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 March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-10725
CAFETERIA OPERATORS, L.P.
INCORPORATED 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 12
Exhibit Index Located on Page 11
<PAGE>
CAFETERIA OPERATORS, L.P.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1998(Unaudited) and December 30, 1997 3
Unaudited Condensed Consolidated Statements
of Operations - For the thirteen weeks
ended March 31, 1998 and April 1, 1997 5
Unaudited Condensed Consolidated Statement of
Partner's Deficit - For the thirteen weeks ended
March 31, 1998 6
Unaudited Condensed Consolidated Statements of
Cash Flows - For the thirteen weeks ended
March 31, 1998 and April 1, 1997 7
Notes to Unaudited Condensed Consolidated
Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 11
SIGNATURES
Page 2
<PAGE>
<TABLE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<CAPTION>
March 31, December 30,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,562 $ 4,395
Accounts and notes receivable, net 845 856
Inventories 6,269 6,038
Prepaid expenses and other 1,433 1,122
----------- -----------
Total current assets 12,109 12,411
Property, plant and equipment, net 51,687 52,784
Receivable from affiliates 11,829 11,604
Other assets 522 515
----------- -----------
$ 76,147 $ 77,314
=========== ===========
</TABLE>
See accompanying 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>
March 31, December 30,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
Liabilities and Partner's Deficit
Current liabilities:
Current maturities of long-term debt $ 5,493 $ 5,493
Trade accounts payable 4,983 4,212
Other payables and accrued expenses 14,030 15,008
Reserve for store closings - current 1,102 1,344
----------- -----------
Total current liabilities 25,608 26,057
Reserve for store closings, net of current portion 3,207 3,331
Long-term debt, net of current portion 63,459 66,205
Other payables 7,283 7,179
Excess of future lease payments over fair value,
net of amortization 2,710 2,837
Commitments and contingencies
Partner's deficit (26,120) (28,295)
----------- -----------
$ 76,147 $ 77,314
=========== ===========
</TABLE>
See accompanying 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
-------------------------
March 31, April 1,
1998 1997
----------- -----------
<S> <C> <C>
Sales $ 46,212 $ 47,353
Costs and expenses:
Cost of sales (excluding depreciation) 13,548 14,343
Selling, general and administrative 27,936 29,346
Depreciation and amortization 2,509 2,721
Net special charges 2,431
----------- -----------
43,993 48,841
----------- -----------
Operating income (loss) 2,219 (1,488)
Interest expense 44 56
----------- -----------
Net income (loss) $ 2,175 $ (1,544)
=========== ===========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
Page 5
<PAGE>
<TABLE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF PARTNER'S DEFICIT
FOR THE THIRTEEN WEEKS ENDED MARCH 31, 1998
(dollars in thousands)
<CAPTION>
Total
General Limited Partners'
Partner Partners Capital
--------- --------- ---------
<S> <C> <C> <C>
Balance at December 30, 1997 $ (40,788) $ 12,493 $ (28,295)
Net income 2,175 2,175
--------- --------- ---------
Balance at March 31, 1998 $ (38,613) $ 12,493 $ (26,120)
========= ========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
Page 6
<PAGE>
<TABLE>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<CAPTION>
Thirteen weeks ended
-------------------------
March 31, April 1,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,175 $ (1,544)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 2,509 2,721
Loss on disposition of assets 5 34
Net special charges 2,431
Other, net 154 111
Changes in operating assets and liabilities:
Decrease in accounts and notes receivable 11 5
(Increase) decrease in inventories (231) 119
Increase in prepaid expenses and other (311) (798)
Decrease in trade accounts, payable other
payables, accrued expenses and other
liabilities (207) (529)
----------- -----------
Net cash provided by operating activities 4,105 2,550
----------- -----------
Cash flows used in investing activities:
Purchases of property, plant and equipment (1,719) (1,641)
Expenditures charged to reserve for store
closings (405) (377)
Proceeds from the sale of property, plant and
equipment 184 4
Other, net (6) (1)
----------- -----------
Net cash used in investing activities (1,946) (2,015)
----------- -----------
Cash flows used in financing activities:
Payment of indebtedness (2,746) (2,746)
Increase in receivable from affiliates (225) (65)
Other, net (21) 6
----------- -----------
Net cash used in financing activities (2,992) (2,805)
----------- -----------
Decrease in cash and cash equivalents (833) (2,270)
Cash and cash equivalents at beginning of period 4,395 3,668
----------- -----------
Cash and cash equivalents at end of period $ 3,562 $ 1,398
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid, including $2,746 of interest in
1998 and 1997 classified as payment of
indebtedness $ 2,748 $ 2,748
=========== ===========
See accompanying notes to unaudited condensed consolidated financial
statements.
Page 7
<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., a Delaware limited partnership (the
"Partnership"), is wholly owned by Furr's/Bishop's, Incorporated (the
"Company") and operates cafeterias. The financial statements presented herein
are the unaudited condensed consolidated financial statements of the
Partnership 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 30, 1997.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation.
The results of operations for the thirteen weeks ended March 31, 1998 may
not be indicative of the results that may be expected for the fiscal year
ending December 29, 1998.
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
For the quarter ended April 1, 1997, the Partnership recognized net
special charges of $2,431,000, including a charge of $1,888,000 for the
writedown of assets and adjustments to closed store reserves, a charge of
$1,835,000 to recognize the writedown of certain assets in accordance with
Statement of Financial Accounting Standards, No.121, "Accounting for the
Impairment of Long-Lived Assets" ("SFAS121"), and a credit of $1,292,000
related to the settlement of a lawsuit previously filed against the Company.
Page 8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen Weeks Ended March 31, 1998 Compared to Thirteen Weeks Ended April 1,
1997
Results of operations. Sales for the first fiscal quarter of 1998 were
$46.2 million, a decrease of $1.1 million from the same quarter of 1997.
Operating income for the first quarter of 1998 was $2.2 million compared to an
operating loss of $1.5 million in the comparable period in the prior year. The
operating results of the first quarter of 1997 included net special charges of
$2.4 million. The net income for the first quarter of 1998 was $2.2 million
compared to a net loss of $1.5 million in the first quarter of 1997.
Sales. Restaurant sales in comparable units were 2.64% higher in the
first quarter of 1998 than the same quarter of 1997. Sales for the first
fiscal quarter were $2.2 million lower than the same period of the prior year
due to there being a net of nine fewer units included in operating results.
Sales by Dynamic Foods to third parties were $550 thousand lower in the first
quarter of 1998 than the first quarter of the prior year.
Cost of sales. Excluding depreciation, cost of sales was 29.3% of sales
for the first quarter of 1998 as compared to 30.3% for the same quarter of
1997. The decrease in the percentage of sales was the result of changes in
pricing, menu mix and lower product costs.
Selling, general and administrative. Selling, general and administrative
("SG&A") expense was lower in the aggregate by $1.4 million in the first
quarter of 1998 as compared to 1997 due partially to there being fewer units
included in the operating results. The change in SG&A expense included an
increase of $105 thousand in marketing expense and $372 thousand in labor and
related benefits and a decrease of $187 thousand in utility expenses.
Depreciation and amortization. Depreciation and amortization expense was
lower by $212 thousand in the first quarter of 1998 due primarily to lower
depreciation on property, plant and equipment having been written down in
accordance with Statement of Financial Accounting Standards No. 121.
Special charges. The loss from operations for the quarter ended April 1,
1997 included net special charges of $2.4 million, which included charges of
$1.9 million for the writedown of assets and adjustments to closed store
reserves and $1.8 million to recognize the writedown of certain assets in
accordance with SFAS121 and a credit of $1.3 million related to the settlement
of a lawsuit previously filed against the Company.
Interest expense. Interest expense was $44 thousand in the first quarter
of 1998, which was slightly lower than the comparable period in the prior year.
Also, in accordance with Statement of Financial Accounting Standards No. 15,
the Partnership's debt that was restructured at January 2, 1996 was recorded at
the sum of all future principal and interest payments and there is no
recognition of interest expense thereon.
Page 9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES OF
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
During the thirteen weeks ended March 31, 1998, cash provided by operating
activities of the Partnership was $4.1 million compared to $2.6 million in the
same period of 1997. The Partnership made capital expenditures of $1.7 million
during the first thirteen weeks of 1998 compared to $1.6 million during the
same period of 1997. Cash, temporary investments and marketable securities
were $3.6 million at March 31, 1998 compared to $1.4 million at April 1, 1997.
The current ratio of the Partnership was .47:1 at March 31, 1998 compared to
.35:1 at April 1, 1997 and .48:1 at December 30, 1997. The Partnership's total
assets at March 31, 1998 aggregated $76.1 million, compared to $80.4 million at
April 1, 1997 and $77.3 million at December 30, 1997.
The improvement in results of operations in the thirteen weeks ended March
31, 1998 over the comparable period of the prior year reflects the impact of
the present marketing program, operating cost controls, as well as more
favorable winter weather in most of the Partnership's markets.
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 and interest classified as
long-term debt of the Partnership and its subsidiaries over the next five
calendar years are: $2.7 million in 1998, $5.5 million in 1999, $5.5 million in
2000 and $55.3 million in 2001.
The Partnership has outstanding $66.4 million of 12% Notes due December
31, 2001, which includes $20.6 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).
The Partnership has outstanding $2.5 million of 10.5% Notes due December
31, 2001. A semi-annual cash interest payment of approximately $134 thousand
is due on each June 30 and December 31.
In 1993, the Partnership entered into an amendment of a master sublease
agreement pursuant to which it leased 43 properties from Kmart Corporation
("Kmart"). Pursuant to the amendment and subject to the terms and conditions
thereof, two properties were removed from the master sublease, and the
aggregate monthly rent for the period January 1, 1997 through and including
December 31, 1999 has been reduced by 20%. The reductions in rent are subject
to termination by Kmart if Kevin E. Lewis ceases to be Chairman of the Board of
Directors of the Company. The one-year term of Mr. Lewis expires in 1998 and
Mr. Lewis has not been nominated for reelection at the Company's Annual Meeting
of Stockholders on May 28, 1998. The Company has entered into negotiations
with Kmart to modify the amendment to remove the provisions permitting
termination of the reductions in rent if Mr. Lewis does not remain as Chairman
Page 10
<PAGE>
of the Board until the end of 1999. To date, Kmart has been unwilling to make
such modifications and as a result, the Company may be required to pay
additional rent payments of approximately $1.8 million through December 31,
1999. Because the Company accounts for its rental payments under the
straight-line method, any increase in rent through December 31, 1999 would be
amortized over the remaining life of the leases, which run through December 31,
2003, December 31, 2007, June 29, 2008 and December 31, 2008. If the maximum
additional rent described above is incurred, the increase in annual rent
expense would be approximately $288 thousand.
PART II
OTHER INFORMATION
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
March 31, 1998.
Page 11
<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: May 8, 1998
</TABLE>
<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 MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 3,562
<SECURITIES> 0
<RECEIVABLES> 874
<ALLOWANCES> 29
<INVENTORY> 6,269
<CURRENT-ASSETS> 12,109
<PP&E> 102,019
<DEPRECIATION> 50,332
<TOTAL-ASSETS> 76,147
<CURRENT-LIABILITIES> 25,608
<BONDS> 63,459
0
0
<COMMON> 0
<OTHER-SE> (26,120)
<TOTAL-LIABILITY-AND-EQUITY> 76,147
<SALES> 46,212
<TOTAL-REVENUES> 46,212
<CGS> 13,548
<TOTAL-COSTS> 13,548
<OTHER-EXPENSES> 30,445
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44
<INCOME-PRETAX> 2,175
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,175
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,175
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
