##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended July 13, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission file number 333-57925
 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)
 
  þ  þ o
 þ
 o o þ
 þ  o þ




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##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial Statements:Consolidated Statements of Operations (Unaudited)  Second Quarters and Year-to-Date Periods
Ended July 13, 2008 and July 15, 2007
    
    
    2Consolidated Balance Sheets  July 13, 2008 (Unaudited) and December 30, 2007
    
    
    3Consolidated Statements of Cash Flows (Unaudited)  Year-to-Date Periods Ended July 13, 2008
and July 15, 2007
    
    
    5Consolidated Statements of Stockholders Investment (Unaudited)  For the Period from
December 31, 2006 through July 13, 2008
    
    
    6Notes to Consolidated Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    40Item 4. Controls and Procedures
    
    
    41PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    42Item 1a. Risk Factors
    
    
    42Item 6. Exhibits
    
    
    42SIGNATURE
    
    
    43EX-31.1 Section 302 Certification of the CEOEX-31.2 Section 302 Certification of the CFOEX-32.1 Section 906 Certification of the CEOEX-32.2 Section 906 Certification of the CFO




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##### Table of Contents



Second Quarter
    
    
    Second Quarter
    
    
    Year-to-Date
    
    
    Year-to-DateEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 13, 2008
    
    
    July 15, 2007
    
    
    July 13, 2008
    
    
    July 15, 2007REVENUES:Food sales
    
    $
    123,953
    
    
    
    122,702
    
    
    
    297,421
    
    
    
    291,590Franchise and other revenue
    
    
    7,013
    
    
    
    7,408
    
    
    
    15,945
    
    
    
    16,806Total revenues
    
    
    130,966
    
    
    
    130,110
    
    
    
    313,366
    
    
    
    308,396COSTS AND EXPENSES:Cost of sales (excluding depreciation shown below):Food cost
    
    
    37,159
    
    
    
    33,685
    
    
    
    87,561
    
    
    
    81,008Labor and benefits
    
    
    43,199
    
    
    
    42,048
    
    
    
    102,688
    
    
    
    100,369Operating expenses
    
    
    34,168
    
    
    
    32,590
    
    
    
    81,121
    
    
    
    76,684General and administrative
    
    
    10,098
    
    
    
    10,676
    
    
    
    25,115
    
    
    
    24,900Transaction costs
    
    
    
    
    
    
    568
    
    
    
    
    
    
    
    752Depreciation and amortization
    
    
    5,764
    
    
    
    5,769
    
    
    
    13,370
    
    
    
    12,890Interest, net
    
    
    8,026
    
    
    
    7,217
    
    
    
    18,303
    
    
    
    16,698Asset impairments and closed store expenses
    
    
    477
    
    
    
    (146
    )
    
    
    553
    
    
    
    9Other, net
    
    
    (31
    )
    
    
    344
    
    
    
    (90
    )
    
    
    314Total costs and expenses
    
    
    138,860
    
    
    
    132,751
    
    
    
    328,621
    
    
    
    313,624Loss before income taxes and minority interests
    
    
    (7,894
    )
    
    
    (2,641
    )
    
    
    (15,255
    )
    
    
    (5,228
    )Provision for income taxes
    
    
    (141
    )
    
    
    
    
    
    
    (322
    )
    
    
    Minority interests
    
    
    (30
    )
    
    
    (82
    )
    
    
    (76
    )
    
    
    (244
    )NET LOSS
    
    $
    (8,065
    )
    
    
    (2,723
    )
    
    
    (15,653
    )
    
    
    (5,472
    )
  2




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##### Table of Contents



July 13,
    
    
    December 30,2008
    
    
    2007(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    2,846
    
    
    
    19,032Restricted cash
    
    
    8,757
    
    
    
    10,098Receivables, less allowances for doubtful accounts of $732
and $1,542 in 2008 and 2007, respectively
    
    
    17,550
    
    
    
    17,221Inventories
    
    
    14,151
    
    
    
    13,239Prepaid expenses and other current assets
    
    
    5,887
    
    
    
    5,732Total current assets
    
    
    49,191
    
    
    
    65,322PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization of $119,427 and $109,441 in
2008 and 2007, respectively
    
    
    98,451
    
    
    
    99,311INVESTMENT IN UNCONSOLIDATED PARTNERSHIP
    
    
    43
    
    
    
    53GOODWILL
    
    
    30,038
    
    
    
    30,038INTANGIBLE ASSETS, net of accumulated amortization of
$18,824 and $17,494 in 2008 and 2007, respectively
    
    
    151,986
    
    
    
    153,316DEFERRED INCOME TAXES
    
    
    226
    
    
    
    242OTHER ASSETS
    
    
    14,107
    
    
    
    14,660TOTAL ASSETS
    
    $
    344,042
    
    
    
    362,942
  3




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July 13,
    
    
    December 30,2008
    
    
    2007(Unaudited)LIABILITIES AND STOCKHOLDERS INVESTMENTCURRENT LIABILITIES:Accounts payable
    
    $
    25,721
    
    
    
    25,559Accrued expenses
    
    
    50,125
    
    
    
    52,621Accrued income taxes
    
    
    235
    
    
    
    Franchise advertising contributions
    
    
    6,509
    
    
    
    5,940Current maturities of long-term debt and capital lease obligations
    
    
    1,386
    
    
    
    9,464Total current liabilities
    
    
    83,976
    
    
    
    93,584CAPITAL LEASE OBLIGATIONS, less current maturities
    
    
    13,882
    
    
    
    11,987LONG-TERM DEBT, less current maturities
    
    
    301,626
    
    
    
    298,009DEFERRED RENT
    
    
    14,467
    
    
    
    13,467OTHER LIABILITIES
    
    
    15,710
    
    
    
    15,520MINORITY INTERESTS IN CONSOLIDATED PARTNERSHIPS
    
    
    185
    
    
    
    333STOCKHOLDERS INVESTMENT:Common stock, $.01 par value; 100,000 shares authorized;
10,820 issued and outstanding
    
    
    1
    
    
    
    1Additional paid-in capital
    
    
    137,738
    
    
    
    137,923Accumulated other comprehensive income
    
    
    78
    
    
    
    86Accumulated deficit
    
    
    (223,621
    )
    
    
    (207,968
    )Total stockholders investment
    
    
    (85,804
    )
    
    
    (69,958
    )TOTAL LIABILITIES AND STOCKHOLDERS INVESTMENT
    
    $
    344,042
    
    
    
    362,942
  4




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Year-to-Date
    
    
    Year-to-DateEnded
    
    
    EndedJuly 13, 2008
    
    
    July 15, 2007CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (15,653
    )
    
    
    (5,472
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation and amortization
    
    
    13,370
    
    
    
    12,890Asset impairment costs
    
    
    517
    
    
    
    394Amortization of debt discount
    
    
    178
    
    
    
    173Other non-cash income and expense items
    
    
    (180
    )
    
    
    309Loss (gain) on disposition of assets
    
    
    36
    
    
    
    (385
    )Minority interests
    
    
    76
    
    
    
    244Equity in net loss of unconsolidated partnership
    
    
    10
    
    
    
    35Net changes in operating assets and liabilities
    
    
    1,107
    
    
    
    (12,055
    )Total adjustments
    
    
    15,114
    
    
    
    1,605Net cash used in operating activities
    
    
    (539
    )
    
    
    (3,867
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (11,666
    )
    
    
    (11,190
    )Proceeds from sale of assets
    
    
    
    
    
    
    3Net cash used in investing activities
    
    
    (11,666
    )
    
    
    (11,187
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from (repayment of) revolver, net
    
    
    (3,800
    )
    
    
    10,500Repayment of capital lease obligations
    
    
    (242
    )
    
    
    (403
    )Repayment of other long-term debt
    
    
    (760
    )
    
    
    (510
    )Debt amendment costs
    
    
    (1,056
    )
    
    
    Lessor financing of new restaurants
    
    
    2,286
    
    
    
    Distributions to minority partners
    
    
    (224
    )
    
    
    (200
    )Repurchase of equity ownership units
    
    
    (185
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (3,981
    )
    
    
    9,387NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (16,186
    )
    
    
    (5,667
    )CASH AND CASH EQUIVALENTS:Balance, beginning of period
    
    
    19,032
    
    
    
    9,069Balance, end of period
    
    $
    2,846
    
    
    
    3,402
  5




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AccumulatedAdditional
    
    
    OtherCommon
    
    
    Paid-in
    
    
    Comprehensive
    
    
    AccumulatedStock
    
    
    Capital
    
    
    Income
    
    
    Deficit
    
    
    TotalBalances at December 31, 2006
    
    $
    1
    
    
    
    136,131
    
    
    
    13
    
    
    
    (191,816
    )
    
    
    (55,671
    )Cumulative adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183
    
    
    
    183Capital contribution
    
    
    
    
    
    
    1,792
    
    
    
    
    
    
    
    
    
    
    
    1,792Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,335
    )
    
    
    (16,335
    )Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    73
    
    
    
    
    
    
    
    73Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,262
    )Balances at December 30, 2007
    
    
    1
    
    
    
    137,923
    
    
    
    86
    
    
    
    (207,968
    )
    
    
    (69,958
    )Repayment of equity ownership units
    
    
    
    
    
    
    (185
    )
    
    
    
    
    
    
    
    
    
    
    (185
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,653
    )
    
    
    (15,653
    )Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,661
    )Balances at July 13, 2008
    
    $
    1
    
    
    
    137,738
    
    
    
    78
    
    
    
    (223,621
    )
    
    
    (85,804
    )
  6




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(1) Organization
     (2) Basis of Presentation
   (3) Accounting Reporting Period
  (4) Commitments, Contingencies and Concentrations
  7




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(5) Supplemental Cash Flow Information
  Year-to-Date
    
    
    Year-to-DateEnded
    
    
    EndedJuly 13, 2008
    
    
    July 15, 2007Decrease (increase) in:Receivables
    
    $
    (160
    )
    
    
    (1,267
    )Inventories
    
    
    (912
    )
    
    
    (2,893
    )Prepaid expenses and other current assets
    
    
    (155
    )
    
    
    (2,030
    )Other assets
    
    
    1,642
    
    
    
    699Increase (decrease) in:Accounts payable
    
    
    129
    
    
    
    (2,160
    )Accrued expenses and other current liabilities
    
    
    654
    
    
    
    (5,010
    )Other liabilities
    
    
    (91
    )
    
    
    606Net changes in operating assets and liabilities
    
    $
    1,107
    
    
    
    (12,055
    )
 8




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##### Table of Contents



(6) Accrued Expenses
  July 13,
    
    
    December 30,2008
    
    
    2007Payroll and related benefits
    
    $
    14,810
    
    
    
    16,016Interest
    
    
    7,283
    
    
    
    6,310Gift cards and gift certificates
    
    
    5,464
    
    
    
    7,099Property, real estate and sales taxes
    
    
    5,267
    
    
    
    4,325Management fees
    
    
    4,032
    
    
    
    4,065Insurance
    
    
    1,310
    
    
    
    1,539Advertising
    
    
    1,218
    
    
    
    937Other
    
    
    10,741
    
    
    
    12,330Total accrued expenses
    
    $
    50,125
    
    
    
    52,621
 (7) Segment Reporting
   9




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Second Quarter
    
    
    Second Quarter
    
    
    Year-to-Date
    
    
    Year-to-DateEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 13, 2008
    
    
    July 15, 2007
    
    
    July 13, 2008
    
    
    July 15, 2007RevenuesRestaurant operations
    
    $
    114,353
    
    
    
    112,897
    
    
    
    273,387
    
    
    
    269,248Franchise operations
    
    
    5,737
    
    
    
    6,203
    
    
    
    13,169
    
    
    
    14,233Foxtail
    
    
    13,689
    
    
    
    13,619
    
    
    
    33,465
    
    
    
    32,201Intersegment revenue
    
    
    (4,088
    )
    
    
    (3,812
    )
    
    
    (9,431
    )
    
    
    (9,859
    )Other
    
    
    1,275
    
    
    
    1,203
    
    
    
    2,776
    
    
    
    2,573Total
    
    $
    130,966
    
    
    
    130,110
    
    
    
    313,366
    
    
    
    308,396Segment net income (loss)Restaurant operations
    
    
    5,415
    
    
    
    8,196
    
    
    
    13,605
    
    
    
    18,988Franchise operations
    
    
    5,263
    
    
    
    5,721
    
    
    
    12,084
    
    
    
    12,944Foxtail
    
    
    (1,809
    )
    
    
    1,033
    
    
    
    (1,885
    )
    
    
    2,540Other
    
    
    (16,934
    )
    
    
    (17,673
    )
    
    
    (39,457
    )
    
    
    (39,944
    )Total
    
    $
    (8,065
    )
    
    
    (2,723
    )
    
    
    (15,653
    )
    
    
    (5,472
    )
 July 13,
    
    
    December 30,2008
    
    
    2007Segment AssetsRestaurant operations
    
    
    136,801
    
    
    
    140,848Franchise operations
    
    
    122,067
    
    
    
    121,199Foxtail
    
    
    42,801
    
    
    
    42,329Other
    
    
    42,373
    
    
    
    58,566Total
    
    $
    344,042
    
    
    
    362,942
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Second Quarter
    
    
    Second Quarter
    
    
    Year-to-Date
    
    
    Year-to-DateEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 13, 2008
    
    
    July 15, 2007
    
    
    July 13, 2008
    
    
    July 15, 2007General and administrative expenses
    
    $
    8,717
    
    
    
    9,554
    
    
    
    21,102
    
    
    
    22,128Depreciation and amortization expenses
    
    
    773
    
    
    
    1,143
    
    
    
    1,784
    
    
    
    2,045Interest expense, net
    
    
    8,026
    
    
    
    7,217
    
    
    
    18,303
    
    
    
    16,698Gain on disposition of assets, net
    
    
    192
    
    
    
    (394
    )
    
    
    36
    
    
    
    (385
    )Asset write-down
    
    
    285
    
    
    
    248
    
    
    
    517
    
    
    
    394Transaction costs
    
    
    
    
    
    
    568
    
    
    
    
    
    
    
    752Provision for income taxes
    
    
    141
    
    
    
    
    
    
    
    322
    
    
    
    Minority interests
    
    
    30
    
    
    
    82
    
    
    
    76
    
    
    
    244Licensing revenue
    
    
    (1,204
    )
    
    
    (1,093
    )
    
    
    (2,621
    )
    
    
    (2,322
    )Other
    
    
    (26
    )
    
    
    348
    
    
    
    (62
    )
    
    
    390Total other segment loss
    
    $
    16,934
    
    
    
    17,673
    
    
    
    39,457
    
    
    
    39,944
 (8) Long-Term Debt
    11




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(9) Income Tax
     (10) Employee Subscription Agreements and Strip Subscription Agreements
     Class A Units
    
    
    Class C UnitsUnits outstanding as of December 30, 2007
    
    
    1,122,262
    
    
    
    17,673Granted
    
    
    
    
    
    
    Repurchase of equity ownership units
    
    
    (1,841
    )
    
    
    (1,841
    )Units outstanding as of April 20, 2008
    
    
    1,120,421
    
    
    
    15,832Granted
    
    
    
    
    
    
    Repurchase of equity ownership units
    
    
    
    
    
    
    Units outstanding as of July 13, 2008
    
    
    1,120,421
    
    
    
    15,832
 12




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##### Table of Contents



Incentive Units
     Incentive UnitsUnvested
    
    
    VestedUnits outstanding as of December 30, 2007
    
    
    112,725
    
    
    
    Granted
    
    
    10,973
    
    
    
    Purchased
    
    
    
    
    
    
    Vested
    
    
    (25,104
    )
    
    
    25,104Forfeited
    
    
    (19,660
    )
    
    
    Units outstanding as of April 20, 2008
    
    
    78,934
    
    
    
    25,104Granted
    
    
    
    
    
    
    Purchased
    
    
    
    
    
    
    Forfeited
    
    
    (8,521
    )
    
    
    Units outstanding as of July 13, 2008
    
    
    70,413
    
    
    
    25,104
 (11) Recent Accounting Pronouncements
    13




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14




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##### Table of Contents



(12) Condensed Consolidated Financial Information
   Consolidating Statement of Operations for the Second Quarter ended July 13, 2008 (unaudited; in thousands):
 GuarantorParent
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedIssuer
    
    
    WRG
    
    
    Guarantors
    
    
    Eliminations
    
    
    PMCIREVENUES:Food sales
    
    $
    78,611
    
    
    
    39,288
    
    
    
    6,054
    
    
    
    
    
    
    
    123,953Franchise and other revenue
    
    
    4,840
    
    
    
    2,173
    
    
    
    
    
    
    
    
    
    
    
    7,013Total revenues
    
    
    83,451
    
    
    
    41,461
    
    
    
    6,054
    
    
    
    
    
    
    
    130,966COSTS AND EXPENSES:Cost of sales (excluding depreciation shown below):Food cost
    
    
    23,378
    
    
    
    12,152
    
    
    
    1,629
    
    
    
    
    
    
    
    37,159Labor and benefits
    
    
    26,698
    
    
    
    14,369
    
    
    
    2,132
    
    
    
    
    
    
    
    43,199Operating expenses
    
    
    20,537
    
    
    
    11,523
    
    
    
    2,108
    
    
    
    
    
    
    
    34,168General and administrative
    
    
    8,881
    
    
    
    1,217
    
    
    
    
    
    
    
    
    
    
    
    10,098Depreciation and amortization
    
    
    4,095
    
    
    
    1,486
    
    
    
    183
    
    
    
    
    
    
    
    5,764Interest, net
    
    
    7,686
    
    
    
    340
    
    
    
    
    
    
    
    
    
    
    
    8,026Asset impairments and closed store expenses
    
    
    175
    
    
    
    282
    
    
    
    20
    
    
    
    
    
    
    
    477Other, net
    
    
    (31
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31
    )Total costs and expenses
    
    
    91,419
    
    
    
    41,369
    
    
    
    6,072
    
    
    
    
    
    
    
    138,860Income (loss) before income taxes and
minority interests
    
    
    (7,968
    )
    
    
    92
    
    
    
    (18
    )
    
    
    
    
    
    
    (7,894
    )Provision for income taxes
    
    
    (141
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (141
    )Minority interests
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    
    
    
    
    (30
    )Equity in earnings (loss) of subsidiaries
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    (44
    )
    
    
    NET (LOSS) INCOME
    
    $
    (8,065
    )
    
    
    92
    
    
    
    (48
    )
    
    
    (44
    )
    
    
    (8,065
    )
 15




---



##### Table of Contents



Consolidating Statement of Operations for the Second Quarter ended July 15, 2007 (unaudited; in thousands):
 GuarantorParent
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedIssuer
    
    
    WRG
    
    
    Guarantors
    
    
    Eliminations
    
    
    PMCIREVENUES:Food sales
    
    $
    76,823
    
    
    
    39,798
    
    
    
    6,081
    
    
    
    
    
    
    
    122,702Franchise and other revenue
    
    
    5,051
    
    
    
    2,357
    
    
    
    
    
    
    
    
    
    
    
    7,408Total revenues
    
    
    81,874
    
    
    
    42,155
    
    
    
    6,081
    
    
    
    
    
    
    
    130,110COSTS AND EXPENSES:Cost of sales (excluding depreciation shown below):Food cost
    
    
    20,872
    
    
    
    11,155
    
    
    
    1,658
    
    
    
    
    
    
    
    33,685Labor and benefits
    
    
    25,695
    
    
    
    14,285
    
    
    
    2,068
    
    
    
    
    
    
    
    42,048Operating expenses
    
    
    19,573
    
    
    
    10,905
    
    
    
    2,112
    
    
    
    
    
    
    
    32,590General and administrative
    
    
    9,043
    
    
    
    1,633
    
    
    
    
    
    
    
    
    
    
    
    10,676Transaction costs
    
    
    568
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    568Depreciation and amortization
    
    
    4,146
    
    
    
    1,326
    
    
    
    297
    
    
    
    
    
    
    
    5,769Interest, net
    
    
    6,971
    
    
    
    249
    
    
    
    (3
    )
    
    
    
    
    
    
    7,217Asset impairments and closed store expenses
    
    
    (394
    )
    
    
    224
    
    
    
    24
    
    
    
    
    
    
    
    (146
    )Other, net
    
    
    (25
    )
    
    
    369
    
    
    
    
    
    
    
    
    
    
    
    344Total costs and expenses
    
    
    86,449
    
    
    
    40,146
    
    
    
    6,156
    
    
    
    
    
    
    
    132,751Income (loss) before income taxes and
minority interests
    
    
    (4,575
    )
    
    
    2,009
    
    
    
    (75
    )
    
    
    
    
    
    
    (2,641
    )Minority interests
    
    
    
    
    
    
    
    
    
    
    (82
    )
    
    
    
    
    
    
    (82
    )Equity in earnings (loss) of subsidiaries
    
    
    1,852
    
    
    
    
    
    
    
    
    
    
    
    (1,852
    )
    
    
    NET (LOSS) INCOME
    
    $
    (2,723
    )
    
    
    2,009
    
    
    
    (157
    )
    
    
    (1,852
    )
    
    
    (2,723
    )
 16




---



##### Table of Contents



Consolidating Statement of Operations for the Year-to-Date Period ended July 13, 2008 (unaudited; in thousands):
 GuarantorParent
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedIssuer
    
    
    WRG
    
    
    Guarantors
    
    
    Eliminations
    
    
    PMCIREVENUES:Food sales
    
    $
    186,920
    
    
    
    95,704
    
    
    
    14,797
    
    
    
    
    
    
    
    297,421Franchise and other revenue
    
    
    10,876
    
    
    
    5,069
    
    
    
    
    
    
    
    
    
    
    
    15,945Total revenues
    
    
    197,796
    
    
    
    100,773
    
    
    
    14,797
    
    
    
    
    
    
    
    313,366COSTS AND EXPENSES:Cost of sales (excluding depreciation shown below):Food cost
    
    
    54,366
    
    
    
    29,106
    
    
    
    4,089
    
    
    
    
    
    
    
    87,561Labor and benefits
    
    
    63,013
    
    
    
    34,521
    
    
    
    5,154
    
    
    
    
    
    
    
    102,688Operating expenses
    
    
    48,826
    
    
    
    27,252
    
    
    
    5,043
    
    
    
    
    
    
    
    81,121General and administrative
    
    
    22,035
    
    
    
    3,080
    
    
    
    
    
    
    
    
    
    
    
    25,115Depreciation and amortization
    
    
    9,521
    
    
    
    3,466
    
    
    
    383
    
    
    
    
    
    
    
    13,370Interest, net
    
    
    17,680
    
    
    
    623
    
    
    
    
    
    
    
    
    
    
    
    18,303Asset impairments and closed store expenses
    
    
    319
    
    
    
    204
    
    
    
    30
    
    
    
    
    
    
    
    553Other, net
    
    
    (90
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (90
    )Total costs and expenses
    
    
    215,670
    
    
    
    98,252
    
    
    
    14,699
    
    
    
    
    
    
    
    328,621Income (loss) before income taxes and
minority interests
    
    
    (17,874
    )
    
    
    2,521
    
    
    
    98
    
    
    
    
    
    
    
    (15,255
    )Provision for income taxes
    
    
    (322
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (322
    )Minority interests
    
    
    
    
    
    
    
    
    
    
    (76
    )
    
    
    
    
    
    
    (76
    )Equity in earnings (loss) of subsidiaries
    
    
    2,543
    
    
    
    
    
    
    
    
    
    
    
    (2,543
    )
    
    
    NET (LOSS) INCOME
    
    $
    (15,653
    )
    
    
    2,521
    
    
    
    22
    
    
    
    (2,543
    )
    
    
    (15,653
    )
 17




---



##### Table of Contents



Consolidating Statement of Operations for the Year-to-Date Period ended July 15, 2007 (unaudited; in thousands):
 GuarantorParent
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedIssuer
    
    
    WRG
    
    
    Guarantors
    
    
    Eliminations
    
    
    PMCIREVENUES:Food sales
    
    $
    178,762
    
    
    
    97,770
    
    
    
    15,058
    
    
    
    
    
    
    
    291,590Franchise and other revenue
    
    
    11,467
    
    
    
    5,339
    
    
    
    
    
    
    
    
    
    
    
    16,806Total revenues
    
    
    190,229
    
    
    
    103,109
    
    
    
    15,058
    
    
    
    
    
    
    
    308,396COSTS AND EXPENSES:Cost of sales (excluding depreciation shown below):Food cost
    
    
    48,674
    
    
    
    28,126
    
    
    
    4,208
    
    
    
    
    
    
    
    81,008Labor and benefits
    
    
    60,618
    
    
    
    34,909
    
    
    
    4,842
    
    
    
    
    
    
    
    100,369Operating expenses
    
    
    45,626
    
    
    
    25,890
    
    
    
    5,168
    
    
    
    
    
    
    
    76,684General and administrative
    
    
    21,440
    
    
    
    3,460
    
    
    
    
    
    
    
    
    
    
    
    24,900Transaction costs
    
    
    615
    
    
    
    137
    
    
    
    
    
    
    
    
    
    
    
    752Depreciation and amortization
    
    
    9,139
    
    
    
    3,065
    
    
    
    686
    
    
    
    
    
    
    
    12,890Interest, net
    
    
    16,115
    
    
    
    583
    
    
    
    
    
    
    
    
    
    
    
    16,698Asset impairments and closed store expenses
    
    
    (382
    )
    
    
    366
    
    
    
    25
    
    
    
    
    
    
    
    9Other, net
    
    
    (36
    )
    
    
    350
    
    
    
    
    
    
    
    
    
    
    
    314Total costs and expenses
    
    
    201,809
    
    
    
    96,886
    
    
    
    14,929
    
    
    
    
    
    
    
    313,624Income (loss) before income taxes and
minority interests
    
    
    (11,580
    )
    
    
    6,223
    
    
    
    129
    
    
    
    
    
    
    
    (5,228
    )Minority interests
    
    
    
    
    
    
    
    
    
    
    (244
    )
    
    
    
    
    
    
    (244
    )Equity in earnings (loss) of subsidiaries
    
    
    6,108
    
    
    
    
    
    
    
    
    
    
    
    (6,108
    )
    
    
    NET (LOSS) INCOME
    
    $
    (5,472
    )
    
    
    6,223
    
    
    
    (115
    )
    
    
    (6,108
    )
    
    
    (5,472
    )
 18




---



##### Table of Contents



Consolidating Balance Sheet as of July 13, 2008 (unaudited; in thousands):
 GuarantorParent
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedIssuer
    
    
    WRG
    
    
    Guarantors
    
    
    Eliminations
    
    
    PMCIASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    2,450
    
    
    
    2,189
    
    
    
    (1,793
    )
    
    
    
    
    
    
    2,846Restricted cash
    
    
    8,757
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,757Receivables, less allowances for
doubtful accounts
    
    
    11,417
    
    
    
    6,098
    
    
    
    35
    
    
    
    
    
    
    
    17,550Inventories
    
    
    10,041
    
    
    
    3,915
    
    
    
    195
    
    
    
    
    
    
    
    14,151Prepaid expenses and other current assets
    
    
    4,975
    
    
    
    904
    
    
    
    8
    
    
    
    
    
    
    
    5,887Total current assets
    
    
    37,640
    
    
    
    13,106
    
    
    
    (1,555
    )
    
    
    
    
    
    
    49,191PROPERTY AND EQUIPMENT, net
    
    
    68,266
    
    
    
    27,828
    
    
    
    2,357
    
    
    
    
    
    
    
    98,451INVESTMENT IN UNCONSOLIDATED PARTNERSHIP
    
    
    
    
    
    
    34
    
    
    
    9
    
    
    
    
    
    
    
    43GOODWILL
    
    
    30,038
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,038INTANGIBLE ASSETS, net
    
    
    151,784
    
    
    
    202
    
    
    
    
    
    
    
    
    
    
    
    151,986INVESTMENTS IN SUBSIDIARIES
    
    
    (90,196
    )
    
    
    
    
    
    
    
    
    
    
    90,196
    
    
    
    DUE FROM SUBSIDIARIES
    
    
    89,138
    
    
    
    
    
    
    
    
    
    
    
    (89,138
    )
    
    
    DEFERRED INCOME TAXES
    
    
    226
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    226OTHER ASSETS
    
    
    12,677
    
    
    
    1,220
    
    
    
    210
    
    
    
    
    
    
    
    14,107TOTAL ASSETS
    
    $
    299,573
    
    
    
    42,390
    
    
    
    1,021
    
    
    
    1,058
    
    
    
    344,042LIABILITIES AND STOCKHOLDERS INVESTMENTCURRENT LIABILITIES:Accounts payable
    
    
    17,047
    
    
    
    8,229
    
    
    
    445
    
    
    
    
    
    
    
    25,721Accrued expenses
    
    
    34,771
    
    
    
    14,144
    
    
    
    1,210
    
    
    
    
    
    
    
    50,125Accrued income taxes
    
    
    235
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    235Franchise advertising contributions
    
    
    6,509
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,509Current maturities of long-term debt and
capital lease obligations
    
    
    1,165
    
    
    
    221
    
    
    
    
    
    
    
    
    
    
    
    1,386Total current liabilities
    
    
    59,727
    
    
    
    22,594
    
    
    
    1,655
    
    
    
    
    
    
    
    83,976CAPITAL LEASE OBLIGATIONS, less
current maturities
    
    
    8,339
    
    
    
    5,543
    
    
    
    
    
    
    
    
    
    
    
    13,882LONG-TERM DEBT, less current maturities
    
    
    301,600
    
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    301,626DEFERRED RENT
    
    
    9,107
    
    
    
    5,281
    
    
    
    79
    
    
    
    
    
    
    
    14,467OTHER LIABILITIES
    
    
    6,604
    
    
    
    9,106
    
    
    
    
    
    
    
    
    
    
    
    15,710DUE TO PARENT
    
    
    
    
    
    
    90,645
    
    
    
    (1,507
    )
    
    
    (89,138
    )
    
    
    MINORITY INTERESTS IN CONSOLIDATED PARTNERSHIPS
    
    
    
    
    
    
    
    
    
    
    185
    
    
    
    
    
    
    
    185STOCKHOLDERS INVESTMENT:Common stock
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Preferred stock
    
    
    
    
    
    
    63,277
    
    
    
    
    
    
    
    (63,277
    )
    
    
    Capital in excess of par
    
    
    
    
    
    
    9,338
    
    
    
    
    
    
    
    (9,338
    )
    
    
    Additional paid-in capital
    
    
    137,738
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    137,738Treasury stock
    
    
    
    
    
    
    (137
    )
    
    
    
    
    
    
    137
    
    
    
    Accumulated other comprehensive income
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78Accumulated (deficit) earnings
    
    
    (223,621
    )
    
    
    (163,283
    )
    
    
    609
    
    
    
    162,674
    
    
    
    (223,621
    )Total stockholders investment
    
    
    (85,804
    )
    
    
    (90,805
    )
    
    
    609
    
    
    
    90,196
    
    
    
    (85,804
    )TOTAL LIABILITIES AND
STOCKHOLDERS INVESTMENT
    
    $
    299,573
    
    
    
    42,390
    
    
    
    1,021
    
    
    
    1,058
    
    
    
    344,042
 19




---



##### Table of Contents



Consolidating Balance Sheet as of December 30, 2007 (in thousands):
 GuarantorParent
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedIssuer
    
    
    WRG
    
    
    Guarantors
    
    
    Eliminations
    
    
    PMCIASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    19,391
    
    
    
    428
    
    
    
    (787
    )
    
    
    
    
    
    
    19,032Restricted cash
    
    
    10,098
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,098Receivables, less allowances for
doubtful accounts
    
    
    12,000
    
    
    
    5,180
    
    
    
    41
    
    
    
    
    
    
    
    17,221Inventories
    
    
    8,108
    
    
    
    4,839
    
    
    
    292
    
    
    
    
    
    
    
    13,239Prepaid expenses and other current assets
    
    
    5,053
    
    
    
    679
    
    
    
    
    
    
    
    
    
    
    
    5,732Total current assets
    
    
    54,650
    
    
    
    11,126
    
    
    
    (454
    )
    
    
    
    
    
    
    65,322PROPERTY AND EQUIPMENT, net
    
    
    66,956
    
    
    
    29,530
    
    
    
    2,825
    
    
    
    
    
    
    
    99,311INVESTMENT IN UNCONSOLIDATED PARTNERSHIP
    
    
    
    
    
    
    43
    
    
    
    10
    
    
    
    
    
    
    
    53GOODWILL
    
    
    30,038
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,038INTANGIBLE ASSETS, net
    
    
    153,077
    
    
    
    239
    
    
    
    
    
    
    
    
    
    
    
    153,316INVESTMENTS IN SUBSIDIARIES
    
    
    (92,739
    )
    
    
    
    
    
    
    
    
    
    
    92,739
    
    
    
    DUE FROM SUBSIDIARIES
    
    
    89,283
    
    
    
    
    
    
    
    
    
    
    
    (89,283
    )
    
    
    DEFERRED INCOME TAXES
    
    
    242
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    242OTHER ASSETS
    
    
    12,777
    
    
    
    (497
    )
    
    
    2,380
    
    
    
    
    
    
    
    14,660TOTAL ASSETS
    
    $
    314,284
    
    
    
    40,441
    
    
    
    4,761
    
    
    
    3,456
    
    
    
    362,942LIABILITIES AND STOCKHOLDERS INVESTMENTCURRENT LIABILITIES:Accounts payable
    
    
    16,369
    
    
    
    8,420
    
    
    
    770
    
    
    
    
    
    
    
    25,559Accrued expenses
    
    
    33,569
    
    
    
    17,221
    
    
    
    1,831
    
    
    
    
    
    
    
    52,621Franchise advertising contributions
    
    
    5,940
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,940Current maturities of long-term debt and
capital lease obligations
    
    
    9,134
    
    
    
    330
    
    
    
    
    
    
    
    
    
    
    
    9,464Total current liabilities
    
    
    65,012
    
    
    
    25,971
    
    
    
    2,601
    
    
    
    
    
    
    
    93,584CAPITAL LEASE OBLIGATIONS, less current maturities
    
    
    6,147
    
    
    
    5,840
    
    
    
    
    
    
    
    
    
    
    
    11,987LONG-TERM DEBT, less current maturities
    
    
    297,972
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    298,009DEFERRED RENT
    
    
    7,827
    
    
    
    5,556
    
    
    
    84
    
    
    
    
    
    
    
    13,467OTHER LIABILITIES
    
    
    7,284
    
    
    
    8,235
    
    
    
    1
    
    
    
    
    
    
    
    15,520DUE TO PARENT
    
    
    
    
    
    
    92,192
    
    
    
    (2,909
    )
    
    
    (89,283
    )
    
    
    MINORITY INTERESTS IN CONSOLIDATED PARTNERSHIPS
    
    
    
    
    
    
    
    
    
    
    333
    
    
    
    
    
    
    
    333STOCKHOLDERS INVESTMENT:Common stock
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Preferred stock
    
    
    
    
    
    
    63,277
    
    
    
    
    
    
    
    (63,277
    )
    
    
    Capital in excess of par
    
    
    
    
    
    
    (177
    )
    
    
    9,515
    
    
    
    (9,338
    )
    
    
    Additional paid-in capital
    
    
    137,923
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    137,923Treasury stock
    
    
    
    
    
    
    (137
    )
    
    
    
    
    
    
    137
    
    
    
    Accumulated other comprehensive income
    
    
    86
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86Accumulated (deficit) earnings
    
    
    (207,968
    )
    
    
    (160,353
    )
    
    
    (4,864
    )
    
    
    165,217
    
    
    
    (207,968
    )Total stockholders investment
    
    
    (69,958
    )
    
    
    (97,390
    )
    
    
    4,651
    
    
    
    92,739
    
    
    
    (69,958
    )TOTAL LIABILITIES AND STOCKHOLDERS INVESTMENT
    
    $
    314,284
    
    
    
    40,441
    
    
    
    4,761
    
    
    
    3,456
    
    
    
    362,942
 20




---



##### Table of Contents



Consolidating Statement of Cash Flows for the Year-to-Date Period ended July 13, 2008 (unaudited; in thousands):
 GuarantorParent
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedIssuer
    
    
    WRG
    
    
    Guarantors
    
    
    Eliminations
    
    
    PMCICASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (15,653
    )
    
    
    2,521
    
    
    
    22
    
    
    
    (2,543
    )
    
    
    (15,653
    )Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:Equity in the earnings of subsidiaries
    
    
    (2,543
    )
    
    
    
    
    
    
    
    
    
    
    2,543
    
    
    
    Depreciation and amortization
    
    
    9,521
    
    
    
    3,466
    
    
    
    383
    
    
    
    
    
    
    
    13,370Asset impairment costs
    
    
    313
    
    
    
    174
    
    
    
    30
    
    
    
    
    
    
    
    517Amortization of debt discount
    
    
    178
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178Other non-cash income and expense items
    
    
    (223
    )
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    (180
    )Loss on disposition of assets
    
    
    6
    
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    36Minority interests
    
    
    
    
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    76Equity in net loss of unconsolidated partnerships
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    10Net changes in operating assets and liabilities
    
    
    4,709
    
    
    
    (3,073
    )
    
    
    (529
    )
    
    
    
    
    
    
    1,107Total adjustments
    
    
    11,961
    
    
    
    650
    
    
    
    (40
    )
    
    
    2,543
    
    
    
    15,114Net cash (used in) provided by operating activities
    
    
    (3,692
    )
    
    
    3,171
    
    
    
    (18
    )
    
    
    
    
    
    
    (539
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (9,806
    )
    
    
    (1,690
    )
    
    
    (170
    )
    
    
    
    
    
    
    (11,666
    )Proceeds from sale of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash (used in) provided by investing activities
    
    
    (9,806
    )
    
    
    (1,690
    )
    
    
    (170
    )
    
    
    
    
    
    
    (11,666
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repayment of revolver, net
    
    
    (3,800
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,800
    )Repayment of capital lease obligations
    
    
    (83
    )
    
    
    (159
    )
    
    
    
    
    
    
    
    
    
    
    (242
    )Repayment of other long-term debt
    
    
    (750
    )
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    (760
    )Debt amendment costs
    
    
    (1,056
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,056
    )Lessor financing of new restaurants
    
    
    2,286
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,286Distributions to minority partners
    
    
    
    
    
    
    
    
    
    
    (224
    )
    
    
    
    
    
    
    (224
    )Intercompany financing
    
    
    145
    
    
    
    4,513
    
    
    
    (4,658
    )
    
    
    
    
    
    
    Repurchase of equity ownership units
    
    
    (185
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (185
    )Net cash (used in) provided by financing activities
    
    
    (3,443
    )
    
    
    4,344
    
    
    
    (4,882
    )
    
    
    
    
    
    
    (3,981
    )Net (decrease) increase in cash and cash equivalents
    
    
    (16,941
    )
    
    
    5,825
    
    
    
    (5,070
    )
    
    
    
    
    
    
    (16,186
    )CASH AND CASH EQUIVALENTS:Balance, beginning of period
    
    
    19,391
    
    
    
    428
    
    
    
    (787
    )
    
    
    
    
    
    
    19,032Balance, end of period
    
    $
    2,450
    
    
    
    6,253
    
    
    
    (5,857
    )
    
    
    
    
    
    
    2,846
 21




---



##### Table of Contents



Consolidating Statement of Cash Flows for the Year-to-Date Period ended July 15, 2007 (unaudited; in thousands):
 GuarantorParent
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    ConsolidatedIssuer
    
    
    WRG
    
    
    Guarantors
    
    
    Eliminations
    
    
    PMCICASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (5,472
    )
    
    
    6,223
    
    
    
    (115
    )
    
    
    (6,108
    )
    
    
    (5,472
    )Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:Equity in the earnings of subsidiaries
    
    
    (6,108
    )
    
    
    
    
    
    
    
    
    
    
    6,108
    
    
    
    Depreciation and amortization
    
    
    9,139
    
    
    
    3,065
    
    
    
    686
    
    
    
    
    
    
    
    12,890Asset impairment costs
    
    
    
    
    
    
    371
    
    
    
    23
    
    
    
    
    
    
    
    394Amortization of debt discount
    
    
    173
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    173Other non-cash income and expense items
    
    
    293
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    309Gain on disposition of assets
    
    
    (382
    )
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    (385
    )Minority interests
    
    
    
    
    
    
    75
    
    
    
    169
    
    
    
    
    
    
    
    244Equity in net loss of unconsolidated partnership
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    35Net changes in operating assets and liabilities
    
    
    (679
    )
    
    
    (10,899
    )
    
    
    (477
    )
    
    
    
    
    
    
    (12,055
    )Total adjustments
    
    
    2,436
    
    
    
    (7,340
    )
    
    
    401
    
    
    
    6,108
    
    
    
    1,605Net cash (used in) provided by operating activities
    
    
    (3,036
    )
    
    
    (1,117
    )
    
    
    286
    
    
    
    
    
    
    
    (3,867
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of property and equipment
    
    
    (7,816
    )
    
    
    (2,768
    )
    
    
    (606
    )
    
    
    
    
    
    
    (11,190
    )Proceeds from sale of assets
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3Net cash used in investing activities
    
    
    (7,816
    )
    
    
    (2,765
    )
    
    
    (606
    )
    
    
    
    
    
    
    (11,187
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from revolver, net
    
    
    10,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,500Repayment of capital lease obligations
    
    
    (85
    )
    
    
    (318
    )
    
    
    
    
    
    
    
    
    
    
    (403
    )Repayment of other long-term debt
    
    
    (500
    )
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    (510
    )Distributions to minority partners
    
    
    
    
    
    
    (23
    )
    
    
    (177
    )
    
    
    
    
    
    
    (200
    )Intercompany financing
    
    
    739
    
    
    
    (359
    )
    
    
    (380
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    10,654
    
    
    
    (710
    )
    
    
    (557
    )
    
    
    
    
    
    
    9,387Net decrease in cash and cash equivalents
    
    
    (198
    )
    
    
    (4,592
    )
    
    
    (877
    )
    
    
    
    
    
    
    (5,667
    )CASH AND CASH EQUIVALENTS:Balance, beginning of period
    
    
    3,333
    
    
    
    7,158
    
    
    
    (1,422
    )
    
    
    
    
    
    
    9,069Balance, end of period
    
    $
    3,135
    
    
    
    2,566
    
    
    
    (2,299
    )
    
    
    
    
    
    
    3,402
 22




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 GENERAL
  OUR COMPANY
          23




---



##### Table of Contents



KEY FACTORS AFFECTING OUR RESULTS
   24




---



##### Table of Contents



SUMMARY OF CRITICAL ACCOUNTING POLICIES
         25




---



##### Table of Contents



26




---



##### Table of Contents



RESULTS OF OPERATIONS
     Percentage of Total RevenuesSecond Quarter
    
    
    Second Quarter
    
    
    Year-to-Date
    
    
    Year-to-DateEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedJuly 13, 2008
    
    
    July 15, 2007
    
    
    July 13, 2008
    
    
    July 15, 2007Restaurant operations
    
    
    87.3
    %
    
    
    86.7
    %
    
    
    87.2
    %
    
    
    87.4
    %Franchise operations
    
    
    4.4
    %
    
    
    4.8
    %
    
    
    4.2
    %
    
    
    4.6
    %Foxtail
    
    
    7.3
    %
    
    
    7.5
    %
    
    
    7.7
    %
    
    
    7.2
    %Other
    
    
    1.0
    %
    
    
    1.0
    %
    
    
    0.9
    %
    
    
    0.8
    %Total revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 27




---



##### Table of Contents



Consolidated Results
    
    
    Restaurant Operations
    
    
    Franchise OperationsSecond Quarter Ended
    
    
    Second Quarter Ended
    
    
    Second Quarter EndedJuly 13, 2008
    
    
    July 15, 2007
    
    
    July 13, 2008
    
    
    July 15, 2007
    
    
    July 13, 2008
    
    
    July 15, 2007Food sales
    
    $
    128,042
    
    
    
    126,516
    
    
    
    114,353
    
    
    
    112,897
    
    
    
    
    
    
    
    Franchise and other revenue
    
    
    7,012
    
    
    
    7,406
    
    
    
    
    
    
    
    
    
    
    
    5,737
    
    
    
    6,203Intersegment revenue
    
    
    (4,088
    )
    
    
    (3,812
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenues
    
    
    130,966
    
    
    
    130,110
    
    
    
    114,353
    
    
    
    112,897
    
    
    
    5,737
    
    
    
    6,203Food cost
    
    
    30.0
    %
    
    
    27.5
    %
    
    
    27.3
    %
    
    
    26.4
    %
    
    
    0.0
    %
    
    
    0.0
    %Labor and benefits
    
    
    33.0
    %
    
    
    32.3
    %
    
    
    36.1
    %
    
    
    35.4
    %
    
    
    0.0
    %
    
    
    0.0
    %Operating expenses
    
    
    26.1
    %
    
    
    25.0
    %
    
    
    27.8
    %
    
    
    27.1
    %
    
    
    8.3
    %
    
    
    7.8
    %Segment (loss) profit
    
    $
    (8,065
    )
    
    
    (2,723
    )
    
    
    5,415
    
    
    
    8,196
    
    
    
    5,263
    
    
    
    5,721Foxtail (a)
    
    
    Other (b)Second Quarter Ended
    
    
    Second Quarter EndedJuly 13, 2008
    
    
    July 15, 2007
    
    
    July 13, 2008
    
    
    July 15, 2007Food sales
    
    $
    13,689
    
    
    
    13,619
    
    
    
    
    
    
    
    Franchise and other revenue
    
    
    
    
    
    
    
    
    
    
    1,275
    
    
    
    1,203Intersegment revenue
    
    
    (4,088
    )
    
    
    (3,812
    )
    
    
    
    
    
    
    Total revenues
    
    
    9,601
    
    
    
    9,807
    
    
    
    1,275
    
    
    
    1,203Food cost
    
    
    72.9
    %
    
    
    56.5
    %
    
    
    0.0
    %
    
    
    0.0
    %Labor and benefits
    
    
    13.4
    %
    
    
    14.0
    %
    
    
    6.0
    %
    
    
    9.9
    %Operating expenses
    
    
    13.9
    %
    
    
    11.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Segment (loss) profit
    
    $
    (1,809
    )
    
    
    1,033
    
    
    
    (16,934
    )
    
    
    (17,673
    )
 (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 $1,204,000 and $1,093,000 for the second quarters of 2008 and 2007,
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 7, Segment Reporting in the Notes
to Consolidated Financial Statements.
 28




---



##### Table of Contents



Consolidated Results
    
    
    Restaurant Operations
    
    
    Franchise OperationsYear-to-Date Ended
    
    
    Year-to-Date Ended
    
    
    Year-to-Date EndedJuly 13, 2008
    
    
    July 15, 2007
    
    
    July 13, 2008
    
    
    July 15, 2007
    
    
    July 13, 2008
    
    
    July 15, 2007Food sales
    
    $
    306,852
    
    
    
    301,449
    
    
    
    273,387
    
    
    
    269,248
    
    
    
    
    
    
    
    Franchise and other revenue
    
    
    15,945
    
    
    
    16,806
    
    
    
    
    
    
    
    
    
    
    
    13,169
    
    
    
    14,233Intersegment revenue
    
    
    (9,431
    )
    
    
    (9,859
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenues
    
    
    313,366
    
    
    
    308,396
    
    
    
    273,387
    
    
    
    269,248
    
    
    
    13,169
    
    
    
    14,233Food cost
    
    
    29.4
    %
    
    
    27.8
    %
    
    
    27.2
    %
    
    
    27.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Labor and benefits
    
    
    32.8
    %
    
    
    32.5
    %
    
    
    35.9
    %
    
    
    35.5
    %
    
    
    0.0
    %
    
    
    0.0
    %Operating expenses
    
    
    25.9
    %
    
    
    24.9
    %
    
    
    28.0
    %
    
    
    26.8
    %
    
    
    8.2
    %
    
    
    9.0
    %Segment (loss) profit
    
    $
    (15,653
    )
    
    
    (5,472
    )
    
    
    13,605
    
    
    
    18,988
    
    
    
    12,084
    
    
    
    12,944Foxtail (a)
    
    
    Other (b)Year-to-Date Ended
    
    
    Year-to-Date EndedJuly 13, 2008
    
    
    July 15, 2007
    
    
    July 13, 2008
    
    
    July 15, 2007Food sales
    
    $
    33,465
    
    
    
    32,201
    
    
    
    
    
    
    
    Franchise and other revenue
    
    
    
    
    
    
    
    
    
    
    2,776
    
    
    
    2,573Intersegment revenue
    
    
    (9,431
    )
    
    
    (9,859
    )
    
    
    
    
    
    
    Total revenues
    
    
    24,034
    
    
    
    22,342
    
    
    
    2,776
    
    
    
    2,573Food cost
    
    
    67.5
    %
    
    
    56.7
    %
    
    
    0.0
    %
    
    
    0.0
    %Labor and benefits
    
    
    13.2
    %
    
    
    14.1
    %
    
    
    6.6
    %
    
    
    12.7
    %Operating expenses
    
    
    10.2
    %
    
    
    10.2
    %
    
    
    0.0
    %
    
    
    0.0
    %Segment (loss) profit
    
    $
    (1,885
    )
    
    
    2,540
    
    
    
    (39,457
    )
    
    
    (39,944
    )
 (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 $2,621,000 and $2,322,000 for the year-to-date periods of 2008 and 2007,
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 7, Segment Reporting in the Notes
to Consolidated Financial Statements.
 29




---



##### Table of Contents



Quarter Ended July 13, 2008 Compared to the Quarter Ended July 15, 2007
 Restaurant Operations Overview
     Franchise Operations Overview
    Foxtail Overview
      30




---



##### Table of Contents



Food Cost
   Labor and Benefits Expenses
  Operating Expenses
  General and Administrative Expenses
  Transaction Costs
  31




---



##### Table of Contents



Depreciation and Amortization
  Interest, net
  Taxes
  Year-to-Date Period Ended July 13, 2008 Compared to the Year-to-Date Period Ended July 15, 2007
 Restaurant Operations Overview
     Franchise Operations Overview
   32




---



##### Table of Contents



Foxtail Overview
         Food Cost
   Labor and Benefits Expenses
  33




---



##### Table of Contents



Operating Expenses
  General and Administrative Expenses
  Transaction Costs
  Depreciation and Amortization
  Interest, net
  Taxes
  34




---



##### Table of Contents



CAPITAL RESOURCES AND LIQUIDITY
    Working Capital and Cash Flows
   35




---



##### Table of Contents



Year-to-Date
    
    
    Year-to-DateEnded
    
    
    EndedJuly 13, 2008
    
    
    July 15, 2007Cash flows used in operating activities
    
    $
    (539
    )
    
    $
    (3,867
    )Cash flows used in investing activities
    
    
    (11,666
    )
    
    
    (11,187
    )Cash flows (used in) provided by financing activities
    
    
    (3,981
    )
    
    
    9,387
 Operating activities
  Investing activities
   Year-to-Date
    
    
    Year-to-DateEnded
    
    
    EndedJuly 13, 2008
    
    
    July 15, 2007New restaurants
    
    $
    2,146
    
    
    $
    2,826Restaurant improvements
    
    
    4,013
    
    
    
    4,544Restaurant remodeling and reimaging
    
    
    2,304
    
    
    
    1,884Manufacturing plant improvements
    
    
    2,277
    
    
    
    804Other
    
    
    926
    
    
    
    1,132Total capital expenditures
    
    $
    11,666
    
    
    $
    11,190
  Financing activities
  36




---



##### Table of Contents



CASH CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
   RECENT ACCOUNTING PRONOUNCEMENTS
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IMPACT OF INFLATION
  INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
   
    
    general economic conditions and demographic patterns;
    
    our substantial indebtedness and our ability to comply with the covenants in our debt
instruments;
    
    competitive pressures and trends in the restaurant industry;
    
    prevailing prices and availability of food, supplies and labor;
    
    relationships with franchisees and financial health of franchisees;
    
    our ability to integrate acquisitions;
    
    our development and expansion plans; and
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
    
    statements covering our business strategy.
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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
 Foreign Currency Exchange Rate Risk
 Commodity Price Risk
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ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
 Managements Quarterly Report on Internal Control over Financial Reporting
     Changes in Internal Control over Financial Reporting
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ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
  As
of the end of our third fiscal quarter, we may cease to be in
compliance with certain financial covenants in our Credit Agreement.
  ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
  ITEM 3. Defaults Upon Senior Securities
  ITEM 4. Submission of Matters to a Vote of Security Holders.
  ITEM 5. Other Information
  
 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.
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SIGNATURE
  PERKINS & MARIE CALLENDERS INC.DATE: August 27, 2008
    BY: /s/ Fred T. Grant, Jr.Fred T. Grant, Jr.Chief Financial Officer 43