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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 1934For the quarterly period ended July 13, 2003ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from  ___________ to ___________.Commission file number 333-57925


The Restaurant Company

---

(Exact name of registrant as specified in its charter)


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


(901) 766-6400

---

(Registrants telephone number, including area code)


Indicate by þ 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 þ    No o

Indicate by þ whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act). Yes o    No þ

Number of shares of common stock outstanding: 10,820.

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|                                           |  |  |  |  |  |  |  | 
|------------------------------------------ |  |  |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION            
|ITEM 1. FINANCIAL STATEMENTS              
|CONSOLIDATED BALANCE SHEETS               
|CONSOLIDATED STATEMENTS OF CASH FLOWS     
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|PART II  OTHER INFORMATION               
|EX-31.1 SECTION 302 CEO CERTIFICATION     
|EX-31.2 SECTION 302 CFO CERTIFICATION     



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

Quarter
    
    Quarter
    
    Year-to-
    
    Year-to-Ended July
    
    Ended July
    
    Date July
    
    Date July13, 2003
    
    14, 2002
    
    13, 2003
    
    14, 2002REVENUES:Food sales
    
    $
    72,286
    
    
    $
    72,637
    
    
    $
    166,018
    
    
    $
    171,046Franchise and other revenue
    
    
    5,338
    
    
    
    5,451
    
    
    
    11,595
    
    
    
    12,054Total Revenues
    
    
    77,624
    
    
    
    78,088
    
    
    
    177,613
    
    
    
    183,100COSTS AND EXPENSES:Cost of sales (excluding depreciation shown below):Food cost
    
    
    20,814
    
    
    
    19,840
    
    
    
    47,253
    
    
    
    47,432Labor and benefits
    
    
    25,152
    
    
    
    25,539
    
    
    
    59,022
    
    
    
    60,573Operating expenses
    
    
    14,941
    
    
    
    14,991
    
    
    
    34,905
    
    
    
    35,113General and administrative
    
    
    6,870
    
    
    
    7,501
    
    
    
    15,787
    
    
    
    16,711Depreciation and amortization
    
    
    4,162
    
    
    
    5,006
    
    
    
    9,921
    
    
    
    11,772Interest, net
    
    
    3,774
    
    
    
    4,133
    
    
    
    9,044
    
    
    
    9,749Provision for disposition of assets
    
    
    53
    
    
    
    2
    
    
    
    55
    
    
    
    30Asset write-down
    
    
    150
    
    
    
    
    
    
    
    150
    
    
    
    Other, net
    
    
    (126
    )
    
    
    (121
    )
    
    
    (287
    )
    
    
    (363
    )Total Costs and Expenses
    
    
    75,790
    
    
    
    76,891
    
    
    
    175,850
    
    
    
    181,017Income before income taxes
    
    
    1,834
    
    
    
    1,197
    
    
    
    1,763
    
    
    
    2,083Provision for income taxes
    
    
    (396
    )
    
    
    (347
    )
    
    
    (382
    )
    
    
    (604
    )NET INCOME
    
    $
    1,438
    
    
    $
    850
    
    
    $
    1,381
    
    
    $
    1,479


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

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

July 13,2003
    
    December 29,(Unaudited)
    
    2002ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    5,634
    
    
    $
    5,813Receivables, less allowance for
doubtful accounts of $874 and $1,041
    
    
    8,574
    
    
    
    9,671Inventories, at the lower of first-
in, first-out cost or market
    
    
    5,814
    
    
    
    5,182Prepaid expenses and other current assets
    
    
    2,179
    
    
    
    1,977Deferred income taxes
    
    
    721
    
    
    
    721Total current assets
    
    
    22,922
    
    
    
    23,364PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization
    
    
    122,215
    
    
    
    126,985GOODWILL
    
    
    27,035
    
    
    
    27,035INTANGIBLE ASSETS, net of accumulated
amortization of $4,964 and $4,581
    
    
    4,354
    
    
    
    4,737DEFERRED INCOME TAXES
    
    
    9,209
    
    
    
    9,209OTHER ASSETS
    
    
    6,808
    
    
    
    7,354$
    192,543
    
    
    $
    198,684


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

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

July 13,2003
    
    December 29,(Unaudited)
    
    2002LIABILITIES AND STOCKHOLDERS INVESTMENTCURRENT LIABILITIES:Current maturities of long-term debt and capital lease obligations
    
    $
    582
    
    
    $
    9,489Accounts payable
    
    
    11,781
    
    
    
    14,132Accrued expenses
    
    
    19,914
    
    
    
    17,849Total current liabilities
    
    
    32,277
    
    
    
    41,470CAPITAL LEASE OBLIGATIONS, less
current maturities
    
    
    1,052
    
    
    
    1,334LONG-TERM DEBT
    
    
    151,759
    
    
    
    150,015OTHER LIABILITIES
    
    
    6,355
    
    
    
    6,146STOCKHOLDERS INVESTMENT:Common stock, $.01 par value, 100,000 shares authorized,
10,820 issued and outstanding
    
    
    1
    
    
    
    1Accumulated earnings (deficit)
    
    
    1,099
    
    
    
    (282
    )Total stockholders investment (deficit)
    
    
    1,100
    
    
    
    (281
    )$
    192,543
    
    
    $
    198,684


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

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

Quarter
    
    Quarter
    
    Year-to-
    
    Year-to-Ended July
    
    Ended July
    
    Date July
    
    Date July13, 2003
    
    14, 2002
    
    13, 2003
    
    14, 2002CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    1,438
    
    
    $
    850
    
    
    $
    1,381
    
    
    $
    1,479Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    4,162
    
    
    
    5,006
    
    
    
    9,921
    
    
    
    11,772Accretion of Senior Discount Notes
    
    
    
    
    
    
    6
    
    
    
    7
    
    
    
    13Provision for bad debt expense
    
    
    107
    
    
    
    111
    
    
    
    243
    
    
    
    223Provision for disposition of assets
    
    
    53
    
    
    
    2
    
    
    
    55
    
    
    
    30Asset write-down
    
    
    150
    
    
    
    
    
    
    
    150
    
    
    
    Net changes in operating assets and liabilities
    
    
    (1,174
    )
    
    
    (882
    )
    
    
    266
    
    
    
    115Total adjustments
    
    
    3,298
    
    
    
    4,243
    
    
    
    10,642
    
    
    
    12,153Net cash provided by operating activities
    
    
    4,736
    
    
    
    5,093
    
    
    
    12,023
    
    
    
    13,632CASH FLOWS FROM INVESTING ACTIVITIES:Cash paid for property and equipment
    
    
    (2,820
    )
    
    
    (4,280
    )
    
    
    (4,989
    )
    
    
    (8,834
    )Proceeds from sale of assets held for disposition
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    2,030Payments on notes receivable
    
    
    28
    
    
    
    47
    
    
    
    229
    
    
    
    339Net cash used in investing activities
    
    
    (2,792
    )
    
    
    (4,233
    )
    
    
    (4,750
    )
    
    
    (6,465
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from long-term debt
    
    
    3,750
    
    
    
    12,750
    
    
    
    3,750
    
    
    
    27,750Payments on long-term debt
    
    
    (8,853
    )
    
    
    (13,250
    )
    
    
    (10,853
    )
    
    
    (33,750
    )Principal payments under capital lease obligations
    
    
    (149
    )
    
    
    (294
    )
    
    
    (349
    )
    
    
    (688
    )Net cash used in financing activities
    
    
    (5,252
    )
    
    
    (794
    )
    
    
    (7,452
    )
    
    
    (6,688
    )Net (decrease) increase in cash and cash equivalents
    
    
    (3,308
    )
    
    
    66
    
    
    
    (179
    )
    
    
    479CASH AND CASH EQUIVALENTS:Balance, beginning of period
    
    
    8,942
    
    
    
    4,914
    
    
    
    5,813
    
    
    
    4,501Balance, end of period
    
    $
    5,634
    
    
    $
    4,980
    
    
    $
    5,634
    
    
    $
    4,980


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

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

Organization

The Restaurant Company (the Company, Perkins, or TRC) is a
wholly-owned subsidiary of The Restaurant Holding Corporation (RHC).
TRC conducts business under the name Perkins Restaurant and Bakery. TRC
is also the sole stockholder of TRC Realty LLC, The Restaurant Company of
Minnesota and Perkins Finance Corp. RHCs principal stockholders are
Donald N. Smith (Mr. Smith), TRCs Chairman and Chief Executive Officer,
and BancBoston Ventures, Inc. (BBV). Mr. Smith is also the Chairman of
Friendly Ice Cream Corporation (FICC), which operates and franchises
approximately 543 restaurants, located primarily in the northeastern
United States.

Basis of Presentation

The accompanying unaudited consolidated financial statements of TRC have
been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and notes necessary for complete
financial statements in conformity with generally accepted accounting
principles. The results for the periods indicated are unaudited but
reflect all adjustments (consisting only of normal recurring adjustments)
which management considers necessary for a fair presentation of the
operating results. Results of operations for the interim periods are not
necessarily indicative of a full year of operations. The notes to the
financial statements contained in the 2002 Annual Report on Form 10-K
should be read in conjunction with these statements.

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

Accounting Reporting Period

The Companys fiscal calendar year consists of thirteen four-week periods
ending on the last Sunday in December. The first quarter each year will
include four four-week periods. The first and second quarters ended on
April 20 and July 13, respectively. The third and fourth quarters of 2003
will end on October 5 and December 28, respectively.

Contingencies

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

On June 9, 2000, the Company entered into an agreement to guarantee fifty
percent of borrowings up to a total guarantee of $1,500,000 for use by a
franchisee to remodel and upgrade existing restaurants. As of July 13,
2003, there was $3,000,000 in borrowings outstanding under this agreement
of which the Company guaranteed $1,500,000. The franchisee intends to
refinance the indebtedness, at which time, the Companys obligation under
the current agreement will terminate.

Asset Write-Down

During the second quarter of 2003, the Company determined that impairment
existed with respect to one Company owned restaurant. This determination was
made based on the Companys projections that the future cash flows of this
restaurant would not exceed the present carrying value of the assets.
Accordingly, the Company recorded an impairment charge of $150,000 to adjust
the assets of this restaurant to net realizable value.

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Supplemental Cash Flow Information

The increase or decrease in cash and cash equivalents due to changes in
operating assets and liabilities for the quarters and year-to-date periods
ended July 13 and July 14, consists of the following (in thousands):

Quarter Ended
    
    Quarter Ended
    
    Year-to-Date
    
    Year-to-DateJuly 13, 2003
    
    July 14, 2002
    
    July 13, 2003
    
    July 14, 2002(Increase) Decrease in:Receivables
    
    $
    (292
    )
    
    $
    (389
    )
    
    $
    941
    
    
    $
    (1,283
    )Inventories
    
    
    93
    
    
    
    (662
    )
    
    
    (632
    )
    
    
    (501
    )Prepaid expenses and
other current assets
    
    
    283
    
    
    
    331
    
    
    
    (202
    )
    
    
    304Other assets
    
    
    (60
    )
    
    
    543
    
    
    
    236
    
    
    
    595Increase (Decrease) in:Accounts payable
    
    
    3,173
    
    
    
    3,868
    
    
    
    (2,351
    )
    
    
    (194
    )Accrued expenses
    
    
    (4,670
    )
    
    
    (3,516
    )
    
    
    2,065
    
    
    
    1,754Other liabilities
    
    
    299
    
    
    
    (1,057
    )
    
    
    209
    
    
    
    (560
    )$
    (1,174
    )
    
    $
    (882
    )
    
    $
    266
    
    
    $
    115


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

Quarter Ended
    
    Quarter Ended
    
    Year-to-Date
    
    Year-to-DateJuly 13, 2003
    
    July 14, 2002
    
    July 13, 2003
    
    July 14, 2002Cash paid for interest
    
    $
    8,192
    
    
    $
    8,385
    
    
    $
    8,389
    
    
    $
    8,776Income taxes paid
    
    
    42
    
    
    
    830
    
    
    
    117
    
    
    
    896Income tax refunds received
    
    
    23
    
    
    
    
    
    
    
    59
    
    
    
    639


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Segment Reporting

The following presents revenue and other financial information by business
segment for the quarters and year-to-date periods ended July 13 and July 14 (in
thousands):

Quarter:
    
    Restaurants
    
    Franchise
    
    Manufacturing
    
    Other
    
    TotalsQuarter ended July 13, 2003:Revenue from
external customers
    
    $
    64,373
    
    
    $
    5,236
    
    
    $
    7,913
    
    
    $
    102
    
    
    $
    77,624Intersegment revenue
    
    
    
    
    
    
    
    
    
    
    2,089
    
    
    
    
    
    
    
    2,089Segment profit (loss)
    
    
    5,578
    
    
    
    4,457
    
    
    
    1,964
    
    
    
    (10,561
    )
    
    
    1,438Quarter ended July 14, 2002:Revenue from
external customers
    
    $
    64,817
    
    
    $
    5,339
    
    
    $
    7,371
    
    
    $
    561
    
    
    $
    78,088Intersegment revenue
    
    
    
    
    
    
    
    
    
    
    1,904
    
    
    
    
    
    
    
    1,904Segment profit (loss)
    
    
    6,390
    
    
    
    4,521
    
    
    
    1,710
    
    
    
    (11,771
    )
    
    
    850




Year-to-Date:
    
    Restaurants
    
    Franchise
    
    Manufacturing
    
    Other
    
    TotalsYear-to-Date ended July 13, 2003:Revenue from
external customers
    
    $
    149,228
    
    
    $
    11,358
    
    
    $
    16,790
    
    
    $
    237
    
    
    $
    177,613Intersegment revenue
    
    
    
    
    
    
    
    
    
    
    5,323
    
    
    
    
    
    
    
    5,323Segment profit (loss)
    
    
    11,473
    
    
    
    9,867
    
    
    
    3,919
    
    
    
    (23,878
    )
    
    
    1,381Year-to-Date ended July 14, 2002:Revenue from
external customers
    
    $
    153,500
    
    
    $
    11,807
    
    
    $
    16,484
    
    
    $
    1,309
    
    
    $
    183,100Intersegment revenue
    
    
    
    
    
    
    
    
    
    
    4,786
    
    
    
    
    
    
    
    4,786Segment profit (loss)
    
    
    14,458
    
    
    
    9,948
    
    
    
    3,776
    
    
    
    (26,703
    )
    
    
    1,479


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

Quarter
    
    Quarter
    
    Year-to-
    
    Year-to-Ended July
    
    Ended July
    
    Date July
    
    Date July13, 2003
    
    14, 2002
    
    13, 2003
    
    14, 2002General and administrative expenses
    
    $
    5,765
    
    
    $
    6,459
    
    
    $
    13,143
    
    
    $
    14,285Depreciation and amortization expenses
    
    
    678
    
    
    
    921
    
    
    
    1,581
    
    
    
    2,294Interest expense
    
    
    3,774
    
    
    
    4,133
    
    
    
    9,044
    
    
    
    9,749Provision for disposition of assets
    
    
    53
    
    
    
    2
    
    
    
    55
    
    
    
    30Asset write-down
    
    
    150
    
    
    
    
    
    
    
    150
    
    
    
    Income tax expense
    
    
    396
    
    
    
    347
    
    
    
    382
    
    
    
    604Other
    
    
    (255
    )
    
    
    (91
    )
    
    
    (477
    )
    
    
    (259
    )$
    10,561
    
    
    $
    11,771
    
    
    $
    23,878
    
    
    $
    26,703


Revolving Credit Agreement

As of July 13, 2003, the Company has a secured $25,000,000 revolving line of
credit facility (the Credit Facility) with a sub-limit for up to $5,000,000
of letters of credit. All amounts under the Credit Facility bear interest at
floating rates based on the agents base rate or Eurodollar rates as defined in
the agreement. All indebtedness under the Credit Facility is collateralized by
a first priority lien on substantially all of the assets of the Company. As of
July 13, 2003, there were $3,750,000 in borrowings and approximately $3,596,000
of letters of credit outstanding under the Credit Facility.

At April 20, 2003, the Company failed to meet the criteria of one of the
financial covenants of the Credit Facility. On May 14, 2003, the Company
executed an amendment to the Credit Facility that waives the April 20, 2003
covenant violation, reduces the requirements of the financial covenants and
lowers the total amount available under the Credit Facility from $40,000,000 to
$25,000,000. At July 13, 2003, the Company was in compliance with the
requirements of the financial covenants. However, based on current trends, the
Company believes that it is likely that the Company will not comply with one or
more covenants at the end of the first quarter of 2004. The Company has begun
discussions with the credit facility lender to negotiate modified covenants
that will ensure future compliance. If the Company is unable to modify the
terms of this agreement and are unable to obtain waivers from the lender for
possible future violations of these covenants, the lender could demand payment
of the balance of the Credit Facility, which could constitute a default under
the Notes and Discount Notes. If the Credit Facility lender, or the trustee or
the holders of the Notes and the Discount Notes demanded repayment, the Company
would seek to refinance the balance of the Credit Facility, the Notes and the
Discount Notes with another lender. There can be no assurance that we will
successfully modify the terms of the covenants or refinance the balance under
the Credit Facility, the Notes and the Discount Notes.

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New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities
(VIEs), an interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to improve financial reporting of special
purpose and other entities. In accordance with the interpretation, business
enterprises that represent the primary beneficiary of another entity by
retaining a controlling financial interest in that entitys assets,
liabilities, and results of operating activities must consolidate the entity in
their financial statements. Prior to the issuance of FIN 46, consolidation
generally occurred when an enterprise controlled another entity through voting
interests. Certain VIEs that are qualifying special purpose entities (QSPEs)
subject to the reporting requirements of SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities, will not be
required to be consolidated under the provisions of FIN 46. The consolidation
provisions of FIN 46 apply to VIEs created or entered into after January 31,
2003, and for pre-existing VIEs in the first reporting period beginning after
June 15, 2003. If applicable, transition rules allow the restatement of
financial statements or prospective application with a cumulative effect
adjustment. In addition, FIN 46 expands the disclosure requirements for the
beneficiary of a significant or a majority of the variable interests to provide
information regarding the nature, purpose and financial characteristics of the
entities. The Company does not believe that the adoption of FIN 46 will have a
material adverse impact on the Companys financial statements.

In January 2003, the Emerging Issues Task Force (EITF) issued EITF Issue No.
02-16, Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor, which states that cash consideration
received from a vendor is presumed to be a reduction of the prices of the
vendors products or services and should, therefore, be characterized as a
reduction of cost of sales when recognized in the statement of operations. That
presumption is overcome when the consideration is either a reimbursement of
specific, incremental, identifiable costs incurred to sell the vendors
products, or a payment for assets or services delivered to the vendor. EITF
Issue No. 02-16 is effective for arrangements entered into after November 21,
2002. The Company is already accounting for vendor rebates in a manner
consistent with the EITF consensus. Therefore, applying the provisions of EITF
Issue No. 02-16 will not have a material impact on the Companys financial
position or results of operations.

In April 2003, the FASB issued Statement of Financial Accounting Standard No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. This statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement is effective for contracts
entered into or modified after June 30, 2003. The Company does not believe
that the adoption of this Statement will have a material effect on the results
of operations or financial position of the Company.

In May 2003, the FASB issued Statement of Financial Accounting Standard No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This Statement requires an issuer to classify a
financial instrument that is within its scope as a liability. This statement
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company does not believe that adoption of
the Statement will have a material effect on the Companys financial
statements.

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ITEM 2.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SECOND QUARTER ENDED JULY 13, 2003

RESULTS OF OPERATIONS

Overview:

The Company is a leading operator and franchisor of mid-scale restaurants
located in 35 states and four Canadian provinces. As of July 13, 2003, the
Company owned and operated 155 and franchised 343 Perkins Restaurants. Both the
Company-operated and franchised Perkins Restaurants operate under the names
Perkins Restaurant and Bakery, Perkins Family Restaurant, Perkins Family
Restaurant and Bakery, or Perkins Restaurant and the mark Perkins. The
Company also offers cookie doughs, muffin batters, pancake mixes, pies and
other food products for sale to our Company-operated and franchised restaurants
and bakery and food service distributors through Foxtail Foods (Foxtail), our
manufacturing division. The business of Perkins was founded in 1958, and since
then Perkins has continued to adapt its menus, product offerings, building
designs and decor to meet changing consumer preferences. Perkins is a highly
recognized brand in the geographic areas it serves.

The Companys revenues are derived primarily from the operation of
Company-owned restaurants, the sale of bakery products produced by Foxtail and
franchise royalties. In order to ensure consistency and availability of
Perkins proprietary products to each unit in the system, Foxtail offers cookie
doughs, muffin batters, pancake mixes, pies and other food products to
Company-operated and franchised restaurants through food service distributors.
Sales to Company-operated restaurants are eliminated in the accompanying
statements of operations. For the quarter ended July 13, 2003, revenues from
Company-operated restaurants, Foxtail, and franchise and other accounted for
82.9%, 10.2% and 6.9% of total revenue, respectively.

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A summary of the Companys results for the quarters and year-to-date periods
ended July 13, 2003 and July 14, 2002 are presented in the following table. All
revenues, costs and expenses are expressed as a percentage of total revenues.

Quarter
    
    Quarter
    
    Year-to-
    
    Year-to-Ended
    
    Ended
    
    Date
    
    DateJuly 13,
    
    July 14,
    
    July 13,
    
    July 14,2003
    
    2002
    
    2003
    
    2002Revenues:Food sales
    
    
    93.1
    %
    
    
    93.0
    %
    
    
    93.5
    %
    
    
    93.4
    %Franchise and other revenue
    
    
    6.9
    
    
    
    7.0
    
    
    
    6.5
    
    
    
    6.6Total Revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Costs and Expenses:Cost of sales (excluding depreciation shown below):Food cost
    
    
    26.8
    
    
    
    25.4
    
    
    
    26.6
    
    
    
    25.9Labor and benefits
    
    
    32.4
    
    
    
    32.7
    
    
    
    33.2
    
    
    
    33.1Operating expenses
    
    
    19.2
    
    
    
    19.2
    
    
    
    19.7
    
    
    
    19.2General and administrative
    
    
    8.9
    
    
    
    9.6
    
    
    
    8.9
    
    
    
    9.1Depreciation and amortization
    
    
    5.4
    
    
    
    6.4
    
    
    
    5.6
    
    
    
    6.4Interest, net
    
    
    4.9
    
    
    
    5.3
    
    
    
    5.1
    
    
    
    5.3Provision for disposition of assets
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    Asset write-down
    
    
    0.2
    
    
    
    
    
    
    
    0.1
    
    
    
    Other, net
    
    
    (0.3
    )
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    (0.1
    )Total Costs and Expenses
    
    
    97.6
    
    
    
    98.5
    
    
    
    99.0
    
    
    
    98.9Income before income taxes
    
    
    2.4
    
    
    
    1.5
    
    
    
    1.0
    
    
    
    1.1Provision for income taxes
    
    
    (0.5
    )
    
    
    (0.4
    )
    
    
    (0.2
    )
    
    
    (0.3
    )Net Income
    
    
    1.9
    %
    
    
    1.1
    %
    
    
    0.8
    %
    
    
    0.8
    %


Net Income for the second quarter of 2003 was $1,438,000 versus net income of
$850,000 for the second quarter of 2002. For the year-to-date period ended
July 13, 2003, net income was $1,381,000 compared to $1,479,000
for the year-to-date period ended July 14, 2002.

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Revenues:

Total revenues for the second quarter of 2003 decreased 0.6% from the prior
year second quarter. Year-to-date total revenues decreased 3.0% over the
prior year-to-date period. This decrease is primarily due to lower comparable
restaurant sales.

Same store comparable sales in Company-operated restaurants decreased
approximately 2.9% for the second quarter and 4.9% year-to-date due to a
decline in comparable guest visits of 6.4% and 8.1%, respectively. A difficult
economic environment and competitor intrusion contributed to the decrease in
comparable guest visits. The decrease in comparable guest visits was partially
offset by an increase in the guest check average due to cumulative price
increases and the introduction of a new menu with a focus on higher priced
lunch and dinner items.

Revenues from Foxtail increased approximately 7.4% over the prior year quarter
and 1.9% over the prior year-to-date period and constituted approximately 10.2%
and 9.5%, respectively, of the Companys total revenues. The increase is
primarily due to an increase in sales to customers outside of the Perkins
system.

Franchise revenue, composed mainly of franchise royalties, decreased 1.9% over
the second quarter of 2002 and decreased 3.8% year-to-date. Royalty revenues
declined slightly due to a decrease in both average franchise stores in
operation and comparable sales. Since the second quarter of 2002, the
Companys franchisees have opened 11 restaurants and have closed 16
restaurants.

Costs and Expenses:

Food cost:

In terms of total revenues, food cost increased 1.4 percentage points over the
second quarter of 2002 and increased 0.7 percentage points over the previous
year-to-date period. For the second quarter and year-to-date periods,
restaurant food cost, as a percentage of restaurant sales, increased 1.1 and
0.7 percentage points, respectively, over 2002 primarily due to increased
commodity costs and the introduction of a new menu which resulted in a menu mix
shift to higher food cost lunch and dinner items. These increases were
partially offset by the impact of selective menu price increases. As a
percentage of Foxtail sales, Foxtail food cost increased 3.7 and 1.7 percentage
points for the quarter and year-to-date period, respectively.

Labor and benefits:

Labor and benefits expense, as a percentage of total revenues, decreased 0.3
percentage points over the second quarter of 2002 and increased 0.1% for the
year-to-date period ended July 13, 2003. The decrease for the quarter is
primarily due to managements emphasis on controlling costs. The year-to-date
increase is primarily due to a decrease in productivity in Company-operated
restaurants and an increase in workers compensation and employee insurance
costs.

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

Operating expenses:

Expressed as a percentage of total revenues, operating expenses were flat for
the second quarter and increased 0.5 percentage points for the year-to-date
period. The increase is primarily due to the impact of rising natural gas
costs.

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General and administrative:

General and administrative expenses, as a percentage of total revenues,
decreased 0.5 and 0.1 percentage points over the second quarter and
year-to-date periods of 2002, respectively. The decrease is primarily due to
decreased incentive costs and the cumulative effect of selected workforce
reductions since the beginning of 2002.

Depreciation and amortization:

Depreciation and amortization expense decreased from 6.4 percent of sales to
5.4 percent of sales over the second quarter 2002 primarily due to the
Companys reduction in capital spending since 2001.

Interest, net:

Interest expense, as a percentage of total revenue, decreased 0.4 and 0.2
percentage points over the second quarter and year-to-date periods of 2002,
respectively, primarily due to a reduction in the overall borrowings by the
Company.

Other, net:

Other income decreased slightly compared to the second quarter of 2002.

CAPITAL RESOURCES AND LIQUIDITY

The Companys primary sources of funding during the quarter were cash flows
from operating activities and borrowings under the Companys revolving line of
credit facility. The principal uses of cash during the quarter were payments
on long-term debt and capital expenditures. Capital expenditures consisted
primarily of capital required to maintain operations and costs related to
remodeling and upgrading existing restaurants.

The following table summarizes capital expenditures for the year-to-date
periods ended July 13, 2003 and July 14, 2002 (in thousands):

Year-to-DateJuly 13, 2003
    
    July 14, 2002New restaurants
    
    $
    17
    
    
    $
    1,422Maintenance
    
    
    2,667
    
    
    
    3,529Remodeling and reimaging
    
    
    1,027
    
    
    
    2,877Manufacturing
    
    
    155
    
    
    
    168Other
    
    
    1,123
    
    
    
    838Total Capital Expenditures
    
    $
    4,989
    
    
    $
    8,834


The Companys capital budget for 2003 is $12.6 million and includes plans to
open no new Company-operated restaurants. Actual capital expenditures have
been primarily applied to remodeling of existing restaurants and restaurant
maintenance. The primary source of funding for these projects was cash flows
from operating activities.

The Company ordinarily operates with a working capital deficit since funds
generated by cash sales in excess of those needed to service current
liabilities are used by the Company to reduce debt and acquire capital assets.
At July 13, 2003, this working capital deficit was $9,355,000.

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As of July 13, 2003, the Company has a secured $25,000,000 revolving line of
credit facility (the Credit Facility) with a sub-limit for up to $5,000,000
of letters of credit. All amounts under the Credit Facility bear interest at
floating rates based on the agents base rate or Eurodollar rates as defined in
the agreement. All indebtedness under the Credit Facility is collateralized by
a first priority lien on substantially all of the assets of the Company. As of
July 13, 2003, there were $3,750,000 in borrowings and approximately $3,596,000
of letters of credit outstanding under the Credit Facility.

At April 20, 2003, the Company failed to meet the criteria of one of the
financial covenants of the Credit Facility. On May 14, 2003, the Company
executed an amendment to the Credit Facility that waives the April 20, 2003
covenant violation, reduces the requirements of the financial covenants and
lowers the total amount available under the Credit Facility from $40,000,000 to
$25,000,000. At July 13, 2003, the Company was in compliance with the
requirements of the financial covenants. However, based on current trends, the
Company believes that it is likely that the Company will not comply with one or
more covenants at the end of the first quarter of 2004. The Company has begun
discussions with the credit facility lender to negotiate modified covenants
that will ensure future compliance. If the Company is unable to modify the
terms of this agreement and are unable to obtain waivers from the lender for
possible future violations of these covenants, the lender could demand payment
of the balance of the Credit Facility, which could constitute a default under
the Notes and Discount Notes. If the Credit Facility lender, or the trustee or
the holders of the Notes and the Discount Notes demanded repayment, the Company
would seek to refinance the balance of the Credit Facility, the Notes and the
Discount Notes with another lender. There can be no assurance that we will
successfully modify the terms of the covenants or refinance the balance under
the Credit Facility, the Notes and the Discount Notes.

On November 15, 2001 the Company elected to begin accruing cash interest on its
11.25% Senior Discount Notes (the Notes). Cash interest will be payable
semi-annually on May 15 and November 15. The principal balance of the Notes on
July 13, 2003 was $18,009,000. On May 15, 2003 the Company paid $8,383,000 in
principal of the Notes at a redemption price of 105.625% of the face amount of
the notes.

The Company has contractual obligations and commercial commitments including
long-term debt, land lease obligations for Company operated restaurants and
office space for corporate operations. The table below presents, as of July
13, 2003, the Companys future scheduled principal repayments of long-term debt
and lease obligations (in thousands).

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Capital
    
    Operating
    
    TotalLong-Term
    
    Lease
    
    Lease
    
    ContractualDebt
    
    Obligations
    
    Obligations
    
    Cash Obligations2003
    
    $
    
    
    
    $
    362
    
    
    $
    4,669
    
    
    $
    5,0312004
    
    
    
    
    
    
    575
    
    
    
    9,165
    
    
    
    9,7402005
    
    
    3,750
    
    
    
    399
    
    
    
    8,452
    
    
    
    12,6012006
    
    
    
    
    
    
    312
    
    
    
    8,151
    
    
    
    8,4632007
    
    
    130,000
    
    
    
    166
    
    
    
    7,587
    
    
    
    137,753Thereafter
    
    
    18,009
    
    
    
    113
    
    
    
    37,766
    
    
    
    55,888Total
    
    $
    151,759
    
    
    $
    1,927
    
    
    $
    75,790
    
    
    $
    229,476Less: Current Portion
    
    
    
    
    
    
    (582
    )Amounts representing interest
    
    
    
    
    
    
    (293
    )Total
    
    $
    151,759
    
    
    $
    1,052


TRC Realty LLC leases an aircraft for
use by both FICC and TRC. The operating lease expires in November
2009. During the third quarter, TRC Realty anticipates terminating
its lease for the corporate aircraft. In accordance with the terms of
the lease, TRC Realty is required to pay a Termination Value to the
lessor upon termination of the lease. As a result, TRC anticipates
incurring a loss of approximately $950,000 on the termination of the
lease. Concurrently, TRC Realty anticipates entering into a new lease
for a smaller and less expensive aircraft, which will be used solely by TRC.

TRC is a wholly-owned subsidiary of RHC. The common shares of RHC not owned by
Mr. Smith are subject to an option to require RHC to redeem the shares at any
time after December 22, 2004 at fair market value (the Put). As of July 13,
2003, these shares represented 30% of the outstanding common stock of RHC. As
of December 28, 2002, the estimated fair market value of the Put was
$9,220,000. RHC has a management fee agreement dated as of December 22, 1999,
with BBV whereby BBV provides certain consulting services to RHC. In
consideration for these services, a fee of $250,000 accrues annually and is
payable by RHC on December 22, 2004.

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Additionally, RHC issued 50,000 shares of non-voting preferred stock on
December 22, 1999. The preferred stock is mandatorily redeemable for $1,000 per
share (the Liquidation Value) plus all accrued but unpaid dividends, if any,
on December 22, 2006. Preferred dividends of 8% per annum of the Liquidation
Value of each share are payable quarterly. As of July 13, 2003, approximately
$16,263,000 of in-kind dividends had been paid through the issuance of
additional shares of preferred stock. Assuming a continuation of in-kind
dividends, the redemption price on December 22, 2006 is estimated to be
$87,044,000. The holders of preferred stock are entitled to be paid in cash the
Liquidation Value of each share of preferred stock before any payments are made
to any holders of common stock. The preferred stock is redeemable at the option
of the Company at any time prior to the mandatory redemption date at the
Liquidation Value.

RHC has no material assets other than its investment in TRC. The ability of TRC
to pay dividends to or make distributions to RHC in order to redeem common or
preferred shares or pay the management fee to BBV is restricted under its
senior notes and the Credit Facility.

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

SEASONALITY

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

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NEW ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities
(VIEs), an interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to improve financial reporting of special
purpose and other entities. In accordance with the interpretation, business
enterprises that represent the primary beneficiary of another entity by
retaining a controlling financial interest in that entitys assets,
liabilities, and results of operating activities must consolidate the entity in
their financial statements. Prior to the issuance of FIN 46, consolidation
generally occurred when an enterprise controlled another entity through voting
interests. Certain VIEs that are qualifying special purpose entities (QSPEs)
subject to the reporting requirements of SFAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities, will not be
required to be consolidated under the provisions of FIN 46. The consolidation
provisions of FIN 46 apply to VIEs created or entered into after January 31,
2003, and for pre-existing VIEs in the first reporting period beginning after
June 15, 2003. If applicable, transition rules allow the restatement of
financial statements or prospective application with a cumulative effect
adjustment. In addition, FIN 46 expands the disclosure requirements for the
beneficiary of a significant or a majority of the variable interests to provide
information regarding the nature, purpose and financial characteristics of the
entities. The Company does not believe that the adoption of FIN 46 will have a
material adverse impact on the Companys financial statements.

In April 2003, the FASB issued Statement of Financial Accounting Standard No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. This statement amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement is effective for contracts
entered into or modified after June 30, 2003. The Company does not believe
that the adoption of this Statement will have a material effect on the results
of operations or financial position of the Company.

In January 2003, the Emerging Issues Task Force (EITF) issued EITF Issue No.
02-16, Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor, which states that cash consideration
received from a vendor is presumed to be a reduction of the prices of the
vendors products or services and should, therefore, be characterized as a
reduction of cost of sales when recognized in the statement of operations. That
presumption is overcome when the consideration is either a reimbursement of
specific, incremental, identifiable costs incurred to sell the vendors
products, or a payment for assets or services delivered to the vendor. EITF
Issue No. 02-16 is effective for arrangements entered into after November 21,
2002. The Company is already accounting for vendor rebates in a manner
consistent with the EITF consensus. Therefore, applying the provisions of EITF
Issue No. 02-16 will not have a material impact on the Companys financial
position or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standard No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This Statement requires an issuer to classify a
financial instrument that is within its scope as a liability. This statement
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company does not believe that adoption of
the Statement will have a material adverse effect on the Companys financial
statements.

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FORWARD-LOOKING STATEMENTS

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

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ITEM 4.     CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures and internal controls
designed to ensure that information required to be disclosed in our filings
under the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms. Our principal executive and financial officers
have evaluated our disclosure controls and procedures as of the end of the
period covered by this Quarterly Report on Form
10-Q and have determined that such disclosure controls and procedures are
effective.

Subsequent to our evaluation, there were no significant changes in
internal controls or other factors that could significantly affect internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.

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PART II  OTHER INFORMATION

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits -

31.1
    
    Principal Executive Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 302.31.2
    
    Principal Financial Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 302.


(b) Reports on Form 8-K   The Company did not file any reports on Form
8-K during the quarter ended July 13, 2003.

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Signature

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

THE RESTAURANT COMPANYDATE:
    
    August 25, 2003
    
    BY:
    
    /s/ Michael P. DonahoeMichael P. DonahoeExecutive Vice President,Chief Financial Officer and Director


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