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 1, 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
Incorporation or Organization) Identification No.)
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 15, 2000)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
COOKER RESTAURANT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In Thousands)
October 1, January 2,
2000 2000
---------- ----------
ASSETS
Current Assets:
Cash and cash equivalents $ 2,434 $ 1,428
Inventory 1,365 1,326
Land held for sale 4,669 67
Income taxes receivable 2,239 675
Prepaid and other current assets 870 1,402
---------- ----------
Total current assets 11,577 4,898
Property and equipment 120,502 138,644
Restricted cash - 2,919
Other assets 6,080 2,837
---------- ----------
Total assets $ 138,159 $ 149,298
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 74,375 $ 6,858
Accounts payable 3,275 4,154
Accrued liabilities 10,126 8,773
Reserve for loan guaranty loss - 2,454
---------- ----------
Total current liabilities 87,776 22,239
Long-term debt 12,547 81,097
Deferred income taxes 1,048 1,048
Other liabilities 723 125
---------- ----------
Total liabilities 102,094 104,509
---------- ----------
Shareholders' equity:
Common shares-without par value:
authorized 30,000,000 shares;
issued 10,548,000 at October 1, 2000
and January 2, 2000 62,211 62,211
Retained earnings 22,283 31,007
Treasury stock, at cost, 4,562,000
shares at October 1, 2000 and
January 2, 2000 (48,429) (48,429)
---------- ----------
Total shareholders' equity 36,065 44,789
Commitments and contingencies - -
---------- ----------
Total liabilities and shareholders' equity $ 138,159 $ 149,298
========== ==========
See accompanying notes to condensed consolidated financial statements
2
COOKER RESTAURANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In Thousands Except Per Share Data)
Three Months Ended Nine Months Ended
-----------------------------------------------------
October 1, October 3, October 1, October 3,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Sales $ 35,845 $ 36,713 $ 110,958 $ 117,641
---------- ---------- ---------- ----------
Cost of Sales:
Food and beverage 10,624 10,508 32,273 33,384
Labor 13,800 13,267 41,819 41,736
Restaurant operating expenses 7,908 7,089 23,038 21,418
Restaurant depreciation 1,503 1,660 4,664 4,953
General and administrative 2,621 3,894 7,200 9,384
Impairment of long-lived assets 9,334 3,058 9,334 3,058
Closed store charges - 150 - 150
Severance charges - 1,300 - 1,300
Gain on severance recovery - - (810) -
Loss on loan guaranty - 2,454 633 2,454
Loss on disposal of fixed assets - - 222 -
Interest expense, net 2,184 1,685 5,986 4,840
---------- ---------- ---------- ----------
47,974 45,065 124,359 122,677
---------- ---------- ---------- ----------
Loss before income taxes (12,129) (8,352) (13,401) (5,036)
Income tax benefit (4,245) (2,756) (4,690) (1,760)
---------- ---------- ---------- ----------
Net loss $ (7,884) $ (5,596) $ (8,711) $ (3,276)
========== ========== ========== ==========
Basic loss per share $ (1.32) $ (0.93) $ (1.46) $ (0.54)
========== ========== ========== ==========
Diluted loss per share $ (1.32) $ (0.93) $ (1.46) $ (0.54)
========== ========== ========== ==========
Weighted average number of common
shares outstanding - basic 5,986 5,986 5,986 6,020
========== ========== ========== ==========
Weighted average number of common
shares outstanding - diluted 5,986 5,990 5,986 6,064
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements
3
COOKER RESTAURANT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands)
Nine Months Ended
October 1, October 3,
2000 1999
---------- ----------
Cash flows from operating activities:
Net loss $ (8,711) $ (3,276)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 5,090 5,338
Impairment charges 9,334 3,058
Loss on loan guaranty 633 2,454
Deferred income taxes - (60)
Loss on disposal of property 222 4
(Increase) decrease in current assets (1,081) 269
Increase in other assets (3,243) (12)
Increase (decrease) in current liabilities 474 (2,319)
Increase (decrease) in other liabilities 747 (298)
---------- ----------
Net cash provided by operating activities 3,465 5,158
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (1,334) (7,175)
Proceeds from sale of property and equipment 198 3,085
Restricted cash deposits (141) (831)
---------- ----------
Net cash used in investing activities (1,277) (4,921)
---------- ----------
Cash flows from financing activities:
Proceeds from borrowings 10,500 21,500
Repayments of borrowings (11,515) (20,484)
Redemption of debentures (18) (25)
Exercise of stock options - 49
Purchases of treasury stock - (1,482)
Capital lease obligations (149) (155)
Dividends paid - (614)
---------- ----------
Net cash used in financing activities (1,182) (1,211)
---------- ----------
Net increase (decrease) in cash and cash equivalents 1,006 (974)
Cash and cash equivalents, at beginning of period 1,428 2,520
---------- ----------
Cash and cash equivalents, at end of period $ 2,434 $ 1,546
========== ==========
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 October 1, 2000, and the statements of
operations for the three and nine months ended October 1, 2000, and
cash flows for the nine months ended October 1, 2000. The results of
operations for the three and nine months ended October 1, 2000, are
not necessarily indicative of the operating results expected for the
fiscal year ended December 31, 2000. These condensed consolidated
financial statements should be read in conjunction with the
consolidated 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.
The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization
of assets and satisfaction of liabilities in the normal course of
business. As discussed in Note 10, the Company has violated certain
debt covenants during the quarter ended October 1, 2000 and as a
result, the Company has classified its debt as a current liability in
the condensed consolidated balance sheet as of October 1, 2000. The
Company has requested a forbearance from certain of its lenders that
would allow the Company to suspend making principal and interest
payments for six months. The Company also plans to enter into
negotiations with their lenders to amend covenant requirements for
future periods. The Company has also retained the services of an
independent third party to assist the Company in 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
maturity than its current loan. The Company is also taking measures
that are intended to increase sales and improve cash flows from
operations. If management's plans described above are not successful,
the lenders could exercise their right to accelerate the repayment of
the Company's debt, which would have a material adverse effect on the
Company's financial condition, results of operations and liquidity.
These conditions may indicate that the Company may be unable to
continue as a going concern for a reasonable period of time. The
accompanying condensed consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Note 2: Earnings (loss) 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, represents the dilutive effect of certain stock options.
Convertible subordinated debentures outstanding as of October 1, 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 (Loss) Per Share ("EPS") for the three
or nine months ended October 1, 2000, as the inclusion of shares into
which the subordinated debentures are convertible would be
antidilutive.
Options to purchase 1,336,968 shares at prices ranging from $2.625 to
$17.75 per share were outstanding for the nine months ended October 1,
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 722,392 shares at prices ranging from $5.88 to
$21.75 per share were outstanding for the nine months ended October 3,
1999, 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 October 1999
and May 2008.
5
Note 3: Impairment of long-lived assets
During the quarter ended October 1, 2000, the company recorded
impairment charges of $9,334,000 on 10 of its restaurants. Of these 10
restaurants, 3 sites were closed in the prior year. The initial
intention of the Company was to lease these closed properties to third
parties. However, given the current situation regarding the Company's
Term Debt (see note 10), the Company determined that the most prudent
action would be to sell these properties and use the proceeds to pay
down portions of the Term Debt. Based upon this change, the Company
wrote the properties down to fair value, less certain selling costs,
and reclassified these sites to Land Held for Sale in its October 1,
2000 balance sheet. The remaining 7 sites are current operating sites,
and management's intent is to continue operating them in the future.
However, based upon declining cash flows and decreasing customer
counts at the sites, the latest impairment analysis performed by the
Company indicated an impairment at these locations. 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 this
analysis, the Company recorded an impairment charge in the current
quarter on these 7 sites. The impairment charge was based upon the
estimated fair value of the properties as determined by discounted
future cash flows. During the quarter ended October 3, 1999, the
Company recorded an impairment charge of $3,058,000 on certain
underperforming restaurants. The impairment charge was based upon the
estimated fair value of the properties as determined by discounted
future cash flows.
Note 4: 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." In June 2000, the FASB issued SFAS No. 138, which
further amended SFAS No. 133, and provided additional guidance. 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.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin 101, Revenue Recognition ("SAB 101"),
which provided guidance on recognition, presentation and disclosure of
revenue in financial statements filed with the SEC. The Company will
adopt SAB 101 in the fourth quarter of fiscal 2000 as required.
Management has not yet determined the impact, if any, the adoption of
SAB 101 will have on the Company's financial statements.
Note 5: Derivative Financial Instruments
The fair value of the interest rate swap agreement approximated
$71,000 at October 1, 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 6: 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 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 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.
6
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
successor 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 7.
Note 7: 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, Mr. Seelbinder forfeited
approximately $810,000 in accrued severance liabilities, with a
portion thereof applied to the guaranty amount.
Note 8: 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.
Note 9: 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 90 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 $1.7 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 December 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, job position, 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 were granted an amended complaint
which: (1) added three new plaintiffs; (2) added additional defendants
consisting of past and present individual corporate officials of
Cooker; and (3) seeks to recover compensatory damages. Plaintiffs have
filed a motion for class certification, and Cooker has filed a
memorandum in opposition. A motion to dismiss Plaintiffs' counsel was
also dismissed. Cooker intends to vigorously defend the lawsuit, but
there can be no assurance that it will ultimately prevail.
7
Note 10: Long term debt agreements
For the quarter ended October 1, 2000, the Company was not in
compliance with certain covenants pertaining to its term debt with the
CIT Group ("CIT"). Based on such non-compliance with certain
covenants, CIT is entitled, at their discretion, to exercise certain
remedies including acceleration of repayment. The Company has not
received a waiver from CIT to cure the October 1, 2000 non-compliance.
The Company is current on its payment obligations to CIT. Because the
Company did not receive a waiver from CIT for the current non-
compliance or for future periods, its obligation to CIT has been
reclassified as a current liability. The Company does intend to enter
into negotiations with CIT to amend covenant requirements for future
periods, however there can be no assurance that such negotiations will
be successful.
For the quarter ended October 1, 2000, the Company also was not in
compliance with certain covenants pertaining to its debt with Bank of
America, N.A. and First Union National Bank (collectively, the "Term
Lenders"). Based on such non-compliance, the Lenders are entitled, at
their discretion, to exercise certain remedies including acceleration
of repayment. 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 has not made any of its interest or
principal payments due to the Term Lenders since the partial payment
made on July 3, 2000. The Company has not received a waiver from the
Term Lenders to cure the non-compliance at October 1, 2000.
Accordingly, the Company has reclassified the obligation to the Term
Lenders as current for the quarter ended October 1, 2000. The Company
has requested a six-month forbearance from the Term Lenders, effective
through March 31, 2001, pertaining to its principal and interest
payments during that time period. The forbearance would allow for the
postponement of principal and interest payments during the forbearance
period. A final agreement has not yet been reached regarding the
requested forbearance. 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.
Additionally, Bank of America, N.A., as the agent for holders of its
senior credit facility, notified First Union National Bank of North
Carolina, the trustee under its 6 3/4 % Convertible Subordinated
Debentures, that the Company was in default under its senior credit
facility and that no payments could be made by the Company, or
received by the trustee, with respect to the 6 3/4 % Convertible
Subordinated Debentures. Such notification is within their rights as
the agent for holders of the Company's senior credit facility. This
notice blocked the Company's ability to pay the scheduled interest
payments under the debentures as well as any payments of principal,
any redemption payments or change of control purchase payments. The
failure to make these payments, as required, and the existence of a
default under the senior credit facility, if not cured, will also
constitute a default under the terms of the 6 3/4 % Convertible
Subordinated Debentures and certain other of Cooker's credit
arrangements.
8
Item 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 operations.
COOKER RESTAURANT CORPORATION
RESULTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
October 1, October 3, October 1, October 3,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Sales 100.0% 100.0% 100.0% 100.0%
---------- ---------- ---------- ----------
Cost of Sales:
Food and beverage 29.6% 28.6% 29.1% 28.4%
Labor 38.5% 36.1% 37.7% 35.5%
Restaurant operating expenses 22.1% 19.3% 20.7% 18.2%
Restaurant depreciation 4.2% 4.5% 4.2% 4.2%
General and administrative 7.3% 10.6% 6.5% 8.0%
Impairment of long-lived assets 26.0% 8.3% 8.4% 2.6%
Closed store charges 0.0% 0.4% 0.0% 0.1%
Severance charges 0.0% 3.6% 0.0% 1.1%
Gain on severance recovery 0.0% 0.0% (0.7%) 0.0%
Loss on loan guaranty 0.0% 6.7% 0.6% 2.1%
Loss on disposal of fixed assets 0.0% 0.0% 0.2% 0.0%
Interest expense, net 6.1% 4.6% 5.4% 4.1%
---------- ---------- ---------- ----------
133.8% 122.7% 112.1% 104.3%
(Loss) income before income taxes (33.8%) (22.7%) (12.1%) (4.3%)
(Benefit) provision for income
taxes (11.8%) (7.5%) (4.2%) (1.5%)
---------- ---------- ---------- ----------
Net (loss) income (22.0%) (15.2%) (7.9%) (2.8%)
========== ========== ========== ==========
Sales
- -----
Sales for the third quarter of fiscal 2000 decreased 2.4%, or
$868,000, to $35,845,000 compared to sales of $36,713,000 for the
third quarter of fiscal 1999. For the nine months ended October 1,
2000, sales decreased 5.7%, or $6,683,000, to $110,958,000 compared to
sales of $117,641,000 for the nine months ended October 3, 1999. The
decrease for the three and nine months ended October 1, 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
9
restaurants in the period. The Company opened one new restaurant
during the first quarter of fiscal 2000 and one additional restaurant
in September 2000. Same store sales were down 2.8% and 5.8% for the
three and nine months ended October 1, 2000, respectively. The average
check for the third quarter was $11.96, up 2.5% from the average check
for the third quarter of 1999.
Food and beverage
- -----------------
The cost of food and beverage for the three months ended October 1,
2000 was $10,624,000 as compared to $10,508,000 for the three months
ended October 3, 1999. The increase of $116,000 is primarily due to
the new menu which the Company began rolling out in the third quarter.
The menu featured new dishes, as well as recipe changes to existing
dishes which required the purchase of new items and increased
purchases of standard items. As a percentage of sales, the cost of
food and beverage was 29.6% for the three months ended October 1,
2000, as compared to 28.6% for the three months ended October 3, 1999.
The increase in the current period, as a percent of sales, is due
primarily to increased prices for produce, grocery and beef, offset
slightly by a decrease in prices for pork, as compared to prior
periods. Additionally, changes in recipes and portion sizes due to the
new menu effected the cost of food and beverage as a percent of sales
for the period. The increase in certain food costs for the three
months ended October 1, 2000 was primarily a result of normal seasonal
fluctuations, as well as a shift in product needs as a result of the
new menu, which increased purchases of certain higher cost items. The
cost of food and beverage for the nine months ended October 1, 2000
was $32,273,000 as compared to $33,384,000 for the nine months ended
October 3, 1999. The decrease of $1,111,000 is primarily due to
decreased sales for the current nine-month period as compared to last
year. As a percentage of sales, the cost of food and beverage was
29.1% for the nine months ended October 1, 2000, as compared to 28.4%
for the nine months ended October 3, 1999. The increase in 2000 is due
primarily to increased prices, menu changes, as well as an industry
supply problem which occurred when a major supplier filed for
bankruptcy in the first half of the year. Disruptions in scheduled
deliveries as a result of this supply problem necessitated certain
purchases from other outside sources at less favorable prices.
Labor
- -----
Labor costs for the three months ended October 1, 2000 were
$13,800,000 as compared to $13,267,000 for the three months ended
October 3, 1999. The increase of $533,000 is primarily due to an
increase in cook costs of $227,000 as a result of changes in food
preparation due to the new menu, increase in manager and bonus costs
of $209,000, and an increase in benefits and taxes of $55,000. Labor
costs as a percentage of sales for the three months ended October 1,
2000 were 38.5% as compared to 36.1% for the three months ended
October 3, 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 nine months ended October 1,
2000 were $41,819,000 as compared to $41,736,000 for the nine months
ended October 3, 1999. The increase of $83,000 is primarily due to an
increase in benefits and taxes of $159,000, offset by a decrease in
crew costs of $88,000. Labor costs as a percentage of sales for the
nine months ended October 1, 2000 were 37.7% as compared to 35.5% for
the nine months ended October 3, 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 October 1,
2000 were $7,908,000 as compared to $7,089,000 for the three months
ended October 3, 1999. The increase of $819,000 was primarily due to
an increase in public relations and promotions of $479,000, an
increase in smallwares and linens of $134,000, an increase of $59,000
in repairs and maintenance, and an increase in occupancy costs of
$113,000. Restaurant operating expenses as a percentage of sales for
the three months ended October 1, 2000, were 22.1%, as compared to
19.3% 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 nine months ended
October 1, 2000 were $23,038,000 as compared to $21,418,000 for the
nine months ended October 3, 1999. The increase of $1,620,000 was
primarily due to an increase of $747,000 in public relations and local
advertising and promotions, an increase in smallwares and linens of
$228,000, an increase of $250,000 in repairs and maintenance, and an
increase in occupancy costs of $764,000, offset by decreases in
courier costs of $138,000, paper supplies of $136,000 and contract
services of $106,000. Restaurant operating expenses as a percentage of
sales for the nine months ended October 1, 2000, were 20.7%, as
compared to 18.2% 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 October 1,
2000 was $1,503,000, as compared to $1,660,000 for the three months
ended October 3, 1999. Restaurant depreciation expense for the nine
months ended October 1, 2000 was $4,664,000, as compared to $4,953,000
for the nine months ended October 3, 1999. The decreases of $157,000
and $289,000 for the three and nine months ended October 1, 2000,
respectively, are due primarily to the closing of 6 restaurants in the
second half of 1999, offset by the opening of 5 new restaurants since
10
the end of the third 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.
General and administrative expenses
- -----------------------------------
General and administrative expenses for the three months ended October
1, 2000 were $2,621,000 as compared to $3,894,000 for the three months
ended October 3, 1999. The decrease of $1,273,000 is due primarily to
decreases in salaries and wages of $465,000, marketing expenses of
$624,000, travel expenses of $48,000 and the absence of a one-time
accrual for a tax audit of $155,000, which was recorded in the third
quarter of 1999. General and administrative expenses for the nine
months ended October 1, 2000 were $7,200,000 as compared to $9,384,000
for the nine months ended October 3, 1999. The decrease of $2,184,000
is due primarily to decreases in salaries and wages of $796,000,
marketing costs of $563,000, travel expenses of $30,000, audit, tax
and consultant expenses of $90,000, preopening expenses of $153,000
and an increase in miscellaneous income of $800,000, primarily due to
the realization in the current year of a tax benefit for fiscal 1999
as a result of the FICA Tip Credit and the absence of a one-time
accrual for a tax audit of $155,000, which was recorded in the third
quarter of 1999, offset by an increase in legal costs of $193,000.
Impairment of long-lived assets
- -------------------------------
Impairment charges for the three and nine months October 1, 2000 were
$9,334,000, as compared to $3,058,000 for the three and nine months
ended October 3, 1999. During the quarter ended October 1, 2000, the
company recorded impairment charges on 10 of its restaurants. Of these
10 restaurants, 3 sites were closed in the prior year. The initial
intention of the Company was to lease these closed properties to third
parties. However, given the current situation regarding the Company's
Term Debt, the Company determined that the most prudent action would
be to sell these properties and use the proceeds to pay down portions
of the Term Debt. Based upon this change, the Company wrote the
properties down to fair value, less certain selling costs, and
reclassified these sites to Land Held for Sale in its October 1, 2000
balance sheet. The remaining 7 sites are current operating sites, and
management's intent is to continue operating them in the future.
However, based upon declining cash flows and decreasing customer
counts at the sites, the latest impairment analysis performed by the
Company indicated an impairment at these locations. 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 this
analysis, the Company recorded an impairment charge in the current
quarter on these 7 sites. The impairment charge was based upon the
estimated fair value of the properties as determined by discounted
future cash flows. During the quarter ended October 3, 1999, the
Company recorded an impairment charge of $3,058,000 on 7 of the
Company's restaurants.
Closed store charges
- --------------------
Closed store charges for the three and nine months ended October 1,
2000 were $0, as compared to $150,000 for the three and nine months
ended October 3, 1999. Of the charges in 1999, $25,000 represented
costs incurred in the closing of the Company's restaurant in Tampa,
FL, and $125,000 represented an accrual for exit costs associated with
5 stores the Company had committed to close during the fourth quarter
of 1999. The five stores in question were closed in the fourth
quarter of 1999.
Severance charges
- -----------------
Severance charges for the three and nine months ended October 1, 2000
were $0, as compared to $1,300,000 for the three and nine months ended
October 3, 1999. The charges recorded in 1999 represented 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 represented the write-off of certain amounts owed to
the Company by Mr. Seelbinder, and $1,088,000 represented 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.
Gain on severance recovery
- --------------------------
For the nine months ended October 1, 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
11
certain amounts representing federal withholding liabilities, was
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 nine months ended October 1, 2000, the Company recorded a loss
on loan guaranty of $633,000, all of which was recorded during the
first quarter of 2000, as compared to a loss of $2,454,000 for the
three and nine months ended October 3, 1999. 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 nine months ended October 1, 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.
Interest expense
- ----------------
Net interest expense for the three months ended October 1, 2000 was
$2,184,000 as compared to $1,685,000 for the three months ended
October 3, 1999. Net interest expense for the nine months ended
October 1, 2000 was $5,986,000 as compared to $4,840,000 for the nine
months ended October 3, 1999. The increases of $499,000 and $1,146,000
for the three and nine month periods, respectively, are 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.
Income tax benefit
- ------------------
The (benefit) provision for income taxes for the three months ended
October 1, 2000, and October 3, 1999, as a percentage of (loss) income
before taxes was 35.0% and 33.0%, respectively. The income tax benefit
for the nine months ended October 1, 2000, and October 3, 1999, as a
percentage of (loss) income before taxes was 35.0% for both periods.
Liquidity and Capital Resources
The Company's operations are subject to factors outside its control.
Any one, or a 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
12
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) and previous line of credit arrangements.
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 October 1, 2000, the Company had borrowed $13,500,000 against
the Revolver and the outstanding balance of the Term Loans was
approximately $60,950,000.
During the nine months ended October 1, 2000, the Company opened two
additional units. Capital expenditures for the new restaurants, as
well as the refurbishing and remodeling of existing units totaled
$938,000 for the nine months ended October 1, 2000, and were funded by
cash flows of $3,465,000 from operations. The Company does not intend
to open any additional restaurants in 2000. Total cash expenditures
for restaurant expansion and improvements are projected to be
approximately $2 million. The Company believes that cash flows from
operations will be sufficient to fund the ongoing maintenance and
remodeling of existing restaurants as well as other working capital
requirements.
For the three months ended October 1, 2000, cash flows from operations
were $2,116,000, as compared to ($390,000) for the three months ended
July 2, 2000. Cash flows from operations for the nine months ended
October 1, 2000 were $3,465,000. The majority of the improvement in
cash flows from operations during the three months ended October 1,
2000 as compared to the three months ended July 2, 2000 was due to the
non-payment of interest to the Term Lenders on the Company's term
debt. Unpaid accrued interest on the Company's term debt at October 1,
2000 was approximately $1,654,000. If this interest had been paid,
cash flows from operations for the three months ended October 1, 2000
would have been approximately $462,000, which represents an
improvement of approximately $852,000 in cash flows from operations as
compared to the three months ended July 2, 2000.
The Company is continuing its efforts to increase sales at its
restaurants. During the nine months ended October 1, 2000, the Company
focused on increasing staffing levels in an effort to provide better
service to our guests. Additionally, the Company increased its focus
on maintaining and repairing its restaurants to provide the guests
with a more satisfying experience at the 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, particularly in the quarter ended July 2, 2000. However,
sales levels are beginning to improve as evidenced by third quarter
same-store sales showing a decline of 2.8% as compared to a decline of
5.6% for the quarter ended July 2, 2000. This improvement in sales
trends is one of the factors which led to an improvement in overall
cash flows from operations during the quarter ended October 1, 2000 as
compared to the quarter ended July 2, 2000.
The decrease in cash flows from operations during the nine months
ended October 1, 2000, as compared to the nine months ended October 3,
1999, 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 has not made any additional payments 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. Such non-compliance can result in the
Term Lenders and CIT exercising certain rights under the debt
agreements, including the acceleration of payment, among other things.
The Company did not receive a waiver from CIT pertaining to the non-
compliance at October 1, 2000, nor did it receive a waiver from CIT
pertaining to future periods. The Company plans to enter into
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 October 1, 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 October 1, 2000. The reclassification of these
obligations has resulted in a working capital deficit of $76,199,000
at October 1, 2000.
Additionally, Bank of America, N.A., as the agent for holders of its
senior credit facility, notified First Union National Bank of North
Carolina, the trustee under its 6 3/4 % Convertible Subordinated
13
Debentures, that the Company was in default under its senior credit
facility and that no payments could be made by the Company, or
received by the trustee, with respect to the 6 3/4 % Convertible
Subordinated Debentures. Such notification is within their rights as
the agent for holders of the Company's senior credit facility. This
notice blocked the Company's ability to pay the scheduled interest
payments under the debentures as well as any payments of principal,
any redemption payments or change of control purchase payments. The
failure to make these payments, as required, and the existence of a
default under the senior credit facility, if not cured, will also
constitute a default under the terms of the 6 3/4 % Convertible
Subordinated Debentures and certain other of Cooker's credit
arrangements.
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. Additionally, the Company has requested a
six-month forbearance from the Term Lenders, effective through March
31, 2001, pertaining to its principal and interest payments during
that time period. The forbearance would allow for the postponement of
principal and interest payments during the forbearance period. A final
agreement has not yet been reached regarding the requested
forbearance. Further, the Company has completed the process of rolling
out a new menu in all of our locations. 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 began 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 actively market three closed
store properties for sale. Successful sales of these properties will
generate cash inflows for Company, a portion of which would be used to
pay down amounts owed to the Term Lenders.
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 closed store properties will be successful. In the event
that such financing is not completed, such sales arrangements are not
closed, or that sales do not increase, the Company may experience
negative cash flows in the future.
The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization
of assets and satisfaction of liabilities in the normal course of
business. If management's plans described above are not successful,
the lenders could exercise their right to accelerate the repayment of
the Company's debt, which would have a material adverse effect on the
Company's financial condition, results of operations and liquidity.
These conditions may indicate that the Company may be unable to
continue as a going concern for a reasonable period of time. The
accompanying condensed consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. These
instruments 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 1, 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 $71,000 at October 1, 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 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.
14
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
provided for by its existing cash deposit and amounts offset against
the settlement agreement. The Company is currently in final
negotiations with Mr. Seelbinder regarding his repayment of the
guaranty amount to the Company.
On October 17, 2000, the Company was advised by the American Stock
Exchange ("Amex") that the Amex has determined to delist the common
stock of the Company as it does not meet the Amex's criteria for
listing. In response to the Amex notice, the Company has exercised its
right to appeal the Amex's decision and has requested a formal hearing
in order to further consider the decision. There can be no assurance
that the Company's common stock will remain listed on the Amex. In the
event that the Company is unsuccessful in its appeal to maintain the
listing of the Company's common stock on the Amex, it is anticipated
that the Company's common stock will trade on the Over the Counter
Bulletin Board.
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." In June 2000, the FASB issued
SFAS No. 138, which further amended SFAS No. 133, and provided
additional guidance. 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 October 1, 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.
15
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.
Other Proceedings
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 90 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 $1.7 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 December 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, job position, 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 were granted an amended complaint
which: (1) added three new plaintiffs; (2) added additional defendants
consisting of past and present individual corporate officials of
Cooker; and (3) seeks to recover compensatory damages. Plaintiffs have
filed a motion for class certification, and Cooker has filed a
memorandum in opposition. A motion to dismiss Plaintiffs' counsel was
also dismissed. 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 October 1, 2000, the Company was not in
compliance with certain covenants pertaining to its term debt with the
CIT Group ("CIT"). The Company has not received a waiver from CIT to
cure the October 1, 2000 non-compliance. The Company is current on its
payment obligations to CIT. Because the Company did not receive a
waiver from CIT for the current non-compliance or for future periods,
our obligation to CIT has been reclassified as a current liability.
The Company does intend to enter negotiations with CIT to amend
covenant requirements for future periods, however there can be no
assurance that such negotiations will be successful.
For the quarter ended October 1, 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 has not made any of its interest or
principal payments due to the Term Lenders since the partial payment
made on July 3, 2000. The Company has not received a waiver from the
Term Lenders to cure the non-compliance at October 1, 2000.
Accordingly, the Company has reclassified the obligation to the Term
Lenders as current at October 1, 2000. The Company has requested a
six-month forbearance from the Term Lenders, effective through March
31, 2001, pertaining to its principal and interest payments during
that time period. 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.
16
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are 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 October 1,
2000.
None
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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 15, 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)
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
COOKER RESTAURANT CORPORATION
________________________
FORM 10-Q QUARTERLY REPORT
FOR THE FISCAL QUARTER ENDED:
OCTOBER 1, 2000
_________________________
EXHIBITS
_________________________
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