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 January 1, 2005
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 |X| No |_|
Indicate the number of shares outstanding of each of the issuers classes of
Common Stock as of the latest practicable date 1,911,625 as of February 22,
2005.
-1-
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
JANUARY 1, 2005
PART I. FINANCIAL INFORMATION
Item 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Income -- For the Thirteen Weeks ended
January 1, 2005 and December 27, 2003. (Unaudited)
Consolidated Balance Sheets -- As of January 1, 2005
(Unaudited) and October 2, 2004.
Consolidated Statement of Cash Flows- For the Thirteen Weeks ended
January 1, 2005 and December 27, 2003. (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Change in Securities
Item 3. Default upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8 K
Signatures
Exhibit - 31.1
Exhibit - 31.2
Exhibit - 32.1
Exhibit - 32.2
-2-
FLANIGAN'S ENTERPRISES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
Thirteen Weeks Thirteen Weeks
Ended Ended
JANUARY 1 DECEMBER 27
2005 2003
---------- -----------
Revenues:
Restaurant food sales $ 6,598 $ 5,973
Restaurant beverage sales 1,579 1,439
Package goods sales 3,336 2,801
Franchise-related revenues 250 319
Owner's fee 38 54
Other operating income 24 23
---------- ----------
11,825 10,609
---------- ----------
Costs and Expenses:
Cost of merchandise sold:
Restaurants and lounges 2,925 2,592
Package goods 2,399 2,014
Payroll and related costs 3,123 2,831
Occupancy costs 696 587
Selling, general and administrative expenses 2,343 2,255
---------- ----------
11,486 10,279
---------- ----------
Income from Operations 339 330
---------- ----------
Other Income (Expense):
Interest expense (29) (28)
Minority interest in earnings of
consolidated joint ventures (13) (46)
Interest income 11 6
Other 12 15
---------- ----------
(19) (53)
---------- ----------
Income Before Provision for Income Taxes 320 277
Provision for Income Taxes 80 68
---------- ----------
Net Income $ 240 $ 209
========== ==========
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FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In Thousands Except Per Share Amounts)
(Continued)
January 1, December 27,
2005 2003
Net Income Per Common Share:
Basic $ 0.13 $ 0.11
============ ============
Diluted $ 0.12 $ 0.10
============ ============
Weighted Average Shares and Equivalent
Shares Outstanding:
Basic 1,915,425 1,935,695
============ ============
Diluted 1,929,373 2,022,485
============ ============
See accompanying notes to unaudited condensed consolidated financial
statements.
-4-
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JANUARY 1, 2005 (UNAUDITED) AND OCTOBER 2, 2004
(In Thousands)
ASSETS
JANUARY 1 OCTOBER 2
2005 2004
--------- ---------
Current Assets:
Cash and cash equivalents $ 4,340 $ 2,936
Marketable securities 347 328
Notes and mortgages receivable,
current maturities, net 20 25
Due from franchisees 179 --
Other receivables 188 271
Inventories 1,921 1,650
Prepaid expenses 691 565
Deferred tax asset 114 114
-------- --------
Total Current Assets 7,800 5,889
-------- --------
Property and Equipment 12,413 12,432
-------- --------
Investments in Joint Ventures 117 124
-------- --------
Other Assets:
Liquor licenses, net 311 347
Notes and mortgages receivable, net 123 128
Deferred tax asset 368 368
Other 548 486
-------- --------
Total Other Assets 1,350 1,329
-------- --------
Total Assets $ 21,680 $ 19,774
======== ========
-5-
FLANIGAN'S ENTERPRISES, INC, AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JANUARY 1, 2005 (UNAUDITED) AND OCTOBER 2, 2004
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands)
JANUARY 1 OCTOBER 2,
2005 2004
--------- ----------
Current Liabilities:
Accounts payable and accrued expenses $ 3,703 $ 2,824
Due to franchisees 354 767
Current portion of long term debt 153 97
Deferred revenues 67 70
Dividends payable 623 --
--------- ---------
Total Current Liabilities 4,900 3,758
--------- ---------
Long Term Debt, Net of Current Maturities 1,293 1,217
--------- ---------
Minority Interest in Equity of
Consolidated Joint Ventures 5,784 4,698
--------- ---------
Stockholders' Equity:
Common stock $.10 par value;
5,000,000 shares authorized
4,197,642 shares issued 420 420
Capital in excess of par value 6,147 6,147
Retained earnings 8,593 8,974
Accumulated other comprehensive income 44 25
Treasury stock, at cost 2,286,017 shares
at January 1,2005 and 2,280,817
shares at October 2, 2004 (5,501) (5,465)
--------- ---------
Total Stockholders' Equity 9,703 10,101
--------- ---------
Total Liabilities and
Stockholders' Equity $ 21,680 $ 19,774
========= =========
See accompanying notes to unaudited condensed consolidated financial
statements.
-6-
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED JANUARY 1, 2005 AND DECEMBER 27, 2003
(In Thousands)
JANUARY 1 DECEMBER 27
2005 2003
--------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 240 $ 209
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 378 360
Minority interest in earnings
of consolidated joint ventures 13 46
Recognition of deferred revenue (3) (1)
Changes in operating assets
and liabilities:
(Increase)decrease in:
Due from franchisees (179) (52)
Other receivables 83 (134)
Inventories (271) (420)
Prepaid expenses (126) 79
Refundable deposit major supplier -- 77
Other assets (62) (349)
Increase(decrease)in:
Accounts payable and
accrued expenses 881 1,214
Due to franchisees (413) (274)
--------- ---------
Net cash provided by
operating activities 541 755
--------- ---------
Cash flows from Investing Activities:
Collection on notes and mortgages
receivable 10 12
Purchase of property and equipment (323) (735)
Distributions from unconsolidated
joint ventures 7 --
--------- ---------
Net cash used in
investing activities (306) (723)
--------- ---------
-7-
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED JANUARY 1, 2005 AND DECEMBER 27, 2003
(In Thousands)
JANUARY 1 DECEMBER 27
2005 2003
--------- -----------
Cash flows from Financing Activities:
Payment of long term debt (31) (78)
Proceeds from long term debt 163 --
Purchase of treasury stock (36) --
Distributions to joint venture
minority partners (292) (230)
Proceeds from joint venture interests 1,365 1,325
Proceeds from exercise of stock options -- 31
------- -------
Net cash provided by financing activities 1,169 1,048
------- -------
Net Increase in Cash and Cash
Equivalents 1,404 1,080
Cash and Cash Equivalents,
Beginning of Period 2,936 1,587
------- -------
Cash and Cash Equivalents
End of Period $ 4,340 $ 2,667
======= =======
Supplemental Disclosure for Cash Flow Information:
Cash paid during period for:
Interest $ 29 $ 28
======= =======
Income taxes $ 79 $ 125
======= =======
See accompanying notes to unaudited condensed consolidated financial
statements.
-8-
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 1, 2005
(1) BASIS OF PRESENTATION:
The accompanying financial information for the periods ended January 1,
2005, and December 27, 2003 are unaudited, but have been prepared in accordance
with the instructions for Form 10-Q. Financial information as of October 2, 2004
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
Annual Report on Form 10-K for the year ended October 2, 2004. Operating results
for interim periods are not necessarily indicative of results to be expected for
a full year.
(2) EARNINGS PER SHARE:
Statement 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.
(3) RECLASSIFICATION:
Certain amounts in the fiscal 2004 financial statements have been
reclassified to conform to the fiscal 2005 presentation.
(4) RECENT ACCOUNTING PRONOUNCEMENTS:
In December 2004, the Financial Accounting Standards Boards ("FASB")
issued its final standard on accounting for share-based payments ("SBP"), FASB
Statement No. 123R (revised 2004), Share-Based Payment. The Statement requires
companies to expense the value of employee stock options and similar awards.
Under FAS 123R, SBP awards result in a cost that will be measured at fair value
on the awards' grant date, based on the estimated number of awards that are
expected to vest. Compensation cost for awards that vest would not be reversed
if the awards expire without being exercised. The effective date for public
companies is interim and annual periods beginning after June 15, 2005, and
applied to all outstanding and unvested SBP awards at a company's adoption.
Management does not anticipate that this Statement will have a significant
impact on the Company's consolidated financial statements.
(5) INVESTMENT IN JOINT VENTURES:
Pinecrest, Florida
During the third quarter of fiscal year 2003, the Company, as general
partner of the limited partnership, entered into a Sale of Business Agreement
for the purchase of an existing restaurant in Pinecrest, Florida, which
transaction closed during the first quarter of fiscal year 2004. The purchase
price of approximately $340,000 related to the acquisition of a below market
lease and will therefore be recognized as additional lease expense over the
remaining life of the lease once operation of the restaurant commences. As of
January 1, 2005
-9-
the $340,000 is included in the accompanying balance sheet in other assets. The
Company agreed to unconditionally guaranty the lease for the business premises
in order to procure the consent of the landlord to the assignment of the lease.
During the second quarter of fiscal year 2004 and after removing the interior
finishes in anticipation of completing its building plans for the renovation of
the business premises, the Company found numerous, substantial structural
deficiencies which must be rectified prior to any renovations being made.
During the third quarter of fiscal year 2004, the Company, as general
partner of the limited partnership, and the landlord agreed upon the structural
repairs required, as set forth by the landlord's engineering firm, and to
equally share the cost thereof in order to minimize further delay to the
renovation of the business premises. During fourth quarter of fiscal year 2004,
the structural repairs were made by the landlord's contractor. Upon submitting
its building plans to Pinecrest, Florida for review and the issuance of building
plans, the Company was advised that there were structural problems that had not
been addressed and other structural problems that were not adequately repaired
and that its building plans would not be reviewed until the structural problems
were rectified. The Company, as general partner of the limited partnership, is
proceeding with the necessary structural repairs, while preserving its right to
pursue a claim against the landlord for its contribution to any additional
structural repairs and reimbursement of rent paid while the processing of its
building plans is delayed. The structural repairs should be completed during the
third quarter of fiscal year 2005, after which the limited partnership's
building plans will be processed by Pinecrest, Florida, building permits issued
and the renovations made to the business premises. The limited partnership still
intends to raise funds through a private offering to renovate the restaurant
once the renovation costs have been determined. At the end of the first quarter
of fiscal year 2005, the Company had advanced the sum of $910,420 to the limited
partnership, the use of which included, but was not limited to, funds to close
on the purchase of the existing business, architectural and engineering fees and
its contribution to structural repairs made to date. The Company continues to
act as a general partner and will also be the owner of up to thirty three and
one-third percent limited partnership interest. It is anticipated that the
renovated restaurant will be open for business by the end of calendar year 2005.
Wellington, Florida
During the fourth quarter of fiscal 2004, 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 Wellington, Florida. During
the first quarter of fiscal year 2005, the limited partnership completed its
private offering, raising the sum of $1,850,000 to renovate the business
premises for operation as a "Flanigan's Seafood Bar and Grill" restaurant. The
Company continues to act as general partner and is also the owner of a twenty
six percent limited partnership interest, as are other related parties,
including but not limited to officers and directors of the Company and their
families. Possession of the business premises was turned over to the limited
partnership at the start of the first quarter of fiscal year 2005, renovations
are underway and it is anticipated that the renovated restaurant will open for
business by the start of the third quarter of fiscal year 2005.
(6) INVESTMENTS:
Investments in equity securities that have readily determinable 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 January 1, 2005, the fair
value exceeded cost.
-10-
(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 carryforwards and tax credits to the extent that
realization of said tax benefits is more likely than not. The deferred tax asset
was $482,000 as of January 1, 2005 and October 2, 2004.
(8) COMMITMENTS AND CONTINGENCIES:
Guarantees
The Company guarantees various leases for franchisees, limited
partnerships and locations sold in prior years. Remaining rental commitments
required under these leases are approximately $2,439,000. In the event of a
default under any of these agreements, the Company 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.
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 15 of
the Company's Annual Report on Form 10-K for the fiscal year ended October 2,
2004. 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 Annual Report on Form 10-K for the fiscal
year ended October 2, 2004.
During fiscal year 2003, the Company was served with a complaint alleging
violations of the ADA at one of its locations. The Company corrected all
violations noted in the complaint and during the fourth quarter of fiscal year
2004, settled the lawsuit.
During fiscal year 2003, the Company, as general partner of one of its
limited partnerships, and one of its franchisees, received notifications
alleging their failure to complete correcting ADA violations pursuant to their
respective settlement agreements from previous lawsuits alleging ADA violations.
The Company, as general partner of the limited partnership, and the franchisee
corrected any uncorrected ADA violations and during the fourth quarter of fiscal
year 2004, settled any claims arising out of the same.
-11-
(9) BUSINESS SEGMENTS
The Company operates principally in two segments - retail package stores and
restaurants. The operation of package stores consists of retail liquor sales.
Information concerning the revenues and operating income for the quarters ended
January 1, 2005 and December 27, 2003, and identifiable assets for the two
segments in which the Company operates, 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 expense and income taxes. Identifiable assets by segment are those assets
that are used in the Company's operations in each segment. Corporate assets are
principally cash and notes and mortgages receivable. The Company does not have
any operations outside of the United States and intersegment transactions are
not material.
January 1, December 27,
2005 2003
---- ----
Operating Revenues:
Restaurants $ 8,177 $ 7,412
Retail package stores 3,336 2,801
Other revenues 312 396
-------- --------
Total operating revenues $ 11,825 $ 10,609
Operating Income Reconciled to Income
before Income Taxes:
Restaurants $ 658 $ 612
Retail package stores 195 110
-------- --------
853 722
Corporate expenses, net of other
revenues (514) (392)
-------- --------
Operating income 339 330
Other 19 (53)
-------- --------
Income Before Income Taxes $ 320 $ 277
======== ========
January 1, October 2,
2005 2004
---- ----
Identifiable Assets:
Restaurants $10,293 $10,033
Retail package store 2,513 2,505
------- -------
12,806 12,538
Corporate 8,874 7,236
------- -------
Consolidated Totals $21,680 $19,774
-12-
(9) BUSINESS SEGMENTS (Continued)
s Thirteen Weeks Ending
January 1, December 27,
2005 2003
---- ----
Capital Expenditures
Restaurants $ 251 $ 805
Retail Package Stores 9 42
----- -----
260 763
Corporate 63 (28)
----- -----
Total Capital Expenditures $ 323 $ 735
===== =====
Depreciation and Amortization:
Restaurants $ 281 $ 280
Retail Package Stores 31 27
----- -----
312 307
Corporate 30 53
----- -----
Total Depreciation & Amortization $ 342 $ 360
===== =====
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
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, 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 2, 2004 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.
The Company owns and /or operates full service restaurants, package liquor
stores and an entertainment oriented club (collectively the "units"). At January
1, 2005, the Company operated 18 units and had equity interests in seven 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.
Jan.1 Oct.2 Dec. 27 Note
2005 2004 2003 Number
Types of Units
------------------------------------------------------------------------
Company Owned:
Combination package
and restaurant 4 4 4
Restaurant only 2 2 2
Package store only 5 5 4 (1)(2)
Company Managed
Restaurants Only:
-13-
Limited partnerships 5 5 4 (3)(4)(5)
Franchise 1 1 1
Company Owned Club: 1 1 1
Total Company
Owned/Operated Units 18 18 16
Franchised units 7 7 7 (6)
Notes:
(1) During the fourth quarter of fiscal year 2001, the Company entered
into a ground lease for an out parcel in Hollywood, Florida. The Company has
constructed a building on the out parcel, one-half (1/2) of which is used by the
Company for the operation of a package liquor store and the other one-half (1/2)
is subleased by the Company as retail space. The package store opened for
business on November 17, 2003.
(2) 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 the application
for its building permits during the third quarter of fiscal year 2002, but is
still involved in litigation with the adjacent shopping center over the
Company's right to non-exclusive parking in the shopping center. The
construction of a package liquor store has been postponed until the litigation
is concluded, which should occur during fiscal year 2005. The package liquor
store is not included in the table of units.
(3) During the third quarter of fiscal year 2003, the Company, as general
partner of the limited partnership, entered into a Sale of Business Agreement
for the purchase of an existing business in Pinecrest, Florida, which
transaction closed during the first quarter of fiscal year 2004. The Company, as
general partner of the limited partnership, is proceeding with necessary
structural repairs, while preserving its right to pursue a claim against the
landlord for its contribution to the additional structural repairs and
reimbursement of rent paid while the processing of its building plans is
delayed. The structural repairs should be completed during the third quarter of
fiscal year 2005, after which the limited partnership's building plans will be
processed by Pinecrest, Florida, building permits issued and the renovations
made to the business premises. It is anticipated that the renovated restaurant
will be open for business by the end of calendar year 2005 and is not included
in the table of units.
(4) 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 raised 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 owns a twelve percent
limited partnership interest. The restaurant opened for business on January 11,
2004.
(5) During the fourth quarter of fiscal year 2004, 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 Wellington,
Florida under the "Flanigan's Seafood Bar and Grill" service mark. During the
first quarter of fiscal year 2005, the limited partnership raised funds through
a
-14-
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 owns a twenty six percent limited partnership interest. It is
anticipated that the renovated restaurant will open for business by the start of
the third quarter of fiscal year 2005 and is not included in the table of units.
(6) 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.
Results of Operations
Thirteen Weeks Ended
Jan. 1, Dec. 27,
2005 2003
Amount Percent Amount Percent
------ ------- ------ -------
(In Thousands) (In Thousands)
Restaurant food sales $ 6,598 57.31 $ 5,973 58.48
Restaurant bar sales 1,579 13.71 1,439 14.09
Package goods sales 3,336 28.98 2,801 27.43
------- ------ ------- ------
Total sales $11,513 100.00 $10,213 100.00
Franchise related revenues 250 319
Owners fee 38 54
Other operating income 24 23
------- -------
Total Revenue $11,825 $10,609
======= =======
As the table above illustrates, total revenues in the thirteen weeks ended
January 1, 2005 increased by 11.46% as compared to the total revenues for the
thirteen weeks ending December 27, 2003 primarily due to the restaurant in
Stuart Florida being open for the fiscal quarter and the package goods store in
Hollywood, Florida being open for the entire fiscal quarter. Total revenues
should continue to increase due to the opening of the restaurant in Wellington,
Florida by the start of the third quarter of fiscal year 2005. If the restaurant
in Pinecrest, Florida is open for business prior to the end of fiscal year 2005,
revenues will increase even further during the fiscal year.
Restaurant food sales represented 57.31% of total sales in the thirteen
weeks of fiscal year 2005 as compared to 58.48% of total sales in the thirteen
weeks of fiscal year 2004. The weekly average of same store restaurant food
sales, which now includes three joint venture restaurants instead of one, were
$411,792 and $395,253 for the thirteen weeks ended January 1, 2005 and December
27, 2003, respectively, an increase of 4.18% The increase in restaurant food
sales is due to menu price increases and the continued increase in the weekly
average of same store restaurant food sales. The percentage of restaurant food
sales to total sales decreased due to increased package store sales.
Restaurant bar sales represented 13.71% of total sales in the thirteen
weeks of fiscal year 2005 as compared to 14.09% of total sales in the thirteen
weeks of fiscal year 2004. The weekly average of same store restaurant bar sales
were $96,226 and $92,273 for the thirteen weeks ended January 1, 2005 and
December 27,
-15-
2003, respectively, an increase of 4.28%. The increase in the weekly average of
same store restaurant bar sales is consistent with the increase in the weekly
average same store restaurant food sales and also attributed to promotions
designed to increase restaurant bar sales. The Company plans to introduce
additional promotions during the balance of fiscal year 2005 to increase
restaurant bar sales, without jeopardizing the Company's perception as a family
restaurant.
Package goods sales represented 28.98% of total sales in the thirteen
weeks of fiscal year 2005, as compared to 27.43% of total sales in the thirteen
weeks of fiscal year 2004. The increase is primarily due to the new package
store in Hollywood, Florida being open for the entire fiscal quarter. The weekly
average of same store package goods sales were $231,837 and $207,423 for the
thirteen weeks ended January 1, 2005 and December 27, 2003, respectively, an
increase of 11.77%. The increase was primarily due to increased volume. Package
good sales are expected to continue increasing through the balance of fiscal
year 2005 due to the continued increase in the weekly average of same store
package sales.
The gross profit margin for restaurant and bar sales was 64.23% and 65.03%
for the thirteen weeks ended January 1, 2005 and December 27, 2003 respectively.
The gross profit for restaurant and bar sales for the first quarter of fiscal
2005 was adversely effected by higher food costs, especially the cost of ribs.
The Company enters into an annual contract with its rib supplier to stabilize
the cost of ribs during the calendar year and a significantly more favorable rib
contract expired at the end of the thirteen weeks ended December 27, 2003. The
Company's new contract for calendar year 2005 is at a more favorable cost than
the contract which expired at the end of the thirteen weeks ended January 1,
2005. The Company has offset these increased costs by menu price increases and
will continue to do so during fiscal year 2005, where competitively feasible.
The gross profit margin for package goods stores was 28.09% and 27.12% for
the thirteen weeks ended January 1, 2005 and December 27, 2003, respectively.
The increase in gross profit is attributed to the purchase of "close out" and
merchandise reduction from wholesalers and the continued implementation of a new
training program for package store employees. The gross profit margin for
package goods stores is expected to remain constant through the balance of
fiscal year 2005.
Operating Costs and Expenses
Operating costs and expenses were $11,486,000 and $10,279,000 for the
thirteen weeks ended January 1, 2005 and December 27, 2003 respectively, an
increase of 11.74%. The increase is accounted for by the operation of the
restaurant in Stuart, Florida for the fiscal quarter, and the package goods
store in Hollywood, Florida being open for the entire fiscal quarter, as well as
a general increase in overall operating costs and expenses. Operating costs and
expenses are expected to continue increasing through the balance of fiscal year
2005 with the anticipated opening of the restaurant in Wellington, Florida by
the start of the third quarter of fiscal year 2005 and a general increase in
overall operating costs and expenses, including but not limited to food costs.
The opening of the new restaurant in Pinecrest, Florida or even the preparation
for the opening of the same for business by the end of fiscal year 2005 will
increase operating costs and expenses for the balance of the fiscal year.
Payroll and related costs were $3,123,000 and $2,831,000 for the thirteen
weeks ended January 1, 2005 and December 27, 2003 respectively, an increase of
10.31%. The increase is attributed to the operation of the restaurant in Stuart,
Florida for the fiscal quarter and the operation of the new package store in
Hollywood, Florida for the entire fiscal quarter ended January 1, 2005.
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Occupancy costs which include rent, common area maintenance, repairs and
taxes were $696,000 and $587,000 for the thirteen weeks ended January 1, 2005
and December 27, 2003 respectively, an increase of 18.57%. The increase is
accounted for by the payment of rent for the restaurant in Pinecrest, Florida
for the fiscal quarter. Occupancy costs will continue to increase through the
balance of fiscal year 2005 with the continued payment of rent for the
restaurant in Pinecrest, Florida, as well as the payment of rent for the
restaurant in Wellington, Florida commencing at the start of the third quarter
of fiscal year 2005.
Selling, general and administrative expenses were $2,343,000 and
$2,255,000 for the thirteen weeks ended January 1, 2005 and December 27, 2003
respectively, an increase of 3.90%. The increase in selling, general and
administrative expense is accounted for by the operation of the restaurant in
Stuart, Florida for the fiscal quarter; expenses associated with the restaurants
in Wellington, Florida and Pinecrest, Florida; the operation of the new package
store in Hollywood, Florida for the entire fiscal quarter ended January 1, 2005;
and an overall increase in expenses generally.
New Joint Venture Restaurants
As the Company opens new joint venture restaurants on a more regular basis
the Company's income from operations will be adversely effected by the higher
costs associated with the opening of the same. To insure that a new restaurant
opens with the high quality of service for which the Company is known, the
Company has a select group of employees, known as "new restaurant openers", who
travel to new restaurants for that purpose. "New restaurant openers" may spend
up to 90 days at a new restaurant. If the new joint venture restaurant is not
local, lodging has to be provided for the "new restaurant openers", which
increases the opening costs significantly. To date, lodging for "new restaurant
openers" has only been provided for the new joint venture restaurant in Stuart,
Florida. In addition, immediately prior to the opening of a new restaurant and
in order to provide a "test run" for the same, the Company sponsors pre-opening
parties for its joint venture investors and the Company employees.
In addition, the pre-opening rent is generally less for new leases, rather
than the purchase of an existing location which includes the assumption of an
existing lease. In the case of the joint venture restaurant in Wellington,
Florida, the lease agreement includes a one hundred eighty (180) day period for
renovations prior to the commencement of the lease and it is anticipated that
the restaurant will be renovated and open for business within two hundred ten
(210) days, in which event, pre-opening rent should not exceed $18,404. As of
January 1, 2005, the pre-opening rent paid for the new joint venture restaurant
in Pinecrest, Florida aggregates $204,000 and continues at $17,000 per month.
During the first quarter of fiscal year 2005, the joint venture in
Wellington, Florida reported a loss of $103,370 and the joint venture restaurant
in Pinecrest, Florida, which is still undergoing structural repairs at this
time, reported a loss of $80,414, thus reducing income from operations for the
fiscal quarter ending January 1, 2005. During the balance of fiscal year 2005,
income from operations will be adversely affected by the opening costs still to
be incurred for the new joint venture restaurants in Wellington, Florida and
Pinecrest, Florida.
Trends
During the next twelve months management expects continued increases in
restaurant sales, due primarily to the opening of the restaurants in Wellington,
Florida and Pinecrest, Florida and continued increases in same store restaurant
sales. Package good sales are also expected to increase due primarily to
increases in same store package goods sales. At the same time, management also
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expects higher food costs and overall expenses to increase generally. The
Company has already raised some of its menu prices to offset higher food costs
and will continue to do so wherever competitively possible. During the next
twelve months, management projects an increase in overall profit before income
tax.
Liquidity and Capital Resources
Cash Flows
The following table is a summary of the Company's cash flows for the first
thirteen weeks of fiscal years 2005 and 2004.
Thirteen Weeks Ended
Jan. 1 Dec.27,
2005 2003
------- -------
(In Thousands)
Net cash provided by
operating activities $ 541 $ 755
Net cash provided by (used in)
investing activities (306) (723)
Net cash provided by
financing activities 1,169 1,048
------- -------
Net Increase in Cash and Cash Equivalents 1,404 1,080
Cash and Cash Equivalents, Beginning 2,936 1,587
------- -------
Cash and Cash Equivalents, Ending $ 4,340 $ 2,667
======= =======
On December 9, 2004, the Company declared a cash dividend of 32 cents per
share payable on January 28, 2005 to the shareholders of record on January 14,
2005.
On December 18, 2003, the Company declared a cash dividend of 30 cents per
share payable on January 15, 2004 to shareholders of record on December 30,
2003.
On December 19, 2002, the Company declared a cash dividend of 27 cents per
share payable on January 30, 2003 to shareholders of record on January 17, 2003.
Capital Expenditures
The Company had additions to fixed assets of $323,000 during the thirteen
weeks ended January 1, 2005 as compared to $735,000 for the thirteen weeks ended
December 27, 2003 and $1,873,000 for the fiscal year ended October 2, 2004.
All of the Company's units require periodic refurbishing in order to
remain competitive. The budget for fiscal year 2005 is $325,000. The Company
expects the funds for these improvements to be provided from operations. In
addition, during the first quarter of fiscal year 2005, the limited partnership
which owns the restaurant in Wellington, Florida completed its private offering,
raising the sum of $1,850,000 towards capital expenditures for fiscal year 2005.
It is anticipated that the joint venture in Pinecrest, Florida will require
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approximately $2,800,000 in capital expenditures, the majority of which will be
raised through a private offering.
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Long Term Debt
During the first quarter of fiscal year 2005, the Company closed on an
unsecured $100,000 loan from Bank Atlantic, which funds will be used as a part
of the purchase of the real property and for an assignment and assumption of a
ground lease at one location owned by the Company pursuant to the exercise of an
option to purchase. The promissory note earns interest at prime rate and is
fully amortized over 36 months, with equal monthly payments of principal and
interest.
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 principal
balance due on a $1,000,000 loan from Bank of America which loan originated
during the second quarter of fiscal year 2000. This loan was prepaid in full
during the fourth quarter of fiscal year 2004.
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 hedge the interest rate risk, 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.
Working Capital
The table below summarizes the current assets, current liabilities, and
working capital for the fiscal quarters ended January 1, 2005, and December 27,
2003 and the fiscal year ended October 2, 2004.
Jan. 1, Dec. 27, Oct. 2,
Item 2005 2003 2004
------- -------- -------
(In Thousands)
Current Assets $7,800 $6,697 $5,889
Current Liabilities 4,900 4,330 3,758
Working Capital 2,900 2,367 2,131
Working capital for the fiscal quarter ending January 1, 2005 increased by
22.52% and 36.09% from the working capital for the fiscal quarter ending
December 27, 2003 and the fiscal year ending October 2, 2004, respectively. The
increase in working capital is due to the completion of the private offering by
the limited partnership owning the restaurant in Wellington, Florida during the
first quarter of fiscal year 2005 and minimal advances in excess of the monthly
rent paid made by the Company as on-going expenses for the restaurant in
Pinecrest, Florida during the first quarter of fiscal year 2005.
Management believes that positive cash flow from operations will
adequately fund operations, debt reductions and planned capital expenditures
during the balance of fiscal year 2005. However, it is also anticipated that
during the balance of fiscal year 2005, working capital will be adversely
affected by investments and/or advances made by the Company to the limited
partnership in Pinecrest, Florida pending reimbursement of advances made by the
Company in excess of its investment once the private offering by the limited
partnership is
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completed and the exercise by the Company of its option to purchase the real
property and ground lease of one location currently leased by the Company.
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 Annual Report on Form 10-K. 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 policies are subject to
estimates and judgments used in the preparation of its consolidated financial
statements:
Estimated Useful Lives of Property and Equipment
The estimates of useful lives for tangible and intangible assets are
significant estimates. Expenditures for the leasehold improvements and equipment
when a restaurant is first constructed are material. In addition, periodic
refurbishing takes place and those expenditures can be material. Management
estimates the useful life of those assets by considering, among other things,
expected use, life of the lease on the building, and warranty period, if
applicable. The assets are then depreciated using a straight line method over
those estimated lives. These estimated lives are reviewed periodically and
adjusted if necessary. Any necessary adjustment to depreciation expense is made
in the income statement of the period in which the adjustment is determined to
be necessary.
Consolidation of Limited Partnerships
At January 1, 2005, the Company operates 5 restaurants as general partner
for the limited partnership that owns the operations of these restaurants. The
Company refers to these entities as joint ventures or limited partnerships.
Additionally, the Company expects that any expansion which takes place in
opening new restaurants will also result in the Company operating the
restaurants as general partner. In addition to the general partnership interest
the Company also purchases limited partnership units ranging from 12% to 42% of
the total units outstanding. As a result of these controlling interests, the
Company consolidates the operations of these limited partnerships with those of
the Company despite the fact the Company does not own in excess of 50% of the
equity interests. All intercompany transactions are eliminated in consolidation.
The minority interests in the earnings of these joint ventures are removed from
net income and are not included in the calculation of earnings per share.
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 bases of assets and liabilities and
to tax net operating loss and tip credit carryforwards to the extent that
realization of said benefits is more likely than not. For discussion regarding
the Company's carryforwards refer to Note 7 to the consolidated financial
statements for fiscal year 2004.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company does not ordinarily hold market risk sensitive instruments for
trading purposes but as of January 1, 2005 holds one equity security at a cost
of
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$303,000 to receive dividend payments and for the Company to satisfy debt in the
future. There is no assurance that market price will increase or decrease in the
next year. Even if the price of the equity security decreased by 10% below its
cost, results of operations would be reduced by $30,000, an amount management
considers immaterial.
Interest Rate Risk
At January 1, 2005, the Company has two debt arrangements which have
variable interest rates. For one of these instruments, a mortgage note, the
Company has entered into an interest rate swap agreement to hedge the interest
rate risk. The mortgage note has an outstanding principal balance at January 1,
2005 of $829,900.
During the first quarter of fiscal year 2005, the Company closed on a new
unsecured loan from Bank Atlantic, in the principal amount of $100,000, which
funds are to be used in connection with the Company's exercise of an option to
purchase the real property and take an assignment of a ground lease at one of
its locations. The promissory note has a variable interest, at prime, but even
if interest rates increased by 10%, results of operations would be reduced by
less than $10,000, an amount management considers immaterial.
At January 1, 2005, 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 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.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our President and Chief Financial Officer, after evaluating the
effectiveness of Company's "disclosure controls and procedures" (as defined in
the Securities Exchange Act of 1934 ("Exchange Act") Rule 13a-15(e) or
15d-15(e)) as of the end of the period covered by this quarterly report, have
concluded that our disclosure controls and procedures are effective based upon
their evaluation of these controls and procedures required by paragraph (b) of
the Exchange Act Rules 13a-15(e) or 15d-15(e). In designing and evaluating the
disclosure controls and procedures, management recognizes that any system of
controls and procedures, no matter well designed and operated, is subject to
limitations, including the exercise of our judgment in evaluating the same. As a
result, there can be no assurance that our disclosure controls and procedures
will prevent all errors.
(b) Change in Internal Control over Financial Reporting
During the first quarter of fiscal year 2005, the Company continued to
assess the effectiveness of our "internal controls over financial reporting" on
an account by account basis as a part of our on-going accounting and financial
reporting review process. The assessments were made by management, under the
supervision of our Chief Financial Officer. We made no changes in our internal
control over financial reporting during the fiscal quarter ending January 1,
2005 that materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting. Notwithstanding, the
effectiveness of our system of internal control over financial reporting is
subject to limitations, including the exercise of our judgment in evaluating the
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same. As a result, there can be no assurance that our internal control over
financial reporting will prevent all errors.
(c) Compliance with Rule 404 of the Sarbanes-Oxley Act of 2002.
(c) Subsequent to the end of the first quarter of fiscal year 2005, the
Company engaged an independent third party expert to assist the Company in
performing the required evaluation of Items 4(a) and 4(b).
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings: See "Litigation" on page 13 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 2, 2004 for a discussion of other legal proceedings resolved in
prior years.
Item 2- Unregistered Sales of Equity Securities and Use of Proceeds: None
Item 3- Defaults Upon Senior Securities: None
Item 4- Submission of Matters to a Vote of Security Holders: None
Item 5- Other Information: None
Item 6- Exhibits and Reports on Form 8-K:
(a) Exhibits: Exhibits 31.1, 31.2, 32.1 and 32.2 (Certifications)
(b) 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.
Date: February 22, 2005 /s/ James G. Flanigan
----------------- -------------------------------------
JAMES G. FLANIGAN,
Acting Chief Executive Officer and
President
Date: February 22, 2005 /s/ Jeffrey D. Kastner
----------------- -------------------------------------
JEFFREY D. KASTNER
Chief Financial Officer and Secretary
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