1
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 July 2, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-10725
FURR'S/BISHOP'S, INCORPORATED
INCORPORATED IN DELAWARE I.R.S. EMPLOYER IDENTIFICATION
NO.75-2350724
6901 QUAKER AVENUE, LUBBOCK, TX 79413
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (806)792-7151
- -------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
- -------------------------------------------------------------------------------
As of July 26, 1996, there were 48,670,390 shares of Common Stock
outstanding.
Page 1 of 21
Exhibit Index Located on Page 19
2
FURR'S/BISHOP'S, INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
July 2, 1996 (Unaudited) and January 2, 1996 3
Unaudited Condensed Consolidated Statements
of Operations - For the thirteen weeks
ended July 2, 1996 and July 4, 1995 5
Unaudited Condensed Consolidated Statements of
Operations - For the twenty-six weeks ended
July 2, 1996 and July 4, 1995 6
Unaudited Condensed Consolidated Statement of
Stockholders' Deficit - For the twenty-six weeks
ended July 2, 1996 7
Unaudited Condensed Consolidated Statements of
Cash Flows - For the twenty-six weeks ended
July 2, 1996 and July 4, 1995 8
Notes to Unaudited Condensed Consolidated
Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II. OTHER INFORMATION
SIGNATURES
Page 2
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FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
July 2, January 2,
1996 1996
---------- --------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents ($800 restricted) $ 5,067 $ 986
Accounts and notes receivable, net 605 746
Inventories 6,011 5,831
Prepaid expenses and other 1,406 1,355
--------- ---------
Total current assets 13,089 8,918
Property, plant and equipment, net 64,702 66,127
Other assets 3,010 2,993
--------- ---------
$ 80,801 $ 78,038
========= =========
See notes to unaudited condensed consolidated financial statements.
(Continued on following page)
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FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(dollars in thousands, except per share amounts)
July 2, January 2,
1996 1996
-------- ---------
(Unaudited)
Liabilities and Stockholders' Deficit
Current liabilities:
Trade accounts payable $ 5,338 $ 5,074
Other payables and accrued expenses 17,351 18,279
Reserve for store closings - current portion 1,732 2,396
Current maturities of long-term debt 5,493 3,841
--------- ---------
Total current liabilities 29,914 29,590
Reserve for store closings 3,026 3,443
Long-term debt 74,392 77,110
Excess of future lease payments over fair value,
net of amortization 3,826 4,130
Other payables, including accrued pension costs 10,167 9,639
Stockholders' deficit:
Preferred stock, $.01 par value; 5,000,000
shares authorized, none issued
Common stock, $.01 par value; 65,000,000 shares
authorized, 48,662,320 and 48,648,955 issued
and outstanding 487 486
Additional paid-in capital 55,864 5,841
Pension liability adjustment (5,283) (5,283)
Accumulated deficit (91,592) (96,918)
--------- ---------
Total stockholders' deficit (40,524) (45,874)
--------- ---------
$ 80,801 $ 78,038
========= =========
See notes to unaudited condensed consolidated financial statements.
(Concluded)
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FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
Thirteen weeks ended
-----------------------
July 2, July 4,
1996 1995
--------- ---------
Sales $ 50,678 $ 54,216
Expenses:
Cost of sales (excluding depreciation) 15,786 17,769
Selling, general and administrative 29,863 32,385
Depreciation and amortization 2,270 3,607
Special credits (603) 0
--------- ---------
47,316 53,761
--------- ---------
Operating income 3,362 455
Interest expense 61 6,735
--------- ---------
Net income (loss) $ 3,301 $ (6,280)
========= =========
Weighted average number of shares
of common stock outstanding:
Primary 48,666,659 48,648,955
========== ==========
Fully diluted 51,350,817 51,350,817
========== ==========
Net income (loss) per share:
Primary $ 0.07 $ (0.13)
========= ========
Fully diluted $ 0.06 $ N/A
========= ========
See notes to unaudited condensed consolidated financial statements.
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FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
Twenty-six weeks ended
-----------------------
July 2, July 4,
1996 1995
--------- ---------
Sales $ 99,495 $ 106,970
Expenses:
Cost of sales (excluding depreciation) 30,952 34,616
Selling, general and administrative 59,074 64,352
Depreciation and amortization 4,619 6,947
Special credits (603) 0
--------- ---------
94,042 105,915
--------- ---------
Operating income 5,453 1,055
Interest expense 127 13,452
--------- ---------
Net income (loss) $ 5,326 $ (12,397)
========= =========
Weighted average number of shares
of common stock outstanding:
Primary 48,658,585 48,648,955
========== ==========
Fully diluted 51,350,817 51,350,817
========== ==========
Net income (loss) per share:
Primary $ 0.11 $ (0.25)
========= =========
Fully diluted $ 0.10 $ N/A
========= =========
See notes to unaudited condensed consolidated financial statements.
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FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE TWENTY-SIX WEEKS ENDED JULY 2, 1996
(Dollars in Thousands)
Total
Additional Pension Accum- Stock-
Common Paid-In Liability ulated holders'
Stock Capital Adjustment Deficit Deficit
------ ---------- ---------- ---------- ---------
Balance, January 2, 1996 $ 486 $ 55,841 $ (5,283) $ (96,918) $ (45,874)
Warrants exercised 1 23 - - 24
Net income - - - 5,326 5,326
------ -------- --------- --------- ---------
Balance, July 2, 1996 $ 487 $ 55,855 $ (5,283) $ (91,592) $ (40,524)
====== ======== ======== ========= =========
See notes to unaudited condensed consolidated financial statements.
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FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Twenty-six weeks ended
----------------------
July 2, July 4,
1996 1995
--------- ---------
Cash flows from operating activities:
Net income (loss): $ 5,326 $ (12,397)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,619 6,947
Loss on disposition of assets 24 119
Other, net (190) (332)
Changes in assets and liabilities:
Decrease (increase) in accounts
and notes receivable 140 87
Decrease (increase) in inventories (181) 81
Increase in prepaid expenses and other (49) (1,618)
Increase (decrease) in trade accounts payable
and other payables, accrued expenses
and other liabilities (527) 13,164
--------- ---------
Net cash provided by operating activities 9,162 6,051
Cash flows provided by (used in) investing activities:
Capital expenditures (4,415) (4,419)
Expenditures charged to reserve for store closings (1,248) (835)
Proceeds from the sale of fixed assets 1,615 6
Other, net 68 (7)
--------- ---------
Net cash used in investing activities (3,980) (5,255)
Cash flows used in financing activities:
Payment of indebtedness (1,066) (82)
Other, net (35) (54)
--------- ---------
Net cash used in financing activities (1,101) (136)
Increase in unrestricted cash and cash equivalents 4,081 660
Unrestricted cash and cash equivalents at
beginning of period 186 692
--------- ---------
Unrestricted cash and cash equivalents at
end of period $ 4,267 $ 1,352
========= =========
Supplemental information:
Interest paid, including $1,006 of SFAS 15
interest classified as payment of indebtedness $ 1,019 $ 30
========= =========
See notes to unaudited condensed consolidated financial statements.
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FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
NOTE A: Summary of Significant Accounting Policies
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.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. These statements should be read in conjunction
with the consolidated financial statements, and notes thereto, which are
included in the Company's Form 10-K for the year ended January 2, 1996. The
accompanying consolidated financial statements reflect the accounts of the
Company after elimination of all material intercompany and interpartnership
accounts and transactions, and in the opinion of management include all
adjustments, of a normal recurring nature, necessary for a fair presentation.
Certain expenditures benefiting more than one period are charged to operations
on a percentage of sales or on a pro rata basis over the 52-53 week fiscal
year. Certain amounts have been reclassified in the statements of operations
for the twenty-six weeks ended July 4, 1995 to conform to the classifications
used in the financial statements for the period ended July 2, 1996.
The results of operations for the twenty-six weeks ended July 2, 1996 may
not be indicative of the results that may be expected for the fiscal year
ending December 31, 1996.
NOTE B: Earnings Per Common Share
The weighted average number of shares used in the primary net income per
share computation was 48,658,585 for the twenty-six weeks ended July 2, 1996,
and for the fully diluted computation was 51,350,817, including stock warrants
as common stock equivalents, in each case following the reverse stock split.
For the period ended July 4, 1995, net income per share is restated using
48,648,955 shares, which reflects the financial restructuring and the reverse
stock split and is the weighted average shares of common stock and common stock
equivalents (stock options and warrants, when dilutive) outstanding at January
2, 1996. Fully diluted earnings per share are not presented because the effect
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of exercising outstanding stock options and warrants would be antidilutive.
The earnings per common share in the twenty-six weeks of 1995 excludes any
consideration of the preferred stock dividend requirements, which were not paid
and were canceled as a part of the series of financial restructuring
transactions.
NOTE C: Long-term Debt
In 1992, the Partnership consummated a restructuring with all of the
holders of the then outstanding indebtedness and issued $187,422 of 11% Senior
Secured Notes, due June 30, 1998 (the "11% Notes"), to replace its entire
indebtedness, including all interest accrued thereon. Additional 11% Notes
were issued in June 1992 for the $5,432 interest payment then due. The 11%
Notes were amended at various times in 1993 and 1994 to modify or waive
covenants that were not being met, including to allow the Company to receive a
going concern opinion, and to defer the due date of interest payments. The
last payment of interest by the Partnership on the 11% Notes was June 30, 1993
and at January 2, 1996, before the series of financial restructuring
transactions, a total of $56,493 of interest was accrued and outstanding, and
the Partnership was in default on the 11% Notes since October 1994 due to,
among other things, missed payments of interest.
In 1992, Cavalcade Foods, Inc., an indirect subsidiary of the Company
("Foods"), issued a 9% note for $9,435, due June 30, 1998 (the "9% Note") to
replace its entire indebtedness, including all interest accrued thereon. An
additional 9% Note was issued in September 1992 for the $444 interest payment
then due. On April 1, 1993, a principal payment of $280 was made on the 9%
Note. The 9% Note was amended in 1994 to allow for the deferral of certain
interest payments. The last payment of interest by Foods on the 9% Note was
September 30, 1993 and at January 2, 1996, before the series of financial
restructuring transactions, a total of $2,138 of interest was accrued and
outstanding, and Foods was in default on the 9% Note since October 1994 due to,
among other things, missed payments of interest.
As part of a series of financial restructuring transactions, the
Partnership issued $41,700 of 12% Senior Secured Notes, due December 31, 2001
(the "12% Notes"), to replace $40,000 of 11% Notes and the interest accrued
thereon and to terminate a $5,408 judgement and the interest accrued thereon.
On January 24, 1996, the Partnership also issued $4,073 of 12% Notes as payment
in kind for all interest accrued as of such date. 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 and in full
satisfaction of the remaining $152,854 of 11% Notes, together with all interest
accrued thereon.
On March 31, 1996, the Partnership paid $1,006 of interest accrued and due
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as of such date. Payments of interest on the 12% Notes will be due each March
31 and September 30. While payments of interest will be due during the life of
the 12% Notes, there will not be any interest expense recorded under SFAS 15,
as all of the interest through maturity has been recorded as a liability.
As part of a series of financial restructuring transactions, 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 of 9% Notes outstanding, together with all
interest accrued thereon. Certain land was pledged as collateral on the Non-
recourse Note and 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.
NOTE D: Restructuring
On January 2, 1996, at the Company's 1995 annual meeting, stockholders
approved a reclassification of the Company's outstanding shares of Class A
Common Stock, par value $.01 per share ("Old Class A Common Stock"), Class B
Common Stock, par value $.01 per share ("Old Class B Common Stock"), and Series
A $9.00 Convertible Preferred Stock, par value $.01 per share ("Old Convertible
Preferred Stock"), into the right to receive shares of a new class of common
stock, par value $.01 per share ("Common Stock"), and five year warrants to
purchase Common Stock at a price of $.074 per share ("Warrants"). Stockholders
also approved a restructuring of the Company's and certain of its subsidiaries'
financial obligations, including, among other things, the exchange of (i) an
aggregate of approximately $209,347 of indebtedness, including interest, of the
Partnership held by certain creditors for the issuance of approximately 95% of
the limited partnership interests of the Partnership, (ii) approximately $8,237
of indebtedness, including interest, of Foods held by Wells Fargo Bank,
National Association ("Wells Fargo"), for an option to acquire 2.5% of the
Common Stock (the "Wells Fargo Option"), (iii) warrants to purchase 1.7 million
shares of the Old Class A Common Stock held by Kmart Corporation ("Kmart") for
Warrants to purchase 1% of the Common Stock, (iv) a judgement in the amount of
$6,100 against a subsidiary of the Company owed to the Trustees of General
Electric Pension Trust ("GEPT") for a $1,700 principal amount 12% Note and (v)
warrants to purchase 1.4 million shares of Old Class B Common Stock held by the
Noteholders for the right to put their aggregate 95% limited partnership
interests in the Partnership to the Company in exchange for 95% of the Common
Stock (the "Put Option") (collectively, the "Restructuring").
The Restructuring has been accounted for in accordance with Statement of
Financial Accounting Standard 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
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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 there will be no recognition of interest expense on such
indebtedness in future periods. The amounts of indebtedness subject to
modification in excess of the amount recorded in accordance with SFAS 15 was
recorded as an extraordinary credit, net of all expenses associated with the
Restructuring.
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 not be included in the Company's
consolidated financial statements for the period January 2, 1996 through March
28, 1996. However, during the first quarter, 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 at January 2, 1996.
NOTE E: Income Tax
The Company had income from operations in the thirteen and twenty-six week
periods ended July 2, 1996. In accordance with Statement of Financial
Accounting Standards No. 109, "Accounting For Income Taxes" ("SFAS 109"), the
income tax provision to be recognized has been reduced to zero through the use
of a valuation allowance.
Following is a summary of the income tax provision (benefit) for the
thirteen and twenty-six week periods ended July 2, 1996 and July 4, 1995:
Thirteen Weeks Twenty-six Weeks
-------------------- ------------------
April 2, April 4, July 2, July 4,
1996 1995 1996 1995
------- ------- ------ -------
Federal
Current $ 43 $ -0- $ 43 $ -0-
Deferred 602 (2,405) 630 (4,336)
Deferred -
Valuation allowance (645) 2,405 (673) 4,336
State -0- -0- -0- -0-
------- -------- ------- --------
Total $ -0- $ -0- $ -0- $ -0-
======= ======== ======= ========
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Following is a reconciliation of the expected tax (benefit) at the
statutory tax rate to the effective tax (benefit) for the thirteen and twenty-
six week periods ended July 2, 1996 and July 4, 1995:
Thirteen Weeks Twenty-six Weeks
------------------- ------------------
April 2, April 4, July 2, July 4,
1996 1995 1996 1995
------- ------- ------- -------
Expected tax (benefit) at
the statutory tax rate $ 1,155 $(2,406) $ 1,864 $(4,339)
Income allocable to non
affiliated partners (16) -0- (671) -0-
Interest expense recorded
as debt per SFAS 15 (518) -0- (518) -0-
Other 24 1 (2) 3
Increase (decrease) in
deferred tax asset
valuation allowance (645) 2,405 $ (673) $ 4,336
------- ------- -------- -------
Total $ -0- $ -0- $ -0- $ -0-
======= ======= ======== =======
As of July 2, 1996, the Company had consolidated net operating loss
carryforwards of approximately $105,000 for income tax reporting purposes that
expire from 2000 through 2009. Approximately $3,700 and $11,800 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, Foods, respectively, for periods prior to
their inclusion in the 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 approximately $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 July 2, 1996, the Company had general business credit carryforwards
of approximately $1,410 which have expiration dates through 2009.
Approximately $74 of the general business credit carryforwards relate to Foods,
for periods prior to its inclusion in the Company-affiliated group. These
credits are subject to limited use.
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While the Restructuring transactions were intended to result in no income
tax expense to the Company, the transactions are likely to 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.
NOTE G: Special Credits
For the thirteen weeks ended July 2, 1996, the Company recognized a
special credit of $699 for the insurance proceeds received related to a fire
loss incurred in February 1994.
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 will
resign as President and Chief Executive Officer by September 30, 1996 and
Chairman of the Board on December 31, 1996, unless requested by the Board of
Directors to continue until December 31, 1997. After his resignation as
President and Chief Executive Officer, 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 and is entitled to receive $75 when he
resigns as President and Chief Executive Officer and $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. The Board of Directors has begun a search for an individual
to serve as President and Chief Executive Officer of the Company. For the
thirteen weeks ended July 2, 1996, the Company recognized $96 of charges
related to the Consulting Agreement.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen Weeks Ended July 2, 1996
RESULTS OF OPERATIONS. Sales for the second fiscal quarter of 1996 were
$50.7 million, a decrease of $3.5 million from the same quarter of 1995.
Operating income for the second quarter of 1996 was $3.4 million compared to
$455 thousand in the prior year. Net income for the second quarter of 1996 was
$3.3 million compared to a net loss of $6.3 million in the second quarter of
1995. Operating results for the second quarter of 1996 include net special
credits aggregating $603 thousand. During the second quarter of 1996, sales
were negatively impacted primarily by including fewer units in the operating
results.
SALES. Restaurant sales in comparable units were 0.8% higher in the
second quarter of 1996 than the same quarter of 1995. Sales for the second
fiscal quarter were $3.4 million lower than the prior year due to there being
13 fewer units included in operating results. Sales in the second quarter
included $852 thousand of Dynamic Foods sales to third parties.
COST OF SALES. Excluding depreciation, cost of sales was 31.1% of sales
for the second quarter of 1996 as compared to 32.8% for the same quarter of
1995. The decrease in the percentage of revenues was the result of changes in
the menu mix offset by lower product costs.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
("SG&A") expense was lower in the aggregate by $2.5 million in the second
quarter of 1996 due primarily to there being 13 fewer units included in the
operating results. The change in SG&A expense included an increase of $204
thousand in professional fees and decreases of $172 thousand in marketing
expense.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
lower by $1.3 million in the second quarter of 1996 due to the reduction of
certain depreciable assets in 1995 in accordance with Statement of Financial
Accounting Standard No. 121 and the reduction in the useful lives of certain
depreciable assets in the prior year.
SPECIAL CREDITS. The operating results include special credits
aggregating $603 thousand. Included in the total is a credit of $699 thousand
for the insurance proceeds related to a fire loss, and a charge of $96 thousand
related to a consulting agreement with Kevin E. Lewis, Chairman of th Board.
(See Note F to the Unaudited Condensed Consolidated Financial Statements.)
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INTEREST EXPENSE. Interest expense was lower than the prior year by $6.7
million as a result of the Restructuring. In accordance with Statement of
Financial Accounting Standard No. 15, the restructured debt was recorded at the
sum of all future principal and interest payments and there is no recognition
of interest expense thereon.
Twenty-six Weeks Ended July 2, 1996
RESULTS OF OPERATIONS. Sales for the twenty-six weeks ended July 2, 1996
were $99.5 million, a decrease of $7.5 million from the same quarter of 1995.
Operating income for the twenty-six weeks ended July 2, 1996 was $5.5 million
compared to $1.1 thousand in the prior year. Net income for the twenty-six
weeks ended July 2, 1996 was $5.3 million compared to a net loss of $12.4
million in the twenty-six weeks ended July 4, 1996. Operating results for the
twenty-six weeks of 1996 include special credits aggregating $603 thousand.
During the twenty-six weeks ended July 2, 1996, sales were negatively impacted
primarily by including fewer units in the operating results.
SALES. Restaurant sales in comparable units were 0.3% higher in the
twenty-six weeks ended July 2, 1996 than the same period of 1995. Sales for
the twenty-six weeks ended July 2, 1996 were $6.7 million lower than the prior
year due to there being 13 fewer units included in operating results. Sales in
the twenty-six weeks ended July 2, 1996 included $1.7 million of Dynamic Foods
sales to third parties.
COST OF SALES. Excluding depreciation, cost of sales was 31.1% of sales
for the twenty-six weeks ended July 2, 1996 as compared to 32.4% for the same
period of 1995. The decrease in the percentage of revenues was principally a
result of lower product costs partially offset by changes in the menu mix.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expense was lower in the aggregate by $5.3 million in the twenty-six weeks
ended July 2, 1996. SG&A expense was $4.9 million lower than the prior year
due to there being 13 fewer units included in operating results. The change in
SG&A expense included increases of $249 thousand in professional fees and $103
thousand in salaries, wages and related benefits, and a decrease of $1.3
million in marketing expense.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
lower by $2.3 million in the twenty-six weeks ended July 2, 1996 due to the
reduction of certain depreciable assets in 1995 in accordance with Statement of
Financial Accounting Standard No. 121 and the reduction in the useful lives of
certain depreciable assets in the prior year.
SPECIAL CREDITS. The operating results include special credits
aggregating $603 thousand. Included in the total is a credit of $699 thousand
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for the insurance proceeds related to a fire loss, and a charge of $96 thousand
related to a consulting agreement with Kevin E. Lewis, Chairman of th Board.
(See Note F to the Unaudited Condensed Consolidated Financial Statements.)
INTEREST EXPENSE. Interest expense was lower than the prior year by $13.3
million as a result of the Restructuring. In accordance with Statement of
Financial Accounting Standard No. 15, the restructured debt was recorded at the
sum of all future principal and interest payments and there is no recognition
of interest expense thereon.
LIQUIDITY AND CAPITAL RESOURCES OF
FURR'S/BISHOP'S, INCORPORATED AND SUBSIDIARIES
During the twenty-six weeks ended July 2, 1996, cash provided from
operating activities of the Company was $9.9 million compared to $6.1 million
in the same period of 1995. The Company made capital expenditures of $4.4
million during the first twenty-six weeks of 1996 as well as during the same
period of 1995. Cash, temporary investments and marketable securities were
$5.1 million at July 2, 1996 compared to $2.2 million at July 4, 1995. The
cash balance at both dates included $800 thousand which was restricted pursuant
to collateral requirements in a letter of credit agreement. The current ratio
of the Company was 0.47:1 at July 2, 1996 compared to .053:1 at July 4, 1995.
The Company's total assets at July 2, 1996 aggregated $81.6 million compared to
$95.3 million at July 4, 1995.
The Company's restaurants are a cash business. Funds available from cash
sales are not needed to finance receivables and are not generally needed
immediately to pay for food, supplies and certain other expenses of the
restaurants. Therefore, the business and operations of the Company have not
historically required proportionately large amounts of working capital, which
is generally common among similar restaurant companies. If Dynamic Foods
expands its sales to third parties, the accounts receivable and inventory
related to such sales could require the Company to maintain additional working
capital.
Total scheduled maturities of long-term debt of the Company and its
subsidiaries over the next five fiscal years are: $2.8 million in 1996, $5.5
million in 1997, $5.5 million in 1998, $5.5 million in 1999 and $5.5 million in
2000.
The Partnership has outstanding $77.3 million of 12% Notes due December
31, 2000, which includes $31.9 million of interest to maturity. Under the
terms of the Indenture covering the 12% Notes, a semi-annual cash interest
payment of approximately $2.7 million is due on each March 31 and September 30.
The obligations of the Partnership under the 12% Notes are secured by a
security interest in and a lien on substantially all of the personal property
of the Partnership and mortgages on all fee (but not leasehold) real properties
of the Partnership (to the extent such properties are mortgageable).
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Additionally, Foods has outstanding the Non-recourse Note in the principal
amount of $2.0 million. The Non-recourse Note is secured by certain real
estate in Lubbock, Texas.
The Company intends to pursue a program of remodeling existing cafeterias,
opening new restaurants, and possibly acquiring existing restaurants or food
service companies. The Company anticipates expending approximately $9 million
in fiscal 1996 to remodel existing cafeterias and open new restaurants and to
make other capital expenditures. No assurance can be given that the Company
will generate sufficient funds from operations or obtain alternative financing
sources to enable it to make the anticipated capital expenditures.
The Company, from time to time, considers whether disposition of certain
of its assets, including real estate owned in fee simple and leasehold
interests, or potential acquisitions of assets would be beneficial or
appropriate for the long-term goals of the Company and in order to increase
stockholder value.
On November 15, 1993, the Company entered into the Amendment to Master
Sublease Agreement, dated as of December 1, 1986, with Kmart pursuant to which,
among other things, the aggregate monthly rent for the period August 1, 1993
through and including December 31, 1996 was reduced by 25%, or approximately
$1.6 million annually, and the aggregate monthly rent for the period January 1,
1997 through and including December 31, 1999 was reduced by 20%, or
approximately $1.2 million annually; provided that, during such period, among
other things, Kevin E. Lewis remains as Chairman of the Board of the Company.
On June 7, 1996, the Company and the Parent entered into an agreement with Mr.
Lewis pursuant to which Mr. Lewis will resign as Chairman of the Board on
December 31, 1996, unless requested by the Board of Directors to continue until
December 31, 1997. (See Note F to the Unaudited Condensed Consolidated
Finanancial Statements.) 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.
The Partnership, the sponsor of the Cavalcade Pension Plan, has agreed to
provide for funding at least two-thirds of the $4.6 million of the unfunded
current liability which existed at the end of fiscal 1992 by the end of 1998.
If the agreed upon funding is not satisfied by the minimum required annual
contributions, as adjusted for the deficit reduction contribution and
determined under Section 412 of the Internal Revenue Code, the Partnership will
make contributions in excess of the minimum annual requirement.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Unaudited Computation of Net Income (Loss) Per Common
Share
(b) Reports on Form 8-K
A report on Form 8-K was filed on April 12, 1996 with respect to
the change in control of the Company, upon exercise of the Put
Option.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FURR'S/BISHOP'S, INCORPORATED FURR'S/BISHOP'S, INCORPORATED
BY: KEVIN E. LEWIS ALTON R. SMITH
----------------------------- -----------------------------
Kevin E. Lewis Alton R. Smith
Chairman, President Principal Accounting Officer
and Chief Executive Officer
Date: July 29, 1996
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Exhibit 11
FURR'S/BISHOP'S INCORPORATED AND SUBSIDIARIES
UNAUDITED COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
(Dollars and shares in thousands, except per share amounts)
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
July 2, July 4, July 2, July 4,
1996 1995 1996 1995
-------- ------- -------- --------
Net Income (Loss) $ 3,301 $ (6,280) $ 5,326 $(12,397)
======== ======== ======== ========
Primary:
Weighted average number of
common shares outstanding 48,667 48,649 48,659 48,649
======== ======== ======== ========
Primary net income (loss) per
share of common stock $ 0.07 $ (0.13) $ 0.11 $ (0.25)
======== ======== ======== ========
Fully Diluted:
Weighted average number of
common shares outstanding 48,667 48,649 48,659 48,649
======== ======== ======== ========
Common shares issued upon
exercise of outstanding warrants 2,684 2,702 2,692 2,702
======== ======== ======== ========
Fully diluted weighted average
common shares outstanding 51,351 51,351 51,351 51,351
======== ======== ========= ========
Fully diluted net income (loss)
per share of common stock $ 0.06 $ N/A $ 0.10 $ N/A
======== ======== ======== ========
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