UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549 
 
 FORM
10-Q
 
 (Mark One)
 
 R
              QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
the quarterly period ended April 19,
2009
 
 OR
 
 £
              TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
the transition period from _____________ to ____________.
 
 Commission
file number 333-57925
 
 Perkins
& Marie Callender’s Inc.
 
 (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 R
whether the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
 Yes  R                No  0
  Indicate
by Rcheck
mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post
such files).


Yes  o                No  0




R , or a smaller reporting company definitions ,” “accelerated filer” and “smaller reporting
company





Large accelerated filer£
                                                      Accelerated filer£Non-accelerated filerR(Do not check if a smaller reporting
      company)
                                                      Smaller reporting company£





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes             £       No              R


Number of
shares of common stock outstanding as of June 3, 2009: 10,820.















TABLE OF
CONTENTS





PART I — FINANCIAL INFORMATION
                                PageItem 1. Financial Statements:Consolidated Statements of Operations (Unaudited) – Quarters
      Ended April 19, 2009 and April 20, 2008
                                2Consolidated Balance Sheets – April 19, 2009 (Unaudited) and
      December 28, 2008
                                3Consolidated Statements of Cash Flows (Unaudited) – Quarters
      Ended April 19, 2009 and April 20, 2008
                                5Notes to Consolidated Financial Statements
      (Unaudited)
                                6Item 2. Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
                                20Item 3. Quantitative and Qualitative Disclosures about
      Market Risk
                                31Item 4. Controls and Procedures
                                32PART II — OTHER INFORMATIONItem 1. Legal Proceedings
                                33Item 1A. Risk Factors
                                33Item 2. Unregistered Sales of Equity Securities and Use
      of Proceeds
                                33Item 3. Defaults Upon Senior
    Securities
                                33Item 4. Submission of Matters to a Vote of Security
      Holders
                                33Item 5. Other Information
                                33Item 6. Exhibits
                                33SIGNATURE
                                34Ex-31.1 Section 302 Certification of the
      CEO
                                  
                                  Ex-31.2 Section 302 Certification of the
      CFO
                                  
                                  Ex-32.1 Section 906 Certification of the
      CEO
                                  
                                  Ex-32.2 Section 906 Certification of the
      CFO







Table of Contents





PART I — FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS





PERKINS
& MARIE CALLENDER’S INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


(In
thousands)





Quarter
                
                
                QuarterEnded
                
                
                EndedApril
      19, 2009
                
                
                April
      20, 2008REVENUES:Food
      sales
                
                $
                160,877
                
                
                
                173,468Franchise
      and other revenue
                
                
                8,376
                
                
                
                8,932Total revenues
                
                
                169,253
                
                
                
                182,400COSTS
      AND EXPENSES:Cost
      of sales (excluding depreciation shown below):Food
      cost
                
                
                42,974
                
                
                
                50,402Labor
      and benefits
                
                
                55,325
                
                
                
                59,489Operating
      expenses
                
                
                45,701
                
                
                
                46,953General
      and administrative
                
                
                14,089
                
                
                
                15,017Depreciation
      and amortization
                
                
                7,356
                
                
                
                7,606Interest,
      net
                
                
                13,615
                
                
                
                10,277Asset
      impairments and closed store expenses
                
                
                862
                
                
                
                76Other,
      net
                
                
                (961
                )
                
                
                (59
                )Total
      costs and expenses
                
                
                178,961
                
                
                
                189,761Loss
      before income taxes
                
                
                (9,708
                )
                
                
                (7,361
                )Provision
      for income taxes
                
                
                -
                
                
                
                (181
                )Net
      loss
                
                
                (9,708
                )
                
                
                (7,542
                )Less:
      net earnings attributable to noncontrolling interests
                
                
                46
                
                
                
                46Net
      loss attributable to Perkins & Marie Callender's Inc.
                
                $
                (9,754
                )
                
                
                (7,588
                )









The
accompanying notes are an integral part of these consolidated financial
statements.
 2
 Table of Contents





PERKINS
& MARIE CALLENDER’S INC.


CONSOLIDATED BALANCE SHEETS


(In
thousands)











April
      19,
                
                
                December
      28,2009
                
                
                2008ASSETS
                
                (Unaudited)CURRENT
      ASSETS:Cash
      and cash equivalents
                
                $
                3,283
                
                
                
                4,613Restricted
      cash
                
                
                9,872
                
                
                
                10,140Receivables,
      less allowances for doubtful accounts of $939
                  and
      $954 in 2009 and 2008, respectively
                
                
                16,214
                
                
                
                21,386Inventories
                
                
                11,434
                
                
                
                12,300Prepaid
      expenses and other current assets
                
                
                4,415
                
                
                
                2,996Total
      current assets
                
                
                45,218
                
                
                
                51,435PROPERTY
      AND EQUIPMENT, net of accumulated
                  depreciation
      and amortization of $130,094 and $125,951 in
                  2009
      and 2008, respectively
                
                
                87,974
                
                
                
                93,500INVESTMENT
      IN UNCONSOLIDATED PARTNERSHIP
                
                
                38
                
                
                
                48GOODWILL
                
                
                9,836
                
                
                
                9,836INTANGIBLE
      ASSETS, net of accumulated amortization of
                  $20,689
      and $19,963 in 2009 and 2008, respectively
                
                
                150,121
                
                
                
                150,847OTHER
      ASSETS
                
                
                17,546
                
                
                
                17,842TOTAL
      ASSETS
                
                $
                310,733
                
                
                
                323,508












The
accompanying notes are an integral part of these consolidated financial
statements.
 3
 Table of Contents





PERKINS
& MARIE CALLENDER’S INC.


CONSOLIDATED
BALANCE SHEETS


(In
thousands, except par and share amounts)











April
      19,
                      
                      
                      December
      28,2009
                      
                      
                      2008LIABILITIES
      AND EQUITY (DEFICIT)
                      
                      (Unaudited)CURRENT
      LIABILITIES:Accounts
      payable
                      
                      $
                      13,356
                      
                      
                      
                      18,295Accrued
      expenses
                      
                      
                      47,522
                      
                      
                      
                      47,040Franchise
      advertising contributions
                      
                      
                      5,430
                      
                      
                      
                      5,316Current
      maturities of long-term debt and capital lease obligations
                      
                      
                      373
                      
                      
                      
                      382Total
      current liabilities
                      
                      
                      66,681
                      
                      
                      
                      71,033LONG-TERM
      DEBT, less current maturities
                      
                      
                      316,317
                      
                      
                      
                      316,534CAPITAL
      LEASE OBLIGATIONS, less current maturities
                      
                      
                      13,596
                      
                      
                      
                      13,715DEFERRED
      RENT
                      
                      
                      15,751
                      
                      
                      
                      15,343OTHER
      LIABILITIES
                      
                      
                      19,029
                      
                      
                      
                      17,741EQUITY
      (DEFICIT):Common
      stock, $.01 par value; 100,000 shares authorized;10,820
      issued and outstanding
                      
                      
                      1
                      
                      
                      
                      1Additional
      paid-in capital
                      
                      
                      149,851
                      
                      
                      
                      149,851Accumulated
      other comprehensive income (loss)
                      
                      
                      (9
                      )
                      
                      
                      (4
                      )Accumulated
      deficit
                      
                      
                      (270,675
                      )
                      
                      
                      (260,921
                      )Total
      stockholder's investment (deficit)
                      
                      
                      (120,832
                      )
                      
                      
                      (111,073
                      )Noncontrolling
      interests
                      
                      
                      191
                      
                      
                      
                      215Total
      equity (deficit)
                      
                      
                      (120,641
                      )
                      
                      
                      (110,858
                      )TOTAL
      LIABILITIES AND EQUITY (DEFICIT)
                      
                      $
                      310,733
                      
                      
                      
                      323,508














The
accompanying notes are an integral part of these consolidated financial
statements.
 4
 Table of Contents





PERKINS
& MARIE CALLENDER’S INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


(In
thousands)





Quarter
                    
                    
                    QuarterEnded
                    
                    
                    EndedApril
      19, 2009
                    
                    
                    April
      20, 2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                    
                    $
                    (9,708
                    )
                    
                    
                    (7,542
                    )Adjustments
      to reconcile net loss to net cash provided by (used in)operating
      activities:Depreciation
      and amortization
                    
                    
                    7,356
                    
                    
                    
                    7,606Asset
      impairments
                    
                    
                    202
                    
                    
                    
                    232Amortization
      of debt discount
                    
                    
                    474
                    
                    
                    
                    102Other
      non-cash income and expense items
                    
                    
                    (709
                    )
                    
                    
                    (223
                    )Loss
      (gain) on disposition of assets
                    
                    
                    660
                    
                    
                    
                    (156
                    )Equity
      in net loss (income) of unconsolidated partnership
                    
                    
                    10
                    
                    
                    
                    (2
                    )Net
      changes in operating assets and liabilities
                    
                    
                    3,399
                    
                    
                    
                    (9,349
                    )Total
      adjustments
                    
                    
                    11,392
                    
                    
                    
                    (1,790
                    )Net
      cash provided by (used in) operating activities
                    
                    
                    1,684
                    
                    
                    
                    (9,332
                    )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property and equipment
                    
                    
                    (2,474
                    )
                    
                    
                    (5,728
                    )Proceeds
      from sale of assets
                    
                    
                    476
                    
                    
                    
                    -Net
      cash used in investing activities
                    
                    
                    (1,998
                    )
                    
                    
                    (5,728
                    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from terminated revolver
                    
                    
                    -
                    
                    
                    
                    2,700Repayment
      of terminated revolver
                    
                    
                    -
                    
                    
                    
                    (3,200
                    )Proceeds
      from Revolver
                    
                    
                    7,443
                    
                    
                    
                    -Repayment
      of Revolver
                    
                    
                    (8,128
                    )
                    
                    
                    -Repayment
      of Term Loan
                    
                    
                    -
                    
                    
                    
                    (500
                    )Repayment
      of capital lease obligations
                    
                    
                    (128
                    )
                    
                    
                    (157
                    )Repayment
      of other debt
                    
                    
                    (6
                    )
                    
                    
                    (6
                    )Debt
      financing costs
                    
                    
                    (127
                    )
                    
                    
                    (1,056
                    )Lessor
      financing of new restaurants
                    
                    
                    -
                    
                    
                    
                    1,542Distributions
      to noncontrolling interest holders
                    
                    
                    (70
                    )
                    
                    
                    (168
                    )Repurchase
      of equity ownership units in P&MC's Holding LLC
                    
                    
                    -
                    
                    
                    
                    (185
                    )Net
      cash used in financing activities
                    
                    
                    (1,016
                    )
                    
                    
                    (1,030
                    )NET
      DECREASE IN CASH AND CASH EQUIVALENTS
                    
                    
                    (1,330
                    )
                    
                    
                    (16,090
                    )CASH
      AND CASH EQUIVALENTS:Balance,
      beginning of period
                    
                    
                    4,613
                    
                    
                    
                    19,032Balance,
      end of period
                    
                    $
                    3,283
                    
                    
                    
                    2,942










The
accompanying notes are an integral part of these consolidated financial
statements.
 5
 Table of Contents





PERKINS
& MARIE CALLENDER’S INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





(1)
Organization





Perkins
& Marie Callender’s Inc. (together with its consolidated subsidiaries
collectively the “Company”, “we” or “us”), is a wholly-owned subsidiary of
Perkins & Marie Callender’s Holding Inc. Perkins & Marie Callender’s
Holding Inc. is a wholly-owned subsidiary of P&MC’s Holding Corp., which is
a wholly-owned subsidiary of P&MC’s Holding LLC, which is principally owned
by affiliates of Castle Harlan, Inc. The Company is the sole equity holder of
Wilshire Restaurant Group, LLC.





The
Company operates two primary restaurant concepts: (1) full-service family dining
restaurants located primarily in the Midwest, Florida and Pennsylvania under the
name Perkins Restaurant and Bakery (“Perkins”) and (2) mid-priced, casual-dining
restaurants, specializing in the sale of pie and other bakery items, located
primarily in the western United States under the name Marie Callender’s
Restaurant and Bakery (“Marie Callender’s”).





Through
our bakery goods manufacturing segment (“Foxtail”), we also offer pies, muffin
batters, cookie doughs, pancake mixes, and other food products for sale to our
Perkins and Marie Callender’s Company-operated and franchised restaurants and to
unaffiliated customers, such as food service distributors.





Wilshire
Restaurant Group, LLC owns 100% of the outstanding common stock of Marie
Callender Pie Shops, Inc. (“MCPSI”). MCPSI owns and operates restaurants and has
granted franchises under the name Marie Callender’s and Marie Callender’s Grill.
MCPSI also owns 100% of the outstanding common stock of M.C. Wholesalers, Inc.
M.C. Wholesalers, Inc. operates a commissary that produces bakery goods. MCPSI
also owns 100% of the outstanding common stock of FIV Corp., which owns and
operates one restaurant under the name East Side Mario’s.





(2)
Basis of Presentation





The
consolidated interim financial statements included in this report have been
prepared by the Company without audit in accordance with U.S. generally accepted
accounting principles. In the opinion of the Company’s management, all
adjustments consisting only of normal recurring items necessary for a fair
presentation of the results of operations are reflected in these consolidated
interim financial statements. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses. The most significant
estimates and assumptions underlying these financial statements and accompanying
notes generally involve royalty revenue recognition and provisions for related
uncollectible accounts, asset impairments, self-insurance accruals and valuation
allowances for income taxes.





The
results of operations for the interim period ended April 19, 2009 are not
necessarily indicative of operating results for the full year. The consolidated
interim financial statements contained herein should be read in conjunction with
the audited consolidated financial statements and notes contained in the
Company’s 2008 Annual Report on Form 10-K, filed with the Securities and
Exchange Commission on March 30, 2009.





(3)
Accounting Reporting Period





Our
financial reporting is based on thirteen four-week periods ending on the last
Sunday in December. The first quarter each year includes four four-week periods,
and the second, third and fourth quarters each typically include three four-week
periods.  The first quarter of 2009 ended April 19 and the first
quarter of 2008 ended April 20.  The second, third and fourth quarters
of 2009 will end July 12, October 4 and December 27, respectively.





(4)
Operations, Financial Position and Liquidity





At April
19, 2009, we had a negative working capital balance of $21,463,000 and a total
stockholder’s deficit of $120,832,000.  At April 19, 2009, we had
$3,283,000 in unrestricted cash and cash equivalents and $13,111,000 of
borrowing capacity under our revolving credit facility.








6
 Table of Contents





Our
principal sources of liquidity include unrestricted cash, available borrowings
under our revolving credit facility and cash generated by
operations.  We also have from time to time received capital
contributions from our parent company, including a $12,500,000 capital
contribution received in 2008, and engaged in capital markets
transactions.  Our principal uses of liquidity are costs and expenses
associated with our restaurant and manufacturing operations, servicing
outstanding indebtedness (including interest), and making capital
expenditures.





We have
experienced a decline in same store sales and an increase in net losses in
recent quarterly periods.  The recent turmoil in the economy has
adversely affected our guest counts and, in turn, our net loss and cash
generated by operations.  The Company expects to incur a net loss in
2009.  In order to improve the cash flows in our business, we have
introduced a new breakfast program at our Marie Callender’s restaurants,
implemented price increases, improved systems to more effectively manage our
food and labor costs, upgraded our management staff and certain equipment in our
Foxtail division to drive higher operating efficiencies, reduced overall planned
capital expenditures for 2009,and eliminated several salaried
positions.  Management expects these initiatives together with the
Company’s cash provided by operations and borrowing capacity to provide
sufficient liquidity for at least the next twelve months.  However,
there can be no assurance as to whether these or other actions will enable us to
generate sufficient cash flow to fund our operations and service our
debt.





(5)
Gift Cards





The
Company issues gift cards and prior to March 2005, issued gift certificates
(collectively, “gift cards”) that contain no expiration dates or inactivity
fees.  The Company recognizes revenue from gift cards when they are
redeemed by the customer.  The Company recognizes income from
unredeemed gift cards (“gift card breakage”) when there is sufficient historical
data to support an estimate, the likelihood of redemption is remote and there is
no legal obligation to remit the unredeemed gift card balances to the state tax
authorities under their escheat regulations.   The gift card
breakage rate is determined based on historical redemption patterns and gift
card breakage is included in other, net in the Consolidated Statements of
Operations.  During the first quarter of 2009, management concluded it
now has sufficient evidence to estimate the gift card breakage rate and recorded
$865,000 of gift card breakage, which included amounts related to gift cards
sold since the inception of our gift card program in 2005.





As of
April 19, 2009 and December 28, 2008, respectively, the Company has recorded
approximately $2,340,000 and $3,228,000 of net gift card proceeds received from
Perkins’ franchisees as restricted cash and accrued expenses on its consolidated
balance sheets. The operating expenses of the Gift Card Fund, which primarily
consist of production costs of the cards and bank fees, are not
significant.





(6)
Commitments, Contingencies and Concentrations





We are a
party to various legal proceedings in the ordinary course of business. We do not
believe it is likely that these proceedings, either individually or in the
aggregate, will have a material adverse effect on our consolidated financial
statements.





The
majority of our franchise revenues are generated from franchisees owning
individually less than five percent (5%) of total franchised restaurants, and,
therefore, the loss of any one of these franchisees would not have a material
impact on our results of operations.





As of
April 19, 2009, three Perkins franchisees otherwise unaffiliated with the
Company owned 89, or 28%, of the 316 franchised Perkins restaurants, consisting
of 41, 27 and 21 restaurants, respectively.  During the first quarter
of 2009, these three Perkins franchisees provided royalties and license fees of
$550,000, $426,000 and $435,000, respectively.  During the first
quarter of 2008, these three Perkins franchisees provided royalties and license
fees of $582,000, $429,000 and $457,000, respectively.





As of
April 19, 2009, three Marie Callender’s franchisees otherwise unaffiliated with
the Company owned 13, or 31%, of the 42 franchised Marie Callender’s
restaurants, consisting of five, four and four restaurants, respectively. During
the first quarter of 2009, these three Marie Callender’s franchisees provided
royalties and license fees of $150,000, $117,000 and $81,000,
respectively.  During the first quarter of 2008, these three Marie
Callender’s franchisees provided royalties and license fees of $185,000,
$157,000 and $98,000, respectively.








7
 Table of Contents





The
Company has arrangements with several different parties to whom territorial
rights were granted in exchange for specified payments. The Company makes
specified payments to those parties based on a percentage of gross sales from
certain Perkins restaurants and for new Perkins restaurants opened within those
geographic regions. During the first quarters of 2009 and 2008, we paid an
aggregate of $779,000 and $803,000, respectively, under such arrangements. Three
such agreements are currently in effect. Of these, one expires in the year 2075,
one expires upon the death of the beneficiary and the remaining agreement
remains in effect as long as we operate Perkins restaurants in certain
states.





(7)
Supplemental Cash Flow Information





The
change in cash and cash equivalents due to changes in operating assets and
liabilities in the statements of cash flows for the quarters ended April 19,
2009 and April 20, 2008 consisted of the following (in thousands):








Quarter
                
                
                QuarterEnded
                
                
                EndedApril
      19, 2009
                
                
                April
      20, 2008Decrease
      (increase)  in:Receivables
                
                $
                5,009
                
                
                
                (503
                )Inventories
                
                
                866
                
                
                
                74Prepaid
      expenses and other current assets
                
                
                (1,418
                )
                
                
                501Other
      assets
                
                
                430
                
                
                
                1,017Increase
      (decrease) in:Accounts
      payable
                
                
                (4,939
                )
                
                
                (4,731
                )Accrued
      expenses and other current liabilities
                
                
                1,755
                
                
                
                (3,753
                )Other
      liabilities
                
                
                1,696
                
                
                
                (1,954
                )Net
      changes in operating assets and liabilities
                
                $
                3,399
                
                
                
                (9,349
                )







(8)
Goodwill and Intangible Assets


Goodwill





Goodwill
of $9,836,000 at both April 19, 2009 and December 28, 2008 was attributable
solely to the restaurant operating segment.





Intangible
Assets





The
components of our identifiable intangible assets are as follows (in
thousands):





April
      19,
                  2009
                
                
                December
      28,
                  2008Amortizing
      intangible assets:Franchise
      agreements
                
                $
                35,000
                
                
                
                35,000Customer
      relationships
                
                
                13,300
                
                
                
                13,300Acquired
      franchise rights
                
                
                11,076
                
                
                
                11,076Design
      prototype
                
                
                834
                
                
                
                834Subtotal
                
                
                60,210
                
                
                
                60,210Less
      — accumulated amortization
                
                
                (20,689
                )
                
                
                (19,963
                )Total
      amortizing intangible assets
                
                
                39,521
                
                
                
                40,247Nonamortizing
      intangible asset:Tradenames
                
                
                110,600
                
                
                
                110,600Total
      intangible assets
                
                $
                150,121
                
                
                
                150,847








8
 Table of Contents





(9)
Accrued Expenses





Accrued
expenses consisted of the following (in thousands):








April
      19,
                  2009
                
                
                December
      28,
                  2008Payroll
      and related benefits
                
                $
                15,130
                
                
                
                15,017Interest
                
                
                11,622
                
                
                
                9,634Gift
      cards and gift certificates
                
                
                5,479
                
                
                
                7,446Property,
      real estate and sales taxes
                
                
                6,289
                
                
                
                4,118Insurance
                
                
                1,772
                
                
                
                1,874Advertising
                
                
                1,332
                
                
                
                978Other
                
                
                5,898
                
                
                
                7,973Total
      accrued expenses
                
                $
                47,522
                
                
                
                47,040





(10)
Segment Reporting





We have
three reportable segments: restaurant operations; franchise operations; and
Foxtail. The restaurant operations include the operating results of
Company-operated Perkins and Marie Callender’s restaurants. The franchise
operations include revenues and expenses directly attributable to franchised
Perkins and Marie Callender’s restaurants. Foxtail’s operations consist of three
manufacturing plants: one in Corona, California and two in Cincinnati,
Ohio.





Restaurant
operations operate principally in the U.S. within the family dining and casual
dining industries, providing similar products to similar
customers.  Revenues from restaurant operations are derived
principally from food and beverage sales to external
customers.  Revenues from franchise operations consist primarily of
royalty income earned on the revenues generated at franchisees’ restaurants and
initial franchise fees.   Revenues from Foxtail are generated by
the sale of food products to both Company-operated and franchised Perkins and
Marie Callender’s restaurants as well as to unaffiliated customers. Foxtail’s
sales to Company-operated restaurants are eliminated for reporting
purposes.  The revenues in the “other” segment are primarily licensing
revenues.





9
 Table of Contents





The
following table presents revenues and other financial information by business
segment (in thousands):





Quarter
                        
                        
                        QuarterEnded
                        
                        
                        EndedRevenues
                        
                        April
      19, 2009
                        
                        
                        April
      20, 2008Restaurant
      operations
                        
                        $
                        149,228
                        
                        
                        
                        159,035Franchise
      operations
                        
                        
                        6,944
                        
                        
                        
                        7,432Foxtail
                        
                        
                        17,562
                        
                        
                        
                        19,776Intersegment
      revenue
                        
                        
                        (5,913
                        )
                        
                        
                        (5,343
                        )Other
                        
                        
                        1,432
                        
                        
                        
                        1,500Total
                        
                        $
                        169,253
                        
                        
                        
                        182,400Segment profit (loss)Restaurant
      operations
                        
                        
                        9,076
                        
                        
                        
                        8,190Franchise
      operations
                        
                        
                        6,429
                        
                        
                        
                        6,821Foxtail
                        
                        
                        159
                        
                        
                        
                        (76
                        )Other
                        
                        
                        (25,418
                        )
                        
                        
                        (22,523
                        )Total
                        
                        $
                        (9,754
                        )
                        
                        
                        (7,588
                        )Segment assets
                        
                        April
      19,
                          2009
                        
                        
                        December
      28, 2008Restaurant
      operations
                        
                        
                        126,016
                        
                        
                        
                        131,135Franchise
      operations
                        
                        
                        100,287
                        
                        
                        
                        102,719Foxtail
                        
                        
                        30,679
                        
                        
                        
                        37,575Other
                        
                        
                        53,751
                        
                        
                        
                        52,079Total
                        
                        $
                        310,733
                        
                        
                        
                        323,508





The
components of the other segment loss are as follows (in
thousands):





Quarter
                
                
                QuarterEnded
                
                
                EndedApril
      19, 2009
                
                
                April
      20, 2008General
      and administrative expenses
                
                $
                12,150
                
                
                
                12,384Depreciation
      and amortization expenses
                
                
                1,037
                
                
                
                1,010Interest
      expense, net
                
                
                13,615
                
                
                
                10,277Loss
      (gain) on disposition of assets, net
                
                
                660
                
                
                
                (156
                )Asset
      write-down
                
                
                202
                
                
                
                232Provision
      for income taxes
                
                
                -
                
                
                
                181Net
      earnings attributable to noncontrolling interests
                
                
                46
                
                
                
                46Licensing
      revenue
                
                
                (1,361
                )
                
                
                (1,417
                )Other
                
                
                (931
                )
                
                
                (34
                )Total
      other segment loss
                
                $
                25,418
                
                
                
                22,523











10
 Table of Contents





(11)
Long-Term Debt





Refinancing
Transaction





On
September 24, 2008, the Company issued $132,000,000 of 14% senior secured notes
(the "Secured Notes") and entered into a new $26,000,000 revolving credit
facility (the “Revolver”) in connection with the refinancing and termination of
its then existing $100,000,000 term loan and $40,000,000
revolver.





Secured
Notes and 10% Senior Notes





The
Secured Notes were issued at a discount of $7,537,200, which will be accreted
using the interest method over the term of the Secured Notes.  The
Secured Notes will mature on May 31, 2013, and interest is payable semi-annually
on May 31 and November 30 of each year, commencing on May 31, 2009.





In
September 2005, the Company issued $190,000,000 of unsecured 10% Senior Notes
(the “10% Senior Notes”). The 10% Senior Notes were issued at a discount of
$2,570,700, which is accreted using the interest method over the term of the 10%
Senior Notes. The 10% Senior Notes will mature on October 1, 2013, and interest
is payable semi-annually on April 1 and October 1 of each year. All consolidated
subsidiaries of the Company that are 100% owned provide joint and several, full
and unconditional guarantee of the 10% Senior Notes. There are no significant
restrictions on the Company’s ability to obtain funds from any of the guarantor
subsidiaries in the form of a dividend or a loan. Additionally, there are no
significant restrictions on a guarantor subsidiary’s ability to obtain funds
from the Company or its direct or indirect subsidiaries.





The
Secured Notes indenture and the 10% Notes indenture contain various customary
events of default, including, without limitation:  (i) nonpayment of
principal or interest; (ii) cross-defaults with certain other indebtedness;
(iii) certain bankruptcy related events; (iv) invalidity of guarantees; (v)
monetary judgment defaults; and (vi) certain change of control
events.  In addition, any impairment of the security interest in the
Secured Notes collateral shall constitute an event of default under the Secured
Notes indenture.





Revolver





The
Revolver, which matures on February 28, 2013, is guaranteed by Perkins &
Marie Callender's Holding Inc. and certain of the Company's existing and future
subsidiaries.  The Revolver is secured by a first priority perfected
security interest in all of the Company's property and assets, and the property
and assets of each guarantor.  Subject to the satisfaction of the
conditions contained therein, up to $26,000,000 may be borrowed under the
Revolver from time to time.  The Revolver includes a sub-facility for
letters of credit in an amount not to exceed $15,000,000.





Amounts
outstanding under the Revolver bear interest, at the Company’s option, at a rate
per annum equal to either: (i) the base rate, as defined in the Revolver, plus
an applicable margin or (ii) a LIBOR-based equivalent, plus an applicable
margin.  For the foreseeable future, margins are expected to be 325
basis points for base rate loans and 425 basis points for LIBOR
loans.  As of April 19, 2009, the average interest rate on aggregate
borrowings under the Revolver was 8.25%, and the Revolver permitted additional
borrowings of approximately $13,111,000 (after giving effect to $2,500,000 in
borrowings and $10,389,000 in letters of credit outstanding).  The
letters of credit are primarily utilized in conjunction with our workers’
compensation programs.





The
Revolver contains various affirmative and negative covenants, including, but not
limited to a financial covenant to maintain at least $30,000,000 of trailing
13-period EBITDA, as defined in the Revolver, and limits the Company’s capital
expenditures.





The
average interest rate on aggregate borrowings of the Notes and the Revolver on
April 19, 2009 was 11.6% compared to the average interest rate on aggregate
borrowings on April 20, 2008 of 9.9%.








11
 Table of Contents





Our debt
agreements place restrictions on the Company’s ability and the ability of its
subsidiaries to: (i) incur additional indebtedness or issue certain preferred
stock; (ii) repay certain indebtedness prior to stated maturities; (iii) pay
dividends or make other distributions on, redeem or repurchase capital stock or
subordinated indebtedness; (iv) make certain investments or other restricted
payments; (v) enter into transactions with affiliates; (vi) issue stock of
subsidiaries; (vii) transfer, sell or consummate a merger or consolidation of
all, or substantially all, of the Company's assets; (viii) change its line of
business; (ix) incur dividend or other payment restrictions with regard to
restricted subsidiaries; (x) create or incur liens on assets to secure debt;
(xi) dispose of assets; (xii) restrict distributions from subsidiaries; (xiii)
make certain acquisitions; (xiv) make capital expenditures; or (xv) amend the
terms of the Company's outstanding notes.  As of April 19, 2009, we
were in compliance with the financial covenants contained in our debt
agreements.





(12)
Income Tax





The
effective tax provision rates for the quarters ended April 19, 2009 and April
20, 2008 were 0.0% and 2.5%, respectively.  Our rate differs from the
statutory rate primarily due to a valuation allowance for deferred tax
assets.





As of
both April 19, 2009 and December 28, 2008, the Company had approximately
$1,097,000 of unrecognized tax benefits that, if recognized, would impact the
Company’s effective tax rate.  As of both April 19, 2009 and December
28, 2008, the Company had $652,000 of unrecognized tax benefits reducing federal
and state net operating loss carry forwards and federal credit carry forwards
that, if recognized, would be subject to a valuation allowance.  The
Company expects that the total amount of its gross unrecognized tax benefits
will decrease between $76,000 and $667,000 within the next 12 months due to
federal and state settlements and expiration of statutes.





(13)
P&MC’s Holding LLC Equity Plan





Effective
April 1, 2007, P&MC’s Holding LLC established a management equity incentive
plan (the “Equity Plan”) for the benefit of key Company employees. The Equity
Plan provides the following two types of equity ownership in P&MC’s Holding
LLC: (i) Strip Subscription Units, which consist of Class A Units and Class C
Units and (ii) Incentive Units, which consist of time vesting Class C
Units.





Stock-based
employee compensation expense is charged by the Company based on the recognition
and measurement provisions of SFAS No. 123 (revised 2004), “Share-Based
Payment” and related interpretations.  Stock-based compensation
expense for the quarters ended April 19, 2009 and April 20, 2008 was not
material.





If the
employee is employed as of the date of the occurrence of certain change in
control events, as defined in the Equity Plan, the employee’s outstanding but
unvested Incentive Units shall vest simultaneously with the consummation of the
change in control event.  Upon termination of employment, unvested
Incentive Units are forfeited and vested Incentive Units and Strip Subscription
Units are subject to repurchase, at a price not to exceed fair value, pursuant
to the terms of P&MC’s Holding LLC’s unitholders agreement.





In
September 2008, certain affiliates of Castle Harlan canceled indebtedness of the
Company in exchange for 39,996 units of Class A-1 and Class B units of
P&MC’s Holding LLC.  The Class A-1 units carry a preferred return
of 14% and are senior to the existing Class A Units which are senior to the
existing Class B Units.





(14) Recent Accounting
Pronouncements





The
following are recent accounting standards adopted or issued that could have an
impact on our Company:





Intangible
Assets





In April
2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position (“FSP”) FAS 142-3, “Determination of the Useful Life of Intangible
Assets,” (“FSP FAS 142-3”) which amends the factors that should be considered in
developing renewal or extension assumptions used in determining the useful life
of a recognized intangible asset. The requirement for determining useful lives
must be applied prospectively to intangible assets acquired after the effective
date and the disclosure requirements require prospective application to all
intangible assets recognized as of, and subsequent to, the effective
date.  FSP FAS 142-3 is effective for financial statements issued for
fiscal years and interim periods beginning after December 15, 2008. The
application of the requirements of this FSP did not have any effect on the
accompanying consolidated financial statements.





12
 Table of Contents





Business
Combinations





In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,”
(“SFAS No. 141(R)”).  SFAS No. 141(R) establishes principles and
requirements for how an acquiring entity in a business combination recognizes
and measures the assets acquired and liabilities assumed in the transaction;
establishes the acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed; and sets the disclosure requirements
regarding the information needed to evaluate and understand the nature and
financial effect of the business combination. This statement is effective for
business combinations closing on or after the beginning of our 2009 fiscal
year.





Noncontrolling
Interests in Consolidated Financial Statements





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No. 51,” (“SFAS No. 160”).  This statement clarifies that a
noncontrolling (minority) interest in a subsidiary is an ownership interest in
the entity that should be reported as equity in the consolidated financial
statements. It also requires consolidated net income to include the amounts
attributable to both the parent and noncontrolling interest, with disclosure on
the face of the consolidated income statement of the amounts attributed to the
parent and to the noncontrolling interest. This statement is effective for
fiscal years beginning after December 15, 2008, with presentation and
disclosure requirements applied retrospectively to comparative financial
statements. The Company followed the requirements of this statement in the
preparation of the accompanying financial statements which resulted in the
retrospective reclassification of minority interest to equity
(deficit).





Fair
Value Measurement





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,”
(“SFAS No. 157”) which provides a single definition of fair value, together with
a framework for measuring it and requires additional disclosures about the use
of fair value to measure assets and liabilities. It also emphasizes that fair
value is a market-based measurement, not an entity-specific measurement, and
establishes a fair value hierarchy for valuation inputs. The hierarchy
prioritizes the inputs into three levels based on the extent to which inputs
used in measuring fair value are observable in the market.  Each fair value
measurement is reported in one of the three levels which is determined by the
lowest level input that is significant to the fair value measurement in its
entirety. The adoption of SFAS 157 did not have an impact on the Company’s
consolidated financial statements.





(15) Equity
(Deficit)





A summary
of the changes in equity (deficit) for the quarters ended April 19, 2009 and
April 20, 2008 is provided below:





Quarter
      Ended April 19, 2009
                      
                      
                      Quarter
      Ended April 20, 2008Total
                      
                      
                      
                      
                      
                      
                      
                      
                      TotalStockholder's
                      
                      
                      Noncontrolling
                      
                      
                      Total
                      
                      
                      Stockholder's
                      
                      
                      Noncontrolling
                      
                      
                      TotalInvestment
                      
                      
                      Interests
                      
                      
                      Equity
                      
                      
                      Investment
                      
                      
                      Interests
                      
                      
                      EquityBalance,
      beginning of period
                      
                      $
                      (111,073
                      )
                      
                      
                      215
                      
                      
                      
                      (110,858
                      )
                      
                      
                      (69,958
                      )
                      
                      
                      333
                      
                      
                      
                      (69,625
                      )Distribution
      of equity ownership units in P&MC's Holding LLC
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      (185
                      )
                      
                      
                      
                      
                      
                      
                      (185
                      )Distributions
      to noncontrolling interest holders
                      
                      
                      
                      
                      
                      
                      (70
                      )
                      
                      
                      (70
                      )
                      
                      
                      
                      
                      
                      
                      (168
                      )
                      
                      
                      (168
                      )Net
      (loss) earnings
                      
                      
                      (9,754
                      )
                      
                      
                      46
                      
                      
                      
                      (9,708
                      )
                      
                      
                      (7,588
                      )
                      
                      
                      46
                      
                      
                      
                      (7,542
                      )Currency
      translation adjustment
                      
                      
                      (5
                      )
                      
                      
                      
                      
                      
                      
                      (5
                      )
                      
                      
                      (8
                      )
                      
                      
                      
                      
                      
                      
                      (8
                      )Total
      comprehensive loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (9,713
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (7,550
                      )Balance,
      end of period
                      
                      $
                      (120,832
                      )
                      
                      
                      191
                      
                      
                      
                      (120,641
                      )
                      
                      
                      (77,739
                      )
                      
                      
                      211
                      
                      
                      
                      (77,528
                      )





13
 Table of Contents





(16)
Condensed Consolidated Financial Information





The
Company’s 10% Senior Notes and its Secured Notes were issued subject to a joint
and several, full and unconditional guarantee by all of the Company’s 100% owned
domestic subsidiaries. There are no significant restrictions on the Company’s
ability to obtain funds from any of the guarantor subsidiaries in the form of a
dividend or loan. Additionally, there are no significant restrictions on the
guarantor subsidiaries’ ability to obtain funds from the Company or its direct
or indirect subsidiaries.





The
following consolidating statements of operations, balance sheets and statements
of cash flows are provided for the parent company and all subsidiaries. The
information has been presented as if the parent company accounted for its
ownership of the guarantor and non-guarantor subsidiaries using the equity
method of accounting.





Consolidating
      Statement of Operations for the Quarter ended April 19, 2009 (unaudited;
      in thousands):Guarantor
                    
                    
                    Non-
                    
                    
                    
                    
                    
                    ConsolidatedParent
      Issuer
                    
                    
                    WRG
                    
                    
                    Guarantors
                    
                    
                    Eliminations
                    
                    
                    PMCIREVENUES:Food
      sales
                    
                    $
                    101,726
                    
                    
                    
                    51,139
                    
                    
                    
                    8,012
                    
                    
                    
                    -
                    
                    
                    
                    160,877Franchise
      and other revenue
                    
                    
                    5,783
                    
                    
                    
                    2,593
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    8,376Total
      revenues
                    
                    
                    107,509
                    
                    
                    
                    53,732
                    
                    
                    
                    8,012
                    
                    
                    
                    -
                    
                    
                    
                    169,253COSTS
      AND EXPENSES:Cost
      of sales (excluding depreciation shown below):Food
      cost
                    
                    
                    26,845
                    
                    
                    
                    13,991
                    
                    
                    
                    2,138
                    
                    
                    
                    -
                    
                    
                    
                    42,974Labor
      and benefits
                    
                    
                    33,467
                    
                    
                    
                    18,986
                    
                    
                    
                    2,872
                    
                    
                    
                    -
                    
                    
                    
                    55,325Operating
      expenses
                    
                    
                    27,371
                    
                    
                    
                    15,466
                    
                    
                    
                    2,864
                    
                    
                    
                    -
                    
                    
                    
                    45,701General
      and administrative
                    
                    
                    12,348
                    
                    
                    
                    1,741
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    14,089Depreciation
      and amortization
                    
                    
                    5,436
                    
                    
                    
                    1,728
                    
                    
                    
                    192
                    
                    
                    
                    -
                    
                    
                    
                    7,356Interest,
      net
                    
                    
                    13,381
                    
                    
                    
                    234
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    13,615Asset
      impairments and closed store expenses
                    
                    
                    761
                    
                    
                    
                    21
                    
                    
                    
                    80
                    
                    
                    
                    -
                    
                    
                    
                    862Other,
      net
                    
                    
                    (962
                    )
                    
                    
                    1
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (961
                    )Total
      costs and expenses
                    
                    
                    118,647
                    
                    
                    
                    52,168
                    
                    
                    
                    8,146
                    
                    
                    
                    -
                    
                    
                    
                    178,961Income
      (loss) before income taxes
                    
                    
                    (11,138
                    )
                    
                    
                    1,564
                    
                    
                    
                    (134
                    )
                    
                    
                    -
                    
                    
                    
                    (9,708
                    )Benefit
      from (provision for) income taxes
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Net
      loss
                    
                    
                    (11,138
                    )
                    
                    
                    1,564
                    
                    
                    
                    (134
                    )
                    
                    
                    -
                    
                    
                    
                    (9,708
                    )Less:
      net earnings attributable to noncontrolling interests
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    46
                    
                    
                    
                    -
                    
                    
                    
                    46Equity
      in (loss) earnings of subsidiaries
                    
                    
                    1,384
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,384
                    )
                    
                    
                    -Net
      (loss) income attributable to Perkins & Marie Callender's
      Inc.
                    
                    $
                    (9,754
                    )
                    
                    
                    1,564
                    
                    
                    
                    (180
                    )
                    
                    
                    (1,384
                    )
                    
                    
                    (9,754
                    )








14
 Table of Contents








Consolidating
      Statement of Operations for the Quarter ended April 20, 2008 (unaudited;
      in thousands):Guarantor
                
                
                Non-
                
                
                
                
                
                ConsolidatedParent
      Issuer
                
                
                WRG
                
                
                Guarantors
                
                
                Eliminations
                
                
                PMCIREVENUES:Food
      sales
                
                $
                108,309
                
                
                
                56,416
                
                
                
                8,743
                
                
                
                -
                
                
                
                173,468Franchise
      and other revenue
                
                
                6,036
                
                
                
                2,896
                
                
                
                -
                
                
                
                -
                
                
                
                8,932Total
      revenues
                
                
                114,345
                
                
                
                59,312
                
                
                
                8,743
                
                
                
                -
                
                
                
                182,400COSTS
      AND EXPENSES:Cost
      of sales (excluding depreciation shown below):Food
      cost
                
                
                30,988
                
                
                
                16,954
                
                
                
                2,460
                
                
                
                -
                
                
                
                50,402Labor
      and benefits
                
                
                36,315
                
                
                
                20,152
                
                
                
                3,022
                
                
                
                -
                
                
                
                59,489Operating
      expenses
                
                
                28,289
                
                
                
                15,729
                
                
                
                2,935
                
                
                
                -
                
                
                
                46,953General
      and administrative
                
                
                13,154
                
                
                
                1,863
                
                
                
                -
                
                
                
                -
                
                
                
                15,017Depreciation
      and amortization
                
                
                5,426
                
                
                
                1,980
                
                
                
                200
                
                
                
                -
                
                
                
                7,606Interest,
      net
                
                
                9,994
                
                
                
                283
                
                
                
                -
                
                
                
                -
                
                
                
                10,277Asset
      impairments and closed store expenses
                
                
                144
                
                
                
                (78
                )
                
                
                10
                
                
                
                -
                
                
                
                76Other,
      net
                
                
                (59
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (59
                )Total
      costs and expenses
                
                
                124,251
                
                
                
                56,883
                
                
                
                8,627
                
                
                
                -
                
                
                
                189,761Income
      (loss) before income taxes
                
                
                (9,906
                )
                
                
                2,429
                
                
                
                116
                
                
                
                -
                
                
                
                (7,361
                )Provision
      for income taxes
                
                
                (181
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (181
                )Net
      loss
                
                
                (10,087
                )
                
                
                2,429
                
                
                
                116
                
                
                
                -
                
                
                
                (7,542
                )Less:
      net earnings attributable to noncontrolling interests
                
                
                -
                
                
                
                -
                
                
                
                46
                
                
                
                -
                
                
                
                46Equity
      in earnings (loss) of subsidiaries
                
                
                2,499
                
                
                
                -
                
                
                
                -
                
                
                
                (2,499
                )
                
                
                -Net
      (loss) income attributable to Perkins & Marie Callender's
      Inc.
                
                $
                (7,588
                )
                
                
                2,429
                
                
                
                70
                
                
                
                (2,499
                )
                
                
                (7,588
                )





15
 Table of Contents











Consolidating
      Balance Sheet as of April 19, 2009 (unaudited; in
    thousands):Guarantor
                
                
                Non-
                
                
                
                
                
                ConsolidatedParent
      Issuer
                
                
                WRG
                
                
                Guarantors
                
                
                Eliminations
                
                
                PMCIASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                
                $
                1,847
                
                
                
                771
                
                
                
                665
                
                
                
                -
                
                
                
                3,283Restricted
      cash
                
                
                9,872
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                9,872Receivables,
      less allowances for
                  doubtful
      accounts
                
                
                11,270
                
                
                
                4,907
                
                
                
                37
                
                
                
                -
                
                
                
                16,214Inventories
                
                
                8,145
                
                
                
                3,084
                
                
                
                205
                
                
                
                -
                
                
                
                11,434Prepaid
      expenses and other current assets
                
                
                3,807
                
                
                
                596
                
                
                
                12
                
                
                
                -
                
                
                
                4,415Total
      current assets
                
                
                34,941
                
                
                
                9,358
                
                
                
                919
                
                
                
                -
                
                
                
                45,218PROPERTY
      AND EQUIPMENT, net
                
                
                60,109
                
                
                
                25,552
                
                
                
                2,313
                
                
                
                -
                
                
                
                87,974INVESTMENT
      IN
                  UNCONSOLIDATED
      PARTNERSHIP
                
                
                -
                
                
                
                29
                
                
                
                9
                
                
                
                -
                
                
                
                38GOODWILL
                
                
                9,836
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                9,836INTANGIBLE
      ASSETS, net
                
                
                149,971
                
                
                
                150
                
                
                
                -
                
                
                
                -
                
                
                
                150,121INVESTMENTS
      IN SUBSIDIARIES
                
                
                (83,971
                )
                
                
                -
                
                
                
                -
                
                
                
                83,971
                
                
                
                -DUE
      FROM SUBSIDIARIES
                
                
                86,382
                
                
                
                -
                
                
                
                -
                
                
                
                (86,382
                )
                
                
                -OTHER
      ASSETS
                
                
                15,791
                
                
                
                1,544
                
                
                
                211
                
                
                
                -
                
                
                
                17,546TOTAL
      ASSETS
                
                $
                273,059
                
                
                
                36,633
                
                
                
                3,452
                
                
                
                (2,411
                )
                
                
                310,733LIABILITIES
      AND EQUITY (DEFICIT)CURRENT
      LIABILITIES:Accounts
      payable
                
                
                8,457
                
                
                
                4,428
                
                
                
                471
                
                
                
                -
                
                
                
                13,356Accrued
      expenses
                
                
                34,429
                
                
                
                11,846
                
                
                
                1,247
                
                
                
                -
                
                
                
                47,522Franchise
      advertising contributions
                
                
                5,430
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                5,430Current
      maturities of long-term debt and
                  capital
      lease obligations
                
                
                173
                
                
                
                200
                
                
                
                -
                
                
                
                -
                
                
                
                373Total
      current liabilities
                
                
                48,489
                
                
                
                16,474
                
                
                
                1,718
                
                
                
                -
                
                
                
                66,681LONG-TERM
      DEBT, less current
                  maturities
                
                
                316,305
                
                
                
                12
                
                
                
                -
                
                
                
                -
                
                
                
                316,317CAPITAL
      LEASE OBLIGATIONS, less
                  current
      maturities
                
                
                8,214
                
                
                
                5,382
                
                
                
                -
                
                
                
                -
                
                
                
                13,596DEFERRED
      RENT
                
                
                10,745
                
                
                
                4,935
                
                
                
                71
                
                
                
                -
                
                
                
                15,751OTHER
      LIABILITIES
                
                
                10,138
                
                
                
                8,891
                
                
                
                -
                
                
                
                -
                
                
                
                19,029DUE
      TO PARENT
                
                
                -
                
                
                
                85,446
                
                
                
                936
                
                
                
                (86,382
                )
                
                
                -EQUITY
      (DEFICIT):Common
      stock
                
                
                1
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1Preferred
      stock
                
                
                -
                
                
                
                63,277
                
                
                
                -
                
                
                
                (63,277
                )
                
                
                -Capital
      in excess of par
                
                
                -
                
                
                
                9,338
                
                
                
                -
                
                
                
                (9,338
                )
                
                
                -Additional
      paid-in capital
                
                
                149,851
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                149,851Treasury
      stock
                
                
                -
                
                
                
                (137
                )
                
                
                -
                
                
                
                137
                
                
                
                -Accumulated
      other comprehensive income (loss)
                
                
                (9
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (9
                )Accumulated
      (deficit) earnings
                
                
                (270,675
                )
                
                
                (156,985
                )
                
                
                536
                
                
                
                156,449
                
                
                
                (270,675
                )Total
      stockholder's investment (deficit)
                
                
                (120,832
                )
                
                
                (84,507
                )
                
                
                536
                
                
                
                83,971
                
                
                
                (120,832
                )Noncontrolling
      interests
                
                
                -
                
                
                
                -
                
                
                
                191
                
                
                
                -
                
                
                
                191Total
      equity (deficit)
                
                
                (120,832
                )
                
                
                (84,507
                )
                
                
                727
                
                
                
                83,971
                
                
                
                (120,641
                )TOTAL
      LIABILITIES AND EQUITY (DEFICIT)
                
                $
                273,059
                
                
                
                36,633
                
                
                
                3,452
                
                
                
                (2,411
                )
                
                
                310,733








16
 Table of Contents








Consolidating
      Balance Sheet as of December 28, 2008 (in thousands):Guarantor
                      
                      
                      Non-
                      
                      
                      
                      
                      
                      ConsolidatedParent
      Issuer
                      
                      
                      WRG
                      
                      
                      Guarantors
                      
                      
                      Eliminations
                      
                      
                      PMCIASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                      
                      $
                      2,155
                      
                      
                      
                      1,662
                      
                      
                      
                      796
                      
                      
                      
                      -
                      
                      
                      
                      4,613Restricted
      cash
                      
                      
                      10,140
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      10,140Receivables,
      less allowances for
                        doubtful
      accounts
                      
                      
                      14,392
                      
                      
                      
                      6,955
                      
                      
                      
                      39
                      
                      
                      
                      -
                      
                      
                      
                      21,386Inventories
                      
                      
                      8,145
                      
                      
                      
                      3,893
                      
                      
                      
                      262
                      
                      
                      
                      -
                      
                      
                      
                      12,300Prepaid
      expenses and other current assets
                      
                      
                      2,721
                      
                      
                      
                      269
                      
                      
                      
                      6
                      
                      
                      
                      -
                      
                      
                      
                      2,996Total
      current assets
                      
                      
                      37,553
                      
                      
                      
                      12,779
                      
                      
                      
                      1,103
                      
                      
                      
                      -
                      
                      
                      
                      51,435PROPERTY
      AND EQUIPMENT, net
                      
                      
                      65,020
                      
                      
                      
                      26,357
                      
                      
                      
                      2,123
                      
                      
                      
                      -
                      
                      
                      
                      93,500INVESTMENT
      IN
                        UNCONSOLIDATED
      PARTNERSHIP
                      
                      
                      -
                      
                      
                      
                      39
                      
                      
                      
                      9
                      
                      
                      
                      -
                      
                      
                      
                      48GOODWILL
                      
                      
                      9,836
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      9,836INTANGIBLE
      ASSETS, net
                      
                      
                      150,676
                      
                      
                      
                      171
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      150,847INVESTMENTS
      IN SUBSIDIARIES
                      
                      
                      (85,354
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      85,354
                      
                      
                      
                      -DUE
      FROM SUBSIDIARIES
                      
                      
                      88,948
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (88,948
                      )
                      
                      
                      -OTHER
      ASSETS
                      
                      
                      16,195
                      
                      
                      
                      1,437
                      
                      
                      
                      210
                      
                      
                      
                      -
                      
                      
                      
                      17,842TOTAL
      ASSETS
                      
                      $
                      282,874
                      
                      
                      
                      40,783
                      
                      
                      
                      3,445
                      
                      
                      
                      (3,594
                      )
                      
                      
                      323,508LIABILITIES
      AND EQUITY (DEFICIT)CURRENT
      LIABILITIES:Accounts
      payable
                      
                      
                      11,090
                      
                      
                      
                      6,731
                      
                      
                      
                      474
                      
                      
                      
                      -
                      
                      
                      
                      18,295Accrued
      expenses
                      
                      
                      33,575
                      
                      
                      
                      12,123
                      
                      
                      
                      1,342
                      
                      
                      
                      -
                      
                      
                      
                      47,040Franchise
      advertising contributions
                      
                      
                      5,316
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      5,316Current
      maturities of long-term debt and
                        capital
      lease obligations
                      
                      
                      169
                      
                      
                      
                      213
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      382Total
      current liabilities
                      
                      
                      50,150
                      
                      
                      
                      19,067
                      
                      
                      
                      1,816
                      
                      
                      
                      -
                      
                      
                      
                      71,033LONG-TERM
      DEBT, less current
                        maturities
                      
                      
                      316,516
                      
                      
                      
                      18
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      316,534CAPITAL
      LEASE OBLIGATIONS, less
                        current
      maturities
                      
                      
                      8,270
                      
                      
                      
                      5,445
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      13,715DEFERRED
      RENT
                      
                      
                      10,180
                      
                      
                      
                      5,089
                      
                      
                      
                      74
                      
                      
                      
                      -
                      
                      
                      
                      15,343OTHER
      LIABILITIES
                      
                      
                      8,831
                      
                      
                      
                      8,910
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      17,741DUE
      TO PARENT
                      
                      
                      -
                      
                      
                      
                      88,324
                      
                      
                      
                      624
                      
                      
                      
                      (88,948
                      )
                      
                      
                      --EQUITY
      (DEFICIT):Common
      stock
                      
                      
                      1
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1Preferred
      stock
                      
                      
                      -
                      
                      
                      
                      63,277
                      
                      
                      
                      -
                      
                      
                      
                      (63,277
                      )
                      
                      
                      -Capital
      in excess of par
                      
                      
                      -
                      
                      
                      
                      9,338
                      
                      
                      
                      -
                      
                      
                      
                      (9,338
                      )
                      
                      
                      -Additional
      paid-in capital
                      
                      
                      149,851
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      149,851Treasury
      stock
                      
                      
                      -
                      
                      
                      
                      (137
                      )
                      
                      
                      -
                      
                      
                      
                      137
                      
                      
                      
                      -Accumulated
      other comprehensive income
                      
                      
                      (4
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (4
                      )Accumulated
      (deficit) earnings
                      
                      
                      (260,921
                      )
                      
                      
                      (158,548
                      )
                      
                      
                      716
                      
                      
                      
                      157,832
                      
                      
                      
                      (260,921
                      )Total
      stockholder's investment (deficit)
                      
                      
                      (111,073
                      )
                      
                      
                      (86,070
                      )
                      
                      
                      716
                      
                      
                      
                      85,354
                      
                      
                      
                      (111,073
                      )Noncontrolling
      interests
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      215
                      
                      
                      
                      -
                      
                      
                      
                      215Total
      equity (deficit)
                      
                      
                      (111,073
                      )
                      
                      
                      (86,070
                      )
                      
                      
                      931
                      
                      
                      
                      85,354
                      
                      
                      
                      (110,858
                      )TOTAL
      LIABILITIES ANDEQUITY
      (DEFICIT)
                      
                      $
                      282,874
                      
                      
                      
                      40,783
                      
                      
                      
                      3,445
                      
                      
                      
                      (3,594
                      )
                      
                      
                      323,508





17
 Table of Contents








Consolidating
      Statement of Cash Flows for the Quarter ended April 19, 2009 (unaudited;
      in thousands):Guarantor
                  
                  
                  Non-
                  
                  
                  
                  
                  
                  ConsolidatedParent
      Issuer
                  
                  
                  WRG
                  
                  
                  Guarantors
                  
                  
                  Eliminations
                  
                  
                  PMCICASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      (loss) income
                  
                  $
                  (9,754
                  )
                  
                  
                  1,564
                  
                  
                  
                  (134
                  )
                  
                  
                  (1,384
                  )
                  
                  
                  (9,708
                  )Adjustments
      to reconcile net (loss) income to net cashprovided
      by (used in) operating activities:Equity
      in the (loss) earnings of subsidiaries
                  
                  
                  (1,384
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,384
                  
                  
                  
                  -Depreciation
      and amortization
                  
                  
                  5,436
                  
                  
                  
                  1,728
                  
                  
                  
                  192
                  
                  
                  
                  -
                  
                  
                  
                  7,356Asset
      impairments
                  
                  
                  71
                  
                  
                  
                  51
                  
                  
                  
                  80
                  
                  
                  
                  -
                  
                  
                  
                  202Amortization
      of debt discount
                  
                  
                  474
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  474Other
      non-cash income and expense items
                  
                  
                  (935
                  )
                  
                  
                  226
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (709
                  )Loss
      (gain) on disposition of assets
                  
                  
                  690
                  
                  
                  
                  (30
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  660Equity
      in net loss of unconsolidated partnerships
                  
                  
                  -
                  
                  
                  
                  10
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10Net
      changes in operating assets and liabilities
                  
                  
                  3,976
                  
                  
                  
                  (528
                  )
                  
                  
                  (49
                  )
                  
                  
                  -
                  
                  
                  
                  3,399Total
      adjustments
                  
                  
                  8,328
                  
                  
                  
                  1,457
                  
                  
                  
                  223
                  
                  
                  
                  1,384
                  
                  
                  
                  11,392Net
      cash (used in) provided by operating activities
                  
                  
                  (1,426
                  )
                  
                  
                  3,021
                  
                  
                  
                  89
                  
                  
                  
                  -
                  
                  
                  
                  1,684CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property and equipment
                  
                  
                  (1,060
                  )
                  
                  
                  (952
                  )
                  
                  
                  (462
                  )
                  
                  
                  -
                  
                  
                  
                  (2,474
                  )Proceeds
      from sale of assets
                  
                  
                  476
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  476Net
      cash (used in) provided by investing activities
                  
                  
                  (584
                  )
                  
                  
                  (952
                  )
                  
                  
                  (462
                  )
                  
                  
                  -
                  
                  
                  
                  (1,998
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from Revolver
                  
                  
                  7,443
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7,443Repayment
      of Revolver
                  
                  
                  (8,128
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (8,128
                  )Repayment
      of capital lease obligations
                  
                  
                  (52
                  )
                  
                  
                  (76
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (128
                  )Repayment
      of other debt
                  
                  
                  -
                  
                  
                  
                  (6
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (6
                  )Debt
      financing costs
                  
                  
                  (127
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (127
                  )Distributions
      to noncontrolling interest holders
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (70
                  )
                  
                  
                  -
                  
                  
                  
                  (70
                  )Intercompany
      financing
                  
                  
                  2,566
                  
                  
                  
                  (2,878
                  )
                  
                  
                  312
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      cash (used in) provided by financing activities
                  
                  
                  1,702
                  
                  
                  
                  (2,960
                  )
                  
                  
                  242
                  
                  
                  
                  -
                  
                  
                  
                  (1,016
                  )NET
      DECREASE IN CASH AND CASH EQUIVALENTS
                  
                  
                  (308
                  )
                  
                  
                  (891
                  )
                  
                  
                  (131
                  )
                  
                  
                  -
                  
                  
                  
                  (1,330
                  )CASH
      AND CASH EQUIVALENTS:Balance,
      beginning of period
                  
                  
                  2,155
                  
                  
                  
                  1,662
                  
                  
                  
                  796
                  
                  
                  
                  -
                  
                  
                  
                  4,613Balance,
      end of period
                  
                  $
                  1,847
                  
                  
                  
                  771
                  
                  
                  
                  665
                  
                  
                  
                  -
                  
                  
                  
                  3,283





18
 Table of Contents








Consolidating
      Statement of Cash Flows for the Quarter ended April 20, 2008 (unaudited;
      in thousands):Guarantor
                  
                  
                  Non-
                  
                  
                  
                  
                  
                  ConsolidatedParent
      Issuer
                  
                  
                  WRG
                  
                  
                  Guarantors
                  
                  
                  Eliminations
                  
                  
                  PMCICASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      (loss) income
                  
                  $
                  (7,588
                  )
                  
                  
                  2,429
                  
                  
                  
                  116
                  
                  
                  
                  (2,499
                  )
                  
                  
                  (7,542
                  )Adjustments
      to reconcile net (loss) income to net cashprovided
      by (used in) operating activities:Equity
      in the (loss) earnings of subsidiaries
                  
                  
                  (2,499
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,499
                  
                  
                  
                  -Depreciation
      and amortization
                  
                  
                  5,426
                  
                  
                  
                  1,980
                  
                  
                  
                  200
                  
                  
                  
                  -
                  
                  
                  
                  7,606Asset
      impairment costs
                  
                  
                  138
                  
                  
                  
                  84
                  
                  
                  
                  10
                  
                  
                  
                  -
                  
                  
                  
                  232Amortization
      of debt discount
                  
                  
                  102
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  102Other
      non-cash income and expense items
                  
                  
                  (240
                  )
                  
                  
                  17
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (223
                  )Loss
      (gain) on disposition of assets
                  
                  
                  6
                  
                  
                  
                  (162
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (156
                  )Equity
      in net loss of unconsolidated partnerships
                  
                  
                  -
                  
                  
                  
                  (2
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2
                  )Net
      changes in operating assets and liabilities
                  
                  
                  (2,950
                  )
                  
                  
                  (7,773
                  )
                  
                  
                  1,374
                  
                  
                  
                  -
                  
                  
                  
                  (9,349
                  )Total
      adjustments
                  
                  
                  (17
                  )
                  
                  
                  (5,856
                  )
                  
                  
                  1,584
                  
                  
                  
                  2,499
                  
                  
                  
                  (1,790
                  )Net
      cash (used in) provided by operating activities
                  
                  
                  (7,605
                  )
                  
                  
                  (3,427
                  )
                  
                  
                  1,700
                  
                  
                  
                  -
                  
                  
                  
                  (9,332
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property and equipment
                  
                  
                  (4,485
                  )
                  
                  
                  (1,349
                  )
                  
                  
                  106
                  
                  
                  
                  -
                  
                  
                  
                  (5,728
                  )Proceeds
      from sale of assets
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      cash (used in) provided by investing activities
                  
                  
                  (4,485
                  )
                  
                  
                  (1,349
                  )
                  
                  
                  106
                  
                  
                  
                  -
                  
                  
                  
                  (5,728
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from terminated revolver
                  
                  
                  2,700
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,700Repayment
      of terminated revolver
                  
                  
                  (3,200
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3,200
                  )Repayment
      of Term Loan
                  
                  
                  (500
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (500
                  )Repayment
      of capital lease obligations
                  
                  
                  (48
                  )
                  
                  
                  (109
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (157
                  )Repayment
      of other debt
                  
                  
                  -
                  
                  
                  
                  (6
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (6
                  )Debt
      financing costs
                  
                  
                  (1,056
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,056
                  )Lessor
      financing of new restaurants
                  
                  
                  1,542
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,542Distributions
      to noncontrolling interest holders
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (168
                  )
                  
                  
                  -
                  
                  
                  
                  (168
                  )Intercompany
      financing
                  
                  
                  (4,078
                  )
                  
                  
                  6,646
                  
                  
                  
                  (2,568
                  )
                  
                  
                  -
                  
                  
                  
                  -Repurchase
      of equity ownership units in P&MC's Holding LLC
                  
                  (185
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (185
                  )Net
      cash (used in) provided by financing activities
                  
                  
                  (4,825
                  )
                  
                  
                  6,531
                  
                  
                  
                  (2,736
                  )
                  
                  
                  -
                  
                  
                  
                  (1,030
                  )NET
      (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
                  
                  
                  (16,915
                  )
                  
                  
                  1,755
                  
                  
                  
                  (930
                  )
                  
                  
                  -
                  
                  
                  
                  (16,090
                  )CASH
      AND CASH EQUIVALENTS:Balance,
      beginning of period
                  
                  
                  19,391
                  
                  
                  
                  428
                  
                  
                  
                  (787
                  )
                  
                  
                  -
                  
                  
                  
                  19,032Balance,
      end of period
                  
                  $
                  2,476
                  
                  
                  
                  2,183
                  
                  
                  
                  (1,717
                  )
                  
                  
                  -
                  
                  
                  
                  2,942






19
 Table of Contents





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





GENERAL





The
following discussion and analysis should be read in conjunction with and is
qualified in its entirety by reference to the consolidated financial statements
of the Company and accompanying notes included elsewhere in this Form 10-Q.
Except for historical information, the discussions in this section contain
forward-looking statements that involve risks and uncertainties. Future results
could differ materially from those discussed below. See “Information Concerning
Forward-Looking Statements.”





OUR
COMPANY





References
to the “Company,” “us” or “we” refer to Perkins & Marie Callender’s Inc. and
its consolidated subsidiaries.





The
Company operates two restaurant concepts: (1) full-service family dining
restaurants located primarily in the Midwest, Florida and Pennsylvania under the
name Perkins Restaurant and Bakery (“Perkins”); and (2) mid-priced,
casual-dining restaurants, specializing in the sale of pies and other bakery
items, located primarily in the western United States under the name Marie
Callender’s Restaurant and Bakery (“Marie Callender’s”).





Perkins
Restaurant & Bakery





Perkins,
founded in 1958, serves a variety of demographically and geographically diverse
customers for a wide range of dining occasions that are appropriate for the
entire family. Perkins continually adapts its menu, product offerings and
building décor to meet changing consumer preferences. As of April 19, 2009,
Perkins offered a full menu of over 90 assorted breakfast, lunch, dinner, snack
and dessert items ranging in price from $3.89 to $13.99, with an average guest
check of $8.86 at our Company-operated Perkins restaurants.  Perkins’
signature menu items include our omelettes, secret-recipe real buttermilk
pancakes, Mammoth Muffins, the Tremendous Twelve platter, salads, melt
sandwiches and Butterball turkey entrees. Breakfast items, which are available
throughout the day, account for approximately half of the entrees sold in our
Perkins restaurants.





Perkins
is a leading operator and franchisor of full-service family dining restaurants.
As of April 19, 2009, we franchised 316 restaurants to 106 franchisees in 31
states and in 5 Canadian provinces, and we operated 163 restaurants. The
footprint of our Company-operated Perkins restaurants extends over 13 states,
with a significant number of restaurants in Minnesota and
Florida.  For the trailing thirteen four-week periods ended April 19,
2009, our Company-operated Perkins restaurants generated average annual revenues
of $1,807,000 per restaurant.





Perkins’
franchised restaurants operate pursuant to license agreements generally having
an initial term of 20 years and requiring both a royalty fee (4% of gross sales)
and an advertising contribution (3% of gross sales). Franchisees pay a
non-refundable license fee of $20,000 and a training fee of $30,000 for each new
restaurant. The Company has extended an incentive offer to existing Perkins
franchisees in good standing with the Company for each new restaurant
application approved by December 31, 2009, provided the new restaurant opens by
December 31, 2011. The incentive offer provides reduced royalty fees of 2% of
gross sales for the first year of operations and 3% of gross sales for the
second year of operations. Royalty fees for the third and subsequent years are
paid at the contractual 4% rate. Typically, franchisees may terminate license
agreements upon a minimum of twelve months prior notice and upon payment of
specified liquidated damages. Franchisees do not typically have express renewal
rights.





For the
quarters ended April 19, 2009 and April 20, 2008, average royalties earned per
franchised Perkins restaurant were approximately $18,300 and $18,600,
respectively.  The following number of Perkins’ license agreements
have expiration dates occurring during the next five years: 2009 — thirteen;
2010 —seventeen; 2011 — thirteen; 2012 — seven; and 2013— nine. Upon the
expiration of their license agreements, franchisees typically apply for and
receive new license agreements. Franchisees pay a license agreement renewal fee
of $5,000 to $7,500 depending on the length of the renewal term.








20
 Table of Contents





Marie
Callender’s Restaurant and Bakery





Marie
Callender’s is a mid-priced casual dining concept. Founded in 1948, it has one
of the longest operating histories within the full-service dining sector. Marie
Callender’s is known for serving quality food in a warm, pleasant atmosphere,
and for its premium pies that are baked fresh daily. As of April 19, 2009, the
Company offered a full menu of over 50 items ranging in price from $5.89 to
$17.99. Marie Callender’s signature menu items include pot pies, quiches, a
plentiful salad bar and Sunday brunch. Sales by day part are split evenly
between lunch and dinner.





Marie
Callender’s operates primarily in the western United States. As of April 19,
2009, we franchised 42 restaurants to 25 franchisees located in four states and
Mexico and we operated 91 Marie Callender’s restaurants. The footprint of our
Company-operated Marie Callender’s restaurants extends over nine states with 61
restaurants located in California.  For the trailing thirteen
four-week periods ended April 19, 2009, our existing Company-operated Marie
Callender’s restaurants generated average annual revenues of $2,171,000 per
restaurant.  As of April 19, 2009, 129 restaurants were operated under
the “Marie Callender’s” name, one under the “Marie Callender’s Grill” name, two
under the “Callender’s Grill” name and one under the “East Side Mario’s” name.
The Company owns and operates 76 Marie Callender’s restaurants, two Callender’s
Grill restaurants, and the East Side Mario’s restaurant (a mid-priced Italian
restaurant operating in Lakewood, California).  The Company also has
an ownership interest in 12 Marie Callender’s restaurants under partnership
agreements, with a minority interest in two of the partnership restaurants and a
57% to 95% ownership interest in the remaining ten
locations.  Franchisees owned and operated 41 Marie Callender’s
restaurants and the Marie Callender’s Grill.





Marie
Callender’s franchised restaurants operate pursuant to franchise agreements
generally having an initial term of 15 years, and requiring both a royalty fee
(normally 5% of gross sales) and advertising expenditures equal to 11⁄2% of gross
sales.  Franchisees pay a non-refundable initial franchise fee of
$25,000 and a training fee of $35,000 prior to opening a restaurant. Franchisees
typically have the right to renew the franchise agreement for two terms of five
years each.





For the
quarters ended April 19, 2009 and April 20, 2008, average royalties earned per
franchised restaurant were approximately $27,600 and $32,500,
respectively.  The following number of Marie Callender’s franchise
agreements have expiration dates occurring during the next five years: 2009 —
none; 2010 — two; 2011 — one; 2012 — three; and 2013— one. Upon the expiration
of their franchise agreements, franchisees typically apply for and receive new
franchise agreements and pay a franchise agreement renewal fee of
$2,500.





Manufacturing





Foxtail
manufactures pies, pancake mixes, cookie doughs, muffin batters and other bakery
products for both our in-store bakeries and unaffiliated
customers.  One manufacturing facility in Corona, California produces
pies and other bakery products to primarily supply the Marie Callender’s
restaurants, and two facilities in Cincinnati, Ohio produce pies, pancake mixes,
cookie doughs, muffin batters and other bakery products for the Perkins
restaurants and unaffiliated customers.





KEY
FACTORS AFFECTING OUR RESULTS





The key
factors that affect our operating results are general economic conditions,
competition, our comparable restaurant sales, which are driven by our comparable
customer counts and our guest check average, restaurant openings and closings,
commodity prices, energy prices, our ability to manage operating expenses, such
as food cost, labor and benefits, weather, and governmental legislation.
Comparable restaurant sales and comparable customer counts are measures of the
percentage increase or decrease of the sales and customer counts, respectively,
of restaurants open at least one full fiscal year prior to the start of the
comparative year. We do not use new restaurants in our calculation of comparable
restaurant sales until they are open for at least one full fiscal year in order
to allow a new restaurant’s operations time to stabilize and provide more
meaningful results.




The
results of the franchise operations are mainly impacted by the same factors as
those impacting our restaurant segments, excluding the operating cost factors
since franchise segment income is earned primarily through royalty
income.







21
 Table of Contents





Like much
of the restaurant industry, we view comparable restaurant sales as a key
performance metric at the individual restaurant level, within regions and
throughout our Company. With our information systems, we monitor comparable
restaurant sales on a daily, weekly and monthly basis on a
restaurant-by-restaurant basis. The primary drivers of comparable restaurant
sales performance are changes in the average guest check and changes in the
number of customers, or customer count. Average guest check is primarily
affected by menu price changes and changes in the mix of items purchased by our
customers. We also monitor entree count, which we believe is indicative of
overall customer traffic patterns. To increase restaurant sales, we focus
marketing and promotional efforts on increasing customer visits and sales of
particular products. Restaurant sales performance is also affected by other
factors, such as food quality, the level and consistency of service within our
restaurants and franchised restaurants, the attractiveness and physical
condition of our restaurants and franchised restaurants, as well as local,
regional and national competitive and economic factors.




Marie
Callender’s food cost percentage is traditionally higher than Perkins food cost
percentage primarily as a result of a greater portion of sales that are derived
from lunch and dinner items, which typically carry higher food costs than
breakfast items.




The
operating results of Foxtail are impacted mainly by the following
factors:  orders from our external customer base, general economic
conditions, labor and employee benefit expenses, production efficiency,
commodity prices, energy prices, Perkins and Marie Callender’s restaurant
openings and closings, governmental legislation and food safety
requirements.




The past
year has been challenging for the family and casual dining segments of the
restaurant industry. Largely as a result of the current general economic
downturn, we experienced a decrease in comparable annual sales for both Perkins
and Marie Callender’s. We believe that decreases in residential real estate
prices, especially in some of our larger markets, the rise in unemployment, the
decrease in investment values and the consequent pressures on consumer sentiment
and spending have reduced household discretionary spending, which has adversely
affected our revenues. If the current economic conditions persist or worsen, our
revenues are likely to continue to suffer and our losses could
increase.




In
comparison to the first quarter of 2008,  Perkins’ Company-operated
restaurants’ comparable sales decreased by 4.9% and Marie Callender’s
Company-operated restaurants’ comparable sales decreased by 6.9% during the
first quarter of 2009.  These declines in comparable sales resulted
primarily from decreases in comparable guest counts at both
concepts.  Management believes the decline in comparable guest counts
for both concepts is attributable primarily to adverse economic conditions that
are impacting the restaurant industry, particularly in Florida for Perkins
restaurants and in California for Marie Callender’s restaurants.





OPERATIONS,
FINANCIAL POSITION AND LIQUIDITY





At April
19, 2009, we had a negative working capital balance of $21,463,000 and a total
stockholder’s deficit of $120,832,000.  At April 19, 2009, we had
$3,283,000 in unrestricted cash and cash equivalents and $13,111,000 of
borrowing capacity under our Revolver.





Our
principal sources of liquidity include unrestricted cash, available borrowings
under our Revolver and cash generated by operations.  We also have
from time to time received capital contributions from our parent company,
including a $12,500,000 capital contribution received in 2008 and engaged in
capital markets transactions.  Our principal uses of liquidity are
costs and expenses associated with our restaurant and manufacturing operations,
servicing outstanding indebtedness (including interest) and making capital
expenditures.





We have
experienced a decline in same store sales and an increase in net losses in
recent quarterly periods.  The recent turmoil in the economy has
adversely affected our guest counts and, in turn, our net loss and cash
generated by operations.  The Company expects to incur a net loss in
2009.  In order to improve the cash flows in our business, we have
introduced a new breakfast program at our Marie Callender’s restaurants,
implemented price increases, improved systems to more effectively manage our
food and labor costs, upgraded our management staff and certain equipment in our
Foxtail division to drive higher operating efficiencies, reduced overall planned
capital expenditures for 2009 and eliminated several salaried
positions.  Management expects these initiatives together with the
Company’s cash provided by operations and borrowing capacity to provide
sufficient liquidity for at least the next twelve months.  However,
there can be no assurance as to whether these or other actions will enable us to
generate sufficient cash flow to fund our operations and service our
debt.








22
 Table of Contents





RESULTS
OF OPERATIONS





Seasonality





Sales
fluctuate seasonally and the Company’s fiscal quarters do not all have the same
time duration.  Specifically, the first quarter has an extra four weeks
compared to the other quarters of the fiscal year.  Historically, our
average weekly sales are highest in the fourth quarter (approximately October
through December), resulting primarily from holiday pie sales at both
Perkins and Marie Callender’s restaurants and Thanksgiving feast sales at Marie
Callender’s restaurants.  Therefore, the quarterly results are not
necessarily indicative of results that may be achieved for the full fiscal
year.  Factors influencing relative sales variability, in addition to
the holiday impact noted above, include the frequency and popularity of
advertising and promotions, the relative sales levels of new and closed
restaurants, other holidays and weather.





Overview





Our
revenues are derived primarily from restaurant operations, franchise royalties
and the sale of bakery products produced by Foxtail. Sales from Foxtail to
Company-operated restaurants are eliminated in the accompanying statements of
operations. Segment revenues as a percentage of total revenues were as
follows:








Percentage
      of Total RevenuesQuarter
                
                
                QuarterEnded
                
                
                EndedApril
      19, 2009
                
                
                April
      20, 2008Restaurant
      operations
                
                
                88.2
                %
                
                
                87.2
                %Franchise
      operations
                
                
                4.1
                %
                
                
                4.1
                %Foxtail
                
                
                6.9
                %
                
                
                7.9
                %Other
                
                
                0.8
                %
                
                
                0.8
                %Total
      revenues
                
                
                100.0
                %
                
                
                100.0
                %








The
following table reflects certain data for the quarter ended April 19, 2009
compared to the quarter ended April 20, 2008.  The consolidated
information is derived from the accompanying consolidated statements of
operations.  Data from the Company’s segments – restaurant operations;
franchise operations; Foxtail and other is included for
comparison.  The ratios presented reflect the underlying dollar values
expressed as a percentage of the applicable revenue amount (food cost as a
percentage of food sales; labor and benefits and operating expenses as a
percentage of total revenues in the restaurant operations and franchise
operations segments and as a percentage of food sales in the Foxtail
segment).  The food cost ratio in the consolidated results reflects
the elimination of intersegment food cost of $5,913,000 and $5,343,000 in the
first quarters of 2009 and 2008, respectively.





23
 Table of Contents








Consolidated
      Results
                
                
                Restaurant
      Operations
                
                
                Franchise
      OperationsQuarter
      Ended
                
                
                Quarter
      Ended
                
                
                Quarter
      EndedApril
      19, 2009
                
                
                April
      20, 2008
                
                
                April
      19, 2009
                
                
                April
      20, 2008
                
                
                April
      19, 2009
                
                
                April
      20, 2008Food
      sales
                
                $
                166,790
                
                
                
                178,811
                
                
                
                149,228
                
                
                
                159,035
                
                
                
                -
                
                
                
                -Franchise
      and other revenue
                
                
                8,376
                
                
                
                8,932
                
                
                
                -
                
                
                
                -
                
                
                
                6,944
                
                
                
                7,432Intersegment
      revenue
                
                
                (5,913
                )
                
                
                (5,343
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      revenues
                
                
                169,253
                
                
                
                182,400
                
                
                
                149,228
                
                
                
                159,035
                
                
                
                6,944
                
                
                
                7,432Food
      cost
                
                
                26.7
                %
                
                
                29.1
                %
                
                
                26.0
                %
                
                
                27.1
                %
                
                
                0.0
                %
                
                
                0.0
                %Labor
      and benefits
                
                
                32.7
                %
                
                
                32.6
                %
                
                
                35.4
                %
                
                
                35.7
                %
                
                
                0.0
                %
                
                
                0.0
                %Operating
      expenses
                
                
                27.0
                %
                
                
                25.7
                %
                
                
                28.8
                %
                
                
                28.2
                %
                
                
                7.4
                %
                
                
                8.2
                %Segment
      (loss) profit
                
                $
                (9,754
                )
                
                
                (7,588
                )
                
                
                9,076
                
                
                
                8,190
                
                
                
                6,429
                
                
                
                6,821Foxtail
      (a)
                
                
                Other
      (b)Quarter
      Ended
                
                
                Quarter
      EndedApril
      19, 2009
                
                
                April
      20, 2008
                
                
                April
      19, 2009
                
                
                April
      20, 2008Food
      sales
                
                $
                17,562
                
                
                
                19,776
                
                
                
                -
                
                
                
                -Franchise
      and other revenue
                
                
                -
                
                
                
                -
                
                
                
                1,432
                
                
                
                1,500Intersegment
      revenue
                
                
                (5,913
                )
                
                
                (5,343
                )
                
                
                -
                
                
                
                -Total
      revenues
                
                
                11,649
                
                
                
                14,433
                
                
                
                1,432
                
                
                
                1,500Food
      cost
                
                
                57.7
                %
                
                
                63.8
                %
                
                
                0.0
                %
                
                
                0.0
                %Labor
      and benefits
                
                
                14.0
                %
                
                
                13.0
                %
                
                
                7.2
                %
                
                
                7.0
                %Operating
      expenses
                
                
                12.7
                %
                
                
                7.6
                %
                
                
                0.0
                %
                
                
                0.0
                %Segment
      (loss) profit
                
                $
                159
                
                
                
                (76
                )
                
                
                (25,418
                )
                
                
                (22,523
                )




(a)The percentages for food
cost, labor and benefits, and operating expenses, as presented above,
represent manufacturing
costs at Foxtail.  Foxtail’s selling, general and administrative
expenses are included in general and
administrative expenses in the consolidated statements of operations and in the
Foxtail segment profit or loss
presented above.




(b)
Licensing revenue of $1,361,000 and $1,417,000 for the first quarters of 2009
and 2008, respectively, is included in the other segment revenues. The other
segment loss includes corporate general and administrative expenses, interest
expense and other non-operational expenses. For details of the other segment
loss, see Note 10, “Segment Reporting” in the notes to consolidated financial
statements.




Quarter
Ended April 19, 2009 Compared to the Quarter Ended April 20, 2008





Segment
Overview





Restaurant
Operations Segment





The
operating results of the restaurant segment are impacted mainly by the following
factors: general economic conditions, competition, our comparable store sales,
which are driven by our comparable customer counts and our guest check average,
restaurant openings and closings, commodity prices, energy prices, our ability
to manage operating expenses such as food costs, labor and benefits, weather and
governmental legislation.





Total
restaurant segment revenues decreased approximately $9,807,000 in the first
quarter of 2009 as compared to the first quarter of 2008, due primarily to lower
comparable restaurant sales.  Comparable sales for the first quarter
of 2009 decreased by 4.9% at Perkins Company-operated restaurants and 6.9% at
Marie Callender’s Company-operated restaurants. These declines in comparable
sales resulted primarily from a decrease in comparable guest counts due to
unfavorable economic conditions.  Since the first quarter of 2008, the
Company has opened one Perkins restaurant and closed one Perkins
restaurant.  One Company-operated Marie Callender’s restaurant has
closed since the first quarter of 2008.





24
 Table of Contents





Restaurant
segment income increased by $886,000 in the first quarter of 2009 compared to a
year ago, primarily due to decreases in restaurant segment food cost and labor
and benefits. Food cost, as a percentage of food sales, decreased due primarily
to lower commodity costs, particularly eggs, dairy products and oils. Labor and
benefits, as a percentage of total revenues, decreased from 35.7% to 35.4% due
to lower hourly labor costs.





Franchise
Operations Segment





The
operating results of the franchise operations are mainly impacted by the same
factors as those impacting the Company’s restaurant segment, excluding the
operating cost factors since franchise segment income is earned primarily
through royalty income.





Franchise
revenues decreased by $488,000 in the first quarter of 2009 compared to the
prior year’s first quarter. During the first quarter of 2009, royalty revenue
decreased by $441,000 due to a decline in comparable customer counts and
franchise fees and renewal fees decreased by $47,000.





Franchise
segment profit decreased by $392,000 in the first quarter of 2009 compared to
the prior year’s first quarter due primarily to the decline in franchise
revenues.





Since the
end of the first quarter of 2008, Perkins’ franchisees have opened one
restaurant and closed four restaurants.




Foxtail
Segment





The
operating results of Foxtail are impacted mainly by the following
factors:  orders from our external customer base, general economic
conditions, labor and employee benefit expenses, production efficiency,
commodity prices, energy prices, Perkins and Marie Callender’s restaurant
openings and closings, governmental legislation and food safety
requirements.





Foxtail’s
revenues, net of intercompany sales, decreased $2,784,000 compared to the first
quarter of 2008 due primarily to unfavorable economic conditions.  The
segment had a net profit of $159,000 in the first quarter of 2009 compared to a
$76,000 net loss in the first quarter of 2008, resulting primarily from
increased sales prices and lower commodity costs, particularly eggs and dairy
products.





Revenues





Total
revenues decreased by $13,147,000 in the first quarter of 2009 compared to the
first quarter of 2008. The decrease was due to decreases in sales of $9,807,000
in the restaurant segment, decreases in franchise revenues of $488,000 in the
franchise segment, a $2,784,000 decrease in sales in the Foxtail segment and a
$68,000 decrease in licensing and other revenues in the other
segment.





Restaurant
segment revenues decreased to $149,228,000 in the first quarter of 2009 from
$159,035,000 in the first quarter of 2008, resulting primarily from an overall
5.7% decrease in comparable sales at Company-operated Perkins and Marie
Callender’s restaurants. However, due to the decline in total revenues,
restaurant segment revenues increased, as a percentage of total revenues, to
88.2% from 87.2% in the first quarters of 2009 and 2008,
respectively.





Franchise
segment revenues of $6,944,000 and $7,432,000 in the first quarters of 2009 and
2008, respectively, remained constant at 4.1% of total revenues. During the
first quarter of 2009, royalty revenue decreased $441,000 due to a decline in
comparable customer counts and franchise fees and renewal fees decreased by
$47,000.





Foxtail
revenues, net of intercompany sales, of $11,649,000 and $14,433,000 in the first
quarters of 2009 and 2008, respectively, accounted for 6.9% and 7.9% of total
revenues, respectively.  The decline in revenues was primarily due to
unfavorable economic conditions negatively impacting customer
demand.










25
 Table of Contents








Food
Cost





Consolidated
food cost was 26.7% and 29.1% of food sales in the first quarters of 2009 and
2008, respectively. This decrease of 2.4% was due primarily to lower commodity
costs in all segments.





Restaurant
segment food cost was 26.0% and 27.1% of food sales in the first quarters of
2009 and 2008, respectively, primarily due to decreased commodity costs and menu
price increases.  In the Foxtail segment, food cost decreased to 57.7%
from 63.8% of food sales in the first quarters of 2009 and 2008, respectively,
primarily due to higher sales prices and lower commodity costs, particularly
eggs and dairy products.





Labor
and Benefits Expenses





Consolidated
labor and benefits expenses were 32.7% and 32.6% of total revenues in the first
quarters of 2009 and 2008, respectively. Restaurant segment labor and benefits
decreased by 0.3% in 2009 due to more efficient hourly labor
management.  In the Foxtail segment, labor and benefits, as a
percentage of food sales, increased by 1.0% in 2009 due primarily to the decline
in food sales.





Operating
Expenses





Total
operating expenses of $45,701,000 in the first quarter of 2009 decreased by
$1,252,000 as compared to the first quarter of 2008. However, due to the
decrease in total revenues, total operating expenses increased, as a percentage
of total revenues, to 27.0% from 25.7% in the first quarters of 2009 and 2008,
respectively.  Approximately 94.0% and 95.5% of total operating
expenses in the first quarters of 2009 and 2008, respectively, were incurred in
the restaurant segment. The most significant components of operating expenses
were rent, utilities, advertising, restaurant and paper supplies and property
taxes. In the restaurant segment, operating expenses, as a percentage of
restaurant food sales, increased by 0.6% in the first quarter of 2009 due
primarily to the decrease in restaurant segment revenues relative to fixed costs
and increases in advertising expense for increased regional marketing efforts,
partially offset by lower utilities costs. Operating expenses in the Foxtail
segment increased by approximately $719,000, due primarily to higher custodial
service costs and higher plant supervision wages.





General
and Administrative Expenses





The most
significant components of general and administrative (“G&A”) expenses were
corporate labor and benefits, occupancy costs and outside services. G&A
expenses were 8.3% and 8.2% of total revenues in the first quarters of 2009 and
2008, respectively.





Depreciation
and Amortization





Depreciation
and amortization expense was $7,356,000 and $7,606,000 in the first quarters of
2009 and 2008, respectively.





Interest,
net





Interest,
net was $13,615,000 (8.0% of total revenues) in the first quarter of 2009
compared to $10,277,000 (5.6% of total revenues) in the first quarter of 2008.
This increase was primarily due to an increase in the average effective interest
rate to 11.6% from 9.9% and an approximate $14,300,000 increase in the average
debt outstanding during the first quarter of 2009 as compared to the first
quarter of 2008.





Taxes





The
effective tax provision rates for the quarters ended April 19, 2009 and April
20, 2008 were 0.0% and 2.5%, respectively.  Our rate differs from the
statutory rate primarily due to a valuation allowance for deferred tax
assets.








26
 Table of Contents





CAPITAL
RESOURCES AND LIQUIDITY





Our
principal liquidity requirements are to service our debt and meet our working
capital and capital expenditure needs. On September 24, 2008, the Company issued
$132,000,000 of Secured Notes and entered into the $26,000,000 Revolver in
connection with the refinancing and termination of its then existing
$100,000,000 term loan and $40,000,000 revolver.  At April 19, 2009,
we had $3,283,000 in unrestricted cash and cash equivalents and $13,111,000 of
borrowing capacity under our Revolver.





Secured
Notes and 10% Senior Notes





The
Secured Notes were issued at a discount of $7,537,200, which will be accreted
using the interest method over the term of the Secured Notes.  The
Secured Notes will mature on May 31, 2013, and interest is payable semi-annually
on May 31 and November 30 of each year, commencing on May 31, 2009.





In
September 2005, the Company issued $190,000,000 of unsecured 10% Senior Notes.
The 10% Senior Notes were issued at a discount of $2,570,700, which is accreted
using the interest method over the term of the 10% Senior Notes. The 10% Senior
Notes will mature on October 1, 2013, and interest is payable semi-annually on
April 1 and October 1 of each year. All consolidated subsidiaries of the Company
that are 100% owned provide joint and several, full and unconditional guarantee
of the 10% Senior Notes. There are no significant restrictions on the Company’s
ability to obtain funds from any of the guarantor subsidiaries in the form of a
dividend or a loan. Additionally, there are no significant restrictions on a
guarantor subsidiary’s ability to obtain funds from the Company or its direct or
indirect subsidiaries.





The
Secured Notes indenture and the 10% Senior Notes indenture contain various
customary events of default, including, without limitation:  (i)
nonpayment of principal or interest; (ii) cross-defaults with certain other
indebtedness; (iii) certain bankruptcy related events; (iv) invalidity of
guarantees; (v) monetary judgment defaults; and (vi) certain change of control
events.  In addition, any impairment of the security interest in the
Secured Notes collateral shall constitute an event of default under the Secured
Notes indenture.





Revolver





The
Revolver, which matures on February 28, 2013, is guaranteed by Perkins &
Marie Callender's Holding Inc. and certain of the Company's existing and future
subsidiaries.  The Revolver is secured by a first priority perfected
security interest in all of the Company's property and assets, and the property
and assets of each guarantor.  Subject to the satisfaction of the
conditions contained therein, up to $26,000,000 may be borrowed under the
Revolver from time to time.  The Revolver includes a sub-facility for
letters of credit in an amount not to exceed $15,000,000.





Amounts
outstanding under the Revolver bear interest, at the Company’s option, at a rate
per annum equal to either: (i) the base rate, as defined in the Revolver, plus
an applicable margin or (ii) a LIBOR-based equivalent, plus an applicable
margin.  For the foreseeable future, margins are expected to be 325
basis points for base rate loans and 425 basis points for LIBOR
loans.  As of April 19, 2009, the average interest rate on aggregate
borrowings under the Revolver was 8.25%, and the Revolver permitted additional
borrowings of approximately $13,111,000 (after giving effect to $2,500,000 in
borrowings and $10,389,000 in letters of credit outstanding).  The
letters of credit are primarily utilized in conjunction with our workers’
compensation programs.





The
Revolver contains various affirmative and negative covenants, including, but not
limited to a financial covenant to maintain at least $30,000,000 of trailing
13-period EBITDA, as defined in the Revolver, and limits the Company’s capital
expenditures.





The
average interest rate on aggregate borrowings on April 20, 2009 was 11.6%
compared to the average interest rate on aggregate borrowings on April 20, 2008
of 9.9%.








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 Table of Contents





Our debt
agreements place restrictions on the Company’s ability and the ability of its
subsidiaries to: (i) incur additional indebtedness or issue certain preferred
stock; (ii) repay certain indebtedness prior to stated maturities; (iii) pay
dividends or make other distributions on, redeem or repurchase capital stock or
subordinated indebtedness; (iv) make certain investments or other restricted
payments; (v) enter into transactions with affiliates; (vi) issue stock of
subsidiaries; (vii) transfer, sell or consummate a merger or consolidation of
all, or substantially all, of the Company's assets; (viii) change its line of
business; (ix) incur dividend or other payment restrictions with regard to
restricted subsidiaries; (x) create or incur liens on assets to secure debt;
(xi) dispose of assets; (xii) restrict distributions from subsidiaries; (xiii)
make certain acquisitions; (xiv) make capital expenditures; or (xv) amend the
terms of the Company's outstanding notes.  As of April 19, 2009, we
were in compliance with the financial covenants contained in our debt
agreements.





Working
Capital and Cash Flows





At April
19, 2009, we had a negative working capital balance of $21.5 million. Like many
other restaurant companies, the Company is able to, and does more often than
not, operate with negative working capital. We are able to operate with a
substantial working capital deficit because (1) restaurant revenues are received
primarily on a cash or near-cash basis with a low level of accounts receivable,
(2) rapid turnover results in a limited investment in inventories and (3)
accounts payable for food and beverages usually become due after the receipt of
cash from the related sales.





The
following table sets forth summary cash flow data for the quarters ended April
19, 2009 and April 20, 2008 (in thousands):




Quarter
                Ended
                April 19, 2009
              
              
              Quarter
                Ended
                April 20, 2008Cash
      flows provided by (used in) operating activities
              
              $
              1,684
              
              
              
              (9,332
              )Cash
      flows used in investing activities
              
              
              (1,998
              )
              
              
              (5,728
              )Cash
      flows used in financing activities
              
              
              (1,016
              )
              
              
              (1,030
              )





Operating
Activities





Cash
flows provided by operating activities increased by $11,016,000 for the quarter
ended April 19, 2009 compared to the quarter ended April 20, 2008. This increase
was primarily due to changes in operating assets and liabilities.





Investing
Activities





Cash
flows used in investing activities for the quarter ended April 19, 2009
decreased to $1,998,000 compared to $5,728,000 for the quarter ended April 20,
2008. Substantially all cash flows used in investing activities were used for
capital expenditures.





Capital
expenditures consisted primarily of restaurant improvements, restaurant
remodels, and equipment packages for new restaurants. The following table
summarizes capital expenditures for each quarter presented (in
thousands):




Quarter
                Ended
                April 19, 2009
              
              
              Quarter
                Ended
                April 20, 2008New
      restaurants
              
              $
              1
              
              
              
              1,187Restaurant
      improvements
              
              
              1,176
              
              
              
              2,284Restaurant
      remodeling and reimaging
              
              
              993
              
              
              
              970Manufacturing
      plant improvements
              
              
              130
              
              
              
              726Other
              
              
              174
              
              
              
              561Total
      capital expenditures
              
              $
              2,474
              
              
              
              5,728





Our
capital expenditure forecast for 2009 is approximately $11,000,000 and does not
include plans to open any new Company-operated Perkins or Marie Callender’s
restaurants.  The sources of funding for capital expenditures are
expected to be cash provided by operations and borrowings under our
Revolver.





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 Table of Contents





Financing
Activities





Cash
flows used in financing activities for the quarter ended April 19, 2009 were
$1,016,000 compared to cash flows used in financing activities of $1,030,000 for
the quarter ended April 20. 2008.  The primary cash flows for
financing activities in the first quarters of both 2009 and 2008 essentially
represent net repayments on the Company’s various credit
facilities.





IMPACT
OF INFLATION





We do not
believe that our operations are affected by inflation to a greater extent than
others within the restaurant industry. Certain significant items that are
historically subject to price fluctuations are beef, pork, poultry, dairy
products, wheat products, corn products and coffee.  In most cases, we
historically have been able to pass through a substantial portion of the
increased commodity costs by adjusting menu pricing.





CASH
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS





Cash
Contractual Obligations





Our cash
contractual obligations presented in the Company’s 2008 Annual Report on Form
10-K have not changed significantly except for the net repayments of $685,000 on
our Revolver during the quarter ended April 19, 2009.  Borrowings on
our Revolver are not due until February 28, 2013.





RECENT
ACCOUNTING PRONOUNCEMENTS





The
following are recent accounting standards adopted or issued that could have an
impact on our Company:





Intangible
Assets





In April
2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of
Intangible Assets,” (“FSP FAS 142-3”) which amends the factors that should be
considered in developing renewal or extension assumptions used in determining
the useful life of a recognized intangible asset. The requirement for
determining useful lives must be applied prospectively to intangible assets
acquired after the effective date and the disclosure requirements require
prospective application to all intangible assets recognized as of, and
subsequent to, the effective date.  FSP FAS 142-3 is effective for
financial statements issued for fiscal years and interim periods beginning after
December 15, 2008. The application of the requirements of this FSP did not
have any effect on the accompanying consolidated financial
statements.





Business
Combinations





In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,”
(“SFAS No. 141(R)”).  SFAS No. 141(R) establishes principles and
requirements for how an acquiring entity in a business combination recognizes
and measures the assets acquired and liabilities assumed in the transaction;
establishes the acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed; and sets the disclosure requirements
regarding the information needed to evaluate and understand the nature and
financial effect of the business combination. This statement is effective for
business combinations closing on or after the beginning of our 2009 fiscal
year.





Noncontrolling
Interests in Consolidated Financial Statements





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No. 51,” (“SFAS No. 160”).  This statement clarifies that a
noncontrolling (minority) interest in a subsidiary is an ownership interest in
the entity that should be reported as equity in the consolidated financial
statements. It also requires consolidated net income to include the amounts
attributable to both the parent and noncontrolling interest, with disclosure on
the face of the consolidated income statement of the amounts attributed to the
parent and to the noncontrolling interest. This statement is effective for
fiscal years beginning after December 15, 2008, with presentation and
disclosure requirements applied retrospectively to comparative financial
statements. The Company included the requirements of this statement in the
preparation of the accompanying financial statements which resulted in the
retrospective reclassification of minority interest to equity
(deficit).





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 Table of Contents





Fair
Value Measurement





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,”
(“SFAS No. 157”) which provides a single definition of fair value, together with
a framework for measuring it and requires additional disclosures about the use
of fair value to measure assets and liabilities. It also emphasizes that fair
value is a market-based measurement, not an entity-specific measurement, and
establishes a fair value hierarchy for valuation inputs. The hierarchy
prioritizes the inputs into three levels based on the extent to which inputs
used in measuring fair value are observable in the market.  Each fair value
measurement is reported in one of the three levels which is determined by the
lowest level input that is significant to the fair value measurement in its
entirety. The adoption of FAS 157 did not have an impact on the Company’s
consolidated financial statements.




INFORMATION
CONCERNING FORWARD-LOOKING STATEMENTS





This
quarterly report on Form 10-Q contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
These statements, written, oral or otherwise made, may be identified by the use
of forward-looking terminology such as “anticipate,” “believe,” “continue,”
“could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,”
“predict,” “should” or “will,” or the negative thereof or other variations
thereon or comparable terminology.





We have
based these forward-looking statements on our current expectations, assumptions,
estimates and projections. While we believe these expectations, assumptions,
estimates and projections are reasonable, such forward-looking statements are
only predictions and involve known and unknown risks and uncertainties, many of
which are beyond our control. These and other important factors may cause our
actual results, performance or achievements to differ materially from any future
results, performance or achievements expressed or implied by these
forward-looking statements. Factors affecting these forward-looking statements
include, among others, the following:





•
            general
      economic conditions, consumer preferences and demographic patterns, either
      nationally or in particular regions in which we
  operate;





•
            our
      substantial indebtedness;





•
            our
      liquidity and capital resources;





•
            competitive
      pressures and trends in the restaurant
industry;





•
            prevailing
      prices and availability of energy, raw materials, food, supplies and
      labor;





•
            a
      failure to obtain timely deliveries from our suppliers or other supplier
      issues;





•
            our
      ability to successfully implement our business
  strategy;





•
            relationships
      with franchisees and financial health of
  franchisees;





•
            legal
      proceedings and regulatory matters;
and





•
            our
      development and expansion plans.





Given
these risks and uncertainties, you are cautioned not to place undue reliance on
such forward-looking statements. The forward-looking statements included in this
Form 10-Q are made only as of the date hereof. We do not undertake and
specifically decline any obligation to update any such statements or to publicly
announce the results of any revisions to any of such statements to reflect
future events or developments.





30
 Table of Contents





ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





We are
subject to changes in interest rates, foreign currency exchange rates and
certain commodity prices.





Interest
Rate Risk





Our
primary market risk is interest rate exposure with respect to our floating rate
debt. As of April 19, 2009, our Revolver permitted borrowings of up to
approximately $13,111,000 (after giving effect to $2,500,000 in borrowings and
$10,389,000 in letters of credit outstanding). Borrowings under the Revolver are
subject to variable interest rates. For the twelve months ended April 19, 2009,
a 100 basis point change in interest rates (assuming $26,000,000 was outstanding
under the Revolver) would have impacted us by approximately
$260,000.  In the future, we may decide to employ a hedging strategy
through derivative financial instruments to reduce the impact of adverse changes
in interest rates. We do not plan to hold or issue derivative instruments for
trading purposes.





Foreign
Currency Exchange Rate Risk





We
conduct foreign operations in Canada. As a result, we are subject to risk from
changes in foreign exchange rates. These changes result in cumulative
translation adjustments, which are included in accumulated and other
comprehensive income (loss). As of April 19, 2009, we do not consider the
potential loss resulting from a hypothetical 10% adverse change in quoted
foreign currency exchange rates to be material.





Commodity
Price Risk





Many of
the food products and other operating essentials purchased by us are affected by
commodity pricing and are, therefore, subject to price volatility caused by
weather, changes in global demand, production problems, delivery difficulties
and other factors that are beyond our control. Our supplies and raw materials
are available from several sources, and we are not dependent upon any single
source for these items. If any existing suppliers fail or are unable to deliver
in quantities required by us, we believe that there are sufficient other quality
suppliers in the marketplace such that our sources of supply can be replaced as
necessary. At times, we enter into purchase contracts of one year or less or
purchase bulk quantities for future use of certain items in order to control
commodity-pricing risks. Certain significant items that are historically subject
to price fluctuations are beef, pork, poultry, dairy products, wheat products,
corn products and coffee.  In most cases, we historically have been
able to pass through a substantial portion of the increased commodity costs
through periodic menu price adjustments.





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 Table of Contents





ITEM 4.
CONTROLS AND PROCEDURES





Disclosure Controls and
Procedures.  Our principal executive officer and principal
financial officer have evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act), as of April 19, 2009. Based on such evaluation, they have
concluded that as of such date, our disclosure controls and procedures are
effective and designed to ensure that information required to be disclosed by us
in reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in applicable
Securities and Exchange Commission rules and forms, and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.





Changes in Internal Control
over Financial Reporting.  There have not been any changes in
our internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f)) that occurred during the first fiscal quarter of 2009 that have
materially affected,  or are reasonably likely to materially affect,
our internal control over financial reporting.





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 Table of Contents





PART II — OTHER INFORMATION





ITEM 1. Legal
Proceedings





As
reported in the Company’s Form 10-K for the fiscal year ended December 28, 2008,
we are party to various legal proceedings in the ordinary course of business.
There have been no material developments with regard to these proceedings,
either individually or in the aggregate, that are likely to have a material
adverse effect on the Company’s financial position or results of
operations.





ITEM 1A. Risk
Factors





In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Form
10-K for the fiscal year ended December 28, 2008, which could materially affect
our business, financial condition or future results.  The risks
described in this report and in our Form 10-K are not the only risks facing our
Company.  Additional risks and uncertainties not currently known to us
or that we currently deem to be immaterial also may materially adversely affect
our business, financial condition or future results.





The
Further Spread of H1N1 Influenza May Adversely Affect Our Business





The
further spread of H1N1 influenza, which is more commonly known as “swine flu,”
may adversely affect our business.  The current outbreak of H1N1
influenza may reduce traffic in our restaurants. H1N1 influenza also could
adversely affect our ability to adequately staff our restaurants, receive
deliveries on a timely basis, manufacture our baked goods and/or perform
functions at the corporate level. Even if H1N1 influenza does not spread
significantly, the perceived risk of infection or significant health risk may
adversely affect our business, which could affect our financial condition or
future results.





ITEM 2.
Unregistered Sales of Equity Securities and Use of
Proceeds





None.





ITEM 3. Defaults
Upon Senior Securities





None.





ITEM 4.
Submission of Matters to a Vote of Security Holders





Not
applicable.





ITEM 5. Other
Information





None.





ITEM 6.
Exhibits





31.1
            Chief
      Executive Officer Certification Pursuant to Sarbanes-Oxley Act of 2002,
      Section 302.31.2
            Chief
      Financial Officer Certification Pursuant to Sarbanes-Oxley Act of 2002,
      Section 302.32.1
            Chief
      Executive Officer Certification Pursuant to Sarbanes-Oxley Act of 2002,
      Section 906.32.2
            Chief
      Financial Officer Certification Pursuant to Sarbanes-Oxley Act of 2002,
      Section 906.








33
 Table of Contents





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.





PERKINS
      & MARIE CALLENDER’S INC.DATE:
      June 3, 2009
            BY:/s/ Fred T. Grant, Jr.Fred
      T. Grant, Jr.Chief
      Financial Officer











34