##### Table of Contents



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

FORM 10-Q

(Mark One)

|                                             |  |                                                                                         
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------
|ü                                            |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                            
|For the quarterly period ended July 14, 2002
|                                            
|OR                                          
|                                            
|o                                            |  | 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 333-57925

The Restaurant Company




(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 62-1254388                          
|                                                              
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. employer identification no.)
|                                                              
|6075 Poplar Avenue, Suite 800, Memphis, TN                     |  | 38119                               
|                                                              
|(Address of principal executive offices)                       |  | (Zip code)                          

(901) 766-6400




(Registrants telephone number, including area code)


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





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TABLE OF CONTENTS



|                               |                                                                                                                                          |                                            |  |  |  |  |  | 
|------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | ITEM 1. FINANCIAL STATEMENTS                                                                                                            
|                               |                                                                                                                                          | CONSOLIDATED STATEMENTS OF INCOME         
|                               |                                                                                                                                          | CONSOLIDATED BALANCE SHEETS               
|                               |                                                                                                                                          | CONSOLIDATED BALANCE SHEETS               
|                               |                                                                                                                                          | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                               |                                                                                                                                          | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                               | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SECOND QUARTER ENDED JULY 14, 2002
|                               | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                      
|PART II  OTHER INFORMATION   
|                               | Item 6. Exhibits and Reports on Form 8-K                                                                                                
|Signature                     



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##### Table of Contents






PART I  FINANCIAL
INFORMATION




ITEM 1. FINANCIAL STATEMENTS
THE RESTAURANT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands)

|                                     |                             |   |          |        |          |   |          |        |          |   |         |         |  |   |         |         | 
|------------------------------------ | --------------------------- | - | -------- | ------ | -------- | - | -------- | ------ | -------- | - | ------- | ------- |  | - | ------- | ------- | 
|                                     |                             |   | Quarter  |        | Quarter  |   | Year-to- |        | Year-to-
|                                     |                             |   | Ended    |        | Ended    |   | Date     |        | Date    
|                                     |                             |   | July 14, |        | July 15, |   | July 14, |        | July 15,
|                                     |                             |   | 2002     |        | 2001     |   | 2002     |        | 2001    
|                                     |                             |   |          |        |          |   |          |        |         
|REVENUE:                             |                             |   |          |        |          |   |          |        |          |   |         |         |  |   |         |        
|                                     | Food sales                  |   | $        | 72,637 |          |   | $        | 70,989 |          |   | $       | 171,046 |  |   | $       | 164,678 | 
|                                     | Franchise and other revenue |   |          | 5,451  |          |   |          | 5,395  |          |   |         | 12,054  |  |   |         | 12,273  | 
|                                     |                             |   |          |        |          |   |          |        |          |   |         |         |  |   |         |        
|Total Revenue                        |                             |   | 78,088   |        |          |   | 76,384   |        |          |   | 183,100 |         |  |   | 176,951 |        
|                                     |                             |   |          |        |          |   |          |        |          |   |         |         |  |   |         |        
|COSTS AND EXPENSES:                  |                             |   |          |        |          |   |          |        |          |   |         |         |  |   |         |        
|Cost of sales:                       |                             |   |          |        |          |   |          |        |          |   |         |         |  |   |         |        
|                                     | Food cost                   |   |          | 19,840 |          |   |          | 19,916 |          |   |         | 47,432  |  |   |         | 45,999  | 
|                                     | Labor and benefits          |   |          | 25,539 |          |   |          | 25,015 |          |   |         | 60,573  |  |   |         | 57,486  | 
|                                     | Operating expenses          |   |          | 14,991 |          |   |          | 14,732 |          |   |         | 35,113  |  |   |         | 34,446  | 
|General and administrative           |                             |   | 7,501    |        |          |   | 7,704    |        |          |   | 16,711  |         |  |   | 17,252  |        
|Depreciation and amortization        |                             |   | 5,006    |        |          |   | 5,476    |        |          |   | 11,772  |         |  |   | 12,720  |        
|Interest, net                        |                             |   | 4,133    |        |          |   | 4,169    |        |          |   | 9,749   |         |  |   | 9,771   |        
|(Gain) Loss on disposition of assets |                             |   | 2        |        |          |   | (1,169   | )      |          |   | 30      |         |  |   | (1,097  | )      
|Other, net                           |                             |   | (121     | )      |          |   | (296     | )      |          |   | (363    | )       |  |   | (689    | )      
|                                     |                             |   |          |        |          |   |          |        |          |   |         |         |  |   |         |        
|Total Costs and expenses             |                             |   | 76,891   |        |          |   | 75,547   |        |          |   | 181,017 |         |  |   | 175,888 |        
|                                     |                             |   |          |        |          |   |          |        |          |   |         |         |  |   |         |        
|Income before income taxes           |                             |   | 1,197    |        |          |   | 837      |        |          |   | 2,083   |         |  |   | 1,063   |        
|Provision for income taxes           |                             |   | (347     | )      |          |   | (279     | )      |          |   | (604    | )       |  |   | (354    | )      
|                                     |                             |   |          |        |          |   |          |        |          |   |         |         |  |   |         |        
|NET INCOME                           |                             | $ | 850      |        |          | $ | 558      |        |          | $ | 1,479   |         |  | $ | 709     |        
|                                     |                             |   |          |        |          |   |          |        |          |   |         |         |  |   |         |         | 

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

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THE RESTAURANT COMPANY AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)

|                                                                                  |                      |        |         |             |  |              |         |        |  | 
|--------------------------------------------------------------------------------- | -------------------- | ------ | ------- | ----------- |  | ------------ | ------- | ------ |  | 
|                                                                                  |                      |        |         | July 14,    |  |              |         |       
|                                                                                  |                      |        |         | 2002        |  | December 30,
|                                                                                  |                      |        |         | (Unaudited) |  | 2001        
|                                                                                  |                      |        |         |             |  |             
|                                                                                  |                      | ASSETS |         |             |  |              |         |        |  | 
|CURRENT ASSETS:                                                                   |                      |        |         |             |  |              |         |       
|Cash and cash equivalents                                                         |                      | $      | 4,980   |             |  | $            | 4,501   |       
|Receivables, less allowance for
doubtful accounts of $989 and $907                |                      |        | 9,231   |             |  |              | 8,468   |       
|Inventories, at the lower of first-in, first-out cost or market                   |                      |        | 5,831   |             |  |              | 5,330   |       
|Prepaid expenses and other current assets                                         |                      |        | 2,388   |             |  |              | 2,692   |       
|Deferred income taxes                                                             |                      |        | 705     |             |  |              | 705     |       
|                                                                                  |                      |        |         |             |  |              |         |       
|                                                                                  | Total current assets |        |         | 23,135      |  |              |         | 21,696 | 
|                                                                                  |                      |        |         |             |  |              |         |       
|PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization |                      |        | 134,387 |             |  |              | 136,393 |       
|ASSETS HELD FOR DISPOSITION                                                       |                      |        | 2,597   |             |  |              | 5,087   |       
|GOODWILL                                                                          |                      |        | 27,035  |             |  |              | 27,035  |       
|INTANGIBLE ASSETS, net of accumulated
amortization of $4,138 and $3,651           |                      |        | 5,179   |             |  |              | 5,667   |       
|NOTES RECEIVABLE, less allowance for doubtful
accounts of $55 and $208            |                      |        | 183     |             |  |              | 303     |       
|DEFERRED INCOME TAXES                                                             |                      |        | 6,895   |             |  |              | 6,895   |       
|OTHER ASSETS                                                                      |                      |        | 7,357   |             |  |              | 7,888   |       
|                                                                                  |                      |        |         |             |  |              |         |       
|                                                                                  |                      | $      | 206,768 |             |  | $            | 210,964 |       
|                                                                                  |                      |        |         |             |  |              |         |       

The accompanying notes are an integral part of these consolidated balance
sheets.

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THE RESTAURANT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Par and Share Amounts)

|                                                                                      |                                                 |                                          |                             |                           |  |             |         |              |  |        |        | 
|------------------------------------------------------------------------------------- | ----------------------------------------------- | ---------------------------------------- | --------------------------- | ------------------------- |  | ----------- | ------- | ------------ |  | ------ | ------ | 
|                                                                                      |                                                 |                                          |                             |                           |  | July 14,    |         |              |  |       
|                                                                                      |                                                 |                                          |                             |                           |  | 2002        |         | December 30,
|                                                                                      |                                                 |                                          |                             |                           |  | (Unaudited) |         | 2001        
|                                                                                      |                                                 |                                          |                             |                           |  |             |         |             
|                                                                                      |                                                 | LIABILITIES AND STOCKHOLDERS INVESTMENT |                             |                           |  |             |         |              |  |       
|CURRENT LIABILITIES:                                                                  |                                                 |                                          |                             |                           |  |             |         |             
|                                                                                      | Current maturities of capital lease obligations |                                          | $                           | 652                       |  |             | $       | 1,030        | 
|                                                                                      | Accounts payable                                |                                          |                             | 12,906                    |  |             |         | 13,100       | 
|                                                                                      | Accrued expenses                                |                                          |                             | 19,874                    |  |             |         | 18,748       | 
|                                                                                      |                                                 |                                          |                             |                           |  |             |         |             
|                                                                                      |                                                 |                                          |                             | Total current liabilities |  |             | 33,432  |              |  |        | 32,878 | 
|                                                                                      |                                                 |                                          |                             |                           |  |             |         |             
|CAPITAL LEASE OBLIGATIONS, less
current maturities                                    |                                                 |                                          | 1,634                       |                           |  |             | 1,944   |             
|LONG-TERM DEBT                                                                        |                                                 |                                          | 166,844                     |                           |  |             | 172,831 |             
|OTHER LIABILITIES                                                                     |                                                 |                                          | 5,827                       |                           |  |             | 5,759   |             
|STOCKHOLDERS INVESTMENT:                                                             |                                                 |                                          |                             |                           |  |             |         |             
|Common stock $.01 par value, 100,000 shares authorized,
10,820 issued and outstanding |                                                 |                                          | 1                           |                           |  |             | 1       |             
|Accumulated deficit                                                                   |                                                 |                                          | (970                        | )                         |  |             | (2,449  | )           
|                                                                                      |                                                 |                                          |                             |                           |  |             |         |             
|                                                                                      |                                                 |                                          | Total stockholders deficit |                           |  | (969        | )       |              |  | (2,448 | )     
|                                                                                      |                                                 |                                          |                             |                           |  |             |         |             
|                                                                                      |                                                 | $                                        | 206,768                     |                           |  | $           | 210,964 |             
|                                                                                      |                                                 |                                          |                             |                           |  |             |         |             

The accompanying notes are an
integral part of these consolidated balance sheets.

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THE RESTAURANT COMPANY AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)

|                                                                                  |                                                 |                   |        |          |       |          |        |          |       |          |        |        |        |   |         |        |        | 
|--------------------------------------------------------------------------------- | ----------------------------------------------- | ----------------- | ------ | -------- | ----- | -------- | ------ | -------- | ----- | -------- | ------ | ------ | ------ | - | ------- | ------ | ------ | 
|                                                                                  |                                                 |                   |        | Quarter  |       | Quarter  |        | Year-to- |       | Year-to-
|                                                                                  |                                                 |                   |        | Ended    |       | Ended    |        | Date     |       | Date    
|                                                                                  |                                                 |                   |        | July 14, |       | July 15, |        | July 14, |       | July 15,
|                                                                                  |                                                 |                   |        | 2002     |       | 2001     |        | 2002     |       | 2001    
|                                                                                  |                                                 |                   |        |          |       |          |        |          |       |         
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |                                                 |                   |        |          |       |          |        |          |       |          |        |        |        |   |         |       
|Net income                                                                        |                                                 | $                 | 850    |          |       | $        | 558    |          |       | $        | 1,479  |        |        | $ | 709     |       
|Adjustments to reconcile net income to net cash
provided by operating activities: |                                                 |                   |        |          |       |          |        |          |       |          |        |        |        |   |         |       
|                                                                                  | Depreciation and amortization                   |                   |        | 5,006    |       |          |        | 5,476    |       |          |        | 11,772 |        |   |         | 12,720 |       
|                                                                                  | Accretion of interest on Senior Discount Notes  |                   |        | 6        |       |          |        | 683      |       |          |        | 13     |        |   |         | 1,558  |       
|                                                                                  | Provision for bad debt expense                  |                   |        | 111      |       |          |        | 85       |       |          |        | 223    |        |   |         | 208    |       
|                                                                                  | (Gain) Loss on disposition of assets            |                   |        | 2        |       |          |        | (1,169   | )     |          |        | 30     |        |   |         | (1,097 | )     
|                                                                                  | Net changes in operating assets and liabilities |                   |        | (882     | )     |          |        | (1,596   | )     |          |        | 115    |        |   |         | (3,071 | )     
|                                                                                  |                                                 |                   |        |          |       |          |        |          |       |          |        |        |        |   |         |       
|                                                                                  |                                                 | Total adjustments |        |          | 4,243 |          |        |          | 3,479 |          |        |        | 12,153 |   |         |        | 10,318 | 
|                                                                                  |                                                 |                   |        |          |       |          |        |          |       |          |        |        |        |   |         |       
|Net cash provided by operating activities                                         |                                                 |                   | 5,093  |          |       |          | 4,037  |          |       |          | 13,632 |        |        |   | 11,027  |       
|                                                                                  |                                                 |                   |        |          |       |          |        |          |       |          |        |        |        |   |         |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |                                                 |                   |        |          |       |          |        |          |       |          |        |        |        |   |         |       
|Cash paid for property and equipment                                              |                                                 |                   | (4,280 | )        |       |          | (4,957 | )        |       |          | (8,834 | )      |        |   | (11,342 | )     
|Proceeds from sale of assets held for disposition                                 |                                                 |                   |       |          |       |          | 3,687  |          |       |          | 2,030  |        |        |   | 3,687   |       
|Proceeds from notes receivable                                                    |                                                 |                   | 47     |          |       |          | 66     |          |       |          | 339    |        |        |   | 144     |       
|                                                                                  |                                                 |                   |        |          |       |          |        |          |       |          |        |        |        |   |         |       
|Net cash used in investing activities                                             |                                                 |                   | (4,233 | )        |       |          | (1,204 | )        |       |          | (6,465 | )      |        |   | (7,511  | )     
|                                                                                  |                                                 |                   |        |          |       |          |        |          |       |          |        |        |        |   |         |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |                                                 |                   |        |          |       |          |        |          |       |          |        |        |        |   |         |       
|(Payments on) net proceeds from long-term debt                                    |                                                 |                   | (500   | )        |       |          | 750    |          |       |          | (6,000 | )      |        |   | 1,000   |       
|Principal payments under capital lease obligations                                |                                                 |                   | (294   | )        |       |          | (223   | )        |       |          | (688   | )      |        |   | (522    | )     
|                                                                                  |                                                 |                   |        |          |       |          |        |          |       |          |        |        |        |   |         |       
|Net cash (used in) provided by financing activities                               |                                                 |                   | (794   | )        |       |          | 527    |          |       |          | (6,688 | )      |        |   | 478     |       
|                                                                                  |                                                 |                   |        |          |       |          |        |          |       |          |        |        |        |   |         |       
|Net increase in cash and cash equivalents                                         |                                                 |                   | 66     |          |       |          | 3,360  |          |       |          | 479    |        |        |   | 3,994   |       
|                                                                                  |                                                 |                   |        |          |       |          |        |          |       |          |        |        |        |   |         |       
|CASH AND CASH EQUIVALENTS:                                                        |                                                 |                   |        |          |       |          |        |          |       |          |        |        |        |   |         |       
|Balance, beginning of period                                                      |                                                 |                   | 4,914  |          |       |          | 5,995  |          |       |          | 4,501  |        |        |   | 5,361   |       
|                                                                                  |                                                 |                   |        |          |       |          |        |          |       |          |        |        |        |   |         |       
|Balance, end of period                                                            |                                                 | $                 | 4,980  |          |       | $        | 9,355  |          |       | $        | 4,980  |        |        | $ | 9,355   |       
|                                                                                  |                                                 |                   |        |          |       |          |        |          |       |          |        |        |        |   |         |       

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

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THE RESTAURANT COMPANY AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Organization

The Restaurant Company (the Company, Perkins, or TRC) is a
wholly-owned subsidiary of The Restaurant Holding Corporation (RHC).
TRC conducts business under the name Perkins Restaurant and Bakery. TRC
is also the sole stockholder of TRC Realty LLC, The Restaurant Company of
Minnesota (TRCM) and Perkins Finance Corp. RHC is owned by Donald N.
Smith (Mr. Smith), TRCs Chairman and Chief Executive Officer, and
BancBoston Ventures, Inc. (BBV) Mr. Smith is also the Chairman and
Chief Executive Officer of Friendly Ice Cream Corporation (FICC), which
operates and franchises approximately 550 restaurants, located primarily
in the northeastern United States.

Basis of Presentation

The accompanying unaudited consolidated financial statements of TRC have
been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and notes necessary for complete
financial statements in conformity with generally accepted accounting
principles. The results for the periods indicated are unaudited but
reflect all adjustments (consisting only of normal recurring adjustments)
which management considers necessary for a fair presentation of the
operating results. Results of operations for the interim periods are not
necessarily indicative of a full year of operations. The notes to the
financial statements contained in the 2001 Annual Report on Form 10-K
should be read in conjunction with these statements.

Certain prior year amounts have been reclassified to conform to current
year presentation.

Change in Accounting Reporting Period

Effective January 1, 2001, the Company converted its financial reporting
from a calendar year basis to thirteen four-week periods ending on the
last Sunday in December. The first quarter each year will include four
four-week periods. The first and second quarters of 2002 ended on April 21
and July 14, respectively. The third and fourth quarters will end on
October 6 and December 29, respectively.

Contingencies

The Company is a party to various legal proceedings in the ordinary course
of business. Management does not believe it is likely that these
proceedings, either individually or in the aggregate, will have a material
adverse effect on the Companys financial position or results of
operations.

In the past, the Company has sponsored financing programs offered by
certain lending institutions to assist its franchisees in procuring funds
for the construction of new franchised restaurants and to purchase and
install in-store bakeries. The Company provided a limited guaranty of
funds borrowed. The Companys obligations under these agreements expired
during the first quarter of 2002.

On June 9, 2000, the Company entered into an agreement to guarantee fifty
percent of borrowings up to a total guarantee of $1,500,000 for use by a
franchisee to remodel and upgrade existing restaurants. As of July 14,
2002, there were $3,000,000 in borrowings outstanding under this agreement
of which $1,500,000 were guaranteed by the Company.

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Supplemental Cash Flow Information

The increase or decrease in cash and cash equivalents due to changes in
operating assets and liabilities for the quarters and year-to-date periods
ended July 14 and July 15, consists of the following (in thousands):

|                        |                                           |   |          |        |          |   |          |        |          |   |     |        |   |   |        |        |  
|----------------------- | ----------------------------------------- | - | -------- | ------ | -------- | - | -------- | ------ | -------- | - | --- | ------ | - | - | ------ | ------ | -
|                        |                                           |   | Quarter  |        | Quarter  |   | Year-to- |        | Year-to-
|                        |                                           |   | Ended    |        | Ended    |   | Date     |        | Date    
|                        |                                           |   | July 14, |        | July 15, |   | July 14, |        | July 15 
|                        |                                           |   | 2002     |        | 2001     |   | 2002     |        | 2001    
|                        |                                           |   |          |        |          |   |          |        |         
|(Increase) Decrease in: |                                           |   |          |        |          |   |          |        |          |   |     |        |   |   |        |       
|                        | Receivables                               |   | $        | (389   | )        |   | $        | (650   | )        |   | $   | (1,283 | ) |   | $      | (636   | )
|                        | Inventories                               |   |          | (662   | )        |   |          | (324   | )        |   |     | (501   | ) |   |        | (159   | )
|                        | Prepaid expenses and
other current assets |   |          | 331    |          |   |          | (81    | )        |   |     | 304    |   |   |        | (467   | )
|                        | Other assets                              |   |          | 543    |          |   |          | 90     |          |   |     | 595    |   |   |        | 281    |  
|Increase (Decrease) in: |                                           |   |          |        |          |   |          |        |          |   |     |        |   |   |        |       
|                        | Accounts payable                          |   |          | 3,868  |          |   |          | 2,210  |          |   |     | (194   | ) |   |        | (58    | )
|                        | Accrued expenses                          |   |          | (3,516 | )        |   |          | (3,331 | )        |   |     | 1,754  |   |   |        | (2,114 | )
|                        | Other liabilities                         |   |          | (1,057 | )        |   |          | 490    |          |   |     | (560   | ) |   |        | 82     |  
|                        |                                           |   |          |        |          |   |          |        |          |   |     |        |   |   |        |       
|                        |                                           | $ | (882     | )      |          | $ | (1,596   | )      |          | $ | 115 |        |   | $ | (3,071 | )     
|                        |                                           |   |          |        |          |   |          |        |          |   |     |        |   |   |        |       

Other supplemental cash flow information is as follows (in thousands):

|                            |  |          |       |          |  |          |       |          |  |   |       |  |  |   |       | 
|--------------------------- |  | -------- | ----- | -------- |  | -------- | ----- | -------- |  | - | ----- |  |  | - | ----- | 
|                            |  | Quarter  |       | Quarter  |  | Year-to- |       | Year-to-
|                            |  | Ended    |       | Ended    |  | Date     |       | Date    
|                            |  | July 14, |       | July 15, |  | July 14, |       | July 15,
|                            |  | 2002     |       | 2001     |  | 2002     |       | 2001    
|                            |  |          |       |          |  |          |       |         
|Cash paid for interest      |  | $        | 8,385 |          |  | $        | 7,262 |          |  | $ | 8,776 |  |  | $ | 7,569 | 
|Income taxes paid           |  |          | 830   |          |  |          | 1,165 |          |  |   | 896   |  |  |   | 1,752 | 
|Income tax refunds received |  |          |      |          |  |          |      |          |  |   | 639   |  |  |   | 16    | 

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Segment Reporting

The following presents revenue and other financial information by business
segment for the quarters and year-to-date periods ended July 14 and July 15 (in
thousands):

|                                |  |             |        |           |  |               |       |       |  |        |       |  |  |   |         |   |  |   |        | 
|------------------------------- |  | ----------- | ------ | --------- |  | ------------- | ----- | ----- |  | ------ | ----- |  |  | - | ------- | - |  | - | ------ | 
|Quarter:                        |  | Restaurants |        | Franchise |  | Manufacturing |       | Other |  | Totals
|                                |  |             |        |           |  |               |       |       |  |       
|Quarter ended July 14, 2002:    |  |             |        |           |  |               |       |       |  |        |       |  |  |   |         |   |  |   |        | 
|Revenue from
external customers |  | $           | 64,817 |           |  | $             | 5,339 |       |  | $      | 7,371 |  |  | $ | 561     |   |  | $ | 78,088 | 
|Intersegment revenue            |  |             |       |           |  |               |      |       |  |        | 1,904 |  |  |   |        |   |  |   | 1,904  | 
|Segment profit (loss)           |  |             | 6,390  |           |  |               | 4,521 |       |  |        | 1,710 |  |  |   | (11,771 | ) |  |   | 850    | 
|                               
|Quarter ended July 15, 2001:    |  |             |        |           |  |               |       |       |  |        |       |  |  |   |         |   |  |   |        | 
|Revenue from
external customers |  | $           | 63,109 |           |  | $             | 5,255 |       |  | $      | 7,672 |  |  | $ | 348     |   |  | $ | 76,384 | 
|Intersegment revenue            |  |             |       |           |  |               |      |       |  |        | 2,049 |  |  |   |        |   |  |   | 2,049  | 
|Segment profit (loss)           |  |             | 5,295  |           |  |               | 4,513 |       |  |        | 1,881 |  |  |   | (11,131 | ) |  |   | 558    | 

|                                  |  |             |         |           |  |               |        |       |  |        |        |  |  |   |         |   |  |   |         | 
|--------------------------------- |  | ----------- | ------- | --------- |  | ------------- | ------ | ----- |  | ------ | ------ |  |  | - | ------- | - |  | - | ------- | 
|Year-to-date:                     |  | Restaurants |         | Franchise |  | Manufacturing |        | Other |  | Totals
|                                  |  |             |         |           |  |               |        |       |  |       
|Year-to-Date ended July 14, 2002: |  |             |         |           |  |               |        |       |  |        |        |  |  |   |         |   |  |   |         | 
|Revenue from
external customers   |  | $           | 153,500 |           |  | $             | 11,807 |       |  | $      | 16,484 |  |  | $ | 1,309   |   |  | $ | 183,100 | 
|Intersegment revenue              |  |             |        |           |  |               |       |       |  |        | 4,786  |  |  |   |        |   |  |   | 4,786   | 
|Segment profit (loss)             |  |             | 14,458  |           |  |               | 9,948  |       |  |        | 3,776  |  |  |   | (26,703 | ) |  |   | 1,479   | 
|                                 
|Year-to-Date ended July 15, 2001: |  |             |         |           |  |               |        |       |  |        |        |  |  |   |         |   |  |   |         | 
|Revenue from
external customers   |  | $           | 147,982 |           |  | $             | 11,937 |       |  | $      | 16,426 |  |  | $ | 606     |   |  | $ | 176,951 | 
|Intersegment revenue              |  |             |        |           |  |               |       |       |  |        | 4,666  |  |  |   |        |   |  |   | 4,666   | 
|Segment profit (loss)             |  |             | 13,341  |           |  |               | 10,183 |       |  |        | 3,781  |  |  |   | (26,596 | ) |  |   | 709     | 

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A reconciliation of other segment loss is as follows (in thousands):

|                                       |  |          |        |          |  |          |        |          |  |   |        |   |  |   |        |  
|-------------------------------------- |  | -------- | ------ | -------- |  | -------- | ------ | -------- |  | - | ------ | - |  | - | ------ | -
|                                       |  | Quarter  |        | Quarter  |  | Year-to- |        | Year-to-
|                                       |  | Ended    |        | Ended    |  | Date     |        | Date    
|                                       |  | July 14, |        | July 15, |  | July 14, |        | July 15,
|                                       |  | 2002     |        | 2001     |  | 2002     |        | 2001    
|                                       |  |          |        |          |  |          |        |         
|General and administrative expenses    |  | $        | 6,459  |          |  | $        | 6,680  |          |  | $ | 14,285 |   |  | $ | 14,847 |  
|Depreciation and amortization expenses |  |          | 921    |          |  |          | 1,442  |          |  |   | 2,294  |   |  |   | 3,304  |  
|Interest expense                       |  |          | 4,133  |          |  |          | 4,169  |          |  |   | 9,749  |   |  |   | 9,771  |  
|(Gain) loss on disposition of assets   |  |          | 2      |          |  |          | (1,169 | )        |  |   | 30     |   |  |   | (1,097 | )
|Income tax expense                     |  |          | 347    |          |  |          | 279    |          |  |   | 604    |   |  |   | 354    |  
|Other                                  |  |          | (91    | )        |  |          | (270   | )        |  |   | (259   | ) |  |   | (583   | )
|                                       |  |          |        |          |  |          |        |          |  |   |        |   |  |   |        |  
|                                       |  | $        | 11,771 |          |  | $        | 11,131 |          |  | $ | 26,703 |   |  | $ | 26,596 |  
|                                       |  |          |        |          |  |          |        |          |  |   |        |   |  |   |        |  

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets. Under SFAS No. 142 goodwill and other intangible
assets are no longer amortized but are tested for impairment using a fair value
methodology. The Company adopted SFAS No. 142 effective December 31, 2001 and
ceased amortization of goodwill in 2002 under the provisions of the statement.

Under the guidelines of SFAS 142, the Company was required to test all existing
goodwill for impairment as of December 31, 2001 on a reporting unit basis.
The Company has determined that its operating segments are its reporting units
under the provisions of SFAS 142. In this assessment of the carrying value of
goodwill, the Company developed its best estimate of operating cash flow for
each reporting unit and applied current market multiples, by reporting unit, to
determine the fair value of the assets, including goodwill. Based on this
assessment, the Company has determined that no impairment of goodwill existed
as of December 31, 2001.

The following schedule provides the carrying amount of goodwill, by segment.

|                            |       |             |        |           |  |               |        |       |  |         |   |  |  |   |   |  |  |   |        | 
|--------------------------- | ----- | ----------- | ------ | --------- |  | ------------- | ------ | ----- |  | ------- | - |  |  | - | - |  |  | - | ------ | 
|                            | Total
|                            |       | Restaurants |        | Franchise |  | Manufacturing |        | Other |  | Company
|                            |       |             |        |           |  |               |        |       |  |        
|Balance as of July 14, 2002 |       | $           | 14,037 |           |  | $             | 12,998 |       |  | $       |  |  |  | $ |  |  |  | $ | 27,035 | 

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The following schedule adjusts reported net income to exclude amortization expense related to goodwill.

|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |       |       | 
|--------------------------------- |  | ----------- | ------ | --------- |  | ------------- | ------ | ----- |  | ------- | ----- |  |  | - | ------- | - |  | ----- | ----- | 
|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  | Total
|                                  |  | Restaurants |        | Franchise |  | Manufacturing |        | Other |  | Company
|                                  |  |             |        |           |  |               |        |       |  |        
|Quarter ended July 14, 2002:      |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |       |       | 
|Reported net income (loss)        |  | $           | 6,390  |           |  | $             | 4,521  |       |  | $       | 1,710 |  |  |   | (11,771 | ) |  | $     | 850   | 
|Add back: Goodwill amortization   |  |             |       |           |  |               |       |       |  |         |      |  |  |   |        |   |  |       |      | 
|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |       |       | 
|Adjusted net income (loss)        |  | $           | 6,390  |           |  | $             | 4,521  |       |  | $       | 1,710 |  |  | $ | (11,771 | ) |  | $     | 850   | 
|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |       |       | 
|Quarter ended July 15, 2001:      |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |       |       | 
|Reported net income (loss)        |  | $           | 5,295  |           |  | $             | 4,513  |       |  | $       | 1,881 |  |  | $ | (11,131 | ) |  | $     | 558   | 
|Add back: Goodwill amortization   |  |             | 145    |           |  |               | 153    |       |  |         |      |  |  |   |        |   |  |       | 298   | 
|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |       |       | 
|Adjusted net income (loss)        |  | $           | 5,440  |           |  | $             | 4,666  |       |  | $       | 1,881 |  |  | $ | (11,131 | ) |  | $     | 856   | 
|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |       |       | 
|Year-to-date ended July 14, 2002: |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |       |       | 
|Reported net income (loss)        |  | $           | 14,458 |           |  | $             | 9,948  |       |  | $       | 3,776 |  |  | $ | (26,703 | ) |  | $     | 1,479 | 
|Add back: Goodwill amortization   |  |             |       |           |  |               |       |       |  |         |      |  |  |   |        |   |  |       |      | 
|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |       |       | 
|Adjusted net income (loss)        |  | $           | 14,458 |           |  | $             | 9,948  |       |  | $       | 3,776 |  |  | $ | (26,703 | ) |  | $     | 1,479 | 
|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |       |       | 
|Year-to-date ended July 15, 2001: |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |       |       | 
|Reported net income (loss)        |  | $           | 13,341 |           |  | $             | 10,183 |       |  | $       | 3,781 |  |  | $ | (26,596 | ) |  | $     | 709   | 
|Add back: Goodwill amortization   |  |             | 339    |           |  |               | 357    |       |  |         |      |  |  |   |        |   |  |       | 696   | 
|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |       |       | 
|Adjusted net income (loss)        |  | $           | 13,680 |           |  | $             | 10,540 |       |  | $       | 3,781 |  |  | $ | (26,596 | ) |  | $     | 1,405 | 
|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |       |       | 

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long Lived Assets. SFAS No. 144 modifies the rules for evaluating
the recoverability of assets (including intangibles) when events and
circumstances indicate that the assets might be impaired. The Company adopted
SFAS No. 144 effective December 31, 2001, with no material impact on the
Companys financial position or results of operations.

The Company operates two Sage Hen Cafes. The first of these restaurants was
opened in March 2001 and the second was opened in November 2001. The Company is
currently evaluating the viability of the Sage Hen Café concept and plans to
make a determination by the end of the fourth quarter of 2002 to either
continue operating these restaurants as Sage Hen Cafes, to convert the
properties to Perkins Restaurants, to sublease the properties to third parties
or to terminate its leases. All of the alternatives being considered may result
in a determination by the Company that certain or all of the assets related to
these properties are impaired as defined under SFAS 144. As of July 14, 2002,
the net book value of the long-lived assets related to these two restaurants
was approximately $1,227,000.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145 rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt,

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requiring that gains and losses from the extinguishment of debt be classified as extraordinary items only if
certain criteria are met. SFAS 145 also amends SFAS No. 13, Accounting for
Leases, and the required accounting for sale-leaseback transactions and
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS 145 is effective for the Company on December
30, 2002.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
initially at fair value when the liability is incurred. SFAS 146 is effective
for the Company on December 30, 2002 and will be applied on a prospective
basis.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE SECOND QUARTER ENDED JULY 14, 2002

RESULTS OF OPERATIONS

Overview:

The Company is a leading operator and franchisor of mid-scale restaurants
located in 35 states and four Canadian provinces. As of July 14, 2002, the
Company owned and operated 151 and franchised 348 Perkins Restaurants. Both the
Company-operated and franchised Perkins Restaurants operate under the names
Perkins Restaurant and Bakery, Perkins Family Restaurant, Perkins Family
Restaurant and Bakery, or Perkins Restaurant and the mark Perkins. The
Company also operates two Sage Hen Cafés. The Company manufactures and
distributes bakery products which are sold to Company-operated restaurants,
franchisees, third-party bakers and food distributors. The business of Perkins
was founded in 1958, and since then Perkins has continued to adapt its menus,
product offerings, building designs and decor to meet changing consumer
preferences. Perkins is a highly recognized brand in the geographic areas it
serves.

The Companys revenues are derived primarily from the operation of
Company-owned restaurants, the sale of bakery products produced by its
manufacturing division, Foxtail Foods (Foxtail), and franchise fees. In
order to ensure consistency and availability of Perkins proprietary products
to each unit in the system, Foxtail offers cookie doughs, muffin batters,
pancake mixes, pies and other food products to Company-operated and franchised
restaurants through food service distributors. Additionally, it produces a
variety of non-proprietary products for sale in various retail markets. Sales
to Company-operated restaurants are eliminated in the accompanying statements
of income. For the quarter ended July 14, 2002, revenues from Company-operated
restaurants, Foxtail, and franchise and other accounted for 83.0%, 9.4% and
7.6% of total revenue, respectively.

TRC leases an executive aircraft through TRC Realty LLC. The aircraft is
operated for the benefit of, and all operating costs are reimbursed by, TRC and
FICC. Revenue received from FICC is included in franchise and other revenue in
the accompanying statements of income.

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A summary of the Companys results for the quarters and year-to-date periods
ended July 14, 2002 and July 15, 2001 are presented in the following table. All
revenues, costs and expenses are expressed as a percentage of total revenue.

|                           |                                      |                             |                    |      |          |      |          |      |          |      |          |      |      |      |       |      |      |      | 
|-------------------------- | ------------------------------------ | --------------------------- | ------------------ | ---- | -------- | ---- | -------- | ---- | -------- | ---- | -------- | ---- | ---- | ---- | ----- | ---- | ---- | ---- | 
|                           |                                      |                             |                    |      | Quarter  |      | Quarter  |      | Year-to- |      | Year-to-
|                           |                                      |                             |                    |      | Ended    |      | Ended    |      | Date     |      | Date    
|                           |                                      |                             |                    |      | July 14, |      | July 15, |      | July 14, |      | July 15 
|                           |                                      |                             |                    |      | 2002     |      | 2001     |      | 2002     |      | 2001    
|                           |                                      |                             |                    |      |          |      |          |      |          |      |          |      |      |      |       |     
|Revenue:                   |                                      |                             |                    |      |          |      |          |      |          |      |          |      |      |      |       |     
|                           |                                      | Food sales                  |                    |      | 93.0     | %    |          |      | 92.9     | %    |          |      | 93.4 | %    |       |      | 93.1 | %   
|                           |                                      | Franchise and other revenue |                    |      | 7.0      |      |          |      | 7.1      |      |          |      | 6.6  |      |       |      | 6.9  |     
|                           |                                      |                             |                    |      |          |      |          |      |          |      |          |      |      |      |       |     
|Total Revenue              |                                      |                             | 100.0              |      |          |      | 100.0    |      |          |      | 100.0    |      |      |      | 100.0 |     
|                           |                                      |                             |                    |      |          |      |          |      |          |      |          |      |      |      |       |     
|Costs and Expenses:        |                                      |                             |                    |      |          |      |          |      |          |      |          |      |      |      |       |     
|                           | Cost of sales:                       |                             |                    |      |          |      |          |      |          |      |          |      |      |      |       |      |     
|                           |                                      |                             | Food cost          |      |          | 25.4 |          |      |          | 26.1 |          |      |      | 25.9 |       |      |      | 26.0 | 
|                           |                                      |                             | Labor and benefits |      |          | 32.7 |          |      |          | 32.7 |          |      |      | 33.1 |       |      |      | 32.5 | 
|                           |                                      |                             | Operating expenses |      |          | 19.2 |          |      |          | 19.3 |          |      |      | 19.2 |       |      |      | 19.5 | 
|                           | General and administrative           |                             |                    | 9.6  |          |      |          | 10.0 |          |      |          | 9.1  |      |      |       | 9.7  |     
|                           | Depreciation and amortization        |                             |                    | 6.4  |          |      |          | 7.2  |          |      |          | 6.4  |      |      |       | 7.2  |     
|                           | Interest, net                        |                             |                    | 5.3  |          |      |          | 5.5  |          |      |          | 5.3  |      |      |       | 5.5  |     
|                           | (Gain) loss on disposition of assets |                             |                    |     |          |      |          | (1.5 | )        |      |          |     |      |      |       | (0.6 | )   
|                           | Other, net                           |                             |                    | (0.1 | )        |      |          | (0.4 | )        |      |          | (0.1 | )    |      |       | (0.4 | )   
|                           |                                      |                             |                    |      |          |      |          |      |          |      |          |      |      |      |       |     
|Total Costs and Expenses   |                                      |                             | 98.5               |      |          |      | 98.9     |      |          |      | 98.9     |      |      |      | 99.4  |     
|                           |                                      |                             |                    |      |          |      |          |      |          |      |          |      |      |      |       |     
|Income before income taxes |                                      |                             | 1.5                |      |          |      | 1.1      |      |          |      | 1.1      |      |      |      | 0.6   |     
|Provision for income taxes |                                      |                             | (0.4               | )    |          |      | (0.4     | )    |          |      | (0.3     | )    |      |      | (0.2  | )   
|                           |                                      |                             |                    |      |          |      |          |      |          |      |          |      |      |      |       |     
|Net Income                 |                                      |                             | 1.1                | %    |          |      | 0.7      | %    |          |      | 0.8      | %    |      |      | 0.4   | %   
|                           |                                      |                             |                    |      |          |      |          |      |          |      |          |      |      |      |       |     

Net income for the second quarter of 2002 was $850,000 versus $558,000 for the
second quarter of 2001. For the year-to-date period ended July 14, 2002, net
income was $1,479,000 compared to $709,000 for the year-to-date period ended
July 15, 2001.

Revenue:

Total revenues for the second quarter of 2002 increased 2.2% over the prior
year second quarter. Year-to-date, total revenues increased 3.5% over the
prior year-to-date period. This increase is primarily due to the opening of
seven new Company-operated Perkins Restaurants, the addition of nine formerly
franchised restaurants acquired from franchisees since January 1, 2001, and the
sales from two new Sage Hen Cafés. These sales increases were partially offset
by the continued impact of the closing of five Company-operated restaurants
and the sale of five Company-operated restaurants to a franchisee during 2001.

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Same store comparable sales in Company-operated restaurants decreased
approximately 1.1% for the second quarter and 1.0% year-to-date due to a
decline in comparable guest visits of 4.8% and 2.8%, respectively. The
decrease in comparable guest visits was partially offset by an increase in the
guest check average due to cumulative price increases and higher prices on
promotional items.

Revenues from Foxtail decreased approximately 3.9% over the prior year quarter,
increased 0.4% over the prior year-to-date period and constituted approximately
9.4% and 9.0%, respectively, of the Companys total revenues. The decrease in
the quarter is primarily due to a decrease in sales within the Perkins system.

Franchise revenue increased 1.6% over the second quarter of 2001 and decreased
1.1% year-to-date. For the quarter, higher franchise opening fees drove the
increase in franchise revenue. Royalty revenues declined slightly due to a
decrease in average stores and comparable sales. These decreases were
partially offset by higher average sales in new franchised restaurants.
Year-to-date franchise revenues declined due to decreases in comparable sales
and average stores. An increase in franchise opening fees partially offset
these declines. Since the second quarter of 2001, the Companys franchisees
have opened 17 restaurants and acquired five restaurants from the Company.
Franchisees have closed 13 restaurants and the Company has purchased nine
franchised restaurants.

Costs and Expenses:

Food cost:

In terms of total revenues, food cost decreased 0.7 percentage points over the
second quarter of 2001 and decreased 0.1 percentage points over the previous
year-to-date period. Restaurant food cost, as a percentage of restaurant
sales, decreased 0.4 percentage points over the second quarter of 2001 due
primarily to menu price increases and differences in the mix of promotional
menu items. For the year-to-date period, restaurant food cost was equal to the
prior year. Foxtail food cost, as a percentage of Foxtail sales, decreased 2.3
and 1.1 percentage points for the quarter and year-to-date period,
respectively, due to stable costs and improved efficiencies.


Labor and benefits:

Labor and benefits expense, as a percentage of total revenues, did not change
from the second quarter of 2001 and increased 0.6 percentage points for the
year-to-date period ended July 14, 2002. The year-to-date increase is
primarily due to a decrease in productivity in Company-operated restaurants in
the first quarter and an increase in workers compensation program costs.
Additionally, payroll tax expense increased due to the increase in labor costs.
The Company anticipates that increased workers compensation program costs will
negatively impact labor and benefits expense for the remainder of the year.
Workers compensation costs in the year-to-date period contributed 9.3% of the
increase in labor and benefits expense.


The wage rates of the Companys hourly employees are impacted by federal and
state minimum wage laws. Certain states do not allow tip credits for servers
which results in higher payroll costs as well as greater exposure to increases
in minimum wage rates. In the past, the Company has been able to offset
increases in labor costs through selective menu price increases and
improvements in labor productivity. However, there is no assurance that future
increases can be mitigated through raising menu prices.

Operating expenses:

Operating expenses, expressed as a percentage of total revenues decreased 0.1
and 0.3 percentage points, respectively, for the second quarter and
year-to-date periods. The year-to-date decrease is primarily due to a drop in
natural gas costs. This positive variance was partially offset by increased
property insurance expenses and by incremental costs for supplies and repairs
and maintenance as a result of


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a focus by the Company on improving the image of its restaurants. Expenses decreased in the
second quarter due to an overall focus on cost controls due to the continuing
weakness in sales performance.

General and administrative:

General and administrative expenses, as a percentage of total revenues
decreased 0.4 and 0.6 percentage points over the second quarter and
year-to-date periods of 2001, respectively. The decrease was primarily due to
selected staff reductions in the third quarter of 2001.


Depreciation and amortization:

Depreciation and amortization expense decreased from 7.2 percent of sales to
6.4 percent of sales over the second quarter 2001 primarily due to the adoption
of SFAS No. 142 and the increase in total revenue. Had SFAS No. 142 been
adopted as of January 1, 2001, depreciation and amortization expense would have
been approximately $298,000 and $696,000 lower in the second quarter and
year-to-date period of 2001, respectively.


Interest, net:

Interest expense, as a percentage of total revenue, decreased 0.2 percentage
points over the second quarter and year-to-date periods of 2001. The decrease
is the result of reduced average borrowings and lower variable interest rates
on the Companys revolving line of credit.


Other, net:

Other income decreased due to the reduction in the number of properties leased
and subleased to third parties.


CAPITAL RESOURCES AND LIQUIDITY

The Companys primary sources of funding during the quarter and year-to-date
period were cash flows from operating activities. The principal uses of cash
during the same periods were capital expenditures and payments on long-term
debt. Capital expenditures consisted primarily of building and equipment
purchases for new Company-operated restaurants, capital required to maintain
operations and costs related to remodeling and upgrading existing restaurants.

The following table summarizes capital expenditures for the periods ended July
14, 2002 and July 15, 2001 (in thousands):

|                           |  |               |       |               |  |   |        | 
|-------------------------- |  | ------------- | ----- | ------------- |  | - | ------ | 
|                           |  | Year-to-Date 
|                           |  |              
|                           |  | July 14, 2002 |       | July 15, 2001
|                           |  |               |      
|New restaurants            |  | $             | 1,422 |               |  | $ | 5,879  | 
|Maintenance                |  |               | 3,529 |               |  |   | 2,405  | 
|Remodeling and reimaging   |  |               | 2,877 |               |  |   | 1,616  | 
|Manufacturing              |  |               | 168   |               |  |   | 327    | 
|Other                      |  |               | 838   |               |  |   | 1,115  | 
|                           |  |               |       |               |  |   |        | 
|Total Capital Expenditures |  | $             | 8,834 |               |  | $ | 11,342 | 
|                           |  |               |       |               |  |   |        | 

The Companys capital budget for 2002 is $16.0 million. The capital budget
will be primarily applied to remodeling of existing restaurants, restaurant
maintenance and upgrades of the Companys technology systems. The capital spending plan also

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includes expenditures for the building
of one new restaurant, furniture, fixtures and equipment for three new
restaurants and the conversion of a fourth property. The Company has entered
into one ground lease and operating leases for three build-to-suit locations.
The primary source of funding for these projects is expected to be cash flows
from operating activities.

As is typical in the restaurant industry, the Company ordinarily operates with
a working capital deficit since the majority of its sales are for cash, while
credit is received from its suppliers. Funds generated by cash sales in excess
of those needed to service short-term obligations are used by the Company to
reduce debt and acquire capital assets. At July 14, 2002, this working capital
deficit was $10,297,000.

The Company has a secured $40,000,000 revolving line of credit facility (the
Credit Facility) with a sub-limit for up to $5,000,000 of letters of credit.
All amounts under the Credit Facility bear interest at floating rates based
on the agents base rate or Eurodollar rates as defined in the agreement. All
indebtedness under the Credit Facility is secured by a first priority lien on
substantially all of the assets of the Company. As of July 14, 2002,
$10,000,000 in borrowings and approximately $2,253,000 of letters of credit
were outstanding under the Credit Facility.

On November 15, 2001 the Company elected to begin accruing cash interest on
its 11.25% Senior Discount Notes (the Notes). Cash interest will be payable
semi-annually on May 15 and November 15. The principal balance of the Notes
on July 14, 2002 was $26,844,000. On May 15, 2003 the Company will be
required to redeem $8,383,000 in principal of the Notes at a redemption price
of 105.625%. The Company intends to limit capital spending in 2002 to provide
funds for the payment of cash interest on the Notes, which is expected to
total $2,969,000 in 2002.

The Company has contractual obligations and commercial commitments including
long-term debt, land lease obligations for Company operated restaurants and
office space for corporate operations. The table below presents, as of July
14, 2002, the Companys future scheduled principal repayments of long-term
debt and lease obligations (in thousands).

|                              |  |   |           |  |             |   |             |   |                  |   |        |  |  |   |         |  | 
|----------------------------- |  | - | --------- |  | ----------- | - | ----------- | - | ---------------- | - | ------ |  |  | - | ------- |  | 
|                              |  |   |           |  |             |   | Capital     |   | Operating        |   | Total  | 
|                              |  |   | Long-Term |  | Lease       |   | Lease       |   | Contractual      |   |        |  | 
|                              |  |   | Debt      |  | Obligations |   | Obligations |   | Cash Obligations
|                              |  |   |           |  |             |   |             |  
|2002                          |  | $ |          |  |             | $ | 367         |   |                  | $ | 3,698  |  |  | $ | 4,065   | 
|2003                          |  |   | 8,835     |  |             |   | 827         |   |                  |   | 7,893  |  |  |   | 17,555  | 
|2004                          |  |   |          |  |             |   | 575         |   |                  |   | 7,153  |  |  |   | 7,728   | 
|2005                          |  |   | 10,000    |  |             |   | 398         |   |                  |   | 6,452  |  |  |   | 16,850  | 
|2006                          |  |   |          |  |             |   | 312         |   |                  |   | 6,068  |  |  |   | 6,380   | 
|Thereafter                    |  |   | 148,009   |  |             |   | 279         |   |                  |   | 34,583 |  |  |   | 182,871 | 
|                              |  |   |           |  |             |   |             |   |                  |   |        |  |  |   |         | 
|Total                         |  | $ | 166,844   |  |             |   | 2,758       |   |                  | $ | 65,847 |  |  | $ | 235,449 | 
|Less:                         |  |   |           |  |             |   |             |   |                  |   |        |  |  |   |         | 
|Amounts
representing interest |  |   |           |  |             |   | (472        | ) |                  |   |        |  |  |   |         | 
|                              |  |   |           |  |             |   |             |   |                  |   |        |  |  |   |         | 
|Capital lease obligations     |  |   |           |  |             | $ | 2,286       |   |                  |   |        |  |  |   |         | 

TRC is a wholly-owned subsidiary of RHC. The common shares of RHC not owned by
Mr. Smith are subject to an option to require RHC to redeem the shares at any
time after December 22, 2004 at fair market value (the Put). As of July 14,
2002, these shares represented 30% of the outstanding common stock of RHC. As
of December 31, 2001, the estimated fair market value of the Put was
$12,727,000. RHC has a management fee agreement dated as of December 22, 1999,
with BBV whereby BBV provides certain consulting services to RHC. In
consideration for these services, a fee of $250,000 accrues annually and is
payable by RHC on December 22, 2004.

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Additionally, RHC issued 50,000 shares of non-voting preferred stock on
December 22, 1999. The preferred stock is mandatorily redeemable for $1,000
per share (the Liquidation Value) plus all accrued but unpaid dividends, if
any, on December 22, 2006. Preferred dividends of 8% per annum of the
Liquidation Value of each share are payable quarterly. As of July 14, 2002,
approximately $11,230,000 of in-kind dividends had been paid through the
issuance of additional shares of preferred stock. Assuming a continuation of
in-kind dividends, the redemption price on December 22, 2006 is estimated to
be $87,044,000. The holders of preferred stock are entitled to be paid in cash
the Liquidation Value of each share of preferred stock before any payments are
made to any holders of common stock. The preferred stock is redeemable at the
option of the Company at any time prior to the mandatory redemption date at
the Liquidation Value plus a redemption premium as specified in the Companys
Charter. The redemption premium is 3% through December 21, 2002 after which
the preferred stock is redeemable at par.

RHC has no material assets other than its investment in TRC. The ability of
TRC to pay dividends to or make distributions to RHC in order to redeem common
or preferred shares or pay the management fee to BBV is restricted under its
senior notes and the Credit Facility. Therefore, TRC may need to recapitalize
or refinance all or a portion of its obligations on or prior to maturity.

The Companys ability to make scheduled payments of principal of, or to pay the
interest or liquidated damages, if any, on, or to refinance, its indebtedness,
or to fund planned capital expenditures, or to meet its or RHCs other
liquidity needs will depend on the Companys future performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond control of the
Company. Based upon the current level of operations, management believes that
cash flow from operating activities and available cash, together with available
borrowings under the Credit Facility, will be adequate to meet the Companys
liquidity needs in the normal course of its operations. There can be no
assurance that the Company will generate sufficient cash flow from operations,
have access to capital markets or that future borrowings will be available in
an amount sufficient to enable the Company to service its indebtedness or to
fund its other liquidity needs. In addition, there can be no assurance that the
Company will be able to effect any necessary recapitalization or refinancing
on commercially reasonable terms or at all.

SEASONALITY

Company revenues are subject to seasonal fluctuations. Customer counts (and
consequently revenues) are highest in the summer months and lowest during the
winter months because of the high proportion of restaurants located in states
where inclement weather adversely affects guest visits.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets. Under SFAS No. 142 goodwill and other intangible
assets are no longer amortized but are tested for impairment using a fair value
methodology. The Company adopted SFAS No. 142 effective December 31, 2001 and
ceased amortization of goodwill in 2002 under the provisions of the statement.

Under the guidelines of SFAS 142, the Company was required to test all existing
goodwill for impairment as of December 31, 2001 on a reporting unit basis.
The Company has determined that its operating segments are its reporting units
under the provisions of SFAS 142. In this assessment of the carrying value of
goodwill, the Company developed its best estimate of operating cash flow for
each reporting unit and applied current market multiples, by reporting unit, to
determine the fair value of the assets, including goodwill. Based on this
assessment, the Company has determined that no impairment of goodwill existed
as of December 31, 2001.

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The following schedule provides the carrying amount of goodwill, by segment.

|                            |  |             |        |           |  |               |        |       |  |         |   |  |  |   |   |  |  |       |        | 
|--------------------------- |  | ----------- | ------ | --------- |  | ------------- | ------ | ----- |  | ------- | - |  |  | - | - |  |  | ----- | ------ | 
|                            |  |             |        |           |  |               |        |       |  |         |   |  |  |   |   |  |  | Total
|                            |  | Restaurants |        | Franchise |  | Manufacturing |        | Other |  | Company
|                            |  |             |        |           |  |               |        |       |  |        
|Balance as of July 14, 2002 |  | $           | 14,037 |           |  | $             | 12,998 |       |  | $       |  |  |  | $ |  |  |  | $     | 27,035 | 

The following schedule adjusts reported net income to exclude amortization
expense related to goodwill.

|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |   |       | 
|--------------------------------- |  | ----------- | ------ | --------- |  | ------------- | ------ | ----- |  | ------- | ----- |  |  | - | ------- | - |  | - | ----- | 
|                                  |  |             |        |           |  |               |        |       |  | Total  
|                                  |  | Restaurants |        | Franchise |  | Manufacturing |        | Other |  | Company
|                                  |  |             |        |           |  |               |        |       |  |        
|Quarter ended July 14, 2002:      |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |   |       | 
|Reported net income (loss)        |  | $           | 6,390  |           |  | $             | 4,521  |       |  | $       | 1,710 |  |  | $ | (11,771 | ) |  | $ | 850   | 
|Add back: Goodwill amortization   |  |             |       |           |  |               |       |       |  |         |      |  |  |   |        |   |  |   |      | 
|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |   |       | 
|Adjusted net income (loss)        |  | $           | 6,390  |           |  | $             | 4,521  |       |  | $       | 1,710 |  |  | $ | (11,771 | ) |  | $ | 850   | 
|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |   |       | 
|Quarter ended July 15, 2001:      |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |   |       | 
|Reported net income (loss)        |  | $           | 5,295  |           |  | $             | 4,513  |       |  | $       | 1,881 |  |  | $ | (11,131 | ) |  | $ | 558   | 
|Add back: Goodwill amortization   |  |             | 145    |           |  |               | 153    |       |  |         |      |  |  |   |        |   |  |   | 298   | 
|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |   |       | 
|Adjusted net income (loss)        |  | $           | 5,440  |           |  | $             | 4,666  |       |  | $       | 1,881 |  |  | $ | (11,131 | ) |  | $ | 856   | 
|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |   |       | 
|Year-to-date ended July 14, 2002: |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |   |       | 
|Reported net income (loss)        |  | $           | 14,458 |           |  | $             | 9,948  |       |  | $       | 3,776 |  |  | $ | (26,703 | ) |  | $ | 1,479 | 
|Add back: Goodwill amortization   |  |             |       |           |  |               |       |       |  |         |      |  |  |   |        |   |  |   |      | 
|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |   |       | 
|Adjusted net income (loss)        |  | $           | 14,458 |           |  | $             | 9,948  |       |  | $       | 3,776 |  |  | $ | (26,703 | ) |  | $ | 1,479 | 
|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |   |       | 
|Year-to-date ended July 15, 2001: |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |   |       | 
|Reported net income (loss)        |  | $           | 13,341 |           |  | $             | 10,183 |       |  | $       | 3,781 |  |  | $ | (26,596 | ) |  | $ | 709   | 
|Add back: Goodwill amortization   |  |             | 339    |           |  |               | 357    |       |  |         |      |  |  |   |        |   |  |   | 696   | 
|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |   |       | 
|Adjusted net income (loss)        |  | $           | 13,680 |           |  | $             | 10,540 |       |  | $       | 3,781 |  |  | $ | (26,596 | ) |  | $ | 1,405 | 
|                                  |  |             |        |           |  |               |        |       |  |         |       |  |  |   |         |   |  |   |       | 

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long Lived Assets. SFAS No. 144 modifies the rules for evaluating
the recoverability of assets (including intangibles) when events and
circumstances indicate that the assets might be impaired. The Company adopted
SFAS No. 144 effective December 31, 2001, with no material impact on the
Companys financial position or results of operations.

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The Company operates two Sage Hen Cafés. The first of these restaurants was
opened in March 2001 and the second was opened in November 2001. The Company is
currently evaluating the viability of the Sage Hen Café concept and plans to
make a determination by the end of the fourth quarter of 2002 to either
continue operating these restaurants as Sage Hen Cafés, to convert the
properties to Perkins Restaurants, to sublease the properties to third parties
or to terminate its leases. All of the alternatives being considered may result
in a determination by the Company that certain or all of the assets related to
these properties are impaired as defined under SFAS 144. As of July 14, 2002,
the net book value of the long-lived assets related to these two restaurants
was approximately $1,227,000.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145 rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, requiring that gains and losses from the
extinguishment of debt be classified as extraordinary items only if certain
criteria are met. SFAS 145 also amends SFAS No. 13, Accounting for Leases,
and the required accounting for sale-leaseback transactions and certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. SFAS 145 is effective for the Company on December 30, 2002.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
initially at fair value when the liability is incurred. SFAS 146 is effective
for the Company on December 30, 2002 and will be applied on a prospective
basis.

FORWARD-LOOKING STATEMENTS

This discussion contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are based on current expectations that are subject to known and
unknown risks, uncertainties and other factors that could cause actual results
to differ materially from those contemplated by the forward-looking statements.
Such factors include, but are not limited to, the following: general economic
conditions, competitive factors, consumer taste and preferences and adverse
weather conditions. The Company does not undertake to publicly update or
revise the forward-looking statements even if experience or future changes make
it clear that the projected results expressed or implied therein will not be
realized.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

The Company currently has market risk sensitive instruments related to
interest rates. The Company is not subject to significant exposure for
changing interest rates on its senior notes because the interest rates are
fixed. The Company has in place a $40,000,000 line of credit facility which
matures on January 1, 2005. All borrowings under the facility bear interest
at floating rates based on the agents base rate or Eurodollar rates. The
Company had $10,000,000 outstanding under the line of credit facility at July
14, 2002. While changes in market interest rates would affect the cost of
funds borrowed in the future, the Company believes that the effect, if any, of
reasonably possible near-term changes in interest rates on the Companys
consolidated financial position, results of operations or cash flows would not
be material.

Commodity Price Risk

Many of the food products purchased by the Company are affected by commodity
pricing and are, therefore, subject to price volatility caused by weather,
production problems, delivery difficulties and other factors which are outside
the control of the Company. The Companys supplies and raw materials are
available from several sources and the Company is not dependent upon any
single source for these items. If any existing suppliers fail, or are unable
to deliver in quantities required by the Company, the Company believes that
there are sufficient other quality suppliers in the marketplace, and
therefore, its sources of supply can be replaced as necessary. At times, the
Company enters into purchase contracts of one year or less or purchases bulk
quantities for future use of certain items in order to control commodity
pricing risks. Certain significant items that could be subject to price
fluctuations are beef, pork, coffee, eggs, poultry, wheat products and corn
products. The Company believes it will be able to pass through increased
commodity costs by adjusting menu pricing in most cases. Additionally, the
Companys product offerings and marketing events are relatively diverse.
Therefore, the Company has the flexibility to adjust its product mix to take
advantage of or limit exposure to commodity cost fluctuations. The Company
believes that any changes in commodity pricing, which cannot be offset by
changes in menu pricing or other product delivery strategies, would not be
material to the Companys consolidated financial position, results of
operations or cash flows.

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PART II  OTHER INFORMATION




Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits  None

(b)  Reports on Form 8-K   A report on Form 8-K was filed under item 4
on May 9, 2002, announcing the Companys dismissal of Arthur Andersen
LLP as its independent auditors and the Companys engagement of
PricewaterhouseCoopers as its new independent auditors.

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Signature

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

|                       |  |                        |  |                                                                                   
|---------------------- |  | ---------------------- |  | ----------------------------------------------------------------------------------
|                       |  | THE RESTAURANT COMPANY
|                      
|DATE: August  28,
2002 |  | BY:                    |  | /s/ Steven R.
McClellan                                                           
|                       |  |                        |  |                                                                                   
|                       |  |                        |  | Steven R. McClellan
Executive Vice President,
Chief Financial Officer and Director
|                      
|                       |  | BY:                    |  | /s/ Louis C. Jehl                                                                 
|                       |  |                        |  |                                                                                   
|                       |  |                        |  | Louis C.
JehlVice President and Controller                                        

The Restaurant Company is not an issuer that is required to file reports
pursuant to section 13 or 15 (d) of the Securities Exchange Act of 1934, as
amended. Therefore, this report is not required to be, and is not, accompanied
by the written statement set forth in Section 906 of the Sarbanes-Oxley Act of
2002.

22