UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10KSB
(X) ANNUAL REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
OR
(_) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of the SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Florida 59-0877638
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5059 N.E. 18th Avenue, Fort Lauderdale, FL 33334
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(Address of principal executive offices) (Zip Code)
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Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.10 Par Value American Stock Exchange
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Title of each Class Name of each exchange
on which registered
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Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No __
The aggregate market value of the voting stock held by non-affiliates of the registrant was $4,229,000 as of November 20, 2001.
There were 1,922,478 shares of the Registrant's Common Stock ($0.10) Par Value outstanding as of September 29, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the Registrant's 2002 definitive proxy material has been incorporated by reference in Items 10, 11, 12 and 13 of Part III of this Annual Report on Form 10-KSB.
Exhibit Index Begins on Page 34
PART I
When used in this report, the words "anticipate", "believe", "estimate", "will", "may", "intend" and "expect" and similar expressions identify forward-looking statements. Forward-looking statements in this report include, but are not limited to, those relating to the general expansion of the Company's business. Although we believe that our plans, intentions and expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved.
Flanigan's Enterprises, Inc., (the "Company") owns and/or operates restaurants with lounges, package liquor stores and an entertainment oriented club (collectively the "units"). At September 29, 2001, the Company operated 15 units, and had interests in seven additional units which have been franchised by the Company. The table below sets out the changes in the type and number of units being operated.
FISCAL FISCAL
YEAR YEAR NOTE
2001 2000 NUMBER
TYPES OF UNITS
--------------------------------------------------------------------------------
Combination package and restaurant 4 4
Restaurant only 7 6 (1)(2)(3)(4)
Package store only 3 4 (5)(6)(7)
Clubs 1 1
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TOTAL - Company operated units 15 15
FRANCHISED - units 7 7 (8)
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(1) During the third quarter of fiscal year 1998 the Company formed a limited partnership and raised funds through a private offering to purchase the assets of a restaurant in Kendall, Florida and renovate the same for operation under the "Flanigan's Seafood Bar and Grill" servicemark. The Company acts as general partner and has a forty percent ownership of the partnership. The restaurant opened for business on April 9, 2000.
(2) During the third quarter of fiscal year 2000, a limited partnership was formed which raised funds through a private offering to purchase the assets of a restaurant in West Miami, Florida and renovate the same for operation under the "Flanigan's Seafood Bar and Grill" servicemark. The Company is the general partner and has a 25 percent ownership interest in the
partnership. The restaurant opened for business during the first quarter of fiscal year 2002 and is not included in the table of units.
(3) During the fiscal year 2000, the Company received official notification from the State of Florida, Department of Transportation ("DOT"), that the DOT was exercising its right of eminent domain to "take" the hotel property upon which a restaurant, operated by the Company as general partner of a limited partnership, is located. It is also anticipated that the DOT will take title to the hotel property during the second quarter of fiscal year 2002, at which time the restaurant will be forced to close.
(4) During the fourth quarter of fiscal year 2001, a limited partnership was formed with the Company as general partner. The limited partnership entered into a sublease agreement to operate an existing restaurant in Weston, Florida. The limited partnership plans to raise funds to renovate the business premises for operation as a "Flanigan's Seafood Bar and Grill" restaurant. The funds will not be raised, nor will renovations begin until the sublessor has resolved several zoning and related matters and it is currently impossible to determine when the renovations will begin. Until additional limited partnership units are sold, the Company owns 100% of the limited partnership which has been consolidated for financial reporting purposes. This restaurant is included in the table of units.
(5) During the fourth quarter of fiscal year 2000, the Company entered into a lease for the operation of a package liquor store in Hialeah, Florida. This package liquor store opened for business during the first quarter of fiscal year 2002 and is not included in the table of units.
(6) The lease for one (1) package liquor store owned and operated by the Company in Lake Worth, Florida expired on December 31, 2000 and the Company elected not to exercise its five year renewal option to extend the terms of the same. Consequently the package liquor store was closed permanently, at the close of business on December 31, 2000.
(7) During the fourth quarter of fiscal year 2001, the Company entered into a ground lease for an out parcel in Hollywood, Florida. The Company plans to construct a building on the out parcel, one-half (1/2) of which will be used by the Company for the operation of a package liquor store and the other one-half (1/2) will be subleased by the Company as retail space. The Company plans to file its building plans during the second quarter of fiscal year 2002 and expects the building to be complete and the package liquor store open for business during the fourth quarter of fiscal year 2002.
(8) 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.
All of the Company's package liquor stores, restaurants and clubs are operated on leased properties.
The Company was incorporated in Florida in 1959 and operated in South Florida as a chain of small cocktail lounges and package liquor stores. By 1970, the Company had established a chain of "Big Daddy's" lounges and package liquor stores between Vero Beach and Homestead, Florida. From 1970 to 1979, the Company expanded its package liquor store and lounge operations throughout Florida and opened clubs in five other "Sun Belt" states. In 1975, the Company discontinued most of its package store operations in Florida except in the South Florida areas of Dade, Broward, Palm Beach and Monroe Counties. In 1982 the Company expanded its club operations into the Philadelphia, Pennsylvania area as general partner of several limited partnerships organized by the Company. In March 1985 the Company began franchising its package liquor stores and lounges in the South Florida area. See Note 9 to the consolidated financial statements and the discussion of franchised units on page 6.
During fiscal year 1987, the Company began renovating its lounges to provide full restaurant food service, and subsequently renovated and added food service to most of its lounges. The restaurant concept, as the Company offers it, has been so well received by the public that food sales now represent approximately 80% of total restaurant sales.
The Company's package liquor stores emphasize high volume business by providing customers with a wide variety of brand name and private label merchandise at discount prices. The Company's restaurants provide efficient service of alcoholic beverages and full food service with abundant portions, reasonably priced, served in a relaxed, friendly and casual atmosphere.
The Company's principal sources of revenue are the sale of food and alcoholic beverages.
The Company conducts its operations directly and through a number of wholly owned subsidiaries. The operating subsidiaries are as follows:
SUBSIDIARY STATE OF INCORPORATION ---------- ---------------------- Flanigan's Management Services, Inc. Florida Flanigan's Enterprises, Inc. of Georgia Georgia Seventh Street Corp. Florida Flanigan's Enterprises, Inc. of Pa. Pennsylvania CIC Investors #95, Ltd. Florida |
The income derived and expenses incurred by the Company relating to the aforementioned subsidiaries are consolidated for accounting purposes with the income and expenses of the Company in the consolidated financial statements in this Form 10-KSB.
The Company's executive offices, which are owned by the Company, are located in a two story building at 5059 N.E. 18th Avenue, Fort Lauderdale, Florida 33334 and its telephone number at such address is (954) 377-1961.
As noted in Note 6 to the consolidated financial statements, 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 primary purposes of the petition were (1) to reject leases which were significantly above market rates and (2) to reject leases on closed units which had been repossessed by, or returned to the Company. On May 5, 1987, the Company's Plan of Reorganization as amended and modified was confirmed by the Bankruptcy Court. On December 28, 1987 the Company was officially discharged from bankruptcy. See Note 6 to the consolidated financial statements for a discussion of the bankruptcy proceedings to date and Item 7 for a discussion of the effect of the bankruptcy proceedings herein.
The Company's business is carried out principally in two segments: the restaurant segment and the package liquor store segment.
Financial information broken into these two principal industry segments for the two fiscal years ended September 29, 2001 and September 30, 2000 is set forth in the consolidated financial statements which are attached hereto, and is incorporated herein by reference.
The Company's package liquor stores are operated under the "Big Daddy's Liquors" servicemark and the Company's restaurants are operated under the "Flanigan's Seafood Bar and Grill" servicemark. The Company's package liquor stores emphasize high volume business by providing customers with a wide selection of brand name and private label liquors, beer and wines. The Company has a policy of meeting the published sales prices of its competitors. The Company provides extensive sales training to its package liquor store personnel. All package liquor stores are open six or seven days a week from 9:00-10:00 a.m. to 9:00-10:00 p.m., depending upon demand and local law. Approximately half of the Company's units have "night windows" with extended evening hours.
The Company's restaurants offer full food and alcoholic beverage service with
approximately 80% of their sales being food items. These restaurants are
operated under the "Flanigan's Seafood Bar and Grill" servicemark. Although
these restaurants provide a neighborhood atmosphere, they have the degree of
standardization prevalent in casual dining restaurant chains, including menu.
The interior decor is nautical with numerous fishing and boating pictures and
decorations. Drink prices may vary between locations to meet local conditions.
Food prices are standardized. The restaurants' hours of operation are from 11:00
a.m. to 1:00-5:00 a.m. The Company continues to develop strong customer
recognition of its "Flanigan's Seafood Bar and Grill" servicemark through very
competitive pricing and efficient and friendly service.
The Company's package liquor stores and restaurants were designed to permit minor modifications without significant capital expenditures. However, from time to time the Company is required to redesign and refurbish its units at significant cost. See Item 2, Properties and Item 7 for further discussion.
In March 1985, the Company embarked on a plan to sell, on a franchise basis, up to 26 of the Company's package liquor stores and lounges in the South Florida area. The franchisee purchased the liquor license, furniture, fixtures and equipment of a particular unit, entered into a sublease for the business premises and a franchise agreement, whereby the franchisee licensed the "Big Daddy's Liquors" and "Big Daddy's Lounges" servicemarks in the operation of its business. The franchise agreement provided for a royalty to the Company, in the amount of 1% of gross sales, plus a contribution to advertising, in an amount between 1-1/2% to 2% of gross sales. In most cases, the sublease agreement provided for rent in excess of the amount paid by the Company, in order to realize an additional return of between 2% to 3% of gross sales. The Company suspended its franchise plan at the end of fiscal year 1986.
As of the end of fiscal year 2001, seven units were franchised. Five of these units are franchised to members of the family of the Chairman of the Board and Officers or Directors. The units that continue to be franchised are doing well and continue to generate income for the Company.
During fiscal year 1995, the Company completed its new 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 new franchise agreement was drafted jointly with existing franchisees with all modifications requested by the franchisees incorporated therein. The new 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. Each franchisee was required to execute a new 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 new franchise agreement provides for a royalty to the Company in the amount of approximately 3% of gross sales plus a contribution to advertising in an amount between 1-1/2% to 3% of gross sales. In most cases, the Company does not sublease the business premises to the franchisee and in those cases where it does, the Company no longer receives rent in excess of the amount paid by the Company.
All existing franchisees who operate restaurants under the "Flanigan's Seafood Bar and Grill" or other authorized servicemarks have executed new franchise agreements.
During the first quarter of fiscal year 1996, the Company began operating a restaurant under the "Flanigan's Seafood Bar and Grill" servicemark as general partner and fifty percent owner of a limited partnership established for such purpose. The limited partnership agreement gives the limited partnership the right to use the "Flanigan's Seafood Bar and Grill" servicemark only while the Company acts as general partner.
During the third quarter of fiscal year 1997, a related party formed a limited partnership to own a certain franchise in Fort Lauderdale, Florida, through which the necessary funds were raised to renovate the restaurant for operation 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.
During the fourth quarter of fiscal year 1997, the Company formed a limited partnership which raised funds through a private offering to purchase the assets of a restaurant in Surfside, Florida and renovate the same for operation under the "Flanigan's Seafood Bar and Grill" servicemark. The Company acts as general partner of the limited partnership and is also a forty three percent owner of the same, as are other related parties, including, but not limited to officers and directors of the Company and their families. The limited partnership agreement gives the limited partnership the right to use the "Flanigan's Seafood Bar and Grill" servicemark for a fee equal to 3% of the gross sales from the operation of the restaurant, only while the Company acts as general partner. This restaurant opened for business in the second quarter of fiscal year 1998.
During the third quarter of fiscal year 1998, the Company formed a limited partnership which raised funds through a private
offering to acquire and renovate a restaurant in Kendall, Florida. The Company is general partner of the limited partnership and is also the owner of forty percent of the same, as are other related parties, including but not limited to officers and directors of the Company and their families. The limited partnership agreement gives the partnership the right to use the "Flanigan's Seafood Bar and Grill" servicemark for a fee equal to 3% of the gross sales from the operation of the restaurant, while the Company acts as general partner only. The restaurant opened for business on April 9, 2000.
During the third quarter of fiscal year 2000, the Company formed a limited partnership which raised funds through a private offering to purchase an existing restaurant location in West Miami, Florida. The Company is general partner of the limited partnership and is also the owner of twenty five percent of the same as are other related parties, including but not limited to officers and directors of the Company and their families. The limited partnership agreement gives the partnership the right to use the "Flanigan's Seafood Bar and Grill" servicemark for a fee equal to 3% of the gross sales from the operation of the restaurant, while the Company acts as general partner only. The restaurant opened for business on October 11, 2001.
During the fourth quarter of fiscal year 2001, a limited partnership was formed, with the Company as general partner which entered into a sublease agreement for a limited partnership to operate an existing restaurant in Weston, Florida. The Company, as general partner, has been operating the restaurant under its existing servicemark. The limited partnership plans to raise funds to renovate the business premises for operating under the "Flanigan's Seafood Bar and Grill " servicemark. The Company may also continue to own up to forty percent of the limited partnership and other related partners, including but not limited to officers and directors of the Company and their families, may also be limited partners. The limited partnership agreement gives the partnership the right to use the "Flanigan's Seafood Bar and Grill" servicemark for a fee equal to 3% of its gross sales from the operation of the restaurant while the Company acts as general partner only. The raising of funds by the limited partnership and the renovations to the business premises will not begin until the sublessor resolves various zoning and related matters. Exactly how long it will take for the sublessor to resolve the zoning and related matters is unknown. In the interim, the Company will continue operating the restaurant under its existing servicemark, as a wholly-owned subsidiary.
As of the end of fiscal year 2001, the Company owned one club in Atlanta, Georgia, which was operated by an unaffiliated third party, as discussed below.
During fiscal year 1992, the Company entered into a Management Agreement with Mardi Gras Management, Inc. for the operation of the Company's club in Atlanta, Georgia through the balance of the initial term of the lease, unless sooner terminated by Mardi Gras Management, Inc. upon thirty days prior written notice, with or without cause. Mardi Gras Management, Inc. assumed the management of this club effective November 1, 1991 and is currently operating the club under an adult entertainment format. During fiscal year 1997, the Company agreed to modify the Management Agreement to give Mardi Gras Management, Inc. one five year renewal option to extend the term of the same, without the right to terminate the same upon thirty days prior written notice, with or without cause, provided the Company was satisfied with the financial condition of Mardi Gras Management, Inc. within its sole discretion, and Mardi Gras Management, Inc. agreed to modify the owner's fee to $150,000 per year versus ten percent of gross sales from the club, whichever is greater. Pursuant to the Management Agreement, as modified, the Company receives a monthly owner's fee of $12,500, subject to adjustment each year on or about July 1, with an additional owners fee equal to 10% of the gross sales exceeding $1,500,000 for the prior 12 month period, being due the Company. During the first quarter of fiscal year 2001, the Company accepted the exercise of the five year renewal option by Mardi Gras Management upon its receipt of a security deposit of $200,000. Simultaneously, with its acceptance of the exercise of the renewal option by Mardi Gras Management, the Company exercised its five year renewal option under the ground lease for the business premises.
The Company emphasizes systematic operations and control of all units. Each unit has its own manager who is responsible for monitoring inventory levels, supervising sales personnel, food preparation and service in restaurants and generally assuring that the unit is managed in accordance with Company guidelines and procedures. The Company has in effect an incentive cash bonus program for its managers and salespersons based upon various performance criteria. The Company's operations are supervised by area supervisors. Each area supervisor supervises the operations of the units within his or her territory and visits those units to provide on-site management and support. There are four area supervisors responsible for package store, restaurant and club operations in specific geographic districts.
All of the Company's managers and salespersons receive extensive training in sales techniques. The Company arranges for independent third parties, or "shoppers", to inspect each unit in order to evaluate the unit's operations, including the handling of cash transactions.
The package liquor business requires a constant substantial capital investment in inventory in the units. Liquor inventory purchased can normally be returned only if defective or broken.
All Company purchases of liquor inventory are made through its purchasing department from the Company's corporate headquarters. The major portion of inventory is purchased under individual purchase orders with licensed wholesalers and distributors who deliver the merchandise within one or two days of the placing of an order. Frequently there is only one wholesaler in the immediate marketing area with an exclusive distributorship of certain liquor product lines.
Substantially all of the Company's liquor inventory is shipped by the wholesalers or distributors directly to the Company's units. The Company significantly increases its inventory prior to Christmas, New Year's Eve and other holidays.
Pursuant to Florida law, the Company pays for its liquor purchases within ten days of delivery.
All negotiations with food suppliers are handled by the Company's purchasing department at the Company's corporate headquarters. This ensures that the best quality and prices will be available to each unit. Orders for food products are prepared by each unit's kitchen manager and reviewed by the unit's general manager before being placed with the approved vendor. Merchandise is delivered by the supplier directly to each unit. Orders are placed several times a week to ensure product freshness. Food inventory is primarily paid for monthly.
The Company is subject to various federal, state and local laws affecting its business. In particular, the units operated by the Company are subject to licensing and regulation by the alcoholic beverage control, health, sanitation, safety and fire department agencies in the state or municipality where located.
Alcoholic beverage control regulations require each of the Company's units to apply to a state authority and, in certain locations, county and municipal authorities, for a license or permit to sell alcoholic beverages on the premises.
In the State of Florida, where all but one of the total liquor licenses held by the Company are, most of the Company's liquor licenses are issued on a "quota license" basis. Quota licenses are issued on the basis of a population count established from time to time under the latest applicable census. Because the total number of liquor licenses available under a quota license system is limited and restrictions are placed upon their transfer, the licenses have purchase and resale value based upon supply and
demand in the particular areas in which they are issued. The quota licenses held by the Company allow the sale of liquor for on and off premises consumption only. In Florida, the other liquor licenses held by the Company or limited partnerships of which the Company is the general partner are restaurant liquor licenses, which do not have quota restrictions and no purchase or resale value. A restaurant liquor license is issued to every applicant who meets all of the state and local licensing requirements, including, but not limited to zoning and minimum restaurant size, seating and menu. The restaurant liquor licenses held by the Company allow the sale of liquor for on premises consumption only.
In the State of Georgia, the other state in which the Company operates, licensed establishments also do not have quota restrictions for on-premises consumption and such licenses are issued to any applicant who meets all of the state and local licensing requirements based upon extensive license application filings and investigations of the applicant.
All licenses must be renewed annually and may be revoked or suspended for cause at any time. Suspension or revocation may result from violation by the licensee or its employees of any federal, state or local law regulation pertaining to alcoholic beverage control. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the Company's units, including, minimum age of patrons and employees, hours of operations, advertising, wholesale purchasing, inventory control, handling, storage and dispensing of alcoholic beverages, internal control and accounting and collection of state alcoholic beverage taxes.
As the sale of alcoholic beverages constitutes a large share of the Company's revenue, the failure to receive or retain, or a delay in obtaining a liquor license in a particular location could adversely affect the Company's operations in that location and could impair the Company's ability to obtain licenses elsewhere.
The Company is subject in certain states to "dram shop" or "liquor liability" statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to such person. See Item 1, Insurance and Item 3, Legal Proceedings for further discussion. The Company maintains a continuous program of training and surveillance from its corporate headquarters to assure compliance with all applicable liquor laws and regulations. During the fiscal years ended September 30, 2000, and September 29, 2001, and through the present time, no significant pending matters have been initiated by the Department of Alcohol, Beverages and Tobacco concerning any of the Company's licenses which might be expected to result in a revocation of a liquor license or other significant actions against the Company.
The Company is not aware of any statute, ordinance, rule or regulation under present consideration which would significantly
limit or restrict its business as now conducted. However, in view of the number of jurisdictions in which the Company does business, and the highly regulated nature of the liquor business, there can be no assurance that additional limitations may not be imposed in the future, even though none are presently anticipated.
Federal and state environmental regulations have not had a material effect on the Company's operation.
The Company has general liability insurance which incorporates a semi-self-insured plan under which the Company assumes the full risk of the first $50,000 of exposure per occurrence. The Company's insurance carrier is responsible for $1,000,000 coverage per occurrence above the Company's self-insured deductible, up to a maximum aggregate of $2,000,000 per year. During fiscal year 2000 and again in fiscal year 2001, the Company was able to purchase excess liability insurance at a reasonable premium, whereby the Company's excess insurance carrier is responsible for $4,000,000 coverage above the Company's primary general liability insurance coverage. The Company is self- insured against liability claims in excess of $5,000,000.
The Company's general policy is to settle only those legitimate and reasonable claims asserted and to aggressively defend and go to trial, if necessary, on frivolous and unreasonable claims. The Company has established a select group of defense attorneys which it uses in conjunction with this program. Under the Company's current liability insurance policy, any expense incurred by the Company in defending a claim, including adjusters and attorney's fees, are a part of the $50,000 self-insured retention.
An accrual for the Company's estimated liability claims is included in the consolidated balance sheets in the caption "Accounts Payable and Accrued Expenses". A significant unfavorable judgment or settlement against the Company in excess of its liability insurance coverage could have a materially adverse effect on the Company.
The liquor and hospitality industries are highly competitive and are often affected by changes in taste and entertainment trends among the public, by local, national and economic conditions affecting spending habits, and by population and traffic patterns. The Company believes that the principal means of competition among package liquor stores is price and that, in general, the principal means of competition among restaurants include location, type and quality of facilities and type, quality and price of beverage and food served.
The Company's package liquor stores compete directly or indirectly with local retailers and discount "superstores". Due to the competitive nature of the liquor industry in South Florida, the Company has had to adjust its pricing to stay competitive, including meeting all competitor's advertisements. Such practices will continue in the package liquor business. It is the opinion of the Company's management that the Company has a competitive position in its market because of widespread consumer recognition of the "Big Daddy's" and "Flanigan's" names.
As previously noted, at September 29, 2001 the Company owned and operated six restaurants, all of which had formerly been lounges and were renovated to provide full food service. These restaurants compete directly with other restaurants serving liquor in the area. The Company's restaurants are competitive due to four factors; product quality, portion size, moderate pricing and a standardization throughout the Company owned restaurants and most of the franchises.
The Company's business is subject to seasonal effects, in that liquor purchases tend to increase during the holiday seasons.
The Company operates principally under three servicemarks; "Flanigan's", "Big Daddy's", and "Flanigan's Seafood Bar and Grill". Throughout Florida the Company's package liquor stores are operated under the "Big Daddy's Liquors" servicemark. The Company's rights to the use of the "Big Daddy's" servicemark are set forth under a consent decree of a Federal Court entered into by the Company in settlement of federal trademark litigation. The consent decree and the settlement agreement allow the Company to continue, and expand, its use of the "Big Daddy's "servicemark in connection with limited food and liquor sales in Florida. The consent decree further contained a restriction upon all future sales of distilled spirits in Florida under the "Big Daddy's" name by the other party who has a federally registered servicemark for "Big Daddy's" use in the restaurant business. The Federal Court retained jurisdiction to enforce the consent decree. The Company has acquired a registered Federal trademark on the principal register for its "Flanigan's" servicemark.
The standard symbolic trademark associated with the Company and its facilities is the bearded face and head of "Big Daddy" which is predominantly displayed at all "Flanigan's" facilities and all "Big Daddy's" facilities throughout the country. The face comprising this trademark is that of the Company's founder, Joseph "Big Daddy" Flanigan, and is a federally registered trademark owned by the Company.
As of year end, the Company employed 417 employees, of which 303 were full-time and 114 were part-time. Of these, 28 were employed at the corporate offices. Of the remaining employees, 36 were employed in package liquor stores and 353 in restaurants.
None of the Company's employees are represented by collective bargaining organizations. The Company considers its labor relations to be favorable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Office or
Positions and Offices Position
Name Currently Held Age Held Since
---- -------------- --- ----------
Joseph G. Flanigan Chairman of the Board 72 1959
of Directors, Chief
Executive Officer and
President
William Patton Vice President 78 1975
Community Relations
Edward A. Doxey Chief Financial Officer 60 1992
and Secretary
Jeffrey D. Kastner Assistant Secretary 48 1995
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The Company's operations are all conducted on leased property with the exception of the Corporate Headquarters Office Building which was purchased in December, 1999 and has been occupied by the Company since April 2001. Initially most of these properties were leased by the Company on long-term ground and building leases with the buildings either constructed by the lessors under build-to-suit leases or constructed by the Company. A relatively small number of business locations involve the lease or acquisition of existing buildings. In almost every instance where the Company initially owned the land or building on leased property, the Company entered into a sale and lease-back transaction with investors to recover a substantial portion of its per unit investment.
The majority of the Company's leases contained rent escalation clauses based upon the consumer price index which made the continued profitable operation of many of these locations impossible and jeopardized the financial position of the Company. As a result of the Company's inability to renegotiate these leases, on November 4, 1985 the Company, not including 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 primary purpose of the reorganization was to reject and/or renegotiate the leases on such properties.
All of the Company's units require periodic refurbishing in order to remain competitive. The Company has budgeted $410,000 for its refurbishing program for fiscal year 2002 which includes expenditures in order to bring the stores into compliance with ADA. See Item 7, "Liquidity and Capital Resources" for discussion of the amounts spent in fiscal year 2001.
The following table summarizes the Company's properties as of September 29, 2001 including franchise locations, a club and Company managed locations.
Square License Lease
Name and Location Footage Seats Owned by Terms
----------------- ------- ----- -------- -----
Big Daddy's Liquors #4 2,100 N/A Company 3/1/01 to 2/28/26
Flanigan's Enterprises and Options to
Inc. (10) 2/28/36
703 Taft Street
Hollywood, FL
Big Daddy's Liquors #7 1,450 N/A Company 11/1/00 to 10/31/05
Flanigan's Enterprises and Options to
Inc. 10/31/15
1550 W. 84th Street
Hialeah, FL
Big Daddy's Liquors #8 1,800 N/A Company 5/1/99 to 4/30/14
Flanigan's Enterprises
Inc.
959 State Road 84
Fort Lauderdale, FL
Flanigan's Seafood Bar 4,300 130 Company 10/1/71 to 12/31/04
and Grill #9 and Option to
Flanigan's Enterprises 12/31/09
Inc. (1)
1550 W.84th Street
Hialeah, FL
Flanigan's Legends 5,000 150 Franchise 1/4/00 to 1/3/20
Seafood Bar and Grill Option to 1/3/25
#11, 11 Corporation (3)
330 Southern Blvd.
W. Palm Beach, FL
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Square License Lease
Name and Location Footage Seats Owned by Terms
----------------- ------- ----- -------- -----
Flanigan's Legends 5,000 180 Franchise 11/15/92 to
Seafood Bar and Grill 11/15/02
#12 Galeon Tavern, Inc. (3) Option to
2401 Tenth Ave. North 11/15/12
Lake Worth, FL
Flanigan's Seafood 5,000 200 Joint N/A
Bar & Grill #13 Venture
CIC Investors #13 Ltd.
1549 NW LeJeune Rd
Miami, FL
Flanigan's Seafood 3,320 90 Franchise 6/1/79 to 6/1/04
Bar and Grill #14, Option to 6/1/09
Big Daddy's #14, Inc. (2)(3)(5)(9)
2041 NE Second St.
Deerfield Beach, FL
Piranha Pats II-#15 4.000 90 Joint 3/2/76 to 8/31/01
CIC Investors #15 Ltd.(3)(5) Venture Options to 8/31/11
1479 E. Commercial Blvd.
Ft. Lauderdale, FL
Flanigan's Seafood 4,300 100 Franchise 2/15/72 to 12/31/05
Bar and Grill #18 Options to 12/31/20
Twenty Seven Birds Option to purchase
Corp. (2)(3)(5)
2721 Bird Avenue
Miami, FL
Flanigan's Seafood 4,500 160 Company 3/1/72 to 12/31/05
Bar and Grill #19
Flanigan's Enterprises
Inc. (2)(4)
2505 N. University Dr.
Hollywood, FL
Flanigan's Seafood 5,100 140 Company 7/15/68 to 12/31/01
Bar and Grill #20 Annual options
Flanigan's Enterprises until the Company
Inc. (2) fails to exercise
13205 Biscayne Blvd. Additional Lease
North Miami, FL 5/1/69 to 12/31/01
Annual options
until the Company
fails to exercise
|
Square License Lease
Name and Location Footage Seats Owned By Terms
----------------- ------- ----- -------- -----
Flanigan's Seafood 4,100 200 Company 12/16/68 to
Bar and Grill #22 12/31/05
Flanigan's Enterprises Options to 12/31/20
Inc. (2)(4) Option to purchase
2600 W. Davie Blvd.
Ft. Lauderdale, FL
Flanigan's Enterprises 3,000 90 Company 7/1/50 to 6/30/49
Inc. #27 (8)
732-734 NE 125th St.
North Miami, FL
Flanigan's Seafood 4,600 150 Company 9/6/68 to 12/31/05
Bar and Grill #31 Options to 12/31/20
Flanigan's Enterprises Option to purchase
Inc. (2)
4 N. Federal Highway
Hallandale, FL
Flanigan's Guppy's 4,620 130 Franchise 11/1/68 to 10/31/03
Seafood Bar and Grill #33 New Lease
Guppies, Inc. (2)(3)(5) 11/1/03 to 12/31/09
45 S. Federal Highway
Boca Raton, FL
Big Daddy's Liquors 3,000 N/A Company 5/29/97 to 5/28/02
#34, Flanigan's Options to 5/28/17
Enterprises, Inc. (1)
9494 Harding Ave.
Surfside, FL
Flanigan's Seafood 4,600 140 Company 4/1/71 to 12/31/05
Bar and Grill #40 Options to 12/31/15
Flanigan's Enterprises
Inc. (2)
5450 N. State Road 7
Ft. Lauderdale, FL
Piranha Pat's #43 4,500 90 Franchise 12/1/72 to 11/30/02
BD 43 Corporation (2)(3)(5) Option to 11/30/12
2500 E. Atlantic Blvd.
Pompano Beach, FL
Big Daddy's Liquors 6,000 N/A Company 12/21/68 to 1/1/10
#47, Flanigan's Options to 1/1/60
Enterprises, Inc. (6)
8600 Biscayne Blvd.
Miami, FL
|
Square License Lease
Name and Location Footage Seats Owned By Terms
----------------- ------- ----- -------- -----
Flanigan's Seafood 6,800 200 Joint 8/1/97 to 12/31/11
Bar and Grill #60, Venture
CIC Investors #60 Ltd.
9516 Harding Avenue
Surfside, FL
Flanigan's Seafood 4,850 161 Joint 4/1/98 to 3/31/08
Bar and Grill #70 Venture Option to 3/31/28
CIC Investors #70 Ltd.
12790 SW 88 St
Kendall, FL
Flanigan's Seafood 5,000 165 Joint 4/15/01 to 12/14/05
Bar and Grill #80 Venture Option to 12/14/19
CIC Investors #80 Ltd.
8695 N.W. 12th St
Miami, FL
The Sporting Brews 5,700 235 Company 7/29/01 to 7/28/16
2460 Weston Road Option to 7/28/31
Weston, FL
Flanigan's Enterprises 10,000 400 Company 5/1/76 to 4/30/06
#600 (7)
Powers Ferry Landing
Atlanta, GA
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(1) License subject to chattel mortgage.
(2) License pledged to secure lease rental.
(3) Franchised by Company.
(4) Former franchised unit returned and now operated by Company.
(5) Lease assigned to franchisee.
(6) Lease assigned to unaffiliated third parties, until December 31, 1996,
when the Company reacquired ownership through foreclosure. During fiscal
year 1996, the Company purchased 37% of the leasehold interest from the
unaffiliated third parties. An additional 11% was purchased during fiscal
year 1997, bringing the total interest purchased to 48%.
(7) Location managed by an unaffiliated third party.
(8) Location was closed in May 1998. The Company entered into a five year
sub-lease agreement, with two five year options, with an unaffiliated
third party who is presently operating a restaurant at this location.
(9) Effective December 1, 1998, the Company purchased the Management Agreement
to operate the franchised restaurant for the franchisee.
(10) Ground lease exercised by the Company on September 25, 2001. The Company
intends to construct a building of approximately 4200 square feet, one
half (1/2) of which will be used by the Company for the operation of a
package liquor store and the other one half (1/2) will be subleased as
retail space.
Due to the nature of the business, the Company is sued from time to time by patrons, usually for alleged personal injuries occurring at the Company's business locations. The Company has liability insurance which incorporates a semi-self-insured plan under which the Company assumes the full risk of the first $50,000 of exposure per occurrence. The Company's primary general liability insurance carrier is responsible for $1,000,000 coverage per occurrence above the Company's self-insured deductible, up to a maximum aggregate of $2,000,000 per year. During the fiscal year 2000 and again in fiscal year 2001, the Company was able to purchase excess liability insurance, at a reasonable premium, whereby the Company's excess insurance carrier is responsible for $4,000,000 coverage above the Company's primary general liability insurance coverage. Certain states have liquor liability (dram shop) laws which allow a person injured by an "obviously intoxicated person" to bring a civil suit against the business (or social host) who had served intoxicating liquors to an already "obviously intoxicated person". The Company's insurance coverage relating to this type of incident is limited. Dram shop claims normally involve traffic accidents and the Company generally does not learn of dram shop claims until after a claim is filed and then the Company vigorously defends these claims on the grounds that its employee did not serve an "obviously intoxicated person". Damages in most dram shop cases are substantial. At the present time, there are no dram shop cases pending against the Company. The Company has in place insurance coverage to protect it from losses, if any.
On November 4, 1985 the Company, not including 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.
On January 11, 1986, the Bankruptcy Court granted the Company's motions to reject thirteen leases and the Company was successful in negotiating the termination of three additional leases. On April 7, 1986, the Bankruptcy Court granted the Company's motion
to reject two additional leases and two more leases were automatically rejected due to the Company's failure to assume the same prior to May 22, 1986. During the fiscal year ended October 3, 1987 the Company negotiated a formula with the Official Committee of Unsecured Creditors ("Committee"), which formula was used to calculate lease rejection damages under the Company's Amended Plan of Reorganization. Stipulations were filed by the Company with all but three of these unsecured creditors, which stipulations received Bankruptcy Court approval prior to the hearing on confirmation.
In addition to the rejection of leases, the Company also sought its release from lease agreements for businesses sold, which sales included the assignment of the leases for the business premises. While several landlords whose leases had been assigned did file claims against the Company, the majority did not, which resulted in the Company being released from its guarantees under those leases. The Company was also successful in negotiating the limitation or release of lease guarantees of those landlords who filed claims, which settlements received Bankruptcy Court approval prior to the hearing on confirmation.
On February 5, 1987, the Company filed its Amended Plan of Reorganization and Amended Disclosure Statement, which documents were approved by the Committee. On February 25, 1987, the Company further modified its Amended Plan of Reorganization to secure the claims of Class 6 Creditors (Lease Rejection) and Class 8 Creditors (Lease Guarantee Rejections). The Bankruptcy Court approved the Amended Disclosure Statement by Order dated March 7, 1987 and scheduled the hearing to consider confirmation of the Amended Plan of Reorganization on April 13, 1987. On April 10, 1987, in order to insure receipt of the necessary votes to approve its Amended Plan of Reorganization, the Company agreed to further modification of its Amended Plan, whereby creditors of Class 6 and 8 will receive $813,000 prorata as additional damages under the terms of the Amended Plan. 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.
Pursuant to the terms of the Amended Plan of Reorganization, the Effective Date of the same was June 30, 1987. As of that date, confirmation payments totaling $1,171,925 were made by the Company's Disbursing Agent with $647,226 being retained in escrow for disputed claims ($1,819,151 total). The Bankruptcy Court ratified the disbursements made by the Disbursing Agent by its Order dated December 21, 1987.
On December 28, 1987, the Bankruptcy Court entered its Notice of Discharge of the Company.
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. The modification to the payment schedule provided the Company with needed capital.
During fiscal year 2000, the Company was served with several complaints alleging violations of the Americans with Disabilities Act, ("ADA"), at all of its locations. The lawsuits included the restaurants owned by the limited partnerships and franchises. The sudden influx of lawsuits alleging ADA violations was due to the fact that it was anticipated at the time that the ADA was going to amend to include a provision requiring plaintiffs to provide the potential defendant with 90 days notice of ADA violations prior to filing suit, during which time the violations may be corrected. The amendment has not yet been enacted and as of now, the ADA still has no notice provision and the first time that the Company received notice of any ADA violations was when it was served with a copy of the complaint. Of the law suits filed, only a few have been actively pursued. The Company has retained an ADA expert who has inspected locations involved in active lawsuits, including the limited partnerships and franchises, and provided a report setting forth ADA violations which need to be corrected. It is the Company's intent to correct ADA violations noted by its ADA expert and then vigorously defend the lawsuits arguing that the locations are in compliance. During fiscal year 2001 and the first quarter of fiscal year 2002, the Company, including three (3) of its franchises, settled all active law suits alleging ADA violations, although in two (2) such cases, the question of the plaintiff's attorneys fees and costs are still in dispute. The cost to correct the ADA violations is included in the budget for capital improvements during fiscal year 2002.
During the fourth quarter of fiscal year 2001 the Company did not submit any matter to a vote of the security holders.
PART II
Fiscal 2001 Fiscal 2000
----------- -----------
High Low High Low
First quarter 4.38 3.75 6.25 4.25
Second quarter 4.65 3.75 5.63 4.13
Third quarter 5.00 4.06 4.75 3.75
Fourth quarter 6.45 4.35 4.63 3.75
|
On February 14, 2000 the Company declared a cash dividend of 11 cents per share payable March 17, 2000 to shareholders of record as of March 1, 2000.
On February 13, 2001 the Company declared a cash dividend of 12 cents per share payable March 17, 2001 to shareholders of record as of March 1, 2001.
As of September 29, 2001, the Company was operating fifteen units. The Company had interests in an additional seven units which had been franchised by the Company. Of the units operated by the Company, four were combination package liquor store and restaurant, seven were restaurants only and three were package liquor stores only. There was one club operated by an unaffiliated third party under a management agreement. During fiscal year 2001, one package liquor store only was closed with the expiration of its lease and the liquor license was sold during the first quarter of fiscal year 2002 to an unaffiliated third party. The closing of the restaurant resulted in a $22,000 loss to the Company. During fiscal year 2000, one restaurant only, owned by a limited partnership of which the Company acts as general partner, was opened for business. During fiscal year 2001, another restaurant only was acquired by a limited partnership of which the Company acts as general partner. The restaurant was being operated by the Company, under the restaurant's servicemark as of the end of fiscal year 2001, with the intent to renovate the same for operation under the "Flanigan's Seafood Bar and Grill" servicemark. During fiscal year 2001, the Company also entered into a ground lease to construct a building for the operation of a package liquor store only from one half (1/2) of the building and sublease retail space with the other one half (1/2). Immediately subsequent to the end of fiscal year 2001, one restaurant only , owned by a limited partnership of which the Company acts as general partner, was opened for business.
The following table is a summary of the Company's cash flows for the fiscal years ended September 29, 2001 and September 30, 2000:
Fiscal
Years Ended
2001 2000
------ ------
(in thousands)
Net cash provided by operating activities $ 1,311 $ 558
Net cash used in investing activities (583) (1,412)
Net cash used in financing activities (71) (159)
------- -------
Net increase (decrease) in cash 657 (1,013)
and equivalents
Cash and equivalents, beginning of year 739 1,752
------- -------
Cash and equivalents, end of year $ 1,396 $ 739
======= =======
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Capital expenditures were $1,091,000 and $1,860,000 during fiscal years 2001 and 2000, respectively. The capital expenditures for both fiscal years were for upgrading existing units serving food, improvements to package liquor stores and the replacement of the corporate computer system. The fiscal year 2000 capital expenditures included the purchase of an office building for $850,000. The fiscal year 2001 capital expenditures included renovations to the office building for $250,000.
All of the Company's units require periodic refurbishing in order to remain competitive . During fiscal 1992, as cash flow improved, the Company embarked on a refurbishing program which continued through fiscal year 2001. The budget for fiscal year 2002 includes approximately $410,000 for this purpose. The Company expects the funds for these improvements to be provided from operations.
The Company purchased an office building for $850,000 during the first quarter of 2000 and renovated the same during the second and third quarters of fiscal year 2001 for $250,000. The corporate offices were relocated to the building during the third quarter of fiscal year 2001.
In order to ensure that the Company had adequate cash reserves in view of its investment in joint ventures, and for other improvements, during the second quarter of fiscal year 1997, the Board of Directors authorized the Company to borrow up to $1,200,000 at an interest rate of twelve percent (12%) per annum
and fully amortized over five (5) years. During the fourth quarter of fiscal year 1997, the Company borrowed $375,000 from investors, in units of $5,000, which loan is fully secured with specific receivables owned by the Company. The outstanding balance as of the end of fiscal year 2001 was $86,000
The Company closed on its $1,000,000 loan with Bank of America (formerly Nations Bank) during the second quarter of fiscal year 2000. The promissory note earns interest at prime rate, payable monthly on the outstanding principal balance, with quarterly payments of principal commencing at the rate of $50,000 per quarter for 8 quarters, and then at the rate of $75,000 per quarter for 8 quarters, at which time any outstanding principal balance and all accrued interest shall be due in full. The promissory note is secured by a security interest in all assets of the Company, including the office building purchased by the Company. The promissory note may be paid at any time, in whole or in part, with any prepayments applying against the quarterly payment or payments of principal next due. The outstanding balance as of the end of fiscal year 2001 was $680,000.
During the fourth quarter of fiscal year 2001, the Company borrowed the sum of $895,000 from Bank of America (formerly 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 the Bank of America (formerly Nations Bank), as collateral for the loan in January of fiscal year 2000. In order to receive the fixed interest rate (6.12%), the Company entered into an ISDA Master Agreement with Bank of America. ("SWAP Agreement"), and in the event the Company elects to prepay the promissory note, there may be a prepayment penalty associated therewith. The outstanding balance as of the end of fiscal year 2001 was $893,000.
The Company repaid long term debt, including the Bank of America note payable, capital lease obligations and Chapter 11 bankruptcy damages in the amount of $726,000 and $421,000 in fiscal years 2001 and 2000 respectively.
The table below summarizes the current assets, current liabilities and working capital for the fiscal years 2001 and 2000:
Sept. 29 Sep. 30
Item 2001 2000
---- -------- ------
Current assets $ 4,514,000 $ 3,419,000
Current liabilities 2,074,000 2,136,000
Working capital 2,440,000 1,283,000
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Management believes that positive cash flow from operations will adequately fund operations, debt reductions and planned capital expenditures in fiscal year 2002.
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 carryforwards to the extent that realization of said benefits is more likely than not. For discussion regarding the Company's net operating loss carryforwards refer to Note 7 to the consolidated financial statements for fiscal year ended September 29, 2001.
As noted above and in Note 6 to the consolidated financial statements, on November 4, 1985, Flanigan's Enterprises, Inc., 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 primary purposes of the petition were (1) to reject leases which were significantly above market rates and (2) to reject leases on closed units which had been repossessed by or returned to the Company.
During fiscal year 1986 the Company terminated or rejected 34 leases. Many of the leases remaining were renegotiated to five year terms, with three five year renewal options at fair market rental. As was their right under the Bankruptcy Code, the landlords of properties rejected by the Company filed claims for losses or damages sustained as a result of the Company's rejection of such leases. The amount of such damages is limited by federal law. The Company outlined a schedule for payment of these damages in the Amended Plan. The gross amount of damages payable to creditors for the rejected leases was $4,278,000. Since the damage payments were to be made over nine years, the total amount due was discounted at a rate of 9.25%. See Note 6 to the consolidated financial statements for the current payment schedule of these damages.
Through the end of fiscal year 1990, the Company was uninsured for dram shop liability. See page 20 for further discussion regarding dram shop suits.
During the 2000 fiscal year, the Company received official notification from the State of Florida, Department of Transportation, ("DOT"), that DOT was exercising its right of eminent domain to "take" the hotel property upon which a restaurant, operated by the Company as general partner of a limited partnership is located. The suit for eminent domain was filed by DOT and an order of taking entered during the fourth quarter of fiscal year 2001 which will effective during the second quarter of fiscal year 2002 when DOT deposits the funds representing its offer into the Registry of the Court. As of the end of fiscal year 2001, an agreement had still not been reached by the partners as to the value of the property taken and if an agreement cannot be reached, the value will be decided by the court. A dispute has also arisen with the hotel owner over the limited partnership's right to participate in an award paid by DOT. It is the Company's position that the limited partnership has possession rights to the restaurant property, which entitles it to substantial damages. If agreement is not reached with the hotel owner upon equitable distribution of the condemnation award, the issue will also be determined by the court. Eminent domain cases are heard by the court on an expedited basis, moving to the top of the jury calendar and the issue of the value of the property is scheduled for jury trial during the second quarter of fiscal year 2002. The issue of an equitable distribution of the condemnation award between the hotel owner and the limited partnership will probably be tried at the same time. It is anticipated that the DOT will take title to the hotel property by the end of the second quarter of fiscal year 2002, at which time the restaurant will be forced to close.
REVENUES (in thousands):
Fifty Two Fifty Two
Weeks Ended Weeks Ended
Sales Sept. 29, 2001 Sept. 30, 2000
----- -------------- --------------
Restaurant, food $ 12,453 51.1% $ 11,485 49.5%
Restaurant, bar 3,025 12.4% 2,859 12.3%
Package goods 8,907 36.5% 8,870 38.2%
--------------- ---------------
Total 24,385 100.0% 23,214 100.0%
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Fifty Two Fifty Two
Weeks Ended Weeks Ended
Sales Sept. 29, 2001 Sept. 30, 2000
----- -------------- --------------
Franchise revenues 1,249 1,065
Owners fee 269 261
Joint venture income 571 460
Other operating income 230 160
-------- --------
Total Revenues $ 26,704 $ 25,160
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As the table above illustrates, total revenues have increased for the fiscal year ended September 29, 2001 when compared to the fiscal year ended September 30, 2000.
During the second quarter of fiscal year 1999, the Company formed a limited partnership to renovate and operate a restaurant under the "Flanigan's Seafood Bar and Grill" servicemark in Kendall, Florida, as general partner and forty percent owner of the same. Due to the difficulties in obtaining the required permits to begin construction which were beyond control of the Company, construction began in the first quarter of fiscal year 2000 and the restaurant opened for business during the third quarter of fiscal year 2000. The Company reported income of $183,000 for the fiscal year ended September 29, 2001 as compared to the income of $17,000 for the fiscal year ended September 30, 2000.
During the first quarter of the fiscal year ended September 30, 2000, the Company purchased, for $850,000 in cash, a two story building in Fort Lauderdale, Florida, which is presently being used for the corporate offices The Company also plans to renovate a portion of the ground floor of the office building to be used as a package liquor store.
During the third quarter of fiscal year 2000, the Company, as agent for a limited partnership to be formed, entered into an agreement for the purchase of an existing restaurant location in West Miami, Florida, to renovate and operate under the "Flanigan's Seafood Bar and Grill" servicemark. The Company, as general partner and twenty five percent owner of the limited partnership, closed on the purchase of the restaurant location and began renovations during the fourth quarter of fiscal year 2001. The renovations were completed and the restaurant opened for business during the first quarter of fiscal year 2002.
During the fourth quarter of fiscal year 2001, a limited partnership was formed with the Company as general partner. The limited partnership entered into a sublease agreement to operate an existing restaurant in Weston, Florida. The Company immediately began operating the restaurant under its existing servicemark and the limited partnership plans to raise funds to renovate the business premises for operation as a "Flanigan's Seafood Bar and Grill" restaurant. The funds will not be raised, nor will renovations begin, until the sublessor has resolved
several zoning and related matters and it is currently impossible to determine when renovations will begin.
Restaurant food sales represented 51.1% of total sales in the fiscal year ended September 29, 2001 as compared to 49.5% in the fiscal year ended September 30, 2000. The weekly average of same store restaurant food sales was $220,080 and $206,653 for the fiscal year ended September 29, 2001 and the fiscal year ended September 30, 2000 respectively, an increase of 6.5%.
Restaurant bar sales represented 12.4% of total sales in the fiscal year ended September 29, 2001 as compared to 12.3% in the fiscal year ended September 30, 2000. The weekly average of same store restaurant bar sales was $55,936 and $54,981 for the fiscal year ended September 29, 2001 and the fiscal year ended September 30, 2000 respectively, an increase of 1.7%.
Package store sales increased as same store weekly sales averaged $167,524 and $154,203 for the fiscal year ended September 29, 2001 and the fiscal year ended September 30, 2000 respectively, an increase of 8.6%.
Franchise revenue increased to $1,249,000 for the fiscal year ended September 29, 2001 as compared to $1,065,000 for the fiscal year ended September 30, 2000. The increase in franchise revenue resulted from higher sales for the franchises, and the operation of one of the joint ventures for the entire 2001 fiscal year as compared with less than one-half of the fiscal year 2000.
Owner's fee represents fees received pursuant to a Management Agreement from the operation of a club owned by the Company in Atlanta, Georgia. The Management Agreement was amended effective July 1, 1996, whereby the Company also receives ten percent of sales exceeding $1,500,000 per annum as additional owner's fees. Income from this club was $269,000 for the fiscal year ended September 29, 2001 as compared to $261,000 for the fiscal year ended September 30, 2000.
The gross profit margin for restaurant sales were 62.8% and 63.9% for fiscal years 2001 and 2000 respectively.
The gross profit margin for package goods sales were 27.2% and 26.4%, for fiscal years 2001 and 2000 respectively.
Overall gross profits were 49.8% and 49.5% for the fiscal years 2001 and 2000 respectively.
Operating costs and expenses for the fiscal year ended September 29, 2001 were $24,700,000 compared to $23,380,000 for the fiscal year ended September 30, 2000. Operating expenses are comprised of the cost of merchandise sold, payroll and related costs, occupancy costs and selling, general and administrative expenses.
Payroll and related costs which include workers compensation insurance premiums were $7,446,000 and $6,724,000 for fiscal years 2001 and 2000, respectively. The 10.7 % increase is attributed to increases in salaries paid to all employees in order to recruit and maintain competent individuals in a very competitive labor market.
Occupancy costs, which include rent, common area maintenance, repairs and taxes were $1,084,000 and $1,050,000 for fiscal years 2001 and 2000 respectively. The 3.2% increase was attributable to increases in property maintenance.
Selling, general and administrative expenses were $3,926,000 for the fiscal year ended September 29, 2001 and $3,889,000 for the fiscal year ended ___ September 30, 2000. The 1.0% increase in selling, ___ general and administrative expenses is due to a general increase in prices.
Other income and expense were $14,000 for the fiscal year ended September 29, 2001 as compared with a loss of $75,000 for the fiscal year ended September 30, 2000. The increase in other income is mainly attributable to substantial increases in rebates from purveyors
For fiscal year 2001 the Company's interest expense was $187,000 as compared with $177,000 for the fiscal year ended September 30, 2000.
The category "Other, net" was $129,000 for the fiscal year ended September 29, 2001 and $44,000 for the fiscal year ended September 30, 2000. Other, net in the consolidated statements of income consists of the following for the fiscal years ended September 29, 2001 and September 30, 2000:
Fiscal
Years Ended
--------------------
2001 2000
======== ========
Non-franchise related rental income $ 37,000 $ 31,000
Gain on sale of liquor license - 8,000
Gain on write-off of capital leases 76,000 -
Gain on sale of assets 70,000 -
Loss on abandonment of assets (55,000) -
Miscellaneous 1,000 5,000
-------- --------
Other Net $ 129,000 $ 44,000
========= =========
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During the next twelve months management expects continued increases in restaurant and package goods sales, both for Company stores and franchised stores. The Company anticipates expenses to increase slightly, therefore increasing overall profits before income taxes.
The Company utilized the balance of its net operating loss carryforward during fiscal year 1999 and was fully taxable for fiscal years 2001 and 2000. The provision for income taxes was $489,000 for fiscal year ended September 29, 2001 as compared with $341,000 for the fiscal year ended September 30, 2000.
The Company intends to add additional restaurants and package stores as cash becomes available.
The Company does not believe that inflation has had any material effect during the past two fiscal years. To the extent allowed by competition, the Company recovers increased costs by increasing prices.
The Company currently provides no post retirement benefits to any of its employees, therefore Financial Accounting Standards Board Statement No. 106 has no effect on the Company's financial statements.
None
Financial statements of the Company at September 29, 2001 and September 30, 2000, which include each of the two years in the period ended September 29, 2001 and the independent certified public accountants' report thereon, are included herein.
PART III
The information set forth under the caption "Election of Directors" in the Company's definitive Proxy Statement for its 2002 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission pursuant to regulation 14A under the Securities and Exchange Act of 1934, as amended (the 2002 Proxy Statement), is incorporated herein by reference. See also "Executive Officers of the Registrant" included in Part I hereof.
The information set forth in the 2002 Proxy Statement under the caption "Executive Compensation" is incorporated by reference.
The information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the 2002 Proxy Statement is incorporated by reference.
The information set forth under the caption "Election of Directors - Certain Relationships and Related Transactions" in the 2002 Proxy Statement is incorporated by reference.
Index to Exhibits
Item (14) (a) (2)
Description
(2) Plan of Reorganization, Amended Disclosure Statement, Amended Plan of Reorganization, Modification of Amended Plan of Reorganization, Second Modification of Amended Plan of Reorganization, Order Confirming Plan of Reorganization, (Item 7 (c) of Quarterly Report on Form 8-K filed May 5, 1987 is incorporated herein by reference).
(3) Restated Articles of Incorporation (Part IV, Item 4 (a) (2) of Annual Report on Form 10-K filed on December 29, 1982 is incorporated herein by reference).
(10)(a)(1) Employment Agreement with Joseph G. Flanigan (Exhibit A of the Proxy Statement dated January 27, 1988 is incorporated herein by reference).
(10)(a)(2) Form of Employment Agreement between Joseph G. Flanigan and the Company (as ratified and amended by the stockholders at the 1988 annual meeting is incorporated herein by reference).
(10)(c) Consent Agreement regarding the Company's Trademark Litigation (Part 7(c)(19) of the Form 8-K dated April 10, 1985 is incorporated herein by reference).
(10)(d) King of Prussia (#850) Partnership Agreement (Part 7 (c) (19) of the Form 8-K dated April 10, 1985 is incorporated herein by reference).
(10)(o) Management Agreement for Atlanta, Georgia, (#600) (Item 14(a)(10)(o) of the Form 10-K dated October 3, 1992 is incorporated herein by reference).
(10)(p) Settlement Agreement with Former Vice Chairman of the Board of Directors (re #5) (Item 14 (a)(10)(p) of the Form 10-K dated October 3, 1992 is incorporated herein by reference).
(10)(q) Hardware Purchase Agreement and Software License Agreement for restaurant point of sale system. (Item 14(a)(10)(g) of Form 10-KSB dated October 2, 1993 is incorporated herein by reference).
(10)(a)(3) Key Employee Incentive Stock Option Plan (Exhibit A of the Proxy Statement dated January 26, 1994 is incorporated herein by reference).
(10)(r) Limited Partnership Agreement of CIC Investors #13, Ltd,. between Flanigan's Enterprises, Inc., as General Partner and fifty percent owner of the limited partnership, and Hotel Properties, LTD. (Item 14 (a)(10)(r) of the Form 10-KSB dated September 30, 1995 is incorporated herein by reference).
(10)(s) Form of Franchise Agreement between Flanigan's Enterprises, Inc. and Franchisees. (Item 14 (a)(10)(s) of the Form 10-KSB dated September 30, 1995 is incorporated herein by reference).
(10)(t) Licensing Agreement between Flanigan's Enterprises, Inc. and James B. Flanigan, dated November 4, 1996, for non-exclusive use of the servicemark "Flanigan's" in the Commonwealth of Pennsylvania. (Item 14 (a)(10)(t) of the Form 10-KSB dated September 28, 1996 is incorporated herein by reference).
(10)(u) Limited Partnership Agreement of CIC Investors #15 Ltd., dated March 28, 1997, between B.D. 15 Corp. as General Partner and numerous limited partners, including Flanigan's Enterprises, Inc. as a limited partner owning twenty five percent of the limited partnership (Item 14 (a)(10)(u) of the Form 10-KSB dated September 27, 1997 is incorporated herein by reference).
(10)(v) Limited Partnership Agreement of CIC Investors #60 Ltd., dated July 8, 1997, between Flanigan's Enterprises, Inc., as General Partner and numerous limited partners, including Flanigan's Enterprises, Inc. as limited partner owning forty percent of the limited partnership (Item 14 (a)(10)(v) of Form 10-KSB dated September 27, 1997 is incorporated herein by reference).
(10)(w) Stipulated Agreed Order of Dismissal upon Mediation with former franchisee (Item 14 (a)(10)(w) of Form 10-KSB dated September 27, 1997 is incorporated herein by reference).
(10)(x) Limited Partnership Agreement of CIC Investors #70, Ltd. dated February 1999 between Flanigan's Enterprises, Inc. as General Partner and numerous limited partners, including Flanigan's Enterprises, Inc. as limited partner owning forty percent of the limited partnership. (Item 14 (a) (10) (x) of Form 10-KSB dated October 2, 1999 is incorporated herein by reference)
(10)(y) Limited Partnership Agreement of CIC Investors #80, Ltd., dated May 2001, between Flanigan's Enterprises, Inc. as General Partner and numerous limited partners, including Flanigan's Enterprises, Inc., as limited partner owning twenty five percent of the limited partnership.
(13) Registrant's Form 10-KSB constitutes the Annual Report to Shareholders for the fiscal year ended September 30, 2000.
(22)(a) Company's subsidiaries are set forth in this Annual Report on Form 10-KSB.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Flanigan's Enterprises, Inc.
Registrant
By: JOSEPH G. FLANIGAN Date: 12/13/01
----------------------- --------
Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in their capacities and on the dates indicated.
JOSEPH G. FLANIGAN Chairman of the Board, Date: 12/13/01 ------------------ Chief Executor Officer, -------- Joseph G. Flanigan and President EDWARD A. DOXEY Chief Financial Officer Date: 12/13/01 --------------- Secretary and Director -------- Edward A. Doxey MICHAEL ROBERTS Director Date: 12/13/01 --------------- -------- MICHAEL ROBERTS GERMAINE M. BELL Director Date: 12/13/01 ---------------- -------- Germaine M. Bell CHARLES E. MCMANUS Director Date: 12/13/01 ------------------ -------- Charles E. McManus JEFFREY D. KASTNER Assistant Secretary Date: 12/13/01 ------------------ and Director -------- Jeffrey D. Kastner WILLIAM PATTON Vice President, Public Date: 12/13/01 -------------- Relations and Director -------- William Patton JAMES G. FLANIGAN Director Date: 12/13/01 ----------------- -------- James G. Flanigan PATRICK J. FLANIGAN Director Date: 12/13/01 ------------------- -------- Patrick J. Flanigan |
CONSOLIDATED FINANCIAL STATEMENTS
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1 CONSOLIDATED FINANCIAL STATEMENTS Balance Sheet F-2 Statements of Income F-3 Statements of Stockholders' Equity F-4 Statements of Cash Flows F-5 - F-6 Notes to Financial Statements F-7 - F-24 |
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Flanigan's Enterprises, Inc.
Fort Lauderdale, Florida
We have audited the accompanying consolidated balance sheet of Flanigan's Enterprises, Inc. and Subsidiaries as of September 29, 2001, and the related consolidated statements of income, stockholders' equity and cash flows for the two years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Flanigan's Enterprises, Inc. and Subsidiaries as of September 29, 2001, and the consolidated results of their operations and their cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States.
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
November 21, 2001
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 29, 2001
ASSETS
------
Current Assets:
Cash and cash equivalents $ 1,396,000
Notes and mortgages receivable, current maturities, net 120,000
Due from franchisees 683,000
Other receivables 311,000
Inventories 1,337,000
Prepaid expenses 349,000
Deferred tax assets 318,000
------------
Total current assets 4,514,000
------------
Property and Equipment 5,650,000
------------
Investments in Joint Ventures 1,684,000
------------
Other Assets:
Liquor licenses, net 266,000
Notes and mortgages receivable, net 71,000
Deferred tax assets 338,000
Other 234,000
------------
Total other assets 909,000
------------
Total assets $ 12,757,000
============
|
Current Liabilities:
Accounts payable and accrued expenses $ 1,564,000
Due to franchisees 131,000
Current portion of long-term debt 262,000
Damages payable on terminated or rejected leases 117,000
------------
Total current liabilities 2,074,000
------------
Long-Term Debt, Net of Current Maturities 1,715,000
------------
Commitments, Contingencies, Other Matters and Subsequent Event --
Stockholders' Equity:
Common stock, $.10 par value; 5,000,000 shares authorized;
4,197,642 shares issued 420,000
Capital in excess of par value 6,028,000
Retained earnings 7,863,000
Notes receivable on sale of common stock (291,000)
Treasury stock, at cost, 2,275,164 shares (5,052,000)
------------
Total stockholders' equity 8,968,000
------------
Total liabilities and stockholders' equity $ 12,757,000
============
|
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000
2001 2000
---- ----
Revenues:
Restaurant food sales $ 12,453,000 $ 11,485,000
Restaurant beverage sales 3,025,000 2,859,000
Package goods sales 8,907,000 8,870,000
Franchise-related revenues 1,249,000 1,065,000
Owner's fee 269,000 261,000
Joint venture income 571,000 460,000
Other operating income 230,000 160,000
------------ ------------
26,704,000 25,160,000
Costs and Expenses:
Cost of merchandise sold:
Restaurants and lounges 5,757,000 5,185,000
Package goods 6,487,000 6,532,000
Payroll and related costs 7,446,000 6,724,000
Occupancy costs 1,084,000 1,050,000
Selling, general and administrative expenses 3,926,000 3,889,000
------------ ------------
24,700,000 23,380,000
Income from Operations 2,004,000 1,780,000
------------ ------------
Other Income (Expense):
Interest expense on obligations under capital leases (46,000) (46,000)
Interest expense on long-term debt and damages payable (141,000) (131,000)
Interest income 68,000 54,000
Recognition of deferred gains 4,000 4,000
Other 129,000 44,000
------------ ------------
14,000 (75,000)
------------ ------------
Income Before Provision for Income Taxes 2,018,000 1,705,000
------------ ------------
Provision (Credit) for Income Taxes:
Current 483,000 373,000
Deferred 6,000 (32,000)
------------ ------------
489,000 341,000
------------ ------------
Net Income $ 1,529,000 $ 1,364,000
============ ============
Net Income Per Common Share:
Basic $ 0.80 $ 0.73
============ ============
Diluted $ 0.80 $ 0.71
============ ============
Weighted Average Shares and Equivalent Shares Outstanding:
Basic 1,903,000 1,856,000
============ ============
Diluted 1,922,000 1,931,000
============ ============
|
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000
Notes
Common Stock Receivable
------------ Capital in on Sale of
Excess of Retained Common
Shares Amount Par Value Earnings Stock
------ ------ --------- -------- -----
Balance, October 2, 1999 4,197,642 $ 420,000 $ 6,058,000 $ 5,416,000 $(192,000)
Year Ended September 30, 2000:
Dividends paid ($0.11 per share) -- -- -- (215,000) --
Net income -- -- -- 1,364,000 --
Purchase of treasury stock -- -- -- -- --
Exchange of shares - exercise of stock options -- -- (6,000) -- --
Payments received on notes receivable -- -- -- -- 11,000
----------- --------- ----------- ----------- ---------
Balance, September 30, 2000 4,197,642 420,000 6,052,000 6,565,000 (181,000)
Year Ended September 29, 2001:
Dividends paid ($0.12 per share) -- -- -- (231,000) --
Net income -- -- -- 1,529,000 --
Purchase of treasury stock -- -- -- -- --
Notes receivable issued upon exercise of stock options (24,000) (122,000) (70,000) 155,000 9,000
Payments received on notes receivable -- -- -- -- 12,000
----------- --------- ----------- ----------- ---------
Balance, September 29, 2001 4,197,642 $ 420,000 $ 6,028,000 $ 7,863,000 $(291,000)
=========== ========= =========== =========== =========
|
Treasury Stock
--------------
Shares Amount Total
------ ------ -----
Balance, October 2, 1999 2,247,193 $(4,722,000) $ 6,980,000
Year Ended September 30, 2000:
Dividends paid ($0.11 per share) -- -- (215,000)
Net income -- -- 1,364,000
Purchase of treasury stock 105,971 (492,000) (492,000)
Exchange of shares - exercise of stock options (12,000) 25,000 19,000
Payments received on notes receivable -- -- 11,000
----------- ----------- -----------
Balance, September 30, 2000 2,341,164 (5,189,000) 7,667,000
Year Ended September 29, 2001:
Dividends paid ($0.12 per share) -- -- (231,000)
Net income -- -- 1,529,000
Purchase of treasury stock 4,000 (18,000) (18,000)
Notes receivable issued upon exercise of stock options
Payments received on notes receivable -- -- 12,000
----------- ----------- -----------
Balance, September 29, 2001 2,275,164 $(5,052,000) $ 8,968,000
=========== =========== ===========
|
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000
2001 2000
---- ----
Cash Flows from Operating Activities:
Net income $ 1,529,000 $ 1,364,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 758,000 681,000
Deferred income taxes 6,000 (32,000)
Recognition of deferred gains and other deferred income (4,000) (4,000)
Gain on disposal of property, equipment and liquor licenses (21,000) (8,000)
Joint venture income (571,000) (460,000)
Changes in operating assets and liabilities:
(Increase) decrease in:
Due from franchisees (433,000) (139,000)
Other receivables (47,000) (144,000)
Inventories 45,000 46,000
Prepaid expenses (31,000) 84,000
Other assets (37,000) (4,000)
Increase (decrease) in:
Accounts payable and accrued expenses 500,000 (80,000)
Due to franchisees 67,000 (746,000)
----------- -----------
Net cash provided by operating activities 1,311,000 558,000
----------- -----------
Cash Flows from Investing Activities:
Collections on notes and mortgages receivable 79,000 36,000
Purchase of property and equipment (1,091,000) (1,860,000)
Distributions from joint ventures 640,000 401,000
Collections on notes receivable, sale of common stock 12,000 11,000
Investment in limited partnership (223,000) --
----------- -----------
Net cash used in investing activities (583,000) (1,412,000)
----------- -----------
Cash Flows from Financing Activities:
Borrowings of long-term debt 895,000 950,000
Payments of long-term debt (373,000) (79,000)
Payments of obligations under capital leases (70,000) (70,000)
Payments of damages payable on terminated or rejected leases (283,000) (272,000)
Purchase of treasury stock (18,000) (492,000)
Dividends paid (231,000) (215,000)
Proceeds from exercise of stock options 9,000 19,000
----------- -----------
Net cash used in financing activities (71,000) (159,000)
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 657,000 (1,013,000)
Cash and Cash Equivalents, Beginning 739,000 1,752,000
----------- -----------
Cash and Cash Equivalents, Ending $ 1,396,000 $ 739,000
=========== ===========
|
(Continued)
See notes to consolidated financial statements
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000
(Continued)
2001 2000
---- ----
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest $ 181,000 $177,000
========= ========
Income taxes $ 433,000 $490,000
========= ========
Non-Cash Financing and Investing Activities:
Notes receivable issued upon exercise of stock options $ 122,000 $ --
========= ========
Deposit transferred to property and equipment $ -- $ 85,000
========= ========
Notes receivable for sales of liquor license $ -- $ 35,000
========= ========
|
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Capitalization
Incorporated in 1959, Flanigan's Enterprises, Inc. ("Flanigan's" or the "Company") operates in South Florida as a chain of full-service restaurants and package liquor stores. At September 29, 2001, the Company owned and/or operated seven full-service restaurants, three package liquor stores and four combination full-service restaurants and package liquor stores in Florida. In addition, Flanigan's owns one club in Georgia, which is operated pursuant to a management agreement with an unrelated third party. The Company holds interests in five of the eleven franchised units through joint venture investments. The Company's restaurants are operated under the "Flanigan's Seafood Bar and Grill" servicemark while the Company's package stores are operated under the "Big Daddy's Liquors" servicemark.
The Company's Articles of Incorporation, as amended, authorize the Company to issue and have outstanding at any one time 5,000,000 shares of common stock at a par value of $.10.
The Company operates under a 52-53 week year ending the Saturday closest to September 30.
Principles of Consolidation
The consolidated financial statements include the accounts of Flanigan's Enterprises, Inc. and its subsidiaries, all of which are wholly owned. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management's knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with an original maturity of three months or less at the date of purchase to be cash equivalents. |
Inventories
Inventories, which consist primarily of packaged liquor products, are stated at the lower of cost (first in, first out) or market.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Liquor Licenses
The cost of liquor licenses purchased prior to October 21, 1970 (the date Accounting Principles Board ("APB") Opinion No. 17 became effective), amounted to approximately $130,000 at September 29, 2001. These licenses are not amortized unless an impairment in value is indicated. The costs of all liquor licenses acquired subsequent to October 21, 1970 are amortized over a period of 40 years.
Property and Equipment
For financial reporting, the Company uses the straight-line method for providing depreciation and amortization on property and equipment. The estimated useful lives range from three to five years for vehicles, and three to seven years for furniture and equipment.
Leasehold interests are amortized over the minimum term of the lease. Leasehold improvements are amortized over the life of the lease up to a maximum of 10 years. If the locations are sold or abandoned before the end of the amortization period, the unamortized costs are expensed. The office building is being amortized over forty years.
Investment in Joint Ventures
The Company uses the equity method of accounting when the Company has a twenty percent to fifty percent interest in other companies, joint ventures, and partnerships, and can exercise significant influence. Under the equity method, original investments are recorded at cost and are adjusted for the Company's share of undistributed earnings or losses. All significant intercompany profits are eliminated.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are cash and cash equivalents and notes and mortgages receivable.
From time to time during the year, the Company had deposits in financial institutions in excess of the federally insured limits. At September 29, 2001, the Company had deposits in excess of federally insured limits of approximately $1,390,000. The Company maintains its cash with high quality financial institutions, which the Company believes limits these risks.
Notes and mortgages receivable arise primarily from the sale of operating assets, including liquor licenses. Generally, those assets serve as collateral for the receivable. Management believes that the collateral, coupled with the credit standing of the purchasers, limits these risks.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Major Supplier
In the fourth quarter of fiscal 2001 the Company entered into an understanding with a major supplier, which entitles the Company is to receive certain purchase discounts and advertising allowances. The Company purchases substantially all of its food products from this vendor, however, management believes that several other alternative vendors are available if necessary.
Revenue Recognition
The Company records revenues from normal recurring sales upon the sale of food and beverages and the sale of packaged liquor products. Continuing royalties, which are a percentage of net sales of franchised stores, are accrued as income when earned.
Pre-opening Costs
Pre-opening costs are those typically associated with the opening of a new store or restaurant. Pre-opening costs are expensed as incurred.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs incurred for the years ended September 29, 2001 and September 30, 2000 were $162,000 and $174,000, respectively.
Fair Value of Financial Instruments
The respective carrying value of certain on-balance-sheet financial instruments approximated their fair value. These instruments include cash and cash equivalents, notes and mortgages receivable, damages payable on terminated or rejected leases, debt and capital leases, and accounts payable. Fair values were assumed to approximate carrying values for those financial instruments, which are short-term in nature or are receivable or payable on demand.
Recently Issued Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144, which is effective for fiscal years beginning after December 15, 2001 and for interim periods within those fiscal years, requires testing for recoverability of long-lived assets whenever events or circumstances indicate that the carrying value may not be recoverable. An impairment loss shall be recognized when the carrying value of a long-lived asset exceeds its fair value. The Company does not believe that the adoption of SFAS No. 144 will have a material effect on the consolidated financial statements.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Pronouncements (Continued)
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations". The Statement addresses accounting for and reporting obligations relating to the retirement of long lived assets by requiring that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The Statement will be effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company does not believe that the adoption of SFAS No. 143 will have a material effect on the consolidated financial statements.
Also in June 2001, the Financial Accounting Standards Board issued SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 requires companies to account for goodwill and other intangibles in the following manner. Intangible assets which are acquired shall be recognized and measured based on fair value. Recognized intangible assets are to be amortized over their useful life. Goodwill and intangible assets determined to have an indefinite life are not amortized. Intangible assets that are not amortized and goodwill shall be tested for impairment annually. The provisions of SFAS No. 142 are to be applied in fiscal years beginning after December 15, 2001. Retroactive application is not permitted. The Company does not believe that the adoption of SFAS No. 142 will have a material effect on the consolidated financial statements.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations". SFAS No. 141 addresses financial accounting and reporting for business combinations. All business combinations are to be accounted for using one method- the purchase method. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001. The Company does not believe that the adoption of SFAS No. 141 will have a material effect on the Company's consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements". SAB 101 provides guidance for revenue recognition under certain circumstances, and became effective during fiscal year 2001. SAB 101 did not have a material effect on the Company's consolidated results of operations, financial position and cash flows.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 requires companies to recognize all derivatives contracts as either
assets or liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of the
gain or loss recognition on the hedging derivative with the recognition of
(i) the changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings effect of the hedged
forecasted transaction. For a derivative not designated as a hedging
instrument,
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting Pronouncements (Continued)
the gain or loss is recognized in income in the period of change. On June 30, 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 133 as amended by SFAS No. 137 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." SFAS No. 133 as amended by SFAS No. 137 and 138 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133 in fiscal year 2001 did not have a material effect on the Company's consolidated financial statements.
Derivative Financial Instruments and Hedging Activities
The Company holds a derivative financial instrument for the purpose of hedging the risk of certain identifiable and anticipated transactions. In general, the type of risk hedged is that relating to the variability of future earnings and cash flows caused by movements in interest rates. In hedging the transaction, the Company, in the normal course of business, holds an interest rate swap, which hedges the fair value of fixed-rate debt and cash flows of variable-rate financial assets.
Derivatives are held only for the purpose of hedging such risks, not for speculation. Generally, the Company entered into the hedging relationship such that changes in the fair values or cash flows of items and transactions being hedged are expected to be offset by corresponding changes in the value of the derivative. At September 29, 2001, a hedging relationship existed for the mortgage obligation described in Note 8.
Income Taxes
The Company accounts for its income taxes using SFAS No. 109, "Accounting for Income Taxes", which requires the recognition of deferred tax liabilities and assets for expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), encourages, but does not require companies to record stock-based compensation plans using a fair value based method. The Company has chosen to continue to account for stock-based compensation using the intrinsic value based method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's common stock at the date of the grant over the amount an employee must pay to acquire the stock.
Long-Lived Assets
The Company continually evaluates whether events and circumstances have occurred that may warrant revision of the estimated life of its intangible and other long-lived assets or whether the remaining balance of its intangible and other long-lived assets should be evaluated for possible impairment. If and when such factors, events or circumstances indicate that intangible or other long-lived assets should be evaluated for possible impairment, the Company will make an estimate of undiscounted cash flow over the remaining lives of the respective assets in measuring their recoverability.
NOTE 2. NOTES AND MORTGAGES RECEIVABLES
Receivables, net of allowances for uncollectible amounts and deferred gains, consist of the following at September 29, 2001:
Notes and mortgages receivable from unrelated parties, bearing interest at
rates ranging from 9% to 15% and due in varying installments through
2004 $121,000
Notes and mortgages receivable from related parties, bearing interest at
rates ranging from 10% to 14% and due in varying installments through
2007 150,000
---------
271,000
Less deferred gains 80,000
---------
191,000
Amount representing current portion 120,000
---------
$ 71,000
=========
|
The majority of the notes and mortgages receivable represent amounts owed to the Company for store operations which were sold. Unless a significant amount of cash is received on the sale, a pro rata portion of the gain is deferred and recognized only as payments on the notes and mortgages are received by the Company. Any losses on sales of stores are recognized currently. During fiscal 2001 and 2000, approximately $4,000 of deferred gains were recognized on collections of such notes receivable.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 2. NOTES AND MORTGAGES RECEIVABLES (Continued)
Future scheduled payments on the receivables at September 29, 2001 consist
of the following:
2002 $120,000
2003 7,000
2004 53,000
2005 9,000
2006 11,000
2007 71,000
--------
$271,000
========
|
NOTE 3. PROPERTY AND EQUIPMENT
Furniture and equipment $ 6,287,000
Leasehold interests and improvements 5,256,000
Land and land improvements 1,007,000
Building and improvements 1,208,000
Vehicles 186,000
------------
13,944,000
Less accumulated depreciation and amortization 8,294,000
------------
$ 5,650,000
============
|
NOTE 4. INVESTMENTS IN JOINT VENTURES
Miami, Florida
The Company operates a restaurant in Miami, Florida under the "Flanigan's Seafood Bar and Grill" servicemark pursuant to a joint venture agreement. The Company is the general partner and has a fifty percent limited partnership interest.
Fort Lauderdale, Florida
The Company has a franchise agreement with a unit in Fort Lauderdale. The Company is a twenty-five percent limited partner in the franchise. Other related parties, including, but not limited to, officers and directors of the Company and their families are also investors.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 4. INVESTMENTS IN JOINT VENTURES (Continued)
Surfside, Florida
The Company has an investment in a limited partnership, which purchased the assets of a restaurant in Surfside, Florida and renovated it for operation under the "Flanigan's Seafood Bar and Grill" servicemark.
The Company acts as general partner of the limited partnership and is also a forty-two percent limited partner. Other related parties, including, but not limited to, officers and directors of the Company and their families are also investors.
Kendall, Florida
During 1999, the Company made an investment in a limited partnership, which constructed and now operates a restaurant under the "Flanigan's Seafood Bar and Grill" servicemark in Kendall, Florida. Construction began in late 1999 and the restaurant opened in April 2000. The Company is the general partner and has a forty percent limited partnership interest.
West Miami, Florida
During 2001, the Company made an investment in a limited partnership, which purchased, renovated and now operates a restaurant under the "Flanigan's Seafood Bar and Grill" servicemark in West Miami, Florida. The restaurant opened for business subsequent to September 29, 2001. The Company is the general partner and has a twenty-five percent limited partnership interest. Other related parties, including, but not limited to, officers and directors of the Company and their families are also investors.
Summary
The following is a summary of condensed unaudited financial information pertaining to the Company's joint venture investments:
2001 2000
---- ----
Financial Position:
Current assets $ 632,000 $ 403,000
Non-current assets 6,120,000 4,590,000
Current liabilities 679,000 588,000
Non-current liabilities 489,000 538,000
Operating Results:
Revenues 12,429,000 10,208,000
Gross profit 7,866,000 6,480,000
Net income 1,258,000 1,192,000
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FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable $1,664,000
Lease security deposit 200,000
Salaries and wages 130,000
Property taxes 128,000
Potential uninsured claims 91,000
Franchisee advance funds 14,000
Other 87,000
----------
$2,314,000
==========
Franchisee advance funds represent cash advances by the franchisees for
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inventory purchases to be made as part of the Company-sponsored cooperative buying program.
NOTE 6. DAMAGES PAYABLE ON TERMINATED OR REJECTED LEASES
On November 4, 1985, Flanigan's Enterprises, Inc., 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. Flanigan's was authorized to continue the management and control of its business and property as debtor-in-possession under the Bankruptcy Code. On May 5, 1987, Flanigan's Plan of Reorganization, as amended and modified, was confirmed by the Bankruptcy Court. On December 28, 1987, Flanigan's was officially discharged from bankruptcy.
In fiscal 1986 in connection with the bankruptcy petition, Flanigan's recorded estimated damages of $4,278,000 for claims for losses as a result of rejected leases. Because the damage payments were to be made over nine years, the total amount due was discounted at a rate of 9.25%, Flanigan's then effective borrowing rate. Flanigan's renegotiated the payment of this obligation to extend into fiscal 2002 which effectively reduced the discount rate to 3.71%. Remaining liabilities for damage payments are included as "Damages Payable on Terminated or Rejected Leases" in the accompanying consolidated balance sheet. Based on the borrowing rate currently available to the Company for bank loans with similar terms and average maturities, the fair value of damages payable on terminated and rejected leases is approximately $117,000. All damages payable on terminated and rejected leases mature in fiscal year ending 2002.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 7. INCOME TAXES
The components of the Company's provision (benefit) for income taxes, for the fiscal years ended 2001 and 2000 are as follows:
2001 2000
---- ----
Current:
Federal $366,000 $284,000
State 117,000 89,000
--------- --------
483,000 373,000
--------- --------
Deferred:
Federal 6,000 (31,000)
State -- (1,000)
-------- --------
6,000 (32,000)
-------- --------
$489,000 $341,000
======== ========
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A reconciliation of income tax computed at the statutory federal rate to income tax expense (benefit) is as follows:
2001 2000
---- ----
Tax provision at the statutory rate of 34% $686,000 $ 580,000
State income taxes, net of federal income tax 61,000 51,000
Net operating loss utilization -- (41,000)
Tip credit utilization (256,000) (199,000)
Other (2,000) (50,000)
-------- ---------
$489,000 $ 341,000
======== =========
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At September 29, 2001, the Company has available tip credit carryforwards of approximately $213,000, which expire through 2015, and alternative minimum tax credit carryforwards of approximately $74,000, which do not expire.
In addition to tax credit carryforwards, the Company had deferred tax assets which arise primarily due to depreciation recorded at different rates for tax and book purposes, capital leases reported as operating leases for tax purposes, and accruals for potential uninsured claims recorded for financial reporting purposes but not recognized for tax purposes.
The components of the deferred tax assets were as follows at September 29, 2001:
Current:
Tip credit carryforward $213,000
Alternative minimum tax credit 74,000
Accruals for potential uninsured claims 31,000
--------
$318,000
========
Long-Term:
Book/tax differences in property and equipment $327,000
Joint venture investments 11,000
--------
$338,000
========
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FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 8. LONG-TERM DEBT
Mortgage payable to bank; secured by first mortgage on a building; payable
$1,463 per month, plus interest through maturity in August, 2008, at which
time the unpaid principal of approximately $736,000 plus unpaid interest
becomes due. The Company has entered into an interest rate swap agreement
for a notional amount of approximately $895,000, under which the Company
pays a fixed rate of interest of 8.62%. The interest rate swap agreement
hedges the interest rate risk of the mortgage payable. $893,000
Note payable to bank, secured by general assets of the Company; bearing
interest at 6% payable in monthly installments; principal is due in
quarterly installments of $50,000 for 8 quarters then $75,000 for 8
quarters, maturing in April 2004 680,000
Mortgage payable, secured by land, bearing interest at 8%; payable in
monthly installments of principal and interest, maturing in April 2007 325,000
Notes payable to various employees, related and unrelated parties, secured
by various company assets, bearing interest at 12%, payable in monthly
installments of principal and interest, maturing in July 2002 79,000
----------
1,977,000
Less current portion 262,000
----------
$1,715,000
==========
Long-term debt at September 29, 2001 matures as follows:
2002 $ 262,000
2003 329,000
2004 255,000
2005 31,000
2006 33,000
Thereafter 1,067,000
----------
$1,977,000
==========
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NOTE 9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Legal Matters
The Company is a party to various claims, legal actions and complaints arising in the ordinary course of its business. In the opinion of management, all such matters are without merit or involve such amounts that an unfavorable disposition would not have a material adverse effect on the financial position or results of operations of the Company.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Legal Matters (Continued)
During fiscal year 2000, the Company was served with several complaints alleging violations of the Americans with Disabilities Act ("ADA") at all of its locations. The Company has retained an ADA expert, who is in the process of inspecting all locations, including the limited partnerships and franchises, and will provide a report setting forth ADA violations which need to be corrected. It is the Company's intent to correct all ADA violations noted by its ADA expert and then vigorously defend the lawsuits arguing that all locations are in compliance. The Company estimates it will cost approximately $10,000 per location to bring the locations into compliance.
Leases
The Company leases a substantial portion of the land and building used in its operations under leases with initial terms expiring between 2001 and 2049. Renewal options are available on many of the leases. In certain instances, lease rentals are subject to cost-of-living increases or fair market rental appraisals and/or sales overrides. Certain properties are subleased through various expiration dates.
On July 29, 2001, the Company entered into a sublease agreement on an existing restaurant to renovate and operate the restaurant under the "Flanigan's Seafood Bar and Grill" servicemark. The term is for fifteen years with the option to extend for three additional periods of five years each. The sublease provides for minimum annual rent payments plus additional rent from operational profits. The lease is subject to cancellation if the sublessor fails to resolve several zoning and related matters. Upon resolution of these matters, the Company has committed to renovate the restaurant for total cost of approximately $750,000.
During the fourth quarter of fiscal year 2001, the Company entered into a ground lease for an out parcel in Hollywood, Florida. The Company plans to construct a building on the out parcel, one-half (1/2) of which will be used by the Company for the operation of a package liquor store and the other one-half (1/2) will be subleased by the Company as retail space. The Company plans to file its building plans during the second quarter of fiscal year 2002 and expects the building to be complete and the package liquor store open for business during the fourth quarter of fiscal year 2002. The estimated construction cost of this building has not yet been determined.
Future minimum lease payments under non-cancelable operating leases are as follows:
2002 $1,193,000
2003 1,075,000
2004 1,034,000
2005 922,000
2006 606,000
Thereafter 4,292,000
----------
Total $9,122,000
==========
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FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Leases (Continued)
Total rent expense for all operating leases (including those with an initial term of less than one year and net of subleases) was $758,000 and $703,000 in 2001 and 2000, respectively, and is included in "Occupancy costs" in the accompanying consolidated statements of income.
The Company guarantees various leases for franchisees. Remaining rental payments required under these leases total approximately $2,967,000.
Franchise Programs
At September 29, 2001, the Company operated seven units under franchise agreements and five units under joint venture agreements. Under the franchise agreements, the Company agrees to provide guidance, advice and management assistance to the franchisees. In addition, the Company acts as fiscal agent for the franchisees whereby the Company collects all revenues and pays all expenses and distributions. The Company also, from time to time, advances funds on behalf of the franchisees for the cost of renovations. The resulting due to's and from's are reflected in the accompanying consolidated balance sheet as either an asset or a liability. The Company also agrees to sponsor and manage cooperative buying groups on behalf of the franchisees for the purchase of inventory. The franchise agreements provide for fees to the Company of approximately 3% of gross sales. Of the seven franchised stores, five are owned or operated by related parties. The Company is not currently offering or accepting new franchises.
Employment Agreements
Chief Executive Officer
The Company has entered into an employment agreement with the Chief Executive Officer, which is renewable annually on December 31. The agreement provides, among other things, for a base annual salary not to exceed $150,000 and a performance bonus equal to fifteen percent of pre-tax net income in excess of $650,000. Bonuses for fiscal years 2001 and 2000 amounted to approximately $228,000 and $150,000, respectively. In addition, the agreement provides for an option to purchase 4.99% of the outstanding common stock of the Company (but not less than 90,700 shares) at $3.25 per share, which option expires January 8, 2002.
Store Managers
In the ordinary course of business, the Company enters into employment agreements with store managers, which provide for, among other things, base annual salary, performance bonuses, and various employee benefits. In principle, these agreements may be terminated by the Company for cause and by the manager with notice.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 9. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (Continued)
Management Agreement
The Company receives an owner's fee pursuant to a management agreement with a company which operates a club in Atlanta, Georgia, owned by the Company. The management agreement, which was executed in fiscal 1992, contains one five-year renewal option, which the management company exercised in fiscal 2001. The exercise provided for an additional security deposit of $200,000 to be paid by the management company. The Company receives the greater of $150,000 or 10% of gross sales annually, paid monthly.
Eminent Domain Action
During fiscal year 2000, the Company received official notification from the State of Florida, Department of Transportation ("DOT") that the DOT was exercising its right of eminent domain to "take" the hotel property upon which a restaurant, operated by the Company as general partner of a limited partnership, is located. It is anticipated that the DOT will take title to the hotel property during the second quarter of fiscal year 2002, at which time the restaurant will be forced to close.
NOTE 10. COMMON STOCK
Treasury Stock
Purchase of Common Shares
During 2001 and 2000, the Company purchased a total of 4,000 and 105,971 shares of Company common stock at a total cost of approximately $18,000 and $492,000 under a repurchase program authorized by the Board of Directors.
Sale of Common Shares
During 2001, the Company sold an aggregate of 70,000 shares of common stock pursuant to the exercise of options to certain employee/officers for a total of approximately $131,000. These employee/officers purchased their shares, in part, by means of notes of approximately $122,000, which are non-interest bearing and are due on demand. The notes are non-recourse, and are secured by the shares owned by the employee/officers. Effective October 1, 2001, the notes become interest bearing at 5%.
Key Employee Incentive Stock Option Plan
In December 1993, the Board of Directors approved a Key Employee Incentive
Stock Option Plan, which reserved and authorized the issuance of 100,000
shares of the Company's common stock to eligible employees. At the
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Company's 1994 annual meeting, the stockholders approved this plan. The stock options vest over a period of one year.
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. COMMON STOCK (Continued)
Key Employee Incentive Stock Option Plan (Continued)
Options for all of the shares of common stock that were reserved for issuance to the Key Employee Incentive Stock Option Plan have been issued.
Stock Options
In April 2001, the Company granted options to purchase 57,800 shares of Company common stock to certain employees. The options vest one year from the grant date, have a five-year life, and an exercise price of $4.16 per share, the then market price of the common stock.
The Company applies APB No. 25 and related interpretations in accounting for its stock-based compensation plans. Accordingly, no compensation cost has been recognized in connection with the granting of these stock options.
Had compensation cost for the options been determined based on the fair value at the grant date consistent with SFAS 123, the Company's net income would have been as follows:
2001 2000
---- ----
Net income:
As Reported $1,529,000 $1,364,000
Pro Forma 1,450,000 $1,308,000
Earnings Per Share:
Basic:
As Reported $.80 $.73
Pro Forma $.76 $.70
Diluted:
As Reported $.80 $.71
Pro Forma $.75 $.68
|
The Company used the Black-Scholes option-pricing model to determine the fair value of grants made in 2001. No grants were made in 2000. The following assumptions were applied in determining the pro forma compensation cost:
Risk Free Interest Rate 6% Expected Dividend Yield $.11 Expected Option Life 5 Years Expected Stock Price Volatility 75% |
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 10. COMMON STOCK (Continued)
Stock Options (Continued)
Changes in outstanding incentive stock options for common stock are as
follows:
2001 2000
---- ----
Outstanding at beginning of year 233,045 276,295
Options granted 57,800 --
Options exercised (70,000) (12,000)
Options expired (13,250) (31,250)
------- -------
Outstanding at end of year 207,595 233,045
------- -------
Exercisable at end of year 149,795 233,045
------- -------
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Weighted average option exercise price information for fiscal years 2001 and 2000 is as follows:
2001 2000
---- ----
Outstanding at beginning of year $3.27 $2.50
===== =====
Granted during the year 4.16 --
===== =====
Exercised during the year 1.89 1.63
===== =====
Outstanding at end of year 3.97 3.27
===== =====
Exercisable at end of year $3.90 $3.27
===== =====
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Significant options groups outstanding at September 29, 2001 and related weighted average price and life information are as follows:
Grant Options Options Exercise Remaining Date Outstanding Exercisable Price Life (Years) ---- ----------- ----------- ----- ------------ 1/08/97 72,395 72,395 3.25 .25 7/3/99 77,400 77,400 4.50 2.5 4/2/01 57,800 - 4.16 4.5 |
NOTE 11. NET INCOME PER COMMON SHARE
The Company follows SFAS No. 128, "Earnings Per Share." SFAS 128 provides for the calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share assume exercising warrants and options granted and convertible preferred stock and debt. Earnings per share are computed by dividing income available to common stockholders by the basic and diluted weighted average number of common shares.
2001 2000
---- ----
Basic weighted average shares $1,903,000 1,856,000
Incremental shares relating to outstanding options 19,000 75,000
---------- ---------
Diluted weighted average shares $1,922,000 1,931,000
========== =========
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FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 12. RELATED PARTY TRANSACTIONS
The Company's Chairman and a relative formed a corporation to manage one of the Company's franchised stores.
During fiscal 2001 and 2000, respectively, the Company incurred legal fees in the form of salary of approximately $129,000 and $116,000 for services provided by a member of the Board of Directors.
Also see Notes 2, 4, 5, 8, 9, and 10 for additional related party transactions.
NOTE 13. 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 years ended September 29, 2001 and September 30, 2000, 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.
2001 2000
---- ----
Operating Revenues:
Restaurants $15,478,000 $14,344,000
Equity in the net income of restaurant investees 571,000 460,000
Retail package stores 8,907,000 8,870,000
Other revenues 1,748,000 1,486,000
----------- -----------
Total operating revenues $26,704,000 $25,160,000
=========== ===========
Income From Operations Reconciled to Income before
Income Taxes:
Restaurants $1,935,000 $1,761,000
Retail package stores 368,000 308,000
---------- ----------
2,303,000 2,069,000
Corporate expenses, net of other revenues (310,000) (289,000)
---------- ----------
Operating Income 1,993,000 1,780,000
Interest expense, net of interest income (100,000) (123,000)
Other 125,000 48,000
---------- ----------
Income Before Income Taxes $2,018,000 $1,705,000
========== ==========
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FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
NOTE 13. BUSINESS SEGMENTS (Continued)
2001 2000
---- ----
Identifiable Assets:
Restaurants $ 3,707,000 $ 3,969,000
Retail package store 1,943,000 2,066,000
----------- -----------
5,650,000 6,035,000
Corporate 8,294,000 7,398,000
----------- -----------
Consolidated Totals $13,944,000 $13,433,000
=========== ===========
Capital Expenditures:
Restaurants $ 565,000 $ 967,000
Retail package stores 34,000 67,000
----------- ----------
599,000 1,034,000
Corporate 492,000 826,000
----------- ----------
Total Capital Expenditures $ 1,091,000 $1,860,000
=========== ==========
2001 2000
---- ----
Depreciation and Amortization:
Restaurants $478,000 $438,000
Retail package stores 89,000 97,000
-------- --------
567,000 535,000
Corporate 191,000 146,000
-------- --------
Total Depreciation and Amortization $758,000 $681,000
======== ========
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