Emersons, Ltd. restaurants continue to operate at a loss but expect operations to start improving next month, company officers testified today.
At a bankruptcy hearing before U.S. District Court Judge Glenn J. Goldburn, the Emerson officers also estimated that the total value of all company assets would be $2.5 million or less if sold under "distress" conditions in a liquidation. The restaurant chain's liabilities add up to about $16 million.
Emersons filed a court petition on Feb. 10 under Chapter XI of the Bankruptcy Act, voluntarily seeking protection from creditors while a plan to rearrange debts is drawn up.
Allen Kerxton, a lawyer for Emersons, today requested a six-month period during which the formal reorganization plan would be developed. In seeking the unusually distant deadline, Kerxton argued that Emersons is about to enter what is usually its best season, which should provide evidence about the firm's ability to rebound.
In addition, he cited a class action by stockholders in New York, which may be settled in the next few months, allowing management a better opportunity to assess the future of Emersons.
Judge Goldburn ordered Emersons to file the reorganization plan in 90 days but he indicated he would grant an extension, provided a progress report on the litigation is filed.
He also asked for a report in 30 days on whether Emersons can remove itself from lease agreements related to four cars provided executives - a Cadillac, Buick, Pontiac and Oldsmobile. "Would you consider driving a Chevy?" the judge asked Emersons president Billy Jackson.
Jackson, brought in from California to take over at Emersons last Oct. 2, noted that the two-year leases had been arranged by previous officers and that cancellation of the leases might involve more costs than continuing to operate the large cars. The judge ordered a report on the leases and said he wanted Emersons to switch to "smaller autos."
At the same time, Judge Goldburn said he would permit the top officers of Emersons to continue drawing their previous salaries. Lawyers for the company and major creditors said Jackson had been brought in as a "troubleshooter" with a salary lower than normal for such a position ($60,000 a year) and that it "would not be in the best interests of the company" to cut salaries.
The judge said the Emersons bankruptcy proceeding now "is part of the trouble" but he permitted the salaries to stand.
A seven-man committee of creditors also was approved today.
In testimony about the current status of Emersons, Jackson and senior vice president and chief financial officer William C. Story said:
At 35 restaurants that remian open, down from 42 last year, weekly sales recently have been $335,000-$340,000. Not counting payments on leased equipment and other debts, Emersons needs weekly sales of about $350,000-$360,000 to break even; when the debt service payments are included, the breakeven point is about $400,000.
The company hopes to sell or dispose of four more restaurants that are marginal or unprofitable.
Most of a recent $200,000 loan from Fidelity Bank of Philadelphia - Emersons' largest creditor - was used to pay restaurant rents for March and withholding taxes for employees. Judge Goldburn approved only $200,000 of a $400,000 loan requested by Emersons management: proceeds from an expected $956,000 federal-state tax refund have been pledged to Fidelity for the $200,000.
The Internal Revenue Service currently is conducting an audit of Emersons for the years 1973 through 1976.
Projections for the current fiscal year, to end Oct. 31, include a positive cash flow from operations of $800,000 but a net loss of $1.5 million, if all debt service requirements are included.
Jackson emphasized that the company's "value is as a going concern." He blamed current troubles on "adverse publicity" surrounding a Securities and Exchange Commission investigation last year of alleged fraud by former officers as well as "the fact the company was selling poor products" and was "mismanaged."
A program to improve food quality was started recently, with the commenus at Emersons restaurants with expanded salads, new entrees and better quality meats.
Emrsons has slashed its management overhead costs in half and launched a program of training personnel as part of a strategy aimed at recovery, Jackson said.