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 September 30, 2001
[ ] 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
Incorporation or Organization) Number)
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 [X] whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such requirements for the past 90 days.
[X] [ ]
Yes No
6,491,429 Common Shares, without par value
----------------------------------------------
(number of common shares outstanding as of the
close of business on November 14, 2001)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
COOKER RESTAURANT CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollar amounts in thousands)
September 30, December 31,
2001 2000
------------- ------------
ASSETS
------
Current Assets:
Cash and cash equivalents $ 4,587 $ 1,602
Inventory 823 1,365
Assets held for sale 27,531 30,606
Prepaid and other current assets 1,330 1,687
Income tax receivable - 1,888
------------- ------------
Total current assets 34,271 37,148
Property and equipment, net 65,656 82,127
Restricted cash 250 -
Other assets, net 2,933 1,663
------------- ------------
Total assets $ 103,110 $ 120,938
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
--------------------------------------------------
Current liabilities:
Current maturities of long-term debt $ 71,732 $ 86,339
Accounts Payable - 2,628
Post petition accounts payable 1,122 -
Accrued liabilities 6,644 14,763
Capital lease obligation, current 46 98
------------- ------------
Total current liabilities 79,544 103,828
Debtors in possession loan 3,000 -
Other liabilities 842 1,452
Pre-petition accounts payable subject
to compromise 7,943 -
Debentures subject to compromise 12,547 -
Accrued liabilities subject to compromise 6,482 -
------------- ------------
Total liabilities 110,358 105,280
------------- ------------
Shareholders' equity (deficiency):
Common shares-without par value:
authorized 30,000,000 shares; issued
11,054,000 at September 30, 2001 and
10,548,000 December 31, 2000 57,301 62,211
(Accumulated deficit) retained earnings (21,096) 1,876
Deferred compensation (394) -
Treasury stock, at cost, 4,056,000 and
4,562,000 shares at September 30, 2001
and December 31, 2000, respectively (43,059) (48,429)
------------- ------------
Total shareholders' equity (deficiency) (7,248) 15,658
------------- ------------
Total liabilities and shareholders'
equity (deficiency) $ 103,110 $ 120,938
============= ============
See accompanying notes to condensed consolidated financial statements
2
COOKER RESTAURANT CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, October 1, September 30, October 1,
2001 2000 2001 2000
------------- ------------ ------------- -----------
Sales $ 22,989 $ 35,845 $ 90,837 $ 110,958
------------- ------------ ------------- -----------
Cost of Sales:
Food and beverage 7,107 10,624 27,693 32,273
Labor 9,684 13,800 36,402 41,819
Restaurant operating expenses 5,160 7,908 20,520 23,038
Restaurant depreciation 764 1,503 2,659 4,664
General and administrative 2,195 2,621 6,884 7,200
Gain on severance recovery - - - (810)
Loss on loan guaranty - - - 633
Interest expense 2,314 2,079 7,303 5,708
Amortization of loan fees - 105 271 278
Loss (gain) on sale of property and equipment, net - - 112 222
Interest and other (income) expense, net - - 65 -
Impairment of long-lived assets 3,235 9,334 9,172 9,334
------------- ------------ ------------- -----------
Loss before reorganization expenses and tax benefit (7,470) (12,129) (20,244) (13,401)
Reorganization expenses:
Closed store expenses 674 - 1,338 -
Professional fees 971 - 1,390 -
------------- ------------ ------------- -----------
Loss before benefit for income taxes (9,115) (12,129) (22,972) (13,401)
Benefit for income taxes - (4,245) - (4,690)
------------- ------------ ------------- -----------
Net loss $ (9,115) $ (7,884) $ (22,972) $ (8,711)
============= ============ ============= ===========
Basic loss per common share:
Net loss $ (1.49) $ (1.32) $ (3.75) $ (1.46)
============= ============ ============= ===========
Diluted loss per common share:
Net loss $ (1.49) $ (1.32) $ (3.75) $ (1.46)
============= ============ ============= ===========
Weighted average number of common shares
outstanding - basic and diluted 6,121 5,986 6,121 5,986
============= ============ ============= ===========
See accompanying notes to condensed consolidated financial statements
3
COOKER RESTAURANT CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollar amounts in thousands)
Cash flows from operating activities:
Net loss $ (22,973) $ (8,711)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization 3,201 5,090
Loss on loan guaranty - 633
Impairment charges 8,996 9,334
Reorganization expenses - closed stores 929 -
Loss (gain) on sale of property and
equipment,net 112 222
Decrease ( increase) in current assets 2,786 (1,081)
Increase in other assets (1,269) (3,243)
Increase in pre-petition liabilities 2,382 474
Increase in current post petition accounts
payable 1,122 -
(Decrease) increase in other liabilities (295) 747
------------ ------------
Net cash (used in) provided by
operating activities (5,009) 3,465
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (2,541) (1,334)
Proceeds from sale of property and equipment 10,274 198
Restricted cash deposits (250) (141)
------------ ------------
Net cash provided by (used in)
investing activities 7,483 (1,277)
------------ ------------
Cash flows from financing activities:
Proceeds from third party loan 2,714 10,500
Loan from related party 1,000
Repayments of borrowings (2,133) (11,515)
Loan repayment to related party (1,000)
Redemption of Debentures - (18)
Capital lease obligations (70) (149)
------------ ------------
Net cash provided by (used in)
financing activities 511 (1,182)
------------ ------------
Net increase in cash and cash equivalents 2,985 1,006
Cash and cash equivalents, at beginning of period 1,602 1,428
------------ ------------
Cash and cash equivalents, at end of period $ 4,587 $ 2,434
============ ============
See accompanying notes to condensed consolidated financial statements
4
COOKER RESTAURANT CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION)
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 September
30, 2001, and the statements of operations for the three and nine
months ended September 30, 2001 and cash flows for the nine months
ended September 30, 2001. The results of operations for the three
months and nine months ended September 30, 2001, are not necessarily
indicative of the operating results expected for the fiscal year
ending 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 three months and
nine months ended October 1, 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, and in accordance with AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the
Bankruptcy Code", which the Company adopted on May 25, 2001. As
discussed in Note 9, 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 September
30, 2001. The Company had obtained forbearance from certain of its
lenders that allowed the Company to suspend making principal and
interest payments for nine months (through May 25, 2001). During the
forbearance period the Company made payments of $7,836,000 of which
$2,133,000 was applied to principal, $5,653,000 to interest and
$50,000 to related bank fees.
On May 25, 2001, the Company filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code ("Bankruptcy Code") with the
United States Bankruptcy Court for the Southern District of Ohio,
Eastern Division. The Company is seeking relief in order to
restructure its debt and to reorganize its operations due to a
decrease in liquidity and the reluctance of the holders of its long-
term debt (the "Banks") to extend the forbearance. Pursuant to the
provisions of the Bankruptcy Code, all actions to collect upon any of
the Company's liabilities as of the petition date or to enforce pre-
petition date contractual obligations were automatically stayed.
Absent approval from the Bankruptcy Court, the Company is prohibited
from paying pre-petition obligations. However, the Bankruptcy Court
has approved payment of certain pre-petition liabilities such as
employee wages and benefits. The Bankruptcy Court has also approved
the retention of legal and financial professionals. As a result, the
Company has recently engaged special counsel and reorganization
consultants to assist the Company in its operations plans. The Company
is also taking measures that are intended to increase sales and
improve cash flows from operations. The Company is in possession of
its properties and assets and continues to manage its business as
debtor-in-possession subject to the supervision of the Bankruptcy
Court. As a debtor-in-possession, the Company has the right, subject
to the Bankruptcy Court approval, to assume or reject any pre-
petition executory contracts and unexpired leases.
While operating as debtors-in-possession under the protection of the
Bankruptcy Code, and subject to the Bankruptcy Court approval or as
otherwise permitted in the ordinary course of business, the Company
may sell or otherwise dispose of assets and liquidate or settle
liabilities for amounts other than those reflected in the consolidated
financial statements. Further, the amounts and classifications
reported in the consolidated historical financial statements do not
give effect to any adjustments to the carrying value of assets or
amounts of liabilities that might be necessary as a consequence of the
Chapter 11 proceedings.
The accompanying consolidated financial statements do not purport to
reflect or provide for the consequences of the Company's bankruptcy
proceedings. In particular, such consolidated financial statements do
not purport to show (i) as to assets, their realizable value on a
liquidation or sale basis or their availability to satisfy
liabilities, (ii) as to pre-petition liabilities, the amounts that may
be allowed for claims or contingencies, or the status and priority
thereof, (iii) as to shareholder accounts, the effect of any changes
that may be made in the capitalization of the Company or (iv) as to
operations, the effect of any changes that may be made in its
business.
5
As of November 19, 2001, the Company has not filed any
reorganization plans with the Bankruptcy Court. If management is
unable to implement a successful plan, the lenders, subject to the
Bankruptcy Court approval, 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.
These conditions raise substantial doubt about the Company's ability
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 loss by
the weighted average number of shares outstanding during the periods
reported. 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 September 30,
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 and nine months ended September 30, 2001 and October 1,
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 a portion of the three months and nine
months ended September 30, 2001 and October 1, 2000 respectively, but
were not included in the computation of diluted EPS, as the inclusion
would be antidilutive.
Effective May 14, 2001, the Company exchanged 482,386 shares of
restricted stock for options held to purchase 618,156 shares of the
Company's common stock. In connection with this exchange, which was
limited to directors and employees, the Company recorded deferred
compensation expense of $437,000 which is being amortized over the
four years vesting period of the restricted stock.
The Company issued 506,000 shares from treasury stock to an escrow
account for the employees that participated in this exchange. This
transfer of shares from treasury to escrow was a non-cash transaction.
These employees are entitled to all the rights of a stockholder (
e.g., voting rights, dividends ) except that they do not have the
right to sell or transfer the stock. The stock certificates will be
released from the escrow account to the individual employee as the
employees meet the vesting requirements. Upon the employees meeting
the vesting requirements, the transfer restrictions will expire.
Note 3: Impairment of long-lived assets
During the nine months ended September 30, 2001, the Company recorded
impairment charges totaling $9,172,000 on 27 of its restaurants,
to record such assets at their estimated fair value, less certain
estimated selling costs. Included in this amount are the net book
values of certain leasehold improvements and equipment relating to
unexpired leases for 8 restaurants, which the Company has rejected in
accordance with the provisions of the Bankruptcy Code. However, there
is no guaranty that parties affected by such rejections will not file
pre-petition claims with the Bankruptcy Court in accordance with
bankruptcy procedures. Due to the current situation regarding the
Company's Term Debt, the Company determined that the most prudent
action would be to close these locations and sell these properties and
use the proceeds to pay down portions of the Term Debt.
During the nine months ended September 30, 2001, the Company closed 23
restaurants and reported these stores as assets held for sale, sold 6
restaurants that had been previously reported as assets held for sale,
and revalued the estimated fair value of 3 stores that were closed in
fiscal 2000 and are currently classified as held for sale. These
assets were taken out of service at the time the restaurants were
closed and consequently no further depreciation was recognized.
In addition, the Company has also accrued $929,000 to cover the
estimated carrying costs of the closed stores. These charges are for
exit costs the Company was contractually obligated to prior to closing
the stores that will not benefit future operations.
6
Note 4: New Accounting Pronouncements
In October 2001, The Financial Accounting Standards Board ("FASB")
issued Statement No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which replaces FASB Statement No. 121, Accounting
for Impairment of Long-Lived and for Long-Lived Assets to be Disposed
Of. This Statement develops one accounting model for long-lived assets
to be disposed of by sale and requires that long-lived assets be
measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued
operations. This Statement also modifies the reporting of discontinued
operations to include all components of an entity with operations that
can be distinguished from the rest of the entity and that will be
eliminated from ongoing operations in a disposal transaction. The
Statement is effective for fiscal years beginning after December 15,
2001. Management is in the process of evaluating the effect the
adoption of this Statement will have on the Company's financial
statements.
Note 5: Derivative Financial Instruments
The Company had only limited involvement with derivative financial
instruments and did 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 received
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.
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 his vested and
unvested stock Options. In addition to the termination of the
severance agreement, Mr. Seelbinder agreed to resign from the
Company's Board of Directors.
On August 10, 2001, the Company filed a lawsuit to collect the full
amount owed from Mr. Seelbinder .
7
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 $810,000 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 property and equipment
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, Florida. Properties in
Boardman, Ohio and Florence, Kentucky were also sold in the first
quarter of 2001. These properties were sold for the assets' net book
value. During the quarter ended July 1,2001, the Company recorded a
loss of $250,000 on the sale of its properties in Grand Rapids and
Troy, Michigan and recorded a gain of $46,000 on the sale of its
property at Palm Harbor, Florida.
In the third quarter of 2001, the Company sold its Johnson City,
Tennessee property for its carrying value and agreed to place
$250,000 of the proceeds in escrow to fund the payment of its
equipment lease subject to the approval of the Bankruptcy Court.
Note 9: Long term debt
Since the quarter ended October 1, 2000, the Company has not been 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 had the right to accelerate the repayment of the
debt. 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 nor did it make its principal payments in accordance
with the terms of the loan due to the Term Lenders. 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
September 30, 2001. In addition, during the quarter ended September
30, 2001, the Company accrued an additional $662,000 in penalty
interest and late fees in addition to $1,115,000 of stated interest
as the Company was not current on the interest portion of the Term
Loan. The Company has not received a waiver from the Term Lenders to
cure the non-compliance. Accordingly, the Company has classified the
obligation to the Term Lenders as current in the condensed
consolidated balance sheets.
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 allowed
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 made $4,450,000, $680,000 and $2,109,000 of primarily interest
payments to the Term Lenders on January 21, 2001, April 20, 2001 and
May 22, 2001, respectively, including $50,000 of related bank fees.
In May 2001, the Company also sold its properties in Grand Rapids,
Troy and Palm Harbor. The proceeds were used to pay the interest
portion of the term loan and to finance its acquisition of the Cool
Springs, Tennessee store. The Company 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.
8
Since the quarter ended October 1, 2000, the Company also has not been
in compliance with certain covenants pertaining to its term debt with
the CIT Group ("CIT"). Based on such non-compliance with certain
covenants, CIT was 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. 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
classified as a current liability in the condensed consolidated
balance sheets.
Additionally, Bank of America, N.A., as the agent for holders of its
senior credit facility, notified First Union, 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 was
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. The Company has classified the obligation to the
holders of the 6 3/4% Convertible Subordinated Debentures as a
liability that is subject to compromise in the condensed consolidated
balance sheets and has ceased all interest accrual pertaining to this
obligation. Interest of $280,000 for the period from May 22, 2001 to
the end of the third quarter was not recorded in these financial
statements.
In June 2001, the Company borrowed $1,000,000 at 15% interest from a
stockholder of the Company with a maturity date of September 4, 2001
which was secured by two parcels of real property. This loan was
repaid on August 30, 2001.
On August 30, 2001 the Company borrowed $3,000,000, at 15% interest,
from a third party with a maturity date of September 1, 2003. The loan
is secured by three parcels of real property and has interest
payments of $37,500 payable on the first day of every month. This
loan was used to repay the loan of $1,000,000 borrowed from a
stockholder and to finance working capital.
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 crewmembers. One of the terminated crewmembers, the
plaintiff, is alleging inappropriate and unwelcome behavior of others
toward the plaintiff the night in question. The suit names the
Company, two Cooker managers and two 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 defined as
"such further relief as the court deems necessary and proper"and
attorney fees via a jury trial. The lawsuit has been stayed pending
the bankruptcy filing by the Company. The Company 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 based on advice from counsel, the ultimate disposition of
these matters will not have a material adverse effect on the Company's
financial position, results of operations or liquidity.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
---------------------------------------------------------------
From time to time, the Company may make certain statements that
contain "forward-looking" information (as defined in the Private
Securities Litigation Reform Act of 1995). Words such as "believe,"
"anticipate," "project," and similar expressions are intended to
identify such forward-looking statements. Forward-looking statements
may be made by management orally or in writing, including, but not
limited to, in press releases, as part of this Management's Discussion
and Analysis of Financial Condition and Results of Operations and as
part of other sections of this Report or other filings. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their respective dates, and are
subject to certain risks, uncertainties and assumptions. These
statements are based on management's present assumptions as to future
trends, including economic trends, prevailing interest rates, the
availability and cost of raw materials, the availability of capital
resources necessary to complete the Company's expansion plans,
government regulations, especially regulations regarding taxes, labor
and alcoholic beverages, competition, consumer preferences, and
similar factors. Changes in these factors could affect the validity of
such assumptions and could have a materially adverse effect on the
Company's business.
The Company's operations are subject to factors outside its control.
Any one, or a combination of these factors, could materially affect
the results of the Company's operations. These factors include: (a)
changes in the general economic conditions in the United States, (b)
changes in prevailing interest rates, (c) changes in the availability
and cost of raw materials, (d) changes in the availability of capital
resources necessary to complete the Company's reorganization 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 that
could cause actual results to differ materially from those expressed
in forward-looking statements made by the Company. Forward-looking
statements made by or on behalf of the Company are based on knowledge
of its business and the environment in which it operates, but because
of the factors listed above; actual results may differ from those
anticipated results described in those forward-looking statements.
Consequently, all of the forward-looking statements made are qualified
by these cautionary statements and there can be no assurance that the
actual results or developments anticipated by the Company will be
realized, or even if substantially realized, that they will have the
expected consequences to or effects on the Company or its business or
operations.
10
Results of Operations
The following table sets forth as a percentage of sales certain items
appearing in the Company's statements of operations.
COOKER RESTAURANT CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION)
RESULTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, October 1, September 30, October 1,
2001 2000 2001 2000
------------- ------------ ------------- ------------
Sales 100.0% 100.0% 100.0% 100.0%
------------- ------------ ------------- ------------
Cost of Sales:
Food and beverage 30.9% 29.6% 30.5% 29.1%
Labor 42.1% 38.5% 40.1% 37.7%
Restaurant operating expenses 22.4% 22.1% 22.6% 20.7%
Restaurant depreciation 3.3% 4.2% 2.9% 4.2%
Amortization of loan fees 0.0% 0.3% 0.0% 0.3%
General and administrative 9.5% 7.3% 7.7% 6.5%
Loss on loan guaranty 0.0% 0.0% 0.0% 0.6%
Impairment of long-lived assets 14.1% 26.0% 10.1% 8.4%
Reorganization expenses- professional fees 4.2% 0.0% 1.5% 0.0%
Reorganization expenses- closed stores 2.9% 0.0% 1.5% 0.0%
Interest expense 10.1% 5.8% 8.0% 5.1%
Gain on severance recovery 0.0% 0.0% 0.0% -0.7%
Loss (gain) on sale of property and
equipment 0.0% 0.0% 0.0% 0.2%
Interest and other (income) expense, net 0.0% 0.0% 0.0% 0.0%
------------- ------------ ------------- ------------
139.5% 133.8% 124.9% 112.1%
Loss before benefit for income taxes -39.5% -33.8% -24.9% -12.1%
Benefit for income taxes 0.0% -11.8% 0.0% -4.2%
------------- ------------ ------------- ------------
Net loss -39.5% -22.0% -24.9% -7.9%
============= ============ ============= ============
Sales
- -----
Sales for the third quarter of fiscal 2001 decreased 35.9%, or
$12,856,000, to $22,989,000 compared to sales of $35,845,000 for the
third quarter of fiscal 2000. For the nine months ended September 30,
2001 sales decreased by 18.1%, or $20,121,000 to $90,837,000 from
$110,958,000. The decrease for the three and nine months ended
September 30, 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 third quarter of
2001, the Company operated 43 restaurants, compared to 66 at the end
of the third quarter of 2000. Same store sales were down 16.6% for the
three months ended September 30, 2001 from the three months ended
October 1, 2000. To address the decrease in sales, the Company has
increased its staffing at its restaurants, revised its standard
national menu to a regional menu, changed key operations executives
and implemented other procedures to emphasize customer service. The
Company has also embarked on a renovation program that will enhance
the appearance of its restaurants.
11
Food and beverage
- -----------------
The cost of food and beverage for the third quarter of 2001 was
$7,107,000 as compared to $10,624,000 for the third quarter of 2000.
The decrease of $3,517,000 is primarily due to the decrease in the
number of restaurants and decreased sales for the quarter compared to
last year which was partially offset by slight increases in food
cost. As a percentage of sales, the cost of food and beverage was
30.9% for the third quarter of 2001, as compared to 29.6% for the
third quarter of 2000. The increase in food and beverage cost as a
percentage of sales 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.
The cost of food and beverage for the nine months ended September 30,
2001 was $27,693,000 as compared to $32,273,000 for the nine months
ended September 30, 2000. The decrease of $4,580,000 was primarily due
to lesser number of operating restaurants during 2001 and a decrease
in sales for the current nine months. As a percentage of sales, the
cost of food and beverage was 30.5% in the current period as compared
to 29.1% for the prior year period. The increase in 2001 is due to the
increased prices and the industry supply problem as noted above. To
address the increase in food and beverage cost as a percentage of
sales the Company has implemented a computerized food and inventory
cost control system.
Labor
- -----
Labor costs for the third quarter of 2001 were $9,684,000 as compared
to $13,800,000 for the third quarter of 2000. Labor costs as a
percentage of sales for the third quarter of 2001 were 42.1% as
compared to 38.5% for the third quarter of 2000. The percentage
increase is due primarily to decreased same-store sales for the
quarter as well as increased staffing levels at the restaurants. The
company has focused on increasing staffing levels at the restaurants
in an effort to provide better service to its guests.
Labor costs for the nine months ended September 30, 2001 were
$36,402,000 as compared to $41,819,000 for the nine months ended
September 30, 2000. The decrease of $5,417,000 is primarily due to
the reduction in the number of operating restaurants in 2001 as
compared to 2000. As a percentage of sales, labor costs for the nine
months in 2001 was 40.1% as compared to 37.7% in 2000. This is
primarily due to a decline in same-store sales in 2001 and the
increased staffing levels at the restaurants.
Restaurant operating expenses
- -----------------------------
Restaurant operating expenses for the third quarter of 2001 were
$5,160,000 as compared to $7,908,000 for the third quarter of 2000.
The decrease of $2,748,000 was primarily due to a decrease in the
number of operating restaurants. Restaurant operating expenses as a
percentage of sales for the three months ended September 30, 2001 were
22.4%, as compared to 22.1% for the comparable period in the prior
year which is due to the reduction in sales as discussed above.
Restaurant operating expenses for the nine months ended September 30,
2001 were $20,520,000 as compared to $23,038,000 for the same period
in 2000. This decrease was due to the closing of 23 restaurants which
were partially offset by increases in the costs of utilities, public
relations, contract services and other related expenses during the
nine months period in 2001. Restaurant expenses as a percentage of
sales for the nine months ended September 30 2001 were 22.6% as
compared to 20.7% for the same period in 2000.
Restaurant depreciation
- -----------------------
Restaurant depreciation expense for the third quarter of 2001 was
$764,000, as compared to $1,503,000 for the comparable period in the
prior year. The decrease of $739,000 for the third quarter of 2001 is
due primarily to the closing of and reclassification of 23 restaurants
from property and equipment to assets held for sale, during the last
twelve months. Assets held for sale are stated at the lower of cost or
estimated fair value less costs to sell and include 20 properties held
for sale at September 30, 2001.
Restaurant depreciation for the nine months ended September 30, 2001,
was $2,659,000 as compared to $4,664,000 for the same period in 2000.
This was mainly due to the reduction in the number of operating
restaurants in 2001 as compared to 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.
12
General and administrative expenses
- -----------------------------------
General and administrative expenses for the third quarter of 2001 were
$2,195,000 as compared to $2,621,000 for the third quarter of 2000.
The decrease of $426,000 was primarily due to decreases in
professional fees and outside services costs of $312,000 and travel
and related expenses of $21,000.
General and administrative expenses for the nine months ended
September 30, 2001 were $6,884,000 as compared to $7,200,000. The
decrease of $316,000 is primarily due to a decrease in professional
fees and outside services of $843,000 which was partially offset by
increases in occupancy costs of $184,000 and in salaries and benefits
of $356,000.
Impairment of long-lived assets
- -------------------------------
Impairment charges for the three months ended September 30, 2001 were
$3,235,000 as compared to $9,334,000 for the same period in 2000.
During the nine months ended September 30, 2001, the Company recorded
impairment charges totaling $9,172,000 on 27 of its restaurants, to
record such assets at their estimated fair value, less certain
estimated selling costs. Included in this amount are the net book
values of certain leasehold improvements and equipment relating to
unexpired leases for eight restaurants totaling $3,184,000, which the
Company has rejected, in accordance with the provisions of the
Bankruptcy Code and $494,000 of impaired charges on 3 restaurants
which were sold in May 2001.
Due to the current situation regarding the Company's Term Debt, the
Company determined that the most prudent action would be to sell the
owned properties and use all or most of the proceeds to pay down
portions of the Term Debt.
Reorganization expenses
- -----------------------
During the three months and the nine months ended September 30, 2001,
the Company accrued $265,000 and $929,000 respectively, to cover the
estimated carrying costs of the closed stores. These charges include
estimated lease payments, utilities, insurance and real estate taxes
for a period of six to nine months for owned locations and three
months for leased locations.
In addition, during the three months and nine months ended September
30, 2001, the Company paid $971,000 and $1,390,000 to outside
professionals who are contracted to assist the Company in its
reorganization efforts.
Loss on loan guaranty
- ---------------------
Loss on loan guaranty for the nine months ended September 30, 2001 was
$0, as compared to $633,000 for the comparable period in the prior
year. During the first quarter of 2000, the Company recorded a loss on
loan guaranty of $633,000. In 1994, the Board of Directors approved a
guaranty by the Company of a loan of $5,000,000 to G. Arthur
Seelbinder, the former Chairman of the Board and 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 the Company of approximately $3,000,000. The term of the
loan and the guaranty were extended until March 1, 2000, at which time
the loan matured. As of March 1, 2000 the balance of the loan was
$3,753,000. 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 its guaranty. Accordingly, the Company
recorded an additional loss on the guaranty of approximately $633,000,
the difference between the amount due the Bank, and the $2,454,000
reserve previously recorded.
13
Severance recovery
- ------------------
Severance recovery for the nine months ended September 30, 2001 was
$0, as compared to $810,000 for the comparable period in the prior
year. During the third quarter of 1999, the Company recorded severance
charges of $1,300,000. These charges represented an accrual for the
severance agreement reached between the Company and its former
Chairman and Chief Executive Officer, G. Arthur Seelbinder. The
amounts were for past services rendered to the Company, and therefore
the Company accrued for the full amount of the severance package
during the third quarter of 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 Registrant was called upon by the Bank to honor
its guaranty of Mr. Seelbinder's loan as previously described in Note
6 to the condensed consolidated 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
Company 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 third quarter of 2001 was $2,314,000 as
compared to $2,184,000 in the third quarter of 2000. The increase of
$130,000 was due to the accrual for penalty interest and late fees on
the non-payment of the term loan (see Note 9 - Long term debt) which
was partially offset by the cessation of interest accrual on the
Company's debentures which are subject to compromise.
Interest expense for the nine months ended September 30, 2001 was
$7,574,000 as compared to $5,986,000 for the same period in 2000. This
was due to the increase in LIBOR-based interest rate and the accrued
interest penalty (see Liquidity and Capital Resources)
Loss (Gain) on sale of property and equipment, net
- --------------------------------------------------
During the nine months ended September 30, 2001, the Company recorded
a net loss of $112,000 which includes a gain on disposal of fixed
assets of $46,000, a loss on disposal of fixed assets of $250,000 in
the second quarter and a net gain of $92,000 on the sale of the
Company's corporate office and two of its properties in the first
quarter of 2001.
Benefit for income taxes
- -------------------------
The Company did not record a tax benefit in the third quarter of 2001,
which was 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 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.
Liquidity and Capital Resources
- -------------------------------
The Company's principal capital requirements are for working capital
and improvements to existing restaurants. Prior to its filing for
Bankruptcy protection, the majority of the Company's financing for
operations and working capital was provided by internally generated
cash flows from operations and amounts available under the Revolver
(defined below).
During 1998, the Company entered into a new term loan agreement with
NationsBank of Tennessee and First Union National Bank (the "Term
Loan") and a term loan with the CIT/Equipment Financing Group, Inc.
(collectively the "Lenders") in conjunction with its repurchase of
common stock pursuant to the Tender Offer (the "Offer") which was
completed on October 5, 1998. The Company borrowed $70,500,000 under
the two term loan agreements with the Lenders, and established a
$10,000,000 Revolving Line of Credit (the "Revolver") with NationsBank
of Tennessee. Pursuant to certain renegotiations of the Company'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 Company had borrowed $13,425,000 against
the Revolver and the outstanding balance of the Term Loans was
approximately $60,367,000.
14
Pursuant to the terms of the original agreement, the Company was
required to make principal and interest payments of approximately
$345,000 to First Union on $22,500,000 of its Term Loan and monthly
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 Company was
required to make monthly payments of $267,639, including principal and
interest, to CIT. Such payments were scheduled to continue until
September 30, 2003, at which time all remaining amounts under the
agreement with CIT were to be due in full.
Since the quarter ended October 1, 2000, the Company has not been 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 were 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.
The Company has not received a waiver from the Term Lenders to cure
the non-compliance. Accordingly, the Company has classified the
obligation to the Term Lenders as current in the condensed
consolidated balance sheets.
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 allowed
for the postponement of principal and interest. During the
forbearance period the Company made $4,450,000, $680,000 and
$2,109,000 of mostly interest payments to the Term Lenders on January
21, 2001, April 20, 2001 and May 22, 2001 respectively, including
$50,000 of related bank fees. The Company negotiated 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. The lenders were unwilling to grant such a standstill
agreement, hence, the Company chose to seek protection under the
Bankruptcy Code. Accordingly, on May 25, 2001 the Company filed a
voluntary petition for relief under Chapter 11 of the Bankruptcy Code
with the United States Bankruptcy Court for the Southern District of
Ohio, Eastern Division. As a result, the Company has engaged special
counsel and reorganization consultants to assist the Company in its
operations plans.
Since the quarter ended October 1, 2000, the Company also has not been
in compliance with certain covenants pertaining to its term debt with
the CIT Group ("CIT"). Based on such non-compliance with certain
covenants, CIT was 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. 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
classified 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 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 was 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 and July 1, 2001, the Company classified the obligation to
the holders of the 6 3/4% Convertible Subordinated Debentures as a
current liability.
In January 2001, the Company sold the 32,000 square foot office
building in West Palm Beach, Florida, where its executive offices were
located, to an unrelated third party. The Company 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 Company closed two
restaurants, one in Evansville, IN and one in West Palm Beach, FL in
the first quarter of fiscal 2001.
The Company 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.
15
On May 22, 2001, the Company sold its properties at Grand Rapids and
Troy, Michigan for $1,400,000 and $1,500,000 respectively and its
property in Palm Harbor, Florida for $1,700,000 to an unrelated party.
The Company then entered into a leaseback agreement for both Grand
Rapids and Troy. The Grand Rapids and Troy properties were part of the
Term Loan's collateral and as such, Bank of America received 70% of
the net proceeds which was applied mostly to interest and penalty with
the sum of $817,000 applied to principal. The proceeds from the sale
of Palm Harbor were used to acquire the property in Cool Springs,
Tennessee that the Company was operating under a lease.
During the third quarter of 2001, the Company closed 7 of its
restaurants and reclassed them as assets held for sale.
During the second quarter of 2001, the Company closed 14 of its
restaurants and reported them as assets held for sale. These
properties as well as those above are carried at the lesser of net
book value or fair market value less selling costs. It is management's
intention to sell these properties and to use part or all of the
proceeds to repay the term loan. To offset the shortfall in working
capital resulting from the net reduction in cash flows from the
closing of restaurants, and restrictions as a result of its Chapter 11
petition, the Company obtained Debtor -in-Possession financing of
$1,000,000 from a stockholder of the Company in the second quarter of
2001 which was subsequently repaid on August 30, 2001 from the
proceeds of a $3,000,000 loan obtained from a third party at an
interest rate of 15%. The loan, which is secured by three parcels of
real property, matures on September 1, 2003.
In addition, in July 2001, the Company received an income tax refund
of $1,500,000, which was used to finance its working capital.
Further, in 2001, the Company completed the process of implementing 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 Company believes that the changes to the menu, as well as the
focus on guest service, will have the impact of increasing sales and
operating margins, as well as operating cash flows.
There can be no assurance that the steps the Company is taking to
increase sales from the remaining restaurants will have the desired
effect. Nor can there be any assurance that the Company's efforts to
sell closed store properties, restructure its debt and reorganize its
operations through the bankruptcy court will be successful. In such
event, the Company may experience negative cash flows in the future.
The Company'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,
subject to the bankruptcy court approval, the lenders could exercise
their right to accelerate the repayment of the Company's debt, which
would have a material adverse effect on the Company's financial
condition, results of operations and liquidity. These conditions may
indicate that the Company may be unable to continue as a going concern
for a reasonable period of time. The Company's consolidated financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
16
Item 3. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
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.
------------------
On May 25, 2001, the Company filed a voluntary petition for relief
under Chapter 11 of the Bankruptcy Code with the United States
Bankruptcy Court for the Southern District of Ohio, Eastern Division.
No material developments occurred during the fiscal quarter ended
September 30, 2001 with respect to any material pending legal
proceedings.
Routine Proceedings
The Company is a party to various other claims and legal actions
arising in the ordinary course of business. In the opinion of
management based on advice of counsel, 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
-------------------------------
Since the quarter ended October 1, 2000, the Company has not been 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 were 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. The Company has not
received a waiver from the Term Lenders to cure the non-compliance.
Accordingly, the Company has classified the obligation to the Term
Lenders as current for the quarter ended July 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 allowed
for the postponement of principal and interest payments. During the
forbearance period the Company has made payments to the Term Lenders
totaling $7,239,000 of which
$2,133, 000 was applied to principal, $5,056,000 to interest and
$50,000 to related bank fees.
Since the quarter ended October 1, 2000, the Company also has not been
in compliance with certain covenants pertaining to its term debt with
the CIT Group ("CIT"). Based on such non-compliance with certain
covenants, CIT was 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. 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
classified 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 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 was 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 and September 30, 2001, the Company classified the obligation
to the holders of the 6 3/4% Convertible Subordinated Debentures as a
current liability.
17
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
No matters were submitted to a vote of security holders during the
quarter ended September 30, 2001.
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) Loan Agreement with Mercury Capital Corporation, dated
August 29, 2001, providing for debtor-in-possession financing.
Reports on Form 8-K during the fiscal quarter ended September 30,
2001
None
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
COOKER RESTAURANT CORPORATION
(The "Registrant")
Date: November 19, 2001
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/ David Sanford__________
David Sanford
Asst. Secretary - Controller
(Principal financial and accounting officer)
19