Ark
Restaurants
Corp.
2002 ANNUAL REPORT
THE COMPANY
Ark Restaurants Corp. (the “Registrant” or the “Company”) is a New York corporation formed in
1983. Through its subsidiaries, it owns and operates 26 restaurants and bars, 12 fast food concepts,
catering operations, and wholesale and retail bakeries. Initially its facilities were located only in New
York City. At this time, 12 of the restaurants are located in New York City, four are located in
Washington, D.C., 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
eight food court operations. The Company also owns and operates two restaurants, two bars and four
food court facilities at the Venetian Casino Resort, one restaurant at the Neonopolis Center at Fremont
Street, and one restaurant within the Forum Shops at Caesar’s Shopping Center.
The Company will provide without charge a copy of the Company’s Annual Report on Form 10-
K for the fiscal year ended September 28, 2002, including financial statements and schedules thereto, to
each of the Company’s shareholders of record on February 7, 2003 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.
2
February 7, 2003
Dear Shareholder:
Your company performed quite well this past year. For the full fiscal year ended September 28,
2002, total revenues were $115.5 million versus $127.4 million for the prior fiscal year. Net income for
the year was $4.2 million compared to a net loss of $6.8 million and EBITDA was $11.9 million
compared to a negative EBITDA of $2 million in the prior fiscal year. The principal reason for the net
loss and negative EBITDA in fiscal 2001 was a $10 million impairment charge associated with the write
down of the company’s restaurant and food court operations at Desert Passage, the retail complex at the
Aladdin Resort and Casino in Las Vegas. We no longer operate this facility. The decline in revenues in
fiscal 2002 was primarily due to a decrease in same store sales. We were adversely affected by the
terrorist attacks on September 11th, the residual affects on tourism and the sluggish economy. Also, The
Grill Room, our restaurant located at 2 World Financial Center, an office building complex adjacent to the
World Trade Center site, was closed this past year because of damages sustained on September 11th. We
reopened this operation in December 2002.
Most notable this past year was the company’s ability to deleverage. We reduced long-term debt from
$23.9 million as of the end of the last fiscal year to $15.8 million as of the end of this fiscal year. Debt
reduction is a primary goal of the company. We believe that this is a time to be conservative and
optimize cash flow from current operations. We are not currently committed to any major projects. We
may take advantage of opportunities considered favorable when they occur, depending upon the
availability of financing and other relevant factors. This year management at our restaurants worked very
hard to achieve lower operating expenses as we all adjusted to lower revenue prospects. The Company’s
results speak well to their efforts. We primarily operate in New York City, Washington D.C. and Las
Vegas, Nevada. Current sales activity in New York and Washington is depressed and we believe that
current sales activity in these two markets remain below their potential. We believe that with lower
operating expenses in place, we will be in a good position to expand our EBITDA significantly as the
economy, tourism and corporate business recover.
The Las Vegas market remains highly resilient and has mostly recovered. We are quite excited about our
prospects for the coming year in Las Vegas. We recently amended our lease to provide for an expansion
of 85 new seats at Gallagher’s Steak House at New York-New York Hotel and Casino where we presently
own three restaurants, eight fast food operations and provide banquet and room service. This expansion
should be a significant revenue driver for us. There is presently more demand for Gallagher’s than seats
available (the restaurant does in excess of $45,000 per annum per seat). These 85 additional seats will be
available as the new 1.7 million square foot convention center at Mandalay Bay Hotel, just south of New
York-New York, becomes operational. The convention center should increase traffic at Gallagher’s and
benefit our other food operations at the hotel. The Venetian Hotel and Casino is adding over 1,000 luxury
suites that come on line in May. We operate two restaurants, two bars and four fast food locations at the
Venetian. We will add another fast food operation, Jody Maroni’s, this year. Revenues should expand
from the increased population staying at this resort. And finally, the Stage Deli at the Forum Shops
continues to experience double-digit increases in comparative sales. For these reasons we expect that this
will be a very good year for us in Las Vegas.
The New York City and Washington D.C. markets have proved difficult for us in the last year. The
September 11th tragedy certainly explains the decline in tourism to these cities, but the sluggish economy
had a greater impact on our revenues. We had negative comparative sales in both markets. Also, prices
paid for and the amount of corporate and social events are under pressure. Presently, we see no
3
indications of a recovery. We are responding by reviewing our products and services to make sure quality
and price points represent strong value. At Lutéce in New York we have gone as far as to reduce prices in
order to broaden our audience appeal. At the same time we are hammering away at our cost structure.
At the time we reported year-end results, we indicated that we expected a small first quarter loss for
December 2003. This stands in contrast to the reported profits of the December 2002 quarter. There are
several reasons for this loss. Primarily, business in New York City and Washington D.C. was very poor
in the 2003 first quarter. Comparative sales were negative during this period. In the 2002 first quarter the
terrorist attacks caused such uncertainty that we dramatically reduced payrolls, received temporary rent
concessions from landlords and received discounts from purveyors. These forms of relief were
unavailable to us in the 2003 first quarter. Payrolls ran higher, although still well below those of two
years ago, and we were not able to secure concessions in rent from landlords or discounts from our
purveyors as we did in the 2002 first quarter.
We believe that we are good managers of our restaurants. Our employees are dedicated and committed to
excellence. They have proven that they can adjust to extraordinary circumstances. We will continue our
efforts to increase shareholder value by reviewing and refining our business in New York and
Washington D.C., while putting our capital to work in Las Vegas, our most vibrant market.
Sincerely,
Michael Weinstein, President
4
ARK RESTAURANTS CORP.
CORPORATE OFFICE
Michael Weinstein, President and Chief Executive Officer
Robert Towers, Executive Vice President, Chief Operating Officer and Treasurer
Robert Stewart, Chief Financial Officer
Vincent Pascal, Senior Vice President-Operations and Secretary
Paul Gordon, Senior Vice President-Director of Las Vegas Operations
Walter Rauscher, Vice President – Corporate Sales & Catering
Nancy Alvarez, 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, Director of Facilities Management
Etty Scaglia, Director of Tour & Travel Sales
Jasmyn Sharrock, Director of Marketing
ASSOCIATE
Andre Soltner, Lutéce
CORPORATE EXECUTIVE CHEF
Bill Peet
EXECUTIVE CHEFS
Bill Peet, New York
Chun Liao, Washington D.C.
Damien McEvoy, Las Vegas
RESTAURANT GENERAL MANAGERS – NEW YORK
Liz Caro, The Grill Room
Anne Duffell, America
David Fèau, Lutéce
Jessica Fernandez, Columbus Bakery I, II & III
Kelly Gallo, Ernie’s
Bridgeen Hale, Metropolitan Café
Halbert Hernandez, Canyon Road Grill
Jennifer Jordan, El Rio Grande
Debra Lomurno, Sequoia
Donna Simms, Bryant Park Grill
Ridgley Trufant, Red
Ana Zaldarriaga, Gonzalez y Gonzalez
Brian Ziffin, Jack Rose
RESTAURANT GENERAL MANAGERS – WASHINGTON D.C.
Kyle Carnegie, Sequoia
Bender Ganiao, Thunder Grill
Matt Mitchell, America & Center Café
5
RESTAURANT MANAGERS – LAS VEGAS
RafaelGarcia, The Saloon
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, The Grill Room
David Fèau, Lutéce
Rosalio Fuentes, Metropolitan Café
Carlos Garcia, Sequoia
Santiago Moran, Red
Virgilio Ortega, Columbus Bakery
Salvador Pascual, Ernie’s
Fermin Ramirez, El Rio Grande
Ruperto Ramirez, Canyon Road Grill
Edward Simmons, America
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
David Abraczinskas, Stage Deli
Arvy Dumbrys, America
Florence Duff, Tsunami Grill
Pedro Gonzalez, Vico’s Burritos
Luigi Guiga, Gallagher’s
Hector Hernadez, Banquet
Michael Martin, The Saloon
Jorge Lopez, Lutéce
John Miller, Las Vegas Employee Dining Facility
Sergio Salazar, Gonzalez y Gonzalez
RESTAURANT CHEFS – FLORIDA
David Mansen, Lor-e-lei
6
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain financial data for the fiscal years ended in 1998 through
2002. This information should be read in conjunction with the Company’s Consolidated Financial
Statements and the notes thereto beginning at page F-1.
(in thousands, except per share data)
Years Ended
September 28,
2002
September 29,
2001
(a)
September 30,
2000
(b)
October 2,
1999
October 3,
1998
OPERATING DATA:
Total revenue
$
115,480
$
127,536
$
119,866
$
111,804
$
118,698
Cost and expenses
(109,183)
(135,591)
(123,729)
(104,836)
(110,949)
Operating income (loss)
Other income (expense), net
Income (loss) before provision for
income taxes and cumulative
effect of accounting change
Provision (benefit) for income taxes
Income (loss) before cumulative
effect on accounting change
Cumulative effect of accounting
charge, net
NET INCOME (LOSS)
NET INCOME (LOSS) PER SHARE:
6,297
(649)
5,648
1,419
4,229
-
4,229
(8,055)
(2,135)
(10,190)
(3,342)
(3,863)
(1,577)
(5,440)
(1,906)
968
103
7,071
2,576
7,749
(69)
7,680
3,068
(6,848)
(3,534)
4,495
4,612
-
(6,848)
189
(3,723)
-
4,495
-
4,612
Basic
Diluted
$
1.33
$
(2.15)
$
(1.17)
$
1.30
$
1.21
$
1.32
$
(2.15)
$
(1.17)
$
1.29
$
1.20
Weighted average number of shares
Basic
Diluted
BALANCE SHEET DATA
(end of period):
Total assets
Working capital (deficit)
Long-term debt
Shareholders’ equity
Shareholders’ equity per share
Facilities in operations, end of year,
including managed
3,181
3,206
47,960
(7,990)
9,547
21,446
6.74
3,181
3,181
53,091
(6,569)
21,700
17,173
5.40
3,186
3,186
3,461
3,476
3,826
3,852
66,297
(5,640)
24,447
24,065
7.55
46,709
43,505
(3,714)
(1,260)
6,683
4,405
28,843
28,521
8.33
7.45
41
47
49
42
42
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Accounting period
The Company's fiscal year ends on the Saturday nearest September 30. The fiscal years ended
September 28, 2002, September 29, 2001 and September 30, 2000 each included 52 weeks.
Revenues
Total revenues at restaurants owned by the Company decreased by 9.4% from fiscal 2001 to
fiscal 2002 and increased by 6.4% from fiscal 2000 to fiscal 2001. Of the $12,056,000 decrease in
revenues from fiscal 2001 to fiscal 2002, $3,282,000 is attributable to the year long closure of the Grill
Room restaurant located in 2 World Financial Center, an office building adjacent to the World Trade
Center site. This restaurant was damaged in the September 11, 2001 attack and reopened in early fiscal
2003. A $256,000 increase in sales is attributable to the opening of the Saloon at the Neonopolis Center
in downtown Las Vegas.
Same store sales decreased 6.7% or $8,262,000, on a Company-wide basis from fiscal 2001 to
fiscal 2002. The decrease in same store sales was 3.3% in Las Vegas, 8.1% in New York and 13.7% in
Washington D.C. Such decreases were principally due to a decrease in customer counts. The change in
menu prices did not significantly affect revenues. The Company believes its fiscal 2002 revenues
compared to fiscal 2001 were adversely effected by the terrorist attacks on September 11th, the residual
effects on tourism and the sluggish economy. While Las Vegas has rebounded considerably in the past
year, New York and Washington continue to experience soft sales.
During the fourth quarter of 2002 the Company abandoned its restaurant and food court
operations at the Desert Passage, the retail complex at the Aladdin Resort & Casino in Las Vegas. A one-
time pretax charge of $10,045,000 was taken in fiscal 2001 as a result of Company’s determination that
such operations had become significantly impaired. During fiscal 2002 sales decreased 42.9% compared
to fiscal 2001, resulting in the Company’s decision to abandon these operations. If this decrease is
excluded from same store Las Vegas sales, the Company’s remaining operations in Las Vegas
experienced a sales increase of $190,000 during fiscal 2002.
Of the $7,670,000 increase in revenues from fiscal 2000 to fiscal 2001, $9,370,000 is attributable
to sales at operations which were either opened in fiscal 2001, or did not operate for the full comparable
period the previous year (The Venetian concepts – Lutece, Tsunami, and four food court outlets, the
Aladdin concepts – Fat Anthony’s and the Alakazam Food Court, and Jack Rose in New York).
Revenues were negatively affected by $963,000 due to the closure of a restaurant, America in McLean,
Virginia. Same store sales decreased by 0.6% or $612,000 from fiscal 2000 to fiscal 2001.
Other operating income, which consists of the sale of merchandise at various restaurants and
management fee income, was $373,000 in fiscal 2002, $529,000 in fiscal 2001 and $654,000 in fiscal
2000.
Costs and Expenses
Food and beverage cost of sales as a percentage of total revenue was 24.9% in fiscal 2002, 25.5%
in fiscal 2001 and 25.9% in fiscal 2000.
8
Total costs and expenses decreased by $26,408,000, 19.5% from fiscal 2001 to fiscal 2002. The
main reasons for this decrease in total costs and expenses include the reduction in payroll expenses of
$7,673,000 from fiscal 2001 to fiscal 2002 as a result of the Company’s response to the events of
September 11, 2001 and the continued weakened economy. Food and beverage costs decreased
$3,755,000 resulting from the decrease in food and beverage sales of $11,900,000. Additionally, during
fiscal 2001, total costs and expenses were adversely affected by an asset impairment charge of
$10,045,000 associated with the write down of the Company’s Desert Passage restaurant and food court
operations. Total costs and expenses were also impacted in fiscal 2001 by a charge of $935,000 due to
the cancellation of a development project. During fiscal 2000 total costs and expenses 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. Also during fiscal 2000, the Company
withdrew from a project, in which the Company had a 50% interest, to develop and construct four
restaurants at a large theatre development in Southfield, Michigan. Charges of $4,988,000 were taken
from the write-off of advances for construction costs and working capital needs on the project.
Payroll expenses as a percentage of total revenues decreased to 32.4% for fiscal 2002 compared
to 35.4% for fiscal 2001 and 35.9% for fiscal 2000. Payroll expense was $37,412,000, $45,085,000 and
$43,063,000 in fiscal 2002, 2001 and 2000, respectively. The Company aggressively adapted its cost
structure in response to lower sales expectations following September 11th and continues to review its
cost structure and make adjustments where appropriate. Head count stood at 1,959 as of year end 2002
compared to 2,070 and 2,460 at year-end 2001 and 2000 respectively. Severance pay to key personnel
was approximately $250,000 during fiscal 2002.
No pre-opening expenses and early operating losses were incurred during fiscal 2002 as the
Company received a construction and operating allowance from the landlord for the Saloon at the
Neonopolis Center at Freemont Street in downtown Las Vegas, the one restaurant opened in fiscal 2002.
The Company incurred pre-opening and early operating losses at newly opened restaurants of
approximately $100,000 in fiscal 2001 and $2,393,000 in fiscal 2000. 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 B. Smith’s New York, an existing restaurant in New York
City, 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 total revenue, were 5.7% in fiscal 2002,
5.5% in fiscal 2001 and 5.9% in fiscal 2000. General and administrative expenses were adversely
impacted by a $370,000 increase in casualty insurance costs during fiscal 2002. General and
administrative expenses in fiscal 2001 were impacted by $400,000 in legal expenses incurred in
connection with a potential transaction. During fiscal 2000, general and administrative expenses were
impacted 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 28, 2002
and September 29, 2001 while the Company managed four restaurants owned by others (El Rio Grande in
Manhattan, and the Marketplace Cafe, the Marketplace Grill, and the Brewskeller Pub in Boston,
Massachusetts) at September 30, 2000. Sales of these restaurant facilities, which are not included in
consolidated sales, were $2,973,000 in fiscal 2002, $4,380,000 in fiscal 2001 and $8,867,000 in fiscal
2000. The decrease in sales of managed operations is principally due to the expiration of the management
9
agreement for the three Boston restaurants. The management agreement expired on December 31, 2000
and was not renewed. The contribution of these restaurants to management fee income was $0 in fiscal
2002, $134,000 in fiscal 2001 and $278,000 in fiscal 2000.
Interest expense was $1,212,000 in fiscal 2002, $2,446,000 in fiscal 2001 and $2,007,000 in
fiscal 2000. The significant decrease from fiscal 2001 to fiscal 2002 is due to lower outstanding
borrowings on the Company’s credit facility and the benefit from rate decreases in the prime-borrowing
rate. Interest income was $133,000 in fiscal 2002, $150,000 in fiscal 2001 and $172,000 in fiscal 2000.
Other income, which generally consists of purchasing service fees and other income at various restaurants
was $430,000, $161,000 and $258,000 for fiscal 2002, 2001 and 2000, respectively.
Income Taxes
The provision for income taxes reflects Federal income taxes calculated on a consolidated basis
and state and local income taxes calculated by each New York subsidiary on a non-consolidated basis.
Most of the restaurants owned or managed by the Company are owned or managed by a separate
subsidiary.
For state and local income tax purposes, the losses incurred by a subsidiary may only be used to
offset that subsidiary's income, with the exception of the restaurants operating in the District of Columbia.
Accordingly, the Company's overall effective tax rate has varied depending on the level of losses incurred
at individual subsidiaries. Due to losses incurred in 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. During fiscal 2002 the Company abandoned its restaurant and food
court operations at the Desert Passage, the retail complex at the Aladdin Resort & Casino in Las Vegas.
In fiscal 2002, the Company was able to utilize the deferred tax asset created in fiscal 2001, by the
impairment of these operations. The Company’s effective tax rate for fiscal 2002 was 25.1%.
The Company's overall effective tax rate in the future will be affected by factors such as the level
of losses incurred at the Company's New York facilities, which cannot be consolidated for state and local
tax purposes, pre-tax income earned outside of New York City and the utilization of state and local net
operating loss carry forwards. Nevada has no state income tax and other states in which the Company
operates have income tax rates substantially lower in comparison to New York. In order to utilize more
effectively tax loss carry forwards at restaurants that were unprofitable, the Company has merged certain
profitable subsidiaries with certain loss subsidiaries.
The Revenue Reconciliation Act of 1993 provides tax credits to the Company for FICA taxes
paid by the Company on tip income of restaurant service personnel. The net benefit to the Company was
$741,000 in fiscal 2002, $489,000 in fiscal 2001 and $503,000 in fiscal 2000.
During fiscal 2002, the Company and the Internal Revenue Service finalized the adjustments to
the Company’s Federal income tax returns for fiscal years 1995 through 1998. The settlement did not
have a material effect on the Company’s financial condition.
Liquidity and Sources of Capital
The Company's primary source of capital has been cash provided by operations and funds
available from its main bank, Bank Leumi USA. The Company from time to time also utilizes equipment
financing in connection with the construction of a restaurant and seller financing in connection with the
acquisition of a restaurant. The Company utilizes capital primarily to fund the cost of developing and
10
opening new restaurants, acquiring existing restaurants owned by others and remodeling existing
restaurants owned by the Company.
The net cash used in investing activities in fiscal 2002 ($153,000) was primarily used for the
replacement of fixed assets at existing restaurants. The net cash used in investing activities in fiscal 2001
($1,891,000) and in fiscal 2000 ($25,244,000) was principally used for the Company's continued
investment in fixed assets associated with constructing new restaurants. In fiscal 2001 the Company
opened two bars at the Venetian in Las Vegas, Nevada (V-Bar and Venus). 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).
The net cash used in financing activities in fiscal 2002 ($8,072,000) and fiscal 2001 ($5,618,000)
was principally due to repayments of long-term debt on the Company’s main credit facility in excess of
borrowings on such facility. The net cash provided from financing activities in fiscal 2000 ($20,661,000)
was principally from borrowings on the Company’s Revolving Credit Facility.
The Company had a working capital deficit of $7,990,000 at September 28, 2002 as compared to
a working capital deficit of $6,569,000 at September 29, 2001. The restaurant business does not require
the maintenance of significant inventories or receivables; thus the Company is able to operate with
negative working capital.
The Company’s Revolving Credit and Term Loan Facility (the “Facility”) with its main bank,
Bank Leumi USA, included a $26,000,000 credit line to finance the development and construction of new
restaurants and for working capital purposes at the Company’s existing restaurants. The commitment also
included a $1,000,000 Letter of Credit Facility for use at the Company’s restaurants in lieu of lease
security deposits. On July 1, 2002, the Facility converted into a term loan in the amount of $17,890,000
payable in 36 monthly installments of approximately $497,000. The loans bear interest at the prime rate
plus ½% and at September 28, 2002 and September 29, 2001, the interest rate on the outstanding loans
was 5.25% and 6.5%, respectively. The Company generally is required to pay commissions of 1½% per
annum on outstanding letters of credit.
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. The Company received a
waiver from the bank to cure the non-compliance. In December 2001, the covenants were amended for
forthcoming periods. The Company violated a covenant related to a limitation on employee loans during
the year ended September 28, 2002. The Company received a waiver for such covenant with which it was
not in compliance at September 28, 2002 through December 30, 2002.
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 was payable in 60 equal
monthly installments through January 2002, is secured by such restaurant equipment. At September 28,
2002 the Company had completely paid down 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
11
equal monthly installments through May 2005, is secured by such restaurant equipment. At September
28, 2002 the Company had $922,000 outstanding on this facility.
The Company entered into a sale and leaseback agreement with GE Capital for $1,652,000 in
November 2000 to refinance the purchase of various restaurant equipment at its food and beverage
facilities in a hotel and casino in Las Vegas, Nevada. The lease bears interest at 8.65% per annum and is
payable in 48 equal monthly installments of $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 originally accounted for this agreement as an operating lease and did not record the
assets or the lease liability in the financial statements. During the year ended September 29, 2001, the
Company recorded the entire amount payable under the lease as a liability of $1,600,000 based on the
anticipated abandonment of the Aladdin operations. In 2002, the operations at the Aladdin were
abandoned and at September 28, 2002, $1,253,000 remains in accrued expenses and other current
liabilities representing future operating lease payments.
Restaurant Expansion
In fiscal 2002 the Company opened one restaurant at the Neonopolis Center at Freemont Street in
downtown Las Vegas, Nevada (The Saloon). The Company opened two bars (V-Bar and Venus) at the
Venetian in Las Vegas, Nevada in fiscal 2001. In fiscal 2000, the Company opened two restaurants
(Tsunami and Lutece) along with four food court outlets at the Venetian.
Critical Accounting Policies
The preparation of financial statements requires the application of certain accounting policies,
which may require the Company to make estimates and assumptions of future events. In the process of
preparing its consolidated financial statements, the Company estimates the appropriate carrying value of
certain assets and liabilities, which are not readily apparent from other sources. The primary estimates
underlying the Company’s financial statements include allowances for potential bad debts on accounts
and notes receivable, the useful lives and recoverability of its assets, such as property and intangibles, fair
values of financial instruments, the realizable value of its tax assets and other matters. Management bases
its estimates on certain assumptions, which they believe are reasonable in the circumstances, and actual
results could differ from those estimates. Although management does not believe that any change in
those assumptions in the near term would have a material effect on the Company’s consolidated financial
position or the results of operation, differences in actual results could be material to the financial
statements.
The Company’s significant accounting policies are more fully described in Note 1 to the
Company's financials. Below are listed certain policies that management believes are critical.
Fixed Assets - The Company annually assesses any impairment in value of long-lived assets and
certain identifiable intangibles to be held and used. The Company evaluates the possibility of impairment
by comparing anticipated undiscounted cash flows to the carrying amount of the related long-lived assets.
If such cash flows are less than carrying value the Company then reduces the asset to its fair value. Fair
value is generally calculated using discounted cash flows. Various factors such as sales growth and
operating margins and proceeds from a sale are part of this analysis. Future results could differ from the
Company’s projections with a resulting adjustment to income in such period.
12
Deferred Income Tax Valuation Allowance – The Company provides such allowance due to
uncertainty that some of the deferred tax amounts may not be realized. Certain items, such as state and
local tax loss carry forwards, are dependent on future earnings or the availability of tax strategies. Future
results could require an increase or decrease in the valuation allowance and a resulting adjustment to
income in such period.
Recent Developments
The Financial Accounting Standards Board has recently issued the following accounting
pronouncements:
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 SFAS
No. 142 are effective for fiscal years beginning after December 15, 2001 and are applied at the beginning
of the Company’s fiscal year. The Company will adopt this standard in the first quarter of fiscal year
2003. The Company is in the process of evaluating the financial statement impact from adopting this
standard. The Company had approximately $3,400,000 of unamortized goodwill at September 28, 2002.
Amortization expense for the year ended September 28, 2002 was $364,000.
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 Company will adopt this standard in the first quarter of fiscal year 2003. 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; however, the Company will be required to separate the results
of closed restaurants as discontinued operations in the future.
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, was issued in
July 2002. SFAS No. 146 replaces current accounting literature and requires the recognition of costs
associated with exit or disposal activities when they are incurred rather than at the date of commitment to
an exit or disposal plan. The provisions of the Statement are effective for exit or disposal activities that
are initiated after December 31, 2002. The Company does not anticipate the adoption of this statement
will have a material effect on the Company’s financial position or results of operations.
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates with respect to its
outstanding credit agreement with its main bank, Bank Leumi USA. Outstanding loans under the
agreement bear interest at prime plus one-half percent, and such loans were converted on July 1, 2002 to a
term loan payable over three years. Based upon a $14,908,000 (the outstanding balance at
September 28, 2002) term loan and a 100 basis point change in interest rates, interest expense would
change by $149,000 in the one year period beginning on September 29, 2002.
13
MARKET INFORMATION
The Company’s Common Stock, $.01 par value, is traded in the over-the-counter market on the
Nasdaq National Market under the symbol “ARKR.” The high and low sale prices for the Common
Stock from October 1, 2000 through September 28, 2002 are as follows:
Calendar 2000
Fourth Quarter
Calendar 2001
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Calendar 2002
First Quarter
Second Quarter
Third Quarter
Dividends
High
$ 8.50
Low
$ 5.31
7.75
10.37
10.10
10.00
8.00
8.15
8.49
5.06
6.00
5.90
6.75
6.10
6.41
6.60
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 7, 2003, there were 70 holders of record of the Company’s Common Stock.
14
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Shareholders of Ark Restaurants Corp.
We have audited the accompanying consolidated balance sheets of Ark Restaurants Corp. and
subsidiaries (the “Company”) as of September 28, 2002 and September 29, 2001, and the related
consolidated statements of operations, shareholders’ equity and cash flows for each of the three fiscal
years in the period ended September 28, 2002. 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 28, 2002 and
September 29, 2001, and the results of their operations and their cash flows for each of the three fiscal
years in the period ended September 28, 2002, in conformity with accounting principles generally
accepted in the United States of America.
December 13, 2002
F-1
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 28, September 29,
2002
2001
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable
Employee receivables (net of reserves of $45 and $0 respectively)
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 (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)
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS’ EQUITY (Notes 7, 9 and 10):
Common stock, par value $.01 per share - authorized, 10,000
shares; issued, 5,249
Additional paid-in capital
Retained earnings
Less stock options receivables
Less treasury stock, 2,068 shares
Total shareholders’ equity
$
819
2,000
1,045
164
1,925
293
779
957
7,982
904
33,542
28,320
-
61,862
31,602
30,260
3,782
4,255
777
$
-
1,501
788
203
2,110
278
655
1,119
6,654
1,082
33,699
27,972
93
61,764
27,035
34,729
4,175
6,056
395
$
47,960
$
53,091
$
3,332
6,356
6,284
15,972
9,547
995
-
52
14,743
15,718
30,513
716
8,351
21,446
$
4,232
6,744
2,247
13,223
21,700
995
-
52
14,743
11,489
26,284
760
8,351
17,173
See notes to consolidated financial statements.
$
47,960
$
53,091
F-2
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
Years Ended
Septem ber 28, Septem ber 29, Septem ber 30,
2001
2000
2002
REVENUES:
Food and beverage sales
Other income
TOTAL REVENUES
COST AND EXPENSES:
Food and beverage cost of sales
Payroll expenses
Occupancy expenses
Other operating costs and expenses
General and administrative expenses
Depreciation and amortization
Asset impairement (Note 2)
Joint venture losses
OPERATING INCOM E (LOSS)
OTHER (INCOM E) EXPENSE:
Interest expense (Note 7)
Interest income
Other income (Note 13)
INCOM E (LOSS) BEFORE PROVISION FOR INCOM E TAXES
PROVISION (BENEFIT) FOR INCOM E TAXES (Note 12)
INCOM E (LOSS) BEFORE CUM ULATIVE EFFECT
OF ACCOUNTING CHANGE
CUM ULATIVE EFFECT OF ACCOUNTING CHANGE, Net
$
115,107
373
$
127,007
529
$
119,212
654
115,480
127,536
119,866
28,794
37,412
17,306
13,951
6,548
5,172
-
-
32,549
45,085
18,320
16,499
7,005
5,938
10,045
150
31,016
43,063
15,310
16,545
7,111
4,885
811
4,988
109,183
135,591
123,729
6,297
(8,055)
(3,863)
1,212
(133)
(430)
649
5,648
1,419
4,229
-
2,446
(150)
(161)
2,135
(10,190)
(3,342)
2,007
(172)
(258)
1,577
(5,440)
(1,906)
(6,848)
(3,534)
-
189
NET INCOM E (LOSS)
$
4,229
$
(6,848)
$
(3,723)
NET INCOM E (LOSS) PER SHARE - BASIC:
INCOM E (LOSS) BEFORE CUM ULATIVE EFFECT
OF ACCOUNTING CHANGE
$
1.33
$
(2.15)
$
(1.11)
CUM ULATIVE EFFECT OF ACCOUNTING CHANGE
-
-
(0.06)
NET INCOM E (LOSS)
$
1.33
$
(2.15)
$
(1.17)
NET INCOM E (LOSS) PER SHARE - DILUTED:
INCOM E (LOSS) BEFORE CUM ULATIVE EFFECT
OF ACCOUNTING CHANGE
$
1.32
$
(2.15)
$
(1.11)
CUM ULATIVE EFFECT OF ACCOUNTING CHANGE
-
-
(0.06)
NET INCOM E (LOSS)
$
1.32
$
(2.15)
$
(1.17)
WEIGHTED AVERAGE NUM BER OF SHARES - BASIC
WEIGHTED AVERAGE NUM BER OF SHARES - DILUTED
3,181
3,206
3,181
3,181
3,186
3,186
See notes to consolidated financial statements.
F-3
ARK RESTAURANT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income (loss) 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 held for sale
Write-off of accounts and notes receivable
Operating lease deferred credit
Deferred income taxes
Changes in assets and liabilities:
Accounts receivable and employee receivables
Inventories
Prepaid expenses and other
current assets
Refundable and prepaid
income taxes
Other assets
Accounts payable trade
Accrued income taxes
Accrued expenses
and other current liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets
Proceeds from the disposal of fixed assets
Advances to joint venture
Issuance of demand notes and long-term receivables
Payments received on long-term receivables
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt
Principal payment on long-term debt
Exercise of stock options
Payment (borrowings) under stock options receivables
Principal payment on capital lease obligations
Purchase of treasury stock
Net cash (used in) provided by financing activities
NET INCREASE (DECREASE) IN CASH AND
CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
September 28,
2002
Years Ended
September 29,
2001
September 30,
2000
$
4,229
$
(6,848)
$
(3,723)
4,779
393
(105)
-
-
165
-
1,786
(756)
185
(124)
162
(382)
(900)
-
(388)
9,044
(704)
394
-
(125)
282
(153)
1,500
(9,616)
-
44
-
-
(8,072)
819
-
5,479
459
(209)
1,086
10,045
209
(218)
(3,107)
1,037
23
(308)
189
(502)
(1,061)
-
538
6,812
(3,014)
-
-
(98)
1,221
(1,891)
4,400
(9,974)
-
(41)
-
(3)
(5,618)
(697)
697
4,334
551
(88)
4,988
811
280
(109)
(1,670)
(1,202)
(217)
(11)
(1,307)
(450)
1,476
(186)
1,469
4,946
(22,263)
-
(3,297)
(94)
410
(25,244)
25,020
(3,155)
344
(49)
(149)
(1,350)
20,661
363
334
CASH AND CASH EQUIVALENTS, END OF PERIOD
$
819
$
-
$
697
SUPPLEMENTAL INFORMATION:
Cash payments for:
Interest
$
1,271
$
2,446
$
2,245
Income taxes
$
187
$
852
$
1,113
F-4
ARK REST AURANT S C O RP. AND SUB SID IARIES
CO NSO LIDAT ED ST AT EM ENT S O F SHAREHO LDERS’ EQ UIT Y
YEARS ENDED SEPT EM BER 28, 2002, SEPT EM BER 29, 2001 AND SEPT EM BER 30, 2000
(In T housands)
Com m on Stock
Shares Am ount
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Stock
Options
Receivable
Total
Shareholders’
Equity
BA LA NCE, OCTOBER 3, 1999
5,208
$
52
$
14,399
$
22,060
$
(6,998)
$
(670)
$
28,843
Exercis e o f s to ck o p tio n s
Pu rch as e o f treas u ry s to ck
Tax b en efit o n exercis e o f o p tio n s
Net b o rro win g s o f s to ck o p tio n receiv ab les
Net lo s s
41
-
-
-
-
BA LA NCE, SEPTEM BER 30, 2000
5,249
Pu rch as e o f treas u ry s to ck
Net b o rro win g s o f s to ck o p tio n receiv ab les
Net lo s s
-
-
-
BA LA NCE, SEPTEM BER 29, 2001
5,249
Net p ay men t o n s to ck o p tio n s receiv ab les
Net in co me
-
-
-
-
-
-
-
52
-
-
-
52
-
-
328
-
16
-
-
-
-
-
-
(3,723)
-
(1,350)
-
-
-
14,743
18,337
(8,348)
-
-
-
-
-
(6,848)
(3)
-
-
14,743
11,489
(8,351)
-
-
-
4,229
-
-
-
-
-
(49)
-
(719)
-
(41)
-
(760)
44
-
328
(1,350)
16
(49)
(3,723)
24,065
(3)
(41)
(6,848)
17,173
44
4,229
BA LA NCE, SEPTEM BER 28, 2002
5,249
$
52
$
14,743
$
15,718
$
(8,351)
$
(716)
$
21,446
See n o tes to co n s o lid ated fin an cial s tatemen ts .
F-5
ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 28, 2002, SEPTEMBER 29, 2001 AND SEPTEMBER 30, 2000
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ark Restaurants Corp. and subsidiaries (the “Company”) own and operates 26 restaurants, 12 fast food
concepts, catering operations and wholesale and retail bakeries. Twelve restaurants are located in New York City,
nine in Las Vegas, Nevada, four in Washington, D.C., and one in Islamorada, Florida. The Las Vegas operations
include three restaurants within the New York-New York Hotel & Casino Resort and operation of the Resort’s room
service, banquet facilities, employee dining room and eight food court concepts. Four restaurants and bars are
within the Venetian Casino Resort as well as four food court concepts; one restaurant is within the Forum Shops at
Caesar’s Shopping Center and one restaurant is in downtown Las Vegas at the Neonopolis Center.
Accounting Period - The Company’s fiscal year ends on the Saturday nearest September 30. The fiscal years
ended September 28, 2002, September 29, 2001, and September 30, 2000, 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 operations.
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 – Accounts receivable generally represent normal business receivables such as credit
card receivables that are paid off in a short period of time. See Notes 16 and 17 for a discussion of related party
receivables.
Inventories - Inventories are stated at the lower of cost (first-in, first-out) or market, and consist of food and
beverages, merchandise for sale and other supplies.
Fixed Assets - Leasehold improvements and furniture, fixtures and equipment are stated at cost. Depreciation
of furniture, fixtures and equipment (including equipment under capital leases) is computed using the straight-line
method over the estimated useful lives of the respective assets (seven years). Amortization of improvements to
leased properties is computed using the straight-line method based upon the initial term of the applicable lease or the
estimated useful life of the improvements, whichever is less, and ranges from 5 to 35 years.
The Company includes in leasehold improvements in progress restaurants that are under construction. Once the
projects have been completed the Company will begin amortizing the assets. Start-up costs incurred during the
construction period of restaurants, including rental of premises, training and payroll, are expensed as incurred.
F-6
The Company annually assesses impairment in value of long-lived assets and certain identifiable intangibles to
be held and used. For the year ended September 28, 2002, no impairment charges were deemed necessary. For the
year ended September 29, 2001, an impairment charge of $10,045,000 was incurred on the Company’s restaurant
operations at Desert Passage, the retail complex at the Aladdin Resort & Casino in Las Vegas, Nevada (Note 2).
In January 2001, the Company closed its America restaurant in Tyson’s Corner, McLean, Virginia. The
Company’s efforts to sell this restaurant had been unsuccessful. The Company continuously assessed the carrying
value of this restaurant in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets To
Be Disposed Of, and determined that the restaurant’s value was impaired based upon the future undiscounted
anticipated cash flows. Accordingly, the Company recorded an impairment charge of $811,000 during the year
ended September 30, 2000, to write off the net book value of the furniture, fixtures and equipment which were
deemed to have no disposal value. For the years ended September 29, 2001 and September 30, 2000, the restaurant
had a pre-tax loss of $30,000 and $1,475,000 respectively.
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 the
write-off of 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 and amounts payable under the leases during that year are recorded as a deferred credit. The deferred
credit subsequently reverses over the lease term (Note 8).
Occupancy Expenses - Occupancy expenses include rent, rent taxes, real estate taxes, insurance and utility
costs.
Income Per Share of Common Stock - Net income per share is computed in accordance with Statement of
Financial Accounting Standard (“SFAS”) No. 128, Earnings Per Share, and is calculated on the basis of the
weighted average number of common shares outstanding during each period plus the additional dilutive effect of
common stock equivalents. Common stock equivalents consist of dilutive stock options.
Stock Options - The Company accounts for its stock options granted to employees under the intrinsic value-
based method for employee stock-based compensation and provides pro forma disclosure of net income and
earnings per share as if the accounting provision of SFAS No.123 had been adopted. The Company generally does
not grant options to outsiders.
F-7
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 SFAS No.
142 are effective for fiscal years beginning after December 15, 2001 and are applied at the beginning of the
Company’s fiscal year. The Company will adopt this standard in the first quarter of fiscal year 2003. The Company
is in the process of evaluating the financial statement impact from adopting this standard. The Company had
approximately $3,400,000 of unamortized goodwill at September 28, 2002. Amortization expense for the year
ended September 28, 2002 was $364,000.
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 Company will adopt this standard in the first
quarter of fiscal year 2003. 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; however, the Company will be required to separate the
results of closed restaurants as discontinued operations in the future.
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, was issued in July 2002.
SFAS No. 146 replaces current accounting literature and requires the recognition of costs associated with exit or
disposal activities when they are incurred rather than at the date of commitment to an exit or disposal plan. The
provisions of the Statement are effective for exit or disposal activities that are initiated after December 31, 2002.
The Company does not anticipate the adoption of this statement will have a material effect on the Company’s
financial position or results of operations.
Reclassifications - Certain reclassifications of prior year balances have been made to conform with current
year presentation. Stock option receivables of $716,000 at September 28, 2002 and $760,000 at September 29, 2001
are classified as a reduction to shareholders’ equity in the current year and were classified in accounts receivable in
the prior year.
2. EFFECTS OF THE SEPTEMBER 11, 2001 TERRORIST ATTACKS
The terrorist attacks on the World Trade Center in New York and the Pentagon in Washington D.C. on
September 11, 2001 have had a material adverse effect on the Company’s revenue. As a result of the attacks, one
Company restaurant, The Grill Room, experienced some damage. The Grill Room, located at 2 World Financial
Center which is adjacent to the World Trade Center and which was substantially damaged, was closed for all of
fiscal 2002. The Grill Room reopened in early December 2002. The Company has recorded $450,000 as a
reduction of other operating costs and expenses for the year ended September 28, 2002 for partial insurance
recoveries of certain out of pocket costs and business interruption losses incurred. Additional recoveries are
expected in the future as the assessment of the damages is finalized with the insurance carrier.
The Company believes that its restaurant and food court operations at Desert Passage which adjoins 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 determined that an
impairment analysis under SFAS No. 121 needed to be performed.
F-8
Based upon the sum of the future undiscounted cash flows related to the Company’s long-lived assets at the
Aladdin, the Company determined that impairment had occurred. To estimate the fair value of such long-lived
assets, for determining the impairment amount, the Company used the expected present value of the future cash
flows. The Company projected continuing negative operating cash flow for the foreseeable future with no value for
subletting or assigning the lease for the premises. Therefore, the Company determined that there was no value to
such long-lived assets. The Company had an investment of $8,445,000 in leasehold improvements, and furniture,
fixtures and equipment. The Company believes that these assets would have nominal, if any, value upon disposal.
In addition, the estimated future payments under the lease for kitchen equipment at the location totaled $1,600,000.
The Company recorded in the fiscal year ended September 29, 2001 an impairment charge of $8,445,000 for the net
book value of the assets and recorded an additional $1,600,000 of expense and liability for the future lease
payments, of which $1,253,000 remains in accrued in other current liabilities at September 28, 2002. In September
2002, the Company abandoned its restaurant and food court operations at the Aladdin.
3. LONG-TERM RECEIVABLES
Long-term receivables consist of the following:
Note receivable, due March 2001 (a)
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)
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 December 2007 (e)
Others
Less current portion
(In Thousands)
September 28, September 29,
2002
$
-
2001
$
-
337
401
606
687
-
-
125
-
1,068
164
$
904
176
21
1,285
203
$
1,082
(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 a $1,000,000 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.
F-9
(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 $0, $221,000, and $88,000 in
the fiscal years ended September 28, 2002, September 29, 2001, and September 30, 2000,
respectively. Additional deferred gains totaling $585,000 at September 28, 2002 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)
(e)
In December 1998, the Company sold a restaurant for $500,000, of which $250,000 was
paid in cash and a note financed the balance of $250,000. 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 in the year ended September 29, 2001.
In June 2000, the Company sold this restaurant for $438,000. Cash of $188,000 was
received on sale and the balance was due in installments through June 2006. In February
2001, the buyer defaulted and the Company took possession of this restaurant and sold it
to another party in June 2002. The total price was $270,000, cash of $145,000 was
received on sale and the balance is due in installments through December 2007.
The Company recognized a gain on the sale of this restaurant of $105,000, the net of
funds received from the buyer and the outstanding $165,000 note which was written
down on the default.
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 28,
2002
September 29,
2001
$
6,223
751
790
7,764
3,982
$
3,782
$
6,223
751
790
7,764
3,589
$
4,175
F-10
(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)
Landlord receivable (b)
(In Thousands)
September 28,
2002
September 29,
2001
$
335
42
-
400
$
277
97
21
-
$
777
$
395
(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 $0, $32,000 and $15,000 for the years ended September 28, 2002,
September 29, 2001 and September 30, 2000, 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 $30,000,
$181,000 and $162,000 for the years ended September 28, 2002, September 29, 2001 and
September 30, 2000, 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 from the write-off of advances for
construction costs and working capital needs on the project.
For the year ended September 29, 2001, the Company recorded a write off in other operating
expenses of $935,000 on the cancellation of a development project.
(b) This balance represents certain costs paid on behalf of a landlord, that under an agreement
with the landlord will be used as a future offset to contingent rent payments for certain Las
Vegas restaurants.
F-11
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
Impairment accrual (a)
(In Thousands)
September 28,
2002
September 29,
2001
$
673
1,508
924
1,998
1,253
$
6,356
$
669
931
961
2,583
1,600
$
6,744
(a) During the year ended September 29, 2001, the Company recorded the entire amount payable
under an operating lease for restaurant equipment for the Aladdin operations as a liability of
$1,600,000 based on their anticipated abandonment. In 2002, the operations at the Aladdin
were abandoned (see Note 2).
7. LONG-TERM DEBT
Long-term debt consists of the following:
(In Thousands)
September 28,
2002
September 29,
2001
Revolving Credit and Term Loan Facility with interest at the
prime rate, plus 1/2%, payable on June 30, 2002 (a)
$
14,908
$
22,500
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
923
15,831
6,284
1,216
23,947
2,247
$
9,547
$
21,700
(a)
The Company’s Revolving Credit and Term Loan Facility (the “Facility”) with its main
bank (Bank Leumi USA), as amended in November 2001, December 2001 and April 2002,
included a $26,000,000 credit line to finance the development and construction of new
restaurants and for working capital purposes at the Company’s existing restaurants. On July
1, 2002, the Facility converted into a term loan in the amount of $17,890,000 payable in 36
monthly installments of approximately $497,000. The loan bears interest at ½% above the
F-12
bank’s prime rate and at September 28, 2002 and September 29, 2001, the interest rate on
outstanding loans was 5.25% and 6.5% respectively. 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 1½% 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 violated a
covenant related to a limitation on employee loans during the year ended September 28,
2002. The Company received a waiver from the bank for the covenant it was not in
compliance with, for September 28, 2002 through December 30, 2002.
(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 bore interest at 8.75% per annum and were payable
in 60 equal monthly installments of $58,833 inclusive of interest, until they matured 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 2002. 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
warrant. As of September 28, 2002, there were no exercises on any 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, with the conversion of eligible borrowings described in (a)
above are as follows:
Year
2003
2004
2005
(In Thousands)
Amount
$
6,284
6,313
3,234
$
15,831
During the fiscal years ended September 28, 2002, September 29, 2001 and September 30, 2000, interest
expense was $1,212,000, $2,446,000 and $2,245,000, respectively, of which $238,000 was capitalized during the
fiscal year ended September 30, 2000.
F-13
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 28, 2002, future minimum lease payments, net of sublease rentals, under noncancelable leases
are as follows:
Year
2003
2004
2005
2006
2007
Thereafter
Total minimum payments
(In thousands)
Operating
Leases
$
7,821
7,310
6,568
6,568
3,716
11,075
$
43,058
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 $12,001,000, $12,756,000 and $10,783,000 during the fiscal years ended September 28,
2002, September 29, 2001 and September 30, 2000, respectively. Rent expense for the fiscal years ended September
29, 2001 and September 30, 2000 includes approximately $218,000 and $109,000 of operating lease deferred
credits, representing the difference between rent expense recognized on a straight-line basis and actual amounts
currently payable. There was no effect for operating lease deferred credits for the year ended September 28, 2002.
Contingent rentals, included in rent expense, were $3,198,000, $3,236,000 and $3,470,000 for the fiscal years ended
September 28, 2002, September 29, 2001 and September 30, 2000, 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
F-14
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 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 and September 30, 2000, the
Company repurchased 400 and 141,000 shares at a total cost of $3,000 and $1,350,000, respectively. For the year
ended September 28, 2002, there were no repurchases of common stock.
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:
2002
2001
2000
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Shares
Outstanding, beginning of year
330,000
$
10.72
343,000
$
10.76
488,000
$
10.65
Options:
Granted
Exercised
Canceled or expired
Outstanding, end of year (a)
240,000
-
(177,500)
392,500
6.30
10.24
7.91
10,000
-
(23,000)
7.50
9.89
-
(41,000)
(104,000)
330,000
10.72
343,000
-
8.00
11.32
10.76
Exercise price, outstanding options $6.30 - 10.00
$7.50 - $12.00
$9.50 - $12.00
Weighted average years
3.06 Years
Shares available for future grant
371,000
1.65 Years
320,000
2.62 Years
127,000
Options exercisable (a)
168,000
10.00
229,000
11.15
157,000
11.24
(a)
Options become exercisable at various times until expiration dates ranging from
December 2003 through December 2006.
Statement of Financial Accountings Standards No. 123, Accounting for Stock-Based Compensation (“SFAS
No. 123”), requires the Company to disclose pro forma net income and pro forma earnings per share information for
F-15
employee stock option grants to employees as if the fair-value method defined in SFAS No. 123 had been applied.
The Company utilized the Black-Scholes option-pricing model to quantify the pro forma effects on net income and
earnings per share of the options granted and outstanding for fiscal 2002 and fiscal 2001. There were no options
granted during fiscal 2000.
The weighted-average assumptions which were used for fiscal 2002 and fiscal 2001 included risk free interest
rates of 4.25% and 5.5% and volatility of 35% and 45%, respectively. An expected life of four years for both years
was used. No annual dividend yield was assumed for either fiscal 2002 or fiscal 2001. The weighted average grant
date fair value of options granted and outstanding during fiscal 2002 and fiscal 2001 was $2.05 and $2.87
respectively.
The pro forma impact was as follows:
(in Thousands, Except per Share Amounts)
Years Ended
September 28, September 29, September 30,
2001
2000
2002
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
$
4,229
4,088
$
1.33
1.32
$
1.29
1.28
$
(6,848)
(7,053)
$
(2.15)
(2.15)
$
(2.22)
(2.22)
$
(3,723)
(3,957)
$
(1.11)
(1.11)
$
(1.18)
(1.18)
The exercise of nonqualified stock options in the fiscal year 2000, resulted in an income tax benefit of $16,000,
which was credited to additional paid-in capital. The income tax benefit results from the difference between the
market price on the exercise date and the option price.
11. MANAGEMENT FEE INCOME
As of September 28, 2002, 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 sales of $2,973,000, $4,380,000 and $8,867,000 during the management periods
within the years ended September 28, 2002, September 29, 2001 and September 30, 2000, 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.
F-16
The provision (benefit) for income taxes consists of the following:
(In Thousands)
Years Ended
September 28, September 29, September 30,
2001
2000
2002
Current provision (benefit):
Federal
State and local
Deferred provision (benefit):
Federal
State and local
$
(2,151)
872
$
(1,008)
773
$
(1,129)
782
(1,279)
(235)
(347)
2,784
(86)
2,698
(3,022)
(85)
(3,107)
(1,286)
(273)
(1,559)
$
1,419
$
(3,342)
$
(1,906)
The provision for income taxes differs from the amount computed by applying the Federal statutory rate due to
the following:
(In Thousands)
Years Ended
September 28, September 29, September 30,
2001
2000
2002
Provision (benefit) for Federal
income taxes (34%)
State and local income taxes net of Federal
tax benefit
Amortization of goodwill
Tax credits
Other
$
1,920
$
(3,465)
$
(1,849)
575
26
(755)
(347)
454
26
(489)
132
336
25
(503)
85
$
1,419
$
(3,342)
$
(1,906)
F-17
Deferred tax assets or liabilities are established for: (a) temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b)
operating loss carryforwards. The tax effects of items comprising the Company’s net deferred tax asset are as
follows:
Deferred tax assets (liabilities):
Operating loss carryforwards
Operating lease deferred credits
Carryforward tax credits
Depreciation and amortization
Deferred gains
Valuation allowance
Inventory
Asset impairment
September 28,
2002
September 29,
2001
$
1,721
461
5,641
(1,829)
(146)
(1,031)
(269)
-
$
4,548
$
1,539
430
4,105
(2,019)
(195)
(941)
-
3,415
$
6,334
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 $1,031,000 at September 28, 2002 and $941,000 at September 29,
2001. The Company has state operating loss carryforwards of $23,219,000 and local operating loss carryforwards of
$18,359,000, which expire in the years 2003 through 2016.
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. During the fiscal year ended September 28, 2002, the Company and the Internal Revenue Service
finalized the adjustments to the Company’s federal income tax returns for the fiscal years ended September 30, 1995
through October 3, 1998. The final adjustments, in both settlements, 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. These settlements did not have a material effect on the Company’s financial condition.
13. OTHER INCOME
Other income consists of the following:
(In Thousands)
Years Ended
September 28, September 29, September 30,
2001
2000
2002
Purchasing service fees
Other
$
123
307
$
430
$
106
55
$
161
$
65
193
$
258
F-18
14. INCOME PER SHARE OF COMMON STOCK
A reconciliation of the numerators and denominators of the basic and diluted per share computations for the
fiscal year ended September 28, 2002 follows. For the years ended September 29, 2001 and September 30, 2000,
there were no dilutive stock options and warrants.
Year ended September 28, 2002:
Basic EPS
Stock options and warrants
Diluted EPS
(In Thousands, Except Per Share Amounts)
Income
(Numerator)
Shares
(Denominator)
Per-Share
Amount
$
4,229
-
$
4,229
3,181
25
3,206
1.33
$
(0.01)
$
1.32
For the years ended September 28, 2002, September 29, 2001, and September 30, 2000, shares of
34,000, 330,000 and 343,000, respectively, were not included in the computation of diluted EPS
because to do so would have been antidilutive.
15. QUARTERLY INFORMATION (UNAUDITED)
The following table sets forth certain quarterly operating data.
(In Thousands Except Per Share Amounts)
Fiscal Quarters Ended
December 31,
2001
March 29,
2002
June 29,
2002
September 28,
2002
2002
Food and Beverage Sales
$
25,781
$
26,149
$
33,261
$
29,916
Net income (loss)
974
(189)
1,836
1,608
Net income (loss) per share
basic
Net income (loss) per share
diluted
$
0.31
$
(0.06)
$
0.58
$
0.51
$
0.31
$
(0.06)
$
0.57
$
0.50
F-19
(In Thousands, Except Per Share Amounts)
Fiscal Quarters Ended
June 30,
March 31,
2001
2001
December 30,
2000
September 29,
2001
2001
Food and beverage sales
$
30,815
$
28,417
$
36,805
$
30,970
Net income (loss)
225
(1,000)
1,958
(8,031)
Net income (loss) per share
basic and diluted
$
.07
$
(.31)
$
.62
$
(2.52)
January 1,
2000
Fiscal Quarters Ended
April 1,
2000
July 1,
2000
September 30,
2000
2000
Food and beverage sales
$
26,957
$
25,765
$
33,810
$
32,680
Cumulative effect of accounting change
(189)
-
-
Net income (loss)
91
(4,972)
1,770
-
(612)
Net income (loss) per share -
basic and diluted
$
0.03
$
(1.56)
$
0.56
$
(0.19)
16. STOCK OPTION RECEIVABLES
Stock option receivables include amounts due from officers and directors totaling $716,000 and $760,000 at
September 28, 2002 and September 29, 2001, respectively. Such amounts which are due from the exercise of stock
options in accordance with the Company’s Stock Option Plan are payable on demand with interest at ½% above
prime (5.25% at September 28, 2002).
17. RELATED PARTY TRANSACTIONS
Mr. Donald D. Shack, a director of the Company, is a member of the firm Shack Siegel Katz Flaherty &
Goodman P.C., general counsel to the Company. The Company incurred $353,000, $436,000, and $324,000 in legal
fees to such firm during the years ended September 28, 2002, September 29, 2001, and September 30, 2000,
respectively.
F-20
Receivables due from officers and employees, excluding stock option receivables, totaled $897,000 at
September 28, 2002 compared to $501,000 at September 29, 2001. Other employee loans totaled $148,000 at
September 28, 2002 compared to $287,000 at September 29, 2001. Such loans bear interest at the minimum
statutory rate (2.13% at September 28, 2002).
18. SUBSEQUENT EVENT (UNAUDITED)
In October 2002, the Company sold some furniture, fixtures and equipment related to the Aladdin operations
for $240,000. The Company recognized a gain of $240,000, in fiscal 2003, on the transaction since all of the fixed
assets for the Aladdin operations had been written off during the ended September 28, 2002.
* * * * * *
F-21
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
Donald D. Shack
Attorney, Shack Siegel Katz & Flaherty P.C.
Jay Galin
Chairman and Chief Executive Officer, G+G Retail, Inc.
Bruce Lewin
Member, Continental Hosts, Ltd.
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 P.C.
530 Fifth Avenue
New York, N.Y. 10036
15
Ark Restaurants Corp.
85 FIFTH AVENUE
NEW YORK, N.Y. 10003-3019
(212) 206-8800
16