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FORM 10-Q

(Mark One)

Commission file number 333-57925

The Restaurant Company

(901) 766-6400

Indicate by ü 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   o    No   o

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PART I — FINANCIAL INFORMATION

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)

     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)

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)

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

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

Organization

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

Basis of Presentation

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

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

Change in Accounting Reporting Period

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

Contingencies

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

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

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

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Supplemental Cash Flow Information

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

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

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Segment Reporting

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

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

New Accounting Pronouncements

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

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

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

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

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

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

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

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

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

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

RESULTS OF OPERATIONS

Overview:

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

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

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

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