[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 October 3, 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 |x| 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
5,986,000 Common Shares, without par value
(number of common shares outstanding as of the close of business
on November 16, 1999)
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
COOKER RESTAURANT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In Thousands)
October 3, January 3,
ASSETS 1999 1999
-------- ----------
Current assets:
Cash and cash equivalents $ 1,546 $ 2,520
Inventory 1,454 1,650
Land held for sale 56 55
Income taxes receivable 2,659 242
Prepaid and other current assets 932 763
-------- ----------
Total current assets 6,647 5,230
Property and equipment 139,710 144,025
Restricted cash 2,431 1,600
Other assets 2,424 2,412
-------- ----------
Total assets $151,212 $ 153,267
======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 6,836 $ 6,015
Accounts payable 3,362 3,357
Accrued liabilities 7,662 7,327
Reserve for loan guaranty loss 2,454 -
-------- ----------
Total current liabilities 20,314 16,699
Long-term debt 82,555 82,385
Deferred income taxes 3,346 3,406
Other liabilities 172 625
-------- ----------
Total liabilities $106,387 $ 103,115
Shareholders' equity:
Common Shares-without par value: authorized
30,000,000 shares; issued 10,548,000 at
October 3, 1999 and January 3, 1999 62,416 62,460
Retained earnings 31,005 34,895
Treasury stock, at cost, 4,562,000 and
4,371,000 shares at October 3, 1999 and
January 3, 1999, respectively (48,596) (47,203)
-------- ----------
Total shareholders' equity 44,825 50,152
Commitments and contingencies
$151,212 $ 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 Nine Months Ended
October 3, September 27, October 3, September 27,
1999 1998 1999 1998
-------- -------- -------- --------
Sales $ 36,713 $ 38,018 $117,641 $118,407
Cost of sales:
Food and beverage 10,508 11,000 33,384 33,916
Labor 13,267 13,614 41,736 41,397
Restaurant operating expenses 7,089 7,227 21,418 21,559
Restaturant depreciation 1,660 1,570 4,953 4,590
General and administrative 3,894 2,652 9,384 7,595
Restructuring charges 3,208 - 3,208 -
Reserve for loan guaranty loss 2,454 - 2,454 -
Severance charges 1,300 - 1,300 -
Interest expense, net 1,685 747 4,840 2,074
-------- -------- -------- --------
45,065 36,810 122,677 111,131
(Loss) income before income taxes (8,352) 1,208 (5,036) 7,276
(Benefit) provision for income
taxes (2,756) 411 (1,760) 2,299
-------- -------- -------- --------
Net (loss) income $ (5,596) $ 797 $ (3,276) 4,977
======== ======== ======== ========
Basic earnings per share $ (0.93) $ 0.08 $ (0.54) $ 0.49
======== ======== ======== ========
Diluted earnings per share $ (0.93) $ 0.08 $ (0.54) $ 0.49
======== ======== ======== ========
Weighted average number of common
shares outstanding - basic 5,986 10,174 6,020 10,108
Weighted average number of common
shares outstanding - diluted 5,990 10,313 6,064 10,260
See accompanying notes to condensed consolidated financial statements
4
COOKER RESTAURANT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In Thousands)
Nine Months Ended
Ocrtober 3, September 27,
1999 1998
-------- --------
Cash flows from operating activities:
Net (loss) Income $ (3,276) $ 4,977
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,338 4,933
Impairment charges 3,058 -
Reserve for loan guaranty loss 2,454 -
(Decrease) increase in deferred income taxes (60) 780
Loss (gain) on sale of property 4 (239)
Decrease in current assets 269 130
(Increase) in other assets (12) (483)
(Decrease) in current liabilities (2,319) (1,647)
(Decrease) in other liabilities (298) -
-------- --------
Net cash provided by operating activities 5,158 8,451
Cash flows from investing activities:
Purchases of property and equipment (7,175) (13,651)
Proceeds from sale of property and equipment 3,085 1,374
Restricted Cash Deposits (831) -
-------- --------
Net cash used in investing activities (4,921) (12,277)
Cash flows from financing activities:
Proceeds from notes payable - 425
Proceeds from borrowings 21,500 -
Repayments of borrowings (20,484) -
Redemption of debentures (25) -
Exercise of stock options 49 1,244
Purchases of treasury stock (1,482) -
Capital lease obligations (155) (129)
Dividends paid (614) (702)
-------- --------
Net cash (used in) provided by financing
activities (1,211) 838
Net decrease in cash and cash equivalents (974) (2,988)
Cash and cash equivalents, at beginning of period 2,520 4,685
-------- --------
Cash and cash equivalents, at end of period $ 1,546 $ 1,697
======== ========
See accompanying notes to condensed consolidated financial statements
5
COOKER RESTAURANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 3, 1999 and September 27, 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 October 3, 1999, and the
statements of income and cash flows for the three and nine months ended
October 3, 1999. The results of operations for the three and nine months
ended October 3, 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
The difference between the basic and diluted weighted-average number of
shares outstanding for the three and nine months ended October 3, 1999 and
September 27, 1998, represents the dilutive effect of certain stock options.
Convertible subordinated debentures outstanding as of October 3, 1999, are
convertible into 636,058 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 October 3, 1999, as the inclusion
of shares into which the subordinated debentures are convertible would be
antidilutive.
Options to purchase 722,392 and 867,602 shares at prices ranging from
$5.88 to $21.75 per share and $10.375 to $21.75 per share, were
outstanding for the nine months ended October 3, 1999, and September 27,
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 nine months ended October 3, 1999 and
September 27, 1998, respectively. The options expire between October
1999 and May 2008 for the nine months ended October 3, 1999 and
between October 1999 and July 2008 for the nine months ended September
27, 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"), subsequently amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral
of Effective Date of FASB Statement 133 and Amendment of FASB
Statement 133." This statement, as amended, 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, liability or firm
commitment, (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
(that is, gains and losses) depends on the intended use of the derivative and
the resulting designation. This statement, as amended, shall be effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. The
Company has not determined the effect of the adoption of SFAS No. 133,
as amended, 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 ($84,569)
at October 3, 1999. The fair value is estimated using LIBOR forward rates
discounted back at spot rates.
6
Note 5: Restructuring charges
During the quarter ended October 3, 1999, the Company recorded
restructuring charges of approximately $3,208,000. Of this amount,
$150,000 represented charges related to stores which the Company has
decided to close, and $3,058,000 represents impairment of certain long-
lived assets. Annually, or more frequently if events or circumstances
change, a determination is made by management to ascertain whether
property and equipment and other intangibles have been impaired based
upon the sum of future undiscounted cash flows from operating activities. If
the estimated net cash flows are less than the carrying amount of such
assets, the Company will recognize an impairment loss in an amount
necessary to write down the assets to a fair value as determined from
expected future discounted cash flows. Based upon the decline in same-
store sales experienced during the quarter at certain locations, as well as the
decreases in customer counts and cash flows at these locations, the
Company determined that certain of its long-lived assets were impaired.
Accordingly, the Company recorded a charge for the impairment of seven
of its restaurant locations in the current quarter.
Note 6: Reserve for loan guaranty loss
During the third quarter of 1999, the Company recorded a reserve for loan
guaranty loss of $2,454,000. 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 former Chairman of the Board and current Director of the
Company. The Loan is secured by the Company's guaranty and 323,007
shares of the Company's common stock owned by Mr. Seelbinder. During
the fourth quarter of 1998, the lender required the Company to make a cash
deposit in such amount to satisfy the difference between the value of the
shares pledged as collateral for the loan and the face amount of the loan.
The adequacy of this deposit is assessed by the lender periodically based
upon changes in the price of the Company's common stock. During the
third quarter of 1999, Mr. Henry Hillenmeyer replaced Mr. Seelbinder as
Chairman and CEO of the Company. Based primarily upon the significant
change in Mr. Seelbinder's employment status, and the value of Mr.
Seelbinder's common stock at the end of the third quarter of 1999, the
Company believes it is probable that a loss on the loan guaranty has been
incurred as of the end of the Company's third quarter. The Company's best
estimate of that loss is the cash deposit made by the Company as of October
3, 1999. The Company will continue to monitor this reserve on an ongoing
basis based upon changes in the price of the Company's common stock and
the agreement with the lender.
Note 7: Severance charges
During the third quarter of 1999, the Company recorded severance charges
of $1,300,000. These charges represent an accrual for the severance
agreement reached between the Company and its former Chairman and
Chief Executive Officer, G. Arthur Seelbinder, in the third quarter. The
amounts granted to Mr. Seelbinder in conjunction with this agreement
represent amounts to be paid for past services rendered to the Company,
and therefore the Company accrued for the full amount of the severance
package during the third quarter. Of the amount charged, $212,000
represents the write-off of certain amounts owed to the Company by Mr.
Seelbinder and $1,088,000 represents payments to be received by Mr.
Seelbinder in conjunction with his severance agreement.
7
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 Nine Months Ended
October 3, September 27, October 3, September 27,
1999 1998 1999 1998
------- ------- ------- -------
Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales:
Food and beverage 28.6% 28.9% 28.4% 28.6%
Labor 36.1% 35.8% 35.5% 35.0%
Restaurant operating expenses 19.3% 19.0% 18.2% 18.2%
Restaturant depreciation 4.5% 4.1% 4.2% 3.9%
General and administrative 10.6% 7.0% 8.0% 6.4%
Restructuring charges 8.7% 0.0% 2.7% 0.0%
Reserve for loan guaranty loss 6.7% 0.0% 2.1% 0.0%
Severance charges 3.6% 0.0% 1.1% 0.0%
Interest expense, net 4.6% 2.0% 4.1% 1.8%
------- ------- ------- -------
122.7% 96.8% 104.3% 93.9%
(Loss) income before income taxes (22.7)% 3.2% (4.3)% 6.1%
(Benefit) provision for income
taxes (7.5)% 1.1% (1.5)% 1.9%
------- ------- ------- -------
Net (loss) income (15.2)% 2.1% (2.8)% 4.2%
======= ======= ======= =======
Sales
Sales for the third quarter of fiscal 1999 decreased 3.6%, or $1,305,000, to
$36,713,000 compared to sales of $38,018,000 for the third quarter of fiscal
1998. Sales for the nine months ended October 3, 1999 decreased .6%, or
$766,000, to $117,641,000 compared to sales of $118,407,000 for the nine
months ended September 27, 1998. The decrease for the three and nine
months ended October 3, 1999, is due to a decrease in the number of guests
at the restaurants, partially offset by new restaurant openings. The
Company opened two additional restaurants during the last half of
September 1999. Same store sales were down 7.2% and 4.8% for the three
and nine months ended October 3, 1999, respectively. Third quarter average
unit volumes per operating week of $41,766 were down 8.4% from the
third quarter of 1998. The average check of $11.53 was up 3.1% from the
third quarter of 1998.
8
Food and beverage
The cost of food and beverage for the third quarter of 1999 was
$10,508,000 as compared to $11,000,000 for the third quarter of 1998. The
decrease of $492,000 is primarily due to decreased sales for the quarter
compared to last year. The cost of food and beverage for the nine months
ended October 3, 1999, was $33,384,000 as compared to $33,916,000 for
the nine months ended September 27, 1998. As a percent of sales, the cost
of food and beverage was 28.6% for the third quarter of 1999, as compared
to 28.9% for the third quarter of 1998. For the nine-month period, the cost
of food and beverage as a percent of sales was 28.4% for 1999, as
compared to 28.6% for the same period in 1998. The improvement in 1999
is due primarily to a menu price increase instituted at the end of the fourth
quarter of 1998.
Labor
Labor costs for the third quarter of 1999 were $13,267,000 as compared to
$13,614,000 for the third quarter of 1998. The decrease of $347,000 is
primarily due to the decrease in sales and average unit volume during the
comparable period, which resulted in lower demand for labor hours. Labor
costs as a percent of sales for the third quarter of 1999 were 36.1% as
compared to 35.8% for the quarter ended September 27, 1998. The increase
is due mainly to decreased same-store sales for the quarter as well as
increased manager costs. Labor costs for the nine months ended October 3,
1999, were $41,736,000 as compared to $41,397,000 for the comparable
period in the prior year. The increase of $339,000 is due primarily to the
increased number of stores in operation during the period. Labor costs as a
percent of sales for the nine-month period in 1999 were 35.5% as compared
to 35.0% for the same period last year. The increase is primarily due to
decreased same-store sales for the period, as well as increased manager
costs.
Restaurant operating expenses
Restaurant operating expenses for the third quarter of 1999 were
$7,089,000 as compared to $7,227,000 for the third quarter of 1998. The
decrease of $138,000 was primarily due to a decrease in public relations
and administrative expenses, slightly offset by an increase in utilities costs
and repairs and maintenance. For the nine-month period, restaurant
operating expenses totaled $21,418,000 as compared to $21,559,000 for the
comparable period last year. Restaurant operating expenses as a percent of
sales for the three and nine months ended October 3, 1999, were 19.3% and
18.2%, respectively, as compared to 19.0% and 18.2% for the comparable
periods in the prior year.
Restaurant depreciation
Restaurant depreciation expense for the three and nine months ended
October 3, 1999, was $1,660,000 and $4,953,000, respectively, as
compared to $1,570,000 and $4,590,000 for the comparable periods last
year. The increases of $90,000 and $363,000 for the three and nine month
periods ended October 3, 1999, respectively, are due to the opening of
additional stores since the comparable periods in the prior year.
General and administrative expenses
General and administrative expenses for the third quarter of 1999 were
$3,894,000 as compared to $2,652,000 for the third quarter of 1998. The
increase of $1,242,000 is due mainly to an increase in wage costs of
$747,000, an increase of approximately $361,000 in the Company's
workers' compensation, health, and general liability insurance reserves
based upon increased claims activity experienced in the third quarter of
1999, increased preopening expenses of approximately $149,000 associated
with the opening of two new restaurants in the third quarter of 1999, and a
gain on the sale of land of approximately $222,000 in the third quarter of
1998 which did not reoccur in 1999, partially offset by decreases in travel
costs of $140,000, audit and tax fees of $45,000, and marketing expenses of
$79,000. General and administrative expenses for the nine months ended
October 3, 1999, were $9,384,000 as compared to $7,595,000 for the same
period last year. The increase of $1,789,000 is due primarily to increase
wage costs of $595,000, increased marketing costs of $645,000, increased
insurance costs of $361,000, as mentioned above, increased legal expenses
of $104,000, increased depreciation expense of $111,000, and the gain on
the sale of land in 1998 of $222,000 which did not reoccur in 1999,
partially offset by decreases in travel costs of $195,000 and preopening
expenses of $107,000. General and administrative expenses as a percent of
sales for the three and nine months ended October 3, 1999, were 10.6% and
8.0%, respectively, as compared to 7.0% and 6.4% for the comparable
periods in the prior year.
9
Restructuring charges
Restructuring charges for the three and nine months ended October 3, 1999
were $3,208,000. Of these charges, $25,000 represents costs incurred in the
closing of the Company's restaurant in Tampa, FL, and $125,000 represents
an accrual for exit costs associated with stores the Company has committed
to close during the fourth quarter of 1999. The Company plans to close 5
restaurants during the fourth quarter of 1999. The remaining $3,058,000
represents impairment charges recorded on 7 of the Company's restaurants.
Annually, or more frequently if events or circumstances change, a
determination is made by management to ascertain whether property and
equipment and other intangibles have been impaired based upon the sum of
future undiscounted cash flows from operating activities. Based upon a
review of the Company's restaurants at the end of the third quarter, as well
as the decline in same store sales of 7.2% for the quarter, and the
decreases in customer counts and cash flows at these locations, the
Company determined that certain of its long-lived assets were impaired.
Accordingly, the Company recorded a charge for the impairment of seven
of its restaurant locations in the current quarter.
Reserve for loan guaranty loss
During the third quarter of 1999, the Company recorded a reserve for loan
guaranty loss of $2,454,000. 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 former Chairman of the Board and current Director of the
Company. The Loan is secured by the Company's guaranty and 323,007
shares of the Company's common stock owned by Mr. Seelbinder. During
the fourth quarter of 1998, the lender required the Company to make a cash
deposit in such amount to satisfy the difference between the value of the
shares pledged as collateral for the loan and the face amount of the loan.
The adequacy of this deposit is assessed by the lender periodically based
upon changes in the price of the Company's common stock. During the
third quarter of 1999, Mr. Henry Hillenmeyer replaced Mr. Seelbinder as
Chairman and CEO of the Company. Based primarily upon the significant
change in Mr. Seelbinder's employment status, and the value of Mr.
Seelbinder's common stock at the end of the third quarter of 1999, the
Company believes it is probable that a loss on the loan guaranty has been
incurred as of the end of the Company's third quarter. The Company's best
estimate of that loss is the cash deposit made by the Company as of October
3, 1999. The Company will continue to mark-to-market this reserve on an
ongoing basis based upon changes in the price of the Company's common
stock and the agreement with the lender.
Severance charges
Severance charges for the three and nine months ended October 3, 1999,
were $1,300,000. These charges represent the value of the severance
agreement reached between the Company and its former Chairman and
Chief Executive Officer, G. Arthur Seelbinder. Of this amount, $212,000
represents the write-off of certain amounts owed to the Company by Mr.
Seelbinder, and $1,088,000 represents an accrual for amounts to be
received by Mr. Seelbinder over the duration of the agreements in
consideration for past services rendered to the Company by Mr. Seelbinder.
(Benefit) provision for income taxes
The (benefit) provision for income taxes for the three and nine months
ended October 3, 1999, as a percentage of (loss) income before taxes was
33.0% and 34.9%, respectively, as compared to 34.0% and 31.6% for the
comparable periods in the prior year. The change in the effective tax rate in
the current year is primarily due to a reversal of a liability in the prior year
for a previous year's tax audit assessment that did not reoccur in the current
year, offset slightly by a restructuring of state and local tax reporting.
Interest expense
Net interest expense for the third quarter of 1999 was $1,685,000 as
compared to $747,000 in the third quarter of 1998. Net interest expense for
the nine months ended October 3, 1999, was $4,840,000 as compared to
$2,074,000 for the same period in the prior year. The increases of
$938,000 and $2,766,000 for the three and nine month periods,
respectively, are due to the additional debt incurred in conjunction with the
buyback of approximately 4,000,000 shares of the Company's Common
Stock completed in the fourth quarter of 1998.
10
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.
During 1998, the Company entered into a new term Loan agreement with
NationsBank of Tennessee and First Union National Bank (the "Term
Loan") 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. Of the
$70,500,000 in term loans, $30,000,000 was with NationsBank of
Tennessee, $22,500,000 was with First Union National Bank, and
$18,000,000 was with the CIT/Equipment Financing Group, Inc. As of
October 3, 1999, the Company had borrowed $9,500,000 against the
Revolver and the outstanding balance of the Term Loans was
approximately $66,166,000. Repayments of principal and interest on these
loans are expected to be financed through normal operating cash flows
generated by the Company.
At the time of the original closing of the Company's $52,500,000 Term
loan with First Union National Bank and NationsBank of Tennessee, N.A.,
(collectively, the "Banks"), and its $10,000,000 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. At the time of
the Second Closing, the amount of total indebtedness to the Banks,
including the Term Loan and the Revolver, cannot exceed the lesser of
$62,500,000 or seventy percent of the appraised value of the properties
pledged as collateral. 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, beginning on May 1, 1999,
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. 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 the fourth quarter. No substantive changes are expected to be
made to the original agreement dated September 24, 1998 as a result of the
Second Closing.
During the three months ended October 3, 1999, the Company opened two
additional units. The Company has opened four new restaurants in the first
nine months of 1999. Capital expenditures for new restaurants, as well as
the refurbishing and remodeling of existing units totaled $7,175,000 for the
nine months ended October 3, 1999, and were funded by cash flows of
$5,158,000 from operations, and the Company's available cash balances,
including amounts drawn against the Revolver. The Company intends to
open one additional restaurant 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.
11
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 October 3, 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 October 3, 1999.
The fair value of the interest rate swap agreement was approximately
($84,569) at October 3, 1999. The fair value is estimated using LIBOR
forward rates discounted back at spot rates
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 former
Chairman of the Board and current Director of the Company. 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 is secured by 323,007 Common Shares owned by Mr.
Seelbinder 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.
As of October 26, 1999, the amount of the Loan outstanding, including
capitalized and accrued interest, was $3,626,446 and the undiscounted fair
market value of the pledged shares was $1,090,149, based upon a market
price of $3.375 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.
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 periodically,
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 $854,000 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.
Based primarily upon the significant change in Mr. Seelbinder's
employment status and the value of Mr. Seelbinder's common stock at the
end of the third quarter, the Company believes that it is probable that a loss
on the loan guaranty has been incurred as of the end of the Company's third
quarter. The Company's best estimate of that loss is the cash deposit made
by the Company as of October 3, 1999.
12
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 has completed its inventory of computer information technology
and non-information technology hardware systems to assess Year 2000
results of assessment compliance. All of the Company's internal systems
and hardware, with the exception of the back-of-the house and Point-of-Sale
systems in those restaurants that have not yet been upgraded, have
been determined to be Year 2000-compliant. These systems consist of all
accounting systems, billing systems, payroll systems and personnel
systems.
In addition to the Company's internal systems and hardware, the Company
is currently assessing the Year 2000 readiness of its vendors. As a part of
this assessment, the Company has asked each major vendor to inform the
Company of its (the vendor's) Year 2000 readiness and initiatives. As of
October 3, 1999, the Company has received responses from approximately
80% of its vendors regarding their Year 2000 readiness. All of the vendors
that have replied to the Company have indicated that they are Year 2000-
compliant. Currently, the Company purchases approximately 95% of its
food products from one vendor. The Company is receiving monthly
updates from this significant vendor confirming its Year 2000 readiness. To
the extent that Company's vendors have not provided the Company with
satisfactory evidence of their readiness for the Year 2000 issue, contingency
plans will be developed.
Additionally, the Company has completed its Year 2000 upgrade of both
the Point-of-Sale system and back-of-the-house (accounting, payroll,
network hardware and software) systems in 61 of its restaurants. The
Company should be completed with its conversion efforts by the end of
November 1999.
Earlier in the year, a Year 2000 Committee was formed. The Committee is
developing 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 $31,000 has been
incurred to date. Such costs have been and will be funded by the
Company's operating cash flows.
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"), subsequently
amended by SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of Effective Date of FASB Statement 133
and Amendment of FASB Statement 133." This statement, as amended,
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, liability or firm commitment (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, as amended, shall be effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. The Company has not
determined the effect of the adoption of SFAS No. 133, as amended, on
the Company's results of operations or statement of financial position.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company has performed a sensitivity analysis on its fixed and floating
long term debt at July 4, 1999. The results of this sensitivity analysis
indicated that there has been no substantial change in the analysis as
performed at the end of the fiscal quarter ended April 4, 1999.
13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Routine Proceedings
The Company is a party to routine litigation incidental to its business,
including ordinary course employment litigation. Management does not
believe that the resolution of any or all of such routine litigation is likely
to have a material adverse effect on the Company's financial condition or
results of operation.
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.
The Company conducted its 1999 Annual Shareholders' Meeting on July
19, 1999. The matters voted on and the results of the items submitted to a
vote of the shareholders are stated below:
Election of two directors for a term of three years to the Board of
Directors:
Director Nominee Votes Cast For Votes Withheld
- -----------------------------------------------------------------
Henry R. Hillenmeyer 5,158,337 66,484
William L. Jackson 5,157,437 67,384
The names of the directors whose term of office as a director continued
after the meeting are: Glenn W. Cockburn, David T. Kollat, Harvey M.
Palash, David L. Hobson, Robin V. Holderman, and G. Arthur Seelbinder.
Item 5. Other Information.
Effective August 19, 1999, the Company entered into a severance
agreement with G. Arthur Seelbinder who held the position of Chairman of
the Board and Chief Executive Officer. Under the terms of the agreement,
Mr. Seelbinder will remain a Director of the Company until August 19,
2000. He will also receive compensation for his past services provided
to the Company. In addition, he will continue to participate in the
executive bonus program and stock options which have been granted to Mr.
Seelbinder will continue to vest. For further information, see Note 6 and 7
of Notes to Condensed Consolidated Financial Statements.
Effective August 19, 1999, the Company entered into an employment
agreement with Henry R. Hillenmeyer. Mr. Hillenmeyer has been a
director of the Company since 1994 and a member of the compensation
committee since April 1995. Effective August 19, 1999, Mr.
Hillenmeyer is Chairman of the Board and Chief Executive Officer of the
Company. Pursuant to the terms of his agreement, Mr. Hillenmeyer was
granted options to purchase 299,300 shares of the Company's common
stock.
In its Form 8-K dated October 22, 1999, the Company announced the
resignation of KPMG LLP, its principal accountants, effective October 18,
1999. In its Form 8-K dated October 29, 1999, the Company announced
the engagement of Deloitte & Touche LLP as its principal accountants.
14
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are files as part of this report.
10. Material Contracts.
Exhibit 10.23
Letter agreement dated September 30, 1999 between the Company and G.
Arthur Seelbinder.
Exhibit 10.24
Letter agreement dated August 19, 1999 between the Company and Henry R.
Hillenmeyer.
Exhibit 10.25
Option Agreement dated August 19, 1999 between the Company and Henry R.
Hillenmeyer.
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 July 4, 1999.
15
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: November 16, 1999
By: /s/ Henery R. Hillenmeyer
--------------------------
Henery R. Hillenmeyer
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)
16
_______________________________________________________________________________
_______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
COOKER RESTAURANT CORPORATION
________________________
FORM 10-Q QUARTERLY REPORT
FOR THE FISCAL QUARTER ENDED:
OCTOBER 3, 1999
_________________________
EXHIBITS
_________________________
_______________________________________________________________________________
_______________________________________________________________________________
17
Exhibit 10.23
Letter agreement dated October 1, 1999 between the Company and G.
Arthur Seelbinder.
Exhibit 10.24
Letter agreement dated August 19, 1999 between the Company and Henry R.
Hillenmeyer.
Exhibit 10.25
Option Agreement dated August 19, 1999 between the Company and Henry R.
Hillenmeyer.
Exhibit 27.1
Financial Data Schedule (submitted electronically for SEC information only).