Ark
Restaurants
Corp.
2004 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 22 restaurants and bars, 26 fast food
concepts, catering operations, and wholesale and retail bakeries. Initially its facilities were
located only in New York City. At this time, nine of the restaurants are located in New York
City, four are located in Washington, D.C., and nine are located in Las Vegas, Nevada. 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;
--
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 October 2, 2004, including financial statements and schedules thereto,
to each of the Company’s shareholders of record on March 4, 2005 and each beneficial holder on
that date, upon receipt of a written request therefore mailed to the Company’s offices, 85 Fifth
Avenue, New York, NY 10003 Attention: Treasurer.
2
Dear Shareholder:
March 3, 2005
For several years your company has focused on debt reduction and maximization of cash flow
from operations. This past year we succeeded in eliminating all long term debt, we had a cash
position of $4,435,000 at October 2, 2004 and we increased EBITDA from continuing operations
to $13,803,000. We also instituted a dividend policy of $1.40 per share annually, paid $0.35 per
share quarterly. Strong comparative same store sales, ideal spring/summer weather conditions in
the New York and Washington, D.C. markets, a better underlying economy, the further reduction
of secondary properties from our portfolio and the effort by management to achieve a lower cost
structure supported this strong performance.
The primary negative in our year was increased commodity prices for beef, dairy and poultry.
Cost of Goods sold by the Company increased to 25.73% of sales as compared to 24.88% of sales
in the prior year. Our resolve is to deliver a quality value proposition to our customers. Despite
strong demand for our products this past year, we were hesitant to raise prices until we had the
time to understand market trends, enabling a rational price approach. We raised selective menu
item prices to our customers late in our third quarter. The increase was modest, but necessary,
and to date has had no adverse consequence to our business.
We are strongly aligned to a conservative discipline. We primarily operate in Las Vegas, New
York City and Washington, D.C. We seek only landmark properties with good lease positions.
We have, over the years, observed and been educated to the fact that operating income from
properties in casinos, public parks and train stations is more reliable that that of our past portfolio.
Our plan remains that investment for new operations will come from partners willing to accept
capital risk while we will be paid for management services, which includes cash flow incentives.
We will not risk our balance sheet; there is wisdom in a strong financial position. We believe this
approach will produce the greatest shareholder value by producing the greatest free cash flow.
While we seek further opportunity, we are currently committed to only one new project, the
building of a Gallagher’s Steak House and yet unnamed bar and lounge at the Resorts
International Hotel in Atlantic City, New Jersey. This hotel-casino property fits our profile and,
with an excellent management team, is well positioned for the next phase of development and
growth in their market. There is a minimal requirement of your company’s capital for
construction and we will be in operation in late summer of 2005.
We made significant additions to our Board of Directors in the past two years.
Arthur Stainman is a senior managing director of First Manhattan Co. of New York
City, a money management firm, and has over twenty years experience managing money for high
net worth individuals. Mr. Stainman was elected director of the company in 2004.
Edward Lowenthal has been the President of Ackeman Management, LLC, a real estate
investment firm, since April of 2002 and, prior to that, was the President of Wellsford Real
Properties, also a real estate investment firm, and predecessor companies, from October 1986
through March 2002. Mr. Lowenthal was elected director of the company in 2004.
Marcia Allen was elected a director of the company in 2003. For the past five years, Ms.
Allen has been the President of Allen & Associates Inc., a business and acquisition consulting
3
firm. Also, from December 2001 to August 2002 Ms. Allen served as President and a member of
the board of directors of Accesspoint Inc.
Steven Shulman was elected a director of the company in December 2003. During the past
five years, Mr. Shulman has been the managing director of Hampton Group Inc., a company
engaged in the business of making private investments. Mr. Shulman also serves as a director of
Paragon Technologies Inc. and various private companies.
Every year brings new challenges. Significant this year will be compliance with Section 404 of
Sarbanes-Oxley legislation. Conforming to these new regulations, including new specific record
keeping procedures and an annual evaluation of internal controls by management and
independent auditors, will be time consuming and our audit fees will substantially increase.
These new regulations, which are intended in the best interests of shareholders, are particularly
burdensome for operations of a company our size. We will fulfill the requirements of this
legislation in a timely manner.
I have said in the past we are good managers of your business. Your employees are dedicated
and committed to excellence. This is the only way for us.
Sincerely,
Michael Weinstein,
Chairman, Chief Executive Officer and 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 Operation
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
Evyette Ortiz, Director of Marketing
Michael Buck, General Counsel
Corporate Executive Chef
Bill Lalor
Executive Chefs
Chun Liao, Washington D.C.
Damien McEvoy, Las Vegas
Restaurant General Managers-New York
Liz Caro, The Grill Room
Patricia Almonte, Columbus Bakery I
Rosana Skeeter, Columbus Bakery II
Stephanie Torres, Columbus Bakery III
Kelly Gallo, Canyon Road
Bridgeen Hale, Metropolitan Café
Jennifer Baquierzo, El Rio Grande
Debra Lomurno, Sequoia
Donna Simms, Bryant Park Grill
Ridgley Trufant, Red
Ana Harris, Gonzalez y Gonzalez
Restaurant General Managers-Washington D.C.
Kyle Carnegie, Sequoia
Bender Gamiao, Thunder Grill
Matt Mitchell, America & Center Café
Restaurant Managers-Las Vegas
David Casey, The Saloon
Charles Gerbino, Las Vegas Employee Dining Facility
Larry Downey, Gallagher’s
Paul Savoy, Village Streets
5
John Hausdorf, Las Vegas Room Service
Katerina Avila, Tsunami Grill
Mary Massa, Gonzalez y Gonzalez
Marcel Serapio, America
Lia Rispoli, Las Vegas Catering
Robert Schwartz, Stage Deli
Claude Cevasco, Lutece
Restaurant Chefs-New York
Armando Cortes, The Grill Room
Rosalio Fuentes, Metropolitan Café
Santiago Pascual, Sequoia
Santiago Moran, Red
Virgilio Ortega, Columbus Bakery
Fermina Ramirez, El Rio Grande
Ruperto Ramirez, Canyon Road Grill
Mariano Veliz, Gonzalez y Gonzalez
Gadi Weinreich, Bryant Park Grill
Restaurant Chefs-Washington D.C.
Michael Foo, America & Center Café
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 Hernandez, Banquet
John Miller, The Saloon
Andreas Baecker, Lutece
Ernesto Suemaga, Las Vegas Employee Dining Facility
Sergio Salazar, Gonzalez y Gonzalez
6
Selected Consolidated Financial Data
The table on the following page sets forth certain financial data for the fiscal years
ended in 2000 through 2004. During fiscal year and 2004, the Company sold three of its
restaurants, closed one restaurant and considered one restaurant held for sale in accordance with
Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("FAS 144"). The operations of these restaurants have been
presented as discontinued operations for the 2004 fiscal year, and the Company has reclassified
its statements of operations data for the prior periods presented below, in accordance with
FAS 144. This information should be read in conjunction with the Company’s Consolidated
Financial Statements and the notes thereto beginning at page F-1.
7
October 2,
2004
Septem ber 27,
2003
Years Ended
Septem ber 28,
2002
Septem ber 29, Septem ber 30,
2001
2000
(In thousands, except per share data)
OPERATING DATA:
Total revenue
$
115,698
$
102,733
$
101,625
$
106,844
$
103,385
Cost and expenses
(106,081)
(96,980)
(95,153)
(101,198)
(100,669)
Operating income
Other income (expense), net
9,617
543
5,753
403
6,472
(607)
5,865
1,474
4,391
5,646
2,716
(2,223)
(1,621)
3,423
1,123
1,095
384
2,300
711
10,160
2,804
6,156
1,486
7,356
4,670
Income from continuing operations
before provision for income
taxes and cumulative effect
of accounting change
Provision for income taxes
Income from continuing operations
before the cumulative effect
of accounting change
Loss from discontinued operations
before provision for income
taxes and the cumulative effect
of accounting change
Benefit for income taxes
Income from discontinued operations
before the cumulative effect
of accounting change
Cumulative effect of accounting
charge— net
NET INCOM E (LOSS)
NET INCOM E (LOSS) PER SHARE:
Continuing operations basic
Discontinued operations basic
Net basic
Continuing operations diluted
Discontinued operations diluted
Net diluted
W eighted average number of shares
(965)
(266)
(1,781)
(430)
(217)
(55)
(13,614)
(4,466)
(6,535)
(2,290)
(699)
(1,351)
(162)
(9,148)
(4,245)
-
6,657
-
3,319
-
4,229
-
(6,848)
(189)
(3,723)
$
$
$
2.22
(0.21)
2.01
$
$
2.13
(0.20)
$
1.93
$
$
$
1.46
(0.42)
1.04
$
$
1.45
(0.42)
$
1.03
$
$
$
1.38
(0.05)
1.33
$
$
1.37
(0.05)
$
1.32
$
$
$
0.72
(2.88)
(2.16)
$
$
$
0.16
(1.33)
(1.17)
$
$
0.72
(2.88)
$
$
0.16
(1.33)
$
(2.16)
$
(1.17)
Basic
Diluted
3,305
3,444
3,181
3,213
3,181
3,206
3,181
3,186
3,461
3,476
BALANCE SHEET DATA
(end of period):
Total assets
W orking capital (deficit)
Long-term debt
Shareholders’ equity
Shareholders’ equity per share
Facilities in operations— end of year,
including managed
$
44,894
1,263
-
34,200
10.08
$
43,635
(4,802)
7,226
24,826
7.80
$
47,960
(7,990)
9,547
21,446
6.74
$
53,091
(6,569)
21,700
17,173
5.40
$
66,297
(5,460)
24,447
24,065
7.55
48
41
41
47
49
8
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 Company reports
fiscal years under a 52/53-week format. This reporting method is used by many companies in the
hospitality industry and is meant to improve year-to-year comparisons of operating results. Under
this method, certain years will contain 53 weeks. The fiscal years ended September 27, 2003 and
September 28, 2002 each included 52 weeks. The fiscal year ended October 2, 2004 included 53
weeks.
Overview
In connection with the consummated sale of three of the Company's restaurants, the closure of
one restaurant and the proposed sale of another restaurant, the operations of these restaurants
have been presented as discontinued operations for the fiscal year ended 2004, and the Company
has reclassified its statements of operations data for the prior periods presented below, in
accordance with FAS 144.
Revenues
Total revenues at restaurants owned by the Company increased by 12.6% from fiscal 2003 to
fiscal 2004 and increased by 1.1% from fiscal 2002 to fiscal 2003.
Same store sales increased 10.3%, or $12,984,000, on a Company-wide basis from fiscal 2003 to
fiscal 2004. This increase was the result of a 12.2%, or $7,242,000, increase in same store sales
at the Company’s Las Vegas restaurants, an 11.5%, or $3,560,000, increase in same store sales at
the Company’s New York restaurants and a 14.3%, or $2,182,000, increase in same store sales at
the Company’s Washington D.C. restaurants. The increases in New York and Washington D.C.
were principally due to the a general improvement in economic conditions, the public’s
willingness and inclination to resume vacation and convention travel and unusually good weather
in these areas during spring and summer of 2004 which enabled the Company to use additional
seating in its outdoor cafés. Although the Company had not raised the price of menu items
offered to its customers for several years due to business conditions, the impact of the increase in
food costs during 2004 caused the Company to review the price of menu items offered to its
customers. The Company determined during 2004 to increase the price of menu items offered to
its customers in specific locations where the Company believed consumer demand has created
some elasticity.
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.
During fiscal 2002 sales decreased 42.9% at this location 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 $11,896,000 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
9
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.
Other operating income, which consists of the sale of merchandise at various restaurants,
management fee income, door sales was $850,000 in fiscal 2004, $679,000 in fiscal 2003 and
$474,000 in fiscal 2002.
Costs and Expenses
Food and beverage cost of sales as a percentage of total revenue was 25.5% in fiscal 2004, 24.7%
in fiscal 2003 and 24.5% in fiscal 2002. Although this expense as a percentage of total revenue
increased from fiscal 2003 to 2004, strong sales during fiscal 2004 allowed the Company the
opportunity to create relationships with new suppliers and increase the price of menu items
offered to its customers in specific locations where the Company believed consumer demand has
created some elasticity to offset increased food costs.
Total costs and expenses increased by $9,101,000, or 9.4%, from fiscal 2003 to fiscal 2004.
Increases in food costs, rent and payroll, as a result of the increase in total revenues, contributed
to this increase. Sales increases in restaurants where the Company pays a percentage rent resulted
in an increase in percentage rent of $787,000 during fiscal 2004 compared to fiscal 2003. Other
operating costs and expenses also increased in fiscal 2004 due to the increase in total revenue and
a one time charge of $270,000 used to pay for casino entertainment tax liability. The Company
had previously thought that certain of its operations at the Venetian Hotel Resort Casino were
exempt from casino entertainment tax due to the fact that such operations were not on the casino
floor. As subsequent tax ruling by tax authorities determined that such operations were subject to
casino entertainment tax and the Company determined to include such charge in other operating
costs and expenses.
Total costs and expenses increased by $1,827,000, or 1.9%, from fiscal 2002 to fiscal 2003.
During the first quarter of fiscal 2002 rent concessions granted by landlords in the aftermath of
the September 11, 2001 disaster were in place. These concessions were not available during
fiscal 2003 and as a result of this, and other slight increases in rent levels, rent expense for fiscal
2003 increased by $291,000 when compared to fiscal 2002. Also, sales increases in restaurants
where the Company pays a percentage rent resulted in an increase in percentage rent of $168,000
during fiscal 2003 compared to fiscal 2002. During fiscal 2003 advertising expenses increased by
$623,000 over fiscal 2002 as a result of increased advertising for the operations in Las Vegas.
Maintenance expenses increased by $548,000 during fiscal 2003 compared to fiscal 2002. After
September 11, 2001 discretionary spending was sharply restricted. Though the Company had
continued to keep tight control over spending, maintenance of restaurants has been performed
when required and maintenance delayed during fiscal 2002 has been completed.
Payroll expenses as a percentage of total revenues was 31.2% in fiscal 2004 compared to 32.3%
in fiscal 2003 and 31.6% in fiscal 2002. Payroll expense was $36,045,000, $33,176,000 and
$32,084,000 in fiscal 2004, 2003 and 2002, respectively. In fiscal 2003 and 2002, the Company
had aggressively adapted its cost structure in response to lower sales expectations following
September 11th. Due to the increase in sales during fiscal 2004, the Company had increased its
payroll expenses incrementally. The Company continually evaluates its payroll expenses as they
relate to sales.
No pre-opening expenses and early operating losses were incurred during fiscal 2004, 2003 or
2002. The Company did not open any new restaurants during fiscal 2003 and the Company
10
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 typically incurs significant pre-opening expenses in connection with
its new restaurants that 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 5.6% in fiscal 2004,
6.5% in fiscal 2003 and 6.4% in fiscal 2002. The decrease in these expenses as a percentage of
total revenue during fiscal 2004 is primarily due to increased total revenue during this period.
General and administrative expenses were adversely impacted by a $370,000 increase in casualty
insurance costs during fiscal 2002.
The Company managed two restaurants it did not own (The Saloon and El Rio Grande) at
October 2, 2004. The Company managed one restaurant it did not own (El Rio Grande) at
September 27, 2003 and September 28, 2002. Sales of El Rio Grande, which are not included in
consolidated sales, were $2,786,000 in fiscal 2004, $2,765,000 in fiscal 2003 and $2,973,000 in
fiscal 2002. The Company’s lease of The Saloon is currently being converted into a management
agreement, effective as of August 22, 2004, whereby the Company will receive a management fee
of $7,000 per month, regardless of the results of operations of this restaurant. The Company
entered into agreements, during fiscal 2004, to manage 11 fast food restaurants located in the
Hard Rock Casinos in Hollywood and Tampa, Florida. Sales from these operations totaled
$6,036,000 during the 2004 fiscal year.
Interest expense was $190,000 in fiscal 2004, $732,000 in fiscal 2003 and $1,201,000 in fiscal
2002. The significant decreases during these periods was due to lower outstanding borrowings on
the Company’s credit facility and the benefit from rate decreases in the prime-borrowing rate. As
of October 2, 2004, the Company had no borrowings on its credit facility. Interest income was
$138,000 in fiscal 2004, $162,000 in fiscal 2003 and $133,000 in fiscal 2002.
Other income, which generally consists of purchasing service fees and other income at various
restaurants was $595,000, $973,000 and $461,000 for fiscal 2004, 2003 and 2002, respectively.
Other income was impacted during fiscal 2003 by the Company’s receipt of $508,000 in World
Trade Center Grants for four restaurants located in downtown New York that were adversely
impacted by the September 11, 2001 terrorist attacks.
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. 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. During the years ended
September 27, 2003 and October 2, 2004, the Company decreased its allowance for the utilization
of the deferred tax asset arising from state and local operating loss carryforwards by $395,000
11
and $445,000 in such years based on the merger of certain unprofitable subsidiaries into
profitable ones.
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 $591,000 in fiscal 2004, $132,000 in fiscal 2003 and $755,000 in fiscal 2002.
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 consolidated financial statements.
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 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 2004 of ($1,336,000) was primarily used for the
replacement of fixed assets at existing restaurants. The net cash used in investing activities in
fiscal 2003 of ($1,434,000) was used for the expansion of an existing restaurant in Las Vegas and
for the replacement of fixed assets at existing restaurants.
The net cash used in financing activities in fiscal 2004 ($5,106,000), fiscal 2003 ($8,356,000) and
fiscal 2002 ($8,072,000) was principally due to repayments of long-term debt on the Company’s
main credit facility in excess of borrowings on such facility.
The Company had a working capital surplus of $1,263,000 at October 2, 2004 as compared to a
working capital deficit of $4,802,000 at September 27, 2003. 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), as amended in November 2001, December 2001, April 2002, and February
2003, 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. Upon amendment in February 2003, the term loan was
converted into a revolving loan. The credit line was reduced to $11,500,000 on June 29, 2003
and $8,500,000 on September 29, 2003 until the maturity date of February 12, 2005. As of
12
October 2, 2004, the Company had no borrowings on its credit facility. The loan bears interest at
½% above the bank’s prime rate. The Facility also includes a $500,000 Letter of Credit Facility
for use in lieu of lease security deposits. The Company has delivered $354,000 in irrevocable
letters of credit on this Facility at October 2, 2004. 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 Facility
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 Facility.
The Facility 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 Facility also requires the Company to comply with certain financial covenants at
the end of each quarter 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.
During the year ended September 27, 2003, the Company violated covenants related to a
limitation on employee loans and maintaining minimum cash flow in relation to the Company’s
debt service requirements. During the year ended October 2, 2004, the Company violated
covenants related to a restriction on the payment of dividends and maintaining minimum cash
flow in relation to the Company’s debt service requirements. The Company received waivers
from the bank for the covenants it was not in compliance with, for the years ended September 27,
2003 and October 2, 2004 through December 31, 2004.
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 October 2, 2004 the Company had $251,000 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 $32,000 until maturity in
November 2004 at which time the Company has an option to purchase the equipment for
$519,000. 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 $165,000.
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 October 2, 2004 $496,000 remained accrued in
other current liabilities representing future operating lease payments.
In September 2001, a subsidiary of the Company entered into a lease agreement with World
Entertainment Centers LLC regarding the leasing of premises at the Neonopolis Center at
Freemont Street for the restaurant Saloon. The Company provided a lease guaranty (“Guaranty”)
to induce the landlord to enter into the lease agreement. The Guaranty is for a term of two years
from the date of the opening of the Saloon, May 2002, and during the first year of the Guaranty
13
was in the amount of $350,000. Upon the first anniversary of the opening of the Saloon, May
2003, the Guaranty was reduced to $175,000 and it expired in May 2004.
A quarterly cash dividend in the amount of $0.35 per share was declared and paid beginning on
November 1, 2004, resulting in a payment of $1,187,000 to shareholders of record as of October
22, 2004. Prior to this, the Company has not paid any cash dividends since its inception. The
Company intends to continue to pay such quarterly cash dividend for the foreseeable future.
Contractual Obligations and Commercial Commitments
To facilitate an understanding of our contractual obligations and commercial commitments, the
following data is provided:
Contractual Obligations:
Debt
Operating Leases
Total
Within
1 year
Payments Due by Period
2-3 years
(in thousands of dollars)
4-5 years
After 5
years
$ 251 $ 251
-
$ - $ -
35,534 7,356 12,073 6,198 9,907
Total Contractual Cash Obligations
$ 35,785 $ 7,607 $ 12,073 $ 6,198 $ 9,907
Amount of Commitment Expiration Per Period
Total
Within
1 year
2-3 years
4-5 years
(in thousands of dollars)
After 5
years
Other Commercial Commitments:
Letters of Credit
$
354
$
-
$
354
$
-
$
-
Total Commercial Commitments
$
354
$
-
$
354
$
-
$
-
Restaurant Expansion
The Company recently entered into agreements to operate a Gallagher’s Steakhouse restaurant
and a separate bar, yet to be named, to be constructed in the Resorts Atlantic City Hotel and
Casino in Atlantic City, New Jersey.
Recent Restaurant Dispositions and Charges
In fiscal 2003, the Company determined that its restaurant, Lutece, located in New York City, had
been impaired by the events of September 11th and the continued weakness in the economy.
Based upon the sum of the future undiscounted cash flows related to the Company's long-lived
fixed assets at Lutece, the Company determined that impairment had occurred. To estimate the
fair value of such long-lived fixed assets, for determining the impairment amount, the Company
used the expected present value of the future cash flows. The Company projected continuing
14
negative operating cash flow for the foreseeable future with no value for subletting or assigning
the lease for the premises. As a result, the Company determined that there was no value to the
long-lived fixed assets. The Company had an investment of $667,000 in leasehold improvements,
furniture fixtures and equipment. The Company believed that these assets would have nominal
value upon disposal and recorded an impairment charge of $667,000 during fiscal 2003. Due to
continued weak sales, the Company closed Lutece during the second quarter of 2004. The
Company recorded a net operating losses of $804,000 during the fiscal year ended October 2,
2004 which is included in losses from discontinued operations. The Company also incurred a
one-time charge of $470,000 related to pension plan contributions required in connection with the
closing of Lutece which is payable monthly over a nine year period beginning May 17, 2004 and
bears interest at a rate of 8% per annum.
On December 1, 2003, the Company sold a restaurant, Lorelei, for approximately $850,000. The
book value of inventory, fixed assets, intangible assets and goodwill related to this entity was
approximately $625,000. The Company recorded a gain on the sale of approximately $225,000
during the first quarter of fiscal 2004 which is included in losses from discontinued operations.
Net operating losses of $145,000 were recorded in discontinued operations for fiscal 2004. There
were no additional expenses related to this restaurant during the fiscal year ended October 2,
2004.
The Company’s restaurant Ernie’s, located on the upper west side of Manhattan, opened in 1982.
As a result of a steady decline in sales, the Company felt that a new concept was needed at this
location. The restaurant was closed June 16, 2003 and reopened in August 2003. Total
conversion costs were approximately $350,000. Sales at the new restaurant, La Rambla, failed to
reach the level sufficient to achieve the results the Company required. As a result, the Company
sold this restaurant on January 1, 2004 and realized a gain on the sale of this restaurant of
approximately $214,000. Net operating losses of $230,000 were included in losses from
discontinued operations for the fiscal year ended October 2, 2004.
The Company’s restaurant Jack Rose located on the west side of Manhattan has experienced
weak sales for several years. In addition, this restaurant did not fit the Company’s desired profile
of being in a landmark destination location. As a result, the Company sold this restaurant on
February 23, 2004. The Company realized a loss on the sale of this restaurant of $137,000 which
was recorded during the second quarter of fiscal 2004. The Company recorded net operating
losses of $148,000 during fiscal 2004 for this restaurant. These losses are included in losses from
discontinued operations.
The Company’s restaurant America, located in New York City, has experienced declining sales
for several years. In March 2004, the Company entered into a new lease for this restaurant at a
significantly increased rent. The Company entered into this lease with the belief that due to the
location and the uniqueness of the space the lease had value. During fiscal 2004 the Company
identified a buyer for this restaurant and is currently completing negotiations for its sale. The
carrying amount of the fixed assets held for sale was approximately $128,000 as of October 2,
2004. Net income of $60,000 has been included in losses from discontinued operations for fiscal
2004. The Company expects the sale of this restaurant to be completed during the second quarter
of fiscal 2005.
15
Critical Accounting Policies
Financial Reporting Release No. 60, published by the SEC, recommends that all companies
include a discussion of critical accounting policies used in the preparation of their financial
statements. The Company’s significant accounting policies are more fully described in Note 1 to
the Company's consolidated financial statements. While all these significant accounting policies
impact its financial condition and results of operations, the Company views certain of these
policies as critical. Policies determined to be critical are those policies that have the most
significant impact on the Company's consolidated financial statements and require management
to use a greater degree of judgment and estimates. Actual results may differ from those estimates.
The Company believes that given current facts and circumstances, it is unlikely that applying any
other reasonable judgments or estimate methodologies would cause a material effect on the
Company's consolidated results of operations, financial position or liquidity for the periods
presented in this report.
Below are listed certain policies that management believes are critical:
Use of Estimates
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.
Long-Lived Assets
The Company annually assesses any impairment in value of long-lived assets 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.
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.
16
Accounting for Goodwill and Other Intangible Assets
During 2001, the FASB issued FAS 142, which requires that for the Company, effective
September 28, 2002, goodwill, including the goodwill included in the carrying value of
investments accounted for using the equity method of accounting, and certain other intangible
assets deemed to have an indefinite useful life, cease amortizing. FAS 142 requires that goodwill
and certain intangible assets be assessed for impairment using fair value measurement techniques.
Specifically, goodwill impairment is determined using a two-step process. The first step of the
goodwill impairment test is used to identify potential impairment by comparing the fair value of
the reporting unit (the Company is being treated as one reporting unit) with its net book value (or
carrying amount), including goodwill. If the fair value of the reporting unit exceeds its carrying
amount, goodwill of the reporting unit is considered not impaired and the second step of the
impairment test is unnecessary. If the carrying amount of the reporting unit exceeds its fair value,
the second step of the goodwill impairment test is performed to measure the amount of
impairment loss, if any. The second step of the goodwill impairment test compares the implied
fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the
carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill,
an impairment loss is recognized in an amount equal to that excess. The implied fair value of
goodwill is determined in the same manner as the amount of goodwill recognized in a business
combination. That is, the fair value of the reporting unit is allocated to all of the assets and
liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had
been acquired in a business combination and the fair value of the reporting unit was the purchase
price paid to acquire the reporting unit. The impairment test for other intangible assets consists of
a comparison of the fair value of the intangible asset with its carrying value. If the carrying value
of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal
to that excess.
Determining the fair value of the reporting unit under the first step of the goodwill impairment
test and determining the fair value of individual assets and liabilities of the reporting unit
(including unrecognized intangible assets) under the second step of the goodwill impairment test
is judgmental in nature and often involves the use of significant estimates and assumptions.
Similarly, estimates and assumptions are used in determining the fair value of other intangible
assets. These estimates and assumptions could have a significant impact on whether or not an
impairment charge is recognized and also the magnitude of any such charge. To assist in the
process of determining goodwill impairment, the Company obtains appraisals from independent
valuation firms. In addition to the use of independent valuation firms, the Company performs
internal valuation analyses and considers other market information that is publicly available.
Estimates of fair value are primarily determined using discounted cash flows and market
comparisons and recent transactions. These approaches use significant estimates and assumptions
including projected future cash flows (including timing), discount rate reflecting the risk inherent
in future cash flows, perpetual growth rate, determination of appropriate market comparables and
the determination of whether a premium or discount should be applied to comparables. Based on
the above policy, no impairment charge was recorded upon adoption or during the fiscal years
ended 2003 and 2004.
Recently Issued Accounting Standards
In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (R),
“Accounting for Stock-Based Compensation.” SFAS No. 123 (R) establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments for goods or
services. This Statement focuses primarily on accounting for transactions in which an entity
17
obtains employee services in share-based payment transactions. SFAS No. 123 (R) requires that
the fair value of such equity instruments be recognized as expense in the historical financial
statements as services are performed. Prior to SFAS No. 123 (R), only certain pro forma
disclosures of fair value were required. SFAS No. 123 (R) shall be effective for public entities
that do not file as small business issuers as of the beginning of the first interim or annual
reporting period that begins after June 15, 2005. The Company has not determined if the
adoption of this new accounting pronouncement is expected to have a material impact on the
financial statements of the Company for fiscal 2006.
Quantitative and Qualitative Disclosures About Market Risk
None.
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 September 28, 2002 through October 1, 2004 are as follows:
Calendar 2002
Fourth Quarter
Calendar 2003
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Calendar 2004
First Quarter
Second Quarter
Third Quarter
High
$ 7.42
Low
$ 6.05
7.24
7.75
11.99
14.35
17.70
23.55
26.11
5.75
6.20
7.45
11.15
13.50
17.01
21.62
Dividends
A quarterly cash dividend in the amount of $0.35 per share was declared and paid beginning on
November 1, 2004. Prior to this, the Company has not paid any cash dividends since its inception.
The Company intends to continue to pay such quarterly cash dividend for the foreseeable future.
Number of Shareholders
As of December 16, 2004, there were 54 holders of record of the Company’s Common Stock,
$.01 par value. This does not include the number of persons whose stock is in nominee or “street
name” accounts through brokers.
18
R.S. Rosenbaum & Co. 212-741-7444
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10745
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Ark Restaurants Corp.
We have audited the accompanying consolidated balance sheet of Ark Restaurants Corp. and Subsidiaries
as of October 2, 2004, and the related consolidated statements of operations, shareholders’ equity and cash
flows for the year then ended. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). 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 audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Ark Restaurants Corp. and Subsidiaries as of October 2,
2004, and their consolidated results of operations and cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ J.H. Cohn LLP
New York, New York
December 27, 2004
F-1
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51917
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Ark Restaurants Corp.
We have audited the accompanying consolidated balance sheet of Ark Restaurants Corp. and subsidiaries
(the “Company’’) as of September 27, 2003, and the related consolidated statements of operations,
shareholders’ equity and cash flows for each of the two fiscal years in the period then ended. 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 standards of the Public Company Accounting Oversight
Board (United States). 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 27, 2003, and the results of their
operations and their cash flows for each of the two fiscal years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Deloitte and Touche LLP
New York, New York
December 24, 2003
(December 30, 2004 as to the reclassifications described in the final paragraph of Note 2)
F-2
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51378
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
October 2,
2004
September 27,
2003
A S S E T S
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term receivables (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assets held for sale (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LONG-TERM RECEIVABLES (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FIXED ASSETS—At cost:
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INTANGIBLE ASSETS—Net (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GOODWILL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DEFERRED INCOME TAXES (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER ASSETS (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
L I A B I L I T I E S A N D S H A R E H O L D E R S ’ E Q U I T Y
CURRENT LIABILITIES:
Accounts payable—trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities of long-term debt (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LONG TERM DEBT—Net of current maturities (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OPERATING LEASE DEFERRED CREDIT (Notes 1 and 8) . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES HELD FOR DISPOSITION (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS’ EQUITY (Notes 7, 9, 10 and 16):
Common stock, par value $.01 per share—authorized, 10,000 shares; issued and
outstanding 5,462 and 5,249 at October 2, 2004 and September 27, 2003,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less stock options receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less treasury stock of 2,070 and 2,068 shares at October 2, 2004 and
September 27, 2003, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,435
2,171
330
208
1,731
—
1,615
128
10,618
1,082
29,720
27,178
56,898
33,437
23,461
224
3,515
5,221
773
$44,894
$ 2,230
4,781
251
2,093
9,355
—
899
440
10,694
54
17,202
25,694
42,950
364
8,386
34,200
$44,894
See notes to consolidated financial statements.
F-3
$
486
1,677
255
193
1,997
281
886
—
5,775
1,291
34,385
29,427
63,812
36,748
27,064
473
3,515
4,622
895
$43,635
$ 3,443
5,586
350
1,198
10,577
7,226
1,006
—
18,809
52
14,743
19,037
33,832
655
8,351
24,826
$43,635
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58153
ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years Ended
October 2,
2004
September 27,
2003
September 28,
2002
REVENUES:
Food and beverage sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$114,848
850
$102,054
679
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
115,698
102,733
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,554
36,045
15,900
14,492
6,499
3,591
Total cost and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
106,081
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,617
$101,151
474
101,625
24,863
32,084
14,890
12,109
6,548
4,659
95,153
6,472
1,201
(133)
(461)
607
5,865
1,474
4,391
(217)
(55)
(162)
4,229
1.38
(0.05)
1.33
1.37
(0.05)
1.32
3,181
3,206
25,392
33,176
15,525
12,312
6,665
3,910
96,980
5,753
732
(162)
(973)
(403)
6,156
1,486
4,670
190
(138)
(595)
(543)
10,160
2,804
7,356
(965)
(266)
(699)
6,657
2.22
(0.21)
2.01
2.13
(0.20)
1.93
3,305
3,444
$
$
$
$
$
$
$
(1,781)
(430)
(1,351)
3,319
1.46
(0.42)
1.04
1.45
(0.42)
1.03
3,181
3,213
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
OTHER (INCOME) EXPENSE:
Interest expense (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROVISION FOR INCOME TAXES (Note 12) . . . . . . . . . . . . . . . . . .
INCOME FROM CONTINUING OPERATIONS . . . . . . . . . . . . . . . . .
DISCONTINUED OPERATIONS:
LOSS FROM OPERATIONS OF DISCONTINUED
RESTAURANTS (INCLUDING NET LOSSES ON DISPOSAL
OF $168,000 FOR THE YEAR ENDED OCTOBER 2, 2004)
(Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BENEFIT FOR INCOME TAXES (Note 12) . . . . . . . . . . . . . . . . . . . .
LOSS FROM DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . . .
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PER SHARE INFORMATION—BASIC AND DILUTED
Continuing operations basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET BASIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continuing operations diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET DILUTED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
WEIGHTED AVERAGE NUMBER OF SHARES—Basic . . . . . . . .
WEIGHTED AVERAGE NUMBER OF SHARES—Diluted . . . . . . .
See notes to consolidated financial statements.
F-4
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ARK RESTAURANT CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease deferred credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . .
Prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable—trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . .
Years Ended
October 2,
2004
September 27,
2003
September 28,
2002
$ 7,356
$ 4,670
$ 4,391
318
3,591
53
(514)
(75)
133
(1,025)
—
208
(1,213)
895
(805)
(355)
3,910
4
288
790
(65)
18
957
(314)
111
1,198
(770)
1,786
4,659
(16)
(521)
(257)
181
49
162
(380)
(900)
—
(388)
Net cash provided by operating activities . . . . . . . . . . . . . . .
8,922
10,442
8,766
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of demand notes and long-term receivables . . . . . . .
Payments received on note receivables . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by 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 received under stock options receivables . . . . . . . . .
Payment of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . .
NET CASH PROVIDED BY CONTINUING OPERATIONS . . . . . .
NET CASH PROVIDED BY (USED IN) DISCONTINUED
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NET INCREASE (DECREASE) IN CASH—AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS—Beginning of year . . . . . . . .
(1,529)
—
193
(1,336)
—
(7,328)
1,966
291
—
(35)
(5,106)
2,480
1,469
3,949
486
(1,603)
—
169
(1,434)
1,100
(9,355)
—
61
(162)
—
(8,356)
652
(985)
(333)
819
CASH AND CASH EQUIVALENTS—End of year . . . . . . . . . . . . . .
$ 4,435
$
486
$
(704)
(125)
282
(547)
1,500
(9,616)
—
44
—
—
(8,072)
147
672
819
—
819
SUPPLEMENTAL INFORMATION:
Cash payments for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
264
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,455
$
$
768
114
$ 1,271
$
187
See notes to consolidated financial statements.
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ARK RESTAURANTS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
YEARS ENDED OCTOBER 2, 2004, SEPTEMBER 27, 2003 AND SEPTEMBER 28, 2002
(In thousands)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Stock
Options
Receivable
Total
Shareholders’
Equity
BALANCE, September 29,
2001 . . . . . . . . . . . . . . . . . . . . . .
5,249
$52
$14,743
$11,489
$(8,351)
$(760)
$17,173
Purchase of treasury stock
Net income . . . . . . . . . . . . . .
—
—
BALANCE—September 28,
2002 . . . . . . . . . . . . . . . . . . . . . .
5,249
Net payment on stock
options receivables . . . . .
Net income . . . . . . . . . . . . . .
—
—
BALANCE—September 27,
2003 . . . . . . . . . . . . . . . . . . . . . .
5,249
Exercise of stock options
Tax benefit on exercise of
options . . . . . . . . . . . . . . . .
Purchase of treasury stock
Payment on stock options
receivables . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . .
213
—
—
—
—
—
—
52
—
—
52
2
—
—
—
—
—
—
—
4,229
—
—
44
—
44
4,229
14,743
15,718
(8,351)
(716)
21,446
—
—
—
3,319
—
—
61
—
14,743
19,037
(8,351)
(655)
1,964
495
—
—
—
—
—
—
—
6,657
—
—
(35)
—
—
—
—
—
291
—
61
3,319
24,826
1,966
495
(35)
291
6,657
BALANCE—October 2, 2004
5,462
$54
$17,202
$25,694
$(8,386)
$(364)
$34,200
See notes to consolidated financial statements.
F-6
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ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 2, 2004, SEPTEMBER 27, 2003 AND SEPTEMBER 28, 2002
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ark Restaurants Corp. and subsidiaries (the “Company’’) own and operate 22 restaurants, 26 fast food
concepts, catering operations and wholesale and retail bakeries. Nine restaurants are located in New
York City, nine in Las Vegas, Nevada and four in Washington, D.C. 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 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. The Company also manages five fast food facilities in Tampa, Florida and eight
fast food facilities in Hollywood, Florida, each at a Hard Rock Hotel and Casino owned by the
Seminole Indian Tribe at these locations.
Accounting Period—The Company’s fiscal year ends on the Saturday nearest September 30. The fiscal
year ended October 2, 2004 included 53 weeks. The fiscal years ended September 27, 2003, and
September 28, 2002, 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 long-term receivables, 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 statements.
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.
Cash Equivalents—Cash equivalents include instruments with original maturities of three months or
less.
Accounts Receivable—Accounts receivable is primarily composed of 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 (three to 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.
The Company follows Statement of Financial Accounting Standards (“SFAS’’) No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, which requires impairment losses to be recorded on
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long-lived assets used in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the asset’s carrying amount. In the
evaluation of the fair value and future benefits of long-lived assets, the Company performs an analysis
of the anticipated undiscounted future net cash flows of the related long-lived assets. If the carrying
value of the related asset exceeds the undiscounted cash flows, the carrying value is reduced to its fair
value. Various factors including future sales growth and profit margins are included in this analysis.
Management believes at this time that carrying values and useful lives continue to be appropriate.
For the years ended October 2, 2004 and September 28, 2002, no impairment charges were deemed
necessary. For the year ended September 27, 2003, an impairment charge of $667,000 was incurred on
the restaurant Lutece (Note 2).
Intangible Assets and Goodwill—As of September 29, 2002, the Company adopted the provisions for
SFAS No. 142, Accounting for Goodwill and Other Intangible Assets, This statement requires that
goodwill and intangible assets with indefinite lives no longer be amortized, but instead be tested for
impairment at least annually and written down with a charge to operations when the carrying amount
exceeds the estimated fair value. Prior to the adoption of SFAS No. 142, the Company amortized
goodwill. The amount of such amortized goodwill was $3,515,000 as of September 28, 2002. In
accordance with SFAS No. 142 the Company discontinued the amortization of goodwill effective
September 29, 2002. Had the provisions of SFAS No. 142 been in effect during the year ended
September 28, 2002 a reduction of amortization expense in pretax income of $364,000 or an increase
of $0.11 in basic and diluted earnings per share would have been recorded. The Company has
completed its annual impairment analysis as of October 2, 2004 and has determined that there is no
impairment of goodwill.
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.
Covenants not to compete arising from restaurant acquisitions are amortized over the contractual period
of five years.
Amortization expense for intangible assets not including goodwill was $27,000, $15,000 and $39,000
for the years ended October 2, 2004, September 27, 2003, and September 28, 2002, respectively.
Other Assets—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 two years, the remaining 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 Taxes—Income taxes are accounted for under the asset and liability method. Deferred tax assets
and liabilities are recognized for future tax consequences attributable to the temporary differences
between the financial statement carrying amounts of assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the period that includes the enactment date. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
Income Per Share of Common Stock—Basic net income per share is computed in accordance with
Statement of Financial Accounting Standard (“SFAS’’) No. 128, Earnings Per Share, and is calculated
F-8
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on the basis of the weighted average number of common shares outstanding during each period.
Dilutive net income per share reflects the additional dilutive effect of potentially dilutive shares
(principally those arising from the assumed exercise of 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 Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123’’) had been adopted.
The Company generally does not grant options to outsiders.
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 Company utilized the Black-Scholes option-pricing model to
quantify the pro forma effects on net income and earnings per share of all options granted. There were
no options granted during fiscal 2004 and 2003 and no charges to operations for options issued to
employees during fiscal 2004, 2003 and 2002.
In accordance with Statement of Financial Accounting Standards No. 148 (“SFAS No. 148’’) and
SFAS 123, the Company’s pro forma option expense is computed using Black-Scholes option pricing
model. To comply with SFAS 148, the Company is presenting the following table to illustrate the
effect on the net income and income per share if it had applied the fair value recognition provisions of
SFAS 123, as amended, to options granted under the stock-based employee compensation plan. For
purposes of this pro forma disclosure, the estimated value of the options is amortized ratably to
expense over the options’ vesting periods.
The pro forma impact was as follows:
Years Ended
October 2,
2004
(In thousands, except per share amounts)
September 27,
2003
September 28,
2002
Net income as reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deduct stock based compensation expense computed under the
fair value method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
85
$6,657
$3,319
Net income—pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,572
Net income per share as reported—basic . . . . . . . . . . . . . . . . . . . . .
Net income per share as reported—diluted . . . . . . . . . . . . . . . . . . . .
Net income per share pro forma—basic . . . . . . . . . . . . . . . . . . . . . .
Net income per share pro forma—diluted . . . . . . . . . . . . . . . . . . . . .
$ 2.01
$ 1.93
$ 1.99
$ 1.91
$4,229
141
$4,088
$ 1.33
$ 1.32
$ 1.29
$ 1.27
118
$3,201
$ 1.04
$ 1.03
$ 1.01
$ 1.00
The weighted-average assumptions which were used for options granted in fiscal 2002 included a risk
free interest rate of 4.25% and volatility of 35%. An expected life of four years was used. No annual
dividend yield was assumed. The weighted average grant date fair value of options granted and
outstanding during fiscal 2002 was $2.05.
Reclassifications—Certain reclassifications of prior year balances have been made to conform with
current year presentation.
2. RECENT RESTAURANT DISPOSITIONS
In fiscal 2003, the Company determined that its restaurant, Lutece, located in New York City, had been
impaired by the events of September 11th and the continued weakness in the economy. Based upon the
sum of the future undiscounted cash flows related to the Company’s long-lived fixed assets at Lutece,
the Company determined that impairment had occurred. To estimate the fair value of such long-lived
fixed 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. As a result, the
Company determined that there was no value to the long-lived fixed assets. The Company had an
investment of $667,000 in leasehold improvements, furniture fixtures and equipment. The Company
believed that these assets would have nominal value upon disposal and recorded an impairment charge
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of $667,000 during fiscal 2003. Due to continued weak sales, the Company closed Lutece during the
second quarter of 2004. The Company recorded net operating losses of $804,000 for Lutece during the
fiscal year ended October 2, 2004 which are included in losses from discontinued operations. In 2004
the Company also incurred a one-time charge of $470,000 related to pension plan contributions required
in connection with the closing of Lutece which is payable monthly over a nine year period beginning
May 17, 2004 and bears interest at a rate of 8% per annum.
On December 1, 2003, the Company sold a restaurant, Lorelei, for approximately $850,000. The book
value of inventory, fixed assets, intangible assets and goodwill related to this entity was approximately
$625,000. The Company recorded a gain on the sale of approximately $225,000 during the first quarter
of fiscal 2004 which is included in losses from discontinued operations. Net operating losses of
$145,000 were recorded in discontinued operations in fiscal 2004. There were no additional expenses
related to this restaurant during the fiscal year ended October 2, 2004.
The Company’s restaurant Ernie’s, located on the upper west side of Manhattan opened in 1982. As a
result of a steady decline in sales, the Company felt that a new concept was needed at this location. The
restaurant was closed June 16, 2003 and reopened in August 2003. Total conversion costs were
approximately $350,000. Sales at the new restaurant, La Rambla, failed to reach the level sufficient to
achieve the results the Company required. As a result, the Company sold this restaurant on January 1,
2004 and realized a gain on the sale of this restaurant of approximately $214,000. Net operating losses
of $230,000 were included in losses from discontinued operations for the fiscal year ended October 2,
2004.
The Company’s restaurant Jack Rose located on the west side of Manhattan has experienced weak sales
for several years. In addition, this restaurant did not fit the Company’s desired profile of being in a
landmark destination location. As a result, the Company sold this restaurant on February 23, 2004. The
Company realized a loss on the sale of this restaurant of $137,000 which was recorded during the
second quarter of fiscal 2004. The Company recorded net operating losses of $148,000 during fiscal
2004 for this restaurant. These losses are included in losses from discontinued operations.
The Company’s restaurant America, located in New York City, has experienced declining sales for
several years. In March 2004, the Company entered into a new lease for this restaurant at a
significantly increased rent. The Company entered into this lease with the belief that due to the
location and the uniqueness of the space the lease had value. During fiscal 2004 the Company
identified a buyer for this restaurant and is currently completing negotiations for its sale. The carrying
amount of the net assets held for sale was approximately $128,000 as of October 2, 2004. Net income
of $60,000 has been included in losses from discontinued operations for fiscal 2004. The Company
expects the sale of this restaurant to be completed during the second quarter of fiscal 2005.
In accordance with SFAS No. 144, all prior years included in the accompanying consolidated
statements of operations and cash flows have been reclassified to separately show the results of
operations and cash flows of these discontinued operations. Total revenues of these discontinued
operations were $6,501,000, $13,860,000 and $14,968,000 in fiscal 2004, 2003 and 2002, respectively.
F-10
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3. LONG-TERM RECEIVABLES
Long-term receivables consist of the following:
Note receivable collateralized by fixed assets and lease at a restaurant sold
by the Company, at 8% interest; due in monthly installments through
December 2006 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note receivable colleteralized by fixed assets and lease at a restaurant sold
by the Company, at 7.5% interest; due in monthly installments through
December 2008 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note receivable collateralized by fixed assets and lease at a restaurant at
7.0% interest; due in monthly installments through December 2007 (c) . . . . .
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
October 2,
2004
September 27,
2003
(In thousands)
$ 192
$ 268
1,009
89
1,290
208
1,104
112
1,484
193
$1,082
$1,291
(a) 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.
(b) 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 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 of approximately $585,000 in the fiscal year ended September 27,
2003 in connection with the sale of this restaurant. The gain recognized reflected the realization of
a gain that had been deferred originally due to the length of the note and the substantial balance
due upon maturity ($519,000). A review of the performance of this note and the security
underlying it has lead management to conclude that the full amount will likely be collected and,
accordingly, the note no longer requires a reserve. Consequently, the Company eliminated this
reserve and included the amount in revenue, in other income, for the year ended September 27,
2003. As a result of the reclassification of discontinued operations this gain is included in losses
from discontinued operations for fiscal 2003.
(c) 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 during the year ended September 28, 2002 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 their current aggregate fair
value.
F-11
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File: 349G.;13
Seq: 6
Cust: ARK RESTAURANTS
Nxt: 1680D
Fr: 1400D
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4. INTANGIBLE ASSETS
Intangible assets consist of the following:
October 2,
2004
September 27,
2003
(In thousands)
Purchased leasehold rights (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncompete agreements and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 611
600
1,211
987
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 224
(a) Purchased leasehold rights arise from acquiring leases and subleases of various restaurants.
$ 751
926
1,677
1,204
$ 473
5. OTHER ASSETS
Other assets consist of the following:
Deposits and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred financing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Landlord receivable (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
October 2,
2004
September 27,
2003
(In thousands)
$350
27
396
$773
$378
117
400
$895
(a) This balance represents certain costs paid by the Company 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.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Abandonment accrual (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
October 2,
2004
September 27,
2003
(In thousands)
$ 833
1,430
853
1,169
496
$4,781
$ 737
1,390
815
1,770
874
$5,586
(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. During the year ended September 28, 2002,
the operations at the Aladdin were abandoned (see Note 2).
F-12
R.S. Rosenbaum & Co. 212-741-7444
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Seq: 7
Cust: ARK RESTAURANTS
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Fr: 160D
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7. NOTES PAYABLE AND CREDIT FACILITY
The Company’s debt consists of the following:
Notes issued in connection with refinancing of restaurant equipment, with
interest at 8.80%, payable in monthly installments through May 2005 (a)
Revolving Credit and Term Loan Facility with interest at the prime rate,
plus 1⁄2%, due February 16, 2005 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
October 2,
2004
September 27,
2003
(In thousands)
$251
—
251
251
$ —
$ 601
6,975
7,576
350
$7,226
(a) 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.
(b) As of October 2, 2004, the Company’s Revolving Credit and Term Loan Facility (the “Facility’’)
with its main bank (Bank Leumi USA), included a $8,500,000 credit line to finance the
development and construction of new restaurants and for working capital purposes at the
Company’s existing restaurants. The credit line has a maturity date of February 12, 2005. The
Company had no borrowings outstanding on the Facility at October 2, 2004. Borrowings on the
Facility bear interest at 1⁄2% above the bank’s prime rate. The Facility also includes a $500,000
letter of credit facility for use in lieu of lease security deposits. The Company had delivered
$354,000 in irrevocable letters of credit on this Facility. The Company generally is required to pay
commissions of 11⁄2% per annum on outstanding letters of credit.
The Company’s subsidiaries each guaranteed the obligations of the Company under the foregoing
Facility 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 Facility.
The Facility 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 Facility also requires the Company to comply with certain financial covenants at
the end of each quarter 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. In
December 2001 and April 2002, certain covenants in the Facility were modified for fiscal 2002
and beyond. The Company violated a covenant related to a limitation on cash flow during the
quarter ended October 2, 2004. The Company received a waiver through December 31, 2004 from
Bank Leumi USA for the covenant with which it was not in compliance. The Company has
historically received waivers for any covenant violation.
In September 2001, a subsidiary of the Company entered into a lease agreement with World
Entertainment Centers LLC regarding the leasing of premises at the Neonopolis Center at
Freemont Street in Las Vegas, Nevada for the restaurant Saloon. The Company provided a lease
guaranty (“Guaranty’’) to induce the landlord to enter into the lease agreement. The Guaranty was
for a term of two years from the date of the opening of the Saloon, May 2002, and during the
first year of the Guaranty was in the amount of $350,000. Upon the first anniversary of the
opening of the Saloon, May 2003, the Guaranty was reduced to $175,000 and expired in
May 2004.
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 2025. Most of the leases provide for the
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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 October 2, 2004, future minimum lease payments, net of sublease rentals, under noncancelable
leases are as follows:
Fiscal Year
Amount
(In thousands)
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,356
7,451
4,622
3,342
2,856
9,907
Total minimum payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$35,534
In connection with the leases included in the table above, the Company obtained and delivered
irrevocable letters of credit in the aggregate amount of $354,000 as security deposits under such
leases.
Rent expense was $12,104,000, $11,027,000 and $10,737,000 during the fiscal years ended October 2,
2004, September 27, 2003 and September 28, 2002, respectively. Contingent rentals, included in rent
expense, were $4,153,000, $3,366,000 and $3,198,000 for the fiscal years ended October 2, 2004,
September 27, 2003 and September 28, 2002, respectively.
In August 2004, the Company entered into a lease agreement to operate a Gallagher’s Steakhouse and
separate bar, yet to be named, at the Resorts International Hotel and Casino in Atlantic City, New
Jersey. The landlord has agreed to contribute up to $3,000,000 towards the construction of these
facilities which the Company believes will be sufficient to complete construction. The restaurant and
bar are scheduled to open in July 2005. The future minimum lease payments from these lease
agreements are included in the above schedule.
Legal Proceedings—In the ordinary course of its business, the Company is a party to various lawsuits
arising from accidents at its restaurants and worker’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’s consolidated financial
statements or operations.
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, three were discharged for
valid reasons, four employees were disciplined lawfully and two employees were disciplined
unlawfully. On appeal, the NLRB found that the Company lawfully disciplined five employees, and
unlawfully disciplined one employee. The Company appealed the adverse rulings of the NLRB to the
D.C. Circuit Court of Appeals. In July 2003, the D.C. Circuit Court of Appeals affirmed the
determinations of the NLRB. The Company offered to reinstate the employees during fiscal 2004 and
they refused. The Company incurred no liability as a result.
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 year ended October 2, 2004 the
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Company repurchased 2,500 shares at a total cost of $35,000. For the years ended September 27,
2003 and September 28, 2002, there were no repurchases of common stock.
10. STOCK OPTIONS
The Company has a Stock Option Plan (the “Plan’’) pursuant to which the Company reserved for
issuance an aggregate of 1,098,000 shares of common stock. Options granted under the Plan 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:
2004
2003
2002
Weighted
Average
Exercise
Price
Shares
Shares
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Outstanding, beginning of year . . . . . .
392,500 $ 7.91
392,500
$7.91
330,000 $10.72
Options:
Granted . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . .
Canceled or expired . . . . . . . . . . .
—
(212,500)
(2,000)
Outstanding, end of year (a) . . . . . . . .
178,000
Exercise price, outstanding options . . $6.30–7.50
Weighted average years . . . . . . . . . . . . . 2.14 Years
371,000
Shares available for future grant . . . .
60,500
Options exercisable (a) . . . . . . . . . . . . .
9.18
10.00
6.30
6.30
—
—
—
392,500
7.91
240,000
—
(177,500)
392,500
6.30
10.24
7.91
$6.30–10.00
2.06 Years
371,000
220,000
$6.30–10.00
3.06 Years
371,000
168,000
9.10
10.00
(a) Options become exercisable at various times until expiration dates ranging from December 2003
through December 2006.
11. MANAGEMENT FEE INCOME
As of October 2, 2004, the Company provides management services to two fast food courts and one
restaurant it does not own. In accordance with the contractual arrangements, the Company earns
management fees based on operating profits as defined by the agreement.
Management fee income relating to these services was $386,000, $120,000 and $30,000 for the years
ended October 2, 2004, September 27, 2003 and September 28, 2002, respectively.
Restaurants managed had sales of $9,566,000, $2,765,000 and $2,973,000 during the management
periods within the years ended October 2, 2004, September 27, 2003 and September 28, 2002,
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-15
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Fr: 40D
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The provision (benefit) for income taxes attributable to continuing and discontinued operations consists
of the following:
Current provision (benefit):
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred provision (benefit):
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended
October 2,
2004
September 27,
2003
September 28,
2002
(In thousands)
$2,168
514
2,682
259
(403)
(144)
$1,534
316
1,850
3
(797)
(794)
$(2,151)
872
(1,279)
2,784
(86)
2,698
$2,538
$1,056
$ 1,419
The provision for income taxes differs from the amount computed by applying the Federal statutory
rate due to the following:
Years Ended
October 2,
2004
September 27,
2003
September 28,
2002
(In thousands)
Provision for Federal income taxes (34%) . . . . . . . . . . . . . . . . . . .
State and local income taxes net of Federal tax benefit . . . . . . .
Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local net operating loss carryforward allowance
adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,126
334
—
(591)
(414)
83
$1,488
208
—
(132)
(445)
(63)
$1,920
575
26
(755)
—
(347)
$2,538
$1,056
$1,419
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension withdrawal liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
October 2,
2004
September 27,
2003
(In thousands)
$ 2,128
377
5,024
(1,598)
(107)
(486)
(270)
153
—
$ 5,221
$ 2,206
458
5,472
(2,140)
(151)
(900)
(270)
—
228
$ 4,903
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 $486,000 at October 2,
2004, $900,000 at September 27, 2003 and $1,031,000 at September 28, 2002. The Company
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decreased its allowance for the utilization of the deferred tax asset arising from state and local
operating loss carryforwards by $395,000 and $445,000 for the years ended October 2, 2004 and
September 27, 2003, respectively, based on the merger of certain unprofitable subsidiaries into
profitable ones. The Company has state operating loss carryforwards of $27,371,000, which expire in
the years 2004 through 2018.
During the fiscal year ended September 27, 2003, 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 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:
Purchasing service fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
World Trade Center Recovery Grants (a) . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended
October 2,
2004
September 27,
2003
September 28,
2002
(In thousands)
$ 61
—
534
$595
$ 58
508
407
$973
$123
—
338
$461
(a) During the fiscal year ended September 27, 2003, the Company applied for grants to the World
Trade Center Business Recovery Grant Program for four restaurants located in downtown New
York. The program was established to compensate businesses for economic losses resulting from
the September 11, 2001 disaster. As a result of our applications, the Company received
compensation of $508,000 during the fourth quarter of the year ended September 27, 2003.
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 years ended October 2, 2004, September 27, 2003 and September 28, 2002 follows.
Per-Share
Income
(Numerator)
Amount
(In thousands, except per share amounts)
Shares
(Denominator)
Year ended October 2, 2004:
Basic EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended September 27, 2003:
Basic EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year ended September 28, 2002:
Basic EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,657
—
$6,657
$3,319
—
$3,319
$4,229
—
$4,229
3,305
139
3,444
3,181
32
3,213
3,181
25
3,206
$ 2.01
(0.08)
$ 1.93
$ 1.04
(0.01)
$ 1.03
$ 1.33
(0.01)
$ 1.32
For the years ended September 27, 2003 and September 28, 2002, stock options for shares of 168,000
and 178,000, respectively, were not included in the computation of diluted EPS because to do so
would have been antidilutive.
F-17
R.S. Rosenbaum & Co. 212-741-7444
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15. QUARTERLY INFORMATION (UNAUDITED)
The following table sets forth certain quarterly operating data.
2004
Food and beverage sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income from continuing operations . . . . . . . . . . . . . . .
Net income (loss) from discontinued operations . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per share information—basic and diluted:
Continuing operations basic . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations basic . . . . . . . . . . . . . . . . . . . . . . . .
Net basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continuing operations diluted . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations diluted . . . . . . . . . . . . . . . . . . . . . .
Net diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Quarters Ended
December 27, March 27,
2003
2004
June 26,
2004
October 2,
2004
(In thousands except per share amounts)
$24,592
418
138
556
$
$
$
$
0.13
0.05
0.18
0.13
0.04
0.17
$24,739
494
(608)
(114)
$
0.15
(0.19)
$ (0.04)
0.15
$
(0.19)
$ (0.04)
$32,504
3,094
(34)
3,060
$
$
$
$
0.89
(0.01)
0.88
0.85
(0.01)
0.84
$33,013
3,350
(195)
3,155
$
0.99
(0.06)
$ 0.93
$ 0.95
(0.06)
$ 0.89
December 28, March 29,
2002
Fiscal Quarters Ended
June 28,
2003
2003
September 27,
2003
2003
Food and beverage sales . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) from continuing operations . . . . . .
Net (loss) from discontinued operations . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per share information—basic and diluted:
Continuing operations basic . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations basic . . . . . . . . . . . . . . . . . . . . .
Net basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continuing operations diluted . . . . . . . . . . . . . . . . . . . . .
Discontinued operations diluted . . . . . . . . . . . . . . . . . . .
Net diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(In thousands except per share amounts)
$22,497
(91)
(25)
(116)
$ (0.03)
(0.01)
$ (0.04)
$ (0.03)
(0.01)
$ (0.04)
$22,338
273
(243)
30
$
$
$
$
0.05
(0.04)
0.01
0.05
(0.04)
0.01
$28,120
1,781
(162)
1,619
$
$
$
$
0.56
(0.05)
0.51
0.55
(0.05)
0.50
$29,099
2,707
(921)
1,786
$
$
$
$
0.85
(0.29)
0.56
0.84
(0.29)
0.55
16. STOCK OPTION RECEIVABLES
Stock option receivables include amounts due from officers and directors totaling $364,000 and
$655,000 at October 2, 2004 and September 27, 2003, 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 (4.25% at October 2, 2004 and 4% at September 27, 2003).
17. RELATED PARTY TRANSACTIONS
Receivables due from officers and directors, excluding stock option receivables, totaled $52,000 at
October 2, 2004 compared to $85,000 at September 27, 2003. Other employee loans totaled $278,000
at October 2, 2004 compared to $166,000 at September 27, 2003. Such loans bear interest at the
minimum statutory rate (2.24% at October 2, 2004 and 1.52% at September 27, 2003).
18. SUBSEQUENT EVENTS
On October 12, 2004 the Company announced that the Board of Directors instituted a dividend policy
by declaring a regular quarterly dividend of $.35 a share on the Company’s outstanding common stock
beginning November 1, 2004 to shareholders of record at the close of business October 22, 2004. On
November 1, 2004 the Company paid dividends of $1,187,000.
*
*
*
*
*
*
F-18
R.S. Rosenbaum & Co. 212-741-7444
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Item 6. Selected Consolidated Financial Data
The following table sets forth certain financial data for the fiscal years ended 2000 through 2004. During
fiscal year 2004, the Company sold three of its restaurants, closed one restaurant and considered one
restaurant held for sale in accordance with FAS 144. The operations of these restaurants have been
presented as discontinued operations for the 2004 fiscal year, and the Company has reclassified its
statements of operations data for the prior periods presented below, in accordance with FAS 144. This
information should be read in conjunction with the Company’s Consolidated Financial Statements and the
notes thereto beginning at page F-1.
OPERATING DATA:
Total revenue . . . . . . . . . . . . . . . . . . . . .
Cost and expenses . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . .
Other income (expense), net . . . . . . .
Income from continuing operations
before provision for income taxes
and cumulative effect of
accounting change . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . .
Income from continuing operations
before the cumulative effect of
accounting change . . . . . . . . . . . . . . .
Loss from discontinued operations
before benefit for income taxes
and the cumulative effect of
accounting change . . . . . . . . . . . . . . .
Benefit for income taxes . . . . . . . . . . .
Income from discontinued
operations before the cumulative
effect of accounting change . . . . . .
Cumulative effect of accounting
change—net . . . . . . . . . . . . . . . . . . . .
NET INCOME (LOSS) . . . . . . . . . . . .
NET INCOME (LOSS) PER
SHARE:
Continuing operations basic . . . . . . . .
Discontinued operations basic . . . . . .
Net basic . . . . . . . . . . . . . . . . . . . . .
Continuing operations diluted . . . . . .
Discontinued operations diluted . . . . .
Net diluted . . . . . . . . . . . . . . . . . . .
Weighted average number of
shares
October 2,
2004
Years Ended
September 28,
2002
September 27,
2003
September 29,
2001
(In thousands, except per share data)
September 30,
2000
(a)
(b)
(c)
$ 115,698
(106,081)
9,617
543
$102,733
(96,980)
5,753
403
$101,625
(95,153)
6,472
(607)
$ 106,844
(101,198)
5,646
(2,223)
$ 103,385
(100,669)
2,716
(1,621)
10,160
2,804
6,156
1,486
5,865
1,474
3,423
1,123
1,095
384
7,356
4,670
4,391
2,300
711
(965)
(266)
(1,781)
(430)
(217)
(55)
(13,614)
(4,466)
(699)
(1,351)
—
6,657
—
3,319
$
$
$
$
$
$
2.22
(0.21)
2.01
2.13
(0.20)
1.93
$
$
$
$
$
$
1.46
(0.42)
1.04
1.45
(0.42)
1.03
$
$
$
$
$
$
(162)
—
4,229
1.38
(0.05)
1.33
1.37
(0.05)
1.32
3,181
3,206
(9,148)
—
(6,848)
0.72
(2.88)
(2.16)
0.72
(2.88)
(2.16)
3,181
3,186
$
$
$
$
$
$
(6,535)
(2,290)
(4,245)
(189)
(3,723)
0.16
(1.33)
(1.17)
0.16
(1.33)
(1.17)
3,461
3,476
$
$
$
$
$
$
Basic . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . .
3,305
3,444
3,181
3,213
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 . . . . .
$ 44,894
1,263
—
34,200
10.08
$ 43,635
(4,802)
7,226
24,826
7.80
$ 47,960
(7,990)
9,547
21,446
6.74
$ 53,091
(6,569)
21,700
17,173
5.40
$ 66,297
(5,460)
24,447
24,065
7.55
48
41
49
47
41
(footnotes continued on next page)
F-19
R.S. Rosenbaum & Co. 212-741-7444
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File: 349G.;13
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(footnotes continued from previous page)
(a) Fiscal 2003 income was adversely affected by an asset impairment charge of $667,000 related to
the fixed assets of a restaurant, Lutece, located in New York.
(b) Fiscal 2001 income was adversely affected by an asset impairment charge of $10,045,000 related
to the Aladdin operations and a charge of $935,000 due to the cancellation of a development
project.
F-20
CORPORATE INFORMATION
BOARD OF DIRECTORS
Michael Weinstein
Chairman, 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
Marcia Allen
President, Allen & Associates
Bruce Lewin
Member, Continental Hosts, Ltd.
Steve Shulman
President, Managing Director, Hampton Group Inc.
Arthur Stainman
Senior Managing Director, First Manhattan Co.
Edward Lowenthal
President, Ackeman Management, LLC
EXECUTIVE OFFICE
AUDITORS
85 Fifth Avenue
New York, NY 10003
(212) 206-8800
J.H. Cohn LLP
1212 Avenue of the Americas
New York, NY 10036
TRANSFER AGENT
COUNSEL
Continental Stock Transfer
17 Battery Place
New York, NY 10004
Vandenberg & Feliu
110 East 42nd Street
New York, NY 10017
20