UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTIONS 13 AND 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 27, 2003
Commission file number 0-14030
ARK RESTAURANTS CORP.
(Exact Name of Registrant as Specified in Its Charter)
New York 13-3156768
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
85 Fifth Avenue, New York, NY 10003
(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number, including area code: (212) 206-8800
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $0.01.
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
The aggregate market value at December 23, 2003 of shares of the
Registrant's Common Stock, $.01 par value (based upon the closing price per
share of such stock on the Nasdaq National Market) held by non-affiliates of the
Registrant was approximately $23,201,000. Solely for the purposes of this
calculation, shares held by directors and officers of the Registrant have been
excluded. Such exclusion should not be deemed a determination or an admission by
the Registrant that such individuals are, in fact, affiliates of the Registrant.
At December 23, 2003, there were outstanding 3,181,299 shares of the
Registrant's Common Stock, $.01 par value.
Documents Incorporated by Reference: Portions of the Registrant's definitive
proxy statement to be filed not later than 120 days after the end of the fiscal
year covered by this form are incorporated by reference in Part III, Items 10,
11, 12, 13 and 14 of this Report.
PART I
Item 1. Business
Overview
Ark Restaurants Corp. (the "Registrant" or the "Company") is a New York
corporation formed in 1983. Through its subsidiaries, it owns and operates 24
restaurants and bars, 12 fast food concepts, catering operations, and wholesale
and retail bakeries. Initially its facilities were located only in New York
City. At this time, 12 of the restaurants are located in New York City, four are
located in Washington, D.C., and eight are located in Las Vegas, Nevada. The
Company's Las Vegas operations include three restaurants within the New York-New
York Hotel & Casino Resort, and operation of the resort's room service, banquet
facilities, employee dining room and eight food court operations. The Company
also owns and operates two restaurants, two bars and four food court facilities
at the Venetian Casino Resort, one restaurant at the Neonopolis Center at
Fremont Street, and one restaurant within the Forum Shops at Caesar's Shopping
Center.
In addition to the shift from a Manhattan-based operation to a multi-city
operation, the nature of the facilities operated by the Company has shifted from
smaller, neighborhood restaurants to larger, destination restaurants intended to
benefit from high patron traffic attributable to the uniqueness of the
restaurant's location. Most of the Company's restaurants which are in operation
and which have been opened in recent years are of the latter description. These
include the restaurant operations at the New York-New York Hotel & Casino in Las
Vegas, Nevada (1997); the Stage Deli located at the Forum Shops in Las Vegas,
Nevada, and Red, located at the South Street Seaport in New York (1998); Thunder
Grill in Union Station, Washington, D.C. (1999); two restaurants and four food
court facilities at the Venetian Casino Resort in Las Vegas, Nevada (2000); and
a restaurant, The Saloon, at the Neonopolis Center in downtown Las Vegas, Nevada
(2002). The Company recently entered into agreements to manage 11 fast food
restaurants to be constructed in the Hard Rock Casinos in Hollywood and Tampa,
Florida. Apart from these agreements, the Company is not currently committed to
any new projects. The Company has sold a number of its smaller, neighborhood
restaurants.
The names and themes of each of the Company's restaurants are different except
for the Company's three America restaurants, two Sequoia restaurants, two
Gonzalez y Gonzalez restaurants and two Lutece restaurants. The menus in the
Company's restaurants are extensive, offering a wide variety of high quality
foods at generally moderate prices. Of the Company's restaurants, the two Lutece
restaurants may be classified as expensive. The atmosphere at many of the
restaurants is lively and extremely casual. Most of the restaurants have
separate bar areas. A majority of the net sales of the Company is derived from
dinner as opposed to lunch service. Most of the restaurants are open seven days
a week and most serve lunch as well as dinner.
While decor differs from restaurant to restaurant, interiors are marked by
distinctive architectural and design elements which often incorporate dramatic
interior open spaces and extensive glass exteriors. The wall treatments,
lighting and decorations are typically vivid, unusual and, in some cases, highly
theatrical.
The following table sets forth information with respect to the Company's facilities
currently in operation.
Seating
Capacity(2)
Restaurant Size Indoor Lease
Name Location Year Opened(1) (Square Feet) (Outdoor) Expiration(3)
---------------------- ----------------------------- -------------- --------------- ----------- -------------
Metropolitan Cafe(4) First Avenue 1982 4,000 180(50) 2006
(between 52nd and 53rd
Streets)
New York, New York
La Rambla(5) Broadway 1983 6,600 300 2008
(between 75th and 76th
Streets) New York, New York
America 18th Street 1984 9,600 350 2004
(between Fifth Avenue and
Broadway) New York, New York
Jack Rose Eighth Avenue 1986 8,000 400 2011
(at 47th Street)
New York, New York
El Rio Grande (6)(7) Third Avenue 1987 4,000 160 2014
(between 38th and 39th
Streets) New York, New York
Gonzalez y Gonzalez Broadway 1989 6,000 250 2007
(between Houston and Bleecker
Streets) New York, New York
America Union Station 1989 10,000 400(50) 2009
Washington, D.C.
Center Cafe Union Station 1989 4,000 200 2009
Washington, D.C.
Sequoia Washington Harbour 1990 26,000 600(400) 2017
Washington, D.C.
Sequoia South Street Seaport 1991 12,000 300(100) 2006
New York, New York
Canyon Road First Avenue 1984 2,500 130 2009
(between 76th and 77th
Streets) New York, New York
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Seating
Capacity(2)
Restaurant Size Indoor Lease
Name Location Year Opened(1) (Square Feet) (Outdoor) Expiration(3)
---------------------- ----------------------------- -------------- --------------- ----------- -------------
Lutece East 50th Street 1994 2,500 92 Month to
(between Second and Third Month
Avenues) New York, New York
Columbus Bakery Columbus Avenue 1988 3,000 75 2012
(between 82nd and 83rd
Streets) New York, New York
Bryant Park Grill & Bryant Park 1995 25,000 180(820) 2025
Cafe(8) New York, New York
Columbus Bakery First Avenue 1995 2000 75 2006
(between 52nd and 53rd
Streets)
New York, New York
America(9) New York-New York Hotel and 1997 20,000 450 2017(9)
Casino
Las Vegas, Nevada
Gallagher's New York-New York 1997 5,500 260 2017(9)
Steakhouse(9) Hotel & Casino
Las Vegas, Nevada
Gonzalez y Gonzalez(9) New York-New York 1997 2,000 120 2017(9)
Hotel & Casino
Las Vegas, Nevada
Village Eateries New York-New York 1997 6,300 400(*) 2017(9)
(9)(10) Hotel & Casino
Las Vegas, Nevada
The Grill Room (11) World Financial Center 1997 10,000 250 2011
New York, New York
The Stage Deli Forum Shops 1997 5,000 200 2008
Las Vegas, Nevada
Red South Street Seaport 1998 7,000 150(150) 2013
New York, New York
Thunder Grill Union Station 1999 10,000 500 2019
Washington, D.C.
Venetian Food Court Venetian Casino Resort 1999 5,000 300(*) 2014
Las Vegas, Nevada
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Seating
Capacity(2)
Restaurant Size Indoor Lease
Name Location Year Opened(1) (Square Feet) (Outdoor) Expiration(3)
---------------------- ----------------------------- -------------- --------------- ----------- -------------
Tsunami Grill Venetian Casino Resort 1999 13,000 300 2019
Las Vegas, Nevada
Lutece Venetian Casino Resort 1999 6,400 90(90) 2019
Las Vegas, Nevada
Venus Venetian Casino Resort 2001 9,700 250 2019
Las Vegas, Nevada
V-Bar Venetian Casino Resort 2000 3,000 100 2015
Las Vegas, Nevada
The Saloon Neonopolis Center 2002 6,000 200 2014
at Fremont Street
Las Vegas, Nevada
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(1) Restaurants are, from time to time, renovated and/or renamed. "Year
Opened" refers to the year in which the Company or an affiliated predecessor
of the Company first opened, acquired or began managing a restaurant at
the applicable location, notwithstanding that the restaurant may have been
renovated and/or renamed since that date.
(2) Seating capacity refers to the seating capacity of the
indoor part of a restaurant available for dining in all seasons and weather
conditions. Outdoor seating capacity, if applicable, is set forth in parentheses
and refers to the seating capacity of terraces and sidewalk cafes which
are available for dining only in the warm seasons and then only in clement
weather.
(3) Assumes the exercise of all available lease renewal options.
(4) The landlord has the option to terminate the lease for
this restaurant at any time after October 1, 2003 with thirty (30) day's
prior written notice.
(5) The landlord has the option to cancel the lease for this
restaurant any time after December 1, 2003 upon six month's prior written
notice and the payment of $250,000.
(6) Restaurant owned by a third party and managed by the
Company. Management fees earned by the Company are based on a percentage
of cash flow of the restaurant.
(7) The Company owns a 19% interest in the partnership that
owns El Rio Grande.
(8) The lease governing a substantial portion of the outside
eating area of this restaurant expires in 2005.
(9) Includes two five-year renewal options exercisable by
the Company if certain sales goals are achieved during the two year period
prior to the exercise of the renewal option. Under the America lease, the
sales goal is $6.0 million. Under the Gallagher's Steakhouse lease the sales
goal is $3.0 million. Under the lease for Gonzalez y Gonzalez and the Village
Eateries, the combined sales goal is $10.0 million. Each of the restaurants
is currently operating at a level substantially in excess of the minimum
sales level required to exercise the renewal option for each respective
restaurant.
(10) The Company operates eight small food court restaurants in the Villages
Eateries food court at the New York-New York Hotel & Casino. The Company
also operates that hotel's room service, banquet facilities and employee cafeteria.
(11) The restaurant experienced damage in the attack on the World Trade Center
on September 11, 2001. In addition, substantial damage was sustained by the
World Financial Center in which the restaurant is located. The restaurant closed
on September 11, 2001 and reopened in early December 2002.
(*) Represents common area seating.
Restaurant Expansion
In fiscal 2002, the Company opened The Saloon at the new Neonopolis Center
at Fremont Street in downtown Las Vegas, Nevada. The Company received a construction
and pre-opening expense allowance from the landlord. The Saloon was opened within
the limits of that allowance.
The opening of a new restaurant is invariably accompanied by substantial pre-opening
expenses and early operating losses associated with the training of personnel,
excess kitchen costs, costs of supervision and other expenses during the pre-opening
period and during a post-opening "shake out" period until operations
can be considered to be functioning normally. The amount of such pre-opening
expenses and early operating losses can generally be expected to depend upon
the size and complexity of the facility being opened. The Company incurred no
pre-opening expenses or early operating losses in fiscal 2003 or 2002. The Company
incurred pre-opening expenses and early operating losses of approximately $100,000
in fiscal 2001.
The Company's restaurants generally do not achieve substantial increases from
year to year in revenue, which the Company considers to be typical of the restaurant
industry. To achieve significant increases in revenue or to replace revenue
of restaurants that lose customer favor or which close because of lease expirations
or other reasons, the Company would have to open additional restaurant facilities
or expand existing restaurants. There can be no assurance that a restaurant
will be successful after it is opened, particularly since in many instances
the Company does not operate its new restaurants under a trade name currently
used by the Company, thereby requiring new restaurants to establish their own
identity.
The Company recently entered into agreements to manage fast food restaurants
at the Hard Rock Casinos in Hollywood and Tampa, Florida. The agreements are
subject to approval by the United States Department of the Interior. Apart from
these agreements, the Company is not currently committed to any projects. The
Company may take advantage of opportunities it considers to be favorable, when
they occur, depending upon the availability of financing and other factors.
Recent Restaurant Dispositions and Charges
In fiscal 2002 the Company determined that its restaurant and food court operations
at the Aladdin in Las Vegas, Nevada were significantly impaired by the events
of September 11, 2001, Aladdin's bankruptcy on September 28, 2001 and a general
decline in tourism and economic conditions. In light of the declining sales
and Aladdin's bankruptcy, the Company negotiated a termination of the lease,
which related to both the food court and Fat Anthony's at the Aladdin. The Company
abandoned the space as of the close of business on September 23, 2002. The Company
terminated the lease effective as of October 6, 2002, and has no further liabilities
under the lease. In addition, certain of the Company's equipment and trade fixtures
at the Aladdin were sold for a total price of $240,000, in October 2002. The
Company recorded an impairment charge of $10,045,000 in fiscal 2001 related
to the Aladdin.
In fiscal 2003, the Company determined that its restaurant, Lutece, located
in New York City had been impaired by the events of September 11th and the continued
weakness in the economy. Based upon the sum of the future undiscounted cash
flows related to the Company's long-lived fixed assets at Lutece, the Company
determined that impairment had occurred. To estimate the fair value of such
long-lived fixed assets, for determining the impairment amount, the Company
used the expected present value of the future cash flows. The Company projected
continuing negative operating cash flow for the foreseeable future with no value
for subletting or assigning the lease for the premises. As a result, the Company
determined that there was no value to the long-lived fixed assets. The Company
had an investment of $667,000 in leasehold improvements, and furniture fixtures
and equipment. The Company believed that these assets would have nominal value
upon disposal and recorded an impairment charge of $667,000 during the fiscal
quarter ended March 29, 2003.
On December 1, 2003, the Company sold a restaurant, Lorelei, for approximately
$850,000. The book value of inventory, fixed assets, intangible assets and goodwill
related to this entity was approximately $610,000. The Company recorded a gain
on the sale of approximately $240,000 during the first quarter of fiscal 2004.
Restaurant Management
Each restaurant is managed by its own manager and has its own chef. Food products
and other supplies are purchased primarily from various unaffiliated suppliers,
in most cases by Company headquarters' personnel. The Company's Columbus Bakery
supplies bakery products to most of the Company's New York City restaurants
in addition to operating a retail bakery. Each of the Company's restaurants
has two or more assistant managers and sous chefs (assistant chefs). Financial
and management control is maintained at the corporate level through the use
of an automated data processing system that includes centralized accounting
and reporting.
Purchasing and Distribution
The Company strives to obtain quality menu ingredients, raw materials and
other supplies and services for its operations from reliable sources at competitive
prices. Substantially all menu items are prepared on each restaurant's premises
daily from scratch, using fresh ingredients. Each restaurant's management determines
the quantities of food and supplies required and orders the items from local,
regional and national suppliers on terms negotiated by the Company's centralized
purchasing staff. Restaurant-level inventories are maintained at a minimum dollar-value
level in relation to sales due to the relatively rapid turnover of the perishable
produce, poultry, meat, fish and dairy commodities that are used in operations.
The Company attempts to negotiate short-term and long-term supply agreements
depending on market conditions and expected demand. However, the Company does
not contract for long periods of time for its fresh commodities such as produce,
poultry, meat, fish and dairy items and, consequently, such commodities can
be subject to unforeseen supply and cost fluctuations. Independent foodservice
distributors deliver most food and supply items daily to restaurants. The financial
impact of such supply agreements, would not have a material adverse effect on
the Company's financial position.
Employees
At December 12, 2003, the Company employed 2,003 persons (including employees
at managed facilities), 1,442 of whom were full-time employees, 561 of whom were
part-time employees, 32 of whom were headquarters personnel, 196 of whom were
restaurant management personnel, 587 of whom were kitchen personnel and 1,186
of whom were restaurant service personnel. A number of the Company's restaurant
service personnel are employed on a part-time basis. Changes in minimum wage levels
may affect the labor costs of the Company and the restaurant industry generally
because a large percentage of restaurant personnel are paid at or slightly above
the minimum wage. With the exception of some of the employees at Lutece in New
York, the Company's employees are not covered by a collective bargaining agreement.
Government Regulation
The Company is subject to various federal, state and local laws affecting
its business. Each restaurant is subject to licensing and regulation by a number
of governmental authorities that may include alcoholic beverage control, health,
sanitation, environmental, zoning and public safety agencies in the state or
municipality in which the restaurant is located. Difficulties in obtaining or
failures to obtain the required licenses or approvals could delay or prevent
the development and openings of new restaurants, or could disrupt the operations
of existing restaurants.
Alcoholic beverage control regulations require each of our restaurants to
apply to a state authority and, in certain locations, county and municipal authorities
for licenses and permits to sell alcoholic beverages on the premises. Typically,
licenses must be renewed annually and may be subject to penalties, temporary
suspension or revocation for cause at any time. Alcoholic beverage control regulations
impact many aspects of the daily operations of our restaurants, including the
minimum ages of patrons and employees consuming or serving such beverages; employee
alcoholic beverages training and certification requirements; hours of operation;
advertising; wholesale purchasing and inventory control of such beverages; seating
of minors and the service of food within our bar areas; and the storage and
dispensing of alcoholic beverages. State and local authorities in many jurisdictions
routinely monitor compliance with alcoholic beverage laws. The failure to receive
or retain, or a delay in obtaining, a liquor license for a particular restaurant
could adversely affect the Company's ability to obtain such licenses elsewhere.
The Company is subject to "dram-shop" statutes in most of the states
in which it has operations, 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. The Company carries liquor liability coverage
as part of its existing comprehensive general liability insurance. A settlement
or judgment against the Company under a "dram-shop" statute in excess
of liability coverage could have a material adverse effect on operations.
Various federal and state labor laws govern the Company's operations and its
relationship with employees, including such matters as minimum wages, breaks,
overtime, fringe benefits, safety, working conditions and citizenship requirements.
The Company is also subject to the regulations of the Immigration and Naturalization
Service (INS). If employees of the Company do not meet federal citizenship or
residency requirements, this could lead to a disruption in the Company's work
force. Significant government-imposed increases in minimum wages, paid leaves
of absence and mandated health benefits, or increased tax reporting, assessment
or payment requirements related to employees who receive gratuities could be
detrimental to the profitability of the Company.
The Company's facilities must comply with the applicable requirements of the
Americans With Disabilities Act of 1990 ("ADA") and related state
statutes. The ADA prohibits discrimination on the basis of disability with respect
to public accommodations and employment. Under the ADA and related state laws,
when constructing new restaurants or undertaking significant remodeling of existing
restaurants, the Company must make them more readily accessible to disabled
persons.
The New York State Liquor Authority must approve any transaction in which
a shareholder of the Company increases his holdings to 10% or more of the outstanding
capital stock of the Company and any transaction involving 10% or more of the
outstanding capital stock of the Company.
Seasonal Nature Of Business
The Company's business is highly seasonal. The second quarter of the Company's
fiscal year, consisting of the non-holiday portion of the cold weather season
in New York and Washington (January, February and March), is the poorest performing
quarter. The Company achieves its best results during the warm weather, attributable
to the Company's extensive outdoor dining availability, particularly at Bryant
Park in New York and Sequoia in Washington, D.C. (the Company's largest restaurants)
and the Company's outdoor cafes. However, even during summer months these facilities
can be adversely affected by unusually cool or rainy weather conditions. The
Company's facilities in Las Vegas generally operate on a more consistent basis
through the year.
Terrorism and International Unrest
The terrorist attacks on the World Trade Center in New York and the Pentagon
in Washington, D.C. on September 11, 2001 had a material adverse effect on the
Company's revenues. As a result of the attacks, one Company restaurant, The
Grill Room, located at 2 World Financial Center, which is adjacent to the World
Trade Center, experienced some damage. The Grill Room was closed from September
11, 2001 and reopened in early December 2002.
The Company's restaurants in New York, Las Vegas, Washington D.C. and Florida
benefit from tourist traffic. Though the Las Vegas market has shown resiliency,
the sluggish economy and the lingering effects of September 11, 2001 have had
an adverse effect on the Company's restaurants. Recovery depends upon a general
improvement in economic conditions and the public's willingness and inclination
to resume vacation and convention travel. Additional acts of terrorism in the
United States or substantial international unrest may have a material adverse
effect on the Company's business and revenues.
Forward Looking Statements and Risk Factors
This report contains forward-looking statements that involve risks and uncertainties.
Discussions containing such forward-looking statements may be found in the material
set forth under "Item 1. Business" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations"
as well as throughout this report generally. The Company's actual results could
differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including those discussed below.
The restaurant business is intensely competitive and involves an extremely
high degree of risk. The Company believes that a large number of new restaurants
open each year and that a significant number of them do not succeed. Even successful
restaurants can rapidly lose popularity due to changes in consumer tastes, turnover
in personnel, the opening of competitive restaurants, unfavorable reviews and
other factors. There can be no assurance that the Company's existing restaurants
will retain such patronage as they currently enjoy or that new restaurants opened
by the Company will be successful. There is active competition for competent
chefs and management personnel and intense competition among major restaurateurs
and food service companies for the larger, unique sites suitable for restaurants.
To achieve significant increases in revenue or to replace revenue of restaurants
which experience declining popularity or which close because of lease expirations
or other reasons, the Company would have to open additional restaurant facilities.
The opening of new restaurants is subject to a wide variety of uncertainties,
including the ability to negotiate favorable lease provisions, the location
of the restaurant, the development of a menu and concept that appeals to consumers
and the availability of skilled restaurant managers. The acquisition or construction
of new restaurants also requires significant capital resources. New large-scale
projects that have been the focus of the Company's efforts in recent years would
likely require additional financing. If the Company were to identify a favorable
restaurant opportunity, there is no assurance that the required financing would
be available.
Item 2. Properties
The Company's restaurant facilities and the Company's executive offices are
occupied under leases. Most of the Company's restaurant leases provide for the
payment of base rents plus real estate taxes, insurance and other expenses and,
in certain instances, for the payment of a percentage of the Company's sales
at such facility. These leases (including leases for managed restaurants) have
terms (including any available renewal options) expiring as follows:
Years Lease Number of
Terms Expire Facilities
------------ ----------
2004-2005 2
2006-2010 10
2011-2015 9
2016-2020 9
2021-2025 1
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The Company's executive, administrative and clerical offices, located in approximately
8,500 square feet of office space at 85 Fifth Avenue, New York, New York, are
occupied under a lease which expires in October 2008, including a five-year
renewal option. The Company terminated its lease for office space related to
its Washington, D.C. catering operations as of December 31, 2002, and has moved
into new facilities under a lease that expires in 2012.
For information concerning the Company's future minimum rental commitments
under non-cancelable operating leases, see Note 8 of Notes to Consolidated Financial
Statements.
See also "Item I. Business - Overview" for a list of restaurant
properties.
Item 3. Legal Proceedings
In the ordinary course of its business, the Company is a party to various
lawsuits arising from accidents at its restaurants and workers' compensation
claims, which are generally handled by the Company's insurance carriers.
The employment by the Company of management personnel, waiters, waitresses
and kitchen staff at a number of different restaurants has resulted in the institution,
from time to time, of litigation alleging violation by the Company of employment
discrimination laws. The Company does not believe that any of such suits will
have a materially adverse effect upon the Company, its financial condition or
operations.
Several unfair labor practice charges were filed against the Company in 1997
with the National Labor Relations Board (NLRB) with respect to the Company's
Las Vegas subsidiary. The charges were heard in October 1997. At issue was whether
the Company unlawfully terminated nine employees and disciplined six other employees
allegedly in retaliation for their union activities. An Administrative Law Judge
(ALJ) found that six employees were terminated unlawfully, three were discharged
for valid reasons, four employees were disciplined lawfully and two employees
were disciplined unlawfully. On appeal, the NLRB found that the Company lawfully
disciplined five employees, and unlawfully disciplined one employee. The Company
appealed the adverse rulings of the NLRB to the D.C. Circuit Court of Appeals.
In July 2003 the D.C. Circuit Court of Appeals affirmed the determinations of
the NLRB. The Company has offered to reinstate the employees and when an estimate
of potential liability can be determined a reserve will be established. The
Company does not expect this reserve to have a material impact on its financial
statements.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Registrant
The following table sets forth the names and ages of executive officers of
the Company and all offices held by each person:
Name Age Positions and Offices
---- --- ---------------------
Michael Weinstein 60 President and Chief Executive Officer
Vincent Pascal 60 Senior Vice President and Secretary
Robert Towers 56 Executive Vice President, Chief Operating
Officer and Treasurer
Paul Gordon 52 Senior Vice President
Robert Stewart 47 Chief Financial Officer
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Each executive officer of the Company serves at the pleasure of the Board
of Directors and until his successor is duly elected and qualifies.
Michael Weinstein has been the President and a director of the Company since
its inception in January 1983. During the past five years, Mr. Weinstein has
been an officer, director and 25% shareholder of Easy Diners, Inc., RSWB Corp.
and BSWR Corp. (since 1998). Mr. Weinstein is the owner of 24% of the membership
interests in each of Dockeast, LLC and Dockwest, LLC. These companies operate
four restaurants in New York City, and none of these companies is a parent,
subsidiary or other affiliate of the Company. Mr. Weinstein spends substantially
all of his business time on Company-related matters.
Vincent Pascal was elected Vice President, Assistant Secretary and a director
of the Company in October 1985. Mr. Pascal became Secretary of the Company in
January 1994. Mr. Pascal became a Senior Vice President in 2001.
Robert Towers has been employed by the Company since November 1983 and was
elected Vice President, Treasurer and a director in March 1987. Mr. Towers became
an Executive Vice President and Chief Operating Officer in 2001.
Paul Gordon has been employed by the Company since 1983 and was elected as
a director in November 1996 and a Senior Vice President in 2001. Mr. Gordon
is the manager of the Company's Las Vegas operations. Prior to assuming that
role in 1996, Mr. Gordon was the manager of the Company's operations in Washington,
D.C. since 1989.
Robert Stewart has been employed by the Company since June 2002 and was elected
Chief Financial Officer effective as of June 24, 2002. For the three years prior
to joining the Company, Mr. Stewart was a Chief Financial Officer and Executive
Vice President at Fortis Capital Holdings. For nine years prior to joining Fortis
Capital Holdings, Mr. Stewart held senior financial and audit positions in Skandinaviska
Enskilda Banken in their New York, London and Stockholm offices.
PART II
Item 5. Market For Registrant's Common Equity and
Related Stockholder Matters
Market Information
The Company's Common Stock, $.01 par value, is traded in the over-the-counter
market on the Nasdaq National Market under the symbol "ARKR." The
high and low sale prices for the Common Stock from October 1, 2001 through September
27, 2003 are as follows:
Calendar 2001 High Low
-------------- ------ -----
Fourth Quarter $10.00 $6.75
Calendar 2002
-------------
First Quarter 8.00 6.10
Second Quarter 8.15 6.41
Third Quarter 8.49 6.60
Fourth Quarter 7.42 6.05
Calendar 2003
-------------
First Quarter 7.24 5.75
Second Quarter 7.75 6.20
Third Quarter 11.99 7.45
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Dividends
The Company has not paid any cash dividends since its inception and does not
intend to pay dividends in the foreseeable future.
Number of Shareholders
As of December 21, 2003, there were 65 holders of record of the Company's
Common Stock, $.01 par value. This does not include the number of persons whose
stock is in nominee or "street name" accounts through brokers.
Item 6. Selected Consolidated Financial Data
The following table sets forth certain financial data for the fiscal years
ended in 1999 through 2003. This information should be read in conjunction with
the Company's Consolidated Financial Statements and the notes thereto beginning
at page F-1.
Years Ended
--------------------------------------------------------------------------
September 27, September 28, September 29, September 30, October 2,
2003 2002 2001 2000 1999
------------- ------------- ------------- ------------- ----------
(In thousands, except per share data)
(a) (b) (c)
OPERATING DATA:
Total revenue $ 116,593 $ 115,657 $ 127,553 $ 119,887 $ 111,884
Cost and expenses (112,632) (109,183) (135,591) (123,729) (104,836)
Operating income (loss) 3,961 6,474 (8,038) (3,842) 7,048
Other income (expense), net 414 (826) (2,152) (1,598) 23
Income (loss) before provision for
income taxes and cumulative
effect of accounting change 4,375 5,648 (10,190) (5,440) 7,071
Provision (benefit) for income taxes 1,056 1,419 (3,342) (1,906) 2,576
Income (loss) before cumulative
effect on accounting change 3,319 4,229 (6,848) (3,534) 4,495
Cumulative effect of accounting
charge--net -- -- -- (189) --
NET INCOME (LOSS) 3,319 4,229 (6,848) (3,723) 4,495
NET INCOME (LOSS) PER SHARE:
Basic $ 1.04 $ 1.33 $ (2.15) $ (1.17) $ 1.30
Diluted $ 1.03 $ 1.32 $ (2.15) $ (1.17) $ 1.29
Weighted average number of shares
Basic 3,181 3,181 3,181 3,186 3,461
Diluted 3,213 3,206 3,181 3,186 3,476
BALANCE SHEET DATA
(end of period):
Total assets $ 43,635 $ 47,960 $ 53,091 $ 66,297 $ 46,709
Working capital (deficit) (4,802) (7,990) (6,569) (5,640) (3,714)
Long-term debt 7,226 9,547 21,700 24,447 6,683
Shareholders' equity 24,826 21,446 17,173 24,065 28,843
Shareholders' equity per share 7.80 6.74 5.40 7.55 8.33
Facilities in operations--end of year,
including managed 41 41 47 49 42
|
(a) Fiscal 2003 income was adversely affected by an asset impairment charge
of $667,000 related to the fixed assets of a restaurant, Lutece, located in
New York.
(b) Fiscal 2001 income was adversely affected by an asset impairment charge
of $10,045,000 related to the Aladdin operations and a charge of $935,000 due
to the cancellation of a development project.
(c) Fiscal 2000 income was adversely affected by an asset impairment charge for
a closed restaurant of $811,000, expenses of $280,000 from the sale of a restaurant
and a $1,300,000 charge associated with a wage and hour lawsuit. Fiscal 2000 was
also adversely affected by charges of $4,988,000 from the write-off of advances
and working capital needs related to a project the Company withdrew from.
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Accounting period
The Company's fiscal year ends on the Saturday nearest September 30. The fiscal
years ended September 27, 2003, September 28, 2002 and September 29, 2001 each
included 52 weeks.
Revenues
Total revenues at restaurants owned by the Company increased by 0.8% from
fiscal 2002 to fiscal 2003 and decreased by 9.4% from fiscal 2001 to fiscal
2002. Of the $936,000 increase in revenues from fiscal 2002 to fiscal 2003,
$585,000 is attributable to the recognition of a previously deferred gain on
the sale of a restaurant in October 1997 resulting from the resolution of concerns
regarding the Company's ability to collect a note received in connection with
the sale. A review of the performance of this note and the security underlying
it indicated that the loss was no longer probable.
Same store sales increased 1.1%, or $1,230,000, on a Company-wide basis from
fiscal 2002 to fiscal 2003. This increase was the result of an 8.4%, or $4,491,000,
increase in same store sales at the Company's Las Vegas restaurants offset by
decreases in same store sales in New York and Washington D.C. of 5.0% and 8.3%,
respectively. The decreases in New York and Washington D.C. were principally
due to the residual effects on tourism of the terrorist attacks on September
11th, the sluggish economy in these markets and record rainfalls in these areas
during late spring and early summer 2003 which limited the use of outdoor cafe
seating. Menu prices did not significantly change during fiscal 2003.
During the fourth quarter of 2002 the Company abandoned its restaurant and
food court operations at the Desert Passage, the retail complex at the Aladdin
Resort & Casino in Las Vegas. During fiscal 2002 sales decreased 42.9% at
this location compared to fiscal 2001, resulting in the Company's decision to
abandon these operations. If this decrease is excluded from same store Las Vegas
sales, the Company's remaining operations in Las Vegas experienced a sales increase
of $190,000 during fiscal 2002.
Of the $11,896,000 decrease in revenues from fiscal 2001 to fiscal 2002, $3,282,000
is attributable to the year long closure of the Grill Room restaurant located
in 2 World Financial Center, an office building adjacent to the World Trade
Center site. This restaurant was damaged in the September 11, 2001 attack and
reopened in early fiscal 2003. A $256,000 increase in sales is attributable
to the opening of the Saloon at the Neonopolis Center in downtown Las Vegas.
Same store sales decreased 6.7% or $8,262,000, on a Company-wide basis from
fiscal 2001 to fiscal 2002. The decrease in same store sales was 3.3% in Las
Vegas, 8.1% in New York and 13.7% in Washington D.C. Such decreases were principally
due to a decrease in customer counts. The change in menu prices did not significantly
affect revenues. The Company believes its fiscal 2002 revenues compared to fiscal
2001 were adversely affected by the terrorist attacks on September 11th, the
residual effects on tourism and the sluggish economy. While Las Vegas has rebounded
considerably in the past year, New York and Washington continue to experience
soft sales.
Other operating income, which consists of the sale of merchandise at various restaurants,
management fee income, door sales and for fiscal 2003 the reversal of the previously
mentioned provision, was $1,337,000 in fiscal 2003, $550,000 in fiscal 2002, and
$546,000 in fiscal 2001.
Costs and Expenses
Food and beverage cost of sales as a percentage of total revenue was 25.1%
in fiscal 2003, 24.9% in fiscal 2002 and 25.5% in fiscal 2001.
Total costs and expenses increased by $3,449,000, or 3.2%, from fiscal 2002
to fiscal 2003. Increases in rent, advertising and maintenance contributed to
this increase. During the first quarter of fiscal 2002 rent concessions granted
by landlords in the aftermath of the September 11, 2001 disaster were in place.
These concessions were not available during fiscal 2003 and as a result of this,
and other slight increases in rent levels, rent expense for fiscal 2003 increased
by $224,000 when compared to fiscal 2002. Also, sales increases in restaurants
where the Company pays a percentage rent resulted in an increase in percentage
rent of $168,000 during fiscal 2003 compared to fiscal 2002. During fiscal 2003
advertising expenses increased by $623,000 over fiscal 2002 as a result of increased
advertising for the Lutece restaurant in New York and additional advertising
for the operations in Las Vegas. Maintenance expenses increased by $548,000
during fiscal 2003 compared to fiscal 2002. After September 11, 2001 discretionary
spending was sharply restricted. Though the Company has continued to keep tight
control over spending, maintenance of restaurants has been performed when required
and maintenance delayed during fiscal 2002 has been completed.
Total costs and expenses decreased by $26,408,000, or 19.5%, from fiscal 2001
to fiscal 2002. The main reasons for this decrease in total costs and expenses
include the reduction in payroll expenses of $7,673,000 from fiscal 2001 to
fiscal 2002 as a result of the Company's response to the events of September
11, 2001 and the continued weakened economy. Food and beverage costs decreased
$3,755,000 resulting from the decrease in food and beverage sales of $11,900,000.
Additionally, during fiscal 2001, total costs and expenses were adversely affected
by an asset impairment charge of $10,045,000 associated with the write down
of the Company's Desert Passage restaurant and food court operations. Total
costs and expenses were also impacted in fiscal 2001 by a charge of $935,000
due to the cancellation of a development project.
Payroll expenses as a percentage of total revenues was 33.1% in fiscal 2003
compared to 32.3% in fiscal 2002 and 35.3% in fiscal 2001. Payroll expense was
$38,583,000, $37,412,000 and $45,085,000 in fiscal 2003, 2002 and 2001, respectively.
The Company aggressively adapted its cost structure in response to lower sales
expectations following September 11th and continues to review its cost structure
and make adjustments where appropriate. Head count stood at 2,003 as of year
end 2003 compared to 1,959 and 2,070 at year-end 2002 and 2001 respectively.
Severance pay to key personnel was approximately $250,000 during fiscal 2002.
No pre-opening expenses and early operating losses were incurred during fiscal
2003 or 2002. The Company received a construction and operating allowance from
the landlord for the Saloon at the Neonopolis Center at Freemont Street in downtown
Las Vegas, the one restaurant opened in fiscal 2002. The Company incurred pre-opening
and early operating losses at newly opened restaurants of approximately $100,000
in fiscal 2001. The Company typically incurs significant pre-opening expenses
in connection with its new restaurants that are expensed as incurred. Furthermore,
it is not uncommon that such restaurants experience operating losses during
the early months of operation.
General and administrative expenses, as a percentage of total revenue, were 5.7%
in fiscal 2003, 5.7% in fiscal 2002 and 5.5% in fiscal 2001. General and administrative
expenses were adversely impacted by a $370,000 increase in casualty insurance
costs during fiscal 2002. General and administrative expenses in fiscal 2001 were
impacted by $400,000 in legal expenses incurred in connection with a potential
transaction.
The Company managed one restaurant it did not own (El Rio Grande) at September
27, 2003, September 28, 2002 and September 29, 2001. Sales of this restaurant,
which are not included in consolidated sales, were $2,765,000 in fiscal 2003,
$2,973,000 in fiscal 2002 and $4,380,000 in fiscal 2001. The Company recently
entered into agreements to manage 11 fast food restaurants located in the Hard
Rock Casinos in Hollywood and Tampa, Florida.
Interest expense was $732,000 in fiscal 2003, $1,212,000 in fiscal 2002 and
$2,446,000 in fiscal 2001. The significant decrease from fiscal 2002 to fiscal
2003 and from fiscal 2001 to fiscal 2002 is due to lower outstanding borrowings
on the Company's credit facility and the benefit from rate decreases in the
prime-borrowing rate. Interest income was $163,000 in fiscal 2003, $133,000
in fiscal 2002 and $150,000 in fiscal 2001.
Other income, which generally consists of purchasing service fees and other
income at various restaurants was $983,000, $253,000 and $144,000 for fiscal
203, 2002 and 2001, respectively. Other income was impacted during fiscal 2003
by the Company receipt of $508,000 in World Trade Center Grants for four restaurants
located in downtown New York that were adversely impacted by the September 11,
2001 terrorist attacks.
Income Taxes
The provision for income taxes reflects Federal income taxes calculated on
a consolidated basis and state and local income taxes calculated by each New
York subsidiary on a non-consolidated basis. Most of the restaurants owned or
managed by the Company are owned or managed by a separate subsidiary.
For state and local income tax purposes, the losses incurred by a subsidiary
may only be used to offset that subsidiary's income, with the exception of the
restaurants operating in the District of Columbia. Accordingly, the Company's
overall effective tax rate has varied depending on the level of losses incurred
at individual subsidiaries. Due to losses incurred in fiscal 2001 and the carry
back of such losses, the Company realized an overall tax benefit of 32.8% of
such losses in fiscal 2001. During fiscal 2002 the Company abandoned its restaurant
and food court operations at the Desert Passage, the retail complex at the Aladdin
Resort & Casino in Las Vegas. In fiscal 2002, the Company was able to utilize
the deferred tax asset created in fiscal 2001, by the impairment of these operations.
The Company's effective tax rate for fiscal 2003 was 24.1%. During the year
ended September 27, 2003, the Company decreased its allowance for the utilization
of the deferred tax asset arising from state and local operating loss carryforwards
by $445,000 in the current year based on the merger of certain unprofitable
subsidiaries into profitable ones.
The Company's overall effective tax rate in the future will be affected by
factors such as the level of losses incurred at the Company's New York facilities,
which cannot be consolidated for state and local tax purposes, pre-tax income
earned outside of New York City and the utilization of state and local net operating
loss carry forwards. Nevada has no state income tax and other states in which
the Company operates have income tax rates substantially lower in comparison
to New York. In order to utilize more effectively tax loss carry forwards at
restaurants that were unprofitable, the Company has merged certain profitable
subsidiaries with certain loss subsidiaries.
The Revenue Reconciliation Act of 1993 provides tax credits to the Company for
FICA taxes paid by the Company on tip income of restaurant service personnel.
The net benefit to the Company was $793,000 in fiscal 2003, $741,000 in fiscal
2002 and $489,000 in fiscal 2001.
During fiscal 2002, the Company and the Internal Revenue Service finalized
the adjustments to the Company's Federal income tax returns for fiscal years
1995 through 1998. The settlement did not have a material effect on the Company's
financial statements.
Liquidity and Sources of Capital
The Company's primary source of capital has been cash provided by operations
and funds available from its main bank, Bank Leumi USA. The Company from time
to time also utilizes equipment financing in connection with the construction
of a restaurant and seller financing in connection with the acquisition of a
restaurant. The Company utilizes capital primarily to fund the cost of developing
and opening new restaurants, acquiring existing restaurants owned by others
and remodeling existing restaurants owned by the Company.
The net cash used in investing activities in fiscal 2003 of ($1,851,000) was
used for the expansion of an existing restaurant in Las Vegas and for the replacement
of fixed assets at existing restaurants. The net cash used in investing activities
in fiscal 2002 ($153,000) was primarily used for the replacement of fixed assets
at existing restaurants. The net cash used in investing activities in fiscal
2001 ($1,891,000) was principally used for the Company's continued investment
in fixed assets associated with constructing new restaurants. In fiscal 2001
the Company opened two bars at the Venetian in Las Vegas, Nevada (V-Bar and
Venus).
The net cash used in financing activities in fiscal 2003 ($8,356,000), fiscal
2002 ($8,072,000) and fiscal 2001 ($5,618,000) was principally due to repayments
of long-term debt on the Company's main credit facility in excess of borrowings
on such facility.
The Company had a working capital deficit of $4,802,000 at September 27, 2003
as compared to a working capital deficit of $7,990,000 at September 28, 2002.
The restaurant business does not require the maintenance of significant inventories
or receivables; thus the Company is able to operate with negative working capital.
The Company's Revolving Credit and Term Loan Facility (the "Facility")
with its main bank (Bank Leumi USA), as amended in November 2001, December 2001
April 2002, and February 2003, included a $26,000,000 credit line to finance
the development and construction of new restaurants and for working capital
purposes at the Company's existing restaurants. On July 1, 2002, the Facility
converted into a term loan in the amount of $17,890,000 payable in 36 monthly
installments of approximately $497,000. Upon amendment in February 2003, the
term loan was converted into a revolving loan. The credit line was reduced to
$11,500,000 on June 29, 2003 and $8,500,000 on September 29, 2003 until the
maturity date of February 12, 2005. The Company had borrowings of $6,975,000
outstanding on this facility at September 27, 2003. The loan bears interest
at 1/2% above the bank's prime rate and at September 27, 2003 and September
28, 2002, the interest rate on outstanding loans was 4.50% and 5.25% respectively.
The Facility also includes a $500,000 Letter of Credit Facility for use in lieu
of lease security deposits. The Company has delivered $495,000 in irrevocable
letters of credit on this Facility at September 27, 2003. The Company generally
is required to pay commissions of 1 1/2% per annum on outstanding letters of
credit.
The Company's subsidiaries each guaranteed the obligations of the Company under
the Facility and granted security interests in their respective assets as collateral
for such guarantees. In addition, the Company pledged stock of such subsidiaries
as security for obligations of the Company under such Facility.
The Facility includes restrictions relating to, among other things, indebtedness
for borrowed money, capital expenditures, mergers, sale of assets, dividends
and liens on the property of the Company. The Facility also requires the Company
to comply with certain financial covenants at the end of each quarter such as
minimum cash flow in relation to the Company's debt service requirements, ratio
of debt to equity, and the maintenance of minimum shareholders' equity.
At September 29, 2001, the Company was not in compliance with several of the
requirements of the Facility principally due to the impairment charges incurred
in connection with its restaurant and food service operations at the Aladdin
in Las Vegas, Nevada. The Company received a waiver from the bank to cure the
non-compliance. In December 2001, the covenants were amended for forthcoming
periods. During the year ended September 27, 2003, the Company violated covenants
related to a limitation on employee loans and maintaining minimum cash flow
in relation to the Company's debt service requirements. The Company received
waivers from the bank for the covenants it was not in compliance with, for the
year ended September 27, 2003 and through December 30, 2003.
In April 2000, the Company borrowed $1,570,000 from its main bank at an interest
rate of 8.8% to refinance the purchase of various restaurant equipment at the
Venetian. The note which is payable in 60 equal monthly installments through
May 2005, is secured by such restaurant equipment. At September 27, 2003 the
Company had $601,000 outstanding on this facility.
The Company entered into a sale and leaseback agreement with GE Capital for
$1,652,000 in November 2000 to refinance the purchase of various restaurant
equipment at its food and beverage facilities in a hotel and casino in Las Vegas,
Nevada. The lease bears interest at 8.65% per annum and is payable in 48 equal
monthly installments of $32,000 until maturity in November 2004 at which time
the Company has an option to purchase the equipment for $519,000. Alternatively,
the Company can extend the lease for an additional 12 months at the same monthly
payment until maturity in November 2005 and repurchase the equipment at such
time for $165,000.
The Company originally accounted for this agreement as an operating lease
and did not record the assets or the lease liability in the financial statements.
During the year ended September 29, 2001, the Company recorded the entire amount
payable under the lease as a liability of $1,600,000 based on the anticipated
abandonment of the Aladdin operations. In 2002, the operations at the Aladdin
were abandoned and at at September 27, 2003 $874,000 remained accrued in other
current liabilities representing future operating lease payments.
In September 2001, a subsidiary of the Company entered into a lease agreement
with World Entertainment Centers LLC regarding the leasing of premises at the
Neonopolis Center at Freemont Street for the restaurant Saloon. The Company
provided a lease guaranty ("Guaranty") to induce the landlord to enter
into the lease agreement. The Guaranty is for a term of two years from the date
of the opening of the Saloon, May 2002, and during the first year of the Guaranty
was in the amount of $350,000. Upon the first anniversary of the opening of
the Saloon, May 2003, the Guaranty was reduced to $175,000 and it will expire
in May 2004.
Contractual Obligations and Commercial Commitments
To facilitate an understanding of our contractual obligations and commercial commitments,
the following data is provided:
Payments Due by Period
---------------------------------------------------
Within After 5
Total 1 year 2-3 years 4-5 years years
------- ------- --------- --------- -------
(in thousands of dollars)
Contractual Obligations:
Long Term Debt $ 7,576 $ 350 $ 7,226 $ -- $ --
Operating Leases 46,572 7,988 15,727 8,751 14,106
------- ------ ------- ------ -------
Total Contractual Cash Obligations $54,148 $8,338 $22,953 $8,751 $14,106
======= ====== ======= ====== =======
|
Amount of Commitment Expiration Per Period
---------------------------------------------------
Within After 5
Total 1 year 2-3 years 4-5 years years
------- ------- --------- --------- -------
(in thousands of dollars)
Other Commercial Commitments:
Letters of Credit $500 $-- $500 $-- $--
---- --- ---- --- ---
Total Commercial Commitments $500 $-- $500 $-- $--
==== === ==== === ===
|
Restaurant Expansion
The Company did not open any new restaurants in fiscal 2003. In fiscal 2002
the Company opened one restaurant at the Neonopolis Center at Freemont Street
in downtown Las Vegas, Nevada (The Saloon). The Company opened two bars (V-Bar
and Venus) at the Venetian in Las Vegas, Nevada in fiscal 2001.
Critical Accounting Policies
The preparation of financial statements requires the application of certain
accounting policies, which may require the Company to make estimates and assumptions
of future events. In the process of preparing its consolidated financial statements,
the Company estimates the appropriate carrying value of certain assets and liabilities,
which are not readily apparent from other sources. The primary estimates underlying
the Company's financial statements include allowances for potential bad debts
on accounts and notes receivable, the useful lives and recoverability of its
assets, such as property and intangibles, fair values of financial instruments,
the realizable value of its tax assets and other matters. Management bases its
estimates on certain assumptions, which they believe are reasonable in the circumstances,
and actual results could differ from those estimates. Although management does
not believe that any change in those assumptions in the near term would have
a material effect on the Company's consolidated financial position or the results
of operation, differences in actual results could be material to the financial
statements.
The Company's significant accounting policies are more fully described in Note
1 to the Company's financials. Below are listed certain policies that management
believes are critical.
Long-Lived Assets - The Company annually assesses any impairment in value
of long-lived assets to be held and used. The Company evaluates the possibility
of impairment by comparing anticipated undiscounted cash flows to the carrying
amount of the related long-lived assets. If such cash flows are less than carrying
value the Company then reduces the asset to its fair value. Fair value is generally
calculated using discounted cash flows. Various factors such as sales growth
and operating margins and proceeds from a sale are part of this analysis. Future
results could differ from the Company's projections with a resulting adjustment
to income in such period.
Deferred Income Tax Valuation Allowance - The Company provides such allowance
due to uncertainty that some of the deferred tax amounts may not be realized.
Certain items, such as state and local tax loss carry forwards, are dependent
on future earnings or the availability of tax strategies. Future results could
require an increase or decrease in the valuation allowance and a resulting adjustment
to income in such period.
Accounting for Goodwill and Other Intangible Assets
During 2001, the FASB issued FAS 142, which requires that for the Company,
effective September 28, 2002, goodwill, including the goodwill included in the
carrying value of investments accounted for using the equity method of accounting,
and certain other intangible assets deemed to have an indefinite useful life,
cease amortizing. FAS 142 requires that goodwill and certain intangible assets
be assessed for impairment using fair value measurement techniques. Specifically,
goodwill impairment is determined using a two-step process. The first step of
the goodwill impairment test is used to identify potential impairment by comparing
the fair value of the reporting unit (the Company is being treated as one reporting
unit) with its net book value (or carrying amount), including goodwill. If the
fair value of the reporting unit exceeds its carrying amount, goodwill of the
reporting unit is considered not impaired and the second step of the impairment
test is unnecessary. If the carrying amount of the reporting unit exceeds its
fair value, the second step of the goodwill impairment test is performed to
measure the amount of impairment loss, if any. The second step of the goodwill
impairment test compares the implied fair value of the reporting unit's goodwill
with the carrying amount of that goodwill. If the carrying amount of the reporting
unit's goodwill exceeds the implied fair value of that goodwill, an impairment
loss is recognized in an amount equal to that excess. The implied fair value
of goodwill is determined in the same manner as the amount of goodwill recognized
in a business combination. That is, the fair value of the reporting unit is
allocated to all of the assets and liabilities of that unit (including any unrecognized
intangible assets) as if the reporting unit had been acquired in a business
combination and the fair value of the reporting unit was the purchase price
paid to acquire the reporting unit. The impairment test for other intangible
assets consists of a comparison of the fair value of the intangible asset with
its carrying value. If the carrying value of the intangible asset exceeds its
fair value, an impairment loss is recognized in an amount equal to that excess.
Determining the fair value of the reporting unit under the first step of the
goodwill impairment test and determining the fair value of individual assets
and liabilities of the reporting unit (including unrecognized intangible assets)
under the second step of the goodwill impairment test is judgmental in nature
and often involves the use of significant estimates and assumptions. Similarly,
estimates and assumptions are used in determining the fair value of other intangible
assets. These estimates and assumptions could have a significant impact on whether
or not an impairment charge is recognized and also the magnitude of any such
charge. To assist in the process of determining goodwill impairment, the Company
obtains appraisals from independent valuation firms. In addition to the use
of independent valuation firms, the
Company performs internal valuation analyses and considers other market information
that is publicly available. Estimates of fair value are primarily determined using
discounted cash flows and market comparisons and recent transactions. These approaches
use significant estimates and assumptions including projected future cash flows
(including timing), discount rate reflecting the risk inherent in future cash
flows, perpetual growth rate, determination of appropriate market comparables
and the determination of whether a premium or discount should be applied to comparables.
Based on the above policy, no impairment charge was recorded upon adoption or
during the year ended September 27, 2003.
Recent Developments
The Financial Accounting Standards Board has recently issued the following
accounting pronouncements:
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
supersedes existing accounting literature dealing with impairment and disposal
of long-lived assets, including discontinued operations. It addresses financial
accounting and reporting for the impairment of long-lived assets and for long-lived
assets to be disposed of and expands current reporting for discontinued operations
to include disposals of a "component" of an entity that has been disposed
of or is classified as held for sale. The Company adopted this standard in the
first quarter of fiscal year 2003. The adoption of this standard did not have
a material impact on the Company's financial statements; however, the Company
will be required to separately disclose the results of closed restaurants as
discontinued operations in the future.
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities,
was issued in July 2002. SFAS No. 146 replaces current accounting literature
and requires the recognition of costs associated with exit or disposal activities
when they are incurred rather than at the date of commitment to an exit or disposal
plan. The provisions of the Statement are effective for exit or disposal activities
that are initiated after December 31, 2002. The adoption of this statement did
not have a material effect on the Company's financial statements.
FIN No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, was issued in November
2002. This interpretation elaborates on the disclosures to be made by a guarantor
in its interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required
to recognize, at the inception of a guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee. The initial recognition
and initial measurement provisions of FIN No. 45 are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002, while disclosure
requirements are effective for interim or annual periods ending after December
15, 2002. The Company adopted this standard in the first quarter of fiscal year
2003. The adoption of this standard did not have a material impact on the Company's
financial statements (see Note 8).
SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure
was issued in December 2002. This statement amends SFAS No. 123, Accounting
for Stock-Based Compensation, providing alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. SFAS No. 148 also amends the disclosure requirements
of SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
has adopted the disclosure-only provisions of SFAS No. 123 (see Note 10).
FIN No. 46, Consolidation of Variable Interest Entities, was issued on January
17, 2003. Such Interpretation addresses consolidation of entities that are not
controllable through voting interests or in which the equity investors do not
bear the residual economic risks and rewards. The Interpretation provides guidance
related to identifying variable interest entities and determining whether such
entities should be consolidated. In October 2003, the effective date of FIN No.
46 was deferred for variable interests held by public companies in all entities
that were acquired prior to February 1, 2003. The deferral revised the effective
date for consolidation of these entities for the Company to the quarter ended
December 27, 2003. The Company believes the adoption of this standard will not
have a material effect on its financial statements.
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" amends and clarifies accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133. SFAS No. 149 is generally effective for
contracts entered into or modified after June 30, 2003 (with a few exceptions)
and for hedging relationships designated after June 30, 2003. The adoption of
this statement did not have a material impact on the Company's financial statements.
SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity" improves the accounting for certain financial
instruments that, under previous guidance, issuers could account for as equity.
The new statement requires that those instruments be classified as liabilities
in statements of financial position. This statement was adopted by the Company
in the quarter ended September 27, 2003, and it did not have a material impact
on the Company's financial statements.
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates with
respect to its outstanding credit agreement with its main bank, Bank Leumi USA.
Outstanding loans under the agreement bear interest at prime plus one-half percent.
Based upon a loan balance of $6,975,000 (at September 27, 2003), a 100 basis
point change in interest rates would change annual interest expense by $69,750.
Item 8. Financial Statements
and Supplementary Data
The Company's Consolidated Financial Statements are included in this report
immediately following Part IV.
Item 9. Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
None.
Item 9A.
Controls and Procedures; Internal Control over Financial Reporting
Evaluation of disclosure controls and procedures. Based on their evaluation,
the Company's principal executive officer and principal financial officer have
concluded that the Company's disclosure controls and procedures (as defined
in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) are effective as of September 27,
2003 to ensure that information required to be disclosed by the Company in reports
that the Company files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms.
Changes in internal control over financial reporting. There were no changes
in the Company's internal control over financial reporting during the fourth
quarter of fiscal year 2003 that materially affected or are reasonably likely
to materially affect the Company's internal control over financial reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant
See Part I, Item 4. "Executive Officers of the Registrant." Other
information relating to the directors and executive officers of the Company
is incorporated by reference to the definitive proxy statement for the Company's
2004 annual meeting of stockholders to be filed with the Securities and Exchange
Commission (the "SEC") pursuant to Regulation 14A no later than 120
days after the end of the fiscal year covered by this form (the "Proxy
Statement"). Information relating to compliance with Section 16(a) of the
Exchange Act is incorporated by reference to the Proxy Statement.
Code of Ethics.
The Company has adopted a code of ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer or controller,
and persons performing similar functions. The Company will provide any person
without charge, upon request, a copy of such code of ethics by mailing the request
to the Company at 85 Fifth Avenue, New York, NY 10003, Attention: Robert Towers.
Audit Committee Financial Expert
The Company's Board of Directors has determined that Marcia Allen, Director,
is the Company's Audit Committee Financial Expert, as defined under Section
407 of the Sarbanes-Oxley Act of 2002 and the rules promulgated by the SEC in
furtherance of Section 407. Ms. Allen is independent of management. Other information
regarding the Audit Committee is incorporated by reference from the Proxy Statement.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to the
Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to the
Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information required by this item is incorporated by reference to the
Proxy Statement.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) (1) Financial Statements: Page
----
Independent Auditors' Report F-1
Consolidated Balance Sheets --
at September 27, 2003 and September 28, 2002 F-2
Consolidated Statements of Operations -- For each of
the three fiscal years ended September 27, 2003,
September 28, 2002 and September 29, 2001 F-3
Consolidated Statements of Cash Flows -- For each of
the three fiscal years ended September 27, 2003,
September 28, 2002 and September 29, 2001 F-4
Consolidated Statements of Shareholders' Equity --
For each of the three fiscal years ended September
27, 2003, September 28, 2002 and September 29, 2001 F-5
Notes to Consolidated Financial Statements F-6
|
(2) Financial Statement Schedules
None
(3) Exhibits:
3.1 Certificate of Incorporation of the Registrant, filed with the Secretary
of State of the State of New York on January 4, 1983, incorporated by reference
to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended September 28, 2002 ("2002 10-K").
3.2 Certificate of Amendment of the Certificate of Incorporation of the Registrant
filed with the Secretary of State of the State of New York on October 11, 1985,
incorporated by reference to Exhibit 3.2 to the 2002 10-K.
3.3 Certificate of Amendment of the Certificate of Incorporation of the Registrant
filed with the Secretary of State of the State of New York on July 21, 1988,
incorporated by reference to Exhibit 3.3 to the 2002 10-K.
3.4 Certificate of Amendment of the Certificate of Incorporation of the Registrant
filed with the Secretary of State of the State of New York on May 13, 1997,
incorporated by reference to Exhibit 3.4 to the 2002 10-K.
3.5 Certificate of Amendment of the Certificate of Incorporation of the Registrant
filed on April 24, 2002 incorporated by reference to Exhibit 3.5 to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended March 30, 2002
(the "Second Quarter 2002 Form 10-Q").
3.6 By-Laws of the Registrant, incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement on
Form S-18 filed with the Securities and Exchange Commission
on October 17, 1985.
10.1 Amended and Restated Redemption Agreement dated June 29, 1993
between the Registrant and Michael Weinstein, incorporated by
reference to Exhibit 10.1 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended October 2, 1994 ("1994
10-K").
10.2 Form of Indemnification Agreement entered into between the
Registrant and each of Michael Weinstein, Ernest Bogen,
Vincent Pascal, Robert Towers, Jay Galin, Robert Stewart,
Bruce R. Lewin, Paul Gordon and Donald D. Shack, incorporated
by reference to Exhibit 10.2 to the 1994 10-K.
10.3 Ark Restaurants Corp. Amended Stock Option Plan, incorporated
by reference to Exhibit 10.3 to the 1994 10-K.
10.4 Fourth Amended and Restated Credit Agreement dated as of
December 27, 1999 between the Company and Bank Leumi USA,
incorporated by reference to Exhibit 10.4 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended October
2, 1999.
10.5 Ark Restaurants Corp. 1996 Stock Option Plan, as amended,
incorporated by reference to the Registrant's Definitive
Proxy Statement pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1) filed on March 16,
2001.
10.6 Lease Agreement dated May 17, 1996 between New York-New York
Hotel, LLC, and Las Vegas America Corp., incorporated by
reference to Exhibit 10.6 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended October 3, 1998 (the
"1998 10-K").
10.7 Lease Agreement dated May 17, 1996 between New York-New York
Hotel, LLC, and Las Vegas Festival Food Corp., incorporated
by reference to Exhibit 10.7 to the 1998 10-K.
10.8 Lease Agreement dated May 17, 1996 between New York-New York
Hotel, LLC, and Las Vegas Steakhouse Corp., incorporated by
reference to Exhibit 10.8 to the 1998 10-K.
10.9 Amendment dated August 21, 2000 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999
between the Company and Bank Leumi USA, incorporated by
reference to Exhibit 10.9 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended September 30, 2000
(the "2000 10-K").
10.10 Amendment dated November 21, 2000 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999
between the Company and Bank Leumi USA, incorporated by
reference to Exhibit 10.10 to the 2000 10-K.
10.11 Amendment dated November 1, 2001 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999
between the Company and Bank Leumi USA, incorporated by
reference to Exhibit 10.11 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended September 29, 2001
(the "2001 10-K").
10.12 Amendment dated December 20, 2001 to the Fourth Amended and
Restated Credit Agreement dated as of December 27, 1999
between the Company and Bank Leumi USA, incorporated by
reference to Exhibit 10.11 of the 2001 10-K.
10.13 Amendment dated as of April 23, 2002 to the Fourth Amended
and Restated Credit Agreement dated as of December 27, 1999
between the Company and Bank Leumi USA, incorporated by
reference to Exhibit 10.13 of the Second Quarter 2002 Form
10-Q.
|
10.14 Amendment dated as of January 22, 2002 to the Fourth Amended
and Restated Credit Agreement dated as of December 27, 1999
between the Company and Bank Leumi USA, incorporated by
reference to Exhibit 10.14 of the First Quarter 2003 Form
10-Q.
*14.1 Code of Ethics
*21 Subsidiaries of the Registrant.
*23 Consent of Deloitte & Touche LLP.
*31.1 Certification of Chief Executive Officer pursuant to Section
302(a) of the Sarbanes-Oxley Act of 2002.
*31.2 Certification of Chief Financial Officer pursuant to Section
302(a) of the Sarbanes-Oxley Act of 2002.
*32 Section 1350 Certification
|
(b) Reports Report on Form 8-K dated July 31, 2003 on Form Report on Form
8-K dated August 5, 2003 8-K
* Filed herewith.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Ark Restaurants Corp.
We have audited the accompanying consolidated balance sheets of Ark Restaurants
Corp. and subsidiaries (the "Company") as of September 27, 2003 and
September 28, 2002, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three fiscal years in the period ended
September 27, 2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Ark Restaurants Corp. and subsidiaries
as of September 27, 2003 and September 28, 2002, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
September 27, 2003, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Deloitte and Touche LLP
New York, New York
December 24, 2003
|
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 27, September 28,
2003 2002
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 486 $ 819
Accounts receivable 1,677 2,000
Employee receivables (net of reserves of $0 and $45 respectively) 255 1,045
Current portion of long-term receivables (Note 3) 193 164
Inventories 1,997 1,925
Deferred income taxes (Note 12) 281 293
Prepaid expenses and other current assets 886 779
Refundable and prepaid income taxes -- 957
------- -------
Total current assets 5,775 7,982
------- -------
LONG-TERM RECEIVABLES (Note 3) 1,291 904
FIXED ASSETS--At cost:
Leasehold improvements 34,385 33,542
Furniture, fixtures and equipment 29,427 28,320
------- -------
63,812 61,862
Less accumulated depreciation and amortization 36,748 31,602
------- -------
27,064 30,260
------- -------
INTANGIBLE ASSETS--Net (Note 4) 473 341
GOODWILL 3,515 3,515
DEFERRED INCOME TAXES (Note 12) 4,622 4,255
OTHER ASSETS (Note 5) 895 703
------- -------
TOTAL $43,635 $47,960
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable--trade $ 3,443 $ 3,332
Accrued expenses and other current liabilities (Note 6) 5,586 6,356
Current maturities of long-term debt (Note 7) 350 6,284
Accrued income taxes 1,198 --
------- -------
Total current liabilities 10,577 15,972
------- -------
LONG-TERM DEBT--Net of current maturities (Note 7) 7,226 9,547
OPERATING LEASE DEFERRED CREDIT (Notes 1 and 8) 1,006 995
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY (Notes 7, 9 and 10):
Common stock, par value $.01 per share--authorized, 10,000
shares; issued, 5,249 52 52
Additional paid-in capital 14,743 14,743
Retained earnings 19,037 15,718
------- -------
33,832 30,513
Less stock options receivables 655 716
Less treasury stock, 2,068 shares 8,351 8,351
------- -------
Total shareholders' equity 24,826 21,446
------- -------
TOTAL $43,635 $47,960
======= =======
|
See notes to consolidated financial statements.
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years Ended
---------------------------------------------
September 27, September 28, September 29,
2003 2002 2001
------------- ------------- -------------
REVENUES:
Food and beverage sales $115,256 $115,107 $127,007
Other income 1,337 550 546
-------- -------- --------
Total revenues 116,593 115,657 127,553
-------- -------- --------
COST AND EXPENSES:
Food and beverage cost of sales 29,267 28,794 32,549
Payroll expenses 38,583 37,412 45,085
Occupancy expenses 18,200 17,306 18,320
Other operating costs and expenses 14,964 13,951 16,499
General and administrative expenses 6,665 6,548 7,005
Depreciation and amortization 4,286 5,172 5,938
Asset impairment (Note 2) 667 -- 10,045
Joint venture losses -- -- 150
-------- -------- --------
Total cost and expenses 112,632 109,183 135,591
-------- -------- --------
OPERATING INCOME (LOSS) 3,961 6,474 (8,038)
-------- -------- --------
OTHER (INCOME) EXPENSE:
Interest expense (Note 7) 732 1,212 2,446
Interest income (163) (133) (150)
Other income (Note 13) (983) (253) (144)
-------- -------- --------
(414) 826 2,152
-------- -------- --------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 4,375 5,648 (10,190)
PROVISION (BENEFIT) FOR INCOME TAXES (Note 12) 1,056 1,419 (3,342)
-------- -------- --------
NET INCOME (LOSS) $ 3,319 $ 4,229 $ (6,848)
======== ======== ========
NET INCOME (LOSS) PER SHARE--Basic: $ 1.04 $ 1.33 $ (2.15)
======== ======== ========
NET INCOME (LOSS) PER SHARE--Diluted: $ 1.03 $ 1.32 $ (2.15)
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES--Basic 3,181 3,181 3,181
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES--Diluted 3,213 3,206 3,181
======== ======== ========
|
See notes to consolidated financial statements.
ARK RESTAURANT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended
---------------------------------------------
September 27, September 28, September 29,
2003 2002 2001
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,319 $ 4,229 $(6,848)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 4,286 5,172 5,938
Recognition of deferred gain on sale of restaurant (585) -- --
Gain on sale of restaurants -- (105) (209)
Loss on disposal of fixed assets and intangibles 57 -- --
Write-off of joint venture advances and investments -- -- 1,086
Impairment of fixed assets 667 -- 10,045
Write-off of accounts and notes receivable -- 165 209
Operating lease deferred credit 11 -- (218)
Deferred income taxes (355) 1,786 (3,107)
Changes in assets and liabilities:
Accounts receivable and employee receivables 1,113 (756) 1,037
Inventories (72) 185 23
Prepaid expenses and other
current assets (163) (124) (308)
Refundable and prepaid
income taxes 957 162 189
Other assets 100 (382) (502)
Accounts payable-trade 111 (900) (1,061)
Accrued income taxes 1,198 -- --
Accrued expenses and other current liabilities (770) (388) 538
------- ------- -------
Net cash provided by operating activities 9,874 9,044 6,812
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (1,884) (704) (3,014)
Proceeds from the disposal of fixed assets -- 394 --
Purchases of intangible assets (136) -- --
Issuance of demand notes and long-term receivables -- (125) (98)
Payments received on long-term receivables 169 282 1,221
------- ------- -------
Net cash used in investing activities (1,851) (153) (1,891)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 1,100 1,500 4,400
Principal payment on long-term debt (9,355) (9,616) (9,974)
Payment (borrowings) under stock options receivables 61 44 (41)
Payment of debt issuance costs (162) -- --
Purchase of treasury stock -- -- (3)
------- ------- -------
Net cash used in financing activities (8,356) (8,072) (5,618)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH AND CASH EQUIVALENTS (333) 819 (697)
CASH AND CASH EQUIVALENTS--
Beginning of year 819 -- 697
------- ------- -------
$ 486 $ 819 $ --
CASH AND CASH EQUIVALENTS--End of year ======= ======= =======
SUPPLEMENTAL INFORMATION:
Cash payments for:
Interest $ 768 $ 1,271 $ 2,446
======= ======= =======
Income taxes $ 114 $ 187 $ 852
======= ======= =======
|
See notes to consolidated financial statements.
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 27, 2003, SEPTEMBER 28, 2002 AND SEPTEMBER 29,
2001
(In thousands)
Common Stock Additional Stock Total
--------------- Paid-In Retained Treasury Options Shareholders'
Shares Amount Capital Earnings Stock Receivable Equity
------ ------ ---------- -------- -------- ---------- -------------
BALANCE, OCTOBER 1, 2000 5,249 $52 $14,743 $18,337 $(8,348) $(719) $24,065
Purchase of treasury stock -- -- -- -- (3) -- (3)
Net borrowings of stock option receivables -- -- -- -- -- (41) (41)
Net loss -- -- -- (6,848) -- -- (6,848)
----- ---- -------- ------- ------- ----- -------
BALANCE--September 29, 2001 5,249 52 14,743 11,489 (8,351) (760) 17,173
Net payment on stock options receivables -- -- -- -- -- 44 44
Net income -- -- -- 4,229 -- -- 4,229
----- --- ------- ------- ------- ----- -------
BALANCE--September 28, 2002 5,249 52 14,743 15,718 (8,351) (716) 21,446
Payment on stock options receivables -- -- -- -- -- 61 61
Net income -- -- -- 3,319 -- -- 3,319
----- --- ------- ------- ------- ----- -------
BALANCE--September 27, 2003 5,249 $52 $14,743 $19,037 $(8,351) $(655) $24,826
===== === ======= ======= ======= ===== =======
|
See notes to consolidated financial statements.
ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 27, 2003, SEPTEMBER 28, 2002 AND SEPTEMBER
29, 2001
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ark Restaurants Corp. and subsidiaries (the "Company") own and operate
25 restaurants, 12 fast food concepts, catering operations and wholesale and
retail bakeries. Twelve restaurants are located in New York City, eight in Las
Vegas, Nevada, four in Washington, D.C., and one in Islamorada, Florida. The
Las Vegas operations include three restaurants within the New York-New York
Hotel & Casino Resort and operation of the resort's room service, banquet
facilities, employee dining room and eight food court concepts. Four restaurants
and bars are within the Venetian Casino Resort as well as four food court concepts;
one restaurant is within the Forum Shops at Caesar's Shopping Center and one
restaurant is in downtown Las Vegas at the Neonopolis Center.
Accounting Period--The Company's fiscal year ends on the Saturday nearest
September 30. The fiscal years ended September 27, 2003, September 28, 2002,
and September 29, 2001, included 52 weeks.
Significant Estimates--In the process of preparing its consolidated financial
statements, the Company estimates the appropriate carrying value of certain
assets and liabilities which are not readily apparent from other sources. The
primary estimates underlying the Company's financial statements include allowances
for potential bad debts on accounts and notes receivable, the useful lives and
recoverability of its assets, such as property and intangibles, fair values
of financial instruments, the realizable value of its tax assets and other matters.
Management bases its estimates on certain assumptions, which they believe are
reasonable in the circumstances, and while actual results could differ from
those estimates, management does not believe that any change in those assumptions
in the near term would have a material effect on the Company's consolidated
financial statements.
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Cash Equivalents--Cash equivalents include instruments with original maturities
of three months or less.
Accounts Receivable--Accounts receivable is primarily composed of normal business
receivables such as credit card receivables that are paid off in a short period
of time. See Notes 16 and 17 for a discussion of related party receivables.
Inventories--Inventories are stated at the lower of cost (first-in, first-out)
or market, and consist of food and beverages, merchandise for sale and other
supplies.
Fixed Assets--Leasehold improvements and furniture, fixtures and equipment are
stated at cost. Depreciation of furniture, fixtures and equipment (including equipment
under capital leases) is computed using the straight-line method over the estimated
useful lives of the respective assets (seven years). Amortization of improvements
to leased properties is computed using the straight-line method based upon the
initial term of the applicable lease or the estimated useful life of the improvements,
whichever is less, and ranges from 5 to 35 years.
The Company includes in leasehold improvements in progress restaurants that
are under construction. Once the projects have been completed the Company will
begin amortizing the assets. Start-up costs incurred during the construction
period of restaurants, including rental of premises, training and payroll, are
expensed as incurred.
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which
requires impairment losses to be recorded on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the asset's carrying amount. In
the evaluation of the fair value and future benefits of long-lived assets, the
Company performs an analysis of the anticipated undiscounted future net cash
flows of the related long-lived assets. If the carrying value of the related
asset exceeds the undiscounted cash flows, the carrying value is reduced to
its fair value. Various factors including future sales growth and profit margins
are included in this analysis. Management believes at this time that carrying
values and useful lives continue to be appropriate.
For the year ended September 27, 2003, an impairment charge of $667,000 was
incurred on the restaurant Lutece (Note 2). For the year ended September 28,
2002, no impairment charges were deemed necessary. For the year ended September
29, 2001, an impairment charge of $10,045,000 was incurred on the Company's
restaurant operations at Desert Passage, the retail complex at the Aladdin Resort
& Casino in Las Vegas, Nevada (Note 2).
Intangible Assets and Goodwill--As of September 29, 2002, the Company adopted
the provisions for SFAS No. 142. This statement requires that goodwill and intangible
assets with indefinite lives no longer be amortized, but instead be tested for
impairment at least annually and written down with a charge to operations when
the carrying amount exceeds the estimated fair value. Prior to the adoption
of SFAS No. 142, the Company amortized goodwill. The amount of such amortized
goodwill was $3,515,000 as of September 28, 2002. In accordance with SFAS No.
142 the Company discontinued the amortization of goodwill effective September
29, 2002. Had the provisions of SFAS No. 142 been in effect during the years
ended September 28, 2002 and September 29, 2001, a reduction of amortization
expense in pretax income of $364,000 or an increase of $0.11 in basic and diluted
earnings per share would have been recorded. The Company has completed its impairment
analysis as of the transition date to SFAS No. 142 and as of September 27, 2003
and has determined that there is no impairment of goodwill.
Costs associated with acquiring leases and subleases, principally purchased
leasehold rights, have been capitalized and are being amortized on the straight-line
method based upon the initial terms of the applicable lease agreements, which
range from 10 to 21 years.
Covenants not to compete arising from restaurant acquisitions are amortized
over the contractual period of five years.
Amortization expense for intangible assets not including goodwill was $15,000,
$39,000 and $95,000 for the years ended September 27, 2003, September 28, 2002,
and September 29, 2001, respectively.
Estimated aggregate amortization expense for each of the five succeeding fiscal
years is $56,000 for 2004 and 2005 and $53,000 for 2006-2008.
Other Assets-- Certain legal and bank commitment fees incurred in connection
with the Company's Revolving Credit and Term Loan Facility, as discussed in
Note 7, were capitalized as deferred financing fees and are being amortized
over two years, the remaining term of the facility.
Operating Lease Deferred Credit--Several of the Company's operating leases
contain predetermined increases in the rentals payable during the term of such
leases. For these leases, the aggregate rental expense over the lease term is
recognized on a straight-line basis over the lease term. The excess of the expense
charged to operations in any year and amounts payable under the leases during
that year are recorded as a deferred credit. The deferred credit subsequently
reverses over the lease term (Note 8).
Occupancy Expenses--Occupancy expenses include rent, rent taxes, real estate
taxes, insurance and utility costs.
Income Per Share of Common Stock--Net income per share is computed in accordance
with Statement of Financial Accounting Standard ("SFAS") No. 128,
Earnings Per Share, and is calculated on the basis of the weighted average number
of common shares outstanding during each period plus the additional dilutive
effect of common stock equivalents. Common stock equivalents consist of dilutive
stock options.
Stock Options--The Company accounts for its stock options granted to employees
under the intrinsic value-based method for employee stock-based compensation
and provides pro forma disclosure of net income and earnings per share as if
the accounting provision of SFAS No. 123 had been adopted. The Company generally
does not grant options to outsiders.
Statement of Financial Accountings Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS No. 123"), requires the Company to disclose pro
forma net income and pro forma earnings per share information for employee stock
option grants to employees as if the fair-value method defined in SFAS No. 123
had been applied. The Company utilized the Black-Scholes option-pricing model
to quantify the pro forma effects on net income and earnings per share of the
options granted and outstanding for fiscal 2002 and fiscal 2001. There were
no options granted during fiscal 2003.
The weighted-average assumptions which were used for fiscal 2002 and fiscal
2001 included risk free interest rates of 4.25% and 5.50% and volatility of
35% and 45%, respectively. An expected life of four years for both years was
used. No annual dividend yield was assumed. The weighted average grant date
fair value of options granted and outstanding during fiscal 2002 and fiscal
2001 was $2.05 and $2.87 respectively.
The pro forma impact was as follows:
Years Ended
---------------------------------------------
September 27, September 28, September 29,
2003 2002 2001
------------- ------------- -------------
(In thousands, except per share amounts)
Net income (loss) as reported $3,319 $4,229 $(6,848)
Deduct stock based compensation expense
computed under the fair value method 118 141 205
Net income (loss) - pro forma $3,201 $4,088 $(7,053)
Net income (loss) per share as reported - basic $ 1.04 $ 1.33 $ (2.15)
Net income (loss) per share as reported - diluted $ 1.03 $ 1.32 $ (2.15)
Net income (loss) per share pro forma - basic $ 1.01 $ 1.29 $ (2.22)
Net income (loss) per share pro forma - diluted $ 1.00 $ 1.28 $ (2.22)
|
Impact of Recently Issued Accounting Standards-- SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, supersedes existing accounting
literature dealing with impairment and disposal of long-lived assets, including
discontinued operations. It addresses financial accounting and reporting for
the impairment of long-lived assets and for long-lived assets to be disposed
of and expands current reporting for discontinued operations to include disposals
of a "component" of an entity that has been disposed of or is classified
as held for sale. The Company adopted this standard in the first quarter of
fiscal year 2003. The adoption of this standard did not have a material impact
on the Company's financial statements; however, the Company will be required
to separately disclose the results of closed restaurants as discontinued operations
in the future.
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities,
was issued in July 2002. SFAS No. 146 replaces current accounting literature
and requires the recognition of costs associated with exit or disposal activities
when they are incurred rather than at the date of commitment to an exit or disposal
plan. The provisions of the Statement are effective for exit or disposal activities
that are initiated after December 31, 2002. The adoption of this statement did
not have a material effect on the Company's financial statements.
FIN No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, was issued in November
2002. This interpretation elaborates on the disclosures to be made by a guarantor
in its interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required
to recognize, at the inception of a guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee. The initial recognition
and initial measurement provisions of FIN No. 45 are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002, while disclosure
requirements are effective for interim or annual periods ending after December
15, 2002. The Company adopted this standard in the first quarter of fiscal year
2003. The adoption of this standard did not have a material impact on the Company's
financial statements (see Note 8).
SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure
was issued in December 2002. This statement amends SFAS No. 123, Accounting
for Stock-Based Compensation, providing alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. SFAS No. 148 also amends the disclosure requirements
of SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
has adopted the disclosure-only provisions of SFAS No. 123 (see Note 10).
FIN No. 46, Consolidation of Variable Interest Entities, was issued on January
17, 2003. Such Interpretation addresses consolidation of entities that are not
controllable through voting interests or in which the equity investors do not
bear the residual economic risks and rewards. The Interpretation provides guidance
related to identifying variable interest entities and determining whether such
entities should be consolidated. In October 2003, the effective date of FIN
No. 46 was deferred for variable interests held by public companies in all entities
that were acquired prior to February 1, 2003. The deferral revised the effective
date for consolidation of these entities for the Company to the quarter ended
December 27, 2003. The Company believes the adoption of this standard will not
have a material effect on its financial statements.
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" amends and clarifies accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133. SFAS No. 149 is generally effective for
contracts entered into or modified after June 30, 2003 (with a few exceptions)
and for hedging relationships designated after June 30, 2003. The adoption of
this statement did not have a material impact on the Company's financial statements.
SFAS No. 150, "Acco