Piccadilly Cafeteria restaurant report

              Piccadilly Cafeterias, Inc.
2 OOI Annual Report
To Our Shareholders:
Fiscal 2 oo I was a year of transition at Piccadilly Cafeterias,
Inc. While operating results for the year were disappointing, we
made some significant strides to turn around the Company's
performance.
We began a restructuring plan in the third quarter focused
on rebuilding cafeteria sales and establishing profit margins
comparable to industry peers while continuing to provide the
best quality food at fair prices. To help accomplish this, I sought
experienced, effective leadership from outside of our Company
to build upon the strong foundation of the Piccadilly team.
• On March 2 9, 2 oo I, we appointed Azam Malik to the
position of President and Chief Operating Officer.
Mr. Malik brings over 2 5 years of experience in the
restaurant and hospitality industry and has an excellent
performance record as a leader in innovation, restruc­turing
and marketing in the food industry.
• We recently appointed Brian Dixon as Executive Vice
President, Marketing. Mr. Dixon has an extensive
restaurant background in developing and executing
marketing programs to build market share, revitalize
image and create brand growth and vitality.
• As part of our restructuring plan we eliminated 2 5
middle-management positions and reorganized the
management team to operate more effectively with our
general managers and their teams. Going forward,
we will operate under the leadership of I o regional
managers. We expect that the reorganization will
reduce our expenses beginning in fiscal 2002 by$ I ·9
million annually.
• We have closed 26 cafeterias since June 30, 2000 ,
including I4 cafeterias on July 3 I, 2oo r. Twenty-one
of these cafeterias were a consistent drain on our
earnings and resources. Their operating cash flows were
not sufficient to cover their associated lease payments
and other operating costs. Five of these cafeterias had
expiring leases and could not be renewed. Closing these
cafeterias will have a positive impact on earnings going
forward.
These actions were necessary as our results were trending in
the wrong direction. The Company's net loss for fiscal year 200 I
was $36.0 million, or $(3-43) per share, compared with net
income of $2-4 million, or $o.2 3 per share, last year. Included
in this year's results are $3 I. I million of charges comprised of
the following:
$ I 3 ·9 million- impairment of property, plant and
equipment and lease-related costs associated with
the closing of certain cafeterias.
Piccadilly Caforerias, Inc.
$5. I million- writeoff of impaired goodwill.
$8. I million- net valuation allowance against
deferred tax assets.
$ I. 5 million - severance costs.
$ 2. 5 million - wri teoff of unamortized deferred
financing costs.
Excluding the impact of these charges and similar charges
included in both the current and the prior year (see
Management's Discussion and Analysis of Financial Condition
and Results of Operations on pages 5-I o ), comparable results
were a $ 3.9 million loss for fiscal 2 00 I compared to $ r. 3
million of income for fiscal 2000 . Of the charges listed above,
only the severance costs resulted in an additional cash outflow
from the Company.
The foregoing charges generally reflect our poor performance
and have been recorded, to varying degrees, by the Company
over the last three years. While it might be easy to attribute
these types of charges as symptomatic of a mature company in a
very competitive industry, we will not. We believe our maturity
is a strength to build upon. Our focus is to operate in a fashion
so that these charges cease. Our accomplishments will be
reflected in positive earnings and increased EBITDA (earnings
before interest, taxes, depreciation and amortization).
Net sales for the year were down 5.8% , from $45 0 . 3
million in fiscal 2000 to $424 .2 million. Same-store net sales
were down 3. 8% . We implemented various sales-building
initiatives during the first half of the year to reverse declining
same-store sales trends. These sales-building initiatives included
marketing tactics, such as customer coupons and discounted
meal alternatives, designed to attract new guests and increase
the dining frequency of existing guests. While results from
September 2000 initially indicated improved sales trends, these
results were not sustained and the programs were discontinued
in the second quarter. These sales discounts and related promo­tion
costs were dilutive to our cost of sales margins by 0 .9%
compared with last year.
Several operating improvements were made during the year:
• In spite of the pressure on our margins caused by
declining same-store sales, our cost of sales improved as
a percentage of net sales by I . o % for the fiscal year and
I . 8 % for the fourth quarter.
• During fiscal 200 I we introduced a program to
outsource to outside vendors the preparation of all or
portions of selected recipes. This program was initiated
to maintain consistently high quality fresh food while
reducing staffing levels. This program has been imple­mented
in substantially all of our cafeterias, and
although only a few new outsourced items are being
used, staffing levels have been significantly reduced.
On average we reduced labor hours, primarily in the
kitchen production area, by 2 5 to 2 7 hours per day per
cafeteria. Our general managers were instrumental in
challenging staffing levels and reducing labor costs
while preserving our high quality, made-from-scratch
cooking approach.
• At the beginning of the fiscal year, about two-thirds of
the food ingredients used in our recipes were purchased
through a central supplier. Red meat, poultry, produce
and dairy products were purchased locally by the
general manager of each cafeteria. During fiscal 2 oo I
we extended our centralized purchasing program to
poultry products, which allows us to further benefit
from our purchasing power. While the savings from
this program were largely offset by the inflation in red
meat prices during the year, we believe this approach
can yield significant purchase discounts and we will
continue to centralize the purchasing of our food
ingredients.
At the end of June 2000, the Company's secured, syndicated
bank facility was scheduled to mature on June 22, 200I. We
focused on replacing this facility with more permanent capital,
in the form of medium-term notes that would allow us to oper­ate
our business with a set of financial covenants more consistent
with our business outlook. On December 2 I, 2000, the
Company closed an $8 r.o million senior secured credit facility
due November I, 2007 (see Note 7 to the Consolidated
Financial Statements). We were pleased to complete a high-yield
deal in the tight credit market that existed at that time. This
facility contains higher interest rates than the syndicated bank
facility and granted warrants that allow the note holders to
purchase 746,2 IO shares of the Company's common stock at
$I. I 687 5 per share. The notes, which have a maturity of seven
years, give the Company flexibility to implement its business
plan.
With this financing in place, the Company pursued a
sale-leaseback of certain owned properties to reduce capital costs
and further extend the maturity of this capital. As of July 3 I,
2 oo I, we have reduced this debt by $2 9. 8 million through two
sale-leaseback transactions. These transactions are expected to
lower operating and financing costs by a total of$ 3. o million
annually. The affected cafeterias now operate under long-term
leases and we plan to continue to operate those locations. No
other sale-leaseback transactions are currently contemplated.
The retirement of a portion of the medium-term notes through
the sale-leaseback transaction did require us to write off
unamortized financing costs associated with the note financing.
These writeoffs included the $2.5 million charge in the fourth
quarter and $ r. I million in the first quarter of fiscal 2 002.
Our management reorganization coupled with a renewed
vigor and focus have laid the foundation for building our future.
Our Board of Directors has recent! y approved a new strategic
plan developed by our new management team that focuses on all
aspects of the Company's business and includes specific tactics
that we will begin to implement in fiscal 2 002. These tactics
are designed to achieve our objectives for building sales and
improving operating and financial performance. Our strategic
plan will guide us, as we strongly believe in what we do and will
work to improve the experience for each of our many guests.
With focused leadership at all levels of our organization, the
intense efforts ofour team members, and the changes we have
already initiated, we are optimistic about the future of
Piccadilly. After all, our guests gave Piccadilly the highest
rankings in the cafeteria/buffet restaurant segment based on
food quality, service, convenience, cleanliness, value, atmosphere
and menu variety. Piccadilly received the Choice in Chains
Platinum Award by Restaurants and Institutions Magazine for
the cafeteria/buffet segment. The Restaurants and Institutions
Choice in Chains awards are based on a national consumer
survey. This award is an outstanding honor, especially because
the award was bestowed on us by our guests. The award is a
tribute to Piccadilly team members who make sure our guests
receive the highest quality experience with each visit.
Ronald A. LaBorde
Chairman of the Board
Chief Executive Officer
Piccadilly Caftterias, Inc. 3
Selected Financial and Operating Data
(Dollars in thousands)
Year Ended june 30 2001 2000 1999(5) 1998 (7) 1997
Statement of Operations Data:
Net sales ....... ..... ......... .. .......... $424,I63 $450,276 $495,697 $335,388 $304,838
Costs and expenses:
Cost of sales ............................ 246,340 266,246 298,565 I94,898 qs,6Ss
Other operating expenses •• 0 ••••••• 0 ••••••• I 59,062 I6o,358 I70,200 I09,725 I00,334
Provision for cafeteria impairments and closings I 3,887 I ,350 3,453
General and administrative expenses ......... I5,59I I4,823 I6,946 I2,832 I I ,465
Amortization and writeoff of goodwill ........ 5>343 407 5I2
Interest expense • 0 •• 0 ••••••••••••••••• 0 •• 9>958 7,177 6,255 2,5 I4 2,7 I4
Other expenses (income) .. .. ............... (58o) (I,562) (I,ooo) (590) (sos)
449,60I 447,449 492,828 322,832 289,693
Gain from sale of Ralph & Kacoo's ••• 0 ••• • 0 •• I ,s s6
Income (loss) before income taxes and
extraordinary charges ..... . ............ . .. (25,438) 2,827 4,425 I2,556 I5,I45
Provision for income taxes ................... 8,072 4I6 425(6) 4,653 5,75 5
Income (loss) before extraordinary charges ....... (33,5 Io) 2,4I I 4,000 7,903 9,390
Extraordinary charges -
loss on early retirement of debt .............. 2,520
Net income (loss) ••• 0 0 ••••••••••• 0 ••• 0. $ (36,030) $ 2,4I I $ 4,000 $ 7,903 $ 9,390
Per Share Data:
Net income (loss) ................ .. ....... . $ <3·43) $ .23 $ ·38 $ ·75 $ .89
Cash dividends . . ........ . ................. .24 A8 A8 A8
Other Financial Data:
EBITDA (r) ••••• •••••• ••• 0 •• 0 •• 0 •••• 0 •••• $ I8,986 $ 26,702 $ 28,279 $ 3 I ,200 $ 29,97 5
Net cash provided by operating activities ........ II,308 I4,222 I 2,9I 5 23,268 I4,85 7
Depreciation and amortization (2) .............. 20,5 79 I6,698 I7 ,8os I2,677 I2,II6
Maintenance capital expenditures (3) •• 0 •••••••• 4,096 3,8I2 8,460 6,o8s 5,038
Total capital expenditures .... ...... .... ..... 5,004 6,832 I5,460 I4,928 I0,870
Restaurant Data:
Number of cafeterias and seafood restaurants
(end of period) •••••• 0 • •••••• • •••• 0 • • •• 0. 230 242 254 277 I37
Same-store cafeteria sales % increase (decrease) (4) (3.8)% <s .2)% (2.6)% r.6% 4.2%
Balance Sheet Data:
Cash •• • 0 • • •• 0 ••••• 0 •• ••••• 0 ••••••••• 0 ••• $ 85I $ $ $ $
Net property, plant and equipment •• • 0 ••• 0 0 ••• I2o,565 I63,877 q6,2 50 2o 3 ,s65 I 26,020
Total assets . . .. . .... .... . . ............... . I 58,5 78 2 I4,982 232,939 254,584 I47,332
Long-term debt ........................... 54,976 68,39I 74,226 78,979 3 I ,740
Total shareholders' equity .................... 43,25I 79,28 I 79,402 80,436 77,604
(1) EBITDA is net income before provision for income taxes, gain ftom sale of Ralph & Kacoo's, interest expense, provision for cafoteria impairments and closings and depreciation and
amortization. EBITDA should not be considered as an alternative to, or more meaningful than, income before income taxes, cash flow ftom operating activities or other traditional
indicators of operating performance. Rather, EBITDA is presented because it is a widely accepted supplemental financial measure that we believe provides relevant and usefUl infor­mation.
Our calculation of EBITDA may not be comparable to a similarly titled measure reported by other companies, since all companies do not calculate this non-GAAP measure
in the same manner.
(2) Excludes amortization of deforred financing costs. Includes $5.0 million writeoff of goodwill for fiscal year 2001. See Note 3 to the Consolidated Financial Statements.
(3) Maintenance capital expenditures are those regularly scheduled expenditures required to maintain, remodel and otherwise improve existingfocilities and equipment.
( 4) "Same-stores" are cafoterias that were open for 12 foil months in both comparative periods. Since Morrison was acquired on May 28, 1998, the Morrison acquisition does not affict
the total same-store sales comparison for fiscal years 1999 and 1998.
(5) The sale ofRalph & Kacoo's was completed on March 30, 1999. Resultsfor the fiscal year ended 1999 include nine months of Ralph & Kacoo's operations.
(q) The sale of Ralph & Kacoo's resulted in a reported gain of$1.6 million and a net tax benefitof$0.8 million.
(7) Morrison was acquired on May 28, 1998. Results for the fiscal year ended 1998 include one month of Morrison's operations.
Piccadilly Caftterias, Inc.
Management's Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
Piccadilly is the dominant cafeteria chain in the Southeastern
and Mid-Atlantic regions with 2 I 6 cafeterias. We serve a
diverse and loyal customer base consisting of families, groups of
friends and co-workers, senior citizens, couples and students.
Our patrons enjoy a wide selection of convenient, healthy,
freshly prepared "home cooked" meals at value-oriented prices
for lunch and dinner.
We categorize our operating expenses into three major
categories: cost of sales, other operating expenses and general
and administrative expenses. Cost of sales consists of labor and
ACQUISITIONS AND DISPOSITIONS
The Morrison Acquisition. In May I998, we acquired
Morrison Restaurants, Inc. ("Morrison") for $ 57.3 million of
total consideration (the "Morrison Acquisition"). The discussion
that follows refers to the cafeterias acquired in the Morrison
Acquisition as "Morrison cafeterias." All other cafeterias are
referred to as "Piccadilly cafeterias." At the time of the Morrison
Acquisition, Morrison was the largest cafeteria chain in the
Southeastern and Mid-Atlantic regions with I 42 cafeterias in
operation. Morrison cafeterias were similar to our traditional
Piccadilly cafeterias in terms of size and markets served . We
believe the Morrison Acquisition allowed us to increase our pen­etration
in our regional markets, enhance our purchasing power
and eliminate redundant costs.
We began converting Morrison cafeterias to Piccadilly-style
food costs. Other operating expenses consists primarily of adver­tising,
building and security costs, meal discounts, insurance,
payroll taxes, repairs, supplies, utilities, cafeteria-level perfor­mance
incentives, depreciation, rent, and other cafeteria-level
expenses. General and administrative expenses are comprised of
executive and regional manager salaries and related benefits,
taxes and travel expenses, legal and professional fees, deprecia­tion,
amortization, and various other costs related to adminis­trative
functions.
cafeterias (the "Morrison Conversions") in fiscal I 999 . As of
September 3 o , I 9 9 9, we had completed I I 2 Morrison
Conversions, and there have been no additional Morrison
Conversions since September 30, I999· Expenses associated
with the Morrison Conversions averaged approximately
$4o ,ooo per cafeteria for training-team labor, new uniforms,
repairs, and supplies. Additional costs of approximately
$ 2 5 ,ooo per cafeteria, primarily for signage, were capitalized.
In aggregate, we spent approximately $7.3 million on the
Morrison Conversions. Five Morrison cafeterias had not been
converted as of June 30 , 200 I, and will continue to operate as
Morrison cafeterias. Since the Morrison Acquisition, we have
closed 44 non-performing Morrison cafeterias. The table below
shows the number of Morrison Conversions by quarter:
Morrison Cafoterias Converted:
FiscaL Year
I999
2000
Total conversions ........ . .... . ... . ....... . ............ .
Ralph and Kacoos Sale. In March I999, we sold six Ralph
& Kacoo's seafood restaurants for $2 I. 3 million in cash. Ralph
& Kacoo's generated approximately $24 . 3 million of sales and
$3.9 million ofEBITDA (EBITDA is net income before provi­sion
for income taxes, provision for impairments and closings
RESULTS OF OPERATIONS
For the Quarter Ended
September 3 0 D ecember31 M arch 3 1
I2 I6
I3
June30
39
Total
99
I3
II2
and depreciation and amortization) in the I 2 -month period
prior to the sale. Net proceeds from the sale were used to reduce
bank debt. We sold Ralph & Kacoo's in order to focus on our
tradi tiona! cafeteria operations.
Year Ended June 30, 2001 Compared to Year Ended June 30, 2000
Net Sales. Total net sales for the year ended June 3 o, 2 o o I
were $424.2 million, a 5.8% reduction from fiscal2o oo net sales
of $45 0 .3 million. The $ 26. I million decline in cafeteria net
sales was due to a $I o. I million decrease relating to fewer cafe-terias
in operation and a decline of$ I 6.o million in same-store
sales. The following table reconciles total cafeteria sales to same­store
cafeteria sales (cafeterias that were open for I 2 full months
in both periods) for the years ended June 3 o, 2 o o I and 2 ooo :
Piccadilly Cafeterias, Inc. 5
Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
(Sales in thousands)
200 ! 2 000
Safes
Year Ended june 30 Safes Cafoterias Safes Cafoterias Change
Total cafeteria net sales .. ..... ............. . ...... $424,163 242 $450,276 260 (5 .8)%
Less net sales relating to:
Cafeterias opened in 2000
Cafeterias closed in 2001
Cafeterias closed in 2000
Same-store cafeteria net sales
The net decrease in same-store net sales of$ r 6. o million, or
3 . 8 % , reflects a decline in same-store guest traffic of 6. 2%,
which was partially offset by a check average increase of 2 . 4%.
The check average increase resulted from a price increase imple­mented
during the last week of December 2000 . The Company
has experienced a generally consistent decline in same-store guest
traffic trend since r 997. The Company believes that the declining
trend is due to various factors such as intense competition and
market saturation within the restaurant industry as well as local
adverse customer reaction to several of the Morrison Conversions.
The Company implemented several sales-building initiatives
during the last month of the first quarter to attract and retain new
guests and increase sales to existing guests. These sales-building
initiatives included neighborhood marketing, sponsorship of
employee contests, and simplified menu pricing. The neighbor-
Year Ended june 30
Cost of sales
4 s,678 4
12 I 5,5 34 !2
3,570 r8
226 $42 5.494 226 (3.8)%
hood marketing strategies included various customer coupons and
discounted meal alternatives to attract new guests. While initial
results did show improved sales trends, these results were not sus­rained
and the Company terminated all sales-building initiatives
in the second quarter.
It is possible that additional declines in net same-store sales
at individual cafeterias could result in the closing of such cafe­terias
and charges for impairment of property, plant and equip­ment
and goodwill, under Statement of Financial Accounting
Standards No. r 2 r, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of (SFAS r 2 r ).
The following table illustrates cost of sales, other operating
expenses, general and administrative expenses and other
expenses as a percent of net sales for the comparative periods:
Percent of Net Safes
200! 2000 Change
58.r% 59· I % ( r .o )%
Other operating expenses ............................... . ............. . 37·5% 35 ·6% !.9%
General and administrative expenses .................................... . 3·7% 3-4% 0 .3%
Other expenses (income) ........... .. .... . .... ... .............. ...... . . (o.r)% (0 .3)% 0 .2%
Cafoteria-Level Income. During fiscal2oo r and 2000, cafe­teria-
level income (net sales less cost of sales and other operating
expenses) was $ r 8. 8 million, or 4-4% of net sales, and $2 3. 7
million, or 5. 3% of net sales, respectively.
Cost of Sales. Cost of sales as a percentage of net sales
declined r. o%. That decline is a combination of a o . 3%
increase in food costs as a percentage of net sales and a I. 3%
decrease in labor costs as a percentage of net sales. Food costs as
a percentage of net sales increased primarily because of higher
costs of red meat and produce.
The Company incurred, as anticipated, slightly higher food
costs from its outsourcing program, which was designed to
reduce overall labor costs. The Company's outsourcing program
involves outside vendors who provide and prepare selected com­ponents
of some Piccadilly recipes, which have historically been
made from scratch. These increases were partially offset by sav­ings
from the Company's centralized purchasing initiative.
Historically, the Company has centrally purchased approxi­mately
two-thirds of the ingredients used in the meals served at
the cafeterias. Managers at each cafeteria controlled purchasing
for the remaining one-third, primarily consisting of fresh poul­try,
fresh red meat, fresh produce and dairy products. The
Company is implementing a cost-saving strategy to reduce the
number of food suppliers by centralizing the purchasing of these
Piccadilly Cafoterias, Inc.
items. During fiscal 2 oo r, the Company implemented a cen­tralized
purchasing program for poultry products, reducing its
per cafeteria purchase cost by 9 % on average. Poultry accounts
for approximately r o% of the Company's food purchases. The
Company expects to achieve significant volume purchase
discounts as other centralized purchasing arrangements on other
food items are made.
The r. 3% improvement in labor costs, as a percentage of net
sales, was due principally to savings realized from the Company's
outsourcing program. Factors that offset the labor cost improve­ment
as a percentage of net sales include lower year-over-year
sales volumes to offset the fixed portion of labor costs.
Other Operating Expenses. Other operating expenses
decreased $ r. 3 million, bur increased r. 9 % as a percentage of
net sales. Discounting and coupon costs relating to the
Company's sales-building initiatives increased 0 .9% as a per­centage
of net sales. Higher fuel prices caused utility costs as a
percentage of net sales to increase o .8% over the prior year.
Additionally, the fixed portion of certain operating costs such as
rent and repairs and maintenance have increased as a percentage
of net sales as cafeteria net sales have decreased.
Provision for Cafoteria Impairments and Closings. During
fiscal 2 o or the Company recorded $ r 3. 9 mi ilion of charges
related to impairments of property, plant and equipment and
lease-related costs associated with closing 2 2 cafeterias.
As an ongoing process, management reviews the historical
operating results and makes forecasts for each of its cafeterias.
Management considers whether projected cafeteria-level cash
flows warrant renewing a cafeteria's lease upon expiration, or
warrant closing the cafeteria prior to the expiration of its lease.
Additionally, management considers whether these operating
results indicate that the long-lived assets associated with the
cafeteria are impaired.
Under the Company's accounting policy for impairment of
long-lived assets, an asset is deemed to be impaired if a forecast
of undiscounted future operating cash flows, including assump­tions
regarding disposal values and lease renewals, is less than its
carrying amount. In cases where management determines that a
cafeteria lease should not be renewed, for purposes of computing
depreciation and amortization, the useful lives of the related
assets are reduced, if necessary, ro reflect the remaining useful life.
For cafeterias which management decides tO close prior to the
expiration of its lease, the Company records charges in accor­dance
with Emerging Issues Task Force Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (EITF 94-3). EITF 94-3
requires that such charges be recorded in the period in which the
Company approves an exit plan that will result in the incurrence
of costs that have no future economic benefit. These charges typ­ically
relate to rent and other occupancy costs to be incurred
after the closing of the cafeteria.
During the third quarter of fiscal 200 I, management deter­mined
that certain leases might not be renewed, and with
respect to those cafeterias, revised its forecasts of undiscounted
future operating cash flows accordingly. Primarily as a result of
these revised forecasts, management determined that long-lived
assets for 6 I cafeterias, including 4 7 cafeterias acquired in the
I998 purchase ofMorrison Restaurants, Inc. ("Morrison"), were
impaired in accordance with SFAS I 2 I and the Company
recorded asset impairment charges of $9.9 million for property,
plant and equipment. As a further result of the analysis under­taken
during the third quarter of fiscal 2 oo I, during the fourth
quarter of fiscal 200 I the Company made the decision to close
I 4 non-performing cafeterias because the cash flows from these
I 4 cafeterias were not sufficient to contribute to lease-related
costs and on-going operating costs. Accordingly, the Company
recorded lease- related costs of$ 3. I million and impairment of
property, plant and equipment charges of $o. 3 million. These
units were closed on July 3 I, 2 oo I. Thirteen of these cafeterias
are leased and one cafeteria is company-owned. These I 4 cafete­rias
had operating losses of $2 .o million in fiscal 200 I .
Additionally, the Company closed eight cafeterias in fiscal
200I and recorded charges of $o.5 million for property, plant
and equipment writedowns and lease-related costs. These cafe-terias
had trailing I 2 -month operating losses of $o. 7 million.
Amortization and Writeoff of Goodwill. During fiscal 2 oo I ,
the Company recorded amortization and goodwill impairment
charges of $5.3 million. Recorded goodwill relates to the
Morrison Acquisition. If a Morrison cafeteria is determined to be
impaired or is closed, the Company records an impairment charge
for the cafeteria's pro rata portion of unamortized goodwill.
Approximately $4.5 million of the charges recorded in fiscal2ooi
relate to 4 7 Morrison cafeterias that were considered to be
impaired as ofMarch 3I, 200I and approximately $0.5 million
relates to Morrison cafeterias that closed during the fiscal year. Net
goodwill at June 30, 200I is $4.5 million.
General and Administrative Expenses. General and admin­istrative
expenses as a percentage of net sales increased o. 3% .
Included in current year general and administrative expense is
$I. 5 million related to severance costs recorded in accordance
with EITF 94-3. In May 200I, the Company initiated and
completed a management reorganization plan that eliminated
2 5 executive and district operations management positions.
Substantially all of the$ I. 5 million of severance costs was paid
by June 3 o, 2 oo r. Excluding the effects of the $ r. 5 million
charge, general and administrative expenses as a percentage of
net sales for fiscal 2 o o I is 3 . 3 % , down o. I % from last year.
Interest Expense. Interest expense increased $2 .8 million
because of higher interest rates on the Company's credit
facilities and amortization of deferred financing costs and bond
discount . Amortization of these costs included in interest
expense in fiscal 2 oo I and fiscal 2 ooo were $ r. 9 million and
$o.8 million, respectively. These increases were partially offset
by lower average debt levels.
Provision for Income Taxes. The Company recorded an
income tax provision of $8. I million to establish a valuation
allowance against the Company's deferred tax assets. In accor­dance
with SFAS I09, the Company considered that it had a
cumulative pre-tax loss for recent years and revised its judgment
about the realization of deferred tax assets . The valuation
allowance reflects the Company's judgment that it is more likely
than not that a portion of the deferred tax assets will not be
realized. The Company believes that the remaining deferred tax
assets at June 30, 200I, amounting t o $9.7 million, are
realizable.
Extraordinary Charge. The Company recorded a $2 . 5
million charge for the early extinguishment of debt. See Note 7
for further information. The Company recorded no tax benefit
related to the extraordinary charge.
Other Income. Other income in fiscal 2 ooo included income
of $o.6 million for the receipt of stock in an insurance company
which had converted from a mutual company to a stock
company, and through which the Company owns whole life
insurance policies.
Year Ended june 30, 2000 Compared to Year Ended june 30, 1999
Net Sales. Total net sales for the year ended June 30, 2000
were $450.3 million, a 9.2% reduction from fiscal I999 net
sales of $49 5. 7 million. Included in net sales for fiscal I 999
was $I 7. 7 million from the Ralph & Kacoo's seafood restaurants,
which were sold on March 3 o, I 999. The $2 7. 7 million decline
in cafeteria net sales was due to a $3.9 million decrease relating
to fewer cafeterias in operation and a decline of$ 2 3. 8 million in
same-store net sales. The following table reconciles total cafete­ria
net sales to same-store cafeteria net sales (cafeterias that were
open for I 2 full months in both periods) for the years ended June
30, 2000 and I999:
Piccadill:y Cafeterias, Inc. 7
Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Year Ended j une 3 0
Total cafeteria net sales
Less net sales relating to:
Cafeterias opened in 2000
Cafeterias closed in 2000
Cafeterias closed in I 999
Same-store cafeteria net sales
The net decrease in same-store net sales of $ 2 3. 8 million, or
5. 2% , reflects a decline in same-store guest traffic of 6. 6 % ,
which was partially offset by a check average increase of I. 5%.
The check average increase resulted from various price increases
implemented at certain cafeterias since June 30 , I999·
Approximately 7 3 % of the declines in same-store net sales
was attributable to the Morrison cafeterias. During fiscal I 999
and 2000, the Company was focused on the integration of the
Year Ended june 3 0
Cost of sales
Sales
(Sales in thousands)
2000 1999
Sales
Cafoterias Sales Cafoterias Change
260 $478,0I3 270 <5 .8)%
6
I8 8,32 I I8
8,868 I6
236 $460,824 236 <5 .2)%
Morrison cafeterias. The cafeteria closing and conversion phases
of this integration process were completed by the end of the first
quarter of fiscal2 ooo.
The following table illustrates cost of sales, other operating
expenses, general and administrative expenses and other
expenses as a percent of net sales for the comparative periods, net
of the Ralph & Kacoo's operations, in fiscal I 999 results.
Percent of N et Sales
2000 199 9 Change
59· I % 6o .2% (I. I)%
Other operating expenses ............. . .............................. . . 35·6% 34·6% I.o%
General and administrative expenses .......... . ............... . ......... . 3·4% 3·5% (o.I)%
Other expenses (income) .. ...... .. ...... . ............. . ....... . .... . .. . (0.3)% (0.2)% o.I%
Restaurant-Level Income. During fiscal2 ooo and I999,
restaurant-level income (net sales less cost of sales and other oper­ating
expenses) was $ 2 3. 7 million, or 5 . 3 % of net sales, and
$26.9 million, or 5-4% of net sales, respectively. Excluding the
operations of Ralph & Kacoo's seafood restaurants, restaurant­level
income was $24.7 million, or 5.2% of net sales, in fiscal
I999·
Cost of Sales. Cost of sales as a percentage of net sales declined
I. I %. That decline is a combination of a o . 9 % decrease in food
costs as a percen rage of net sales and a o. 2 % decrease in labor
costs as a percentage of net sales. Food costs as a percentage of net
sales improved primarily because food cost efficiency experienced
in Morrison cafeterias began to more closely match the operations
of Piccadilly cafeterias.
Improvement in labor costs, as a percentage of net sales, was
due principally to the Company beginning to realize labor
efficiencies at Morrison cafeterias in fiscal 2000, as well as a
substantially lower level of labor costs associated with the
conversion of Morrison cafeterias to Piccadilly-style cafeterias,
with only I 3 cafeterias being converted in fiscal 2000 compared
to 99 conversions in fiscal I999·
Other Operating Expenses. Other operating expenses (net of
Ralph & Kacoo's related expenses in fiscal I999) decreased $4 .9
million, but increased I .o% as a percentage of net sales. The net
movement in other operating expenses was the result of several
factors. First, other operating expenses in fiscal I 999 included
costs relating to 99 Morrison Conversions (at a cost of approxi­mately
$40 ,ooo per cafeteria) compared to I 3 Morrison
Conversions in fiscal 2 ooo. Other operating expenses increased
8 Piccadilly Caftterias, bzc.
as a percentage of net sales due primarily to the generally fixed
nature of these expenses relative to the decline in net sales.
General and Administrative Expenses. General and admin­istrative
expenses (net of Ralph & Kacoo's related expenses in fis­cal
I 9 9 9) as a percentage of net sales decreased o. I % and
decreased in absolute dollars by $I. 7 million. Transitional costs
were incurred in fiscal I 999 that related to the integration of the
Morrison and Piccadilly reporting systems. Additionally, fiscal
I 999 costs included certain Morrison costs that were eliminated.
Interest Expense. Interest expense increased $0 .9 million as
a result of a higher interest rate on our existing credit facility, the
effect of which was partially mitigated by lower debt levels in
fiscal2ooo compared to fiscal I999· Amortization offinancing
costs included in interest expense in fiscal 2000 and fiscal I 999
was $o.8 million and $o . I million, respectively.
Other Income. Other income in fiscal2 ooo included income
of $o.6 million for the receipt of stock in an insurance company
which had converted from a mutual company to a stock company,
and through which the Company owns whole life insurance poli­cies
. Fiscal I 999 other income included a $ o . 5 million gain
from the sale of a catering facility.
Income Taxes. Our fiscal 2 ooo income tax expense was
reduced by $o.8 million for the reversal of taxes over-accrued in
prior years that primarily relates to minimum tax credits gener­ated
on the carryback in fiscal 2 ooo of the fiscal I 999 tax net
operating loss to prior years and the review of the results of IRS
examinations for prior years. At June 30, 2000 , the Company
had net operating loss carryforwards of $2 6. 2 million and
general business tax credit carryforwards of$ I .o million. See
Note 5 of the Notes to Consolidated Financial Statements
included elsewhere herein. At June 3 o, 2 ooo the Company had
provided no valuation allowance for deferred tax assets because
management believed that the deferred tax assets at June 3 o,
2000 were realizable through future reversals of existing taxable
LIQUIDITY AND CAPITAL RESOURCES
Senior Secured Notes. On December 2 I, 2000, the
Company closed a debt offering of (I) 7 I ,ooo "A" units con­sisting
in the aggregate of $7 I .o million principal amount of
Senior Secured Notes due fiscal 2007 and warrants to purchase
746,2 IO shares of its common stock and (2) 4,500 "B" units
consisting in the aggregate of $4.5 million principal amount of
Term B Notes due fiscal 2007 (secured equally with the Senior
Secured Notes) and warrants to purchase 4 7,295 shares of its
common stock. In addition, the Company entered into a$ 5. 5
million Term Loan Credit Facility with warrants to purchase
57,8 o 5 shares of Common Stock. Amounts borrowed under the
Term Loan Credit Facility are subject to terms substantially sim­ilar
to those of the Term B Notes due fiscal 2007 included as
part of the "B" units.
The $8 I .o million debt offering was sold at a discount, and
the gross proceeds from the offerings were approximate! y $7 2. 9
million. After paying transaction costs, the Company used the
net proceeds from the unit offerings and borrowings under the
Term Loan Credit Facility to repay approximately $67 .o million
in borrowings outstanding under the Company's credit facility
that was scheduled to mature on June 2 2, 2 oo I.
Interest is payable semi-annually on the Senior Secured
Notes at an initial annual rate of I2%, subject to annual adjust­ment
beginning November I, 200 I. Interest is payable quar­terly,
beginning February, I, 200 I, on the Term B Notes and
the Term Loan Credit Facility at a floating rate equal to LIBOR
plus 4.5%. The exercise price for the warrants is $r.I6875,
which was I Io% of the closing sales price of the common stock
on the date prior to closing the debt offering.
Moody's and Standard & Poor's (S&P) assigned first-time rat­ings
ofB2 and B+, respectively, to the Company's senior secured
debt. As a result of the Company's operating performance in fis­cal
2 oo I, in May 2 oo I, Moody's downgraded their ratings from
B2 to Caal and S&P placed its credit ratings on CreditWatch
with negative implications. These ratings are subject to revision
or withdrawal at any time.
Moody's assigns a "Caa" credit rating to bonds it considers to
be "of poor quality" and where it believes "such issues may be in
default or there may be present elements of danger with respect
to principal or interest." S&P assigns a "B" rating to obligations
for which it considers that "adverse business, financial, or eco­nomic
conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obliga­tion."
A plus(+) or minus(-) sign is added "to show relative
standing with the major rating categories."
The Company expresses no opinion on the ratings assigned
to the notes by Moody's and S&P and does not believe that these
ratings downgrades will have an adverse impact on the
Company's existing credit facilities or impact the Company's liq­uidity
in the foreseeable future.
temporary differences, and, if necessary, the implementation of
tax planning strategies. Uncertainties that affect the ultimate
realization of deferred tax assets include the risk of not being
able to complete tax planning strategies, such as sale-leaseback
transactions. This factor has been considered in determining the
valuation allowance.
Sale-Leaseback Transactions. On March 30, 200I, the
Company completed a sale-leaseback transaction of I 2 proper­ties.
The Company received $20.0 million in cash for the sale of
the properties and simultaneously executed long-term leases that
provide for continued operation of cafeterias at the sites for a
primary term of 2 o years and optional renewal periods for up to
20 additional years. The Company used substantially all of the
net proceeds to purchase $I 6. o million of the I 2% Senior
Secured Notes and $4.5 million of the floating rate Term B
Notes. The Company recorded a $2.5 million extraordinary
charge, primarily for the writeoff of deferred financing costs
associated with the extinguished debt. The sale of the I 2 prop­erties
resulted in a $I. 3 million deferred gain, which will be
amortized over the initial term of the lease. Net rent expense for
these properties during the initial term will be approximately
$2.3 million annually. The assets sold and leased back previ­ously
had annual depreciation expense of approximately $o.8
million. The annualized interest expense relating to the repur­chased
notes, including amortization of the original issue dis­count
and financing costs, was approximately$ 3 .o million.
On July 3 I, 200I, the Company completed a sale-leaseback
transaction involving six Piccadilly cafeteria properties. The
Company was paid approximately $9.0 million in cash for the
sale of the six properties, and has simultaneously executed long­term
leases that provide for the Company's continued operation
of cafeterias at the six sites. The Company used substantially all
of the net sale proceeds to make open-market purchases of $9-4
million of its I 2% Senior Secured N ores due fiscal 2 o o 7. Net
rent expense during the initial term will be approximately$ I. I
million annually. The assets sold and leased back previously had
annual depreciation expense of approximately $0.9 million. The
annualized interest expense relating to the repurchased notes,
including amortization of the original issue discount and financ­ing
costs, was approximately$ I ·4 million.
The Company expects to record in the first quarter ending
September 3 o, 2 oo I, extraordinary charges of approximately
$I. I million primarily for the pro rata share of the unamortized
financing costs associated with the extinguished debt. The sale
of the six properties resulted in a $I. 3 million loss, which will
be amortized over the initial term of the lease.
Senior Credit Facility. Concurrently with the debt offerings,
the Company entered into a $2 5 million Senior Credit Facility
with two banks to replace the previous credit facility. The Senior
Credit Facility expires on December 3I, 2003. The Senior
Credit Facility, and amounts borrowed thereunder, bears
interest at variable rates based upon the Company's leverage
ratio. The Senior Credit Facility supports existing commercial
letters of credit and working capital needs. The letters of credits
collateralize the Company's retention limits under self-insurance
arrangements for liability and casualty losses.
Piccadilly Cafoterias, Inc. 9
Management's Discussion and Analysis of Financial Condition and Results of Operations (Contin ued)
LIQUIDITY AND CAPITAL RESOURCES rcontinuedJ
The Senior Credit Facility contains financial covenants that
require the Company, among other things, to maintain a mini­mum
level of tangible net worth. As a direct result of the $9.9
million charge for cafeteria impairments and closings during the
quarter ended March 3 I, 2 oo I, the Company's tangible net
worth declined to a level where it was in violation of this loan
covenant. On June 29, 200I, the Company announced that it
reached an agreement to amend the Senior Credit Facility. The
amendment waived the third quarter violation and lowered the
required Level of tangible net worth. On July 3 I, 200 I, the
Company and its bank lenders agreed to amend the Senior
Credit Facility and further reduced the tangible net worth
requirement.
Upon the sale of the I 2 properties, the total borrowing avail­ability
under the Company's Senior Credit Facility was reduced
from $25 million to $I9.2 million. As of June 30, 200I, the
Company had $I I. 5 million in undrawn letters of credit under
the Senior Credit Facility, and had no borrowings outstanding
under the Senior Credit Facility, leaving approximately $7.7
million available for borrowing.
Upon the completion of the July 200 I sale-leaseback trans­action,
the borrowing availability under the Senior Credit
Facility was reduced from $r 9. 2 million to approximately $I 4-4
PENDING ACCOUNTING PRONOUNCEMENTS
In July 2 00I, the FASB issued SFAS I4I, Business
Combinations, and SFAS I42, Goodwill and Other Intangible
Assets. SFAS I 4 I requires that the purchase method of account­ing
be used for all business combinations initiated after June 30,
2 oo I. SFAS I 4 I also specifies the criteria which must be met
in order for certain acquired intangible assets to be recorded
separately from goodwill. SFAS I42 will require that goodwill
and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment annually or
more frequently if circumstances indicate potential impairment.
Furthermore, any goodwill or intangible asset determined to
have an indefinite useful life that is acquired in a purchase
business combination completed after June 30, 200I will not
be amortized, but will continue to be evaluated for impairment
FORWARD-LOOKING STATEMENTS
Forward-looking statements regarding management's
present plans or expectations regarding its credit facilities, cash
flows, liquidity, capital expenditures, sales-building and cost­saving
strategies, advertising expenditures, and the disposition
of impaired units involve risks and uncertainties relative to
return expectations and related allocation of resources, and
changing economic or competitive conditions, as well as the
negotiation of agreements with third parties, which could cause
actual results to differ from present plans or expectations, and
such differences could be material. Similarly, forward -looking
10 Piccadilly Cafoterias, Inc.
million. At July 3I, 200I, the Company had $I o .8 million in
letters of credit under the Senior Credit Facility, but had no other
borrowings outstanding under the Senior Credit Facility, leaving
approximately $3.6 million available for borrowing.
The Company expects cash flow from operations and remain­ing
borrowing availability to be sufficient to meet anticipated
operating and capital expenditure needs through at least June
30 , 2002.
Dividends and Capital Expenditures. On February 7,
2 000, the Board suspended the Company's regular quarterly
dividend of$. I 2 per share. The suspension of the dividend saves
approximately $ I. 3 million per quarter. The Board concluded
that until the Company had demonstrated a sustained operating
performance that would support a dividend that could be safely
maintained, suspension of the dividend was the prudent course
of action.
Capital expenditures for fiscal 20 0 I were$ 5 .o million. The
Company sold an undeveloped site in Shawnee Mission, Kansas
for$ I .6 million, a cafeteria site in Anderson, South Carolina for
$o.9 million, and a leasehold estate in West Palm Beach,
Florida for $o.8 million. Capital expenditures for fiscal 2002
are expected to approximate $6.o million and are expected to be
funded by operating cash flows.
in accordance with SFAS I42. Goodwill acquired in business
combinations completed prior to July I, 200 I will continue to
be amortized until SFAS I42 is adopted. The Company will
adopt SFAS I4I effective July I, 200 1. The Company is
required to adopt SFAS I 4 2 in July 2 oo 2; however, the pro vi­sions
of SFAS I42 allow the Company to early adopt the
Statement effective July I, 200 I . Upon adoption of SFAS I42,
the Company will be required to measure goodwill for impair­ment
within the first year of adoption as part of the transition
process. Any impairment resulting from this transition test will
be recorded as a change in accounting principle. The Company
is currently evaluating the potential impact of adoption on the
Company's consolidated financial statements, including the
decision of whether to early adopt SFAS I42.
statements regarding management's present expectations for
operating results involve risks and uncertainties relative to these
and other factors, such as advertising effectiveness and the abil­ity
to achieve cost reductions, which also would cause actual
results to differ from present plans. Such differences could be
material. Management does not expect to update such forward­looking
statements continually as conditions change, and read­ers
should consider that such statements speak only as to the
date thereof.
Consolidated Balance Sheets
2001
ASSETS
Current: Asset:s
Cash ........................................................................... $ 85I
I,030
I2,232
4,289
I,o85
Accounts and notes receivable ...................................................... .
Inventories ..................................................................... .
Deferred income taxes ............................................................. .
Other current assets ............... . ................. ........... ...... .. ...... .... .
Tot:al Current: Asset:s . ........ .... ....... . ....... ......... .............. . . . .
Property, Plant: and Equipment:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I I ,964
Buildings and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I25,307
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I I 3,293
Machinery and equipment ... . .... . .... . .......................................... · . . I I ,867
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 7
-----
263,3 78
Less allowances for depreciation and cafeteria closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I 42,8 I 3
Net: Property, Plant: and Equipment: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I 2 0, 56 5
Goodwill, net of $I,3 I8,ooo accumulated amortization at June 30, 200I and $939,000 at
June 30, 2000 ....................................... .... ................. ..... .
Ot:her Asset:s .................................................................... . I4,0I 7
Tot:alAsset:s ...................................................................... $ I 58,5 78
LIABILITIES AND SHAREHOLDERS, EQUITY
Current: Liabilit:ies
Current portion of long-term debt .................................................... $
Accounts payable ........................................... ... ................. . .
Accrued interest ... .... ..................................... ... ............. ..... .
Accrued salaries, benefits and related taxes ............................................. .
Accrued rent ... . ..... . ..................................... ... .................. .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tot:al Current: Liabilit:ies .................................................. .
Not:es Payable, net of$ 5, 53 8 ,ooo unamortized discount at June 30, 200 I ................... .
Deforred Income Taxes .................... ...... ................... ......... . .. ... .
Reserve for Cafot:eria Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ot:her Noncurrent: Liabilit:ies, less current portion ......... . ....... ..... ....... ... ...... .
Shareholders, Equity
Preferred Stock, no par value; authorized 5o,ooo,ooo shares; issued and outstanding: none
Common Stock, no par value, stated value $r.82 per share; authorized IOo,ooo,ooo shares; issued
and outstanding: I0,528,368 shares at June 30, 200I and at June 30,2000 .. .. ........ ..... .
Additional paid-in capital .. .. .................. . . ....... .............. .. .......... .
Retained earnings ............................... ....... ............... .. ... .. .... .
Less treasury stock, at cost: 25,000 common shares at June 30, 200I and at June 30, 2000 ....... .
Tot:al Shareholders, Equity ............ . .................................... .
IO,I63
I,342
I8,396
4,I95
4,6o6
-----
38,702
54,976
4,289
8,469
8,89I
I9,I4I
I8,735
5,648
-----
-----
-----
Tot:al Liabilit:ies and Shareholders, Equity .............................................. $ I 58, 57 8
See Notes to ConsoLidated Financial Statements
(Amounts in thousands)
Balances at june 30
2000
$
9I9
I2,74I
I 2,744
I,49I
27,895
20,878
I5I,706
I 2 I, I 66
I3,I28
699
307,5 77
I43,700
I63,877
I I ,944
I I ,266
$2 I4,982
$ 68,39 I
I 2,46 I
449
20,87 I
4,438
5 'I9 I
III,8oi
4,672
IO,IOI
9,I27
I9,I4I
I8,735
4I,678
Piccadilly Cafeterias, inc. 11
Consolidated Statements of Operations
(Amounts in thousands-except per share data)
Year Ended june 3 0 200! 2000 1 999
Net sales .......................................................... . $424,I63 $450,276 $495,697
Costs and expenses:
Cost of sales ........................ . ............................ . 246,340 266,246 2 9 8, 56s
Other operating expenses ................................... . . . ..... . I 59,062 I60,358 I 70,200
Provision for cafeteria impairments and closings ......................... . I 3,887 I ,350
General and administrative expenses ........ ............. . .... ........ . I5,59I I4,823 I 6,946
Amortization and writeoff of goodwill ................................. . 5.343 407 SI2
Interest expense ........ ....... ..... ............... .. ... ..... .. ... .
Other expenses (income) ............................................ .
9.958 7,!77
(58o) (I,562)
6,255 ., (I,ooo)
449,60I 44 7,449 492,828
.J
Gain from sale of Ralph & Kacoo's .................................... . I ,s s6
Income (Loss} BefOre Income Taxes and Extraordinary Charges . . . . . . . . . . . . . . (2 5 A 3 8) 4,425
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,072 425
Income (Loss) BefOre Extraordinary Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 3 3, 5 I o) 4,000
Extraordinary charges -loss on early retirement of debt ..................... .
Net Income (Loss} .................................................. $ (36,030) $ 4,000
Weighted average number of shares outstanding . .... .. . .. . .... .... . .... . .. .
Net income (loss) per share before extraordinary charges- basic and diluted .... $ $ .23 $
Extraordinary charges per share -loss on early retirement of debt ........... .
Net income (loss) per share- basic and diluted ..... ............... ...... $ $ .23 $
See Notes to Comolidated Financial Statements
Consolidated Statements of Changes in Shareholders' Equity
(Amounts in thousands- except per share data)
Additional
Common Stock Paid-In Retained Treasury Stock
Shares Amount Capital Earnings Shares Amount
Balances at June 30, I998 ••••• 0 •• 0 •••• 0. 0 I0,528 $I9,I4I $I8,735 $42,8Io 25 $ 250
Net income ••••••••••• 0 • ••• 0 •••• 0 •• 0 •••• 4,000
Cash dividends declared ($-48 per share) 0 ••• 0 0 0 <s ,o42)
Sales under dividend reinvestment plan .. ... .. . (26)
Stock issuances from treasury ... . .. .... ... . .. 62 (2 3) (2 38)
Purchases of treasury stock .................. 23 266
Balances at June 30, I999 I0,528 I9,I4I I8,735 4 I ,804 25 278
11
• ••• 0 •••• 0 •••• 0.
Net income . ................ . ... .. ... ... 2,4I I I
Cash dividends declared ($.24 per share) .... ... (2,52I)
Sales under dividend reinvestment plan ....... . (I 6)
Stock issuances from treasury ................ (I I) <s 7)
Purchases of treasury stock ... ............... I I 52
Balances at June 30, 2000 ................ I0,528 I9,I4I I8,735 4I,678 25 273
Net loss • 0 ••••••••••••••• 0 0 0 0 0 ••••• 0 •••• (36,030)
Stock issuances from treasury ......... ...... . (22) (56)
Purchases of treasury stock .................. 22 56
Balances at June 30, 200I • 0 •••• 0 ••••••••• I0,528 $I9,I4I $I8,735 $ 5.648 25 $ 273
See Notes to Consolidated Financial Statements
I2 Piccadilly Cafot:erias, Inc.
l
.J
Consolidated Statements of Cash Flows
Year Ended june 30 2001
Operating Activities
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(36,030)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation of property, plant, and equipment and amortization
of deferred financing costs ..... ........ . .......................... .
Amortization and impairment of goodwill ............................ .
Expenditures associated with closed cafeterias ......................... .
Provision for cafeteria impairments and closings ....................... .
Extraordinary charge -loss on early extinguishment of debt ............. .
Provision for deferred income ta~es and valuation allowance .. ............ .
Gain on sale of Ralph & Kacoo's, net of taxes ... . ............ . ......... .
(Gain) loss on disposition of assets .. . ................... . ........... .
Pension expense, net of contributions ...... .. . .. .. . .... ...... ....... . .
Changes in operating assets and liabilities, net of effects from Morrison
Acquisition:
Accounts and notes receivable .................................... .
Inventories ..... ...... .......... ......... ................. ... .
Recoverable income taxes ....................................... .
Other current assets ........................................... .
Other assets ................... .......... .... ................. .
Accounts payable ............................................. .
Accrued interest ...................................... . ....... .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred gain on sale-leaseback, net .... .. . . . ................. . . ... .
Accrued employee benefits ...................................... .
Net Cash Provided by Operating Activities
Investing Activities
Net proceeds from sale of Ralph & Kacoo's, including net tax benefit
Acquisition of business ............................... . ............. .
Purchases of property, plant and equipment ............................. .
Proceeds from sale of property, plant and equipment ...................... .
Proceeds from sale-leaseback transaction ....................... . ....... .
Net Cash Provided (Used) by Investing Activities
Financing Activities
Proceeds from issuance of notes, net of discount ......... ...... ........... .
Payments on long-term debt .............................. . ......... .
Financing costs ................................................... .
Proceeds from issuances of treasury stock . . .... .............. . . . .. . ..... .
Purchases of treasury stock . ...... .... . . .. ................ .. ... . ..... .
Dividends paid . .......... ................... .. ....... . ... .. .. ... . .
I6,590
5·343
(I ,439)
I 3,887
(82)
(I I I)
509
420
I,347
(2,298)
893
(2,637)
I,243
I,700
(5,004)
3.352
2o,oo6
I8,354
72,900
(92 ,877)
(8,778)
(56)
Net Cash Used by Financing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 2 8, 8 I I)
Changes in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 5 I
Cash and cash equivalents at beginning of year ........................... .
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
= ===
Supplementary Cash Flow Disclosures
Income taxes paid (net of refunds received) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest paid ...................... . ............. . ................. $ 5,590
See Notes to Consolidated FinanciaL Statements
(Amounts in thousands- except per share data)
$
2000
q,o88
407
(2,592)
(505)
I ,0 5 I
(I46)
5,578
208
22
(6,I5I)
I74
(2,7IO)
(2,29I)
6,604
(I2,439)
(I,900)
(I I)
(2,52I)
$ 6,I23
1 999
$ 4,000
$
17.438
5I2
(2,09I)
I ,350
I20
(45 I)
(4I8)
(365)
(3,749)
(220)
553
(I,426)
I37
(I,9I5)
(2 ,280)
22,597
(I0,933)
(I5,46o)
757
I85
(266)
<5 ,0 42)
$ 6,I q
Piccadilly Caftrerias, Inc. r 3
Notes to Consolidated Financial Statements
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates. The preparation of the Consolidated
Financial Statements in conformity with accounting principles
generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Principles of Consolidation. The accompanying Consolidated
Financial Statements include the accounts of Piccadilly
Cafeterias, Inc. and its subsidiaries (hereinafter referred to as the
Company). All significant intercompany balances and transac­tions
have been eliminated in consolidation.
Industry. The Company's principal industry is the operation
of Company-owned cafeterias primarily in the Southeast and
Mid-Atlantic regions of the United States.
Inventories. Inventories consist primarily of food and supplies
and are stated at the lower of cost (first-in, first-out method) or
market.
Property, Plant and Equipment. Property, plant and equip­ment
(PP&E) is stated at cost, except for PP&E that has been
impaired, for which the carrying amount is reduced to estimated
fair value. Depreciation is provided using the straight-line
method for financial reporting purposes on the following esti­mated
useful lives:
Buildings and component equipment
Furniture and fixtures
Machinery and equipment
I 0 - 30 years
IO years
4 years
Leasehold improvements are amortized over the original
lease term, including expected renewal periods if applicable .
The cost of leasehold improvements has been reduced by the
amount of construction allowances received from developers
and landlords . Repairs and maintenance expenditures are
charged to operations as incurred . Expenditures for renewals
and betterments which increase the value or extend the lives of
assets are capitalized and depreciated over their estimated use­ful
lives. When assets are retired, or are otherwise disposed of,
cost and the related accumulated depreciation are eliminated
from the accounts and any resulting gain or loss is included in
the determination of income.
Impairment of Long-Lived Assets. The Company reviews
long-lived assets, including goodwill, to be held and used in the
business for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset or a
group of assets may not be recoverable. The Company considers
a history of operating losses ro be its primary indicator of
potential impairment. Except for goodwill, assets are evaluated
for impairment at the cafeteria unit level. An asset is deemed to
be impaired if a forecast of undiscounted future operating cash
flows directly related to the asset, including disposal value, if any,
is less than its carrying amount. If an asset is determined to be
impaired, the loss is measured as the amount by which the
carrying amount of the asset exceeds its fair value. The Company
14 Piccadilly Cafeterias, Inc.
generally estimates fair value by discounting estimated future
cash flows . Considerable management judgment is necessary to
estimate cash flows. Accordingly, it is reasonably possible that
actual results may vary significantly from such estimates.
Goodwill recorded by the Company relates to the purchase of
Morrison. Goodwill is evaluated in total for the Morrison cafete­rias
acquired. If a Morrison cafeteria is determined to be impaired
or is closed, the Company records an impairment charge for the
cafeteria's pro rata portion of unamortized goodwill.
Income Taxes. The Company accounts for income taxes using
the liability method. Under this method, deferred income taxes
reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting
and the amounts used for income taxes.
Stock-Based Compensation. The Company accounts for its
stock compensation arrangements with employees under the
provisions of Accounting Principles Board (APB) No. 25,
Accounting for Stock Issued to Employees, and makes the pro forma
information disclosures required under the provisions of
Statement of Financial Accounting Standards (SFAS) I2 3 ,
Accounting for Stock-Based Compensation.
Earnings Per Share. Earnings per share of common stock are
calculated under the provisions of SFAS I28, Earnings Per Share.
Advertising Expense. The cost of advertising is expensed as
incurred. The Company incurred $4.8 million, $6-4 million, and
$5.8 million, in advertising costs during fiscal years 2 00I , 2 000
and I999, respectively.
Pending Accounting Pronouncements. In July 2 oo I, the
FASB issued SFAS I4I, Business Combinations, and SFAS I42,
Goodwill and Other Intangible Assets. SFAS I 4 I requires that the
purchase method of accounting be used for all business combi­nations
initiated after June 3 0 , 2 00 I . SFAS I4 I also specifies
the criteria which must be met in order for certain acquired
intangible assets to be recorded separately from goodwill. SFAS
I42 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be
tested for impairment annually or more frequently if circum­stances
indicate potential impairment. Furthermore, any good­will
or intangible asset determined to have an indefinite useful
life that is acquired in a purchase business combination com­pleted
after June 3 o , 2 oo I will not be amortized, but will con­tinue
to be evaluated for impairment in accordance with SFAS
I42. Goodwill acquired in business combinations completed
prior to July I, 2 00 I will continue robe amortized until SFAS
I42 is adopted. The Company will adopt SFAS I4I effective
July I, 2 00 I . The Company is required to adopt SFAS I42 in
July 2 002; however, the provisions of SFAS I 42 allow the
Company to early adopt the Statement effective July I, 2 00 I .
Upon adoption of SFAS I42, the Company will be required to
measure goodwill for impairment within the first year of
adoption as part of the transition process. Any impairment
resulting from this transition test will be recorded as a change
in accounting principle. The Company is currently evaluating
the potential impact of adoption on the Company's consolidated
financial statements, including the decision of whether or not to
early adopt SFAS I42. See Management's Discussion and
NOTE 2: SALE OF RALPH & KACOO'S
On March 30, I999, the Company completed the sale of the
Ralph & Kacoo's seafood restaurants and related commissary
business (Cajun Bayou Distributors and Management, Inc.) to
Cobb Investment Company, Inc. for $2 I. 3 million in cash. The
transaction resulted in a recorded gain of$ I .6 million and a net
tax benefit of $o.8 million.
The tax benefit was the result of the sale of the stock of Cajun
Bayou Distributors and Management, Inc. The tax basis in the
stock was $6. I million higher than the book basis in the stock
Analysis of Financial Condition and Results of Operations on
page I o for more information.
Reclassifications. Certain balances in prior years have been
reclassified to conform with the presentation adopted in the
current year.
due to differences that were not classified as temporary
differences under SFAS I09, and resulted in a loss on the stock
sale for tax purposes when compared to the amount recorded for
financial statement purposes. The tax loss on the stock sale
generated a net overall tax loss on the sale of Ralph & Kacoo's.
The remaining portion of the Ralph & Kacoo's business, a
catering facility sold on June I, I999, generated a gain of $0.5
million and is included in Other Income in fiscal I999·
NOTE 3: PROVISIONS FOR CAFETERIA IMPAIRMENTS AND CLOSINGS AND GOODWILL IMPAIRMENT
During fiscal 2 oo I, the Company recorded asset impairment
charges of$ I o. 7 million for property, plant and equipment,
lease-related costs of$ 3. 2 million related to cafeterias for which
closure decisions were made, and $5 .o million for goodwill
impairment.
During fiscal I999, the Company recorded charges of $r.4
million for asset writedowns and the lease-related costs of
cafeterias for which closure decisions were made. The closure
decisions primarily related to certain Piccadilly cafeterias
expected to close in connection with the Morrison Acquisition.
At June 30, 200I, the Company was responsible for mini­mum
rent obligations of$ I 3. I million related to 22 closed cafe­terias
and I3 cafeterias closed onJuly 3I, 200I, $3.6 million of
NOTE 4: MANAGEMENT REORGANIZATION
In May 2 oo I, the Board of Directors approved a manage­ment
reorganization plan, which eliminated 2 5 executive and
district operations management positions. In connection with
this reorganization, the Company recorded a charge of $I. 5
NOTE 5: INCOME TAXES
which relates to the Morrison Acquisition. Sublease arrange­ments
exist relating to I 5 of these cafeterias providing for future
sublease rentals of $9.6 million. The Company has recorded lia­bilities
of$ 8. 5 million to settle the minimum rent obligations
and other lease-related charges. During fiscal 2 oo I and 2 ooo,
the Company charged$ I ·4 million and $2.6 million, respec­tively,
against these reserves for lease settlements and lease­related
payments, net of sublease rentals received, of which
$I. I million and $I. 8 million, respectively, relate to the
Morrison Acquisition. During fiscal I999, the Company charged
$2. I million against these reserves for lease settlements and lease­related
payments, net of sublease rentals received, of which $I. I
million relate to the Morrison Acquisition.
million related to severance costs, in accordance with EITF 94-
3. Substantially all of the $I. 5 million of severance costs was
paid as of June 30, 200I.
Significant components of the Company's deferred tax liabilities and assets are as follows:
(Amounts in thousands)
june30 2001 2 000
Deferred tax assets:
Accrued expenses $ 7,447 $ 8,672
Cafeteria closing reserves ........ .. .............................................. . 3,28I 4,222
NOLand tax credit carryforwards .................................... . ............. . I4,73I I I ,820
25,459 24,7 I4
Valuation allowance ............................................................ . (I5,743)
9,7I6 24,7 I4
Deferred tax liabilities:
Property, plant and equipment .................................................... . 6,568 I3,I27
Prepaid pension costs ........................................................... . I,677 2,04I
Inventories ................................................................... . I,47I IA74
(9,7I6) I 6,642
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 8,072
Piccadilly Caftterias, Inc. I5
Notes to Consolidated Financial Statements (Continued}
NOTE 5: INCOME TAXES (Co ntinued)
At June 30, 2001, the Company had net operating loss
carryforwards of$ 32.5 million and general business tax credit
carryforwards of $r.4 million, including $q,234,000 and
$o. 3 million resulting from the Morrison Acquisition. These
carryforwards expire from 2 o I o through 2 o 2 I. At June 3 o ,
2000, the Company had deferred tax assets of $24.7 million.
Statement of Financial Accounting Standards No. 10 9,
Accounting for Income Taxes, (SFAS I 09) specifies that deferred
tax assets be reduced by a valuation allowance if it is more likely
than not that some portion of the deferred tax assets will not be
realized. At June 30, 2000, the Company provided no valuation
allowance for deferred tax assets because management believed
that the deferred tax assets were realizable through future rever­sals
of existing taxable temporary differences, and, if necessary,
the implementation of tax planning strategies, including sale­leaseback
transactions.
For the year ended June 30, 200 1, the Company recorded a
net loss before income taxes and extraordinary charge of $2 5-4
million and an extraordinary charge of $ 2. 5 million resulting in
cumulative pretax losses for recent years.
Accounting rules require that more restrictive criteria be
used to consider the book value of deferred assets in certain
circumstances. As a direct result of the $9.9 million impairment
charge in the third quarter of fiscal 2 oo I, the Company
provided a$ I 5. 7 million valuation allowance for its deferred
taxassetsasofJune 30,2001.
The components of the provision for income taxes are as follows:
(Amounts in thousands)
Year Ended June 3 0 2001 2000 1999
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ I ,2 I 3 $(3 ,826)
State ........................................................... . 51 (r 6 o )
1,264 (3 ,986)
Deferred:
Federal (8 14) 4,234
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323 (34) I77
(848) 4,41 I
Total provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,072 $ 416 $ 425
Differences between the provision for income taxes and the amount computed by applying the federal statutory income tax rate
to income before income taxes were as follows:
(Amounts in thousands)
Year Ended June 3 0 2001 2 000 1999
Income taxes at statutory rate . ............ . ....... . .................... . $(9,498) $ 961 $ I ,505
State income taxes, net of federal taxes . . ............ . ......... . ......... . . (I,I J7) 113 177
(ro,6I5) 1,074 r,682
Sale of Ralph & Kacoo's ...... ... .. . ...... ..... . . ...... ..... .... . ..... . (r,rs8)
Goodwill amortization and impairment . . ....... . ...... . ...... . .. . . . ..... . I,97I 132 q8
Tax credits ..... . ...... . ........................................... . (I 8 I) (I q) (I 58)
Valuation allowance ............. . .... . ............ . ................. . I5,743
Reversal of overaccrual ... ..... ..... ....... ..... .... ....... ........... . (786)
O ther items ......................................... . ............. . I,I 54 113 (I I 9)
Total provision for income taxes ........ . ......... . ..... ... ............. . $ 8,072 $ 416 $ 425
====
16 Piccadilly Cafeterias, Tnc.
NOTE 6: LEASED PROPERTY
The Company rents most of its cafeteria and restaurant
facilities under long-term leases with varying provisions and
with original lease terms generally of 20 to 30 years. The
Company has the option to renew certain leases for specified
periods subsequent to their original terms. Minimum future
lease commitments, as of June 30, 200 I, including $I 3. I mil­lion
for closed cafeterias, are as follows:
Year Ended June 3 0
2002
2003
2004
2005
2006
Subsequent . .... . .......... . .. . ....... . .
(Amounts in thousands)
$ 2I,3II
I8,326
I6,3 7 I
I4,I65
II,587
62,986
I44,746
Less sublease income . . . . . . . . . . . . . . . . . . . . . . 9, 8 I o
Net minimum lease commitments . . . . . . . . . . . $I34,936
NOTE7: DEBT
On December 2 I, 2000 , the Company closed a debt offering
of (I) 7 I ,ooo "A" units consisting in the aggregate of $ 7 I .o
million principal amount of Senior Secured Notes due fiscal
2007 and warrants to purchase 7 46,2 I o shares of its common
stock and (2) 4,500 "B" units consisting in the aggregate of
$4.5 million principal amount ofTerm B Notes due fiscal2007
(secured equally with the Senior Secured Notes) and warrants to
purchase 4 7,2 9 5 shares of its common stock. In addition, the
Company entered into a $ 5. 5 million Term Loan Credit Facility
with warrants to purchase 57,805 shares of common stock.
Amounts borrowed under the Term Loan Credit Facility are sub­ject
to terms substantially similar to those of the Term B Notes
due fiscal 2007 included as part of the "B" units. The warrants
will expire on November I, 2007 and each warrant entitles the
holder to purchase I o. 5 I shares of the Company's common
stock at an exercise price per share of $ I. I 687 5.
The $8 I .o million in notes and term loan was sold at a
discount, and the gross proceeds from the offerings were approx­imately
$7 2 ·9 million. After paying transaction costs, the
Company used the net proceeds from the unit offerings and
borrowings under the Term Loan Credit Facility to repay
approximately $67 .o million in borrowings outstanding under
the Company's credit facility that was scheduled to mature on
June 22, 200 I .
Interest is payable semiannually on the Senior Secured Notes
at an initial annual rate of I 2% , subject to annual adjustment
beginning November I, 2 00I. The interest rate will be
ad justed each year to I2.o% plus o.so% for every $ r.o million
of EBITDA (for the preceding fiscal year) in excess of$ 2 7. o
million, not to exceed a I. 5 % increase in any year, and not to
exceed a rate of I 6. 5%. Interest is payable quarterly, beginning
February, I, 2 oo I, on the Term B Notes and the Term Loan
The leases generally provide for percentage rentals based on
sales. Certain leases also provide for payments of executory costs
such as real estate taxes, insurance, maintenance and other
miscellaneous charges. Rentals for the periods shown below do
not include these executory costs.
(Amounts in thousands)
Year Ended June 30 200I 2000 1999
Minimum
rentals ..... $I7,844 $ I5,5I3 $I5,95 0
Contingent
rentals •• 0 . 0 2,786 3,I6o 4,998
Total .... . ... $20,630 $ I8,673 $2 0 ,948
Credit Facility at a floating rate equal to LIBOR plus 4.5 % .
The exercise price for the warrants is $ I. I 687 5, which was
I I o% of the closing sales price of the common stock on the date
prior to closing.
The Company is required on the last business day of
September of each year to make an excess cash flow offer to
purchase Term A Notes and prepay amounts outstanding under
the Term Loan Credit Facility at I o I % of the aggregate princi­pal
amount plus accrued interest for the most recently com­pleted
fiscal year that excess cash flow (defined as EBITDA less
interest expense, income tax expense, and capital expenditures)
is at least $2.5 million. This excess cash flow offer is limited to
the lesser of (i) excess cash flow that is greater than $2. 5 million
or (ii) $5. o million. If excess cash flows are greater than $ 5. o
million, the Company is required to offer to prepay amounts
outstanding under the Term Loan Credit Facility at I o I % of
the aggregate principal amount plus accrued interest. This addi­tional
excess cash flow offer is limited to so% of the amount by
which excess cash flow exceeds $5 .o million. The excess cash
flow offer and the additional excess cash flow offer, if such
offer(s) are made, must remain open for a period of 20 business
days. The Company did not have excess cash flows for fiscal
200 I .
Concurrently with the debt offerings, the Company entered
into a $25.0 million Senior Credit Facility with two banks to
replace the previous credit facility. The Senior Credit Facility
expires on December 3 I, 2 o o 3. Amounts borrowed under the
Senior Credit Facility bear interest at variable rates based upon
the Company's leverage ratio. The Senior Credit Facility
supports existing commercial letters of credit and working
capital needs . The letters of credit collateralize the Company's
retention limits under self-insurance arrangements for liability
Piccadilly Cafeterias, Inc. 1 7
Notes to Consolidated Financial Statements (Continued)
NOTE 7: DEBT (Continued)
and casualty losses. The Senior Credit Facility contains financial
covenants related to the Company's leverage ratio, tangible net
worth and capital expenditures. The Company is in compliance
with all covenants at June 3 o , 2 oo I.
On March 30 , 200 I, the Company completed a sale-lease­back
transaction of I 2 properties. The Company received $ 2 o . o
million in cash for the sale of the properties and simultaneously
executed long-term leases that provide for continued operation of
cafeterias at the sites for a primary term of 20 years and optional
renewal periods for up to 20 additional years. The Company used
substantially all of the net proceeds to make open-market
purchases of $ I 6.o million of its I 2% Senior Secured Notes due
fiscal 2007 and $4.5 million of its floating rate Term B Notes
due fiscal 2007. The Company recorded a $2.5 million extraor­dinary
charge, primarily for the writeoff of deferred financing
costs associated with the extinguished debt. The sale of the I 2
properties resulted in a $ I. 3 million deferred gain, which will be
amortized over the initial term of the lease. Net rent expense dur­ing
the initial term will be approximately $2.3 million annually.
The assets sold and leased back previously had depreciation
expense of approximate! y $ o . 8 million annually.
Upon the sale of the I 2 properties, the total borrowing avail­ability
under the Company's Senior Credit Facility was reduced
from $ 25.0 million to $r9.2 million.
On July 3 I, 200 I, the Company completed a sale-leaseback
transaction of six properties. The Company received approxi­mately
$9.0 million in cash for the sale of the properties and
simultaneously executed long-term leases that provide for
continued operation of cafeterias at the sites for a primary term
of 2 0 years and optional renewal periods for up to 20 additional
NOTE 8: PENSION PLANS
The Company has a defined benefit pension plan covering
substantially all employees hired before January I, 2000, except
for Morrison employees, who meet certain age and length-of­service
requirements. Retirement benefits are based upon an
employee's years of credited service and final average compensa­tion.
Annual contributions are made in amounts sufficient to
fund normal costs as accrued and to amortize prior service costs
over a 40-year period. Assets of the plan are invested principally
in obligations of the United States Government and other mar­ketable
debt and equity securities including 367,662 shares of
the Company's common stock held at June 30, 200I and 2000
with a fair value of $.6 million and $I .o million, respectively.
At the time of its acquisition by the Company on May 28, I998,
Morrison maintained two nonqualified employee defined benefit
pension plans and one frozen qualified defined benefit pension plan.
The two Morrison nonqualified employee defined benefit
pension plans continue to accrue benefits for covered employees.
rB Piccadilly Cafeterias, luc.
years. See the "Liquidity and Capital Resources" section of
Management's Discussion and Analysis for more information.
The Senior Credit Facility contains financial covenants that
require the Company, among other things, to maintain a
minimum level of tangible net worth. At March 3 I, 200 I, the
tangible net worth required to be maintained by the Company
was $ 3 6 . 8 million. As a direct result of the $9.9 million charge
for cafeteria impairments recorded in the quarter ended March
3 I, 2 oo I, the Company's tangible net worth declined to
approximately $ 3 3 . I million, and the Company was not in
compliance with the the financial covenant.
On June 29, 200I, the Company reached an agreement with
its bank lenders to amend the Company's Senior Credit Facility.
The amendment waived the third quarter violation and lowered
the required minimum tangible net worth.
On July 3I , 200I, the Company and its bank lenders
amended the Senior Credit Facility, which further lowers the
tangible net worth requirement. See further discussion on the
Company's credit facilities in the "Liquidity and Capital
Resources" section of Management's Discussion and Analysis.
Because of the Company's credit rating and changes to it
during fiscal 2 o o I, and because no active market has developed
for the notes, it is not practicable to estimate the fair value of the
Company's long-term borrowings.
The Company capitalized interest.costs of $o. I million in
fiscal 2000 and in fiscal I 999 with respect to qualifying
construction. Total interest cost, including amortization of
deferred financing costs, was $ ro.o million in fiscal 200 I, $7.3
million in fiscal 2000, and $6.4 million in fiscal I999·
To provide a source for the payment of benefits under these plans,
the Company owns whole-life insurance contracts on some
participants.
Piccadilly is a co-sponsor of the Morrison Restaurants Inc.
Retirement Plan along with Ruby Tuesday, Inc. and Morrison
Management Specialists, Inc. The MRI Retirement Plan,
a qualified defined benefit pension plan, was frozen on
December 3 I, I987. The Plan's assets include common stock,
fixed income securities, short-term investments and cash. The
Company will continue to share in future expenses of the Plan,
and will make contributions to the Plan as necessary.
Changes in plan assets and obligations during the years ended
June 30, 200 I and 2000 and the funded status of the defined
benefit pension plans described in the preceding paragraphs
(referred to collectively as "Pension Benefits") at June 30, 200I
and 2000, were as follows:
(Amounts in thousands)
Pemion Benefits
june30 200!
Change in benefit obligation:
Benefit obligation at beginning of year ................................................. $ 77,803
Service cost . ....... ... ..................... ...... ................. ... ..... ....... .
Interest cost ........................................... . ......................... .
Benefits paid ...... ......... ... .................. .......................... .... .. .
Actuarial (gain) loss ............................................................... .
2,208
6,070
(4.301)
3,277
-----
Benefit obligation at end of year ...................................................... $ 8 5,05 7
Change in plan assets:
Fair value of plan assets at beginning of year ............................................. $ 77,986
Actual return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 5 ,4 7 I)
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,040)
Actuarial gain (loss) ............................................................... .
-----
Fair value of plan assets at end of year .................................................. $ 68,4 7 5
Reconciliation of funded status:
Funded status ..................................................................... $(16,582)
Unrecognized actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,848
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (I 8)
Net prepaid pension cost ..... ... ....... .... ..... .......... .... ................ . . .... $
====
Net prepaid pension cost consists of:
Prepaid benefit cost .............................................................. . . $
Accrued benefit liability ................................... ......... .... .... ...... .. .
Net prepaid pension cost ............................................................ $
====
2000
$ 76,553
2,447
5.797
(4,o65)
(2,929)
$77,803
$ 77,649
4,I35
(3,823)
25
$ 5,835
(4,468)
$ I ,367
Net periodic pension cost for the Pension Benefits for fiscal years 200I, 2000 and I999 include the following components:
(Amounts in thousands)
june30 2001 2 000 1999
Net pension expense:
Service cost ................................................. . ....... . $ 2,208 $ 2,447 $ 2,7 I7
Interest cost on projected benefit obligation ............................... . 6,070 5.797 5,475
Actual return on plan assets ..... ............... ........ ....... ......... . 5·47I (4, I 35) (6, I 36)
Net amortization and deferral .......................................... . (12,368) (2,756) (5)
$ I,381 $ I ,3 53 $ 2,05 I
Assumptions used in actuarial calculations were as follows:
(Amounts in thousands)
june30 2001 2000 1999
Actuarial assumptions:
Discount rate .. ........ .... .............. . . ... .... ..... ............. . 7·75% 8.o% 7-75%
Compensation increases ...... .................................. . ...... . 3·5% 3.5% 3.5%
Long-term rate of return ............................................... . 9-0% 9.0% 9.0%
The Company sponsors defined contribution plans for sub­stantially
all of its full-time employees under which the
Company matches a portion of the employee contribution.
Contributions by the Company to the plans for fiscal 2 oo I,
2000, and I999 were $o.7 million, $0.5 million and $o.6
million, respective! y.
Piccadilly Cafeterias, Inc. 19
Notes to Consolidated Financial Statements (Continued)
NOTE 9: COMMON STOCK
On August 3 , 1987, the Board of Directors adopted the
Piccadilly Cafeterias, Inc. Dividend Reinvestment and Stock
Purchase Plan. Shareholders of record may reinvest quarterly
dividends and/or up to $ 5,000 per quarter in the Company's
common stock. Stock obtained through reinvested dividends is
issued at a 5% discount. At June 30, 2001, there were 255, 389
unissued common shares reserved under the plan.
On November 2, 1998, the Company's stockholders
approved the Amended and Restated Piccadilly Cafeterias, Inc.
1993 Incentive Compensation Plan (the 1993 Plan). Under the
terms of the plan, which amends and restates the Piccadilly
Cafeterias, Inc. 1988 Stock Option Plan (the 1988 Plan),
incentive stock options and nonqualified stock options, stock
appreciation rights, stock awards, restricted stock, performance
shares, and cash awards may be granted to officers, key employ­ees,
or the Chairman of the Board of Directors of the Company.
Options to purchase shares of the Company's common stock may
be issued at no less than roo% of the fair market value on the
date of grant . The Company has reserved 1,45o ,ooo shares, in
total, for issuance under the 1993 and 1988 Plans. At
June 30, 200 1,481,650 shares were available for future option
grants and options to purchase 86r ,750 shares were exercisable.
Options outstanding at June 30, 2001, have exercise prices which
range from $2.69 to $ 12.00 and a weighted average remaining
contractual life of7.5 years. Transactions under the 1993 Plan
for the last three years are summarized as follows:
(Dollars in thousands- except per share data)
Common Stock Weighted A verage
Shares Exercise Price Total
Outstanding at June 30, 1998 . .. . . . ... . .. . .. . .. . ........ . . . . .. . ..... . . . 8r4,675 $ I 1.52 $ 9,383
Canceled/expired .. . .... . ............ .. ..... . ....................... . (29,900) I o. 5o (3 14)
Exercised . . . ...... .. ...... . ........ . ...... . .. . . .. . ........ . ........ . (17 ,6oo) 10. 10 (q8)
Granted . . ... ... ... .. .... . .. . . . .... . . . .. . ...... . ....... . .......... . r62,725 9·5 I r ,548
Outstanding at June 30, 1999 ..... . ......... . ............. . .... . ... . .. . 929,900 I I .2 3 10 ,439
Canceled/expired ..... . ....................... .. ............ . .. . .. . . . (5o,ooo) 9·63 (48 r)
Exercised ................ . ............... . ... . ......... .. ... . ...... .
Granted . . . .. .... . . . .. . ....... . ...... . ................ . ........... . 12,000 3 ·3 I 4 0
Outstanding at June 30, 2000 . ... .. ..... . ......... . . . ..... . .... ... .. . . . 89 I ,900 I I .2 I 9,998
Canceled/expired ... . . . ... . ....... . .. ... .. . ............ . .... . .... . .. . (254,950) 10.76 (2, 743)
Exercised . ... . . ..... . .... .... ...... .. . . .. .. . . ... . ......... . .. . . . ... .
Granted ................ . ..... . .... .... .. . .. . .. . .......... . ....... . 224,800 2.69 6o4
Outstanding at June 30, 2001 ................. . .... . .. . . . ... . .. . ..... . . 861,750 $ 9.12 $ 7,859
PRO FORMA SFAS 123 RESULTS. Pro forma informa­tion
regarding net income and net income per share is required
by SFAS 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value
method of SFAS 123. Pro forma net income and net income per
share, assuming that the Company had accounted for its
employee stock options using the fair value method, would not
have been materially different from the amounts reported in the
Company's Consolidated Statements of Operations for each of the
three years in the period ended June 30 , 2001.
20 Piccadilly Cafocerias, inc.
EARNINGS PER SHARE. A reconciliation of the income
and common stock share amounts used in the calculation of basic
and diluted net income per share for the years ended June 30 ,
200 I, 2000 and 1999 are as follows (net income in thousands).
For the Year Ended June 30, 2001
Basic net income (loss) ............................................... .
Effect of dilutive securities ............................................ .
Diluted net income (loss) ................ .... . ...... .... ... ........... .
Potentially dilurive securities not included in the fully diluted computation
because they would have been antidilutive .. .. ..... ... .. . ............ .. . .
For the Year Ended june 30, 2000
Basic net income .................................................... .
Effect of dilutive securities ............. . ..... . ........................ .
Diluted net income ............................ . .... ... ...... . ....... .
Potentially dilutive securities not included in the fully diluted computation
because they would have been antidilutive .... .... . .... . ................ .
For the Year Ended june 30, 1999
Basic net income .................................................... .
Effect of dilutive securities ............................................ .
Diluted net income .................................................. .
Potentially dilutive securities not included in the fully diluted computation
because they would have been antidilutive .......... ......... .. ..... .... .
NOTE 10: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Year Ended june 30, 2001
9130 12131 3131 6/30
Net Income (Loss)
$(33.5IO)
$(33,5 Io)
$ 2,4I I
$ 2,4I I
$ 4,000
$ 4,000
Shares
I0,503,368
I0,503,368
96I,750
I0,503,368
I0,503,368
89I,900
I0,503,368
25,458
I0,528,826
929,900
Per Share
Amount
$ 0.23
$ 0.23
(Amounts in thousands- except per share data)
YearEnded]une3~2000
9130 12131 3131 6/30
Net sales ........ .... ..... $I09,555 $I I I ,202 $I03,353 $Ioo,o53 $II4,I26 $r I6,368 $II0,022 $I09,760
Cost of sales and
other operating expenses ... I05,530 Io6,498 97,646
Operating income .......... 4,025 4,704 5,707
Income (loss) before
extraordinary charges ..... (I,933) (587) (24·5 q)
Net income (loss) •••••• 0 ••• (I,933) (587) <27,037)
Income (loss) before
extraordinary charges per
share- basic and diluted .. $ (.I 8) $ (.o6) $ (2.33)
Net income (loss) per share
-basic and diluted ...... $ (.I8)$ (.o6) $ <2·57)
During the quarter ended September 30, 2000, the
Company recorded a charge of $o.8 million related to eight
cafeterias closed in fiscal 2 oo I. The charge includes amounts for
asset impairments, future rent commitments and goodwill
impairment for four Morrison cafeterias included in the group
(see Note 3).
During the quarter ended March 3I, 200I, the Company
recorded asset impairment charges of $9.9 million related to 6I
cafeterias, including 4 7 cafeterias included in the Morrison
Acquisition. The Company also recorded a charge of $4.7
95.728 III,353 Io8,782 I03,076 I03 ,393
4,325 2,773 7,586 6,946 6,367
(6,4 73) (I,6I2) I,475 872 I,676
(6,473) (I,6I2) I,475 872 I,676
$ (.62) $ (.I 5) $ . I4 $ .o8 $ .I6
$ (.62) $ (.I 5) $ .I4 $ .o8 $ .I6
million for the impairment of goodwill (see Note 3). In connec­tion
with the Company's sale-leaseback transaction on March
30, 200I, the Company recorded a $2.5 million extraordinary
charge for the early retirement of debt (see Note 7).
During the quarter ended June 30, 200 I, the Company
recorded a charge of$ 3. I million for lease-related costs for the
closing of I4 cafeterias and asset impairment charges of $0.3
million (see Note 3). Additionally, the Company recorded a
$I . 5 million charge for severance costs related to the Company's
management reorganization (see Note 2).
Piccadilly Cafeterias, Inc. 21
Report of Ernst & Young LLP, Independent Auditors
The Shareholders and Board of Directors
Piccadilly Cafeterias, Inc.
We have audited the accompanying consolidated balance
sheets of Piccadilly Cafeterias, Inc. as of June 3 0 , 2 00 I and
2 000, and the related consolidated statements of operations,
changes in shareholders' equity, and cash flows for each of the
three years in the period ended June 3 0 , 2 0 0I. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits w accordance with auditing
standards generally accepted w the United States. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on
New Orleans, Louisiana
September I I, 2 00 I
2 2 Piccadilly Cafoterias, Inc.
a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Piccadilly Cafeterias, Inc. at June 3 0 , 2 00 I and
2 000, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended June 3 0 ,
2 00I in conformity with accounting principles generally accepted
in the United States.
Board of Directors and Officers and Corporate Information
Board of Directors
Ronald A. LaBorde (4)
Chairman and Chief Executive Officer
Joseph H . Camp bell, Jr. (1,2)
President and Chief Executive Officer,
Associated Grocers, Inc.
Norman C. Francis (2,4*)
President of Xavier University
of Louisiana
Robert P. Guyton (3*,4)
Financial Consultant
J ames A. Perkins (3)
Financial Consultant
Dale E. Redman (1*,3)
Partner, Windward Capital
Christel C. Slaughter (1,2)
Vice President and Partner,
SSA Consultants, Inc.
C. Ray Smith (2*,4)
Executive D irector and Proftssor,
Darden School Foundation,
University of Virginia
J ames F. White, Jr. (1 , 3)
Of Counsel, Shumaker, Loop and
Kendrick, Toledo, Ohio
Advisory Director
Julia H.R. Hamilton
Personal Investments
(1) Executive Committee
(2) A udit Committee
(3) Compensation Committee
(4) Nominating Committee
*denotes Committee Chairman
Chief Executive Officer
Ronald A. LaBorde
President and Chief
Operating Officer
Azam Malik
Executive
Vice Presidents
W. Scott Bazzell
Secretary and Controller
Brian C. Dixon
Marketing
Frederick E. Fuchs, Jr.
Real Estate and Construction
Mark L. Mestayer
Chief Financial Officer
and Treasurer
Patrick R. Prudhomme
Purchasing, Research and
D evelopment
Christopher P. Sanchez
Operations Services
Donovan B. Touchet
Information Systems
Regional Managers
Ronnie K. Bass
Michael T. Buckles
J errel W. Carter
Larry Cox
Frank A. Frantom
C. Mike Kincaid
David M. Misterka
Jim F. Wilson
Joel A. Zellner
Vice Presidents
Harry]. Fitzgerald, Jr.
Maintenance Director
Patrick J . McDonough
Loss Control M anager
J eani ta K. Slaton
Director of Employee Benefits
Stock Listing
The Company began in 1944
and made its initial public
offering of common stock in
1979. Ir became listed on the
N ew York Stock Exchange in
199 3 and is listed under the
symbol "PIC".
Annual Shareholders,
Meeting
The annual meeting of the
shareholders of Piccadilly
Cafeterias, Inc. will be held
at the General Offices of the
Company, 3232 Sherwood
Forest Blvd., Baton Rouge,
Louisiana at r o :oo a.m. on
Monday, November 5, 2001.
Registrar and
Stock Transfor Agent
Equiserve Trust, N.A.
P. O. Box 8218
Boston, MA 02266-82 18
Tel: (800) 633-4236
Auditors
Ernst & Young LLP
New Orleans, Louisiana
SEC Counsel
Jones, Walker, Waechter,
Poitevent, Carrere &
Denegre, L.L.P.
New Orleans, Louisiana
General Office
P.O. Box 2467
Baton Rouge, Louisiana 70821
Tel: (225) 293-9440
Fax: (225) 296-8370
Web Site
www.piccadilly.com
Form 10-K
Copies of the Form r o-K
as filed with the SEC are
available, without charge,
upon request. Please contact:
Investor Relations
Piccadilly Caftterias, Inc.
P. 0. Box 2467
Baton Rouge, Louisiana 7082 1
Alternatively, the Form r o-K
as filed with the SEC may
be obtained by visiting the
Company's website at
www.piccadilly.com.
Stock Information
The Company's common stock is traded on the New York
Stock Exchange under the symbol "PIC." The following table
sets forth the high and low sales prices for each quarter within
Per Share
Cash
Quarter High Low Dividends
Year ended 1St $ 3·19 $ 2.00 $
June 30, 2001 2nd 2.44 r.o6
3rd 2.63 !.38
4th !.95 1.45
the last two years. As of September r o, 2001, there were approx­imately
2,50 5 record holders of the Company's Common Stock.
Per Share
Cash
Quarter High Low Dividends
Year ended 1St $ 8 .38 $ 6.50 $ .12
June 30, 2000 2nd 6.88 3 .0 6 . I 2
3rd 4·25 2.63
4th 3·2 5 2.63
Piccadilry Cafeterias, Inc. 23
Piccadilly Cafeterias, Inc.
P.O. Box 2467
Baton Rouge, Louisiana 7082I
www.piccadilly. com