EXHIBIT 13(d)
Consolidated Balance Sheets
Piccadilly Cafeterias, Inc.
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(Amounts in thousands)
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Balances at June 30 1996 1995
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Assets
CURRENT ASSETS
Accounts and notes receivable 619 482
Inventories 10,087 10,584
Deferred income taxes 2,434 1,416
Other current assets 579 627
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TOTAL CURRENT ASSETS 13,719 13,109
PROPERTY, PLANT & EQUIPMENT
Land 20,437 20,429
Buildings and leasehold improvements 112,550 114,832
Furniture and fixtures 96,526 95,538
Machinery and equipment 14,267 14,607
Construction in progress 1,644 3,098
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245,424 248,504
Less allowances for depreciation and unit closings 116,412 103,245
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NET PROPERTY, PLANT AND EQUIPMENT 129,012 145,259
OTHER ASSETS 5,549 6,753
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TOTAL ASSETS $148,280 $165,121
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Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Short-term debt due to banks --- 20,577
Accounts payable 8,387 8,964
Accrued interest 3,588 2,248
Accrued salaries, benefits and related taxes 14,191 12,491
Accrued rent 4,671 4,457
Other accrued expenses 3,632 4,143
Current portion of long-term debt 6,000 6,000
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TOTAL CURRENT LIABILITIES 40,469 58,880
Long-term Debt, less current portion 25,700 18,000
Deferred Income Taxes 3,768 6,787
Reserve for Unit Closings 5,050 5,009
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:
10,503,368 shares at June 30, 1996, and 10,316,946 shares
at June 30, 1995 19,096 18,758
Additional paid-in capital 18,555 17,416
Retained earnings 35,642 40,271
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TOTAL SHAREHOLDERS' EQUITY 73,293 76,445
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $148,280 $165,121
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See Notes to Consolidated Financial Statements
Consolidated Statements of Income
Piccadilly Cafeterias, Inc.
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(Amounts in thousands -- except per share data)|
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Year Ended June 30 1996 1995 1994
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Net sales $300,550 $287,848 $276,223
Costs and expenses:
Cost of sales 171,224 163,830 155,411
Other operating expense 101,459 97,213 92,250
Provision for unit impairments and closings 9,404 --- ---
General and administrative expense 12,761 13,845 13,541
Interest expense 5,253 5,024 3,089
Other expense (income) (179) 1,295 379
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299,922 281,207 264,670
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INCOME BEFORE INCOME TAXES 628 6,641 11,553
Provision for income taxes 243 2,590 4,506
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NET INCOME $ 385 $ 4,051 $ 7,047
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Weighted average number of shares outstanding 10,401 10,228 10,061
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Net income per share $ 0.04 $ 0.40 $ 0.70
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See Notes to Consolidated Financial Statements
Consolidated Statements of Changes in Shareholders' Equity
Piccadilly Cafeterias, Inc.
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(Amounts in thousands)
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Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings
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BALANCES AT JUNE 30, 1993 9,888 $18,160 $15,119 $38,913
Net income 7,047
Cash dividends declared (4,831)
Sales under employee stock purchase plan 103 188 843
Sales under dividend reinvestment plan 27 48 242
Sales under employee stock option plan 14 25 120
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BALANCES AT JUNE 30, 1994 10,132 18,421 16,324 41,129
Net income 4,051
Cash dividends declared (4,909)
Sales under employee stock purchase plan 133 242 755
Sales under dividend reinvestment plan 52 95 337
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BALANCES AT JUNE 30, 1995 10,317 18,758 17,416 40,271
Net income 385
Cash dividends declared (4,995)
Sales under employee stock purchase plan 120 218 671
Sales under dividend reinvestment plan 16 30 108 (19)
Sales under employee stock option plan 50 90 360
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BALANCES AT JUNE 30, 1996 10,503 $19,096 $18,555 $35,642
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See Notes to Consolidated Financial Statements
Consolidated Statements of Cash Flows
Piccadilly Cafeterias, Inc.
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(Amounts in thousands)
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Year Ended June 30 1996 1995 1994
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OPERATING ACTIVITIES
Net income $ 385 $ 4,051 $ 7,047
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 12,916 12,880 11,720
Costs associated with reserved units (1,092) (1,165) (1,587)
Provision for unit impairments and closings 9,404 --- ---
Provision for deferred income taxes (benefit) (4,037) (568) 878
Loss on disposition of assets 50 1,880 1,336
Pension expense - net of contributions 1,036 (313) (1,157)
Changes in operating assets and liabilities:
Accounts and notes receivable (137) 97 258
Inventories 497 (476) 1,904
Other current assets 48 2,093 127
Other assets 168 59 (56)
Accounts payable (577) (2,634) 2,682
Accrued interest 1,340 980 (97)
Accrued expenses 1,403 3,939 371
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NET CASH PROVIDED BY OPERATING ACTIVITIES 21,404 20,823 23,426
INVESTING ACTIVITIES
Purchases of property, plant and equipment (6,887) (26,942) (31,895)
Proceeds from sale of property, plant and
equipment 1,881 251 1,472
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NET CASH USED BY INVESTING ACTIVITIES (5,006) (26,691) (30,423)
FINANCING ACTIVITIES
Proceeds from short-term debt due to banks -
net (20,577) 20,577 ---
Proceeds from long-term debt 21,020 --- ---
Payments on long-term debt (13,320) (11,250) (3,750)
Proceeds from sales of Common Stock 1,458 1,429 1,466
Dividends paid (4,979) (4,888) (4,813)
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NET CASH PROVIDED (USED) BY FINANCING (16,398) 5,868 (7,097)
ACTIVITIES
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Decrease in cash and cash equivalents --- --- (14,094)
Cash and cash equivalents at beginning of year --- --- 14,094
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Cash and cash equivalents at end of year $ --- $ --- $ ---
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SUPPLEMENTARY CASH FLOW DISCLOSURES
Income taxes paid (net of refunds received) $ 4,389 $ 641 $ 2,708
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Interest paid $ 3,913 $ 4,288 $ 3,433
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See Notes to Consolidated Financial Statements
Notes To Consolidated Financial Statements
Piccadilly Cafeterias, Inc.
Note 1- Significant Accounting Policies
USE OF ESTIMATES. The preparation of the Consolidated Financial Statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of Piccadilly Cafeterias, Inc. and its
subsidiaries (hereinafter referred to as the Company). All significant
intercompany balances and transactions have been eliminated in
consolidation.
INDUSTRY. The Company's principal industry is the operation of Company-owned
cafeterias and seafood restaurants.
INVENTORIES. Inventories consist primarily of food and supplies and are
stated at the lower of cost (first-in, first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment (PP&E) is
stated at cost, except for PP&E that have been impaired, for which
the carrying amount is reduced to estimated fair value. Depreciation is
provided using the straight-line method for financial reporting purposes
on the following estimated useful lives:
Buildings and component equipment 10-30 years
Furniture and fixtures 10 years
Machinery and equipment 4 years
Leasehold improvements are amortized over the life of the original lease
term, including renewal periods if applicable. The cost of leasehold
improvements has been reduced by the amount of construction allowances
received from developers and landlords. Repairs and maintenance are charged
to operations as incurred. Renewals and betterments which increase the
value or extend the lives of assets are capitalized and depreciated over
their estimated useful lives. When assets are retired, or are otherwise
disposed of, cost and the related accumulated depreciation are eliminated
from the accounts and any resulting gain or loss is included in the
determination of income.
LONG-LIVED ASSETS. The Company reviews long-lived assets to be held and used
in the business for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset or a group of assets may not
be recoverable. The Company considers a history of operating losses to
be its primary indicator of potential impairment. Assets are evaluated for
impairment at the operating unit level. An asset is deemed to be impaired
if a forecast of undiscounted future operating cash flows directly related
to the asset, including disposal value if any, is less than its carrying
amount. If an asset is determined to be impaired, the loss is measured as
the amount by which the carrying amount of the asset exceeds its fair value.
The Company generally estimates fair value by discounting estimated future
cash flows. Considerable management judgment is necessary to estimate cash
flows. Accordingly, it is reasonably possible that actual results could vary
significantly from such estimates.
INCOME TAXES. The Company accounts for income taxes using the liability
method. Under this method, deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting and the amounts used for income tax.
UNIT OPENING EXPENSES. Salaries and wages, training costs and other expenses
of opening new units are charged to expense during the first month of the new
unit's operation.
STOCK-BASED COMPENSATION. The Company accounts for its stock compensation
arrangements under the provision of Accounting Principles Board ("APB") No.
25, "Accounting for Stock Issued to Employees," but is reviewing the provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation," which is
effective for fiscal years beginning after December 15, 1995. SFAS No. 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans. The Company has not yet finalized its review
of the provisions of this statement, and accordingly, has not yet
determined whether it will adopt SFAS No. 123 for expense recognition
purposes, or continue to follow APB Opinion No. 25, and make the proforma
information disclosures required under the new standard.
EARNINGS PER SHARE. Earnings per share of Common Stock are based on the
weighted average number of shares outstanding.
RECLASSIFICATIONS. Certain balances in prior fiscal years have been
reclassified to conform with the presentation adopted in the current fiscal
year.
Note 2-Impairment of Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards No. 121
(SFAS 121), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," during the fourth quarter of 1996.
The initial, noncash charge in connection with the adoption of SFAS 121 was
$9,404,000 ($5,830,000 after-tax or $.56 per share), which included
$4,668,000 ($2,894,000 after-tax or $.28 per share) related to four
operating units for which closure decisions were made during the fourth
quarter. The initial charge represented a reduction of the carrying amounts
of the impaired assets to their estimated fair value, as determined by using
discounted estimated future cash flows, and a reserve for future rental
commitments. Under the Company's previous accounting policy, long-lived
assets to be held and used were evaluated as a group for impairment on a
market by market basis. Because of the strong operating profit history and
prospects for each market, no impairment evaluation had been required
for fiscal 1995 or 1994 under the Company's previous accounting policy.
Note 3 - Income Taxes
Significant components of the Company's deferred tax liabilities and
assets are as follows:
(Amounts in thousands)
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June 30 1996 1995
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Deferred tax liabilities:
Property, plant and equipment $ 7,507 $ 9,760
Inventories 871 839
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8,378 10,599
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Deferred tax assets:
Unit closing reserves 3,594 2,232
Intangible assets 2,304 2,517
Accrued expenses--net 988 92
Minimum tax credit carryforward --- 154
NOL carryforward 158 233
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7,044 5,228
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Net deferred tax liabilities $ 1,334 5,371
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The components of the provision for income taxes are summarized as follows:
(Amounts in thousands)
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Year Ended June 30 1996 1995 1994
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Current:
Federal $ 3,752 $ 2,896 $ 3,079
State 528 262 549
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4,280 3,158 3,628
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Deferred:
Federal (3,588) (703) 1,168
State (449) 135 (290)
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(4,037) (568) 878
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Total provision for income taxes $ 243 $ 2,590 $ 4,506
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Differences between the provision for income taxes and the amount computed by
applying the federal statutory income tax rate to income before income taxes
are as follows:
(Amounts in thousands)
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Year Ended June 30 1996 1995 1994
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Income tax at statutory rate $ 217 $ 2,258 $ 3,944
Add state income taxes, net of federal taxes 79 398 259
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296 2,656 4,203
Tax credits (78) (125) (244)
Other items 25 59 547
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Total provision for income taxes $ 243 $ 2,590 $4,506
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The Company's tax returns are currently under examination by the Internal
Revenue Service (IRS) for the fiscal years ended June 30, 1987 through 1992.
The IRS has proposed adjustments to the Company's tax returns primarily
related to the amortization of intangible assets and the timing of certain
other deductions. At June 30, 1996 the Company had recorded reserves
of $2,728,000, primarily for the estimated interest expense exposure related
to the proposed adjustments.
Note 4 - Commitments
The Company rents most of its cafeteria and restaurant facilities under
long-term leases with varying provisions and with original lease terms
generally being 20 to 30 years. The Company has the option to renew the
leases for specified periods subsequent to their original terms. Minimum
future lease commitments as of June 30, 1996, including $16,162,000 for
closed units are as follows:
(Amounts in thousands)
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Year Ending June 30
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1997 $ 9,014
1998 8,611
1999 8,462
2000 8,179
2001 7,682
Subsequent 46,022
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87,970
Less sublease income 9,113
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Net minimum lease commitments $78,857
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The leases generally provide for percentage rentals based on sales. Certain
leases also provide for payments of executory costs such as real estate taxes,
insurance, maintenance and other miscellaneous charges. Rent expense for the
periods shown below does not include these executory costs.
(Amounts in thousands)
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Year Ended June 30 1996 1995 1994
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Minimum rentals $ 7,966 $ 8,209 $ 7,894
Contingent rentals 2,728 2,576 2,813
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Total $10,694 $10,785 $10,707
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Note 5 - Long-Term Debt and Lines of Credit
(Amounts in thousands)
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June 30 1996 1995
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10.15% senior notes, due in equal, annual
installments of $6,000,000 on January 31, 1997,
and January 31, 1998 (Fair value at June 30, 1996
- - $12,112,000; June 30, 1995 - $26,171,000) $12,000 $24,000
Note payable to bank, due at maturity on September 30,
1999 (Amount available at June 30, 1996 - $18,800,000;
fair value at June 30, 1996 - $11,200,000) 11,200 ---
Note payable to bank, due in installments of $1,500,000
on September 30, 1997 and $7,000,000 on September 30,
1998 (Fair value at June 30, 1996 - $8,500,000) 8,500 ---
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31,700 30,000
Less current portion (6,000) (6,000)
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Total long-term debt, net of current portion $25,700 $18,000
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The aggregate maturities of long-term debt for the remaining years following
June 30, 1996, are as follows: 1997 - $6,000,000, 1998 - $7,500,000, 1999 -
$7,000,000, 2000 - $11,200,000. The fair values of the Company's long-term
borrowings are estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements.
In January 1989, the Company issued unsecured senior notes in the principal
amount of $30,000,000 at an interest rate of 10.15%. The Company has a
prepayment option, subject to a premium, which can be exercised at any time
during the term of the senior notes. This facility contains covenants
which include provisions for the maintenance of net worth and limitations on
the level of liabilities. At June 30, 1996, the Company was in compliance
with all such covenants.
In April 1996, the Company entered into line-of-credit agreements with two
banks. Both facilities are unsecured and bear interest based on applicable
rates and margins. The interest rate in effect at June 30, 1996 (6.875%)
on the $11,200,000 note payable was based upon London InterBank Offered Rate
(LIBOR) plus 1.25%. The interest rate in effect at June 30, 1996 (7.375%)
on the $8,500,000 note payable was based upon LIBOR plus 1.75%. These
facilities contain covenants which include provisions for the maintenance
of net worth, limitations on the level of liabilities, and requirements for
minimum coverage of fixed charges. At June 30, 1996, the Company was in
compliance with all such covenants. Both facilities contain prepayment
options, without penalty, which can be exercised at any time during the term
of the agreement.
The Company capitalized interest costs of $85,000 in 1996, and $339,000
in 1995, and $300,000 in 1994 with respect to qualifying construction. Total
interest cost incurred was $5,338,000 in 1996, $5,363,000 in 1995, and
$3,389,000 in 1994 including interest reserves relating to IRS examinations
(See Note 3) of $1,528,000 in 1996 and $1,200,000 in 1995.
Note 6 - Pension and Bonus Plan
The Company has a pension plan covering substantially all employees who
meet certain age and length-of-service requirements. Retirement benefits are
based upon an employee's years of credited service and final average
compensation. Annual contributions are made in amounts sufficient to fund
normal costs as accrued and to amortize prior service costs over a 40-year
period. Assets of the plan are invested principally in obligations of the
United States Government and other marketable debt and equity securities
including 367,662 shares of the Company's Common Stock held at June 30, 1996
and June 30, 1995.
The following tables set forth the plan's funded status and amounts recognized
in the Company's financial statements.
(Amounts in thousands)
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June 30 1996 1995
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Accumulated benefit obligations, including vested
benefits of $40,770,000 in 1996 and $37,167,000 in 1995 $39,027 $43,410
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Fair value of plan assets $42,502 $46,257
Projected benefit obligation 51,144 45,664
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Plan assets over (under) projected benefit obligation (4,887) (3,162)
Unrecognized transition amount --- (698)
Unrecognized prior service cost (40) (45)
Unrecognized net loss 9,878 9,893
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Prepaid pension cost Included in other non-current assets 4,951 5,988
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(Amounts in thousands)
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Year Ended June 30 1996 1995 1994
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Net pension expense:
Service cost $ 1,854 $ 1,733 $ 1,673
Interest cost on projected benefit obligation 3,569 3,093 2,912
Actual return on plan assets (5,187) (3,305) (1,401)
Net Amortization and deferral 1,084 (788) (2,749)
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$ 1,320 733 435
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June 30 1996 1995 1994
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Actuarial assumptions:
Discount rate 8.0% 8.0% 8.25%
Compensation increases 4.0% 4.0% 4.0%
Long-term rate of return 9.0% 9.0% 9.0%
The Company also provides bonus compensation to cafeteria and restaurant
managers based on unit profitability. Charges to expense for such compensation
amounted to $10,197,000, $10,088,000, and $9,982,000 during 1996, 1995 and
1994, respectively.
Note 7 - Common Stock
On August 3, 1987, the Board of Directors adopted the Piccadilly Cafeterias,
Inc. Dividend Reinvestment and Stock Purchase Plan. Shareholders of record
may reinvest quarterly dividends and/or up to $5,000 per quarter in the
Company's Common Stock. Stock obtained through reinvested dividends is issued
at a 5% discount. The Company has reserved 500,000 shares for issuance under
the plan. Common Shares issued under the plan were 16,502 and 52,212 for
the years ended June 30, 1996 and 1995, respectively. At June 30, 1996,
there were 338,955 unissued Common Shares reserved under the plan.
On November 2, 1987, the Company's stockholders adopted the Piccadilly
Cafeterias, Inc. Employee Stock Purchase Plan. Under the plan, eligible
employees may be granted options to purchase up to 1,500 shares of Common
Stock annually. Options are exercisable at 85% of the applicable market
value provided that this value is greater than book value per share. If 85%
of the applicable market value is less than book value per share, options
are exercisable at book value per share. Options are exercisable at the
applicable market value if the applicable market value is less than book
value per share. The applicable market value is the lower of the beginning
of the plan year and the end of the plan year market price. Book value
per share is determined as of the most recent audited balance sheet
date. The Company has reserved 1,000,000 shares of stock for issuance
under the plan. Common Shares issued under the plan were 119,918 and
132,950 for the years ended June 30, 1996 and 1995, respectively. During
the year ended June 30, 1996, the Company terminated the plan.
On November 1, 1993, the Company's stockholders approved the Piccadilly
Cafeterias, Inc. 1993 Incentive Compensation Plan (the 1993 Plan). Under
the terms of the plan, which amends and restates the Piccadilly Cafeterias,
Inc. 1988 Stock Option Plan (the 1988 Plan), incentive stock options and
non-qualified stock options, stock appreciation rights, stock awards,
restricted stock, performance shares and cash awards may be granted to
officers or key employees. Options to purchase shares of the Company's Common
Stock may be issued at no less than 100% of the fair market value on the
date of grant. The Company has reserved 1,000,000 shares, in total, for
issuance under the 1988 and 1993 Plans. Transactions under the restated
Plan for the last three fiscal years are summarized as follows:
(Dollars in thousands -- except per share data)
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Option Price
Common -------------------
Stock Per Share
Shares Average Total
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OUTSTANDING AT JUNE 30, 1993 980,000 $10,778
Canceled (60,500) $ 14.00 (847)
Exercised (14,000) 10.38 (145)
Granted 67,500 10.61 716
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OUTSTANDING AT JUNE 30, 1994 973,000 10,502
Canceled --- --- ---
Granted --- --- ---
- ---------------------------------------------------------- --------
OUTSTANDING AT JUNE 30, 1995 973,000 10,502
Canceled (110,500) 15.04 (1,662)
Exercised (50,000) 9.00 (450)
Granted 82,500 9.63 794
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OUTSTANDING AT JUNE 30, 1996 895,000 $ 9,184
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Note 8 - Quarterly Results of Operations (Unaudited)
The following is a tabulation of the unaudited quarterly results of operations
for the two years ended June 30, 1996:
(Amounts in thousands -- except per share data)
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Year Ended June 30, 1996 Year Ended June 30, 1995
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9/30 12/31 3/31 6/30 9/30 12/31 3/31 6/30
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Net sales $75,140 $75,807 $73,100 $76,503 $70,779 $73,411 $69,066 $74,592
Cost of sales and
other operating
expenses 67,767 68,355 66,442 70,119 64,564 65,925 62,419 68,135
Net income (loss) 1,198 2,270 1,801 (4,883) 877 1,834 1,203 137
Net Income (loss)
per share $ .12 $ .22 $ .17 $ (.47) $ .09 $ .18 $ .12 $ .01
During the quarter ended September 30, 1995, the Company recorded a $1,300,000
($806,000 after-tax or $0.08 per share) severance charge. The Company recorded
an asset impairment of $9,404,000 ($5,830,000 after-tax or $.56 per share) in
connection with the adoption of SFAS 121 (see Note 2 for further discussion)
during the quarter ended June 30, 1996. Also during the quarter ended June
30, 1996, the Company recorded additional interest reserves of $1,528,000
($947,000 after-tax or $.09 per share). See Note 3 for further discussion.
During the quarter ended September 30, 1994, the Company recorded a $361,000
($220,000 after-tax or $.02 per share) charge for severance costs. The
Company incurred write-offs related to its deluxe remodeling program of
$329,000 ($201,000 after-tax or $.02 per share), $404,000 ($246,000
after-tax or $.02 per share) and $660,000 ($403,000 after-tax or $.04 per
share) in the first, second and fourth quarters of 1995, respectively. During
the quarter ended June 30, 1995, the Company recorded its initial reserves
of $1,467,000 ($895,000 after-tax or $.09 per share) for interest and taxes.