FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] Quarterly report pursuant to section 13 or 15(d) of the securities
exchange act of 1934
For the quarterly period ended SEPTEMBER 30, 1999
[ ] Transition report pursuant to section 13 or 15(d) of the securities
exchange act of 1934
For the transition period from _____________ to ______________
Commission file number: 1-11754
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
NOT APPLICABLE
(Former name, former address and former fiscal
year, if changed since last report)
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 [ ]
The number of shares outstanding of Common Stock, without par value, as of
November 1, 1999 was 10,528,368.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
PICCADILLY CAFETERIAS, INC.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
BALANCES AT SEPTEMBER 30 June 30
1999 1999
<S> <C> <C>
ASSETS
CURRENT ASSETS
Accounts and notes receivable $ 1,183 $ 1,970
Inventories 12,588 12,595
Deferred income taxes 11,316 11,216
Recoverable income taxes 4,718 5,578
Other current assets 714 888
-------- --------
TOTAL CURRENT ASSETS 30,519 32,247
PROPERTY, PLANT AND EQUIPMENT 307,443 310,285
Less allowances for depreciation and unit closings 133,183 134,035
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 174,260 176,250
GOODWILL, net of $601,000 and $532,000 accumulated
amortization at September 30, 1999 and at June 30, 1999 12,913 12,982
OTHER ASSETS 11,057 11,460
-------- --------
TOTAL ASSETS $228,749 $232,939
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 76,825 $ ---
Accounts payable 16,906 18,612
Accrued interest 293 275
Accrued salaries, benefits and related taxes 23,085 22,824
Accrued rent 5,186 5,183
Other accrued expenses 4,516 6,267
-------- --------
TOTAL CURRENT LIABILITIES 126,811 53,161
LONG-TERM DEBT, less current portion --- 74,226
DEFERRED INCOME TAXES 4,042 3,992
RESERVE FOR UNIT CLOSINGS 11,787 12,693
ACCRUED EMPLOYEE BENEFITS, less current portion 9,583 9,465
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 September 30, 1999
and at June 30, 1999 19,141 19,141
Additional paid-in capital 18,735 18,735
Retained earnings 38,926 41,804
-------- --------
76,802 79,680
Less treasury stock at cost: 25,000 Common Shares at
September 30, 1999 and at June 30, 1999 276 278
-------- --------
TOTAL SHAREHOLDERS' EQUITY 76,526 79,402
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $228,749 $232,939
======== ========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
PICCADILLY CAFETERIAS, INC.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS - EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SEPTEMBER 30 1999 1998
<S> <C> <C>
Net sales $114,126 $128,935
Cost and expenses:
Cost of sales 68,765 77,003
Other operating expense 42,588 42,599
General and administrative expense 4,002 4,579
Interest expense 1,420 1,679
Other expense (income) (136) 1
-------- --------
116,639 125,861
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES (2,513) 3,074
Provision for income taxes (benefit) (901) 1,186
-------- --------
NET INCOME (LOSS) $ (1,612) $ 1,888
======== ========
Weighted average number of shares outstanding 10,503 10,505
Net income (loss) per share - basic and diluted $ (.15) $ .18
======== ========
Cash dividends per share $ .12 $ .12
======== ========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
PICCADILLY CAFETERIAS, INC.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED SEPTEMBER 30 1999 1998
<S> <C> <C>
Operating Activities
Net income (loss) $ (1,612) $ 1,888
Adjustments to reconcile net income (loss)to net
cash provided by operating activities:
Depreciation and amortization 4,115 4,567
Costs associated with reserved units (906) (114)
Provision for deferred income taxes 150 300
Loss on sale of assets 60 67
Pension expense -- net of contributions 243 (2,133)
Change in operating assets and liabilities 1,622 (6,155)
-------- --------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES 3,672 (1,580)
INVESTING ACTIVITIES
Acquisition of business --- (6,143)
Purchase of property, plant and equipment (4,206) (1,839)
Proceeds from sale of property, plant and equipment 1,875 14
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (2,331) (7,968)
FINANCING ACTIVITIES
Proceeds from long-term debt - net 2,599 11,036
Treasury stock transactions - net 2 (228)
Dividends paid (1,260) (1,260)
-------- --------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES (1,341) 9,548
-------- --------
Increase (decrease) in cash and cash equivalents --- ---
Cash and cash equivalents at beginning of period --- ---
-------- --------
Cash and cash equivalents at end of period $ --- $ ---
======== ========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
PICCADILLY CAFETERIAS, INC.
September 30, 1999
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated 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. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included.
Comparative results of operations by periods may be affected by the
timing of the opening of new units. Quarterly results are additionally
affected by seasonal fluctuations in customer volume. Customer volume at
established units is generally higher in the second quarter ended
December 31 and lower in the third quarter ending March 31 reflecting the
general seasonal retail activity.
NOTE 2: DEBT
The Company has a credit facility totaling $100,000,000 with a
syndicated group of banks maturing June 22, 2001. The credit facility
contains covenants that limit the level of the Company's funded debt and
require minimum coverage of fixed charges, among others. As of September
30, 1999 and as a direct result of the Company's operating performance
for the twelve months then ended, the Company was not in compliance with
the two aforementioned covenants of the credit facility. The Company
and its lenders are negotiating the revision of the credit facility such
that the Company would be in compliance with all covenants as of
September 30, 1999. Although management believes that its negotiations
with the lenders has been successfully concluded, the necessary
conforming amendments to the credit facility were not completed and
executed as of the date of this filing. Accordingly, the Company has
classified its outstanding borrowings under this facility as current.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FISCAL 2000 FIRST QUARTER COMPARED TO FISCAL 1999 FIRST QUARTER
In May 1998, the Company acquired 89% of the common stock of
Morrison Restaurants, Inc. (Morrison) for $5.00 per share. The merger
was completed on July 31, 1998 when the Company purchased the remaining
outstanding Morrison shares for $5.00 per share (the Morrison
Acquisition). The aggregate purchase price of the Morrison shares,
including debt assumed of $9,588,000, was approximately $57,270,000. A
$100,000,000 credit facility with a syndicated bank group was established
to finance the Morrison Acquisition, refinance existing Piccadilly and
Morrison debt, and provide additional availability as may be required for
unit growth.
Beginning in the quarter ended March 31, 1999, the Company
accelerated the conversion of Morrison units to Piccadilly-style units
(the Morrison Conversions). At September 30, 1999 and 1998, the Company
had completed 112 and 12 Morrison Conversions, respectively. At
September 30, 1999 there were 11 Morrison units not converted. Three of
these units will continue to operate as a Morrison cafeteria. The
Company is in varying stages of lease renewal negotiations regarding the
remaining eight of these units and the timing of conversion of these
units to Piccadilly-style units is uncertain. The discussion below
refers to both the converted and unconverted Morrison units.
Net sales decreased $14,809,000, or 11.5%, from 1998. A portion of
the decrease is attributable to the Company's sale of Ralph & Kacoo's on
March 30, 1999. Net sales of $5,973,000 from the Ralph & Kacoo's
operations are included in the three-month period ended September 30,
1998. Otherwise, cafeteria sales decreased $8,836,000, of which
$6,839,000 relates to Morrison units. The following table reconciles
total cafeteria sales to same-store cafeteria sales (units that were open
for three full months in both periods) for the quarters ended September
30, 1999 and 1998:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1999 1998 Sales
--------------- --------------- Change
Sales Units Sales Units
-------- ----- -------- ----- -----
<S> <C> <C> <C> <C> <C>
Total cafeteria sales $112,896 235 $121,791 241 -7.3%
Less new units 1,468 4 (A) --- ---
Less closed units 1,576 14 (B) 5,036 24
-------- ----- -------- -----
Net same-store cafeteria sales $109,852 217 $116,755 217 -5.9%
======== ===== ======== =====
</TABLE>
(A) Cafeterias opened since June 30, 1998.
(B) Cafeterias closed since June 30, 1998.
The total decrease in same-store sales of 5.9% reflects a 2.8%
decline in same-store sales at Piccadilly units and a 10.3% same-store
sales decline at Morrison units. The Piccadilly decline is the net
result of a 5.9% decline in same-store customer traffic and a 3.3%
increase in check average. Piccadilly same-store customer traffic began
trending downward in 1997. The Company attributes these declines to
general patterns of customer traffic declines being generally experienced
in the family-dining sector of the restaurant industry. The Morrison
decline is the combined result of an 8.8% decline in same-store customer
traffic and a decrease in check average of 1.8%. Piccadilly and Morrison
units implemented price increases of approximately 4% and 2%,
respectively, on July 1, 1999.
On the whole, the Morrison Conversions have adversely affected
customer traffic. While several Morrison units increased customer
traffic immediately following the conversion to Piccadilly-style units,
most units suffered customer count declines, and in some markets, these
declines were significant. The largest declines for Morrison Conversions
are in Florida comprising approximately 34% of Morrison units. The
Company attributes these declines to an adverse reaction to the Morrison
Conversions by a segment of loyal Morrison customers, resistance to
change, confusion as to pricing of bundled meals, and differences in menu
offerings.
Management of the Company believes that it will continue to report
lower customer counts and same-store sales for the remainder of the
fiscal year ended June 30, 2000 as compared to the fiscal year ended June
30, 1999.
To address these concerns, the Company began an advertising program
targeting the Tampa, Florida area that encompasses 14 units, 9 of which
are Morrison units. The advertising program seeks to build sales by
addressing customer concerns over price. The program began the end of
the first quarter. The Company anticipates executing a program with
similar emphasis in the West Palm Beach, Florida area in the second
quarter. The Company previously launched a company-wide branding
campaign in the first half of calendar year 1999 to build brand awareness
and encourage additional customer traffic. The immediate impact on
customer traffic, while positive, has not changed sales trends materially
and the Company has suspended that campaign.
Unless the Company experiences additional erosion in net sales, it
believes that it will remain in compliance with the terms of its amended
credit facility. However, it is possible that any continuing erosion of
customer traffic at individual units could result in the closing of such
units and additional non-cash charges under SFAS 121, including
impairment charges related to goodwill.
During the first quarters of fiscal 2000 and 1999, consolidated
operating income (net sales less cost of sales and other operating
expenses) as a percentage of net sales was 2.4% and 7.2%, respectively.
The following table illustrates operating income, cost of sales (food and
labor costs), and other operating expenses as a percentage of net sales
for the comparative periods.
<TABLE>
<CAPTION>
Three months ended Piccadilly Morrison
September 30 --------------------- ---------------------
1999 1998 Change 1999 1998 Change
--------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Food costs 26.5% 27.6% -1.1% 29.3% 28.1% 1.2%
Labor costs 30.2% 31.3% -1.1% 36.6% 32.6% 4.0%
Other operating expenses 35.5% 33.0% 2.5% 40.2% 33.7% 6.5%
Operating income 7.8% 8.1% -0.3% -6.2% 5.6% -11.8%
</TABLE>
Food costs as a percentage of net sales improved at Piccadilly units
primarily as a result of the July 1999 price increase. Food costs as a
percentage of net sales increased in Morrison units primarily due to
efficiency issues following the conversion to Piccadilly-style units.
Labor costs as a percentage of net sales improved at Piccadilly
units as a result of 1) the price increase implemented in July 1999 and
2) lower wages per hour resulting from the Company's tip-wage program.
The tip-wage program was implemented in the fourth quarter of fiscal
1999. Labor cost as a percentage of net sales is higher in the
Morrison units as a result of 1) lower year over year unit volumes and 2)
higher labor costs from increases to management staffing.
The U.S. Congress is considering proposals to increase the federal
minimum wage. An increase in the federal minimum wage would have an
adverse effect on the Company's operating costs. Historically, the
Company has absorbed minimum wage increases through price increases. The
Company operates in a highly competitive industry and may be unable to
transfer all or a portion of such higher operating costs to its
customers.
Other operating expense as a percentage of net sales was higher at
both Piccadilly and Morrison units primarily because of higher levels of
advertising expenditures combined with lower unit sales volumes than a
year ago. The branding campaign previously discussed was stopped near
the end of the first quarter of fiscal 2000. Total advertising
expenditures during that quarter were 1.8% compared to 0.7% in the
comparable prior year period.
General and administrative expense decreased $577,000. The sale of
Ralph & Kacoo's accounts for approximately half of that decrease. The
remaining decrease is attributable to Morrison merger synergies.
Interest expense decreased $259,000 reflecting lower debt levels than a
year ago. See Note 2 to the Condensed Consolidated Financial Statements
regarding the Company's amended credit facility and its impact on
interest expense.
Net cash provided by operating activities increased $2,752,000 over
the prior year, net of pension contributions, reflecting the timing of
payments in the ordinary course of business. Operating activities in the
prior year included a $2,500,000 pension contribution while no pension
contribution was required in fiscal 2000. Current year investing
activities include the sales of a Morrison property in Peachtree City,
Georgia and two Piccadilly units in Phoenix and Mesa, Arizona.
LIQUIDITY AND CAPITAL RESOURCES
As noted earlier, on November 15, 1999, the Company and its lenders
had concluded negotiations to amend the $100,000,000 credit facility to
revise certain financial covenants effective September 30, 1999, but the
necessary conforming amendments to the credit facility had not been
completed or executed. Management is confident that a revised credit
facility will be executed following which the $76,825,000 classified as
"Current portion of long-term debt" in the Company's Condensed Balance
Sheets would be reclassified as "Long-term debt".
With the revised credit facility not yet in place on November 15,
1999, the Company's Board of Directors has not yet declared its regular
quarterly cash dividend for the second quarter. The Board, upon the
execution of the revised credit facility in the form that was negotiated,
intends to declare a quarterly cash dividend of $0.12 per share, payable
January 4, 2000 to stockholders of record on December 3, 1999. The
Company's ability to continue paying dividends will be determined by
future operating performance.
Management believes that its cash from operations, together with
remaining credit available under the amended facility, will be sufficient
to provide for the Company's operational needs for the foreseeable
future. At September 30, 1999, approximately $23,175,000 would have
been available under the amended facility.
YEAR 2000 IMPACT
Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result,
those computer programs have time-sensitive code that treat a date ending
in "00" as the year 1900 rather than the year 2000. This could cause a
system failure or miscalculations causing disruptions, including, among
other things, a temporary inability to process transactions, process
reports, or engage in similar normal business activities (Year 2000
Issues).
During fiscal 1996, the Company began migrating its information
technology (IT) from internally developed systems to commercially
available products. The decision to invest in updated technology was
made for a number of reasons including Year 2000 Issues. The Company has
completed an assessment of its year 2000 Issues and believes that the IT
replacements and upgrades function properly with respect to dates in the
Year 2000 and thereafter. The related projects of migrating the
Company's IT and addressing Year 2000 issues are hereinafter collectively
referred to as the Year 2000 Project.
The total cost of the Year 2000 Project was approximately $725,000,
primarily for the purchases of new software, which was capitalized. The
Company believes these costs would have been incurred notwithstanding the
Year 2000 Issues.
The majority of the Company's purchases are for food and supplies.
Although the Company is not dependent on any one vendor for these items,
and therefore, does not believe that there exist any material third party
risks with respect to Year 2000 Issues, the Company does purchase a
substantial portion of its food and supplies from a single vendor. A
disruption caused by Year 2000 Issues could have the result of
necessitating purchase of food and supplies from alternate suppliers,
thereby causing the Company to temporarily suffer diminished benefit of
its purchasing power.
With respect to the Morrison Acquisition, The Company has absorbed
the IT requirements of Morrison into the Company's systems during fiscal
1999. No additional Year 2000 Issues are anticipated as a result of the
Morrison Acquisition.
The Company believes that with conversions to new IT, Year 2000
Issues will not pose significant operational problems for its computer
systems. As of September 30, 1999, the Company has completed the
conversion for all systems for which Year 2000 Issues could have a
material impact on the operations of the Company.
The Company has no contingency plan, nor does it intend to create
one, in the event that Year 2000 Issues are not fully addressed in time.
The Company believes that the likelihood of such an occurrence having a
material impact on the Company's operations is remote.
FORWARD-LOOKING STATEMENTS
Forward-looking statements regarding management's present plans or
expectations for new unit openings, remodels of existing units, 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,
including the Company's credit facility, 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 risks and
uncertainties relative to these and other factors, such as advertising
effectiveness and the ability to achieve cost reductions, which also
would cause actual results to differ from present plans. Such
differences could be material. Management does not expect to update such
forward-looking statements continually as conditions change, and readers
should consider that such statements speak only as the date hereof.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to changes in short-term interest rates
related to its $100,000,000 credit arrangement. If the variable rates on
the Company's credit arrangement were to increase by 1% from the rate at
September 30, 1999 and the Company had borrowed the maximum amount
available under its senior credit facility ($100.0 million) for the
remaining three quarters of fiscal 2000, then, solely as a result of the
increase in interest rates, the Company's interest expense would increase
resulting in a $472,500 decrease in net income, assuming an effective tax
rate of 37%. The fair value of the Company's credit arrangement is not
affected by changes in market interest rates. This discussion does not
consider the effects of the reduced level of overall economic activity
that could exist following such changes. Further, in the event of
changes in such magnitude, management would likely take actions to
mitigate its exposure to such changes. The Company has not used
derivative instruments to engage in speculative transactions or hedging
activities.
PART II -- Other Information
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation of the Company, restated through
March 2, 1999(1).
3.2 By-laws of the Company, as restated through March 12,
1999(1).
27 Financial Data Schedule
(b) Reports on Form 8-K -- None.
**FOOTNOTES**
(1) Incorporated by reference from the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and 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
11/15/99
/s/ Ronald A. LaBorde 11/15/99
Ronald A. LaBorde, President, Chief Executive Officer, Date
and Director
/s/ Mark L. Mestayer 11/15/99
Mark L. Mestayer, Executive Vice President and Chief Financial Date
Officer (Principal Financial Officer)
/s/ W. Scott Bozzell 11/15/99
W. Scott Bozzell, Executive Vice President and Controller Date
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Statements for the period ending September 30, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,183
<ALLOWANCES> 0
<INVENTORY> 12,588
<CURRENT-ASSETS> 30,519
<PP&E> 307,443
<DEPRECIATION> 133,183
<TOTAL-ASSETS> 228,749
<CURRENT-LIABILITIES> 126,811
<BONDS> 0
0
0
<COMMON> 19,141
<OTHER-SE> 57,661
<TOTAL-LIABILITY-AND-EQUITY> 228,749
<SALES> 114,126
<TOTAL-REVENUES> 114,126
<CGS> 68,765
<TOTAL-COSTS> 115,355
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,420
<INCOME-PRETAX> (2,513)
<INCOME-TAX> (901)
<INCOME-CONTINUING> (1,612)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,612)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
