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 June 30, 2002
[ ] 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 (I.R.S. Employer
Incorporation or Organization) Identification No.)
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
6,481,578 COMMON SHARES, WITHOUT PAR VALUE
(number of common shares outstanding as of the close of business
on August 12, 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)
June 30, December 30,
ASSETS 2002 2001
--------- ------------
(Unaudited)
Current Assets:
Cash and cash equivalents $ 587 $ 3,554
Restricted cash 7,575 4,914
Inventory 510 730
Income tax receivable 3,681 --
Assets held for sale 16,201 20,735
Prepaid and other current assets 1,424 657
--------- ---------
Total current assets 29,978 30,590
Property and equipment, net 57,056 65,191
Other assets, net 1,761 1,837
--------- ---------
Total assets $ 88,795 $ 97,618
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Notes payable $ 473 $ --
Accounts payable 881 874
Accrued liabilities 5,650 6,203
Capital lease obligation, current 4 4
--------- ---------
Total current liabilities 7,008 7,081
Long-term debt 2,907 3,000
Long-term capital lease obligation 493 2,894
Other liabilities 996 1,155
Accounts payable subject to compromise 6,135 6,159
Accrued liabilities subject to compromise 7,567 6,740
Long-term debt subject to compromise 67,912 72,132
Convertible debentures subject to compromise 12,547 12,547
--------- ---------
Total liabilities 106,565 111,708
--------- ---------
Commitments and contingencies Shareholders' deficiency:
Common shares-without par value: authorized 30,000,000 shares;
issued 10,548,000 at June 30, 2002 and December 30, 2001 57,398 57,398
Accumulated deficit (31,701) (27,968)
Deferred compensation (304) (357)
Treasury stock, at cost, 4,066,000 shares at
June 30, 2002 and December 30, 2001 (43,163) (43,163)
--------- ---------
Total shareholders' deficiency (17,770) (14,090)
--------- ---------
Total liabilities and shareholders' deficiency $ 88,795 $ 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 Six Months Ended
------------------------ ------------------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
------------------------- ------------------------
Sales $ 18,654 $ 30,460 $41,164 $ 67,848
------------------------- ------------------------
Cost of Sales:
Food and beverage 5,469 9,546 12,250 20,586
Labor 7,770 12,510 16,380 26,718
Restaurant operating expenses 4,145 7,103 9,212 15,360
Restaurant depreciation 724 967 1,490 1,895
General and administrative 1,379 2,407 2,753 5,108
Impairment of long-lived assets 3,918 5,443 3,311 5,937
Interest expense (contractual interest of $1,731,
$2,128, $3,544, and $4,989, respectively) 156 2,128 364 4,989
Amortization of loan fees 37 -- 76 271
(Gain) loss on sale of property and equipment, net (193) 204 (582) 112
Interest and other (income) expense, net (19) (3) (87) 65
------------------------- ------------------------
23,386 40,305 45,167 81,041
------------------------- ------------------------
Reorganization expenses:
Closed store expenses 325 1,657 1,408 1,657
Professional fees 1,233 428 2,003 428
------------------------- ------------------------
1,558 2,085 3,411 2,085
------------------------- ------------------------
Loss before benefit for income taxes (6,290) (11,930) (7,414) (15,278)
Benefit for income taxes (146) -- (3,681) --
------------------------- ------------------------
Net loss $ (6,144) $(11,930) $ (3,733) $(15,278)
========================= =========================
Basic loss per common share:
Net loss $ (1.01) $ (1.99) $ (0.61) $ (2.55)
========================= =========================
Diluted loss per common share:
Net loss $ (1.01) $ (1.99) $ (0.61) $ (2.55)
========================= =========================
Weighted average number of common shares
outstanding - basic and diluted 6,110 6,002 6,093 5,994
========================= =========================
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)
Six Months Ended
-------------------------
June 30, July 1,
2002 2001
-------- --------
Cash flows from operating activities:
Net loss $ (3,733) $(15,278)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,789 2,354
Impairment charges 3,340 5,937
(Gain) loss on sale of property and equipment, net (582) 112
Contribution of common stock to 401K plan -- 23
(Increase) decrease in current assets (3,340) 717
Increase in other assets -- (1,116)
Increase in accounts payable and accrued expenses 257 4,015
(Decrease) increase in other liabilities (159) 101
-------- --------
Net cash used in operating activities (2,428) (3,135)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (558) (2,216)
Proceeds from sale of property and equipment 7,409 9,317
Restricted cash deposits (2,661) --
-------- --------
Net cash provided by investing activities 4,190 7,101
-------- --------
Cash flows from financing activities:
Proceeds from borrowings -- 1,000
Repayments of borrowings (4,728) (2,111)
Repayments of capital lease obligations (1) (52)
-------- --------
Net cash used in financing activities (4,729) (1,163)
-------- --------
Net (decrease) increase in cash and cash equivalents (2,967) 2,803
Cash and cash equivalents, at beginning of period 3,554 1,602
-------- --------
Cash and cash equivalents, at end of period $ 587 $ 4,405
======== ========
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 June 30, 2002, and the results of
operations for the three and six months ended June 30, 2002 and cash flows for
the six months ended June 30, 2002. The results of operations for the three and
six months ended June 30, 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 "Petition Date"), 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. The Company filed its
plan of reorganization (the "Plan") and disclosure statement with the Bankruptcy
Court on July 3, 2002. The Plan is a reorganization plan pursuant to which the
Company seeks to restructure its secured, priority and unsecured debt and
continue operating its businesses as a going concern. If the Plan is confirmed,
the Company will emerge from chapter 11 bankruptcy protection as a private
company whose common stock will be owned by investors, who will contribute $4
million of new equity financing, and management. In addition to the new equity
financing, the Company will fund the payments required by the Plan from cash
generated by operations, net proceeds of the sale of excess property, an
expected federal income tax refund of $3.7 million and additional borrowings of
$1 million from the Company's principal secured lenders.
Under the Plan, the Company's secured debt will be restructured and general
unsecured creditors will receive a combination of cash and warrants to purchase
stock of the newly reorganized entity. Under the Plan, holders of claims in the
general unsecured creditor class are expected to receive approximately 12% on
account of their claims plus warrants to purchase 15% of the common stock of the
newly reorganized entity.
Since the Company's assets will be insufficient to pay all classes of creditors
entitled to priority of payment, there will not be any funds available for
distributions to holders of shares of stock of the Company. Accordingly, the
Plan provides that all holders of equity security interests in the Company
(including but not limited to the common stock of the Company, restricted stock
held pursuant to the 2001 Restricted Stock Plan, all related rights to acquire
shares of Class A Junior Participating Preferred Shares, and all options,
warrants or other rights to purchase securities of the Company) will be
canceled.
As the holders of the Company's equity security interests will receive nothing
under the Plan, they are deemed, under the United States Bankruptcy Code, as
having voted to reject the Plan. The Company will inform the Court of the deemed
rejection by the holders of equity security interests at the hearing on the
confirmation of the Company's Plan. No class of holders junior to the holders of
equity security interests will receive any distribution under the Plan.
Accordingly, pursuant to section 1129(b) of the Bankruptcy Code, the Court can
confirm the Plan over the objection of the holders of equity security interests
and their deemed rejection of the Plan if the Court finds that the Plan is fair
and equitable and does not discriminate unfairly.
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 to successfully execute the Plan 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: LOSS 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 and
the vesting of restricted stock, as well as their related income tax effects,
unless their effect is antidilutive. All contingently issuable shares were
excluded from the computation of diluted weighted-average shares for all periods
presented as the inclusion of those shares would be antidiltive.
Convertible subordinated debentures outstanding as of June 30, 2002, are
convertible into 582,725 shares of common stock at $21.5625 per share and are
due October 2002. In accordance with Statement of Financial Accounting Standards
("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 weighted-average shares
for any period presented as the inclusion of the converted shares would be
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 estimated future
undiscounted cash flows from operating activities. The Company's impairment
analysis is based on cash flows at an individual restaurant 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 prices for similar
assets, 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 and six months ended June 30, 2002, the Company recorded an
impairment charge for five of its operating restaurants totaling $1,963,000.
This impairment charge resulted from current period operating and cash flow
losses at these locations. The impaired assets primarily represent buildings and
furniture, fixtures and equipment.
During the three months ended June 30, 2002, the Company recorded an impairment
charge of $2,172,000 for nine of its properties held for sale and reversed
$217,000 of impairment charges previously taken on two of its properties held
for sale. For the six months ended June 30, 2002, the Company recorded an
impairment charge of $2,536,000 for ten of its properties held for sale and
reversed $1,188,000 of impairment charges previously taken on five of its
properties held for sale. Reversals of previously recognized impairment charges
are recognized as a result of revisions of estimates of fair value. These assets
are being held for sale as a result of the decision to close these restaurants
due to poor operating performance. Assets held for sale primarily represent
buildings and furniture, fixtures and equipment. These assets are expected to be
sold prior to the end of 2002.
NOTE 4: NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (the "FASB") issued 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.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
The two most significant aspects of this pronouncement, with respect to the
Company, is the elimination of SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and the amendment to SFAS No. 13, Accounting for Leases.
As a result of the elimination of SFAS No. 4, gains and losses from
extinguisment of debt should be classified as extraordinary items only if they
meet the criteria in APB Opinion No. 30, Reporting the Results of
Operations-Discontinued Events and Extraordinary Items. The amendment to SFAS
No. 13 changes the accounting treatment of certain lease modifications that have
economic effects similar to sale-leaseback transactions to require those lease
modifications to be accounted for in the same manner as sale-leaseback
transactions. The rescission of SFAS No. 4 is effective for fiscal years
beginning after May 15, 2002. The rescission of SFAS No. 4 is effective for
fiscal years beginning after May 15, 2002. The amendment to SFAS No. 13 is
effective for all transactions after May 15, 2002. Management does not believe
the adoption of SFAS No. 145 will have a material effect on the consolidated
financial position, results of operations or cash flows of the Company.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability Recognition for
Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). The principal difference between this
Statement and EITF Issue 94-3 relates to its requirements for recognition of a
liability for a cost associated with an exit or disposal activity. SFAS No. 146
requires that the liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred rather than at the date of
an entity's commitment to an exit plan. SFAS No. 146 is effective for all exit
or disposal activities after December 31, 2002. Management has not completed the
process of determining the effect on the consolidated financial position,
results of operations or cash flows of the Company.
NOTE 5: 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. During the second
quarter of fiscal 2002, the Company sold three properties in Tallahassee,
Florida, Gainesville, Florida and Lexington, Kentucky. Proceeds in the amount of
$3,214,000 were used to pay down the principal portion of the term loan in July
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.
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 June 30, 2002 and the December 30, 2001, consolidated balance
sheets as those obligations are under secured and will be affected by the plan
of reorganization that has been filed by the Company in the Chapter 11
proceedings. The Company has classified the loan with CIT as subject to
compromise in the June 30, 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 June 30, 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 $3,180,000 from December
31, 2001 to June 30, 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. During the six months ended June 30, 2002, a portion of land of one on
the secured properties was sold for approximately $94,000
and the proceeds used to repay a portion of this loan.
Under the Company's plan of reorganization, the Company's secured portion of the
Company's debt will be restructured. Holders of unsecured debt along with other
general unsecured creditors will receive a combination of cash and warrants to
purchase stock of the newly reorganized entity. See Note 1 for a discussion of
the the Company's plan of reorganization.
NOTE 6: 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 7: 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 $3,681,000 income tax
receivable at June 30, 2002.
NOTE 8: SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest for the six months ended June 30, 2002 and July 1, 2001
was approximately $364,000 and $1,422,000, respectively. Cash paid (received)
for taxes during the six months ended June 30, 2002 and July 1, 2001 was
approximately $240,000 and ($65,000), respectively. Cash paid for reorganization
items for the six months ended June 30, 2002 and July 1, 2001 was approximately
$2,781,000 and $296,000, respectively. In fiscal 2001,
the Company issued 496,000 shares of common stock from the Company's treasury
stock. During the six months ended June 30, 2002 the Company rejected a capital
lease in the amount of $1,400,000 under the provisions of the Bankruptcy Code.
Also during the six months ended June 30, 2002, the Company financed certain
policies of its 2002 insurance coverage with notes payable in the amount of
$888,000.
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 Company filed its
plan of reorganization (the "Plan") and disclosure statement with the Bankruptcy
Court on July 3, 2002. The Plan is a reorganization plan pursuant to which the
Company seeks to restructure its secured, priority and unsecured debt and
continue operating their businesses as a going concern. If the Plan is
confirmed, the Company will emerge from chapter 11 bankruptcy protection as a
private company whose common stock will be owned by investors contributing $4
million of new equity financing. In addition to the new equity financing, the
Company will fund the payments required by the Plan from cash generated by
operations, net proceeds of the sale of excess property, an expected federal
income tax refund and additional borrowings of $1 million from the Company's
principal secured lenders.
Under the Plan, the Company's secured debt will be restructured and general
unsecured creditors will receive a combination of cash and warrants to purchase
stock of the newly reorganized entity. Under the Plan, holders of claims in this
class are expected to receive approximately 12% on account of their claims plus
warrants to purchase 15% of the common stock of the newly reorganized entity.
Since the Company's assets will be insufficient to pay all classes of creditors
entitled to priority of payment, there will not be any funds available for
distributions to holders of shares of stock of the Company. Accordingly, the
Plan provides that all holders of equity security interests in the Company
(including but not limited to the common stock of the Company, restricted stock
held pursuant to the 2001 Restricted Stock Plan, all related rights to acquire
shares of Class A Junior Participating Preferred Shares, and all options,
warrants or other rights to purchase securities of the Company) will be
canceled.
As the holders of the Company's equity security interests will receive nothing
under the Plan, they are deemed, under the United States Bankruptcy Code, as
having voted to reject the Plan. The Company will inform the Court of the deemed
rejection by the holders of equity security interests at the hearing on the
confirmation of the Company's Plan. No class of holders junior to the holders of
equity security interests will receive any distribution under the Plan.
Accordingly, pursuant to section 1129(b) of the Bankruptcy Code, the Court can
confirm the Plan over the objection of the holders of equity security interests
and their deemed rejection of the Plan if the Court finds that the Plan is fair
and equitable and does not discriminate unfairly.
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 Six Months Ended
----------------------- ------------------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
------- ------- -------- -------
Sales 100.0% 100.0% 100.0% 100.0%
------- ------- ------- -------
Cost of Sales:
Food and beverage 29.3% 31.3% 29.8% 30.3%
Labor 41.7% 41.1% 39.8% 39.4%
Restaurant operating expenses 22.2% 23.3% 22.4% 22.6%
Restaurant depreciation 3.9% 3.2% 3.6% 2.8%
General and administrative 7.4% 7.8% 6.6% 7.5%
Impairment of long-lived assets 21.0% 17.9% 8.0% 8.8%
Interest expense 0.8% 7.0% 0.9% 7.0%
Amortization of loan fees 0.2% 0.0% 0.2% 0.4%
(Gain) loss on sale of property and equipment, net -1.0% 0.7% -1.4% 0.4%
Interest and other (income) expense, net -0.1% 0.0% -0.2% 0.2%
------- ------- ------- -------
125.4% 132.2% 109.7% 119.4%
------- ------- ------- -------
Reorganization expenses:
Closed store expenses 1.8% 5.5% 3.4% 2.4%
Professional fees 6.6% 1.4% 4.9% 0.7%
------- ------- ------- -------
8.4% 6.9% 8.3% 3.1%
------- ------- ------- -------
Loss before benefit for income taxes -33.8% -39.2% -18.0% -22.5%
Benefit for income taxes -0.8% 0.0% -8.9% --
------- ------- ------- -------
Net loss -33.0% -39.2% -9.1% -22.5%
======= ======= ======= =======
SALES Sales for the second quarter of fiscal 2002 decreased 38.8%, or
$11,806,000, to $18,654,000 compared to sales of $30,460,000 for the second
quarter of fiscal 2001. For the six months ended June 30, 2002, sales decreased
39.3% or $26,684,000. 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 second quarter of 2002, the
Company operated 37 restaurants, compared to 50 at the end of the second quarter
of 2001. Same store sales were down 10.6% for the three months ended June 30,
2002 from the three months ended July 1, 2001. Same store sales were down 12.9%
for the six months ended June 30, 2002 from the six months ended July 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 second quarter of 2002 was $5,469,000 as
compared to $9,546,000 for the second quarter of 2001. The decrease of
$4,077,000 is primarily due to the decrease in the number of restaurants and
decreased same stores sales for the quarter compared to last year. The decrease
was partially offset by a 2.0% increase in food cost. As a percentage of sales,
the cost of food and beverage was 29.3% for the second quarter of 2002, as
compared to 31.3% for the second quarter of 2001. The decrease in food and
beverage cost as a percentage of sales in 2002 is due primarily to the
implementation of a food costing system combined with more emphasis on
controlling costs during the current quarter.
The cost of food and beverage for the six months ended June 30, 2002 was
$12,250,000 as compared to $20,586,000 for the six months ended July 1, 2001.
The decrease of $8,336,000 is primarily due to the decrease in the number of
restaurants and decreased same stores sales for the quarter compared to last
year. The decrease was partially offset by a 0.5% increase in food cost. As a
percentage of sales, the cost of food and beverage was 29.8% for the current
period of 2002, as compared to 30.3% for the prior year of 2001. The decrease in
food and beverage cost as a percentage of sales in 2002 is due primarily to the
implementation of a food costing system combined with more emphasis on
controlling costs during the current year.
LABOR
Labor costs for the second quarter of 2002 were $7,770,000 as compared to
$12,510,000 for the second quarter of 2001. Labor costs as a percentage of sales
for the second quarter of 2002 were 41.7% as compared to 41.1% for the second
quarter of 2001. The percentage increase is due primarily to a decrease in
same-store sales for the quarter. The decrease of $4,740,000 is primarily due to
the reduction in the number of operating restaurants in 2002 as compared to
2001.
Labor costs for the six months ended June 30, 2002 were $16,380,000 as compared
to $26,718,000 for the six months ended July 1, 2001. As a percentage of sales,
labor costs for the six months in 2002 were 39.8% as compared to 39.4% in 2001.
This is primarily due to a decline in same-store sales in 2001. The decrease of
$10,338,000 is primarily due to the reduction in the number of operating
restaurants in 2002 as compared to 2001.
RESTAURANT OPERATING EXPENSES
Restaurant operating expenses for the second quarter of 2002 were $4,145,000 as
compared to $7,103,000 for the second quarter of 2001. The decrease of
$2,958,000 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 June 30, 2002 were 22.2%, as compared to 23.3% for the
comparable period in the prior year. This improvement was primarily caused by
decreases in utilities.
Restaurant operating expenses for the six months ended June 30, 2002 were
$9,212,000 as compared to $15,360,000 for the same period in 2001. This decrease
was due primarily due to a decrease in the number of operating restaurants.
Restaurant expenses as a percentage of sales for the first six months of 2002
were 22.4% as compared to 22.6% for the same period in 2001.
RESTAURANT DEPRECIATION
Restaurant depreciation expense for the second quarter of 2002 was $724,000
compared to $967,000 for the comparable period in 2001. Restaurant depreciation
expense for the six month period of 2002 was $1,490,000 compared to $1,895,000
for the comparable period in 2001. The decreases of $243,000 and $405,000,
respectively, were due primarily to the closing of and reclassification of
restaurants from property and equipment to assets held for sale during the last
fifteen months.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the second quarter of 2002 was
$1,379,000 compared to $2,407,000 for the comparable period in 2001. General and
administrative expenses for the six month period of 2002 was $2,753,000 compared
to $5,108,000 for the comparable period in 2001. The decreases of $1,028,000 and
$2,355,000, respectively, were due primarily to decreases in salaries and
benefits in the amount of $387,000 and $649,000, respectively, outside services,
including legal and marketing costs, of $543,000 and $1,031,000, respectively,
and travel and related expenses of $189,000 and $365,000, respectively. 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
During the three months ended June 30, 2002, the Company recorded an impairment
charge of $2,172,000 for nine of its properties held for sale, reversed $217,000
of impairment charges previously taken on two of its properties held for sale
and recorded an impairment charge for five of its operating restaurants totaling
$1,963,000. During the six months ended June 30, 2002, the Company recorded an
impairment charge of $2,536,000 for ten of its properties held for sale,
reversed $1,188,000 of impairment charges previously taken on five of its
properties held for sale and recorded an impairment charge for five of its
operating restaurants totaling $1,963,000. Impairment charges and reversals of
impairment charges recorded during 2002 for assets held for sale resulted
primarily from revisions of estimates of the fair value of previously recognized
assets held for sale. Impairment charges recorded during 2002 for assets held
for use resulted primarily from those properties generating operating and cash
flow losses during the period. During the three and six months ended June 30,
2002, the Company decided to close zero and four restaurants, respectively.
During the three months ended July 1, 2001, the Company recorded an impairment
charge of $5,443,000 for nineteen of its restaurants. During the six months
ended July 1, 2001, the Company recorded an impairment charge of $5,937,000 for
three restaurants. Impairment charges recorded during 2001 primarily resulted
from the decision to close underperforming restaurants as part of its
reorganization plan. During the three and six months ended July 1, 2001, the
Company decided to close two and sixteen restaurants, respectively.
REORGANIZATION EXPENSES
During the three months ended June 30, 2002, the Company accrued $325,000 to
cover the estimated carrying costs of the stores that it has closed. During the
six month period ended June 30, 2002, the Company accrued $580,000. These
charges include estimated utilities, insurance and real estate taxes for a
period of nine months for owned locations that were closed during the period and
revised estimates of remaining expenses of restaurants closed during previous
periods but still not sold. Also during the six month period the Company 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 June 30, 2002.
In addition, during the quarter ended June 30, 2002 the amount expensed to
outside professionals who are contracted to assist the Company in its
reorganization efforts was $1,233,000. During the six months ended June 30,
2002, the Company expensed $2,003,000. During the quarter and the six month
period ended July 1, 2001 the amount expensed was $428,000. The primary reason
for the increase in professional fees from 2001 to 2002 is due to the Company
not filing its bankruptcy petition until May 25, 2001.
INTEREST EXPENSE
Interest expense in the second quarter of 2002 was $156,000 as compared to
$2,128,000 in the second quarter of 2001. Interest expense for the six months
ended June 30, 2002 was $364,000 as compared to $4,989,000 for the same period
in 2001. The decreases were due to the cessation of interest accrual on the
Company's debt subject to compromise on May 25, 2001. This decrease was slightly
offset by interest on financing obtained subsequent to May 25, 2001.
(GAIN) LOSS ON SALE OF PROPERTY AND EQUIPMENT, NET
During the second quarter of 2002, the Company recorded gains on the sale of two
restaurant properties held for sale in Florida and Kentucky in the amount of
$224,000. A loss was recorded in the quarter on the sale of another restaurant
property held for sale in Florida in the amount of $95,000. Also during the
second quarter a gain in the amount of $64,000 was recorded on the sale a small
portion of land connected to an operating restaurant in Ohio. During the first
quarter of 2002, the Company recorded a gain on the sale of a subleased property
held for sale in Georgia in the amount $389,000. Another restaurant property
held for sale in Georgia was sold during the first quarter of 2002 for its net
book value, resulting in no gain or loss.
During the second quarter of 2001, the Company recorded a loss of $204,000 which
includes a gain on disposal of fixed assets of $46,000 and a loss on disposal of
fixed assets of $250,000. The gain in 2001 was a result of the sale of one of
the Company's restaurants in Florida and the loss was a result of the sale of
two of its restaurants in Michigan. The loss of $112,000 for the six months
ended July 1, 2001 includes the above net loss and the 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.
INCOME TAXES
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 $3,681,000 income tax
receivable at June 30, 2002.
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.
The Company is seeking to restructure its secured, priority and unsecured debt
and continue operating its businesses as a going concern. The Company filed its
plan of reorganization (the "Plan") and disclosure statement with the Bankruptcy
Court on July 3, 2002. The Plan is a reorganization plan pursuant to which the
Company seeks to restructure its secured, priority and unsecured debt and
continue operating their businesses as a going concern. If the Plan is
confirmed, the Company will emerge from chapter 11 bankruptcy protection as a
private company whose common stock will be owned by investors, who will
contribute $4 million of new equity financing, and management. In addition to
the new equity financing, the Company will fund the payments required by the
Plan from cash generated by operations, net proceeds of the sale of excess
property, an expected federal income tax refund and additional borrowings of $1
million from the Company's principal secured lenders. Under the Plan, the
Company's secured debt will be restructured and general unsecured creditors will
receive a combination of cash and warrants to purchase stock in the newly
reorganized entity. Under the Plan, holders of claims in this class are expected
to receive approximately 12% on account of their claims plus warrants to
purchase 15% of the common stock of the newly reorganized entity. Since the
Company's assets will be insufficient to pay all classes of creditors entitled
to priority of payment, there will not be any funds available for distributions
to holders of shares of stock of the Company. Accordingly, the Plan provides
that all holders of equity security interests in the Company (including but not
limited to the common stock of the Company, restricted stock held pursuant to
the 2001 Restricted Stock Plan,
all related rights to acquire shares of Class A Junior Participating Preferred
Shares, and all options, warrants or other rights to purchase securities of the
Company) will be canceled.
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 condensed 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 June 30, 2002, the Company has filed a reorganization plan with the
Bankruptcy Court. If management is unable to successfully implement the 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.
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 28 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
$180,000 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 recorded a $3,681,000 income tax
receivable during the six months ended June 30, 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, raise additional equity 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 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
The two most significant aspects of this pronouncement, with respect to the
Company, is the elimination of SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and the amendment to SFAS No. 13, Accounting for Leases.
As a result of the elimination of SFAS No. 4, gains and losses from
extinguisment of debt should be classified as extraordinary items only if they
meet the criteria in APB Opinion No. 30, Reporting the Results of
Operations-Discontinued Events and Extraordinary Items. The amendment to SFAS
No. 13 changes the accounting treatment of certain lease modifications that have
economic effects similar to sale-leaseback transactions to require those lease
modifications to be accounted for in the same manner as sale-leaseback
transactions. The rescission of SFAS No. 4 is effective for fiscal years
beginning after May 15, 2002. The rescission of SFAS No. 4 is effective for
fiscal years beginning after May 15, 2002. The amendment to SFAS No. 13 is
effective for all transactions after May 15, 2002. Management does not believe
the adoption of SFAS No. 145 will have a material effect on the consolidated
financial position, results of operations or cash flows of the Company.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). The principal difference
between this Statement and EITF Issue 94-3 relates to its requirements for
recognition of a liability for a cost associated with an exit or disposal
activity. SFAS No. 146 requires that the liability for a cost associated with an
exit or disposal activity be recognized when the liability is incurred rather
than at the date of an entity's commitment to an exit plan. SFAS No. 146 is
effective for all exit or disposal activities after December 31, 2002.
Management has not completed the process of determining the effect on the
consolidated financial position, results of operations or cash flows of the
Company.
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 June
30, 2002, the aggregate amount of our outstanding indebtedness was $83,839,000,
of which $55,422,000 accrued interest at variable rates and $28,417,000 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 has filed the Plan with
the Bankruptcy Court. Under the Plan, its pre-petition secured debt will be
restructured. 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 2001 by approximately $237,000.
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 June 30, 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.
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.
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
June 30, 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.
Each of the undersigned hereby certifies in his capacity as an officer of the
Registrant that the Quarterly Report of the Registrant on Form 10-Q for the
period ended June 30, 2002 fully complies with the requirements of Section 13(a)
of the Securities Exchange Act of 1934 and that the information contained in
such report fairly presents, in all material respect, the financial condition of
the Registrant at the end of such period and the results of operations of the
Registrant for such period.
COOKER RESTAURANT CORPORATION
(The "Registrant")
Date: August 19, 2002
By:
/s/ Henry R. Hillenmeyer
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Henry R. Hillenmeyer
Chief Executive Officer
By
/s/ David Sanford
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David Sanford
Principal Financial and Accounting Officer