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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 June 27, 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
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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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CAFETERIA OPERATORS, L.P.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
June 27, 2000 (Unaudited) and December 28, 1999 3
Unaudited Condensed Consolidated Statements of
Operations - For the thirteen weeks ended
June 27, 2000 and June 29, 1999 5
Unaudited Condensed Consolidated Statements of
Operations - For the twenty-six weeks ended
June 27, 2000 and June 29, 1999 6
Unaudited Condensed Consolidated Statement of Changes in
Partners' Deficit - For the twenty-six weeks ended
June 27, 2000 7
Unaudited Condensed Consolidated Statements of
Cash Flows - For the twenty-six weeks ended
June 27, 2000 and June 29, 1999 8
Notes to Unaudited Condensed Consolidated
Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosure About Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
SIGNATURES 13
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 27, 2000 AND DECEMBER 28, 1999
(DOLLARS IN THOUSANDS)
(UNAUDITED)
JUNE 27, DECEMBER 28,
2000 1999
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,310 $ 5,163
Accounts and notes receivable, net 1,149 894
Inventories 6,978 6,544
Prepaid expenses and other 2,400 861
-------- --------
Total current assets 12,837 13,462
-------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 56,952 54,586
RECEIVABLE FROM AFFILIATES, NET 11,028 10,563
OTHER ASSETS 560 552
-------- --------
TOTAL ASSETS $ 81,377 $ 79,163
======== ========
</TABLE>
(Continued)
3
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CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 27, 2000 AND DECEMBER 28, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 27, DECEMBER 28,
2000 1999
---- ----
<S> <C> <C>
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,493 $ 5,493
Trade accounts payable 6,864 5,233
Other payables and accrued expenses 14,196 17,058
Reserve for store closings, current 336 804
-------- --------
Total current liabilities 26,889 28,588
-------- --------
RESERVE FOR STORE CLOSINGS, NET OF CURRENT MATURITIES 2,433 2,558
LONG-TERM DEBT, NET OF CURRENT PORTION 52,473 55,220
OTHER PAYABLES 11,398 10,218
EXCESS OF FUTURE LEASE PAYMENTS OVER FAIR VALUE,
NET OF AMORTIZATION 1,697 1,919
PARTNERS' DEFICIT (13,513) (19,340)
-------- --------
TOTAL LIABILITIES AND PARTNERS' DEFICIT $ 81,377 $ 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 JUNE 27, 2000 AND JUNE 29, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------------
JUNE 27, JUNE 29,
2000 1999
---- ----
<S> <C> <C>
Sales $ 48,188 $ 47,196
Costs and expenses:
Cost of sales (excluding depreciation) 14,189 13,953
Selling, general and administrative 28,120 29,346
Depreciation and amortization 2,667 2,444
--------- ---------
44,976 45,743
--------- ---------
Operating income 3,212 1,453
Interest expense 87 75
--------- ---------
Net income $ 3,125 $ 1,378
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 27, 2000 AND JUNE 29, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
------------------------------------
JUNE 27, JUNE 29,
2000 1999
---- ----
<S> <S> <C>
Sales $95,952 $93,199
Costs and expenses:
Cost of sales (excluding depreciation) 28,225 27,612
Selling, general and administrative 56,415 57,193
Depreciation and amortization 5,313 4,871
Special charge - 566
------- -------
89,953 90,242
------- -------
Operating income 5,999 2,957
Interest expense 172 147
------- -------
Net income $5,827 $2,810
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
FOR THE TWENTY-SIX WEEKS ENDED JUNE 27, 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 5,827 - - 5,827
----------- --------- ------------- ----------
BALANCE, JUNE 27, 2000 $ (26,757) $ 14,972 $ (1,728) $ (13,513)
=========== ========= ============= ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
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CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
--------------------------------
JUNE 27, JUNE 29,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,827 $ 2,810
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 5,313 4,871
Gain on disposition of assets (397) (208)
Changes in operating assets and liabilities:
Accounts and notes receivable (255) (376)
Inventories (434) 334
Prepaid expenses and other (2,012) (1,201)
Reserve for store closings (593) (535)
Trade accounts payable, other payables,
accrued expenses and other liabilities (51) 758
-------- -------
Net cash provided by operating activities 7,398 6,453
-------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (8,229) (8,124)
Proceeds from the sale of property, plant and equipment 567 2,215
Other, net 158 127
-------- -------
Net cash used in investing activities (7,504) (5,782)
-------- -------
Cash flows from financing activities:
Payment of indebtedness (2,747) (2,746)
-------- -------
Net cash used in financing activities (2,747) (2,746)
-------- -------
Decrease in cash and cash equivalents (2,853) (2,075)
Cash and cash equivalents at beginning of period 5,163 11,478
-------- -------
Cash and cash equivalents at end of period $ 2,310 $ 9,403
======== =======
Supplemental disclosure of cash flow information:
Cash paid for interest (including $2,747 in 2000 and $2,746 in 1999
classified as payment of indebtedness.) $ 2,919 $ 2,887
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
8
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CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES
NOTES TO UNAUDITED 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 of interim financial position and
results of operations.
Interim results of operations may not be indicative of the results that
may be expected for a full fiscal year.
BUSINESS SEGMENTS
Following is a summary of segment information of the Company for the
thirteen weeks ended June 27, 2000 and June 29, 1999:
<TABLE>
<CAPTION>
CAFETERIAS DYNAMIC TOTAL
---------- FOODS -----
-------
<S> <C> <C> <C>
2000:
External revenues $ 47,771 $ 417 $ 48,188
Intersegment revenues - 15,038 15,038
Depreciation and amortization 2,406 261 2,667
Segment profit 2,890 235 3,125
1999:
External revenues $ 46,933 $ 263 $ 47,196
Intersegment revenues - 15,083 15,083
Depreciation and amortization 2,209 235 2,444
Segment profit 1,012 366 1,378
</TABLE>
9
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Following is a summary of segment information of the Company for the
twenty-six weeks ended June 27, 2000 and June 29, 1999:
<TABLE>
<CAPTION>
CAFETERIAS DYNAMIC TOTAL
---------- FOODS -----
-------
<S> <C> <C> <C>
2000:
External revenues $ 95,209 $ 743 $ 95,952
Intersegment revenues - 30,137 30,137
Depreciation and amortization 4,798 515 5,313
Segment profit 5,411 416 5,827
1999:
External revenues $ 92,696 $ 503 $ 93,199
Intersegment revenues - 29,678 29,678
Depreciation and amortization 4,395 476 4,871
Segment profit 2,220 590 2,810
</TABLE>
Following is a reconciliation of reportable segments to the Company's
consolidated totals for the periods ended June 27, 2000 and June 29, 1999:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
------------------------------ -------------------------------
June 27, June 29, June 27, June 29,
2000 1999 2000 1999
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues
Total revenues of reportable segments $63,226 $62,279 $126,089 $122,877
Elimination of inter-segment revenue (15,038) (15,083) (30,137) (29,678)
---------- ---------- ---------- -----------
Total consolidated revenues $48,188 $47,196 $95,952 $93,199
========== ========== ========== ===========
</TABLE>
RECENT ACCOUNTING MATTERS
The Company is assessing the reporting and disclosure 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, as amended, 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.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation: An Interpretation of APB
Opinion No. 25. Among other issues, Interpretation No. 44 clarifies the
application of Accounting Principles Board Opinion No. 25 (APB No. 25)
regarding (a) the definition of employee for purposes of applying APB No. 25,
(b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and
(d) the accounting for an exchange of stock compensation awards in a business
combination. The provisions of Interpretation No. 44 affecting the Company
are to be applied on a prospective basis effective July 1, 2000.
10
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CONTINGENCIES
In July 1998, the Company filed a declaratory judgement lawsuit in
State District Court in Lubbock, Texas, in which the Court was asked to find
that the Company is not obligated to make severance payments that have been
demanded by Theodore Papit, the former President and Chief Executive Officer
of Furr's. This litigation was settled by agreement with Mr. Papit in June
2000 on terms that the Company's management believes were favorable to the
Company.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED JUNE 27, 2000 COMPARED TO THIRTEEN WEEKS ENDED JUNE 29,
1999:
Sales for the second fiscal quarter of 2000 were $48.2 million, an
increase of $1.0 million from the same quarter of 1999. Operating income for
the second quarter of 2000 was $3.2 million compared to $1.5 million in the
comparable period in the prior year. Net income for the second quarter of
2000 was $3.1 million compared to $1.4 million in the second quarter 1999.
SALES. Restaurant sales in comparable units increased $.5 million,
or 1.1% in the second quarter of 2000 over the same quarter of 1999,
reflecting the effects of our re-imaging program. Second quarter sales for
the new units opened since first quarter 1999 was $948 thousand, an increase
of $325 thousand over the aggregate sales of the units that were closed after
second quarter 1999. Sales by Dynamic Foods to third parties were $154
thousand higher in the second quarter 2000 than that of second quarter 1999.
COST OF SALES. Excluding depreciation, cost of sales were 29.4% of
sales for the second quarter of 2000 as compared to 29.6% 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 lower in the aggregate by $1.2 million in
the second quarter of 2000 as compared to 1999. Second quarter 2000 included
a gain of $397 thousand from the sale of assets. The change in SG&A expense
included an increase of $40 thousand in rent expense, $80 thousand in
supplies expense and $172 thousand in labor and related benefits. We had
decreases of $352 thousand in marketing expense, $135 thousand in other store
expenses and $422 thousand in professional services.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
was higher by $223 thousand in the first quarter of 2000 due to depreciation
of prior year's re-imaging capital expenditures.
TWENTY-SIX WEEKS ENDED JUNE 27, 2000 COMPARED TO TWENTY-SIX WEEKS ENDED JUNE
29, 1999:
Sales for the first twenty-six weeks of 2000 were $96.0 million, an
increase of $2.8 million from the period of 1999. Operating income for the
first twenty-six weeks of 2000 was $6.0 million compared to $3.0 million in
the comparable period in the prior year. The operating results of the first
twenty-six weeks 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. Net income for the first twenty-six weeks of 2000 was $5.8
million compared to $2.8 million in the same period of 1999.
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SALES. Restaurant sales in comparable units increased $2.1 million,
or 2.3% in the first twenty-six weeks of 2000 over the same period of 1999,
reflecting the effects of our re-imaging program. Year to date sales for the
new units opened since second quarter 1999 was $1.5 million, an increase of
$444 thousand over the aggregate sales of the units that were closed after
second quarter 1999. Sales by Dynamic Foods to third parties were $240
thousand higher in the first twenty-six weeks of 2000 than that of the
comparable period of 1999.
COST OF SALES. Excluding depreciation, cost of sales were 29.4% of
sales for the first twenty-six weeks of 2000 as compared to 29.6% for the
same period 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 lower in the aggregate by $778 thousand
in the first twenty-six weeks of 2000 as compared to 1999. The twenty-six
weeks of 2000 included an increased gain of $189 thousand from the sale of
assets over the same period of 1999. The change in SG&A expense included an
increase of $134 thousand in rent expense, $239 thousand in supplies expense,
$139 thousand in repairs and maintenance expense and $379 thousand in labor
and related benefits. We had decreases of $450 thousand in marketing expense,
$325 thousand in other store expenses and $573 thousand in professional
services.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
was higher by $442 thousand in the first twenty-six weeks of 2000 due to
depreciation of prior year's re-imaging capital expenditures.
LIQUIDITY AND CAPITAL RESOURCES
During the twenty-six weeks ended June 27, 2000, cash provided by
operating activities was $7.4 million compared to $6.5 million in the same
period of 1999. We made capital expenditures of $8.2 million during the first
twenty-six weeks of 2000 compared to $8.1 million during the same period of
1999. Capital expenditures for the remainder of fiscal year 2000 are expected
to be $4.4 million. Expenditures for reimaging and new units were front
loaded in the current year to maximize the impact on net income that these
expenditures would generate. Cash and temporary investments were $2.3 million
at June 27, 2000 compared to $9.4 million at June 29, 1999 and $5.2 million
at December 28, 1999. Our current ratio was .48:1 at June 27, 2000 compared
to .65:1 at June 29, 1999 and .47:1 at December 28, 1999. Total assets at
June 27, 2000 aggregated $81.4 million, compared to $81.5 million at June 29,
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
12
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control the ultimate cost paid and any commodity price aberrations are
generally short term in nature.
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 judgement 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.
This litigation was settled by agreement with Mr. Papit in June 2000 on terms
that we believe were favorable to 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.
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: August 9, 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
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