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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]         Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 30, 2003.

or

[_]         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 0-25721.

BUCA, Inc.

(Exact name of registrant as specified in its Charter)

1300 Nicollet Mall

Minneapolis, Minnesota 55403

(Address of principal executive offices) (Zip Code)

(612) 288-2382

(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   X       No       

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2). Yes   X       No       

Indicate the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date: Common stock, $.01 par value, 16,691,640 shares outstanding as of May 2, 2003.

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INDEX

BUCA, INC. AND SUBSIDIARIES

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PART 1. — FINANCIAL INFORMATION

Item 1.     Financial Statements

BUCA, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited, in thousands, except share and per share data)

See notes to consolidated financial statements.

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BUCA, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited, in thousands, except share and per share data)

See notes to consolidated financial statements.

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BUCA, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited, in thousands)

See notes to consolidated financial statements.

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BUCA, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

BUCA, Inc. and Subsidiaries (“we”, “us”, or “our”) develop, own and operate Southern Italian restaurants under the names Buca di Beppo and Vinny T’s of Boston. At March 30, 2003, we had 97 restaurants located in 28 states and the District of Columbia.

The accompanying financial statements have been prepared by us without audit and reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of financial position and the results of operations for the interim periods. The statements have been prepared in accordance with accounting principles generally accepted in the United States of America (generally accepted accounting principles) and with the regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such SEC rules and regulations. Operating results for the thirteen weeks ended March 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 28, 2003.

The balance sheet at December 29, 2002 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and notes for the fiscal year ended December 29, 2002 included in our Annual Report on Form 10-K.

Basic income per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted income per share assumes the exercise of stock options using the treasury stock method, if dilutive. The following table sets forth the calculation of basic and diluted net income per common share (in thousands, except share and per share data):

We have chosen to continue to account for stock-based compensation using the intrinsic value prescribed by Accounting Principles Board Option No. 25 and related interpretations. No compensation cost has been recognized for options issued to employees under the plans when the exercise price of the options granted are at least equal to the fair value of the common stock on the date of grant. Had compensation costs for our Employee Stock Purchase Plan, 1996 Stock Incentive Plan and 2000 Stock Incentive Plan been determined consistent with Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” our

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net income would have been decreased to the following pro-forma amounts as follows (in thousands, except for per share data):

In June 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires a liability for costs associated with an exit or disposal activity to be recognized when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. This standard did not have any impact on our financial statements.

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (Interpretation No. 45). Interpretation No. 45 clarifies the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. Interpretation No. 45 also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing certain types of guarantees. The disclosure requirements in Interpretation No. 45 are effective for interim or annual financial statements statement periods ended after December 15, 2002. The adoption of Interpretation No. 45 did not have an impact on our results of operations or financial position.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” SFAS No. 148 amends FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to SFAS No. 123’s fair value method of accounting for stock-based employee compensation. Statement 148 also amends the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, “Interim Financial Reporting,” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. As allowed by SFAS No. 123, we have elected to continue to utilize the accounting method prescribed by APB Opinion No. 25 and have adopted the disclosure requirements of SFAS No. 123. Disclosures required under SFAS No. 148 and No. 123 are provided in Note 3 to our consolidated financial statements.

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

At March 30, 2003, we owned and operated 88 Buca di Beppo and nine Vinny T’s of Boston restaurants. Our Buca di Beppo restaurants are full service, primarily dinner only restaurants that offer high quality, immigrant Southern Italian cuisine served family-style in a fun and energetic atmosphere that parodies the decor and ambiance of post-War Italian/American restaurants. Our Vinny T’s of Boston restaurants serve individual and family-style portions for both lunch and dinner. The Vinny T’s of Boston restaurants are based upon

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re-creations of the neighborhood Italian eateries prominent in the neighborhoods of lower Manhattan, Brooklyn, north-end Boston and South Philadelphia in the 1940’s.

Since 1996, we have pursued a rapid but disciplined expansion strategy, opening two restaurants in 1996, five in 1997, eight in 1998, 15 in 1999, 17 in each of 2000 and 2001, and 14 in 2002. In January 2002, we acquired the assets of nine Vinny T’s of Boston restaurants. We intend to open 13 new Buca di Beppo restaurants and one new Vinny T’s of Boston restaurant in fiscal 2003. Through May 7, 2003, we have opened nine new Buca di Beppo restaurants. Of the remaining five locations, all have leases signed and are under construction.

In an effort to continue attracting smaller parties at our Buca di Beppo restaurants, we have introduced a BUCA Dinner for Two menu category. Our BUCA Dinner for Two menu category pairs a salad, two pasta selections, and reduced portions of an entrée item for a complete meal, allowing smaller groups of diners to enjoy a wider selection of our food each time they visit.

We implemented a price increase of approximately 1.5% at our Buca di Beppo restaurants on the first day of fiscal 2003 and a price increase of approximately 2.5% at our Vinny T’s of Boston restaurants at the beginning of March 2003.

Our restaurant sales are comprised of the sale of food, beverage and retail items. Our calculation of comparable restaurant sales includes restaurants open for 18 full calendar months. Product costs include the costs of food and beverages. Labor costs include direct hourly and management wages, bonuses, taxes and benefits for restaurant employees. Direct and occupancy costs include restaurant supplies, marketing costs, rent, utilities, real estate taxes, repairs and maintenance and other related costs. Depreciation and amortization principally includes depreciation on capital expenditures for restaurants. General and administrative expenses are composed of expenses associated with all corporate and administrative functions that support existing operations, management and staff salaries, employee benefits, travel, information systems and training and market research. Pre-opening costs consist of direct costs related to hiring and training the initial restaurant workforce and certain other direct costs associated with opening new restaurants. Interest income includes the interest income on invested assets. Interest expense includes the cost of interest expense on debt. The provision for income taxes represents our estimate of total income taxes to be paid to the federal and state governments based upon our pre-tax income for the period.

Results of Operations

Our operating results for the thirteen-week periods ended March 30, 2003 and March 31, 2002 expressed as a percentage of restaurant sales were as follows:

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Thirteen Weeks Ended March 30, 2003 Compared to the Thirteen Weeks Ended March 31, 2002

Restaurant Sales. Restaurant sales increased by $6.0 million, or 10.7%, to $62.3 million in the first quarter of fiscal 2003 from $56.3 million in the first quarter of fiscal 2002. The increase was the result of sales from new Buca di Beppo restaurants. Our Buca di Beppo restaurants’ comparable restaurant sales decreased 4.8 percent in the first quarter of fiscal 2003. Vinny T’s of Boston’s comparable restaurant sales decreased 9.2 percent in the first quarter of fiscal 2003. We expect Buca di Beppo’s and Vinny T’s comparable restaurant sales to each be negative in the second quarter of fiscal 2003.

Product. Product costs increased by $0.9 million to $15.0 million in the first quarter of fiscal 2003 from $14.1 million in the first quarter of fiscal 2002. Product costs as a percentage of restaurant sales decreased to 24.1% in the first quarter of fiscal 2003 from 25.1% in the first quarter of fiscal 2002. This decrease as a percentage of sales resulted primarily from the price increases taken at both Buca di Beppo and Vinny T’s of Boston in the first quarter, a reduction in produce costs and stronger purchasing contracts for a number of key products. We expect product costs as a percentage of sales for the remainder of fiscal 2003 to be at or below the product cost percentage in the comparable fiscal 2002 periods.

Labor. Labor costs increased by $2.3 million to $20.7 million in the first quarter of fiscal 2003 from $18.4 million in the first quarter of fiscal 2002. Labor costs increased as a percentage of restaurant sales to 33.2% in the first quarter of fiscal 2003 from 32.6% in the first quarter of fiscal 2002. Management payroll and benefit costs, which are primarily fixed in nature, as a percentage of sales were negatively impacted by 80 basis points due to the decline in average weekly sales from fiscal 2002 to fiscal 2003. Hourly labor improved as a percentage of sales by 20 basis points from fiscal 2002 to fiscal 2003. We expect labor costs in the second quarter of fiscal 2003 to increase as a percentage of sales from the second quarter of fiscal 2002 due to the expected decline in average weekly sales from the comparable prior year period.

Direct and Occupancy. Direct and occupancy costs increased by $2.7 million to $15.4 million in the first quarter of fiscal 2003 from $12.7 million in the first quarter of fiscal 2002. Direct and occupancy costs increased as a percentage of restaurant sales to 24.7% in the first quarter of fiscal 2003 from 22.6% in the first quarter of fiscal 2002. This increase in direct and occupancy costs, which are primarily fixed in nature, as a percentage of sales was directly related to declining average weekly restaurant sales and rising insurance costs. We anticipate direct and occupancy costs in the second quarter of fiscal 2003 to increase as a percentage of sales over the second quarter of fiscal 2002 due to increased marketing spending, rising insurance costs and the expected decline in average weekly sales from the comparable prior year period.

Depreciation and Amortization. Depreciation and amortization expenses increased by $0.8 million to $3.8 million in the first quarter of fiscal 2003 from $3.0 million in the first quarter of fiscal 2002. This increase was primarily the result of depreciation recognized on capital expenditures for new restaurants.

General and Administrative. General and administrative expenses increased by $1.1 million to $4.5 million in the first quarter of fiscal 2003 from $3.4 million in the first quarter of fiscal 2002. General and administrative expenses as a percentage of restaurant sales increased to 7.2% in the first quarter of fiscal 2003 from 6.1% in the first quarter of fiscal 2002. The increase in general and administrative expenses, as a percentage of sales was primarily due to increases in personnel, particularly in operations and food and beverage. We anticipate general and administrative expenses in the second quarter of fiscal 2003 to increase as a percentage of sales as compared to the second quarter of fiscal 2002.

Pre-opening Costs. Pre-opening costs decreased by $144,000 to $884,000 in the first quarter of fiscal 2003 from $1,028,000 in the first quarter of fiscal 2002. Pre-opening costs decreased as a percentage of sales to 1.4% in the first quarter of fiscal 2003 from 1.8% in the first quarter of fiscal 2002. The decrease in pre-opening costs as a percentage of sales was due to management’s efforts to reduce these costs on a per restaurant basis and to increased

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sales on a larger base of restaurants. We expect pre-opening costs in the second quarter of fiscal 2003 to decrease in dollars and as a percentage of sales from the second quarter of fiscal 2002.

Interest Income. Interest income decreased by $28,000 to $25,000 in the first quarter of fiscal 2003 from $53,000 in the first quarter of fiscal 2002. The decrease in interest income resulted from less invested assets during the first quarter of fiscal 2003 than during the first quarter of fiscal 2002. We expect interest income for the remainder of fiscal year 2003 to remain flat as compared to the similar period of fiscal year 2002.

Interest Expense. Interest expense increased $135,000 to $389,000 in the first quarter of fiscal 2003 from $254,000 in the first quarter of fiscal 2002. The increase in interest expense primarily resulted from increased borrowings on our $25 million term loan and current $25 million line of credit facility. We expect interest expense to increase in the second quarter of fiscal 2003 from the second quarter of fiscal 2002 because of higher borrowings under our credit facility than the prior year comparable period.

Provision for Income Taxes. The provision for income taxes in the first quarter of fiscal 2003 represents our estimate of our income tax rate for fiscal 2003. We expect income taxes to be approximately 33 to 34% of pre-tax income for fiscal 2003.

Liquidity and Capital Resources

Net cash used in operating activities was $1.1 million in the first quarter of fiscal 2003 as compared to net cash provided by operating activities of $1.6 million in the first quarter of fiscal 2002. The majority of cash utilized in the first quarter of fiscal 2003 was for the payment of accounts payable and other accrued expenses. We expect to generate cash from operating activities in future periods.

We use cash primarily to fund the development and construction of new restaurants. Capital expenditures were $9.1 million in the first quarter of fiscal 2003 as compared with $12.3 million in the first quarter of fiscal 2002. In January 2002, we purchased nine Vinny T’s of Boston restaurants for approximately $21 million. We opened six new Buca di Beppo restaurants in the first quarter of fiscal 2003 as compared to seven new Buca di Beppo restaurants in the first quarter of 2002. We expect to open 14 new restaurants in 2003, nine of which have opened through May 7, 2003. Each new remodeled Buca di Beppo and Vinny T’s of Boston restaurant is expected to require, on average, a total cash investment of between $1.0 million and $1.5 million, excluding pre-opening costs expected to be approximately $185,000 for a Buca di Beppo and $200,000 for a Vinny T’s of Boston restaurant. Since 1999, we have been building restaurants based upon our prototype designs. These designs are expected to require between $1.5 million to $2.0 million in total cash investment per restaurant. This investment represents an incremental $500,000 increase over the historical cash investment for remodeled restaurants. In the future, we may refinance any purchases of land or buildings through sale-leaseback transactions. We cannot predict whether this financing will be available when needed or on terms acceptable to us.

Net cash provided by financing operations was $10.1 million for the first quarter of fiscal 2003 compared with $24.2 million for the first quarter of fiscal 2002. Financing activities in the first quarter of fiscal 2003 consisted primarily of $10 million in line of credit borrowings. In the first quarter of fiscal 2002, we completed a $20 million term facility to fund the acquisition of Vinny T’s of Boston. The proceeds from financing activities in the first quarter of fiscal 2003 were used primarily to fund the development of new restaurants and general corporate purposes.

On October 11, 2002, we closed on a credit facility comprised of a $25 million term loan and a $25 million line of credit facility with the option to borrow an additional $10 million under the line of credit provided we are not in default under the terms of the loan agreement at the time. The credit facility expires on December 31, 2007. We are required to repay $5 million annually in principal toward the term loan during fiscal 2003 through 2007. Principal payments are to be made on a quarterly basis. The credit facility bears interest at the lower of our lenders’ reference rate plus 0.75% to 1.50% or Eurodollar rate plus 2.25% to 3.00% (3.45% to 4.20% as of May 8, 2003), dependent upon our meeting certain financial ratios. We are required to pay 0.50% on all unused line of credit funds. The credit agreement contains covenants that place restrictions on sales of properties, transactions with

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affiliates, creation of additional debt, limitations on capital expenditures and other customary covenants. Borrowings under the credit agreement are collateralized by substantially all of our assets.

Our capital requirements, including development costs related to the opening of additional restaurants, have been and will continue to be significant. We expect our capital expenditures in fiscal 2003 to be approximately $35 million. We will need substantial capital to finance our expansion plans, which require funds for capital expenditures, pre-opening costs and initial operating losses related to new restaurant openings. The adequacy of available funds and our future capital requirements will depend on many factors, including the pace of expansion, capital expenditures for new restaurant development and the nature of contributions, loans and other arrangements negotiated with landlords. Although we can make no assurance, we believe that current assets, cash flow from operations and other available borrowings will be sufficient to fund our capital requirements through fiscal 2004. To fund future operations, we may need to raise additional capital through public or private equity or debt financing to continue our growth. In addition, we may from time to time consider acquiring the operations of other restaurants. We may obtain additional equity or debt financing to fund such acquisitions. The sale of additional equity or debt securities could result in additional dilution to our shareholders. We cannot predict whether additional capital will be available on favorable terms, if at all.

Critical Accounting Policies

Our consolidated financial statements include accounts of BUCA, Inc and all of our wholly owned subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes. In preparing these financial statements, we have used our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We do not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.

Impairment of Long-Lived Assets

We review our long-lived assets, such as fixed assets and intangible assets, for impairment whenever events or changes in circumstances indicate the carrying value amount of an asset or group of assets may not be recoverable. We consider a history of consistent and significant operating losses to be a primary indicator of potential asset impairment. Assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows, primarily the individual restaurants. A restaurant is deemed to be impaired if a forecast of undiscounted future operating cash flows directly related to the restaurant is less than its carrying amount. If a restaurant is determined to be impaired, the loss is measured as the amount by which the carrying amount of the restaurant exceeds its fair value. Fair value is an estimate based on the best information available, including prices for similar assets or the results of valuation techniques such as undiscounted estimated future cash flows as if the decision to continue to use the impaired restaurant was a new investment decision.

Impairment of Goodwill

We assess the recoverability of goodwill that is related to our purchase of Vinny T’s of Boston at year-end and whenever events or changes in circumstance indicate the carrying value may not be recoverable. We test impairment at the concept level for this goodwill based upon the historical cash flow and other relevant facts and circumstances as the primary basis for our estimates of future cash flows. A concept is deemed to be impaired if a forecast of undiscounted future operating cash flows directly related to the concept is less than its carrying amount of fixed assets and goodwill. If a restaurant is determined to be impaired, the loss is measured as the amount by which the carrying amount of the concept exceeds its fair value. Fair value is an estimate based on the best information available, including prices for similar assets or the results of valuation techniques such as undiscounted estimated future cash flows as if the decision to continue to use the impaired restaurant was a new investment decision.

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Self-Insurance

We are self-insured for a portion of our current medical, dental, workers’ compensation and general liability insurance programs. In estimating our self-insurance reserves, we utilize estimates of future losses, based upon our historical loss trends and historical industry data. These reserves are monitored and adjusted when warranted by changing circumstances. Should a change in claims occur compared to what was estimated, our reserves could be either increased or decreased based upon that data. Any increases or decreases in insurance reserves would be offset by a corresponding increase or decrease in insurance expense.

Purchase Accounting

We account for our acquisitions under the purchase method of accounting and accordingly, the acquired assets and liabilities assumed are recorded at their respective fair values. The recorded values of assets and liabilities are based on third-party estimates and valuations when available. Items not determinable by third-party estimates are based on management’s judgments and estimates. Our financial position and results from operations may be affected by changes in estimates and judgments.

Provision of Income Taxes

We estimate certain components of our provision for income taxes. The estimates include effective state and local income tax rates, allowable tax credits for items such as FICA taxes paid on reported tip income and the work opportunity tax credit, and the tax rate in which deferred taxes are recognized. Our estimates are based on the best available information at the time that we prepare the provision. All tax returns are subject to audit by federal and state governments, usually years after the tax returns are filed, and could be subject to different interpretations of the tax laws. The ultimate amount of income taxes that we pay may be higher or lower than our estimates.

Recent Accounting Pronouncements

In June 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires a liability for costs associated with an exit or disposal activity to be recognized when the liability is incurred. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. This standard did not have any impact on our financial statements.

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (Interpretation No. 45). Interpretation No. 45 clarifies the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. Interpretation No. 45 also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing certain types of guarantees. The disclosure requirements in Interpretation No. 45 are effective for interim or annual financial statements statement periods ended after December 15, 2002. The adoption of Interpretation No. 45 did not have an impact on our results of operations or financial position.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS No. 148 amends FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition to SFAS No. 123’s fair value method of accounting for stock-based employee compensation. Statement 148 also amends the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, “Interim Financial Reporting,” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. As allowed by SFAS No. 123, we have elected to continue to utilize the accounting method prescribed by APB Opinion No. 25 and have adopted the disclosure requirements of SFAS No. 123. Disclosures required under SFAS No. No. 148 and 123 are provided in Note 3 to our consolidated financial statements.

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Inflation

The primary inflationary factors affecting our operations are food and labor costs. A large number of our restaurant personnel are paid at rates based on the applicable minimum wage, and increases in the minimum wage directly affect our labor costs. To date, inflation has not had a material impact on our operating results.

Disclosure Regarding Forward-Looking Statements

This Form 10-Q for the first quarter ended March 30, 2003 contains forward-looking statements within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based on the beliefs of our management as well as on assumptions made by and information currently available to us at the time the statements were made. When used in this Form 10-Q, the words “anticipate”, “believe”, “estimate”, “expect”, “intend” and similar expressions, as they relate to us, are intended to identify the forward-looking statements. Although we believe that these statements are reasonable, you should be aware that actual results could differ materially from those projected by the forward-looking statements. Because actual results may differ, readers are cautioned not to place undue reliance on forward-looking statements.

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Our restaurants feature Southern Italian cuisine served both in individual and family-style portions. Our continued success depends, in part, upon the popularity of this type of Italian cuisine and this style of informal dining. Shifts in consumer preferences away from our cuisine or dining style could materially adversely affect our future profitability. Also, our success depends to a significant extent on numerous factors affecting discretionary consumer spending, including economic conditions, disposable consumer income and consumer confidence. Adverse changes in these factors could reduce guest traffic or impose practical limits on pricing, either of which could materially adversely affect our business, financial condition, operating results or cash flows.

Certain of these risk factors are more fully discussed in our Annual Report on Form 10-K for the period ended December 29, 2002. We caution you, however, that the list of factors above may not be exhaustive and that those or other factors, many of which are outside of our control, could have a material adverse effect on us and our results of operations. All forward-looking statements attributable to persons acting on our behalf or us are expressly qualified in their entirety by the cautionary statements set forth here. We assume no obligation to publicly release the results of any revision or updates to these forward-looking statements to reflect future events or unanticipated occurrences.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from changes in interest rates on borrowings under our revolving line of credit and term debt facility that bears interest at the lower of the lending bank’s reference rate plus 0.75% to 1.50% or Eurodollar rate plus 2.25% to 3.00%. At March 30, 2003, we had $39 million in debt borrowings under our credit facility. Thus, a 1% change in interest rates would cause annual interest expense to increase by $390,000.

We have no derivative financial instruments or derivative commodity instruments in our cash and cash equivalents and marketable securities. We invest our cash and cash equivalents and marketable securities in investment grade, highly liquid investments, consisting of money market instruments, bank certificates of deposit, overnight investments in commercial paper, and short term government and corporate bonds.

Many of the food products purchased by us are affected by commodity pricing and are, therefore, subject to price volatility caused by weather, production problems, delivery difficulties and other factors that are outside our control. To control this risk in part, we have fixed price purchase commitments with terms of one year or less for food and supplies from vendors who supply our national food distributor. In addition, we believe that substantially all of our food and supplies are available from several sources, which helps to control food commodity risks. We believe we have the ability to increase menu prices, or vary the menu items offered, if needed in response to a food product price increases. To compensate for a hypothetical price increase of 10% for food and supplies, we would need to increase menu prices by an average of 2.5%, which is consistent with our average price increase of approximately 2% in fiscal 2003 and 1% in each of fiscal 2002 and fiscal 2001. Accordingly, we believe that a hypothetical 10% increase in food product costs would not have a material effect on our operating results.

Item 4. Controls and Procedures

Under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-14(c) and 15-d-14(c) under the Securities Exchange Act of 1934, within 90 days of the filing date of this report (the “Evaluation Date”). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the material information required to be included in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to us, including our consolidated subsidiaries and was made known to them by others within those entities, particularly during the period when this report was being prepared.

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There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date. We have not identified and significant deficiencies or material weaknesses in our internal controls, and therefore there were no corrective actions taken.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are currently subject to various legal actions arising in the normal course of business, none of which are expected to have a material effect on our results of operations, financial condition or cash flows.

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Defaults upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

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We filed with the Securities and Exchange Commission a Current Report on Form 8-K on January 3, 2003, disclosing under “Item 5 Other Events” that we issued a press release on January 3, 2003 and filing under “Item 7 Financial Statements and Exhibits” a copy of the press release, dated January 2, 2003.

We filed with the Securities and Exchange Commission a Current Report on Form 8-K on January 16, 2003, disclosing under “Item 5 Other Events” certain information disclosed in our conference call held on January 15, 2003.

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SIGNATURES

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.

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CERTIFICATIONS

I, Joseph P. Micatrotto, certify that:

Date: May 12, 2003

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I, Greg A. Gadel, certify that:

Date: May 12, 2003

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