<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 March 28, 2000
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.
INCORPORATED IN DELAWARE IRS EMPLOYER INDENTIFICATION
NO. 75-2186655
3001 E. PRESIDENT GEORGE BUSH HWY., SUITE 200, RICHARDSON, TEXAS 75082
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 808-2923
- -------------------------------------------------------------------------------
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
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1
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CAFETERIA OPERATORS, L.P.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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<S> <C> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 28, 2000 (Unaudited) and December 28, 1999 3
Unaudited Condensed Consolidated Statements of
Operations - For the thirteen weeks ended
March 28, 2000 and March 30, 1999 5
Unaudited Condensed Consolidated Statement of Changes in
Partners' Deficit - For the thirteen weeks ended
March 28, 2000 6
Unaudited Condensed Consolidated Statements of
Cash Flows - For the thirteen weeks ended
March 28, 2000 and March 30, 1999 7
Notes to Unaudited Condensed Consolidated
Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
SIGNATURES 12
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 28, 2000 AND DECEMBER 28, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
March 28, December 28,
2000 1999
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,011 $ 5,163
Accounts and notes receivable, net 1,042 894
Inventories 6,480 6,544
Prepaid expenses and other 957 861
-------- --------
Total current assets 13,490 13,462
-------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 55,475 54,586
RECEIVABLE FROM AFFILIATES, NET 10,863 10,563
OTHER ASSETS 537 552
-------- --------
TOTAL ASSETS $ 80,365 $ 79,163
======== ========
</TABLE>
(Continued)
3
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CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 28, 2000 AND DECEMBER 28, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
March 28, December 28,
2000 1999
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<S> <C> <C>
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,493 $ 5,493
Trade accounts payable 7,384 5,233
Other payables and accrued expenses 14,084 17,058
Reserve for store closings, current 854 804
-------- --------
Total current liabilities 27,815 28,588
-------- --------
RESERVE FOR STORE CLOSINGS, NET OF CURRENT
MATURITIES 2,139 2,558
LONG-TERM DEBT, NET OF CURRENT PORTION 55,220 55,220
OTHER PAYABLES 10,021 10,218
EXCESS OF FUTURE LEASE PAYMENTS OVER FAIR VALUE,
NET OF AMORTIZATION 1,808 1,919
PARTNERS' DEFICIT (16,638) (19,340)
-------- --------
TOTAL LIABILITIES AND PARTNERS' DEFICIT $80,365 $79,163
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED MARCH 28, 2000 AND MARCH 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Thirteen weeks ended
------------------------------------
March 28, March 30,
2000 1999
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<S> <C> <C>
Sales $ 47,764 $ 46,003
Costs and expenses:
Cost of sales (excluding depreciation) 14,036 13,659
Selling, general and administrative 28,295 27,847
Depreciation and amortization 2,646 2,427
Special charge - 566
---------------- ----------------
44,977 44,499
---------------- ----------------
Operating income 2,787 1,504
Interest expense 85 72
---------------- ----------------
Net income $ 2,702 $ 1,432
================ ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
FOR THE THIRTEEN WEEKS ENDED MARCH 28, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated Other
General Limited Comprehensive
Partners Partners Loss Total
-------- -------- ---- -----
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 28, 1999 $ (32,584) $ 14,972 $ (1,728) $ (19,340)
Net income 2,702 - - 2,702
------------------ --------------- -------------------- -------------
BALANCE, MARCH 28, 2000 $ (29,882) $ 14,972 $ (1,728) $ (16,638)
================== =============== ==================== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Thirteen weeks ended
--------------------------------
March 28, March 30,
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,702 $ 1,432
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,646 2,427
Gain on disposition of assets - (154)
Changes in operating assets and liabilities:
Accounts and notes receivable (148) (92)
Inventories 64 359
Prepaid expenses and other (381) (812)
Reserve for store closings (369) (351)
Trade accounts payable, other payables,
accrued expenses and other liabilities (1,020) 278
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Net cash provided by operating activities 3,494 3,087
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Cash flows from (used in) investing activities:
Purchases of property, plant and equipment (3,646) (3,080)
Proceeds from the sale of property, plant and equipment - 780
Other, net - (14)
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Net cash used in investing activities (3,646) (2,314)
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Cash flows from financing activities:
Other, net - (358)
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Net cash used in financing activities - (358)
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Increase/(decrease) in cash and cash equivalents (152) 415
Cash and cash equivalents at beginning of period 5,163 11,478
-------------- -------------
Cash and cash equivalents at end of period $ 5,011 $ 11,893
============== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
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CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in Thousands)
BASIS OF PRESENTATION
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 Management's Discussion and Analysis of Financial Condition
and Results of Operations and the consolidated financial statements and notes
thereto included in the Company's Form 10-K for the year ended December 28,
1999. 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.
Interim results of operations may not be indicative of the results
that may be expected for a full fiscal year.
CONTINGENCIES
We are party to litigation with our former president and chief
executive officer regarding payment of severance benefits in the amount of
$500. Management believes there are a number of grounds that will enable us to
be successful in this matter, and that the ultimate resolution of this matter
will not have a material effect on financial position, results of operations
or cash flows.
8
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BUSINESS SEGMENTS
Following is a summary of segment information of the Company for the
thirteen weeks ended March 28, 2000 and March 30, 1999:
<TABLE>
<CAPTION>
Cafeterias Dynamic Total
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Foods
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<S> <C> <C> <C>
2000:
External revenues $ 47,438 $ 326 $ 47,764
Intersegment revenues - 15,099 15,099
Depreciation and amortization 2,392 254 2,646
Segment profit 2,521 181 2,702
1999:
External revenues $ 45,763 $ 240 $ 46,003
Intersegment revenues - 14,595 14,595
Depreciation and amortization 2,186 241 2,427
Segment profit 1,208 224 1,432
</TABLE>
Following is a reconciliation of reportable segments to the Company's
consolidated totals for the thirteen weeks ended March 28, 2000 and March 30,
1999:
<TABLE>
<CAPTION>
March 28, 2000 March 30, 1999
-------------- --------------
<S> <C> <C>
Revenues
Total revenues of reportable segments $ 62,863 $ 60,598
Elimination of inter-segment revenue (15,099) (14,595)
--------------- ----------------
Total consolidated revenues $ 47,764 $ 46,003
=============== ================
</TABLE>
RECENT ACCOUNTING MATTERS
The Company is assessing the reporting and disclosures requirements
of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
This statement establishes accounting and reporting standards for derivative
instruments and hedging activities and will require the Company to recognize
all derivatives on its balance sheet at fair value. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of the
derivatives will either be offset against the change in fair value of the
hedged item through earnings, or recognized in other comprehensive income
until the hedged item is recognized in earnings. The Company expects to adopt
SFAS No. 133 in the first quarter of fiscal 2001 and does not anticipate that
the adoption will have a material effect on the Company's results of
operations or financial position.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Sales for the first fiscal quarter of 2000 were $47.8 million, an
increase of $1.8 million from the same quarter of 1999. Operating income for
the first quarter of 2000 was $2.8 million compared to $1.5 million in the
comparable period in the prior year. The operating results of the first
quarter of 1999 included a special charge of $566 thousand for the costs
associated with the move of our support center from Lubbock, Texas to
Richardson, Texas. The net income for the first quarter of 2000 was $2.7
million compared to $1.4 million in the first quarter 1999.
9
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SALES. Restaurant sales in comparable units increased $1.6 million,
or 3.4% in the first quarter of 2000 over the same quarter of 1999, reflecting
the effects of our re-imaging program. First quarter sales for the one new
unit opened since first quarter 1999 was $615 thousand, an increase of $121
thousand over the aggregate sales of two units that were closed after first
quarter 1999. Sales by Dynamic Foods to third parties were $86 thousand higher
in the first quarter 2000 than that of first quarter 1999.
COST OF SALES. Excluding depreciation, cost of sales were 29.4% of
sales for the first quarter of 2000 as compared to 29.7% for the same quarter
of 1999. The decrease in the percentage of sales was the result of lower
product costs.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative ("SG&A") expense was higher in the aggregate by $448 thousand
in the first quarter of 2000 as compared to 1999. First quarter 1999 included
a gain of $154 thousand from the sale of assets. The change in SG&A expense
included an increase of $94 thousand in rent expense, $159 thousand in
supplies expense, $105 thousand in repairs and maintenance expense, $61
thousand in utility expenses and $132 thousand in labor and related benefits.
We had decreases of $98 thousand in marketing expense and $191 thousand in
other store expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
was higher by $219 thousand in the first quarter of 2000 due to depreciation
of prior year's re-imaging capital expenditures.
LIQUIDITY AND CAPITAL RESOURCES
During the thirteen weeks ended March 28, 2000, cash provided by
operating activities was $3.5 million compared to $3.1 million in the same
period of 1999. We made capital expenditures of $3.6 million during the first
thirteen weeks of 2000 compared to $3.1 million during the same period of
1999. Cash and temporary investments were $5.0 million at March 28, 2000
compared to $20.6 million at March 30, 1999. Our current ratio was .48:1 at
March 28, 2000 compared to .73:1 at March 30, 1999 and .47:1 at December 28,
1999. Total assets at March 28, 2000 aggregated $80.4 million, compared to
$82.6 million at March 30, 1999 and $79.2 million at December 28, 1999.
Our 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.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
We are exposed to market risk from changes in commodity prices. We
purchase certain commodities used in food preparation. These commodities are
generally purchased based upon market prices established with vendors. These
purchase arrangements may contain contractual features that limit the price
paid by establishing certain price floors or caps. We do not use financial
instruments to hedge commodity prices because these purchase arrangements help
control the ultimate cost paid and any commodity price aberrations are
generally short term in nature.
10
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Our long-term debt does not expose us to market risk as all interest
accrues at fixed rates. We do not use derivative financial instruments to
manage overall borrowing costs.
This market risk discussion contains forward-looking statements.
Actual results may differ materially from this discussion based upon general
market conditions and changes in domestic and global financial markets.
PART II. OTHER INFORMATION
Item 1. Legal Proceeding
In July 1998, we filed a declaratory judgment lawsuit in State
District Court in Lubbock, Texas, in which we ask the Court to find that we
are not obligated to make severance payments that have been demanded by
Theodore Papit, the former President and Chief Executive Officer of Furr's.
Mr. Papit resigned effective May 29, 1998, following the election at the
annual meeting of stockholders of Furr's of a slate of directors proposed by
Teacher's Insurance and Annuity Association of America ("TIAA"), our largest
stockholder at that time. He subsequently demanded payment of more than
$500,000 of severance and other amounts that he claimed were owing to him
under a President and Chief Executive Officer Agreement dated March 23, 1998.
This agreement was approved by a split vote of the Board of Directors after
TIAA had publicly announced that it might take action affecting the control of
the Company. We have requested a jury trial and believe that there are a
number of grounds that will support the Court in granting the requested
relief, among them being that the Agreement is void as an interested party
transaction that did not receive the necessary approval of independent,
disinterested directors, the terms of the Agreement are not fair to Furr's and
the Agreement was entered into by Furr's without the benefit of full
disclosure by Mr. Papit and consideration by the Board of Directors of
material information regarding his management of the Company.
Items 2, 3, 4 and 5 are not applicable and have been intentionally omitted.
Item 6. Exhibits and Reports on Form 8-K
None.
11
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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.
DATE: May 11, 2000 CAFETERIA OPERATORS, L.P.
----------------------- By: Furr's Restaurant Group, Inc.
Managing General Partner
/s/ Phillip Ratner
---------------------------------------
Phillip Ratner
President and Chief Executive Officer
/s/ Paul G. Hargett
---------------------------------------
Paul G. Hargett
Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<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 28,
2000 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> JAN-02-2001
<PERIOD-START> DEC-29-1999
<PERIOD-END> MAR-28-2000
<CASH> 5,011
<SECURITIES> 0
<RECEIVABLES> 1,042
<ALLOWANCES> 14
<INVENTORY> 6,480
<CURRENT-ASSETS> 13,490
<PP&E> 114,751
<DEPRECIATION> 59,276
<TOTAL-ASSETS> 80,365
<CURRENT-LIABILITIES> 27,815
<BONDS> 55,220
0
0
<COMMON> 0
<OTHER-SE> (16,638)
<TOTAL-LIABILITY-AND-EQUITY> 80,365
<SALES> 47,764
<TOTAL-REVENUES> 47,764
<CGS> 14,036
<TOTAL-COSTS> 14,036
<OTHER-EXPENSES> 30,941
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> 2,702
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,702
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,702
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
