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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 December 27, 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 |X| No |_|
Indicate the number of shares outstanding of each of the issuers classes of
Common Stock as of the latest practicable date 1,935,695 as of December 27,
2003.
-1-
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
DECEMBER 27, 2003
PART I. FINANCIAL INFORMATION
1. UNAUDITED CONDENSED FINANCIAL STATEMENTS
Consolidated Summary of Earnings -- For the Thirteen Weeks ended
December 27, 2003 and December 28, 2002.
Consolidated Balance Sheets -- As of December 27, 2003 and
September 27, 2003.
Notes to Consolidated Financial Statements
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
3. QUANTITATIVE 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 Thirteen Weeks
Ended Ended
DECEMBER 27 DECEMBER 28
2003 2002
-------------- --------------
Revenues:
Restaurant food sales $ 5,973 $ 4,932
Restaurant beverage sales 1,439 1,292
Package goods sales 2,801 2,680
Franchise-related revenues 319 238
Owner's fee 54 68
Other operating income 41 87
-------- --------
10,627 9,297
-------- --------
Costs and Expenses:
Cost of merchandise sold:
Restaurants and lounges 2,592 2,136
Package goods 2,014 1,952
Payroll and related costs 2,831 2,569
Occupancy costs 587 430
Selling, general and administrative expenses 2,255 1,375
-------- --------
10,279 8,462
-------- --------
Income from Operations 348 835
-------- --------
Other Income (Expense):
Interest expense (28) (31)
Minority interest in earnings of
consolidated joint ventures (46) (312)
Interest income 6 9
Joint venture income -- 17
Other 15 97
-------- --------
(53) (220)
Income Before Provision for Income Taxes 295 615
Provision for Income Taxes 68 141
-------- --------
Net Income $ 227 $ 474
======== ========
-3-
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED SUMMARY OF EARNINGS
(In Thousands Except Per Share Amounts)
(Continued)
For The Thirteen Weeks Ended
Dec. 27, 2003 Dec. 28, 2002
Numerator Denominator EPS Numerator Denominator EPS
--------- --------- -------- --------- ----------- --------
Basic EPS $ 227,000 1,935,695 $ 0.12 $ 474,000 1,926,470 $ 0.25
Effective/ dilutive
Stock Options 86,790 26,197
--------- --------- -------- --------- --------- --------
Diluted EPS $ 227,000 2,022,485 $ 0.11 $ 474,000 1,952,667 $ 0.24
--------- --------- -------- --------- --------- --------
The accompanying notes to consolidated financial statements
are an integral part of these statements.
-4-
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 27, 2003 (UNAUDITED) AND SEPTEMBER 27, 2003
(In Thousands)
ASSETS
DECEMBER 27 SEPTEMBER 27
2003 2003
----------- ------------
Current Assets:
Cash and cash equivalents $ 2,685 $ 1,587
Investments:
Certificates of deposit 354 354
Marketable securities 185 185
Notes and mortgages receivable,
current maturities, net 22 23
Due from franchisees 249 16
Other receivables 506 361
Inventories 1,782 1,362
Refundable deposit, major supplier -- 77
Prepaid expenses 578 718
Prepaid income taxes 224 163
Deferred tax asset 112 112
------- -------
Total Current Assets 6,697 4,958
------- -------
Property and Equipment 12,799 12,413
------- -------
Investments in Joint Ventures 139 320
------- -------
Other Assets:
Liquor licenses, net 336 347
Notes and mortgages receivable, net 138 149
Deferred tax asset 208 208
Other 687 338
------- -------
Total Other Assets 1,369 1,042
------- -------
Total Assets $21,004 $18,733
======= =======
-5-
FLANIGAN'S ENTERPRISES, INC, AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 27, 2003 (UNAUDITED) AND SEPTEMBER 27, 2003
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands)
DECEMBER 27 SEPTEMBER 27,
2003 2003
----------- -------------
Current Liabilities:
Accounts payable and accrued expenses $ 3,322 $ 2,108
Due to franchisees 135 409
Current portion of long term debt 223 278
Deferred revenues 69 70
Dividends payable 581 --
-------- --------
Total Current Liabilities 4,330 2,865
-------- --------
Long Term Debt, Net of Current Maturities 1,291 1,314
-------- --------
Minority Interest in Equity of
Consolidated Joint Ventures 5,344 4,203
-------- --------
Stockholders' Equity:
Common stock $.10 par value;
5,000,000 shares authorized
4,197,642 shares issued 421 420
Capital in excess of par value 6,103 6,103
Retained earnings 8,761 9,115
Accumulated other comprehensive income 26 26
Treasury stock, at cost 2,261,947 shares
at December 27, 2003 and 2,271,172
shares at September 27, 2003 (5,272) (5,313)
-------- --------
Total Stockholders' Equity 10,039 10,351
-------- --------
Total Liabilities and
Stockholders' Equity $ 21,004 $ 18,733
======== ========
See notes to consolidated financial statements.
-6-
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED DECEMBER 27, 2003 AND DECEMBER 28, 2002
(In Thousands)
DECEMBER 27 DECEMBER 28
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 227 $ 474
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 360 356
Minority interest in earnings
of consolidated joint ventures 46 312
Recognition of deferred revenue (1) (1)
Joint venture income -- (17)
Changes in operating assets and liabilities:
(Increase)decrease in:
Due from franchisees (52) 156
Other receivables (134) (352)
Inventories (420) (327)
Prepaid expenses 79 (1)
Refundable deposit major supplier 77 (194)
Other assets (349) 24
Increase(decrease)in:
Accounts payable and
accrued expenses 1,214 861
Due to franchisees (274) (41)
------- -------
Net cash provided by
operating activities 773 1,250
------- -------
Cash flows from Investing Activities:
Collection on notes and mortgages
receivable 12 69
Purchase of property and equipment (735) (799)
Investment in marketable securities -- (149)
Distributions to joint venture
minority partners (230) (867)
Distributions from unconsolidated
joint ventures -- 15
Proceeds from joint ventures interests 1,325 1,149
------- -------
Net cash provided by (used in)
investing activities 372 (582)
------- -------
-7-
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED DECEMBER 27, 2003 AND DECEMBER 28, 2002
(In Thousands)
DECEMBER 27 DECEMBER 28
2003 2002
----------- -----------
Cash flows from Financing Activities:
Payment of long-term debt (78) (111)
Proceeds from exercise of stock options 31 --
------- -------
Net cash used in financing activities (47) (111)
------- -------
Net Increase in Cash and Cash
Equivalents 1,098 557
Cash and Cash Equivalents,
Beginning of Period 1,587 1,143
------- -------
Cash and Cash Equivalents
End of Period $ 2,685 $ 1,700
======= =======
-8-
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 2003
(1) CORPORATE REORGANIZATION:
On November 4, 1985, the Company 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. The Company's action was a result of significant
escalations of rent on certain of the Company's leases which made continued
profitable operations at those locations impossible and jeopardized the
Company's financial position. The major purpose of the reorganization was to
reject such leases. In addition, the Company also sought its release from lease
agreements for business sold, which sales included the assignment of the lease
for the business premises. On April 13, 1987, the Company's Amended Plan of
Reorganization was confirmed and the Bankruptcy Court entered its Order of
Confirmation on May 5, 1987. The effective date of the Amended Plan or
Reorganization was June 30, 1987 and the Bankruptcy Court ratified the initial
disbursements made by the Disbursing Agent by its Order dated December 21, 1987
and entered its Order of Discharge of the Company of December 28, 1987.
During fiscal year 1991 and again during fiscal year 1992, the Company and
Class 6 and Class 8 Creditors under the Company's Amended Plan of Reorganization
modified the schedule for the payment of bankruptcy damages, reducing the amount
of the quarterly payments by extending the term of the same, but without
reducing the total amount of bankruptcy damages, which modifications provided
the Company with needed capital. During the third quarter of fiscal year 2002,
the remaining liabilities under the Amended Plan of Reorganization were paid in
full.
(2) BASIS OF PRESENTATION:
The financial information for the periods ended December 27, 2003, and
December 28, 2002 are unaudited. Financial information as of September 27, 2003
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 September 27, 2003. Operating
results for interim periods are not necessarily indicative of results to be
expected for a full year.
(3) 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.
(4) RECLASSIFICATION:
Certain amounts in the fiscal 2003 financial statements have been
reclassified to conform to the fiscal 2004 presentation.
(5) FRANCHISE PROGRAM:
-9-
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
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 between 1-1/2% to 3% of gross sales. 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:
Beginning with the limited partnership which owns the restaurant in
Kendall, Florida and for all limited partnerships formed subsequent thereto for
the purpose of owning and operating a restaurant under the "Flanigan's Seafood
Bar and Grill" servicemark, a standard financial arrangement has been used in
each limited partnership agreement. Under this financial arrangement, until the
limited partnership has received an aggregate sum equal to the initial
investment of all limited partners from the net profit from the operation of the
restaurant, the limited partnership receives an aggregate sum equal to 25% of
the initial investment of all limited partners first each year, with any
additional net profit divided equally between the Company, as manager of the
restaurant, and the limited partnership. Once the limited partnership has
received an aggregate sum equal to the initial investment of all limited
partners from the net profit from the operation of the restaurant, the net
profit is divided equally between the Company, as manager of the restaurant, and
the limited partnership. As of December 27, 2003, only the limited partnership
which owns the restaurant in Kendall, Florida has received an aggregate sum
equal to the initial investment of all limited partners from the net profit from
the operation of the restaurant and the Company receives one-half of the net
profit as manager of the restaurant. The Company plans to continue forming
limited partnerships to raise funds to own and operate restaurants under the
"Flanigan's Seafood Bar and Grill" servicemark using the same financial
arrangement.
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 owned 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. During fiscal year 2002, the Company, as general partner of the limited
partnership, settled its apportionment claim against the hotel owner for
$700,000, which settlement resulted in a gain from disposition of approximately
$459,000 to the Company during the fiscal year ended September 28, 2002. During
fiscal year 2003, the limited partnership settled all claims for additional
compensation from the DOT for $27,000 and is still pursuing a claim for $10,000
as reimbursement of expenses incurred by the limited partnership during the
eminent domain proceedings. The additional compensation from the DOT belongs
solely to the Company, as will the anticipated reimbursement of expenses. The
unrelated joint venture partner received $350,000 in full settlement of its
interest and the Company controls 100% of the partnership as of December 27,
2003.
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
-10-
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. As of December 27, 2003, 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. The structural repairs
are the responsibility of the landlord, but it is expected that the structural
repairs will delay the renovations 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. The Company
continues to act as general partner and will also be the owner of up to a 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 fiscal year
2004.
Fort Lauderdale, Florida
A related third party acts as general partner of a limited partnership
which owns and operates a franchised restaurant in Fort Lauderdale, Florida
under the "Flanigan's Seafood Bar and Grill" servicemark. The Company is a
twenty five percent owner of the limited partnership as are other related
parties, including, but not limited to officers and directors of the Company and
their families. This joint venture is not consolidated on the accompanying
consolidated financial statements of the Company.
Surfside, Florida
The Company acts as general partner of a limited partnership which owns
and operates a restaurant in Surfside, Florida under the "Flanigan's Seafood Bar
and Grill" servicemark. The Company is also a forty two percent owner of the
limited partnership as are other related parties, including, but not limited to
officers and directors of the Company and their families. This restaurant opened
for business in the second quarter of fiscal year 1998.
Kendall, Florida
The Company acts as general partner of a limited partnership which owns
and operates a restaurant in Kendall, Florida under the "Flanigan's Seafood Bar
and Grill" servicemark. The Company is also a forty percent owner of the limited
partnership as are other related parties, including but not limited to officers
and directors of the Company and their families. This restaurant opened for
business on April 9, 2000.
West Miami, Florida
The Company acts as general partner of a limited partnership which owns
and operates a restaurant in West Miami, Florida under the "Flanigan's Seafood
Bar and Grill" servicemark. The Company is also a twenty five percent owner of
the limited partnership as are other related parties, including, but not limited
to officers and directors of the Company and their families. This restaurant
opened for business on October 11, 2001.
-11-
Weston, Florida
During the fourth quarter of fiscal year 2002, the Company, as general
partner of a limited partnership, began raising funds to renovate the business
premises of an existing restaurant in Weston, Florida for operation as a
"Flanigan's Seafood Bar and Grill" restaurant. The Company is also the owner of
twenty eight percent of the limited partnership, as are other related parties,
including but not limited to officers and directors of the Company and their
families. The restaurant, which had operated under its existing servicemark, was
closed on July 13, 2002 and building permits were issued to the limited
partnership at the start of fiscal year 2003. The restaurant opened for business
on January 20, 2003.
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 first quarter of fiscal year 2004, the
limited partnership completed its private offering, raising the sum of
$1,500,000 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 twelve percent limited partnership interest,
as are other related parties, including but not limited to officers and
directors of the Company and their families. The restaurant opened for business
on January 11, 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 carryforwards and tax credits to the extent that
realization of said tax benefits is more likely than not. The deferred tax asset
was $320,000 as of December 27, 2003 and September 27, 2003.
(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 $10,000,000. 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
-12-
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 16 of the
Company's Annual Report on Form 10-K for the fiscal year ended September 27,
2003. 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 September 27, 2003.
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 ADA 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 retained an ADA expert who has inspected locations involved in the
active lawsuits, including the limited partnerships and franchises, and provided
a report setting forth ADA violations which need to be corrected. The Company
corrected ADA violations noted by its ADA expert and then vigorously defended
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.
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 is arguing that the location is in
compliance.
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 are arguing that the locations are
in compliance with their respective settlement agreements.
(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"). At
December 27, 2003, the Company operated 17 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.
Dec. 27 Sept. 27 Dec. 28 Note
2003 2003 2002 Number
Types of Units
-----------------------------------------------------------------------
Company Owned:
Combination package
and restaurant 4 4 4
Restaurant only 2 2 2
Package store only 5 4 4 (2)(3)
Company Managed
Restaurants Only:
Limited partnerships 5 4 4 (4)(5)(6)
Franchise 1 1 1
-13-
Dec. 27 Sept. 27 Dec. 28 Note
2003 2003 2002 Number
Types of Units
--------------------------------------------------------------------
Company Owned Club: 1 1 1
Total Company
Owned/Operated Units 18 16 16
Franchised units 7 7 7 (1)
Notes:
(1) 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.
(2) 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 being 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 package
store opened for business on November 17, 2003.
(3) 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 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 the package liquor store has been postponed until the litigation
is concluded, which should occur during fiscal year 2004. This package liquor
store is not included in the table of units.
(4) During the first quarter of fiscal year 2002, the State of Florida,
Department of Transportation, ("DOT"), exercised its right of eminent domain to
"take" title to the hotel property upon which a restaurant operated by the
Company as general partner of a limited partnership was located. The restaurant
closed at the end of business on March 30, 2002 and is not included in the table
of units.
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. During
the second quarter of fiscal year 2004 and after removing the interior finishes,
the Company found numerous, substantial structural deficiencies which are the
responsibility of the landlord and must be rectified prior to any renovations
being made. The limited partnership still intends to raise funds through a
private offering to renovate the restaurant once the renovation costs have been
determined. The Company continues to act as general partner and will also be the
owner of up to a 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 fiscal year 2004 and is not included in the table of
units.
(5) During the fourth quarter of fiscal year 2001, a limited partnership
was formed with the Company as general partner, which limited partnership
entered
-14-
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 continues to act as general
partner and has a 28 percent ownership interest in the limited partnership. The
restaurant opened for business on January 20, 2003.
(6) 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 first quarter of fiscal year
2004, 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 continues to act as general partner and also has
a twelve percent ownership interest in the limited partnership. The restaurant
opened for business on January 11, 2004 and is therefore not included in table
as of December 27, 2003.
(10) 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 December 27, 2003, the
fair value exceeded cost.
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 2004 and 2003.
Thirteen Weeks Ended
Dec. 27 Dec.28,
2003 2002
------- -------
(In Thousands)
Net cash provided by
operating activities $ 773 $ 1,250
Net cash provided by (used in)
investing activities 372 (582)
Net cash used in
financing activities (47) (111)
------- -------
Net Increase in Cash
and Cash Equivalents 1,098 557
Cash and Cash Equivalents, Beginning 1,587 1,143
------- -------
Cash and Cash Equivalents, Ending $ 2,685 $ 1,700
======= =======
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.
-15-
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.
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 $735,000 during the thirteen
weeks ended December 27, 2003 as compared to $799,000 for the thirteen weeks
ended December 28, 2002 and $3,028,000 for the fiscal year ended September 27,
2003.
All of the Company's units require periodic refurbishing in order to
remain competitive. During the fiscal year 1992, as cash flow improved, the
Company embarked on a refurbishing program which continues through fiscal year
2004. The budget for fiscal year 2004 is $350,000. The Company expects the funds
for these improvements to be provided from operations. In addition, during the
first quarter of fiscal year 2004, the limited partnership which owns the
restaurant in Stuart, Florida completed its private offering, raising the sum of
$1,500,000 towards capital expenditures for fiscal year 2004. It is anticipated
that a second joint venture will require approximately $2,500,000 in capital
expenditures, the majority of which will be raised through a private offering.
Working Capital
The table below summarizes the current assets, current liabilities, and
working capital for the fiscal quarters ended December 27, 2003, and December
28, 2002 and the fiscal year ended September 27, 2003.
Dec. 27, Dec. 28, Sept. 27,
Item 2003 2002 2003
-------- -------- --------
(In Thousands)
Current Assets $6,697 $6,748 $4,958
Current Liabilities 4,330 3,655 2,865
Working Capital 2,367 3,093 2,093
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 dated January 2000. 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 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.
-16-
Legal Matters
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 September 27, 2003
for a discussion of other legal proceedings resolved in prior years.
Results of Operations
Thirteen Weeks Ended
Dec. 27, Dec. 28,
2003 2002
Amount Percent Amount Percent
------ ------- ------- -------
(In Thousands) (In Thousands)
Restaurant food sales $ 5,973 58.48 $ 4,932 55.39
Restaurant bar sales 1,439 14.09 1,292 14.51
Package goods sales 2,801 27.43 2,680 30.10
------- ------ ------- ------
Total sales $10,213 100.00 $ 8,904 100.00
Franchise related revenues 319 238
Owners fee 54 68
Other operating income 41 87
------- -------
Total Revenue $10,627 $ 9,297
======= =======
Total revenues in the thirteen weeks ended December 27, 2003 increased by
14.31% as compared to the total revenues for the thirteen weeks ending December
28, 2002 primarily due to the restaurant in Weston, Florida being open for the
entire fiscal quarter and the opening of the package goods store in Hollywood,
Florida on November 17, 2003. Total revenues should continue to increase due to
the opening of the restaurant in Stuart, Florida on January 11, 2004 and the
package goods store in Hollywood, Florida being open for the balance of fiscal
year 2004.
Restaurant food sales represented 58.48% of total sales in the thirteen
weeks of fiscal year 2004 as compared to 55.39% of total sales in the thirteen
weeks of fiscal year 2003. The weekly average of same store restaurant food
sales were $400,666 and $378,587 for the thirteen weeks ended December 27, 2003
and December 28, 2002, respectively, an increase of 5.83%. The increase in
restaurant food sales is primarily due to the restaurant in Weston, Florida
being open for the entire fiscal quarter and the continued increase in the
weekly average of same store restaurant food sales. Restaurant food sales are
expected to continue increasing through the remainder of fiscal year 2004 due to
the opening of the restaurant in Stuart, Florida on January 11, 2004.
Restaurant bar sales represented 14.09% of total sales in the thirteen
weeks of fiscal year 2004 as compared to 14.51% of total sales in the thirteen
weeks of fiscal year 2003. The weekly average of same store restaurant bar sales
were $91,599 and $98,892 for the thirteen weeks ended December 27, 2003 and
December 28, 2002, respectively, a decrease of 7.37%. The increase in total
restaurant bar sales is primarily due to the restaurant in Weston, Florida being
open for the entire fiscal quarter and should continue to increase through the
balance of fiscal year 2004 due to the opening of the restaurant in Stuart,
Florida on January 11, 2004. The decrease in the weekly average of same store
restaurant bar sales is expected to continue as the Company's perception as a
family restaurant continues to grow.
-17-
Package goods sales represented 27.43% of total sales in the thirteen
weeks of fiscal year 2004, as compared to 30.10% of total sales in the thirteen
weeks of fiscal year 2003. The percentage decrease is attributed to the
restaurant in Weston, Florida having been open for the entire first quarter of
fiscal year 2004. The additional restaurant sales during the first quarter of
fiscal year 2004 also offset the package goods sales generated from the opening
of the new package liquor store in Hollywood, Florida on November 17, 2003. The
weekly average of same store package goods sales were $207,423 and $194,032 for
the thirteen weeks ended December 27, 2003 and December 28, 2002, respectively,
an increase of 6.90%. Package good sales are expected to continue increasing
through the balance of fiscal year 2004 due to the opening of the new package
goods store in Hollywood, Florida and the continued increase in the weekly
average of same store package sales.
The gross profit margin for restaurant and bar sales was 65.40% and 65.69%
for the thirteen weeks ended December 27, 2003 and December 28, 2002,
respectively. It is anticipated that the gross profit margin for restaurant and
bar sales through the balance of fiscal year 2004 will be adversely affected by
higher food costs, although the Company has taken steps to offset higher food
costs with higher menu prices, where competitively possible.
The gross profit margin for package goods stores was 27.12% and 27.16% for
the thirteen weeks ended December 27, 2003 and December 28, 2002, respectively.
The gross profit margin for package goods stores is expected to remain constant
through the balance of fiscal year 2004.
Franchise related revenues, which includes but is not limited to rental
income and franchise-related income such as franchise royalties, bookkeeping and
accounting fees and reimbursement of attorney's fees were $319,000 and $238,000
for the thirteen weeks ended December 27, 2003 and December 28, 2002
respectively, an increase of 34.03%.
The owners' fee was $54,000 and $68,000 for the thirteen weeks ended
December 27, 2003 and December 28, 2002 respectively.
Operating Costs and Expenses
Operating costs and expenses were $10,279,000 and $8,462,000 for the
thirteen weeks ended December 27, 2003 and December 28, 2002 respectively, an
increase of 21.47%. The increase is accounted for by the operation of the
restaurant in Weston, Florida for the entire fiscal quarter and the operation of
the new package store in Hollywood, Florida for one-half (1/2) of the fiscal
quarter ended December 27, 2003. Operating costs and expenses are expected to
continue increasing through the balance of fiscal year 2004 with the opening of
the restaurant in Stuart, Florida on January 11, 2004 and a general increase in
overall operating costs and expenses, including but not limited to food costs.
Payroll and related costs were $2,831,000 and $2,569,000 for the thirteen
weeks ended December 27, 2003 and December 28, 2002 respectively, an increase of
10.20%. The increase is attributed to the operation of the restaurant in Weston,
Florida for the entire fiscal quarter and the operation of the new package store
in Hollywood, Florida for one-half (1/2) of the fiscal quarter ended December
27, 2003.
-18-
Occupancy costs which include rent, common area maintenance, repairs and
taxes were $587,000 and $430,000 for the thirteen weeks ended December 27, 2003
and December 28, 2002 respectively, an increase of 36.51%. The increase is
accounted for by the payment of rent for the restaurant in Stuart, Florida and
the payment of full rent for the restaurant in Weston, Florida for the entire
fiscal quarter, when compared to the payment of partial rent during the fiscal
quarter ended December 28, 2002. Occupancy costs will continue to increase
through the balance of fiscal year 2004 with the payment of rent for the
restaurant in Stuart, Florida, as well as the payment of rent for the restaurant
in Pinecrest, Florida commencing at the start of the second quarter of fiscal
year 2004.
Selling, general and administrative expenses were $2,255,000 and
$1,375,000 for the thirteen weeks ended December 27, 2003 and December 28, 2002
respectively, an increase of 64.0%. The increase in selling, general and
administrative expense is accounted for by the operation of the restaurant in
Weston, Florida for the entire fiscal quarter; expenses associated with the
restaurants in Stuart, Florida and Pinecrest, Florida; the operation of the new
package store in Hollywood, Florida for one-half (1/2) of the fiscal quarter
ended December 27, 2003; increased insurance costs and an overall increase in
expenses generally.
Trends
During the next twelve months management expects continued increases in
restaurant sales, due primarily to the opening of the restaurant in Stuart,
Florida and continued increases in same store restaurant sales. Package good
sales are also expected to increase due primarily to the opening of a new
package goods store in Hollywood, Florida and increases in same store package
goods sales. At the same time, management also expects higher food costs,
especially the cost of ribs, 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.
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:
DEPRECIATION
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.
-19-
In fiscal 2003, management reviewed the estimated useful lives for leasehold
improvements and recorded an adjustment which was not significant.
DEFERRED TAX ASSETS
Deferred tax assets result primarily from timing differences relating to
depreciation and tip credits. The calculations are reviewed periodically by
management and the estimates are adjusted as the assumptions or conditions
indicate.
CONSOLIDATION
At December 27, 2003, the Company operates 4 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does hold market risk sensitive instruments for investment
purposes. The Company also recognizes market risk from interest rate exposure.
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. At its meeting
on December 19, 2003, the Board of Directors authorized the Company to make a
further investment in the same equity security as an additional accumulation of
funds to satisfy debt in the future. The additional investment in the equity
security was made during the second quarter of fiscal year 2004. To the extent
that market price declines it will have a negative impact of the value of the
investment. There is no assurance that market price will increase or decrease in
the next year.
At December 27, 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 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.
The Company has two debt arrangements which have variable interest rates.
For one of these instruments, which is a mortgage note, the Company has entered
into an interest rate swap agreement to hedge the interest rate risk. The other
debt instrument has an outstanding principal balance at December 27, 2003 of
-20-
$133,146. Even if interest rates increased by 10%, results of operations would
be reduced by only $3,000, an amount management considers immaterial.
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, 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.
In January 2004, 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. 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
since our January 2004 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.
PART II, OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
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.
/s/ Joseph G. Flanigan
----------------------------------
JOSEPH G. FLANIGAN,
Chief Executive Officer
Date
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Date
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