FLANIGANS ENTERPRISES INC - Quarter Report: 2010 June (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
quarterly period ended July 3, 2010
OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period
from to
Commission
File Number 1-6836
FLANIGAN'S
ENTERPRISES, INC.
(Exact
name of registrant as specified in its charter)
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Florida
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59-0877638
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|||
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(State
or other jurisdiction of
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(I.R.S.
Employer
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|||
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incorporation
or organization)
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Identification
Number)
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5059 N.E. 18th Avenue, Fort Lauderdale,
Florida
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33334
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|||
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(Address
of principal executive offices)
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Zip
Code
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(954)
377-1961
(Registrant's
telephone number, including area code)
Indicate
by check mark 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.Yes x Noo
Indicate
by check mark whether the registrant has submitted electronically and posted on
its Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files)Yes o Noo
Indicate
by check mark whether the registrant is a Large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company in Rule 12b-2 of the Exchange
Act. (Check one):
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Large
accelerated filer ¨
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Accelerated
filer ¨
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Non-accelerated
filer ¨
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Smaller
reporting company x
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
On August
17, 2010, 1,861,915 shares of Common Stock, $0.10 par value per share, were
outstanding.
FLANIGAN'S ENTERPRISES, INC.
AND SUBSIDIARIES
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1
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1
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2
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4
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6
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8
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15
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27
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28
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28
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28
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28
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29
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As
used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” the
“Company” and “Flanigan’s” mean Flanigan's Enterprises, Inc. and its
subsidiaries (unless the context indicates a different
meaning).
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In
Thousands Except Per Share Amounts)
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Thirteen
Weeks
Ended
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Thirty
Nine Weeks
Ended
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|||||||||||||||
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July
3, 2010
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June
27, 2009
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July 3,
2010
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June
27, 2009
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|||||||||||||
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REVENUES:
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||||||||||||||||
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Restaurant
food sales
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$ | 11,247 | $ | 10,653 | $ | 33,801 | $ | 32,020 | ||||||||
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Restaurant
bar sales
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2,864 | 2,536 | 8,534 | 7,608 | ||||||||||||
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Package
store sales
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2,963 | 2,925 | 10,151 | 9,788 | ||||||||||||
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Franchise
related revenues
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220 | 298 | 756 | 842 | ||||||||||||
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Owner’s
fee
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42 | 40 | 125 | 129 | ||||||||||||
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Other
operating income
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38 | 39 | 109 | 114 | ||||||||||||
| 17,374 | 16,491 | 53,476 | 50,501 | |||||||||||||
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COSTS
AND EXPENSES:
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||||||||||||||||
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Cost
of merchandise sold:
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||||||||||||||||
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Restaurant
and lounges
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4,868 | 4,582 | 14,542 | 13,470 | ||||||||||||
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Package
goods
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1,929 | 1,968 | 6,774 | 6,740 | ||||||||||||
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Payroll
and related costs
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5,108 | 4,885 | 15,580 | 14,700 | ||||||||||||
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Occupancy
costs
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1,064 | 988 | 3,146 | 2,962 | ||||||||||||
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Selling,
general and administrative expenses
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3,371 | 3,418 | 10,294 | 10,476 | ||||||||||||
| 16,340 | 15,841 | 50,336 | 48,348 | |||||||||||||
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Income
from Operations
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1,034 | 650 | 3,140 | 2,153 | ||||||||||||
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OTHER
INCOME (EXPENSE):
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||||||||||||||||
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Interest
expense
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(120 | ) | (105 | ) | (355 | ) | (332 | ) | ||||||||
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Interest
and other income
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22 | 15 | 69 | 200 | ||||||||||||
| (98 | ) | (90 | ) | (286 | ) | (132 | ) | |||||||||
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Income
before Provision for Income Taxes
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936 | 560 | 2,854 | 2,021 | ||||||||||||
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Provision
for Income Taxes
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(214 | ) | (104 | ) | (610 | ) | (299 | ) | ||||||||
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Net
Income before income attributable to
noncontrolling
interests
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722 | 456 | 2,244 | 1,722 | ||||||||||||
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Less:
Net income attributable to
noncontrolling
interests
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$ | (296 | ) | $ | (145 | ) | $ | (860 | ) | $ | (555 | ) | ||||
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Net
Income attributable to stockholders
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$ | 426 | $ | 311 | $ | 1,384 | $ | 1,167 | ||||||||
See
accompanying notes to unaudited condensed consolidated financial
statements.
FLANIGAN'S
ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In
Thousands Except Per Share Amounts)
(Continued)
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Thirteen
Weeks
Ended
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Thirty
Nine Weeks
Ended
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|||||||||||||||
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July
3, 2010
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June
27, 2009
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July 3,
2010
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June
27, 2009
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Net
Income Per Common Share:
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Basic
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$ | 0.23 | $ | 0.17 | $ | 0.74 | $ | 0.62 | ||||||||
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Diluted
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$ | 0.23 | $ | 0.17 | $ | 0.74 | $ | 0.62 | ||||||||
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Weighted
Average Shares and Equivalent
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||||||||||||||||
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Shares
Outstanding
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||||||||||||||||
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Basic
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1,861,735 | 1,863,007 | 1,862,004 | 1,870,147 | ||||||||||||
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Diluted
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1,861,735 | 1,863,007 | 1,862,004 | 1,870,147 | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
CONDENSED
CONSOLIDATED BALANCE SHEETS
JULY
3, 2010 (UNAUDITED) AND OCTOBER 3, 2009
(In
Thousands)
ASSETS
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July 3, 2010
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October 3, 2009
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CURRENT
ASSETS:
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Cash
and cash equivalents
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$ | 7,045 | $ | 4,580 | ||||
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Prepaid
income taxes
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-- | 332 | ||||||
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Due
from franchisees
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8 | 270 | ||||||
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Other
receivables
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102 | 94 | ||||||
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Inventories
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2,540 | 1,933 | ||||||
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Prepaid
expenses
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1,036 | 980 | ||||||
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Deferred
tax asset
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343 | 338 | ||||||
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Total
Current Assets
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11,074 | 8,527 | ||||||
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Property
and Equipment, Net
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22,169 | 21,240 | ||||||
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Investment
in Limited Partnership
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143 | 140 | ||||||
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OTHER
ASSETS:
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Liquor
licenses, net
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470 | 345 | ||||||
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Deferred
tax asset
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850 | 830 | ||||||
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Leasehold
purchases, net
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1,500 | 1,644 | ||||||
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Other
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632 | 753 | ||||||
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Total
Other Assets
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3,452 | 3,572 | ||||||
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Total
Assets
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$ | 36,838 | $ | 33,479 | ||||
See
accompanying notes to unaudited condensed consolidated financial
statements.
FLANIGAN'S
ENTERPRISES, INC, AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
JULY
3, 2010 (UNAUDITED) AND OCTOBER 3, 2009
(In
Thousands)
(Continued)
LIABILITIES
AND STOCKHOLDERS’ EQUITY
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July 3, 2010
|
October 3, 2009
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CURRENT
LIABILITIES:
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Accounts
payable and accrued expenses
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$ | 4,597 | $ | 3,756 | ||||
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Income
taxes payable
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198 | -- | ||||||
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Due
to franchisees
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833 | 372 | ||||||
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Current
portion of long term debt
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521 | 681 | ||||||
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Current
portion of re-financed line of credit
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462 | 1,586 | ||||||
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Deferred
revenues
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11 | 21 | ||||||
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Deferred
rent
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25 | 24 | ||||||
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Total
Current Liabilities
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6,647 | 6,440 | ||||||
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Long
Term Debt, Net of Current Maturities
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5,247
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4,533 | ||||||
| Re-Financed Line of Credit, Net of Current Maturities | 1,124 | |||||||
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Deferred
Rent, Net of Current Portion
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187 | 206 | ||||||
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Commitments
and Contingencies
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Equity:
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Flanigan’s
Enterprises, Inc. Stockholders’
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||||||||
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Equity
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Common
stock, $.10 par value, 5,000,000
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shares authorized;
4,197,642 shares issued
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420 | 420 | ||||||
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Capital
in excess of par value
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6,240 | 6,240 | ||||||
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Retained
earnings
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15,161 | 13,777 | ||||||
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Treasury
stock, at cost, 2,335,727 shares
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at
July 3, 2010 and 2,334,709
shares
at October 3, 2009
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(6,049 | ) | (6,043 | ) | ||||
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Total
Flanigan’s Enterprises, Inc.
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Stockholders’
equity
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15,772 | 14,394 | ||||||
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Noncontrolling
interest
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7,861 | 7,906 | ||||||
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Total
equity
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23,633 | 22,300 | ||||||
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Total
liabilities and equity
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$ | 36,838 | $ | 33,479 | ||||
See
accompanying notes to unaudited condensed consolidated financial
statements.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE THIRTY-NINE WEEKS ENDED JULY 3, 2010 AND JUNE 27, 2009
(In
Thousands)
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July 3, 2010
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June 27, 2009
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CASH
FLOWS FROM OPERATING ACTIVITIES:
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||||||||
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Net
income
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$ | 2,244 | $ | 1,722 | ||||
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Adjustments
to reconcile net income to net cash and
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cash
equivalents provided by operating activities:
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Depreciation
and amortization
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1,667 | 1,708 | ||||||
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Amortization
of leasehold purchases
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162 | 159 | ||||||
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Loss
on abandonment of property and equipment
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10 | 34 | ||||||
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Deferred
income tax
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(25 | ) | (36 | ) | ||||
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Deferred
rent
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(18 | ) | 2 | |||||
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Income
from unconsolidated limited partnership
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(12 | ) | (2 | ) | ||||
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Recognition
of deferred revenue
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(10 | ) | (9 | ) | ||||
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Changes
in operating assets and liabilities:
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(increase)
decrease in
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Due
from franchisees
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-- | 223 | ||||||
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Other
receivables
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(13 | ) | (24 | ) | ||||
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Prepaid
income taxes
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332 | (59 | ) | |||||
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Inventories
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(588 | ) | 22 | |||||
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Prepaid
expenses
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353 | 615 | ||||||
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Other
assets
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38 | (7 | ) | |||||
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Increase
(decrease) in:
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Accounts
payable and accrued expenses
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841 | 54 | ||||||
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Income
taxes payable
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198 | -- | ||||||
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Due
to franchisees
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461 | 278 | ||||||
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Net
cash and cash equivalents provided by operating
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activities:
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5,640 | 4,680 | ||||||
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CASH
FLOWS FROM INVESTING ACTIVITIES:
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Collection
on notes and mortgages receivable
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14 | 11 | ||||||
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Purchase
of property and equipment
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(1,546 | ) | (1,246 | ) | ||||
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Deposit
on property and equipment
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-- | (64 | ) | |||||
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Proceeds
from the sale of fixed assets
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9 | 53 | ||||||
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Distributions
from unconsolidated limited
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Partnerships
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9 | 9 | ||||||
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Purchase
of limited partnership interests
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(10 | ) | -- | |||||
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Net
cash and cash equivalents used in investing
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||||||||
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Activities:
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(1,524 | ) | (1,237 | ) | ||||
See
accompanying notes to unaudited condensed consolidated financial
statements
FLANIGAN'S
ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE THIRTY-NINE WEEKS ENDED JULY 3, 2010 AND JUNE 27, 2009
(In
Thousands)
(Continued)
|
July 3, 2010
|
June 27, 2009
|
|||||||
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CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
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Payment
of long term debt
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(750 | ) | (800 | ) | ||||
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Proceeds
from line of credit
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-- | 24 | ||||||
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Purchase
of treasury stock
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(6 | ) | (87 | ) | ||||
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Distributions
to limited partnership
|
||||||||
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minority
partners
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(895 | ) | (879 | ) | ||||
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Net
cash and cash equivalents used in
|
||||||||
|
financing
activities:
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(1,651 | ) | (1,742 | ) | ||||
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Net
Increase in Cash and Cash Equivalents
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2,465 | 1,701 | ||||||
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Beginning
of Period
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4,580 | 3,244 | ||||||
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End
of Period
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$ | 7,045 | $ | 4,945 | ||||
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Supplemental
Disclosure for Cash Flow Information:
|
||||||||
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Cash
paid during period for:
|
||||||||
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Interest
|
$ | 355 | $ | 332 | ||||
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Income
taxes
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$ | 104 | $ | 435 | ||||
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Supplemental
Disclosure of Non-Cash Investing and
Financing
Activities:
|
||||||||
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Financing
of insurance contracts
|
$ | 409 | $ | 1,094 | ||||
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Purchase
deposits transferred to property and
equipment
|
$ | 20 | $ | 292 | ||||
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Purchase
of property in exchange for debt
|
$ | 850 | $ | -- | ||||
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Purchase
of assets of franchised restaurant
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$ | 262 | $ | -- | ||||
| Purchase of vehicle in exchange for debt | $ | 45 | $ | -- | ||||
See
accompanying notes to unaudited condensed consolidated financial
statements
JULY
3, 2010
(1) BASIS
OF PRESENTATION:
The
accompanying financial information for the periods ended July 3, 2010 and June
27, 2009 are unaudited. Financial information as of October 3, 2009
has been derived from the audited financial statements of the Company, but does
not include all disclosures required by generally accepted accounting
principles. In the opinion of management, all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of the
financial information for the periods indicated have been
included. For further information regarding the Company's accounting
policies, refer to the Condensed Consolidated Financial Statements and related
notes included in the Company's Annual Report on Form 10-K for the year ended
October 3, 2009. Operating results for interim periods are not
necessarily indicative of results to be expected for a full year.
The
Condensed Consolidated Financial Statements include the accounts of the Company,
its wholly-owned subsidiaries and the accounts of the nine limited partnerships
in which we act as general partner and have controlling
interests. All intercompany balances and transactions have been
eliminated. Non-controlling interest represents the limited partners’
proportionate share of the net assets and results of operations of the nine
limited partnerships.
These
financial statements include estimates relating to performance based officers’
bonuses. The estimates are reviewed periodically and the effects of
any revisions are reflected in the financial statements in the period they are
determined to be necessary. Although these estimates are based on
management’s knowledge of current events and actions it may take in the future,
they may ultimately differ from actual results.
(2) EARNINGS
PER SHARE:
We follow
Financial Accounting Standards Board Accounting Standards Codification Section
260 - “Earnings per
Share” (FASB ASC 260). This section provides for the
calculation of basic and diluted earnings per share. The data on Page
3 shows the amounts used in computing earnings per share and the effects on
income and the weighted average number of shares of potentially dilutive common
stock equivalents. As of July 3, 2010, no stock options were
outstanding.
(3) RECLASSIFICATION:
Certain
amounts in the fiscal year 2009 financial statements have been reclassified to
conform to the fiscal year 2010 presentation. The reclassifications
had no effect on consolidated net income.
(4) RECENT
ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
Adopted
In
December 2007, the FASB issued changes regarding business
combinations. These changes establish principles and requirements for
how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any noncontrolling
interest in the acquiree and the goodwill acquired. These changes
also establish disclosure requirements to enable the evaluation of the
nature and financial effects of the business combination. These changes were adopted by us in the first quarter of our fiscal year 2010 and will have an impact on our accounting for any future business acquisitions.
In
December 2007, the FASB issued changes regarding consolidation and
non-controlling interests in consolidated financial statements. These
changes impacted the accounting and reporting for minority interests, which are
now recharacterized as noncontrolling interests (NCI) and classified as a
component of equity. This new consolidation method significantly
changed the accounting for transactions with minority interest
holders. These changes were adopted by us in the first quarter of our
fiscal year 2010 and did not have a material impact on our condensed
consolidated financial statements.
In
March 2008, the FASB issued changes regarding derivatives and hedging to
enhance disclosures about an entity’s derivative and hedging
activities. These changes were adopted by us in the first quarter of
our fiscal year 2010. As we do not currently engage in derivative transactions
or hedging activities, these changes do not have a material impact on our
condensed consolidated financial statements.
Issued
In August
2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-21 -
Accounting for Technical Amendments to Various SEC Rules and Schedules—This
Accounting Standards Update amends various SEC paragraphs pursuant to the
issuance of Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules
and Codification of Financial Reporting Policies. The adoption of ASU
No. 2010-21 will not have a material impact on our financial
statements.
In
February 2010, the FASB amended its authoritative guidance related to subsequent
events to alleviate potential conflicts with current United States Securities
Exchange Commission (“SEC”) guidance. Effective immediately, these amendments
remove the requirement that an SEC filer disclose the date through which it has
evaluated subsequent events. The adoption of this guidance did not have an
impact on the Company’s condensed consolidated financial
statements.
The FASB
has issued Accounting Standard Update (ASU) No. 2010-02, Consolidation (Topic
810) – Accounting and Reporting for Decreases in Ownership of a Subsidiary – A
Scope Clarification. This ASU clarifies that the scope of the decrease in
ownership provisions of Subtopic 810-10 and related guidance and also clarifies
that the decrease in ownership guidance in Subtopic 810-10 does not apply to:
(a) sales of in substance real estate; and (b) conveyances of oil and gas
mineral rights, even if these transfers involve businesses. The amendments in
this ASU also expand the disclosure requirements about deconsolidation of a
subsidiary or derecognition of a group of assets. ASU 2010-02 is effective
beginning in the first interim or annual reporting period ending on or after
December 15, 2009. The adoption of this accounting standard will have an effect
on the presentation and disclosure of the noncontrolling interests of any non
wholly-owned businesses acquired in the future.
In June
2009, the FASB issued changes to the accounting for determining whether an
entity is a variable interest entity and modifies the methods allowed for
determining the primary beneficiary of a variable interest entity. In
addition, these changes require ongoing reassessments of whether an enterprise
is the primary beneficiary of a variable interest entity and enhanced
disclosures related to an enterprise’s involvement in a variable interest
entity. These changes become effective for annual periods beginning
after November 15, 2009 and will be adopted by us in our fiscal year
2011. We are currently evaluating the potential impact, if any, of
the adoption of these changes on consolidated results of operations and
financial condition.
Accounting
standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on our unaudited condensed consolidated
financial statements upon adoption.
(5) EXTENSION
OF LEASE FOR REAL PROPERTY:
Lake
Worth, Florida
During
the third quarter of our fiscal year 2010, our lease for our restaurant located
at 2405 10th
Avenue N., Lake Worth, Florida, (Store #12), was extended for a
period of three years, with a one three year renewal option in our favor. The
renewal terms are substantially the same as our existing lease, including that
the annual rent is subject to fixed annual increases.
(6) DEBT:
Line
of Credit
Under a
secured line of credit with an unaffiliated third party financial institution we
were able to borrow up to $2,500,000 until June 5, 2010, subject to certain
conditions. The outstanding balance on our line of credit bore
interest at BBA LIBOR 1 month rate, plus 2.25%, (2.600% as of July 3, 2010),
with monthly payments of interest only and the unpaid principal balance and all
accrued interest was due in full on June 5, 2010. We granted our
lender a security interest in substantially all of our assets and a second
mortgage on our corporate offices as collateral to secure our repayment
obligations under our credit line. During the third quarter of our
fiscal year 2010, we paid monthly installments of interest payments, with no
borrowings or principal payments. As of July 3, 2010, the amount
outstanding under the line of credit was $1,586,000, with no remaining
availability. As more fully discussed under Note 11 Subsequent Events, subsequent
to the end of the third quarter of our fiscal year 2010, we converted the amount
outstanding on our line of credit to a term loan due July, 2013. Since the line
of credit was re-financed for a period of time in excess of twelve (12) months
it has been re-classified as a long term debt in the accompanying Condensed
Consolidated Balance Sheets.
Financed
Insurance Premiums
(i) For
the policy year beginning December 30, 2008, our property insurance is a two (2)
year policy with our insurance carrier. The two (2) year property
insurance premium is $631,000 and is financed in full through an unaffiliated
third party lender. The finance agreement earns interest at the rate
of 5.15% per annum and is amortized over 20 months, with monthly payments of
principal and interest, each in the amount of $30,000. The finance
agreement is secured by a security interest in all insurance policies, all
unearned premium, return premium, dividend payments and loss payments
thereof.
(ii) For
the policy year beginning December 30, 2009, our general liability insurance,
excluding limited partnerships, is a one (1) year policy with our insurance
carriers, including automobile and excess liability coverage. The one
(1) year general liability insurance premiums, including automobile and excess
liability coverage, total in the aggregate $243,000, of which $199,000 is
financed through the same unaffiliated third party lender. The
finance agreement earns interest at the rate of 2.99% per annum and is amortized
over 10 months, with monthly payments of principal and interest, each in the
amount of $20,000. The finance agreement is secured by a security
interest in all insurance policies, all unearned premium, return premium,
dividend payments and loss payments thereof.
(iii) For
the policy year beginning December 30, 2009, our general liability insurance for
our limited partnerships is a one (1) year policy with our insurance carriers,
including excess liability coverage. The one (1) year general
liability insurance premiums, including excess liability coverage, total, in the
aggregate $205,000, of which $146,000 is financed through the same unaffiliated
third party lender. The finance agreement earns interest at the rate
of 2.99% per annum and is amortized over 11 months, with monthly payments of
principal and interest, each in the amount of $13,000. The finance
agreement is secured by a security interest in all insurance policies, all
unearned premium, return premium, dividend payments and loss payments
thereof.
As of
July 3, 2010, we owe, in the aggregate, a principal balance of $270,000 to the
third party lender that financed our property and general liability insurance
policies.
(7) INCOME
TAXES:
We
account for our income taxes using FASB ASC 740, “Income Taxes”, which requires
among other things, recognition of future tax benefits measured at enacted rates
attributable to deductible temporary differences between financial statement and
income tax basis of assets and liabilities and to tax net operating loss
carryforwards and tax credits to the extent that realization of said tax
benefits is more likely than not.
(8) STOCK
OPTION PLANS:
We have
one stock option plan under which qualified stock options may be granted to our
officers and other employees. Under this plan, the exercise price for
the qualified stock options must be no less than 100% of the fair market value
of the Company’s Common Stock on the date the options are granted. In
general, options granted under our stock option plan expire after a five (5)
year period and generally vest no later than one (1) year from the date of
grant. As of July 3, 2010, no options to acquire shares were
outstanding. Under this plan, options to acquire an aggregate of
45,000 shares are available for grant.
No stock
options were granted during the thirty nine weeks ended July 3, 2010, nor were
stock options granted during the thirty nine weeks ended June 27,
2009.
No stock
options were exercised during the thirty nine weeks ended July 3, 2010, nor were
stock options exercised during the thirty nine weeks ended June 27,
2009.
There was
no stock option activity during the thirty nine weeks ended July 3,
2010. During the thirty nine weeks ended June 27, 2009, 49,350
options expired unexercised.
(9) ACQUISITIONS:
Purchase
of Company Common Stock
Pursuant
to a discretionary plan approved by the Board of Directors at its meeting on May
17, 2007, during the thirteen weeks ended July 3, 2010, we purchased 18 shares
of our common stock for an aggregate purchase price of $100. During
the third quarter ended June 27, 2009, we purchased 325 shares of our common
stock for an aggregate purchase price of $2,000 from an
employee. During the thirty nine weeks ended July 3, 2010, we
purchased 1,018 shares of our common stock for an aggregate purchase price of
$6,000. Of the stock purchased, we purchase 18 shares in a private
transaction for an aggregate purchase price of $131 and 1,000 shares of our
common stock from the Joseph G. Flanigan Charitable Trust for an aggregate
purchase price of $6,000. During the thirty nine weeks ended June 27,
2009, we purchased 21,400 shares of our common stock for an aggregate purchase
price of $87,000. Of the shares purchased, we purchased 20,225 shares
of our common stock on the open market for an aggregate purchase price of
$81,000, 325 shares of our common stock from an employee for a purchase price of
$2,000 and 850 shares of our common stock from the Joseph G. Flanigan Charitable
Trust for a purchase price of $4,000.
(10) COMMITMENTS
AND CONTINGENCIES:
Guarantees
We
guarantee various leases for franchisees and locations sold in prior
years. Remaining rental commitments required under these leases are
approximately $1,081,000. In the event of a default under any of
these agreements, we will have the right to repossess the premises and operate
the business to recover amounts paid under the guarantee either by liquidating
assets or operating the business.
We
account for such lease guarantees in accordance with ASC Topic 460 (formerly
FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements
for Guarantees, including Indirect Guarantees of Indebtedness of Others,” or FIN
45). Under ASC Topic 460, we would be required to recognize the fair
value of guarantees issued or modified after December 31, 2002, for
non-contingent guarantee obligations, and also a liability for contingent
guarantee obligations based on the probability that the guaranteed party will
not perform under the contractual terms of the guaranty agreement.
We do not
believe it is probable that we will be required to perform under the remaining
lease guarantees and therefore, no liability has been accrued in our condensed
consolidated financial statements.
Litigation
From time
to time, we are a defendant in litigation arising in the ordinary course of our
business, including claims resulting from “slip and fall” accidents, claims
under federal and state laws governing access to public accommodations,
employment-related claims and claims from guests alleging illness, injury or
other food quality, health or operational concerns. To date, none of this
litigation, some of which is covered by insurance, has had a material effect on
us.
We own
the building where our corporate offices are located. On April 16,
2001, we filed suit against the owner of the adjacent shopping center to
determine our right to non-exclusive parking in the shopping
center. During fiscal year 2007, the appellate court affirmed and
upon re-hearing, again affirmed the granting of a summary judgment in favor of
the shopping center. The seller from whom we purchased the building
was named as a defendant in the lawsuit by the owner of the adjacent shopping
center and we filed and served a cross-complaint against the
seller. During the fourth quarter of our fiscal year 2009, the seller
was awarded reimbursement of its attorneys’ fees and costs in the amount of
$109,000 and during the second quarter of our fiscal year 2010, the trial court
denied our motion for re-consideration of a portion of the award. During the
third quarter of our fiscal year 2010, we paid the award of attorneys’ fees and
costs. During the second quarter of our fiscal year 2009, the seller
filed suit against us for malicious prosecution. During the second
quarter of our fiscal year 2010, the court denied the seller’s motion for
punitive damages. We deny the allegations and are vigorously
defending against the allegations.
(11) SUBSEQUENT
EVENTS:
Subsequent
events have been evaluated through the date these condensed consolidated
financial statements were issued. No events, other than the events
disclosed below, required disclosure.
(a) Re-Financing
of Corporate Offices
Subsequent
to the end of the third quarter of our fiscal year 2010, we re-financed the
mortgage loan encumbering our corporate offices, which mortgage loan was and
continues to be extended and held by an unaffiliated third party lender. The
refinanced mortgage loan is in the original principal amount of $935,000 and
bears interest at a variable rate. We entered into an interest rate
swap agreement to hedge the interest rate risk, which fixed the interest rate on
the mortgage loan at 5.11% per annum throughout the term of the
loan. The mortgage loan is amortized over twenty (20) years, with our
current monthly
payment
of principal and interest totaling $4,500, with the entire principal balance and
all accrued but unpaid interest due on August 1, 2017. We paid an
$18,000 pre-payment penalty to the lender in connection with the
refinancing.
(b) Conversion
of Line of Credit to Term Loan
Subsequent
to the end of the third quarter of our fiscal year 2010, we converted the amount
outstanding on our line of credit ($1,586,000) to a term loan maturing in July
2013. The term loan is in the principal amount of $1,586,000
and bears interest at a variable interest rate. We entered into an
interest rate swap agreement to hedge the interest rate risk, which fixed the
interest rate on the term loan at 4.55% per annum throughout the term of the
loan. The term loan is fully amortized over three (3) years, with our
monthly payment of principal and interest, totaling $45,000. We
granted our lender a security interest in substantially all of our assets and a
second mortgage on our corporate offices as collateral to secure our repayment
obligations under our term loan. Since the line of credit was re-financed for a
period of time in excess of twelve (12) months, it has been re-classified as
long term debt in the accompanying Condensed Consolidated Balance
Sheets.
(c) Purchase
of Real Property and Improvements – Fort Lauderdale, Florida
Subsequent
to the end of the third quarter of our fiscal year 2010, we purchased from an
unaffiliated third party, the real property and building where our restaurant
located at 2600 W. Davie Road, Fort Lauderdale, Florida, (Store #22), operates
pursuant to an option to purchase contained in our lease
agreement. We paid $1,700,000 for this property, all cash at
closing.
(d) Execution
of New Lease for Existing Location
Stuart,
Florida
Subsequent
to the end of the third quarter of our fiscal year 2010, the limited partnership
which owns the restaurant in the “Howard Johnson’s Hotel” in Stuart, Florida
entered into a new lease with the lender which acquired ownership of the
property through foreclosure. The term of the lease is three (3)
years, with one (1) three (3) year renewal option and the annual rent is subject
to fixed annual increases.
(12) BUSINESS
SEGMENTS:
We
operate principally in two reportable segments – package stores and
restaurants. The operation of package stores consists of retail
liquor sales and related items. Information concerning the revenues
and operating income for the thirteen weeks and thirty nine weeks ended July 3,
2010 and June 27, 2009, and identifiable assets for the two reportable segments
in which we operate, are shown in the following table. Operating
income is total revenue less cost of merchandise sold and operating expenses
relative to each segment. In computing operating income, none of the
following items have been included: interest expense, other non-operating income
and expenses and income taxes. Identifiable assets by segment are
those assets that are used in our operations in each
segment. Corporate assets are principally cash and real property,
improvements, furniture, equipment and vehicles used at our corporate
headquarters. We do not have any operations outside of the United
States and transactions between restaurants and package liquor stores are not
material.
|
Thirteen
Weeks
Ending
July 3, 2010
|
Thirteen
Weeks
Ending
June 27, 2009
|
|||||||
|
Operating
Revenues:
|
||||||||
|
Restaurants
|
$ | 14,111 | $ | 13,189 | ||||
|
Package
stores
|
2,963 | 2,925 | ||||||
|
Other
revenues
|
300 | 377 | ||||||
|
Total
operating revenues
|
$ | 17,374 | $ | 16,491 | ||||
|
Operating
Income Reconciled to Income Before Income
Taxes
and Net Income Attributable to Noncontrolling
Interests
|
||||||||
|
Restaurants
|
$ | 1,211 | $ | 958 | ||||
|
Package
stores
|
269 | 82 | ||||||
| 1,480 | 1,040 | |||||||
|
Corporate
expenses, net of other
|
||||||||
|
Revenues
|
(447 | ) | (390 | ) | ||||
|
Operating
income
|
1,033 | 650 | ||||||
|
Other
income (expense)
|
(97 | ) | (90 | ) | ||||
|
Operating
Income Reconciled to Income Before Income
Taxes
and Net Income Attributable to Noncontrolling
Interests
|
$ | 936 | $ | 560 | ||||
|
Depreciation
and Amortization:
|
||||||||
|
Restaurants
|
$ | 469 | $ | 465 | ||||
|
Package
stores
|
53 | 56 | ||||||
| 522 | 521 | |||||||
|
Corporate
|
82 | 82 | ||||||
|
Total
Depreciation and Amortization
|
$ | 604 | $ | 603 | ||||
|
Capital
Expenditures:
|
||||||||
|
Restaurants
|
$ | 338 | $ | 313 | ||||
|
Package
stores
|
77 | 75 | ||||||
| 415 | 388 | |||||||
|
Corporate
|
87 | 56 | ||||||
|
Total
Capital Expenditures
|
$ | 502 | $ | 444 | ||||
|
Thirty
Nine Weeks
Ending
July 3, 2010
|
Thirty
Nine Weeks
Ending
June 27, 2009
|
|||||||
|
Operating
Revenues:
|
||||||||
|
Restaurants
|
$ | 42,335 | $ | 39,628 | ||||
|
Package
stores
|
10,151 | 9,788 | ||||||
|
Other
revenues
|
990 | 1,085 | ||||||
|
Total
operating revenues
|
$ | 53,476 | $ | 50,501 | ||||
|
Operating
Income Reconciled to Income Before Income
Taxes
and Net Income Attributable to Noncontrolling
Interests
|
||||||||
|
Restaurants
|
$ | 3,890 | $ | 2,890 | ||||
|
Package
stores
|
925 | 446 | ||||||
| 4,815 | 3,336 | |||||||
|
Corporate
expenses, net of other
|
||||||||
|
Revenues
|
(1,675 | ) | (1,183 | ) | ||||
|
Operating
income
|
3,140 | 2,153 | ||||||
|
Other
income (expense)
|
(286 | ) | (132 | ) | ||||
|
Income
Before Income Taxes and Net Income
Attributable
to Noncontrolling Interests
|
$ | 2,854 | $ | 2,021 | ||||
|
Depreciation
and Amortization:
|
||||||||
|
Restaurants
|
$ | 1,421 | $ | 1,421 | ||||
|
Package
stores
|
160 | 194 | ||||||
| 1,581 | 1,615 | |||||||
|
Corporate
|
248 | 252 | ||||||
|
Total
Depreciation and Amortization
|
$ | 1,829 | $ | 1,867 | ||||
|
Capital
Expenditures:
|
||||||||
|
Restaurants
|
$ | 1,955 | $ | 1,007 | ||||
|
Package
stores
|
487 | 247 | ||||||
| 2,442 | 1,254 | |||||||
|
Corporate
|
118 | 284 | ||||||
|
Total
Capital Expenditures
|
$ | 2,560 | $ | 1,538 | ||||
|
July
3,
2010
|
October
3,
2009
|
|||||||
|
Identifiable
Assets:
|
||||||||
|
Restaurants
|
$ | 19,310 | $ | 19,587 | ||||
|
Package
store
|
3,909 | 3,396 | ||||||
| 23,219 | 22,983 | |||||||
|
Corporate
|
13,619 | 10,496 | ||||||
|
Consolidated
Totals
|
$ | 36,838 | $ | 33,479 | ||||
Reported
financial results may not be indicative of the financial results of future
periods. All non-historical information contained in the following
discussion constitutes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Words such as “anticipates, appears, expects, trends,
intends, hopes, plans, believes, seeks, estimates, may, will,” and variations of
these words or similar expressions are intended to identify forward-looking
statements. These statements are not guarantees of future performance
and involve a number of risks and uncertainties, including but not limited to
customer demand and competitive conditions. Factors that could cause
actual results to differ materially are included in, but not limited to, those
identified in the “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” in the Annual Report on Form 10-K for the Company’s
fiscal year ended October 3, 2009 and in this Quarterly Report on Form
10-Q. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements that may reflect
events or circumstances after the date of this report.
OVERVIEW
At July
3, 2010, we (i) operated 24 units, (excluding the adult entertainment club
referenced in (ii) below), consisting of restaurants, package stores and
combination restaurants/package stores that we either own or have operational
control over and partial ownership in; (ii) own but do not operate one adult
entertainment club; and (iii) franchise an additional five units, consisting of
one restaurant and four combination restaurants/package stores, (one restaurant
of which we operate). The table below provides information concerning
the type (i.e. restaurant, package store or combination restaurant/package
liquor store) and ownership of the units (i.e. whether (i) we own 100% of the
unit; (ii) the unit is owned by a limited partnership of which we are the sole
general partner and/or have invested in; or (iii) the unit is franchised by us),
as of July 3, 2010 and as compared to June 27, 2009 and October 3,
2009. With the exception of “The Whale’s Rib”, a restaurant we
operate but do not own, all of the restaurants operate under our service mark
“Flanigan’s Seafood Bar and Grill” and all of the package liquor stores operate
under our service mark “Big Daddy’s Liquors”.
|
Types of Units
|
July 3, 2010
|
October 3, 2009
|
June 27, 2009
|
|
|
Company
Owned:
|
||||
|
Combination
package and restaurant
|
4
|
4
|
4
|
|
|
Restaurant
only
|
4
|
3
|
3
|
(1)
|
|
Package
store only
|
5
|
5
|
5
|
|
|
Company
Operated Restaurants Only:
|
||||
|
Limited
Partnerships
|
9
|
9
|
9
|
|
|
Franchise
|
1
|
1
|
1
|
|
|
Unrelated
Third Party
|
1
|
1
|
1
|
|
|
Company
Owned Club:
|
1
|
1
|
1
|
|
|
Total
Company Owned/Operated Units
|
25
|
24
|
24
|
|
|
Franchised
Units
|
5
|
6
|
6
|
(1)(2)
|
Notes:
(1)
During the first quarter of our 2010 fiscal year end, we purchased from a
franchisee the operating restaurant assets of the franchised restaurant located
in Boca Raton, Florida and accordingly, on October 18, 2009 the restaurant
converted from a franchised unit to a company owned restaurant.
(2) We
operate a restaurant for one (1) franchisee. This unit is included in
the table both as a franchised restaurant, as well as a restaurant operated by
us.
Franchise Financial
Arrangement: In exchange for our providing management and
related services to our franchisees and granting them the right to use our
service marks “Flanigan’s Seafood Bar and Grill” and “Big Daddy’s Liquors”, our
franchisees (four of which are franchised to members of the family of our
Chairman of the Board, officers and/or directors), are required to (i) pay to us
a royalty equal to 1% of gross package sales and 3% of gross restaurant sales;
and (ii) make advertising expenditures equal to between 1.5% to 3% of all gross
sales based upon our actual advertising costs allocated between stores,
pro-rata, based upon gross sales.
Limited Partnership
Financial Arrangement: We manage and control the operations of
all restaurants owned by limited partnerships, except the Fort Lauderdale,
Florida restaurant which is owned and managed by a related
franchisee. Accordingly, the results of operations of all limited
partnership owned restaurants, except the Fort Lauderdale, Florida restaurant
are consolidated into our operations for accounting purposes. The
results of operations of the Fort Lauderdale, Florida restaurant are accounted
for by us
utilizing the equity method. In general, until the investors’ cash
investment in a limited partnership (including any cash invested by us and our
affiliates) is returned in full, the limited partnership distributes to the
investors annually out of available cash from the operation of the restaurant up
to 25% of the cash invested in the limited partnership, with no management fee
paid to us. Any available cash in excess of the 25% of the cash
invested in the limited partnership distributed to the investors annually, is
paid one-half (½) to us as a management fee, with the balance distributed to the
investors. Once the investors in the limited partnership have
received, in full, amounts equal to their cash invested, an annual management
fee is payable to us equal to one-half (½) of available cash to the limited
partnership, with the other one half (½) of available cash distributed to the
investors (including us and our affiliates). As of July 3, 2010,
limited partnerships owning three (3) restaurants, (Surfside, Florida, Kendall,
Florida and West Miami, Florida locations), have returned all cash invested and
we receive an annual management fee equal to one-half (½) of the cash available
for distribution by the limited partnership. In addition to its
receipt of distributable amounts from the limited partnerships, we receive a fee
equal to 3% of gross sales for use of the service mark “Flanigan’s Seafood Bar
and Grill”.
RESULTS
OF OPERATIONS
|
-----------------------Thirteen
Weeks Ended-----------------------
|
||||||||||||||||
|
July 3, 2010
|
June 27, 2009
|
|||||||||||||||
|
Amount
(In thousands)
|
Percent
|
Amount
(In thousands)
|
Percent
|
|||||||||||||
|
Restaurant
food sales
|
$ | 11,247 | 65.88 | $ | 10,653 | 66.11 | ||||||||||
|
Restaurant
bar sales
|
2,864 | 16.77 | 2,536 | 15.74 | ||||||||||||
|
Package
store sales
|
2,963 | 17.35 | 2,925 | 18.15 | ||||||||||||
|
Total
Sales
|
$ | 17,074 | 100.00 | $ | 16,114 | 100.00 | ||||||||||
|
Franchise
related revenues
|
220 | 298 | ||||||||||||||
|
Owner’s
fee
|
42 | 40 | ||||||||||||||
|
Other
operating income
|
38 | 39 | ||||||||||||||
|
Total
Revenue
|
$ | 17,374 | $ | 16,491 | ||||||||||||
|
-----------------------Thirty-Nine
Weeks Ended-----------------------
|
||||||||||||||||
|
July 3, 2010
|
June 27, 2009
|
|||||||||||||||
|
Amount
(In thousands)
|
Percent
|
Amount
(In thousands)
|
Percent
|
|||||||||||||
|
Restaurant
food sales
|
$ | 33,801 | 64.40 | $ | 32,020 | 64.80 | ||||||||||
|
Restaurant
bar sales
|
8,534 | 16.26 | 7,608 | 15.40 | ||||||||||||
|
Package
store sales
|
10,151 | 19.34 | 9,788 | 19.80 | ||||||||||||
|
Total
Sales
|
$ | 52,486 | 100.00 | $ | 49,416 | 100.00 | ||||||||||
|
Franchise
related revenues
|
756 | 842 | ||||||||||||||
|
Owner’s
fee
|
125 | 129 | ||||||||||||||
|
Other
operating income
|
109 | 114 | ||||||||||||||
|
Total
Revenue
|
$ | 53,476 | $ | 50,501 | ||||||||||||
Comparison of Thirteen Weeks
Ended July 3, 2010 and June 27, 2009.
Revenues. Total
revenue for the thirteen weeks ended July 3, 2010 increased $883,000 or 5.35% to
$17,374,000 from $16,491,000 for the thirteen weeks ended June 27,
2009. This increase resulted from sales from our formerly
franchised Boca Raton, Florida restaurant ($757,000), which opened for business
as a Company owned restaurant on October 18, 2009, offset by the decrease in
franchise royalties and bookkeeping fees which otherwise would have been paid by
the former franchisee, ($29,000). Without giving effect to the
increased revenue generated by the Boca Raton, Florida restaurant becoming a
company owned restaurant as opposed to a franchise, total revenue for the
thirteen weeks ended July 3, 2010 would have increased $155,000 or 0.94% to
$16,646,000 from $16,491,000 for the thirteen weeks ended June 27,
2009.
Restaurant
Food Sales. Restaurant revenue
generated from the sale of food at restaurants (food sales) totaled $11,247,000
for the thirteen weeks ended July 3, 2010 as compared to $10,653,000 for the
thirteen weeks ended June 27, 2009. The increase in food sales
resulted from sales from the Boca Raton, Florida restaurant, which generated
$572,000 of food sales during the thirteen weeks ended July 3,
2010. Without giving effect to the food sales generated from the Boca
Raton, Florida restaurant operating as a Company owned restaurant as opposed to
a franchise, ($572,000), food sales for the thirteen weeks ended July 3, 2010,
would have increased $18,000 or 0.17% to $10, 671,000 from $10,653,000 for the
thirteen weeks ended June 27, 2009. Comparable weekly food sales (for
restaurants open for all of the third quarter of our fiscal years 2010 and 2009,
which consists of seven restaurants owned by us and nine restaurants owned by
affiliated limited partnerships) was $813,000 and $819,000 for the thirteen
weeks ended July 3, 2010 and June 27, 2009, respectively, a decrease of
0.73%. Comparable weekly food sales for Company owned restaurants
(open for all of the third quarter of our fiscal years 2010 and 2009), was
$306,000 and $310,000 for the third quarter of our fiscal year 2010 and the
third quarter of our fiscal year 2009, respectively, a decrease of
1.29%. Comparable weekly food sales for affiliated limited
partnership owned restaurants, (open for all of the third quarter of our fiscal
years 2010 and 2009), was $507,000 and $509,000 for the third quarter of our
fiscal year 2010 and the third quarter of our fiscal year 2009, respectively, a
decrease of 0.39%. We anticipate that food sales will continue to
increase throughout the balance of our fiscal year 2010 due to, among other
things, the operation of our Boca Raton, Florida
restaurant.
Restaurant
Bar Sales. Restaurant
revenue generated from the sale of alcoholic beverages at restaurants (bar
sales) totaled $2,864,000 for the thirteen weeks ended July 3, 2010 as compared
to $2,536,000 for the thirteen weeks ended June 27, 2009. The
increase in bar sales resulted from sales from the Boca Raton, Florida
restaurant, which generated $185,000 of bar sales during the thirteen weeks
ended July 3, 2010, as well as our new
promotion, (half price drinks from 9:00 p.m. to closing), instituted during the
first quarter of our fiscal year 2010. Without giving effect
to the bar sales generated from the Boca Raton, Florida restaurant becoming a
Company owned restaurant as opposed to a franchise, ($185,000), bar sales for
the thirteen weeks ended July 3, 2010, would have increased $143,000 or 5.64% to
$2,679,000 from $2,536,000 for the thirteen weeks ended June 27,
2009. Comparable weekly bar sales (for restaurants open for all of
the third quarter of our fiscal years 2010 and 2009, which consists of seven
restaurants owned by us and nine restaurants owned by affiliated limited
partnerships) was $206,000 for the thirteen weeks ended July 3, 2010 and
$195,000 for the thirteen weeks ended June 27, 2009, an increase of
5.64%. Comparable weekly bar sales for Company owned
restaurants, (open for all of the third quarter of our fiscal years
2010 and 2009), was $77,000 and $75,000 for the third quarter of our fiscal year
2010 and the third quarter of our fiscal year 2009, respectively, an increase of
2.67%. Comparable weekly bar sales for affiliated limited partnership
owned restaurants, (open for all of the third quarter of our fiscal
years 2010 and 2009), was $128,000 and $120,000 for the third quarter of our
fiscal year 2010 and the third quarter of our fiscal year 2009, respectively, an
increase of 6.67%. We anticipate that bar
sales will continue to increase throughout the balance of our fiscal year 2010
primarily
because of the bar sales
from our Boca
Raton, Florida restaurant, as well as an increase in same store bar sales
because of a new promotion, (half price drinks from 9:00 p.m. to closing),
instituted during the first quarter of our fiscal year 2010.
Package
Store Sales. Revenue generated from
sales of liquor and related items at package liquor stores (package store sales)
totaled $2,963,000 for the thirteen weeks ended July 3, 2010 as compared to
$2,925,000 for the thirteen weeks ended June 27, 2009, an increase of
$38,000. The weekly average of same store package store sales, (which
includes all nine (9) Company owned package liquor stores open for all of the
third quarter of our fiscal years 2010 and 2009), was $228,000 for the thirteen
weeks ended July 3, 2010 as compared to $225,000 for the thirteen weeks ended
June 27, 2009, an increase of 1.33%. Package store sales are expected to
remain stable throughout the balance of our fiscal year
2010.
Operating
Costs and Expenses. Operating costs
and expenses, (consisting of cost of merchandise sold, payroll and related
costs, occupancy costs and selling, general and administrative expenses), for
the thirteen weeks ended July 3, 2010 increased $499,000 or 3.15% to $16,340,000
from $15,841,000 for the thirteen weeks ended June 27, 2009. The increase was
primarily due to expenses related to the operation of our Boca Raton, Florida
restaurant of approximately $434,000 and to a lesser extent a general increase
in food costs, offset by actions taken by management to reduce and/or control
costs and expenses. We anticipate that our operating costs and
expenses will continue to increase throughout the balance of our fiscal year
2010 due primarily to the operating costs and expenses associated with our Boca
Raton, Florida restaurant and among other things, an expected general increase
in food costs, offset by a decrease in the cost of ribs. Operating
costs and expenses decreased as a percentage of total sales to approximately
94.05% in the third quarter of our fiscal year 2010 from 96.06% in the third
quarter of our fiscal year 2009
Gross
Profit. Gross profit is calculated by subtracting the cost of merchandise
sold from sales.
Restaurant Food
and Bar Sales. Gross profit for food sales and bar sales for the thirteen
weeks ended July 3, 2010 increased to $9,243,000 from $8,607,000 for the
thirteen weeks ended June 27, 2009. Our gross profit margin for food
sales and bar sales (calculated as gross profit reflected as a percentage of
restaurant food sales and bar sales), was 65.50% for the thirteen weeks ended
July 3, 2010 and 65.26% for the thirteen weeks ended June 27,
2009. This slight increase in gross profit for food sales and bar
sales for the third quarter of our fiscal year 2010 was primarily due to a
decrease in the cost of ribs during calendar year 2010, offset by our new
restaurant bar promotion, (half price drinks from 9:00 p.m. to closing),
instituted during the first quarter of our fiscal year end
2010. During the third quarter of our fiscal year 2009, gross profit
for restaurant and bar sales was adversely affected by our direct mailing
advertising, which included a $10.00 discount against a customer’s check of
$20.00 or more and from higher food costs. We anticipate that our
gross profit for food sales and bar sales will continue to increase during the
balance of our fiscal year 2010 due to a decrease in the cost of ribs during
calendar year 2010 and an increase in our bar liquor prices subsequent to the
end of our third quarter of our fiscal year 2010, offset by our new restaurant
bar promotion, (half price drinks from 9:00 p.m. to closing). We have
not increased menu prices since the first quarter of our fiscal year 2008 to
offset higher food costs.
Package Store
Sales. Gross profit for package store sales for the thirteen
weeks ended July 3, 2010 increased to $1,034,000 from $957,000 for the thirteen
weeks ended June 27, 2009. Our gross profit margin, (calculated as
gross profit reflected as a percentage of package store sales), for package
store sales was 34.90% for the thirteen weeks ended July 3, 2010 and 32.72% for
the thirteen weeks ended June 27, 2009. The increase in our gross
profit margin, (2.18%), was primarily due to the
purchase of "close out" and inventory reduction merchandise from wholesalers. We
anticipate the gross profit
margin
for package store sales to remain constant throughout the balance of our fiscal
year 2010 as we expect to continue purchasing “close out” and inventory
reduction merchandise from wholesalers.
Payroll and
Related Costs. Payroll and related
costs for the thirteen weeks ended July 3, 2010 increased $223,000 or 4.56% to
$5,108,000 from $4,885,000 for the thirteen weeks ended June 27, 2009 due
primarily to the Boca Raton, Florida restaurant being open during the thirteen
weeks ended July 3, 2010, ($233,000), offset by a reduction of our store level
management. We anticipate that our payroll and related costs will
increase throughout the balance of our fiscal year 2010, primarily due to the
payroll and related costs and expenses associated with our Boca Raton, Florida
restaurant. Payroll
and related costs as a percentage of total sales was 29.40% in the third quarter
of our fiscal year 2010 and 29.62% of total sales in the third quarter of our
fiscal year 2009.
Occupancy
Costs. Occupancy costs
(consisting of rent, common area maintenance, repairs, real property taxes and
amortization of leasehold purchases) for the thirteen weeks ended July 3, 2010
increased $76,000 or 7.69% to $1,064,000 from $988,000 for the thirteen weeks
ended June 27, 2009. Our occupancy costs increased primarily due to
the occupancy cost associated with our Boca Raton, Florida restaurant, offset by
the elimination of rent paid for our combination restaurant and package liquor
store located at 2505 N. University Drive, Hollywood, Florida (Store #19), the
real property and building of which we purchased during the first quarter of our
fiscal year 2010 and a decrease in the rent paid for our restaurant located at
1550 W. 84th
Street, Hialeah, Florida (Store #9) during the second quarter of our fiscal year
2010. We anticipate that our occupancy costs will increase throughout
the balance of our fiscal year 2010, primarily due to the occupancy cost
associated with our Boca Raton, Florida restaurant, offset by the elimination of
rent paid for our combination restaurant and package liquor store located at
2505 N. University Drive, Hollywood, Florida (Store #19) and a decrease in the
rent paid for our restaurant located at 1550 W. 84th
Street, Hialeah, Florida (Store #9).
Selling, General
and Administrative Expenses. Selling, general and
administrative expenses (consisting of general corporate expenses, including but
not limited to advertising, insurance, professional costs, clerical and
administrative overhead) for the thirteen weeks ended July 3, 2010 decreased
$47,000 or 1.38% to $3,371,000 from $3,418,000 for the thirteen weeks ended June
27, 2009. Selling, general and administrative expenses decreased as a
percentage of total sales in the third quarter of our fiscal year 2010 to
approximately 19.40% as compared to 20.73% in the third quarter of our fiscal
year 2009. This decrease is due primarily to reduced advertising
expense and property and workers compensation insurance expenses, offset by the
selling, general and administrative expenses associated with the operation of
the Boca Raton, Florida restaurant and an overall increase in
expenses. We anticipate that throughout the balance of our
fiscal year 2010, our selling, general and administrative expenses will be
consistent with our prior fiscal year, with increases attributed to the
operation of our Boca Raton, Florida restaurant offset by decreases in
advertising and insurance expense.
Depreciation and
Amortization. Depreciation and
amortization expense for the thirteen weeks ended July 3, 2010 and June 27, 2009
was $604,000 and $603,000 respectively. As a percentage of revenue,
depreciation and amortization expense was 3.48% of revenue in the thirteen weeks
ended July 3, 2010 and 3.66% of revenue in the thirteen weeks ended June 27,
2009.
Interest Expense,
Net. Interest expense,
net, for the thirteen weeks ended July 3, 2010 increased $15,000 to $120,000
from $105,000 for the thirteen weeks ended June 27, 2009. Interest
expense increased during the thirteen weeks ended July 3, 2010 primarily due to
the interest paid on the mortgage associated with the purchase of our
combination restaurant and package liquor store located at 2505 N. University
Drive, Hollywood, Florida (Store #19), which mortgage did not exist during the
thirteen weeks ended June 27, 2009. The interest expense and
principal balance on our line of credit were approximately equal during the
thirteen weeks ended July 3, 2010 and June 27, 2009.
Net
Income. Net
income for the thirteen weeks ended July 3, 2010 increased $115,000 or 36.98% to
$426,000 from $311,000 for the thirteen weeks ended June 27, 2009. As
a percentage of sales, net income for the third quarter of our fiscal year 2010
is 2.45%, as compared to 1.89% in the third quarter of our fiscal year
2009. The increase in net income as a percentage of sales (0.56%) is
primarily due to higher gross profit generated from our food sales and our
package store sales and improved control over expenses, offset by lower gross
profit generated from our bar sales. During the thirteen weeks
ended June 27, 2009, we increased our deferred tax asset by
$18,000.
Comparison of Thirty-Nine
Weeks Ended July 3, 2010 and June 27, 2009.
Revenues. Total
revenue for the thirty nine weeks ended July 3, 2010 increased $2,975,000 or
5.89% to $53,476,000 from $50,501,000 for the thirty nine weeks ended June 27,
2009. This increase resulted from sales from our formerly
franchised Boca Raton, Florida restaurant ($2,250,000), which opened for
business as a Company owned restaurant on October 18, 2009, offset by the
decrease in franchise royalties and bookkeeping fees which otherwise would have
been paid by the former franchisee, ($87,000). Without giving effect
to the increased revenue generated by the Boca Raton, Florida restaurant
becoming a Company owned restaurant as opposed to a franchise, ($2,163,000),
total revenue for the thirty nine weeks ended July 3, 2010 would have increased
$812,000 or 1.61% to $51,313,000 from $50,501,000 for the thirty nine weeks
ended June 27, 2009
Restaurant
Food Sales. Restaurant revenue
generated from the sale of food at restaurants (food sales) totaled $33,801,000
for the thirty nine weeks ended July 3, 2010 as compared to $32,020,000 for the
thirty nine weeks ended June 27, 2009. The increase in food sales
resulted primarily from sales from the Boca Raton, Florida restaurant, which
generated $1,712,000 of food sales during the thirty nine weeks ended July 3,
2010. Without giving effect to the food sales generated from the Boca
Raton, Florida restaurant operating as a Company owned restaurant as opposed to
a franchise, ($1,712,000), food sales during the thirty nine weeks ended July 3,
2010 would have increased $69,000 or 0.22% to $32,089,000 from $32,020,000 for
the thirty nine weeks ended June 27, 2009. Comparable weekly food
sales (for
restaurants open for all of the thirty nine weeks of our fiscal years 2010 and
2009, which consists of seven restaurants owned by us and nine restaurants owned
by affiliated limited partnerships) was $823,000 and $821,000 for the
thirty nine weeks ended July 3, 2010 and June 27, 2009, respectively, an
increase of 0.24%. Comparable weekly food
sales for Company owned restaurants (open for all of the thirty nine
weeks of our fiscal years 2010 and 2009), was $318,000 and $313,000
for the thirty nine weeks ended July 3, 2010 and June 27, 2009, respectively, an
increase of 1.60%. Comparable weekly food sales for affiliated
limited partnership owned restaurants (for restaurants open for all of the
thirty nine weeks of our fiscal years 2010 and 2009), was $505,000 and $508,000
for the thirty nine weeks ended July 3, 2010 and June 27, 2009, respectively, a
decrease of 0.59%.We anticipate that food sales will continue to increase
throughout the balance of our fiscal year 2010 due to, among other things, the
operation of our Boca Raton, Florida restaurant, offset by a decline in same
store restaurant food sales.
Restaurant
Bar Sales. Restaurant
revenue generated from the sale of alcoholic beverages at restaurants (bar
sales) totaled $8,534,000 for the thirty nine weeks ended July 3, 2010 as
compared to $7,608,000 for the thirty nine weeks ended June 27,
2009. The increase in bar sales is due to sales from the Boca
Raton, Florida restaurant, which generated $538,000 of bar sales during the
thirty nine weeks ended July 3, 2010, as well as our new
promotion, (half price drinks from 9:00 p.m. to closing), instituted during the
first quarter of our fiscal year 2010. Without giving effect
to the bar sales generated by the Boca Raton, Florida restaurant becoming a
Company owned restaurant as opposed to a franchise, ($538,000) bar sales during
the thirty nine weeks ended July 3, 2010, would have increased $388,000 or 5.10%
to $7,996,000 from $7,608,000 for the thirty nine weeks ended June 27,
2009. Comparable weekly bar sales (for restaurants open for all
of the thirty nine weeks of our fiscal years 2010 and 2009,
which
consists of seven restaurants owned by us and nine restaurants owned by
affiliated limited partnerships) was $205,000 for the thirty nine weeks ended
July 3, 2010 and $195,000 for the thirty nine weeks ended June 27, 2009, an
increase of 5.13%. Comparable weekly bar sales for Company owned
restaurants (open for all of the thirty nine weeks of our fiscal years 2010 and
2009,) was $79,000 and $75,000 for the thirty nine weeks ended July 3, 2010 and
June 27, 2009, respectively, an increase of 5.33%. Comparable weekly
bar sales for affiliated limited partnership owned restaurants (open for all of
the thirty nine weeks of our fiscal years 2010 and 2009) was $126,000 and
$120,000 for the thirty nine weeks ended July 3, 2010 and June 27, 2009,
respectively, an increase of 5.00%. We anticipate that bar
sales will continue to increase throughout the balance of our fiscal year 2010
primarily because of the bar sales from our Boca Raton, Florida
restaurant, as well as an increase in same store bar sales because of a new
promotion, (half price drinks from 9:00 p.m. to closing), instituted during the
first quarter of our fiscal year 2010.
Package Store
Sales. Revenue generated from sales of liquor and related
items at package stores (package store sales) totaled $10,151,000 for the thirty
nine weeks ended July 3, 2010 as compared to $9,788,000 for the thirty nine
weeks ended June 27, 2009, an increase of $363,000. The weekly
average of same store package store sales, (which includes all nine (9) Company
owned package liquor stores open for all of the thirty nine weeks of our fiscal
years 2010 and 2009) was $260,000 and $251,000 for the thirty nine weeks ended
July 3, 2010 and June 27, 2009, respectively, an increase of
3.59%. Package liquor store sales are expected to remain stable
throughout the balance of our fiscal year 2010.
Operating
Costs and Expenses. Operating costs
and expenses, (consisting of cost of merchandise sold, payroll and related
costs, occupancy costs and selling, general and administrative expenses), for
the thirty nine weeks ended July 3, 2010 increased $1,988,000 or 4.11% to
$50,336,000 from $48,348,000 for the thirty nine weeks ended June 27,
2009. The increase was primarily due to expenses related to the
operation of our Boca Raton, Florida restaurant of approximately $1,239,000 and
to a lesser extent a general increase in food costs, offset by actions taken by
management to reduce and/or control costs and expenses. We anticipate
that our operating costs and expenses will continue to increase throughout the
balance of our fiscal year 2010 due primarily to the operating costs and
expenses associated with our Boca Raton, Florida restaurant and among other
things, an expected general increase in food costs, offset by a decrease in the
cost of ribs. Operating costs and expenses decreased as a
percentage of total sales to approximately 94.13% for the thirty nine weeks
ended July 3, 2010 from 95.74% for the thirty nine weeks ended June 27,
2009.
Gross
Profit. Gross profit is calculated by subtracting the cost of merchandise
sold from sales.
Restaurant Food
and Bar Sales. . Gross profit for food and
bar sales for the thirty nine weeks ended July 3, 2010 increased to $27,793,000
from $26,158,000 for the thirty nine weeks ended June 27, 2009. Our
gross profit margin for food sales and bar sales (calculated as gross profit
reflected as a percentage of food sales and bar sales), was 65.65% for the
thirty nine weeks ended July 3, 2010 and 66.01% for the thirty nine weeks ended
June 27, 2009. The slight decrease in gross profit margin for food
sales and bar sales for the thirty nine weeks ended July 3, 2010, (-0.36%), was
primarily due to our new restaurant bar promotion, (half price drinks from 9:00
p.m. to closing), instituted during the first quarter of our fiscal year end
2010 and from higher food costs, offset by a decrease in the cost of ribs during
calendar year 2010. Our gross profit margin for food sales and bar
sales for the thirty nine weeks ended June 27, 2009 was adversely affected by
our direct mailing advertising, which included a $10.00 discount against a
customer’s check of $20.00 or more and from higher food costs. We
anticipate that our gross profit for food sales and bar sales will increase
during the balance of our fiscal year 2010 due to a decrease in the cost of ribs
during calendar year 2010 and an increase in our bar liquor prices subsequent to
the end of our third quarter of our fiscal year 2010, offset by our new
restaurant bar promotion, (half
price
drinks from 9:00 p.m. to closing). We have not increased menu prices
since the first quarter of our fiscal year 2008 to offset higher food
costs.
Package Store
Sales. Gross profit for package store sales for the thirty
nine weeks ended July 3, 2010 increased to $3,377,000 from $3,048,000 for the
thirty nine weeks ended June 27, 2009. Our gross profit margin,
(calculated as gross profit reflected as a percentage of package store sales),
was 33.27% for the thirty nine weeks ended July 3, 2010 compared to 31.14% for
the thirty nine weeks ended June 27, 2009. The increase in our gross
profit margin, (2.13%), was primarily due to the
purchase of "close out" and inventory reduction merchandise from wholesalers. We
anticipate the gross profit margin for package store sales to remain constant
throughout the balance of our fiscal year 2010 as we expect to continue
purchasing “close out” and inventory reduction merchandise from
wholesalers.
Payroll and
Related Costs. Payroll and related
costs for the thirty nine weeks ended July 3, 2010 increased $880,000 or 5.99%
to $15,580,000 from $14,700,000 for the thirty nine weeks ended June 27, 2009
due primarily to the Boca Raton, Florida restaurant being open during the thirty
nine weeks ended July 3, 2010, ($675,000), and an increase in officers’ bonus,
($234,000), offset by a reduction of our store level management. We
anticipate that our payroll costs and related expenses will increase throughout
the balance of our fiscal year 2010, primarily due to the payroll and related
costs and expenses associated with our Boca Raton, Florida
restaurant. Payroll and related costs as a percentage of total sales
was 29.13% for the thirty nine weeks ended July 3, 2010 and 29.11% of total
sales for the thirty nine weeks ended June 27, 2009.
Occupancy
Costs. Occupancy costs
(consisting of rent, common area maintenance, repairs, real property taxes and
amortization of leasehold purchases) for the thirty nine weeks ended July 3,
2010 increased $184,000 or 6.21% to $3,146,000 from $2,962,000 for the thirty
nine weeks ended June 27, 2009. Our occupancy costs increased
primarily due to the occupancy cost associated with our Boca Raton, Florida
restaurant, offset by the elimination of rent paid for our combination
restaurant and package liquor store located at 2505 N. University Drive,
Hollywood, Florida (Store #19), the real property and building of which we
purchased during the first quarter of our fiscal year 2010 and a decrease in the
rent paid for our restaurant located at 1550 W. 84th
Street, Hialeah, Florida (Store #9), at the start of the second quarter of our
fiscal year 2010. We anticipate that our occupancy costs will
increase throughout the balance of our fiscal year 2010, primarily due to the
occupancy cost associated with our Boca Raton, Florida restaurant, offset by the
elimination of rent paid for our combination restaurant and package liquor store
located at 2505 N. University Drive, Hollywood, Florida (Store #19) and a
decrease in the rent paid for our restaurant located at 1550 W. 84th
Street, Hialeah, Florida (Store #9).
Selling,
General and Administrative Expenses.
Selling, general and administrative expenses (consisting of general
corporate expenses, including but not limited to advertising, insurance,
professional costs, clerical and administrative overhead) for the thirty nine
weeks ended July 3, 2010 decreased $182,000 or 1.74% to $10,294,000 from
$10,476,000 for the thirty nine weeks ended June 27, 2009. Selling,
general and administrative expenses decreased as a percentage of total sales for
the thirty nine weeks ended July 3, 2010 to 19.25% as compared to 20.74% for the
thirty nine weeks ended June 27, 2009. This decrease is due primarily to reduced
advertising expense and property and workers compensation insurance expenses,
offset by the selling, general and administrative expenses associated with the
operation of the Boca Raton, Florida restaurant and an overall increase in
expenses. We anticipate that throughout the balance of our fiscal
year 2010, our selling, general and administrative expenses will be consistent
with our prior fiscal year, with increases attributed to the operation of our
Boca Raton, Florida restaurant offset by decreases in advertising and insurance
expense.
Depreciation and
Amortization. Depreciation and
amortization expense for the thirty nine weeks ended July 3, 2010 and June 27,
2009 was $1,829,000 and $1,867,000 respectively. As a percentage of
revenue,
depreciation
and amortization expense was 3.42% of revenue in the thirty nine weeks ended
July 3, 2010 and 3.70% of revenue in the thirty nine weeks ended June 27,
2009.
Interest Expense,
Net. Interest expense,
net, for the thirty nine weeks ended July 3, 2010 increased $23,000 to $355,000
from $332,000 for the thirty nine weeks ended June 27, 2009. Interest
expense increased during the thirty nine weeks ended July 3, 2010 primarily due
to the interest paid on the mortgage associated with the purchase of our
combination restaurant and package liquor store located at 2505 N. University
Drive, Hollywood, Florida (Store #19),which mortgage did not exist during the
thirty nine weeks ended June 27, 2009. The interest expense and
principal balance on our line of credit were approximately equal during the
thirty nine weeks ended July 3, 2010 and June 27, 2009.
Net
Income. Net
income for the thirty nine weeks ended July 3, 2010 increased $217,000 or 18.59%
to $1,384,000 from $1,167,000 for the thirty nine weeks ended June 27,
2009. As a percentage of sales, net income for the thirty nine weeks
ended July 3, 2010 is 2.59%, as compared to 2.31% for the thirty nine weeks
ended June 27, 2009. During the thirty nine weeks ended June 27,
2009, we recognized interest income of $124,000 paid on claims we filed in the
liquidation proceedings of Ambassador Insurance Company in 1983 and other income
of $26,000 paid as the balance of our claims (10%) filed in the liquidation
proceedings of Ambassador Insurance Company, offset by income tax of
$44,000. We also increased our tax deferred asset by
$140,000. Without giving effect to the above non-recurring items
pertaining to the thirty nine weeks ended June 27, 2009, our net income would
have increased $463,000 or 50.27% during the thirty nine weeks ended July 3,
2010.
New
Limited Partnership Restaurants
During
the thirty nine weeks ended July 3, 2010 and the thirty nine weeks ended June
27, 2009, we did not have a new restaurant location in the development stage and
did not recognize any pre-opening costs.
While we
currently have no new restaurants under development, if we are to open new
restaurants, our income from operations will be adversely affected due to our
obligation to fund pre-opening costs, including but not limited to pre-opening
rent for the new locations. We believe that our current cash on hand,
together with our expected cash generated from operations will be sufficient to
fund our operations and capital expenditures for at least the next twelve
months.
Trends
During
the next twelve months, we expect continued increases in aggregate food sales
and bar sales as compared to prior periods primarily due to our Boca Raton,
Florida restaurant, as well as an increase in same store food sales and bar
sales because of a new promotion, (50% drinks from 9:00 p.m. to closing),
instituted during the first quarter of our fiscal year 2010. However,
we expect same store food sales to decline over the next twelve month period due
primarily to the current domestic and global financial crisis and increased
competition. We expect package store sales to remain
stable. We expect higher food costs and higher overall expenses,
which will adversely affect our net income. In December, 2007, we
raised menu prices to offset the higher food costs and overall
expenses. During the first quarter of our fiscal year 2010 and again
subsequent to the end of our third quarter of our fiscal year 2010, we raised
certain of our alcoholic drink prices. We plan to limit menu price
increases as long as possible while maintaining our high quality of food and
service and without reducing our food portions. We have limited our
advertising, but plan to attract and retain our customers by offering
promotional gift cards, but are monitoring the impact of such discounts on our
gross profit. We may be required to raise menu prices wherever
competitively possible.
Although
we have no new restaurant in development, we continue to search for new
locations to open restaurants and thereby expand our business, but we are now
looking for locations that will not require an extensive and costly
renovation. Any new locations will likely be opened using our limited
partnership ownership model.
We are
not actively searching for locations for the operation of new package liquor
stores, but if an appropriate location for a package liquor store becomes
available, we will consider it.
Liquidity
and Capital Resources
We fund
our operations through cash from operations and borrowings under our term loan
(recently converted from a line of credit). As of July 3, 2010, we
had cash of approximately $7,045,000, an increase of $2,465,000 from our cash
balance of $4,580,000 as of October 3, 2009. The increase in cash as
of July 3, 2010 was primarily from our operations and due to minimal demand upon
our cash flow for extraordinary items. We believe that our current cash on hand
and expected cash generated from operations will be sufficient to fund our
operations and capital expenditures for at least the next twelve
months.
Cash
Flows
The
following table is a summary of our cash flows for the thirty-nine weeks of
fiscal years 2010 and 2009.
|
|
||||||||
|
-----Thirty-Nine Weeks Ended----
|
||||||||
|
July 3, 2010
|
June 27, 2009
|
|||||||
|
(in
Thousands)
|
||||||||
|
Net
cash provided by operating activities
|
$ | 5,640 | $ | 4,680 | ||||
|
Net
cash used in investing activities
|
(1,524 | ) | (1,237 | ) | ||||
|
Net
cash used in financing activities
|
(1,651 | ) | (1,742 | ) | ||||
|
Net
Increase in Cash and Cash Equivalents
|
2,465 | 1,701 | ||||||
|
Cash
and Cash Equivalents, Beginning
|
4,580 | 3,244 | ||||||
|
Cash
and Cash Equivalents, Ending
|
$ | 7,045 | $ | 4,945 | ||||
We have
determined that we must retain any earnings for the development and operation of
our business and accordingly, we do not intend to pay any cash dividends in the
foreseeable future.
Capital
Expenditures
In
addition to using cash for our operating expenses, we use cash to fund the
development and construction of new restaurants and to fund capitalized property
improvements for our existing restaurants. We acquired property and
equipment of $2,560,000, (including $850,000 of which was financed, $99,000 of
which was the non-cash purchase of the assets of the franchised restaurant and
$20,000 of deposits recorded in other assets as of October 3, 2009), during the
thirty nine weeks ended July 3, 2010, and including $690,000 for renovations to
two (2) existing Company owned restaurants. During the thirty nine
weeks ended June 27, 2009, we acquired property and equipment of $1,538,000,
(including
$292,000 of deposits recorded in other assets as of September 27, 2008),
including $690,000 for renovations to two (2) existing Company owned
restaurants.
All of
our owned units require periodic refurbishing in order to remain competitive. We
anticipate the cost of this refurbishment in our fiscal year 2010 to be
approximately $565,000, of which $419,000 has been spent through July 3,
2010.
Subsequent
to the end of the third quarter of our fiscal year 2010, we purchased from an
unaffiliated third party, the real property and building where our restaurant
located at 2600 W. Davie Boulevard, Fort Lauderdale, Florida, (Store #22),
operates pursuant to an option to purchase contained in our lease
agreement. We paid $1,700,000 for this property, all cash at
closing.
Long
Term Debt
As of
July 3, 2010, we had long term debt, (including our line of credit), of
$7,354,000, as compared to $7,063,000 as of June 27, 2009, and $6,800,000 as of
October 3, 2009.
Through
June 5, 2010, under a secured line of credit with a third party financial
institution we were able to borrow up to $2,500,000, subject to certain
conditions. The outstanding balance on this line of credit bore
interest at BBA LIBOR 1 month rate, plus 2.25%, (2.600% as of July 3, 2010),
with monthly payments of interest only required to be made and the unpaid
principal balance and all accrued interest due in full on June 5,
2010. We granted our lender a security interest in substantially all
of our assets and a second mortgage on our corporate offices as collateral to
secure our repayment obligations under our credit line. During the
third quarter of our fiscal year 2010, we paid monthly installments of interest
payments, with no borrowings or principal payments. As of July 3,
2010, the amount outstanding under the line of credit was $1,586,000, with no
remaining availability.
In July,
2010, we converted the amount outstanding on our line of credit ($1,586,000) to
a term loan maturing in July, 2013. The term loan is in the principal
amount of $1,586,000 and bears interest at a variable interest
rate. We entered into an interest rate swap agreement to hedge the
interest rate risk, which fixed the interest rate on the term loan at 4.55% per
annum throughout the term of the loan. The term loan is fully
amortized over three (3) years, with our monthly payment of principal and
interest, totaling $45,000. We granted our lender a security interest
in substantially all of our assets and a second mortgage on our corporate
offices as collateral to secure our repayment obligations under our term loan.
Since the line of credit was re-financed for a period of time in excess of
twelve (12) months, it has been re-classified as long term debt in the
accompanying Condensed Consolidated Balance Sheets.
Purchase
Commitments
In order
to fix the cost and ensure adequate supply of baby back ribs for our
restaurants, on October 21, 2009, we entered into a purchase agreement with our
rib supplier, whereby we agreed to purchase approximately $3,200,000 of baby
back ribs during calendar year 2010 from this vendor at a fixed
cost. While we anticipate purchasing all of our rib supply from this
vendor, we believe there are several other alternative vendors available, if
needed.
Working
Capital
The table
below summarizes the current assets, current liabilities, and working capital
for our fiscal quarters ended July 3, 2010, June 27, 2009 and our fiscal year
ended October 3, 2009.
|
Item
|
July 3, 2010
|
June 27, 2009
|
Oct. 3, 2009
|
|||||||||
|
(in
Thousands)
|
||||||||||||
|
Current
Assets
|
$ | 11,074 | $ | 8,918 | $ | 8,527 | ||||||
|
Current
Liabilities
|
6,647 | 7,001 | 6,440 | |||||||||
|
Working
Capital
|
$ | 4,427 | $ | 1,917 | $ | 2,087 | ||||||
Our
working capital as of July 3, 2010 increased by 130.93% from the working capital
for the fiscal quarter ending June 27, 2009 and increased by 112.12% from our
working capital for our fiscal year ending October 3, 2009. Our
working capital increased during our fiscal quarter ended July 3, 2010 from our
working capital for our fiscal quarter ended June 27, 2009 and our fiscal year
ended October 3, 2009, due to the re-classification of our line of credit as
long term debt and notwithstanding our use of approximately $525,000 in
connection with our acquisition of the real property and building where our
combination restaurant and package liquor store located at 2505 N. University
Drive, Hollywood, Florida, (Store #19) operates.
While
there can be no assurance due to, among other things, unanticipated expenses or
unanticipated decline in revenues, or both, we believe that our cash on hand and
positive cash flow from operations will adequately fund operations, debt
reductions and planned capital expenditures throughout the balance of our fiscal
year 2010. Our working capital will be affected by our use of
approximately $1,700,000 in connection with our acquisition of the real property
and building where our restaurant located at 2600 W. Davie Boulevard, Fort
Lauderdale, Florida, (Store #22) operates, which acquisition took place
subsequent to the end of the third quarter of our fiscal year
2010. We are attempting to offset this by acquiring a mortgage loan
on the real property, in the principal amount of up to $1,000,000. In
addition, we continue to make payments to satisfy the balance owed on our
purchase of a surveillance camera system ($53,000).
Off-Balance
Sheet Arrangements
The
Company does not have off-balance sheet arrangements.
Inflation
The
primary inflationary factors affecting our operations are food, beverage and
labor costs. A large number of restaurant personnel are paid at rates
based upon applicable minimum wage and increases in minimum wage directly affect
labor costs. To date, inflation has not had a material impact on our
operating results, but this circumstance may change in the future if food and
fuel costs continue to rise.
We do not
ordinarily hold market risk sensitive instruments for trading purposes and as of
July 3, 2010 held no equity securities.
Interest
Rate Risk
At July
3, 2010, of the Company’s debt arrangements, only borrowings under our line of
credit bore interest at a variable rate: BBA LIBOR 1 month rate, plus
2.25%. Increases in interest rates may have a material affect upon
results of operations, depending upon the outstanding principal balance on our
line of credit from time to time.
Subsequent
to the end of the third quarter of our fiscal year 2010, our line of credit was
converted to a term loan maturing in July, 2013 and we refinanced the mortgage
loan encumbering our corporate offices. Both loans bear interest at
variable rates, but we entered into separate interest rate swap agreements to
hedge the interest rate risks. As a result, both loans have fixed
interest rates throughout their respective terms and increases in interest rates
will not have a material effect upon our results of operations.
At July
3, 2010, our cash resources earn interest at variable rates. Accordingly, our
return on these funds is affected by fluctuations in interest
rates.
Disclosure
Controls and Procedures
Based on
evaluations as of the end of the period covered by this report, our Chief
Executive Officer and Chief Financial Officer, with the participation of our
management team, have concluded that our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) to the Securities Exchange Act of
1934, as amended (the “Exchange Act”)) were effective.
Limitations
on the Effectiveness of Controls and Permitted Omission from Management’s
Assessment
Our
internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. All internal control systems, no
matter how well designed, have inherent limitations, including the possibility
of human error and the circumvention or overriding of
controls. Accordingly, even effective internal controls can only
provide reasonable assurance with respect to financial statement
preparation. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Changes
in Internal Control Over Financial Reporting
During
the period covered by this report, we have not made any change to our internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
See
“Litigation” on page 12 of this Report and Item 1 and Item 3 to Part 1 of the
Annual Report on Form 10-K for the fiscal year ended October 3, 2009 for a
discussion of other legal proceedings resolved in prior years.
Purchase
of Company Common Stock
Pursuant
to a discretionary plan approved by the Board of Directors at its meeting on May
17, 2007, during the thirteen weeks ended July 3, 2010, we purchased 18 shares
of our common stock for an aggregate purchase price of $100 in an off market
transaction, which reflected an actual per share purchase price which was equal
to the average per share market price on the date of purchase. During
the thirteen weeks ended June 27, 2009, we purchased 325 shares of our common
stock for an aggregate purchase price of $2,000 in an off market transaction,
which reflected an actual per share purchase price which was equal to the
average per share market price on the date of purchase.
|
ISSUER
PURCHASES OF EQUITY SECURITIES
|
||||
|
Period
|
(a)
Total
Number of Shares
(or
Units)
Purchased
|
(b)
Average
Price
Paid
per
Share
(or
Unit)
|
(c)
Total
Number
of
Shares
(or
Units)
Purchased
as
Part
of
Publicly
Announced
Plans
or
Programs
|
(d)
Maximum
Number
(or
Approximate
Dollar
Value) of
Shares
(or Units)
that
May Yet Be
Purchased
Under
the
Plans or
Programs
|
|
April
4,
2010
–
May
1,
2010
|
--
|
--
|
--
|
68,700
|
|
May
2,
2010
–
May
29, 2010
|
--
|
--
|
--
|
68,700
|
|
May
30,
2010
–
July
3,
2010
|
18
|
$7.30
|
18
|
68,682
|
|
Total
as
of
July
3,
2010
|
18
|
18
|
68,682
|
|
The
following exhibits are filed with this Report:
|
|
Exhibit
|
Description
|
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
SIGNATURES
In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
| FLANIGAN'S ENTERPRISES, INC. | |
|
Date:
August 17, 2010
|
/s/ James
G.
Flanigan
|
|
JAMES
G. FLANIGAN, Chief Executive Officer and President
|
|
|
/s/ Jeffrey D.
Kastner
|
|
|
JEFFREY
D. KASTNER, Chief Financial Officer and Secretary
|
|
|
(Principal
Financial and Accounting Officer)
|
30