Back to GetFilings.com
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended June 28, 2003
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE OF 1934
For the transition period from __________________ to __________________
Commission File Number I-6836
Flanigan's Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Florida 59-0877638
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5059 N.E. 18th Avenue, Fort Lauderdale, Florida 33334
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code, (954)-377-1961
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 and (2) has been the subject to such filing
requirements for the past 90 days.
Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest practicable date 1,926,470 as of August 15, 2003.
1
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
June 28, 2003
PART I. FINANCIAL INFORMATION
1. UNAUDITED CONDENSED FINANCIAL STATEMENTS
Consolidated Summary of Earnings -- For the Thirteen and Thirty Nine
Weeks ended June 28, 2003 and June 29, 2002.
Consolidated Balance Sheets -- As of June 28, 2003 and September 28,
2002.
Consolidated Statements of Cash Flows for the Thirty Nine weeks
ended June 28, 2003 and June 29, 2002.
Notes to Consolidated Financial Statements
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION AND SIGNATURES
5. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
2
FLANIGAN'S ENTERPRISES, INC.
UNAUDITED CONSOLIDATED SUMMARY OF EARNINGS
(In Thousands Except Per Share Amounts)
Thirteen Weeks Thirty Nine Weeks
Ended Ended
June 28 June 29 June 28 June 29
2003 2002 2003 2002
-------- -------- -------- --------
REVENUES:
Restaurant food sales $ 6,221 $ 5,424 $ 17,355 $ 17,703
Restaurant bar sales 1,650 1,380 4,595 4,619
Package good sales 2,279 2,109 7,642 7,124
Franchise related revenues 326 194 726 658
Owners fee 60 54 195 199
Other operating income 52 86 217 264
-------- -------- -------- --------
10,588 9,247 30,730 30,567
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of merchandise sold
Restaurant and bar 2,687 2,327 7,454 7,612
Cost of merchandise sold
Package goods 1,636 1,515 5,622 5,159
Payroll and related costs 3,056 3,428 8,513 9,283
Occupancy costs 548 293 1,523 1,135
Selling, general and
administrative expenses 2,294 1,404 5,664 5,033
-------- -------- -------- --------
10,221 8,967 28,776 28,222
-------- -------- -------- --------
Income from operations 367 280 1,954 2,345
-------- -------- -------- --------
OTHER INCOME (EXPENSE)
Interest expense on long term
debt and damages payable (33) (34) (107) (108)
Minority interest in earnings of
consolidated joint ventures (121) (195) (585) (881)
Interest and dividend income 10 11 29 35
Recognition of deferred gains 1 1 4 3
Other, net (34) 283 37 299
Joint venture income (2) 2 20 28
-------- -------- -------- --------
(179) 68 (602) (624)
-------- -------- -------- --------
Income before income taxes 188 348 1,352 1,721
3
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED SUMMARY OF EARNINGS
(In Thousands Except Per Share Amounts)
(Continued)
Thirteen Weeks Thirty Nine Weeks
Ended Ended
June 28 June 29 June 28 June 29
2003 2002 2003 2002
------- ------- ------- -------
PROVISION FOR INCOME TAXES $ 46 $ 60 $ 314 $ 362
---- ---- ------ ------
Net Income $142 288 $1,038 $1,359
==== ==== ====== ======
For The Thirteen Weeks Ended
June 28, 2003 June 29, 2002
---------------------------------- ----------------------------------
Numerator Denominator EPS Numerator Denominator EPS
--------- ----------- ---- --------- ----------- ----
Basic EPS 142,000 1,926,470 $.07 288,000 1,972,843 $.15
Effective/ dilutive
Stock Options 40,364 40,277
--------- --------- ---- --------- --------- ----
Diluted EPS 142,000 1,966,806 $.07 288,000 2,013,120 $.14
--------- --------- ---- --------- --------- ----
For The Thirty Nine Weeks Ended
June 28, 2003 June 29, 2002
---------------------------------- ----------------------------------
Numerator Denominator EPS Numerator Denominator EPS
--------- ----------- ---- --------- ----------- ----
Basic EPS 1,038,000 1,926,470 $.54 1,359,000 1,964,194 $.69
Effective/dilutive
Stock Options 34,334 29,671
--------- --------- ---- --------- --------- ----
Diluted EPS 1,038,000 1,960,804 $.53 1,359,000 1,993,865 $.68
--------- --------- ---- --------- --------- ----
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 28, 2003 (UNAUDITED) AND SEPTEMBER 28, 2002
(In Thousands)
ASSETS
JUNE 28 SEPTEMBER 28
2003 2002
------- ------------
Cash and cash equivalents $ 2,299 $ 1,143
Notes and mortgages receivable,
current maturities, net 80 85
Due from franchisees 265 156
Other receivables 865 795
Inventories 1,583 1,422
Refundable deposit, major supplier 1,105 979
Marketable securities 149 --
Prepaid expenses 1,126 535
Deferred tax asset 239 239
------- -------
Total Current Assets $ 7,711 $ 5,354
------- -------
Property and Equipment 11,362 10,514
------- -------
Investments in Joint Ventures 149 142
------- -------
Other Assets:
Liquor licenses, net 349 347
Notes and mortgages receivable, net 129 167
Deferred tax asset 248 248
Other 313 595
------- -------
Total Other Assets 1,039 1,357
------- -------
Total Assets $20,261 $17,367
======= =======
5
FLANIGAN'S ENTERPRISES, INC, AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 28, 2003 (UNAUDITED) AND SEPTEMBER 28, 2002
LIABILITIES AND STOCKHOLDER'S EQUITY
(In Thousands)
JUNE 28 SEPTEMBER 28
2003 2002
-------- ------------
Current Liabilities:
Accounts payable and accrued expenses $ 3,361 $ 1,905
Due to franchisees 197 49
Current portion of long term debt 254 294
Deferred gains 72 75
-------- --------
Total Current Liabilities 3,884 2,323
-------- --------
Long Term Debt, Net of Current
Maturities 1,436 1,644
-------- --------
Minority Interest in Earnings of
Consolidated Joint Ventures 4,467 3,443
Stockholder's Equity:
Common stock, 5,000,000 shares
authorized, 4,197,642 shares issued 420 420
Capital in excess of par value 6,103 6,103
Retained earnings 9,264 8,747
Less: Treasury stock, at cost
2,271,172 shares at June 28, 2003
and at September 28, 2002 (5,313) (5,313)
-------- --------
Total Stockholder's Equity 10,474 9,957
-------- --------
Total Liabilities and
Stockholder's Equity $ 20,261 $ 17,367
======== ========
See notes to consolidated financial statements.
6
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THIRTY NINE WEEKS ENDED JUNE 28, 2003 AND JUNE 29, 2002
(In Thousands)
JUNE 28 JUNE 29
2003 2002
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,038 $ 1,359
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization of
property, equipment and capital
leases 945 696
Recognition of deferred income (3) (3)
Joint venture income (20) (27)
Minority interest in earnings of
consolidated joint venture 585 881
Gain on sale of liquor license -- (8)
Gain on sale of assets -- (440)
Changes in assets and liabilities:
(Increase) decrease in:
Inventories (161) (410)
Prepaid expenses (591) (2)
Due from franchises (109) 2
Deposit with supplier (126) --
Other receivables (70) 289
Other assets 282 (55)
Increase (decrease) in:
Accounts payable and accrued
expenses 1,450 (149)
Due to franchises 148 32
------- -------
Net cash provided by
operating activities 3,368 2,165
(continued)
7
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THIRTY NINE WEEKS ENDED JUNE 28, 2003 AND JUNE 29, 2002
(In Thousands)
JUNE 28 JUNE 29
2003 2002
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections on notes and mortgages
receivable 43 10
Distributions from joint ventures 13 17
Additions to property and equipment (1790) (1216)
Additions to notes and mortgages
receivable -- (39)
Acquisition of marketable securities (149) --
Sale of liquor license -- 45
Acquisition of liquor license -- (50)
Proceeds from eminent domain -- 700
------- -------
Net cash (used in) investing
activities (1,883) (533)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long term debt (248) (242)
Payment on damages payable on
terminated or rejected leases -- (117)
Payment of cash dividend (520) (499)
Proceeds from joint venture interest 1148 --
Distribution to joint venture
minority partners (709) (1128)
Exercise of stock option -- 235
Payment of notes receivable on sale
of common stock -- 25
Purchase of treasury stock -- (236)
------- -------
Net cash (used in) financing
activities (329) (1,962)
------- -------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS 1,156 (330)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 1,143 1,549
------- -------
CASH AND EQUIVALENTS, END OF PERIOD $ 2,299 $ 1,219
======= =======
8
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 2003
(1) PETITION IN BANKRUPTCY:
On November 5, 1985, Flanigan's Enterprises, Inc. (Flanigan's), not
including any of its subsidiaries, filed a voluntary petition in the United
States Bankruptcy Court for the Southern District of Florida seeking to
reorganize under Chapter 11 of the Federal Bankruptcy Code. In fiscal 1986,
Flanigan's recorded damages of $4,278,000 in claims for losses as a result of
rejected leases. Because the damage payments were to be made over nine years,
the total amount due was discounted at a rate of 9.25%, Flanigan's then
effective borrowing rate. During fiscal years 1991 and 1992, Flanigan's
renegotiated the payment of this obligation to extend into fiscal 2002 which
effectively reduced the discount rate to 3.71%. Certain other bankruptcy related
liabilities including excise and property taxes, settlements and past rents,
were fixed as to amount and have been paid in full pursuant to the terms of
Flanigan's Plan of Reorganization, as amended and modified (Plan). On May 5,
1987 the Plan was confirmed by the Bankruptcy Court and on December 28, 1987,
Flanigan's was officially discharged from bankruptcy. During the third quarter
of fiscal year 2002, the remaining liabilities under the Plan were paid in full.
(2) BASIS OF PRESENTATION:
The financial information for the periods ended June 28, 2003, and June
29, 2002 are unaudited. Financial information as of September 28, 2002 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 Consolidated Financial Statements
and related notes included in the Company's Amended Annual Report on Form 10-
K/A for the year ended September 28, 2002. Operating results for interim periods
are not necessarily indicative of results to be expected for a full year.
(3) EARNINGS PER SHARE:
Statements of Financial Accounting Standards ("SFAS") No. 128, Earnings
per share establishes standards for computing and presenting earnings per share
("EPS"). This statement requires the presentation of basic and diluted EPS. The
data on Page 4 shows the amounts used in computing earnings per share and the
effects on income and the weighted average number of shares of potential
dilutive common stock.
9
(4) RECLASSIFICATION:
Certain amounts in the fiscal 2002 financial statements have been
reclassified to conform to the fiscal 2003 presentation.
(5) FRANCHISE PROGRAM:
During fiscal year 1995, the Company completed a franchise agreement for a
franchisee to operate a restaurant under the "Flanigan's Seafood Bar and Grill"
servicemark pursuant to a license from the Company. The franchise agreement was
drafted jointly with existing franchisees with all modifications requested by
the franchisees incorporated therein. The franchise agreement provides the
Company with the ability to maintain a high level of food quality and service at
its franchised restaurants, which are essential to a successful franchise
operation. A franchisee is required to execute a franchise agreement for the
balance of the term of its lease for the business premises, extended by the
franchisee's continued occupancy of the business premises thereafter, whether by
lease or ownership. The franchise agreement provides for a royalty to the
Company in an amount of approximately 3% of gross sales, plus a contribution to
advertising in an amount of between 1-1/2% to 3% of gross sales. In most cases
the Company does not sublease the business premises to the franchisee and in
those cases where it does, the Company does not receive rent in excess of the
amount paid by the Company.
All existing franchisees who operate restaurants under the "Flanigan's Seafood
Bar and Grill' or other authorized service marks have executed franchise
agreements.
(6) INVESTMENT IN JOINT VENTURES:
Miami, Florida
The Company operated a restaurant in Miami, Florida under the "Flanigan's
Seafood Bar and Grill" servicemark pursuant to a limited partnership agreement
through the end of the second quarter of fiscal year 2002. The Company acts as
the general partner and owns a fifty percent limited partnership interest. The
State of Florida, Department of Transportation, ("DOT") exercised its right of
eminent domain to "take" the hotel property upon which this restaurant was
located and the restaurant was closed as of the end of business on March 30,
2002. The Company, as general partner of the limited partnership, pursued a
claim for the "taking" of the restaurant, including its furniture, fixtures and
equipment, against the DOT, and an apportionment claim against the owner of the
hotel property. The limited partnership received the sum of $700,000 from the
owner of the hotel property as compensation for its possessory rights to the
restaurant premises and its share of the compensation paid by the DOT for its
furniture, fixtures and equipment pursuant to a Stipulated Final Judgment
between the DOT and the owner of the hotel property, ("Stipulated Final
Judgment"). The settlement resulted in $230,000 of income to the Company during
the third quarter of fiscal year 2002. The limited partnership reserved its
right to seek additional compensation from the DOT for (1) its claim for the
value of its furniture, fixtures and equipment located in the
10
restaurant which were not paid for in the Stipulated Final Judgment; (2) its
claim for the value of its furniture, fixtures and equipment above and beyond
the value paid by the DOT in the Stipulated Final Judgment; and (3) any other
rights reserved to the limited partnership in the Stipulated Final Judgment,
which additional compensation would belong solely to the Company. During the
second quarter of fiscal year 2003, the Company settled its claim for additional
compensation from the DOT for $27,000, including statutory relocation expenses
and anticipates receiving an award of $10,000 from the DOT as reimbursement of
expenses incurred by the Company during the eminent domain proceedings. The
Company expects to receive the final payment, $37,000, during the fourth quarter
of fiscal 2003. The results of operations of this restaurant have been
consolidated with the Company's operations.
Fort Lauderdale, Florida
The Company has a franchise agreement with a limited partnership which
operates a restaurant in Fort Lauderdale, Florida. The Company owns a twenty
five percent limited partnership interest in the franchise. Other related
parties, including, but not limited to, officers and directors of the Company
and their families are also investors. The results of operations of this
restaurant have not been consolidated with the Company operations.
Surfside, Florida
The Company operates a restaurant in Surfside, Florida under the
"Flanigan's Seafood Bar and Grill" servicemark, pursuant to a limited
partnership agreement. The Company acts as general partner and also owns a forty
two percent limited partnership interest. Other related parties, including, but
not limited to, officers and directors of the Company and their families are
also investors. The results of operations of this restaurant have been
consolidated with the Company's operations.
Kendall, Florida
The Company operates a restaurant in Kendall, Florida under the "Flanigan's
Seafood Bar and Grill" servicemark, pursuant to a limited partnership agreement.
The Company acts as general partner and also owns a forty percent limited
partnership interest. Other related parties, including, but not limited to
officers and directors of the Company and their families are also investors As
of April 1, 2003, the limited partners had received distribution from the
limited partnership equal to their original investment and pursuant to the
limited partnership agreement, the Company thereafter receives fifty percent of
the net profit from the operation of the restaurant as a management fee. The
results of operations of this restaurant have been consolidated with the
Company's operations.
West Miami, Florida
During the third quarter of fiscal year 2000, the Company, as agent for a
limited partnership to be formed, entered into a contract to purchase an
existing restaurant location in West Miami, Florida to renovate and operate
under the "Flanigan's Seafood Bar and Grill" servicemark. The funds necessary
for this joint venture were raised through a private offering. The Company acts
as general
11
partner and also owns a twenty five percent limited partnership interest. Of its
twenty five percent limited partnership interest, the Company received 6.36% of
its limited partnership interest as a bonus and as compensation for advancing
funds prior to receiving zoning approval for its intended use and its limited
guaranty of the lease for the business premises. Other related parties
including, but not limited to officers and directors of the Company and their
families are also investors. The sale was closed during the third quarter of
fiscal year 2001, and the restaurant opened for business during the first
quarter of fiscal year 2002. The results of operations of this restaurant have
been consolidated with the Company's operations.
Weston, Florida
During the fourth quarter of fiscal year 2001, a limited partnership was
formed with the Company as general partner, which limited partnership entered
into a sublease agreement to own and operate an existing restaurant in Weston,
Florida. The Company, as general partner, operated this restaurant under its
existing servicemark from August, 2001 through July, 2002. During the fourth
quarter of fiscal year 2002, the limited partnership began raising funds to
renovate the business premises for operation as a "Flanigan's Seafood Bar and
Grill" restaurant. The restaurant opened for business during the second quarter
of fiscal year 2003. The Company continues to act as general partner and also
owns a twenty eight percent limited partnership interest. Other related parties,
including but not limited to officers and directors of the Company and their
families are also investors. The results of operations of this restaurant have
been consolidated with the Company's operations.
Stuart, Florida
During the third quarter of fiscal year 2003, a limited partnership was
formed with the Company as general partner, which limited partnership entered
into a lease agreement to own and operate a restaurant in a Howard Johnson's
Hotel in Stuart, Florida. During the fourth quarter of fiscal year 2003, the
limited partnership plans to raise funds through a private offering to renovate
the business premises for operation as a "Flanigan's Seafood Bar and Grill"
restaurant. The Company acts as general partner and will also own up to a ten
percent limited partnership interest. Other related parties, including but not
limited to officers and directors of the Company and their families will also be
investors. The limited partnership agreement gives the partnership the right to
use the "Flanigan's Seafood Bar and Grill" servicemark for a fee equal to 3% of
its gross sales from the operation of the restaurant while the Company acts as
general partner only. It is anticipated that the renovated restaurant will open
for business during the first quarter of fiscal 2004.
(7) INCOME TAXES:
Financial Accounting Standards Board Statement No. 109, Accounting
for Income Taxes, 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 carry forwards and tax credits to the
extent that
12
realization of said tax benefits is more likely than not. The deferred tax asset
was $487,000 as of June 28, 2003 and September 28, 2002.
(8) COMMITMENTS AND CONTINGENCIES:
Guarantees
The Company guarantees various leases for franchisees and locations sold
in prior years, which expire at varying times through July 2016. Remaining
rental commitments required under these leases are approximately $6,601,000. In
the event of a default under any of these agreements, the Company will have the
right to repossess the premises. No liability has been recorded in connection
with these guarantees as none of them were issued or modified subsequent to
December 31, 2002.
Litigation
The Company is a party to various litigation matters incidental to its
business. Certain claims, suits and complaints arising in the ordinary course of
business have been filed or are pending against the Company.
Certain states have "liquor liability" laws which allow a person injured
by an "intoxicated person" to bring a civil suit against the business (or social
host) who served intoxicating liquors to an already "obviously intoxicated
person", know as "dram shop" claims. Florida has restricted its dram shop claims
by statute, permitting persons injured by an "obviously intoxicated person" to
bring court action only against the business which had served alcoholic
beverages to a minor or to an individual known to be habitually addicted to
alcohol. The Company is generally self-insured for liability claims, with major
losses partially covered by third-party insurance carriers. The extent of this
coverage varies by year. The Company currently has no dram shop cases pending.
For further discussion see the section headed Legal Proceedings on page 14 of
the Company's Amended Annual Report on Form 10-K/A for the fiscal year ended
September 28, 2002. The Company accrues for potential uninsured losses based
upon estimates received from legal counsel and its historical experience, when
uninsured claims are pending. Such accrual is included in the "Accounts payable
and accrued expenses". See Note 6 in the Company's Amended Annual Report on Form
10-K/A for the fiscal year ended September 28, 2002.
During fiscal year 2000, the Company was served with several complaints
alleging violations of the American with Disabilities Act ("ADA"), at all of its
locations. The lawsuits included the restaurants owned by limited partnerships
and franchises. The sudden influx of lawsuits alleging ADA violations was due to
the fact that it was anticipated at the time that the ADA was going to be
amended to include a provision requiring plaintiffs to provide the potential
defendant with 90 days notice of ADA violations prior to filing suit, during
which time the violations may be corrected. The amendment has not yet been
enacted and as of now, the ADA still has no notice provision and the first time
the Company received notice of any ADA violations was when it was served with a
copy of the complaint. Of the lawsuits filed, only a few have been actively
pursued. The Company has retained an ADA expert who has inspected locations
involved in the active lawsuits, including the
13
limited partnerships and franchises, and provided a report setting forth ADA
violations which need to be corrected. It is the Company's intent to correct ADA
violations noted by its ADA expert and then vigorously defend the lawsuits
arguing that the locations are in compliance. During fiscal year 2001 and fiscal
year 2002, the Company, including three (3) of its franchises, settled all
active lawsuits alleging ADA violations.
Subsequent to the end of the third quarter of fiscal year 2003, the
Company was served with a complaint alleging violations of the ADA at one (1) of
its locations. The cost to correct any ADA violations is included in the budget
for capital improvements for fiscal year 2003.
(9) MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS:
The Company owns and /or operates full service restaurants, package liquor
stores and an entertainment oriented club (collectively the "units"). The
Company had interests in seven additional units which have been franchised by
the Company. The table below sets out the changes, if any, in the type and
number of units being operated.
June 28 Sept. 28 June 29 Note
2003 2002 2002 Numbers
------- -------- ------- -------
Combination package
and restaurant 4 4 4
Restaurant only 7 7 7 (1) (2) (3)
Package store only 4 4 4 (4) (5) (6)
Clubs 1 1 1
-- -- --
Total Company operated units 16 16 16
Franchised units 7 7 7 (7)
Notes:
(1) During the third quarter of fiscal year 2001, a limited partnership was
formed which raised funds through a private offering to purchase the assets of a
restaurant in West Miami, Florida, and renovate the same for operation under the
"Flanigan's Seafood Bar and Grill" servicemark. The Company is the general
partner and has a 25 percent ownership interest in the limited partnership. The
restaurant opened for business during the first quarter of fiscal year 2002.
(2) During the fourth quarter of fiscal year 2001, a limited partnership was
formed with the Company as general partner, which limited partnership entered
into a sublease agreement to own and operate an existing restaurant in Weston,
Florida. During the fourth quarter of fiscal year 2002, the limited partnership
raised funds to renovate the business premises for operation as a "Flanigan's
Seafood Bar and Grill" restaurant. The Company owned 100% of the limited
partnership from July 29, 2001 through August 31, 2002 and the operating results
are consolidated for financial reporting
14
purposes. Renovations were completed and the restaurant opened for business
during the first quarter of fiscal year 2003. This unit is included in the table
of units.
(3) During the third quarter of fiscal year 2003, a limited partnership was
formed with the Company as general partner, which limited partnership entered
into a lease agreement to own and operate a restaurant in a Howard Johnson's
Hotel in Stuart, Florida. During the fourth quarter of fiscal year 2003, the
limited partnership plans to raise funds through a private offering to renovate
the business premises for operation as a "Flanigan's Seafood Bar and Grill"
restaurant. It is anticipated that the renovated restaurant will open for
business during the first quarter of fiscal year 2004. This unit is not included
in the table of units.
(4) During the fourth quarter of fiscal year 2000, the Company entered into a
lease agreement for the operation of a package liquor store in Hialeah, Florida.
This package liquor store opened for business during the first quarter of fiscal
year 2002.
(5) During the fourth quarter of fiscal year 2001, the Company entered into a
ground lease for an out parcel in Hollywood, Florida. The Company is
constructing a building on the out parcel, one-half (1/2) of which will be used
by the Company for the operation of a package liquor store and the other one-
half (1/2) will be subleased by the Company as retail space. The Company
received the required building permits during the third quarter of fiscal year
2003, and anticipates the package liquor store opening for business during the
first quarter of fiscal year 2004. This unit is not included in the table of
units
(6) During the second quarter of fiscal year 2001, the Company completed
renovations to its new corporate offices and relocated to the same. The new
corporate offices consist of a two (2) story building, with space set aside on
the ground floor for a package liquor store. The Company filed an application
for its building permits, but the issuance of permits has been delayed by
litigation initiated by the Company to determine its parking rights on the
adjoining shopping center and other zoning matters. It is impossible to
determine when the litigation and/or other zoning matters will be resolved. This
package liquor store is not included in the table of units.
(7) Since the fourth quarter of 1999, the Company has managed the restaurant for
a franchisee. The franchised restaurant is included in the table of units as a
restaurant operated by the Company and the franchise is also included as a unit
franchised by the Company and in which the Company has an interest.
INVESTMENTS:
Investments in equity securities that have readily determinable fair
values are classified and accounted for as available-for-sale.
Available-for-sale securities are carried at fair value with unrealized gains
and losses recorded as a separate component of accumulated other comprehensive
income. Realized gains and losses are calculated based on the specific
identification method and recorded in "other income" on the income statement. At
June 28, 2003 fair value approximated cost.
15
Liquidity and Capital Resources
Cash Flows
The following table is a summary of the Company's cash flows for the
thirty nine weeks of fiscal years 2003 and 2002.
Thirty Nine Weeks Ended
June 28 June 29
2003 2002
--------------------------
(In Thousands)
Net cash provided by
operating activities $ 3,368 $ 2,165
Net cash used in
investing activities (1,883) (533)
Net cash used in
financing activities (329) (1,962)
------- -------
Net Increase (Decrease) in Cash
and Cash Equivalents 1,156 (330)
Cash and Cash Equivalents, Beginning 1,143 1,549
------- -------
Cash and Cash Equivalents, Ending $ 2,299 $ 1,219
======= =======
On December 27, 2002, the Company declared a cash dividend of 27 cents per
share payable on January 30, 2003 to shareholders of record on January 13, 2003.
On December 13, 2001, the Company declared a cash dividend of 25 cents per
share payable on January 17, 2002 to shareholders of record on December 30,
2001.
Capital Expenditures
The Company had additions to fixed assets of $1,790,000 during the thirty
nine weeks ended June 28, 2003 as compared to $1,216,000 for the thirty nine
weeks ended June 29, 2002 and for the fiscal year ended September 28, 2002.
All of the Company's units require periodic refurbishing in order to
remain competitive. The Company has in place a refurbishing program, for which
the budget for fiscal year 2003 is $900,000.
16
Working Capital
The table below summarizes the current assets, current liabilities, and
working capital for the fiscal quarters ended June 28, 2003, and June 29, 2002
and the fiscal year ended September 28, 2002.
June 28, June 29, Sept. 28,
Item 2003 2002 2002
---- -------- -------- ---------
(In Thousands)
Current Assets $7,711 $4,640 $5,354
Current Liabilities 3,884 2,072 2,323
Working Capital 3,827 2,568 3,031
In January of fiscal year 2000, the Company borrowed the sum of $1,000,000
from Bank of America, d/b/a Nations Bank. The promissory note earned interest at
prime rate, payable monthly on the outstanding principal balance, with quarterly
payments of principal commencing July 1, 2000 at the rate of $50,000 per quarter
for 8 quarters, and then at the rate of $75,000 per quarter for 8 quarters, at
which time any outstanding principal balance and all accrued interest would have
been due in full. The promissory note was secured by a security interest in all
assets of the Company, including the office building purchased by the Company.
The promissory note was prepaid in full during the fourth quarter of fiscal year
2002.
During the fourth quarter of fiscal year 2002, the Company closed on a
$456,000 loan from Bank Atlantic, which loan was used to prepay the Company's
loan with Bank of America discussed above. The promissory note earns interest at
prime rate per annum and is fully amortized over 19 months with equal monthly
payments of principal and interest each in the amount of $19,021, commencing
August 3, 2002. The promissory note is unsecured and may be prepaid in whole or
in part at any time, without penalty, with any prepayments applying against the
payments last due on the promissory note.
During the fourth quarter of fiscal year 2001, the Company borrowed the
sum of $895,000 from the Bank of America, d/b/a Nations Bank. The promissory
note earns interest at the rate of 8.62% per annum, amortized over 20 years with
principal and interest payable monthly, with the entire unpaid principal balance
and all accrued interest due on August 1, 2008. The promissory note is secured
by a mortgage on the office building purchased by the Company for its corporate
offices, which office building was released from the lien granted by the Company
to Bank of America, d/b/a Nations Bank, as collateral for the loan in January of
fiscal year 2000. In order to receive the fixed interest rate, the Company
entered into an ISDA Master Agreement with Bank of America, ("SWAP Agreement"),
and in the event the Company elects to prepay the promissory note, there may be
a prepayment penalty associated therewith.
The $265,000 due from franchises represents funds advanced to the
franchises for capital expenditures to the franchised units. The Company expects
these funds to be repaid to the Company prior to the end of fiscal year 2003.
17
Legal Matters
See "Litigation" on page 13 of this report and Item 1 and Item 3 to Part 1
of the Amended Annual Report on Form 10-K/A for the fiscal year ended September
28, 2002 for a discussion of other legal proceedings resolved in prior years.
Results of Operation
Thirteen Weeks Ended
June 28, June 29,
2003 2002
Amount Percent Amount Percent
---------------------- --------------- ------
(In Thousands) (In Thousands)
Restaurant food sales $ 6,221 61.29 $ 5,424 60.85
Restaurant bar sales 1,650 16.26 1,380 15.48
Package goods sales 2,279 22.45 2,109 23.67
------- ------ ------- ------
Total sales $10,150 100.00 $ 8,913 100.00
Franchise related revenues 326 194
Owners fee 60 54
Other operating income 52 86
------- -------
Total Revenue $10,588 $ 9,247
======= =======
Thirty Nine Weeks Ended
June 28, June 29,
2003 2002
Amount Percent Amount Percent
---------------------- --------------- ------
(In Thousands) (In Thousands)
Restaurant food sales $17,355 58.65 $17,703 60.12
Restaurant bar sales 4,595 15.53 4,619 15.68
Package goods sales 7,642 25.82 7,124 24.20
------- ------ ------- ------
Total sales $29,592 100.00 $29,446 100.00
Franchise related revenues 726 658
Owners fee 195 199
Other operating income 217 264
------- -------
Total Revenue $30,730 $30,567
======= =======
18
Restaurant food sales represented 61.29% and 58.65% of total sales in the
thirteen weeks and thirty nine weeks of fiscal year 2003, respectively as
compared to 60.85% and 60.12% of total sales in the thirteen weeks and thirty
nine weeks of fiscal year 2002 respectively. The weekly average of same store
restaurant food sales were $393,811 and $392,615 for the thirty nine weeks,
ended June 28, 2003 and June 29, 2002, respectively, an increase of less than
1.0%. The weekly average of same store restaurant food sales were $375,016 and
$376,512 for the thirteen weeks ended June 28, 2003 and June 29, 2002,
respectively, a decrease of less than 1.0%.
Restaurant bar sales represented 16.26% and 15.53% of total sales in the
thirteen weeks and thirty nine weeks of fiscal year 2003, respectively, as
compared to 15.48% and 15.68% of total sales in the thirteen weeks and thirty
nine weeks of fiscal year 2002, respectively. The weekly average of same store
restaurant bar sales were $103,316 and $102,041 for the thirty nine weeks ended
June 28, 2003 and June 29, 2002, respectively, an increase of 1.25%. The weekly
average of same store restaurant bar sales were $101,093 and $ 98,614 for the
thirteen weeks ended June 28, 2003 and June 28, 2002 respectively, an increase
of 2.51%.
Package goods sales represented 22.45% and 25.82% of total sales in the
thirteen weeks and thirty nine weeks of fiscal year 2003, respectively, as
compared to 23.67% and 24.20% of total sales in the thirteen weeks and thirty
nine weeks of fiscal year 2002, respectively. The weekly average of same store
package goods sales were $184,769 and $177,487 for the thirty nine weeks ended
June 28, 2003 and June 29, 2002, respectively, an increase of 4.10%. The weekly
average of same store package good sales were $149,842 and $143,611 for the
thirteen weeks ended June 28, 2003 and June 29, 2002 respectively, an increase
of 4.33%.
The gross profit margin for restaurant sales was 64.71% and 66.68% for the
thirteen weeks ended June 28, 2003 and June 29, 2002, respectively. The gross
profit margin for restaurant sales was 65.42% and 66.46% for the thirty nine
weeks ended June 28, 2003 and June 29, 2002, respectively.
The gross profit margin for package goods stores was 28.2% and 28.2% for
the thirteen weeks ended June 28, 2003 and June 29, 2002, respectively. The
gross profit margin for package good sales was 26.3% and 27.6% for the thirty
nine weeks ended June 28, 2003 and June 29, 2002, respectively.
Franchise related revenues were $326,000 and $194,000 for the thirteen
weeks ended June 28, 2003 and June 29, 2002 respectively, an increase of 68.04%.
Franchise related revenues were $726,000 and $658,000 for the thirty nine weeks
ended June 28, 2003 and June 29, 2002 respectively, an increase of 10.33%.
The owner's fee was $60,000 and $54,000 for the thirteen weeks ended June
28, 2003 and June 29, 2002 respectively, an increase of 11.11%. The owner's fee
was $195,000 and $199,000 for the thirty nine weeks ended June 28, 2003 and June
29, 2002 respectively, a decrease of 2.01%.
19
Operating Costs and Expenses
Operating costs and expenses were $ 10,221,000 and $8,967,000 for the
thirteen weeks ended June 28, 2003 and June 29, 2002 respectively, an increase
of 14%. Operating costs and expenses were $28,776,000 and $28,222,000 for the
thirty nine weeks ended June 28, 2003 and June 29, 2002, a decrease of 1.70%.
Payroll and related costs, which includes workers compensation insurance
and health insurance, were $3,056,000 and $3,428,000 for the thirteen weeks
ended June 28, 2003 and June 29, 2002 respectively, a decrease of 10.85%.
Payroll and related costs, which includes workman's compensation insurance and
health insurance, were $8,513,000 and $9,283,000 for the thirty nine weeks ended
June 28, 2003 and June 29, 2002, respectively, a decrease of 8.29%.
Occupancy costs which include rent, common area maintenance, repairs and
taxes were $548,000 and $293,000 for the thirteen weeks ended June 28, 2003 and
June 29, 2002 respectively, an increase of 87.03%. Occupancy costs which include
rent, common area maintenance, repairs and taxes were $1,523,000 and $1,135,000
for the thirty nine weeks ended June 28, 2003 and June 29, 2002, respectively,
an increase of 34.18%
Selling, general and administrative expenses were $ 2,294,000 and $
1,404,000 for the thirteen weeks ended June 28, 2003 and June 29, 2002,
respectively, an increase of 63.39%. Selling, general and administrative
expenses were $ 5,664,000 and $ 5,033,000 for the thirty nine weeks ended June
28, 2003 and June 29, 2002 respectively, an increase 12.53%.
SUBSEQUENT EVENTS:
Subsequent to the end of the third quarter of fiscal year 2003, the
Company, as general partner of the limited partnership which previously owned
and operated the "Flanigan's Seafood Bar and Grill" restaurant in Miami, Florida
which restaurant closed as of March 30, 2002 due to the "taking" of the hotel
property upon which this restaurant was located by the State of Florida,
Department of Transportation ("DOT") through its right of eminent domain,
entered into an agreement to purchase an existing restaurant in Pinecrest,
Florida. The agreement provides the limited partnership with a due diligence
period until September 22, 2003. During the first quarter of fiscal year 2004,
the limited partnership plans to raise funds through a private offering to close
on its purchase of the existing restaurant and renovate the business premises
for operation as a "Flanigan's Seafood Bar and Grill" restaurant. The limited
partnership, which received the sum of $700,000 from the owner of the hotel
property as compensation for its possessory rights to the restaurant premises
and its share of the compensation paid by the DOT for its furniture, fixtures
and equipment, in the eminent domain proceedings, intends to invest such amount,
($700,000), at a minimum, in this new location to insure favorable treatment for
income tax purposes. As a part of the settlement of its claim for compensation
in the eminent domain proceedings, the owner of the hotel property, which was
also a limited partner of the limited partnership, surrendered its limited
partnership interest to the Company for a payment equal to its share of the
compensation received or $350,000. The Company will continue to act as general
partner and prior to raising funds through a private offering, the limited
partnership agreement will be amended to provide that the limited partnership
will have
20
the right to use the "Flanigan's Seafood Bar and Grill" servicemark for a fee
equal to 3% of gross sales from the operation of the restaurant while the
Company acts as general partner only. Other related parties, including but not
limited to officers and directors of the Company and their families also plan to
be investors. The agreement for the purchase of the existing restaurant provides
for closing by December 31, 2003 and it is anticipated that the renovated
restaurant will open for business during the third quarter of fiscal year 2004.
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are more fully described in
Note 1 to the Company's consolidated financial statements located in Item 8 of
the Amended Annual Report on Form 10-K/A. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues, and expenses,
and the related disclosures of contingent assets and liabilities. Actual results
could differ from those estimates under different assumptions or conditions. The
Company believes that the following critical accounting policy is subject to
estimates and judgments used in the preparation of its consolidated financial
statements.
Deferred tax assets result primarily from timing differences relating to
depreciation and tip credits. The calculations are reviewed periodically by
management and are adjusted as the assumptions or conditions indicate.
Trends
During the next twelve months, management expects same store restaurant
sales to remain stable, with an increase in restaurant food sales, but a
decrease in restaurant bar sales primarily due to the smoking ban in public
places which went into effect in the State of Florida on July 1, 2003.
Management also projects a slight increase in gross profit from same store
restaurant sales due to a modest increase in a limited number of menu items,
offset by moderate increases in operational expenses and the decrease in profit
on restaurant bar sales. In addition, we will incur operating expenses
associated with the renovation of the Stuart and Pinecrest locations.
During the next twelve months, management also expects same store package
good sales to increase slightly, with a moderate increase in gross profit.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company holds market risk sensitive instruments for investment
purposes. The Company also recognizes market risk from interest rate exposure.
21
Market Risk - Investments
In the quarter ended December 28, 2002, the Company began an investment
program to accumulate funds to satisfy debt in the future. The Company made an
investment in an equity security which is subject to market risk. To the extent
that market prices decline, there will be a negative impact on the value of the
investment. At June 28, 2003, the fair value of the equity security approximated
its cost. There is no assurance that market price will increase or decrease in
the next year.
At June 28, 2003, the Company's cash resources earn interest at variable
rates. Accordingly, the Company's return on these funds is affected by
fluctuations in interest rates. Any decrease in interest rates will have
negative effect on the Company's earnings. In addition, the Company incurs
interest charges on debt at variable rates, which to the extent the Company that
the Company has not entered into interest rate swap agreements to hedge this
risk, could negatively impact the Company's earnings. There is no assurance that
interest rates will increase or decrease over the next fiscal year.
CONTROLS AND PROCEDURES
We maintain controls and procedures that are designed to ensure (1) that
information required to be disclosed by us in the reports we file or submit
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is
recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commission ("SEC") rules and forms, and (2) that
this information is accumulated and communicated to our management including the
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost benefit
relationship of possible controls and procedures.
Under the supervision and review of our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our
disclosure controls and procedures pursuant to Securities Exchange Act Rule
13a-14 as of a date within 90 days prior to the filing date of this quarterly
report. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures are
effective in alerting them in a timely manner to material information regarding
us (including our consolidated subsidiaries) that is required to be included in
our periodic reports to the SEC.
In addition, there have been no significant changes in our internal
controls or in other factors that could significantly affect those controls
subsequent to the date of our most recent evaluation. We cannot assure you,
however, that our system of disclosure controls and procedures will always
achieve its stated goals under all future conditions, no matter how remote.
22
PART II, OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - 31.1 Certification of the Chief Executive Officer pursuant to
Section 302 of The Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to
Section 302 of The Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer pursuant to
18 U.S.C. Section 1350 as adopted pursuant to Section
906 of The Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350 as adopted pursuant to Section
906 of The Sarbanes-Oxley Act of 2002.
b. Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized. The information furnished reflects all
adjustments to the statement of the results for the interim period.
FLANIGAN'S ENTERPRISES, INC.
________________________________________________
JOSEPH G. FLANIGAN, Chief Executive Officer
Date 8/18/03
________________________________________________
EDWARD A. DOXEY, Chief Financial Officer
Date 8/18/03
23