UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2006
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE OF 1934
For the transition period from ______ to ______
Commission File Number I-6836
Flanigan's Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Florida 59-0877638
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5059 N.E. 18th Avenue, Fort Lauderdale, Florida 33334
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code, (954) 377-1961
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been the subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer |_| Accelerated filer |_| Non-accelerated |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.) Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuers classes of
Common Stock as of the latest practicable date. On August 15, 2006, 1,889,365
shares of Common Stock, $0.10 par value, were outstanding.
1
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
---------------------------------------------
INDEX TO FORM 10-Q
------------------
July 1, 2006
------------
PART I. FINANCIAL INFORMATION
---------------------
Item 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Income -- For the Thirteen and Thirty Nine Weeks
ended July 1, 2006 and July 2, 2005 (Unaudited)
Consolidated Balance Sheets -- As of July 1, 2006 (Unaudited) and October 1,
2005.
Consolidated Statements of Cash Flows -For the Thirty Nine Weeks ended July 1,
2006 and July 2, 2005.
Notes to Consolidated Financial Statements (Unaudited)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION AND SIGNATURES
--------------------------------
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8K
Signatures
Exhibit - 31.1
Exhibit - 31.2
Exhibit - 32.1
Exhibit - 32.2
2
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
Thirteen Weeks Thirty Nine Weeks
Ended Ended
July 1 July 2 July 1 July 2
2006 2005 2006 2005
---- ---- ---- ----
REVENUES:
Restaurant food sales $ 8,405 $ 7,550 $ 24,440 $ 21,499
Restaurant bar sales 1,943 1,641 5,669 4,928
Package good sales 3,036 2,718 10,228 9,127
Franchise related revenues 291 242 837 754
Owner's fee 96 123 171 198
Other operating income 80 68 231 110
-------- -------- -------- --------
13,851 12,342 41,576 36,616
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of merchandise sold:
Restaurant and lounges 3,495 3,207 10,232 9,303
Package goods 2,175 1,945 7,343 6,549
Payroll and related costs 4,096 3,394 11,904 9,853
Occupancy costs 769 716 2,306 2,081
Selling, general and administrative expenses 2,662 2,364 7,958 7,177
-------- -------- -------- --------
13,197 11,626 39,743 34,963
-------- -------- -------- --------
Income from operations 654 716 1,833 1,653
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (53) (28) (124) (86)
Interest and other income (expense) 18 (20) 56 67
Loss on abandonment of property and equipment (4) -- (10) --
Insurance recovery, net of casualty loss (8) -- 442 --
-------- -------- -------- --------
(47) (48) 364 (19)
-------- -------- -------- --------
Income before Provision for Income Taxes 607 668 2,197 1,634
and Minority Interest in Earnings of
Consolidated Limited Partnerships
Provision for Income Taxes (258) (167) (705) (356)
Minority Interest in Earnings of
Consolidated Limited Partnerships (146) (2) (345) (212)
-------- -------- -------- --------
Net Income $ 203 $ 499 $ 1,147 $ 1,066
======== ======== ======== ========
3
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Amounts)
(Continued)
Thirteen Weeks Thirty Nine Weeks
Ended Ended
July 1 July 2, July 1 July 2,
2006 2005 2006 2005
---- ---- ---- ----
Net Income Per Common Share:
Basic $ 0.11 $ 0.26 $ 0.61 $ 0.56
========== ========== ========== ==========
Diluted $ 0.11 $ 0.26 $ 0.60 $ 0.55
========== ========== ========== ==========
Weighted Average Shares and Equivalent
Shares Outstanding
Basic 1,893,486 1,884,547 1,882,690 1,901,615
========== ========== ========== ==========
Diluted 1,920,472 1,911,980 1,908,085 1,925,299
========== ========== ========== ==========
See accompanying notes to unaudited condensed consolidated financial statements.
4
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 1, 2006 (UNAUDITED) AND OCTOBER 1, 2005
(In Thousands)
ASSETS
JULY 1 OCTOBER 1
2006 2005
---- ----
Current Assets:
Cash and cash equivalents $ 3,528 $ 2,674
Marketable securities 297 353
Notes and mortgages receivables,
current maturities, net 13 16
Due from franchisees 208 119
Other receivables 254 189
Inventories 2,108 1,990
Prepaid expenses 913 721
Deferred tax asset 29 29
-------- --------
Total Current Assets 7,350 6,091
-------- --------
Property and Equipment, Net 14,229 13,127
-------- --------
Investment in Limited Partnership 145 122
-------- --------
Other Assets:
Liquor licenses, net 347 347
Notes and mortgages receivable, net 107 116
Deferred tax asset 461 435
Other 1,728 861
-------- --------
Total Other Assets 2,643 1,759
-------- --------
Total Assets $ 24,367 $ 21,099
======== ========
5
FLANIGAN'S ENTERPRISES, INC, AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 1, 2006 (UNAUDITED) AND OCTOBER 1, 2005
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands)
JULY 1, OCTOBER 1,
2006 2005
---- ----
Current Liabilities:
Accounts payable and accrued expenses $ 3,908 $ 3,211
Due to franchisees 448 493
Current portion of long term debt 157 174
Deferred revenues 56 62
Deferred rent 14 14
-------- --------
Total Current Liabilities 4,583 3,954
-------- --------
Long Term Debt, Net of Current Maturities 1,286 1,383
Line of Credit 762 --
Deferred Rent, Net of Current Portion 227 241
Minority Interest in Equity of
Consolidated Limited Partnerships 6,781 5,248
Commitments, Contingencies and Subsequent Events
Stockholders' Equity:
Common stock, $.10 par value; 5,000,000 shares
authorized; 4,197,642 shares issued 420 420
Capital in excess of par value 6,204 6,148
Retained earnings 9,961 9,472
Accumulated other comprehensive income (loss) (6) 50
Treasury stock, at cost, 2,308,277 shares
at July 1, 2006 and 2,323,047
shares at October 1, 2005 (5,851) (5,817)
-------- --------
Total Stockholders' Equity 10,728 10,273
-------- --------
Total Liabilities and Stockholders' Equity $ 24,367 $ 21,099
======== ========
See accompanying notes to unaudited condensed consolidated financial statements.
6
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY NINE WEEKS ENDED JULY 1, 2006 AND JULY 2, 2005
(In Thousands)
JULY 1 JULY 2
2006 2005
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,147 $ 1,066
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,321 1,030
Loss on abandonment of property and equipment 10 --
Casualty loss 64 --
Deferred income tax (26) --
Deferred rent (14) --
Minority interest in earnings of
consolidated limited partnerships 345 212
(Income) Loss from unconsolidated limited partnership (23) --
Recognition of deferred revenue (6) (13)
Changes in operating assets and liabilities:
(Increase) decrease in
Due from franchisees (89) --
Other receivables (65) (238)
Inventories (118) (523)
Prepaid expenses (192) 48
Other assets (938) (3)
Increase (decrease) in:
Accounts payable and accrued expenses 697 240
Due to franchisees (45) 111
-------- --------
Net cash provided by operating activities 2,068 1,930
-------- --------
Cash Flows from Investing Activities:
Collection on notes and mortgages receivable 12 19
Purchase of property and equipment (2,356) (1,367)
Distributions from unconsolidated limitedpartnership -- 24
-------- --------
Net cash used in investing activities (2,344) (1,324)
7
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY NINE WEEKS ENDED JULY 1, 2006 AND JULY 2, 2005
(In Thousands)
JULY 1 JULY 2
2006 2005
---------- ----------
Cash flows from Financing Activities:
Payment of long term debt (184) (262)
Proceeds from long term debt -- 11
Proceeds from line of credit 762 --
Dividends paid (658) (609)
Purchase of treasury stock (95) (334)
Purchase of minority limited partnership interest (8) --
Distributions to limited partnership
minority partners (809) (774)
Proceeds from limited partnership interests 2,005* 1,365**
Proceeds from exercise of stock options 117 1
---------- ----------
Net cash provided by (used in) financing activities 1,130 (602)
---------- ----------
Net Increase in Cash and Cash Equivalents, 854 4
Beginning of Period 2,674 2,936
---------- ----------
End of Period $ 3,528 $ 2,940
========== ==========
Supplemental Disclosure for Cash Flow Information:
Cash paid during period for:
Interest $ 124 $ 84
========== ==========
Income taxes $ 431 $ 222
========== ==========
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Purchase of vehicles in exchange for debt $ 70 $ 302
========== ==========
* exclusive of the Company's investment in the limited partnership owning the
restaurant in Pinecrest, FL of $1,295,000.
** exclusive of the Company's investment in the limited partnership owning the
restaurant in Wellington, FL of $485,000.
See accompanying notes to unaudited condensed consolidated financial statements
8
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 1, 2006
(1) BASIS OF PRESENTATION:
The accompanying financial information for the periods ended July 1, 2006, and
July 2, 2005 are unaudited. Financial information as of October 1, 2005 has been
derived from the audited financial statements of the Company, but does not
include all disclosures required by generally accepted accounting principles. In
the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial information for
the periods indicated have been included. For further information regarding the
Company's accounting policies, refer to the Consolidated Financial Statements
and related notes included in the Company's Annual Report on Form 10-K for the
year ended October 1, 2005. Operating results for interim periods are not
necessarily indicative of results to be expected for a full year.
(2) EARNINGS PER SHARE:
Statements of Financial Accounting Standards ("SFAS") No. 128, Earnings per
share establishes standards for computing and presenting earnings per share
("EPS"). This statement requires the presentation of basic and diluted EPS. The
data on Page 4 shows the amounts used in computing earnings per share and the
effects on income and the weighted average number of shares of potentially
dilutive common stock equivalents.
(3) RECLASSIFICATION:
Certain amounts in the fiscal 2005 financial statements have been reclassified
to conform to the fiscal 2006 presentation.
(4) RECENT ACCOUNTING PRONOUNCEMENTS:
In November 2005, the FASB issued final FASB Staff Position ("FSP") FAS No.
123R-3, "Transition Election Related to Accounting for the Tax Effects of
Share-Based Payment Awards." The FSP provides an alternative method of
calculating excess tax benefits from the method defined in SFAS No. 123R for
share-based payments. A one-time election to adopt the transition method in this
FSP is available to those entities adopting SFAS No. 123R using either the
modified retrospective or modified prospective method. Up to one year from the
initial adoption of SFAS No. 123R or effective date of the FSP is provided to
make this one-time election. However, until an entity makes its election, it
must follow the guidance in SFAS No. 123R. The FSP is effective upon initial
adoption of SFAS No. 123R and became effective for the Company in the second
quarter of 2006. We are currently evaluating the allowable methods for
calculating excess tax benefits and have not yet determined whether we will make
a one-time election to adopt the transition method described in this FSP, nor
the expected impact on our financial position or results of operation.
On February 3, 2006, the FASB issued FSP No. FAS 123(R)-4 "Classification of
Options and Similar Instruments Issued as Employee Compensation That Allow for
Cash Settlement upon the Occurrence of a Contingent Event." This FSP amends SFAS
No. 123(R), addressing cash settlement features that can be exercised only upon
the occurrence of a contingent event that is outside the employee's control.
These instruments are not required to be classified as a liability until it
becomes probable that the event will occur. We adopted this FSP in the second
quarter of 2006. The implementation did not have an effect on the results of
operations or financial position.
On April 13, 2006, the FASB issued FSP No. FIN 46(R)-6, "Determining the
Variability to Be Considered in Applying FASB Interpretation No. 46(R)," which
requires the use of a "by design" approach for determining whether an interest
is variable when applying FASB Interpretation No. 46, "Consolidation of Variable
Interest Entities." This approach includes evaluating whether an interest is
variable based on a thorough understanding of the design of the potential
variable interest entity ("VIE"), including the nature of the risks that the
potential VIE was designed to create and pass along to interest holders in the
entity. The guidance in this FSP is effective for reporting periods beginning
after June 15, 2006. We will adopt the guidance presented in this FSP in the
third quarter of 2006 on a prospective basis. We do not expect the adoption of
this FSP to have a material impact on our results of operations or financial
position.
In July 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of SFAS Statement No. 109. This Interpretation clarifies the
accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with SFAS Statement No. 109, Accounting for
Income Taxes. This Interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. This
Interpretation also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. This Interpretation is effective for fiscal years beginning after
December 15, 2006. We currently are assessing the impact of Interpretation No.
48 on our results of operations and financial position.
SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment of SFAS
No. 140
In March 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 156, "Accounting for Servicing of Financial
Assets an amendment of FASB Statement 140" (Statement 156). Statement 156 amends
Statement 140 with respect to separately recognized servicing assets and
liabilities. Statement 156 requires an entity to recognize a servicing asset or
liability each time it undertakes an obligation to service a financial asset by
entering into a servicing contract and requires all servicing assets and
liabilities to be initially measured at fair value, if practicable. Statement
156 also permits entities to subsequently measure servicing assets and
liabilities using an amortization method or fair value measurement method. Under
the amortization method, servicing assets and liabilities are amortized in
proportion to and over the estimated period of servicing. Under the fair value
measurement method, servicing assets are measured at fair value at each
reporting date and changes in fair value are reported in net income for the
period the change occurs. Adoption of Statement 156 is required as of the
beginning of fiscal years beginning subsequent to September 15, 2006. Earlier
adoption is permitted as of the beginning of an entity's fiscal year, provided
the entity has not yet issued financial statements, including interim financial
statements. The Company does not expect the adoption of Statement 156 at the
beginning of 2007 to have a material impact.
9
(5) INVESTMENT IN JOINT VENTURES:
Pinecrest, Florida
During the third quarter of fiscal year 2006, the limited partnership
substantially completed the structural repairs and its interior build-out of the
business premises. Subsequent to the end of the third quarter of fiscal year
2006, the structural repairs and interior build-out were completed and the
renovated restaurant opened for business on August 14, 2006.
During the third quarter of fiscal year 2006, the limited partnership completed
its private offering and raised the sum of $3,300,000 to reimburse the Company
for advances made in excess of its investment in the limited partnership, to
complete the renovations to the business premises for operation of a "Flanigan's
Seafood Bar and Grill" restaurant and provide working capital for the same. The
Company continues to act as general partner and is also the owner of a thirty
nine percent limited partnership interest, as are other related parties,
including but not limited to officers and directors of the Company and their
families. With the completion of the private offering, the Company was
reimbursed the sum of $1,506,000, representing funds advanced to the limited
partnership in excess of its investment in the limited partnership.
Davie, Florida
During the third quarter of fiscal year 2006, the Company, as agent for a
limited partnership to be formed, received landlord approval of its preliminary
building plans, including the addition of an outdoor seating area and submitted
the same for site plan approval to the Town of Davie, Florida. The application
for site plan approval is on the agenda of the Planning and Zoning Board of the
Town of Davie, Florida for August, 2006. The restaurant is expected to open for
business during the second quarter of fiscal year 2007.
Pembroke Pines, Florida
During the third quarter of fiscal year 2006, the Company, as agent for a
limited partnership to be formed, received landlord approval of its preliminary
building plans, including the addition of an outdoor seating area and submitted
the same for site plan approval to the City of Pembroke Pines, Florida. The
application for site plan approval is on the agenda of the Planning and Zoning
Board of the City of Pembroke Pines, Florida for August, 2006. During the third
quarter of fiscal year 2006, the Company also re-negotiated several provisions
of the lease for the business premises. The restaurant is expected to open for
business during the second quarter of fiscal year 2007.
(6) INVESTMENTS:
Investments in equity securities that have readily determinable values are
classified and accounted for as available-for-sale. Available-for-sale
securities are carried at fair value with unrealized gains and losses recorded
as a separate component of accumulated other comprehensive income. Realized
gains and losses are calculated based on the specific identification method and
recorded in "other income" on the income statement. At July 1, 2006,
10
the cost of $303,000 exceeded the fair value of $297,000 and resulted in an
unrealized loss of $6,000.
(7) LINE OF CREDIT:
During the third quarter of fiscal year 2006, the Company paid monthly
installments of interest only on its line of credit, with no draws or payments
of principal. As of July 1, 2006, the line of credit had a principal balance of
$762,000.
(8) INCOME TAXES:
Financial Accounting Standards Board Statement No. 109, Accounting for Income
Taxes, requires among other things, recognition of future tax benefits measured
at enacted rates attributable to deductible temporary differences between
financial statement and income tax basis of assets and liabilities and to tax
net operating loss carryforwards and tax credits to the extent that realization
of said tax benefits is more likely than not. The deferred tax asset was
$490,000 as of July 1, 2006 and $464,000 as of October 1, 2005.
(9) STOCK OPTION PLANS
The Company has several stock option plans under which qualified stock options
may be granted to officers and other employees of the Company. The option price
for qualified stock options must be issued at 110% of the fair market value of
the Company's Common Stock on the date the options are granted. In general,
options granted under the Company's stock option plans expire after a five (5)
year period and generally vest no later than one (1) year from the date of
grant. As of July 1, 2006, there were approximately 45,000 shares available for
grant under the Company's stock option plans.
No stock options were granted during the thirty nine weeks ended July 1, 2006,
nor were stock options granted during the thirty nine weeks ended July 2, 2005.
Stock option exercises during the thirty nine weeks ended July 1, 2006 and July
2, 2005 resulted in cash inflows to the Company of $117,000 and $1,000,
respectively. The corresponding intrinsic value as of the exercise date of the
24,120 and 250 stock options exercised during the thirty nine weeks ended July
1, 2006 and July 2, 2005 were $124,475 and $760, respectively.
Stock option activity during the thirty nine weeks ended July 1, 2006 was as
follows:
Weighted
Total Average
Options Exercise Price
------- --------------
Outstanding at October 1, 2005 100,810 $ 5.75
--------
Granted 0 --
Exercised (24,120) $ 4.83
Expired 8,440 $ 4.16
-------- --------
Outstanding at July 1, 2006 68,250 $ 6.27
======== ========
Options exercisable at July 1, 2006 68,250 $ 6.27
======== ========
11
The weighted-average remaining contractual terms of stock options outstanding
and stock options exercisable at July 1, 2006 was 2.45 years. The aggregate
intrinsic value of options outstanding and stock options exercisable at July 1,
2006 was approximately $319,000.
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment". This
statement is a revision of SFAS No. 123, "Accounting for Stock-Based
Compensation", supersedes Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" and amends SFAS No. 95, "Statement of
Cash Flows." The statement eliminates the alternative to use the intrinsic value
method of accounting that was provided in SFAS No. 123, which generally resulted
in no compensation expense recorded in financial statements related to the
issuance of equity awards to employees. The statement also requires that the
cost resulting from all share-based payment transactions be recognized in the
financial statements. It establishes fair value as the measurement objective in
accounting for share-based payment arrangements and generally requires all
companies to apply a fair-value-based measurement method in accounting for
share-based payment transactions with employees. The Company adopted SFAS No.
123R effective January 1, 2006, using a modified version of prospective
application in accordance with the statement. This application requires the
Company to record compensation expense for all awards granted to employees and
directors after the adoption date and for the unvested portion of awards that
are outstanding at the date of adoption. The Company had no unvested stock
options as of October 1, 2005 and granted no stock options in the thirty nine
weeks ended July 1, 2006, so there is no impact of SFAS No. 123R on the
Company's condensed consolidated financial statements for the thirty nine weeks
ending July 1, 2006. In accordance with the modified prospective transaction
method, the Company's consolidated financial statements for prior periods have
not been restated to reflect and do not include the impact of SFAS No. 123R.
(10) COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS:
Guarantees
The Company guarantees various leases for franchisees, limited partnerships and
locations sold in prior years. Remaining rental commitments required under these
leases are approximately $2,488,000. In the event of a default under any of
these agreements, the Company will have the right to repossess the premises and
operate the business to recover amounts paid under the guarantee either by
liquidating assets or operating the business.
12
Litigation
The corporate offices consist of a two (2) story building, with space initially
set aside on the ground floor for a package liquor store. The Company filed suit
against the adjacent shopping center to determine the Company's right to
non-exclusive parking in the shopping center. During fiscal year 2005, summary
judgment was granted in favor of the adjacent shopping center denying the
Company non-exclusive parking rights in the shopping center. The Company has
continued pursuing its claim against the seller of the building, its individual
partners and its attorney for damages for failing to disclose documents
pertaining to the release of the non-exclusive parking rights. During the first
quarter of fiscal year 2006, summary judgment was granted in favor of the
sellers' attorney, but denied as to the seller and its individual partners.
During the third quarter of fiscal year 2006, the summary judgment granted in
favor of the sellers' attorney was reversed by the court. The Company is
appealing the granting of the summary judgment in favor of the adjacent shopping
center, which appeal is necessary to proceed against the seller and its
individual partners even though the Company no longer plans to use the ground
floor for a package liquor store.
During the third quarter of fiscal year 2006, the Company entered into a
Mediation Settlement Agreement, agreeing to a purchase price of $3,862,500 for
the real property and the assignment of a ground lease for a small portion of
the property of the combination restaurant and package liquor store located at 4
North Federal Highway, Hallandale, Florida, (Store #31). Subsequent to the end
of the third quarter of fiscal year 2006, the Company closed on the purchase.
Certain states have "liquor liability" laws which allow a person injured by an
"intoxicated person" to bring a civil suit against the business (or social host)
who served intoxicating liquors to an already "obviously intoxicated person",
known as "dram shop" claims. Dram shop claims normally involve traffic accidents
and the Company generally does not learn of dram shop claims until after a claim
is filed and then the Company vigorously defends these claims on the grounds
that its employee did not serve an "obviously intoxicated person". Damages in
most dram shop cases are substantial. At the present time, there are no dram
shop cases pending against the Company. The Company maintains general liability
insurance. See Item 1, "Insurance" on page 13 of the Company's Annual Report on
Form 10-K for the fiscal year ended October 1, 2005 for a discussion of general
liability insurance.
Except as provided above, there is no material pending legal proceedings, other
than ordinary routine litigation incident to the business, none of which the
Company believes is material.
Hurricane Wilma; Windstorm Claims
As of July 1, 2006, the Company had submitted claims totaling $923,600 for
damages caused when Hurricane Wilma impacted South Florida on October 24, 2005
and received advances in the aggregate amount of $700,000, ($750,000 less the
$50,000 deductible), from its insurance company on account of damages to its
properties. During the third quarter of fiscal year 2006, the Company also
submitted claims for business interruption totaling $168,700 for three of its
Company owned locations and one of its limited partnership locations.
Notwithstanding the filing of these claims, the Company has still not received a
response from its
13
insurance carrier other than the advances and as a result, the ultimate amount
of the insurance recovery cannot be accurately estimated at this time.
Subsequent Events
Subsequent to the end of the third quarter of fiscal year 2006 the Company
closed on the purchase of the limited liability company which owns the real
property and ground lease for a small portion of the property of the Company's
combination restaurant and package store located in Hallandale, Florida (Store
#31) for a purchase price of $3,862,500 pursuant to a Mediation Settlement
Agreement. The Company received a $3,280,000 mortgage from its lender to finance
this transaction. As collateral for the mortgage, the limited liability company
granted the lender a first mortgage on its real property and a leasehold
mortgage on the ground lease while the Company granted a first mortgage on its
parking lot adjacent to the above-described business location. The Company's
grant of a first mortgage on its parking lot included the satisfaction of the
purchase money mortgage on the same, which had an approximate principal balance
of $264,000. The mortgage bears interest at the rate of seven and one-half
(7.5%) percent per annum, is amortized over twenty (20) years with equal monthly
payments of principal and interest, each in the amount of $26,400, with the
entire principal balance and all accrued interest due in seven (7) years.
(11) BUSINESS SEGMENTS
The Company operates principally in two segments - retail package stores and
restaurants. The operation of package stores consists of retail liquor sales.
Information concerning the revenues and operating income for the thirteen and
thirty nine weeks ended July 1, 2006 and July 2, 2005, and identifiable assets
for the two segments in which the Company operates, are shown in the following
table. Operating income is total revenue less cost of merchandise sold and
operating expenses relative to each segment. In computing operating income, none
of the following items have been included: interest expense, other non-operating
income and expense and income taxes. Identifiable assets by segment are those
assets that are used in the Company's operations in each segment. Corporate
assets are principally cash, notes and mortgages receivable, real property,
improvements, furniture, equipment and vehicles. The Company does not have any
operations outside of the United States and intersegment transactions are not
material.
Thirteen Weeks Thirteen Weeks
Ending Ending
July 1, July 2,
2006 2005
---- ----
Operating Revenues:
Restaurants $ 10,348 $ 9,191
Retail package stores 3,036 2,718
Other revenues 467 433
-------- --------
Total operating revenues $ 13,851 $ 12,342
======== ========
Operating Income Reconciled to Income Before
Income Taxes and Minority Interests in
Earnings of Consolidated Limited Partnerships
Restaurants $ 868 $ 754
Retail package stores 160 144
-------- --------
1,028 898
Corporate expenses, net of other
Revenues (374) (182)
-------- --------
Operating income 654 716
Other income (expense) (47) (48)
-------- --------
Income Before Income Taxes and Minority Interests
in Earnings of Consolidated Limited Partnerships $ 607 $ 668
======== ========
Depreciation and Amortization:
Restaurants $ 304 $ 248
Retail package stores 57 30
-------- --------
361 278
Corporate 96 50
-------- --------
Total Depreciation and Amortization $ 457 $ 328
======== ========
Capital Expenditures:
Restaurants $ 974 $ 812
Retail package stores 35 33
-------- --------
1,009 845
Corporate 231 (57)*
-------- --------
Total Capital Expenditures $ 1,240 $ 788
======== ========
*includes ($68,000) transfers of furniture and fixtures from Corporate warehouse
to retail package stores and/or restaurants.
14
Thirty Nine Weeks Thirty Nine Weeks
Ending Ending
July 1, July 2,
2006 2005
---- ----
Operating Revenues:
Restaurants $ 30,109 $ 26,427
Retail package stores 10,228 9,127
Other revenues 1,239 1,062
-------- --------
Total operating revenues $ 41,576 $ 36,616
======== ========
Operating Income Reconciled to Income Before
Income Taxes and Minority Interests in
Earnings of Consolidated Limited Partnerships
Restaurants $ 2,699 $ 2,108
Retail package stores 701 594
-------- --------
3,400 2,702
Corporate expenses, net of other
Revenues (1,567) (1,049)
-------- --------
Operating income 1,833 1,653
Other income (expense) 364 (19)
-------- --------
Income Before Income Taxes and Minority Interests
in Earnings of Consolidated Limited Partnerships $ 2,197 $ 1,634
======== ========
Depreciation and Amortization:
Restaurants $ 900 $ 796
Retail package stores 169 93
-------- --------
1,069 889
Corporate 252 140
-------- --------
Total Depreciation and Amortization $ 1,321 $ 1,030
======== ========
Capital Expenditures:
Restaurants $ 1,626 $ 1,604
Retail package stores 110 94
-------- --------
1,736 1,698
Corporate 690 (29)*
-------- --------
Total Capital Expenditures $ 2,426 $ 1,669
======== ========
* includes ($72,000) transfers of furniture and fixtures from Corporate
warehouse to retail package stores and/or restaurants.
15
July 1, October 1,
2006 2005
---- ----
Identifiable Assets:
Restaurants $ 11,324 $ 10,277
Retail package store 3,564 3,527
-------- --------
14,888 13,804
Corporate 9,479 7,295
-------- --------
Consolidated Totals $ 24,367 $ 21,099
======== ========
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
Reported financial results may not be indicative of the financial results of
future periods. All non-historical information contained in the following
discussion constitutes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Words such as "anticipates, appears, expects, trends, intends, hopes,
plans, believes, seeks, estimates, may, will," and variations of these words or
similar expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and involve a number of
risks and uncertainties, including but not limited to customer demand and
competitive conditions. Factors that could cause actual results to differ
materially are included in, but not limited to, those identified in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," in the Annual Report on Form 10-K for the Company's fiscal year
ended October 1, 2005 and in this Quarterly Report on Form 10-Q. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements that may reflect events or circumstances after
the date of this report.
The Company owns and/or operates full service restaurants, package liquor stores
and an entertainment oriented club (collectively the "units"). At July 1, 2006,
the Company operated 20 units and had equity interests in seven units which have
been franchised by the Company. The table below sets out the changes, if any, in
the type and number of units being operated.
July 1 Oct. 1 July 2 Note
2006 2005 2005 Number
------ ------ ------ ------
Types of Units
----------------------------------------------------------------------------------
Company owned:
Combination package
and restaurant 4 4 4
Restaurant only 2 2 2
Package store only 5 5 5
Company Managed
Restaurants Only:
Limited Partnerships 6 6 6 (1)(2)(3)(4)
Franchise 1 1 1
Unrelated Third Party 1 -- -- (5)
Company Owned Club: 1 1 1
Total Company
Owned/Operated Units 20 19 19
Franchised Units 7 7 7 (6)
16
Notes:
(1) During the third quarter of fiscal year 2003, the Company, as general
partner of the limited partnership, entered into a Sale of Business Agreement
for the purchase of an existing business in Pinecrest, Florida, which
transaction closed during the first quarter of fiscal year 2004. During the
third quarter of fiscal year 2006, the Company, as general partner of the
limited partnership, substantially completed the necessary structural repairs
and its interior build-out, which were completed subsequent to the end of the
third quarter of fiscal year 2006. The renovated restaurant opened for business
on August 14, 2006 and is not included in the table of units.
(2) During the fourth quarter of fiscal year 2004, a limited partnership was
formed with the Company as general partner. The limited partnership entered into
a lease agreement to own and operate a restaurant in Wellington, Florida under
the "Flanigan's Seafood Bar and Grill" service mark. During the first quarter of
fiscal year 2005, the limited partnership raised funds through a private
offering to renovate the business premises for operation as a "Flanigan's
Seafood Bar and Grill" restaurant. The Company acts as general partner and owns
a twenty six percent limited partnership interest. The restaurant opened for
business on May 27, 2005.
(3) During the first quarter of fiscal year 2006, the Company, as agent for a
limited partnership to be formed, entered into a contract to purchase an
existing restaurant location in Davie, Florida, to renovate and operate a
restaurant under the "Flanigan's Seafood Bar and Grill" servicemark. The
restaurant is expected to open for business during the second quarter of fiscal
year 2007, provided the landlord's approval of building plans and all necessary
zoning approvals, variances and/or special use permits are received. This
restaurant is not included in the table of units.
(4) During the third quarter of fiscal year 2006, the Company, as agent for a
limited partnership to be formed, entered into a contract to purchase an
existing restaurant location in Pembroke Pines, Florida, to renovate and operate
a restaurant under the "Flanigan's Seafood Bar and Grill" servicemark. The
restaurant is expected to open for business during the second quarter of fiscal
year 2007, provided the landlord's approval of building plans and all necessary
zoning approvals, variances and/or special use permits are received. This
restaurant is not included in the table of units.
(5) During the second quarter of fiscal year 2006, the Company assumed the
management of an existing restaurant in Deerfield Beach, Florida under its
current format, "The Whale's Rib", pursuant to a management agreement. This
restaurant is included in the table of units.
17
(6) The Company manages the restaurant for one (1) franchisee with respect to
one (1) of the seven (7) franchised units. The franchised restaurant is included
in the table of units as a restaurant operated by the Company and the franchise
is also included as a unit franchised by the Company and in which the Company
has an interest as a franchise.
Results of Operations
---------------------
Thirteen Weeks Ended
July 1, July 2,
2006 2005
Amount Percent Amount Percent
------------------- -------------------
(In Thousands) (In Thousands)
Restaurant food sales $ 8,405 62.80 $ 7,550 63.40
Restaurant bar sales 1,943 14.52 1,641 13.78
Package goods sales 3,036 22.68 2,718 22.82
-------- -------- -------- --------
Total sales $ 13,384 100.00 $ 11,909 100.00
Franchise related revenues 291 242
Owner's fee 96 123
Other operating income 80 68
-------- --------
Total Revenue $ 13,851 $ 12,342
======== ========
Thirty Nine Weeks Ended
July 1, July 2,
2006 2005
Amount Percent Amount Percent
------------------- -------------------
(In Thousands) (In Thousands)
Restaurant food sales $ 24,440 60.59 $ 21,499 60.47
Restaurant bar sales 5,669 14.05 4,928 13.86
Package goods sales 10,228 25.36 9,127 25.67
-------- -------- -------- --------
Total sales $ 40,337 100.00 $ 35,554 100.00
Franchise related revenues 837 754
Owner's fee 171 198
Other operating income 231 110
-------- --------
Total Revenue $ 41,576 $ 36,616
======== ========
18
Comparison of Thirteen Weeks Ended July 1, 2006 and July 2, 2005.
-----------------------------------------------------------------
As the table above illustrates, total revenues in the thirteen weeks ended July
1, 2006 increased by 12.23% as compared to the total revenues for the thirteen
weeks ended July 2, 2005 primarily due to the restaurant in Wellington, Florida
being open for the entire fiscal quarter. Total revenues are expected to
increase due to the restaurant in Wellington, Florida being open for the entire
fiscal year and the opening of the restaurant in Pinecrest, Florida on August
14, 2006.
Restaurant food sales represented 62.80% of total sales in the thirteen weeks
ended July 1, 2006 as compared to 63.40% of total sales in the thirteen weeks
ended July 2, 2005. The weekly average of same store restaurant food sales,
which now includes five (5) limited partnership restaurants, were $593,634 and
$551,133 for the thirteen weeks ended July 1, 2006 and July 2, 2005,
respectively, an increase of 7.71%. The increase in restaurant food sales is due
to the restaurant in Wellington, Florida being open for the entire fiscal
quarter and the continued increase in the weekly average of same store
restaurant food sales. Restaurant food sales should continue to increase due to
the restaurant in Wellington, Florida being open for the entire fiscal year; the
opening of the restaurant in Pinecrest, Florida on August 14, 2006; and the
continued increase in the weekly average of same store restaurant food sales.
Restaurant bar sales represented 14.52% of total sales in the thirteen weeks
ended July 1, 2006 as compared to 13.78% of total sales in the thirteen weeks
ended July 2, 2005. The weekly average of same store restaurant bar sales were
$135,985 and $119,810 for the thirteen weeks ended July 1, 2006 and July 2,
2005, respectively, an increase of 13.50%. The increase in restaurant bar sales
is due to the restaurant in Wellington, Florida being open for the entire fiscal
quarter ended July 1, 2006 and the promotions introduced during the third
quarter of fiscal year 2005 to increase restaurant bar sales, without
jeopardizing the Company's perception as a family restaurant. Restaurant bar
sales should continue to increase due to the restaurant in Wellington, Florida
being open for the entire fiscal year; the opening of the restaurant in
Pinecrest, Florida on August 14, 2006; and the continued increase in the weekly
average of same store restaurant bar sales.
Package goods sales represented 22.68% of total sales in the thirteen weeks
ended July 1, 2006, as compared to 22.82% of total sales in the thirteen weeks
ended July 2, 2005. The weekly average of same store package goods sales were
$233,545 and $209,091 for the thirteen weeks ended July 1, 2006 and July 2,
2005, respectively, an increase of 11.70%. The increase was primarily due to
increased volume. Package good sales are expected to continue increasing through
the balance of fiscal year 2006 due to the continued increase in the weekly
average of same store package sales.
The gross profit margin for restaurant food and bar sales was 66.23% and 65.11%
for the thirteen weeks ended July 1, 2006 and July 2, 2005, respectively. The
1.12% increase in gross profit for restaurant and bar sales for the third
quarter of fiscal 2006 was primarily due to menu price increases.
19
The gross profit margin for package goods stores was 28.36% and 28.44% for the
thirteen weeks ended July 1, 2006 and July 2, 2005, respectively. The gross
profit margin for package goods stores is expected to remain constant through
the balance of fiscal year 2006.
Operating Costs and Expenses
Operating costs and expenses were $13,197,000 and $11,626,000 for the thirteen
weeks ended July 1, 2006 and July 2, 2005, respectively, an increase of 13.51%.
The increase is due to the operation of the restaurant in Wellington, Florida
for the entire fiscal quarter, as well as a general increase in overall
operating costs and expenses. Operating costs and expenses are expected to
continue increasing through the balance of fiscal year 2006 with the opening of
the restaurant in Pinecrest, Florida on August 14, 2006 and a general increase
in overall operating costs and expenses.
Payroll and related costs were $4,096,000 and $3,394,000 for the thirteen weeks
ended July 1, 2006 and July 2, 2005, respectively, an increase of 20.68%. The
increase is attributed to the operation of the restaurant in Wellington, Florida
for the entire fiscal quarter ended July 1, 2006, pre-opening payroll and
related costs for the restaurant in Pinecrest, Florida, the impact of the
Florida minimum wage which was effective during the third quarter of fiscal year
2005 and further impacted by its first annual cost of living increase effective
January 1, 2006 and the accrual of officers' bonus in fiscal year 2006. During
the balance of fiscal year 2006, payroll and related costs are expected to
increase due to the opening of the restaurant in Pinecrest, Florida on August
14, 2006.
Occupancy costs which include rent, common area maintenance, repairs and taxes
were $769,000 and $716,000 for the thirteen weeks ended July 1, 2006 and July 2,
2005, respectively, an increase of 7.40%. The increase is accounted for by
increased real property taxes and the payment of rent for the restaurant in
Wellington, Florida for the entire fiscal quarter ended July 1, 2006.
Selling, general and administrative expenses were $2,662,000 and $2,364,000 for
the thirteen weeks ended July 1, 2006 and July 2, 2005, respectively, an
increase of 12.61%. The increase in selling, general and administrative expenses
is accounted for by the operation of the restaurant in Wellington, Florida for
the entire fiscal quarter; expenses associated with the restaurant in Pinecrest,
Florida; and an overall increase in expenses.
Other Income and Expense
Other income and expenses were an expense of ($47,000) for the thirteen weeks
ended July 1, 2006 as compared to an expense of ($48,000) for the thirteen weeks
ended July 2, 2005. Other income and expenses includes insurance recovery, net
of casualty loss, ($8,000), which includes the deletion of the net book value of
property and equipment as a result of Hurricane Wilma, ($7,000), and repair of
damage ($1,000) caused by Hurricane Wilma, with no offset by an advance from the
Company's insurance carrier against anticipated insurance recoveries during the
thirteen weeks ended July 1, 2006.
20
Comparison of Thirty Nine Weeks Ended July 1, 2006 and July 2, 2005.
--------------------------------------------------------------------
As the table above illustrates, total revenues in the thirty nine weeks ended
July 1, 2006 increased by 13.55% as compared to the total revenues for the
thirty nine weeks ended July 2, 2005 primarily due to the restaurant in
Wellington, Florida being open for the thirty nine weeks ended July 1, 2006 and
menu price increases made during the third quarter of fiscal year 2005. The
increase in total revenues also occurred notwithstanding an estimated loss of
$550,000 in restaurant food and beverage revenue as a result of Hurricane Wilma
which impacted South Florida on October 24, 2005. Total revenues are expected to
increase due to the restaurant in Wellington, Florida being open for the entire
fiscal year and the opening of the restaurant in Pinecrest, Florida on August
14, 2006.
Restaurant food sales represented 60.59% of total sales in the thirty nine weeks
ended July 1, 2006 as compared to 60.47% of total sales in the thirty nine weeks
ended July 2, 2005. The weekly average of same store restaurant food sales,
which now includes five (5) limited partnership restaurants, were $573,199 and
$542,044 for the thirty nine weeks ended July 1, 2006 and July 2, 2005,
respectively, an increase of 5.75%. The increase in restaurant food sales is due
to the restaurant in Wellington, Florida being open for the entire thirty nine
weeks, menu price increases and the continued increase in the weekly average of
same store restaurant food sales. This increase occurred notwithstanding an
estimated loss of $450,000 in restaurant food sales as a result of Hurricane
Wilma. Restaurant food sales should continue to increase due to the restaurant
in Wellington, Florida being open for the entire fiscal year; the opening of the
restaurant in Pinecrest, Florida on August 14, 2006; and the continued increase
in the weekly average of same store restaurant food sales.
Restaurant bar sales represented 14.05% of total sales in the thirty nine weeks
ended July 1, 2006 as compared to 13.86% of total sales in the thirty nine weeks
ended July 2, 2005. The weekly average of same store restaurant bar sales were
$131,674 and $124,219 for the thirty nine weeks ended July 1, 2006 and July 2,
2005, respectively, an increase of 6.00%. The increase in restaurant bar sales
is due to the restaurant in Wellington, Florida being open for the entire thirty
nine weeks and the promotions introduced during fiscal year 2005 to increase
restaurant bar sales, without jeopardizing the Company's perception as a family
restaurant. This increase also occurred notwithstanding an estimated loss of
$100,000 in restaurant bar sales as a result of Hurricane Wilma. Restaurant bar
sales should continue to increase due to the restaurant in Wellington, Florida
being open for the entire fiscal year; the opening of the restaurant in
Pinecrest, Florida on August 14, 2006; and the continued increase in the weekly
average of same store restaurant bar sales.
Package goods sales represented 25.36% of total sales in the thirty nine weeks
ended July 1, 2006, as compared to 25.67% of total sales in the thirty nine
weeks ended July 2, 2005. The weekly average of same store package goods sales,
which now includes all nine (9) Company owned package stores, were $262,256 and
$234,036 for the thirty nine weeks ended July 1, 2006 and July 2, 2005,
respectively, an increase of 12.06%. The increase was primarily due to increased
volume. Hurricane Wilma had no adverse affect upon package goods sales because
all
21
Company-owned package good stores were open for business, without electric
power, by October 26, 2005 or within two (2) days of Hurricane Wilma and
notwithstanding curfews limiting hours of operation. Package good sales are
expected to continue increasing through the balance of fiscal year 2006 due to
the continued increase in the weekly average of same store package sales.
The gross profit margin for restaurant food and bar sales was 66.02% and 64.80%
for the thirty nine weeks ended July 1, 2006 and July 2, 2005, respectively. The
1.22% increase in gross profit margin for restaurant and bar sales for the
thirty nine weeks ended July 1, 2006 was primarily due to menu price increases.
The gross profit margin for package goods stores was 28.21% and 28.25% for the
thirty nine weeks ended July 1, 2006 and July 2, 2005, respectively. The gross
profit margin for package goods stores is expected to remain constant through
the balance of fiscal year 2006.
Operating Costs and Expenses
Operating costs and expenses were $39,743,000 and $34,963,000 for the thirty
nine weeks ended July 1, 2006 and July 2, 2005, respectively, an increase of
13.67%. The increase is due to the operation of the restaurant in Wellington,
Florida for the entire thirty nine weeks ended July 1, 2006, as well as a
general increase in overall operating costs and expenses. Operating costs and
expenses are expected to continue increasing through the balance of fiscal year
2006 with the opening of the restaurant in Pinecrest, Florida on August 14, 2006
and a general increase in overall operating costs and expenses.
Payroll and related costs were $11,904,000 and $9,853,000 for the thirty nine
weeks ended July 1, 2006 and July 2, 2005, respectively, an increase of 20.82%.
The increase is attributed to the operation of the restaurant in Wellington,
Florida for the entire thirty nine weeks ended July 1, 2006, pre-opening payroll
and related costs for the restaurant in Pinecrest, Florida, the impact of the
Florida minimum wage which was effective during the third quarter of fiscal year
2005 and the further impact of its first annual cost of living increase
effective January 1, 2006 and the accrual of officers' bonus in fiscal year
2006. During the balance of fiscal year 2006 payroll and related costs are
expected to increase due to the opening of the restaurant in Pinecrest, Florida
on August 14, 2006.
Occupancy costs which include rent, common area maintenance, repairs and taxes
were $2,306,000 and $2,081,000 for the thirty nine weeks ended July 1, 2006 and
July 2, 2005, respectively, an increase of 10.81%. The increase is accounted for
by increased real property taxes and the payment of rent for the restaurant in
Wellington, Florida for the entire thirty nine weeks of fiscal year 2006.
Selling, general and administrative expenses were $7,958,000 and $7,177,000 for
the thirty nine weeks ended July 1, 2006 and July 2, 2005, respectively, an
increase of 10.88%. The increase in selling, general and administrative expense
is accounted for by the operation of the restaurant in Wellington, Florida for
the entire thirty nine weeks ended July 1, 2006; expenses associated with the
restaurant in Pinecrest, Florida; and an overall increase in expenses.
22
Other Income and Expense
Other income and expenses was income of $364,000 for the thirty nine weeks ended
July 1, 2006, as compared to an expense of ($19,000) for the thirty nine weeks
ended July 2, 2005. Other income and expenses includes insurance recovery, net
of casualty loss, $442,000, which includes the deletion of the net book value of
property and equipment as a result of Hurricane Wilma, ($65,000), repair of
damage ($132,000) and food waste ($61,000) caused by Hurricane Wilma, offset by
advances of $700,000, ($750,000 less a $50,000 deductible), from the Company's
insurance carrier against anticipated insurance recoveries.
New Limited Partnership Restaurants
As the Company opens new limited partnership restaurants on a more regular basis
the Company's income from operations will be adversely affected by the higher
costs associated with the opening of the same. The higher costs include, but are
not limited to pre-opening rent. For the third quarter of fiscal year 2006, as
well as the third quarter of fiscal year 2005, the pre-opening rent paid and
expensed for the new limited partnership restaurant in Pinecrest, Florida was
approximately $51,000, which is the full rent provided in the lease. Pre-opening
payroll was approximately $26,000 for the third quarter of fiscal year 2006, as
compared to approximately $5,000 for the third quarter of fiscal 2005. For the
thirty nine weeks of fiscal year 2006, as well as the thirty nine weeks of
fiscal year 2005, the pre-opening rent paid and expensed for the new limited
partnership restaurant in Pinecrest, Florida was approximately $153,000, which
is also the full rent provided in the lease. Pre-opening payroll was
approximately $26,000 for the thirty nine weeks of fiscal year 2006, as compared
to $23,000 for the thirty nine weeks of fiscal year 2005.
During the thirteen and thirty nine weeks ended July 2, 2005, the Company's
income from operations was also adversely affected on a short-term basis by the
pre-opening costs incurred for the limited partnership restaurant in Wellington,
Florida which opened on May 27, 2005. For the thirteen and thirty nine weeks
ended July 2, 2005, pre-opening rent paid and expensed was approximately
$18,000. For the thirteen and thirty nine weeks ended July 2, 2005, pre-opening
payroll was $61,000 and $90,000 respectively, excluding lodging and per diem
allowances incurred for new restaurant openers due to the proximity of this
restaurant.
During the balance of fiscal year 2006, income from operations will be adversely
affected by the pre-opening costs incurred for the new limited partnership
restaurant in Pinecrest, Florida prior to the opening of the restaurant for
business on August 14, 2006, including but not limited to additional pre-opening
rent, in the amount of $25,500, subsequent to the end of the third quarter of
fiscal year 2006 through the date the restaurant opened for business.
Trends
During the next twelve months management expects continued increases in
restaurant sales, due primarily to the opening of the restaurant in Pinecrest,
Florida and continued increases in same store restaurant sales. Package good
sales are also expected to increase due primarily to increases in same store
package goods sales. At the same time, management also expects higher food
costs, payroll costs and an overall increase in expenses. The Company has
already raised some of its menu prices to offset higher food costs and payroll
costs and will continue to do so wherever competitively possible.
Liquidity and Capital Resources
Cash Flows
The following table is a summary of the Company's cash flows for the thirty nine
weeks of fiscal years 2006 and 2005.
23
Thirty Nine Weeks Ended
July 1 July 2
2006 2005
-------- --------
(In Thousands)
Net cash provided by
operating activities $ 2,068 $ 1,930
Net cash used in
investing activities (2,344) (1,324)
Net cash provided by (used in)
financing activities 1,130 (602)
-------- --------
Net Increase in Cash and Cash Equivalents 854 4
Cash and Cash Equivalents, Beginning 2,674 2,936
-------- --------
Cash and Cash Equivalents, Ending $ 3,528 $ 2,940
======== ========
On January 13, 2006, the Company declared a cash dividend of 35 cents per share
payable on February 15, 2006 to shareholders of record on January 31, 2006.
On December 9, 2004, the Company declared a cash dividend of 32 cents per share
payable on January 28, 2005 to the shareholders of record on January 14, 2005.
Capital Expenditures
The Company had cash additions to property and equipment of $2,356,000 during
the thirty nine weeks ended July 1, 2006, including $531,000 as a direct result
of Hurricane Wilma, as compared to $1,367,000 for the thirty nine weeks ended
July 2, 2005. The additions to fixed assets during the thirty nine weeks ended
July 1, 2006 included most of the renovations to the business premises of the
restaurant in Pinecrest, Florida, while the addition to fixed assets during the
thirty nine weeks ended July 2, 2005 included the renovations to the business
premises of the restaurant in Wellington, Florida.
All of the Company's units require periodic refurbishing in order to remain
competitive. The budget for fiscal year 2006 is $700,000, exclusive of any
expenditures attributed to Hurricane Wilma. The Company expects the funds for
these improvements to be provided from operations. During the third quarter of
fiscal year 2006, the limited partnership which owns the restaurant in
Pinecrest, Florida completed its private offering, raising the sum of
$3,300,000. The funds from the private offering were used to reimburse the
Company for advances made to the limited partnership in excess of its investment
in the same, ($1,506,000), to complete the renovations to the business premises
for operation of a "Flanigan's Seafood Bar and Grill" restaurant and provide
working capital for the same.
24
Long Term Debt
As of July 1, 2006, the Company had long term debt of $2,205,000, as compared to
$1,365,000 as of July 2, 2005, and $1,557,000 as of October 1, 2005.
The Company's long term debt includes its line of credit, which line of credit
had a principal balance of $762,000 as of July 1, 2006. As of July 1, 2006, the
Company is in compliance with the affirmative covenants contained in the loan
documents.
Subsequent to the end of the third quarter of fiscal year 2006, the Company
closed on a $3,280,000 mortgage which financed the Company's purchase of the
limited liability company which owns the real property and ground lease for a
small portion of the property of the Company's combination restaurant and
package liquor store located at 4 North Federal Highway, Hallandale, Florida,
(Store #31). As collateral for the mortgage, the limited liability company
granted the lender a first mortgage on its real property and a leasehold
mortgage on the ground lease, while the Company granted a first mortgage on its
parking lot adjacent to the above-described business location. The Company's
grant of a first mortgage on its parking lot, included the satisfaction of the
purchase money mortgage on the same, which had an approximate principal balance
of $264,000. The mortgage bears interest at the rate of seven and one-half (7
1/2%) percent per annum, is amortized over twenty (20) years with equal monthly
payments of principal and interest, each in the amount of $26,400, with the
entire principal balance and all accrued interest due in seven (7) years.
Property Insurance Coverage; Deductibles
For the policy year commencing December 30, 2005, the Company's property
insurance has a deductible of $25,000 - $50,000 per location, per occurrence. In
the event a casualty, such as another hurricane, impacted every location whereby
property damage and business interruption claims reached or exceeded every
deductible, then the Company and its limited partnerships would face a maximum
exposure of $825,000. The Company intends to build its cash balances during
hurricane season, (June 1 - November 1 each year), to protect the Company
against losses as a result of a hurricane or other casualty loss, as well as to
maintain a line of credit as additional protection against the same.
Purchase of Company Common Stock
Pursuant to a discretionary plan approved by the Board of Directors, during the
thirteen weeks ended July 1, 2006, the Company purchased 5,000 shares of its
common stock for an aggregate purchase price of $52,000. During the thirty nine
weeks ended July 1, 2006, the Company purchased 9,350 shares of its common stock
for an aggregate purchase price of $95,000.
Working Capital
The table below summarizes the current assets, current liabilities, and working
capital for the fiscal quarters ended July 1, 2006, July 2, 2005 and the fiscal
year ended October 1, 2005.
25
July 1, July 2, Oct. 1,
Item 2006 2005 2005
------- ------- -------
(In Thousands)
Current Assets $ 7,350 $ 6,609 $ 6,091
Current Liabilities 4,583 4,138 3,954
------- ------- -------
Working Capital 2,767 2,471 2,137
Working capital for the fiscal quarter ending July 1, 2006 increased by 11.98%
from the working capital for the fiscal quarter ending July 2, 2005 and by
29.48% from the working capital for the fiscal year ending October 1, 2005.
Working capital for the quarter ended July 1, 2006 was still negatively impacted
by advances for the new location in Davie, Florida, in the amount of $11,000 for
architect fees, and for the new location in Pembroke Pines, Florida, in the
amount of $31,000, including but not limited to the deposit under the Sale of
Business Agreement, ($25,000 of which $15,000 became non-refundable during the
quarter ended July 1, 2006) and architects fees ($6,000). The increase in
working capital for the fiscal quarter ending July 1, 2006 when compared to the
fiscal quarter ending July 2, 2005 was also due to the completion of the private
offering by the limited partnership owning the restaurant in Pinecrest, Florida
during the third quarter of fiscal year 2006, which private offering reimbursed
the Company for advances made to the limited partnership in excess of its
investment in the same, ($1,506,000).
Subsequent to the end of the third quarter of fiscal year 2006, working capital
was adversely affected by the Company's payment of the cash to close,
(approximately $925,000), on its purchase of the limited liability company which
owns the real property and ground lease of the Company's location at 4 N.
Federal Highway, Hallandale, Broward County, Florida.
Through the remainder of fiscal year 2006 and into fiscal year 2007, management
projects that working capital will be adversely affected by investments and/or
further advances to be made by the Company for the new locations in Davie,
Florida and Pembroke Pines, Florida. Management believes that over the balance
of fiscal year 2006, working capital will increase by the amount of any
insurance recoveries received
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company does not ordinarily hold market risk sensitive instruments for
trading purposes but as of July 1, 2006 holds one equity security at a cost of
$303,000 to receive dividend payments and for the Company to satisfy debt in the
future. There is no assurance that market price will increase or decrease in the
next year. Even if the price of the equity security decreased by 10% below its
cost, results of operations would be reduced by $30,000, an amount management
considers immaterial.
Interest Rate Risk
At July 1, 2006, the Company has two debt arrangements which have variable
interest rates. For one of these instruments, a mortgage note, the Company has
entered into an interest rate swap agreement to hedge the interest rate risk.
The mortgage note has an outstanding principal balance at July 1, 2006 of
$794,000. The second instrument, the secured $2,000,000 line of credit has a
variable interest rate, which is at prime. The line of credit has an outstanding
principal balance at July 1, 2006 of $762,000. Increases in interest rates may
have a material affect upon results of
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operations, depending upon the outstanding principal balance on the line of
credit from time to time.
At July 1, 2006, the Company's cash resources earn interest at variable rates.
Accordingly, the Company's return on these funds is affected by fluctuations in
interest rates. Any decrease in interest rates will have a negative effect on
the Company's earnings.
There is no assurance that interest rates will increase or decrease over the
next fiscal year.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, with the participation
of management, evaluated the effectiveness of the Company's "disclosure controls
and procedures" (as defined in the Securities Exchange Act of 1934 ("Exchange
Act") Rule 13a-15(e) or 15d-15(e)) as of July 1, 2006. It is the opinion of our
Chief Executive Officer and Chief Financial Officer that such disclosure
controls and procedures operate such that important information flows to
appropriate collection and disclosure points in a timely manner and are
effective in ensuring that material information is accumulated and communicated
to management and made known to the Chief Executive Officer and Chief Financial
Officer particularly during the period in which this report was prepared, as
appropriate, to allow timely decisions regarding timely disclosure. In designing
and evaluating the disclosure controls and procedures, management recognizes
that any system of controls and procedures, no matter how well designed and
operated, is subject to limitations, including the exercise of our judgment in
evaluating the same. As a result, there can be no assurance that our disclosure
controls and procedures will prevent all errors.
(b) Change in Internal Control over Financial Reporting
During the third quarter of fiscal year 2006, the Company continued to assess
the effectiveness of our "internal controls over financial reporting" on an
account by account basis as a part of our on-going accounting and financial
reporting review process. The assessments were made by management, under the
supervision of our Chief Financial Officer. We made no changes in our internal
control over financial reporting during the fiscal quarter ending July 1, 2006
that materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting. Notwithstanding, the
effectiveness of our system of internal control over financial reporting is
subject to limitations, including the exercise of our judgment in evaluating the
same. As a result, there can be no assurance that our internal control over
financial reporting will prevent all errors.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings: See "Litigation" on page 13 of this report and Item
1 and Item 3 to Part 1 of the Annual Report on Form 10-K for the fiscal year
ended October 1, 2005 for a discussion of other legal proceedings resolved in
prior years.
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Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds: None
Item 3 - Defaults Upon Senior Securities: None
Item 4 - Submission of Matters to a Vote of Security Holders: None
Item 5 - Other Information: None
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibits: Exhibits 31.1, 31.2, 32.1 and 32.2 (Certifications)
(b) Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized. The information furnished reflects all
adjustments to the statement of the results for the interim period.
FLANIGAN'S ENTERPRISES, INC.
/s/ James G. Flanigan
---------------------------
JAMES G. FLANIGAN,
Chief Executive Officer and
President
Date: August 15, 2006
---------------
/s/ Jeffrey D. Kastner
----------------------
JEFFREY D. KASTNER
Chief Financial Officer and Secretary
Date: August 15, 2006
---------------
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