UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 29, 2014

 

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from            to

Commission File Number 1-6836

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 Number)
5059 N.E. 18th Avenue, Fort Lauderdale, Florida	33334
(Address of principal executive offices)	Zip Code

 

(954) 377-1961

(Registrant's telephone number, including area code)

 

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 ý    No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its Corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ý    No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company ý

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨    No ý

 

On May 13, 2014, 1,858,647 shares of Common Stock, $0.10 par value per share, were outstanding.

 

FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES

 

INDEX TO FORM 10-Q

 

PART I. FINANCIAL INFORMATION
ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME	1
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS	3
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	5
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	7
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	22
ITEM 4.  CONTROLS AND PROCEDURES	23
PART II. OTHER INFORMATION
ITEM 1.  LEGAL PROCEEDINGS	24
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	24
ITEM 6. EXHIBITS	24
SIGNATURES
LIST XBRL DOCUMENTS

 

 

As used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” the “Company” and “Flanigan’s” mean Flanigan's Enterprises, Inc. and its subsidiaries (unless the context indicates a different meaning).

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

 

FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 

		Thirteen Weeks Ended								Twenty Six Weeks Ended
		March 29, 2014				March 30, 2013				March 29, 2014				March 30, 2013
REVENUES:
Restaurant food sales		$	14,918			$	13,994			$	28,219			$	26,036
Restaurant bar sales			4,510				4,007				8,516				7,484
Package store sales			3,801				3,716				7,462				7,266
Franchise related revenues			320				298				613				610
Rental income			124				149				254				301
Owner’s fee			37				37				75				75
Other operating income			61				54				107				96
			23,771				22,255				45,246				41,868
COSTS AND EXPENSES:
Cost of merchandise sold:
Restaurant and lounges			6,574				6,335				12,646				11,887
Package goods			2,653				2,630				5,238				5,133
Payroll and related costs			7,188				6,842				13,693				12,731
Occupancy costs			1,172				1,093				2,341				2,176
Selling, general and administrative expenses			4,108				3,950				8,036				7,900
			21,695				20,850				41,954				39,827
Income from Operations			2,076				1,405				3,292				2,041
OTHER INCOME (EXPENSE):
Interest expense			(193	)			(198	)			(388	)			(412	)
Interest and other income			74				126				92				140
			(119	)			(72	)			(296	)			(272	)
Income before Provision for Income Taxes			1,957				1,333				2,996				1,769
Provision for Income Taxes			(405	)			(290	)			(635	)			(437	)
Net Income			1,552				1,043				2,361				1,332
Less: (Net income) attributable to noncontrolling interests			(645	)			(293	)			(916	)			(236	)
Net Income attributable to stockholders		$	907			$	750			$	1,445			$	1,096

 

FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 

(Continued)

 

 

		Thirteen Weeks Ended								Twenty Six Weeks Ended
		March   29, 2014				March  30, 2013				March 29, 2014				March 30, 2013
Net Income Per Common Share:
Basic and Diluted		$	0.49			$	0.40			$	0.78			$	0.59
Weighted Average Shares and Equivalent       Shares Outstanding
Basic and Diluted			1,858,647				1,859,257				1,859,003				1,859,622

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 29, 2014 (UNAUDITED) AND SEPTEMBER 28, 2013

(in thousands)

 

 

 

ASSETS

 

		March 29, 2014				September 28, 2013
CURRENT ASSETS:
Cash and cash equivalents		$	8,155			$	7,058
Prepaid income taxes			—				181
Due from franchisees			—				21
Other receivables			253				235
Inventories			3,103				2,701
Prepaid expenses			1,464				859
Deferred tax asset			337				467
Total Current Assets			13,312				11,522
Property and Equipment, Net			35,911				34,627
Investment in Limited Partnership			233				216
OTHER ASSETS:
Liquor licenses, net			630				630
Deferred tax asset			896				971
Leasehold purchases, net			976				1,043
Other			1,262				615
Total Other Assets			3,764				3,259
Total Assets		$	53,220			$	49,624

 

FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

MARCH 29, 2014 (UNAUDITED) AND SEPTEMBER 28, 2013

(in thousands)

 

(Continued)

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

		March 29, 2014				September 28, 2013
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	6,407			$	5,985
Income taxes payable			28				—
Due to franchisees			1,847				1,661
Current portion of long term debt			2,236				1,477
Deferred rent			16				16
Total Current Liabilities			10,534				9,139
Long Term Debt, Net of Current Maturities			12,857				12,069
Deferred Rent, Net of Current Portion			122				130
Commitments and Contingencies
Equity:
Flanigan’s Enterprises, Inc. 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			6,240				6,240
Retained earnings			21,552				20,107
Treasury stock, at cost, 2,338,995 shares at March 29, 2014 and 2,338,195 shares at September 28, 2013			(6,077	)			(6,067	)
Total Flanigan’s Enterprises, Inc. stockholders’ equity			22,135				20,700
Noncontrolling interest			7,572				7,586
Total equity			29,707				28,286
Total liabilities and equity		$	53,220			$	49,624

 

See accompanying notes to unaudited condensed consolidated financial statements.

FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE TWENTY SIX WEEKS ENDED MARCH 29, 2014 AND MARCH 30, 2013

(in thousands)

 

 

		March 29, 2014				March 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	2,361			$	1,332
Adjustments to reconcile net income to net cash and    cash equivalents provided by operating activities:
Depreciation and amortization			1,207				1,226
Amortization of leasehold interests			67				67
Loss on abandonment of property and equipment			(6	)			44
Deferred income tax			205				80
Deferred rent			(8	)			(9	)
Income from unconsolidated limited partnership			(33	)			(32	)
Changes in operating assets and liabilities:      (increase) decrease in
Due from franchisees			21				(164	)
Other receivables			(17	)			132
Prepaid income taxes			181				—
Inventories			(402	)			(230	)
Prepaid expenses			864				372
Other assets			(671	)			(27	)
Increase (decrease) in:
Accounts payable and accrued expenses			420				537
Income taxes payable			28				39
Due to franchisees			186				215
Net cash and cash equivalents provided by operating     activities			4,403				3,582
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment			(1,360	)			(2,426	)
Deposit on property and equipment			(84	)			(91	)
Proceeds from sale of fixed assets			35				26
Distributions from unconsolidated limited partnership			16				8
Net cash and cash equivalents used in investing       activities			(1,393	)			(2,483	)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE TWENTY SIX WEEKS ENDED MARCH 29, 2014 AND MARCH 30, 2013

(in thousands)

 

(Continued)

 

		March 29, 2014				March 30, 2013
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long term debt			(973	)			(4,296	)
Proceeds from debt			—				3,000
Purchase of treasury stock			(10	)			(6	)
Purchase of noncontrolling limited partnership interests			(145	)			(5	)
Distributions to limited partnership’s noncontrolling interests			(785	)			(568	)
Net cash and cash equivalents used in financing activities			(1,913	)			(1,875	)
Net Increase (Decrease) in Cash and Cash Equivalents			1,097				(776	)
Beginning of Period			7,058				7,221
End of Period		$	8,155			$	6,445
Supplemental Disclosure for Cash Flow Information:      Cash paid during period for:
Interest		$	388			$	412
Income taxes		$	220			$	318
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Financing of insurance contracts		$	1,469			$	500
Purchase deposits transferred to property and equipment		$	62			$	292
Purchase of property in exchange for debt		$	900			$	1,950
Purchase of vehicles in exchange for debt		$	152			$	—

 

See accompanying notes to unaudited condensed consolidated financial statements

 

FLANIGAN’S ENTERPRISES, INC. AND SUBSIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

MARCH 29, 2014

 

 

(1) BASIS OF PRESENTATION:

 

The accompanying condensed consolidated financial information for the periods ended March 29, 2014 and March 30, 2013 are unaudited. Financial information as of September 28, 2013 has been derived from the audited financial statements of the Company, but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial information for the periods indicated have been included. For further information regarding the Company's accounting policies, refer to the Consolidated Financial Statements and related notes included in the Company's Annual Report on Form 10-K for the year ended September 28, 2013. Operating results for interim periods are not necessarily indicative of results to be expected for a full year.

 

The condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and the accounts of the nine limited partnerships in which we act as general partner and have controlling interests. All intercompany balances and transactions have been eliminated. Non-controlling interest represents the limited partners’ proportionate share of the net assets and results of operations of the nine limited partnerships.

 

These condensed consolidated financial statements include estimates relating to performance based officers’ bonuses. The estimates are reviewed periodically and the effects of any revisions are reflected in the financial statements in the period they are determined to be necessary. Although these estimates are based on management’s knowledge of current events and actions it may take in the future, they may ultimately differ from actual results.

 

(2) EARNINGS PER SHARE:

 

We follow Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Section 260 - “Earnings per Share”. This section provides for the calculation of basic and diluted earnings per share. The data on Page 2 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. As of March 29, 2014 and March 30, 2013, no stock options were outstanding.

 

(3) RECENT ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

 

Adopted

 

In July 2013, the FASB issued ASU 2013-10, Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in this Update permit the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to UST and LIBOR. The amendments also remove the restriction on using different benchmark rates for similar hedges. The amendments are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. This ASU is not expected to have a significant impact on our condensed consolidated financial statements.

 

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.  Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. This ASU is not expected to have a significant impact on our consolidated financial statements.

 

Issued

 

There were no recently issued accounting pronouncements during the second quarter of our fiscal year 2014 that we believe will have a material impact on our consolidated financial statements.

 

(4) INVESTMENT IN REAL PROPERTY FINANCED BY DEBT:

 

Fort Lauderdale, Florida

 

During the second quarter of our fiscal year 2014, we closed on the purchase from an unrelated third party of the real property and improvements, (“Property”) where our franchised restaurant located at 1479 East Commercial Boulevard, Fort Lauderdale, Florida, (Store #15) operates. A corporation, owned by one of our board members, who is also the brother of our Chairman of the Board, acts as sole general partner of this limited partnership which has owned and operated this franchised restaurant since April 1, 1997. We acquired the Property subject to a 10 1/2 year lease, including renewal options, in favor of our franchisee. We paid $1,250,000 for the Property, $900,000 of which was financed by the seller pursuant to a purchase money mortgage (the “$900K Mortgage Loan”). Our repayment obligations under the $900K Mortgage Loan are secured by a first mortgage on the Property. The $900K Mortgage Loan bears interest at the rate of 7.5% annually and is amortized over twenty (20) years, with our monthly payment of principal and interest totaling $7,250. In the event we elect to pre-pay the $900K Mortgage Loan during the first seven (7) years, we will incur a pre-payment penalty equal to six (6) monthly payments of principal and interest or $43,500.

 

(5) RECENT EXTENSION OF EXISTING LEASE FOR EXISTING LOCATION:

 

Fort Lauderdale, Florida

 

During the second quarter of our fiscal year 2014, we extended our lease for the package liquor store we own located at 959 State Road 84, Fort Lauderdale, Florida (Store #8) for a period of five (5) years through April 30, 2019, with two (2) five (5) year renewal options. The amendment to the lease for the extended term (i) increases the size of the leased premises from 1,942 square feet to approximately 4,084 square feet, which additional square footage will be used for storage, and increases the rent and common area charges accordingly; and (ii) subjects the rent to a 3% fixed increase annually.

 

(6) INCOME TAXES:

 

We account for our income taxes using FASB ASC Topic 740, “Income Taxes”, which 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.

 

(7) STOCK OPTION PLANS:

 

We have one stock option plan under which qualified stock options may be granted to our officers and other employees. Under this plan, the exercise price for the qualified stock options must be no less than 100% of the fair market value of the Company’s Common Stock on the date the options are granted. In general, options granted under our stock option plan expire after a five (5) year period and generally vest no later than one (1) year from the date of grant. As of March 29, 2014, no options to acquire shares were outstanding. Under this plan, options to acquire an aggregate of 45,000 shares are available for grant.

 

No stock options were granted during the twenty six weeks ended March 29, 2014, nor were stock options granted during the twenty six weeks ended March 30, 2013.

 

No stock options were exercised during the twenty six weeks ended March 29, 2014, nor were stock options exercised during the twenty six weeks ended March 30, 2013.

 

There was no stock option activity during the twenty six weeks ended March 29, 2014, nor was there stock option activity during the twenty six weeks ended March 30, 2013.

 

(8) ACQUISITIONS:

 

Purchase of Company Common Stock

 

Pursuant to a discretionary plan approved by the Board of Directors at its meeting on May 17, 2007, during the thirteen weeks ended March 29, 2014, we did not purchase any shares of our common stock. During the twenty six weeks ended March 29, 2014, we purchased 800 shares of our common stock from the Joseph G. Flanigan Charitable Trust for an aggregate purchase price of $10,000. During the thirteen weeks ended March 30, 2013, we did not purchase any shares of our common stock. During the twenty six weeks ended March 30, 2013, we purchased 800 shares of our common stock from the Joseph G. Flanigan Charitable Trust for an aggregate purchase price of $6,200.

 

(9) COMMITMENTS AND CONTINGENCIES:

 

Litigation

From time to time, we are a defendant in litigation arising in the ordinary course of our business, including claims resulting from “slip and fall” accidents, claims under federal and state laws governing access to public accommodations, employment-related claims and claims from guests alleging illness, injury or other food quality, health or operational concerns. To date, none of this litigation, some of which is covered by insurance, has had a material effect on us.

(10) SUBSEQUENT EVENTS:

 

Subsequent to the end of the second quarter of our fiscal year 2014, we modified and/or satisfied the following mortgages held by related mortgagees:

 

(i)           We satisfied our mortgage payable to a related third party, (formerly an unrelated third party), which mortgage was originally in the principal amount of $450,000 and secured by a first mortgage on real property and improvements, bearing interest at 10.0%; amortized over 30 years, payable in monthly installments of principal and interest of approximately $4,000, with a final payment of $425,494, including the principal balance and accrued interest;

 

(ii)           We partially prepaid the principal balance on our mortgage payable to a related third party, (formerly an unrelated third party), which mortgage had an original principal amount of $850,000, with a payment of $74,000, thereby reducing its current principal balance to $622,107 and modified its terms to bear interest at 5% annually, amortized over 15 years, payable in monthly installments of principal and interest of approximately $4,920, with a balloon payment of approximately $391,882 in April, 2021. The mortgage is still secured by first mortgage on real property and improvements;

 

(iii)          We partially prepaid the principal balance on our mortgage payable to a related third party with a payment of $440,000, which mortgage had an original principal amount of $1,000,000, thereby reducing its current principal balance to $440,000 and modified its terms to bear interest at 5% annually, amortized over 15 years, payable in monthly installments of principal and interest of approximately $3,479, with a balloon payment of approximately $277,168 in April, 2021. The mortgage is still secured by first mortgage on real property and improvements; and

 

(iv)          We modified the terms on our mortgage payable to a related third party, which mortgage had an original principal amount of $850,000 and current principal balance of $755,950, to bear interest at 5% annually, amortized over 15 years, payable in monthly installments of principal and interest of approximately $5,978, with a balloon payment of approximately $476,193 in April, 2021. The mortgage is still secured by first mortgage on real property and improvements.

 

Subsequent events have been evaluated through the date these condensed consolidated financial statements were issued. Except as disclosed above, no events required disclosure.

 

(11) BUSINESS SEGMENTS:

 

We operate principally in two reportable segments – package stores and restaurants. The operation of package stores consists of retail liquor sales and related items. Information concerning the revenues and operating income for the thirteen weeks and twenty six weeks ended March 29, 2014 and March 30, 2013, and identifiable assets for the two reportable segments in which we operate, 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 expenses and income taxes. Identifiable assets by segment are those assets that are used in our operations in each segment. Corporate assets are principally cash and real property, improvements, furniture, equipment and vehicles used at our corporate headquarters. We do not have any operations outside of the United States and transactions between restaurants and package liquor stores are not material.

		(in thousands)
		Thirteen Weeks Ending March 29, 2014				Thirteen Weeks  Ending March 30, 2013
Operating Revenues:
Restaurants		$	19,428			$	18,001
Package stores			3,801				3,716
Other revenues			542				538
Total operating revenues		$	23,771			$	22,255
Income from Operations Reconciled to Income Before Income Taxes and Net Income Attributable to Noncontrolling Interests
Restaurants		$	2,402			$	1,796
Package stores			286				313
			2,688				2,109
Corporate expenses, net of other        Revenues			(612	)			(704	)
Operating income			2,076				1,405
Other income (expense)			(119	)			(72	)
Income Before Income Taxes and Net Income Attributable to Noncontrolling Interests		$	1,957			$	1,333
Depreciation and Amortization:
Restaurants		$	489			$	451
Package stores			51				97
			540				548
Corporate			102				117
Total Depreciation and Amortization		$	642			$	665
Capital Expenditures:
Restaurants		$	1,536			$	307
Package stores			100				34
			1,636				341
Corporate			275				98
Total Capital Expenditures		$	1,911			$	439

 

		Twenty Six Weeks Ending March 29, 2014				Twenty Six Weeks Ending March 30, 2013
Operating Revenues:
Restaurants		$	36,735			$	33,520
Package stores			7,462				7,266
Other revenues			1,049				1,082
Total operating revenues		$	45,246			$	41,868
Income from Operations Reconciled to Income Before Income Taxes and Net Income Attributable to Noncontrolling Interests
Restaurants		$	3,949			$	2,734
Package stores			531				599
			4,480				3,333
Corporate expenses, net of other        Revenues			(1,188	)			(1,292	)
Operating income			3,292				2,041
Other income (expense)			(296	)			(272	)
Income Before Income Taxes and Net Income Attributable to Noncontrolling Interests		$	2,996			$	1,769
Depreciation and Amortization:
Restaurants		$	967			$	869
Package stores			102				193
			1,069				1,062
Corporate			205				231
Total Depreciation and Amortization		$	1,274			$	1,293
Capital Expenditures:
Restaurants		$	1,984			$	1,941
Package stores			160				45
			2,144				1,986
Corporate			330				2,682
Total Capital Expenditures		$	2,474			$	4,668

 

		March 29,				September 28,
		2014				2013
Identifiable Assets:
Restaurants		$	30,075			$	27,460
Package store			5,001				4,490
			35,076				31,950
Corporate			18,144				17,674
Consolidated Totals		$	53,220			$	49,624

 

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 our Form 10-K for the fiscal year ended September 28, 2013 and in this Quarterly Report on Form 10-Q. We undertake 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.

 

OVERVIEW

 

At March 29, 2014, we (i) operated 25 units, (excluding the adult entertainment club referenced in (ii) below), consisting of restaurants, package stores and combination restaurants/package stores that we either own or have operational control over and partial ownership in; (ii) own but do not operate one adult entertainment club; and (iii) franchise an additional five units, consisting of two restaurants, (one restaurant of which we operate), and three combination restaurants/package stores. The table below provides information concerning the type (i.e. restaurant, package store or combination restaurant/package liquor store) and ownership of the units (i.e. whether (i) we own 100% of the unit; (ii) the unit is owned by a limited partnership of which we are the sole general partner and/or have invested in; or (iii) the unit is franchised by us), as of March 29, 2014 and as compared to March 30, 2013 and September 28, 2013. With the exception of “The Whale’s Rib”, a restaurant we operate but do not own, all of the restaurants operate under our service mark “Flanigan’s Seafood Bar and Grill” and all of the package liquor stores operate under our service mark “Big Daddy’s Liquors”.

 

Types of Units		March 29, 2014				September 28, 2013				March 30, 2013
Company Owned:
Combination package and restaurant			4				4				4
Restaurant only			5				5				5
Package store only			5				5				5
Company Operated Restaurants Only:
Limited Partnerships			9				9				9
Franchise			1				1				1
Unrelated Third Party			1				1				1
Company Owned Club:			1				1				1
Total Company Owned/Operated Units			26				26				26
Franchised Units			5				5				5		(1)

Notes:

(1) We operate a restaurant for one (1) franchisee. This unit is included in the table both as a franchised restaurant, as well as a restaurant operated by us.

 

Franchise Financial Arrangement: In exchange for our providing management and related services to our franchisees and granting them the right to use our service marks “Flanigan’s Seafood Bar and Grill” and “Big Daddy’s Liquors”, our franchisees (four of which are franchised to members of the family of our Chairman of the Board, officers and/or directors), are required to (i) pay to us a royalty equal to 1% of gross package sales and 3% of gross restaurant sales; and (ii) make advertising expenditures equal to between 1.5% to 3% of all gross sales based upon our actual advertising costs allocated between stores, pro-rata, based upon gross sales.

Limited Partnership Financial Arrangement: We manage and control the operations of all restaurants owned by limited partnerships, except the Fort Lauderdale, Florida restaurant which is owned and managed by a related franchisee. Accordingly, the results of operations of all limited partnership owned restaurants, except the Fort Lauderdale, Florida restaurant are consolidated into our operations for accounting purposes. The results of operations of the Fort Lauderdale, Florida restaurant are accounted for by us utilizing the equity method. In general, until the investors’ cash investment in a limited partnership (including any cash invested by us and our affiliates) is returned in full, the limited partnership distributes to the investors annually out of available cash from the operation of the restaurant up to 25% of the cash invested in the limited partnership, with no management fee paid to us. Any available cash in excess of the 25% of the cash invested in the limited partnership distributed to the investors annually, is paid one-half (½) to us as a management fee, with the balance distributed to the investors. Once the investors in the limited partnership have received, in full, amounts equal to their cash invested, an annual management fee is payable to us equal to one-half (½) of available cash to the limited partnership, with the other one half (½) of available cash distributed to the investors (including us and our affiliates). As of March 29, 2014, limited partnerships owning three (3) restaurants, (Surfside, Florida, Kendall, Florida and West Miami, Florida locations), have returned all cash invested and we receive an annual management fee equal to one-half (½) of the cash available for distribution by the limited partnership. Subsequent to March 29, 2014, the limited partnership owning the restaurant in Pinecrest, Florida returned all cash invested and we will receive an annual management fee equal to one-half (½) of the cash available for distribution by this limited partnership. In addition to its receipt of distributable amounts from the limited partnerships, we receive a fee equal to 3% of gross sales for use of the service mark “Flanigan’s Seafood Bar and Grill”.

RESULTS OF OPERATIONS

		-----------------------Thirteen Weeks Ended-----------------------
		March 29, 2014								March 30, 2013
		Amount (In thousands)				Percent				Amount (In thousands)				Percent
Restaurant food sales		$	14,918				64.22			$	13,994				64.44
Restaurant bar sales			4,510				19.42				4,007				18.45
Package store sales			3,801				16.36				3,716				17.11
Total Sales		$	23,229				100.00			$	21,717				100.00
Franchise related revenues			320								298
Rental income			124								149
Owner’s fee			37								37
Other operating income			61								54
Total Revenue		$	23,771							$	22,255

 

		-----------------------Twenty Six Weeks Ended-----------------------
		March 29, 2014								March 30, 2013
		Amount (In thousands)				Percent				Amount (In thousands)				Percent
Restaurant food sales		$	28,219				63.85			$	26,036				63.84
Restaurant bar sales			8,516				19.27				7,484				18.35
Package store sales			7,462				16.88				7,266				17.81
Total Sales		$	44,197				100.00			$	40,786				100.00
Franchise related revenues			613								610
Rental income			254								301
Owner’s fee			75								75
Other operating income			107								96
Total Revenue		$	45,246							$	41,868

 

Comparison of Thirteen Weeks Ended March 29, 2014 and March 30, 2013.

 

Revenues. Total revenue for the thirteen weeks ended March 29, 2014 increased $1,516,000 or 6.81% to $23,771,000 from $22,255,000 for the thirteen weeks ended March 30, 2013.

 

Restaurant Food Sales. Restaurant revenue generated from the sale of food at restaurants (food sales) totaled $14,918,000 for the thirteen weeks ended March 29, 2014 as compared to $13,994,000 for the thirteen weeks ended March 30, 2013. Comparable weekly food sales (for restaurants open for all of the second quarter of our fiscal year 2014 and the second quarter of our fiscal year 2013, which consists of eight restaurants owned by us and nine restaurants owned by affiliated limited partnerships) was $1,147,000 and $1,076,000 for the thirteen weeks ended March 29, 2014 and March 30, 2013, respectively, an increase of 6.60%. Comparable weekly food sales for Company owned restaurants was $530,000 and $494,000 for the second quarter of our fiscal year 2014 and the second quarter of our fiscal year 2013, respectively, an increase of 7.29%. Comparable weekly food sales for affiliated limited partnership owned restaurants was $617,000 and $582,000 for the second quarter of our fiscal year 2014 and the second quarter of our fiscal year 2013, respectively, an increase of 6.01%.

Restaurant Bar Sales. Restaurant revenue generated from the sale of alcoholic beverages at restaurants (bar sales) totaled $4,510,000 for the thirteen weeks ended March 29, 2014 as compared to $4,007,000 for the thirteen weeks ended March 30, 2013 primarily due to an increase in prices Comparable weekly bar sales (for restaurants open for all of the second quarter of our fiscal years 2014 and 2013, which consists of eight restaurants owned by us and nine restaurants owned by affiliated limited partnerships) was $347,000 for the thirteen weeks ended March 29, 2014 and $308,000 for the thirteen weeks ended March 30 2013, an increase of 12.66%. Comparable weekly bar sales for Company owned restaurants was $148,000 and $132,000 for the second quarter of our fiscal year 2014 and the second quarter of our fiscal year 2013, respectively, an increase of 12.12%. Comparable weekly bar sales for affiliated limited partnership owned restaurants was $199,000 and $176,000 for the second quarter of our fiscal year 2014 and the second quarter of our fiscal year 2013, respectively, an increase of 13.07%.

 

Package Store Sales. Revenue generated from sales of liquor and related items at package liquor stores (package store sales) totaled $3,801,000 for the thirteen weeks ended March 29, 2014 as compared to $3,716,000 for the thirteen weeks ended March 30, 2013, an increase of $85,000. The weekly average of same store package store sales, (which includes all nine (9) Company owned package liquor stores open for all of the second quarter of our fiscal years 2014 and 2013), was $292,000 for the thirteen weeks ended March 29, 2014 as compared to $286,000 for the thirteen weeks ended March 30, 2013, an increase of 2.10%. We expect package liquor store sales to remain stable throughout the balance of our fiscal year 2014.

 

Operating Costs and Expenses. Operating costs and expenses, (consisting of cost of merchandise sold, payroll and related costs, occupancy costs and selling, general and administrative expenses), for the thirteen weeks ended March 29, 2014 increased $845,000 or 4.05% to $21,695,000 from $20,850,000 for the thirteen weeks ended March 30, 2013. The increase was primarily due to an expected general increase in food costs, offset by a decrease in the cost of ribs and actions taken by management to reduce and/or control costs and expenses. We anticipate that our operating costs and expenses will continue to increase through our fiscal year 2014 for the same reasons. Operating costs and expenses decreased as a percentage of total sales to approximately 91.27% in the second quarter of our fiscal year 2014 from 93.69% in the second quarter of our fiscal year 2013.

 

Gross Profit. Gross profit is calculated by subtracting the cost of merchandise sold from sales.

 

Restaurant Food Sales and Bar Sales. Gross profit for food sales and bar sales for the thirteen weeks ended March 29, 2014 increased to $12,854,000 from $11,666,000 for the thirteen weeks ended March 30, 2013. Our gross profit margin for food sales and bar sales (calculated as gross profit reflected as a percentage of restaurant food sales and bar sales), was 66.16% for the thirteen weeks ended March 29, 2014 and 64.81% for the thirteen weeks ended March 30, 2013. We anticipate that our gross profit for restaurant food and bar sales will increase throughout the balance of our fiscal year 2014 due primarily to a decrease in our cost of ribs during calendar year 2014.

 

Package Store Sales. Gross profit for package store sales for the thirteen weeks ended March 29, 2014 increased to $1,148,000 from $1,086,000 for the thirteen weeks ended March 30, 2013. Our gross profit margin, (calculated as gross profit reflected as a percentage of package liquor store sales), for package liquor store sales was 30.20% for the thirteen weeks ended March 29, 2014 and 29.22% for the thirteen weeks ended March 30, 2013. We anticipate that the gross profit margin for package store sales will remain stable throughout the balance of our fiscal year 2014.

Payroll and Related Costs. Payroll and related costs for the thirteen weeks ended March 30, 2013 increased $346,000 or 5.06% to $7,188,000 from $6,842,000 for the thirteen weeks ended March 30, 2013. Payroll and related costs as a percentage of total sales was 30.24% in the second quarter of our fiscal year 2014 and 30.74% of total sales in the second quarter of our fiscal year 2013.

 

Occupancy Costs. Occupancy costs (consisting of rent, common area maintenance, repairs, real property taxes and amortization of leasehold purchases) for the thirteen weeks ended March 29, 2014 increased $79,000 or 7.23% to $1,172,000 from $1,093,000 for the thirteen weeks ended March 30, 2013. We anticipate that our occupancy costs will remain stable throughout the balance of our fiscal year 2014.

 

Selling, General and Administrative Expenses. Selling, general and administrative expenses (consisting of general corporate expenses, including but not limited to advertising, insurance, professional costs, clerical and administrative overhead) for the thirteen weeks ended March 29, 2014 increased $158,000 or 4.00% to $4,108,000 from $3,950,000 for the thirteen weeks ended March 30, 2013. Selling, general and administrative expenses decreased as a percentage of total sales in the second quarter of our fiscal year 2014 to approximately 17.28% as compared to 17.75% in the second quarter of our fiscal year 2013. We anticipate that our selling, general and administrative expenses will increase throughout the balance of our fiscal year 2014 due primarily to increases across all categories.

 

Depreciation and Amortization. Depreciation and amortization expense for the thirteen weeks ended March 29, 2014 decreased $23,000 or 3.46% to $642,000 from $665,000 from the thirteen weeks ended March 30, 2013. As a percentage of total revenue, depreciation and amortization expense was 2.70% of revenue in the thirteen weeks ended March 29, 2014 and 2.99% of revenue in the thirteen weeks ended March 30, 2013.

 

Interest Expense, Net. Interest expense, net, for the thirteen weeks ended March 29, 2014 decreased $5,000 to $193,000 from $198,000 for the thirteen weeks ended March 30, 2013.

 

Net Income. Net income for the thirteen weeks ended March 29, 2014 increased $509,000 or 48.80% to $1,552,000 from $1,043,000 for the thirteen weeks ended March 30, 2013. As a percentage of sales, net income for the second quarter of our fiscal year 2014 is 6.53%, as compared to 4.69% in the second quarter of our fiscal year 2013.

 

Net Income Attributable to Stockholders. Net income attributed to stockholders for the thirteen weeks ended March 29, 2014 increased $157,000 or 20.93% to $907,000 from $750,000 for the thirteen weeks ended March 30, 2013. As a percentage of sales, net income attributed to stockholders for the second quarter of our fiscal year 2014 is 3.82%, as compared to 3.37% in the second quarter of our fiscal year 2013.

 

Comparison of Twenty Six Weeks Ended March 29, 2014 and March 30, 2013.

 

Revenues. Total revenue for the twenty six weeks ended March 29, 2014 increased $3,378,000 or 8.07% to $45,246,000 from $41,868,000 for the twenty six weeks ended March 30, 2013. This increase resulted in part from increased sales at a limited partnership-owned restaurant location in Miami, Florida, which opened for business on December 27, 2012 (the “New Restaurant”) ($1,800,000 of revenue during the twenty six weeks ended March 29, 2014 as compared to $960,000 of revenue during the twenty six weeks ended March 30, 2013). Without giving effect to the increase in revenue generated at the New Restaurant, ($840,000), total revenue for the twenty six weeks ended March 29, 2014 would have increased $2,538,000 or 6.06% to $44,406,000 from $41,868,000 for the twenty six weeks ended March 30, 2013.

 

Restaurant Food Sales. Restaurant revenue generated from the sale of food at restaurants (food sales) totaled $28,219,000 for the twenty six weeks ended March 29, 2014 as compared to $26,036,000 for the twenty six weeks ended March 30, 2013. The increase in restaurant food sales resulted primarily from the increase in sales at the New Restaurant ($1,256,000 of revenue from the sale of food during the twenty six weeks ended March 29, 2014 as compared to $685,000 of revenue from the sale of food during the twenty six weeks ended March 30, 2013). Without giving effect to the increase in revenue generated from food sales at the New Restaurant ($571,000) for the twenty six weeks ended March 29, 2014, restaurant revenue generated from the sale of food during the twenty six weeks ended March 29, 2014, would have increased $1,612,000 or 6.19% to $27,648,000 from $26,036,000 for the twenty six weeks ended March 30, 2013. Comparable weekly food sales (for restaurants open for all of the first and second quarters of our fiscal years 2014 and 2013, which consists of eight restaurants owned by us and eight restaurants owned by affiliated limited partnerships and does not include operations at the New Restaurant) was $1,037,000 and $975,000 for the twenty six weeks ended March 29, 2014 and March 30, 2013, respectively, an increase of 6.36%. Comparable weekly food sales for Company owned restaurants was $493,000 and $460,000 for the twenty six weeks ended March 29, 2014 and March 30, 2013, respectively, an increase of 7.17%. Comparable weekly food sales for affiliated limited partnership owned restaurants was $544,000 and $515,000 for the twenty six weeks ended March 29, 2014 and March 30, 2013, respectively, an increase of 5.63%.

Restaurant Bar Sales. Restaurant revenue generated from the sale of alcoholic beverages at restaurants (bar sales) totaled $8,516,000 for the twenty six weeks ended March 29, 2014 as compared to $7,484,000 for the twenty six weeks ended March 30, 2013. The increase in bar sales resulted partially from the increase in sales at the New Restaurant ($544,000 of revenue from bar sales during the twenty six weeks ended March 29, 2014 as compared to $275,000 of revenue from bar sales during the twenty six weeks ended March 30, 2013). Without giving effect to the increase in revenue generated from bar sales at the New Restaurant, ($269,000), for the twenty six weeks ended March 29, 2014, restaurant revenue generated from bar sales during the twenty six weeks ended March 29, 2014, would have increased $763,000 or 10.20% to $8,247,000 from $7,484,000 for the twenty six weeks ended March 30, 2013. Comparable weekly bar sales (for restaurants open for all of the first and second quarters of our fiscal years 2014 and 2013, which consists of eight restaurants owned by us and eight restaurants owned by affiliated limited partnerships and does not include operations at the New Restaurant) was $307,000 for the twenty six weeks ended March 29, 2014 and $278,000 for the twenty six weeks ended March 30, 2013, an increase of 10.43%. Comparable weekly bar sales for Company owned restaurants was $138,000 and $125,000 for the twenty six weeks ended March 29, 2014 and March 30, 2013, respectively, an increase of 10.40%. Comparable weekly bar sales for affiliated limited partnership owned restaurants was $169,000 and $153,000 for the twenty six weeks ended March 29, 2014 and March 30, 2013, respectively, an increase of 10.46%.

 

Package Store Sales. Revenue generated from sales of liquor and related items at package stores (package store sales) totaled $7,462,000 for the twenty six weeks ended March 29, 2014 as compared to $7,266,000 for the twenty six weeks ended March 30, 2013, an increase of $196,000. The weekly average of same store package store sales, (which includes all nine (9) Company owned package liquor stores open for all of the first and second quarters of our fiscal years 2014 and 2013) was $287,000 and $279,000 for the twenty six weeks ended March 29, 2014 and March 30, 2013, respectively, an increase of 2.87%. Package liquor store sales are expected to remain stable throughout the balance of our fiscal year 2014.

 

Operating Costs and Expenses. Operating costs and expenses, (consisting of cost of merchandise sold, payroll and related costs, occupancy costs and selling, general and administrative expenses), for the twenty six weeks ended March 29, 2014 increased $2,127,000 or 5.34% to $41,954,000 from $39,827,000 for the twenty six weeks ended March 30, 2013. The increase was primarily due to the costs related to the New Restaurant and to a general increase in food costs, offset by a decrease in the cost of ribs and actions taken by management to reduce and/or control costs and expenses. Operating costs and expenses decreased as a percentage of total sales to approximately 92.72% for the twenty six weeks ended March 29, 2014 from 95.13% for the twenty six weeks ended March 30, 2013.

 

Gross Profit. Gross profit is calculated by subtracting the cost of merchandise sold from sales.

Restaurant Food Sales and Bar Sales. Gross profit for food and bar sales for the twenty six weeks ended March 29, 2014 increased to $24,089,000 from $21,633,000 for the twenty six weeks ended March 30, 2013. Our gross profit margin for food sales and bar sales (calculated as gross profit reflected as a percentage of food sales and bar sales), was 65.58% for the twenty six weeks ended March 29, 2014 and 64.54% for the twenty six weeks ended March 30, 2013. We anticipate that our gross profit for restaurant food and bar sales will decrease during the balance of our fiscal year 2014 due to higher food costs, offset by a decrease in our cost of ribs during calendar year 2014.

 

Package Store Sales. Gross profit for package store sales for the twenty six weeks ended March 29, 2014 increased to $2,224,000 from $2,133,000 for the twenty six weeks ended March 30, 2013. Our gross profit margin, (calculated as gross profit reflected as a percentage of package store sales), was 29.80% for the twenty six weeks ended March 29, 2014 compared to 29.36% for the twenty six weeks ended March 30, 2013. We anticipate that the gross profit margin for package store sales will remain stable throughout the balance of our fiscal year 2014.

 

Payroll and Related Costs. Payroll and related costs for the twenty six weeks ended March 29, 2014, increased $962,000 or 7.56% to $13,693,000 from $12,731,000 for the twenty six weeks ended March 30, 2013 due primarily to the increased payroll and related costs associated with the New Restaurant for the twenty six weeks ended March 29, 2014 as compared to the twenty six weeks ended March 30, 2013. Payroll and related costs as a percentage of total sales was 30.26% for the twenty six weeks ended March 29, 2014 and 30.41% of total sales for the twenty six weeks ended March 30, 2013.

 

Occupancy Costs. Occupancy costs (consisting of rent, common area maintenance, repairs, real property taxes and amortization of leasehold purchases) for the twenty six weeks ended March 29, 2014 increased $165,000 or 7.58% to $2,341,000 from $2,176,000 for the twenty six weeks ended March 30, 2013. Our occupancy costs increased primarily due to increasing percentage rents at various locations, offset in part by the termination of rent (as a result of our acquiring the parcels) for the two parcels of real property contiguous to the real property we own where our combination package liquor store and restaurant located at 13205 Biscayne Boulevard, North Miami, Florida, (Store #20) operates and which we leased for non-exclusive parking. We anticipate that our occupancy costs will remain stable throughout our fiscal year 2014.

 

Selling, General and Administrative Expenses. Selling, general and administrative expenses (consisting of general corporate expenses, including but not limited to advertising, insurance, professional costs, clerical and administrative overhead) for the twenty six weeks ended March 29, 2014 increased $136,000 or 1.72% to $8,036,000 from $7,900,000 for the twenty six weeks ended March 30, 2013. Selling, general and administrative expenses decreased as a percentage of total sales for the twenty six weeks ended March 29, 2014 to 17.76% as compared to 18.87% for the twenty six weeks ended March 30, 2013. We anticipate that our selling, general and administrative expenses will increase throughout the balance of our fiscal year 2014 due primarily to increases across all categories.

 

Depreciation and Amortization. Depreciation and amortization expense for the twenty six weeks ended March 29, 2014 decreased $19,000 or 1.47% to $1,274,000 from $1,293,000 from the twenty six weeks ended March 30, 2013. As a percentage of total revenue, depreciation and amortization expense was 2.82% of revenue in the twenty six weeks ended March 29, 2014 and 3.09% of revenue in the twenty six weeks ended March 30, 2013.

 

Interest Expense, Net. Interest expense, net, for the twenty six weeks ended March 29, 2014 decreased $24,000 to $388,000 from $412,000 for the twenty six weeks ended March 30, 2013. Interest expense decreased moderately ($24,000) during the twenty six weeks of our fiscal year 2014 primarily due (i) to the lower monthly installments of interest as a result of the mortgage loan (in the principal amount of $1,405,000) and the term loan (in the principal amount of $1,595,000) used to re-finance the mortgage on the property where our combination package liquor store and restaurant located at 4 N. Federal Highway, Hallandale, Florida, (Store #31) operates and (ii) the repayment of the principal balance of our term loan from July, 2010, ($323,000) offset by the interest paid on the $1.95 million purchase money mortgage used to purchase the two parcels of real property, one of which is contiguous to the real property we own where our combination package liquor store and restaurant located at 13205 Biscayne Boulevard, North Miami, Florida, (Store #20) operates.

Net Income. Net income for the twenty six weeks ended March 29, 2014 increased $1,029,000 or 77.25% to $2,361,000 from $1,332,000 for the twenty six weeks ended March 30, 2013. As a percentage of sales, net income for the twenty six weeks ended March 29, 2014 is 5.22% as compared to 3.18% for the twenty six weeks ended March 30, 2013.

 

Net Income Attributable to Stockholders. Net income attributable to stockholders for the twenty six weeks ended March 29, 2014 increased $349,000 or 31.84% to $1,445,000 from $1,096,000 for the twenty six weeks ended March 30, 2013. As a percentage of sales, net income attributable to stockholders for the twenty six weeks ended March 29, 2014 is 3.19%, as compared to 2.62% for the twenty six weeks ended March 30, 2013.

 

New Limited Partnership Restaurants

 

As new restaurants open, our income from operations will be adversely affected due to our obligation to fund pre-opening costs, including but not limited to pre-opening rent for the new locations. During the second quarter and twenty six weeks of our fiscal year 2014, we did not have a new restaurant location in the development stage and did not recognize any pre-opening costs.

 

During the twenty six weeks ended March 30, 2013, the New Restaurant operated at a net loss of $276,000, primarily due to pre-opening costs including but not limited to pre-opening rent expense in the amount of $62,000 which we recognize on a straight line basis over the term of the lease, thus contributing to a reduction in the operating income for the period.

 

We believe that our current cash on hand, together with our expected cash generated from operations will be sufficient to fund our operations and capital expenditures for at least the next twelve months.

 

Trends

 

During the next twelve months, we expect that our restaurant food and bar sales will increase, but gross profit for restaurant food and bar sales will decrease due to higher food costs, offset by a decrease in our cost of ribs during calendar year 2014. We anticipate that our package liquor store sales and gross profit margin for package liquor store sales will remain stable during our fiscal year 2014. We expect higher food costs and higher overall expenses, including but not limited to higher property and general liability insurance premiums and health insurance premiums to adversely affect our net income. We also plan to continue our increased advertising to attract and retain our customers against increased competition. We plan to limit further menu price increases as long as possible, but continue to face increased competition and expect higher food costs and higher overall expenses, which will adversely affect our net income. We may be required to raise menu prices wherever competitively possible.

 

We do not have a new restaurant in the development stage, but continue to search for new locations to open restaurants and thereby expand our business. Any new locations will likely be opened using our limited partnership ownership model.

 

We are not actively searching for locations for the operation of new package liquor stores, but if an appropriate location for a package liquor store becomes available, we will consider it.

 

Liquidity and Capital Resources

 

We fund our operations through cash from operations. As of March 29, 2014, we had cash of approximately $8,155,000, an increase of $1,097,000 from our cash balance of $7,058,000 as of September 28, 2013. The increase in cash as of March 29, 2014 was primarily due to the absence of extraordinary payments made during the thirteen weeks ended March 29, 2014. Management believes that the Company’s current cash availability from its cash on hand and the expected cash from operations will be sufficient to fund operations and capital expenditures for at least the next twelve months.

Cash Flows

 

The following table is a summary of our cash flows for the twenty six weeks ended March 29, 2014 and March 30, 2013.

		---------Twenty Six Weeks Ended--------
		March 29, 2014				March 30, 2013
		(in Thousands)
Net cash provided by operating activities		$	4,403			$	3,582
Net cash used in investing activities			(1,393	)			(2,483	)
Net cash used in financing activities			(1,913	)			(1,875	)
Net Increase (Decrease) in Cash and Cash Equivalents			1,097				(776	)
Cash and Cash Equivalents, Beginning			7,058				7,221
Cash and Cash Equivalents, Ending		$	8,155			$	6,445

 

We did not declare or pay a cash dividend on our capital stock in the twenty six weeks of our fiscal years 2014 or 2013. Any future determination to pay cash dividends will be at our Board’s discretion and will depend upon our financial condition, operating results, capital requirements and such other factors as our Board deems relevant.

 

Capital Expenditures

 

In addition to using cash for our operating expenses, we use cash to fund the development and construction of new restaurants and to fund capitalized property improvements for our existing restaurants. We acquired property and equipment of $2,474,000, (of which $1,052,000 was financed and $62,000 of deposits recorded in other assets as of September 28, 2013), during the twenty six weeks ended March 29, 2014, which amount included $419,000 for two (2) limited partnership and three (3) Company owned restaurants. During the twenty six weeks ended March 30, 2013, we acquired property and equipment of $4,668,000, (of which $1,950,000 was financed and $292,000 of deposits recorded in other assets as of September 29, 2012), which amount included $1,280,000 for renovations at the New Restaurant and $62,000 for one (1) limited partnership and one (1) Company owned restaurant.

 

All of our owned units require periodic refurbishing in order to remain competitive. We anticipate the cost of this refurbishment in our fiscal year 2014 to be approximately $875,000, of which $419,000 has been spent through March 29, 2014.

 

Long Term Debt

 

As of March 29, 2014, we had long term debt of $15,093,000, as compared to $14,565,000 as of March 30, 2013, and $13,546,000 as of September 28, 2013. As of March 29, 2014, we are in compliance with the covenants of all loans with our lender.

As of March 29, 2014, the aggregate principal balance owed from the financing of our property and general liability insurance policies is $1,296,000.

 

Purchase Commitments

 

In order to fix the cost and ensure adequate supply of baby back ribs for our restaurants, on October 22, 2013, we entered into a purchase agreement with a new rib supplier, whereby we agreed to purchase approximately $4,260,000 of baby back ribs during calendar year 2014 from this vendor at a fixed cost. While we anticipate purchasing all of our rib supply from this vendor, we believe there are several other alternative vendors available, if needed.

 

Working Capital

 

The table below summarizes the current assets, current liabilities, and working capital for our fiscal quarters ended March 29, 2014, March 30, 2013 and our fiscal year ended September 28, 2013.

 

Item		Mar. 29, 2014				Mar. 30, 2013				Sept. 28, 2013
		(in Thousands)
Current Assets		$	13,312			$	10,965			$	11,522
Current Liabilities			10,534				9,189				9,139
Working Capital		$	2,778			$	1,776			$	2,383

 

Our working capital as of March 29, 2014 increased by 56.42% from our working capital as of March 30, 2013 and increased by 16.58% from our working capital as of September 28, 2013. During the second quarter of our fiscal year 2014, we acquired the real property and improvements, (“Property”) where our franchised restaurant located at 1479 East Commercial Boulevard, Fort Lauderdale, Florida, (Store #15) operates for a purchase price of $1,250,000, $900,000 of which was financed by the seller pursuant to the $900K Mortgage Loan and $350,000 of which was expended by us as the cash required to close. During the first quarter of our fiscal year 2013, we acquired the two parcels of real property, one of which is contiguous to the real property we own where our combination package liquor store and restaurant located at 13205 Biscayne Boulevard, North Miami, Florida, (Store #20) operates and the other of which is contiguous thereto for a purchase price of $2,900,000, $1,950,000 of which was financed by the seller pursuant to the $1.95M Mortgage Loan and $950,000 of which was expended by us as the cash required to close. The decrease in our working capital during the 1^st quarter of our fiscal year 2013 was also caused by our paying for renovations at the New Restaurant. While there can be no assurance due to, among other things, unanticipated expenses or unanticipated decline in revenues, or both, we believe that positive cash flow from operations will adequately fund operations, debt reductions and planned capital expenditures throughout the balance of our fiscal year 2014.

 

Off-Balance Sheet Arrangements

 

We do not have off-balance sheet arrangements.

 

 

Inflation

 

The primary inflationary factors affecting our operations are food, beverage and labor costs. A large number of restaurant personnel are paid at rates based upon applicable minimum wage and increases in minimum wage directly affect labor costs. To date, inflation has not had a material impact on our operating results, but this circumstance may change in the future if food and fuel costs continue to rise.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We do not ordinarily hold market risk sensitive instruments for trading purposes and as of March 29, 2014 held no equity securities.

 

Interest Rate Risk

 

As part of our ongoing operations, we are exposed to interest rate fluctuations on our borrowings. As more fully described in Note 9 “Fair Value Measurements of Financial Instruments” to the Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for our fiscal year ended September 28, 2013, we use interest rate swap agreements to manage these risks. These instruments are not used for speculative purposes but are used to modify variable rate obligations into fixed rate obligations.

 

At March 29, 2014, we had five variable rate debt instruments outstanding that are impacted by changes in interest rates. In July, 2010, we re-financed the mortgage loan encumbering our corporate offices (the “Refinanced Mortgage Loan”). In November, 2011, we financed our purchase of the real property and two building shopping center in Miami, Florida, with a $4,500,000 mortgage loan (the “$4.5M Mortgage Loan”), and received a $1,600,000 term loan (the “$1.6M Term Loan”) the proceeds of which were ultimately used to purchase the shopping center, while permitting us to retain our working capital and cash reserves. In January, 2013, we re-financed the mortgage loan encumbering the property where our combination package liquor store and restaurant located at 4 N. Federal Highway, Hallandale, Florida, (Store #31) operates, which mortgage loan is held by an unaffiliated third party lender (the “$1.405M Loan”) and borrowed $1,595,000 from a non affiliated third party lender, (the “$1.595M Term Loan”), and used all of the net proceeds of this loan to re-finance the property where our combination package liquor store and restaurant located at 4 N. Federal Highway, Hallandale, Florida, (Store #31) operates.

 

As a means of managing our interest rate risk on these debt instruments, we entered into interest rate swap agreements with our unrelated third party lender to convert these variable rate debt obligations to fixed rates. We are currently party to the following five (5) interest rate swap agreements:

 

(i)     One (1) interest rate swap agreement entered into July, 2010 relates to the Refinanced Mortgage Loan (the “Mortgage Loan Swap”). The Mortgage Loan Swap requires us to pay interest for a seven (7) year period at a fixed rate of 5.11% on an initial amortizing notional principal amount of $935,000, while receiving interest for the same period at LIBOR, Daily Floating Rate, plus 2.25%, on the same amortizing notional principal amount. Under this method of accounting, at March 29, 2014, we determined that based upon unadjusted quoted prices in active markets for similar assets or liabilities provided by our unrelated third party lender, the fair value of the Mortgage Loan Swap was not material;

 

(ii)     The second interest rate swap agreement entered into in November, 2011 by our wholly owned subsidiary, Flanigan’s Calusa Center, LLC, relates to the $4.5 Mortgage Loan (the “$4.5M Mortgage Loan Swap”). The $4.5M Mortgage Loan Swap requires us to pay interest for an eight (8) year period at a fixed rate of 4.51% on an initial amortizing notional principal amount of $3,750,000, while receiving interest for the same period at LIBOR – 1 Month, plus 2.25%, on the same amortizing notional principal amount. We determined that at March 29, 2014, the interest rate swap agreement is an effective hedging agreement and the fair value was not material;

 

(iii)     The third interest rate swap agreement entered into in November, 2011 relates to the $1.6M Term Loan (the “$1.6M Term Loan Swap”). The $1.6M Term Loan Swap requires us to pay interest for a four (4) year period at a fixed rate of 3.43% on an initial amortizing notional principal amount of $1,600,000, while receiving interest for the same period at LIBOR – 1 Month, plus 2.25%, on the same amortizing notional principal amount. We determined that at March 29, 2014, the interest rate swap agreement is an effective hedging agreement and the fair value was not material;

(iv)     The fourth interest rate swap agreement entered into in January, 2013 relates to the $1.405M Loan (the “$1.405M Term Loan Swap”). The $1.405M Term Loan Swap requires us to pay interest for a twenty (20) year period at a fixed rate of 4.35% on an initial amortizing notional principal amount of $1,405,000, while receiving interest for the same period at LIBOR – 1 Month, plus 2.25%, on the same amortizing notional principal amount. We determined that at March 29, 2014, the interest rate swap agreement is an effective hedging agreement and the fair value was not material; and

 

(v)     The fifth interest rate swap agreement entered into in January, 2013 relates to the $1.595M Term Loan (the “$1.595M Term Loan Swap”). The $1.595M Term Loan Swap requires us to pay interest for a forty two (42) month period at a fixed rate of 4.00% on an initial amortizing notional principal amount of $1,595,000, while receiving interest for the same period at LIBOR – 1 Month, plus 3.25%, on the same amortizing notional principal amount. We determined that at March 29, 2014, the interest rate swap agreement is an effective hedging agreement and the fair value was not material.

 

At March 29, 2014, our cash resources earn interest at variable rates. Accordingly, our return on these funds is affected by fluctuations in interest rates.

 

There is no assurance that interest rates will increase or decrease over our next fiscal year or that an increase will not have a material adverse effect on our operations.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Based on evaluations as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer, with the participation of our management team, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) to the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective to ensure that information the Company is required to disclose in reports that it files or submits under the Securities Exchange Act is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

 

Management’s Assessment on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the Company's internal control over financial reporting.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 29, 2014, our internal control over financial reporting was effective.

 

Limitations on the Effectiveness of Controls and Permitted Omission from Management’s Assessment

 

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can only provide reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control Over Financial Reporting

 

During the period covered by this report, we have not made any change to our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

See “Litigation” on page 9 of this Report and Item 1 and Item 3 to Part 1 of the Annual Report on Form 10-K for the fiscal year ended September 28, 2013 for a discussion of other legal proceedings resolved in prior years.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Purchase of Company Common Stock

 

During the thirteen weeks ended March 29, 2014 and March 30, 2013, we did not purchase any shares of our common stock. As of March 29, 2014, we still have authority to purchase 65,414 shares of our common stock under the discretionary plan approved by the Board of Directors on May 17, 2007.

 

 

 

ITEM 6. EXHIBITS

 

The following exhibits are filed with this Report:

 

Exhibit

Description

 

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

List of XBRL documents as exhibits 101

SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	FLANIGAN'S ENTERPRISES, INC.
Date: May 13, 2014	/s/ James G. Flanigan
	JAMES G. FLANIGAN, Chief Executive Officer and President
	/s/ Jeffrey D. Kastner
	JEFFREY D. KASTNER, Chief Financial Officer and Secretary
	(Principal Financial and Accounting Officer)