SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
--------------------
FORM 10-Q/A
(MARK ONE)
[X] AMENDMENT NO. 1 TO 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 _____________
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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 Incorporation or (I.R.S. Employer Identification No.)
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 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
------------- ------------
(As Restated)
(See Note 2)
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 6,204 14,763
Capital lease obligation, current 46 98
--------- ---------
Total current liabilities 79,104 103,828
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 8,343 --
--------- ---------
Total liabilities 111,779 105,280
--------- ---------
Commitments and contingencies: (Note 11)
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 (22,517) 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) (8,669) 15,658
--------- ---------
Total liabilities and shareholders' equity (deficiency) $ 103,110 $ 120,938
========= =========
See accompanying notes to condensed consolidated financial statements
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
------------- ---------- ------------- ----------
(As Restated)
(See Note 2)
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
--------- --------- --------- ---------
30,459 47,974 111,081 124,359
Reorganization expenses:
Closed store expenses 674 -- 2,759 --
Professional fees 971 -- 1,390 --
--------- --------- --------- ---------
Loss before benefit for income taxes (9,115) (12,129) (24,393) (13,401)
Benefit for income taxes -- (4,245) -- (4,690)
--------- --------- --------- ---------
Net loss $ (9,115) $ (7,884) $ (24,393) $ (8,711)
========= ========= ========= =========
Basic loss per common share:
Net loss $ (1.52) $ (1.32) $ (4.07) $ (1.46)
========= ========= ========= =========
Diluted loss per common share:
Net loss $ (1.52) $ (1.32) $ (4.07) $ (1.46)
========= ========= ========= =========
Weighted average number of common shares
outstanding - basic and diluted 6,009 5,986 5,999 5,986
--------- --------- --------- ---------
See accompanying notes to condensed consolidated financial statements
COOKER RESTAURANT CORPORATION AND SUBSIDIARIES (DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollar amounts in thousands)
Nine Months Ended
--------------------------
September 30, October 1,
2001 2000
------------- ----------
(As Restated)
(See Note 2)
Cash flows from operating activities:
Net loss $(24,393) $ (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 2,350 --
Loss A1 on sale of property and equipment, net 112 222
Decrease (increase) in current assets 2,786 (1,081)
Increase in other assets (1,270) (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
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 10, 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.
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: Restatement
Subsequent to the issuance of the Company's September 30, 2001 quarterly
financial statements, management determined that an accrual should be made as of
July 1, 2001 for certain lease terminations and real estate costs under Section
502(b)6) of the Bankruptcy Code. Management also discovered an error in the
calculation of weighted average shares. As a result, the condensed consolidated
financial statements as of and for the three months and nine months ended
September 30, 2001 have been restated from amounts previously reported. A
summary of the significant effects of the restatement is as follows:
(in thousands, except per share
amounts) SEPTEMBER 30, 2001
---------------------------
AS PREVIOUSLY
REPORTED AS RESTATED
------------- -----------
Balance Sheet:
Accrued liabilities $ 6,644 $ 6,204
Accrued liabilities subject to
compromise 6,482 8,343
Total liabilities and
shareholders' equity 103,110 103,110
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2001
---------------------------- ----------------------------
AS PREVIOUSLY AS PREVIOUSLY
REPORTED AS RESTATED REPORTED AS RESTATED
------------- ----------- ------------- -----------
Statement of Operations:
Closed store expenses $ 674 $ 674 $ 1,338 $ 2,759
Net loss (9,115) (9,115) (22,972) (24,392)
Basic and diluted net loss per
common share $ (1.49) $ (1.52) $ (3.75) $ (4.07)
Note 3: 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 4: 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 accrued $489,000 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.
Note 5: 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 6: 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 7: 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.
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 .
Note 8: 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 9: 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 10: 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.
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 11: 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.
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The condensed consolidated financial statements for the nine months ended
September 30, 2001, have been restated. See Note 2 to the condensed consolidated
financial statements for a discussion and a summary of the effects of the
restatement.
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.
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% 7.6% 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%
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%
----- ----- ----- -----
132.4% 133.8% 121.8% 112.1%
Reorganization expenses- professional fees 4.2% 0.0% 1.5% 0.0%
Reorganization expenses- closed stores 2.9% 0.0% 3.0% 0.0%
----- ----- ----- -----
Loss before benefit for income taxes (39.5)% (33.8)% (26.3)% (12.1)%
Benefit for income taxes 0.0% (11.8)% 0.0% (4.2)%
----- ----- ----- -----
Net loss (39.5)% (22.0)% (26.3)% (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.
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.
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 2,350,000 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 $1,861,000 for its obligations for certain lease
termination and real estate costs under section 502(b)(6) of the Bankruptcy
Code. The 502(b)(6) liability is included in accrued liabilities subject to
compromise at September 30, 2001.
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.
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 7 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
$2,079,000 in the third quarter of 2000. The increase of $235,000 was due to the
accrual for penalty interest and late fees on the non-payment of the term loan
(see Note 10 - 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 $7,303,000 as
compared to $5,708,000 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.
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.
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 property 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 condensed consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
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.
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.
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: April 15, 2002
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)