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 July 1, 1997
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 14
Exhibit Index Located on Page 13
PAGE 1
<PAGE>
CAFETERIA OPERATORS, L.P.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
July 1, 1997 (Unaudited) and December 31, 1996 3
Unaudited Condensed Consolidated Statements
of Operations - For the thirteen weeks
ended July 1, 1997 and July 2, 1996 5
Unaudited Condensed Consolidated Statements
of Operations - For the twenty-six weeks
ended July 1, 1997 and July 2, 1996 6
Unaudited Condensed Consolidated Statement of Partners'
Deficit - For the twenty-six weeks ended
July 1, 1997 7
Unaudited Condensed Consolidated Statements of
Cash Flows - For the twenty-six weeks ended
July 1, 1997 and July 2, 1996 8
Notes to Unaudited Condensed Consolidated
Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
SIGNATURES
PAGE 2
<PAGE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
[CAPTION] July 1, December 31,
1997 1996
---- ----
(Unaudited)
[S] [C] [C]
Assets
Current assets:
Cash and cash equivalents $ 4,457 $ 3,668
Accounts and notes receivable, net 478 1,186
Inventories 5,771 5,722
Prepaid expenses and other 1,271 306
--------- ---------
Total current assets 11,977 10,882
Property, plant and equipment, net 57,361 63,806
Receivable from affiliates 11,333 11,129
Other assets 591 525
--------- ---------
$ 81,262 $ 86,342
========= =========
See notes to unaudited condensed consolidated financial statements. (Continued
on following page)
PAGE 3
<PAGE>
<TABLE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(dollars in thousands)
<CAPTION> July 1, December 31,
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Deficit
Current liabilities:
Current maturities of long-term debt $ 5,493 $ 5,493
Trade accounts payable 6,398 5,498
Other payables and accrued expenses 13,184 14,957
Reserve for store closings - current portion 915 1,078
-------- --------
Total current liabilities 25,990 27,026
Reserve for store closings, net of current portion 2,534 2,470
Long-term debt, net of current portion 66,401 69,147
Other payables 7,188 8,184
Excess of future lease payments over fair value,
net of amortization 3,224 3,482
Commitments and contingencies
Partners' deficit (24,075) (23,967)
-------- --------
$ 81,262 $ 86,342
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
PAGE 4<PAGE>
<PAGE>
<TABLE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<CAPTION> Thirteen weeks ended
July 1, July 2,
1997 1996
---- ----
<S> <C> <C>
Sales $ 49,787 $ 50,611
Costs and expenses:
Cost of sales (excluding depreciation) 15,001 15,679
Selling, general and administrative 30,587 29,805
Depreciation and amortization 2,685 2,262
Special credits (net) 0 (603)
-------- --------
48,273 47,143
-------- --------
Operating income 1,514 3,468
Interest expense 78 59
-------- --------
Net income $ 1,436 $ 3,409
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
PAGE 5<PAGE>
<PAGE>
<TABLE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<CAPTION>
Twenty-six weeks ended
July 1, July 2,
1997 1996
---- ----
<S> <C> <C>
Sales $ 97,140 $ 99,358
Costs and expenses:
Cost of sales (excluding depreciation) 29,344 30,768
Selling, general and administrative 59,933 58,966
Depreciation and amortization 5,406 4,611
Net special charges (credits) 2,431 (603)
-------- --------
97,114 93,742
-------- --------
Operating income 26 5,616
Interest expense 134 123
-------- --------
Net income (loss) $ (108) $ 5,493
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
PAGE 6
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<TABLE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' DEFICIT
FOR THE TWENTY-SIX WEEKS ENDED JULY 1, 1997
(dollars in thousands)
<CAPTION> Total
General Limited Partners'
Partner Partner Deficit
------- ------- -------
<S> <C> <C> <C>
Balance, December 31, 1996 $(36,114) $ 12,147 $(23,967)
Net loss (108) (108)
-------- -------- --------
Balance, July 1, 1997 $(36,222) $ 12,147 $(24,075)
</TABLE>
See notes to unaudited condensed consolidated financial statements.
PAGE 7
<PAGE> CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
<TABLE> UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<CAPTION> Twenty-six weeks ended
July 1, July 2,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (108) $ 5,493
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,406 4,611
Loss on disposition of assets 199 24
Special charges (credits) 2,431 (699)
Other, net 309 509
Changes in operating assets and liabilities:
Decrease in accounts and notes receivable 708 140
Decrease in inventories (49) (180)
Increase in prepaid expenses and other (964) (30)
Decrease in trade accounts payable and other
payables, accrued expenses and other
liabilities (840) (503)
------- -------
Net cash provided by operating activities 7,092 9,365
------- -------
Cash flows used in investing activities:
Purchases of property, plant and equipment (2,687) (4,415)
Expenditures charged to reserve for store closings (664) (1,248)
Proceeds from the sale of property, plant and equipment 16 1,615
Other, net 1 68
------- -------
Net cash used in investing activities (3,334) (3,980)
------- -------
Cash flows used in financing activities:
Payment of indebtedness (2,746) (1,021)
Increase in receivable from affiliates (204) (226)
Other, net (19) (58)
------- -------
Net cash used in financing activities (2,969) (1,305)
------- -------
Increase in unrestricted cash and cash equivalents 789 4,080
Cash and cash equivalents at beginning of period 3,668 965
------- -------
Cash and cash equivalents at end of period $ 4,457 $ 5,045
======= =======
Supplemental disclosure of cash flow information:
Interest paid, including $2,746 and $1,007
of interest classified as payment of indebtedness $ 2,750 $ 1,019
======= =======
</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
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, which are
included in the Partnership's Form 10-K for the year ended December 31, 1996.
The accompanying unaudited condensed consolidated financial statements reflect
the accounts of the Partnership after elimination of all material intercompany
and 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 benefitting 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
statements of operations for the twenty-six weeks ended July 2, 1996 to conform
to the classifications used in the financial statements for the period ended
July 1, 1997.
The results of operations for the twenty-six weeks ended July 1, 1997 may
not be indicative of the results that may be expected for the fiscal year
ending December 30, 1997.
NOTE B: 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, is
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 C: Special Charges
The loss from operations for the quarter ended April 1, 1997 includes net
special charges of $2.4 million primarily resulting from the writedown to
carrying values of property, plant and equipment. The results of operations
includes a charge of $1.9 million for the writedown of assets and adjustments
to closed store reserves of units previously closed, as well as one unit to be
PAGE 9
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closed. Also included is $1.8 million to recognize the writedown of certain
assets in property, plant and equipment to estimated fair values in accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS 121"). Also included is a credit of $1.3 million related to the
settlement of a lawsuit previously filed against the Company by the Internal
Revenue Service.
NOTE D: Commitments and Contingencies
In July 1997, the Company reached a settlement of the litigation filed by
Michael J. Levenson, the former Chairman of the Board, and others. All
settling defendants, including the Partnership and its subsidiaries, received
mutual releases with respect to all matters alleged in the litigation and the
Partnership made a payment to the plaintiffs of a net amount of approximately
$275 thousand. The Partnership is required to indemnify certain of the
defendants originally named in the litigation for certain settlement costs and
reasonable expenses they incurred in connection with the litigation, however,
the Partnership does not currently have sufficient information to evaluate the
effect of its possible liability for indemnification. If the Partnership is
required to indemnify such defendants for a substantial amount of legal fees
and other expenses, it could have a material adverse effect on the Partnership.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Thirteen Weeks Ended July 1, 1997
- ---------------------------------
Results of operations. Sales for the second fiscal quarter of 1997 were
$49.8 million, a decrease of $824 thousand from the same quarter of 1996.
Operating income for the second quarter of 1997 was $1.5 million compared to
$3.5 million in the comparable period in the prior year. The operating results
of the second quarter of the prior year included net special credits of $603
thousand. The net income for the second quarter of 1997 was $1.4 million
compared to $3.4 million in the second quarter of 1996.
Sales. Restaurant sales in comparable units were 0.1% higher in the
second quarter of 1997 than the same quarter of 1996. Sales for the second
fiscal quarter were $301 thousand lower than the prior year due to there being
a net of 3 fewer units included in operating results. Sales by Dynamic Foods
to third parties was $573 thousand lower in the second quarter of 1997 than the
prior year.
Cost of sales. Excluding depreciation, cost of sales was 30.1% of sales
for the second quarter of 1997 as compared to 31.0% for the same quarter of
1996. The decrease in the percentage of sales was the result of changes in
pricing, menu mix and lower product costs.
PAGE 10
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Selling, general and administrative. Selling, general and administrative
("SG&A") expense was higher in the aggregate by $782 thousand in the second
quarter of 1997 as compared to 1996 due to increases in some expense categories
being partially offset by there being fewer units included in the operating
results. The change in SG&A expense included increases of $781 thousand in
marketing expense, $253 thousand in hourly wages and a decrease of $216
thousand in utility expenses.
Depreciation and amortization. Depreciation and amortization expense was
higher by $423 thousand in the second quarter of 1997 due primarily to higher
depreciation on newly acquired property, plant and equipment, along with the
use of shorter depreciation periods.
Special Charges. The results of operations for the second quarter of the
prior year includes net special credits of $603 thousand, including $699
thousand for insurance proceeds related to a fire loss and a charge of $96
thousand related to a consulting agreement with Kevin E. Lewis, Chairman of the
Board of the Company.
Interest expense. Interest expense was $78 thousand in the second quarter
of 1997, which was slightly higher than the comparable period in the prior
year. In accordance with Statement of Financial Accounting Standards No. 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.
Twenty-six Weeks Ended July 1, 1997
- -----------------------------------
Results of operations. Sales for the first twenty-six weeks ended July 1,
1997 were $97.1 million, a decrease of $2.2 million from the same period of
1996. The operating income for the twenty-six week period of 1997 was $26
thousand compared to income of $5.6 million in the comparable period in the
prior year. The operating results of the twenty-six week period of the prior
year includes net special credits of $603 thousand. The net loss for the
period in 1997 was $108 thousand compared to income of $5.5 million in the same
period of 1996. During the first quarter of 1997, sales were negatively
impacted by severe winter weather and by including fewer units in the operating
results.
Sales. Restaurant sales in comparable units were 0.5% lower in the
twenty-six weeks of 1997 than the same period of 1996. Sales for the period
were $604 thousand lower than the prior year due to there being a net of 3
fewer units included in operating results. Sales by Dynamic Foods to third
parties were $1.2 million lower in the first twenty-six weeks of 1997 than the
prior year.
Cost of sales. Excluding depreciation, cost of sales was 30.2% of sales
for the first twenty-six weeks of 1997 as compared to 31.0% for the same period
of 1996. The decrease in the percentage of sales was the result of changes in
pricing, menu mix and lower product costs.
PAGE 11
<PAGE>
Selling, general and administrative. Selling, general and administrative
expense was higher in the aggregate by $967 thousand in the first twenty-six
weeks of 1997 as compared to 1996 due to increases in some expense categories
being partially offset by there being fewer units included in the operating
results. The change in SG&A expense included increases of $981 thousand in
marketing expense, $199 thousand in salaries, wages and related benefits and a
decrease of $216 thousand in utility expense.
Depreciation and amortization. Depreciation and amortization expense was
higher by $795 thousand in the first twenty-six weeks of 1997 due primarily to
higher depreciation on newly acquired property, plant and equipment, along with
the use of shorter depreciation periods.
Special Charges. The loss from operations for the twenty-six weeks ended
July 1, 1997 includes net special charges of $2.4 million. The results of
operations includes a charge of $1.9 million for the writedown of assets and
adjustments to closed store reserves of units previously closed, as well as
units to be closed, and a charge of $1.8 million to recognize the writedown of
certain assets in property, plant and equipment to estimated fair values in
accordance with SFAS 121. The results of operations includes a credit of $1.3
million related to the settlement of a lawsuit. The income from operations for
the prior year period includes net special credits of $603 thousand, including
$699 thousand for insurance proceeds related to a fire loss and a charge of $96
thousand related to a consulting agreement with Kevin E. Lewis, Chairman of the
Board of the Company.
Interest expense. Interest expense was $134 thousand in the twenty-six
weeks ended 1997, which was slightly higher than the comparable period in the
prior year. In accordance with Statement of Financial Accounting Standards No.
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
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
----------------------------------------------
During the twenty-six weeks ended July 1, 1997, cash provided by operating
activities of the Company was $7.1 million compared to $9.4 million in the same
period of 1996. The Company made capital expenditures of $2.7 million during
the first twenty-six weeks of 1997 compared to $4.4 million during the same
period of 1996. Cash, temporary investments and marketable securities were
$4.5 million at July 1, 1997 compared to $5.0 million at July 2, 1996. The
cash balance in the prior year included $800 thousand which was restricted
pursuant to collateral requirements in a letter of credit agreement. The
current ratio of the Company was .46:1 at July 1, 1997 compared to .44:1 at
July 2, 1996. The Company's total assets at July 1, 1997 aggregated $81.3
million, following the net special charges of $2.4 million, compared to $89.0
million at July 2, 1996.
PAGE 12
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The Company'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 Company have not
historically required proportionately large amounts of working capital, which
is generally common among similar restaurant companies.
Total scheduled maturities of long-term debt of the Company and its
subsidiaries over the next five fiscal years are: $2.7 million in 1997, $5.5
million in 1998, $5.5 million in 1999, $5.5 million in 2000 and $52.7 million
in 2001.
The Partnership has outstanding $71.9 million of 12% Notes due December
31, 2001, which includes $26.1 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 all of the personal property of the
Partnership and mortgages on all fee and leasehold properties of the
Partnership (to the extent such properties are mortgageable).
In July 1997, the Company reached a settlement of the litigation filed by
Michael J. Levenson, the former Chairman of the Board, and others. All
settling defendants, including the Partnership and its subsidiaries, received
mutual releases with respect to all matters alleged in the litigation and the
Partnership made a payment to the plaintiffs of a net amount of approximately
$275 thousand. The Partnership is required to indemnify certain of the
defendants originally named in the litigation for certain settlement costs and
reasonable expenses they incurred in connection with the litigation, however,
the Partnership does not currently have sufficient information to evaluate the
effect of its possible liability for indemnification. If the Partnership is
required to indemnify such defendants for a substantial amount of legal fees
and other expenses, it could have a material adverse effect on the Partnership.
PAGE 13
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
In July 1997, the Company reached a settlement of the litigation filed by
Michael J. Levenson, the former Chairman of the Board, and others. All
settling defendants, including the Partnership and its subsidiaries, received
mutual releases with respect to all matters alleged in the litigation and the
Partnership made a payment to the plaintiffs of a net amount of approximately
$275 thousand. The Partnership is required to indemnify certain of the
defendants originally named in the litigation for certain settlement costs and
reasonable expenses they incurred in connection with the litigation, however,
the Partnership does not currently have sufficient information to evaluate the
effect of its possible liability for indemnification. If the Partnership is
required to indemnify such defendants for a substantial amount of legal fees
and other expenses, it could have a material adverse effect on the Partnership.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
None
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended July 1,
1997.
PAGE 14
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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/ Theodore J. Papit /s/ Alton R. Smith
-------------------------------- -----------------------------------
Theodore J. Papit Alton R. Smith
President and Chief Executive Officer Principal Accounting Officer
DATE: August 13, 1997
PAGE 15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CAFETERIA OPERATORS, L.P. FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD
ENDED JULY 1, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUL-01-1997
<CASH> 4,457
<SECURITIES> 0
<RECEIVABLES> 501
<ALLOWANCES> 23
<INVENTORY> 5,771
<CURRENT-ASSETS> 11,977
<PP&E> 105,888
<DEPRECIATION> 48,527
<TOTAL-ASSETS> 81,262
<CURRENT-LIABILITIES> 25,990
<BONDS> 66,401
0
0
<COMMON> 0
<OTHER-SE> (24,075)
<TOTAL-LIABILITY-AND-EQUITY> 81,262
<SALES> 97,140
<TOTAL-REVENUES> 97,140
<CGS> 29,344
<TOTAL-COSTS> 29,344
<OTHER-EXPENSES> 67,770
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134
<INCOME-PRETAX> (108)
<INCOME-TAX> 0
<INCOME-CONTINUING> (108)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (108)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
