For the quarterly period ended September 30, 2000

[ ] 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)

Registrant's telephone number, including area code (225) 293-9440

(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.

The number of shares outstanding of Common Stock, without par value, as of November 1, 2000 was 10,528,368.

September 30, 2000

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.

In May 1998, the Company acquired Morrison Restaurants, Inc. ("Morrison") for $57.3 million of total consideration (the "Morrison Acquisition"). The discussion that follows refers to the cafeterias acquired in the Morrison Acquisition as "Morrison cafeterias". Likewise, all other cafeterias are referred to a "Piccadilly cafeterias". At the time of the Morrison Acquisition, Morrison was the largest cafeteria chain in the Southeastern and Mid-Atlantic regions with 142 cafeterias in operation. Morrison cafeterias were similar to the traditional Piccadilly cafeterias in terms of size and markets served. The Company believes the Morrison Acquisition allowed the Company to increase its penetration in its regional markets, enhance its purchasing power and eliminate redundant costs.

The Company began converting Morrison cafeterias to Piccadilly-style cafeterias (the Morrison Conversions) in fiscal 1999. As of September 30, 1999, the Company had completed 112 Morrison Conversions. There were no Morrison Conversions subsequent to September 30, 1999. Since the Morrison Acquisition the Company closed 27 unprofitable cafeterias. Expenses associated with the Morrison Conversions averaged approximately $40,000 per cafeteria for training-team labor, new uniforms, repairs, and supplies. Additional costs of approximately $25,000 per cafeteria, primarily for signage, were capitalized. Nine Morrison cafeterias had not been converted as of September 30, 2000. Three of these cafeterias will continue to operate as Morrison cafeterias. The remaining six cafeterias are in varying stages of lease renewal negotiations and the timing for converting these cafeterias to Piccadilly-style cafeterias is uncertain. The table below shows the number of Morrison Conversions by quarter:

Net Sales. Net sales for the quarter ended September 30, 2000 decreased $4.6 million, or 4.0%, from the prior year first quarter. The following table reconciles total cafeteria sales to same-store cafeteria sales (cafeterias that were open for three full months in both periods) for the quarters ended September 30, 2000 and 1999:

The net decrease in same-store sales of 3.8% reflects a decline in same-store customer traffic of 2.6% combined with a 0.8% decline in check average.

The Company is in the early stages of several sales-building initiatives to attract and increase sales to new customers and retain existing customers. These sales-building initiatives include simplified menu pricing, neighborhood marketing and sponsorship of employee contests. The neighborhood marketing strategies include various customer coupons and discounted meal alternatives to attract new customers. September 2000 was the first full month of the neighborhood marketing initiatives. While there can be no assurance that such trends will continue, same-store sales in September 2000 improved by comparison to the activity in the last two quarters of fiscal 2000. Same-store sales for the three months of the first quarter of fiscal 2001 were down 4.6%, 6.2% and 0.3%, respectively, compared to the three months of the first quarter of fiscal 2000.

The following table illustrates cost of sales, other operating expenses, general and administrative expenses and other expenses as a percentage of net sales for the comparative periods.

Restaurant-Level Income. During the first quarters of fiscal 2001 and 2000, restaurant-level income (net sales less cost of sales and other operating expenses) as a percentage of net sales was 3.7% and 2.4%, respectively.

Cost of Sales. Cost of sales as a percentage of net sales declined 1.0%. That decline results from a 1.0% decrease in labor costs as a percentage of net sales.

Improvement in labor costs, as a percentage of net sales, was due principally to Piccadilly's beginning to realize labor efficiencies at Morrison cafeterias in the second quarter of fiscal 2000, as well as a lower level of labor costs associated with the conversion of Morrison cafeterias to Piccadilly-style cafeterias with no cafeterias being converted in the first quarter of fiscal 2001 compared to 13 conversions in the first quarter of fiscal 2000, and lower labor costs associated with the opening of new cafeterias, with no new cafeterias being opened in the first quarter of fiscal 2001 compared to three new cafeterias opened during the first quarter of fiscal 2000. Factors that offset the labor cost improvement as a percentage of net sales include lower year-over-year sales volumes to offset fixed labor costs.

The Company has begun an outsourcing program in which outside vendors prepare and provide selected components of Piccadilly recipes, which have historically been made from scratch. This initiative is being carefully implemented to maintain consistently high levels of food freshness and quality. The Company expects to significantly reduce operating expenses, principally labor costs, as well as reducing food spoilage and waste and capital expenditures for kitchen equipment. Fiscal 2001 savings are expected to be approximately $2.5 million. This program will be fully implemented by the end of fiscal year 2002. When fully implemented, the Company expects to reduce annual operating expenses by between $8 and $10 million through this outsourcing program. At September 30, 2000, only 34 cafeterias had implemented the outsourcing program for at least one month of the quarter and therefore, expense reductions from this program were not significant for the quarter.

At September 30, 2000, the managers at each of our cafeterias had purchasing responsibility for approximately one-third of the food ingredients used in the cafeterias. The Company is implementing a cost-saving strategy that will significantly reduce the number of food suppliers by centralizing the purchasing function for some or all of these items. The Company has now finalized terms with a poultry supplier and will begin implementation of a centralized purchasing program for poultry products in the second quarter of fiscal 2001. The Company expects to enter into other centralized purchasing arrangements on other food items during the next twelve months. The Company expects to achieve significant volume purchase discounts, resulting in approximately $3 million of annual cost savings once the centralized purchasing program is fully implemented. In addition, centralized purchasing will allow our cafeteria managers to spend more of their time increasing sales and enhancing customer service.

Other Operating Expenses. Other operating expenses decreased 0.3% as a percentage of net sales. The net improvement in other operating expenses is the result of several factors. First, other operating expenses in the first quarter of fiscal 2000 includes costs relating to 13 Morrison Conversions. There were no Morrison Conversions in the first quarter of fiscal 2001. Conversely, the fixed portion of certain operating costs as a percentage of net sales, such as rent, repairs and maintenance, utilities, and depreciation, have increased as cafeteria sales decreased.

Provision for Unit Impairments and Closings. During the quarter ended September 30, 2000, the Company recorded a non-cash charge of $840,000, or $0.06 per share after-tax, related to eight cafeterias expected to close in fiscal 2001. For the twelve months ended September 30, 2000 these cafeterias generated an aggregate of $41,000 of EBITDA. The charge includes amounts for asset impairments under SFAS 121, future rent commitments, and goodwill associated with four Morrison cafeterias to be closed. Three of the scheduled closings are under-performing cafeterias. The leases for the remaining cafeterias are expiring and could not be renewed.

General and Administrative Expenses. General and administrative expenses as a percentage of net sales increased 0.1% but decreased in absolute dollars by $81,000.

Interest Expense. Interest expense increased $775,000 as a result of a higher interest rate on the Company's existing credit facility, the effect of which was partially mitigated by lower debt levels in the first quarter of fiscal 2001 compared to the first quarter of fiscal 2000. Amortization of financing costs included in interest expense in fiscal 2001 and fiscal 2000 was $332,000 and $36,000, respectively.

The Company has a $90 million credit facility with a syndicated group of banks maturing on June 22, 2001. The credit facility is secured by a first priority lien on substantially all of the current and future assets of the Company. Under the credit facility, the Board may only declare a dividend to the extent of the Company's net income for the prior fiscal quarter. Accordingly, the Company's ability to declare dividends in compliance with the terms of the credit facility is determined by its operating performance.

On February 7, 2000, the Board elected to suspend the Company's regular quarterly dividend of $.12 per share. The suspension of the dividend saves approximately $1.3 million per quarter. The Board concluded that until the Company had demonstrated a sustained operating performance that would support a dividend that could be safely maintained, suspension of the dividend was the prudent course of action.

The balance outstanding under the credit facility is classified as current at September 30, 2000 because the facility matures on June 22, 2001. At September 30, 2000, approximately $7.5 million was available under the credit facility. The Company is evaluating various financing alternatives, including but not limited to credit facility arrangements, high-yield capital market issuances and sale-leaseback arrangements, and is working toward completing such a transaction prior to June 22, 2001. The Company believes that the terms of a new credit arrangement will be less favorable than the existing credit facility.

Management believes that its cash from operations, together with remaining credit available under the credit facility, will be sufficient to provide for the Company's operational needs for the foreseeable future.

Forward-looking statements regarding management's present plans or expectations for new unit openings, remodels, other capital expenditures, sales-building and cost-saving strategies, advertising expenditures, the refinancing of its existing credit facility, and the disposition of impaired units involve risks and uncertainties relative to return expectations and related allocation of resources, and changing economic or competitive conditions, as well as the negotiation of agreements with third parties, which could cause actual results to differ from present plans or expectations, and such differences could be material. Similarly, forward-looking 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.

The Company is exposed to changes in short-term interest rates related to its $90,000,000 credit arrangement. If the variable rates on the Company's credit arrangement were to increase by 1% from the rate at September 30, 2000 and the Company had borrowed the maximum amount available under its senior credit facility ($75.5 million) for the remaining three quarters of fiscal 2001, then, solely as a result of the increase in interest rates, the Company's interest expense would increase, resulting in a $361,000 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.

(a) Exhibits

(b) Reports on Form 8-K -- None.

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.