SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-10725
FURR'S RESTAURANT GROUP, INC.
INCORPORATED IN DELAWARE IRS EMPLOYER INDENTIFICATION
NO. 75-2350724
3001 E. PRESIDENT GEORGE BUSH HWY., SUITE 200, RICHARDSON, TEXAS 75082
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 808-2923
--------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
--------------------------------------------------------------------------------
As of May 1, 2001, there were 9,758,743 shares of Common Stock
outstanding.
1
FURR'S RESTAURANT GROUP, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
April 3, 2001 (Unaudited) and January 2, 2001 3
Unaudited Condensed Consolidated Statements of
Operations - For the thirteen weeks ended
April 3, 2001 and March 28, 2000 5
Unaudited Consolidated Statement of Changes in
Stockholders' Deficit - For the thirteen weeks ended
April 3, 2001 6
Unaudited Condensed Consolidated Statements of
Cash Flows - For the thirteen weeks ended
April 3, 2001 and March 28, 2000 7
Notes to Unaudited Condensed Consolidated
Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure About Market Risk 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
SIGNATURES 12
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
APRIL 3, 2001 AND JANUARY 2, 2001
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
(Unaudited)
April 3, January 2,
2001 2001
----------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,412 $ 5,694
Accounts and notes receivable, net 1,200 1,260
Inventories 7,225 6,908
Prepaid expenses and other 770 887
-------- --------
Total current assets 16,607 14,749
-------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 50,102 54,876
DEFERRED TAX ASSETS 18,639 19,178
OTHER ASSETS 615 628
-------- --------
TOTAL ASSETS $ 85,963 $ 89,431
======== ========
(Continued)
3
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
APRIL 3, 2001 AND JANUARY 2, 2001
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
(Unaudited)
April 3, January 2,
2001 2001
----------- ----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 4,250 $ 3,000
Trade accounts payable 7,011 6,051
Other payables and accrued expenses 12,212 15,859
Reserve for store closings, current 754 795
-------- --------
Total current liabilities 24,227 25,705
-------- --------
RESERVE FOR STORE CLOSINGS, NET OF CURRENT MATURITIES 2,175 2,270
LONG-TERM DEBT, NET OF CURRENT MATURITIES 48,223 52,219
OTHER PAYABLES 10,060 10,197
EXCESS OF FUTURE LEASE PAYMENTS OVER FAIR VALUE,
NET OF AMORTIZATION 1,381 1,474
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 shares issued and outstanding 98 98
Additional paid-in capital 56,386 56,386
Accumulated other comprehensive loss (3,521) (3,521)
Accumulated deficit (53,066) (55,397)
-------- --------
Total stockholders' deficit (103) (2,434)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 85,963 $ 89,431
======== ========
See accompanying notes to condensed consolidated financial statements.
4
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED APRIL 3, 2001 AND MARCH 28, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Thirteen weeks ended
---------------------------
April 3, March 28,
2001 2000
----------- -----------
Sales $ 47,487 $ 47,764
Costs and expenses:
Cost of sales (excluding depreciation) 13,322 14,036
Selling, general and administrative 29,040 28,459
Depreciation and amortization 2,600 2,646
----------- -----------
44,962 45,141
----------- -----------
Operating income 2,525 2,623
Gain on disposal of assets (439) -
Interest expense 94 85
----------- -----------
Earnings before income taxes 2,870 2,538
Income tax expense 539 442
----------- -----------
Net income $ 2,331 $ 2,096
=========== ===========
Weighted average number of shares
of common stock outstanding:
Basic 9,757,918 9,747,599
=========== ===========
Diluted 9,757,918 9,754,349
=========== ===========
Net income per share:
Basic $ 0.24 $ 0.22
=========== ===========
Diluted $ 0.24 $ 0.21
=========== ===========
See accompanying notes to condensed consolidated financial statements.
5
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE THIRTEEN WEEKS ENDED APRIL 3, 2001
(DOLLARS IN THOUSANDS)
Accumulated
Additional Other
Preferred Common Paid-In Comprehensive Accumulated
Stock Stock Capital Loss Deficit Total
--------- ------- ---------- ------------- ----------- ---------
BALANCE, JANUARY 2, 2001 $ - $ 98 $ 56,386 $ (3,521) $ (55,397) $ (2,434)
Net income - - - - 2,331 2,331
------- ------- --------- --------- --------- -------
BALANCE, APRIL 3, 2001 $ - $ 98 $ 56,386 $ (3,521) $ (53,066) $ (103)
======= ======= ========= ========= ========= =======
See accompanying notes to condensed consolidated financial statements.
6
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Thirteen weeks ended
---------------------------
April 3, March 28,
2001 2000
----------- -----------
Cash flows from operating activities:
Net income $ 2,331 $ 2,096
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,600 2,646
Deferred tax expense 539 442
Gain on disposal of assets (439) -
Changes in operating assets and liabilities:
Accounts and notes receivable 60 (149)
Inventories (317) 64
Prepaid expenses and other 130 (111)
Reserve for store closings (136) (369)
Trade accounts payable, other payables,
accrued expenses and other liabilities (2,824) (1,059)
----------- -----------
Net cash provided by operating activities 1,944 3,560
----------- -----------
Cash flows from (used in) investing activities:
Purchases of property, plant and equipment (517) (3,646)
Proceeds from the sale of property, plant and equipment 3,037 -
----------- -----------
Net cash provided by (used in) investing activities 2,520 (3,646)
----------- -----------
Cash flows from financing activities:
Payment of indebtedness (2,746) -
----------- -----------
Net cash used in financing activities (2,746) -
----------- -----------
Increase (decrease) in cash and cash equivalents 1,718 (86)
Cash and cash equivalents at beginning of period 5,694 5,172
----------- -----------
Cash and cash equivalents at end of period $ 7,412 $ 5,086
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest (including $2,746 in 2001 classified
as payment of indebtedness) $ 2,906 $ 152
Cash paid for income taxes - -
See accompanying notes to condensed consolidated financial statements.
7
FURR'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in Thousands)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. These statements should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and notes thereto included
in the Company's Form 10-K for the year ended January 2, 2001. In the opinion of
management, the accompanying unaudited condensed consolidated financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation.
Interim results of operations may not be indicative of the results that
may be expected for a full fiscal year.
EARNINGS PER SHARE
The following table reconciles the denominators of basic and diluted
earnings per share for the thirteen week periods ended April 3, 2000 and March
28, 2000.
April 3, March 28,
2001 2000
--------- ----------
Weighted average common shares outstanding-basic 9,757,918 9,747,599
Options - 6,750
Warrants - -
--------- ---------
Weighted average common shares outstanding-diluted 9,757,918 9,754,349
========= =========
For the thirteen weeks ended April 3, 2001 and March 28, 2000,
outstanding options totaling 743,000 and 647,663, respectively, and outstanding
warrants totaling 0 and 512,246, respectively, were not included in the
computation of diluted earnings per share because their effect would have been
anit-dilutive.
INCOME TAXES
We have provided income tax expense of $539 and $442 for the thirteen
weeks ended April 3, 2001 and March 28, 2000, respectively. The effective income
tax rate is lower than the statutory Federal rate of 35% due to interest expense
on restructured debt reduction, which is reported as debt rather than interest
expense pursuant to Statement of Financial Accounting Standards No. 15,
"Troubled Debt Restructurings".
DEBT REFINANCING
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 its 12% Senior Secured Notes due
December 31, 2001 and repaid in full the $2.6 million of 10.5% Notes
8
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
April 3, 2001 and January 2, 2001. After the redemption of the 12% Notes and
the repayment in full of 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.
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's assets.
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 fiscal 2001.
BUSINESS SEGMENTS
Following is a summary of segment information of the Company for the
thirteen weeks ended April 3, 2001 and March 28, 2000:
Dynamic
Cafeterias Foods Total
---------- ------- ---------
2001:
External revenues $ 47,078 $ 409 $ 47,487
Intersegment revenues - 14,424 14,424
Depreciation and amortization 2,337 263 2,600
Segment profit 2,014 511 2,525
2000:
External revenues $ 47,438 $ 326 $ 47,764
Intersegment revenues - 15,099 15,099
Depreciation and amortization 2,392 254 2,646
Segment profit 2,442 181 2,623
Following is a reconciliation of reportable segments to the Company's
consolidated totals for the thirteen weeks ended April 3, 2001 and March 28,
2000:
April 3, 2001 March 28, 2000
------------- --------------
Revenues
Total revenues of reportable segments $ 61,911 $ 62,863
Elimination of inter-segment revenue (14,424) (15,099)
------------- --------------
Total consolidated revenues $ 47,487 $ 47,764
============= ==============
9
RECENT ACCOUNTING MATTERS
The Company has adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended. This statement establishes
accounting and reporting standards for derivative instruments and hedging
activities and requires 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 are either 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. As of January 3, 2001, the date of adoption, and April 3, 2001, the
Company was not a party to any derivative financial instruments.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Sales for the first fiscal quarter of 2001 were $47.5 million, a
decrease of $.3 million from the same quarter of 2000. Operating income for the
first quarter of 2001 was $2.5 million compared to $2.6 million in the
comparable period in the prior year. The net income for the first quarter of
2001 was $2.3 million, which includes a $.4 million gain on disposal of assets,
compared to $2.1 million in the first quarter 2000.
SALES. Restaurant sales in comparable units decreased $.3 million, or
.6% in the first quarter of 2001 compared to the same quarter of 2000. First
quarter 2000 was the best first quarter in Company history, with first quarter
2001 being the second best. First quarter sales for the three new units opened
after first quarter 2000 were $1.9 million, an increase of $50 thousand over the
aggregate sales of the 5 units that were closed after first quarter 2000. Sales
by Dynamic Foods to third parties were $83 thousand higher in the first quarter
2001 than that of first quarter 2000.
COST OF SALES. Excluding depreciation, cost of sales were 28.1% of
sales for the first quarter of 2001 as compared to 29.4% for the same quarter of
2000. The decrease in the percentage of sales was the result of lower product
costs and operational efficiencies at Dynamic Foods.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative ("SG&A") expense was higher in the aggregate by $581 thousand in
the first quarter of 2001 as compared to 2000. The change in SG&A expense
included an increase of $512 thousand in utility expenses and $239 thousand in
marketing expense. We had a decrease of $200 thousand in labor and related
benefits.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
was lower by $46 thousand in the first quarter of 2001.
INCOME TAXES. Income tax expense of $.5 million was provided in the
first quarter of 2001 compared to $.4 million provided in the first quarter of
2000. Our effective tax rate is lower than the statutory Federal rate of 35% due
to interest expense on restructured debt reduction, which is reported as debt
rather than interest expense pursuant to Statement of Financial Accounting
Standard No. 15, "Troubled Debt Restructurings."
10
LIQUIDITY AND CAPITAL RESOURCES
During the thirteen weeks ended April 3, 2001, cash provided by
operating activities was $2.0 million compared to $3.6 million in the same
period of 2000. We made capital expenditures of $.5 million during the first
thirteen weeks of 2001 compared to $3.6 million during the same period of 2000.
Cash and temporary investments were $7.4 million at April 3, 2001 compared to
$5.1 million at March 28, 2000 and $5.7 million at January 2, 2001. Our current
ratio was .69:1 at April 3, 2001 compared to .49:1 at March 28, 2000 and .57:1
at January 2, 2001. Total assets at April 3, 2001 aggregated $86.0 million,
compared to $90.0 million at March 28, 2000 and $89.4 million at January 2,
2001.
Our restaurants are a cash business. Funds available from cash sales
are not needed to finance receivables and are not generally needed immediately
to pay for food, supplies and certain other expenses of the restaurants.
Therefore, the business and operations of the Company have not historically
required proportionately large amounts of working capital, which is generally
common among similar restaurant companies.
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. 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. Our obligations under the Credit
Agreement are secured by a security interest in and liens upon substantially all
of our assets.
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 fiscal 2001.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
We are exposed to market risk from changes in commodity prices. We
purchase certain commodities used in food preparation. These commodities are
generally purchased based upon market prices established with vendors. These
purchase arrangements may contain contractual features that limit the price paid
by establishing certain price floors or caps. We do not use financial
instruments to hedge commodity prices because these purchase arrangements help
control the ultimate cost paid and any commodity price aberrations are generally
short term in nature.
11
Our long-term debt does not expose us to market risk as all interest
accrues at fixed rates. We do not use derivative financial instruments to manage
overall borrowing costs.
This market risk discussion contains forward-looking statements. Actual
results may differ materially from this discussion based upon general market
conditions and changes in domestic and global financial markets.
PART II. OTHER INFORMATION
Item 1. Legal Proceeding
None.
Items 2, 3, 4 and 5 are not applicable and have been intentionally omitted.
Item 6. Exhibits and Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: May 14, 2001 FURR'S RESTAURANT GROUP, INC.
/s/ Phillip Ratner
-------------------------------------
Phillip Ratner
President and Chief Executive Officer
/s/ Paul G. Hargett
-------------------------------------
Paul G. Hargett
Chief Financial Officer
12