UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
----------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 2, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-10725
FURR'S RESTAURANT GROUP, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 75-2350724
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3001 E. PRESIDENT GEORGE BUSH HIGHWAY, RICHARDSON, TX 75082
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (972) 808-2923
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value American 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.
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 27, 2001, was $19,517,312.
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 APRIL 2, 2001.
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Common Stock, par value $.01 per share 9,758,741
Portions of the definitive proxy statement relating to the 2001 annual
meeting of stockholders are incorporated by reference in Part III.
1
FURR'S RESTAURANT GROUP, INC.
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . 6
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . 7
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 8
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . 13
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . 14
PART III
Item 10. Directors and Executive Officers of the Registrant. . . . . . . . . . 14
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . 14
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . 14
Item 13. Certain Relationships and Related Transactions. . . . . . . . . . . . 14
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2
PART I
Item 1. BUSINESS
GENERAL
Furr's Restaurant Group, Inc. (the "Company" or "Furr's"), formerly
known as Furr's/Bishop's, Incorporated was incorporated in Delaware in 1991
and, through its subsidiaries, is one of the largest operators of
family-style cafeteria restaurants in the United States. We believe that our
cafeterias and buffets, which are operated under the "Furr's" and "Bishop's"
names, are well recognized in their regional markets for their value,
convenience, food quality and friendly service. Our 94 cafeterias and two
buffets are located in twelve states in the Southwest, West and Midwest. In
addition, we operate Dynamic Foods, our food preparation, processing and
distribution division, in Lubbock, Texas. Dynamic Foods provides in excess of
85% of the food and supply requirements of our cafeteria and buffet
restaurants. Dynamic Foods also sells bakery items and various prepared foods
to the restaurant, food service and retail markets.
FAMILY DINING DIVISION
The Family Dining Division consists of 94 cafeterias and two
pay-at-the-door buffet-style restaurants operated by Cafeteria Operators,
L.P., an indirect wholly owned partnership subsidiary of Furr's ("Cafeteria
Operators").
CAFETERIAS. Cafeterias occupy a long standing niche in the food
service industry, providing the customer with a pleasant, moderately-priced
alternative to fast-food chains and conventional full-service restaurants.
Our cafeterias offer a wide variety of meals appealing to a broad range of
personal tastes, including chicken, beef, fish and pasta entrees; soup, salad
and vegetable choices; non-alcoholic beverages; and freshly baked pies and
cakes. The food is prepared for serving by the individual cafeteria. The
Company's cafeterias are generally characterized by quick service and modest
average prices per guest. Guest tickets for the fiscal years ended January 2,
2001, December 28, 1999 and December 29, 1998 averaged approximately $6.00,
$5.97 and $5.79 respectively. Our cafeterias average approximately 10,000
square feet in size and have average seating capacity for approximately 300
guests. Virtually all of our cafeterias feature "All-You-Can-Eat" at a fixed
price all day, every day, as well as the traditional "a la carte" pricing
alternative, which allows customers to choose the pricing and dining format
which they find the most attractive.
Management believes that the "Furr's" and "Bishop's" names are
widely recognized in their regional markets. Management's emphasis on
consistent food quality, variety, cleanliness and service has led to a loyal
guest base. Our customer base consists principally of people over 45 years of
age, shoppers, working people and young families.
BUFFET. Our buffet-style restaurants feature traditional American
and ethnic foods at a fixed price that entitles each guest to unlimited
servings of all menu items and beverages. Food items are served in a "scatter
bar" format at buffet islands centrally located in the restaurant's food
service area. The "scatter-bar" buffet format emphasizes customer choice by
allowing customers to select at their own pace in self selected portions,
thereby improving the restaurant experience for the guest.
We opened a new prototype, built from the ground up, under the name
"Furr's Family Buffet" in June 2000. This buffet unit is approximately 11,000
square feet and can seat approximately 420 guests. The restaurant is open to
guests every day of the year, 12 hours per day for lunch and dinner with
breakfast available on Saturdays and Sundays. Guest tickets for the fiscal
year ended January 2, 2001 averaged $6.29. Our other buffet unit is a
converted cafeteria that is approximately 10,000 square feet in size and has
seating capacity for approximately 300 guests. Guest tickets for the fiscal
years ended January 2, 2001, December 28, 1999 and December 29, 1998 averaged
approximately $6.08, $6.06 and $6.05, respectively.
MARKETING AND ADVERTISING
Our marketing program utilizes a variety of media to attract
customers to our restaurants and to create a targeted image for our
restaurants. We utilize point of sale advertising within our restaurants to
focus customers on the various food items and promotions being offered at the
restaurant. Television advertisements are used to enhance our image with
respect to food quality and value pricing. Also, billboard advertising,
newspaper and direct mail programs within the communities in which we have a
large presence are used to direct customers to our restaurants and to promote
specific programs, including the one-price "All-You-Can-Eat" concept. We
frequently use all of our marketing tools together to promote the concept. In
addition, store managers and other personnel are encouraged to participate in
local public relations and promotional efforts.
3
DYNAMIC FOODS
We operate Dynamic Foods, a food purchasing, processing and
distribution facility in Lubbock, Texas that supplies in excess of 85% of the
food and supply requirements of our family dining restaurants, providing us
with uniform quality control and the ability to make volume purchases. In
addition, management believes that there is significant potential for
utilizing the available excess capacity at Dynamic Foods by increasing sales
to third parties. In fiscal 2000, third party sales by Dynamic Foods
aggregated $1.7 million.
Dynamic Foods has approximately 140 separate food items available
under the "Dynamic Foods" label for distribution to our restaurants and for
sale to third parties. Currently, approximately 97% of Dynamic Food's
manufacturing output is used at our restaurants and the remainder is sold to
third parties.
RESTAURANT MANAGEMENT
The success of each restaurant's operation is largely dependent upon
the quality of in-store management and mid-level supervisory management.
Experienced and well trained in-store management is important to assure good
service, quality food and the cleanliness of each restaurant, to control
costs and to monitor local eating habits and traffic.
Each cafeteria and buffet is operated under the supervision of a
general manager, an assistant general manager and one or two assistant
managers. Each cafeteria generally employs between 40 and 70 workers, of whom
approximately 20% are part-time workers.
The general managers of our family dining restaurants report to ten
regional managers who, in turn, report to the Director and Vice President of
Operations. The general managers have responsibility for day-to-day
operations, including food ordering, labor scheduling, menu planning,
customer relations and personnel hiring and supervision. The regional
managers visit each restaurant regularly and work with the in-store managers
to evaluate and maintain overall operating standards. They also make
financial and quality control checks, train personnel in operating procedures
and evaluate procedures developed by cafeteria and buffet personnel for
possible use in all company-owned family dining units.
SERVICE MARKS AND TRADEMARKS
We utilize and are dependent upon certain registered service marks,
including "Furr's", "Furr's Family Dining", "Furr's Cafeterias," "Bishop's
Buffet" and "Dynamic Foods," and a stylized "F" trademarked by Furr's. These
and other trademarks are current and are renewable on various dates through
February 2008. We are not aware of any party who could prevail in a contest
of the validity of such service marks and trademarks.
SEASONALITY
Customer volume on a company-wide basis at most established
restaurants is generally somewhat lower in the winter months, due primarily
to weather conditions in certain of the markets for our restaurants. As a
consequence, the first and fourth quarters of the year historically produce
lower sales. A harsh winter season has a negative effect on our revenues and
results of operations.
WORKING CAPITAL REQUIREMENTS
Our restaurants are a cash business. Funds available from cash sales
are not needed to finance receivables and are generally not needed
immediately to pay for food, supplies and certain other expenses of the
restaurants. Therefore, our business and operations have not historically
required proportionately large amounts of working capital, which is generally
common among similar restaurant companies. Should Dynamic Foods expand its
sales to third parties, the accounts receivable and inventory related to such
sales could require it to maintain additional working capital. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -Liquidity and Capital Resources."
COMPETITION
The food service business is highly competitive in each of the
markets in which our restaurants operate and is often affected by changes in
consumer tastes, economic conditions and demographic and local traffic
patterns. In each area in which our restaurants operate, there are a large
number of other food service outlets including other cafeterias, buffets and
fast-food and limited-menu restaurants which compete directly and vigorously
with our restaurants in all aspects, including quality and variety of food,
price, customer service, location and the quality of the overall dining
experience.
4
Neither Furr's nor any of its competitors has a significant share of
the total food service market in any area in which we compete. We believe
that our principal competitors are other cafeterias and buffets,
moderately-priced, conventional restaurants, fast-food outlets and
eat-at-home alternatives. Many of our competitors, including our primary
cafeteria and buffet competitors, have greater financial resources and lower
total debt-to-equity ratios than Furr's. We compete with other food service
outlets for management personnel based on salary, opportunity for advancement
and stability of employment. We believe we offer existing and prospective
management personnel an attractive compensation and benefits package with
opportunity for advancement in a stable segment of the food service industry.
The food manufacturing and distribution business is highly
competitive and many of Dynamic Foods' competitors are large regional or
national food processors and distributors with significantly greater
financial resources than Furr's. Accordingly, there can be no assurance that
Dynamic Foods will be able to generate significantly higher revenue or
increase our profitability.
CAPITAL EXPENDITURE PROGRAM
During the fiscal years ended January 2, 2001, December 28, 1999 and
December 29, 1998, Furr's expended $12.8 million, $19.9 million and $7.7
million, respectively, for capital expenditures principally to maintain and
remodel existing cafeterias, upgrade its computer and information systems,
construct four new units, relocate one unit and improve the facility operated
by Dynamic Foods. The capital expenditures in 1998 and 1999 were primarily
due to a significant cafeteria reimaging program. In 2000, we spent $3.9
million to complete the reimage program (total of 43 restaurants reimaged)
and $4.8 million to construct three new units and relocate one unit. The
remaining units that were not selected for reimaging were determined to
either not need updating or would not yield a sufficient return on the
investment. With our reimaging program complete, we expect 2001 expenditures
to be for routine maintenance of our units, corporate facilities, and Dynamic
Foods. Our capital expenditure program is necessary to enable us and our
subsidiaries to increase our revenue and profitability.
EMPLOYEES
As of March 12, 2001, we employed approximately 5,400 persons, of
whom approximately 4,600 were employed on a full-time basis. We employed
approximately 340 persons as managers or assistant managers in restaurants,
10 persons as regional managers and approximately 48 persons in executive,
administrative or clerical positions in the corporate office. None of our
employees are covered by collective bargaining agreements. We believe we
maintain good relations with our employees.
The majority of our restaurants pay average wages in excess of the
current minimum wage standards. However, any future increase in the federal
minimum wage could have the effect of increasing our labor costs. In recent
years, the market for those employees who have traditionally been employed in
the restaurant industry has become increasingly competitive due to fewer
persons entering this category of wage earner and the increased government
regulation of immigrants entering and working in the United States. In
response to this decrease in the available labor pool, we have increased our
average hourly wage and expanded our hiring and training efforts.
REGULATION
Our restaurants are subject to numerous federal, state and local
laws affecting health, sanitation, waste water, fire and safety standards. We
believe that we are in substantial compliance with applicable laws and
regulations governing our operations.
The Federal Americans With Disabilities Act, which became effective
as to public accommodations and employment in 1992, prohibits discrimination
on the basis of disability. Our recently completed remodeling of existing
restaurants, required expenditures to comply with these regulations in order
to provide service to, or make reasonable accommodations for the employment
of, disabled persons.
5
Item 2. PROPERTIES
RESTAURANT LOCATIONS. The following table sets forth the number of
restaurants operated by the Company in certain states as of March 12, 2001.
STATE NUMBER OF RESTAURANTS
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Arizona 7
Arkansas 2
California 2
Colorado 7
Illinois 1
Iowa 5
Kansas 6
Missouri 2
Nevada 2
New Mexico 13
Oklahoma 10
Texas 39
96
SITE SELECTION. We generally intend to reposition existing
restaurants or open new restaurants in markets in which our restaurants are
presently located and in adjacent markets, in order to improve our
competitive position and increase operating margins by obtaining economies of
scale in merchandising, advertising, distribution, purchasing and
supervision. The primary criteria considered in selecting new locations are a
high level of customer traffic, convenience to both lunch and dinner
customers in demographic groups that tend to favor our restaurants and the
occupancy cost of the proposed restaurant. Our ability to open new
restaurants depends on a number of factors, including our ability to find
suitable locations and negotiate acceptable leases, our ability to attract
and retain a sufficient number of qualified restaurant managers and the
availability of sufficient financing.
PROPERTIES. Forty-two of our restaurants are leased from third
parties, another 33 are subleased under a master sublease agreement, 12 are
owned and are situated on land leased from third parties and nine are owned
in fee simple. Most of the leases have initial terms of from 10 to 20 years
and contain provisions permitting renewal for one or more specified terms at
specified rental rates. Some leases provide for fixed annual rent plus rent
based on a percentage of sales. The average restaurant contains approximately
10,000 square feet and seats approximately 300 guests.
Dynamic Foods' food manufacturing and distribution facility contains
approximately 175,000 square feet and is situated on approximately 24 acres
owned by Furr's in fee simple in Lubbock, Texas. In addition, a grocery
warehouse of approximately 36,000 square feet and a truck terminal of
approximately 7,200 square feet are located adjacent to the distribution
facility.
Our executive offices are located in approximately 28,000 square
feet of leased office space in Richardson, Texas. We believe that the space
will be adequate to conduct our current operations for the foreseeable future.
Additionally, the Company leases nine properties under a master
sublease, leases two properties from third parties and owns five buildings
situated on land leased from third parties, which are not used in the
Company's restaurant business and are leased to third parties or placed on
the market for sale.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
6
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON STOCK
The Common Stock, par value $.01 per share ("Common Stock"), is
traded on the American Stock Exchange ("AMEX") under the symbol "FRG." As of
March 27, 2001, there were 9,758,656 shares of Common Stock outstanding and
approximately 2,000 record holders. The closing price of the Common Stock on
March 27, 2001 was $2.00.
As of March 27, 2001, no cash dividends had been declared on the
Common Stock. The terms of the indebtedness of Cafeteria Operators limits its
ability to distribute funds to the Company for the payment of dividends on
the Common Stock. The Company does not anticipate paying dividends in the
foreseeable future.
The following table provides the high and low closing prices for
each quarter of the last two fiscal years:
1999 2000
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HIGH LOW HIGH LOW
------------ ------------ ------------ ------------
First Quarter $ 7.19 $ 4.69 $ 4.13 $ 2.81
Second Quarter 5.31 3.75 3.19 2.63
Third Quarter 4.06 2.50 3.38 2.75
Fourth Quarter 3.75 2.50 2.94 1.00
Item 6. SELECTED FINANCIAL DATA (in thousands, except per share data)
Fiscal Years Ended
-------------------------------------------------------------------------------
January 2, December 28, December 29, December 30, December 31,
2001 1999 1998 1997 1996
---- ---- ---- ---- ----
Sales (1) $ 196,047 $ 188,060 $ 188,208 $ 193,530 $ 197,196
Net Income (loss) 8,521 31,262 (1,229) (5,396) 8,363
Income (loss) per common share,
diluted (2) 0.87 3.19 (0.13) (0.55) 0.85
Total assets 89,431 89,463 68,509 65,801 75,259
Long term obligations (3) 65,416 70,929 81,902 78,974 82,905
(1) The Company closed five restaurants in 2000, two restaurants in 1999,
four restaurants in 1998, eight restaurants in 1997 and five
restaurants in 1996. The Company opened three restaurants in 2000, one
restaurant in 1999 and one restaurant in 1997.
(2) All years based on Common Stock outstanding after giving effect to the
reverse stock splits effected in 1999 and 1996.
(3) Consists of total long-term debt, including current maturities, and
other payables, and includes $6,896, $12,389, $17,882, $23,374 and
$28,867 of interest accrued to maturity on long-term debt in fiscal
year ended January 2, 2001, December 28, 1999, December 29, 1998,
December 30, 1997 and December 31, 1996, respectively.
7
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's fiscal year is a 52-53 week year. Fiscal year 2000
included 53 weeks, fiscal years 1999 and 1998 included 52 weeks.
The following table sets forth certain statement of operations data and
restaurant data for the fiscal years indicated (dollars in thousands, except
sales per unit):
2000 1999 1998
---- ---- ----
Statement of operations data:
Sales $ 196,047 $ 188,060 $ 188,208
Costs and expenses:
Cost of sales (excluding depreciation) 57,376 56,036 55,801
as a percent of sales 29.27 29.80% 29.65%
Selling, general and administrative 117,653 113,202 114,756
as a percent of sales 60.01% 60.19% 60.97%
Depreciation and amortization 10,944 10,335 10,097
Special charges - 566 8,583
---------- ---------- ----------
Total costs and expenses 185,973 180,139 189,237
---------- ---------- ----------
Operating income (loss) 10,074 7,921 (1,029)
(Gain) loss on disposal of assets (494) 125 (50)
Interest expense 344 349 250
---------- ---------- ----------
Income (loss) before income taxes 10,224 7,447 (1,229)
Income tax expense (benefit) 1,703 (23,815) -
---------- ---------- ----------
Net income (loss) $ 8,521 $ 31,262 $ (1,229)
========== ========== ==========
Restaurant units in operation:
Beginning of year 98 99 103
Opened 3 1 -
Closed (5) (2) (4)
---------- ---------- ----------
End of year 96 98 99
========== ========== ==========
Year over year comparable store sales change
(for units open at year end and which
operated the full year) 1.30% 1.98% 2.98%
========== ========== ==========
Average weekly sales per restaurant unit
(for units open at year end and which
operated the full year) $37,195 $36,701 $35,621
========== ========== ==========
8
FIFTY-THREE WEEKS ENDED JANUARY 2, 2001 COMPARED TO FIFTY-TWO WEEKS ENDED
DECEMBER 28, 1999
RESULTS OF OPERATIONS. Sales for the fifty-three week fiscal year
ended January 2, 2001 were $196.0 million or $3.7 million per week, an
increase of $8.0 million from the fiscal year ended December 28, 1999 or $.1
million per week. Comparable store sales increased by $2.4 million or 1.3% in
2000 compared to 1999. Comparable store sales compares the 53 weeks of fiscal
2000 to the 52 weeks of fiscal 1999 plus the first week of fiscal 2000.
Our net income was $8.5 million for fiscal 2000 comparing to a net
income of $31.3 million for the prior year or $0.87 per share compared to
$3.19 per share, respectively. The operating results for 1999 included
special charges aggregating $.6 million. Before special charges, net income
for fiscal 1999 was $31.8 million including a $2.9 million income tax benefit
from the settlement of Internal Revenue Service litigation resulting from the
purchase of the Company from K-Mart in 1986. In addition, we recorded an
income tax benefit in the fourth quarter of 1999 of $20.8 million. This
income tax benefit reflects recognition of a portion of the deferred tax
asset associated with our net operating loss (NOL) carryforwards which
aggregated $118.6 million at December 28, 1999. These NOLs are available to
Furr's to offset future taxable income for the purpose of reducing our income
tax payments. The benefit of this NOL could not be recognized until we
determined that it is "more likely than not" we would realize the benefits
through profitable operations. As a result of eight consecutive quarters of
comparable store sales growth, positive results from our reimaging program
and the settlement of the "Aull" pension litigation, we believed at December
28, 1999 it to be "more likely than not" we will recognize a portion of the
benefit from the NOL carryforward.
Our pretax income excluding these items in 1999 increased by 27.6%
to $10.2 million in 2000 compared to $8.0 million for 1999.
SALES. Restaurant sales in comparable units were 1.3% higher in
fiscal 2000 than 1999 adjusted to 53 weeks. Sales in 2000 were higher than
the prior year by $7.9 million or $.1 million on a weekly comparison.
Revenues in fiscal year 2000 included $1.7 million of Dynamic Foods sales to
third parties compared to $1.2 million in fiscal 1999, an increase of $10
thousand per week or 43%.
COSTS OF SALES. Cost of sales was 29.3% of sales for fiscal year
2000 compared to 29.8% for fiscal year 1999, due to aggressive buying
strategies and menu mix.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expense was higher in the aggregate by $4.5 million in fiscal
year 2000. Of the increase, $.9 million was due to new unit costs in excess
of costs of units closed during the year and approximately $1.6 million was
due to the 53rd week in fiscal 2000. SG&A expense includes increases of $1.5
million in labor and related expense, $613 thousand in utility expense and
$437 thousand in repairs and maintenance expense and a decrease of $404
thousand in marketing expense.
SPECIAL CHARGES. The operating results for fiscal 1999 include a
special charge of $566 thousand for expenses related to the relocation of the
corporate offices from Lubbock, Texas to Richardson, Texas.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
was $609 thousand higher than the prior year, due to the depreciation on
capital expenditures in the prior and current year principally related to our
remodeling program and three new units opened in fiscal 2000.
INTEREST EXPENSE. Interest expense was $344 thousand, which was
lower than the prior year by $5 thousand. As discussed in note 2 to the
consolidated financial statements, in accordance with Statement of Financial
Accounting Standards No. 15 "Troubled Debt Restructurings" (SFAS 15), certain
debt was recorded at the sum of all future principal and interest payments
and there is no recognition of interest expense thereon. Cash payments not
recorded as expense in 2000 and 1999 amounted to $5.5 million each year.
INCOME TAX BENEFIT. As discussed above and in note 6 to the
consolidated financial statements, in fiscal 1999 we recorded a deferred tax
asset of $20.8 million, and a reduction of a prior year income tax liability
related to an Internal Revenue Service examination, which was settled in
1999, of $2.9 million. We have provided income tax expense of $1.7 million
for fiscal year 2000. The effective income tax rate is lower than the
Statutory Federal rate of 35% due to interest expense on the restructured
debt, which is reported as additional debt rather than interest expense
pursuant to SFAS No. 15, "Accounting by Debtors and Creditors for Troubled
Debt Restructurings" in the accompanying consolidated statement of
operations, but which is a deductible expense for Federal income tax purposes.
9
FIFTY-TWO WEEKS ENDED DECEMBER 28, 1999 COMPARED TO FIFTY-TWO WEEKS ENDED
DECEMBER 29, 1998
RESULTS OF OPERATIONS. Sales for the fifty-two week fiscal year
ended December 28, 1999 were $188.1 million, a decrease of $.1 million from
the fiscal year ended December 29, 1998. Comparable store sales increased by
$3.4 million or 1.98% in 1999 compared to 1998.
Our net income was $31.3 million for fiscal 1999 comparing to a net
loss of $1.2 million for the prior year or net income of $3.19 per share
compared to a net loss of $0.13 per share, respectively. The operating
results for 1999 and 1998 included special charges aggregating $.6 million
and $8.6 million, respectively. Before special charges, net income for fiscal
1999 was $31.8 million including a $2.9 million income tax benefit from the
settlement of Internal Revenue Service litigation resulting from the purchase
of the Company from K-Mart in 1986. In addition, a net operating loss ("NOL")
carry-forward of approximately $119 million is available to Furr's to offset
future taxable earnings for the purposes of reducing our income tax payments.
However, the benefit of this NOL could not be recognized until we determined
that it is "more likely than not" we would realize the benefits through
profitable operations. As a result of eight consecutive quarters of
comparable store sales growth, positive results from our reimaging program
and the settlement of the "Aull" pension litigation, we believe it to be
"more likely than not" we will recognize a benefit from the NOL. Accordingly,
we recorded an income tax benefit in the fourth quarter of 1999 of $20.8
million.
Our pretax income excluding these items increased by 8.1% to $8.0
million in 1999 compared to $7.4 million for 1998.
SALES. Restaurant sales in comparable units were 1.98% higher in
fiscal 1999 than 1998. Sales in 1999 were lower than the prior year by $.1
million. Revenues in fiscal year 1999 included $1.2 million of Dynamic Foods
sales to third parties compared to $1.0 million in fiscal 1998.
COSTS OF SALES. Cost of sales was 29.8% of sales for fiscal year
1999 compared to 29.7% for fiscal year 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expense was lower in the aggregate by $1.4 million in fiscal
year 1999. Of the decrease, $3.0 million was due to fewer units being
included in operating results. SG&A expense includes increases of $1.7
million in labor and related expense, $608 thousand in marketing expense and
$421 thousand in rent expense. SG&A expense includes decreases of $488
thousand in utility expense, $740 thousand in casualty insurance and $642
thousand in legal and professional expenses.
SPECIAL CHARGES. The operating results for fiscal 1999 include a
special charge of $566 thousand for expenses related to the relocation of the
corporate offices from Lubbock, Texas to Richardson, Texas. The operating
results for fiscal 1998 include special charges aggregating $8.6 million.
Included in the total are charges of $6.2 million for the estimated costs of
litigation settlements, $1.5 million for expenses related to closed stores
and the write down of certain properties, $610 thousand related to a proxy
contest for the election of the Board of Directors and $291 thousand for the
write off of the deferred costs associated with outstanding warrants.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
was $238 thousand higher than the prior year, due to the depreciation on
capital expenditures in the prior and current year principally related to our
on- going remodeling program.
INTEREST EXPENSE. Interest expense was $349 thousand, which was
higher than the prior year by $99 thousand. As discussed in note 2 to the
consolidated financial statements, in accordance with SFAS 15, certain debt
was recorded at the sum of all future principal and interest payments and
there is no recognition of interest expense thereon. Cash payments not
recorded as expense in 1999 and 1998 amounted to $5.5 million each year.
INCOME TAX BENEFIT. As discussed above and in note 6 to the
consolidated financial statements, in fiscal 1999 we recorded a deferred tax
asset of $20.8 million, and a reduction of a prior year income tax liability
related to an Internal Revenue Service examination, which was settled in
1999, of $2.9 million. No income tax benefit was recorded in fiscal 1998.
10
NEW ACCOUNTING PRONOUNCEMENTS
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. The Company 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 operation or financial position.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 2000, cash provided from our operating activities was
$17.4 million compared to $16.2 million in 1999. Cash used for the payment of
interest was approximately $5.8 million in 2000 and 1999. We made capital
expenditures of $12.8 million during 2000 compared to $19.9 million during
1999. Cash, temporary investments and marketable securities were $5.7 million
at January 2, 2001 compared to $5.2 million at December 28, 1999. The current
ratio of the Company was .57:1 at January 2, 2001 compared to .47:1 at
December 28, 1999. Our total assets at January 2, 2001 aggregated $89.4
million compared to $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, our business and operations have not historically
required proportionately large amounts of working capital, which is generally
common among similar restaurant companies. Should Dynamic Foods expand its
sales to third parties, the accounts receivable and inventory related to such
sales could require us to maintain additional working capital.
On April 10, 2001, we entered into a new $55 million Revolving
Credit and Term Loan Agreement (Credit Agreement) with various banks and
lenders. Concurrent with the execution of this new agreement we defeased and
gave notice of redemption of our 12% Senior Secured Notes due December 31,
2001 and repaid in full the $2.6 million of 10.5% Notes due December 31,
2001. Accordingly, the balance of these notes, less the current portion of
the new term loan, has been classified as long term at January 2, 2001. After
the redemption of the 12% Notes and the 10.5% Notes, we had $44 million
outstanding under the new Credit Agreement. The Credit Agreement contains
covenants with regard to maintaining certain leverage ratios, achieving
certain levels of EBITDA, operating cash flow and limits on capital
expenditures. In addition there are certain restrictions on the payment of
dividends and additional indebtedness. The Credit Agreement allows us to
borrow at either a Federal Funds Rate plus an applicable margin or at a
Eurocurrency Reserve Rate plus an applicable margin.
The Credit Agreement provides that we can borrow up to $20 million
on a revolving basis until April, 2006, of which $9 million was drawn at
closing, with the remaining $11 million of available borrowings to be used
for working capital and capital expenditures. The Credit Agreement contains a
$30 million Term loan A and a $5 million Term loan B. The Term loan A and
Term loan B provide for quarterly amortization through April, 2006 and April,
2007, respectively, with the remaining amounts outstanding then due. Our
obligations under the Credit Agreement are secured by a security interest in
and liens upon substantially all of our assets.
As a result of defeasing the 12% Senior Secured Notes, we have been
legally released as obligors and will report an extraordinary pre-tax gain of
approximately $3.5 million in the second quarter of 2001.
During the fiscal years ended January 2, 2001, December 28, 1999 and
December 29, 1998, Furr's expended $12.8 million, $19.9 million and $7.7
million, respectively, principally to maintain and remodel existing
cafeterias, upgrade its computer and information systems, construct four new
units, relocate one unit and improve the facility operated by Dynamic Foods.
The capital expenditures in 1998 and 1999 were primarily due to a significant
reimaging program. In 2000, we spent $3.9 million to complete the reimage
program (total of 43 restaurants reimaged) and $4.8 million to construct
three new units and relocate one unit. The remaining units that were not
selected for reimaging were determined to either not need updating or would
not yield a sufficient return on the investment. With our reimaging program
complete, we expect 2001 expenditures to be $3.2 million, principally for
routine maintenance of our units, corporate facilities, and Dynamic Foods.
Our capital expenditure program is necessary to enable us and our
subsidiaries to increase our revenue and profitability.
11
From time to time, we consider whether disposition of certain of our
assets, including our food processing and distribution operations, real
estate owned in fee simple and leasehold interests or potential acquisitions
of assets would be beneficial or appropriate for our long-term goals and in
order to increase stockholder value.
In 1999 Furr's settled litigation and an IRS audit involving our
pension plan. The cash impact of the settlement on Furr's includes payment in
2000 of $1.5 million of expenses for legal and professional fees, with the
remainder of the settlement to be paid to the Plan in future years to fund
increased benefit payments to former and current employees. The settlement
did not require any funding payments to the Plan by Furr's in 2000 but is
expected to require payments by Furr's to the Plan of approximately $2.2
million in 2001 and approximately $850 thousand in 2002, with additional
funding payments required in subsequent years in amounts that are expected to
decline over time, subject to the overall funding status of the Plan.
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.
12
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's fiscal year is a 52-53 week year. Fiscal year 2000
included 53 weeks. Fiscal years 1999 and 1998 included 52 weeks.
Index to Consolidated Financial Statements and Financial Statement Schedule
Page
No.
----
Independent Auditors' Report F-1
Consolidated Balance Sheets--
January 2, 2001 and December 28, 1999 F-2
Consolidated Statements of Operations--
Years ended January 2, 2001, December 28, 1999 and December 29, 1998 F-4
Consolidated Statements of Changes in Stockholders' Deficit--
Years ended January 2, 2001, December 28, 1999 and December 29, 1998 F-5
Consolidated Statements of Cash Flows--
Years ended January 2, 2001, December 28, 1999 and December 29, 1998 F-6
Notes to Consolidated Financial Statements--
Years ended January 2, 2001, December 28, 1999 and December 29, 1998 F-8
Financial Statement Schedule--
II Consolidated Valuation and Qualifying Accounts 20
Years ended January 2, 2001, December 28, 1999 and December 29, 1998
13
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Furr's Restaurant Group, Inc.:
We have audited the consolidated financial statements of Furr's Restaurant
Group, Inc. and subsidiaries as listed in the accompanying index. 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Furr's
Restaurant Group, Inc. and subsidiaries as of January 2, 2001 and December
28, 1999 and the results of their operations and their cash flows for each of
the years in the three-year period ended January 2, 2001, in conformity with
accounting principles generally accepted in the United States of America.
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.
KPMG LLP
Dallas, Texas
February 23, 2001, except as
to note 3, which is
as of April 10, 2001
F-1
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS JANUARY 2, 2001 AND DECEMBER 28, 1999
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
January 2, December 28,
2001 1999
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,694 $ 5,172
Accounts and notes receivable (net of allowance for doubtful
accounts of $89 and $14, respectively) 1,260 958
Inventories 6,908 6,544
Prepaid expenses and other 887 861
-------- ---------
Total current assets 14,749 13,535
-------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land 6,994 7,322
Buildings 36,963 31,374
Leasehold improvements 32,918 28,427
Equipment 39,565 42,515
Construction in progress 288 4,024
-------- ---------
116,728 113,662
Less accumulated depreciation and amortization (61,852) (59,076)
-------- ---------
Property, plant and equipment, net 54,876 54,586
DEFERRED TAX ASSET 19,178 20,846
OTHER ASSETS 628 496
-------- ---------
TOTAL ASSETS $ 89,431 $ 89,463
======== =========
(Continued)
F-2
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS JANUARY 2, 2001 AND DECEMBER 28, 1999
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
January 2, December 28,
2001 1999
---- ----
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 3,000 $ 5,493
Trade accounts payable 6,051 5,306
Other payables and accrued expenses 15,859 17,109
Reserve for store closings, current 795 804
---------- ---------
Total current liabilities 25,705 28,712
---------- ---------
RESERVE FOR STORE CLOSINGS, NET OF CURRENT MATURITIES 2,270 2,558
LONG-TERM DEBT, NET OF CURRENT MATURITIES 52,219 55,219
OTHER PAYABLES 10,197 10,217
EXCESS OF FUTURE LEASE PAYMENTS OVER FAIR VALUE,
NET OF AMORTIZATION 1,474 1,919
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred Stock, $.01 par value; 5,000,000 shares authorized,
none issued
Common Stock, $.01 par value; 15,000,000 shares authorized,
9,757,918 issued and outstanding in 2000 and 1999 98 98
Additional paid-in capital 56,386 56,386
Accumulated other comprehensive loss (3,521) (1,728)
Accumulated deficit (55,397) (63,918)
---------- ---------
Total stockholders' deficit (2,434) (9,162)
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 89,431 $ 89,463
========== =========
See accompanying notes to consolidated financial statements.
F-3
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED JANUARY 2, 2001, DECEMBER 28, 1999 AND DECEMBER 29, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED
-----------------------------------------------------------
JANUARY 2, 2001 DECEMBER 28, 1999 DECEMBER 29, 1998
--------------- ----------------- -----------------
Sales $196,047 $188,060 $188,208
Costs and expenses:
Cost of sales (excluding depreciation) 57,376 56,036 55,801
Selling, general and administrative 117,653 113,202 114,756
Depreciation and amortization 10,944 10,335 10,097
Special charges - 566 8,583
----------- ---------- -----------
185,973 180,139 189,237
----------- ---------- -----------
Operating income (loss) 10,074 7,921 (1,029)
(Gain) loss on disposal of assets (494) 125 (50)
Interest expense 344 349 250
----------- ---------- -----------
Income (loss) before income taxes 10,224 7,447 (1,229)
Income tax expense (benefit) 1,703 (23,815) -
----------- ---------- -----------
Net income (loss) $ 8,521 $ 31,262 $ (1,229)
=========== ========== ===========
Income (loss) per common share:
Basic:
Net income (loss) $ 0.87 $ 3.20 $ (0.13)
=========== ========== ===========
Weighted average shares 9,757,918 9,757,123 9,735,805
=========== ========== ===========
Diluted:
Net income (loss) $ 0.87 $ 3.19 $ (0.13)
=========== ========== ===========
Weighted average shares 9,758,137 9,800,549 9,735,805
=========== ========== ===========
See accompanying notes to consolidated financial statements.
F-4
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FISCAL YEARS ENDED JANUARY 2, 2001, DECEMBER 28, 1999 AND DECEMBER 29, 1998
(DOLLARS IN THOUSANDS)
Accumulated
Additional Other
Preferred Common Paid-In Comprehensive Accumulated
Stock Stock Capital Income (Loss) Deficit Total
----- ----- ------- ------------- ------- -----
BALANCE, DECEMBER 30, 1997 $ $ 487 $ 55,870 $ (2,504) $(93,951) $ (40,098)
Warrants exercised 68 68
Comprehensive loss
Net loss (1,229) (1,229)
Pension liability adjustment (353) (353)
---------
Total comprehensive loss (1,582)
-------- --------- ---------- ---------- ---------- ---------
BALANCE, DECEMBER 29, 1998 487 55,938 (2,857) (95,180) (41,612)
Warrants exercised 1 58 59
Comprehensive income
Net income 31,262 31,262
Pension liability adjustment 1,129 1,129
---------
Total comprehensive income 32,391
-------- --------- ---------- ---------- ---------- ---------
BALANCE, DECEMBER 28, 1999 488 55,996 (1,728) (63,918) (9,162)
Comprehensive income
Net income 8,521 8,521
Pension liability adjustment (1,793) (1,793)
---------
Total comprehensive income
6,728
-------- --------- ---------- ---------- ---------- ---------
BALANCE, JANUARY 2, 2001 $ $ 488 $ 55,996 $ (3,521) $ (55,397) $ (2,434)
======== ========= ========== ========== ========== =========
See accompanying notes to consolidated financial statements.
F-5
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JANUARY 2, 2001, DECEMBER 28, 1999 AND DECEMBER 29, 1998
(DOLLARS IN THOUSANDS)
JANUARY 2, 2001 DECEMBER 29, 1999 DECEMBER 29, 1998
--------------- ----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 8,521 $ 31,262 $ (1,229)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 10,944 10,335 10,097
Deferred income tax expense (benefit) 1,668 (20,846) -
Loss (gain) on sale of property,
plant and equipment and other assets (494) 125 (50)
Special charges - - 7,867
Deferred credits - - (48)
Changes in operating assets and liabilities:
Accounts and notes receivable (302) (243) 167
Inventories (364) 470 (976)
Prepaid expenses and other (26) (420) 681
Trade accounts payable 745 1,316 (297)
Other payables and accrued expenses (1,250) (194) 2,177
Reserve for store closings (297) (1,234) (1,086)
Other liabilities (1,813) (4,351) 1,545
------------- ------------- ---------------
Net cash provided by operating
activities 17,332 16,220 18,848
------------- ------------ ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (12,793) (19,850) (7,718)
Proceeds from the sale of property, plant and
equipment and other assets 1,476 2,776 1,205
Other, net - (111) 16
------------- ------------ ---------------
Net cash used in investing
activities (11,317) (17,185) (6,497)
------------- ------------ ---------------
(Continued)
F-6
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JANUARY 2, 2001, DECEMBER 28, 1999 AND DECEMBER 29, 1998
(DOLLARS IN THOUSANDS)
JANUARY 2, 2001 DECEMBER 28, 1999 DECEMBER 29, 1998
--------------- ----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of indebtedness $ (5,493) $ (5,493) $ (5,493)
Other, net - 59 197
---------------- ---------------- --------------
Net cash used in financing activities (5,493) (5,434) (5,296)
---------------- ---------------- --------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 522 (6,399) 7,055
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 5,172 11,571 4,516
---------------- ---------------- --------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 5,694 $ 5,172 $ 11,571
================ ================ ==============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Interest paid, including $5,493
of interest classified as payment of
indebtedness during the fiscal years
ended January 2, 2001, December 28, 1999
and December 29, 1998 respectively $ 5,837 $ 5,842 $ 5,736
================ ================ ==============
Pension liability adjustment $ (1,793) $ 1,129 $ (353)
================ ================ ==============
Non-cash investing activity:
Note receivable for sale of asset $ - $ 125 $ -
================ ================ ==============
See accompanying notes to consolidated financial statements.
F-7
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 2, 2001, DECEMBER 28, 1999 AND DECEMBER 29, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - Furr's Restaurant Group, Inc. (the "Company"), a
Delaware corporation, operates cafeterias and buffets 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 Restaurant Group, Inc.
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 on 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. Fiscal year 2000 represents a 53-week year;
fiscal years 1999 and 1998 represent a 52-week year.
BUSINESS SEGMENTS - The Company operates in two vertically integrated
operating segments, namely the operation of food purchasing, processing,
warehousing and distribution of products and the operation of cafeterias,
including food preparation and retail sales, 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.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is generally
recorded at cost, while certain assets considered to be impaired are recorded
at 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 5 years, while the estimated 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. 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 - Long-lived assets and certain identifiable
intangibles are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company groups and evaluates its assets for impairment at
the individual restaurant level. The Company considers a restaurant's assets
to be impaired if a forecast of undiscounted future cash flows directly
related to the assets, including disposal value, if any, is less than the
carrying amount. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to
sell. Charges of $440 for year end January 2, 2001, $392 for the year ended
December 28, 1999 and $419 for the year ended December 29, 1998 were recorded
to recognize the write-down of certain property, plant and equipment to
estimated fair value, based on expected future cash flows.
START-UP AND CLOSING COST 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.
F-8
ADVERTISING COSTS - Advertising costs are expensed as incurred. Total
advertising expense was $3,860, $4,257 and $3,777 for the years ended January
2, 2001, December 28, 1999 and December 29, 1998, respectively.
STOCK-BASED COMPENSATION - The Company has adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123") which permits the recognition as expense over the vesting period
the fair value of all stock based awards on the date of grant. Alternatively,
under the provisions of SFAS 123, the Company is allowed to continue
accounting for such compensation as provided by Accounting Principles Board
("APB") Opinion No. 25. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide proforma disclosure provisions
of SFAS 123.
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 terms of the leases to which the differences relate.
INCOME TAXES - The Company accounts for 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.
INCOME PER SHARE - Basic earnings per share is computed by dividing earnings
available to common stockholders by the weighted average number of shares
outstanding during the year. Diluted earnings per share is computed by
dividing earnings available to common stockholders by the weighted average
number of shares outstanding plus the number of additional shares that would
have been outstanding if potentially dilutive securities had been issued. The
following table reconciles the denominators of basic and diluted earnings per
share for the fiscal years ended January 2, 2001, December 28, 1999 and
December 29, 1998.
JANUARY 2, 2001 DECEMBER 28, 1999 DECEMBER 29, 1998
--------------- ----------------- -----------------
Weighted average common
shares outstanding 9,757,918 9,757,123 9,735,805
Options 219 43,426 -
-------------- ------------- --------------
Total shares 9,758,137 9,800,549 9,735,805
============== ============= ==============
For fiscal years 2000, 1999 and 1998, outstanding options totaling 696,000,
382,415 and 515,665, respectively, and outstanding warrants totaling 0,
512,246 and 523,382, respectively, were not included in the computation of
diluted earnings per share because their exercise price was greater than the
average market price of the common shares and therefore, the effect would be
anti-dilutive.
USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
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.
F-9
2. OTHER PAYABLES AND ACCRUED EXPENSES
Included in other payables and accrued expenses are the following:
JANUARY 2, 2001 DECEMBER 28, 1999
--------------- -----------------
Taxes other than income taxes $ 3,545 $ 3,556
Salaries, wages and commissions 4,951 4,472
Insurance 1,863 3,777
Accrued pension plan costs 2,159 207
Legal and accounting expenses 192 1,535
Rent 693 988
Gift certificates outstanding 1,025 1,077
Utilities 536 870
Other payables and accrued expenses 895 627
--------- --------
$15,859 $ 17,109
========= ========
3. LONG-TERM DEBT
Effective January 2, 1996, 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% Senior Secured
Notes, due June 30, 1998 (the "11% Notes") and the interest accrued thereon
and to satisfy 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 and in full
satisfaction of the remaining $152,854 of 11% Notes then outstanding,
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 has been recorded under Statement of Financial Accounting
Standards No. 15 "Accounting by Debtors and Creditors for Troubled Debt
Restructurings" ("SFAS 15"), as all of the interest through maturity has been
recorded as a liability.
In 1997, the Partnership recorded $2,551 of 10.5% Notes, due December 31,
2001. Payments of interest on these notes are due each June 30 and December
31.
Long-term debt consists of the following:
Stated
Maturity January 2, December 28,
Date 2001 1999
------------- --------------
12% Notes, including interest accrued through
maturity of $6,896 and $12,389, respectively December 2001 $ 52,668 $ 58,161
10.5% Notes December 2001 2,551 2,551
---------- ---------
55,219 60,712
Current maturities of long-term debt ( 3,000) (5,493)
---------- ---------
Long-term debt, net of current maturities $ 52,219 $ 55,219
========== =========
On April 10, 2001, the Company entered into a new $55 million Revolving
Credit and Term Loan Agreement (Credit Agreement) with various banks and
lenders. Concurrent with the execution of this new agreement the Company
defeased and gave notice of redemption of it's 12% Senior Secured Notes due
December 31, 2001 and repaid in full the $2.6 million of 10.5% Notes due
December 31, 2001. Accordingly, the balance of these notes, less the current
portion of the new term loan, has been classified as long term at January 2,
2001. After the redemption of the 12% Notes and the 10.5% Notes, the Company
had $44 million outstanding under the new Credit Agreement. The Credit
Agreement contains covenants with regard to maintaining certain leverage
ratios, achieving certain levels of EBITDA, operating cash flow and limits on
capital expenditures. In addition there are certain restrictions on the
payment of dividends and additional indebtedness. The Credit Agreement allows
the Company to borrow at either a Federal Funds Rate plus an applicable
margin or at a Eurocurrency Reserve Rate plus an applicable margin.
F-10
The Credit Agreement provides that the Company can borrow up to $20 million
on a revolving basis until April, 2006, of which $9 million was drawn at
closing, with the remaining $11 million of available borrowings to be used
for working capital and capital expenditures. The Credit Agreement contains a
$30 million Term loan A and a $5 million Term loan B. The Term loan A and
Term loan B provide for quarterly amortization through April, 2006 and April,
2007, respectively, with the remaining amounts outstanding then due. The
Company's obligations under the Credit Agreement are secured by a security
interest in and liens upon substantially all of the Company.
As a result of defeasing the 12% Senior Secured Notes, the Company has been
legally released as obligors and will report an extraordinary pre-tax gain of
approximately $3.5 million in the second quarter of 2001.
Following are the maturities of the $30,000 Term loan A and $5,000 Term loan B
for each of the next 5 years:
2001 $3,000
2002 5,100
2003 5,100
2004 5,600
2005 6,600
----------
$25,400
==========
4. STOCKHOLDERS' EQUITY
THE 1995 STOCK OPTION PLAN - The Board of Directors adopted, and on January
2, 1996, the stockholders approved the 1995 Stock Option Plan (the "1995
Option Plan"). The number of shares reserved under the 1995 Option Plan,
after equitable adjustment for the reverse stock splits approved by
stockholders on May 20, 1999 and March 14, 1996 is 780,544. 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.
Pursuant to the provisions of the 1995 Option Plan adjusted for the reverse
stock splits, on November 22, 1996, May 30, 1997 and May 28, 1998, options to
purchase 1,333 shares of Common Stock were issued to each non-employee
director of the Company and on June 18, 1998, options to purchase 20,000
shares of Common Stock were issued to each non-employee director of the
Company. On September 27, 1998, options to purchase 150,000 shares of Common
Stock were issued to Phillip Ratner, President and Chief Executive Officer of
the Company. On December 8, 1998, options to purchase 211,000 shares of
Common Stock were issued to 139 employees. On February 23, 1999, options to
purchase 40,000 shares of Common Stock were issued to newly appointed
non-employee directors of the Company. On March 15, 1999, options to purchase
5,000 shares of Common Stock were issued to 4 employees. On June 18, 1999,
options to purchase 13,000 shares of Common Stock were issued to 12
employees. On July 28, 1999 options to purchase 50,000 shares of Common Stock
were issued to Paul G. Hargett, Executive Vice President and Chief Financial
Officer of the Company. On December 24, 1999, options to purchase 52,000
shares of Common Stock were issued to 146 employees. On January 27, 2000,
options to purchase 50,000 shares of Common Stock were issued to Phillip
Ratner and options to purchase 5,000 shares of Common Stock were issued to
employees. In May 2000, options to purchase 155,000 shares of Common Stock
were issued to non-employee directors of the Company and options to purchase
8,000 shares of Common Stock were issued to employees. In June 2000, options
to purchase 51,000 shares of Common Stock were issued to employees.
F-11
Following is a summary of activity in the 1995 Option Plan for the three
years ended January 2, 2001:
Weighted Average
Exercise Price Per Options Options
Share-Option Outstanding Outstanding Exercisable
------------------------ ----------- -----------
Balance at December 30, 1997 $ 5.11 10,666 1,777
Granted 4.79 610,332 -
Became exercisable - - 3,555
Canceled or expired 6.69 (105,333) (2,666)
----------- --------- ---------
Balance at December 29, 1998 5.02 515,665 2,666
Granted 3.87 160,000 -
Became exercisable - - 162,555
Canceled or expired 8.86 (29,000) -
----------- ----------- ---------
Balance at December 28, 1999 4.70 646,665 165,221
Granted 3.67 269,000 -
Became exercisable - 215,333
Canceled or expired 4.60 (192,665) (81,948)
----------- ----------- ---------
Balance at January 2, 2001 $ 4.30 723,000 298,606
=========== =========== =========
Exercise prices for options outstanding as of January 2, 2001, ranged from
$3.00 to $5.94 per share and the weighted average remaining life of the stock
options was 9 years. The options exercisable as of January 2, 2001 have a
weighted average exercise price of $4.70 per share.
The Company has elected to follow APB 25, "Accounting for Stock Issued to
Employees." Since options are granted to employees at the market price on the
date of grant, no compensation expense is recognized. However, SFAS No. 123
requires presentation of pro forma net income and earnings per share as if
the Company had accounted for stock options granted to employees under the
fair value method of that statement. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options issued
in 2000 and 1999 under SFAS No. 123, the Company's net profit (loss) would
have been changed to the pro forma amounts indicated below:
January 2, 2000 December 28, 1999 December 29, 1998
--------------- ----------------- ------------------
As Pro As Pro As Pro
reported forma reported forma reported forma
-------- ----- -------- ----- -------- -----
Net income (loss) $ 8,521 $ 8,010 $ 31,262 $30,403 $ (1,229) $ (1,460)
Net income (loss) per basic common share $ 0.87 $ 0.82 $ 3.20 $ 3.12 $ (0.13) $ ( 0.15)
Net income (loss) per diluted common share $ 0.87 $ 0.82 $ 3.19 $ 3.10 $ (0.13) $ (0.15)
The weighted average fair value of the individual options granted during 2000,
1999 and 1998 is estimated at approximately $2.74, $4.03 and $2.60,
respectively, per share on the date of grant.
The fair values of options issued during 2000, 1999 and 1998 were determined
using a Black-Scholes option pricing model with the following assumptions
applicable for the date of grant:
2000 1999 1998
---- ---- ----
Dividend yield - - -
Volatility 70% to 73% 97% to 139% 105% to 127%
Risk-free interest rate 4.75% 4.75% to 6.08% 4.65% to 5.61%
Expected life 3 years 3 years 3 years
F-12
5. INCOME TAXES
Following is a summary of income tax expense (benefit) for the fiscal years
ended January 2, 2001, December 28, 1999 and December 29, 1998:
January 2, December 28, December 29,
2001 1999 1998
---------------- ---------------- --------------
Current $ 35 $ (2,969) $ -
Deferred 1,668 20,846 -
---------------- ---------------- --------------
$ 1,703 $ 23,815 $ -
================ ================ ==============
Following is a reconciliation of the expected income tax expense (benefit) at
the statutory tax rate of 35% to the actual income tax expense (benefit) for the
fiscal years ended January 2,2001, December 28, 1999 and December 29, 1998:
January 2, December 28, December 29,
2001 1999 1998
---------------- ---------------- --------------
Expected income tax expense (benefit) at the $ 3,578 $ 2,606 $ (430)
statutory tax rate
Reduction in prior year's income tax liability(A) (2,969)
Interest expense recorded as debt reduction per
SFAS 15 (1,922) (1,922) (1,922)
Increase (decrease) in valuation allowance - (21,546) 2,344
Other 47 16 8
---------------- ---------------- --------------
Actual income tax expense (benefit) $ 1,703 $ (23,815) $ -
================ ================ ==============
(A) During fiscal 1999, the company settled a prior year Internal Revenue
Service examination and reversed an income tax liability of $2.9 million
which had been previously recorded for issues related to the examination.
Following is a summary of the types and amounts of existing temporary
differences and net operating loss carry forwards at the statutory tax rate of
35%, and tax credits:
JANUARY 2, 2001 DECEMBER 28, 1999
DEFERRED TAX DEFERRED TAX
------------ ------------
ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- -------- -----------
Net operating loss carryforward $40,827 $ 41,528
Tax credit carryforwards 1,316 1,377
Reserve for store closing for
financial statement purposes
and not for tax purposes 1,073 1,177
Other reserves 1,259 1,944
Excess of future lease payments over fair
values, net of amortization 193 381
Property, plant and equipment, net 6,986 6,712
Other temporary differences 2,711 - 2,914
--------- ------------- -------- -------------
-
Deferred tax assets and liabilities 54,365 - 56,033 -
============= =============
Valuation allowance (35,187) (35,187)
--------- --------
Deferred tax asset, net $19,178 $ 20,846
========= ========
Gross deferred tax assets and the valuation allowance at December 28, 1999
have been adjusted by $2,838 from amounts previously reported based on review
of tax attributes at that date. There is no effect on the balance of the
deferred tax asset, net.
F-13
As of January 2, 2001, the Company had consolidated net operating loss
carryforwards (NOLs) of approximately $116,647 for income tax reporting
purposes that expire from 2002 through 2019. Prior to fiscal 1999, the income
tax benefit associated with the NOLs had not been recognized since, in the
opinion of management, there was not sufficient positive evidence of future
taxable income to justify recognition of a benefit. During 1999, management
again evaluated all evidence, both positive and negative, in determining
whether a valuation allowance to reduce the carrying value of deferred tax
assets was still needed and concluded the Company more likely than not will
realize a partial benefit from the loss carryforwards. Accordingly, the
Company recorded a deferred tax asset of $20,846 in fiscal 1999, which
recognized the benefit of $59,560 of the NOLs. Approximately $3,700 and
$11,400 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. ("Holdings") and its subsidiary,
Cavalcade Foods, Inc. ("Foods"), respectively, for periods prior to their
inclusion in this Company-affiliated group.
Current tax laws and regulations relating to specified changes in ownership
limit the availability of the Company's utilization of Holdings' and 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 into
effect. Such a change in ownership is deemed to have occurred in connection
with an ownership change in 1993. This ownership change limits the
utilization of the Company-affiliated group tax attributes incurred during
the period March 28, 1991 through June 24, 1993 to approximately $1,200
annually. 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 in connection with the financial
restructuring of the Company. As a result, net operating losses of $53,000
incurred during the period June 25, 1993 through March 28, 1996 will be
limited to approximately $4,900 annually. As of January 1, 2001, the
Company-affiliated group tax attributes not subject to limitation are
approximately $49,641.
As of January 1, 2001, the Company has general business credit carryforwards
of approximately $1,316, which have expiration dates through 2010.
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.
While the restructuring transactions completed in 1996 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 restructuring
transactions result in a substantial reduction of certain tax attributes
(such as the net operating losses and tax basis of property) of the Company
and the Partnership.
6. 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 Company is subject to the additional minimum liability requirements 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, 2001, December 28,
1999 and December 29, 1998, the Company recorded an increase of $1,793, in
2000 a decrease of $1,129 in 1999 and an increase of $353 in 1998 to the
noncurrent pension liability with corresponding charges or credits to other
comprehensive income (loss).
F-14
The funded status of the plan amounts recognized in the balance sheets and
major assumptions used to determine these amounts are as follows:
YEARS ENDED
----------------------------------------------------
January 2, December 28, December 29,
2001 1999 1998
---------------- --------------- ---------------
Accumulated benefit obligation at end of year $ 13,692 $ 16,218 $ 18,207
================ =============== ===============
Change in benefit obligation
Benefit obligation at beginning of year $ 16,218 $ 18,207 $ 12,603
Service cost - - -
Interest cost 1,030 1,066 832
Actuarial (gain) loss 5 (2,099) 1,027
Benefits paid (3,561) (1,031) (1,170)
Cost of IRS and litigation settlements - 75 4,915
---------------- --------------- ---------------
Benefit obligation at end of year 13,692 16,218 18,207
---------------- --------------- ---------------
Change in plan assets
Fair value of plan assets at beginning of year 11,800 12,795 11,808
Actual return on plan assets (975) (39) 1,407
Employer contribution - - 50
Kmart contribution to IRS and
litigation settlement - 75 700
Benefits paid (3,561) (1,031) (1,170)
---------------- --------------- ---------------
Fair value of plan assets at end of year 7,264 11,800 12,795
---------------- --------------- ---------------
Funded status (6,428) (4,418) (5,412)
Unrecognized net loss from past experience different
from that assumed and effects of changes in
assumptions 3,521 1,728 2,878
Unrecognized prior service cost - - -
---------------- --------------- ---------------
Net amount recognized $ (2,907) $ (2,690) $ (2,534)
================ =============== ===============
Amounts recognized in the consolidated balance sheet consist of:
Accrued benefit cost $ (6,428) $ (4,418) $ (5,412)
Accumulated other comprehensive loss 3,521 1,728 2,878
---------------- --------------- ---------------
Net amount recognized $ (2,907) $ (2,690) $ (2,534)
================ =============== ===============
Major assumptions:
Discount rate 7.00% 7.25% 6.50%
Expected long-term rate of return on plan assets 9.00% 9.00% 9.00%
F-15
The components of net periodic pension cost for the years ended January 2,
2001, December 28, 1999 and December 29, 1998 are as follows:
2000 1999 1998
---- ---- ----
Service cost - benefits earned during the period $ - $ - $ -
Interest cost on projected benefit obligation 1,030 1,066 832
Expected return on plan assets (826) (1,035) (886)
Amortization of prior service cost - - -
Amortization of transition asset - - -
Recognized actuarial loss 13 125 150
--------- --------- ---------
Net periodic pension cost 217 156 96
Cost of IRS and litigation settlements
(net of Kmart contribution) - - 4,215
--------- --------- ---------
Total pension cost $ 217 $ 156 $ 4,311
========= ========== =========
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 January 2,
2001, December 28, 1999 and December 29, 1998 amounted to $10, $19 and $8,
respectively.
7. COMMITMENTS AND CONTINGENCIES
The Partnership leases restaurant properties under various noncancelable
operating lease agreements which expire on various dates through 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.
The total minimum annual rental commitment and future minimum sublease rental
income under noncancelable operating leases are as follows as of January 2,
2001:
Minimum Sublease
Rent Income
------------ -----------
2001 $ 11,035 $ 960
2002 10,577 905
2003 8,106 591
2004 7,660 637
2005 7,272 637
For the remaining terms of the leases 19,180 1,482
Total rental expense included in the statements of operations is $10,135,
$10,881 and $10,659, which includes $628, $980 and $1,075 of additional rent
based on net sales, for the years ended January 2, 2001, December 28, 1999
and December 29, 1998, respectively.
In 1998 the Company, the Cavalcade Pension Plan, the members of the Cavalcade
Pension Plan Committee, Kmart Corporation and its pension plan agreed to
settle litigation relating to claimed benefits under the Cavalcade Pension
Plan (the "Settlement"). In December 1999 the Settlement was approved by the
court as "fair" to all members of the plaintiff class after notice to all
purported class members, and the litigation was dismissed with prejudice. As
a result of the settlement of the litigation and the concurrent resolution of
an IRS audit of the Plan that focused on substantially identical issues, the
Company recognized a special charge of $5,786 in the fourth quarter of 1998,
of which approximately $2,200 related to resolution of the IRS audit.
The cash impact of the settlement on the Company included payment in 2000 of
approximately $1,500 of expenses for legal and professional fees, with the
remainder of the settlement to be paid to the Plan in future years to fund
increased benefit payments to former and current employees. The settlement
did not require any funding payments to the Plan by the Company in 2000 but
is expected to require payments by the Company to the Plan of approximately
$2,159 in 2001 and approximately $850 in 2002, with additional funding
payments required in subsequent years in amounts that are expected to decline
over
F-16
time, subject to the overall funding status of the Plan. Kmart Corporation's
pension plan has transferred $700 to the Cavalcade Pension Plan to fund a
portion of the additional benefits required by the settlement. Management
does not believe that payment of these amounts in 2000 and subsequent years
will have a material adverse effect on the Company's planned operations.
8. QUARTERLY FINANCIAL DATA (UNAUDITED)
Fourteen
Thirteen Weeks Ended Weeks Ended
------------------------------------------------ -----------
March 28 June 27 September 28 January 2
---------- ------- ------------ -----------
Year ended January 2, 2001:
Sales $47,764 $48,188 $49,597 $50,498
Gross profit (1) 33,728 33,999 34,953 35,991
Net income 2,096 2,428 1,722 2,275
Net income per common share 0.21 0.25 0.18 0.23
Thirteen Weeks Ended
------------------------------------------------------------
March 30 June 29 September 28 December 28
-------- ------- ------------ -----------
Year ended December 28, 1999:
Sales $46,003 $47,196 $47,788 $47,073
Gross profit (1) 32,344 33,243 33,236 33,201
Net income (2) 1,306 1,231 2,339 26,386
Net income per common share 0.13 0.13 0.24 2.70
(1) Gross profit is computed using cost of sales including
depreciation expense.
(2) See Note 13 Special Charges
9. OTHER RELATED PARTY TRANSACTIONS
In settlement of the Company's indemnification obligations to the persons
listed below (the "Affiliated Indemnitees") with respect to the Affiliated
Indemnitees' litigation expenses arising from the Company's restructuring
transaction completed in 1995, the Company entered into release agreements
with, and made the additional payments noted below to, each of the Affiliated
Indemnitees. The Company (i) delivered to Teachers Insurance and Annuity
Association of America as payee a promissory note dated January 14, 1998 in
the principal sum of $756, (ii) delivered to The Northwestern Mutual Life
Insurance Company as payee a promissory note dated February 24, 1998 in the
principal sum of $488 and made a cash payment to The Northwestern Mutual Life
Insurance Company of $6, (iii) delivered to John Hancock Mutual Life
Insurance Company as payee a promissory note dated March 4, 1998 in the
principal sum of $476, (iv) made a cash payment to the Mutual Life Insurance
Company of New York of $218, (v) made a cash payment to Principal Mutual Life
Insurance Company of $175 and (vi) delivered to the Equitable Life Assurance
Society of the United States ("Equitable") as payee a promissory note dated
March 23, 1998 in the principal sum of $830. Each of the promissory notes is
due on December 31, 2001 and bears interest at the rate of 10.5% per annum.
Except for Equitable, each of the Affiliated Indemnitees owned more than five
percent of the Common Stock at the time the agreements were signed. Equitable
is an affiliate of EQ Asset Trust 1993, a business trust that owns more than
five percent of the outstanding Common Stock.
10. 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.
F-17
At January 2, 2001 and December 28, 1999, the carrying amount and the fair
value of the Company's financial instruments, as determined under SFAS 107,
were as follows:
January 2, December 28,
2001 1999
---------------- ---------------
Long-term debt, including current portion
and interest accrued through maturity:
Carrying amount $55,219 $60,712
Estimated fair value 48,324 48,324
The Company's long-term debt is held by a limited number of holders and is
not actively traded, and as a result, market quotes are not readily
available. The fair value of the long-term debt at January 2, 2001 and
December 28, 1999 is based upon the face amount of the debt, 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.
11. SUBSEQUENT EVENTS
On April 10, 2001, the Company entered into a new $55 million Revolving
Credit and Term Loan Agreement with various banks and lenders. Concurrent
with the execution of these new agreements the company defeased and gave
notice of its 12% Senior Secured Notes due December 31, 2001 and repaid in
full the $2.6 million of 10.5% Notes due December 31, 2001. Accordingly, the
balance of these notes, less the current portion of the new term loan, have
been classified as long term at January 2, 2001. After the redemption of the
12% Notes and the 10.5% Notes the Company had $44 million outstanding under
the new credit agreements. The credit agreement contains covenants with
regard to maintaining certain leverage ratios, achieving certain levels of
EBITDA, operating cash flow and limits on capital expenditures. In addition
there are certain restrictions on the payment of dividends and additional
indebtedness. The agreement allows the company to borrow at either Federal
Funds Rate plus an applicable margin or at a Eurocurrency Reserve Rate plus
an applicable margin.
The credit agreement provides that the Company can borrow up to $20 million
on a revolving basis until April, 2006, of which $9 million was drawn at
closing, with the remaining $11 million of available borrowings to be used
for working capital and capital expenditures. The Term loan agreement
contains a $30 million Term loan A and a $5 million Term loan B. The Term
loan A provides for quarterly amortization thru April, 2006 and the Term loan
B provides for no amortization until April, 2007 when the full amount is due.
The Company's obligations under the credit agreement are secured by a
security interest in and liens upon substantially all of the Company.
12. BUSINESS SEGMENTS
The Company has two reportable segments: the operation of cafeterias,
including food preparation and retail sales, and the operation of Dynamic
Foods, which purchases, processes, warehouses and distributes food products
and supplies to the cafeterias and external customers. These reportable
segments are vertically integrated business units that offer different
products and services.
The accounting policies of the segments are the same as those in the summary
of significant accounting policies. The Company evaluates performance based
on profit or loss from operations before non-recurring special charges or
credits and before income tax provisions.
F-18
Following is a summary of segment information of the Company for the fiscal
years ended January 2, 2001, December 28, 1999 and December 29, 1998:
CAFETERIAS DYNAMIC FOODS TOTAL
---------- ------------- -----
2000:
External revenues $194,314 $1,733 $196,047
Intersegment revenues - 62,459 62,459
Depreciation and amortization 9,892 1,052 10,944
Segment profit 9,516 1,052 10,568
Segment assets 76,908 12,523 89,431
Expenditures for segment assets 12,156 531 12,687
1999:
External revenues $186,866 $ 1,194 $188,060
Intersegment revenues - 59,731 59,731
Depreciation and amortization 9,360 975 10,335
Segment profit 7,518 844 8,362
Segment assets 75,793 13,670 89,463
Expenditures for segment assets 19,164 686 19,850
1998:
External revenues $187,162 $ 1,046 $188,208
Intersegment revenues - 58,380 58,380
Depreciation and amortization 9,260 837 10,097
Segment profit 6,315 1,289 7,604
Segment assets 54,457 14,052 68,509
Expenditures for segment assets 6,839 879 7,718
Following is a reconciliation of reportable segments to the Company's
consolidated totals for the fiscal years ended January 2, 2001, December 28,
1999 and December 29, 1998:
January 2, December 28, December 29,
2000 1999 1998
---- ---- ----
Revenues
Total revenues of reportable segments $ 258,506 $247,791 $246,588
Elimination of inter-segment revenue (62,459) (59,731) (58,380)
--------- -------- --------
Total consolidated revenues $ 196,047 $188,060 $188,208
========= ======== ========
Profit
Total profit of reportable segments $ 10,568 $ 8,362 $ 7,604
Elimination of inter-segment profit - - -
--------- -------- --------
Total consolidated profit $ 10,568 $ 8,362 $ 7,604
========= ======== ========
Assets
Total assets of reportable segments $ 89,431 $ 89,463 $ 68,509
Elimination of inter-segment assets - - -
--------- -------- --------
Total consolidated assets $ 89,431 $ 89,463 $ 68,509
========= ======== ========
13. SPECIAL CHARGES
The operating results for fiscal 1999 include a special charge of $566
thousand for expenses related to the relocation of the corporate offices from
Lubbock, Texas to Richardson, Texas. The operating results for fiscal 1998
include special charges aggregating $8,600, including charges of $6,200 for
the estimated costs of litigation settlements, $1,500 for expenses related to
closed stores and the write down of certain properties, $610 related to a
proxy contest for the election of the Board of Directors and $291 for the
write off of deferred costs associated with warrants.
* * * * * *
F-19
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, information
required by this item is furnished by incorporation by reference of
information in the definitive Proxy Statement for the 2001 Annual Meeting of
Stockholders of Furr's under the captions "Proposal 1 - Election of
Directors," "Section 16(a) Beneficial Ownership Reporting Compliance" and
"Executive Officers."
Item 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) of Form 10-K, information
required by this item is furnished by incorporation by reference of
information found in the Definitive Proxy Statement for the 2001 Annual
Meeting of Stockholders of Furr's under the caption "Executive Compensation,"
subcaptions "Summary Compensation Table," "Option Plan," "Option Grants,"
"Director Options," "Director Fees," "Employment Contracts and Termination of
Employment and Change of Common Agreements," "Compensation Committee
Interlocks," "Board Compensation Committee Report on Executive Compensation",
"Board Audit Committee Report" and "Comparison of Cumulative Total Return of
Company Stock, Industry Index and Broad Market."
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3) of Form 10-K, information
required by this item is furnished by incorporation by reference of all
information under the caption "Executive Compensation," subcaption
"Transactions with Management and Others" in the Definitive Proxy Statement
for the 2001 Annual Meeting of Stockholders of Furr's.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) of Form 10-K, information
required by this item is furnished by incorporation by reference of all
information under the caption "Executive Compensation," subcaption
"Transactions with Management and Others" in the Definitive Proxy Statement
for the 2001 Annual Meeting of Stockholders of Furr's.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this
Annual Report on Form 10-K:
(1) Financial Statements
The financial statements filed as part of this report
are listed in the "Index to Consolidated Financial
Statements" at Item 8.
(2) Financial Statement Schedule Furr's
Restaurant Group, Inc.
14
Page
Schedule Description No.
-------- ----------- ----
II- Consolidated Valuation and Qualifying Accounts 20
Schedules not listed above have been omitted because they are either
not applicable, not material or the required information has been given in
the financial statements or in notes to the financial statements.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during fiscal 2000 ended
January 2, 2001.
(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 December 3, 1997,
incorporated by reference from the Registrant's Registration Statement
on Form S-1 (amended on Form S-3) (File No. 333-4576).
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.
3.5 Third Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of Furr's/Bishop's Incorporated as filed with the
Secretary of State of Delaware on December 10, 1999.
3.6 Fourth Certificate of Amendment to the Amended and Restated Certificate
of Incorporation of Furr's/Bishop's Incorporated as filed with the
Secretary of State of Delaware on December 10, 1999.
3.7 Certificate of Ownership and Merger of Subsidiary into parent, as filed
with the Secretary of State of Delaware on February 10, 2000.
4.1 Amended and Restated Indenture, dated as of November 15, 1995, between
Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts
(f/k/a 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, between
Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts
(f/k/a Shawmut Bank, N.A.), incorporated by reference from the
Registrant's Form 10-K for the year ended January 2, 1996.
4.3 General Security Agreement, dated as of March 27, 1992, between
Cafeteria Operators, L.P. and Fleet National Bank of Massachusetts
(f/k/a Shawmut Bank, N.A.), incorporated by reference from the
Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File
No. 333-4578).
4.4 Security Agreement, dated as of March 27, 1992, between Cafeteria
Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut
Bank, N.A.), incorporated by reference from the Registration Statement
on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.5 Form of Assignment and Security Agreements relating to deposits at
Amarillo National Bank and Carlsbad National Bank, dated as of March
27, 1992, between Cafeteria Operators, L.P. and Fleet National Bank of
Massachusetts (f/k/a Shawmut Bank, N.A.), incorporated by reference
from the Registration Statement on Form S-1 of Cafeteria Operators,
L.P. (File No. 333-4578).
15
4.6 General Security Agreement, dated as of March 27, 1992, between
Furr's/Bishop's Specialty Group, L.P. and Fleet National Bank of
Massachusetts (f/k/a Shawmut Bank, N.A.), incorporated by reference
from the Registration Statement on Form S-1 of Cafeteria Operators,
L.P. (File No. 333-4578).
4.7 Assignment for Security (Trademarks), dated as of March 27, 1992, by
Cafeteria operators, L.P., filed with the Patent and Trademark Office,
incorporated by reference from the Registration Statement on Form S-1
of Cafeteria Operators, L.P. (File No. 333-4578).
4.8 Assignment for Security (Trademarks), dated as of December 28, 1995, by
Cafeteria Operators, L.P., filed with the Patent and Trademark Office,
incorporated by reference from the registration Statement on Form S-1
of Cafeteria Operators, L.P. (File No. 333-4578).
4.9 Assignment for Security (Trademarks), dated as of December 28, 1995, by
Furr's/Bishop's Specialty Group, L.P., filed with the Patent and
Trademark Office, incorporated by reference from the Registration
Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.10 Amended and Restated Security Agreement and Mortgage-Trademarks and
Patents, dated as of December 31, 1995, among Cafeteria Operators,
L.P., Furr's/Bishop's Specialty Group, L.P. and Fleet National Bank of
Massachusetts (f/k/a Shawmut Bank, N.A.), incorporated by reference
from the Registration Statement on Form S-1 of Cafeteria Operators,
L.P. (File No. 333-4578).
4.11 Special Power of Attorney, dated as of March 27, 1992, by Cafeteria
Operators, L.P., incorporated by reference from the Registration
Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.12 Special Power of Attorney, dated as of December 28, 1995, by Cafeteria
Operators, L.P., incorporated by reference from the Registration
Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.13 Special Power of Attorney, dated as of December 28, 1995, by
Furr's/Bishop's Specialty Group, L.P., incorporated by reference from
the Registration Statement on Form S-1 of Cafeteria Operators, L.P.
(File No. 333-4578).
4.14 Omnibus Agreement, dated as of November 15, 1995, among Cafeteria
Operators, L.P., Furr's/Bishop's Specialty Group, L.P. and Fleet
National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) (included as
Exhibit E to the Exchange Agreement filed as Exhibit 10.1) and
incorporated by reference from the Registrant's Registration Statement
on Form S-4 (File No. 33-92236).
4.15 First Amendment to Deed of Trust, dated as of November 15, 1995,
between Cafeteria Operators, L.P. and Fleet National Bank of
Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at Pima
County, Arizona, incorporated by reference from the Registration
Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.16 First Amendment to Deed of Trust, dated as of November 15, 1995,
between Cafeteria Operators, L.P. and Fleet National Bank of
Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at
Jefferson County, Colorado, Incorporated by reference from the
Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File
No. 333-4578).
4.17 First Amendment to Deed of Trust, dated as of November 15, 1995,
between Cafeteria Operators, L.P. and Fleet National Bank of
Massachusetts (f/k/a Shawmut Bank, N.A.) for premises locate at Clark
County, Nevada, incorporated by reference from the Registration
Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.18 First Amendment to Deed of Trust, Security Agreement, Financing
Statement, Fixture Filing and assignment of Rents and Leases, dated as
of November 15, 1995, between Cafeteria Operators, L.P. and Fleet
National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) for premises
located at San Bernardino County, California, incorporated by reference
from the Registration Statement on Form S-1 of Cafeteria Operators,
L.P. (File No. 333-4578).
4.18 First Amendment to Mortgage, Security Agreement and Assignment of
Leases and Rents, dated as of November 15, 1995, between Cafeteria
Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut
Bank, N.A.) for premises located at Johnson County, Kansas,
incorporated by reference from the Registration Statement on Form S-1
of Cafeteria Operators, L.P. (File No. 333-4578).
16
4.19 First Amendment to Deed of Trust, Security Agreement and Assignment of
Leases and Rents, dated as of November 15, 1995, between Cafeteria
Operators, L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut
Bank, N.A.) for premises located at St. Louis County, Missouri,
incorporated by reference from the Registration Statement on Form S-1
of Cafeteria Operators, L.P. (File No. 333-4578).
4.20 First Amendment to New Mexico Deed of Trust, dated as of November 15,
1995, between Cafeteria Operators, L.P. and Fleet National Bank of
Massachusetts (f/k/a Shawmut Bank, N.A.). for premises located at
Bernalillo County, New Mexico, incorporated by reference from the
Registration Statement on Form S-1 of Cafeteria Operators, L.P. (File
No. 333-4578).
4.21 First Amendment to Mortgage with Power of Sale, dated as of November
15, 1995, between Cafeteria Operators, L.P. and Fleet National Bank of
Massachusetts (f/k/a Shawmut Bank, N.A.) for premises located at Tulsa
County, Oklahoma, incorporated by reference from the Registration
Statement on Form S-1 of Cafeteria Operators, L.P. (File No. 333-4578).
4.22 First Amendment to Deed of Trust, Security Agreement and Assignment of
Leases, dated as of November 15, 1995, between Cafeteria Operators,
L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank,
N.A.) for premises located at Taylor County, Texas, incorporated by
reference from the Registration Statement on Form S-1 of Cafeteria
Operators, L.P. (File No. 333-4578).
4.23 First Amendment to Deed of Trust, Security Agreement and Assignment of
Leases, dated as of November 15, 1995, between Cafeteria Operators,
L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank,
N.A.) for premises located at Cameron County, Texas, incorporated by
reference from the Registration Statement on Form S-1 of Cafeteria
Operators, L.P. (File No. 333-4578).
4.24 First Amendment to Deed of Trust, Security Agreement and Assignment of
Leases, dated as of November 15, 1995, between Cafeteria Operators,
L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank,
N.A.) for premises located at Dallas County, Texas, incorporated by
reference from the Registration Statement on Form S-1 of Cafeteria
Operators, L.P. (File No. 333-4578).
4.25 First Amendment to Deed of Trust, Security Agreement and Assignment of
Leases, dated as of November 15, 1995, between Cafeteria Operators,
L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank,
N.A.) for premises located at Lubbock County, Texas, incorporated by
reference from the Registration Statement on Form S-1 of Cafeteria
Operators, L.P. (File No. 333-4578).
4.26 First Amendment to Deed of Trust, Security Agreement and Assignment of
Leases, dated as of November 15,1995, between Cafeteria Operators, L.P.
and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank, N.A.) for
premises located at Grayson County, Texas, incorporated by reference
from the Registration Statement on Form S-1 of Cafeteria Operators,
L.P. (File No. 333-4578).
4.27 First Amendment to Deed of Trust, Security Agreement and Assignment of
Leases, dated as of November 15, 1995, between Cafeteria Operators,
L.P. and Fleet National Bank of Massachusetts (f/k/a Shawmut Bank,
N.A.) for premises located at Hopkins County, Texas, 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
11% Senior Secured Notes, incorporated by reference from the
Registrant's Registration Statement on Form S-4 (File No. 33-92236).
10.2 Master Sublease Agreement, dated as of December 1, 1986, between Kmart
Corporation and Cafeteria Operators, L.P. (as successor in interest to
Furr's Cafeterias, Inc.), incorporated by reference from the
Registration Statement on Form S-1 of Cavalcade Foods, Inc., Furr's
Cafeterias, Inc. and Bishop Buffets, Inc. (File No. 33-11842).
10.3 Amendment, with respect to the Master Sublease Agreement, dated as of
December 1, 1993, between Kmart Corporation and Cafeteria Operators,
L.P., incorporated by reference from the registrant's Form 8-K dated
November 15, 1993.
10.4 1995 Stock Option Plan of Furr's Restaurant Group, Inc., incorporated
by reference from Annex B of the Prospectus included in the
Registrant's Registration Statement on Form S-4 (File No. 33-92236).
17
10.5 First Amendment to 1995 Stock Option Plan, dated as of June 18, 1998,
incorporated by reference from Furr's Restaurant Group, Inc.'s Form
10-Q for the fiscal quarter ended June 30, 1998.
10.6 Employment Agreement, dated as of September 27, 1998, between Phillip
Ratner and Furr's Restaurant Group, Inc., incorporated by reference
from Furr's Restaurant Group, Inc.'s Form 8-K dated October 2, 1998.
10.7 Indemnification Agreement, dated as of September 27, 1998, between
Phillip Ratner and Furr's Restaurant Group, Inc., incorporated by
reference from Furr's Restaurant Group, Inc.'s Form 8-K dated October
2, 1998.
10.8 Nonqualified Stock Option Agreement, effective as of September 16,
1998, between Phillip Ratner and Furr's Restaurant Group, Inc.,
incorporated by reference from Furr's Restaurant Group, Inc.'s Form 8-K
dated October 2, 1998.
21.0 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP.
18
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 RESTAURANT GROUP, INC.
DATE: March 27, 2001 /s/ PHILLIP RATNER
---------------- ------------------------------------
Phillip Ratner
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of Furr's
Restaurant Group, Inc. and on the dates indicated.
DATE: March 27, 2001 /s/ DAMIEN KOVARY
---------------- ------------------------------------
Damien Kovary
Director, Chairman of the Board
DATE: March 27, 2001 /s/ MARGARET BERTELSEN HAMPTON
---------------- ------------------------------------
Margaret Bertelsen Hampton
Director
DATE: March 27, 2001 /s/ WILLIAM J. NIGHTINGALE
---------------- ------------------------------------
William J Nightingale
Director
DATE: March 27, 2001 /s/ MAX PINE
---------------- ------------------------------------
Max Pine
Director
DATE: March 27, 2001 /s/ BARRY W. RIDINGS
---------------- ------------------------------------
Barry W. Ridings
Director
DATE: March 27, 2001 /s/ ROBERT W. SULLIVAN
---------------- ------------------------------------
Robert W. Sullivan
Director
DATE: March 27, 2001 /s/ ROBERT N. DANGREMOND
---------------- ------------------------------------
Robert N. Dangremond
Director
DATE: March 27, 2001 /s/ PAUL G. HARGETT
---------------- ------------------------------------
Paul G. Hargett
Chief Financial Officer
19
SCHEDULE II
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
ADDITIONS
------------------------------
(credited)
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
----------- ---------- -------- ---------- ---------- ------
YEAR ENDED JANUARY 2, 2001:
Reserve for store closing $ 3,362 $ 702 $ - $ 999(1) $ 3,065
============ ================== ============= ============= ===========
Allowance for doubtful
accounts receivable $ 14 $ 75 $ - $ - $ 89
============ ================== ============= ============= ===========
Valuation allowance for
deferred tax asset $ 35,187 $ - $ - $ - $ 35,187
============ ================== ============= ============= ===========
YEAR ENDED DECEMBER 31, 1999:
Reserve for store closing $ 4,596 $ 41 $ - $ 1,275(1) $ 3,362
============ ================== ============= ============= ===========
Allowance for doubtful
accounts receivable $ 14 $ - $ - $ - $ 14
============ ================== ============= ============= ===========
Valuation allowance for
deferred tax asset $ 56,733 $ (21,546) $ - $ - $ 35,187
============ ================== ============= ============= ===========
YEAR ENDED DECEMBER 29, 1998:
Reserve for store closing $ 4,675 $ 1,292 $ - $ 1,371(1) $ 4,596
============ ================== ============= ============= ===========
Allowance for doubtful
accounts receivable $ 29 $ (9)(2) $ - $ 6(3) $ 14
============ ================== ============= ============= ===========
Valuation allowance for
deferred tax asset $ 54,389 $ 2,344 $ - $ - $ 56,733
============ ================== ============= ============= ===========
(1) Includes costs and expenses incurred during the year on closed units and
severance payments.
(2) Net adjustments reflects $9 reversal of expense in 1998.
(3) Related asset account was written off.
20