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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT UNDER 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 (IRS Employer
of 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
Securities registered under Section 12(b) of the Exchange Act:
Title of each class: Name of each exchange on which registered:
N/A
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, without par value
Rights to Purchase Class A Junior Participating
Preferred Shares, without par value
6-3/4% Convertible Subordinated Debentures Due 2002
(Title of Class)
Indicate by check mark 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 filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference to Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of Common Shares held by non-affiliates of the
registrant, as of February 28, 2001, was $6,075,000.
The number of Common Shares outstanding on February 28, 2001, was
5,986,000.
Documents Incorporated By Reference: certain portions of the registrant's
Definitive Proxy Statement relating to the Annual Meeting of Shareholders
on April 30, 2001 are incorporated by reference into Part III of this
Form 10-K.
COOKER RESTAURANT CORPORATION
FORM 10-K
INDEX
PART I.................................................................. 2
Item 1. Business..................................................... 2
Item 2. Properties................................................... 6
Item 3. Legal Proceedings............................................ 7
Item 4. Submission of Matters to a Vote of Security Holders.......... 7
PART II................................................................. 9
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 9
Item 6. Selected Financial Data...................................... 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 11
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk.................................................. 17
Item 8. Financial Statements and Supplementary Data.................. 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 18
PART III................................................................ 18
Item 10. Directors and Executive Officers of the Registrant........... 18
Item 11. Executive Compensation....................................... 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................... 18
Item 13. Certain Relationships and Related Transactions............... 18
PART IV................................................................. 18
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.................................................. 18
SIGNATURES.............................................................. 23
Page 1
PART I
Item 1. Business.
General
At February 28, 2001, the Registrant owned and operated 65 full-
service "Cooker" restaurants located in Florida, Georgia, Indiana,
Kentucky, Michigan, North Carolina, Ohio, Tennessee, Virginia and
Pennsylvania. Restaurants average approximately 7,900 square feet and
255 seats, and are designed to provide traditional and comfortable
dining experiences rather than a theme atmosphere or menu. The
Registrant believes that its restaurants provide an attractive value
to customers by offering a moderately-priced, full menu of high
quality food served in generous portions. The menu includes
appetizers, soups, salads, chicken, fish, beef and pasta entrees,
sandwiches, burgers and desserts, most of which are created from
original recipes and prepared from scratch using fresh ingredients.
Entree selections generally range in price from $5.49 to $16.99 and,
in 2000, the average check per person was approximately $12.06. The
Registrant is committed to providing prompt, friendly and efficient
customer service as reflected by its "100% Satisfaction Guarantee"
policy and by its having what the Registrant believes is a higher
ratio of service personnel to customers and a greater number of
managers per Restaurant than many of its competitors.
The Cooker Concept
The key features of the Cooker concept include the following:
"100% Satisfaction Guarantee." The Registrant is committed to
providing high quality food, friendly and efficient service and
comfortable, clean surroundings. Restaurant managers visit tables to
make sure every customer is satisfied with the Cooker experience. If
a customer is not satisfied with any part of the visit, particularly
the food and service, the Restaurant staff is authorized to provide
that customer with a free meal.
Original Recipes Made From Scratch. Cooker provides an attractive
value to customers by offering a moderately- priced, full menu of high
quality food served in generous portions. Most of the items on
Cooker's menu are created from original recipes and prepared from
scratch using fresh ingredients, which the Registrant believes results
in more flavorful food. The menu is re-evaluated on a continuous
basis, when the least popular items from each category (appetizers,
entrees and desserts) are removed from the menu and replaced with new
items created by the Registrant's culinary team. Each menu item is
researched and tested in the Registrant's test kitchen and in
Restaurants to ensure customer acceptance.
Commitment to Staffing. The Registrant's commitment to meeting the
highest standards of customer service is reflected in having what the
Registrant believes is a higher ratio of service personnel to
customers and having a greater number of managers per Restaurant than
many of its competitors. The Registrant believes that higher staffing
levels permit its staff to interact with customers, resulting in an
enhanced dining experience. This strategy results in repeat customer
visits, as well as "word-of-mouth" advertising by current customers
that attracts new customers.
Timeless Atmosphere. The Restaurants are designed to create a
traditional and comfortable atmosphere suitable for any occasion.
This atmosphere is enhanced by friendly service and a menu that
appeals to a broad segment of the population which encourages
customers to visit the Restaurants more often. Unlike many casual
dining restaurants that center around a "theme," the Registrant
believes its Restaurants are not as sensitive to changing customer
preferences and trends.
Dedicated Employees. The Registrant hires its personnel only after
extensive interviews, and seeks to recruit employees who share the
Registrant's commitment to high standards of customer service. Each
new non-management employee is initially trained for a minimum of
seven to ten days or longer if hired for a new Restaurant. Regardless
of their background, new management personnel initially undergo 90 to
120 days of training that includes gaining exposure to all areas of
Restaurant operations and attending training classes at the
Registrant's headquarters. The Registrant encourages a sense of
personal commitment from its employees at every level by providing
extensive training, employee development and competitive compensation.
Management believes its personnel policies result in a lower rate of
employee turnover than many of its competitors.
Menu
Cooker provides an attractive value to customers by offering a
moderately-priced, full menu of high quality food and beverage items
served in generous portions. The menu features 51 dishes including
appetizers, soups, salads, chicken, fish, beef and pasta entrees,
sandwiches, burgers and desserts. Most of the items on the menu are
created from original recipes and prepared from scratch using fresh
ingredients, which the Registrant believes results in more flavorful
food. Lunch and dinner entrees generally range in price from $5.49 to
$16.99 and in 2000 lunch accounted for approximately 37% of sales.
The average check per person in 2000 was approximately $12.06. Each
Restaurant offers alcoholic beverages including liquor, wine and beer,
which constituted approximately 10.1% of sales in 2000.
Page 2
The Registrant re-evaluates it's menu on a continuing basis, and
the least popular items from each category are removed from the menu
and replaced with new items created by the Registrant's culinary team.
Each menu item and recipe is researched and tested in the Registrant's
test kitchen and in the Restaurants to ensure customer acceptance.
Design
The Restaurants are designed to be comfortable and functional, with
a decor that includes materials such as mahogany, slate, marble and
tile. The average Restaurant is approximately 7,900 square feet (of
which approximately 40% is devoted to kitchen and services areas) with
seating for approximately 255 customers. Most of the Restaurants
opened in 1999 and 2000 have in excess of 8,000 square feet and seat
approximately 260 customers. The majority of the seating is in
booths, which enhances customer privacy and comfort. Each Restaurant
also has a separate bar area which has stool and booth seating. The
Registrant believes that the typical Restaurant kitchen is
comparatively large by industry standards and is designed for quality
and speed of food preparation. These kitchens permit the Registrant
to be flexible in the types of food items which can be prepared and to
adapt to changing customer tastes and preferences.
Development and Expansion
The Registrant is an Ohio corporation which was the surviving
corporation of the merger of affiliated corporations in 1988. At that
time, the Registrant operated six restaurants. By 1990, the Registrant
increased its total number of Restaurants to 10. The following table
sets forth the Registrant's unit growth since 1990:
Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
- --------------------------------------------------------------------------------------------------------------
Restaurants Open at
Start of Year 10 12 15 20 29 35 37 47 60 67 66
- --------------------------------------------------------------------------------------------------------------
Restaurants Opened
During Year 2 3 5 9 6 3* 11* 13 7 5** 2***
________________________
* The Registrant closed one Restaurant in Florence, KY in 1995 and one
in Palm Harbor, FL in 1996. Both locations were leased to third
parties, and the Florence, KY Restaurant was recently sold to an
unrelated third party.
** The Registrant closed 7 Restaurants in 1999 in Bethesda, MD; Tampa,
FL; Atlanta, GA (2); Saginaw, MI; Boardman, OH; and Louisville, KY.
The restaurants in Bethesda and Boardman were sold to an unrelated
third party, and the restaurants in Atlanta were leased to an
unrelated third party.
*** The Registrant closed one Restaurant in 2000 in Indianapolis,
IN. The Registrant is currently exploring lease and sale
arrangements on 20 properties.
The Registrant closed one Restaurant, in Evansville, IN, in 2001,
and the Registrant does not intend to open any additional Restaurants
in 2001. Any further expansion will be dependent on, among other
things, the Registrant's future operations, the availability of
capital, desirable site locations, the ability to attract qualified
employees, securing appropriate local government approvals, and future
economic conditions. The Registrant has no commitments to develop
Restaurants after 2001.
The Registrant either owns or leases the sites for its existing
facilities, although the Registrant prefers to own the property.
Restaurant Operations
Management and Employees. The Registrant currently has 12 regional
managers who are each responsible for supervising between 4 and 8
Restaurants and continuing the development of their management teams.
Through regular visits to the Restaurants, the regional managers
ensure that the Registrant's concept, strategy and standards of
quality are being adhered to in all aspects of restaurant operations.
Each of the Restaurants typically has one general manager, one
assistant general manager, one kitchen manager and between two and
four assistant managers. The general manager of each Restaurant has
primary responsibility for the day-to-day operations of the entire
Restaurant and is responsible for maintaining the standards of quality
and performance established by the Registrant. The average number of
management employees in each restaurant is 5.2 and the average number
of hourly employees in each Restaurant is approximately 80.
Management believes that its success is in part attributable to its
high level of service and interaction between its employees and
guests.
The Registrant seeks to attract and retain high quality managers and
hourly employees by providing attractive financial incentives and
flexible working schedules. Financial incentives provided to attract
high quality managers include competitive salaries, bonuses and stock
options based upon position, seniority and performance criteria.
Also, management believes that the Registrant attracts qualified
managers by providing a higher overall quality of life characterized
by a five-day work schedule.
Page 3
Training and Development. The Registrant hires its personnel
only after extensive interviews, and seeks to recruit employees who
share the Registrant's commitment to high standards of customer
service. Each new non-management employee is initially trained for a
minimum of 7 to 10 days or longer if hired for a new Restaurant.
Regardless of their background, new management personnel initially
undergo 90 to 120 days of training that includes gaining exposure to
all areas of Restaurant operations and attending training classes at
the Registrant's headquarters. The Registrant encourages a sense of
personal commitment from its employees at every level by providing
extensive training, employee development and competitive compensation.
Restaurant Reporting Systems. The Registrant uses integrated
management information systems that include a point-of-sale system to
facilitate the movement of food and beverage orders between the
customer areas and kitchen operations, control cash, handle credit
card authorizations, and gather data on sales by menu item and hours
worked by employees. In addition, Restaurant systems have been
developed to record accounts payable and inventories. Sales, cash
control, and summary payroll data are transferred to the Registrant's
headquarters nightly. Payroll, accounts payable and inventory data
are transferred to the Registrant's headquarters weekly. These
Restaurant information systems provide data for posting directly to
the Registrant's general ledger, to other account subsystems and to
other systems developed to evaluate Restaurant performance.
The Restaurant system also provides hourly, daily and weekly reports
for each Restaurant manager to evaluate current performance and to
plan for future staffing and food production needs. The headquarters'
systems also provide a variety of management reports comparing current
results to prior periods and predetermined operating budgets. The
results are reported to and reviewed with Registrant management by
accounting personnel. Included among the reports produced are (i)
daily reports of revenue and labor cost by Restaurant, (ii) weekly
summary profit and loss statements by Restaurant and an analysis of
sales by menu item, and (iii) monthly detailed profit and loss
statements by Restaurant as well as analytical reports on a variety of
Restaurant performance characteristics.
Purchasing. Purchasing specifications are determined by the
Registrant's corporate offices. Each Restaurant's management team
determines the daily quantities of food items needed and orders such
quantities from major suppliers at prices often negotiated directly
with the Registrant's corporate offices. The Registrant purchases its
food products and supplies from a variety of national, regional and
local suppliers. The Registrant is not dependent upon any one
supplier and has not experienced significant delays in receiving its
food and beverage inventories, restaurant supplies or equipment.
Management believes that the diversity of the Registrant's menu
enables its overall food costs to be less dependent upon the price of
a particular product. The Registrant also tests various new products
in an effort to obtain the highest quality products possible and to be
responsive to changing customer tastes.
Advertising and Marketing. The Registrant relies primarily on "word
of mouth" advertising to attract customers to its Restaurants.
Management believes the "100% Satisfaction Guarantee," made-from-
scratch menu items and focus on high-quality service generates a high
level of repeat customers and new customer visits
Hours of Operation. The Restaurants generally offer food service
from 11:00 a.m. to 10:30 p.m., Sunday through Thursday, and 11:00 a.m.
to midnight on Friday and Saturday. All menu items (other than
alcoholic beverages) are available for carry-out.
Competition
The restaurant and food service industry is highly competitive and
fragmented. There are numerous restaurants and other food service
operations that compete directly and indirectly with the Registrant.
Many competitors have been in existence longer, have a more
established market presence and have significantly greater financial,
marketing and other resources and higher total sales volume and
profits than does the Registrant. In addition to other restaurant
companies, the Registrant competes with numerous other businesses for
suitable locations for its Restaurants.
The restaurant industry may be adversely affected by changes in
consumer tastes, discretionary spending priorities, national, regional
or local economic conditions, demographic trends, consumer confidence
in the economy, traffic patterns, weather conditions, employee
availability and the type, number and location of competing
restaurants. Changes in any of these factors could adversely affect
the Registrant. In addition, factors such as inflation and increased
food, liquor, labor and other costs could adversely affect the
Registrant.
Page 4
Government Regulations
The Registrant's business is subject to various federal, state and
local government regulations, including those relating to the sale of
food and alcoholic beverages. The failure to maintain food and liquor
licenses could have a material adverse effect on the Registrant's
operating results. In addition, Restaurant operating costs are
affected by increases in the minimum hourly wage, unemployment tax
rates, sales taxes and similar costs over which the Registrant has no
control. Since many of the Registrant's employees are paid at rates
based on the federal minimum wage, increases in the minimum wage may
result in an increase in the Registrant's labor costs. Some states
have set minimum wage requirements higher than the federal level. The
Registrant is subject to "dram shop" statutes in certain states which
generally provide a person injured by an intoxicated person with the
right to recover damages from an establishment that served alcoholic
beverages to the intoxicated person. Difficulties or failure in
obtaining required licenses and approvals will result in delays in, or
cancellation of, the opening of new Restaurants. No assurance can be
given that the Registrant will be able to maintain existing approvals
or obtain such further approvals at other locations. The development
and construction of additional Restaurants will be subject to
compliance with applicable zoning, land use and environmental
regulations. There can be no assurance that the Registrant will be
able to obtain necessary variances or other approvals on a cost
effective and timely basis in order to construct and develop
Restaurants in the future.
Employees
At February 28, 2001, the Registrant had 5,305 employees, of whom
4,896 were Restaurant employees, 362 were Restaurant management
personnel, and 47 were corporate staff personnel. None of the
Registrant's employees is represented by a labor union or a collective
bargaining unit. The Registrant considers relations with its
employees to be satisfactory.
Marks
The Registrant has registered the service mark "Cooker Bar and
Grille" and Design with the United States Patent and Trademark Office.
The Registrant previously registered the service mark "The Southern
Cooker - Home Style Restaurant & Bar" and Design with the United
States Patent and Trademark Office but did not renew the registration
when its initial term expired. The Registrant also uses the word
Cooker as a service mark in combination with words and designs other
than those used in the registered marks. Other providers of
restaurant services use trade names that include the word "cooker."
Some of these users may resist the Registrant's use of its marks, as
it expands into new territories. However, in view of the extensive
third party use of such trade names, management believes that the
Registrant should be in a reasonably good position to resist adverse
claims. This same extensive third party use means, however, that the
Registrant may in the future have difficulty blocking use by others of
marks incorporating the word "cooker." It is possible for prior users
to develop rights in such marks in their geographic territories and it
would be difficult for the Registrant to limit such use, even though
the Registrant has a federal registration.
Page 5
Item 2. Properties.
At February 28, 2001, the Registrant operated 65 Restaurants. The
following chart shows each of their locations:
Metropolitan Area Location Metropolitan Area Location
- --------------------------------------------------------------------------------------------------
FLORIDA OHIO (continued)
Ft. Myers-Cape Coral Ft. Myers Cleveland Rockside
Gainesville Gainesville Cleveland Beachwood
Melbourne-Titusville-Palm Bay Melbourne Cleveland Cuyahoga Falls
Orlando Altamonte Springs Cleveland Mentor
Orlando East Colonial Cleveland Westlake
Tallahassee Tallahassee Cleveland Solon
West Palm Beach Boynton Beach Cleveland Middleburg Heights
West Palm Beach Villages Columbus Bethel Road
Columbus Cleveland Avenue
GEORGIA Columbus East Main Street
Atlanta Alpharetta Columbus Hamilton Road
Atlanta Wildwood Columbus Lane Avenue
Augusta Augusta Columbus Morse Road
Columbus North High Street
INDIANA Dayton Beaver Creek
Indianapolis Willow Lake Dayton Miamisburg-Centerville
Dayton Vandalia
KENTUCKY Dublin Dublin
Lexington Lexington Toledo Toledo
Lexington Harrodsburg Toledo Sylvania
MICHIGAN PENNSYLVANIA
Detroit Ann Arbor Pittsburgh Monroeville
Detroit Auburn Hills
Detroit Canton TENNESSEE
Detroit Livonia Chattanooga Chattanooga
Detroit Novi Johnson City Johnson City
Detroit Sterling Heights Knoxville Knoxville
Detroit Troy Memphis Memphis
Grand Rapids Grand Rapids Memphis Regalia Center
Nashville Green Hills
NORTH CAROLINA Nashville Hermitage
Charlotte Southpark Nashville Murfreesboro
Raleigh-Durham-Chapel Hill Raleigh Nashville Parkway
Charlotte Ballantyne Nashville Rivergate
Nashville West End
OHIO Nashville Cool Springs
Akron Fairlawn
Cincinnati Beechmont VIRGINIA
Cincinnati Governor's Hill Norfolk Chesapeake
Cincinnati Paxton Road Washington, D.C. Fairfax
Cincinnati Springdale
At February 28, 2001, the Registrant leases 25 Restaurants from
unaffiliated lessors with base terms ranging from 3 to 39 years, which
include options to extend such leases exercisable by the Registrant.
See Note 11 to the Financial Statements for information relating to
the lease commitments. The Registrant owns the remaining Restaurants.
Of the 65 restaurants, 43 secure the Term and Revolving Loan agreement
with First Union National Bank and Bank of America. Closed Restaurants
still owned or leased by the Registrant are included in this total.
Page 6
In January 2001, the Registrant sold the 32,000 square foot office
building in West Palm Beach, Florida where its executive offices are
located, to an unrelated third party. The Registrant then entered
into a three-year term leaseback agreement for the West Palm Beach
Corporate Office. The lease term runs through May 2003. The
Registrant closed one restaurant in 2000 in Indianapolis, IN. The
Registrant is currently exploring lease and sale arrangements on 20
properties.
Item 3. Legal 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. 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 has denied any and all liability for
these claims. The parties have agreed to enter into an agreement in
principle to settle this case for $75,000.
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 and promotion of employees. Plaintiffs sought
injunctive relief, attorneys fees, back pay and lost benefits, and
reinstatement. At this time, the parties have entered into an
agreement providing for a monetary payment by Cooker's insurance
carrier in settlement of all claims. The court has approved the
settlement and has dismissed the case with prejudice.
The case of Rebecca Conway. v. Cooker Restaurant Corporation was filed
in the Courts of Common Pleas, Cuyahoga County, Ohio in October 2000.
This suit is a result of an after hours, non-Cooker sanctioned,
function which resulted in the termination of four Cooker managers and
five Cooker crew members. One of the terminated crew members, the
plaintiff, is alleging inappropriate and unwelcomed behavior of others
toward the plaintiff that night in question. The suit names Cooker
Restaurant, two Cooker managers and 2 crew members as defendants with
six counts against each; sexual harassment, retaliatory suspension and
discharge, assault, battery, invasion of privacy, and intentional
infliction of emotional distress. For each defendant and each count
the plaintiff is seeking $25,000 and undetermined amounts "such further
relief as the court deems necessary and proper" and attorney fees via
a jury trial. Cooker intends to vigorously defend the lawsuit, but
there can be no assurance that the Registrant will ultimately prevail,
because the case is in its early stages the Registrant has not yet
determined the impact, if any, upon the financial statements.
Routine Proceedings
The Registrant 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
Registrant's financial condition or results of operation.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Supplemental Item. Executive Officers of the Registrant.
Set forth below is information regarding the executive officers of
the Registrant as of December 31, 2000:
Name Office Age
- -------------------- ------------------------- --------
Henry R. Hillenmeyer Chairman of the Board and
Chief Executive Officer 57
Daniel A. Clay Executive Vice President and
Chief Operating Officer 42
Mark W. Mikosz Vice President and Chief
Financial Officer 52
Margaret A. Epperson Secretary 55
Page 7
HENRY R. HILLENMEYER, age 57, has been Chairman of the Board and
Chief Executive Officer of the Registrant since August 1999; and has
served as a director of the Registrant since 1994. Prior to joining
Cooker, Mr. Hillenmeyer spent 15 years with Southern Hospitality
Corporation, a 35-unit Wendy's franchisee based in Nashville,
Tennessee, in a number of titles, but most recently as its Chairman,
President and director until the Registrant was sold in 1994. Southern
Hospitality Corporation was created by the merger in 1980 of Wendy's
of Nashville, Inc. into Ireland's Restaurants, Inc. In 1986, Southern
Hospitality Corporation sold its three full service restaurant
concepts, including Cooker, to a group including Glenn W. Cockburn,
former Senior Vice President of Cooker, and G. Arthur Seelbinder, the
former CEO of Cooker. Cooker Bar and Grille emerged from the three
concepts to become the focus of the Registrant's operations. Mr.
Hillenmeyer has also served as Chairman and CEO of Careerhighway.Com
(formerly Skillsearch Corporation), an internet recruitment company,
from 1995 until February 18, 2000. Mr. Hillenmeyer is a former
Chairman of the Board of Junior Achievement of Middle Tennessee, Inc.
He earned a B.A. degree in Economics from Yale University.
DANIEL A. CLAY, age 42, is a new director of our company. He is the
Executive Vice President and Chief Operating Officer of the
Registrant, and was elected to the Board in January 2001. Dan most
recently was a Partner, President and Chief Operating Officer of
Catawba's Tex-Mex Restaurants. Prior to that, he was with Houston's
Restaurants, Inc. for 15 years, rising from General Manager to
Regional Manager to Vice President of Operations. Mr. Clay was with
S&A Restaurant Corporation for 7 years prior to his employment with
Houston's. Dan received his degree in Business Administration from
the University of Missouri in 1980.
MARK W. MIKOSZ, age 52, has been Vice President and Chief Financial
Officer of the Registrant since June 1998. Prior to joining the
Registrant, Mr. Mikosz was with Roundy's Inc. from 1989 through 1994
where he served in various capacities, including Vice President of
Finance, Vice President of Marketing, Division President, and
Corporate Director of Financial and Retail Services. Mr. Mikosz has
been in the food industry since 1972.
MARGARET A. EPPERSON, age 55, has been Secretary and Treasurer of
the Registrant since 1986.
Page 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Registrant's common shares are traded on the Over-the-
Counter Bulletin Board ("OTCBB") under the symbol "CGRT". The shares
of the Registrant's common stock began trading on the Over-the-Counter
Bulletin Board ("OTCBB") and ceased trading on the American Stock
Exchange ("AMEX") effective Thursday, December 14, 2000. The shares
of the Registrant'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 Registrant had been a
member of NYSE since May 11, 1994. In September 1999, the NYSE
informed the Registrant that because of the adoption of new guidelines
the Registrant no longer met the NYSE's continued listing requirements
of $50 million for both equity and market capitalization. The prices
set forth below reflect high and low sale prices for common shares in
each of the quarters of fiscal 2000 and 1999 as reported by the NYSE,
AMEX, and OTCBB.
2000 High Low
- -------------------------------------------------------------------
1st Quarter $2-13/16 $2-1/16
2nd Quarter $3-3/16 $2-3/8
3rd Quarter $2-3/4 $1
4th Quarter $1-1/4 $ 13/16
1999 High Low
- -------------------------------------------------------------------
1st Quarter $7-5/8 $5-3/16
2nd Quarter $6-5/8 $5-1/2
3rd Quarter $6-1/4 $3-3/4
4th Quarter $4-1/16 $2-1/2
On February 28, 2001, the Registrant had approximately 2,900
shareholders of record.
In January 2000 and 2001, the Registrant determined not to pay an
annual dividend for fiscal years 1999 and 2000, respectively.
Previously, the Registrant declared and paid an annual cash dividend
of $.10 per common share for fiscal 1998 and of $.07 per common share
for fiscal 1997, in each case, in February of the following year.
Under the Registrant's loan agreements, dividends may be declared in
any fiscal year providing such dividends do not cause the Registrant
to be in default on the loans.
Page 9
Item 6. Selected Financial Data.
The selected financial data presented below should be read in
conjunction with the Registrant's Consolidated Financial Statements,
the related notes, and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in
this filing.
(in thousands, except per share data)
Fiscal Year (b)
-------------------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------
Sales 147,053 153,290 160,546 135,458 110,273
Income (loss) before cumulative effect of
a change in accounting principle (29,131) (3,274) 6,027 6,452 6,732
Cumulative effect of accounting change,
net of tax (a) - - - (496) -
Net (loss) income (29,131) (3,274) 6,027 5,956 6,732
=======================================================
Basic earnings per common share:
Income (loss) before cumulative effect of
a change in accounting principle (4.87) (0.54) 0.66 0.64 0.75
Cumulative effect of change in accounting
for preoperational costs - - - (0.05) -
Net (loss) income (4.87) (0.54) 0.66 0.59 0.75
=======================================================
Diluted earnings per common share:
Income (loss) before cumulative effect of
a change in accounting principle (4.87) (0.54) 0.65 0.63 0.72
Cumulative effect of change in accounting for
preoperational costs - - - (0.05) -
Net (loss) income (4.87) (0.54) 0.65 0.58 0.72
=======================================================
Long-term obligations - 81,222 82,712 42,917 16,822
Total assets 120,938 149,298 153,267 142,921 114,633
Dividends per share - - 0.10 0.07 0.06
Proforma amounts assuming change in accounting
principle is applied retroactively; (a)
Net income (loss) (29,131) (3,274) 6,027 6,452 6,442
Earnings (loss) per share - basic (4.87) (0.54) 0.66 0.64 0.72
Earnings (loss) per share - diluted (4.87) (0.54) 0.65 0.63 0.69
(a) Effective December 30, 1996, the Registrant changed its method of
accounting for preoperational costs, costs for employee training
and relocation, and supplies incurred in the connection with the
opening of a restaurant to expense these costs as incurred.
(b) The fiscal years ended on December 31, 2000, January 2, 2000,
January 3, 1999, December 28, 1997, and December 29, 1996,
respectively.
Page 10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following should be read in conjunction with the Registrant's
Consolidated Financial Statements and the related notes thereto
included elsewhere herein.
Results of Operations
The following table sets forth, as a percentage of sales, certain
items appearing in the Registrant's statements of operations.
Fiscal Year (a)
---------------------------------
2000 1999 1998
---------------------------------
Sales 100.0% 100.0% 100.0%
---------------------------------
Cost of Sales:
Food and beverage 29.2 28.5 28.7
Labor 37.9 35.4 35.0
Restaurant operating expenses 20.8 18.6 18.4
Restaurant depreciation 4.1 4.2 3.9
General and administrative 6.5 7.2 5.9
Preoperational costs 0.3 0.4 0.6
Impairment of long-lived assets 14.0 2.0 -
Loss on loan guaranty 0.4 1.6 -
Severance charges 0.2 0.8 -
Severance recovery (0.6) - -
Interest expense 7.2 4.5 2.5
Amortization of loan fees 1.2 0.1 -
Loss (gain) on sale of property 0.2 - (0.1)
Interest and other income, net (0.3) (0.1) (0.2)
---------------------------------
121.1 103.2 94.7
---------------------------------
(Loss) income before income taxes (21.1) (3.2) 5.3
(Benefit) provision for income taxes (1.3) (1.2) 1.6
---------------------------------
Net (loss) income (19.8) (2.0) 3.7
=================================
(a) The fiscal years ended on December 31, 2000, January 2, 2000, and
January 3, 1999, respectively.
Forward Looking Information
Statements contained in the foregoing discussion and elsewhere in
this report that are not based on historical fact are considered
"forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. 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 the capital resources necessary
to complete the Registrant'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 Registrant's business.
2000 Compared with 1999
Sales
- -----
Sales for 2000 decreased 4.1%, or $6,237,000, to $147,053,000
compared to sales of $153,290,000 for 1999. The decrease in 2000 is
due to a decrease in the number of guests at the restaurants, as well
as restaurant closings, partially offset by new restaurant openings.
The Registrant opened two new restaurants in 2000 in Pittsburgh, PA
and Nashville, TN. Same store sales were down 4.7% in 2000. The
average check in 2000 was $12.06 as compared to $11.76 in 1999.
Page 11
Food and beverage
- -----------------
The cost of food and beverage in 2000 was $42,925,000 as compared to
$43,683,000 in 1999. The decrease of $758,000, or 1.7%, is primarily
due to decreased sales in 2000 as compared to 1999. As a percent of
sales, the cost of food and beverage was 29.2% in 2000, as compared to
28.5% in 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 in 2000 were $55,763,000 as compared to $54,279,000 in
1999. The increase of $1,484,000, or 2.7%, is primarily due to an
increase in cook costs as a result of changes in food preparation due
to the new menu, an increase in management and bonus costs and an
increase in benefits and taxes. Crew labor increased $291,000 in 2000
as compared to 1999, and benefits/payroll taxes increased $1,066,000
in 2000 as compared to 1999. Labor costs as a percent of sales for
2000 were 37.9% as compared to 35.4% for 1999. The increase is due
mainly to decreased same-store sales for the year as well as increased
cook and manager costs, which remain relatively fixed at the
individual restaurant level. Cook and manager costs in 2000 increased
$646,000 as compared to 1999 due to higher salaries and increased
bonus costs.
Restaurant operating expenses
- -----------------------------
Restaurant operating expenses in 2000 were $30,528,000 as compared to
$28,511,000 in 1999. The increase of $2,017,000 was primarily due to
an increase in public relations and promotions costs of $1,050,000,
smallwares of $154,000, repairs and maintenance costs of $281,000 and
occupancy costs, including rent and property taxes and insurance, of
$567,000. Restaurant operating expenses as a percent of sales in 2000
were 20.8% as compared to 18.6% in 1999. The increase in percentage
terms is due mainly to decreased sales in the current period.
Restaurant depreciation
- -----------------------
Restaurant depreciation expense in 2000, was $6,024,000 as
compared to $6,405,000 in 1999. The decrease of $381,000 is due to the
closing of one restaurant in the first half of 2000. Additionally,
depreciation expense on certain units decreased as a result of
impairment charges recorded on those sites in the third and fourth
quarter of fiscal 2000.
General and administrative expenses
- -----------------------------------
General and administrative expenses in 2000 were $9,561,000 as
compared to $11,087,000 in 1999. The decrease of $1,526,000 is due
primarily to decreases in salaries and bonuses of $685,000 and
marketing costs of $563,000. General and administrative expenses, as
a percent of sales in 2000 was 6.5% as compared to 7.2% in 1999.
Preoperational costs
- --------------------
Preoperational costs in 2000 were $378,000 as compared to $646,000 in
1999. The decrease of $268,000 is due entirely to the decrease in the
number of store openings in 2000, as compared to 1999. The Registrant
opened two new restaurants in 2000 as compared to five opened in 1999.
Impairment of long-lived assets
- -------------------------------
Impairment charges in 2000 were $20,515,000 as compared to
$3,058,000 in 1999. During the year ended December 31, 2000, the
Registrant recorded impairment charges on 24 of its restaurants. Of
these 24 restaurants, 20 sites were held for sale as of December 31,
2000. Due to the current situation regarding the Registrant's Term
Debt, the Registrant determined that the most prudent action would be
to sell these properties and use the proceeds to pay down portions of
the Term Debt. The Registrant wrote the properties down to fair
value, less certain selling costs, and reclassified these sites to
assets held for sale in its December 31, 2000 balance sheet.
Impairment charges on assets held for use were determined from
expected future cash flows at the individual store level. Annually,
or more frequently if events or circumstances change, a determination
is made by management to ascertain whether property and equipment and
other intangibles have been impaired based upon the sum of future
undiscounted cash flows from operating activities. If the estimated
net cash flows are less than the carrying amount of such assets, the
Registrant will recognize an impairment loss in an amount necessary to
write down the assets to fair value as determined from expected future
discounted cash flows.
Loss on loan guaranty
- ---------------------
During 2000, the Registrant 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 1999. In 1994, the Board of
Directors approved a guaranty by the Registrant of a loan of
$5,000,000 to G. Arthur Seelbinder, the former Chairman of the Board
and a former Director, and his wife. In January 1997, the Board
Page 12
approved a refinancing of the loan with The Chase Manhattan Bank of
New York (the "Bank"). The loan was secured by 323,000 common shares
owned by Mr. Seelbinder and a cash deposit from the Registrant 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 $3,753,000. On March 8,
2000, the Bank sold Mr. Seelbinder's stock for $666,000 in a private
transaction, and applied this amount to the loan. The remaining
balance of the loan of $3,087,000 was funded by the Registrant as a
result of its guaranty. Accordingly, the Registrant 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.
On November 16, 2000, the Registrant entered into an agreement
with Mr. Seelbinder, which stipulates and defines certain repayment
terms for $2,737,000 due to the Registrant in conjunction with the loan
guaranty. The agreement simultaneously terminates the existing
severance agreement and the vested and unvested stock options held by
Mr. Seelbinder. In addition to the termination of the severance
agreement, Mr. Seelbinder agreed to resign from the Registrant's Board
of Directors.
Severance charges and recovery
- ------------------------------
Severance charges in 2000 and 1999 were $347,000 and $1,300,000,
respectively. The 2000 charges represent an accrual for the severance
agreement reached between the Registrant and its former Senior Vice
President-Operations in the fourth quarter. The amounts granted to the
former Senior Vice President in conjunction with this agreement
represent amounts to be paid for past services rendered to the
Registrant, and therefore the registrant accrued for the full amount
of the severance package during the fourth quarter of 2000. The 1999
charges represent the value of the severance agreement reached between
the Registrant and its former Chairman and Chief Executive Officer, G.
Arthur Seelbinder. Of this amount, $212,000 represents the write-off
of certain amounts owed to the Registrant by Mr. Seelbinder, and
$1,088,000 represents an accrual for amounts to be received by Mr.
Seelbinder over the duration of the agreements in consideration for
past services rendered to the Registrant by Mr. Seelbinder.
On March 8, 2000, the Registrant 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, was
applied to the amounts owed by him to the Registrant as a result of
the Registrant's payment under the guaranty. Certain other amounts
were forfeited but not applied to the amount due to the Registrant. As
a result, approximately $910,000 in accrued severance liabilities was
forfeited by Mr. Seelbinder, with a portion thereof applied to the
guaranty amount. For the year ended December 31, 2000, the
Registrant recorded a gain on severance recovery of $907,000, all but
$97,000 of which was recorded during the first quarter of 2000.
Interest expense
- ----------------
Interest expense in 2000 was $10,670,000 as compared to $6,828,000 in
1999. The increase of $3,842,000 is due to the additional accrued
interest, including $555,000 in penalty interest, $206,000 in regular
late fees, and $2,360,000 accelerated late fees in conjunction the
status of the Registrant's Term Loan. See Liquidity and capital
resources.
Loss on disposal of fixed assets
- --------------------------------
In the year ended December 31, 2000, the Registrant recorded a
loss on disposal of fixed assets of $354,000, the majority of which
was recorded in the first quarter of 2000. $222,000 of the charge
represented the book value of certain leasehold improvements and
equipment related to the Registrant's restaurant in Indianapolis, IN,
a leased site. In late fiscal 1999, the site incurred certain
structural damage in the kitchen. The Registrant closed the site,
pending repair of the damage. In March 2000, the Registrant reached an
agreement with the site's landlord, wherein the landlord refunded the
prior three months' rent to the Registrant, the Registrant 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 Registrant. At the time of the
agreement, the book value of the leasehold improvements and equipment
was approximately $277,000. The Registrant removed items with a net
book value of approximately $55,000 from the premises. Accordingly,
the Registrant recorded a loss on disposal of $222,000 in March 2000.
The Registrant received no proceeds for the items disposed.
(Benefit) provision for income taxes
- ------------------------------------
The (benefit) provision for income taxes for 2000 and 1999, as a
percentage of (loss) income before taxes, was (6.3%) and (35.0%),
respectively. The change in the effective tax rate in the current year
is primarily due to the increase in the valuation allowance on the
deferred tax assets. SFAS No. 109 requires that the deferred tax
assets be reduced by a valuation allowance to the extent that it is
"more likely than not" that the asset will be realized. During the
fourth quarter of 2000, the Registrant established a valuation
allowance to eliminate the deferred tax asset since it was more likely
than not that the tax asset would not be realized.
Page 13
1999 Compared with 1998
Sales
- -----
Sales for 1999 decreased 4.5%, or $7,256,000, to $153,290,000
compared to sales of $160,546,000 for 1998. The year ended January 2,
2000, had 52 weeks versus 53 weeks in fiscal 1998. The year-to- year
sales comparison for 52 weeks shows a sales decline of 2.6%. The
decrease in 1999 is due to a decrease in the number of guests at the
restaurants, as well as restaurant closings, partially offset by new
restaurant openings. The Registrant opened five new restaurants in
1999 in Dublin, OH; Charlotte, NC (2); Middleburg Heights, OH; and
Fairlawn, OH. The Registrant closed seven restaurants in Bethesda, MD;
Tampa, FL; Saginaw, MI; Boardman, OH; Atlanta, GA (2); and Louisville,
KY. Additionally, one store was temporarily closed during the final
three months of 1999 for repairs as a result of structural damage in
the kitchen area. Same store sales were down 5.9% in 1999. The average
check in 1999 was $11.76 as compared to $11.34 in 1998.
Food and beverage
- -----------------
The cost of food and beverage in 1999 was $43,683,000 as compared to
$46,067,000 in 1998. The decrease of $2,384,000 is primarily due to
decreased sales in 1999 as compared to 1998. As a percent of sales,
the cost of food and beverage was 28.5% in 1999, as compared to 28.7%
in 1998. The improvement in 1999 is due primarily to a menu price
increase instituted at the end of the fourth quarter of 1998.
Labor
- -----
Labor costs in 1999 were $54,279,000 as compared to $56,252,000 in
1998. The decrease of $1,973,000 is primarily due to the decrease in
sales and average unit volume during the comparable period, which
resulted in lower demand for labor hours. Crew labor declined
$1,746,000 in 1999 as compared to 1998, and benefits decreased
$1,057,000 in 1999 as compared to 1998. Labor costs as a percent of
sales for 1999 were 35.4% as compared to 35.0% for 1998. The increase
is due mainly to decreased same-store sales for the year as well as
increased manager costs, which remain relatively fixed at the
individual restaurant level. Manager costs in 1999 increased $830,000
as compared to 1998 due to higher salaries and increased bonus costs.
Restaurant operating expenses
- -----------------------------
Restaurant operating expenses in 1999 were $28,511,000 as compared to
$29,519,000 in 1998. The decrease of $1,008,000 was primarily due to
decreases in public relations costs of $1,229,000, courier fees of
$262,000, administrative expenses of $191,000 and other miscellaneous
store expenses of $227,000, offset by increased occupancy costs,
including rent and property taxes and insurance, of $901,000.
Restaurant operating expenses as a percent of sales in 1999 were 18.6%
as compared to 18.4% in 1998.
Restaurant depreciation
- -----------------------
Restaurant depreciation expense in 1999, was $6,405,000 as compared
to $6,210,000 in 1998. The increase of $195,000 is due to the opening
of additional stores in 1999. While the Registrant did close seven
restaurants in 1999, only one unit, Bethesda, MD, was sold. Of the
remaining six units closed, five units are owned and are currently
being depreciated. The Registrant intends to lease these units to
third parties. The remaining unit was leased and the Registrant
recorded an impairment charge on this location which reduced the net
book value of the site to $0.
General and administrative expenses
- -----------------------------------
General and administrative expenses in 1999 were $11,087,000 as
compared to $9,431,000 in 1998. The increase of $1,656,000 is due
mainly to a one-time charge taken by the Registrant in the third
quarter of 1999 of $943,000. Included in this charge was a reserve of
approximately $155,000 for a state tax audit, $361,000 to adjust the
Registrant's workers' compensation and health insurance reserves,
$250,000 in signing bonus for the Registrant's new CEO, Mr. Henry
Hillenmeyer, and $177,000 in other miscellaneous charges. The
remaining increase of $713,000 is due primarily to increases in wage
costs of $204,000, legal costs of $284,000, marketing costs of
$513,000, and a gain on the sale of land of approximately $222,000 in
1998 which did not reoccur in 1999, offset by a decrease in relocation
costs of $181,000, other miscellaneous expenses of $120,000 and an
increase in rental income of $209,000. General and administrative
expenses as a percent of sales in 1999 was 7.2% as compared to 5.9% in
1998.
Preoperational costs
- --------------------
Preoperational costs in 1999 were $646,000 as compared to $896,000 in
1998. The decrease of $250,000 is due entirely to the decrease in the
number of store openings in 1999 as compared to 1998. The Registrant
opened five new restaurants in 1999 as compared to seven opened in
1998.
Impairment of long-lived assets
- -------------------------------
Impairment charges in 1999 were $3,058,000, which were recorded on 7
of the Registrant's restaurants. Annually, or more frequently if events
or circumstances change, a determination is made by management to
ascertain whether property and equipment and other intangibles have been
impaired based upon the sum of future undiscounted cash flows from
operating activities. Based upon a review of the Registrant's
Page 14
restaurants at the end of the third quarter of 1999, as well as the
decline in same store sales of 7.2% for the third quarter and the
decreases in customer counts and cash flows at these locations, the
Registrant determined that certain of its long-lived assets were
impaired. Accordingly, the Registrant recorded a charge for the
impairment of seven of its restaurant locations in 1999.
Loss on loan guaranty
- ---------------------
During 1999, the Registrant recorded a reserve for loan guaranty loss
of $2,454,000. In 1994, the Board of Directors approved a guaranty by
the Registrant of a loan of $5,000,000 to G. Arthur Seelbinder (the
"Loan"), the former Chairman of the Board and a former Director of the
Registrant. The Loan was secured by the Registrant's guaranty and
323,000 shares of the Registrant's common stock owned by Mr.
Seelbinder. During the fourth quarter of 1998, the lender required the
Registrant to make a cash deposit in such amount to satisfy the
difference between the value of the shares pledged as collateral for
the loan and the face amount of the loan. The adequacy of this deposit
is assessed by the lender periodically based upon changes in the price
of the Registrant's common stock. During the third quarter of 1999,
Mr. Henry Hillenmeyer replaced Mr. Seelbinder as Chairman and CEO of
the Registrant. Based primarily upon the significant change in Mr.
Seelbinder's employment status, and the value of Mr. Seelbinder's
common stock at the end of the Registrant's fiscal 1999 third quarter,
the Registrant believed that it was, probable that a loss on the loan
guaranty had been incurred as of the end of the Registrant's fiscal
1999 third quarter.
Severance charges
- -----------------
Severance charges in 1999 were $1,300,000. These charges represent
the value of the severance agreement reached between the Registrant
and its former Chairman and Chief Executive Officer, G. Arthur
Seelbinder. Of this amount, $212,000 represents the write-off of
certain amounts owed to the Registrant by Mr. Seelbinder, and
$1,088,000 represents an accrual for amounts to be received by Mr.
Seelbinder over the duration of the agreements in consideration for
past services rendered to the Registrant by Mr. Seelbinder.
Interest expense
- ----------------
Interest expense in 1999 was $6,828,000 as compared to $4,022,000 in
1998. The increase of $2,806,000 is due to the additional debt
incurred in conjunction with the buyback of approximately 4,000,000
shares of the Registrant's Common Stock completed in the fourth
quarter of 1998. As a result of the buyback, the Registrant acquired
an additional $43,000,000 in term debt financing, as well as a
$13,500,000 revolving line of credit facility.
(Benefit) provision for income taxes
- ------------------------------------
The (benefit) provision for income taxes for 1999 and 1998, as a
percentage of (loss) income before taxes, was (35.0%) and 30.1%,
respectively. The change in the effective tax rate in the current year
is primarily due to a reversal of a liability in the prior year for a
previous year's tax audit assessment that did not reoccur in the
current year.
Liquidity and Capital Resources
- -------------------------------
The Registrant's operations are subject to factors outside its
control. Any one, or a combination of these factors, could materially
affect the results of the Registrant's operations. These factors
include: (a) changes in the general economic conditions in the United
States, (b) changes in prevailing interest rates, (c) changes in the
availability and cost of raw materials, (d) changes in the
availability of capital resources necessary to complete the
Registrant'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 Registrant. Forward-looking statements made by or on
behalf of the Registrant 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 Registrant will be realized or, even
if substantially realized, that they will have the expected
consequences to or effects on the Registrant or its business or
operations.
The Registrant's principal capital requirements are for working
capital, new restaurant openings and improvements to existing
restaurants. The majority of the Registrant's financing for
operations, expansion and working capital is provided by internally
generated cash flows from operations and amounts available under the
Revolver (defined below).
During 1998, the Registrant entered into a new term loan
agreement with NationsBank of Tennessee and First Union National Bank
(the "Term Loan") and a term loan with the CIT/Equipment Financing
Group, Inc. (collectively the "Lenders") in conjunction with its
repurchase of common stock pursuant to the Tender Offer (the "Offer")
which was completed on October 5, 1998. The Registrant borrowed
$70,500,000 under the two term loan agreements with the Lenders, and
established a $10,000,000 Revolving Line of Credit (the "Revolver")
with NationsBank of Tennessee. Pursuant to certain renegotiations of
the Registrant's debt terms in December 1999, the amount available
under the Revolver was extended to $13,500,000. No other financial
terms of the original agreements with the lenders were changed as a
result of the negotiations. Of the $70,500,000 in term loans,
$30,000,000 was with NationsBank of Tennessee, $22,500,000 was with
First Union National Bank, and $18,000,000 was with the CIT/Equipment
Financing Group, Inc. As of December 31, 2000, the Registrant had
Page 15
borrowed $13,425,000 against the Revolver and the outstanding balance
of the Term Loans was approximately $60,367,000.
Pursuant to the terms of the original agreement, the Registrant
was required to make principal and interest payments of approximately
$345,000 to First Union on $22,500,000 of its Term Loan and principal
payments of $166,670, plus applicable interest, to NationsBank on
$30,000,000 of its Term Loan balance. Such payments were scheduled to
continue until March 24, 2004, upon which date, all remaining amounts,
principal and interest, under the Term Loan and the Revolver were to
be due in full. Additionally, the Registrant makes monthly payments of
$267,639, including principal and interest, to CIT. Such payments will
continue until September 30, 2003, at which time all remaining amounts
under the agreement with CIT will be due in full.
During fiscal 2000, the Registrant opened two additional units.
Capital expenditures for the new restaurants totaled $938,000, and
were funded by cash flows of $2,578,000 from operations. The
Registrant does not intend to open any additional restaurants in 2001.
Total cash expenditures for restaurant expansion and improvements are
projected to be approximately $1,800,000 for fiscal 2001. The
Registrant 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 quarter ended October 1, 2000, the Registrant was not in
compliance with certain covenants pertaining to its debt with Bank of
America, N.A. (as successor to NationsBank) and First Union National
Bank (collectively, the "Term Lenders"). Based on such non-compliance,
the Term 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 Registrant did not
make its full (interest and principal) payment due on July 3, 2000 and
it has not made any of its principal payments due to the Term Lenders
since the partial payment made on July 3, 2000. The Registrant has
not received a waiver from the Term Lenders to cure the non-
compliance. Accordingly, the Registrant has reclassified the
obligation to the Term Lenders as current for the year ended December
31, 2000.
The Registrant received 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 allows
for the postponement of principal and interest payments during the
forbearance period. In January 2001 the Registrant sold three
properties, one of which was the West Palm Beach Corporate Office
Building. The majority of the sale proceeds were used to pay the
interest portion of the Term Loan. The Registrant was current on the
interest portion of the Term Loan, through January 21, 2001. The
Registrant has also retained the services of an independent third
party to assist the Registrant in obtaining other long term financing
intended to replace its current debt agreement with the lenders. The
Registrant is negotiating with the lenders a possible extension of the
standstill agreement for a period of 9 months, to allow the Registrant
time to secure new financing.
For the quarter ended October 1, 2000, the Registrant also 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 Registrant has not
received a waiver from CIT to cure the non-compliance. The Registrant
is current on its payment obligations to CIT. Because the Registrant
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 Registrant is currently in negotiations with
CIT to amend covenant requirements for future periods, however there
can be no assurance that such negotiations will be successful.
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 Registrant was in default under its senior credit
facility and that no payments could be made by the Registrant, 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 Registrant's senior credit facility. This
notice blocked the Registrant'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, constitutes a default under
the terms of the 6 3/4 % Convertible Subordinated Debentures and
certain other of Cooker's credit arrangements. As of December 31,
2000, the Registrant has reclassified the obligation to the holders of
the 6 3/4% Convertible Subordinated Debentures as a current liability.
During the fourth quarter of 2000 Bank One became the successor
trustee under the 6 3/4 % Convertible Subordinated Debentures,
replacing First Union National Bank of North Carolina.
Further, the Registrant has completed the process of rolling out
a new menu in all of its locations. The menu features new recipes, new
presentations and larger portions, as well as new items. The
Registrant 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 Registrant has signed leases with independent
third parties on two properties it owns. The stores located on those
properties were closed in fiscal 1999. The Registrant began to receive
monthly rental payments in the third quarter 2000 on both properties.
The Registrant also has subleased a closed leased site to an
independent third party. The Registrant continues to actively market
three closed store properties for sale. Successful sales of these
properties will generate cash inflows for Registrant, 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 Registrant is taking
to increase sales will have the desired effect. Nor can there be any
Page 16
assurance that the Registrant'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
Registrant may experience negative cash flows in the future.
The Registrant's 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 Registrant's debt, which would have a material adverse effect on
the Registrant's financial condition, results of operations and
liquidity. These conditions may indicate that the Registrant may be
unable to continue as a going concern for a reasonable period of time.
The Registrant's consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
The Registrant has only limited involvement with derivative
financial instruments and does not use them for trading purposes.
Interest rate swap agreements have been utilized to reduce the potential
impact of increases in interest rates on floating-rate long-term debt.
At December 31, 2000 and January 2, 2000, the Registrant was a party to
an interest rate swap agreement with a termination date of September 28,
2001. Per the terms of the agreement, the Registrant pays 6.25% on
$27,500,000 of it's total LIBOR-based floating rate debt, and receives
LIBOR from the counterparty (a major bank). The fair value of the
interest swap agreement approximated $187,000 and $118,000 at December
31, 2000 and January 2, 2000, respectively. On January 4, 2001 the
interest swap agreement was cancelled, and payment of $187,000 was made
to the counterparty. This amount will be recorded as interest expense
in the quarter ended March 31, 2001.
In 1994, the board of directors approved a guaranty by the
Registrant of a loan of $5,000,000 to G. Arthur Seelbinder, the former
Chairman of the Board and a former 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
323,000 common shares owned by Mr. Seelbinder and a cash deposit from
the Registrant 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 $3,753,000.
On March 8, 2000, the Bank sold Mr. Seelbinder's stock for
$666,000 in a private transaction and applied this amount to the loan.
The remaining balance of the loan, $3,087,000, was funded by the
Registrant, as a result of the guaranty. Accordingly, in the first
quarter of fiscal 2000 the Registrant 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 Registrant has to collect from Mr. Seelbinder as the
Bank's successors, any amount due to Mr. Seelbinder, under the
settlement agreement the Registrant entered into with him when he
stepped down as Chairman and Chief Executive Officer, are to be paid
to the Registrant and applied to the amounts it paid on account of the
guaranty. The Registrant's liability under the guaranty was fully
provided for by its existing cash deposit and amounts offset against
the settlement agreement.
On November 16, 2000, the Registrant entered into an agreement
with Mr. Seelbinder, which stipulates and defines certain repayment
terms for $2,737,000 due to the Registrant in conjunction with the loan
guaranty. The agreement simultaneously terminates the existing
severance agreement between the Registrant and Mr. Seelbinder and the
vested and unvested Seelbinder Options. In addition to the
termination of the severance agreement, Mr. Seelbinder agreed to
resign from the Registrant's Board of Directors.
Recent 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", and SFAS No.
138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an amendment of FASB Statement No. 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 the Registrant in the first quarter of
fiscal 2001. The Registrant has determined the adoption of SFAS No.
133, as amended, will have no material effect on the Registrant's
results of operations or statement of financial position.
Page 17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk Management
The Registrant continually monitors and considers methods to
manage the rate sensitivity of its financial instruments (principally
debt). Such monitoring processes are designed to minimize the impact
of sudden and sustained changes in interest rates which could have a
material effect on the cash flows, earnings, or fair value of the
Registrant's financial instruments. Interest rate risk exposure is
measured using interest rate sensitivity analysis to determine the
effect on the Registrant's derivative and other fixed rate financial
instruments in the event of hypothetical changes in interest rates.
For the Registrant's variable rate financial instruments, the analysis
is performed to determine the effect on the cash flows of the
instrument. Such hypothetical changes reflect management's best
estimate of reasonably possible, near-term changes. A hypothetical
change in the Registrant's interest rate on the variable rate debt
would impact interest expense by approximately $579,000 and $449,000
for the fiscal years ended 2000 and 1999, respectively. Based upon
such, actual values may differ from those projections calculated by
the Registrant.
Item 8. Financial Statements and Supplementary Data.
The financial statements of the Registrant, and the related notes
are set forth at pages F-1 through F-22 attached hereto.
The supplementary data of the Registrant is contained in note 14,
of the notes to the financial statements, set forth at page F-22
attached hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
In its Form 8-K dated October 22, 1999, the Registrant announced
the resignation of KPMG LLP, its principal accountants, effective
October 18, 1999. In its Form 8-K dated October 29, 1999, the
Registrant announced the engagement of Deloitte & Touche LLP as its
principal accountants.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information regarding the Registrant's directors, is set forth at
"ELECTION OF DIRECTORS; Nominees for Election as Directors, Directors
Whose Terms Continue Until the 2001 Annual Meeting and Directors Whose
Terms Continue Until the 2002 Annual Meeting", in the Registrant's
Proxy Statement for its 2001 Annual Meeting of Shareholders (the "2001
Proxy Statement"), which information is incorporated herein by
reference. Information regarding the Registrant's executive officers
is set forth in PART I of this report at "Supplemental Item. Executive
Officers of the Registrant."
Item 11. Executive Compensation.
The information required by this item is set forth at
"COMPENSATION OF MANAGEMENT" in the 2001 Proxy Statement which
information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required by this item is set forth at "SECURITY
OWNERSHIP OF PRINCIPAL SHAREHOLDERS, DIRECTORS, NOMINEES AND EXECUTIVE
OFFICERS" in the 2001 Proxy Statement which information is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is set forth at "COMPENSATION
OF MANAGEMENT" in the 2001 Proxy Statement which information is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) Documents filed as part of this Form 10-K.
(1) Consolidated Financial Statements:
Independent Auditors' Report
Page 18
Consolidated Balance Sheets as of December 31, 2000, and
January 2, 2000
Consolidated Statements of Operations for the Fiscal Years
Ended December 31, 2000, January 2, 2000, and January 3,
1999
Consolidated Statement of Changes in Shareholders' Equity for
the Fiscal Years Ended December 31, 2000, January 2, 2000,
and January 3, 1999
Consolidated Statement of Cash Flows for the Fiscal Years
Ended December 31, 2000, January 2, 2000, and January 3,
1999
Notes to Consolidated Financial Statements for the Fiscal
Years Ended December 31, 2000, January 2, 2000, and January
3, 1999
(3) The following exhibits are filed as part of this Form 10-K.
(3) Articles of Incorporation and By-Laws.
3.1 Amended and Restated Articles of Incorporation of the
Registrant (incorporated by reference to Exhibit 28.2 of
Registrant's quarterly report on Form 10-Q for the quarterly
period ended March 29, 1992; Commission File Number 0-16806).
3.2 Amended and Restated Code of Regulations of the Registrant
(incorporated by reference to Exhibit 4.5 of the Registrant's
quarterly report on Form 10-Q for the fiscal quarter ended
April 1, 1990; Commission File No. 0-16806).
(4) Instruments Defining the Rights of Security Holders.
4.1 See Articles FOURTH, FIFTH and SIXTH of the Amended and
Restated Articles of Incorporation of the Registrant (see 3.1
above).
4.2 See Articles One, Four, Seven and Eight of the Amended and
Restated Code of Regulations of the Registrant (see 3.2
above).
4.3 Rights Agreement, dated as of January 16, 2000, between the
Registrant and First Union National Bank (incorporated by
reference to Exhibit 2 of the Registrant's Form 8-A filed with
the Commission on January 12, 2000; Commission File No. 1-
13044).
4.4 Letter dated October 29, 1992 from the Registrant to First
Union National Bank of North Carolina (incorporated by
reference to Exhibit 4.5 to the 1992 Form 10-K; Commission
File No. 0-16806).
4.5 See Section 7.4 of the Amended and Restated Loan Agreement
dated December 22, 1995 between Registrant and First Union
National Bank of Tennessee. (see 10.4 below).
4.6 Indenture dated as of October 28, 1992 between Registrant and
First Union National Bank of North Carolina, as Trustee
(incorporated by reference to Exhibit 2.5 of Registrant's
Form 8-A filed with the Commission on November 10, 1992;
Commission File Number 0-16806).
(10) Material Contracts (*Management contract or compensatory plan
or arrangement.)
10.1-10.3 Reserved.
10.4 Amended and Restated Loan Agreement dated December 22, 1995
between Registrant and First Union National Bank of Tennessee
(incorporated by reference to Exhibit 10.4 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1995 (the "1995 Form 10-K"), Commission File No. 0-16806).
10.5 Underwriting Agreement dated May 7, 1996 with Montgomery
Securities and Equitable Securities Corporation (incorporated
by reference to Exhibit 10.5 to the Registrant's quarterly
report on Form 10-Q for the quarter ended June 30, 1996 (the
"June 1996 Form 10-Q"), Commission File No. 0-16806).
Page 19
10.6 Form of Contingent Employment Agreement and schedule of
executed Agreements (incorporated by reference to Exhibit 10.6
of the 1995 Form 10-K; Commission File No. 0-16806).*
10.7 The Registrant's 1988 Employee Stock Option Plan and 1992
Employee Stock Option Plan, Amended and Restated April 22,
1996, (incorporated by reference to Exhibit 10.7 to the June
1996 Form 10-Q, Commission File No. 0-16806).*
10.8 The Registrant's 1988 Directors Stock Option Plan, as amended
and restated. (incorporated by reference to Exhibit 10.8 to
the Registrant's annual report on Form 10-K for the fiscal
year ended December 29, 1996 (the "1996 Form 10-K");
Commission File No. 0-13044).*
10.9 The Registrant's 1992 Directors Stock Option Plan, as amended
and restated. (incorporated by reference to Exhibit 10.9 to
the 1996 Form 10-K; Commission File No. 0-13044).*
10.10 The Registrant's 1996 Officers' Stock Option Plan
(incorporated by reference to Exhibit 10.10 of the 1995 Form
10-K; Commission File No. 0-16806). *
10.11 Reaffirmation and Amendment to Guaranty and Suretyship
Agreement between Registrant and NationsBank of Tennessee,
N.A. dated July 24, 1995 (incorporated by reference to
Exhibit 10.11 of the Registrant's Quarterly Report on Form 10-
Q for the quarterly period ended July 2, 1995; Commission File
No. 1-13044).
10.12 Amended and Restated Guaranty between Registrant and Chase
Manhattan Bank dated January 31, 1997 (incorporated by
reference to Exhibit 10.12 to the 1996 Form 10-K; Commission
File No. 0-13044).
10.13 Letter dated February 3, 1997 from G. Arthur Seelbinder to the
Registrant (incorporated by reference to Exhibit 10.13 to the
1996 Form 10-K; Commission File No. 0-13044).
10.14 Letter dated January 30, 1998 from G. Arthur Seelbinder to the
Registrant (incorporated by reference to Exhibit 10.14 to the
1997 Form 10-K; Commission File No. 0-13044).
10.15 Second Amendment to Amended and Restated Loan Agreement dated
as of January 1,1998 between the Registrant and First Union
National Bank, a national banking association, as successor in
interest to First Union National Bank of Tennessee
(incorporated by reference to Exhibit 10.15 to the 1997 Form
10-K; Commission File No. 0-13044).
10.16 Third Amendment to Amended and Restated Loan Agreement dated
as of January 1,1998 between the Registrant and First Union
National Bank, a national banking association, as successor in
interest to First Union National Bank of Tennessee (filed
herewith to Exhibit 10.16 to the 2000 Form 10-K; Commission
File No. 1-13044).
10.17 Fourth Amendment to Revolving/Term Loan Note dated as of
January 1, 1998 between the Registrant and First Union
National Bank, a national banking association, as successor in
interest to First Union National Bank of Tennessee
(incorporated by reference to Exhibit 10.17 to the 1997 Form
10-K; Commission File No. 0-13044).
10.18 Reaffirmation of Amended and Restated Guaranty made by the
Registrant on April20, 1998 to the Chase Manhattan Bank
(incorporated by reference to Exhibit 10.18 to the 1997 Form
10-K; Commission File No. 0-13044).
10.19 Letter agreement dated March 26, 1998 between The Chase
Manhattan Bank and G. Arthur Seelbinder (incorporated by
reference to Exhibit 10.19 to the 1997 Form 10-K; Commission
File No. 0-13044).
10.20 Amendment to Grid Time Promissory Note dated March 26, 1998
between The Chase Manhattan Bank and G. Arthur Seelbinder
(incorporated by reference to Exhibit 10.20 to the 1997 Form
10-K; Commission File No. 0-13044).
10.21 Loan Agreement dated September 24, 1998, between the
Registrant and First Union National Bank and NationsBank of
Tennessee, N.A., both national banking associations
(incorporated by reference to Exhibit 10.21 of the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended September 27, 1998; Commission File No. 1-13044).
10.22 Loan Agreement dated September 24, 1998, between the
Registrant and The CIT Group/Equipment Financing, Inc.
(incorporated by reference to Exhibit 10.22 of the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended September 27, 1998; Commission File No. 1-13044).
10.23 Letter dated September 17, 1998 from G. Arthur Seelbinder to
the Registrant (incorporated by reference to Exhibit 10.23 to
Amendment No. 3 to the Registrant's Schedule 13E-4 filed on
September 18, 1998; Commission File No. 0-16806).
10.24 Letter agreement dated September 30, 1999 between the
Registrant and G. Arthur Seelbinder (incorporated by reference
to Exhibit 10.24 of the Registrant's Quarterly Report on
Form 10-Q for the quarterly period ended October 3, 1999;
Commission File No. 1-13044).
Page 20
10.25 Letter agreement dated August 19, 1999 between the Registrant
and Henry R. Hillenmeyer (incorporated by reference to Exhibit
10.25 of the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended October 3, 1999; Commission File
No. 1-13044).
10.26 Option Agreement dated August 19, 1999 between the Registrant
and Henry R. Hillenmeyer (incorporated by reference to Exhibit
10.26 of the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended October 3, 1999; Commission File
No. 1-13044).
10.27 The Registrant's 2000 Non-Employee Director Stock Option Plan
dated January 24, 2000 (filed herewith to Exhibit 10.27 to the
2000 Form 10-K; Commission File No. 1-13044).
10.28 Agreement of Resignation, Appointment, and Acceptance dated
October 31, 2000 between the Registrant and First Union
National Bank and Bank One, N.A. (filed herewith to Exhibit
10.28 to the 2000 Form 10-K; Commission File No. 1-13044).
10.29 Letter agreement and release dated November 16, 2000 between
the Registrant and G. Arthur Seelbinder & Kathleen W. Hammer
(filed herewith to Exhibit 10.29 to the 2000 Form 10-K;
Commission File No. 1-13044).
10.30 Severance and Consulting Agreement and Release dated November
30, 2000 between the Registrant and Glenn W. Cockburn (filed
herewith to Exhibit 10.30 to the 2000 Form 10-K; Commission
File No. 1-13044).
10.31 Option Agreement dated December 1, 2000 between the Registrant
and Daniel A. Clay (filed herewith to Exhibit 10.31 to the
2000 Form 10-K; Commission File No. 1-13044).
10.32 Change of Control and Severance Agreement dated December 1,
2000 between the Registrant and Daniel A. Clay (filed herewith
to Exhibit 10.32 to the 2000 Form 10-K; Commission File No. 1-
13044).
10.33 Standstill Agreement dated January 8, 2001 between the
Registrant and First Union National Bank and Bank of America,
N.A. (formerly NationsBank of Tennessee, N.A), both national
banking associations (filed herewith to Exhibit 10.33 to the
2000 Form 10-K; Commission File No. 1-13044).
(16) Letter regarding Change in Certifying Accountant.
16.1 Letter dated October 22, 1999 from KPMG LLP to the Securities
and Exchange Commission (incorporated by reference to Exhibit
16.1 to the Registrant's Current Report on Form 8-K dated
October 22, 1999; Commission File No. 1- 13044).
(21) Subsidiaries of Registrant.
21.1 Subsidiaries of Registrant.
(23) Consents of Experts and Counsel.
23.1 Consent of KPMG LLP.
23.2 Consent of Deloitte & Touche LLP
(24) Powers of Attorney.
24.1 Powers of Attorney.
24.2 Certified resolution of the Registrant's Board of Directors
authorizing officers and directors signing on behalf of the
Registrant to sign pursuant to a power of attorney.
Page 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 26, 2001
COOKER RESTAURANT CORPORATION
(the "Registrant")
By: /s/ Henry R. Hillenmeyer
---------------------------------
Henry R. Hillenmeyer
Chairman of the Board,
Chief Executive Officer and Director
(principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on February 28, 2001.
SIGNATURE TITLE
/s/Henry R. Hillenmeyer Chairman of the Board, Chief
- ---------------------------- Executive Officer
Henry R. Hillenmeyer (principal executive officer)
Officer and Director
/s/ Daniel A. Clay* Executive Vice President-Chief
- ---------------------------- Operating Officer
Daniel A. Clay Officer and Director
/s/ Mark W. Mikosz* Vice President - Chief Financial Officer
- ---------------------------- (principal financial and accounting officer)
Mark W. Mikosz
/s/ Robin V. Holderman* Director
- ----------------------------
Robin V. Holderman
/s/ David T. Kollat* Director
- ----------------------------
David T. Kollat
/s/ D. Shannon LeRoy* Director
- ----------------------------
D. Shannon LeRoy
/s/ Harvey Palash* Director
- ----------------------------
Harvey Palash
/s/ Brad Saltz* Director
- ----------------------------
Brad Saltz
*By: /s/ Henry R. Hillenmeyer
- -------------------------------
Henry R. Hillenmeyer
Attorney-in-Fact
Page 22
==============================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
COOKER RESTAURANT CORPORATION
----------------------
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED:
DECEMBER 31, 2000
----------------------
CONSOLIDATED FINANCIAL STATEMENTS
----------------------
==============================================================
COOKER RESTAURANT CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report - KPMG LLP ............................ F-2
Independent Auditors' Report - Deloitte & Touche LLP................ F-3
Consolidated Balance Sheets as of December 31, 2000
and January 2, 2000............................................... F-4
Consolidated Statements of Operations for the fiscal years
ended December 31, 2000, January 2, 2000, and January 3, 1999..... F-5
Consolidated Statements of Changes in Shareholders' Equity for
the fiscal years ended December 31, 2000, January 2, 2000,
and January 3, 1999............................................... F-6
Consolidated Statements of Cash Flows for the fiscal years
ended December 31, 2000, January 2, 2000, and January 3, 1999..... F-7
Notes to Consolidated Financial Statements.......................... F-8-F-22
F-1
[KPMG LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Cooker Restaurant Corporation:
We have audited the accompanying consolidated statements of
operations, changes in shareholders' equity and cash flows of Cooker
Restaurant Corporation and subsidiaries (the "Company") for the year
ended January 3, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the results of
operations and the cash flows of Cooker Restaurant Corporation and
subsidiaries for the year ended January 3, 1999, in conformity with
accounting principles generally accepted in the United States of
America.
/s/ KPMG LLP
January 27, 1999
Fort Lauderdale, Florida
F-2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Cooker Restaurant Corporation:
We have audited the accompanying consolidated balance sheets of Cooker
Restaurant Corporation and subsidiaries (the "Company") as of December
31, 2000 and January 2, 2000, and the related consolidated statements
of operations, changes in shareholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of
December 31, 2000 and January 2, 2000, and the results of its
operations and its cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the
Company's losses from operations, working capital deficiency and non-
compliance with the terms of it's debt facility raise substantial
doubt about the Company's ability to continue as a going concern.
Management's plans concerning these matters are also described in Note
1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/Deloitte & Touche LLP
Certified Public Accountants
West Palm Beach, Florida
March 7, 2001
F-3
COOKER RESTAURANT CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollar amounts in thousands)
December 31, January 2,
2000 2000
------------ -----------
ASSETS
------
Current Assets:
Cash and cash equivalents $ 1,602 $ 1,428
Inventory 1,365 1,326
Assets held for sale 30,793 67
Prepaid and other current assets 1,687 1,402
Income tax receivable 1,888 675
----------- -----------
Total current assets 37,335 4,898
Property and equipment, net 82,127 138,644
Restricted cash - 2,919
Other assets, net 1,663 2,837
----------- -----------
Total assets $ 121,125 $ 149,298
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt $ 86,339 $ 6,858
Accounts payable 2,628 4,154
Accrued liabilities 14,950 8,585
Reserve for loan guaranty loss - 2,454
Capital lease obligation, current 98 188
----------- -----------
Total current liabilities 104,015 22,239
Long-term debt - 81,097
Capital lease obligation, long-term - 125
Deferred income taxes - 1,048
Other liabilities 1,452 -
----------- -----------
Total liabilities 105,467 104,509
----------- -----------
Commitments and contingencies (Note 11)
Shareholders' equity:
Common shares-without par value:
authorized 30,000,000 shares; issued
10,548,000 at December 31, 2000 and
January 2, 2000 62,211 62,211
Retained earnings 1,876 31,007
Treasury stock, at cost, 4,562,000
shares at December 31, 2000 and
January 2, 2000 (48,429) (48,429)
----------- -----------
Total shareholders' equity 15,658 44,789
----------- -----------
Total liabilities and shareholders' equity $ 121,125 $ 149,298
=========== ===========
See accompanying notes to consolidated financial statements
F-4
COOKER RESTAURANT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share data)
December 31, January 2, January 3,
2000 2000 1999
-------------------------------------------
Sales $ 147,053 $ 153,290 $ 160,546
-------------------------------------------
Cost of Sales:
Food and beverage 42,925 43,683 46,067
Labor 55,763 54,279 56,252
Restaurant operating expenses 30,528 28,511 29,519
Restaurant depreciation 6,024 6,405 6,210
General and administrative 9,561 11,087 9,431
Preoperational costs 378 646 896
Impairment of long-lived assets 20,515 3,058 -
Loss on loan guaranty 633 2,454 -
Severance charges 347 1,300 -
Severance recovery (907) - -
Interest expense 10,670 6,828 4,022
Amortization of loan fees 1,736 175 151
Loss (gain) on sale of property 354 4 (223)
Interest and other income, net (373) (106) (307)
-------------------------------------------
178,154 158,324 152,018
-------------------------------------------
(Loss) income before income taxes (31,101) (5,034) 8,528
(Benefit) provision for income taxes (1,970) (1,760) 2,601
-------------------------------------------
Net (loss) income $ (29,131) $ (3,274) $ 5,927
===========================================
Basic earnings (loss) per common
share:
Net (loss) income $ (4.87) $ (0.54) $ 0.66
===========================================
Diluted earnings (loss) per common
share:
Net (loss) income $ (4.87) $ (0.54) $ 0.65
===========================================
See accompanying notes to consolidated financial statements
F-5
COOKER RESTAURANT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
(Dollar and share amounts in thousands)
Fiscal years ended December 31, 2000, January 2, 2000, and January 3, 1999
Common Shares Retained Treasury Stock
Shares Amounts Earnings Shares Amounts Total
------ --------- -------- ------ --------- ---------
Balance, December 28, 1997 10,548 $ 63,039 $ 29,570 526 $ (6,137) $ 86,472
Shares repurchased - - - 4,006 (42,954) (42,954)
Issuance of common shares
under stock option plans - (771) - (161) 1,888 1,117
Tax benefits of stock options
exercised - 192 - - - 192
Dividends paid - $.07 per share - - (702) - - (702)
------ --------- --------- ------ --------- ---------
Net income - - 6,027 - - 6,027
Balance, January 3, 1999 10,548 62,460 34,895 4,371 (47,203) 50,152
Shares repurchased - - - 233 (1,670) (1,670)
Issuance of common shares
under stock option plans - (249) - (42) 444 195
Dividends paid - $.10 per share - - (614) - - (614)
------ --------- --------- ------ --------- ---------
Net loss - - (3,274) - - (3,274)
Balance, January 2, 2000 10,548 62,211 31,007 4,562 (48,429) 44,789
Net loss - - (29,131) - - (29,131)
------ --------- --------- ------ --------- ---------
Balance, December 31, 2000 10,548 $ 62,211 $ 1,876 4,562 $ (48,429) $ 15,658
====== ========= ========= ====== =========
See accompanying notes to consolidated financial statements
F-6
COOKER RESTAURANT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
December 31, January 2, January 3,
2000 2000 1999
------------ ----------- -----------
Cash flows from operating activities:
Net (loss) income $ (29,131) $ (3,274) $ 6,027
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 8,372 7,140 6,684
Impairment charges 20,515 3,058 -
Severance recovery (907) - -
Loss on loan guaranty 633 2,454 -
Deferred income taxes (1,048) (2,358) 1,593
Loss (gain) on sale of property 354 4 (223)
(Increase) decrease in:
Inventory (39) 324 (141)
Prepaid expenses and other current assets (285) (639) 294
Other assets (562) (600) (1,138)
Increase (decrease) in:
Accounts payable (1,526) 797 (1,311)
Accrued liabilities and capital lease
obligations 5,963 1,446 470
Income taxes payable/receivable (1,213) (433) (303)
Other liabilities 1,452 (297) 165
------------ ----------- -----------
Net cash provided by operating activities 2,578 7,622 12,117
------------ ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (1,569) (8,525) (17,518)
Proceeds from sale of property and equipment 198 3,874 1,374
Restricted cash deposits - (1,319) (1,600)
------------ ----------- -----------
Net cash used in investing activities (1,371) (5,970) (17,744)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from notes payable - - 425
Payment on note payable - - (425)
Proceeds from borrowings 10,500 24,669 83,765
Repayments of borrowings (11,515) (23,956) (36,605)
Redemption of debentures (18) (1,181) (1,175)
Exercise of stock options - 196 1,308
Purchases of treasury stock - (1,670) (42,954)
Capital lease obligations - (188) (175)
Dividends paid - (614) (702)
------------ ----------- -----------
Net cash (used in) provided by
financing activities (1,033) (2,744) 3,462
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents 174 (1,092) (2,165)
Cash and cash equivalents, at beginning of period 1,428 2,520 4,685
------------ ----------- -----------
Cash and cash equivalents, at end of period $ 1,602 $ 1,428 $ 2,520
============ =========== ===========
See accompanying notes to consolidated financial statements
F-7
(1) Description of the Business and Summary of Significant Accounting
Policies
Cooker Restaurant Corporation and subsidiaries (the "Company")
owns and operates 66 restaurants in Tennessee, Ohio, Indiana,
Kentucky, Michigan, Florida, Georgia, North Carolina, Virginia
and Pennsylvania, which have been developed under the Cooker
concept.
(a) Going Concern and Management's Plans
Going Concern - The accompanying consolidated financial
statements have been prepared on a going concern basis,
which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of
business. As shown in the Company's consolidated financial
statements, during the year ended December 31, 2000, the
Company incurred a net loss of $29.1 million and as of
December 31, 2000, the Company's current liabilities
exceeded its current assets by $66.7 million and the Company
was not in compliance with certain covenants under its debt
agreements (see Note 6). Based on such non-compliance, the
lenders are entitled, at their discretion, to exercise
certain remedies, including acceleration of repayment. The
Company did not make certain principal and interest payments
required by its debt agreements during fiscal 2000. The
Company has not obtained a waiver from its lenders to cure
the non-compliance with the debt agreements. As a result,
the Company has classified its debt obligations as a current
liability in the consolidated balance sheet as of December
31, 2000.
The Company's consolidated financial statements do not
include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and
classifications of liabilities that might be necessary
should the Company be unable to continue as a going concern.
The Company's continuation as a going concern is dependent
upon its ability to generate sufficient cash flows to meet
obligations on a timely basis, to comply with the terms and
conditions of its debt agreements, to obtain additional
financing as may be required and profitably operate its
business. Due to factors described above, the Company may
be unable to continue as a going concern for a reasonable
period of time. Management is continuing its efforts to
obtain additional financing and is taking several actions in
its attempts to alleviate this situation, as described
below.
Management Plans - The Company's lenders have granted the
Company a six-month forbearance and stand-still agreement
effective through March 31, 2001. The forbearance allows
for the postponement of principal and interest payments
during the forbearance period. The stand-still agreement
states that the lenders will not exercise their remedies
available to them under the debt agreements provided that
the Company meets certain covenants, including the sale of
certain "non-operating" (as defined in the stand-still
agreement) assets and remitting certain amounts of such
proceeds to the lenders. The Company has sold some of the
"non-operating" assets and has remitted the majority of the
proceeds to the lenders. In addition, the Company has
designated 22 properties as held for sale as of December 31,
2000 and is actively marketing these properties. Most of
the proceeds from those sales will be remitted to the
lenders.
In January 2001 the Company sold three properties, one of
which was the West Palm Beach Corporate Office Building.
The majority of sale proceeds were used to pay the interest
portion of the Term Loan. The Company was current on the
interest portion of the Term Loan, through January 21, 2001.
The Company has also retained the services of an independent
third party to assist the Company in obtaining other long-
term financing intended to replace its current debt
agreement with the lenders. The Company is negotiating with
the lenders for possible extension of the standstill
agreement for a period of 9 months, to allow the Company
time to secure new financing.
(b) Principles of Consolidation
The consolidated financial statements include the financial
statements of Cooker Restaurant Corporation and its
majority-owned subsidiaries, CGR Management Corporation,
Southern Cooker Limited Partnership and Florida Cooker
Limited Partnership. All significant intercompany balances
and transactions have been eliminated in the consolidation.
F-8
(c) Fiscal Year
The Company's fiscal year ends on the Sunday closest to
December 31 of each year. Fiscal years ended December 31,
2000 ("fiscal 2000") and January 2, 2000 ("fiscal 1999")
consisted of 52 weeks, and fiscal year ended January 3, 1999
("fiscal 1998") consisted of 53 weeks.
(d) Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents. Cash and cash equivalents at December 31, 2000
and January 2, 2000 consist of the Company's cash accounts,
overnight repurchase agreements, credit card receivables and
short-term investments with a maturity of three months or
less. Credit card receivables are considered cash
equivalents because of the short collection period. The
carrying amount of cash equivalents approximates fair value.
(e) Assets Held for Sale
Assets held for sale are stated at the lower of cost or
estimated fair value less costs to sell and include various
properties held for sale at December 31, 2000. In
accordance with Statement of Financial Accounting Standard
("SFAS") No. 121, Accounting for the Impairment of Long-
lived Assets and Long-lived Assets to be Disposed of, the
Company does not recognize depreciation or amortization
expense during the period in which the assets are being held
for sale.
(f) Inventories
Inventories consist primarily of food and beverages and are
stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
(g) Property and Equipment
Property and equipment are recorded at cost. Equipment under
capital leases is stated at the lower of the present value
of the minimum lease payments or the fair value of the
leased property. Depreciation is calculated on the straight-
line method over the estimated useful lives of the assets,
which range from 3 to 39 years. Equipment held under capital
leases and leasehold improvements are amortized using the
straight-line method over the shorter of the estimated
useful life of the asset or the remaining lease term.
Maintenance and repairs are charged directly to expense as
incurred. When property and equipment are sold or otherwise
disposed of, the related cost and accumulated depreciation
are removed from the accounts and the resulting gains or
losses are reported in operations.
Interest is capitalized primarily in connection with the
construction of new restaurants. Capitalized interest is
amortized over the estimated useful life of the asset.
Interest costs of $0, $137,575 and $256,500 were capitalized
in fiscal 2000, 1999 and 1998, respectively.
(h) Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of
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. The Company's impairment
analysis is based on cash flows at an individual store
level. If the estimated net cash flows are less than the
carrying amount of such assets, the Company will recognize
an impairment loss in an amount necessary to write down the
assets to fair value as determined from expected future
discounted cash flows.
F-9
Impairment charges for assets held for use were determined
from expected future cash flows, and impairment charges for
assets held for sale were determined based on the fair value
of the asset less any estimated selling costs. Based upon
the decline in same-store sales experienced at certain
locations, as well as the decreases in customer counts and
cash flows at these locations, the Company determined that
certain of its long-lived assets were impaired.
Additionally, in the fourth quarter of fiscal 2000 a
decision was made by management to divest certain non-
operating or under-performing properties, in order to pay
down the Company's term loan. Accordingly, in fiscal year
ended December 31, 2000, the Company recorded a charge of
approximately $20,515,000 for the impairment of twenty-four
of its restaurant locations, of which $18,931,000
represented impairment on assets held for sale. In the
fiscal year ended January 2, 2000, the Company recorded a
charge of approximately $3,058,000 for the impairment of
seven of its restaurants. No impairment charge was recorded
for the year ended January 3, 1999.
(i) Deferred Financing Costs
Deferred financing costs are being amortized on a straight-
line basis, which approximates the effective interest rate
implicit in the borrowing transaction. Amortization expense
was $1,736,000, $175,000, and $151,000 for the years ended
December 31, 2000, January 2, 2000, and January 3, 1999,
respectively.
Due to the events discussed in Note 6, the Company's
maturity date on its debt agreements was accelerated in
fiscal 2000. As a result of the shortened term of the debt,
the Company accelerated its amortization of the remaining
deferred financing costs to correspond with the new maturity
date on the debt agreements.
(j) Prepaid Lease
Included in other assets is a prepaid lease of $572,000, net
of accumulated amortization of $117,000, and $587,000, net
of accumulated amortization of $102,000, at December 31,
2000 and January 2, 2000, respectively, which represents
prepayment of a long-term land lease, amortized over the
lease term.
(k) Self Insurance
The Company retains the risk, up to certain limits, for
workers' compensation and employee group health claims. A
liability for unpaid claims and the associated claims
expenses, including incurred but not reported losses, is
actuarially determined and reflected in the consolidated
financial statements as an accrued liability. The self-
insured claims liability includes incurred but not reported
losses of $587,000 and $284,000 at December 31, 2000 and
January 2, 2000, respectively. The determination of such
claims and expenses and the appropriateness of the related
liability is continually reviewed and updated.
(l) Income Taxes
The Company accounts for income taxes under the provisions
of SFAS No. 109, Accounting for Income Taxes, which
generally requires recognition of deferred tax assets and
liabilities for the expected future tax benefits or
consequences of events that have been included in the
consolidated financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined
based on differences between the financial reporting
carrying values and the tax bases of assets and liabilities,
and are measured by applying enacted tax rates and laws for
the taxable years in which those differences are expected to
reverse. In addition, SFAS No. 109 requires adjustment of
previously deferred income taxes for changes in tax rates
under the liability method.
(m) Earnings Per Share
Basic earnings per share have been computed by dividing net
income by the weighted average number of shares outstanding
during the year. Diluted earnings per share have been
computed assuming the exercise of stock options, as well as
their related income tax effects, unless their effect is
antidilutive.
F-10
Basic and diluted share data are as follows (in thousands):
December 31, January 2, January 3,
2000 2000 1999
-------------------------------------------
Weighted-average shares
outstanding - basic 5,986 6,011 9,145
Effect of dilutive securities:
Options - - 191
-------------------------------------------
Diluted shares 5,986 6,011 9,336
===========================================
Convertible subordinated debentures outstanding as of
December 31, 2000, are convertible into 582,725 shares of
common stock at $21.5625 per share and are due October 2002.
In accordance with SFAS No. 128, these debentures are
included in diluted earnings per share under the "if-
converted" method unless the effect is antidilutive. The
converted shares were not included in the computation of
diluted EPS for each of the years in the three year period
ended December 31, 2000 as the inclusion of the convertible
subordinated debentures would be antidilutive.
Options to purchase 868,000 shares of common stock at prices
ranging from $.84 to $21.75 per share, were outstanding for
the year ended December 31, 2000, 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 year ended December 31, 2000. The
options expire between October 2001 and May 2010.
Options to purchase 1,237,000 shares of common stock at
prices ranging from $4.03 to $21.75 per share, were
outstanding for the year ended January 2, 2000, 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 year ended January
2, 2000. The options expire between October 2001 and May
2009.
Options to purchase 207,665 shares of common stock at prices
ranging from $10.375 to $21.75 per share, were outstanding
for the year ended January 3, 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 year ended January 3, 1999. The
options expire between October 2001 and May 2008.
(n) Use of Estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(o) Financial Instruments
The carrying amount of cash and cash equivalents, accounts
payable and other current liabilities approximates fair
value because of the short maturity of these instruments.
The carrying amount of the Company's Term Loan and Revolver
of $60,709,000, in total, approximates fair value as the
base interest charged on these loans is at the London Inter-
Bank Offering Rate ("LIBOR") and is reset to reflect changes
in LIBOR. The fair value of the convertible subordinated
debentures and the Company's loan with the CIT
Group/Equipment Financing, Inc. is estimated by discounting
future cash flows at rates offered to the Company for
similar types of borrowing arrangements. The carrying amount
and fair value of the debentures is $12,547,000 and
$9,087,000, respectively, at December 31, 2000, and
$12,565,000 and $9,155,000, respectively, at January 2,
2000. The carrying amount and fair value of the CIT loan is
$13,083,000 and $12,375,000, respectively, at December 31,
2000, and $15,357,000 and $14,653,000, respectively, at
January 2, 2000.
F-11
(p) Stock Option Plan
The Company accounts for its stock option plans in
accordance with the provisions of Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such,
compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock
exceeded the exercise price. The Company follows the
disclosure provisions of SFAS No. 123, Accounting for Stock-
Based Compensation, which allows entities to continue to
apply the provisions of APB Opinion No. 25, and provide pro
forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995
and future years, as if the fair-value-based method defined
in SFAS No. 123 had been applied. See Note 10.
(q) Recent 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", and SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an
amendment of FASB Statement No. 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 the Company in the first quarter of fiscal
2001. The Company has determined the adoption of SFAS No.
133, as amended, will have no material effect on the
Company's results of operations or statement of financial
position.
(r) Reclassifications
Certain amounts in the fiscal 1999 and 1998 financial
statements have been reclassified to conform to the fiscal
2000 presentation.
(2) Property and Equipment, Net
Property and equipment, net, consist of the following:
December 31, January 2,
2000 2000
------------ -----------
Land $ 23,502 $ 40,330
Buildings and leasehold improvements 67,231 96,792
Furniture, fixtures and equipment 29,680 33,648
Construction in progress 377 1,601
Capital lease 713 713
------------ -----------
121,503 173,084
Less accumulated depreciation and
amortization (39,376) (34,440)
------------ -----------
Property and equipment, net $ 82,127 $ 138,644
============ ===========
F-12
Depreciation and amortization expense of property and equipment
approximated $6,636,000, $6,965,000, and $6,533,000 for the years
ended December 31, 2000, January 2, 2000, and January 3, 1999,
respectively. Depreciation on closed stores, which have been
leased to third parties, as well as the Company's corporate
headquarters, is included in General and Administrative expenses
on the consolidated statement of operations.
(3) Other Assets
Other assets consist of the following:
December 31, January 2,
2000 2000
------------ -----------
Deferred financing costs, net of
accumulated amortization of
$ 2,811,000 and $1,159,000 $ 577 $ 1,779
Prepaid lease, net of accumulated
amortization of $117,000 and $102,000 572 587
Liquor licenses 392 302
Deposits 122 122
Other - 47
------------ -----------
$ 1,663 $ 2,837
============ ===========
(4) Accrued Liabilities
Accrued liabilities consist of the following:
December 31, January 2,
2000 2000
------------ -----------
Salaries, wages and benefits $ 2,846 $ 2,507
Gift certificates payable 1,101 941
Sales tax payable 1,156 1,129
Property taxes 973 781
Insurance 1,357 956
Interest 6,539 717
Severance 311 945
Other 480 609
------------ -----------
$ 14,763 $ 8,585
============ ===========
Severance liability of $311,000 represents the remaining balance
of the severance charge recorded by the Company in the fourth
quarter of fiscal 2000. These charges represent an accrual for
the severance agreement reached between the Company and its
former Senior Vice President-Operations in the fourth quarter of
fiscal 2000. The amounts granted to the former executive officer
in conjunction with this agreement represent amounts to be paid
for past services rendered to the Company, and therefore the
Company accrued for the full amount of the severance package
during the fourth quarter.
F-13
(5) Reserve for Loss on Loan Guaranty
During the third quarter of fiscal 1999, the Company recorded a
reserve for loan guaranty loss of $2,454,000. In 1994, the Board
of Directors approved a guaranty by the Company of a loan of
$5,000,000 to G. Arthur Seelbinder (the "Loan"), the former
Chairman of the Board of the Company. The Loan was secured by the
Company's guaranty and 323,000 shares of the Company's common
stock owned by Mr. Seelbinder. During the fourth quarter of
fiscal 1998, the lender required the Company to make a cash
deposit in such amount to satisfy the difference between the
value of the shares pledged as collateral for the loan and the
face amount of the loan. The adequacy of this deposit was
assessed by the lender periodically based upon changes in the
price of the Company's common stock. During the third quarter of
fiscal 1999, Mr. Henry Hillenmeyer replaced Mr. Seelbinder as
Chairman and CEO of the Company. Based primarily upon the
significant change in Mr. Seelbinder's employment status and the
value of Mr. Seelbinder's common stock collateral at the end of
the third quarter of fiscal 1999, the Company believed it was
probable that a loss on the loan guaranty had been incurred as of
the end of the Company's fiscal third quarter. The Company's
best estimate of that loss was the cash deposit made by the
Company as of October 3, 1999.
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 $3,753,000. On March 8, 2000, the Bank
sold Mr. Seelbinder's stock for $666,000 in a private transaction
and applied this amount to the loan. The remaining balance of the
loan of $3,087,000 was funded by the Company as a result of the
guaranty. Accordingly, in the first quarter of fiscal 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 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 is to be
paid to the Company and applied to the amounts the Company paid
pursuant to the guaranty.
During the third quarter of fiscal 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 fiscal 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, the balance of the severance
liability to Mr. Seelbinder was approximately $910,000. In
accordance with the agreement with Mr. Seelbinder, this amount,
less certain amounts representing federal withholding
liabilities, were applied to the amounts owed to the Company as a
result of its guaranty. Accordingly, the Company recorded a
serverance recovery of approximately $907,000 in the accompanying
consolidated statements of operations. As a result,
approximately $910,000 in accrued severance liabilities were
forfeited by Mr. Seelbinder and applied to the guaranty amount.
On November 16, 2000, the Company entered into an agreement with
Mr. Seelbinder, which stipulates and defines certain repayment
terms for $2,737,000 due to the Company in conjunction with the loan
guaranty. The agreement simultaneously terminates the existing
severance agreement between the Company and Mr. Seelbinder and
the vested and unvested Seelbinder Options. In addition to the
termination of the severance agreement, Mr. Seelbinder agreed to
resign from the Company's Board of Directors.
F-14
(6) Long-Term Debt
Long-term debt consists of the following:
December 31, January 2,
2000 2000
------------ -----------
Nations Bank term loan $ 27,620 $ 28,667
First Union term loan 19,664 20,866
CIT Group/Equipment Financing, Inc. term loan 13,083 15,357
Nations Bank revolving line of credit 13,425 10,500
Convertible subordinated debentures 12,547 12,565
------------ -----------
86,339 87,955
Less current maturities of long-term debt 86,339 6,858
------------ -----------
Long-term debt, excluding current maturities $ - $ 81,097
============ ===========
In conjunction with the repurchase of approximately 4,000,000
shares of the Company's common stock, pursuant to the Tender
Offer (the "Offer") completed in October 1998, the Company
entered into debt finance agreements with Nations Bank of
Tennessee, N.A. ("Nations Bank"), First Union National Bank
("First Union"), and The CIT Group/Equipment Financing, Inc.
("CIT"). The agreement with Nations Bank and First Union
provides for a credit facility of $62,500,000, of which
$52,500,000 is a term loan (the "Term Loan") with Nations Bank
and First Union and $10,000,000 is a revolving loan (the
"Revolver") with Nations Bank only. In December 1999, the amount
available under the Revolver was extended to $13,500,000. As of
December 31, 2000, the agreement was secured by 43 properties
owned by the Company. The outstanding balance of the Revolver
was $13,425,000 and $10,500,000 at December 31, 2000 and January
2, 2000, respectively.
Under the terms of the agreement, the Term Loan was scheduled to
mature on March 24, 2004. Interest on the Term Loan and Revolver
is LIBOR plus an applicable margin, which, per the terms of the
agreement, may vary between 1.0% and 4.0%, depending on the
Company's ratio of funded debt to Earnings before Interest,
Taxes, Depreciation, and Amortization (EBITDA). Commencing May 1,
1999, the Company began making principal and interest payments on
the Term Loan. Under the terms of the agreement, the Company was
required to make equal monthly payments of approximately $345,000
on the First Union debt amount, representing principal and
interest, and principal payments of approximately $167,000, plus
interest, on the Nations Bank debt through March 24, 2004, at
which time all remaining amounts, principal and interest, on the
Term Loan and the Revolver would have been due in full.
In addition to the loans from First Union and Nations Bank, the
Company entered into a loan agreement with CIT in the amount of
$18,000,000. This loan is secured by certain equipment owned by
the Company. Interest on the loan with CIT was fixed at LIBOR
plus 1.85%, or 6.54% at the time of the loan. Monthly payments of
approximately $268,000, including principal and interest, began
in October 1998, and were scheduled to continue through September
2003, at which time the remaining principal balance, plus accrued
interest, would have been due in full.
The net proceeds from the above loans were used to purchase the
shares tendered as a result of the Offer, as well as for normal
capital requirements of the Company.
The convertible subordinated debentures (the "Debentures") mature
October 1, 2002, with interest payable quarterly at 6.75 percent.
The Debentures are convertible at any time before maturity,
unless previously redeemed, into common shares of the Company at
a conversion price of $21.5625 per share, subject to adjustment
for stock splits. The Debentures are subordinated to all existing
and future senior indebtedness of the Company as defined in the
indenture agreement. The debentures are recorded on the Company's
balance sheet at par value.
F-15
At the Debenture holder's option, the Company is obligated to
redeem Debentures tendered during the period from August 1
through October 1 of each year, commencing August 1, 1994, at 100
percent of their principal amount (par) plus accrued interest,
subject to an annual aggregate maximum (excluding the redemption
option on the death of the holder) of $1,150,000. During fiscal
years 1999 and 1998, the Company redeemed the annual aggregate
maximum amount required by the holder's option. The Company is
also required to redeem debentures at 100 percent of their
principal plus accrued interest in the event of death of a
debenture holder up to a maximum of $25,000 per year per deceased
debenture holder. During fiscal years 2000 and 1999, the Company
redeemed debentures subject to this provision of $18,000 and
$25,000, respectively.
The Debentures are redeemable at any time on or after October 1,
1994 at the option of the Company, in whole or in part, at
declining premiums. In addition, upon the occurrence of certain
changes of control of the Company, the Company is obligated to
purchase Debentures at the holder's option at par plus accrued
interest.
For the year ended December 31, 2000, the Company was not in
compliance with certain covenants pertaining to its debt with
Bank of America, N.A. (as successor to NationsBank) and First
Union National Bank (collectively, the "Term Lenders"). Based on
such non-compliance, the Term 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 principal payments due to the Term Lenders since the partial
payment made on July 3, 2000. As a result of the non-compliance
the Company accrued for additional interest, which included
approximately $555,000 in penalty interest, $206,000 in regular
late fees, and $2,360,000 of accelerated late fees, which are
included in accrued liabilities in the accompanying balance sheet
at December 31, 2000. The Company was current on the interest
portion of the Term Loan, through January 21, 2001. The Company
has not received a waiver from the Term Lenders to cure the non-
compliance. Accordingly, the Company has reclassified the
obligation to the Term Lenders as current for the year ended
December 31, 2000.
The Company received 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 allows for the postponement of principal and interest
payments during the forbearance period. In January 2001 the
Company sold three properties, one of which was the West Palm
Beach Corporate Office Building. The majority of the sale
proceeds were used to pay the interest portion of the Term Loan.
The Company has also retained the services of an independent
third party to assist the Company in obtaining other long-term
financing intended to replace its current debt agreement with the
lenders. The Company is negotiating with the lenders a possible
extension of the standstill agreement for a period of 9 months,
to allow the Company time to secure new financing.
For the year ended December 31, 2000, the Company also 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 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
is currently in negotiations with CIT to amend covenant
requirements for future periods, however there can be no
assurance that such negotiations will be successful.
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, constitutes a default under the terms of
the 6 3/4 % Convertible Subordinated Debentures and certain other
of the Company's credit arrangements. As of December 31, 2000,
the Company has reclassified the obligation to the holders of the
6 3/4% Convertible Subordinated Debentures as a current
liability.
During the fourth quarter of fiscal 2000, Bank One became the
successor trustee under the 6 3/4 % Convertible Subordinated
Debentures, replacing First Union National Bank of North
Carolina.
F-16
(7) Derivative Financial Instruments
The Company has only limited involvement with derivative
financial instruments and does not use them for trading purposes.
Interest rate swap agreements have been utilized to reduce the
potential impact of increases in interest rates on floating-rate
long-term debt. At December 31, 2000 and January 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 (a major bank).
The fair value of the interest swap agreement approximated
$187,000 and $118,000 at December 31, 2000 and January 2, 2000,
respectively. On January 4, 2001 the interest swap agreement was
cancelled, and payment of $187,000 was made to the counterparty.
This amount will be recorded as interest expense in the quarter
ended March 31, 2001.
(8) Shareholders' Equity
The Company has authorized 300,000 shares of Class A Junior
participating preferred shares, without par value and 4,700,000
Class B preferred shares, without par value, none of which have
been issued. Holders of Class A Junior participating preferred
shares will be entitled to quarterly dividends equal to the
greater of $.05 or 100 times the aggregate per share amount of
all cash and noncash dividends and holders of Class B will be
entitled to dividends before distribution to holders of common
shares. Each Class A Junior participating preferred share will
entitle the holder to 100 votes on all matters submitted to vote
by the shareholders. Holders of Class B preferred shares will be
entitled to one vote for each share on matters requiring
approval. The liquidating value for Class A Junior participating
preferred shares is $.10 per share, plus all accrued and unpaid
dividends.
In January 2000, the board of directors approved a shareholder
rights plan, as amended, which provides that, in the event that a
third party purchases 15 percent or more of total outstanding
stock of the Company, a dividend distribution of one right for
each outstanding common share will be made. These rights expire
ten years from date of issuance, if not earlier redeemed by the
Company, and entitle the holder to purchase, under certain
conditions, preferred shares or common shares of the Company.
This plan replaced the rights plan, which was adopted by the
board of directors in January 1990 and expired in January 2000.
On October 5, 1998, the Company purchased 4,006,298 shares of its
common stock, without par value, at a price of $10.50 per share
pursuant to the terms of the Issuer Tender Offer Statement on
Schedule 13-E4 (the "Offer"). The shares of stock purchased in
the Offer represented approximately 39% of the 10,159,354 shares
of common stock issued and outstanding immediately prior to the
Offer on August 11, 1998. The shares purchased are included in
Treasury Stock at December 31, 2000 and January 2, 2000.
(9) Income Taxes
The components of the (benefit) provision for income taxes are as
follows:
December 31, January 2, January 3,
2000 2000 1999
------------ ----------- -----------
(in thousands)
Current Taxes:
Federal $ (1,125) $ 473 $ 644
State and local 203 125 364
------------ ----------- -----------
(922) 598 1,008
Deferred Taxes (1,048) (2,358) 1,593
------------ ----------- -----------
(Benefit) provision for income taxes $ (1,970) $ (1,760) $ 2,601
============ =========== ===========
F-17
A reconciliation of the differences between income taxes
calculated at the federal statutory rate and the (benefit)
provision for income taxes is as follows:
December 31, January 2, January 3,
2000 2000 1999
------------ ----------- -----------
(in thousands)
Income tax at statutory rates (35.0%) (34.0%) 34.0%
State and local income taxes, net
of federal tax benefit (1.2%) (2.6%) 3.6%
Reserve for tax examination - - (3.9%)
Other nondeductible items (2.0%) 1.6% (3.6%)
Valuation allowance 31.9% - -
-------- -------- --------
(6.3%) (35.0%) 30.1%
======== ======== ========
The tax effects of temporary differences that give rise to
significant portions of deferred tax assets and deferred tax
liabilities are as follows:
December 31, January 2,
2000 2000
------------ -----------
(in thousands)
Tax basis in fixed assets less than
(in excess of) book $ 2,340 $ (4,965)
Accrued benefits 419 433
Other accrued expenses 41 104
Business credit carry forward 2,681 1,597
Reserve for loan loss - 1,037
Accrued workers' compensation 386 257
Accrued severance 121 489
Write-off of loan fees 1,415 -
Alternative minimum tax credit 162 -
Federal net operating loss 1,920 -
State net operating loss 562 -
Other (137) -
------------ -----------
9,910 (1,048)
Valuation allowance 9,910 -
------------ -----------
Net deferred tax asset (liability) $ - $ (1,048)
============ ===========
SFAS No. 109 requires that deferred tax assets be reduced by a
valuation allowance to the extent that it is "more likely than
not" that the asset will be realized. During the fourth quarter
of fiscal 2000, the Company established a valuation allowance to
eliminate the deferred tax asset since it was more likely than
not that the tax asset would not be realized.
(10) Stock Option Plans
The Company has stock option plans adopted in 1988 ("1988 Plan")
and 1992 ("1992 Plan"), as amended. Under these plans, employees
and nonmanagement directors are granted stock options as
determined by a committee appointed by the board of directors at
an exercise price no less than fair market value at the date of
grant. Each option permits the holder to purchase one share of
common stock of the Company at the stated exercise price up to
ten years from the date of grant. Options vest at a rate of 25
percent per year or, if there is substantial change in control of
the Company, the options become fully vested and exercisable. The
Company has reserved 682,000 and 718,000 common shares for
issuance to employees and 73,332 and 200,000 for issuance to
nonmanagement directors under the 1988 Plan and 1992 Plan,
respectively. No further options can be granted under the 1988
Plan for employees and nonmanagement directors and under the 1992
Plan for employees. The granting of options under the 1992 Plan
for nonmanagement directors expires April 13, 2002.
F-18
In April 1996, the board of directors and shareholders approved
the 1996 officer option plan (the "1996 Plan"), which provides
for the grant of nonqualified options to officers and employee-
directors of the Company. The number of shares is limited to
fifteen percent of the issued and outstanding shares of common
stock, less shares subject to options issued to officers and
employee-directors. The recipients of the options granted under
the 1996 Plan, the number of shares to be covered by each option,
and the exercise price, vesting terms, if any, duration and other
terms of each option shall be determined by the committee of the
Company's board of directors. Each option permits the holder to
purchase one share of common stock of the Company at the stated
exercise price up to ten years from the date of grant. The
exercise price shall be determined by the committee at the time
of grant, but in no event shall the exercise price be less than
the fair market value of a share on the date of grant. These
options become vested over various periods not to exceed four
years from the date of grant or, if there is substantial change
in control of the Company, the options become fully vested and
exercised. The maximum number of shares granted during any fiscal
year by the Company shall be 500,000 to any one officer. The Plan
expires April 22, 2006.
On December 14, 1998, the Company's Board of Directors offered to
exchange 880,000 outstanding stock options issued to officers and
employees in fiscal years 1996, 1997, and 1998 for 567,837 stock
options at a new option price of $5.50 per share, the closing
market price on the date of the exchange offer. All options
subject to the exchange offer were exchanged for the new options
at the new price.
On January 24, 2000, the board of directors terminated the 1992
Plan and accordingly, no additional grants may be made under the
1992 Plan. All options granted under the 1992 Plan prior to its
termination will remain outstanding and vest in accordance with
their terms and the terms of the 1992 Plan. Additionally, on
January 24, 2000, the board of directors approved the 2000 Non-
Employee Director Stock Option Plan (the "2000 Plan"). The 2000
Plan provides for the issuance of nonqualified stock options to
non-employee members of the board of directors.
Changes in the number of shares under the stock option plans are
summarized as follows:
Weighted-
average
Options Price exercise price
--------- ------------------- --------------
Balance at December 28, 1997 1,516,000 $ 4.030 -- 21.750 $ 9.48
Granted 326,000 8.500 -- 12.130 9.39
Surrendered (880,000) 8.800 -- 12.130 10.65
Converted 568,000 5.500 -- 5.500 5.50
Canceled (79,000) 6.000 -- 17.750 9.96
Exercised (162,000) 4.030 -- 8.750 6.89
--------- ------------------- -----------
Balance at January 3, 1999 1,289,000 $ 4.030 -- 21.750 $ 7.16
Granted 126,000 5.880 -- 5.880 5.88
Canceled (136,000) 4.410 -- 11.620 4.65
Exercised (42,000) 4.410 -- 6.750 7.78
--------- ------------------- -----------
Balance at January 2, 2000 1,237,000 $ 4.030 -- 21.750 $ 7.05
Granted 259,000 0.843 -- 2.625 1.91
Canceled (628,000) 1.063 -- 7.625 5.67
--------- ------------------- -----------
Balance at December 31, 2000 868,000 $ 0.843 -- 21.750 $ 6.16
========= =================== ===========
F-19
In addition to the above stock options, the Company issued
299,300 stock options to Henry R. Hillenmeyer, the Chairman and
Chief Executive Officer of the Company, on August 19, 1999 and
150,000 stock options to Daniel A. Clay, the Executive Vice
President-Chief Operating Officer of the Company, on December 1,
2000. These options are non-qualified stock options and were not
issued pursuant to the above stock option plans. These options
were issued in conjunction with Mr. Hillenmeyer's Employment
Agreement dated August 19, 1999 and Mr. Clay's Employment
Agreement dated December 1, 2000. The exercise price of Mr.
Hillenmeyer's options is $4.44, the stock price on the date of
grant. The options vest at the rate of 8,313 shares per month for
35 months and 8,345 shares in the 36th month. The options expire
on August 19, 2009. The exercise price of Mr. Clay's options is
$1.13, the stock price on the date of grant. The options vest at
the rate of 4,167 shares per month for 36 months. The options
expire on December 1, 2010. The granting of these options did
not affect the number of shares available for grant on under the
Company's stock option plans described above.
The Company applies APB Opinion No. 25 in accounting for its
Plans and, accordingly, no compensation cost have been recognized
for its stock options in the consolidated financial statements.
Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No. 123,
the Company's net income would have been reduced to the pro forma
amounts indicated below:
December 31, January 2, January 3,
2000 2000 1999
------------ ----------- -----------
(in thousands, except per share data)
Net income (loss): As reported $ (29,131) $ (3,274) $ 6,027
Pro forma $ (29,657) $ (4,045) $ 5,179
Diluted earnings (loss)
per share: As reported $ (4.87) $ (0.54) $ 0.65
Pro forma $ (4.95) $ (0.67) $ 0.55
The per share weighted-average fair value of stock options
granted during fiscal 2000, 1999, and 1998 was $1.63, $2.94, and
$4.80, respectively, on the date of grant using the Black Scholes
option-pricing model with the following weighted-average
assumptions: dividend yield 0.0 percent, 0.0 percent, and 1.05
percent; risk-free interest rates of 6.00 percent, 6.58 percent,
and 4.54 percent; expected lives of 5 years, 5 years and 7 years,
and expected volatility of 50 percent, 47 percent, and 35
percent, respectively. At December 31, 2000, the range of
exercise prices and weighted-average remaining contractual life
of outstanding options was $.843-$21.75 and 7.1 years,
respectively. At December 31, 2000, January 2, 2000, and January
3, 1999, the number of options exercisable was 516,107, 827,844,
and 768,235, respectively, and the weighted-average exercise
price of those options was $8.14, $7.57, and $7.73, respectively.
(11) Commitments and Contingencies
(a) Leases
The Company leases buildings for certain of its restaurants
under long-term operating leases which expire over the next
twenty-five years. In addition to the minimum rental for
these leases, the Company also pays, in certain instances,
additional rent based on a percentage of sales, and its pro
rata share of the lessor's direct operating expenditures.
Several of the leases provide for option renewal periods and
scheduled rent increases. Rental expense totaled $3,468,000,
$3,054,000, and $2,660,000, including percentage rent of
$176,000, $197,000, and $237,000, for the fiscal years ended
December 31, 2000, January 2, 2000, and January 3, 1999,
respectively.
During August 1997, the Company entered into an agreement
for the sale and leaseback of the point of sale terminal
system and software under a sale/leaseback arrangement. The
system was sold for $713,000. The transaction was accounted
for as a financing wherein the property with a net book
value of $713,000 remained on the books and continues to be
depreciated. A finance obligation representing the proceeds
was recorded and is reduced based on payments under the
lease. The lease had an initial term of four years and
requires a final rental payment of $125,000 in 2001.
F-20
Future minimum rental commitments for noncancelable
operating leases (with initial or remaining lease terms in
excess of one year) and future minimum capital lease
payments as of December 31, 2000 are as follows:
Capital Operating
Fiscal Year Ending Leases Leases
------------ ------------
2001 $ 167,000 $ 3,042,656
2002 - 2,986,760
2003 - 3,025,531
2004 - 3,049,461
2005 - 2,838,932
Thereafter - 29,685,287
------------ ------------
Total minimum lease payments $ 167,000 $ 44,628,627
============
Less amount representing interest 69,000
------------
Present value of net minimum lease
payments 98,000
Less current installments 98,000
------------
Capital lease obligation, excluding
current installments $ -
============
(b) Legal Matters
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. 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. The Company has denied any and all liability
for these claims. The parties have agreed to enter into an
agreement in principle to settle this case for $75,000.
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 the Company has discriminated on the
basis of race in the hiring and promotion of employees.
Plaintiffs sought injunctive relief, attorneys fees, back
pay and lost benefits, and reinstatement. At this time, the
parties have entered into an agreement providing for a
monetary payment by the Company's insurance carrier in
settlement of all claims. The court has approved the
settlement and has dismissed the case with prejudice.
The case of Rebecca Conway. v. Cooker Restaurant Corporation
was filed in the Courts of Common Pleas, Cuyahoga County,
Ohio in October 2000. This suit is a result of an after
hours, non-Cooker sanctioned, function which resulted in the
termination of four Cooker managers and five Cooker crew
members. One of the terminated crewmembers, the plaintiff,
is alleging inappropriate and unwelcome behavior of others
toward the plaintiff that night in question. The suit names
Cooker Restaurant, two Cooker managers and 2 crewmembers as
defendants with six counts against each; sexual harassment,
retaliatory suspension and discharge, assault, battery,
invasion of privacy, and intentional infliction of emotional
distress. For each defendant and each count the plaintiff
is seeking $25,000 and undetermined amounts "such further
relief as the court deems necessary and proper"and attorney
fees via a jury trial. Cooker intends to vigorously defend
the lawsuit, but there can be no assurance that the Company
will ultimately prevail, because the case is in its early
stages the Company has not yet determined the impact, if
any, upon the financial statements.
The Company is a party to various other claims and legal
actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the
Company's financial position, results of operations or
liquidity.
F-21
(c) Employment Agreements
The Company and one of its officers have entered into
employment agreements which become effective upon a change
in control of the Company not approved by the board of
directors, as defined in the agreement and subject to
certain criteria. The agreement entitles the officers to a
base salary, bonus and benefits at not less than the rate
the officer was receiving prior to the change in control,
limits discharge except for cause, and provides for
severance payment equal to the maximum amount under IRS
regulations.
(d) Retirement Savings Plan
Effective January 1, 1997, the Company established a 401(k)
retirement savings plan for the benefit of substantially all
employees who have attained the age 21 and worked 1,000
hours. Employees may contribute between 1 to 15 percent of
eligible compensation. The Company's discretionary match is
based on the Company's performance. The Company's
contribution will vest 20 percent per year beginning after
the third year. The Company contributed $32,000 to the plan
in fiscal 1998. The Company made no contributions to the
plan in fiscal 2000 or 1999.
(12) Supplemental Cash Flow Information
Cash paid for interest for fiscal 2000, 1999, and 1998 was
$4,031,000, $6,935,000, and $3,585,000, respectively. Cash paid
for taxes for fiscal 2000, 1999, and 1998 was $473,000, $995,000,
and $1,311,000, respectively. In fiscal 2000, the Company
surrendered approximately $2,919,000 of restricted cash to settle
an obligation in connection with the severance agreement
disclosed in Note 5.
(13) Subsequent Events
In January 2001 the Company sold three properties, one of which
was the West Palm Beach Corporate Office Building, for
$5,650,000. The Company then entered into a three-year term
leaseback agreement for the West Palm Beach Corporate Office.
The majority of the sale proceeds were used to pay the interest
portion of the Term Loan. The Company was current on the
interest portion of the Term Loan, through January 21, 2001. The
Company is negotiating with the lenders a possible extension of
the standstill agreement for a period of 9 months, to allow the
Company time to secure new financing.
(14) Quarterly Financial Date (Unaudited)
Quarterly financial data (unaudited) for fiscal year 2000 and
1999 are summarized as follows:
First Second Third Fourth
quarter quarter quarter quarter
--------- --------- --------- ---------
(in thousands, except per share data)
2000
Sales $ 38,541 $ 36,573 $ 35,845 $ 36,094
Loss before income taxes (219) (1,052) (12,129) (17,701)
Net loss (142) (684) (7,884) (20,421)
Loss per share:
Basic (0.02) (0.11) (1.32) (3.42)
Diluted (0.02) (0.11) (1.32) (3.42)
1999
Sales $ 42,191 $ 38,738 $ 36,713 $ 35,648
Income (loss) before income taxes 1,559 1,757 (8,352) 2
Net income (loss) 1,090 1,229 (5,594) 1
Earnings (loss) per share:
Basic 0.18 0.21 (0.93) -
Diluted 0.18 0.20 (0.93) -
F-22
============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
COOKER RESTAURANT CORPORATION
----------------------
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED:
DECEMBER 31, 2000
----------------------
EXHIBITS
----------------------
============================================================================
EXHIBIT INDEX
-------------
Number of Pages Incorporated
Exhibit in Original by
Number Description Document+ Reference
3.1. Amended and Restated Articles of
Incorporation of the Registrant. 13 *
3.2. Amended and Restated Code of
Regulations of the Registrant. 12 *
4.1. See Articles FOURTH, FIFTH and
SIXTH of the Amended and Restated
Articles of Incorporation of the
Registrant (see 3.1 above). 13 *
4.2. See Articles One, Four, Seven and
Eight of the Amended and Restated
Code of Regulations of the Registrant
(see 3.2 above). 12 *
4.3. Rights Agreement dated as of January
16, 2000 between the Registrant and
First Union National Bank of North
Carolina. 57 *
4.4. Letter dated October 29, 1992 from
the Registrant to First Union National
Bank of North Carolina. 1 *
4.5. See Section 7.4 of the Amended and
Restated Loan Agreement dated December
22, 1995 between Registrant and First
Union National Bank of Tennessee (see
10.4 below). 31 *
4.6. Indenture dated as of October 28, 1992
between Registrant and First Union
National Bank of North Carolina, as
Trustee. 61 *
10.1.-10.3. Reserved.
10.4. Amended and Restated Loan Agreement
dated December 22, 1995 between
Registrant and First Union National
Bank of Tennessee. 31 *
10.5. Underwriting Agreement dated May 7,
1996 with Montgomery Securities and
Equitable Securities Corporation. 28 *
10.6. Form of Contingent Employment Agreement
and schedule of executed Agreements. 10 *
10.7. The Registrant's 1988 Employee Stock
Option Plan and 1992 Employee Stock
Option Plan, Amended and Restated April
22, 1996. 11 *
10.8. The Registrant's 1988 Directors Stock
Option Plan, as amended and restated. 6 *
10.9. The Registrant's 1992 Directors Stock
Option Plan, as amended and restated. 6 *
10.10. The Registrant's 1996 Officers' Stock
Option Plan. 10 *
10.11. Reaffirmation and Amendment to Guaranty
and Suretyship Agreement between
Registrant and NationsBank of Tennessee,
N.A. dated July 24, 1995. 2 *
10.12. Amended and Restated Guaranty between
Registrant and Chase Manhattan Bank dated
January 31, 1997. 7 *
Number of Pages Incorporated
Exhibit in Original by
Number Description Document+ Reference
10.13. Letter dated February 3, 1997 from G.
Arthur Seelbinder to the Registrant. 1 *
10.14. Letter dated January 30, 1998 from G.
Arthur Seelbinder to the Registrant. 1 *
10.15 Second Amendment to Amended and Restated
Loan Agreement dated as of January 1,1998
between the Registrant and First Union
National Bank, a national banking
association, as successor in interest to
First Union National Bank of Tennessee. 7 *
10.16 Third Amendment to Revolving/Term Loan
Note dated as of January 1, 1998 between
the Registrant and First Union National
Bank, a national banking association, as
successor in interest to First Union
National Bank of Tennessee. 4 **
10.17 Fourth Amendment to Revolving/Term Loan
Note dated as of January 1, 1998 between
the Registrant and First Union National
Bank, a national banking association, as
successor in interest to First Union
National Bank of Tennessee. 1 *
10.18 Reaffirmation of Amended and Restated
Guaranty made by the Registrant on April
20, 1998 to the Chase Manhattan Bank. 3 *
10.19 Letter agreement dated March 26, 1998
between The Chase Manhattan Bank and G.
Arthur Seelbinder. 2 *
10.20 Amendment to Grid Time Promissory Note
dated March 26, 1998 between The Chase
Manhattan Bank and G. Arthur Seelbinder. 1 *
10.21 Loan Agreement dated September 24, 1998,
between the Registrant and First Union
National Bank and NationsBank of
Tennessee, N.A., both national banking
associations. 69 *
10.22 Loan Agreement dated September 24, 1998,
between the Registrant and The CIT Group/
Equipment Financing, Inc. 8 *
10.23 Letter dated September 17, 1998 from G.
Arthur Seelbinder to the Registrant 1 *
10.24 Letter agreement dated September 30, 1999
between the Company and G. Arthur
Seelbinder 5 *
10.25 Agreement dated August 19, 1999 between
the Company and Henry R. Hillenmeyer 1 *
10.26 Option Agreement dated August 19, 1999
between the Company and Henry R.
Hillenmeyer 6 *
10.27 The Registrant's 2000 Non-Employee
Director Stock Option Plan 10 **
10.28 Agreement of Resignation, Appointment,
and Acceptance dated October 31, 2000
between the Registrant and First Union
National Bank and Bank One, N.A. 11 **
10.29 Letter agreement and release dated November
16, 2000 between the Registrant and G.
Arthur Seelbinder & Kathleen W. Hammer 12 **
Number of Pages Incorporated
Exhibit in Original by
Number Description Document+ Reference
10.30 Severance and Consulting Agreement and
Release dated November 30, 2000 between
the Registrant and Glenn W. Cockburn 9 **
10.31 Option Agreement dated December 1, 2000
between the Registrant and Daniel A. Clay 3 **
10.32 Change of Control and Severance
Agreement dated December 1, 2000 between
the Registrant and Daniel A. Clay 6 **
10.33 Standstill Agreement dated January 8,
2001 between the Registrant and First
Union National Bank and Bank of America,
N.A. (formerly NationsBank of Tennessee,
N.A), both national banking associations 6 **
16.1 Letter dated October 22, 1999 from KPMG
LLP to the Securities and Exchange
Commission. 1 *
21.1 Subsidiaries of Registrant 1 **
23.1 Consent of KPMG LLP. 1 **
23.2 Consent of Deloitte & Touche LLP. 1 **
24.1. Powers of Attorney. 8 **
24.2. Certified resolution of the Registrant's
Board of Directors authorizing officers
and directors signing on behalf of the
Registrant to sign pursuant to a power
of attorney. 1 **
+ The Registrant will furnish a copy of any exhibit to a beneficial
owner of its securities or to any person from whom a proxy was
solicited in connection with the Registrant's most recent Annual
Meeting of Shareholders upon the payment of a fee of fifty cents
($.50) per page.
* Incorporated by reference.
** Filed herewith