|
Our senior secured credit facility
requires that certain transactions be given pro forma effect in
the calculation of Consolidated EBITDA, including
cash rent payments associated with sale-leaseback transactions
entered into in connection with the Acquisition. The senior
secured credit facility requires us to deduct from Consolidated
EBITDA the pro forma cash rent payments that would have been
incurred if the sale-leaseback transactions had occurred prior
to the Acquisition. Pro forma sale-leaseback rent adjustment
represents such pro forma rent expense for the Predecessor
periods, which is not calculated in accordance with Article 11
of
Regulation S-X.
For additional information regarding the sale-leaseback
transactions and the calculation and use of Consolidated EBITDA
in our senior secured credit facility, see Description of
Certain Indebtedness and Managements
Discussion and Analysis of Financial Condition and Results of
OperationsLiquidity and Capital Resources.
|
|
(m)
|
|
Other adjustments include
$0.6 million of casualty losses resulting from damages to
our restaurants during fiscal year 2009, ongoing expenses of
closed restaurants, as well as inventory write-offs, employee
termination buyouts and incidental charges related to restaurant
closings.
|
|
|
|
(3)
|
|
Adjusted EBITDA margin is defined
as the ratio of Adjusted EBITDA to total revenues. See
footnote 2 above for a discussion of Adjusted EBITDA as a
non-GAAP measure and a reconciliation of net income (loss) to
Adjusted EBITDA.
|
|
(4)
|
|
We use a number of key performance
indicators in assessing the performance of our restaurants,
including change in comparable restaurant sales and average
check. These key performance indicators are discussed in more
detail in the section entitled Managements
Discussion and Analysis of Financial Condition and Results of
OperationsKey Performance Indicators. Comparable
restaurant data for the period from July 29, 2006 through
December 5, 2006 is based on 18 full weeks through
December 3, 2006, and comparable restaurant data for the
period from December 6, 2006 through July 29, 2007 is
based on 34 full weeks through July 29, 2007.
|
|
(5)
|
|
The as adjusted column in the
selected balance sheet data table above reflects the balance
sheet data as further adjusted for (i) our receipt of the
estimated net proceeds from the sale of shares of Class A
common stock offered by us at an assumed initial public offering
price of $ per share, the midpoint
of the price range set forth on the cover of this prospectus,
after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us and
(ii) the repayment of outstanding indebtedness and
redemption of our Series A preferred stock as described in
Use of Proceeds. See Capitalization and
Use of Proceeds. A $1.00 increase (decrease) in the
assumed initial public offering price of
$ per share, the midpoint of the
price range set forth on the cover of this prospectus, would
increase (decrease) each of cash and cash equivalents and total
assets by approximately
$ million, assuming that the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same and after deducting
estimated underwriting discounts and commissions and estimated
offering expenses payable by us. Similarly, if we change the
number of shares offered by us, the net proceeds we receive will
increase or decrease by the increase or decrease in the number
of shares sold, multiplied by the offering price per share, less
the incremental estimated underwriting discounts and commissions
and estimated offering expenses payable by us.
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11
RISK
FACTORS
Investing in shares of our Class A common stock involves
a high degree of risk. Before you purchase our Class A
common stock, you should carefully consider the risks described
below and the other information contained in this prospectus,
including our consolidated financial statements and accompanying
notes. If any of the following risks actually occurs, our
business, financial condition, results of operations or cash
flows could be materially adversely affected. In any such case,
the trading price of our Class A common stock could
decline, and you could lose all or part of your investment.
Risks
Related to Our Business
If we
fail to execute our growth strategy, which primarily depends on
our ability to open new restaurants that are profitable, our
business could suffer.
Historically, the most significant means of achieving our growth
strategies have been through opening new restaurants and
operating those restaurants on a profitable basis. We expect
this to continue to be the case for the foreseeable future. In
fiscal year 2011, we plan to open approximately
15 company-owned restaurants, and we intend to grow our
company-owned restaurants at a long-term annual growth rate of
10%. We expect to open substantially all of our new restaurants
in, or adjacent to, states where we have existing restaurants.
Delays or failures in opening new restaurants, or achieving
lower than expected sales in new restaurants, could materially
adversely affect our growth strategy. Our ability to open new
restaurants successfully will also depend on numerous other
factors, some of which are beyond our control, including, among
other items, the following:
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our ability to secure suitable new restaurant sites;
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consumer acceptance of our new restaurants;
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our ability to control construction and development costs of new
restaurants;
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our ability to secure required governmental approvals and
permits in a timely manner and any changes in local, state or
federal laws and regulations that adversely affect our costs or
ability to open new restaurants; and
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the cost and availability of capital to fund construction costs
and pre-opening expenses.
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We cannot assure you that any restaurant we open will be
profitable or achieve operating results similar to those of our
existing restaurants.
We cannot assure you that we will be able to respond on a timely
basis to all of the changing demands that our planned expansion
will impose on management and on our existing infrastructure,
nor that we will be able to hire or retain the necessary
management and operating personnel. Our existing restaurant
management systems, financial and management controls and
information systems may not be adequate to support our planned
expansion. Our ability to manage our growth effectively will
require us to continue to enhance these systems, procedures and
controls and to locate, hire, train and retain management and
operating personnel.
Some of our new restaurants will be located in areas where we
have existing restaurants. Increasing the number of locations in
these markets may cause us to over-saturate markets and
temporarily or permanently divert customers and sales from our
existing restaurants, thereby adversely affecting our overall
profitability.
Some of our new restaurants will be located in areas where we
have little or no experience. Those markets may have different
competitive conditions, market conditions, consumer tastes and
discretionary spending patterns than our existing markets, which
may cause our new restaurants to be less successful than
restaurants in existing markets.
12
Macroeconomic
conditions could adversely affect our ability to increase the
sales and profits of existing restaurants or to open new
restaurants.
As in fiscal year 2009 and through the first three fiscal
quarters of fiscal year 2010, the United States may continue to
suffer from a severe downturn in economic activity and remain in
a recession. Recessionary economic cycles, higher interest
rates, higher fuel and other energy costs, higher foreclosure
rates, inflation, increases in commodity prices, higher levels
of unemployment, higher consumer debt levels, higher tax rates
and other changes in tax laws or other economic factors that may
affect discretionary consumer spending could adversely affect
our revenues and profit margins and make opening new restaurants
or operating existing restaurants more difficult. In particular,
during the recent recession, we have experienced a reduction in
customer traffic and a decrease in average check at our
restaurants, which has negatively impacted our sales. We could
continue to experience reduced customer traffic, reduced average
checks or limitations on the prices we can charge for our menu
items, any of which could further reduce our sales and profit
margins. Also, businesses in the trade area in which some of our
restaurants are located may experience difficulty as a result of
macroeconomic trends or cease to operate, which could, in turn,
further negatively affect customer traffic at our restaurants.
All of these factors could have a material adverse impact on our
results of operations and growth.
Our
success depends on our ability to compete with many other
restaurants.
The restaurant industry is intensely competitive, and we compete
with many well-established restaurant companies on the basis of
taste of our menu items, price of products offered, customer
service, atmosphere, location and overall customer experience.
Our competitors include a large and diverse group of restaurant
chains and individual restaurants that range from independent
local operators to well-capitalized national restaurant
companies. Many of our competitors have substantially greater
financial and other resources than we do, which may allow them
to react to changes in the restaurant industry better than we
can. As our competitors expand their operations or as new
competitors enter the industry, we expect competition to
intensify. Moreover, our competitors can harm our business, even
if they are not successful in their own operations, by taking
away some customers or employees or by aggressive and costly
advertising, promotional or hiring practices. We also compete
with other restaurant chains and retail businesses for quality
site locations, management and hourly employees.
Health
concerns and government regulation relating to the consumption
of beef, chicken, peanuts or other food products could affect
consumer preferences and could negatively impact our results of
operations.
Many of the food items on our menu contain beef and chicken. The
preferences of our customers for our menu items could be
affected by health concerns about the consumption of beef or
chicken or negative publicity concerning food quality, illness
and injury generally. In recent years, there has been negative
publicity concerning E. coli bacteria, hepatitis A, mad
cow disease,
foot-and-mouth
disease, avian influenza, peanut and other food allergies and
other public health concerns affecting the food supply. This
negative publicity, as well as any other negative publicity
concerning food products we serve, may adversely affect demand
for our food and could result in a decrease in customer traffic
to our restaurants. If we react to the negative publicity by
changing our menu, we may lose customers who do not prefer the
new menu, and we may not be able to attract sufficient new
customers to generate the revenue needed to make our restaurants
profitable. These health concerns, negative publicity, or menu
changes could result in a decrease in customer traffic or a
change in product mix, which could materially harm our business.
Peanuts contribute to the atmosphere of our restaurants, and we
offer buckets of peanuts on our tables and throughout our
restaurants. Owing to the severe nature of some peanuts
allergies, peanuts have recently been identified by the
U.S. Food and Drug Administration as a significant
allergen, and federal and state regulators have contemplated
extending current peanut labeling regulations to the restaurant
industry. The introduction of such regulations could cause us to
reduce our use of peanuts and modify the atmosphere of our
restaurants, which could adversely affect our business and brand
differentiation.
13
Health
concerns arising from outbreaks of viruses may have an adverse
effect on our business.
The United States and other countries have experienced, or may
experience in the future, outbreaks of viruses, such as avian
influenza, SARS and H1N1. To the extent that a virus is
food-borne, future outbreaks may adversely affect the price and
availability of certain food products and cause our customers to
eat less of a product or avoid eating in restaurant
establishments. To the extent that a virus is transmitted by
human-to-human
contact, our employees or customers could become infected, or
could choose, or be advised, to avoid gathering in public
places, any one of which could adversely affect our business.
Changes
in consumer preferences could harm our
performance.
Our success depends upon consumer preferences for beef and our
other menu items. We also depend on trends regarding
away-from-home dining. Consumer preferences might shift as a
result of, among other things, health concerns or dietary trends
related to cholesterol, carbohydrate, fat and salt content of
certain food items. Negative publicity over the health aspects
of such food items may adversely affect demand for our menu
items and could result in lower customer traffic, sales and
results of operations.
Changes
in food and supply costs could adversely affect our results of
operations.
Our profitability depends in part on our ability to anticipate
and react to changes in food and supply costs. The food item
accounting for the largest share of our cost of goods sold, at
31.5% in fiscal year 2009, is beef. Any increase in food prices,
particularly for beef, could adversely affect our operating
results. In addition, we are susceptible to increases in food
costs as a result of factors beyond our control, such as weather
conditions, food safety concerns, costs of distribution, product
recalls and government regulations. We cannot predict whether we
will be able to anticipate and react to changing food costs by
adjusting our purchasing practices and menu items and prices,
and a failure to do so could adversely affect our operating
results. In addition, because our menu items are moderately
priced, we may not seek to or be able to pass along price
increases to our customers. If we adjust pricing there is no
assurance that we will realize the full benefit of any
adjustment due to changes in our customers menu item
selections and customer traffic.
We
rely heavily on certain vendors, suppliers and distributors
which could adversely affect our business.
Our ability to maintain consistent price and quality throughout
our restaurants depends in part upon our ability to acquire
specified food products and supplies in sufficient quantities.
In some cases, we may have only one supplier for a product or
supply. Our dependence on single source suppliers subjects us to
the possible risks of shortages, interruptions and price
fluctuations. We currently purchase most of our beef, under
contract, from JBS Swift Beef Company, the largest beef supplier
in the world. We are under contract through July 2011 for the
supply of a substantial majority of our expected beef
requirements. We are also under a contract with Koch Foods Inc.
for our supply of chicken through December 2011. In addition, we
rely on one primary distributor to deliver products to our
restaurants. If any of these vendors, our other suppliers or our
primary distributor is unable to fulfill their obligations, or
if we are unable to find replacement providers in the event of a
supply or service disruption, we could encounter supply
shortages and incur higher costs to secure adequate supplies,
which would materially harm our business.
Approximately
67% of our company-owned restaurants are located in the
Southeast and Southwest United States and, as a result, we are
sensitive to economic and other trends and developments in those
regions.
As of May 2, 2010, a total of 124 of our company-owned
restaurants were located in the Southeast and Southwestern
United States. As a result, we are particularly susceptible to
adverse trends and economic conditions in those regions,
including their labor markets. In addition, given our geographic
concentration in these regions, negative publicity regarding any
of our restaurants in these regions could have a material
adverse effect on our business and operations, as could other
occurrences in these regions such as local strikes, energy
shortages or increases in energy prices, droughts, hurricanes,
fires, floods or other natural disasters.
14
We
have implemented an enhanced restaurant prototype, but our
current restaurant prototype and any future prototypes may not
be successful and could have a negative impact on our sales,
returns on invested capital and brand image.
We have implemented an enhanced restaurant prototype under which
we have opened 20 restaurants and which will be used for future
expansion. This enhanced restaurant prototype incorporates
changes in size, materials, layout, and operational and
aesthetic elements from our previous restaurant prototype, and
there can be no assurance that this or any future prototypes
will be successful in all or any of our markets. If our current
restaurant prototype does not continue to be successful,
particularly as we seek to increase our rate of opening new
restaurants, we may need to reduce our rate of development of
this current restaurant prototype or modify our plans by
altering the current restaurant prototype or developing a new
restaurant prototype. The introduction of any new prototypes
could slow growth and result in less favorable sales and lower
returns on invested capital than we have experienced with our
previous restaurant prototypes. Additionally, any future changes
to our restaurant prototype and layout could negatively impact
our brand image.
We may
incur costs resulting from breaches of security of confidential
customer information related to our electronic processing of
credit and debit card transactions.
The majority of our restaurant sales are by credit or debit
cards. Other retailers have experienced security breaches in
which credit and debit card information has been stolen. We may
in the future become subject to claims for purportedly
fraudulent transactions arising out of the actual or alleged
theft of credit or debit card information, and we may also be
subject to lawsuits or other proceedings relating to these types
of incidents. Any such claim or proceeding could cause us to
incur significant unplanned expenses, which could have an
adverse impact on our financial condition and results of
operations. Further, adverse publicity resulting from these
allegations may have a material adverse effect on us and our
restaurants.
We may
need additional capital in the future, and it may not be
available on acceptable terms.
The development of our business may require significant
additional capital in the future to fund our operations and
growth, among other activities. We have historically relied upon
cash generated by our operations and lease financing to fund our
expansion. In the future, we intend to rely on funds from
operations, lease financing and, if necessary, our existing
senior secured credit facility. We may also need to access the
debt and equity capital markets. There can be no assurance,
however, that these sources of financing will be available on
acceptable terms, or at all. Our ability to obtain additional
financing will be subject to a number of factors, including
market conditions, our operating performance, investor sentiment
and our ability to incur additional debt in compliance with
agreements governing our then-outstanding debt. These factors
may make the timing, amount, terms or conditions of additional
financings unattractive to us. If we are unable to generate
sufficient funds from operations or raise additional capital,
our growth could be impeded.
In connection with the Acquisition, we entered into a senior
secured credit facility with aggregate borrowings of up to
$168.0 million consisting of (i) a $138.0 million
term loan facility due in December 2012 and (ii) a
$30.0 million revolving credit facility due in December
2011. Our obligations and the guarantees under the senior
secured credit facility are secured by all of our assets. As of
May 2, 2010, we had $133.2 million of outstanding
borrowings under our term loan facility and no outstanding
borrowings under our revolving credit facility. We also issued
$80.0 million aggregate principal amount of senior
subordinated unsecured mezzanine term notes due June 2014 to
help fund the Acquisition. We intend to use a portion of our
proceeds from this offering to prepay all of the senior
subordinated unsecured mezzanine term notes. We may not be able
to refinance our indebtedness prior to or at its maturity on
acceptable terms or at all.
Our
existing senior secured credit facility requires us to maintain
financial covenants and failure to do so would adversely affect
our business and limit our ability to incur additional
debt.
The lenders obligation to extend credit under our existing
senior secured credit facility depends upon our maintaining
certain financial covenants including, as of May 2, 2010, a
minimum consolidated fixed charge coverage ratio of 1.20:1 and a
maximum consolidated leverage ratio of 5.50:1. Failure to
maintain these ratios
15
could result in an acceleration of outstanding amounts under the
term loan and restrict us from borrowing amounts under the
revolving credit facility to fund our future liquidity
requirements.
We may
be required to record additional impairment charges in the
future.
In accordance with accounting guidance as it relates to the
impairment of long-lived assets, we make certain estimates and
projections with regard to company-owned restaurant operations,
as well as our overall performance in connection with our
impairment analyses for long-lived assets. When impairment
triggers are deemed to exist for any given company-owned
restaurant, the estimated undiscounted future cash flows for the
restaurant are compared to its carrying value. If the carrying
value exceeds the undiscounted cash flows, an impairment charge
would be recorded equal to the difference between the carrying
value and the estimated fair value. In fiscal years 2009 and
2008 we recorded impairment charges of $6.3 million and
$6.6 million, respectively.
We also review the value of our goodwill and other intangible
assets on an annual basis and when events or changes in
circumstances indicate that the carrying value of goodwill or
other intangible assets may exceed the fair value of such
assets. The estimates of fair value are based upon the best
information available as of the date of the assessment and
incorporate management assumptions about expected future cash
flows and contemplate other valuation measurements and
techniques. In fiscal year 2009, we recorded an impairment
charge of $16.8 million relating to our tradename.
The estimates of fair value used in these analyses requires the
use of judgment, certain assumptions and estimates of future
operating results. If actual results differ from our estimates
or assumptions, additional impairment charges may be required in
the future. If impairment charges are significant, our results
of operations could be adversely affected.
We
depend upon our executive officers and may not be able to retain
or replace these individuals or recruit additional personnel,
which could harm our business.
We believe that we have benefited substantially from the
leadership and experience of our executive officers, including
our President and Chief Executive Officer, G. Thomas Vogel, and
our Chief Financial Officer, Amy L. Bertauski. The loss of the
services of any of our executive officers could have a material
adverse effect on our business and prospects, as we may not be
able to find suitable individuals to replace such personnel on a
timely basis. In addition, any such departure could be viewed in
a negative light by investors and analysts, which could cause
our Class A common stock price to decline. Other than our
President and Chief Executive Officer, none of our executive
officers are subject to non-compete or non-solicitation
obligations at the present time. Moreover, we do not have
employment agreements with any of our executive officers, except
for our President and Chief Executive Officer, and we do not
maintain key man or key woman insurance
policies on the lives of any executive officers. As our business
expands, our future success will depend greatly on our continued
ability to attract and retain highly skilled and qualified
executive-level personnel. Our inability to attract and retain
qualified executive officers in the future could impair our
growth and harm our business.
We are
dependent on attracting and retaining qualified employees while
also controlling labor costs.
We are dependent upon the availability of qualified restaurant
personnel. Our future performance will depend on our ability to
attract, motivate and retain our regional managers and general
managers. Competition for these employees is intense. The loss
of the services of members of our restaurant management team or
the inability to attract additional qualified personnel as
needed could materially harm our business.
In addition, availability of staff varies widely from restaurant
to restaurant. Our turnover for all restaurant managers in
fiscal year 2009 was 19%. In fiscal year 2009, our hourly
restaurant employee turnover at our comparable restaurants was
104%. If restaurant management and staff turnover trends
increase, we could suffer higher direct costs associated with
recruiting, training and retaining replacement personnel.
Moreover, we could suffer from significant indirect costs,
including restaurant disruptions due to management changeover
and potential delays in new restaurant openings or adverse
customer reactions to inadequate customer service
16
levels due to staff shortages. Competition for qualified
employees exerts upward pressure on wages paid to attract such
personnel, resulting in higher labor costs, together with
greater recruitment and training expense.
We, and our franchisees, must comply with the Fair Labor
Standards Act and various federal and state laws governing
employment matters, such as minimum wage, tip credit allowance,
overtime pay practices, child labor laws and other working
conditions and citizenship requirements. Federal and state laws
may also require us to provide new or increased levels of
employee benefits to our employees, many of whom are not
currently eligible for such benefits. Many of our employees are
hourly workers whose wages are likely to be affected by an
increase in the federal or state minimum wage or changes to the
tip credit allowance. Proposals have been made, and continue to
be made, at federal and state levels to increase minimum wage
levels, including changes to the tip credit allowance. An
increase in the minimum wage or a change in the tip credit
allowance may require an increase or 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. A shortage in the labor pool could
also cause our restaurants to be required to operate with
reduced staff, which could negatively impact our ability to
provide adequate service levels to our customers.
Legal
complaints or litigation may hurt us.
Occasionally, restaurant customers file complaints or lawsuits
against us or our franchisees alleging that we are responsible
for some illness or injury they suffered at or after a visit to
our restaurants, or that we have problems with food quality or
operations. We and our franchisees are also subject to a variety
of other claims arising in the ordinary course of our business,
including personal injury claims, contract claims, claims by
franchisees and claims alleging violations of federal and state
law regarding workplace and employment matters, discrimination
and similar matters. We could also become subject to class
action lawsuits related to these matters in the future. The
restaurant industry has also been subject to a growing number of
claims that the menus and actions of restaurant chains have led
to the obesity of certain of their customers.
Regardless, however, of whether any claim brought against us in
the future is valid or whether we are liable, such a claim would
be expensive to defend for us and our franchisees and may divert
time and money away from our and our franchisees
operations and, thereby, hurt our business.
We are subject to state and local dram shop
statutes, which may subject us to uninsured liabilities. These
statutes generally allow a person injured by an intoxicated
person to recover damages from an establishment that wrongfully
served alcoholic beverages to the intoxicated person. In the
past, after allegedly consuming alcoholic beverages at our
restaurants, individuals have been killed or injured or have
killed or injured third parties. Because a plaintiff may seek
punitive damages, which may not be fully covered by insurance,
this type of action could have an adverse impact on our or our
franchisees financial condition and results of operations.
A judgment in such an action significantly in excess of our
insurance coverage, or the insurance coverage of one of our
franchisees, could adversely affect our financial condition or
results of operations. Further, adverse publicity resulting from
any such allegations may adversely affect us, our franchisees
and our restaurants taken as a whole.
Our
current insurance may not provide adequate levels of coverage
against claims.
We currently maintain insurance customary for businesses of our
size and type. However, there are types of losses we may incur
that cannot be insured against or that we believe are not
economically reasonable to insure. Such losses could have a
material adverse effect on our business and results of
operations. In addition, we self-insure a significant portion of
expected losses under our workers compensation, general
liability, employee health and property insurance programs.
Unanticipated changes in the actuarial assumptions and
management estimates underlying our reserves for these losses
could result in materially different amounts of expense under
these programs, which could have a material adverse effect on
our financial condition, results of operations and liquidity. As
a public company, we intend to enhance our existing
directors and officers insurance. While we expect to
obtain such coverage, there can be no assurance that we will be
able to obtain such coverage at all or at a reasonable cost now
or in the future. Failure to obtain and maintain adequate
17
directors and officers insurance would likely
adversely affect our ability to attract and retain qualified
officers and directors.
Failure
to obtain and maintain required licenses and permits or to
comply with alcoholic beverage or food control regulations could
lead to the loss of our liquor and food service licenses and,
thereby, harm our business.
The restaurant industry is subject to various federal, state and
local government regulations, including those relating to the
sale of food and alcoholic beverages. Such regulations are
subject to change from time to time. The failure to obtain and
maintain these licenses, permits and approvals could adversely
affect our operating results. Typically, licenses must be
renewed annually and may be revoked, suspended or denied renewal
for cause at any time if governmental authorities determine that
our conduct violates applicable regulations. Difficulties or
failure to maintain or obtain the required licenses and
approvals could adversely affect our existing restaurants and
delay or result in our decision to cancel the opening of new
restaurants, which would adversely affect our business.
In the 39 weeks ended May 2, 2010, 7.4% of our total sales
from company-owned restaurants were attributable to the sale of
alcoholic beverages, and we plan to responsibly increase our
alcoholic beverage sales in the future. Alcoholic beverage
control regulations require each of our restaurants to apply to
a state authority and, in certain locations, county or municipal
authorities for a license or permit to sell alcoholic beverages
on-premises and to provide service for extended hours and on
Sundays. Alcoholic beverage control regulations relate to
numerous aspects of daily operations of our restaurants,
including minimum age of patrons and employees, hours of
operation, advertising, trade practices, wholesale purchasing,
other relationships with alcohol manufacturers, wholesalers and
distributors, inventory control and handling, storage and
dispensing of alcoholic beverages. In the past, we and our
franchisees have been subject to fines for violations of
alcoholic beverage control regulations. Any future failure to
comply with these regulations and obtain or retain liquor
licenses could adversely affect our results of operations and
overall financial condition.
We
rely heavily on information technology, and any material
failure, weakness, interruption or breach of security could
prevent us from effectively operating our
business.
We rely heavily on information systems, including
point-of-sale
processing in our restaurants, management of our supply chain,
payment of obligations, collection of cash, credit and debit
card transactions and other processes and procedures. Our
ability to efficiently and effectively manage our business
depends significantly on the reliability and capacity of these
systems. The failure of these systems to operate effectively,
maintenance problems, upgrading or transitioning to new
platforms, or a breach in security of these systems could result
in delays in customer service and reduce efficiency in our
operations. Remediation of such problems could result in
significant, unplanned capital investments.
Our
failure or inability to enforce our trademarks or other
proprietary rights could adversely affect our competitive
position or the value of our brand.
We own certain common law trademark rights and a number of
federal trademark and service mark registrations, including
Logans
Roadhouse®
and the design, our stylized logos set forth on the cover and
back pages of this prospectus,
Logans®
and the design, The
Logan®,
Onion
Brewski®,
Brewski
Onions®,
Peanut
Shooter®,
Roadies®
and The Real American
Roadhouse®,
as well as the peanut man logo and the trade dress element
consisting of the bucket used in connection with our
restaurant services, and proprietary rights relating to our
methods of operation and certain of our core menu offerings. We
believe that our trademarks and other proprietary rights are
important to our success and our competitive position, and,
therefore, we devote resources to the protection of our
trademarks and proprietary rights. The protective actions that
we take, however, may not be enough to prevent unauthorized use
or imitation by others, which could harm our image, brand or
competitive position. If we commence litigation to enforce our
rights, we will incur significant legal fees.
18
We are not aware of any assertions that our trademarks or menu
offerings infringe upon the proprietary rights of any third
parties, but we cannot assure you that third parties will not
claim infringement by us in the future. Any such claim, whether
or not it has merit, could be time-consuming and distracting for
executive management, result in costly litigation, cause changes
to existing menu items or delays in introducing new menu items,
or require us to enter into royalty or licensing agreements. As
a result, any such claim could have a material adverse effect on
our business, results of operations and financial condition.
If we
fail to comply with federal and state statutes, regulations and
rules governing our offer and sale of franchises and our
relationship with our franchisees, we may be subject to
franchisee-initiated litigation and governmental or judicial
fines or sanctions.
We are subject to various state laws that govern the offer and
sale of franchises, as well as the rules and regulations of the
Federal Trade Commission. Additionally, many state laws regulate
various aspects of the franchise relationship, including the
nature, timing and sufficiency of disclosures to franchisees
upon the initiation of the franchisor-potential franchisee
relationship, our conduct during the franchisor-franchisee
relationship and renewals and terminations of franchises.
Any past or future failures by us to comply with these laws and
regulations in any jurisdiction or to obtain required government
approvals could result in franchisee-initiated lawsuits, a ban
or temporary suspension on future franchise sales, civil and
administrative penalties or other fines, or require us to make
offers of rescission, disgorgement or restitution, any of which
could adversely affect our business and operating results. We
could also face lawsuits by our franchisees based upon alleged
violations of these laws. In the case of willful violations,
criminal sanctions could be brought against us.
Our
franchisees could take actions that could be harmful to our
business.
Our franchisees are contractually obligated to operate their
restaurants in accordance with Logans Roadhouse standards
and all applicable laws. Although we attempt to properly train
and support franchisees, franchisees are independent third
parties that we do not control, and the franchisees own, operate
and oversee the daily operations of their restaurants. As a
result, the ultimate success and quality of any franchised
restaurant rests with the franchisee. If franchisees do not
successfully operate restaurants in a manner consistent with our
standards, the Logans Roadhouse image and reputation could
be harmed, which in turn could adversely affect our business and
operating results. Further, the failure of either of our two
franchisees or any of their restaurants to remain financially
viable could result in their failure to pay royalties owed to
us. Finally, regardless of the actual validity of such a claim,
we may be named as a party in an action relating to,
and/or be
held liable for, the conduct of our franchisees if it is shown
that we exercise a sufficient level of control over a particular
franchisees operation.
We are
subject to many federal, state and local laws with which
compliance is both costly and complex.
The restaurant industry is subject to extensive federal, state
and local laws and regulations, including those relating to
building and zoning requirements and those relating to the
preparation and sale of food. The development and operation of
restaurants depend to a significant extent on the selection and
acquisition of suitable sites, which are subject to zoning, land
use, environmental, traffic and other regulations and
requirements. We are also subject to licensing and regulation by
state and local authorities relating to health, sanitation,
safety and fire standards and liquor licenses, federal and state
laws governing our relationships with employees (including the
Fair Labor Standards Act of 1938, the Immigration Reform and
Control Act of 1986 and applicable requirements concerning the
minimum wage, overtime, family leave, tip credits, working
conditions, safety standards, immigration status, unemployment
tax rates, workers compensation rates and state and local
payroll taxes), federal and state laws which prohibit
discrimination and other laws regulating the design and
operation of facilities, such as the Americans With Disabilities
Act of 1990, or the ADA. In addition, we are subject to a
variety of federal, state and local laws and regulations
relating to the use, storage, discharge, emission and disposal
of hazardous materials.
19
We are reviewing the health care reform law enacted by Congress
in March 2010. As part of that review, we will evaluate the
potential impacts of this new law on our business, and
accommodate various parts of the law as they take effect. There
are no assurances that a combination of cost management and
price increases can accommodate all of the costs associated with
compliance. We do not expect to incur any material costs from
compliance with the provision of the health care law requiring
disclosure of calories on menus, but cannot anticipate any
changes in customer behavior resulting from the implementation
of this portion of the law, which could have an adverse effect
on our sales or results of operations.
The impact of current laws and regulations, the effect of future
changes in laws or regulations that impose additional
requirements and the consequences of litigation relating to
current or future laws and regulations, or our inability to
respond effectively to significant regulatory or public policy
issues, could increase our compliance and other costs of doing
business and therefore have an adverse effect on our results of
operations. Failure to comply with the laws and regulatory
requirements of federal, state and local authorities could
result in, among other things, revocation of required licenses,
administrative enforcement actions, fines and civil and criminal
liability. In addition, certain laws, including the ADA, could
require us to expend significant funds to make modifications to
our restaurants if we failed to comply with applicable
standards. Compliance with all of these laws and regulations can
be costly and can increase our exposure to litigation or
governmental investigations or proceedings.
Any
strategic transactions that we consider in the future may have
unanticipated consequences that could harm our business and our
financial condition.
From time to time, we evaluate potential mergers, acquisitions
of restaurants (including from our franchisees), joint ventures
or other strategic initiatives to acquire or develop additional
concepts. To successfully execute any acquisition or development
strategy, we will need to identify suitable acquisition or
development candidates, negotiate acceptable acquisition or
development terms and obtain appropriate financing. Any
acquisition or future development that we pursue, whether or not
successfully completed, may involve risks, including:
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material adverse effects on our operating results, particularly
in the fiscal quarters immediately following the acquisition or
development as the restaurants are integrated into our
operations;
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risks associated with entering into new domestic markets or
conducting operations where we have no or limited prior
experience, including international markets;
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risks inherent in accurately assessing the value, future growth
potential, strengths, weaknesses, contingent and other
liabilities and potential profitability of acquisition
candidates, and our ability to achieve projected economic and
operating synergies; and
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the diversion of managements attention from other business
concerns.
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We
will incur increased costs as a result of operating as a public
company, and our management will be required to devote
substantial time to comply with the requirements applicable to
public companies.
Prior to this offering, we have not been subject to the
reporting requirements of the Securities Exchange Act of 1934,
or the Exchange Act, or the other rules and regulations of the
Securities Exchange Commission, or the SEC, or any securities
exchange relating to public companies. We are working with our
legal and financial advisors and independent accountants to
identify those areas in which changes should be made to our
financial and management control systems to manage our growth
and our obligations as a public company. These areas include
corporate governance, corporate control, internal audit,
disclosure controls and procedures and financial reporting and
accounting systems. We have made, and will continue to make,
changes in these and other areas. However, the expenses that we
will be required to incur in order to adequately prepare for
being a public company could be material. Ongoing compliance
with the various reporting and other requirements applicable to
public companies will also require considerable time and
attention of management. We cannot predict or estimate the
amount of the additional costs we may incur, the timing of such
costs or the degree of impact that our managements
attention to these matters will have on our business. In
addition, the
20
changes we make may not be sufficient to allow us to satisfy our
obligations as a public company on a timely basis.
In addition, we expect these rules and regulations to make it
more difficult and more expensive for us to obtain director and
officer liability insurance, and we may be required to accept
reduced policy limits and coverage or incur substantial
additional costs to maintain the same or similar coverage. These
rules and regulations could also make it more difficult for us
to attract and retain qualified persons to serve on our board of
directors, our board committees or as executive officers.
Risks
Related to This Offering and Ownership of Our Class A
Common Stock
Concentration
of ownership among our existing executive officers, directors
and principal stockholders may prevent new investors from
influencing significant corporate decisions.
Upon consummation of this offering our executive officers,
directors and principal stockholders will own, in the aggregate,
approximately % of our outstanding
Class A common stock and will own options that will enable
them to own, in the aggregate,
approximately % of our outstanding
Class A common stock. As a result, these stockholders will
be able to exercise control over all matters requiring
stockholder approval, including the election of directors,
amendment of our amended and restated certificate of
incorporation and approval of significant corporate transactions
and will have significant control over our management and
policies. We currently expect that, following this
offering, of
the members of our board of
directors will be designees of BRS, Black Canyon or Canyon
Capital. BRS, Black Canyon and Canyon Capital can take actions
that have the effect of delaying or preventing a change in
control of us or discouraging others from making tender offers
for our shares, which could prevent stockholders from receiving
a premium for their shares. These actions may be taken even if
other stockholders oppose them. The concentration of voting
power among BRS, Black Canyon and Canyon Capital may have an
adverse effect on the price of our Class A common stock.
The interests of these stockholders may not be consistent with
your interests as a stockholder. After the
lock-up
period expires, BRS, Black Canyon and Canyon Capital will be
able to transfer control of us to a third-party by transferring
their Class A common stock, which would not require the
approval of our board of directors or our other stockholders.
Our amended and restated certificate of incorporation will
provide that the doctrine of corporate opportunity will not
apply against BRS, Black Canyon or Canyon Capital, or any of our
directors who are employees of or affiliated with BRS, Black
Canyon or Canyon Capital, in a manner that would prohibit them
from investing or participating in competing businesses. To the
extent they invest in such other businesses, BRS, Black Canyon
or Canyon Capital may have differing interests than our other
stockholders.
We
will be a controlled company within the meaning of
The NASDAQ Stock Market rules, and, as a result, we will rely on
exemptions from certain corporate governance requirements that
provide protection to stockholders of other
companies.
Upon completion of this offering, BRS, Black Canyon and Canyon
Capital will own more than 50% of the total voting power of our
Class A common stock and we will be a controlled
company under The NASDAQ Stock Market corporate governance
listing standards. As a controlled company, we will be exempt
under The NASDAQ Stock Market listing standards from the
obligation to comply with certain of The NASDAQ Stock Market
corporate governance requirements, including the requirements:
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that a majority of our board of directors consist of independent
directors, as defined under the rules of The NASDAQ Stock Market;
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that we have a corporate governance and nominating committee
that is composed entirely of independent directors with a
written charter addressing the committees purpose and
responsibilities; and
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that we have a compensation committee that is composed entirely
of independent directors with a written charter addressing the
committees purpose and responsibilities.
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Accordingly, for so long as we are a controlled company, holders
of our Class A common stock will not have the same
protections afforded to stockholders of companies that are
subject to all of The NASDAQ Stock Market corporate governance
requirements.
There
may not be a viable public market for our Class A common
stock.
Prior to this offering, there has been no public market for our
Class A common stock. The initial public offering price for
our Class A common stock will be determined through
negotiations between us and the representative of the
underwriters and may not be indicative of the market price of
our Class A common stock after this offering. If you
purchase shares of our Class A common stock, you may not be
able to resell those shares at or above the initial public
offering price. We cannot predict the extent to which investor
interest in our company will lead to the development of an
active trading market on The NASDAQ Global Select Market or
otherwise or how liquid that market might become. An active
public market for our Class A common stock may not develop
or be sustained after the offering. If an active public market
does not develop or is not sustained, it may be difficult for
you to sell your shares of Class A common stock at a price
that is attractive to you, or at all.
Our
stock price may be volatile or may decline regardless of our
operating performance, and you may not be able to resell your
shares at or above the initial public offering
price.
After this offering, the market price for our Class A
common stock is likely to be volatile, in part because our
shares have not been traded publicly. In addition, the market
price of our Class A common stock may fluctuate
significantly in response to a number of factors, most of which
we cannot control, including:
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our ability to successfully execute our growth strategy and
other initiatives intended to enhance long-term stockholder
value;
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changes in consumer preferences and demographic trends;
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changes in the costs of our business including food costs
(especially beef), labor cost, utilities cost, insurance cost,
taxes and others;
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supply and delivery shortages or disruptions;
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potential negative publicity regarding food safety and health
concerns including food related concerns over E. coli bacteria,
hepatitis A, mad cow disease,
foot-and-mouth
disease, the avian influenza, peanut and other food allergens,
and other public health concerns affecting the food supply;
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increasing competition in the restaurant industry;
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the impact of federal, state or local government regulations
relating to our employees or the sale of food and alcoholic
beverages, tax, wage and hour matters, health and safety,
pensions, insurance or other undeterminable areas;
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potential fluctuation in our annual or quarterly operating
results due to seasonality and other factors;
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the continued service of key management personnel;
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actual results of litigation or governmental investigations and
the costs and effects of negative publicity associated with
these activities;
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changes in capital market conditions that could affect
valuations of restaurant companies in general or our goodwill in
particular or other adverse economic conditions;
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the effectiveness of our internal controls over financial
reporting and disclosure;
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the rate of growth of general and administrative expenses
associated with being a public company and building a
strengthened corporate infrastructure to support our growth
initiatives;
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changes in financial estimates by any securities analysts who
follow our Class A common stock, our failure to meet these
estimates or failure of those analysts to initiate or maintain
coverage of our Class A common stock;
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ratings downgrades by any securities analysts who follow our
Class A common stock;
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future sales of our Class A common stock by our officers,
directors and significant stockholders;
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other events or factors, including those resulting from war,
acts of terrorism, natural disasters or responses to these
events;
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changes in accounting principles; and
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global economic, legal and regulatory factors unrelated to our
performance.
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In addition, the stock markets, and in particular The NASDAQ
Stock Market, have experienced extreme price and volume
fluctuations that have affected and continue to affect the
market prices of equity securities of many food service
companies. In the past, stockholders have instituted securities
class action litigation following periods of market volatility.
If we were involved in securities litigation, we could incur
substantial costs and our resources and the attention of
management could be diverted from our business.
Future
sales of our Class A common stock, or the perception in the
public markets that these sales may occur, may depress our stock
price.
Sales of substantial amounts of our Class A common stock in
the public market after this offering, or the perception that
these sales could occur, could adversely affect the price of our
Class A common stock and could impair our ability to raise
capital through the sale of additional shares. Upon completion
of this offering, we will
have shares
of Class A common stock outstanding. The shares of
Class A common stock offered in this offering will be
freely tradable without restriction under the Securities Act of
1933, which we refer to as the Securities Act, except for any
shares of our Class A common stock that may be held or
acquired by our directors, executive officers and other
affiliates, as that term is defined in the Securities Act, which
will be restricted securities under the Securities Act.
Restricted securities may not be sold in the public market
unless the sale is registered under the Securities Act or an
exemption from registration is available.
We, each of our officers and directors and the selling
stockholders have agreed, subject to certain exceptions, with
the underwriters not to dispose of or hedge any of the shares of
Class A common stock or securities convertible into or
exchangeable for shares of Class A common stock during the
period from the date of this prospectus continuing through the
date 180 days after the date of this prospectus, except, in
our case, for the issuance of Class A common stock upon
exercise of options under existing option plans. Credit Suisse
Securities (USA) LLC may, in its sole discretion, release any of
these shares from these restrictions at any time without notice.
See Underwriting.
All of our shares of Class A common stock outstanding as of
the date of this prospectus may be sold in the public market by
existing stockholders 180 days after the date of this
prospectus, subject to applicable volume and other limitations
imposed under federal securities laws. See
Shares Eligible for Future Sale for a more
detailed description of the restrictions on selling shares of
our Class A common stock after this offering.
In the future, we may also issue our securities in connection
with investments or acquisitions. The amount of shares of our
Class A common stock issued in connection with an
investment or acquisition could constitute a material portion of
our then-outstanding shares of our Class A common stock.
Anti-takeover provisions in our charter documents and Delaware
law might discourage or delay acquisition attempts for us that
you might consider favorable.
Our amended and restated certificate of incorporation and
amended and restated bylaws will contain provisions that may
make the acquisition of our company more difficult without the
approval of our board of directors. These provisions:
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establish a classified board of directors so that not all
members of our board of directors are elected at one time;
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authorize the issuance of undesignated preferred stock, the
terms of which may be established and the shares of which may be
issued without stockholder approval, and which may include super
voting, special approval, dividend, or other rights or
preferences superior to the rights of the holders of
Class A common stock;
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prohibit stockholder action by written consent, which requires
all stockholder actions to be taken at a meeting of our
stockholders;
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provide that the board of directors is expressly authorized to
make, alter, or repeal our amended and restated bylaws; and
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establish advance notice requirements for nominations for
elections to our board of directors or for proposing matters
that can be acted upon by stockholders at stockholder meetings.
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These anti-takeover provisions and other provisions under
Delaware law could discourage, delay or prevent a transaction
involving a change in control of our company, even if doing so
would benefit our stockholders. These provisions could also
discourage proxy contests and make it more difficult for you and
other stockholders to elect directors of your choosing and to
cause us to take other corporate actions you desire.
If you
purchase shares of Class A common stock sold in this
offering, you will incur immediate and substantial
dilution.
If you purchase shares of Class A common stock in this
offering, you will incur immediate and substantial dilution in
the amount of $ per share because
the initial public offering price of
$ is substantially higher than the
pro forma net tangible book value per share of our outstanding
Class A common stock. This dilution is due in large part to
the fact that our earlier investors paid substantially less than
the initial public offering price when they purchased their
shares. In addition, you may also experience additional dilution
upon future equity issuances or the exercise of stock options to
purchase Class A common stock granted to our employees,
consultants and directors under our stock option and equity
incentive plans. See Dilution.
If
securities or industry analysts do not publish research or
publish inaccurate or unfavorable research about our business,
our stock price and trading volume could decline.
The trading market for our Class A common stock will depend
in part on the research and reports that securities or industry
analysts publish about us or our business. We do not currently
have and may never obtain research coverage by securities and
industry analysts. If no securities or industry analysts
commence coverage of our company, the trading price for our
Class A common stock would be negatively impacted. If we
obtain securities or industry analyst coverage and if one or
more of the analysts who covers us downgrades our Class A
common stock or publishes inaccurate or unfavorable research
about our business, our stock price would likely decline. If one
or more of these analysts ceases coverage of us or fails to
publish reports on us regularly, demand for our Class A
common stock could decrease, which could cause our stock price
and trading volume to decline.
We do
not expect to pay any cash dividends for the foreseeable
future.
The continued operation and expansion of our business will
require substantial funding. Accordingly, we do not anticipate
that we will pay any cash dividends on shares of our
Class A common stock for the foreseeable future. Any
determination to pay dividends in the future will be at the
discretion of our board of directors and will depend upon
results of operations, financial condition, contractual
restrictions, including our senior secured credit facility and
other indebtedness we may incur, restrictions imposed by
applicable law and other factors our board of directors deems
relevant. Accordingly, if you purchase shares in this offering,
realization of a gain on your investment will depend on the
appreciation of the price of our Class A common stock,
which may never occur. Investors seeking cash dividends in the
foreseeable future should not purchase our Class A common
stock.
24
FORWARD-LOOKING
STATEMENTS
This prospectus contains statements about future events and
expectations that constitute forward-looking statements.
Forward-looking statements are based on our beliefs, assumptions
and expectations of our future financial and operating
performance and growth plans, taking into account the
information currently available to us. These statements are not
statements of historical fact. Forward-looking statements
involve risks and uncertainties that may cause our actual
results to differ materially from the expectations of future
results we express or imply in any forward-looking statements
and you should not place undue reliance on such statements.
Factors that could contribute to these differences include, but
are not limited to, the following:
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our ability to successfully execute our growth strategy and open
new restaurants that are profitable;
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macroeconomic conditions;
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our ability to compete with many other restaurants;
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changes in consumer preferences caused by health concerns and
government regulation relating to the consumption of beef,
chicken, peanuts or other food products;
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potential negative publicity regarding food safety and health
concerns including food related concerns over E. coli bacteria,
hepatitis A, mad cow disease,
foot-and-mouth
disease, the avian influenza, peanut and other food allergens,
and other public health concerns affecting the food supply;
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changes in food and supply costs;
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our reliance on a small number of vendors, suppliers and
distributors;
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our geographic concentration in the Southeast and Southwest
United States;
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the success of our current restaurant prototype and any future
prototypes;
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costs resulting from breaches of security of confidential
information;
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our ability to generate or raise capital in the future;
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our ability to incur additional debt under the terms of our
existing senior secured credit facility;
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impairment charges on certain long-lived or intangible assets;
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the continued service of our executive officers;
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our ability to attract and retain qualified employees while also
controlling labor costs;
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legal complaints or litigation;
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our ability to maintain insurance that provides adequate levels
of coverage against claims;
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our ability to obtain and maintain required licenses and permits
or to comply with alcoholic beverage or food control regulations;
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the reliability of our information systems;
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our ability to protect our intellectual property;
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compliance with laws and regulations related to the offer and
sale of franchises and our relationship with our franchisees;
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our franchisees actions;
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the cost of compliance with federal, state and local laws;
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any potential strategic transactions;
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the costs and time requirements as a result of operating as a
public company;
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the concentration of ownership among our existing executive
officers, directors and principal stockholders;
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controlled company exemptions under The NASDAQ Stock Market
listing standards;
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the development and sustainability of an active trading market
for our Class A common stock;
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the volatility of our stock price;
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future sales of our Class A common stock, or the perception
in the public markets that sales may occur;
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future dilution of our Class A common stock;
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inaccurate or unfavorable research about our business published
by any securities or industry analysts who follow our
Class A common stock or the lack of analysts covering
us; and
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the payment of dividends.
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Words such as anticipates, believes,
continues, estimates,
expects, goal, objectives,
intends, may, opportunity,
plans, potential, near-term,
long-term, projections,
assumptions, projects,
guidance, forecasts,
outlook, target, trends,
should, could, would,
will, and similar expressions are intended to
identify such forward-looking statements. We qualify any
forward-looking statements entirely by these cautionary factors.
Other risks, uncertainties and factors, including those
discussed under Risk Factors, could cause our actual
results to differ materially from those projected in any
forward-looking statements we make. We assume no obligation to
publicly update or revise these forward-looking statements for
any reason, or to update the reasons actual results could differ
materially from those anticipated in these forward-looking
statements, even if new information becomes available in the
future.
26
USE OF
PROCEEDS
We estimate based upon an assumed initial public offering price
of $ per share, the midpoint of
the range set forth on the cover of this prospectus, we will
receive proceeds from the offering of approximately
$ million, after deducting
estimated underwriting discounts and commissions and offering
expenses payable by us. We will not receive any proceeds from
the sale of shares of our Class A common stock by the
selling stockholders, including any shares sold by the selling
stockholders in connection with the exercise of the
underwriters option to purchase additional shares.
We intend to use the proceeds from this offering together with
cash on hand:
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to prepay the outstanding principal amount of our
$85.9 million senior subordinated unsecured mezzanine term
notes, including a prepayment premium of $1.7 million and
accrued and unpaid interest, which was $0.1 million as of
May 2, 2010;
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to redeem all of our $64.5 million of outstanding
Series A preferred stock, including accumulated dividends,
which were $34.7 million as of May 2, 2010;
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to pay BRS and Black Canyon a termination and transaction fee in
an aggregate amount of $ in
connection with termination of the management and consulting
services agreement; and
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to pay other fees and expenses incurred in connection with this
offering.
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Interest on the senior subordinated unsecured mezzanine term
notes accrues at 13.25% per annum, with 3.25% of that amount
payable, at our option, in-kind as an addition to the
outstanding principal amount. The senior subordinated unsecured
mezzanine term notes mature in June 2014. See Description
of Certain Indebtedness Senior Subordinated
Unsecured Mezzanine Term Notes.
A $1.00 increase or decrease in the assumed initial public
offering price of $ per share
would increase or decrease the proceeds we receive from this
offering by approximately
$ million, assuming the
number of shares offered by us, as set forth on the cover of
this prospectus, remains the same.
Pending use of the net proceeds from this offering described
above, we may invest the net proceeds in short- and
intermediate-term interest-bearing obligations, investment-grade
instruments, certificates of deposit or direct or guaranteed
obligations of the United States government.
27
DIVIDEND
POLICY
We have not paid any dividends on our Class A common stock
since our incorporation. We currently intend to retain all
available funds and any future earnings to fund the development
and growth of our business and to repay indebtedness; therefore,
we do not anticipate paying any cash dividends in the
foreseeable future. Additionally, our ability to pay dividends
on our Class A common stock is limited by restrictions on
the ability of our subsidiaries and us to pay dividends or make
distributions to us, including restrictions under the terms of
the agreements governing our indebtedness. See Description
of Certain Indebtedness. Any future determination to pay
dividends will be at the discretion of our board of directors,
subject to compliance with covenants in current and future
agreements governing our indebtedness, and will depend upon our
results of operations, financial condition, capital requirements
and other factors that our board of directors deems relevant.
28
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
our capitalization as of May 2, 2010 on:
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an actual basis; and
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a pro forma as adjusted basis to give effect to the following:
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a -for-1
Class A common stock split that will occur prior to the
completion of this offering;
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¡
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the sale
of shares
of our Class A common stock in this offering by us at an
assumed initial public offering price of
$ per share, the midpoint of the
price range set forth on the cover of this prospectus, after
deducting estimated underwriting discounts and commissions and
offering expenses payable by us; and
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the application of the net proceeds from this offering to us as
described under Use of Proceeds.
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You should read the following table in conjunction with the
sections entitled Use of Proceeds, Selected
Historical Consolidated Financial and Operating Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and related notes included elsewhere in
this prospectus.
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May 2, 2010
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Pro Forma
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Actual
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As Adjusted(1)
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(In thousands)
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Cash and cash equivalents
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$
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45,111
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$
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Long-term debt, including current portion:
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Senior secured credit facility(2)
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$
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133,170
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$
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|
|
Senior subordinated unsecured mezzanine term notes due 2014(3)
|
|
|
85,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, including current portion
|
|
$
|
219,028
|
|
|
|
|
|
Preferred stock:
|
|
|
|
|
|
|
|
|
Series A preferred stock owned by management subject to
redemption(4)
|
|
$
|
1,588
|
|
|
|
|
|
Series A preferred stock, $0.01 par value, 100,000
authorized; 64,508 shares issued and outstanding,
actual; authorized; no shares
issued and outstanding, on an as adjusted basis(4)
|
|
|
62,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total preferred stock
|
|
$
|
64,508
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Class A common stock, $0.01 par value, 1,900,000
authorized; 992,427 shares issued and outstanding,
actual; authorized; shares
issued and outstanding, on an as adjusted basis
|
|
$
|
10
|
|
|
|
|
|
Additional paid-in capital(4)
|
|
|
12,831
|
|
|
|
|
|
Retained earnings
|
|
|
15,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
$
|
28,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
312,242
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
A $1.00 increase or decrease in the
assumed initial public offering price of
$ per share, the midpoint of the
range set forth on the cover of this prospectus, would increase
or decrease the amount of additional paid-in capital, total
stockholders equity and total capitalization by
approximately $ million,
assuming the number of shares offered by us, as set forth on the
cover of this prospectus, remains the same and after deducting
underwriting discounts and commissions and estimated offering
expenses payable by us.
|
|
(2)
|
|
Our senior secured credit facility
consists of (i) a $138.0 million term loan facility
due in December 2012 and (ii) a $30.0 million
revolving credit facility due in December 2011. As of
May 2, 2010, we had $133.2 million outstanding under
our term loan facility and no outstanding borrowings under our
revolving credit facility.
|
|
(3)
|
|
We intend to use a portion of the
net proceeds from this offering to prepay all of the outstanding
senior subordinated unsecured mezzanine term notes, including a
prepayment premium of $1.7 million and accrued and unpaid
interest, which was $0.1 million as of May 2, 2010.
|
29
|
|
|
(4)
|
|
We intend to use a portion of the
net proceeds from this offering to redeem all of the outstanding
Series A preferred stock, including accumulated dividends,
which were $34.7 million as of May 2, 2010. As of
May 2, 2010, we had $64.5 million of outstanding
Series A preferred stock. Of this amount, (i) $1.2
million is classified as a current liability related to
Series A preferred stock owned by management that is
subject to redemption in connection with the departure of any of
these individuals from the company, (ii) $63.0 million is
shown as Series A preferred stock and
(iii) $0.3 million is reflected in additional paid-in
capital. The amounts shown above in the capitalization table
reflect the total liquidation value of our Series A
preferred stock. Conversely, amounts shown in our balance sheet
for our Series A preferred stock are recorded at fair
value, which was 95.63% of total liquidation value at
May 2, 2010.
|
This table excludes the following shares, as of May 2, 2010:
|
|
|
|
|
168,376 shares of Class A common stock issuable upon
exercise of stock options outstanding as of May 2, 2010 at
an exercise price of $10.00 per share on an actual basis
and shares
of Class A common stock issuable upon exercise of stock
options outstanding as of May 2, 2010 at a weighted average
exercise price of $ per share on
an as adjusted basis, of
which
will vest upon completion of this offering; and
|
|
|
|
an aggregate
of shares
of Class A common stock reserved for issuance under our
equity compensation plan, which we plan to adopt in connection
with this offering.
|
30
DILUTION
Dilution represents the difference between the amount per share
paid by investors in this offering and the pro forma net
tangible book value per share of our Class A common stock
immediately after this offering. Net tangible book value per
share as of May 2, 2010 represented the amount of our total
tangible assets less the amount of our total liabilities,
divided by the number of shares of Class A common stock
outstanding at May 2, 2010. Our net tangible book value
(deficit) as of May 2, 2010 based
on shares
of our Class A common stock outstanding was
$ million, or
$ per share of Class A common
stock. The pro forma net tangible book value (deficit) as of
May 2, 2010 based
on shares
of our Class A common stock outstanding was
$ million, or
$ per share of Class A common
stock, excluding proceeds from this offering.
After giving effect to the sale of
the shares
of Class A common stock offered by us in this offering, our
pro forma net tangible book value (deficit) as of May 2,
2010 would have been approximately
$ million, or
$ per share of Class A common
stock. This represents an immediate increase in net tangible
book value to our existing stockholders of
$ per share and an immediate
dilution to new investors in this offering of
$ per share. The following table
illustrates this pro forma per share dilution in net tangible
book value to new investors.
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share
|
|
|
|
|
|
$
|
|
|
Pro forma net tangible book value (deficit) per share as of
May 2, 2010
|
|
$
|
|
|
|
|
|
|
Increase per share attributable to new investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value per share after this offering
|
|
|
|
|
|
|
|
|
Dilution per share to new investors
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
A $1.00 increase (or decrease) in the assumed initial public
offering price of $ per share, the
mid-point of the price range set forth on the cover of this
prospectus, would increase (or decrease) net tangible book value
by $ million, or
$ per share, and would increase
(or decrease) the dilution per share to new investors by
$ , based on the assumptions set
forth above.
The following table summarizes as of May 2, 2010, on an as
adjusted basis, the number of shares of Class A common
stock purchased, the total consideration paid and the average
price per share paid by the equity grant recipients and by new
investors, based upon an assumed initial public offering price
of $ per share (the mid-point of
the initial public offering price range) and before deducting
estimated underwriting discounts and commissions and offering
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Average Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
per Share
|
|
|
Existing stockholders
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
New investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
$
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Except as otherwise indicated, the discussion and tables above
assume no exercise of the underwriters option to purchase
additional shares and no exercise of any outstanding options. If
the underwriters option to purchase additional shares is
exercised in full, our existing stockholders would own
approximately % and our new
investors would own approximately %
of the total number of shares of our Class A common stock
outstanding after this offering.
The tables and calculations above are based
on shares
of Class A common stock outstanding as of May 2, 2010,
give effect to the
proposed -for-1
stock split we intend to effect prior to the completion of this
offering and assume no exercise by the underwriters of their
option to purchase up to an
additional shares
from us and the selling stockholders to cover over-allotment of
shares. This number excludes, as of May 2, 2010:
|
|
|
|
|
an
additional shares
of our Class A common stock issuable upon the exercise of
outstanding stock options as of May 2, 2010 at an exercise
price of $10.00 per share; and
|
|
|
|
an aggregate
of shares
of Class A common stock reserved for issuance under our
equity incentive plan that we intend to adopt in connection with
this offering.
|
To the extent that any outstanding options are exercised, new
investors will experience further dilution.
31
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table provides a summary of our historical
consolidated financial and operating data for the periods and at
the dates indicated. We derived the statements of income (loss)
data and the per share data presented below for the period from
July 29, 2006 through December 5, 2006 (Predecessor)
and the period from December 6, 2006 through July 29,
2007 and the fiscal years ended August 3, 2008
(53 weeks) and August 2, 2009 (Successor) and selected
balance sheet data presented below as of August 3, 2008 and
August 2, 2009 from our audited consolidated financial
statements included elsewhere in this prospectus. The selected
statements of income (loss) data and the per share data for the
fiscal years ended July 29, 2005 and July 28, 2006 and
the selected balance sheet data as of July 29, 2005,
July 28, 2006 and July 29, 2007 have been derived from
audited historical financial statements and related notes not
included in this prospectus. We derived the statement of income
(loss) data and the per share data for the 39 weeks ended
May 3, 2009 and May 2, 2010 and the historical balance
sheet data as of May 2, 2010 from our unaudited condensed
consolidated financial statements included elsewhere in this
prospectus. The unaudited condensed consolidated financial
statements have been prepared on the same basis as our audited
consolidated financial statements and, in the opinion of our
management, reflect all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of this
data. The results for any interim period are not necessarily
indicative of the results that may be expected for a full year.
On December 6, 2006, BRS, Black Canyon, Canyon Capital and
their co-investors, together with our executive officers and
other members of management, through LRI Holdings, Inc.,
acquired Logans Roadhouse, Inc. All periods prior to the
Acquisition are referred to as Predecessor, and all periods
including and after such date are referred to as Successor. The
consolidated financial statements for all Successor periods are
not comparable to those of the Predecessor periods. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Matters
Affecting Comparability of Results for additional
information regarding the Acquisition and other items that
affect the comparability of financial results across periods.
The historical results presented below are not necessarily
indicative of the results to be expected for any future period.
This information should be read in conjunction with Risk
Factors, Managements Discussion and Analysis
of Financial Condition and Results of Operations, and our
consolidated financial statements and the related notes included
elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 29, 2006
|
|
|
|
December 6,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
through
|
|
|
|
2006 through
|
|
|
Fiscal Year Ended
|
|
|
39 Weeks Ended
|
|
|
|
July 29,
|
|
|
July 28,
|
|
|
December 5,
|
|
|
|
July 29,
|
|
|
August 3,
|
|
|
August 2,
|
|
|
May 3,
|
|
|
May 2,
|
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share, per share and restaurant
data)
|
|
Statement of Income (Loss) Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
374,189
|
|
|
|
$421,098
|
|
|
$
|
153,663
|
|
|
|
$
|
321,421
|
|
|
$
|
529,424
|
|
|
$
|
533,248
|
|
|
$
|
402,047
|
|
|
$
|
414,483
|
|
Franchise fees and royalties
|
|
|
2,377
|
|
|
|
2,467
|
|
|
|
851
|
|
|
|
|
1,697
|
|
|
|
2,574
|
|
|
|
2,248
|
|
|
|
1,656
|
|
|
|
1,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
376,566
|
|
|
|
423,565
|
|
|
|
154,514
|
|
|
|
|
323,118
|
|
|
|
531,998
|
|
|
|
535,496
|
|
|
|
403,703
|
|
|
|
416,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
129,810
|
|
|
|
139,523
|
|
|
|
49,527
|
|
|
|
|
104,881
|
|
|
|
176,010
|
|
|
|
172,836
|
|
|
|
131,383
|
|
|
|
130,220
|
|
Labor and other related expenses
|
|
|
114,614
|
|
|
|
126,405
|
|
|
|
48,580
|
|
|
|
|
97,641
|
|
|
|
164,074
|
|
|
|
161,173
|
|
|
|
121,049
|
|
|
|
123,945
|
|
Occupancy costs
|
|
|
11,971
|
|
|
|
13,902
|
|
|
|
5,768
|
|
|
|
|
22,365
|
|
|
|
37,952
|
|
|
|
39,923
|
|
|
|
29,701
|
|
|
|
31,677
|
|
Other restaurant operating expenses
|
|
|
51,206
|
|
|
|
63,146
|
|
|
|
26,116
|
|
|
|
|
47,335
|
|
|
|
80,255
|
|
|
|
79,263
|
|
|
|
59,919
|
|
|
|
60,472
|
|
Depreciation and amortization
|
|
|
12,416
|
|
|
|
14,928
|
|
|
|
5,631
|
|
|
|
|
9,351
|
|
|
|
16,146
|
|
|
|
17,206
|
|
|
|
12,906
|
|
|
|
12,761
|
|
Pre-opening expenses
|
|
|
3,194
|
|
|
|
4,260
|
|
|
|
699
|
|
|
|
|
3,008
|
|
|
|
3,170
|
|
|
|
2,137
|
|
|
|
1,797
|
|
|
|
1,791
|
|
General and administrative
|
|
|
22,539
|
|
|
|
29,577
|
|
|
|
11,996
|
|
|
|
|
19,209
|
|
|
|
26,538
|
|
|
|
25,126
|
|
|
|
18,534
|
|
|
|
17,219
|
|
Impairment and store closing charges
|
|
|
|
|
|
|
3,747
|
|
|
|
|
|
|
|
|
|
|
|
|
6,622
|
|
|
|
23,187
|
|
|
|
23,258
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
345,750
|
|
|
|
395,488
|
|
|
|
148,317
|
|
|
|
|
303,790
|
|
|
|
510,767
|
|
|
|
520,851
|
|
|
|
398,547
|
|
|
|
378,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
30,816
|
|
|
|
28,077
|
|
|
|
6,197
|
|
|
|
|
19,328
|
|
|
|
21,231
|
|
|
|
14,645
|
|
|
|
5,156
|
|
|
|
37,926
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
7,951
|
|
|
|
11,086
|
|
|
|
5,533
|
|
|
|
|
15,101
|
|
|
|
22,618
|
|
|
|
20,557
|
|
|
|
15,258
|
|
|
|
14,246
|
|
Other expense (income), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
313
|
|
|
|
2,631
|
|
|
|
1,543
|
|
|
|
2,335
|
|
|
|
(496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
22,865
|
|
|
|
16,991
|
|
|
|
664
|
|
|
|
|
3,914
|
|
|
|
(4,018
|
)
|
|
|
(7,455
|
)
|
|
|
(12,437
|
)
|
|
|
24,176
|
|
Provision for (benefit from) income taxes
|
|
|
7,377
|
|
|
|
3,695
|
|
|
|
(422
|
)
|
|
|
|
566
|
|
|
|
(3,392
|
)
|
|
|
(5,484
|
)
|
|
|
(9,617
|
)
|
|
|
9,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 29, 2006
|
|
|
|
December 6,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
through
|
|
|
|
2006 through
|
|
|
Fiscal Year Ended
|
|
|
39 Weeks Ended
|
|
|
|
July 29,
|
|
|
July 28,
|
|
|
December 5,
|
|
|
|
July 29,
|
|
|
August 3,
|
|
|
August 2,
|
|
|
May 3,
|
|
|
May 2,
|
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share, per share and restaurant
data)
|
|
Net income (loss)
|
|
|
15,488
|
|
|
|
13,296
|
|
|
|
1,086
|
|
|
|
|
3,348
|
|
|
|
(626
|
)
|
|
|
(1,971
|
)
|
|
|
(2,820
|
)
|
|
|
15,114
|
|
Undeclared preferred dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,552
|
)
|
|
|
(9,605
|
)
|
|
|
(10,568
|
)
|
|
|
(7,887
|
)
|
|
|
(8,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
15,488
|
|
|
$
|
13,296
|
|
|
$
|
1,086
|
|
|
|
$
|
(2,204
|
)
|
|
$
|
(10,231
|
)
|
|
$
|
(12,539
|
)
|
|
$
|
(10,707
|
)
|
|
$
|
6,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
15,488
|
|
|
$
|
13,296
|
|
|
$
|
1,086
|
|
|
|
$
|
(2.28
|
)
|
|
$
|
(10.57
|
)
|
|
$
|
(12.95
|
)
|
|
$
|
(11.06
|
)
|
|
$
|
6.39
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
968,000
|
|
|
|
968,000
|
|
|
|
968,000
|
|
|
|
968,000
|
|
|
|
968,000
|
|
Selected Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurants open end of period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned
|
|
|
124
|
|
|
|
141
|
|
|
|
143
|
|
|
|
|
156
|
|
|
|
170
|
|
|
|
177
|
|
|
|
176
|
|
|
|
185
|
|
Total
|
|
|
147
|
|
|
|
166
|
|
|
|
169
|
|
|
|
|
182
|
|
|
|
196
|
|
|
|
203
|
|
|
|
202
|
|
|
|
211
|
|
Average unit volumes (in millions)
|
|
$
|
3.2
|
|
|
$
|
3.2
|
|
|
$
|
1.0
|
|
|
|
$
|
2.1
|
|
|
$
|
3.2
|
|
|
$
|
3.0
|
|
|
$
|
2.3
|
|
|
$
|
2.3
|
|
Restaurant operating margin(1)
|
|
|
17.8
|
%
|
|
|
18.6
|
%
|
|
|
15.4
|
%
|
|
|
|
15.3
|
%
|
|
|
13.4
|
%
|
|
|
15.0
|
%
|
|
|
14.9
|
%
|
|
|
16.4
|
%
|
Adjusted EBITDA(2)
|
|
$
|
33,545
|
|
|
$
|
40,059
|
|
|
$
|
12,391
|
|
|
|
$
|
39,694
|
|
|
$
|
54,987
|
|
|
$
|
65,117
|
|
|
$
|
49,457
|
|
|
$
|
56,495
|
|
Adjusted EBITDA margin(3)
|
|
|
8.9
|
%
|
|
|
9.5
|
%
|
|
|
8.0
|
%
|
|
|
|
12.3
|
%
|
|
|
10.3
|
%
|
|
|
12.2
|
%
|
|
|
12.3
|
%
|
|
|
13.6
|
%
|
Capital expenditures
|
|
$
|
44,383
|
|
|
$
|
56,351
|
|
|
$
|
15,637
|
|
|
|
$
|
31,864
|
|
|
$
|
37,372
|
|
|
$
|
27,039
|
|
|
$
|
17,965
|
|
|
$
|
16,221
|
|
Comparable Restaurant Data(4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in comparable restaurant sales
|
|
|
3.4
|
%
|
|
|
0.8
|
%
|
|
|
0.6
|
%
|
|
|
|
1.8
|
%
|
|
|
0.8
|
%
|
|
|
(2.8
|
)%
|
|
|
(1.7
|
)%
|
|
|
(1.3
|
)%
|
Average check
|
|
$
|
12.32
|
|
|
$
|
12.61
|
|
|
$
|
12.76
|
|
|
|
$
|
12.95
|
|
|
$
|
13.01
|
|
|
$
|
12.79
|
|
|
$
|
12.85
|
|
|
$
|
12.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
July 29,
|
|
|
July 28,
|
|
|
|
July 29,
|
|
|
August 3,
|
|
|
August 2,
|
|
|
May 2,
|
|
|
|
2005
|
|
|
2006
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,596
|
|
|
$
|
1,732
|
|
|
|
$
|
2,940
|
|
|
$
|
6,188
|
|
|
$
|
13,069
|
|
|
$
|
45,111
|
|
Total assets
|
|
|
365,170
|
|
|
|
403,764
|
|
|
|
|
415,285
|
|
|
|
415,794
|
|
|
|
408,256
|
|
|
|
425,705
|
|
Total long-term debt, including current portion
|
|
|
172,739
|
|
|
|
190,679
|
|
|
|
|
223,424
|
|
|
|
220,050
|
|
|
|
220,063
|
|
|
|
219,028
|
|
|
|
|
(1)
|
|
Restaurant operating margin
represents net sales less (i) cost of goods sold,
(ii) labor and other related expenses, (iii) occupancy
costs and (iv) other restaurant operating expenses, divided
by net sales. Restaurant operating margin is a supplemental
measure of operating performance of our company-owned
restaurants that does not represent and should not be considered
as an alternative to net income or net sales as determined by
U.S. GAAP, and our calculation thereof may not be comparable to
that reported by other companies. Restaurant operating margin
has limitations as an analytical tool, and you should not
consider it in isolation, or as a substitute for analysis of our
results as reported under U.S. GAAP. Management believes
restaurant operating margin is an important component of
financial results because it is a widely used metric within the
restaurant industry to evaluate restaurant-level productivity,
efficiency, and performance. Management uses restaurant
operating margin as a key metric to evaluate our financial
performance compared with our competitors, to evaluate the
profitability of incremental sales and to evaluate our
performance across periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
July 29, 2006
|
|
|
|
December 6, 2006
|
|
|
Fiscal Year Ended
|
|
|
39 Weeks Ended
|
|
|
|
July 29,
|
|
|
July 28,
|
|
|
through
|
|
|
|
through
|
|
|
August 3,
|
|
|
August 2,
|
|
|
May 3,
|
|
|
May 2,
|
|
|
|
2005
|
|
|
2006
|
|
|
December 5, 2006
|
|
|
|
July 29, 2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
Net sales(A)
|
|
$
|
374,189
|
|
|
$
|
421,098
|
|
|
$
|
153,663
|
|
|
|
$
|
321,421
|
|
|
$
|
529,424
|
|
|
$
|
533,248
|
|
|
$
|
402,047
|
|
|
$
|
414,483
|
|
Restaurant operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
129,810
|
|
|
|
139,523
|
|
|
|
49,527
|
|
|
|
|
104,881
|
|
|
|
176,010
|
|
|
|
172,836
|
|
|
|
131,383
|
|
|
|
130,220
|
|
Labor and other related expenses
|
|
|
114,614
|
|
|
|
126,405
|
|
|
|
48,580
|
|
|
|
|
97,641
|
|
|
|
164,074
|
|
|
|
161,173
|
|
|
|
121,049
|
|
|
|
123,945
|
|
Occupancy costs
|
|
|
11,971
|
|
|
|
13,902
|
|
|
|
5,768
|
|
|
|
|
22,365
|
|
|
|
37,952
|
|
|
|
39,923
|
|
|
|
29,701
|
|
|
|
31,677
|
|
Other restaurant operating expenses
|
|
|
51,206
|
|
|
|
63,146
|
|
|
|
26,116
|
|
|
|
|
47,335
|
|
|
|
80,255
|
|
|
|
79,263
|
|
|
|
59,919
|
|
|
|
60,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant operating profit(B)
|
|
$
|
66,588
|
|
|
$
|
78,122
|
|
|
$
|
23,672
|
|
|
|
$
|
49,199
|
|
|
$
|
71,133
|
|
|
$
|
80,053
|
|
|
$
|
59,995
|
|
|
$
|
68,169
|
|
Restaurant operating
margin(B¸A)
|
|
|
17.8
|
%
|
|
|
18.6
|
%
|
|
|
15.4
|
%
|
|
|
|
15.3
|
%
|
|
|
13.4
|
%
|
|
|
15.0
|
%
|
|
|
14.9
|
%
|
|
|
16.4
|
%
|
|
|
|
(2)
|
|
Adjusted EBITDA represents earnings
before interest, tax, depreciation and amortization adjusted to
reflect the additions and eliminations described in the table
below. Adjusted EBITDA is a supplemental measure of operating
performance that does not represent and should not be considered
as an alternative to net income or cash flow from operations as
determined under U.S. GAAP, and our calculation thereof may not
be comparable to that reported by other companies. Adjusted
EBITDA has limitations as an
|
33
|
|
|
|
|
analytical tool, and you should not
consider it in isolation, or as a substitute for analysis of our
results as reported under U.S. GAAP. Some of the limitations are:
|
|
|
|
|
|
Adjusted EBITDA does not reflect
our cash expenditures, or future requirements for, capital
expenditures or contractual commitments;
|
|
|
|
Adjusted EBITDA does not reflect
changes in, or cash requirements for, our working capital needs;
|
|
|
|
Adjusted EBITDA does not reflect
the significant interest expense, or the cash requirements
necessary to service interest or principal payments on our
indebtedness;
|
|
|
|
although depreciation and
amortization are non-cash charges, the assets being depreciated
and amortized will often have to be replaced in the future, and
Adjusted EBITDA does not reflect any cash requirements for such
replacements; and
|
|
|
|
other companies in the restaurant
industry may calculate Adjusted EBITDA differently than we do,
limiting its usefulness as a comparative measure.
|
Because of these limitations,
Adjusted EBITDA should not be considered as the primary measure
of discretionary cash available to us to invest in the growth of
our business. We compensate for these limitations by relying
primarily on our U.S. GAAP results and using Adjusted
EBITDA only supplementally. We further believe that our
presentation of this non-GAAP financial measure provides
information that is useful to analysts and investors because it
is an important indicator of the strength of our operations and
the performance of our core business.
As noted in the table below,
Adjusted EBITDA includes adjustments for restaurant impairments,
pre-opening expenses, hedging expenses and losses on property
sales. It is reasonable to expect that these items will occur in
future periods. However, we believe these adjustments are
appropriate partly because the amounts recognized can vary
significantly from period to period and complicate comparisons
of our internal operating results and operating results of other
restaurant companies over time. In addition, Adjusted EBITDA
includes adjustments for other items which we do not expect to
regularly record following this offering, including sponsor
management fees, tradename impairment, restructuring costs and
costs related to the Acquisition. Each of the normal recurring
adjustments and other adjustments described in this paragraph
help to provide management with a measure of our core operating
performance over time by removing items that are not related to
day-to-day restaurant level operations.
We also adjust for non-recurring
Predecessor costs, which will not be recorded again following
this offering.
Management and our principal
stockholders use Adjusted EBITDA:
|
|
|
|
|
as a measure of operating
performance to assist us in comparing the operating performance
of our restaurants on a consistent basis because it removes the
impact of items not directly resulting from our core operations;
|
|
|
|
|
|
for planning purposes, including
the preparation of our internal annual operating budgets and
financial projections;
|
|
|
|
to evaluate the performance and
effectiveness of our operational strategies;
|
|
|
|
to evaluate our capacity to fund
capital expenditures and expand our business;
|
|
|
|
to provide enhanced comparability
between our historical results during the Predecessor periods
and results that reflect the new capital structure in the
Successor periods;
|
|
|
|
to calculate management and
consulting fee payments to our principal stockholders; and
|
|
|
|
to calculate incentive compensation
payments for our employees, including assessing performance
under our annual incentive compensation plan.
|
In addition, Adjusted EBITDA is
used by investors as a supplemental measure to evaluate the
overall operating performance of companies in the restaurant
industry. Management believes that investors understanding
of our performance is enhanced by including this non-GAAP
financial measure as a reasonable basis for comparing our
ongoing results of operations. Many investors are interested in
understanding the performance of our business by comparing our
results from ongoing operations from one period to the next and
would ordinarily add back items that are not part of normal
day-to-day
operations of our business. By providing this non-GAAP financial
measure, together with reconciliations, we believe we are
enhancing investors understanding of our business and our
results of operations, as well as assisting investors in
evaluating how well we are executing strategic initiatives.
We also present Adjusted EBITDA
because it is based on Consolidated EBITDA, a
measure which is used in calculating financial ratios in
material debt covenants in our senior secured credit facility.
As of May 2, 2010, we had $133.2 million of
outstanding borrowings under the term loan and the ability to
borrow up to an additional $30.0 million under the
revolving credit facility. Failure to comply with our material
debt covenants could cause an acceleration of outstanding
amounts under the term loan and restrict us from borrowing
amounts under the revolving credit facility to fund our future
liquidity requirements. For the period ending May 2, 2010,
we were required to maintain a fixed charge coverage ratio
(ratio of Consolidated EBITDA plus cash rent expense to debt
service requirements plus cash rent expense) of 1.20:1 and a
total leverage ratio (ratio of debt to Consolidated EBITDA) of
less than 5.50:1. Our fixed charge coverage ratio and leverage
ratio as of May 2, 2010 were 1.78:1 and 2.97:1,
respectively. We believe that presenting Adjusted EBITDA is
appropriate to provide additional information to investors about
how the covenants in those agreements operate. Our senior
secured credit facility may permit us to exclude other non-cash
charges and specified non-recurring expenses to net income in
calculating Consolidated EBITDA in future periods, which are not
reflected in the Adjusted EBITDA data
34
presented in this prospectus. The
material covenants in our senior secured credit facility are
discussed further in Description of Certain
Indebtedness and Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
The following table sets forth a
reconciliation of net income (loss), the most directly
comparable U.S. GAAP financial measure, to Adjusted EBITDA.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 29,
|
|
|
|
December 6,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2006 through
|
|
|
|
2006 through
|
|
|
|
Fiscal Year Ended
|
|
|
|
39 Weeks Ended
|
|
|
|
|
July 29,
|
|
|
|
July 28,
|
|
|
|
December 5,
|
|
|
|
July 29,
|
|
|
|
August 3,
|
|
|
|
August 2,
|
|
|
|
May 3,
|
|
|
|
May 2,
|
|
|
|
|
2005
|
|
|
|
2006
|
|
|
|
2006
|
|
|
|
2007
|
|
|
|
2008
|
|
|
|
2009
|
|
|
|
2009
|
|
|
|
2010
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
$
|
15,488
|
|
|
|
$
|
13,296
|
|
|
|
$
|
1,086
|
|
|
|
$
|
3,348
|
|
|
|
$
|
(626
|
)
|
|
|
$
|
(1,971
|
)
|
|
|
$
|
(2,820
|
)
|
|
|
$
|
15,114
|
|
Net interest expense
|
|
|
|
7,950
|
|
|
|
|
11,086
|
|
|
|
|
5,533
|
|
|
|
|
15,102
|
|
|
|
|
22,618
|
|
|
|
|
20,557
|
|
|
|
|
15,258
|
|
|
|
|
14,246
|
|
Income tax expense
|
|
|
|
7,377
|
|
|
|
|
3,695
|
|
|
|
|
(422
|
)
|
|
|
|
566
|
|
|
|
|
(3,392
|
)
|
|
|
|
(5,484
|
)
|
|
|
|
(9,617
|
)
|
|
|
|
9,062
|
|
Depreciation and amortization
|
|
|
|
12,416
|
|
|
|
|
14,928
|
|
|
|
|
5,631
|
|
|
|
|
9,351
|
|
|
|
|
16,146
|
|
|
|
|
17,206
|
|
|
|
|
12,906
|
|
|
|
|
12,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
$
|
43,231
|
|
|
|
$
|
43,005
|
|
|
|
$
|
11,828
|
|
|
|
$
|
28,367
|
|
|
|
$
|
34,746
|
|
|
|
$
|
30,308
|
|
|
|
$
|
15,727
|
|
|
|
$
|
51,183
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sponsor management fees(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
865
|
|
|
|
|
1,250
|
|
|
|
|
1,486
|
|
|
|
|
1,142
|
|
|
|
|
1,199
|
|
Non-cash asset write-off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename impairment(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,781
|
|
|
|
|
16,781
|
|
|
|
|
|
|
Restaurant impairment(c)
|
|
|
|
|
|
|
|
|
2,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,622
|
|
|
|
|
6,252
|
|
|
|
|
6,375
|
|
|
|
|
|
|
Loss on disposal of property and equipment(d)
|
|
|
|
721
|
|
|
|
|
656
|
|
|
|
|
444
|
|
|
|
|
554
|
|
|
|
|
977
|
|
|
|
|
877
|
|
|
|
|
463
|
|
|
|
|
545
|
|
Restructuring costs(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
683
|
|
|
|
|
892
|
|
|
|
|
839
|
|
|
|
|
|
|
Pre-opening expenses (excluding rent)(f)
|
|
|
|
2,607
|
|
|
|
|
3,529
|
|
|
|
|
450
|
|
|
|
|
2,364
|
|
|
|
|
2,561
|
|
|
|
|
1,443
|
|
|
|
|
1,159
|
|
|
|
|
1,483
|
|
Hedging expenses(g)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
313
|
|
|
|
|
2,631
|
|
|
|
|
1,543
|
|
|
|
|
2,335
|
|
|
|
|
(496
|
)
|
Losses on sales of property(h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,579
|
|
|
|
|
|
|
|
|
|
1,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash rent adjustment(i)
|
|
|
|
1,686
|
|
|
|
|
1,882
|
|
|
|
|
(268
|
)
|
|
|
|
3,422
|
|
|
|
|
3,599
|
|
|
|
|
4,505
|
|
|
|
|
3,687
|
|
|
|
|
2,475
|
|
Acquisition related costs(j)
|
|
|
|
|
|
|
|
|
745
|
|
|
|
|
1,232
|
|
|
|
|
3,848
|
|
|
|
|
613
|
|
|
|
|
187
|
|
|
|
|
162
|
|
|
|
|
83
|
|
Non-recurring Predecessor costs(k)
|
|
|
|
1,708
|
|
|
|
|
3,704
|
|
|
|
|
1,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma sale-leaseback rent adjustment(l)
|
|
|
|
(16,408
|
)
|
|
|
|
(16,778
|
)
|
|
|
|
(5,593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other adjustments(m)
|
|
|
|
|
|
|
|
|
349
|
|
|
|
|
92
|
|
|
|
|
(39
|
)
|
|
|
|
99
|
|
|
|
|
843
|
|
|
|
|
787
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
$
|
33,545
|
|
|
|
$
|
40,059
|
|
|
|
$
|
12,391
|
|
|
|
$
|
39,694
|
|
|
|
$
|
54,987
|
|
|
|
$
|
65,117
|
|
|
|
$
|
49,457
|
|
|
|
$
|
56,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Sponsor management fees consist of
fees paid to BRS and Black Canyon under the management and
consulting services agreement. We will terminate this agreement
in connection with the completion of this offering. See
Certain Relationships and Related Party Transactions.
|
|
(b)
|
|
We recorded an impairment charge in
fiscal year 2009 related to our tradename. See Note 6 to
our consolidated financial statements for additional details.
|
|
(c)
|
|
Restaurant impairment charges were
recorded in connection with the determination that the carrying
value of certain of our restaurants exceeded their estimated
fair value. See Note 8 to our consolidated financial
statements for additional details.
|
|
(d)
|
|
Loss on disposal of property and
equipment consists of the loss on disposal or retirement of
assets that are not fully depreciated.
|
|
(e)
|
|
Restructuring costs include
severance and other related costs resulting from the
restructuring of our corporate office in late fiscal year 2008
and early fiscal year 2009.
|
|
(f)
|
|
Pre-opening expenses (excluding
rent) include expenses directly associated with the opening of a
new restaurant. See Note 2 to our consolidated financial
statements for additional details.
|
|
(g)
|
|
Hedging expenses relate to fair
market value changes of an interest rate swap and the related
interest. See Note 10 to our consolidated financial
statements for additional details.
|
|
(h)
|
|
We recognized losses in connection
with the sale-leaseback of six restaurants in the period ended
December 5, 2006 and two restaurants in fiscal year 2008
due to the fair value of the property sold being less than the
undepreciated cost of the property. See Note 13 to our
consolidated financial statements for additional details.
|
|
(i)
|
|
Non-cash rent adjustments represent
the non-cash rent expense calculated as the difference in
U.S. GAAP rent expense in any year and amounts payable in
cash under the leases during the year. In measuring our
operational performance, we focus on our cash rent payments. See
Note 2 to our consolidated financial statements for
additional details.
|
35
|
|
|
(j)
|
|
Acquisition related costs include:
(i) expenses related to purchase accounting recognized in
connection with the Acquisition, (ii) retention payments
made to certain members of our management in connection with the
Acquisition (U.S. GAAP expense recognized after award
payment), and (iii) legal, professional and other fees
incurred as a result of the Acquisition and related transactions.
|
|
(k)
|
|
Non-recurring Predecessor costs
include (i) an allocation of Cracker Barrel corporate
overhead costs for presentation as a stand-alone entity and
(ii) an allocation of stock option expense on shares of
Cracker Barrel stock recognized in accordance with applicable
accounting guidance.
|
|
(l)
|
|
Our senior secured credit facility
requires that certain transactions be given pro forma effect in
the calculation of Consolidated EBITDA, including
cash rent payments associated with sale-leaseback transactions
entered into in connection with the Acquisition. The senior
secured credit facility requires us to deduct from Consolidated
EBITDA the pro forma cash rent payments that would have been
incurred if the sale-leaseback transactions had occurred prior
to the Acquisition. Pro forma sale-leaseback rent adjustment
represents such pro forma rent expense for the Predecessor
periods, which is not calculated in accordance with Article 11
of
Regulation S-X.
For additional information regarding the sale-leaseback
transactions and the calculation and use of Consolidated EBITDA
in our senior secured credit facility, see Description of
Certain Indebtedness and Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
|
|
(m)
|
|
Other adjustments include
$0.6 million casualty losses resulting from damages to our
restaurants during fiscal year 2009, ongoing expenses of closed
restaurants, as well as inventory write-offs, employee
termination buyouts and incidental charges related to restaurant
closings.
|
|
|
|
(3)
|
|
Adjusted EBITDA margin is defined
as the ratio of Adjusted EBITDA to total revenues. See
footnote 2 above for a discussion of Adjusted EBITDA as a
non-GAAP measure and a reconciliation of net income (loss) to
Adjusted EBITDA.
|
|
(4)
|
|
We use a number of key performance
indicators in assessing the performance of our restaurants,
including change in comparable restaurant sales and average
check. These key performance indicators are discussed in more
detail in the section entitled Managements
Discussion and Analysis of Financial Conditions and Results of
Operation Key Performance Indicators.
Comparable restaurant data for the period from July 29,
2006 through December 5, 2006 is based on 18 full
weeks through December 3, 2006, and comparable restaurant
data for the period from December 6, 2006 through July 29,
2007 is based on 34 full weeks through July 29, 2007.
|
36
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with
Selected Historical Consolidated Financial and Operating
Data, and the historical financial statements and related
notes included elsewhere in this prospectus. The statements in
this discussion regarding industry outlook, our expectations
regarding our future performance, liquidity and capital
resources and other non-historical statements in this discussion
are forward-looking statements. These forward-looking statements
are subject to numerous risks and uncertainties, including, but
not limited to, the risks and uncertainties described in
Risk Factors and Forward-Looking
Statements. Our actual results may differ materially from
those contained in or implied by any forward-looking
statements.
Our results of operations reflect the change in reporting
entity that occurred as a result of the Acquisition on
December 6, 2006. See Summary Historical Consolidated
Financial and Operating Data. We operate on a fiscal
calendar widely used in the restaurant industry that results in
a given fiscal year consisting of a 52 or 53 week period
ending on the Sunday closest to July 31 of the applicable year.
For example, references to fiscal year 2009 refer to
the fiscal year ended August 2, 2009. Our fiscal year 2008
consisted of 53 weeks.
Overview
Logans Roadhouse is a casual dining restaurant concept
which offers customers value-oriented, high quality,
craveable meals served in the hospitable tradition
and distinctive atmosphere reminiscent of a 1930s and
1940s Historic Route 66 style American roadhouse. Our
restaurants provide a rockin, upbeat atmosphere combined
with friendly service from a lively staff and our interactive
jukeboxes play a mix of blues, rock and new country music. While
dining or waiting for a table, our customers are encouraged to
enjoy bottomless buckets of roasted in-shell peanuts
and to toss the shells on the floor. We open our restaurants for
both lunch and dinner seven days a week.
Our
History
We opened our first restaurant in Lexington, Kentucky in 1991
and operated as a public company from July 1995 through our
acquisition by Cracker Barrel Old Country Store, Inc. (formerly
CBRL Group, Inc.), which we refer to as Cracker
Barrel, in February 1999. At the time of the acquisition
by Cracker Barrel in February 1999, we owned and operated
42 restaurants located in nine states and had an additional
three franchised restaurants located in three states. From
February 1999 to December 2006, we were a wholly-owned
subsidiary of Cracker Barrel and grew to a system of 143
restaurants located in 17 states and had an additional 26
franchised restaurants located in four states. In December 2006,
BRS, Black Canyon, Canyon Capital and their co-investors,
together with our executive officers and other members of
management, through LRI Holdings, Inc., acquired Logans
Roadhouse, Inc., which we refer to as the
Acquisition. Since the Acquisition, we have reached
a total of 185 company-owned restaurants located in
20 states and 26 franchised restaurants in four states.
Recent
Trends and Initiatives
Following the Acquisition, we took steps to refine our
restaurant prototype and improve our site selection process,
which improved performance and consistency of new unit openings
while reducing restaurant investment costs. Our new prototype
reduced our new restaurant size from 8,000 square feet to
6,500 square feet and improved the efficiency of key
functional areas without sacrificing the number of tables,
customer experience or sales potential. We believe our improved
site selection process has further optimized our returns on new
restaurant investments.
The economic downturn that began in 2007 presented challenges to
our business as consumer confidence and discretionary spending
were adversely impacted across all of our markets. Declines in
average check levels and customer traffic during the recent
recession have had a negative impact on our sales. However,
despite these macroeconomic challenges, we have performed
favorably compared to our competitors as evidenced by our
comparable restaurant sales outperforming the
KNAPP-TRACKtm
index of casual dining
37
restaurants for 17 consecutive quarters. In addition, we believe
our change in comparable restaurant sales has outperformed our
primary competitors in the bar & grill and steakhouse
segments since December 31, 2006.
As the economic downturn progressed, management believed it was
prudent to reduce the level of new restaurant openings to
preserve cash and strengthen our financial position. We slowed
new restaurant growth during fiscal year 2009 and fiscal year
2010. During the five fiscal years ending with fiscal year 2008,
we opened an average of over 15 new restaurants each year, with
a high of 20 new restaurants in 2006. We reduced that number to
eight during fiscal year 2009 and have opened nine new
restaurants during fiscal year 2010.
Since the Acquisition, we have improved the efficiency of our
restaurant operations and reduced costs in our corporate
structure. We would have continued to pursue these cost saving
initiatives over time, but accelerated our implementation of
certain cost-saving opportunities in light of the challenging
operating environment. Our restaurant operating margin increased
from 13.4% in fiscal year 2008 to 16.4% during the 39 weeks
ended May 2, 2010. This increase in restaurant-level
profitability is a result of our focus on food and labor costs,
operational improvements in our restaurants and reduced
commodity costs. During the same period, we streamlined our
corporate overhead structure, reducing our general and
administrative expenses as a percentage of total revenues from
5.0% in fiscal year 2008 to 4.1% during the 39 weeks ended
May 2, 2010.
Outlook
While the economy has recently shown signs of improvement, many
of our customers are still facing difficulties, and we expect
that discretionary spending will remain at reduced levels over
the near term. However, we believe that our improving restaurant
sales trends along with our strong restaurant-level economics,
support our growth strategy. We plan to open
15 company-owned restaurants during fiscal year 2011 and
believe we can achieve a long-term annual company-owned
restaurant growth rate of approximately 10%. The application of
the proceeds from this offering will reduce our ongoing
financing costs, which we believe will enhance our free cash
flow and provide us with additional capital to invest in our
growth.
As the economic recovery continues, we believe we are
well-positioned to capitalize on improving consumer sentiment
and increases in discretionary spending levels. We believe our
concept will continue to gain market share as consumers continue
to seek fresh, quality offerings in a relaxed atmosphere at
affordable prices.
Matters
Affecting Comparability of Results
Several significant factors or events have had a material impact
on our results of operations for the periods discussed below and
affect the comparability of our results of operations from
period to period.
The
Acquisition
LRI Holdings, Inc. acquired all of the issued and outstanding
shares of Logans Roadhouse, Inc. from Cracker Barrel and
its subsidiaries in the Acquisition. Immediately following the
Acquisition, Logans Roadhouse, Inc. became a wholly-owned
subsidiary of LRI Holdings, Inc. LRI Holdings, Inc. had no
assets, liabilities or operations prior to December 6,
2006. The financial statements for all periods through
December 5, 2006 are those of Logans Roadhouse, Inc.,
the Predecessor. The consolidated financial statements for the
periods from December 6, 2006 are those of LRI Holdings,
Inc., the Successor. As a result of the Acquisition, the
financial statements for the Successor periods are not
comparable to those of the Predecessor periods presented in this
prospectus. Prior to the Acquisition, our consolidated financial
statements were prepared on a carve-out basis from Cracker
Barrel. The carve-out consolidated financial statements include
allocations of certain overhead costs incurred by Cracker Barrel
on the Predecessors behalf. In the Successor periods, we
no longer incur these allocated costs, but do incur certain
expenses as a standalone company for similar functions. These
allocated costs were based upon various assumptions and
estimates and actual results may differ from these allocated
costs, assumptions and estimates. Accordingly, the carve-out
consolidated financial statements may not be a comparable
presentation of our financial position or results of operations
as if we had operated as a standalone entity during the
Predecessor periods.
38
For purposes of this Managements Discussion and
Analysis of Financial Condition and Results of Operations,
we combined the results of operations of the Predecessor for the
period from July 29, 2006 through December 5, 2006
with the results of operations of the Successor for the period
from December 6, 2006 through July 29, 2007. We
believe the combined non-GAAP results of operations for the
52 week period ended July 29, 2007 provide management
and investors with a more meaningful perspective on our
financial and operational performance than if we did not combine
the results of operations of the Predecessor and the Successor
in this manner.
The combined results of operations for the 52 week period
ended July 29, 2007 are non-GAAP financial measures, do not
include any pro forma assumptions or adjustments and should not
be used as a substitute for Predecessor and Successor financial
statements prepared in accordance with U.S. GAAP.
Sale-Leaseback
Transactions Completed in Connection with the
Acquisition
In connection with the Acquisition, we sold the real estate
assets associated with 62 restaurants to various landlords
for gross proceeds of $202.8 million ($198.8 million
net of expenses). We then simultaneously leased the land and
buildings pursuant to non-cancelable operating leases with
initial terms of 20 years. Prior to these sale-leaseback
transactions, we had 74 existing land leases. As a result of the
sale-leaseback transaction, annual rent expense increased
substantially following the Acquisition, because these
properties were previously owned.
Impairment
Charges
We performed a long-lived asset impairment analysis in fiscal
year 2008 and determined that three of our restaurants had
carrying amounts in excess of their estimated fair value. The
same analysis performed in fiscal year 2009 determined eight
restaurants had carrying amounts in excess of their estimated
fair value. Accordingly, we recorded non-cash impairment charges
of $6.6 million and $6.3 million in fiscal years 2008
and 2009, respectively. We did not record any impairment charges
in the 52 week period ended July 29, 2007.
We also performed an assessment of the indefinite-lived
tradename intangible asset as of the end of the second quarter
of fiscal year 2009 and recorded a non-cash impairment charge of
$16.8 million representing the excess of the carrying cost
of the tradename over its calculated fair value.
Key
Performance Indicators
In assessing the performance of our business, we consider a
variety of performance and financial measures. The key measures
for determining how our business is performing include average
unit volume, operating weeks, average check, comparable
restaurants, change in comparable restaurant sales and customer
traffic.
Average Unit Volume. Average unit volume
represents the average sales for company-owned restaurants over
a specified period of time. It is typically measured on a
52 week basis but may also be applied to a shorter period.
Average unit volume reflects total company restaurant sales
divided by total operating weeks, which is the aggregate number
of weeks that company-owned restaurants are in operation over a
specified period of time, multiplied by the number of weeks in
the measurement period.
Average Check. Average check is net sales for
company-owned restaurants over a specified period of time
divided by the total number of customers served during the
period. Management uses this indicator to analyze the dollars
spent in our restaurants per customer. This measure aids
management in identifying trends in customer preferences, as
well as the effectiveness of menu price increases and other menu
changes.
Comparable Restaurants. Comparable restaurants
for a reporting period include company-owned restaurants that
have been open for six or more quarters at the beginning of the
later of the two reporting periods being compared.
39
Change in Comparable Restaurant Sales. Change
in comparable restaurant sales reflects changes in sales over
the prior year for a comparable group of restaurants over a
specified period of time.
Customer Traffic. Customer traffic is the
total number of customers served over a specified period of time.
Key
Financial Definitions
Net Sales. Net sales consist of food and
beverage sales of company-owned restaurants and other
miscellaneous income.
Franchise Fees and Royalties. Franchise fees
and royalties include franchise fees and royalty income paid by
franchisees.
Cost of Goods Sold. Cost of goods sold
consists of food and beverage costs, along with related
purchasing and distribution costs.
Labor and Other Related Expenses. Labor and
other related expenses capture all restaurant management and
hourly labor costs, including salaries, wages, benefits, bonuses
and other indirect labor costs.
Occupancy Costs. Occupancy costs include rent,
common area maintenance, property taxes, licenses and other
related fees.
Other Restaurant Operating Expenses. Other
restaurant operating expenses include all restaurant-level
operating costs, the major components of which are operating
supplies, utilities, repairs and maintenance, advertising,
general liability and credit card fees.
Depreciation and Amortization. Depreciation
and amortization includes the depreciation of fixed assets,
capitalized leasehold improvements and the amortization of
intangible assets.
Pre-Opening Expenses. Pre-opening expenses
consist of costs related to a new restaurant opening and are
made up primarily of manager salaries, employee payroll, travel,
rent expense and other costs related to training and preparing
new restaurants for opening. Pre-opening costs will fluctuate
from period to period based on the number and timing of
restaurant openings.
General and Administrative Expenses. General
and administrative expenses are comprised of expenses associated
with corporate and administrative functions that support
restaurant operations and development.
Impairment and Store Closing
Charges. Impairment and store closing charges
includes long-lived and indefinite-lived asset impairment
charges and store closing charges.
Interest Expense, net. Interest expense, net
consists primarily of interest expense related to our debt.
Other Expense (Income), net. Other expense
(income), net consists primarily of expenses associated with
interest rate swaps.
Results
of Operations
The tables below summarize key components of our operating
results for the periods discussed in this section.
Summary
of Operating Results
The table below summarizes our results of operations for the
period from July 29, 2006 through December 5, 2006
(Predecessor), the period from December 6, 2006 through
July 29, 2007 (Successor), the combined 52 week period
ended July 29, 2007, the fiscal year ended August 3,
2008, the fiscal year ended August 2, 2009 and the 39 weeks
ended May 3, 2009 and May 2, 2010. We combined the
results of operations for the period from July 29, 2006
through December 5, 2006 (Predecessor) with the period from
December 6, 2006 through July 29, 2007 (Successor) for
purposes of this section.
40
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|
|
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|
|
|
|
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|
|
Predecessor
|
|
|
|
Successor
|
|
|
Combined
|
|
|
Successor
|
|
|
|
Period from
|
|
|
|
Period from
|
|
|
52 Weeks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 29, 2006
|
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|
|
December 6,
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Ended
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|
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|
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through
|
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2006 through
|
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July 29,
|
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Fiscal Year Ended
|
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39 Weeks Ended
|
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December 5,
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|
|
|
July 29,
|
|
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2007
|
|
|
August 3,
|
|
|
August 2,
|
|
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May 3,
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May 2,
|
|
|
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2006
|
|
|
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2007
|
|
|
(Non-GAAP)
|
|
|
2008
|
|
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2009
|
|
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2009
|
|
|
2010
|
|
|
|
|
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|
|
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(In thousands)
|
|
Net sales
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$
|
153,663
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|
|
|
$
|
321,421
|
|
|
$
|
475,084
|
|
|
$
|
529,424
|
|
|
$
|
533,248
|
|
|
$
|
402,047
|
|
|
$
|
414,483
|
|
Franchise fees and royalties
|
|
|
851
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|
|
|
|
1,697
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|
|
|
2,548
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|
|
|
2,574
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|
|
|
2,248
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|
|
|
1,656
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|
|
|
1,531
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|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
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|
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154,514
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|
|
|
|
323,118
|
|
|
|
477,632
|
|
|
|
531,998
|
|
|
|
535,496
|
|
|
|
403,703
|
|
|
|
416,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
49,527
|
|
|
|
|
104,881
|
|
|
|
154,408
|
|
|
|
176,010
|
|
|
|
172,836
|
|
|
|
131,383
|
|
|
|
130,220
|
|
Labor and other related expenses
|
|
|
48,580
|
|
|
|
|
97,641
|
|
|
|
146,221
|
|
|
|
164,074
|
|
|
|
161,173
|
|
|
|
121,049
|
|
|
|
123,945
|
|
Occupancy costs
|
|
|
5,768
|
|
|
|
|
22,365
|
|
|
|
28,133
|
|
|
|
37,952
|
|
|
|
39,923
|
|
|
|
29,701
|
|
|
|
31,677
|
|
Other restaurant operating expenses
|
|
|
26,116
|
|
|
|
|
47,335
|
|
|
|
73,451
|
|
|
|
80,255
|
|
|
|
79,263
|
|
|
|
59,919
|
|
|
|
60,472
|
|
Depreciation and amortization
|
|
|
5,631
|
|
|
|
|
9,351
|
|
|
|
14,982
|
|
|
|
16,146
|
|
|
|
17,206
|
|
|
|
12,906
|
|
|
|
12,761
|
|
Pre-opening expenses
|
|
|
699
|
|
|
|
|
3,008
|
|
|
|
3,707
|
|
|
|
3,170
|
|
|
|
2,137
|
|
|
|
1,797
|
|
|
|
1,791
|
|
General and administrative
|
|
|
11,996
|
|
|
|
|
19,209
|
|
|
|
31,205
|
|
|
|
26,538
|
|
|
|
25,126
|
|
|
|
18,534
|
|
|
|
17,219
|
|
Impairment and store closing charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,622
|
|
|
|
23,187
|
|
|
|
23,258
|
|
|
|
3
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|
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
148,317
|
|
|
|
|
303,790
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|
|
|
452,107
|
|
|
|
510,767
|
|
|
|
520,851
|
|
|
|
398,547
|
|
|
|
378,088
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
6,197
|
|
|
|
|
19,328
|
|
|
|
25,525
|
|
|
|
21,231
|
|
|
|
14,645
|
|
|
|
5,156
|
|
|
|
37,926
|
|
Interest expense, net
|
|
|
5,533
|
|
|
|
|
15,101
|
|
|
|
20,634
|
|
|
|
22,618
|
|
|
|
20,557
|
|
|
|
15,258
|
|
|
|
14,246
|
|
Other expense (income), net
|
|
|
|
|
|
|
|
313
|
|
|
|
313
|
|
|
|
2,631
|
|
|
|
1,543
|
|
|
|
2,335
|
|
|
|
(496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
664
|
|
|
|
|
3,914
|
|
|
|
4,578
|
|
|
|
(4,018
|
)
|
|
|
(7,455
|
)
|
|
|
(12,437
|
)
|
|
|
24,176
|
|
Provision for (benefit from) income taxes
|
|
|
(422
|
)
|
|
|
|
566
|
|
|
|
144
|
|
|
|
(3,392
|
)
|
|
|
(5,484
|
)
|
|
|
(9,617
|
)
|
|
|
9,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,086
|
|
|
|
$
|
3,348
|
|
|
$
|
4,434
|
|
|
$
|
(626
|
)
|
|
$
|
(1,971
|
)
|
|
$
|
(2,820
|
)
|
|
$
|
15,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Operating Information
The following table sets forth additional operating information
that we use in assessing our performance throughout this section.
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
Successor
|
|
|
Combined
|
|
|
Successor
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 29, 2006
|
|
|
|
Period from
|
|
|
52 Weeks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
through
|
|
|
|
December 6, 2006
|
|
|
Ended
|
|
|
Fiscal Year Ended
|
|
|
39 Weeks Ended
|
|
|
|
December 5,
|
|
|
|
through
|
|
|
July 29, 2007
|
|
|
August 3,
|
|
|
August 2,
|
|
|
May 3,
|
|
|
May 2,
|
|
|
|
2006
|
|
|
|
July 29, 2007
|
|
|
(Non-GAAP)
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
Selected Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New company-owned restaurants, net
|
|
|
2
|
|
|
|
|
13
|
|
|
|
15
|
|
|
|
14
|
|
|
|
7
|
|
|
|
6
|
|
|
|
8
|
|
Average unit volume (in millions)
|
|
$
|
1.0
|
|
|
|
$
|
2.1
|
|
|
$
|
3.2
|
|
|
$
|
3.2
|
|
|
$
|
3.0
|
|
|
$
|
2.3
|
|
|
$
|
2.3
|
|
Comparable restaurant data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable restaurants
|
|
|
115
|
|
|
|
|
115
|
|
|
|
115
|
|
|
|
130
|
|
|
|
147
|
|
|
|
147
|
|
|
|
164
|
|
Change in comparable restaurant sales
|
|
|
0.6
|
%
|
|
|
|
1.8
|
%
|
|
|
1.4
|
%
|
|
|
0.8
|
%
|
|
|
(2.8
|
)%
|
|
|
(1.7
|
)%
|
|
|
(1.3
|
)%
|
Average check
|
|
$
|
12.76
|
|
|
|
$
|
12.95
|
|
|
$
|
12.89
|
|
|
$
|
13.01
|
|
|
$
|
12.79
|
|
|
$
|
12.85
|
|
|
$
|
12.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
Weeks Ended May 2, 2010 Compared to 39 Weeks Ended
May 3, 2009
Total
Revenue
Total revenue was $416.0 million for the 39 weeks ended
May 2, 2010, an increase of $12.3 million, or 3.0%, as
compared to the 39 weeks ended May 3, 2009. The revenue
increase was driven primarily by new restaurant growth from the
opening of eight restaurants, partially offset by a decline in
comparable restaurant sales in the 39 weeks ended May 2,
2010. Comparable restaurant sales decreased 1.3% in the 39 weeks
ended May 2, 2010 compared with the 39 weeks ended
May 3, 2009 due to a decrease in average check of 1.2% and
a customer traffic decline of 0.1%. The decline in average check
was driven primarily by a change in product mix partially offset
by price increases on select menu items.
41
Franchise fees and royalties decreased by $0.1 million, or
7.5%, to $1.5 million for the 39 weeks ended May 2,
2010 compared to the 39 weeks ended May 3, 2009. This
decrease was due to lower restaurant sales at our franchised
restaurants.
Cost of
Goods Sold
Cost of goods sold decreased by $1.2 million, or 0.9%, to
$130.2 million for the 39 weeks ended May 2, 2010
compared to the 39 weeks ended May 3, 2009. The decline was
driven primarily by the lower cost of beef and certain other
commodities along with shifts in product mix, partially offset
by more restaurants being operated for the 39 weeks ended
May 2, 2010 compared to the prior period. Cost of goods
sold was 31.4% of net sales for the 39 weeks ended May 2,
2010, compared to 32.7% for the 39 weeks ended May 3, 2009.
The improvement from the prior period resulted primarily from
lower commodity costs, combined with other purchasing
efficiencies and price increases on select menu items.
Labor and
Other Related Expenses
Labor and other related expenses increased by $2.9 million,
or 2.4%, to $123.9 million for the 39 weeks ended
May 2, 2010 compared to the 39 weeks ended May 3,
2009, primarily due to new restaurant openings. Labor expenses
as a percentage of net sales were 29.9% for the 39 weeks ended
May 2, 2010 compared to 30.1% for the 39 weeks ended
May 3, 2009. The decrease in percentage was primarily due
to lower hourly labor costs in our restaurants.
Occupancy
Costs
Occupancy costs increased by $2.0 million, or 6.7%, to
$31.7 million for the 39 weeks ended May 2, 2010
compared to the 39 weeks ended May 3, 2009. The increase
was driven primarily by rent expense associated with new
restaurant openings. Occupancy costs as a percentage of net
sales were 7.6% for the 39 weeks ended May 2, 2010
compared to 7.4% for the 39 weeks ended May 3, 2009.
Other
Restaurant Operating Expenses
Other restaurant operating expenses increased by
$0.6 million, or 0.9%, to $60.5 million for the
39 weeks ended May 2, 2010 compared to the 39 weeks
ended May 3, 2009, primarily due to more restaurants being
operated for the 39 weeks ended May 2, 2010. Other
restaurant operating expenses as a percentage of net sales were
14.6% for the 39 weeks ended May 2, 2010 compared to 14.9%
for the 39 weeks ended May 3, 2009. The decrease was
primarily due to lower utility costs and variable operating
expenses which were partially offset by higher marketing
expenses.
Depreciation
and Amortization
Depreciation and amortization expense decreased by
$0.1 million to $12.8 million for the 39 weeks ended
May 2, 2010 compared to the 39 weeks ended May 3, 2009.
Pre-Opening
Expenses
Pre-opening expenses were $1.8 million for both the 39
weeks ended May 2, 2010 and the 39 weeks ended May 3,
2009.
General
and Administrative
General and administrative expense decreased by
$1.3 million, or 7.1%, to $17.2 million for the
39 weeks ended May 2, 2010 compared to the 39 weeks
ended May 3, 2009. General and administrative expense as a
percentage of total revenue was 4.1% for the 39 weeks ended
May 2, 2010 compared to 4.6% for the 39 weeks ended
May 3, 2009. The decrease was primarily due to lower salary
and related payroll expenses, much of it related to a corporate
head count reduction that took place in early fiscal year 2009.
42
Impairment
and Store Closing Charges
During the 39 weeks ended May 2, 2010, we did not have any
restaurant closures or asset impairments. During the 39 weeks
ended May 3, 2009, we closed one restaurant and recorded
asset impairment charges of $6.4 million and a tradename
impairment of $16.8 million.
Interest
Expense, net
Net interest expense decreased by $1.0 million to
$14.2 million for the 39 weeks ended May 2, 2010,
primarily due to a reduced average interest rate under our
senior secured credit facility.
Other
Expense (Income), net
Other expense, net, decreased by $2.8 million for the 39
weeks ended May 2, 2010 compared to the 39 weeks ended
May 3, 2009 due to a $1.7 million reduction in expense
associated with our interest rate swap and a $1.1 million
favorable shift in the fair market value of the swap.
Provision
for (Benefit from) Income Taxes
The provision for income taxes increased by $18.7 million,
to $9.1 million, from a benefit of $9.6 million in the
prior period due to an increase in pre-tax income of
$36.6 million and fluctuations in the effective tax rate.
The effective tax rates were 37.5% and 77.3% for the 39 weeks
ended May 2, 2010 and the 39 weeks ended May 3, 2009,
respectively. The tax rate for the 39 weeks ended May 2,
2010 was impacted by a one-time charge to adjust the federal tax
rate applied to the deferred balances from 34% to 35%, offset by
wage credits. The tax rate for the 39 weeks ended May 3,
2009 was impacted by $23.3 million of asset impairment
charges and additional wage credits, which caused an increase in
the effective tax rate for the period.
Net
Income (Loss)
Net income increased by $17.9 million, to
$15.1 million for the 39 weeks ended May 2, 2010 from
a net loss of $2.8 million for the 39 weeks ended
May 3, 2009. This increase was due primarily to impairment
charges in the 39 weeks ended May 3, 2009 combined with an
increase in revenues and higher restaurant-level operating
margins during the 39 weeks ended May 2, 2010.
Fiscal
Year 2009 (52 weeks) Compared to Fiscal Year 2008
(53 weeks)
Total
Revenue
Total revenue was $535.5 million in fiscal year 2009, an
increase of $3.5 million, or 0.7%, compared to fiscal year
2008. Excluding the
53rd week
in fiscal year 2008, sales would have increased 2.7% in fiscal
year 2009. The revenue increase was driven by the opening of
eight new restaurants, partially offset by a decline in
comparable restaurant sales. Comparable restaurant sales
decreased 2.8% in fiscal year 2009 compared with fiscal year
2008 due to a 1.6% decline in average check and a 1.2% drop in
customer traffic. The decline in average check was driven
primarily by a change in product mix, partially offset by price
increases on select menu items.
Franchise fees and royalties decreased by $0.3 million, or
12.7%, to $2.2 million in fiscal year 2009, due to a
decline in sales at our franchised restaurants.
Cost of
Goods Sold
Cost of goods sold decreased by $3.2 million, or 1.8%, to
$172.8 million in fiscal year 2009 compared to fiscal year
2008. Cost of goods sold were 32.4% of net sales in fiscal year
2009 compared to 33.2% in fiscal year 2008. The improvement was
primarily the result of lower beef costs, price increases on
certain menu items and other menu initiatives.
43
Labor and
Other Related Expenses
Labor and other related expenses decreased by $2.9 million,
or 1.8%, to $161.2 million in fiscal year 2009 compared to
fiscal year 2008. Labor expenses as a percentage of net sales
were 30.2% in fiscal year 2009 compared to 31.0% in fiscal year
2008. The decrease in percentage resulted from lower
workers compensation insurance and employee benefits
expenses.
Occupancy
Costs
Occupancy costs increased by $2.0 million, or 5.2%, to
$39.9 million in fiscal year 2009 compared to fiscal year
2008, primarily due to rent associated with new unit growth.
Occupancy costs as a percentage of net sales were 7.5% in fiscal
year 2009 compared to 7.2% in fiscal year 2008.
Other
Restaurant Operating Expenses
Other restaurant operating expenses decreased by
$1.0 million, or 1.2%, to $79.3 million in fiscal year
2009 compared to fiscal year 2008. Other restaurant operating
expenses as a percentage of net sales were 14.9% in fiscal year
2009 compared to 15.2% in fiscal year 2008. The decline stemmed
primarily from cost savings on variable operating expenses
including supplies and services, partially offset by higher
marketing expense.
Depreciation
and Amortization
Depreciation and amortization expense increased by
$1.1 million to $17.2 million in fiscal year 2009
compared to fiscal year 2008. The increase was driven by
incremental depreciation associated with new restaurant growth.
Pre-Opening
Expenses
Pre-opening expenses were $2.1 million in fiscal year 2009
compared to $3.2 million in fiscal year 2008. The decrease
in pre-opening expenses was due to the variance in the timing
and number of restaurants opened.
General
and Administrative
General and administrative expenses decreased by
$1.4 million, or 5.3%, to $25.1 million in fiscal year
2009 compared to fiscal year 2008. General and administrative
expenses as a percentage of total revenue was 4.7% in fiscal
year 2009 compared to 5.0% in fiscal year 2008. The decrease
resulted primarily from a home office head count reduction in
late fiscal year 2008 and early fiscal year 2009.
Impairment
and Store Closing Charges
We performed a long-lived asset impairment analysis during
fiscal year 2009 and determined that eight restaurants had
carrying amounts in excess of their fair value. The same
analysis performed during fiscal year 2008 determined three
restaurants had carrying amounts in excess of their fair value.
Impairment charges of $6.3 million and $6.6 million
were recorded in fiscal years 2009 and 2008, respectively.
During fiscal year 2009, we closed one restaurant which had been
impaired in fiscal year 2008.
We also performed an assessment of the indefinite-lived
tradename intangible asset in fiscal year 2009 and recorded a
non-cash impairment charge of $16.8 million representing
the excess of the carrying cost of the tradename over its
calculated fair value.
Interest
Expense, net
Interest expense, net, decreased by $2.1 million to
$20.6 million in fiscal year 2009 due primarily to a
reduced average interest rate under our senior secured credit
facility.
44
Other
Expense (Income), net
Other expense, net, decreased by $1.1 million to
$1.5 million in fiscal 2009 compared to fiscal year 2008,
resulting from a $0.7 million increase in expense
associated with our interest rate swap offset by a
$1.8 million favorable shift in the fair market value of
the swap.
Provision
for (Benefit from) Income Taxes
The benefit from income taxes increased by $2.1 million, to
$5.5 million, due primarily to the increase in pre-tax loss
of $3.4 million and fluctuations in the effective tax rate.
The effective tax rates were 73.6% and 84.4% for fiscal year
2009 and fiscal year 2008, respectively. The tax rates for both
periods were impacted by the effect of wage credits on the low
pre-tax losses.
Net
Income (Loss)
Our net loss increased by $1.3 million to a net loss of
$2.0 million in fiscal year 2009, driven primarily by
tradename impairment charges of $16.8 million partially
offset by increases in revenue and higher operating margins.
Fiscal
Year 2008 (53 weeks) Compared to Non-GAAP Combined
Period Ended July 29, 2007 (52 weeks)
Total
Revenue
Total revenue was $532.0 million in fiscal year 2008 (on a
53 week basis), an increase of $54.4 million, or
11.4%, compared to the combined 2007 period. The revenue
increase was driven by the opening of 14 new restaurants in
fiscal year 2008 and increased comparable restaurant sales along
with one additional week in the fiscal year. Comparable
restaurant sales increased 0.8% in fiscal year 2008 over the
combined 2007 period due to a 0.9% increase in average check,
partially offset by a decrease in customer traffic of 0.1%. The
improvement in average check was driven primarily by menu price
increases in response to commodity and other cost increases.
Franchise fees and royalties increased by 1.0%, to
$2.6 million in fiscal year 2008 compared to the combined
2007 period. This increase was due primarily to increased sales
by our franchised restaurants.
Cost of
Goods Sold
Cost of goods sold increased by $21.6 million, or 14.0%, to
$176.0 million in fiscal year 2008 compared to the combined
2007 period. Cost of goods sold was 33.2% of net sales in fiscal
year 2008 compared to 32.5% in the combined 2007 period. The
increase in percentage from the prior year period was primarily
the result of higher commodity costs, particularly beef,
partially offset by menu price increases.
Labor and
Other Related Expenses
Labor and other related expenses increased by
$17.9 million, or 12.2%, to $164.1 million in fiscal
year 2008 compared to the combined 2007 period. The increase was
due primarily to more restaurants being operated in fiscal year
2008. Labor expenses as a percentage of net sales were 31.0% in
fiscal year 2008 compared to 30.8% in the combined 2007 period.
The increase in percentage was primarily the result of higher
workers compensation costs.
Occupancy
Costs
Occupancy costs increased by $9.8 million, or 34.9%, to
$38.0 million in fiscal year 2008 compared to the combined
2007 period. The increase was due to additional rent associated
with the sale-leaseback of previously-owned restaurant
properties, along with rent associated with new restaurant
growth. Occupancy costs as a percentage of net sales were 7.2%
in fiscal year 2008 compared to 5.9% in the combined 2007 period.
45
Other
Restaurant Operating Expenses
Other restaurant operating expenses increased by
$6.8 million, or 9.3%, to $80.3 million in fiscal year
2008 compared to the combined 2007 period, due primarily to more
restaurants being operated in fiscal year 2008. Other restaurant
operating expenses as a percentage of net sales were 15.2% in
fiscal year 2008 compared to 15.5% in the combined 2007 period.
Depreciation
and Amortization
Depreciation and amortization expense increased by
$1.2 million to $16.1 million in fiscal year 2008
compared to the combined 2007 period. The increase was driven by
incremental depreciation associated with new restaurant growth
along with a full year of amortization for intangible assets in
fiscal 2008 compared to the combined 2007 period.
Pre-Opening
Expenses
Pre-opening expenses were $3.2 million in fiscal year 2008
versus $3.7 million in the combined period in 2007. The
period-over-period
change in pre-opening expenses was due to the variance in the
timing and number of restaurants opened.
General
and Administrative
General and administrative expenses decreased by
$4.7 million, or 15.0%, to $26.5 million in fiscal
year 2008 compared to the combined 2007 period. General and
administrative expenses as a percentage of total revenue were
5.0% in fiscal year 2008 versus 6.5% in the combined 2007
period. General and administrative expenses declined in fiscal
year 2008 when compared to the combined 2007 period, due to
non-recurring expenses associated with the Acquisition.
Impairment
and Store Closing Charges
We performed an analysis in fiscal year 2008 and determined that
three restaurants had carrying amounts in excess of their fair
value. Impairment charges of $6.6 million were recorded in
fiscal year 2008. There were no impairment charges in the
combined 2007 period.
Interest
Expense, net
Interest expense, net increased by $2.0 million to
$22.6 million in fiscal year 2008 due primarily to
increased borrowings to finance the Acquisition.
Other
Expense (Income), net
Other expense, net, increased by $2.3 million to
$2.6 million in fiscal year 2008 from fiscal year 2007,
resulting from a $0.7 million increase in expense
associated with our interest rate swap and a $1.7 million
increase in charges associated with swap fair market value
changes.
Provision
for (Benefit from) Income Taxes
The benefit from income taxes increased by $3.5 million, to
$3.4 million in fiscal year 2008, from a provision of
$0.1 million in the combined 2007 period due primarily to
the decrease in pre-tax income of $8.6 million and
fluctuations in the effective tax rate. The effective tax rates
were 84.4% and 3.1% in fiscal year 2008 and the combined 2007
period, respectively. The tax rate for fiscal year 2008 was
impacted by the effect of wage credits on the low pre-tax loss.
The tax rate for the combined 2007 period was impacted by the
effect of wage credits on low pre-tax income and reversal of
certain income tax reserves in the Predecessor period.
46
Net
Income (Loss)
Net income decreased by $5.1 million, to a net loss of
$0.6 million in fiscal year 2008. This was primarily
attributable to the impact of higher interest expense and
restaurant impairment charges.
Quarterly
Results and Change in Comparable Restaurant Sales
The following table sets forth certain unaudited financial and
operating data for each of the last 11 fiscal quarters
ended May 2, 2010. The unaudited quarterly information
includes all normal recurring adjustments that we consider
necessary for a fair presentation of the information presented.
The quarterly data should be read in conjunction with our
audited and unaudited consolidated financial statements and the
related notes appearing elsewhere in this prospectus. All
quarterly periods presented below include 13 weeks, except
for the fourth quarter of fiscal year 2008, which included
14 weeks. Change in comparable restaurant sales for all
periods is calculated based on 13 weeks.
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Fiscal Year 2008
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Fiscal Year 2009
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|
Fiscal Year 2010
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First
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Second
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Third
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Fourth
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|
First
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Second
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Third
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Fourth
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First
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Second
|
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Third
|
|
|
|
Quarter
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|
Quarter
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|
Quarter
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|
|
Quarter
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|
Quarter
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|
Quarter
|
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|
Quarter
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|
|
Quarter
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|
Quarter
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|
Quarter
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|
Quarter
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|
(Dollars in millions)
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|
Net sales
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$
|
119.0
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|
|
$
|
130.4
|
|
|
$
|
136.1
|
|
|
$
|
143.9
|
|
|
$
|
123.8
|
|
|
$
|
138.2
|
|
|
$
|
140.0
|
|
|
$
|
131.2
|
|
|
$
|
127.0
|
|
|
$
|
139.8
|
|
|
$
|
147.6
|
|
Franchise fees and royalties
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|
|
0.7
|
|
|
|
0.6
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|
|
|
0.7
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|
|
|
0.7
|
|
|
|
0.5
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|
|
|
0.6
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|
|
|
0.6
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|
|
|
0.6
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|
|
|
0.5
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|
|
|
0.5
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0.6
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Total revenues
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$
|
119.7
|
|
|
$
|
131.0
|
|
|
$
|
136.8
|
|
|
$
|
144.6
|
|
|
$
|
124.3
|
|
|
$
|
138.8
|
|
|
$
|
140.6
|
|
|
$
|
131.8
|
|
|
$
|
127.5
|
|
|
$
|
140.3
|
|
|
$
|
148.2
|
|
Change in comparable restaurant sales
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|
2.5%
|
|
|
|
0.0%
|
|
|
|
0.5%
|
|
|
|
0.3%
|
|
|
|
(2.5
|
)%
|
|
|
(0.7
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)%
|
|
|
(2.3
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)%
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|
|
(5.9
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)%
|
|
|
(1.8
|
)%
|
|
|
(3.8
|
)%
|
|
|
1.2%
|
|
Liquidity
and Capital Resources
General
Our primary requirement for liquidity and capital is new
restaurant development. Historically, our primary sources of
liquidity and capital resources have been cash provided from
operating activities, operating lease financing for a portion of
our expansion capital needs and borrowings on our revolving
credit facility.
We believe that these sources of liquidity and capital will be
sufficient to finance our continued operations and expansion
plans.
Operating
Activities
Net cash provided by operating activities was $39.6 million
for the 39 weeks ended May 2, 2010 compared to
$25.0 million for the 39 weeks ended May 3, 2009.
The increase was primarily due to an increase in income taxes
payable.
Net cash provided by operating activities was $35.5 million
in fiscal year 2009 compared to $28.2 million in fiscal
year 2008. The increase in fiscal year 2009 was primarily the
result of increased net income, excluding a
non-cash
tradename impairment charge. Net cash used by operating
activities in the combined 2007 period was $7.1 million.
The improvement in fiscal year 2008 as compared to the combined
2007 period was mainly due to changes in deferred tax balances
as a result of the
sale-leaseback
transactions.
We had positive working capital of $19.2 million as of
May 2, 2010 and negative working capital for prior periods
of $6.2 million on August 2, 2009, $17.3 million
on August 3, 2008 and $21.6 million on July 29,
2007. Like many other restaurant companies, we are able, and
expect from time to time, to operate with negative working
capital. Restaurant operations do not require significant
inventories and substantially all sales are for cash or paid by
third-party credit cards.
Investing
Activities
Capital expenditures were $16.2 million for the
39 weeks ended May 2, 2010 and $18.0 million for
the 39 weeks ended May 3, 2009. Capital expenditures
for fiscal year 2009, fiscal year 2008 and the combined 2007
period were $27.0 million, $37.4 million and
$47.5 million, respectively. In each period, development of
47
new restaurants accounted for the majority of the expenditures.
Period-over-period
variances in capital expenditures were due to the number and
timing of new restaurants under construction and the mix of
owned versus leased properties for new restaurants. During the
39 weeks ended May 2, 2010, we received net proceeds
of $1.2 million on the sale of assets related to restaurant
closings and proceeds of $8.6 million from sale-leaseback
transactions. During fiscal year 2008, we received proceeds of
$18.0 million from sale-leaseback transactions and
$198.8 million in the combined 2007 period.
Financing
Activities
Mandatory principal repayments on the senior secured term loan
facility were $1.0 million for each of the 39 weeks
ended May 2, 2010 and May 3, 2009. Term loan
repayments were $1.4 million for each of fiscal years 2008
and 2009. The outstanding balance on our revolving credit
facility was $4.8 million on July 29, 2007, and the
full amount was repaid in fiscal year 2008.
The Predecessor and Successor periods in fiscal year 2007
reflect recapitalization transactions resulting from the
Acquisition on December 6, 2006. The Acquisition was funded
with $138.0 million from a senior secured credit facility,
$80.0 million from senior subordinated unsecured mezzanine
term notes and $75.0 million in common and preferred
equity. Proceeds from this indebtedness were used to finance the
Acquisition, including the extinguishment of $151.1 million
of Predecessor debt.
Senior
Secured Credit Facility
In December 2006, we entered into a $168.0 million senior
secured credit facility consisting of a (i) six year
$138.0 million term loan and (ii) five year revolving
credit facility of up to $30.0 million in revolving credit
loans and letters of credit. The term loan matures on
December 6, 2012 and the revolver commitment is scheduled
to expire on December 6, 2011. As of May 2, 2010, we
had approximately $133.2 million of outstanding borrowings
under our senior secured credit facility. We are subject to
material financial covenants under the senior secured credit
facility, including a total leverage ratio and fixed charge
coverage ratio. We were in compliance with these covenants as of
May 2, 2010. Failure to comply with these covenants in the
future could cause an acceleration of outstanding amounts under
the term loan and restrict us from borrowing under the revolving
credit facility to fund our liquidity requirements. Each of
these covenants is calculated based on Consolidated
EBITDA, which is equivalent to Adjusted EBITDA, as
presented in this prospectus. In connection with this offering
we intend to refinance or obtain an amendment to the senior
secured credit facility to permit this offering, to allow us to
use the proceeds from this offering in the manner described in
Use of Proceeds and for certain related matters.
Senior
Subordinated Unsecured Mezzanine Term Notes
We issued $80.0 million aggregate principal amount of
13.25% senior subordinated unsecured mezzanine term notes on
December 6, 2006, the proceeds of which were used to
finance a portion of the Acquisition and to repay certain
indebtedness. We added $1.4 million and $2.8 million
in paid-in-kind interest to the principal balances during fiscal
years 2009 and 2008, respectively. We expect to prepay the notes
with the proceeds from this offering at a total cost, including
prepayment premium and accrued and unpaid interest, of
$87.7 million.
Additional information regarding the terms of our senior secured
credit facility and senior subordinated unsecured mezzanine term
notes, including information regarding our covenants under the
senior secured credit facility and our calculation of Adjusted
EBITDA, can be found in Description of Certain
Indebtedness and footnote 2 in Selected
Historical Consolidated Financial and Operating Data.
Initial
Public Offering
We believe that becoming a public company may provide additional
sources of liquidity because we will have better access to
public markets in order to raise additional capital. In
addition, we believe that current conditions in the capital
markets provide us with an attractive opportunity for an initial
public offering.
48
Off-Balance
Sheet Arrangements
Except for restaurant operating leases, we have no material
off-balance sheet arrangements.
Contractual
Obligations
The following table sets forth our contractual obligations and
commercial commitments as of August 2, 2009:
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Payments Due by Period in Years
|
|
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Less Than
|
|
|
|
|
|
|
|
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More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1- 3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Senior secured term loan
|
|
$
|
134,205
|
|
|
$
|
1,380
|
|
|
$
|
2,760
|
|
|
$
|
130,065
|
|
|
|
|
|
Revolving credit facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior subordinated unsecured mezzanine term notes(1)
|
|
|
85,858
|
|
|
|
|
|
|
|
|
|
|
|
85,858
|
|
|
|
|
|
Operating leases(2)
|
|
|
718,449
|
|
|
|
30,992
|
|
|
|
63,186
|
|
|
|
64,497
|
|
|
|
559,774
|
|
Purchase obligations(3)
|
|
|
3,096
|
|
|
|
3,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
941,608
|
|
|
$
|
35,468
|
|
|
$
|
65,496
|
|
|
$
|
280,420
|
|
|
$
|
559,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
We intend to use a portion of the
proceeds from this offering to prepay the senior subordinated
unsecured mezzanine term notes. See Use of Proceeds.
|
|
(2)
|
|
Includes base lease terms and
certain optional renewal periods that are included in the lease
term in accordance with accounting guidance related to leases.
|
|
(3)
|
|
Purchase obligations include
legally binding agreements to purchase goods or services,
excluding any agreements that are cancelable without significant
penalty or that do not contain fixed commitments or minimum
purchase quantities.
|
Seasonality
Our net sales fluctuate seasonally and are typically lowest in
the fall. Because of the seasonality of our business, results
for any quarter are not necessarily indicative of the results
that may be achieved for future quarters or for the full fiscal
year.
Segment
Reporting
We aggregate our operations into a single reportable segment
within the restaurant industry, providing similar products to
similar customers, exclusively in the United States. The
restaurants also possess similar pricing structures, resulting
in similar long-term expected financial performance
characteristics. Accordingly, no further segment reporting
beyond the consolidated financial statements is presented.
Impact of
Inflation
Apart from the commodity effects discussed above and utilities
inflation in fiscal year 2009, we do not believe general
inflation has had a significant impact on our operations over
the past several years. In general, we have been able to
substantially offset restaurant and operating cost increases
resulting from inflation by altering our menu items, increasing
menu prices, or making other adjustments. However, certain areas
of costs, notably utilities and labor, can be significantly
volatile or subject to significant changes due to changes in
laws or regulations, such as the minimum wage laws.
Recent
Accounting Pronouncements
On September 15, 2009, we adopted the Accounting Standards
Codification (ASC) as issued by the Financial
Accounting Standards Board (FASB). The ASC is the
single source of authoritative nongovernmental GAAP, except for
rules and interpretive releases of the SEC, which are sources of
authoritative U.S. GAAP for SEC registrants. The adoption
did not have an impact on our consolidated financial statements.
49
On August 3, 2009, we adopted, on a prospective basis,
accounting guidance related to accounting for business
combinations. The adoption did not have a material impact on our
consolidated financial statements. However, the application will
significantly change how we accounts for any future business
combinations.
On August 3, 2009, we adopted accounting guidance requiring
additional disclosure about derivative instruments and hedging
activities. The adoption did not have a material impact on our
consolidated financial statements.
On August 3, 2009, we adopted, on a prospective basis,
accounting guidance as issued by the FASB for certain
nonfinancial assets and liabilities that are recorded or
disclosed at fair value on a nonrecurring basis. The adoption
did not have a material impact on our consolidated financial
statements.
Critical
Accounting Policies
We prepare our consolidated financial statements in conformity
with U.S. GAAP. The preparation of these financial statements
requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and 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. Critical accounting policies are those that
management believes are both most important to the portrayal of
our financial condition and operating results and require
managements most difficult, subjective or complex
judgments, often as a result of the need to make estimates about
the effect of matters that are inherently uncertain. We base our
estimates on historical experience, outside advice from parties
believed to be experts in such matters, and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Judgments and
uncertainties affecting the application of those policies may
result in materially different amounts being reported under
different conditions or using different assumptions. Our
accounting policies can be found in Note 2 to our
consolidated financial statements. We consider the following
policies to be the most critical in understanding the judgments
that are involved in preparing our consolidated financial
statements.
Goodwill
and Intangible Assets
Goodwill is recorded when the aggregate purchase price of an
acquisition exceeds the estimated fair value of the net
identified tangible assets and intangible assets acquired.
Intangible assets resulting from the acquisition are accounted
for using the purchase method of accounting and are estimated by
management based on the fair value of the assets received.
Intangible assets are comprised primarily of the tradename which
is considered to have an indefinite life and menu, franchise
agreements, liquor license and favorable lease agreements which
are determined to have finite lives. Intangible assets with
finite lives are amortized over the period of the estimated
benefit. Goodwill and tradename are not subject to amortization.
We perform an annual impairment test of goodwill and the
indefinite-lived tradename asset as of the second quarter of
each fiscal year, or more frequently if indications of
impairment exist.
In the annual impairment test of goodwill, we primarily use the
income approach method of valuation that includes the discounted
cash flow method as well as other generally accepted valuation
methodologies to determine the fair value. Significant
assumptions in the valuation include new unit growth, future
trends in sales, profitability, changes in working capital along
with an appropriate discount rate. For the most recent annual
testing, the initial step of the impairment test indicated that
the estimated fair value of the reporting unit was substantially
in excess of its carrying value and thus no impairment charge
was recorded.
In the annual impairment test of the indefinite-lived tradename
intangible asset, we primarily use the relief from royalty
method under the income approach method of valuation.
Significant assumptions include growth assumptions, future
trends in sales, a royalty rate and appropriate discount rate.
For the most recent annual testing, no indication of impairment
existed. However, an impairment charge of $16.8 million was
recorded in fiscal year 2009.
50
Future changes in assumptions used may require us to record
material impairment charges for these assets.
Impairment
of Long-Lived Assets
We assess the impairment of long-lived assets whenever events or
changes in circumstances indicate that the carrying value may
not be recoverable. Recoverability of assets is measured by
comparing the carrying amount of an asset or group of assets to
the estimated undiscounted future identifiable cash flows
expected to be generated by those assets. Identifiable cash
flows are measured at the lowest level where they are
essentially independent of cash flows of other groups of assets
and liabilities, generally at the restaurant level. If the
carrying amount of an asset or group of assets exceeds its
estimated undiscounted future cash flows, an impairment charge
is recognized in the amount by which the carrying amount of the
asset exceeds the fair value of the asset. See Note 8 to
our consolidated financial statements.
Insurance
Reserves
We self-insure a significant portion of expected losses under
our workers compensation, general liability, employee
health and property insurance programs. We have purchased
insurance for individual claims that exceed certain deductible
limits as well as aggregate limits above certain risk
thresholds. We record a liability for our estimated exposure for
aggregate incurred but unpaid losses below these limits.
Leases
We have ground leases, ground plus building leases and office
space leases that are recorded as operating leases, most of
which contain rent escalation clauses and rent holiday periods.
In accordance with applicable accounting guidance, rent expense
under these leases is recognized on a straight-line basis over
the shorter of the useful life, or the related lease life
including probable renewal periods. The difference in the
straight-line expense in any year and amounts payable under the
leases during that year is recorded as deferred rent liability.
We use a lease life that begins on the date that we become
legally obligated under the lease and extends through renewal
periods that can be exercised at our option, when it is probable
at the inception of the lease that we will exercise the renewal
option.
Some of our leases provide for contingent rent, which is
determined as a percentage of sales in excess of specified
minimum sales levels. We recognize contingent rent expense prior
to the achievement of the specified sales target that triggers
the contingent rent, provided achievement of the sales target is
considered probable.
Occasionally, we are responsible for the construction of leased
restaurant locations and for paying project costs that may be in
excess of an agreed upon amount with the landlord. Applicable
accounting guidance requires us to be considered the owner of
these types of projects during the construction period.
Income
taxes
We account for income taxes pursuant to applicable accounting
guidance which requires recognition of deferred tax assets and
liabilities for the expected future income tax consequences of
transactions that have been included in the financial
statements. Under this method, deferred tax assets and
liabilities are determined based on the tax affected differences
between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. Deferred tax
assets are reduced by valuation allowances, which represent the
estimated amount of deferred tax assets that may not be realized
based upon estimated future taxable income. Future taxable
income, reversals of temporary differences, available carry back
periods, and changes in tax laws could affect these estimates.
Employer tax credits for FICA taxes paid on employee tip income
are accounted for by the flow-through method.
We recognize a tax position in the financial statements when it
is more likely than not that the position would be sustained
upon examination by tax authorities that have full knowledge of
all relevant information.
51
A recognized tax position is then measured at the largest amount
of benefit that is greater than 50% likely of being realized
upon settlement.
Unredeemed
Gift Cards
Gift card revenue generally is recognized as the cards are
redeemed, or estimated never to be redeemed, over the historical
redemption period as described below. Unredeemed gift cards
represent a liability related to unearned income and are
recorded at their expected redemption value. We make estimates
of the ultimate unredeemed gift cards in the period of the
original sale and reduce our liability and record revenue
accordingly. These estimates are determined based on our
redemption history and trends and are amortized over the
historical redemption period based upon our monthly redemption
rates. Changes in redemption behavior or managements
judgments regarding redemption trends in the future may produce
materially different amounts of deferred revenue to be reported.
If gift cards that have been removed from the liability are
later redeemed, we recognize revenue and reduce the liability as
we would with any redemption.
Share-Based
Compensation
Subsequent to the Acquisition, we adopted the LRI Holdings, Inc.
Option Plan or 2007 Plan as discussed in Note 2 to our
consolidated financial statements. Under the 2007 Plan, we are
authorized to issue options for up to 176,471 shares of
Class A common stock, or approximately 15.0% of our
outstanding Class A common stock on a fully-diluted basis,
to certain of our employees and directors. The options vest over
a five-year period and expire 10 years subsequent to the
date of grant.
Options, to the extent vested, become exercisable only upon each
of BRS, Black Canyon and Canyon Capital achieving certain
performance milestones. Since the adoption of the
2007 Plan, we have not recorded any compensation expense
because the likelihood of meeting either of the performance
milestones was not probable. See Executive
Compensation Elements of Compensation
Long-Term Equity-Based Compensation.
The following table summarizes the number of stock options
granted since July 1, 2007 and the associated per share
exercise price, which our board of directors determined was
equal to or exceeded the fair value of our Class A common
stock at each grant date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Fair Value
|
|
Grant Date:
|
|
Granted
|
|
|
per Share
|
|
|
per Share
|
|
|
July 1, 2007
|
|
|
168,634
|
|
|
$
|
10.00
|
|
|
$
|
4.05
|
|
December 8, 2008
|
|
|
28,708
|
|
|
|
10.00
|
|
|
|
4.05
|
|
June 10, 2009
|
|
|
2,731
|
|
|
|
10.00
|
|
|
|
4.05
|
|
January 11, 2010
|
|
|
3,176
|
|
|
|
10.00
|
|
|
|
4.05
|
|
For the initial stock option grants in July 2007, we
determined the estimated fair value per share of the options
using a simulation analysis in an option pricing framework,
incorporating Geometric Brownian Motion in the equity value
calculation, with the following assumptions:
|
|
|
Dividend yield range
|
|
0.0%
|
Expected volatility range
|
|
29.1% - 55.5%
|
Risk-free interest rate range
|
|
4.53% - 4.58%
|
Expected lives (in years)
|
|
7.5 years
|
In connection with our stock option grants in December 2008, we
considered the factors described above along with economic
indicators and their impact on our revenue growth as well as the
valuation of comparable publicly-traded peers. From this
analysis, we determined that there had been no significant
change in our performance to cause an increase or decrease in
the per share valuation of our Class A common stock. To
further support this conclusion, in a separate valuation of our
Class A common stock performed in connection with the
repurchase of certain management shares in late 2008, our board
of directors determined the fair value of the Class A
common stock to have an insignificant variation from the initial
valuation.
52
Subsequent grants identified in the table above were deemed
immaterial. Accordingly, our board of directors applied the same
grant date fair value to these grants.
Legal
Proceedings
Occasionally, we are a defendant in litigation arising in the
ordinary course of our business, including claims resulting from
slip and fall accidents, dram shop
claims, construction-related disputes, employment related claims
and claims from customers or employees alleging illness, injury
or other food quality, health or operational concerns. As of the
date of this prospectus, we are not a party to any litigation
that we believe could have a material adverse effect on our
business or our consolidated financial statements.
Quantitative
and Qualitative Disclosures of Market Risks
Commodity
Price Risk
Many of the food products we purchase are affected by commodity
pricing and are subject to price volatility caused by weather,
production problems, delivery difficulties and other factors
which are outside our control and which are generally
unpredictable. Three food categories (beef, produce and seafood)
account for the largest share of our costs of goods sold (at
31.5%, 11.3% and 8.5%, respectively in fiscal year 2009). Other
categories affected by the commodities markets, such as cheese
and dairy, chicken and pork, may each account for approximately
4-7%, individually, of our food purchases. While we have some of
our menu items prepared to our specifications, our menu items
are based on generally available products, and if any existing
suppliers fail, or are unable to deliver in quantities we
require, we believe that there are sufficient alternative
suppliers in the marketplace so that our sources of supply can
be replaced as necessary. We also recognize, however, that
commodity pricing is extremely volatile and can change
unpredictably and over short periods. Changes in commodity
prices would generally affect us and our competitors similarly,
depending on the terms and duration of supply contracts. We also
enter into fixed price supply contracts for certain products in
an effort to minimize volatility of supply and pricing. In many
cases, or over the longer term, we believe we will be able to
pass through some or all of the increased commodity costs by
adjusting menu pricing. From time to time, competitive
circumstances, or judgments about consumer acceptance of price
increases, may limit menu price flexibility, and in those
circumstances, increases in commodity prices can have an adverse
effect on restaurant operating margins.
Interest
Rate Risk
We are subject to interest rate risk in connection with
borrowings under our credit facility, which bear interest at
variable rates. As of August 2, 2009, we had
$134.2 million outstanding under our credit facility.
Interest rate changes do not affect the market value of such
debt, but could impact the amount of our interest payments, and
accordingly, our future earnings and cash flows, assuming other
factors are held constant. A hypothetical one percentage point
change in the floating interest rates used to calculate our
interest expense would result in an increase in our annual
interest expense of approximately $0.6 million, excluding a
$75.0 million tranche of the term loan covered by a
variable to fixed interest rate swap through June 6, 2011.
53
BUSINESS
Our
Company
Logans Roadhouse is a casual dining restaurant concept
that recreates a traditional American roadhouse atmosphere by
offering its customers value-oriented, high quality,
craveable meals. Our restaurants are branded as The
Real American Roadhouse, drawing their inspiration from the
hospitable tradition and distinctive atmosphere of a 1930s
and 1940s Historic Route 66 style roadhouse. As of
May 2, 2010, we have grown our restaurant base to 211
Logans Roadhouse restaurants. Of these 211 restaurants, we
own and operate 185 restaurants with an additional 26
restaurants operated by two franchisees.
Our menu features an assortment of fresh, aged Black Angus beef
that is primarily hand-cut on premises, specially seasoned, and
grilled to order over mesquite wood. In addition, we offer a
wide variety of seafood, ribs, chicken and vegetable dishes,
including our signature Santa Fe Tilapia and Famous Baby
Back Ribs. We also offer a distinctive selection of unique items
such as our Smokin Hot Grilled Wings, Roadies and Health
Nuts! menu, as well as a broad assortment of timeless classics,
including steak burgers, salads, sandwiches and our
made-from-scratch yeast rolls.
Our restaurants provide a rockin, upbeat atmosphere
combined with friendly service from a lively staff and our
interactive jukeboxes play a mix of blues, rock and new country
music. While dining or waiting for a table, our customers are
encouraged to enjoy bottomless buckets of roasted
in-shell peanuts and to toss the shells on the floor. Our
restaurants are open for both lunch and dinner seven days a week.
Our change in comparable restaurant sales has outperformed the
KNAPP-TRACKtm
index of casual dining restaurants for 17 consecutive quarters.
We believe our change in comparable restaurant sales has
outperformed our primary competitors in the bar &
grill and steakhouse segments since December 31, 2006. In
our most recent quarterly period, comparable restaurant sales
increased 1.2%. Over the last four fiscal years ended
August 2, 2009, we have grown by 53 new company-owned
restaurants and have grown our total revenue and Adjusted EBITDA
(a non-GAAP financial measure) at compound annual growth rates
of 9.2% and 18.0%, respectively. For the 39 weeks ended
May 2, 2010, our total revenues, Adjusted EBITDA and net
income were $416.0 million, $56.5 million and
$15.1 million, respectively, an increase of
$12.3 million, $7.0 million and $17.9 million
over the prior year comparable period. See
Summary Historical Financial and Operating
Data for a discussion of Adjusted EBITDA, a presentation
of the most directly comparable U.S. GAAP financial measure
and a reconciliation of the differences between Adjusted EBITDA
and the most directly comparable U.S. GAAP financial
measure, net income.
Our
Strengths
Our core strengths include the following:
Offering Great Steaks and Other High Quality Menu
Items. We are committed to serving fresh food,
including specially seasoned, aged Black Angus beef,
always-fresh, never-frozen chicken breast entrées, high
quality seafood, hearty steak burgers and farm-fresh salads. We
believe the freshness and distinctive flavor profiles of our
signature dishes, coupled with the breadth of our menu,
differentiates us from our competitors.
Abundance and Affordability. Our entrée
portions are generous and include a choice of two side items,
all at affordable prices. Our roasted in-shell peanuts and
made-from-scratch yeast rolls are both complimentary. During the
39 weeks ended May 2, 2010, our comparable restaurant
average checks were $11.76 and $13.29 for lunch and dinner,
respectively. We believe our average check is lower than that of
substantially all of our primary competitors in the
bar & grill and steakhouse segments.
Unique Customer Experience. Our customers have
come to expect a dining experience centered around our inviting
roadhouse atmosphere and hospitable service. Our restaurants
have a relaxed, come-as-you-are environment where we encourage
our customers to throw their peanut shells on the floor. Our
Real American Roadhouse theme is enhanced by the interaction of
servers with our customers, combined with jukeboxes in our
restaurants that continuously play an upbeat mix of toe
tappin music. We are committed to providing friendly,
roadside hospitality to our customers and creating a brand of
service that is warm, welcoming, personalized and attentive.
54
Attractive Unit Level Economics. Our
restaurants generated average unit volumes of $3.0 million
in fiscal year 2009. We reduced our restaurant prototype from
8,000 square feet to 6,500 square feet, which has
improved new unit investment costs without sacrificing the
number of tables, customer experience or sales potential. In
addition, we enhanced our new unit selection process, which
improved the performance and consistency of our recent new unit
openings. Our revised site selection process incorporates
internally identified site characteristics and a sales risk
assessment model. We intend to continue to focus on new unit
investment costs and improving our site selection process over
time to maintain strong unit level returns.
Efficient Cost Structure. Our efficient cost
structure allows us to offer our customers compelling price
points without compromising customer experience or
profitability. Our restaurant operating margins improved from
13.4% in fiscal year 2008 to 16.4% during the 39 weeks
ended May 2, 2010. This increase in restaurant-level
profitability is a result of our focus on food and labor costs,
operational improvements and reduced commodity costs. We also
drive food cost control through our in-restaurant meat cutting
process, cross utilization of products and efficient cooking
methods. During the same period, we also streamlined our
corporate overhead structure. Through these efforts, we reduced
our general and administrative expenses as a percentage of total
revenues from 5.0% in fiscal year 2008 to 4.1% during the
39 weeks ended May 2, 2010. We believe we can continue
to leverage our cost structure as we pursue our growth strategy.
Proven Management Team. Our senior management
team has an average of eight years of experience with us and an
average of 25 years of relevant industry experience with
leading casual dining chains. Our management depth goes beyond
the corporate office. Our regional and general managers have
long tenures with us, and we have a track-record for promoting
management personnel from within. We believe our
managements experience at all levels has allowed us to
continue to grow our restaurant base while improving operations
and driving efficiencies.
Our
Growth Strategy
Our growth strategies include the following:
New Restaurant Development. We believe
differentiated, moderately-priced roadhouse concepts remain
under-penetrated relative to the bar & grill and
steakhouse segments. We are primarily focused on maintaining
disciplined growth of our brand by strategically opening
additional company-owned restaurants to backfill in existing
states. We also believe the broad appeal of The Real American
Roadhouse concept enhances the portability of our restaurants,
which will also allow us to pursue company-owned restaurant
openings in adjacent states and grow our footprint over time.
The geographic portability of our concept is illustrated by the
fact that our top quartile units by average unit volumes for the
39 weeks ended May 2, 2010, operated across
15 states. We plan to open 15 company-owned
restaurants during fiscal year 2011 and believe we can achieve a
long-term annual company-owned restaurant growth rate of
approximately 10%.
Comparable Restaurant Sales Growth. We believe
we will be able to generate comparable restaurant sales growth
through the following strategies:
|
|
|
|
|
Menu Innovation. The Real American Roadhouse
concept provides a broad platform from which to expand our menu.
We have successfully introduced new menu items such as our
Roadies, our Health Nuts! menu (offering 12 items with under 550
calories), our Bleu Cheese Sirloin, our Cinnamon Roll Sundae and
our Loaded Sweet Potato. We believe our customers appreciate the
introduction of new items on an ongoing basis. Our goal is to
add four to eight new menu items each year.
|
|
|
|
Increasing Our Average Check. Our relatively
low average check versus our primary competitors in the
bar & grill and steakhouse segments gives us the
ability to selectively implement moderate pricing increases
without impacting our value proposition. Additionally, we expect
to grow sales by responsibly increasing alcoholic beverage
sales. Our alcoholic beverage sales were 7.4% of total sales for
the 39 weeks ended May 2, 2010 compared to
approximately 9% before fiscal year 2008, which we believe
corresponds to the onset of the economic downturn period.
|
|
|
|
Promoting Our Brand. We intend to focus our
marketing efforts on driving repeat visits from frequent
customers and attracting new customers. We use various marketing
programs, including television, radio and print advertising as
well as various local marketing efforts. We also promote our
brand using a combination of in-restaurant sales initiatives,
including specials and happy hours, table-top
|
55
|
|
|
|
|
merchandising, outdoor banners, gift cards and our on-line
loyalty club. We believe that our brand awareness will continue
to increase as we backfill units in existing states and expand
into adjacent states.
|
|
|
|
|
|
Emphasizing Excellent Operations and Customer
Satisfaction. We intend to improve upon our
strong customer satisfaction by continuing to focus on
delivering a superior customer experience. Our servers are
generally limited to serving no more than four tables at a time,
allowing them to provide attentive service to our customers. We
receive approximately 120,000 phone survey results from
customers each year and these surveys have shown an
800 basis point improvement in the top rating of overall
customer satisfaction scores since 2006. We will continue to
invest in our in-restaurant execution through annual operational
programs to improve our customer experience.
|
Our
Restaurants
Overview
Our Real American Roadhouse design provides a come-as-you-are,
upbeat experience for our customers. The restaurant décor
includes neon signs, numerous gig posters and our prominent
jukebox, which allows customers to select their own musical
favorites. The primary aesthetic driver in our restaurant design
is the rough-hewn cedar siding that typically covers the
exterior and interior walls. Our restaurant design has a
centrally located bar with alcoholic beverages on display and
ready to serve. Our current restaurant prototype consists of a
6,500 square foot freestanding building constructed on
sites of approximately 1.5 to 1.7 acres. With approximately
59 tables, seating capacity is 237, including 15 bar seats. To
date, we have opened 20 restaurants based on this restaurant
prototype. Our previous 8,000 square foot restaurant prototype
was constructed on sites of approximately 1.7 to 2.0 acres,
with approximately 60 tables and a seating capacity of
290 seats, including 20 bar seats.
Existing
Restaurant Locations
As of May 2, 2010, we had 185 company-owned
restaurants and 26 franchise restaurants in 23 states as
shown in the chart below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Restaurants
|
|
|
Company-
|
|
|
|
Total
|
|
|
Owned
|
|
Franchised
|
|
Restaurants in
|
|
|
Restaurants
|
|
Restaurants
|
|
System
|
|
Alabama
|
|
|
19
|
|
|
|
|
|
|
|
19
|
|
Arizona
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Arkansas
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
California
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
Florida
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
Georgia
|
|
|
10
|
|
|
|
1
|
|
|
|
11
|
|
Illinois
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Indiana
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
Kansas
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Kentucky
|
|
|
9
|
|
|
|
|
|
|
|
9
|
|
Louisiana
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
Michigan
|
|
|
15
|
|
|
|
|
|
|
|
15
|
|
Mississippi
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
Missouri
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
North Carolina
|
|
|
|
|
|
|
11
|
|
|
|
11
|
|
Ohio
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
Oklahoma
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Pennsylvania
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
South Carolina
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
Tennessee
|
|
|
22
|
|
|
|
|
|
|
|
22
|
|
Texas
|
|
|
33
|
|
|
|
|
|
|
|
33
|
|
Virginia
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
West Virginia
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
185
|
|
|
|
26
|
|
|
|
211
|
|
56
Site
Selection
Our site selection process is critical to our growth strategy.
We devote substantial time and resources to evaluate each
potential restaurant site. Our site selection process
incorporates a risk assessment model to evaluate a range of
sales risks for proposed new site locations, including:
|
|
|
|
|
local market demographics and psychographic profiles;
|
|
|
|
population
make-up and
density;
|
|
|
|
household income levels;
|
|
|
|
proximity of existing or planned hotels, retail establishments,
office space and other establishments that draw restaurant
traffic;
|
|
|
|
vehicle traffic patterns;
|
|
|
|
daytime dining habits;
|
|
|
|
competitive presence and results;
|
|
|
|
available square footage, parking and lease economics;
|
|
|
|
visibility and access;
|
|
|
|
local investment and operating costs;
|
|
|
|
development and expansion constraints; and
|
|
|
|
managements experience in the market and proximity to and
performance of existing restaurants.
|
Restaurant
Development and Economics
Our board has approved 25 sites that have opened since the
Acquisition. Of these, 15 restaurants have been open for at
least 52 weeks as of May 2, 2010. Our average capital
investment for these 15 restaurants is broken down as
follows:
|
|
|
|
|
|
|
Average Cost
|
|
|
|
(Dollars in millions)
|
|
|
Land (1)
|
|
|
$0.9
|
|
Building, site development and construction (2)
|
|
|
1.5
|
|
Furniture, fixtures, signage and equipment
|
|
|
0.5
|
|
Pre-opening costs
|
|
|
0.2
|
|
|
|
|
|
|
Total
|
|
|
$3.1
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents average cost for two
locations for which we own the land.
|
|
|
|
(2)
|
|
Represents average cost for
12 locations for which we own the building.
|
For the 52 weeks ended May 2, 2010, the
15 restaurants referenced above generated net sales of
$43.2 million, cost of goods sold of $13.8 million,
labor and other related expenses of $13.1 million,
occupancy costs of $2.3 million (including
$0.5 million of taxes, licenses and other fees) and other
restaurant operating expenses of $5.9 million. This
resulted in average unit volumes, restaurant operating profit
and restaurant operating margin of $2.9 million,
$8.1 million and 18.8%, respectively.
The actual performance of any new restaurant location will
usually differ from its originally targeted performance due to a
variety of factors, many of which are outside of our control,
and such differences may be material. The performance of new
restaurants can vary significantly depending on a number of
factors,
57
including but not limited to: site selection, average unit
volumes, restaurant level profitability and associated
investment costs.
Menu and
Food Quality
Our restaurants are designed to appeal to a broad range of
customers by offering a wide variety of high quality meals at
affordable prices. Our menu features an assortment of fresh,
aged Black Angus beef that is primarily hand-cut on premises,
specially seasoned, and grilled to order over mesquite wood. Our
chicken breast entrées are made from always-fresh,
never-frozen poultry. Our made-from-scratch yeast rolls are
freshly baked on the premises every 10 to 20 minutes and
our salads are made from fresh lettuce cut daily. Our signature
sirloin steaks include The Logan (our biggest sirloin steak) and
the Onion Brewski Sirloin (our
8-ounce
sirloin, stacked on top of beer-braised onions, smothered with
garlic butter and topped with crispy onions). Our signature
steak burgers are freshly ground on premises and made with a
blend of sirloin, chuck, ribeye and filet. We also offer a wide
variety of premium steak cuts, including ribeye, prime rib,
filet, T-bone and porterhouse. Additionally, we offer a wide
variety of seafood, ribs, chicken and vegetable dishes,
including our signature Santa Fe Tilapia, Mesquite
Wood-Grilled Chicken, Famous Baby Back Ribs, grilled vegetable
skewers and baked sweet potatoes.
Our current dinner menu offers a selection of over 60
entrées and 13 appetizers. Most dinner entrées include
a choice of two side items, which includes a dinner salad, sweet
potato, baked potato, mashed potatoes, grilled vegetables, fries
or other side items. We are also open for lunch seven days a
week. We offer our lunch and dinner customers an all-you-can-eat
supply of our yeast rolls and peanuts. For the 39 weeks
ended May 2, 2010, dinner accounted for 64% of our total
restaurant sales, lunch accounted for 36% of our total
restaurant sales and the average dinner check and lunch check
per customer were $13.29 and $11.76, respectively. Prices
currently range from $5.99 to $25.99 for items on our menu,
including appetizers ordered as entrées.
We regularly review our menu to consider enhancements to
existing menu items or the introduction of new items. We
typically revise our menu one to two times each year. As part of
the menu changes, we generally introduce four to eight new menu
items and consider price changes. We test all new menu items for
customer acceptance and operational efficiency before adding
them to our menu. Through the 39 weeks ended May 2,
2010, we introduced eight new items to our menu, including the
Wing Sampler Trio, the Bacon and Cheddar Encrusted Sirloin and
the Cinnamon Roll Sundae.
Most of our restaurants feature a full bar that offers an
extensive selection of draft and bottled beer. Most of our
restaurants also serve a selection of major brands of liquor and
wine, as well as frozen margaritas and specialty drinks. During
the 39 weeks ended May 2, 2010, 7.4% of our total
sales from company-owned restaurants were from alcoholic
beverages. In most of our restaurants, we offer a happy hour
intended to increase alcohol sales and drive incremental
customer traffic. We emphasize responsible alcohol consumption,
which we reinforce with our employees through training and
operational standards.
Food
Safety
Providing a safe and clean dining experience for our customers
is of the utmost importance to us. We have designed food safety
and quality assurance programs to attempt to ensure that our
restaurant team members and managers are properly trained on
food safety and that our suppliers are providing our restaurants
with safe and wholesome products. To help our restaurants meet
our standards for clean and healthy restaurants, we retain an
independent consultant to conduct a comprehensive health
inspection of each restaurant at least three times per year.
Our philosophy is to proactively make food safety an integral
part of the brand. Training is a key component of ensuring
proper food handling for all managers and hourly employees. In
addition, we include food safety standards and procedures and
critical control points in every recipe for our cooks as part of
the training process.
58
Food safety is also a key component in our supplier selection.
Our suppliers are inspected by a reputable, qualified inspection
service, which helps ensure they are compliant with
U.S. Food and Drug Administration and U.S. Department of
Agriculture guidelines.
Customer
Satisfaction
We are committed to providing our customers prompt, friendly and
efficient service, keeping
table-to-server
ratios low and staffing each restaurant with an experienced
management team to maintain attentive customer service and
consistent food quality. We receive valuable customer feedback
through regular in-restaurant customer interaction with our
restaurant managers and a telephone customer satisfaction survey
program, Customers are invited to take the telephone survey
through a random invitation printed on the customers
receipt, and customers who participate in the telephone survey
currently receive a discount of $3.00 off their next food
purchase. Customers rate various attributes (ranging from
Taste of Food and Friendliness of Server
to Overall Satisfaction) of their experience on a
scale of 1 to 5, with 5 described as
great. For fiscal year 2009, we received a
5 from 73.0% of those customers that completed the
telephone survey for the attribute of Overall
Satisfaction. This survey program delivers
50-250
customer survey responses per restaurant each month for a total
of approximately 120,000 survey responses annually. In addition,
we also accept internet surveys that, together with our
telephone surveys and in-restaurant feedback, allow us to
identify and focus on key drivers of customer satisfaction and
monitor long-term trends in customer satisfaction and perception.
Marketing
Our advertising and marketing strategy is designed to increase
customer traffic and promote the Logans Roadhouse brand.
Our goal is to attract new customers and increase the frequency
with which existing customers visit our restaurants. We use a
combination of broadcast advertising, print advertising and
in-restaurant marketing. Our marketing budget also includes
marketing support and related costs, including research costs,
agency fees and costs to support local marketing efforts. We
spent 1.7% of revenues on marketing in fiscal year 2009 and
expect to spend 2.3% of revenues on marketing in fiscal year
2010.
Broadcast
Advertising
We use local broadcast media, which include television and
radio, to advertise new product offerings and promotions. We
also use broadcast advertising to establish brand identity,
demonstrate our distinctive and upbeat roadhouse atmosphere, and
attract first-time customers in new markets.
Print
Advertising
Our print media advertising includes free standing newspaper
inserts that are die cut to increase their visibility. We also
use inserts in coupon mailings to target price sensitive
customers. Our print media advertising is designed to
communicate new products, promotions and value.
In-Restaurant
Marketing
Our in-restaurant marketing efforts include signs announcing
specials and happy hours, table top materials, menu
merchandising, outdoor banners and gift cards. We use our
in-restaurant marketing to drive word of mouth advertising and
repeat customers. These initiatives also promote beverage sales,
entrée specials and new menu items.
Purchasing
and Distribution
Our purchasing strategy is to develop long-term relationships
with a core group of reputable and dependable supply sources. In
general, we have adopted procurement strategies for all product
categories that include contingency plans for key products,
ingredients and supplies. These plans, in some instances,
include the approval of secondary suppliers and alternative
products.
59
We negotiate directly with food suppliers as to specifications,
price, freight and other material terms of most food purchases
in an attempt to ensure consistent quality, freshness and cost
of our products. We invite our key suppliers to spend time in
our kitchens and, conversely, our suppliers invite us to visit
and develop products in their production facilities. As a
result, we believe that our suppliers understand our brand, our
direction, our systems, and our needs, and we are able to better
understand our suppliers capabilities. Additionally, our
management team is regularly kept abreast of commodity trends
through commodity review meetings.
We purchase the majority of our food products, including beef,
and restaurant supplies under negotiated contracts through a
contracted national foodservice distributor on an annually
negotiated fixed case-fee basis, with adjustments for changing
fuel costs. The distributor is responsible for warehousing and
delivering food products to our restaurants. Certain perishable
food items are purchased locally by the management of our
restaurants.
The food item accounting for the largest share of our product
cost is beef. Most of our steaks are hand-cut on premises, in
contrast to many in the restaurant industry that purchase
pre-portioned steaks. We are under a fixed price contract
through July 2011 to purchase substantially all of our beef
needs from the largest beef supplier in the world. We have also
contracted with a large chicken supplier for all of our fresh
chicken, chicken wing and chicken tender requirements through
December 2011. If any beef or chicken items from these suppliers
become unavailable for any reason, we believe that these items
could be obtained in sufficient quantities from other sources at
competitive prices, but we could be more susceptible to market
fluctuations.
Restaurant
Management and Quality Controls
The complexity of operating our restaurants requires an
effective management team at the restaurant level. Our
restaurant level management generally consists of a general
manager who oversees a kitchen manager and two assistant
managers. In addition, we have regional managers to support
individual restaurant managers along with two operational vice
presidents who support individual regional managers. Each
regional manager typically supports eight to ten individual
restaurants. Each operational vice president typically supports
10 or 11 regional managers. Through regular visits to our
company-owned restaurants, regional managers and operational
vice presidents ensure that our standards of quality and
operating procedures are being followed.
All new restaurant managers are required to complete four to
seven weeks of training at a Logans Roadhouse restaurant.
We also have a specialized training program required for
restaurant managers and hourly service employees on responsible
alcohol service. As motivation for restaurant managers to
increase revenues and improve operational performance, we
maintain an incentive bonus plan that rewards restaurant
managers for achieving sales and profit targets, as well as key
operating cost measures.
Information
Systems and Restaurant Reporting
All of our company-owned restaurants are equipped with
computerized point-of-sale and back-office systems. These
systems are designed to make our restaurants operate more
efficiently and give our team members real-time access to key
operating data. We provide various operating reports to our
restaurant managers, regional managers and certain members of
our executive staff and we distribute ranking reports to these
same individuals that compare weekly and period-to-date
performance across restaurants.
Transaction information is uploaded to our corporate office on a
nightly basis where we have business intelligence software
programs that analyze information relating to key performance
areas of all our restaurants, including daily sales and weekly
restaurant operating results. Our back-office restaurant systems
are integrated with our financial and human resources systems to
support our financial reporting processes and controls. On a
weekly basis, condensed operating statements provide management
with a detailed analysis of sales, product, labor and other key
costs.
We maintain a comprehensive security strategy including an
incident recovery plan, which is in place and is reviewed and
tested at an off-site facility annually. We also maintain PCI
DSS Level I security compliance and have an annual
assessment performed by a third party qualified security
assessor.
60
Franchise
Restaurants
We currently have two franchisees CMAC, Inc. and
L.G. Enterprises. As of May 2, 2010, CMAC, Inc. had 18
restaurants in North Carolina, South Carolina and Georgia, and
L.G. Enterprises had eight restaurants in California. Both
franchisees originally had development agreements that
prohibited us from developing, owning, operating or granting a
license to anyone else to operate a Logans Roadhouse
restaurant in their respective territories. The development
agreements with CMAC, Inc. and L.G. Enterprises (which
prohibited us from developing new restaurants within
franchisees respective territories) have expired.
Therefore, we are no longer prohibited from developing new
restaurants within our franchisees respective territories
except that we are generally prohibited from developing new
restaurants within five miles of existing CMAC, Inc. or
L.G. Enterprises operated restaurants.
Our existing franchisees operate under a form of franchise
agreement that has an initial term of 20 years and contains
either one or two five-year renewal options, exercisable upon
the satisfaction of certain conditions. Our franchise agreements
with our existing franchisees require that they pay us a royalty
fee ranging from 3.0% to 3.5% of restaurant sales, depending on
when the agreements were executed, and to pay us annually up to
1.0% of restaurant sales into an advertising fund. We have the
right to require our franchisees to make certain advertising
expenditures in their local markets.
We do not offer financing, financial guarantees or other
financial assistance to either of our franchisees and do not
have an ownership interest in their properties or assets. We do
not currently expect to establish any new franchises.
Properties
Our corporate headquarters are located in Nashville, Tennessee.
We occupy our current facility, which is approximately
38,500 square feet, under a lease that expires in February
2015. We also occupy a 6,000 square feet culinary training
center under a lease that expires in February 2015.
61
As of May 2, 2010, we own three restaurant locations and
lease 182 restaurant locations. As of May 2, 2010, we have
purchased one additional property and have an additional 13
properties subject to executed contracts for future restaurant
sites. The following is a list of all of our properties as of
May 2, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant Properties
|
|
|
Owned
|
|
Leased
|
|
Total
|
|
Alabama
|
|
|
1
|
|
|
|
18
|
|
|
|
19
|
|
Arizona
|
|
|
1
|
|
|
|
3
|
|
|
|
4
|
|
Arkansas
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
Florida
|
|
|
|
|
|
|
11
|
|
|
|
11
|
|
Georgia
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
Illinois
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
Indiana
|
|
|
|
|
|
|
12
|
|
|
|
12
|
|
Kansas
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
Kentucky
|
|
|
1
|
|
|
|
8
|
|
|
|
9
|
|
Louisiana
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
Michigan
|
|
|
|
|
|
|
15
|
|
|
|
15
|
|
Mississippi
|
|
|
|
|
|
|
7
|
|
|
|
7
|
|
Missouri
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
Ohio
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
Oklahoma
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
Pennsylvania
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
Tennessee
|
|
|
|
|
|
|
22
|
|
|
|
22
|
|
Texas
|
|
|
|
|
|
|
33
|
|
|
|
33
|
|
Virginia
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
West Virginia
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3
|
|
|
|
182
|
|
|
|
185
|
|
Of the 182 leased properties, 106 are land leases and 76 are
land and building leases.
Employees
As of May 2, 2010, we employed approximately
15,000 people, of whom 117 were executive and
administrative (including 21 regional managers), 725 were
restaurant management and the remainder were hourly restaurant
personnel. Many of our hourly restaurant employees work
part-time. None of our employees are covered by a collective
bargaining agreement. We believe that we have good relations
with our employees.
Competition
The restaurant industry is fragmented and intensely competitive.
We believe that competition in the restaurant industry is based
upon a variety of factors, including taste of menu items, price,
service, atmosphere, location and overall dining experience. Our
competitors include a large and diverse group of restaurant
operators ranging from independent local proprietors to
well-capitalized national restaurant chains, which vary
regionally in number, size, strength and sophistication. Our
primary competitors in the bar & grill segment include
Chilis Grill and Bar, Applebees Neighborhood Grill
and Bar, TGI Fridays and OCharleys, and our
primary competitors in the steakhouse segment include Longhorn
Steakhouse, Outback Steakhouse and Texas Roadhouse. For
information regarding the risks associated with competition, see
Risk Factors Risks Related to Our
Business Our success depends on our ability to
compete with many other restaurants.
62
Trademarks
and Service Marks
Our registered trademarks and service marks include the marks
Logans
Roadhouse®
and the design, our stylized logos set forth on the cover and
back pages of this prospectus,
Logans®
and the design, The
Logan®,
Onion
Brewski®,
Brewski
Onions®,
Peanut
Shooter®,
Roadies®
and The Real American
Roadhouse®,
as well as the peanut man logo and the trade dress element
consisting of the bucket used in connection with our
restaurant services.
We have used or intend to use all the foregoing marks in
connection with our restaurants or items offered through our
restaurants. We believe that our trademarks and service marks
have significant value and are important to our brand-building
efforts and identity and the marketing of our restaurant concept.
Government
Regulation
We and our franchisees are subject to a variety of federal,
state and local laws. Each of our and our franchisees
restaurants is subject to permits, licensing and regulation by a
number of government authorities, relating to alcoholic beverage
control, health, safety, sanitation, and building and fire
codes, including compliance with the applicable zoning, land use
and environmental laws and regulations. Difficulties in
obtaining or failure to obtain required licenses or approvals
could delay or prevent the development of a new restaurant in a
particular area.
Alcoholic beverage control regulations require each of our and
our franchisees restaurants to apply to a state authority
and, in certain locations, county or municipal authorities for a
license that must be renewed annually and may be revoked or
suspended for cause at any time. Alcoholic beverage control
regulations affect many aspects of restaurant operations,
including minimum age of patrons and employees, hours of
operation, advertising, trade practices, wholesale purchasing,
inventory control and handling, and storage and dispensing of
alcoholic beverages.
We are subject in certain states to dram shop
statutes, which generally provide a person injured by an
intoxicated person 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 comprehensive general liability insurance policy, which
includes a $250,000 self-insured retention and an excess
umbrella coverage of up to $75.0 million.
Our restaurant operations are also subject to federal and state
laws governing such matters as the minimum hourly wage,
unemployment tax rates, sales tax and similar matters.
Significant numbers of our employees are paid at rates related
to the federal minimum wage, which currently is $7.25 per hour.
Increases in the federal minimum wage or changes in the tip
credit amount would increase our labor costs.
Our facilities must comply with the applicable requirements of
the ADA and related state accessibility statutes. Under the ADA
and related state laws, we must provide equivalent service to
disabled persons and make reasonable accommodation for their
employment, and when constructing or undertaking significant
remodeling of our restaurants, we must make those facilities
accessible.
We are subject to laws and regulations relating to nutritional
content, nutritional labeling, product safety and menu labeling.
Regulations relating to nutritional labeling may lead to
increased operational complexity and expenses and may impact our
sales.
Litigation
Occasionally, we are a defendant in litigation arising in the
ordinary course of our business, including claims resulting from
slip and fall accidents, dram shop
claims, construction-related disputes, employment-related
claims, and claims from customers or employees alleging illness,
injury or other food quality, health or operational concerns. As
of the date of this prospectus, we are not a party to any
litigation that we believe could have a material adverse effect
on our business, results of operations or financial condition.
63
MANAGEMENT
Set forth below are the name, age, position and description of
the business experience of each of our executive officers,
directors and other key employees as of May 2, 2010:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s)
|
|
G. Thomas Vogel
|
|
|
46
|
|
|
President, Chief Executive Officer and Director
|
Amy L. Bertauski
|
|
|
40
|
|
|
Chief Financial Officer
|
Robert R. Effner
|
|
|
44
|
|
|
Senior Vice President of Development and Operations Innovation
|
Stephen R. Anderson
|
|
|
47
|
|
|
Senior Vice President of Marketing, Food & Beverage
|
James B. Kuehnhold
|
|
|
48
|
|
|
Divisional Vice President of Operations
|
Paul S. Pendleton
|
|
|
49
|
|
|
Divisional Vice President of Operations
|
Lynne D. Wildman
|
|
|
41
|
|
|
Vice President of Purchasing
|
Thomas D. Barber
|
|
|
36
|
|
|
Director
|
Edward P. Grace III
|
|
|
59
|
|
|
Director
|
Michael K. Hooks
|
|
|
47
|
|
|
Director
|
Michael P. ODonnell
|
|
|
54
|
|
|
Director
|
Jacob A. Organek
|
|
|
32
|
|
|
Director
|
Harold O. Rosser
|
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Director
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Executive
Officers
G. Thomas Vogel has served as our President and
Chief Executive Officer since July 2006 and as a member of our
board of directors since December 2006. Mr. Vogel joined
Logans Roadhouse in August 2003 as President and Chief
Operating Officer. Before joining Logans Roadhouse, he
spent 12 years at Darden Restaurants, Inc., where he held
positions in operations, concept development, food and beverage
and marketing. While with Darden Restaurants, Mr. Vogel
served as the Senior Vice President of Operations for the
Southeast Division of Red Lobster. He has 24 years of
experience in the restaurant industry and has earned awards for
innovation and sales excellence. Mr. Vogel holds a B.B.A.
in Hotel and Restaurant Management from the University of
Central Florida and an M.B.A. from the University of Florida.
Mr. Vogels qualifications to serve on our board of
directors include his knowledge of our Company and the
restaurant industry and his years of leadership at our Company.
Amy L. Bertauski has served as our Chief Financial
Officer since December 2006. Ms. Bertauski has
responsibility for all aspects of finance, accounting, treasury,
information technology, benefits and risk management. She joined
Logans Roadhouse in May 2000 as the Director of
Accounting. Ms. Bertauski was promoted to Vice President of
Accounting in August 2004 and to Senior Vice President of
Accounting & Finance and Principal Accounting Officer
in August 2006. Prior to joining Logans Roadhouse,
Ms. Bertauski worked for two years with Applebees
International as the Manager of Corporate Accounting and for
three years at Rio Bravo as an Accounting Manager. In addition
to 15 years of restaurant industry experience,
Ms. Bertauski also worked for four years with Arthur
Andersen in their audit practice. Ms. Bertauski holds a
B.S. in Accounting from the University of Illinois.
Robert R. Effner has served as our Senior Vice President
of Development and Operations Innovation since August 2005. He
is responsible for real estate, facilities, franchise relations,
design and construction, training and other operational
initiatives. He joined Logans Roadhouse in December 2003
as our Vice President of Concept Development. Prior to joining
Logans Roadhouse, he spent 20 years at Darden
Restaurants, Inc., where he held positions at Red Lobster in
operations, training, strategic planning, operations
development, concept development and prototype development. His
work has received the Brand Reinvention Award from Chain
Store Age and the Successful Settings Award from
Nations Restaurant News.
64
Stephen R. Anderson has served as our Senior Vice
President of Marketing, Food & Beverage since August
2008. Mr. Anderson joined Logans Roadhouse as Senior
Director of Menu & Culinary Innovation in October
2003. Before joining Logans Roadhouse, Mr. Anderson
worked in marketing for Red Lobster as the Director of Product
Development and Corporate Executive Chef. He has also served as
executive chef at several independent restaurants and worked for
the Harvey Hotel Corporation in Dallas, Texas. He has spent over
31 years in the restaurant business and has won several
industry awards, including the 1999 and 2005 MenuMasters Awards
for Best Menu Revamp and the 2002 MenuMasters Award for Chef on
the Rise/Innovator from Nations Restaurant News. He
was also recognized by Restaurant Business magazine as
the 2001 Menu Strategist of the Year and the 2001 Menu
Strategist for casual dining chefs. Mr. Anderson holds a
B.S. in Hotel Administration from Cornell University and an
M.B.A. from the University of Florida.
James B. Kuehnhold is a Divisional Vice President of
Operations and is responsible for all aspects of day to day
operations for the markets and regional managers he oversees.
Mr. Kuehnhold joined Logans Roadhouse in July 2001
and has over 30 years experience in the restaurant
industry. Prior to joining Logans Roadhouse,
Mr. Kuehnhold was with Romanos Macaroni Grill as a
Regional Manager. In addition, Mr. Kuehnhold was with Olive
Garden for five years where he served as Regional Manager. He
also worked with Chevys/Rio Bravo for five years as a
Director of Operations, overseeing both concepts.
Paul S. Pendleton is a Divisional Vice President of
Operations and is responsible for all aspects of day to day
operations for the markets and regional managers he oversees.
Mr. Pendleton joined Logans Roadhouse in April 1999.
Mr. Pendleton has over 30 years experience in the
restaurant industry with 20 years of
multi-unit
restaurant experience, including as Director of Operations for
Cucina! Presto!. He was also a Regional Manager with The Cooker
Bar and Grille and began his restaurant career with
Houstons. Mr. Pendleton holds a B.S. in Hotel
Restaurant and Travel Administration with a concentration in
Food and Natural Resources from the University of Massachusetts.
Lynne D. Wildman is Vice President of Purchasing and is
responsible for all aspects of Logans supply chain
management. Ms. Wildman joined Logans Roadhouse in
November 2005. She has over 18 years of commodity,
restaurant purchasing and distribution experience. Prior to
joining Logans Roadhouse, Ms. Wildman was Vice
President of Purchasing for ARCOP, where she was a key player in
all aspects of purchasing for Arbys Purchasing
Cooperative. Before ARCOP, she served in key management and
leadership roles with Darden Restaurants, Inc. for almost eight
years. She has also held strategic purchasing and development
positions with YUM! brands as well as Cargill. Ms. Wildman
holds a B.A. and M.A. in Agricultural Economics from the
University of Illinois.
Our executive officers are appointed by our board of directors
and serve until their successors have been duly elected and
qualified or their earlier resignation or removal. There are no
family relationships among any of our directors or executive
officers.
Directors
We believe our board of directors should be comprised of
individuals with sophistication and experience in many
substantive areas that impact our business. We believe
experience, qualifications or skills in the following areas are
most important: restaurant and real estate; accounting, finance
and capital structure; strategic planning and leadership of
complex organizations; legal, regulatory and government affairs;
people management; and board practices of other entities. We
believe that all of our current board members possess the
professional and personal qualifications necessary for board
service and have highlighted particularly noteworthy attributes
for each board member in the individual biographies below, or
above in the case of Mr. Vogel.
Thomas D. Barber has served as a member of our board of
directors since December 2006. Mr. Barber is a Principal at
Black Canyon Capital LLC, where he has worked since 2005. He
also serves as a Director of Archway Marketing Services, Grenax
Broadcasting, Malibu Boats and Triton Media. Prior to joining
Black Canyon, Mr. Barber served as Vice President at Credit
Suisse First Boston in the investment banking division from 2001
to 2005. Prior to Credit Suisse First Boston, Mr. Barber was
employed at JW Childs Associates, a private equity firm in
Boston, and JUMP Investors, a venture capital firm based in Los
Angeles. Mr. Barber
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began his career in the Los Angeles office of Donaldson, Lufkin
& Jenrettes Investment Banking Group. As a result of
these and other professional experiences, Mr. Barber brings to
the board, among other skills and qualifications, detailed
knowledge of the financing markets, financing agreements and
capital structure optimization based on 13 years of
experience as an investment banker and investor. In addition,
Mr. Barber is highly experienced in trend analysis and financial
performance evaluation specifically as it relates to the
restaurant industry based on his oversight of Black
Canyons consumer related investing activities.
Mr. Barber is also adept at evaluating and guiding business
strategy based on his years of experience advising and investing
in companies across a wide range of industries. Mr. Barber
received his B.A. in Political Science from the University of
California at Berkeley.
Edward P. Grace III has served as a member of our
board of directors since December 2008. Mr. Grace also has
served as a Director of Not Your Average Joes, Inc. since
2003, and is Chairman of the Executive Committee at
Johnson & Wales University. Mr. Grace is
President of Phelps Grace International Inc., a position he has
held since January 1997. Mr. Grace is the founder and
former CEO, President, and Chairman of The Capital Grille and
Bugaboo Creek Steakhouse chains, which traded on NASDAQ.
Mr. Grace also has served as former Vice Chairman of
publicly traded RARE Hospitality International from 1997 to 1999
and as Chairman of publicly traded Homestyle Buffet Inc.
Mr. Grace also served as a Director of Claim Jumper
Restaurants, Inc. from October 2006 to December 2008 and as a
Director of Boston Restaurant Associates, Inc. from April 2004
to December 2006. Mr. Grace has served as a Director of the
National Restaurant Association in Washington, The National
Restaurant Associations Educational Foundation in Chicago,
the National Cattlemens Beef Association, Boston
Restaurant Associates and Longhorn Steaks, Inc. Mr. Grace
brings over 40 years of restaurant industry experience to
the Board, and among other skills and qualifications, his
significant knowledge and understanding of the industry,
specifically the steakhouse segment, and his experience serving
as a Director and officer of a number of other publicly traded
companies and associations in the restaurant industry.
Mr. Grace graduated with a B.A. from the University of
Vermont.
Michael K. Hooks has served as a member of our board of
directors since December 2006. Mr. Hooks is the founder and
Managing Director of Black Canyon Capital LLC, where he has
worked since 2004. Mr. Hooks currently serves on the Board
of Directors of Grenax Broadcasting, JDC Healthcare, Malibu
Boats, Saunders & Associates, Switchcraft, and TASI
Holdings, and has previously served on the Board of Pfeiffer
Vacuum Technology. Prior to founding Black Canyon in 2004,
Mr. Hooks was the Co-Head of the Los Angeles Investment
Banking Department of Credit Suisse First Boston from 2000 to
2004. Prior to Credit Suisse, Mr. Hooks was a Managing
Director in the Los Angeles office of Donaldson,
Lufkin & Jenrette from 1990 to 2000. Mr. Hooks
began his career in the Beverly Hills office of Drexel Burnham
Lambert. As a result of these and other professional
experiences, Mr. Hooks possesses particular knowledge and
experience in finance and capital structure based on his more
than 20 years of experience as an investment banker and an
investor; strategic planning and leadership of complex
organizations based on his management of Black Canyons
investing activities and previous experience running an
investment banking office at Credit Suisse; evaluating and
hiring management talent; and implementing best board practices
based on his current and previous board experiences.
Mr. Hooks received his A.B. in Economics from Princeton
University and his M.B.A. from the Wharton School at the
University of Pennsylvania.
Michael P. ODonnell has served as a member of our
board of directors since June 2007. Mr. ODonnell is
currently President and CEO of Ruths Hospitality Group, a
publicly traded restaurant group where he is responsible for the
overall strategic and operational direction of the company. In
addition to the board of Ruths Hospitality Group, Inc.,
Mr. ODonnell is also a Director of Cosi, Inc. and
Sbarro, Inc. Mr. ODonnell has previously served as
the Chief Executive Officer, President and Chairman of the Board
of Champps Entertainment, Inc. from March 2005 to November 2007
and as Chief Executive Officer and Director of Sbarro, Inc. from
September 2003 to March 2005. Prior to that,
Mr. ODonnell held the position of President and Chief
Executive Officer of New Business at Outback Steakhouse, Inc. As
a result of these and other professional experiences,
Mr. ODonnell brings to the board the knowledge,
qualifications and leadership skills that come from
30 years of experience in the restaurant industry,
including significant experience at the senior executive and
board level in both the bar & grill and steakhouse
segments. Mr. ODonnell received his B.A. in English
from Rollins College.
66
Jacob A. Organek has served as a member of our board of
directors since September 2009. Mr. Organek is a Managing
Director at Bruckmann, Rosser, Sherrill & Co.,
Management, L.P., where he has worked since 2003.
Mr. Organek is also a Director of Il Fornaio (America)
Corporation. Previously, he worked in the Investment Banking
division of Lehman Brothers from 2000 to 2002. Mr. Organek
has served in other private board capacities and has been
involved in structuring and managing investments for over
10 years including several investments in the restaurant
industry. As a result of these and other professional
experiences, Mr. Organek possesses significant knowledge
and experience in the restaurant industry as well as corporate
finance, strategic planning and board practices. Mr. Organek
received his B.B.A. from the University of Michigan.
Harold O. Rosser has served as a member of our board of
directors since December 2006. Mr. Rosser is a Managing
Director and founder of Bruckmann, Rosser, Sherrill and Co.,
Management, L.P., a New York based private equity firm where he
has worked since 1995. From 1987 through 1995 Mr. Rosser
was an officer at Citicorp Venture Capital. Prior to joining
CVC, he spent 12 years with Citicorp/Citibank in various
management and corporate finance positions. Mr. Rosser
currently serves on the Board of Directors of Ruths
Hospitality Group, Inc., Il Fornaio (America) Corporation, Bravo
Brio Restaurant Group, Inc. and Wilson Farms, Inc.
Mr. Rosser is also a member of the Boards of Trustees of
the Culinary Institute of America and Wake Forest University.
Mr. Rosser formerly served as a director of several private
and public companies and has invested in and controlled more
than 16 restaurant companies since 1989. As a result of these
and other professional experiences, Mr. Rosser possesses
in-depth knowledge and experience in the restaurant industry,
corporate finance; strategic planning and leadership of complex
organizations; and board practices of private and public
companies and other entities that strengthen the boards
collective qualifications, skills and experience.
Mr. Rosser earned his B.S. from Clarkson University and
attended Management Development Programs at Carnegie-Mellon
University and the Stanford University Business School.
Each of Messrs. Barber, Grace, Hooks, ODonnell, Organek
and Rosser was elected to our board of directors in accordance
with the terms of our stockholders agreement.
Corporate
Governance
Board
Composition
Our board of directors currently consists of seven members, all
of whom were elected as directors under the board composition
provisions of our stockholders agreement. The
stockholders agreement entitles BRS to nominate three
members of our board, Black Canyon and Canyon Capital to each
nominate one member of our board and jointly nominate one member
of our board and provides that our Chief Executive Officer will
be a member of the board. Messrs. ODonnell, Organek
and Rosser were nominated to our board by BRS. Mr. Hooks
was nominated to our board by Black Canyon. Mr. Barber was
nominated to our board by Canyon Capital and Mr. Grace was
jointly nominated to our board by Black Canyon and Canyon
Capital. The stockholders agreement will terminate upon
the consummation of this offering.
Our amended and restated certificate of incorporation, which we
will adopt prior to the completion of this offering, will
provide that our board of directors shall consist of such number
of directors as determined from time to time by resolution
adopted by a majority of the total number of directors then in
office. Any additional directorships resulting from an increase
in the number of directors may be filled by the directors then
in office. The term of office for each director will be until
the earlier of the election and qualification of his or her
successor, or his or her death, resignation or removal.
Stockholders will elect directors each year at our annual
meeting.
Our amended and restated certificate of incorporation will
provide that our board of directors will be divided into three
classes, with each director serving a three-year term (except
for the initial terms for the Class I and Class II
directors as shown below), and one class of directors being
elected at each years annual meeting of
stockholders. and will
serve as Class I directors with an initial term expiring in
2011. and
will serve as Class II directors with an initial term
expiring in
2012. and
will serve as Class III directors with an initial term
expiring in 2013. Any additional directorships resulting from an
increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class
will consist of one-third of the total number of directors.
67
Our board of directors has determined that
Messrs. , , ,
and are
independent as such term is defined by The NASDAQ
Stock Market corporate governance standards and the federal
securities laws.
Controlled
Company
Upon completion of this offering, BRS, Black Canyon and Canyon
Capital will, collectively, continue to control a majority of
the voting power of our outstanding Class A common stock.
As a result, we will be a controlled company under
The NASDAQ Stock Market corporate governance standards. As a
controlled company, exemptions under the standards will free us
from the obligation to comply with certain corporate governance
requirements, including the requirements:
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that a majority of our board of directors consists of
independent directors, as defined under the rules of
The NASDAQ Stock Market;
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that we have a corporate governance and nominating committee
that is composed entirely of independent directors with a
written charter addressing the committees purpose and
responsibilities;
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that we have a compensation committee that is composed entirely
of independent directors with a written charter addressing the
committees purpose and responsibilities; and
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for an annual performance evaluation of the nominating and
governance committees and compensation committee.
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These exemptions do not modify the independence requirements for
our Audit Committee, and we intend to comply with the
requirements of
Rule 10A-3
of the Exchange Act and the rules of The NASDAQ Stock Market
within the applicable time frame.
Board
Committees
Upon completion of this offering, our board of directors will
have a standing Audit Committee, Compensation Committee and
Nominating and Corporate Governance Committee. Each of the
committees will report to the board of directors as they deem
appropriate, and as the board may request. The expected
composition, duties and responsibilities of these committees are
set forth below. In the future, our board may establish other
committees as it deems appropriate to assist it with its
responsibilities.
Audit
Committee
Currently, Messrs. Barber and Organek are members of the
Audit Committee. Following this offering, the Audit Committee
will be responsible for, among other matters:
(1) appointing, compensating, retaining, evaluating,
terminating and overseeing our independent registered public
accounting firm; (2) discussing with our independent
registered public accounting firm their independence from
management; (3) reviewing with our independent registered
public accounting firm the scope and results of their audit;
(4) approving all audit and permissible non-audit services
to be performed by our independent registered public accounting
firm; (5) overseeing the financial reporting process and
discussing with management and our independent registered public
accounting firm the interim and annual financial statements that
we file with the SEC; (6) reviewing and monitoring our
accounting principles, accounting policies, financial and
accounting controls and compliance with legal and regulatory
requirements; (7) establishing procedures for the
confidential anonymous submission of concerns regarding
questionable accounting, internal controls or auditing matters;
and (8) reviewing and approving related person transactions.
Upon completion of this offering, our Audit Committee will
consist
of ,
and .
The SEC rules and The NASDAQ Stock Market rules require us to
have one independent Audit Committee member upon the listing of
our Class A common stock on The NASDAQ Global Select
Market, a majority of independent directors within 90 days
of the date of the completion of this offering and all
independent Audit Committee members within one year of the date
of the completion of this offering. Our board of directors has
affirmatively determined
that
and
meet the definition of
68
independent directors for purposes of serving on an
Audit Committee under applicable SEC and The NASDAQ Stock Market
rules, and we intend to comply with these independence
requirements within the time periods specified. In
addition, will
qualify as our audit committee financial expert, as
such term is defined in Item 401(h) of
Regulation S-K.
Our board of directors will adopt a written charter for the
Audit Committee, which will be available on our corporate
website at www.logansroadhouse.com upon the completion of
this offering. Our website is not part of this prospectus.
Compensation
Committee
Currently, Messrs. Hooks and Rosser are members of our
Compensation Committee. Following this offering, the
Compensation Committee will be responsible for, among other
matters: (1) reviewing key employee compensation goals,
policies, plans and programs; (2) reviewing and approving
the compensation of our directors, chief executive officer and
other executive officers; (3) reviewing and approving
employment agreements and other similar arrangements between us
and our executive officers; and (4) administering our stock
plans and other incentive compensation plans.
Upon completion of this offering, our Compensation Committee
will consist
of ,
and .
Our board of directors has affirmatively determined
that
and
meet the definition of independent directors for
purposes of serving on a compensation committee under applicable
NASDAQ Stock Market rules.
Our board of directors will adopt a new written charter for the
Compensation Committee, which will be available on our corporate
website at www.logansroadhouse.com upon the completion of
this offering. Our website is not part of this prospectus.
Corporate
Governance and Nominating Committee
Our Corporate Governance and Nominating Committee will be
responsible for, among other matters: (1) identifying
individuals qualified to become members of our board of
directors, consistent with criteria approved by our board of
directors; (2) overseeing the organization of our board of
directors to discharge the boards duties and
responsibilities properly and efficiently; (3) identifying
best practices and recommending corporate governance principles;
and (4) developing and recommending to our board of
directors a set of corporate governance guidelines and
principles applicable to us.
Upon completion of this offering, our Corporate Governance and
Nominating Committee will consist
of , and .
Our board of directors has affirmatively determined
that
and meet
the definition of independent directors for purposes
of serving on a corporate governance and nominating committee
under applicable The NASDAQ Stock Market rules.
Our board of directors will adopt a written charter for the
Corporate Governance and Nominating Committee, which will be
available on our corporate website at
www.logansroadhouse.com upon the completion of this
offering. Our website is not part of this prospectus.
Risk
Oversight
Our board of directors is currently responsible for overseeing
our risk management process. The board focuses on our general
risk management strategy and the most significant risks facing
us, and ensures that appropriate risk mitigation strategies are
implemented by management. The board is also apprised of
particular risk management matters in connection with its
general oversight and approval of corporate matters and
significant transactions.
Following the completion of this offering, our board will
delegate to the Audit Committee oversight of our risk management
process. Our other board committees will also consider and
address risk as they perform their respective committee
responsibilities. All committees will report to the full board
as appropriate, including when a matter rises to the level of a
material or enterprise level risk.
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Our management is responsible for
day-to-day
risk management. This oversight includes identifying,
evaluating, and addressing potential risks that may exist at the
enterprise, strategic, financial, operational, compliance and
reporting levels.
Compensation
Committee Interlocks and Insider Participation
None of our executive officers currently serves, or in the past
year has served, as a member of the board of directors or
compensation committee of any entity that has one or more
executive officers serving on our board of directors or
compensation committee.
Code of
Ethics
We will adopt a code of business conduct and ethics applicable
to our principal executive, financial and accounting officers
and all persons performing similar functions. A copy of that
code will be available on our corporate website at
www.logansroadhouse.com upon completion of this offering.
We expect that any amendments to the code, or any waivers of its
requirements, will be disclosed on our website. Our website is
not part of this prospectus.
Director
Compensation
We currently compensate non-employee members of our board of
directors who are not affiliated with BRS, Black Canyon or
Canyon Capital through a combination of cash and equity-based
compensation. Members of our board of directors who are also our
employees or who are affiliated with BRS, Black Canyon or Canyon
Capital do not receive cash or equity compensation for service
on our board of directors. Upon election to our board of
directors, each non-employee member of our board of directors
who is not affiliated with BRS, Black Canyon or Canyon Capital
is granted an option to purchase shares of our Class A
common stock. Historically, the number of shares of our
Class A common stock subject to the stock option granted to
a new non-employee director has not been determined using a
formula. Instead, the number of shares underlying the initial
option grant varies depending on the board of directors
assessment of the new directors experience and the value
of our Class A common stock at the time of the
directors commencement of service. The initial option
grant will vest in equal annual installments over five years
from the date of grant. In addition, each of our non-employee
directors who are not affiliated with BRS, Black Canyon or
Canyon Capital receives an annual retainer fee of $25,000. Each
member of our board of directors is also entitled to
reimbursement for reasonable travel and other expenses incurred
in connection with attending board meetings and meetings for any
committee on which he or she serves.
On December 6, 2008, our board of directors granted options
to purchase 1,765 shares of our Class A common stock
to Mr. Grace with a per share exercise price of $10.00. The
performance-based stock options were granted under our 2007 Plan
and have a 10-year term. The options vest at a rate of 20% per
year over five years, subject to his continued service as a
member of our board of directors. The performance-based stock
options do not become exercisable unless and until each of BRS,
Black Canyon and Canyon Capital (i) receive net proceeds equal
to or in excess of a specified multiple of its internal
investment and (ii) achieve a stipulated internal rate of
return, or IRR, on its initial investment in connection with an
approved sale or qualified public offering. See
Elements of compensation Long-Term
Equity-Based Compensation.
70
The following table sets forth information for fiscal year 2009
regarding the compensation awarded to, earned by or paid to, our
directors.
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Fees Earned or
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Option
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Paid in Cash
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Awards
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Total
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Name
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($)
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($)(1)
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($)
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Thomas D. Barber
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$
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$
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$
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Edward P. Grace III(1)
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18,750
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7,148
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25,898
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Michael K. Hooks
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Michael P. ODonnell
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25,000
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25,000
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Jacob A. Organek
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Harold O. Rosser
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Richard R. Leonard
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(1)
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Mr. Grace received a pro rata
portion of the annual retainer fee upon his election to our
board of directors effective
December 2008.
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(2)
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Amount reflects the aggregate grant
date fair value of options granted during fiscal year 2009
computed in accordance with applicable accounting guidance. The
valuation assumptions used in determining such amounts are
described in Note 18 to our consolidated financial
statements included elsewhere in this prospectus. At
August 2, 2009, Messrs. Grace and ODonnell each
had 1,765 stock options outstanding with an exercise price of
$10.00 per share.
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We are currently in the process of determining the compensation
packages of the directors who will comprise our board of
directors following consummation of this offering. Because this
is an ongoing process, it is not currently possible to include
meaningful disclosure on this subject. Accordingly, we have not
included a section discussing the details of our anticipated
director compensation program. As the process progresses, we
will include the relevant disclosure in subsequent amendments to
the registration statement, of which this prospectus forms a
part. We anticipate that only those directors who are not
affiliated with BRS, Black Canyon or Canyon Capital and are
considered independent directors under the rules of The NASDAQ
Stock Market will receive compensation from us for their service
on our board of directors.
71
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
The purpose of this compensation discussion and analysis section
is to provide information about the material elements of
compensation that are paid, awarded to, or earned by, our
named executive officers, who consist of our
principal executive officer, principal financial officer and our
three other most highly compensated executive officers. For
fiscal year 2009, our named executive officers, were:
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G. Thomas Vogel, President and Chief Executive Officer;
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Amy L. Bertauski, Chief Financial Officer;
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Robert R. Effner, Senior Vice President of Development and
Operations Innovation;
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Stephen R. Anderson, Senior Vice President of Marketing,
Food & Beverage; and
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Lynne D. Wildman, Vice President of Purchasing.
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The role of our compensation committee is to assist our board of
directors in the discharge of its responsibilities relating to
our executive compensation program. Our compensation committee
is responsible for establishing and administering our policies
governing the compensation for our executive officers, including
determining base salaries, cash bonuses and equity incentive
compensation. Our compensation committee also considers the
recommendations of our President and Chief Executive Officer
when determining the appropriate levels of compensation for each
of our executive officers, including our named executive
officers. However, our President and Chief Executive Officer
does not make recommendations on his own compensation. The
members of our compensation committee are Messrs. Hooks and
Rosser.
We expect that, upon completion of this offering, our
compensation committee will undertake a substantial review of
our existing compensation programs, objectives and philosophy
and determine whether such programs, objectives, and philosophy
are appropriate for a public company. As we gain experience as a
public company, we expect that the specific direction, emphasis
and components of our executive compensation program will
continue to evolve. For example, over time we may reduce our
reliance upon subjective determinations made by our President
and Chief Executive Officer, and compensation committee
and/or board
of directors in favor of a more empirically-based approach that
may involve benchmarking against peer companies. Accordingly,
the compensation paid to our named executive officers for fiscal
year 2009 is not necessarily indicative of how we will
compensate our named executive officers after this offering. We
also expect that, after completion of this offering, our
compensation committee will consist
of , and .
Compensation
Philosophy and Objectives
We have designed our executive compensation program to help
attract talented individuals to manage and operate all aspects
of our business, to reward those individuals based on corporate
results, and to retain those individuals who continue to meet
our expectations. We also intend for our executive compensation
program to make us competitive within the restaurant and
foodservice industry, where there is significant competition for
talented leaders who possess the skills and experience to build
and deliver on long-term value creation. We believe that the
compensation of our executive officers should incentivize them
to focus on the achievement of both short- and long-term
business objectives and strategies. In that regard, we have
strived to create an executive compensation program that
balances short-term versus long-term payments and awards, cash
payments versus equity-based awards and fixed versus contingent
payments and awards in ways that we believe are most appropriate
to motivate our executive officers. Our executive compensation
program is designed to:
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attract and retain talented and experienced executives in our
industry;
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reward executives whose knowledge, skills and performance are
critical to our success;
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72
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align the interests of our executive officers and stockholders
by motivating executive officers to increase stockholder value
and rewarding executive officers when stockholder value
increases;
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motivate the executive management team by recognizing the
contributions each executive makes to our success;
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foster a shared commitment among executives by aligning their
individual objectives with the interests of the executive
management team and our company; and
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compensate our executives in a manner that incentivizes them to
manage our business to meet our long-range objectives.
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A significant portion of the compensation of our named executive
officers has historically consisted of cash incentive
compensation and equity-based compensation contingent upon the
achievement of financial and operational performance metrics.
These two elements of executive compensation are aligned with
the interests of our stockholders because the amount of
compensation ultimately received will vary with our financial
performance. Equity-based compensation derives its value from
our equity value, which is likely to fluctuate based on our
financial performance. Payment of cash incentives is dependent
on our achievement of pre-determined financial objectives.
We seek to apply a consistent philosophy to compensation for all
executive officers. The compensation components described below
simultaneously fulfill one or more of the above principles and
objectives.
Competitive
Analysis
For fiscal year 2009, the head of our human resources department
compiled executive compensation data from the Chain Restaurant
Compensation Association Compensation Survey to assist with the
assessment of our compensation programs. This survey included
data from approximately 125 restaurant concepts. The
compensation committee
and/or board
of directors reviewed the data compiled by our human resources
department from this survey regarding executive compensation
paid by companies against which we believe we compete for
executive talent to gain a general understanding of current
compensation practices.
The compensation of each of the named executive officers was
compared to competitive market ranges derived from the
compensation programs of companies participating in the surveys
for executives with comparable positions and job
responsibilities. The compensation components reviewed for each
position were base salary, annual cash bonus and long-term
incentives, both individually and in the aggregate. Although the
survey data was used as an important measure for assessing
competitive levels of compensation for our named executive
officers, we did not benchmark the compensation of our named
executive officers against the companies participating in the
survey. Rather, the survey data was used as a guide to gain a
general understanding of current compensation practices. The
compensation committee
and/or board
of directors exercised their discretion in setting both the
individual compensation components and the total pay of each of
our named executive officers at levels that were commensurate
with their specific positions and job responsibilities, taking
into account the need to retain and motivate our named executive
officers to achieve superior levels of performance.
Compensation
Decision-Making Process
Prior to this offering, we were a privately-held company with a
relatively small number of stockholders, including our principal
stockholders, BRS, Black Canyon and Canyon Capital. As a result,
we have not been subject to any stock exchange listing or SEC
rules requiring a majority of our board of directors to be
independent or relating to the formation and functioning of the
various board committees. In March 2007, our board of directors
formed a compensation committee.
Compensation of our named executive officers has historically
been highly individualized, resulting from independent
negotiations between us and such individuals and based on a
variety of informal factors considered at the time of the
applicable compensation decisions, including our financial
condition and available resources, the need for a particular
position to be filled, the length of service of the named
executive
73
officer and comparisons to the compensation levels of our other
executives. We entered into an employment agreement with our
President and Chief Executive Officer in December 2006, which
sets forth many of the terms of his compensation. We do not
currently have employment agreements with any other named
executive officer.
In addition, we informally consider the competitive market for
corresponding positions within comparable geographic areas and
companies of similar size and stage of development operating in
the restaurant and foodservice industry. This informal
consideration was based on the general knowledge possessed by
our President and Chief Executive Officer regarding the
compensation provided to certain executive officers of other
companies in our industry through informal discussions with
recruiting firms, general research and survey data and informal
benchmarking against his personal knowledge of the competitive
market. Historically, our President and Chief Executive Officer
and our compensation committee, and, in the case of our
President and Chief Executive Officer, our board of directors,
has typically reviewed the performance of each of our named
executive officers on an annual basis, though we do not set a
predetermined time for such review. Our President and Chief
Executive Officer, based on his experience and the performance
reviews of our executives, recommends compensation levels for
our named executive officers, other than himself, to our
compensation committee for approval. Our compensation committee,
based in part on the President and Chief Executive
Officers recommendations, then presents compensation
levels to the board of directors for approval.
We anticipate that our compensation committee will more formally
benchmark executive compensation against a peer group of
comparable companies in the future. We also anticipate that our
compensation committee may make adjustments in executive
compensation levels in the future as a result of this more
formal benchmarking process.
We have not retained a compensation consultant to assist in
determining or recommending the amount or form of executive
compensation, although the compensation committee may elect in
the future to retain a compensation consultant if it determines
that doing so would assist it in implementing and maintaining
compensation plans.
Elements
of Compensation
Our current executive compensation program, which was set by our
board of directors, in consultation with our compensation
committee and our President and Chief Executive Officer,
consists of the following components:
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base salary;
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annual cash incentive awards linked to corporate performance;
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periodic grants of long-term equity-based compensation, such as
performance-based stock options;
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other executive benefits;
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retirement benefits; and
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employment agreements, which contain termination and change of
control benefits.
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Executive compensation includes both fixed components (base
salary and benefits) and variable components (annual
bonus/incentive and performance-based stock option grants). Each
component is linked to one or more of the strategic objectives
listed above. The fixed components of compensation are designed
to be competitive in order to induce talented executives to join
our company. Revisions to the fixed components of compensation
occur infrequently aside from our annual salary review, which
generally results in salary increases that range from 5% to 10%.
Salary increases are, in part, designed to reward executives for
their management activities during the year and to maintain
their level of income with respect to cost of living increases.
The variable compensation related to the annual bonus program is
tied to the achievement of our annual financial objectives and
is designed so that above average performance is rewarded with
above average rewards. Target bonus levels, as a percentage of
base salary, are set once the executive is hired and generally
74
relate to his or her scope of responsibility, with revisions
typically occurring upon promotions or substantial increases to
the executives scope of responsibility. Although target
bonus levels, as a percentage of base salary, generally do not
change, the opportunity to earn bonus payments above the target
amount for any one year does exist for an executive based upon
our overall financial performance. Our bonus policy is designed
to align each executives annual objectives for their
respective area of responsibility with the financial goals of
the entire business as set by our board of directors.
The other material element to variable compensation is
performance-based stock option grants awarded pursuant to the
2007 Plan. Our board of directors
and/or
compensation committee has not typically made annual grants of
stock options. The grants awarded under the 2007 Plan have had
no public market and no opportunity for liquidity, making them
inherently long-term compensation. The awards have been used to
motivate executives and employees to individually and
collectively build long-term stockholder value that might in the
future create a liquid market opportunity.
Base
Salary
A primary component of compensation of our executive officers
has historically been base salary. Base salary is designed to
provide our executive officers with steady cash flow during the
course of the fiscal year that is not contingent on short-term
variations in our corporate performance. The base salary
established for each of our executive officers is intended to
reflect each individuals responsibilities, the skills and
experience required for the job, their individual performance,
our business performance, labor market conditions and
competitive market salary levels. The compensation committee
and/or board
of directors determine market level compensation for base
salaries based on our executives experience in the
industry with reference to the base salaries of similarly
situated executives in other companies of similar size and stage
of development operating in the restaurant and foodservice
industry. This determination is informal and based primarily on
the general knowledge of members of our compensation committee,
based upon input from our President and Chief Executive Officer,
and/or board
of directors of the compensation practices within our industry
and any relevant informal competitive market data made available
to them during the preceding year, through informal discussions
with recruiting firms, research and informal benchmarking
against their personal knowledge of the competitive market.
Base salaries are reviewed each fiscal year by our compensation
committee and our President and Chief Executive Officer, and
salary increases typically take effect at the beginning of each
fiscal year, unless business circumstances require otherwise. In
past years, our compensation committee
and/or board
of directors reviewed the performance of all executive officers,
and based on this review and any relevant informal competitive
market data made available to them during the preceding year,
through informal discussions with recruiting firms, research and
informal benchmarking against our compensation committees
and/or board
of directors personal knowledge of the competitive market,
set the salary level for each executive officer for the coming
year.
Mr. Vogels employment agreement sets forth his
initial annual salary of $400,000 in 2006 and provides for
salary increases from time to time at the sole discretion of our
board of directors. As part of our annual review process, in
July 2008, our board of directors determined to increase
Mr. Vogels base salary, effective July 2008, to
$462,000 for fiscal year 2009 from $420,000 based upon his
leadership during the prior fiscal year, which drove continued
sales that outperformed industry peers, growth in new
restaurants and improved customer satisfaction.
As part of our annual review process, in July 2008, our
President and Chief Executive Officer recommended and our
compensation committee approved annual merit salary increases
for each of our named executive officers, except our President
and Chief Executive Officer, which was approved by our board of
directors. These merit increases for our named executive
officers for fiscal year 2009 ranged from 5% to 10% and took
into account accomplishments of each individual; for example,
Ms. Bertauskis contributions to financial management
and controls; Mr. Effners management of our new
restaurant growth and training developing programs;
Mr. Andersons contributions to menu development and
marketing initiatives; and Ms. Wildmans contributions
to supply chain management and efficiencies.
Ms. Bertauskis salary increased
75
from $215,000 to $236,500; Mr. Effners salary
increased from $205,000 to $225,500; Mr. Andersons
salary increased from $185,000 to $194,250; and
Ms. Wildmans salary increased from $190,000 to
$199,500.
In light of the uncertain and challenging macroeconomic
environment in early 2009, our President and Chief Executive
Officer decided as part of the annual review process in July
2009 not to recommend merit increases to the base salaries of
our named executive officers and other salaried employees for
fiscal year 2010 until economic conditions clarified.
Cash
Bonus
Our compensation committee
and/or board
of directors have authority to award annual cash bonuses to our
executive officers. The annual cash bonuses are intended to
offer incentive compensation by rewarding the achievement of
corporate objectives linked to our overall financial results. We
believe that establishing cash bonus opportunities helps us
attract and retain qualified and highly skilled executives.
These annual bonuses are intended to reward executive officers
who have a positive impact on corporate results.
On an annual basis, or at the commencement of an executive
officers employment with us, the compensation committee
and/or board
of directors typically set a target level of bonus compensation
that is structured as a percentage of such executive
officers annual base salary. An executive officers
target level of bonus is set between 0% to 100% of his or her
base salary. For fiscal year 2009, Mr. Vogels target
bonus amount was set in accordance with his employment agreement
at 100% of base salary. For fiscal year 2009, Ms. Bertauski
and Messrs. Effner and Andersons target bonus amount
was each set by the compensation committee at 60% of base salary
based upon each executives scope of responsibility and
impact upon our financial performance. For fiscal year 2009,
Ms. Wildmans target bonus amount was set by the
compensation committee at 45% of base salary based upon her
scope of responsibility and impact upon our financial
performance.
The actual bonuses awarded in any year, if any, may be more or
less than the target bonus amount, depending on the achievement
of corporate objectives, as discussed below. In addition, the
compensation committee
and/or board
of directors may adjust bonuses up or down due to extraordinary
or nonrecurring events, such as significant financings, equity
offerings or acquisitions, as well as unforeseen economic
conditions.
Each year we establish our corporate financial performance
objective and target amounts with reference to achieving pre-set
levels of desired financial performance, and with consideration
given to our annual and long-term financial plan, as well as to
macroeconomic conditions. For fiscal year 2009, the annual cash
bonus was linked to achievement of Adjusted EBITDA (as defined
in footnote 2 to the table in the Prospectus Summary
Summary Historical Consolidated Financial and Operating Data
section), within a range of $53.0 million to
$57.0 million. We believe this corporate performance
objective reflected our overall company goals for fiscal year
2009, which balanced the achievement of revenue growth and
improving our operating efficiency. The compensation committee
and/or board
of directors believe that this definition of Adjusted EBITDA
provides a meaningful understanding of our core operating
performance. For fiscal year 2009, our actual Adjusted EBITDA
was $65.1 million.
The corporate performance objective is based upon the
achievement of Adjusted EBITDA targets that are set at a
threshold amount and a target amount for the fiscal year by the
compensation committee
and/or board
of directors. No maximum amount is set. As in prior years, the
threshold target amount was set at an amount equal to the prior
year actual Adjusted EBITDA. The following table sets forth the
Adjusted EBITDA targets for the fiscal year 2009.
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Fiscal Year 2009
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Level of Payout
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Adjusted EBITDA
Targets
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Threshold
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$
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53.0 million
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Target
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$
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57.0 million
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No annual cash incentive would be payable to our named executive
officers unless the threshold amount is exceeded. Upon
achievement of performance between threshold and target amounts,
bonus amounts will be
76
based upon straight-line interpolation. Upon achievement of
performance in excess of the target amount, 25% of the amount
that actual Adjusted EBITDA exceeds the target amount funds a
bonus pool that is allocated to certain executive officers,
including our named executive officers. We refer to this amount
as the Additional Bonus Pool. The Additional Bonus
Pool is allocated to each executive officer based upon the
amount, as a percentage, such executive officer received in
relation to the total bonus amount paid to all executive
officers for achieving the target amount, excluding any amounts
paid from the Additional Bonus Pool. Accordingly, in fiscal year
2009, each named executive officer received approximately 160%
of his or her target bonus as a cash incentive award.
Based upon our achievement of Adjusted EBITDA above the target
amount, each of our named executive officers received their
respective target bonus amount plus their respective portion of
the Additional Bonus Pool. For fiscal year 2009, the Additional
Bonus Pool was approximately $2.0 million. The total
amounts awarded to our named executive officers as a cash bonus
for fiscal year 2009 are set forth below.
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Target Bonus
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Additional Bonus
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Total Bonus
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Amount
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Pool Amount
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Amount
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Name
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($)
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($)
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($)
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G. Thomas Vogel
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462,000
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739,855
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1,201,855
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Amy L. Bertauski
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141,900
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227,241
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369,141
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Robert R. Effner
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135,300
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216,672
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351,972
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Stephen R. Anderson
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116,550
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186,645
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303,195
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Lynne D. Wildman
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89,775
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143,767
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233,542
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We have not adopted a policy regarding the recovery of awards or
payments in the event the performance measures upon which the
awards or payments are based are restated or otherwise adjusted
in a manner that would have reduced the size of the awards or
payments.
Long-Term
Equity-Based Compensation
The compensation committee
and/or board
of directors believe that equity-based compensation is an
important component of our executive compensation program and
that providing a significant portion of our executive
officers total compensation package in equity-based
compensation aligns the incentives of our executives with the
interests of our stockholders and with our long-term corporate
success. Additionally, the compensation committee
and/or board
of directors believe that equity-based compensation awards
enable us to attract, motivate, retain and adequately compensate
executive talent. To that end, we have awarded equity-based
compensation in the form of stock options with performance-based
goals required to be met before the options may be exercised.
The compensation committee
and/or board
of directors believe stock options provide executives with a
significant long-term interest in our success by motivating our
named executive officers to achieve our long-term goals and by
rewarding the creation of stockholder value over time. We have
allocated approximately 15.0% of our outstanding Class A
common stock on a fully-diluted basis for option grants.
Generally, each executive officer is provided with a stock
option grant when they join our company based upon his or her
position with us and his or her relevant prior experience. These
inducement grants generally vest ratably over the course of five
years to encourage executive longevity and to compensate our
executive officers for their contribution to our success over a
period of time. In addition to stock options granted upon
commencement of employment with us, our compensation committee
may grant additional stock options to retain our executives and
to recognize the achievement of corporate and individual goals
and/or
strong individual performance.
Stock options are granted with an exercise price equal to or
greater than the fair market value of our stock on the
applicable date of grant. To date, because there has not been a
public market for our shares, fair market value has been
determined based on the good-faith determination of our board of
directors. Upon completion of this offering, we expect to
determine fair market value for purposes of stock option pricing
based on the closing price of our Class A common stock on
The NASDAQ Global Select Market on the date of grant.
77
In general, stock option grants to our executive officers are
determined at the discretion of the compensation committee
and/or board
of directors in consultation with our President and Chief
Executive Officer. In addition, the compensation committee
and/or board
of directors also consider the executive officers current
position with our company, the size of his or her total
compensation package and the amount of existing vested and
unvested stock options, if any, then held by the executive
officer. No formal benchmarking efforts are made by the
compensation committee
and/or board
of directors with respect to the size of option grants made to
executive officers and, in general, the determination process is
very informal. Historically, the compensation committee
and/or board
of directors has made all stock option grant decisions with
respect to our executive officers, and we anticipate that, upon
completion of this offering, our compensation committee will,
subject to approval by our board of directors as deemed
necessary by the compensation committee, determine the size and
terms and conditions of option grants to our executive officers
in accordance with the terms of the applicable plan and will
approve them on an individual basis.
We typically provide our named executive officers with
performance-based stock options that vest ratably over a
five-year period from the date of grant, subject to continued
employment on the vesting date. A greater number of stock
options are granted to our more senior executives who have more
strategic responsibilities and a more direct impact on corporate
results. The performance-based stock options generally do not
have any value to the recipient or become exercisable unless and
until each of BRS, Black Canyon and Canyon Capital, our
principal stockholders, (i) receive net proceeds equal to
or in excess of a specified multiple of its internal investment
and (ii) achieve a stipulated internal rate of return, or
IRR, on its initial investment in connection with an approved
sale or qualified public offering. Pursuant to each option
grant, 33.3% of the options become exercisable if the net
proceeds multiple is equal to or greater than 2 and the IRR
target equals or exceeds 15%; 66.6% of the options become
exercisable if the net proceeds multiple is equal to or greater
than 2 and the IRR target equals or exceeds 25%; 100% of the
options become exercisable if the net proceeds multiple is equal
to or greater than 3 and the IRR target equals or exceeds 35%.
In connection with this offering, the portion of the vested
options that do not become exercisable based upon the above net
proceeds multiple and IRR targets will remain outstanding in
accordance with terms of the applicable option grant.
In connection with this offering, the portion of the vested
options that do become exercisable based upon the above net
proceeds multiple and IRR targets shall become immediately
exercisable upon the completion of this offering, subject only
to any
lock-up
restrictions as described in Shares Available For
Future Sale
Lock-Up
Agreements. We do not intend to make any additional equity
grants in connection with the completion of this offering.
In December 2008, our compensation committee granted
performance-based stock options under our 2007 Plan to certain
executive officers and employees, as set forth in the table
below for the named executive officers. Our President and Chief
Executive Officer recommended the size of the grant to each
recipient in connection with the realignment and increased level
of responsibilities assigned to certain employees, including our
named executive officers, during the fiscal year, as well as
their respective level of impact on our overall financial
performance. During informal discussions with our compensation
committee our President and Chief Executive Officer proposed
that he be excluded from the grant in light of his existing
stock options. Each stock option has a
10-year
term, vests ratably over five years and is subject to the
performance conditions described above before the option becomes
exercisable. The per share exercise price for each of these
options was $10.00.
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Number of
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Name
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Stock Options
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G. Thomas Vogel
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Amy L. Bertauski
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2,059
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Robert R. Effner
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2,941
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Stephen R. Anderson
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1,000
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Lynne D. Wildman
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1,000
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2010
Omnibus Incentive Plan
Effective upon the completion of this offering, we will
implement the LRI Holdings, Inc. 2010 Omnibus Incentive Plan, or
2010 Plan. For more information relating to our 2010 Plan, see
LRI Holdings, Inc. 2010 Omnibus Incentive
Plan.
Our 2010 Plan will allow for the grant of other forms of equity
incentives in addition to stock options, such as grants of
restricted stock, restricted stock units and stock appreciation
rights. In the future, our compensation committee may consider
awarding such additional or alternative forms of awards to our
executive officers, although no decision to use such other forms
of award has yet been made.
Benefits
We provide the following benefits to our executive officers on
the same basis as other eligible employees:
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health insurance;
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vacation, personal holidays and sick days;
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life insurance;
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short-term and long-term disability; and
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a 401(k) plan with matching contributions.
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We believe these benefits are generally consistent with those
offered by other companies and specifically with those companies
with which we compete for employees.
Retirement
Benefits and Nonqualified Deferred Compensation
We maintain the Logans Roadhouse, Inc. Non-Qualified
Savings Plan, which we refer to as the Savings Plan,
which is intended to be an unfunded nonqualified deferred
compensation plan maintained for a select group of management or
highly compensated employees not subject to Parts 2, 3 and 4 of
the Employee Retirement Income Security Act of 1974, as amended,
which we refer to as ERISA. The Savings Plan allows eligible
employees, including our named executive officers, to defer
receipt of a portion of their base compensation (currently
between 1% and 50%)
and/or all
or a portion of their bonus for a calendar year until
termination of employment or upon the occurrence of other
specific events. We currently match 25% of the first 3% of the
eligible employees base compensation contributed to the
Savings Plan. The Savings Plan also allows us to match a
percentage, as determined by us, of the participants bonus
that is contributed to the Savings Plan. We did not elect to
match a participants bonus that was contributed for fiscal
year 2009. The participants elect among certain designated
deemed investments. A bookkeeping account has been established
to record each participants deferrals and any
contributions by us, and such accounts are credited with the
amount of gain or loss that such account earned or lost based on
the investment alternatives chosen by the participant and any
withdrawals or distributions. The Savings Plan is unfunded, but
we have established a grantor trust to hold assets to assist us
in paying the benefits. See Nonqualified
Deferred Compensation Table.
Employment
Agreements and Severance and Change of Control
Benefits
We have entered into an employment agreement that contains
severance benefits and change of control provisions with
Mr. Vogel, our President and Chief Executive Officer, the
terms of which are described under the headings
Potential Payments Upon Termination or Change
of Control. We believe these severance and change in
control benefits are an essential element of our executive
compensation package and assist us in recruiting and retaining
talented individuals. In addition, we intend to enter into an
employment agreement with certain other executive officers.
79
Section 162(m)
Compliance
Section 162(m) of the Internal Revenue Code limits us to a
deduction for federal income tax purposes of no more than
$1.0 million of compensation paid to certain executive
officers in a taxable year. Compensation above $1.0 million
may be deducted if it is performance-based
compensation within the meaning of the Internal Revenue
Code.
Our board of directors has determined that stock options granted
under our 2007 Plan have been granted with an exercise price at
least equal to the fair market value of our Class A common
stock on the date of grant and are treated as
performance-based compensation. Our board of
directors believes that we should be able to continue to manage
our executive compensation program for our named executive
officers so as to preserve the related federal income tax
deductions, although individual exceptions may occur.
2009
Summary Compensation Table
The following table sets forth certain information with respect
to compensation for the year ended August 2, 2009 earned
by, awarded to or paid to our named executive officers.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
Incentive Plan
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
Salary
|
|
|
Awards
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Total
|
|
Name and Principal Position
|
|
Year
|
|
|
($)
|
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
($)
|
|
|
G. Thomas Vogel
|
|
|
2009
|
|
|
|
462,000
|
|
|
|
|
|
|
|
1,201,855
|
|
|
|
5,707
|
|
|
|
1,669,562
|
|
President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amy L. Bertauski
|
|
|
2009
|
|
|
|
236,500
|
|
|
|
8,338
|
|
|
|
369,141
|
|
|
|
2,248
|
|
|
|
616,227
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert R. Effner
|
|
|
2009
|
|
|
|
225,500
|
|
|
|
11,912
|
|
|
|
351,972
|
|
|
|
461
|
|
|
|
589,845
|
|
Senior Vice President of Development and Operations
Innovation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen R. Anderson
|
|
|
2009
|
|
|
|
194,250
|
|
|
|
4,050
|
|
|
|
303,195
|
|
|
|
2,479
|
|
|
|
503,974
|
|
Senior Vice President of Marketing, Food &
Beverage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lynne D. Wildman
|
|
|
2009
|
|
|
|
199,500
|
|
|
|
4,050
|
|
|
|
233,542
|
|
|
|
1,893
|
|
|
|
438,985
|
|
Vice President of Purchasing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The amounts set forth in the
Option Awards columns reflect the aggregate grant
date fair value calculated in accordance with applicable
accounting guidance. See Note 18 of our consolidated
financial statements for additional information, including
valuation assumptions used in calculating the fair value of the
award. These amounts may not correspond to the actual value
eventually realized by each named executive officer because the
value depends on the extent to which performance conditions are
ultimately met and the market value of our Class A common
stock in future periods. The grant date fair value for the
performance-based stock option grants reported in the
Option Awards column above were calculated based on
the probable outcome of such performance conditions.
|
|
(2)
|
|
Represents amounts earned for
fiscal year 2009 under our annual cash incentive program. The
material terms of these annual incentive awards are described in
this section under Compensation Discussion and
Analysis Elements of Compensation Cash
Bonus.
|
|
(3)
|
|
The amounts included in that column
include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
Qualified
|
|
|
|
|
|
|
401(k)
|
|
Savings
|
|
Term Life
|
|
Disability
|
|
|
Match(a)
|
|
Plan(a)
|
|
Insurance
|
|
Insurance(b)
|
Name
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
G. Thomas Vogel
|
|
|
|
|
|
|
|
|
|
|
1,082
|
|
|
|
4,625
|
|
Amy L. Bertauski
|
|
|
536
|
|
|
|
1,228
|
|
|
|
484
|
|
|
|
|
|
Robert R. Effner
|
|
|
|
|
|
|
|
|
|
|
461
|
|
|
|
|
|
Stephen R. Anderson
|
|
|
|
|
|
|
1,870
|
|
|
|
609
|
|
|
|
|
|
Lynne D. Wildman
|
|
|
|
|
|
|
1,493
|
|
|
|
400
|
|
|
|
|
|
|
|
|
(a)
|
|
Reflects amounts of our
contributions to the 401(k) profit-sharing plan and our
allocations to the non-qualified savings plan for eligible
employees.
|
80
|
|
|
(b)
|
|
Represents premiums paid by us for
applicable insurance policies.
|
2009
Grants of Plan-Based Awards
The following table sets forth certain information with respect
to grants of plan-based awards for the fiscal year ended
August 2, 2009 with respect to our named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under
|
|
|
Estimated Future Payouts
|
|
|
Exercise or
|
|
|
Grant Date
|
|
|
|
|
|
|
Non-Equity Incentive Plan
|
|
|
Under Equity Incentive Plan
|
|
|
Base Price
|
|
|
Fair Value
|
|
|
|
|
|
|
Awards(1)
|
|
|
Awards(2)
|
|
|
of Option
|
|
|
of Stock
|
|
|
|
Grant
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Awards
|
|
|
and Option
|
|
Name
|
|
Date
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
($/sh)(3)
|
|
|
Awards(4)
|
|
|
G. Thomas Vogel
|
|
|
|
|
|
|
|
|
|
|
462,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amy L. Bertauski
|
|
|
|
|
|
|
|
|
|
|
141,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/06/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,059
|
|
|
|
|
|
|
|
10.00
|
|
|
|
8,338
|
|
Robert R. Effner
|
|
|
|
|
|
|
|
|
|
|
135,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/06/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,941
|
|
|
|
|
|
|
|
10.00
|
|
|
|
11,912
|
|
Stephen R. Anderson
|
|
|
|
|
|
|
|
|
|
|
116,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/06/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
10.00
|
|
|
|
4,050
|
|
Lynne D. Wildman
|
|
|
|
|
|
|
|
|
|
|
89,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/06/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
10.00
|
|
|
|
4,050
|
|
|
|
|
(1)
|
|
These amounts reflect the target
cash bonus amounts under our fiscal year 2009 annual cash
incentive program. The target cash bonus amount for
Mr. Vogel represented 100% base salary, and the target cash
bonus amounts for each of Ms. Bertauski,
Messrs. Effner and Anderson represented 60% of base salary
and the target cash bonus amount for Ms. Wildman
represented 45% of base salary. There are no maximum cash
incentive amounts under our fiscal year 2009 annual cash
incentive program. The amounts actually paid to our named
executive officers under the fiscal year 2009 annual cash
incentive program are shown above in the Summary Compensation
Table in the column titled Non-Equity Incentive Plan
Compensation.
|
|
(2)
|
|
Each performance-based stock option
was granted under our 2007 Plan and has a
10-year
term. Options vest ratably at a rate of 20% per year over five
years, subject to continued employment with us. The
performance-based stock options generally do not have any value
to the recipient or become exercisable unless and until each of
BRS, Black Canyon and Canyon Capital (i) receive net
proceeds equal to or in excess of a specified multiple of its
internal investment and (ii) achieve a stipulated internal
rate of return, or IRR, on its initial investment in connection
with an approved sale or qualified public offering. See
Elements of Compensation Long-Term
Equity-Based Compensation.
|
|
(3)
|
|
For a discussion of our methodology
for determining the fair value of our Class A common stock,
see Note 18 to our consolidated financial statements.
|
|
(4)
|
|
Represents the fair value of stock
options grants in fiscal year 2009, calculated in accordance
with applicable accounting guidance. See Note 18 of our
consolidated financial statements for additional information,
including valuation assumptions used in calculating the fair
value of the award. With respect to performance-based awards,
this amount is based upon the probable outcome of the
performance conditions for such awards as of their respective
grant date.
|
81
Outstanding
Equity Awards at Fiscal Year End 2009
The following table sets forth certain information with respect
to outstanding equity awards of our named executive officers as
of August 2, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
|
|
|
|
Unearned
|
|
|
Exercise
|
|
|
Expiration
|
|
Name
|
|
Grant Date
|
|
|
Options (#)(1)
|
|
|
Price ($)
|
|
|
Date
|
|
|
G. Thomas Vogel
|
|
|
07/01/07
|
|
|
|
41,176
|
|
|
|
10.00
|
|
|
|
07/01/17
|
|
Amy L. Bertauski
|
|
|
07/01/07
|
|
|
|
13,529
|
|
|
|
10.00
|
|
|
|
07/01/17
|
|
|
|
|
12/06/08
|
|
|
|
2,059
|
|
|
|
10.00
|
|
|
|
12/06/18
|
|
Robert R. Effner
|
|
|
07/01/07
|
|
|
|
8,824
|
|
|
|
10.00
|
|
|
|
07/01/17
|
|
|
|
|
12/06/08
|
|
|
|
2,941
|
|
|
|
10.00
|
|
|
|
12/06/18
|
|
Stephen R. Anderson
|
|
|
07/01/07
|
|
|
|
8,824
|
|
|
|
10.00
|
|
|
|
07/01/17
|
|
|
|
|
12/06/08
|
|
|
|
1,000
|
|
|
|
10.00
|
|
|
|
12/06/18
|
|
Lynne D. Wildman
|
|
|
07/01/07
|
|
|
|
8,824
|
|
|
|
10.00
|
|
|
|
07/01/17
|
|
|
|
|
12/06/08
|
|
|
|
1,000
|
|
|
|
10.00
|
|
|
|
12/06/18
|
|
|
|
|
(1)
|
|
Options vest ratably at a rate of
20% per year over five years, subject to continued employment
with us. The performance-based stock options generally do not
have any value to the recipient or become exercisable unless and
until each of BRS, Black Canyon and Canyon Capital
(i) receive net proceeds equal to or in excess of a
specified multiple of its internal investment and
(ii) achieve a stipulated internal rate of return, or IRR,
on its initial investment in connection with an approved sale or
qualified public offering. See Elements of
Compensation Long-Term Equity-Based
Compensation.
|
Options
Exercised and Stock Vested
None of our named executive officers exercised their outstanding
stock options during fiscal year 2009. None of our named
executive officers held any stock awards.
Pension
Benefits
Our named executive officers did not participate in or have
account balances in qualified or nonqualified defined benefit
plans sponsored by us. Our board of directors or compensation
committee may elect to adopt qualified or nonqualified benefit
plans in the future if it determines that doing so is in our
best interest.
Nonqualified
Deferred Compensation
The following table sets forth certain information with respect
to non-qualified deferred compensation for the year ended
August 2, 2009 with respect to our named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
Aggregate
|
|
|
|
Executive
|
|
|
Company
|
|
|
Earnings in
|
|
|
Aggregate
|
|
|
Balance at
|
|
|
|
Contributions in
|
|
|
Contributions in
|
|
|
Last Fiscal
|
|
|
Withdrawals/
|
|
|
Last Fiscal
|
|
|
|
Last Fiscal Year
|
|
|
Last Fiscal Year
|
|
|
Year
|
|
|
Distributions
|
|
|
Year End
|
|
Name
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
($)
|
|
|
($)
|
|
|
G. Thomas Vogel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amy L. Bertauski
|
|
|
4,912
|
|
|
|
1,228
|
|
|
|
(1,409
|
)
|
|
|
|
|
|
|
52,147
|
|
Robert R. Effner
|
|
|
|
|
|
|
|
|
|
|
(1,112
|
)
|
|
|
|
|
|
|
49,333
|
|
Stephen R. Anderson
|
|
|
7,482
|
|
|
|
1,870
|
|
|
|
(5,127
|
)
|
|
|
|
|
|
|
51,529
|
|
Lynne D. Wildman
|
|
|
19,913
|
|
|
|
1,493
|
|
|
|
(452
|
)
|
|
|
|
|
|
|
85,129
|
|
|
|
|
(1)
|
|
Amounts in this column are included
in the Salary and/or
Non-Equity
Incentive Plan Compensation in the Summary Compensation
Table.
|
82
|
|
|
(2)
|
|
This amount represents our
allocation in fiscal year 2009 under the Savings Plan. Amounts
in this column are included in the All Other
Compensation column in the Summary Compensation Table. See
Elements of Compensation Retirement Benefits
and Nonqualified Deferred Compensation for a description
of the Savings Plan.
|
|
(3)
|
|
The aggregate earnings represent
the market value change of the Savings Plan during fiscal year
2009. None of the earnings are included in the Summary
Compensation Table above.
|
Employment
Agreements
We are party to an employment agreement with Mr. Vogel, our
President and Chief Executive Officer. Under the terms of his
agreement, effective December 15, 2006, Mr. Vogel is
entitled to an annual base salary, subject to annual review by
our board of directors for potential increase. Currently,
Mr. Vogels annual base salary under this agreement is
$462,000. In addition, Mr. Vogels employment
agreement provides that his target bonus is equal to 100% of his
base salary. The term of Mr. Vogels employment
agreement continues until termination by us for cause or without
cause, upon his death or disability or upon
Mr. Vogels election for good reason or no reason.
If we terminate Mr. Vogels employment without cause
or Mr. Vogel terminates his employment for good reason,
Mr. Vogel is entitled to receive severance equal to
(i) his base salary earned through the date of termination,
(ii) a pro rata portion of his annual cash incentive bonus
compensation through the date of termination, (iii) any
accrued expenses and vacation, (iv) any previously deferred
compensation, (v) an amount equal to 150% of his base
salary in effect as of the date of termination payable over
18 months or in lump sum and (vi) participation in the
life, medical and disability insurance programs in effect for a
period of 18 months from the date of termination.
Mr. Vogels receipt of severance is contingent upon
execution of a general release of any and all claims arising out
of or related to his employment with us and the termination of
his employment.
If Mr. Vogel terminates his employment without good reason,
Mr. Vogel is entitled to receive severance equal to
(i) his base salary earned through the date of termination,
(ii) a pro rata portion of his annual cash incentive bonus
compensation through the date of termination, (iii) any
accrued expenses and vacation and (iv) any previously
deferred compensation. Mr. Vogels receipt of
severance is contingent upon execution of a general release of
any and all claims arising out of or related to his employment
with us and the termination of his employment.
If we terminate Mr. Vogels employment for cause,
Mr. Vogel is only entitled to receive his base salary and
benefits earned through the date of termination.
If Mr. Vogels employment is terminated upon his death
or disability, Mr. Vogel is entitled to receive severance
equal to (i) his base salary earned through the date of
termination, (ii) a pro rata portion of his annual cash
incentive bonus compensation through the date of termination,
(iii) any accrued expenses and vacation, (iv) any
previously deferred compensation and (v) any applicable
death or disability benefits, for a period of 18 months in the
case of disability benefits, pursuant to Company plans, programs
or policies on the date of his death or disability. All unvested
and vested but unexercisable options will be forfeited and all
vested and exercisable options will remain outstanding until
exercised, forfeited, repurchased by us, BRS, Black Canyon or
Canyon Capital or their expiration, as applicable.
Mr. Vogel has also agreed to customary restrictions with
respect to the use of our confidential information, and has
agreed that all intellectual property developed or conceived by
him while he is employed by us that relates to our business is
our property. During the term of Mr. Vogels
employment with us and during the 18 month period
immediately thereafter, Mr. Vogel has agreed not to solicit
or hire any of our employees or to violate any confidentiality,
non-competition, employment or other agreement with us or any
policy of the Company. Pursuant to his employment agreement,
Mr. Vogel may not compete with us during the term of his
respective employment for 18 months following his date of
termination. During any period in which Mr. Vogel has
breached the above restrictions, we have no obligations to pay
Mr. Vogel any severance described above.
Under his employment agreement, cause means:
(i) any act by executive involving fraud against the
Company or in the conduct of executives duties;
(ii) attendance at work in a state of intoxication or being
83
found in possession at his place of work of any prohibited drug
or substance, possession of which would amount to a criminal
offense or other repeated conduct causing the Company
substantial public disgrace or disrepute or substantial economic
harm; (iii) executives personal dishonesty or willful
misconduct in connection with his duties to the Company;
(iv) breach by executive of his fiduciary duty to the
Company; (v) commission by executive of a felony or crime
involving moral turpitude or other act; (vi) material
breach by the executive of any provision of his employment
agreement or of any Company policy adopted by the board of
directors which has not been cured within 30 days to the
reasonable satisfaction of the Company; (vii) willful
neglect or misconduct in the management of the Companys
business, or violation of the Companys race or gender
anti-harassment policies or (viii) substantial and repeated
failure to perform duties as reasonably directed by the board of
directors.
Under his employment agreement, good reason means:
(i) other than the executives removal for cause,
without the written consent of executive, the assignment to
executive of any duties inconsistent in any material respect
with executives position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as in effect on the effective date, or any
other action by the Company which results in a material and
demonstrable diminution in such position, authority, duties or
responsibilities; (ii) a reduction by the Company in
executives base salary other than in connection with
across-the-board
salary reductions applicable to peer executives; (iii) the
Companys requiring executive, without his consent, to be
based at any office or location more than 50 miles from the
Companys current headquarters in Nashville, Tennessee;
(iv) the material breach by the Company of any provision of
his employment agreement which is not cured by the Company
within thirty days written notice by executive; or (v) the
failure of any successor to all or substantially all of the
business
and/or
assets of the Company to assume expressly and agree to perform
under the employment agreement in the same manner and to the
same extent that the Company would be required to perform it if
no such succession had taken place.
Potential
Payments Upon Termination or Change in Control
The information below describes and quantifies certain
compensation that would become payable under
Mr. Vogels employment agreement if, as of
August 2, 2009, his employment with us had been terminated
under various scenarios or there was a change in control of our
company on such date. Due to the number of factors that affect
the nature and amount of any benefits provided upon the events
discussed below, any actual amounts paid or distributed may be
different. Factors that could affect these amounts include the
timing during the year of any such event and whether each of
BRS, Black Canyon and Canyon Capital, our principal
stockholders, have (i) received net proceeds equal to or in
excess of a specified multiple of its internal investment and
(ii) achieve a stipulated IRR on its initial investment in
connection with an approved sale of qualified public offering.
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Termination
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Termination
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Without
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Termination
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Without
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Death or
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Change in
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Cause or for
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Name
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Benefit
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for Cause
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Good Reason(1)
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Disability(2)
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Control
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Good Reason(3)
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G. Thomas Vogel
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Base salary
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$
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$
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$
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$
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$
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693,000
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Bonus
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1,201,855
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1,201,855
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1,201,855
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Value of accelerated options(4)
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Health benefits continuation
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9,000
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9,000
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Total
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$
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$
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1,201,855
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$
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1,210,855
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$
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$
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1,903,855
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(1)
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Represents the annual cash bonus for fiscal year 2009, which is
the pro rata portion of his annual cash incentive bonus
compensation through the date of termination. A retirement would
be treated as a termination without good reason.
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(2)
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Represents the annual cash bonus for fiscal year 2009, which is
the pro rata portion of his annual cash incentive bonus
compensation through the date of termination.
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(3)
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Represents (i) an amount equal to 150% of his base salary in
effect as of the date of termination ($462,000), (ii) the annual
cash bonus for fiscal year 2009, which is the pro rata
portion of his annual cash incentive bonus compensation through
the date of termination, and (iii) the estimated cost to
the Company of his participation in the life, medical and
disability insurance programs for 18 months from the date
of termination.
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84
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(4)
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In order for the performance-based stock options held by
Mr. Vogel to have value or become exercisable, each of BRS,
Black Canyon and Canyon Capital, our principal stockholders,
must (i) receive net proceeds equal to or in excess of a
specified multiple of its internal investment and
(ii) achieve a stipulated IRR on its initial investment in
connection with an approved sale or qualified public offering.
Assuming a change in control as of August 2, 2009, it was
not probable that the performance conditions would have been
achieved. Therefore, no options became exercisable on such date.
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We did not have employment agreements with any of the other
named executive officers as of August 2, 2009, and no
severance amounts would have been payable to these individuals
if their employment had been terminated on such date. In
addition, in order for the performance-based stock options held
by the named executive officers to have value or become
exercisable, each of BRS, Black Canyon and Canyon Capital, our
principal stockholders, must (i) receive net proceeds equal
to or in excess of a specified multiple of its internal
investment and (ii) achieve a stipulated IRR on its initial
investment in connection with an approved sale or qualified
public offering. Assuming a change in control as of
August 2, 2009, it was not probable that the performance
conditions would have been achieved.
LRI
Holdings, Inc. Option Plan
Our board of directors adopted our 2007 Plan effective
March 1, 2007. Under the 2007 Plan, we are authorized to
issue options for up to 176,471 shares of Class A
common stock. As of May 2, 2010, 168,376 shares were
subject to options granted and unexercised under the 2007 Plan.
Prior to completion of this offering, the 2007 Plan will be
terminated and no further option grants will be made under the
2007 Plan and any shares then remaining available for future
grant, plus any shares underlying outstanding options that
expire or are forfeited, will be allocated to our 2010 Plan.
Administration
The 2007 Plan is administered by the compensation committee. The
compensation committee has the authority to determine the
exercise price of the awards, the recipients of awards granted
under the 2007 Plan and the terms, conditions and restrictions
applicable to all awards granted under the 2007 Plan. The
compensation committee approves the form of award agreement and
has authority to accelerate, continue, extend or defer the
exercisability of any award issued under the 2007 Plan. Our
board of directors may amend, alter or discontinue the 2007 Plan
at any time, provided that, subject to certain exceptions, no
such amendment may adversely affect any then outstanding award
without the consent of the applicable recipient.
Eligibility
The 2007 Plan permits us to grant awards to our officers,
employees or non-employee directors.
Awards
The 2007 Plan provides only for the grant of stock options. A
stock option may be an incentive stock option within the meaning
of Section 422 of the U.S. Internal Revenue Service
Code of 1986, or the Code, or a nonstatutory stock option.
The 2007 Plan also provides that the ownership of shares by a
recipient is subject to the terms of the stockholders
agreement, as amended and in effect from time to time. See
Certain Relationships and Related Party
Transactions Stockholders Agreement.
Option
Agreements
Options granted under the 2007 Plan are evidenced by option
agreements, which need not be identical, that provide additional
terms, conditions, restrictions
and/or
limitations covering the grant of the award, a repurchase option
by us, BRS, Black Canyon or Canyon Capital, and additional terms
related to the exercisability and vesting of awards in the event
of certain conditions regarding the participants
employment, as determined by the board of directors. Incentive
and nonstatutory stock options may be granted pursuant to
incentive and nonstatutory stock option agreements adopted by
the compensation committee.
85
The compensation committee determines the number of shares of
our Class A common stock subject to each option, the term
of each option, which may not exceed ten years, the exercise
price, the vesting schedule, if any, and the other material
terms of each option. No stock option may have an exercise price
less than the fair market value of a share of our Class A
common stock at the time of grant. Options will be exercisable
at such time or times and subject to such terms and conditions
as determined by the compensation committee at grant and the
exercisability of such options may be accelerated by the
compensation committee.
LRI
Holdings, Inc. 2010 Omnibus Incentive Plan
We intend to adopt the 2010 Plan, in connection with our initial
public offering. The 2010 Plan will provide for grants of stock
options, stock appreciation rights, restricted stock, other
stock-based awards and other cash-based awards. Directors,
officers and other employees of us and our subsidiaries, as well
as others performing consulting or advisory services for us,
will be eligible for grants under the 2010 Plan. The purpose of
the 2010 Plan is to provide incentives that will attract, retain
and motivate highly competent officers, directors, employees and
consultants by providing them with appropriate incentives and
rewards either through a proprietary interest in our long-term
success or compensation based on their performance in fulfilling
their personal responsibilities. The following is a summary of
the material terms of the 2010 Plan, but does not include all of
the provisions of the 2010 Plan. For further information about
the 2010 Plan, we refer you to the complete copy of the 2010
Plan, which we will file as an exhibit to the registration
statement, of which this prospectus is a part.
Administration
The 2010 Plan is administered by a committee designated by our
board of directors. Among the committees powers are to
determine the form, amount and other terms and conditions of
awards, clarify, construe or resolve any ambiguity in any
provision of the 2010 Plan or any award agreement, amend the
terms of outstanding awards and adopt such rules, forms,
instruments and guidelines for administering the 2010 Plan as it
deems necessary or proper. All actions, interpretations and
determinations by the committee or by our board of directors are
final and binding.
The committee has full authority to administer and interpret the
2010 Plan, to grant discretionary awards under the 2010 Plan, to
determine the persons to whom awards will be granted, to
determine the types of awards to be granted, to determine the
terms and conditions of each award, to determine the number of
shares of Class A common stock to be covered by each award
and to make all other determinations in connection with the 2010
Plan and the awards thereunder as the committee, in its sole
discretion, deems necessary or desirable.
Available
Shares
The aggregate number of shares of Class A common stock
which may be issued or used for reference purposes under the
2010 Plan or with respect to which awards may be granted may not
exceed shares,
which may be either authorized and unissued shares of our
Class A common stock or shares of Class A common stock
held in or acquired for our treasury. In general, if awards
under the 2010 Plan are for any reason cancelled, or expire or
terminate unexercised, the shares covered by such awards will
again be available for the grant of awards under the 2010 Plan.
Eligibility
for Participation
Members of our board of directors, as well as employees of, and
consultants to, us or any of our subsidiaries and affiliates are
eligible to receive awards under the 2010 Plan. The selection of
participants is within the sole discretion of the committee.
Award
Agreement
Awards granted under the 2010 Plan shall be evidenced by award
agreements, which need not be identical, that provide additional
terms, conditions, restrictions
and/or
limitations covering the grant of the award, including, without
limitation, additional terms providing for the acceleration of
exercisability or vesting of awards in the event of a change of
control or conditions regarding the participants
employment, as determined by the committee in its sole
discretion.
86
Stock
Options
The committee may grant nonqualified stock options and incentive
stock options to purchase shares of our Class A common
stock only to eligible employees. The committee will determine
the number of shares of our Class A common stock subject to
each option, the term of each option, which may not exceed ten
years, or five years in the case of an incentive stock option
granted to a 10.0% stockholder, the exercise price, the vesting
schedule, if any, and the other material terms of each option.
No incentive stock option or nonqualified stock option may have
an exercise price less than the fair market value of a share of
our Class A common stock at the time of grant or, in the
case of an incentive stock option granted to a 10.0%
stockholder, 110.0% of such shares fair market value.
Options will be exercisable at such time or times and subject to
such terms and conditions as determined by the committee at
grant and the exercisability of such options may be accelerated
by the committee in its sole discretion.
Stock
Appreciation Rights
The committee may grant stock appreciation rights, which we
refer to as SARs, either with a stock option, which may be
exercised only at such times and to the extent the related
option is exercisable, which we refer to as a Tandem SAR, or
independent of a stock option, which we refer to as a Non-Tandem
SAR. A SAR is a right to receive a payment in shares of our
Class A common stock or cash, as determined by the
committee, equal in value to the excess of the fair market value
of one share of our Class A common stock on the date of
exercise over the exercise price per share established in
connection with the grant of the SAR. The term of each SAR may
not exceed ten years. The exercise price per share covered by an
SAR will be the exercise price per share of the related option
in the case of a Tandem SAR and will be the fair market value of
our Class A common stock on the date of grant in the case
of a Non-Tandem SAR. The committee may also grant limited SARs,
either as Tandem SARs or Non-Tandem SARs, which may become
exercisable only upon the occurrence of a change in control, as
defined in the 2010 Plan, or such other event as the committee
may, in its sole discretion, designate at the time of grant or
thereafter.
Restricted
Stock
The committee may award shares of restricted stock. Except as
otherwise provided by the committee upon the award of restricted
stock, the recipient generally has the rights of a stockholder
with respect to the shares, including the right to receive
dividends, the right to vote the shares of restricted stock and,
conditioned upon full vesting of shares of restricted stock, the
right to tender such shares, subject to the conditions and
restrictions generally applicable to restricted stock or
specifically set forth in the recipients restricted stock
agreement. The committee may determine at the time of award that
the payment of dividends, if any, will be deferred until the
expiration of the applicable restriction period.
Recipients of restricted stock are required to enter into a
restricted stock agreement with us that states the restrictions
to which the shares are subject, which may include satisfaction
of pre-established performance goals, and the criteria or date
or dates on which such restrictions will lapse.
If the grant of restricted stock or the lapse of the relevant
restrictions is based on the attainment of performance goals,
the committee will establish for each recipient the applicable
performance goals, formulae or standards and the applicable
vesting percentages with reference to the attainment of such
goals or satisfaction of such formulae or standards while the
outcome of the performance goals are substantially uncertain.
Such performance goals may incorporate provisions for
disregarding, or adjusting for, changes in accounting methods,
corporate transactions, including, without limitation,
dispositions and acquisitions, and other similar events or
circumstances. Section 162(m) of the Internal Revenue Code
of 1986, as amended, which we refer to as the Code, requires
that performance awards be based upon objective performance
measures. The performance goals for performance-based restricted
stock will be based on one or more of the objective criteria set
forth on Exhibit A to the 2010 Plan and are discussed in
general below.
Other
Stock-Based Awards
The committee may, subject to limitations under applicable law,
make a grant of such other stock-based awards, including,
without limitation, performance units, dividend equivalent
units, stock equivalent units, restricted
87
stock units and deferred stock units under the 2010 Plan that
are payable in cash or denominated or payable in or valued by
shares of our Class A common stock or factors that
influence the value of such shares. The committee shall
determine the terms and conditions of any such other awards,
which may include the achievement of certain minimum performance
goals for purposes of compliance with Section 162(m) of the
Code and/or
a minimum vesting period. The performance goals for
performance-based other stock-based awards will be based on one
or more of the objective criteria set forth on Exhibit A to
the 2010 Plan and discussed in general below.
Other
Cash-Based Awards
The committee may grant awards payable in cash. Cash-based
awards shall be in such form, and dependent on such conditions,
as the committee shall determine, including, without limitation,
being subject to the satisfaction of vesting conditions or
awarded purely as a bonus and not subject to restrictions or
conditions. If a cash-based award is subject to vesting
conditions, the committee may accelerate the vesting of such
award in its discretion.
Performance
Awards
The committee may grant a performance award to a participant
payable upon the attainment of specific performance goals. The
committee may grant performance awards that are intended to
qualify as performance- based compensation under
Section 162(m) of the Code as well as performance awards
that are not intended to qualify as performance-based
compensation under Section 162(m) of the Code. If the
performance award is payable in cash, it may be paid upon the
attainment of the relevant performance goals either in cash or
in shares of restricted stock, based on the then current fair
market value of such shares, as determined by the committee, in
its sole discretion. Based on service, performance
and/or such
other factors or criteria, if any, as the committee may
determine, the committee may, at or after grant, accelerate the
vesting of all or any part of any performance award.
Performance
Goals
The committee may grant awards of restricted stock, performance
awards, and other stock-based awards that are intended to
qualify as performance-based compensation for purposes of
Section 162(m) of the Code. These awards may be granted,
vest and be paid based on attainment of specified performance
goals established by the committee. These performance goals will
be based on the attainment of a certain target level of, or a
specified increase or decrease in, one or more of the following
criteria selected by the committee: (i) earnings per share;
(ii) operating income; (iii) gross income;
(iv) net income (before or after taxes); (v) cash
flow; (vi) gross profit; (vii) gross profit return on
investment; (viii) gross margin return on investment;
(ix) gross margin; (x) operating margin;
(xi) working capital; (xii) earnings before interest
and taxes; (xiii) earnings before interest, tax,
depreciation and amortization; (xiv) return on equity;
(xv) return on assets; (xvi) return on capital;
(xvii) return on invested capital; (xviii) net
revenues; (xix) gross revenues; (xx) revenue growth;
(xxi) annual recurring revenues; (xxii) recurring
revenues; (xxiii) license revenues; (xxiv) sales or
market share; (xxv) total stockholder return;
(xxvi) economic value added; (xxvii) specified
objectives with regard to limiting the level of increase in all
or a portion of our bank debt or other long-term or short-term
public or private debt or other similar financial obligations,
which may be calculated net of cash balances
and/or other
offsets and adjustments as may be established by the committee
in its sole discretion; (xxviii) the fair market value of
the a share of Class A common stock; (xxix) the growth
in the value of an investment in the Class A common stock
assuming the reinvestment of dividends; or (xxx) reduction
in operating expenses.
To the extent permitted by law, the committee may also exclude
the impact of an event or occurrence which the committee
determines should be appropriately excluded, including:
(i) restructurings, discontinued operations, extraordinary
items and other unusual or non-recurring charges; (ii) an
event either not directly related to our operations or not
within the reasonable control of management; or (iii) a
change in accounting standards required by U.S. GAAP.
Performance goals may also be based on an individual
participants performance goals, as determined by the
committee, in its sole discretion.
88
In addition, all performance goals may be based upon the
attainment of specified levels of our performance, or
subsidiary, division or other operational unit, under one or
more of the measures described above relative to the performance
of other corporations. The committee may designate additional
business criteria on which the performance goals may be based or
adjust, modify or amend those criteria.
Change
in Control
In connection with a change in control, as defined in the 2010
Plan, the committee may accelerate vesting of outstanding awards
under the 2010 Plan. In addition, such awards will be, in the
discretion of the committee, (i) assumed and continued or
substituted in accordance with applicable law,
(ii) purchased by us for an amount equal to the excess of
the price of a share of our Class A common stock paid in a
change in control over the exercise price of the award(s), or
(iii) cancelled if the price of a share of our Class A
common stock paid in a change in control is less than the
exercise price of the award. The committee may also, in its sole
discretion, provide for accelerated vesting or lapse of
restrictions of an award at any time.
Stockholder
Rights
Except as otherwise provided in the applicable award agreement,
and with respect to an award of restricted stock, a participant
has no rights as a stockholder with respect to shares of our
Class A common stock covered by any award until the
participant becomes the record holder of such shares.
Amendment
and Termination
Notwithstanding any other provision of the 2010 Plan, our board
of directors may at any time amend any or all of the provisions
of the 2010 Plan, or suspend or terminate it entirely,
retroactively or otherwise; provided, however, that,
unless otherwise required by law or specifically provided in the
2010 Plan, the rights of a participant with respect to awards
granted prior to such amendment, suspension or termination may
not be adversely affected without the consent of such
participant.
Transferability
Awards granted under the 2010 Plan are generally nontransferable
(other than by will or the laws of descent and distribution),
except that the committee may provide for the transferability of
nonqualified stock options at the time of grant or thereafter to
certain family members.
Effective
Date
The 2010 Plan will be adopted in connection with this offering.
Indemnification
of Officers and Directors
Our amended and restated certificate of incorporation and
amended and restated bylaws will provide that we will indemnify
our directors and officers to the fullest extent permitted by
the DGCL. Upon completion of this offering, we intend to have in
place directors and officers liability insurance
that insures such persons against the costs of defense,
settlement or payment of a judgment under certain circumstances.
In addition, our amended and restated certificate of
incorporation will provide that our directors will not be liable
for monetary damages for breach of fiduciary duty.
In addition, prior to the completion of this offering, we will
enter into indemnification agreements with each of our executive
officers and directors. The indemnification agreements will
provide the executive officers and directors with contractual
rights to indemnification, expense advancement and
reimbursement, to the fullest extent permitted under the DGCL.
There is no pending litigation or proceeding naming any of our
directors or officers to which indemnification is being sought,
and we are not aware of any pending or threatened litigation
that may result in claims for indemnification by any director or
officer.
89
PRINCIPAL
AND SELLING STOCKHOLDERS
The following table sets forth information as
of ,
2010 regarding the beneficial ownership of our Class A
common stock (1) immediately prior to this offering and
(2) as adjusted to give effect to this offering by:
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each person known by us to beneficially own 5% or more of our
outstanding Class A common stock;
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each of our directors;
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each of our named executive officers;
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all of our directors and executive officers as a group; and
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each selling stockholder.
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For further information regarding material transactions between
us and certain of our stockholders, see Certain
Relationships and Related Party Transactions.
Beneficial ownership for the purposes of the following table is
determined in accordance with the rules and regulations of the
SEC. These rules generally provide that a person is the
beneficial owner of securities if such person has or shares the
power to vote or direct the voting thereof, or to dispose or
direct the disposition thereof or has the right to acquire such
powers within 60 days. Class A common stock subject to
options that are currently exercisable or exercisable within
60 days
of ,
2010 are deemed to be outstanding and beneficially owned by the
person holding the options. These shares, however, are not
deemed outstanding for the purposes of computing the percentage
ownership of any other person. Percentage of beneficial
ownership before the offering is based
on shares
of Class A common stock outstanding. Percentage of
beneficial ownership after the offering is based
on shares of
Class A common stock outstanding. The following table
assumes no exercise of the underwriters option to purchase
additional shares. Except as disclosed in the footnotes to this
table and subject to applicable community property laws, we
believe that each stockholder identified in the table possesses
sole voting and investment power over all shares of Class A
common stock shown as beneficially owned by the stockholder.
Unless otherwise indicated in the table or footnotes below, the
address for each beneficial owner is
c/o Logans
Roadhouse, Inc., 3011 Armory Drive, Suite 300, Nashville,
Tennessee 37204.
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Shares Beneficially Owned
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Number of
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Shares Beneficially Owned after
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Prior to This Offering(1)
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Shares
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This Offering(2)
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Name
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Number
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Percent
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Offered
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Number
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Percent
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5% Stockholders:
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Entities affiliated with Bruckmann,
Rosser, Sherrill & Co., Management, L.P.(3)
126 East 56th Street
29th Floor
New York, New York 10022
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Funds affiliated with Black Canyon Capital LLC(4)
2000 Avenue of the Stars, 11th Floor
Los Angeles, California 90067
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Funds affiliated with Canyon Capital Advisors LLC(5)
2000 Avenue of the Stars, 11th Floor
Los Angeles, California 90067
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Performance Direct Investments II, L.P.(6)
c/o Performance Equity Management, LLC
Two Pickwick Plaza Suite 310
Greenwich, Connecticut 06830
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90
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Shares Beneficially Owned
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Number of
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Shares Beneficially Owned after
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Prior to This Offering(1)
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Shares
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This Offering(2)
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Name
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Number
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Percent
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Offered
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Number
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Percent
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Named Executive Officers and Directors:
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G. Thomas Vogel(7)
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Amy L. Bertauski(8)
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Robert R. Effner(9)
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Stephen R. Anderson(10)
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Lynne D. Wildman(11)
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Thomas D. Barber(4)
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Edward P. Grace III
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Michael K. Hooks(4)
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Michael P. ODonnell(12)
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Jacob A. Organek(3)
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Harold O. Rosser(3)
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All executive officers and directors as a group
(13 persons)
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* |
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Represents beneficial ownership of less than one percent (1%) of
our outstanding Class A common stock. |
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(1) |
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Shares shown in the table above include shares held in the
beneficial owners name or jointly with others, or in the
name of a bank, nominee or trustee for the beneficial
owners account. |
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(2) |
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Beneficial ownership does not include any shares that may be
purchased in this offering. See Underwriting. |
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(3) |
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Includes shares
held by LRI Acquisition, LLC (LRI Acquisition)
and shares
held by Performance Direct Investments II, L.P.
(PDI). Bruckmann, Rosser, Sherrill
& Co. II, L.P. (BRS II) is the
managing member of LRI Acquisition and as such may be deemed to
have indirect beneficial ownership of the shares held by LRI
Acquisition. BRSE, L.L.C. is the general partner of BRS II
and as such may be deemed to have indirect beneficial ownership
of the shares held by LRI Acquisition. Each of
Messrs. Organek and Rosser, members of our board of
directors, is a manager of BRSE, L.L.C. and a partner of
BRS II and as such may be deemed to have indirect
beneficial ownership of the shares held by LRI Acquisition, and
each of them disclaims beneficial ownership of the shares held
by LRI Acquisition except to the extent of his pecuniary
interests in such shares. BRS II has an irrevocable proxy
to vote approximately 63.5% of the shares held by PDI and as
such may be deemed to have indirect beneficial ownership of the
such shares held by PDI. BRS II disclaims beneficial
ownership of such shares held by PDI except to the extent of
their pecuniary interests in such shares. The irrevocable proxy
will be terminated upon consummation of this offering. |
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(4) |
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Includes shares
held by Black Canyon Direct Investment Fund, L.P. (Black
Canyon Direct)
and
shares held by Canyon Value and Canyon Cayman. Black Canyon
Management, LLC is the managing manager of Black Canyon Direct
and as such may be deemed to have indirect beneficial ownership
of the shares held by Black Canyon Direct. Black Canyon Capital
LLC (Black Canyon Capital) and Canyon Capital
Advisors LLC (Canyon Capital) are co-managers of
Black Canyon Management, LLC and as such may be deemed to have
indirect beneficial ownership of the shares held by Black Canyon
Direct. Black Canyon Capital also has voting and/or investment
power
over
shares held by Canyon Value and Canyon Cayman and as such may be
deemed to have indirect beneficial ownership of the shares held
by Canyon Value and Canyon Cayman, and disclaims beneficial
ownership of such shares except to the extent of their
respective pecuniary interests in such shares. Messrs. Hooks and
Barber, members of our board of directors, are a managing
director and principal, respectively, of Black Canyon Capital,
and as such may be deemed to have indirect beneficial ownership |
91
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of the shares held by Black Canyon Direct and certain shares
held by Canyon Value and Canyon Cayman, and each of them
disclaims beneficial ownership of the shares held by Black
Canyon Direct except to the extent of their respective pecuniary
interests in such shares. |
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(5) |
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Includes
shares held by Canyon Value Realization Fund, L.P. (Canyon
Value),
shares held by The Canyon Value Realization Fund (Cayman), Ltd.
(Canyon Cayman)
and
shares held by Black Canyon Direct. Canyon Capital and Black
Canyon Capital are co-managers of Black Canyon Management, LLC,
the managing member of Black Canyon Direct, and as such may be
deemed to have indirect beneficial ownership of the shares held
by Black Canyon Direct. Canyon Capital is also the investment
advisor of Canyon Cayman and as such, may be deemed to have
indirect beneficial ownership of the shares held by Canyon
Cayman. Canpartners Investments III, LLC
(Canpartners) is the general partner of Canyon
Value. Canyon Capital is the managing member of Canpartners and
is the investment advisor of Canyon Value and as such, each of
Canpartners and Canyon Capital may be deemed to have indirect
beneficial ownership of the shares held by Canyon Value. |
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(6) |
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Includes shares
held by PDI. Performance Equity Management, LLC is the general
partner of PDI and as such may be deemed to have beneficial
ownership of the shares held by PDI. See footnote 4 above for a
description of the relationship between BRS and PDI. |
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(7) |
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Includes options
for shares
of our Class A common stock that are exercisable within
60 days
of ,
2010. |
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(8) |
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Includes options
for shares
of our Class A common stock that are exercisable within
60 days
of ,
2010. |
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(9) |
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Includes options
for shares
of our Class A common stock that are exercisable within
60 days
of ,
2010. |
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(10) |
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Includes options
for shares
of our Class A common stock that are exercisable within
60 days
of ,
2010. |
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(11) |
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Includes options
for shares
of our Class A common stock that are exercisable within
60 days
of ,
2010. |
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(12) |
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Includes options
for shares
of our Class A common stock that are exercisable within
60 days
of ,
2010. |
92
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Our board of directors is currently primarily responsible for
developing and implementing processes and controls to obtain
information from our directors, executive officers and
significant stockholders regarding related-person transactions
and then determining, based on the facts and circumstances,
whether we or a related person has a direct or indirect material
interest in these transactions. Following this offering, we
expect that our audit committee will be responsible for review,
approval and ratification of related-person
transactions between us and any related person. Under SEC
rules, a related person is an officer, director, nominee for
director or beneficial holder of more than 5% of any class of
our voting securities since the beginning of the last fiscal
year or an immediate family member of any of the foregoing. In
the course of its review and approval or ratification of a
related-person transaction, the audit committee will consider:
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the nature of the related persons interest in the
transaction;
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the material terms of the transaction, including the amount
involved and type of transaction;
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the importance of the transaction to the related person and to
us;
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whether the transaction would impair the judgment of a director
or executive officer to act in our best interest and the best
interest of our stockholders; and
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any other matters the audit committee deems appropriate.
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Any member of the audit committee who is a related person with
respect to a transaction under review will not be able to
participate in the deliberations or vote on the approval or
ratification of the transaction. However, such a director may be
counted in determining the presence of a quorum at a meeting of
the committee that considers the transaction.
Other than compensation agreements and other arrangements which
are described under Executive Compensation, and the
transactions described below, since July 30, 2006, there
has not been, and there is not currently proposed, any
transaction or series of similar transactions to which we were
or will be a party in which the amount involved exceeded or will
exceed $120,000 and in which any related person had or will have
a direct or indirect material interest.
Stockholders
Agreement
On December 6, 2006, we entered into a stockholders
agreement, which we refer to as the stockholders
agreement, with LRI Acquisition, LLC, The Canyon Value
Realization Fund (Cayman), Ltd., Canyon Value Realization Fund,
LP, Black Canyon Direct Investment Fund, L.P., Performance
Direct Investments II, L.P. and certain members of management
signatory thereto. The stockholders agreement entitles BRS
to nominate three members of our board, Black Canyon and Canyon
Capital to each nominate one member of our board and jointly to
nominate one member of our board and provides that our Chief
Executive Officer will be a member of the board. The
stockholders agreement also places certain restrictions on
the sale or transfer of shares of our Class A common stock
to third parties until December 6, 2012. After
December 6, 2012, the stockholders agreement provides
first offer rights to us and then to BRS, Black Canyon and
Canyon Capital and provides tag-along rights in the event of a
sale by a stockholder. In addition, subject to certain
exceptions, including issuances pursuant to this offering, the
stockholders agreement grants holders of our Class A
common stock preemptive rights with respect to issuances of
additional common stock. The stockholders agreement will
terminate upon consummation of this offering.
Management
and Consulting Services Agreement
On December 6, 2006, Logans Roadhouse, Inc., our
subsidiary entered into a management and consulting services
agreement, as amended and restated on June 7, 2007, with
Bruckmann, Rosser, Sherrill & Co., Inc., Canyon Capital
Advisors, LLC, and Black Canyon Management LLC, relating to
business and organizational strategy and financial advisory
services performed by BRS, Black Canyon and Canyon Capital to us
from time to time. Under the management and consulting services
agreement, we have agreed to pay to BRS, Black Canyon and Canyon
Capital an aggregate annual management fee equal to 2% of our
Adjusted
93
EBITDA for such fiscal year and a transaction fee in an
aggregate amount equal to 2% of our enterprise value. The annual
management fee is paid
662/3%
to BRS and pursuant to a letter agreement between Black Canyon
and Canyon Capital, dated March 9, 2010,
331/3%
to Black Canyon. The management and consulting services
agreement also provides that we reimburse BRS, Black Canyon and
Canyon Capital for all reasonable
out-of-pocket
expenses incurred in connection with the management and
consulting services agreement. In addition, the management and
consulting services agreement provides for customary
indemnification provisions. The management and consulting
services agreement will be terminated in connection with this
offering and BRS and Black Canyon will be paid a termination
fee, inclusive of the transaction fee, of
$ million and
$ million, respectively,
based on the midpoint of the price range set forth on the cover
of this prospectus.
Registration
Rights Agreement
On December 6, 2006, we entered into a registration rights
agreement with LRI Acquisition, LLC, The Canyon Value
Realization Fund (Cayman), Ltd., Canyon Value Realization Fund,
LP, Black Canyon Direct Investment Fund, L.P., Performance
Direct Investments II, L.P. (PDI) and certain
members of management signatory thereto, pursuant to which we
agreed to register for sale under the Securities Act shares of
any class of our common stock in the circumstances described
below. The shares of common stock held at any time by the
parties to the registration rights agreement are referred to as
Registrable Securities. We refer to the right to
require us to register shares as a demand right and
the resulting registration as a demand registration.
Subject to the terms and conditions of the registration rights
agreement, at any time following the six month anniversary of
this offering, (i) BRS, Black Canyon and Canyon Capital may
each make up to four demands for registration under the
Securities Act of the resale of all or any portion of their
respective Registrable Securities and, if available to us, an
unlimited number of demands for registration on
Form S-3,
and (ii) PDI may request up to two long-form registrations.
The holders of a majority of Other Registrable Securities (as
defined in the Registration Rights Agreement) are entitled to
request two short-form registrations.
Subject to certain exceptions, including in the case of a demand
registration, each holder of Registrable Securities may request
to participate in, or piggyback on, registrations of
any of our securities for sale by us or by a third party. We
refer to this right as a piggyback right and the
resulting registration as a piggyback registration.
These registration rights are subject to conditions and
limitations, including the right of underwriters to limit the
number of shares to be included in a registration and our right
to delay or withdraw a registration statement under specified
circumstances. For instance, we are not required to effect any
demand registration within 180 days after the effective
date of a previous demand registration. In addition, holders of
Registrable Securities may not make any public sale of our
equity securities during the
7-day period
before and
180-day
period after the effectiveness of an underwritten demand
registration or an underwritten piggyback registration (except
as part of such underwritten registration) in which Registrable
Securities are included, unless the underwriters managing the
registered public offering otherwise agree.
Any underwriters in a demand registration will be selected by
the holders initiating such demand registration, and the
underwriters selected by us in any piggyback registration that
is underwritten must be approved by the holders of a majority of
the Registrable Securities that are requested to be included in
the piggyback registration. Other than underwriting discounts
and commissions on Registrable Securities, we will pay all
registration expenses in connection with a registration, as well
as reasonable fees for one legal counsel to the stockholders
participating in such registration. In connection with
registrations pursuant to the registration rights agreement, we
have agreed to indemnify the holders of Registrable Securities
with respect to certain liabilities under the securities laws.
Management
Subscription Agreement
Certain of our executive officers were granted cash retention
awards that were scheduled to be paid by us in accordance with a
vesting schedule for each executive, as long as the executive
remained employed by us
94
on the vesting date. On the date of the Acquisition, we
accelerated the payment of the cash awards to enable the
executives to make equity investments in our Class A common
stock and Series A preferred stock. The accelerated amounts
were treated as loans to be forgiven in accordance with a
schedule corresponding to the original vesting schedule for the
cash awards. In the event that an executive was no longer
employed by us, the executive was required to repay any
outstanding loan amount that had not yet been forgiven. The
executives obligations to repay any amounts were secured
by a pledge by each of the executives of the Class A common
stock and Series A preferred stock purchased with the
accelerated payment amount. The amounts forgiven in each period
following the Acquisition are summarized in the table below.
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Period from
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December 6, 2006
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Fiscal Year Ended
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Fiscal Year Ended
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through July 29, 2007
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August 3, 2008
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August 2, 2009
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G. Thomas Vogel
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$
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264,871
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$
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161,872
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$
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168,100
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Amy L. Bertauski
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162,000
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11,797
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14,272
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Robert R. Effner
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94,900
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Stephen R. Anderson
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54,220
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10,496
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92,961
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James B. Kuehnhold
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72,000
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9,577
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8,623
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Paul S. Pendleton
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72,000
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8,773
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8,504
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Lynne D. Wildman
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77,000
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11,071
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The amounts forgiven subsequent to the end of fiscal year 2009
for Messrs. Vogel, Effner and Anderson were scheduled to be
forgiven on August 2, 2010, subject to such
executives continued employment with us. On June 3,
2010, our board of directors accelerated the reduction of the
remaining outstanding accelerated payment amounts, and no
amounts remain outstanding for any of our executives.
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After Fiscal Year 2009
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G. Thomas Vogel
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$
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356,891
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Robert R. Effner
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71,767
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Stephen R. Anderson
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59,714
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Board
Compensation
Upon completion of this offering, directors who are our
employees or employees of our subsidiaries or affiliated with
BRS, Black Canyon or Canyon Capital will not receive any
compensation for their service as members of either our board of
directors or board committees. All non-employee members of our
board of directors not affiliated with BRS, Black Canyon or
Canyon Capital will be compensated as set forth under
Management Corporate Governance
Director Compensation.
Employment
Agreements
We have entered into an employment agreement with
Mr. Vogel, our President and Chief Executive Officer. For
more information regarding this agreement, see Executive
Compensation Employment Agreements. In
addition, we currently intend to enter into employment
agreements with certain of our other executive officers.
Indemnification
Agreements
We intend to enter into indemnification agreements with each of
our current directors and executive officers. These agreements
will require us to indemnify these individuals to the fullest
extent permitted under Delaware law against liabilities that may
arise by reason of their service to us, and to advance expenses
incurred as a result of any proceeding against them as to which
they could be indemnified. We also intend to enter into
indemnification agreements with our future directors and
executive officers.
95
DESCRIPTION
OF CERTAIN INDEBTEDNESS
Senior
Secured Credit Facility
In December 2006, we entered into a $168.0 million senior
secured credit facility among Logans Roadhouse, Inc., as
borrower, LRI Holdings, Inc., as parent guarantor, certain of
our subsidiaries as guarantors, the lenders, the swing line bank
and issuing banks named therein, Wells Fargo Bank, N.A., as
syndication agent, Fifth Third Bank, as documentation agent, and
Wachovia Bank, National Association, as administration agent and
collateral agent, consisting of a (i) six year
$138.0 million term loan facility and (ii) five year
revolving credit facility of up to $30.0 million in
revolving credit loans and letters of credit. The term loan
commitment is scheduled to expire on December 6, 2012 and
the revolver commitment is scheduled to expire on
December 6, 2011. We entered into the senior secured credit
facility to provide financing for a portion of the Acquisition
and for working capital and general corporate purposes,
including permitted investments and acquisitions and the
repayment of our prior debt. The senior secured credit facility
also contains (i) a $5.0 million sublimit for
swingline loans and (ii) a $12.0 million sublimit for
letters of credit. As of May 2, 2010, we had approximately
$133.2 million of outstanding borrowings under our senior
secured credit facility, which amount includes the mandatory
prepayments we have made as described below.
Interest
Rate, Facility Fee and Other Fees
Borrowings under the senior secured credit facility bear
interest either at (i) a rate equal to LIBOR (increased by
a ratio based on the Federal Reserves applicable
Eurocurrency liabilities reserve requirements) plus an
applicable margin rate or (ii) the base rate, which is
defined as the higher of (A) Wachovia Bank, National
Associations prime lending rate and (B) 0.50% per
annum above the federal funds rate, plus an applicable margin
rate; provided that swingline loans are available as base rate
borrowings only. For the initial extension of credit under the
senior secured credit facility for both the term credit advances
and revolving credit advances, the applicable margin rate was
3.0% for LIBOR-based advances and 2.0% for base rate advances.
The applicable margin rate for current advances under the
revolving credit facility is determined based on the
consolidated total leverage ratio. The applicable margin rate
for LIBOR-based advances is 2.50% per annum if the consolidated
total leverage ratio is greater than 3.75:1; 2.25% per annum if
the consolidated total leverage ratio is between 3.75:1 and
2.75:1; and 2.0% per annum if the consolidated total leverage
ratio is less than or equal to 2.75:1. The applicable margin
rate for base rate-based advances is 1.50% per annum if the
consolidated total leverage ratio is greater than 3.75:1; 1.25%
per annum if the consolidated total leverage ratio is less than
3.75:1 and greater than 2.75:1; and 1.0% per annum if the
consolidated total leverage ratio is less than or equal to
2.75:1.
Annual commitment fees payable under the senior secured credit
facility are based on 0.50% of the average daily unused
revolving commitment during each fiscal quarter. Additionally,
annual fees for outstanding letter of credit balances are
payable at the applicable margin rate for LIBOR-based advances
based on the average daily aggregate amount during the fiscal
quarter of all letters of credit outstanding. There is also an
annual fronting fee of 0.125% based on the average daily
aggregate available amount of all letters of credit outstanding
during the fiscal quarter.
Payments
Voluntary prepayments are permitted in whole or in part, without
premium or penalty, upon three business days notice to the agent
in the case of LIBOR-based loans and one business day notice to
the agent in the case of base rate-based loans, subject to
certain minimum prepayment requirements and payment of costs and
expenses incurred by the lenders in connection with prepayment
of LIBOR-based borrowings prior to the end of the applicable
interest period for such borrowings.
Mandatory prepayments under the senior secured credit facility
are required upon (i) asset sales, in the amount equal to
the net sale proceeds, provided that we have an option to
reinvest such proceeds within 180 days of receipt thereof
in long-term productive assets of the general type used in our
business; (ii) receipt
96
of insurance or condemnation proceeds, in the amount equal to
the net proceeds thereof, provided that we have an option to
reinvest such proceeds within 12 months of receipt thereof
in fixed or capital assets of the general type used in our
business (including repair, restoration and replacement), to the
extent that such proceeds do not exceed $2.0 million in the
aggregate; (iii) issuance of equity securities (with
certain exceptions), in the amount equal to 50% of proceeds of
such issuance; (iv) issuance of debt, in the amount equal
to 100% of such proceeds; and (v) delivery of annual
financial statements, in the amount equal to 50% of consolidated
excess cash flow (minus voluntary prepayments) if the
consolidated total leverage ratio is greater than 2.75:1, or 25%
of consolidated excess cash flow (minus voluntary prepayments)
if the consolidated total leverage ratio is 2.75:1 or less.
Guarantees
All obligations under the senior secured credit facility are
guaranteed by LRI Holdings, Inc. and certain of our subsidiaries
and secured by a first-priority lien on substantially all of the
assets of LRI Holdings, Inc. and our subsidiaries. All
guarantees are guarantees of payment and performance and not of
collection.
Covenants
Our senior secured credit facility contains a number of
affirmative and restrictive covenants including limitations on
the ability to place liens on our or our direct or indirect
subsidiaries assets; make investments other than permitted
investments; incur additional indebtedness, subject to certain
exceptions; prepay or redeem certain indebtedness; merge,
consolidate and dissolve; sell assets; engage in transactions
with affiliates; change the nature of our business; change our
or our direct or indirect subsidiaries fiscal year or
organizational documents; and make restricted payments
(including certain equity issuances and payment of dividends in
a form other than in common stock).
Financial
Covenants
The senior secured credit facility requires us to maintain a
certain consolidated total leverage ratio as of the last day of
certain periods as indicated in the credit agreement. The
consolidated total leverage ratio is calculated by dividing
(i) the sum of (A) the difference between
(x) indebtedness for money borrowed and
(y) unrestricted cash and cash equivalents (up to
$5 million) plus (B) equity contributions (not to
exceed the sum of reduction in indebtedness, reductions in
advances under the revolving credit facility and the amount
described in clause (y) above) by (ii) Consolidated
EBITDA (as defined in the senior secured credit facility, which
is the same as Adjusted EBITDA, as used in this prospectus). For
the period beginning August 2, 2009 and ending May 2,
2010, the consolidated total leverage ratio may not be more than
5.50:1; for the period ending August 1, 2010 and through
May 1, 2011, the consolidated total leverage ratio may not
be more than 5.25:1; for the periods ending July 31, 2011
and ending April 29, 2010, the consolidated total leverage
ratio may not be more than 5.05:1; and for the periods ending
July 29, 2012 and thereafter, the consolidated total
leverage ratio may not be more than 4.85:1.
The senior secured credit facility also requires us to maintain
a certain fixed charge coverage ratio as of the last day of each
fiscal quarter. The fixed charge coverage ratio is calculated by
subtracting certain capital expenditures from the sum of
Consolidated EBITDA and cash rent expense and dividing the
difference by the sum of (i) cash rent expense,
(ii) regularly scheduled principal payments of
indebtedness, (iii) cash taxes and (iv) Consolidated
Interest Expense (as defined in the senior secured credit
facility). For the period beginning August 3, 2008 and
thereafter, our fixed charge coverage ratio may not be less than
1.20:1. Finally, the senior secured credit facility limits the
amount of consolidated capital expenditures we may incur in any
fiscal year to $40.0 million; provided that we may carry
over 100% of the unused amount of consolidated capital
expenditures for any fiscal year into the next fiscal year.
As of May 2, 2010, our consolidated total leverage ratio
and fixed charge coverage ratio, calculated in accordance with
our senior secured credit facility, were 2.97:1 and 1.78:1,
respectively.
97
Events
of Default
Our senior secured credit facility contains events of default
that are usual and customary in credit facilities of this type,
including:
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non-payment of principal, interest, fees or other amounts (with
cure periods applicable to non-payment of interest, fees or
other amounts);
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violation of covenants (with cure periods, as applicable);
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material inaccuracy of representations and warranties;
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cross default to other indebtedness in an outstanding aggregate
principal amount of at least $3.5 million;
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bankruptcy and other insolvency events;
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judgments involving an aggregate liability of at least
$2.5 million or that have, or could reasonably be expected
to have, individually or in the aggregate, a material adverse
effect;
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certain ERISA matters;
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failure of any loan documentation (including any guarantee) to
be in full force and effect;
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change in control;
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cessation of business;
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loss to a material portion of the collateral;
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failure to make payments when due in respect of any material
contract;
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legal proceedings against us or any subsidiary in respect of a
felony; and
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the termination of the subordination provisions of the governing
documents of any subordinated indebtedness.
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Amendment
In connection with this offering, we intend to either refinance
the senior secured credit facility or obtain an amendment to the
senior secured credit facility and the security documentation
entered into in connection therewith to permit this offering, to
allow us to use the proceeds of this offering in the manner
described in Use of Proceeds and for certain related
matters.
Senior
Subordinated Unsecured Mezzanine Term Notes
We issued $80.0 million aggregate principal amount of
13.25% senior subordinated unsecured mezzanine term notes
pursuant to a credit agreement, dated as of December 6,
2006, among Logans Roadhouse, Inc., as the borrower, us
and certain of our subsidiaries, as guarantors, and certain
lenders party thereto, the proceeds of which were used to
finance a portion of the Acquisition and to repay certain
indebtedness.
All obligations under the notes are guaranteed by us and our
subsidiaries (other than the borrower). The notes are due
June 6, 2014 and bear interest at the rate of 13.25% per
annum. We have the option to pay up to 3.25% of the interest per
annum in kind. We added $1.4 million and $2.8 million
in
paid-in-kind
interest to the principal balances during fiscal years 2009 and
2008, respectively. As of May 2, 2010, $85.9 million
aggregate principal amount of the notes were outstanding. We
have the option to prepay the notes, in whole or in part, at a
redemption price equal to the outstanding principal amount of
the notes, plus accrued and unpaid interest thereon, plus a
redemption premium.
We expect to prepay the notes with the proceeds from this
offering at a total cost, including a prepayment premium and
accrued and unpaid interest, of $87.7 million.
98
DESCRIPTION
OF CAPITAL STOCK
General
Our authorized capital stock currently consists of
1,900,000 shares of Class A common stock, par value
$0.01 per share, and 100,000 shares of preferred stock, par
value $0.01 per share, of which 75,000 shares have been
designated as Series A preferred stock. On May 2,
2010, there were 64,508 shares of our Series A
preferred stock outstanding, held of record by 16 stockholders,
and 992,427 shares of our Class A common stock
outstanding, held of record by 16 stockholders.
Prior to the completion of this offering, we will amend and
restate our certificate of incorporation to (1) give effect
to
a -for-1
stock split, (2) redeem the current class of Series A
preferred stock upon closing of the offering and
(3) authorize shares of a new class of undesignated
preferred stock. After the completion of this offering, our
authorized capital stock will consist
of shares
of Class A common stock
and shares
of unclassified preferred stock.
After giving effect to this offering, the application of the
proceeds from this offering as described in Use of
Proceeds, the stock split and the amendment of our
certificate of incorporation, there will be
outstanding shares
of Class A common stock and no shares of preferred stock.
As of May 2, 2010, there were 168,376 shares of our
Class A common stock subject to outstanding options at an
exercise price of $10.00.
Class A
Common Stock
Voting
Rights
Each share of Class A common stock entitles the holder to
one vote with respect to each matter presented to our
stockholders on which the holders of Class A common stock
are entitled to vote. Our Class A common stock votes as a
single class on all matters relating to the election and removal
of directors on our board of directors and as provided by law.
Holders of our Class A common stock will not have
cumulative voting rights. Except in respect of matters relating
to the election and removal of directors on our board of
directors and as otherwise provided in our amended and restated
certificate of incorporation or required by law, all matters to
be voted on by our stockholders must be approved by a majority
of the shares present in person or by proxy at the meeting and
entitled to vote on the subject matter. In the case of election
of directors, all matters to be voted on by our stockholders
must be approved by a plurality of the votes entitled to be cast
by all shares of Class A common stock.
Dividend
Rights
Subject to preferences that may be applicable to any then
outstanding preferred stock, the holders of our outstanding
shares of Class A common stock are entitled to receive
dividends, if any, as may be declared from time to time by our
board of directors out of legally available funds. Because we
are a holding company, our ability to pay dividends on our
Class A common stock is limited by restrictions on the
ability of our subsidiaries to pay dividends or make
distributions to us, including restrictions under the terms of
the agreements governing our indebtedness. See Description
of Certain Indebtedness and Dividend Policy.
Liquidation
Rights
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of our affairs, holders of our
Class A common stock would be entitled to share ratably in
our assets that are legally available for distribution to
stockholders after payment of our debts and other liabilities.
If we have any preferred stock outstanding at such time, holders
of the preferred stock may be entitled to distribution and
liquidation preferences. In either such case, we must pay the
applicable distribution to the holders of our preferred stock
before we may pay distributions to the holders of our
Class A common stock.
99
Other
Rights
Except as provided in the stockholders agreement, which
will terminate upon the consummation of this offering, our
stockholders have no preemptive, conversion or other rights to
subscribe for additional shares. See Certain Relationships
and Related Party Transactions. All outstanding shares
are, and all shares offered by this prospectus will be, when
sold, validly issued, fully paid and nonassessable. The rights,
preferences and privileges of the holders of our Class A
common stock are subject to, and may be adversely affected by,
the rights of the holders of shares of any series of our
preferred stock that we may designate and issue in the future.
Listing
We intend to apply to have our Class A common stock
approved for listing on The NASDAQ Global Select Market under
the symbol LGNS.
Undesignated
Preferred Stock
Our amended and restated certificate of incorporation will
authorize our board of directors to provide for the issuance of
up
to shares
of preferred stock in one or more series and to fix the
preferences, powers and relative, participating, optional or
other special rights, and qualifications, limitations or
restrictions thereof, including the dividend rate, conversion
rights, voting rights, redemption rights and liquidation
preference, and to fix the number of shares to be included in
any such series without any further vote or action by our
stockholders. Any preferred stock so issued may rank senior to
our Class A common stock with respect to the payment of
dividends or amounts upon liquidation, dissolution or winding
up, or both. The issuance of preferred stock may have the effect
of delaying, deferring or preventing a change in control of our
company without further action by the stockholders and may
adversely affect the voting and other rights of the holders of
Class A common stock. The issuance of preferred stock with
voting and conversion rights may adversely affect the voting
power of the holders of Class A common stock, including the
loss of voting control to others. At present, we have no plans
to issue any of the preferred stock.
Registration
Rights
For a description of the registration rights agreement we have
entered into with certain of our stockholders, see Certain
Relationships and Related Party Transactions
Registration Rights Agreement.
Corporate
Opportunity
Our amended and restated certificate of incorporation will
provide that the doctrine of corporate opportunity
will not apply against BRS, Black Canyon, Canyon Capital, or any
of our directors who are employees of, or affiliated with, BRS,
Black Canyon or Canyon Capital, in a manner that would prohibit
them from investing in competing businesses or doing business
with our clients or customers.
Antitakeover
Effects of Delaware Law and Our Amended and Restated Certificate
of Incorporation and Amended and Restated Bylaws
Our amended and restated certificate of incorporation and
amended and restated bylaws will also contain provisions that
may delay, defer or discourage another party from acquiring
control of us. We expect that these provisions, which are
summarized below, will discourage coercive takeover practices or
inadequate takeover bids. These provisions are also designed to
encourage persons seeking to acquire control of us to first
negotiate with our board of directors, which we believe may
result in an improvement of the terms of any such acquisition in
favor of our stockholders. However, they also give our board of
directors the power to discourage acquisitions that some
stockholders may favor.
Classified
Board of Directors
Our amended and restated certificate of incorporation will
provide that our board of directors will be divided into three
classes, with each class serving three-year staggered terms. In
addition, our amended and
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restated certificate of incorporation will provide that
directors may only be removed from the board of directors with
cause and by an affirmative vote of
662/3%
of our Class A common stock. These provisions may have the
effect of deferring, delaying or discouraging hostile takeovers
or changes in control or management of our company.
Requirements
for Advance Notification of Stockholder Meetings, Nominations
and Proposals
Our amended and restated bylaws will provide that special
meetings of the stockholders may be called only upon the request
of not less than a majority of the combined voting power of the
voting stock, upon the request of a majority of the board or
upon the request of the chief executive officer. Our amended and
restated bylaws will prohibit the conduct of any business at a
special meeting other than as specified in the notice for such
meeting. These provisions may have the effect of deferring,
delaying or discouraging hostile takeovers or changes in control
or management of our company.
Stockholder
Action by Written Consent
Pursuant to Section 228 of the DGCL, any action required to
be taken at any annual or special meeting of the stockholders
may be taken without a meeting, without prior notice and without
a vote if a consent or consents in writing, setting forth the
action so taken, is signed by the holders of outstanding stock
having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which
all shares of our stock entitled to vote thereon were present
and voted, unless the companys certificate of
incorporation provides otherwise. Our amended and restated
certificate of incorporation will provide that any action
required or permitted to be taken by our stockholders may be
effected at a duly called annual or special meeting of our
stockholders and may not be effected by consent in writing by
such stockholders, unless such action is recommended by all
directors then in office.
Business
Combinations with Interested Stockholders
We will elect in our amended and restated certificate of
incorporation not to be subject to Section 203 of the DGCL,
an anti-takeover law. In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in a business
combination, such as a merger, with a person or group owning 15%
or more of the corporations voting stock for a period of
three years following the date the person became an interested
stockholder, unless (with certain exceptions) the business
combination or the transaction in which the person became an
interested stockholder is approved in a prescribed manner.
Accordingly, we will not be subject to any anti-takeover effects
of Section 203. However, our amended and restated
certificate of incorporation will contain provisions that have
the same effect as certain portions of Section 203 that
relate to acquisition transactions, except that they will
provide that any persons to whom BRS, Black Canyon or Canyon
Capital sell their Class A common stock will be deemed to
have been approved by our board of directors, and thereby not
subject to the restrictions set forth in Section 203.
Transfer
Agent and Registrar
The transfer agent and registrar for our Class A common
stock will
be .
101
SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there has been no public market for our
Class A common stock. Future sales of substantial amounts
of our Class A common stock in the public market, or the
perception that such sales may occur, could adversely affect the
prevailing market price of our Class A common stock. No
prediction can be made as to the effect, if any, future sales of
shares, or the availability of shares for future sales, will
have on the market price of our Class A common stock
prevailing from time to time. The sale of substantial amounts of
our Class A common stock in the public market, or the
perception that such sales could occur, could harm the
prevailing market price of our Class A common stock.
Sale of
Restricted Shares
Upon completion of this offering, we will
have shares
of Class A common stock outstanding. Of these shares of
Class A common stock,
the shares
of Class A common stock being sold in this offering, plus
any shares sold upon exercise of the underwriters option
to purchase additional shares, will be freely tradable without
restriction under the Securities Act, except for any such shares
which may be held or acquired by an affiliate of
ours, as that term is defined in Rule 144 promulgated under
the Securities Act, which shares will be subject to the volume
limitations and other restrictions of Rule 144 described
below. The
remaining shares
of Class A common stock held by our existing stockholders
upon completion of this offering will be restricted
securities, as that term is defined in Rule 144, and
may be resold only after registration under the Securities Act
or pursuant to an exemption from such registration, including,
among others, the exemptions provided by Rule 144 and
Rule 701 under the Securities Act, which rules are
summarized below. These remaining shares of Class A common
stock held by our existing stockholders upon completion of this
offering will be available for sale in the public market after
the expiration of the
lock-up
agreements described in Underwriting, only if
registered or if they qualify for an exemption from registration
under Rule 144 or Rule 701 under the Securities Act,
as described below.
Rule 144
In general, under Rule 144 as currently in effect, persons
who are not one of our affiliates at any time during the three
months preceding a sale may sell shares of our Class A
common stock beneficially held upon the earlier of (1) the
expiration of a six-month holding period, if we have been
subject to the reporting requirements of the Exchange Act and
have filed all required reports for at least 90 days prior
to the date of the sale, or (2) a one-year holding period.
At the expiration of the six-month holding period, a person who
was not one of our affiliates at any time during the three
months preceding a sale would be entitled to sell an unlimited
number of shares of our Class A common stock provided
current public information about us is available, and a person
who was one of our affiliates at any time during the three
months preceding a sale would be entitled to sell within any
three-month period a number of shares of Class A common
stock that does not exceed the greater of either of the
following:
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1% of the number of shares of our Class A common stock then
outstanding, which will equal
approximately shares
immediately after this offering, based on the number of shares
of our Class A common stock outstanding as
of ; or
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the average weekly trading volume of our Class A common
stock on The NASDAQ Global Select Market during the four
calendar weeks preceding the filing of a notice on Form 144
with respect to the sale.
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At the expiration of the one-year holding period, a person who
was not one of our affiliates at any time during the three
months preceding a sale would be entitled to sell an unlimited
number of shares of our Class A common stock without
restriction. A person who was one of our affiliates at any time
during the three months preceding a sale would remain subject to
the volume restrictions described above.
Sales under Rule 144 by our affiliates are also subject to
manner of sale provisions and notice requirements and to the
availability of current public information about us.
102
Rule 701
In general and subject to the expiration of the
lock-up
restrictions, under Rule 701, any of our employees,
directors, officers, consultants or advisors who purchased
shares from us in connection with a qualified compensatory stock
or option plan or other written agreement before the effective
date of this offering, or who purchased shares from us after
that date upon the exercise of options granted before that date,
are eligible to resell such shares in reliance upon
Rule 144 beginning 90 days after the date of this
prospectus. If such person is not an affiliate, the sale may be
made under Rule 144 without compliance with the holding
periods of Rule 144 and subject only to the
manner-of-sale
restrictions of Rule 144. If such a person is an affiliate,
the sale may be made under Rule 144 without compliance with
its one-year minimum holding period, but subject to the other
Rule 144 restrictions.
Registration
Rights
As more fully described above in Certain Relationships and
Related Party Transactions Registration Rights
Agreement, following the completion of this offering, at
any time following the six month anniversary of the consummation
of this offering, certain of our existing stockholders will be
entitled, subject to certain exceptions, to demand that the we
register under the Securities Act all or any portion of their
shares. Following this offering, holders of an aggregate
of shares
will be entitled to demand that we register the resale of the
shares of Class A common stock held by them. By exercising
their registration rights and causing a large number of shares
to be registered and sold in the public market, these holders
could cause the price of the Class A common stock to fall.
In addition, any demand to include such shares in our
registration statements could have a material adverse effect on
our ability to raise needed capital.
Stock
Plans
We intend to file one or more registration statements on
Form S-8
under the Securities Act to register shares of our Class A
common stock issued or reserved for issuance under our 2007 Plan
and the new 2010 Plan we intend to adopt in connection with this
offering. The first such registration statement is expected to
be filed soon after the date of this prospectus and will
automatically become effective upon filing with the SEC.
Accordingly, shares registered under such registration statement
will be available for sale in the open market following the
effective date, unless such shares are subject to vesting
restrictions with us, Rule 144 restrictions applicable to
our affiliates or the
lock-up
restrictions described below.
Lock-Up
Agreements
We and each of our directors, officers and substantially all of
the holders of our Class A common stock have agreed,
subject to certain exceptions, not to offer, sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly,
any shares of our Class A common stock or securities
convertible into or exchangeable or exercisable for any shares
of our Class A common stock, enter into a transaction that
would have the same effect, or enter into any swap, hedge or
other arrangement that transfers, in whole or in part, any of
the economic consequences of ownership of our Class A
common stock, whether any of these transactions are to be
settled by delivery of our Class A common stock or other
securities, in cash or otherwise, or publicly disclose the
intention to make any offer, sale, pledge or disposition, or to
enter into any transaction, swap, hedge or other arrangement,
without, in each case, the prior written consent of Credit
Suisse Securities (USA) LLC for a period of 180 days after
the date of this prospectus. However, in the event that either
(1) during the last 17 days of the
lock-up
period, we release earnings results or material news or a
material event relating to us occurs or (2) prior to the
expiration of the
lock-up
period, we announce that we will release earnings results during
the 16-day
period beginning on the last day of the
lock-up
period, then in either case the expiration of the
lock-up
will be extended until the expiration of the
18-day
period beginning on the date of the release of the earnings
results or the occurrence of the material news or event, as
applicable, unless Credit Suisse Securities (USA) LLC waives, in
writing, such an extension. See Underwriting.
103
U.S.
FEDERAL TAX CONSIDERATIONS FOR
NON-UNITED
STATES HOLDERS
Overview
The following is a summary of the material U.S. federal
income tax consequences of the purchase, ownership and
disposition of our Class A common stock to a
non-U.S. holder
that purchases shares of our Class A common stock in this
offering. For purposes of this summary, a
non-U.S. holder
means a beneficial owner of our Class A common stock that
is, for U.S. federal income tax purposes:
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a nonresident alien individual;
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a foreign corporation (or an entity treated as a foreign
corporation for U.S. federal income tax purposes); or
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a foreign estate or foreign trust.
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In the case of a holder that is classified as a partnership for
U.S. federal income tax purposes, the tax treatment of a
partner in such partnership generally will depend upon the
status of the partner and the activities of the partner and the
partnership. If you are a partner in a partnership holding our
Class A common stock, then you should consult your own tax
advisor.
This summary is based upon the provisions of the
U.S. Internal Revenue Code of 1986, as amended, which we
refer to as the Code, the Treasury regulations promulgated
thereunder and administrative and judicial interpretations
thereof, all as of the date hereof. Those authorities may be
changed, perhaps retroactively, so as to result in
U.S. federal income tax consequences different from those
summarized below. We cannot assure you that a change in law,
possibly with retroactive application, will not alter
significantly the tax considerations that we describe in this
summary. We have not sought and do not plan to seek any ruling
from the U.S. Internal Revenue Service, which we refer to
as the IRS, with respect to statements made and the conclusions
reached in the following summary, and there can be no assurance
that the IRS or a court will agree with our statements and
conclusions.
This summary does not address all aspects of U.S. federal
income taxes that may be relevant to
non-U.S. holders
in light of their personal circumstances, and does not deal with
federal taxes other than the U.S. federal income tax or
with
non-U.S.,
state or local tax considerations. Special rules, not discussed
here, may apply to certain
non-U.S. holders,
including:
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U.S. expatriates;
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controlled foreign corporations;
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passive foreign investment companies; and
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investors in pass-through entities that are subject to special
treatment under the Code.
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Such
non-U.S. holders
should consult their own tax advisors to determine the
U.S. federal, state, local and other tax consequences that
may be relevant to them.
This summary applies only to a
non-U.S. holder
that holds our Class A common stock as a capital asset
(within the meaning of Section 1221 of the Code).
If you are considering the purchase of our Class A common
stock, you should consult your own tax advisor concerning the
particular U.S. federal income tax consequences to you of
the purchase, ownership and disposition of our Class A
common stock, as well as the consequences to you arising under
U.S. tax laws other than the federal income tax laws or
under the laws of any other taxing jurisdiction.
Dividends
As discussed under the section entitled Dividend
Policy above, we do not currently anticipate paying any
dividends in the foreseeable future. In the event that we do
make a distribution of cash or property (other than certain
stock distributions) with respect to our Class A common
stock (or certain redemptions that are
104
treated as distributions with respect to Class A common
stock), any such distribution will be treated as a dividend for
U.S. federal income tax purposes to the extent paid from
our current or accumulated earnings and profits (as determined
under U.S. federal income tax principles). Dividends paid
to you generally will be subject to withholding of
U.S. federal income tax at a 30% rate or such lower rate as
may be specified by an applicable income tax treaty. However,
dividends that are effectively connected with the conduct of a
trade or business by you within the U.S. and, in cases in
which certain tax treaties apply, are attributable to a
U.S. permanent establishment, are not subject to the
withholding tax, but instead are subject to U.S. federal
income tax on a net income basis at applicable graduated
individual or corporate rates. Certain certification and
disclosure requirements including delivery of a properly
executed IRS
Form W-8ECI
must be satisfied for effectively connected income to be exempt
from withholding. Any such effectively connected dividends
received by a foreign corporation may be subject to an
additional branch profits tax at a 30.0% rate or
such lower rate as may be specified by an applicable income tax
treaty.
If the amount of a distribution paid on our Class A common
stock exceeds our current and accumulated earnings and profits,
such excess will be allocated ratably among each share of
Class A common stock with respect to which the distribution
is paid and treated first as a tax-free return of capital to the
extent of your adjusted tax basis in each such share, and
thereafter as capital gain from a sale or other disposition of
such share of Class A common stock that is taxed to you as
described below under the heading Gain on Disposition of
Class A common stock. Your adjusted tax basis is
generally the purchase price of such shares, reduced by the
amount of any such tax-free returns of capital.
If you wish to claim the benefit of an applicable treaty rate to
avoid or reduce withholding of U.S. federal income tax for
dividends, then you must (a) provide the withholding agent
with a properly completed IRS
Form W-8BEN
(or other applicable form) and certify under penalties of
perjury that you are not a U.S. person and are eligible for
treaty benefits, or (b) if our Class A common stock is
held through certain foreign intermediaries, satisfy the
relevant certification requirements of applicable
U.S. Treasury regulations. Special certification and other
requirements apply to certain
non-U.S. holders
that act as intermediaries (including partnerships).
If you are eligible for a reduced rate of U.S. federal
income tax pursuant to an income tax treaty, then you may obtain
a refund or credit of any excess amounts withheld by filing
timely an appropriate claim with the IRS.
Gain on
Disposition of Class A Common Stock
You generally will not be subject to U.S. federal income
tax with respect to gain realized on the sale or other taxable
disposition of our Class A common stock, unless:
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the gain is effectively connected with a trade or business you
conduct in the U.S., and, in cases in which certain tax treaties
apply, is attributable to a U.S. permanent establishment;
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if you are an individual, you are present in the U.S. for
183 days or more in the taxable year of the sale or other
taxable disposition, and you have a tax home (as
defined in the Code) in the U.S.; or
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we are or have been during a specified testing period a
U.S. real property holding corporation for
U.S. federal income tax purposes, and certain other
conditions are met. See the discussion under
Status as a U.S. Real Property Holding
Corporation.
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If you are an individual described in the first bullet point
above, you will be subject to tax on the net gain derived from
the sale under regular graduated U.S. federal income tax
rates. If you are a foreign corporation described in the first
bullet point above, you will be subject to tax on your gain
under regular graduated U.S. federal income tax rates and,
in addition, may be subject to the branch profits tax equal to
30.0% of your effectively connected earnings and profits or at
such lower rate as may be specified by an applicable income tax
treaty. If you are an individual described in the second bullet
point above, you will be subject to a flat 30.0% tax on the gain
derived from the sale, which may be offset by U.S. source
capital losses (even though you are not considered a resident of
the U.S.) but may not be offset by any capital loss carryovers.
105
Status as
a U.S. Real Property Holding Corporation
It is possible that we are now, or in the future may become, a
U.S. real property holding corporation within the meaning of the
Code. If we are considered a U.S. real property holding
corporation at any time during the shorter of the period that
you owned our common stock or the five-year period immediately
preceding the disposition of our common stock, you may be
subject to a tax on any gain realized on the disposition of
shares of our common stock if our common stock is not regularly
traded on an established securities market during the calendar
year in which the disposition occurs. In that case, you also may
be subject to a withholding tax on the proceeds from the
disposition of the shares of our common stock. We expect that
upon the consummation of this offering, our common stock will be
regularly traded on an established securities market and,
therefore, the tax and the withholding tax described above would
not apply to a disposition of shares, except as provided below.
The tax described above would apply to the disposition by you of
shares of our common stock even though our common stock is
regularly traded on an established securities market if you are
a non-U.S. person who, actually or constructively,
beneficially owns more than 5% of the total fair market value of
all outstanding shares of our common stock at any time during
the shorter of the period that you owned our common stock or the
five-year period immediately preceding the disposition. The
withholding tax described above, however, generally would not
apply to the disposition.
Information
Reporting and Backup Withholding Tax
We must report annually to the IRS and to you the amount of
dividends paid to you and the amount of tax, if any, withheld
with respect to such dividends. The IRS may make this
information available to the tax authorities in the country in
which you are resident.
In addition, you may be subject to information reporting
requirements and backup withholding tax (currently at a rate of
28%) with respect to dividends paid on, and the proceeds of
disposition of, shares of our Class A common stock, unless,
generally, you certify under penalties of perjury (usually on
IRS
Form W-8BEN)
that you are not a U.S. person or you otherwise establish
an exemption. Additional rules relating to information reporting
requirements and backup withholding tax with respect to payments
of the proceeds from the disposition of shares of our
Class A common stock are as follows:
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if the proceeds are paid to or through the U.S. office of a
broker, the proceeds generally will be subject to backup
withholding tax and information reporting, unless you certify
under penalties of perjury (usually on IRS
Form W-8BEN)
that you are not a U.S. person or you otherwise establish
an exemption.
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if the proceeds are paid to or through a
non-U.S. office
of a broker that is not a U.S. person and is not a foreign
person with certain specified U.S. connections (a
U.S.-related
person), information reporting and backup withholding tax
generally will not apply.
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if the proceeds are paid to or through a
non-U.S. office
of a broker that is a U.S. person or a
U.S.-related
person, the proceeds generally will be subject to information
reporting (but not to backup withholding tax), unless you
certify under penalties of perjury (usually on IRS
Form W-8BEN)
that you are not a U.S. person or you otherwise establish
an exemption.
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Any amounts withheld under the backup withholding tax rules may
be allowed as a refund or a credit against your
U.S. federal income tax liability, provided the required
information is timely furnished by you to the IRS.
New
Legislation Affecting Taxation of Common Stock Held By or
Through Foreign Entities
Recently enacted legislation generally will impose a withholding
tax of 30.0% on dividend income from our Class A common
stock and the gross proceeds of a disposition of our
Class A common stock paid to a foreign financial
institution (as specifically defined for this purpose),
unless such institution enters into an agreement with the
U.S. government to collect and provide to the U.S. tax
authorities substantial information regarding U.S. account
holders of such institution (which would include certain equity
and debt holders of such institution, as well as certain account
holders that are foreign entities with U.S. owners). Absent
any
106
applicable exception, this legislation also generally will
impose a withholding tax of 30.0% on dividend income from our
Class A common stock and the gross proceeds of a
disposition of our Class A common stock paid to a foreign
entity that is not a foreign financial institution unless such
entity provides the withholding agent either with (i) a
certification identifying the substantial U.S. owners of
the entity, which generally includes any U.S. person who
directly or indirectly owns more than 10.0% of the entity (or
more than zero percent in the case of some entities) or
(ii) a certification that the entity does not have any
substantial U.S. owners. Under certain circumstances, a
non-U.S. holder
of our Class A common stock might be eligible for refunds
or credits of such taxes, and a
non-U.S. holder
might be required to file a U.S. federal income tax return
to claim such refunds or credits. This legislation generally is
effective for payments made after December 31, 2012.
Investors are encouraged to consult with their own tax advisors
regarding the implications of this legislation on their
investment in our Class A common stock.
THE SUMMARY OF MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES ABOVE IS INCLUDED FOR GENERAL INFORMATION PURPOSES
ONLY. POTENTIAL PURCHASERS OF OUR CLASS A COMMON STOCK ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE
U.S. FEDERAL, STATE, LOCAL AND
NON-U.S. TAX
CONSIDERATIONS OF PURCHASING, OWNING AND DISPOSING OF OUR
CLASS A COMMON STOCK.
107
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement
dated ,
2010, we and the selling stockholders have agreed to sell to the
underwriters named below, for whom Credit Suisse Securities
(USA) LLC is acting as representative, the following respective
numbers of shares of Class A common stock.
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Underwriter
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Number of Shares
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Credit Suisse Securities (USA) LLC
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Total
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The underwriting agreement provides that the underwriters are
obligated to purchase all the shares of Class A common
stock in the offering if any are purchased, other than those
shares covered by the over-allotment option described below. The
underwriting agreement also provides that if an underwriter
defaults, the purchase commitments of non-defaulting
underwriters may be increased or the offering may be terminated.
We and the selling stockholders have granted to the underwriters
a 30-day
option to purchase on a pro rata basis up
to
additional shares at the initial public offering price less the
underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of Class A
common stock.
The underwriters propose to offer the shares of Class A
common stock initially at the public offering price on the cover
of this prospectus and to selling group members at that price
less a selling concession of $ per
share. The underwriters and selling group members may allow a
discount of $ per share on sales
to other broker/dealers. After the initial public offering the
representative may change the public offering price and
concession and discount to broker/dealers.
The following table summarizes the compensation and estimated
expenses we will pay:
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Per Share
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Total
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Without
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With
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Without
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With
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Over-Allotment
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Over-Allotment
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Over-Allotment
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Over-Allotment
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Underwriting discounts and commissions paid by us
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$
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$
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$
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$
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Expenses payable by us
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$
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$
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$
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$
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Underwriting discounts and commissions paid by selling
stockholders
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$
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$
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$
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$
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Expenses payable by selling stockholders
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$
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$
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$
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$
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The representative has informed us that they do not expect sales
to accounts over which the underwriters have discretionary
authority to exceed 5.0% of the shares of Class A common
stock being offered.
Subject to certain exceptions, we have agreed that we will not
offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, or file with the SEC a registration
statement under the Securities Act relating to, any shares of
our Class A common stock or securities convertible into or
exchangeable or exercisable for any shares of our Class A
common stock, or publicly disclose the intention to make any
offer, sale, pledge, disposition or filing, without the prior
written consent of Credit Suisse Securities (USA) LLC for a
period of 180 days after the date of this prospectus.
However, in the event that either (1) during the last
17 days of the
lock-up
period, we release earnings results or material news or a
material event relating to us occurs or (2) prior to the
expiration of the
lock-up
period, we announce that we will release earnings results during
the 16-day
period beginning on the last day of the
lock-up
period, then in either case the expiration
108
of the
lock-up
period will be extended until the expiration of the
18-day
period beginning on the date of the release of the earnings
results or the occurrence of the material news or event, as
applicable, unless Credit Suisse Securities (USA) LLC waives, in
writing, such an extension.
Our directors, officers and substantially all of the holders of
our Class A common stock have agreed that, subject to
certain exceptions, they will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any
shares of our Class A common stock or securities
convertible into or exchangeable or exercisable for any shares
of our Class A common stock, enter into a transaction that
would have the same effect, or enter into any swap, hedge or
other arrangement that transfers, in whole or in part, any of
the economic consequences of ownership of our Class A
common stock, whether any of these transactions are to be
settled by delivery of our Class A common stock or other
securities, in cash or otherwise, or publicly disclose the
intention to make any offer, sale, pledge or disposition, or to
enter into any transaction, swap, hedge or other arrangement,
without, in each case, the prior written consent of Credit
Suisse Securities (USA) LLC for a period of 180 days after
the date of this prospectus. However, in the event that either
(1) during the last 17 days of the
lock-up
period, we release earnings results or material news or a
material event relating to us occurs or (2) prior to the
expiration of the
lock-up
period, we announce that we will release earnings results during
the 16-day
period beginning on the last day of the
lock-up
period, then in either case the expiration of the
lock-up
will be extended until the expiration of the
18-day
period beginning on the date of the release of the earnings
results or the occurrence of the material news or event, as
applicable, unless Credit Suisse Securities (USA) LLC waives, in
writing, such an extension.
We and the selling stockholders have agreed to indemnify the
underwriters against liabilities under the Securities Act or
contribute to payments that the underwriters may be required to
make in that respect.
We intend to apply to list the shares of Class A common
stock on The NASDAQ Global Select Market under the symbol
LGNS.
Prior to this offering, there has been no public market for the
Class A common stock. The initial public offering price
will be determined by negotiations between the underwriters, our
board of directors and certain of the selling stockholders. The
principal factors expected to be considered in determining the
initial public offering price include:
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the information presented in this prospectus and otherwise
available to the underwriters;
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the history of and the prospects for the industry in which we
will compete;
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the ability of our management;
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the prospects for our future earnings;
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the present state of our development and our current financial
condition;
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the recent market prices of, and the demand for, publicly traded
common stock of generally comparable companies; and
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the general condition of the securities markets at the time of
this offering.
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We cannot assure you that the initial public offering price will
correspond to the price at which the Class A common stock
will trade in the public market subsequent to this offering or
that an active trading market for the Class A common stock
will develop and continue after this offering.
The underwriters and their affiliates have performed, and may in
the future perform, certain commercial banking, financial
advisory and investment banking services to us in the ordinary
course of business, for which they would receive customary fees.
In connection with the offering the underwriters may engage in
stabilizing transactions, over-allotment transactions, syndicate
covering transactions and penalty bids in accordance with
Regulation M under the Exchange Act.
109
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stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
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over-allotment transactions involve sales by the underwriters of
shares in excess of the number of shares the underwriters are
obligated to purchase, which creates a syndicate short position.
The short position may be either a covered short position or a
naked short position. In a covered short position, the number of
shares over-allotted by the underwriters is not greater than the
number of shares that they may purchase in the over-allotment
option. In a naked short position, the number of shares involved
is greater than the number of shares in the over-allotment
option. The underwriters may close out any covered short
position by either exercising their over-allotment option
and/or
purchasing shares in the open market.
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syndicate covering transactions involve purchases of the common
stock in the open market after the distribution has been
completed in order to cover syndicate short positions. In
determining the source of shares to close out the short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through
the over-allotment option. If the underwriters sell more shares
than could be covered by the over-allotment option, a naked
short position, the position can only be closed out by buying
shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there could
be downward pressure on the price of the shares in the open
market after pricing that could adversely affect investors who
purchase in the offering.
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penalty bids permit the representative to reclaim a selling
concession from a syndicate member when the common stock
originally sold by the syndicate member is purchased in a
stabilizing or syndicate covering transaction to cover syndicate
short positions.
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These stabilizing transactions, syndicate covering transactions
and penalty bids may have the effect of raising or maintaining
the market price of our Class A common stock or preventing
or retarding a decline in the market price of the Class A
common stock. As a result, the price of our Class A common
stock may be higher than the price that might otherwise exist in
the open market. These transactions may be effected on The
NASDAQ Global Select Market or otherwise and, if commenced, may
be discontinued at any time.
A prospectus in electronic format may be made available on the
websites maintained by one or more of the underwriters, or
selling group members, if any, participating in this offering
and one or more of the underwriters participating in this
offering may distribute prospectuses electronically. The
representative may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the underwriters and selling group members that
will make internet distributions on the same basis as other
allocations.
The shares are offered for sale in those jurisdictions in the
United States, Europe and elsewhere where it is lawful to make
such offers.
Each of the underwriters has represented and agreed that it has
not offered, sold or delivered and will not offer, sell or
deliver any of the shares directly or indirectly, or distribute
this prospectus or any other offering material relating to the
shares, in or from any jurisdiction except under circumstances
that will result in compliance with applicable laws and
regulations thereof and that will not impose obligations on us
except as set forth in the underwriting agreement.
European
Economic Area
In relation to each Member State of the European Economic Area
that has implemented the Prospectus Directive (each, a
Relevant Member State), each underwriter represents
and agrees that with effect from and including the date on which
the Prospectus Directive is implemented in that Relevant Member
State (the Relevant Implementation Date) it has not
made and will not make an offer of the common stock to the
public in that Relevant Member State prior to the publication of
a prospectus in relation to the Class A common stock which
has been approved by the competent authority in that Relevant
Member State or, where appropriate, approved in another Relevant
Member State and notified to the competent authority in that
110
Relevant Member State, all in accordance with the Prospectus
Directive, except that it may, with effect from and including
the Relevant Implementation Date, make an offer of the
Class A common stock to the public in that Relevant Member
State at any time,
(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities;
(b) to any legal entity which has two or more of
(1) an average of at least 250 employees during the
last financial year; (2) a total balance sheet of more than
43,000,000 and (3) an annual net turnover of more
than 50,000,000, as shown in its last annual or
consolidated accounts;
(c) to fewer than 100 natural or legal persons (other than
qualified investors as defined in the Prospectus Directive),
subject to obtaining the prior consent of the manager for any
such offer; or
(d) in any other circumstances that do not require the
publication by the Issuer of a prospectus pursuant to
Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an
offer of the common stock to the public in relation
to any of the common stock in any Relevant Member State means
the communication in any form and by any means of sufficient
information on the terms of the offer and the common stock to be
offered so as to enable an investor to decide to purchase or
subscribe any of the common stock, as the same may be varied in
that Member State by any measure implementing the Prospectus
Directive in that Member State and the expression
Prospectus Directive means Directive 2003/71/EC and
includes any relevant implementing measure in each Relevant
Member State.
Notice to
investors in the United Kingdom
Each of the underwriters severally represents, warrants and
agrees as follows:
(a) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of section 21 of the Financial Services
and Markets Act 2000, or the FSMA) to persons who have
professional experience in matters relating to investments
falling with Article 19(5) of the Financial Services and
Markets Act 2000 (Financial Promotion) Order 2005 or in
circumstances in which section 21 of the FSMA does not
apply to the Company; and
(b) it has complied with, and will comply with all
applicable provisions of the FSMA with respect to anything done
by it in relation to the Class A common stock in, from or
otherwise involving the United Kingdom.
111
LEGAL
MATTERS
Kirkland & Ellis LLP, New York, New York will pass
upon the validity of the Class A common stock offered
hereby on our behalf. Kirkland & Ellis LLP represents
entities affiliated with BRS and their affiliates in connection
with certain legal matters. The underwriters are represented by
King & Spalding LLP, Atlanta, Georgia.
EXPERTS
The consolidated balance sheets of LRI Holdings, Inc. and
subsidiaries as of August 2, 2009 and August 3, 2008,
and the related consolidated statements of income (loss),
changes in stockholders equity, and cash flows of LRI
Holdings, Inc. and subsidiaries for the years ended
August 2, 2009 and August 3, 2008 and for the period
from December 6, 2006 to July 29, 2007, and of the
predecessor, Logans Roadhouse, Inc., for the period from
July 29, 2006 to December 5, 2006, included in this
Prospectus have been audited by Deloitte & Touche LLP,
an independent registered public accounting firm, as stated in
their report appearing herein (which report expresses an
unqualified opinion and includes an explanatory paragraph
regarding the acquisition of Logans Roadhouse, Inc. on
December 6, 2006 and the fact that the financial statements
during the period from July 29, 2006 to December 5,
2006 were prepared from separate records maintained by
Logans Roadhouse, Inc., and an explanatory paragraph that
effective July 30, 2007, the Company adopted the accounting
provisions of Accounting Standards Codification Topic 740,
Income Taxes (formerly Financial Accounting Standards
Board Interpretation No. 48, Accounting for Uncertainty
in Income Taxes An Interpretation of FASB Statement
No. 109 (FIN No. 48)) and the
accounting provisions of Accounting Standards Codification Topic
480, Distinguishing Liabilities from Equity (formerly
Emerging Issues Task Force Topic D-98, Classification and
Measurement of Redeemable Securities (EITF
D-98)). Such financial statements have been so included in
reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1,
including exhibits, schedules and amendments, under the
Securities Act with respect to the shares of our Class A
common stock offered hereby. This prospectus, which constitutes
a part of the registration statement, does not contain all of
the information set forth in the registration statement or the
exhibits and schedules filed herewith. For further information
with respect to us and the Class A common stock offered
hereby, reference is made to the registration statement and the
exhibits and schedules filed therewith. Statements contained in
this prospectus regarding the contents of any contract or any
other document that is filed as an exhibit to the registration
statement are not necessarily complete, and each such statement
is qualified in all respects by reference to the full text of
such contract or other document filed as an exhibit to the
registration statement. A copy of the registration statement and
the exhibits and schedules filed herewith may be inspected
without charge at the public reference facilities maintained by
the SEC at 100 F Street, N.E., Washington, D.C.
20549. Copies of these materials may be obtained from the Public
Reference Section of the SEC at 100 F Street, N.E.,
Washington, D.C. 20549 upon the payment of the fees
prescribed by the SEC. Please call the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
facility. The SEC also maintains an Internet website that
contains the registration statement, periodic and current
reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The
address of the SECs website is www.sec.gov.
Upon completion of this offering, we will become subject to the
information and periodic and current reporting requirements of
the Exchange Act, and in accordance therewith, will file
periodic and current reports, proxy statements and other
information with the SEC. Such periodic and current reports,
proxy statements and other information will be available for
inspection and copying at the SECs public reference rooms,
on the SECs website and free of charge through our website
at www.logansroadhouse.com.
112
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
LRI Holdings, Inc.
Nashville, Tennessee
We have audited the accompanying consolidated balance sheets of
LRI Holdings, Inc. and subsidiaries (the Company or
the Successor Company) as of August 2, 2009 and
August 3, 2008, and the related consolidated statements of
income (loss), changes in stockholders equity, and cash
flows for the years then ended, and the period from
December 6, 2006 to July 29, 2007 (the Successor
Company Consolidated Financial Statements). We have also
audited the accompanying consolidated statement of income,
changes in stockholders equity, and cash flows of
Logans Roadhouse, Inc. (the Predecessor) for
the period from July 29, 2006 to December 5, 2006 (the
Predecessor Company Consolidated Financial
Statements). These financial statements are the
responsibility of the Companys and the Predecessors
management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company and the Predecessor
are not required to have, nor were we engaged to perform, an
audit of their internal control over financial reporting. Our
audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys
and the Predecessors internal control over financial
reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements,
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, the Successor Company Consolidated Financial
Statements present fairly, in all material respects, the
financial position of the Company at August 2, 2009, and
August 3, 2008, and the results of its operations and its
cash flows for the years then ended, and the period from
December 6, 2006 to July 29, 2007, in conformity with
accounting principles generally accepted in the United States of
America. Further, in our opinion, the Predecessor Company
Consolidated Financial Statements referred to above present
fairly, in all material respects, the results of its operations
and its cash flows for the period from July 29, 2006 to
December 5, 2006, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial
statements, on December 6, 2006, the Company acquired the
Predecessor. The accompanying Predecessor Company Consolidated
Financial Statements have been prepared from separate records
maintained by the Predecessor and CBRL Group, Inc. and may not
necessarily be indicative of the conditions that would have
existed or the results of its operations if the Predecessor had
been operated as an unaffiliated company. Portions of certain
expenses represent allocations made from corporate-office items
applicable to the parent company, CBRL Group, Inc., as a whole.
As discussed in Notes 2 and 12 to the consolidated
financial statements, effective July 30, 2007, the Company
adopted the accounting provisions of Accounting Standards
Codification Topic 740, Income Taxes (formerly Financial
Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income TaxesAn
Interpretation of FASB Statement No. 109
(FIN No. 48)) and the accounting
provisions of Accounting Standards Codification Topic 480,
Distinguishing Liabilities from Equity (formerly Emerging
Issues Task Force Topic D-98, Classification and Measurement
of Redeemable Securities (EITF D-98)).
/s/ Deloitte & Touche
Nashville, Tennessee
October 13, 2009, except for Note 2 paragraphs
thirty-three and thirty-six, Note 12 paragraph eight, and
Note 19, as to which the date is June 4, 2010.
F-2
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
(In thousands of dollars, except the per share data)
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Predecessor
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For the Period
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For the Period
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Fiscal Year
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Fiscal Year
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December 6, 2006 to
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July 29, 2006 to
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2009
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2008
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July 29, 2007
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December 5, 2006
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Revenues:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
533,248
|
|
|
$
|
529,424
|
|
|
$
|
321,421
|
|
|
$
|
153,663
|
|
Franchise fees and royalties
|
|
|
2,248
|
|
|
|
2,574
|
|
|
|
1,697
|
|
|
|
851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
535,496
|
|
|
|
531,998
|
|
|
|
323,118
|
|
|
|
154,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant operating costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
172,836
|
|
|
|
176,010
|
|
|
|
104,881
|
|
|
|
49,527
|
|
Labor and other related expenses
|
|
|
161,173
|
|
|
|
164,074
|
|
|
|
97,641
|
|
|
|
48,580
|
|
Occupancy costs
|
|
|
39,923
|
|
|
|
37,952
|
|
|
|
22,365
|
|
|
|
5,768
|
|
Other restaurant operating expenses
|
|
|
79,263
|
|
|
|
80,255
|
|
|
|
47,335
|
|
|
|
26,116
|
|
Depreciation and amortization
|
|
|
17,206
|
|
|
|
16,146
|
|
|
|
9,351
|
|
|
|
5,631
|
|
Pre-opening expenses
|
|
|
2,137
|
|
|
|
3,170
|
|
|
|
3,008
|
|
|
|
699
|
|
General and administrative
|
|
|
25,126
|
|
|
|
26,538
|
|
|
|
19,209
|
|
|
|
11,996
|
|
Impairment and store closing charges
|
|
|
23,187
|
|
|
|
6,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Costs and Expenses
|
|
|
520,851
|
|
|
|
510,767
|
|
|
|
303,790
|
|
|
|
148,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income From Operations
|
|
|
14,645
|
|
|
|
21,231
|
|
|
|
19,328
|
|
|
|
6,197
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(20,557
|
)
|
|
|
(22,618
|
)
|
|
|
(15,101
|
)
|
|
|
(5,533
|
)
|
Other expense, net
|
|
|
(1,543
|
)
|
|
|
(2,631
|
)
|
|
|
(313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Income (Expense)
|
|
|
(22,100
|
)
|
|
|
(25,249
|
)
|
|
|
(15,414
|
)
|
|
|
(5,533
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
|
(7,455
|
)
|
|
|
(4,018
|
)
|
|
|
3,914
|
|
|
|
664
|
|
Provision for (Benefit from) Income Taxes
|
|
|
(5,484
|
)
|
|
|
(3,392
|
)
|
|
|
566
|
|
|
|
(422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
(1,971
|
)
|
|
|
(626
|
)
|
|
|
3,348
|
|
|
|
1,086
|
|
Undeclared Preferred Dividend
|
|
|
(10,568
|
)
|
|
|
(9,605
|
)
|
|
|
(5,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stockholders
|
|
$
|
(12,539
|
)
|
|
$
|
(10,231
|
)
|
|
$
|
(2,204
|
)
|
|
$
|
1,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share Basic & Diluted
|
|
$
|
(12.95
|
)
|
|
$
|
(10.57
|
)
|
|
$
|
(2.28
|
)
|
|
$
|
1,086.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding
Basic & Diluted
|
|
|
968,000
|
|
|
|
968,000
|
|
|
|
968,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-3
LRI
Holdings, Inc.
(In thousands of dollars, except share data)
|
|
|
|
|
|
|
|
|
|
|
August 2, 2009
|
|
|
August 3, 2008
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13,069
|
|
|
$
|
6,188
|
|
Receivables
|
|
|
6,465
|
|
|
|
6,512
|
|
Inventories
|
|
|
9,637
|
|
|
|
9,705
|
|
Prepaid expenses and other current assets
|
|
|
6,957
|
|
|
|
6,298
|
|
Income taxes receivable
|
|
|
2,930
|
|
|
|
1,907
|
|
Deferred income taxes
|
|
|
802
|
|
|
|
1,028
|
|
Assets held for sale
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
41,060
|
|
|
|
31,638
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, net
|
|
|
195,854
|
|
|
|
192,540
|
|
Other Assets
|
|
|
8,521
|
|
|
|
10,126
|
|
Goodwill
|
|
|
81,207
|
|
|
|
81,207
|
|
Tradename
|
|
|
56,971
|
|
|
|
73,752
|
|
Other Intangible Assets, net
|
|
|
24,643
|
|
|
|
26,531
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
408,256
|
|
|
$
|
415,794
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
12,648
|
|
|
$
|
13,469
|
|
Current maturities of long-term debt
|
|
|
1,380
|
|
|
|
1,380
|
|
Income taxes payable
|
|
|
|
|
|
|
335
|
|
Other current liabilities and accrued expenses
|
|
|
33,196
|
|
|
|
33,749
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
47,224
|
|
|
|
48,933
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
|
|
|
218,683
|
|
|
|
218,670
|
|
Deferred Income Taxes
|
|
|
37,730
|
|
|
|
45,292
|
|
Other Long-Term Obligations
|
|
|
30,901
|
|
|
|
27,164
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
334,538
|
|
|
|
340,059
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock (par value $0.01 per share; liquidation
preference $64,508 and $64,859, respectively; 100,000 and
200,000 shares authorized, respectively; 64,508 and
64,859 shares issued and outstanding, respectively)
|
|
|
60,170
|
|
|
|
60,170
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Common stock (par value $0.01 per share, 1,900,000 and
15,000,000 shares authorized, respectively; 992,427 and
997,827 shares issued and outstanding, respectively)
|
|
|
10
|
|
|
|
10
|
|
Additional paid-in capital
|
|
|
12,831
|
|
|
|
13,031
|
|
Accumulated other comprehensive loss
|
|
|
(44
|
)
|
|
|
(198
|
)
|
Retained earnings
|
|
|
751
|
|
|
|
2,722
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
13,548
|
|
|
|
15,565
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
408,256
|
|
|
$
|
415,794
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-4
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
(In thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
For the Period
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
December 6, 2006 to
|
|
|
July 29, 2006 to
|
|
|
|
2009
|
|
|
2008
|
|
|
July 29, 2007
|
|
|
December 5, 2006
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,971
|
)
|
|
$
|
(626
|
)
|
|
$
|
3,348
|
|
|
$
|
1,086
|
|
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
17,206
|
|
|
|
16,146
|
|
|
|
9,351
|
|
|
|
5,631
|
|
Other amortization
|
|
|
1,217
|
|
|
|
1,138
|
|
|
|
2,599
|
|
|
|
|
|
In-kind interest on debt added to principal
|
|
|
1,394
|
|
|
|
2,771
|
|
|
|
1,694
|
|
|
|
|
|
Unrealized loss on interest rate swap
|
|
|
151
|
|
|
|
1,998
|
|
|
|
359
|
|
|
|
|
|
Loss on sale/disposal of property and equipment
|
|
|
880
|
|
|
|
2,183
|
|
|
|
554
|
|
|
|
3,005
|
|
Amortization of deferred gain on sale-leaseback
|
|
|
(68
|
)
|
|
|
(55
|
)
|
|
|
|
|
|
|
(70
|
)
|
Impairment charges for long-lived assets
|
|
|
6,252
|
|
|
|
6,623
|
|
|
|
|
|
|
|
|
|
Tradename impairment
|
|
|
16,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163
|
|
Excess tax benefit realized upon exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(241
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
47
|
|
|
|
297
|
|
|
|
420
|
|
|
|
(4,538
|
)
|
Inventories
|
|
|
68
|
|
|
|
(1,021
|
)
|
|
|
(90
|
)
|
|
|
(105
|
)
|
Prepaid expenses and other current assets
|
|
|
(661
|
)
|
|
|
(2,624
|
)
|
|
|
751
|
|
|
|
(1,243
|
)
|
Other non-current assets and intangibles
|
|
|
206
|
|
|
|
(840
|
)
|
|
|
(608
|
)
|
|
|
(1,387
|
)
|
Accounts payable
|
|
|
(1,299
|
)
|
|
|
(2,713
|
)
|
|
|
5,449
|
|
|
|
(2,126
|
)
|
Income taxes payable / receivable
|
|
|
(1,358
|
)
|
|
|
(2
|
)
|
|
|
(6,153
|
)
|
|
|
3,704
|
|
Other current liabilities and accrued expenses
|
|
|
40
|
|
|
|
2,145
|
|
|
|
1,016
|
|
|
|
4,080
|
|
Deferred income taxes
|
|
|
(7,425
|
)
|
|
|
(4,594
|
)
|
|
|
(375
|
)
|
|
|
(38,807
|
)
|
Other long-term obligations
|
|
|
4,040
|
|
|
|
7,375
|
|
|
|
3,602
|
|
|
|
1,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
35,500
|
|
|
|
28,201
|
|
|
|
21,917
|
|
|
|
(28,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(27,039
|
)
|
|
|
(37,372
|
)
|
|
|
(31,864
|
)
|
|
|
(15,637
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
15
|
|
|
|
16
|
|
|
|
1,606
|
|
Proceeds from sale-leaseback transactions, net of expenses
|
|
|
|
|
|
|
18,013
|
|
|
|
|
|
|
|
198,811
|
|
Acquisition of Logans Roadhouse, Inc., net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(272,553
|
)
|
|
|
|
|
Proceeds from insurance settlement
|
|
|
|
|
|
|
606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(27,039
|
)
|
|
|
(18,738
|
)
|
|
|
(304,401
|
)
|
|
|
184,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-5
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Consolidated
Statements of Cash Flows (Continued)
(In thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
For the Period
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
December 6, 2006 to
|
|
|
July 29, 2006 to
|
|
|
|
2009
|
|
|
2008
|
|
|
July 29, 2007
|
|
|
December 5, 2006
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings on term loan facility
|
|
|
|
|
|
|
|
|
|
|
138,000
|
|
|
|
|
|
Payments on term loan facility
|
|
|
(1,380
|
)
|
|
|
(1,380
|
)
|
|
|
(1,035
|
)
|
|
|
|
|
Borrowings on mezzanine facility
|
|
|
|
|
|
|
|
|
|
|
80,000
|
|
|
|
|
|
Net proceeds from (payments on) revolving credit facility
|
|
|
|
|
|
|
(4,765
|
)
|
|
|
4,765
|
|
|
|
|
|
Proceeds from debt to parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,959
|
|
Payments on debt to parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(208,098
|
)
|
Payments for debt issuance fees
|
|
|
|
|
|
|
|
|
|
|
(9,587
|
)
|
|
|
|
|
Proceeds from issuance of shares
|
|
|
|
|
|
|
|
|
|
|
73,281
|
|
|
|
|
|
Repurchase of shares
|
|
|
(200
|
)
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
Excess tax benefit realized upon exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(1,580
|
)
|
|
|
(6,215
|
)
|
|
|
285,424
|
|
|
|
(150,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
6,881
|
|
|
|
3,248
|
|
|
|
2,940
|
|
|
|
4,899
|
|
Cash and cash equivalents, beginning of period
|
|
|
6,188
|
|
|
|
2,940
|
|
|
|
|
|
|
|
1,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
13,069
|
|
|
$
|
6,188
|
|
|
$
|
2,940
|
|
|
$
|
6,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property accrued in accounts payable and accrued expenses
|
|
$
|
3,056
|
|
|
$
|
2,953
|
|
|
$
|
3,451
|
|
|
$
|
6,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligation additions
|
|
$
|
4
|
|
|
$
|
64
|
|
|
$
|
58
|
|
|
$
|
1,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred gain on sale-leaseback transactions
|
|
$
|
|
|
|
$
|
1,944
|
|
|
$
|
|
|
|
$
|
83,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend of 3 restaurant locations to Parent
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(5,690
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution from Parent
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
40,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivative instrument
|
|
$
|
(245
|
)
|
|
$
|
315
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, excluding amounts capitalized
|
|
$
|
17,982
|
|
|
$
|
18,480
|
|
|
$
|
11,028
|
|
|
$
|
6,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
4,622
|
|
|
$
|
1,574
|
|
|
$
|
7,129
|
|
|
$
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-6
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
(In thousands of dollars, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated Other
|
|
|
|
|
|
Stockholders
|
|
|
Shares of
|
|
|
|
|
|
|
Shares of
|
|
|
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Equity
|
|
|
Preferred
|
|
|
Preferred
|
|
|
|
Common
|
|
|
Common
|
|
|
Capital
|
|
|
Income/(Loss)
|
|
|
Earnings
|
|
|
(Permanent)
|
|
|
(Temporary)
|
|
|
(Temporary)
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at July 28, 2006
|
|
|
1,000
|
|
|
$
|
|
|
|
$
|
83,078
|
|
|
$
|
|
|
|
$
|
56,410
|
|
|
$
|
139,488
|
|
|
|
|
|
|
$
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,086
|
|
|
|
1,086
|
|
|
|
|
|
|
|
|
|
Dividend of 3 restaurant locations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,690
|
)
|
|
|
(5,690
|
)
|
|
|
|
|
|
|
|
|
Capital contribution
|
|
|
|
|
|
|
|
|
|
|
40,859
|
|
|
|
|
|
|
|
|
|
|
|
40,859
|
|
|
|
|
|
|
|
|
|
Excess tax benefit realized upon exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 5, 2006
|
|
|
1,000
|
|
|
$
|
|
|
|
$
|
124,178
|
|
|
$
|
|
|
|
$
|
51,806
|
|
|
$
|
175,984
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 6, 2006 (date of Acquisition)
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Issuance of shares of preferred
|
|
|
|
|
|
|
|
|
|
|
564
|
|
|
|
|
|
|
|
|
|
|
|
564
|
|
|
|
64,992
|
|
|
|
60,170
|
|
Issuance of shares of common
|
|
|
999,867
|
|
|
|
10
|
|
|
|
12,537
|
|
|
|
|
|
|
|
|
|
|
|
12,547
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,348
|
|
|
|
3,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at July 29, 2007
|
|
|
999,867
|
|
|
|
10
|
|
|
|
13,101
|
|
|
|
|
|
|
|
3,348
|
|
|
|
16,459
|
|
|
|
64,992
|
|
|
|
60,170
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(626
|
)
|
|
|
(626
|
)
|
|
|
|
|
|
|
|
|
Change in fair value of interest rate swap, net of tax benefit
of $118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(198
|
)
|
|
|
|
|
|
|
(198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(824
|
)
|
|
|
|
|
|
|
|
|
Repurchase of shares from management
|
|
|
(2,040
|
)
|
|
|
|
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
(70
|
)
|
|
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at August 3, 2008
|
|
|
997,827
|
|
|
|
10
|
|
|
|
13,031
|
|
|
|
(198
|
)
|
|
|
2,722
|
|
|
|
15,565
|
|
|
|
64,859
|
|
|
|
60,170
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,971
|
)
|
|
|
(1,971
|
)
|
|
|
|
|
|
|
|
|
Change in fair value of interest rate swap, net of tax provision
of $91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154
|
|
|
|
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,817
|
)
|
|
|
|
|
|
|
|
|
Repurchase of shares from management
|
|
|
(5,400
|
)
|
|
|
|
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
(200
|
)
|
|
|
(351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at August 2, 2009
|
|
|
992,427
|
|
|
$
|
10
|
|
|
$
|
12,831
|
|
|
$
|
(44
|
)
|
|
$
|
751
|
|
|
$
|
13,548
|
|
|
|
64,508
|
|
|
$
|
60,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-7
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
(In
thousands of dollars, except share data)
|
|
1.
|
Basis of
Presentation and Description of the Business
|
LRI Holdings, Inc. and subsidiaries (collectively, with its
subsidiaries, the Company) is engaged in the
operation and development of a full-service restaurant chain. As
of August 2, 2009 and August 3, 2008, the Company
operated 177 and 170, respectively, company-operated restaurants
and 26 franchisee-operated restaurants, at both period ends, in
20 states (23 states, including franchised locations).
LRI Holdings, Inc. was formed with the purpose and intent of
acquiring 100% of the issued and outstanding shares of
Logans Roadhouse, Inc. from CBRL Group, Inc.
(collectively, with its subsidiaries, CBRL) (the
Acquisition). Immediately following the Acquisition,
Logans Roadhouse, Inc. became a wholly-owned subsidiary of
LRI Holdings, Inc. LRI Holdings, Inc. had no assets, liabilities
or operations prior to December 6, 2006. The consolidated
financial statements for the periods after December 5, 2006
are those of LRI Holdings, Inc. (the Successor). The
financial statements for all periods prior to December 6,
2006 are those of Logans Roadhouse, Inc. (the
Predecessor), which was a wholly-owned subsidiary of
CBRL. These consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in
the United States of America (GAAP), and all
intercompany balances and transactions have been eliminated
during consolidation. As a result of the Acquisition, the
consolidated financial statements after December 5, 2006
are not comparable to those prior to that date as the
consolidated financial statements for the periods subsequent to
the Acquisition are presented on a different cost basis than the
periods prior to the Acquisition.
The Predecessor consolidated financial statements include an
allocation of certain overhead costs incurred by CBRL on the
Predecessors behalf. These costs are classified as general
and administrative expenses and include corporate personnel,
finance, legal, insurance, internal audit, travel, expenses
related to being a public company (such as audit expenses, stock
transfer agent, board of directors and listing fees) and other
general and administrative costs. These costs were allocated
based on the percent of the Predecessors revenues relative
to the total consolidated revenues of CBRL. Management believes
this is a reasonable method of allocating such costs; however,
the historical financial information presented herein does not
necessarily reflect what the operating results and cash flows
would have been had the Predecessor been a separate stand-alone
entity for the periods presented. The amount allocated was
$1,464 for the period July 29, 2006 to December 5,
2006.
The Company operates on a 52 or 53 week fiscal year ending on
the Sunday nearest to July 31. The Predecessor operated on
a 52 or 53 week fiscal year ending on the Friday nearest to
July 31. Due to the Acquisition, the periods of
July 29, 2006 to December 5, 2006 (Predecessor) and
December 6, 2006 to July 29, 2007 (Successor)
presented in the consolidated financial statements represent
52-weeks plus 2 days. The fiscal year period ended
August 3, 2008 (fiscal year 2008) consists of
53 weeks. The fiscal year period ended August 2, 2009
(fiscal year 2009) consists of 52 weeks.
Approximately every six years a 53-week fiscal year occurs.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Cash
and cash equivalents
The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents.
Receivables
Receivables consist primarily of bank credit card receivables,
which are short in duration and considered collectible. The
Company, therefore, does not provide for an allowance for
doubtful accounts.
F-8
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
Inventories
Inventories consist of food, beverages and supplies and are
valued at the lower of cost
(first-in,
first-out method) or market. Supplies, consisting mainly of
dishes, utensils and small equipment, represented $6,392 and
$6,081 of the total inventory balance at August 2, 2009 and
August 3, 2008, respectively.
Property
and equipment
Property and equipment is recorded at cost. Expenditures for
improvements and major remodels are capitalized and minor
replacement, maintenance and repairs are charged to expense.
Depreciation is computed using the straight-line method over the
shorter of the estimated useful lives or the terms of the
underlying leases of the related assets.
Useful lives for property and equipment is established for each
asset class as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Land
|
|
|
Indefinite
|
|
|
|
Indefinite
|
|
Buildings
|
|
|
35 years
|
|
|
|
18 - 30 years
|
|
Restaurant equipment
|
|
|
3 - 15 years
|
|
|
|
2 - 10 years
|
|
Leasehold improvements
|
|
|
7 - 35 years
|
|
|
|
9 - 30 years
|
|
Other
assets
Other assets consist primarily of unamortized debt issuance
costs, deposits and assets related to the Companys
non-qualified employee deferred compensation plan. Debt issuance
costs are amortized to interest expense over the term of the
related debt.
Goodwill
and tradename
Goodwill represents the excess of cost over the fair value of
net assets acquired in a purchase business combination. Goodwill
is not amortized, but is subject to annual impairment tests in
accordance with Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets
(SFAS 142). Goodwill is tested for
impairment annually or more frequently if events or changes in
circumstances indicate that the asset might be impaired.
SFAS 142 requires a two-step process for testing
impairment. First, the estimated fair value of the Company is
compared to its carrying value to determine whether an
indication of impairment exists. If an impairment is indicated,
then the implied fair value of the Companys goodwill is
determined by allocating the estimated fair value to the
Companys assets and liabilities (including any
unrecognized intangible assets) as if the Company had been
acquired in a business combination. The amount of impairment for
goodwill is measured as the excess of its carrying value over
its implied fair value.
The Companys tradename has an indefinite life and, in
accordance with SFAS 142, is not amortized but is subject
to impairment testing at least annually. The amount of
impairment is measured as the excess of its carrying value over
its implied fair value.
The Company performs both annual impairment tests as of the end
of the second quarter (see Note 6).
Other
intangible assets
Acquired intangible assets are initially valued at fair value
using generally accepted valuation methods appropriate for the
type of intangible asset. If determined to have a definite life,
intangible assets are recorded at cost and amortized over their
estimated useful lives.
F-9
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
Useful lives for other intangible assets are as follows:
|
|
|
|
|
Useful Lives
|
|
Franchise agreements
|
|
23 years
|
Liquor licenses
|
|
Life of lease/building or indefinite
|
Favorable leases
|
|
Life of lease
|
Menu
|
|
5 years
|
Impairment
and store closing charges
In accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, long-lived
assets such as property, equipment and purchased intangibles
subject to amortization are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by comparing the carrying
amount of an asset or group of assets to the estimated
undiscounted future identifiable cash flows expected to be
generated by those assets. Identifiable cash flows are measured
at the lowest level where they are essentially independent of
cash flows of other groups of assets and liabilities, generally
at the restaurant level. If the carrying amount of an asset or
group of assets exceeds its estimated undiscounted future cash
flows, an impairment charge is recognized in the amount by which
the carrying amount of the asset exceeds the fair value of the
asset (see Note 8).
Insurance
reserves
The Company self-insures a significant portion of expected
losses under the Companys workers compensation,
employee health, general liability and property insurance
programs. The Company has purchased insurance for individual
claims for certain coverages that exceed certain deductible
limits, as well as aggregate limits above certain risk
thresholds. The Company records a liability for the estimated
exposure for aggregate incurred but unpaid losses below those
limits.
Summarized activity for the insurance reserves includes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
For the Period
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
December 6, 2006 to
|
|
|
July 29, 2006 to
|
|
|
|
2009
|
|
|
2008
|
|
|
July 29, 2007
|
|
|
December 5, 2006
|
|
|
Reserve balance- beginning of year
|
|
$
|
4,645
|
|
|
$
|
3,795
|
|
|
$
|
4,231
|
|
|
$
|
3,280
|
|
Add: provision
|
|
|
8,367
|
|
|
|
10,618
|
|
|
|
4,961
|
|
|
|
3,936
|
|
Less: payments
|
|
|
(8,360
|
)
|
|
|
(9,768
|
)
|
|
|
(5,397
|
)
|
|
|
(2,985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve balance- end of year
|
|
$
|
4,652
|
|
|
$
|
4,645
|
|
|
$
|
3,795
|
|
|
$
|
4,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
recognition
The Company records revenue from the sale of food and beverage
products as they are sold, net of sales tax. Proceeds from the
sale of gift cards are recorded as deferred revenue and
recognized as income when the gift card is redeemed by the
holder or the likelihood of redemption, based upon our
historical redemption patterns, becomes remote.
Franchise fees received are recognized as income when the
Company has performed all required obligations to assist the
franchisee in opening a new franchise restaurant. Franchise
royalties are a percentage of net sales of franchised
restaurants and are recognized as income when earned.
F-10
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
Cost
of goods sold
Cost of goods sold is primarily food and beverage costs for
inventory and related purchasing and distribution costs. Vendor
allowances received in connection with the purchase of a
vendors products are recognized as a reduction of the
related food and beverage costs as earned.
Pre-opening
expenses
Pre-opening expenses incurred with the opening of a new
restaurant are expensed when incurred. These costs primarily
include manager salaries, employee payroll, rent and supplies.
Advertising
The Company expenses most advertising costs as they are
incurred. The Company receives 0.5% of franchisee net sales as a
marketing contribution, which is recorded as an offset to the
Companys advertising costs. Net advertising expense was
$9,203, $5,937, and $4,217 for fiscal years 2009, 2008 and the
period from December 6, 2006 to July 29, 2007,
respectively, and $1,348 for the Predecessor period from
July 29, 2006 to December 5, 2006.
Leases
The Company has ground leases, ground plus building leases and
office space leases that are recorded as operating leases, most
of which contain rent escalation clauses and rent holiday
periods. In accordance with FASB Technical
Bulletin No. 85-3
(FTB
85-3),
Accounting for Operating Leases with Scheduled Rent
Increases, rent expense under these leases is recognized on
a straight-line basis over the shorter of the useful life, or
the related lease life, including probable renewal periods. The
difference in the straight-line expense in any year and amounts
payable under the leases during that year is recorded as
deferred rent liability. The Company uses a lease life that
begins on the date that the Company becomes legally obligated
under the lease, including the pre-opening period during
construction, when in many cases the Company is not making rent
payments (rent holiday), and extends through certain
of the renewal periods that can be exercised at the
Companys option, for which, at the inception of the lease,
it is probable that the Company will exercise those renewal
options.
Certain leases provide for contingent rent, which is determined
as a percentage of sales in excess of specified minimum sales
levels. The Company recognizes contingent rent expense prior to
the achievement of the specified sales target that triggers the
contingent rent, provided achievement of the sales target is
considered probable.
Occasionally, the Company is responsible for the construction of
leased restaurant locations and for paying project costs that
may be in excess of an agreed upon amount with the lessor
landlord. The Company applies Emerging Issues Task Force Issue
No. 97-10
(EITF 97-10),
The Effect of Lessee Involvement in Asset Construction,
in these situations, which requires the Company to be considered
the owner, for accounting purposes, of these types of projects
during the construction period. At August 2, 2009 and
August 3, 2008, costs of $4,462 and $110, respectively, are
included within Property and Equipment, net as
Construction in progress.
Sale-leaseback
transactions
The Company accounts for the sale-leaseback of real estate
assets in accordance with Statement of Financial Accounting
Standards No. 98, Accounting For Leases,
(SFAS 98). Losses on sale-leaseback
transactions are recognized at the time of sale if the fair
value of the property sold is less than the undepreciated cost
of the property. Gains on sale-leaseback transactions are
deferred and amortized over the related lease term.
F-11
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
Share-based
compensation
All Predecessor stock options and share-based compensation
represent awards of CBRL shares to certain of the
Predecessors employees. No equity-based awards on the
Predecessors stock were made in the Predecessor periods
presented herein. Effective July 30, 2005, CBRL adopted the
fair value recognition provisions of Statement of Financial
Accounting Standards No. 123R, Share-Based Payment
(SFAS 123R), using the modified prospective
method (no restatement). Under this method, compensation cost in
fiscal year 2006 includes the portion vesting in the period for
(a) all share-based payments granted prior to, but not
vested as of, July 29, 2005, based on the grant date fair
value estimated in accordance with the original provisions of
SFAS 123 and (b) all share-based payments granted
subsequent to July 29, 2005, based on the grant date fair
value estimated using a binomial lattice-based option valuation
model. Subsequent to the Acquisition, the Company adopted the
LRI Holdings, Inc. Option Plan (the Option Plan).
The Company applied the fair value recognition provisions of
SFAS 123R to options issued under the Option Plan. The
grant date fair value of those options was estimated using a
simulation analysis in an option pricing framework,
incorporating Geometric Brownian Motion in the equity value
calculation.
Income
taxes
Income taxes are accounted for pursuant to Statement of
Financial Accounting Standards No. 109, Accounting for Income
Taxes (SFAS 109), which requires
recognition of deferred tax assets and liabilities for the
expected future income tax consequences of transactions that
have been included in the financial statements. Under this
method, deferred tax assets and liabilities are determined based
on the tax affected differences between the financial statement
and tax basis of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to
reverse. Deferred tax assets are reduced by valuation
allowances, which represents the estimated amount of deferred
tax assets that may not be realized based upon estimated future
taxable income. Future taxable income, reversals of temporary
differences, available carry back periods and changes in tax
laws could affect these estimates. Employer tax credits for FICA
taxes paid on employee tip income are accounted for by the
flow-through method.
The Company recognizes a tax position in the financial
statements when it is more likely than not that the position
would be sustained upon examination by tax authorities that have
full knowledge of all relevant information. A recognized tax
position is then measured at the largest amount of benefit that
is greater than 50% likely to be realized upon settlement.
Comprehensive
income (loss)
Comprehensive income (loss) consists of the net income and other
gains and losses affecting stockholders equity that, under
GAAP, are excluded from net income. Other comprehensive income
(loss) as presented in the consolidated statements of changes in
stockholders equity for fiscal years 2009 and 2008
consisted of the unrealized gain (loss), net of tax, of the
Companys cash flow hedges.
Net
income (loss) per share
Basic earnings per share amounts are computed by dividing
consolidated net income (loss) by the weighted average number of
common shares outstanding during the reporting period. Diluted
per share amounts reflect the potential dilution that could
occur if securities, options or other contracts to issue common
stock were exercised or converted into common stock. At
August 2, 2009, August 3, 2008 and July 29, 2007,
there were 25,911, 31,614 and 31,919, respectively, of
management shares and 165,200, 156,492 and 168,635 of stock
options which were not considered dilutive due to performance
conditions not being met. There were no dilutive securities,
options or contracts in the Predecessor period from
July 29, 2006 to December 5, 2006.
F-12
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
Derivative
instruments
The Companys policy is to account for derivative
instruments and hedging activities in accordance with Statement
of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities, as
amended, which requires that all derivative instruments be
recorded at fair value in the consolidated financial statements.
The Company does not hold or use derivative financial
instruments for trading or speculative purposes (see
Note 10).
Use of
estimates
The preparation of consolidated financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Segment
reporting
The Company aggregates its operations into a single reportable
segment within the casual dining industry, providing similar
products to similar customers, exclusively in the United States.
The restaurants also possess similar pricing structures,
resulting in similar long-term expected financial performance
characteristics. Accordingly, no further segment reporting
beyond the consolidated financial statements is presented.
Recently
adopted accounting standards
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value Measures
(SFAS 157). SFAS 157 defines fair
value, establishes a framework for measuring fair value and
enhances disclosures about fair value measures required under
other accounting pronouncements, but does not change existing
guidance as to whether or not an instrument is carried at fair
value. In February 2008, the FASB issued FSP
No. 157-2,
Effective Date of FASB Statement No. 157. This staff
position delays the effective date of FASB Statement
No. 157 for certain nonfinancial assets and liabilities to
fiscal years beginning after November 15, 2008 (fiscal year
2010 for the Company). For those financial assets and
liabilities the Company records or discloses at fair value, the
Company adopted SFAS 157 at the beginning of fiscal year
2009. The Company is currently evaluating the impact the
deferred provisions of this statement will have on its
consolidated financial statements.
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
(FIN 48) which clarifies the accounting for
uncertainty in income taxes recognized in financial statements
in accordance with SFAS 109. FIN 48 prescribes a
recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This
interpretation was effective for fiscal years beginning after
December 15, 2006. In May 2007, the FASB issued FASB Staff
Position
No. FIN 48-1,
Definition of Settlement in FASB Interpretation No. 48
(FSP
FIN 48-1).
FSP
FIN 48-1
provides guidance about how a company should determine whether a
tax position is effectively settled for the purpose of
recognizing previously unrecognized tax benefits. Under FSP
FIN 48-1,
a tax position could be effectively settled on completion of
examination by a taxing authority if the company does not intend
to appeal or litigate the result and it is remote that the
taxing authority would examine or re-examine the tax position.
The adoption of FIN 48 as of July 30, 2007 did not
have a material impact on the Companys consolidated
financial statements.
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities
(SFAS 159). SFAS 159 provides
companies with an option to report selected financial assets and
financial liabilities at fair value. Unrealized gains and losses
on items for which the fair value option has been elected are
reported in earnings at each subsequent reporting
F-13
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
date. The adoption of SFAS 159 did not have a material
impact on the Companys consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165,
Subsequent Events which sets forth the period for
which management shall evaluate events or transactions that may
occur for potential recognition or disclosure in the financial
statements, the circumstances under which an entity shall
recognize events after the balance sheet date in its financial
statements and the disclosures required of events occurring
after the balance sheet date. The Company adopted this statement
in fiscal year 2009 and it did not have a material effect on the
Companys consolidated financial statements.
The Company has adopted the accounting provisions of Emerging
Issues Task Force Topic D-98, Classification and Measurement
of Redeemable Securities. Accordingly, the Company has
presented the Series A preferred stock as temporary equity
in the consolidated balance sheets. This classification is
required as the Series A preferred stock has a redemption
provision that is callable by the preferred stockholders through
their representation on the Companys board of directors.
Application
of new accounting standards
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007), Business
Combinations (SFAS 141R). SFAS 141R
replaces SFAS 141 and establishes the principles and
requirements of how an acquirer in a business combination:
a) recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; b) recognizes and
measures the goodwill acquired in the business combination or
gain from a bargain purchase; and c) determines what
information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the
business combination. In addition, under SFAS 141R, changes
in an acquired entitys deferred tax assets and uncertain
tax positions after the measurement period will impact income
tax expense. SFAS 141R is to be applied prospectively to
business combinations consummated on or after the beginning of
the first annual reporting period on or after December 15,
2008 (fiscal year 2010 for the Company). The Company does not
anticipate the adoption of SFAS 141R to have a significant
impact on its consolidated financial statements; however, the
application of SFAS 141R will significantly change how the
Company accounts for any future business combinations.
In March 2008, the FASB issued Statement of Financial Accounting
Standards No. 161, Disclosure about Derivative
Instruments and Hedging Activities
(SFAS 161). SFAS 161 requires
companies to provide enhanced disclosures about derivative
instruments and hedging activities to enable investors to better
understand their effects on a companys financial position,
results of operations and cash flows. These requirements include
the disclosure of the fair values of derivative instruments and
their gains and losses in a tabular format. SFAS 161 is
effective for fiscal years beginning after November 15,
2008 (fiscal year 2010 for the Company). The Company is
currently evaluating the impact SFAS 161 will have on its
consolidated financial statements.
In June 2009, the FASB issued SFAS No. 168, The
FASB Accounting Standards
Codificationtm
and the Hierarchy of Generally Accepted Accounting
Principles which will become the authoritative
U.S. generally accepted accounting principles.
SFAS 168 is effective for interim and annual periods ending
after September 15, 2009 (fiscal year 2010 for the
Company). The Company does not expect the adoption of
SFAS 168 to have a material impact on the Companys
consolidated financial statements.
|
|
3.
|
Acquisition
of Logans Roadhouse, Inc.
|
The Acquisition was accounted for as a purchase in accordance
with Statement of Financial Accounting Standards No. 141,
Business Combinations (SFAS 141). As a
result, the total purchase price was allocated to the acquired
identifiable tangible and intangible assets and assumed
liabilities based on estimated fair values at the Acquisition
date.
F-14
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
The aggregate purchase price was $279,229 (including cash
acquired of $6,676). The purchase price included transaction
costs of $7,692 that were incurred and the assumption of
$110,783 of liabilities.
The Acquisition was financed with $218,000 of debt, $72,600 of
capital from investors and $2,390 of capital from management
(including $1,709 of equity awards for certain members of
management which has been treated pursuant to SFAS 123R).
The proceeds of the financing were used to purchase the existing
equity of Logans Roadhouse, Inc. for $271,537 (net of
$1,400 of purchase price adjustments) from CBRL, pay Acquisition
transaction expenses of $7,692, pay debt issuance costs of
$9,006, and pre-pay fees and expense of $982 (including related
party management fees of $679). Proceeds of $664 from the
financing were used in operations. The Acquisition was
considered tax-free under IRS regulations. As such,
there is no goodwill for tax purposes. Between the opening
balance sheet date and July 29, 2007, costs of $412 were
incurred related to the Acquisition and have also been
considered in goodwill.
The following table presents the allocation of the purchase
price to the assets acquired and liabilities assumed based on
their estimated fair values:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,676
|
|
Receivables
|
|
|
7,229
|
|
Inventories
|
|
|
8,594
|
|
Prepaid expenses and other current assets
|
|
|
4,426
|
|
Property and equipment, net
|
|
|
175,473
|
|
Other assets
|
|
|
1,529
|
|
Goodwill
|
|
|
80,829
|
|
Tradename
|
|
|
73,752
|
|
Other intangible assets
|
|
|
31,504
|
|
|
|
|
|
|
Total assets acquired
|
|
|
390,012
|
|
|
|
|
|
|
Accounts payable
|
|
|
14,150
|
|
Income taxes payable
|
|
|
4,583
|
|
Other current liabilities and accrued expenses
|
|
|
27,888
|
|
Deferred income taxes
|
|
|
49,350
|
|
Other long-term obligations
|
|
|
14,812
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
110,783
|
|
|
|
|
|
|
Net assets acquired
|
|
|
279,229
|
|
|
|
|
|
|
Net assets acquired, exclusive of cash acquired
|
|
$
|
272,553
|
|
|
|
|
|
|
The nature and useful lives of the acquired intangible assets
are as follows:
|
|
|
|
|
Tradename (indefinite life)
|
|
$
|
73,752
|
|
Franchise agreements (23 years)
|
|
|
10,950
|
|
Favorable leases (11 to 34 years)
|
|
|
9,112
|
|
Unfavorable leases (14 to 34 years)
|
|
|
(12,323
|
)
|
Liquor licenses (lease/building life or indefinite life)
|
|
|
3,719
|
|
Menu (5 years)
|
|
|
5,774
|
|
Favorable beef contract (8 months)
|
|
|
1,949
|
|
F-15
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
|
|
4.
|
Property
and Equipment
|
Property and equipment, as of August 2, 2009 and
August 3, 2008, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
August 2,
|
|
|
August 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
Land
|
|
$
|
2,661
|
|
|
$
|
3,698
|
|
Buildings
|
|
|
3,310
|
|
|
|
3,382
|
|
Restaurant equipment
|
|
|
56,083
|
|
|
|
52,715
|
|
Leasehold improvements
|
|
|
158,337
|
|
|
|
148,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,391
|
|
|
|
208,277
|
|
Accumulated depreciation and amortization
|
|
|
(35,777
|
)
|
|
|
(21,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
184,614
|
|
|
|
186,476
|
|
Construction in progress
|
|
|
11,240
|
|
|
|
6,064
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
195,854
|
|
|
$
|
192,540
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense, for property and
equipment, was as follows:
|
|
|
|
|
Fiscal year 2009
|
|
$
|
15,661
|
|
|
|
|
|
|
Fiscal year 2008
|
|
$
|
14,783
|
|
|
|
|
|
|
December 6, 2006 to July 29, 2007
|
|
$
|
8,251
|
|
|
|
|
|
|
Predecessor Period July 29, 2006 to
December 5, 2006
|
|
$
|
5,631
|
|
|
|
|
|
|
Interest capitalized into the cost of property and equipment was
$329, $509 and $508 for fiscal years 2009, 2008 and the period
from December 6, 2006 to July 29, 2007, respectively,
and $269 for the Predecessor period from July 29, 2006 to
December 5, 2006. The Company had property and equipment
purchases accrued in Accounts payable and
Other current liabilities and accrued expenses in
the accompanying consolidated balance sheets of $3,056 and
$2,953 at August 2, 2009 and August 3, 2008,
respectively.
Other assets, as of August 2, 2009 and August 3, 2008,
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
August 2,
|
|
|
August 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
Debt issuance costs, net
|
|
$
|
6,179
|
|
|
$
|
7,548
|
|
Deposits
|
|
|
994
|
|
|
|
1,043
|
|
Non-qualified savings plan assets
|
|
|
806
|
|
|
|
947
|
|
Deferred sale-leaseback transaction costs, net
|
|
|
542
|
|
|
|
588
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,521
|
|
|
$
|
10,126
|
|
|
|
|
|
|
|
|
|
|
F-16
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
|
|
6.
|
Goodwill
and Intangible Assets
|
Goodwill and intangible assets, as of August 2, 2009 and
August 3, 2008, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
August 2, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
81,207
|
|
|
$
|
|
|
|
$
|
81,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename
|
|
$
|
56,971
|
|
|
$
|
|
|
|
$
|
56,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquor licenses
|
|
$
|
1,790
|
|
|
$
|
|
|
|
$
|
1,790
|
|
Definite lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise agreements
|
|
|
10,950
|
|
|
|
(729
|
)
|
|
|
10,221
|
|
Favorable leases
|
|
|
9,112
|
|
|
|
(904
|
)
|
|
|
8,208
|
|
Liquor licenses
|
|
|
1,929
|
|
|
|
(230
|
)
|
|
|
1,699
|
|
Menu
|
|
|
5,774
|
|
|
|
(3,049
|
)
|
|
|
2,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,555
|
|
|
$
|
(4,912
|
)
|
|
$
|
24,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 3, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
81,207
|
|
|
$
|
|
|
|
$
|
81,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename
|
|
$
|
73,752
|
|
|
$
|
|
|
|
$
|
73,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquor licenses
|
|
$
|
1,790
|
|
|
$
|
|
|
|
$
|
1,790
|
|
Definite lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise agreements
|
|
|
10,950
|
|
|
|
(426
|
)
|
|
|
10,524
|
|
Favorable leases
|
|
|
9,112
|
|
|
|
(561
|
)
|
|
|
8,551
|
|
Liquor licenses
|
|
|
1,929
|
|
|
|
(143
|
)
|
|
|
1,786
|
|
Menu
|
|
|
5,774
|
|
|
|
(1,894
|
)
|
|
|
3,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,555
|
|
|
$
|
(3,024
|
)
|
|
$
|
26,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization of intangibles was $1,888, $1,706 and $3,267
for fiscal years 2009, 2008 and the period December 6, 2006
to July 29, 2007, respectively, ($1,545, $1,363 and $1,100,
respectively, is included in Depreciation and
amortization; $343, $343 and $218, respectively, is
included in Occupancy costs; and $0, $0 and $1,949,
respectively, is included in Cost of goods sold).
There was no amortization expense for the Predecessor period
from July 29, 2006 to December 5, 2006.
F-17
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
Estimated amortization of intangibles to amortization expense
and favorable leases to rent expense over the next five fiscal
years, and thereafter, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
Rent
|
|
Year
|
|
Expense
|
|
|
Expense
|
|
|
Fiscal year 2010
|
|
$
|
1,574
|
|
|
$
|
342
|
|
Fiscal year 2011
|
|
|
1,604
|
|
|
|
342
|
|
Fiscal year 2012
|
|
|
896
|
|
|
|
342
|
|
Fiscal year 2013
|
|
|
466
|
|
|
|
342
|
|
Fiscal year 2014
|
|
|
468
|
|
|
|
342
|
|
Thereafter
|
|
|
9,637
|
|
|
|
6,498
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,645
|
|
|
$
|
8,208
|
|
|
|
|
|
|
|
|
|
|
The Company performed its annual assessment of goodwill as of
the end of the second quarter of fiscal year 2009 and concluded
there was no indication of impairment. The Company plans to
continue its annual assessment of goodwill as of the end of the
second quarter of each fiscal year. The Company also performed
its annual assessment of the indefinite-lived tradename
intangible asset as of the end of the second quarter of fiscal
year 2009 and recorded a non-cash impairment charge of $16,781,
representing the excess of the carrying cost of the tradename
over its calculated fair value. The fair value calculation is
dependent on a number of factors, including estimates of future
growth and trends, discount rates and other variables. The
impairment primarily arises from the increase in the discount
rate used in estimating fair value and the effect of recent
declines in revenues.
|
|
7.
|
Other
Current Liabilities and Accrued Expenses and Other Long-Term
Obligations
|
Other current liabilities and accrued expenses, as of
August 2, 2009 and August 3, 2008, consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
August 2,
|
|
|
August 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
Accrued expenses
|
|
$
|
849
|
|
|
$
|
1,880
|
|
Accrued interest
|
|
|
391
|
|
|
|
1,046
|
|
Bonus and incentive awards
|
|
|
5,444
|
|
|
|
2,553
|
|
Accrued vacation
|
|
|
818
|
|
|
|
936
|
|
Deferred revenue
|
|
|
3,641
|
|
|
|
3,451
|
|
Derivative liability
|
|
|
171
|
|
|
|
|
|
Insurance reserves
|
|
|
4,652
|
|
|
|
4,644
|
|
Payroll related accruals
|
|
|
10,387
|
|
|
|
10,727
|
|
Taxes payable
|
|
|
6,843
|
|
|
|
8,512
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33,196
|
|
|
$
|
33,749
|
|
|
|
|
|
|
|
|
|
|
F-18
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
Other long-term obligations, as of August 2, 2009 and
August 3, 2008, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
August 2,
|
|
|
August 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred rent liability
|
|
$
|
11,101
|
|
|
$
|
6,292
|
|
Asset retirement obligation
|
|
|
1,756
|
|
|
|
1,618
|
|
Non-qualified savings plan liability
|
|
|
806
|
|
|
|
947
|
|
Deferred management compensation
|
|
|
1,350
|
|
|
|
1,453
|
|
Unfavorable leases
|
|
|
11,016
|
|
|
|
11,511
|
|
Derivative liability
|
|
|
2,672
|
|
|
|
3,037
|
|
Deferred gain on sale-leaseback transaction
|
|
|
1,766
|
|
|
|
1,863
|
|
Other
|
|
|
434
|
|
|
|
443
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,901
|
|
|
$
|
27,164
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Impairment
and Store Closing Charges
|
Impairment
charges
The Company performed a long-lived asset impairment analysis
during fiscal year 2009 and determined that eight restaurants
had carrying amounts in excess of their fair value. The same
analysis performed during fiscal 2008 determined three
restaurants had carrying amounts in excess of their fair value.
The assessments compared the carrying amounts of each restaurant
to the estimated future undiscounted net cash flows of that
restaurant and an impairment charge was recorded based on the
amount by which the carrying amount of the assets exceeded their
fair value. Fair value was determined based on an assessment of
individual site characteristics and local real estate market
conditions along with estimates of future cash flows. Due to
declining market conditions at both period ends, impairment
charges of $6,452 and $6,622 were recorded in fiscal years 2009
and 2008, respectively.
Store
closing charges
During fiscal year 2009, the Company closed one restaurant which
had been impaired in fiscal year 2008. Additional store closing
costs of $153 were recorded, offset by an adjustment to the
estimated fair value of ($200). The store closing costs
primarily include inventory writeoffs, employee termination
benefits and other incidental store closing charges. As of
August 2, 2009, $1,200 is included in assets held for sale
related to this property.
F-19
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
|
|
9.
|
Credit
Arrangements and Long-Term Obligations
|
Credit arrangements and long-term obligations at August 2,
2009 and August 3, 2008 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
August 2,
|
|
|
August 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
$138 million Term Loan Facility, bearing interest at
Eurodollar Rate plus 2.25% and 2.50%, respectively (2.59% and
5.22% at August 2, 2009 and August 3, 2008,
respectively)
|
|
$
|
134,205
|
|
|
$
|
135,585
|
|
$30 million Revolving Credit Facility
|
|
|
|
|
|
|
|
|
$80 million Senior Subordinated Unsecured Mezzanine Term
Notes, bearing interest at 13.25%
|
|
|
85,858
|
|
|
|
84,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,063
|
|
|
|
220,050
|
|
Less: current maturities
|
|
|
(1,380
|
)
|
|
|
(1,380
|
)
|
|
|
|
|
|
|
|
|
|
Long-term obligations, less current maturities
|
|
$
|
218,683
|
|
|
$
|
218,670
|
|
|
|
|
|
|
|
|
|
|
Credit
agreement
In connection with the Acquisition on December 6, 2006, the
Company entered into a senior secured credit facility, as
amended, with a financial institution (the Senior Secured
Credit Facility) for aggregate borrowings of up to
$168,000 consisting of the following:
|
|
|
|
|
A six-year term loan facility (the Term Loan
Facility) of $138,000, maturing on December 6, 2012,
and requiring quarterly principal payments of $345 from
January 28, 2007 through July 29, 2012, a principal
payment of $65,033 on September 6, 2012 and the remaining
unpaid principal balance due on December 6, 2012.
|
|
|
|
A five-year revolving credit facility (the Revolving
Credit Facility) of up to $30,000 in revolving credit
loans and letters of credit (with
sub-limits
on swing line borrowings equal to $5,000 and letters of credit
equal to $12,000) which is available until December 6, 2011.
|
Obligations under the Senior Secured Credit Facility and the
guarantees are collateralized by a security agreement, which
includes all of the Companys tangible and intangible
assets.
The Company may, without premium penalty, terminate in whole or
reduce in part the unused portions of the Term Loan Facility and
the Revolving Credit Facility. Any terminations or reductions of
the unused Revolving Credit Facility become permanent.
The Companys availability on the Revolving Credit Facility
was $25,776 and $25,876 at August 2, 2009 and
August 3, 2008, respectively, net of outstanding letters of
credit to secure coverage for the Companys workers
compensation and surety bond insurance programs.
In addition, on an annual basis, the Company is required to
prepay, on the
125th day
following the end of each fiscal year, excess cash, as defined
in the Senior Secured Credit Facility. The Company made an
excess cash prepayment during fiscal year 2009 of $3,966 which
was used to repay outstanding borrowings under the Revolving
Credit Facility. No payment was due during fiscal year 2008.
The fair value of the Term Loan Facility was $112,732 and
$115,247 at August 2, 2009 and August 3, 2008,
respectively, based on trading activity between lenders of the
debt. There were no amounts borrowed under the Revolving Credit
Facility at August 2, 2009 or August 3, 2008.
F-20
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
Senior
subordinated unsecured mezzanine term notes
Also in connection with the Acquisition, the Company issued
$80,000 aggregate principal amount of Senior Subordinated
Unsecured Mezzanine Term Notes (the Mezzanine Notes)
due June 6, 2014 to private investors. Interest on the
notes accrues at 13.25% per annum, with 3.25% of that amount
payable, at the Companys option, in-kind as an addition to
the outstanding principal amount. The Company added $1,394 and
$2,771
paid-in-kind
interest to the principal balances during fiscal year 2009 and
2008, respectively.
The Company has the option to prepay the notes, in whole or
part, at a redemption price equal to the outstanding principal
amount of the notes, plus accrued and unpaid interest thereon,
plus a redemption premium.
At August 2, 2009 and August 3, 2008, there were no
quoted market prices or recent trading activity for the
Companys Mezzanine Notes, and a reasonable estimate of the
fair value could not be made without incurring excessive cost.
Additional
disclosures
Required principal payments on long-term debt at August 2,
2009 are as follows:
|
|
|
|
|
Fiscal year 2010
|
|
$
|
1,380
|
|
Fiscal year 2011
|
|
|
1,380
|
|
Fiscal year 2012
|
|
|
1,380
|
|
Fiscal year 2013
|
|
|
130,065
|
|
Fiscal year 2014
|
|
|
85,858
|
|
|
|
|
|
|
|
|
$
|
220,063
|
|
|
|
|
|
|
Both the Senior Secured Credit Facility and the Mezzanine Notes
contain, among other things, restrictive covenants that may
limit the Companys ability to finance future operations,
capital needs or to engage in other business activities.
Additionally, both the Senior Secured Credit Facility and the
Mezzanine Notes contain non-financial and financial debt
covenants, including a minimum fixed charge coverage ratio, a
maximum consolidated total leverage ratio and a maximum capital
expenditure limit. These ratios and tests, if not met, could
have an adverse effect on the Companys business by
limiting the Companys ability to take advantage of
financing, other corporate opportunities and to fund the
Companys operations. At August 2, 2009, the Company
was in compliance with the financial covenants as described in
both the Senior Secured Credit Facility and the Mezzanine Notes.
Debt
issuance costs
Amortization of debt issuance costs was $1,369, $1,290 and $749
for fiscal years 2009, 2008 and the period from December 6,
2006 to July 29, 2007, respectively. The Predecessor did
not have any debt issuance costs.
|
|
10.
|
Derivative
Instruments
|
The Company uses interest rate-related derivative instruments to
manage the Companys exposure on debt instruments. The
Company had the following derivative instruments during the
presented periods.
Interest
rate swaps
Effective March 6, 2007, the Company entered into the $75M
Swap, a three-year interest rate swap agreement, with a notional
amount of $75,000, which the Company uses to convert variable
rates on the Companys long-term debt to fixed rates,
effectively capping $75,000 of debt at a base rate of 5.20% plus
F-21
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
spread. The $75M Swap was not a designated hedge under
SFAS 133. Effective March 31, 2009, this swap was
converted to a new agreement with an expiration date of
June 6, 2011, capping the $75,000 at a base rate of 3.13%
plus spread. The new swap was a designated cash flow hedge. At
August 2, 2009 and August 3, 2008, the net fair value
of the $75M Swap was a liability of $2,672 and $2,667,
respectively. For fiscal years 2009 and 2008 and the period
December 6, 2006 to July 29, 2007, the Company
recorded losses in earnings related to this swap of $1,543,
$2,631 and $313, respectively.
Effective September 6, 2007, the Company entered into the
$15M Swap, a two-year interest rate swap agreement, with a
notional amount of $15,000, which the Company uses to convert
variable rates on the Companys long-term debt to fixed
rates, effectively capping $15,000 of the Companys
outstanding debt at a base rate of 4.94% plus spread. The $15M
Swap is a designated cash flow hedge. At August 2, 2009 and
August 3, 2008, the net fair value of the $15M Swap was a
liability of $171 and $370, respectively. For fiscal years 2009
and 2008, the Company recorded unrealized losses, net of tax,
for the change in the fair value of $44 and $198 in
Accumulated other comprehensive income. For fiscal
years 2009 and 2008, no material ineffectiveness was required to
be recognized in current earnings.
|
|
11.
|
Fair
Value Measurements
|
Effective fiscal year 2009, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 157, Fair
Value Measurements (SFAS 157), for financial assets
and liabilities. Fair value is defined under SFAS 157 as
the price that would be received to sell an asset or paid to
transfer a liability in the principal or most advantageous
market in an orderly transaction between market participants on
the measurement date. SFAS also establishes a three-level
hierarchy, which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs
when measuring fair value.
The valuation hierarchy is based upon the transparency of inputs
to the valuation of an asset or liability on the measurement
date. The three levels of inputs to the valuation methodology
are:
Level 1 Unadjusted quoted prices for an
identical asset or liability in an active market.
Level 2 Quoted prices for a similar asset or
liability in an active market; quoted prices for identical or
similar assets or liabilities in inactive markets; or valuations
based on models where the significant inputs are observable or
can be corroborated by observable market data.
Level 3 Valuations based on models where
significant inputs are not observable and significant to the
fair value measurement of the asset or liability.
The Companys assets and liabilities measured at fair value
on a recurring basis subject to the disclosure requirements of
SFAS 157 as of August 2, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Fair Value
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
as of
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
August 2, 2009
|
|
|
Deferred compensation plan assets*
|
|
$
|
806
|
|
|
|
|
|
|
|
|
|
|
$
|
806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
806
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap liability**
|
|
|
|
|
|
$
|
2,843
|
|
|
|
|
|
|
$
|
2,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
2,843
|
|
|
$
|
|
|
|
$
|
2,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Represents plan assets established under a Rabbi Trust for the
Companys non-qualified savings plan. The assets of the
Rabbi Trust are invested in mutual funds and are reported at
fair value based on active market quotes. |
F-22
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
|
|
|
** |
|
Fair value for the interest rate swap liability is determined
based on the present value of expected future cash flows
considering the risks involved and using discount rates
appropriate for the duration and considers counterparty risk. |
Significant components of the Companys net deferred tax
liability consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
August 2,
|
|
|
August 3,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Financial accruals not currently deductible for tax
|
|
$
|
2,988
|
|
|
$
|
3,044
|
|
Deferred rent
|
|
|
4,174
|
|
|
|
2,346
|
|
Difference in basis of unfavorable leases
|
|
|
4,142
|
|
|
|
4,291
|
|
General business and other tax credits
|
|
|
3,873
|
|
|
|
2,079
|
|
Other
|
|
|
208
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
15,385
|
|
|
|
12,008
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Difference in basis of intangibles
|
|
|
30,258
|
|
|
|
36,956
|
|
Excess tax depreciation over book
|
|
|
18,315
|
|
|
|
16,060
|
|
Supplies inventory
|
|
|
2,403
|
|
|
|
2,267
|
|
Other
|
|
|
1,337
|
|
|
|
989
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
52,313
|
|
|
|
56,272
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
36,928
|
|
|
$
|
44,264
|
|
|
|
|
|
|
|
|
|
|
In assessing the realizability of deferred tax assets, the
Company considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
The Company considers the scheduled reversal of deferred tax
liabilities and projected future taxable income in making this
assessment. Based upon the Companys assessment at
August 2, 2009 and August 3, 2008, it was determined
that it is more likely than not that the net deferred tax assets
will be realized, through the reversal of deferred tax
liabilities and the generation of future taxable income.
Therefore, the Company did not provide for a valuation allowance
against the deferred tax assets. The general business and other
tax credits mentioned above are subject to expiration beginning
in fiscal year 2027.
The Company has decreased the current deferred income taxes and
the income taxes payable balances by $744 within the
August 2, 2009 consolidated balance sheet for the
correction of an immaterial misclassification.
The components of the provision for (benefit from) income taxes
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
For the Period
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
December 6, 2006 to
|
|
|
|
July 29, 2006 to
|
|
|
|
2009
|
|
|
2008
|
|
|
July 29, 2007
|
|
|
|
December 5, 2006
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
864
|
|
|
$
|
435
|
|
|
$
|
746
|
|
|
|
$
|
33,621
|
|
State and local
|
|
|
1,682
|
|
|
|
754
|
|
|
|
194
|
|
|
|
|
4,764
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(7,362
|
)
|
|
|
(3,727
|
)
|
|
|
(456
|
)
|
|
|
|
(33,965
|
)
|
State and local
|
|
|
(668
|
)
|
|
|
(854
|
)
|
|
|
82
|
|
|
|
|
(4,842
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for (benefit from) income taxes
|
|
$
|
(5,484
|
)
|
|
$
|
(3,392
|
)
|
|
$
|
566
|
|
|
|
$
|
(422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
The Predecessor income tax provisions were prepared as if the
Predecessor filed a federal tax return on a stand-alone entity
basis.
A reconciliation of the provision for (benefit from) income
taxes and the amount computed by multiplying the income before
the provision for (benefit from) income taxes by the
U.S. federal statutory rate of 34% for fiscal years 2009
and 2008 and the period December 6, 2006 to July 29,
2007 and 35% for the Predecessor period is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
For the Period
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
December 6, 2006 to
|
|
|
July 29, 2006 to
|
|
|
|
2009
|
|
|
2008
|
|
|
July 29, 2007
|
|
|
December 5, 2006
|
|
|
Provision (benefit) computed at federal statutory income tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
35.0
|
%
|
State and local income taxes, net of federal benefit
|
|
|
(8.1
|
)%
|
|
|
9.5
|
%
|
|
|
4.7
|
%
|
|
|
7.1
|
%
|
General business and other tax credits
|
|
|
54.1
|
%
|
|
|
42.3
|
%
|
|
|
(25.4
|
)%
|
|
|
(72.1
|
)%
|
Reversals of income tax reserves
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
(36.2
|
)%
|
Effect of rate change and Other, net
|
|
|
(6.4
|
)%
|
|
|
(1.4
|
)%
|
|
|
1.2
|
%
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for (benefit from) income taxes
|
|
|
73.6
|
%
|
|
|
84.4
|
%
|
|
|
14.5
|
%
|
|
|
(63.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fiscal year 2009 rate was affected by the generation of
general business tax credits related to fiscal year 2008 and the
period December 6, 2006 to July 29, 2007.
As of August 2, 2009 and August 3, 2008, the Company
did not have material unrecognized tax benefits, but did record
liabilities for uncertain tax positions of $182 and $131,
respectively. The Companys policy is to recognize interest
and penalties related to uncertain tax positions in income tax
expense. For the presented periods, no interest or penalties
have been recorded in the consolidated financial statements.
Under the terms of the Acquisition, the Successor is only
responsible for tax liabilities subsequent to December 6,
2006; therefore, there were no obligations or contingencies
assumed by the Successor.
As of August 2, 2009, the Company leased 174 restaurant
facilities, as well as office facilities and equipment under
non-cancelable operating lease agreements. These leases have all
been classified as operating leases. A majority of the
Companys lease agreements provide for renewal options and
contain escalation clauses. Additionally, certain restaurant
leases provide for contingent rent payments based upon sales
volume in excess of specified minimum levels.
The following is a schedule by year of the future minimum rental
payments required under operating leases as of August 2,
2009. Included in the amounts below are optional renewal periods
associated with such leases that the Company is not currently
legally obligated to exercise; however, it is probable that the
Company will exercise these options.
F-24
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
|
|
|
|
|
Year
|
|
Total
|
|
|
Fiscal year 2010
|
|
$
|
30,992
|
|
Fiscal year 2011
|
|
|
31,416
|
|
Fiscal year 2012
|
|
|
31,770
|
|
Fiscal year 2013
|
|
|
32,110
|
|
Fiscal year 2014
|
|
|
32,387
|
|
Thereafter
|
|
|
559,774
|
|
|
|
|
|
|
Total
|
|
$
|
718,449
|
|
|
|
|
|
|
Rent expense for the periods presented was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
Contingent
|
|
Total
|
|
Fiscal year 2009
|
|
$
|
34,401
|
|
|
$
|
158
|
|
|
$
|
34,559
|
|
Fiscal year 2008
|
|
$
|
32,287
|
|
|
$
|
199
|
|
|
$
|
32,486
|
|
December 6, 2006 to July 29, 2007
|
|
$
|
19,202
|
|
|
$
|
148
|
|
|
$
|
19,350
|
|
Predecessor July 29, 2006 to December 5,
2006
|
|
$
|
3,978
|
|
|
$
|
46
|
|
|
$
|
4,024
|
|
During fiscal year 2008, the Company sold the real estate assets
associated with six restaurants for an aggregate purchase price
of $18,415, which resulted in net cash proceeds of $18,013 after
deduction of expenses and other prepaid items. The Company
leased back the real estate assets associated with these
restaurants pursuant to non-cancelable operating leases with
initial terms of 20 years at initial lease rates of 7.50%.
The Company accounted for the transaction in accordance with
SFAS 98, resulting in a deferred gain of $1,944 and a
realized loss of $1,206. The Company also deferred transaction
costs of $614. The deferred gain and deferred transaction costs
are amortized over the life of the related leases.
During the Predecessor period July 29, 2006 to
December 5, 2006, the Company sold the real estate assets
associated with 62 restaurants for an aggregate purchase price
of $202,827, which resulted in net cash proceeds of $198,811
after deduction of expenses and other prepaid items. Also during
the Predecessor period July 29, 2006 to December 5,
2006, the Company transferred the real estate assets associated
with three restaurants to CBRL as a dividend totaling $5,690.
The Company leased back the real estate assets associated with
these restaurants pursuant to non-cancelable operating leases
with initial terms of 20 years at initial lease rates of
7.80% to 8.55%. The transaction resulted in a deferred gain of
$83,630 and a realized loss of $2,579. The Company also deferred
transaction costs of $2,805. The deferred gain and deferred
transaction costs were eliminated in connection with the
Acquisition on December 6, 2006.
|
|
14.
|
Commitments
and Contingencies
|
Litigation
Based upon information currently available, the Company is not a
party to any litigation that management believes could have a
material adverse effect on the Companys business or the
Companys consolidated financial statements.
Guarantees
LRI Holdings, Inc. has fully and unconditionally guaranteed both
the Senior Secured Credit Facility and the Mezzanine Notes on
behalf of Logans Roadhouse, Inc.
F-25
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
Indemnifications
The Company is party to certain indemnifications to third
parties in the ordinary course of business. The probability of
incurring an actual liability under such indemnifications is
sufficiently remote that no liability has been recorded.
|
|
15.
|
Related
Party Transactions
|
Stockholders
agreement
On December 6, 2006, the Company entered into a
stockholders agreement (the Stockholders
Agreement) with all of the Companys stockholders,
which include certain of the Companys management. Under
the terms of the Stockholders Agreement, the Companys
major stockholders are entitled to designate six members of the
Companys seven-member board of directors, with the seventh
member being the Companys Chief Executive Officer. The
Stockholders Agreement also places certain restrictions on the
sale or transfer of shares of the Companys Class A common
stock to third parties and requires first offer rights to the
Company and then to the major stockholders. In addition, subject
to certain exceptions, including issuances pursuant to an
initial public offering, the Stockholders Agreement grants
holders of the Companys Class A common stock
preemptive rights with respect to issuances of additional Class
A common stock.
Management
agreement and acquisition fees
On December 6, 2006, the Company entered into a management
and consulting services agreement (the Management
Agreement), as amended and restated on June 7, 2007,
with Bruckmann, Rosser, Sherrill & Co., Inc.
(BRS), Canyon Capital Advisors, LLC (Canyon
Capital), and Black Canyon Management LLC (Black
Canyon), owners of LRI Holdings, Inc. (collectively,
the Service Providers). The Management Agreement has
a 10-year
initial term and automatically renews for one-year terms, unless
cancelled by either party, by written notice, within
90 days before each expiration date. The Company can
terminate the Management Agreement upon a consummation of an
approved sale, as defined, or an initial public offering,
subject to a buyout fee, as defined in the Management Agreement.
Under the terms of the Management Agreement, the Service
Providers receive an aggregate annual fee equal to 2% of the
Companys fiscal year Adjusted EBITDA (the Management
Fee) as defined in the Management Agreement, plus
reasonable
out-of-pocket
expenses. The Management Agreement also entitles the Service
Providers to transaction fees in an amount equal to 2% of the
aggregate value of an occurring transaction, as defined, plus
reasonable
out-of-pocket
fees and expenses. The Company has agreed to indemnify the
Service Providers for any losses and liabilities arising out of
the Management Agreement. The Company incurred $1,302, $1,100
and $794 in Management Fees for fiscal years 2009, 2008 and the
period December 6, 2006 to July 29, 2007,
respectively. At August 2, 2009 and August 3, 2008,
the Company had prepaid Management Fees of $453 and $553.
|
|
16.
|
Employee
Retirement Plans
|
Employee
savings plan
The Logans Roadhouse, Inc. Employee Savings Plan, is a
defined contribution plan that complies with Section 401(k)
of the Internal Revenue Code of 1986, as amended, (the
IRC). Employees may voluntarily contribute between
1% and 50% of their annual pay into the plan, subject to IRC
limitations. The Company matches 25% of employee contributions
to the plan, up to 6% of the employees compensation. The
Companys matching contributions are funded concurrent with
each payroll, and the expense of the matching program was $172,
$133 and $118 for fiscal years 2009, 2008 and the period from
December 6, 2006 to July 29, 2007, respectively, and
$55 for the Predecessor period from July 29, 2006 to
December 5, 2006.
F-26
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
Non-qualified
savings plan
The Company established the Logans Roadhouse, Inc.
Non-Qualified Savings Plan for the benefit of a select group of
management. Eligible employees can defer between 1% and 50% of
their base compensation and/or between 1% and 100% of
performance based compensation, as defined. The Company matches
25% of the first 3% of the eligible employees pay
contributed to the plan. In accordance with EITF
No. 97-14,
Accounting for Deferred Compensation Arrangements Where
Amounts are Held in a Rabbi Trust and Invested, the
accounts of the rabbi trust are included in the Companys
consolidated financial statements. The amount included in other
assets and the offsetting liability for the plan was $806 and
$947 at August 2, 2009 and August 3, 2008,
respectively. The Companys matching contributions are
funded concurrent with each payroll, and the expense of the
matching program was $23, $36 and $28 for fiscal years 2009,
2008 and the period from December 6, 2006 to July 29,
2007, respectively, and $17 for the Predecessor period from
July 29, 2006 to December 5, 2006.
Preferred
stock
The Companys board of directors is authorized to issue a
maximum of 100,000 (one-hundred thousand) shares of preferred
stock, with a $0.01 par value per share of which 75,000
shares are further designated as Series A preferred stock.
The board of directors approved a reduction in the number of
authorized shares in fiscal year 2009 from 200,000. The number
of authorized shares of Series A preferred stock cannot be
increased without the written consent of at least
662/3%
of the aggregate liquidation value of the holders of the
Series A preferred stock.
Each holder of Series A preferred stock is entitled to
receive cash dividends, when declared or otherwise payable, on
each share, calculated on a daily basis to equal a rate of 13.0%
per annum (compounded semi-annually) of the $1,000 per share
liquidation preference plus all accumulated and unpaid dividends
whether or not declared (i.e. cumulative compounding preferred
stock). The liquidation value and accumulated dividends are
entitled to be paid, before any distribution or payment is made
to any other junior securities. At August 2, 2009 and
August 3, 2008, undeclared and unpaid dividends on the
Series A preferred stock totaled $25,725 (or $398.79 per
share) and $15,157 (or $233.69 per share), respectively.
In connection with the Acquisition, members of management were
given the option of investing certain fixed cash awards assumed
by the Company, as discussed in Note 18. The Company has
accounted for the equity associated with the invested management
awards pursuant to SFAS 123R. At August 2, 2009 and
August 3, 2008, there were 1,231 and 1,409, respectively,
shares of Series A preferred stock, related to invested
management awards, issued and outstanding; however, due to
certain restrictions and resale limitations, $1,119 and $1,204,
respectively, related to these shares is excluded from the
equity section and treated as deferred management compensation.
Certain members of management also invested personal cash. At
August 2, 2009 and August 3, 2008, there were 357 and
530, respectively, shares of Series A preferred stock
issued and outstanding relating to these cash investments by
management. The value associated with these shares, $340 and
$507, respectively, is reflected within Additional paid-in
capital.
The holders of Series A preferred stock are not entitled or
permitted to vote on any matter except as required by law. At
August 2, 2009 and August 3, 2008, 64,508 and 64,859,
respectively, shares of Series A preferred stock issued in
connection with the Acquisition, including all management shares
discussed above, were issued and outstanding. The fair value of
the Series A preferred stock on the date of issuance
(December 6, 2006), including the shares issued to
management, was $62,159.
During fiscal years 2009 and 2008, 351 and 133 shares of
Series A preferred stock were repurchased from members of
management at fair value for $439 and $156, respectively.
F-27
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
Common
stock
The Companys board of directors is authorized to issue a
maximum of 1,900,000 (one million, nine-hundred thousand) shares
of common stock, with a $0.01 par value per share. The
board of directors approved a reduction in the number of
authorized shares in fiscal year 2009 from 15,000,000 (fifteen
million).
Subject to any preferences for preferred shares then
outstanding, each share of the Companys common stock is
entitled to participate equally in dividends as and when
declared by the Companys board of directors as the
Companys funds are legally available therefore. The
holders of the Companys common stock do not have any
preemptive or preferential rights to purchase or to subscribe
for any additional shares of common stock or any other
securities that may be issued by the Company. There is no
provision for redemption or conversion of the Companys
common stock.
In the event of liquidation, dissolution or winding up of the
Companys business, whether voluntarily or involuntarily,
the holders of the Companys common stock (and the holders
of any class or series of preferred stock entitled to
participate with the Companys common stock in the
distribution of assets) will be entitled to share ratably in any
of the net assets or funds which are available for distribution
to stockholders, after the satisfaction of all liabilities or
after adequate provision is made therefore and after
distribution to holders of any class of stock having preference
over the Companys common stock in the case of liquidation.
As discussed above, members of management were given the option
of investing certain fixed cash awards, which have been
accounted for pursuant to SFAS 123R. At August 2, 2009
and August 3, 2008, there were 18,949 and 21,677,
respectively, shares of common stock, related to invested
management awards, issued and outstanding, and $231 and $249,
respectively, related to these shares is excluded from the
equity section and treated as deferred management compensation.
At August 2, 2009 and August 3, 2008, there were 5,478
and 8,150, respectively, shares of common stock issued and
outstanding relating to personal cash investments by management.
The value associated with these shares at August 2, 2009
and August 3, 2008, $70 and $105, respectively, is
reflected within Additional paid-in capital.
At August 2, 2009 and August 3, 2008, 992,427 and
997,827, respectively, shares of common stock issued in
connection with the Acquisition, including all management shares
discussed above, were issued and outstanding. The fair value of
the common stock on the date of issuance (December 6,
2006), including the shares issued to management, was $12,841.
During fiscal years 2009 and 2008, 5,400 and 2,040 shares
of common stock were repurchased from members of management at
fair value for $56 and $53, respectively.
|
|
18.
|
Share-Based
Awards and Compensation Plans
|
Predecessor
awards and plans
Certain of the Predecessors employees participated in
various plans of CBRL that provided options and restricted stock
units to employees. No equity-based awards on Logans
Roadhouse, Inc. stock had been made in the Predecessor periods
presented herein. CBRLs employee compensation plans were
administered by the Compensation and Stock Option Committee (the
CBRL Committee) of the CBRL Board of Directors (the
CBRL Board).
The CBRL Group, Inc. 2002 Omnibus Incentive Compensation Plan
(the CBRL Omnibus Plan) allowed the CBRL Committee
to grant awards for an aggregate of 2,500,000 shares of
CBRLs common stock. The CBRL Omnibus Plan authorized the
following types of awards to all eligible participants other
than non-employee directors: stock options, stock appreciation
rights, stock awards, restricted stock, performance shares, cash
bonuses, qualified performance-based awards or any other type of
award consistent with the CBRL Omnibus Plans purpose. If
an option was granted, the option price per share was at least
100% of the fair market value of a share of CBRLs common
stock based on the closing price on the day preceding the day
the
F-28
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
option was granted. Options granted under the CBRL Omnibus Plan
became exercisable each year at a cumulative rate of 33% per
year and expired ten years from the date of grant.
Effective July 30, 2005, CBRL adopted the fair value
recognition provisions of SFAS 123R using the modified
prospective method for stock options or awards of CBRL stock
held by the Predecessors employees. Under this method,
compensation cost in fiscal year 2006 includes the portion
continuing to vest in the period for (1) all share-based
payments granted prior to, but not vested as of July 29,
2005, based on the grant date fair value estimated in accordance
with the original provisions of SFAS 123 of awards of CBRL
shares to certain of the Predecessors employees and
(2) all share-based payments granted subsequent to
July 29, 2005, based on the grant date fair value estimated
using a binomial lattice-based option valuation model of awards
of CBRL shares to certain of the Predecessors employees.
No option grants were made in the Predecessor period presented.
Partly in anticipation of the adoption of SFAS 123R, in
fiscal years prior to 2006 CBRL adjusted the mix of employee
long-term incentive compensation by reducing stock options
awarded and increasing certain cash-based compensation and other
equity-based awards. Compensation cost for share-based payment
arrangements recognized in General and
administrative in the accompanying consolidated statements
of income (loss) for the Predecessor period July 29, 2006
to December 5, 2006 was $66 for stock options and $97 for
restricted stock.
The fair value of each option award, beginning in fiscal year
2006, was estimated on the date of grant using a binomial
lattice-based option valuation model, which incorporates ranges
of assumptions for inputs as shown in the above table. The
assumptions are as follows:
|
|
|
|
|
The expected volatility was a blend of implied volatility based
on market-traded options on CBRLs common stock and
historical volatility of CBRLs stock over the contractual
life of the options.
|
|
|
|
CBRL used historical data to estimate option exercise and
employee termination behavior within the valuation model.
Assumptions for grants to the Predecessors employees were
based on experience for CBRL. The expected life of options
granted was derived from the output of the option valuation
model and represented the period of time the options were
expected to be outstanding. The impact of the divestiture, in
December 2006, on forfeitures was not considered in the
calculation of share-based compensation.
|
|
|
|
The risk-free interest rate was based on the U.S. Treasury
yield curve in effect at the time of grant for periods within
the contractual life of the option.
|
|
|
|
The expected dividend yield was based on CBRLs current
dividend yield as the best estimate of projected dividend yield
for periods within the contractual life of the option.
|
F-29
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
A summary of the Predecessors stock option activity for
CBRL shares held by the Predecessors employees and changes
during the periods, is presented in the following tables:
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
July 29, 2006 to
|
|
|
|
December 5, 2006
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
Fixed Options
|
|
Shares
|
|
|
Price
|
|
|
Outstanding at beginning of period
|
|
|
279,512
|
|
|
$
|
35.22
|
|
Granted
|
|
|
|
|
|
$
|
|
|
Exercised
|
|
|
(131,847
|
)
|
|
$
|
35.09
|
|
Forfeited or canceled
|
|
|
(118,911
|
)
|
|
$
|
35.42
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
28,754
|
|
|
$
|
35.05
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
28,754
|
|
|
$
|
35.05
|
|
CBRL recognized a tax deduction, subject to certain limitations
imposed by the IRC, upon exercise of non-qualified stock options
in an amount equal to the difference between the option price
and the fair market value of the common stock on the date the
option is exercised. These tax benefits, when realized, were
credited to additional paid-in capital. The Company has
recognized the tax benefit associated with the exercise of
non-qualified stock options for the Predecessors employees
as a credit to additional paid-in capital.
The CBRL Committee established the FY2005 Mid-Term Incentive and
Retention Plan (2005 MTIRP) pursuant to the CBRL
Omnibus Plan, for the purpose of rewarding certain officers. The
2005 MTIRP award became valued during fiscal year 2005 based on
achievement of qualified financial performance measures, but was
restricted until vesting occurred on the last day of fiscal year
2007 with a payout date on the first day of fiscal year 2008.
The 2005 MTIRP reward was being expensed over the vesting period
with one-third of the earned reward to be expensed in each of
the 2005, 2006 and 2007 fiscal years. The award was designed to
be paid in the form of either 50% restricted CBRL stock and 50%
cash or 100% restricted CBRL stock, based upon the election of
each officer at the beginning of fiscal year 2005 or upon their
hiring or promotion. The restricted stock and cash earned by
certain officers under the 2005 MTIRP was 3,193 shares and
$47, respectively. Additionally, cash dividends on the
restricted stock earned were accruing from July 29, 2005
and were payable, along with the remainder of the award, to
participants on the payout date in fiscal year 2008. The 2005
MTIRP awards were modified in October 2006 as further discussed
below.
The CBRL Committee established the FY2006 Mid-Term Incentive and
Retention Plan (2006 MTIRP) pursuant to the CBRL
Omnibus Plan, for the purpose of rewarding certain officers. The
2006 MTIRP award became valued during fiscal year 2006 based on
achievement of qualified financial performance measures, but was
restricted until vesting occurs on the last day of fiscal year
2008 with a payout date on the first day of fiscal year 2009.
The 2006 MTIRP reward was being expensed over the vesting period
with one-third of the earned reward to be expensed in each of
the 2006, 2007 and 2008 fiscal years. The award was designed to
be paid in the form of either 50% restricted CBRL stock and 50%
cash or 100% restricted CBRL stock, based upon the election of
each officer at the beginning of fiscal year 2006 or upon their
hiring or promotion. The restricted stock and cash earned by
certain officers under the 2006 MTIRP was 6,839 shares and
$69, respectively. Additionally, cash dividends on the
restricted stock earned were accruing from July 29, 2007
and were payable, along with the remainder of the award, to
participants on the payout date in fiscal year 2009. The 2006
MTIRP awards were modified in October 2006 as further discussed
below.
Pursuant to the CBRL Omnibus Plan, CBRL granted
7,500 shares of restricted stock, also known as unvested
shares, during fiscal year 2004 to the Predecessors
President when he was hired. CBRL also granted 5,000 shares
of restricted stock during fiscal year 2006 to the
Predecessors Senior Vice President of
F-30
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
Operations when he was hired, (collectively the CBRL
RSUs). The CBRL RSU awards were modified in October
2006 as discussed further below.
As of July 28, 2006, there was $1,900 of total unrecognized
compensation cost related to unvested share-based compensation
arrangements that was scheduled to be recognized over a
weighted-average period of 1.99 years. No CBRL RSUs
vested during fiscal year 2006, and 2,500 CBRL RSUs vested
during the Predecessor period July 29, 2006 to
December 5, 2006. The remaining CBRL RSU awards were
modified in October 2006 as further discussed below.
The CBRL Committee established the Targeted Retention Plan (the
TRP) pursuant to the CBRL Omnibus Plan, for the
purpose of providing additional financial incentive to certain
key officers to remain in their positions and achieve results
that are aligned with stockholder interests. The retention award
was determined at the end of fiscal year 2006 and provided for a
grant of CBRL stock. At the end of fiscal year 2006, the TRP
awards were valued in the amount of $1,033 and were to vest and
be distributed according to vesting schedules determined with
each award. The TRP awards were modified in October 2006 as
discussed further below.
During October 2006, the CBRL Committee modified the 2005 MTIRP,
2006 MTIRP, CBRL RSUs, and TRP by converting them into
fixed cash awards. The Company accounted for the modification by
adjusting the awards to their fair values on the date of
modification and reflecting the awards at their present value.
CBRL adopted a success plan to reward certain of the
Predecessors officers for undertaking and implementing the
divestiture from CBRL. The Predecessor also granted retention
awards to help retain the services of certain key employees
through the divestiture. The amount expensed pursuant to these
plans was $495 for the Predecessors period July 29,
2006 to December 5, 2006.
Successor
awards and plans
In fiscal year 2007, the Company adopted the Option Plan, as
discussed in Note 2. Under the Option Plan, the Company is
authorized to issue options for up to 176,471 shares of
common stock, to certain employees and directors of the Company.
The Company awarded 31,439 options to purchase common stock at a
price of $10.00 per share during fiscal year 2009 and none in
fiscal year 2008. During the period December 6, 2006 to
July 29, 2007, the Company awarded 168,635 options to
purchase common stock at a price of $10.00 per share. The fair
value of the Companys common stock was $9.61 per share on
the date of grant. The options vest over a five-year period and
expire 10 years subsequent to the date of grant.
Options, to the extent vested, become exercisable only upon the
Companys achieving certain milestones for two of the
Companys majority stockholders.
As of August 2, 2009, August 3, 2008 and July 29,
2007, the likelihood of the Companys meeting either of the
milestone objectives above was not probable. As such, the
Company has not recorded any compensation expense pursuant to
SFAS 123R during fiscal years 2009, 2008 or the period from
December 6, 2006 to July 29, 2007.
F-31
LRI
Holdings, Inc. and Logans Roadhouse, Inc. (as
Predecessor)
Notes to
Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
The following table summarizes information about stock options
outstanding at August 2, 2009, August 3, 2008 and
July 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
December 6, 2006 to
|
|
|
|
2009
|
|
|
2008
|
|
|
July 29, 2007
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
Fixed Options
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding at beginning of period
|
|
|
156,492
|
|
|
$
|
10.00
|
|
|
|
168,635
|
|
|
$
|
10.00
|
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
31,439
|
|
|
$
|
10.00
|
|
|
|
|
|
|
$
|
|
|
|
|
168,635
|
|
|
$
|
10.00
|
|
Exercised
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Forfeited or canceled
|
|
|
(22,731
|
)
|
|
$
|
10.00
|
|
|
|
(12,143
|
)
|
|
$
|
10.00
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
165,200
|
|
|
$
|
10.00
|
|
|
|
156,492
|
|
|
$
|
10.00
|
|
|
|
168,635
|
|
|
$
|
10.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
53,505
|
|
|
$
|
|
|
|
|
31,298
|
|
|
$
|
|
|
|
|
none
|
|
|
$
|
|
|
Exercisable
|
|
|
none
|
|
|
$
|
|
|
|
|
none
|
|
|
$
|
|
|
|
|
none
|
|
|
$
|
|
|
Expected to vest
|
|
|
111,695
|
|
|
$
|
10.00
|
|
|
|
107,950
|
|
|
$
|
10.00
|
|
|
|
167,458
|
|
|
$
|
10.00
|
|
Weighted-average grant-date fair value of options granted during
the year
|
|
|
|
|
|
$
|
4.05
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
4.05
|
|
The following table summarizes stock options outstanding, vested
and exercisable at August 2, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Options Vested
|
|
Options Exercisable
|
|
|
Average
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
Number
|
|
Contractual
|
|
Exercise
|
|
Number
|
|
Exercise
|
|
Number
|
|
Exercise
|
Outstanding
|
|
Life
|
|
Price
|
|
Vested
|
|
Price
|
|
Exercisable
|
|
Price
|
|
|
165,200
|
|
|
|
8.22
|
|
|
$
|
10.00
|
|
|
|
53,505
|
|
|
$
|
10.00
|
|
|
|
none
|
|
|
$
|
10.00
|
|
The fair value of the options was estimated using a simulation
analysis in an Option Pricing framework, incorporating Geometric
Brownian Motion in the equity value calculation, with the
following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
Fiscal Year
|
|
Fiscal Year
|
|
December 6, 2006 to
|
|
|
2009
|
|
2008
|
|
July 29, 2007
|
|
Dividend yield range
|
|
0.0%
|
|
none issued
|
|
0.0%
|
Expected volatility range
|
|
29.1% - 55.5%
|
|
none issued
|
|
29.1% - 55.5%
|
Risk-free interest rate range
|
|
4.53% - 4.58%
|
|
none issued
|
|
4.53% - 4.58%
|
Expected lives (in years)
|
|
7.5 years
|
|
none issued
|
|
7.5 years
|
Subsequent events have been evaluated through June 4, 2010,
which is the date the financial statements were available to be
issued. As of June 3, 2010, our board of directors
accelerated the remaining vesting of certain management awards.
F-32
LRI
Holdings, Inc.
(In thousands of dollars, except share data)
|
|
|
|
|
|
|
|
|
|
|
39 Weeks Ended
|
|
|
|
May 2, 2010
|
|
|
May 3, 2009
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
414,483
|
|
|
$
|
402,047
|
|
Franchise fees and royalties
|
|
|
1,531
|
|
|
|
1,656
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
416,014
|
|
|
|
403,703
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
Restaurant operating costs
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
130,220
|
|
|
|
131,383
|
|
Labor and other related expenses
|
|
|
123,945
|
|
|
|
121,049
|
|
Occupancy costs
|
|
|
31,677
|
|
|
|
29,701
|
|
Other restaurant operating expenses
|
|
|
60,472
|
|
|
|
59,919
|
|
Depreciation and amortization
|
|
|
12,761
|
|
|
|
12,906
|
|
Pre-opening expenses
|
|
|
1,791
|
|
|
|
1,797
|
|
General and administrative
|
|
|
17,219
|
|
|
|
18,534
|
|
Impairment and store closing charges
|
|
|
3
|
|
|
|
23,258
|
|
|
|
|
|
|
|
|
|
|
Total Costs and Expenses
|
|
|
378,088
|
|
|
|
398,547
|
|
|
|
|
|
|
|
|
|
|
Income From Operations
|
|
|
37,926
|
|
|
|
5,156
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(14,246
|
)
|
|
|
(15,258
|
)
|
Other income (expense), net
|
|
|
496
|
|
|
|
(2,335
|
)
|
|
|
|
|
|
|
|
|
|
Total Other Income (Expense)
|
|
|
(13,750
|
)
|
|
|
(17,593
|
)
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
|
24,176
|
|
|
|
(12,437
|
)
|
Provision for (Benefit from) Income Taxes
|
|
|
9,062
|
|
|
|
(9,617
|
)
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
15,114
|
|
|
|
(2,820
|
)
|
Undeclared Preferred Dividend
|
|
|
(8,926
|
)
|
|
|
(7,887
|
)
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Common Stockholders
|
|
$
|
6,188
|
|
|
$
|
(10,707
|
)
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Per Share Basic and Diluted
|
|
$
|
6.39
|
|
|
$
|
(11.06
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding Basic and
Diluted
|
|
|
968,000
|
|
|
|
968,000
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to unaudited condensed consolidated
financial statements are an integral part of the these
statements.
F-33
LRI
Holdings, Inc.
(In thousands of dollars, except share data)
|
|
|
|
|
|
|
|
|
|
|
May 2, 2010
|
|
|
August 2, 2009
|
|
|
|
Unaudited
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
45,111
|
|
|
$
|
13,069
|
|
Receivables
|
|
|
6,890
|
|
|
|
6,465
|
|
Inventories
|
|
|
10,375
|
|
|
|
9,637
|
|
Prepaid expenses and other current assets
|
|
|
3,825
|
|
|
|
6,957
|
|
Income taxes receivable
|
|
|
|
|
|
|
2,930
|
|
Deferred income taxes
|
|
|
620
|
|
|
|
802
|
|
Assets held for sale
|
|
|
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
66,821
|
|
|
|
41,060
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, net
|
|
|
189,868
|
|
|
|
195,854
|
|
Other Assets
|
|
|
7,632
|
|
|
|
8,521
|
|
Goodwill
|
|
|
81,207
|
|
|
|
81,207
|
|
Tradename
|
|
|
56,971
|
|
|
|
56,971
|
|
Other Intangible Assets, net
|
|
|
23,206
|
|
|
|
24,643
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
425,705
|
|
|
$
|
408,256
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
10,866
|
|
|
$
|
12,648
|
|
Current maturities of long-term debt
|
|
|
1,380
|
|
|
|
1,380
|
|
Income taxes payable
|
|
|
4,925
|
|
|
|
|
|
Other current liabilities and accrued expenses
|
|
|
30,479
|
|
|
|
33,196
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
47,650
|
|
|
|
47,224
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
|
|
|
217,648
|
|
|
|
218,683
|
|
Deferred Income Taxes
|
|
|
37,756
|
|
|
|
37,730
|
|
Other Long-Term Obligations
|
|
|
33,775
|
|
|
|
30,901
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
336,829
|
|
|
|
334,538
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock (par value $0.01 per share; liquidation
preference $64,508; 100,000 shares authorized,
64,508 shares issued and outstanding)
|
|
|
60,170
|
|
|
|
60,170
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Common stock (par value $0.01 per share, 1,900,000 shares
authorized; 992,427 shares issued and outstanding)
|
|
|
10
|
|
|
|
10
|
|
Additional paid-in capital
|
|
|
12,831
|
|
|
|
12,831
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
(44
|
)
|
Retained earnings
|
|
|
15,865
|
|
|
|
751
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
28,706
|
|
|
|
13,548
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
425,705
|
|
|
$
|
408,256
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to unaudited condensed consolidated
financial statements are an integral part of the these
statements.
F-34
LRI
Holdings, Inc.
(In
thousands of dollars, except share data)
|
|
|
|
|
|
|
|
|
|
|
39 Weeks Ended
|
|
|
|
May 2, 2010
|
|
|
May 3, 2009
|
|
|
|
Unaudited
|
|
|
Unaudited
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
15,114
|
|
|
$
|
(2,820
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
12,761
|
|
|
|
12,906
|
|
Other amortization
|
|
|
984
|
|
|
|
899
|
|
In-kind interest on debt added to principal
|
|
|
|
|
|
|
1,394
|
|
Unrealized (gain) loss on interest rate swap
|
|
|
(496
|
)
|
|
|
665
|
|
Loss on sale/disposal of property and equipment
|
|
|
545
|
|
|
|
463
|
|
Amortization of deferred gain on sale-leaseback
|
|
|
(54
|
)
|
|
|
(51
|
)
|
Impairment charges for long-lived assets
|
|
|
(16
|
)
|
|
|
6,376
|
|
Tradename impairment
|
|
|
|
|
|
|
16,781
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(424
|
)
|
|
|
(1,472
|
)
|
Inventories
|
|
|
(738
|
)
|
|
|
(20
|
)
|
Prepaid expenses and other current assets
|
|
|
3,132
|
|
|
|
1,190
|
|
Other non-current assets and intangibles
|
|
|
(232
|
)
|
|
|
283
|
|
Accounts payable
|
|
|
146
|
|
|
|
(1,391
|
)
|
Income taxes payable / receivable
|
|
|
7,855
|
|
|
|
(9,591
|
)
|
Other current liabilities and accrued expenses
|
|
|
(2,467
|
)
|
|
|
(4,659
|
)
|
Deferred income taxes
|
|
|
182
|
|
|
|
|
|
Other long-term obligations
|
|
|
3,264
|
|
|
|
4,075
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
39,556
|
|
|
|
25,028
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(16,221
|
)
|
|
|
(17,965
|
)
|
Proceeds from sale of property and equipment
|
|
|
1,184
|
|
|
|
|
|
Proceeds from sale-leaseback transactions
|
|
|
8,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(6,479
|
)
|
|
|
(17,965
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Payments on term loan facility
|
|
|
(1,035
|
)
|
|
|
(1,035
|
)
|
Repurchase of shares
|
|
|
|
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(1,035
|
)
|
|
|
(1,235
|
)
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
32,042
|
|
|
|
5,828
|
|
Cash and cash equivalents, beginning of period
|
|
|
13,069
|
|
|
|
6,188
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
45,111
|
|
|
$
|
12,016
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
Property accrued in accounts payable and accrued expenses
|
|
$
|
897
|
|
|
$
|
780
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligation additions
|
|
$
|
44
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
Deferred gain on sale-leaseback transactions
|
|
$
|
399
|
|
|
$
|
94
|
|
|
|
|
|
|
|
|
|
|
Interest rate derivative instrument
|
|
$
|
(70
|
)
|
|
$
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest, excluding amounts capitalized
|
|
$
|
12,888
|
|
|
$
|
14,242
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
1,065
|
|
|
$
|
1,033
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to unaudited condensed consolidated
financial statements are an integral part of the these
statements.
F-35
LRI
Holdings, Inc.
(In thousands of dollars, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated Other
|
|
|
|
|
|
Total Stockholders
|
|
|
Shares of
|
|
|
|
|
|
|
Shares of
|
|
|
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Equity
|
|
|
Preferred
|
|
|
Preferred
|
|
|
|
Common
|
|
|
Common
|
|
|
Capital
|
|
|
Income/(Loss)
|
|
|
Earnings
|
|
|
(Permanent)
|
|
|
(Temporary)
|
|
|
(Temporary)
|
|
|
Balances at August 3, 2008
|
|
|
997,827
|
|
|
$
|
10
|
|
|
$
|
13,031
|
|
|
$
|
(198
|
)
|
|
$
|
2,722
|
|
|
$
|
15,565
|
|
|
|
64,859
|
|
|
$
|
60,170
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,820
|
)
|
|
|
(2,820
|
)
|
|
|
|
|
|
|
|
|
Change in fair value of interest rate swap, net of tax provision
of $91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
|
|
|
|
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,715
|
)
|
|
|
|
|
|
|
|
|
Repurchase of shares from management
|
|
|
(5,400
|
)
|
|
|
|
|
|
|
(200
|
)
|
|
|
|
|
|
|
|
|
|
|
(200
|
)
|
|
|
(351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at May 3, 2009
|
|
|
992,427
|
|
|
$
|
10
|
|
|
$
|
12,831
|
|
|
$
|
(93
|
)
|
|
$
|
(98
|
)
|
|
$
|
12,650
|
|
|
|
64,508
|
|
|
$
|
60,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated Other
|
|
|
|
|
|
Total Stockholders
|
|
|
Shares of
|
|
|
|
|
|
|
Shares of
|
|
|
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Equity
|
|
|
Preferred
|
|
|
Preferred
|
|
|
|
Common
|
|
|
Common
|
|
|
Capital
|
|
|
Income/(Loss)
|
|
|
Earnings
|
|
|
(Permanent)
|
|
|
(Temporary)
|
|
|
(Temporary)
|
|
|
Balances at August 2, 2009
|
|
|
992,427
|
|
|
$
|
10
|
|
|
$
|
12,831
|
|
|
$
|
(44
|
)
|
|
$
|
751
|
|
|
$
|
13,548
|
|
|
|
64,508
|
|
|
$
|
60,170
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,114
|
|
|
|
15,114
|
|
|
|
|
|
|
|
|
|
Change in fair value of interest rate swap, net of tax provision
of $26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at May 2, 2010
|
|
|
992,427
|
|
|
$
|
10
|
|
|
$
|
12,831
|
|
|
$
|
0
|
|
|
$
|
15,865
|
|
|
$
|
28,706
|
|
|
|
64,508
|
|
|
$
|
60,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to unaudited condensed consolidated
financial statements are an integral part of these statements.
F-36
LRI
Holdings, Inc.
(In
thousands of dollars, except share data)
|
|
1.
|
Basis of
Presentation and Description of the Business
|
LRI Holdings, Inc. and subsidiaries (collectively, with its
subsidiaries, the Company) is engaged in the
operation and development of a full-service restaurant chain. As
of May 2, 2010 and May 3, 2009, the Company operated
185 and 176, respectively, company-operated restaurants and 26
franchisee-operated restaurants, at both period ends, in
20 states (23 states, including franchised locations).
The accompanying consolidated balance sheets as of May 2,
2010 and August 2, 2009 and the related consolidated
statements of income (loss) and cash flows for the 39 weeks
ended May 2, 2010 and May 3, 2009 have been prepared
in accordance with accounting principles generally accepted in
the United States of America (GAAP).
In the opinion of management, the unaudited condensed
consolidated financial statements include all adjustments,
consisting of only normal recurring adjustments, necessary for
the fair presentation of consolidated financial position,
results of operations, and cash flows for the interim periods
presented. The accompanying unaudited condensed consolidated
financial statements have been prepared by the Company, pursuant
to rules and regulations of the Securities and Exchange
Commission (SEC). Certain information and footnote
disclosure normally included in financial statements prepared in
accordance with GAAP have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that
the disclosures made are adequate to ensure that the information
presented is not misleading. Accordingly, these unaudited
condensed consolidated financial statements and related notes
should be read in conjunction with the consolidated financial
statements and notes for the fiscal year ended August 2,
2009.
The Company operates on a 52 or 53 week fiscal year ending on
the Sunday nearest to July 31.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Use of
estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Segment
reporting
The Company aggregates its operations into a single reportable
segment within the casual dining industry, providing similar
products to similar customers, exclusively in the United States.
The restaurants also possess similar pricing structures,
resulting in similar long-term expected financial performance
characteristics. Accordingly, no further segment reporting
beyond the consolidated financial statements is presented.
Recently
adopted accounting pronouncements
On August 3, 2009, the Company adopted the Accounting
Standards Codification (ASC) as issued by the
Financial Accounting Standards Board (FASB). The ASC
is the single source of authoritative nongovernmental GAAP,
except for rules and interpretive releases of the SEC, which are
sources of authoritative GAAP for SEC registrants. The adoption
did not have an impact on the Companys consolidated
financial statements.
On August 3, 2009, the Company adopted, on a prospective
basis, accounting guidance related to accounting for business
combinations. The adoption did not have a material impact on the
Companys consolidated financial statements. However, the
application will significantly change how the Company accounts
for any future business combinations.
F-37
LRI
Holdings, Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
On August 3, 2009, the Company adopted accounting guidance
requiring additional disclosure about derivative instruments and
hedging activities. The adoption did not have a material impact
on the Companys consolidated financial statements.
On August 3, 2009, the Company adopted, on a prospective
basis, accounting guidance as issued by the FASB for certain
nonfinancial assets and liabilities that are recorded or
disclosed at fair value on a nonrecurring basis. The adoption
did not have a material impact on the Companys
consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
39 Weeks Ended
|
|
|
|
May 2,
|
|
|
May 3,
|
|
|
|
2010
|
|
|
2009
|
|
|
Net income (loss)
|
|
$
|
15,114
|
|
|
$
|
(2,820
|
)
|
Less: Undeclared preferred dividends
|
|
|
(8,926
|
)
|
|
|
(7,887
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders
|
|
$
|
6,188
|
|
|
$
|
(10,707
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding- basic and diluted
|
|
|
968,000
|
|
|
|
968,000
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share- basic and diluted
|
|
$
|
6.39
|
|
|
$
|
(11.06
|
)
|
|
|
4.
|
Property
and Equipment
|
Property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
May 2,
|
|
|
August 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
Land
|
|
$
|
3,151
|
|
|
$
|
2,661
|
|
Buildings
|
|
|
3,328
|
|
|
|
3,310
|
|
Restaurant equipment
|
|
|
61,928
|
|
|
|
56,083
|
|
Leasehold improvements
|
|
|
163,629
|
|
|
|
158,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232,036
|
|
|
|
220,391
|
|
Accumulated depreciation and amortization
|
|
|
(46,747
|
)
|
|
|
(35,777
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
185,289
|
|
|
|
184,614
|
|
Construction in progress
|
|
|
4,579
|
|
|
|
11,240
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
189,868
|
|
|
$
|
195,854
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense, for property and
equipment, was as follows:
|
|
|
|
|
39 weeks ended May 2, 2010
|
|
$
|
11,580
|
|
|
|
|
|
|
39 weeks ended May 3, 2009
|
|
$
|
11,748
|
|
|
|
|
|
|
Interest capitalized into the cost of property and equipment was
$144 and $188 for the 39 week periods ended May 2,
2010 and May 3, 2009, respectively. The Company had
property and equipment purchases accrued in Accounts
payable and Other current liabilities and accrued
expenses in the accompanying consolidated balance sheets
of $897 and $3,056 at May 2, 2010 and August 2, 2009,
respectively.
F-38
LRI
Holdings, Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
Other assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
May 2,
|
|
|
August 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
Debt issuance costs, net
|
|
$
|
5,080
|
|
|
$
|
6,179
|
|
Deposits
|
|
|
968
|
|
|
|
994
|
|
Non-qualified savings plan assets
|
|
|
1,064
|
|
|
|
806
|
|
Deferred sale-leaseback transaction costs, net
|
|
|
520
|
|
|
|
542
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,632
|
|
|
$
|
8,521
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Goodwill
and Intangible Assets
|
Goodwill and intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
May 2, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
81,207
|
|
|
$
|
|
|
|
$
|
81,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade name
|
|
$
|
56,971
|
|
|
$
|
|
|
|
$
|
56,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquor licenses
|
|
$
|
1,790
|
|
|
$
|
|
|
|
$
|
1,790
|
|
Definite lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise agreements
|
|
|
10,950
|
|
|
|
(979
|
)
|
|
|
9,971
|
|
Favorable leases
|
|
|
9,112
|
|
|
|
(1,161
|
)
|
|
|
7,951
|
|
Liquor licenses
|
|
|
1,929
|
|
|
|
(295
|
)
|
|
|
1,634
|
|
Menu
|
|
|
5,774
|
|
|
|
(3,914
|
)
|
|
|
1,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,555
|
|
|
$
|
(6,349
|
)
|
|
$
|
23,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
81,207
|
|
|
$
|
|
|
|
$
|
81,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename
|
|
$
|
56,971
|
|
|
$
|
|
|
|
$
|
56,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquor licenses
|
|
$
|
1,790
|
|
|
$
|
|
|
|
$
|
1,790
|
|
Definite lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise agreements
|
|
|
10,950
|
|
|
|
(729
|
)
|
|
|
10,221
|
|
Favorable leases
|
|
|
9,112
|
|
|
|
(904
|
)
|
|
|
8,208
|
|
Liquor licenses
|
|
|
1,929
|
|
|
|
(230
|
)
|
|
|
1,699
|
|
Menu
|
|
|
5,774
|
|
|
|
(3,049
|
)
|
|
|
2,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,555
|
|
|
$
|
(4,912
|
)
|
|
$
|
24,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization of intangibles was $1,437 and $1,416 for the
39 week periods ended May 2, 2010 and May 3,
2009, respectively, ($1,180 and $1,159, respectively, is
included in Depreciation and amortization; and $257
and $257, respectively, is included in Occupancy
costs).
The Company performed its annual assessment of goodwill and the
indefinite-lived tradename intangible asset as of the end of the
second quarter of fiscal year 2010 and concluded there was no
indication of
F-39
LRI
Holdings, Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
impairment. The Company performed the same analysis as of the
second quarter of fiscal year 2009 and concluded there was no
indication of impairment related to goodwill and recorded
tradename impairment of $16,781.
|
|
7.
|
Other
Current Liabilities and Accrued Expenses and Other Long-Term
Obligations
|
Other current liabilities and accrued expenses consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
May 2,
|
|
|
August 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
Accrued expenses
|
|
$
|
930
|
|
|
$
|
849
|
|
Accrued interest
|
|
|
340
|
|
|
|
391
|
|
Bonus and incentive awards
|
|
|
3,606
|
|
|
|
5,444
|
|
Accrued vacation
|
|
|
819
|
|
|
|
818
|
|
Deferred revenue
|
|
|
4,545
|
|
|
|
3,641
|
|
Derivative liability
|
|
|
|
|
|
|
171
|
|
Insurance reserves
|
|
|
5,536
|
|
|
|
4,652
|
|
Payroll related accruals
|
|
|
7,878
|
|
|
|
10,387
|
|
Taxes payable
|
|
|
6,825
|
|
|
|
6,843
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,479
|
|
|
$
|
33,196
|
|
|
|
|
|
|
|
|
|
|
Other long-term obligations consist of the following:
|
|
|
|
|
|
|
|
|
|
|
May 2,
|
|
|
August 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred rent liability
|
|
$
|
13,864
|
|
|
$
|
11,101
|
|
Asset retirement obligation
|
|
|
1,908
|
|
|
|
1,756
|
|
Non-qualified savings plan liability
|
|
|
1,064
|
|
|
|
806
|
|
Deferred management compensation
|
|
|
1,398
|
|
|
|
1,350
|
|
Unfavorable leases
|
|
|
10,644
|
|
|
|
11,016
|
|
Derivative liability
|
|
|
2,173
|
|
|
|
2,672
|
|
Deferred gain on sale-leaseback transaction
|
|
|
2,088
|
|
|
|
1,766
|
|
Other
|
|
|
636
|
|
|
|
434
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33,775
|
|
|
$
|
30,901
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Impairment
and Store Closing Charges
|
Impairment
charges
The Company performed a long-lived asset impairment analysis
during the 39 weeks ended May 2, 2010 and determined
that no restaurant impairment was needed. The same analysis
performed during the 39 weeks ended May 3, 2009
indicated that eight restaurants had carrying amounts in excess
of their estimated fair values resulting in impairment charges
of $6,376.
F-40
LRI
Holdings, Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
|
|
9.
|
Credit
Arrangements and Long-Term Obligations
|
Credit arrangements and long-term obligations consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
May 2,
|
|
|
August 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
$138 million Term Loan Facility, bearing interest at
Eurodollar Rate plus 2.25% at both periods (2.50% and 2.59% at
May 2, 2010 and August 2, 2009, respectively)
|
|
$
|
133,170
|
|
|
$
|
134,205
|
|
$30 million Revolving Credit Facility
|
|
|
|
|
|
|
|
|
$80 million Senior Subordinated Unsecured Mezzanine Term
Notes, bearing interest at 13.25%
|
|
|
85,858
|
|
|
|
85,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
219,028
|
|
|
|
220,063
|
|
Less: current maturities
|
|
|
(1,380
|
)
|
|
|
(1,380
|
)
|
|
|
|
|
|
|
|
|
|
Long-term obligations, less current maturities
|
|
$
|
217,648
|
|
|
$
|
218,683
|
|
|
|
|
|
|
|
|
|
|
The Companys availability under the Revolving Credit
Facility was $26,155 and $25,776 at May 2, 2010 and
August 2, 2009, respectively, net of outstanding letters of
credit to secure coverage for the Companys workers
compensation and surety bond insurance programs.
In addition, on an annual basis, the Company is required to
prepay, on the
125th day
following the end of each fiscal year, excess cash, as defined
in the Senior Secured Credit Facility. The Company made an
excess cash prepayment during the 39 weeks ended
May 2, 2010 of $2,660 which was used to repay outstanding
borrowings under the Revolving Credit Facility.
The fair value of the Term Loan Facility was $121,185 and
$112,732 at May 2, 2010 and August 2, 2009,
respectively, based on trading activity between lenders of the
debt. There were no amounts borrowed under the Revolving Credit
Facility at May 2, 2010 or August 2, 2009.
Senior
subordinated unsecured mezzanine term notes
The Company paid all in-kind interest during the 39 weeks
ended May 2, 2010.
At May 2, 2010 and August 2, 2009, there were no
quoted market prices or recent trading activity for the
Companys Mezzanine Notes, and a reasonable estimate of the
fair value could not be made without incurring excessive cost.
Both the Senior Secured Credit Facility and the Mezzanine Notes
contain, among other things, restrictive covenants that may
limit the Companys ability to finance future operations,
capital needs or to engage in other business activities.
Additionally, both the Senior Secured Credit Facility and the
Mezzanine Notes contain non-financial and financial debt
covenants, including a minimum fixed charge coverage ratio, a
maximum consolidated total leverage ratio and a maximum capital
expenditure limit. These ratios and tests, if not met, could
have an adverse effect on the Companys business by
limiting the Companys ability to take advantage of
financing, other corporate opportunities and to fund the
Companys operations. At May 2, 2010, the Company was
in compliance with the financial covenants as described in both
the Senior Secured Credit Facility and the Mezzanine Notes.
Debt
issuance costs
Amortization of debt issuance costs was $1,098 and $1,014 for
the 39 weeks ended May 2, 2010 and May 3, 2009,
respectively.
F-41
LRI
Holdings, Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
|
|
10.
|
Derivative
Instruments
|
The Company uses interest rate-related derivative instruments to
manage the Companys exposure on debt instruments. The
Company had the following derivative instruments during the
presented periods.
Interest
rate swaps
At May 2, 2010 and August 2, 2009, the net fair value
of the $75M Swap was a liability of $2,173 and $2,672,
respectively. For the 39 weeks ended May 2, 2010 and
May 3, 2009, related to this swap the Company recorded a
gain in earnings of $496 and a loss in earnings of $2,335.
The $15M Swap expired in the 39 week period ended
May 2, 2010, resulting in removal of the previously
recorded unrealized losses to Accumulated other
comprehensive income of $171, net of tax.
|
|
11.
|
Fair
Value Measurements
|
The Companys assets and liabilities measured at fair value
on a recurring basis at May 2, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Other
|
|
|
Significant
|
|
|
Fair Value
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
as of
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
May 2,
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3 )
|
|
|
2010
|
|
|
Deferred compensation plan assets*
|
|
$
|
1,064
|
|
|
|
|
|
|
|
|
|
|
$
|
1,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
1,064
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap liability**
|
|
|
|
|
|
$
|
2,173
|
|
|
|
|
|
|
$
|
2,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
2,173
|
|
|
$
|
|
|
|
$
|
2,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Represents plan assets established under a Rabbi Trust for the
Companys non-qualified savings plan. The assets of the
Rabbi Trust are invested in mutual funds and are reported at
fair value based on active market quotes. |
|
** |
|
Fair value for the interest rate swap liability is determined
based on the present value of expected future cash flows
considering the risks involved and using discount rates
appropriate for the duration, and considers counterparty risk. |
The provision for income taxes is based on the current estimate
of the annual effective tax rate and is adjusted as necessary
for discrete events occurring in a particular period. The
effective income tax rate for the 39 weeks ended
May 2, 2010 was 37.5% compared to 77.3% for the
39 weeks ended May 3, 2009. The lower effective income
tax rate for the 39 weeks ended May 2, 2010 was due
primarily to the increase in pre-tax income, offset by a
one-time adjustment of the tax-affected rate for the deferred
tax account balances. The tax rate for the 39 weeks ended
May 3, 2009 was impacted by $23.3 million of asset
impairment charges and additional wage credits.
During the 39 weeks ended May 2, 2010, the Internal
Revenue Service (IRS) examined the Companys
consolidated federal income tax returns for the years ended
July 29, 2007 and August 3, 2008. The Company reached
a settlement with the IRS for those tax periods which did not
have a material impact on the consolidated financial statements.
Additionally, due to the audit results the Company reversed the
existing liability for uncertain tax positions.
F-42
LRI
Holdings, Inc.
Notes to
Unaudited Condensed Consolidated Financial
Statements (Continued)
(In
thousands of dollars, except share data)
As of May 2, 2010, the Company leased 182 restaurant
facilities as well as office facilities and equipment under
non-cancelable operating lease agreements. These leases have all
been classified as operating leases. A majority of the
Companys lease agreements provide for renewal options and
contain escalation clauses. Additionally, certain restaurant
leases provide for contingent rent payments based upon sales
volume in excess of specified minimum levels.
Rent expense for the periods presented was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
Contingent
|
|
Total
|
|
39 weeks ended May 2, 2010
|
|
$
|
26,522
|
|
|
$
|
81
|
|
|
$
|
26,603
|
|
39 weeks ended May 3, 2009
|
|
$
|
25,936
|
|
|
$
|
130
|
|
|
$
|
26,066
|
|
|
|
14.
|
Commitments
and Contingencies
|
Litigation
Based upon information currently available, the Company is not a
party to any litigation that management believes could have a
material adverse effect on the Companys business or the
Companys condensed consolidated financial statements.
|
|
15.
|
Related
Party Transactions
|
Management
agreement and acquisition fees
The Company incurred $1,130 and, $989 in Management Fees for the
39 weeks ended May 2, 2010 and May 3, 2009,
respectively. At May 2, 2010 and August 2, 2009, the
Company had prepaid Management Fees of $270 and $453,
respectively.
Preferred
stock
At May 2, 2010 and August 2, 2009, undeclared and
unpaid dividends on the Series A preferred stock totaled
$34,651 (or $537.16 per share) and $25,725 (or $398.79 per
share), respectively.
Subsequent events have been evaluated through June 4, 2010,
which is the date the financial statements were available to be
issued. As of June 3, 2010, our board of directors
accelerated the remaining vesting of certain management awards.
F-43
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other
Expenses of Issuance and Distribution.
|
The following table sets forth all costs and expenses, other
than the underwriting discounts and commissions payable by us,
in connection with the offer and sale of the securities being
registered. All amounts shown are estimates except for the SEC
registration fee and the Financial Industry Regulatory
Authority, Inc. (FINRA) filing fee.
|
|
|
|
|
|
|
Amount
|
|
|
SEC registration fee
|
|
$
|
14,260
|
|
FINRA filing fee
|
|
|
20,500
|
|
The NASDAQ Stock Market listing fee
|
|
|
*
|
|
Printing expenses
|
|
|
*
|
|
Accounting fees and expenses
|
|
|
*
|
|
Legal fees and expenses
|
|
|
*
|
|
Blue sky fees and expenses
|
|
|
*
|
|
Transfer agent and registrar fees and expenses
|
|
|
*
|
|
Miscellaneous expenses
|
|
|
*
|
|
|
|
|
|
|
Total
|
|
$
|
*
|
|
|
|
|
|
|
|
|
|
* |
|
To be provided by amendment. |
|
|
Item 14.
|
Indemnification
of Officers and Directors.
|
Section 102(b)(7) of the DGCL allows a corporation to
provide in its certificate of incorporation that a director of
the corporation will not be personally liable to the corporation
or its stockholders for monetary damages for breach of fiduciary
duty as a director, except where the director breached the duty
of loyalty, failed to act in good faith, engaged in intentional
misconduct or knowingly violated a law, authorized the payment
of a dividend or approved a stock repurchase in violation of
Delaware corporate law or obtained an improper personal benefit.
Our restated certificate of incorporation will provide for this
limitation of liability.
Section 145 of the DGCL (Section 145),
provides that a Delaware corporation may indemnify any person
who was, is or is threatened to be made, party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of such corporation), by
reason of the fact that such person is or was an officer,
director, employee or agent of such corporation or is or was
serving at the request of such corporation as a director,
officer, employee or agent of another corporation or enterprise.
The indemnity may include expenses (including attorneys
fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by such person in connection with such
action, suit or proceeding, provided such person acted in good
faith and in a manner he reasonably believed to be in or not
opposed to the corporations best interests and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe that his or her conduct was illegal. A Delaware
corporation may indemnify any persons who are, were or are
threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation
by reason of the fact that such person is or was a director,
officer, employee or agent of another corporation or enterprise.
The indemnity may include expenses (including attorneys
fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or
suit, provided such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the
corporations best interests, provided that no
indemnification is permitted without judicial approval if the
officer, director, employee or agent is adjudged to be liable to
the corporation. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him against the expenses
which such officer or director has actually and reasonably
incurred.
II-1
Section 145 further authorizes a corporation to purchase
and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation or is or
was serving at the request of the corporation as a director,
officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him
in any such capacity, or arising out of his or her status as
such, whether or not the corporation would otherwise have the
power to indemnify him under Section 145.
Our amended and restated certificate of incorporation will
provide that we must indemnify our directors and officers to the
fullest extent authorized by the DGCL and must also pay expenses
incurred in defending any such proceeding in advance of its
final disposition upon delivery of an undertaking, by or on
behalf of an indemnified person, to repay all amounts so
advanced if it should be determined ultimately that such person
is not entitled to be indemnified under this section or
otherwise.
We intend to enter into indemnification agreements with each of
our current directors and officers. These agreements will
require us to indemnify these individuals to the fullest extent
permitted under Delaware law against liabilities that may arise
by reason of their service to us, and to advance expenses
incurred as a result of any proceeding against them as to which
they could be indemnified.
The indemnification rights set forth above shall not be
exclusive of any other right which an indemnified person may
have or hereafter acquire under any statute, provision of our
certificate of incorporation, our bylaws, agreement, vote of
stockholders or disinterested directors or otherwise.
We expect to maintain standard policies of insurance that
provide coverage (1) to our directors and officers against
loss rising from claims made by reason of breach of duty or
other wrongful act and (2) to us with respect to
indemnification payments that we may make to such directors and
officers.
The proposed form of Underwriting Agreement to be filed as
Exhibit 1.1 to this Registration Statement provides for
indemnification to our directors and officers by the
underwriters against certain liabilities.
|
|
Item 15.
|
Recent
Sales of Unregistered Securities
|
Set forth below is information regarding shares of our
Class A common stock and Series A preferred stock
issued, and equity awards granted, by us within the past three
years that were not registered under the Securities Act. Also
included is the consideration, if any, received by us for such
shares or equity awards and information relating to the section
of the Securities Act, or rule of the SEC, under which exemption
from registration was claimed.
In connection with the Acquisition, on December 6, 2006, we
issued shares of our Class A common stock at a price per
share of $10.00 for aggregate consideration of
$10.0 million as follows: 412,277.02 shares to BRS,
234,006.67 shares to Black Canyon, 234,006.67 shares to Canyon
Capital, 87,709.65 shares to PDI and 32,000 shares to
certain members of management. This transaction was exempt from
registration under the Securities Act in reliance upon
Section 4(2) of the Securities Act
and/or
Regulation D promulgated thereunder as a transaction by an
issuer not involving any public offering.
Also, in connection with the Acquisition, on December 6,
2006, we issued shares of our Series A preferred stock at a
price per share of $1,000.00 for aggregate consideration of
$65.0 million as follows: 26,798.01 shares to BRS,
15,210.43 shares to Black Canyon, 15,210.44 shares to Canyon
Capital 5,701.13 shares to PDI and 2,080.00 shares to certain
members of management. This transaction was exempt from
registration under the Securities Act in reliance upon
Section 4(2) of the Securities Act
and/or
Regulation D promulgated thereunder as a transaction by an
issuer not involving any public offering.
Since July 30, 2006, we have granted stock options to
purchase an aggregate of 203,249.57 shares of our
Class A common stock with an exercise price of $10.00 per
share to a total of 59 employees, officers and directors
under our 2007 Plan. These transactions were exempt from
registration under the Securities Act in reliance on
Rule 701 promulgated under Section 3(b) of the
Securities Act as an issuance pursuant to benefit plans and
contracts relating to compensation.
To help fund the Acquisition, on December 6, 2006 we also
issued $80.0 million aggregate principal amount of senior
subordinated unsecured mezzanine term notes due June 2014 to
certain lenders. We have the option to pay up to 3.25% of the
interest per annum payable on the notes in kind, and we issued
$1.4 million and $2.8 million in
paid-in-kind
notes during fiscal years 2009 and 2008, respectively. The
issuances of the
II-2
senior subordinated unsecured mezzanine term notes were exempt
from registration under the Securities Act in reliance upon
Section 4(2) of the Securities Act
and/or
Regulation D promulgated thereunder as transactions by an
issuer not involving any public offering.
None of the foregoing sales involved any underwriters,
underwriting discounts or commissions or any public offering.
The recipients of the securities in each of the transactions
described above represented their intentions to acquire the
securities for investment only and not with a view to or for
sale in connection with any distribution thereof, and
appropriate legends were placed upon the stock certificates
issued in these transactions. All recipients had adequate
access, through their relationships with us, to information
about us.
(a) Exhibits
The exhibit index attached hereto is incorporated herein by
reference.
(b) Financial Statement Schedules
No financial statement schedules are provided because the
information called for is not applicable or is shown in the
financial statements or notes thereto.
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction, the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby further undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, as amended, the information omitted from
the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, as amended, each post-effective
amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities
offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Nashville, State of
Tennessee, on June 4, 2010.
LRI HOLDINGS, INC.
Name: G. Thomas Vogel
|
|
|
|
Title:
|
President and Chief Executive Officer
|
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each officer and director
of LRI Holdings, Inc. whose signature appears below constitutes
and appoints G. Thomas Vogel and Amy L. Bertauski, and each of
them, his or her true and lawful attorney-in-fact and agent,
with full power of substitution and revocation, for him or her
and in his or her name, place and stead, in any and all
capacities, to execute any or all amendments including any
post-effective amendments and supplements to this Registration
Statement, and any additional Registration Statement filed
pursuant to Rule 462(b), and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to
be done, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.
* * * *
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the
following persons in the capacities indicated and on the date
indicated below:
|
|
|
|
|
|
|
Signatures
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ G.
Thomas Vogel
G.
Thomas Vogel
|
|
President, Chief Executive Officer and Director
(principal executive officer)
|
|
June 4, 2010
|
|
|
|
|
|
/s/ Amy
L. Bertauski
Amy
L. Bertauski
|
|
Chief Financial Officer
(principal financial officer and
principal accounting officer)
|
|
June 4, 2010
|
|
|
|
|
|
/s/ Thomas
D. Barber
Thomas
D. Barber
|
|
Director
|
|
June 4, 2010
|
|
|
|
|
|
/s/ Edward
P. Grace III
Edward
P. Grace III
|
|
Director
|
|
June 4, 2010
|
|
|
|
|
|
/s/ Michael
K. Hooks
Michael
K. Hooks
|
|
Director
|
|
June 4, 2010
|
II-4
|
|
|
|
|
|
|
Signatures
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Michael
P. ODonnell
Michael
P. ODonnell
|
|
Director
|
|
June 4, 2010
|
|
|
|
|
|
/s/ Jacob
A. Organek
Jacob
A. Organek
|
|
Director
|
|
June 4, 2010
|
|
|
|
|
|
/s/ Harold
O. Rosser
Harold
O. Rosser
|
|
Director
|
|
June 4, 2010
|
II-5
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
1
|
.1*
|
|
Form of Underwriting Agreement.
|
|
3
|
.1*
|
|
Form of Amended and Restated Certificate of Incorporation of LRI
Holdings, Inc.
|
|
3
|
.2*
|
|
Form of Amended and Restated Bylaws of LRI Holdings, Inc.
|
|
4
|
.1*
|
|
Specimen Class A Common Stock Certificate.
|
|
4
|
.2*
|
|
Registration Rights Agreement, dated December 6, 2006, by
and between LRI Holdings, Inc. and the stockholders signatory
thereto.
|
|
5
|
.1*
|
|
Form of Opinion of Kirkland & Ellis LLP.
|
|
10
|
.1*
|
|
Credit Agreement, dated as of December 6, 2006, by and
between Logans Roadhouse, Inc., as borrower, LRI Holdings,
Inc., as parent guarantor, the subsidiary guarantors named
therein, the Lenders, Swing Line Bank and Issuing Banks named
therein, Wells Fargo Bank, N.A., as syndication agent, Fifth
Third Bank, as documentation agent, and Wachovia Bank, National
Association, as administration agent and collateral agent.
|
|
10
|
.2*
|
|
Amendment No. 1, dated June 11, 2007, to the Credit
Agreement, dated as of December 6, 2006, by and between
Logans Roadhouse, Inc., as borrower, LRI Holdings, Inc.,
as parent guarantor, the subsidiary guarantors named therein,
the Lenders, Swing Line Bank and Issuing Banks named therein,
Wells Fargo Bank, N.A., as syndication agent, Fifth Third Bank,
as documentation agent and Wachovia Bank, National Association,
as administration agent and collateral agent.
|
|
10
|
.3*
|
|
Security Agreement, dated as of December 6, 2006, by and
between Logans Roadhouse, Inc., as borrower, the other
Grantors referred to therein, and Wachovia Bank, National
Association, as collateral agent.
|
|
10
|
.4*
|
|
Stockholders Agreement, dated December 6, 2006, by
and between LRI Holdings, Inc. and the stockholders named
therein.
|
|
10
|
.5*
|
|
Executive Employment Agreement, dated as of December 15,
2006, by and between Logans Roadhouse, Inc. and
G. Thomas Vogel.+
|
|
10
|
.6*
|
|
Form of Franchise Agreement.
|
|
10
|
.7*
|
|
LRI Holdings, Inc, Option Plan.+
|
|
10
|
.8*
|
|
Form of LRI Holdings, Inc. 2010 Omnibus Incentive Plan.+
|
|
10
|
.9*
|
|
Amended and Restated Management and Consulting Services
Agreement, dated June 7, 2007, by and between Logans
Roadhouse, Inc. and the other service providers referred to
therein.
|
|
10
|
.10*
|
|
Form of Management Subscription Agreement.+
|
|
21
|
.1*
|
|
List of Subsidiaries of LRI Holdings, Inc.
|
|
23
|
.1
|
|
Consent of Deloitte & Touche LLP, independent
registered public accounting firm.
|
|
23
|
.2*
|
|
Consent of Kirkland & Ellis LLP (included in
Exhibit 5.1)
|
|
24
|
.1
|
|
Power of Attorney (included on the signature page of this
Registration Statement)
|
|
|
|
* |
|
To be filed by amendment. |
|
+ |
|
Indicates a management contract or compensatory plan or
arrangement. |
II-6