UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 3, 2010

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ____________.

Commission file number 333-57925

Perkins & Marie Callender’s Inc.

(Exact name of registrant as specified in its charter)

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

(901) 766-6400
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes R No 0

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Check one:

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

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

Yes £ No R

Number of shares of common stock outstanding as of November 17, 2010: 10,820.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION	Page
Item 1. Financial Statements:
Consolidated Statements of Operations (Unaudited) – Quarter and Year-to-Date Periods Ended October 3, 2010 and October 4, 2009	2
Consolidated Balance Sheets – October 3, 2010 (Unaudited) and December 27, 2009	3
Consolidated Statements of Cash Flows (Unaudited) – Year-to-Date Periods Ended October 3, 2010 and October 4, 2009	4
Notes to Consolidated Financial Statements (Unaudited)	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3. Quantitative and Qualitative Disclosures about Market Risk	41
Item 4. Controls and Procedures	41
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	42
Item 1A. Risk Factors	42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3. Defaults Upon Senior Securities	42
Item 4. Removed and Reserved	42
Item 5. Other Information	42
Item 6. Exhibits	42

SIGNATURE	43
Ex-31.1 Section 302 Certification of the CEO
Ex-31.2 Section 302 Certification of the CFO
Ex-32.1 Section 906 Certification of the CEO
Ex-32.2 Section 906 Certification of the CFO

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PERKINS & MARIE CALLENDER’S INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands)

	Quarter				Quarter			Year-to-Date			Year-to-Date
	Ended				Ended			Ended			Ended
	October 3,				October 4,			October 3,			October 4,
	2010				2009			2010			2009
REVENUES:
Food sales		$	102,296			109,086			357,184			385,024
Franchise and other revenue			6,404			6,384			21,474			21,575
Total revenues			108,700			115,470			378,658			406,599
COSTS AND EXPENSES:
Cost of sales (excluding depreciation shown below):
Food cost			25,999			28,058			90,715			101,333
Labor and benefits			37,535			39,474			129,743			135,703
Operating expenses			32,587			33,183			108,856			110,956
General and administrative			9,515			10,313			34,456			34,531
Settlement with former owner			4,555			-			4,555			-
Depreciation and amortization			4,818			5,498			16,783			18,411
Interest, net			10,336			10,260			34,200			34,005
Asset impairments and closed store expenses			642			187			2,747			1,395
Other, net			(41	)		(392	)		(399	)		(3,069	)
Total costs and expenses			125,946			126,581			421,656			433,265
Loss before income taxes			(17,246	)		(11,111	)		(42,998	)		(26,666	)
Benefit from (provision for) income taxes			4,888			(142	)		4,888			(142	)
Net loss			(12,358	)		(11,253	)		(38,110	)		(26,808	)
Less: net (loss) earnings attributable to
non-controlling interests			(9	)		(5	)		(2	)		74
Net loss attributable to Perkins & Marie
Callender's Inc.		$	(12,349	)		(11,248	)		(38,108	)		(26,882	)

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

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PERKINS & MARIE CALLENDER’S INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

	October 3,			December 27,
	2010			2009
ASSETS	(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	9,397			4,288
Restricted cash		5,696			8,110
Receivables, less allowances for doubtful accounts of $1,028 and $829 in 2010 and 2009, respectively		15,945			18,125
Inventories		12,195			11,062
Prepaid expenses and other current assets		2,180			1,864
Assets held for sale, net		310			-
Total current assets		45,723			43,449

PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $159,073 and $156,898 in 2010 and 2009, respectively		61,717			75,219
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP		19			50
GOODWILL		23,100			23,100
INTANGIBLE ASSETS, net of accumulated amortization of $20,983 and $20,179 in 2010 and 2009, respectively		145,375			147,013
OTHER ASSETS		14,064			16,074
TOTAL ASSETS	$	289,998			304,905

LIABILITIES AND DEFICIT

CURRENT LIABILITIES:
Accounts payable		15,085			14,657
Accrued expenses		44,453			41,605
Franchise advertising contributions		5,696			4,327
Current maturities of long-term debt and capital lease obligations		340			503
Total current liabilities		65,574			61,092

LONG-TERM DEBT, less current maturities		338,434			326,042
CAPITAL LEASE OBLIGATIONS, less current maturities		13,205			11,054
DEFERRED RENT		18,992			17,092
OTHER LIABILITIES		24,736			22,277
DEFERRED INCOME TAXES		45,457			45,457

DEFICIT:
Common stock, $.01 par value; 100,000 shares authorized;
10,820 issued and outstanding		1			1
Additional paid-in capital		150,870			150,870
Accumulated other comprehensive income		54			45
Accumulated deficit		(367,441	)		(329,333	)
Total Perkins & Marie Callender's Inc. stockholder's deficit		(216,516	)		(178,417	)
Non-controlling interests		116			308
Total deficit		(216,400	)		(178,109	)
TOTAL LIABILITIES AND DEFICIT	$	289,998			304,905

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

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PERKINS & MARIE CALLENDER’S INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Year-to-Date			Year-to-Date
	Ended			Ended
	October 3,			October 4,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(38,110	)		(26,808	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization		16,783			18,411
Asset impairments		2,489			571
Amortization of debt discount		1,352			1,184
Other non-cash income items		(177	)		(2,427	)
Loss on disposition of assets		258			824
Equity in net loss of unconsolidated partnership		31			25
Net changes in operating assets and liabilities		14,804			3,383
Total adjustments		35,540			21,971
Net cash used in operating activities		(2,570	)		(4,837	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(3,790	)		(5,941	)
Proceeds from sale of assets		1,007			494
Net cash used in investing activities		(2,783	)		(5,447	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facilities		24,684			26,501
Repayment of revolving credit facilities		(13,644	)		(16,726	)
Repayment of capital lease obligations		(373	)		(318	)
Repayment of other debt		(15	)		(15	)
Debt financing costs		-			(142	)
Distributions to non-controlling interest holders		(190	)		(104	)
Net cash provided by financing activities		10,462			9,196

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		5,109			(1,088	)

CASH AND CASH EQUIVALENTS:
Balance, beginning of period		4,288			4,613
Balance, end of period	$	9,397			3,525

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

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PERKINS & MARIE CALLENDER’S INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Organization

Perkins & Marie Callender’s Inc. (together with its consolidated subsidiaries collectively the “Company”, “PMCI”, “we” or “us”), is a wholly-owned subsidiary of:

·	Perkins & Marie Callender’s Holding Inc., which is a wholly-owned subsidiary of

·	P&MC’s Holding Corp, which is a wholly-owned subsidiary of

·	P&MC’s Real Estate Holding LLC, which is a wholly-owned subsidiary of

·	P&MC’s Holding LLC, which is principally owned by affiliates of Castle Harlan, Inc.

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

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

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

(2) Basis of Presentation

The consolidated interim financial statements included in this report have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America and have not been subject to audit. In the opinion of the Company’s management, all adjustments, including all normal recurring items, necessary for a fair presentation of the results of operations are reflected in these consolidated interim financial statements. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The most significant estimates and assumptions underlying these financial statements and accompanying notes generally involve royalty revenue recognition and provisions for related uncollectible accounts, asset impairments, self-insurance accruals and valuation allowances for income taxes.

The results of operations for the interim period ended October 3, 2010 are not necessarily indicative of operating results for the full year. The consolidated interim financial statements contained herein should be read in conjunction with the audited consolidated financial statements and notes contained in the Company’s 2009 Form 10-K/A, filed with the Securities and Exchange Commission on June 7, 2010.

(3) Accounting Reporting Period

Our financial reporting is based on thirteen four-week periods ending on the last Sunday in December. The first quarter each year includes four four-week periods, and the second, third and fourth quarters each typically include three four-week periods. The first, second and third quarters of 2010 ended on April 18, July 11 and October 3, respectively, and the first, second and third quarters of 2009 ended on April 19, July 12 and October 4, respectively. The fourth quarter of 2010 will end December 26.

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(4) Operations, Financial Position and Liquidity

Our principal sources of liquidity include cash, available borrowings under our $26,000,000 revolving credit facility (the “Revolver”) and cash generated by operations. Our principal uses of liquidity are costs and expenses associated with our restaurant and manufacturing operations, debt service payments and capital expenditures. At October 3, 2010, we had a negative working capital balance of $19,851,000 and total PMCI stockholder’s deficit of $216,516,000. Furthermore, at October 3, 2010, we had $9,397,000 in unrestricted cash and $2,206,000 of borrowing capacity under our Revolver.

Over the last three years, we have experienced continued declines in comparable restaurant sales and profitability that have adversely impacted our liquidity position. We believe that this continued decline is primarily attributed to increased competition, the ongoing weakness in the economy, high unemployment levels, continued depressed residential real estate values, especially in some of our larger markets, and the level of home foreclosures, which have adversely affected our guest counts and, in turn, our sales and operating results.

Our operations and liquidity needs are seasonal in nature. Historically, we have generated a significant portion of our operating cash flow in the first and fourth quarters, with these two quarters in total contributing 60% and 63% of our annual operating cash flows in 2008 and 2009. The fourth quarter is typically our strongest income generating quarter due to substantial holiday traffic and seasonal pie sales. In anticipation of these sales and guest traffic, we increase personnel and inventories, and therefore liquidity is normally at its lowest point at the end of the third quarter.

Our ability to fund our operations and service our debt through 2011will depend, in large part, on our ability to improve profitability and liquidity. Management has initiated actions to improve its profitability and liquidity by reducing overall planned capital expenditures, managing the timing of payments of certain operating expenses, eliminating certain employee benefits, and reducing certain general and administrative expenses. Management has recently implemented advertising and promotional programs at both restaurant brands, in an effort to improve comparable restaurant sales and profitability. In addition, management is working to increase profits at Foxtail, by replacing less profitable contracts that were terminated in 2009, with more profitable sales contracts. In addition, we are carefully reviewing menu prices at our restaurants, and we will increase menu prices, where feasible. There can be no assurance, however, that such actions will result in improved profitability and liquidity.

In September 2010, the controlling equity holder of P&MC’s Holding LLC, our indirect parent, finalized an agreement with a third party whereby the third party provided a new letter of credit of approximately $8,635,000 for the benefit of an insurance company that provides workers’ compensation insurance for the Company. The new letter of credit was guaranteed by one of the equity holder’s affiliates, and the Company signed an agreement to reimburse the affiliate for any amounts paid under the guaranty. This new letter of credit has been renewed through December 9, 2011, and contains certain renewal provisions for extension beyond that date. Prior to the new letter of credit, the Company had an existing letter of credit in place under its Revolver for the benefit of this same insurance company. When this new letter of credit agreement was put in place, the Company cancelled the existing letter of credit provided under its Revolver, thereby increasing our incremental borrowing capacity by approximately $8,635,000 to fund our liquidity needs.

The cancelled letter of credit and the new letter of credit that replaced it are not drawn down unless the Company fails to pay its workers’ compensation claims in the ordinary course of business. In the event the Company fails to make payments due on its workers’ compensation claims and the new letter of credit is drawn upon, the guarantor of the letter of credit will reimburse the third party letter of credit provider, and the Company has agreed to reimburse the guarantor for such amounts. However, there has never been a draw on the letters of credit provided for our workers’ compensation plans, and the Company does not expect that there will be a draw on the new letter of credit.

Management expects the initiatives discussed above combined with the Company’s cash provided by operations and borrowing capacity under the Revolver (which includes the additional availability as a result of the new letter of credit agreement) to provide sufficient liquidity for at least the next twelve months. However, there can be no assurance as to whether these or other actions will enable us to improve our profitability and liquidity in the fourth quarter and through 2011, and therefore, we may not be able to fund our operations and service our debt without accessing outside sources of additional liquidity. Alternate sources of liquidity may include additional borrowings or capital contributions. However, the Company currently has no such commitments or plans, and there can be no assurance that the Company will be able to access acceptable alternative financing.

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(5) Gift Cards and Perkins Marketing Fund

The Company issues gift cards and, prior to March 2005, also issued gift certificates (collectively, “gift cards”), both of which contain no expiration dates or inactivity fees. The Company recognizes revenue from gift cards when they are redeemed by the customer. The Company recognizes income from unredeemed gift cards (“gift card breakage”) when there is sufficient historical data to support an estimate, the likelihood of redemption is remote and there is no legal obligation to remit the unredeemed gift card balances to the state tax authorities under applicable escheat regulations. Gift card breakage is determined based on historical redemption patterns and is included in other, net in the consolidated statements of operations. The initial recognitions of breakage income in the first and second quarters of 2009 included amounts related to gift cards sold since the inception of our gift card programs in 2005. For the quarter and year-to-date periods ended October 3, 2010, we recorded $109,000 and $444,000, respectively, of breakage income for both our Perkins and Marie Callender’s gift cards. As of October 3, 2010 and December 27, 2009, the Company held approximately $2,088,000 and $3,324,000, respectively, of net gift card proceeds received from Perkins’ Company-owned and franchise locations. As of December 27, 2009, those funds were classified as restricted cash based on the Company's intent to restrict the use of these funds. However, as of October 3, 2010, it is no longer the Company's intention to restrict these funds and, accordingly, they are classified as cash and cash equivalents on the consolidated balance sheet.

The Company maintains a marketing fund (the “Marketing Fund”) to pool the resources of the Company and its Perkins franchisees for advertising purposes and to promote the Perkins brand in accordance with the system’s advertising policy. As of October 3, 2010 and December 27, 2009, the Company held approximately $5,696,000 and $4,786,000, respectively, in the Marketing Fund. These funds are classified as restricted cash with a corresponding liability for franchise advertising on the consolidated balance sheets as the use of these funds is contractually limited to specific uses.

(6) Commitments, Contingencies and Concentrations

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

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

As of October 3, 2010, three Perkins franchisees otherwise unaffiliated with the Company owned 87, or 27%, of the 319 franchised Perkins restaurants, consisting of 39, 27 and 21 restaurants, respectively. As of October 4, 2009, these same franchisees owned 40, 27 and 21 restaurants, respectively. The following table presents a summary of the royalty and license fees provided by these three franchisees:

		Quarter		Year-to-Date				Quarter		Year-to-Date
# of		Ended		Ended		# of		Ended		Ended
Restaurants		October 3,		October 3,		Restaurants		October 4,		October 4,
	(2010)		2010		2010		(2009)		2009		2009

	39	$	439,000	$	1,402,000		40	$	447,000	$	1,446,000
	27		354,000		1,141,000		27		337,000		1,100,000
	21		344,000		1,080,000		21		346,000		1,123,000

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As of October 3, 2010, three Marie Callender’s franchisees otherwise unaffiliated with the Company owned 12, or 32%, of the 37 franchised Marie Callender’s restaurants, consisting of four restaurants each. As of October 4, 2009, these same franchisees owned four restaurants each. The following table presents a summary of the royalty and license fees provided by these three franchisees:

		Quarter		Year-to-Date				Quarter		Year-to-Date
# of		Ended		Ended		# of		Ended		Ended
Restaurants		October 3,		October 3,		Restaurants		October 4,		October 4,
	(2010)		2010		2010		(2009)		2009		2009

	4	$	79,000	$	266,000		4	$	60,000	$	280,000
	4		44,000		233,000		4		78,000		279,000
	4		61,000		209,000		4		64,000		202,000

The Company has three arrangements with different parties to whom territorial rights were granted. The Company makes specified payments to those parties based on a percentage of gross sales from certain Perkins restaurants and for new Perkins restaurants opened within those geographic regions. During the third quarters of 2010 and 2009, we paid an aggregate of $631,000 and $643,000, respectively, and during the year-to-date periods of 2010 and 2009, we paid an aggregate of $1,983,000 and $2,064,000, respectively, under such arrangements. Of these arrangements, one expires in the year 2075, one expires upon the death of the beneficiary and one remains in effect as long as we operate Perkins restaurants in certain states.

(7) Supplemental Cash Flow Information

Cash and cash equivalents were impacted by the following changes (in thousands) in operating assets and liabilities in the statements of cash flows for the year-to-date periods ended October 3, 2010 and October 4, 2009:

	Year-to-Date			Year-to-Date
	Ended			Ended
	October 3,			October 4,
	2010			2009
Decrease (increase) in:
Restricted cash	$	2,414			2,100
Receivables		1,900			3,900
Inventories		(1,133	)		894
Prepaid expenses and other current assets		(316	)		(1,474	)
Other assets		2,326			1,055

Increase (decrease) in:
Accounts payable		2,403			(2,518	)
Accrued expenses and other current liabilities		2,851			(4,345	)
Other liabilities		4,359			3,771
Net changes in operating assets and liabilities	$	14,804			3,383

(8) Goodwill and Intangible Assets

Goodwill

Goodwill of $23,100,000 at both October 3, 2010 and December 27, 2009 was attributable solely to the restaurant operations segment.

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Intangible Assets

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

	October 3,			December 27,
	2010			2009
Amortizing intangible assets:
Franchise agreements	$	35,000			35,000
Customer relationships		10,000			10,000
Acquired franchise rights		10,758			10,758
Design prototype		-			834
Subtotal		55,758			56,592
Less — accumulated amortization		(20,983	)		(20,179	)
Net amortizing intangible assets		34,775			36,413
Non-amortizing intangible asset:
Tradenames		110,600			110,600
Total intangible assets	$	145,375			147,013

(9) Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	October 3,		December 27,
	2010		2009

Payroll and related benefits	$	13,159		15,423
Interest		6,606		6,065
Gift cards and gift certificates		3,756		5,090
Property, real estate and sales taxes		6,397		4,267
Insurance		2,233		2,219
Advertising		985		792
Other		11,317		7,749
Total accrued expenses	$	44,453		41,605

(10) Segment Reporting

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

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

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

	Quarter			Quarter			Year-to-Date			Year-to-Date
	Ended			Ended			Ended			Ended
	October 3,			October 4,			October 3,			October 4,
Revenues	2010			2009			2010			2009

Restaurant operations	$	95,527			99,781			336,093			355,501
Franchise operations		5,243			5,259			17,202			17,507
Foxtail		10,594			13,362			34,961			43,868
Intersegment revenue		(3,825	)		(4,057	)		(13,869	)		(14,345	)
Other		1,161			1,125			4,271			4,068
Total	$	108,700			115,470			378,658			406,599

Segment income (loss) attributable to PMCI

Restaurant operations		578			2,252			9,406			16,664
Franchise operations		4,725			4,786			15,592			16,055
Foxtail		1,034			903			2,608			2,226
Other		(18,686	)		(19,189	)		(65,714	)		(61,827	)
Total	$	(12,349	)		(11,248	)		(38,108	)		(26,882	)

							October 3,			December 27,
Segment assets								2010			2009

Restaurant operations								122,427			132,611
Franchise operations								100,366			101,672
Foxtail								31,662			31,754
Other								35,543			38,868
Total							$	289,998			304,905

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

	Quarter			Quarter			Year-to-Date			Year-to-Date
	Ended			Ended			Ended			Ended
	October 3,			October 4,			October 3,			October 4,
	2010			2009			2010			2009

General and administrative expenses	$	8,482			9,271			31,156			30,500
Settlement with former owner		4,555			-			4,555			-
Depreciation and amortization expenses		703			786			2,380			2,607
Interest expense, net		10,336			10,260			34,200			34,005
Loss on disposition of assets, net		426			48			258			823
Asset impairments		216			139			2,489			572
Provision for (benefit from) income taxes		(4,888	)		142			(4,888	)		142
Net (loss) earnings attributable to non-controlling interests		(9	)		(5	)		(2	)		74
Licensing revenue		(1,115	)		(1,081	)		(4,105	)		(3,889	)
Other		(20	)		(371	)		(329	)		(3,007	)
Total other segment loss	$	18,686			19,189			65,714			61,827

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(11) Long-Term Debt

Secured Notes and 10% Senior Notes

On September 24, 2008, the Company issued $132,000,000 of 14% senior secured notes (the "Secured Notes"). The Secured Notes were issued at a discount of $7,537,200, which is being accreted using the interest method over the term of the Secured Notes. The Secured Notes will mature on May 31, 2013, and interest is payable semi-annually on May 31 and November 30 of each year.

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

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

Revolver

On September 24, 2008, the Company entered into the Revolver. The Revolver, which matures on February 28, 2013, is guaranteed by Perkins & Marie Callender's Holding Inc. and certain of the Company's existing and future subsidiaries. The Revolver is secured by a first priority perfected security interest in all of the Company's property and assets and the property and assets of each guarantor. Subject to the satisfaction of the conditions contained therein, up to $26,000,000 may be borrowed under the Revolver from time to time. The Revolver includes a sub-facility for letters of credit in an amount not to exceed $15,000,000.

Amounts outstanding under the Revolver bear interest, at the Company’s option, at a rate per annum equal to either: (i) the base rate, as defined in the Revolver, plus an applicable margin or (ii) a LIBOR-based equivalent, plus an applicable margin. Both the base rate and the LIBOR-based options are subject to minimum levels. For the foreseeable future, the base rate minimum of 5.0% and the LIBOR-based minimum of 3.25% are expected to apply and the applicable margins are expected to be 325 basis points for base rate loans and 425 basis points for LIBOR loans. As of October 3, 2010, the average annual interest rate on aggregate borrowings under the Revolver was 7.9%, and the Revolver permitted additional borrowings of approximately $2,206,000 (after giving effect to $22,210,000 in borrowings and $1,584,000 in letters of credit outstanding). The letters of credit are primarily utilized in conjunction with our workers’ compensation insurance programs.

On September 10, 2010, a letter of credit issued under the Revolver amounting to $8,635,000 was cancelled and replaced with a new letter of credit described below in “Guaranteed Letter of Credit”, thereby reducing the outstanding letters of credit and increasing the borrowing capacity under the Revolver by $8,635,000 at that date.

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

The average interest rate on aggregate borrowings of the Company’s long-term debt for the year-to-date period through October 3, 2010 was 11.5% compared to the average interest rate on aggregate borrowings for the year-to-date period through October 4, 2009 of 11.6%.

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Our debt agreements place restrictions on the Company’s ability and the ability of its subsidiaries to: (i) incur additional indebtedness or issue certain preferred stock; (ii) repay certain indebtedness prior to stated maturities; (iii) pay dividends or make other distributions on, redeem or repurchase capital stock or subordinated indebtedness; (iv) make certain investments or other restricted payments; (v) enter into transactions with affiliates; (vi) issue stock of subsidiaries; (vii) transfer, sell or consummate a merger or consolidation of all, or substantially all, of the Company's assets; (viii) change lines of business; (ix) incur dividend or other payment restrictions with regard to restricted subsidiaries; (x) create or incur liens on assets to secure debt; (xi) dispose of assets; (xii) restrict distributions from subsidiaries; (xiii) make certain acquisitions; (xiv) make capital expenditures; or (xv) amend the terms of the Secured Notes and the 10% Senior Notes. As of October 3, 2010 we were in compliance with the covenants contained in our debt agreements.

Guaranteed Letter of Credit

On September 10, 2010, the Company’s letter of credit amounting to $8,635,000 issued under the Revolver for the benefit of its workers’ compensation provider was cancelled and replaced with a new letter of credit to the same provider for the same amount under a credit facility entered into and guaranteed by an affiliate of the Company’s controlling equity holder. This new letter of credit will be in force through December 9, 2011 and contains certain renewal provisions for extension beyond that date.

The new letter of credit may only be drawn down if the Company fails to pay its workers’ compensation claims in the ordinary course of business. The prior letter of credit had the same draw-down condition. In the event the Company fails to make payments due on its workers’ compensation claims and the new letter of credit is drawn upon, the affiliated guarantor of the letter of credit will reimburse the third party letter of credit provider, and the Company has agreed to reimburse the affiliated guarantor for such amounts. There has never been a draw on the letters of credit provided for our workers' compensation plans, and the Company does not expect that there will be a draw on the new letter of credit.

(12) Income Taxes

The effective income tax rates for the third quarters ended October 3, 2010 and October 4, 2009 were 28.3% and (1.3)% respectively. Our rates differ from the statutory rate primarily due to a valuation allowance against deferred tax deductions, losses and credits. The effective income tax rate for the third quarter and year-to-date period ended October 3, 2010 reflects $4,950,000 of current federal tax benefit and $67,000 of current state tax expense. In addition, the income tax rate reflects $32,000 of state tax benefit, $28,000 of state interest benefit and $55,000 of state tax penalty on uncertain tax positions for both the third quarter and the year-to-date period ended October 3, 2010. Tax legislation enacted in 2009 allowed the Company to elect a carry back of certain net operating losses up to five years rather than the previous two year carry back period. In the third quarter ended October 3, 2010 the Company recognized a $4,724,000 current federal tax benefit as a result of this election, which is discussed further in Note 13, “P&MC’s Holding LLC Equity Plan and Other Related Party Transactions” below.

A reconciliation of the change in the gross unrecognized tax benefits from December 28, 2009 to October 3, 2010 is as follows (in thousands):

	2010

Unrecognized tax benefit - beginning of fiscal year	$	1,153
Additions for tax positions of prior years		-
Reductions for tax positions of prior years		-
Additions for tax positions of current year		-
Reductions due to settlements		-
Reductions for lapse of statute of limitations		(513	)
Unrecognized tax benefit - as of October 3, 2010	$	640

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As of October 3, 2010 and December 27, 2009 the Company had approximately $466,000 and $943,000 respectively of unrecognized tax benefits that, if recognized, would impact the Company’s effective tax rate except for approximately $0 and $160,000 respectively that was subject to tax indemnification from the predecessor owner. As of October 3, 2010 and December 27, 2009 the Company had $472,000 and $805,000 respectively of unrecognized tax benefits reducing federal and state net operating loss carry forwards and federal credit carry forwards that, if recognized, would be subject to a valuation allowance. The Company estimates that the total amount of its gross unrecognized tax benefits will decrease between $540,000 and $640,000 within the next 12 months due to federal and state settlements and expiration of statutes.

(13) P&MC’s Holding LLC Equity Plan and Other Related Party Transactions

Equity Plan

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

Stock-based compensation expense for the quarterly and year-to-date periods ended October 3, 2010 and October 4, 2009 was not significant.

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

Other Related Party Transactions

P&MC’s Real Estate Holding LLC

In September 2009, P&MC’s Real Estate Holding LLC (“RE Holding”), the indirect parent of the Company, purchased a building in California that was being leased by the Company for the operation of a Marie Callender’s restaurant. As part of the transaction, RE Holding assumed the obligation under the existing ground lease (the “Ground Lease”), and the Company’s existing sublease of the premises was terminated. As a result, the related capital lease asset and capital lease liability were derecognized, and the Company recognized the $1,019,000 difference between these amounts as a credit to additional paid-in capital. RE Holding allowed the Company to continue to use the premises for one year and deferred collection of $20,000 of monthly building rent as long as the Company continued to pay the rent due under the Ground Lease.

Effective September 1, 2010, the Company and RE Holding entered into a new sublease agreement whereby the Company will pay RE Holding $30,000 monthly rent for the building through May 2042 (the “Building Lease”), and the Company will continue to pay the monthly rent due under the Ground Lease. Both the Building Lease and the Ground Lease expire in May 2042. The Ground Lease is accounted for as an operating lease.

The Building Lease is being accounted for as a capital lease with an initial asset and related liability of $2,375,000. As of October 3, 2010, future minimum payments under the Building Lease and the Ground Lease were approximately $11,370,000 and $6,181,000, respectively. Amounts representing future interest under the capital lease at a rate of approximately 15.2% total approximately $9,023,000.

Settlement with Former Owner

On August 25, 2010, P&MC’s Holding LLC, the Company’s indirect parent, and affiliates of Castle Harlan reached an agreement involving a lawsuit with a member of P&MC’s Holding LLC and former owner of the direct parent of the Company. As part of this settlement, an affiliate of Castle Harlan purchased the member’s units in P&MC’s Holding LLC, and P&MC’s Holding Corp., an indirect parent of the Company, agreed to file for approximately $4,724,000 of tax refunds (the “Refunds”) with respect to the tax period ended September 21, 2005 to utilize certain net operating losses (“NOLs”) of P&MC’s Holding Corp., made possible by recent changes in the tax code.

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Under the terms of the 2005 purchase and sale agreement pursuant to which P&MC’s Holding Corp. acquired the stock of the Company’s direct parent (the “2005 Purchase Agreement”), P&MC’s Holding Corp. is not obligated to carry back its NOLs; however, if P&MC’s Holding Corp. elected to carry back its NOLs to any period prior to P&MC’s Holding Corp.’s acquisition of the Company, it is required under the terms of the 2005 Purchase Agreement to turn over any resulting refunds to the former owners of the Company’s direct parent. As a part of the settlement, certain indemnities under the 2005 Purchase Agreement were modified and the Company’s indirect parent agreed to file for the Refunds and remit the $4,724,000 to the former owners.

Prior to the settlement, the Company and its direct parent had no intention of filing for the Refunds because they were neither required to do so nor entitled to retain the Refunds. Additionally, there was no expectation that any of the NOLs would otherwise benefit the Company. A full valuation allowance had been recorded for these NOLs. Accordingly, the settlement does not have an adverse impact on the Company’s cash flows or financial position.

On August 30, 2010, the Company and P&MC’s Holding Corp. filed for the tax refunds and the net refund amount of approximately $4,724,000 was received on September 20, 2010. The associated income tax benefit for the realization of these previously reserved NOLs have been reflected in the Company’s statements of operations for the quarter ended October 3, 2010.

After deducting certain expenses, the Company was required to pay approximately $4,555,000 to the former owners, which is reported in the accompanying consolidated statements of operations as Settlement with Former Owner. The related liability, which was paid to the former owners on October 4, 2010, is included in accrued expenses in the accompanying consolidated balance sheets.

Guaranteed Letter of Credit

On September 10, 2010, the Company's workers' compensation provider was given a new letter of credit under a credit facility entered into and guaranteed by an affiliate of the Company’s controlling equity. This letter of credit is more fully discussed in Note 11, “Long-Term Debt” above.

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(14) Deficit

A summary of the changes in deficit for the year-to-date periods ended October 3, 2010 and October 4, 2009 is provided below (in thousands):

	Year-to-Date Ended October 3, 2010
								Accumulated
			Additional					Other			Total PMCI
	Common		Paid-in		Accumulated			Comprehensive			Stockholder's			Non-controlling			Total
	Stock		Capital		Deficit			Income			Deficit			Interests			Deficit

Balance, December 27, 2009	$	1		150,870		(329,333	)		45			(178,417	)		308			(178,109	)

Distributions to non-controlling interest holders		-		-		-			-			-			(190	)		(190	)

Net loss		-		-		(38,108	)		-			(38,108	)		(2	)		(38,110	)
Currency translation adjustment		-		-		-			9			9			-			9
Total comprehensive loss																		(38,101	)

Balance, October 3, 2010	$	1		150,870		(367,441	)		54			(216,516	)		116			(216,400	)


	Year-to-Date Ended October 4, 2009
								Accumulated
			Additional					Other			Total PMCI
	Common		Paid-in		Accumulated			Comprehensive			Stockholder's			Non-controlling			Total
	Stock		Capital		Deficit			Income (Loss)			Deficit			Interests			Deficit

Balance, December 28, 2008	$	1		149,851		(293,114	)		(4	)		(143,266	)		215			(143,051	)

Lease termination by related party (non-cash)		-		1,019		-			-			1,019			-			1,019

Distributions to non-controlling interest holders		-		-		-			-			-			(104	)		(104	)

Net (loss) earnings		-		-		(26,882	)		-			(26,882	)		74			(26,808	)
Currency translation adjustment		-		-		-			49			49			-			49
Total comprehensive loss																		(26,759	)

Balance, October 4, 2009	$	1		150,870		(319,996	)		45			(169,080	)		185			(168,895	)

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(15) Condensed Consolidated Financial Information

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

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

Consolidating Statement of Operations for the Quarter ended October 3, 2010 (unaudited; in thousands):

							Non-					Consolidated
	Issuer			Guarantor			Guarantors			Eliminations		PMCI

REVENUES:
Food sales	$	66,063			31,274			4,959			-		102,296
Franchise and other revenue		4,600			1,804			-			-		6,404
Total revenues		70,663			33,078			4,959			-		108,700

COSTS AND EXPENSES:
Cost of sales (excluding depreciation shown below):
Food cost		16,285			8,424			1,290			-		25,999
Labor and benefits		22,909			12,730			1,896			-		37,535
Operating expenses		19,121			11,310			2,156			-		32,587
General and administrative		8,276			1,239			-			-		9,515
Settlement with former owner		4,555			-			-			-		4,555
Depreciation and amortization		3,599			1,049			170			-		4,818
Interest, net		10,254			82			-			-		10,336
Asset impairments and closed store expenses		15			624			3			-		642
Other, net		(62	)		21			-			-		(41	)
Total costs and expenses		84,952			35,479			5,515			-		125,946
Loss before income taxes		(14,289	)		(2,401	)		(556	)		-		(17,246	)
Benefit from income taxes		4,888			-			-			-		4,888
Net loss		(9,401	)		(2,401	)		(556	)		-		(12,358	)
Less: net earnings (loss) attributable to non-controlling interests		-			1			(10	)		-		(9	)
Equity in loss of subsidiaries		(2,957	)		-			-			2,957		-
Net loss attributable to Perkins & Marie Callender's Inc.	$	(12,358	)		(2,402	)		(546	)		2,957		(12,349	)

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Consolidating Statement of Operations for the Quarter ended October 4, 2009 (unaudited; in thousands):

							Non-					Consolidated
	Issuer			Guarantor			Guarantors			Eliminations		PMCI

REVENUES:
Food sales	$	70,456			33,602			5,028			-		109,086
Franchise and other revenue		4,570			1,814			-			-		6,384
Total revenues		75,026			35,416			5,028			-		115,470

COSTS AND EXPENSES:
Cost of sales (excluding depreciation shown below):
Food cost		18,074			8,728			1,256			-		28,058
Labor and benefits		24,080			13,428			1,966			-		39,474
Operating expenses		19,784			11,368			2,031			-		33,183
General and administrative		8,805			1,508			-			-		10,313
Depreciation and amortization		3,995			1,362			141			-		5,498
Interest, net		10,022			238			-			-		10,260
Asset impairments and closed store expenses		3			191			(7	)		-		187
Other, net		(308	)		(84	)		-			-		(392	)
Total costs and expenses		84,455			36,739			5,387			-		126,581
Loss before income taxes		(9,429	)		(1,323	)		(359	)		-		(11,111	)
Provision for income taxes		(142	)		-			-			-		(142	)
Net loss		(9,571	)		(1,323	)		(359	)		-		(11,253	)
Less: net loss attributable to non-controlling interests		-			-			(5	)		-		(5	)
Equity in loss of subsidiaries		(1,682	)		-			-			1,682		-
Net loss attributable to Perkins & Marie Callender's Inc.	$	(11,253	)		(1,323	)		(354	)		1,682		(11,248	)

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Consolidating Statement of Operations for the Year-to-Date Period ended October 3, 2010 (unaudited; in thousands):

							Non-					Consolidated
	Issuer			Guarantor			Guarantors			Eliminations		PMCI

REVENUES:
Food sales	$	225,181			114,188			17,815			-		357,184
Franchise and other revenue		14,812			6,661			1			-		21,474
Total revenues		239,993			120,849			17,816			-		378,658

COSTS AND EXPENSES:
Cost of sales (excluding depreciation shown below):
Food cost		55,461			30,545			4,709			-		90,715
Labor and benefits		78,614			44,594			6,535			-		129,743
Operating expenses		63,653			38,120			7,083			-		108,856
General and administrative		30,385			4,071			-			-		34,456
Settlement with former owner		4,555			-			-			-		4,555
Depreciation and amortization		12,412			3,807			564			-		16,783
Interest, net		33,957			243			-			-		34,200
Asset impairments and closed store expenses		891			1,847			9			-		2,747
Other, net		(423	)		24			-			-		(399	)
Total costs and expenses		279,505			123,251			18,900			-		421,656
Loss before income taxes		(39,512	)		(2,402	)		(1,084	)		-		(42,998	)
Benefit from income taxes		4,888			-			-			-		4,888
Net loss		(34,624	)		(2,402	)		(1,084	)		-		(38,110	)
Less: net loss attributable to non-controlling interests		-			-			(2	)		-		(2	)
Equity in loss of subsidiaries		(3,486	)		-			-			3,486		-
Net loss attributable to Perkins & Marie Callender's Inc.	$	(38,110	)		(2,402	)		(1,082	)		3,486		(38,108	)

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Consolidating Statement of Operations for the Year-to-Date Period ended October 4, 2009 (unaudited; in thousands):

							Non-						Consolidated
	Issuer			Guarantor			Guarantors			Eliminations			PMCI

REVENUES:
Food sales	$	244,047			122,183			18,794			-			385,024
Franchise and other revenue		14,961			6,614			-			-			21,575
Total revenues		259,008			128,797			18,794			-			406,599

COSTS AND EXPENSES:
Cost of sales (excluding depreciation shown below):
Food cost		63,837			32,612			4,884			-			101,333
Labor and benefits		81,825			46,922			6,956			-			135,703
Operating expenses		65,562			38,344			7,050			-			110,956
General and administrative		29,885			4,646			-			-			34,531
Depreciation and amortization		13,449			4,492			470			-			18,411
Interest, net		33,318			687			-			-			34,005
Asset impairments and closed store expenses		827			486			82			-			1,395
Other, net		(1,409	)		(1,660	)		-			-			(3,069	)
Total costs and expenses		287,294			126,529			19,442			-			433,265
Income (loss) before income taxes		(28,286	)		2,268			(648	)		-			(26,666	)
Provision for income taxes		(142	)		-			-			-			(142	)
Net income (loss)		(28,428	)		2,268			(648	)		-			(26,808	)
Less: net earnings attributable to non-controlling interests		-			-			74			-			74
Equity in earnings of subsidiaries		1,620			-			-			(1,620	)		-
Net (loss) income attributable to Perkins & Marie Callender's Inc.	$	(26,808	)		2,268			(722	)		(1,620	)		(26,882	)

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Consolidating Balance Sheet as of October 3, 2010 (unaudited; in thousands):

							Non-						Consolidated
	Issuer			Guarantor			Guarantors			Eliminations			PMCI
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	7,893			936			568			-			9,397
Restricted cash		5,696			-			-			-			5,696
Receivables, less allowances for doubtful accounts		10,905			5,033			7			-			15,945
Inventories		7,968			4,040			187			-			12,195
Prepaid expenses and other current assets		1,889			287			4			-			2,180
Assets held for sale, net		310			-			-			-			310
Total current assets		34,661			10,296			766			-			45,723

PROPERTY AND EQUIPMENT, net		41,040			18,615			2,062			-			61,717
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP		-			10			9			-			19
GOODWILL		23,100			-			-			-			23,100
INTANGIBLE ASSETS, net		145,392			(17	)		-			-			145,375
INVESTMENTS IN SUBSIDIARIES		(82,465	)		-			-			82,465			-
DUE FROM SUBSIDIARIES		81,291			-			-			(81,291	)		-
OTHER ASSETS		12,724			1,130			210			-			14,064
TOTAL ASSETS	$	255,743			30,034			3,047			1,174			289,998

LIABILITIES AND DEFICIT
CURRENT LIABILITIES:
Accounts payable		8,987			5,607			491			-			15,085
Accrued expenses		35,154			8,188			1,111			-			44,453
Franchise advertising contributions		5,696			-			-			-			5,696
Current maturities of long-term debt and capital lease obligations		166			174			-			-			340
Total current liabilities		50,003			13,969			1,602			-			65,574

LONG-TERM DEBT, less current maturities		338,434			-			-			-			338,434
CAPITAL LEASE OBLIGATIONS, less current maturities		7,987			5,218			-			-			13,205
DEFERRED RENT		14,324			4,612			56			-			18,992
OTHER LIABILITIES		16,054			8,682			-			-			24,736
DEFERRED INCOME TAXES		45,457			-			-			-			45,457
DUE TO PARENT		-			79,427			1,864			(81,291	)		-

DEFICIT:
Common stock		1			-			-			-			1
Preferred stock		-			64,296			-			(64,296	)		-
Capital in excess of par		-			9,338			-			(9,338	)		-
Additional paid-in capital		150,870			-			-			-			150,870
Treasury stock		-			(137	)		-			137			-
Accumulated other comprehensive income		54			-			-			-			54
Accumulated deficit		(367,441	)		(155,371	)		(591	)		155,962			(367,441	)
Total Perkins & Marie Callender's Inc. stockholder's deficit		(216,516	)		(81,874	)		(591	)		82,465			(216,516	)
Non-controlling interests		-			-			116			-			116
Total deficit		(216,516	)		(81,874	)		(475	)		82,465			(216,400	)
TOTAL LIABILITIES AND DEFICIT	$	255,743			30,034			3,047			1,174			289,998

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Consolidating Balance Sheet as of December 27, 2009 (in thousands):

							Non-					Consolidated
	Issuer			Guarantor			Guarantors		Eliminations			PMCI
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,013			1,293			982		-			4,288
Restricted cash		8,110			-			-		-			8,110
Receivables, less allowances for doubtful accounts		11,070			7,048			7		-			18,125
Inventories		8,038			2,793			231		-			11,062
Prepaid expenses and other current assets		1,613			248			3		-			1,864
Total current assets		30,844			11,382			1,223		-			43,449

PROPERTY AND EQUIPMENT, net		52,217			20,530			2,472		-			75,219
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP		-			41			9		-			50
GOODWILL		23,100			-			-		-			23,100
INTANGIBLE ASSETS, net		146,889			124			-		-			147,013
INVESTMENTS IN SUBSIDIARIES		(78,981	)		-			-		78,981			-
DUE FROM SUBSIDIARIES		81,493			-			-		(81,493	)		-
OTHER ASSETS		14,321			1,543			210		-			16,074
TOTAL ASSETS	$	269,883			33,620			3,914		(2,512	)		304,905

LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable	$	7,946			6,074			637		-			14,657
Accrued expenses		30,628			9,635			1,342		-			41,605
Franchise advertising contributions		4,327			-			-		-			4,327
Current maturities of long-term debt and capital lease obligations		186			317			-		-			503
Total current liabilities		43,087			16,026			1,979		-			61,092

LONG-TERM DEBT, less current maturities		326,042			-			-		-			326,042
CAPITAL LEASE OBLIGATIONS, less current maturities		8,085			2,969			-		-			11,054
DEFERRED RENT		12,263			4,765			64		-			17,092
OTHER LIABILITIES		13,366			8,911			-		-			22,277
DEFERRED INCOME TAXES		45,457			-			-		-			45,457
DUE TO PARENT		-			80,421			1,072		(81,493	)		-

EQUITY (DEFICIT):
Common stock		1			-			-		-			1
Preferred stock		-			64,296			-		(64,296	)		-
Capital in excess of par		-			9,338			-		(9,338	)		-
Additional paid-in capital		150,870			-			-		-			150,870
Treasury stock		-			(137	)		-		137			-
Accumulated other comprehensive income		45			-			-		-			45
Accumulated (deficit) earnings		(329,333	)		(152,969	)		491		152,478			(329,333	)
Total Perkins & Marie Callender's Inc. stockholder's (deficit) investment		(178,417	)		(79,472	)		491		78,981			(178,417	)
Non-controlling interests		-			-			308		-			308
Total equity (deficit)		(178,417	)		(79,472	)		799		78,981			(178,109	)
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	269,883			33,620			3,914		(2,512	)		304,905

Table of Contents

Consolidating Statement of Cash Flows for the Year-to-Date Period ended October 3, 2010 (unaudited; in thousands):

							Non-						Consolidated
	Issuer			Guarantor			Guarantors			Eliminations			PMCI

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(38,110	)		(2,402	)		(1,084	)		3,486			(38,110	)
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Equity in earnings of subsidiaries		3,486			-			-			(3,486	)		-
Depreciation and amortization		12,412			3,807			564			-			16,783
Asset impairments		727			1,753			9			-			2,489
Amortization of debt discount		1,352			-			-			-			1,352
Other non-cash income items		(104	)		(73	)		-			-			(177	)
Loss on disposition of assets		164			94			-			-			258
Equity in net loss of unconsolidated partnership		-			31			-			-			31
Net changes in operating assets and liabilities		16,169			(1,023	)		(342	)		-			14,804
Total adjustments		34,206			4,589			231			(3,486	)		35,540
Net cash (used in) provided by operating activities		(3,904	)		2,187			(853	)		-			(2,570	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(2,342	)		(1,285	)		(163	)		-			(3,790	)
Proceeds from sale of assets		1,002			5			-			-			1,007
Net cash used in investing activities		(1,340	)		(1,280	)		(163	)		-			(2,783	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facilities		24,684			-			-			-			24,684
Repayment of revolving credit facilities		(13,644	)		-			-			-			(13,644	)
Repayment of capital lease obligations		(118	)		(255	)		-			-			(373	)
Repayment of other debt		-			(15	)		-			-			(15	)
Distributions to non-controlling interest holders		-			-			(190	)		-			(190	)
Intercompany financing		202			(994	)		792			-			-
Net cash provided by (used in) financing activities		11,124			(1,264	)		602			-			10,462
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		5,880			(357	)		(414	)		-			5,109

CASH AND CASH EQUIVALENTS:
Balance, beginning of period		2,013			1,293			982			-			4,288
Balance, end of period	$	7,893			936			568			-			9,397

Table of Contents

Consolidating Statement of Cash Flows for the Year-to-Date Period ended October 4, 2009 (unaudited; in thousands):

							Non-						Consolidated
	Issuer			Guarantor			Guarantors			Eliminations			PMCI

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(26,808	)		2,268			(648	)		(1,620	)		(26,808	)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Equity in loss of subsidiaries		(1,620	)		-			-			1,620			-
Depreciation and amortization		13,449			4,492			470			-			18,411
Asset impairments		137			352			82			-			571
Amortization of debt discount		1,184			-			-			-			1,184
Other non-cash income items		(1,035	)		(1,392	)		-			-			(2,427	)
Loss on disposition of assets		690			134			-			-			824
Equity in net loss of unconsolidated partnership		-			25			-			-			25
Net changes in operating assets and liabilities		4,021			(514	)		(124	)		-			3,383
Total adjustments		16,826			3,097			428			1,620			21,971
Net cash (used in) provided by operating activities		(9,982	)		5,365			(220	)		-

PERKINS & MARIE CALLENDER'S INC 10-Q