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 July 2, 2000
[ ] 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 August 16, 2000)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
COOKER RESTAURANT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In Thousands)
July 2, January 2,
2000 2000
---------- ----------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,331 $ 1,428
Inventory 1,378 1,326
Land held for sale 77 67
Income Taxes Receivable 1,586 675
Prepaid and other current assets 665 1,402
---------- ----------
Total current assets 5,037 4,898
Property and equipment 135,688 138,644
Restricted Cash - 2,919
Other Assets 2,846 2,837
---------- ----------
Total assets $ 143,571 $ 149,298
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 74,892 $ 6,858
Accounts payable 3,173 4,154
Accrued liabilities 7,449 8,773
Reserve for loan guaranty loss - 2,454
---------- ----------
Total current liabilities 85,514 22,239
Long-term debt 12,547 81,097
Deferred income taxes 1,048 1,048
Other liabilities 512 125
---------- ----------
Total liabilities $ 99,621 $ 104,509
---------- ----------
Shareholders' equity:
Common shares-without par value:
authorized 30,000,000 shares; issued
10,548,000 at July 2, 2000 and
January 2, 2000 62,211 62,211
Retained earnings 30,168 31,007
Treasury stock, at cost, 4,562,000
shares at July 2, 2000 and
January 2, 2000 (48,429) (48,429)
---------- ----------
Total shareholders' equity 43,950 44,789
Commitments and contingencies
---------- ----------
Total liabilities and shareholders'
equity $ 143,571 $ 149,298
========== ==========
See accompanying notes to condensed consolidated financial statements
2
COOKER RESTAURANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In Thousands Except Per Share Data)
Three Months Ended Six Months Ended
July 2, July 4, July 2, July 4,
2000 1999 2000 1999
--------- --------- --------- ---------
Sales $ 36,573 $ 38,738 $ 75,114 $ 80,928
--------- --------- --------- ---------
Cost of Sales:
Food and beverage 10,622 10,965 21,649 22,876
Labor 13,807 13,635 28,019 28,469
Restaurant operating expenses 7,664 6,702 15,129 14,330
Restaurant depreciation 1,531 1,660 3,162 3,293
General and administrative 2,067 2,468 4,580 5,490
Gain on severance recovery - - (810) -
Loss on loan guaranty - - 633 -
Loss on disposal of fixed assets - - 222 -
Interest expense, net 1,934 1,551 3,801 3,155
--------- --------- --------- ---------
37,625 36,981 76,385 77,613
(Loss) income before income taxes (1,052) 1,757 (1,271) 3,315
(Benefit) provision for income taxes (368) 528 (445) 995
--------- --------- --------- ---------
Net (loss) income $ (684) $ 1,229 $ (826) $ 2,320
========= ========= ========= =========
Basic (loss) earnings per share $ (0.11) $ 0.21 $ (0.14) $ 0.38
========= ========= ========= =========
Diluted (loss) earnings per share $ (0.11) $ 0.20 $ (0.14) $ 0.38
========= ========= ========= =========
Weighted average number of common
shares outstanding - basic 5,986 5,986 5,986 6,036
========= ========= ========= =========
Weighted average number of common
shares outstanding - diluted 5,986 6,064 5,986 6,142
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements
3
COOKER RESTAURANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands)
Six Months Ended
July 2, July 4,
2000 1999
----------- -----------
Cash flows from operating activities:
Net (loss) income $ (826) $ 2,320
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation and amortization 3,434 3,550
Loss on loan guaranty 633 -
Deferred income taxes - (60)
Loss on disposal of property 222 4
Increase in current assets (236) (248)
(Increase) decrease in other assets (9) 60
Decrease in current liabilities (2,305) (1,120)
Increase (decrease) in other liabilities 436 (297)
----------- -----------
Net cash provided by operating activities 1,349 4,209
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (938) (5,111)
Proceeds from sale of property and equipment 198 3,085
Restricted cash deposits (141) (222)
----------- -----------
Net cash used in investing activities (881) (2,248)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings 10,250 14,250
Repayments of borrowings (10,748) (14,591)
Redemption of debentures (18) (25)
Exercise of stock options - 49
Purchases of treasury stock - (1,365)
Capital lease obligations (49) (93)
Dividends paid - (614)
----------- -----------
Net cash used in financing activities (565) (2,389)
----------- -----------
Net decrease in cash and cash equivalents (97) (428)
Cash and cash equivalents, at beginning
of period 1,428 2,520
----------- -----------
Cash and cash equivalents, at end of period $ 1,331 $ 2,092
=========== ===========
See accompanying notes to condensed consolidated financial statements
4
COOKER RESTAURANT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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 annual financial statements. In the
opinion of management, the accompanying condensed consolidated
financial statements contain all adjustments, consisting only 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 July 2, 2000, and the statements of
income and cash flows for the three and six months ended July 2,
2000. The results of operations for the three and six months
ended July 2, 2000, are not necessarily indicative of the
operating results expected for the fiscal year ended December 31,
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 2, 2000.
Certain amounts in the 1999 financial statements have been
reclassified to conform to the 2000 presentation.
Note 2: Earnings Per Share
The difference between the basic and diluted weighted-average
number of shares outstanding for the three and six months ended
July 4, 1999, represents the dilutive effect of certain stock
options.
Convertible subordinated debentures outstanding as of July 2,
2000 are convertible into 581,890 shares of common stock at
$21.5625 per share and are due October 2002. These were not
included in the computation of diluted Earnings Per Share ("EPS")
for the three or six months ended July 2, 2000, as the inclusion
of shares into which the subordinated debentures are convertible
would be antidilutive.
Options to purchase 1,365,602 shares at prices ranging from
$2.625 to $17.75 per share were outstanding for the six months
ended July 2, 2000, but were not included in the computation of
diluted EPS because, due to the net loss incurred for the period,
the inclusion of stock options would be antidilutive. The options
expire between January 2001 and January 2010.
Options to purchase 597,642 shares at prices ranging from $6.50
to $21.75 per share were outstanding for the six months ended
July 4, 1999, 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 six months
ended July 4, 1999. The options expire between October 1999 and
May 2008.
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 the 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.
5
Note 4: Derivative Financial Instruments
The fair value of the interest rate swap agreement approximated
$230,000 at July 2, 2000.
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.
Note 5: Loss on loan guaranty
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 us of a loan of $5,000,000 to G.
Arthur Seelbinder, the former Chairman of the Board and a current
Director, and his wife. In January 1997, the Board approved a
refinancing of the loan with The Chase Manhattan Bank of New York
(the "Bank"). The loan was secured by 323,007 common shares owned
by Mr. Seelbinder and a cash deposit from the Company of
approximately $3,000,000. The term of the loan and the guaranty
were extended until March 1, 2000, at which time the loan
matured. As of March 1, 2000 the balance of the loan was
$3,753,397. On March 8, 2000, the Bank sold Mr. Seelbinder's
stock for $666,202 in a private transaction and applied this
amount to the loan. The remaining balance of the loan of
$3,087,195 was funded by the Company as a result of its guaranty.
Accordingly, in the first quarter of 2000 the Company recorded an
additional loss on the guaranty of approximately $633,000, the
difference between the amount due the Bank and the reserve
previously recorded. In addition to any rights the Company has as
the Bank's successors to collect from Mr. Seelbinder, any amounts
due to Mr. Seelbinder under the settlement agreement the Company
entered into with him when he stepped down as Chairman and Chief
Executive Officer are to be paid to the Company and applied to
the amounts the Company paid pursuant to the guaranty. See note
6.
Note 6: Severance recovery
During the third quarter of 1999, the Company recorded severance
charges of $1,300,000. These charges represented an accrual for
the severance agreement reached between the Company and its
former Chairman and Chief Executive Officer, G. Arthur
Seelbinder. The amounts granted to Mr. Seelbinder in conjunction
with this agreement represented 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 1999. Of the amount charged, $212,000
represented the write-off of certain amounts owed to the Company
by Mr. Seelbinder and $1,088,000 represented payments to be
received by Mr. Seelbinder in conjunction with his severance
agreement.
On March 8, 2000, the date the Company was called upon by the
Bank to honor its guaranty (see Note 5), the balance of the
severance liability to Mr. Seelbinder was approximately $910,000.
In accordance with the agreement with Mr. Seelbinder, a portion
of this amount, less certain amounts representing federal
withholding liabilities, were applied to the amounts owed to the
Company as a result of its guaranty. Certain other amounts were
forfeited but not applied to the amount owed to the Company. As a
result, approximately $810,000 in accrued severance liabilities
was forfeited by Mr. Seelbinder, with a portion thereof applied
to the guaranty amount.
Note 7: Loss on disposal of fixed assets
In the first quarter of 2000, the Company recorded a loss on
disposal of fixed assets of $222,000. The charge represented the
book value of certain leasehold improvements and equipment
related to the Company's restaurant in Indianapolis, IN, a leased
site. In late fiscal 1999, the site incurred certain structural
damage in the kitchen. The Company closed the site, pending
repair of the damage. In March 2000, the Company reached an
agreement with the site's landlord, wherein the landlord refunded
the prior three months' rent to the Company, the Company removed
certain kitchen equipment, supplies, computer equipment and other
furniture and fixtures, and the lease was terminated without any
further liability or obligation to the Company. At the time of
the agreement, the book value of the leasehold improvements and
equipment was approximately $277,000. The Company removed items
with a net book value of approximately $55,000 from the premises.
Accordingly, the Company recorded a loss on disposal of $222,000
in March 2000. The Company received no proceeds for the items
disposed.
6
Note 8: Contingencies
The case of Burnette, et al. v. Cooker Restaurant Corporation was
filed in the United States District Court, Middle District of
Florida, Tampa Division, on March 26, 1999. Plaintiffs allege
violations of the wage and hour laws of the Fair Labor Standards
Act with respect to themselves and all others similarly situated.
The FLSA action is a collective action and, as of this date,
approximately 80 Plaintiffs have consented to join the action.
Plaintiffs allege they were not paid appropriately for all hours
worked. Plaintiffs seek overtime pay, back pay, and attorneys
fees. The plaintiffs have alleged monetary damages of
approximately $1.5 million representing back wages. Plaintiffs
have filed a motion to facilitate notice of the lawsuit to all
current and previous employees (for a period of three years prior
to the filing of the lawsuit) to allow them to join the lawsuit
as plaintiffs. Cooker intends to vigorously oppose the sending
of notice and vigorously defend the lawsuit, but there can be no
assurance that it will ultimately prevail. At this time, the
parties have agreed to enter into a stay of the litigation
through and including October 1, 2000, to explore the possibility
of resolving the litigation amicably.
On September 17, 1999, certain of the plaintiffs in the Burnette
action described above, as well as other plaintiffs, filed a
class action in the United States District Court, Middle District
of Florida, entitled Clemmons et al. v. Cooker Restaurant
Corporation. Plaintiffs allege that Cooker has discriminated on
the basis of race in the hiring, promotion, compensation, and
terms and conditions of employment. Plaintiffs' original
complaint seeks injunctive relief, attorneys fees, back pay and
lost benefits, reinstatement, and punitive damages. No specific
monetary damages have been alleged. Plaintiffs have filed a
motion for leave to file an amended complaint in which they seek
to: (1) drop two named plaintiffs; (2) add three new plaintiffs;
(3) add additional defendants consisting of past and present
individual corporate officials of Cooker; and (4) recover
compensatory damages. Cooker has opposed the filing of an
amended complaint. Plaintiffs have filed a motion for class
certification, and Cooker has filed a memorandum in opposition.
The Court has yet to rule on the foregoing matters. A motion to
dismiss Plaintiffs' original complaint is also pending. Cooker
intends to vigorously defend the lawsuit, but there can be no
assurance that it will ultimately prevail.
Note 9: Subsequent Events
For the quarter ended July 2, 2000, the Company was not in
compliance with certain covenants pertaining to its term debt
with the CIT Group ("CIT"). The Company did not receive a waiver
from CIT to cure the July 2, 2000 non-compliance. The Company
is in negotiations to amend the covenants for future periods. The
Company is current on its payment obligations to CIT. Because the
Company did not receive a waiver from CIT for the non-compliance
at July 2, 2000 or for future periods, and because the
negotiations pertaining to future covenants are not complete as
of the date of this filing, our obligation to CIT has been
reclassified as a current liability.
For the quarter ended July 2, 2000, the Company also was not in
compliance with certain covenants pertaining to its debt with
Bank of America and First Union National Bank (collectively, the
"Term Lenders"). In addition to not being in compliance with
certain covenants, the Company did not make its full (interest
and principal) payment due on July 3, 2000 and it did not make
any of its interest or principal payment due August 1, 2000. The
Company has not received a waiver from the Term Lenders to cure
the non-compliance at July 2, 2000. Accordingly, the Company has
reclassified the obligation to the Term Lenders as current for
the quarter ended July 2, 2000. The Company has also not received
a waiver from the Term Lenders to cure the non-compliance at
August 1, 2000. The Company has retained an independent third
party to assist the Company in obtaining other long term
financing intended to replace its current debt agreement with the
Term Lenders.
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 Six Months Ended
July 2, July 4, July 2, July 4,
2000 1999 2000 1999
-------- -------- -------- --------
Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales:
Food and beverage 29.0% 28.3% 28.8% 28.3%
Labor 37.8% 35.2% 37.3% 35.2%
Restaurant operating expenses 21.0% 17.3% 20.2% 17.7%
Restaurant depreciation 4.2% 4.3% 4.2% 4.0%
General and administrative 5.6% 6.4% 6.1% 6.8%
Gain on severance recovery 0.0% 0.0% -1.1% 0.0%
Loss on loan guaranty 0.0% 0.0% 0.8% 0.0%
Loss on disposal of fixed assets 0.0% 0.0% 0.3% 0.0%
Interest expense, net 5.3% 4.0% 5.1% 3.9%
-------- -------- -------- --------
102.9% 95.5% 101.7% 95.9%
(Loss) income before income taxes (2.9%) 4.5% (1.7%) 4.1%
(Benefit) provision for income taxes (1.0%) 1.4% (0.6%) 1.2%
-------- -------- -------- --------
Net (loss) income (1.9%) 3.1% (1.1%) 2.9%
======== ======== ======== ========
Sales
- -----
Sales for the second quarter of fiscal 2000 decreased 5.6%, or
$2,165,000, to $36,573,000 compared to sales of $38,738,000 for
the second quarter of fiscal 1999. For the six months ended July
2, 2000, sales decreased 7.2%, or $5,814,000, to $75,114,000
compared to sales of $80,928,000 for the six months ended July 4,
1999. The decrease for the three and six months ended July 2,
2000 is due to a decrease in the number of restaurants operating
during the comparable periods as well as a decrease in the number
of guests at the restaurants. In the second half of 1999, the
Company closed six restaurants and opened four new restaurants,
for a net decrease of two restaurants in the current operating
period. The Company opened one new restaurant during the first
quarter of fiscal 2000. Same store sales were down 5.6% and 7.0%
for the three and six months ended July 2, 2000, respectively.
The average check for the second quarter was $11.87, up .8% from
the average check for the second quarter of 1999.
8
Food and beverage
- -----------------
The cost of food and beverage for the three months ended July 2,
2000 was $10,622,000 as compared to $10,965,000 for the three
months ended July 4, 1999. The decrease of $343,000 is primarily
due to decreased sales for the quarter compared to the same
period last year. As a percentage of sales, the cost of food and
beverage was 29.0% for the three months ended July 2, 2000, as
compared to 28.3% for the three months ended July 4, 1999. The
increase in 2000 is due primarily to increased prices for produce
and beef, offset slightly by a decrease in prices for poultry.
The increase in certain food costs was primarily a result of an
industry supply problem which occurred when one of the industry's
major suppliers filed for bankruptcy. As a result of the
disruption in scheduled deliveries, certain items were purchased
from other outside sources, leading to an increase in costs. The
cost of food and beverage for the six months ended July 2, 2000
was $21,649,000 as compared to $22,876,000 for the six months
ended July 4, 1999. The decrease of $1,227,000 is primarily due
to decreased sales for the current six month period as compared
to last year. As a percentage of sales, the cost of food and
beverage was 28.8% for the six months ended July 2, 2000, as
compared to 28.3% for the six months ended July 4, 1999. The
increase in 2000 is due primarily to increased prices as well as
the industry supply problem noted above which necessitated
certain purchases from other outside sources at less favorable
prices.
Labor
- -----
Labor costs for the three months ended July 2, 2000 were
$13,807,000 as compared to $13,635,000 for the three months ended
July 4, 1999. The increase of $172,000 is primarily due to an
increase in crew costs of $91,000 as the Company continues its
focus on increasing staffing levels and providing better guest
service, and an increase in benefits and taxes of $211,000,
mainly due to increased payroll taxes, offset by decreased
manager costs of $130,000 due to a decrease in the number of
operating stores in the comparable periods. Labor costs as a
percentage of sales for the three months ended July 2, 2000 were
37.8% as compared to 35.2% for the three months ended July 4,
1999. The percentage increase is due primarily to decreased same-
store sales for the quarter as well as increased staffing levels
at our restaurants. Labor costs for the six months ended July 2,
2000 were $28,019,000 as compared to $28,469,000 for the six
months ended July 4, 1999. The decrease of $450,000 is primarily
due to a decrease in the number of operating restaurants in the
comparable periods. Crew labor decreased $358,000, management
labor decreased $197,000 and taxes and benefits increased
$105,000. Labor costs as a percentage of sales for the six months
ended July 2, 2000 were 37.3% as compared to 35.2% for the six
months ended July 4, 1999. The percentage increase is due
primarily to decreased same-store sales for the quarter as well
as increased staffing levels at our restaurants.
Restaurant operating expenses
- -----------------------------
Restaurant operating expenses for the three months ended July 2,
2000 were $7,664,000 as compared to $6,702,000 for the three
months ended July 4, 1999. The increase of $962,000 was primarily
due to an increase in public relations and promotions of
$217,000, an increase of $165,000 in repairs and maintenance, and
an increase in occupancy costs of $539,000. Restaurant operating
expenses as a percentage of sales for the three months ended July
2, 2000, were 21.0%, as compared to 17.3% for the comparable
period in the prior year. The increase in percentage terms is due
mainly to decreased sales in the current period. Restaurant
operating expenses for the six months ended July 2, 2000 were
$15,129,000 as compared to $14,330,000 for the six months ended
July 4, 1999. The increase of $799,000 was primarily due to an
increase of $141,000 in public relations, an increase of $191,000
in repairs and maintenance, and an increase in occupancy costs of
$651,000, offset by decreases in courier costs of $175,000, paper
supplies of $106,000 and contract services of $111,000.
Restaurant operating expenses as a percentage of sales for the
six months ended July 2, 2000, were 20.2%, as compared to 17.7%
for the comparable period in the prior year. The increase in
percentage terms is due mainly to decreased sales in the current
period.
Restaurant depreciation
- -----------------------
Restaurant depreciation expense for the three months ended July
2, 2000 was $1,531,000, as compared to $1,660,000 for the three
months ended July 4, 1999. Restaurant depreciation expense for
the six months ended July 2, 2000 was $3,162,000, as compared to
$3,293,000 for the six months ended July 4, 1999. The decrease of
$129,000 and $131,000 for the three and six months ended July 2,
2000, respectively, are due primarily to the closing of 6
restaurants in the second half of 1999, offset slightly by the
opening of 4 new restaurants since the end of the second quarter
of 1999. Additionally, depreciation expense on certain units
decreased as a result of impairment charges recorded on those
sites in the third quarter of fiscal 1999.
9
General and administrative expenses
- -----------------------------------
General and administrative expenses for the three months ended
July 2, 2000 were $2,067,000 as compared to $2,468,000 for the
three months ended July 4, 1999. The decrease of $401,000 is due
primarily to decreases in marketing costs of $430,000, travel
expenses of $45,000 and other outside services of $29,000, offset
by increases in salaries and wages of $76,000 and legal expenses
of $59,000. General and administrative expenses for the six
months ended July 2, 2000 were $4,580,000 as compared to
$5,490,000 for the six months ended July 4, 1999. The decrease of
$910,000 is due primarily to decreases in salaries and wages of
$329,000, marketing costs of $199,000, travel expenses of
$73,000, audit tax and consultant expenses of $83,000, preopening
expenses of $71,000 and other miscellaneous income of $400,000,
primarily due to the realization of a tax benefit for fiscal 1999
as a result of the FICA Tip Credit, offset by an increase in
legal costs of $239,000.
Gain on severance recovery
- --------------------------
For the six months ended July 2, 2000, the Company recorded a
gain on severance recovery of $810,000, all of which was recorded
during the first quarter of 2000. During the third quarter of
1999, the Company recorded severance charges of $1,300,000. These
charges represented an accrual for the severance agreement
reached between the Company and its former Chairman and Chief
Executive Officer, G. Arthur Seelbinder. The amounts were 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 represented the
write-off of certain amounts owed to the Company by Mr.
Seelbinder and $1,088,000 represented payments to be received by
Mr. Seelbinder in conjunction with his severance agreement.
On March 8, 2000, the Company was called upon by the Bank to
honor its guaranty of Mr. Seelbinder's loan as described in Note
5 to the financial statements. On that date, the balance of the
severance liability to Mr. Seelbinder was approximately $910,000.
In accordance with the agreement with Mr. Seelbinder, a portion
of this amount, less certain amounts representing federal
withholding liabilities, were applied to the amounts owed by him
to the Company as a result of the Company's payment under the
guaranty. Certain other amounts were forfeited but not applied to
the amount due to the Company. As a result, approximately
$810,000 in accrued severance liabilities was forfeited by Mr.
Seelbinder, with a portion thereof applied to the guaranty
amount.
Loss on loan guaranty
- ---------------------
For the six months ended July 2, 2000, the Company recorded a
loss on loan guaranty of $633,000, all of which was recorded
during the first quarter of 2000. In 1994, the Board of Directors
approved a guaranty by the Company of a loan of $5,000,000 to G.
Arthur Seelbinder, the former Chairman of the Board and a current
Director, and his wife. In January 1997, the Board approved a
refinancing of the loan with The Chase Manhattan Bank of New York
(the "Bank"). The loan was secured by 323,007 common stock owned
by Mr. Seelbinder and a cash deposit from the Company of
approximately $3,000,000. The term of the loan and the guaranty
were extended until March 1, 2000, at which time the loan
matured. As of March 1, 2000 the balance of the loan was
$3,753,397. On March 8, 2000, the Bank sold Mr. Seelbinder's
stock for $666,202 in a private transaction, and applied this
amount to the loan. The remaining balance of the loan of
$3,087,195 was funded by the Company as a result of its guaranty.
Accordingly, the Company recorded an additional loss on the
guaranty of approximately $633,000, the difference between the
amount due the Bank, and the $2,454,000 reserve previously
recorded.
Loss on disposal of fixed assets
- --------------------------------
In the six months ended July 2, 2000, the Company recorded a loss
on disposal of fixed assets of $222,000, all of which was
recorded in the first quarter of 2000. The charge represented the
book value of certain leasehold improvements and equipment
related to the Company's restaurant in Indianapolis, IN, a leased
site. In late fiscal 1999, the site incurred certain structural
damage in the kitchen. The Company closed the site, pending
repair of the damage. In March 2000, the Company reached an
agreement with the site's landlord, wherein the landlord refunded
the prior three months' rent to the Company, the Company removed
certain kitchen equipment, supplies, computer equipment and other
furniture and fixtures, and the lease was terminated without any
further liability or obligation to the Company. At the time of
the agreement, the book value of the leasehold improvements and
equipment was approximately $277,000. The Company removed items
with a net book value of approximately $55,000 from the premises.
Accordingly, the Company recorded a loss on disposal of $222,000
in March 2000. The Company received no proceeds for the items
disposed.
(Benefit) provision for income taxes
- ------------------------------------
The (benefit) provision for income taxes for the three months
ended July 2, 2000, and July 4, 1999, as a percentage of (loss)
income before taxes was 35.0% and 30.0%, respectively. The
(benefit) provision for income taxes for the six months ended
July 2, 2000, and July 4, 1999, as a percentage of (loss) income
before taxes was 35.0% and 30.0%, respectively. The change in the
effective tax rate in the current year is primarily due to an
increase in the benefit from the FICA Tip Credit as a result of
lower taxable income during the comparable periods.
10
Interest expense
- ----------------
Net interest expense for the three months ended July 2, 2000 was
$1,934,000 as compared to $1,551,000 for the three months ended
July 4, 1999. Net interest expense for the six months ended July
2, 2000 was $3,801,000 as compared to $3,155,000 for the six
months ended July 4, 1999. The increases of $383,000 and $646,000
for the three and six month periods, respectively, is due to an
increase in the amounts drawn against the Company's Revolver (as
defined below), as well as an increase in the interest rate on
the Company's variable rate LIBOR-based debt, which includes the
Revolver.
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 and
labor, (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. Historically, the majority of the Company's
financing for operations, expansion and working capital has been
provided by internally generated cash flows from operations and
amounts available under the Revolver (defined below).
During 1998, the Company entered into a new term loan agreement
with Bank of America 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 Bank of America. In December 1999, the
amount available under the Revolver was increased to $13,500,000.
Of the $70,500,000 in term loans, $30,000,000 was with Bank of
America, $22,500,000 was with First Union National Bank, and
$18,000,000 was with the CIT/Equipment Financing Group, Inc
("CIT"). As of July 2, 2000, the Company had borrowed $13,250,000
against the Revolver and the outstanding balance of the Term
Loans was approximately $61,642,000.
During the six months ended July 2, 2000, the Company opened one
additional unit. Capital expenditures for the new restaurant, as
well as the refurbishing and remodeling of existing units totaled
$938,000 for the six months ended July 2, 2000, and were funded
by cash flows of $1,349,000 from operations. The Company intends
to open one additional restaurant in 2000 for a total of 2 new
restaurants. Total cash expenditures for the 2000 expansion are
estimated to be approximately $2 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.
For the three months ended July 2, 2000, cash flows from
operations were ($390,000). However, for the six months ended
July 2, 2000, cash flows from operations were $1,349,000. As part
of its efforts to increase sales, during the six months ended
July 2, 2000, the Company focused on increasing staffing levels
in an effort to provide better service to our guests.
Additionally, the Company focused on maintaining and repairing
our restaurants to provide the guests with a satisfying
experience at our restaurants. These steps, which are intended to
improve guest relations with the long term focus on building
sales and cash flows, had a negative effect on short term cash
flows. Additionally, historically, second quarter sales are lower
than first quarter sales. Further, same store sales for the
second quarter were 5.6% below the same quarter last year. This
decrease in sales for the current quarter, coupled with higher
than normal costs in relation to sales associated with our
investment in staffing and operations, resulted in the generation
of negative cash flows for the three months ended July 2, 2000.
11
The decrease in cash flows from operations during the three
months ended July 2, 2000 negatively impacted the Company's
ability to make its debt payments to Bank of America and First
Union (collectively the "Term Lenders") on its Term Loan. The
Company paid all but $250,000 of its payment due July 3, 2000,
and did not make its payment due on August 1, 2000 to the Term
Lenders. The decrease in cash flows also caused the Company to
not be in compliance with certain covenants pertaining to its
debt with CIT and the Term Lenders. The Company did receive a
waiver from CIT pertaining to the non-compliance at July 2, 2000,
however the Company did not receive a waiver from CIT pertaining
to future periods. The Company is in negotiations with CIT to
amend the covenants for future periods. The Company was also not
in compliance with certain covenants pertaining to its debt with
the Term Lenders at July 2, 2000 or August 1, 2000. The Company
did not receive a waiver from the Term Lenders to cure the non-
compliance. As a result of these violations, the Company has
reclassified its obligations with CIT and the Term Lenders as a
current liability at July 2, 2000. The reclassification of these
obligations has resulted in a working capital deficit of
$80,477,000 at July 2, 2000.
Currently, the Company is exploring alternative financing
arrangements with other lenders which would provide the Company
with cash on a short term basis, and which would have a longer
term to maturity than its current Term Loan. An extension of the
term would result in lower monthly debt service payments and
would have a positive effect on cash flows. In the event such
alternative financing arrangements are not completed in a timely
manner, the Term Lenders are entitled, at their discretion, to
exercise certain remedies including acceleration of repayment. In
the event the Term Lenders exercise their right to accelerate the
obligations under the Term Loan, such acceleration would have a
material adverse effect on the Company, its operations and
financial condition. Further, the Company is in the process of
beginning the roll out of a new menu which is expected to be
available in all of our locations prior to the end of the fourth
quarter of fiscal 2000. The menu features new recipes, new
presentations and larger portions, as well as new items. The
Company believes that the changes to the menu, as well as the
focus on guest service, will have the impact of increasing sales
and operating margins, as well as operating cash flows.
In addition, the Company has signed leases with independent third
parties on two properties it owns. The stores located on those
properties were closed in fiscal 1999. The Company will begin to
receive monthly rental payments in the third quarter 2000 on both
properties. The Company also has subleased a closed leased site
to an independent third party. The Company continues to explore
sale or lease arrangements on other closed store properties.
Successful sale or lease arrangements on these properties will
generate cash inflows either through cash proceeds from sales, or
monthly rental payments during the term of the lease.
There can be no assurance that the steps the Company is taking to
increase sales will have the desired effect. Nor can there be any
assurance that the Company's efforts to secure alternative
financing or to sell or lease closed store properties will be
successful. In the event that such financing is not completed,
such sales or lease arrangements are not closed, or that sales do
not increase, the Company may continue to experience negative
cash flows in the future.
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 July 2, 2000, the Company was a party to an interest
rate swap agreement with a termination date of September 28,
2001. Per the terms of the agreement, the Company pays 6.25% on
$27,500,000 of it's total LIBOR-based floating rate debt, and
receives LIBOR from the counterparty. The fair value of the
interest swap agreement approximated $230,000 at July 2, 2000.
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 us of a
loan of $5,000,000 to G. Arthur Seelbinder, the former Chairman
of the Board and a current Director, and his wife. In January
1997, the Board approved a refinancing of the loan with The Chase
Manhattan Bank of New York (the "Bank"). The loan was secured by
323,007 common stock owned by Mr. Seelbinder and a cash deposit
from the Company of approximately $3,000,000. The term of the
loan and the guaranty were extended until March 1, 2000, at which
time the loan matured. As of March 1, 2000 the balance of the
loan was $3,753,397.
On March 8, 2000, the Bank sold Mr. Seelbinder's stock for
$666,202 in a private transaction, and applied this amount to the
loan. The remaining balance of the loan of $3,087,195 was funded
by the Company as a result of its guaranty. At that time, the
Company had already deposited approximately $3,047,000 in a
restricted account with the Bank. In addition to any rights the
Company has to collect from Mr. Seelbinder as the Bank's
successors, any amount due to Mr. Seelbinder under the settlement
agreement the Company entered into with him when he stepped down
as Chairman and chief executive officer are to be paid to the
Company and applied to the amounts it paid on account of the
guaranty. The Company's liability under the guaranty was fully
12
provided for between its existing cash deposit and amounts offset
against the settlement agreement. The Company is currently in
negotiations with Mr. Seelbinder regarding his repayment of the
guaranty amount to the Company.
Year 2000
In conjunction with the Company's efforts to ensure that its
information and non-information technology systems were Year 2000
compliant, the Company continues to monitor its systems and those
of its vendors and suppliers for any unanticipated Year 2000
issues that may not yet have manifested. To date, no material
issues have arisen. The Company incurred costs of approximately
$25,000 in its Year 2000 compliance endeavors, all of which were
incurred in fiscal 1999.
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 2, 2000. The results of this
sensitivity analysis indicated that there has been no material
change in the analysis as performed at the end of the fiscal year
ended January 2, 2000.
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.
The case of Burnette, et al. v. Cooker Restaurant Corporation was
filed in the United States District Court, Middle District of
Florida, Tampa Division, on March 26, 1999. Plaintiffs allege
violations of the wage and hour laws of the Fair Labor Standards
Act with respect to themselves and all others similarly situated.
The FLSA action is a collective action and, as of this date,
approximately 80 Plaintiffs have consented to join the action.
Plaintiffs allege they were not paid appropriately for all hours
worked. Plaintiffs seek overtime pay, back pay, and attorneys
fees. The plaintiffs have alleged monetary damages of
approximately $1.5 million representing back wages. Plaintiffs
have filed a motion to facilitate notice of the lawsuit to all
current and previous employees (for a period of three years prior
to the filing of the lawsuit) to allow them to join the lawsuit
as plaintiffs. Cooker intends to vigorously oppose the sending
of notice and vigorously defend the lawsuit, but there can be no
assurance that it will ultimately prevail. At this time, the
parties have agreed to enter into a stay of the litigation
through and including October 1, 2000, to explore the possibility
of resolving the litigation amicably.
On September 17, 1999, certain of the plaintiffs in the Burnette
action described above, as well as other plaintiffs, filed a
class action in the United States District Court, Middle District
of Florida, entitled Clemmons et al. v. Cooker Restaurant
Corporation. Plaintiffs allege that Cooker has discriminated on
the basis of race in the hiring, promotion, compensation, and
terms and conditions of employment. Plaintiffs' original
complaint seeks injunctive relief, attorneys fees, back pay and
lost benefits, reinstatement, and punitive damages. No specific
monetary damages have been alleged. Plaintiffs have filed a
13
motion for leave to file an amended complaint in which they seek
to: (1) drop two named plaintiffs; (2) add three new plaintiffs;
(3) add additional defendants consisting of past and present
individual corporate officials of Cooker; and (4) recover
compensatory damages. Cooker has opposed the filing of an
amended complaint. Plaintiffs have filed a motion for class
certification, and Cooker has filed a memorandum in opposition.
The Court has yet to rule on the foregoing matters. A motion to
dismiss Plaintiffs' original complaint is also pending. Cooker
intends to vigorously defend the lawsuit, but there can be no
assurance that it will ultimately prevail.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities
For the quarter ended July 2, 2000, the Company was not in
compliance with certain covenants pertaining to its term debt
with the CIT Group ("CIT"). The Company did not receive a waiver
from CIT to cure the July 2, 2000 non-compliance. The Company
is in negotiations to amend the covenants for future periods. The
Company is current on its obligation to CIT. Because the Company
did not receive a waiver from CIT for the non-compliance at
July 2, 2000 or for future periods, and as the negotiations
pertaining to future covenants are not complete as of the date
of this filing, our obligation to CIT has been reclassified as a
current liability.
For the quarter ended July 2, 2000, the Company also was not in
compliance with certain covenants pertaining to its debt with
Bank of America and First Union National Bank (collectively, the
"Term Lenders"). In addition to not being in compliance with
certain covenants, the Company did not make its full (interest
and principal) payment due on July 3, 2000 and it did not make
any of its interest or principal payment due August 1, 2000. The
Company has not received a waiver from the Term Lenders to cure
the non-compliance at July 2, 2000. Accordingly, the Company has
reclassified the obligation to the Term Lenders as current for
the quarter ended July 2, 2000. The Company has also not received
a waiver from the Term Lenders to cure the non-compliance at
August 1, 2000. The Company has retained an independent third
party to assist the Company in obtaining other long term
financing intended to replace its current debt agreement with the
Term Lenders.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company conducted its 2000 Annual Shareholders' Meeting on
May 1, 2000. The matters voted on and the results of the items
submitted to a vote of the shareholders are stated below:
Election of three directors for a term of three years to the
Board of Directors:
Director Nominee Votes Cast For Votes Withheld
Glenn W. Cockburn 4,933,418 33,507
David T. Kollat 4,928,879 38,046
Harvey M. Palash 4,932,476 34,449
The names of the directors whose term of office as a director
continued after the meeting are: Henry R. Hillenmeyer, William
L. Jackson, Shannon LeRoy, Brad Saltz, Robin V. Holderman, and
G. Arthur Seelbinder.
Approval of the 2000 Non-Employee Director Stock Option Plan
Votes Cast For Votes Cast Against Votes Withheld
4,474,273 81,795 410,857
Item 5. Other Information.
The Shares of the Company's common stock began trading on the
American Stock Exchange ("AMEX") and ceased trading on the New
York Stock Exchange ("NYSE") effective Monday, August 14, 2000.
The shares will continue to be traded on the AMEX under the
symbol "CGR."
14
The Company had been a member of NYSE since May 11, 1994. In
September 1999, the NYSE informed the Company that because of the
adoption of new guidelines the Company no longer met the NYSE's
continued listing requirements of $50 million for both equity and
market capitalization.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this report.
27. Financial Data Schedules.
Exhibit 27.1
Financial Data Schedule (submitted electronically for SEC
information only).
(b) Reports on Form 8-K during the fiscal quarter ended July
2, 2000
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.
COOKER RESTAURANT CORPORATION
(The "Registrant")
Date: August 16, 2000
By:_____/s/ Henry R. Hillenmeyer______
Henry 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)
15
_________________________________________________________________
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
COOKER RESTAURANT CORPORATION
________________________
FORM 10-Q QUARTERLY REPORT
FOR THE FISCAL QUARTER ENDED:
JULY 2, 2000
_________________________
EXHIBITS
_________________________
_________________________________________________________________
_________________________________________________________________
16
Exhibit 27.1
Financial Data Schedule (submitted electronically for SEC information only)
17