10-Q 1 a2030203z10-q.txt 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 26, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 333-4578 CAFETERIA OPERATORS, L.P. INCORPORATED IN DELAWARE IRS EMPLOYER INDENTIFICATION NO. 75-2186655 3001 E. PRESIDENT GEORGE BUSH HWY., SUITE 200, RICHARDSON, TEXAS 75082 REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 808-2923 -------------------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- ------------------------------------------------------------------------------- CAFETERIA OPERATORS, L.P.

INDEX PART I. FINANCIAL ~~INFORMATION~~INFOMRATION PAGE ---- Item 1. Financial Statements Condensed Consolidated Balance Sheets - ~~June~~September 2726, 2000 (Unaudited) and December 28, 1999 3 Unaudited Condensed Consolidated Statements of Operations - For the thirteen weeks ended ~~June~~September 2726, 2000 and ~~June~~September 2928, 1999 5 Unaudited Condensed Consolidated Statements of Operations - For the ~~twenty~~thirty-~~six~~nine weeks ended ~~June~~September 2726, 2000 and ~~June~~September 2928, 1999 6 Unaudited Condensed Consolidated Statement of Changes in Partners' Deficit - For the ~~twenty~~thirty-~~six~~nine weeks ended ~~June~~September 2726, 2000 7 Unaudited Condensed Consolidated Statements of Cash Flows - For the ~~twenty~~thirty-~~six~~nine weeks ended ~~June~~September 2726, 2000 and ~~June~~September 2928, 1999 8 Notes to Unaudited Condensed Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 1110 Item 3. Quantitative and Qualitative Disclosure About Market Risk 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 1312 SIGNATURES 13

2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 26, 2000 AND DECEMBER 28, 1999 (DOLLARS IN THOUSANDS)

~~CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 27, 2000 AND DECEMBER 28, 1999~~ (~~DOLLARS IN THOUSANDS~~Unaudited) ~~(UNAUDITED)~~September ~~JUNE 27~~26, ~~DECEMBER~~December 28, 2000 1999 ---- ---- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,~~310~~249 $ 5,163 Accounts and notes receivable, net 1,~~149~~221 894 Inventories 6,~~978~~712 6,544 Prepaid expenses and other 21,~~400~~161 861 -------- ---------- Total current assets 1211,~~837~~343 13,462 -------- ---------- PROPERTY, PLANT AND EQUIPMENT, NET 5657,~~952~~358 54,586 RECEIVABLE FROM AFFILIATES, ~~NET~~ 11,~~028~~233 10,563 OTHER ASSETS ~~560~~567 552 -------- ---------- TOTAL ASSETS $ 8180,~~377~~501 $ 79,163 ======== ========

(Continued) 3 CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 26, 2000 AND DECEMBER 28, 1999 (DOLLARS IN THOUSANDS)

(~~UNAUDITED~~Unaudited) ~~JUNE~~September 2726, ~~DECEMBER~~December 28, 2000 1999 ---- ---- LIABILITIES AND PARTNERS' DEFICIT CURRENT LIABILITIES: Current maturities of long-term debt $ 5,493 $ 5,493 Trade accounts payable 65,~~864~~446 5,233 Other payables and accrued expenses 1413,~~196~~289 17,058 Reserve for store closings, current ~~336~~508 804 -------- -------- Total current liabilities 2624,~~889~~736 28,588 -------- -------- RESERVE FOR STORE CLOSINGS, NET OF CURRENT MATURITIES 2,~~433~~278 2,558 LONG-TERM DEBT, NET OF CURRENT PORTION 52,473 55,220 OTHER PAYABLES 1110,~~398~~671 10,218 EXCESS OF FUTURE LEASE PAYMENTS OVER FAIR VALUE, NET OF AMORTIZATION 1,~~697~~585 1,919 PARTNERS' DEFICIT (1311,~~513~~242) (19,340) -------- -------- TOTAL LIABILITIES AND PARTNERS' DEFICIT $ 8180,~~377~~501 $ 79,163 ======== ========

See accompanying notes to condensed consolidated financial statements. 4 CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THIRTEEN WEEKS ENDED SEPTEMBER 26, 2000 AND SEPTEMBER 28, 1999 (DOLLARS IN THOUSANDS)

~~THIRTEEN~~Thirteen ~~WEEKS~~weeks ~~ENDED~~ended --------------------------------------- ~~JUNE~~September 2726, ~~JUNE~~September 2928, 2000 1999 ---- ---- Sales $ 4849,~~188~~597 $ 47,~~196~~788 Costs and expenses: Cost of sales (excluding depreciation) 14,~~189~~644 1314,~~953~~552 Selling, general and administrative 2829,~~120~~861 2928,~~346~~228 Depreciation and amortization 2,~~667~~734 2,~~444~~432 ---------- --------- 4447,~~976~~239 45,~~743~~212 ---------- --------- Operating income 32,~~212~~358 12,~~453~~576 Interest expense 87 7585 ---------- --------- Net income $ 32,~~125~~271 $ 12,~~378~~491 ========== =========

See accompanying notes to condensed consolidated financial statements. 5 CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 2000 AND SEPTEMBER 28, 1999 (DOLLARS IN THOUSANDS)

~~TWENTY~~Thirty-~~SIX~~nine ~~WEEKS~~weeks ~~ENDED~~ended --------------------------------------- ~~JUNE~~September 2726, ~~JUNE~~September 2928, 2000 1999 ---- ---- Sales $95 145,~~952~~549 $93 140,~~199~~987 Costs and expenses: Cost of sales (excluding depreciation) 2842,~~225~~869 2742,~~612~~164 Selling, general and administrative 5686,~~415~~276 5785,~~193~~421 Depreciation and amortization 58,~~313~~047 47,~~871~~303 Special ~~charge~~Charge - 566 ------------ ---------- 89137,~~953~~192 90135,~~242~~454 ------------ ---------- Operating income 58,~~999~~357 25,~~957~~533 Interest expense ~~172~~259 ~~147~~232 ------------ ---------- Net income $5 8,~~827~~098 $2 5,~~810~~301 ============ =========

See accompanying notes to condensed consolidated financial statements. 6 CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 2000 (DOLLARS IN THOUSANDS)

~~ACCUMULATED~~Accumulated ~~OTHER~~Other ~~GENERAL~~General ~~LIMITED~~Limited ~~COMPREHENSIVE~~Comprehensive ~~PARTNERS~~Partners ~~PARTNERS~~Partners ~~LOSS~~Loss ~~TOTAL~~Total -------- -------- ---- ----- BALANCE, DECEMBER 28, 1999 $ (32,584) $ 14,972 $ (1,728) $ (19,340) Net income 58,~~827~~098 - - 58,~~827~~098 ----------- ----- ---- ----- -------- -- --------- BALANCE, ~~JUNE~~SEPTEMBER 2726, 2000 $ (2624,~~757~~486) $ 14,972 $ (1,728) $ (1311,~~513~~242) =========== ===== ==== ===== ========== ==========

See accompanying notes to condensed consolidated financial statements. 7 CAFETERIA OPERATORS, L.P. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)

~~TWENTY~~Thirty-~~SIX~~nine ~~WEEKS~~weeks ~~ENDED~~ended ----------------------------------- ~~JUNE~~September 2726, ~~JUNE~~September 2928, 2000 1999 ---- ---- Cash flows from operating activities: Net income $ 58,~~827~~098 $ 25,~~810~~301 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 58,~~313~~047 47,~~871~~303 Gain on disposition of assets (~~397~~365) (~~208~~148) Changes in operating assets and liabilities: Accounts and notes receivable (~~255~~327) (~~376~~378) Inventories (~~434~~168) ~~334~~24 Prepaid expenses and other (~~2,012~~985) (~~1,201~~994) Reserve for store closings (~~593~~576) (~~535~~786) Trade accounts payable, other payables, accrued expenses and other liabilities (513,033) ~~758~~58 ---------- ----------- Net cash provided by operating activities 710,~~398~~691 610,~~453~~380 ---------- ----------- Cash flows from investing activities: Purchases of property, plant and equipment (811,~~229~~577) (815,~~124~~495) Proceeds from the sale of property, plant and equipment ~~567~~718 2,~~215~~756 ~~Other, net 158 127~~ ---------- ----------- Net cash used in investing activities (710,~~504~~859) (512,~~782~~739) ---------- ----------- Cash flows from financing activities: Payment of indebtedness (2,~~747~~746) (2,746) ---------- ----------- Net cash used in financing activities (2,~~747~~746) (2,746) ---------- ----------- Decrease in cash and cash equivalents (2,~~853~~914) (25,~~075~~105) Cash and cash equivalents at beginning of period 5,163 11,478 ---------- ----------- Cash and cash equivalents at end of period $ 2,~~310~~249 $ 96,~~403~~373 ========== =========== Supplemental disclosure of cash flow information: Cash paid for interest (including $2,~~747~~746 in 2000 and ~~$2,746~~ in 1999 classified as payment of indebtedness.) $ 23,~~919~~006 $ 2,~~887~~905 ========== ===========

See accompanying notes to condensed consolidated financial statements. 8 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 September 26, 2000 and September 28, 1999:

~~CAFETERIAS~~Cafeterias ~~DYNAMIC~~Dynamic ~~TOTAL~~Foods Total ---------- ~~FOODS~~ ----- -------- ----- 2000: External revenues $ 4749,~~771~~130 $ ~~417~~467 $ 4849,~~188~~597 Intersegment revenues - 15,~~038~~386 15,~~038~~386 Depreciation and amortization 2,~~406~~463 ~~261~~271 2,~~667~~734 Segment profit 2,~~890~~052 ~~235~~219 32,~~125~~271 1999: External revenues $ 4647,~~933~~425 $ ~~263~~363 $ 47,~~196~~788 Intersegment revenues - 15,~~083~~115 15,~~083~~115 Depreciation and amortization 2,~~209~~196 ~~235~~236 2,~~444~~432 Segment profit 12,~~012~~445 ~~366~~46 12,~~378~~491

Following is a summary of segment information of the Company for the thirty-nine weeks ended September 26, 2000 and September 28, 1999:

~~CAFETERIAS~~Cafeterias ~~DYNAMIC~~Dynamic ~~TOTAL~~Foods Total ---------- ~~FOODS~~ ----- -------- ----- 2000: External revenues $ 95144,~~209~~339 $ ~~743~~1,210 $ 95145,~~952~~549 Intersegment revenues - 3045,~~137~~523 3045,~~137~~523 Depreciation and amortization 47,~~798~~261 ~~515~~786 58,~~313~~047 Segment profit 57,~~411~~463 ~~416~~635 58,~~827~~098 1999: External revenues $ 92140,~~696~~120 $ ~~503~~867 $ 93140,~~199~~987 Intersegment revenues - 2944,~~678~~794 2944,~~678~~794 Depreciation and amortization 46,~~395~~591 ~~476~~712 47,~~871~~303 Segment profit 24,~~220~~665 ~~590~~636 25,~~810~~301

9 Following is a reconciliation of reportable segments to the Company's consolidated totals for the periods ended September 26, 2000 and September 28, 1999:

Thirteen Weeks Ended ~~Twenty~~Thirty-~~six~~nine Weeks Ended --------------------------------------- ---------------------------------------- ~~June~~September 2726, ~~June~~September 2928, ~~June~~September 2726, ~~June~~September 2928, 2000 1999 2000 1999 ----------------- ----------------- ----------------- ------------------ Revenues Total revenues of reportable segments $63 64,~~226~~983 $ 62,~~279~~903 $~~126~~ 191,~~089~~072 $~~122~~ 185,~~877~~781 Elimination of inter-segment revenue (15,~~038~~386) (15,~~083~~115) (3045,~~137~~523) (2944,~~678~~794) ----------------- ----------------- ----------------- ------------------ Total consolidated revenues $48 49,~~188~~597 $ 47,~~196~~788 $95 145,~~952~~549 $93 140,~~199~~987 ================= ================= ================= ==================

RECENT ACCOUNTING MATTERS The Company has assessed 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 will adopt SFAS No. 133, as amended, in the first quarter of fiscal 2001, is not currently party to any derivative contracts, and does not anticipate that the adoption will have a material effect on the Company's results of operations or financial position. 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS THIRTEEN WEEKS ENDED SEPTEMBER 26, 2000 COMPARED TO THIRTEEN WEEKS ENDED SEPTEMBER 28, 1999: Sales for the third fiscal quarter of 2000 were $49.6 million, an increase of $1.8 million from the same quarter of 1999. Operating income for the third quarter of 2000 was $2.4 million compared to $2.6 million in the comparable period in the prior year. Net income for the third quarter of 2000 was $2.3 million compared to $2.5 million in the third quarter 1999. SALES. Restaurant sales in comparable units increased $32 thousand, or 0.1% in the third quarter of 2000 over the same quarter of 1999. Third quarter sales for the new units opened since second quarter 1999 was $2.1 million, an increase of $1.7 million over the aggregate sales of the units that were closed after third quarter 1999. Sales by Dynamic Foods to third parties were $104 thousand higher in the third quarter 2000 than that of third quarter 1999. 10 COST OF SALES. Excluding depreciation, cost of sales were 29.5% of sales for the third quarter of 2000 as compared to 30.5% for the same quarter of 1999. The decrease in the percentage of sales was the result of lower product costs. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative ("SG&A") expense was higher in the aggregate by $1.6 million in the third quarter of 2000 as compared to 1999. Third quarter 2000 included a loss of $32 thousand from the sale of assets. The change in SG&A expense included an increase of $129 thousand in supplies expense, $186 thousand in repair and maintenance, $186 thousand in utilities, and $1.1 million in labor and related benefits. We had decreases of $200 thousand in marketing expense, $116 thousand in professional services and $166 thousand in rent. The increase in labor and related benefits in the current year is principally due to a prior year reduction in accrued workers compensation liability of $1 million. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was $302 thousand higher in the third quarter of 2000 than that of third quarter of 1999 due to depreciation of prior year's re-imaging capital expenditures. THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 2000 COMPARED TO THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1999: Sales for the first thirty-nine weeks of 2000 were $145.5 million, an increase of $4.5 million from the period of 1999. Operating income for the first thirty-nine weeks of 2000 was $8.4 million compared to $5.5 million in the comparable period in the prior year. The operating results of the first thirty-nine 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 thirty-nine weeks of 2000 was $8.1 million compared to $5.3 million in the same period of 1999. SALES. Restaurant sales in comparable units increased $3.3 million, or 2.4% in the first thirty-nine 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 third quarter 1999 was $2.5 million, an increase of $.9 million over the aggregate sales of the units that were closed after third quarter 1999. Sales by Dynamic Foods to third parties were $343 thousand higher in the first thirty-nine weeks of 2000 than that of the comparable period of 1999. COST OF SALES. Excluding depreciation, cost of sales were 29.5% of sales for the first thirty-nine weeks of 2000 as compared to 29.9% 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 higher in the aggregate by $855 thousand in the first thirty-nine weeks of 2000 as compared to 1999. The thirty-nine weeks of 2000 included an increased gain of $217 thousand from the sale of assets over the same period of 1999. The change in SG&A expense included an increase of $367 thousand in supplies expense, $326 thousand in repairs and maintenance expense, $210 thousand in utilities and $1.5 million in labor and related benefits. We had decreases of $650 thousand in marketing expense, $206 thousand in other store expenses, $662 thousand in professional services and $427 thousand in rent. The increase in labor and related benefits in the current year is principally due to a prior year reduction in accrued workers compensation liability of $1.4 million. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was higher by $744 thousand in the first thirty-nine weeks of 2000 due to depreciation of prior year's re-imaging capital expenditures. 11 LIQUIDITY AND CAPITAL RESOURCES During the thirty-nine weeks ended September 26, 2000, cash provided by operating activities was $10.7 million compared to $10.4 million in the same period of 1999. We made capital expenditures of $11.6 million during the first thirty-nine weeks of 2000 compared to $15.5 million during the same period of 1999. Capital expenditures for the remainder of fiscal year 2000 are expected to be $.7 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 $2.2 million at September 26, 2000 compared to $6.4 million at September 28, 1999 and $5.2 million at December 28, 1999. Our current ratio was .46:1 at September 26, 2000 compared to .56:1 at September 28, 1999 and .47:1 at December 28, 1999. Total assets at September 26, 2000 aggregated $80.5 million, compared to $83.3 million at September 28, 1999 and $79.2 million at December 28, 1999. Our restaurants are a cash business. Funds available from cash sales are not needed to finance receivables and are not generally needed immediately to pay for food, supplies and certain other expenses of the restaurants. Therefore, the business and operations of the Company have not historically required proportionately large amounts of working capital, which is generally common among similar restaurant companies. Item 3. Quantitative and Qualitative Disclosure About Market Risk We are exposed to market risk from changes in commodity prices. We purchase certain commodities used in food preparation. These commodities are generally purchased based upon market prices established with vendors. These purchase arrangements may contain contractual features that limit the price paid by establishing certain price floors or caps. We do not use financial instruments to hedge commodity prices because these purchase arrangements help control the ultimate cost paid and any commodity price aberrations are generally short term in nature. 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 Proceedings None. Items 2, 3, 4 and 5 are not applicable and have been intentionally omitted. Item 6. Exhibits and Reports on Form 8-K None. 12 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: November 8, 2000 CAFETERIA OPERATORS, L.P. ----------------------- /s/ Phillip Ratner ------------------------------------------ Phillip Ratner President and Chief Executive Officer /s/ Paul G. Hargett ------------------------------------------ Paul G. Hargett Chief Financial Officer 13

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