UNITEDTable STATESof Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-K

~~[X]~~x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended ~~July~~ 2July 1, ~~2002~~ 2003

~~[ ]~~o 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

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)

~~(State~~Registrant’s ortelephone ~~other~~number, ~~jurisdiction~~including ~~of (I.R.S.~~area ~~Employer~~code (225) 293-9440

~~incorporation~~Securities ~~or organization~~registered pursuant to Section 12(b) ~~Identification~~ of the Act ~~No.)~~

~~3232 Sherwood~~Title ~~Forest~~of ~~Blvd.,~~each ~~Baton~~class ~~Rouge,~~Name ~~Louisiana 70816~~ of each exchange on which registered Common Stock American Stock Exchange

~~(Address~~Securities ofregistered ~~principal~~pursuant ~~executive~~to ~~offices)~~ Section 12(~~Zip Code~~g) of the Act

None ~~Registrant's telephone number, including area code (225) 293-9440~~

~~Securities registered pursuant to Section 12~~(b)Title of ~~the Act:~~class)

Indicate by check mark whether the registrant (1) ~~Title~~has filed all reports required to be filed by Section 13 or 15 (d) of ~~each~~the ~~class Name~~Securities Exchange Act of ~~each~~1934 ~~exchange~~during onthe ~~which~~preceding ~~registered~~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.

~~Common Stock New York Stock Exchange~~ Yes x No o

~~Securities~~Indicate ~~registered~~by check mark if disclosure of delinquent filers pursuant to ~~Section 12~~Item 405 of Regulation S-K (g)229.405 of this chapter) is not contained herein, and will not be contained, to the ~~Act:~~best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

~~None~~ x

Indicate by checkmark whether the registrant is an accelerated filer (~~Title~~as defined in Rule 12b-2 of ~~class~~the Act).

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 o No x

~~Yes~~The ~~[X]~~aggregate Nomarket ~~[ ]~~value of the voting stock held by non-affiliates of the registrant based on the closing price of such stock on December 31, 2002 was $12,437,352.

~~Indicate~~The bynumber ~~check mark if disclosure~~ of ~~delinquent~~ ~~filers~~shares ~~pursuant~~outstanding ~~to Item 405~~ of ~~Regulation~~Common ~~S-K (229.405 of this chapter) is not contained herein~~Stock, ~~and~~without ~~will~~par ~~not be contained~~value, toas ~~the best~~ of ~~registrant's~~ ~~knowledge~~September 22, in2003 ~~definitive~~was ~~proxy or information statements incorporated by reference in Part III of this Form~~ 10~~-K or any amendment to this Form 10-K~~,910,221.

1 ~~[X]~~

~~The~~TABLE ~~aggregate~~OF ~~market value of the voting stock held by non-affiliates of the registrant based on the closing price of such stock on August 23, 2002 was $22,454,863.~~CONTENTS

The number of shares outstanding of Common Stock, without par value, as of August 23, 2002 was 10,880,453.


PART I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for the Registrant’s Common Stock and Related Security Holder Matters
	Item 6. Selected Financial and Operating Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13. Certain Relationships and Related Transactions
	Item 14. Controls and Procedures
PART IV
	Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K
SIGNATURES
INDEX TO EXHIBITS
EX-10.14 Restated Agreement
EX-10.15 Agreement with Mr. Ronald A. LaBorde
EX-23 Consent of Independent Auditors
EX-31.1 Certification Pursuant to Section 302
EX-31.2 Certification Pursuant to Section 302
EX-32 Certification Pursuant to Section 906

DOCUMENTSTable INCORPORATEDof BY REFERENCEContents

~~Portions~~PART ~~of the definitive proxy statement for the 2002 annual meeting of shareholders are incorporated by reference into Part III.~~I

PART I Item 1. Business Overview Piccadilly Cafeterias, Inc., founded in 1944, is the dominant cafeteria chain in the Southeastern and Mid-Atlantic regions of the United States with 205 cafeterias in 16 states. We serve a diverse and loyal customer base consisting of families, groups of friends and co-workers, senior citizens, couples, and students. Our patrons enjoy a wide selection of convenient, healthy, freshly prepared "home cooked" meals at value-oriented prices for lunch and dinner. Additional information is available on our website at www.piccadilly.com. Business Strengths Dominant Market Share in Core Markets. We are the dominant cafeteria chain in the Southeastern and Mid-Atlantic regions of the United States with 205 cafeterias. The next largest cafeteria chain in these regions operates approximately 34 cafeterias. Although the family dining industry is competitive and has grown significantly through the introduction of new restaurant concepts and new restaurant openings, the cafeteria segment has had few new entrants. In addition, the existing major cafeteria chains have generally focused on their existing regional markets. Diverse and Loyal Customer Base. We have developed substantial brand equity and guest loyalty during our 58-year history. In addition, we have developed a diverse customer base consisting of families, groups of friends and co-workers, senior citizens, couples, and students. We believe cafeteria dining meets diverse guest needs by providing convenient, healthy, freshly prepared, and reasonably priced meals. We attribute our broad market appeal and high level of repeat business to the consistent quality of our meals, our varying menu selection, convenient cafeteria format, value pricing, and well-recognized brand name. High Quality Food Offering. We were awarded the 2002 Choice in Chains Gold Award by Restaurants & Institutions (“R&I”) magazine. The R&I Choice in Chains award is based on a national consumer survey. Consumers gave us the second highest overall ranking in the cafeteria/buffet segment based on rating attributes such as food quality, service, cleanliness, value, and atmosphere and menu variety. All of our cafeterias offer a wide variety of quality, reasonably priced meals. Each of our cafeteria general managers has the ability to vary their menu to include local and seasonal favorites from our extensive proprietary recipe files. Our typical cafeteria line offers a wide food selection including up to 18 entrees, 2 soups, 20 salads, 18 vegetables, 7 breads, and 22 desserts. Guests make their meal selections by combining these items according to their individual preferences. Proven Management. Our executive officers average over 11 years of experience at Piccadilly. In addition, our regional and cafeteria managers have an average of 22 and 15 years of experience at Piccadilly, respectively. As a result, our management team, at both the executive officer and local manager levels, is extremely familiar with our existing markets and customer base. Mr. Ronald A. LaBorde, our Chief Executive Officer, has served us for over 20 years, and has been our chief executive officer since 1995. Recent Developments Fiscal Year-End Reporting Period Change. Effective April 1, 2002, we adopted a 52-53 week fiscal reporting period effective for fiscal 2002, resulting in a 2002 fiscal year-end date of July 2, 2002, rather than June 30, 2002. Prospectively, quarterly reporting will include 13-week periods except for a 53-week year in which the fourth quarter of that fiscal year will include 14 weeks. The change from a June 30 fiscal reporting period to a 52-53 week reporting period is consistent with the reporting cycles of other industry participants. The next several 53-week years are our fiscal years 2007 and 2012. We refer to the fiscal year ended July 2, 2002 as fiscal 2002. We refer to the fiscal years ended June 30, 2001 and 2000 as fiscal 2001 and fiscal 2000, respectively. Pension Plan Liability. On August 6, 2002, we announced that we had recorded a net pension liability of $22.5 million as of July 2, 2002, after we determined that the present value of our pension plan liabilities exceeded the fair value of plan assets at that date. The funded status of the pension plans deteriorated during fiscal 2002 because the fair value of the plans’ assets had declined, reflecting market performance, and the present value of the plans’ liabilities had increased, reflecting a decline in market interest rates. The recording of the pension plan liability did not affect our earnings, but did reduce total shareholders’ equity at July 2, 2002, by $22.5 million. New York Stock Exchange Listing. In September 2001, we submitted a plan to the New York Stock Exchange to demonstrate that we could meet the continued listing requirements of the NYSE by February 8, 2003, a deadline established by the NYSE. With the minimum pension liability and corresponding reduction in shareholders’ equity recorded as of July 2, 2002, we have determined that we do not expect to meet the shareholders’ equity level targeted by the plan. Although we continue to have dialogue with representatives of the NYSE on this matter, they have indicated that the NYSE will not waive compliance with its listing conditions. Accordingly, we are evaluating the eligibility requirements to list our stock on other stock exchanges. As of August 23, 2002, our per-share stock price was $2.53, which does not meet the initial listing qualifications for either the American Stock Exchange or the NASDAQ. Long-term Notes Repurchased. During the past two years we have successfully completed two sale-leaseback transactions involving 18 of our cafeteria properties that we previously owned in fee. We used the proceeds from these transactions to repurchase $29.8 million of our long-term debt. Due to these transactions, our overall cost of capital has declined and we will realize a reduction in expense of $2.5 million annually. We have recorded extraordinary charges of $4.1 million primarily to write-off the pro-rata portion of unamortized financing costs related to the repurchased debt, including $1.6 million of extraordinary charges recorded in fiscal 2002. On December 11, 2001, we used available cash balances to repurchase approximately $3.7 million of our long-term debt. Approximately $0.3 million of extraordinary charges were recorded to write-off unamortized financing costs related to the repurchased debt. Non-performing Cafeterias Closed. During the fourth quarter of fiscal 2001, we completed an evaluation of non-performing cafeterias and determined that 14 cafeterias should be closed. Our evaluation determined that future operating cash flows from these cafeterias would be insufficient to cover their lease–related payments and operating costs. These cafeterias were closed on July 31, 2001. We recorded charges of $3.5 million relating to the decision to close these cafeterias, principally for future lease-related costs. Closing these cafeterias had a positive impact on future results since these cafeterias, in the aggregate, posted operating losses of approximately $2.0 million during fiscal 2001. In addition to the 14 cafeterias closed in July 2001, we closed nine additional cafeterias during fiscal 2002. For the most part, the underlying leases for these cafeterias had reached the end of their respective terms and we either elected not to pursue renewal opportunities or were unsuccessful in achieving sufficient occupancy cost reductions to warrant renewing the lease. Overall, these cafeterias had break-even results for fiscal 2002. Projected Downturn in First Quarter Fiscal 2003 Financial Performance. In our “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we disclose that in March 2002 we implemented a four-month advertising campaign, including media advertising, in markets comprising approximately 50% of the markets where our cafeterias operate. We further reported that we believe this advertising campaign was partially responsible for improving year-to-year sales comparisons for the last two months of our fiscal 2002 fourth quarter. The improvement in year-to-year sales comparisons has not continued into the first two four-week periods of fiscal 2003. For the four-week period ended July 30, 2002, our sales were down 2.9% and for the three-week period ended August 20, 2002, our sales were down 4.0%. We believe that the weakened economy and the uncertainty created by the extremely volatile and declining stock market during that period had an impact on the spending habits of our guest base. Cafeteria Operations Store Design and Layout. Our traditional cafeterias average approximately 10,000 square feet in size and seat, on average, approximately 350 guests. During 1997, we completed the design of a more compact cafeteria model, which has approximately 7,500 square feet and seats approximately 200 guests. This smaller cafeteria allows us to access a broader range of markets at a lower investment cost. As of July 2, 2002, we have 10 cafeterias utilizing this new design and format. We did not open any new cafeterias in fiscal 2002, and we do not currently plan to open any new cafeterias during fiscal 2003. Menu. All of our cafeterias offer a wide variety of quality, reasonably priced meals. Each of our cafeteria general managers has the ability to vary their menu to include local and seasonal favorites from our extensive proprietary recipe files. Our typical cafeteria line offers a wide food selection including up to 18 entrees, 2 soups, 20 salads, 18 vegetables, 7 breads, and 22 desserts. Guests make their meal selections by combining these items according to their individual preferences. Pricing. We sell most meals as "bundled" meals that include an entrée, side items, and bread. Guests are also able to purchase meals on an a la carte basis. Approximately 65% of meals served in fiscal 2002 were sold as “bundled” meals. We continuously evaluate our pricing structure to assure that we deliver value-oriented meals to our guests. Meal Preparation. Cafeteria team members cook and prepare most of our food served from scratch using standardized recipes. Menus are varied at the discretion of cafeteria management in response to local and seasonal guest preferences. Purchasing and Distribution. Currently, the general managers at each of our cafeterias have purchasing responsibility for approximately one-third of the food ingredients used in our recipes, with each general manager negotiating with local or regional suppliers for that particular cafeteria, subject to meeting quality specifications. The remaining two-thirds of the food ingredients used in our recipes is purchased centrally and distributed through a single regional distributor. We expect to increase the percentage of items centrally purchased. By expanding central purchasing, we believe we will benefit from higher volume purchase discounts, as well as greater consistency in food quality across all of our cafeterias. Currently, our single regional distributor is located in Baton Rouge, Louisiana. The food items that are not obtained through this distributor are primarily fresh red meat, poultry, produce, and dairy products. Other than fresh poultry, these items are purchased from local suppliers and delivered directly to our cafeterias. During the first quarter of fiscal 2003, we will add a second regional distributor with distribution centers in Orlando, Florida and Atlanta, Georgia. Each of our two regional distributors will distribute products to approximately one-half of our cafeterias. We believe that there are numerous other distributors available to process our shipments should these distributors be unable to meet our distribution needs. Employees. We refer to our employees as team members. As of July 2, 2002, we had approximately 8,400 team members, of whom all but 95 corporate headquarters team members worked at Piccadilly's 205 cafeterias. On average, each cafeteria operates with two to four managers and assistant managers and employs 40 to 60 team members. Most team members are paid on an hourly basis, except cafeteria managers. Our team members are not unionized. We have experienced no significant work stoppages and believe that our team member relations are good. Trademarks and Trade Names. Our cafeterias operate principally under the Piccadilly Cafeterias name and service mark, which is registered with the United States Patent and Trademark Office for a term presently expiring in January 2009. Registered service marks may continually be renewed for 10-year periods. We regard our service marks and trademarks as having significant value and being an important factor in the development of the Piccadilly concept. Our policy is to pursue and maintain registration of our service marks and trademarks whenever possible and to oppose vigorously any infringement or dilution of our service marks and trademarks. Risks Factors Relating to Our Business Our sales initiatives may not be successful. We have experienced a long-term, relatively consistent decline in guest traffic and net sales from our cafeteria operations. We have been able to offset some of the effects of this decline by various cost-saving initiatives that we discuss elsewhere in this Item 1. However, our ability to sustain a consistent and improving level of profitability in the future will largely depend upon our ability to successfully implement sales initiatives that increase guest traffic at our cafeterias without sacrificing profitability. We are vulnerable to increasing labor costs. We are dependent upon an available labor pool of unskilled and semi-skilled employees, many of whom are hourly employees whose minimum wages are government proscribed. Numerous proposals have been made on federal, state, and municipal levels to increase minimum wage levels. Because a significant number of our employees are paid at rates tied to the federal minimum wage, an increase in the minimum wage would increase our labor costs. A shortage in the labor pool or other general inflationary pressures or changes could also increase labor costs. An increase in labor costs could have a material adverse effect on our financial results and no assurance can be given that we will be able to pass through any cost increases to our guests. We are vulnerable to fluctuations in the cost, availability, and quality of our ingredients. The cost, availability, and quality of the ingredients we use to prepare our food are subject to a range of factors, many of which are beyond our control. Fluctuations in economic conditions, weather, and demand could adversely affect the cost of our ingredients. We require fresh produce, dairy products, and meat, and are therefore subject to the risk that shortages or interruptions in supply of these food products could develop. All of these factors could have a material adverse effect on our financial results. Although we believe that we could find alternative suppliers for these ingredients, we have no control over fluctuations in the price of commodities, and no assurance can be given that we will be able to pass through any cost increases to our guests. We face intense competition. All aspects of the restaurant business are highly competitive. Price, restaurant locations, food quality, service and attractiveness of facilities are important aspects of competition, and the competitive environment is often affected by factors beyond a particular restaurant management’s control, including changes in the public’s eating habits, population and traffic patterns, and economic conditions. Our cafeterias compete with a large number of other restaurants, including national and regional restaurant chains and franchised restaurant operations, as well as locally owned, independent restaurants. Many of our competitors have greater financial resources than we have. There can be no assurance that we will be able to compete successfully against our competitors in the future or that competition will not have a material adverse effect on our financial results. We are vulnerable to changes in consumer preferences and economic conditions. Food service businesses are often affected by changes in consumer tastes, national, regional, and local economic conditions, and demographic trends. Factors such as traffic patterns, demographics, and the type, number and location of competing restaurants may adversely affect the performance of individual cafeterias. In addition, inflation, increased food, labor, energy, employee benefit costs, and insurance rates, national, regional and local regulations, regional weather conditions, and the availability of experienced management and hourly employees may harm the restaurant industry in general and our cafeterias in particular. Adverse changes in any of these factors could reduce guest traffic or impose practical limits on pricing, which could have a material adverse effect on our financial results. Our continued success will depend in part on our ability to anticipate, identify, and respond to changing consumer preferences and economic conditions. We face risks because of the number of cafeterias that we lease. Our success depends in part on our ability to renew leases in existing locations at rental rates we believe to be reasonable. We currently lease all of our cafeterias located in strip shopping centers and malls and we lease the land for all but 12 of our freestanding cafeterias. Many of our leases have terms expiring during the next five years. Each lease agreement also provides that the lessor may terminate the lease for a number of reasons, including if we default in any payment of rent or taxes or if we breach any covenants or agreements in the lease. Although we believe that we are in compliance with all lease covenants and agreements and that we will be able to renew our existing leases, we can offer no assurances that we will always comply with all lease covenants and agreements nor that we will succeed in renewing such leases in the future at rental rates that we believe to be reasonable or at all. Moreover, if certain locations should prove to be unprofitable, we would remain obligated for lease payments if we decided to withdraw from such locations. Termination of any of our leases could harm our financial results. We may be required to make additional contributions to our previously frozen benefit pension plans. We sponsor two qualified defined benefit pension plans. Both of these plans are frozen so covered employees are not currently accruing benefits under these plans. These plans are subject to the minimum funding levels of the Employee Retirement Income Security Act of 1974. Several market-driven factors, over which we have no control, influence the funding level of these plans and thus the timing and extent to which we are required to fund contributions to these plans. The net present value of obligations of the plans is subject to fluctuations in interest rates and the fair value of plan assets is subject to market volatility. In the future, we may be required to use a substantial portion of our available liquidity to fund minimum required contributions to the plans. There can be no assurance that we will have sufficient liquidity to fund the minimum required contributions when they become due. Moreover, there can be no assurance that after such contributions are made, the remaining liquidity will be sufficient for operating purposes. We are subject to restrictions under the terms of our debt agreements. Our Senior Credit Facility includes covenants that require us to maintain specified financial ratios, including fixed charge coverage and leverage ratios and a minimum level of earnings before interest, income tax, depreciation, and amortization expenses. In addition, our Senior Credit Facility, Senior Note Indenture, and Term Loan Credit Facility (collectively, our “Debt Agreements”) contain covenants that restrict, among other things, our ability to incur additional indebtedness and dispose of assets, incur or guarantee obligations, repay indebtedness or amend debt instruments, pay dividends, create liens on assets, make investments, make acquisitions, engage in mergers or consolidations, make capital expenditures and engage in certain transactions with subsidiaries or affiliates. Although we are currently in compliance with all of these ratios and covenants, our ability to continue to comply with these covenants in the future may be affected by events beyond our control and we cannot give any assurances that we will satisfy those requirements. We may be prevented from taking advantage of available business opportunities if we fail to meet certain financial ratios or because of the limitations imposed on us by the restrictive covenants under our Debt Agreements. Moreover, a failure to comply with any of these provisions contained in our Debt Agreements could lead to an event of default, which, under the terms of those Debt Agreements, could result in all amounts outstanding under any of them to be declared immediately due and payable. In that event, we may be unable to secure alternative sources of capital at terms satisfactory to us. We face the risk of adverse publicity and litigation. We may from time to time be the subject of complaints or litigation from guests alleging illness, injury, or other food quality, health, or operational concerns. Negative publicity resulting from these allegations could have a material adverse effect on our financial results, regardless of whether the allegations are valid or whether we are liable. In addition, employee claims against us based on, among other things, discrimination, harassment, or wrongful termination may divert our financial and management resources that would otherwise be used to benefit the performance of our operations. We have been subject to such employee claims from time to time, and although these claims have not historically had a material impact on our operations, a significant increase in the number of these claims or an increase in the number of successful claims could have a material adverse effect on our financial results. We face risks associated with government regulation. Each of our cafeterias is subject to licensing and regulation by the health, sanitation, safety, building, and fire agencies of the respective states and municipalities in which the cafeteria is located. A failure to comply with one or more regulations could result in the imposition of sanctions, including the closing of facilities for an indeterminate period of time or third-party litigation, either of which could have a material adverse effect on our financial results. Under various federal, state and local laws, an owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on or in such property. Such liability may be imposed without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Although we are not aware of any material environmental conditions that require remediation by us under federal, state, or local law at our properties, we have not conducted a comprehensive environmental review of our properties or operations and no assurance can be given that we have identified all of the potential environmental liabilities at our properties or that such liabilities would not have a material adverse effect on our financial condition. Item 2. Properties All of our cafeterias are located in urban and suburban areas, in a variety of strip shopping centers, malls, and freestanding buildings. We lease all of the cafeterias located in strip shopping centers and malls. Of the 75 cafeterias located in freestanding buildings, we own the building and land for 12 of the cafeterias, and the remaining freestanding cafeterias are operated in Company-owned buildings located on leased land under long-term leases. We rent most of our cafeteria facilities under long-term leases with varying provisions and with original lease terms generally of 20 to 30 years and in most cases, with options to renew for several successive five-year periods. Leases provide for monthly rentals, typically computed on the basis of a fixed amount plus a percent of sales. We evaluate the sales trends and the forecasted operating results for cafeterias with expiring lease terms to determine whether to exercise renewal options or negotiate lease extensions. Our cafeteria locations by state as of July 2, 2002, are as follows:

Item 1. Business

State	Cafeterias
Florida	44
Georgia	37
Louisiana	33
Alabama	18
Tennessee	18
Virginia	12
Texas	12
Mississippi	11
South Carolina	7
Kentucky	3
North Carolina	2
Maryland	2
Missouri	2
Oklahoma	2
Kansas	1
West Virginia	1
Eight other states each with less than 10	20
Total	205	(1)

Overview

Piccadilly Cafeterias, Inc., founded in 1944, is the largest cafeteria chain in ~~__________~~ the Southeastern and Mid-Atlantic regions of the United States with 170 cafeterias in 15 states as of September 29, 2003. We serve a diverse and loyal customer base consisting of families, groups of friends and co-workers, senior citizens, couples, and students. Our patrons enjoy a wide selection of convenient, healthy, freshly prepared “home cooked” meals at value-oriented prices for lunch and dinner. Additional information is available on our website at www.piccadilly.com.

As previously announced in May 2003, our Board of Directors accepted the resignation of Ronald A. LaBorde as the Company’s chief executive officer, and engaged PMCM, LLC (1“PMCM”) ~~Includes~~, ~~four~~an ~~quick~~operationally focused turnaround and crisis ~~service~~management ~~cafeterias~~firm, to provide an interim chief executive officer, Mr. John G. “Jack” McGregor, as well as financial advisory, management and restructuring services to the Company. In June 2003, we announced that our Board of Directors had authorized management to pursue a range of strategic options, including a possible sale of the Company, in ~~mall~~an ~~food~~effort ~~courts~~to maximize the Company’s value for the benefit of its constituencies. Management, working together with PMCM, began to explore the feasibility of a variety of strategic options, including remaining independent but downsizing the Company by shedding its unprofitable cafeterias and/or renegotiating the terms of unfavorable leases, seeking a capital partner to invest equity into the Company, seeking relief from the Pension Benefit Guaranty Corporation with respect to future funding obligations of the Company to restore the Company’s defined benefit plans to fully funded status, and renegotiating the terms of the Company’s secured indebtedness. However, given the magnitude of the Company’s funding liability for its pension plans, the projected cash cost of buying out the leases of the Company’s remaining unprofitable locations, and the Company’s liquidity constraints, management and PMCM concluded, and recommended to the Board, that while efforts would continue to pursue options to allow the Company to remain independent, the most prudent course of action would be to begin a process to determine whether credible bids to acquire the Company’s operations could be elicited.

~~Our~~ With ~~corporate~~the ~~headquarters~~Board’s ~~occupy~~approval, ~~approximately two-thirds~~in oflate aJuly, the Company~~-owned~~ 45and PMCM commenced this process,~~000~~ ~~square~~assembled ~~foot~~a data ~~office~~room ~~building~~for due diligence materials, and ~~located~~began circulating confidentiality onagreements aand ~~Company-owned~~the ~~tract~~descriptive ~~comprising~~memorandum ~~approximately~~to ~~five~~invite ~~acres~~expressions inof ~~Baton~~interest ~~Rouge,~~from ~~Louisiana~~potential strategic and financial buyers. ~~The~~ ~~remainder~~Approximately 40 of the ~~building~~parties who were contacted executed confidentiality agreements and reviewed the descriptive memorandum. Of that group, six parties subsequently indicated an interest in conducting due diligence at the Company's data room and receiving a presentation from management. The Company is ~~leased~~now toengaged ~~commercial~~in ~~tenants~~ongoing discussions with several of these parties which have expressed a potential interest in acquiring the Company's profitable operations and locations.

~~Item~~ All 3of the interested parties have indicated they would structure their offers as a sale in accordance with Section 363 of the United States Bankruptcy Code following the Company's Chapter 11 bankruptcy filing. ~~Legal~~Since ~~Proceedings~~in bankruptcy, the Company has the ability to reject undesirable contracts and leases and terminate benefit plans, this structure reflects and addresses the magnitude of the Company's pension plan liabilities, the costs of closing the Company's remaining unprofitable leased operations, and the Company's liquidity constraints. The Company has focused on transactions requiring an all cash price for the Company's most profitable assets and operations. In the bankruptcy proceeding, this cash price, together with any net cash realized in liquidating the Company's remaining assets, would be available to pay the Company's debts after paying for the Company's ongoing operations and the administrative costs of the bankruptcy. The bankruptcy case would also include procedures to seek bidders interested in paying a higher and better price for the Company's assets. Based on the indicative prices being discussed, the Company will not generate adequate funds to pay its liabilities in full.

2 ~~We are not a party to and do not have any~~ property that is the subject of any legal proceedings pending or, to our knowledge, threatened, other than ordinary routine litigation incidental to our business and proceedings which are not material or as to which we believe we have adequate insurance.

ItemTable 4. Submission of Matters to a Vote of Security HoldersContents

~~None~~ If negotiations are successful, the Company would execute a definitive agreement with the purchaser immediately prior to filing under Chapter 11. The Company would then request the bankruptcy court to approve the sale (including a higher and better sale transaction that could emerge during the Section 363 sale process). If all of these efforts succeed and we do not encounter delays, the Company could sign and announce a definitive sale agreement and file for Chapter 11 by the end of October 2003 and close the transaction in early 2004.

~~Item~~ If 4(we cannot reach a) definitive agreement with a prospective purchaser, we expect to file to reorganize under Chapter 11 of the Bankruptcy Code in October 2003. ~~Executive~~ ~~Officers~~In that case, without a purchaser to pay cash to the Company for its business, the Company would seek to renegotiate the terms of its existing debt and have a plan of reorganization confirmed by its creditors and approved by the ~~Registrant~~bankruptcy court. The outcome for all of the Company’s creditors under a plan of reorganization is unclear, but the Company's shareholders would receive little or no value for their shares under any plan of reorganization for the Company.

~~Executive~~ The ~~officers~~terms ~~are~~of ~~elected~~a ~~annually~~potential bysale of the ~~Board~~Company’s ofassets with bankruptcy court ~~Directors~~approval, ~~and~~or ~~hold~~the ~~office~~terms ~~until~~of a ~~successor~~reorganization isplan ~~duly~~ultimately ~~elected. The~~confirmed ~~names~~by a bankruptcy court, will compromise significantly our ability to discharge our various pre-petition unsecured debts and will greatly diminish or ~~positions~~eliminate any value of ~~executive~~our ~~officers~~equity ofsecurities. ~~the~~No ~~Registrant,~~assurance ~~together~~can ~~with~~be agiven ~~brief~~as to ~~description~~what ofvalues, if any, will be ascribed in the ~~business~~bankruptcy ~~experience~~proceedings ofto each ~~such~~of these ~~person~~constituencies. ~~during~~A ~~the~~bankruptcy ~~past~~filing could result in holders of ~~five~~Piccadilly ~~years~~common stock receiving little or no value for their interests. Because of such possibilities, the value of the common stock is ~~set~~highly speculative. ~~forth~~We ~~below~~urge that appropriate caution be exercised with respect to existing and future investments in any of the Company’s debt obligations and common stock.

~~Ronald~~We Aclosed 32 “Non-Core Cafeterias”. ~~LaBorde~~During fiscal 2003, ~~age~~we 46engaged a consulting firm with significant experience in renegotiating leases with regional and nationwide landlords. The consultants engaged in one-on-one discussions with the landlords of 49 “Non-Core Cafeterias” and 19 “Surplus Properties” in an effort to secure more favorable lease arrangements, ~~Chief~~including buyouts ~~Executive~~of ~~Officer~~or early termination of the leases. As a result of these efforts, and ~~has~~the efforts of management, we closed 32 “Non-Core Cafeterias” during fiscal ~~held~~2003. Of the 32 “Non-Core Cafeterias that ~~position~~were ~~since~~closed, ~~June~~we ~~1995~~owned two of the properties. ~~From~~ ~~July~~One ~~1995~~of ~~until~~those ~~March~~properties ~~2001~~was ~~Mr.~~subsequently sold during fiscal 2003 ~~LaBorde~~and ~~also~~the ~~held~~second property was sold shortly after the ~~position~~end of ~~President~~fiscal 2003. ~~From~~ ~~November~~The remaining ~~2000~~30 ~~until August~~closed ~~2002~~“Non-Core MrCafeterias” were leased properties. ~~LaBorde~~Of ~~also~~these ~~served~~30 leases, as18 ~~chairman~~leases have terminated either by expiration of the ~~Board~~lease term or by negotiations with landlords. We have continuing lease obligations relating to the remaining 12 leases.

~~Azam~~The ~~Malik,~~32 ~~age 53,~~“Non-Core ~~President~~Cafeterias” ~~and~~closed ~~Chief~~in ~~Operating~~fiscal ~~Officer,~~2003 ~~has~~had ~~held~~net ~~such~~sales ~~positions~~in ~~since~~fiscal ~~March~~2003 ~~2001~~of $21. ~~From~~0 million ~~June~~and ~~1997~~net tolosses ~~January~~in ~~2001~~fiscal 2003, heexcluding ~~was~~the ~~Executive~~allocation ~~Vice President~~ of ~~Operations~~corporate overhead and excluding gain on sale of ~~Chi~~properties, ~~Chi’s~~of ~~Inc~~$3.,5 million. We realized a ~~subsidiary~~$0.8 million gain on the sale of ~~Prandium,~~one ~~Inc. From~~of ~~1993~~the toproperties. The ~~June~~operating ~~1997,~~results heof ~~was~~these ~~Executive~~cafeterias ~~Vice~~are ~~President~~classified as discontinued operations in our Statements of Operations offor Elall ~~Torito~~periods presented (see Note 3 to the Financial Statements for ~~Restaurants,~~further ~~Inc~~discussion).

~~Mark~~We L.continue ~~Mestayer,~~to ~~age~~operate ~~43,~~poor-performing ~~Executive~~cafeterias ~~Vice~~and ~~President,~~we continue to undertake ~~Treasurer~~efforts ~~and~~to ~~Chief~~negotiate ~~Financial~~the ~~Officer,~~termination ~~has~~of ~~held~~the ~~such~~leases ~~positions~~relating ~~since~~to ~~September~~those ~~1999~~cafeterias. ~~From~~ ~~July~~If ~~1996~~we toare ~~September~~unsuccessful ~~1999,~~in heour ~~was~~negotiation ~~Executive~~efforts, ~~Vice~~we ~~President,~~would expect ~~Secretary,~~to ~~and~~close ~~Director~~those ofpoor-performing ~~Finance,~~cafeterias. ~~and~~In ~~from~~addition, ~~May~~we ~~1992~~would also expect to ~~July~~close ~~1996,~~any hepoor-performing ~~was Executive~~cafeterias ~~Vice~~not ~~President,~~purchased ~~Secretary,~~out ~~and~~of ~~Controller~~the Company’s assets by a prospective purchaser.

~~PART~~The IIminimum pension liability increased. We recorded an additional minimum pension liability of $19.1 million at the end of fiscal 2003. The funded status of our pension plans deteriorated during fiscal 2003 because the return on invested pension assets was only 0.9% and the present value of the plans’ liabilities had increased, reflecting a decline in the discount rate assumption from 7.25% to 6.00%. The additional minimum pension liability did not affect our earnings, but did completely eliminate total shareholders’ equity.

~~Item~~Senior debt partially repurchased; No repurchase offer to be made in 2003. The required offers to repurchase portions of our senior secured debt in fiscal 2003 were made on September 30, 2002 and October 2, 2002, respectively, and on October 28, 2002 and October 31, 2002, following the end of the offer acceptance periods, we paid $3.6 million and $5.1 million, ~~Market~~respectively, to repay portions of our senior secured debt, with the result that the Term Loan Credit Facility was entirely repaid and $39.2 million of our Term A Senior Secured Notes remains outstanding. The terms of our Term A Senior Secured Notes obligate the Company to make an excess cash flow offer of $5 million (inclusive of accrued interest) on September 30, 2003. However, given the likelihood that the Company will seek protection under the federal bankruptcy laws in the near future, the Company decided to not provide the required notice. Under the terms of the Term A Senior Secured Notes, the Trustee for the ~~Registrant'~~Noteholders will have the right to notify the Company of its contractual breach which, if not cured timely, would accelerate the Company’s $39.2 million ~~Common~~indebtedness. ~~Stock~~If ~~and~~such ~~Related~~a ~~Security~~notice ~~Holder~~is ~~Matters~~received, the Company does not intend to cure the breach.

~~Our Common Stock is traded on the New York Stock~~3 ~~Exchange under the symbol “PIC.” The following table sets forth the high and~~ ~~low sales prices for each quarter within the last two years. As of August 23, 2002, there were approximately 2,377 record holders of our Common Stock.~~

Fiscal
2002			2001
Quarter	High	Low	Quarter	High	Low
1st	$1.54	$1.06	1st	$3.19	$2.00
2nd	$2.23	$1.42	2nd	$2.44	$1.06
3rd	$2.68	$1.65	3rd	$2.63	$1.38
4th	$3.85	$2.74	4th	$1.95	$1.45

WeCafeteria ~~have not paid a dividend on our Common Stock since~~Operations ~~the Board suspended our regular quarterly dividend on February 7, 2000. Our~~ ~~Senior Credit Facility prohibits payment of dividends.~~

~~Item~~Significant 6Cafeteria Market Share in Core Markets. ~~Selected~~We ~~Financial~~are the largest cafeteria chain in the Southeastern and ~~Operating~~Mid-Atlantic ~~Data~~regions of the United States with 172 cafeterias. The next largest cafeteria chain in these regions operates approximately 35 cafeterias. The family dining industry is competitive and has grown significantly through the introduction of new restaurant concepts and new restaurant openings, but the cafeteria segment has had few new entrants. In addition, the existing major cafeteria chains have generally focused on their existing regional markets.

		Fiscal Year Ended
							(7)		(9)
		July 2		June 30		June 30	June 30		June 30
		2002		2001		2000	1999		1998
		(Dollars in thousands)
Income Statement Data:
Net sales		$ 385,027		$ 424,163		$ 450,276	$ 495,697		$ 335,388
Costs and expenses:
	Cost of sales	217,710		246,340		266,246	298,565		194,898
	Other operating expenses	144,775		159,062		160,358	170,200		109,725
	Provision for cafeteria impairments and closings	389		13,887		-	1,350		3,453
	General and administrative expenses	11,626		15,591		14,823	16,946		12,832
	Amortization and writeoff of goodwill	-		5,343		407	512		-
	Interest expense	7,978		9,958		7,177	6,255		2,514
	Other expenses (income)	(441)		(580)		(1,562)	(1,000)		(590)
		382,037		449,601		447,449	492,828		322,832
Gain from sale of Ralph & Kacoo's		-		-		-	1,556		-
	Income (loss) before income taxes and extraordinary charges	2,990		(25,438)		2,827	4,425		12,556
Provision for income taxes (benefit)		(2,026)	(5)	8,072	(6)	416	425	(8)	4,653
	Income (loss) before extraordinary charges	5,016		(33,510)		2,411	4,000		7,903
Extraordinary charges-loss on early retirement of debt		1,906		2,520		-	-		-
	Net Income (Loss)	$ 3,110		$ (36,030)		$ 2,411	$ 4,000		$ 7,903
Per Share Data:
Net Income (Loss)-basic		$ 0.29		$ (3.43)		$ 0.23	$ 0.38		$ 0.75
Net Income (Loss)-assuming dilution		0.29		(3.43)		0.23	0.38		0.75
Cash dividends		-		-		0.24	0.48		0.48
Other Financial Data:
EBITDA (1)		$ 25,367		$ 18,986		$ 26,702	$ 28,279		$ 31,200
Net cash provided by operating activities		12,546		11,308		14,222	12,915		23,268
Depreciation and amortization (2)		14,009		20,579		16,698	17,805		12,677
Maintenance capital expenditures (3)		5,032		4,096		3,812	8,460		6,085
Total capital expenditures		5,032		5,004		6,832	15,460		14,928
Cafeteria and Restaurant Data:
Number of cafeterias and seafood restaurants (operating at the end of the period)		207		230		242	254		277
Same-store cafeteria sales % increase/(decrease) (4)		-4.0%		-3.8%		-5.2%	-2.6%		1.6%
Balance Sheet Data:
Cash		$ 5,661		$ 851		$ -	$ -		$ -
Net property, plant, and equipment		99,395		120,565		163,877	176,250		203,865
Total assets		133,695		158,578		214,170	232,939		254,584
Long-term debt		43,807		54,976		68,391	74,226		78,979
Total shareholders' equity		24,266		43,251		79,281	79,402		80,436

Diverse and Loyal Customer Base. In our 59-year history we have developed substantial brand equity and guest loyalty and we have developed a diverse guest base. We believe cafeteria dining meets diverse guest needs by providing convenient, healthy, freshly prepared, and reasonably priced meals. We attribute our broad market appeal and high level of repeat business to the consistent quality of our meals, our varying menu selection, convenient cafeteria format, value pricing, and well-recognized brand name.

~~(1)~~High ~~EBITDA~~Quality isFood ~~net~~Offering. ~~income~~We ~~before~~were ~~provision~~awarded ~~for~~the ~~income~~2002 ~~taxes,~~Choice ~~gain~~in Chains Gold ~~from~~Award ~~sale~~by ofRestaurants ~~Ralph~~& Institutions (“R&I”) ~~Kacoo’s,~~magazine. ~~interest~~The ~~expense,~~R&I ~~provision~~Choice ~~for~~in ~~cafeteria~~Chains ~~impairments~~award ~~and~~is ~~closings,~~based ~~and~~on ~~depreciation~~a ~~and~~national ~~amortization~~consumer survey. ~~EBITDA~~ ~~should not~~Consumers begave ~~considered~~us asthe ansecond highest ~~alternative~~overall ~~to,~~ranking orin ~~more~~the ~~meaningful~~cafeteria/buffet ~~than,~~segment ~~income~~based ~~before~~on rating ~~income~~attributes ~~taxes,~~such ~~cash~~as ~~flow~~food ~~from~~quality, ~~operating~~service, ~~activities~~cleanliness, orvalue, ~~other~~and ~~traditional~~atmosphere ~~indicators~~and ofmenu ~~operating performance~~variety. ~~Rather,~~ ~~EBITDA~~All isof ~~presented~~our ~~because~~cafeterias ~~it is~~offer a ~~widely~~wide ~~accepted~~variety ~~supplemental~~of ~~financial measure that we believe provides~~quality, ~~relevant~~reasonably ~~and~~priced ~~useful information~~meals. ~~Our~~ ~~calculation~~Each of ~~EBITDA~~our ~~may~~cafeteria ~~not~~general bemanagers has the ~~comparable~~ability to ~~similarly~~vary ~~titled~~their ~~measures~~menu ~~reported~~to byinclude ~~other~~local ~~companies,~~and ~~since~~seasonal ~~all companies~~favorites dofrom ~~not~~our extensive ~~calculate~~proprietary ~~this~~recipe ~~non-GAAP measure in the same manner~~files.

Experienced Management Team. Our senior management team averages almost 17 years of experience at Piccadilly (2excluding interim officers provided by PMCM) ~~Excludes~~. ~~amortization~~In ofaddition, ~~deferred~~our ~~financing~~regional ~~costs. Includes~~and cafeteria general managers have an ~~$5.0~~average ~~million~~of ~~writeoff~~24 and 18 years of ~~goodwill~~experience ~~for~~at ~~fiscal~~Piccadilly, ~~2001~~respectively. ~~(see~~As ~~Note~~a result, 2our tomanagement team, at both the executive officer and local manager ~~Consolidated~~levels, ~~Financial~~is ~~Statements~~extremely infamiliar ~~item~~with 8)our existing markets and customer base.

Store Design and Layout. Our traditional cafeterias average approximately ~~(3) Maintenance~~10,000 ~~capital~~square ~~expenditures~~feet ~~are~~in ~~those~~size ~~expenditures~~and seat, on average, approximately 350 guests. ~~unrelated~~During to1997, ~~opening~~we ~~new~~completed ~~cafeterias~~the design of a more compact cafeteria model, ~~but~~which has ~~are~~approximately ~~required~~7,500 tosquare ~~remodel~~feet and ~~otherwise improve~~seats ~~existing~~approximately 200 guests. This smaller cafeteria ~~facilities~~allows ~~and~~us ~~equipment~~to ~~and~~access ~~which~~a ~~increase~~broader ~~the~~range of markets at a lower ~~value~~investment orcost. ~~extend~~At the ~~lives~~end of ~~assets~~fiscal ~~and~~2003, ~~are~~we ~~therefore~~had ~~capitalized~~nine ~~and~~cafeterias utilizing ~~depreciated~~this ~~over~~new ~~their~~design ~~estimated~~and ~~useful lives~~format. ~~The~~ ~~term~~We ~~“maintenance~~have ~~capital expenditures”~~not ~~does~~opened ~~not~~a ~~include~~new ~~repairs~~cafeteria ~~and~~since ~~maintenance~~fiscal 2000 ~~expenditures~~except for several cafeterias that ~~are~~were relocated within the same market ~~charged~~areas in fiscal 2001 and we have no current plan to ~~operations~~open asnew ~~incurred~~cafeterias for the foreseeable future.

~~(4) “Same-stores”~~Menu. ~~are~~All of our cafeterias ~~that~~offer ~~were~~a ~~open~~wide ~~for~~variety ~~twelve~~of ~~full~~quality, reasonably priced ~~months~~meals. inEach ~~both~~of ~~comparative~~our ~~periods~~cafeteria general managers has the ability to vary their menu to include local and seasonal favorites from our extensive proprietary recipe files. ~~Since~~ ~~Morrison~~Our ~~was~~typical ~~acquired~~cafeteria online ~~May~~offers ~~28,~~a wide food selection ~~1998~~including up to 18 entrées, ~~the~~2 ~~Morrison~~soups, ~~Acquisition~~20 ~~does~~salads, ~~not~~18 ~~affect~~vegetables, ~~the~~7 ~~total~~breads, ~~same-store~~and ~~sales~~22 ~~comparison~~desserts. ~~for~~Guests ~~fiscal~~make ~~year~~their ~~1999~~meal ~~and~~selections ~~1998~~by combining these items according to their individual preferences.

Pricing. We sell most meals as “bundled” meals that include an entrée, side ~~(5) Relates~~items, and bread. Guests are also able to anpurchase ~~IRS~~meals ~~refund~~on ~~for~~an ~~the~~a ~~carry~~la ~~back~~carte basis. Approximately 72% of ~~2001~~meals ~~net~~served in fiscal 2003 were sold as “bundled” ~~operating~~meals. ~~losses~~We tocontinuously ~~1996~~evaluate ~~(see~~our ~~Note~~pricing 6structure to ~~the~~assure ~~Consolidated~~that ~~Financial Statements~~we indeliver ~~item~~value-oriented 8meals ~~for~~to ~~further~~our ~~information)~~guests.

~~(6) Includes~~Meal ~~a $15~~Preparation.7 ~~million~~Cafeteria ~~valuation~~team ~~allowance~~members ~~for~~cook ~~deferred~~and ~~tax~~prepare most of our food ~~assets~~from ~~(see~~scratch ~~Note~~using 6standardized torecipes. Menus are varied at the ~~Consolidated~~discretion ~~Financial~~of cafeteria ~~Statements~~management in ~~item~~response 8to ~~for further~~local ~~information)~~and seasonal guest preferences.

~~(7) The~~Purchasing ~~sale~~and Distribution. Currently, the general managers at each of ~~Ralph~~our cafeterias &have ~~Kacoo’s~~purchasing ~~was~~responsibility ~~completed~~for onapproximately ~~March~~15% 30of the food ingredients used in our recipes, ~~1999.~~ with each general manager negotiating with ~~Results~~local or regional suppliers for ~~the~~that ~~fiscal~~particular ~~year~~cafeteria, ~~ended~~subject ~~1999~~to ~~include~~meeting company-proscribed ~~nine~~quality ~~months~~specifications. The remaining 85% of ~~Ralph~~the &food ingredients ~~Kacoo’s~~used in our recipes is purchased centrally and distributed through ~~operations~~two regional distributors. By maximizing our central purchasing capabilities, we believe we benefit from volume purchase discounts, as well as consistency in food quality across all of our cafeterias.

~~(8) The~~Currently, ~~sale~~our oftwo ~~Ralph~~regional &distributors ~~Kacoo’s~~have ~~resulted~~distribution centers in aBaton Rouge, ~~reported~~Louisiana ~~gain~~and ofAtlanta, $1Georgia.6 The food items that are not obtained ~~million~~through these distributors are primarily fresh produce, dairy products and asome fresh ~~net~~poultry ~~tax~~products. ~~benefit~~These ofitems $0are purchased from local suppliers and delivered directly to our cafeterias.8 ~~million~~We believe that there are numerous other distributors available to process our shipments should these distributors be unable to meet our distribution needs.

~~(9) Morrison~~Employees. ~~was~~We ~~acquired~~refer onto ~~May~~our ~~28,~~employees ~~1998~~as team members. ~~Results~~ ~~for~~At the end of fiscal ~~year~~2003, ~~ended~~we ~~1998~~had ~~include~~approximately ~~one~~7,153 ~~month~~team members, of ~~Morrison’s~~whom ~~operations~~all but 83 corporate headquarters team members worked at our cafeterias. On average, each cafeteria operates with two to four managers and assistant managers and employs 34 to 55 team members.

~~Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations~~4

OverviewTable of Contents

~~Management’s~~Most ~~Discussion~~team ~~and~~members ~~Analysis~~are ofpaid ~~Financial Condition~~on ~~and~~an ~~Results~~hourly ofbasis, ~~Operations~~except ~~should~~cafeteria managers. beOur ~~read~~team inmembers ~~conjunction~~are ~~with~~not ~~our Consolidated~~unionized. ~~Financial~~We ~~Statements~~have ~~contained~~experienced inno significant ~~his~~work ~~annual~~stoppages ~~report~~and onbelieve ~~Form 10-K. References~~that toour ~~“Notes”~~team ~~are~~member torelations ~~the~~are ~~Notes to Consolidated Financial Statements~~good.

~~Piccadilly~~Trademarks isand ~~the~~Trade ~~dominant~~Names. ~~cafeteria~~Our ~~chain~~cafeterias inoperate principally under the ~~Southeastern~~PICCADILLY, PICCADILLY CAFETERIA, and ~~Mid-Atlantic~~PICCADILLY ~~regions~~EXPRESS service marks and trade names, for which we own six registrations with ~~205~~the ~~cafeterias~~United States Patent and Trademark Office. We ~~serve~~These aregistrations ~~diverse~~may be renewed continually for 10-year ~~and~~periods. ~~loyal~~The ~~customer~~earliest ~~base~~filing ~~consisting~~date ofto ~~families,~~maintain ~~groups~~any of ~~friends~~our ~~and~~registrations is ~~co-workers~~March 28, ~~senior~~2006. ~~citizens,~~We ~~couples~~regard our service marks and ~~students~~trademarks as having significant value and being an important factor in the development of the Piccadilly concept. Our ~~patrons~~policy ~~enjoy~~is ato ~~wide selection~~pursue and maintain registration of ~~convenient,~~our service ~~healthy,~~marks ~~freshly~~and ~~prepared~~trademarks ~~“home~~whenever ~~cooked”~~possible ~~meals~~and atto oppose vigorously any ~~value-oriented~~infringement ~~prices~~or ~~for~~dilution ~~lunch~~of our service marks and ~~dinner~~trademarks.

WeRisks ~~categorize~~Factors ~~our~~Relating ~~operating~~to ~~expenses~~Our ~~into three major~~Business ~~categories: cost of sales, other operating expenses, and general and~~ administrative expenses. Cost of sales consists of labor and food costs. Other operating expenses consist primarily of advertising, building and security costs, meal discounts, insurance, payroll taxes, repairs, supplies, utilities, cafeteria-level performance incentives, depreciation, rent, and other cafeteria-level expenses. General and administrative expenses consist of executive and regional manager salaries and related benefits and taxes, travel expenses, legal and professional fees, depreciation, amortization, and various other costs related to administrative functions.

~~Forward~~Our sales initiatives may not be successful. We have experienced a long-~~Looking~~term, relatively ~~Statements~~consistent decline in guest traffic and net sales from our cafeteria operations. We have been able to offset some of the effects of this decline by various cost-saving initiatives that we discuss elsewhere in Item 1 of this Form 10-K. However, our ability to sustain a consistent and improving level of profitability in the future will largely depend upon our ability to successfully implement sales initiatives that increase guest traffic at our cafeterias without sacrificing profitability. Our past sales initiatives have had mixed results with any positive impact on sales being largely offset and in some cases entirely offset by the costs of such initiatives.

~~Statements~~We ~~contained~~are invulnerable ~~this~~to ~~report~~increasing ~~that~~labor ~~are~~costs. ~~not statements~~We ofare ~~historical~~dependent ~~fact~~upon ~~may be forward-looking statements. Generally,~~an ~~forward-looking~~available ~~statements~~labor ~~contain~~pool ~~terms~~of ~~such~~unskilled asand ~~“expect,”~~semi-skilled ~~“forecast,”~~team ~~“will~~members,~~” “may,”~~ ormany ~~“believe.” Forward-looking~~of ~~statements regarding our present plans~~whom orare ~~expectations~~hourly ~~for~~team ~~credit~~members ~~facilities,~~whose ~~cash~~minimum ~~flows,~~wages ~~liquidity,~~are ~~pension~~government proscribed. ~~accounting~~Numerous ~~assumptions,~~proposals ~~capital~~have ~~expenditures,~~been ~~sales-building~~made ~~and~~on ~~cost-saving strategies~~federal, ~~advertising expenditures~~state, ~~determinations of impairments of long-lived assets,~~ and ~~the~~municipal ~~disposition~~levels ~~of closed cafeterias and surplus~~to ~~properties~~increase ~~involve~~minimum ~~risks~~wage ~~and~~levels. ~~uncertainties~~Because ~~relative~~a tosignificant ~~return~~number ~~expectations and related allocation~~ of ~~resources,~~our ~~and~~team ~~changing economic or competitive~~members ~~conditions,~~are ~~which~~paid ~~could~~at ~~cause~~rates ~~actual~~tied ~~results~~ to ~~differ~~the ~~from~~federal ~~present~~minimum ~~plans or expectations~~wage, ~~and~~an ~~such~~increase ~~differences~~in ~~could~~the ~~be material. Similarly,~~minimum ~~forward-looking~~wage ~~statements~~would ~~regarding~~increase our ~~present~~labor ~~expectations~~costs. ~~for~~A ~~operating results~~shortage ~~involve~~in ~~risks~~the ~~and~~labor ~~uncertainties~~pool ~~relative~~or ~~to these and~~ other ~~factors,~~ ~~such~~general asinflationary ~~the~~pressures ~~effectiveness~~or ofchanges ~~advertising,~~could ~~new~~also ~~product~~increase ~~development,~~labor ~~and~~costs. ~~the~~An ~~ability~~increase toin ~~achieve~~labor ~~cost~~costs ~~reductions,~~could ~~which~~have ~~also~~a ~~would~~material ~~cause~~adverse ~~actual~~effect ~~results~~on toour financial ~~differ~~results ~~from~~and ~~present~~no ~~plans. Such~~assurance ~~differences~~can ~~could~~ be ~~material. We~~given dothat ~~not expect~~we towill ~~update~~be ~~such~~able ~~forward-looking~~to ~~statements~~pass ~~continually~~through ~~as conditions~~any ~~change,~~cost ~~and~~increases ~~readers~~to ~~should~~our ~~consider that such statements speak only as the date hereof~~guests.

~~Critical~~We ~~Accounting~~are ~~Policies~~vulnerable to fluctuations in the cost, availability, and quality of our ~~Judgments~~ingredients. The cost, availability, and quality of the ingredients we use to prepare our food are subject to a range of factors, many of which are beyond our control. Fluctuations in economic conditions, weather, and demand could adversely affect the cost of our ingredients. We require fresh produce, dairy products, and meat, and are therefore subject to the risk that shortages or interruptions in supply of these food products could develop. All of these factors could have a material adverse effect on our financial results. Although we believe that we could find alternative suppliers for these ingredients, we have no control over fluctuations in the price of commodities, and no assurance can be given that we will be able to pass through any cost increases to our guests.

We ~~prepare~~face ~~our~~intense ~~consolidated~~competition. ~~financial~~All ~~statements~~aspects ~~in conformity~~of ~~with~~the ~~accounting~~restaurant ~~principles~~business ~~generally~~are ~~accepted in the United States~~highly ~~of America~~competitive. ~~The~~ ~~consolidated~~Price, ~~financial~~restaurant ~~statements~~locations, ~~are~~food ~~based~~quality, onservice ~~the~~and ~~application~~attractiveness of ~~certain~~facilities ~~accounting~~are ~~policies,~~important ~~the~~aspects ~~most significant~~ of ~~which~~competition, ~~are~~and the ~~described~~competitive inenvironment ~~Note~~is 1often toaffected ~~the~~by ~~Consolidated~~factors ~~Financial~~beyond ~~Statements,~~a ~~Summary of~~particular ~~Significant~~restaurant ~~Accounting~~management’s ~~Policies. Certain~~control, ofincluding ~~these~~changes ~~policies~~in ~~require~~the ~~estimates~~public’s eating ~~and~~habits, ~~strategic~~population orand ~~economic~~traffic ~~assumptions~~patterns, ~~that~~and ~~may~~economic ~~prove~~conditions. ~~inaccurate~~Our cafeterias orcompete ~~subject~~with ~~to variations~~a ~~and~~large ~~may~~number ~~significantly~~of ~~affect~~other ~~our~~restaurants, ~~reported~~including ~~results~~ national and ~~financial position~~regional ~~for~~restaurant ~~the~~chains ~~period~~and orfranchised inrestaurant ~~future~~operations, ~~periods. Changes~~as inwell ~~underlying~~as locally ~~factors~~owned, ~~assumptions,~~ orindependent ~~estimates~~restaurants. inMany ~~any~~ of ~~these~~our ~~areas~~competitors ~~could~~ have agreater financial ~~material~~resources ~~impact on~~than ~~our~~we ~~future~~have. ~~financial~~There ~~condition~~can ~~and~~be ~~results~~no ofassurance ~~operations. We~~that ~~consider~~we ~~the~~will be ~~following~~able ~~policies~~ to becompete ~~the~~successfully ~~most~~against ~~critical~~our competitors in ~~understanding~~ the ~~judgments~~future or that ~~are~~competition ~~involved~~will innot ~~preparing~~have ~~our~~a ~~Consolidated~~material ~~Financial~~adverse ~~Statements~~effect on our financial results.

~~Property,~~We ~~Plant~~are vulnerable to changes in consumer preferences and ~~Equipment~~economic conditions. ~~Property,~~ Food ~~plant~~service businesses are often affected by changes in consumer tastes, national, regional, and ~~equipment~~local ~~are~~economic ~~carried~~conditions, atand ~~cost~~demographic trends. Factors such as traffic patterns, ~~less~~demographics, ~~accumulated~~and ~~depreciation~~the type, number and ~~amortization. Depreciation~~location ~~and~~of ~~amortization~~competing ~~are~~restaurants ~~provided~~may ~~using~~adversely affect the performance of ~~straight-line~~individual ~~method~~cafeterias. ~~over~~In ~~the~~addition, ~~following~~inflation, ~~useful~~increased ~~lives:~~food, ~~buildings~~labor, energy, employee benefit costs, and ~~leasehold~~insurance rates, national, regional and local ~~improvements--lesser~~regulations, regional weather conditions, and the availability of ~~lease~~experienced management ~~life~~and orhourly 30employees ~~years;~~may ~~furniture,~~harm ~~fixtures~~the restaurant industry in general and ~~equipment--four~~our tocafeterias ~~ten~~in ~~years~~particular. ~~Lease~~ ~~renewal~~Adverse ~~option~~changes ~~periods~~in ~~are~~any ~~included~~of inthese factors could ~~determining~~reduce ~~leasehold~~guest ~~improvement~~traffic ~~useful~~or ~~lives~~impose ~~when~~practical limits on pricing, which could have a material adverse effect on our financial results. Our continued success will depend in part on our ~~opinion~~ability to anticipate, itidentify, ~~is likely~~and ~~that~~respond weto ~~will~~changing consumer ~~exercise~~preferences ~~such~~and ~~renewal~~economic ~~options~~conditions.

~~Our accounting policies regarding land, buildings, and~~5 ~~equipment include judgments regarding the estimated useful lives of such~~ assets, the estimated residual values to which the assets are depreciated, and the determination as to what constitutes increasing the life of existing assets. These judgments and estimates may produce materially different amounts of depreciation and amortization expense that would be reported if different assumptions were used. As discussed further below, these judgments may also impact the need to recognize an impairment charge on the carrying amount of these assets as the cash flows associated with the assets are realized. In addition, the actual life of the asset and residual value may be different from the estimates used to prepare financial statements in prior periods.

ImpairmentTable of Long-Lived Assets. We determine impairment write-downs as being necessary for cafeteria locations when events or changes in circumstances indicate that the total carrying value of that location’s assets may not be recoverable. Recovery is measured by comparing the carrying value of the location’s assets to the future undiscounted net cash flows that we expect such assets to generate. Assets are considered impaired to the extent that the asset carrying value exceeds the future undiscounted cash flow associated with such asset. An impairment charge is recorded at an amount that is usually equal to the difference between the asset carrying value and the estimated present value of future net cash flows.Contents

~~Some~~We face risks because of the ~~assumptions~~number of cafeterias that ~~are~~we ~~used~~lease. toOur ~~estimate~~success ~~future~~depends ~~net~~in ~~cash~~part ~~flow~~on ~~include~~our ~~guest~~ability ~~traffic,~~to ~~average~~renew ~~meal~~leases ~~price,~~in ~~specific~~existing ~~lease~~locations at rental ~~provisions~~rates ~~such~~we asbelieve ~~rent~~to ~~escalation~~be ~~clauses,~~reasonable. ~~costs~~We ~~associated~~currently ~~with~~lease ~~the~~all ~~ongoing~~of our cafeterias ~~maintenance~~located in strip shopping centers and ~~improvements~~malls ofand ~~the~~we ~~assets,~~lease ~~other~~the ~~operating~~land ~~expenses,~~for ~~and~~all but ~~disposal~~10 ~~value,~~of ifour ~~any~~freestanding cafeterias. ~~Our~~ ~~judgments~~Many of ~~related~~our toleases have terms expiring during the ~~expected~~next ~~useful~~five ~~lives~~years. ofEach lease ~~long-lived~~agreement ~~assets~~also ~~and~~provides ~~our~~that ~~ability~~the tolandlord ~~realize~~may ~~undiscounted~~terminate ~~cash~~the ~~flows~~lease infor ~~excess~~a number of ~~the~~reasons, ~~carrying~~including ~~amounts~~if ofwe ~~such~~default ~~assets~~in ~~are~~any ~~affected~~payment byof ~~factors~~rent ~~such~~or astaxes ~~changes~~or if we inbreach ~~economic~~any ~~conditions~~covenants ~~and~~or ~~changes~~agreements in ~~operating~~the ~~performance~~lease. If ~~material~~We can offer no assurances ~~adverse~~that ~~changes~~we inwill ~~these~~always ~~factors~~comply ~~occur,~~with orall iflease ~~our~~covenants ~~assumptions~~and ~~used~~agreements tonor ~~estimate~~that we will succeed in renewing such leases in the future ~~net~~at ~~cash~~rental ~~flow~~rates ~~are~~that ~~materially~~we believe ~~incorrect~~to be reasonable or at all. Moreover, ~~impairment~~if ~~charges~~certain ~~may~~locations ~~become~~should ~~necessary~~prove into ~~the~~be ~~future~~unprofitable, ~~and~~we would remain obligated for lease payments if we decided to withdraw from such ~~charges~~locations. Termination of any of our leases could beharm ~~material~~our financial results.

~~Goodwill~~We are required to make additional contributions to our frozen defined benefit pension plans. We ~~adopted~~sponsor ~~SFAS~~two Noqualified defined benefit pension plans. ~~142~~Both of these plans are frozen so covered team members are not currently accruing benefits under these plans. These plans are subject to the minimum funding levels of the Employee Retirement Income Security Act of 1974. Several market-driven factors, ~~“Goodwill~~over which we have no control, influence the funding level of these plans and ~~Other~~thus ~~Intangible~~the ~~Assets”~~timing ~~effective~~and ~~for~~extent ~~fiscal~~to ~~2002. SFAS~~which Nowe are required to fund contributions to these plans. ~~142~~The ~~requires~~net present value of obligations of the ~~that~~plans weis ~~analyze~~subject ~~goodwill~~to ~~for~~fluctuations ~~impairment~~in ~~issues~~interest ~~within~~rates and the ~~first~~fair ~~six~~value ~~months~~of plan assets is subject to market volatility. Our defined benefit pension plans were underfunded at the end of fiscal 2003 by $41.7 million. During fiscal 2003 we ~~adopting~~made ~~SFAS~~pension Nocontributions ~~142~~of $0. We8 million. ~~completed~~Initial estimates provided to us by our consulting actuaries indicate that ~~evaluation~~the ~~and~~required ~~determined~~contributions during calendar 2004 will range from $7 million to $12 million. It is likely that we will be required to use a substantial portion of our available liquidity to fund minimum required contributions to the plans. There can be no assurance ~~impairment~~that ~~charges~~we ~~were~~will have sufficient liquidity to fund the minimum required contributions when they become due. Moreover, there can be no assurance that after such contributions are made, the remaining liquidity will be sufficient for operating purposes.

AsWe ofmay ~~July~~not 2,be ~~2002,~~able ~~goodwill~~to isreach ~~$3.7~~a ~~million~~definitive oragreement ~~2.8%~~for the sale of the ~~total~~Company. ~~assets~~In late July, the Company and ~~15.3%~~PMCM invited expressions of ~~stockholders’~~interest ~~equity~~from potential strategic and financial buyers. ~~All~~ Approximately 40 of ~~our~~the ~~goodwill~~parties ~~resulted~~who ~~from~~were contacted executed confidentiality agreements and reviewed the ~~acquisition~~Company's descriptive ofmemorandum. ~~Morrison~~Of ~~Restaurants~~that group, ~~Inc.~~six inparties ~~1998~~subsequently ~~(the~~indicated ~~“Morrison~~an ~~Acquisition”). Goodwill~~interest isin ~~evaluated~~conducting due diligence at the ~~reporting~~Company's ~~unit~~data ~~level,~~room asand receiving a ~~required~~presentation from management. We ~~consider~~The ~~individual~~Company ~~cafeterias~~is tonow beengaged ~~our~~in ~~reporting~~ongoing ~~units. All~~discussions with several of these parties who have a potential interest in acquiring the Company's ~~goodwill~~profitable ~~remaining~~operations atand ~~July~~locations. 2,The ~~2002,~~Company's ~~relates~~discussions with interested purchasers have developed to ~~seven~~the ~~cafeterias. In~~point that management and PMCM are ~~assessing~~now pursuing negotiating the ~~recoverability~~parameters of ~~recorded~~a ~~goodwill~~sale weand ~~make~~the ~~assumptions~~terms and process ~~regarding~~leading ~~estimated~~to ~~future~~a ~~cash~~definitive ~~flows~~agreement and ~~other~~the ~~factors~~consummation of a transaction. If all of these ~~estimates~~efforts succeed and we do not encounter delays, the Company could sign orand ~~their~~announce ~~related~~a ~~assumptions~~definitive ~~change~~sale agreement and file for Chapter 11 in October 2003 and consummate the ~~future~~transaction in early 2004. If we cannot reach a definitive agreement with a prospective purchaser, we ~~may~~expect beto ~~required~~file to reorganize the Company under Chapter 11 of the ~~record~~Bankruptcy ~~impairment~~Code ~~charges~~before the end of October 2003. In that case, without a purchaser to pay cash to the Company for ~~goodwill~~its business, the Company would seek to renegotiate the terms of its existing debt and have a plan of reorganization confirmed by its creditors and approved by the bankruptcy court. The outcome for all of the Company's creditors under a plan of reorganization is unclear, but the shareholders would receive little or no value for their equity interests under any plan of reorganization.

~~Liabilities~~We ofare ~~Ongoing~~subject ~~Obligations Related~~ to ~~Closed Cafeterias. We~~restrictions ~~periodically~~under ~~review~~ the ~~historical~~terms ~~operating~~of ~~cash~~our ~~flow~~debt ~~and~~agreements; ~~forecasts~~Possibility of ~~future~~default ~~operating~~of ~~cash~~Term ~~flow~~A ~~for~~Senior ~~each~~Secured ~~cafeteria~~Notes. ~~Forecasted cafeteria-level~~ ~~cash~~Our ~~flow~~Senior isCredit Facility aincludes ~~primary~~covenants ~~determinant~~that inrequire ~~whether~~us ~~the cafeteria will continue~~ to ~~operate~~maintain orspecified ~~be closed. For cafeterias which we decide to~~financial ~~close~~ratios, ~~prior~~including tofixed ~~the~~charge ~~expiration~~coverage ofand ~~its~~leverage ~~lease,~~ratios weand ~~record~~a ~~charges~~minimum ~~in accordance~~level ~~with~~of ~~Emerging~~earnings ~~Issues~~before ~~Task~~interest, ~~Force~~income ~~Issue~~tax, ~~No. 94-3~~depreciation, ~~Liability Recognition for Certain Employee Termination Benefits~~ and ~~Other Costs to Exit an Activity (EITF~~amortization ~~94-3)~~expenses. ~~EITF~~ ~~94-3~~In ~~requires~~addition, ~~that~~our ~~such~~Senior ~~charges~~Credit beFacility ~~recorded~~and inSenior ~~the~~Note ~~period in~~Indenture ~~which~~(collectively, weour ~~approve~~“Debt anAgreements”) ~~exit~~contain ~~plan~~covenants that ~~will~~restrict, ~~result in the incurrence of costs that~~among ~~have~~other nothings, ~~future~~our ~~economic~~ability ~~benefit. These~~to ~~charges~~incur ~~typically~~additional ~~relate~~indebtedness ~~to rent~~ and ~~other~~ ~~occupancy~~dispose ~~costs to be incurred after closing a cafeteria. We then~~of ~~reduce~~assets, ~~these~~incur ~~charges~~or byguarantee ~~our estimates of recoveries from subleasing activity~~obligations, ~~including~~ anrepay ~~allowance~~indebtedness ~~for uncollected sublease income,~~ or ~~our~~amend ~~estimates of~~debt ~~reductions~~instruments, ~~from~~pay ~~negotiations with the landlord~~dividends, ifcreate ~~any. The~~liens ~~primary~~on ~~factors we~~assets, ~~consider~~make ~~when~~investments, ~~evaluating whether to include expected recoveries from~~make ~~subleasing~~acquisitions, ~~activity~~engage ~~are~~in ~~whether~~mergers ~~a sublease is under contract~~ or ~~if not~~consolidations, ~~whether~~ ~~sufficient~~make ~~time~~capital ~~remains under the lease contract for the property to~~expenditures beand ~~marketable. We~~engage ~~require a minimum of five years remaining under the lease contract to consider recoveries from potential subleasing activities~~ in ~~determining~~ ~~the~~certain ~~net~~transactions ~~charge~~with ~~reflected~~subsidiaries inor ~~the financial statements~~affiliates. ~~If the~~ ~~actual results of our efforts to mitigate the ongoing obligations related to~~ ~~closed cafeterias are different from our estimates, a material adjustment to record additional liabilities or reduce recorded liabilities may be required.~~

AtThe ~~July~~terms 2,of ~~2002,~~our weTerm ~~have~~A 26Senior ~~closed~~Secured ~~cafeteria~~Notes ~~locations with~~obligate ~~remaining~~the ~~lease~~Company ~~obligations. The~~to ~~estimated~~make ~~remaining obligations~~an ~~relating~~excess tocash ~~these~~flow ~~leases~~offer ~~were~~of $~~12.3~~ 5 million aton ~~July 2~~September 30, ~~2002~~2003. We ~~have~~However, ~~entered~~given the ~~sublease~~likelihood ~~arrangements~~that ~~with~~the ~~respect~~Company towill 15seek ofprotection ~~these~~under ~~locations~~the ~~that~~federal bankruptcy ~~offset~~laws ~~$9.2~~in the near future, the Company decided to not provide the ofrequired ~~our~~notice. ~~remaining~~Under ~~obligations~~the ~~and~~terms weof ~~have~~the ~~estimated~~Term ~~that~~A ~~two~~Senior ~~leases~~Secured ~~without~~Notes, the ~~subtenants~~Trustee ~~may~~for bethe ~~subleased~~Noteholders inwill have the ~~future~~right ~~and~~to ~~further~~notify ~~offset~~the ~~our~~Company ~~remaining~~of its ~~obligations~~contractual bybreach ~~another~~which, if not cured timely, would accelerate the Company’s $139.5 2 million indebtedness. If such a notice is received, the Company does not intend to cure the breach.

~~Income Taxes.~~ We ~~account~~face ~~for~~the ~~income~~risk ~~taxes~~of ~~in accordance~~adverse ~~with~~publicity ~~SFAS~~and Nolitigation. ~~109,~~We ~~“Accounting~~may ~~for~~from ~~Income~~time ~~Taxes”~~to ~~which requires~~time ~~that~~be ~~deferred~~the ~~tax~~subject ~~assets~~of ~~and~~complaints ~~liabilities~~or belitigation ~~recognized~~from ~~using~~guests ~~enacted~~alleging ~~tax rates~~illness, ~~for~~injury, ~~the~~or ~~effect~~other offood ~~temporary~~quality, ~~differences~~health, ~~between~~or ~~the~~operational ~~book~~concerns. ~~and~~Negative publicity ~~tax~~resulting ~~bases~~from ~~of recorded~~these ~~assets~~allegations ~~and~~could ~~liabilities. SFAS~~have ~~No.~~a ~~109~~material ~~also~~adverse ~~requires~~effect on ~~that~~our ~~deferred~~financial ~~tax assets~~results, beregardless ~~reduced~~of bywhether athe ~~valuation~~allegations ~~allowance~~are ifvalid itor whether iswe ~~more~~are ~~likely~~liable. ~~than~~In ~~not~~addition, ~~that some~~employee ~~portion~~claims oragainst ~~all~~us ofbased ~~the~~on, ~~deferred~~among other ~~tax~~things, ~~asset~~discrimination, ~~will~~harassment, ~~not~~or bewrongful ~~realized.~~termination may divert our financial and management

~~We periodically review the valuation allowance and~~6 ~~adjust its amount, if necessary. The factors used to assess whether such an~~ adjustment is appropriate are our forecasts of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. At July 2, 2002, we have a valuation allowance equal to the net deferred tax asset.

LiabilitiesTable for Workers’ Compensation and General Liability Claims. We are subject to workers’ compensation and general liability claims and lawsuits. To mitigate a portion of these risks, we maintain insurance for individual claims exceeding $250,000. An unrelated third-party claims administrator using historical claims data, demographic factors, severity factors, and other actuarial assumptions estimates losses relating to the self-insured retention portion of known claims. In addition, we estimate losses for unreported claims and the further development of known claims based on historical claims data. The estimated losses could be significantly affected should current and future occurrences differ from historical claims trends. While we monitor current claims closely and consider outcomes when estimating our insurance liabilities, the complexity of the claims and wide range of potential outcomes can affect our ability to make timely adjustments to the assumptions used in the estimates. Adjustments to these estimates could be material.Contents

~~Pension~~resources Accounting. We sponsor noncontributory defined benefit pension plans. As of December 31, 2001, accrual of additional team member benefits under these plans was frozen. The plans generally provide pension benefits that ~~are~~would ~~based~~otherwise onbe anused ~~average~~to of benefit the ~~team~~performance ~~member's earnings and years~~ of ~~credited~~our ~~service~~operations. ~~Our~~ ~~funding~~We ~~policy~~have ~~for~~been ~~the~~subject ~~plans is~~ to ~~contribute~~such ~~amounts sufficient to meet the minimum funding requirement of~~employee ~~the~~claims ~~Employee~~from ~~Retirement~~time ~~Income~~to ~~Security Act of 1974~~time, ~~plus~~and ~~any~~although ~~additional amounts~~these ~~that~~claims wehave ~~may~~not ~~determine~~historically ~~appropriate. We~~had ~~account for the defined benefit~~a ~~pension~~material ~~plans~~impact ~~in accordance with SFAS No. 87, "Employers' Accounting for Pensions" which requires that amounts recognized in financial statements be determined~~ on ~~an actuarial basis. A minimum liability is required to be~~our ~~established on the Consolidated Balance Sheet to the extent of any unfunded accrued pension cost~~operations, ~~which~~a issignificant ~~the~~increase ~~difference~~in ~~between~~ the ~~accumulated~~number ~~benefit obligation and the fair value~~ of ~~the~~these ~~plan~~claims ~~assets. When~~or itan ~~is necessary to~~increase ~~establish~~in ~~a minimum pension liability, an equal amount, plus~~ the ~~carrying value~~number of ~~any~~successful ~~related~~claims ~~prepaid~~could ~~pension~~have ~~asset, is recorded as~~ a ~~reduction~~material ~~to shareholders'~~adverse ~~equity~~effect ~~(in~~on ~~accumulated other comprehensive income, net of tax),~~our infinancial ~~the Consolidated Balance Sheet~~results.

ToWe ~~determine~~face ~~whether~~risks aassociated ~~minimum~~with ~~pension~~government ~~liability~~regulation. Each of our cafeterias is ~~required~~subject ~~under~~to ~~Statement~~licensing ~~No.~~and ~~87,~~regulation weby ~~must~~the ~~make~~health, ~~certain assumptions. First~~sanitation, wesafety, ~~use~~building, aand ~~discount~~fire ~~rate~~agencies toof ~~calculate~~ the ~~present~~respective ~~value~~states ofand municipalities in which the ~~accumulated~~cafeteria ~~benefit obligation~~is located. In ~~determining~~A ~~the~~failure ~~discount~~to ~~rate,~~comply wewith ~~consider~~one ~~rates~~or more regulations could result in the imposition of ~~return~~sanctions, onincluding the closing ~~high-quality~~of ~~fixed-income~~facilities ~~investments. At~~for ~~July~~an 2,indeterminate ~~2002,~~period weof ~~determined~~time ~~this~~or third-party litigation, ~~rate~~either toof bewhich ~~7.25~~could ~~percent~~have ~~compared~~a tomaterial ~~7.75~~adverse ~~percent~~effect ~~used~~on ~~for~~our ~~fiscal~~financial ~~2001~~results. ~~Second~~Under various federal, westate ~~establish~~and local laws, an ~~assumption~~owner or operator of real estate may be liable for the ~~expected~~costs ~~long-term~~of ~~rate~~removal or remediation of ~~return~~certain onhazardous ~~pension~~or ~~plan~~toxic ~~assets~~substances ~~that~~on isor ~~used~~in tosuch ~~measure~~property. ~~the~~Such ~~expected~~liability ~~return~~may ~~on plan~~be ~~assets~~imposed ~~component~~without ofregard to whether the ~~net~~owner ~~periodic~~or ~~pension~~operator ~~cost~~knew of, or was responsible for, the ~~upcoming~~presence ~~year. At July~~of 2,such ~~2002,~~hazardous or toxic substances. Although we ~~determined~~are ~~the~~not ~~rate~~aware ~~for~~of ~~measuring~~any ~~fiscal~~material ~~2003~~environmental ~~net~~conditions ~~periodic~~that require ~~pension~~remediation ~~cost~~by tous beunder 9federal, ~~percent~~state, ~~which~~or islocal ~~consistent~~law ~~with~~at ~~fiscal~~our ~~2002~~properties, ~~and~~we ~~fiscal~~have ~~2001. If~~not weconducted ~~experience~~ a ~~difference~~comprehensive ~~between~~environmental ~~the~~review ~~actual~~of ~~return~~our onproperties ~~plan assets~~or operations and ~~the~~no ~~expected~~assurance ~~return,~~can ~~then~~be ~~the~~given ~~amount~~that we have identified all of ~~that~~the potential ~~difference~~environmental isliabilities ~~deferred~~at ~~and~~our isproperties or that such liabilities ~~amortized~~would ~~into~~not ~~periodic~~have ~~pension~~a ~~expense~~material ~~(income)~~adverse effect on our financial condition.

At July 2, 2002, our net balance sheet liability for accrued pension cost was $22.5 million. We did not contribute to the pension plans during fiscal 2002 and do not expect to contribute during fiscal 2003.Item ~~For fiscal 2002, we recognized pension expense of $~~2.0 ~~million, an increase~~Properties ~~from $1.4 million in fiscal 2001. We currently expect pension expense for~~ ~~fiscal 2003 to be approximately $1.9 million.~~

~~Results~~All of ~~Operations~~our cafeterias are located in urban and suburban areas, in a variety of strip shopping centers, malls, and freestanding buildings. We lease all of the cafeterias located in strip shopping centers and malls. Of the 70 cafeterias located in freestanding buildings, we own the building and land for 10 of the cafeterias, and the remaining freestanding cafeterias are operated in buildings we constructed on leased land under long-term leases. We rent most of our cafeteria facilities under long-term leases with varying provisions and with original lease terms generally of 20 to 30 years and in most cases, with options to renew for several successive five-year periods. Leases provide for monthly rentals, typically computed on the basis of a fixed amount plus a percent of sales. We evaluate the sales trends and the forecasted operating results for cafeterias with expiring lease terms to determine whether to exercise renewal options or negotiate lease extensions.

~~Fiscal~~Our ~~Year-End~~cafeteria ~~Reporting~~locations ~~Period~~by state as of July 31, 2003, are as follows: ~~Change~~

Effective April 1, 2002, we adopted a 52-53 week fiscal reporting period effective for our 2002 fiscal year, resulting in a 2002 fiscal year-end date of July 2, 2002, rather than June 30, 2002. Prospectively, quarterly reporting will include 13-week periods except for a 53-week year in which the fourth quarter of that fiscal year will include 14 weeks. The change from a monthly reporting period to a 52-53 week reporting period is consistent with our industry. The inclusion of the two additional days for July 1-2, 2002, in the fiscal year just ended resulted in additional sales and net income for the 2002 fiscal year of approximately $1.8 million and $0.4 million, respectively.


State		Cafeterias

Florida			34
Louisiana			32
Georgia			32
Alabama			17
Tennessee			17
Eight other states each with less than 10			42

	Total		174	⁽¹⁾

We(1) ~~refer~~Includes totwo ~~the~~quick ~~fiscal~~service ~~year~~cafeterias ~~ended~~in ~~July~~mall 2,food ~~2002 as fiscal 2002~~courts. ~~We refer to the fiscal years ended June 30, 2001 and 2000 as~~ ~~fiscal 2001 and fiscal 2000, respectively.~~

~~Fiscal~~Our ~~2002~~corporate ~~Compared~~headquarters occupies approximately two-thirds of a Company-owned 45,000 square foot office building and is located on a Company-owned tract that, together with a freestanding cafeteria immediately next door, comprises approximately five acres in Baton Rouge, Louisiana. The remainder of the building is leased to ~~Fiscal~~commercial ~~2001~~tenants.

~~Net Sales.~~Item Total net sales for the fiscal 2002, were $385.0 million, a 9.2% reduction from fiscal 2001 net sales of $424.2 million. Fiscal 2002 sales include two additional days’ sales resulting from our adopting a 52-53 week fiscal year reporting period (see “Fiscal Year-End Reporting Period Change” above). Sales for these days were $1.8 million. Cafeteria closings since July 1, 2000, accounted for $25.3 ~~million of the total decline in net sales~~. ~~The~~ ~~remaining~~Legal ~~decline of $15.7 million is~~Proceedings ~~attributable to lower same-store net sales. The following table reconciles~~ ~~total cafeteria net sales to same-store cafeteria net sales for the~~ ~~comparative fiscal years. Same-store cafeterias are cafeterias that were open for twelve full periods in both fiscal years.~~

	Fiscal 2002		Fiscal 2001
	Sales	Cafeterias		Sales	Cafeterias		Sales Change
	(Dollars in thousands)
Total cafeteria net sales	$ 385,027	230	$ 424,163			242		-9.2%
Less net sales for July 1-2, 2002	(1,833)
Less net sales relating to:
Cafeterias closed in fiscal 2002	(7,716)	(23)	(25,343)			(23)
Cafeterias closed in fiscal 2001	-	-	(7,691)			(12)
Net same-store cafeteria sales	$ 375,478	207	$ 391,129			207		-4.0%

We are not a party to and do not have any property that is the subject of any legal proceedings pending or, to our knowledge, threatened, other than ordinary routine litigation incidental to our business and proceedings that is not material or as to which we believe we have adequate insurance.

~~The net decrease of~~ Item 4.0% ~~reflects~~Submission ~~a decline in same-store guest traffic~~ of ~~7.6%,~~Matters ~~which was partially offset by a check average increase of 3.9%. The check average increase is primarily due~~ to a ~~price~~ ~~increase~~Vote ~~implemented during the last week~~ of ~~December~~Security ~~2000 and various~~Holders ~~meal promotions during fiscal 2002 that were designed to enhance check~~ ~~average. We have experienced sustained declines in same-store guest traffic~~ ~~since 1997. We believe that the declines are due to various factors including intense competition and market saturation within the restaurant industry.~~

~~Comparative same-store sales by quarter for fiscal 2002 were (4~~None.~~9)%, (6.0)%, (4.0)%, and (1.0)%, respectively for the first through~~ ~~fourth quarters. After September 11, 2001, we experienced a steeper decline~~ in our net same-store sales. We believe the steeper decline was attributable to lower traffic in regional shopping malls. Approximately one-half of our cafeterias are located in regional shopping malls. In November 2001, we began a two-month marketing and advertising campaign designed to increase guest traffic. We believe the campaign was partially responsible for improving guest traffic trends to pre-September 11 levels by mid-December. In March 2002 we began a four-month advertising campaign that included television and/or radio advertising in markets covering approximately one-half of our cafeterias. All of our cafeteria markets were included in a related direct mail promotion. Comparative same-store sales for April were down 3.7%, while comparative same-store sales for May and June were up 0.1% and 0.6%, respectively. We believe that the most recent advertising campaign was partially responsible for improving the year-over-year sales comparisons for the fourth quarter, particularly for the last two months of the quarter.

~~The following table illustrates cost of sales, other~~7 ~~operating expenses, general and administrative expenses, and other expenses~~ ~~(income) as a percent of net sales for the comparative fiscal years.~~

Cafeteria-LevelTable Income. Cafeteria-level income (net sales less cost of sales and other operating expenses) as a percent of net sales was 5.9% and 4.4% for fiscal 2002 and fiscal 2001, respectively. The reasons for this improvement in our margins are discussed below.Contents

~~Cost~~PART ~~of Sales. Cost of sales as a percent of~~II ~~net sales decreased 1.6%. That decline is a combination of a 0.2% decrease in~~ ~~food costs as a percent of net sales and a 1.4% decrease in labor costs as a~~ ~~percent of net sales. The decrease in food costs, as a percent of net sales,~~ is primarily due to the December 2000 price increase. The improvement in labor costs, as a percent of net sales, is due primarily to savings realized from reduced labor hours combined with the December 2000 price increase. On average, labor hours, primarily in the kitchen production area, are approximately 26 hours per day per cafeteria lower than a year ago. This reduction in labor hours is due to lower sales level, staff reductions, and scheduling efficiencies.

~~Other Operating Expenses~~Item 5. ~~Other~~ ~~operating expenses~~Market ~~increased~~for ~~0.1% as a percent of net sales. Rent expense increased 0.6% as a percent of net sales primarily from~~ the ~~sale-leaseback~~Registrant’s ~~transactions completed~~Common inStock ~~March~~ and ~~July~~Related ~~2001. Team~~Security ~~member~~Holder ~~benefits costs increased 0.3%~~Matters ~~as a percent of net sales due to an increase in health claims costs and an~~ ~~increase in pension expense in the first six months of the fiscal year.~~ ~~Advertising expenses increased 0.5% as a percent of net sales reflecting the sales-building advertising campaigns introduced during fiscal 2002.~~

~~These~~Our ~~increases~~Common asStock ais ~~percent~~traded ofon ~~sales~~the ~~were~~American ~~partially offset~~Stock ~~with~~Exchange ~~savings~~under ~~from~~the ~~restructuring our team member health insurance~~symbol ~~program and freezing our defined benefit pension plan effective January 1, 2002~~“PIC. ” The ~~team~~following ~~members~~table ~~that~~sets ~~were~~forth ~~formerly eligible for benefits under~~ the ~~defined~~ ~~benefit~~high ~~pension~~and ~~plan~~low ~~are~~sales ~~now~~prices ~~eligible~~ for ~~benefits in our 401(k)~~each ~~plan. Guest~~quarter ~~meal~~within ~~discounts declined 0.7% after various sales promotions were eliminated. Utility costs decreased 0.5% as a percent of net sales. The impact of~~ the last two ~~additional days in the current~~ fiscal ~~year~~years. ~~improved~~As ~~other operating expenses as a percent~~ of ~~net~~September 22, ~~sales~~2003, bythere were approximately ~~$0.5 million~~2,365 ~~or 0.1%~~record asholders ~~a percent~~ of ~~net~~our ~~sales~~Common Stock.

Provision for Cafeteria Impairments and Closings. We recorded cafeteria impairment charges of $0.4 million in fiscal 2002. We recorded a $0.2 million charge related to closing a Bradenton, Florida cafeteria, where we exercised our right to exit the operating lease. We recorded a $0.2 million charge related to closing our Durham, North Carolina cafeteria, where the landlord exercised his right to terminate our lease. In fiscal 2001, we recorded impairment charges of $9.9 million related to the impairment of long-lived assets and $0.5 million for exit costs related to cafeterias that were scheduled to close (see Note 2 for further information).


Fiscal 2003					Fiscal 2002

Quarter	High		Low		Quarter	High		Low

1st	$	3.04	$	2.05	1st	$	1.54	$	1.06
2nd	$	2.20	$	1.16	2nd	$	2.23	$	1.42
3rd	$	1.36	$	0.69	3rd	$	2.68	$	1.65
4th	$	0.95	$	0.36	4th	$	3.85	$	2.74

~~Amortization~~We ~~and~~have ~~Write-off~~not ofpaid ~~Goodwill. Of~~a ~~the 61~~dividend ~~cafeterias~~on ~~included~~our inCommon ~~last~~Stock ~~year’s~~since ~~impairment~~the ~~charges,~~Board 47suspended ~~were~~our regular ~~acquired~~quarterly ~~in the~~dividend ~~Morrison~~on ~~Acquisition. Consequently~~February 7, we2000. ~~recorded~~Our aSenior ~~$4.7~~Credit ~~million impairment~~Facility ~~charge~~prohibits ~~against~~payment ~~goodwill~~of dividends. ~~Also~~ ~~during~~For ~~fiscal~~further ~~2001~~discussion, wesee ~~recorded a charge of~~Item 7, ~~$0.3~~“Management’s ~~million~~Discussion toand ~~write-off~~Analysis ~~goodwill~~of ~~associated~~Financial ~~with~~Condition ~~four~~and ~~Morrison~~Results ~~cafeterias~~of ~~closed~~Operations-Liquidity inand ~~fiscal~~Capital ~~2001~~Resources” ~~(see~~and Note 29 ~~for~~to ~~further~~the ~~information)~~Financial Statements.

~~General~~Equity ~~and~~Compensation ~~Administrative~~Plan ~~Expenses. General~~Information ~~and administrative expenses declined $4.0 million and as a percent of net~~ ~~sales decreased 0.7%. In May 2001, we initiated and completed a management~~ reorganization plan that eliminated 25 executive and district operations management positions. Included in fiscal 2001 general and administrative expense is $1.5 million for severance costs. Substantially all of the $1.5 million of severance costs was paid by June 30, 2001, with the remainder paid during the first quarter of fiscal 2002. Excluding the effects of the $1.5 million charge, general and administrative expenses as a percent of net sales for fiscal 2001 was 3.3%, compared to 3.0% for fiscal 2002. The decline is attributable to the ongoing benefits of the reorganization plan.

~~Interest~~The ~~Expense. Interest~~table ~~expense~~below ~~was~~summarizes ~~down $2.0~~certain ~~million~~information ~~compared~~regarding tosecurities ~~fiscal~~authorized for ~~2001~~issuance ~~because~~to ~~debt~~our ~~levels~~employees, ~~are~~officers ~~lower. Amortization of financing costs~~ and ~~original~~directors ~~issue~~under ~~discount,~~our ~~included in~~equity ~~interest~~compensation ~~expense,~~plans ~~was~~as ~~lower~~of in the ~~fiscal~~end ~~2002~~of byfiscal ~~$0.7 million.~~2003:

Other expense (income). Other expense (income) includes interest income related to an IRS refund discussed in Note 2 in the amount of $0.2 million. Fiscal 2001 includes a gain on a sale of a piece of land in Shawnee Mission, Kansas in the amount of $0.3 million.

Col. (a)

Col. (b)

Col. (c)

Number of

securities remaining

available for future

Number of

issuance under

Securities to be

equity

issued upon

Weighted-average

compensation plans

exercise of

exercise price of

(excluding

outstanding options,

securities reflected

Plan Category

warrants and rights

in column (a))

Equity compensation plans approved by security holders

570,000

6.29

773,400

Equity Compensation plans not approved by security holders

—

Total

570,000

6.29

773,400

~~Provision~~See ~~for~~Note ~~Income~~11 ~~Taxes. On~~to ~~March 7, 2002,~~ the ~~Job~~Financial ~~Creation~~Statements ~~and Worker Assistance Act of 2002 was enacted. A provision of that Act allows a five-year carryback period~~ for ~~net~~further ~~operating losses for the 2001 tax year~~discussion. ~~In March we filed a refund claim with the IRS to carry~~ ~~back net operating losses to 1996 that resulted in a refund claim of $2.0~~ million. We subsequently received the refund in April 2002. Because a valuation allowance had previously been established for these net operating losses, this refund resulted in an adjustment to the valuation allowance, which resulted in a tax benefit of $2.0 million in fiscal 2002.

~~Fiscal 2001 Compared to Fiscal 2000~~8

NetTable Sales. Total net sales for fiscal 2001 were $424.2 million, a 5.8% reduction from fiscal 2000 net sales of $450.3 million. The $26.1 million decline in cafeteria net sales was due to a $10.1 million decrease relating to fewer cafeterias in operation and a decline of $16.0 million in same-store sales. The following table reconciles total cafeteria sales to same-store cafeteria sales (cafeterias that were open for 12 full months in both periods) for fiscal 2001 and 2000:Contents

	Fiscal 2001		Fiscal 2000		Sales Change
	Sales	Cafeterias	Sales	Cafeterias
	(Dollars in thousands)
Total cafeteria net sales	$ 424,163	242	$ 450,276	260	-5.8%
Less net sales relating to:
Cafeterias opened in fiscal 2000	(6,974)	(4)	(5,678)	(4)
Cafeterias closed in fiscal 2001	(7,691)	(12)	(15,534)	(12)
Cafeterias closed in fiscal 2000	-	-	(3,570)	(18)
Net same-store cafeteria sales	$ 409,498	226	$ 425,494	226	-3.8%

Item 6. Selected Financial and Operating Data

The decrease in same-store net sales of $16.0 million, or 3.8%, reflects a decline in same-store guest traffic of 6.2%, which was partially offset by a check average increase of 2.4%. The check average increase resulted from a price increase implemented during the last week of December 2000. We have experienced sustained declines in same-store guest traffic since 1997. We believe that the declining trend is due to various factors including intense competition and market saturation within the restaurant industry.


				Fiscal Year Ended

				July 1			July 2			June 30			June 30			June 30
				2003			2002			2001			2000			1999 ⁽⁷⁾

				(Dollars in thousands)
Income Statement Data:
Net sales				$	320,339		$	349,694		$	384,745		$	408,164		$	451,116
Costs and expenses:
		Cost of sales			181,867			195,227			220,520			238,579			272,847
		Other operating expenses			120,357			128,937			143,708			145,347			150,882
		General and administrative expenses			11,714			11,626			15,591			14,758			16,869
		Other expenses (income)			(738	)		(421	)		(595	)		(1,540	)		(984	)
		Interest expense			7,133			7,978			9,958			7,177			6,255
		Amortization and write-off of goodwill			—			—			5,343			407			512
		Loss on early retirement of debt			1,326			1,906			2,520			—			—
		Provision for cafeteria impairments and closings			11,989			389			13,887			—			1,350

					333,648			345,642			410,932			404,728			447,731
Gain from sale of Ralph & Kacoo’s					—			—			—			—			1,556

	Income (loss) from continuing operations before income taxes				(13,309	)		4,052			(26,187	)		3,436			4,941
Provision for income taxes (benefit)					(2,520	)⁽⁴⁾		(2,026	)⁽⁵⁾		8,072	⁽⁶⁾		417			425	⁸⁾

	Income (loss) from continuing operations				(10,789	)		6,078			(34,259	)		3,019			4,516
Discontinued operations					(2,697	)		(2,968	)		(1,771	)		(608	)		(516	)

			Net Income (Loss)	$	(13,486	)	$	3,110		$	(36,030	)	$	2,411		$	4,000
Per Share Data:
Income (loss) per share from continuing operations – basic				$	(0.99	)	$	0.57		$	(3.26	)	$	0.29		$	0.43
Income (loss) per share from continuing operations – assuming dilution					(0.99	)		0.56			(3.26	)		0.29			0.43
Discontinued operations per share – basic					(0.25	)		(0.28	)		(0.17	)		(0.06	)		(0.05	)
Discontinued operations per share – assuming dilution					(0.25	)		(0.27	)		(0.17	)		(0.06	)		(0.05	)
Net Income (Loss) – basic					(1.24	)		0.29			(3.43	)		0.23			0.38
Net Income (Loss) – assuming dilution					(1.24	)		0.29			(3.43	)		0.23			0.38
Cash dividends					—			—			—			0.24			0.48
Other Financial Data:
Net cash provided by operating activities				$	5,527		$	12,546		$	11,308		$	14,222		$	12,915
Depreciation and amortization ⁽¹⁾					12,816			14,009			20,579			16,698			17,805
Maintenance capital expenditures ⁽²⁾					6,979			5,032			4,096			3,812			8,460
Total capital expenditures					6,979			5,032			5,004			6,832			15,460
Cafeteria and Restaurant Data:
Number of cafeterias and seafood restaurants (operating at the end of the period)					175			207			230			242			254
Same-store cafeteria sales % increase/(decrease) ⁽³⁾					(7.3	)%		(4.0	)%		(3.8	)%		(5.2	)%		(2.6	)%
Balance Sheet Data:
Cash				$	3,157		$	5,661		$	851		$	—		$	—
Net property, plant, and equipment					83,572			99,395			120,565			163,877			176,250
Total assets					110,873			133,695			158,578			214,170			232,939
Long-term debt					34,313			43,807			54,976			68,391			74,226
Total shareholders’ equity (deficit)					(8,067	)		24,266			43,251			79,281			79,402

We(1) ~~implemented~~Excludes ~~several~~amortization ~~sales-building~~of ~~initiatives during~~deferred ~~fiscal~~financing ~~2001~~costs. toIncludes ~~attract and retain new guests and increase sales to existing guests~~$5. ~~These~~0 ~~sales~~million write-~~building~~off ~~initiatives included neighborhood marketing, sponsorship~~ of ~~team~~goodwill ~~member~~for ~~contests,~~fiscal ~~and~~2001 ~~simplified~~(see ~~menu~~Note ~~pricing. The~~2 ~~neighborhood marketing strategies included various guest coupons and discounted meal alternatives~~ to ~~attract~~the ~~new~~Financial ~~guests. While~~Statements ~~initial~~in ~~results~~Item ~~did show~~8 ~~improved~~for ~~sales~~further ~~trends, these results were not sustained and we terminated all sales-building initiatives before the end of fiscal 2001~~discussion).

~~The following table illustrates cost of sales, other~~9 ~~operating expenses, general and administrative expenses, and other expenses as~~ ~~a percent of net sales for the comparative periods:~~

	Fiscal 2002	Fiscal 2001	Change
Cost of sales	58.1%	59.1%	-1.0%
Other operating expenses	37.5%	35.6%	1.9%
General and administrative expenses	3.7%	3.4%	0.3%
Other expenses (income)	-0.1%	-0.3%	0.2%

Cafeteria-Level Income. Cafeteria-level income (net sales less cost of sales and other operating expenses) was $18.8 million, or 4.4% of net sales, and $23.7 million, or 5.3% of net sales, for fiscal 2001 and fiscal 2000, respectively.

⁽²⁾		Maintenance capital expenditures are those expenditures unrelated to opening new cafeterias, but are required to remodel and otherwise improve existing cafeteria facilities and equipment and which increase the value or extend the lives of assets and are therefore capitalized and depreciated over their estimated useful lives. The term “maintenance capital expenditures” does not include repairs and maintenance expenditures that are charged to operations as incurred.

⁽³⁾		“Same-stores” are cafeterias that were open for twelve full accounting months in both comparative periods. Since Morrison was acquired on May 28, 1998, the Morrison Acquisition does not affect the total same-store sales comparison for fiscal 1999.

⁽⁴⁾		Relates to an IRS refund for the carry back of fiscal 2002 net operating losses to prior fiscal years (see Note 7 to the Financial Statements in Item 8 for further discussion).

⁽⁵⁾		Relates to an IRS refund for the carry back of fiscal 2001 net operating losses to fiscal 1996 (see Note 7 to the Financial Statements in Item 8 for further discussion).

⁽⁶⁾		Includes a $15.7 million valuation allowance for deferred tax assets (see Note 7 to the Financial Statements in Item 8 for further discussion).

⁽⁷⁾		The sale of Ralph & Kacoo’s was completed on March 30, 1999. Results for fiscal 1999 include nine months of Ralph & Kacoo’s operations.

⁽⁸⁾		The sale of Ralph & Kacoo’s resulted in a reported gain of $1.6 million and a net tax benefit of $0.8 million.

~~Cost of Sales. Cost of sales as a percent of~~10 ~~net sales declined 1.0%. That decline is a combination of a 0.3% increase in~~ food costs as a percent of net sales and a 1.3% decrease in labor costs as a percent of net sales. Food costs as a percent of net sales increased primarily because of higher wholesale costs of red meat and produce.

WeTable incurred, as anticipated, slightly higher food costs from an outsourcing program implemented during fiscal 2001, which was designed to reduce overall labor costs. The program involved using outside vendors who provided and prepared selected components of some Piccadilly recipes, which historically we have made from scratch. The food cost increases were partially offset by savings from our centralized purchasing initiative. Historically, we have centrally purchased approximately two-thirds of the ingredients used in the meals served at the cafeterias. Managers at each cafeteria controlled purchasing for the remaining one-third, primarily consisting of fresh poultry, fresh red meat, fresh produce, and dairy products. We implemented a cost-saving strategy to reduce the number of food suppliers by centralizing the purchasing of certain items. During fiscal 2001, we implemented a centralized purchasing program for poultry products, reducing our per cafeteria purchase cost by 9% on average. Poultry accounts for approximately 10% of our food purchases.Contents

~~The 1~~Item 7.3% ~~improvement~~Management’s inDiscussion ~~labor~~and ~~costs,~~Analysis ~~as a percent~~ of ~~net~~ ~~sales,~~Financial ~~was~~Condition ~~due~~and ~~principally~~Results ~~to savings realized from the outsourcing program. Factors that offset the labor cost improvement as a percent~~ of ~~net~~Operations ~~sales include lower year-over-year sales volumes to offset the fixed portion~~ ~~of labor costs.~~

~~Other Operating Expenses. Other~~Overview ~~operating expenses decreased $1.3 million, but increased 1.9% as a percent of~~ net sales. Discounting and coupon costs relating to sales-building initiatives increased 0.9% as a percent of net sales. Higher fuel prices caused utility costs as a percent of net sales to increase 0.8% over the prior year. Additionally, the fixed portion of certain operating costs such as rent and repairs and maintenance increased as a percent of net sales as cafeteria net sales decreased.

~~Provision~~Management’s ~~for~~Discussion ~~Cafeteria~~and ~~Impairments~~Analysis of Financial Condition and ~~Closings.~~ Results of ~~During~~Operations ~~fiscal~~should ~~2001~~be weread ~~recorded~~in ~~$13.9~~conjunction ~~million~~with ofour ~~charges~~Financial ~~related to~~Statements ~~impairments~~contained ofin ~~property,~~this ~~plant~~annual ~~and~~report ~~equipment~~on ~~and lease~~Form 10-~~related~~K. ~~costs~~References to “Notes” are to the ~~associated~~Notes ~~with~~to ~~closing~~Financial 22Statements ~~cafeterias.~~in Item 8.

~~During~~Piccadilly ~~fiscal~~is ~~2001,~~the welargest ~~determined~~cafeteria ~~that~~chain ~~certain~~in ~~leases might~~the ~~not~~Southeastern ~~be renewed,~~ and ~~with respect to those cafeterias, revised our forecasts of undiscounted future operating cash flows accordingly. Primarily as a result of these revised forecasts, we determined that long~~Mid-~~lived assets~~Atlantic ~~for~~regions 61with ~~cafeterias,~~170 ~~including 47~~ cafeterias ~~acquired~~operating inat ~~the 1998 purchase of Morrison Restaurants~~September 29, ~~Inc~~2003. ~~(“Morrison”),~~We ~~were~~serve ~~impaired~~a indiverse ~~accordance with SFAS~~and ~~No.~~loyal ~~121~~customer ~~and~~base weconsisting ~~recorded asset impairment charges~~ of ~~$9.9 million for property~~families, ~~plant~~ ~~and~~groups ~~equipment. During the fourth quarter~~ of ~~fiscal~~friends ~~2001~~and ~~we decided to close 14 non~~co-~~performing cafeterias because the cash flows from these 14~~workers, ~~cafeterias~~senior ~~were~~citizens, ~~not~~couples ~~sufficient to contribute to lease-related costs~~ and ~~on-going~~ ~~operating costs~~students. ~~Accordingly,~~ weOur ~~recorded~~patrons ~~lease-related~~enjoy ~~costs~~a ~~of $3.1~~wide ~~million~~selection ~~and impairment~~ of ~~property~~ convenient, ~~plant~~healthy, ~~and~~freshly ~~equipment~~prepared ~~charges~~“home ofcooked” ~~$0.3 million. These~~meals ~~cafeterias~~at ~~were closed on July 31, 2001. Thirteen of these~~value-oriented ~~cafeterias~~prices ~~are~~for ~~leased~~lunch and ~~one cafeteria is company-owned~~dinner. ~~These 14 cafeterias~~ ~~had operating losses of $2.0 million in fiscal 2001.~~

~~Additionally,~~We wecategorize ~~closed~~our ~~eight~~operating ~~cafeterias~~expenses ininto ~~fiscal~~three ~~2001~~major categories: cost of sales, other operating expenses, and ~~recorded~~general ~~charges~~and administrative expenses. Cost of $0sales consists of labor and food costs.5 ~~million~~Other ~~for~~operating ~~property~~expenses consist primarily of advertising, ~~plant~~building and ~~equipment~~security costs, meal discounts, ~~writedowns~~insurance, ~~and~~payroll ~~lease~~taxes, repairs, supplies, utilities, cafeteria-~~related~~level performance ~~costs. These~~incentives, ~~cafeterias~~depreciation, ~~had~~rent, ~~trailing~~and 12other cafeteria-~~month~~level expenses. ~~operating~~General ~~losses~~and administrative expenses consist of ~~$0.7~~executive ~~million.~~and regional manager salaries and related benefits and taxes, travel expenses, legal and professional fees, depreciation, amortization, and various other costs related to administrative functions.

~~Amortization~~Impact ~~and Writeoff~~ of ~~Goodwill. We recorded~~a ~~amortization~~Chapter ~~and~~11 ~~goodwill~~Filing ~~impairment charges of $5.3 million.~~ on ~~Recorded goodwill relates to~~ the ~~Morrison~~Company's ~~Acquisition. Approximately~~Creditors ~~$4.5 million of the charges recorded in fiscal 2001 relate to 47 Morrison cafeterias that were considered impaired~~ and ~~approximately $0.5 million~~Stockholders ~~relates to Morrison cafeterias that closed during the year. Net goodwill at~~ ~~June 30, 2001 was $4.5 million.~~

~~General~~The ~~and~~terms ~~Administrative~~of ~~Expenses. General and~~a ~~administrative~~potential ~~expenses~~sale asof athe ~~percent~~Company’s ofassets ~~net~~under ~~sales~~Section 363 ~~increased~~of ~~0.3%.~~ the ~~Included~~Bankruptcy inCode, ~~current~~or ~~year~~the ~~general~~terms ~~and~~of ~~administrative~~a ~~expense~~reorganization isplan ~~$1.5~~ultimately ~~million~~confirmed by ~~related~~a tobankruptcy ~~severance~~court, ~~costs. In~~will ~~May~~compromise ~~2001,~~significantly wethe ~~initiated~~Company’s ability to discharge our various pre-petition debts and ~~completed~~will agreatly diminish or ~~management~~eliminate ~~reorganization~~any ~~plan~~value ~~that~~of ~~eliminated~~our 25equity ~~executive~~securities. ~~and~~No ~~district~~assurance can be given as to ~~operations~~what ~~management~~values, ~~positions. Substantially~~if ~~all~~any, ofwill be ascribed in the $1bankruptcy proceedings to each of these constituencies.5 ~~million~~A bankruptcy filing will result in holders of ~~severance~~Piccadilly ~~costs~~common ~~was~~stock ~~paid~~receiving bylittle ~~June~~or ~~30,~~no ~~2001~~value for their interests. ~~Excluding~~ Because of such possibilities, the ~~effects~~value of the ~~$1.5 million~~common ~~charge,~~stock ~~general~~is ~~and~~highly speculative. ~~administrative~~We ~~expenses~~urge asthat aappropriate ~~percent~~caution ofbe ~~net~~exercised ~~sales~~with respect to ~~for~~existing ~~fiscal~~and ~~2001~~future ~~was~~investments ~~3.3%,~~in ~~down~~any ~~0.1%~~of ~~from~~the ~~fiscal~~Company’s ~~2000~~debt obligations and/or its common stock.

~~Interest~~Forward-Looking ~~Expense. Interest expense increased~~Statements ~~$2.8 million because of higher interest rates on our credit facilities and~~ amortization of deferred financing costs and bond discount. Amortization of these costs included in interest expense in fiscal 2001 and fiscal 2000 were $1.9 million and $0.8 million, respectively. These increases were partially offset by lower average debt levels.

~~Provision~~Statements ~~for~~contained ~~Income~~in ~~Taxes. We~~this ~~recorded an~~report ~~income~~that ~~tax~~are ~~provision~~not statements of ~~$8.1~~historical ~~million~~fact may inbe ~~fiscal~~forward-looking ~~2001~~statements. toGenerally, ~~establish~~forward-looking astatements ~~valuation~~contain ~~allowance~~terms ~~against~~such ~~deferred~~as ~~tax~~“expect,” ~~assets. In~~“forecast,” ~~accordance~~“will,” ~~with~~“may,” ~~SFAS~~or No“believe.” ~~109~~Forward-looking statements regarding our present plans or expectations for credit facilities, wecash ~~considered~~flows, ~~that~~liquidity, wepension ~~had~~accounting aand ~~cumulative~~cash contribution ~~pre~~assumptions, capital expenditures, sales-~~tax~~building ~~loss~~and ~~for~~cost-saving strategies, ~~recent~~advertising ~~years~~expenditures, determinations of impairments of long-lived assets, and the disposition of closed cafeterias and surplus ~~revised~~properties ~~our~~involve ~~judgment~~risks ~~about~~and ~~the~~uncertainties ~~realization~~relative to return expectations and related allocation of ~~deferred~~resources, ~~tax~~and ~~assets~~changing economic or competitive conditions, which could cause actual results to differ from present plans or expectations, and such differences could be material. ~~The~~ Similarly, ~~valuation~~forward-looking ~~allowance~~statements ~~reflected~~regarding our ~~judgment~~present ~~that~~expectations itfor ~~was~~operating results ~~more~~involve ~~likely~~risks ~~than~~and ~~not~~uncertainties relative to these and other factors, ~~that~~such aas ~~portion~~the effectiveness of advertising, new product development, and the ability ~~deferred~~to ~~tax~~achieve ~~assets~~cost reductions, which also would ~~not~~cause actual results to differ from present plans. Such differences could be ~~realized~~material. We ~~believed~~do not ~~that~~expect ~~the~~to ~~remaining~~update ~~deferred~~such ~~tax~~forward-looking ~~assets~~statements atcontinually ~~June~~as 30conditions change, ~~2001,~~and ~~amounting~~readers toshould ~~$9.7 million,~~consider ~~were~~that ~~realizable~~such statements speak only as the date hereof.

~~Extraordinary~~Critical ~~Charge. We~~Accounting ~~recorded~~Policies aand ~~$2.5~~Judgments ~~million charge for the early extinguishment of debt (see Note 7 for further~~ ~~information). We recorded no tax benefit related to the extraordinary charge.~~

~~Other~~We ~~Income. Other~~prepare ~~income~~our financial statements in ~~fiscal~~conformity ~~2000~~with accounting principles ~~included~~generally ~~income~~accepted in the United States of $0America.6 ~~million~~The ~~for~~financial statements are based on the ~~receipt~~application of ~~stock~~certain inaccounting anpolicies, ~~insurance~~the most ~~company~~significant of which ~~had~~are ~~converted~~described ~~from~~in aNote ~~mutual~~1 ~~company~~ to athe ~~stock~~Financial ~~company~~Statements, Summary of Significant Accounting Policies. Certain of these policies require estimates and strategic or economic assumptions that may prove inaccurate or ~~through~~subject ~~which~~to wevariations ~~own~~and ~~whole~~may ~~life~~significantly ~~insurance~~affect our reported results and financial position for the period or in future periods. Changes in underlying factors, assumptions, or estimates in any of these areas could have a material impact on our future financial condition and results of operations. We consider the following policies to be the most critical in understanding the judgments that are involved in preparing our Financial Statements.

~~Liquidity~~Property, Plant and ~~Capital~~Equipment. ~~Resources~~Property, plant, and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over the following useful lives: buildings and leasehold improvements—lesser of lease life or 30 years; furniture, fixtures and equipment—four to ten years. Lease renewal option periods are included in determining leasehold improvement useful lives when, in our opinion, it is likely that we will exercise such renewal options.

~~Sale-leaseback Transaction. On July 31, 2001,~~11 ~~we completed a sale-leaseback of six of our owned properties. We received~~ approximately $9.0 million in cash for the sale of the properties and simultaneously executed long-term leases to continue to operate cafeterias at the sites for a primary term of 20 years and optional renewal periods for up to 20 additional years. We used substantially all of the net sale proceeds to purchase $9.4 million in face amount of our 12% Senior Secured Notes due fiscal 2007. The net result of the sale-leaseback and note repurchase transactions is a reduction of annual expense of $1.2 million. We recorded an extraordinary charge of approximately $1.1 million to write-off unamortized financing costs associated with the repurchased notes.

SeniorTable Credit Facility. On December 11, 2001, we completed a three-year, $20.0 million Senior Credit Facility with Foothill Capital Corporation (the “Senior Credit Facility”) replacing a $14.4 million senior credit facility with commercial banks. Approximately $10.7 million of the Senior Credit Facility supports commercial letters of credit, and the remainder is available for working capital and for other corporate purposes (see further discussion in Trends and Uncertainties below). The Senior Credit Facility matures in December 2004. We have no outstanding borrowings under the Senior Credit Facility at July 2, 2002. Fiscal 2002 includes extraordinary charges of approximately $0.5 million for the unamortized financing costs of the replaced facility.Contents

~~The~~Our ~~Senior~~accounting ~~Credit~~policies ~~Facility~~regarding ~~contains~~land, ~~financial~~buildings, ~~covenants~~and equipment include ~~that~~judgments ~~require~~regarding ~~(i)~~the aestimated ~~minimum~~useful ~~level~~lives of ~~earnings~~such ~~before income taxes~~assets, ~~depreciation,~~ ~~and amortization (EBITDA), (ii) a maximum ratio of~~ the ~~Senior~~estimated ~~Credit~~residual ~~Facility~~values ~~commitment~~ to ~~EBITDA,~~which ~~(iii)~~the aassets ~~maximum~~are ~~ratio~~depreciated, ofand ~~net~~the ~~funded~~determination ~~debt~~as to ~~EBITDA,~~what ~~and~~constitutes ~~(iv)~~increasing athe ~~minimum~~life ~~ratio~~ of ~~fixed~~existing ~~charges~~assets. ~~The~~ ~~financial~~These ~~covenant~~judgments ~~requirements~~and ~~are~~estimates ~~predetermined~~may ~~and~~produce ~~adjust~~materially ~~over~~different ~~the~~amounts ~~term~~ of ~~the~~depreciation ~~Senior Credit~~and ~~Facility. We~~amortization ~~believe~~expense that ~~the~~would ~~financial~~be ~~covenant~~reported ~~requirements~~if ~~under~~different ~~the Senior~~assumptions ~~Credit~~were ~~Facility~~used. As ~~better~~discussed ~~suit~~further ~~our~~below, ~~business~~these ~~plan~~judgments ~~than~~may ~~the~~also ~~covenants~~impact of the ~~replaced~~ ~~facility. Currently,~~need ~~compliance with the financial covenants is~~to ~~measured~~recognize ~~quarterly. However,~~an ifimpairment ~~total~~charge ~~funding~~on ~~under~~ the ~~Senior~~carrying ~~Credit Facility~~amount ~~together with outstanding letters~~ of ~~credit~~these ~~amounts~~assets toas ~~$15.0 million,~~the ~~compliance~~cash flows associated with the ~~financial~~assets ~~covenants~~are ~~will be measured monthly~~realized. At ~~July~~In 2addition, ~~2002,~~ ~~and~~the ~~with~~actual life ~~respect~~of to the ~~Senior~~asset ~~Credit~~and ~~Facility,~~residual wevalue ~~complied~~may ~~with~~be ~~all~~different of from the ~~financial~~estimates ~~covenants, there were no fundings outstanding, and outstanding~~used ~~letters~~to ofprepare ~~credit~~financial ~~amounted~~statements toin ~~$10.7~~prior ~~million~~periods.

~~Early~~Impairment ~~Retirement~~ of ~~Debt~~Long-Lived Assets. On ~~December~~We ~~11,~~determine ~~2001,~~whether impairment write-downs weare ~~used~~necessary ~~available~~for ~~cash~~cafeteria ~~balances~~locations towhen ~~repurchase~~events ~~approximately~~or ~~$3.7~~changes ~~million~~in circumstances indicate that the total carrying value of that location’s assets might not be ~~face~~recoverable. ~~amount~~Recovery is measured by comparing the carrying value of ~~our~~the location’s ~~12%~~assets ~~Senior~~to ~~Secured~~the ~~Notes~~future ~~due~~undiscounted ~~fiscal~~net ~~2007. Approximately~~cash flows that we expect such $0assets to generate.3 ~~million~~Assets ofare ~~extraordinary~~considered ~~charges~~impaired ~~were~~to the extent that the asset carrying value exceeds the future undiscounted cash flow associated with such asset. An impairment charge is recorded at an amount that is usually equal to ~~write-off~~the ~~unamortized~~difference between the asset carrying value and the estimated ~~financing~~present ~~costs~~value of future net cash flows.

AtSome ~~July~~of 2the assumptions that are used to estimate future net cash flow include guest traffic, ~~2002~~average meal price, wespecific ~~had~~lease ~~outstanding~~provisions ~~$42~~such ~~million~~as rent escalation clauses, costs associated with the ongoing maintenance and improvements of the assets, other operating expenses, and disposal value, if any. Our judgments related to the expected useful lives of long-lived assets and our ability to realize undiscounted cash flows in excess of the carrying ~~Term~~amounts Aof ~~Senior~~such ~~Secured~~assets ~~Notes~~are affected by factors such as changes in economic conditions and $5changes in operating performance.5 ~~million~~If ~~under~~material adverse changes in these factors occur, or if our ~~Term~~assumptions ~~Loan~~used ~~Credit~~to estimate future net cash ~~Facility~~flow are materially incorrect, impairment charges may become necessary in the future, and such charges could be material. ~~The~~ ~~Term~~During Bfiscal ~~Senior~~2003, ~~Secured~~we ~~Notes~~recorded asset impairment charges of $6.7 million relating to 49 “Non-Core Cafeterias”. Based on our evaluation of recent sales trends at these 49 cafeterias, we concluded that ~~were~~continued ~~previously~~efforts ~~outstanding~~to build guest traffic in these cafeterias were ~~retired~~not inlikely ~~March~~to ~~2001~~yield the future cash flows necessary to recover their net carrying values. See Note 2 to the Financial Statements for further discussion.

We are required to dedicate a substantial amount of excess cash flow that we generate each year to make offers to repurchase the Term A Senior Notes and amounts outstanding under the Term Loan Credit Facility, with excess cash flow being defined as EBITDA less interest expense, income tax expense, and capital expendituresGoodwill. ~~Specifically,~~ ~~the~~We ~~Term~~adopted ASFAS ~~Senior Secured Notes and Term Loan Credit Facility require that, if during any fiscal year we have excess cash flow of more than $2~~No.~~5 million~~ 142, ~~we must make an offer (the~~ “~~first~~Goodwill ~~excess~~and ~~cash~~Other ~~flow~~Intangible ~~offer~~Assets”~~) to repurchase our Term A Senior Secured~~ ~~Notes~~effective ~~and~~for ~~to prepay indebtedness outstanding under our Term Loan Credit Facility~~July 1, in2001. ~~each~~SFAS ~~case at 101% of the principal amount thereof, plus accrued interest~~No. ~~The~~ 142 ~~first~~required ~~excess~~that ~~cash~~we ~~flow~~analyze ~~offer~~goodwill ~~must be in an amount equal to the~~for ~~lesser~~impairment ofissues $5within ~~million or~~ the ~~excess~~first ~~cash~~six ~~flow,~~months ~~and must be made ratably between the holders~~ of ~~the~~adopting ~~Term~~SFAS ANo ~~Senior Notes and the Term Loan Credit Facility~~142. ~~In addition,~~ ~~we are required by the Term Loan Credit Facility to make a second~~We ~~offer~~completed ~~(the~~that ~~“second~~evaluation excess cash flow offer”) if we have excess cash flow more than $5 million during any fiscal year. The second excess cash flow offer must be in an amount equal to 50% by which our excess cash flow exceeds $5 million, and ~~must~~determined ~~offer~~that tono ~~prepay~~impairment ~~indebtedness~~charges ~~outstanding under our Term Loan~~were ~~Credit Facility at 101% of the principal amount thereof, plus accrued interest~~required. ~~Both the first excess cash flow offer and second excess cash flow~~ ~~offer must be made on the last business day of September of each year.~~

~~For~~At the end of fiscal ~~2002~~2003, wegoodwill ~~had~~is $3.2 million, ~~excess~~or ~~cash~~2.9% ~~flow~~ of ~~approximately~~ ~~$15~~total ~~million~~assets. If All of our ~~required~~goodwill ~~excess~~resulted ~~cash~~from ~~flow~~the ~~offers~~acquisition ~~are accepted~~of inMorrison ~~full~~Restaurants, byInc. in 1998 (the ~~noteholders~~“Morrison ~~and~~Acquisition”). ~~lenders,~~Goodwill ais ~~total~~evaluated ofat ~~approximately~~the ~~$9.9~~reporting ~~million~~unit ~~will~~level, beas ~~applied~~required. toWe ~~repurchase~~consider ~~Term~~individual Acafeterias ~~Senior~~to ~~Secured~~be ~~Notes~~our ~~and prepay~~reporting units. All of the ~~Term~~goodwill ~~Loan~~remaining ~~Credit~~relates ~~Facility~~to seven cafeterias. We ~~have~~In assessing the ~~ability~~recoverability toof ~~prepay~~recorded ~~this indebtedness~~goodwill bywe ~~using~~make assumptions regarding estimated future cash ~~balances~~flows onand ~~hand,~~other ~~cash~~factors. ~~generated~~If bythese ~~operations,~~estimates ~~and~~or their ~~cash~~related ~~available~~assumptions ~~under~~change ~~our~~in ~~Senior~~the ~~Credit~~future, ~~Facility. We~~we ~~also~~may ~~expect~~be required to record impairment charges for ~~early~~goodwill. ~~retirement~~We ~~premiums~~performed the annual impairment tests at the ends of ~~$0.8~~fiscal ~~million~~2003 and fiscal 2002, and the tests determined that there was no goodwill impairment. See Note 2 to ~~write-off~~the ~~unamortized~~Financial ~~financing~~Statements ~~costs~~for offurther $0discussion.~~7 million.~~

~~Rating~~Liabilities ~~Agencies. Moody’s~~of ~~and~~Ongoing ~~Standard~~Obligations &Related ~~Poor’s~~to Closed Cafeterias. We ~~(S&P)~~periodically ~~initially~~review ~~assigned~~the ~~first-time~~historical ~~ratings~~operating ofcash B2flow and ~~B+,~~forecasts ~~respectively,~~of ~~to our~~future ~~senior~~operating ~~secured~~cash ~~debt. Subsequently,~~flow ~~Moody’s~~for ~~downgraded~~each ~~its~~cafeteria. ~~rating~~Forecasted ~~from~~cafeteria-level B2cash toflow ~~Caa1~~is ~~and~~a ~~S&P~~primary ~~downgraded~~determinant ~~its~~in ~~rating~~whether ~~from~~the B+cafeteria will continue to Boperate or be closed. ~~These~~ ~~ratings~~In ~~are~~April ~~subject~~2002, tothe FASB issued SFAS No. 146, Accounting for Costs ~~revision~~Associated with Exit or ~~withdrawal~~Disposal atActivities. ~~any~~SFAS ~~time~~No. ~~Moody’s~~ 146 ~~assigns~~requires that we recognize a ~~“Caa”~~liability ~~credit~~for ~~rating~~a ~~to bonds~~cost itassociated ~~considers~~with toan beexit ~~“of~~or ~~poor~~disposal ~~quality”~~activity when ~~and~~the ~~where~~liability itis ~~believes~~incurred. ~~“such~~Under ~~issues~~previous accounting principles, we ~~may~~recognized bea inliability ~~default~~for oran ~~there~~exit ~~may~~cost beat ~~present~~the ~~elements~~date of ~~danger~~our ~~with~~commitment ~~respect~~ to an ~~principal~~exit ~~or interest~~plan.~~” S&P~~ ~~assigns~~We aadopted ~~“B”~~the ~~rating~~provisions toof ~~obligations~~SFAS No. 146 effective for ~~which~~exit itor ~~considers~~disposal activities that ~~“adverse~~were ~~business,~~initiated ~~financial~~after December 31, or2002. ~~economic~~Prior ~~conditions~~to ~~will~~the ~~likely~~adoption ~~impair~~of ~~the~~SFAS ~~obligor’s~~No. 146, ~~capacity~~for orthose ~~willingness~~cafeterias towhich ~~meet~~we ~~its~~decided ~~financial~~to close, we ~~commitment~~recorded oncharges ~~the~~in ~~obligation~~accordance with Emerging Issues Task Force Issue No.~~” A~~ 94-3, Liability ~~plus~~Recognition ~~(+)~~for orCertain ~~minus~~Employee Termination Benefits and Other Costs to Exit an Activity (EITF 94-3). ~~sign~~EITF is94-3 ~~added~~requires ~~“to~~that ~~show relative~~such ~~standing~~charges ~~with~~be recorded in the ~~major~~period ~~rating~~in ~~categories.” We~~which ~~express~~we noapprove ~~opinion~~an ~~on the~~exit ~~ratings~~plan ~~assigned~~that towill result in the incurrence ~~notes~~of bycosts ~~Moody’s~~that ~~and~~have ~~S&P~~no future economic benefit. Charges recorded under both SFAS No. 146 and doEITF ~~not~~94-3 ~~believe~~typically ~~that~~relate to rent and other ~~these~~occupancy ~~ratings~~costs ~~downgrades~~to ~~will~~be ~~have~~incurred after closing a ~~material~~cafeteria. ~~adverse~~We ~~impact~~reduce onthese charges by our ~~ability~~estimates ~~to repay~~of ~~the~~recoveries ~~notes~~from subleasing activity, ~~our~~net ~~existing~~of ~~credit~~an allowance ~~facilities~~for uncollected sublease income, or our ~~liquidity~~estimates inof ~~the~~reductions from ~~foreseeable~~negotiations ~~future~~with the landlord, if any. We ~~have~~The noprimary ~~credit~~factors ~~facilities~~we orconsider ~~commitments~~when evaluating ~~containing~~whether to include expected recoveries from subleasing activity are ~~rating~~whether ~~triggers.~~a sublease is under contract or if not, whether

~~Dividends. We have not paid a dividend on our~~12 ~~Common Stock since the Board suspended our regular quarterly dividend on~~ ~~February 7, 2000. Our Senior Credit Facility prohibits payment of dividends.~~

PensionTable Contributions. In fiscal 2002 we recorded a minimum pension liability of $22.5 million to reflect the unfunded liabilities of our defined benefit plans. The pension plan liability will have no immediate cash impact. If future earnings on plan assets do not recover to eliminate the under-funding, we may be required to begin contributing to the pension plans beginning in fiscal 2004 or fiscal 2005. In the event that contributions are required, we expect that those contributions will be spread over several years. We believe we will be able to absorb the cost of these contributions without materially affecting our liquidity or our ability to implement our business plan.Contents

~~Cash~~sufficient ~~and~~time ~~Cash~~remains ~~Equivalents. Cash~~under ~~and~~the ~~cash equivalents~~lease atcontract ~~July~~for 2,the ~~2002,~~property ~~were $5.7 million compared~~ to ~~$0.9 million at~~be ~~June~~reasonably ~~30, 2001~~marketable. ~~Capital~~ ~~expenditures~~We ~~for~~require ~~the~~a ~~year~~minimum ~~ended~~of ~~July~~five 2,years ~~2002,~~remaining ~~were~~under the ~~$4.7~~lease ~~million. Capital~~contract ~~expenditures for fiscal 2003 are expected~~ to ~~approximate~~ ~~$8.0~~consider ~~million. We~~recoveries ~~believe~~from ~~that~~potential ~~our~~subleasing ~~existing~~activities ~~cash~~in determining ~~balances~~the ~~and~~net ~~cash from~~charge ~~operations,~~reflected ~~together~~in ~~with~~ the ~~credit~~financial ~~available~~statements. ~~under~~If the ~~Senior Credit~~ ~~Facility,~~actual ~~will~~results ~~provide~~of ~~sufficient~~our ~~liquidity~~efforts to ~~make~~mitigate ~~any~~the ~~excess~~ongoing ~~cash~~obligations ~~flow~~related to ~~payments~~closed ~~required~~cafeterias ~~under~~are ~~our~~different ~~Term~~from ~~A Senior Notes and~~ our ~~Term Credit Facility~~estimates, ~~and~~ ~~for~~a ~~our~~material ~~operational~~adjustment ~~and~~to record ~~capital~~additional ~~expenditure~~liabilities ~~needs~~or ~~through~~reduce ~~the~~recorded ~~term~~liabilities ofmay ~~the Senior~~be ~~Credit Facility~~required.

~~Trends~~As ~~and~~of ~~Uncertainties~~the end of fiscal 2003, we have 29 closed cafeteria locations with remaining lease obligations. The total estimated remaining obligation relating to these leases was $14.7 million at the end of fiscal 2003. We have entered sublease arrangements with respect to 13 of these locations that offset $6.4 million of our remaining obligations. See Note 3 to the Financial Statements for further discussion.

~~New~~Income ~~York Stock Exchange Listing~~Taxes. In ~~September 2001,~~We weaccount ~~submitted~~for aincome ~~plan~~taxes toin ~~the~~accordance ~~New~~with ~~York~~SFAS ~~Stock Exchange to demonstrate that we could meet the continued listing requirements of the NYSE by February~~No. 8109, ~~2003,~~“Accounting afor ~~deadline~~Income ~~established~~Taxes” bywhich ~~the~~requires ~~NYSE. With~~that ~~the~~deferred ~~minimum~~tax ~~pension~~assets ~~liability~~ and liabilities ~~corresponding~~be ~~reduction~~recognized inusing ~~shareholders’~~enacted ~~equity~~tax ~~recorded~~rates ~~during~~for the ~~fourth quarter~~effect of ~~fiscal 2002 (see Note 9 for further information), we have~~temporary ~~determined~~differences ~~that~~between wethe dobook ~~not~~and ~~expect~~tax tobases ~~meet~~of ~~the~~recorded ~~shareholders’~~assets ~~equity~~and ~~level~~liabilities. ~~targeted~~SFAS ~~by the plan~~No. We 109 ~~continue~~also torequires ~~have~~that ~~dialogue~~deferred ~~with~~tax ~~the~~assets ~~NYSE~~be ~~while evaluating~~reduced ~~the~~by ~~eligibility~~a ~~requirements to list our stock on other stock~~valuation ~~exchanges. As~~allowance ofif ~~August~~it ~~23,~~is ~~2002,~~more ~~our~~likely ~~per-share~~than ~~stock price was $2.53, which does~~ not ~~meet~~that ~~the~~some ~~initial~~portion ~~listing~~or ~~qualifications~~all of the deferred ~~American~~tax ~~Stock Exchange~~asset orwill ~~the~~not ~~NASDAQ~~be realized.

~~Pending~~We ~~Accounting~~periodically ~~Pronouncements. In~~review ~~August 2001,~~ the ~~FASB~~valuation ~~issued~~allowance ~~SFAS~~and ~~No.~~adjust ~~144,~~its ~~Accounting for the Impairment or Disposal of Long-Lived Assets~~amount, ~~which addresses financial accounting and~~if ~~reporting~~necessary. ~~for~~The ~~the~~factors ~~impairment~~used orto ~~disposal~~assess ofwhether ~~long-lived~~such ~~assets~~an ~~and~~adjustment ~~supercedes~~is ~~SFAS~~appropriate ~~No.~~are ~~121,~~our ~~Accounting~~forecasts ~~for the Impairment~~ of ~~Long-Lived~~future ~~Assets~~taxable income and ~~for~~available tax ~~Long-Lived~~planning ~~Assets~~strategies tothat could be ~~Disposed~~implemented ~~Of,~~to ~~and~~realize the ~~accounting~~net ~~and~~deferred ~~reporting~~tax ~~provisions of APB Opinion No~~assets. ~~30,~~At ~~Reporting~~ the ~~Results~~end of ~~Operations~~fiscal ~~for~~2003, ~~a disposal~~we ofhave a ~~segment~~valuation ofallowance aequal ~~business. SFAS No. 144 establishes a single accounting model for long-lived assets~~ to ~~be disposed of by sales and also~~the ~~broadens~~net ~~the~~deferred ~~presentation~~tax ofasset. ~~discontinued~~See ~~operations~~Note 7 to ~~include more disposal~~the ~~transactions,~~Financial ~~and~~Statements ~~is effective~~ for ~~fiscal~~further ~~years beginning after December 15, 2001~~discussion. ~~We will adopt SFAS No. 144 as of July 3, 2002. We do not believe that~~ ~~the adoption of the Statement will have a significant impact on our financial~~ ~~statements.~~

InLiabilities ~~April~~for ~~2002,~~Workers’ ~~the~~Compensation ~~FASB~~and ~~issued~~General ~~SFAS~~Liability NoClaims. ~~145,~~We are ~~Rescission~~subject ofto ~~FASB~~workers’ ~~Statements~~compensation ~~No.~~and 4,general ~~44,~~liability claims and ~~62,~~lawsuits. ~~Amendment~~To mitigate a portion of ~~FASB~~these ~~Statement~~risks, we maintain insurance for individual claims ~~No.~~exceeding 13$250,000. ~~and~~An ~~Technical~~unrelated ~~Corrections. SFAS~~third-party ~~No.~~claims ~~145~~administrator ~~will~~using historical ~~require~~claims ~~gains~~data, demographic factors, severity factors, and other actuarial assumptions estimates losses onrelating ~~extinguishments~~to the self-insured retention portion of ~~debt~~known toclaims. beIn ~~classified~~addition, aswe ~~income~~estimate orlosses ~~loss~~for ~~from~~unreported claims ~~continuing~~and ~~operations~~the ~~rather~~further ~~than~~development asof ~~extraordinary~~known ~~items~~claims asbased ~~previously required~~on ~~under~~historical ~~SFAS~~claims Nodata. The ~~4. We~~estimated ~~will~~losses ~~adopt~~could ~~SFAS~~be ~~No.~~significantly ~~145~~affected ~~beginning~~should ~~July~~current 3,and future ~~2003~~occurrences differ from historical claims trends. ~~Upon~~ ~~adoption,~~While ~~losses~~we onmonitor ~~extinguishment~~current claims ofclosely ~~debt~~and ~~previously~~consider ~~classified~~outcomes when estimating our insurance liabilities, asthe ancomplexity ~~extraordinary~~of ~~item~~the inclaims ~~prior~~and ~~periods~~wide ~~will~~range beof ~~reclassified~~potential outcomes can affect our ability to ~~conform~~make timely adjustments to the ~~provisions~~assumptions ofused ~~SFAS~~in Nothe estimates. ~~145~~Adjustments to these estimates could be material.

InPension ~~April~~Accounting. ~~2002,~~We ~~the~~sponsor ~~FASB~~noncontributory ~~issued~~defined ~~SFAS~~benefit Nopension plans. As ~~146~~of December 31, ~~Accounting~~2001, ~~for~~accrual ~~Costs~~of ~~Associated~~additional ~~with~~team ~~Exit~~member orbenefits ~~Disposal~~under ~~Activities. SFAS~~these Noplans was frozen. ~~146~~The ~~will~~plans ~~require~~provide pension benefits that weare ~~recognize~~based aon ~~liability~~an average ~~for~~of athe ~~cost~~team ~~associated~~member’s ~~with an~~earnings ~~exit~~and oryears ~~disposal~~of ~~activity~~credited ~~when~~service. Our funding policy for the ~~liability~~plans is ~~incurred. Under~~to ~~previous~~contribute amounts sufficient to meet the ~~accounting~~minimum ~~principles~~funding requirement of the Employee Retirement Income Security Act of 1974, plus any additional amounts that we ~~recognized~~may adetermine ~~liability~~appropriate. We account for anthe ~~exit~~defined ~~cost~~benefit atpension ~~the~~plans ~~date~~in accordance with SFAS No. 87, of“Employers’ ~~our~~Accounting ~~commitment~~for toPensions” anwhich ~~exit~~requires ~~plan. The~~that ~~provisions~~amounts ofrecognized ~~SFAS~~in financial Nostatements be determined on an actuarial basis. ~~146~~A ~~are~~minimum liability ~~effective~~is ~~for~~required ~~exit~~to orbe ~~disposal~~established ~~activities~~on ~~that~~the ~~are~~Balance ~~initiated~~Sheet ~~after~~to ~~December~~the extent of any 31unfunded accrued pension cost, ~~2002. We~~which dois ~~not~~the ~~believe~~difference ~~that~~between the ~~adoption~~accumulated benefit obligation and the fair value of the ~~Statement~~plan ~~will~~assets. ~~have~~When it is necessary to establish a minimum pension liability, an equal amount, plus the carrying ~~significant~~value ~~impact~~of onany ~~our~~related ~~financial~~prepaid ~~statements~~pension asset, is recorded as a reduction to shareholders’ equity (deficit) (in accumulated other comprehensive loss, net of tax), in the Balance Sheet.

~~Minimum~~To ~~Wage~~determine ~~Increase. From~~whether ~~time~~a tominimum ~~time~~pension ~~the United~~liability ~~States~~is ~~Congress~~required ~~considers~~under ~~increases~~Statement No. 87, towe ~~the~~must ~~federally~~make ~~mandated~~certain ~~minimum wage~~assumptions. ~~Historically~~ First, we ~~have~~use ~~passed~~a discount rate to calculate the ~~cost~~present value of ~~such~~the ~~increases~~accumulated tobenefit ~~our~~obligation. ~~guests~~In indetermining ~~higher~~the ~~prices. There~~discount ~~can~~rate, bewe noconsider ~~guarantee~~rates ~~that~~of ~~future~~return ~~government~~on ~~mandated~~high-quality ~~minimum~~fixed-income ~~wage~~investments. ~~increases~~At ~~could~~the end of fiscal 2003, we determined this rate to be ~~absorbed~~6.00 percent ~~into~~compared ~~higher~~to ~~prices~~7.25 percent used for ~~our~~fiscal ~~products~~2002. Second, we Weestablish ~~have~~an ~~estimated~~assumption for the expected long-term rate of return on pension plan assets that is used to measure the ~~cost~~expected return on plan assets component of athe ~~$1.00~~net ~~per~~periodic ~~hour~~pension ~~increase~~cost infor the ~~federal~~upcoming year. At the end ~~minimum~~of ~~wage~~fiscal ~~would~~2003, ~~increase~~we ~~our~~determined ~~total~~the ~~wages~~rate ~~and~~for ~~related~~measuring ~~payroll~~fiscal ~~tax~~2004 ~~expenses~~net periodic bypension acost ~~range~~to ~~from~~be $18.650% ~~million~~compared to $29.400% ~~million~~for ~~annually~~fiscal 2003 and fiscal 2002. If we experience a difference between the actual return on plan assets and the expected return, then the amount of that difference is deferred and is amortized into periodic pension expense (income).

~~Item~~At 7Athe end of fiscal 2003, our net balance sheet liability for accrued pension cost was $41.7 million. ~~Quantitative~~We contributed $0.8 million to the pension plans during fiscal 2003 and ~~Qualitative~~we ~~Disclosures~~expect ~~About~~that ~~Market~~the ~~Risk~~required contributions during fiscal 2004 will be approximately $8 million. For fiscal 2003, we recognized pension expense of $2.0 million. We currently expect pension expense for fiscal 2004 to be approximately $4.1 million. See Note 10 to the Financial Statements for further discussion.

~~We are exposed to changes in short-term interest rates~~13 ~~related to our credit facilities. If the variable rate on our $5.5 million~~ Term Loan Credit Facility were to increase by 1% from the rate at July 2, 2002, for the entire fiscal 2003 period, then solely as a result of the increase in interest rates, our interest expense would increase, resulting in a $55,000 decrease in net income.

OurTable Senior Secured Notes bear interest at 12.0%, subject to annual adjustment on November 1. The interest rate is adjusted each year to 12.0% plus 0.50% for every $1.0 million of EBITDA (for the preceding fiscal year) in excess of $27.0 million, not to exceed a 1.5% increase in any one year, and not to exceed a rate of 16.5%. Our EBITDA for fiscal 2003 was $25.4 million. Therefore, the interest rate on our Senior Secured Notes will remain fixed at 12.0% through October 31, 2003.Contents

~~Our~~Results ~~Senior~~of ~~Credit Facility bears interest at the Wells~~Operations ~~Fargo prime interest rate plus 2.0%. Currently, we have no outstanding~~ ~~borrowings under this facility.~~

~~The~~Fiscal ~~fair~~Year-End ~~value~~Reporting ofPeriod ~~our credit arrangement is not~~Change ~~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. We have not used derivative instruments to engage in speculative transactions or hedging activities.

~~Item~~Effective 8April 1, 2002, we adopted a 52-53 week fiscal reporting period for our 2002 fiscal year, resulting in a 2003 and 2002 fiscal year-end dates of July 1, 2003 and July 2, 2002, respectively. ~~Financial~~Prior ~~Statements~~to the change, our fiscal years ended on June 30. After the change, quarterly reporting includes 13-week periods except for a 53-week year in which the fourth quarter of that fiscal year will include 14 weeks. The change from a monthly reporting period to a 52-53 week reporting period is consistent with our industry. We refer to the fiscal year ended July 1, 2003 as fiscal 2003, the fiscal year ended July 2, 2002 as fiscal 2002 and ~~Supplementary~~the ~~Data~~fiscal year ended June 30, 2001 as fiscal 2001.

~~Consolidated~~As a result of the fiscal year-end reporting period change, fiscal 2003 had 364 ~~Balance~~days, ~~Sheets~~fiscal 2002 had 367 days and fiscal 2001 had 365 days. Three fewer days for fiscal 2003 compared to fiscal 2002 resulted in comparatively lower net sales of approximately $2.8. Two additional days for fiscal year 2002 compared to fiscal 2001 resulted in comparatively higher net sales for fiscal 2002 of approximately $1.8 million.

		Balances at
		July 2, 2002	June 30, 2001
		(Amounts in thousands)
ASSETS
Current Assets
	Cash	$ 5,661	$ 851
	Accounts and notes receivable	952	1,030
	Inventories	11,286	12,232
	Deferred income taxes	-	4,289
	Other current assets	1,541	1,085
	Total Current Assets	19,440	19,487
Property, Plant and Equipment
	Land	8,872	11,964
	Buildings and leasehold improvements	117,170	125,307
	Furniture and fixtures	106,070	113,293
	Machinery and equipment	10,687	11,867
	Construction in progress	617	947
		243,416	263,378
	Less allowances for depreciation	144,021	142,813
	Net Property, Plant and Equipment	99,395	120,565
Goodwill		3,705	4,509
Other Assets		11,155	14,017
TOTAL ASSETS		$ 133,695	$ 158,578
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
	Current portion of long term debt, net of $766,000 unamortized discount at July 2, 2002	$ 9,112	$ -
	Accounts payable	7,831	10,163
	Accrued interest	984	1,342
	Accrued salaries, benefits and related taxes	12,973	18,396
	Accrued rent	3,502	4,195
	Other accrued expenses	4,592	4,606
	Total Current Liabilities	38,994	38,702
Notes Payable, net of $2,927,000 and $5,538,000 unamortized discount at July 2, 2002 and June 30, 2001		34,695	54,976
Deferred Income Taxes		-	4,289
Reserve for Cafeteria Closings		5,163	8,469
Other Noncurrent Liabilities, less current portion		8,039	8,891
Minimum Pension Liability		22,538	-
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: 10,880,453 shares at July 2, 2002 and 10,528,368 shares at June 30, 2001	19,782	19,141
	Additional paid-in capital	18,506	18,735
	Retained earnings	8,680	5,648
		46,968	43,524
	Less treasury stock, at cost: 14,864 common shares at July 2, 2002 and 25,000 shares at June 30, 2001	164	273
	Less accumulated other comprehensive loss	22,538	-
Total Shareholders' Equity		24,266	43,251
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$ 133,695	$ 158,578

Fiscal 2003 Compared to Fiscal 2002

~~See~~Net ~~Notes~~sales. Total net sales for fiscal 2003 were $320.3 million, an 8.4% reduction from net sales of $349.7 million for fiscal 2002. Comparative net sales declined $2.8 million due to ~~Consolidated~~three ~~Financial~~fewer ~~Statements~~days. Cafeterias closed in fiscal 2002 accounted for $7.7 million, or approximately 26%, of the total decline in net sales. The remaining decline of $20.7 million is attributable to lower same-store net sales. Same-store cafeterias are cafeterias that were open for the entire period in both fiscal years. The decrease in same-store net sales of 7.3% reflects a decline in same-store guest traffic of 9.1%, which was partially offset by a check average increase of 1.8%. Approximately 64% of the check average increase is attributable to price increases and the remainder is due to various menu promotions.

~~Consolidated~~Comparative ~~Statements~~same-store net sales by quarter for fiscal 2003 were (3.4)%, (3.8)%, (6.6)%, and (8.1)%, respectively for the first through fourth quarters. The family-dining segment of ~~Operations~~the restaurant industry in which we operate, and in particular, cafeteria chains, have experienced significant sales declines. We believe that the weakened economy, sluggish retail environment, international events, and the uncertainty created by a volatile stock market during fiscal 2003 have each had a negative impact on our segment of the restaurant industry. Furthermore, a significant portion of our guest base is comprised of mature guests who are more likely than other demographic groups to be dependent on fixed income. We believe that this group has curtailed its discretionary spending, materially contributing to the decline in guest visits to our cafeterias.

		Fiscal
		2002	2001	2000
		(Amounts in thousands - except per share data)
Net sales		$ 385,027	$ 424,163	$ 450,276
Costs and expenses:
	Cost of sales	217,710	246,340	266,246
	Other operating expenses	144,775	159,062	160,358
	Provision for cafeteria impairments and closings	389	13,887	-
	General and administrative expenses	11,626	15,591	14,823
	Amortization and writeoff of goodwill	-	5,343	407
	Interest expense	7,978	9,958	7,177
	Other expenses (income)	(441)	(580)	(1,562)
		382,037	449,601	447,449
Income (Loss) Before Income Taxes and Extraordinary Charges		2,990	(25,438)	2,827
Provision for income taxes (benefit)		(2,026)	8,072	416
Net income (Loss) Before Extraordinary Charge		5,016	(33,510)	2,411
Extraordinary charges-loss on early retirement of debt		1,906	2,520	-
Net Income (Loss)		$ 3,110	$ (36,030)	$ 2,411
Weighted average number of shares outstanding-basic		10,578	10,504	10,503
Weighted average number of shares outstanding-assuming dilution		10,812	10,504	10,503
Net income (loss) per share before extraordinary charges - basic		$0.47	($3.19)	$0.23
Net income (loss) per share before extraordinary charges - assuming dilution		$0.46	($3.19)	$0.23
Extraordinary charges per share - loss on early retirement of debt-basic and assuming dilution		$0.18	$0.24	-
Net income per share - basic		$0.29	($3.43)	$0.23
Net income per share - assuming dilution		$0.29	($3.43)	$0.23

The guest count decline was more significant in our cafeterias located in regional shopping malls. These cafeterias comprise approximately one-half of our cafeterias. Fiscal 2003 same-store net sales for mall cafeterias were down 11.3% while non-mall cafeterias were down 7.6%, a difference of 3.7%. Fiscal 2003 same-store net sales for Non-Core Cafeterias were down 10.1% while Core Cafeterias were down 4.2%, a difference of 5.9%.

~~See~~The ~~Notes~~following totable ~~Consolidated~~illustrates ~~Financial~~cost ~~Statements~~of sales, other operating expenses, general and administrative expenses, and other expenses (income) as a percent of net sales for the comparative periods.

Consolidated Statements of Changes in Shareholders’ Equity


	Fiscal 2003			Fiscal 2002			Change

Cost of sales		56.8	%		55.8	%		1.0	%
Other operating expenses		37.6	%		36.9	%		0.7	%
General and administrative expenses		3.7	%		3.3	%		0.4	%
Other expenses (income)		(0.2	)%		(0.1	)%		0.1	%

	Common Stock		Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Income	Treasury Stock
	Shares	Amount				Shares	Amount	Total Shareholders’ Equity
	(Amounts in thousands - except per share data)
Balances at June 30, 1999	10,528	$ 19,141	$ 18,735	$ 41,804	$ -	25	$ 278	$ 79,402
Net income				2,411				2,411
Cash dividends declared ($.24 per share)				(2,521)				(2,521)
Sales under dividend reinvestment plan				(16)				(16)
Stock issuances from treasury						(11)	(57)	57
Purchases of treasury stock	-	-	-	-	-	11	52	(52)
Balances at June 30, 2000	10,528	19,141	18,735	41,678	-	25	273	79,281
Net loss				(36,030)				(36,030)
Stock issuances from treasury						(22)	(56)	56
Purchases of treasury stock	-	-	-	-	-	22	56	(56)
Balances at June 30, 2001	10,528	19,141	18,735	5,648	-	25	273	43,251
Net income				3,110				3,110
Minimum pension liability	-	-	-	-	(22,538)	-	-	(22,538)
Comprehensive loss								(19,428)
Stock issuances from treasury						(35)	(142)	142
Purchases of treasury stock				(78)		25	33	(111)
Exercise of stock warrants	352	641	(229)	-	-	-	-	412
Balances at July 2, 2002	10,880	$ 19,782	$ 18,506	$ 8,680	$ (22,538)	15	$ 164	$24,266

Cafeteria-Level Income. Cafeteria-level income (net sales less cost of sales and other operating expenses) as a percent of net sales was 5.7% and 7.3% for fiscal 2003 and fiscal 2002, respectively. The reasons for this change are discussed below.

~~See~~Cost ~~Notes~~of tosales. ~~Consolidated~~Cost ~~Financial~~of ~~Statements~~sales as a percent of net sales increased 1.0%. That increase is a combination of a 0.8% increase in food costs as a percent of net sales and a 0.2% increase in labor costs as a percent of net sales.

~~Consolidated~~Most ~~Statements~~of the food cost increase relates to various marketing promotions during fiscal 2003. These programs were aimed at increasing the high-quality food reputation of ~~Cash~~the ~~Flows~~Piccadilly brand and increasing the brand’s perception for

					Fiscal
					2002		2001		2000
					(Amounts in thousands)
Operating Activities
	Net Income (Loss)				$ 3,110		$ (36,030)		$ 2,411
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation of property, plant, and equipment and amortization of deferred financing costs			16,305		16,590		17,088
		Amortization and impairment of goodwill			-		5,343		407
		Expenditures associated with closed cafeterias			(3,306)		(1,439)		(2,592)
		Provision for cafeteria impairments and closings			389		13,887		-
		Extraordinary charge - loss on early extinguishment of debt			1,906		2,520		-
		Provision for deferred income taxes and valuation allowance			-		8,072		(505)
		(Gain) loss on disposition of assets			603		(82)		325
		Pension expense - net of contributions			1,949		1,381		1,353
		Changes in operating assets and liabilities
			Accounts and notes receivable	78		(111)		1,051
			Inventories	946		509		(146)
			Recoverable income taxes	-		-		5,578
			Other current assets	(456)		420		208
			Other assets	(268)		1,347		22
			Accounts payable	(2,332)		(2,298)		(6,151)
			Accrued interest	(358)		893		174
			Accrued expenses	(4,319)		(2,637)		(2,710)
			Deferred gain/(loss) on sale-leaseback, net	(1,331)		1,243		-
			Accrued team member benefits	(370)		1,700		(2,291)
	Net Cash Provided by Operating Activities				12,546		11,308		14,222
Investing Activities
	Purchases of property, plant and equipment				(5,032)		(5,004)		(6,832)
	Proceeds from sale of property, plant and equipment				516		3,352		2,877
	Proceeds from sale-leaseback transaction				8,996		20,006		-
	Net Cash Provided (Used) by Investing Activities				4,480		18,354		(3,955)
Financing Activities
	Proceeds from issuance of notes, net of discount				-		72,900		6,604
	Payments on long-term debt				(12,083)		(92,877)		(12,439)
	Financing costs				(906)		(8,778)		(1,900)
	Proceeds from exercise of common stock warrants				412		-		-
	Treasury stock transactions, net				23		(56)		(11)
	Dividends paid				-		-		(2,521)
	Net Cash Used By Financing Activities				(12,554)		(28,811)		(10,267)
	Changes in Cash and Cash Equivalents				4,472		851		-
	Cash and cash equivalents at beginning of year				851		-		-
	Cash and Cash Equivalents at End of Year				$ 5,323		$ 851		$ -
Supplementary Cash Flow Disclosures
	Income taxes paid (net of refunds received)				$ (1,836)		$ 140		$ (4,314)
	Interest paid				6,592		5,590		6,123

SeeTable Notesof to Consolidated Financial StatementsContents

~~Notes~~great value. For example, we enhanced one of our highest selling items, catfish, by increasing the meal portion 50% for many of our guests and promoting an “All-You-Can-Eat Catfish” special during portions of our first and second fiscal quarters. The catfish promotions increased the frequency of catfish meal sales by approximately 45% and increased the quantity of catfish consumed by guests by approximately 120% during the promotion period. Coincident with the catfish promotions, the market price of catfish increased significantly, while the retail price charged to ~~Consolidated~~our ~~Financial~~guests ~~Statements~~was maintained. We discontinued the catfish promotions during the second quarter. Since the end of the promotion, we have mitigated the increase in catfish prices by purchasing similar products at lower costs from other suppliers.

~~NOTE~~The 1:increase ~~SIGNIFICANT~~in ~~ACCOUNTING~~labor ~~POLICIES~~costs, as a percent of net sales, is due to the decline in net sales in relationship to the fixed component of labor costs, primarily cafeteria management staff. Hourly labor costs, as a percent of net sales, was down 0.2% from fiscal 2002.

~~Use~~Other ofoperating ~~Estimates~~expenses. WeOther ~~prepare~~operating ~~the Consolidated~~expenses ~~Financial~~increased ~~Statements~~0.7% inas ~~conformity~~a ~~with accounting principles~~percent ~~generally~~of ~~accepted~~net insales. ~~the~~Marketing ~~United~~expenses ~~States~~increased ~~and~~to ~~make~~2.6% ~~estimates~~of ~~and~~net ~~assumptions~~sales ~~that affect the amounts reported~~ in ~~the~~fiscal ~~financial~~2003 compared ~~statements~~to ~~and accompanying notes~~2. ~~Actual~~2% ~~results~~of ~~could~~net ~~differ~~sales ~~from~~in ~~those~~fiscal ~~estimates~~2002.

~~Principles~~Team member benefit costs as a percent of ~~Consolidation~~net sales were 1. ~~The~~4% in fiscal 2003 ~~accompanying~~compared ~~Consolidated~~to ~~Financial~~2.1% ~~Statements~~in ~~include~~fiscal ~~the~~2002. ~~accounts~~Team member benefit costs decreased $3.3 million. Approximately $2.3 million of the decrease in benefit costs resulted from changes made during fiscal 2002 to our team member benefit plans. Additionally, we reduced benefit costs in fiscal 2003 by utilizing assets from a Morrison Restaurants, Inc. (Morrison) trust fund (the Trust) that had been established to provide benefits under a self-insured medical reimbursement plan. Effective January 1, 1999, we terminated the Morrison plan and team members formerly eligible to participate in that plan were then eligible to participate in the Piccadilly Cafeterias, Inc. ~~and~~Health ~~its~~Insurance ~~subsidiaries~~Plan. ~~All~~ ~~significant~~The Trust ~~intercompany~~continued to pay run-off claims that were incurred prior to January 1, 1999. As of March 2000, all run-off claims had been paid, the Trust had remaining cash balances of $1.2 million, and ~~transactions~~the ~~have~~Trust ~~been~~was ~~eliminated~~effectively infrozen. The ~~consolidation~~remaining Trust assets were used to pay team member benefit costs during fiscal 2003, reducing our operating expenses by $1.2 million. All funds from the Trust were used as of the end of fiscal 2003.

~~Fiscal~~The ~~Year-End~~savings ~~Reporting~~in ~~Period~~team ~~Change. Effective~~member ~~April~~costs 1,were ~~2002,~~partially weoffset ~~adopted~~by ~~a 52-53 week fiscal reporting period for our 2002 fiscal year~~increases, ~~resulting~~as in a percent ~~2002 fiscal year-end date~~ of ~~July~~net 2sales, ~~2002~~of 0. ~~Prior~~4% toin ~~the~~supplies ~~change~~expense, ~~we reported on a June 30 year-end~~0. ~~Prospectively, quarterly~~2% ~~reporting will include 13-week periods except for a 53-week year~~ in ~~which~~ ~~the~~repairs ~~fourth quarter of that fiscal year will include 14 weeks. The change~~and ~~from~~maintenance acosts, ~~monthly~~and ~~reporting period to a 52-53 week reporting period is consistent with our industry~~0. ~~The~~5% ~~inclusion of the two additional days for July 1-2, 2002,~~ in ~~the~~utilities ~~fiscal~~expense. ~~year~~The ~~just~~increase ~~ended resulted~~ in ~~additional sales and net income for~~supplies ~~the~~expense ~~2002~~as ~~fiscal~~a ~~year~~percent of ~~approximately~~net ~~$1.8~~sales ~~million~~is ~~and~~largely ~~$0.4~~due ~~million, respectively. We refer~~ to ~~the~~an ~~fiscal~~increase ~~year~~in ~~ended~~“Piccadilly To-Go” ~~July~~packaging 2,costs ~~2002~~related ~~as fiscal 2002. We refer~~ to the ~~fiscal~~use ~~years~~of ~~ended~~plastic ~~June~~meal ~~30,~~containers ~~2001 and 2000 as fiscal 2001 and~~rather ~~fiscal~~than ~~2000,~~styrofoam ~~respectively~~meal containers.

~~Industry~~General and administrative expenses. ~~Our~~ ~~principal~~General ~~industry~~and isadministrative ~~the~~expenses ~~operation~~increased $0.1 million and increased 0.4% as a percent of ~~Company-owned~~net ~~cafeterias~~sales. ~~primarily~~Legal and professional fees increased $0.7 million over fiscal 2002 including $0.3 million paid to PMCM. Decreases in ~~the~~insurance ~~Southeast~~costs and ~~Mid-Atlantic~~ ~~regions~~executive ofbonuses largely offset the ~~United~~increase ~~States~~in legal and professional fees.

~~Inventories~~Other income. ~~Inventories~~ ~~consist~~During ~~primarily of~~fiscal ~~food~~2003 ~~and~~we ~~supplies~~sold ~~and~~a ~~are~~cafeteria ~~stated~~that atwas closed before the ~~lower~~start of ~~cost~~fiscal ~~(first-~~2003 resulting in, ~~first-out method)~~a or$0.4 million ~~market~~gain this year. ~~Supply~~ ~~inventory~~Since ~~consists~~the cafeteria ~~primarily~~was ofclosed ~~silverware,~~before ~~dishes~~fiscal 2003, the gain is not included in ~~glassware,~~Discontinued ~~counter~~Operations ~~serving~~in ~~pans,~~our ~~and~~Results ~~utensils~~of ~~and~~Operations. ~~includes~~Other ~~supplies~~income ~~held~~in ~~for~~fiscal ~~future~~2002 ~~use~~includes ~~and~~$0.2 million ~~supplies~~of ~~that~~interest ~~are~~income associated with a federal income tax refund received in~~-service~~ fiscal 2002.

~~Property,~~Interest ~~Plant~~expense. ~~and~~Fiscal ~~Equipment~~2003 interest expense was down $0. ~~Property,~~8 million compared ~~plant~~to ~~and~~fiscal ~~equipment~~2002 ~~(PP&E)~~because isof ~~stated~~debt atrepayments ~~cost,~~in ~~except~~fiscal ~~for~~2002 ~~PP&E~~and ~~that~~in ~~has~~fiscal ~~been~~2003. ~~impaired,~~Amortization ~~for~~of ~~which~~financing ~~the~~costs ~~carrying~~and ~~amount~~original isissue ~~reduced~~discount, toincluded ~~estimated~~in interest ~~fair~~expense, ~~value~~was $1.5 million and $1.8 million, respectively for fiscal ~~Depreciation~~2003 isand ~~provided~~fiscal ~~using~~2002. ~~the~~While ~~straight-line~~amortization ~~method~~of ~~for~~financing ~~financial~~costs ~~reporting~~and original issue ~~purposes~~discount on our senior secured debt are lower due to the ~~following~~debt ~~estimated~~repayments, ~~useful~~these savings ~~lives:~~have been partially offset by higher amortization costs related to our Senior Credit Facility.

	Buildings and component equipment	10-30 years
	Furniture and fixtures	10 years
	Machinery and equipment	4 years

Loss on early retirement of debt. As discussed in Note 4 to the Financial Statements we repurchased $8.3 million of our long-term debt in fiscal 2003 pursuant to excess cash flow offers required under the terms of our Debt Agreements. We recorded a charge of $1.3 million for early retirement of debt. The charge is comprised of $0.7 million premium paid over the repaid debt’s carrying value and $0.6 million for related unamortized financing costs. During fiscal 2002, we repurchased $13.0 million of our long-term debt and we refinanced our credit facility. We recorded charges in fiscal 2002 in the amount of $1.9 million, principally for the prorata portion of unamortized financing costs.

~~Leasehold~~Provision ~~improvements~~for ~~are~~cafeteria ~~amortized~~impairments. ~~over~~As ~~the~~discussed ~~original lease~~in ~~term,~~Note ~~including~~2 ~~expected~~to ~~renewal~~the ~~periods if applicable. The cost of~~Financial ~~leasehold~~Statements, ~~improvements~~we ~~has~~recorded ~~been~~asset ~~reduced~~impairment bycharges ~~the amount~~ of ~~construction allowances received from developers and landlords~~$6. ~~Repairs~~7 million ~~and~~in ~~maintenance expenditures~~fiscal ~~are charged to operations as incurred~~2003. ~~Expenditures~~ ~~for~~We ~~renewals~~recorded ~~and betterments that increase the value or extend the lives of assets are capitalized and depreciated over their estimated useful lives~~$0. ~~When~~4 million ~~assets are retired, or are otherwise disposed~~ of, ~~cost~~asset ~~and~~impairment ~~the~~charges ~~related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is included~~ in ~~the~~fiscal ~~determination of income~~2002.

~~Impairment of Long-Lived Assets.~~ 15 ~~Long-lived assets, including goodwill recorded prior to the adoption of SFAS No.~~ 142, to be held and used in the business are reviewed 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. A history of operating losses is a primary indicator of potential impairment. Assets are evaluated for impairment at the cafeteria 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. We generally estimate fair value by discounting estimated future cash flows. Considerable judgment is necessary to estimate cash flows. Accordingly, actual results may vary from such estimates.

AllTable of our goodwill relates to the acquisition of Morrison Restaurants, Inc. in 1998 (the “Morrison Acquisition”). Goodwill is accounted for based on the provisions of SFAS No. 142. Goodwill is evaluated at the reporting unit level, as required. We consider individual cafeterias to be our reporting units. All of the goodwill remaining at July 2, 2002, relates to seven cafeterias. In assessing the recoverability of recorded goodwill we make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. Our annual impairment assessment is made as of our fiscal year-end. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for goodwill.Contents

~~Income~~Provision ~~Taxes. We account~~ for ~~income~~cafeteria ~~taxes using~~closing ~~the~~costs: ~~liability~~As ~~method. Under~~discussed ~~this~~in ~~method,~~Note ~~deferred~~3 ~~income~~to ~~taxes~~the ~~reflect~~Financial ~~the~~Statements, ~~net~~we ~~tax~~recorded ~~effects~~reserves offor ~~temporary~~cafeteria ~~differences~~closing ~~between~~costs ~~the carrying amounts~~ of ~~assets~~ ~~and~~$5.3 million ~~liabilities for financial reporting and the amounts used for income~~in ~~taxes~~fiscal 2003.

~~Stock-Based~~Provision ~~Compensation~~for income taxes (benefit). We ~~account~~During fiscal 2003, we applied to the Internal Revenue Service for certain tax accounting method changes. As a ~~our~~result ~~stock~~of ~~compensation~~these ~~arrangements~~changes, ~~with~~we ~~team~~also ~~members~~filed ~~under~~a $2.5 million refund claim to carry back the ~~provisions~~tax net operating loss generated in fiscal 2002 to prior years which were previously outside the permitted carry back period until the enactment of ~~Accounting~~the ~~Principles~~Job ~~Board~~Creation ~~(APB)~~and NoWork Assistance Act of 2002. 25Likewise, ~~Accounting~~in ~~for~~fiscal ~~Stock~~2002 ~~Issued~~we filed a $2.0 million refund claim with the Internal Revenue Service to carry ~~Employees~~back net operating losses recognized in fiscal 2001 to the June 30, ~~and~~1996 ~~makes~~tax year. Because a full valuation allowance had previously been established for the ~~pro~~Company’s ~~forma~~net ~~information~~deferred ~~disclosures~~tax ~~required~~assets, ~~under~~including net operating losses, these refunds resulted in adjustments to the valuation allowance and tax benefits of ~~provisions~~approximately $2.5 million for fiscal 2003 and $2.0 million for fiscal 2002. We received approximately $2.4 million of the $2.5 million refund during fiscal 2003 and the remaining $0.1 million in the first quarter of fiscal 2004. Under SFAS No. ~~123~~ 109, Accounting for ~~Stock-Based~~Income ~~Compensation~~Taxes, a valuation allowance is still recorded for the remaining net deferred tax assets.

~~Earnings~~Discontinued ~~Per Share~~operations. ~~Earnings~~ ~~per~~Discontinued ~~share~~operations ofinclude the net operating ~~common~~results ~~stock~~of ~~are~~32 ~~calculated~~cafeterias ~~under~~closed since the ~~provisions~~end of ~~SFAS~~fiscal No2002. ~~128~~The 32 cafeterias closed in fiscal 2003 had net losses in fiscal 2003 and fiscal 2002, excluding ~~Earnings~~the ~~Per~~allocation of corporate overhead and excluding gain on sale of ~~Share~~properties, of $3.5 million and $3.0 million, respectively. During fiscal 2003, we closed and then sold a cafeteria property yielding a gain of $0.8 million.

~~Advertising~~Fiscal ~~Expense. The~~2002 ~~cost~~Compared ~~of advertising~~to isFiscal ~~expensed as incurred. We incurred $6.6 million, $4.8 million,~~2001 ~~and $6.4 million, in advertising costs during fiscal years fiscal 2002, fiscal~~ ~~2001 and fiscal 2000, respectively.~~

~~Pending~~Net ~~Accounting~~Sales. ~~Pronouncements~~Total net sales for fiscal 2002, were $349. In7 million, a 9.1% ~~August~~reduction ~~2001,~~from ~~the~~fiscal ~~FASB~~2001 ~~issued~~net ~~SFAS~~sales Noof $384.7 million. ~~144,~~Fiscal ~~Accounting~~2002 ~~for~~includes two ~~the~~additional ~~Impairment~~days ~~or Disposal~~resulting offrom ~~Long-Lived~~the ~~Assets,~~adoption ~~which~~of ~~addresses~~a ~~financial~~52-53 week ~~accounting~~fiscal ~~and~~year reporting ~~for~~period ~~the~~during ~~impairment~~fiscal or2002 ~~disposal~~(see of“Fiscal ~~long~~Year-~~lived~~End ~~assets~~Reporting ~~and supercedes~~Period ~~SFAS~~Change” ~~No.~~above ~~121,~~for ~~Accounting~~further ~~for~~discussion). ~~the~~Net ~~Impairment~~sales offor ~~Long-Lived~~these ~~Assets~~two ~~and~~additional ~~for~~days ~~Long-Lived~~were ~~Assets~~$1.8 million. toCafeteria beclosings ~~Disposed~~in ~~Of,~~fiscal 2001 and ~~the~~fiscal ~~accounting~~2002 ~~and reporting~~accounted ~~provisions~~for $25.3 million of ~~APB~~the ~~Opinion~~total ~~No.~~decline ~~30,~~in ~~Reporting~~net ~~the~~sales. ~~Results~~The ofremaining ~~Operations~~decline ~~for a~~of ~~disposal~~$15.7 million ofis aattributable ~~segment~~to ofcomparatively alower ~~business. SFAS~~same-store Nonet sales. Same-store ~~144~~cafeterias ~~establishes~~are acafeterias ~~single accounting~~that ~~model~~were open for ~~long-lived~~twelve ~~assets~~full toperiods bein both ~~disposed~~fiscal ofyears. byThe same-store net sales ~~and~~decrease ~~also broadens~~of ~~the~~4.0% ~~presentation~~reflects ofa decline ~~discontinued~~in ~~operations~~same-store toguest ~~include~~traffic ~~more~~of ~~disposal transactions~~7.6%, ~~and~~which iswas ~~effective~~partially ~~for~~offset ~~fiscal~~by ~~years~~a check ~~beginning~~average ~~after~~increase ~~December~~of ~~15, 2001~~3. We9%. ~~will~~The ~~adopt~~check ~~SFAS~~average ~~No.~~increase ~~144~~is asprimarily ofdue ~~July~~to a 3,price ~~2002,~~increase ~~and~~implemented wemid-way doin ~~not~~fiscal ~~believe~~2001 ~~that~~and various meal promotions ~~the~~during ~~adoption~~fiscal of2002 ~~the~~that ~~Statement~~were ~~will~~designed ~~have~~to aenhance ~~significant~~check ~~impact~~average.

InComparative ~~April~~same-store ~~2002,~~net ~~the~~sales ~~FASB~~by ~~issued~~quarter ~~SFAS~~for Nofiscal 2002 were (4.9)%, (6.0)%, ~~145~~(4.0)%, ~~Rescission~~and of(1.0)%, ~~FASB~~respectively ~~Statements~~for Nothe first through fourth quarters. After 4September 11, 442001, ~~and~~we ~~62,~~experienced ~~Amendment~~a ofsteeper ~~FASB~~decline ~~Statement~~in Noour net same-store sales. We believe the steeper decline was attributable to lower ~~13,~~traffic ~~and~~in ~~Technical~~regional ~~Corrections~~shopping malls. ~~SFAS~~ NoApproximately one-half of our cafeterias are located in regional shopping malls. ~~145~~In ~~will~~November ~~require~~2001, ~~gains~~we ~~and~~began ~~losses~~a two-month onmarketing ~~extinguishments~~and ofadvertising ~~debt~~campaign designed to beincrease ~~classified~~guest astraffic. ~~income~~We believe orthe ~~loss~~campaign ~~from~~was ~~continuing~~partially responsible for improving guest traffic ~~operations~~trends ~~rather~~to ~~than~~pre-September 11 aslevels ~~extraordinary~~by ~~items~~mid-December. asIn ~~previously~~March ~~required~~2002 ~~under~~we ~~SFAS~~began a ~~No.~~four-month 4advertising campaign that included television and/or radio advertising in markets covering approximately one-half of our cafeterias. We ~~will~~All of ~~adopt~~our ~~SFAS~~cafeteria Nomarkets were included in a related direct mail promotion. Comparative ~~145~~same-store ~~beginning~~sales ~~July~~for April were down 3.7%, ~~2003~~while comparative same-store sales for May and June were up 0. ~~Upon~~1% ~~adoption~~and 0.6%, respectively. We ~~losses~~believe onthat ~~extinguishment~~the ofmost ~~debt~~recent ~~previously~~advertising ~~classified~~campaign aswas anpartially ~~extraordinary~~responsible ~~item~~for inimproving ~~prior~~the ~~periods~~year-over-year ~~will~~sales becomparisons ~~reclassified~~for tothe ~~conform~~fourth toquarter, particularly for the ~~provisions~~last two months of ~~SFAS~~the Noquarter. ~~145.~~

InThe ~~April~~following ~~2002,~~table ~~the~~illustrates ~~FASB~~cost ~~issued~~of ~~SFAS No. 146~~sales, ~~Accounting~~other ~~for~~operating ~~Costs Associated with Exit or Disposal Activities. SFAS No.~~expenses, ~~146~~general ~~will~~and ~~require~~administrative ~~that~~expenses, weand ~~recognize~~other aexpenses ~~liability~~(income) as ~~for~~ a ~~cost associated with an~~percent ~~exit~~of ornet ~~disposal~~sales ~~activity when the liability is incurred. Under previous accounting principles, we recognized a liability~~ for ~~an exit cost at~~ the ~~date~~comparative ~~of our~~fiscal ~~commitment to an exit plan~~years. ~~The provisions of SFAS No. 146 are effective~~ ~~for exit or disposal activities that are initiated after December 31, 2002.~~

NOTE 2: PROVISIONS FOR CAFETERIA IMPAIRMENT AND CLOSINGS AND GOODWILL IMPAIRMENT


	Fiscal 2002			Fiscal 2001			Change

Cost of sales		55.8	%		57.3	%		(1.5	)%
Other operating expenses		36.9	%		37.4	%		(0.5	)%
General and administrative expenses		3.3	%		4.1	%		(0.8	)%
Other expenses (income)		(0.1	)%		(0.2	)%		(0.1	)%

WeCafeteria-Level ~~recorded asset impairment charges of $0~~Income.4 ~~million~~Cafeteria-level ~~for property,~~income ~~plant,~~(net ~~and~~sales ~~equipment~~less ~~relating~~cost toof ~~cafeterias closed during fiscal 2002~~sales ~~due to lease cancellations. During fiscal 2001, we determined that certain leases might not be renewed,~~ and ~~with~~other ~~respect to those cafeterias, revised our forecasts of undiscounted future~~ operating ~~cash~~expenses) ~~flows accordingly. Primarily~~ as a ~~result~~percent of ~~the~~net ~~revised~~sales ~~forecasts,~~was we7.3% ~~determined that long-lived assets for 61 cafeterias, including 47 cafeterias acquired in the Morrison Acquisition, were impaired~~ and ~~recorded asset impairment charges of $9~~5.93% ~~million~~ for ~~property,~~ ~~plant~~fiscal ~~and~~2002 ~~equipment~~ and ~~a related $4.7 million charge against goodwill that had been recorded in connection with the Morrison Acquisition. Additionally, during~~ fiscal 2001, ~~we recorded $0~~respectively.5 ~~million~~The reasons for ~~exit~~the ~~costs~~improvement ~~related to cafeterias to be~~are ~~closed~~discussed ~~during fiscal 2001~~below.

InCost ~~July~~of ~~2001,~~Sales. ~~the~~Cost ~~FASB~~of ~~issued~~sales ~~SFAS~~as ~~No.~~a ~~142,~~percent ~~Goodwill and~~of ~~Other~~net ~~Intangible~~sales ~~Assets. SFAS~~decreased No1.5%. ~~142 requires that goodwill and~~That ~~intangible~~decline ~~assets~~is ~~with~~a ~~indefinite~~combination ~~useful~~of ~~lives~~a no0.2% ~~longer~~decrease bein ~~amortized,~~food ~~but instead~~costs beas ~~tested~~a ~~for~~percent ~~impairment~~of ~~annually or more frequently if circumstances~~net ~~indicate~~sales ~~potential~~and ~~impairment. We~~a ~~adopted SFAS No. 142 effective July~~ 1~~, 2001~~. ~~Accordingly,~~3% nodecrease ~~goodwill~~in ~~amortization~~labor ~~has~~costs ~~been~~as ~~recorded during fiscal 2002. We completed~~ a ~~transitional~~percent ~~goodwill impairment test within six months~~ of ~~adopting~~net ~~SFAS No~~sales. ~~142 as required.~~ The ~~transitional~~decrease ~~impairment~~in ~~test~~food ~~required~~costs, ~~that fair value be tested~~ as ofa ~~the~~percent ~~first day~~ of ~~our~~net ~~fiscal year and therefore the fair value of the reporting unit was determined using carrying amounts as of July 1~~sales, ~~2001. We~~is ~~performed~~primarily ~~the~~due ~~annual impairment~~to ~~test as of July 2, 2002, and~~ the ~~test determined there was no~~ ~~goodwill~~price ~~impairment. Interim~~increase ~~testing~~implemented ~~will~~mid-way bein ~~performed when an event occurs or~~fiscal ~~circumstances indicate that the carrying amount of goodwill may be impaired.~~

~~The following table presents net income and earnings per~~16 ~~share for fiscal 2002, fiscal 2001 and fiscal 2000 in comparative format~~ ~~assuming no goodwill amortization in fiscal 2001 and fiscal 2000:~~

	Fiscal
	2002	2001	2000
	(Amounts in thousands)
Reported income (loss) before extraordinary items	$ 5,016	$ (33,510)	$ 2,411
Add back: goodwill amortization	-	380	407
Adjusted net income	$ 5,016	$ (33,130)	$ 2,818
Reported basic EPS	$ 0.51	$ (3.19)	$ 0.23
Add back: goodwill amortization	-	0.04	0.04
Adjusted basic EPS	$ 0.51	$ (3.15)	$ 0.27
Reported diluted EPS	$ 0.50	$ (3.19)	$ 0.23
Add back: goodwill amortization	-	0.04	0.04
Adjusted diluted EPS	$ 0.50	$ (3.15)	$ 0.27

~~After~~2002. The ~~December~~improvement ~~31,~~in ~~2001~~labor costs, weas ~~received~~a ~~federal~~percent ~~income~~of ~~tax cash~~net ~~refunds~~sales, ~~relating~~is due primarily to ~~the~~savings ~~1993~~realized ~~and~~from ~~1995~~reduced ~~Morrison~~labor ~~income~~hours ~~tax~~combined ~~returns~~with in the ~~amount~~ ~~of $1~~price increase.1 ~~million. A~~On ~~receivable~~average, ~~relating~~labor tohours, ~~the~~primarily ~~refunds was not recorded~~ in ~~connection with~~ the ~~purchase~~kitchen ofproduction ~~Morrison~~area, are inapproximately ~~1998. Approximately~~26 ~~$0.2~~hours ~~million of~~per ~~the~~day ~~refunds~~per ~~relates~~cafeteria tolower ~~interest~~than ~~earned~~a ~~subsequent~~year toago. ~~the Morrison purchase~~This ~~and~~reduction ~~is included~~ in ~~Other~~labor ~~Income. The~~hours ~~remainder~~is ofdue ~~the~~to ~~refund~~lower ~~reduced~~sales ~~the carrying~~level, ~~value~~staff ofreductions, ~~goodwill~~and scheduling ~~by $0~~efficiencies.~~8 million.~~

AtOther ~~July~~Operating 2,Expenses. ~~2002,~~Other weoperating ~~were~~expenses ~~responsible~~decreased ~~for remaining lease-related obligations of $12~~0.35% ~~million~~as ~~related~~a ~~to 26 closed cafeterias, $3.5~~percent ~~million~~ of ~~which~~net ~~relates~~sales. toMeal ~~the~~discounts ~~Morrison~~declined ~~Acquisition~~0. ~~Sublease~~7% ~~arrangements exist~~as ~~relating~~a topercent 15 of ~~these~~net ~~cafeterias~~sales ~~providing~~after various ~~for~~sales ~~future~~promotions ~~sublease~~were ~~rentals of $9~~eliminated.2 ~~million. We~~Manager ~~have~~compensation ~~recorded~~declined ~~liabilities of $4~~0.76% as ~~million~~a topercent ~~settle~~of ~~the minimum~~net ~~rent~~sales ~~obligations~~as ~~and~~a ~~other~~result ~~lease-related~~of ~~charges~~a ~~for~~newly ~~these~~designed ~~closed~~management incentive ~~cafeterias. During~~compensation ~~fiscal~~plan ~~2002,~~implemented ~~fiscal~~in ~~2001, and~~ fiscal ~~2000, we charged $2~~2002.~~7 million,~~ ~~$1.5~~Utility ~~million,~~costs ~~and~~decreased $10.5% ~~million, respectively, against these reserves~~as ~~for~~a ~~lease~~percent ~~settlements~~of ~~and lease-related payments,~~ net ofsales ~~sublease~~reflecting ~~rentals received,~~lower ofgas ~~which $1~~costs.~~0 million, $1.0 million, and $1.1 million, respectively,~~ ~~relate to the Morrison Acquisition.~~

~~NOTE~~The 3:decreases ~~EXTRAORDINARY~~in ~~CHARGES~~other operating expenses were partially offset by other categories that increased as a percent of sales. Rent expense increased 0.6% as a percent of net sales primarily from the sale-leaseback ~~LOSS~~transactions completed ONin ~~EARLY~~March ~~RETIREMENT~~and OFJuly ~~DEBT~~ 2001. Advertising expenses increased 0.5% as a percent of net sales reflecting the sales-building advertising campaigns introduced during fiscal 2002. Team member benefits costs increased 0.2% as a percent of net sales due to an increase in health claims costs and an increase in pension expense in the first six months of the fiscal year. We addressed the increases in team member benefit costs by restructuring our team member health insurance program and freezing our defined benefit pension plan effective January 1, 2002. The team members that were formerly eligible for benefits under the defined benefit pension plan are now eligible for benefits in our 401(k) plan.

OnProvision ~~December~~for ~~11,~~Cafeteria ~~2001, we~~Impairments ~~used~~and ~~available~~Closings. ~~cash~~We ~~balances~~recorded tocafeteria impairment ~~repurchase~~charges ~~approximately~~of $30.7 4 million in ~~face~~fiscal 2002. We recorded a $0.2 million ~~amount~~charge ofrelated to closing a cafeteria for which we exercised our ~~12%~~right ~~Senior~~to ~~Secured~~exit the ~~Notes~~operating (lease. We recorded a $0.2 million charge related to closing a cafeteria for which the ~~“Notes”)~~landlord ~~due~~exercised his right to terminate our lease. In fiscal ~~2007~~2001, we recorded impairment charges of $9.9 million related to the ~~Approximately~~impairment of long-lived assets and $0.3 5 million offor ~~extraordinary~~exit ~~charges~~costs related to cafeterias that were ~~recorded~~scheduled to ~~write-off unamortized~~close ~~financing~~(see ~~costs~~Note ~~related~~2 and Note 3 to the ~~repurchased~~Financial ~~Notes.~~Statements for further discussion).

OnAmortization ~~December~~and ~~11,~~Write-off ~~2001,~~of weGoodwill. ~~completed~~Of athe ~~three-year,~~61 ~~$20.0~~cafeterias included in the ~~million~~fiscal ~~senior~~2001 ~~credit~~impairment ~~facility~~charge, ~~with~~47 ~~Foothill~~were ~~Capital~~acquired ~~Corporation~~in (the ~~“Senior~~Morrison Acquisition. ~~Credit~~Consequently, ~~Facility”)~~we ~~that~~recorded ~~replaced~~ a $~~14.~~4 .7 million ~~senior~~impairment ~~credit~~charge ~~facility~~against ~~with~~goodwill. ~~commercial~~Also ~~banks. During~~during ~~the~~fiscal ~~quarter ended December 31,~~ 2001, we recorded ~~extraordinary~~ ~~charges~~a charge of ~~approximately~~ $0.5 3 million ~~for~~to ~~the~~write-off goodwill ~~unamortized~~associated with four Morrison cafeterias closed in fiscal 2001 (see ~~financing~~Note ~~costs~~2 ofto the ~~replaced~~Financial ~~$14.4~~Statements ~~million~~for ~~facility~~further discussion).

OnGeneral ~~July~~and ~~31,~~Administrative Expenses. Fiscal 2002 general and administrative expenses declined $4.0 million and as a percent of net sales decreased 0.8%. In May 2001, we initiated and completed a ~~sale-leaseback~~management ofreorganization ~~six~~plan ofthat ~~our~~eliminated ~~owned~~25 ~~properties. We~~executive ~~received~~and ~~approximately~~district ~~$9.0~~operations ~~million~~management positions. Included in ~~cash~~fiscal ~~for~~2001 ~~the sale~~general ofand ~~the~~administrative ~~properties~~expense is $1. We5 million ~~used~~for ~~substantially~~severance costs. Substantially all of the ~~net~~$1.5 million ~~sale~~of ~~proceeds~~severance ~~to purchase~~costs ~~$9.4~~was ~~million~~paid inas ~~face~~of the ~~amount~~end of ~~our~~fiscal ~~Notes~~2001, aswith ~~required~~the ~~under~~remainder paid during the ~~terms~~first quarter of ~~the~~fiscal ~~Notes~~2002. We ~~recorded~~Excluding anthe ~~extraordinary~~effects ~~charge~~ of ~~approximately~~the $1.1 5 million tocharge, general and ~~write-off~~administrative ~~unamortized~~expenses, ~~deferred~~as ~~financing~~a ~~costs~~percent ~~associated~~of ~~with~~net sales was 3.0% for fiscal 2002, compared to 3.3% for fiscal 2001. The decline is attributable to the ~~repurchased~~ongoing ~~Notes~~benefits of the reorganization plan.

OnInterest ~~March~~Expense. ~~30,~~Fiscal ~~2001,~~2002 weinterest ~~completed~~expense awas ~~sale-leaseback transaction~~down ~~of 12 properties. We received~~ $202.0 million ~~in cash for the sale of~~compared ~~the~~to ~~properties~~fiscal ~~and~~2001 ~~used~~because ~~substantially~~debt ~~all~~levels ofwere ~~the net proceeds to make open-market purchases of $16~~lower.0 ~~million~~Amortization of ~~our~~financing ~~Notes~~ costs and ~~$4.5~~original ~~million~~issue indiscount, ~~face amount~~included ofin ~~our~~interest ~~floating rate Term B Notes due 2007. On April 13~~expense, ~~2001,~~was ~~we purchased~~lower ~~$0.5~~in ~~million of~~ the fiscal ~~Notes. We~~2002 ~~recorded~~by a $20.5 7 million ~~extraordinary~~. ~~charge, primarily to write-off of deferred financing costs associated with the~~ ~~extinguished debt.~~

~~NOTE~~Other ~~4: INVESTMENT~~expense IN(income). ~~UNCONSOLIDATED~~Fiscal ~~SUBSIDIARY~~2002 other expense (income) includes interest income related to an IRS refund discussed in Note 2 to the Financial Statements in the amount of $0.2 million. Fiscal 2001 includes a gain on a sale of a piece of land in the amount of $0.3 million.

WeProvision ~~own~~for aIncome ~~one-eighth interest in Dallas Reinsurance Company, Ltd~~Taxes. ~~(DallasRe). DallasRe~~As isdiscussed ain ~~group~~Note ~~captive~~7 ~~insurance~~to ~~company incorporated under~~ the ~~Companies~~Financial Statements, ~~Law of the Cayman Islands~~ on ~~July 11~~March 7, ~~1980~~2002, ~~and holds~~the anJob ~~Unrestricted~~Creation ~~Class~~and ~~“B”~~Worker ~~Insurers~~Assistance ~~License~~Act ~~under Section 4(2)~~ of ~~the~~ ~~Cayman~~2002 ~~Islands~~was ~~Insurance Law~~enacted. ~~DallasRe~~ isA ~~engaged~~provision inof ~~the~~that ~~business~~Act ~~of reinsurance~~allows ofa ~~various non~~five-~~life~~year ~~risks~~carry ~~(primarily~~back ~~workers’ compensation, general~~period ~~liability~~for ~~and~~net ~~automobile~~operating ~~liability)~~losses offor ~~its shareholders from Old Republic Insurance Company (~~the ~~“Ceding~~2001 ~~Insurer”)~~tax year. ~~Our~~ ~~investment~~In isfiscal ~~recorded~~2002 atwe ~~cost~~filed ofa ~~$450,000~~refund ~~and~~claim iswith ~~included in Other Assets. Our investment is accounted for using~~ the ~~cost~~IRS ~~method~~to ~~because~~carry weback donet ~~not~~operating ~~have~~losses ~~the ability~~ to ~~exercise~~1996 ~~significant~~that ~~influence~~resulted ~~over~~in ~~the~~a ~~Dallas~~refund ~~Re’s operating and financial policies. Accordingly, the financial results~~ of ~~DallasRe are not consolidated with our results~~$2. ~~We have held our investment in DallasRe since 1985~~0 million. ~~Each~~ ofBecause ~~the other seven shareholders has~~ a ~~one-eighth~~valuation ~~interest~~allowance ~~and has held their own investment in~~had ~~DallasRe~~previously atbeen ~~least~~established ~~as long as us. DallasRe reinsures the Ceding Insurer~~ for ~~insured~~ ~~claims~~these ~~subject~~net tooperating ~~a $250~~losses,~~000~~ ~~deductible~~this ~~per~~refund resulted ~~claim. Our~~in ~~exposure~~an adjustment to the ~~claim~~ ~~losses~~valuation ofallowance, ~~other~~which ~~shareholders~~resulted ~~along with other losses of DallasRe is limited to our investment~~ in ~~DallasRe. We~~a ~~have provided the Ceding Insurer and~~tax ~~DallasRe~~benefit ~~a standby letter~~ of ~~credit for approximately~~ $52.8 0 million ~~securing~~in ~~our self-insured~~fiscal ~~retentions and deferred premium obligations~~2002. ~~The letter of credit~~ ~~can only be called if we are unable to pay our insurance commitments as they~~ ~~come due.~~

~~NOTE~~Discontinued 5:operations. ~~MANAGEMENT~~Discontinued ~~REORGANIZATION~~operations include the net operating results of 32 cafeterias closed since the end of fiscal 2002. The 32 cafeterias closed in fiscal 2003 had net losses in fiscal 2002 and fiscal 2001, excluding the allocation of corporate overhead and excluding gain on sale of properties, of $3.0 million and $1.8 million, respectively.

~~In May 2001, the Board of Directors approved a management~~17 ~~reorganization plan, which eliminated 25 executive and district operations~~ management positions. In connection with this reorganization, we recorded a charge of $1.5 million related to severance costs, which charge is included in general and administrative expenses. Substantially all of the $1.5 million of severance costs was paid as of June 30, 2001.

NOTETable 6: INCOMEof TAXESContents

~~Significant~~Liquidity ~~components of our deferred tax liabilities~~ and ~~assets~~Capital ~~are as follows:~~Resources

	Fiscal
	2002	2001
	(Amounts in thousands)
Deferred tax assets:
Minimum Pension Liability	$ 8,395	$ -
Accrued expenses	6,400	7,447
Cafeteria closing reserves	1,891	3,281
NOL and tax credit carryforwards	12,434	14,731
	29,120	25,459
Valuation Allowance	(21,656)	(15,743)
	7,464	9,716
Deferred tax liabilities:
Property, plant and equipment	4,872	6,568
Prepaid pension costs	1,121	1,677
Inventories	1,471	1,471
	7,464	9,716
Net deferred tax assets	$ -	$ -

Liquidity. We expect to file for protection under the federal bankruptcy laws during our second fiscal quarter ending December 31, 2003. If the Company files for bankruptcy in connection with a sale of a significant portion of its operating assets under Section 363 of the Bankruptcy Code, then, based on the indicative purchase prices being discussed with interested parties, the cash realized from the 363 sale, together with any net cash realized in liquidating the Company's remaining assets, will not be sufficient to pay the Company's liabilities in full. If we cannot reach a definitive agreement, we expect to reorganize under Chapter 11 of the Bankruptcy Code in October 2003. In that case, without a purchaser to pay cash to the Company for its business, the Company would seek to renegotiate the terms of its existing debt and have a plan of reorganization confirmed by its creditors and approved by the bankruptcy court. The outcome for all of the Company's creditors under a plan of reorganization is unclear, but the shareholders would receive little or no value for their equity interests under any plan of reorganization. We believe, based on our current cash flow projections, that during the pendency of the bankruptcy proceeding we will have sufficient cash available to fund operating needs without the necessity of debtor-in-possession financing.

AtOur ~~July~~current 2,financial ~~2002,~~projections indicate that if we ~~had~~continue ~~net~~to ~~operating~~experience declining ~~loss~~sales ~~carryforwards~~trends, our ability to maintain compliance with the financial covenants of ~~$26.1~~the ~~million~~Senior ~~and~~Credit ~~general~~Facility ~~business~~will ~~tax~~be ~~credit~~impaired ~~carryforwards~~during offiscal $12004.3 As ~~million~~further discussed below, we have significant obligations that are due during fiscal 2004 including ~~$17.2~~contributions ~~million~~to our pension plans and $0mandatory debt retirement provisions of our Term A Senior Secured Notes.3 ~~million~~Borrowing limitations ~~resulting~~under the Senior Credit Facility could prevent us from ~~the~~accessing amounts ~~Morrison~~otherwise available thereby impairing our ability to meet our ~~Acquisition~~obligations. ~~These~~ ~~carryforwards~~At ~~expire~~the ~~from~~end ~~2010~~of ~~through~~fiscal ~~2021~~2003, such limitations reduced the borrowing availability under the Senior Credit Facility by $3.2 million.

~~SFAS~~If ~~No.~~we ~~109,~~default ~~Accounting~~under ~~for~~the ~~Income~~terms ~~Taxes~~of the Senior Credit Facility, ~~specifies~~the ~~that deferred~~lender ~~tax~~has ~~assets~~the right beto ~~reduced~~terminate bythe aSenior ~~valuation~~Credit ~~allowance~~Facility, ifaccelerate itthe ismaturity ~~more~~of ~~likely~~any ~~than~~outstanding ~~not~~obligations under the Senior Credit Facility, and require that additional ~~some~~collateral ~~portion~~be ofprovided to secure the ~~deferred~~lender’s ~~tax~~exposure ~~assets~~with ~~will~~regard to ~~not~~any beoutstanding ~~realized~~commercial letters of credit issued on our behalf. ~~For~~ Additionally, under the ~~year~~provisions ~~ended~~of ~~June~~an ~~30,~~intercreditor ~~2001~~agreement between our lenders, we ~~recorded~~may aalso ~~net~~be ~~loss~~in ~~before~~default ~~income~~of ~~taxes~~our ~~and~~senior secured debt. We are ~~extraordinary~~uncertain ~~charge~~as ofto ~~$25.4~~our ~~million~~ability ~~and~~to anobtain ~~extraordinary~~i) ~~charge~~alternative sources of ~~$2.5 million~~liquidity ~~resulting~~ in the ~~cumulative~~event ~~pretax~~of ~~losses~~a ~~for~~default ~~recent~~under ~~years. Accounting rules~~the ~~require~~Senior ~~that~~Credit ~~more~~Facility ~~restrictive~~or ~~criteria~~ii) beadditional sources ~~used~~of toliquidity ~~consider~~if the ~~book~~borrowing ~~value of~~availability ~~deferred~~under ~~assets~~our ~~when~~Senior ~~cumulative~~Credit Facility ~~pretax~~is ~~losses~~insufficient. ~~for~~Given the recent ~~years~~financial ~~exist. As~~performance aof the ~~result~~Company, wesuch ~~provided~~alternative asources ~~$15.7~~of ~~million~~liquidity ~~valuation~~would ~~allowance~~be ~~for~~difficult ~~the~~to ~~deferred~~obtain ~~tax~~on ~~assets~~commercially asacceptable ofterms ~~June~~or ~~30,~~at ~~2001~~all.

OnPension ~~March~~contributions. 7,We ~~2002,~~made ~~the~~pension ~~Job~~contributions ~~Creation~~to ~~and~~our ~~Worker~~defined ~~Assistance~~benefit ~~Act~~plans ofduring ~~2002~~fiscal ~~was~~2003 ~~enacted~~of $0. A8 million. ~~provision~~Our ofconsulting ~~that~~actuaries ~~Act~~have estimated ~~allows~~that aannual ~~five-year~~cash ~~carry~~contributions ~~back period~~to ~~for~~the ~~net~~Piccadilly ~~operating~~defined ~~losses~~benefit pension plan for the ~~2001~~2004 ~~tax~~plan year~~. In~~ ~~March~~(which weis ~~filed~~ a ~~refund~~ ~~claim~~calendar ~~with~~year) ~~the~~might ~~IRS~~range from $7 million to ~~carry~~$12 million ~~back~~commencing ~~net~~in ~~operating~~April ~~losses~~2004 toand ~~1996~~might ~~that~~average $7 ~~resulted~~million inover athe ~~refund~~following ~~claim~~four ofplan $2years.0 ~~million. We~~The ~~subsequently~~ultimate ~~received~~amount ~~the~~of ~~refund~~the incontributions ~~April~~owing ~~2002. Because~~for athe ~~valuation~~2004 ~~allowance~~plan ~~had~~year ~~previously~~cannot ~~been~~be ~~established~~ascertained until we ~~for~~determine ~~these~~the ~~net~~fair ~~operating~~value ~~losses~~of the pension assets at December 31, ~~this~~2003. ~~refund~~The significant ~~resulted~~increase in anexpected ~~adjustment~~pension plan contributions is attributable to first, the portfolio of pension assets has yielded market losses over the past ~~valuation~~several ~~allowance~~years, ~~which~~reducing ~~resulted~~the fair market value of the invested assets and secondly, to declines in amarket ~~tax~~interest ~~benefit~~rates that have increased the present value of ~~$2.0~~future ~~million~~benefit obligations. A Our consulting actuaries have further ~~valuation~~advised ~~allowance~~us ofthat ~~$21.7~~proposals ~~million~~currently ~~exists~~under asconsideration ofby ~~July~~the 2,United ~~2002~~States Congress will not provide significant relief to next year’s contribution range.

Early retirement of debt. We are required each year to make offers to repurchase the Term A Senior Secured Notes (the “Senior Notes”) utilizing excess cash flow from the immediately preceding fiscal year. Excess cash flow is defined as EBITDA (as defined below) less interest expense, income tax expense, and capital expenditures. Specifically, the Senior Notes require that, if during any fiscal year we have excess cash flow of more than $2.5 million, we must make an offer to repurchase Senior Notes at 101% of the principal amount thereof, plus accrued interest. The ~~components~~excess cash flow offer must be in an amount equal to the lesser of $5 million or the ~~provision~~excess cash flow. Based on our current projections, we expect to have the ability to satisfy excess cash flow payment requirements by using cash balances then on hand and cash that will be available under our Senior Credit Facility. However, given the likelihood that the Company will seek protection under the federal bankruptcy laws in the near future, the Company decided to not provide the required notice. Under the terms of the Term A Senior Secured Notes, the Trustee for ~~income~~the ~~taxes~~Noteholders will ~~are~~have asthe right to notify the Company of its contractual breach which, if ~~follows:~~not cured timely, would accelerate the Company’s $39.2 million indebtedness. If such a notice is received, the Company does not intend to cure the breach.

	Fiscal
	2002	2001	2000
	(Amounts in thousands)
Current:
Federal	$ (2,026)	$ -	$ 1,213
State	-	-	51
	(2,026)	-	1,264
Deferred:
Federal	-	7,749	(814)
State	-	323	(34)
	-	8,072	(848)
Total provision for income taxes	$ (2,026)	$ 8,072	$ 416

Senior Credit Facility. We have a $20 million senior credit facility with Wells Fargo Foothill (the “Senior Credit Facility ”). The Senior Credit Facility matures in December 2004 and bears interest at the Wells Fargo prime rate plus 2.0%. The Senior Credit Facility contains financial covenants that require (i) a minimum earnings before interest expense, income taxes, depreciation, and amortization (EBITDA), (ii) a maximum ratio of the Senior Credit Facility commitment to EBITDA, (iii) a maximum ratio of net funded debt to EBITDA, and (iv) a minimum ratio of fixed charges. The financial covenant requirements are predetermined and adjust over the term of the Senior Credit Facility. Compliance with the financial covenants, formerly measured quarterly, is now measured monthly. All of our financial covenant tests are measured with results for the most recent twelve-month period. As of the end of fiscal 2003, we complied with all of the financial covenants of the Senior Credit Facility.

~~Differences between the provision for income taxes and~~18 ~~the amount computed by applying the federal statutory income tax rate to income~~ ~~before income taxes are as follows:~~

	Fiscal
	2002	2001	2000
	(Amounts in thousands)
Income taxes at statutory rate	$ 369	$ (9,498)	$ 961
State income taxes, net of federal taxes	44	(1,117)	113
	413	(10,615)	1,074
Goodwill amortization	-	1,971	132
Tax credits	(66)	(181)	(117)
Valuation allowance	(2,482)	15,743	-
Reversal of over accrual	-	-	(786)
Other items	109	1,154	113
Total provision for income taxes	$ (2,026)	$ 8,072	$ 416

~~NOTE~~As of August 15, 2003, there were no outstanding borrowings under the Senior Credit Facility. Approximately $13.7~~: LEASED~~ million ~~PROPERTY~~of the Senior Credit Facility was used for outstanding commercial letters of credit and $6.3 million was available for borrowing, subject to a $3.2 million borrowing base reserve, for working capital and for other corporate purposes.

WeCapital ~~rent~~expenditures. ~~most~~Purchases of ~~our~~property, ~~cafeteria~~plant ~~facilities~~and ~~under~~equipment ~~long-term~~for fiscal ~~leases~~2003 ~~with~~were ~~varying~~$7.0 million, ~~provisions~~compared ~~and~~to ~~with~~$5.0 million ~~original~~for ~~lease~~fiscal ~~terms~~2002. ~~generally~~The ofincrease in 20capital ~~to 30~~expenditures ~~years. We~~was ~~have~~related ~~the~~to ~~option~~$0.6 million to ~~renew~~buyout certain ~~leases~~cafeteria equipment ~~for~~formerly ~~specified~~leased, ~~periods subsequent~~$0.7 million to ~~their~~purchase ~~original~~and ~~terms~~install new menu signage, $0. ~~Minimum~~3 million ~~future~~for ~~lease~~computer ~~commitments~~equipment and software, asand $0.5 million for replacement cafeteria equipment and major repairs to extend the life of certain ~~July~~cafeteria 2,properties. ~~2002,~~Our ~~including~~maintenance capital expenditures are limited to $118.3 0 million ~~for~~per ~~closed~~fiscal year and investments in new cafeterias, are aslimited ~~follows:~~to $6.0 million per fiscal year under the terms of our Senior Notes and Senior Credit Facility.

(Amounts in thousands)
Fiscal
2003	$ 20,680
2004	17,738
2005	15,526
2006	12,932
2007	11,425
Subsequent	72,685
	150,986
Less sublease income	8,760
Net minimum lease commitments	$ 142,226

Rating Agencies. Moody’s and Standard & Poor’s (S&P) initially assigned first-time ratings of B2 and B+, respectively, to our senior secured debt. Subsequently, Moody’s downgraded its rating from B2 to Caa1 and S&P downgraded its rating from B+ to CCC-. These ratings are subject to revision or withdrawal at any time. Moody’s assigns a “Caa1” credit rating to bonds it “judges to be of poor standing and are subject to very high credit risk..” S&P assigns a “CCC-” rating to obligations for which it considers “has very weak financial security characteristics, and is dependent on favorable business conditions to meet financial commitments.” A plus (+) or minus (-) sign is added “to show relative standing with the major rating categories.” We express no opinion on the ratings assigned to the notes by Moody’s and S&P and do not believe that these ratings downgrades will have a material adverse impact on our ability to repay the Senior Notes, our Senior Credit Facility, or our liquidity in the foreseeable future. We have no credit facilities or commitments containing rating triggers.

~~The~~Dividends. ~~leases~~We ~~generally~~have ~~provide~~not ~~for~~paid ~~contingent~~a ~~rentals~~dividend ~~based~~ on ~~sales. Certain~~our ~~leases~~Common ~~also~~Stock ~~provide~~since ~~for~~the ~~payments~~Board of Directors ~~executory~~suspended ~~costs~~our ~~such~~regular ~~as real~~quarterly ~~estate~~dividend ~~taxes,~~on ~~insurance~~February 7, ~~maintenance and other miscellaneous charges~~2000. Our ~~Rentals~~Senior ~~for~~Credit ~~the~~Facility ~~periods~~prohibits ~~shown~~payment ~~below~~of ~~do not include these executory costs~~dividends.

	Fiscal
	2002	2001	2000
	(Amounts in thousands)
Minimum rentals	$18,810	$17,844	$15,513
Contingent rentals	1,920	2,786	3,160
Total	$20,730	20,630	$18,673

Trends and Uncertainties

~~NOTE~~Pension ~~8: DEBT~~plan liability. We are the sponsor of two defined benefit pension plans (see Note 10 to the Financial Statements for further discussion). Each of these plans is frozen so no ongoing employee service cost is credited. Events relative to these plans that are beyond the control of management have significantly impacted our operating results and our liquidity outlook. Overall, the portfolio of pension assets has yielded market losses over the past several years, reducing the fair market value of the invested assets. Secondly, declines in market interest rates have increased the present value of future benefit obligations. The net result is that the pension plans are underfunded at the end of fiscal 2003.

OnWe ~~December~~do ~~21,~~not ~~2000,~~administer weor ~~closed~~control athe ~~debt~~Morrison ~~offering of (1) 71~~Restaurants,~~000~~ ~~“A” units consisting in the aggregate of $71~~Inc.0 ~~million~~Retirement ~~principal amount~~Plan. ofRuby ~~Senior~~Tuesday, ~~Secured~~Inc. ~~Notes~~administers ~~due~~that ~~fiscal~~plan. ~~2007~~The ~~and~~Pension ~~warrants~~Committee toof ~~purchase~~the ~~746,210 shares~~Company ofadministers ~~our~~the ~~common~~Piccadilly ~~stock and (2) 4~~Cafeterias,~~500~~ ~~“B” units consisting in the aggregate of $4~~Inc.~~5 million~~ ~~principal~~Pension ~~amount~~Plan ~~of Term B Notes due fiscal 2007~~ (~~secured equally with~~ the ~~Senior Secured Notes~~“Plan”) ~~and~~but ~~warrants to purchase 47,295 shares of our common~~does ~~stock. In~~not ~~addition,~~direct weinvestment ~~entered~~decisions ~~into~~relative ~~a $5.5 million Term Loan Credit Facility with warrants~~ to ~~purchase 57,805 shares of common stock. Amounts borrowed under~~ the ~~Term~~assets ~~Loan Credit Facility are subject to terms substantially similar to those~~ of the ~~Term B Notes due fiscal 2007 included as part of the “B” units~~Plan. ~~The~~ ~~“A” units~~Rather, investment ~~the~~managers ~~“B”~~hired ~~units,~~by ~~and~~ the ~~Term~~Pension ~~Loan~~Committee ~~Credit~~make ~~Facility~~these ~~are~~decisions. ~~all secured~~The ~~equally~~Pension byCommittee ais ~~first~~comprised ~~priority~~of ~~lien~~members ~~on substantially all~~ of ~~our assets~~management. The ~~warrants~~ ~~will~~Pension ~~expire on November 1, 2007 and each warrant entitles the holder to~~Committee ~~purchase~~has ~~10.51~~hired ~~shares of our common stock at~~ an ~~exercise~~investment ~~price~~advisor ~~per~~who ~~share~~meets ~~of $1.16875. During~~with ~~fiscal~~and ~~2002~~provides ~~warrants reflecting 352,085 shares were exercised~~quarterly ~~and~~performance atreports ~~July~~of 2,the ~~2002,~~investment ~~warrants~~managers ~~reflecting~~hired ~~499,225~~by ~~shares~~the ~~remain~~Pension ~~outstanding~~Committee.

~~The~~Management ~~$81.0~~has ~~million~~little influence in ~~notes~~the market performance of the Plan’s invested assets and ~~term~~has ~~loan~~no ~~was~~influence ~~sold~~over atmarket ainterest rates. Substantial ~~discount,~~volatility ~~and~~in the ~~gross~~financial ~~proceeds~~markets ~~from~~has resulted in material pension liabilities on our Balance Sheets which liabilities, at the ~~offerings~~end ~~were~~of ~~approximately~~fiscal ~~$72.9~~2003, ~~million. After~~exceed ~~paying~~shareholders’ ~~transaction~~equity. ~~costs,~~We wecannot ~~used~~forecast whether the ~~net~~market ~~proceeds~~performance of ~~from~~Plan ~~the~~assets ~~unit~~together with increases in market interest rates could recover ~~offerings~~to ~~and~~the ~~borrowings~~point ~~under~~that the ~~term~~recorded ~~loan~~liabilities towould ~~repay~~be ~~approximately~~eliminated ~~$67.0~~nor can we ~~million~~forecast inwhether ~~borrowings~~such ~~outstanding~~a ~~under~~recovery, ~~the~~if ~~credit~~any, ~~facility~~would occur before substantial cash contributions to these plans are required. We cannot be certain that ~~was~~we ~~scheduled~~will have sufficient liquidity necessary to ~~mature~~make onrequired ~~June~~cash ~~22,~~contributions ~~2001~~to these plans as they become due.

~~Interest~~Cafeteria isimpairment ~~payable~~and ~~semiannually~~closing oncharges. ~~the~~We ~~Senior~~periodically ~~Secured~~review the ~~Notes~~historical atoperating ancash ~~initial~~flow ~~annual~~and ~~rate~~forecasts of ~~12%,~~operating ~~subject~~cash toflow ~~annual~~for ~~adjustment beginning~~each ~~November~~cafeteria. 1,Forecasted ~~2001. The~~cafeteria-level ~~interest~~cash ~~rate~~flow ~~will~~is bea ~~adjusted~~primary ~~each~~determinant ~~year~~of whether the cafeteria will continue to 12operate or be closed.0% ~~plus~~In cases where we ~~0.50%~~determine ~~for~~that ~~every~~a ~~$1.0~~cafeteria’s ~~million~~potential ofoperating ~~EBITDA~~cash flow (~~for~~before ~~the~~occupancy costs) ~~preceding~~is ~~fiscal~~not ~~year)~~sufficient into ~~excess of~~cover ~~$27.0~~occupancy ~~million~~costs, ~~not~~we towill ~~exceed~~generally aclose 1that cafeteria.5% ~~increase~~These incafeterias ~~any~~have ~~year~~relatively low sales volumes and little or no positive cash flow, and ~~not~~in tosome ~~exceed~~cases, ~~a rate~~negative ofcash 16flow.~~5%. Interest~~ In the event that a cafeteria is ~~payable~~closed ~~quarterly,~~before ~~beginning~~the ~~February~~end 1,of ~~2001~~its lease, on charges are recorded for the net ~~Term~~remaining Blease ~~Notes~~obligation, ~~and~~other ~~the~~costs ~~Term~~to ~~Loan~~close ~~Credit~~the ~~Facility~~cafeteria, atand remaining aunrecoverable ~~floating~~asset ~~rate~~book ~~equal~~value toas ~~LIBOR~~dictated ~~plus~~by 4the circumstances.~~5%. The~~ ~~exercise~~Charges ~~price~~ for the ~~warrants~~minimum isremaining ~~$1.16875,~~obligations under ~~which~~a ~~was 110%~~lease ofare ~~the~~reduced ~~closing~~by ~~sales~~expected ~~price~~recoveries offrom ~~the~~subleasing ~~common~~activity, ~~stock~~if any, onor ~~the~~expected ~~date~~reductions ~~prior~~from ~~to closing~~negotiations with landlords, if any.

~~We are required on the last business day of September of~~19 ~~each year to make an excess cash flow offer to purchase Senior Secured Notes and~~ prepay amounts outstanding under the Term Loan Credit Facility at 101% of the aggregate principal amount plus accrued interest for the most recently completed fiscal year if excess cash flow (defined as EBITDA less interest expense, income tax expense, and capital expenditures) is at least $2.5 million. This excess cash flow offer is limited to the lesser of (i) excess cash flow that is greater than $2.5 million or (ii) $5.0 million. If excess cash flows are greater than $5.0 million, we are required to offer to prepay amounts outstanding under the Term Loan Credit Facility at 101% of the aggregate principal amount plus accrued interest. This additional excess cash flow offer is limited to 50% of the amount by which excess cash flow exceeds $5.0 million. The excess cash flow offer and the additional excess cash flow offer, if such offer(s) are made, must remain open for a period of 20 business days. For the year ended July 2, 2002, excess cash flow was approximately $15 million and the maximum required offer to repay debt from fiscal 2002 cash flows is approximately $9.9 million which amount is classified as a current liability at July 2, 2002. We did not have excess cash flows for fiscal 2001.

OnTable March 30, 2001, we completed a sale-leaseback transaction of 12 properties. We received $20.0 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. We used substantially all of the net proceeds to make open-market purchases of $16.0 million of our 12% Senior Secured Notes due fiscal 2007 and $4.5 million of our floating rate Term B Notes due fiscal 2007. 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. The assets sold and leased back previously had depreciation expense of approximately $0.8 million annually.Contents

OnIf ~~July~~we ~~31,~~expect ~~2001,~~to ~~we completed~~continue ato ~~sale-leaseback~~operate ofthe ~~six~~cafeteria, ofwe ~~our~~consider ~~owned~~whether ~~properties. We received~~the ~~approximately~~forecasted ~~$9.0~~cafeteria-level ~~million~~operating in cash ~~for~~flow ~~the~~indicates ~~sale~~that of the ~~properties and~~long-lived ~~simultaneously~~assets ~~executed~~associated ~~long-term~~with ~~leases~~the toindividual ~~continue~~cafeterias toare ~~operate~~impaired. ~~cafeterias~~Under atour ~~the~~accounting ~~sites~~policy for aimpairment ~~primary term~~ of 20long-lived ~~years~~assets, ~~and~~an ~~optional~~asset ~~renewal~~is ~~periods~~deemed ~~for up~~ to be 20impaired ~~additional~~if ~~years. We~~a ~~used~~forecast ~~substantially all~~ of ~~the~~undiscounted ~~net~~future ~~sale~~operating ~~proceeds~~cash toflow, including ~~purchase~~assumptions ~~$9.4~~regarding ~~million~~disposal invalues ~~face~~and ~~amount~~lease ofrenewals, ~~our~~is ~~12%~~less ~~Senior~~than ~~Secured Notes due fiscal~~its ~~2007~~carrying amount. ~~The~~ ~~sale~~In ofcases ~~the~~where ~~six~~we ~~properties~~determine ~~resulted~~that in a ~~$1.3~~cafeteria ~~million~~lease ~~deferred~~will ~~loss,~~likely ~~which~~not ~~will~~ be ~~amortized~~renewed, ~~over~~for ~~the~~purposes ~~initial term~~ of ~~the~~computing ~~lease. The~~depreciation, ~~net result of~~ the ~~sale-leaseback~~useful ~~and~~lives ~~note repurchase transactions is a reduction~~ of ~~annual expenses of $1.2 million. Net rent expense during~~ the ~~initial~~related ~~term~~assets ~~will~~are bereduced, ~~approximately~~if ~~$1.1 million~~necessary, ~~annually. The~~to ~~assets~~reflect ~~sold~~the ~~and~~remaining ~~leased back previously had depreciation~~life ~~expense~~ of ~~approximately~~the $0lease.~~9 million annually.~~

~~With~~We ~~the~~categorize ~~six properties~~our ~~sold~~cafeterias ininto ~~July~~“Core ~~2001,~~Cafeterias” weand ~~have entered into sale~~“Non-~~leaseback~~Core ~~transactions~~Cafeterias”. ~~for~~Non-Core aCafeterias ~~total~~are ofthose 18locations ~~properties. The~~with ~~purchaser~~relatively oflow ~~these~~net 18sales ~~properties~~and ~~is an~~low ~~unrelated~~levels ~~third-party~~of ~~who~~operating ~~has,~~earnings. byFor ~~their~~fiscal ~~payment~~2003, ~~terms~~average tonet ussales for ~~the purchase of~~Non-Core ~~these~~Cafeterias ~~properties,~~were ~~demonstrated~~$1.3 million ~~initial~~compared ~~and~~to ~~continuing~~$2.0 million ~~investment~~for inCore ~~the~~Cafeterias. ~~properties~~Average ~~acquired. We~~net ~~have~~loss, noexcluding ~~continuing~~allocation ~~involvement~~of ~~with~~corporate ~~the properties sold~~overhead, ~~other than a normal lease. There is no obligation on our part to~~impairment ~~repurchase~~charges ~~the~~and ~~properties~~depreciation ~~sold~~charges, ~~and~~for ~~the~~Non-Core ~~purchaser~~Cafeterias ~~does~~was ~~not have the ability to~~approximately ~~compel~~$(13,000) uscompared to ~~repurchase~~approximately ~~the~~$211,000 ~~property~~on ataverage ~~any~~for ~~time~~Core ~~in the future~~Cafeterias. ~~We have made no~~ ~~guarantees~~69% of ~~the~~Non-Core ~~purchaser’s~~Cafeterias ~~investment~~are orlocated ain ~~return~~regional onshopping ~~that~~malls ~~investment~~while ~~for~~only ~~either~~33% aof ~~limited~~other orcafeterias ~~extended~~are ~~period~~in similar locations.

OnThe ~~December~~table ~~11,~~below ~~2001,~~quantifies wethe ~~used~~number ~~available~~of ~~cash~~Non-Core ~~balances~~Cafeterias toand Core ~~repurchase~~Cafeterias ~~approximately~~as ~~$3.7~~of ~~million~~July 31, in2003 ~~face~~by ~~amount~~the offiscal ~~our~~year ~~12%~~in ~~Senior~~which ~~Secured Notes~~the ~~due~~current ~~fiscal~~lease ~~2007~~terms expire.

On December 11, 2001, we completed a three-year, $20.0 million Senior Credit Facility with Foothill Capital Corporation (the “Senior Credit Facility”) replacing a $14.4 million senior credit facility with commercial banks. Approximately $10.7 million of the Senior Credit Facility supports commercial letters of credit, and the remainder is available for working capital and for other corporate purposes. The Senior Credit Facility matures in December 2004 and bears interest at the Wells Fargo prime rate plus 2.0%. We have no outstanding borrowings under the Senior Credit Facility at July 2, 2002.


			Core		Non-Core		Total Leased
			Cafeterias		Cafeterias		Cafeterias

Leased locations:
	Fiscal 2004			7		12		19
	Fiscal 2005			12		12		24
	Fiscal 2006			15		8		23
	Fiscal 2007			14		3		17
	Fiscal 2008			14		2		16
	Remaining years			56		9		65

		Subtotal		118		46		164
Owned locations				7		3		10

		Total		125		49		174

~~The~~Minimum ~~Senior~~Wage ~~Credit~~Increase. ~~Facility~~From ~~contains~~time ~~financial~~to ~~covenants that~~time ~~require~~the ~~(i)~~United aStates ~~minimum~~Congress ~~level of earnings before income taxes, depreciation,~~considers ~~and~~increases ~~amortization~~to ~~(EBITDA), (ii) a maximum ratio of~~ the ~~Senior~~federally ~~Credit~~mandated ~~Facility commitment~~minimum towage. ~~EBITDA~~Historically, ~~(iii)~~we ahave ~~maximum~~passed the ~~ratio~~cost of ~~net~~such ~~funded~~increases ~~debt~~ to ~~EBITDA,~~our ~~and (iv)~~guests ain ~~minimum~~higher ~~ratio of fixed charges~~prices. ~~The~~ ~~financial~~There ~~covenant~~can ~~requirements~~be ~~are~~no ~~predetermined~~guarantee ~~and~~that ~~adjust~~future ~~over~~government ~~the~~mandated ~~term~~minimum ofwage ~~the~~increases ~~Senior~~could ~~Credit Facility. We~~be ~~believe~~absorbed ~~that~~into ~~the~~higher ~~financial~~prices ~~covenant~~for ~~requirements under the Senior Credit Facility better suit~~ our ~~business plan than the covenants of the replaced facility~~products. ~~Currently,~~ ~~compliance~~We ~~with~~have ~~the~~estimated ~~financial~~that ~~covenants is measured quarterly. However, if total funding under~~ the ~~Senior Credit Facility together~~cost ~~with outstanding letters~~ of ~~credit~~a ~~amounts to~~ $151.000 ~~million,~~per ~~compliance~~hour ~~with~~increase ~~the financial~~in ~~covenants will be measured monthly. At July 2, 2002, and with respect to~~ the ~~Senior~~federal ~~Credit~~minimum ~~Facility,~~wage wewould ~~complied~~increase ~~with all of the financial covenants,~~our ~~there~~total ~~were~~wages noand ~~fundings~~related ~~outstanding,~~payroll ~~and~~tax ~~outstanding~~expenses ~~letters~~by ofa ~~credit~~range ~~amounted to~~from $101.76 million to $2.4 million annually.

~~Because~~Item 7A. noQuantitative ~~active~~and ~~market~~Qualitative ~~has~~Disclosures ~~developed~~About ~~for~~Market ~~the Senior~~Risk ~~Secured Notes, it is not practicable to estimate the fair value of our long-term~~ ~~borrowings.~~

WeOur ~~capitalized~~Senior ~~interest~~Notes ~~costs~~bear ofinterest $0at 12.10%, ~~million~~subject into ~~fiscal~~annual adjustment on ~~2000~~November ~~respect~~1. The interest rate is adjusted each year to ~~qualifying~~12.0% ~~construction~~plus 0. No50% ~~interest~~for every ~~costs~~$1.0 million ~~were~~of ~~capitalized~~EBITDA (for the preceding fiscal year) in excess of $27.0 ~~fiscal~~million, ~~2002~~not orto ~~fiscal~~exceed ~~2001~~a 1. ~~Total~~5% ~~interest~~increase ~~cost~~in any one year, ~~including~~and ~~amortization~~not ~~of deferred~~to ~~financing~~exceed ~~costs,~~a rate ~~was~~of $816.05%. ~~million~~Our inEBITDA for fiscal ~~2002,~~2003 was $1016.0 6 million. inTherefore, the ~~fiscal~~interest ~~2001,~~rate ~~and~~on ~~$7.3~~our ~~million~~Senior inNotes ~~fiscal~~will ~~2000~~remain fixed at 12.0% through October 31, 2003.

~~NOTE~~Our ~~9: PENSION~~Senior ~~PLANS~~Credit Facility bears interest at the Wells Fargo prime interest rate plus 2.0%. At the end of fiscal 2003, we had outstanding borrowings under this facility of $2.0 million. As of September 29, 2003, there were no outstanding borrowings under the Senior Credit Facility.

WeBecause ~~have~~no aactive ~~defined~~market ~~benefit~~has ~~pension~~developed ~~plan~~for ~~covering substantially~~the ~~all~~Senior ~~team members who meet certain age and length-of-service requirements and were hired before January 1~~Notes, ~~2000,~~it ~~except~~is ~~for team members~~not ~~employed~~practicable byto ~~Morrison~~estimate ~~Restaurants, Inc. before~~ the ~~Morrison~~fair ~~Acquisition. Retirement~~value ~~benefits are based upon a team member’s years~~ of ~~credited~~our ~~service~~long-term ~~and final average compensation~~borrowings. ~~Annual~~ ~~contributions are made in amounts sufficient~~This todiscussion ~~fund~~does ~~normal~~not ~~costs~~consider asthe ~~accrued~~effects ~~and to amortize prior service costs over a 40-year period. Assets~~ of the ~~plan~~reduced ~~are~~level ~~invested~~of ~~principally in marketable debt~~overall ~~and~~economic ~~equity~~activity ~~securities~~that ~~including~~could ~~367,662~~exist ~~shares~~following ofsuch ~~our~~changes. ~~common~~We ~~stock~~have ~~held~~not ~~at July~~used 2,derivative ~~2002~~instruments ~~and~~to ~~June~~engage ~~30,~~in ~~2001~~speculative ~~with~~transactions aor ~~fair value of $1.1 million and $0.6 million,~~hedging ~~respectively~~activities.

~~At the time of the Morrison Acquisition, Morrison~~20 ~~maintained two nonqualified team member defined benefit pension plans and one~~ ~~frozen qualified defined benefit pension plan. The two Morrison nonqualified~~ ~~pension plans continue to accrue benefits for covered team members. To provide~~ ~~a source for the payment of benefits under these plans, we own whole-life~~ ~~insurance contracts on some participants.~~

WeTable are a co-sponsor of the Morrison Restaurants Inc. Retirement Plan along with Ruby Tuesday, Inc. and Morrison Management Specialists, Inc. The MRI Retirement Plan, a qualified defined benefit pension plan, was frozen on December 31, 1987. Its assets include common stock, fixed income securities, short-term investments, and cash. We will continue to share in future expenses of that plan, and will contribute to that plan as necessary.Contents

~~We recorded a minimum pension liability as of July 2, 2002, the valuation date of the plans, of $22~~Item 8.5 ~~million~~Financial toStatements ~~reflect~~and ~~the~~Supplementary ~~unfunded~~Data ~~status of the frozen pension plans. Consequently, the equity section of our~~ ~~balance sheet reflects Other Comprehensive Loss of $22.5 million. The unfunded~~ status of these two plans results from the decline in the fair values of their assets due to market performance and an increase in the present value of projected benefit obligations due to a decrease in market interest rates.

~~Changes~~Balance ~~in plan assets and obligations for fiscal 2002~~Sheets ~~and fiscal 2001 and the funded status of the plans described in the preceding~~ ~~paragraphs (referred to collectively as “Pension Benefits”) at July 2, 2002 and June 30, 2001, were as follows:~~

		Pension Benefits
				(Amounts in thousands)
		Fiscal 2002	Fiscal 2001
				Balances at
		(Amount in thousands)
				July 1, 2003			July 2, 2002
Change in benefit obligation:
ASSETS
Benefit obligation at beginning of year		$ 85,057	$ 77,803
Current Assets
Service cost		1,189	2,208
	Cash			$	3,157		$	5,661
Interest cost		6,108	6,070
	Accounts and notes receivable				834			952
Benefits paid		(4,220)	(4,301)
	Inventories				9,419			11,286
Assumptions change		4,902	2,632
	Other current assets				1,806			1,541
Curtailment		(10,420)	-
		Total Current Assets			15,216			19,440
Actuarial (gain) loss		726	645
Property, Plant and Equipment
Benefit obligation at end of year		$ 83,342	$ 85,057
	Land				6,888			8,872
Change in plan assets:
	Buildings and leasehold improvements				105,419			117,170
Fair value of plan assets at beginning of year		$ 68,475	$ 77,986
	Furniture and fixtures				89,992			106,070
Actual return		(4,966)	(5,471)
	Machinery and equipment				10,198			10,687
Benefits paid		(3,919)	(4,040)
	Construction in progress				274			617
Fair value of plan assets at end of year		$ 59,590	$ 68,475
					212,771			243,416
		July 2, 2002	June 30, 2001
	Less allowances for depreciation				129,199			144,021
		(Amount in thousands)
		Net Property, Plant and Equipment			83,572			99,395
Reconciliation of funded status:
Goodwill					3,159			3,705
Fund status		$ (23,763)	$ (16,582)
Other Assets					8,926			11,155
Unrecognized actuarial loss		22,605	16,848
		TOTAL ASSETS		$	110,873		$	133,695
Unrecognized prior service cost		-	(18)
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Net prepaid pension cost (pension liability)		$ (1,158)	$ 248
Current Liabilities
Net prepaid benefit cost consists of:
	Current portion of long term debt, net of $295,000 and $766,000 unamortized discount at July 1, 2003 and July 2, 2002, respectively			$	4,377		$	9,112
Prepaid benefit cost		$ 3,326	$ 4,856
	Accounts payable				6,099			7,831
Accrued benefit liability		(4,484)	(4,608)
	Accrued interest				890			984
Net prepaid pension cost (pension liability)		$ (1,158)	$ 248
	Accrued salaries, benefits and related taxes				9,879			12,973
	Accrued rent				3,525			3,502
	Other accrued expenses				4,686			4,592
		Total Current Liabilities			29,456			38,994
Notes Payable, net of $2,184,000 and $2,927,000 unamortized discount at July 1, 2003 and July 2, 2002					34,313			34,695
Reserve for Cafeteria Closings					5,843			5,163
Other Noncurrent Liabilities, less current portion					7,671			8,039
Minimum Pension Liability					41,657			22,538
Shareholders’ Equity (Deficit)
	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: 10,910,221 shares at July 1, 2003 and 10,865,589 shares at July 1, 2002				19,836			19,782
	Additional paid-in capital				18,486			18,506
	Retained earnings (deficit)				(4,935	)		8,680
					33,387			46,968
	Less treasury stock, at cost: 14,864 common shares at July 2, 2002				—			164
	Less accumulated other comprehensive loss				41,454			22,538
		Total Shareholders’ Equity (Deficit)			(8,067	)		24,266
		TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)		$	110,873		$	133,695

~~Net~~See ~~periodic~~Notes ~~pension~~to ~~cost~~Financial ~~for the Pension Benefits for~~Statements ~~fiscal 2002, fiscal 2001 and fiscal 2000 include the following components:~~

	Fiscal
	2002	2001	2000
	(Amounts in thousands)
Net pension expense:
Service cost	$ 1,190	$ 2,208	$ 2,447
Interest cost on projected benefit obligation	6,108	6,070	5,797
Expected return on plan assets	(6,029)	(6,907)	(6,913)
Recognized actuarial (gain)/loss	683	(4)	26
Curtailment (gain)/loss	(16)	-	-
Amortization of prior service cost	16	14	(4)
	$ 1,952	$ 1,381	$ 1,353

AssumptionsTable usedof in actuarial calculations were as follows:Contents

	Fiscal
	2002	2001	2000
	(Amounts in thousands)
Actuarial assumptions:
Discount rate	7.25%	7.75%	8.00%
Compensation increases	3.50%	3.50%	3.50%
Long-term rate of return	9.00%	9.00%	9.00%

Statements of Operations

NOTE 10: COMMON STOCK


			(Amounts in thousands - except per share data)
			Fiscal			Fiscal			Fiscal
			2003			2002			2001

Net sales			$	320,339		$	349,694		$	384,745
Costs and expenses:
		Cost of sales		181,867			195,227			220,520
		Other operating expenses		120,357			128,937			143,708
		General and administrative expenses		11,714			11,626			15,591
		Other expenses (income)		(738	)		(421	)		(595	)
		Interest expense		7,133			7,978			9,958
		Amortization and write-off of goodwill		—			—			5,343
		Loss on early retirement of debt		1,326			1,906			2,520
		Provision for cafeteria impairments and closings		11,989			389			13,887

				333,648			345,642			410,932

Income (Loss) from continuing operations before income taxes				(13,309	)		4,052			(26,187	)
Provision for income taxes (benefit)				(2,520	)		(2,026	)		8,072

	Income (Loss) from continuing operations			(10,789	)		6,078			(34,259	)

Discontinued operations:
		Loss from operations		(3,528	)		(2,968	)		(1,771	)
		Gain on disposal of cafeteria closed		831			—			—

	Net (Loss) from discontinued operations			(2,697	)		(2,968	)		(1,771	)

	Net Income (Loss)		$	(13,486	)	$	3,110		$	(36,030	)

Weighted average number of shares outstanding-basic				10,891			10,578			10,504
Weighted average number of shares outstanding-assuming dilution				10,891			10,812			10,504
Income (Loss) per share from continuing operations-basic			$	(0.99	)	$	0.57		$	(3.26	)
Income (Loss) per share from continuing operations-assuming dilution				(0.99	)		0.56			(3.26	)
Discontinued operations per share-basic				(0.25	)		(0.28	)		(0.17	)
Discontinued operations per share-assuming dilution				(0.25	)		(0.27	)		(0.17	)
Net income (Loss) per share - basic				(1.24	)		0.29			(3.43	)
Net income (Loss) per share - assuming dilution				(1.24	)		0.29			(3.43	)

OnSee ~~August~~Notes ~~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~~Financial ~~per~~Statements ~~quarter in our common stock. Stock obtained through reinvested dividends is~~ ~~issued at a 5% discount. At July 2, 2002, there were 255,389 unissued common shares reserved under the plan.~~

~~On November 2, 1998, our stockholders approved the~~22 ~~Amended and Restated 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 nonqualified stock options, stock appreciation rights, stock awards, restricted stock, performance shares, and cash awards may be granted to officers, key team members, or the Chairman of the Board of Directors. Options to purchase shares of our common stock may be issued at no less than 100% of the fair market value on the date of grant. We have reserved 1,450,000 shares, in total, for issuance under the 1993 and 1988 Plans. Transactions under the 1998 Plan for the last three years are summarized as follows:

	Fiscal
	2002		2001		2000
	Common Stock Shares	Weighted Average Exercise Price	Common Stock Shares	Weighted Average Exercise Price	Common Stock Shares	Weighted Average Exercise Price
Outstanding at beginning of year	906,900	$ 8.13	919,900	$ 11.18	957,900	$ 11.20
Granted	101,700	1.52	324,800	2.36	12,000	3.31
Exercised	-	-	-	-	-	-
Forfeited or canceled	(24,300)	8.92	(337,800)	10.90	(50,000)	9.63
Outstanding at end of year	984,300	$ 7.43	906,900	$ 8.13	919,900	$ 11.18
Options exercisable at year-end	849,300	$ 8.34	743,850	$ 8.68	774,400	$ 11.09
Weighted-average fair value per share of options granted during the year		$ 0.79		$ 1.21		$ 1.70

~~The~~Statements ~~following~~of ~~table~~Changes ~~summarizes~~in ~~information~~Shareholders’ ~~about~~Equity ~~stock~~(Deficit) ~~options outstanding at July 2, 2002:~~

		Options Outstanding			Options Exercisable
			(Amounts in thousands - except per share data)
Range of Exercise Prices		Number Outstanding	Weighted-Average Remaining Contractual Life	Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
															Accumu-
$ 1.00	$ 5.00	425,500	8.49	$ 2.18	290,500	$ 2.41
															lated									Total
5.01	9.01	91,825	6.99	8.50	91,825	8.50
									Addi-						Other									Share-
9.02	12.00	466,975	5.75	12.00	466,975	12.00
			Common Stock						tional			Retained			Compre-			Treasury Stock						holders’
1.00	$ 12.00	894,300	7.05	$ 7.43	849,300	$ 8.34
									Paid-In			Earnings			hensive									Equity
			Shares				Amount		Capital			(Deficit)			Income			Shares			Amount			(Deficit)
	Balances at June 30, 2000			10,503			$	19,141	$	18,735		$	41,678		$	—			25		$	273		$	79,281
Net loss													(36,030	)											(36,030	)
Stock issuances from treasury																			(22	)		(56	)		56
Purchases of treasury stock				—				—		—			—			—			22			56			(56	)
	Balances at June 30, 2001			10,503				19,141		18,735			5,648			—			25			273			43,251
Net income													3,110												3,110
Minimum pension liability				—				—		—			—			(22,538	)		—			—			(22,538	)
	Comprehensive loss																								(19,428	)
Stock issuances from treasury																			(35	)		(142	)		142
Purchases of treasury stock				10									(78	)					25			33			(111	)
Exercise of stock warrants				352				641		(229	)		—			—			—			—			412
	Balances at July 2, 2002			10,865				19,782		18,506			8,680			(22,538	)		15			164			24,266
Net loss													(13,486	)											(13,486	)
Minimum pension liability																(18,916	)								(18,916	)
	Comprehensive loss																								(32,402	)
Stock issuances from treasury													(129	)					(15	)		(164	)		35
New shares issued				45				54		(20	)		—			—			—			—			34
	Balances at July 1, 2003			10,910			$	19,836	$	18,486		$	(4,935	)	$	(41,454	)		—		$	—		$	(8,067	)

~~Pro~~See ~~forma~~Notes ~~information~~to ~~regarding~~Financial ~~net income and net income~~Statements ~~per share is required by SFAS No. 123. Had the fair value of options granted~~ been recognized as compensation expense on a straight-line basis over the vesting period of the grants, our net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated below:

	Fiscal
	2002	2001	2000
Net income (loss):
As reported	$ 3,110	$ (36,030)	$ 2,411
Pro forma	2,955	(36,432)	2,342
Net income (loss) per share:
As reported	$ 0.29	$ (3.43)	$ 0.23
Pro forma	0.27	(3.47)	0.22

ATable reconciliation of the income and common stock share amounts used in the calculation of basic and diluted net income per share for fiscal 2002, fiscal 2001, fiscal 2000 are as follows:Contents

	Fiscal 2002			Fiscal 2001			Fiscal 2000
	Net Income	Shares	Per Share Amount	Net (Loss)	Shares	Per Share Amount	Net Income	Shares	Per Share Amount
	(Amounts in thousands except per share amounts)
Basic net income (loss)	$3,110	10,579	$0.29	($36,030)	10,503	($3.43)	$2,411	10,503	$0.23
Effect of dilutive securities		233			10			2
Diluted net income (loss)	$3,110	10,812	$0.29	($36,030)	10,513	($3.43)	$2,411	10,505	$0.23
Potentially dilutive securities not included in the fully diluted computation because they would have been antidilutive		892			862			880

Statements of Cash Flows

NOTE 11: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)


					(Amounts in thousands)
					Fiscal			Fiscal			Fiscal
					2003			2002			2001

Operating Activities
	Net Income (Loss)				$	(13,486	)	$	3,110		$	(36,030	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation of property, plant, and equipment and amortization of deferred financing costs				13,690			16,305			16,590
		Income tax benefit, net of cash received				(82	)		—			—
		Amortization and impairment of goodwill				—			—			5,343
		Expenditures associated with closed cafeterias				(3,679	)		(3,306	)		(1,439	)
		Provision for cafeteria impairments and closings				11,989			389			13,887
		Loss on early extinguishment of debt				1,326			1,906			2,520
		Provision for deferred income taxes and valuation allowance				—			—			8,072
		(Gain) loss on disposition of assets				(1,471	)		603			(82	)
		Pension expense - net of contributions				1,567			1,949			1,381
		Changes in operating assets and liabilities
				Accounts and notes receivable		200			78			(111	)
				Inventories		1,323			946			509
				Other current assets		(265	)		(456	)		420
				Other assets		(219	)		(268	)		1,347
				Accounts payable		(1,732	)		(1,994	)		(2,298	)
				Accrued interest		(94	)		(358	)		893
				Accrued expenses		(2,741	)		(4,319	)		(2,637	)
				Deferred gain/(loss) on sale-leaseback, net		—			(1,331	)		1,243
				Accrued team member benefits		(799	)		(370	)		1,700

			Net Cash Provided by Operating Activities			5,527			12,884			11,308
Investing Activities
	Purchases of property, plant and equipment					(6,979	)		(5,032	)		(5,004	)
	Proceeds from sale of property, plant and equipment					5,198			516			3,352
	Proceeds from sale-leaseback transaction					—			8,996			20,006

			Net Cash Provided (Used) by Investing Activities			(1,781	)		4,480			18,354
Financing Activities
	Proceeds from issuance of notes, net of discount					—			—			72,900
	Proceeds from long-term debt					1,952			—			—
	Payments on long-term debt					(8,366	)		(12,083	)		(92,877	)
	Financing costs					—			(906	)		(8,778	)
	Proceeds from exercise of common stock warrants					—			412			—
	Treasury stock transactions, net					164			23			(56	)

			Net Cash Used By Financing Activities			(6,250	)		(12,554	)		(28,811	)

			Changes in Cash and Cash Equivalents			(2,504	)		4,810			851
	Cash and cash equivalents at beginning of year					5,661			851			—

			Cash and Cash Equivalents at End of Year		$	3,157		$	5,661		$	851

Supplementary Cash Flow Disclosures
	Income taxes paid (net of refunds received)				$	(2,275	)	$	(1,836	)	$	140
	Interest paid					5,745			6,592			5,590

	Fiscal
	2002				2001
	30-Sep	31-Dec	31-Mar	2-Jul	30-Sep	31-Dec	31-Mar	30-Jun
	(Amounts in thousands -- except per share data)
Net sales	$97,190	$98,256	$93,699	$95,882	$109,555	$111,202	$103,353	$100,053
Cost of sales and other operating expenses	91,057	92,574	87,708	91,146	105,530	106,498	97,646	95,728
Operating Income	6,133	5,682	5,991	4,736	4,025	4,704	5,707	4,325
Income (loss) before extraordinary charges	1,193	1,027	3,144	(348)	(1,933)	(587)	(24,517)	(6,473)
Net Income (loss)	91	223	3,144	(348)	(1,933)	(587)	(27,073)	(6,473)
Income (loss) before extraordinary charges per share – basic	$0.11	$0.10	$0.30	$(0.03)	$(0.18)	$(0.06)	$(2.33)	$(0.62)
Income (loss) before extraordinary charges per share – assuming dilution	$0.11	$0.10	$0.30	$(0.03)	$(0.18)	$(0.06)	$(2.33)	$(0.62)
Net income (loss) per share- basic and diluted	$0.01	$0.02	$ 0.29	$(0.03)	$(0.18)	$(0.06)	$(2.57)	$(0.62)
Net income (loss) per share- assuming dilution	$0.01	$0.02	$ 0.29	$(0.03)	$(0.18)	$(0.06)	$(2.57)	$(0.62)

See Notes to Financial Statements

~~Effective April 1,~~24 ~~2002, we adopted a fiscal reporting period based on a 52-53 weekly period,~~ resulting in a current fiscal year end of July 2, 2002, compared to the prior year reporting period that ended on June 30, 2001. The additional two days of operations in the fourth quarter of this fiscal year resulted in additional net income of $0.4 million.

DuringTable the quarter ended March 31, 2002, we recorded a $2.0 million tax benefit related to an IRS refund for the carryback of 2001 net operating losses to 1996 (see Note 6 for further information).Contents

~~During~~Notes ~~the~~to ~~quarters ended~~Financial ~~September 30, 2001 and December 31, 2001, we recorded extraordinary~~Statements ~~charges of $1.1 million and $0.8 million, respectively, in connection with the~~ ~~retirement of a portion of our Senior Secured Notes on July 31, 2001 and~~ ~~December 11, 2001 (see Note 3 for further information).~~

~~During the quarter ended June 30, 2001, we recorded a charge of $3.1 million for lease-related costs for the closing of 14 cafeterias and asset impairment charges of $0.3 million (see~~ Note ~~3 for further information). Additionally, we recorded a $~~1.5 ~~million~~SIGNIFICANT ~~charge~~ACCOUNTING ~~for severance costs related to~~POLICIES ~~our management reorganization (see Note 2~~ ~~for further information).~~

~~During~~Basis ~~the~~of ~~quarter~~Presentation. ~~ended~~The ~~March~~accompanying 31financial statements have been prepared assuming that Piccadilly Cafeterias, ~~2001~~Inc. (the “Company”) will continue as a going concern, wewhich ~~recorded~~contemplates the realization of assets and ~~asset~~the ~~impairment~~satisfaction ~~charges~~of liabilities in the ordinary course of $9business.9 ~~million~~The Company ~~related~~has toexperienced 61continuing ~~cafeterias~~sales declines, ~~including~~and 47operating losses, has ~~cafeterias~~significant ~~included~~minimum inpension ~~the~~liabilities ~~Morrison~~and ~~Acquisition~~pension contribution obligations, and has significant debt repayment obligations. We ~~also~~At ~~recorded~~July 1, a2003, ~~charge~~the ofCompany $4has a deficiency in assets.7 ~~million~~In ~~for~~addition, if the ~~impairment~~declining ofsales ~~goodwill~~trend continues, ~~(see~~the ~~Note~~Company’s 3ability to maintain compliance with the financial ~~for~~covenants ~~further~~of ~~information)~~its debt facilities will be impaired. In The conditions described ~~connection~~above ~~with~~raise ~~our~~substantial ~~sale-leaseback~~doubt ~~transaction~~regarding onthe ~~March~~Company’s ~~30,~~ability ~~2001,~~to wecontinue ~~recorded~~as a $2going concern.5 ~~million~~The ~~extraordinary~~financial ~~charge~~statements ~~for~~do not include any adjustments to reflect the ~~early~~possible ~~retirement~~future effects on the recoverability and classification of assets ~~debt~~or ~~(see~~the ~~Note~~amounts 7and classification of liability that may result from the ~~for~~outcome ~~further~~of ~~information)~~this uncertainty.

~~During~~In May 2003, our Board of Directors accepted the ~~quarter~~resignation ~~ended~~of ~~September~~Ronald 30A. LaBorde as the Company’s chief executive officer, ~~2000~~and engaged PMCM, LLC (“PMCM”), an operationally focused turnaround and crisis management firm, to provide an interim chief executive officer, Mr. John G. “Jack” McGregor, as well as financial advisory, management and restructuring services to the Company. In June 2003, we ~~recorded~~announced that our Board of Directors had authorized management to pursue a ~~charge~~range of ~~$0.8~~strategic ~~million~~options, ~~related~~including toa ~~eight~~possible ~~cafeterias~~sale ~~closed~~of the Company, in ~~fiscal~~an ~~2001~~effort to maximize the Company’s value for the benefit of its constituencies. ~~The~~ Management, working together with PMCM, began to explore the feasibility of a variety of strategic options, including ~~charge~~remaining ~~includes~~independent ~~amounts~~but ~~for~~downsizing ~~asset~~the ~~impairments~~Company by closing unprofitable restaurants and/or renegotiating the terms of unfavorable leases, seeking a capital partner to invest equity into the Company, seeking relief from the Pension Benefit Guaranty Corporation with respect to future ~~rent~~funding ~~commitments~~obligations of the Company to restore the Company’s defined benefit plans to fully funded status, and renegotiating the terms of the Company’s secured indebtedness. ~~goodwill~~However, ~~impairment~~given the magnitude of the Company’s funding liability for ~~four~~its ~~Morrison~~pension plans, ~~cafeterias~~the ~~included~~projected incash cost of buying out the ~~group~~leases ~~(see~~of ~~Note~~the Company’s 2remaining ~~for~~unprofitable ~~further~~locations, ~~information)~~and the Company’s liquidity constraints, management and PMCM concluded, and recommended to the Board, that while efforts would continue to pursue options to allow the Company to remain independent, the most prudent course of action would be to begin a process to determine whether credible bids to acquire the Company’s operations could be elicited.

~~Report~~With ofthe ~~Ernst~~Board's &approval, ~~Young~~in ~~LLP~~late July, ~~Independent~~the ~~Auditors~~Company and PMCM invited expressions of interest from potential strategic and financial buyers. The Company and PMCM are involved in ongoing discussions with several parties interested in acquiring the Company’s profitable locations. All of the interested parties have indicated that they would structure their offers as a sale following the Company’s Chapter 11 bankruptcy filing in accordance with Section 363 of the United States Bankruptcy Code.

~~Shareholders~~As of September 29, 2003, management and ~~Board~~PMCM are pursuing negotiating the parameters of ~~Directors~~a sale and the terms and process leading to a definitive agreement and the consummation of a transaction. No assurance can be given that the Company will be successful in negotiating a definitive agreement with a prospective purchaser, in which event we expect to file a plan of reorganization under Chapter 11 of the Bankruptcy Code.

~~Piccadilly~~Fiscal ~~Cafeterias~~Year-End Reporting Period Change. Effective April 1, ~~Inc~~2002, we adopted a 52-53 week fiscal reporting period for our 2002 fiscal year, resulting in a 2003 and 2002 fiscal year-end date of July 1, 2003 and July 2, 2002. Prior to the change, we reported on a June 30 year-end. After the change, quarterly reporting includes 13-week periods except for a 53-week year in which the fourth quarter of that fiscal year will include 14 weeks. The change from a monthly reporting period to a 52-53 week reporting period is consistent with our industry.

~~Baton~~As ~~Rouge~~a result of the fiscal year-end reporting period change, ~~Louisiana~~fiscal 2003 has 364 days, fiscal 2002 has 367 days and fiscal 2001 has 365 days. Three less days for fiscal 2003 compared to fiscal 2002 resulted in lower net sales and net income of approximately $2.8 million and $1.3 million, respectively. Two additional days in fiscal 2002 compared to fiscal 2001 resulted in additional sales and net income for fiscal 2002 of approximately $1.8 million and $0.4 million, respectively. We refer to the fiscal year ended July 1, 2003 as fiscal 2003 and the fiscal year ended July 2, 2002 as fiscal 2002. We refer to the fiscal years ended June 30, 2001 as fiscal 2001.

~~We have audited the accompanying consolidated balance~~25 ~~sheets of Piccadilly Cafeterias, Inc. as of July 2, 2002 and June 30, 2001, and~~ the related consolidated statements of operations, changes in shareholders' equity, and cash flows for each of the three years in the period ended July 2, 2002. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

WeTable conducted our audits in accordance with auditing standards generally accepted in the United States. 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.Contents

InUse ~~our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position~~ of ~~Piccadilly Cafeterias, Inc~~Estimates. atWe ~~July~~prepare ~~2, 2002 and June 30, 2001, and~~ the ~~consolidated~~Financial ~~results~~Statements ~~of its operations and its cash flows for each of the three years~~ in ~~the period ended July 2, 2002 in~~ conformity with ~~accounting~~ accounting principles generally accepted in the United States~~. Also,~~ inand ~~our~~make estimates ~~opinion,~~and ~~the related~~assumptions ~~financial~~that ~~statement~~affect ~~schedule,~~the ~~when~~amounts ~~considered~~reported in ~~relation to~~ the ~~basic~~ financial statements ~~taken~~and asaccompanying anotes. ~~whole,~~Actual ~~presents~~results ~~fairly~~could indiffer ~~all~~from ~~material respects~~those ~~the information set forth therein~~estimates.

AsIndustry. ~~disclosed~~Our inprincipal ~~Note~~industry 2is to the ~~financial~~operation ~~statements,~~of inCompany-owned cafeterias ~~2002~~primarily in the ~~Company~~Southeast ~~changed~~and ~~its~~Mid-Atlantic ~~method~~regions of ~~accounting~~the ~~for~~United ~~goodwill~~States.

Inventories. Inventories consist primarily of food and supplies and are stated at the lower of cost (first-in, first-out method) or market. Supply inventory ~~/s/~~consists ~~Ernst~~primarily &of ~~Young~~silverware, ~~LLP~~dishes, glassware, counter serving pans, and utensils and includes supplies held for future use and supplies that are in-service.

~~New~~Property, ~~Orleans~~Plant and Equipment. Property, ~~Louisiana~~plant and equipment (PP&E) is stated at cost, except for PP&E that has 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:

August 5, 2002


Buildings and component equipment		10–30 years
Furniture and fixtures		10 years
Machinery and equipment		4 years

~~Item~~Leasehold 9improvements are amortized over the original lease term, including expected renewal periods if applicable. ~~Changes~~The incost of leasehold improvements has been reduced by the amount of construction allowances received from developers and ~~Disagreements~~landlords. ~~with~~Repairs ~~Accountants~~and onmaintenance ~~Accounting~~expenditures are charged to operations as incurred. Expenditures for renewals and ~~Financial~~betterments ~~Disclosure~~that 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.

~~None~~Impairment of Long-Lived Assets. Long-lived assets, including goodwill recorded prior to the adoption of SFAS No. 142, to be held and used in the business are reviewed 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. A history of operating losses is a primary indicator of potential impairment. Assets are evaluated for impairment at the cafeteria 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. We generally estimate fair value by discounting estimated future cash flows. Considerable judgment is necessary to estimate cash flows. Accordingly, actual results may vary from such estimates.

~~PART~~All ~~III~~of our goodwill relates to the acquisition of Morrison Restaurants, Inc. in 1998 (the “Morrison Acquisition”). Goodwill is accounted for based on the provisions of SFAS No. 142. Goodwill is evaluated at the reporting unit level, as required. We consider individual cafeterias to be our reporting units. All of the goodwill remaining at the end of fiscal 2003 relates to seven cafeterias. In assessing the recoverability of recorded goodwill we make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. Our annual impairment assessment is made as of our fiscal year-end. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for goodwill.

InIncome ~~accordance~~Taxes. ~~with~~We ~~General~~account ~~Instruction~~for ~~G (3)~~income totaxes ~~Form~~using ~~10-K,~~the ~~Items~~liability ~~10,~~method. ~~11,~~Under this 12method, ~~and~~deferred 13income ~~have~~taxes ~~been~~reflect ~~omitted since we will file with~~ the ~~Commission~~net atax ~~definitive~~effects ~~proxy~~of ~~statement complying with Regulation 14A~~temporary ~~relating~~differences tobetween ~~our 2002 annual meeting and~~ the ~~election~~carrying amounts of ~~directors~~assets ~~not~~and ~~later~~liabilities ~~than~~for ~~120~~financial ~~days~~reporting ~~after~~and the ~~close~~amounts ofused ~~our~~for ~~fiscal~~income ~~year~~taxes. ~~We incorporate by reference the~~ ~~information in response to such items set forth in our definitive proxy~~ ~~statement.~~

~~PART~~Stock-Based IVCompensation. We account for our stock compensation arrangements with team members under the provisions of Accounting Principles Board (APB) No. 25, Accounting for Stock Issued to Employees, and makes the pro forma information disclosures required under the provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Pro forma information regarding net income and net income per share is required by SFAS No. 123. Had the fair value of options granted been recognized as compensation expense on a straight-line basis over the vesting period of the grants, our net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated below:

~~Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K~~26

(a) (1)Table Financialof Statements--The following are included in this annual report on Form 10-K beginning on the page indicated:Contents

Description	Page
		(Amounts in thousands, except per share amounts)
Consolidated balance sheets as of July 2, 2002 and June 30, 2001	19
		Fiscal 2003			Fiscal 2002			Fiscal 2001
Consolidated statements of operations for the fiscal years ended July 2, 2002 and June 30, 2001 and 2000	20
Reported net income (loss)		$	(13,486	)	$	3,110		$	(36,030	)
Consolidated statements of changes in shareholders' equity for the fiscal years ended July 2, 2002 and June 30, 2000 and 1999	21
Deduct: Total stock based compensation expense determined under the fair value method for all awards, net of the tax effect			(75	)		(155	)		(402	)
Consolidated statements of cash flows for the fiscal years ended July 2, 2002 and June 30, 2001, and 2000	22
	Pro forma	$	(13,561	)	$	2,955		$	(36,432	)
Notes to consolidated financial statements	23
Earnings (loss) per share:
Report of independent auditors	33
	As reported	$	(1.24	)	$	0.29		$	(3.43	)
	Pro forma		(1.25	)		0.27			(3.47	)

~~(2)~~Earnings ~~Schedule—The~~Per ~~following consolidated schedule and information is included in this annual report on Form 10-K on the page indicated~~Share. ~~All~~ ~~other~~Earnings ~~schedules~~per ~~for~~share ~~which provision is made in the applicable accounting regulation~~ of ~~the~~common ~~Securities~~stock ~~and Exchange Commission~~ are ~~not~~ ~~required~~calculated under the ~~related~~provisions ~~instructions~~of orSFAS ~~are inapplicable~~No. 128, ~~and~~Earnings ~~therefore have~~Per ~~been omitted~~Share.

Description	Page
Schedule II—Valuation and qualifying accounts	37

Advertising Expense. The cost of advertising is expensed as incurred. We incurred $5.9 million, $6.6 million, and $4.8 million, in advertising costs during fiscal years fiscal 2003, fiscal 2002 and fiscal 2001, respectively.

Pending Accounting Pronouncements. In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable ~~(3)~~ Interest Entities, an Interpretation of ARB No. 51. This interpretation ~~Listing~~provides guidance on the identification of, ~~Exhibits~~and ~~(see~~the ~~sub-section~~financial ~~(c)~~reporting ~~below)~~for, variable interest entities, as defined. Consolidation of variable interest entities is required under FIN 46 only when the company will absorb a majority of the variable interest entity’s expected losses, receive a majority of the variable interest entity’s expected residual returns, or both. This interpretation applies immediately to a variable interest entity created or acquired after January 31, 2003. For variable interest entities acquired before February 1, 2003, this interpretation applies in the first fiscal year or interim period beginning after June 15, 2003. We have not completed our assessment of the impact of this interpretation.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. ~~(b) Reports~~4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 requires gains and losses on ~~Form~~extinguishments ~~8-K:~~of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under SFAS No. 4. We adopted SFAS No. 145 beginning July 3, 2002. Losses on extinguishment of debt previously classified as an extraordinary item in prior periods are now reclassified to conform to the provisions of SFAS No. 145.

In April 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 requires that we recognize a ~~(1) Current~~liability ~~Report~~for ona ~~Form~~cost ~~8-K~~associated ~~filed~~with ~~May~~an 9,exit ~~2002,~~or ~~reporting~~disposal ~~under~~activity ~~Item~~when 5the liability is incurred. Under previous accounting principles, we recognized a liability for an exit cost at the date of our commitment to an exit plan. We ~~third~~adopted ~~quarter~~the ~~results~~provisions of ~~operations~~SFAS No. 146 effective for ~~fiscal~~exit or disposal activities that were initiated after December 31, 2002.

(Note 2~~) Current~~ ~~Report~~CAFETERIA onAND ~~Form~~GOODWILL ~~8-K filed May 14, 2002, reporting under Item 5,~~IMPAIRMENTS ~~our satisfactory conclusion of discussions with our lender.~~

Cafeteria Impairments: We determine impairment write-downs as being necessary ~~(c)~~ for cafeteria locations when events or changes in circumstances indicate that ~~EXHIBITS~~the total carrying value of that location’s assets may not be recoverable. During fiscal 2003, we recorded asset impairment charges of $6.7 million relating to 49 Non-Core Cafeterias. Based on our evaluation of recent sales trends at these 49 cafeterias, we concluded that continued efforts to build guest traffic in these cafeterias were not likely to yield the future cash flows necessary to recover their net carrying values.

	1.	Articles of Incorporation of the Company, restated through March 12, 1999(1).
	2.	By-laws of the Company, as amended and restated through March 12, 1999(1).
	4.1	Indenture dated December 21, 2000, between the Company and Bank of New York (2).
	4.2	Purchase Agreement dated December 12, 2000, as amended and restated on December 19, 2000, effective on December 21, 2000, between the Company and Jefferies & Company, Inc. (2).
	4.3	Form of Exchange Note (included as part of Exhibit 4.1) (2).
	4.4	Rights Agreement dated November 2, 1998, including (i) as Exhibit A – The Form of Articles of Amendment, (ii) as Exhibit B – the Forms of Rights Certificate, Assignment and Election to Purchase, and (iii) as Exhibit C – the Summary Description of the Shareholder Rights Plan (3), as amended by First Amendment to Rights Agreement, dated June 1, 1999(6).
	4.5	Piccadilly Cafeterias, Inc. Dividend Reinvestment and Stock Purchase Plan (4).
	10.1	Intercreditor Agreement dated December 21, 2000, among the Company, Hibernia National Bank, and The Bank of New York (2).
	10.2	Pledge and Securities Account Agreement dated December 21, 2000, between the Company and Hibernia National Bank (2).
	10.3	Term Loan Credit Agreement, dated December 21, 2000, among the Company, Hibernia National Bank, and each lender named therein (2).
	10.4	Warrant Agreement dated December 21, 2000, between the Company and The Bank of New York (2).
	10.5	Registration Rights Agreement dated December 21, 2000, between the Company and Jefferies and Company, Inc. (2).
	10.6	Amended and Restated Piccadilly Cafeterias, Inc. 1993 Incentive Compensation Plan (5).
	10.7	Form of Stock Option Agreement under the Amended and Restated Piccadilly Cafeterias, Inc. 1993 Incentive Compensation Plan (6).
	10.8	Form of Director Indemnity Agreement between Piccadilly Cafeterias, Inc. and each of Messrs. And Mss. LaBorde, Campbell, Jr., Francis, Guyton, Redman, Slaughter, Smith, White, Jr., and Perkins. (7).
	10.9	Form of Management Continuity Agreement between Piccadilly Cafeterias, Inc. and each of Messrs. LaBorde, Malik, and Mestayer (7).
	10.10	Piccadilly Cafeterias, Inc. Supplemental Employee Deferral Plan, dated March 31, 2000(6).
	10.11	Form of Morrison Fresh Cooking, Inc. Management Retirement Plan together with related form of Trust (8), as amended by Form of First and Second Amendments to the Morrison Fresh Cooking, Inc. Management Retirement Plan. (9), as amended by Third Amendment to the Morrison Fresh Cooking, Inc. Management Retirement Plan, effective December 31, 1999(6).
	10.12	Form of Morrison Fresh Cooking, Inc. Executive Supplemental Pension Plan together with related form of Trust Agreement (8), as amended by First Amendment to the Morrison Fresh Cooking, Inc. Executive Supplemental Pension Plan (9).
	10.13	Master Lease dated March 30, 2001 between Circus Property I, LLC and Piccadilly Cafeterias, Inc. relating to 12 cafeteria sites (10).
	10.14	Master Lease dated July 31, 2001 between Circus Property I, LLC and Piccadilly Cafeterias, Inc. relating to six cafeteria sites (11).
	10.15	Second Amended and Restated Credit Agreement, dated, December 11, 2001, by and between Piccadilly Cafeterias, Inc., as Borrower, and Foothill Capital Corporation, as Lender (12).
	23	Consent of Independent Auditors

We recorded asset impairment charges of $0.4 million for property, plant, and equipment relating to cafeterias closed during fiscal 2002 due to lease cancellations. During fiscal 2001, we determined that certain leases might not be renewed, and with respect to those cafeterias, revised our forecasts of undiscounted future operating cash flows accordingly. Primarily as a result of the revised forecasts, we determined that long-lived assets for 61 cafeterias, including 47 cafeterias acquired in the Morrison Acquisition, were impaired and we recorded asset impairment charges of $9.9 million for property, plant and equipment and a related $4.7 million charge against goodwill that had been recorded in connection with the Morrison Acquisition. Additionally, during fiscal 2001, we recorded $0.5 million for exit costs related to cafeterias scheduled to close during fiscal 2001.

~~(1)~~Goodwill ~~Incorporated~~Amortization byand Impairment: ~~reference~~In ~~from~~July ~~our~~2001, ~~Quarterly~~the ~~Report~~FASB onissued ~~Form~~SFAS ~~10-Q~~No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for ~~the~~impairment ~~quarter~~annually ~~ended~~or ~~March~~more frequently if circumstances indicate potential impairment. We adopted SFAS No. 142 effective July 1, 2001. Accordingly, no goodwill amortization has been recorded during fiscal 2003 and fiscal 2002.

~~31,1999.~~27

(2)Table Incorporatedof by reference to our Registration Statement on Form S-4, Registration No. 333-54312 filed with the Commission on January 25, 2001.Contents

~~(3)~~The ~~Incorporated~~following bytable ~~reference~~presents tonet ~~Exhibits~~income 1,and 2,earnings 3per ~~and~~share 4for offiscal ~~our~~2003, fiscal ~~Registration~~2002 ~~Statement~~and onfiscal ~~Form~~2001 ~~8-A~~in ~~filed~~comparative ~~with~~format ~~the~~assuming ~~Commission~~no ongoodwill amortization ~~November~~in ~~19,~~fiscal ~~1998.~~2001:

(4) Incorporated by reference from our Post-Effective Amendment No. 1 to our Registration Statement on Form S-3, registration No. 033-17131 filed with the Commission on June 14, 2000.


		(Amounts in thousands)
		Fiscal 2003			Fiscal 2002		Fiscal 2001

Reported income (loss) from continuing operations		$	(10,789	)	$	6,078	$	(34,259	)
Add back: goodwill amortization			—			—		380

	Adjusted net income	$	(10,789	)	$	6,078	$	(33,879	)

Reported basic EPS		$	(1.24	)	$	0.57	$	(3.26	)
Add back: goodwill amortization			—			—		0.04

	Adjusted basic EPS	$	(1.24	)	$	0.57	$	(3.22	)

Reported diluted EPS		$	(1.24	)	$	0.56	$	(3.26	)
Add back: goodwill amortization			—			—		0.04

	Adjusted diluted EPS	$	(1.24	)		0.56	$	(3.22	)

~~(5)~~We ~~Incorporated~~completed bya ~~reference~~transitional ~~from~~goodwill ~~Appendix~~impairment Atest within six months of adopting SFAS No. 142 as required. The transitional impairment test required that fair value be tested as of the first day of our ~~definitive~~fiscal ~~Proxy~~year ~~Statement~~and ~~filed~~therefore the ~~with~~fair value of the ~~Commission~~reporting onunit ~~September~~was 23determined using carrying amounts as of July 1, ~~1998~~2001. We performed the annual impairment tests at the ends of fiscal 2003 and fiscal 2002, and the tests determined there was no goodwill impairment. Interim testing will be performed when an event occurs or circumstances indicate that the carrying amount of goodwill may be impaired.

~~(6)~~During ~~Incorporated~~fiscal 2003 we reduced the carrying value of goodwill by ~~reference~~$.0.5 million. Approximately ~~from~~$0.4 million ~~our~~of ~~Annual~~the ~~Report~~reduction onrelated ~~Form~~to 10the write-Koff of reserves for closed units that were initially setup as part of the ~~year~~acquisition accounting ~~ended~~for ~~June~~Morrison 30units that were closed or were expected to close. These write-offs resulted from favorable lease settlements and terminations. The remaining $0.1 million related to the write-off of a contingency reserve that was initially setup as of the Morrison acquisition date. We do not believe that there remain any unasserted claims or liabilities that existed prior to our acquisition of Morrison’s on May 28, ~~2000~~1998.

~~(7)~~After ~~Incorporated~~December 31, by2001, ~~reference~~we ~~from~~received ~~our~~federal ~~Quarterly~~income ~~Report~~tax oncash ~~Form~~refunds ~~10-Q~~relating to ~~for~~the 1993 and 1995 Morrison income tax returns in the ~~quarter~~amount ~~ended~~of ~~September~~$1.1 million. A ~~30,1996~~receivable relating to the refunds was not recorded in connection with the purchase of Morrison in 1998. Approximately $0.2 million of the refunds relates to interest earned subsequent to the Morrison purchase and is included in Other Income. The remainder of the refund reduced the carrying value of goodwill by $0.8 million.

~~(8)~~Note ~~Incorporated~~3 byCAFETERIA ~~reference to Morrison Fresh Cooking, Inc.’s amendment to Registration Statement on Form 10/A filed with the Commission on February 29, 1996.~~CLOSINGS

~~(9)~~Since ~~Incorporated~~the bybeginning ~~reference~~of tofiscal ~~the~~2001 ~~Morrison~~we ~~Fresh~~have ~~Cooking,~~closed ~~Inc~~67 cafeterias. ~~Annual~~Most ~~Report~~of onthese cafeterias ~~Form~~were ~~10-K~~closed ~~for~~at or near the ~~year~~end ~~ended~~of ~~May~~their ~~31,~~respective ~~1997~~lease terms and were “Non-Core Cafeterias”. The operating results of these cafeterias are classified as discontinued operations in our Statements of Operations. Selected operating results for these cafeterias were:

(10)	Incorporated by reference from our Quarterly Form 10-Q for the quarter ended March 31, 2001.
		(Amounts in thousands)
(11)	Incorporated by reference from our Annual Report on Form 10-K for the year ended June 30, 2001.
		Fiscal 2003			Fiscal 2002			Fiscal 2001
(12)	Incorporated by reference from our Quarterly Report on Form 10-Q for the quarter ended
Cafeterias closed at the end of the original or renegotiated lease term or owned			20			7			8
	December 31, 2001.
Cafeterias closed before the end of the lease term			12			16			4
Net sales		$	21,820		$	44,295		$	74,213
Depreciation			549			1,452			1,807
Net loss/(gain) on asset sales			(1,777	)		104			56
Closing charges			4,649			—			3,193
Net (Loss), excluding allocation of corporate overhead			(8,314	)		(2,878	)		(7,892	)

~~SIGNATURES~~During fiscal 2003, we closed 32 “Non-Core Cafeterias”. Of the 32 “Non-Core Cafeterias” that were closed, we owned two of the properties. One of those properties was subsequently sold during fiscal 2003 and the second

~~Pursuant to the requirements of Section 13 or 15(d) of~~28 ~~the Securities 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.
	By: /S/ Ronald A. Laborde
		Ronald A. Laborde Chief Executive Officer
Date: August 28, 2002

~~Pursuant~~property towas sold shortly after the ~~requirements~~end of ~~the~~fiscal ~~Securities~~2003. ~~Exchange~~The remaining 30 closed “Non-Core ~~Act~~Cafeterias” ofwere ~~1934~~leased properties. Of these 30 leases, ~~this~~18 ~~report~~leases ~~has~~terminated during ~~been~~fiscal ~~signed~~2003 ~~below~~either by expiration of the ~~following~~lease ~~persons~~term onor by negotiations ~~behalf~~with oflandlords. We have continuing lease obligations relating to the ~~Registrant~~remaining 12 ~~and~~leases. inIn fiscal 2003 we recorded closing charges of $5.3 million, primarily for the ~~capacities~~estimated ~~and~~settlement onvalue of remaining lease-related obligations of the ~~dates~~cafeterias ~~indicated~~closed in fiscal 2003. The operating results of these cafeterias are classified as discontinued operations in our Statements of Operations for all periods presented.

/s/ Joseph H. Campbell, Jr.	8/23/02	/s/ Christel C. Slaughter	8/27/02
Joseph H. Campbell, Jr., Chairman	Date	Christel C. Slaughter, Director	Date
/s/ Robert P. Guyton	8/27/02	/s/ C. Ray Smith	8/22/02
Robert P. Guyton, Director	Date	C. Ray Smith, Director	Date
/s/ Ronald A. LaBorde	8/28/02	/s/ James F. White, Jr.	8/25/02
Ronald A. LaBorde, Chief Executive Officer and Director	Date	James F. White, Jr., Director	Date
/s/ James A. Perkins	8/26/02	/s/ Mark L. Mestayer	8/27/02
James A. Perkins, Director	Date	Mark L. Mestayer Executive Vice President, Treasurer and Chief Financial Officer (Principal Financial Officer)	Date
/s/ Dale E. Redman	8/27/02	/s/ W. Scott Bozzell	8/27/02
Dale E. Redman, Director	Date	W. Scott Bozzell, Executive Vice President, Secretary and Controller (Principal Accounting Officer)	Date

At the end of fiscal 2003, we were responsible for remaining lease-related obligations of $14.7 million related to 29 closed cafeterias, $6.5 million of which relates to the Morrison Acquisition. Sublease arrangements exist relating to 13 of these cafeterias providing for future sublease rentals of $6.4 million. We have recorded liabilities of $5.7 million to settle the minimum rent obligations and other lease-related charges for these closed cafeterias. During fiscal 2003, fiscal 2002, and fiscal 2001, we charged $3.3 million, $2.7 million, and $1.5 million, respectively, against these reserves for lease settlements and lease-related payments, net of sublease rentals received, of which $1.0 million in each fiscal year relates to the Morrison Acquisition.

~~SCHEDULE~~Note II4 -LOSS ~~VALUATION~~ON ~~AND~~EARLY ~~QUALIFYING~~RETIREMENT ~~ACCOUNTS~~OF DEBT

COL. A	COL. B	COL. C			COL. D	COL. E
		Additions
Description	Balance at Beginning of Period	(1) Charges to costs and expenses		(2) Charged to Other Accounts-Describe	Deduction-Describe (A)	Balance at End of Period
Reserves for Cafeteria Closings:
Year ended July 2, 2002:
Property, plant, and equipment allowance	$ 340,292	$ -		$ -	$ 340,292	$ -
Long-term liability	8,468,787	-		-	3,305,365	5,163,422
	$ 8,809,079	$ -		$ -	$ 3,645,657	$ 5,163,422
Year ended June 30, 2001:
Property, plant, and equipment allowance	$ 840,286	$12,824,923	(B)	$ -	$ 13,324,917	$ 340,292
Long-term liability	10,100,837	1,062,077	(B)	-	2,694,127	8,468,787
	$ 10,941,123	$13,887,000		$ -	$ 16,019,044	$ 8,809,079
Year ended June 30, 2000:
Property, plant, and equipment allowance	$ 1,475,815	$ -		$ -	$ 635,529	$ 840,286
Long-term liability	12,693,193	-		-	2,592,356	10,100,837
	$ 14,169,008	$ -		$ -	$ 3,227,885	$ 10,941,123

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145 requires gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under SFAS No. 4. We adopted SFAS No. 145 in fiscal 2003 as required. Losses on extinguishments of debt previously classified as extraordinary charges have been reclassified to conform to the provisions of SFAS No. 145.

~~(A)~~The ~~Deductions~~required ~~are~~excess ~~for~~cash flow offers (isee Note 9 for further discussion) for the ~~writedown~~year ofended ~~property~~July 2, 2002, amounting to $9.9 ~~plant~~million, were made on September 30, 2002 and ~~equipment~~October 2, ~~relating~~2002, torespectively, ~~cafeterias~~and on ~~closed~~October 28, 2002 and ~~(ii)~~October 31, ~~for~~2002, following the ~~payment~~end of the offer ~~other~~acceptance ~~obligations~~periods, ~~(primarily~~we ~~rent)~~paid ~~for~~$3.6 million ~~cafeterias~~and ~~for~~$5.1 million, ~~which~~respectively, ato repay ~~provision~~debt, ~~for~~with the result that the Term Loan Credit Facility was entirely ~~cafeteria~~repaid. ~~closing~~Fiscal ~~had~~2003 ~~previously~~includes ~~been~~a ~~recorded~~charge of $1. ~~Deductions~~3 million ~~from~~for ~~the~~early ~~long-term~~retirement of ~~liability~~debt. inThe ~~fiscal~~charge ~~2002~~was ~~include~~comprised of $0.9 7 million ~~for~~premium ~~rent~~paid ~~obligations~~over ~~paid~~the ~~relating~~repaid todebt’s ~~closed~~carrying ~~cafeterias~~value and $0.4 6 million for ~~out-of-market~~related ~~lease~~unamortized ~~obligations~~financing ~~paid~~costs. onAfter ~~cafeterias~~these ~~acquired~~repayments, in$39.2 million of our 12% Term A Senior Secured Notes due fiscal 2007 (the ~~Morrison~~“Senior ~~Acquisition~~Notes”) remained outstanding and our Term Loan Credit Facility was entirely repaid. Prospectively, because the Term Loan Credit Facility has been fully repaid, our excess cash flow offers will be limited to the first excess cash flow offer, or $5 million.

~~(B)~~On ~~Charges~~December 11, ~~to the property allowance include $10.7 million for fiscal year~~ 2001, ~~asset~~we ~~impairment~~used ~~writedowns~~available ~~plus~~cash abalances ~~$2.1 million increase~~ to ~~previously recorded reserves. Charges to the long-term liability~~repurchase ~~include~~approximately $3.2 7 million ~~for~~in ~~obligations~~face ~~relating~~amount toof ~~closing~~our ~~decisions~~Senior ~~made~~Notes. inAlso on ~~fiscal~~December 11, ~~year~~ 2001, ~~net~~we ofcompleted a three-year, $220.1 0 million ~~adjustment~~senior ~~to previously recorded~~credit ~~liabilities. During~~facility ~~fiscal~~with ~~2001,~~Foothill asCapital ~~part~~Corporation of (the ~~ongoing~~“Senior ~~process~~Credit ofFacility”) ~~reviewing~~that ~~the~~replaced ~~adequacy~~a of$14.4 million ~~recorded~~senior ~~reserves~~credit ~~for~~facility ~~closed~~with ~~cafeterias~~commercial ~~and~~banks. ~~properties~~A ~~held for~~loss ~~disposal,~~on wethe ~~determined~~early ~~that~~retirement ~~the~~of ~~recorded~~debt ~~reserves~~of ~~for~~approximately ~~lease-related~~$0.8 million ~~costs~~was ~~for~~recorded to ~~closed~~write-off ~~cafeterias~~unamortized ~~were~~financing incosts ~~excess~~related ofto the ~~amount~~repurchased ~~necessary~~Senior ~~to settle our~~Notes ~~obligations~~ and ~~that~~ the ~~reserves~~replaced ~~established~~credit ~~for~~facility ~~valuation~~in ~~allowances~~fiscal ~~on properties to be disposed of were not sufficient~~2002.

~~Exhibits~~On July 31, 2001, we completed a sale-leaseback of six of our owned properties. We received approximately $9.0 million in cash for the sale of the properties. We used substantially the entire net sale proceeds to purchase $9.4 million in face amount of our senior secured debt as required under the terms of the senior secured debt. We recorded a loss from the early retirement of debt of approximately $1.1 million to write-off unamortized financing costs associated with the repurchased senior secured debt.

On March 30, 2001, we completed a sale-leaseback transaction of 12 properties. ~~23 Consent~~We received $20.0 million in cash for the sale of the properties and used substantially the entire net proceeds to make open-market purchases of ~~Independent~~$16.0 million ~~Auditors~~of our Senior Notes and $4.5 million in face amount of our floating rate Term B Notes due 2007. On April 13, 2001, we purchased $0.5 million of the Senior Notes. We recorded a $2.5 million loss from the early retirement of debt, primarily to write-off of unamortized financing costs associated with the extinguished debt.

~~Consent~~Note of5 ~~Independent~~INVESTMENT ~~Auditors~~IN UNCONSOLIDATED SUBSIDIARY

We ~~consent~~own toa ~~the~~one-seventh ~~incorporation by~~interest ~~reference~~ in ~~the~~Dallas ~~Registration~~Reinsurance ~~Statements~~Company, ~~(Form S-8 No~~Ltd. ~~33-17737 and Form S-8 No~~(DallasRe). DallasRe ~~33-27793)~~is ~~and~~a ingroup ~~the~~captive ~~Registration~~insurance ~~Statements~~company ~~and~~incorporated ~~related~~under ~~Prospectuses~~the ~~(Form~~Companies ~~S-3~~Law ~~No.~~of ~~33-17131~~the ~~and~~Cayman ~~Form~~Islands ~~S-4~~on ~~No.~~July 11, ~~333-54312)~~1980, ofand ~~our~~holds ~~report~~an ~~dated~~Unrestricted ~~August~~Class ~~5, 2002,~~“B” ~~with~~Insurers ~~respect~~License tounder ~~the~~Section 4(2) ~~consolidated~~of ~~financial~~the ~~statements~~Cayman ~~and~~Islands ~~schedule~~Insurance ~~of Piccadilly~~Law. ~~Cafeterias,~~DallasRe ~~Inc.~~is ~~included~~engaged in ~~this~~the ~~Annual~~business ~~Report~~of ~~(Form~~insuring ~~10-K)~~and ~~for~~reinsuring ~~the~~various ~~year ended~~non-life ~~July~~risks 2(primarily workers’ compensation, ~~2002.~~general

~~/s/ Ernst & Young LLP~~29

NewTable Orleans,of LouisianaContents

~~August~~liability 23and automobile liability) of its shareholders from Old Republic Insurance Company (the “Ceding Insurer”). Our investment is recorded at cost of $450,000 ~~2002~~and is included in Other Assets. Our investment is accounted for using the cost method because we do not have the ability to exercise significant influence over the Dallas Re’s operating and financial policies. Accordingly, the financial results of DallasRe are not consolidated with our results. We have held our investment in DallasRe since 1985. Each of the other six shareholders has a one-seventh interest and has held their own investment in DallasRe at least as long as we have. Our exposure to the claim losses of other shareholders along with other losses of DallasRe is limited to our investment in DallasRe. We have provided DallasRe a standby letter of credit for approximately $7.1 million securing our $250,000 deductible per claim. The letter of credit can be called if we are unable to pay our deductible commitments as they come due.

Note 6 MANAGEMENT REORGANIZATION

In May 2001, the Board of Directors approved a management reorganization plan, which eliminated 25 executive and district operations management positions. In connection with this reorganization, we recorded a charge of $1.5 million related to severance costs, which charge is included in general and administrative expenses. Substantially all of the $1.5 million of severance costs was paid as of the end of fiscal 2001.

Note 7 INCOME TAXES

Significant components of our deferred tax liabilities and assets are as follows:


			(Amounts in thousands)
			Fiscal 2003			Fiscal 2002

Deferred tax assets:
	Minimum Pension Liability		$	15,517		$	8,395
	Accrued expenses			4,770			6,400
	Cafeteria closing reserves			2,176			1,891
	NOL and tax credit carryforwards			18,190			12,434

				40,653			29,120
	Valuation Allowance			(32,420	)		(21,656	)

				8,233			7,464
Deferred tax liabilities:
	Property, plant and equipment			5,309			4,872
	Prepaid pension costs			906			1,121
	Inventories			2,018			1,471

				8,223			7,464

		Net deferred tax assets	$	—		$	—

At the end of fiscal 2003, we had net operating loss carryforwards of $40.3 million and general business tax credit carryforwards of $1.2 million, including $17.2 million and $0.3 million resulting from the Morrison Acquisition. These carryforwards expire from 2010 through 2023.

SFAS No. 109, Accounting for Income Taxes, specifies that deferred tax assets 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. Accounting rules require that more restrictive criteria be used to consider the book value of deferred tax assets when cumulative pretax losses for recent years exist. As a result, a valuation allowance is recorded for the net deferred tax assets at the ends of fiscal 2003 and fiscal 2002.

During fiscal 2003, we applied to the Internal Revenue Service for certain tax accounting method changes. As a result of these changes, we filed a refund claim for $2.5 million to carry back the tax net operating loss generated in the fiscal 2002 tax year to prior years which were previously outside the permitted carry back period until the enactment of the Job Creation and Work Assistance Act of 2002. Likewise, in fiscal 2002, we filed a $2.0 million refund claim with the Internal Revenue Service to carry back net operating losses recognized in the fiscal 2001 tax year to the fiscal 1996 tax year. Because a full valuation allowance had previously been established for the Company’s net deferred tax assets, including net operating losses, these refunds resulted in adjustments to the valuation allowance and tax benefits of approximately $2.5 million for fiscal 2003 and $2.0 million for fiscal 2002. No other recoveries are available during any carry back period.

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


			Fiscal 2003			Fiscal 2002			Fiscal 2001

			(Amounts in thousands)
Current:
	Federal		$	(2,520	)	$	(2,026	)	$	—
	State			—			—			—

				(2,520	)		(2,026	)		—
Deferred:
	Federal			—			—			7,749
	State			—			—			323

				—			—			8,072

		Total provision for income taxes (benefit)	$	(2,520	)	$	(2,026	)	$	8,072

Differences between the provision for income taxes (benefit) and the amount computed by applying the federal statutory income tax rate to income before income taxes are as follows:


	Fiscal 2003			Fiscal 2002			Fiscal 2001

	(Amounts in thousands)
Income taxes at statutory rate	$	(5,442	)	$	369		$	(9,498	)
State income taxes, net of federal taxes		(640	)		44			(1,117	)

		(6,082	)		413			(10,615	)
Goodwill amortization					—			1,971
Tax credits		(66	)		(66	)		(181	)
Valuation allowance		3,616			(2,482	)		15,743
Other items		12			109			1,154

Total provision for income taxes (benefit)	$	(2,520	)	$	(2,026	)	$	8,072

Note 8 LEASED PROPERTY

We rent most of our cafeteria facilities under long-term leases with varying provisions and with original lease terms generally of 20 to 30 years. We have the option to renew certain leases for specified periods subsequent to their original terms. Minimum future lease commitments, as of the end of fiscal 2003, including $8.4 million for Surplus Properties (see Note 3 for further discussion), are as follows:


		(Amounts in
Fiscal		thousands)

2004		$	18,054
2005			15,775
2006			13,225
2007			11,642
2008			9,972
Subsequent			63,225

			131,893
Less sublease income			(6,074	)

	Net minimum lease commitments	$	125,819

The leases generally provide for contingent rentals based on sales. Certain leases also provide for payments of other costs such as real estate taxes, insurance, common area maintenance and other miscellaneous charges. Rentals for the periods shown below do not include these other costs.


		(Amounts in thousands)
		Fiscal 2003		Fiscal 2002		Fiscal 2001

Minimum rentals		$	18,106	$	18,810	$	17,844
Contingent rentals			1,303		1,920		2,786

	Total	$	19,409	$	20,730	$	20,630

Note 9 DEBT

Senior Secured Debt. On December 21, 2000, we closed a debt offering of (1) 71,000 “A” units consisting in the aggregate of $71.0 million principal amount of Senior Secured Notes due fiscal 2007 and warrants to purchase 746,210 shares of our common stock and (2) 4,500 “B” units consisting in the aggregate of $4.5 million principal amount of Term B Notes due fiscal 2007 (secured equally with the Senior Secured Notes) and warrants to purchase 47,295 shares of our common stock. In addition, we 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 fiscal 2007 included as part of the “B” units. The “A” units, the “B” units, and the Term Loan Credit Facility are all secured equally by a first priority lien on substantially all of our assets. The warrants will expire on November 1, 2007 and each warrant entitles the holder to purchase 10.51 shares of our common stock at an exercise price per share of $1.16875. During fiscal 2002 warrants reflecting 352,085 shares were exercised and at July 2, 2002, warrants reflecting 499,225 shares remain outstanding. As of the end of fiscal 2003, all of Term B Notes and all of the Term Loan Credit Facility have been repaid.

The notes and term loan were sold at a discount, and the gross proceeds from the offerings were approximately $72.9 million. After paying transaction costs, we used the net proceeds from the unit offerings and borrowings under the term loan to repay approximately $67.0 million in borrowings outstanding under a syndicated commercial bank credit facility that was scheduled to mature on June 22, 2001.

Interest is payable semiannually on the Senior Secured Notes at an initial annual rate of 12%, subject to annual adjustment beginning November 1, 2001. The interest rate is adjusted each year to 12.0% plus 0.5% for every $1.0 million of EBITDA (for the preceding fiscal year) in excess of $27.0 million, not to exceed a 1.5% increase in any year, and not to exceed a total rate of 16.5%. 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%.

We are required each year to make offers to repurchase the Term A Senior Notes and amounts outstanding under the Term Loan Credit Facility utilizing excess cash flow from the immediately preceding fiscal year. Excess cash flow is defined as EBITDA less interest expense, income tax expense, and capital expenditures. Until the Term Loan Credit Facility was repaid during fiscal 2003, we were required under the Term A Senior Secured Notes and Term Loan Credit Facility, during any fiscal year that we had excess cash flow of more than $2.5 million, to make an offer (the “first excess cash flow offer”) to repurchase our Term A Senior Secured Notes and to prepay indebtedness outstanding under our Term Loan Credit Facility, in each case at 101% of the principal amount thereof, plus accrued interest. The first excess cash flow offer was required to be in an amount equal to the lesser of $5 million or the excess cash flow, and was required to be made ratably between the holders of the Term A Senior Notes and the Term Loan Credit Facility. In addition, we were required by the Term Loan Credit Facility to make a second offer (the “second excess cash flow offer”) if we had excess cash flow more than $5 million during the immediately preceding fiscal year. The second excess cash flow offer was required to be in an amount equal to 50% of the amount by which our excess cash flow exceeded $5 million, and was required to offer to prepay indebtedness outstanding under the Term Loan Credit Facility at 101% of the principal amount thereof, plus accrued interest. We have the ability to prepay this indebtedness by using cash balances on hand, cash generated by operations, and cash available under our Senior Credit Facility.

The required excess cash flow offer for fiscal 2004 is $5.0 million, of which $0.3 million represents accrued interest. The remaining $4.7 million, net of $0.3 million unamortized discount, is classified as a current liability as of the end of fiscal 2003. However, given the likelihood that the Company will seek protection under the federal bankruptcy laws in the near future, the Company decided to not provide the required notice. Under the terms of the Term A Senior Secured Notes, the Trustee for the Noteholders will have the right to notify the Company of its contractual breach which, if not cured timely, would accelerate the Company’s $39.2 million indebtedness. If such a notice is received, the Company does not intend to cure the breach. The notes are classified in the July 1, 2003 balance sheet in accordance with payment terms because as of that date, we were in compliance with all covenants, and no contractual breaches had occurred.

The required excess cash flow offers for fiscal 2003, amounting to $9.9 million, were made on September 30, 2002 and October 2, 2002, respectively, and on October 28, 2002 and October 31, 2002, following the end of the offer acceptance periods, we paid $3.6 million and $5.1 million, respectively, to repay debt, with the result that the Term Loan Credit Facility was entirely repaid. After these repayments, $39.2 million of our Term A Senior Secured Notes remained outstanding. Prospectively, because the Term Loan Credit Facility has been fully repaid, our excess cash flow offers will be limited to the first excess cash flow offer, or $5 million.

For fiscal 2002, no excess cash offers were required because excess cash flow from fiscal 2001 was below $2.5 million.

On December 11, 2001, we used available cash balances to repurchase approximately $3.7 million in face amount of our 12% Senior Secured Notes due fiscal 2007.

Because no active market has developed for the Senior Secured Notes, it is not practicable to estimate the fair value of our long-term borrowings.

Senior Credit Facility. On December 11, 2001, we completed a three-year, $20.0 million senior credit facility with Foothill Capital Corporation (the “Senior Credit Facility”) replacing a $14.4 million senior credit facility with commercial banks. At the end of fiscal 2003, approximately $13.7 million of the Senior Credit Facility was used for outstanding commercial letters of credit and $1.9 million was borrowed. The remaining $4.4 million, subject to certain covenant limitations, was available for working capital and for other corporate purposes. The Senior Credit Facility matures in December 2004 and bears interest at the Wells Fargo prime rate plus 2.0%.

The Senior Credit Facility contains financial covenants that require (i) a minimum level of earnings before income taxes, depreciation, and amortization (EBITDA), (ii) a maximum ratio of the Senior Credit Facility commitment to EBITDA, (iii) a maximum ratio of net funded debt to EBITDA, and (iv) a minimum ratio of fixed charges. The financial covenant requirements are predetermined and adjust over the term of the Senior Credit Facility. We believe that the financial covenant requirements under the Senior Credit Facility better suit our business plan than the covenants of the replaced facility. Currently, compliance with the financial covenants is measured quarterly. However, if total funding under the Senior Credit Facility together with outstanding letters of credit amounts to $15.0 million, compliance with the financial covenants will be measured monthly. At July 2, 2002, and with respect to the Senior Credit Facility, we complied with all of the financial covenants, there were no borrowings outstanding, and outstanding letters of credit amounted to $10.7 million.

Sale-leaseback Transactions. On March 30, 2001, we completed a sale-leaseback transaction of 12 properties. We received $20.0 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. We used substantially all of the net proceeds to make open-market purchases of $16.0 million of our 12% Senior Secured Notes due fiscal 2007 and $4.5 million of our floating rate Term B Notes due fiscal 2007. 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. The assets sold and leased back previously had depreciation expense of approximately $0.8 million annually.

On July 31, 2001, we completed a sale-leaseback of six of our owned properties. We received approximately $9.0 million in cash for the sale of the properties and simultaneously executed long-term leases to continue to operate cafeterias at the sites for a primary term of 20 years and optional renewal periods for up to 20 additional years. We used substantially all of the net sale proceeds to purchase $9.4 million in face amount of our 12% Senior Secured Notes due fiscal 2007. The sale of the six properties resulted in a $1.3 million deferred loss, which will be amortized over the initial term of the lease. The net result of the sale-leaseback and note repurchase transactions is a reduction of annual expenses of $1.2 million. Net rent expense during the initial term will be approximately $1.1 million annually. The assets sold and leased back previously had depreciation expense of approximately $0.9 million annually.

With the six properties sold in July 2001, we have entered into sale-leaseback transactions for a total of 18 properties. The purchaser of these 18 properties is an unrelated third-party who has, by their payment terms to us for the purchase of these properties, demonstrated initial and continuing investment in the properties acquired. We have no continuing involvement with the properties sold, other than a normal lease. There is no obligation on our part to repurchase the properties sold, and the purchaser does not have the ability to compel us to repurchase the property at any time in the future. We have made no guarantees of the purchaser’s investment or a return on that investment for either a limited or extended period.

Note 10 PENSION PLANS

We have a defined benefit pension plan covering substantially all team members who meet certain age and length-of-service requirements and were hired before January 1, 2000, except for team members employed by Morrison Restaurants, Inc. before we acquired Morrison’s. Retirement benefits are based upon a team member’s years of credited service and final average compensation. Assets of the plan are invested principally in marketable debt and equity securities including 367,662 shares of our common stock held at the ends of fiscal 2003 and fiscal 2002 with a fair value of $0.1 million and $1.1 million, respectively.

At the time of the Morrison Acquisition, Morrison maintained two nonqualified team member defined benefit pension plans and one frozen qualified defined benefit pension plan. The two Morrison nonqualified pension plans continue to accrue benefits for covered team members. To provide a source for the payment of benefits under these plans, we own and we are the sole-beneficiary of whole-life insurance contracts on some participants.

We are a co-sponsor of the Morrison Restaurants Inc. Retirement Plan along with Ruby Tuesday, Inc. and Morrison Management Specialists, Inc., a subsidiary of Compass Group. The MRI Retirement Plan is a qualified defined benefit pension plan and was frozen on December 31, 1987. Its assets include common stock, fixed income securities, short-term investments, and cash. We recorded a minimum pension liability at the end of fiscal 2002, the valuation date of the plans, of $22.5 million to reflect the unfunded status of the frozen pension plans. At the end of fiscal 2003, we recorded an additional minimum pension liability of $19.1 million. Consequently, the Shareholders Equity (Deficit) section of our balance sheet reflects Accumulated Other Comprehensive Loss of $41.5 million. The unfunded status of these two plans results from the decline in the fair values of their assets due to market performance and an increase in the present value of projected benefit obligations due to a decrease in market interest rates.

Changes in plan assets and obligations for fiscal 2003 and fiscal 2002 and the funded status of the plans described in the preceding paragraphs (referred to collectively as “Pension Benefits”) at the ends of fiscal 2003 and fiscal 2002, were as follows:


		(Amounts in thousands)
		Pension Benefits
		Fiscal 2003			Fiscal 2002

Change in benefit obligation:
Benefit obligation at beginning of year		$	83,342		$	85,057
Service cost			23			1,189
Interest cost			5,913			6,108
Benefits paid			(4,511	)		(4,220	)
Assumptions change			16,067			4,902
Curtailment			—			(10,420	)
Actuarial (gain) loss			156			726

	Benefit obligation at end of year	$	100,990		$	83,342

Change in plan assets:
Fair value of plan assets at beginning of year		$	59,590		$	68,475
Actual return			525			(4,966	)
Employer contributions			794
Benefits paid			(4,511	)		(3,919	)

	Fair value of plan assets at end of year	$	56,398		$	59,590


		(Amounts in thousands)
		July 1, 2003			July 2, 2002

Reconciliation of funded status:
Funded status		$	(44,592	)	$	(23,763	)
Unrecognized actuarial loss			41,761			22,605
Unrecognized prior service cost			203			—
Minimum pension liability			(41,657	)		(22,538	)

	Net prepaid pension cost (pension liability)	$	(44,285	)	$	(23,696	)

Net prepaid benefit cost (pension liability) consists of:
Prepaid benefit cost		$	2,122		$	3,326
Accrued benefit liability			(4,750	)		(4,484	)
Minimum pension liability			(41,657	)		(22,538	)

	Net prepaid pension cost (pension liability)	$	(44,285	)	$	(23,696	)

Net periodic pension expense for fiscal 2003, fiscal 2002 and fiscal 2001 include the following components:


	(Amounts in thousands)
	Fiscal 2003			Fiscal 2002			Fiscal 2001

Net pension expense:
Service cost	$	23		$	1,190		$	2,208
Interest cost on projected benefit obligation		5,913			6,108			6,070
Expected return on plan assets		(5,197	)		(6,029	)		(6,907	)
Recognized actuarial (gain)/loss		1,279			683			(4	)
Curtailment (gain)/loss		—			(16	)		—
Amortization of prior service cost		—			16			14

	$	2,018		$	1,952		$	1,381

Assumptions used in actuarial calculations were as follows:


	Fiscal 2003			Fiscal 2002			Fiscal 2001

Actuarial assumptions:
Discount rate		6.00	%		7.25	%		7.75	%
Long-term rate of return		8.50	%		9.00	%		9.00	%

Note 11 COMMON STOCK

Under the Dividend Reinvestment Plan shareholders of record may reinvest quarterly dividends and/or up to $5,000 per quarter in our common stock. Stock obtained through reinvested dividends is issued at a 5% discount. At the end of fiscal 2003, there were 255,389 unissued common shares reserved under the plan. We have not paid a dividend on our Common Stock since the Board suspended our regular quarterly dividend on February 7, 2000.

Under the terms of the 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 nonqualified stock options, stock appreciation rights, stock awards, restricted stock, performance shares, and cash awards may be granted to officers, key team members, or the Chairman of the Board of Directors. Options to purchase shares of our common stock may be issued at no less than 100% of the fair market value on the date of grant. We have reserved 1,450,000 shares, in total, for issuance under the 1993 and 1988 Plans. Transactions under the 1998 Plan for the last three years are summarized as follows:


	Fiscal 2003					Fiscal 2002					Fiscal 2001

				Weighted					Weighted					Weighted
				Average					Average					Average
	Common			Exercise		Common			Exercise		Common			Exercise
	Stock Shares			Price		Stock Shares			Price		Stock Shares			Price

Outstanding at beginning of year		982,950		$	8.03		905,550		$	8.78		1,019,900		$	11.15
Granted		58,850			2.29		101,700			1.52		324,800			2.36
Exercised		—			—		—			—		—			—
Forfeited or canceled		(471,800	)		9.42		(24,300	)		8.92		(439,150	)		9.54

Outstanding at end of year		570,000			6.29		982,950			8.03		905,550			8.78

Options exercisable at year-end		444,800			7.48		849,300			8.34		743,850			8.68
Weighted-average fair value per share of options granted during the year	$	2.13							$	2.90				$	2.87

The following table summarizes information about stock options outstanding at July 1, 2003:


				Options Outstanding						Options Exercisable

						Weighted
						Average		Weighted				Weighted
						Remaining		Average				Average
				Number		Contractual		Exercise		Number		Exercise
Range of Exercise Prices				Outstanding		Life		Price		Exercisable		Price

$	1.00	$	5.00		310,750		7.78	$	2.06		185,550	$	2.09
	5.01		9.01		48,475		5.66		8.50		48,475		8.50
	9.02		12.00		210,775		4.44		12.00		210,775		12.00

	1.00		12.00		570,000		6.37		6.29		444,800		7.48

A reconciliation of the income and common stock share amounts used in the calculation of basic and diluted net income per share for fiscal 2003, fiscal 2002, fiscal 2001 are as follows:


	(Amounts in thousands, except per share amounts)
	Fiscal 2003								Fiscal 2002						Fiscal 2001

						Per							Per							Per
	Net					Share			Net				Share		Net					Share
	Income			Shares		Amount			(Loss)		Shares		Amount		Income			Shares		Amount

Basic net income (loss)	$	(13,486	)		10,891	$	(1.24	)	$	3,110		10,579	$	0.29	$	(36,030	)		10,503	$	(3.43	)
Effect of dilutive securities					105							233							10

Diluted net income (loss)	$	(13,486	)		10,996		(1.24	)	$	3,110		10,812		0.29	$	(36,030	)		10,513	$	(3.43	)
Potentially dilutive securities not included in the fully diluted computation because they would have been antidilutive					465							892							862

Note 12 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)


	(Amounts in thousands, except per share amounts)
	Fiscal 2003												Fiscal 2002

	1-Oct			31-Dec			1-Apr			1-Jul			30-Sep			31-Dec			31-Mar			2-Jul

Net sales	$	82,095		$	82,471		$	78,471		$	77,300		$	88,344		$	89,024		$	85,054		$	87,272
Cost of sales and other operating expenses		78,580			77,475			74,925			71,242			81,520			82,053			78,423			81,365
Operating income		3,515			4,996			3,546			6,058			6,824			6,971			6,631			5,907
Net income (loss) from continuing operations		(616	)		(4,757	)		(1,469	)		(3,948	)		775			670			3,776			858
Net loss from discontinued operations		(1,284	)		(17	)		(971	)		(426	)		(684	)		(447	)		(632	)		(1,206	)
Net income (loss)		(1,900	)		(4,774	)		(2,440	)		(4,374	)		91			223			3,144			(348	)
Net Income (loss) per share from continuing operations – basic	$	(0.06	)	$	(0.44	)	$	(0.13	)	$	(0.36	)	$	0.07		$	0.06		$	0.36		$	0.08
Income (loss) per share from continuing operations – assuming dilution		(0.06	)		(0.44	)		(0.13	)		(0.36	)		0.07			0.06			0.36			0.08
Net loss from discontinued operations per share – basic		(0.11	)		—			(0.09	)		(0.04	)		0.07			(0.04	)		(0.06	)		(0.11	)
Net loss from discontinued operations per share – assuming dilution		(0.11	)		—			(0.09	)		(0.04	)		0.07			(0.04	)		(0.06	)		(0.11	)
Net income (loss) per share- basic		(0.17	)		(0.44	)		(0.22	)		(0.40	)		0.01			0.02			0.30			(0.03	)
Net income (loss) per share- assuming dilution		(0.17	)		(0.44	)		(0.22	)		(0.40	)		0.01			0.02			0.30			(0.03	)

Effective April 1, 2002, we adopted a 52-53 week fiscal reporting period for our 2002 fiscal year, resulting in a 2003 and 2002 fiscal year-end date of July 1, 2003 and July 2, 2002. Prior to the change, we reported on a June 30 year-end. As a result of the fiscal year-end reporting period change, fiscal 2003 has 364 days, fiscal 2002 has 367 days and fiscal 2001 has 365 days. Three fewer days in fiscal 2003 compared to fiscal 2002 resulted in lower net sales and net income for fiscal 2003 of approximately $2.8 million and $1.3 million, respectively. Two additional days in fiscal 2002 compared to fiscal 2001 resulted in additional sales and net income for fiscal 2002 of approximately $1.8 million and $0.4 million, respectively.

During our second quarter ended December 31, 2002, we recorded a $5.8 million asset impairment charge (see note 2 for further discussion) and a $1.3 million loss from the early retirement of debt in connection with the retirement of a portion of our Senior Secured Notes on October 28 and October 31, 2002 (see Note 9 for further discussion). Additionally, we recorded a $2.0 million tax benefit related to an IRS refund (see note 7 for further discussion).

During our third quarter ended April 1, 2003, we recorded an asset impairment charge of $0.9 million (see Note 2 for further information) and an additional $0.5 million tax benefit (see note 7 for further discussion).

During our fourth quarter ended July 1, 2003, we recorded a reserve for cafeteria closing charges (primarily lease-related charges) of $5.8 million related to the closing of 16 cafeterias (see note 3 for further discussion).

During our first and second quarters ended September 30, 2001 and December 31, 2001, we recorded losses from the early retirement of debt of $1.1 million and $0.8 million, respectively, in connection with the retirement of a portion of our Senior Secured Notes on July 31, 2001 and December 11, 2001 (see note 4 for further discussion).

During our third quarter ended March 31, 2002, we recorded a $2.0 million tax benefit related to an IRS refund for the carry back of 2001 net operating losses to 1996 (see note 7 for further information).

Report of Ernst & Young LLP, Independent Auditors

Shareholders and Board of Directors
Piccadilly Cafeterias, Inc.
Baton Rouge, Louisiana

We have audited the accompanying balance sheets of Piccadilly Cafeterias, Inc. as of July 1, 2003 and July 2, 2002, and the related statements of operations, changes in shareholders’ equity (deficit), and cash flows for each of the three years in the period ended July 1, 2003. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 Piccadilly Cafeterias, Inc. at July 1, 2003 and July 2, 2002, and the results of its operations and its cash flows for each of the three years in the period ended July 1, 2003 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth herein.

As discussed in Note 2 to the financial statements, in 2002 the Company changed its method of accounting for goodwill.

The accompanying financial statements have been prepared assuming that Piccadilly Cafeterias, Inc. will continue as a going concern. As more fully described in Note 1, the Company has experienced continuing sales declines, and operating losses, and has significant minimum pension liabilities and pension contribution obligations. At July 1, 2003, the Company has a deficiency in assets. In addition, the Company does not expect to remain in compliance with the covenants of its debt facilities through fiscal 2004 and the Company intends to file for protection under Chapter 11 of the Bankruptcy Code. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

/s/ Ernst & Young LLP

New Orleans, Louisiana
August 20, 2003, except for the fourth
paragraph of Note 1, as to which the
date is September 29, 2003

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

PART III

Item 10. Directors and Executive Officers of the Registrant

Directors

The following table provides certain information as of September 26, 2003, unless otherwise indicated, with respect to each director. Unless otherwise indicated, each person has been engaged in the principal occupation shown for the past five years.

Joseph H. Campbell, Jr., age 51, has served as the Chairman of the Board since August 2002 and has been a director since 2000. Mr. Campbell’s current term as a director expires at the 2003 Annual Meeting of Shareholders. Mr. Campbell has been President and Chief Executive Officer of Associated Grocers, Inc. since February 1, 1995. Associated Grocers, Inc. is a private, member-owned corporation that serves independent retail grocers in four states by providing grocery products and retail and technological services.

James F. White, Jr., age 63, has been a director since 2000. Mr. White’s current term as a director expires at the 2003 Annual Meeting of Shareholders. Mr. White has served as of counsel to the law firm of Shumaker, Loop & Kendrick, Toledo, Ohio since January 1, 1996. He previously served in various executive positions and as a director of Checkers Drive-In Restaurants, Inc. from January 1993 through December 1995, including serving as Chief Executive Officer from August 1, 1994 through August 31, 1995. Mr. White is also President and Chief Executive Officer of whOlesome group, llc, an operator of Panera Bread Bakery Cafes in northwest Ohio and southeast Michigan, and serves on the boards of numerous privately-held companies.

James A. Perkins, age 59, has been a director since 2001. Mr. Perkins’ current term as a director expires at the 2004 Annual Meeting of Shareholders. Mr. Perkins is a private investor and a consultant. He recently completed a career that spanned over 25 years with Federal Express Corporation, most recently as Senior Vice President and Chief Personnel Officer from June 1979 to December 1999.

Dale E. Redman, age 55, has been a director since 1995. Mr. Redman’s current term as a director expires at the 2004 Annual Meeting of Shareholders. Mr. Redman is the managing director of Windward Capital. From 1988 to 1998, he was the Executive Vice President and Chief Financial Officer of United Companies Financial Corporation and served as a director until November 2000. On March 1, 1999, United Companies Financial Corporation, a Baton Rouge financial institution, filed for protection under Chapter 11 of the Bankruptcy Code.

C. Ray Smith, age 68, has been a director since 1992. Mr. Smith’s current term as a director expires at the 2004 Annual Meeting of Shareholders. Mr. Smith is the Tipton R. Snavely Professor of Business Administration at the Darden Graduate School of Business Administration, University of Virginia and the Executive Director of the Darden School Foundation.

Robert P. Guyton, age 66, has been a director since 1996. Mr. Guyton’s current term as a director expires at the 2005 Annual Meeting of Shareholders. Mr. Guyton is a financial consultant, having previously been a Vice President and financial consultant for Raymond James & Associates, Inc. from 1993 to 1996. From 1981 to 1991, Mr. Guyton was President and Chief Executive Officer of BankSouth Corporation.

Christel C. Slaughter, age 48, has been a director since 1996. Ms. Slaughter’s current term as a director expires at the 2005 Annual Meeting of Shareholders. Ms. Slaughter is the co-owner of, and a management consultant with, SSA Consultants, Inc. Since 1979, Ms. Slaughter has been an active lecturer and consultant for both governmental and private entities.

Executive Officers

Except for Mr. McGregor, who was appointed Interim Chief Executive Officer of the Company pursuant to its engagement letter with PMCM, LLC, the executive officers of the Registrant are elected annually by the Board of Directors and hold office until a successor is duly elected. The names and positions of executive officers of the Registrant, together with a brief description of the business experience of each such person during the past five years, are set forth below.

John G. McGregor, age 58, interim Chief Executive Officer, has held that position since May 2003. Mr. McGregor’s services are provided pursuant to a consulting agreement with PMCM, LLC, a wholly owned subsidiary of Phoenix Management Services, Inc., of which Mr. McGregor is a Senior Vice President. Prior to joining Phoenix Management Services, Inc. in February 2003, he was a Principal of Crossroads, LLC from September 2000 to November 2002 and prior thereto, a Principal of Alix Partners from January 1991 to August 2000.

Azam Malik, age 54, President and Chief Operating Officer, has held such positions since March 2001. From June 1997 to January 2001, he was Executive Vice President of Operations of Chi Chi’s Inc., a subsidiary of Prandium, Inc. From 1993 to June 1997, he was Executive Vice President of Operations of El Torito Restaurants, Inc.

Mark L. Mestayer, age 45, Executive Vice President and Chief Financial Officer, has held such positions since September 1999. From July 1996 to September 1999, he was Executive Vice President, Secretary, and Director of Finance, and from May 1992 to July 1996, he was Executive Vice President, Secretary, and Controller.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than ten percent of the Company’s Common Stock, to file certain beneficial ownership reports with the Securities and Exchange Commission. No such reports were untimely filed.

Item 11. Executive Compensation

Director’s Compensation

Each director who is not an officer of the Company receives, in addition to reimbursement of reasonable and necessary costs and expenses incurred, a retainer of $20,000 per year, a fee of $1,500 for each regular and special meeting of the Board that he or she attends, and $1,000 for each meeting of a committee of the Board, that such director attends. If a director participates for any of these meeting by telephone, the fee is one-half of the meeting fee. For each conference call meeting of the Board and each conference call meeting of a committee of the Board, that such director participates by telephone, the director receives $500. The retainer was paid 50% in cash and 50% in the Company’s Common Stock through June 30, 2002. Effective July 1, 2003, the retainer is paid 100% in cash.

The Chairman of the Board receives, in addition to director fees and reimbursement of reasonable and necessary costs and expenses incurred, a retainer of $2,000 per month.

Executive Compensation and Other Benefits

The following table sets forth certain information regarding the compensation of the Company’s Chief Executive Officer and each of the Company’s other most highly compensated executive officers. For the purpose of this and the following tables and discussion concerning executive compensation, such executive officers shall be referred to as the “Named Executive Officers.”

Summary Compensation Table


									Long-term
									Compensation
									Awards

					Annual Compensation				Securities
									Underlying		All Other
Name and Principal Position			Year		Salary		Bonus		Options/SARS		Compensation (1)

Ronald A. LaBorde (2)				2003	$	268,446	$	—		—	$	45,209	(3)
Chief Executive Officer				2002		312,988		86,388		—		800
				2001		312,988		—		75,000		800
Azam Malik (4)				2003		250,000		—		—		667
	President and Chief Operating			2002		200,000		41,400		—		800
		Officer		2001		79,077		—		100,000		800
Mark L. Mestayer				2003		176,927		—		2,500		800
	Executive Vice President and			2002		155,012		41,932		—		800
		Chief Financial Officer		2001		155,012		—		14,000		800
John G. McGregor (5)				2003		—		—		—		—
	Interim Chief Executive Officer

(1)		Represents amounts paid by the Company for insurance premiums for a group policy, which afforded term life insurance and long-term disability insurance for all officers and for a group accidental death policy, which afforded coverage for all executive officers.

(2)		Mr. LaBorde resigned from the Company on May 4, 2003.

(3)		The 2003 All Other Compensation amount of $45,209 includes $44,542 of compensation that was paid pursuant to a severance agreement between the Company and Mr. LaBorde. The remaining $667 represents the prorated portion of term life insurance premiums as described in (1) above.

(4)		Mr. Malik joined the Company in March 2001.

(5)		Mr. McGregor has served as the interim chief executive officer of the Company since May 4, 2003, pursuant to an agreement by and between the Company and PMCM, LLC, an affiliate of Phoenix Management Services, Inc., an operationally focused turnaround firm. Pursuant to this agreement, the Company pays PMCM $15,000 per week for Mr. McGregor’s services as interim chief executive officer. See Item 13 “Certain Relationships and Related Transactions.”

The following table sets forth information with respect to option grants in fiscal 2003 to the Named Executive Officers.

Options/SAR Grants In Fiscal 2003


										Potential Realizable
										Value at Assumed Annual
										Rates of Stock
										Appreciation For Option
Individual Grants										Term

	Number of		Percent of
	Securities		Total Options
	Underlying		Granted To			Exercise or
	Options		Employees in			Base Price		Expiration
Name	Granted (#)		Fiscal Year			Per Share ($)		Date		5% ($)		10% ($)

Ronald A. LaBorde		—		—	%	$	—		—	$	—	$	—
Azam Malik		—		—	%		—		—		—		—
Mark L. Mestayer ⁽¹⁾		2,500		100	%		2.15		11/03/2012		2,688		5,375
John G. McGregor		—		—	%		—		—		—		—

(1)

Mr. Mestayer’s options vest in four 25% equal annual increments beginning one year after the option grant date.

The following table sets forth information with respect to the Named Executive Officers concerning option and SAR exercises during the fiscal year ended July 1, 2003 and unexercised options and SARs held as of July 1, 2003.

Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Value as of July 1, 2003


					Number of Securities				Value of Unexercised In-the-
					Underlying Unexercised				Money Options at July 1,
					Options at July 1, 2003				2003

	Shares Acquired		Value		Exercisable				Exercisable
Name	on Exercise (#)		Realized		(1)		Unexercisable		(1)		Unexercisable

Ronald A. LaBorde		—		—		—		—	$	—	$	—
Azam Malik		—		—		50,000		50,000		—		—
Mark L. Mestayer		—		—		56,500		2,500		—		—
John G. McGregor		—		—		—		—		—		—

(1)

All options were awarded at the fair market value of the underlying shares on the date of grant.

Employment Agreements

Pursuant to an agreement dated as of May 4, 2003 between the Company and Ronald A. LaBorde, upon Mr. LaBorde’s resignation effective May 4, 2003, the Company agreed to (i) continue to pay Mr. LaBorde his then-current annual salary of $313,000 until May 4, 2004, (ii) pay up to $25,000 toward out placement services for Mr. LaBorde and (iii) use its best efforts to include Mr. LaBorde as a consultant participant in the Company’s group health insurance plan until the earlier of May 4, 2004 or such time as Mr. LaBorde has obtained other employment providing health insurance benefits. Pursuant to the agreement, Mr. LaBorde agreed to serve as a consultant to the Company until May 4, 2004 and not to compete with the Company for one year.

Pension Plan

The Company maintains a defined benefit pension plan for employees. As of December 31, 2001, accrual of additional employee benefits was frozen. The Named Executive Officers have the following credited years of service under the plan: Mr. LaBorde — 20; Mr. Mestayer — 13. Participation in the pension plan is not available to persons who became employed after December 31, 1997, so neither Mr. Malik nor Mr. McGregor are participants. Benefits are not subject to deductions for Social Security benefits or other offset amounts. The estimated annual benefits payable on retirement to each of the Named Executive Officers are $31,845 for Mr. LaBorde and $19,194 for Mr. Mestayer.

Compensation Committee Interlocks

None of the members of the Compensation Committee have been officers or employees of the Company or any of its subsidiaries. No executive officer of the Company served in the last fiscal year as a director or member of the compensation committee of another entity, one of whose executive officers served as a director or on the Compensation Committee of the Company.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth information regarding the beneficial ownership of the Company’s Common Stock by (i) each director of the Company, (ii) each executive officer for whom compensation information is disclosed under the heading “Executive Compensation and Other Benefits”, (iii) all of the Company’s directors and executive officers as a group, and (iv) each person known to the Company to be a beneficial owner of more than 5% of the outstanding common stock, all as determined in accordance with Rule 13d-3 of the Exchange Act based on information furnished by such persons. Unless otherwise indicated, all information is presented as of September 24, 2003 and all shares shown are held with sole voting and investment power.


	Shares			Percent
	Beneficially			of
Name and Address of Beneficial Owner	Owned			Class

Dale E. Redman		18,028				*
Robert P. Guyton		18,101				*
Christel C. Slaughter		17,028				*
C. Ray Smith		17,425	(1)			*
James A. Perkins		10,949				*
James F. White, Jr.		12,744	(2)			*
Joseph H. Campbell, Jr.		12,744				*
Ronald A. LaBorde (3)		118,663			1.0	%
Azam Malik		53,750	(4)			*
Mark L. Mestayer		54,000	(5)			*
John G. McGregor		—				*
Julia H.R. Hamilton 2736 Windrush Way, Baton Rouge, Louisiana 70879		1,051,192	(6)		9.2	%
O. Q. Quick 8523 Thackery Street, Apt. 4105, Dallas, Texas 75225		829,159	(7)		7.3	%
Dimensional Fund Advisors, Inc. (8)		746,000			6.6	%
Royce & Associates, LLC (9)		633,600			5.6	%
All directors and executive officers as a group (10 persons)		214,769	(10)		1.9	%

*		Less than 1%

(1)		Includes 300 shares held of record by Mr. Smith’s spouse.

(2)		All shares are held of record by Mr. White’s spouse.

(3)		Includes 78,373 shares held by Mr. LaBorde as trustee or co-trustee (together with Mr. O. Q. Quick) under several trusts.

(4)		Represents shares that Mr. Malik has the right to acquire upon the exercise of presently exercisable options.

(5)		Represents shares that Mr. Mestayer has the right to acquire upon the exercise of presently exercisable options.

(6)		Includes 26,000 shares held by Ms. Hamilton as trustee of a charitable trust. Ms. Hamilton is the daughter of the Company’s founder, T.H. Hamilton. Ms. Hamilton served on the Company’s Board from 1977 to 1997 and subsequently served as an advisory director through May 2003.

(7)		Includes 739,659 shares held by Mr. Quick as trustee or co-trustee under several trusts, 30,000 shares held by Mr. Quick’s spouse as trustee under several trusts, and 59,500 shares held beneficially and of record jointly with his spouse or individually by Mr. Quick or his spouse. Mr. Quick began his career with the Company in 1946 and served in various capacities for the Company including Chairman of the Board and Chief Executive Officer until 1995, and as a director until 1996.

(8)		Based upon information included in Schedule 13G dated December 31, 2002 filed with the Securities Exchange Commission by Dimensional Fund Advisors, Inc., an investment advisor to four investment companies, and investment managers to certain other comingled group trusts and separate accounts. These investment companies, trusts and accounts are the “Funds.” All securities reported here are owned by the Funds. The address of the Funds is 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.

(9)		Based upon information included in Schedule 13G dated December 31, 2002 filed with the Securities Exchange Commission by Royce & Associates, LLC, an investment advisor. All securities reported here are owned by Royce & Associates, LLC. The address of Royce & Associates, LLC, is 1414 Avenue of the Americas, New York, NY 10019.

(10)		Includes 107,750 shares that such persons have the right to acquire upon the exercise of presently exercisable options.

Item 13. Certain Relationships and Related Transactions

On May 4, 2003, the Company entered into an agreement with PMCM, LLC, an affiliate of Phoenix Management Services, Inc., an operationally focused turnaround firm, pursuant to which PMCM provides crisis management and restructuring services to the Company through the servies of three temporary employees, including Mr. McGregor, who serves as interim chief executive officer of the Company. Mr. McGregor is a Senior Vice President with PMCM. Pursuant to the agreement, the Company has paid PMCM a $75,000 retainer and has agreed to pay PMCM a fee of $15,000 per week for the services of Mr. McGregor. Either the Company or PMCM may terminate the agreement upon 10 days prior written notice with or without cause.

Item 14. Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934 (the “Act”) and refers to the controls and other procedures designed to ensure that information required to be disclosed in reports that we file or submit under the Act is recorded, processed, summarized and reported within the time periods specified. Our interim Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of these disclosure controls and procedures as of July 1, 2003 (the “Evaluation Date”). They have concluded that, as of the Evaluation Date, such controls and procedures were effective at ensuring that material information related to us and our consolidated subsidiaries is made known to them and is disclosed on a timely basis in our reports filed under the Act.

Additionally, we maintain a system of internal control over financial reporting that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Based on this most recent evaluation, we have concluded that there were no significant changes in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART IV

Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K

(a) (1) Financial Statements—The following are included in this annual report on Form 10-K beginning on the page indicated:


Description	Page

Balance sheets as of July 1, 2003 and July 2, 2002		21
Statements of operations for the fiscal years ended July 1, 2003, July 2, 2002 and June 30, 2001		22
Statements of changes in shareholders’ equity (deficit) for the fiscal years ended July 1, 2003, July 2, 2002 and June 30, 2001		2
Statements of cash flows for the fiscal years ended July 1, 2003, July 2, 2002 and June 30, 2001		3
Notes to Financial Statements		4
Report of independent auditors		17

(2) Schedule—The following schedule and information is included in this annual report on Form 10-K on the page indicated. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.


Description	Page

Schedule II—Valuation and qualifying accounts		29

(3) Listing of Exhibits (see sub-section (c) below).

(b)

Reports on Form 8-K:

	(1)		Current Report on Form 8-K filed April 22, 2003, reporting under Item 5, our press release announcing our progress in landlord negotiations.

	(2)		Current Report on Form 8-K filed May 5, 2003, reporting under Item 9, our press release reporting management changes.

	(3)		Current Report on Form 8-K filed May 7, 2003, reporting under Items 9 and 12, our press release announcing our earnings for the third fiscal quarter ended April 1, 2003.

	(4)		Current Report on Form 8-K filed July 1, 2003, reporting under Item 9, our press release announcing the authorization of management to pursue a range of strategic options, including a potential sale of the Company.

(c)

EXHIBITS


1.		Articles of Incorporation of the Company, restated through March 12, 1999⁽¹⁾.

2.		By-laws of the Company, as amended and restated through November 18, 2002⁽²⁾.

4.1		Indenture dated December 21, 2000, between the Company and Bank of New York ⁽³⁾.

4.2		Purchase Agreement dated December 12, 2000, as amended and restated on December 19, 2000, effective on December 21, 2000, between the Company and Jefferies & Company, Inc. ⁽³⁾.

4.3		Form of Exchange Note (included as part of Exhibit 4.1) ⁽³⁾.

4.4		Rights Agreement dated November 2, 1998, including (i) as Exhibit A – The Form of Articles of Amendment, (ii) as Exhibit B – the Forms of Rights Certificate, Assignment and Election to Purchase, and (iii) as Exhibit C – the Summary Description of the Shareholder Rights Plan ⁽⁴⁾, as amended by First Amendment to Rights Agreement, dated June 1, 1999⁽⁷⁾.

4.5

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