S-1 1 g23610sv1.htm FORM S-1 sv1
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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)
 
         
Delaware
  5812   20-5894571
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification No.)
 
3011 Armory Drive, Suite 300
Nashville, Tennessee 37204
(615) 885-9056
(Address, including zip code, and telephone number, including area code, of registrant’s 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:
 
     
Joshua N. Korff, Esq.
Jason K. Zachary, Esq.
Kirkland & Ellis LLP
601 Lexington Avenue
New York, New York 10022
(212) 446-4800
  Jeffrey M. Stein, Esq.
Keith M. Townsend, Esq.
King & Spalding LLP
1180 Peachtree Street, N.E.
Atlanta, Georgia 30309
(404) 572-4600
 
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):
 
Large accelerated filer o Accelerated filer o Non-accelerated filer x Smaller reporting company o
(Do not check if a smaller reporting company)
 
CALCULATION OF REGISTRATION FEE
 
                     
      Proposed Maximum
    Amount of
Title of Each Class of
    Aggregate
    Registration
Securities to be Registered     Offering Price(1)(2)     Fee(3)
Class A common stock, $0.01 par value per share
    $ 200,000,000       $ 14,260  
                     
 
(1) 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.
 
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
 
(3) 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 Logan’s 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.
 
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.
 


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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.
 
SUBJECT TO COMPLETION, DATED JUNE 4, 2010
PROSPECTUS
 
Shares
 
(LRI HOLDINGS, INC. LOGO)
 
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.
 
                 
                Proceeds,
            Proceeds,
  Before
        Underwriting
  Before
  Expenses to
    Price to
  Discounts and
  Expenses
  the Selling
    Public   Commissions   to Us   Stockholders
 
Per Share
  $            $            $            $         
Total
  $            $            $            $         
 
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


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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 Logan’s Roadhouse® and the design, our stylized logos set forth on the cover and back pages of this prospectus, Logan’s® 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 “Management’s 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 “Logan’s 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 “Management’s 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
 
Logan’s 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 1930’s and 1940’s Historic Route 66 style roadhouse. As of May 2, 2010, we have grown our restaurant base to 211 Logan’s 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.


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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 management’s 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:
 
  •  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 corresponded to the onset of the economic downturn.
 
  •  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.
 
  •  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 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 firm’s 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 Logan’s 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:
 
  •  our ability to successfully execute our growth strategy and other initiatives intended to enhance long-term stockholder value;
 
  •  the adverse effect of macroeconomic conditions on sales and profits of existing restaurants or on our ability to open new restaurants;
 
  •  intense competition in the restaurant industry;
 
  •  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;
 
  •  changes in our costs, including food (especially beef), labor, utilities, insurance and taxes;
 
  •  supply and delivery shortages or disruptions; and
 
  •  our concentration of restaurants in the Southeast and Southwest United States.


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The Offering
 
Class A common stock offered by us           shares
 
Class A common stock offered by the selling stockholders           shares
 
Class A common stock outstanding immediately after this offering           shares or          shares, if the over-allotment option is exercised in full
 
Use of proceeds 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.
 
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”.
 
We will not receive any of the proceeds from the sale of shares of Class A common stock by the selling stockholders.
 
Principal stockholders 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”


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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.


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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 Logan’s 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 “Management’s 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”, “Management’s 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  
                                                   


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    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.

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    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;


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  •  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 “Management’s 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.


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(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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—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.
 
(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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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:
 
  •  our ability to secure suitable new restaurant sites;
 
  •  consumer acceptance of our new restaurants;
 
  •  our ability to control construction and development costs of new restaurants;
 
  •  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
 
  •  the cost and availability of capital to fund construction costs and pre-opening expenses.
 
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.


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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.


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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.


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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


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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


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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


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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 Logan’s Roadhouse® and the design, our stylized logos set forth on the cover and back pages of this prospectus, Logan’s® 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.


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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 Logan’s 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 Logan’s 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 franchisee’s 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.


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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:
 
  •  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;
 
  •  risks associated with entering into new domestic markets or conducting operations where we have no or limited prior experience, including international markets;
 
  •  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
 
  •  the diversion of management’s attention from other business concerns.
 
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 management’s attention to these matters will have on our business. In addition, the


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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:
 
  •  that a majority of our board of directors consist of independent directors, as defined under the rules of The NASDAQ Stock Market;
 
  •  that we have a corporate governance and nominating committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and
 
  •  that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s 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:
 
  •  our ability to successfully execute our growth strategy and other initiatives intended to enhance long-term stockholder value;
 
  •  changes in consumer preferences and demographic trends;
 
  •  changes in the costs of our business including food costs (especially beef), labor cost, utilities cost, insurance cost, taxes and others;
 
  •  supply and delivery shortages or disruptions;
 
  •  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;
 
  •  increasing competition in the restaurant industry;
 
  •  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;
 
  •  potential fluctuation in our annual or quarterly operating results due to seasonality and other factors;
 
  •  the continued service of key management personnel;
 
  •  actual results of litigation or governmental investigations and the costs and effects of negative publicity associated with these activities;
 
  •  changes in capital market conditions that could affect valuations of restaurant companies in general or our goodwill in particular or other adverse economic conditions;
 
  •  the effectiveness of our internal controls over financial reporting and disclosure;
 
  •  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;
 
  •  ratings downgrades by any securities analysts who follow our Class A common stock;
 
  •  future sales of our Class A common stock by our officers, directors and significant stockholders;
 
  •  other events or factors, including those resulting from war, acts of terrorism, natural disasters or responses to these events;
 
  •  changes in accounting principles; and
 
  •  global economic, legal and regulatory factors unrelated to our performance.
 
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:
 
  •  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;
 
  •  prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;
 
  •  provide that the board of directors is expressly authorized to make, alter, or repeal our amended and restated bylaws; and
 
  •  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.
 
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.


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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:
 
  •  our ability to successfully execute our growth strategy and open new restaurants that are profitable;
 
  •  macroeconomic conditions;
 
  •  our ability to compete with many other restaurants;
 
  •  changes in consumer preferences caused by health concerns and government regulation relating to the consumption of beef, chicken, peanuts or other food products;
 
  •  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;
 
  •  changes in food and supply costs;
 
  •  our reliance on a small number of vendors, suppliers and distributors;
 
  •  our geographic concentration in the Southeast and Southwest United States;
 
  •  the success of our current restaurant prototype and any future prototypes;
 
  •  costs resulting from breaches of security of confidential information;
 
  •  our ability to generate or raise capital in the future;
 
  •  our ability to incur additional debt under the terms of our existing senior secured credit facility;
 
  •  impairment charges on certain long-lived or intangible assets;
 
  •  the continued service of our executive officers;
 
  •  our ability to attract and retain qualified employees while also controlling labor costs;
 
  •  legal complaints or litigation;
 
  •  our ability to maintain insurance that provides adequate levels of coverage against claims;
 
  •  our ability to obtain and maintain required licenses and permits or to comply with alcoholic beverage or food control regulations;
 
  •  the reliability of our information systems;
 
  •  our ability to protect our intellectual property;
 
  •  compliance with laws and regulations related to the offer and sale of franchises and our relationship with our franchisees;
 
  •  our franchisees’ actions;
 
  •  the cost of compliance with federal, state and local laws;
 
  •  any potential strategic transactions;
 
  •  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;
 
  •  controlled company exemptions under The NASDAQ Stock Market listing standards;
 
  •  the development and sustainability of an active trading market for our Class A common stock;
 
  •  the volatility of our stock price;
 
  •  future sales of our Class A common stock, or the perception in the public markets that sales may occur;
 
  •  future dilution of our Class A common stock;
 
  •  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
 
  •  the payment of dividends.
 
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.


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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:
 
  •  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;
 
  •  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;
 
  •  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
 
  •  to pay other fees and expenses incurred in connection with this offering.
 
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.


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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.


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CAPITALIZATION
 
The following table sets forth our cash and cash equivalents and our capitalization as of May 2, 2010 on:
 
  •  an actual basis; and
 
  •  a pro forma as adjusted basis to give effect to the following:
 
  ¡  a          -for-1 Class A common stock split that will occur prior to the completion of this offering;
 
  ¡  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
 
  ¡  the application of the net proceeds from this offering to us as described under “Use of Proceeds”.
 
You should read the following table in conjunction with the sections entitled “Use of Proceeds”, “Selected Historical Consolidated Financial and Operating Data”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.
 
                 
    May 2, 2010  
          Pro Forma
 
   
Actual
   
As Adjusted(1)
 
    (In thousands)  
 
Cash and cash equivalents
  $ 45,111     $        
                 
Long-term debt, including current portion:
               
Senior secured credit facility(2)
  $ 133,170     $    
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 stockholder’s 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.


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(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.


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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.


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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 Logan’s 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 “Management’s 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”, “Management’s 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  
                                                                   


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    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

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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


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presented in this prospectus. The material covenants in our senior secured credit facility are discussed further in “Description of Certain Indebtedness” and “Management’s 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.


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(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 “Management’s 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 “Management’s 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.


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MANAGEMENT’S 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
 
Logan’s 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 1930’s and 1940’s 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 Logan’s 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


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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 Logan’s Roadhouse, Inc. from Cracker Barrel and its subsidiaries in the Acquisition. Immediately following the Acquisition, Logan’s 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 Logan’s 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 Predecessor’s 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.


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For purposes of this “Management’s 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.


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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.
 


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    Predecessor       Successor     Combined     Successor  
    Period from
      Period from
    52 Weeks
                         
    July 29, 2006
      December 6,
    Ended
                         
    through
      2006 through
    July 29,
    Fiscal Year Ended     39 Weeks Ended  
    December 5,
      July 29,
    2007
    August 3,
    August 2,
    May 3,
    May 2,
 
   
2006
     
2007
   
(Non-GAAP)
   
2008
   
2009
   
2009
   
2010
 
                                     
    (In thousands)  
Net sales
  $ 153,663       $ 321,421     $ 475,084     $ 529,424     $ 533,248     $ 402,047     $ 414,483  
Franchise fees and royalties
    851         1,697       2,548       2,574       2,248       1,656       1,531  
                                                           
Total revenue
    154,514         323,118       477,632       531,998       535,496       403,703       416,014  
                                                           
Costs and expenses:
                                                         
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  
                                                           
Total costs and expenses
    148,317         303,790       452,107       510,767       520,851       398,547       378,088  
                                                           
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.
 
                                                           
    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.

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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.


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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.


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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.


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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.


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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.


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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.
 
                                                                                         
    Fiscal Year 2008     Fiscal Year 2009     Fiscal Year 2010  
    First
    Second
    Third
    Fourth
    First
    Second
    Third
    Fourth
    First
    Second
    Third
 
    Quarter     Quarter     Quarter     Quarter     Quarter     Quarter     Quarter     Quarter     Quarter     Quarter     Quarter  
    (Dollars in millions)  
 
Net sales
  $ 119.0     $ 130.4     $ 136.1     $ 143.9     $ 123.8     $ 138.2     $ 140.0     $ 131.2     $ 127.0     $ 139.8     $ 147.6  
Franchise fees and royalties
    0.7       0.6       0.7       0.7       0.5       0.6       0.6       0.6       0.5       0.5       0.6  
                                                                                         
Total revenues
  $ 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
    2.5%       0.0%       0.5%       0.3%       (2.5 )%     (0.7 )%     (2.3 )%     (5.9 )%     (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


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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.


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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:
 
                                         
    Payments Due by Period in Years  
          Less Than
                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.


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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 management’s 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.


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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.


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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 management’s 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.


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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.


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BUSINESS
 
Our Company
 
Logan’s 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 1930’s and 1940’s Historic Route 66 style roadhouse. As of May 2, 2010, we have grown our restaurant base to 211 Logan’s 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.


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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 management’s 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


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  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  


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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
 
  •  management’s 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,


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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.


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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 customer’s 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 Logan’s 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.


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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 Logan’s 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.


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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 Logan’s 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 franchisee’s 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.


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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 Chili’s Grill and Bar, Applebee’s Neighborhood Grill and Bar, TGI Friday’s and O’Charley’s, 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”.


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Trademarks and Service Marks
 
Our registered trademarks and service marks include the marks Logan’s Roadhouse® and the design, our stylized logos set forth on the cover and back pages of this prospectus, Logan’s® 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.


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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. O’Donnell
    54     Director
Jacob A. Organek
    32     Director
Harold O. Rosser
    61     Director
 
Executive Officers