New York 13-3156768
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(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
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Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, $.01 par value NASDAQ/NMS
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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. [ ]
The aggregate market value at December 20, 2001 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 $12,266,100. 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.
Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: At December 20, 2001, there were outstanding 3,181,699 shares of the Registrant's Common Stock, $.01 par value.
Document Incorporated by Reference: Certain portions of the Registrant's definitive proxy statement to be filed not later than January 28, 2002 pursuant to Regulation 14A are incorporated by reference in Items 10 through 13 of Part III of this Annual Report on Form 10-K.
Item 1. Business
General
Ark Restaurants Corp. (the "Registrant" or the "Company") is a holding company formed in 1983. Through its subsidiaries, it owns and operates 26 restaurants and bars, 19 fast food concepts, catering operations, and wholesale and retail bakeries. Initially its facilities were located only in New York City. At this time, twelve of the restaurants are located in New York City, four are located in Washington, D.C., nine are located in Las Vegas, Nevada, and one is located in Islamorada, Florida. 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 nine food court operations. The Company also owns and operates four restaurants and four food court facilities at the Venetian Casino Resort and one restaurant and six food court facilities at the Aladdin Resort and Casino 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 restaurants opened in recent years are of the latter description. The Company opened the restaurant operations at the New York-New York Hotel & Casino in Las Vegas, Nevada in fiscal 1997. In fiscal 1998, the Company acquired one such destination restaurant, the Stage Deli located at the Forum Shops in Las Vegas, Nevada, and opened another destination restaurant, Red located at the South Street Seaport in New York. In fiscal 1999, the Company opened Thunder Grill in Union Station, Washington, D.C. During fiscal 2000, the Company opened two restaurants and four food court facilities at the Venetian Casino Resort as well as one restaurant and a 15,000 square foot food court containing multiple outlets at the Aladdin Resort & Casino, in Las Vegas, Nevada. The Company will shortly begin construction of a restaurant and bar at the Neonopolis Center to be known as The Saloon at Fremont Street in Las Vegas, Nevada, which is scheduled to open in the third quarter of fiscal 2002. 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 utilized by diners awaiting tables. 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 certain information with respect to the Company's facilities currently in operation and the one facility intended to be opened in fiscal 2002.
Seating
Restaurant Size Capacity(2) Lease
Name Location Year Opened(1) (Square Feet) Indoor-(Outdoor) Expiration(3)
---- -------- -------------- ------------- ---------------- -------------
Metropolitan Cafe First Avenue 1982 4,000 180(50) 2006
(between 52nd and 53rd
Streets)
New York, New York
Ernie's Broadway 1983 6,600 300 2008
(between 75th and 76th
Streets)
New York, New York
America 18th Street 1984 9,600 350 2004
(between 5th 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 (4)(5) Third Avenue 1987 4,000 160 2014
(between 38th and 39th
Streets)
New York, New York
Gonzalez y Gonzalez Broadway 1989 6,000 250 month-to-
(between Houston and month
Bleecker Streets)
New York, New York
America Union Station 1989 10,000 400 2009
Washington, D.C.
Center Cafe Union Station 1989 4,000 200 2009
Washington, D.C.
Sequoia Washington Harbour 1990 26,000 600(400) 2010
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
Lutece East 50th Street 1994 2,500 92 2019
(between 2nd and 3rd
Avenues)
New York, New York
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Seating
Restaurant Size Capacity(2) Lease
Name Location Year Opened(1) (Square Feet) Indoor-(Outdoor) Expiration(3)
---- -------- -------------- ------------- ---------------- -------------
Lorelei Restaurant Islamorada, Florida 1994 10,000 400 2029
and Cabana Bar
Columbus Bakery Columbus Avenue 1988 3,000 75 2007
(between 82nd and 83rd
Streets)
New York, New York
Bryant Park Grill & Bryant Park 1995 25,000 180(820) 2025
Cafe New York, New York
Columbus Bakery First Avenue 1995 2000 75 2006
(between 52nd and 53rd
Streets)
New York, New York
America New York-New York Hotel 1997 20,000 450 2017(6)
and Casino
Las Vegas, Nevada
Gallagher's New York-New York 1997 5,000 160 2017(6)
Steakhouse Hotel & Casino
Las Vegas, Nevada
Gonzalez y Gonzalez New York-New York 1997 2,000 120 2017(6)
Hotel & Casino
Las Vegas, Nevada
Village Eateries(7) New York-New York 1997 6,300 400(8) 2017(6)
Hotel & Casino
Las Vegas, Nevada
The Grill Room(9) World Financial Center 1997 10,000 250 2012
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.
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Seating
Restaurant Size Capacity(2) Lease
Name Location Year Opened(1) (Square Feet) Indoor-(Outdoor) Expiration(3)
---- -------- -------------- ------------- ---------------- -------------
Venetian Food Court Venetian Casino Resort 1999 5,000 300(8) 2014
Las Vegas, Nevada
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
Aladdin Food Court Aladdin Resort & Casino 2000 15,000 400(8) 2020
Las Vegas, Nevada
Fat Anthony's Aladdin Resort & Casino 2000 10,000 300 2020
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 (10) 6,000 200 2014(10)
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) 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.
(5) The Company owns a 19% interest in the partnership that owns El Rio Grande.
(6) 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 such restaurant.
(7) The Company operates nine 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.
(8) Represents common area seating.
(9) Restaurant experienced some damage in the attack on the World Trade Center on September 11, 2001, and will likely not reopen until late fiscal 2002 due to the substantial damage sustained by the World Financial Center, where the restaurant is located.
(10) This restaurant is scheduled to open in the third quarter of fiscal 2002. The lease is for a term of 12 years.
Restaurant Expansion
In fiscal 2001, the Company opened V-Bar, a bar and Venus, a lounge and tiki bar, both at the Venetian Casino Resort in Las Vegas, Nevada. The Company is about to commence construction of a restaurant and bar to be known as The Saloon and scheduled to open in the third quarter of fiscal 2002 at the new Neonopolis Center at Fremont Street in Las Vegas, Nevada.
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 pre-opening expenses and early operating losses of approximately $100,000 in fiscal 2001, $2,393,000 in fiscal 2000, and $400,000 in fiscal 1999.
The Company's restaurants generally do not achieve substantial increases from year to year in net sales or profits, which the Company considers to be typical of the restaurant industry. The Company will have to continue to open new and successful restaurants or expand or change existing restaurants to achieve significant increases in net sales or to replace net sales of restaurants which lose customer favor or which close because of lease expirations or other reasons. 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 Saloon at Fremont Street in Las Vegas is the only new restaurant currently planned by the Company. The Company may take advantage of opportunities, considered to be favorable, when they occur, depending upon the availability of financing and other factors.
Recent Restaurant Dispositions and Charges
The management agreement for the three restaurants operated by the Company in Boston (Marketplace Cafe, Brewskeller Pub and Marketplace Grill) expired on December 31, 2000 and was not renewed.
In January 2001, the Company closed its America restaurant in Tyson's Corner, McLean, Virginia. The Company's efforts to sell this restaurant had been unsuccessful. The Company continuously assessed the carrying value of this restaurant in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets To Be Disposed Of, and determined that the restaurant's value was impaired based upon the future undiscounted anticipated cash flows. The Company assessed the discounted cash flow value of the property and it recorded an impairment charge of $810,769 in the fourth quarter of fiscal 2000.
The Company was a partner with a 50% interest in a partnership that was formed to develop and construct four restaurants at a large theatre development in Southfield, Michigan. In March 2000, the Company withdrew from the project and incurred charges, during fiscal 2000, of $4,988,000 from the write-off of advances for construction costs and working capital needs on the project. In fiscal 2001, the Company recorded a charge of $150,000 due to a partial write-off of a note which the Company collected in March 2001. The note was issued in March 2000 when the Company withdrew from the Southfield, Michigan project.
The Company believes that its restaurant and food court operations at the Aladdin in Las Vegas, Nevada were significantly impaired by the events of September 11th. The restaurant and food court operations experienced severe sales declines in the aftermath of September 11th and the Aladdin itself declared bankruptcy on September 28, 2001. The Company continues to operate the business pending the resolution of the Aladdin bankruptcy proceeding, but an impairment charge of $10,045,000 was recorded in fiscal 2001.
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 the Company's headquarters' personnel. The Company's Columbus Bakery supplies bakery products to most of the Company's New York City restaurants. Each of the Company's restaurants has two or more assistant managers and sous chefs (assistant chefs). The executive chef department at Company headquarters designs menus and supervises the kitchens. 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. The Company has developed its own proprietary software which processes information input daily at the Company's restaurants.
Employees
At December 8, 2001, the Company employed 2,070 persons (including employees at managed facilities), 1,490 of whom were full-time employees, 580 of whom were part-time employees, 29 of whom were headquarters personnel, 189 of whom were restaurant management personnel, 636 of whom were kitchen personnel and 1,216 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.
The 2,070 total number of persons employed by the Company compares with 2,595 total number of persons employed by the Company prior to the September 11, 2001 attacks on the World Trade Center and the Pentagon. See "Events of September 11, 2001" and "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Government Regulation
The Company is subject to various Federal, state and local laws and regulations affecting its business, including a variety of regulatory provisions relating to the wholesomeness of food, sanitation, health, safety and licensing in the sale of alcoholic beverages. A number of the Company's restaurants have open or enclosed outdoor cafes which require the approval of, or licensing by, a number of governmental agencies. The suspension by any regulatory agency of the food service or the liquor license of any of the Company's restaurants would have a material adverse effect upon the affected restaurant and, depending upon the restaurant affected, could adversely affect the Company as a whole.
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. The Company's facilities in Las Vegas operate on a more consistent basis through the year.
Events of September 11, 2001
The terrorist attacks on the World Trade Center in New York and the Pentagon in Washington, D.C. on September 11, 2001 have had a material adverse effect on the Company's revenues. As a result of the attacks, one Company restaurant, The Grill Room, experienced some damage. The Grill Room, located at 2 World Financial Center which is adjacent to the World Trade Center and which was substantially damaged, has been closed since September 11 , 2001 and will likely not reopen until late in fiscal 2002. Several other Company restaurants in New York City were closed from several days to a month as a result of their proximity to the World Trade Center, resulting in revenue losses.
The Company's restaurants in travel destinations, consisting of all of its restaurants in Washington and Las Vegas and certain restaurants in New York, are intended to benefit from high tourist traffic. The decline in travel resulting from the attacks has had a material adverse effect on revenues from those restaurants. Recovery of those restaurants depends upon restoration of public confidence in the air transportation system and the public's willingness and inclination to resume vacation and convention travel.
By early October after the attacks, the Company had taken major steps to adapt costs to the Company's then current prospects. The Company believes that this effort will allow for positive cash flow and earnings in the 2002 fiscal year and continued debt reduction.
See also "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Forward Looking Statements
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 "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 without limitation the effects of the events of September 11, 2001 and those additional factors set forth 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 rapidly can 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.
The Company's restaurants generally do not achieve substantial increases from year to year in net sales or profits. The Company will have to continue to open new and successful restaurants or expand or change existing restaurants to achieve significant increases in net sales or to replace net sales of restaurants which experience declining popularity or which close because of lease expirations or other reasons. The acquisition or construction of new restaurants 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 ------------ ---------- 2002-2005 1 2006-2010 10 2011-2015 7 2016-2020 11 2021-2025 1 2026-2030 1 |
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 maintains an office in Washington, D.C. for its catering operations under a short-term lease, which expires in May 2010, including a five year renewal option.
For information concerning the Company's future minimum rental commitments under non-cancelable operating leases, see Note 8 of Notes to Consolidated Financial Statements.
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 workmen's 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.
A lawsuit was commenced against the Company in October 1997 in the District Court for the Southern District of New York by 44 present and former employees alleging various violations of Federal wage and hour laws. The complaint sought an injunction against further violations of the labor laws and payment of unpaid minimum wages, overtime and other allegedly required amounts, liquidated damages, penalties and attorney's fees. The lawsuit was settled for approximately $1,245,000 in May 2001. Based upon settlement discussions in the fourth quarter of fiscal 2000, the Company recorded a charge of $1,300,000 at that time.
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 and three were discharged for valid reasons and four employees were disciplined lawfully and two employees unlawfully. On appeal, the NLRB found that the Company lawfully disciplined five employees, and unlawfully disciplined one employee. The Company is appealing the adverse rulings of the NLRB to the D.C. Circuit Court of Appeals. The Company does not believe that an adverse outcome in this proceeding will have a material adverse effect upon the Company's financial condition or operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Company
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 58 President and Chief Executive Officer
Vincent Pascal 58 Senior Vice President and Secretary
Robert Towers 54 Executive Vice President, Chief
Operating Officer and Treasurer
Andrew Kuruc 43 Senior Vice President, Chief Financial
Officer and Controller
Paul Gordon 50 Senior Vice President
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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. Since 1978, Mr. Weinstein has been an officer, director and 25% shareholder of Easy Diners, Inc., a restaurant management company which operates three restaurants in New York City. Easy Diners, Inc. is not 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 a Senior Vice President and Chief Operating Officer in 2001.
Andrew Kuruc has been employed as a Vice President and Controller of the Company since April 1987 and was elected as a director of the Company in November 1989. Mr. Kuruc became a Senior Vice President and Chief Financial Officer in 2001.
Paul Gordon has been employed by the Company since 1983 and was elected as a director in November 1996. He was elected Vice President of the Company in March 1998. Mr. Gordon is the manager of the Company's Las Vegas operations and Senior Vice President and a director of the Company's Las Vegas subsidiaries. Prior to assuming that role in 1996, Mr. Gordon was the manager of the Company's operations in Washington, D.C. since 1989.
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 ("Nasdaq") under the symbol "ARKR." The high and low sale prices for the Common Stock from October 3, 1999 through September 29, 2001 are as follows:
Calendar 1999 High Low ------------- ---- --- Fourth Quarter $ 10.25 $ 8.25 Calendar 2000 ------------- First Quarter 9.00 6.13 Second Quarter 8.25 6.50 Third Quarter 10.00 5.75 Fourth Quarter 8.50 5.31 Calendar 2001 ------------- First Quarter 7.75 5.06 Second Quarter 10.37 6.00 Third Quarter 10.10 5.90 |
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 20, 2001, there were 72 holders of record of the Company's Common Stock.
Item 6. Selected Consolidated Financial Data
The following table sets forth certain financial data for the fiscal years ended 1997 through 2001. This information should be read in conjunction with the Company's Consolidated Financial Statements and the notes thereto appearing at page F-1.
(in thousands, except per shate data)
Years Ended
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September 29, September 30, October 2, October 3, September 27,
2001 2000 1999 1998 1997
OPERATING DATA:
Net sales $ 127,007 $ 119,212 $ 110,801 $ 117,398 $ 104,326
Gross restaurant profit 94,458 88,196 81,500 86,132 75,874
Operating income (loss) (8,238) (4,043) 6,834 7,589 2,785
Other income (expense), net (1,952) (1,397) 237 91 96
Income (loss) before provision for
income taxes and cumulative effect of
accounting change (10,190) (5,440) 7,071 7,680 2,882
Income (loss) before cumulative effect
on accounting change (6,848) (3,534) 4,495 4,612 1,737
NET INCOME (LOSS) (6,848) (3,723) 4,495 4,612 1,737
NET INCOME (LOSS) PER SHARE:
Basic $ (2.15) $ (1.11) $ 1.30 $ 1.21 $ 0.47
Diluted $ (2.15) $ (1.11) $ 1.29 $ 1.20 $ 0.46
Weighted average number of shares
Basic 3,181 3,186 3,461 3,826 3,714
Diluted 3,181 3,186 3,476 3,852 3,742
BALANCE SHEET DATA (end of period):
Total assets 53,851 67,016 47,379 44,045 42,079
Working capital (deficit) (5,809) (4,921) (3,044) (719) (2,373)
Long-term debt 23,947 29,520 7,655 5,014 6,126
Shareholders' equity 17,933 24,784 29,513 29,061 25,888
Shareholders' equity per share 5.64 7.78 8.94 7.54 6.92
Facilities in operations, end of year,
including managed 47 49 42 42 46
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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 29, 2001, September 30, 2000 and October 2, 1999 included 52 weeks.
Net Sales
Net sales at restaurants owned by the Company increased by 6.5% from fiscal 2000 to fiscal 2001 and increased by 7.6% from fiscal 1999 to fiscal 2000. Net sales increased by $9,370,000 from sales at restaurants which the Company either opened in fiscal 2001 or did not operate for the full period last year (The Venetian Casino Resort ("the Venetian") concepts: Lutece, Tsunami, Venus and V-Bar; the Aladdin Resort and Casino ("the Aladdin") concepts: Fat Anthony's and the Alakazam Food Court; and Jack Rose in New York City). The increase in net sales for fiscal 2001 was offset by a decrease of $612,000 (a 0.6% decrease) in same store sales and the loss of sales totaling $963,000 at a restaurant that the Company no longer operates (America in McLean, Virginia).
The terrorist attacks on the World Trade Center in New York and the Pentagon in Washington, DC on September 11th had an adverse effect on net sales for fiscal 2001. One Company restaurant (The Grill Room) experienced some damage. The Grill Room is located in an office building adjacent to the World Trade Center (in 2 World Financial Center which experienced substantial damage) and will likely not reopen until late in fiscal 2002 due to the damage sustained by the office building. No other Company restaurants were physically damaged; however, several other Company restaurants in New York City were closed from several days to a month due to their proximity to the World Trade Center (Sequoia, Red, Gonzalez y Gonzalez). The Company's restaurants in Washington DC and Las Vegas and certain New York Company restaurants were also impacted by significant decreases in corporate and tourist travel. Prior to September 11, 2001 the Company's same store sales during the 2001 fiscal year and the last quarter of that fiscal year had been up 1.7% and 1.6%, respectively over last year's comparable periods.
Net sales for fiscal 2000 increased by $8,749,000 from sales at restaurants which the Company either opened during the year or did not operate for the full comparable period in the prior year (The Venetian concepts: Lutece, Tsunami and four food court outlets; the Aladdin concepts: Fat Anthony's and the Alakazam Food Court; and Thunder Grill in Washington, DC). Net sales also increased by $3,764,000 from a 3.6% increase in same store sales. The increase in net sales in fiscal 2000 was offset in part by the loss of sales totaling $4,102,000 at restaurants that the Company no longer operates (B. Smith's DC, Perretti Italian Cafe, Louisiana Community Bar & Grill and B. Smith's New York).
Costs and Expenses
The Company's cost of sales consists principally of food and beverage costs at restaurants owned by the Company. Cost of sales as a percentage of net sales was 25.6% in fiscal 2001, 26.0% in fiscal 2000 and 26.4% in fiscal 1999.
Operating expenses of the Company, consisting of restaurant payroll, occupancy and other expenses at restaurants owned by the Company, as a percentage of net sales, were 75.5% in fiscal 2001, 67.6% in fiscal 2000 and 62.7% in fiscal 1999. Operating expenses in fiscal 2001 were adversely affected by an asset impairment charge of $10,045,000, or 7.9% of net sales, associated with the write down of its restaurant and food court operations at the Aladdin (Fat Anthony's and the Alakazam Food Bazaar). Operating expenses in fiscal 2001 were also impacted by a charge of $935,000 due to the cancellation of a development project.
Operating expenses in fiscal 2000 were adversely affected by an impairment charge of $811,000 associated with the anticipated sale of a restaurant (America in McLean, Virginia), expenses of $280,000 from the sale of a managed restaurant (Arlo) and a $1,300,000 charge associated with a wage and hour lawsuit. Operating expenses are net of gains on the sale of restaurants totaling $209,000 in fiscal 2001, $87,000 in fiscal 2000 and $752,000 in fiscal 1999.
Restaurant payroll was 35.5% of net sales in fiscal 2001, 36.1% in fiscal 2000 and 35.4% in fiscal 1999, and occupancy expenses were 14.4% of net sales in fiscal 2001, 12.8% in fiscal 2000 and 12.2% in fiscal 1999. A significant portion in the increase in occupancy expenses in fiscal 2001 as compared to fiscal 2000 were due to poor sales results at the Company's operations at the Aladdin and sales decreases at many of the Company's restaurants in the weeks following the September 11th attack. Restaurant payroll and occupancy expenses in fiscal 2000 were impacted by expenses associated with newly opened restaurant operations.
Asset impairment charges were 7.9% of net sales in fiscal 2001 and 0.7% in fiscal 2000. Other operating expenses were 13% of net sales in fiscal 2001, 13.9% in fiscal 2000 and 11.4% in fiscal 1999. Other operating expenses in fiscal 2001 were impacted by a charge due to the cancellation of a development project and operating expenses in fiscal 2000 were adversely impacted by expenses from the sale of the managed restaurant (Arlo) and the charge associated with the wage and hour lawsuit.
The Company incurred pre-opening expenses and early operating losses at newly opened restaurants of approximately $100,000 in fiscal 2001, $2,393,000 in fiscal 2000, and $400,000 in fiscal 1999. The fiscal 2000 expenses and losses were from opening restaurants and food court operations within two Las Vegas casinos (Lutece and Tsunami in the Venetian along with four food court outlets; and Fat Anthony's and the food court outlets in the Aladdin). The Company also converted an existing restaurant in New York City (B. Smith's New York was changed to Jack Rose). The Company typically incurs significant pre-opening expenses in connection with its new restaurants which 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 net sales, were 5.5% in fiscal 2001, 6.0% in fiscal 2000 and 5.5% in fiscal 1999. If net sales at managed restaurants were included in consolidated net sales, general and administrative expenses as a percentage of net sales would have been 5.4% in fiscal 2001, 5.6% in fiscal 2000 and 5.0% in fiscal 1999. General and administrative expenses in fiscal 2001 were impacted by $400,000 in legal expenses incurred in connection with a potential transaction. A significant portion of the increase in fiscal 2000 as compared to fiscal 1999 is due to costs associated with the expansion of the Company's corporate sales department, travel expenditures associated with the new openings in Las Vegas and legal expenditures from the wage and hour lawsuit.
The Company managed one restaurant owned by others (El Rio Grande) at September 29, 2001 while the Company managed four restaurants owned by others (El Rio Grande in Manhattan, the Marketplace Cafe, the Marketplace Grill, and the Brewskeller Pub in Boston, Massachusetts) at September 30, 2000. Net sales of these restaurant facilities, which are not included in consolidated net sales, were $4,380,000 in fiscal 2001, $8,867,000 in fiscal 2000 and $9,804,000 in fiscal 1999. The decrease in net sales of managed operations is principally due to the termination of a management contract. The management agreement for the three Boston restaurants expired on December 31, 2000 and was not renewed. The contribution of these restaurants to management fee income was $134,000 in fiscal 2001, $278,000 in fiscal 2000 and $496,000 in fiscal 1999.
The Company was a partner with a 50% interest in a partnership that was formed to develop and construct four restaurants at a large theatre development in Southfield, Michigan. In March 2000, the Company withdrew from the project and incurred charges, during fiscal 2000, of $4,988,000 from the write-off of advances for construction costs and working capital needs on the project. In fiscal 2001, the Company recorded a charge of $150,000 due to a partial write-off of a note which the Company collected in March 2001. The note was issued in March 2000 when the Company withdrew from the Southfield, Michigan project. Such charges are reflected as "Joint Venture Loss" on the Consolidated Statement of Operations.
Interest expense was $2,446,000 in fiscal 2001, $2,007,000 in fiscal 2000 and $425,000 in fiscal 1999. The significant increase is principally due to borrowings to finance the construction costs and working capital requirements of the Las Vegas restaurant facilities, which opened in fiscal 2000.
Interest income was $150,000 in fiscal 2001, $172,000 in fiscal 2000 and $226,000 in fiscal 1999.
Other income, which generally consists of purchasing service fees, and the sale of logo merchandise at various restaurants, was $344,000 in fiscal 2001, $438,000 in fiscal 2000 and $436,000 in fiscal 1999.
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 which operate 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 both fiscal 2001 and fiscal 2000 and the carry back of such losses, the Company realized an overall tax benefit of 32.8% and of 35% of such losses in fiscal 2001 and fiscal 2000, respectively. The Company's effective tax rate was 36.4% in fiscal 1999.
The Company's overall effective tax rate in the future will be affected by factors such as pre-tax income earned outside of New York City (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), the utilization of state and local net operating loss carry forwards, and any pre-tax losses incurred at the Company's New York subsidiaries. In order to more effectively utilize 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 $489,000 in fiscal 2001, $503,000 in fiscal 2000 and $512,000 in fiscal 1999.
The Internal Revenue Service is currently examining the Company's returns for the fiscal years ended September 30, 1995 through October 2, 1998. The Company does not expect the results from such examination to have a material effect on the Company's financial condition.
Liquidity and Sources of Capital
The Company's primary source of capital is cash provided by operations and funds available from the revolving credit agreement with 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 and acquiring existing restaurants.
The net cash used in investing activities in fiscal 2001 ($1,891,000), fiscal 2000 ($25,244,000) and fiscal 1999 ($6,096,000) was principally 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). In fiscal 2000 the Company opened two restaurants and four food court outlets in the Venetian (Lutece, Tsunami and the food court outlets), and the Company opened one restaurant and six food court outlets in the Aladdin in Las Vegas, Nevada (Fat Anthony's and the Alakazam Food Court). In fiscal 1999, the Company opened a restaurant in Union Station in Washington, DC (Thunder Grill) and began constructing the restaurants and food court outlets at the Venetian.
The net cash used in financing activities in fiscal 2001 ($5,577,000) was principally due to repayments of long-term debt on the Company's main credit facility in excess of borrowings on such facility. The net cash provided from financing activities in fiscal 2000 ($20,710,000) was principally from borrowings on the Company's Revolving Credit Facility. The net cash used in financing activities in fiscal 1999 ($1,632,000) was due to the repurchase of 423,000 shares of the Company's outstanding common stock offset by a net increase in long-term debt in excess of debt repayments.
The Company had a working capital deficit of $5,809,000 at September 29, 2001 as compared to working capital deficit of $4,921,000 at September 30, 2000. The restaurant business does not require the maintenance of significant inventories or receivables; thus the Company is able to operate with negative working capital.
At November 21, 2000, the Company's Revolving Credit and Term Loan Facility with its main bank included a $28,500,000 facility for constructing and acquiring new restaurants and for working capital purposes at the Company's existing restaurants. The facility required the Company to repay any borrowings to the extent such borrowings exceed $26,000,000 on June 30, 2001, $23,000,000 on September 30, 2001 and $22,000,000 on December 27, 2001. At December 27, 2001 the facility was to convert into a term loan payable over three years. The loans bore interest at prime plus 1/2%. At September 29, 2001 the Company had borrowings of $22,500,000 outstanding on the facility. The Company also had a $1,000,000 Letter of Credit Facility for use in lieu of lease security deposits and the Company had delivered $889,000 in irrevocable letters of credit on this facility.
The Revolving Credit Facility limits the amount of indebtedness that may be incurred by the Company. Certain provisions of the agreement may impair the Company's ability to borrow funds. The agreement contains certain financial covenants 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 agreement principally due to the impairment charges incurred in connection with its restaurant and food service operations at the Aladdin in Las Vegas, Nevada. Such non-compliance has been waived by the bank.
As a result of amendments to the Revolving Credit Facility in November 2001 and December 2001, the financial covenants were amended for forthcoming periods, the conversion date of the existing facility has been postponed from December 27, 2001 to June 30, 2002, and the Company may borrow up to $26,000,000 until June 30, 2002. At June 30, 2002, the Company is required to repay any borrowings to the extent such borrowings exceed $22,000,000 and the revolving loans will be converted into term loans payable over 36 months.
Pursuant to an equipment financing facility with its main bank, the Company borrowed $2,851,000 in January 1997 at an interest rate of 8.75% to refinance the purchase of various restaurant equipment at the New York-New York Hotel & Casino Resort. The note, which is payable in 60 equal monthly installments through January 2002, is secured by such restaurant equipment. At September 29, 2001 the Company had $231,000 outstanding on this facility. 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 29, 2001 the Company had $1,216,000 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 operations at the Aladdin in Las Vegas, Nevada. The lease bears interest at 8.65% per annum and is payable in 48 equal monthly installments of $31,785 until maturity in November 2004 at which time the Company has an option to purchase the equipment for $519,440. 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 $165,242.
The Company does not anticipate any capital intensive projects during fiscal 2002 and expects that a significant portion of its projected cash flow will be applied to debt reduction.
Restaurant Expansion
The Company opened two bars (V-Bar and Venus) at the Venetian in Las Vegas, Nevada in fiscal 2001. In fiscal 2000, the Company opened two restaurants (Tsunami and Lutece) along with three food court outlets at the Venetian and also opened one restaurant (Fat Anthony's) along with six food court outlets (Alakazam Food Bazaar) at the Aladdin in Las Vegas, Nevada.
The Company will shortly begin constructing a 200-seat restaurant and bar at the Neonopolis Center at Fremont Street in downtown Las Vegas, Nevada. The Company received a $2,400,000 construction and operating allowance from the landlord and expects to construct and open the restaurant within the limits of that allowance.
The Company is not currently committed to any other projects.
Events of September 11, 2001
The Company experienced severe sales decreases in the immediate aftermath of the September 11th terrorist attacks and the operating results for the fiscal 2001-year were impacted. The Company continues to experience negative same store sales, although on a much improved level as compared to the immediate weeks following the attack. The Company has aggressively reduced its payroll at restaurants and at the corporate level. In addition, the Company's Revolving Credit Facility has been amended in the manner described above under "Liquidity and Sources of Capital". As a result and given recent sales trends, the Company believes that it will generate sufficient cash flow in fiscal 2002 to meet its debt obligations.
One Company restaurant (The Grill Room) itself experienced some damage in the September 11th attack and is located in the World Financial Center which experienced substantial damage. It will likely not reopen until late in fiscal 2002. Several other Company restaurants were closed from several days to a month due to their proximity to the World Trade Center. The damage is still being assessed. The Company ultimately expects to recover a substantial portion of physical costs and business interruption losses at these restaurants. However, at September 29, 2001 the Company did not provide any benefit in the consolidated financial statements as the extent of the damage was unknown and the insurance claims are still being quantified.
The Company believes that its restaurant and food court operations at the Aladdin in Las Vegas, Nevada were significantly impaired by the events of September 11th. The restaurant and food court operations experienced severe sales declines in the aftermath of September 11th and the Aladdin itself declared bankruptcy on September 28, 2001. The Company continues to operate the business pending the resolution of the Aladdin bankruptcy proceedings, but an impairment charge of $10,045,000 was recorded in the fiscal 2001.
The long-term effects of the terrorist attacks cannot yet be determined. The Company's restaurants in travel destinations, consisting of all of its restaurants in Washington and Las Vegas and certain restaurants in New York, are intended to benefit from high tourist traffic. The decline in travel resulting from the attacks has had a material adverse effect on revenues from those restaurants. Recovery of those restaurants depends upon restoration of public confidence in the air transportation system and its willingness and inclination to resume vacation and convention travel.
Recent Developments
The Financial Accounting Standards Board has recently issued the following accounting pronouncements:
SFAS No. 141 "Business Combinations", requires that all business combinations initiated after June 30, 2001 be accounted for using one method, the purchase method. Use of the pooling of interests method is now prohibited.
SFAS No. 142 "Goodwill and Other Intangible Assets" addresses financial accounting and reporting for acquired goodwill and other intangible assets. Under SFAS No. 142, goodwill and some intangible assets will no longer be amortized, but rather reviewed for impairment on a periodic basis. Impairment losses for goodwill and certain intangible assets that arise due to the initial application of this statement are to be reported as resulting from a change in accounting principle. The provisions of this statement will be applied at the beginning of the Company's 2003 fiscal year. The Company is in the process of evaluating the financial statement impact from adopting this standard.
SFAS No, 143 "Accounting for Asset Retirement Obligations" requires the recording of the fair value of a liability for an asset retirement obligation in the period in which it is incurred. This statement is effective for the Company at the beginning of the Company's 2004 fiscal year. The Company does not expect the adoption of this standard to have a material impact on the Company's financial position or results of operations.
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. This statement is effective for the Company at the beginning of the Company's 2003 fiscal year. The Company is in the process of evaluating the financial statement impact of this standard.
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. The revolving credit line bears interest at prime plus one-half percent. See "Liquidity and Sources of Capital" above.
Item 8. Financial Statements and Supplementary Data
See page F-1.
Item 9. Changes in and Disagreements With
Accountants on Accounting and Financial Disclosure
None.
Item 10. Directors and Executive Officers of the Registrant
See Part I, Item 4. "Executive Officers of the Company." Other information required by this item is incorporated by reference from the Company's definitive proxy statement to be filed not later than January 28, 2002 pursuant to Regulation 14A of the General Rules and Regulations ("Regulation 14A") under the Securities Exchange Act of 1934, as amended.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from the Company's definitive proxy statement to be filed not later than January 28, 2002 pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from the Company's definitive proxy statement to be filed not later than January 28, 2002 pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from the Company's definitive proxy statement to be filed not later than January 28, 2002 pursuant to Regulation 14A.
Item 14. 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 29, 2001 and
September 30, 2000 F-2
Consolidated Statements of Operations -- For each of the three
fiscal years ended September 29, 2001, September 30, 2000 and
October 2, 1999 F-3
Consolidated Statements of Cash Flows -- For each of the three
fiscal years ended September 29, 2001, September 30, 2000 and
October 2, 1999 F-4
Consolidated Statements of Shareholders' Equity -- For each of
the three fiscal years ended September 29, 2001, September 30,
2000 and October 2, 1999 F-5
Notes to Consolidated Financial Statements F-6
(2) Exhibits:
3.1 Certificate of Incorporation of the Registrant, filed 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 October 1, 1994 (the "1994 10-K").
3.2 Certificate of Amendment of the Certificate of Incorporation of
the Registrant filed on October 11, 1985, incorporated by
reference to Exhibit 3.2 to the 1994 10-K.
3.3 Certificate of Amendment of the Certificate of Incorporation of
the Registrant filed on July 21, 1988, incorporated by
reference to Exhibit 3.3 to the 1994 10-K.
3.4 By-Laws of the Registrant, incorporated by reference to Exhibit
3.4 to the 1994 10-K.
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 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, Andrew Kuruc, 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.
*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.
*21 Subsidiaries of the Registrant.
*23 Consent of Deloitte & Touche LLP.
|
(b) Reports on Form 8-K:
None.
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 its subsidiaries as of September 29, 2001 and September 30, 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three fiscal years in the period ended September 29, 2001. 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 29, 2001 and September 30, 2000, and the results of their operations and their cash flows for each of the three fiscal years in the period ended September 29, 2001, in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche, LLP New York, New York |
December 7, 2001
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 29, September 30,
2001 2000
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ - $ 697
Accounts receivable 3,049 4,045
Current portion of long-term receivables (Note 3) 203 1,427
Inventories 2,110 2,133
Deferred income taxes (Note 12) 278 1,694
Prepaid expenses and other current assets 655 347
Refundable and prepaid income taxes 1,119 1,308
------- -------
Total current assets 7,414 11,651
------- -------
LONG-TERM RECEIVABLES (Note 3) 1,082 1,130
FIXED ASSETS - At cost:
Leasehold improvements 33,699 38,099
Furniture, fixtures and equipment 27,972 31,157
Leasehold improvements in progress 93 267
------- -------
61,764 69,523
Less accumulated depreciation and amortization 27,035 22,325
------- -------
34,729 47,198
------- -------
INTANGIBLE ASSETS - Net (Note 4) 4,175 4,570
DEFERRED INCOME TAXES (Note 12) 6,056 1,533
OTHER ASSETS - Net (Note 5) 395 934
------- -------
$53,851 $67,016
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 4,232 $ 5,293
Accrued expenses and other current liabilities (Note 6) 6,744 6,206
Current maturities of long-term debt (Note 7) 2,247 5,073
------- -------
Total current liabilities 13,223 16,572
------- -------
LONG-TERM DEBT - Net of current maturities (Note 7) 21,700 24,447
OPERATING LEASE DEFERRED CREDIT (Notes 1 and 8) 995 1,213
COMMMITMENTS 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 shares 52 52
Additional paid-in capital 14,743 14,743
Retained earnings 11,489 18,337
------- -------
26,284 33,132
Less treasury stock, 2,068 shares 8,351 8,348
------- -------
Total shareholders' equity 17,933 24,784
------- -------
$53,851 $67,016
======= =======
|
See notes to consolidated financial statements
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
Years Ended
--------------------------------------------
September 29, September 30, October 2,
2001 2000 1999
NET SALES $ 127,007 $ 119,212 $ 110,801
COST OF SALES 32,549 31,016 29,301
--------- --------- ---------
GROSS RESTAURANT PROFIT 94,458 88,196 81,500
MANAGEMENT FEE INCOME (Note 11) 346 474 869
JOINT VENTURE LOSS (150) (4,988) -
--------- --------- ---------
94,654 83,682 82,369
--------- --------- ---------
OPERATING EXPENSES:
Payroll and payroll benefits 45,085 43,063 39,254
Occupancy 18,320 15,310 13,493
Depreciation and amortization 5,938 4,885 4,063
Asset impairment 10,045 811 -
Other 16,499 16,545 12,655
--------- --------- ---------
95,887 80,614 69,465
--------- --------- ---------
INCOME (LOSS) FROM RESTAURANT OPERATIONS (1,233) 3,068 12,904
GENERAL AND ADMINISTRATIVE EXPENSES 7,005 7,111 6,070
--------- --------- ---------
OPERATING INCOME (LOSS) (8,238) (4,043) 6,834
--------- --------- ---------
OTHER EXPENSE (INCOME):
Interest expense (Note 7) 2,446 2,007 425
Interest income (150) (172) (226)
Other income (Note 13) (344) (438) (436)
--------- --------- ---------
1,952 1,397 (237)
--------- --------- ---------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (10,190) (5,440) 7,071
PROVISION (BENEFIT) FOR INCOME TAXES (Note 12) (3,342) (1,906) 2,576
--------- --------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE (6,848) (3,534) 4,495
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, Net - 189 -
--------- --------- ---------
NET INCOME (LOSS) $ (6,848) $ (3,723) $ 4,495
========= ========= =========
INCOME (LOSS) PER SHARE - BASIC:
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $ (2.15) $ (1.11) $ 1.30
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - (0.06) -
--------- --------- ---------
NET INCOME (LOSS) $ (2.15) $ (1.17) $ 1.30
========= ========= =========
INCOME (LOSS) PER SHARE - DILUTED:
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $ (2.15) $ (1.11) $ 1.29
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - (0.06) -
--------- --------- ---------
NET INCOME (LOSS) $ (2.15) $ (1.17) $ 1.29
========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES - BASIC 3,181 3,186 3,461
========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES - DILUTED 3,181 3,186 3,476
========= ========= =========
|
See notes to consolidated financial statements.
ARK RESTAURANT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Years Ended
---------------------------------------------
September 29, September 30, October 2,
2001 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) before cumulative effect of
accounting change $(6,848) $ (3,534) $ 4,495
Cumulative effect of accounting change - (189) -
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of fixed assets 5,479 4,334 3,331
Amortization of intangibles 459 551 732
Gain on sale of restaurants (209) (88) (752)
Write-off of joint venture advances and investments 1,086 4,988 -
Impairment of assets 10,045 811 -
Write-off of accounts and notes receivable 209 280 -
Operating lease deferred credit (218) (109) (149)
Deferred income taxes (3,107) (1,670) 383
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 996 (1,251) 377
Decrease (increase) in inventories 23 (217) 34
Decrease (increase) in prepaid expenses and other
current assets (308) (11) 155
Decrease (increase) in refundable and prepaid
income taxes 189 (1,307) -
Decrease (increase) in other assets, net (502) (450) (2,111)
Increase (decrease) in accounts payable - trade (1,061) 1,476 252
Increase (decrease) in accrued income taxes - (186) (519)
Increase (decrease) in accrued expenses
and other current liabilities 538 1,469 811
------- -------- -------
Net cash provided by operating activities 6,771 4,897 7,039
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (3,014) (22,263) (6,989)
Additions to intangible assets - - (385)
Advances to joint venture, net - (3,297) -
Issuance of demand notes and long-term receivables (98) (94) (96)
Payments received on demand notes and long-term
receivables 1,221 410 399
Restaurant sales - - 975
------- -------- -------
Net cash used in investing activities (1,891) (25,244) (6,096)
------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on long-term debt (9,974) (3,155) (5,659)
Issuance of long-term debt 4,400 25,020 8,300
Exercise of stock options - 344 185
Principal payment on capital lease obligations - (149) (230)
Purchase of treasury stock (3) (1,350) (4,228)
------- -------- -------
Net cash (used in) provided by financing activities (5,577) 20,710 (1,632)
------- -------- -------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (697) 363 (689)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 697 334 1,023
------- -------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ - $ 697 $ 334
======= ======== =======
SUPPLEMENTAL INFORMATION:
Cash payments for the following were:
Interest $ 2,446 $ 2,245 $ 526
======= ======== =======
Income taxes $ 852 $ 1,113 $ 2,690
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See notes to consolidated financial statements.
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 29, 2001, SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
(In Thousands)
Common Stock Additional Total
-------------------- Paid-In Retained Treasury Shareholders'
Shares Amount Capital Earnings Stock Equity
BALANCE, OCTOBER 3, 1998 5,187 $ 52 $14,214 $17,565 $(2,770) $29,061
Exercise of stock options 21 - 164 - - 164
Purchase of treasury stock - - - - (4,228) (4,228)
Tax benefit on exercise of options - - 21 - - 21
Net income - - - 4,495 - 4,495
----- ---- ------- ------- ------- -------
BALANCE, OCTOBER 2, 1999 5,208 52 14,399 22,060 (6,998) 29,513
Exercise of stock options 41 - 328 - - 328
Purchase of treasury stock - - - - (1,350) (1,350)
Tax benefit on exercise of options - - 16 - - 16
Net income - - - (3,723) - (3,723)
----- ---- ------- ------- ------- -------
BALANCE, SEPTEMBER 30, 2000 5,249 52 14,743 18,337 (8,348) 24,784
Exercise of stock options - - - - - -
Purchase of treasury stock - - - - (3) (3)
Tax benefit on exercise of options - - - - - -
Net income - - - (6,848) - (6,848)
----- ---- ------- ------- ------- -------
BALANCE, SEPTEMBER 29, 2001 5,249 $ 52 $14,743 $11,489 $(8,351) $17,933
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See notes to consolidated financial statements.
ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 29, 2001, SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ark Restaurants Corp. and subsidiaries (the "Company") own and operate 26 restaurants and bars, 19 fast food concepts, catering operations and wholesale and retail bakeries. Twelve restaurants are located in New York City, four in Washington, D.C., nine in Las Vegas, Nevada, 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 nine food court operations. Four restaurants are within the Venetian Casino Resort as well as four food court concepts; one restaurant is within Desert Passage which adjoins the Aladdin Casino Resort along with six food court concepts; and one restaurant within the Forum Shops at Caesar's Shopping Center.
Accounting Period - The Company's fiscal year ends on the Saturday nearest September 30. The fiscal years ended September 29, 2001, September 30, 2000 and October 2, 1999 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 position or the results of operation.
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. Investments in affiliated companies where the Company is able to exercise significant influence over operating and financial policies even though the Company holds 50% or less of the voting stock, are accounted for under the equity method.
Cash Equivalents - Cash equivalents include instruments with original maturities of three months or less.
Accounts Receivable - Included in accounts receivable are amounts due from employees of $1,548,000 and $1,401,000 at September 29, 2001 and September 30, 2000, respectively. Such amounts, which are due on demand, are principally due from various employees exercising stock options in accordance with the Company's Stock Option Plan (see Note 10).
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.
The Company annually assesses any impairment in value of long-lived assets and certain identifiable intangibles to be held and used. 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, to reduce the operations' assets to their estimated fair values (see Note 2). For the year ended September 30, 2000 an impairment charge of $811,000 was incurred on a restaurant that the Company owned in McLean, Virginia. Such restaurant was closed during the fiscal year ended September 29, 2001. For the year ended October 2, 1999 no impairment charges were deemed necessary.
Costs incurred during the construction period of restaurants, including rental of premises, training and payroll, are expensed as incurred.
Intangible and Other Assets - 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.
Goodwill recorded in connection with the acquisition of shares of the Company's common stock from a former shareholder, as discussed in Note 4, is being amortized over a period of 40 years. Goodwill arising from restaurant acquisitions is being amortized over periods ranging from 10 to 15 years.
The Company adopted in the quarter ended January 1, 2000, Statement of Position 98-5, Reporting on the Costs of Start-Up Activities, which requires costs of start-up activities and organization costs to be expensed as incurred. The Company had previously capitalized organization costs and then amortized such costs over five years. The Company had net deferred organization expenses of $300,000 in intangible assets as of October 2, 1999 and such amount ($189,000 after taxes) is reported in the fiscal year ended September 30, 2000 as a cumulative effect of a change in accounting principle.
Covenants not to compete arising from restaurant acquisitions are amortized over the contractual period of five years.
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 four years, the 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 over the amounts payable under the leases during that year is 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 Standards ("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, for diluted earnings per share, the additional dilutive effect of common stock equivalents. Common stock equivalents using the treasury stock method 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 stock options to outsiders.
Impact of Recently Issued Accounting Standards - SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137 and 138, establishes standards for measuring, classifying and reporting all derivative financial instruments in the financial statements. SFAS No. 133 implemented by the Company beginning the first quarter of fiscal year 2001 did not have a material impact on the Company's financial position or results of operations.
SFAS No, 141, Business Combinations, requires that all business combinations initiated after June 30, 2001 be accounted for using one method, the purchase method. Use of the pooling of interests method is now prohibited.
Future Impact of Recently Issued Accounting Standards - SFAS No. 142, Goodwill and Other Intangible Assets, addresses financial accounting and reporting for acquired goodwill and other intangible assets. Under SFAS No. 142, goodwill and some intangible assets will no longer be amortized, but rather reviewed for impairment on a periodic basis. Impairment losses for goodwill and certain intangible assets that arise due to the initial application of this Statement are to be reported as resulting from a change in accounting principle. The provisions of this Statement will be applied at the beginning of the Company's 2003 fiscal year. The Company is in the process of evaluating the financial statement impact from adopting this standard.
SFAS No. 143, Accounting for Asset Retirement Obligations, requires the recording of the fair value of a liability for an asset retirement obligation in the period in which it is incurred. The Statement is effective for the Company at the beginning of fiscal year 2004. The Company does not expect the adoption of this standard to have a material impact on the Company's financial position or results of operations.
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, supercedes 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 Statement is effective for the Company at the beginning of fiscal year 2003. The Company is in the process of evaluating the financial statement impact of this standard.
Reclassifications - Certain reclassifications of prior year balances have been made to conform with current year presentation.
2. EFFECTS OF THE SEPTEMBER 11, 2001 TERRORIST ATTACKS
One Company restaurant, The Grill Room, suffered some damage. The restaurant is located in an office building adjacent to the World Trade Center (in 2 World Financial Center) and will likely not reopen until late in fiscal 2002 due to the damage sustained by the office building. The full extent of the damage is still being evaluated as access to the restaurant has been limited. Several other Company restaurants were also closed from several days to a month due to their proximity to the World Trade Center. The Company has extensive property and business interruption insurance policies and the Company ultimately expects to recover a substantial portion of its physical costs and business interruption losses at these restaurants. However, at September 29, 2001, the Company did not provide any benefit in the consolidated financial statements as the extent of the damage was unknown and the insurance claims are still being quantified.
The Company believes that its restaurant and food court operations at the Aladdin Casino Resort in Las Vegas, Nevada (the "Aladdin") were significantly impaired by the events of September 11th. The restaurant and food court operations experienced severe sales declines in the aftermath of September 11th and the Aladdin declared bankruptcy on September 28, 2001. The Company continues to operate the business pending the resolution of the Aladdin's bankruptcy, but an impairment charge of $10,045,000 was recorded in the fiscal year ended September 29, 2001.
3. LONG-TERM RECEIVABLES
Long-term receivables consist of the following:
(In Thousands)
September 29, September 30,
2001 2000
Note receivable, due March 2001 (a) $ - $1,000
Note receivable secured by fixed assets and lease at a
restaurant sold by the Company, at 8% interest; due in
monthly installments through December 2006 (b) 401 460
Note receivable secured by fixed assets and lease at a restaurant sold by the
Company, at 7.5% interest; due in monthly installments commencing May 2000
through December 2008 (c) 687 554
Note receivable secured by fixed assets and lease at a
restaurant sold by the Company, at 10.0% interest; due in
monthly installments through April 2004 (d) - 221
Note receivable secured by fixed assets and lease at a
restaurant at 7.0% interest; due in monthly installments
through June 2006 (e) 176 228
Others 21 94
------ ------
1,285 2,557
Less current portion 203 1,427
------ ------
$1,082 $1,130
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(a) In March 2000, the Company withdrew from a partnership that was formed to develop and construct four restaurants at a large theatre development in Southfield, Michigan. The Company was issued this note in consideration of its working capital advances to the project. The Company collected $850,000 in March 2001 and recorded a charge of $150,000 on the uncollected balance.
(b) In December 1996, the Company sold a restaurant for $900,000. Cash of $50,000 was received on sale and the balance is due in installments through December 2006.
(c) In October 1997, the Company sold a restaurant for $1,750,000, of which $200,000 was paid in cash and the balance is due in monthly installments under the terms of two notes bearing interest at a rate of 7.5%. One note, with an initial principal balance of $400,000, was being paid in 24 monthly installments of $19,000 through April 2000. The second note, with an initial principal balance of $1,150,000, will be paid in 104 monthly installments of $15,000 commencing May 2000 and ending December 2008. At December 2008, the then outstanding balance of $519,000 matures.
The Company recognized a gain on sale of approximately $221,000, $88,000 and $142,000 in the fiscal years ended September 29, 2001, September 30, 2000 and October 2, 1999, respectively. Additional deferred gains totaling $585,000 at fiscal year ended September 29, 2001 could be recognized in future periods as the notes are collected. The Company deferred recognizing this additional gain and recorded an allowance for possible uncollectible note against the outstanding note. This uncertainty is based on the significant length of time of this note (over 10 years) and the substantial balance, which matures in December 2008 ($519,000).
(d) In December 1998, the Company sold a restaurant for $500,000, of which $250,000 was paid in cash and the balance of $250,000 was financed by a note. The note was due in monthly installments of $6,000, inclusive of interest at 10%, from May 1999 through April 2004. The buyer defaulted on the note during the fiscal year ended September 29, 2001 and subsequently filed for bankruptcy. The Company recovered $12,000 and wrote off the remaining balance of $209,000.
(e) In June 2000, the Company terminated the management of a restaurant in New York City. The Company received cash of $164,000 and notes totaling $234,000 as consideration for its then outstanding working capital loans. The Company recognized a loss of $280,000 on the termination.
The carrying value of the Company's long-term receivables approximates its current aggregate fair value.
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
(In Thousands)
September 29, September 30,
2001 2000
Goodwill (a) $6,223 $6,223
Purchased leasehold rights (b) 751 751
Noncompete agreements and other 790 790
------ ------
7,764 7,764
Less accumulated amortization 3,589 3,194
------ ------
$4,175 $4,570
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(a) In August 1985, certain subsidiaries of the Company acquired approximately one-third of the then outstanding shares of common stock (965,000 shares) from a former officer and director of the Company for a purchase price of $3,000,000. The consolidated balance sheets reflect the allocation of $2,946,000 to goodwill.
(b) Purchased leasehold rights arise from acquiring leases and subleases of various restaurants.
5. OTHER ASSETS
Other assets consist of the following:
(In Thousands)
September 29, September 30,
2001 2000
Deposits $277 $277
Deferred financing fees 97 171
Investments in and advances to affiliates(a) 21 486
---- ----
$395 $934
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(a) The Company, through a wholly owned subsidiary, became a general partner with a 19% interest in a partnership which acquired on July 1, 1987 an existing Mexican food restaurant, El Rio Grande, in New York City. Several related parties also participate as limited partners in the partnership. The Company's equity in earnings of the limited partnership was $32,000, $15,000 and $65,000 for the years ended September 29, 2001, September 30, 2000 and October 2, 1999, respectively.
The Company also manages El Rio Grande through another wholly owned subsidiary on behalf of the partnership. Management fee income relating to these services was $181,000, $162,000 and $358,000 for the years ended September 29, 2001, September 30, 2000 and October 2, 1999, respectively (Note 11).
The Company, through a wholly owned subsidiary, was a partner with a 50% interest in a partnership to construct and develop four restaurants at a large theatre development in Southfield, Michigan. In March 2000, the Company withdrew from the partnership and incurred losses totaling $4,988,000 on this project.
For the year ended September 29, 2001, the Company recorded a write off of $935,000 on the cancellation of a development project. As of September 30, 2000, $468,000 of expenditures on this project were included in other assets.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
(In Thousands)
September 29, September 30,
2001 2000
Sales tax payable $ 669 $ 878
Accrued wages and payroll related costs 931 999
Customer advance deposits 961 1,175
Accrued and other liabilities 2,583 1,854
Litigation accrual (see Note 8) - 1,300
Impairment accrual 1,600 -
------ ------
$6,744 $6,206
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7. LONG-TERM DEBT
Long-term debt consists of the following:
(In Thousands)
September 29, September 30,
2001 2000
Revolving Credit and Term Loan Facility with interest at the
prime rate, plus 1/2%, payable on June 30, 2002 (a) $22,500 $27,150
Notes issued in connection with refinancing of restaurant equipment, at 8.75%,
payable in monthly installments through January 2002 (b) 231 885
Notes issued in connection with refinancing of restaurant equipment, at 8.80%,
payable in monthly installments through May 2005 (c) 1,216 1,485
------- -------
23,947 29,520
Less current maturities 2,247 5,073
------- -------
$21,700 $24,447
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(a) The Company's Revolving Credit and Term Loan Facility with its main bank (Bank Leumi USA), as amended November 2001, includes a $26,000,000 facility to finance the development and construction of new restaurants and for working capital purposes at the Company's existing restaurants. Outstanding loans bear interest at 1/2% above the bank's prime rate of 6.0% at September 29, 2001. Any outstanding loans on June 30, 2002 in excess of $22,000,000 are due in full and the balance can be converted into a term loan payable over 36 months. The facility also includes a $1,000,000 letter of credit facility for use in lieu of lease security deposits. 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 foregoing facilities 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 facilities.
The agreement 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 agreement also contains financial covenants 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. The Company received a waiver from the bank for the covenants it was not in compliance with, at September 29, 2001.
(b) In January 1997, the Company borrowed from its main bank, $2,851,000 to refinance the purchase of various restaurant equipment at its food and beverage facilities in a hotel and casino in Las Vegas, Nevada. The notes bear interest at 8.75% per annum and are payable in 60 equal monthly installments of $58,833 inclusive of interest, until maturity in January 2002. The Company granted the bank a security interest in such restaurant equipment. In connection with such financing, the Company granted the bank the right to purchase 35,000 shares of the Company's common stock at the exercise price of $11.625 per share through December 2001. The fair value of the warrants was estimated at the date of grant, credited to additional paid-in capital and is being amortized over the life of the warrants.
(c) In April 2000, the Company borrowed from its main bank $1,570,000 to refinance the purchase of various restaurant equipment at its food and beverage facilities in a hotel and casino in Las Vegas, Nevada. The notes bear interest at 8.80% per annum and are payable in 60 equal monthly installments of $32,439 inclusive of interest, until maturity in May 2005.
Required principal payments on long-term debt, assuming conversion of eligible borrowings described in (a) above are as follows:
(In Thousands)
Year Amount
2002 $ 2,247
2003 7,654
2004 7,684
2005 6,362
-------
$23,947
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During the fiscal years ended September 29, 2001, September 30, 2000 and October 2, 1999, interest expense was $2,446,000, $2,245,000 and $526,000, respectively, of which $238,000 and $101,000 was capitalized during the fiscal years ended September 30, 2000 and October 2, 1999, respectively.
The carrying value of the Company's long-term debt approximates its current aggregate fair value.
8. COMMITMENTS AND CONTINGENCIES
Leases - The Company leases its restaurants, bar facilities, and administrative headquarters through its subsidiaries under terms expiring at various dates through 2029. Most of the 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 restaurants' sales in excess of stipulated amounts at such facility.
As of September 29, 2001, future minimum lease payments, net of sublease rentals, under noncancelable leases are as follows:
Operating
Year Leases
2002 $ 7,842
2003 8,408
2004 7,880
2005 7,121
2006 7,103
Thereafter 18,841
-------
Total minimum payments $57,195
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In connection with the leases included in the table above, the Company obtained and delivered irrevocable letters of credit in the aggregate