ArkArk
Restaurants
Restaurants
Corp.
Corp.
2001 ANNUAL REPORT
THE COMPANY
Ark Restaurants Corp. (the “Company”) is a holding company formed in 1983. Through its
subsidiaries, it owns and operates 26 restaurants and bars, 19 fast food concepts, catering operations, and
wholesale and retail bakeries. Initially its facilities were located only in New York City. At this time,
twelve of the restaurants are located in New York City, four are located in Washington, D.C., nine are
located in Las Vegas, Nevada, and one is located in Islamorada, Florida. The Company’s Las Vegas
operations include three restaurants within the New York-New York Hotel & Casino Resort, and
operation of the Resort’s room service, banquet facilities, employee dining room and nine food court
operations. The Company also owns and operates four restaurants and four food court facilities at the
Venetian Casino Resort, one restaurant and six food court facilities at the Aladdin Resort and Casino, and
one restaurant within the Forum Shops at Caesar’s Shopping Center.
The Company will provide without charge a copy of the Company’s Annual Report on Form 10-
K for the fiscal year ended September 29, 2001, including financial statements and schedules thereto, to
each of the Company’s shareholders of record on February 19, 2002 and each beneficial holder on that
date, upon receipt of a written request therefor mailed to the Company’s offices, 85 Fifth Avenue, New
York, New York 10003, attention: Treasurer.
February 22, 2002
Dear Shareholder:
The 2001 fiscal year presented a series of challenges for Ark Restaurants. The terrorist attacks,
the slowing economy and subsequent decline in discretionary consumer spending affected our business in
all major markets. Fortunately, the team at Ark is experienced. I’m happy to say that the hard work and
dedication of Ark’s team during this crisis has enabled the company to set the table for a financial
rebound in 2002 and beyond.
For the fiscal year ended September 29, 2001 Ark experienced a pre-tax loss of $10.2 million
and $6.8 million after taxes. A principal reason for the loss was a $10 million impairment charge incurred
at Desert Passage, the retail complex at the Aladdin Resort & Casino in Las Vegas. In addition, Ark
incurred a $935,000 charge related to the cancellation of a development project.
With these items being absorbed in various categories of our audited income statement, we
thought it would be useful for shareholders to see a reconstruction of the year reflecting earnings before
and after these items:
Adjusted EBITDA - Fiscal year ended Septem b er 29, 2001 (in thousands)
Net Sales
Cost of Sales
Gross Restaurant Profit
M a n a g em e n t F e e I n c om e
Joint Venture Loss
Operating Expenses:
Payroll and payroll benefits
O c c u p a n c y
Other operating
G e n e r a l a n d A dministrative Expenses
Other Incom e
A djusted EBITDA (a)
Depreciation
Interest, Net
Earnings before Other Special Item s
Other Special Item s :
Aladdin restaurant and food court im p airm e n t
Development project cancellation
Loss before Income Tax Benefit
Income Tax Benefit
Net Loss, as Reported
(a) Adjusted EBITDA represents earnings before interest, incom e
taxes, depreciation, amortization and other special item s
$
127,007
32,549
94,458
3 4 6
(150)
94,654
45,085
18,320
15,564
78,969
7,005
(344)
9,024
5,938
2,296
7 9 0
10,045
9 3 5
10,980
(10,190)
3,342
$
(6,848)
The net loss as reported also includes certain items such as early operating losses at newly opened
or renovated restaurants. Accordingly, Ark experienced a pre-tax loss of $891,000 at Lutece in New
York City, which was renovated during the year. In addition, we experienced a pre-tax loss of $723,000
at our newly opened Venus nightclub at the Venetian in Las Vegas. Both losses, will likely not occur in
fiscal 2002.
As stated earlier, this past year’s results were governed by a slowing economy and September
11th. Entering the third quarter, comparative sales at our restaurants were up and despite disappointment
at Desert Passage and lagging sales following our renovation of Lutece in New York City, we were ahead
of our forecasted plan. As economic conditions shifted, same store sales gains narrowed and earnings
was negatively affected. Nevertheless, management felt confident in terms of yearly results when
business was drastically altered by the reality of September 11th.
2 World Financial Center, an office building adjacent to the World Trade Center, suffered
significant damage. Ark operates the Grill Room in that building and any re-opening may not occur until
late in the current fiscal year 2002. Three other New York City restaurants were temporarily closed by
government imposed travel restrictions. Union Station in Washington, DC, where Ark operates three
restaurants was temporarily closed and then reopened with severe access restrictions. Reagan Airport was
also closed for several months adding to the consumer retrenchment. On the other side of the country,
McCarran Airport in Las Vegas, Nevada was closed for several days and subsequent travel restrictions
imposed by many corporations caused meeting cancellations and a significant reduction of attendees at
conventions. Las Vegas visitation, a significant driver of our revenue, declined. Hit hardest were
corporate events, which declined in both number and size. Moreover, foot traffic at the historic “four
corners” of Las Vegas Boulevard was reduced. The combined impact of all these events left Ark, a
Company that had always generated ample cash flow, in a sudden crunch, losing money in the weeks
following the tragedy.
During the third week of September, we had a meeting with Ark’s key managers. We needed our
banks, which proved to be loyal and ethical, to extend our credit line. We also needed landlords and
purveyors to reduce our costs. Finally, Ark needed our restaurants and corporate staff to significantly
restructure while driving needed sales back to a level where operating cash flow covered costs.
By early October much of this was accomplished. The banks extended and increased our credit
line. Purveyors, many of whom had worked with us for more than fifteen years, were quick to extend
discounts (our linen provider walked into the office and told us what a great partner we had been over the
years and reduced our bill by 50%). Several landlords also gave concessions. With our major
relationships stable, our management also did its job by significantly reducing payroll. This created a
breakeven cash flow for fiscal 2002 at sales levels 18% lower than fiscal 2001.
All the hard work did not solve every problem, however. Desert Passage had not met our
expectations since its’ opening in August of 2000. Shortly after September 11th, the Aladdin Hotel &
Casino, which anchors Dessert Passage, declared bankruptcy. While other properties in Las Vegas
progressed toward a sales recovery, Dessert Passage declined further. Unfortunately, our landlord offered
no relief. It became appropriate to review the impaired nature of this asset, and write off the investment.
Although we will continue to operate this facility, our time frame to continue operations will be defined
by the landlord’s willingness to more accurately match the current business climate with a new rent
structure and by reviewing any information as it relates to the Aladdin’s bankruptcy proceedings.
During the same time as we were dealing with the Aladdin, Ark was developing an additional
highly-themed restaurant, nightclub and retail complex in Las Vegas. We decided that under the current
market conditions, Ark should preserve capital and not move ahead with the project’s funding.
Consequently, we wrote off the investment. Currently, our primary goal is reduction of debt.
The results of the September 2001 fiscal year are published within and we are proud, given the
circumstances, that we were able to finish the calendar year on a high note. In fact, as we enter fiscal 2002
the December quarter shows a decisive increase in net income over last year’s quarter. Net income for
the December quarter was $974,000, compared with $225,000 for the same quarter last year. This
extraordinary result was achieved with a same store sales decrease of 13%. In this year’s December
quarter, payroll and payroll benefits were $8,481,000 as compared to $11,207,000 last year. Lowered
interest rates and some rent concessions also benefited our operating results. We believe we can hold
current payrolls at current sales levels, but our businesses will experience sales increases resulting from
renewed economic activity. Payrolls will reflect these increases but significant savings from restructuring
our operations will continue forward.
We primarily operate in New York City, Washington DC and Las Vegas, Nevada. We are
optimistic in that current sales activity in these markets remains below potential with tourism and
corporate events lagging as the country adjusts to travel prospects and the soft economy. It is our belief
that eventually, tourism and corporate functions will reemerge and with that, the prospects of Ark. We
are already surprised at the strong recovery in Las Vegas where revenues at our New York New York
Hotel & Casino operations are approaching last year’s levels. That hotel is undergoing some renovations
that will expand the potential for our operating revenues. Adding to Ark’s prospects is the construction of
a two million square foot convention center at the Mandalay Bay Resort & Casino. This new facility will
allow Las Vegas to compete for many more conventions and trade shows as the city already hosts 30 of
the largest 100 conventions in the country. With few new hotels in development, this should drive
incremental revenues for Ark’s restaurants. In our view, a positive byproduct of the new facility will be
increased foot traffic at the south-end of the strip in particular New York New York, as a must see
attraction for visitors.
We expect to reduce debt substantially by the end of the year while benefiting from rebounding
earnings. At the present time, we are in construction with one restaurant in downtown Las Vegas. Part of
that negotiation requires the developer to fund much of the construction, so Ark will need little of its own
capital in this project. Moreover, with rents abating and business still uncertain in New York City and
Washington, D.C., opportunities will likely be available to grow our business without sacrificing our
balance sheet. However, as a team, we will proceed with caution, reducing our debt and preserving cash
flow on behalf of shareholders.
I would like to formally thank Ark employees for their dedication and commitment during these
difficult times. We were thankful that none were injured in the horrific attacks that brought all New
Yorkers together. We are particularly proud of Vincent Pascal, who with the cooperation of our
employees and many purveyors donated and delivered over 40,000 meals to relief workers. Ernie’s, our
upper west side Manhattan restaurant, became a staging area for Red Cross efforts and rallied a
neighborhood that donated thousands of dollars in support. Finally, Jack Rose, our restaurant at 47th
Street and Eighth Avenue, raised $25,000 for the neighborhood firehouse.
As shareholders, you should be proud as I am of your Company’s efforts. Looking to 2002 and
beyond we are optimistic. We are singularly focused on the creation of shareholder value and see debt
repayment and strategic conservative growth as our primary goals. We look forward to talking with you
soon and look forward to sharing our financial performance going forward.
Sincerely,
Michael Weinstein,
President
ARK RESTAURANTS CORP.
CORPORATE OFFICE
Michael Weinstein, President and Chief Executive Officer
Andrew Kuruc, Senior Vice President, Chief Financial Officer and Controller
Vincent Pascal, Senior Vice President-Operations and Secretary
Robert Towers, Executive Vice President, Chief Operating Officer and Treasurer
Paul Gordon, Senior Vice President-Director of Las Vegas Operations
Nancy Alvarez, Assistant Controller
Kathryn Green, Controller-Las Vegas Operations
Marilyn Guy, Director of Human Resources
Colleen Hennigan, Director of Operations-Washington Division
John Oldweiler, Director of Purchasing
Jennifer Sutton, Director of Operations and Financial Analysis
Joe Vasquez, Facilities Management
Etty Scaglia, Director of Tour & Travel Sales
Jasmyn Sharrock, Director of Marketing
JOINT VENTURE ASSOCIATE
Andre Soltner, Lutéce
EXECUTIVE CHEFS
Bill Peet, New York
Chun Liao, Washington D.C.
Damien McEvoy, Las Vegas
RESTAURANT GENERAL MANAGERS – NEW YORK
Liz Caro, Jack Rose
Jessica Fernandez, Columbus Bakery I & II
Bridgeen Hale, Metropolitan Café
Halbert Hernandez, Canyon Road Grill
Lynn Huartson, America
Jennifer Jordan, El Rio Grande
Jacques LeMagueresse, Lutéce
Debra Lomurno, Sequoia
Donna Simms, Bryant Park Grill
Kathy Stanco, Ernie’s
Ridgley Trufant, Red
Ana Zaldarriaga, Gonzalez y Gonzalez
RESTAURANT GENERAL MANAGERS – WASHINGTON D.C.
Kyle Carnegie, Sequoia
Bender Ganiao, Thunder Grill
Matt Mitchell, America & Center Café
RESTAURANT MANAGERS – LAS VEGAS
Charles Gerbino, Las Vegas Employee Dining Facility
Chris Grant, Gallagher’s
Gus Fuzman, Village Streets
John Hausdorf, Las Vegas Room Service
Joe Lopez, Tsunami Grill
Mary Masa, Gonzalez y Gonzalez
Paul O’Hearn, America
John Page, Las Vegas Catering
David Simmons, Stage Deli
Robert Smythe, Lutéce
RESTAURANTS MANAGERS – FLORIDA
John Maloughney, Lor-e-lei
RESTAURANT CHEFS – NEW YORK
Henry Chung, Jack Rose
Armando Cortes, Ernie’s
David Fèau, Lutéce
William Foo, America
Rosalio Fuentes, Metropolitan Café
Carlos Garcia, Sequoia
Virgilio Ortega, Columbus Bakery
Fermin Ramirez, El Rio Grande
Ruperto Ramirez, Canyon Road Grill
Raul Santos, Red
Mariano Veliz, Gonzalez y Gonzalez
Gadi Weinreich, Bryant Park Grill
RESTAURANT CHEFS – WASHINGTON D.C.
Oscar Campos, Thunder Grill
Michael Foo, America & Center Cafe
Chun Liao, Sequoia
RESTAURANT CHEFS – LAS VEGAS
John Brady, Banquet
Ken Clark, Stage Deli
David Cross, America
Arvy Dumbrys, Alakazam/Fat Anthony’s
Luigi Guiga, Gallagher’s
John Miller, Las Vegas Employee Dining Facility
Sergio Salazar, Gonzalez y Gonzalez
RESTAURANT CHEFS – FLORIDA
David Mansen, Lor-e-lei
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain financial data for the fiscal years ended 1997 through 2001.
This information should be read in conjunction with the Company’s Consolidated Financial Statements
and the notes thereto appearing at page F-1.
OPERATING DATA:
2001
September 29, September 30,
(in thousands, except per shate data)
Years Ended
October 2,
1999
October 3,
1998
2000
September 27,
1997
Net sales
$
127,007
$
119,212
$
110,801
$
117,398
$
104,326
Gross restaurant profit
94,458
88,196
81,500
86,132
75,874
Operating income (loss)
Other income (expense), net
(8,238)
(1,952)
(4,043)
(1,397)
6,834
237
7,589
91
2,785
96
Income (loss) before provision for
income taxes and cumulative effect of
accounting change
Income (loss) before cumulative effect
on accounting change
NET INCOME (LOSS)
NET INCOME (LOSS) PER SHARE:
(10,190)
(5,440)
7,071
7,680
2,882
(6,848)
(6,848)
(3,534)
(3,723)
4,495
4,495
4,612
4,612
1,737
1,737
Basic
Diluted
$
(2.15)
$
(1.17)
$
1.30
$
1.21
$
0.47
$
(2.15)
$
(1.17)
$
1.29
$
1.20
$
0.46
Weighted average number of shares
Basic
Diluted
BALANCE SHEET DATA
(end of period):
3,181
3,181
3,186
3,186
3,461
3,476
3,826
3,852
3,714
3,742
Total assets
53,851
67,016
47,379
44,045
42,079
Working capital (deficit)
(5,809)
(4,921)
(3,044)
(719)
(2,373)
Long-term debt
Shareholders’ equity
Shareholders’ equity per share
Facilities in operations, end of year,
including managed
23,947
17,933
5.64
29,520
24,784
7.78
7,655
5,014
6,126
29,513
29,061
25,888
8.94
7.54
47
49
42
42
6.92
46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Accounting period
The Company's fiscal year ends on the Saturday nearest September 30. The fiscal years ended
September 29, 2001, September 30, 2000 and October 2, 1999 included 52 weeks.
Net Sales
Net sales at restaurants owned by the Company increased by 6.5% from fiscal 2000 to fiscal 2001
and increased by 7.6% from fiscal 1999 to fiscal 2000. Net sales increased by $9,370,000 from sales at
restaurants which the Company either opened in fiscal 2001 or did not operate for the full period last year
(The Venetian Casino Resort (“the Venetian”) concepts: Lutece, Tsunami, Venus and V-Bar; the Aladdin
Resort and Casino (“the Aladdin”) concepts: Fat Anthony’s and the Alakazam Food Court; and Jack Rose
in New York City). The increase in net sales for fiscal 2001 was offset by a decrease of $612,000 (a
0.6% decrease) in same store sales and the loss of sales totaling $963,000 at a restaurant that the
Company no longer operates (America in McLean, Virginia).
The terrorist attacks on the World Trade Center in New York and the Pentagon in Washington,
DC on September 11th had an adverse effect on net sales for fiscal 2001. One Company restaurant (The
Grill Room) experienced some damage. The Grill Room is located in an office building adjacent to the
World Trade Center (in 2 World Financial Center which experienced substantial damage) and will likely
not reopen until late in fiscal 2002 due to the damage sustained by the office building. No other Company
restaurants were physically damaged; however, several other Company restaurants in New York City
were closed from several days to a month due to their proximity to the World Trade Center (Sequoia, Red,
Gonzalez y Gonzalez). The Company’s restaurants in Washington DC and Las Vegas and certain New
York Company restaurants were also impacted by significant decreases in corporate and tourist travel.
Prior to September 11, 2001 the Company’s same store sales during the 2001 fiscal year and the last
quarter of that fiscal year had been up 1.7% and 1.6%, respectively over last year’s comparable periods.
Net sales for fiscal 2000 increased by $8,749,000 from sales at restaurants which the Company
either opened during the year or did not operate for the full comparable period in the prior year (The
Venetian concepts: Lutece, Tsunami and four food court outlets; the Aladdin concepts: Fat Anthony’s and
the Alakazam Food Court; and Thunder Grill in Washington, DC). Net sales also increased by
$3,764,000 from a 3.6% increase in same store sales. The increase in net sales in fiscal 2000 was offset in
part by the loss of sales totaling $4,102,000 at restaurants that the Company no longer operates (B.
Smith’s DC, Perretti Italian Café, Louisiana Community Bar & Grill and B. Smith’s New York).
Costs and Expenses
The Company's cost of sales consists principally of food and beverage costs at restaurants owned
by the Company. Cost of sales as a percentage of net sales was 25.6% in fiscal 2001, 26.0% in fiscal
2000 and 26.4% in fiscal 1999.
Operating expenses of the Company, consisting of restaurant payroll, occupancy and other
expenses at restaurants owned by the Company, as a percentage of net sales, were 75.5% in fiscal 2001,
67.6% in fiscal 2000 and 62.7% in fiscal 1999. Operating expenses in fiscal 2001 were adversely affected
by an asset impairment charge of $10,045,000, or 7.9% of net sales, associated with the write down of its
restaurant and food court operations at the Aladdin (Fat Anthony’s and the Alakazam Food Bazaar).
Operating expenses in fiscal 2001 were also impacted by a charge of $935,000 due to the cancellation of a
development project.
Operating expenses in fiscal 2000 were adversely affected by an impairment charge of $811,000
associated with the anticipated sale of a restaurant (America in McLean, Virginia), expenses of $280,000
from the sale of a managed restaurant (Arlo) and a $1,300,000 charge associated with a wage and hour
lawsuit. Operating expenses are net of gains on the sale of restaurants totaling $209,000 in fiscal 2001,
$87,000 in fiscal 2000 and $752,000 in fiscal 1999.
Restaurant payroll was 35.5% of net sales in fiscal 2001, 36.1% in fiscal 2000 and 35.4% in fiscal
1999, and occupancy expenses were 14.4% of net sales in fiscal 2001, 12.8% in fiscal 2000 and 12.2% in
fiscal 1999. A significant portion in the increase in occupancy expenses in fiscal 2001 as compared to
fiscal 2000 were due to poor sales results at the Company’s operations at the Aladdin and sales decreases
at many of the Company’s restaurants in the weeks following the September 11th attack. Restaurant
payroll and occupancy expenses in fiscal 2000 were impacted by expenses associated with newly opened
restaurant operations.
Asset impairment charges were 7.9% of net sales in fiscal 2001 and 0.7% in fiscal 2000. Other
operating expenses were 13% of net sales in fiscal 2001, 13.9% in fiscal 2000 and 11.4% in fiscal 1999.
Other operating expenses in fiscal 2001 were impacted by a charge due to the cancellation of a
development project and operating expenses in fiscal 2000 were adversely impacted by expenses from the
sale of the managed restaurant (Arlo) and the charge associated with the wage and hour lawsuit.
The Company incurred pre-opening expenses and early operating losses at newly opened
restaurants of approximately $100,000 in fiscal 2001, $2,393,000 in fiscal 2000, and $400,000 in fiscal
1999. The fiscal 2000 expenses and losses were from opening restaurants and food court operations
within two Las Vegas casinos (Lutece and Tsunami in the Venetian along with four food court outlets;
and Fat Anthony’s and the food court outlets in the Aladdin). The Company also converted an existing
restaurant in New York City (B. Smith’s New York was changed to Jack Rose). The Company typically
incurs significant pre-opening expenses in connection with its new restaurants which are expensed as
incurred. Furthermore, it is not uncommon that such restaurants experience operating losses during the
early months of operation.
General and administrative expenses, as a percentage of net sales, were 5.5% in fiscal 2001, 6.0%
in fiscal 2000 and 5.5% in fiscal 1999. If net sales at managed restaurants were included in consolidated
net sales, general and administrative expenses as a percentage of net sales would have been 5.4% in fiscal
2001, 5.6% in fiscal 2000 and 5.0% in fiscal 1999. General and administrative expenses in fiscal 2001
were impacted by $400,000 in legal expenses incurred in connection with a potential transaction. A
significant portion of the increase in fiscal 2000 as compared to fiscal 1999 is due to costs associated with
the expansion of the Company’s corporate sales department, travel expenditures associated with the new
openings in Las Vegas and legal expenditures from the wage and hour lawsuit.
The Company managed one restaurant owned by others (El Rio Grande) at September 29, 2001
while the Company managed four restaurants owned by others (El Rio Grande in Manhattan, the
Marketplace Cafe, the Marketplace Grill, and the Brewskeller Pub in Boston, Massachusetts) at
September 30, 2000. Net sales of these restaurant facilities, which are not included in consolidated net
sales, were $4,380,000 in fiscal 2001, $8,867,000 in fiscal 2000 and $9,804,000 in fiscal 1999. The
decrease in net sales of managed operations is principally due to the termination of a management
contract. The management agreement for the three Boston restaurants expired on December 31, 2000 and
was not renewed. The contribution of these restaurants to management fee income was $134,000 in fiscal
2001, $278,000 in fiscal 2000 and $496,000 in fiscal 1999.
The Company was a partner with a 50% interest in a partnership that was formed to develop and
construct four restaurants at a large theatre development in Southfield, Michigan. In March 2000, the
Company withdrew from the project and incurred charges, during fiscal 2000, of $4,988,000 from the
write-off of advances for construction costs and working capital needs on the project. In fiscal 2001, the
Company recorded a charge of $150,000 due to a partial write-off of a note which the Company collected
in March 2001. The note was issued in March 2000 when the Company withdrew from the Southfield,
Michigan project. Such charges are reflected as “Joint Venture Loss” on the Consolidated Statement of
Operations.
Interest expense was $2,446,000 in fiscal 2001, $2,007,000 in fiscal 2000 and $425,000 in fiscal
1999. The significant increase is principally due to borrowings to finance the construction costs and
working capital requirements of the Las Vegas restaurant facilities, which opened in fiscal 2000.
Interest income was $150,000 in fiscal 2001, $172,000 in fiscal 2000 and $226,000 in fiscal 1999.
Other income, which generally consists of purchasing service fees, and the sale of logo
merchandise at various restaurants, was $344,000 in fiscal 2001, $438,000 in fiscal 2000 and $436,000 in
fiscal 1999.
Income Taxes
The provision for income taxes reflects Federal income taxes calculated on a consolidated basis
and state and local income taxes calculated by each New York subsidiary on a non consolidated basis.
Most of the restaurants owned or managed by the Company are owned or managed by a separate
subsidiary.
For state and local income tax purposes, the losses incurred by a subsidiary may only be used to
offset that subsidiary's income with the exception of the restaurants which operate in the District of
Columbia. Accordingly, the Company's overall effective tax rate has varied depending on the level of
losses incurred at individual subsidiaries. Due to losses incurred in both fiscal 2001 and fiscal 2000 and
the carry back of such losses, the Company realized an overall tax benefit of 32.8% and of 35% of such
losses in fiscal 2001 and fiscal 2000, respectively. The Company’s effective tax rate was 36.4% in fiscal
1999.
The Company's overall effective tax rate in the future will be affected by factors such as pre-tax
income earned outside of New York City (Nevada has no state income tax and other states in which the
Company operates have income tax rates substantially lower in comparison to New York), the utilization
of state and local net operating loss carry forwards, and any pre-tax losses incurred at the Company's New
York subsidiaries. In order to more effectively utilize tax loss carry forwards at restaurants that were
unprofitable, the Company has merged certain profitable subsidiaries with certain loss subsidiaries.
The Revenue Reconciliation Act of 1993 provides tax credits to the Company for FICA taxes
paid by the Company on tip income of restaurant service personnel. The net benefit to the Company was
$489,000 in fiscal 2001, $503,000 in fiscal 2000 and $512,000 in fiscal 1999.
The Internal Revenue Service is currently examining the Company’s returns for the fiscal years
ended September 30, 1995 through October 2, 1998. The Company does not expect the results from such
examination to have a material effect on the Company’s financial condition.
Liquidity and Sources of Capital
The Company's primary source of capital is cash provided by operations and funds available from
the revolving credit agreement with its main bank, Bank Leumi USA. The Company from time to time
also utilizes equipment financing in connection with the construction of a restaurant and seller financing
in connection with the acquisition of a restaurant. The Company utilizes capital primarily to fund the cost
of developing and opening new restaurants and acquiring existing restaurants.
The net cash used in investing activities in fiscal 2001 ($1,891,000), fiscal 2000 ($25,244,000)
and fiscal 1999 ($6,096,000) was principally for the Company's continued investment in fixed assets
associated with constructing new restaurants. In fiscal 2001 the Company opened two bars at the
Venetian in Las Vegas, Nevada (V-Bar and Venus). In fiscal 2000 the Company opened two restaurants
and four food court outlets in the Venetian (Lutece, Tsunami and the food court outlets), and the
Company opened one restaurant and six food court outlets in the Aladdin in Las Vegas, Nevada (Fat
Anthony’s and the Alakazam Food Court). In fiscal 1999, the Company opened a restaurant in Union
Station in Washington, DC (Thunder Grill) and began constructing the restaurants and food court outlets
at the Venetian.
The net cash used in financing activities in fiscal 2001 ($5,577,000) was principally due to
repayments of long-term debt on the Company’s main credit facility in excess of borrowings on such
facility. The net cash provided from financing activities in fiscal 2000 ($20,710,000) was principally
from borrowings on the Company’s Revolving Credit Facility. The net cash used in financing activities
in fiscal 1999 ($1,632,000) was due to the repurchase of 423,000 shares of the Company’s outstanding
common stock offset by a net increase in long-term debt in excess of debt repayments.
The Company had a working capital deficit of $5,809,000 at September 29, 2001 as compared to
working capital deficit of $4,921,000 at September 30, 2000. The restaurant business does not require the
maintenance of significant inventories or receivables; thus the Company is able to operate with negative
working capital.
At November 21, 2000, the Company’s Revolving Credit and Term Loan Facility with its main
bank included a $28,500,000 facility for constructing and acquiring new restaurants and for working
capital purposes at the Company’s existing restaurants. The facility required the Company to repay any
borrowings to the extent such borrowings exceed $26,000,000 on June 30, 2001, $23,000,000 on
September 30, 2001 and $22,000,000 on December 27, 2001. At December 27, 2001 the facility was to
convert into a term loan payable over three years. The loans bore interest at prime plus ½%. At
September 29, 2001 the Company had borrowings of $22,500,000 outstanding on the facility. The
Company also had a $1,000,000 Letter of Credit Facility for use in lieu of lease security deposits and the
Company had delivered $889,000 in irrevocable letters of credit on this facility.
The Revolving Credit Facility limits the amount of indebtedness that may be incurred by the
Company. Certain provisions of the agreement may impair the Company's ability to borrow funds. The
agreement contains certain financial covenants such as minimum cash flow in relation to the Company’s
debt service requirements, ratio of debt to equity, and the maintenance of minimum shareholders’ equity.
At September 29, 2001, the Company was not in compliance with several of the requirements of the
agreement principally due to the impairment charges incurred in connection with its restaurant and food
service operations at the Aladdin in Las Vegas, Nevada. Such non-compliance has been waived by the
bank.
As a result of amendments to the Revolving Credit Facility in November 2001 and December
2001, the financial covenants were amended for forthcoming periods, the conversion date of the existing
facility has been postponed from December 27, 2001 to June 30, 2002, and the Company may borrow up
to $26,000,000 until June 30, 2002. At June 30, 2002, the Company is required to repay any borrowings
to the extent such borrowings exceed $22,000,000 and the revolving loans will be converted into term
loans payable over 36 months.
Pursuant to an equipment financing facility with its main bank, the Company borrowed
$2,851,000 in January 1997 at an interest rate of 8.75% to refinance the purchase of various restaurant
equipment at the New York-New York Hotel & Casino Resort. The note, which is payable in 60 equal
monthly installments through January 2002, is secured by such restaurant equipment. At September 29,
2001 the Company had $231,000 outstanding on this facility. In April 2000, the Company borrowed
$1,570,000 from its main bank at an interest rate of 8.8% to refinance the purchase of various restaurant
equipment at the Venetian. The note which is payable in 60 equal monthly installments through May
2005, is secured by such restaurant equipment. At September 29, 2001 the Company had $1,216,000
outstanding on this facility.
The Company entered into a sale and leaseback agreement with GE Capital for $1,652,000 in
November 2000 to refinance the purchase of various restaurant equipment at its food and beverage
operations at the Aladdin in Las Vegas, Nevada. The lease bears interest at 8.65% per annum and is
payable in 48 equal monthly installments of $31,785 until maturity in November 2004 at which time the
Company has an option to purchase the equipment for $519,440. Alternatively, the Company can extend
the lease for an additional 12 months at the same monthly payment until maturity in November 2005 and
repurchase the equipment at such time for $165,242.
The Company does not anticipate any capital intensive projects during fiscal 2002 and expects
that a significant portion of its projected cash flow will be applied to debt reduction.
Restaurant Expansion
The Company opened two bars (V-Bar and Venus) at the Venetian in Las Vegas, Nevada in fiscal
2001. In fiscal 2000, the Company opened two restaurants (Tsunami and Lutece) along with three food
court outlets at the Venetian and also opened one restaurant (Fat Anthony’s) along with six food court
outlets (Alakazam Food Bazaar) at the Aladdin in Las Vegas, Nevada.
The Company will shortly begin constructing a 200-seat restaurant and bar at the Neonopolis
Center at Fremont Street in downtown Las Vegas, Nevada. The Company received a $2,400,000
construction and operating allowance from the landlord and expects to construct and open the restaurant
within the limits of that allowance.
The Company is not currently committed to any other projects.
Events of September 11, 2001
The Company experienced severe sales decreases in the immediate aftermath of the September
11th terrorist attacks and the operating results for the fiscal 2001-year were impacted. The Company
continues to experience negative same store sales, although on a much improved level as compared to the
immediate weeks following the attack. The Company has aggressively reduced its payroll at restaurants
and at the corporate level. In addition, the Company’s Revolving Credit Facility has been amended in the
manner described above under “Liquidity and Sources of Capital”. As a result and given recent sales
trends, the Company believes that it will generate sufficient cash flow in fiscal 2002 to meet its debt
obligations.
One Company restaurant (The Grill Room) itself experienced some damage in the September 11th
attack and is located in the World Financial Center which experienced substantial damage. It will likely
not reopen until late in fiscal 2002. Several other Company restaurants were closed from several days to
a month due to their proximity to the World Trade Center. The damage is still being assessed. The
Company ultimately expects to recover a substantial portion of physical costs and business interruption
losses at these restaurants. However, at September 29, 2001 the Company did not provide any benefit in
the consolidated financial statements as the extent of the damage was unknown and the insurance claims
are still being quantified.
The Company believes that its restaurant and food court operations at the Aladdin in Las Vegas,
Nevada were significantly impaired by the events of September 11th. The restaurant and food court
operations experienced severe sales declines in the aftermath of September 11th and the Aladdin itself
declared bankruptcy on September 28, 2001. The Company continues to operate the business pending the
resolution of the Aladdin bankruptcy proceedings, but an impairment charge of $10,045,000 was recorded
in fiscal 2001.
The long-term effects of the terrorist attacks cannot yet be determined. The Company’s
restaurants in travel destinations, consisting of all of its restaurants in Washington and Las Vegas and
certain restaurants in New York, are intended to benefit from high tourist traffic. The decline in travel
resulting from the attacks has had a material adverse effect on revenues from those restaurants. Recovery
of those restaurants depends upon restoration of public confidence in the air transportation system and its
willingness and inclination to resume vacation and convention travel.
Recent Developments
The Financial Accounting Standards Board has recently issued the following accounting
pronouncements:
SFAS No. 141 “ Business Combinations”, requires that all business combinations initiated after
June 30, 2001 be accounted for using one method, the purchase method. Use of the pooling of interests
method is now prohibited.
SFAS No. 142 “Goodwill and Other Intangible Assets” addresses financial accounting and
reporting for acquired goodwill and other intangible assets. Under SFAS No. 142, goodwill and some
intangible assets will no longer be amortized, but rather reviewed for impairment on a periodic basis.
Impairment losses for goodwill and certain intangible assets that arise due to the initial application of this
statement are to be reported as resulting from a change in accounting principle. The provisions of this
statement will be applied at the beginning of the Company’s 2003 fiscal year. The Company is in the
process of evaluating the financial statement impact from adopting this standard.
SFAS No, 143 “Accounting for Asset Retirement Obligations“ requires the recording of the fair
value of a liability for an asset retirement obligation in the period in which it is incurred. This statement
is effective for the Company at the beginning of the Company’s 2004 fiscal year. The Company does not
expect the adoption of this standard to have a material impact on the Company’s financial position or
results of operations.
SFAS No. 144 “Accounting for the Impairment or Disposal of Long Lived Assets” supersedes
existing accounting literature dealing with impairment and disposal of long-lived assets, including
discontinued operations. It addresses financial accounting and reporting for the impairment of long-lived
assets and for long-lived assets to be disposed of, and expands current reporting for discontinued
operations to include disposals of a “component” of an entity that has been disposed of or is classified as
held for sale. This statement is effective for the Company at the beginning of the Company’s 2003 fiscal
year. The Company is in the process of evaluating the financial statement impact of this standard.
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates with respect to its
outstanding credit agreement with its main bank, Bank Leumi USA. The revolving credit line bears
interest at prime plus one-half percent. See “Liquidity and Sources of Capital” above.
MARKET INFORMATION
The Company’s Common Stock, $.01 par value, is traded in the over-the-counter market on the
Nasdaq National Market (“Nasdaq”) under the symbol “ARKR.” The high and low sale prices for the
Common Stock from October 3, 1999 through September 29, 2001 are as follows:
Calendar 1999
Fourth Quarter
Calendar 2000
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Calendar 2001
First Quarter
Second Quarter
Third Quarter
Dividends
High
$ 10.25
Low
$ 8.25
9.00
8.25
10.00
8.50
7.75
10.37
10.10
6.13
6.50
5.75
5.31
5.06
6.00
5.90
The Company has not paid any cash dividends since its inception and does not intend to pay
dividends in the foreseeable future.
Number Of Shareholders
As of February 14, 2002, there were 69 holders of record of the Company’s Common Stock.
Deloitte & Touche LLP
Two World Financial Center
New York, New York 10281-1414
Tel: (212) 436 2000
Fax: (212) 436 5000
www.us.deloitte.com
Deloitte
&Touche
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Ark Restaurants Corp.
We have audited the accompanying consolidated balance sheets of Ark Restaurants Corp. and its
subsidiaries as of September 29, 2001 and September 30, 2000, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the three fiscal years in the
period ended September 29, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States
of America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management
as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the
financial position of Ark Restaurants Corp. and subsidiaries as of September 29, 2001 and September
30, 2000, and the results of their operations and their cash flows for each of the three fiscal years in the
period ended September 29, 2001, in conformity with accounting principles generally accepted in the
United States of America.
December 7, 2001
Deloitte
Touche
Tohmatsu
F-1
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 29,
2001
September 30,
2000
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable
Current portion of long-term receivables (Note 3)
Inventories
Deferred income taxes (Note 12)
Prepaid expenses and other current assets
Refundable and prepaid income taxes
Total current assets
LONG-TERM RECEIVABLES (Note 3)
FIXED ASSETS - At cost:
Leasehold improvements
Furniture, fixtures and equipment
Leasehold improvements in progress
Less accumulated depreciation and amortization
INTANGIBLE ASSETS - Net (Note 4)
DEFERRED INCOME TAXES (Note 12)
OTHER ASSETS - Net (Note 5)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade
Accrued expenses and other current liabilities (Note 6)
Current maturities of long-term debt (Note 7)
Total current liabilities
LONG-TERM DEBT - Net of current maturities (Note 7)
OPERATING LEASE DEFERRED CREDIT (Notes 1 and 8)
COMMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY (Notes 7, 9 and 10):
Common stock, par value $.01 per share - authorized, 10,000
shares; issued, 5,249 shares
Additional paid-in capital
Retained earnings
Less treasury stock, 2,068 shares
Total shareholders' equity
$ -
3,049
203
2,110
278
655
1,119
7,414
1,082
33,699
27,972
93
61,764
27,035
34,729
4,175
6,056
395
$ 697
4,045
1,427
2,133
1,694
347
1,308
11,651
1,130
38,099
31,157
267
69,523
22,325
47,198
4,570
1,533
934
$53,851
=======
$67,016
=======
$ 4,232
6,744
2,247
13,223
21,700
995
-
52
14,743
11,489
26,284
8,351
17,933
$ 5,293
6,206
5,073
16,572
24,447
1,213
-
52
14,743
18,337
33,132
8,348
24,784
See notes to consolidated financial statements
$53,851
=======
$67,016
=======
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEME NTS OF OPERATIONS
(In Thousands, Except Per Share Data)
NET SALES
COST OF SALES
GROSS RESTAURANT PROFIT
MANAGEMENT FEE INCOME (Note 11)
JOINT VENTURE LOSS
OPERATING EXPENSES:
Payroll and payroll benefits
Occupancy
Depreciation and amortization
Asset impairment
Other
Years Ended
September 29,
2001
September 30,
2000
October 2,
1999
$ 127,007
32,549
94,458
346
(150)
94,654
45,085
18,320
5,938
10,045
16,499
95,887
$ 119,212
31,016
88,196
474
(4,988)
$ 110,801
29,301
81,500
869
-
83,682
82,369
43,063
15,310
4,885
811
16,545
80,614
39,254
13,493
4,063
-
12,655
69,465
INCOME (LOSS) FROM RESTAURANT OPERATIONS
(1,233)
3,068
12,904
GENERAL AND ADMINISTRATIVE EXPENSES
7,005
7,111
6,070
OPERATING INCOME (LOSS)
OTHER EXPENSE (INCOME):
Interest expense (Note 7)
Interest income
Other income (Note 13)
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
PROVISION (BENEFIT) FOR INCOME TAXES (Note 12)
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, Net
NET INCOME (LOSS)
INCOME (LOSS) PER SHARE - BASIC:
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
(8,238)
(4,043)
6,834
2,446
(150)
(344)
1,952
(10,190)
(3,342)
(6,848)
-
$ (6,848)
2,007
(172)
(438)
1,397
(5,440)
(1,906)
425
(226)
(436)
(237)
7,071
2,576
(3,534)
189
$ (3,723)
4,495
-
$ 4,495
$ (2.15)
-
$ (1.11)
(0.06)
$ 1.30
-
NET INCOME (LOSS)
$ (2.15)
$ (1.17)
$ 1.30
INCOME (LOSS) PER SHARE - DILUTED:
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
NET INCOME (LOSS)
WEIGHTED AVERAGE NUMBER OF SHARES - BASIC
WEIGHTED AVERAGE NUMBER OF SHARES - DILUTED
See notes to consolidated financial statements.
$ (2.15)
$ (1.11)
$ 1.29
-
$ (2.15)
3,181
3,181
(0.06)
$ (1.17)
3,186
3,186
-
$ 1.29
3,461
3,476
ARK RESTAURANT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) before cumulative effect of accounting change
Cumulative effect of accounting change
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of fixed assets
Amortization of intangibles
Gain on sale of restaurants
Write-off of joint venture advances and investments
Impairment of assets
Write-off of accounts and notes receivable
Operating lease deferred credit
Deferred income taxes
Changes in assets and liabilities:
Decrease (increase) in accounts receivable
Decrease (increase) in inventories
Decrease (increase) in prepaid expenses and other
current assets
Decrease (increase) in refundable and prepaid
income taxes
Decrease (increase) in other assets, net
Increase (decrease) in accounts payable - trade
Increase (decrease) in accrued income taxes
Increase (decrease) in accrued expenses
and other current liabilities
September 29,
2001
Years Ended
September 30, October 2,
2000
1999
$(6,848)
-
$ (3,534)
(189)
$ 4,495
-
5,479
459
(209)
1,086
10,045
209
(218)
(3,107)
996
23
4,334
551
(88)
4,988
811
280
(109)
(1,670)
(1,251)
(217)
(308)
(11)
3,331
732
(752)
-
-
-
(149)
383
377
34
155
189
(502)
(1,061)
-
(1,307)
(450)
1,476
(186)
-
(2,111)
252
(519)
538
1,469
811
Net cash provided by operating activities
6,771
4,897
7,039
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets
Additions to intangible assets
Advances to joint venture, net
Issuance of demand notes and long-term receivables
Payments received on demand notes and long-term receivables
Restaurant sales
(3,014)
-
-
(98)
1,221
-
(22,263)
-
(3,297)
(94)
410
-
(6,989)
(385)
-
(96)
399
975
Net cash used in investing activities
(1,891)
(25,244)
(6,096)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment on long-term debt
Issuance of long-term debt
Exercise of stock options
Principal payment on capital lease obligations
Purchase of treasury stock
(9,974)
4,400
-
-
(3)
(3,155)
25,020
344
(149)
(1,350)
(5,659)
8,300
185
(230)
(4,228)
Net cash (used in) provided by financing activities
(5,577)
20,710
(1,632)
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
SUPPLEMENTAL INFORMATION:
Cash payments for the following were:
Interest
Income taxes
See notes to consolidated financial statements.
(697)
363
(689)
697
$ -
334
$ 697
1,023
$ 334
$ 2,446
$ 852
$ 2,245
$ 1,113
$ 526
$ 2,690
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 29, 2001, SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
(In Thousands)
Additional
Total
Common Stock
Shares Amount Capital
Paid-In Retained Treasury Shareholders'
Earnings
Stock
Equity
BALANCE, OCTOBER 3, 1998
5,187
$ 52
$14,214
$17,565
$(2,770)
$29,061
Exercise of stock options
Purchase of treasury stock
Tax benefit on exercise of options
Net income
21
-
-
-
-
-
-
-
164
-
21
-
-
-
-
4,495
-
(4,228)
-
-
164
(4,228)
21
4,495
BALANCE, OCTOBER 2, 1999
5,208
52
14,399
22,060
(6,998)
29,513
Exercise of stock options
Purchase of treasury stock
Tax benefit on exercise of options
Net income
41
-
-
-
-
-
-
-
328
-
16
-
-
-
-
(3,723)
-
(1,350)
-
-
328
(1,350)
16
(3,723)
BALANCE, SEPTEMBER 30, 2000
5,249
52
14,743
18,337
(8,348)
24,784
Exercise of stock options
Purchase of treasury stock
Tax benefit on exercise of options
Net income
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(6,848)
-
(3)
-
-
-
(3)
-
(6,848)
BALANCE, SEPTEMBER 29, 2001
5,249
$ 52
$14,743
$11,489
$(8,351)
$17,933
See notes to consolidated financial statements.
ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 29, 2001, SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ark Restaurants Corp. and subsidiaries (the “Company”) own and operate
26 restaurants and bars, 19 fast food concepts, catering operations and wholesale
and retail bakeries. Twelve restaurants are located in New York City, four in
Washington, D.C., nine in Las Vegas, Nevada, and one in Islamorada, Florida.
The Las Vegas operations include three restaurants within the New York-New York
Hotel & Casino Resort and operation of the Resort's room service, banquet
facilities, employee dining room and nine food court operations. Four restaurants
are within the Venetian Casino Resort as well as four food court concepts; one
restaurant is within Desert Passage which adjoins the Aladdin Casino Resort
along with six food court concepts; and one restaurant within the Forum Shops
at Caesar's Shopping Center.
Accounting Period - The Company's fiscal year ends on the Saturday nearest
September 30. The fiscal years ended September 29, 2001, September 30, 2000
and October 2, 1999 included 52 weeks.
Significant Estimates - In the process of preparing its consolidated financial
statements, the Company estimates the appropriate carrying value of certain
assets and liabilities which are not readily apparent from other sources. The
primary estimates underlying the Company's financial statements include allowances
for potential bad debts on accounts and notes receivable, the useful lives and
recoverability of its assets, such as property and intangibles, fair values
of financial instruments, the realizable value of its tax assets and other matters.
Management bases its estimates on certain assumptions, which they believe are
reasonable in the circumstances, and while actual results could differ from
those estimates, management does not believe that any change in those assumptions
in the near term would have a material effect on the Company's consolidated
financial position or the results of operation.
Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Investments in affiliated companies where the Company is able to exercise significant
influence over operating and financial policies even though the Company holds
50% or less of the voting stock, are accounted for under the equity method.
Cash Equivalents - Cash equivalents include instruments with original maturities
of three months or less.
Accounts Receivable - Included in accounts receivable are amounts due from
employees of $1,548,000 and $1,401,000 at September 29, 2001 and September 30,
2000, respectively. Such amounts, which are due on demand, are principally due
from various employees exercising stock options in accordance with the Company's
Stock Option Plan (see Note 10).
Inventories - Inventories are stated at the lower of cost (first-in, first-out)
or market, and consist of food and beverages, merchandise for sale and other
supplies.
Fixed Assets - Leasehold improvements and furniture, fixtures and equipment
are stated at cost. Depreciation of furniture, fixtures and equipment (including
equipment under capital leases) is computed using the straight-line method over
the estimated useful lives of the respective assets (seven years). Amortization
of improvements to leased properties is computed using the straight-line method
based upon the initial term of the applicable lease or the estimated useful
life of the improvements, whichever is less, and ranges from 5 to 35 years.
The Company includes in leasehold improvements in progress restaurants that
are under construction. Once the projects have been completed the Company will
begin amortizing the assets.
The Company annually assesses any impairment in value of long-lived assets
and certain identifiable intangibles to be held and used. For the year ended
September 29, 2001, an impairment charge of $10,045,000 was incurred on the
Company's restaurant operations at Desert Passage, the retail complex at the
Aladdin Resort & Casino in Las Vegas, Nevada, to reduce the operations'
assets to their estimated fair values (see Note 2). For the year ended September
30, 2000 an impairment charge of $811,000 was incurred on a restaurant that
the Company owned in McLean, Virginia. Such restaurant was closed during the
fiscal year ended September 29, 2001. For the year ended October 2, 1999 no
impairment charges were deemed necessary.
Costs incurred during the construction period of restaurants, including rental
of premises, training and payroll, are expensed as incurred.
Intangible and Other Assets - Costs associated with acquiring leases and subleases,
principally purchased leasehold rights, have been capitalized and are being
amortized on the straight-line method based upon the initial terms of the applicable
lease agreements, which range from 10 to 21 years.
Goodwill recorded in connection with the acquisition of shares of the Company's
common stock from a former shareholder, as discussed in Note 4, is being amortized
over a period of 40 years. Goodwill arising from restaurant acquisitions is
being amortized over periods ranging from 10 to 15 years.
The Company adopted in the quarter ended January 1, 2000, Statement of Position
98-5, Reporting on the Costs of Start-Up Activities, which requires costs of
start-up activities and organization costs to be expensed as incurred. The Company
had previously capitalized organization costs and then amortized such costs
over five years. The Company had net deferred organization expenses of $300,000
in intangible assets as of October 2, 1999 and such amount ($189,000 after taxes)
is reported in the fiscal year ended September 30, 2000 as a cumulative effect
of a change in accounting principle.
Covenants not to compete arising from restaurant acquisitions are amortized
over the contractual period of five years.
Certain legal and bank commitment fees incurred in connection with the Company's
Revolving Credit and Term Loan Facility, as discussed in Note 7, were capitalized
as deferred financing fees and are being amortized over four years, the term
of the facility.
Operating Lease Deferred Credit - Several of the Company's operating leases
contain predetermined increases in the rentals payable during the term of such
leases. For these leases, the aggregate rental expense over the lease term is
recognized on a straight-line basis over the lease term. The excess of the expense
charged to operations in any year over the amounts payable under the leases
during that year is recorded as a deferred credit. The deferred credit subsequently
reverses over the lease term (Note 8).
Occupancy Expenses - Occupancy expenses include rent, rent taxes, real estate
taxes, insurance and utility costs.
Income Per Share of Common Stock - Net income per share is computed in accordance
with Statement of Financial Accounting Standards (“SFAS”) No. 128,
Earnings Per Share, and is calculated on the basis of the weighted average number
of common shares outstanding during each period plus, for diluted earnings per
share, the additional dilutive effect of common stock equivalents. Common stock
equivalents using the treasury stock method consist of dilutive stock options.
Stock Options - The Company accounts for its stock options granted to employees
under the intrinsic value-based method for employee stock-based compensation
and provides pro forma disclosure of net income and earnings per share as if
the accounting provision of SFAS No.123 had been adopted. The Company generally
does not grant stock options to outsiders.
Impact of Recently Issued Accounting Standards - SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137
and 138, establishes standards for measuring, classifying and reporting all
derivative financial instruments in the financial statements. SFAS No. 133 implemented
by the Company beginning the first quarter of fiscal year 2001 did not have
a material impact on the Company's financial position or results of operations.
SFAS No, 141, Business Combinations, requires that all business combinations
initiated after June 30, 2001 be accounted for using one method, the purchase
method. Use of the pooling of interests method is now prohibited.
Future Impact of Recently Issued Accounting Standards - SFAS No. 142, Goodwill
and Other Intangible Assets, addresses financial accounting and reporting for
acquired goodwill and other intangible assets. Under SFAS No. 142, goodwill
and some intangible assets will no longer be amortized, but rather reviewed
for impairment on a periodic basis. Impairment losses for goodwill and certain
intangible assets that arise due to the initial application of this Statement
are to be reported as resulting from a change in accounting principle. The provisions
of this Statement will be applied at the beginning of the Company's 2003 fiscal
year. The Company is in the process of evaluating the financial statement impact
from adopting this standard.
SFAS No. 143, Accounting for Asset Retirement Obligations, requires the recording
of the fair value of a liability for an asset retirement obligation in the period
in which it is incurred. The Statement is effective for the Company at the beginning
of fiscal year 2004. The Company does not expect the adoption of this standard
to have a material impact on the Company's financial position or results of
operations.
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,
supercedes existing accounting literature dealing with impairment and disposal
of long-lived assets, including discontinued operations. It addresses financial
accounting and reporting for the impairment of long-lived assets and for long-lived
assets to be disposed of and expands current reporting for discontinued operations
to include disposals of a “component” of an entity that has been disposed
of or is classified as held for sale. The Statement is effective for the Company
at the beginning of fiscal year 2003. The Company is in the process of evaluating
the financial statement impact of this standard.
Reclassifications - Certain reclassifications of prior year balances have
been made to conform with current year presentation.
2. EFFECTS OF THE SEPTEMBER 11, 2001 TERRORIST ATTACKS
One Company restaurant, The Grill Room, suffered some damage. The restaurant
is located in an office building adjacent to the World Trade Center (in 2 World
Financial Center) and will likely not reopen until late in fiscal 2002 due to
the damage sustained by the office building. The full extent of the damage is
still being evaluated as access to the restaurant has been limited. Several
other Company restaurants were also closed from several days to a month due
to their proximity to the World Trade Center. The Company has extensive property
and business interruption insurance policies and the Company ultimately expects
to recover a substantial portion of its physical costs and business interruption
losses at these restaurants. However, at September 29, 2001, the Company did
not provide any benefit in the consolidated financial statements as the extent
of the damage was unknown and the insurance claims are still being quantified.
The Company believes that its restaurant and food court operations at the
Aladdin Casino Resort in Las Vegas, Nevada (the “Aladdin”) were significantly
impaired by the events of September 11th. The restaurant and food court operations
experienced severe sales declines in the aftermath of September 11th and the
Aladdin declared bankruptcy on September 28, 2001. The Company continues to
operate the business pending the resolution of the Aladdin's bankruptcy, but
an impairment charge of $10,045,000 was recorded in the fiscal year ended September
29, 2001.
3. LONG-TERM RECEIVABLES
Long-term receivables consist of the following:
(In Thousands)
September 29,
September 30,
2001
2000
Note receivable, due March 2001 (a)
$ -
$1,000
Note receivable secured by fixed assets and lease at a restaurant sold by the
Company, at 8% interest; due in monthly installments through December 2006 (b)
401
460
Note receivable secured by fixed assets and lease at a restaurant sold by the
Company, at 7.5% interest; due in monthly installments commencing May 2000
through December 2008 (c)
Note receivable secured by fixed assets and lease at a restaurant sold by the
Company, at 10.0% interest; due in monthly installments through April 2004 (d)
Note receivable secured by fixed assets and lease at a restaurant at 7.0% interest;
due in monthly installments through June 2006 (e)
Others
Less current portion
687
-
176
21
554
221
228
94
1,285
2,557
203
1,427
$1,082
$1,130
(a) In March 2000, the Company withdrew from a partnership that was formed
to develop and construct four restaurants at a large theatre development in
Southfield, Michigan. The Company was issued this note in consideration of its
working capital advances to the project. The Company collected $850,000 in March
2001 and recorded a charge of $150,000 on the uncollected balance.
(b) In December 1996, the Company sold a restaurant for $900,000. Cash of
$50,000 was received on sale and the balance is due in installments through
December 2006.
(c) In October 1997, the Company sold a restaurant for $1,750,000, of which
$200,000 was paid in cash and the balance is due in monthly installments under
the terms of two notes bearing interest at a rate of 7.5%. One note, with an
initial principal balance of $400,000, was being paid in 24 monthly installments
of $19,000 through April 2000. The second note, with an initial principal balance
of $1,150,000, will be paid in 104 monthly installments of $15,000 commencing
May 2000 and ending December 2008. At December 2008, the then outstanding balance
of $519,000 matures.
The Company recognized a gain on sale of approximately $221,000, $88,000 and
$142,000 in the fiscal years ended September 29, 2001, September 30, 2000 and
October 2, 1999, respectively. Additional deferred gains totaling $585,000 at
fiscal year ended September 29, 2001 could be recognized in future periods as
the notes are collected. The Company deferred recognizing this additional gain
and recorded an allowance for possible uncollectible note against the outstanding
note. This uncertainty is based on the significant length of time of this note
(over 10 years) and the substantial balance, which matures in December 2008
($519,000).
(d) In December 1998, the Company sold a restaurant for $500,000, of which
$250,000 was paid in cash and the balance of $250,000 was financed by a note.
The note was due in monthly installments of $6,000, inclusive of interest at
10%, from May 1999 through April 2004. The buyer defaulted on the note during
the fiscal year ended September 29, 2001 and subsequently filed for bankruptcy.
The Company recovered $12,000 and wrote off the remaining balance of $209,000.
(e) In June 2000, the Company terminated the management of a restaurant in
New York City. The Company received cash of $164,000 and notes totaling $234,000
as consideration for its then outstanding working capital loans. The Company
recognized a loss of $280,000 on the termination.
The carrying value of the Company's long-term receivables approximates its
current aggregate fair value.
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
Goodwill (a)
Purchased leasehold rights (b)
Noncompete agreements and
other
Less accumulated amortization
(In Thousands)
September
29,
2001
September
30,
2000
$6,223
751
790
7,764
3,589
$6,223
751
790
7,764
3,194
$4,175
$4,570
(a) In August 1985, certain subsidiaries of the Company acquired approximately
one-third of the then outstanding shares of common stock (965,000 shares) from
a former officer and director of the Company for a purchase price of $3,000,000.
The consolidated balance sheets reflect the allocation of $2,946,000 to goodwill.
(b) Purchased leasehold rights arise from acquiring leases and subleases of
various restaurants.
5. OTHER ASSETS
Other assets consist of the following:
Deposits
Deferred financing fees
Investments in and advances to
affiliates(a)
(In Thousands)
September
29,
2001
September
30,
2000
$277
97
21
$395
$277
171
486
$934
( a) The Company, through a wholly owned subsidiary, became a general
partner with a 19% interest in a partnership which acquired on July 1,
1987 an existing Mexican food restaurant, El Rio Grande, in New York
City. Several related parties also participate as limited partners in
the partnership. The Company's equity in earnings of the limited
partnership was $32,000, $15,000 and $65,000 for the years ended
September 29, 2001, September 30, 2000 and October 2, 1999,
respectively.
The Company also manages El Rio Grande through another wholly owned
subsidiary on behalf of the partnership. Management fee income
relating to these services was $181,000, $162,000 and $358,000 for the
years ended September 29, 2001, September 30, 2000 and October 2,
1999, respectively (Note 11).
The Company, through a wholly owned subsidiary, was a partner with a 50% interest
in a partnership to construct and develop four restaurants at a large theatre
development in Southfield, Michigan. In March 2000, the Company withdrew from
the partnership and incurred losses totaling $4,988,000 on this project.
For the year ended September 29, 2001, the Company recorded a write
off of $935,000 on the cancellation of a development project. As of
September 30, 2000, $468,000 of expenditures on this project were
included in other assets.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
Sales tax payable
Accrued wages and payroll related
costs
Customer advance deposits
Accrued and other liabilities
Litigation accrual (see Note 8)
Impairment accrual
(In Thousands)
September
29,
2001
September
30,
2000
$ 669
$ 878
931
961
2,583
-
1,600
999
1,175
1,854
1,300
-
$6,744
$6,206
7. LONG-TERM DEBT
Long-term debt consists of the following:
Revolving Credit and Term Loan Facility with interest at
the prime rate, plus 1/2%, payable on June 30, 2002 (a)
$22,500
$27,150
(In Thousands)
September 29,
2001
September 30,
2000
Notes issued in connection with refinancing of restaurant
equipment, at 8.75%,payable in monthly installments
through January 2002 (b)
Notes issued in connection with refinancing of restaurant
equipment, at 8.80%, payable in monthly installments
through May 2005 (c)
Less current maturities
231
885
1,216
23,947
2,247
$21,700
1,485
29,520
5,073
$24,447
(a) The Company's Revolving Credit and Term Loan Facility with its main bank
(Bank Leumi USA), as amended November 2001, includes a $26,000,000 facility
to finance the development and construction of new restaurants and for working
capital purposes at the Company's existing restaurants. Outstanding loans bear
interest at 1/2% above the bank's prime rate of 6.0% at September 29, 2001.
Any outstanding loans on June 30, 2002 in excess of $22,000,000 are due in full
and the balance can be converted into a term loan payable over 36 months. The
facility also includes a $1,000,000 letter of credit facility for use in lieu
of lease security deposits. The Company generally is required to pay commissions
of 1 1/2% per annum on outstanding letters of credit.
The Company's subsidiaries each guaranteed the obligations of the
Company under the foregoing facilities and granted security interests
in their respective assets as collateral for such guarantees. In
addition, the Company pledged stock of such subsidiaries as security
for obligations of the Company under such facilities.
The agreement includes restrictions relating to, among other things,
indebtedness for borrowed money, capital expenditures, mergers, sale
of assets, dividends and liens on the property of the Company. The
agreement also contains financial covenants such as minimum cash flow
in relation to the Company's debt service requirements, ratio of debt
to equity, and the maintenance of minimum shareholders' equity. The
Company received a waiver from the bank for the covenants it was not
in compliance with, at September 29, 2001.
(b) In January 1997, the Company borrowed from its main bank, $2,851,000
to refinance the purchase of various restaurant equipment at its food
and beverage facilities in a hotel and casino in Las Vegas, Nevada.
The notes bear interest at 8.75% per annum and are payable in 60 equal
monthly installments of $58,833 inclusive of interest, until maturity
in January 2002. The Company granted the bank a security interest in
such restaurant equipment. In connection with such financing, the
Company granted the bank the right to purchase 35,000 shares of the
Company's common stock at the exercise price of $11.625 per share
through December 2001. The fair value of the warrants was estimated at
the date of grant, credited to additional paid-in capital and is being
amortized over the life of the warrants.
(c) In April 2000, the Company borrowed from its main bank $1,570,000 to
refinance the purchase of various restaurant equipment at its food and
beverage facilities in a hotel and casino in Las Vegas, Nevada. The
notes bear interest at 8.80% per annum and are payable in 60 equal
monthly installments of $32,439 inclusive of interest, until maturity
in May 2005.
Required principal payments on long-term debt, assuming conversion of
eligible borrowings described in (a) above are as follows:
Year
2002
2003
2004
2005
(In
Thousands)
Amount
$ 2,247
7,654
7,684
6,362
$23,947
During the fiscal years ended September 29, 2001, September 30, 2000 and
October 2, 1999, interest expense was $2,446,000, $2,245,000 and $526,000,
respectively, of which $238,000 and $101,000 was capitalized during the
fiscal years ended September 30, 2000 and October 2, 1999, respectively.
The carrying value of the Company's long-term debt approximates its
current aggregate fair value.
8. COMMITMENTS AND CONTINGENCIES
Leases - The Company leases its restaurants, bar facilities, and
administrative headquarters through its subsidiaries under terms expiring
at various dates through 2029. Most of the leases provide for the payment
of base rents plus real estate taxes, insurance and other expenses and, in
certain instances, for the payment of a percentage of the restaurants'
sales in excess of stipulated amounts at such facility.
As of September 29, 2001, future minimum lease payments, net of sublease
rentals, under noncancelable leases are as follows:
Year
2002
2003
2004
2005
2006
Thereafter
Total minimum payments
Operating
Leases
$ 7,842
8,408
7,880
7,121
7,103
18,841
$57,195
In connection with the leases included in the table above, the Company
obtained and delivered irrevocable letters of credit in the aggregate
amount of $889,000 as security deposits under such leases.
Rent expense was $12,756,000, $10,783,000 and $9,639,000 during the fiscal
years ended September 29, 2001, September 30, 2000 and October 2, 1999,
respectively. Rent expense for the fiscal years ended September 29, 2001,
September 30, 2000 and October 2, 1999 includes approximately $218,000,
$109,000 and $149,000, of operating lease deferred credits, representing
the difference between rent expense recognized on a straight-line basis
and actual amounts currently payable. Contingent rentals, included in rent
expense, were $3,236,000, $3,470,000 and $2,799,000 for the fiscal years
ended September 29, 2001, September 30, 2000 and October 2, 1999,
respectively.
Legal Proceedings - In the ordinary course of its business, the Company is
a party to various lawsuits arising from accidents at its restaurants and
workmen's compensation claims, which are generally handled by the
Company's insurance carriers.
The employment by the Company of management personnel, waiters, waitresses
and kitchen staff at a number of different restaurants has resulted in the
institution, from time to time, of litigation alleging violation by the
Company of employment discrimination laws. The Company does not believe
that any of such suits will have a materially adverse effect upon the
Company, its financial condition or operations.
A lawsuit was commenced against the Company in October 1997 in the
District Court for the Southern District of New York by 44 present and
former employees alleging various violations of Federal wage and hour
laws. The complaint sought an injunction against further violations of the
labor laws and payment of unpaid minimum wages, overtime and other
allegedly required amounts, liquidated damages, penalties and attorney's
fees. The lawsuit was settled for approximately $1,245,000 in May 2001.
Based upon settlement discussion in the fourth quarter of fiscal 2000, the
Company recorded a charge of $1,300,000 at that time.
Several unfair labor practice charges were filed against the Company in 1997 with
the National Labor Relations Board (“NLRB”) with respect to the
Company's Las Vegas subsidiary. The charges were heard in October 1997. At issue
was whether the Company unlawfully terminated nine employees and disciplined six
other employees allegedly in retaliation for their union activities. An Administrative
Law Judge (“ALJ”) found that six employees were terminated unlawfully
and three were discharged for valid reasons and four employees were disciplined
lawfully and two employees unlawfully. On appeal, the NLRB found that the Company
lawfully disciplined five employees and unlawfully disciplined one employee. The
Company is appealing the adverse rulings of the NLRB to the D.C. Circuit Court of
Appeals. The Company does not believe that an adverse outcome in this proceeding will
have a material adverse effect upon the Company's financial condition or operations.
9. COMMON STOCK REPURCHASE PLAN
In August 1998, the Company authorized the repurchase of up to 500,000
shares of the Company's outstanding common stock. In April 1999, the
Company authorized the repurchase of an additional 300,000 shares of the
Company's outstanding common stock. For the years ended September 29,
2001, September 30, 2000 and October 2, 1999, the Company repurchased 400,
141,000 and 423,000 shares at a total cost of $3,000, $1,350,000 and
$4,228,000, respectively.
10. STOCK OPTIONS
On October 15, 1985, the Company adopted a Stock Option Plan (the “Plan”)
pursuant to which the Company reserved for issuance an aggregate of
175,000 shares of common stock. In May 1991 and March 1994, the Company
amended such Plan to increase the number of shares issuable under the Plan
to 350,000 and 448,000, respectively. In March 1996, the Company adopted a
second plan and reserved for issuance an additional 135,000 shares.
Subsequent amendments in March 1997, February 1999 and March 2001
increased the number of shares included under the plan to 270,000, 470,000
and 650,000, respectively. Options granted under the Plans to key
employees are exercisable at prices at least equal to the fair market
value of such stock on the dates the options were granted. The options
expire five years after the date of grant and are generally exercisable as
to 25% of the shares commencing on the first anniversary of the date of
grant and as to an additional 25% commencing on each of the second, third
and fourth anniversaries of the date of grant.
Additional information follows:
2001
2000
1999
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Shares
Shares
Weighted
Average
Exercise
Price
Shares
Outstanding, beginning of year
Options:
Granted
Exercised
Canceled or expired
Outstanding, end of year (a)
343,000
$10.76
488,000
$10.65
312,000
$10.86
10,000
-
(23,000)
330,000
7.50
9.89
10.72
-
(41,000)
(104,000)
343,000
-
8.00
11.32
10.76
214,000
(21,000)
(17,000)
488,000
10.00
8.00
9.24
10.65
Exercise price, outstanding options
$7.50 - $12.00
$9.50 - $12.00
$8.00 - $12.00
Weighted average years
1.65 Years
2.62 Years
Shares available for future grant
320,000
127,000
Options exercisable (a)
(a) Options become exercisable at various times until expiration dates ranging from
January 2002 through October 2005.
157,000
229,000
11.24
11.15
3.3 years
23,000
179,000
10.78
SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), requires
the Company to disclose pro forma net income and pro forma earnings per share
information for employee stock option grants to employees as if the fair-value method
defined in SFAS No. 123 had been applied. The fair value of each stock option grant is
estimated on the date of grant using the Black-Scholes option pricing. The assumptions
for fiscal 1999 include: risk-free interest rate of 6.25%; no dividend yield; expected life
of four years; and expected volatility of 38%. The 10,000 options granted in fiscal 2001
had no pro forma effect. There were no options granted during fiscal 2000.
The pro forma impact was as follows:
(in Thousands, Except per Share Amounts)
Years Ended
September 29,
2001
September 30, October 2,
2000
1999
Net income (loss) as reported
Net income (loss) - pro forma
Earnings per share as reported - basic
Earnings per share as reported - diluted
Earnings per share pro forma - basic
Earnings per share pro forma - diluted
$(6,848)
(7,048)
$ (2.15)
(2.15)
$ (2.22)
(2.22)
$(3,534)
(3,768)
$4,495
4,308
$ (1.11)
(1.11)
$ (1.18)
(1.18)
$ 1.30
1.29
$ 1.24
1.24
The exercise of nonqualified stock options in the fiscal years ended
September 30, 2000 and October 2, 1999, resulted in income tax benefits of
$16,000 and $21,000, respectively, which were credited to additional
paid-in capital. The income tax benefits result from the difference
between the market price on the exercise date and the option price.
11. MANAGEMENT FEE INCOME
As of September 29, 2001, the Company provides management services to one
restaurant owned by an outside party. In accordance with the contractual
arrangements, the Company earns management fees based on operating profits
as defined by the agreement.
Restaurants managed had net sales of $4,380,000, $8,867,000 and $9,803,000
during the management periods within the years ended September 29, 2001,
September 30, 2000 and October 2, 1999, respectively, which are not
included in consolidated net sales of the Company.
12. INCOME TAXES
The provision for income taxes reflects Federal income taxes calculated on
a consolidated basis and state and local income taxes calculated by each
subsidiary on a nonconsolidated basis. For New York State and City income
tax purposes, the losses incurred by a subsidiary may only be used to
offset that subsidiary's income.
The provision (benefit) for income taxes consists of the following:
(In Thousands)
Years Ended
September 30,
2000
October 2,
1999
September 29,
2001
Current provision (benefit):
Federal
State and local
Deferred provision (benefit):
Federal
State and local
$(1,008)
773
$(1,129)
782
(235)
(347)
(3,022)
(85)
(1,286)
(273)
(3,107)
(1,559)
$1,299
894
2,193
349
34
383
$(3,342)
$(1,906)
$2,576
The provision for income taxes differs from the amount computed by applying the
Federal statutory rate due to the following:
Provision (benefit) for Federal income taxes (34%)
State and local income taxes net of Federal tax benefit
Amortization of goodwill
Tax credits
Other
(In
Thousands)
Years Ended
September
30,
2000
$(1,849)
September
29,
2001
$(3,465)
October 2,
1999
$2,404
454
26
336
25
612
26
(489)
(503)
(512)
132
85
46
$(3,342)
$(1,906)
$2,576
A valuation allowance for deferred taxes is required if, based on the
evidence, it is more likely than not that some of the deferred tax assets
will not be realized. The Company believes that uncertainty exists with
respect to future realization of certain operating loss carryforwards and
operating lease deferred credits. Therefore, the Company provided a
valuation allowance of $941,000 at September 29, 2001 and $918,000 at
September 30, 2000. The Company has state operating loss carryforwards of
$14,196,000 and local operating loss carryforwards of $9,550,000, which
expire in the years 2002 through 2015.
During the fiscal year ended September 30, 2000, the Company and the
Internal Revenue Service finalized the adjustments to the Company's
Federal income tax returns for the fiscal years ended September 28, 1991
through October 1, 1994. The final adjustments primarily relate to: (i)
legal and accounting expenses incurred in connection with new or acquired
restaurants that the Internal Revenue Service asserts should have been
capitalized and amortized rather than currently expensed and (ii) travel
and meal expenses for which the Internal Revenue Service asserts the
Company did not comply with certain record keeping requirements or the
Internal Revenue Code. The settlement did not have a material effect on
the Company's financial condition. The Internal Revenue Service is
currently examining the Company's returns for the fiscal year ended
September 30, 1995 through October 3, 1998. The Company does not expect
the results from such examination to have a material effect on the
Company's financial condition.
13. OTHER INCOME
Other income consists of the following:
(In
Thousands)
Years Ended
September 29, September 30,
2001
2000
October 2,
1999
$106
183
55
$344
$ 65
180
193
$438
$ 88
134
214
$436
Purchasing service fees
Sales of logo T-shirts and hats
Other
14. INCOME PER SHARE OF COMMON STOCK
The Company adopted in the first quarter of fiscal 1998, Financial Accounting
Standards Board Statement No. 128, “Earnings per Share,” which
established new standards for computing and presenting earnings per share. The
Company now discloses “Basic Earnings per Share,” which is based upon
the weighted average number of shares of common stock outstanding during each period
and “Diluted Earnings per Share,” which requires the Company to include
common stock equivalents consisting of dilutive stock options and warrants. The
Company also retroactively applied the new standard to all periods presented.
A reconciliation of the numerators and denominators of the basic and
diluted per share computations for the fiscal year ended October 2, 1999
follows. For the fiscal years ended September 29, 2001 and September 30,
2000, there were no dilutive stock options and warrants.
(In Thousands, Except Per Share
Amounts)
Income
(Numerator)
Per-
Share
(Denominator) Amount
Shares
$4,495
--
$4,495
3,461
15
$1.30
0.01
3,476
$1.29
Year ended October 2, 1999:
Basic EPS
Stock options and warrants
Diluted EPS
15. QUARTERLY INFORMATION (UNAUDITED)
The following table sets forth certain quarterly operating data.
(In Thousands, Except Per Share Amounts)
Fiscal Quarters
Ended
December 30,
2000
March
31,
2001
June
30,
2001
September 29,
2001
$ 30,815
$ 28,417
$
36,805
$ 30,970
2001
Net sales
Gross restaurant profit
22,960
21,068
27,558
22,872
Net income (loss)
225
(1,000)
1,958
(8,031)
Net income (loss) per share basic and diluted
$ .07
$ (.31)
$ .62
$ (2.52)
2000
Net sales
Gross restaurant profit
Cumulative effect of accounting change
Net income (loss)
Net income (loss) per share - basic and diluted
1999
Net sales
Gross restaurant profit
Net income (loss)
Net income (loss) per share - basic and diluted
Fiscal Quarters Ended
January 1,
2000
April 1,
2000
July 1,
2000
September
30,
2000
$26,957
19,896
(189)
91
$ 0.03
$25,765
18,953
-
(4,976)
$ (1.56)
$33,810
25,217
-
1,770
$ 0.56
$32,680
24,130
-
(612)
$ (0.19)
January 2,
1999
Fiscal Quarters Ended
July 3,
April 3,
1999
1999
October 2,
1999
$ 26,933
19,823
1,026
$ 0.28
$ 23,345
16,984
(156)
$ (0.04)
$ 31,564
23,408
2,115
$ 0.63
$ 28,959
21,285
1,510
$ 0.45
16. SUBSEQUENT EVENT (UNAUDITED)
In December 2001, the Company amended its credit agreement with Bank Leumi USA.
The new amendment modifies certain covenants in the credit agreement for fiscal 2002
and beyond.
CORPORATE INFORMATION
BOARD OF DIRECTORS
Ernest Bogen
Chairman
Michael Weinstein
President and Chief Executive Officer
Robert Towers
Executive Vice President, Chief Operating Officer and Treasurer
Vincent Pascal
Senior Vice President – Operations and Secretary
Paul Gordon
Senior Vice President – Director of Las Vegas Operations
Andrew Kuruc
Senior Vice President, Chief Financial Officer, Controller and Secretary
Donald D. Shack
Attorney, Shack Siegel Katz Flaherty & Goodman P.C.
Jay Galin
Chairman and Chief Executive Officer, G+G Retail, Inc.
Bruce Lewin
Owner, Bruce R. Lewin Fine Art
EXECUTIVE OFFICE
AUDITORS
85 Fifth Avenue
New York, N.Y. 10003
(212) 206-8800
Deloitte & Touche
Two World Financial Center
New York, N.Y. 10281
TRANSFER AGENT
GENERAL COUNSEL
Continental Stock Transfer &
Trust Company
2 Broadway
New York, N.Y. 10001
Shack Siegel Katz Flaherty & Goodman P.C.
530 Fifth Avenue
New York, N.Y. 10036
Ark Restaurants Corp.
85 FIFTH AVENUE
NEW YORK, N.Y. 10003-3019
(212) 206-8800