<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
----------------
Date of Report (Date of earliest event reported) May 28, 1998
PICCADILLY CAFETERIAS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Louisiana 1-11754 63-1155967
(State of incorporation) (Commission File Number) (IRS Employer Identification No.)
</TABLE>
3232 Sherwood Forest Blvd., 70816
Baton Rouge, Louisiana (Zip Code)
(Address of principal executive offices)
(504) 293-9440
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
<PAGE> 2
On June 5, 1998 Piccadilly filed a Current Report on Form 8-K to report
its acquisition of control of Morrison Restaurants Inc. on May 28, 1998. This
Form 8-K/A amends and restates the disclosure in Item 7 to include the
financial statements of the business acquired and pro forma financial
information.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Financial Statements of Morrison Fresh Cooking, Inc.:
(1) For the fiscal years ended May 31, 1997,
June 1, 1996 and June 3, 1995:
Statements of Operations for the fiscal years ended
May 31, 1997, June 1, 1996 and June 3, 1995.
Balance Sheets as of May 31, 1997 and June 1, 1996.
Statements of Stockholders' Equity for the fiscal
years ended May 31, 1997, June 1, 1996 and June
3, 1995.
Statements of Cash Flows for the fiscal years ended
May 31, 1997, June 1, 1996 and June 3, 1995.
Notes to Financial Statements.
(2) For the third fiscal quarters ended February 28, 1998
and March 1, 1997:
Balance sheets as of February 28, 1998 and May 31, 1997.
Statements of Income for the thirteen weeks and
thirty-nine weeks ended
February 28, 1998 and March 1, 1997.
Statements of Cash Flows for the thirty-nine weeks
ended February 28, 1998 and March 1, 1997.
Notes to Financial Statements.
(b) PRO FORMA FINANCIAL INFORMATION.
Unaudited Pro Forma Consolidated Balance Sheet of Piccadilly
Cafeterias, Inc. as of March 31, 1998.
Unaudited Pro Forma Consolidated Statement of Income of
Piccadilly Cafeterias, Inc. for the nine month ended
March 31, 1998 and for the year ended June 30, 1997.
Notes to Unaudited Pro Forma Consolidated Financial Statements
(c) EXHIBITS.
23 Consent of Ernst & Young, LLP
2
<PAGE> 3
MORRISON FRESH COOKING, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------------
MAY 31, JUNE 1, JUNE 3,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net Sales................................................... $249,637 $267,638 $294,587
Operating Costs and Expenses:
Cost of merchandise....................................... 70,684 75,458 78,987
Payroll and related costs................................. 90,712 101,718 105,472
Other operating costs..................................... 56,163 56,184 60,618
Selling, general and administrative....................... 17,639 17,658 20,426
Depreciation.............................................. 9,950 10,078 10,277
Interest expense (income), net............................ 140 51 (301)
Loss on impairment of assets.............................. 13,789
Restructure costs......................................... 8,290
-------- -------- --------
245,288 283,226 275,479
-------- -------- --------
Income (Loss) Before Income Taxes........................... 4,349 (15,588) 19,108
Provision for (Benefit from) Income Taxes................... 1,617 (5,694) 7,734
-------- -------- --------
Net Income (Loss)........................................... $ 2,732 $ (9,894) $ 11,374
======== ======== ========
Earnings (Loss) Per Common and Common Equivalent Share...... $ 0.30 $ (1.10) $ 1.27
======== ======== ========
Weighted Average Common and Common Equivalent Shares........ 9,100 8,954 8,981
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE> 4
MORRISON FRESH COOKING, INC.
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
-------------------------
MAY 31, JUNE 1,
1997 1996
----------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments........................... $ 2,939 $ 1,561
Receivables:
Trade.................................................. 321 412
Other.................................................. 1,226 1,495
Inventories:
Merchandise............................................ 1,488 1,335
China, silver and supplies............................. 924 1,081
Prepaid expenses.......................................... 1,545 1,791
Deferred income tax benefits -- current................... 5,027 5,605
--------- --------
Total Current Assets.............................. 13,470 13,280
--------- --------
PROPERTY AND EQUIPMENT -- at cost:
Land...................................................... 6,666 6,436
Buildings................................................. 19,882 18,762
Improvements.............................................. 58,017 57,186
Restaurant equipment...................................... 56,265 53,143
Other equipment........................................... 14,277 13,232
Construction in progress.................................. 6,627 6,183
--------- --------
161,734 154,942
Less accumulated depreciation and amortization............ (100,834) (95,828)
--------- --------
60,900 59,114
Deferred income tax benefits................................ 2,615 3,325
Other assets................................................ 7,043 7,820
--------- --------
TOTAL ASSETS...................................... $ 84,028 $ 83,539
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 8,212 $ 9,579
Accrued liabilities:
Taxes, excluding income taxes.......................... 2,621 2,983
Payroll and related costs.............................. 4,889 4,082
Insurance.............................................. 4,257 5,829
Rent and other......................................... 2,910 4,484
Short term borrowings..................................... 7,461
Current portion of capital lease obligations.............. 103 77
--------- --------
Total Current Liabilities......................... 30,453 27,034
--------- --------
Capital lease obligations................................. 662 775
Employee benefit obligations.............................. 8,285 8,620
Other deferred liabilities................................ 4,684 7,266
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value (100,000 shares authorized;
9,214 shares issued -- 1997, 9,049 shares
issued -- 1996)........................................ 90 90
Capital in excess of par value............................ 41,428 40,279
Accumulated deficit....................................... (593) (70)
Treasury stock............................................ (266) (455)
Unearned ESOP shares...................................... (715)
--------- --------
Total Stockholders' Equity........................ 39,944 39,844
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 84,028 $ 83,539
========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 5
MORRISON FRESH COOKING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN TREASURY STOCK* UNEARNED ESOP TOTAL
--------------- EXCESS OF ACCUMULATED --------------- --------------- STOCKHOLDERS'
SHARES AMOUNT PAR VALUE DEFICIT SHARES AMOUNT SHARES AMOUNT EQUITY
------ ------ ---------- ----------- ------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, June 4, 1994....... 29,303 29,303
Net Income................ 11,374 11,374
Net transfers from MRI.... 6,788 6,788
----- --- -------- ------- -- ----- --- ----- -------
Balance, June 3, 1995....... 47,465 47,465
Net Income (Loss) as of
March 2, 1996........... (10,615) (10,615)
Post-distribution Net
Income.................. 721 721
Net transfers from MRI.... 1,747 1,747
Shares issued pursuant to
the Distribution........ 8,839 88 367 48 (455) 0
Shares issued under stock
bonus and stock option
plans................... 210 2 1,315 1,317
Cash Dividends of $.09 per
common share............ (791) (791)
----- --- -------- ------- -- ----- --- ----- -------
Balance, June 1, 1996....... 9,049 90 40,279 (70) 48 (455) 39,844
Net Income................ 2,732 2,732
ESOP funding.............. 734 151 (734) 0
Shares allocated under
ESOP.................... 4 1 (4) 19 20
Deferred Compensation
Plan.................... (4) 189 189
Shares issued under stock
bonus and stock option
plans................... 14 414 414
Cash Dividends of $.36 per
common share............ (3,255) (3,255)
----- --- -------- ------- -- ----- --- ----- -------
Balance, May 31, 1997....... 9,067 $90 $ 41,428 $ (593) 44 $(266) 147 $(715) $39,944
===== === ======== ======= == ===== === ===== =======
</TABLE>
- ---------------
* Treasury shares are held exclusively in an irrevocable rabbi trust for the
Morrison Fresh Cooking, Inc. Deferred Compensation Plan.
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 6
MORRISON FRESH COOKING, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
--------------------------------
MAY 31, JUNE 1, JUNE 3,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Operating Activities:
Net Income (Loss)........................................ $ 2,732 $ (9,894) $ 11,374
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation.......................................... 9,950 10,078 10,277
Deferred income taxes................................. 1,617 (5,694) 1,624
(Gain)/Loss on disposition and write-down of assets... (1,122) 13,789 605
Changes in operating assets and liabilities:
(Increase)/decrease in receivables.................. 360 (354) (450)
(Increase)/decrease in inventories.................. 4 819 (456)
(Increase)/decrease in prepaid and other assets..... 1,023 1,456 (311)
Increase/(decrease) in accounts payable, accrued and
other liabilities................................ (6,264) 1,117 (5,764)
-------- -------- --------
Net Cash Provided by Operating Activities........ 8,300 11,317 16,899
-------- -------- --------
Investing Activities:
Purchases of property and equipment...................... (14,068) (14,742) (19,422)
Proceeds from disposal of assets......................... 2,404 1,160 154
Other, net............................................... (4,110)
-------- -------- --------
Net Cash Used by Investing Activities............ (11,664) (13,582) (23,378)
-------- -------- --------
Financing Activities:
Principal payments on capital leases..................... (87) (79) (75)
Short-term borrowings.................................... 7,461
Proceeds from issuance of stock.......................... 414 1,317
Dividends paid........................................... (3,255) (791)
ESOP shares released..................................... 20
Decrease in treasury stock held by Deferred Compensation
Plan.................................................. 189
Net transfers from Morrison Restaurants Inc.............. 1,747 6,788
-------- -------- --------
Net Cash Provided by Financing Activities........ 4,742 2,194 6,713
-------- -------- --------
Increase/(decrease) in cash and short-term Investments..... 1,378 (71) 234
Cash and short-term investments at the beginning of the
year..................................................... 1,561 1,632 1,398
-------- -------- --------
Cash and short-term investments at the end of the year..... $ 2,939 $ 1,561 $ 1,632
======== ======== ========
Supplemental Disclosure of Cash Flow Information Cash Paid
for:
Interest (net of amount capitalized)..................... $ 153 $ 45 $ 82
Income taxes, net........................................ $ 0 $ 0 $ 8,901
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 7
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The operations of Morrison Fresh Cooking, Inc., a Georgia corporation (the
Company), consist of 154 family style restaurants in the southeastern and
mid-Atlantic regions of the United States, with the largest number in Florida,
Georgia, Virginia, Alabama and Mississippi. The Company's restaurants provide
cafeteria-style service and are located in shopping and business developments as
well as residential areas. The restaurants are generally open for lunch and
dinner service, seven days a week. All restaurants are Company-owned.
Basis of Presentation
On March 9, 1996, Morrison Restaurants Inc. (MRI) distributed to its
shareholders all of the issued and outstanding shares of common stock of the
Company, which held the family dining assets and business of MRI. For financial
reporting purposes, the Distribution is assumed to have become effective on
March 3, 1996, the first day of the fourth quarter of fiscal year 1996. The
accompanying comparative financial statements were prepared as if MRI's family
dining business had operated as a stand-alone entity for all periods presented.
Such statements include the assets, liabilities, revenues and expenses that are
directly related to the Company's operations. For periods prior to the
Distribution, they also include an allocation of certain assets, liabilities and
general corporate expenses of MRI, such as executive payroll, legal, data
processing and interest, which are related to the Company. Amounts were
allocated using a specific identification method where appropriate and on a pro
rata basis otherwise. Management believes the allocation methods used are
reasonable.
Certain 1996 balances have been reclassified between other deferred
liabilities and deferred tax assets to reflect refinements in the allocation of
liabilities at the time of Distribution.
Use of Estimates in Financial Statements
Judgement and estimation are exercised by Management in certain areas of
the preparation of financial statements. Some of the more significant areas
include reserves for self insurance of workers' compensation, general liability
and medical benefits, as well as the estimates of impairment losses,
restructuring expenses and the related reserve for unit closings. Management
believes that such estimates have been based on reasonable assumptions and that
provisions and reserves based on such estimates are adequate. Actual results
could differ from those estimates.
Fiscal Year
The Company's fiscal year ends on the first Saturday after May 30. The
fiscal years ended May 31, 1997, June 1, 1996 and June 3, 1995, were composed of
52 weeks.
Fair Value of Financial Instruments
The Company's financial instruments at May 31, 1997 and June 1, 1996
consisted of cash and short-term investments, receivables and short-term
borrowings. The fair value of these financial instruments approximated the
carrying amounts reported in the balance sheets. The Company considers
short-term marketable securities with a maturity of three months or less when
purchased to be short-term investments.
Advertising
The Company expenses the costs of all advertising in the period incurred.
F-6
<PAGE> 8
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories consist of food supplies and china and silver, and are stated
at the lower of cost (first in, first out) or market.
Property and Equipment and Depreciation
Depreciation for financial reporting purposes is computed using the
straight-line method over the estimated useful lives of the assets or, for
capital lease property, over the term of the lease, if shorter. Annual rates of
depreciation range from 3% to 5% for buildings and from 8% to 34% for restaurant
and other equipment.
As discussed in Note 10, during fiscal year 1996, the Company adopted
Statement of Financial Accounting Standards No. 121 (FAS 121), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". FAS 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Long-lived assets and certain identifiable intangibles
to be disposed of are generally to be reported at the lower of carrying amount
or fair value, less cost to sell. In association with the Company's adoption of
FAS 121 in fiscal year 1996, a charge of $13.8 million was recorded for the
impairment of assets. Prior to fiscal year 1996, the Company recognized asset
impairment upon the decision to close a unit.
Income Taxes
Deferred income taxes are determined utilizing a liability approach. This
method gives consideration to the future tax consequences associated with
differences between financial accounting and tax bases of assets and
liabilities. For periods prior to the Distribution reflected in the accompanying
statements of operations, the income tax expense reflected includes the
Company's allocated share of MRI's tax expense. The allocated income tax expense
approximates the tax expense of the Company on a stand-alone basis.
Pre-Opening Expenses
Salaries, personnel training costs and other expenses of opening new
facilities are charged to expense as incurred.
Earnings Per Share
Earnings per share are based on the weighted average number of shares
outstanding during the year and are adjusted for the assumed exercise of
options, after the assumed repurchase of shares with the related proceeds and
after the adjustment for any stock splits and stock dividends through May 31,
1997.
For fiscal year 1996, shares issued in the Distribution were assumed to
have been issued for the entire year. For prior years, the number of shares used
in computing earnings per share was based on the average number of MRI common
shares outstanding during the applicable fiscal year, adjusted for the 1-for-4
distribution ratio.
Stockholders' Equity
The Company's Certificate of Incorporation provides that authorized capital
stock will consist of 100,000,000 shares of common stock at $0.01 par value and
250,000 shares of preferred stock at $0.01 par value. As a result of the
Distribution, one share of Company common stock was issued for every four shares
of MRI common stock outstanding. No shares of preferred stock are issued or
outstanding.
F-7
<PAGE> 9
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock-Based Employee Compensation Plans
The Company has elected to follow Accounting Principles Board Opinion No.
25 (APB 25), "Accounting for Stock Issued to Employees" and related
Interpretations, in accounting for its employee stock options and adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123 (FAS 123), "Accounting for Stock-Based Compensation". The Company grants
stock options for a fixed number of shares to employees with an exercise price
equal to the market value of the shares at the date of grant, and accordingly
recognizes no compensation expense for the stock option grants.
Insurance Programs
The Company is generally self-insured for costs related to workers'
compensation, health and welfare claims, business interruption resulting from
certain events, and comprehensive general, product and vehicle liability. Losses
are accrued using actuarial assumptions followed in the insurance industry,
adjusted for company-specific history and expectations. The Company uses
commercial insurance as a risk reduction strategy to minimize catastrophic
losses.
2. SHORT-TERM BORROWINGS
At May 31, 1997, the Company had $7.5 million in borrowings under a $15
million line of credit. The interest rate on this line of credit at May 31, 1997
was 8.5%. There were no borrowings under this line of credit at June 1, 1996.
In June 1997, the Company replaced this line of credit with a three-year
$30 million credit facility with another financial institution. This credit
facility consists of a $25 million revolving line of credit which allows the
Company to borrow under various interest rate options and a $5 million credit
line toward letters of credit issued with respect to the Company's
self-insurance programs. Commitment fees of 0.35% per annum are payable on the
unused portion of the $25 million revolving line of credit. This credit facility
contains certain restrictions, including, but not limited to, incurring
additional indebtedness and certain funded debt, net worth and fixed charge
coverage requirements.
3. LEASES
Various operations of the Company are conducted in leased premises. Initial
lease terms expire at various dates over the next 20 years and may provide for
escalation of rent during the lease term. Most of these leases provide for
additional contingent rents based upon sales volume and contain options to renew
(at adjusted rentals for some leases).
Assets recorded under capital leases are included in Property and Equipment
in the accompanying balance sheets.
F-8
<PAGE> 10
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At May 31, 1997, the future minimum lease payments under capital leases and
operating leases for the next five years and in the aggregate are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1998........................................................ $ 265 $10,730
1999........................................................ 140 9,517
2000........................................................ 140 8,522
2001........................................................ 140 7,156
2002........................................................ 140 6,204
Subsequent years............................................ 188 16,816
------ -------
Total minimum lease payments...................... 1,013 $58,945
=======
Less amount representing interest........................... (248)
------
Present value of minimum lease payments under capital leases
(including current maturities of $103).................... $ 765
======
</TABLE>
Rental expense pursuant to operating leases is summarized as follows:
<TABLE>
<CAPTION>
MAY 31, JUNE 1, JUNE 3,
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Minimum rent............................................ $11,706 $11,896 $12,173
Contingent rent......................................... 3,745 5,133 3,913
------- ------- -------
$15,451 $17,029 $16,086
======= ======= =======
</TABLE>
On May 30, 1997, the Company entered into a sale-leaseback transaction
resulting in a gain of $1.6 million to be deferred over the ten-year life of the
lease. The Company classifies the lease as an operating lease. Terms of the
lease require minimum lease payments plus a percentage of gross sales. The
Company is responsible for real estate taxes and flood insurance on the
property.
At May 31, 1997, the future minimum rent payments to be received on
subleases for the next five years and in the aggregate are as follows:
<TABLE>
<CAPTION>
SUB
LEASES
--------------
(IN THOUSANDS)
<S> <C>
1998........................................................ $ 237
1999........................................................ 304
2000........................................................ 238
2001........................................................ 232
2002........................................................ 232
Subsequent years............................................ 183
------
Total minimum lease payments...................... $1,426
======
</TABLE>
F-9
<PAGE> 11
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
MAY 31, JUNE 1, JUNE 3,
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................. $ 0 $ 0 $5,047
State................................................... 0 0 1,063
------ ------- ------
0 0 6,110
------ ------- ------
Deferred:
Federal................................................. 1,396 (4,689) 1,445
State................................................... 221 (1,005) 179
------ ------- ------
1,617 (5,694) 1,624
------ ------- ------
$1,617 $(5,694) $7,734
====== ======= ======
</TABLE>
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
MAY 31, JUNE 1,
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Assets
Employee benefits......................................... $ 3,438 $ 4,102
Insurance reserves........................................ 2,234 3,052
Restaurant closing reserve................................ 444 2,155
Net operating loss........................................ 4,196 2,234
Deferred income........................................... 583 0
Other..................................................... 967 2,075
------- -------
Total deferred tax assets......................... 11,862 13,618
------- -------
Deferred Tax Liabilities
Depreciation.............................................. 1,039 1,423
Retirement plans.......................................... 801 827
Prepaid deductions........................................ 84 226
Restructuring............................................. 0 765
Intangibles and other..................................... 2,296 1,447
------- -------
Total deferred tax liabilities.................... 4,220 4,688
------- -------
Net deferred tax asset...................................... $ 7,642 $ 8,930
======= =======
</TABLE>
FAS 109 specifies that deferred tax assets are to 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. Management believes that future taxable income
should be sufficient to realize all of the Company's deferred tax assets based
on historical earnings of the Company; therefore, a valuation allowance has not
been established.
F-10
<PAGE> 12
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation from the statutory federal income tax expense (benefit) to
the reported income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
MAY 31, JUNE 1, JUNE 3,
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory Federal income tax (benefit).................... $1,479 $(5,456) $6,688
State income taxes, net of federal income tax benefit..... 146 (653) 807
Tax credits............................................... (33) (20) (346)
Other, net................................................ 25 435 585
------ ------- ------
$1,617 $(5,694) $7,734
====== ======= ======
</TABLE>
The effective income tax (benefit) rate was 37.2%, (36.5%), and 40.5% in
1997, 1996, and 1995, respectively.
For federal income tax purposes, the Company has a net operating loss
carryforward of $1.9 million which expires in fiscal 2011. This loss was
generated by the income tax returns filed by the Company for the short tax year
beginning March 3, 1996 and ending June 1, 1996. The net operating loss
carryforward generated by fiscal 1997 operations is estimated at $8.5 million
and will expire in fiscal 2012.
In connection with the Distribution, the Company entered into a tax
allocation agreement with Morrison Health Care, Inc., which was also spun-off to
the shareholders of MRI, and Ruby Tuesday, Inc., successor to MRI. This
agreement provides that the Company pay its share of Ruby Tuesday, Inc.'s (as
successor to MRI) consolidated tax liability for the tax years that the Company
was included in MRI's consolidated federal income tax return. The agreement also
provides for sharing, where appropriate, of state, local and foreign taxes
attributable to periods prior to the Distribution date.
5. EMPLOYEE BENEFIT PLANS
The Company maintains the following employee benefit plans.
Salary Deferral Plan -- Under the Morrison Fresh Cooking, Inc. Salary
Deferral Plan each eligible employee may elect to make pre-tax contributions to
a trust fund in amounts ranging from 2% to 10% of their annual earnings.
Employees contributing a pre-tax contribution of at least 2% may elect to make
after-tax contributions not in excess of 10% of annual earnings. The Company
contribution to the Plan is based on the employee's pre-tax contribution and
years of service. After three years of service (including service with MRI prior
to the Distribution), the Company contributes 20% of the employee's pre-tax
contribution, 30% after ten years of service and 40% after 20 years of service.
The Company's contributions and allocated contributions to the trust fund
approximated $284,000, $308,000 and $303,000 for 1997, 1996 and 1995,
respectively.
On February 28, 1997, the Company began sponsorship of an employee stock
ownership feature (ESOP) covering participants in the Salary Deferral Plan.
Under this feature, the Company issued 150,907 shares of its common stock with a
fair market value of $4.88 per share to the Salary Deferral Plan in exchange for
a ten-year note of $736,000 executed by the Plan's trustee. Repayment of the
loan is being funded by matching employer contributions to the Plan. Shares
purchased with the loan are allocated to participants' accounts over time as
loan repayments are made. There were 3,890 shares allocated to the Plan in 1997.
The market value of unallocated shares was $735,000 at May 31, 1997.
The Company adopted the provisions of AICPA Statement of Position No. 93-6
(SOP) which requires that compensation expense be measured based on the fair
value of the shares over the period the shares are earned. Compensation expense
was approximately $20,000 in 1997. Dividends paid on unallocated shares held by
the ESOP are used to make additional principal and interest payments and are not
charged to retained
F-11
<PAGE> 13
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
earnings. Shares not yet committed to be released are not considered outstanding
in the calculation of earnings per share.
Deferred Compensation Plan -- The Company maintains the Morrison Fresh
Cooking, Inc. Deferred Compensation Plan for certain selected employees. The
provisions of this Plan are similar to those of the Salary Deferral Plan. The
Company's contributions under the Plan approximated $62,000, $119,000, and
$102,000 for 1997, 1996, and 1995, respectively. Company assets earmarked to pay
benefits under the Plan are held by an irrevocable rabbi trust. Assets of the
irrevocable rabbi trust are accounted for as if they are assets of the Company
and all earnings and expenses are recorded in the Company's financial
statements. The net of the rabbi trust's earnings and losses is recorded as
additional liability to the participants and is considered to be interest
expense to the Company. Assets in the irrevocable rabbi trust approximated
$3,148,000 and include $266,000 of Company common stock which is accounted for
as treasury stock at May 31, 1997.
Retirement Plan -- The Company is a co-sponsor of the Morrison Restaurants
Inc. Retirement Plan along with Ruby Tuesday, Inc. and Morrison Health Care,
Inc. The MRI Retirement Plan was frozen on December 31, 1987. Participants
receive benefits based upon salary and length of service. No contribution was
made by the Company in 1997. Pension expense or income related to the Plan was
insignificant in 1997, 1996 and 1995. 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, on behalf of its employees.
Executive Supplemental Pension Plan -- Under the Morrison Fresh Cooking,
Inc. Executive Supplemental Pension Plan, employees with an average compensation
of at least $120,000 for the immediately preceding two calendar years and who
have completed five years (including service with MRI prior to the Distribution)
in a qualifying position become eligible to earn supplemental retirement income
based upon salary and length of service (including service with MRI prior to the
Distribution) reduced by social security benefits and amounts otherwise
receivable under the Retirement Plan.
Management Retirement Plan -- Under the Morrison Fresh Cooking, Inc.
Management Retirement Plan, individuals who have 15 years of credited service
(including service with MRI prior to the Distribution) and whose average annual
compensation equaled or exceeds $40,000, become participants. Participants
receive benefits based upon salary and length of service (including service with
MRI prior to the Distribution) reduced by social security benefits and benefits
payable under the Retirement Plan and Executive Supplemental Pension Plan.
To provide a source for the payment of benefits under the Executive
Supplemental Pension Plan and the Management Retirement Plan, the Company owns
whole-life insurance contracts on some of the participants. The cash value of
these policies net of policy loans was $678,000 at May 31, 1997. The Company has
established an irrevocable rabbi trust to hold the policies and death benefits
as they are received. Expenses recorded for the Executive Supplemental Pension
Plan and the Management Retirement Plan were $534,000, $512,000 and $508,000 for
1997, 1996 and 1995, respectively.
F-12
<PAGE> 14
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table details the allocation of the components of pension
expense, as well as a comparison of assets to obligations and amounts recognized
in the Company's financial statements for the Management Retirement Plan, the
Executive Supplemental Pension Plan, and the Retirement Plan.
<TABLE>
<CAPTION>
ACCUMULATED BENEFITS EXCEED ASSET
ASSETS EXCEED ACCUMULATED EXECUTIVE SUPPLEMENTAL PENSION PLAN
BENEFITS-RETIREMENT PLAN AND MANAGEMENT RETIREMENT PLAN
----------------------------- -----------------------------------
MAY 31, JUNE 1, JUNE 3, MAY 31, JUNE 1, JUNE 3,
1997 1996 1995 1997 1996 1995
------- ------- ------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Components of pension expense
(income):
Service cost................. $ $ $ $ 69 $ 56 $ 66
Interest cost................ 647 660 820 295 312 250
Actual return on plan
assets.................... (1,307) (1,556) (263)
Amortization and deferral.... 623 983 (622) 170 144 111
Other........................ 81
------- ------- ------- ------- ------- -------
$ (37) $ 87 $ (65) $ 534 $ 512 $ 508
======= ======= ======= ======= ======= =======
Plan assets at fair value...... $ 9,161 $ 8,903 $10,066 $ 0 $ 0 $ 0
------- ------- ------- ------- ------- -------
Actuarial present value of
projected benefit
obligations:
Accumulated benefit
obligations:
Vested.................... 8,527 8,764 9,846 3,148 2,040 3,108
Nonvested................. 0 0 7
Provision for future
salary increases........ 837 852 799
------- ------- ------- ------- ------- -------
Total projected
benefit
obligations........ 8,527 8,764 9,846 3,985 2,892 3,914
------- ------- ------- ------- ------- -------
Excess (deficit) of plan assets
over projected benefit
obligations.................. 634 139 220 (3,985) (2,892) (3,914)
Unrecognized net loss (gain)... 871 1,200 1,960 (101) 81 (239)
Unrecognized prior service
cost......................... 381 450 602
Unrecognized net transition
obligation................... 641 769 1,077 981 710 899
Additional minimum liability... (923) (445) (524)
------- ------- ------- ------- ------- -------
Prepaid (accrued) pension
cost......................... $ 2,146 $ 2,108 $ 3,257 $(3,647) $(2,096) $(3,176)
======= ======= ======= ======= ======= =======
</TABLE>
The weighted-average discount rate for all three plans is 8.25%, 7.75% and
8.5% for 1997, 1996, and 1995, respectively. The rate of increase in
compensation levels for the Executive Supplemental Pension Plan and Management
Retirement Plan is 4% for 1997, 1996 and 1995. The expected long-term rate of
return on Plan assets for the Retirement Plan is 10% for all three years.
6. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care benefits and life insurance
benefits to eligible retirees. Effective June 7, 1992, the Company amended the
plan to fix the Company's current and future contribution levels to the Benefit
Plan at the rates in place at that time. Increases in health care benefits above
such rates are borne by the participants. Measurement of the accumulated
postretirement benefit obligation was based on an assumed 8.25% discount rate
for fiscal 1997, 7.75% for fiscal 1996 and 8.5% for fiscal 1995. Benefits are
funded as medical claims and life insurance premiums are incurred. Retirees
become eligible for retirement
F-13
<PAGE> 15
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
benefits if they have met certain service and minimum age requirements at date
of retirement. The Company accrues expenses related to postretirement health
care and life insurance benefits during the years an employee provides services.
The actuarial present value of accumulated postretirement benefit
obligations and the amounts recognized in the Company's balance sheets are as
follows:
<TABLE>
<CAPTION>
MAY 31, JUNE 1,
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Retirees.................................................... $1,867 $2,035
Fully eligible active plan participants..................... 458 444
Other active plan participants.............................. 260 261
------ ------
Accumulated postretirement benefit obligation............... 2,585 2,740
Unrecognized net loss....................................... (660) (848)
Unrecognized prior service cost............................. 251 284
------ ------
Accrued postretirement benefit cost......................... $2,176 $2,176
====== ======
</TABLE>
The postretirement benefit cost is as follows:
<TABLE>
<CAPTION>
MAY 31, JUNE 1, JUNE 3,
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................................ $ 8 $ 9 $ 22
Interest cost............................................... 203 223 307
Amortization of unrecognized net loss....................... 60 40 95
---- ---- ----
Postretirement benefit cost................................. $271 $272 $424
==== ==== ====
</TABLE>
7. EMPLOYEE STOCK INCENTIVE PLANS
The Company's 1996 Stock Incentive Plan provides for a committee appointed
by the Board and authorizes the committee the discretion to grant a variety of
equity-based awards to eligible persons. The plan has 595,000 shares of common
stock authorized for issuance. Options granted have a five-year term and become
fully vested and exercisable either two or three years from the grant date. The
1996 Non-Executive Stock Incentive Plan has 1,985,000 shares authorized for the
issuance of stock to non-executive management personnel. Criteria for granting
options and vesting schedules are identical to those of the 1996 Stock Incentive
Plan.
The Stock Incentive and Deferred Compensation Plan for Directors has 85,000
shares authorized for issue. The Plan requires that directors use 60% of their
retainer to purchase shares of Company stock if they have not attained a
specified level of ownership. Participants receive 15% of the purchased amount
as bonus shares and a non-qualified stock option equal to three times the total
shares received. All options are fully vested and exercisable after six months
and have a term of five years from the grant date.
Under the terms of the Distribution, employees of the Company who were
holders of MRI stock options received adjusted, substitute options which, in the
aggregate, preserved the economic value as well as the material terms, such as
option period, vesting provisions and payment terms, the optionee had in the
original MRI options prior to the Distribution. Vested and non-vested MRI
options were adjusted by granting new option rights to acquire Ruby Tuesday,
Inc. and Morrison Health Care, Inc. stock in addition to Company stock.
F-14
<PAGE> 16
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies APB 25 and related interpretations in accounting for
its employee stock options. In contrast to the intrinsic value based method
employed by APB 25, Statement of Financial Accounting Standards No. 123 (FAS
123) "Accounting for Stock-Based Compensation," utilizes a fair value based
method. FAS 123 requires the use of option valuation models developed for
estimating the fair value of traded options which are fully transferable and
have no vesting restrictions. Option valuation models also utilize highly
subjective assumptions such as expected stock price volatility. Changes in the
assumptions can materially impact the fair value estimate and, in Management's
opinion, do not necessarily provide a reliable single measure of the fair value
of its employee stock options. Adoption of the cost recognition requirements of
FAS 123 is optional; however, the required pro forma disclosures as if the
Standard was adopted in 1996 are presented on the following page.
All stock options are awarded at the prevailing market value on the date of
grant; therefore, under the intrinsic value method employed by APB 25, no
compensation expense is recognized. For purposes of FAS 123 disclosure, the
estimated fair value of the options is expensed over the vesting period of the
options. Fair value was estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions for 1997
and 1996, respectively: (i) risk-free interest rates of 6.24% and 5.64%, (ii)
dividend yield of 7.3% and 4.6%, (iii) stock price volatility factor of .27 and
.23, and (iv) expected option life of 4.3 years. Options replacing those
originally granted prior to the Distribution were valued as of the original date
of grant. If the Company had adopted FAS 123 in accounting for stock options
granted in fiscal years 1997 and 1996, its net income and earnings per share
would approximate the pro forma amounts below (in thousands except for per share
data):
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net Income (Loss).......................... $2,732 $2,567 $(9,894) $(9,951)
Earnings per Share......................... $ 0.30 $ 0.28 $ (1.10) $ (1.11)
</TABLE>
The effects of applying FAS 123 in this pro forma disclosure may not be
indicative of future results. FAS 123 does not apply to awards made prior to
1996 and additional awards in future years are anticipated.
The following table summarizes the activity in options under all plans as
of May 31, 1997 and June 1, 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
WTD. AVG. WTD. AVG.
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year................... 1,875 $6.69 0
Replacement options granted........................ 0 1,114 5.78
Granted............................................ 44 5.15 846 7.75
Exercised.......................................... (111) 3.26 (65) 4.29
Forfeited.......................................... (330) 7.73 (20) 9.18
----- -----
Balance at end of year............................. 1,478 6.68 1,875 6.69
===== ===== ===== =====
Exercisable at end of year......................... 796 5.92 778 5.46
===== ===== ===== =====
Shares available for future grant.................. 1,187 751
===== =====
Weighted average fair value of options granted
during the year.................................. $0.74 $1.27
===== =====
</TABLE>
F-15
<PAGE> 17
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Information regarding stock options outstanding at the end of the current
fiscal year are summarized in the following table (in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
OPTIONS REMAINING AVERAGE OPTIONS AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 5/31/97 LIFE IN YRS. PRICE AT 5/31/97 PRICE
--------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$3.34 to $5.41...................... 566 2.3 $4.86 538 $4.87
$5.41 to $7.38...................... 146 4.4 $6.07 60 $5.79
$7.75 to $7.75...................... 523 3.9 $7.75 3 $7.75
$8.10 to $11.75..................... 243 1.8 $8.96 195 $8.85
$3.34 to $11.75..................... 1,478 2.9 $6.68 796 $5.92
</TABLE>
The Company's Stock Incentive and Deferred Compensation Plan for directors
also provides for a restricted stock award of 5,000 shares to newly elected
directors. Unvested shares are restricted as to disposition and are subject to
forfeiture if the participant ceases to be a member of the Board of Directors.
The participant is entitled to full dividends and voting rights with respect to
the entire award. Shares vest incrementally over a three year period, but become
fully vested on account of death, disability, or retirement. Upon issuance,
unearned compensation is recorded and then expensed ratably over the vesting
period. One such award was made during fiscal 1996. The Company recognized
compensation expense of $13,000 in fiscal 1997 and $3,000 in fiscal 1996 related
to the restricted shares.
In June 1997, the Compensation Committee approved a resolution to replace
282,000 outstanding options granted to non-executive employees immediately after
the Distribution at a price of $7.75 per share with new options priced at $4.75
per share which was the market value of the Company's stock on the date of
re-grant. The Company believes that the new options provide employees with a
greater incentive to increase their ownership in the Company.
8. PREFERRED STOCK
Under its Certificate of Incorporation, the Company is authorized to issue
preferred stock with a par value of $0.01 in an amount not to exceed 250,000
shares which may be divided into and issued in designated series, with dividend
rates, rights of conversion, redemption, liquidation prices and other terms or
conditions as determined by the Board of Directors. No preferred shares have
been issued as of May 31, 1997. The Board of Directors has designated 50,000 of
such shares as Series A Junior Participating Preferred Stock and has issued
rights to acquire such shares, upon certain events, with an exercise price of
$50.00 per one one-thousandth of a share, subject to adjustment. The rights
expire on March 1, 2006, and may be redeemed prior to ten days after the
acquisition of 20% or more of the Company's common stock.
9. COMMITMENTS AND CONTINGENCIES
At May 31, 1997, the Company was contingently liable for approximately $4.9
million in letters of credit and $4.1 million for an indemnity agreement bond,
issued primarily in connection with its workers' compensation and casualty
insurance programs.
The Company is presently, and from time to time, subject to pending claims
and lawsuits arising in the ordinary course of its business. In the opinion of
Management, the ultimate resolution of these pending legal proceedings will not
have a material adverse effect on the Company's operations or financial
position.
F-16
<PAGE> 18
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. LOSS ON IMPAIRMENT OF ASSETS
In conjunction with the adoption of FAS 121 in the third quarter of fiscal
1996, the Company recorded a loss on the impairment of assets of $13.8 million.
This charge was composed of the following: a $6.8 million asset write-off of 15
quick service restaurants and seven traditional cafeterias which were approved
for closure within one year by the Board of Directors; a $5.1 million asset
write-down of impaired units which will continue to be operated, $1.5 million of
which was due solely to the adoption of FAS 121; and a $1.9 million asset
write-down of previously closed locations.
The $6.8 million charge was composed of the expected loss on the disposal
of long-lived assets of units selected for closure, net of an assumed salvage
value of $0.8 million. As of May 31, 1997, the Company had closed all seven of
the traditional cafeterias and 14 of the quick service restaurants which were
selected for closure, at a net loss on disposal of $6.6 million. The remaining
quick service restaurant is expected to be closed in fiscal 1999 when the
Company exercises its right to early termination under the terms of the lease.
Management anticipates that the remaining allowance will be adequate to record
the ultimate loss expected on the disposal of the unit's assets.
All operating units not recommended for closure were reviewed for
impairment. Such review consisted of an analysis of each unit's cash flows and
profit trends over the past year. If such review indicated impairment,
Management estimated the undiscounted future net cash flows to be generated by
these units and determined that certain of them would be unlikely to generate
net cash flows in excess of carrying value. Management then estimated the fair
value of those units using discounted net cash flow as a measure of fair value,
which resulted in a write-down in fiscal 1996 of $5.1 million, $1.5 million of
which was due to the effect of the discounting of cash flows as prescribed by
FAS 121.
In addition to those units selected for closure and impaired operating
units, the Company recorded a charge of $1.9 million in fiscal 1996 for the
write-down of long-lived assets of previously closed units. This charge was
based on Management's estimate of the eventual loss that would be incurred on
the ultimate disposal of these properties. As of May 31, 1997, the Company had
disposed of two of these properties at a net loss on disposal of $0.9 million.
Management anticipates that the allowance provided is adequate for the remaining
properties. The Company continues to systematically analyze its units for signs
of impairment, and will record a loss on impairment when impairment is
indicated. No impairment was recorded in fiscal 1997 based on Management's
analysis.
11. RESTRUCTURE COSTS
In fiscal 1996, the Company recorded restructure costs of $8.3 million
relating to the settlement of lease obligations of units selected for closure
and costs associated with the Distribution. In addition to the write-off of the
22 units selected for closure by the Board of Directors as described in Note 10,
the Company accrued charges of $6.1 million in fiscal 1996 for settlement of the
related lease obligations. As of May 31, 1997, the Company had negotiated lease
settlements on 15 of its closed units at a net cost of $2.3 million, subleased
two properties, and paid $3.3 million in rent and related payments on closed
properties. In addition to the lease obligations of its closed units, the
Company recorded charges of $0.3 million in fiscal 1996 for severance payments
of personnel employed at the closed units. Management anticipates that the
remaining accrual of $0.8 million is adequate to settle the remaining five
leases.
The Company recorded $2.0 million in 1996 in other charges incurred as a
result of the Distribution. These charges consisted of $1.8 million in estimated
professional and other fees such as stock exchange listing fees, and $0.2
million of miscellaneous other asset write-offs. As of May 31, 1997, the Company
had incurred $1.7 million in professional fees associated with the Distribution,
and had written off $0.3 million of miscellaneous assets. The Company does not
anticipate any additional costs related to the Distribution.
F-17
<PAGE> 19
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following Unaudited Pro Forma Statements of Operations were prepared to
illustrate certain estimated effects of the Distribution and related
transactions. These statements include adjustments for the effects of additional
payroll and related costs; other operating expenses; selling, general and
administrative expenses; and depreciation which might have occurred had the
Distribution been effected as of the dates indicated, as well as the estimated
tax benefit associated with these adjustments. The Pro Forma Statements of
Operations for the years ended June 1, 1996 and June 3, 1995, are prepared
assuming the distribution had occurred as of June 1, 1996 and June 3, 1995,
respectively. Such pro forma information may not necessarily be indicative of
the results that would actually have occurred had the transactions occurred on
the dates indicated or of the results that may occur in the future. The
Unaudited Pro Forma Statements of Operations should be read in conjunction with
the historical financial statements, including the notes thereto, and other
financial data of the Company included elsewhere herein.
MORRISON FRESH COOKING, INC.
PRO FORMA -- STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
--------------------------
JUNE 1, JUNE 3,
1996 1995
----------- -----------
<S> <C> <C>
Net Sales................................................... $267,638 $294,587
Operating Costs and Expenses:
Cost of merchandise....................................... 75,458 78,987
Payroll and related costs................................. 101,967 105,947
Other operating costs..................................... 56,364 60,960
Selling, general and administrative....................... 18,416 20,642
Depreciation and.......................................... 10,091 10,299
-------- --------
262,296 276,835
-------- --------
Operating Income Before Loss on Impairment of Assets and
Restructure Costs......................................... 5,342 17,752
Loss on impairment of assets.............................. 13,789
Restructure costs......................................... 8,290
-------- --------
Operating Income (Loss)..................................... (16,737) 17,752
Interest expense (income), net............................ 51 (301)
-------- --------
Income (Loss) Before Income Taxes........................... (16,788) 18,053
Provision for (Benefit from) Income Taxes................... (6,165) 7,307
-------- --------
Net Income (Loss)........................................... $(10,623) $ 10,746
======== ========
Earnings (Loss) Per Common and Common Equivalent Share...... $ (1.19) $ 1.20
======== ========
Weighted Average Common and Common Equivalent Shares........ 8,954 8,981
======== ========
</TABLE>
F-18
<PAGE> 20
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial results for the years ended May 31, 1997 and June 1,
1996 are summarized below. All quarters are composed of 13 weeks.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(1) TOTAL
------- ------- ------- ---------- --------
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED MAY 31, 1997:
Net Sales.................................. $63,246 $62,889 $61,921 $61,581 $249,637
======= ======= ======= ======= ========
Gross Profit*.............................. $ 8,372 $ 7,844 $ 7,554 $ 8,308 $ 32,078
======= ======= ======= ======= ========
Income Before Income Taxes................. $ 1,262 $ 1,103 $ 1,109 $ 875 $ 4,349
Provision for Income Taxes................. 467 413 408 329 1,617
------- ------- ------- ------- --------
Net Income................................. $ 795 $ 690 $ 701 $ 546 $ 2,732
======= ======= ======= ======= ========
Earnings Per Common and Common Equivalent
Share.................................... $ 0.09 $ 0.08 $ 0.08 $ 0.06 $ 0.30
======= ======= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED JUNE 1, 1996:
Net Sales................................. $70,129 $67,889 $ 65,260 $64,360 $267,638
======= ======= ======== ======= ========
Gross Profit*............................. $ 9,726 $ 8,503 $ 8,774 $ 7,275 $ 34,278
======= ======= ======== ======= ========
Income (Loss) Before Income Taxes......... $ 2,881 $ 1,387 $(21,057) $ 1,201 $(15,588)
Provision for (Benefit from) Income
Taxes................................... 1,216 545 (7,935) 480 (5,694)
------- ------- -------- ------- --------
Net Income (Loss)......................... $ 1,665 $ 842 $(13,122) $ 721 $ (9,894)
======= ======= ======== ======= ========
Earnings (Loss) Per Common and Common
Equivalent Share........................ $ 0.19 $ 0.10 $ (1.49) $ 0.08 $ (1.10)
======= ======= ======== ======= ========
</TABLE>
- ---------------
(1) Fourth quarter 1997 results include $0.3 million expense for severance costs
($0.02 per share, net of taxes), offset by favorable adjustments of $0.6
million for medical insurance expense ($0.04 per share, net of taxes) and
$0.7 million for workers' compensation and general liability insurance
expense ($0.05 per share, net of taxes) due to favorable claims experience
during 1997.
* The Company defines gross profit as revenues less cost of merchandise,
payroll and related costs, and other operating costs.
Due to weighted average share calculations, quarterly earnings per share
amounts may not sum to the fiscal year amount.
Morrison Fresh Cooking, Inc. common stock is publicly traded on the New
York Stock Exchange under the ticker symbol MFC. The following table sets forth
the reported high and low prices for the fiscal year
F-19
<PAGE> 21
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ended May 31, 1997, and the fiscal year ended June 1, 1996, commencing with the
first trading date following the Distribution.
<TABLE>
<CAPTION>
FOR THE 52 WEEKS ENDED MAY 31, 1997
- -----------------------------------------------------------------------------------------------
PER SHARE
QUARTER HIGH LOW CASH DIVIDEND
------- ----- ----- -------------
<S> <C> <C> <C>
First....................................................... $7.38 $4.25 $0.09
Second...................................................... $5.88 $4.63 $0.09
Third....................................................... $5.38 $4.50 $0.09
Fourth...................................................... $5.38 $4.50 $0.09
</TABLE>
<TABLE>
<CAPTION>
FOR THE 12 WEEKS ENDED JUNE 1, 1996
- -----------------------------------------------------------------------------------------------
PER SHARE
QUARTER HIGH LOW CASH DIVIDEND
------- ----- ----- -------------
<S> <C> <C> <C>
Fourth...................................................... $9.00 $5.50 $0.09
</TABLE>
In June 1997 the Company's Board of Directors declared a quarterly dividend
of $0.09 per share payable July 31, 1997 to 5,884 shareholders of record on July
11, 1997.
F-20
<PAGE> 22
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Morrison Fresh Cooking, Inc.
We have audited the accompanying balance sheets of Morrison Fresh Cooking,
Inc. as of May 31, 1997 and June 1, 1996, and the related statements of
operations, stockholders' equity and cash flows for each of the three fiscal
years in the period ended May 31, 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 financial position of Morrison Fresh Cooking, Inc.
at May 31, 1997 and June 1, 1996, and the results of its operations and its cash
flows for each of the three fiscal years in the period ended May 31, 1997, in
conformity with generally accepted accounting principles.
As discussed in Note 10 to the financial statements, in fiscal year 1996,
Morrison Fresh Cooking, Inc. changed its method of accounting relative to
impairment of long-lived assets.
/s/ ERNST & YOUNG LLP
------------------------------------
Ernst & Young LLP
Atlanta, Georgia
June 20, 1997
F-21
<PAGE> 23
MORRISON RESTAURANTS INC.
BALANCE SHEETS
(IN THOUSANDS EXCEPT PER-SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 28, MAY 31,
1998 1997
------------ ---------
(UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments........................... $ 810 $ 2,939
Receivables -- accounts and notes (net)................... 1,821 1,547
Inventories............................................... 2,293 2,412
Prepaid other expenses.................................... 1,315 1,545
Current deferred income tax benefit....................... 3,303 5,027
--------- ---------
Total current assets.............................. 9,542 13,470
--------- ---------
PROPERTY AND EQUIPMENT -- at cost........................... 161,740 161,734
Less accumulated depreciation............................. (102,376) (100,834)
--------- ---------
59,364 60,900
DEFERRED INCOME TAX BENEFITS................................ 6,876 2,615
OTHER ASSETS................................................ 7,583 7,043
--------- ---------
TOTAL ASSETS...................................... $ 83,365 $ 84,028
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 6,012 $ 8,212
Accrued liabilities....................................... 14,583 14,677
Short-term borrowings..................................... 12,191 7,461
Current portion of capital lease obligations.............. 78 103
--------- ---------
Total current liabilities......................... 32,864 30,453
--------- ---------
CAPITAL LEASE OBLIGATIONS................................... 500 662
EMPLOYEE BENEFIT OBLIGATIONS................................ 8,697 8,285
OTHER DEFERRED LIABILITIES.................................. 4,442 4,684
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value (100,000 shares authorized;
9,234 shares issued -- 1998, 9,214 shares
issued -- 1997)........................................ 92 90
Capital in excess of par value............................ 41,713 41,428
Unearned ESOP shares...................................... (371) (715)
Accumulated deficit....................................... (4,300) (593)
--------- ---------
37,134 40,210
Less common stock held in treasury -- at cost
(50 shares @ 02/28/98).................................
(44 shares @ 05/31/97)................................. (272) (266)
--------- ---------
36,862 39,944
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY.......... $ 83,365 $ 84,028
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-22
<PAGE> 24
MORRISON RESTAURANTS INC.
STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER-SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
--------------------------------- ---------------------------------
FEBRUARY 28, 1998 MARCH 1, 1997 FEBRUARY 28, 1998 MARCH 1, 1997
----------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
Revenues..................................... $58,763 $61,921 $179,670 $188,056
Operating Costs and Expenses:
Cost of merchandise........................ 16,181 16,920 50,380 53,107
Payroll and related costs.................. 23,051 23,481 70,759 69,563
Other operating costs...................... 14,461 13,966 44,743 41,616
Depreciation............................... 2,409 2,508 7,415 7,348
Selling, general and administrative........ 2,695 3,860 10,675 12,841
Interest expense, net...................... 108 77 297 107
------- ------- -------- --------
58,905 60,812 184,269 184,582
------- ------- -------- --------
Income (Loss) before Income Taxes............ (142) 1,109 (4,599) 3,474
Provision for (benefit from) federal and
state income taxes......................... (52) 408 (1,709) 1,288
------- ------- -------- --------
Net Income (Loss).................. $ (90) $ 701 $ (2,890) $ 2,186
======= ======= ======== ========
Basic Earnings (Loss) per Share.............. $ (0.01) $ 0.08 $ (0.32) $ 0.24
======= ======= ======== ========
Diluted Earnings (Loss) per Share............ $ (0.01) $ 0.08 $ (0.32) $ 0.24
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE> 25
MORRISON RESTAURANTS INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
---------------------------
FEB 28, 1998 MAR 1, 1997
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (Loss)........................................... $(2,890) $ 2,186
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 7,415 7,348
Loss on disposition of assets............................. 147 172
Deferred income taxes..................................... (2,537) 992
Changes in operating assets and liabilities:
Increase in receivables................................ (273) (82)
(Increase) decrease in inventories..................... 118 (66)
Increase in prepaid and other assets................... (311) (51)
Decrease in accounts payable, accrued and other
liabilities........................................... (2,123) (6,417)
------- --------
Net cash provided (used) by operating activities............ (454) 4,082
------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment......................... (7,747) (10,479)
Proceeds from disposal of assets............................ 1,721 129
------- --------
Net cash used by investing activities....................... (6,026) (10,350)
------- --------
FINANCING ACTIVITIES:
Principal payments on capital leases........................ (187) (64)
Short-term borrowings....................................... 4,730 7,466
Proceeds from option exercises.............................. 270 394
Dividends paid.............................................. (817) (2,439)
ESOP shares released........................................ 361 0
(Increase) decrease in treasury stock held.................. (6) 99
------- --------
Net cash provided by financing activities................... 4,351 5,456
------- --------
Decrease in cash and short-term investments................. (2,129) (812)
Cash and short-term investments:
Beginning of period....................................... 2,939 1,561
------- --------
End of period............................................. $ 810 $ 749
======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE> 26
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q, and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The statements should be read in conjunction
with the notes to the financial statements included in the Company's annual
report for the fiscal year ended May 31, 1997. The accompanying unaudited
financial statements reflect all adjustments for normal recurring accruals.
These adjustments are necessary, in the opinion of management, for a fair
presentation of the financial position, the results of operations and the cash
flows for the interim periods presented. The results of operations for the
interim periods reported herein are not necessarily indicative of results to be
expected for the full year.
NOTE B -- EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average number of
common shares outstanding during the period, excluding unallocated shares under
the Employee Stock Ownership Plan (ESOP). Diluted earnings per share includes
the dilutive effect of outstanding stock options computed under the treasury
stock method. In accordance with Financial Accounting Standard No. 128 (FAS
128), Earnings Per Share, which is effective for periods ending after December
15, 1997, prior period earnings per share information has been restated in
conformity with the new provisions. Adoption of FAS 128 had little or no impact
on the earnings per share amounts previously reported.
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
THIRTEEN WEEKS ENDED ENDED
----------------------- -----------------------
FEBRUARY 28, MARCH 1, FEBRUARY 28, MARCH 1,
1998 1997 1998 1997
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Net Income (Loss) -- (A)........................... $ (90) $ 701 $(2,890) $2,186
====== ====== ======= ======
Average shares outstanding -- (B).................. 9,139 9,045 9,111 9,033
Dilutive effect of stock options................... 0 24 0 36
------ ------ ------- ------
Common stock and common stock equivalents -- (C)... 9,139 9,069 9,111 9,069
Basic Earnings (Loss) per Share -- (A/B)........... $(0.01) $ 0.08 $ (0.32) $ 0.24
====== ====== ======= ======
Diluted Earnings (Loss) per Share -- (A/C)......... $(0.01) $ 0.08 $ (0.32) $ 0.24
====== ====== ======= ======
</TABLE>
NOTE C -- CREDIT FACILITY
At February 28, 1998, the Company had $12.2 million in borrowings under its
revolving line of credit, a net increase of $4.7 million from May 31, 1997.
Subsequent to quarter-end, the Company and its lender entered into an agreement
whereby the Credit Agreement dated as of June 19, 1997, was amended and restated
in its entirety. The Amended and Restated Credit Agreement dated as of March 23,
1998, provides for a revolving credit facility of $25.0 million and a letter of
credit facility of $5.0 million. The Company granted to its lender a security
interest in substantially all of its assets as collateral for the credit
obligation. The terms of certain restrictions were also modified, including, but
not limited to, incurring additional indebtedness and certain funded debt, net
worth and fixed charge coverage requirements.
F-25
<PAGE> 27
Piccadilly Cafeterias, Inc.
Unaudited Pro Forma Consolidated Balance Sheet and Statements of
Income
On May 28, 1998, Piccadilly Acquisition Corporation, a Georgia corporation (the
"Purchaser") and a wholly-owned subsidiary of Piccadilly Cafeterias, Inc., a
Louisiana corporation ("Piccadilly"), pursuant to its Offer to Purchase, dated
April 29, 1998 (the "Offer"), purchased 8,249,228 shares of common stock, par
value $.01 per share (the "Shares") of Morrison Restaurants, Inc., a Georgia
Corporation ("Morrison") for $5.00 net per share. The Shares so purchased
represented approximately 89% of the Shares outstanding on such date. The
aggregate purchase price for the Morrison shares acquired upon consummation of
the Offer was approximately $41.3 million.
Pursuant to the Agreement and Plan of Merger, dated April 22, 1998, by and among
Piccadilly, Purchaser, and Morrison (the "Merger Agreement"), Piccadilly
effected a merger of Purchaser with and into Morrison (the "Merger") in
accordance with the relevant provisions of the Georgia Business Corporation Code
as promptly as practicable. Upon the consummation of the Merger, each
outstanding Share (other than Shares acquired by Purchaser in the Offer, and
Shares as to which dissenters' rights are perfected) were converted into the
right to receive $5.00 in cash. On July 31, 1998, $46.9 million was paid and
the Merger was consummated, as a result of which Morrison became a
wholly-owned subsidiary of Piccadilly (the "Morrison Acquisition").
This acquisition of 100% of the Morrison shares has been accounted for using
the purchase method of accounting. The following Unaudited Pro Forma
Consolidated Balance Sheet at March 31, 1998 assumes that the acquisition was
effective March 31, 1998 and Unaudited Pro Forma Statements of Income for the
nine months ended March 31, 1998 and the year ended June 30, 1997 give effect
to the purchase as if it had occurred at July 1, 1996. The purchase price
allocation used in the Unaudited Pro Forma Financial Statements is preliminary.
The unaudited pro forma financial information may not be indicative of the
financial position or results of operations of Piccadilly Cafeterias, Inc. that
would have resulted if the transaction had occurred as of the dates assumed or
which will be obtained in the future.
The Company believes that the assumptions used in preparing the unaudited pro
forma consolidated financial statements provide a reasonable basis for
presenting all of the significant effects of the Morrison Acquisition (other
than any synergies anticipated by the Company, and nonrecurring charges directly
attributable to the purchase and nonrecurring charges that will result from
combining operations), and that the pro forma
F-26
<PAGE> 28
adjustments give effect to those assumptions in the Unaudited Pro Forma
Consolidated Balance Sheet and Statements of Income.
The Unaudited Pro Forma Consolidated Balance Sheet and Statements of Income
should be read in conjunction with the historical financial statements of the
Company and related notes thereto.
F-27
<PAGE> 29
Piccadilly Cafeterias, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
March 31, 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
Piccadilly Morrison Pro Forma Pro Forma
Cafeterias, Inc. Restaurants, Inc.(a) Adjustments Consolidated
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash $ -- $ 810 $ -- $ 810
Accounts and notes receivable 638 1,821 -- 2,459
Inventories 10,457 2,293 -- 12,750
Deferred income taxes 3,546 3,303 -- 6,849
Other current assets 1,339 1,315 -- 2,654
--------- --------- --------- ---------
Total current assets 15,980 9,542 -- 25,522
Property, plant and equipment, net 124,690 59,364 20,605 (b) 204,659
Deferred income taxes benefit -- 6,876 2,266 (c) 9,142
Other assets 6,890 7,583 8,760 (d) 23,233
--------- --------- --------- ---------
Total Assets $ 147,560 $ 83,365 $ 31,631 $ 262,556
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 13,156 $ 6,012 -- $ 19,168
Accrued expenses 19,397 14,583 2,250 (e) 36,230
Short-term debt -- 12,191 (12,191)(f) --
Current portion of capital lease obligations -- 78 -- 78
--------- --------- --------- ---------
Total current liabilities 32,553 32,864 (9,941) 55,476
Capital lease obligations -- 500 -- 500
Employee benefit obligations -- 8,697 5,914 (g) 14,611
Other deferred liabilities -- 4,442 3,006 (h) 7,448
Long-term debt, net 26,200 -- 61,877 (f) 88,077
Deferred income taxes 5,823 -- (5,823)(c) --
Reserve for unit closings 1,640 -- 13,460 (e) 15,100
Shareholders' Equity
Common stock 19,141 92 (92)(i) 19,141
Additional paid-in-capital 18,735 41,713 (41,713)(i) 18,735
Unearned ESOP shares -- (371) 371 (i) --
Retained earnings (Deficit) 43,717 (4,300) 4,300 (i) 43,717
Less treasury stock (249) (272) 272 (i) (249)
--------- --------- --------- ---------
Total Shareholders' Equity 81,344 36,862 (36,862) 81,344
--------- --------- --------- ---------
Total Liabilities and Shareholders' Equity $ 147,560 $ 83,365 $ 31,631 $ 262,556
========= ========= ========= =========
</TABLE>
See notes to Unaudited Pro Forma Financial Statements.
F-28
<PAGE> 30
Piccadilly Cafeterias, Inc.
Unaudited Pro Forma Consolidated Statement of Income
For the Nine Months Ended March 31, 1998
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Piccadilly Morrison Pro Forma Pro Forma
Cafeterias, Inc. Restaurants, Inc.(a) Adjustments Consolidated
<S> <C> <C> <C> <C>
Net sales $ 234,782 $ 179,670 $ (15,807)(j) $ 398,645
Cost of sales 136,153 121,139 (11,592)(j) 245,700
Other operating expenses 76,755 52,158 (4,281)(j) 121,824
(2,206)(k)
(602)(1)
General and administrative expenses 8,689 10,675 (1,429)(m) 17,935
Interest expense 1,699 297 3,300 (n) 5,465
169 (o)
Other expense (income) (411) -- -- (411)
Goodwill amortization -- -- 219 (p) 219
--------- --------- --------- ---------
222,885 184,269 (16,422) 390,732
--------- --------- --------- ---------
Income before income taxes 11,897 (4,599) (615) 7,913
Provision for income taxes 4,402 (1,709) (316)(q) 3,009
--------- --------- --------- ---------
Net income $ 7,495 $ (2,890) $ 299 $ 4,904
========= ========= ========= =========
Average shares outstanding:
Basic and assuming dilution 10,503 10,503
Net income per share of common stock:
Basic and assuming dilution $ 0.71 $ 0.47
</TABLE>
See notes to Unaudited Pro Forma Financial Statements.
F-29
<PAGE> 31
Piccadilly Cafeterias, Inc.
Unaudited Pro Forma Consolidated Statement of Income
For the Year Ended June 30, 1997
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Piccadilly Morrison Pro Forma Pro Forma
Cafeterias, Inc. Restaurants, Inc.(a) Adjustments Consolidated
<S> <C> <C> <C> <C>
Net sales $ 304,838 $ 249,637 $ (21,076)(j) $ 533,399
Cost of sales 175,685 161,396 (15,701)(j) 321,380
Other operating expenses 100,334 66,113 (5,464)(j) 157,169
(3,011)(k)
(803)(l)
General and administrative expense 11,465 17,639 (5,318)(m) 23,786
Interest expense 2,714 140 4,657 (n) 7,737
226 (o)
Other expense (income) (505) -- -- (505)
Goodwill amortization -- -- 292 (p) 292
--------- --------- --------- ---------
289,693 245,288 (25,122) 509,859
--------- --------- --------- ---------
Income before income taxes 15,145 4,349 4,046 23,540
Provision for income taxes 5,755 1,617 1,684 (q) 9,056
--------- --------- --------- ---------
Net income $ 9,390 $ 2,732 $ 2,362 $ 14,484
========= ========= ========= =========
Average shares outstanding:
Basic and assuming dilution 10,506 10,506
Net income per share of common stock:
Basic and assuming dilution $ 0.89 $ 1.38
</TABLE>
See notes to Unaudited Pro Forma Financial Statements.
F-30
<PAGE> 32
NOTES:
Pro forma adjustments to the Unaudited Pro Forma Financial Statements are as
follows:
(a) The information presented for Morrison is as of February
28, 1998 and for the thirty-nine weeks then ended and for
the fiscal year ended May 31, 1997.
(b) Reflects the step-up in basis of property, plant and
equipment of Morrison to estimated fair value at
acquisition date.
(c) Reflects the deferred tax effect of the Morrison
Acquisition.
(d) Reflects the excess of acquisition cost over the fair
value of the net assets acquired.
(e) Reflects the anticipated restructuring costs associated
with the Morrison Acquisition, including severance costs,
stay bonuses and future rental commitments related to
units identified for closing.
(f) Reflects the debt incurred and assumed by Piccadilly to
complete the Morrison Acquisition.
(g) Reflects the remeasurement of employee benefit
obligations at the date of the Morrison Acquisition.
(h) Reflects the accrual of unfavorable leases at the present
value of the amounts to be paid in excess of market rental
rates as of the date of the Morrison Acquisition.
(i) Reflects the elimination of the shareholders' equity
accounts of Morrison.
(j) Reflects the adjustment to sales, costs of sales and other
operating expenses for Morrison units which have been
identified for closing.
(k) Reflects depreciation expense related to the step-up in
basis of Morrison property, plant and equipment (see note
b).
(l) Reflects the reduction in rent associated with unfavorable
Morrison leases (see note h).
F-31
<PAGE> 33
NOTES (CONTINUED):
(m) Reflects factually supportable cost savings from the
elimination of duplicate Morrison administrative
functions. The elimination of substantially all of the
positions contemplated in this adjustment occurred
shortly after the completion of the Morrison Acquisition.
This adjustment does not reflect other cost savings and
operating synergies which Piccadilly Management expects
to achieve.
(n) Reflects additional interest expense resulting from
$61,877 of additional indebtedness bearing interest of
approximately 7.5% incurred in connection with the
Morrison Acquisition, along with the amortization of
related financing costs.
(o) Reflects imputed interest expense based upon the
revaluation of unfavorable Morrison leases (see note h).
(p) Reflects amortization of goodwill related to the Morrison
Acquisition, assuming a useful life of thirty years.
(q) Reflects the income tax effect of Morrison income before
income taxes and pro forma adjustments at Piccadilly's
historical effective income tax rate, as adjusted for tax
effects related to the Morrison Acquisition.
F-32
<PAGE> 34
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
By: /s/ J. FRED JOHNSON
--------------------------------
J. Fred Johnson
Chief Financial Officer
Dated: August 11, 1998
<PAGE> 35
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
23 Consent of Independent Auditors
</TABLE>
<PAGE> 1
EXHIBIT 23
Consent of Independent Auditors
We hereby consent to the incorporation by reference in Piccadilly Cafeterias,
Inc.'s Registration Statements (Form S-8 No. 33-17737 and Form S-8 No. 33-27793)
and in Piccadilly Cafeterias, Inc.'s Registration Statement and related
Prospectuses (Form S-3 No. 33-17131) of our report dated June 20, 1997 with
respect to the financial statements of Morrison Fresh Cooking, Inc. included in
this Form 8-K/A of Piccadilly Cafeterias, Inc.
Ernst & Young, LLP
Atlanta, Georgia
/s/ ERNST & YOUNG, LLP
----------------------
Ernst & Young, LLP
August 7, 1998
