[X] Quarterly report pursuant to section 13 or 15(d) of the securities exchange act of 1934 

For the quarterly period ended  March 31, 2001 

[ ] 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

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 May 7, 2001, was 10,528,368.

See Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2001

            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 for the interim periods have been included. The results for the interim periods are not necessarily indicative of the results to be expected for the full year.

             Management has completed its previously announced analysis of the performance of the Company's cafeterias to determine if leases for certain cafeterias should be allowed to expire without renewal and is continuing its analysis to determine whether certain cafeterias should be closed in the near term. As a result of this analysis, the Company recorded asset impairment charges of $9.9 million for property, plant, and equipment and $4.7 million for goodwill at March 31, 2001.

            Goodwill recorded by the Company relates to purchase of Morrison. If a Morrison cafeteria is determined to be impaired or is closed, the Company records an impairment charge for the cafeteria's pro-rata portion of unamortized goodwill. Remaining goodwill is evaluated for impairment as discussed in the Company's accounting policy for impairment of long-lived assets in Note 1 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K.

            The Company is performing additional assessments relating to 13 leased cafeterias (for which impairment charges were recorded in the third quarter) because the cash flows from those cafeterias were not sufficient to contribute to lease-related costs. For the twelve months ended March 31, 2001, EBITDA (earnings before interest, taxes, depreciation, and amortization) for the 13 cafeterias under consideration was $(1.9) million. EBITDA before lease-related costs for the twelve months ended March 31, 2001, was $(0.4) million. The impairment charges recorded in the quarter ended March 31, 2001 included $1.2 million for these cafeterias. The minimum remaining lease lives of these cafeterias range from less than one year up to six years. Estimated remaining lease-related costs for these 13 cafeterias amounts to $3.1 million. During the quarter ending June 30, 2001, management will complete its assessment and decide whether to close some or all of these cafeterias. If there are cafeteria closings, the Company will record charges in connection with those closings and in accordance with Emerging Issues Task Force Issue No. 94-3 Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (EITF 94-3). EITF 94-3 requires that such liabilities be recorded in the period in which the Company approves an exit plan that will result in the incurrence of costs that have no future economic benefit.

            In May 2001, the Company initiated a management reorganization that eliminates 25 executive and district operations management positions. During the quarter ending June 30, 2001, the Company will record an estimated charge of approximately $1.5 million related to severance costs in connection with this reorganization and in accordance with EITF 94-3.

 NOTE 4: LONG-TERM DEBT

            On December 21, 2000, the Company closed a debt offering of (1) 71,000 "A" units consisting in the aggregate of $71 million principal amount of Senior Secured Notes due 2007 and warrants to purchase 746,210 shares of its common stock and (2) 4,500 "B" units consisting in the aggregate of $4.5 million principal amount of Term B Notes due 2007 (secured equally with the Senior Secured Notes) and warrants to purchase 47,925 shares of its common stock. In addition, the Company entered into a $5.5 million Term Loan Credit Facility with warrants to purchase 57,805 shares of Common Stock. Amounts borrowed under the Term Loan Credit Facility are subject to terms substantially similar to those of the Term B Notes due 2007 included as part of the "B" units.

            The gross proceeds from the offerings were $72.9 million. After paying transaction costs, the Company used the net proceeds from the unit offerings and borrowings under the Term Loan Credit Facility to repay approximately $67 million in borrowings outstanding under the Company's credit facility that was scheduled to mature on June 22, 2001.

            Interest is payable semi-annually on the Senior Secured Notes at an initial annual rate of 12%, subject to annual adjustment beginning November 1, 2001. Interest is payable quarterly, beginning February 1, 2001, on the Term B Notes and the Term Loan Credit Facility at a floating rate equal to LIBOR plus 4.5%. The exercise price for the warrants is $1.16875, which was 110% of the closing sales price of the Common Stock on the date prior to closing.

            On March 30, 2001, the Company completed a sale-leaseback transaction of 12 properties. The Company received $19.5 million in cash for the sale of the properties and simultaneously executed long-term leases that provide for continued operation of cafeterias at the sites for a primary term of 20 years and optional renewal periods for up to 20 additional years. On March 30, 2001, the Company used the net proceeds to repurchase from a note holder at 92.5% of face value $15.5 million of the 12% Senior Secured Notes and $4.5 million of the floating rate Term B Notes and on April 13, 2001, the Company purchased from the same note holder $0.5 million of the 12% Senior Secured Notes. The Company recorded a $2.5 million extraordinary charge, primarily for the write-off of deferred financing costs associated with the extinguished debt. The sale of the 12 properties resulted in a $1.3 million deferred gain, which will be amortized over the initial term of the lease. Net rent expense during the initial term will be approximately $2.3 million annually, and the assets sold and leased back previously had annual depreciation expense of approximately $0.8 million.

            Upon the sale of the 12 properties the total borrowing availability under the Company's Senior Credit Facility was reduced from $25 million to approximately $19.2 million. As of March 31, 2001, the Company had $11.5 million in undrawn letters of credit under the Senior Credit Facility and no borrowings outstanding under the Senior Credit Facility, leaving approximately $7.7 million of credit availability, subject to final resolution of the covenant issue discussed below.

            The Senior Credit Facility contains financial covenants that require the Company, among other things, to maintain a minimum level of tangible net worth. At March 31, 2001, the tangible net worth required to be maintained by the Company was $36.8 million. As a direct result of the $9.9 million charge for cafeteria impairments and closings during the quarter ended March 31, 2001, the Company's tangible net worth declined to approximately $33.1 million, and the Company does not comply with the loan covenant.

            The Company's management has discussed with representatives for the agent bank a proposed amendment to the credit facility that would reduce the amount of tangible net worth required to be maintained by the Company to a level that will accommodate not only the third quarter charges, but also the additional charges that the Company expects to record during the fourth quarter. The agent bank representatives have indicated a willingness to present this proposal to the other lender in the lending group. Assuming the banks accept this recommendation, the Company intends to have the amendment to its credit facility completed within one month.  As of March 31, 2001, there were no covenant violations with respect to the Senior Secured Notes, Term B Notes, or the Term Credit Facility and there are no cross defaults.

Significant components of the Company's deferred tax liabilities and assets are as follows:

            However, for the quarter ended March 31, 2001, the Company recorded a net loss before income taxes and extraordinary charge of $15.3 million and an extraordinary charge of $2.5 million resulting in cumulative pre-tax losses for recent years. Under this circumstance, the provisions of FAS 109 further restrict assumptions regarding the realizability of deferred tax assets.  Accordingly, the Company provided a $14.1 million valuation allowance for its deferred tax assets as of March 31, 2001.

            The components of the provision for income taxes are as follows:

            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 as "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 Morrison Acquisition allowed the Company to increase its penetration in its regional markets, enhanced its purchasing power and eliminated 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.

            Management has completed its previously announced analysis of the performance of the Company's cafeterias to determine if leases for certain cafeterias should be allowed to expire without renewal and is continuing its analysis to determine whether certain cafeterias should be closed in the near term. As a result of this analysis, the Company recorded asset impairment charges of $9.9 million for property, plant and equipment and $4.7 million for goodwill at March 31, 2001. See further discussion in Fourth Quarter Charges.

            Goodwill recorded by the Company relates to the purchase of Morrison. If a Morrison cafeteria is determined to be impaired or is closed, the Company records an impairment charge for the cafeteria's pro-rata portion of unamortized goodwill. Remaining goodwill is evaluated for impairment as discussed in the Company's accounting policy for impairment of long-lived assets in Note 1 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K.

 Results of Operations

            Net Sales. Net sales for the quarter ended March 31, 2001 decreased $6.7 or 6.1%, from the prior year third quarter. The following table reconciles total cafeteria net sales to same-store cafeteria net sales (for cafeterias that were open for three full months in both periods) for the quarters ended March 31, 2001 and 2000:

            The net decrease in same-store net sales of 3.4% reflects a decline in same-store customer traffic of 8.4%, partially mitigated by a 5.0% increase in check average. The check average increase is due to a price increase implemented during the last week of December 2000.

            The customer traffic trend was similar for each month during the quarter. While some cafeterias are experiencing year over year customer traffic increases, the overall customer traffic decline exists generally throughout the Company and is not isolated to one or more geographic regions nor any particular group of cafeterias. 

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

                Restaurant-Level Income. During the third quarters of fiscal 2001 and 2000, restaurant-level income (net sales less cost of sales and other operating expenses) as a percent of net sales was 5.5% and 6.3%, respectively.

                Cost of Sales. Cost of sales as a percent of net sales decreased 1.9%. That decrease results from a 1.9% decrease in labor costs as a percent of net sales. There was no change in food as a percent of net sales for the comparative periods.

                The decrease in labor costs, as a percent of net sales, is due primarily to savings realized from the Company's previously announced outsourcing program. Factors that offset the labor cost improvement as a percent of net sales include lower year-over-year sales volumes to offset fixed labor costs.

                The Company experienced higher food costs related to price inflation on purchases of red meat and fresh produce and implemented its outsourcing program at 122 cafeterias as of March 31, 2001, including 69 cafeterias during the third quarter, resulting in higher food costs as a percent of net sales. The Company offset these higher food costs as a percent of net sales with lower poultry prices realized from its previously announced central purchasing initiative and with the December 2000 price increase.

                Other Operating Expenses. Other operating expenses increased 2.7% as a percent of net sales. Higher fuel prices caused utility costs as a percent of net sales to increase 0.9% over the prior year third quarter. Additionally, the fixed portion of certain operating costs such as rent, repairs and maintenance, utilities, and depreciation, expressed as a percentage of net sales has increased as cafeteria sales decreased.

                Provision for Cafeteria Impairments and Closings. As previously discussed, the Company recorded charges of $9.9 million for property, plant, and equipment writedowns in accordance with FAS 121.

                Amortization and Write-off of Goodwill. The Company recorded amortization expense of $0.1 million and, as previously discussed, recorded charges of $4.7 million related to the impairment of goodwill for 47 Morrison cafeterias that were considered impaired as of March 31, 2001.

                General and Administrative Expenses. General and administrative expenses as a percent of net sales increased 0.1% and decreased by $0.2 million.

                Interest Expense. Interest expense increased $1.2 million as a result of a higher interest rate on the Company's credit facilities. Amortization of deferred financing costs and bond discount included in interest expense in fiscal 2001 and fiscal 2000 was $0.4 million and $0.3 million, respectively.

                Provision for income taxes. During the quarter, the Company recorded income tax expense of $8.1 million due to changes in circumstances regarding the realizability of deferred tax assets because of losses incurred during the period. The Company also recorded a deferred tax expense of $1.2 million for a valuation allowance established during the quarter on deferred tax assets established during the first and second quarters.  See Note 5 to the Condensed Financial Statements for further discussion.

                Extraordinary Charge. The Company recorded a $2.5 million charge for the early extinguishment of debt. See Note 2 for further discussion.

                Net sales. Net sales for the first nine months of fiscal 2001 decreased $16.4 million, or 5.1%, from the same nine-month period last year. The following table reconciles total cafeteria net sales to same-store cafeteria net sales (cafeterias that were open for nine full months in both periods) for the nine months ended March 31, 2001 and 2000.

            The net decrease in same-store net sales of 3.2% reflects a decline in same-store customer traffic of 4.8% that was partially mitigated by a check average increase of 1.6%. The check average increase is due to a price increase implemented during the last week of December 2000.

            The customer traffic trend worsened in the third quarter in comparison to the first two quarters of the year. While some cafeterias are experiencing year over year customer traffic increases, the overall customer traffic decline exists generally throughout the Company and is not isolated to one or more geographic regions nor any particular group of cafeterias. The Company is conducting market research to help it understand the customer traffic trend and has not yet determined whether the downward trend is attributable to the price increase in December 2000 or any other specific reason(s).

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