SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-10725
FURR'S RESTAURANT GROUP, INC.
INCORPORATED IN DELAWARE IRS EMPLOYER INDENTIFICATION
NO. 75-2350724
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 _____
- --------------------------------------------------------------------------------
As of May 2, 2000, there were 9,747,599 shares of Common Stock outstanding.
FURR'S RESTAURANT GROUP, INC.
INDEX
PART I. FINANCIAL INFOMRATION PAGE
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 28, 2000 (Unaudited) and December 28, 1999 3
Unaudited Condensed Consolidated Statements of
Operations - For the thirteen weeks ended
March 28, 2000 and March 30, 1999 5
Unaudited Condensed Consolidated Statement of Changes in
Stockholders' Deficit - For the thirteen weeks ended
March 28, 2000 6
Unaudited Condensed Consolidated Statements of
Cash Flows - For the thirteen weeks ended
March 28, 2000 and March 30, 1999 7
Notes to Unaudited Condensed Consolidated
Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure About Market Risk 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
SIGNATURES 12
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 28, 2000 AND DECEMBER 28, 1999
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
(Unaudited)
March 28, December 28,
2000 1999
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,086 $ 5,172
Accounts and notes receivable, net 1,107 958
Inventories 6,480 6,544
Prepaid expenses and other 986 861
-------- --------
Total current assets 13,659 13,535
-------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 55,475 54,586
DEFERRED TAX ASSETS 20,404 20,846
OTHER ASSETS 482 496
-------- --------
TOTAL ASSETS $ 90,020 $ 89,463
======== ========
(Continued)
3
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 28, 2000 AND DECEMBER 28, 1999
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
(Unaudited)
March 28, December 28,
2000 1999
-------- --------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 5,493 $ 5,493
Trade accounts payable 7,435 5,306
Other payables and accrued expenses 14,118 17,109
Reserve for store closings, current 854 804
-------- --------
Total current liabilities 27,900 28,712
-------- --------
RESERVE FOR STORE CLOSINGS, NET OF CURRENT MATURITIES 2,139 2,558
LONG-TERM DEBT, NET OF CURRENT PORTION 55,219 55,219
OTHER PAYABLES 10,020 10,217
EXCESS OF FUTURE LEASE PAYMENTS OVER FAIR VALUE,
NET OF AMORTIZATION 1,808 1,919
STOCKHOLDERS' DEFICIT:
Preferred Stock, $.01 par value; 5,000,000 shares authorized,
none issued - -
Common Stock, $.01 par value; 15,000,000 shares authorized,
9,747,599 shares issued and outstanding 488 488
Additional paid-in capital 55,996 55,996
Accumulated other comprehensive loss (1,728) (1,728)
Accumulated deficit (61,822) (63,918)
-------- --------
Total stockholders' deficit (7,066) (9,162)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $90,020 $89,463
======== ========
See accompanying notes to condensed consolidated financial statements.
4
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED MARCH 28, 2000 AND MARCH 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
Thirteen weeks ended
------------------------------------
March 28, March 30,
2000 1999
---------------- ----------------
Sales $ 47,764 $ 46,003
Costs and expenses:
Cost of sales (excluding depreciation) 14,036 13,659
Selling, general and administrative 28,459 27,973
Depreciation and amortization 2,646 2,427
Special charge - 566
---------------- ----------------
45,141 44,625
---------------- ----------------
Operating income 2,623 1,378
Interest expense 85 72
---------------- ----------------
Earnings before income taxes 2,538 1,306
Income tax expense 442 -
---------------- ----------------
Net income $ 2,096 $ 1,306
================ ================
Weighted average number of shares of common stock outstanding:
Basic 9,747,599 9,755,037
================ ================
Diluted 9,754,349 9,831,771
================ ================
Net income per share:
Basic $ 0.22 $ 0.13
================ ================
Diluted $ 0.21 $ 0.13
================ ================
See accompanying notes to condensed consolidated financial statements.
5
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE THIRTEEN WEEKS ENDED MARCH 28, 2000
(DOLLARS IN THOUSANDS)
Accumulated
Additional Other
Preferred Common Paid-In Comprehensive Accumulated
Stock Stock Capital Loss Deficit Total
BALANCE, DECEMBER 28, 1999 $ - $ 488 $ 55,996 $ (1,728) $ (63,918) $ (9,162)
Net income - - - - 2,096 2,096
---------- ------ --------- --------- --------- ---------
BALANCE, MARCH 28, 2000 $ - $ 488 $ 55,996 $ (1,728) $ (61,822) $ (7,066)
========== ====== ========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
6
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Thirteen weeks ended
--------------------------------
March 28, March 30,
2000 1999
-------------- -------------
Cash flows from operating activities:
Net income $ 2,096 $ 1,306
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,646 2,427
Deferred tax expense 442 -
Gain on disposition of assets - (154)
Changes in operating assets and liabilities:
Accounts and notes receivable (149) (13)
Inventories 64 359
Prepaid expenses and other (111) (754)
Reserve for store closings (369) (351)
Trade accounts payable, other payables,
accrued expenses and other liabilities (1,059) 226
-------------- -------------
Net cash provided by operating activities 3,560 3,046
-------------- -------------
Cash flows from (used in) investing activities:
Purchases of property, plant and equipment (3,646) (3,080)
Proceeds from the sale of property, plant and equipment - 780
Other, net - (13)
-------------- -------------
Net cash used in investing activities (3,647) (2,313)
-------------- -------------
Cash flows from financing activities:
Other, net - (300)
-------------- -------------
Net cash used in financing activities - (300)
-------------- -------------
Increase/(decrease) in cash and cash equivalents (86) 433
Cash and cash equivalents at beginning of period 5,172 11,571
-------------- -------------
Cash and cash equivalents at end of period $ 5,086 $ 12,004
============== =============
See accompanying notes to condensed consolidated financial statements.
7
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in Thousands)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. These statements should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and notes thereto included
in the Company's Form 10-K for the year ended December 28, 1999. In the opinion
of management, the accompanying unaudited condensed consolidated financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation.
Interim results of operations may not be indicative of the results that may
be expected for a full fiscal year.
EARNINGS PER SHARE
The following table reconciles the denominators of basic and diluted
earnings per share for the thirteen week periods ended March 28, 2000 and March
30, 1999.
March 28, March 30,
2000 1999
-------------- --------------
Weighted average common shares outstanding-basic 9,747,599 9,755,037
Options 6,750 67,731
Warrants - 9,003
-------------- --------------
Weighted average common shares outstanding-diluted 9,754,349 9,831,771
============== ==============
INCOME TAXES
We have provided income tax expense of $442 for the thirteen weeks ended
March 28, 2000. The effective income tax rate is lower than the statutory
Federal rate of 35% due to interest expense on restructured debt, which is
reported as additional debt rather than interest expense pursuant to Statement
of Financial Accounting Standards No. 15, "Troubled Debt Restructurings".
Based on the improved operating results and management's expectation of
future taxable income, we recorded a deferred tax asset of $20,800 at December
28, 1999 through reduction of the related valuation allowance. Prior to that
date, no income tax benefit or expense related to fiscal 1999 results of
operations was provided.
CONTINGENCIES
We are party to litigation with our former president and chief executive
officer regarding payment of severance benefits in the amount of $500.
Management believes there are a number of grounds that will enable us to be
successful in this matter, and that the ultimate resolution of this matter will
not have a material effect on financial position, results of operations or cash
flows.
8
BUSINESS SEGMENTS
Following is a summary of segment information of the Company for the
thirteen weeks ended March 28, 2000 and March 30, 1999:
CAFETERIAS DYNAMIC FOODS TOTAL
---------- ------------- -----
2000:
External revenues $ 47,438 $ 326 $ 47,764
Intersegment revenues - 15,099 15,099
Depreciation and amortization 2,392 254 2,646
Segment profit 1,915 181 2,096
1999:
External revenues $ 45,763 $ 240 $ 46,003
Intersegment revenues - 14,595 14,595
Depreciation and amortization 2,186 241 2,427
Segment profit 1,082 224 1,306
Following is a reconciliation of reportable segments to the Company's
consolidated totals for the thirteen weeks ended March 28, 2000 and March 30,
1999:
MARCH 28, 2000 MARCH 30, 1999
------------------- -------------------
Revenues
Total revenues of reportable segments $ 62,863 $ 60,598
Elimination of inter-segment revenue (15,099) (14,595)
------------------- -------------------
Total consolidated revenues $ 47,764 $ 46,003
=================== ===================
RECENT ACCOUNTING MATTERS
The Company is assessing the reporting and disclosures requirements of SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities and will require the Company to recognize all
derivatives on its balance sheet at fair value. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivatives will either be offset against the change in fair value of the hedged
item through earnings, or recognized in other comprehensive income until the
hedged item is recognized in earnings. The Company expects to adopt SFAS No. 133
in the first quarter of fiscal 2001 and does not anticipate that the adoption
will have a material effect on the Company's results of operations or financial
position.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation: An Interpretation of APB
Opinion No. 25. Among other issues, Interpretation No. 44 clarifies the
application of Accounting Principles Board Opinion No. 25 (APB No. 25) regarding
(a) the definition of employee for purposes of applying APB No. 25, (b) the
criteria for determining whether a plan qualifies as a noncompensatory plan, (c)
the accounting consequences of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. The provisions of
Interpretation No. 44 affecting the Company are to be applied on a prospective
basis effective July 1, 2000.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Sales for the first fiscal quarter of 2000 were $47.8 million, an increase
of $1.8 million from the same quarter of 1999. Operating income for the first
quarter of 2000 was $2.6 million compared to $1.4 million in the comparable
period in the prior year. The operating results of the first quarter of 1999
included a special charge of $566 thousand for the costs associated with the
move of our support center from Lubbock, Texas to Richardson, Texas. The net
income for the first quarter of 2000 was $2.1 million compared to $1.3 million
in the first quarter 1999.
SALES. Restaurant sales in comparable units increased $1.6 million, or 3.4%
in the first quarter of 2000 over the same quarter of 1999, reflecting the
effects of our re-imaging program. First quarter sales for the one new unit
opened since first quarter 1999 was $615 thousand, an increase of $121 thousand
over the aggregate sales of two units that were closed after first quarter 1999.
Sales by Dynamic Foods to third parties were $86 thousand higher in the first
quarter 2000 than that of first quarter 1999.
COST OF SALES. Excluding depreciation, cost of sales were 29.4% of sales
for the first quarter of 2000 as compared to 29.7% for the same quarter of 1999.
The decrease in the percentage of sales was the result of lower product costs.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
("SG&A") expense was higher in the aggregate by $486 thousand in the first
quarter of 2000 as compared to 1999. First quarter 1999 included a gain of $154
thousand from the sale of assets. The change in SG&A expense included an
increase of $94 thousand in rent expense, $159 thousand in supplies expense,
$105 thousand in repairs and maintenance expense, $61 thousand in utility
expenses and $132 thousand in labor and related benefits. We had decreases of
$98 thousand in marketing expense and $191 thousand in other store expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was
higher by $219 thousand in the first quarter of 2000 due to depreciation of
prior year's re-imaging capital expenditures.
INCOME TAXES. Income tax expense of $.4 million was provided in the first
quarter of 2000. Our effective tax rate is lower than the statutory Federal rate
of 35% due to interest expense on restructured debt, which is reported as
additional debt rather than interest expense pursuant to Statement of Financial
Accounting Standard No. 15, "Troubled Debt Restructurings."
Based on sustained improvement in operating results in 1999, we reduced the
valuation allowance recorded against its deferred tax assets and recorded a
deferred tax asset of $20.8 million in the fourth quarter of 1999. Prior to that
time, we provided no annual income tax expense or benefit related to results of
operations. Management now expects to provide for income taxes for interim
periods at our estimated effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
During the thirteen weeks ended March 28, 2000, cash provided by operating
activities was $3.6 million compared to $3.0 million in the same period of 1999.
We made capital expenditures of $3.6 million during the first thirteen weeks of
2000 compared to $3.1 million during the same period of 1999. Cash and temporary
investments were $5.1 million at March 28,
10
2000 compared to $12.0 million at March 30, 1999. Our current ratio was .49:1 at
March 28, 2000 compared to .73:1 at March 30, 1999 and .47:1 at December 28,
1999. Total assets at March 28, 2000 aggregated $90.0 million, compared to $69.6
million at March 30, 1999 and $89.5 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 Proceeding
In July 1998, we filed a declaratory judgment lawsuit in State District
Court in Lubbock, Texas, in which we ask the Court to find that we are not
obligated to make severance payments that have been demanded by Theodore Papit,
the former President and Chief Executive Officer of Furr's. Mr. Papit resigned
effective May 29, 1998, following the election at the annual meeting of
stockholders of Furr's of a slate of directors proposed by Teacher's Insurance
and Annuity Association of America ("TIAA"), our largest stockholder at that
time. He subsequently demanded payment of more than $500,000 of severance and
other amounts that he claimed were owing to him under a President and Chief
Executive Officer Agreement dated March 23, 1998. This agreement was approved by
a split vote of the Board of Directors after TIAA had publicly announced that it
might take action affecting the control of the Company. We have requested a jury
trial and believe that there are a number of grounds that will support the Court
in granting the requested relief, among them being that the Agreement is void as
an interested party transaction that did not receive the necessary approval of
independent, disinterested directors, the terms of the Agreement are not fair to
Furr's and the Agreement was entered into by Furr's without the benefit of full
disclosure by Mr. Papit and consideration by the Board of Directors of material
information regarding his management of the Company.
11
Items 2, 3, 4 and 5 are not applicable and have been intentionally omitted.
Item 6. Exhibits and Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: May 11, 2000 FURR'S RESTAURANT GROUP, INC.
------------------
/s/ Phillip Ratner
---------------------------------------
Phillip Ratner
President and Chief Executive Officer
/s/ Paul G. Hargett
---------------------------------------
Paul G. Hargett
Chief Financial Officer
12