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 ~~July~~October 113, 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 0 o No 0o

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 ~~August~~November 2517, 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 July 11, 2010 and July 12, 2009	2
Consolidated Statements of Operations (Unaudited) – Quarter and Year-to-Date Periods Ended October 3, 2010 and October 4, 2009	2
Consolidated Balance Sheets – July 11, 2010 (Unaudited) and December 27, 2009	3
Consolidated Balance Sheets – October 3, 2010 (Unaudited) and December 27, 2009	3
Consolidated Statements of Cash Flows (Unaudited) – Year-to-Date Periods Ended July 11, 2010 and July 12, 2009	4
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

Table of Contents

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
	July 11, 2010				July 12, 2009			July 11, 2010			July 12, 2009
	October 3,				October 4,			October 3,			October 4,
	2010				2009			2010			2009
REVENUES:
Food sales		$	~~107~~102,~~573~~296			~~115~~109,~~061~~086			~~254~~357,~~888~~184			~~275~~385,~~938~~024
Franchise and other revenue			6,~~580~~404			6,~~815~~384			1521,~~070~~474			1521,~~191~~575
Total revenues			~~114~~108,~~153~~700			~~121~~115,~~876~~470			~~269~~378,~~958~~658			~~291~~406,~~129~~599
COSTS AND EXPENSES:
Cost of sales (excluding depreciation shown below):
Food cost			2725,~~434~~999			3028,~~301~~058			6490,~~716~~715			73101,~~275~~333
Labor and benefits			3837,~~846~~535			4039,~~904~~474			92129,~~208~~743			96135,~~229~~703
Operating expenses			32,~~534~~587			3233,~~072~~183			76108,~~269~~856			77110,~~773~~956
General and administrative			109,~~835~~515			10,~~129~~313			2434,~~941~~456			2434,~~218~~531
Depreciation and amortization			5,059			5,557			11,965			12,913
Settlement with former owner			4,555			-			4,555			-
Interest, net			10,299			10,130			23,864			23,745
Depreciation and amortization			4,818			5,498			16,783			18,411
Asset impairments and closed store expenses			440			346			2,105			1,208
Interest, net			10,336			10,260			34,200			34,005
Other, net			(140	)		(1,716	)		(358	)		(2,677	)
Asset impairments and closed store expenses			642			187			2,747			1,395
Total costs and expenses			125,307			127,723			295,710			306,684
Other, net			(41	)		(392	)		(399	)		(3,069	)
Loss before income taxes			(11,154	)		(5,847	)		(25,752	)		(15,555	)
Total costs and expenses			125,946			126,581			421,656			433,265
Benefit from (provision for) income taxes			-			-			-			-
Loss before income taxes			(17,246	)		(11,111	)		(42,998	)		(26,666	)
Net loss			(11,154	)		(5,847	)		(25,752	)		(15,555	)
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			(19	)		33(5	)		7(2	)		7974
Net loss attributable to Perkins & Marie
Callender's Inc.		$	(1112,~~153~~349	)		(511,~~880~~248	)		(2538,~~759~~108	)		(1526,~~634~~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)

	July 11,			December 27,
	October 3,			December 27,
	2010			2009
ASSETS	(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	29,~~263~~397			4,288
Restricted cash		75,~~462~~696			8,110
Receivables, less allowances for doubtful accounts of $859 and $829 in 2010 and 2009, respectively		15,141			18,125
Receivables, less allowances for doubtful accounts of $1,028 and $829 in 2010 and 2009, respectively		15,945			18,125
Inventories		1012,~~383~~195			11,062
Prepaid expenses and other current assets		32,~~676~~180			1,864
Assets held for sale, net		~~1,304~~310			-
Total current assets		4045,~~229~~723			43,449
PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization of $156,381 and $156,898 in 2010 and 2009, respectively		62,987			75,219
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		3319			50
GOODWILL		23,100			23,100
INTANGIBLE ASSETS, net of accumulated amortization of $21,257 and $20,179 in 2010 and 2009, respectively		145,935			147,013
INTANGIBLE ASSETS, net of accumulated amortization of $20,983 and $20,179 in 2010 and 2009, respectively		145,375			147,013
OTHER ASSETS		14,~~690~~064			16,074
TOTAL ASSETS	$	~~286~~289,~~974~~998			304,905
LIABILITIES AND DEFICIT
CURRENT LIABILITIES:
Accounts payable		1415,~~383~~085			14,657
Accrued expenses		4044,~~886~~453			41,605
Franchise advertising contributions		5,~~265~~696			4,327
Current maturities of long-term debt and capital lease obligations		~~379~~340			503
Total current liabilities		6065,~~913~~574			61,092
LONG-TERM DEBT, less current maturities		~~331~~338,~~303~~434			326,042
CAPITAL LEASE OBLIGATIONS, less current maturities		1013,~~906~~205			11,054
DEFERRED RENT		18,~~478~~992			17,092
OTHER LIABILITIES		2324,~~951~~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		4754			45
Accumulated deficit		(~~355~~367,~~092~~441	)		(329,333	)
Total PMCI stockholder's deficit		(204,174	)		(178,417	)
Total Perkins & Marie Callender's Inc. stockholder's deficit		(216,516	)		(178,417	)
Non-controlling interests		~~140~~116			308
Total deficit		(~~204~~216,~~034~~400	)		(178,109	)
TOTAL LIABILITIES AND DEFICIT	$	~~286~~289,~~974~~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
	July 11, 2010			July 12, 2009
	October 3,			October 4,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2538,~~752~~110	)		(1526,~~555~~808	)
Adjustments to reconcile net loss to net cash provided by
Adjustments to reconcile net loss to net cash
(used in) operating activities:
used in operating activities:
Depreciation and amortization		1116,~~965~~783			1218,~~913~~411
Asset impairments		2,~~273~~489			~~434~~571
Amortization of debt discount		~~946~~1,352			~~829~~1,184
Other non-cash income items		(~~232~~177	)		(2,~~344~~427	)
(Gain) loss on disposition of assets		(168	)		774
Loss on disposition of assets		258			824
Equity in net loss of unconsolidated partnership		1731			825
Net changes in operating assets and liabilities		714,~~625~~804			~~(493~~3,383	)
Total adjustments		2235,~~426~~540			1221,~~121~~971
Net cash used in operating activities		(32,~~326~~570	)		(34,~~434~~837	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(23,~~572~~790	)		(45,~~316~~941	)
Proceeds from sale of assets		51,007			~~490~~494
Net cash used in investing activities		(2,~~567~~783	)		(35,~~826~~447	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facilities		1724,~~759~~684			1826,~~248~~501
Repayment of revolving credit facilities		(13,~~444~~644	)		(1216,~~719~~726	)
Repayment of capital lease obligations		(~~262~~373	)		(~~223~~318	)
Repayment of other debt		(1015	)		(1015	)
Debt financing costs		-			(142	)
Distributions to non-controlling interest holders		(~~175~~190	)		(71104	)
Net cash provided by financing activities		310,~~868~~462			59,~~083~~196
NET DECREASE IN CASH AND CASH EQUIVALENTS		(2,025	)		(2,177	)
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	$	29,~~263~~397			23,~~436~~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 ~~July~~October 113, 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 ~~second~~third quarters of 2010 ended on April 18, ~~and~~ July 11 and October 3, respectively, and the first, second and ~~second~~third quarters of 2009 ended on April 19, ~~and~~ July 12 and October 4, respectively. The ~~third and~~ fourth ~~quarters~~quarter of 2010 will end ~~October 3 and~~ December 26~~, respectively~~.

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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 ~~July~~October 113, 2010, we had a negative working capital balance of $2019,~~684~~851,000 and total PMCI stockholder’s deficit of $~~204~~216,~~174~~516,000. Furthermore, at ~~July~~October 113, 2010, we had $29,~~263~~397,000 in unrestricted cash and $~~296~~2,206,000 of borrowing capacity under our Revolver.

~~The~~Over ~~controlling equity holder of P&MC’s Holding LLC, our indirect parent, is in~~ the ~~process~~last ofthree ~~finalizing the terms of an agreement with a third party~~years, ~~which~~we ~~would~~have beexperienced ~~entered~~continued ~~into~~declines byin ~~the~~comparable ~~Company~~restaurant sales and ~~guaranteed~~profitability bythat ~~one~~have ofadversely ~~the~~impacted ~~equity~~our ~~holder’s~~liquidity ~~affiliates~~position. ~~Under~~We ~~this~~believe ~~agreement, the third party will provide a new letter of credit of approximately $8.6 million for the benefit of an insurance company~~ that ~~provides~~this ~~workers’~~continued ~~compensation~~decline ~~insurance~~is ~~for~~primarily ~~the~~attributed ~~Company.~~to ~~The~~increased ~~Company~~competition, ~~expects~~ the ~~new~~ongoing ~~letter~~weakness ofin ~~credit and~~ the ~~related~~economy, ~~guarantee~~high tounemployment ~~be entered into by September 15~~levels, ~~2010.~~continued ~~This~~depressed ~~new~~residential ~~letter~~real ofestate ~~credit will be in force through December 9~~values, ~~2010,~~especially ~~and will contain certain renewal provisions for extension beyond that date. The Company currently has an existing letter of credit~~ in ~~place~~some ~~under its Revolver for the benefit~~ of ~~this~~our ~~insurance~~larger ~~company. While this new letter of credit agreement is in place~~markets, ~~the~~and ~~Company will not need to maintain~~ the ~~letter~~level of ~~credit~~home ~~provided under its Revolver~~foreclosures, which ~~and will therefore~~ have, ~~under~~adversely ~~its~~affected ~~Revolver, incremental borrowing capacity of approximately $8.6 million to fund its current seasonal liquidity needs. Based on~~ our ~~current~~guest ~~expectations,~~counts ~~we do not expect that we will need the additional liquidity support provided by the new letter of credit after its expiration date. However~~and, ~~prior~~in ~~to the expiration~~turn, ~~we will be reviewing~~ our ~~liquidity~~sales ~~position~~and ~~with~~operating ~~our controlling equity holder to determine if they will extend the new letter of credit~~results.

~~The~~Our ~~existing~~operations ~~letter of credit~~ and ~~the~~liquidity ~~new~~needs ~~letter~~are ofseasonal ~~credit~~in ~~that~~nature. Historically, ~~will~~we ~~replace~~have itgenerated ~~are~~a ~~provided~~significant toportion ~~the~~of ~~insurance~~our ~~company~~operating ~~and~~cash ~~are~~flow ~~not~~in ~~drawn down unless~~ the ~~Company~~first ~~fails~~and tofourth ~~pay~~quarters, ~~its~~with ~~workers’~~these ~~compensation~~two ~~claims~~quarters in ~~the~~total ~~ordinary~~contributing ~~course~~60% ofand ~~business.~~63% Inof ~~the~~our ~~event~~annual ~~the~~operating ~~Company~~cash ~~fails~~flows toin ~~make~~2008 ~~payments~~and ~~due~~2009. The onfourth ~~its~~quarter ~~workers’~~is ~~compensation~~typically ~~claims~~our ~~and~~strongest ~~the~~income ~~new~~generating ~~letter~~quarter ofdue ~~credit~~to issubstantial ~~drawn~~holiday ~~upon,~~traffic ~~the~~and ~~guarantor~~seasonal ofpie ~~the~~sales. In ~~letter~~anticipation of ~~credit~~these ~~will~~sales ~~reimburse~~and ~~the~~guest ~~third~~traffic, ~~party~~we ~~letter~~increase ofpersonnel ~~credit~~and ~~provider~~inventories, and ~~the~~therefore ~~Company~~liquidity ~~has~~is ~~agreed~~normally toat ~~reimburse~~its ~~the~~lowest ~~guarantor~~point ~~for~~at ~~such amounts. However, there has never been a draw on~~ the ~~existing~~end ~~letter~~ of ~~credit and~~ the ~~Company~~third ~~does not expect that there will be a draw on the new letter of credit~~quarter.

WeOur ~~believe~~ability ~~that~~to ~~the~~fund ~~ongoing~~our ~~weakness~~operations inand ~~the~~service ~~economy~~our debt through 2011will depend, ~~high~~in ~~unemployment~~large ~~levels~~part, ~~continued~~on ~~depressed~~our ~~residential~~ability ~~real~~to ~~estate~~improve ~~values,~~profitability ~~especially~~and inliquidity. Management ~~some~~has ofinitiated ~~our~~actions ~~larger~~to ~~markets,~~improve its profitability and liquidity by reducing overall planned capital expenditures, managing the ~~level~~timing of ~~home~~payments ~~foreclosures~~of ~~has~~certain ~~adversely~~operating ~~affected~~expenses, ~~our~~eliminating ~~guest~~certain ~~counts~~employee ~~and~~benefits, inand ~~turn,~~reducing ~~our~~certain ~~sales~~general and ~~operating~~administrative ~~results~~expenses. ~~Over~~Management ~~the~~has ~~last~~recently ~~three~~implemented ~~years,~~advertising weand ~~have~~promotional ~~experienced~~programs ~~continued~~at ~~declines~~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 ~~have~~were ~~adversely~~terminated ~~impacted~~in 2009, with more profitable sales contracts. In addition, we are carefully reviewing menu prices at our ~~liquidity~~restaurants, ~~position~~and we will increase menu prices, where feasible. There can be no assurance, however, that such actions will result in improved profitability and liquidity.

~~Our~~In ~~operations~~September ~~and~~2010, ~~liquidity~~the ~~needs~~controlling ~~are~~equity ~~seasonal~~holder inof ~~nature. Historically,~~P&MC’s weHolding ~~have~~LLC, ~~generated~~our aindirect ~~significant~~parent, ~~portion~~finalized ofan ~~our~~agreement ~~operating~~with ~~cash~~a ~~flow~~third inparty whereby the ~~first~~third ~~and~~party ~~fourth~~provided ~~quarters,~~a ~~with~~new ~~these~~letter ~~two~~of ~~quarters~~credit inof ~~total~~approximately ~~contributing~~$8,635,000 ~~60%~~for ~~and~~the ~~63%~~benefit of ~~our~~an ~~annual~~insurance ~~operating~~company ~~cash~~that ~~flows~~provides inworkers’ ~~2008~~compensation ~~and~~insurance ~~2009~~for the Company. The ~~fourth~~new ~~quarter~~letter isof ~~typically~~credit ~~our~~was ~~strongest~~guaranteed ~~income~~by ~~generating~~one ~~quarter~~of ~~due~~the equity holder’s affiliates, and the Company signed an agreement to ~~substantial~~reimburse ~~holiday~~the ~~traffic~~affiliate ~~and~~for ~~seasonal~~any ~~pie~~amounts ~~sales~~paid under the guaranty. AsThis wenew ~~increase~~letter ~~personnel~~of credit has been renewed through December 9, 2011, and ~~inventories~~contains atcertain renewal provisions for extension beyond that date. Prior to the ~~end~~new letter of credit, the ~~third~~Company ~~quarter~~had ~~for~~an ~~this~~existing ~~seasonal~~letter ~~activity,~~of ~~liquidity~~credit isin ~~normally~~place atunder its ~~lowest~~Revolver ~~point. In~~for ~~light~~the benefit of this ~~and~~same ~~because~~insurance wecompany. When ~~have~~this ~~two~~new ~~significant~~letter ~~interest~~of ~~payments~~credit ~~due~~agreement onwas ~~October~~put 1in ~~and~~place, ~~November~~the ~~30,~~Company wecancelled ~~intend~~the toexisting ~~continue~~letter toof ~~reduce~~credit ~~our~~provided ~~capital~~under ~~expenditures~~its ~~and~~Revolver, ~~carefully~~thereby ~~manage~~increasing ~~payment~~our ofincremental ~~certain~~borrowing ~~operating~~capacity ~~expenses~~by inapproximately ~~the~~$8,635,000 ~~third~~to ~~and~~fund ~~fourth~~our ~~quarters~~liquidity needs.

~~Our~~The ~~ability~~cancelled toletter ~~fund~~of ~~our~~credit ~~operations~~ and ~~service~~the ~~our~~new ~~debt~~letter ~~through~~of ~~2011~~credit ~~and~~that ~~beyond~~replaced ~~will~~it ~~depend,~~are innot ~~large~~drawn ~~part,~~down onunless ~~our~~the ~~ability~~Company fails to ~~improve~~pay ~~sales~~its ~~and~~workers’ ~~profitability. We~~compensation ~~believe~~claims wein ~~will~~the ~~accomplish~~ordinary ~~this~~course ~~improvement~~of ~~through~~business. In the ~~successful~~event ~~execution~~the ofCompany ~~our~~fails ~~recently~~to ~~implemented~~make ~~advertising~~payments ~~and~~due ~~promotional~~on ~~programs~~its atworkers’ ~~both~~compensation ~~restaurant~~claims ~~brands~~ and ~~also~~the ~~through~~new ~~our~~letter ~~renewed~~of ~~focus~~credit atis ~~Foxtail~~drawn toupon, ~~increase~~the ~~higher~~guarantor ~~profit~~of ~~sales~~the toletter ~~third-party~~of ~~customers,~~credit ~~replacing~~will ~~low~~reimburse ~~profitability~~the ~~contracts~~third ~~terminated~~party inletter ~~2009. Management~~of ~~expects~~credit ~~these~~provider, ~~initiatives~~and ~~together with~~ the Company’s ~~cash~~has ~~provided~~agreed byto ~~operations~~reimburse ~~and borrowing capacity under~~ the ~~Revolver~~guarantor ~~(which~~for ~~includes~~such ~~the~~amounts. However, ~~additional~~there ~~availability~~has asnever been a ~~result~~draw ofon the ~~new~~letters ~~letter~~ of credit ~~agreement)~~provided ~~to provide sufficient liquidity~~ for atour ~~least~~workers’ ~~the~~compensation ~~next twelve months. However~~plans, ~~there~~and ~~can~~the beCompany nodoes ~~assurance~~not asexpect tothat ~~whether~~there ~~these or other actions~~ will ~~enable~~be usa todraw ~~generate~~on ~~sufficient~~the ~~cash~~new ~~flow~~letter toof ~~fund our operations and service our debt~~credit.

IfManagement weexpects ~~are~~the ~~unable~~initiatives todiscussed ~~finalize~~above combined with the Company’s cash provided by operations and ~~enter~~borrowing ~~into~~capacity under the ~~agreement~~Revolver ~~for~~(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 ~~that~~as weto ~~will~~whether ~~have~~these ~~sufficient~~or ~~liquidity~~other toactions 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. ~~Management~~The concluded in the first quarter of 2009 that it had sufficient evidence to estimate the gift card breakage rate on Perkins gift cards and recorded $865,000 of gift card breakage. Management concluded in the second fiscal quarter of 2009 that it had sufficient evidence to estimate the gift card breakage rate on Marie Callender’s gift cards and recorded $1,576,000 of gift card breakage. These initial recognitions of breakage income in the first and second quarters of 2009 ~~include~~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 ~~July~~October 113, 2010, we recorded $~~143~~109,000 and $~~335~~444,000, respectively, of breakage income for both our Perkins and Marie Callender’s gift cards. As of ~~July~~October 113, 2010 and December 27, 2009, the Company held approximately $2,~~197~~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 ~~its~~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 ~~sheets~~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 ~~July~~October 113, 2010 and December 27, 2009, the Company held approximately $5,~~265~~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.

Funds related to the gift card program and the Marketing Fund are classified as restricted cash on the consolidated balance sheet. The use of these funds is not contractually limited to specific uses and a portion of these funds has in the past been temporarily used for other corporate purposes. However, it is the Company’s intention to restrict the use of these funds in the future as described above.

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(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 ~~July~~October 113, 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 ~~July~~October 124, 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:

# of		Quarter	Year-to-Date		# of	Quarter		Year-to-Date
			Quarter			Year-to-Date					Quarter		Year-to-Date
Restaurants		Ended	Ended		Restaurants	Ended		Ended
# of			Ended			Ended			# of		Ended		Ended
(2010)		July 11, 2010	July 11, 2010		(2009)	July 12, 2009		July 12, 2009
Restaurants			October 3,			October 3,			Restaurants		October 4,		October 4,
39		$430,000	$963,000		40	$449,000		$999,000
	(2010)			2010			2010			(2009)		2009		2009
27		348,000	787,000		27	337,000		763,000
	39		$	439,000		$	1,402,000			40	$	447,000	$	1,446,000
21		323,000	736,000		21	342,000		777,000
	27			354,000			1,141,000			27		337,000		1,100,000
	21			344,000			1,080,000			21		346,000		1,123,000

As of July 11, 2010, three Marie Callender’s franchisees otherwise unaffiliated with the Company each owned four, for a total of 12, or 32%, of the 37 franchised Marie Callender’s restaurants. As of July 12, 2009, these same franchisees owned five, four and four restaurants, respectively. The following table presents a summary of the royalty and license fees provided by these three franchisees:7

# of	Quarter	Year-to-Date	# of	Quarter	Year-to-Date
Restaurants	Ended	Ended	Restaurants	Ended	Ended
(2010)	July 11, 2010	July 11, 2010	(2009)	July 12, 2009	July 12, 2009
4	$77,000	$187,000	5	$70,000	$220,000
4	74,000	189,000	4	84,000	201,000
4	66,000	148,000	4	57,000	138,000

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 second quarters of 2010 and 2009, we paid an aggregate of $612,000 and $643,000, respectively, and during the year-to-date periods of 2010 and 2009, we paid an aggregate of $1,352,000 and $1,421,000, 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.

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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 ~~July~~October 113, 2010 and ~~July~~October 124, 2009:

	Year-to-Date			Year-to-Date
	Ended			Ended
	July 11, 2010			July 12, 2009
	October 3,			October 4,
	2010			2009
Decrease (increase) in:
Restricted cash	$	~~648~~2,414			2,100
Receivables		21,~~885~~900			43,~~874~~900
Inventories		~~679~~(1,133	)		~~(138~~894	)
Prepaid expenses and other current assets		(~~1,812~~316	)		(21,~~189~~474	)
Other assets		12,~~694~~326			~~854~~1,055
Increase (decrease) in:
Accounts payable		~~(274~~2,403	)		(52,~~287~~518	)
Accrued expenses and other current liabilities		~~745~~2,851			(34,~~181~~345	)
Other liabilities		34,~~060~~359			23,~~474~~771
Net changes in operating assets and liabilities	$	714,~~625~~804			~~(493~~3,383	)

(8) Goodwill and Intangible Assets

Goodwill

Goodwill of $23,100,000 at both ~~July~~October 113, 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):

	July 11,			December 27,
	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~~-			834
Subtotal		5655,~~592~~758			56,592
Less — accumulated amortization		(2120,~~257~~983	)		(20,179	)
Net amortizing intangible assets		3534,~~335~~775			36,413
Non-amortizing intangible asset:
Tradenames		110,600			110,600
Total intangible assets	$	145,~~935~~375			147,013

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(9) Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	July 11,		December 27,
	October 3,		December 27,
	2010		2009
Payroll and related benefits	$	1413,~~376~~159		15,423
Interest		76,~~505~~606		6,065
Gift cards and gift certificates		3,~~004~~756		5,090
Property, real estate and sales taxes		56,~~294~~397		4,267
Insurance		2,~~383~~233		2,219
Advertising		~~1,042~~985		792
Other		711,~~282~~317		7,749
Total accrued expenses	$	4044,~~886~~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
Revenues	July 11, 2010			July 12, 2009			July 11, 2010			July 12, 2009
	October 3,			October 4,			October 3,			October 4,
Restaurant operations	$	100,961			106,495			240,566			255,723
Revenues	2010			2009			2010			2009
Franchise operations		5,288			5,305			11,959			12,249
Restaurant operations	$	95,527			99,781			336,093			355,501
Foxtail		10,901			12,942			24,366			30,504
Franchise operations		5,243			5,259			17,202			17,507
Intersegment revenue		(4,289	)		(4,376	)		(10,044	)		(10,289	)
Foxtail		10,594			13,362			34,961			43,868
Other		1,292			1,510			3,111			2,942
Intersegment revenue		(3,825	)		(4,057	)		(13,869	)		(14,345	)
Total	$	114,153			121,876			269,958			291,129
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		~~3,259~~578			52,~~335~~252			89,~~829~~406			1416,~~411~~664
Franchise operations		4,~~742~~725			4,~~840~~786			1015,~~867~~592			1116,~~269~~055
Foxtail		~~933~~1,034			~~1,164~~903			12,~~574~~608			12,~~323~~226
Other		(2018,~~087~~686	)		(1719,~~219~~189	)		(4765,~~029~~714	)		(4261,~~637~~827	)
Total	$	(1112,~~153~~349	)		(511,~~880~~248	)		(2538,~~759~~108	)		(1526,~~634~~882	)
Segment assets							July 11, 2010			December 27, 2009
							October 3,			December 27,
Restaurant operations								122,740			132,611
Segment assets								2010			2009
Franchise operations								101,359			101,672
Restaurant operations								122,427			132,611
Foxtail								29,175			31,754
Franchise operations								100,366			101,672
Other								33,700			38,868
Foxtail								31,662			31,754
Total							$	286,974			304,905
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
	July 11, 2010			July 12, 2009			July 11, 2010			July 12, 2009
	October 3,			October 4,			October 3,			October 4,
General and administrative expenses	$	9,993			9,079			22,674			21,229
	2010			2009			2010			2009
Depreciation and amortization expenses		721			784			1,677			1,821
General and administrative expenses	$	8,482			9,271			31,156			30,500
Interest expense, net		10,299			10,130			23,864			23,745
Settlement with former owner		4,555			-			4,555			-
Loss (gain) on disposition of assets, net		(102	)		114			(168	)		774
Depreciation and amortization expenses		703			786			2,380			2,607
Asset impairments		542			232			2,273			434
Interest expense, net		10,336			10,260			34,200			34,005
Net earnings attributable to non-controlling interests		(1	)		33			7			79
Loss on disposition of assets, net		426			48			258			823
Licensing revenue		(1,258	)		(1,448	)		(2,990	)		(2,808	)
Asset impairments		216			139			2,489			572
Other		(107	)		(1,705	)		(308	)		(2,637	)
Provision for (benefit from) income taxes		(4,888	)		142			(4,888	)		142
Total other segment loss	$	20,087			17,219			47,029			42,637
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 ~~July~~October 113, 2010, the average annual interest rate on aggregate borrowings under the Revolver was 7.89%, and the Revolver permitted additional borrowings of approximately $~~296~~2,206,000 (after giving effect to $1522,~~485~~210,000 in borrowings and $101,~~219~~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 ~~July~~October 113, 2010 was 11.65% compared to the average interest rate on aggregate borrowings for the year-to-date period through ~~July~~October 124, 2009 of 11.56%.

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 July 11~~, 2010 we were in compliance with the covenants contained in our debt agreements.~~

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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 ~~second~~third quarters ended ~~July~~October 113, 2010 and ~~July~~October 124, 2009 were 028.03% 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 ~~July~~October 113, 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 July 11, 2010	$	1,153
Unrecognized tax benefit - as of October 3, 2010	$	640

As of July 11, 2010 and December 27, 2009 the Company had approximately $943,000 of unrecognized tax benefits that, if recognized, would impact the Company’s effective tax rate, except for approximately $160,000 which is subject to tax indemnification from the predecessor owner. As of July 11, 2010 and December 27, 2009 the Company had $805,000 of unrecognized tax benefits reducing Federal and state net operating loss carry forwards and Federal credit carry forwards that, if recognized, would be subject to a valuation allowance. The Company expects that the total amount of its gross unrecognized tax benefits will decrease between $32,000 and $432,000 within the next 12 ~~months due to Federal and state settlements and expiration of statutes.~~

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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 ~~July~~October 113, 2010 and ~~July~~October 124, 2009 was not ~~material~~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

~~In September 2009,~~ P&MC’s Real Estate Holding LLC, 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 and assumed the Company’s obligations under the related ground lease. In connection with the purchase of the building, the Company’s existing building lease was terminated. P&MC’s Real Estate Holding LLC has agreed to allow the Company to use the building and defer collection of building rent at this time. The Company will continue to operate the Marie Callender’s restaurant in the building and will pay the underlying ground lease. As a result of these transactions, the Company has imputed rent of $18,500 per period, based on the fair value of the building and local rental rate, and is accruing this amount in deferred rent on its consolidated balance sheets.

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 (14the “2005 Purchase Agreement”), ~~Recent~~P&MC’s ~~Accounting~~Holding ~~Developments~~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.

~~Subsequent~~Prior ~~Events~~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.

InOn ~~May~~August ~~2009~~30, 2010, the ~~FASB~~Company ~~issued~~and ~~ASC~~P&MC’s ~~855,~~Holding ~~“Subsequent~~Corp. ~~Events,”~~filed ~~which~~for ~~establishes~~the ~~general~~tax ~~standards~~refunds ofand ~~accounting~~the ~~for~~net ~~and~~refund ~~disclosure~~amount of ~~events~~approximately ~~that~~$4,724,000 ~~occur~~was ~~after~~received ~~the~~on ~~balance~~September ~~sheet~~20, ~~date~~2010. The ~~but~~associated ~~before~~income ~~financial~~tax ~~statements~~benefit ~~are~~for ~~issued~~the orrealization ~~are~~of ~~available~~these topreviously bereserved ~~issued.~~NOLs have ~~This~~been reflected ~~guidance~~in ~~was~~the ~~effective~~Company’s ~~for~~statements ~~interim~~of ~~and~~operations ~~annual~~for ~~periods~~the ~~ending~~quarter ~~after~~ended ~~June 15~~October 3, ~~2009~~2010.

InAfter ~~February~~deducting ~~2010~~certain expenses, the ~~FASB~~Company ~~issued~~was ~~ASU~~required ~~2010-09~~to pay approximately $4,555,000 ~~which~~to ~~amends~~the ~~ASC~~former ~~855~~owners, towhich ~~address~~is ~~certain~~reported ~~implementation~~in ~~issues~~the ~~related~~accompanying toconsolidated ~~performing~~statements ~~and~~of ~~disclosing~~operations ~~subsequent~~as ~~events~~Settlement ~~procedures~~with Former Owner. The ~~Company~~related ~~included~~liability, which was paid to the ~~requirements~~former ofowners ~~this~~on ~~guidance~~October 4, 2010, is included in ~~the~~accrued ~~preparation~~expenses ofin the accompanying ~~financial~~consolidated ~~statements~~balance sheets.

~~(15)~~Guaranteed ~~Deficit~~Letter of Credit

AOn ~~summary~~September of10, 2010, the ~~changes~~Company's inworkers' ~~deficit~~compensation ~~for~~provider ~~the~~was ~~year-to-date~~given ~~periods~~a ~~ended~~new ~~July~~letter ~~11,~~of ~~2010~~credit under a credit facility entered into and ~~July~~guaranteed ~~12,~~by ~~2009~~an affiliate of the Company’s controlling equity. This letter of credit is ~~provided~~more ~~below~~fully (discussed in ~~thousands):~~Note 11, “Long-Term Debt” above.

	Year-to-Date Ended July 11, 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		-		-		-			-			-			(175	)		(175	)
Net (loss) earnings		-		-		(25,759	)		-			(25,759	)		7			(25,752	)
Currency translation adjustment		-		-		-			2			2			-			2
Total comprehensive loss																		(25,750	)
Balance, July 11, 2010	$	1		150,870		(355,092	)		47			(204,174	)		140			(204,034	)
	Year-to-Date Ended July 12, 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	)
Distributions to non-controlling interest holders		-		-		-			-			-			(71	)		(71	)
Net (loss) earnings		-		-		(15,634	)		-			(15,634	)		79			(15,555	)
Currency translation adjustment		-		-		-			24			24			-			24
Total comprehensive loss																		(15,531	)
Balance, July 12, 2009	$	1		149,851		(308,748	)		20			(158,876	)		223			(158,653	)

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(1614) ~~Condensed Consolidated Financial Information~~Deficit

~~The~~A ~~10%~~summary ~~Senior Notes and Secured Notes were issued subject to a joint and several, full and unconditional guarantee by all~~ of the ~~Company’s~~changes ~~100%~~in ~~owned~~deficit ~~domestic~~for ~~subsidiaries. There are no significant restrictions on~~ the ~~Company’s ability~~ year-to-date ~~obtain~~periods ~~funds~~ended ~~from~~October ~~any~~3, of2010 ~~the~~and ~~guarantor~~October ~~subsidiaries in the form of a dividend or loan. Additionally~~4, ~~there~~2009 ~~are~~is noprovided ~~significant~~below ~~restrictions~~(in ~~on the guarantor subsidiaries’ ability to obtain funds from the Company or its direct or indirect subsidiaries.~~thousands):

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.

	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	)

Consolidating Statement of Operations for the Quarter ended July 11, 2010 (unaudited; in thousands):
							Non-					Consolidated
	Issuer			Guarantor			Guarantors			Eliminations		PMCI
REVENUES:
Food sales	$	66,759			35,379			5,435			-		107,573
Franchise and other revenue		4,571			2,009			-			-		6,580
Total revenues		71,330			37,388			5,435			-		114,153
COSTS AND EXPENSES:
Cost of sales (excluding depreciation shown below):
Food cost		16,378			9,604			1,452			-		27,434
Labor and benefits		23,276			13,573			1,997			-		38,846
Operating expenses		18,709			11,692			2,133			-		32,534
General and administrative		9,569			1,266			-			-		10,835
Depreciation and amortization		3,739			1,150			170			-		5,059
Interest, net		10,221			78			-			-		10,299
Asset impairments and closed store expenses		51			389			-			-		440
Other, net		(235	)		95			-			-		(140	)
Total costs and expenses		81,708			37,847			5,752			-		125,307
Loss before income taxes		(10,378	)		(459	)		(317	)		-		(11,154	)
Benefit from (provision for) income taxes		-			-			-			-		-
Net loss		(10,378	)		(459	)		(317	)		-		(11,154	)
Less: net loss attributable to non-controlling interests		-			-			(1	)		-		(1	)
Equity in earnings (loss) of subsidiaries		(776	)		-			-			776		-
Net (loss) income attributable to Perkins & Marie Callender's Inc.	$	(11,154	)		(459	)		(316	)		776		(11,153	)

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Consolidating Statement of Operations for the Quarter ended July 12, 2009 (unaudited; in thousands):
							Non-						Consolidated
	Issuer			Guarantor			Guarantors			Eliminations			PMCI
REVENUES:
Food sales	$	71,865			37,443			5,753			-			115,061
Franchise and other revenue		4,608			2,207			-			-			6,815
Total revenues		76,473			39,650			5,753			-			121,876
COSTS AND EXPENSES:
Cost of sales (excluding depreciation shown below):
Food cost		18,918			9,265			2,118			-			30,301
Labor and benefits		24,278			15,136			1,490			-			40,904
Operating expenses		18,407			11,511			2,154			-			32,072
General and administrative		8,732			1,397			-			-			10,129
Depreciation and amortization		4,018			1,402			137			-			5,557
Interest, net		9,915			215			-			-			10,130
Asset impairments and closed store expenses		63			274			9			-			346
Other, net		(139	)		(1,577	)		-			-			(1,716	)
Total costs and expenses		84,192			37,623			5,908			-			127,723
Profit (loss) before income taxes		(7,719	)		2,027			(155	)		-			(5,847	)
Benefit from (provision for) income taxes		-			-			-			-			-
Net profit (loss)		(7,719	)		2,027			(155	)		-			(5,847	)
Less: net earnings attributable to non-controlling interests		-			-			33			-			33
Equity in earnings (loss) of subsidiaries		1,872			-			-			(1,872	)		-
Net (loss) income attributable to Perkins & Marie Callender's Inc.	$	(5,847	)		2,027			(188	)		(1,872	)		(5,880	)

(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.

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 Year-to-Date Period ended July 11, 2010 (unaudited; in thousands):
Consolidating Statement of Operations for the Quarter ended October 4, 2009 (unaudited; in thousands):
							Non-					Consolidated
	Issuer			Guarantor			Guarantors			Eliminations		PMCI
REVENUES:
Food sales	$	~~159~~70,~~118~~456			8233,~~915~~602			125,~~855~~028			-		~~254~~109,~~888~~086
Franchise and other revenue		104,~~212~~570			41,~~857~~814			1-			-		156,~~070~~384
Total revenues		~~169~~75,~~330~~026			8735,~~772~~416			125,~~856~~028			-		~~269~~115,~~958~~470
COSTS AND EXPENSES:
Cost of sales (excluding depreciation shown below):
Food cost		3918,~~176~~074			228,~~121~~728			31,~~419~~256			-		6428,~~716~~058
Labor and benefits		5524,~~705~~080			3113,~~864~~428			41,~~639~~966			-		9239,~~208~~474
Operating expenses		4419,~~532~~784			2611,~~810~~368			42,~~927~~031			-		7633,~~269~~183
General and administrative		228,~~109~~805			21,~~832~~508			-			-		2410,~~941~~313
Depreciation and amortization		83,~~813~~995			21,~~759~~362			~~393~~141			-		115,~~965~~498
Interest, net		2310,~~703~~022			~~161~~238			-			-		2310,~~864~~260
Asset impairments and closed store expenses		~~876~~3			~~1,223~~191			6(7	)		-		~~2,105~~187
Other, net		(~~361~~308	)		3(84	)		-			-		(~~358~~392	)
Total costs and expenses		~~194~~84,~~553~~455			8736,~~773~~739			135,~~384~~387			-		~~295~~126,~~710~~581
Loss before income taxes		(259,~~223~~429	)		(1,323	)		(~~528~~359	)		-		(2511,~~752~~111	)
Benefit from (provision for) income taxes		-			-			-			-		-
Provision for income taxes		(142	)		-			-			-		(142	)
Net loss		(259,~~223~~571	)		(1,323	)		(~~528~~359	)		-		(2511,~~752~~253	)
Less: net earnings attributable to non-controlling interests		-			-			7			-		7
Less: net loss attributable to non-controlling interests		-			-			(5	)		-		(5	)
Equity in earnings (loss) of subsidiaries		(529	)		-			-			529		-
Equity in loss of subsidiaries		(1,682	)		-			-			1,682		-
Net (loss) income attributable to Perkins & Marie Callender's Inc.	$	(25,752	)		(1	)		(535	)		529		(25,759	)
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 July 12, 2009 (unaudited; in thousands):
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	$	~~173~~225,~~591~~181			88114,~~582~~188			1317,~~765~~815			-			~~275~~357,~~938~~184
Franchise and other revenue		1014,~~391~~812			46,~~800~~661			-1			-			1521,~~191~~474
Total revenues		~~183~~239,~~982~~993			93120,~~382~~849			1317,~~765~~816			-			~~291~~378,~~129~~658
COSTS AND EXPENSES:
Cost of sales (excluding depreciation shown below):
Food cost		4555,~~763~~461			2330,~~884~~545			34,~~628~~709			-			7390,~~275~~715
Labor and benefits		5778,~~745~~614			3344,~~494~~594			46,~~990~~535			-			96129,~~229~~743
Operating expenses		4563,~~778~~653			2638,~~977~~120			57,~~018~~083			-			77108,~~773~~856
General and administrative		2130,~~080~~385			34,~~138~~071			-			-			2434,~~218~~456
Depreciation and amortization		9,454			3,130			329			-			12,913
Settlement with former owner		4,555			-			-			-			4,555
Interest, net		23,296			449			-			-			23,745
Depreciation and amortization		12,412			3,807			564			-			16,783
Asset impairments and closed store expenses		824			295			89			-			1,208
Interest, net		33,957			243			-			-			34,200
Other, net		(1,101	)		(1,576	)		-			-			(2,677	)
Asset impairments and closed store expenses		891			1,847			9			-			2,747
Total costs and expenses		202,839			89,791			14,054			-			306,684
Other, net		(423	)		24			-			-			(399	)
Profit (loss) before income taxes		(18,857	)		3,591			(289	)		-			(15,555	)
Total costs and expenses		279,505			123,251			18,900			-			421,656
Benefit from (provision for) income taxes		-			-			-			-			-
Loss before income taxes		(39,512	)		(2,402	)		(1,084	)		-			(42,998	)
Net profit (loss)		(18,857	)		3,591			(289	)		-			(15,555	)
Benefit from income taxes		4,888			-			-			-			4,888
Less: net earnings attributable to non-controlling interests		-			-			79			-			79
Net loss		(34,624	)		(2,402	)		(1,084	)		-			(38,110	)
Equity in earnings (loss) of subsidiaries		3,302			-			-			(3,302	)		-
Less: net loss attributable to non-controlling interests		-			-			(2	)		-			(2	)
Net (loss) income attributable to Perkins & Marie Callender's Inc.	$	(15,555	)		3,591			(368	)		(3,302	)		(15,634	)
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	)

Table of Contents

Consolidating Balance Sheet as of July 11, 2010 (unaudited; in thousands):
Consolidating Statement of Operations for the Year-to-Date Period ended October 4, 2009 (unaudited; in thousands):
							Non-						Consolidated
	Issuer			Guarantor			Guarantors			Eliminations			PMCI
ASSETS
REVENUES:
CURRENT ASSETS:
Food sales	$	244,047			122,183			18,794			-			385,024
Cash and cash equivalents	$	1,458			204			601			-			2,263
Franchise and other revenue		14,961			6,614			-			-			21,575
Restricted cash		7,462			-			-			-			7,462
Total revenues		259,008			128,797			18,794			-			406,599
Receivables, less allowances for doubtful accounts		9,940			5,196			5			-			15,141
COSTS AND EXPENSES:
Inventories		7,446			2,749			188			-			10,383
Cost of sales (excluding depreciation shown below):
Prepaid expenses and other current assets		2,909			761			6			-			3,676
Food cost		63,837			32,612			4,884			-			101,333
Assets held for sale, net		1,304			-			-			-			1,304
Labor and benefits		81,825			46,922			6,956			-			135,703
Total current assets		30,519			8,910			800			-			40,229
Operating expenses		65,562			38,344			7,050			-			110,956
PROPERTY AND EQUIPMENT, net		43,549			17,280			2,158			-			62,987
General and administrative		29,885			4,646			-			-			34,531
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP		-			24			9			-			33
Depreciation and amortization		13,449			4,492			470			-			18,411
GOODWILL		23,100			-			-			-			23,100
Interest, net		33,318			687			-			-			34,005
INTANGIBLE ASSETS, net		145,841			94			-			-			145,935
Asset impairments and closed store expenses		827			486			82			-			1,395
INVESTMENTS IN SUBSIDIARIES		(79,517	)		-			-			79,517			-
Other, net		(1,409	)		(1,660	)		-			-			(3,069	)
DUE FROM SUBSIDIARIES		79,204			-			-			(79,204	)		-
Total costs and expenses		287,294			126,529			19,442			-			433,265
OTHER ASSETS		13,354			1,126			210			-			14,690
Income (loss) before income taxes		(28,286	)		2,268			(648	)		-			(26,666	)
TOTAL ASSETS	$	256,050			27,434			3,177			313			286,974
Provision for income taxes		(142	)		-			-			-			(142	)
LIABILITIES AND EQUITY (DEFICIT)
Net income (loss)		(28,428	)		2,268			(648	)		-			(26,808	)
CURRENT LIABILITIES:
Less: net earnings attributable to non-controlling interests		-			-			74			-			74
Accounts payable		9,202			4,742			439			-			14,383
Equity in earnings of subsidiaries		1,620			-			-			(1,620	)		-
Accrued expenses		31,844			7,898			1,144			-			40,886
Net (loss) income attributable to Perkins & Marie Callender's Inc.	$	(26,808	)		2,268			(722	)		(1,620	)		(26,882	)
Franchise advertising contributions		5,265			-			-			-			5,265
Current maturities of long-term debt and capital lease obligations		162			217			-			-			379
Total current liabilities		46,473			12,857			1,583			-			60,913
LONG-TERM DEBT, less current maturities		331,303			-			-			-			331,303
CAPITAL LEASE OBLIGATIONS, less current maturities		8,026			2,880			-			-			10,906
DEFERRED RENT		13,749			4,671			58			-			18,478
OTHER LIABILITIES		15,216			8,735			-			-			23,951
DEFERRED INCOME TAXES		45,457			-			-			-			45,457
DUE TO PARENT		-			77,764			1,440			(79,204	)		-
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		47			-			-			-			47
Accumulated (deficit) earnings		(355,092	)		(152,970	)		(44	)		153,014			(355,092	)
Total PMCI stockholder's (deficit) investment		(204,174	)		(79,473	)		(44	)		79,517			(204,174	)
Non-controlling interests		-			-			140			-			140
Total equity (deficit)		(204,174	)		(79,473	)		96			79,517			(204,034	)
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	256,050			27,434			3,177			313			286,974

Table of Contents

Consolidating Balance Sheet as of December 27, 2009 (in thousands):
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	$	27,~~013~~893			~~1,293~~936			~~982~~568			-			49,~~288~~397
Restricted cash		85,~~110~~696			-			-			-			85,~~110~~696
Receivables, less allowances for doubtful accounts		1110,~~070~~905			75,~~048~~033			7			-			1815,~~125~~945
Inventories		87,~~038~~968			24,~~793~~040			~~231~~187			-			1112,~~062~~195
Prepaid expenses and other current assets		1,~~613~~889			~~248~~287			34			-			12,~~864~~180
Total current assets		30,844			11,382			1,223			-			43,449
Assets held for sale, net		310			-			-			-			310
PROPERTY AND EQUIPMENT, net		52,217			20,530			2,472			-			75,219
Total current assets		34,661			10,296			766			-			45,723
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP		-			41			9			-			50
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		~~146~~145,~~889~~392			~~124~~(17	)		-			-			~~147~~145,~~013~~375
INVESTMENTS IN SUBSIDIARIES		(7882,~~981~~465	)		-			-			7882,~~981~~465			-
DUE FROM SUBSIDIARIES		81,~~493~~291			-			-			(81,~~493~~291	)		-
OTHER ASSETS		1412,~~321~~724			1,~~543~~130			210			-			1614,~~074~~064
TOTAL ASSETS	$	~~269~~255,~~883~~743			3330,~~620~~034			3,~~914~~047			(21,~~512~~174	)		~~304~~289,~~905~~998
LIABILITIES AND EQUITY (DEFICIT)
LIABILITIES AND DEFICIT
CURRENT LIABILITIES:
Accounts payable	$	78,~~946~~987			65,~~074~~607			~~637~~491			-			1415,~~657~~085
Accrued expenses		3035,~~628~~154			98,~~635~~188			1,~~342~~111			-			4144,~~605~~453
Franchise advertising contributions		45,~~327~~696			-			-			-			45,~~327~~696
Current maturities of long-term debt and capital lease obligations		~~186~~166			~~317~~174			-			-			~~503~~340
Total current liabilities		4350,~~087~~003			1613,~~026~~969			1,~~979~~602			-			6165,~~092~~574
LONG-TERM DEBT, less current maturities		~~326~~338,~~042~~434			-			-			-			~~326~~338,~~042~~434
CAPITAL LEASE OBLIGATIONS, less current maturities		87,~~085~~987			25,~~969~~218			-			-			1113,~~054~~205
DEFERRED RENT		1214,~~263~~324			4,~~765~~612			6456			-			1718,~~092~~992
OTHER LIABILITIES		1316,~~366~~054			8,~~911~~682			-			-			2224,~~277~~736
DEFERRED INCOME TAXES		45,457			-			-			-			45,457
DUE TO PARENT		-			8079,~~421~~427			1,~~072~~864			(81,~~493~~291	)		-
EQUITY (DEFICIT):
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		4554			-			-			-			4554
Accumulated (deficit) earnings		(329,333	)		(152,969	)		491			152,478			(329,333	)
Accumulated deficit		(367,441	)		(155,371	)		(591	)		155,962			(367,441	)
Total PMCI stockholder's (deficit) investment		(178,417	)		(79,472	)		491			78,981			(178,417	)
Total Perkins & Marie Callender's Inc. stockholder's deficit		(216,516	)		(81,874	)		(591	)		82,465			(216,516	)
Non-controlling interests		-			-			~~308~~116			-			~~308~~116
Total equity (deficit)		(178,417	)		(79,472	)		799			78,981			(178,109	)
Total deficit		(216,516	)		(81,874	)		(475	)		82,465			(216,400	)
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	269,883			33,620			3,914			(2,512	)		304,905
TOTAL LIABILITIES AND DEFICIT	$	255,743			30,034			3,047			1,174			289,998

Table of Contents

Consolidating Statement of Cash Flows for the Year-to-Date Period ended July 11, 2010 (unaudited; in thousands):
Consolidating Balance Sheet as of December 27, 2009 (in thousands):
							Non-						Consolidated
	Issuer			Guarantor			Guarantors			Eliminations			PMCI
CASH FLOWS FROM OPERATING ACTIVITIES:
ASSETS
Net (loss) income	$	(25,752	)		(1	)		(528	)		529			(25,752	)
CURRENT ASSETS:
Adjustments to reconcile net (loss) income to net cash
Cash and cash equivalents	$	2,013			1,293			982			-			4,288
(used in) provided by operating activities:
Restricted cash		8,110			-			-			-			8,110
Equity in earnings (loss) of subsidiaries		529			-			-			(529	)		-
Receivables, less allowances for doubtful accounts		11,070			7,048			7			-			18,125
Depreciation and amortization		8,813			2,759			393			-			11,965
Inventories		8,038			2,793			231			-			11,062
Asset impairments		997			1,270			6			-			2,273
Prepaid expenses and other current assets		1,613			248			3			-			1,864
Amortization of debt discount		946			-			-			-			946
Total current assets		30,844			11,382			1,223			-			43,449
Other non-cash income items		(144	)		(88	)		-			-			(232	)
PROPERTY AND EQUIPMENT, net		52,217			20,530			2,472			-			75,219
Gain on disposition of assets		(121	)		(47	)		-			-			(168	)
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP		-			41			9			-			50
Equity in loss of unconsolidated partnership		-			17			-			-			17
GOODWILL		23,100			-			-			-			23,100
Net changes in operating assets and liabilities		9,348			(1,363	)		(360	)		-			7,625
INTANGIBLE ASSETS, net		146,889			124			-			-			147,013
Total adjustments		20,368			2,548			39			(529	)		22,426
INVESTMENTS IN SUBSIDIARIES		(78,981	)		-			-			78,981			-
Net cash (used in) provided by operating activities		(5,384	)		2,547			(489	)		-			(3,326	)
DUE FROM SUBSIDIARIES		81,493			-			-			(81,493	)		-
CASH FLOWS FROM INVESTING ACTIVITIES:
OTHER ASSETS		14,321			1,543			210			-			16,074
Purchases of property and equipment		(1,692	)		(795	)		(85	)		-			(2,572	)
TOTAL ASSETS	$	269,883			33,620			3,914			(2,512	)		304,905
Proceeds from sale of assets		-			5			-			-			5
LIABILITIES AND EQUITY (DEFICIT)
Net cash used in investing activities		(1,692	)		(790	)		(85	)		-			(2,567	)
CURRENT LIABILITIES:
CASH FLOWS FROM FINANCING ACTIVITIES:
Accounts payable	$	7,946			6,074			637			-			14,657
Proceeds from revolving credit facilities		17,759			-			-			-			17,759
Accrued expenses		30,628			9,635			1,342			-			41,605
Repayment of revolving credit facilities		(13,444	)		-			-			-			(13,444	)
Franchise advertising contributions		4,327			-			-			-			4,327
Repayment of capital lease obligations		(83	)		(179	)		-			-			(262	)
Current maturities of long-term debt and capital lease obligations		186			317			-			-			503
Repayment of other debt		-			(10	)		-			-			(10	)
Total current liabilities		43,087			16,026			1,979			-			61,092
Distributions to non-controlling interest holders		-			-			(175	)		-			(175	)
LONG-TERM DEBT, less current maturities		326,042			-			-			-			326,042
Intercompany financing		2,289			(2,657	)		368			-			-
CAPITAL LEASE OBLIGATIONS, less current maturities		8,085			2,969			-			-			11,054
Net cash provided by (used in) financing activities		6,521			(2,846	)		193			-			3,868
DEFERRED RENT		12,263			4,765			64			-			17,092
NET DECREASE IN CASH AND CASH EQUIVALENTS		(555)			(1,089	)		(381	)		-			(2,025	)
OTHER LIABILITIES		13,366			8,911			-			-			22,277
CASH AND CASH EQUIVALENTS:
DEFERRED INCOME TAXES		45,457			-			-			-			45,457
Balance, beginning of period		2,013			1,293			982			-			4,288
DUE TO PARENT		-			80,421			1,072			(81,493	)		-
Balance, end of period	$	1,458			204			601			-			2,263
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 July 12, 2009 (unaudited; in thousands):
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) income	$	(15,555	)		3,591			(289	)		(3,302	)		(15,555	)
Net loss	$	(38,110	)		(2,402	)		(1,084	)		3,486			(38,110	)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
(used in) provided by operating activities:
Equity in (loss) earnings of subsidiaries		(3,302	)		-			-			3,302			-
Equity in earnings of subsidiaries		3,486			-			-			(3,486	)		-
Depreciation and amortization		912,~~454~~412			3,~~130~~807			~~329~~564			-			1216,~~913~~783
Asset impairments		~~131~~727			~~214~~1,753			899			-			~~434~~2,489
Amortization of debt discount		~~829~~1,352			-			-			-			~~829~~1,352
Other non-cash income items		(~~982~~104	)		(~~1,362~~73	)		-			-			(~~2,344~~177	)
Loss on disposition of assets		~~693~~164			8194			-			-			~~774~~258
Equity in net loss of unconsolidated partnership		-			831			-			-			831
Net changes in operating assets and liabilities		~~941~~16,169			(1,~~268~~023	)		(~~166~~342	)		-			~~(493~~14,804	)
Total adjustments		734,~~764~~206			~~803~~4,589			~~252~~231			(3,~~302~~486	)		1235,~~121~~540
Net cash (used in) provided by operating activities		(73,~~791~~904	)		42,~~394~~187			(37853	)		-			(32,~~434~~570	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(2,~~126~~342	)		(1,~~628~~285	)		(~~562~~163	)		-			(43,~~316~~790	)
Proceeds from sale of assets		~~483~~1,002			75			-			-			~~490~~1,007
Net cash used in investing activities		(1,~~643~~340	)		(1,~~621~~280	)		(~~562~~163	)		-			(32,~~826~~783	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facilities		1824,~~248~~684			-			-			-			1824,~~248~~684
Repayment of revolving credit facilities		(1213,~~719~~644	)		-			-			-			(1213,~~719~~644	)
Repayment of capital lease obligations		(91118	)		(~~132~~255	)		-			-			(~~223~~373	)
Repayment of other debt		-			(1015	)		-			-			(1015	)
Debt financing costs		(142	)		-			-			-			(142	)
Distributions to non-controlling interest holders		-			-			(190	)		-			(190	)
Distributions to non-controlling interest holders		-			-			(71	)		-			(71	)
Intercompany financing		202			(994	)		792			-			-
Intercompany financing		3,701			(4,244	)		543			-			-
Net cash provided by (used in) financing activities		11,124			(1,264	)		602			-			10,462
Net cash provided by (used in) financing activities		8,997			(4,386	)		472			-			5,083
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		5,880			(357	)		(414	)		-			5,109
NET DECREASE IN CASH AND CASH EQUIVALENTS		(437	)		(1,613	)		(127	)		-			(2,177	)
CASH AND CASH EQUIVALENTS:
Balance, beginning of period		2,~~155~~013			1,~~662~~293			~~796~~982			-			4,~~613~~288
Balance, end of period	$	17,~~718~~893			49936			~~669~~568			-			29,~~436~~397

Table of Contents

(17) SUBSEQUENT EVENTS:

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	)		-			(4,837	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(2,918	)		(2,312	)		(711	)		-			(5,941	)
Proceeds from sale of assets		487			7			-			-			494
Net cash used in investing activities		(2,431	)		(2,305	)		(711	)		-			(5,447	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facilities		26,501			-			-			-			26,501
Repayment of revolving credit facilities		(16,726	)		-			-			-			(16,726	)
Repayment of capital lease obligations		(130	)		(188	)		-			-			(318	)
Repayment of other debt		-			(15	)		-			-			(15	)
Debt financing costs		(142	)		-			-			-			(142	)
Distributions to non-controlling interest holders		-			-			(104	)		-			(104	)
Intercompany financing		2,320			(3,158	)		838			-			-
Net cash provided by (used in) financing activities		11,823			(3,361	)		734			-			9,196
NET DECREASE IN CASH AND CASH EQUIVALENTS		(590	)		(301	)		(197	)		-			(1,088	)

CASH AND CASH EQUIVALENTS:
Balance, beginning of period		2,155			1,662			796			-			4,613
Balance, end of period	$	1,565			1,361			599			-			3,525

In August 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 has agreed to purchase the member’s units in P&MC’s Holding LLC, and P&MC’s Holding Corp., an indirect parent of the Company, has agreed to file for approximately $4.7 million 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.

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. was not obligated to utilize its NOLs for the benefit of the former owners of the Company’s direct parent; however, if P&MC's Holding Corp. had elected to utilize the NOLs it would have been required under the terms of the 2005 Purchase Agreement to turn over the 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 $4.7 million to the former owners.

As of the end of the second quarter of 2010, the Company and P&MC’s Holding Corp. had no intention of filing for the Refunds because they were neither required to do so nor entitled to retain the Refunds. Additionally, they had no expectation that any of the NOLs would otherwise benefit the Company. Accordingly, a full valuation allowance was recorded for these NOLs. The Company expects that the effects of the settlement and any related adjustments will be recorded in its 2010 third quarter financial statements. The settlement does not have an adverse impact on the Company’s cash flows or financial position.

Table of Contents

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

GENERAL

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

OUR COMPANY

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

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

Perkins Restaurant & Bakery

Perkins, founded in 1958, serves a variety of demographically and geographically diverse customers for a wide range of dining occasions that are appropriate for the entire family. Perkins continually adapts its menu, product offerings and building décor to meet changing consumer preferences. As of ~~July~~October 113, 2010, Perkins offered a full menu of over 90 assorted breakfast, lunch, dinner, snack and dessert items ranging in price from $3.89 to $11.99, with an average guest check of $8.9388 at our Company-operated Perkins restaurants. Perkins’ signature menu items include our omelettes, secret-recipe real buttermilk pancakes, Mammoth Muffins, the Tremendous Twelve platter, salads, melt sandwiches and Butterball® turkey entrees. Breakfast items, which are available throughout the day, account for approximately half of the entrees sold in our Perkins restaurants.

Perkins is a leading operator and franchisor of full-service family dining restaurants. As of ~~July~~October 113, 2010, we franchised 319 restaurants to 109 franchisees in 31 states and 5 Canadian provinces, and we operated ~~163~~161 restaurants. The footprint of our Company-operated Perkins restaurants extends over 13 states, with a significant number of restaurants in Minnesota and Florida. For the trailing fifty-two weeks ended ~~July~~October 113, 2010, our Company-operated Perkins restaurants generated average annual revenues of $1,~~664~~653,000 per restaurant.

Perkins’ franchised restaurants operate pursuant to license agreements generally having an initial term of 20 years and requiring both a royalty fee (4% of gross sales) and an advertising contribution (3% of gross sales). Franchisees pay a non-refundable license fee of between $25,000 and $50,000 per restaurant depending on the number of existing franchises and the level of assistance provided by us in opening each restaurant. Typically, franchisees may terminate license agreements upon a minimum of 12 months prior notice and upon payment of specified liquidated damages. Franchisees do not typically have express renewal rights.

For the quarters ended ~~July~~October 113, 2010 and ~~July~~October 124, 2009, average royalties earned per franchised Perkins restaurant were approximately $14,~~100 and $14,500, respectively~~400. The following numbers of Perkins’ license agreements have expiration dates in the following periods: 2010 —nineteen; 2011 — thirteen; 2012 — five; 2013 — eight; and 2014 — eighteen. Upon the expiration of their license agreements, franchisees typically apply for and receive new license agreements. Franchisees pay a license agreement renewal fee of $5,000 to $7,500 depending on the length of the renewal term.

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Marie Callender’s Restaurant and Bakery

Marie Callender’s is a mid-priced, casual dining concept. Founded in 1948, it has one of the longest operating histories within the full-service dining sector. Marie Callender’s is known for serving quality food in a warm, pleasant atmosphere and for its premium pies that are baked fresh daily. As of ~~July~~October 113, 2010, the Company offered a full menu of over 50 items ranging in price from $54.99 to $18.29. Marie Callender’s signature menu items include pot pies, quiches, a plentiful salad bar and Sunday brunch.

Marie Callender’s operates primarily in the western United States. As of ~~July~~October 113, 2010, we franchised 37 restaurants to 25 franchisees located in four states and Mexico, and we operated 9190 Marie Callender’s restaurants. The footprint of our Company-operated Marie Callender’s restaurants extends over nine states with 61 restaurants located in California. For the trailing fifty-two weeks ended ~~July~~October 113, 2010, our Company-operated Marie Callender’s restaurants generated average annual revenues of $21,~~000~~985,000 per restaurant.

The following table presents the concept name and number of Marie Callender’s restaurants operated by the Company and our franchisees:

	Company-
Restaurant Name	operated		Partnerships		Franchised		Total
Marie Callender's		7675		12		36		~~124~~123
Marie Callender's Grill		-		-		1		1
Callender's Grill		2		-		-		2
East Side Mario's		1		-		-		1
Total		7978		12		37		~~128~~127

The Company has an ownership interest in the 12 Marie Callender’s restaurants under partnership agreements, with a non-controlling interest in two of the partnership restaurants and a 57% to 95% ownership interest in the remaining ten locations.

Marie Callender’s franchised restaurants operate pursuant to franchise agreements generally having an initial term of 15 years and requiring both a royalty fee (normally 5% of gross sales) and, in most agreements, a specified level of marketing expenditures (currently at 1.5% of gross sales). Franchisees pay a non-refundable initial franchise fee of $25,000 and a training fee of $35,000 prior to opening a restaurant. Franchisees typically have the right to renew the franchise agreement for two terms of five years each.

For the quarters ended ~~July~~October 113, 2010 and ~~July~~October 124, 2009, average royalties earned per franchised restaurant were approximately $1917,~~200~~400 and $17,~~400~~500, respectively. The following numbers of Marie Callender’s franchise agreements have expiration dates in the following periods: 2010 — two; 2011 — one; 2012 — four; 2013— one; and 2014 — none. Upon the expiration of their franchise agreements, franchisees typically apply for and receive new franchise agreements and pay a franchise agreement renewal fee of $2,500.

Manufacturing

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

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KEY FACTORS AFFECTING OUR RESULTS

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

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

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

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

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

~~The~~In ~~latter~~comparison ~~half~~to ofthe third fiscal ~~2008,~~quarter ~~fiscal~~of 2009, comparable sales at Perkins’ Company-operated restaurants decreased by 2.8% and comparable sales at Marie Callender’s Company-operated restaurants decreased by 4.1%. The business environment since the ~~first~~second half of ~~fiscal~~2008 ~~2010~~has ~~have~~ been challenging for the family and casual dining segments of the restaurant industry due to prevailing macroeconomic factors. Largely as a result of ~~the~~a ~~ongoing~~decline ~~economic~~in ~~downturn~~guest counts, we experienced a decrease in comparable sales for both Perkins and Marie Callender’s in the quarters ended ~~July~~October 113, 2010 and ~~July~~October 124, 2009. We believe that ~~the~~ ongoing ~~uncertainty~~ uncertainties in the economy, ~~the~~and high unemployment levels, have continued ~~depressed~~to ~~residential real estate values, especially in some of our larger markets, and the level of home foreclosures has~~ adversely ~~affected~~affect our guest counts and, in turn, our operating results, ~~and~~ cash flows from operations~~. Consequently,~~ weand ~~have experienced declining profits~~profitability. IfWe ~~the~~anticipate ~~current~~that ~~economic~~these market conditions ~~persist~~will orcontinue ~~worsen,~~to affect our ~~revenues~~business as consumers are ~~likely~~expected to ~~continue~~remain tocautious ~~suffer~~in ~~and~~the ~~our~~currently ~~losses~~suppressed ~~could~~economic ~~increase~~environment.

~~In comparison to the second fiscal quarter of 2009~~OPERATIONS, ~~comparable~~FINANCIAL ~~sales~~POSITION atAND Perkins’ Company-operated restaurants decreased by 5.1% and comparable sales at Marie Callender’s Company-operated restaurants decreased by 5.6%. These declines in comparable sales resulted primarily from decreases in comparable guest counts at both concepts. Management believes the decline in comparable guest counts for both concepts is attributable primarily to changes in consumer spending habits due to continuing adverse economic conditions that are impacting the restaurant industry, especially in some of our larger markets.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.

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~~OPERATIONS~~Our operations and liquidity needs are seasonal in nature. Historically, ~~FINANCIAL~~we ~~POSITION~~have ~~AND~~generated ~~LIQUIDITY~~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 ~~principal~~ability ~~sources~~to offund ~~liquidity~~our ~~include~~operations ~~cash,~~and ~~available~~service ~~borrowings~~our ~~under~~debt ~~our~~through ~~$26~~2011will depend,~~000,000~~ ~~revolving~~in ~~credit~~large ~~facility~~part, ~~(the~~on ~~“Revolver”)~~our ~~and~~ability ~~cash~~to ~~generated~~improve byprofitability ~~operations~~and liquidity. ~~Our~~Management ~~principal~~has ~~uses~~initiated ofactions ~~liquidity~~to ~~are~~improve ~~costs~~its profitability and ~~expenses~~liquidity ~~associated~~by ~~with~~reducing ~~our~~overall ~~restaurant~~planned ~~and~~capital ~~manufacturing operations~~expenditures, ~~debt~~managing ~~service~~the timing of payments of certain operating expenses, eliminating certain employee benefits, and ~~capital~~reducing ~~expenditures~~certain general and administrative expenses. AtManagement ~~July~~has ~~11,~~recently ~~2010~~implemented advertising and promotional programs at both restaurant brands, wein ~~had~~an aeffort ~~negative~~to improve comparable restaurant sales and profitability. In addition, management is working ~~capital~~to ~~balance~~increase ofprofits ~~$20~~at Foxtail,~~684,000~~ ~~and~~by ~~total~~replacing ~~PMCI~~less ~~stockholder’s~~profitable ~~deficit~~contracts ofthat ~~$204~~were terminated in 2009,~~174,000~~ with more profitable sales contracts. ~~Furthermore~~In addition, we are carefully reviewing menu prices at ~~July~~our 11restaurants, ~~2010,~~and we ~~had~~will $2increase menu prices,~~263,000~~ inwhere ~~unrestricted~~feasible. ~~cash~~There ~~and~~can ~~$296~~be no assurance,~~000~~ ofhowever, ~~borrowing~~that ~~capacity~~such ~~under~~actions ~~our~~will ~~Revolver~~result in improved profitability and liquidity.

~~The~~In September 2010, the controlling equity holder of P&MC’s Holding LLC, our indirect parent, isfinalized ~~in the process of finalizing the terms of~~ an agreement with a third party, ~~which~~whereby ~~would be entered into by~~ the ~~Company and guaranteed by one of the equity holder’s affiliates. Under this agreement, the~~ third party ~~will~~provided ~~provide~~ a new letter of credit of approximately $8.6,635,000 ~~million~~ for the benefit of an insurance company that provides workers’ compensation insurance for the Company. The ~~Company expects the~~ new letter of credit was guaranteed by one of the equity holder’s affiliates, and the ~~related~~Company ~~guarantee~~signed an agreement to bereimburse ~~entered~~the ~~into~~affiliate byfor ~~September~~any ~~15,~~amounts ~~2010.~~paid under the guaranty. This new letter of credit ~~will~~has bebeen inrenewed ~~force~~ through December 9, ~~2010~~2011, and ~~will~~contains ~~contain~~ certain renewal provisions for extension beyond that date. Prior ~~The~~to ~~Company~~the ~~currently~~new ~~has~~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 ~~While~~ this new letter of credit agreement iswas put in place, the Company ~~will~~cancelled ~~not need to maintain~~ the existing letter of credit provided under its Revolver, ~~and~~thereby ~~will~~increasing ~~therefore~~our ~~have, under its Revolver,~~ incremental borrowing capacity ofby approximately $8~~.6 million to fund its current seasonal liquidity needs. Based on our current expectations~~, ~~we do not expect that we will need the additional liquidity support provided by the new letter of credit after its expiration date. However~~635,000 ~~prior~~ to ~~the~~fund ~~expiration, we will be reviewing~~ our liquidity ~~position with our controlling equity holder to determine if they will extend the new letter of credit~~needs.

The ~~existing~~cancelled letter of credit and the new letter of credit that ~~will~~replaced ~~replace~~ it are ~~provided to the insurance company and 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 ~~existing~~letters ~~letter~~ 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.

WeManagement ~~believe~~expects ~~that~~the initiatives discussed above combined with the ~~ongoing~~Company’s ~~weakness~~cash inprovided by operations and borrowing capacity under the ~~economy,~~Revolver ~~high~~(which ~~unemployment~~includes ~~levels,~~the ~~continued~~additional ~~depressed~~availability ~~residential~~as ~~real~~a ~~estate~~result ~~values,~~of ~~especially~~the innew ~~some~~letter of ~~our~~credit ~~larger~~agreement) ~~markets,~~to ~~and~~provide sufficient liquidity for at least the ~~level~~next oftwelve ~~home~~months. However, ~~foreclosures~~there ~~has~~can ~~adversely~~be ~~affected~~no assurance as to whether these or other actions will enable us to improve our ~~guest~~profitability ~~counts~~and liquidity in the fourth quarter and through 2011, inand ~~turn~~therefore, we may not be able to fund our ~~sales~~operations and ~~operating~~service ~~results~~our debt without accessing outside sources of additional liquidity. ~~Over~~Alternate ~~the~~sources ~~last~~of ~~three~~liquidity ~~years~~may include additional borrowings or capital contributions. However, wethe ~~have~~Company ~~experienced~~currently ~~continued~~has ~~declines~~no insuch ~~comparable~~commitments ~~restaurant~~or ~~sales~~plans, and ~~profitability~~there can be no assurance that ~~have~~the ~~adversely~~Company ~~impacted~~will ~~our~~be ~~liquidity~~able ~~position~~to access acceptable alternative financing.

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. As we increase personnel and inventories at the end of the third quarter for this seasonal activity, liquidity is normally at its lowest point. In light of this and because we have two significant interest payments due on October 1 and November 30, we intend to continue to reduce our capital expenditures and carefully manage payment of certain operating expenses in the third and fourth quarters.

Our ability to fund our operations and service our debt through 2011 and beyond will depend, in large part, on our ability to improve sales and profitability. We believe we will accomplish this improvement through the successful execution of our recently implemented advertising and promotional programs at both restaurant brands and also through our renewed focus at Foxtail to increase higher profit sales to third-party customers, replacing low profitability contracts terminated in 2009. Management expects these initiatives together 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 generate sufficient cash flow to fund our operations and service our debt.

If we are unable to finalize and enter into the agreement for the new letter of credit, there can be no assurance that we will have sufficient liquidity to enable us 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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RESULTS OF OPERATIONS

Seasonality

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

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Quarter Ended ~~July~~October 113, 2010 Compared to the Quarter Ended ~~July~~October 124, 2009

The following table reflects certain data for the quarter ended ~~July~~October 113, 2010 compared to the quarter ended ~~July~~October 124, 2009. The consolidated information is derived from the accompanying consolidated statements of operations. Data from the Company’s segments – restaurant operations, franchise operations, Foxtail and other – is included for comparison. The ratios presented reflect the underlying dollar values expressed as a percentage of the applicable revenue amount (food cost as a percentage of food sales; labor and benefits and operating expenses as a percentage of total revenues in the restaurant operations and franchise operations segments and as a percentage of food sales in the Foxtail segment). The food cost ratio in the consolidated results reflects the elimination of intersegment food cost of $43,~~289~~825,000 and $4,~~376~~057,000 in the ~~second~~third quarters of 2010 and 2009, respectively.

	Consolidated Results						Restaurant Operations						Franchise Operations
	Quarter Ended						Quarter Ended						Quarter Ended
	July 11, 2010			July 12, 2009			July 11, 2010			July 12, 2009			July 11, 2010			July 12, 2009
	October 3,			October 4,			October 3,			October 4,			October 3,			October 4,
Food sales	$	111,862			119,437			100,961			106,495			-			-
	2010			2009			2010			2009			2010			2009
Franchise and other revenue		6,580			6,815			-			-			5,288			5,305
Food sales	$	106,121			113,143			95,527			99,781			-			-
Intersegment revenue		(4,289	)		(4,376	)		-			-			-			-
Franchise and other revenue		6,404			6,384			-			-			5,243			5,259
Total revenues		114,153			121,876			100,961			106,495			5,288			5,305
Intersegment revenue		(3,825	)		(4,057	)		-			-			-			-
Food cost		25.5	%		26.3	%		25.5	%		25.2	%		-			-
Total revenues		108,700			115,470			95,527			99,781			5,243			5,259
Labor and benefits		34.0	%		33.6	%		37.1	%		36.8	%		-			-
Food cost		25.4	%		25.7	%		25.4	%		24.4	%		-			-
Operating expenses		28.5	%		26.3	%		30.4	%		28.9	%		10.4	%		8.8	%
Labor and benefits		34.5	%		34.2	%		37.8	%		37.8	%		-			-
Segment (loss) income	$	(11,153	)		(5,880	)		3,259			5,335			4,742			4,840
Operating expenses		30.0	%		28.7	%		32.4	%		31.3	%		9.9	%		9.0	%
Segment (loss) income	$	(12,349	)		(11,248	)		578			2,252			4,725			4,786
	Foxtail (a)						Other (b)
	Quarter Ended						Quarter Ended
	July 11, 2010			July 12, 2009			July 11, 2010			July 12, 2009
	October 3,			October 4,			October 3,			October 4,
Food sales	$	10,901			12,942			-			-
		2010			2009			2010			2009
Franchise and other revenue		-			-			1,292			1,510
Food sales	$	10,594			13,362			-			-
Intersegment revenue		(4,289	)		(4,376	)		-			-
Franchise and other revenue		-			-			1,161			1,125
Total revenues		6,612			8,566			1,292			1,510
Intersegment revenue		(3,825	)		(4,057	)		-			-
Food cost		55.0	%		57.6	%		-			-
Total revenues		6,769			9,305			1,161			1,125
Labor and benefits		12.2	%		13.4	%		5.2	%		4.7	%
Food cost		52.9	%		57.9	%		-			-
Operating expenses		12.1	%		10.5	%		-			-
Labor and benefits		12.8	%		12.5	%		5.8	%		6.0	%
Segment (loss) income	$	933			1,164			(20,087	)		(17,219	)
Operating expenses		10.4	%		11.4	%		-			-
Segment (loss) income	$	1,034			903			(18,686	)		(19,189	)

(a)

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

(b) Licensing revenue of $1,~~258~~115,000 and $1,~~448~~081,000 for the ~~second~~third quarters of 2010 and 2009, respectively, is included in the other segment revenues. The other segment loss includes corporate general and administrative expenses, interest expense and other non-operational expenses. For details of the other segment loss, see Note 10, “Segment Reporting” in the Notes to Consolidated Financial Statements.

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Overview

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

	Percentage of Total Revenues
	Quarter			Quarter
	Ended			Ended
	July 11, 2010			July 12, 2009
	October 3,			October 4,
Restaurant operations		88.5	%		87.4	%
	2010			2009
Franchise operations		4.6	%		4.4	%
Restaurant operations		87.9	%		86.4	%
Foxtail		5.8	%		7.0	%
Franchise operations		4.8	%		4.6	%
Other		1.1	%		1.2	%
Foxtail		6.2	%		8.1	%
Other		1.1	%		0.9	%
Total revenues		100.0	%		100.0	%

Restaurant Operations Segment

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

Total restaurant segment revenues decreased by approximately $54,~~534~~254,000 in the ~~second~~third quarter of 2010 as compared to the ~~second~~third quarter of 2009, due primarily to lower comparable restaurant sales. Comparable sales for the ~~second~~third quarter of 2010 decreased by 52.18% at Company-operated Perkins restaurants and 5by 4.61% at Company-operated Marie Callender’s restaurants. These declines in comparable sales resulted primarily from a decrease in comparable guest counts due to changes in consumer spending habits resulting from continuing ~~adverse~~ economic ~~conditions impacting the restaurant industry, especially in some of our larger markets~~uncertainties. Since the end of the ~~second~~third quarter of 2009, the Company has closed ~~one~~two Marie Callender’s ~~restaurant~~restaurants and two Perkins Restaurants.

Restaurant segment profit decreased by $21,~~076~~674,000 in the ~~second~~third quarter of 2010 compared to the ~~second~~third quarter of 2009. The decrease was primarily due to the decrease in comparable sales and higher food costs.

Franchise Operations Segment

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

Franchise revenues decreased by approximately $1716,000 in the ~~second~~third quarter of 2010 compared to the ~~second~~third quarter of 2009~~. During the second quarter of 2010~~, ~~royalty~~primarily ~~revenue decreased by $71,000~~ due to adecreases ~~decline~~ in comparable customer counts resulting from changes in consumer spending habits due to continuing adverse economic conditions impacting the restaurant industry, especially in some of our larger markets. This decrease in royalty revenues was partially offset by a $54,000 increase in franchise fees and renewal fees during the ~~second~~third quarter of 2010.

Franchise segment profit decreased by $9861,000 in the ~~second~~third quarter of 2010 compared to the prior year due primarily to the decrease in ~~royalty~~ revenues and an increase in operating expenses,. ~~which~~This ~~were partially offset by an~~ increase in ~~transfer~~operating ~~and~~expenses ~~renewal~~was ~~fees.~~driven ~~The~~by an increase in ~~franchise~~bad ~~segment~~debt ~~operating~~expense, ~~expenses~~partially ~~was~~offset ~~driven~~ by ~~the~~lower ~~cost~~store of opening support ~~for four new franchise restaurants~~expenses.

Since the end of the ~~second~~third quarter of 2009, Perkins’ franchisees have opened five restaurants and closed ~~two~~one ~~restaurants~~restaurant. Over the same time period, ~~three~~two franchised Marie Callender’s restaurants have closed.

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Foxtail Segment

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

Foxtail’s revenues, net of intercompany sales, decreased by $12,~~954~~536,000 compared to the ~~second~~third quarter of 2009 due primarily to a difference in the timing of seasonal sales to franchised Perkins and Marie Callender’s restaurants which historically have been made during the third quarter but will be made during the fourth quarter of 2010 and discontinued sales to two external customers whose purchases typically resulted in lower-than-average margins to Foxtail. The segment had aincome ~~net profit~~ of $~~933~~1,034,000 in the ~~second~~third quarter of 2010 compared to aincome of $1903,~~164,~~000 ~~net profit~~ in the ~~second~~third quarter of 2009~~. The~~ ~~discontinued~~due ~~sales~~principally ~~were~~to ~~partially offset by~~ higher sales margins and lower ~~manufacturing and~~ administrative expenses.

Revenues

Consolidated total revenues decreased by $76,~~723~~770,000 in the ~~second~~third quarter of 2010 compared to the ~~second~~third quarter of 2009. The decrease was due to decreases in sales of $54,~~534~~254,000 in the restaurant segment, decreases in franchise revenues of $1716,000 inand ~~the franchise segment,~~ a $12,~~954~~536,000 decrease in sales in the Foxtail segment. ~~and~~These decreases were partially offset by a $~~218~~36,000 ~~decrease~~increase in licensing and other revenues. Total revenues of approximately $~~114~~108,~~153~~700,000 in the ~~second~~third quarter of 2010 were 65.39% lower than total revenues of approximately $~~121~~115,~~876~~470,000 in the ~~second~~third quarter of 2009.

Restaurant segment sales of $~~100~~95,~~961~~527,000 and $~~106~~99,~~495~~781,000 in the ~~second~~third quarters of 2010 and 2009, respectively, accounted for 8887.59% and 8786.4% of total revenues, respectively. Due to the decline in total revenues, total restaurant segment sales increased as a percentage of total revenues, despite an overall 53.3% decrease in comparable sales at Company-operated Perkins and Marie Callender’s restaurants.

Franchise segment revenues of $5,~~288~~243,000 and $5,~~305~~259,000 in the ~~second~~third quarters of 2010 and 2009, respectively, accounted for 4.68% and 4.46% of total revenues, respectively. ~~During~~The $16,000 decline in revenues during the ~~second~~third quarter of 2010, ~~royalty~~was ~~revenue~~primarily ~~decreased by $71,000~~ due to a decline in ~~comparable customer counts at franchised restaurants, while~~ franchise fees and renewal fees ~~increased by $54,000~~.

Foxtail revenues, net of intercompany sales, of $6,~~612~~769,000 and $89,~~566~~305,000 in the ~~second~~third quarters of 2010 and 2009, respectively, accounted for 56.82% and 78.01% of total revenues, respectively. The decline in revenues was primarily due to a difference in the timing of seasonal sales to franchised Perkins and Marie Callender’s restaurants which historically have been made during the third quarter but will be made during the fourth quarter of 2010 and discontinued sales to two external customers, whose purchases typically resulted in lower-than-average margins to Foxtail.

Costs and Expenses

Food Cost

Consolidated food cost was 25.54% and 2625.37% of food sales in the ~~second~~third quarters of 2010 and 2009, respectively. Restaurant segment food cost was 25.54% and 2524.24% of food sales in the ~~second~~third quarters of 2010 and 2009, respectively, while food cost in the Foxtail segment was 5552.09% and 57.69% of food sales in the ~~second~~third quarters of 2010 and 2009, respectively. The increase of 01.30 percentage ~~points~~point in the restaurant segment is primarily due to higher ~~dairy~~sugar, pork, coffee, ~~and~~dairy, seafood and egg costs. The decrease of 25.60 percentage points in the Foxtail segment is primarily due to higher sales margins and improved pie manufacturing efficiencies.

Labor and Benefits Expenses

Consolidated labor and benefits expenses were 34.05% and 3334.62% of total revenues in the ~~second~~third quarters of 2010 and 2009, respectively. Restaurant segment labor and benefits, as a percentage of total revenues, ~~increased~~remained byconstant 0at 37.38% ~~percentage points~~ in the ~~second~~third quarter of 2010 ~~due primarily to the decline in revenues~~. In the Foxtail segment, labor and benefits, as a percentage of food sales, ~~decreased~~increased by 10.23 percentage points to 12.28% from 1312.45% for the ~~second~~third quarters of 2010 and 2009, respectively. This ~~decrease~~increase was due primarily to ~~improved~~the ~~production~~impact ~~efficiencies,~~of ~~which~~fixed ~~resulted~~labor inand benefit costs on a lower ~~production~~sales ~~wages~~base as labor and benefits expenses for this segment decreased by approximately $314,000 during the third quarter of 2010.

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Operating Expenses

Total operating expenses of $32,~~534~~587,000 in the ~~second~~third quarter of 2010 ~~increased~~decreased by $~~462~~596,000 as compared to the ~~second~~third quarter of 2009. The most significant components of operating expenses were rent, utilities and advertising expenses. Total operating expenses, as a percentage of total sales, were 2830.50% and 2628.37% in the ~~second~~third quarters of 2010 and 2009, respectively. Approximately 9495.30% and 9694.0% of total operating expenses in the ~~second~~third quarters of 2010 and 2009, respectively, were incurred in the restaurant segment. In the restaurant segment, operating expenses, as a percentage of total revenues, increased from 2831.93% to 3032.4% primarily due to a decline in revenues and increases in ~~rent,~~advertising ~~real~~expenses ~~estate taxes~~ and utilities. Operating expenses in the Foxtail segment ~~increased~~decreased by 1.60 percentage ~~points~~point as a percentage of Foxtail sales due primarily to the decrease in ~~food sales in the~~ Foxtail segment, ~~as operating expenses for this segment decreased by 3~~revenues.~~2% during the second quarter of 2010.~~

General and Administrative Expenses

The most significant components of general and administrative (“G&A”) expenses were corporate labor and benefits, occupancy costs, audit fees and legal fees. Consolidated G&A expenses were 98.58% and 8.39% of total revenues in the ~~second~~third quarters of 2010 and 2009, respectively. ~~The~~This ~~percentage~~decrease ~~increase~~ is primarily due to ~~decreased~~lower ~~revenues, higher~~ incentive compensation accruals and legal costs~~, which were partially offset by lower audit fees~~.

Settlement with Former Owner

In the third quarter of 2010, we expensed a $4,555,000 payment to the former owners of the Company’s direct parent as part of an agreement involving a lawsuit commenced by a member of P&MC’s Holding LLC and former owner of the direct parent of the Company. This settlement is discussed in detail in Note 13, “P&MC’s Holding LLC Equity Plan and Other Related Party Transactions” in the Notes to Consolidated Financial Statements and did not have an adverse impact on the Company’s cash flows or financial position.

Depreciation and Amortization

Depreciation and amortization expense was $54,~~059~~818,000 and $5,~~557~~498,000 in the ~~second~~third quarters of 2010 and 2009, respectively.

Interest, net

Interest, net was $10,~~299~~336,000 (9.05% of total revenues) in the ~~second~~third quarter of 2010, compared to $10,~~130~~260,000 (8.39% of total revenues) in the ~~second~~third quarter of 2009. This expense increased due to an approximate $79,~~091~~245,000 increase in the average debt outstanding during the ~~second~~third quarter of 2010 as compared to the ~~second~~third quarter of 2009.

Asset Impairments and Closed Store Expenses

Asset impairments and closed store expenses consist primarily of the write-down to fair value for impaired stores and adjustments to the reserve for closed stores. During the third quarters of 2010 and 2009, we recorded expenses of $642,000 and $187,000, respectively, for asset impairment and store closures.

During the third quarter of 2010, we closed two company-operated restaurants as a result of lease terminations. Additionally, one restaurant was closed and the location is being offered for sub-lease. The future sublease rentals are expected to exceed the future minimum rents under the building lease. Only one restaurant was closed in the prior year. The Company currently plans to close a minimum of eight restaurants over the next year as a result of lease expirations and one restaurant which the Company plans to offer for sublease. In addition, leases on five properties that are either vacant or sub-leased to third parties are scheduled to expire within the next twelve months.

Other, net

Other, net included income of $~~140~~41,000 in the ~~second~~third quarter of 2010 compared to income of $1392,~~716,~~000 in the ~~second~~third quarter of 2009. The ~~income~~decrease in ~~2009 primarily represents~~ income ~~from~~is ~~gift~~due ~~card~~primarily ~~breakage~~to ofa ~~$1,576,000,~~decrease ~~which~~in ~~represents~~investment ~~amounts~~gains ~~related~~on tothe ~~Marie Callender~~Company’s ~~gift~~deferred ~~cards~~compensation ~~sold~~plan ~~since~~and ~~the~~an ~~inception~~increase ofin ~~the~~excess ~~gift~~property ~~card program in 2005~~costs.

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Taxes

The effective income tax ~~rate~~rates for the third quarters ended ~~July~~October 113, 2010 and ~~July~~October 124, 2009 ~~was~~were 028.03% 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 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 the third quarter 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” in the Notes to Consolidated Financial Statements.

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Year-to-Date Period Ended ~~July~~October 113, 2010 Compared to the Year-to-Date Period Ended ~~July~~October 124, 2009

The following table reflects certain data for the year-to-date period ended ~~July~~October 113, 2010 compared to the year-to-date period ended ~~July~~October 124, 2009. The consolidated information is derived from the accompanying consolidated statements of operations. Data from the Company’s segments – restaurant operations, franchise operations, Foxtail and other – is included for comparison. The ratios presented reflect the underlying dollar values expressed as a percentage of the applicable revenue amount (food cost as a percentage of food sales; labor and benefits and operating expenses as a percentage of total revenues in the restaurant operations and franchise operations segments and as a percentage of food sales in the Foxtail segment). The food cost ratio in the consolidated results reflects the elimination of intersegment food cost of $1013,~~044~~869,000 and $1014,~~289~~345,000 in the year-to-date periods of 2010 and 2009, respectively.

	Consolidated Results						Restaurant Operations						Franchise Operations
	Year-to-Date Ended						Year-to-Date Ended						Year-to-Date Ended
	July 11, 2010			July 12, 2009			July 11, 2010			July 12, 2009			July 11, 2010			July 12, 2009
	October 3,			October 4,			October 3,			October 4,			October 3,			October 4,
Food sales	$	264,931			286,227			240,566			255,723			-			-
	2010			2009			2010			2009			2010			2009
Franchise and other revenue		15,071			15,191			-			-			11,959			12,249
Food sales	$	371,053			399,369			336,093			355,501			-			-
Intersegment revenue		(10,044	)		(10,289	)		-			-			-			-
Franchise and other revenue		21,474			21,575			-			-			17,202			17,507
Total revenues		269,958			291,129			240,566			255,723			11,959			12,249
Intersegment revenue		(13,869	)		(14,345	)		-			-			-			-
Food cost		25.4	%		26.6	%		25.6	%		25.7	%		-			-
Total revenues		378,658			406,599			336,093			355,501			17,202			17,507
Labor and benefits		34.2	%		33.1	%		36.9	%		36.0	%		-			-
Food cost		25.4	%		26.3	%		25.5	%		25.3	%		-			-
Operating expenses		28.3	%		26.7	%		30.0	%		28.8	%		9.1	%		8.0	%
Labor and benefits		34.3	%		33.4	%		37.2	%		36.5	%		-			-
Segment (loss) income	$	(25,759	)		(15,634	)		8,829			14,411			10,867			11,269
Operating expenses		28.7	%		27.3	%		30.7	%		29.5	%		9.4	%		8.3	%
Segment (loss) income	$	(38,108	)		(26,882	)		9,406			16,664			15,592			16,055
	Foxtail (a)						Other (b)
	Year-to-Date Ended						Year-to-Date Ended
	July 11, 2010			July 12, 2009			July 11, 2010			July 12, 2009
	October 3,			October 4,			October 3,			October 4,
Food sales	$	24,366			30,504			-			-
		2010			2009			2010			2009
Franchise and other revenue		-			-			3,111			2,942
Food sales	$	34,961			43,868			-			-
Intersegment revenue		(10,044	)		(10,289	)		-			-
Franchise and other revenue		-			-			4,271			4,068
Total revenues		14,322			20,215			3,111			2,942
Intersegment revenue		(13,869	)		(14,345	)		-			-
Food cost		54.2	%		58.8	%		-			-
Total revenues		21,092			29,523			4,271			4,068
Labor and benefits		13.2	%		13.4	%		5.4	%		5.9	%
Food cost		53.8	%		58.5	%		-			-
Operating expenses		12.2	%		10.0	%		-			-
Labor and benefits		13.1	%		13.1	%		5.5	%		5.9	%
Segment (loss) income	$	1,574			1,323			(47,029	)		(42,637	)
Operating expenses		11.7	%		10.4	%		-			-
Segment (loss) income	$	2,608			2,226			(65,714	)		(61,827	)

(a)

(b) Licensing revenue of $24,~~990~~105,000 and $23,~~808~~889,000 for the year-to-date periods of 2010 and 2009, respectively, is included in the other segment revenues. The other segment loss includes corporate general and administrative expenses, interest expense and other non-operational expenses. For details of the other segment loss, see Note 10, “Segment Reporting” in the Notes to Consolidated Financial Statements.

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Overview

	Percentage of Total Revenues
	Year-to-Date			Year-to-Date
	Ended			Ended
	July 11, 2010			July 12, 2009
	October 3,			October 4,
Restaurant operations		89.1	%		87.8	%
	2010			2009
Franchise operations		4.4	%		4.2	%
Restaurant operations		88.8	%		87.4	%
Foxtail		5.3	%		7.0	%
Franchise operations		4.5	%		4.3	%
Other		1.2	%		1.0	%
Foxtail		5.6	%		7.3	%
Other		1.1	%		1.0	%
Total revenues		100.0	%		100.0	%

Restaurant Operations Segment

~~The~~Total ~~operating~~restaurant ~~results~~segment ofrevenues decreased by approximately $19,408,000 in the ~~restaurant~~year-to-date ~~segment~~period ~~are~~ended ~~impacted~~October ~~mainly~~3, by2010 as compared to the ~~following~~year-to-date ~~factors:~~period ~~general~~ended ~~economic~~October ~~conditions~~4, ~~competition~~2009, ~~our~~due primarily to lower comparable ~~store~~restaurant sales,. Comparable ~~which~~sales ~~are~~for ~~driven~~the year-to-date period of 2010 decreased by ~~our~~4.7% ~~comparable~~at ~~customer~~Company-operated ~~counts~~Perkins restaurants and ~~our~~by ~~guest~~6.5% ~~check~~at ~~average,~~Company-operated ~~restaurant~~Marie ~~openings~~Callender’s ~~and~~restaurants. ~~closings,~~These ~~commodity~~declines ~~prices,~~in ~~energy~~comparable ~~prices,~~sales ~~our~~resulted ~~ability~~primarily from a decrease in comparable guest counts due to ~~manage~~changes ~~operating~~in ~~expenses~~consumer ~~such~~spending ashabits ~~food~~resulting ~~cost~~from ~~and~~continuing ~~labor~~economic ~~and~~uncertainties. Since ~~benefits~~the end of the third quarter of 2009, ~~weather~~the Company has closed two Marie Callender’s restaurants and ~~governmental~~two ~~legislation~~Perkins Restaurants.

~~Total~~Restaurant ~~restaurant~~ segment ~~revenues~~profit decreased by ~~approximately~~ $157,~~157~~258,000 in the year-to-date period ~~ended~~of ~~July 11,~~ 2010 as compared to ~~the~~a year~~-to-date~~ ~~period ended July 12, 2009, due primarily to lower comparable restaurant sales~~ago. ~~Comparable~~The ~~sales~~decrease ~~for~~was ~~the year-to-date period of 2010 decreased by 5.5% at Company-operated Perkins restaurants and 7.4% at Company-operated Marie Callender’s restaurants. These declines in comparable sales resulted~~ primarily ~~from a decrease in comparable guest counts~~ due to ~~changes in consumer spending habits resulting from continuing adverse economic conditions impacting~~ the ~~restaurant~~decrease ~~industry, especially~~ in ~~some~~comparable ~~of our larger markets~~sales. ~~Since the end of the second quarter of 2009, the Company has closed one Marie Callender’s restaurant.~~

Restaurant segment profit decreased by $5,582,000 in the year-to-date period of 2010 compared to a year ago. The decrease was primarily due to the decrease in comparable sales.

Franchise Operations Segment

~~The~~Franchise ~~operating~~revenues ~~results~~decreased ofapproximately ~~franchise~~$305,000 ~~operations~~in ~~are~~the ~~mainly~~year-to-date ~~impacted~~period byof 2010 compared to the same ~~factors~~period asin ~~those~~the ~~impacting~~prior year. During the ~~Company’s~~year-to-date ~~restaurant~~period ~~segment~~ended October 3, ~~excluding~~2010, ~~the~~royalty ~~operating~~revenue ~~cost~~decreased ~~factors~~by ~~since~~$396,000 ~~franchise~~due ~~segment~~to ~~profit~~a isdecline ~~earned~~in ~~primarily~~comparable ~~through~~customer counts resulting from changes in consumer spending habits due to continuing economic uncertainties. This decrease in royalty ~~income~~revenues was partially offset by a $91,000 increase in franchise fees and renewal fees.

Franchise ~~revenues~~segment profit decreased ~~approximately~~by $~~290~~463,000 in the year-to-date period of 2010 compared to the ~~same period in the~~ prior year. ~~During~~due ~~the~~primarily ~~year-~~to~~-date~~ ~~period~~the ~~ended~~decrease ~~July~~in ~~11, 2010,~~ royalty ~~revenue~~revenues ~~decreased~~and byan ~~$398,000~~increase ~~due~~in tooperating aexpenses, ~~decline~~which inwere ~~comparable~~partially ~~customer~~offset ~~counts~~by ~~resulting~~an ~~from~~increase ~~changes~~ in ~~consumer~~transfer ~~spending~~and ~~habits~~renewal ~~due~~fees. toThe ~~continuing~~increase ~~adverse economic conditions impacting the restaurant industry, especially~~ in ~~some~~franchise ofsegment ~~our~~operating ~~larger~~expenses ~~markets. This decrease in royalty revenues~~ was ~~partially~~driven ~~offset~~ by athe ~~$108,000~~cost ~~increase~~of inopening ~~franchise~~support ~~fees~~for ~~and~~five ~~renewal~~new ~~fees~~franchise restaurants.

~~Franchise~~Since ~~segment profit decreased by $402,000 in~~ the ~~year-to-date~~end ~~period~~ of ~~2010 compared to~~ the ~~prior~~third ~~year~~quarter ~~due~~of ~~primarily to the decrease in royalty revenues and an increase in operating expenses~~2009, ~~which~~Perkins’ ~~were~~franchisees ~~partially~~have ~~offset~~opened byfive anrestaurants ~~increase in transfer~~ and ~~renewal~~closed ~~fees~~one restaurant. Over ~~The increase in franchise segment operating expenses was driven by~~ the ~~cost~~same oftime ~~opening~~period, ~~support~~two ~~for~~franchised ~~five~~Marie ~~new~~Callender’s ~~franchise~~ restaurants have closed.

~~Since~~Foxtail the end of the second quarter of 2009, Perkins’ franchisees have opened five restaurants and closed two restaurants. Over the same time period, three franchised Marie Callender’s restaurants have closed.Segment

Foxtail’s revenues, net of intercompany sales, decreased by $8,431,000 compared to the year-to-date period of 2009 due primarily to discontinued sales to two external customers, whose purchases typically resulted in lower-than-average margins to Foxtail. The segment had income of $2,608,000 in 2010 compared to income of $2,226,000 in 2009. The increase in segment profit resulted primarily from higher sales margins and lower administrative costs.

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Foxtail Segment

Foxtail’s revenues, net of intercompany sales, decreased by $5,893,000 compared to the year-to-date period of 2009 due primarily to discontinued sales to two external customers, whose purchases typically resulted in lower-than-average margins to Foxtail. The segment had a net profit of $1,574,000 in 2010 compared to a $1,323,000 net profit in 2009. The improvement resulted primarily from higher sales margins and lower manufacturing and administrative expenses, which offset lower external sales.

Revenues

Consolidated total revenues decreased by $2127,~~171~~941,000 in the year-to-date period ended ~~July~~October 113, 2010 compared to the year-to-date period ended ~~July~~October 124, 2009. The decrease was due to decreases in sales of $1519,~~157~~408,000 in the restaurant segment, decreases in franchise revenues of $~~290~~305,000 in the franchise segment and aan $58,~~893~~431,000 decrease in sales in the Foxtail segment. These decreases were partially offset by a $~~169~~203,000 increase in licensing and other revenues. Total revenues of approximately $~~269~~378,~~958~~658,000 in the year-to-date period of 2010 were 76.39% lower than total revenues of approximately $~~291~~406,~~129~~599,000 in the year-to-date period of 2009.

Restaurant segment sales of $~~240~~336,~~566~~093,000 and $~~255~~355,~~723~~501,000 in the year-to-date periods of 2010 and 2009, respectively, accounted for 8988.18% and 87.84% of total revenues, respectively. Due to the decline in total revenues, total restaurant segment sales increased as a percentage of total revenues, despite an overall 65.24% decrease in comparable sales at Company-operated Perkins and Marie Callender’s restaurants.

Franchise segment revenues of $1117,~~959~~202,000 and $1217,~~249~~507,000 in the year-to-date periods of 2010 and 2009, respectively, accounted for 4.45% and 4.23% of total revenues, respectively. During the year-to-date period of 2010, royalty revenue decreased by $~~398~~396,000 due to a decline in comparable customer counts at franchised restaurants, while franchise fees and renewal fees increased by $~~108~~91,000.

Foxtail revenues, net of intercompany sales, of $1421,~~322~~092,000 and $2029,~~215~~523,000 in 2010 and 2009, respectively, accounted for 5.36% and 7.03% of total revenues, respectively. The decline in revenues was primarily due to discontinued sales to two external customers, whose purchases typically resulted in lower-than-average margins to Foxtail.

Costs and Expenses

Food Cost

Consolidated food cost was 25.4% and 26.63% of food sales in the year-to-date periods of 2010 and 2009, respectively. Restaurant segment food cost was 25.65% and 25.73% of food sales in the year-to-date periods of 2010 and 2009, respectively, while food cost in the Foxtail segment was 5453.28% and 58.85% of food sales in the year-to-date periods of 2010 and 2009, respectively. The decrease of 4.67 percentage points in the Foxtail segment is primarily due to higher sales margins and improved pie manufacturing efficiencies.

Labor and Benefits Expenses

Consolidated labor and benefits expenses were 34.23% and 33.14% of total revenues in the year-to-date periods of 2010 and 2009, respectively. Restaurant segment labor and benefits, as a percentage of total revenues, increased by 0.97 percentage points in 2010 due primarily to the decline in revenues. Actual labor and benefits costs dropped by approximately $34,~~100~~773,000. In the Foxtail segment, labor and benefits, as a percentage of food sales, ~~decreased~~remained ~~slightly~~constant toat 13.21% ~~from 13.4%~~ for the year-to-date periods of 2010 and 2009, respectively.

Operating Expenses

Total operating expenses of $108,856,000 in the year-to-date period of 2010 decreased by $2,100,000 as compared to the year-to-date period 2009. The most significant components of operating expenses were rent, utilities and advertising expenses. Total operating expenses, as a percentage of total sales, were 28.7% and 27.3% in the year-to-date periods of 2010 and 2009, respectively. Approximately 94.8% and 94.6% of total operating expenses in the year-to-date periods of 2010 and 2009, respectively, were incurred in the restaurant segment. In the restaurant segment, operating expenses, as a percentage of total revenues, increased from 29.5% to 30.7% primarily due to the drop in sales combined with increases in real estate taxes and common area maintenance costs. Operating expenses in the Foxtail segment increased by 1.3 percentage points in 2010 as a percentage of Foxtail sales due primarily to the decrease in Foxtail segment revenues, as operating expenses for this segment decreased by 10.9% in 2010.

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Operating Expenses

Total operating expenses of $76,269,000 in the year-to-date period of 2010 decreased by $1,504,000 as compared to the year-to-date period 2009. The most significant components of operating expenses were rent, utilities and advertising expenses. Total operating expenses, as a percentage of total sales, were 28.3% and 26.7% in the year-to-date periods of 2010 and 2009, respectively. Approximately 94.7% and 94.8% of total operating expenses in the year-to-date periods of 2010 and 2009, respectively, were incurred in the restaurant segment. In the restaurant segment, operating expenses, as a percentage of total revenues, increased from 28.8% to30.0% primarily due to the drop in sales combined with increases in real estate taxes and common area maintenance costs. Operating expenses in the Foxtail segment increased by 2.2 percentage points as a percentage of Foxtail sales due primarily to the decrease in food sales in the Foxtail segment, as operating expenses for this segment decreased by 2.2% during the year-to-date period of 2010.

General and Administrative Expenses

The most significant components of general and administrative (“G&A”) expenses were corporate labor and benefits, occupancy costs, audit fees and legal fees. Consolidated G&A expenses were 9.21% and 8.35% of total revenues in the year-to-date periods of 2010 and 2009, respectively. ~~The~~ ~~percentage~~This increase of 0.6 percentage points in 2010 is primarily due to the ~~drop~~decrease in ~~consolidated total~~ revenues, ~~and~~as ~~higher~~G&A ~~incentive~~expenses ~~compensation~~decreased ~~accruals~~by ~~and legal costs~~$75,000 ~~partially offset by lower audit fees~~year-over-year.

Settlement with Former Owner

In 2010, we expensed a $4,555,000 payment to the former owners of the Company’s direct parent as part of an agreement involving a lawsuit commenced by a member of P&MC’s Holding LLC and former owner of the direct parent of the Company. This settlement is discussed in detail in Note 13, “P&MC’s Holding LLC Equity Plan and Other Related Party Transactions” in the Notes to Consolidated Financial Statements and did not have an adverse impact on the Company’s cash flows or financial position.

Depreciation and Amortization

Depreciation and amortization expense was $1116,~~965~~783,000 and $1218,~~913~~411,000 in the year-to-date periods of 2010 and 2009, respectively.

Interest, net

Interest, net was $2334,~~864~~200,000 (89.80% of total revenues) in the year-to-date period of 2010, compared to $2334,~~745~~005,000 (8.24% of total revenues) in the year-to-date period of 2009. This expense increased due primarily to an approximate $67,~~152~~080,000 increase in the average debt outstanding.

Asset Impairments and Closed Store Expenses

Asset impairments and closed store expenses consist primarily of the write-down to fair value for impaired stores and adjustments to the reserve for closed stores. During the year-to-date periods of 2010 and 2009, we recorded expenses of $2,747,000 and $1,395,000, respectively, for asset impairment and store closures.

During 2010, we closed three company-operated restaurants as a result of lease terminations. Additionally, one restaurant was closed and the location is being offered for sub-lease. The future sublease rentals are expected to exceed the future minimum rents under the building lease. Only two restaurants were closed in the prior year. The Company currently plans to close a minimum of eight restaurants over the next year as a result of lease expirations and one restaurant which the Company plans to offer for sublease. In addition, leases on five properties that are either vacant or sub-leased to third parties are scheduled to expire within the next twelve months.

Other, net

Other, net was net income of $~~358~~399,000 in 2010 compared to income of $23,~~677~~069,000 in 2009. The income in 2009 primarily represents cumulative gift card breakage at Marie Callender’s of $1,576,000, which was recognized during the second quarter of 2009, and cumulative gift card breakage at Perkins of $865,000, which was recognized during the first quarter of 2009. Both gift card programs commenced in 2005.

Taxes

The effective income tax ~~rate~~rates for the fiscal year-to-date periods ended ~~July~~October 113, 2010 and ~~July~~October 124, 2009 ~~was~~were 011.4% and (0.5)% 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 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 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 year-to-date period 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” in the Notes to Consolidated Financial Statements.

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CAPITAL RESOURCES AND LIQUIDITY

Our principal liquidity requirements are to service our debt and meet our working capital and capital expenditure needs. At ~~July~~October 113, 2010, we had $29,~~263~~397,000 in unrestricted cash and cash equivalents and $~~296~~2,206,000 of borrowing capacity under our Revolver.

Secured Notes and 10% Senior Notes

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

The 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 shall constitute an event of default under the Secured Notes indenture.

Revolver

Amounts outstanding under the Revolver bear interest, at the Company’s option, at a rate per annum equal to either: (i) the base rate, as defined in the Revolver, plus an applicable margin or (ii) a LIBOR-based equivalent, plus an applicable margin. For the foreseeable future, 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 ~~July~~October 113, 2010, the average annual interest rate on aggregate borrowings under the Revolver was 7.89%, and the Revolver permitted additional borrowings of approximately $~~296~~2,206,000 (after giving effect to $1522,~~485~~210,000 in borrowings and $101,~~219~~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 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.

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 July 11, 2010, we were in compliance with the covenants contained in our debt agreements.

Working Capital and Cash Flows

At July 11, 2010, we had a negative working capital balance of $20,684,000. Like many other restaurant companies, the Company is able to, and does more often than not, operate with negative working capital. We are able to operate with a substantial working capital deficit because (1) restaurant revenues are received primarily on a cash or near-cash basis with a low level of accounts receivable, (2) rapid turnover results in a limited investment in inventories and (3) accounts payable for food and beverages usually become due after the receipt of cash from the related sales.

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~~The~~Our ~~following~~debt ~~table~~agreements ~~sets~~place ~~forth~~restrictions ~~summary~~on ~~cash~~the ~~flow~~Company’s ~~data~~ability ~~for~~and the ~~year-~~ability of its subsidiaries to~~-date~~: ~~periods~~(i) ~~ended~~incur ~~July~~additional 11indebtedness or issue certain preferred stock; (ii) repay certain indebtedness prior to stated maturities; (iii) pay dividends or make other distributions on, ~~2010~~redeem ~~and~~or ~~July~~repurchase 12capital 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, ~~2009~~sell or consummate a merger or consolidation of all, or substantially all, of the Company's assets; (inviii) ~~thousands~~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.

	Year-to-Date Ended July 11, 2010			Year-to-Date Ended July 12, 2009
Cash flows used in operating activities	$	(3,326	)		(3,434	)
Cash flows used in investing activities		(2,567	)		(3,826	)
Cash flows provided by financing activities		3,868			5,083

Guaranteed Letter of Credit

On September 10, 2010, the Company’s letter of credit amounting to $8,635,000 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 that is 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 will contain certain renewal provisions for extension beyond that date.

The new letter of credit may only be drawn upon if the Company fails to pay its workers’ compensation claims in the ordinary course of business. The cancelled letter of credit had the same draw-down condition. In the event the Company fails to make such payments 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. 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.

See Note 4, “Operations, Financial Condition and Liquidity,” in the Notes to Consolidated Financial Statements for additional information concerning the Guaranteed Letter of Credit.

Working Capital and Cash Flows

At October 3, 2010, we had a negative working capital balance of $19,851,000. Like many other restaurant companies, the Company is able to, and does more often than not, operate with negative working capital. We are able to operate with a substantial working capital deficit because (1) restaurant revenues are received primarily on a cash or near-cash basis with a low level of accounts receivable, (2) rapid turnover results in a limited investment in inventories and (3) accounts payable for food and beverages usually become due after the receipt of cash from the related sales.

The following table sets forth summary cash flow data for the year-to-date periods ended October 3, 2010 and October 4, 2009 (in thousands):

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

Cash flows used in operating activities		$	(2,570	)		(4,837	)
Cash flows used in investing activities			(2,783	)		(5,447	)
Cash flows provided by financing activities			10,462			9,196

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Operating Activities

Cash flows used in operating activities decreased by $~~108~~2,267,000 for the year-to-date period ended ~~July~~October 113, 2010 compared to the year-to-date period ended ~~July~~October 124, 2009., Adue primarily to a larger net operating loss ~~was~~and ~~almost~~larger ~~fully~~increases in inventory balances, which were offset by anincreases in accounts payable and accrued expenses. The increase in ~~non-cash~~accrued expenses ~~and~~is related to the liability resulting from an agreement involving a ~~larger~~lawsuit ~~increase~~with a member of P&MC’s Holding LLC and former owner of the direct parent of the Company. This settlement is discussed in ~~accounts~~more ~~payable~~detail in Note 13, “P&MC’s Holding LLC Equity Plan and ~~accrued~~Other ~~expenses~~Related Party Transactions” in the Notes to Consolidated Financial Statements.

Investing Activities

Cash flows used in investing activities for the year-to-date period ended ~~July~~October 113, 2010 were $2,~~567~~783,000 compared to $35,~~826~~447,000 for the year-to-date period ended ~~July~~October 124, 2009. Substantially all cash flows used in investing activities were used for capital expenditures.

Capital expenditures consisted primarily of restaurant improvements, restaurant remodels and manufacturing plant improvements. The following table summarizes capital expenditures for each year-to-date period presented (in thousands):

		Year-to-Date Ended July 11, 2010			Year-to-Date Ended July 12, 2009
	Year-to-Date			Year-to-Date
	Ended			Ended
	October 3,			October 4,
	2010			2009
New restaurants		$	-			156
Restaurant improvements			12,~~766~~873			23,~~261~~559
Restaurant remodeling and reimaging			~~304~~332			1,~~084~~227
Manufacturing plant improvements			~~268~~306			~~440~~560
Other			~~234~~279			~~375~~439
Total capital expenditures		$	23,~~572~~790			45,~~316~~941

Our capital expenditure forecast for the full year of 2010 is approximately $4,200,000 and does not include plans to open any new Company-operated Perkins or Marie Callender’s restaurants. The principal source of funding for 2010’s capital expenditures is expected to be cash provided by operations and borrowings under our Revolver.

Financing Activities

Cash flows provided by financing activities for the year-to-date period ended ~~July~~October 113, 2010 were $310,~~868~~462,000 compared to cash flows provided by financing activities of $59,~~083~~196,000 for the year-to-date period ended ~~July~~October 124, 2009. The primary cash flows for financing activities in the year-to-date periods of 2010 and 2009 represent net borrowings onunder the ~~Company’s~~ Revolver.

IMPACT OF INFLATION

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

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CASH CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

Cash Contractual Obligations

Our cash contractual obligations presented in the Company’s 2009 Form 10-K/A have not changed materially during the year-to-date period ended ~~July~~October 113, 2010.

RECENT ACCOUNTING PRONOUNCEMENTS

Information regarding new accounting pronouncements is included in Note 14 of the Notes to Consolidated Financial Statements.

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INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

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

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

• macroeconomic conditions, consumer preferences and demographic patterns, ~~either~~both nationally orand in particular regions in which we operate;

•

our substantial indebtedness;

•

our liquidity and capital resources;

•

competitive pressures and trends in the restaurant industry;

•

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

•

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

•

our ability to successfully implement our business strategy;

•

relationships with franchisees and the financial health of franchisees;

•

legal proceedings and regulatory matters; and

•

our development and expansion plans.

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rate Risk

Our primary market risk is interest rate exposure with respect to our floating rate debt. As of ~~July~~October 113, 2010, our Revolver permitted additional borrowings of approximately $~~296~~2,206,000 (after giving effect to $1522,~~485~~210,000 in borrowings and $101,~~219~~584,000 in letters of credit outstanding). Borrowings under the Revolver are subject to variable interest rates. A 100 basis point change in interest rates (assuming $26,000,000 was outstanding under the Revolver) would impact us by approximately $260,000. In the future, we may decide to employ a hedging strategy through derivative financial instruments to reduce the impact of adverse changes in interest rates. We do not plan to hold or issue derivative instruments for trading purposes.

Foreign Currency Exchange Rate Risk

We conduct foreign operations in Canada and Mexico. As a result, we are subject to risk from changes in foreign exchange rates. These changes result in cumulative translation adjustments, which are included in accumulated and other comprehensive income (loss). As of ~~July~~October 113, 2010, we do not consider the potential loss resulting from a hypothetical 10% adverse change in quoted foreign currency exchange rates to be material.

Commodity Price Risk

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

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. We have established disclosure controls and procedures to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within time periods specified in the Securities and Exchange Commission rules and forms and that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to the officers who certify our financial reports and to other members of senior management and the board of directors to allow timely decisions regarding required disclosure.

In connection with the restatement of our prior financial results, which is more fully described in Note 19 to our Consolidated Financial Statements in our Form 10-K/A filed on June 7, 2010, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we reevaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) ~~as of July 11, 2010~~. Based upon that reevaluation and ~~particularly~~ in light of the restatement of our financial results, we identified a material weakness in our internal control over financial reporting with respect to the determination and review of differences between the income tax bases and financial reporting bases of certain assets and liabilities. Solely as a result of this material weakness, we concluded that our disclosure controls and procedures were not effective ~~as of July 11, 2010~~.

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We have implemented improvements in our internal control over financial reporting to address the material weakness in accounting for income taxes. These improvements include, among other things, improved documentation and analysis regarding the determination and periodic review of deferred income tax amounts and enhancing the documentation around conclusions reached in the implementation of the applicable generally accepted accounting principles. We ~~plan~~are toin ~~test~~the process of testing the effectiveness of these improvements in our internal control over financial reporting ~~during~~and ~~the~~plan ~~remainder of~~to ~~2010,~~complete ~~depending~~such onevaluation by the ~~frequency~~end ~~or occurrence~~ of the ~~revised~~current ~~controls~~fiscal year.

Changes in Internal Control over Financial Reporting. Other than those related to accounting for income taxes, there have not been any changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)) that occurred during the ~~second~~third fiscal quarter of 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings

As reported in the Company’s Form 10-K for the fiscal year ended December 27, 2009, we are party to various legal proceedings in the ordinary course of business. There have been no material developments with regard to these proceedings, either individually or in the aggregate, that are likely to have a material adverse effect on the Company’s financial position or results of operations.

ITEM 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Form 10-K for the fiscal year ended December 27, 2009, which could materially affect our business, financial condition or future results. The risks described in this report and in our Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

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

None.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Removed and Reserved

ITEM 5. Other Information

None.

ITEM 6. Exhibits

31.1	Chief Executive Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 302.
31.2	Chief Financial Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 302.
32.1	Chief Executive Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 906.
32.2	Chief Financial Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 906.

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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.

	PERKINS & MARIE CALLENDER’S INC.
DATE: August 30, 2010	BY: /s/ Fred T. Grant, Jr.
DATE: November 17, 2010	BY: /s/ Fred T. Grant, Jr.
	Fred T. Grant, Jr.
	Chief Financial Officer

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