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 March 31, 2002
/ / 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 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: (615) 279-7702
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 May 6, 2002)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
COOKER RESTAURANT CORPORATION AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
March 31, December 30,
ASSETS 2002 2001
----------- ------------
Current Assets: (Unaudited)
Cash and cash equivalents $ 1,809 $ 3,554
Restricted cash 4,388 4,914
Inventory 656 730
Income tax receivable 3,535 --
Assets held for sale 21,417 20,735
Prepaid and other current assets 2,196 657
--------- ---------
Total current assets 34,001 30,590
Property and equipment, net 59,763 65,191
Other assets, net 1,799 1,837
--------- ---------
Total assets $ 95,563 $ 97,618
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Notes payable $ 336 $ --
Accounts payable 1,014 874
Accrued liabilities 6,172 6,203
Capital lease obligation, current 4 4
--------- ---------
Total current liabilities 7,526 7,081
Long-term debt 3,000 3,000
Long-term capital lease obligation 1,494 2,894
Other liabilities 997 1,155
Accounts payable subject to compromise 6,136 6,159
Accrued liabilities subject to compromise 7,567 6,740
Long-term debt subject to compromise 67,948 72,132
Convertible debentures subject to compromise 12,547 12,547
--------- ---------
Total liabilities 107,215 111,708
--------- ---------
Commitments and contingencies
Shareholders' deficiency:
Common shares-without par value: authorized 30,000,000 shares;
issued 10,548,000 at March 31, 2002 and December 30, 2001 57,398 57,398
Accumulated deficit (25,557) (27,968)
Deferred compensation (330) (357)
Treasury stock, at cost, 4,066,000 shares at
March 31, 2002 and December 30, 2001 (43,163) (43,163)
--------- ---------
Total shareholders' deficiency (11,652) (14,090)
--------- ---------
Total liabilities and shareholders' deficiency $ 95,563 $ 97,618
========= =========
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 amounts)
Three Months Ended
March 31, April 1,
2002 2001
-------- --------
Sales $ 22,510 $ 37,388
-------- --------
Cost of Sales:
Food and beverage 6,781 11,040
Labor 8,610 14,208
Restaurant operating expenses 5,067 8,257
Restaurant depreciation 766 928
General and administrative 1,374 2,701
Impairment of long-lived assets (607) 494
Interest expense (contractual interest $1,813 for the three
months ended March 31, 2002) 208 2,861
Amortization of loan fees 39 271
Gain on sale of property and equipment (389) (92)
Interest and other (income) expense, net (68) 69
-------- --------
21,781 40,737
-------- --------
Reorganization expenses:
Closed store expenses 1,083 --
Professional fees 770 --
-------- --------
1,853 --
-------- --------
Loss before benefit for income taxes (1,124) (3,349)
Benefit for income taxes (3,535) --
-------- --------
Net income (loss) $ 2,411 $ (3,349)
======== ========
Basic income (loss) per common share:
Net income (loss) $ 0.40 $ (0.56)
======== ========
Diluted income (loss) per common share:
Net income (loss) $ 0.37 $ (0.56)
======== ========
Weighted average number of common shares outstanding:
Basic 6,077 5,986
======== ========
Diluted 6,482 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)
(In thousands)
Three Months Ended
March 31, April 1,
2002 2001
------- -------
Cash flows from operating activities:
Net income (loss) $ 2,411 $(3,349)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 906 1,309
Impairment charges (636) 494
Gain on sale of property and equipment, net (389) (92)
(Increase) decrease in current assets (4,415) 390
(Increase) decrease in other assets (1) 51
Increase (decrease) in current liabilities 109 (1,896)
Increase (decrease) in other liabilities 646 64
------- -------
Net cash used in operating activities (1,369) (3,029)
------- -------
Cash flows from investing activities:
Purchases of property and equipment (213) (592)
Proceeds from sale of property and equipment 3,745 5,369
Restricted cash payments 526 --
------- -------
Net cash provided by investing activities 4,058 4,777
------- -------
Cash flows from financing activities:
Repayments of borrowings (4,433) (610)
Repayments of capital lease obligations (1) (52)
------- -------
Net cash used in financing activities (4,434) (662)
------- -------
Net (decrease) increase in cash and cash equivalents (1,745) 1,086
Cash and cash equivalents, at beginning of period 3,554 1,602
------- -------
Cash and cash equivalents, at end of period $ 1,809 $ 2,688
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 208 $ 4,831
======= =======
Cash paid (received) for income taxes $ -- $ (568)
======= =======
Cash paid for reorganization items $ 1,951 $ --
======= =======
SUPPLEMENTAL INVESTING AND
FINANCING INFORMATION:
Abandonment of capital lease $ 1,400 $ --
======= =======
Prepaid expenses paid with notes payable $ 585 $ --
======= =======
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 Cooker
Restaurant Corporation and subsidiaries (the "Company") after elimination of
intercompany accounts and transactions at March 31, 2002, and the statements of
operations for the three months ended March 31, 2002 and cash flows for the
three months ended March 31, 2002. The results of operations for the three
months ended March 31, 2002, are not necessarily indicative of the operating
results expected for the fiscal year ending December 29, 2002. 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 30, 2001.
The accompanying condensed consolidated financial statements have been prepared
on a going concern basis and in accordance with AICPA Statement of Position
("SOP") 90-7 "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code."
On May 25, 2001, the Company filed voluntary petitions 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 of principal and interest
payments. 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 engaged special counsel and
reorganization consultants to assist the Company in its reorganization 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 businesses as
debtors-in-possession subject to the supervision of the Bankruptcy Court. As
debtors-in-possession, the Company has the right, subject to the Bankruptcy
Court, to assume or reject any pre-petition executory contracts and unexpired
leases.
The Company attributes the situation which led to the commencement of bankruptcy
proceedings to rapid growth, development of unsuccessful new restaurants,
deterioration of the quality of food and service and a soft economy.
Notwithstanding significant efforts, including the hiring of a new chief
executive officer and chief operations officer, deteriorating same-stores sales,
a soft economy and a worsening liquidity position caused the Company to default
under its secured financing. Efforts to refinance the secured debt or negotiate
a forbearance agreement failed and the Company's secured lenders commenced
foreclosure proceedings on some of the Company's core assets. The Company
commenced the Chapter 11 proceedings to halt the foreclosures and attempt to
maximize the value of its assets for the benefit of creditor and equity
constituencies.
The Company is seeking to restructure its secured, priority and unsecured debt
and continue operating its businesses as a going concern and plans to file a
disclosure statement and plan of reorganization (the "Plan") with the Bankruptcy
Court by May 31, 2002. It is likely that the Plan will provide for payments, or
partial payments, to various classes of creditors over various periods of time,
possibly including rights to purchase future equity in the Company, but is not
likely to provide for a continuation of the current equity interests of
shareholders in the Company. It is unlikely that holders of shares of stock of
the Company will receive any distribution from the bankruptcy proceedings and
all outstanding shares of stock of the Company are likely to be cancelled in the
proceeding. Generally, actions to enforce or otherwise effect payment of all
pre-Chapter 11 liabilities are stayed while the Company continues its business
operation as a debtor-in-possession. The Company is currently in negotiations
with certain of its creditors to finalize the terms of the Plan. The Company
believes that a reorganization, as opposed to a liquidation, will maximize value
for all creditor constituencies, although the Company's equity holders are
unlikely to receive any value in the reorganization. The Company intends to fund
payments required under the Plan from cash generated by operations, by raising
new equity capital and by disposing of certain of the Company's non-encumbered
non-core assets.
The Company's recent losses and the Chapter 11 proceedings raise substantial
doubt about the Company's ability to continue as a going concern. The Company's
condensed consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classifications of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's continuation
as a going concern is dependent upon its ability to generate sufficient cash
flows to meet obligations on a timely basis, to comply with the terms and
conditions of its debt agreements, to obtain additional financing as may be
required and profitably operate its business. Due to factors described above,
the Company may be unable to continue as a going concern for a reasonable period
of time.
NOTE 2: EARNINGS PER SHARE
Basic earnings per share have been computed by dividing net income (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 and the vesting of restricted stock, as well as their related income tax
effects, unless their effect is antidilutive.
Convertible subordinated debentures outstanding as of March 31, 2002, 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.
NOTE 3: IMPAIRMENT OF LONG-LIVED ASSETS
Annually, or more frequently if events or circumstances change, a determination
is made by management to ascertain whether property and equipment and other
intangibles have been impaired based upon the sum of future undiscounted cash
flows from operating activities. The Company's impairment analysis is based on
cash flows at an individual store level. If the estimated net cash flows are
less than the carrying amount of such assets, the Company will recognize an
impairment loss in an amount necessary to write down the assets to fair value.
Impairment charges for assets held for use were determined from expected future
discounted cash flows, and impairment charges for assets held for sale were
determined based on the fair value of the asset less any estimated selling
costs.
During the three months ended March 31, 2002, the Company closed 3 restaurants.
One of these restaurants was a leased location and the lease was subsequently
rejected. One of the closures was reported as held for sale and an impairment
recorded at December 30, 2001. The remaining store has been classified as assets
held for sale. No impairment was recorded on this store. These assets were taken
out of service at the time the restaurants were closed and consequently no
further depreciation was recognized. In conjunction with the leased store, the
Company recorded an impairment charge of approximately $364,000. During the
three months ended March 31, 2002, the Company revised its estimate of fair
value for certain assets held for sale. As a result , the Company reversed
approximately $971,000 of previously recognized impairment charges.
NOTE 4: NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible
Assets, which addresses financial accounting and reporting for intangible assets
acquired individually or with a group of other assets. SFAS No. 142 also
addresses financial accounting and reporting for goodwill and other intangible
assets subsequent to their acquisition. With the adoption of SFAS No. 142,
goodwill is no longer subject to amortization, but will be subject to at least
an annual assessment for impairment by applying a fair value-based test. The
impairment loss is the amount, if any, by which the implied fair value of
goodwill is less than the carrying or book value. The Company adopted SFAS No.
142 effective December 31, 2001 and the adoption did not have an impact on the
consolidated financial position, results of operations or cash flows of the
Company.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which replaces SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets 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 Company adopted SFAS No. 144 effective December 31, 2001 and the adoption
did not have a material impact on the consolidated financial position, results
of operations or cash flows of the Company.
NOTE 5: (GAIN) LOSS ON DISPOSAL OF PROPERTY AND EQUIPMENT
In the first quarter of 2002, the Company recorded a gain on disposal of a
subleased property in Atlanta, Georgia of $389,000. 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.
NOTE 6: 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 (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.
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 and Troy, Michigan and Palm Harbor, Florida. The proceeds were used to
pay the interest portion of the Term Loan and to finance its acquisition of the
Cool Springs, Tennessee store. During the first quarter of fiscal 2002, the
Company sold two properties in Augusta, Georgia and Atlanta, Georgia. Proceeds
in the amount of $3,222,000 were used to pay down the principal portion of the
term loan. Also during the first quarter, the company used proceeds in the
amount of $699,000 from the sale of excess land in Fairfax, Virginia in December
2001 to pay down the principal portion of the term loan.
Since the quarter ended October 1, 2000, the Company also has not been in
compliance with certain covenants pertaining to its loan with 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.
Additionally, in September 2000, Bank of America, N.A., as the agent for holders
of its senior credit facility, notified the trustee under the 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
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
payment. 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 debentures and certain other of the Company's credit arrangements
The Company has classified the term loan and the revolver as subject to
compromise in the March 31, 2002 and the December 30, 2001, consolidated balance
sheets as management believes those obligations are under secured and may be
affected by any plan of reorganization that may be filed by the Company in the
Chapter 11 proceedings. The Company has classified the loan with CIT as subject
to compromise in the March 31, 2002 and the December 30, 2001, consolidated
balance sheet as the obligation is under secured. The Company has classified the
obligation to the holders of the debentures as a liability that is subject to
compromise in the consolidated balance sheets as of March 31, 2002 and December
30, 2001, as the obligation is unsecured. As these obligations are all
classified as subject to compromise, the Company has ceased the accrual of
interest on these obligations. As a result, interest of $1,605,000 from December
31, 2001 to March 31, 2002, was not recorded in these financial statements.
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 primarily to finance working
capital.
NOTE 7: 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
Liabilities subject to compromise refers to liabilities incurred prior to the
commencement of the Chapter 11 proceedings. These liabilities consist primarily
of amounts outstanding under long-term debt and also include accounts payable,
accrued interest, and other accrued expenses. These amounts represent the
Company's estimate of known or potential claims to be resolved in connection
with the Chapter 11 Case. Such claims remain subject to future adjustments.
Adjustments may result from (1) negotiations; (2) actions of the Bankruptcy
Court; (3) further development with respect to disputed claims; (4) future
rejection of additional executory contracts or unexpired leases; (5) the
determination as to the value of any collateral securing claims; (6) proofs of
claim; or (7) other events. Payment terms for these amounts, which are
considered long-term liabilities at this time, will be established in connection
with the Chapter 11 proceedings.
Pursuant to order of the Bankruptcy Court, on or about June 6, 2001, the Company
mailed notices to all known creditors that the deadline for filing proofs of
claim with the Bankruptcy Court was October 15, 2001. Differences between
amounts recorded by the Company and claims filed by creditors are continuing to
be investigated and resolved. Accordingly, the ultimate number and amount of
allowed claims is not presently known and, because the settlement terms of such
allowed claims is subject to a confirmed plan of reorganization, the ultimate
distribution with respect to allowed claims is not presently ascertainable.
The Company has received approval from the Bankruptcy Court to pay pre-petition
and post-petition employee wages, salaries, benefits and other employee
obligations, to pay vendors and other providers in the ordinary course for goods
and services received from May 25, 2001, and to honor customer gift certificate
programs.
NOTE 8: INCOME TAX RECEIVABLE
Due to the Job Creation and Worker Assistance Act of 2002 signed by the
President on March 9, 2002, the Company will file for a federal income tax
refund in fiscal 2002 to carry back five years its fiscal 2001 federal net
operating loss. As a result, the Company has recorded a $3,535,000 income tax
receivable at March 31, 2001.
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
On May 25, 2001, the Company commenced bankruptcy proceedings by filing a
voluntary Chapter 11 bankruptcy petition under the Bankruptcy Code. Chapter 11
allows a debtor, and under some circumstances, creditors and other parties in
interest, to propose a plan of reorganization. The plan may provide for the
debtor to reorganize by continuing to operate, to liquidate by selling assets of
the estate, or a combination of both. The Company is seeking to restructure its
secured, priority and unsecured debt and continue operating its businesses as a
going concern and plans to file a disclosure statement and plan of
reorganization (the "Plan") with the Bankruptcy Court by May 31, 2002. It is
likely that the Plan will provide for payments, or partial payments, to various
classes of creditors of the Company over various periods of time, but it is
unlikely that it will provide for a continuation of the current equity interests
of shareholders of the Company. Generally, actions to enforce or otherwise
effect payment of all pre-Chapter 11 liabilities are stayed while the Company
continues its business operation as a debtor-in-possession. The Company is
currently in negotiations with certain of its creditors to finalize the terms of
the Plan. The Company believes that a reorganization, as opposed to a
liquidation, will maximize value for all creditor constituencies. The Company
intends to fund payments required under the Plan from cash generated by
operations, by raising additional equity and disposing of certain of the
Company's non-core assets.
The Company attributes the situation which led to the commencement of bankruptcy
proceedings to rapid growth, development of unsuccessful new restaurants,
deterioration of the quality of food and service and a soft economy.
Notwithstanding significant efforts, including the hiring of a new chief
executive officer and chief operations officer, deteriorating same-stores sales,
a soft economy and a worsening liquidity position caused the Company to default
under its secured financing. Efforts to refinance their secured debt or
negotiate a forbearance agreement failed and the Company's secured lenders
commenced foreclosure proceedings on some of the Company's core assets. The
Company commenced the Chapter 11 proceedings to halt the foreclosures and
attempt to maximize the value of its assets for the benefit of creditor and
equity constituencies.
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
--------------------------
March 31, April 1,
2002 2001
------ ------
Sales 100.0% 100.0%
------ ------
Cost of Sales:
Food and beverage 30.1% 29.5%
Labor 38.2% 38.0%
Restaurant operating expenses 22.5% 22.1%
Restaurant depreciation 3.4% 2.5%
General and administrative 6.1% 7.2%
Impairment of long-lived assets -2.7% 1.3%
Interest expense 0.9% 7.7%
Amortization of loan fees 0.2% 0.7%
Gain on sale of property and equipment -1.7% -0.2%
Interest and other (income) expense, net -0.3 0.2%
------ ------
96.8% 109.0%
------ ------
Reorganization expenses:
Closed store expenses 4.8% --
Professional fees 3.4% --
------ ------
8.2% --
------ ------
Loss before benefit for income taxes -5.0% -9.0%
Benefit for income taxes -15.7% --
------ ------
Net loss 10.7% -9.0%
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SALES
Sales for the first quarter of fiscal 2002 decreased 39.8%, or $14,878,000, to
$22,510,000 compared to sales of $37,388,000 for the first quarter of fiscal
2001. The decrease is due to a decrease in the number of guests at the
restaurants as well as a decrease in the number of stores operating during the
comparable periods. At the end of the first quarter of 2002, the Company
operated 40 restaurants, compared to 64 at the end of the first quarter of 2001.
Same store sales were down 15.6% for the three months ended March 31, 2002 from
the three months ended April 1, 2001. 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.
FOOD AND BEVERAGE
The cost of food and beverage for the first quarter of 2002 was $6,781,000 as
compared to $11,040,000 for the first quarter of 2001. The decrease of
$4,259,000 is primarily due to the decrease in the number of restaurants and
decreased sales for the quarter compared to last year. The decrease was
partially offset by a 0.6% increase in food cost. As a percentage of sales, the
cost of food and beverage was 30.1% for the first quarter of 2002, as compared
to
29.5% for the first quarter of 2001. The increase in food and beverage cost as a
percentage of sales in 2002 is due primarily to increased prices for produce and
beef.
LABOR
Labor costs for the first quarter of 2002 were $8,610,000 as compared to
$14,208,000 for the first quarter of 2001. Labor costs as a percentage of sales
for the third quarter of 2001 were 38.2% as compared to 38.0% for the first
quarter of 2001. 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.
RESTAURANT OPERATING EXPENSES
Restaurant operating expenses for the first quarter of 2002 were $5,067,000 as
compared to $8,257,000 for the first quarter of 2001. The decrease of $3,190,000
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 March 31, 2002 were 22.5%, as compared to 22.1% for the comparable period
in the prior year. The increase in restaurant operating expenses as a percentage
of sales is due primarily to the reduction in sales as discussed above.
RESTAURANT DEPRECIATION
Restaurant depreciation expense for the first quarter of 2002 was $766,000, as
compared to $928,000 for the comparable period in the prior year. The decrease
of $162,000 for the first quarter of 2002 is due primarily to the closing of and
reclassification of restaurants from property and equipment to assets held for
sale during the last twelve months.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the first quarter of 2002 were
$1,374,000 as compared to $2,701,000 for the first quarter of 2001. The decrease
of $1,327,000 was primarily due to decreases in salaries and benefits in the
amount of $560,000, outside services, including legal and marketing costs, of
$489,000 and travel and related expenses of $176,000. During the fourth quarter
of 2001, the Company closed its administrative offices in West Palm Beach,
Florida and relocated these functions to Nashville, Tennessee, where the
corporate headquarters is located. Due to reductions in the number of
restaurants, significant downsizing of support functions were also made. In 2001
the Company incurred significant legal fees to defend itself against several
lawsuits, which were settled in 2001.
IMPAIRMENT OF LONG-LIVED ASSETS
Impairment charges on certain properties recorded in prior periods were reversed
in the amount of $971,000 in first quarter of 2002 due to revisions of estimates
of fair value. Also during the first quarter of 2002, the Company recorded
impairment charges in the net amount of $364,000 representing primarily the net
book values of certain leasehold improvements and equipment relating to an
unexpired lease for one restaurant that it has subsequently rejected under the
provisions of the Bankruptcy Code. During the three months ended April 1, 2001,
the Company recorded impairment charges in the amount of $494,000 on 3
restaurants which were sold in May 2001.
REORGANIZATION EXPENSES
During the three months ended March 31, 2002, the Company accrued $138,000 to
cover the estimated carrying costs of the stores that it closed during the
period. These charges include estimated utilities, insurance and real estate
taxes for a period of nine months for owned locations. The Company also accrued
$828,000 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 March 31, 2002.
In addition, during the three months ended March 31, 2002, the Company expensed
$770,000 to outside professionals who are contracted to assist the Company in
its reorganization efforts.
INTEREST EXPENSE
Interest expense in the first quarter of 2002 was $208,000 as compared to
$2,861,000 in the first quarter of 2001. The decrease of $2,653,000 was due to
the cessation of interest accrual on the Company's debt subject to compromise.
This decrease was slightly offset by interest on financing obtained subsequent
to May 25, 2001.
GAIN ON SALE OF PROPERTY AND EQUIPMENT, NET
During the three months ended March 31, 2002, the Company recorded a gain on the
sale of a sublease property in the amount $389,000. Another owned property was
sold during the first quarter of 2002 for its net book value, resulting in no
gain or loss. During the three months ended April 1, 2001, the gain resulted
from the sale of the
Company's corporate office building in West Palm Beach, Florida. Two other owned
properties were sold during the first quarter of 2001 for the net book value of
the assets, resulting in no gain or loss.
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.
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 of principal and interest
payments. 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 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 a 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 condensed consolidated financial statements. Further, the
amounts and classifications reported in the condensed 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 condensed 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.
The Company's condensed consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classifications of liabilities that might be
necessary should the Company be unable to continue as a going concern. The
Company's continuation as a going concern is dependent upon its ability to
successfully reorganize.
As of March 31, 2002, the Company had not filed a reorganization plan with the
Bankruptcy Court. If management is unable to implement a successful plan, the
lenders, subject to the Bankruptcy Court approval, could foreclose on the
collateral assets, 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.
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 nor did it make its principal payments in accordance with the terms of the
loan due to the Term Lenders.
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. In May 2001, the Company also sold its
properties in Grand Rapids and Troy, Michigan and Palm Harbor, Florida. 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 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.
Since the quarter ended October 1, 2000, the Company also has not been in
compliance with certain covenants pertaining to its term debt with 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.
Additionally, in September 2000, Bank of America, N.A., as the agent for holders
of its senior credit facility, notified 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.
Since April 1, 2001, the Company has closed 24 restaurants. 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 fiscal 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.
The Company does not intend to open any new restaurants in fiscal 2002. Total
cash expenditures for restaurant improvements are projected to be approximately
$270,000 for the remainder of fiscal 2002.
In addition to the sale of certain assets, in July 2001, the Company received an
income tax refund of $1,500,000, which was used to finance its working capital.
Due to the Job Creation and Worker Assistance Act of 2002 signed by the
President on March 9, 2002, the Company will file for a federal income tax
refund in fiscal 2002 to carry back five years its fiscal 2001 federal net
operating loss. As a result, the Company has recorded a $3,535,000 income tax
receivable at March 31, 2002, the proceeds of which the Company intends to use
to assist in its reorganization.
In fiscal 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 increase working capital or cash flows from
operations. 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 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 foreclose on the collateral assets, 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
Through the petition date on May 25, 2001, the Company had a significant amount
of indebtedness, which accrued interest at fixed and variable rates. As of March
31,2002, the aggregate amount of our outstanding indebtedness was $83,495,000,
of which $55,457,000 accrued interest at variable rates and $28,038,000 accrued
interest at fixed rates. The interest rate of the variable rate indebtedness
fluctuated with changes in the LIBOR rate applicable under the terms of our term
loan or revolver. A change in the LIBOR rate under these agreements would have
affected the interest rate at which indebtedness outstanding accrued. In
connection with the Company's bankruptcy proceedings and plan of reorganization,
the above obligations have been classified as subject to compromise and the
Company has ceased the accrual of interest. The Company is currently in
negotiations with certain of its creditors to finalize the terms of the plan of
reorganization and restructure its debt, the terms of which have not yet been
finalized. Prior to May 25, 2001, interest rate exposure was measured using
interest rate sensitivity analysis to determine the effect on the Company's
derivative and other variable rate financial instruments in the event of
hypothetical changes in interest rates. Such hypothetical changes reflect
management's best estimate of reasonable possible, near-term changes. A
hypothetical change in the Company's interest rate on the variable rate debt
would have impacted interest expense for fiscal 2000 by approximately $579,000.
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 March 31, 2002
with respect to any material pending legal proceedings.
The case of Rebecca Conway v. Cooker Restaurant Corporation was filed in the
Courts of Common Pleas, Cuyahoga County, Ohio in October 2000. This suit is a
result of an after hours, non-Cooker sanctioned, function which resulted in the
termination of four Cooker managers and five Cooker crew members. One of the
terminated crew members, the plaintiff, is alleging inappropriate and unwelcome
behavior of others toward the plaintiff that night in question. The suit names
Cooker Restaurant, two Cooker managers and two crew members as defendants with
six counts against each; sexual harassment, retaliatory suspension and
discharge, assault, battery, invasion of privacy, and intentional infliction of
emotional distress. For each defendant and each count the plaintiff is seeking
$25,000 and undetermined amounts "such further relief as the court deems
necessary and proper" and attorney fees via a jury trial. 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.
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 (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. The Company has not received a
waiver from the Term Lenders to cure the non-compliance as of March 31, 2002.
Since the quarter ended October 1, 2000, the Company also has not been in
compliance with certain covenants
pertaining to its loan with 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 as of March 31, 2002.
Additionally, in September 2000, Bank of America, N.A., as the agent for holders
of its senior credit facility, notified the trustee under the 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
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 debentures and certain other of the Company's credit arrangements.
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
March 31, 2002.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COOKER RESTAURANT CORPORATION
(The "Registrant")
Date: May 20, 2002
By:
/s/ Henry R. Hillenmeyer
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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
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David Sanford
Asst. Secretary - Controller
(Principal financial and accounting officer)