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 September 30, 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 15
Exhibit Index Located on Page 14
<PAGE>
CAFETERIA OPERATORS, L.P.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1997 (Unaudited) and December 31, 1996 3
Unaudited Condensed Consolidated Statements
of Operations - For the thirteen weeks
ended September 30, 1997 and October 1, 1996 5
Unaudited Condensed Consolidated Statements
of Operations - For the thirty-nine weeks
ended September 30, 1997 and October 1, 1996 6
Unaudited Condensed Consolidated Statement of Partners'
Deficit - For the thirty-nine weeks ended
September 30, 1997 7
Unaudited Condensed Consolidated Statements of
Cash Flows - For the thirty-nine weeks ended
September 30, 1997 and October 1, 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>
<TABLE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<CAPTION>
September 30, December 31,
1997 1996
------------ -----------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,972 $ 3,668
Accounts and notes receivable, net 840 1,186
Inventories 6,267 5,722
Prepaid expenses and other 1,178 306
------------ -----------
Total current assets 11,257 10,882
Property, plant and equipment, net 54,002 63,806
Receivable from affiliates 11,500 11,129
Other assets 585 525
------------ -----------
$ 77,344 $ 86,342
============ ===========
</TABLE>
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>
September 30, December 31,
1997 1996
------------ -----------
(Unaudited)
<S> <C> <C>
Liabilities and Partners' Deficit
Current liabilities:
Current maturities of long-term debt $ 5,493 $ 5,493
Trade accounts payable 4,955 5,498
Other payables and accrued expenses 18,427 14,957
Reserve for store closings - current portion 1,232 1,078
------------ -----------
Total current liabilities 30,107 27,026
Reserve for store closings, net of current portion 3,317 2,470
Long-term debt, net of current portion 63,655 69,147
Other payables 7,329 8,184
Excess of future lease payments over fair value,
net of amortization 2,966 3,482
Commitments and contingencies
Partners' deficit (30,030) (23,967)
------------ -----------
$ 77,344 $ 86,342
============ ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
Page 4
<PAGE>
<TABLE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<CAPTION>
Thirteen weeks ended
--------------------------
September 30, October 1,
1997 1996
------------ -----------
<S> <C> <C>
Sales $ 49,376 $ 49,953
Costs and expenses:
Cost of sales (excluding depreciation) 14,851 15,789
Selling, general and 30,025 29,963
Depreciation and 2,817 2,513
Net special charges (credits) 7,560 (535)
------------ -----------
55,253 47,730
------------ -----------
Operating income (loss) (5,877) 2,223
Interest expense 78 59
------------ -----------
Net income (loss) $ (5,955) $ 2,164
============ ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
Page 5
<PAGE>
<TABLE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<CAPTION>
Thirty-nine weeks ended
--------------------------
September 30, October 1,
1997 1996
------------ -----------
<S> <C> <C>
Sales $ 146,516 $ 149,311
Costs and expenses:
Cost of sales (excluding depreciation) 44,195 46,557
Selling, general and administrative 89,958 88,929
Depreciation and amortization 8,223 7,124
Net special charges (credits) 9,991 (1,138)
------------ -----------
152,367 141,472
------------ -----------
Operating income (loss) (5,851) 7,839
Interest expense 212 182
------------ -----------
Net income (loss) $ (6,063) $ 7,657
============ ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
Page 6
<PAGE>
<TABLE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' DEFICIT
FOR THE THIRTY-NINE WEEKS ENDED September 30, 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 (6,063) (6,063)
--------- --------- ---------
Balance, September 30, 1997 $ (42,177) $ 12,147 $ (30,030)
========= ========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
Page 7
<PAGE>
<TABLE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<CAPTION>
Thirty-nine weeks ended
--------------------------
September 30, October 1,
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (6,063) $ 7,657
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,223 7,124
Loss on disposition of assets 223 259
Special charges (credits) 5,191 (699)
Other, net 393 582
Changes in operating assets and liabilities:
(Increase) decrease in accounts and notes
receivable 345 (1,127)
Increase in inventories (546) (434)
(Increase) decrease in prepaid expenses and
other (871) 698
Increase (decrease) in trade accounts payable
and other payables, accrued expenses and
other liabilities 2,998 (1,471)
------------ -----------
Net cash provided by operating activities 9,893 12,589
------------ -----------
Cash flows used in investing activities:
Purchases of property, plant and equipment (4,032) (7,250)
Expenditures charged to reserve for store closings (816) (1,618)
Proceeds from the sale of property, plant and
equipment 148 1,619
Other, net 14 61
------------ -----------
Net cash used in investing activities (4,686) (7,188)
------------ -----------
Cash flows used in financing activities:
Payment of indebtedness (5,493) (3,767)
Increase in receivable from affiliates (372) (330)
Other, net (38) (131)
------------ -----------
Net cash used in financing activities (5,903) (4,228)
------------ -----------
Increase (decrease) in unrestricted cash
and cash equivalents (696) 1,173
Cash and cash equivalents at beginning of period 3,668 964
------------ -----------
Cash and cash equivalents at end of period $ 2,972 $ 2,137
============ ===========
Supplemental disclosure of cash flow information:
Interest paid, including $5,493 and $3,753
of interest classified as payment of indebtedness $ 5,499 $ 3,771
============ ===========
</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)
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 thirty-nine weeks ended October 1, 1996 to
conform to the classifications used in the financial statements for the period
ended September 30, 1997.
The results of operations for the thirty-nine weeks ended September 30,
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 September 30, 1997 includes
special charges of $7,560. The results of operations included a charge of
$4,800 for the liability for the indemnification of litigation settlement costs
and reasonable expenses related to a suit filed by Michael J. Levenson. Also
included is $1,563 for the write down of assets and adjustments to closed store
reserves of units previously closed and for two units to be closed, and $1,197
to recognize the write down of certain assets.
For the quarter ended April 1, 1997, the Partnership recognized net special
charges of $2,431, including a charge of $1,888 for the writedown of assets and
adjustments to closed store reserves, a charge of $1,835 to recognize the write
down of certain assets in accordance with Statement of Financial Accounting
Page 9
<PAGE>
Standards, No.121, "Accounting for the Impairment of Long-Lived Assets"
("SFAS121"), and a credit of $1,292 related to the settlement of a lawsuit
previously filed by the Internal Revenue Service.
The income from operations for the quarter ended October 1, 1996 includes
net special credits of $535, including a 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 restaurants and a charge of $174 related
to the former President and Chief Executive Officer of the company and the
search for a replacement.
For the quarter ended July 2, 1996, the Partnership recognized net special
credits of $603, including $699 for the insurance proceeds received related to
a fire loss incurred in 1994 and a charge of $96 related to a consulting
agreement with the former President and Chief Executive Officer of the company.
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. 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, and estimates the
total cost of such indemnification will be $4,800.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen Weeks Ended September 30, 1997 Compared to the Thirteen Weeks Ended
October 1, 1996
Results of operations. Sales for the third fiscal quarter of 1997 were
$49.4 million, a decrease of $577 thousand from the same quarter of 1996. The
operating loss for the third quarter of 1997 was $5.9 million compared to
operating income of $2.2 million in the comparable period in the prior year.
The operating results of the third quarter of 1997 included special charges of
$7.6 million, while the third quarter of the prior year included net special
credits of $535 thousand. The net loss for the third quarter of 1997 was $6.0
million compared to net income of $2.2 million in the third quarter of 1996.
Sales. Restaurant sales in comparable units were 1.43% higher in the third
quarter of 1997 than the same quarter of 1996. Sales for the third fiscal
quarter were $1.3 million lower than the prior year due to there being a net of
three fewer units included in operating results. Sales by Dynamic Foods to
third parties was $550 thousand lower in the third quarter of 1997 than the
prior year.
Cost of sales. Excluding depreciation, cost of sales was 30.1% of sales
for the third quarter of 1997 as compared to 31.6% 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
<PAGE>
Selling, general and administrative. Selling, general and administrative
("SG&A") expense was higher in the aggregate by $62 thousand in the third
quarter of 1997 as compared to 1996 due to increases in some expense categories
being mostly offset by there being fewer units included in the operating
results. The change in SG&A expense included an increase of $398 thousand in
marketing expense and decreases of $224 thousand in hourly wages and $193
thousand in utility expenses.
Depreciation and amortization. Depreciation and amortization expense was
higher by $304 thousand in the third 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 loss from operations for the quarter ended September
30, 1997 includes special charges of $7.6 million The results of operations
included a charge of $4.8 million for the liability for the indemnification of
litigation settlement costs and reasonable expenses related to a suit filed by
Michael J. Levenson. Also included is $1.6 million for the write down of
assets and adjustments to closed store reserves of units previously closed and
for two units to be closed, and $1.2 million to recognize the write down of
certain assets. The results of operations for the third 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 the former President and Chief Executive
Officer.
Interest expense. Interest expense was $78 thousand in the third 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.
Thirty-nine Weeks Ended September 30, 1997 Compared to the Thirty-nine Weeks
Ended October 1, 1996
Results of operations. Sales for the first thirty-nine weeks ended
September 30, 1997 were $146.5 million, a decrease of $2.8 million from the
same period of 1996. The operating loss for the thirty-nine week period of
1997 was $5.9 million compared to income of $7.8 million in the comparable
period in the prior year. The operating results of the thirty-nine week period
of 1997 includes net special charges of $10.0 million, while the comparable
period of the prior year includes net special credits of $1.1 million. The net
loss for the period in 1997 was $6.1 million compared to income of $7.7 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 0.1% higher in the
thirty-nine weeks of 1997 than the same period of 1996. Sales for the period
were $2.8 million lower than the prior year due to there being a net of three
fewer units included in operating results. Sales by Dynamic Foods to third
parties were $1.7 million lower in the first thirty-nine weeks of 1997 than the
prior year.
Cost of sales. Excluding depreciation, cost of sales was 30.2% of sales
for the first thirty-nine weeks of 1997 as compared to 31.2% 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 $1.0 million in the first thirty-nine
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 an increase of $1.4 million in
marketing expense, a decrease of $467 thousand in salaries, wages and related
benefits and a decrease of $410 million in utility expense.
Depreciation and amortization. Depreciation and amortization expense was
higher by $1.1 million in the first thirty-nine 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 thirty-nine weeks ended
September 30, 1997 includes net special charges of $10.0 million. The results
of operations includes a charge of $4.8 million for the liability for
indemnification of litigation settlement costs and reasonable expenses related
to a suit filed by Michael J. Levenson, a charge for $3.5 million for the write
down of assets and adjustments to closed store reserves of units previously
closed and for three units to be closed, a charge of $3.0 million for the write
down of certain assets and a credit of $1.3 million related to the settlement
of a lawsuit previously filed by the Internal Revenue Service.
For the thirty-nine weeks ended October 1, 1996, the Partnership recognized
net special credits of $1.1 million, including $699 thousand from the insurance
proceeds received related to a fire loss incurred in 1994 and $709 thousand for
the termination of a trademark royalty agreement and the modification and
extension of a related lease, and a charge of $270 thousand related to a
consulting agreement with the Chairman of the Board and the search for a new
President and Chief Executive Officer.
Interest expense. Interest expense was $212 thousand in the thirty-nine
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
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
During the thirty-nine weeks ended September 30, 1997, cash provided by
operating activities of the Partnership was $9.9 million compared to $12.6
million in the same period of 1996. The Partnership made capital expenditures
of $5.5 million during the first thirty-nine weeks of 1997 compared to $3.8
million during the same period of 1996. Cash, temporary investments and
marketable securities were $3.0 million at September 30, 1997 compared to $2.1
million at October 1, 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 Partnership was .37:1 at
September 30, 1997 compared to .37:1 at October 1, 1996 and .40:1 at December
31, 1996. The Partnership's total assets at September 30, 1997 aggregated
$77.3 million, following the net special charges of $10.0 million, compared to
$87.0 million at October 1, 1996 and $86.3 million at December 31, 1996.
Page 12
<PAGE>
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.
Total scheduled maturities of long-term debt of the Partnership and its
subsidiaries over the next four fiscal years are: $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 $69.1 million of 12% Notes due December 31,
2001, which includes $23.4 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, and
estimates the total cost of such indemnification will be $4.8 million.
Page 13
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
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
September 30, 1997.
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/ Theodore J. Papit /s/ Alton R. Smith
------------------------------------- -------------------------------
Theodore J. Papit Alton R. Smith
President and Chief Executive Officer Principal Accounting Officer
Date: November 14, 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 SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,972
<SECURITIES> 0
<RECEIVABLES> 867
<ALLOWANCES> 27
<INVENTORY> 6,267
<CURRENT-ASSETS> 11,257
<PP&E> 103,955
<DEPRECIATION> 49,953
<TOTAL-ASSETS> 77,344
<CURRENT-LIABILITIES> 30,107
<BONDS> 63,655
0
0
<COMMON> 0
<OTHER-SE> (30,030)
<TOTAL-LIABILITY-AND-EQUITY> 77,344
<SALES> 146,516
<TOTAL-REVENUES> 146,516
<CGS> 44,195
<TOTAL-COSTS> 44,195
<OTHER-EXPENSES> 108,172
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 212
<INCOME-PRETAX> (6,063)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,063)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,063)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
