UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO.1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 1-10725
Furr's/Bishop's, Incorporated
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2350724
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6901 QUAKER AVE., LUBBOCK, TX 79413
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (806) 792-7151
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value New York Stock Exchange
$.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 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
filing requirements for the past 90 days.
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[X]
The aggregate market value of the Voting Stock held by non-affiliates of
the Registrant, based upon the closing price of the registrant's Common Stock
on March 11, 1997 was $73,007,906.
The number of shares outstanding of each of the registrant's classes of
stock as of the latest practicable date are as follows:
Shares Outstanding
Class as of March 11, 1997
Common Stock, par value $.01 per share 48,671,937
DOCUMENTS INCORPORATED BY REFERENCE
NONE<PAGE>
<PAGE>
Item 8 is amended to revise the date reported on page F-2 and reads as follows:
The Company's fiscal year is a 52-53 week year. The 1996 and 1995 fiscal years
include 52 weeks and fiscal 1994 includes 53 weeks.
Index to Consolidated Financial Statements and Financial Schedule
Page
No.
Independent Auditors' Reports F-1
Consolidated Balance Sheets--
December 31, 1996 and January 2, 1996 F-3
Consolidated Statements of Operations --
Years ended December 31, 1996, January 2, 1996
and January 3, 1995 F-5
Consolidated Statements of Stockholders' Deficit --
Years ended December 31, 1996, January 2, 1996
and January 3, 1995 F-6
Consolidated Statements of Cash Flows --
Years ended December 31, 1996, January 2, 1996
and January 3, 1995 F-7
Notes to Consolidated Financial Statements --
Years ended December 31, 1996, January 2, 1996
and January 3, 1995 F-9
Financial Statement Schedule --
The Financial Statement Schedule filed as a part of this
report is listed in "Index to Financial Statement Schedules"
at Item 14 S-1
2
<PAGE>
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Comprising Item 8 of the Annual Report
on Form 10-K to the
SECURITIES AND EXCHANGE COMMISSION
FURR'S/BISHOP'S, INCORPORATED
Fiscal Years Ended December 31, 1996,
January 2, 1996
and January 3, 1995
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Furr's/Bishop's, Incorporated
Lubbock, Texas
We have audited the accompanying consolidated balance sheet of Furr's/Bishop's,
Incorporated and subsidiaries (the Company) as of December 31, 1996, and the
related consolidated statements of operations, stockholders' deficit and cash
flows for the 52-week year then ended. In connection with our audits of the
consolidated financial statements, we have also audited the financial statement
schedule as listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the December 31, 1996 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Furr's/Bishop's, Incorporated and subsidiaries as of December 31,
1996 and the results of their operations and their cash flows for the 52-week
year then ended, in conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
As discussed in Notes 1 and 12 to the consolidated financial statements,
effective January 2, 1996, the Company changed its method of accounting for
impairment of long-lived assets and for long-lived assets to be disposed of to
conform to Statement of Financial Accounting Standards No. 121.
KPMG Peat Marwick LLP
February 7, 1997
Dallas, Texas
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Furr's/Bishop's, Incorporated
Lubbock, Texas
We have audited the accompanying consolidated balance sheet of Furr's/Bishop's,
Incorporated and subsidiaries (the Company) as of January 2, 1996 and the
related consolidated statements of operations, stockholders' deficit and cash
flows for the 52-week year ended January 2, 1996 and the 53-week year ended
January 3, 1995. Our audits also included the financial statement schedule for
the 52-week year ended January 2, 1996 and the 53-week year ended January 3,
1995 listed in the Index at Item 14 (a)(2). These financial statements and the
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Furr's/Bishop's, Incorporated and
subsidiaries, as of January 2, 1996 and the results of their operations and
their cash flows for the 52-week year ended January 2, 1996 and the 53-week
year ended January 3, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule for the
52-week year ended January 2, 1996 and the 53-week year ended January 3, 1995,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
As discussed in Notes 1 and 12 to the consolidated financial statements
effective January 2, 1996, the Company changed its method of accounting for
impairment of long-lived assets and for long-lived assets to be disposed of to
conform to Statement of Financial Accounting Standards No. 121.
DELOITTE & TOUCHE LLP
March 28, 1996
Dallas, Texas
F-2
<PAGE>
<TABLE>
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
- ----------------------------------------------
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND JANUARY 2, 1996
(Dollars in Thousands, Except Per Share Amounts)
- -------------------------------------------------------------------------------
<CAPTION>
December 31, January 2,
1996 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ($800
restricted at January 2, 1996) $ 3,696 $ 986
Accounts and notes receivable (net
of allowance for doubtful accounts
of $19 and $27, respectively) 1,186 746
Inventories 5,722 5,831
Prepaid expenses and other 380 1,355
------------ ------------
Total current assets 10,984 8,918
PROPERTY, PLANT AND EQUIPMENT:
Land 9,119 10,424
Buildings 39,619 40,623
Leasehold improvements 21,247 21,139
Equipment 48,195 45,762
Construction in progress 1,340 442
------------ ------------
119,520 118,390
Less accumulated depreciation and
amortization and reserve for
impairment (55,714) (52,263)
------------ ------------
Total property, plant and equipment 63,806 66,127
OTHER ASSETS 469 2,993
------------ ------------
TOTAL ASSETS $ 75,259 $ 78,038
============ ============
(Continued)
</TABLE>
F-3
<PAGE>
<TABLE>
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
- ----------------------------------------------
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND JANUARY 2, 1996
(Dollars in Thousands, Except Per Share Amounts)
- -------------------------------------------------------------------------------
<CAPTION> December 31, January 2,
1996 1996
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,493 $ 3,841
Trade accounts payable 5,498 5,074
Other payables and accrued expenses 14,882 18,279
Reserve for store closings - current portion 1,078 2,396
------------ ------------
Total current liabilities 26,951 29,590
RESERVE FOR STORE CLOSINGS, NET OF CURRENT PORTION 2,470 3,443
LONG-TERM DEBT, NET OF CURRENT PORTION 69,147 77,110
OTHER PAYABLES 8,265 9,639
EXCESS OF FUTURE LEASE PAYMENTS OVER
FAIR VALUE, NET OF AMORTIZATION 3,482 4,130
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred Stock, $.01 par value;
5,000,000 shares authorized,
none issued
Common Stock, $.01 par value;
65,000,000 shares authorized,
48,671,188 and 48,648,955
issued and outstanding
in 1996 and 1995 487 486
Additional paid-in capital 55,866 55,841
Pension liability adjustment (2,854) (5,283)
Accumulated deficit (88,555) (96,918)
------------ ------------
Total stockholders' deficit (35,056) (45,874)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 75,259 $ 78,038
============ ============
See notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
- ----------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
- -------------------------------------------------------------------------------
<CAPTION> Fifty-Two Fifty-Two Fifty-Three
Weeks Ended Weeks Ended Weeks Ended
December 31, January 2, January 3,
1996 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Sales $ 197,427 $ 210,093 $ 225,186
Costs and Expenses:
Cost of sales (excluding
depreciation) 61,671 67,763 70,188
Selling, general and
administrative 118,120 127,329 137,910
Depreciation and amortization 10,168 14,002 11,320
Special charges (credits) (1,138) 12,273 2,214
------------ ------------ -------------
188,821 221,367 221,632
------------ ------------ -------------
Operating income (loss) 8,606 (11,274) 3,554
Interest expense 243 27,589 24,896
Income (loss) before extraordinary
item 8,363 (38,863) (21,342)
Extraordinary item - net gain
on financial restructuring 170,239
------------ ------------ ------------
Net income (loss) $ 8,363 $ 131,376 $ (21,342)
============ ============ ============
Income (loss) per common share:
Primary:
Net income (loss) per share
of common stock before
extraordinary item $ 0.17 $ (0.80) $ (0.44)
Extraordinary item per share
of common stock 3.50
------------ ------------ ------------
Net income (loss) per share
of common stock $ 0.17 $ 2.70 $ (0.44)
============ ============ ============
Fully diluted:
Net income (loss) per share
of common stock before
extraordinary item $ 0.17 $ (0.76) N/A
Extraordinary item per share
of common stock 3.32 N/A
------------ ------------ ------------
Net income per share of common
stock $ 0.17 $ 2.56 N/A
============ ============ ============
See notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
- ----------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FISCAL YEARS ENDED JANUARY 3, 1995, JANUARY 2, 1996 AND DECEMBER 31, 1996
(Dollars in Thousands)
- -------------------------------------------------------------------------------
<CAPTION> Convertible Additional Pension
Preferred Common Paid-In Liability Accumulated
Stock Stock Capital Adjustment Deficit Total
--------- ------ --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 28, 1993 $ 64 $ 94 $ 38,090 $ (7,656) $(206,952) $ (176,360)
Net loss (21,342) (21,342)
Pension liability
adjustment 4,365 4,365
--------- ------ --------- --------- --------- ----------
BALANCE,
JANUARY 3, 1995 64 94 38,090 (3,291) (228,294) (193,337)
Exchange of new
common stock for
outstanding
equity (64) (82) 8,227 8,081
Exercise of put
option to
acquire 95% of
Common Stock 462 9,280 9,742
Exercise of option
to acquire 2.5%
of Common Stock 12 244 256
Net income 131,376 131,376
Pension liability
adjustment (1,992) (1,992)
--------- ------ --------- --------- --------- ----------
BALANCE,
JANUARY 2, 1996 0 486 55,841 (5,283) (96,918) (45,874)
Warrants
exercised 1 25 26
Net income 8,363 8,363
Pension liability
adjustment 2,429 2,429
--------- ------ --------- --------- --------- ----------
BALANCE,
DECEMBER 31, 1996 $ 0 $ 487 $ 55,866 $ (2,854) $ (88,555) $ (35,056)
========= ====== ========= ========= ========= ==========
See notes to consolidated financial statements.
</TABLE> F-6
<PAGE>
<TABLE>
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
- ----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
- -------------------------------------------------------------------------------
<CAPTION> Fifty-Two Fifty-Two Fifty-Three
Weeks Ended Weeks Ended Weeks Ended
December 31, January 2, January 3,
1996 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 8,363 $ 131,376 $ (21,342)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 10,168 14,002 11,320
(Gain) loss on sale of
property, plant and equipment
and other assets 373 203 (25)
Provision for (reversal of)
closed store reserves 226 (339) (528)
Special charges (credits) (699) 12,273 2,214
Deferred charges 808 499 853
Net gain on financial restructuring (170,239)
Changes in operating assets
and liabilities:
Decrease in restricted cash 800
(Increase) decrease in
accounts and notes receivable (440) 155 961
Decrease in inventories 109 647 1,512
(Increase) decrease in
prepaid expenses and other 975 (3,501) (3,157)
Increase (decrease) in trade
accounts payable 424 (1,138) (4,690)
Increase (decrease) in other
payables and accrued expenses (3,359) 26,163 20,008
Decrease in other payables,
including accrued pension cost (123) (547) (826)
Other (56)
----------- ----------- -----------
Net cash provided by
operating activities 17,625 9,498 6,300
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment (10,133) (8,019) (5,695)
Expenditures charged to reserve for
store closings (2,517) (1,795) (2,353)
Proceeds from the sale of property,
plant and equipment and other assets 3,378 41 1,026
Other, net 61 (2) (33)
----------- ----------- -----------
Net cash used in investing
activities (9,211) (9,775) (7,055)
(Continued)
</TABLE>
F-7
<PAGE>
<TABLE>
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
- ----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
- -------------------------------------------------------------------------------
<CAPTION> Fifty-Two Fifty-Two Fifty-Three
Weeks Ended Weeks Ended Weeks Ended
December 31, January 2, January 3,
1996 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of indebtedness $ (5,170) $ (150) $ (413)
Other, net 266 (79) (261)
----------- ----------- -----------
Net cash used in financing
activities (4,904) (229) (674)
----------- ----------- -----------
INCREASE (DECREASE) IN UNRESTRICTED
CASH AND CASH EQUIVALENTS 3,510 (506) (1,429)
UNRESTRICTED CASH AND CASH
EQUIVALENTS AT BEGINNING OF YEAR 186 692 2,121
----------- ----------- -----------
UNRESTRICTED CASH AND CASH
EQUIVALENTS AT END OF YEAR $ 3,696 $ 186 $ 692
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest paid, including $3,753 of
interest classified as payment of
indebtedness during the fiscal
year ended December 31, 1996 $ 3,774 $ 48 $ 286
=========== =========== ===========
Income tax paid $ 60 $ $
=========== =========== ===========
Stock warrants issued $ $ 81 $
=========== =========== ===========
Pension liability adjustment $ (2,429) $ 1,992 $ (4,365)
=========== =========== ===========
GEPT judgment settlement $ $ (5,408) $
=========== =========== ===========
See notes to consolidated financial statements.
</TABLE> F-8
<PAGE>
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
- ----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, JANUARY 2, 1996 AND JANUARY 3, 1995
(Dollars in Thousands, Except Per Share Amounts)
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - Furr's/Bishop's, Incorporated (the "Company"), a
Delaware corporation, operates cafeterias and specialty restaurants through its
subsidiary Cafeteria Operators, L.P., a Delaware limited partnership (together
with its subsidiaries, the "Partnership"). The financial statements presented
herein are the consolidated financial statements of Furr's/Bishop's,
Incorporated and its majority owned subsidiaries. All material intercompany
transactions and account balances have been eliminated in consolidation.
The financial statements reflect the results of a series of transactions
relating to the financial restructuring of the Company at January 2, 1996, as
described in Note 2.
Fiscal Year - The Company operates on a 52-53 week fiscal year ending on the
Tuesday nearest December 31. The fiscal years ended December 31, 1996 and
January 2, 1996 each represent a 52-week year and the fiscal year ended January
3, 1995 represents a 53-week year.
Business Segments - The Company operates in a single business segment, namely
the operation of cafeterias and restaurants which includes retailing, food
processing, warehousing and distribution of food products, and real estate in
twelve states in the Southwest, West and Midwest areas of the United States.
Cash and Cash Equivalents - The Company has a cash management program which
provides for the investment of excess cash balances in short-term investments.
These investments have original or remaining maturities of three months or less
at date of acquisition, are highly liquid and are considered to be cash
equivalents for purposes of the consolidated balance sheets and consolidated
statements of cash flows.
Inventories - Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Prepaid Expenses and Other - Direct costs comprising legal and consulting fees
of $2,144 relating to the restructuring discussed in Note 2 were capitalized at
January 3, 1995 and as of January 2, 1996 were charged off as a part of the
extraordinary item. As of December 31, 1996 and January 2, 1996, this account
balance included prepaid rent of $3 and $748, respectively, along with other
assets recorded in the ordinary course of business.
Property, Plant and Equipment - Property, plant and equipment is generally
recorded at cost, while certain assets considered to be impaired are recorded
at the estimated fair value. All property, plant and equipment is depreciated
at annual rates based upon the estimated useful lives of the assets using the
straight-line method. Restaurant equipment is generally depreciated over a
period of 1 to 5 years, while the useful life of manufacturing equipment is
considered to be 5 to 10 years. Buildings are depreciated over a 30 year
useful life, while improvements to owned buildings have estimated useful lives
of 3 to 5 years.
F-9
<PAGE>
Provisions for amortization of leasehold improvements are made at annual rates
based upon the estimated useful lives of the assets or terms of the leases,
whichever is shorter.
Valuation of Long-Lived Assets - Effective January 2, 1996, the Company adopted
the provisions of 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") and recorded a special charge of $7,772 for the
year ended January 2, 1996 to recognize the write-down of certain assets in
property, plant and equipment to estimated fair value, based on expected future
cash flows. SFAS 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
Other Assets - As of January 2, 1996, a subsidiary of the Company owned a
parcel of land held for sale, which was sold during the year ended December 31,
1996.
Start-Up and Closing Costs of Restaurants - Start-up and preopening costs
incurred in connection with a new restaurant becoming operational are expensed
as incurred.
When the decision to close a restaurant is made, the present value of all fixed
and determinable costs to be incurred after operations cease is accrued. These
fixed and determinable costs consist primarily of obligations defined in lease
agreements such as rent and common area maintenance, reduced by sublease
income, if any. If a decision is made to keep or reopen such restaurants, the
remaining costs are reversed.
Advertising Costs - Advertising costs are expensed as incurred. Total
advertising expense was $2,085, $4,455 and $8,970 for the years ended December
31, 1996, January 2, 1996 and January 3, 1995.
Stock-Based Compensation - Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") is effective for fiscal
years beginning after December 15, 1995 and requires companies to adopt a
method of accounting for valuing compensation attributable to stock options.
As allowed under the provisions of SFAS 123, the Company has elected to
continue accounting for such compensation as provided by Accounting Principles
Board Opinion No. 25.
Unfavorable Leases - For leases acquired through purchase, the net excess of
future lease payments over the fair value of these payments is being amortized
over the lives of the leases to which the differences relate.
Income Taxes - The company recognizes income taxes under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
F-10
<PAGE>
Income Per Share - Income per share is based on the weighted average number of
common and dilutive common equivalent shares. The weighted average number of
common shares outstanding, as adjusted for the reverse stock split described in
Note 2, was 48,664,660, 48,648,955 and 48,648,955 for the years ended December
31, 1996, January 2, 1996 and January 3, 1995, respectively. The fully diluted
weighted average number of common shares outstanding for the same years was
49,449,774, 51,350,817 and 51,350,817, respectively.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of certain assets, liabilities,
revenues and expenses as of and for the reporting periods and actual results
may differ from such estimates.
Reclassification - Certain amounts in the prior year financial statements have
been reclassified to conform with current year classification.
2. RESTRUCTURING
On January 25, 1995, the Company announced that it had entered into an
Agreement in Principle dated as of January 24, 1995 (the "Agreement in
Principle") among the Company, its subsidiaries, the holders of the 11% Notes
of the Partnership (the "11% Noteholders"), the holder of the 9% Note of
Cavalcade Foods (both as defined in Note 4), the Trustees of General Electric
Pension Trust ("GEPT"), and Kmart Corporation ("Kmart").
The Agreement in Principle provided for (i) the exchange of an aggregate of
approximately $249,344 of debt of the Partnership for the issuance of $40,000
principal amount of new senior secured notes of the Partnership due 2001
pursuant to a new indenture and 95% of the limited partner interest of the
Partnership, (ii) the exchange of warrants to purchase an aggregate of
approximately 21.5% of the Company's common stock for options to acquire an
aggregate of 95% of a new class of common stock of the Company ("Common Stock")
and new five year warrants to purchase an aggregate of 1% of the fully diluted
Common Stock, (iii) the exchange of $6,117 of other obligations of the
Partnership for the issuance of $1,700 principal amount of new senior secured
notes of the Partnership due 2001 pursuant to a new indenture, (iv) the
exchange of $11,737 of debt of Cavalcade Foods, Inc., an indirect subsidiary of
the Company ("Foods"), for options to acquire 2.5% of the Common Stock and an
interest in certain land owned by a subsidiary of the Company and (v) the
exchange of the Company's outstanding shares of Class A Common, Class B Common
and Convertible Preferred Stock for an aggregate of 2.5% of the Common Stock
and five year warrants to purchase an aggregate of 4% of the fully diluted
Common Stock (together, the "Restructuring").
On March 2, 1995, the Company announced that the Independent Committee of the
Board and the full Board of Directors had unanimously determined to recommend
the following allocation of the aggregate consideration offered to existing
equity holders in the Agreement in Principle: Holders of Convertible Preferred
Stock would receive 1.15 shares of Common Stock (representing a 39% premium to
the conversion ratio for the Convertible Preferred Stock) and 2.04 warrants to
purchase Common Stock for each share of Convertible Preferred Stock held by
them; holders of Class A Common Stock would receive 1.00 share of Common Stock
and 1.78 warrants to purchase Common Stock for each share of Class A Common
Stock held by them; and holders of Class B Common Stock would receive 0.95
shares of Common Stock (representing a 5% discount to the conversion ratio for
the Class B Common Stock) and 1.69 warrants to purchase Common Stock for each
F-11
<PAGE>
share of Class B Common Stock held by them. All dividend arrearages on the
Convertible Preferred Stock and the self tender offer obligation (as described
in Note 5) would be eliminated in the proposed restructuring. The Board
members also informed the Company that they intended to vote their shares in
favor of the proposed restructuring. The proposed restructuring was subject
to, among other things, the approvals of the Company's Board of Directors,
shareholders and creditors and the negotiation and execution of definitive
documentation.
The Restructuring became effective upon approval of the stockholders at a
meeting held January 2, 1996.
The Restructuring has been accounted for in accordance with Statement of
Financial Accounting Standards No. 15 "Accounting by Debtors and Creditors for
Troubled Debt Restructurings" ("SFAS 15"), under which the transactions include
both a partial settlement and modification of terms. The fair value of the
Common Stock and warrants issued in connection with the Restructuring was
estimated based upon discounted cash flows anticipated from the reorganized
business and was recorded as partial settlement of the indebtedness. The
remaining indebtedness was recorded at the sum of all future principal and
interest payments and, accordingly, interest expense is no longer recognized on
the restructured debt. The amounts of indebtedness subject to modification in
excess of the amount recorded in accordance with SFAS 15 was recorded as an
extraordinary gain, net of all expenses associated with the Restructuring.
The amount of par value that was previously recorded for the Class A Common
Stock, Class B Common Stock and Convertible Preferred Stock was reclassified to
additional paid-in capital and the Common Stock issued upon conversion of such
shares was recorded at their aggregate par value. The Company's obligation to
make the $8.0 million self tender offer (as described in Note 5) was eliminated
and this amount was reclassified to additional paid-in capital.
As of the consummation of the Restructuring, the Company owned less than 50% of
the limited partnership interests of the Partnership at January 2, 1996, and as
a result, the Partnership would no longer be included in the Company's
consolidated financial statements. However, subsequent to year end, the
holders of the limited partnership interests exercised their put option and, on
March 28, 1996, exchanged their limited partnership interests for Common Stock
of the Company. On March 22, 1996, the Company effected a 15-to-1 reverse
stock split. As a result of the materiality of this series of financial
restructuring transactions, the Partnership is included in the consolidated
financial statements for all years presented.
F-12
<PAGE>
The Company recognized a net extraordinary gain of $170,239 in the year ended
January 2, 1996, as a result of the above described financial restructuring
transactions. The extraordinary item is made up of the following:
<TABLE>
<CAPTION>
<S> <C>
Long-term debt reclassified as current $ 202,453
Accrued interest subject to restructuring 62,409
Mandatorily Redeemable Common Stock 8,000
Other liabilities subject to restructuring 5,408
Accrued interest on liability subject to restructuring 710
Minority interest in subsidiary 563
Deferred warrant costs 81
Par value of common and preferred stock canceled 158
Par value of common stock issued (486)
Long-term debt, issued for payment of interest (3,781)
Expenses related to series of financial transactions (10,415)
Additional Paid-in Capital (17,751)
Long-term debt, including accrued interest (77,110)
-----------
$ 170,239
</TABLE> ===========
3. OTHER PAYABLES AND ACCRUED EXPENSES
Included in other payables and accrued expenses are the following:
<TABLE>
<CAPTION> December 31, January 2,
1996 1996
----------- ------------
<S> <C> <C>
Salaries, wages and commissions $ 4,092 $ 3,441
Rent 1,031 1,072
Taxes other than income taxes 3,632 3,983
Restructuring expenses 1,783 4,795
Insurance 2,003 2,152
Gift certificates outstanding 926 1,045
Utilities 701 728
Other payables and accrued expenses 714 1,063
----------- -----------
$ 14,882 $ 18,279
</TABLE> =========== ===========
4. LONG-TERM DEBT
Effective January 2, 1996, as part of the series of financial restructuring
transactions described in Note 2, the Partnership issued $41,700 of 12% Senior
Secured Notes, due December 31, 2001 (the "12% Notes"), to replace $40,000 of
11% Senior Secured Notes, due June 30, 1998 (the "11% Notes") and the interest
accrued thereon and to terminate a $5,408 judgment and the interest accrued
thereon. In January 1996, the Partnership also issued $4,073 of 12% Notes as
payment in kind for all interest accrued as of January 23, 1996. All of the
assets of the Partnership are pledged as collateral security on behalf of the
holders of the 12% Notes. The Partnership also issued limited partner
interests equal to 95% of the outstanding partnership interests in exchange for
F-13
<PAGE>
and in full satisfaction of the remaining $152,854 of 11% Notes, together with
all interest accrued thereon.
Payments of interest on the 12% Notes are due each March 31 and September 30.
However, for financial accounting reporting purposes, no interest expense will
be recorded under SFAS 15, as all of the interest through maturity has been
recorded as a liability.
Effective January 2, 1996, as part of the Restructuring, Foods issued a 10%
Non- recourse Note in the amount of $2,000, due December 31, 2001 (the
"Non-recourse Note"), a $6,100 note payable (the "Option Note") and a $1,500
note payable (the "Remaining Note") to Wells Fargo Bank in exchange for and in
full satisfaction of the $9,599 outstanding under the 9% Note, due June 30,
1998 (the "9% Note") together with all interest accrued thereon. Certain land
pledged as collateral on the Non-recourse Note was sold during 1996 and the
proceeds were used to retire the Non-recourse Note. An option to purchase 2.5%
of the Common Stock of the Company was pledged as collateral on the Option
Note. Wells Fargo foreclosed on the Option Note and exercised its option to
purchase 2.5% of the Common Stock of the Company by transferring the Remaining
Note to the Company as payment.
The Company had other mortgages outstanding on certain real estate properties
totaling $57 that were paid in full in 1996.
Long-term debt consists of the following:
<TABLE>
<CAPTION> Stated
Maturity December 31, January 2,
Date 1996 1996
-------- ----------- -----------
<S> <C> <C> <C>
12% Notes, including $28,867
interest accrued through maturity 2001 $ 74,640 $ 78,394
Non-recourse Note, including $500
interest accrued 2001 2,500
Real Estate Mortgages 1996 57
----------- -----------
74,640 80,951
Current maturities of long-term debt (5,493) (57)
Interest classified as current
maturities of long-term debt (3,784)
----------- -----------
Long-term debt $ 69,147 $ 77,110
=========== ===========
</TABLE>
At December 31, 1996, the scheduled aggregate amount of all maturities of
long-term debt and interest classified as long-term debt for the next five
years and thereafter is as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 5,493
1998 5,493
1999 5,493
2000 5,493
2001 52,668
--------
$ 74,640
</TABLE> ========
F-14
<PAGE>
5. STOCKHOLDERS' EQUITY
Convertible Preferred Stock - The Convertible Preferred Stock was entitled to
cumulative cash dividends, payable quarterly, subject to the declaration by the
Board of Directors, of $1.17 per share annually. This stock ranked junior in
right of payment to all indebtedness of the Company and its subsidiaries but
ranked senior to common stock with respect to dividend rights and rights on
liquidation, winding up and dissolution. The Convertible Preferred Stock was
convertible into Class A Common Stock at the rate of .827 shares of Class A
Common Stock per each Convertible Preferred Stock share converted, subject to
certain conditions. The Convertible Preferred Stock was redeemable by the
Company at any time or from time to time in whole or in part at the Company's
option at $9.00 per share together with all accrued and unpaid dividends to the
date fixed for redemption. The Company's ability to purchase its equity or pay
dividends was subject to restrictions of its Amended and Restated Certificate
of Incorporation and General Corporation Law of the State of Delaware. Holders
of the Convertible Preferred Stock had no voting rights unless six full
quarterly dividends were in arrears in whole or in part, at which time the
holders of the Convertible Preferred Stock, voting as a class, were entitled to
elect two directors to an expanded Board of Directors. At January 2, 1996, the
Company was seventeen full quarterly dividends in arrears and all such
arrearages were canceled as a part of a series of financial restructuring
transactions. The Restructuring approved by stockholders on January 2, 1996
resulted in converting each outstanding share of Convertible Preferred Stock
into 1.15 shares of Common Stock and 2.04 warrants, as described in Note 2.
Common Stock - Pursuant to the terms of its Amended and Restated Certificate of
Incorporation, the Company was to have commenced a tender offer for at least
2,000,000 shares of Class A Common Stock of the Company at a price of $4.00 per
share, net to the seller in cash (the "Self Tender Offer"). The Company's
Amended and Restated Certificate of Incorporation prohibited the Company from
purchasing any of its shares of Class A Common Stock pursuant to the Self
Tender Offer, or otherwise, while arrearages existed on the payment of
dividends on its Series A Convertible Preferred Stock. Accordingly, the
Company determined not to commence a Self Tender Offer. The Self Tender Offer
remained an obligation of the Company, subject to the restrictions of its
Amended and Restated Certificate of Incorporation, until the Restructuring was
approved.
Prior to the Restructuring, the common stock was not convertible, except that
the Class B Common Stock would be automatically converted, on a share-for-share
basis, into shares of Class A Common Stock on the sixth business day following
the expiration date of the Self Tender Offer without any action on the part of
the holders of shares of Class B Common Stock. The Company did not have an
obligation to purchase any Class B Common Stock, pursuant to the Self Tender
Offer.
The Restructuring approved by stockholders on January 2, 1996 resulted in
converting each outstanding share of Class A Common Stock into one share of
Common Stock and 1.78 warrants and converting each outstanding share of Class B
Common Stock into 0.95 shares of Common Stock and 1.69 warrants, as described
in Note 2.
Common Stock Options and Warrants - In 1992, the 11% Noteholders received
warrants to purchase an aggregate of 1,400,000 shares of Class B Common Stock
at $.75 per share. The fair value of these warrants at the date of grant was
F-15
<PAGE>
estimated to approximate their exercise price. These warrants were terminated
in connection with the Restructuring effective January 2, 1996.
On November 15, 1993, in connection with the amendment to the master sublease
agreement discussed in Note 8, Kmart received warrants to purchase 1,700,000
shares of Class A Common Stock at $.75 per share. These warrants were
terminated in connection with the Restructuring effective January 2, 1996.
Kmart received new warrants to purchase 8,108,159 shares of Common Stock at
$0.074 per share as described in Note 2, and following the reverse stock split,
Kmart retained warrants to purchase 540,544 shares at $1.11 per share.
The 1995 Stock Option Plan - The Board of Directors adopted, and on January 2,
1996, the stockholders approved, the 1995 Stock Option Plan authorizing an
aggregate of 40,540,795 shares of Common Stock (the "1995 Option Plan"). The
number of shares reserved under the 1995 Option Plan, subject to equitable
adjustment for the reverse stock split approved by stockholders on March 14,
1996, is 2,702,720. A Committee of the Board of Directors administers the 1995
Option Plan, including determining the employees to whom awards will be made,
the size of such awards and the specific terms and conditions applicable to
awards, such as vesting periods, circumstances of forfeiture and the form and
timing of payment. Grants including stock options, stock appreciation rights
and restricted stock may be made to selected employees of the Company and its
subsidiaries and non-employee directors of the Company. On November 22, 1996,
options to purchase 6,666 shares of Common Stock were issued to each of the
five non-employee directors of the Company pursuant to the provisions of the
1995 Option Plan. The difference between the fair value of the options and the
exercise price is not significant and, accordingly, pro forma presentation of
operating results required by SFAS 123 has not been presented.
6. INCOME TAXES
Following is a reconciliation of the expected tax expense (benefit) at the
statutory tax rate of 35% to the actual tax expense (benefit) for the fiscal
years ended December 31, 1996, January 2, 1996 and January 3, 1995:
<TABLE>
<CAPTION> December 31, January 2, January 3,
1996 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Expected tax (benefit) at the
statutory tax rate $ 2,927 $ 45,982 $ (7,470)
Net income allocable to
nonaffiliated partners (401)
Tax credit (6) (488)
Interest expense recorded as
debt reduction per SFAS 15 (1,794)
Pension expense (748)
Restructuring credit (59,584)
Other 28 8 35
Correction of prior year's
estimated taxes 5,084
Increase (decrease) in deferred
tax asset valuation allowance (5,838) 13,594 8,671
---------- ---------- -----------
Actual tax (benefit) $ - $ - $ -
</TABLE>
F-16
<PAGE>
Following is a summary of the types and amounts of existing temporary
differences and net operating loss carryforwards at the statutory tax rate of
35% and tax credits:
<TABLE>
<CAPTION> December 31, 1996 January 2, 1996
Deferred Tax Deferred Tax
----------------- ----------------
Assets Liabilities Assets Liabilities
<S> <C> <C> <C> <C>
Net operating loss carryforward $ 34,896 $ 37,415
Tax credits carryforward 1,405 1,355
Reserve for store closing
for financial statement purposes
and not for tax purposes 1,241 2,191
Excess of future lease payments
over fair values, net of
amortization 1,002 1,247
Property, plant and equipment, net 11,135 11,729
Other temporary differences (126) 230 1,195 (29)
-------- ------- --------- --------
Deferred tax assets and liabilities 49,553 230 55,132 (29)
======= ========
Less: Deferred tax liabilities (230) 29
Valuation allowance (49,323) (55,161)
--------- ---------
Deferred tax asset, net $ - $ -
========= =========
</TABLE>
As of December 31, 1996, the Company has consolidated net operating loss
carryforwards of $99,703 for income tax reporting purposes that expire from
2000 through 2009. For financial reporting purposes, the income tax benefit
associated with the loss carryforwards has not been recognized since, in the
opinion of management, the full benefit of these deferred tax assets will
likely not be realized. Approximately $3,700 and $8,600 of the operating loss
carryforwards for income tax reporting purposes, which are subject to limited
use, relate to the subsidiary operations of Cavalcade Holdings, Inc. and its
subsidiary, Cavalcade Foods, Inc., respectively, for periods prior to their
inclusion in this Company- affiliated group. On March 28, 1996, the holders of
the limited partnership interests exchanged their limited partnership interests
for Common Stock of the Company resulting in a change of ownership for purposes
of computing the annual net operating loss limitation. Net operating losses of
$45,000 incurred during the period June 25, 1993 to March 28, 1996 will be
limited to approximately $4,900 annually. Additionally, as a result of the
change of control transaction on June 24, 1993, the utilization of the Company
consolidated net operating loss and general business credit carryforwards
incurred during the period March 28, 1991 through June 24, 1993 will be limited
to approximately $1,200 annually.
As of December 31, 1996, the Company has general business credit carryforwards
of approximately $1,405 which have expiration dates through 2010.
Approximately $74 of the general business credit carryforwards relate to
Cavalcade Foods for periods prior to its inclusion in the Company-affiliated
group. These credits are subject to limited use.
F-17
<PAGE>
Current tax laws and regulations relating to specified changes in ownership
limit the availability of the Company's utilization of Cavalcade Holdings' and
Cavalcade Foods' net operating loss and tax credit carryforwards (collectively,
tax attributes). A change in ownership of greater than 50% of a corporation
within a three-year period causes such annual limitations to be placed in
effect. Such a change in ownership is deemed to have occurred on June 24,
1993, when KL Group acquired 1,119,151 Class B Common shares and an option to
purchase nearly all of the remaining Class B Common shares of the Company.
This ownership change limits the utilization of the Company-affiliated group
tax attributes incurred through June 24, 1993. Additionally, a second change
of ownership is deemed to have occurred on March 28, 1996, when the holders of
95% of the limited partner interest of the Partnership exchanged such interest
for 95% of the outstanding Common Stock of the Company. As of December 31,
1996, the Company-affiliated group tax attributes not subject to limitation are
approximately $317.
While the Restructuring transactions were intended to result in no income tax
expense to the Company, the transactions result in a substantial restriction on
the ability of the Company to utilize certain net operating loss carryforwards.
In addition, no assurance can be given that the Internal Revenue Service will
not successfully assert that the Recapitalization results in a substantial
reduction of certain tax attributes (such as the net operating losses and tax
basis of property) of the Company and the other partners of the partnership.
The Internal Revenue Service (the "Service") has examined the federal income
tax returns of certain of the Company's subsidiaries for years prior to 1990.
The Service asserts deficiencies of approximately $2,500, plus interest from
the date such amount is deemed payable. Petitions have been filed to dispute
the claims and the parties are negotiating toward a settlement. The Company
intends to vigorously contest the Service assessment and believes that the
outcome of the litigation will not have a material adverse effect on its
equity, results of operations, and liquidity and capital resources after
consideration of the applicable amounts previously accrued.
7. EMPLOYEE BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan for which
benefit accruals were frozen effective June 30, 1989. The funding policy is to
make the minimum annual contribution required by applicable regulations. The
Partnership, the sponsor of the plan, agreed to provide for funding by the 1998
plan year, of at least two-thirds of the $4,569 of the unfunded current
liability which existed at the beginning of the 1993 plan year. If the agreed
upon funding is not satisfied by the minimum required annual contributions, as
adjusted for the deficit reduction contribution, determined under Section 412
of the Internal Revenue Code, the Company will make contributions in excess of
the minimum annual requirement. Pension expense was $590, $592 and $785 for
the years ended December 31, 1996, January 2, 1996 and January 3, 1995,
respectively.
The Partnership is required to recognize the additional minimum liability
aspects of Statement of Financial Accounting Standards No. 87, "Employers'
Accounting for Pensions" ("SFAS 87"). SFAS 87 requires the recognition of an
additional pension liability in the amount of the Partnership's unfunded
accumulated benefit obligation in excess of accrued pension cost with an equal
amount to be recognized as either an intangible asset or a reduction of equity.
Based upon plan actuarial and asset information as of January 2, 1996 and
F-18
<PAGE>
December 31, 1996, the Company recorded an increase at January 2, 1996 and a
decrease at December 31, 1996 to the noncurrent pension liability and a
corresponding decrease or increase to stockholders' deficit of $1,992 and
$2,429, respectively.
The funded status of the plan amounts recognized in the balance sheets and
major assumptions used to determine these amounts are as follows:
<TABLE>
<CAPTION> Years Ended
December 31, January 2, January 3,
1996 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
Components of pension expense:
Interest cost $ 903 $ 966 $ 972
Actual return on plan assets (864) (1,475) (74)
Net amortization and deferral 551 1,101 (113)
Service cost
---------- ---------- ----------
Net pension expense $ 590 $ 592 $ 785
========== ========== ==========
</TABLE>
<TABLE>
December 31, January 2,
1996 1996
----------- ----------
<S> <C> <C>
Actuarial present value of projected benefit
obligations: Vested $ (11,947) $ (14,211)
Plan assets at fair value (primarily money
market cash investments, corporate
equities, and corporate bonds) 10,803 10,349
----------- ----------
Projected benefit obligation in excess
of plan assets (1,144) (3,862)
Net loss 2,871 5,283
Additional liability for unfunded
accumulated benefit obligation (2,871) (5,283)
----------- ----------
Accrued pension cost $ (1,144) $ (3,862)
=========== =========
Major assumptions at beginning of year:
Discount rate 7.75% 7.00%
Expected long-term rate of return on
plan assets 9.00% 9.00%
</TABLE>
Effective December 31, 1996, for purposes of calculating benefit obligations,
the assumed discount rate increased from 7.00% to 7.75% to reflect the current
financial market for high-quality debt instruments. There have been no other
F-19
<PAGE>
changes in the plan's major actuarial assumptions for the two years ended
December 31, 1996.
The Company also has a voluntary savings plan (the "401 (k) plan") covering all
eligible employees of the Company and its subsidiaries through which it may
contribute discretionary amounts as approved by the Board of Directors.
Administrative expenses paid by the Company for the years ended December 31,
1996, January 2, 1996 and January 3, 1995 amounted to $7, $2 and $24,
respectively.
8. COMMITMENTS AND CONTINGENCIES
The Partnership leases restaurant properties under various noncancelable
operating lease agreements which expire between 1997 and 2015 and require
various minimum annual rentals. Certain leases contain escalation clauses.
Further, many leases have renewal options ranging from one five-year period to
ten five-year periods. Certain of the leases also require the payment of
property taxes, maintenance charges, advertising charges, insurance and parking
lot charges, and additional rentals based on percentages of sales in excess of
specified amounts.
On November 15, 1993, the Partnership entered into an amendment of a master
sublease agreement pursuant to which it leased 43 properties from 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 August 1, 1993 through and including December 31, 1996 was
reduced by 25% 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. On June 7, 1996, the
Company and the Partnership entered into an agreement with Mr. Lewis pursuant
to which Mr. Lewis would resign as Chairman of the Board on December 31, 1996,
unless requested by the Board of Directors to continue until December 31, 1997.
In December 1996, Mr. Lewis was requested to continue as Chairman of the Board
into 1997. As a consequence of this action, the Company anticipates entering
into negotiations with Kmart to modify the amendment to remove the provisions
requiring Mr. Lewis to remain as Chairman of the Board until the end of 1999.
No assurance can be given that Kmart will agree to such modification. In
consideration for these lease term modifications, the Company granted Kmart
warrants to purchase 1.7 million shares of Class A Common Stock of the Company
on or before September 1, 2003, at $0.75 per share. As a part of the
Restructuring, effective January 2, 1996, these warrants were terminated and
replaced with warrants to purchase 8,108,159 shares of Common Stock on or
before January 2, 2001, at $0.074 per share, and following the reverse stock
split, Kmart retained warrants to purchase 540,544 shares at $1.11 per share.
F-20
<PAGE>
The total minimum annual rental commitment and future minimum sublease rental
income under noncancelable operating leases are as follows as of December 31,
1996:
<TABLE>
<CAPTION> Minimum Sublease
Rent Income
------- --------
<S> <C> <C>
1997 $ 9,821 $ 851
1998 8,783 855
1999 8,321 855
2000 9,023 765
2001 8,612 805
For the remaining terms of the leases 42,276 2,528
</TABLE>
Total rental expense included in the statements of operations is $10,916,
$11,929 and $12,375, which includes $1,077, $1,187 and $1,095 of additional
rent based on Net sales for the years ended December 31, 1996, January 2, 1996
and January 3, 1995, respectively. The results of operations include sublease
rent income of $760, $717 and $312 for the years ended December 31, 1996,
January 2, 1996 and January 3, 1995, respectively.
The Company, in the ordinary course of business, is a party to various legal
actions. In the opinion of management, these actions ultimately will be
disposed of in a manner which will not have a material adverse effect upon the
Company's equity, results of operations, and liquidity and capital resources
after consideration of the applicable amounts previously accrued.
On August 11, 1995, a complaint was filed in the District Court of Travis
County, Texas by former Chairman of the Board of the Company, Michael J.
Levenson, both individually and on behalf of his minor son Jonathan Jacob
Levenson, James Rich Levenson, Benjamin Aaron Levenson, S.D. Levenson, General
Consulting Group, Inc. and Cerros Morado. The complaint named as defendants
the Company, the Partnership, Furr's/Bishop's Cafeterias, L.P., Cavalcade &
Co., individual members of the Board of Directors, Houlihan, Lokey, Howard &
Zukin, Inc., KL Park Associates, L.P. ("KL Park"), KL Group, Inc. ("KL Group"),
Skadden, Arps, Slate, Meagher & Flom, certain of the then current and former
11% Noteholders, Deloitte & Touche LLP, Kmart and certain partners and
employees of the foregoing.
The complaint alleged, among other things, that the Company and certain
defendants conspired to wrest control of the Company away from the Levensons by
fraudulently inducing them to transfer their working control of the Company
through a series of transactions in which the Levensons transferred Class B
Common Stock and stock options in the Company to KL Park and KL Group.
Plaintiffs initially sought actual damages of approximately $16,425, as well as
punitive damages. In a Fifth Amended Petition filed on or about February 3,
1997, plaintiffs sought an unspecified amount of actual damages, alleging only
that their actual damages claim is "no more than $400 million." The Company's
management believes the allegations are completely without merit and intends to
defend the action vigorously.
On October 6, 1995, the Levensons filed a Notice of Non-Suit as to certain of
the defendants, including the Company, the Partnership, Furr's/Bishop's
Cafeterias, L.P., Cavalcade & Co. and specific individual members of the Board
of Directors (other than William E. Prather and Kevin E. Lewis) and amended
F-21
<PAGE>
their complaint. As a result of such Notice of Non-Suit, the named entities
and individuals are no longer defendants in the Levenson litigation. In
addition, Deloitte & Touche LLP has settled with the plaintiffs and has been
voluntarily dismissed from the case.
The Company is required to indemnify certain of the defendants originally named
in the Levensons' complaint, including the individual members of the Board of
Directors and certain of their affiliated entities pursuant to the Company's
Certificate of Incorporation and otherwise, for any and all damages that may
result from such complaint. As part of the Restructuring, the Company also
agreed to indemnify certain parties named as defendants in the Levensons'
complaint, including the 11% Noteholders, KL Group, KL Park and Kmart, from and
against all claims, actions, suits and other legal proceedings, damages, costs,
interest, charges, counsel fees and other expenses and penalties which such
entity may sustain or incur to any person whatsoever (excluding judgments in
the case of KL Group and KL Park) by reason of or arising out of the Levenson
litigation. Under no circumstances will the Company be obligated to indemnify
any party for any liability resulting from such party's willful misconduct or
bad faith.
On June 7, 1996, the Company, the Partnership and Kevin E. Lewis entered into
the Consulting and Indemnity Agreement and General Release pursuant to which
the Company and the Partnership agreed to release any claims it may have
against Mr. Lewis and to indemnify and hold harmless Mr. Lewis, to the fullest
extent permitted by law, from and against all judgments, costs, interest,
charges, counsel fees and other expense relating to or in connection with any
claims, actions, suits and other proceedings by reason of or arising out of any
action or inaction by Mr. Lewis in his capacity as an officer, director,
employee or agent of the Partnership and its affiliates, including the Company,
except to the extent that such claim or indemnification arises directly from
any claim or cause of action that the Partnership or its affiliates may have
that relates to or arises from Mr. Lewis' knowingly fraudulent, dishonest or
willful misconduct, or receipt of any personal profit or advantage that he is
not legally entitled to receive.
The amount of legal fees and other expenses paid in respect to the Levenson
litigation decreases the amount of cash available to the Company to pay its
outstanding indebtedness and other obligations. An adverse judgment against
the Company or any of the other defendants which the Company is required to
indemnify, a settlement by any defendant which the Company is required to
indemnify or the continued payment of substantial legal fees and other expenses
could have a material adverse effect on the Company.
9. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION> Thirteen Weeks Ended
April 2 July 2 October 1 December 31
-------- -------- --------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Sales $ 48,817 $ 50,678 $ 50,002 $ 47,930
Gross profit (1) 33,402 34,643 33,880 32,825
Net income 2,025 3,301(2) 2,194(2) 843
Net income per common share 0.0 0.07 0.04 0.02
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION> Thirteen Weeks Ended
April 4 July 4 October 3 January 2
-------- -------- --------- ----------
<S> <C> <C> <C> <C>
Year ended January 2, 1996:
Sales $ 52,754 $ 54,216 $ 53,944 $ 49,179
Gross profit (1) 35,618 36,190 36,441 33,018
Loss before
extraordinary item (6,117) (6,280) (6,944) (19,522)(2)
Loss per common share
before extraordinary
item (0.13) (0.13) (0.14) (0.40)
Net income (loss) (6,117) (6,280) (6,944) 150,717(2)(3)
Net income (loss) per
common share (0.13) (0.13) (0.14) 3.10
(1) Gross profit is computed using cost of sales including depreciation
expense.
(2) See Note 12 Special Charges and Credits
(3) See Note 2 Restructuring.
</TABLE>
10. OTHER RELATED PARTY TRANSACTIONS
On June 7, 1996, the Company, the Partnership and Kevin E. Lewis entered into
the Consulting and Indemnity Agreement and General Release (the "Consulting
Agreement") pursuant to which, among other things, Mr. Lewis would resign as
President and Chief Executive Officer effective September 30, 1996 and would
resign his position as Chairman of the Board on December 31, 1996, unless
requested by the Board of Directors to continue until December 31, 1997. On
September 17, 1996, at the request of the Board of Directors, Mr. Lewis agreed
to remain President and Chief Executive Officer beyond September 30, 1996 with
no change to the financial terms of the Consulting Agreement. On December 24,
1996, Mr. Lewis resigned as President and Chief Executive Officer effective
December 31, 1996 and was requested by the Board to continue as Chairman of the
Board into 1997. After his resignation as President and Chief Executive
Officer of the Board, Mr. Lewis will serve as a consultant to the Company until
December 31, 1997. Pursuant to the Consulting Agreement, Mr. Lewis will
receive an annual base salary of $350 pro-rated through the end of 1996 and
$250 through the end of 1997.
Mr. Lewis received $75 upon the execution of the Consulting Agreement, $75 on
September 30, 1996 and will receive $100 on December 31, 1997. In addition,
Mr. Lewis is entitled to receive $100 if requested to assist in certain
negotiations on behalf of the Company and additional compensation based upon
the success of such negotiations. Furthermore, the Company agreed to pay,
among other things, certain legal expenses of Mr. Lewis incurred in connection
with the negotiation of the Consulting Agreement and certain travel and moving
related expenses. Effective January 1, 1997, Kenneth Reimer assumed the duties
of President and Chief Executive Officer of the Company on an interim basis.
Mr. Reimer will receive $25 per month for each full or partial month of service
and an additional $25 upon his resignation, if after March 31, 1997, or
removal. The Board of Directors is conducting a search for an individual to
serve as a permanent President and Chief Executive Officer of the Company.
F-23
<PAGE>
Since February 1996, Cactus Enterprises, Inc., a company wholly owned by
Kenneth Reimer, has performed certain management consulting services for the
Board. Compensation for such services has been paid by the Company at a rate
of $2 per day. Total fees and expenses paid in 1996 were approximately $68.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments" ("SFAS 107"). The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily
required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that the Company could realize in a current market exchange. The
use of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
At December 31, 1996 and January 2, 1996, the carrying amount and the fair
value of the Company's financial instruments, as determined under SFAS 107,
were as follows:
<TABLE>
<CAPTION> December 31, January 2,
1996 1996
----------- -----------
<S> <C> <C>
Long-term debt, including current portion
and interest accrued through maturity:
Carrying amount $ 74,640 $ 80,951
Estimated fair value 45,773 47,538
</TABLE>
The Company's long-term debt is held by a limited number of holders and is not
publicly traded, and as a result, market quotes are not readily available. The
fair value of the long-term debt at December 31, 1996 and January 2, 1996 is
based upon the face amount of the debt resulting from the Restructuring
described in Note 2 as management believes that this is most indicative of the
fair value. The carrying values of accounts receivable and accounts payable
approximate fair value due to the short maturity of these financial
instruments.
12. SPECIAL CHARGES AND CREDITS
Operating income for the thirteen week period ended October 1, 1996 includes a
special 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 Company's former El Paso
Bar-B-Que Company restaurants. In addition, the Company recognized $174 of
charges related to the Consulting Agreement and the search for a new President
and Chief Executive Officer for the thirteen week period ended October 1, 1996
and $96 for the thirteen week period ended July 2, 1996. Operating income for
the thirteen week period ended July 2, 1996 includes a special credit of $699
F-24
<PAGE>
for insurance proceeds received related to a fire loss incurred in February
1994.
Operating loss for the thirteen week period ended January 2, 1996 includes
special charges of $12,273, which includes $4,501 related to the reserve for
store closings. Also included in the special charges is $7,772 to recognize
the write- down of certain assets in property, plant and equipment to estimated
fair values in accordance with the adoption of SFAS 121.
Operating loss for the fourteen week period ended January 3, 1995 includes
special charges to reserves of $1,435 resulting primarily from the decision to
close one buffet restaurant and adjustments to the units previously reserved to
be closed. Also included is a credit of $442 related to the settlement of a
lawsuit by the Internal Revenue Service. The loss from operations for the
thirteen week period ended September 27, 1994 includes special charges to
reserves of $1,221 resulting primarily from the closing of a specialty
restaurant. Of the total special charges of $2,214 during the period ended
January 3, 1995, approximately $1,164 relates to the write-down of assets.
* * * * * *
F-25
<PAGE>
Item 14(c) is amended to read as follows:
(c) Exhibits
Exhibit
No. Description
3.1 Amended and Restated Certificate of Incorporation of Furr's/Bishop's,
Incorporated, incorporated by reference from the Registrant's
Registration Statement on Form S-4 (File No. 33-38978).
3.2 By-laws of Furr's/Bishop's, Incorporated, as amended September 17, 1996,
incorporated by reference from the Registrant's Form 10-Q for the
quarter ended October 1, 1996.
3.3 Certificate of Amendment to the Amended and Restated Certificate of
Incorporation of Furr's/Bishop's, Incorporated, incorporated by
reference from the Registrant's Registration Statement on form S-4 (File
No. 33-92236).
3.4 Second Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of Furr's/Bishop's, Incorporated, incorporated by
reference from the Registrant's Form 10-K for the year ended January 2,
1996.
4.1 Amended and Restated Indenture, dated as of November 15, 1995, by and
between Cafeteria Operators, L.P. and Fleet National Bank of
Massachusetts (fka Shawmut Bank, N.A.), incorporated by reference from
the Registration Statement on Form S-1 of Cafeteria Operators, L.P.
(File No. 333-4578).
4.2 First Supplemental Indenture dated as of January 24, 1996, by and
between Cafeteria Operators, L.P. and Fleet National Bank of
Massachusetts (fka Shawmut Bank, N.A.), incorporated by reference from
the Registration Statement on Form S-1 of Cafeteria Operators, L.P.
(File No. 333-4578).
10.1 Exchange Agreement, dated as of November 15, 1995, among
Furr's/Bishop's, Incorporated, Cafeteria Operators, L.P. and holders of
the 11% Senior Secured Notes, incorporated by reference from
Registrant's Registration Statement on Form S-4 (File No. 33-92236).
10.2 Warrant Agreement dated as of July 10, 1995 by and between
Furr's/Bishop's, Incorporated and Chemical Bank, incorporated by
reference from the Registrant's Registration Statement on Form S-4 (File
No. 33-92236).
10.3 Consulting and Indemnity Agreement and General Release, dated as of June
7, 1996 by and between Kevin E. Lewis, Furr's/Bishop's, Incorporated and
Cafeteria Operators, L.P., incorporated by reference from the
Registrant's Registration Statement on Form S-1 (File No. 333-4876).
10.4 First Amendment to Consulting and Indemnity Agreement and General
Release, dated as of September 17, 1996 by and between Kevin E. Lewis,
Furr's/Bishop's, Incorporated and Cafeteria Operators, L.P.,
incorporated by reference from the Form 10-K for the fiscal year ended
December 31, 1996 of Cafeteria Operators, L.P. (File No. 333-4578).
11.0 Computation of Net Income (Loss) Per Common Share
21.0 Subsidiaries of the Registrant.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
FURR'S/BISHOP'S, INCORPORATED
DATE: April 10, 1997 /s/ Alton R. Smith
---------------------------
Alton R. Smith
Principal Accounting Officer
<PAGE>
<TABLE>
EXHIBIT 11
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(dollars and shares in thousands, except per share amounts)
<CAPTION> Fifty-Two Fifty-Two Fifty-three
Weeks Ended Weeks Ended Weeks Ended
December 31, January 2, January 3,
1996 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income (loss) before extraordinary item $ 8,363 $ (38,863) $ (21,342)
Extraordinary gain 170,239
----------- ----------- -----------
Income (loss) $ 8,363 $ 131,376 $ (21,342)
=========== =========== ===========
Primary income (loss) per common share:
Weighted average number of common
shares outstanding (1) 48,665 48,649 48,649
Dilutive effect of stock options
outstanding after application of
treasury stock method 785
49,450 48,649 48,649
=========== =========== ===========
Income (loss) per common share before
extraordinary item $ 0.17 $ (0.80) $ (0.44)
Extraordinary credit per
common share 3.50
----------- ----------- -----------
Net income (loss) per
common share $ 0.17 $ 2.70 $ (0.44)
=========== =========== ===========
Fully diluted income (loss) per common
share:
Weighted average number of common
shares outstanding (1) 48,665 48,649 48,649
Dilutive effect of stock options
outstanding after application of
treasury stock method 785 2,702 2,702
----------- ----------- -----------
Fully diluted weighted average
common shares outstanding 49,450 51,351 51,351
=========== =========== ===========
Fully diluted income (loss) per
common share before extraordinary
item $ 0.17 $ (0.76) N/A (2)
Fully diluted extraordinary credit
per common share 3.32
Fully diluted net income
per common share $ 0.17 $ 2.56 N/A (2)
(1) Based upon 48,649 shares outstanding at January 2, 1996 and January 3,
1995 after giving effect to the Restructuring and the reverse stock split.
(2) The exercise of outstanding warrants would be antidilutive and result in
the fully diluted net income (loss) per common share being less than the
primary net income (loss) per common share.
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF
FURR'S/BISHOP'S, INCORPORATED
Furr's/Bishop's Cafeterias, L.P. and Subsidiaries
Cafeteria Operators, L.P.
A Delaware limited partnership
Doing business as Furr's Cafeterias and Bishop's Buffets
Cavalcade Holdings, Inc. and Subsidiaries
Cavalcade Foods, Inc.
A Delaware corporation
