<PAGE>
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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 333-4578
CAFETERIA OPERATORS, L.P.
ORGANIZED IN DELAWARE I.R.S. EMPLOYER IDENTIFICATION
NO.75-2186655
6901 QUAKER AVENUE, LUBBOCK, TX 79413
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (806)792-7151
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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
--- ---
- --------------------------------------------------------------------------------
Page 1 of 15
Exhibit Index Located on Page 14
<PAGE>
CAFETERIA OPERATORS, L.P.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Unaudited Financial Statements
Condensed Consolidated Balance Sheets
October 1, 1996 (Unaudited) and January 2, 1996 3
Unaudited Condensed Consolidated Statements of Operations
For the thirteen weeks ended October 1, 1996 and October 3, 1995 5
Unaudited Condensed Consolidated Statements of Operations
For the thirty-nine weeks ended October 1, 1996 and October 3, 1995 6
Unaudited Condensed Consolidated Statement of Changes
in Partners' Capital (Deficit)
For the thirty-nine weeks ended October 1, 1996 7
Unaudited Condensed Consolidated Statements of Cash Flows
For the thirty-nine weeks ended October 1, 1996 and October 3, 1995 8
Notes to Unaudited Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. OTHER INFORMATION
SIGNATURES
</TABLE>
Page 2
<PAGE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
October 1, January 2,
1996 1996
---------- ----------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ($800 restricted at January 2, 1996) $ 2,137 $ 964
Accounts and notes receivable, net 1,872 745
Inventories 6,265 5,831
Prepaid expenses and other 658 1,355
------- -------
Total current assets 10,932 8,895
Property, plant and equipment, net 64,642 66,127
Receivable from affiliate 10,831 10,503
Other assets 561 541
------- -------
$86,966 $86,066
======= =======
</TABLE>
See notes to unaudited condensed consolidated financial statements.
(Continued on following page)
Page 3
<PAGE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(dollars in thousands)
<TABLE>
<CAPTION>
October 1, January 2,
1996 1996
----------- ----------
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Deficit
Current liabilities:
Trade accounts payable $ 6,131 $ 5,074
Other payables and accrued expenses 15,680 18,134
Reserve for store closings - current portion 1,271 2,212
Current maturities of long-term debt 5,493 3,798
-------- --------
Total current liabilities 28,575 29,218
Reserve for store closings 2,788 3,443
Long-term debt, less current maturities 69,147 74,610
Excess of future lease payments over fair value,
net of amortization 3,674 4,130
Other payables, including accrued pension costs 10,071 9,611
Partners' capital (deficit) (27,289) (34,946)
-------- --------
$ 86,966 $ 86,066
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
Page 4
<PAGE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Thirteen weeks ended
------------------------------------
October 1, 1996 October 3, 1995
--------------- ---------------
<S> <C> <C>
Sales $50,002 $53,944
Expenses:
Cost of sales (excluding depreciation) 15,871 17,243
Selling, general and administrative 29,930 32,802
Depreciation and amortization 2,513 3,715
Special credits, net (535) 0
------- -------
47,779 53,760
------- -------
Operating income 2,223 184
Interest expense 59 6,723
------- -------
Net income (loss) $ 2,164 $(6,539)
======= =======
</TABLE>
See notes to unaudited condensed consolidated financial statements.
Page 5
<PAGE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Thirty-nine weeks ended
------------------------------------
October 1, 1996 October 3, 1995
--------------- ---------------
<S> <C> <C>
Sales $149,497 $160,914
Expenses:
Cost of sales (excluding depreciation) 46,823 51,859
Selling, general and administrative 88,849 96,966
Depreciation and amortization 7,124 10,662
Special credits, net (1,138) 0
-------- --------
141,658 159,487
-------- --------
Operating income 7,839 1,427
Interest expense 182 19,500
-------- --------
Net income (loss) $ 7,657 $(18,073)
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
Page 6
<PAGE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(DEFICIT)
FOR THE THIRTY-NINE WEEKS ENDED OCTOBER 1, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Capital
---------- -------- ----------
<S> <C> <C> <C>
Balance, January 2, 1996 $(44,688) $9,742 $(34,946)
Net income 7,657 - 7,657
-------- -------- --------
Balance, October 1, 1996 $(37,031) $9,742 $(27,289)
======== ======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
Page 7
<PAGE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Thirty-nine weeks ended
------------------------------------
October 1, 1996 October 3, 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss): $ 7,657 $(18,073)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 7,124 10,662
Loss on disposition of assets 259 147
Other, net (117) (27)
Changes in assets and liabilities:
Decrease in restricted cash 800
Decrease (increase) in accounts and notes receivable (1,127) 191
Increase in inventories (434) (698)
Decrease (increase) in prepaid expenses and other 698 (2,391)
Increase (decrease) in trade accounts payable and other
payables, accrued expenses and other liabilities (1,471) 18,207
------- --------
Net cash provided by operating activities 13,389 8,018
------- --------
Cash flows provided by (used in) investing activities:
Capital expenditures (7,250) (6,369)
Expenditures charged to reserve for store closings (1,618) (1,197)
Proceeds from the disposition of fixed assets 1,619 21
Other, net 61 (13)
------- --------
Net cash used in investing activities (7,188) (7,558)
------- --------
Cash flows used in financing activities:
Payment of indebtedness (3,767) (40)
Paid to affiliates (330) (464)
Other, net (131) (39)
------- --------
Net cash used in financing activities (4,228) (543)
------- --------
Increase (decrease) in unrestricted cash and cash equivalents 1,973 (83)
Unrestricted cash and cash equivalents at beginning of period 164 1,475
------- --------
Unrestricted cash and cash equivalents at end of period $ 2,137 $ 1,392
======= ========
Supplemental information:
Interest paid, including $3,753 of SFAS 15 interest
classified as payment of indebtedness during the
period ended October 1, 1996 $ 3,771 $ 40
======= ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
Page 8
<PAGE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
NOTE A: Summary of Significant Accounting Policies
Cafeteria Operators, L.P. (the "Partnership"), a Delaware limited partnership,
is wholly owned by Furr's/Bishop's, Incorporated (the "Company") and operates
cafeterias and specialty restaurants. The financial statements presented herein
are the unaudited condensed consolidated financial statements of Cafeteria
Operators, L.P. and its majority owned subsidiaries.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. These statements should be read in conjunction
with the consolidated financial statements, and notes thereto for the year ended
January 2, 1996. The accompanying consolidated financial statements reflect the
accounts of the Partnership after elimination of all material interpartnership
accounts and transactions, and in the opinion of management include all
adjustments, of a normal recurring nature, necessary for a fair presentation.
Certain expenditures benefiting more than one period are charged to operations
on a percentage of sales or on a pro rata basis over the 52-53 week fiscal year.
Certain amounts have been reclassified in the consolidated statements of
operations for the thirty-nine weeks ended October 3, 1995 to conform to the
classifications used in the consolidated financial statements for the period
ended October 1, 1996.
The results of operations for the thirty-nine weeks ended October 1, 1996 may
not be indicative of the results that may be expected for the fiscal year ending
December 31, 1996.
NOTE B: Long-term Debt
In 1992, the Partnership consummated a restructuring with all of the holders
of the then outstanding indebtedness and issued $187,422 of 11% Senior Secured
Notes, due June 30, 1998 (the "11% Notes"), to replace its entire indebtedness,
including all interest accrued thereon. Additional 11% Notes were issued in
June 1992 for the $5,432 interest payment then due. The 11% Notes were amended
at various times in 1993 and 1994 to modify or waive covenants that were not
being met, including to allow the Partnership to receive a going concern
opinion, and to defer the due date of interest payments. The last payment of
interest by the Partnership on the 11% Notes was June 30, 1993 and at January 2,
1996, before the series of financial restructuring transactions, a total of
$56,493 of interest was accrued and outstanding, and the Partnership was in
default on the 11% Notes since October 1994 due to, among other things, missed
payments of interest.
In 1995, as part of a series of financial restructuring transactions, the
Partnership issued $41,700 of 12% Senior Secured Notes, due December 31, 2001
(the "12% Notes"), to replace $40,000 of 11% Notes and the interest accrued
thereon and to terminate a $5,408 judgement and the interest accrued thereon.
On January 24, 1996, the Partnership also issued $4,073 of 12% Notes as payment
in kind for all interest accrued as of such date. All of the assets of the
Partnership are pledged as collateral security on behalf of the holders of the
12% Notes. The Partnership also issued limited partner interests equal to 95%
of the outstanding partnership interests in exchange for and in full
satisfaction of the remaining $152,854 of 11% Notes, together with all interest
accrued thereon.
The Partnership paid $2,746 and $1,007 of interest accrued and due on
September 30, 1996 and March 31, 1996, respectively. Payments of interest on
the 12% Notes are due each March 31 and September 30. While payments of
interest will be due during the life of the 12% Notes, there will not be any
interest expense recorded under SFAS 15, as described below, as all of the
interest through maturity has been recorded as a liability.
Page 9
<PAGE>
NOTE C: Restructuring
On January 2, 1996, at the Company's 1995 annual meeting, stockholders
approved a restructuring of the Company's and certain of its subsidiaries'
financial obligations, including, among other things, the exchange of (i) an
aggregate of approximately $209,347 of indebtedness, including interest, of the
Partnership held by certain creditors for the issuance of approximately 95% of
the limited partnership interests of the Partnership, (ii) a judgement in the
amount of $6,117, including interest, against a subsidiary of the Company owed
to the Trustees of General Electric Pension Trust ("GEPT") for a $1,700
principal amount 12% Note and (iii) warrants to purchase 1.4 million shares of
Old Class B Common Stock held by the Noteholders for the right to put their
aggregate 95% limited partnership interests in the Partnership to the Company in
exchange for 95% of the common stock. Such restructuring has been accounted for
in accordance with Statement of Financial Accounting Standards No. 15
"Accounting by Debtors and Creditors for Troubled Debt Restructurings" ("SFAS
15"), under which the transactions include both a partial settlement and
modification of terms. The fair value of the common stock and warrants issued
in connection with the restructuring was estimated based upon discounted cash
flows anticipated from the reorganized business and was recorded as partial
settlement of the indebtedness. The remaining indebtedness was recorded at the
sum of all future principal and interest payments and there will be no
recognition of interest expense in future periods. The amounts of indebtedness
subject to modification in excess of the amount recorded in accordance with SFAS
15 was recorded as an extraordinary credit, net of all expenses associated with
the restructuring.
NOTE D: Income Tax
For state and federal income tax purposes, the Partnership is not a tax-paying
entity. As a result, the taxable income or loss, which may vary substantially
from income or loss reported for financial reporting purposes, should be
included in the state and federal returns of the individual partners.
Accordingly, no provision for income taxes is reflected in the accompanying
financial statements.
NOTE E: Special Credits, Net
For the thirteen weeks ended October 1, 1996, the Partnership recognized a
special credit of $709 for the proceeds received from the sale of certain
trademarks and the termination of a trademark royalty agreement and the
modification and extension of a lease related to the Partnership's former El
Paso Bar-B-Que Company restaurants.
For the thirteen weeks ended July 2, 1996, the Partnership recognized a
special credit of $699 for the insurance proceeds received related to a fire
loss incurred in February, 1994.
On June 7, 1996, the Partnership, the Company, and Kevin E. Lewis entered into
the Consulting and Indemnity Agreement and General Release (the "Consulting
Agreement") pursuant to which, among other things, Mr. Lewis would resign as
President and Chief Executive Officer by September 30, 1996 and will resign his
position as Chairman of the Board on December 31, 1996, unless requested by the
Board of Directors to continue until December 31, 1997. On September 17, 1996,
at the request of the Board of Directors, Mr. Lewis agreed to remain President
and Chief Executive Officer beyond September 30, 1996 with no change to the
terms of the Consulting Agreement. After his resignation as President and Chief
Executive Officer, Mr. Lewis will serve as a consultant to the Partnership until
December 31, 1997. Pursuant to the Consulting Agreement, Mr. Lewis will receive
an annual base salary of $350 pro-rated through the end of 1996 and $250 through
the end of 1997. Mr. Lewis received $75 upon the execution of the Consulting
Agreement, $75 on September 30, 1996 and will receive $100 on December 31, 1997.
In addition, Mr. Lewis is entitled to receive $100 if requested to assist in
certain negotiations on behalf of the Partnership and additional compensation
based upon the success of such negotiations. Furthermore, the Partnership
agreed to pay, among other things, certain legal expenses of Mr. Lewis incurred
in connection with the negotiation of the Consulting Agreement and certain
travel and moving related expenses. The Board of Directors has begun a search
for an individual to serve as President and Chief Executive Officer of the
Company. The Partnership recognized $174 of charges related to the search for a
new Chief Executive Officer and the Consulting Agreement for the thirteen weeks
ended October 1, 1996 and $96 for the thirteen weeks ended July 2, 1996.
Page 10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Thirteen Weeks Ended October 1, 1996
- ------------------------------------
Results of operations. Sales for the third fiscal quarter of 1996 were $50.0
----------------------
million, a decrease of $3.9 million from the same quarter of 1995. Operating
income for the third quarter of 1996 was $2.2 million compared to $184 thousand
in the prior year. Net income for the third quarter of 1996 was $2.2 million
compared to a net loss of $6.5 million in the third quarter of 1995. Operating
results for the third quarter of 1996 include net special credits aggregating
$535 thousand. During the third quarter of 1996, sales were negatively impacted
primarily by including fewer units in the operating results.
Sales. Restaurant sales in comparable units were 1.4% lower in the third
------
quarter of 1996 than the same quarter of 1995, due in part to the impact of the
Summer Olympics. Sales for the third fiscal quarter were $3.1 million lower
than the prior year due to there being 12 fewer units included in operating
results. Sales in the third quarter included $816 thousand of Dynamic Foods
sales to third parties.
Cost of sales. Excluding depreciation, cost of sales was 31.7% of sales for
--------------
the third quarter of 1996 as compared to 32.0% for the same quarter of 1995.
The decrease in the percentage of revenues was principally a result of lower
product costs.
Selling, general and administrative. Selling, general and administrative
------------------------------------
("SG&A") expense was lower in the aggregate by $2.9 million in the third quarter
of 1996 due primarily to there being 12 fewer units included in the operating
results. The change in SG&A expense included a decrease of $584 thousand in
marketing expense.
Depreciation and amortization. Depreciation and amortization expense was
------------------------------
lower by $1.2 million in the third quarter of 1996 due to the reduction of
certain depreciable assets in 1995 in accordance with Statement of Financial
Accounting Standards No. 121 ("SFAS 121") and the reduction in the useful lives
of certain depreciable assets in the prior year.
Special credits. The operating results include special credits aggregating
----------------
$535 thousand. Included in the total is a credit of $709 thousand for the net
proceeds related to the termination of a trademark royalty agreement and the
modification and extension of a lease related to the Partnership's former El
Paso Bar-B-Que Company restaurants and a charge of $174 thousand related to the
search for a new Chief Executive Officer and a consulting agreement with Kevin
E. Lewis, Chairman of the Board of the Company. (See Note E to the Unaudited
Condensed Consolidated Financial Statements.)
Interest expense. Interest expense was lower than the prior year by $6.7
-----------------
million as a result of the restructuring. In accordance with Statement of
Financial Accounting Standards No. 15 ("SFAS 15"), the restructured debt was
recorded at the sum of all future principal and interest payments and there is
no recognition of interest expense thereon.
Thirty-nine Weeks Ended October 1, 1996
- ---------------------------------------
Results of operations. Sales for the thirty-nine weeks ended October 1, 1996
----------------------
were $149.5 million, a decrease of $11.4 million from the same period of 1995.
Operating income for the thirty-nine weeks ended October 1, 1996 was $7.8
million compared to $1.4 million in the prior year. Net income for the thirty-
nine weeks ended October 1, 1996 was $7.7 million compared to a net loss of
$18.1 million in the thirty-nine weeks ended October 3, 1995. Operating results
for the thirty-nine weeks of 1996 include net special credits aggregating $1.1
million. During the thirty-nine weeks ended October 1, 1996, sales were
negatively impacted primarily by including fewer units in the operating results.
Sales. Restaurant sales in comparable units were 0.3% lower in the thirty-
------
nine weeks ended October 1, 1996 than the same period of 1995. Sales for the
thirty-nine weeks ended October 1, 1996 were $9.8 million lower than the prior
year due to there being 12 fewer units included in operating results. Sales in
the thirty-nine weeks ended October 1, 1996 included $2.5 million of Dynamic
Foods sales to third parties.
Page 11
<PAGE>
Cost of sales. Excluding depreciation, cost of sales was 31.3% of sales for
--------------
the thirty-nine weeks ended October 1, 1996 as compared to 32.2% for the same
period of 1995. The decrease in the percentage of revenues was principally a
result of lower product costs partially offset by changes in the menu mix.
Selling, general and administrative. Selling, general and administrative
------------------------------------
expense was lower in the aggregate by $8.1 million in the thirty-nine weeks
ended October 1, 1996. SG&A expense was $7.1 million lower than the prior year
due to there being 13 fewer units included in operating results. The change in
SG&A expense included increases of $213 thousand in professional fees and $388
thousand in salaries and wages, and a decrease of $1.9 million in marketing
expense.
Depreciation and amortization. Depreciation and amortization expense was
------------------------------
lower by $3.5 million in the thirty-nine weeks ended October 1, 1996 due to the
reduction of certain depreciable assets in 1995 in accordance with SFAS 121 and
the reduction in the useful lives of certain depreciable assets in the prior
year.
Special credits. The operating results include special credits aggregating
----------------
$1.1 million. Included in the total are credits of $699 thousand for the
insurance proceeds related to a fire loss, $709 thousand for the termination of
a trademark royalty agreement and the modification and extension of a lease
related to the Partnership's former El Paso Bar-B-Que Company restaurants, and a
charge of $270 thousand related to the search for a new Chief Executive Officer
and a consulting agreement with Kevin E. Lewis, Chairman of the Board of the
Company. (See Note E to the Unaudited Condensed Consolidated Financial
Statements.)
Interest expense. Interest expense was lower than the prior year by $19.3
-----------------
million as a result of the restructuring. In accordance with SFAS 15, the
restructured debt was recorded at the sum of all future principal and interest
payments and there is no recognition of interest expense thereon.
LIQUIDITY AND CAPITAL RESOURCES OF
----------------------------------
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
------------------------------------------
During the thirty-nine weeks ended October 1, 1996, cash provided from
operating activities of the Partnership was $13.4 million compared to $8.0
million in the same period of 1995. The Partnership made capital expenditures
of $7.2 million during the first thirty-nine weeks of 1996 compared to $6.4
million in the same period of 1995. Cash, temporary investments and marketable
securities were $2.1 million at October 1, 1996 compared to $1.4 million at
October 3, 1995. The cash balance at October 3, 1995 included $800 thousand
which was restricted pursuant to collateral requirements in a letter of credit
agreement. The current ratio of the Partnership was 0.37:1 at October 1, 1996
compared to 0.06:1 at October 3, 1995. The Partnership's total assets at
October 1, 1996 aggregated $87.0 million compared to $91.7 million at October 3,
1995.
The Partnership's restaurants are a cash business. Funds available from cash
sales are not needed to finance receivables and are not generally needed
immediately to pay for food, supplies and certain other expenses of the
restaurants. Therefore, the business and operations of the Partnership have not
historically required proportionately large amounts of working capital, which is
generally common among similar restaurant companies. If Dynamic Foods expands
its sales to third parties, the accounts receivable and inventory related to
such sales could require the Partnership to maintain additional working capital.
Total scheduled maturities of long-term debt of the Partnership and its
subsidiaries over the next five fiscal years are: $0 million in 1996, $5.5
million in 1997, $5.5 million in 1998, $5.5 million in 1999 and $5.5 million in
2000.
The Partnership has outstanding $74.6 million of 12% Notes due December 31,
2000, which includes $28.9 million of interest to maturity. Under the terms of
the Indenture covering the 12% Notes, a semi-annual cash interest payment of
approximately $2.7 million is due on each March 31 and September 30. The
obligations of the Partnership under the 12% Notes are secured by a security
interest in and a lien on substantially all of the personal property of the
Partnership and mortgages on all fee (but not leasehold) real properties of the
Partnership (to the extent such properties are mortgageable).
Page 12
<PAGE>
The Partnership intends to pursue a program of remodeling existing cafeterias,
opening new restaurants, and possibly acquiring existing restaurants or food
service companies. The Partnership anticipates expending approximately $9
million in fiscal 1996 to remodel existing cafeterias and open new restaurants
and to make other capital expenditures. No assurance can be given that the
Partnership will generate sufficient funds from operations or obtain alternative
financing sources to enable it to make the anticipated capital expenditures.
The Partnership, from time to time, considers whether disposition of certain
of its assets, including real estate owned in fee simple and leasehold
interests, or potential acquisitions of assets would be beneficial or
appropriate for the long-term goals of the Partnership and in order to increase
partner value.
On November 15, 1993, the Partnership entered into the Amendment to Master
Sublease Agreement, dated as of December 1, 1986, with Kmart pursuant to which,
among other things, the aggregate monthly rent for the period August 1, 1993
through and including December 31, 1996 was reduced by 25%, or approximately
$1.6 million annually, and the aggregate monthly rent for the period January 1,
1997 through and including December 31, 1999 was reduced by 20%, or
approximately $1.2 million annually; provided that, during such period, among
other things, Kevin E. Lewis remains as Chairman of the Board of the Company.
On June 7, 1996, the Company and the Partnership entered into an agreement with
Mr. Lewis pursuant to which Mr. Lewis will resign as Chairman of the Board on
December 31, 1996, unless requested by the Board of Directors to continue until
December 31, 1997. (See Note E to the Unaudited Condensed Consolidated Financial
Statements.) As a consequence of this action, the Partnership anticipates
entering into negotiations with Kmart to modify the amendment to remove the
provisions requiring Mr. Lewis to remain as Chairman of the Board of the Company
until the end of 1999. No assurance can be given that Kmart will agree to such
modification.
The Partnership, the sponsor of the Cavalcade Pension Plan, has agreed to
provide for funding at least two-thirds of the $4.6 million unfunded current
liability which existed at the end of fiscal 1992 by the end of 1998. If the
agreed upon funding is not satisfied by the minimum required annual
contributions, as adjusted for the deficit reduction contribution and determined
under Section 412 of the Internal Revenue Code, the Partnership will make
contributions in excess of the minimum annual requirement.
Page 13
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Reports on Form 8-K
-------------------
A report on Form 8-K was filed on September 24, 1996 with respect
to the change in the public accountants of the Partnership.
Page 14
<PAGE>
SIGNATURES
Pursuant to the requirements of 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.
CAFETERIA OPERATORS, L.P.
by Furr's/Bishop's, Incorporated, its Managing General Partner
BY: /s/ Kevin E. Lewis /s/ Alton R. Smith
--------------------------- ----------------------------
Kevin E. Lewis Alton R. Smith
Chairman, President Principal Accounting Officer
and Chief Executive Officer
DATE: November 14, 1996
Page 15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-03-1996
<PERIOD-END> OCT-01-1996
<CASH> 2,137
<SECURITIES> 0
<RECEIVABLES> 1,872
<ALLOWANCES> 27
<INVENTORY> 6,265
<CURRENT-ASSETS> 10,932
<PP&E> 119,296
<DEPRECIATION> 54,654
<TOTAL-ASSETS> 86,966
<CURRENT-LIABILITIES> 29,575
<BONDS> 69,147
0
0
<COMMON> 0
<OTHER-SE> (27,289)
<TOTAL-LIABILITY-AND-EQUITY> 86,966
<SALES> 149,497
<TOTAL-REVENUES> 149,147
<CGS> 46,823
<TOTAL-COSTS> 46,823
<OTHER-EXPENSES> 94,835
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 182
<INCOME-PRETAX> 7,657
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,657
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,657
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
