1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1996
COMMISSION FILE NUMBER: 1-13044
COOKER RESTAURANT CORPORATION
(Exact name of registrant as specified in its charter)
OHIO 62-1292102
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
5500 VILLAGE BOULEVARD, WEST PALM BEACH, FLORIDA 33407
(Address of principal executive offices) (zip code)
(407) 615-6000
Registrant's telephone number, including area code
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 filing
requirements for the past 90 days.
/X/ / /
Yes No
10,031,000 COMMON SHARES, WITHOUT PAR VALUE
(Number of Common Shares outstanding as of the close of business
on July 27, 1996)
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BALANCE SHEET
(UNAUDITED)
June 30, December 31,
1996 1995
------- -----------
ASSETS (In Thousands)
Current Assets:
Cash and cash equivalents $ 8,342 $ 1,299
Inventory 1,066 914
Preoperational costs 687 302
Prepaid and other current assets 747 511
--------- ---------
Total current assets 10,842 3,026
Property and equipment 92,447 78,127
Other assets 1,660 2,028
--------- ---------
$ 104,949 $ 83,181
--------- ---------
LIABILITIES
Current liabilities
Accounts payable $ 1,769 2,421
Accrued liabilities 6,623 5,543
Income taxes payable 654 783
Deferred income taxes 79 79
--------- ---------
Total current liabilities 9,125 8,826
Long-term debt 17,420 35,976
Deferred income taxes 433 433
--------- ---------
Total Liabilities 26,978 45,235
--------- ---------
Shareholders' equity
Common shares-without par value:
authorized 30,000,000 shares; issued
10,543,000 and 7,663,000 at June 30,
1996 and December 31, 1995,
respectively 63,528 26,082
Retained earnings 20,592 18,013
Treasury stock at cost, 513,000 and 513,000
shares at June 30, 1996 and
December 31, 1995, respectively (6,149) (6,149)
--------- ---------
Total shareholders' equity 77,971 37,946
--------- ---------
$ 104,949 $ 83,181
========= =========
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STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
------- ------- ------- -------
(In Thousands Except Per Share Data)
Sales $26,919 $22,694 $52,404 $45,593
------- ------- ------- -------
Cost of sales:
Food and beverages 7,648 6,521 14,814 12,977
Labor 9,317 7,883 18,133 16,000
Restaurant operating expenses 4,496 3,747 8,808 7,424
Restaurant depreciation and amortization 1,083 996 2,087 2,089
------- ------- ------- -------
22,544 19,147 43,842 38,490
------- ------- ------- -------
Restaurant operating income 4,375 3,547 8,562 7,103
------- ------- ------- -------
Other expenses (income):
General and administrative 1,489 1,345 3,007 2,604
Net interest expense 311 479 855 970
------- ------- ------- -------
1,800 1,824 3,862 3,574
------- ------- ------- -------
Income before income taxes 2,575 1,723 4,700 3,529
Provision for income taxes 927 621 1,692 1,422
------- ------- ------- -------
Net income $ 1,648 $ 1,102 $ 3,008 $ 2,107
======= ======= ======= =======
Earnings per common share $ 0.18 $ 0.15 $ 0.36 $ 0.29
======= ======= ======= =======
Weighted average number of common shares and
common equivalent shares outstanding
9,209 7,360 8,382 7,298
======= ======= ======= =======
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STATEMENT OF CASH FLOW
(UNAUDITED)
Six Months Ended
June 30, July 2,
1996 1995
-------- --------
(In Thousands)
Cash flows from operating activities:
Net Income $ 3,008 $ 2,107
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,334 2,329
Loss on sale of property 1 12
(Increase) in preoperational costs (766) (159)
(Increase) decrease in other current assets 85 (177)
Decrease in other assets 26 120
Increase in current liabilities 60 804
-------- --------
Net cash provided by operating activities 4,748 5,036
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (16,192) (5,700)
-------- --------
Cash flows from financing activities:
Proceeds from (repayment on) borrowings (18,107) 1,053
Repurchase of debentures (400) (642)
Redemption of debentures (50) --
Exercise of stock options 31 --
Proceeds from secondary offering 37,442 --
Dividends paid (429) (358)
-------- --------
Net cash provided by financing activities 18,487 53
-------- --------
Net increase (decrease) in cash and cash equivalents 7,043 (611)
Cash and cash equivalents at beginning of period 1,299 2,087
Cash and cash equivalents at end of period $ 8,342 $ 1,476
======== ========
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Note 1: Basis of Presentation.
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth as a percentage of sales certain items
appearing in the Company's statements of operation.
RESULTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
-------- ------- -------- -------
Sales 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Cost of sales:
Food and beverages 28.4 28.7 28.3 28.4
Labor 34.6 34.8 34.6 35.1
Restaurant operating expenses 16.7 16.5 16.8 16.3
Restaurant depreciation and amortization 4.0 4.4 4.0 4.6
----- ----- --- ---
83.7 84.4 83.7 84.4
----- ----- ----- -----
Restaurant operating income 16.3 15.6 16.3 15.6
----- ----- ----- -----
Other expenses (income):
General and administrative 5.5 6.0 5.7 5.8
Net interest expense 1.2 2.0 1.6 2.1
----- ----- ----- -----
6.7 8.0 7.3 7.9
----- ----- ----- -----
Income before income taxes 9.6 7.6 9.0 7.7
Provision for income taxes 3.5 2.7 3.3 3.1
----- ----- ----- -----
Net income 6.1% 4.9% 5.7% 4.6%
===== ===== ===== =====
Sales for the second quarter of fiscal 1996 increased 19% to $26,919,000
compared to sales of $22,694,000 for the second quarter of fiscal 1995. For the
first half sales increased 15% to $52,404,000 compared to sales of $45,593,000
for the comparable period last year. The increase in sales for both the second
quarter and first half was due primarily to the additional stores opened this
year. Average store sales for the quarter were higher than last year by 1.1% and
higher than last year by 1.6% for the first six months.
Food and beverage cost as a percent of sales decreased to 28.4% for the
second quarter of 1996 from 28.7% for the comparable period last year. For the
first half food and beverage cost as a percent of sales decreased to 28.3% from
28.4% for the comparable period in fiscal 1995. This improvement is primarily
the result of changes in the mix of items sold from 1995 to 1996.
Labor costs declined in the second quarter as a percent of sales to 34.6%
from 34.8% in last year's second quarter. First half labor cost as a percent of
sales at 34.6% was down from 35.1% for the comparable period last year. This
drop in labor cost as a percent of sales is primarily the result of higher sales
per store as actual labor cost in dollars per store was comparable to last year.
Operating expense for the second quarter as a percent of sales at 16.7% was
20 basis points higher than the second quarter last year. Operating expense for
the first six months this year as a percent of sales was 16.8%. This was up from
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16.3% for the comparable period last year. This increase was due to higher
repair and maintenance and higher paper costs for additional printers installed
in the kitchens to streamline entree preparation.
Restaurant depreciation and amortization as a percent of sales in the
second quarter was 4.0%, down 40 basis points from the 4.4% for the comparable
period last year. First half restaurant depreciation and amortization as a
percent of sales was 4.0%, down 60 basis points from the 4.6% for the comparable
period last year. The Company's policy is to capitalize certain costs incurred
prior to opening. These costs are then amortized over the first twelve months of
operations. The reduction in cost is due to the slow down in new store openings
in 1995.
General and administrative expenses as a percentage of sales decreased from
6.0% for the three months ended July 2, 1995, to 5.5% for the three months ended
June 30, 1996. Expenses for the first six months of 1996 at 5.7% of sales were
down from 5.8% for the same period last year. Sales gains from the new units
opened in the second quarter were the primary cause of the decrease as actual
spending was up due to a greater number of management trainees this year.
Net interest expense for the second quarter as a percent of sales at 1.2%
was 80 basis points less than last year. Net interest expense for the first half
as a percent of sales decreased to 1.6% from 2.1% for the comparable period last
year. Interest expense was lower in the second quarter due to paying off the
Revolving Credit Line with the proceeds of a public offering of common stock
(see Liquidity and Capital Resources).
The provision for income taxes as a percentage of income before taxes was
36% for both the second quarter and first half this year. Last year's rates were
36% for the second quarter and 40.3% for the first half.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements arise from the development and
opening of new Restaurants. The Company's primary sources of working capital are
cash flow from operations, borrowings under the Company's revolving/term loan
(the "Credit Agreement") and the sale of equity securities. The Company's cash
flow from operations were $7,571,000, $9,495,000 and $4,748,000 for 1994, 1995
and the six months ended June 30, 1996, respectively. The Credit Agreement
provides for a $33,000,000 line of credit and, as of June 30, 1996, the Company
had no outstanding borrowings under the Credit Agreement. On May 13, 1996, the
Company completed a public offering of 2,875,000 Common Shares (the "Offering")
and received net proceeds of $37,442,000. The Company used $28.5 million of the
net proceeds from the Offering to reduce outstanding borrowings under the Credit
Agreement. The remainder was invested in short term treasuries and will be used
to fund the development of new Restaurants and for general corporate purposes.
Capital expenditures were $11,318,000, $17,200,000 and $16,192,000 for
1994, 1995 and the six months ended June 30, 1996, respectively. The Company has
opened seven Restaurants to date in the first half of 1996, and intends to open
four additional Restaurants in the remainder of 1996 and 11 to 13 Restaurants in
1997. The Company believes that cash flow from operations, borrowings from the
Credit Agreement and proceeds from the Offering will be sufficient to fund the
planned expansion as well as the ongoing maintenance and remodeling of existing
Restaurants through 1997. The Company's ability to expand will depend on a
number of factors, including the selection and availability of suitable
locations, hiring and training sufficiently skilled management and personnel,
adequate financing, construction or acquiring Restaurants at a reasonable cost
and other factors, some of which are beyond the control of the Company. While
the Company has in the past successfully opened new Restaurants, there can be no
assurance that the Company will be able to continue to open new Restaurants or
that, if opened, those Restaurants can be operated profitably.
In 1992, the Company issued its Convertible Debentures in the principal
amount of $23,000,000 in a public offering. Under the terms of the Indenture
pursuant to which the Convertible Debentures were issued, the Company is
required to redeem up to $1,150,000 principal amount on November 1 of each year
if timely request is made by holders. In 1994 and 1995, the Company redeemed
$1,150,000 and $1,150,000, respectively, of the Convertible Debentures as a
result of requests by holders. In addition, the Company is required to redeem up
to $25,000 per deceased holder during each fiscal year. In 1994, 1995 and six
months ended June 30, 1996, the Company redeemed $50,000, $30,000, and $50,000,
respectively, of the Convertible Debentures by reason of the death of holders.
In 1994, the Company purchased $2,500,000 principal amount of the Convertible
Debentures on the open market at a market price of $1,618,000, in 1995 purchased
$250,000 principal amount at a market price of $222,000 and in the first quarter
of 1996, purchased $400,000 principal
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amount at a market price of $363,000. All of the redemptions and purchases of
Convertible Debentures during 1994 and 1995 were made with funds obtained from
loans under the Credit Agreement.
During the first quarter of 1994, the Company entered into a guaranty
agreement with First Union National Bank of Tennessee pursuant to which the
Company guaranteed the payment of a $5,000,000 loan to G. Arthur Seelbinder,
Chairman of the Board and Chief Executive Officer of the Company. First Union
also is the lender to the Company under the Credit Agreement. In 1995, the
Company requested that Mr. Seelbinder refinance the $5,000,000 loan with a bank
that was not a lender to the Company. In July 1995, Mr. Seelbinder refinanced
the loan with NationsBank of Tennessee N.A. and incurred refinancing costs of
approximately $42,000, which were paid by the Company. As a condition to the
refinancing, NationsBank required that the Company reaffirm its guaranty of the
loan. The NationsBank loan bears interest at a per annum rate equal to 0.25%
over the prime rate of interest charged by NationsBank from time to time and is
due and payable on August 1, 1997. Mr. Seelbinder pledged 570,000 of his Common
Shares to NationsBank as collateral for the $5,000,000 loan and as collateral
for three additional loans aggregating $2,975,000 in principal amount. The loan
agreement between Mr. Seelbinder and NationsBank provides that if there were a
default with respect to any of the four loans or a default by the Company under
the Credit Agreement, NationsBank would be able to declare all four loans
immediately due and payable. The guaranty agreement provides that the Bank will
apply the proceeds from the sale of the pledged shares first to the $5,000,000
loan guaranteed by the Company. The guaranty agreement also provides that in the
event the Bank is unable to liquidate the pledged shares within 120 days after
the occurrence of a default, the Company will pay the unsatisfied portion of the
$5,000,000 note. Mr. Seelbinder agreed to pay the Company an annual fee in the
amount of 0.25% of the principal amount of the loan during each year that the
Company's guaranty is outstanding. At August 8, 1996, the undiscounted fair
market value of the pledged shares was approximately $6,484,000. The loan is
scheduled to mature in the third quarter of 1997. The guaranty secures the loan
until it is repaid or refinanced without a guaranty. The Company expects the
Chairman will repay or refinance the loan before its presently scheduled
maturity. If the loan is not so repaid or refinanced, the Company would fund any
obligation it incurs under the terms of its guaranty from additional borrowings
under its line of credit. The Company does not believe that it will be required
to make any material payment under the guaranty in 1996; however, there can be
no assurance that the loan will be repaid or refinanced on terms that will not
result in continuing the guaranty or in a material payment.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) An annual meeting of the shareholders of the Registrant was held on
April 22, 1996.
(b) The matters voted upon at the annual meeting and the results of the
voting are set forth below.
(i) Election of Henry R. Hillenmeyer as a director for a term of
three years: 6,228,520 shares for, and 167,873 shares withheld
authority.
(ii) Election of Margaret T. Monaco as a director for a term of
three years: 6,214,672 shares for, and 181,721 shares withheld
authority.
(iii) Election of Phillip L. Pritchard as a director for a term of
three years: 6,228,570 shares for, and 167,823 shares withheld
authority.
(iv) Proposal to approve the Cooker Restaurant Corporation 1996
Officers' Stock Option Plan: 3,553,752 shares for, 1,383,193
shares against, and 37,529 abstentions. The plan was approved.
ITEM 5. OTHER INFORMATION.
On August 12, 1996, the Registrant engaged KPMG Peat Marwick LLP ("Peat
Marwick") as its independent public accountants to audit its financial
statements for the fiscal year 1996 which will end December 29, 1996. Price
Waterhouse LLP served as the Registrant's independent public accountants for
the fiscal year 1995 (ended December 31, 1995) and 1994 (ended January 1, 1995)
and audited the financial statements of the Registrant for each of the past
three fiscal years. The Audit Committee of the Registrant approved the
engagement of Peat Marwick and the consequent dismissal of Price Waterhouse
LLP. Price Waterhouse LLP's report on the financial statements of the
Registrant for each of the fiscal years 1994 and 1995 did not contain an
adverse opinion nor a disclaimer of opinion nor was such report qualified or
modified as to uncertainty, audit scope or accounting principles. In connection
with its audits for the Registrant's fiscal years 1995 and 1994 and the period
of the fiscal year 1996 ending on the date of the engagement of Peat Marwick,
the Registrant had no disagreements with Price Waterhouse LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements if not resolved to the satisfaction of
Price Waterhouse LLP would have caused them to make reference thereto in their
report on the financial statements for such years. The Registrant has requested
that Price Waterhouse LLP furnish it with a letter addressed to the SEC stating
whether or not it agrees with the above statements. A copy of such letter,
dated August 14, 1996, is filed as Exhibit 16.1 to this Form 10-Q.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) THE FOLLOWING EXHIBITS ARE FILED AS PART OF THIS REPORT.
3. ARTICLES OF INCORPORATION AND BY-LAWS.
3.1. Amended and Restated Articles of Incorporation of the Registrant
(incorporated by reference to Exhibit 28.2 of Registrant's
quarterly report on Form 10-Q for the fiscal quarter ended March
29, 1992; Commission File No. 16806).
3.2. Amended and Restated Code of Regulations of the Registrant
(incorporated by reference to Exhibit 4.5 of the Registrant's
quarterly report on Form 10-Q for the fiscal quarter ended April
1, 1990; Commission File No. 0-16806).
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES.
4.1 See Articles FOURTH, FIFTH and SIXTH of the Amended and Restated
Articles of Incorporation of Registrant (see 3.1 above).
4.2 See Articles One, Four, Seven and Eight of the Amended and
Restated Code of Regulations of Registrant (see 3.2 above).
4.3 Rights Agreement dated as of February 1, 1990 between Registrant
and National City Bank (incorporated by reference to Exhibit 1 of
Registrant's Form 8-A filed with the Commission on February 9,
1990; Commission File Number 0-16806).
4.4 Amendment to Rights Agreement dated as of November 1, 1992
between the Registrant and National City Bank (incorporated by
reference to Exhibit 4.4 of Registrant's annual report on Form
10-K for the fiscal year ended January 3, 1993 (the "1992 Form
10-K"); Commission File No. 0-16806).
4.5 Letter dated October 29, 1992 from the Registrant to First Union
National Bank of North Carolina (incorporated by reference to
Exhibit 4.5 to the 1992 Form 10-K).
4.6 Letter dated October 29, 1992 from National City Bank to the
Registrant (incorporated by reference to Exhibit 4.6 to the 1992
Form 10-K).
4.7 See Section 7.4 of the Amended and Restated Loan Agreement dated
December 22, 1995 between the Registrant and First Union
National Bank of Tennessee, as amended (see Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995); Commission File Number 1-13044.
4.8 Indenture dated as of October 28, 1992 between the Registrant and
First Union National Bank of North Carolina, as Trustee
(incorporated by reference to Exhibit 2.5 of Registrant's Form
8-A filed with the Commission on November 10, 1992; Commission
File Number 0-16806).
10. MATERIAL CONTRACTS.
10.1 Underwriting Agreement dated May 7, 1996 with Montgomery
Securities and Equitable Securities Corporation (Registration
Statement No. 333-2635).
10.2 1988 Employee Stock Option Plan and 1992 Employee Stock Option
Plan (Amended and Restated April 22, 1996).
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16. LETTER ON CHANGE IN CERTIFYING ACCOUNTANT.
16.1. Letter of Price Waterhouse to Securities and Exchange
Commission dated August 14, 1996.
27. FINANCIAL DATA SCHEDULE
27.1. Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by Registrant during the fiscal quarter
ended June 30, 1996.
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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
(Registrant)
Date: August 14, 1996
By: /s/ G. Arthur Seelbinder
----------------------------------------------
G. Arthur Seelbinder
Chairman of the Board and Chief Executive
Officer
By: /s/ David C. Sevig
----------------------------------------------
David C. Sevig
Vice President - Chief Financial Officer
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EXHIBIT INDEX
PAGE IN MANUALLY
EXHIBIT NO. DOCUMENT SIGNED ORIGINAL
----------- -------- ----------------
3.1 Amended and Restated Articles of Incorporation of the Registrant. *
3.2 Amended and Restated Code of Regulations of the Registrant. *
4.1 See Articles FOURTH, FIFTH and SIXTH of the Amended and Restated
Articles of Incorporation of Registrant. See Exhibit 3.1
4.2 See Articles One, Four, Seven and Eight of the Amended and Restated
Code of Regulations of Registrant. See Exhibit 3.2
4.3 Rights Agreement dated as of February 1, 1990 between Registrant and
National City Bank. *
4.4 Amendment to Rights Agreement dated as of November 1, 1992 between the
Registrant and National City Bank. *
4.5 Letter dated October 29, 1992 from the Registrant to First Union
National Bank of North Carolina. *
4.6 Letter dated October 29, 1992 from National City Bank to the Registrant.
*
4.7 See Section 7.4 of the Amended and Restated Loan Agreement dated December 22,
1995 between Registrant and First Union National Bank of Tennessee, as amended *
(see Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995); Commission File No. 1-13044.
4.8 Indenture dated as of October 28, 1992 between Registrant and First
Union National Bank of North Carolina, as Trustee. *
10.1 Underwriting Agreement dated May 7, 1996 with Montgomery Securities and
Equitable Securities Corporation (Registration Statement No. 333-2635).
14
10.2 1988 Employee Stock Option Plan and 1992 Employee Stock Option Plan
(Amended and Restated April 22, 1996). 42
16.1 Letter of Price Waterhouse to Securities and Exchange Commission dated
August 14, 1996. 53
27.1 Financial Data Schedule (submitted electronically for SEC information
only).
*Incorporated by reference.