[DESCRIPTION]COOKER RESTAURANT CORPORATION FORM 10-K
1
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
____________________
Form 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended April 4, 1999
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _____________ to _____________
_____________
Commission File Number: 1-13044
COOKER RESTAURANT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
OHIO 62-1292102
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
5500 Village Boulevard, West Palm Beach, Florida 33407
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (561) 615-6000
Indicate by check 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 such
requirements for the past 90 days.
|X| | |
Yes No
5,985,000 Common Shares, without par value
(number of common shares outstanding as of the close of business
on May 19, 1999)
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
COOKER RESTAURANT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In Thousands)
April 4, January 3,
ASSETS 1999 1999
--------- ----------
Current Assets:
Cash and cash equivalents $ 2,753 $ 2,520
Inventory 1,619 1,650
Land held for sale 55 55
Prepaid and other current assets 1,355 1,005
--------- ----------
Total current assets 5,782 5,230
Property and equipment 142,376 144,025
Restricted Cash 1,754 1,600
Other assets 2,283 2,412
--------- ----------
Total assets $ 152,195 $ 153,267
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term debt $ 6,624 $ 6,015
Accounts payable 3,066 3,357
Accrued liabilities 7,531 7,327
Income taxes payable 474 -
--------- ----------
Total current liabilities 17,695 16,699
Long-term debt 81,560 82,385
Deferred income taxes 3,352 3,406
Other liabilities 282 625
--------- ----------
Total liabilities $ 102,889 $ 103,115
Shareholders' equity:
Common Shares-without par value:
authorized 30,000,000 shares;
issued 10,548,000 at April 4,
1999 and December 28, 1997 62,418 62,460
Retained earnings 35,369 34,895
Treasury stock, at cost,
4,563,000 and 4,371,000 shares at
April 4, 1999 and January 3,
1999, respectively (48,481) (47,203)
--------- ----------
Total shareholders' equity 49,306 50,152
Commitments and contingencies
$ 152,195 $ 153,267
========= ==========
See accompanying notes to condensed consolidated financial statements
3
COOKER RESTAURANT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(In Thousands Except Per Share Data)
Three Months Ended
April 4, March 29,
1999 1998
--------- ----------
Sales $ 42,191 $ 40,434
Cost of Sales:
Food and beverage 11,911 11,421
Labor 14,834 13,853
Restaurant operating expenses 7,628 6,983
Restaturant depreciation 1,634 1,464
General and administrative 3,021 2,556
Interest expense, net 1,604 588
--------- ----------
40,632 36,865
Income before income taxes 1,559 3,569
Provision for income taxes 469 1,231
--------- ----------
Net income $ 1,090 $ 2,338
========= ==========
Basic earnings per share $ 0.18 $ 0.23
========= ==========
Diluted earnings per share $ 0.18 $ 0.23
========= ==========
Weighted average number of common
shares outstanding - basic 6,087 10,023
Weighted average number of common
shares outstanding - diluted 6,219 10,177
See accompanying notes to condensed consolidated financial statements
4
COOKER RESTAURANT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In Thousands)
Three Months Ended
April 4, March 29,
1999 1998
--------- ----------
Cash flows from operating activities:
Net Income $ 1,090 $ 2,338
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 1,762 1,578
Deferred income taxes (54) -
Loss on sale of property 4 -
(Increase) in current assets (319) (194)
Decrease (increase) in other
assets 129 (90)
Increase (decrease) in current
liabilities 387 (1,398)
Decrease in other liabilities (297) -
--------- ----------
Net cash provided by
operating activities 2,702 2,234
--------- ----------
Cash flows from investing activities:
Purchases of property and equipment (3,204) (4,418)
Proceeds from sale of property
and equipment 3,085 -
Restricted Cash Deposits (154) -
--------- ----------
Net cash used in investing
activities (273) (4,418)
--------- ----------
Cash flows from financing activities:
Proceeds from borrowings 5,250 -
Repayments of borrowings (5,441) -
Redemption of debentures (25) -
Exercise of stock options 45 14
Purchases of treasury stock (1,365) -
Capital lease obligations (46) (43)
Dividends paid (614) (702)
--------- ----------
Net cash used in financing
activities (2,196) (731)
--------- ----------
Net increase (decrease) in cash and
cash equivalents 233 (2,915)
Cash and cash equivalents, at
beginning of period 2,520 4,685
--------- ----------
Cash and cash equivalents, at
end of period $ 2,753 $ 1,770
========= ==========
See accompanying notes to condensed consolidated financial statements
5
COOKER RESTAURANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 4, 1999 and March 29, 1998
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and, therefore,
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, the accompanying condensed consolidated financial statements
contain all adjustments, consisting of normal recurring accruals, necessary to
present fairly the financial position of the Cooker Restaurant Corporation and
subsidiaries (the "Company"), after elimination of intercompany accounts and
transactions, at April 4, 1999, and the statements of income and cash flows for
the three months ended April 4, 1999. The results of operations for the three
months ended April 4, 1999, are not necessarily indicative of the operating
results expected for the fiscal year ended January 2, 2000. These financial
statements should be read in conjunction with the financial statements and
notes thereto contained in the Company's annual report on Form 10-K for the
fiscal year ended January 3, 1999.
Certain amounts in the 1998 financial statements have been reclassified
to conform to the 1999 presentation.
Note 2: Earnings Per Share
Convertible subordinated debentures outstanding as of April 4, 1999, are
convertible into 691,710 shares of common stock at $21.5625 per share and are
due October 2002. These were not included in the computation of diluted EPS
for each of the quarter ended April 4, 1999, as the inclusion of the
convertible subordinated debentures would be antidilutive.
Options to purchase 615,143 and 839,965 shares at prices ranging from
$6.75 to $21.75 per share and $10.375 to $21.75 per share, were outstanding
for the three months ended April 4, 1999, and March 29, 1998, respectively,
but were not included in the computation of diluted EPS because the options'
exercise prices were greater than the average market price of the common
shares for the three months ended April 4, 1999 and March 29, 1998,
respectively. The options expire between June 1999 and May 2008 for the three
months ended April 4, 1999 and between October 2001 and April 2007 for the
three months ended March 29, 1998.
Note 3: Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS. No 133 "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"). This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement
of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as
(a) a hedge of the exposure to changes in fair value of a recognized asset,
(b) a hedge of the exposure to variable cash flows of a forecasted
transaction, or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The accounting for the changes in the fair value of a derivative
(this is, gains and losses) depends on the intended use of the derivative and
the resulting designation. This statement shall be effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. The Company has
not determined the effect of the adoption of SFAS No. 133 on the Company's
results of operations or statement of financial position.
Note 4: Derivative Financial Instruments
The fair value of the interest rate swap agreement approximated
($602,000) at April 4, 1999. The fair value is estimated using option pricing
models that value the potential for swaps to become in-the-money (liability)
through changes in interest rates during the remaining term of the agreement.
6
Note 5: Subsequent Events
At the time of the original closing of the Company's $52,500,000 term
loan (the "Term Loan") with First Union National Bank and NationsBank of
Tennessee, N.A., (collectively, the "Banks"), and its $10,000,000 revolving
line of credit facility (the "Revolver") with NationsBank of Tennessee,
N.A., the Company was awaiting appraisals on certain of its properties to be
held as collateral for the Term Loan and Revolver. As a result, the Banks
required the Company to enter into a second closing (the "Second Closing")
pending the receipt of these appraisals. As of the date of this filing, the
Company has not yet completed this previously disclosed Second Closing with
the Banks. Pursuant to the terms of the original agreement, the Company
began making principal and interest payments of approximately $345,000 to
First Union on $22,500,000 of its Term Loan and principal payments of
$166,670, plus applicable interest, to NationsBank on $30,000,000 of its
Term Loan balance, beginning on May 1, 1999. Such payments will continue
until March 24, 2004, upon which date, all remaining amounts, principal and
interest, under the Term Loan and the Revolver will be due in full. The
Company anticipates that the Second Closing will be completed by the end of
May 1999. No substantive changes are expected to be made to the original
agreement dated September 24, 1998 as a result of the Second Closing.
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2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
From time to time, the Company may make certain statements that
contain "forward-looking" information (as defined in the Private
Securities Litigation Reform Act of 1995). Words such as "believe,"
"anticipate," "project," and similar expressions are intended to identify
such forward-looking statements. Forward-looking statements may be made by
management orally or in writing, including, but not limited to, in press
releases, as part of this Management's Discussion and Analysis of Financial
Condition and Results of Operations and as part of other sections of this
Report or other filings. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of their
respective dates, and are subject to certain risks, uncertainties and
assumptions. These statements are based on management's present assumptions
as to future trends, including economic trends, prevailing interest rates,
the availability and cost of raw materials, the availability of capital
resources necessary to complete the Company's expansion plans, government
regulations, especially regulations regarding taxes, labor and alcoholic
beverages, competition, consumer preferences, and similar factors. Changes
in these factors could affect the validity of such assumptions and could
have a materially adverse effect on the Company's business.
Results of Operations
The following table sets forth as a percentage of sales certain
items appearing in the Company's statements of income.
COOKER RESTAURANT CORPORATION
RESULTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
April 4, March 29,
1999 1998
--------- ----------
Sales 100.0% 100.0%
Cost of Sales:
Food and beverage 28.2% 28.2%
Labor 35.2% 34.3%
Restaurant operating expenses 18.1% 17.3%
Restaturant depreciation 3.9% 3.6%
General and administrative 7.1% 6.3%
Interest expense, net 3.8% 1.5%
--------- -----------
96.3% 91.2%
Income before income taxes 3.7% 8.8%
Provision for income taxes 1.1% 3.0%
--------- ----------
Net income 2.6% 5.8%
========= ==========
The Company earned $.018 per diluted share for the quarter ended April
4, 1999 as compared to $.023 per diluted share for the quarter ended March
29, 1998. The weighted-average number of shares outstanding (diluted) for the
quarter ended April 4, 1999, was approximately 4,000,000 less than the
comparable period in fiscal 1998 as a result of the share buyback completed
in October of 1998. The decrease in earnings per share is due, mainly, to
increased costs as a percent of sales incurred during the quarter ended April
4, 1999 as discussed below.
Sales for the first quarter of fiscal 1999 increased 4.3%, or $1,757,000,
to $42,191,000 compared to sales of $40,434,000 for the first quarter of
fiscal 1998. The increase is due primarily to the opening of new Restaurants.
Same store sales were down 2.4% for the quarter. First quarter average unit
volumes per operating week of $48,267 were down 2.4% from last year. The
average check of $11.83 was up 3.4% from last year.
8
The costs of food and beverage for the first quarter of 1999 was
$11,911,000 as compared to $11,421,000 for the first quarter of 1998. The
increase of $490,000 is primarily due to the increased number of stores open
during the comparable period. As a percent of sales, the costs of food and
beverage was unchanged during the first quarter of 1999 at 28.2%. Food and
beverage costs remained fairly stable during the period and the Company
instituted a menu price increase during the fourth quarter of 1998.
Labor costs for the first quarter of 1999 were $14,834,000 as compared
to $13,853,000 for the first quarter of 1998. The increase of $981,000 is
primarily due to the increased number of stores during the comparable period.
Labor costs as a percent of sales for the first quarter of 1999 were 35.2% as
compared to 34.3% for the quarter ended March 29, 1998. The increase is due
mainly to decreased same-store sales for the quarter as well as increased
manager costs.
Restaurant operating expenses for the first quarter of 1999 were
$7,628,000 as compared to $6,983,000 for the first quarter of 1998. The
increase of $645,000 is primarily due to the increased number of stores
during the comparable period. As a percent of sales, restaurant operating
expenses increased to 18.1% during the first quarter of 1999 compared to
17.3% during the first quarter of 1998. Areas showing increased spending
were public relations, repairs and maintenance and contract services.
Restaurant depreciation expense for the first quarter of 1999 was
$1,634,000 as compared to $1,464,000 for the first quarter of 1998. The
increase of $170,000 is due to the opening of 4 additional stores since the
first quarter of 1998.
General and administrative expenses for the first quarter of 1999 were
$3,021,000 as compared to $2,556,000 for the first quarter of 1998. General
and administrative expenses as a percent of sales for the first quarter of
1999 were 7.1% as compared to 6.3% for the quarter ended March 29, 1998. The
majority of the increase is due to an increase in marketing costs of
approximately $605,000 and relocation expenses of approximately $100,000,
slightly offset by decreases in preopening expenses of approximately $58,000,
bonus costs of approximately $40,000, and workers compensation expenses of
approximately $100,000..
The provision for income taxes in the first quarter of 1998 as a
percentage of income before taxes was 30.1%, compared to 34.5% for the first
quarter of 1998. The decrease in the current quarter is due to a restructuring
of state and local tax reporting.
Net interest expense for the first quarter of 1999 was $1,604,000 as
compared to $588,000 in the first quarter of 1998. The increase of $1,016,000
is due to the increase in debt acquired in conjunction with the buyback of
approximately 4,000,000 of the Company's Common Stock completed in the fourth
quarter of 1998.
Liquidity and Capital Resources
The Company's operations are subject to factors outside its control. Any
one, or combination of these factors could materially affect the results of
the Company's operations. These factors include: (a) changes in the general
economic conditions in the United States, (b) changes in prevailing interest
rates, (c) changes in the availability and cost of raw materials, (d) changes
in the availability of capital resources necessary to complete the Company's
expansion plans, (e) changes in Federal and State regulations or
interpretations of existing legislation, especially concerning taxes, labor
and alcoholic beverages, (f) changes in the level of competition from current
competitors and potential new competition, and (g) changes in the level of
consumer spending and customer preferences. The foregoing should not be
construed as an exhaustive list of all factors which could cause actual
results to differ materially from those expressed in forward-looking
statements made by the Company. Forward-looking statements made by or on
behalf of the Company are based on a knowledge of its business and the
environment in which it operates, but because of the factors listed above,
actual results may differ from those anticipated results described in those
forward-looking statements. Consequently, all of the forward-looking
statements made are qualified by these cautionary statements and there can be
no assurance that the actual results or developments anticipated by the
Company will be realized or, even if substantially realized, that they will
have the expected consequences to or effects on the Company or its business
or operations.
The Company's principal capital requirements are for working capital,
new restaurant openings and improvements to existing restaurants. The
majority of the Company's financing for operations, expansion and working
capital is provided by internally generated cash flows from operations and
amounts available under the Revolver.
9
During 1998, the Company entered into a new Term Loan agreement with
NationsBank of Tennessee and First Union National Bank and a Term Loan with
the CIT/Equipment Financing Group, Inc. (collectively the "Lenders") in
conjunction with its repurchase of common stock pursuant to the Tender Offer
(the "Offer") which was completed on October 5, 1998. The Company borrowed
$70,500,000 under the two term loan agreements with the Lenders, and
established a $10,000,000 Revolving Line of Credit (the "Revolver") with
NationsBank of Tennessee. As of April 4, 1999, the Company had borrowed
$4,500,000 against the Revolver and the outstanding balance of the Term
Loans was approximately $69,469,000. Repayments of principal and interest on
these loans are expected to be financed through normal operating cash flows
generated by the Company.
During the three months ended April 4, 1999, the Company opened two new
units. Capital expenditures for these new units and the refurbishing and
remodeling of existing units totaled $3,204,000 and were funded by cash flows
of $2,702,000 from operations, and the Company's available cash balances,
including amounts drawn against the Revolver. The Company intends to open an
additional 3 restaurants in 1999 for a total of 5 new restaurants. Total cash
expenditures for the 1999 expansion are estimated to be approximately $7.5
million. The Company believes that cash flows from operations together with
available borrowings under the Revolver will be sufficient to fund the planned
expansion, ongoing maintenance and remodeling of existing restaurants as well
as other working capital requirements.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risk. Interest rate swap agreements are used to
reduce the potential impact of increases in interest rates on floating-rate
long-term debt. At April 4, 1999, the Company was party to an interest rate
swap agreement with a termination date of September 28, 2001. The agreement
entitles the Company to receive from the counterparty (a major bank), the
amounts, if any, by which the Company's interest payments on $27,500,000 of its
floating LIBOR debt (included in the $52,500,000 Term Loan and the $10,000,000
Revolver) exceed 6.25 percent through the termination date. No amounts were
received by the Company during the quarter ended April 4, 1999.
The fair value of the interest rate swap agreement was approximately
($602,000) at April 4, 1999. The fair value is estimated using option pricing
models that value the potential for the swaps to become in-the-money (liability)
through changes in interest rates during the remaining term of the agreement.
The Company is exposed to credit losses in the event of nonperformance by
the counterparties to its interest rate swap agreements. The Company does not
obtain collateral to support financial instruments but monitors the credit
standing of the counterparties.
In 1994, the Board of Directors approved a guaranty by the Company of a
loan of $5,000,000 to G. Arthur Seelbinder (the "Loan"), the Chairman of the
Board. In January 1997, the Board approved a refinancing of the loan with The
Chase Manhattan Bank of New York (the "Bank"). As refinanced and extended, the
Loan from the Bank bears interest at the Bank's prime rate or LIBOR plus 2%,
and was secured by 570,000 Common Shares and is guaranteed by the Company in
the principal amount up to $6,250,000, including capitalized interest.
Pursuant to the loan agreement between Mr. Seelbinder and the Bank, any
reduction of the principal amount outstanding under the Loan shall not
entitle Mr. Seelbinder to the advancement of additional funds under the Loan.
The guaranty provides that the Bank will sell the pledged shares and apply
the proceeds thereof to the Loan prior to calling on the Company for its
guaranty. The term of the Loan has been extended until January 31, 2000.
Pursuant to the Offer, Mr. Seelbinder tendered 737,562 shares,
approximately 99% of the outstanding Common shares that he owned, including
all 570,000 shares which secured the Loan. Approximately 414,555 shares were
taken up in the Offer for a total price of approximately $4,352,827. Pursuant
to Mr. Seelbinder's letter to the Company dated September 17, 1998, the net
after tax proceeds of the sale of 167,652 shares or approximately $1,408,276
were applied by Mr. Seelbinder to the repayment of certain personal
indebtedness and tax liabilities, the remaining net after tax proceeds
(approximately $2,073,985) were applied to the Loan and the remaining
323,007 Common shares were returned to the Bank.
10
As of April 12, 1999, the amount of the Loan outstanding, including
capitalized and accrued interest, was $3,497,635 and the undiscounted fair
market value of the pledged shares was $1,726,069, based upon a market price
of $5.625 per common share. The guaranty secures the loan until it is paid
or refinanced without a guaranty. The Company would fund any obligation it
incurs under the terms of its guaranty from additional borrowing under its
Revolver. Mr. Seelbinder agreed to pay to the Company a guaranty fee each
year that the guaranty remains outstanding beginning on March 9, 1994, the
date the Company first issued its guaranty of the Loan. The amount of the
guaranty fee is 1/4 percent of the outstanding principal amount of the
guaranteed loan on the date that the guaranty fee becomes due. Mr.
Seelbinder has agreed to use at least on-half of any incentive bonus paid to
him by the Company to pay principal and interest on the Loan beginning with
any incentive bonus paid for fiscal year 1998.
Because the value of the shares pledged to secure the Loan subsequent
to the Offer was less than the amount required under the terms of the Loan,
the Bank required the Company to make a cash deposit in such amount to
satisfy the collateral shortfall as a result of the decreased price of the
Company's common stock. The Bank, the Company and Mr. Seelbinder reached a
preliminary agreement concerning such deposit under which Mr. Seelbinder
paid $150,000 to the Bank, the Bank extended their maturity of the Loan to
January 31, 2000, the Company made an initial cash deposit of approximately
$1,600,000 in the Bank which will be revalued monthly, and Mr. Seelbinder
will reimburse the Company for the amount by which the interest on the deposit
is less than the interest the Company pays for funds under its Term Loan and
Revolver. This use of the Company's funds will not materially affect its
working capital or its ability to implement its capital expenditure plan or
make improvements and betterments on its property. Subsequent to the initial
cash deposit, the Company has made additional deposits totaling approximately
$154,000 based upon changes in the price of Company's Common Stock. Mr.
Seelbinder has also informed the Company that he intends to discuss with the
Bank or other financing sources the refinancing of the balance of the Loan.
There can be no assurance that such refinancing will occur or that, if the
Loan is refinanced, the guaranty will not remain outstanding or that the
deposit will be returned to the Company.
Year 2000
The Year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. The majority
of the Company's systems are purchased from outside vendors. The Company is
currently in the process of assessing whether it will be required to modify
or replace significant portions of its software so that its computer systems
will properly utilize dates beyond December 31, 1999. Those installed
systems which are not currently able to fully function in the Year 2000
either have new versions available which are Year 2000 compliant, or the
vendor has committed to a Year 2000 compliant release in sufficient time to
allow installation and testing prior to critical cutover dates. The Company
is also in the process of completing its inventory of computer information
technology and non-information technology hardware systems to assess Year
2000 compliance. In addition to the Company's internal systems and hardware,
the Company is preparing to assess the Year 2000 readiness of its vendors. As
a part of this assessment, the Company is asking each major vendor to inform
the Company of its (the vendor's) Year 2000 readiness and initiatives.
Currently, the Company purchases approximately 95% of its food products from
one vendor. The Company is receiving monthly updates from this significant
vendor regarding its Year 2000 readiness. The Company has identified each
additional major vendor from whom it will request a report regarding its Year
2000 readiness. Letters and questionnaires have been drafted which are
specific to the type of vendor (i.e. food, equipment, financial, utility,
etc.) and the Company is in the process of mailing out all necessary requests
for information. To the extent that the Company's vendors do not provide the
Company with satisfactory evidence of their readiness for the Year 2000
issue, contingency plans will be developed. Currently, the Company does not
have a formal contingency plan in place, however, a Year 2000 Committee has
been formed and is in the process of developing a Company-wide Year 2000
contingency plan.
As of April 4, 1999, the Company has received responses from
approximately 25% of its vendors regarding their Year 2000 readiness.
Additionally, the Company has completed its Year 2000 upgrade of both the
Point-of-Sale system and back-of-the-house systems and software in two of
its restaurants. The Company will begin its company-wide upgrade of these
systems in July. The upgrade is expected to be completed by the end of
November.
The Company has developed a plan to address the possible exposures
related to the impact on its computer systems of the Year 2000 problem.
The plan provides for the conversion efforts to be completed on all critical
systems by the end of 1999. The Company expects that the maximum cost which
could be incurred in conjunction with the testing and remediation of all
hardware and software systems and applications would be approximately
$500,000 through completion in fiscal year 1999, of which, approximately
$10,000 has been incurred to date. Such costs have been and will be funded
by the Company's operating cash flows.
11
The cost of the Company's plan to address the Year 2000 issue and the
anticipated date on which the Company plans to complete the necessary Year
2000 conversion efforts are based on management's best estimates, which
were derived from numerous assumptions of future events, including the
availability of resources, vendor remediation plans, and other factors. As
a result, there can be no assurance that the Company, or other companies
with whom the Company conducts business, will successfully address the
Year 2000 problem in a timely manner, or at all, or that the Year 2000
problem will not have a material adverse effect on the Company's business
or operations. The Company believes that the most reasonably likely
worst-case scenario resulting from noncompliance with the Year 2000 by the
Company or other third parties would be the temporary shutdown of some or
all of the Company's restaurants due to the lack of gas, electricity, or
supplies from certain key vendors. Such a shut down, if it were to occur
for any substantial period of time, would result in the loss of sales
revenue to the Company. Additionally, certain fixed expenses of the
Company would still be incurred during this time. As such, a situation
such as that described herein could have a material adverse effect on
the Company's results of operation.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. If certain conditions are met, a
derivative may be specifically designated as (a) a hedge of the exposure
to changes in fair value of a recognized asset, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction, or (c) a
hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale
security, or a foreign-currency-denominated forecasted transaction. The
accounting for the changes in the fair value of a derivative (this is,
gains and losses) depends on the intended use of the derivative and the
resulting designation. This statement shall be effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. The Company
has not determined the effect of the adoption of SFAS No. 133 on the
Company's results of operations or statement of financial position.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk Analysis
The Company monitors and considers methods to manage the
rate sensitivity of the Company's derivative and other financial
instruments. Such monitoring processes are designed to minimize the
impact of sudden and sustained changes in interest rates which could have
a material effect on the fair value of the Company's derivative and other
financial instruments. Interest rate risk exposure is measured using
interest rate sensitivity analysis to determine the effect on the fair
value of the Company's derivative and other fixed rate financial
instruments in the event of hypothetical changes in interest rates. For
the Company's variable rate financial instruments, the analysis is
performed to determine the effect on the cash flows of the instrument.
Such hypothetical changes reflect management's best estimate of reasonably
possible, near-term changes. Based upon such, actual values may differ
from those projections calculated by the Company.
Fair Value Analysis
The carrying amounts reflected in the consolidated balance sheets
for cash and cash equivalents, accounts receivable, current portion of
long-term debt, and accounts payable approximate fair value due to the
short maturities of these instruments. The fair values for the Company's
fixed rate long-term debt and hedging instruments are based on dealer
quotes for those instruments. The fair values represent estimates of
possible value which may not be realized in the future. The face amount of
hedging instruments does not necessarily represent amounts exchanged by
the parties and thus is not a direct measure of the exposure of the
Company through its use of hedging instruments. The amounts exchanged are
calculated on the basis of face amounts and other terms of the hedging
instruments.
12
The fair values of the Company's fixed rate long-term debt and interest
rate swap agreement are subject to change as a result of potential changes in
market rates and prices. The potential change in fair value for interest rate
sensitive instruments is based on a hypothetical immediate 1% point increase
in interest rates across all maturities. The Company's use of this methodology
to quantify the market risk of such instruments should not be construed as an
endorsement of its accuracy or the accuracy of the related assumptions. As a
result of this analysis, the fair value of the Company's term loan with CIT
would decrease from $16,573,000 to $16,128,000; the fair value of the Cooker
Bonds would decrease from $12,918,000 to $12,575,000; and the fair value of
the Company's interest rate swap agreement would change from ($602,000) to
$22,000.
Cash Flow Analysis
The Company has a term loan in the amount of $52,000,000 with First
Union National Bank and NationsBank of Tennessee, N.A. The interest on this
loan is based upon the London Interbank Offering Rate (LIBOR), plus an
applicable margin based upon certain criteria. For this variable rate debt,
the Company performed an analysis to determine the effect of an immediate 1%
point increase on the cash flows of the instruments. Based upon the analysis,
such an increase in the interest rate applicable to this loan would result in
an increase of $402,000 in payments per the stated terms for the 12 months
subsequent to April 4, 1999. The Company also has a revolving loan agreement
which allows the Company to borrow up to $10,000,000 with interest terms
identical to the terms of the above loan. The analysis performed by the
Company indicated that an increase in the applicable interest rate of 1%
would not have a material effect on the cash flows under the loan agreement.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are files as part of this report.
3. Articles of Incorporation and By-Laws.
Exhibit 3.1
Amended and Restated Articles of Incorporation of the Registrant
(incorporated by reference to exhibit 28.2 of Registrant's quarterly report on
for 10-Q for the fiscal quarter ended March 29, 1992; Commission File No.
0-16806).
13
Exhibit 3.2
Amended and Restated Code of Regulations of the Registrant (incorporated by
reference to exhibit 4.5 of the Registrant's quarterly report on for 10-Q for
the fiscal quarter ended April 1, 1990; Commission File No. 0-16806).
4. Instruments Defining the Rights of Security Holders, Including
Indentures.
Exhibit 4.1
See Articles FOURTH, FIFTH and SIXTH of the Amended and Restated Articles of
Incorporation of the Registrant (see Exhibit 3.1 above).
Exhibit 4.2
See Articles One, Four, Seven and Eight of the Amended and Restated Code of
Regulations of the Registrant (see Exhibit 3.2 above).
Exhibit 4.3
Rights Agreement dated as of February 1, 1990, between the Registrant and
National City Bank (incorporated by reference to Exhibit 1 of the Registrant's
Form 8-A filed with the Commission on February 9, 1990; Commission File No.
0-16806).
Exhibit 4.4
Amendment to Rights Agreement dated as of November 1, 1992, between the
Registrant and National City Bank (incorporated by reference to exhibit 4.4
of Registrant's annual report on Form 10-K for the fiscal year ended January
3, 1993 (the "1992 Form 10-K"); Commission File No. 0-16806).
Exhibit 4.5
Letter dated October 29, 1992, from the Registrant to First Union National
Bank of North Carolina (incorporated by reference to Exhibit 4.5 to the 1992
form 10-K).
Exhibit 4.6
Letter dated October 29, 1992, from National City Bank to the Registrant
(incorporated by reference to Exhibit 4.6 to the 1992 form 10-K).
Exhibit 4.7
See sections 7.4 of the Amended and Restated Loan Agreement dated December
22, 1995 between the Registrant and First Union National Bank of Tennessee
(incorporated by reference to Exhibit 10.4 of the Registrant's annual
report on From 10-K for the fiscal year ended December 31, 1995; Commission
File No. 0-16806).
10. Material Contracts.
None
27. Financial Data Schedules.
Exhibit 27.1
Financial Data Schedule (submitted electronically for SEC information only).
(B) Reports on From 8-K
No report on Form 8-K was filed by the Registrant during the fiscal quarter
ended April 4, 1999.
14
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.
COOKER RESTAURANT CORPORATION
(The "Registrant")
Date: May 19, 1999
By: /s/ G. Arthur Seelbinder
--------------------------
G. Arthur Seelbinder
Chairman of the Board of Directors, Chief Executive Officer,
and Director
(principal executive officer and duly authorized officer)
By: /s/ Mark W. Mikosz
--------------------------
Mark W. Mikosz
Vice President - Chief Financial Officer
(principal financial and accounting officer)
15
_______________________________________________________________________________
_______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
COOKER RESTAURANT CORPORATION
________________________
FORM 10-Q QUARTERLY REPORT
FOR THE FISCAL QUARTER ENDED:
APRIL 4, 1999
_________________________
EXHIBITS
_________________________
_______________________________________________________________________________
_______________________________________________________________________________
16
Exhibit 3.1
Amended and Restated Articles of Incorporation of the Registrant (incorporated
by reference to exhibit 28.2 of Registrant's quarterly report on for 10-Q for
the fiscal quarter ended March 29, 1992; Commission File No. 0-16806).
Exhibit 3.2
Amended and Restated Code of Regulations of the Registrant (incorporated by
reference to exhibit 4.5 of the Registrant's quarterly report on for 10-Q for
the fiscal quarter ended April 1, 1990; Commission File No. 0-16806).
Exhibit 4.1
See Articles Fourth, Fifth and Sixth of the Amended and Restated Articles of
Incorporation of the Registrant (see Exhibit 3.1 above).
Exhibit 4.2
See Articles One, Four, Seven and Eight of the Amended and Restated Code of
Regulations of the Registrant (see Exhibit 3.2 above).
Exhibit 4.3
Rights Agreement dated as of February 1, 1990, between the Registrant and
National City Bank (incorporated by reference to Exhibit 1 of the
Registrant's Form 8-A filed with the Commission on February 9, 1990;
Commission File No. 0-16806).
Exhibit 4.4
Amendment to Rights Agreement dated as of November 1, 1992, between the
Registrant and National City Bank (incorporated by reference to exhibit 4.4
of Registrant's annual report on Form 10-K for the fiscal year ended
January 3, 1993 (the "1992 Form 10-K"); Commission File No. 0-16806).
Exhibit 4.5
Letter dated October 29, 1992, from the Registrant to First Union National
Bank of North Carolina (incorporated by reference to Exhibit 4.5 to the
1992 form 10-K).
Exhibit 4.6
Letter dated October 29, 1992, from National City Bank to the Registrant
(incorporated by reference to Exhibit 4.6 to the 1992 form 10-K).
Exhibit 4.7
See sections 7.4 of the Amended and Restated Loan Agreement dated
December 22, 1995 between the Registrant and First Union National Bank of
Tennessee (incorporated by reference to Exhibit 10.4 of the Registrant's
annual report on From 10-K for the fiscal year ended December 31, 1995;
Commission File No. 0-16806).
Exhibit 4.8
Indenture dated as of October 28, 1992, between the Registrant and First
Union National Bank of North Carolina, as Trustee (incorporated by
reference to Exhibit 2.5 of the Registrant's Form 8-A filed with the
Commission on November 10, 1992; Commission File No. 0-16806).
17
Exhibit 27.1
Financial Data Schedule (submitted electronically for SEC information only).
18