10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended    October 1, 2002

[  ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from   to

Commission file number:	1-11754
Piccadilly Cafeterias, Inc.
(Exact name of registrant as specified in its charter)

Louisiana	72-0604977
(State or other jurisdiction of	Identification No.)
incorporation or organization)	(I.R.S. Employer

3232 Sherwood Forest Blvd., Baton Rouge, Louisiana	70816
(Address of principal executive offices)	(Zip Code)

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

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 

Yes [X] No [ ]
 

The number of shares outstanding of Common Stock, without par value, as of November 4, 2002, was 10,880,807.

PART I -- Financial Information
 

Item 1. Financial Statements (Unaudited)
 

CONDENSED BALANCE SHEETS (Unaudited)

(Amounts in thousands except share data)
Balances at		October 1		July 2
		2002		2002
ASSETS
Current Assets
Cash and cash equivalents	$	6,956	$	5,661
Accounts and other receivables		814		952
Inventories		11,148		11,286
Other current assets		1,201		1,541
Total Current Assets		20,119		19,440
Property, Plant and Equipment		241,772		243,416
Less allowances for depreciation		146,010		144,021
Net Property, Plant and Equipment		95,762		99,395
Goodwill		3,705		3,705
Other Assets		10,773		11,155
Total Assets	$	130,359	$	133,695
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Current portion of long term debt, net of $712,000 and $766,000 unamortized discount at October 1, 2002 and July 2, 2002, respectively	$	8,920	$	9,112
Accounts payable		6,530		7,831
Accrued interest		2,216		984
Accrued salaries, benefits and related taxes		12,260		12,973
Accrued rent		3,414		3,502
Other accrued expenses		4,879		4,592
Total Current Liabilities		38,219		38,994
Notes Payable, net of $2,809,000 and $2,927,000 unamortized discount at October 1, 2002 and July 2, 2002, respectively		35,059		34,695
Reserve for Cafeteria Closings		3,984		5,163
Other Noncurrent Liabilities, less current portion		8,157		8,039
Minimum Pension Liability		22,538		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: 10,880,807 shares at October 1, 2002 and 10,880,453 shares at July 2, 2002		19,783		19,782
Additional paid-in capital		18,506		18,506
Retained earnings		6,651		8,680
		44,940		46,968
Less treasury stock at cost: 14,864 Common Shares at July 2, 2002		---		164
Less accumulated other comprehensive loss		22,538		22,538
Total Shareholders’ Equity		22,402		24,266
Total Liabilities and Shareholders’ Equity	$	130,359	$	133,695

See Notes to Condensed Financial Statements (Unaudited)

STATEMENTS OF OPERATIONS (Unaudited)

(Amounts in thousands – except per share data)
		Quarter Ended
		October 1, 2002		September 30, 2001
Net sales	$	89,571	$	96,640
Cost and expenses:
Cost of sales		52,857		54,451
Other operating expense		34,323		35,952
General and administrative expense		2,780		2,852
Loss on early retirement of debt		---		1,102
Interest expense		1,897		2,177
Other expense (income)		(551)		(88)
		91,306		96,446
Income (Loss) From Continuing Operations Before Income Taxes		(1,735)		194
Provision for income taxes		---		---
Income (Loss) From Continuing Operations		(1,735)		194
Discontinued operations – Loss from operations and disposal of cafeterias closed		(165)		(103)
Net Income (Loss)	$	(1,900)	$	91
Weighted average number of shares outstanding – basic		10,875		10,511
Weighted average number of shares outstanding – assuming dilution		11,180		10,512
Income (loss) per share from continuing operations – basic	$	(.16)	$	.02
Income (loss) per share from continuing operations – assuming dilution	$	(.16)	$	.02
Discontinued operations per share – basic	$	(.01)	$	(.01)
Discontinued operations per share – assuming dilution	$	(.01)	$	(.01)
Net income (loss) per share – basic	$	(.17)	$	.01
Net income (loss) per share – assuming dilution	$	(.17)	$	.01
See Notes to Condensed Financial Statements (Unaudited)

STATEMENTS OF CASH FLOWS (Unaudited)

(Amounts in thousands)
Quarter Ended		October 1, 2002		September 30, 2001
Operating Activities
Net income (loss)	$	(1,900)	$	91
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant, and equipment and amortization of deferred financing costs and note discount		3,866		3,909
Expenditures associated with closed cafeterias		(1,180)		(918)
Loss on early extinguishment of debt		---		1,102
(Gain) loss on disposition of assets		(442)		84
Pension expense, net of contributions		527		698
Change in operating assets and liabilities		(196)		706
Net Cash Provided by Operating Activities		675		5,672
Investing Activities
Purchases of property, plant and equipment		(1,544)		(840)
Proceeds from sales of property, plant and equipment		2,164		2
Proceeds from sale-leaseback transaction		---		8,996
Cash Provided by Investing Activities		620		8,158
Financing Activities
Payments on long term debt		---		(8,506)
Financing costs		---		(174)
Treasury stock transactions				(3)
Net Cash Used in Financing Activities		---		(8,683)
Net change in cash and cash equivalents		1,295		5,147
Cash and cash equivalents at beginning of period		5,661		851
Cash and cash equivalents at end of period	$	6,956	$	5,998
Supplemental Cash Flow Disclosures:
Income taxes paid (net of refunds received)	$	(36)	$	(38)
Interest paid	$	255	$	220
See Notes to Condensed Financial Statements (Unaudited)

NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
 

October 1, 2002
 

NOTE 1: BASIS OF PRESENTATION
 

The accompanying unaudited Condensed Financial Statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals, except for the reclassifications required by the two accounting changes described in the next paragraph) considered necessary for a fair presentation for the interim periods have been included. The results for the interim periods are not necessarily indicative of the results to be expected for the full year.
 

These financial statements should be read in conjunction with the financial statements and footnotes included in the Piccadilly Cafeterias, Inc. Annual Report on Form 10-K for the year ended July 2, 2002. Except for the adoption of SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144) as discussed in Note 3 below, SFAS 145, Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS 145), as discussed in Note 2 below, and the adoption of SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS No. 146), the accounting policies used in preparing these financial statements are the same as those described in the Piccadilly Cafeterias, Inc. Annual Report on Form 10-K.
 

Comparative results of operations by periods may be affected by the timing of the opening and closing of cafeterias. Interim results are additionally affected by seasonal fluctuations in guest traffic volume. Guest traffic volume is generally higher in the second quarter and lower in the third quarter reflecting general seasonal retail activity.
 

NOTE 2: LOSS ON EARLY RETIREMENT OF DEBT
 

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 all of the net sale proceeds to purchase $9.4 million in face amount of our Senior Secured Notes as required under the terms of the Notes. We recorded a charge of approximately $1.1 million to write-off unamortized deferred financing costs associated with the repurchased Notes.
 

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 the quarter ended October 1, 2002, as required. Losses on extinguishment of debt previously classified as extraordinary charges are reclassified to conform to the provisions of SFAS No. 145.
 

NOTE 3: DISCONTINUED OPERATIONS
 

In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a Disposal of a Segment of a Business. SFAS 144 establishes a single accounting model for long-lived assets to be disposed of by sales and broadens the presentation of discontinued operations to include more disposal transactions. We adopted SFAS 144 in the quarter ended October 1, 2002, as required. Three cafeterias were closed during the quarter ended October 1, 2002. The net loss for discontinued operations was $0.2 million and $0.1 million for the quarters ended October 1, 2002 a nd September 30, 2001, respectively. The operating results of these three closed cafeterias have been reclassified and reported as discontinued operations for the quarter ended September 30, 2001.
 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 

Forward-Looking Statements
 

Statements contained in this report that are not statements of historical fact may be forward-looking statements. Generally, forward-looking statements contain terms such as "expect," "forecast," "will," "may," or "believe." Forward-looking statements regarding our present plans or expectations for credit facilities, cash flows, liquidity, pension accounting assumptions, capital expenditures, sales-building and cost-saving strategies, advertising expenditures, determinations of impairments of long-lived assets, and the disposition of closed cafeterias and surplus properties involve risks and uncertainties relative to return expectations and related allocation of resources, and changing economic or competitive conditions, which could cause actual results to differ from present plans or expectations, and such differences could be material. Similarly, forward-looking statements regarding our present e xpectations for operating results involve risks and uncertainties relative to these and other factors, such as the effectiveness of advertising, new product development, and the ability to achieve cost reductions, which also would cause actual results to differ from present plans. Such differences could be material. We do not expect to update such forward-looking statements continually as conditions change, and readers should consider that such statements speak only as the date hereof.
 

Overview
 

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Condensed Financial Statements contained in this quarterly report on Form 10-Q. References to "Notes" are to the Notes to Condensed Financial Statements.
 

Piccadilly is the dominant cafeteria chain in the Southeastern and Mid-Atlantic regions with 202 cafeterias. 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.
 

We categorize our operating expenses into three major 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.
 

Our 2002 annual report describes the accounting policies that we believe are critical to our financial position and operating results and that require management's most difficult, subjective or complex judgments. As a result actual results could differ from the estimates that are used in our financial statements. These significant accounting estimates include:

 

• Property, Plant and Equipment

• Impairment of Long-Lived Assets

• Goodwill

• Liabilities of Ongoing Obligations Related to Closed Cafeterias

• Income Taxes

• Pension Accounting

This quarterly report should be read in conjunction with the discussion of Critical Accounting Policies contained in the Piccadilly Cafeterias, Inc. Annual Report on Form 10-K for the year ended July 2, 2002.
 

Results of Operations
 

Fiscal Year-End Reporting Period Change
 

Effective April 1, 2002, we adopted a 52-53 week fiscal reporting period, resulting in a 2002 fiscal year-end date of July 2, 2002, rather than June 30, 2002. Quarterly reporting now includes 13-week periods except for 53-week years in which the fourth quarter of those fiscal years will include 14 weeks. The quarter ended October 1, 2002, includes 91 days compared to 92 days for the quarter ended September 30, 2001.
 

Quarter Ended October 1, 2002 Compared to Quarter Ended September 30, 2001
 

Net Sales. Total net sales for the quarter ended October 1, 2002, were $89.6 million, a 7.3% reduction from net sales of $96.7 million in the prior year quarter ended September 30, 2001. The net sales decline due to one less day in the current quarter was $1.4 million. Cafeterias closed in fiscal 2002 accounted for $2.4 million of the total decline in net sales. The remaining decline of $3.3 million is attributable to lower same-store net sales. The following table reconciles total cafeteria net sales to same-store cafeteria net sales for the comparative quarters. Same-store cafeterias are cafeterias that were open for three full periods in both fiscal quarters.
 

	Quarter Ended
	October 1, 2002		September 30, 2001		Sales
	Sales	Cafeterias	Sales	Cafeterias	Change
	(Dollars in thousands)
Total cafeteria net sales	$89,571	204	$96,640	227	7.3%
Less net sales relating to:
Cafeterias closed in fiscal 2002	---	---	2,361	23
Impact of one less day this year			1,428
Net same-store cafeteria sales	$89,571	204	$92,851	204	3.5%

The net decrease in same-store sales of 3.5% reflects a decline in same-store guest traffic of 6.5%, which was partially offset by a check average increase of 3.1%. Only 0.5% of the check average increase is attributable to price increases, the remainder is due to various menu promotions during the quarter.
 

For the four-week periods ended July 30, 2002 and August 27, 2002, our same-store sales were down 2.9% and 4.0%, respectively. For the five-week period ended October 1, 2002, same-store sales were down 4.0%. We believe that the weakened economy and the uncertainty created by a volatile and declining stock market during that period had a negative impact on the spending habits of our guest base. The impact was more noticeable in our cafeterias located in regional shopping malls. These cafeterias comprise approximately one-half of our cafeterias. Same-store sales for mall cafeterias were down 5.5% for the quarter while our non-mall cafeterias were down 2.3%, a difference of 3.2%. By comparison, sales for cafeterias located in malls declined by 4.3% during fiscal 2002 compared to a decline of 2.6% in all other cafeterias.
 

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

	Quarter Ended		Change
	October 1, 2002	September 30, 2001
Cost of sales	59.0%	56.3%	2.7%
Other operating expenses	38.3%	37.2%	1.1%
General and administrative expenses	3.1%	2.9%	0.2%
Other expenses (income)	(0.6)%	(0.1)%	0.5%

Cafeteria-Level Income. During the first quarters of fiscal 2003 and 2002, cafeteria-level income (net sales less cost of sales and other operating expenses) as a percent of net sales was 2.7% and 6.5%, respectively.
 

Cost of Sales. Cost of sales as a percent of net sales increased 2.7%. That increase is a combination of a 1.8% increase in food costs as a percent of net sales and a 0.9% increase in labor costs as a percent of net sales.
 

The majority of the food cost increase relates to various marketing promotions during the quarter. These programs were aimed at increasing the high-quality food reputation of the Piccadilly brand and increasing the brand’s perception for 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. The catfish promotions during the quarter increased the frequency of catfish meal sales by approximately 45% and increased the quantity of catfish consumed by guests by approximately 120%. Coincident with the catfish promotions, the market price of catfish increased significantly, while the retail price charged to our guests was maintained. We are seeking lower-cost supply alternatives to mitigate the increase in catfish prices that we experienced during the first quarter.
 

The increase in labor costs, as a percent of net sales, is due to the decline in net sales in relationship to the fixed cost component of labor costs.
 

Other Operating Expenses. Other operating expenses increased 1.1% as a percent of net sales. Marketing expenses were 3.7% of net sales this year compared to 1.7% last year. We expect marketing expenses to average 3.1% of net sales for the remainder of the fiscal year.
 

Team member benefit costs as a percent of net sales were 2.5% in the current quarter compared to 3.6% in the prior year. Team member benefit costs decreased $1.6 million. Approximately $1.0 million of the decrease in benefit costs resulted from changes made last year to our team member benefit plans. Additionally, we reduced benefit costs 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. health insurance plan. The Trust 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 the Trust was effectiv ely frozen. During the first quarter, we determined that the remaining Trust assets are available to pay prospective team member benefit costs. During the quarter ended October 1, 2002, we used Trust cash balances to pay $0.6 million of benefit costs. These payments reduced our operating expenses. We expect that the remaining Trust cash balances of $0.6 million will be used to pay benefit costs and will result in another $0.6 million reduction in other operating expenses during our second quarter ending December 31, 2002.
 

General and Administrative Expenses. General and administrative expenses declined $0.1 million and as a percent of net sales increased 0.2%. The increase as a percent of net sales is attributable to the decline in net sales.
 

Interest Expense. Interest expense for the first quarter was down $0.3 million compared to the same quarter last year because debt levels were lower. Amortization of financing costs and original issue discount, included in interest expense, was $0.4 million and $0.5 million, respectively for the quarters ended October 1, 2002 and September 30, 2001.
 

Other Expense (Income). We sold a closed cafeteria in St. Louis, Missouri during the quarter ended October 1, 2002, resulting in a $0.4 million gain on that sale.
 

Liquidity and Capital Resources
 

Sale-leaseback Transaction. 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 net result of the sale-leaseback and note repurchase transactions is a reduction of annual expense of $1.2 million. Rent expense during the initial term for these six properties is approximately $1.1 million annually. The assets sold and leased back previously had annual depreciation expense of approximately $0.9 million. The annualized interest expense relating to the repurchased notes, including amortization of the original issue discou nt and financing costs, was approximately $1.4 million. In the quarter ended September 30, 2001, we recorded a charge of approximately $1.1 million to write-off unamortized financing costs associated with the repurchased notes.
 

Early Retirement of Debt. At October 1, 2002, we had outstanding $42 million of our Term A Senior Secured Notes and $5.5 million under our Term Loan Credit Facility. We are required each fiscal year to make offers to repurchase the Term A Senior Notes and amounts outstanding under the Term Loan Credit Facility utilizing excess cash flow. Excess cash flow is defined as EBITDA less interest expense, income tax expense, and capital expenditures. Specifically, the Term A Senior Secured Notes and Term Loan Credit Facility require that, if during any fiscal year we have excess cash flow of more than $2.5 million, we must 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 must be in an amount equal to the le sser of $5 million or the excess cash flow, and must be made ratably between the holders of the Term A Senior Notes and the Term Loan Credit Facility. In addition, we are required by the Term Loan Credit Facility to make a second offer (the "second 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% of the amount by which our excess cash flow exceeds $5 million, and must offer to prepay indebtedness outstanding under our 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.
 

For fiscal 2002, the excess cash flow offers, 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 period, we paid $3.6 million and $5.1 million, respectively, to repay debt. The second quarter ending December 31, 2002, will include charges of $1.3 million for early retirement of debt. After these repayments, we had outstanding $39.2 million of our Term A Senior Secured Notes and our Term Loan Credit Facility was entirely repaid. Prospectively, since the Term Loan Credit Facility has been fully repaid, our excess cash flow offers will be limited to $5 million per year.
 

Senior Credit Facility. We have a three-year, $20.0 million Senior Credit Facility with Foothill Capital Corporation (the "Senior Credit Facility"). The Senior Credit Facility matures in December 2004 and bears interest at the Wells Fargo prime rate plus 2.0%.  We have had no outstanding borrowings under the Senior Credit Facility through October 1, 2002, but after paying down the debt pursuant to the excess cash flow offers referred to in the previous paragraph, we now have $3.0 million of borrowing outstanding under the Senior Credit Facility. Approximately $11.8 million of the Senior Credit Facility supports commercial letters of credit. The remaining $5.2 million borrowing availability under the Senior Credit Facility is available for working capital and for other corporate purposes.
 

The Senior Credit Facility contains financial covenants that require (i) a minimum 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. Initially, compliance with the financial covenants is measured quarterly. If funding under the Senior Credit Facility together with outstanding letters of credit amount to $15.0 million, compliance with the financial covenants will be measured monthly. At October 1, 2002, we comply with all of the financial covenants of the Senior Credit Facility.
 

Cash and Liquidity. Maintenance capital expenditures for the quarter ended September 30, 2001 were $0.8 million. The increase in current year capital expenditures is largely related to the remodeling of certain cafeterias. Two remodels were completed in the first quarter and we expect to complete two additional remodels during the second quarter. We have completed seven cafeteria remodels since the launch of our new cafeteria remodel program in the third quarter of last fiscal year. The remodeled cafeterias include physical changes to the exterior of the cafeteria facilities to enhance curb appeal as well as refurbishing the dining rooms. Each cafeteria remodel completed thus far required a capital investment, on average, of $0.2 million. While our overall same-store sales trends are down, the remodeled cafeterias are averaging same-store sales increases of 6.2% post remodel. Seven additional cafeteria remodels are currently scheduled for completion in the remainder of the fiscal year.
 

Our capital expenditures are limited to $8.0 million under the terms of our Senior Credit Facility. Capital expenditures for the remainder of fiscal 2003 are expected to approximate $6.5 million. We expect to close on the sale of a cafeteria in December 2002, yielding net proceeds of approximately $2.0 million. We believe that our cash from operations and sale of a property, together with the credit available under the Senior Credit Facility, will provide sufficient liquidity for our operational and capital expenditure needs through the term of the Senior Credit Facility (also see Trends and Uncertainties below).
 

Trends and Uncertainties
 

Cafeteria Impairment and Closing Charges. We periodically review the historical operating cash flow and forecasts of operating cash flow for each cafeteria. Forecasted cafeteria-level cash flow is a primary determinant in whether the cafeteria will continue to operate or be closed. If we expect to continue to operate the cafeteria, we consider whether the forecasted cafeteria-level operating cash flow indicates that the long-lived assets associated with the individual cafeterias are impaired. Under our accounting policy for impairment of long-lived assets, an asset is deemed to be impaired if a forecast of undiscounted future operating cash flow, including assumptions regarding disposal values and lease renewals, is less than its carrying amount. In cases where we determine that a cafeteria lease will likely not be renewed, for purposes of computing depreciation, the useful lives of the related assets are reduced, if necessary, to reflect th e remaining useful life.
 

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 options to renew certain of these leases for specified periods beyond their expiring terms.
 

During the quarter ended October 1, 2002, leases for three cafeterias expired and those cafeterias were closed. These cafeterias were fully depreciated at the end of their lease life. Leases for seven other cafeterias were renewed. We base these decisions on the historic and projected economic performance of each cafeteria location. In cases that we determine that a cafeteria’s potential operating cash flow (before occupancy costs) is not sufficient to cover occupancy costs, we will generally close that cafeteria. Generally, these cafeterias have relatively low sales volumes and little or no positive cash flow, and in some cases, negative cash flow. Accordingly, closing these cafeterias can have a disproportionate impact on our operating results. That is, the proportionate reduction in sales is greater than the proportionate change in operating cash flows.
 

Of the 202 cafeterias operating today, the current lease terms for 24 cafeterias expire during fiscal 2003 and the current lease terms for 95 other cafeterias expire by the end of fiscal 2007. The table below quantifies the number of cafeterias by the fiscal year in which the current lease terms expire. The table also identifies cafeterias we consider "low-volume" based on the operating results for the fiscal year ended July 2, 2002. Low Volume cafeterias are those locations with relatively low sales and low levels of operating cash flow. For fiscal 2002, average net sales for Low Volume cafeterias were $1.3 million compared to $2.1 million for other cafeterias. Average EBITDA for Low Volume cafeterias, excluding general and administrative expenses and other operating expenses not allocated to individual cafeterias, was break-even compared to $0.3 million for other cafeterias. 81% of Low Volume cafeterias are located in regional shopp ing malls while only 35% of other cafeterias are in similar locations.
 

	Low Volume Cafeterias		Other Cafeterias
Remainder of fiscal 2003		14		9
Fiscal 2004		11		13
Fiscal 2005		13		17
Fiscal 2006		7		18
Fiscal 2007		2		14
Remaining years		5		68
Total		52		139

In the event that a cafeteria is closed before the end of its lease, charges are recorded for the net remaining lease obligation, other costs to close the cafeteria, and remaining unrecoverable asset book value as dictated by the circumstances. Charges for the minimum remaining obligations under a lease are reduced by expected recoveries from subleasing activity, if any, or expected reductions from negotiations with the landlord, if any.
 

Liquidity. Continued declines in net same-store sales would generally reduce operating cash flow and may result in charges to record impairments of long-lived assets for the affected cafeterias. If we continue to experience severe declines in cash flow during the remainder of fiscal 2003, our ability to maintain compliance with the financial covenants of the Senior Credit Facility could be impaired. If we default under the terms of our Senior Credit Facility, the lender has the right to terminate that facility, accelerate the maturity of any outstanding obligations under that facility, and require that additional collateral be provided to secure the lender’s exposure with regard to any outstanding commercial letters of credit issued on our behalf. Additionally, under the provisions of an Intercreditor agreement between our lenders, we may also be in default of our Term A Senior Secured Notes. Our liquidity would be detrimentally impa cted by these events. We may be unable to secure alternative sources of liquidity.
 

Pension Plan Liability. At the end of fiscal 2002, we recorded a net pension liability of $22.5 million 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. The Piccadilly Cafeterias, Inc. defined benefit plan, which comprises approximately 83% of the recorded net pension liability, had further asset market-value losses of $4.3 million, or 7.6%, for the period from July 1, 2002 to September 30, 2002. Unless the recent decline in plan asse t fair market values reverses by the end of this fiscal year and/or the discount rate used to determine the present value of our pension plan liabilities increases, it is likely that we will be required to increase the net pension liability, thereby further reducing shareholders’ equity. We will make these determinations as of July 1, 2003, our normal pension valuation date.
 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 

There have been no material changes from what we reported in our Form 10-K for the year ended July 2, 2002.
 

Item 4. Controls and Procedures
 

The term "disclosure controls and procedures" is defined in Rules 13a-14 and 15d-14 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 Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of these disclosure controls and procedures as of a date within 90 days of the file date of this quarterly report (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 accounting controls that are designed to provide reasonable assurance that our books and records accurately reflect our transactions and that our policies and procedures are followed. Based on this most recent evaluation, we have concluded that there were no significant changes in internal controls or other factors that could significantly affect those controls subsequent to the Evaluation Date, including any corrective actions with regard to significant deficiencies or material weaknesses in our internal controls.
 

PART II -- Other Information
 

Item 6. Exhibits and Reports on Form 8-K
 

(a)	Exhibits
3.	(a)	Articles of Incorporation of the Company, as restated through March 12, 1999.(1)
	(b)	By-laws of the Company, as amended and restated through August 26, 2002, included herein.
(b)	Reports on Form 8-K
	Current Report on Form 8-K dated August 16, 2002.
	Item 7. Financial Statements and Exhibits – Press Release dated August 6, 2002, announcing a change in our fiscal year and the recording of a pension liability and Press Release dated August 15, 2002, announcing fourth quarter and fiscal 2002 earnings.
	Current Report on Form 8-K dated August 26, 2002.
	Item 9. Regulation FD Disclosure – Press Release dated August 26, 2002, announcing that Joseph H. Campbell, Jr. has been elected Chairman of the Board, as part of an ongoing comprehensive review of corporate governance practices.

(1) Incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.

SIGNATURES
 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PICCADILLY CAFETERIAS, INC. 9;

(Registrant)

By: /s/ Ronald A. LaBorde

Ronald A. LaBorde

Chief Executive Officer

/s/ Ronald A. LaBorde	11/14/02
Ronald A. LaBorde, Chief Executive Officer and Director	Date
/s/ Mark L. Mestayer	11/14/02
Mark L. Mestayer, Executive Vice President, Treasurer & Chief Financial Officer	Date
(Principal Financial Officer)
/s/ W. Scott Bozzell	11/14/02
W. Scott Bozzell, Executive Vice President, Secretary & Controller	Date
(Principal Accounting Officer)

I, Ronald A. LaBorde, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of Piccadilly Cafeterias, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly presents in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
	a.	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b.	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
	c	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
	a.	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.	The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002

/s/ Ronald A. LaBorde  

Ronald A. LaBorde  

Chief Executive Officer  

I, Mark L. Mestayer, certify that:
1.	I have reviewed this quarterly report on Form 10-Q of Piccadilly Cafeterias, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly presents in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
	a.	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
	b.	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
	c	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
	a.	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
	b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
6.	The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002

/s/ Mark L. Mestayer  

Mark L. Mestayer  

Executive Vice President,  

Chief Financial Officer and Treasurer  

EX-3.B

Exhibit 3 (b)

BYLAWS OF

PICCADILLY CAFETERIAS, INC.

(As Amended and Restated August 26, 2002)
 

ARTICLE I
 

Offices

Section 1.1           Offices. The principal business office of Piccadilly Cafeterias, Inc. (the "Company") shall be in Baton Rouge, Louisiana. The Company may have such other business offices within or without the State of Louisiana as the board of directors may from time to time establish.

ARTICLE II

Capital Stock

Section 2.1            Certificate Representing Shares.  Shares of the capital stock of the Company shall be represented by certificates in such form or forms as the board of directors may approve, provided that such form or forms shall comply with all applicable requirements of law or of the articles of incorporation. Such certificates shall be signed by the chief executive officer, or an executive vice president, and by the secretary or an assistant secretary, of the Company and may be sealed with the seal of the Company or imprinted or otherwise marked with a facsimile of such seal. In the case of any certificate countersigned by any transfer agent or registrar, provided such countersigner is not the Company itself or an employee thereof, the signature of any or all of the foregoing officers of the Company may be represented by a printed facsimile thereof. If any officer whose signature, or a facsimile thereof, shall have been set upon any certificate shall cease, prior to the issuance of such certificate, to occupy the position in right of which his signature, or facsimile thereof, was so set upon such certificate, the Company may nevertheless adopt and issue such certificate with the same effect as if such officer occupied such position as of such date of issuance; and issuance and delivery of such certificate by the Company shall constitute adoption thereof by the Company. The certificates shall be consecutively numbered, and as they are issued, a record of such issuance shall be entered in the books of the Company.

Section 2.2            Stock Certificate Book and Shareholders of Record.  In the absence of a duly appointed transfer agent or registrar, the secretary of the Company shall maintain, among other records, a stock certificate book, the stubs in which shall set forth the names and addresses of the holders of all issued shares of the Company, the number of shares held by each, the number of certificates representing such shares, the date of issue of such certificates, and whether or not such shares originate from original issue or from transfer. The names and addresses of shareholders as they appear on the stock certificate book shall be the official list of shareholders of record of the Company for all purposes. The board of directors may appoint a transfer agent or registrar to maintain the stock register and to record transfer of shares thereon. The Company shall be entitled to treat the holder of record of any shares as the owner thereof for all purposes, and shall not be bound to recognize any equitable or other claim to, or interest in, such shares or any rights deriving from such shares on the part of any other person, including, but without limitation, a purchaser, assignee, or transferee, unless and until such other person becomes the holder of record of such shares, whether or not the Company shall have either actual or constructive notice of the interest of such other person.

Section 2.3            Shareholder’s Change of Name or Address.  Each shareholder shall promptly notify the secretary of the Company, at its principal business office, by written notice sent by certified mail, return receipt requested, of any change in name or address of the shareholder from that as it appears upon the official list of shareholders of record of the Company. The secretary of the Company shall then enter such changes into all affected Company records, including, but not limited to, the official list of shareholders of record.

Section 2.4            Transfer of Stock.  The shares represented by any certificate of the Company are transferable only on the books of the Company by the holder of record thereof or by his duly authorized attorney or legal representative upon surrender of the certificate for such shares, properly endorsed or assigned. The board of directors may make such rules and regulations concerning the issue, transfer, registration and replacement of certificates as they deem desirable or necessary.

Section 2.5           Transfer Agent and Registrar.  The board of directors may appoint one or more transfer agents or registrars of the shares, or both and may require all share certificates to bear the signature of a transfer agent or registrar, or both.

Section 2.6            Lost, Stolen or Destroyed Certificates.  The Company may issue a new certificate for shares of stock in the place of any certificate theretofore issued and alleged to have been lost, stolen or destroyed, but the board of directors may require the owner of such lost, stolen or destroyed certificate, or his legal representative, to furnish an affidavit as to such loss, theft, or destruction and to give a bond in such form and substance, and with such surety or sureties, with fixed or open penalty, as the board may direct, in order to indemnify the Company and its transfer agents and registrars, if any, against any claim that may be made on account of the alleged loss, theft or destruction of such certificate.

Section 2.7           Fractional Shares.  Only whole shares of the stock of the Company shall be issued. In case of any transaction by reason of which a fractional share might otherwise be issued, the directors, or the officers in their exercise of powers delegated by the directors, shall take such measures consistent with the law, the articles of incorporation and these bylaws, including (for example, and not by way of limitation) the payment in cash of an amount equal to the fair value of any fractional share, as they may deem proper to avoid the issuance of any fractional share.

ARTICLE III

Shareholders Meetings

Section 3.1            Annual Meeting.  Commencing in the calendar year 1979, the annual meeting of the shareholders, for the election of directors and for the transaction of such other business as may properly come before the meeting, shall be held at the principal office of the Company, at 10:00 a.m. local time, on the first Monday in November of each year unless such day is a legal holiday, in which case such meeting shall be held at such hour on the first day thereafter which is not a legal holiday; or at such other place and time as may be designated by the board of directors. Failure to hold any annual meeting or meetings shall not work a forfeiture or dissolution of the Company.

Section 3.2            Special Meeting.  Special meetings of shareholders may be called at any time by the chief executive officer or the board of directors. At any time, upon written request of any shareholder or shareholders holding in the aggregate one-tenth of the total voting power, the secretary shall call a special meeting of shareholders to be held at the registered office at such time as the secretary may fix, not less than fifteen nor more than sixty days after the receipt of said request, and if the secretary shall neglect or refuse to fix such time or to give notice of the meeting, the shareholder or shareholders making the request may do so.

Section 3.3            Business Brought Before Meetings.  At any meeting of the shareholders, only such business shall be conducted as shall have been properly brought before the meeting. Nominations for the election of directors at a meeting at which directors are to be elected may be made by or at the direction of the board of directors, or a committee duly appointed thereby, or by any shareholder of record entitled to vote generally for the election of directors who complies with the procedures set forth in Section 3.4 below. Other matters to be properly brought before a meeting of the shareholders must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the board of directors, including matters covered by Rule 14a-8 of the Securities and Exchange Commission, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by any shareholder of record entitled to vote at such meeti ng who complies with the procedures set forth in Section 3.4 below.

Section 3.4            Required Notice.  A notice of the intent of a shareholder to make a nomination or to bring any other matter before a shareholder’s meeting shall be made in writing and received by the Secretary of the Company not more than 160 days and not less than 120 days in advance of the date in the current year that corresponds to the date on which proxy materials were first mailed by the Company in connection with the previous year’ s annual meeting, or, in the event of a special meeting of shareholders or an annual meeting scheduled to be held either 30 days earlier or later than such anniversary date, such notice shall be received by the Secretary of the Company within 15 days of the earlier of the date on which notice of such meeting is first mailed to shareholders or public disclosure of the meeting date is made.

Section 3.5            Contents of Notice.  Every such notice by a shareholder shall set forth:

(a)            The name, age, business address and residential address of the shareholder of record who intends to make a nomination or bring up any other matter, and any beneficial owner or other person acting in concert with such shareholder;

(b)            A representation that the shareholder is a holder of record of shares of the Company's capital stock that accord such shareholder the voting rights specified in Section 3.3 above and that the shareholder intends to appear in person at the meeting to make the nomination or bring up the matter specified in the notice;

(c)            With respect to any notice of an intent to make a nomination, a description of all agreements, arrangements or understandings among the shareholder, any person acting in concert with the shareholder, each proposed nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder;

(d)            With respect to any notice of an intent to make a nomination, (i) the name, age, business address and residential address of each person proposed for nomination, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of capital stock of the Company of which such person is the beneficial owner, and (iv) any other information relating to such person that would be required to be disclosed in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had such nominee been nominated by the board of directors; and

(e)            With respect to any notice of an intent to bring up any other matter, a complete and accurate description of the matter, the reasons for conducting such business at the meeting, and any material interest in the matter of the shareholder and the beneficial owner, if any, on whose behalf the proposal is made.

Section 3.6            Other Required Information.  Notice of an intent to make a nomination shall be accompanied by the written consent of each nominee to serve as a director of the Company if so elected. The Company may require any proposed nominee to furnish such other information or certifications as may be reasonably required by the Company to determine the eligibility and qualifications of such person to serve as a director.

Section 3.7            Disqualification of Certain Proposals.  With respect to any proposal by a shareholder to bring before a meeting any matter other than the nomination of directors, the following shall govern:

(a)            If the Secretary of the Company has received sufficient notice of a proposal that may properly be brought before the meeting, a proposal sufficient notice of which is subsequently received by the Secretary and that is substantially duplicative of the first proposal shall not be properly brought before the meeting. If in the judgment of the board of directors a proposal deals with substantially the same subject matter as a prior proposal submitted to shareholders at a meeting held within the preceding five years, it shall not be properly brought before any meeting held within three years after the latest such previous submission if (i) the proposal was submitted at only one meeting during such preceding period and it received affirmative votes representing less than 3% of the total number of votes cast in regard thereto, (ii) the proposal was submitted at only two meetings during such preceding period and it received at the time of its second submission affirmative votes representing less than 6% of the total number of votes cast in regard thereto, or (iii) the proposal was submitted at three or more meetings during such preceding period and it received at the time of its latest submission affirmative votes representing less than 10% of the total number of votes cast in regard thereto.

(b)           Notwithstanding compliance with all of the procedures set forth above in this Section, no proposal shall be deemed to be properly brought before a meeting of shareholders if, in the judgment of the board, it is not a proper subject for action by shareholders under Louisiana law.

(c)           Power to Disregard Proposals. At the meeting of shareholders, the chairman shall declare out of order and disregard any nomination or other matter not presented in accordance with the foregoing procedures or which is otherwise contrary to the foregoing terms and conditions.

ARTICLE IV

The Board of Directors

Section 4.1            Number.  The business and affairs of the Company shall be managed and controlled by the board of directors; and, subject to any restrictions imposed by law, by the articles of incorporation, or by these bylaws, the board of directors may exercise all the powers of the Company. The board of directors shall consist of that number of members fixed in a resolution of the board of directors. Such number may be increased or decreased by a subsequent resolution, provided that no decrease shall effect a shortening of the term of any incumbent director.

Section 4.2            Qualifications and Term.  Except as otherwise contemplated by Section 4.14 hereof, no person who is seventy years of age or older may be nominated, elected, or appointed to serve as a member of the board of directors, nor may a person who is or will be seventy years of age or older at the beginning of the term of office of a class of the board of directors be eligible to serve as a member of that class for such term. Directors need not be residents of Louisiana or shareholders of the Company absent provision to the contrary in the articles of incorporation or laws of the State of Louisiana. The term of office of directors and the method of removing directors and appointing persons to fill vacancies on the board of directors shall be as set forth in the articles of incorporation.

Section 4.3            Removal of Directors.  Any director may be removed from office, only for cause, upon the affirmative vote of the holders of two-thirds (2/3) of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class.

Section 4.4            Cause Defined.  Cause for the removal of a director is defined as the existence of gross misconduct or neglect, willful and wanton malfeasance in office, or fraud on behalf of, or present in the actions of, any director currently serving on the board.

Section 4.5            Regular Meetings.  Regular meetings of the board of directors shall be held immediately following each annual meeting of shareholders, at the place of such meeting, and at such other times and places as the board of directors shall determine. No notice of any kind of such regular meetings needs to be given to either old or new members of the board of directors.

Section 4.6           Special Meetings.  Special meetings of the board of directors shall be held at any time by call of the chief executive officer, president, secretary or by a majority of the directors. The secretary shall give notice of each special meeting to each director at his usual business or residence address by mail at least three days before the meeting or by telegraph or telephone at least one day before such meeting. Except as otherwise provided by law, by the articles of incorporation, or by these bylaws, such notice need not specify the business to be transacted at, or the purpose of, such meeting. No notice shall be necessary for any adjournment of any meeting. The signing of a written waiver of notice, of any special meeting by the person or persons entitled to such notice, whether before or after the time stated therein, shall be equivalent to the receiving of such notice. Attendance of a director at a meeting shall al so constitute a waiver of notice of such meeting, except where a director attends a meeting for the express and announced purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called or convened.

Section 4.7           Quorum.  A majority of the number of directors fixed by these bylaws shall constitute a quorum for the transaction of business and the act of not less than a majority of such quorum of the directors shall be required in order to constitute the act of the board of directors, unless the act of a greater number shall be required by law, by the articles of incorporation or by these bylaws.

Section 4.8           Procedure at Meetings.  The board of directors, at each regular meeting held immediately following the annual meeting of shareholders, shall appoint one of their number as chairman of the board of directors. The chairman of the board shall preside at meetings of the board. In his absence at any meeting, any officer authorized by these bylaws or any member of the board selected by the members present shall preside. The secretary of the Company shall act as secretary at all meetings of the board. In his absence, the presiding officer of the meeting may designate any person to act as secretary. At meetings of the board of directors, the business shall be transacted in such order as the board may from time to time determine.

Section 4.9           Presumption of Assent.  Any director of the Company who is present at a meeting of the board of directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the Company immediately after adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.

Section 4.10         Board Discretion in Evaluating Business Combinations and Tender Offers.  In accordance with La. R.S. 12:92(G)1-4, as it may be amended from time to time, the board, when evaluating the terms of a potential business combination or tender offer, may, in exercising its judgment in determining what is in the best interest of the Company and its shareholders, consider the following factors and any other factors that it deems relevant:

(a)           Financial considerations of the proposed business combination or tender offer itself including, but not limited to, the following:

(i)     The consideration being offered in the proposed transaction in relation to the then current market price for the outstanding capital stock of the Company;

(ii)     The market price for the capital stock of the Company over a period of years;

(iii)    The estimated price that might be achieved in a negotiated sale of the Company in whole or in part;

(iv)    The premiums over m3arket price for the securities of other corporations in similar transactions;

(v)     Current political, economic, and other factors bearing on securities prices and the Company’s financial condition and future prospects;

(b)            The social and economic effects of such transactions on the Company, its subsidiaries, or their employees, customers, creditors, and the communities in which the Company and its subsidiaries do business;

(c)            The business and financial conditions and earnings prospects of the acquiring party or parties, including, but not limited to debt service and other existing or likely financial obligations of the acquiring party or parties, and the possible effect of such conditions upon the Company and its subsidiaries and the communities in which the Company and its subsidiaries do business;

(d)            The competence, experience, and integrity of the acquiring party or parties and its or their management.

Section 4.11         Action Without a Meeting. Any action required by statute to be taken at a meeting of the directors of the Company, or which may be taken at such meeting, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by each director entitled to vote at such meeting, and such consent shall have the same force and effect as a unanimous vote of the directors. Such signed consent, or a signed copy thereof, shall be placed in the minute book of the Company.

Section 4.12        Compensation.  Directors, by resolution of the board of directors, shall receive such compensation and reimbursement for expenses as the board of directors may establish. Nothing herein shall preclude any director from serving the Company in any other capacity or receiving compensation therefor.

Section 4.13         Executive Committee.  The board of directors, by resolution adopted by a majority of the number of directors fixed by these bylaws, may designate an executive committee, which committee shall consist of two or more of the directors of the Company. Such executive committee may exercise such authority of the board of directors in the business and affairs of the Company as the board of directors may by resolution duly delegate to it except as prohibited by law. The designation of such committee and the delegation thereto of authority shall not operate to relieve the board of directors, or any member thereof, of any responsibility imposed upon it or him by law. Any member of the executive committee may be removed by the board of directors by the affirmative vote of a majority of the number of directors fixed by the bylaws whenever in the judgment of the board the best interests of the Company will be served thereby.

The executive committee shall keep regular minutes of its proceedings and report the same to the board of directors when required. The minutes of the proceedings of the executive committee shall be placed in the minute book of the Company.

Section 4.14         Advisory Directors.  The board of directors may for its convenience, and at its discretion, appoint from time to time one or more advisory directors. The term of office of an advisory director shall be one year from the date of appointment, although a person may be re-appointed for additional one-year terms. Any advisory director may be removed by the board of directors whenever in its judgment the best interests of the Company are served thereby. Appointment of an advisory director shall not of itself create any contractual rights. An advisor director may be furnished with notice, if any, of each regular and special meeting of the board of directors, together with copies of any board materials provided to the members of the board of directors before or during such meetings, and may attend such board meetings, provided that the chairman of the board of directors shall have the power not to provide any such material to the adviso ry directors as he in good faith believes should only be made available to the voting members of the board. Solely in the discretion of the board of directors, an advisory director may also be furnished with notice of a meeting of any committee of the board of directors, together with copies of any committee materials provided to the members of such committee before or during such meetings, and may attend such committee meetings. Notwithstanding the foregoing, an advisory director shall not be counted for purposes of determining whether a quorum of the board of directors or any committee thereof exists for transacting business, nor may an advisory director vote or execute a written consent of directors or committee members on any matter that may come before the board of directors or any committee thereof. An advisory director shall not have responsibility for the management or control of the business and affairs of the Company. Each advisory director shall be reimbursed for reasonable and necessary expen ses actually incurred by such advisory director in connection with attending a board or committee meeting and shall receive an attendance fee for each meeting attended in the same amount as is paid to non-officer members of the board of directors for attending such meetings. Notwithstanding the foregoing, an advisory director shall not be entitled to any monthly or annual fee or retainer for serving as an advisory director or attending any board or committee meeting.

ARTICLE V

Officers

Section 5.1           Number.  The officers of the Company shall consist of a chairman of the board of directors, a chief executive officer, a president, one or more senior executive vice presidents, executive vice presidents, and vice presidents, a secretary and a treasurer; and, in addition, such other officers and assistant officers and agents as may be deemed necessary or desirable. Officers shall be elected or appointed by the board of directors. Any two or more offices may be held by the same person except that the president and secretary shall not be the same person. In its discretion, the board of directors may leave unfilled any office except those of chief executive officer, president, treasurer and secretary.

Section 5.2           Election; Term; Qualification.  Officers shall be chosen by the board of directors annually at the meeting of the board of directors following the annual shareholders’ meeting. Each officer shall hold office until his successor has been chosen and qualified, or until his death, resignation, or removal.

Section 5.3           Removal.  Any officer or agent elected or appointed by the board of directors may be removed by the board of directors whenever in its judgment the best interests of the Company will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create any contract rights.

Section 5.4           Vacancies.  Any vacancy in any office for any cause may be filled by the board of directors at any meeting.

Section 5.5           Duties. The officers of the Company shall have such powers and duties, except as modified by the board of directors, as generally pertain to their offices, respectively, as well as such powers and duties as from time to time shall be conferred by the board of directors and by these bylaws.

Section 5.6           The Chairman, Chief Executive Officer and President

(a)           The Chairman of the Board. The directors may elect from their number a chairman of the board. The chairman of the board, who shall not otherwise be an officer, or employed by, the Company, shall preside at all meetings of the board of directors, and shall perform such other duties as the board of directors may prescribe by resolution from time to time.

(b)          The Chief Executive Officer. The chief executive officer of the Company shall have general direction of the operations of the Company and general supervision over its officers, subject, however, to the control of the board of directors. He shall at each annual meeting, and from time to time, report to the shareholders and to the board of directors all matters within his knowledge which, in his opinion, the interest of the Company may require to be brought to the notice of such persons. He may sign, with the secretary, any or all certificates of stock of the Company. Without in any way limiting powers otherwise granted to him or to any other officer, he shall be authorized to sign and execute in the name of the Company all contracts or other instruments in the usual and regular course of business, pursuant to Section 6.2 hereof, and to execute leases, sales, easements, servitudes, restrictive covenants, mortgages and other encumbrances o n behalf of the Company containing such terms and conditions as he may deem appropriate and in the best interest of the Company. The chief executive officer in general shall perform all duties incident to the office of the chief executive officer and such other duties as from time to time may be assigned to him by the board of directors or as are prescribed by these bylaws.

(c)          The President. At the request of the chief executive officer, or in his absence or disability, the president shall perform the duties of the chief executive officer, and, when so acting, shall have all the powers of, and be subject to all restrictions upon, the chief executive officer. Any action taken by the president in the performance of the duties of the chief executive officer shall be conclusive evidence of the absence or inability to act of the chief executive officer at the time such action was taken. The president shall perform such other duties as may, from time to time, be assigned him by the board of directors, the chairman of the board or the chief executive officer. The president may sign, with the secretary, certificates of stock of the Company.

Section 5.7           The Vice Presidents

(a)           The Senior Executive Vice Presidents.  At the request of the chief executive officer, or in his and the president’s absence or disability, the senior executive vice presidents, in the order of their election, shall perform the duties of the chief executive officer, or, if so requested by the chief executive officer, the duties of the president, and, when so acting, shall have all the powers of, and be subject to all restrictions upon, such office. Any action taken by a senior executive vice president in the performance of the duties of the chief executive officer or president shall be conclusive evidence of the absence or inability to act of the chief executive officer or president at the time such action was taken. The senior executive vice presidents shall perform such other duties as may, from time to time, be assigned to them by the board of directors, the chairman of the board of directors or the president. A s enior executive vice president may sign, with the secretary, certificates of stock of the Company.

(b)          Executive Vice Presidents. The executive vice presidents shall perform such duties and have such powers as the board of directors may prescribe and as the chief executive officer, president or a senior executive vice president may assign or authorize by delegation, subject to the general supervision of such delegating officer.

(c)           Vice Presidents.  The vice presidents shall perform such duties and have such powers as the board of directors may prescribe and as the chief executive officer, president, a senior executive vice president or an executive vice president may assign or authorize by delegation, subject to the general supervision of such delegating officer.

Section 5.8           Secretary.  The secretary shall keep the minutes of all meetings of the shareholders, of the board of directors, and of the executive committee, if any, of the board of directors, in one or more books provided for such purpose and shall see that all notices are duly given in accordance with the provisions of those bylaws or as required by law. He shall be custodian of the corporate records and of the seal of the Company and see that the seal of the Company is affixed to all documents the execution of which on behalf of the Company under its seal is duly authorized; shall have general charge of the stock certificate books, transfer books and stock ledgers, and such other books and papers of the Company as the board of directors may direct, all of which shall, at all reasonable times, be open to the examination of any director, upon application at the office of the Company during business hours; and in general shall pe rform all duties and exercise all powers incident to the office of the secretary and such other duties and powers as the board of directors, the chief executive officer or the president from time to time may assign to or confer on him.

Section 5.9           Treasurer.  The treasurer shall keep complete and accurate records of account, showing at all times the financial condition of the Company. He shall be the legal custodian of all money, notes, securities and other valuables which may from time to time come into the possession of the Company. He shall furnish at meetings of the board of directors, or whenever requested, a statement of the financial condition of the Company, and shall perform such other duties as these bylaws may require or the board of directors may prescribe.

Section 5.10         Assistant Officers.  Any assistant secretary or assistant treasurer appointed by the board of directors shall have power to perform, and shall perform, all duties incumbent upon the secretary or treasurer of the Company, respectively, subject to the general direction of such respective officers, and shall perform such other duties as these bylaws may require or the board of directors may prescribe.

Section 5.11         Salaries. The salaries or other compensation of the officers shall be fixed from time to time by the board of directors. No officer shall be prevented from receiving such salary or other compensation by reason of the fact that he is also a director of the Company.

Section 5.12         Bonds of Officers.  The board of directors may secure the fidelity of any officer of the Company by bond or otherwise, on such terms and with such surety or sureties, conditions, penalties or securities as shall be deemed proper by the board of directors.

Section 5.13         Delegation. The board of directors may delegate temporarily the powers and duties of any officer of the Company, in case of his absence or for any other reason, to any other officer, and may authorize the delegation by any officer of the Company of any of his powers and duties to any agent or employee, subject to the general supervision of such officer.

ARTICLE VI

Miscellaneous

Section 6.1           Dividends. Dividends on the outstanding shares of the Company, subject to the provisions of the articles of incorporation, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid by the Company in cash, in property, or in the Company’s own shares, but only out of the unreserved and unrestricted earned surplus of the Company, except as otherwise allowed by law.

Subject to limitations upon the authority of the board of directors imposed by law or by the articles of incorporation, the declaration of and provision for payment of dividends shall be at the discretion of the board of directors.

Section 6.2            Contracts.  The chief executive officer shall have the power and authority to execute on behalf of the Company, contracts or instruments in the usual and regular course of business, and in addition the board of directors, chairman or the chief executive officer may authorize any officer or officers, agent or agents, of the Company to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Company, and such authority may be general or confined to specific instances. Unless so authorized by the board of directors or the chief executive officer, or by these bylaws, no officer, agent or employee shall have any power or authority to bind the Company by any contract or engagement, or to pledge its credit or to render it pecuniarily liable for any purpose or in any amount.

Section 6.3            Checks, Drafts, etc.  All checks, drafts, or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the Company shall be signed by such officers or employees of the Company as shall from time to time be authorized pursuant to these bylaws or by resolution of the board of directors.

Section 6.4            Depositories.  All funds of the Company shall be deposited from time to time to the credit of the Company in such banks or other depositories as the board of directors may from time to time designate, and upon such terms and conditions as shall be fixed by the board of directors. The board of directors may from time to time authorize the opening and maintaining within any such depository as it may designate, of general and special accounts, and may make such special rules and regulations with respect thereto as it may deem expedient.

Section 6.5            Endorsement of Stock Certificates.  Subject to the specific directions of the board of directors, any share or shares of stock issued by any corporation and owned by the Company, including required shares of the Company’ s own stock, may for sale or transfer, be endorsed in the name of the Company by the chief executive officer, president or any senior executive vice president; and such endorsement may be attested or witnessed by the secretary or any assistant secretary either with or without the affixing thereto of the corporate seal.

Section 6.6            Corporate Seal.  The corporate seal shall be in such form as the board of directors shall approve, and such seal, or a facsimile thereof, may be impressed on, affixed to, or in any manner reproduced upon, instruments of any nature required to be executed by officers of the Company.

Section 6.7            Fiscal Year.  The fiscal year of the Company shall begin and end on such dates as the board of directors at any time shall determine.

Section 6.8            Books and Records.  The Company shall keep correct and complete books and records of account and shall keep minutes of the proceedings of its shareholders and board of directors, and shall keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number and class of the shares held by each.

Section 6.9            Resignations.  Any director or officer may resign at any time. Such resignations shall be made in writing and shall take effect at the time specified therein, or, if no time is specified, at the time of its receipt by the chief executive officer or secretary. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation.

Section 6.10          Indemnification of Officers and Directors.  The Company shall indemnify any person who was or is a party or is threatened to be made a party to action, suit or proceeding, whether civil, criminal, administrative or investigative (including any action by or in the right of the Company), by reason of the fact that he is or was a director or officer of the Company against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; however, in case of action by or in the right of the Company; the indemnity shall be limited to expenses (including attorneys’ fees a nd amounts paid in settlement not exceeding, in the judgment of the board of directors, the estimated expense of litigating the action to conclusion) actually and reasonably incurred in connection with the defense or settlement of such action and no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable for willful or intentional misconduct in the performance of his duty to the Company unless and only to the extent that the court shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, he is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. The indemnification provided by or granted pursuant to this Section 6.10 shall not be deemed exclusive of any other rights to which the person indemnified is entitled under any law, statute, bylaw, a greement, authorization of shareholders or directors, regardless of whether the directors authorizing such indemnification are beneficiaries thereof, or otherwise, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his heirs and legal representatives. If any indemnification which would otherwise be granted by this Section 6.10 shall be disallowed by any competent court or administrative body as illegal or against public policy, then any director or officer with respect to whom such adjudication was made, and any other officer or director, shall be indemnified to the fullest extent permitted by law and public policy, it being the express intent of the Company to indemnify its officers and directors to the fullest extent possible in conformity with these bylaws, all applicable laws, and public policy.

Section 6.11        Meetings by Telephone.  Subject to the provisions required or permitted by these bylaws or the laws of the State of Louisiana for notice of meetings, shareholders, members of the board of directors, or members of any committee designated by the board of directors may participate in and hold any meeting required or permitted under these bylaws by telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.

Section 6.12        Control Share Acquisition Statute.  The Company expressly waives the benefits of La. R.S. 12:135-140.2, as they may be amended from time to time.

ARTICLE VII

Amendments

Section 7.1          Amendments.  These bylaws may be altered, amended, or repealed, or new bylaws may be adopted, by  a majority of the board of directors at any duly held meeting of directors or by the holders of a majority of the shares represented at any duly held meeting of shareholders; provided that notice of such proposed action shall have been contained in the notice of any such meeting.