UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended June 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _______________ to ____________________
Commission file Number 0-9037
Piccadilly Cafeterias, Inc.
(Exact name of registrant as specified in its charter)
Louisiana 72-0604977
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3232 Sherwood Forest Blvd., Baton Rouge, Louisiana 70816
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (504) 293-9440
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing price of such stock on August 26, 1997 was
$ 118,459,622.
The number of shares outstanding of Common Stock, without par value, as of
August 26, 1997 was 10,528,368.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended June
30, 1997 are incorporated by reference into Part II.
Portions of the definitive proxy statement for the 1997 annual meeting of
shareholders are incorporated by reference into Part III.
PART I
Item 1. Business
General Development of Business
Piccadilly Cafeterias, Inc. was incorporated under the laws of Louisiana in
1965 and is the successor to various predecessor corporations and partnerships
which operated "Piccadilly" cafeterias beginning with the acquisition of the
first unit in 1944. Except where the context otherwise indicates, the terms
"Company", "Piccadilly", and "Registrant" as used herein refer to Piccadilly
Cafeterias, Inc.
At June 30, 1997, the Company operated 129 cafeterias in 15 states. Of
these, 56 are in suburban malls, 22 are in suburban strip centers, and 51 are
free-standing suburban locations. Up to six new cafeterias are expected to be
opened during the year ending June 30, 1998. The following table sets forth
certain information regarding development of the Company's cafeteria chain
during the five years ended June 30, 1997:
- -------------------------------------------------------------------------------
Year Ended June 30 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------
Net sales per unit (in thousands)(A) $2,179 $2,058 $1,990 $1,916 $1,868
- -------------------------------------------------------------------------------
Units opened 3 1 5 3 1
- -------------------------------------------------------------------------------
Units closed 4 3 3 4 11
- -------------------------------------------------------------------------------
Units open at year-end 129 130 132 130 131
- -------------------------------------------------------------------------------
Total customer volume (in thousands) 49,483 49,629 48,274 48,098 50,564
- -------------------------------------------------------------------------------
(A) Excludes cafeterias opened or closed during period.
At June 30, 1997 the Company operated seven "Ralph and Kacoo's" seafood
restaurants in Louisiana, Alabama, and Mississippi. No additional Ralph &
Kacoo's seafood restaurants are expected to be opened in the year ending June
30, 1998. The following table sets forth certain information regarding the
Company's "Ralph and Kacoo's" seafood restaurant chain during the five years
ended June 30, 1997:
- --------------------------------------------------------------------
Year Ended June 30 1997 1996 1995 1994 1993
- --------------------------------------------------------------------
Net sales per unit (in $3,509 $3,428 $3,394 $3,344 $3,362
thousands) (A)
- --------------------------------------------------------------------
Units opened 0 0 1 0 0
- --------------------------------------------------------------------
Units closed 1 0 0 0 2
- --------------------------------------------------------------------
Units open at year-end 7 8 8 7 7
- --------------------------------------------------------------------
(A) Excludes restaurants opened or closed during period.
Although the Company's operations are primarily in the southern, southwestern,
and western regions of the United States, the Company does not consider its
growth to be limited to such areas. Piccadilly evaluates numerous potential
expansion locations, focusing on demographic data such as population
densities, population profiles, income levels, traffic counts, as well as
the extent of competition. The number of new cafeterias and restaurants that
the Company can open depends upon its ability to secure appropriate locations,
generate necessary financial resources, and develop personnel for expansion.
Cafeteria and Restaurant Operations
The Company's traditional cafeterias seat from 250 to 450 customers each. During
1997, the Company completed the design of a new cafeteria prototype. The
prototype has approximately 6,000 square feet compared to the Company's 10,000
square feet traditional cafeteria and seats from 165 to 200 customers. This
smaller cafeteria allows the Company to access a broader range of markets. Two
of the three cafeterias opened in fiscal year 1997 used the new prototype
design.
Each cafeteria unit offers a wide variety of food, at reasonable prices, and
with the convenience of cafeteria service, to a diverse luncheon and dinner
clientele. Cafeteria personnel cook and prepare from scratch substantially all
food served. All items are prepared from standardized recipes. Menus are varied
at the discretion of unit management in response to local and seasonal customer
preferences.
Through an agreement with Associated Grocers, Inc., a Baton Rouge-based
association of 235 food stores in Louisiana, Mississippi and Texas, the Company
has begun placing small cafeterias in grocery stores. The agreement with
Associated Grocers, Inc. allows the Company to rent a portion of the space
within the supermarket. These mini cafeterias, called Piccadilly Express,
feature a scaled-down version of the cafeteria serving counter and feature many
of the Company's most popular items that are prepared on-site. This initiative
focuses on the take-out segment of the Company's business by providing home meal
solutions through convenient customer alternatives while leveraging the high
traffic flow of grocery stores. Some seating capacity is provided within the
Piccadilly Express when space is available.
Like most industry participants, the Company purchases foodstuffs in small
quantities from local and regional suppliers in order to better assure
freshness. As a result, inventory is kept relatively low; average per-
cafeteria-inventory at June 30, 1997 was $15,500.
Ralph & Kacoo's restaurants seat from 250 to 600 customers each. These
restaurants are full-service menu facilities. All of the food served is cooked
and prepared by the restaurant staff from standardized recipes. Substantially
all of the food, supplies, and other materials required for the preparation of
meals are supplied by the Company-owned commissary.
The commissary, located in Baton Rouge, Louisiana, contains approximately 26,500
square feet of restaurant food and supplies storage. Seafood accounts for
approximately 50% of inventory at the commissary. In order to provide
consistent quality, selection, and price throughout the year, the commissary
purchases in-season seafood in quantities sufficient to supply the restaurants
during periods when such products would otherwise not be available at reasonable
prices in the marketplace. On the average, seafood inventory turns
approximately once every four months. Inventory maintained at the commissary at
June 30, 1997, was approximately $2,575,000 while the average "Ralph and
Kacoo's" restaurant inventory level at year-end was approximately $43,800. The
commissary is not dependent upon a single supplier nor a small group of
suppliers.
Each cafeteria, express unit, and restaurant is operated as a separate unit
under the control of a manager and associate manager who have responsibility for
virtually all aspects of the unit's business, including purchasing, food
preparation, and employee matters. Twelve district managers, under the
supervision of one general manager, and the chief executive officer oversee and
regularly inspect cafeteria operations. Two district managers, under the
supervision of a general manager and the chief executive officer, oversee
restaurant operations. The Company employed approximately 8,200 persons at June
30, 1997, of whom all but 69 corporate headquarters employees worked at
Piccadilly's 139 cafeteria and restaurant locations and its commissary.
The food service industry is highly competitive. Competitive factors include
food quality and variety, price, customer service, location, the number and
proximity of competitors, decor, and public reputation. The Company considers
its principal competitors to be other cafeterias, casual dining venues, and
fast-food operations. Like other food service operations, the Company is
attuned to changes in both consumer preferences for food and habits in
patronizing eating establishments.
Customer volume at established cafeterias and sales volume at established
restaurants are generally higher in the Company's second fiscal quarter and
lower in the third quarter. These patterns reflect the general seasonal
fluctuations of the retail industry.
Cost of sales is affected by statutory minimum wage rates. The Company's
operations are subject to federal, state, and local laws and regulations
relating to environmental protection, including regulation of discharges into
the air and water, and relating to safety and labor, including the Federal
Occupational Safety and Health Act and wage and hour laws. Additionally, the
Company's operations are regulated pursuant to state and local sanitation and
public health laws. Operating units utilize electricity and natural gas, which
are subject to various federal and state regulations concerning the allocation
of energy. The Company's operating costs have been and will continue to be
affected by increases in the cost of energy.
Item 2. Properties
All but 23 of the cafeterias, express unit, and restaurants operated by the
Company at June 30, 1997, were operated on premises held under long-term leases
with differing provisions and expiration dates. The 23 cafeterias and
restaurants not operated on premises held under long-term leases are owned.
Leases provide for monthly rentals, typically computed on the basis of a fixed
amount plus a percentage of sales. Most leases contain provisions permitting
the Company to renew for one or more specified terms. These leases are scheduled
to expire, exclusive of renewal provisions, as follows:
-------------------------------------------------------
Five-year
periods Units Units
ending June 30 Operating Closed
-------------------------------------------------------
2002 49 2
-------------------------------------------------------
2007 38 3
-------------------------------------------------------
2012 24 9
-------------------------------------------------------
2017 3 --
-------------------------------------------------------
Total 114 14
-------------------------------------------------------
Reference is made to Note 4 of the Notes to Consolidated Financial Statements
for certain additional information regarding the Company's leases.
All cafeterias, express unit, and restaurants have been constructed or remodeled
since 1992 and all equipment is maintained and modernized as necessary to
maintain appearance and utility. The list below provides a general geographic
review of the locations of the Company's cafeterias and restaurants at June 30,
1997:
-----------------------------------------------------------------------
State Piccadilly Piccadilly Ralph & Kacoo's
Cafeterias Express Units Restaurants
-----------------------------------------------------------------------
Alabama 6 1
-----------------------------------------------------------------------
Arizona 3
-----------------------------------------------------------------------
Florida 21
-----------------------------------------------------------------------
Georgia 18
-----------------------------------------------------------------------
Kansas 1
-----------------------------------------------------------------------
Kentucky 1
-----------------------------------------------------------------------
Louisiana 29 1 5
-----------------------------------------------------------------------
Mississippi 3 1
-----------------------------------------------------------------------
Missouri 3
-----------------------------------------------------------------------
North Carolina 4
-----------------------------------------------------------------------
Oklahoma 3
-----------------------------------------------------------------------
South Carolina 2
-----------------------------------------------------------------------
Tennessee 11
-----------------------------------------------------------------------
Texas 17
-----------------------------------------------------------------------
Virginia 7
-----------------------------------------------------------------------
The Company utilizes generally standardized building configurations for its new
cafeterias and restaurants in terms of seating, food display, preparation areas,
and other factors and attempts to build out floor space to maximize efficient
use of available space.
The Company continues to pursue strategies to increase the capacity and
utilization of its cafeterias. The Company is converting several of its "order
pick-up" counters to Piccadilly Express hot counters where the physical
facilities are condusive to doing so. The new counters allow customers to view
and select their choices rather than simply ordering to go items from a menu.
This delivery system increases the number of take-out orders that can be filled
at peak order times.
Piccadilly's corporate headquarters occupy approximately two-thirds of a
Company-owned 45,000 square foot office building completed in 1974 and located
on a Company-owned tract comprising approximately five acres in Baton Rouge,
Louisiana. The remainder of the building is leased to commercial tenants.
Item 3. Legal Proceedings
The Company is not a party to and does not have any property that is the subject
of any legal proceedings pending or, to the knowledge of management, threatened,
other than ordinary routine litigation incidental to its business and
proceedings which are material or as to which management believes the Company
does not have adequate insurance.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 4(a). Executive Officers of the Registrant
Executive officers are elected annually by the Board of Directors and hold
office until a successor is duly elected. The names and positions of executive
officers of the Registrant, together with a brief description of the business
experience of each such person during the past five years, is set forth below.
W. Scott Bozzell, Vice President and Controller, age 34, has held such positions
since July, 1996. From May 1992 to July 1996 he was Vice President and
Assistant Controller. Prior to that he was Assistant Controller.
Frederick E. Fuchs Jr., Executive Vice President and Director of Real Estate,
age 50, has held such positions since June 1986.
Jere W. Goldsmith Jr., Executive Vice President and Director of Training, age
51, has held such positions since July 1995. Mr. Goldsmith previously served in
this capacity from May 1987 to February 1992. From February 1992 to July 1995
he was Executive Vice President and Region Manager.
J. Fred Johnson, age 46, Executive Vice President, Treasurer, and Chief
Financial Officer, has held such positions since November 1995. From August
1985 through October 1995 he was with Graphic Industries, Inc., a printing
company, in various capacities, including Chief Financial Officer and Treasurer.
Ronald A. LaBorde, age 41, President and Chief Executive Officer, has held such
positions since June 1995. From January 1992 to May 1995 he was Executive Vice
President, Treasurer and Chief Financial Officer. Prior to that he was
Executive Vice President, Secretary, and Controller.
D. Thomas Landry, Executive Vice President and Director of Maintenance,
Construction and Design, age 45, has held such positions since May 1992. From
July 1990 to May 1992 he was Vice President and Director of Maintenance.
Robert P. Listen, Executive Vice President and Director of Technical Services,
age 49, has held such positions since December 1992. From July 1987 to November
1992 he was Executive Vice President and District Manager.
Mark L. Mestayer, Executive Vice President, Secretary, and Director of Finance,
age 39, has held such positions since July 1996. From May 1992 to July 1996, he
was Executive Vice President, Secretary and Controller. From January 1992 to
May 1992, he was Vice President and Controller. Prior to that, he was Vice
President and Controller, Ralph & Kacoo's.
Joseph S. Polito, Executive Vice President and General Manager, age 55, has held
such positions since July 1995. From October 1992 to July 1995, he was
Executive Vice President and Director of Training. From 1987 to October 1992 he
was Executive Vice President and District Manager.
Patrick R. Prudhomme, Executive Vice President and Region Manager, age 45, has
held such positions since February 1992. From January 1989 to February 1992 he
was Vice President and District Manager, Ralph & Kacoo's.
C. Warriner Siddle, Executive Vice President and Director of Development, age
46, has held such positions since July 1995. From February 1992 to July 1995 he
was Executive Vice President and Region Manager. From October 1984 to February
1992 he was Executive Vice President and District Manager.
Donovan B. Touchet, Executive Vice President and Director of Data Processing,
age 48, has held such positions since June 1988.
Brian G. Von Gruben, Executive Vice President and Director of Administrative
Services, age 49, has held such positions since May 1987.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
Information regarding Common Stock market prices and dividends, on the inside
cover of the Annual Shareholders Report for the year ended June 30, 1997, is
incorporated herein by reference.
Item 6. Selected Financial Data
"Selected Financial and Other Data", on page 11 of the Annual Shareholders
Report for the year ended June 30, 1997, is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations, on pages 12 and 13 of the Annual Shareholders Report for the year
ended June 30, 1997, is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements and supplementary data, included
on pages 14 through 22 of the Annual Shareholders Report for the year ended June
30, 1997, are incorporated herein by reference:
Consolidated balance sheets as of June 30, 1997 and 1996
Consolidated statements of income for the fiscal years ended June 30, 1997,
1996 and 1995
Consolidated statements of changes in shareholders' equity for the fiscal years
ended June 30, 1997, 1996 and 1995
Consolidated statements of cash flows for the fiscal years ended June 30, 1997,
1996 and 1995
Notes to consolidated financial statements
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
In accordance with General Instruction G (3) to Form 10-K, Items 10, 11, 12, and
13 have been omitted since the Company will file with the Commission a
definitive proxy statement complying with Regulation 14A relating to its 1997
annual meeting and involving the election of directors not later than 120 days
after the close of its fiscal year. The Company incorporates by reference the
information in response to such items set forth in its definitive proxy
statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements--The following are incorporated herein by
reference in this Annual Report on Form 10-K from the indicated pages
of the Registrant's Annual Shareholders Report for the year ended June
30, 1997:
- -------------------------------------------------------------------------------
Annual
Shareholders
Description Report Page
- -------------------------------------------------------------------------------
Consolidated balance sheets as of June 30, 1997 and 1996 14
- -------------------------------------------------------------------------------
Consolidated statements of income for the fiscal years
ended June 30, 1997, 1996 and 1995 15
- -------------------------------------------------------------------------------
Consolidated statements of changes in shareholders'
equity for the fiscal years ended June 30, 1997, 1996 and 1995 15
- -------------------------------------------------------------------------------
Consolidated statements of cash flows for the fiscal
years ended June 30, 1997, 1996 and 1995 16
- -------------------------------------------------------------------------------
Notes to consolidated financial statements 17-22
- -------------------------------------------------------------------------------
Report of independent auditors 22
- -------------------------------------------------------------------------------
(2) Schedules-The following consolidated schedules and information are
included in this annual report on Form 10-K on the pages indicated.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable,
and therefore have been omitted.
- -------------------------------------------------------------------------------
Annual Report
on Form 10-K
Description Page
- -------------------------------------------------------------------------------
Schedule II-Valuation and qualifying accounts 10
- -------------------------------------------------------------------------------
(3) Listing of Exhibits - See sub-section (c) below.
(b) No reports on Form 8-K were filed during the last quarter of the year
covered by this report.
(c) EXHIBITS
3. (a) Articles ofIncorporation of the Company(1), as amended on September
14, 1987(2) as amended on September 27, 1988(3), and as amended on
September 28, 1989(4).
(b) By-laws of the Company, as amended through July 22, 1996(5).
- -------------------------------------------------------------------------------
**FOOTNOTES**
(1) Incorporated by reference from the Registrant's Registration Statement
on Form S-1 (Registration No. 2-63249) filed with the Commission on
December 19, 1978.
(2) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1987.
(3) Incorporated by reference from the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1988.
(4) Incorporated by reference from the Registrant's Annual Report on Form
10-K, as amended, for the fiscal year ended June 30, 1989.
(5) Incorporated by reference from the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996.
- -------------------------------------------------------------------------------
4. (a) Piccadilly Cafeterias, Inc. Stockholder Rights Agreement[(]6).
(b) Note Agreement, dated as of January 31, 1989, relating
to $30 million principal amount of 10.15% Senior Notes due
January 31, 1999(7).
10. (a) Piccadilly Cafeteria, Inc. Pension Plan, as amended, dated
May 3, 1993(8).
(b) Piccadilly Cafeterias, Inc. Employee Stock Purchase Plan(9).
as amended on September 27, 1991(10).
(c) Piccadilly Cafeterias, Inc. 1988 Stock Option Plan(11),
as amended on August 2, 1993(8).
(d) Form of Management Continuity Agreement, effective March 27,
1995, unless otherwise indicated, between Piccadilly Cafeterias,
Inc. and each of Messrs. LaBorde, Bozzell, Fuchs, Goldsmith,
Johnson (November 16, 1995), Landry, Listen, Mestayer, Polito,
Prudhomme, Siddle, Touchet, and Von Gruben(5).
(e) Form of Director Indemnity Agreement, effective April 27, 1995,
unless otherwise indicated, between Piccadilly Cafeterias, Inc.
and each of Messrs. LaBorde, Francis, Guyton (July 1, 1996),
Murrill, Redman (September 25, 1995), Simmons, Smith and
Ms. Hamilton(5).
(f) Agreement between Piccadilly Cafeterias, Inc. and Ronald A.
LaBorde, effective June 26, 1995(5).
(g) Form of Agreement, effective August 1, 1995, between Piccadilly
Cafeterias, Inc. and each of Malcolm T. Stein, Jr. and James E.
Durham, Jr. (5).
13. The Registrant's Annual Report to Shareholders for the fiscal year
ended June 30, 1997.
21. List of Subsidiaries of the Registrant.
23. Consent of Independent Auditors.
27. Financial Data Schedule.
- ------------------------------------------------------------------------------
**FOOTNOTES**
(6) Incorporated by reference from the Company's Current Report on Form 8-K
filed with the Commission on August 22, 1988.
(7) Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 31, 1988.
(8) Incorporated by reference from the Company's Annual Report on Form 10-K,
as amended, for the fiscal year ended June 30, 1993.
(9) Incorporated by reference from the Registrant's Registration Statement
on Form S-8 (Registration No. 33-17737) filed with the Commission on
October 7, 1989.
(10) Incorporated by reference from the Registrant's Annual Report on Form
10-K, as amended, for the fiscal year ended June 30, 1991.
(11) Incorporated by reference from the Registrant's Registration Statement
on Form S-8 (Registration No. 33-27793) filed with the Commission on
March 29, 1989.
- ------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Piccadilly Cafeterias, Inc.
(Registrant)
By:/s/ Ronald A. LaBorde
Ronald A. LaBorde
President and Chief Executive Officer
Date: August 4, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Norman C. Francis 8/4/97 /s/ Dale E. Redman 8/4/97
- --------------------------- -------- ------------------------- --------
Norman C. Frances, Director Date Dale E. Redman, Director Date
/s/ Robert P. Guyton 8/4/97 /s/ Christel C. Slaughter. 8/4/97
- --------------------------- -------- -------------------------- --------
Robert P. Guyton, Director Date Christel C. Slaughter, Date
Director
/s/Julia H. R. Hamilton 8/4/97 /s/ Edward M. Simmons, Sr. 8/4/97
- --------------------------- -------- -------------------------- --------
Julia H. R. Hamilton, Date Edward M. Simmons, Sr., Date
Director Director
/s/ Ronald A. LaBorde 8/4/97 /s/ C. Ray Smith 8/4/97
- --------------------------- -------- -------------------------- --------
Ronald A. LaBorde, Date C. Ray Smith, Director Date
President, Chief Executive
Officer and Director
/s/ Paul W. Murrill 8/4/97
- --------------------------- ---------
Paul W. Murrill, Chairman of Date
the Board
/s/ J. Fred Johnson 8/4/97 /s/ Mark L. Mestayer 8/4/97
- --------------------------- -------- -------------------------- -------
J. Fred Johnson Date Mark L. Mestayer, Secretary Date
Executive Vice President, and Director of Finance
Treasurer and Chief (Principal Accounting
Financial Officer Officer)
(Principal Financial
Officer)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
| COL. A | COL. B | COL. C | COL. D | COL. E |
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
| | | Additions | | |
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
| | | | (2) | | |
| |Balance at | (1) | Charged to | | |
| |Beginning |Charged to| Other |Deduction-- |Balance at |
| | | | | | |
| Description |of Period |costs and | Accounts- | Describe | End of |
| | |expenses | Describe | | Period |
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reserves for Unit Closings:
Year ended June 30, 1997:
Property, plant & equipment
allowance $ 4,407,472 $ 1,760,984(A) $ 2,646,488
Current liability 347,496 347,496(A) ---
Long-term liability 5,049,509 2,274,568(A) 2,774,941
----------- ----------- -----------
$ 9,804,477 $ 4,383,048 $ 5,421,429
============ =========== ==========
Year ended June 30, 1996:
Property, plant & equipment
allowance $ 800,796 $ 3,726,958 $ 120,282(A) $ 4,407,472
Current liability 254,339 100,000 6,843(A) 347,496
Long-term liability 5,009,297 1,000,819 960,607(A) 5,049,509
----------- ----------- ----------- -----------
$ 6,064,432 $ 4,827,777 $ 1,087,732 $ 9,804,477
=========== =========== =========== ===========
Year ended June 30, 1995:
Property, plant & equipment
allowance $ 1,356,659 $ 555,863(A) $ 800,796
Current liability 350,482 96,143(A) 254,339
Long-term liability 6,502,486 1,493,189(A) 5,009,297
----------- ----------- ----------
$ 8,209,627 $ 2,145,195 $ 6,064,432
=========== =========== ===========
(A) Deductions are for the write-off of certain property, plant and equipment relating to units closed and for the
payment of other obligations (primarily rent) for those units closed and for those units for which a provision for
unit closing was recorded during the year ended June 30, 1992 and June 30, 1996. During 1997, the Company reduced
its accrued liability for rental and other occupancy costs associated with these properties by $600,000 as a result
of a favorable change in management's estimate of future sublease income.
</TABLE>
EXHIBIT 13(a)
<TABLE>
Selected and Other Financial Data
Selected Financial Data
Piccadilly Cafeterias, Inc.
(Amounts in thousands--except per share data)
- --------------------------------------------------------------------------------
Year Ended June 30 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $304,838 $300,550 $287,848 $276,223 $271,460
Cost of sales 175,685 171,224 163,830 155,411 158,777
Other operating expense 100,334 101,459 97,213 92,250 88,676
Net income 9,390 385(A) 4,051 7,047 4,825
Per share data:
Net income .89 .04(A) .40 .70 .49
Cash dividends .48 .48 .48 .48 .48
Long-term debt 27,240 25,700 18,000 24,000 36,000
Shareholders' equity 77,604 73,293 76,445 75,874 72,192
Total assets 147,332 148,280 165,121 154,773 152,618
</TABLE>
<TABLE>
Other Data
Piccadilly Cafeterias, Inc
(Amounts in thousands-except number of employees)
- -----------------------------------------------------------------------------
Year Ended June 30 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating income (B) $28,819 $27,867 $26,805 $28,562 $24,007
Depreciation and amortization 12,116 12,916 12,880 11,720 11,841
Capital expenditures for new 5,616 1,247 22,303 27,663 5,240
projects
Other capital expenditures 5,254 5,440 4,639 4,232 4,731
Total capital expenditures 10,870 6,687 26,942 31,895 9,971
Cash flow provided by 14,857 21,404 20,823 23,426 16,782
operating activities
Free cash flow (C) 16,252 13,426 12,292 14,535 11,935
Net income as a percent of
beginning shareholders'
equity 12.8% 0.5%(A) 5.3% 9.8% 6.8%
Number of employees 8,200 8,500 7,600 7,300 7,600
</TABLE>
(A) Includes $9,404,000 ($5,830,000 after-tax effect or $.56 per share) for the
write-down of long-lived assets in accordance with Statement of Financial
Accounting Standards (SFAS) No. 121 (see Note 2 for further discussion).
(B) Defined as net sales less cost of sales and other operating expense.
(C) Defined as net income adjusted for depreciation and amortization and
reduced by other capital expenditures. The 1996 amount excludes the non-cash
effect of the charges discussed in (A). Management believes that free cash
flow is a relevant indicator of liquidity. The amounts presented may not be
comparable to similarly titled measures reported by other companies.
EXHIBIT 13(b)
Stock Information
Piccadilly Cafeterias, Inc.
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 the last two fiscal years. As of July 24, 1997 there were
approximately 2,823 record holders of the Company's Common Stock.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Per Share Per Share
Cash Cash
Quarter High Low Dividends Quarter High Low Dividends
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fiscal year 1st $10.75 $9.00 $.12 Fiscal year 1st $ 8.88 $7.75 $.12
ended 2nd 9.50 8.13 .12 ended 2nd 10.88 7.88 .12
June 30, 3rd 10.00 8.75 .12 June 30, 3rd 9.88 8.75 .12
1997 4th 10.88 8.63 .12 1996 4th 10.63 9.38 .12
</TABLE>
EXHIBIT 13(c)
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Piccadilly Cafeterias, Inc.
Liquidity and Capital Resources
During 1997, cash generated from operations of $14,857,000 combined with cash
from available lines of credit were used primarily to fund $10,870,000 of
capital expenditures and $5,047,000 of dividends. Working capital increased
$7,583,000. The Company's long-term debt facilities include line-of-credit
arrangements with two banks for which up to $45,0000,000 can be borrowed. At
June 30, 1997, approximately $17,760,000 was available under these line-of-
credit arrangements.
For 1998, total capital expenditures are expected to approximate $20,000,000.
These expenditures include $16,000,000 for new investments including purchasing
land, constructing up to seven new cafeteria units, constructing up to 18
Piccadilly Express units, and converting up to 50 existing cafeteria drink
stations to self-service stations. Also during 1998, the remaining $4,500,000
of the 10.15% senior notes will become due. Management anticipates that cash
generated from operations, together with funds available from existing lines of
credit, will be sufficient to fund capital expenditures, dividends, and maturing
debt for 1998.
Results of Operations
1997 COMPARED TO 1996. Cafeteria sales for 1997 increased $7,247,000, or 2.7%,
from 1996. Same-stores sales increased 3.5% as same-store customer counts
increased 0.7%. The customer check average increased 3.0% from $5.43 for 1996
to $5.59 for 1997. Cafeteria prices were increased an average of 4.0% in
October 1996.
Ralph & Kacoo's restaurant sales decreased $2,959,000, or 10.5%, resulting
primarily from the closing of one restaurant during the first quarter of 1997.
Same-store sales decreased 6.3% as sales were impacted by normal leveling of
new-unit volume at the Birmingham, Alabama restaurant, which opened in April
1995.
During 1997 and 1996, operating income (net sales less cost of sales and other
operating expenses) as a percentage of net sales was 9.5% and 9.3%,
respectively. Food costs as a percentage of sales increased 0.4%. Labor costs
as a percentage of sales increased 0.3%.
Four cafeteria units and one restaurant were closed in 1997 while three new
cafeteria units and one Piccadilly Express location were opened.
Other operating expenses as a percentage of sales improved from 33.8% in 1996 to
32.9% in 1997, reflecting decreases in depreciation and workers compensation
costs.
Interest expense decreased $2,539,000 in 1997, of which $1,011,000 resulted
because $7,500,000 and $12,000,000 of the 10.2% senior notes were paid in 1997
and 1996, respectively, using funds available under one of the Company's line-
of-credit arrangements, which had an average interest rate of 6.8% during 1997.
Interest expense for 1996 included a charge of $1,528,000 for interest related
to examinations of the Company's tax returns by the Internal Revenue Service.
The Company settled these examinations during 1997 and no further charges were
required.
As of June 30, 1997, the Company had continuing rent obligations not offset by
sublease arrangements at three properties related to closed units. Several of
these properties are under varying stages of sublease negotiation. Management
will continue to pursue disposition of these properties at terms favorable to
the Company. During 1997, the Company reduced its accrued liability for rental
and other occupancy costs associated with these properties by $600,000 as a
result of a favorable change in management's estimate of future sublease income.
1996 COMPARED TO 1995. Same-store customer counts increased in eleven of the
twelve months of 1996. These increases reverse trends of same-store customer
count decreases in 1995. Management believes that these customer count gains
were accomplished with enhanced customer service and expanded menu selections.
Cafeteria sales for 1996 increased $9,685,000, or 3.7%, from 1995. Same-store
sales increased 3.4% as same-store customer counts increased 2.3%. The customer
check average increased 1.0% from $5.38 for 1995 to $5.43 for 1996.
Ralph & Kacoo's restaurant sales increased $2,924,000, or 11.6%, resulting
primarily from the opening of one restaurant during the fourth quarter of 1995.
Same-store sales decreased 3.4%.
General and administrative expense for the first quarter of 1996 includes a
$1,300,000 severance charge resulting from the elimination of approximately 100
jobs.
During 1996 and 1995, operating profits (net sales less cost of sales and other
operating expenses) were 9.3% of net sales. Food costs as a percentage of sales
increased 0.1% and labor costs as a percentage of sales were unchanged compared
to the prior year.
Three cafeteria units were closed in 1996 while one unit was opened.
Other expense (income) for 1996 improved $1,474,000 compared to 1995, primarily
as a result of the 1995 non-cash write-offs related to cancellation of the
Company's "deluxe" remodeling program.
General and administrative expense (net of severance costs included in both
periods) as a percentage of sales improved from 4.7% in 1995 to 3.8% in 1996.
This decrease is attributable to reduced corporate expenses.
Interest expense increased $229,000 in 1996. The Company recorded an additional
$1,528,000 and $1,200,000 in 1996 and 1995, respectively, for interest
associated with the anticipated outcome of open examinations of the Company's
tax returns for 1987 through 1992 by the Internal Revenue Service. These charges
relate primarily to deferrals in the timing of certain deductions taken by the
Company including amortization of the intangible assets acquired in the purchase
of Ralph & Kacoo's in 1989.
During the fourth quarter of 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of." The initial, non-cash
charge in connection with the adoption of SFAS No. 121 was $9,404,000
($5,830,000 after-tax or $.56 per share). Twelve of the Company's operating
units were impacted by SFAS No. 121. As the initial charge was based upon
estimated cash flow forecasts requiring considerable management judgment, future
charges, though not of the magnitude of the initial charge, are reasonably
possible. These charges will generally arise as estimates used in the evaluation
and measurement of impairment upon adoption of SFAS No. 121 are refined based
upon new information or as a result of future events or changes in circumstances
that cause operating units to be impaired.
KNOWN TRENDS OR UNCERTAINTIES. The Company believes that increases in minimum
wage will not have a material impact on the Company's earnings and the resulting
increase in costs will be offset through selling price increases.
Most of the Company's operating costs are subject to inflationary pressures
Historically, the Company has generally been able to maintain its operating
margins through increases in selling prices.
The Company is not aware of other material trends that may be expected to cause
reported financial information not to be indicative of future operating results
or of future financial condition.
FORWARD-LOOKING STATEMENTS. Forward-looking statements regarding management's
present plans or expectations for new unit openings, remodels, other capital
expenditures, the financing thereof, and 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 statements regarding management's present
expectations for operating results involve risk 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 forward-looking statements continually as conditions change, and
readers should consider that such statements speak only as to the date hereof.
EXHIBIT 13(d)
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Piccadilly Cafeterias, Inc.
-------------------------------------------------------------------------------
(Amounts in thousands)
-------------------------------------------------------------------------------
Balances at June 30 1997 1996
-------------------------------------------------------------------------------
<S> <C> <C>
Assets
CURRENT ASSETS
Accounts and notes receivable $ 611 $ 619
Inventories 10,400 10,087
Deferred income taxes 3,546 2,434
Other current assets 766 579
-------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 15,323 13,719
PROPERTY, PLANT & EQUIPMENT
Land 19,390 20,437
Buildings and leasehold improvements 112,872 112,550
Furniture and fixtures 98,868 96,526
Machinery and equipment 13,522 14,267
Construction in progress 1,998 1,644
-------------------------------------------------------------------------------
246,650 245,424
Less allowances for depreciation and unit closings 120,630 116,412
-------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 126,020 129,012
OTHER ASSETS 5,989 5,549
-------------------------------------------------------------------------------
TOTAL ASSETS $147,332 $148,280
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable $ 9,579 $ 9,871
Accrued interest 941 3,588
Accrued salaries, benefits and related taxes 13,224 12,985
Accrued rent 4,969 4,671
Other accrued expenses 1,277 3,354
Current portion of long-term debt 4,500 6,000
------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 34,490 40,469
Long-term Debt, less current portion 27,240 25,700
Deferred Income Taxes 5,223 3,768
Reserve for Unit Closings 2,775 5,050
SHAREHOLDERS' EQUITY
Preferred Stock, no par value; authorized 50,000,000 shares;
issued and outstanding: --- ---
None
Common Stock, no par value, stated value $1.82 per share;
authorized 100,000,000
shares; issued and outstanding: 10,528,368 shares at June
30, 1997, and 10,503,368
shares at June 30, 1996 19,141 19,096
Additional paid-in capital 18,735 18,555
Retained earnings 39,965 35,642
-------------------------------------------------------------------------------
77,841 72,293
Less treasury stock, at cost: 25,000 common shares at June
30, 1997 and none at June 30, 1996 237 ---
-------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 77,604 73,293
-------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $147,332 $148,280
-------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
Piccadilly Cafeterias, Inc.
-------------------------------------------------------------------------------
(Amounts in thousands -- except per share data)
-------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Year Ended June 30 1997 1996 1995
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $304,838 $300,550 $287,848
Costs and expenses:
Cost of sales 175,685 171,224 163,830
Other operating expense 100,334 101,459 97,213
Provision for unit impairments and closings --- 9,404 ---
General and administrative expense 11,465 12,761 13,845
Interest expense 2,714 5,253 5,024
Other expense (income) (505) (179) 1,295
--------------------------------------------------------------------------------
289,693 299,922 281,207
--------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 15,145 628 6,641
Provision for income taxes 5,755 243 2,590
--------------------------------------------------------------------------------
NET INCOME $ 9,390 $ 385 $ 4,051
--------------------------------------------------------------------------------
Weighted average number of shares outstanding 10,506 10,401 10,228
--------------------------------------------------------------------------------
Net income per share $ 0.89 $ 0.04 $ 0.40
--------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
Piccadilly Cafeterias, Inc.
------------------------------------------------------------------------------------
(Amounts in Thousands)
------------------------------------------------------------------------------------
Additional
Common Stock Paid-In Retained Treasury Stock
Shares Amount Capital Earnings Shares Amount
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JUNE 30, 1994 10,132 $ 18,421 $ 16,324 $ 41,129 --- $ ---
Net income 4,051
Cash dividends declared (4,909)
Sales under employee stock
purchase plan 133 242 755
Sales under dividend reinvestment
plan 52 95 337
---------------------------------------------------------------------------------------
BALANCES AT JUNE 30, 1995 10,317 18,758 17,416 40,271 --- ---
Net income 385
Cash dividends declared (4,995)
Sales under employee stock
purchase plan 120 218 671 (19)
Sales under dividend reinvestment
plan 16 30 108
Sales under employee stock option
plan 50 90 360
---------------------------------------------------------------------------------------
BALANCES AT JUNE 30, 1996 10,503 19,096 18,555 35,642 --- ---
Net income 9,390
Cash dividends declared (5,047)
Purchase of treasury stock (20)
Sales under dividend reinvestment
plan 25 45 180
Sales under employee stock option
plan 25 237
---------------------------------------------------------------------------------------
BALANCES AT JUNE 30, 1997 10,528 $ 19,141 $ 18,735 $ 39,965 25 $ 237
---------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Piccadilly Cafeterias, Inc.
-------------------------------------------------------------------------------
(Amounts in thousands)
-------------------------------------------------------------------------------
Year Ended June 30 1997 1996 1995
-------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 9,390 $ 385 $ 4,051
Adjustments to reconcile net income to net cash
provided by
operating activities:
Depreciation 12,116 12,916 12,880
Costs associated with closed units (1,522) (1,092) (1,165)
Provision for unit impairments and closings --- 9,404 ---
Provision for deferred income taxes (benefit) 343 (4,037) (568)
Loss on disposition of assets 194 50 1,880
Pension expense - net of contributions (339) 1,036 (313)
Changes in operating assets and liabilities:
Accounts and notes receivable 8 (137) 97
Inventories (313) 497 (476)
Other current assets (187) 48 2,093
Other assets (101) 168 59
Accounts payable (292) 1,097 (2,634)
Accrued interest (2,647) 1,340 980
Accrued expenses (1,793) 271 3,939
-------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,857 21,404 20,823
INVESTING ACTIVITIES
Purchases of property, plant and equipment (10,870) (6,887) (26,942)
Proceeds from sale of property, plant and
equipment 1,052 1,881 251
-------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (9,818) (5,006) (26,691)
FINANCING ACTIVITIES
Proceeds from short-term debt due to banks -
net --- (20,577) 20,577
Proceeds from long-term debt 7,540 21,020 ---
Payments on long-term debt (7,500)(13,320) (11,250)
Net proceeds from sales of Common Stock 205 1,458 1,429
Purchase of treasury stock (237)
Dividends paid (5,047) (4,979) (4,888)
-------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES (5,039)(16,398) 5,868
Change in cash and cash equivalents --- --- ---
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) $ 6,071 $ 4,389 $ 641
-------------------------------------------------------------------------------
Interest paid $ 5,461 $ 3,913 $ 4,288
-------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
</TABLE>
Notes To Consolidated Financial Statements
Piccadilly Cafeterias, Inc.
Note 1- Significant Accounting Policies
USE OF ESTIMATES. The preparation of the Consolidated Financial Statements in
conformity with generally accepted accounting principles 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 and seafood restaurants.
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 have 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 10-30 years
Furniture and fixtures 10 years
Machinery and equipment 4 years
Leasehold improvements are amortized over the original lease term, including
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 are charged to operations as incurred.
Renewals and betterment's 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.
LONG-LIVED ASSETS. The Company reviews long-lived assets 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 to be its
primary indicator of potential impairment. Assets are evaluated for impairment
at the operating 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 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 could vary significantly from such
estimates.
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.
UNIT OPENING EXPENSES. Salaries and wages, training costs and other expenses of
opening new units are charged to expense during the first month of the new
unit's operation.
STOCK-BASED COMPENSATION. The Company accounts for its stock compensation
arrangements 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 (SFAS) No. 123, "Accounting for
Stock-Based Compensation."
EARNINGS PER SHARE. Earnings per share of Common Stock are based on the
weighted-average number of shares outstanding. In February 1997, the Financial
Accounting Standards Board issued Statement No. 128, Earnings Per Share, which
the Company will be required to adopt during the three-month period ending
December 31, 1997. The adoption of this statement is not expected to have a
material effect on the calculation of earnings per share.
RECLASSIFICATIONS. Certain balances in prior years have been reclassified to
conform with the presentation adopted in the current year.
Note 2-Impairment of Long-Lived Assets
The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," during the fourth quarter
of 1996. The initial, noncash charge in connection with the adoption of SFAS
No. 121 was $9,404,000 ($5,830,000 after-tax or $.56 per share), which included
$4,668,000 ($2,894,000 after-tax or $.28 per share) related to four operating
units for which closure decisions were made during the fourth quarter. The
initial charge represented a reduction of the carrying amounts of the impaired
assets to their estimated fair value, as determined by using discounted
estimated future cash flows, and a reserve for future rental commitments. Under
the Company's previous accounting policy, long-lived assets to be held and used
were evaluated as a group for impairment on a market by market basis. Because of
the strong operating profit history and prospects for each market, no impairment
evaluation had been required under the Company's previous accounting policy.
Note 3 - Income Taxes
Significant components of the Company's deferred tax liabilities and assets are
as follows:
- -------------------------------------------------------------------------------
(Amounts in thousands)
- -------------------------------------------------------------------------------
June 30 1997 1996
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment $ 6,191 $ 7,507
Prepaid pension costs 2,902 2,708
Inventories 882 871
- -------------------------------------------------------------------------------
9,975 11,086
- -------------------------------------------------------------------------------
Deferred tax assets:
Accrued expenses 4,280 3,696
Unit closing reserves 2,057 3,594
Intangible assets 1,854 2,304
NOL carryforward 107 158
- -------------------------------------------------------------------------------
8,298 9,752
- -------------------------------------------------------------------------------
Net deferred tax liabilities $ 1,677 $ 1,334
- -------------------------------------------------------------------------------
The components of the provision for income taxes are as follows:
- -------------------------------------------------------------------------------
(Amounts in thousands)
- -------------------------------------------------------------------------------
Year Ended June 30 1997 1996 1995
- -------------------------------------------------------------------------------
Current:
Federal $ 4,719 $ 3,752 $ 2,896
State 693 528 262
- -------------------------------------------------------------------------------
5,412 4,280 3,158
- -------------------------------------------------------------------------------
Deferred:
- -------------------------------------------------------------------------------
Federal 254 (3,588) (703)
State 89 (449) 135
- -------------------------------------------------------------------------------
343 (4,037) (568)
- -------------------------------------------------------------------------------
Total provision for income taxes $ 5,755 $ 243 $ 2,590
- -------------------------------------------------------------------------------
Differences between the provision for income taxes and the
amount computed by applying the federal statutory income tax
rate to income before income taxes are as follows:
(Amounts in thousands)
- ------------------------------------------------------------------------------
Year Ended June 30 1997 1996 1995
- ------------------------------------------------------------------------------
Income taxes at statutory rate $ 5,201 $ 217 $ 2,258
State income taxes, net of federal taxes 464 79 398
- ------------------------------------------------------------------------------
5,665 296 2,656
Tax credits (163) (78) (125)
Other items 253 25 59
- ------------------------------------------------------------------------------
Total provision for income taxes $ 5,755 $ 243 $ 2,590
- ------------------------------------------------------------------------------
Note 4 - 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
being 20 to 30 years. The Company has the option to renew the leases for
specified periods subsequent to their original terms. Minimum future lease
commitments as of June 30, 1997, including $12,805,000 for closed units are as
follows:
(Amounts in thousands)
- -------------------------------------------------------------------------------
Year Ending June 30
- -------------------------------------------------------------------------------
1998 $ 8,889
1999 8,638
2000 8,198
2001 7,651
2002 6,867
Subsequent 37,010
- -------------------------------------------------------------------------------
77,253
Less sublease income 10,711
- -------------------------------------------------------------------------------
Net minimum lease commitments $ 66,542
- -------------------------------------------------------------------------------
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. Rent expense for
the periods shown below does not include these executory costs.
(Amounts in thousands)
- -------------------------------------------------------------------------------
Year Ended June 30 1997 1996 1995
- -------------------------------------------------------------------------------
Minimum rentals $ 7,999 $ 7,966 $ 8,209
Contingent rentals 2,482 2,728 2,576
- -------------------------------------------------------------------------------
Total $10,481 $10,694 $10,785
- -------------------------------------------------------------------------------
Note 5 - Long-Term Debt and Lines of Credit
(Amounts in thousands)
- ------------------------------------------------------------------------------
June 30 1997 1996
- ------------------------------------------------------------------------------
10.15% senior notes, due on January 31, 1998 (Fair
value at June 30, 1997 -
$4,525,000; June 30, 1996 - $12,112,000) $ 4,500 $12,000
Note payable to bank, due at maturity on September 30,
1999 (Amount available at June 30, 1997 -
$11,260,000; fair value at June 30,
1997 -$18,740,000; June 30, 1996 - $11,200,000) 18,740 11,200
Note payable to bank, due at maturity on September 30,
1999 (Amount available at
June 30, 1997 - $6,500,000; fair values at June 30,
1997 and June 30, 1996 - $8,500,000) $ 8,500 8,500
- ------------------------------------------------------------------------------
31,740 31,700
Less current portion (4,500) (6,000)
- ------------------------------------------------------------------------------
Total long-term debt, net of current portion $27,240 $25,700
- ------------------------------------------------------------------------------
The aggregate maturities of long-term debt for the remaining years following
June 30, 1997, are as follows: 1998 - $4,500,000, 1999 - none, 2000 -
$27,240,000. The fair values of the Company's long-term borrowings are
estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
The Company has line-of-credit agreements totaling $45,000,000 with two
banks. These facilities are unsecured and bear interest based on applicable
rates and margins. The interest rate in effect at June 30, 1997 (7.75%) on
the $18,740,000 note payable was based upon London InterBank Offered Rate
(LIBOR) plus 1.25%. The interest rate in effect at June 30, 1997 (7.59%) on
the $8,500,000 note payable was based upon LIBOR plus 1.75%. The facilities
contain covenants which include provisions for the maintenance of net
worth, limitations on the level of liabilities, and requirements for
minimum coverage of fixed charges. Both facilities contain prepayment
options, without penalty, which can be exercised at any time during the term
of the agreements.
The Company capitalized interest costs of $100,000 in 1997, and $85,000 in
1996, and $339,000 in 1995 with respect to qualifying construction. Total
interest cost incurred was $2,814,000 in 1997, $5,338,000 in 1996, and
$5,363,000 in 1995 including interest reserves relating to IRS examinations of
$1,528,000 in 1996 and $1,200,000 in 1995.
Note 6 - Pension Plan
The Company has a pension plan covering substantially all employees who
meet certain age and length-of-service 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, 1997
and June 30, 1996.
The following tables set forth the plan's funded status and amounts recognized
in the Company's financial statements.
(Amounts in thousands)
- -------------------------------------------------------------------------------
June 30 1997 1996
- -------------------------------------------------------------------------------
Accumulated benefit obligations, including vested
benefits of $45,085,000 in 1997 and $40,770,000
in 1996 $ 47,641 $ 43,410
- -------------------------------------------------------------------------------
Fair value of plan assets $ 53,072 $ 46,257
Projected benefit obligation 55,775 51,144
- -------------------------------------------------------------------------------
Plan assets under projected benefit obligation (2,703) (4,887)
Unrecognized prior service cost (36) (40)
Unrecognized net loss 8,029 9,878
- -------------------------------------------------------------------------------
Prepaid pension cost included in other non-current
assets $ 5,290 $ 4,951
- -------------------------------------------------------------------------------
(Amounts in thousands)
- -------------------------------------------------------------------------------
Year Ended June 30 1997 1996 1995
- -------------------------------------------------------------------------------
Net pension expense:
Service cost $ 1,942 $ 1,854 $ 1,733
Interest cost on projected benefit obligation 4,001 3,569 3,093
Actual return on plan assets (6,547) (5,187) (3,305)
Net amortization and deferral 2,765 1,084 (788)
- -------------------------------------------------------------------------------
$ 2,161 $ 1,320 $ 733
- -------------------------------------------------------------------------------
June 30 1997 1996 1995
- -------------------------------------------------------------------------------
Actuarial assumptions:
Discount rate 8.0% 8.0% 8.0%
Compensation increases 4.0% 4.0% 4.0%
Long-term rate of return 9.0% 9.0% 9.0%
Note 7 - 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, 1997, there were 338,955 unissued Common
Shares reserved under the plan.
On November 2, 1987, the Company's stockholders adopted the Piccadilly
Cafeterias, Inc. Employee Stock Purchase Plan. The Company terminated this plan
in 1996.
On November 1, 1993, the Company's stockholders approved the 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 non-
qualified stock options, stock appreciation rights, stock awards, restricted
stock, performance shares, and cash awards may be granted to officers or key
employees. Options to purchase shares of the Company's Common Stock may be
issued at no less than 100% of the fair market value on the date of grant.
The Company has reserved 1,000,000 shares, in total, for issuance under the
1988 and 1993 Plans. At June 30, 1997, 717,000 shares were available for
future option grants and options for 189,000 shares were excercisable.
Options outstanding at June 30, 1997, have exercise prices which range from
$9.63 to $12.75 and a weighted average remaining contractural life of 6.0
years. Transactions under the restated Plan for the last three fiscal years are
summarized as follows:
(Dollars in thousands -- except per share data)
- -------------------------------------------------------------------------------
Common Weighted
Stock Average
Shares Exercise Total
Price
- ------------------------------------------------------------------------------
OUTSTANDING AT JUNE 30, 1994 973,000 $10.79 10,502
Canceled/expired --- --- ---
Granted --- --- ---
- ------------------------------------------------------------------------------
OUTSTANDING AT JUNE 30, 1995 973,000 10.79 10,502
Canceled/expired (110,500) 15.04 (1,662)
Exercised (50,000) 9.00 (450)
Granted 82,500 9.63 794
- ------------------------------------------------------------------------------
OUTSTANDING AT JUNE 30, 1996 895,000 10.26 $ 9,184
Canceled/expired (676,000) 10.37 (7,013)
Exercised (25,000) 9.00 (225)
Granted --- --- ---
- ------------------------------------------------------------------------------
OUTSTANDING AT JUNE 30, 1997 194,000 10.03 $ 1,946
- ------------------------------------------------------------------------------
PRO FORMA SFAS NO. 123 RESULTS. Pro forma information regarding net income
and earnings per share is required by SFAS No. 123, and has been determined
as if the Company has accounted for its employee stock options under the fair
value method of SFAS No. 123. The fair value for these options was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for June 30, 1996 (no options
were granted in 1997): risk-free interest rate of 5.0%; dividend yield o 5.0%;
volatility factors of the expected market price of the Company's common stock
of 23%; and a weighted average expected life of the option of 5.0 years.
The weighted average fair value of the stock options granted in 1996 was $1.20.
Pro forma net income and earnings per share, assuming that the Company had
accounted for its employee stock options using the fair value method, would
not be different from those reported.
Note 8 - Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
(Amounts in thousands -- except per share data)
- --------------------------------------------------------------------------------------
Year Ended June 30, 1997 Year Ended June 30, 1996
- --------------------------------------------------------------------------------------
9/30 12/31 3/31 6/30 9/30 12/31 3/31 6/30
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $75,500 $77,469 $74,160 $77,709 $75,140 $75,807 $73,100 $76,503
Cost of sales
and other
operating
expense 69,802 69,496 66,585 70,136 67,767 68,355 66,442 70,119
Net income
(loss) 1,387 2,843 2,589 2,571 1,198 2,270 1,801 (4,883)
Net Income
(loss)
per share $ .13 $ .27 $ .25 $ .24 $ .12 $ .22 $ .17 $ (.47)
</TABLE>
During the quarter ended September 30, 1995, the Company recorded a
$1,300,000 ($806,000 after-tax or $0.08 per share) severance charge.
During the quarter ended June 30, 1996, the Company recorded an asset
impairment of $9,404,000 ($5,830,000 after-tax or $.56 per share) in connection
with the adoption of SFAS No. 121 (see Note 2 for further discussion) during
the quarter ended June 30, 1996. Also during the quarter ended June 30,
1996, the Company recorded interest reserves of $1,528,000 ($947,000 after-
tax or $.09 per share) for the anticipated outcomes of open examinations of
the Company's tax returns for 1987 through 1992 by the Internal Revenue
Service. See Management's Discussion and Analysis of Financial Condition
and Results of Operations for further discussion.
EXHIBIT 13(e)
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
Piccadilly Cafeterias, Inc.
Baton Rouge, Louisiana
We have audited the accompanying consolidated balance sheets of Piccadilly
Cafeterias, Inc. as of June 30, 1997 and 1996, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended June 30, 1997. 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 in accordance with generally accepted auditing
standards. 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 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 30, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1997 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in 1996
the Company changed its method of accounting for the impairment of long-lived
assets.
Ernst & Young LLP
New Orleans, Louisiana
July 21, 1997
EXHIBIT 21
List of Subsidiaries
Piccadilly Cafeterias, Inc.
(1) Piccadilly Restaurants, Inc.
Louisiana Corporation
100% owned
(2) Cajun Bayou Distributors and Management, Inc.
Louisiana Corporation
100% owned
(3) Liquor PR, Inc.
Texas Corporation
49% owned
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Piccadilly Cafeterias, Inc. of our report dated July 21, 1997, included in
the 1997 Annual Report to Shareholders of Piccadilly Cafeterias, Inc.
Our audits also included the financial statement schedule of Piccadilly
Cafeterias, Inc. listed in Item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-17737 and Form S-8 No. 33-27793) and in the
Registration Statement and related Prospectuses (Form S-3 No. 33-17131) of our
report dated July 21, 1997, with respect to the consolidated financial
statements incorporated herein by reference and our report included in the
preceding paragraph with respect to the financial statement schedule included
in this Annual Report (Form 10-K) of Piccadilly Cafeterias, Inc.
Ernst & Young, LLP
New Orleans, Louisiana
August 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following Financial Data Schedule contains summary financial information
extracted from the Company's Annual Shareholders Report for the year ended June
30, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 611
<ALLOWANCES> 0
<INVENTORY> 10,400
<CURRENT-ASSETS> 15,323
<PP&E> 246,650
<DEPRECIATION> 118,584
<TOTAL-ASSETS> 147,332
<CURRENT-LIABILITIES> 34,490
<BONDS> 0
0
0
<COMMON> 19,141
<OTHER-SE> 58,463
<TOTAL-LIABILITY-AND-EQUITY> 147,332
<SALES> 304,838
<TOTAL-REVENUES> 304,838
<CGS> 175,685
<TOTAL-COSTS> 287,484
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,714
<INCOME-PRETAX> 15,145
<INCOME-TAX> 5,755
<INCOME-CONTINUING> 9,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,390
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.89
</TABLE>
