LRI HOLDINGS, INC. - FORM 10-Q

LRI HOLDINGS, INC. - FORM 10-Q - March 12, 2015

Attached files

Attached files

LRI HOLDINGS, INC. Reports

file	filename
EXCEL - IDEA: XBRL DOCUMENT - LRI HOLDINGS, INC.	Financial_Report.xls
EX-32.1 - EXHIBIT 32.1 - LRI HOLDINGS, INC.	exhibit321q2fy15.htm
EX-10.1 - EXHIBIT 10.1 - LRI HOLDINGS, INC.	exhibit101q2fy15.htm
EX-31.1 - EXHIBIT 31.1 - LRI HOLDINGS, INC.	exhibit311q2fy15.htm
EX-31.2 - EXHIBIT 31.2 - LRI HOLDINGS, INC.	exhibit312q2fy15.htm
EX-32.2 - EXHIBIT 32.2 - LRI HOLDINGS, INC.	exhibit322q2fy15.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended February 1, 2015

- or -

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

For the transition period from to

Commission File Number: 333-173579

LRI Holdings, Inc.

(Exact name of registrant as specified in its charter)



Delaware		20-5894571
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

3011 Armory Drive, Suite 300, Nashville, Tennessee 37204
(Address of principal executive offices) (Zip Code)

(615) 885-9056

(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

As of March 12, 2015, the registrant has 1 Common Unit, $0.01 par value, outstanding (which is owned by Roadhouse Parent Inc., the registrant’s direct owner), and is not publicly traded.

LRI HOLDINGS, INC.

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	PART I---FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Stockholder's Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to the Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	27
	PART II---OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 5.	Other Information	28
Item 6.	Exhibits	28
	Signatures	29

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PART I—FINANCIAL INFORMATION

ITEM 1—FINANCIAL STATEMENTS

LRI Holdings, Inc.

Condensed Consolidated Balance Sheets



(In thousands, except share data)	February 1, 2015			August 3, 2014
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	20,178		$	9,170
Receivables	10,445			9,734
Inventories	14,459			13,832
Prepaid expenses and other current assets	6,760			6,887
Income taxes receivable	111			115
Total current assets	51,953			39,738
Property and equipment, net	203,989			209,078
Other assets	12,244			13,273
Goodwill	163,368			163,368
Tradename	71,251			71,251
Other intangible assets, net	16,149			17,190
Total assets	$	518,954		$	513,898
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable	$	17,841		$	17,414
Payable to RHI	2,499			2,721
Other current liabilities and accrued expenses	57,270			51,683
Total current liabilities	77,610			71,818
Long-term debt	376,000			355,000
Deferred income taxes	27,607			27,607
Other long-term obligations	49,695			46,599
Total liabilities	530,912			501,024
Commitments and contingencies (Note 5)	—			—
Stockholder’s equity:
Common stock ($0.01 par value; 100 shares authorized; 1 share issued and outstanding)	—			—
Additional paid-in capital	230,000			230,000
Retained deficit	(241,958		)	(217,126		)
Total stockholder’s equity	(11,958		)	12,874
Total liabilities and stockholder’s equity	$	518,954		$	513,898

See accompanying notes to the condensed consolidated financial statements.

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LRI Holdings, Inc.

Condensed Consolidated Statements of Operations

(unaudited)



	Thirteen weeks ended						Twenty-six weeks ended
(In thousands)	February 1, 2015			January 26, 2014			February 1, 2015			January 26, 2014
Revenues:
Net sales	$	154,213		$	153,061		$	299,426		$	300,084
Franchise fees and royalties	561			528			1,090			1,035
Total revenues	154,774			153,589			300,516			301,119
Costs and expenses:
Restaurant operating costs:
Cost of goods sold	55,617			51,791			107,913			101,795
Labor and other related expenses	47,666			47,247			93,998			93,744
Occupancy costs	14,690			14,215			28,494			27,828
Other restaurant operating expenses	23,411			25,782			47,004			51,272
Depreciation and amortization	5,095			4,961			10,165			10,132
Pre-opening expenses	222			20			257			26
General and administrative	7,754			7,540			14,936			14,723
Restaurant impairment and closing charges	1,486			488			1,486			1,805
Total costs and expenses	155,941			152,044			304,253			301,325
Operating (loss) income	(1,167		)	1,545			(3,737		)	(206		)
Interest expense, net	10,683			10,536			21,095			20,855
Loss before income taxes	(11,850		)	(8,991		)	(24,832		)	(21,061		)
Income tax benefit	—			—			—			—
Net loss	$	(11,850	)	$	(8,991	)	$	(24,832	)	$	(21,061	)

See accompanying notes to the condensed consolidated financial statements.

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LRI Holdings, Inc.

Condensed Consolidated Statements of Stockholder’s Equity

(unaudited)



	Common			Additional paid-in capital		Retained deficit			Total stockholder's equity
(In thousands, except share data)	Shares	Amount		Additional paid-in capital		Retained deficit			Total stockholder's equity
Balances at July 28, 2013	1	$	—	$	230,000	$	(154,353	)	$	75,647
Net loss	—	—		—		(21,061		)	(21,061		)
Balances at January 26, 2014	1	$	—	$	230,000	$	(175,414	)	$	54,586

Balances at August 3, 2014	1	$	—	$	230,000	$	(217,126	)	$	12,874
Net loss	—	—		—		(24,832		)	(24,832		)
Balances at February 1, 2015	1	$	—	$	230,000	$	(241,958	)	$	(11,958	)

See accompanying notes to the condensed consolidated financial statements.

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LRI Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)



	Twenty-six weeks ended
(In thousands)	February 1, 2015			January 26, 2014
Cash flows from operating activities:
Net loss	$	(24,832	)	$	(21,061	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	10,165			10,132
Other amortization	1,167			1,025
Loss on sale/disposal of property and equipment	1,365			1,062
Amortization of deferred gain on sale and leaseback transactions	(25		)	(25		)
Impairment charges for long-lived assets	1,486			1,805
Share-based compensation expense	(206		)	856
Changes in operating assets and liabilities:
Receivables	(711		)	(786		)
Inventories	(633		)	(1,018		)
Prepaid expenses and other current assets	127			(1,960		)
Other non-current assets and intangibles	(462		)	(241		)
Accounts payable	325			945
Payable to RHI	(16		)	(102		)
Income taxes payable/receivable	4			(318		)
Other current liabilities and accrued expenses	5,587			6,244
Other long-term obligations	3,715			2,870
Net cash used in operating activities	(2,944		)	(572		)
Cash flows from investing activities:
Purchase of property and equipment	(7,048		)	(6,786		)
Net cash used in investing activities	(7,048		)	(6,786		)
Cash flows from financing activities:
Payments on revolving credit facility	(8,100		)	(4,500		)
Borrowings on revolving credit facility	29,100			24,500
Net cash provided by financing activities	21,000			20,000
Increase in cash and cash equivalents	11,008			12,642
Cash and cash equivalents, beginning of period	9,170			23,708
Cash and cash equivalents, end of period	$	20,178		$	36,350

See accompanying notes to the condensed consolidated financial statements.

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LRI Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements

(Tabular dollar amounts in thousands, except share data)

(unaudited)

1. Basis of Presentation and Recent Accounting Pronouncements

LRI Holdings, Inc. (“LRI Holdings”) and its subsidiaries (collectively the “Company”, “we”, “our” or “us”) are engaged in the operation and development of the Logan’s Roadhouse restaurant chain. As of February 1, 2015, our restaurants operate in 23 states and are comprised of 235 company-owned restaurants and 26 franchised restaurants. LRI Holdings operates its business as one operating and one reportable segment. The Company operates on a 52 or 53-week fiscal year ending on the Sunday nearest to July 31. The fiscal year ended August 3, 2014 was comprised of 53 weeks. The fiscal year ending August 2, 2015 will be comprised of 52 weeks.

On October 4, 2010, LRI Holdings was acquired by certain wholly owned subsidiaries of Roadhouse Holding Inc. (“RHI”), a Delaware corporation owned by affiliates of Kelso & Company, L.P. (the “Kelso Affiliates”) and certain members of management (the “Management Investors”). After the acquisition transactions (the “Transactions”), the Kelso Affiliates owned 97% and the Management Investors owned 3% of the outstanding capital stock of RHI. Because LRI Holdings is a wholly owned subsidiary of an indirect wholly owned subsidiary of RHI, RHI is the ultimate parent of LRI Holdings.

Basis of presentation

The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), and all intercompany balances and transactions have been eliminated during consolidation.

Interim financial statements

We have prepared these condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally presented in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal recurring nature. Operating results for the twenty-six weeks ended February 1, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending August 2, 2015. These statements should be read in conjunction with the consolidated financial statements and related notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 3, 2014 (the "Form 10-K"). The accounting policies used in preparing these condensed consolidated financial statements are the same as those described in the Form 10-K.

Recent accounting pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The guidance changes the criteria for disposals to qualify as discontinued operations and requires new disclosures about disposals of both discontinued operations and certain other disposals that do not meet the new definition. This update is effective for fiscal years beginning on or after December 15, 2014 and interim periods within those years on a prospective basis. The Company is currently evaluating the impact of adopting this accounting guidance, but it is not expected to have a significant impact on the Company’s consolidated financial statements upon adoption in the first quarter of fiscal year 2016.

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), an amendment to the FASB Accounting Standards Codification. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update is effective for annual periods and interim periods within those periods beginning after December 15, 2016, which will require us to adopt these provisions in the first quarter of fiscal year 2018. The Company is currently evaluating the impact the guidance will have on our consolidated financial statements.

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2. Long-Term Debt

Long-term debt obligations at February 1, 2015 and August 3, 2014, consist of the following:



	February 1, 2015		August 3, 2014
Senior Secured Notes, bearing interest at 10.75%	$	355,000	$	355,000
Senior Secured Revolving Credit Facility	21,000		—
	376,000		355,000
Less: current maturities	—		—
Long-term debt, less current maturities	$	376,000	$	355,000

Senior Secured Revolving Credit Facility, as amended

In connection with the Transactions, Logan’s Roadhouse, Inc., a wholly owned subsidiary of LRI Holdings, entered into the Senior Secured Revolving Credit Facility which provides a $30.0 million revolving credit facility. Effective December 19, 2014, the Company executed an amendment to the Senior Secured Revolving Credit Facility which extended the maturity date to April 30, 2017. As of February 1, 2015, the Company had borrowings of $21.0 million drawn on the Senior Secured Revolving Credit Facility and $4.0 million of undrawn outstanding letters of credit resulting in available credit of $5.0 million.

The Senior Secured Revolving Credit Facility is collateralized on a first-priority basis by a security agreement, which includes the tangible and intangible assets of the borrower and those of LRI Holdings and all of its subsidiaries, and is guaranteed by LRI Holdings and the subsidiaries of Logan’s Roadhouse, Inc.

Senior Secured Notes

In connection with the Transactions, Logan’s Roadhouse, Inc. issued $355.0 million aggregate principal amount of Senior Secured Notes in a private placement to qualified institutional buyers. In July 2011, the Company completed an exchange offering which allowed the holders of those notes to exchange their notes for notes identical in all material respects except they are registered with the SEC and are not subject to transfer restrictions. The Senior Secured Notes bear interest at a rate of 10.75% per annum, payable semi-annually in arrears on April 15 and October 15. The Senior Secured Notes mature on October 15, 2017.

The Senior Secured Notes are secured on a second-priority basis by the collateral securing the Senior Secured Revolving Credit Facility and are guaranteed by LRI Holdings and the subsidiaries of Logan’s Roadhouse, Inc.

Subsequent to October 15, 2013, Logan’s Roadhouse, Inc. may redeem all or part of the Senior Secured Notes at redemption prices (expressed as a percentage of principal amount) ranging from 108.1% to 100.0%, plus accrued and unpaid interest. As of February 1, 2015, no portion of the Senior Secured Notes has been redeemed.

The Senior Secured Revolving Credit Facility and the Indenture that governs the Senior Secured Notes contain significant financial and operating covenants. The non-financial covenants include prohibitions on the Company and the Company’s guarantor subsidiaries’ ability to incur certain additional indebtedness or to pay dividends. Additionally, the Indenture subjects the Company to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), as a non−accelerated filer, even if the Company is not specifically required to comply with such sections of the Exchange Act. Failure to comply with these covenants constitutes a default and may lead to the acceleration of the principal amount and accrued but unpaid interest on the Senior Secured Notes. On January 24, 2014 the Company executed an amendment to the Senior Secured Revolving Credit Facility which included: removing the previous consolidated leverage and consolidated interest coverage covenants; adding a consolidated first lien leverage covenant and amending the maximum capital expenditure limit in each of the remaining years. The terms of the amendment also included an increase in the applicable margin for borrowings; payment of a consent fee and a requirement to provide monthly unaudited preliminary financial statements to the lenders under the Senior Secured Revolving Credit Facility. On December 19, 2014, the Company executed an amendment to the Senior Secured Revolving Credit Facility which in addition to extending the maturity date to April 30, 2017, included the following: removal of the swingline subfacility; reduced the maximum capital expenditure limit in each of the remaining years of the extended facility; amended the required consolidated first lien leverage ratio for the extended term of the facility; amended requirements for all or a portion of net cash proceeds of certain asset sales to include prepayment of any then outstanding borrowings; required an amendment to the advisory agreement with Kelso to restrict payment of deferred advisory fees until after the final maturity date of the Senior Secured Revolving Credit Facility; and required payment of a consent fee. For the period ended February 1, 2015, our first lien leverage

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ratio was 0.31 times Consolidated EBITDA, compared to our maximum allowable first lien leverage ratio of 0.50 times. As of February 1, 2015, the Company was in compliance with all material covenants.

As of February 1, 2015, the Company had $5.0 million of available credit on its $30.0 million Senior Secured Revolving Credit Facility and $20.2 million of cash and cash equivalents. Management of the Company continues to believe it will have sufficient cash generated from operations and availability on its Senior Secured Revolving Credit Facility to fund operations and service its debt requirements for at least the next twelve months.

Although the Company expects to remain in compliance with all material debt covenants, its ability to do so and to service its debt requirements is dependent, in part, upon improving operating performance trends. The Company has experienced declines in customer traffic trends over the past three fiscal years including a 5.5% traffic decrease in the thirteen weeks ended February 1, 2015. Since the second quarter of fiscal year 2011, this steady decline in customer traffic has resulted in significantly lower cash flow generated from operations and net losses in each of the past three fiscal years. The net loss and negative operating cash flow for the twenty-six weeks ended February 1, 2015, increased from the prior year period to $24.8 million and $2.9 million, respectively. Additionally, the Company's highly leveraged structure includes significant semi-annual interest payments which often require borrowing on its Senior Secured Revolving Credit Facility and use of otherwise available cash. If the Company's cash flows and capital resources are insufficient to fund its debt service obligations, it could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance its indebtedness. If it is later determined that the adverse impact of these challenges does not allow the Company to remain in compliance with the financial covenants included in the Senior Secured Revolving Credit Facility, the Company would seek an amendment or waiver prior to failing to meet these covenants. If the Company is unable to secure an amendment or waiver and fails the financial covenants or fails to make scheduled payments of interest on, to pay principal of or to refinance its indebtedness, an event of default would result and the lenders could declare outstanding borrowings due and payable.

Debt issuance costs

The Company initially incurred $19.2 million of debt issuance costs in connection with obtaining the financings described above. As part of the amendments to the Senior Secured Revolving Credit Facility, we incurred $0.5 million of additional debt costs. These costs were capitalized and will be amortized to interest expense over the lives of the respective debt instruments.

3. Restaurant Impairment and Closing Charges

The Company performs long-lived asset impairment analyses throughout the year. During the thirteen and twenty-six weeks ended February 1, 2015, the Company wrote-off additional asset expenditures with respect to restaurants that had been previously impaired and also impaired four additional restaurants that had carrying amounts in excess of their fair values. During the thirteen weeks ended January 26, 2014, the Company wrote-off additional asset expenditures with respect to restaurants that had been previously impaired and also determined that two additional restaurants had carrying amounts in excess of their fair values for a total of four newly impaired restaurants in the twenty-six weeks ended January 26, 2014. The assessments compared the carrying amounts of each restaurant to the estimated future undiscounted net cash flows of that restaurant and an impairment charge was recorded based on the amount by which the carrying amount of the assets exceeded their fair value. Fair value was determined based on an assessment of individual site characteristics and local real estate market conditions along with estimates of future cash flows. Restaurant impairment charges were recorded as follows:



	Thirteen weeks ended				Twenty-six weeks ended
	February 1, 2015		January 26, 2014		February 1, 2015		January 26, 2014
Restaurant impairment charges	$	1,486	$	488	$	1,486	$	1,805

4. Fair Value Measurements

Fair value measurements are made under a three-tier fair value hierarchy, which prioritizes the inputs used in measuring the fair value:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, requiring the reporting entity to develop its

own assumptions.

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The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of February 1, 2015 and August 3, 2014:



	Level	February 1, 2015		August 3, 2014
Deferred compensation plan assets(1)	1	$	2,125	$	2,033


(1)	Represents plan assets established under a Rabbi Trust for the Company’s non-qualified savings plan. The assets of the Rabbi Trust are invested in mutual funds and are reported at fair value based on active market quotes.

The fair values of the Company’s cash and cash equivalents, accounts receivable and accounts payable approximate their carrying amounts because of their short-term nature.

The carrying value of the Senior Secured Notes as of February 1, 2015 and August 3, 2014 was $355.0 million. The fair value of the Senior Secured Notes as of February 1, 2015 and August 3, 2014 was $278.7 million and $279.6 million, respectively. The fair value of the Company’s publicly traded debt is based on quoted market prices which are considered a Level 1 input. The estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During the twenty-six weeks ended February 1, 2015, the Company impaired four additional restaurants. The fair value of the restaurants was calculated using a cash flow model which included estimates for projected revenues, earnings and cash flows. The Company has determined that the majority of the inputs used to value its long-lived assets held and used are unobservable inputs, and thus, are considered Level 3 inputs. See Note 3 for further information on the impairment of these long-lived assets.

5. Commitments and Contingencies

Litigation

The legal matter discussed below is subject to uncertainty and the outcome is not currently predictable. The Company is unable to estimate a range of reasonably possible loss due to the Company's dispute over the merits of the claims and the early stage of the proceedings. The Company establishes reserves for litigation and similar matters when those matters present loss contingencies that we determine to be both probable and reasonably estimable in accordance with Accounting Standards Codification (“ASC”) 450, Contingencies. The Company provides disclosure for matters when management believes it is reasonably possible the outcome may be material to the consolidated financial statements.

In November 2014, two current employees filed a purported collective action lawsuit against the Company. The claim alleges violations of the Fair Labor Standards Act (“FLSA”); specifically that employees were required to work in non-tip producing jobs while clocked in and paid as tipped employees and that the percentage of time in such jobs exceeded 20% of their work time. The claim seeks recovery for unpaid wages under various sections of the FLSA. The Company believes this claim is without merit and intends to vigorously defend this lawsuit.

Additionally, the Company is subject to ongoing legal proceedings, claims and liabilities which arise in the normal course of business and are generally covered by insurance in excess of specified retention amounts. In the opinion of management, these matters are believed to be adequately covered by insurance or reserves, or, if not covered, the possibility of losses from such matters are believed to be remote or such matters are of such kind or involve such amounts that would not have a material adverse effect on the consolidated financial statements of the Company if disposed of unfavorably.

Guarantees

LRI Holdings has fully and unconditionally guaranteed both the Senior Secured Revolving Credit Facility and the Senior Secured Notes.

Indemnifications

The Company is party to certain indemnifications to third parties in the ordinary course of business. The probability of incurring an actual liability under such indemnifications is sufficiently remote, thus no liability has been recorded.

6. Share-Based Awards and Compensation Plans

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On January 18, 2011, RHI adopted the Roadhouse Holding Inc. Stock Incentive Plan (the “2011 Plan”), pursuant to which options to purchase approximately 13%, or 345,000 shares, of the common stock of RHI on a fully diluted basis were available for grant to our directors, officers and key employees. On March 8, 2013, the 2011 Plan was amended to increase the number of shares authorized to 400,000 shares; and on October 4, 2014, the plan was further amended to increase the number of shares authorized to 640,000 shares. As of February 1, 2015, approximately 21% of the option pool remains available for future grants. Options granted under the 2011 Plan expire on the ten-year anniversary of the grant date.

Options granted under the 2011 Plan include time-based options, performance-based options and time-based options with performance requirements. Compensation expense for the time-based options is recognized over the requisite service period for the award. Upon a change in control of RHI, all time-based options will fully vest. Options with performance requirements do not become exercisable until the occurrence of a change in control of RHI. The Company recognizes compensation expense for options with performance requirements when the achievement of the performance goals is deemed probable.

The following table summarizes stock option activity under the 2011 Plan for the twenty-six weeks ended February 1, 2015:



	Time-based options				Performance-based options
	Number		Weighted average exercise price		Number		Weighted average exercise price
Options outstanding as of August 3, 2014	201,086		$	86.85	131,631		$	100.00
Granted	—		—		360,000		83.33
Exercised	—		—		—		—
Forfeited	(146,007	)	86.48		(40,668	)	91.30
Options outstanding as of February 1, 2015	55,079		$	87.84	450,963		$	85.31
As of February 1, 2015
Options vested	45,402				—
Options exercisable	45,402				—

7. Income Taxes

The Company routinely assesses whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Based upon the Company’s level of historical taxable income and projections for future taxable income over the periods that the deferred tax assets are expected to be deductible, the Company had a recorded valuation allowance of $25.1 million as of August 3, 2014. The valuation allowance was increased in the twenty-six weeks ended February 1, 2015 by the amount of income tax benefit that would have otherwise been recorded. Excluding the valuation allowance, the effective tax rates ("ETR") for the twenty-six weeks ended February 1, 2015 and January 26, 2014 were 44.2% and 47.2%, respectively. Both periods were impacted by the reverse effect of wage based credits on a pre-tax loss. The Company's ETR is highly sensitive to estimates of income or loss due to relatively low pre-tax income (loss) and significant wage based credits. As a result, beginning in the second quarter of fiscal year 2013 we adopted the method of using the actual year-to-date rate as of each interim period, as we believe this provides the best estimate of our year-to-date income tax expense.

8. Related Party Transactions

In connection with the Transactions, Logan’s Roadhouse, Inc. entered into an advisory agreement (the "Advisory Agreement") with Kelso & Company, L.P. ("Kelso"). Pursuant to the Advisory Agreement, Kelso provides the Company with financial advisory and management consulting services in return for annual fees of $1.0 million to be paid quarterly. During the first quarter of fiscal year 2014, the Advisory Agreement was amended to defer payments of the advisory fee beginning with the quarterly payment due on October 1, 2013. During the second quarter of fiscal year 2015, the Company executed an amendment to the Senior Secured Revolving Credit Facility which required an amendment to the advisory agreement with Kelso to restrict payment of deferred advisory fees until after the final maturity date of the Senior Secured Revolving Credit Facility. The accrued advisory fee as of February 1, 2015, included within other long-term obligations, was $1.3 million.

RHI has incurred a liability to former officers related to the repurchase of shares of RHI common stock. Pursuant to the Roadhouse Holding Inc. Stockholders Agreement, the Board of Directors elected to defer payment of the purchase price of the

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RHI shares previously held by those officers resulting in a liability of $2.5 million. All past and future payments related to these share repurchases are funded by LRI Holdings and create a receivable from RHI.

9. Condensed Consolidating Financial Information

The Senior Secured Notes (described in Note 2) were issued by Logan’s Roadhouse, Inc. and guaranteed on a senior basis by its parent company, LRI Holdings, and each of its subsidiaries. The guarantees are full and unconditional and joint and several. The Company is providing condensed consolidating financial statements pursuant to SEC Regulation S-X Rule 3-10 “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.”

The condensed consolidating financial information of Logan’s Roadhouse, Inc. and the guarantors is presented below:

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Condensed Consolidated Balance Sheets



February 1, 2015	LRI Holdings, Inc.		Issuer and subsidiary guarantors		Consolidating adjustments			Consolidated
ASSETS
Current assets	$	—	$	51,953	$	—		$	51,953
Property and equipment, net	—		203,989		—			203,989
Other assets	—		136,277		(124,033		)	12,244
Investment in subsidiary	331,824		—		(331,824		)	—
Goodwill	—		163,368		—			163,368
Tradename	—		71,251		—			71,251
Other intangible assets, net	—		16,149		—			16,149
Total assets	$	331,824	$	642,987	$	(455,857	)	$	518,954
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities	$	—	$	77,610	$	—		$	77,610
Long-term debt	—		376,000		—			376,000
Deferred income taxes	—		27,607		—			27,607
Other long-term obligations	124,033		49,695		(124,033		)	49,695
Stockholder’s equity	207,791		112,075		(331,824		)	(11,958		)
Total liabilities and stockholder’s equity	$	331,824	$	642,987	$	(455,857	)	$	518,954
August 3, 2014	LRI Holdings, Inc.		Issuer and subsidiary guarantors		Consolidating adjustments			Consolidated
ASSETS
Current assets	$	—	$	39,738	$	—		$	39,738
Property and equipment, net	—		209,078		—			209,078
Other assets	—		136,233		(122,960		)	13,273
Investment in subsidiary	331,897		—		(331,897		)	—
Goodwill	—		163,368		—			163,368
Tradename	—		71,251		—			71,251
Other intangible assets, net	—		17,190		—			17,190
Total assets	$	331,897	$	636,858	$	(454,857	)	$	513,898
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities	$	—	$	71,818	$	—		$	71,818
Long-term debt	—		355,000		—			355,000
Deferred income taxes	—		27,607		—			27,607
Other long-term obligations	122,960		46,599		(122,960		)	46,599
Stockholder’s equity	208,937		135,834		(331,897		)	12,874
Total liabilities and stockholder’s equity	$	331,897	$	636,858	$	(454,857	)	$	513,898

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Condensed Consolidated Statements of Operations



Thirteen weeks ended February 1, 2015	LRI Holdings, Inc.			Issuer and subsidiary guarantors			Consolidating adjustments		Consolidated
Total revenues	$	—		$	154,774		$	—	$	154,774
Total costs and expenses	17			155,924			—		155,941
Operating loss	(17		)	(1,150		)	—		(1,167		)
Interest expense, net	539			10,144			—		10,683
Loss before income taxes	(556		)	(11,294		)	—		(11,850		)
Income tax benefit	—			—			—		—
Net loss	$	(556	)	$	(11,294	)	$	—	$	(11,850	)
Thirteen weeks ended January 26, 2014	LRI Holdings, Inc.			Issuer and subsidiary guarantors			Consolidating adjustments		Consolidated
Total revenues	$	—		$	153,589		$	—	$	153,589
Total costs and expenses	12			152,032			—		152,044
Operating (loss) income	(12		)	1,557			—		1,545
Interest expense, net	530			10,006			—		10,536
Loss before income taxes	(542		)	(8,449		)	—		(8,991		)
Income tax benefit	—			—			—		—
Net loss	$	(542	)	$	(8,449	)	$	—	$	(8,991	)
Twenty-six weeks ended February 1, 2015	LRI Holdings, Inc.			Issuer and subsidiary guarantors			Consolidating adjustments		Consolidated
Total revenues	$	—		$	300,516		$	—	$	300,516
Total costs and expenses	74			304,179			—		304,253
Operating loss	(74		)	(3,663		)	—		(3,737		)
Interest expense, net	1,072			20,023			—		21,095
Loss before income taxes	(1,146		)	(23,686		)	—		(24,832		)
Income tax benefit	—			—			—		—
Net loss	$	(1,146	)	$	(23,686	)	$	—	$	(24,832	)
Twenty-six weeks ended January 26, 2014	LRI Holdings, Inc.			Issuer and subsidiary guarantors			Consolidating adjustments		Consolidated
Total revenues	$	—		$	301,119		$	—	$	301,119
Total costs and expenses	72			301,253			—		301,325
Operating loss	(72		)	(134		)	—		(206		)
Interest expense, net	1,053			19,802			—		20,855
Loss before income taxes	(1,125		)	(19,936		)	—		(21,061		)
Income tax benefit	—			—			—		—
Net loss	$	(1,125	)	$	(19,936	)	$	—	$	(21,061	)

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Condensed Consolidated Statements of Cash Flows



Twenty-six weeks ended February 1, 2015	LRI Holdings, Inc.			Issuer and subsidiary guarantors			Consolidating adjustments		Consolidated
Net cash used in operating activities	$	(74	)	$	(2,870	)	$	—	$	(2,944	)
Net cash provided by (used in) investing activities	74			(7,122		)	—		(7,048		)
Net cash provided by financing activities	—			21,000			—		21,000
Increase in cash and cash equivalents	—			11,008			—		11,008
Cash and cash equivalents, beginning of period	—			9,170			—		9,170
Cash and cash equivalents, end of period	$	—		$	20,178		$	—	$	20,178
Twenty-six weeks ended January 26, 2014	LRI Holdings, Inc.			Issuer and subsidiary guarantors			Consolidating adjustments		Consolidated
Net cash used in operating activities	$	(72	)	$	(500	)	$	—	$	(572	)
Net cash provided by (used in) investing activities	72			(6,858		)	—		(6,786		)
Net cash provided by financing activities	—			20,000			—		20,000
Increase in cash and cash equivalents	—			12,642			—		12,642
Cash and cash equivalents, beginning of period	—			23,708			—		23,708
Cash and cash equivalents, end of period	$	—		$	36,350		$	—	$	36,350

10. Supplemental Cash Flow Information

The following table presents supplemental cash flow information:



	Twenty-six weeks ended
	February 1, 2015		January 26, 2014
Cash paid for:
Interest, excluding amounts capitalized	$	19,471	$	19,407
Income taxes	29		6

11. Subsequent Events

On February 12, 2015, the Company reached an agreement with Amy L. Bertauski, whereby Ms. Bertauski resigned her position as Chief Financial Officer of the Company effective February 27, 2015 (the “Separation Date”). On February 17, 2015, Logan’s Roadhouse, Inc., a wholly-owned subsidiary of the Company, entered into a Separation and Release Agreement with Ms. Bertauski. Ms. Bertauski is entitled to receive customary severance benefits; her shares of stock of Roadhouse Holding Inc. are subject to the repurchase provisions of the Roadhouse Holding Inc. Stockholders Agreement; all unvested stock options terminate and vested stock options may be exercised within 365 days of the Separation Date. On February 18, 2015, Nicole A. Williams was appointed to serve as the Company's interim principal financial officer.

ITEM 2—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in the following sections:


•	General


•	Overview


•	Key Measurements


•	Presentation of Results


•	Results of Operations

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•	Other Non-GAAP Financial Measures


•	Liquidity and Capital Resources


•	Off Balance Sheet Arrangements


•	Seasonality


•	Segment Reporting


•	Impact of Inflation


•	Critical Accounting Policies


•	Recent Accounting Pronouncements


•	Cautionary Statement Regarding Forward-Looking Statements

This discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and related notes in Item 1 of this Quarterly Report. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements” below for factors that could cause or contribute to these differences. The inclusion of supplementary analytical and related information herein may require us to make estimates and assumptions in connection with our analysis of trends and expectations related to our results of operations and financial position taken as a whole.

General

Logan’s Roadhouse is a full-service casual dining steakhouse offering specially seasoned aged steaks and sizzling southern-inspired dishes in a roadhouse atmosphere offering customers value-oriented, high quality, craveable food with welcoming hospitality and an upbeat atmosphere. Our restaurants have a relaxed, come-as-you-are environment where we encourage our customers to enjoy “bottomless buckets” of roasted in-shell peanuts and our made-from-scratch yeast rolls. Our entrée portions are generous and generally include a choice of two side items, all at affordable prices. We are committed to serving a variety of fresh food from specially seasoned aged steaks to farm-fresh salads to our signature entrées. We believe the freshness and distinctive flavor profiles of our signature dishes, coupled with the variety of our menu, differentiates us from our competitors. Our restaurants, which are open for lunch and dinner seven days a week, serve a broad and diverse customer base. We opened our first restaurant in Lexington, Kentucky in 1991 and as of February 1, 2015 have grown to a total of 235 company-owned restaurants and 26 franchised restaurants located across 23 states.

Overview

The casual dining industry is intensely competitive and highly sensitive to economic trends, consumer preference and lifestyle trends and fluctuating costs. In addition, the casual dining segment faces competition from fast casual and other sectors of the restaurant industry looking to increase market share. Key economic indicators such as total employment, spending levels and consumer confidence have continued to improve steadily and have resulted in improvements for the industry. As our customers' discretionary income has increased, low interest rates have diverted some discretionary spending to bigger ticket items and housing purchases resulting in a slower than expected recovery of the industry. We expect the restaurant industry to remain highly competitive, but expect lower fuel prices and further increases in discretionary income to create opportunities for brands that are best able to address the needs of customers.

Although the restaurant industry has faced pressures over recent years, our relative position versus our key competitors has continued to decline due to short-sighted decisions to rely on increased discount messaging and a lack of focus on and investment in core restaurant execution. We have experienced comparable restaurant sales declines in each of the last three fiscal years driven by declines in customer traffic. Over the same period, our restaurant margins have been impacted by continued commodity inflation, specifically beef, and lost leverage on other costs due to declining sales. Beginning with the industry traffic declines associated with the start of the recession, we increasingly relied on discounting to drive customers to our restaurants. Over time, these actions changed the profile of a large portion of our customer base to one that actively sought out discounts and was less brand loyal. Over the past eighteen months and more aggressively in the second quarter of fiscal year 2015, we have progressively removed deep discounting from our brand. As a result, our traffic trends have continued to decline as we lost some of the discount seeking customers. Further, due to the reduced discounting our average check has increased at a much greater rate than our menu price increases. We believe we offer a good value to our customers at our undiscounted menu prices and that as we focus with urgency on core restaurant execution, food quality and on targeting our preferred customers we will rebuild our customer base. We expect continued commodity inflation in fiscal year 2015, both from market pressures and as we make decisions to improve the quality of our food offerings. We are focused on returning our brand to be known as a steakhouse committed to great food and great service every day.

Over the long term, we believe our roadhouse theme provides a differentiated dining experience as an authentic, casual steakhouse, which when combined with consistent execution of great food and service will allow us to outperform competitors within

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the broader casual dining segment. Our strategy for the future is centered on delivering great experiences to our customers, continually adapting our brand to best meet the needs of our current and future customers and opening successful new restaurants.

Key Measurements

The key measures we use to evaluate our performance include:

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 other periods. Average unit volume reflects total company-owned 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.

Change in comparable restaurant sales. Comparable restaurants for a reporting period include company-owned restaurants that have been open for six or more full quarters at the beginning of the later of the two reporting periods being compared. 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.

Average check. Average check includes 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. Unless otherwise noted, we report this metric for comparable restaurants.

Customer traffic. Customer traffic is the total number of customers served over a specified period of time. Unless otherwise noted, we report this metric for comparable restaurants.

Adjusted EBITDA. We also evaluate our performance by using non-GAAP financial measures utilized by us and others in the restaurant industry. In particular, we regularly review our Adjusted EBITDA, which is described in more detail in the “Other Non-GAAP Financial Measures” section below.

Presentation of Results

Our fiscal year ends on the Sunday closest to July 31. Fiscal year 2015 is a 52 week year, while fiscal year 2014 was a 53 week year. Throughout this report all references to "Q2 2015" and "Q2 2014" relate to the thirteen week periods ended February 1, 2015 and January 26, 2014 and all references to "YTD 2015" and "YTD 2014" relate to the twenty-six weeks ended February 1, 2015 and January 26, 2014, respectively.

Results of Operations

Thirteen weeks ended February 1, 2015 (Q2 2015)


•	Comparable restaurant sales for Q2 2015 increased 0.1%, average check increased by 5.9% and customer traffic decreased by 5.5% for company-owned restaurants.


•	Earnings decreased 31.8%, or $2.9 million, from a net loss of $9.0 million in Q2 2014 to a net loss of $11.9 million in Q2 2015.


•	Adjusted EBITDA decreased 11.4%, or $1.1 million, from $9.8 million in Q2 2014 to $8.7 million in Q2 2015.

•

Cash and cash equivalents increased by $11.0 million from August 3, 2014. Primary uses include interest payments of $19.5 million, gross capital expenditures of $7.0 million and negative cash flow from operations, which were funded by cash on hand, favorable working capital changes and borrowings on the Senior Secured Revolving Credit Facility. As of February 1, 2015, we had spent $1.5 million in capital expenditures that will be reimbursed upon completion of planned sale and leaseback transactions.

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The following tables and discussion summarize key components of our operating results expressed as a dollar amount and as a percentage of total revenues or net sales.



	Thirteen weeks ended										Twenty-six weeks ended
(In thousands)	February 1, 2015					January 26, 2014					February 1, 2015					January 26, 2014
Statement of operations data:
Revenues:
Net sales	$	154,213		99.6	%	$	153,061		99.7	%	$	299,426		99.6	%	$	300,084		99.7	%
Franchise fees and royalties	561			0.4		528			0.3		1,090			0.4		1,035			0.3
Total revenues	154,774			100.0		153,589			100.0		300,516			100.0		301,119			100.0
Costs and expenses:
(As a percentage of net sales)
Restaurant operating costs:
Cost of goods sold	55,617			36.1		51,791			33.8		107,913			36.0		101,795			33.9
Labor and other related expenses	47,666			30.9		47,247			30.9		93,998			31.4		93,744			31.2
Occupancy costs	14,690			9.5		14,215			9.3		28,494			9.5		27,828			9.3
Other restaurant operating expenses	23,411			15.2		25,782			16.8		47,004			15.7		51,272			17.1
(As a percentage of total revenues)
Depreciation and amortization	5,095			3.3		4,961			3.2		10,165			3.4		10,132			3.4
Pre-opening expenses	222			0.1		20			—		257			0.1		26			—
General and administrative	7,754			5.0		7,540			4.9		14,936			5.0		14,723			4.9
Restaurant impairment and closing charges	1,486			1.0		488			0.3		1,486			0.5		1,805			0.6
Total costs and expenses	155,941			100.8		152,044			99.0		304,253			101.2		301,325			100.1
Operating (loss) income	(1,167		)	(0.8	)	1,545			1.0		(3,737		)	(1.2	)	(206		)	(0.1	)
Interest expense, net	10,683			6.9		10,536			6.9		21,095			7.0		20,855			6.9
Loss before income taxes	(11,850		)	(7.7	)	(8,991		)	(5.9	)	(24,832		)	(8.3	)	(21,061		)	(7.0	)
Income tax benefit	—			—		—			—		—			—		—			—
Net loss	$	(11,850	)	(7.7	)%	$	(8,991	)	(5.9	)%	$	(24,832	)	(8.3	)%	$	(21,061	)	(7.0	)%

Restaurant Unit Activity



	Company	Franchise	Total
Restaurants at August 3, 2014	234	26	260
Openings	1	—	1
Closures	—	—	—
Restaurants at February 1, 2015	235	26	261

Q2 2015 (13 weeks) Compared to Q2 2014 (13 weeks) and YTD 2015 (26 weeks) Compared to YTD 2014 (26 weeks)

TOTAL REVENUES

Net sales consist of food and beverage sales of company-owned restaurants and other miscellaneous income. Net sales increased by $1.2 million, or 0.8%, to $154.2 million in Q2 2015 compared to Q2 2014. Net sales decreased by $0.7 million, or 0.2% to $299.4 million in YTD 2015 compared to YTD 2014.

The following table summarizes the period over period changes and key net sales drivers at company-owned restaurants for the periods presented:

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	Thirteen weeks ended						Twenty-six weeks ended
	February 1, 2015			January 26, 2014			February 1, 2015			January 26, 2014
Company-owned restaurants:
Increase in restaurant operating weeks	0.7		%	2.9		%	0.6		%	3.6		%
Increase (decrease) in average unit volume	0.1		%	(7.6		)%	(0.8		)%	(7.1		)%
Total increase (decrease) in restaurant sales	0.8		%	(4.7		)%	(0.2		)%	(3.5		)%

Comparable restaurants	232			219			228			215
Change in comparable restaurant sales	0.1		%	(5.3		)%	(0.5		)%	(5.2		)%
Restaurant operating weeks	3,050			3,029			6,092			6,058
Average check	$	14.90		$	14.02		$	14.69		$	13.90

The increase in restaurant operating weeks for the periods presented above was due to the opening of new restaurants. The fluctuations in average unit volume were primarily driven by customer traffic declines offset by increases in average check. For our comparable restaurants, the decrease in customer traffic was 5.5% in both Q2 2015 and YTD 2015. Also impacting comparable restaurant sales was an increase in average check of 5.9% and 5.4% in Q2 2015 and YTD 2015, respectively. The increase in average check in Q2 2015 and YTD 2015 included the effects of reduced discounting, increased menu pricing of 1.7%, improved alcohol sales and favorable mix shifts.

Franchise fees and royalties, for our two franchisees that operate 26 restaurants, included a modest increase from Q2 2014 to Q2 2015 and YTD 2014 to YTD 2015.

TOTAL COSTS AND EXPENSES

Total costs and expenses increased $3.9 million, or 2.6%, to $155.9 million in Q2 2015 compared to Q2 2014 and increased $2.9 million, or 1.0%, to $304.3 million in YTD 2015 compared to YTD 2014. As a percent of total revenues, total costs and expenses in Q2 2015 were 100.8%, which increased from 99.0% in Q2 2014 and 101.2% in YTD 2015 which increased from 100.1% in YTD 2014. The primary drivers of the fluctuations in total costs and expenses are as follows:

Cost of goods sold

Cost of goods sold consists of food and beverage costs, along with related purchasing and distribution costs. Cost of goods sold, as a percentage of net sales, increased to 36.1% in Q2 2015 from 33.8% in Q2 2014 and increased to 36.0% in YTD 2015 from 33.9% in YTD 2014. The increase in Q2 2015 and YTD 2015 is due primarily to commodity inflation and unfavorable mix shifts partially offset by menu pricing. Commodity inflation was 5.6% in Q2 2015 and 4.9% in YTD 2015.

Labor and other related expenses

Labor and other related expenses consists of all restaurant management and hourly labor costs, including salaries, wages, benefits, bonuses and other indirect labor costs. Labor and other related expenses, as a percentage of net sales, remained consistent at 30.9% in Q2 2015 and Q2 2014, and increased to 31.4% in YTD 2015 from 31.2% in YTD 2014. Q2 2015 and YTD 2015 included an increase in kitchen labor offset by a decline in workers' compensation reserves.

Occupancy costs

Occupancy costs include rent, common area maintenance, property taxes, licenses and other related fees. Occupancy costs, as a percentage of net sales, increased to 9.5% from 9.3% in Q2 2015 and YTD 2015 compared to the prior year periods. The increase was driven primarily by the annual CPI-driven rent adjustment for certain of our leases.

Other restaurant operating expenses

Other restaurant operating expenses include all other restaurant-level operating costs, the major components of which are operating supplies, utilities, repairs and maintenance, advertising, general liability and credit card fees. Other restaurant operating expenses, as a percentage of net sales, decreased to 15.2% in Q2 2015 from 16.8% in Q2 2014 and decreased to 15.7% in YTD 2015 from 17.1% in YTD 2014. The decrease in Q2 2015 resulted from a reduction of advertising spend. The decrease in YTD 2015 resulted

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from a reduction of advertising spend partially offset by an increase in general liability insurance reserves due to the timing of favorable adjustments in each period.

Depreciation and amortization

Depreciation and amortization includes the depreciation of fixed assets and capitalized leasehold improvements and the amortization of intangible assets. Depreciation and amortization, as a percentage of total revenues, increased to 3.3% in Q2 2015 from 3.2% in Q2 2014 and remained consistent at 3.4% in YTD 2015 and YTD 2014. The increase in Q2 2015 resulted from additional deprecation related to restaurant system implementation and upgrades.

Pre-opening expenses

Pre-opening expenses consist of costs related to a new restaurant opening and primarily include manager salaries, employee payroll, travel, non-cash rent expense and other costs related to training and preparing new restaurants for opening. Pre-opening expenses will fluctuate from period to period based on the number and timing of restaurant openings. Our pre-opening costs (excluding rent) have remained constant at approximately $0.2 million per opening.

General and administrative

General and administrative expenses are comprised of expenses associated with corporate and administrative functions that support restaurant operations and development. General and administrative expenses, as a percentage of total revenues, increased to 5.0% from 4.9% in Q2 2015 and YTD 2015 compared to the prior year periods. The increase in Q2 2015 is primarily due to audit and professional fees related to the fiscal year 2014 goodwill impairment valuation and testing completed in Q2 2015 partially offset by a reduction in stock option expense from options forfeited by our previous Chief Executive Officer and a change in structure of options awarded to our current Chief Executive Officer . In addition to the factors impacting Q2 2015, YTD 2015 includes an increase in salaries from the recording of termination benefits for executive officers and recruiting costs to source recently hired senior executive officers.

Restaurant impairment and closing charges

Restaurant impairment and closing charges include long-lived asset impairment charges and restaurant closing charges. In Q2 2015 and YTD 2015, we recorded $1.5 million of restaurant impairment charges related to the impairment of four restaurants and additional asset expenditures with respect to restaurants that had been previously impaired. In Q2 2014 and YTD 2014, we recorded $0.5 million and $1.8 million of restaurant impairment charges related to the impairment of two and four restaurants, respectively, and additional asset expenditures with respect to restaurants that had been previously impaired.

INTEREST EXPENSE, NET

Interest expense, net consists primarily of interest expense related to our debt, net of interest income, see the “Liquidity and Capital Resources” section for further detail. Interest expense, net increased to $10.7 million in Q2 2015 from $10.5 million in Q2 2014 and increased to $21.1 million in YTD 2015 from $20.9 million in YTD 2014, due to higher average borrowings on the Senior Secured Revolving Credit Facility.

INCOME TAX EXPENSE

As of August 3, 2014, we had a recorded valuation allowance of $25.1 million which included all deferred tax assets. The valuation allowance was increased in YTD 2015 by the amount of income tax benefit that would have otherwise been recorded. Excluding the valuation allowance, the effective tax rates ("ETR") for YTD 2015 and YTD 2014 were 44.2% and 47.2%, respectively. Both periods were impacted by the reverse effect of wage based credits on a pre-tax loss.

Other Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA

EBITDA represents net income (loss) before interest expense, net, income tax (benefit) expense and depreciation and amortization. Adjusted EBITDA is further adjusted to reflect the additions and eliminations described in the table below. EBITDA and Adjusted EBITDA are supplemental measures of operating performance that do not represent and should not be considered as alternatives to net income or cash flow from operations as determined under GAAP, and our calculations thereof may not be comparable

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to those reported by other companies. EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of the limitations are:


•	EBITDA and Adjusted EBITDA do not reflect our cash expenditures, or future requireme nts for, capital expenditures or contractual commitments;


•	EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;


•	EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments on our indebtedness;


•	EBITDA and Adjusted EBITDA do not reflect our tax expense or the cash requirements to pay our taxes;


•	although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and


•	other companies in the restaurant industry may calculate EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only supplementally. We further believe that our presentation of these non-GAAP financial measures 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.

Adjusted EBITDA excludes restaurant impairment charges, pre-opening expenses (excluding rent), sponsor management fees, losses on disposal of property and equipment and property sales, share-based compensation, and non-cash rent, among other items. 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 that we do not expect to regularly record, including goodwill and tradename impairments, restructuring costs, transaction costs, certain litigation and settlement fees and expenses recorded pursuant to accounting for business combinations. Each of the normal recurring adjustments and other adjustments described in this paragraph and in the reconciliation table below 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.

Management uses 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; and


•	to calculate incentive compensation payments for our employees, including assessing performance under our annual incentive compensation plan.

Adjusted EBITDAR further excludes cash rent expense from Adjusted EBITDA. Cash rent expense represents actual cash payments required under our leases. We believe Adjusted EBITDAR is important to our analysts and investors because it allows us to measure the performance of our restaurants without regard to their financing structure. Our management uses Adjusted EBITDAR to better understand the cash generated by the operations of our restaurants excluding the impact of financing obligations such as lease and interest payments.

In addition, EBITDA, Adjusted EBITDA and Adjusted EBITDAR are used by investors as supplemental measures to evaluate the overall operating performance of companies in the restaurant industry. Management believes that investors’ understanding of our performance is enhanced by including these non-GAAP financial measures as reasonable bases 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 these non-GAAP financial measures, 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 substantially similar to “Consolidated EBITDA,” a defined measure which is used in calculating financial ratios in material debt covenants and other calculations in the Indenture and the Credit Agreement. We believe that presenting Adjusted EBITDA is appropriate to provide additional information to investors about how the covenants in the agreements governing our debt facilities operate. The Credit Agreement and the Indenture may permit us to exclude other non-

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cash charges and specified non-recurring expenses in calculating Consolidated EBITDA in future periods, which are not reflected in the Adjusted EBITDA data presented in this Quarterly Report in the table below.

The following table sets forth a reconciliation of net loss, the most directly comparable GAAP financial measure, to EBITDA, Adjusted EBITDA and Adjusted EBITDAR.



	Thirteen weeks ended						Twenty-six weeks ended
(In thousands)	February 1, 2015			January 26, 2014			February 1, 2015			January 26, 2014
Net loss	$	(11,850	)	$	(8,991	)	$	(24,832	)	$	(21,061	)
Interest expense, net	10,683			10,536			21,095			20,855
Income tax benefit	—			—			—			—
Depreciation and amortization	5,095			4,961			10,165			10,132
EBITDA	3,928			6,506			6,428			9,926
Adjustments
Sponsor management fees(a)	250			250			500			500
Non-cash asset write-offs:
Restaurant impairment(b)	1,486			488			1,486			1,805
Loss on disposal of property and equipment(c)	494			566			1,362			1,064
Restructuring costs(d)	460			11			954			(449		)
Pre-opening expenses (excluding rent)(e)	216			5			231			7
Losses on sales of property(f)	3			—			4			4
Non-cash rent adjustment(g)	1,453			1,500			2,106			2,301
Non-cash stock-based compensation(h)	124			460			(206		)	856
Hedging loss (i)	131			—			131			—
Other adjustments(j)	136			16			137			483
Adjusted EBITDA	8,681			9,802			13,133			16,497
Cash rent expense(k)	10,696			10,357			21,317			20,777
Adjusted EBITDAR	$	19,377		$	20,159		$	34,450		$	37,274


(a)	Sponsor management fees consist of fees payable to Kelso under an advisory agreement.


(b)	Restaurant impairment charges were recorded in connection with the determination that the carrying value of certain of our restaurants exceeded their estimated fair value.


(c)	Loss on disposal of property and equipment consists of the loss on disposal or retirement of assets that are not fully depreciated.


(d)	Restructuring costs include severance, hiring replacement costs and other related charges, including the reversal of any such charges.


(e)	Pre-opening expenses (excluding rent) include expenses directly associated with the opening of a new restaurant.


(f)	We recognize losses in connection with the sale and leaseback of restaurants when the fair value of the property being sold is less than the undepreciated cost of the property.


(g)	Non-cash rent adjustments represent the non-cash rent expense calculated as the difference between GAAP rent expense and amounts payable in cash under the leases during such time period. In measuring our operational performance, we focus on our cash rent payments.


(h)	Non-cash stock-based compensation represents compensation expense recognized for time-based stock options issued by RHI.


(i)	Hedging loss represents the loss on our forward contract for fuel which will expire in July 2015.


(j)	Other adjustments include non-recurring expenses and professional fees and ongoing expenses of closed restaurants.


(k)	Cash rent expense represents actual cash payments required under our leases.

Our Q2 2015 Adjusted EBITDA was $8.7 million, a decrease of 11.4%, compared to Adjusted EBITDA of $9.8 million in Q2 2014. Our YTD 2015 Adjusted EBITDA was $13.1 million, a decrease of 20.4%, compared to Adjusted EBITDA of $16.5 million in YTD 2014. The decrease in Adjusted EBITDA for Q2 2015 compared to Q2 2014 and YTD 2015 compared to YTD 2014 was primarily driven by commodity inflation partially offset by a reduction in advertising spend.

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Liquidity and Capital Resources

Summary

Our primary requirements for liquidity and capital are maintenance of our existing facilities, new restaurant development and debt service requirements. Historically, our primary sources of liquidity and capital resources have been net cash provided from operating activities and operating lease financing. During fiscal year 2015, we anticipate that our cash position, our expected cash flows from operations and availability under the Senior Secured Revolving Credit Facility will be sufficient to finance our planned capital expenditures, operating activities and debt service requirements. However, our ability to fund future operating expenses and capital expenditures and our ability to make scheduled payments of interest on, to pay principal of or to refinance our indebtedness and to satisfy any other of our present or future debt obligations will depend on our future operating performance which will be affected by general economic, financial and other factors beyond our control. As of February 1, 2015, we had $20.2 million of cash and cash equivalents.

Consistent with many other restaurant and retail chain store operations, we utilize operating lease arrangements and sale and leaseback arrangements and believe that these financing methods provide a useful source of capital in a financially efficient manner.

As part of the Transactions, we entered into the Senior Secured Revolving Credit Facility, which provides for up to $30.0 million of borrowings. The Senior Secured Revolving Credit Facility is available to fund working capital and for general corporate purposes. As of February 1, 2015, we had $21.0 million of borrowings drawn on the Senior Secured Revolving Credit Facility and $4.0 million of undrawn outstanding letters of credit resulting in available credit of $5.0 million.

In connection with the Transactions, Logan’s Roadhouse, Inc. issued $355.0 million aggregate principal amount of Senior Secured Notes in a private placement to qualified institutional buyers. In July 2011, the Company completed an exchange offering which allowed the holders of those notes to exchange their notes for notes identical in all material respects except they are registered with the SEC and are not subject to transfer restrictions. The Senior Secured Notes bear interest at a rate of 10.75% per annum, payable semi−annually in arrears on April 15 and October 15. The Senior Secured Notes mature on October 15, 2017.

The Senior Secured Revolving Credit Facility and the Indenture that governs the Senior Secured Notes contain financial and operating covenants. The non-financial covenants include prohibitions on our ability to incur certain additional indebtedness or to pay dividends. Additionally, the Indenture subjects us to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, as a non-accelerated filer, even if we are not specifically required to comply with such sections otherwise. Failure to comply with these covenants constitutes a default and may lead to the acceleration of the principal amount and accrued and unpaid interest on the Senior Secured Notes. Effective January 24, 2014, we executed an amendment to the Senior Secured Revolving Credit Facility which included: removing the previous consolidated leverage and consolidated interest coverage covenants; adding a consolidated first lien leverage covenant and amending the maximum capital expenditure limit in each of the remaining years. The terms of the amendment also included an increase in the applicable margin for borrowings; payment of a consent fee and a requirement to provide monthly unaudited preliminary financial statements to the lenders under the Senior Secured Revolving Credit Facility. Effective December 19, 2014, the Company executed an amendment to the Senior Secured Revolving Credit Facility which in addition to extending the maturity date to April 30, 2017, included the following: removal of the swingline subfacility; reduced the maximum capital expenditure limit in each of the remaining years of the extended facility; amended the required consolidated first lien leverage ratio to 0.50:1.00 for the extended term of the facility; amended requirements for all or a portion of net cash proceeds of certain asset sales to include prepayment of any then outstanding borrowings; required an amendment to the advisory agreement with Kelso to restrict payment of deferred advisory fees until after the final maturity date of the Senior Secured Revolving Credit Facility; and required payment of a 1.0% consent fee. For the period ended February 1, 2015, our first lien leverage ratio was 0.31 times Consolidated EBITDA, compared to our maximum allowable first lien leverage ratio of 0.50 times. As of February 1, 2015, we were in compliance with all material covenants and anticipate remaining in compliance with our amended covenants throughout fiscal year 2015.

As of February 1, 2015, we have $5.0 million of available credit on the $30.0 million Senior Secured Revolving Credit Facility and $20.2 million of cash and cash equivalents. We continue to believe we will have sufficient cash generated from operations and availability on our Senior Secured Revolving Credit Facility to fund operations and service our debt requirements for at least the next twelve months.

Although we expect to remain in compliance with all material debt covenants, our ability to do so and to service our debt requirements is dependent, in part, upon improving our operating performance trends. We have experienced declines in customer traffic trends over the past three fiscal years including a 5.5% traffic decrease in the thirteen weeks ended February 1, 2015. Since the second quarter of fiscal year 2011, this steady decline in customer traffic has resulted in significantly lower cash flow generated from operations and net losses in each of the past three fiscal years. The net loss and negative operating cash flow for the twenty-six w

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eeks ended February 1, 2015, increased from the prior year period to $24.8 million and $2.9 million, respectively. Additionally, our highly leveraged structure includes significant semi-annual interest payments which often require borrowing on our Senior Secured Revolving Credit Facility and use of our otherwise available cash. If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. If we later determine the adverse impact of these challenges does not allow us to remain in compliance with the financial covenants included in the Senior Secured Revolving Credit Facility, we would seek an amendment or waiver prior to failing to meet these covenants. If we are unable to secure an amendment or waiver and fail the financial covenants or fail to make scheduled payments of interest on, to pay principal of or to refinance our indebtedness, an event of default would result and the lenders could declare outstanding borrowings due and payable.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities:



	Twenty-six weeks ended
(In thousands)	February 1, 2015			January 26, 2014
Total cash (used in) provided by:
Operating activities	$	(2,944	)	$	(572	)
Investing activities	(7,048		)	(6,786		)
Financing activities	21,000			20,000
Increase in cash and cash equivalents	$	11,008		$	12,642

Operating activities

Cash flows from operating activities in YTD 2015 and YTD 2014 were impacted by $19.5 million and $19.4 million, respectively, of cash paid for interest, offset by cash flows generated from operations. Additionally, the two periods were impacted by declining restaurant margins and working capital changes.

We had negative working capital of $25.7 million and $12.7 million at February 1, 2015 and January 26, 2014, respectively. The working capital in both periods was impacted by borrowings on the Senior Secured Revolving Credit Facility resulting in elevated cash balances. Like many other restaurant companies, we are able, and expect 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

Cash used in investing activities primarily represents capital expenditures for new restaurant growth and ongoing capital expenditures for restaurant maintenance. Net capital expenditures increased to $7.0 million in YTD 2015 from $6.8 million in YTD 2014.

Financing activities

Cash provided by financing activities includes borrowings and repayments on the Senior Secured Revolving Credit Facility. YTD 2015 and YTD 2014 included draws of $29.1 million and $24.5 million, respectively, and repayments of $8.1 million and $4.5 million, respectively. Continuing declines in cash provided by operating activities resulted in larger draws on our Senior Secured Revolving Credit Facility to fund our semi-annual interest payment in YTD 2015 compared to YTD 2014.

Off Balance Sheet Arrangements

Other than operating leases, we do not have any off-balance sheet arrangements.

Seasonality

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Our business is subject to minor seasonal fluctuations. Historically, sales are typically lowest in the fall. Holidays and severe weather and similar conditions may impact sales volumes seasonally in some operating regions. Because of these factors, results for any quarter are not necessarily indicative of the results that may be achieved 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. Our restaurants also possess similar pricing structures, resulting in similar long-term expected financial performance characteristics. Accordingly, no further segment reporting beyond the unaudited condensed consolidated financial statements is presented.

Impact of Inflation

Our operating margins depend on, among other things, our ability to anticipate and react to changes in the costs of key operating resources, including food and other raw materials, labor, energy and other supplies and services. Substantial increases in costs and expenses could impact our operating results to the extent that such increases cannot be passed along to our restaurant customers. While we have taken steps to qualify multiple suppliers and enter into fixed price agreements for many of the commodities used in our restaurant operations, there can be no assurance that future supplies and costs for such commodities will not fluctuate due to weather and other market conditions outside of our control. Certain of our commodities are not contracted and remain subject to fluctuating market prices. Consequently, these commodities can be subject to unforeseen supply and cost fluctuations.

Our staff members are subject to various minimum wage requirements. There have been and may be additional minimum wage increases in excess of the federal minimum wage implemented in various jurisdictions in which we operate or seek to operate. Minimum wage increases may have a material adverse effect on our labor costs. Certain operating costs, such as taxes, insurance and other outside services continue to increase and may also be subject to other cost and supply fluctuations outside of our control. While we have been able to partially offset inflation and other changes in the costs of key operating resources by gradually increasing prices for our menu items, coupled with more efficient purchasing practices, productivity improvements and greater economies of scale, there can be no assurance that we will be able to continue to do so in the future. From time to time, competitive conditions could limit our menu pricing ability. In addition, macroeconomic conditions could make additional menu price increases imprudent. There can be no assurance that all future cost increases can be offset by increased menu prices or that increased menu prices will be fully absorbed by our restaurant customers without any resulting changes in their visit frequencies or purchasing patterns. There can be no assurance that we will be able to generate increases in comparable restaurant sales in amounts sufficient to offset inflationary or other cost pressures.

Critical Accounting Policies

We prepare our unaudited condensed consolidated financial statements in conformity with GAAP. The preparation of these financial statements requires us to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenues, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends, and other factors that management believes to be relevant at the time our unaudited condensed consolidated financial statements are prepared. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Our critical accounting policies have not changed materially from those previously reported in our Annual Report on Form 10-K for the fiscal year ended August 3, 2014.

Recent Accounting Pronouncements

Information regarding new accounting pronouncements is included within Note 1 to our unaudited condensed consolidated financial statements in Part I, Item 1 of this report.

Cautionary Statement Regarding Forward-Looking Statements

This report contains forward−looking statements based on our current expectations, estimates and projections about our industry, management’s beliefs, and certain assumptions made by us. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify forward−looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward−looking statements. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward−looking statements as a result of various factors. The

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section entitled “Risk Factors” in our Annual Report on Form 10−K for the fiscal year ended August 3, 2014, filed with the SEC, discusses some of the important risk factors that may affect our business, results of operations, or financial condition. These risks and uncertainties include, but are not limited to:


•	our ability to execute the strategies to reposition our brand;


•	the acceptability of terms for future capital;


•	changes in food and supply costs;


•	macroeconomic conditions;


•	our ability to compete with many other restaurants;


•	potential negative publicity regarding food safety and health concerns;


•	health concerns arising from the outbreak of viruses or food-borne illness;


•	the effects of seasonality and weather conditions on sales;


•	our reliance on certain vendors, suppliers and distributors;


•	impairment charges on certain long-lived or intangible assets;


•	our ability to attract and retain qualified executive officers and employees while also controlling labor costs;


•	our ability to adapt to escalating labor costs;


•	our ability to maintain insurance that provides adequate levels of coverage against claims;


•	legal complaints or litigation;


•	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 successfully execute our strategy and open new restaurants that are profitable;


•	costs resulting from breaches of security of confidential information;


•	our ability to protect and enforce our intellectual property rights;


•	our franchisees’ actions;


•	the cost of compliance with federal, state and local laws;


•	any potential strategic transactions;


•	control of us by the Kelso Affiliates;


•	our ability to maintain effective internal controls over financial reporting and the resources and management oversight required to comply with the requirements of the Sarbanes-Oxley Act of 2002;


•	our reduced disclosure due to our status as an emerging growth company;


•	our substantial indebtedness;


•	our ability to generate sufficient cash to service our indebtedness; and


•	our ability to incur additional debt.

We undertake no obligation to revise or update publicly any forward−looking statements for any reason. The information contained in this Form 10−Q is not a complete description of our business or the risks associated with our business. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that discuss our business in greater detail and advise interested parties of certain risks, uncertainties and other factors that may affect our business, results of operations or financial condition.

ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In addition to the risks inherent in our operations, we are exposed to certain market risks, including adverse changes in commodity prices and interest rates.

Commodity price risk

Many of the ingredients used in the products sold in our restaurants are commodities subject to price volatility caused by limited supply, weather, production problems, delivery difficulties, economic factors, and other conditions which are outside our control and may be unpredictable. In order to minimize risk, we employ various purchasing and pricing techniques including negotiating fixed price contracts with vendors, generally over one year periods, and securing supply contracts with vendors that remain subject to fluctuating market prices. We do not currently utilize financial instruments to hedge commodity prices, but we will continue to evaluate their effectiveness.

Four food categories (beef, produce, seafood and chicken) account for the largest share of our cost of goods sold (at 36%, 10%, 8% and 7%, respectively, in the twenty-six weeks ended February 1, 2015). Other categories affected by commodity price fluctuations, such as pork, cheese and dairy, may each account for 4-6%, individually, of our purchases. With respect to our commodity outlook for fiscal year 2015, we have fixed price contracts on approximately 50% of our commodity needs. We expect

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commodity inflation to be approximately 5-6% for fiscal year 2015. We will continue to monitor the commodity markets and may enter into additional fixed price contracts depending on market conditions.

We recognize that commodity pricing may be extremely volatile and can change unpredictably and over short periods. Changes in commodity prices will generally affect us and our competitors similarly, depending upon the terms and duration of supply contracts. 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. However, competitive circumstances or judgments about consumer acceptance of price increases, may limit price flexibility and, in those circumstances, increases in commodity prices may have an adverse affect on restaurant operating margins.

We are subject to additional risk due to our reliance on single suppliers for many of our commodity purchases, including beef. However, 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. Furthermore, we believe the supply could be replaced by alternative suppliers, but we may encounter temporary supply shortages or incur higher supply costs which could have an adverse affect on our results of operations.

Our restaurants are also impacted by changes in fuel prices. Our third party distributor charges us for the diesel fuel used to deliver inventory to our restaurants. During the first quarter of fiscal year 2015, we entered into a forward contract to procure certain amounts of diesel fuel from our third party distributor at set prices in order to mitigate our exposure to unpredictable fuel prices. The effect of the fuel derivative instrument is immaterial to our consolidated financial statements and this contract terminates in July 2015.

Interest rate risk

We are subject to interest rate risk in connection with borrowings under the Senior Secured Revolving Credit Facility, which bears interest at variable rates. As of February 1, 2015, we had outstanding borrowings of $21.0 million on our Senior Secured Revolving Credit Facility which will be exposed to interest rate fluctuations on the balance outstanding until repayment. Based on the current outstanding borrowings under this facility, a hypothetical one percentage point increase in the interest rate would result in an increase in our annual interest expense of approximately $0.2 million. There is no interest rate risk associated with our Senior Secured Notes, as the interest rate is fixed at 10.75% per annum.

ITEM 4—CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company, under the supervision and with the participation of its management, including the Principal Executive Officer and the Principal Financial Officer, has evaluated the effectiveness of the design and operation of its “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and the Principal Financial Officer concluded that, due to the material weakness in our internal control over financial reporting related to our annual evaluation of the recoverability of goodwill as disclosed in the Form 10-K for the year ended August 3, 2014, our disclosure controls and procedures were not effective as of February 1, 2015.

Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1—LEGAL PROCEEDINGS

Information regarding legal proceedings is included within Note 5 to our unaudited condensed consolidated financial statements included within Part I, Item 1 of this report.

ITEM 1A—RISK FACTORS

There have been no material changes in the risk factors set forth in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended August 3, 2014.

ITEM 5—OTHER INFORMATION

On February 12, 2015, LRI Holdings, Inc. (the “Company”) reached an agreement with Amy L. Bertauski, whereby Ms. Bertauski resigned her position as Chief Financial Officer of the Company effective February 27, 2015 (the “Separation Date”). On February 17, 2015, Logan’s Roadhouse, Inc., a wholly-owned subsidiary of the Company, entered into a Separation and Release Agreement (the “Agreement”) with Ms. Bertauski. Pursuant to the terms of the Agreement, Ms. Bertauski will receive severance payments equal to 52-weeks of her current gross salary, to be paid ratably over a 52-week period according to the Company’s normal payroll schedule, along with continued payment of the Company’s contribution towards health benefits. Ms. Bertauski’s shares of stock of Roadhouse Holding Inc., the indirect parent of the Company, will be subject to the repurchase provisions of the Roadhouse Holding Inc. Stockholders Agreement. In addition, all unvested stock options terminate and vested options may be exercised within 365 days of the Separation Date. The Agreement contains customary confidentiality provisions and a full release of any claims against the Company by Ms. Bertauski. The term of the post-employment non-compete and non-solicitation provisions are one and two years, respectively. The Agreement is attached hereto as Exhibit 10.1.

On February 18, 2015, Nicole A. Williams was appointed to serve as the Company’s interim principal financial officer. Ms. Williams is the Company’s Vice President of Finance and also serves as its principal accounting officer.

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ITEM 6—EXHIBITS



Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation of LRI Holdings, Inc.*
3.2	Amended and Restated By-Laws of LRI Holdings, Inc.*
4.2	First Lien Guarantee and Collateral Agreement, dated as of October 4, 2010, made by LRI Holdings, Inc. and Logan’s Roadhouse, Inc. and the Guarantors Identified Therein, in favor of JPMorgan Chase Bank, N.A., as Administrative Agent, together with the Assumption Agreement to the First lien Guarantee and the Collateral Agreement, dated October 4, 2010, made by LRI Holdings, Inc., Logan’s Roadhouse, Inc., Logan’s Roadhouse of Texas, Inc. and Logan’s Roadhouse of Kansas, Inc. in favor of JPMorgan Chase Bank N.A., as Administrative Agent under the Credit Agreement.*
4.3	Security Agreement, dated as of October 4, 2010, made by LRI Holdings, Inc. and Logan’s Roadhouse, Inc., in favor of Wells Fargo Bank, National Association, as Collateral Agent, together with the Joinder Agreement to Security Agreement dated as of October 4, 2010 made by LRI Holdings, Inc., Logan’s Roadhouse, Inc., Logan’s Roadhouse of Texas, Inc., Logan’s Roadhouse of Kansas, Inc., in favor of Wells Fargo Bank, National Association, as Collateral Agent under the Security Agreement.*
4.4	Intercreditor Agreement, dated as of October 4, 2010, among JPMorgan Chase Bank, N.A., as Administrative Agent, Wells Fargo Bank, National Association, as Collateral Agent, Logan’s Roadhouse, Inc., and each of the other Loan Parties party thereto, together with the Joinder to Intercreditor Agreement dated as of October 4, 2010 by LRI Holdings, Inc., Logan’s Roadhouse, Inc., Logan’s Roadhouse of Texas, Inc., Logan’s Roadhouse of Kansas, Inc., in favor of JPMorgan Chase Bank, N.A. and Wells Fargo Bank, National Association.*
4.5	Indenture, dated as of October 4, 2010, among Logan’s Roadhouse, Inc., LRI Holdings, Inc. and Wells Fargo Bank, National Association, as Trustee and Wells Fargo Bank, National Association, as Collateral Agent, relating to the 10.75% Senior Secured Notes due 2017, together with the Supplemental Indenture for Merger entered into as of October 4, 2010 by and among Logan’s Roadhouse, Inc., LRI Holdings, Inc., Logan’s Roadhouse of Texas, Inc., Logan’s Roadhouse of Kansas, Inc., Wells Fargo Bank, National Association, as Trustee and Wells Fargo Bank, National Association, as Collateral Agent under the Indenture.*
4.6	Form of 10.75% Senior Secured Note due 2017 (included in Exhibit 4.5 hereto).*
10.1	Separation and Release Agreement, dated February 12, 2015, by and between Logan's Roadhouse, Inc., Roadhouse Holding Inc. and Amy Bertauski.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following unaudited financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended February 1, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Stockholder’s Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements.**



*	Filed previously by the Company as an exhibit to Registration Statement on Form S-4 (File No. 333-173579) filed on April 18, 2011 and incorporated herein by reference.
**	Furnished electronically herewith.

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SIGNATURES

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



		LRI Holdings, Inc.


Date:	March 12, 2015	By:	/s/ Nicole A. Williams
			Nicole A. Williams
			Vice President of Finance and Secretary
			(Duly Authorized Officer and Principal Financial Officer)

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