SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
____________________
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended April 1, 2001
X TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _____________ to _____________
_____________
Commission File Number: 1-13044
COOKER RESTAURANT CORPORATION
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
OHIO 62-1292102
-------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2609 West End Avenue, Nashville, Tennessee 37203
--------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (561) 615-6000
-------------------
Indicate by check ??whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such requirements for the past 90 days.
X
--- ---
Yes No
5,986,000 Common Shares, without par value
(number of common shares outstanding as of the close of business
on May 6, 2001)
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
COOKER RESTAURANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollar amounts in thousands)
April 1, December 31,
2001 2000
ASSETS ------------- -------------
------
Current Assets:
Cash and cash equivalents $ 2,688 $ 1,602
Inventory 1,243 1,365
Assets held for sale 26,489 30,606
Prepaid and other current assets 1,945 1,687
Income tax receivable 1,362 1,888
------------- -------------
Total current assets 33,727 37,148
Property and equipment, net 79,757 82,127
Other assets, net 1,612 1,663
------------- -------------
Total assets $ 115,096 $ 120,938
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt $ 85,730 $ 86,339
Accounts payable 2,596 2,628
Accrued liabilities 12,899 14,763
Capital lease obligation, current 46 98
------------- -------------
Total current liabilities 101,271 103,828
Other liabilities 1,516 1,452
------------- -------------
Total liabilities 102,787 105,280
------------- -------------
Shareholders' equity:
Common shares-without par value: authorized
30,000,000 shares; issued 10,548,000 at
April 1, 2001 and December 31, 2000 62,211 62,211
Retained earnings (deficit) (1,473) 1,876
Treasury stock, at cost, 4,562,000 and
4,371,000 shares at April 1, 2001 and
December 31, 2000, respectively (48,429) (48,429)
------------- -------------
Total shareholders' equity 12,309 15,658
------------- -------------
Total liabilities and shareholders' equity $ 115,096 $ 120,938
============= =============
See accompanying notes to condensed consolidated financial statements
2
COOKER RESTAURANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)
Three Months Ended
April 1, April 2,
2001 2000
---------- ----------
Sales $ 37,388 $ 38,541
---------- ----------
Cost of Sales:
Food and beverage 11,040 11,027
Labor 14,208 14,212
Restaurant operating expenses 8,257 7,466
Restaurant depreciation 928 1,630
General and administrative 2,701 2,581
Preoperational costs - 179
Impairment of long-lived assets 494 -
Loss on loan guaranty - 633
Severance recovery - (810)
Interest expense 2,861 1,846
Amortization of loan fees 271 68
Loss (gain) on sale of property (92) 222
Interest and other income (expense), net 69 (294)
---------- ----------
40,737 38,760
Loss before income taxes (3,349) (219)
Benefit for income taxes - (77)
---------- ----------
Net loss $ (3,349) $ (142)
========== ==========
Basic earnings per common share:
Net loss $ (0.56) $ (0.02)
========== ==========
Diluted earnings per common share:
Net loss $ (0.56) $ (0.02)
========== ==========
Weighted average number of common shares
outstanding - basic and diluted 5,986 5,986
========== ==========
See accompanying notes to condensed consolidated financial statements
3
COOKER RESTAURANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollar amounts in thousands)
Three Months Ended
April 1, April, 2
2001 2000
----------- -----------
Cash flows from operating activities:
Net loss $ (3,349) $ (142)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization 1,309 1,764
Loss on loan guaranty - 633
Impairment charges 494 -
(Gain) loss on sale of property (92) 222
Decrease in current assets 390 103
Decrease (increase) in other assets 51 (102)
Decrease in current liabilities (1,896) (803)
Increase in other liabilities 64 64
----------- -----------
Net cash (used in) provided by
operating activities (3,029) 1,739
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (592) (759)
Proceeds from sale of property and equipment 5,369 198
Restricted Cash Deposits - (141)
----------- -----------
Net cash provided by (used in) investing
activities 4,777 (702)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings - 5,500
Repayments of borrowings (610) (5,626)
Capital lease obligations (52) (49)
----------- -----------
Net cash used in financing activities (662) (175)
----------- -----------
Net increase in cash and cash equivalents 1,086 862
Cash and cash equivalents, at beginning of period 1,602 1,428
Cash and cash equivalents, at end of period $ 2,688 $ 2,290
=========== ============
See accompanying notes to condensed consolidated financial statements
4
COOKER RESTAURANT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and, therefore,
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, the accompanying
condensed consolidated financial statements contain all adjustments,
consisting of normal recurring accruals, necessary to present fairly the
financial position of the Cooker Restaurant Corporation and subsidiaries
(the "Company"), after elimination of intercompany accounts and transactions,
at April 1, 2001, and the statements of operations and cash flows for the
three months ended April 1, 2001. The results of operations for the three
months ended April 1, 2001, are not necessarily indicative of the operating
results expected for the fiscal year ended December 30, 2001. These financial
statements should be read in conjunction with the financial statements and
notes thereto contained in the Company's annual report on Form 10-K for the
fiscal year ended December 31, 2000.
Certain amounts in the financial statements for the first quarter of 2000
have been reclassified to conform to the 2001 presentation.
The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. As
discussed in Note 8, the Company violated certain debt covenants and as a
result, the Company has classified its debt as a current liability in the
condensed consolidated balance sheet as of April 1, 2001. The Company has
obtained forbearance from certain of its lenders that would allow the Company
to suspend making principal and interest payments for nine months (through
May 25, 2001). During the forbearance period the Company has made $4,450,000
and $680,000 of mostly interest payments to the Term Lenders on January 21,
2001 and April 20, 2001, respectively, including $50,000 of related bank
fees. The Company has also entered into negotiations with its lenders to
amend covenant requirements for future periods. The Company is also taking
measures that are intended to increase sales and improve cash flows from
operations. If management's plans described above are not successful, the
lenders could accelerate the repayment of the Company's debt, which would
have a material adverse effect on the Company's financial condition, results
of operations and liquidity. The Company may find it appropriate in the
near future to voluntarily seek protection under the bankruptcy laws in
order to obain sufficient time to restructure certain of its obligations.
As a result, the Company has recently engaged special counsel and
reorganization consultants to assist the Company in its operations plans.
These conditions may indicate that the Company may be unable to continue as
a going concern for a reasonable period of time. The accompanying
condensed consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Note 2: Earnings 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.
Convertible subordinated debentures outstanding as of April 1, 2001, 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 the three months ended April 1, 2001 and
April 2, 2000, as the inclusion of the convertible subordinated debentures
would be antidilutive.
Options to purchase 868,000 and 1,379,000 shares of common stock at prices
ranging from $.84 to $21.75 per share and $2.625 to $17.75 per share, were
outstanding for the three months ended April 1, 2001 and April 2, 2000,
respectively, but were not included in the computation of diluted EPS because
the Company had net losses for the three months ended April 1, 2001 and
April 2, 2000, respectively. The options expire between October 2001 and
May 2010 for the three months ended April 1, 2001 and between April 2000
and January 2010 for the three months ended April 2, 2000.
Note 3: Impairment of long-lived assets
Impairment charges for the first quarter of 2001 were $494,000 as compared
to $0 in the first quarter of 2000. During the quarter ended April 1, 2001,
the Company recorded impairment charges on 3 of its restaurants, which
were classified as held for sale as of December 31, 2000, based on revised
estimates of their fair value. Due to the current situation regarding the
Company's Term Debt, the Company determined that the most prudent action
would be to sell these properties and use the proceeds to pay down portions
of the Term Debt. The Company wrote the properties down to fair value, less
certain selling costs.
5
Note 4: 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, was adopted by the Company in the
first quarter of fiscal 2001. The Company has determined the adoption of
SFAS No. 133, as amended, did not have a material effect on the Company's
results of operations or statement of financial position.
Note 5: 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, 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 paid 6.25% on $27,500,000 of it's total
LIBOR-based floating rate debt, and receives LIBOR from the counterparty
(a major bank). On January 4, 2001 the interest swap agreement was cancelled,
and payment of $187,000 was made to the counterparty. This amount was
recorded as interest expense in the three months ended April 1, 2001.
Note 6: 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.
6
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.
Note 7: Severance Recovery
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 severance recovery of
approximately $907,000 in the accompanying consolidated statements of
operations. As a result, approximately $810,000 in accrued severance
liabilities were forfeited by Mr. Seelbinder and applied to the guaranty amount
as of the three months ended April 2, 2000. Approximately $910,000 in accrued
severance liabilities was forfeited by Mr. Seelbinder and applied to the
guaranty amount as of the year ended December 31, 2000.
Note 8: Loss (Gain) on Disposal of Fixed Assets
In the first quarter of 2001, the Company recorded a gain on disposal of
fixed assets of $92,000. The gain was a result of the sale of the corporate
office building in West Palm Beach, FL. Properties in Boardman, OH and
Florence, KY were also sold in the first quarter of 2001. These properties
were sold for the assets net book value, resulting in no gain or loss upon
disposition.
Note 9: Long term debt
For the quarter ended October 1, 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 may accelerate
the 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 $455,000 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 April 1, 2001. 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 quarter ended April 1, 2001.
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, along with a second forbearance effective through
May 25, 2001. 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. During the forbearance period the Company has made
$4,450,000 and $680,000 of mostly interest payments to the Term Lenders on
January 21, 2001 and April 20, 2001, respectively, including $50,000 of
related bank fees. 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 a possible extension of the
standstill agreement for a period of 12 months, to allow the Company time
to secure new financing.
7
For the quarter ended April 1, 2001, 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
Additionally, Bank of America, N.A., as the agent for holders of its senior
credit facility, notified Bank One, 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 April 1, 2001, the Company
has reclassified the obligation to the holders of the 6 3/4% Convertible
Subordinated Debentures as a current liability.
Note 10: Contingencies
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.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
From time to time, the Registrant may make certain statements that contain
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995). Words such as "believe," "anticipate," "project," and
similar expressions are intended to identify such forward-looking statements.
Forward-looking statements may be made by management orally or in writing,
including, but not limited to, in press releases, as part of this
Management's Discussion and Analysis of Financial Condition and Results of
Operations and as part of other sections of this Report or other filings.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their respective dates, and are subject to
certain risks, uncertainties and assumptions. These statements are based on
management's present assumptions as to future trends, including economic
trends, prevailing interest rates, the availability and cost of raw materials,
the availability of capital resources necessary to complete the 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.
Results of Operations
The following table sets forth as a percentage of sales certain items
appearing in the Registrant's statements of operations.
COOKER RESTAURANT CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
April 1, April 2,
2001 2000
--------- ---------
Sales 100.0% 100.0%
--------- ---------
Cost of Sales:
Food and beverage 29.5% 28.6%
Labor 38.0% 36.9%
Restaurant operating expenses 22.1% 19.4%
Restaurant depreciation 2.5% 4.2%
General and administrative 7.2% 6.7%
Preoperational costs 0.0% 0.4%
Impairment of long-lived assets 1.3% 0.0%
Loss on loan guaranty 0.0% 1.6%
Severance recovery 0.0% -2.1%
Interest expense 7.7% 4.8%
Amortization of loan fees 0.7% 0.2%
Loss (gain) on sale of property -0.2% 0.6%
Interest and other income (expense), net 0.2% -0.8%
--------- ---------
109.0% 100.9%
Loss before income taxes -9.0% -0.5%
Benefit for income taxes 0.0% -0.2%
--------- ---------
Net loss -9.0% -0.3%
========= =========
9
Sales
- -----
Sales for the first quarter of fiscal 2001 decreased 3.0%, or $1,153,000, to
$37,388,000 compared to sales of $38,541,000 for the first quarter of fiscal
2000. The decrease for the three months ended April 1, 2001 is due to a
decrease in the number of guests at the restaurants as well as a decrease in
the number of stores operating during the comparable periods. At the end of
the first quarter of 2001, the Registrant operated 64 restaurants, compared to
65 at the end of the first quarter of 2000. Same store sales were down 3.6%
for the three months ended April 1, 2001. The average check of $12.33 was up
1.8% from the first quarter of 2000. To address the decrease in sales the
Registrant has increased its staffing at the restaurants, revised its standard
national menu to a regional menu, and implemented other procedures to
emphasize customer service.
Food and beverage
- -----------------
The cost of food and beverage for the first quarter of 2001 was $11,040,000 as
compared to $11,027,000 for the first quarter of 2000. The increase of $13,000
is primarily due to increased food cost offset with decreased sales for the
quarter compared to last year. As a percentage of sales, the cost of food and
beverage was 29.5% for the first quarter of 2001, as compared to 28.6% for the
first quarter of 2000. The increase in 2001 is due primarily to increased
prices for produce and beef, menu changes, as well as an industry supply
problem which occurred when one of the industry's major suppliers filed for
bankruptcy in 2000. Disruptions in scheduled deliveries, as a result of this
supply problem necessitated certain purchases from other outside sources at
less favorable prices.
Labor
- -----
Labor costs for the first quarter of 2001 were $14,208,000 as compared to
$14,212,000 for the first quarter of 2000. Labor costs as a percentage of
sales for the first quarter of 2001 were 38.0% as compared to 36.9% for the
first quarter of 2000. The percentage increase is due primarily to decreased
same-store sales for the quarter as well as increased staffing levels at our
restaurants. The Registrant has focused on increasing staffing levels at the
restaurants in an effort to provide better service to the guests. Accordingly,
manager and cook costs increased as a percentage of sales during the
comparable periods.
Restaurant operating expenses
- -----------------------------
Restaurant operating expenses for the first quarter of 2001 were $8,257,000
as compared to $7,466,000 for the first quarter of 2000. The increase of
$791,000 was primarily due to increases in public relations of $273,000,
utilities of $167,000, and occupancy costs of $217,000. Restaurant operating
expenses as a percentage of sales for the three months ended April 1, 2001
were 22.1%, as compared to 19.4% for the comparable period in the prior year.
Restaurant depreciation
- -----------------------
Restaurant depreciation expense for the first quarter of 2001 was $928,000,
as compared to $1,630,000 for the comparable period in the prior year. The
decrease of $702,000 for the first quarter of 2001 is due primarily to the
reclassification of 24 restaurants from property, plant, and equipment to
assets held for sale, in the second half of 2000. 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 April 1, 2001. 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 Registrant does not recognize depreciation or amortization expense during
the period in which the assets are being held for sale.
General and administrative expenses
- -----------------------------------
General and administrative expenses for the first quarter of 2001 were
$2,701,000 as compared to $2,581,000 for the first quarter of 2000. The
increase of $120,000 is due primarily to increases in bonus, wages and other
benefit costs of $403,000, increases to consultant and legal expenses of
$154,000, and increases in rental expense of $77K, offset with decreases in
marketing and other related expenses of $516,000.
Preoperational costs
- --------------------
Preoperational costs in the first quarter of 2001 were $0 as compared to
$179,000 in the first quarter of 2000. The decrease of $179,000 is due
entirely to the decrease in the number of store openings in 2001, as compared
to 2000. The Registrant opened one new restaurant in 2000 as compared to none
in 2001.
10
Impairment of long-lived assets
- -------------------------------
Impairment charges for the first quarter of 2001were $494,000 as compared to
$0 in the first quarter of 2000. During the quarter ended April 1, 2001, the
Registrant recorded impairment charges on 3 of its restaurants, which were
classified as held for sale as of December 31, 2000, based on revised
estimates of their fair value. 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.
Loss on loan guaranty
- ---------------------
Loss on loan guaranty for the first quarter of 2001 was $0, as compared to
$633,000 for the comparable period in the prior year. During the first quarter
of 2000, the Registrant recorded a loss on loan guaranty of $633,000. In 1994,
the Board of Directors approved a guaranty by us of a loan of $5,000,000 to G.
Arthur Seelbinder, the former Chairman of the Board and a current Director,
and his wife. In January 1997, the Board approved a refinancing of the loan
with The Chase Manhattan Bank of New York (the "Bank"). The loan was secured
by 323,000 shares of common stock owned by Mr. Seelbinder and a cash deposit
from us 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 us as a result of the Registrant's 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.
Severance recovery
- ------------------
Severance recovery for the first quarter of 2001 was $0, as compared to
$810,000 for the comparable period in the prior year. For the first quarter of
2000, the Registrant recorded a gain on severance recovery of $810,000. During
the third quarter of 1999, the Registrant recorded severance charges of
$1,300,000. These charges represented an accrual for the severance agreement
reached between the Registrant and its former Chairman and Chief Executive
Officer, G. Arthur Seelbinder. The amounts were for past services rendered to
the Registrant, and therefore the Registrant accrued for the full amount
of the severance package during the third quarter. Of the amount charged,
$212,000 represented the write-off of certain amounts owed to the Registrant
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 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, this amount, less certain amounts representing federal
withholding liabilities were applied to the amounts owed by him to the
Registrant as a result of our payment under the guaranty. As a result,
approximately $810,000 in accrued severance liabilities were forfeited by
Mr. Seelbinder and applied to the guaranty amount.
Interest expense
- ----------------
Interest expense in the first quarter of 2001 was $2,861,000 as compared to
$1,846,000 in the first quarter of 2000. The increase of $1,015,000 is due to
the additional accrued interest, including $455,000 in penalty interest and
$187,000 interest swap cancellation fee, relating to the status of the
Registrant's Term Loan.
Loss (Gain) on disposal of fixed assets
- ---------------------------------------
In the first quarter of 2001, the Registrant recorded a gain on disposal of
fixed assets of $92,000 and a loss on disposal of fixed assets of $222,000 in
the same period of the prior year. The gain in 2001 was a result of the sale
of the corporate office building in West Palm Beach, FL. Properties in
Boardman, OH and Florence, KY were also sold in the first quarter of 2001.
These properties were sold for net book value of the assets, resulting in
no gain or loss upon disposition.
11
(Benefit) provision for income taxes
- ------------------------------------
The (benefit) provision for income taxes for the quarters ended 2001 and 2000,
as a percentage of (loss) income before taxes, was (0%) and (35.2%),
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.
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 and
improvements to existing restaurants. The majority of the Registrant's
financing for operations 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 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.
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 quarter ended April 1, 2001.
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, along with a second forbearance effective
through May 25, 2001. The forbearance allows for the postponement of principal
and interest. During the forbearance period the Company has made $4,450,000
and $680,000 of mostly interest payments to the Term Lenders on January 21,
2001 and April 20, 2001, respectively, including $50,000 of related bank
fees. The Registrant is negotiating with the lenders for a possible
extension of the standstill agreement for a period of 12 months, to allow the
Registrant time to secure new financing, although the lenders have been
unwilling to grant such a standstill agreement as of the date of this report.
12
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.
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 de
fault 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.
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. Additionally in the first quarter of 2001, properties
in Boardman, OH and Florence, KY were sold to unrelated third parties.
Further, the Registrant closed two restaurants, one in Evansville, IN and one
in West Palm Beach, FL. The Registrant does not intend to open any new
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.
Further, the Registrant has completed the process of rolling out a new
regional 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.
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 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 may find it appropriate in the near future to voluntarily seek
protection under the bankruptcy laws in order to obtain sufficient time to
restructure certain of its obligations. As a result, the Registrant has
recently engaged special counsel and reorganization consultants to assist
the Registrant in its operations plans.
The Registrant's condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. If
management's plans described above are not successful, the lenders could
exercise their right to accelerate the repayment of the 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.
13
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), subsequently amended by
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of Effective Date of FASB Statement 133 and Amendment of FASB
Statement 133", 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, was adopted by the Registrant in the first quarter of
fiscal 2001. The Company has determined the adoption of SFAS No. 133, as
amended, did not have a material effect on the Company's results of
operations or statement of financial position.
14
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Registrant has performed a sensitivity analysis on its fixed and floating
long term debt at April 1, 2001. The results of this sensitivity analysis
indicated that there has been no substantial change in the fair value of the
fixed and floating debt, since December 31, 2000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
No material developments occurred during the fiscal quarter ended April 1, 2001
with respect to any material pending legal proceedings.
Routine Proceedings
The Registrant 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.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities
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 quarter ended April 1, 2001.
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, along with a second forbearance effective
through May 25, 2001. The forbearance allows for the postponement of principal
and interest payments. During the forbearance period the Company has made
$4,450,000 and $680,000 of mostly interest payments to the Term Lenders on
January 21, 2001 and April 20, 2001, respectively, including $50,000 of
related bank fees. The Registrant is negotiating with the lenders for a
possible extension of the standstill agreement for a period of 12 months, to
allow the Registrant time to secure new financing, although the lenders have
been unwilling to grant such a standstill agreement as of the date of this
report.
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.
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.
15
Item 4. Submission of Matters to a Vote of Security Holders.
The Company conducted its 2001 Annual Shareholders' Meeting on April 30, 2001.
The matters voted on and the results of the items submitted to a vote of the
shareholders are stated below:
Election of two directors for a term of three years to the Board of Directors:
Director Nominee Votes Cast For Votes Withheld
Robin V. Holderman 5,405,115 55,010
Brad Saltz 5,408,061 52,064
The names of the directors whose term of office as a director continued after
the meeting are: Henry R. Hillenmeyer, D. Shannon LeRoy, David T. Kollat,
Harvey M. Palash, and Daniel A. Clay.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are filed as part of this report.
(10) Material Contracts (*Management contract or compensatory plan or
arrangement.)
10.1 Cooker Restaurant Corporation 2001 Restricted Stock Plan,
incorporated by reference to Exhibit 4.7 to the Company's Registration
Statement on Form S-8 (File No. 333-58260)*
10.2 Second Standstill Agreement dated April 19, 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 10.2 of the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended April 1,
2001; Commission File No. 1-13044)*
(b) Reports on Form 8-K during the fiscal quarter ended April 1, 2001
None.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COOKER RESTAURANT CORPORATION
(The "Registrant")
Date: May 10, 2000
By: /s/ Henry R. Hillenmeyer
---------------------------
Henry R. Hillenmeyer
Chairman of the Board of Directors, Chief Executive Officer and Director
(principal executive officer and duly authorized officer)
By: /s/ Mark W. Mikosz
---------------------------
Mark W. Mikosz
Vice President - Chief Financial Officer
(principal financial and accounting officer)
17
________________________________________________________________________
________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
COOKER RESTAURANT CORPORATION
________________________
FORM 10-Q QUARTERLY REPORT
FOR THE FISCAL QUARTER ENDED:
APRIL 1, 2001
_________________________
EXHIBITS
_________________________
________________________________________________________________________
________________________________________________________________________
18