Ark
Restaurants
Corp.
2013 ANNUAL REPORT
The Company
We are a New York corporation formed in 1983. As of the fiscal year ended September 28, 2013, we owned
and/or operated 20 restaurants and bars, 22 fast food concepts and catering operations through our
subsidiaries. Initially our facilities were located only in New York City. As of the fiscal year ended
September 28, 2013, five of our restaurant and bar facilities are located in New York City, three are located in
Washington, D.C., seven are located in Las Vegas, Nevada, three are located in Atlantic City, New Jersey,
one is located at the Foxwoods Resort Casino in Ledyard, Connecticut and one is located in the Faneuil Hall
Marketplace in Boston, Massachusetts.
In addition to the shift from a Manhattan-based operation to a multi-city operation, the nature of the facilities
operated by us has shifted from smaller, neighborhood restaurants to larger, destination properties intended to
benefit from high patron traffic attributable to the uniqueness of the location. Most of our properties which
have been opened in recent years are of the latter description. As of the fiscal year ended September 28,
2013, these include the operations at the 12 fast food facilities in Tampa, Florida and Hollywood, Florida,
respectively (2004); the Gallagher’s Steakhouse and Gallagher’s Burger Bar in the Resorts Atlantic City
Hotel and Casino in Atlantic City, New Jersey (2005); The Grill at Two Trees at the Foxwoods Resort Casino
in Ledyard, Connecticut (2006); Durgin Park Restaurant and the Black Horse Tavern in the Faneuil Hall
Marketplace in Boston, Massachusetts (2007); Yolos at the Planet Hollywood Resort and Casino in Las
Vegas, Nevada (2007); Robert at the Museum of Arts & Design at Columbus Circle in Manhattan (2010);
Clyde Frazier’s Wine and Dine in Manhattan (2012); and Broadway Burger Bar and Grill in the Quarter at the
Tropicana Hotel and Casino in Atlantic City, New Jersey (2013).
The names and themes of each of our restaurants are different except for our two Gallagher’s Steakhouse’s
and our two Broadway Burger Bar and Grill’s. The menus in our restaurants are extensive, offering a wide
variety of high-quality foods at generally moderate prices. The atmosphere at many of the restaurants is
lively and extremely casual. Most of the restaurants have separate bar areas, are open seven days a week and
most serve lunch as well as dinner. A majority of our net sales are derived from dinner as opposed to lunch
service.
While decor differs from restaurant to restaurant, interiors are marked by distinctive architectural and design
elements which often incorporate dramatic interior open spaces and extensive glass exteriors. The wall
treatments, lighting and decorations are typically vivid, unusual and, in some cases, highly theatrical.
We will provide, without charge, a copy of our Annual Report on Form 10-K for the fiscal year ended
September 28, 2013, including financial statements, exhibits and schedules thereto, to each of our
shareholders of record on February 10, 2014 and each beneficial holder on that date, upon receipt of a written
request therefore mailed to our offices, 85 Fifth Avenue, New York, NY 10003 Attention: Treasurer.
-2-
February 17, 2014
Dear Shareholders:
This was an okay year in terms of EBITDA production. Some influences on business were not in our control.
Hurricane Sandy highlighted a year of uncooperative weather. In addition we received an unwanted bid for
our company, and as always there was continued upward pressures on operating expenses. These factors
attenuated our ability to deliver a better performance and restricted cash flow into the company. Sandy closed
many of our Northeast restaurants, some for as much as a week, and in the case of Sequoia and Red the time
remaining on their leases and the damage incurred led to the decision to not reopen. The bid for our company
by another restaurant enterprise and our subsequent rejection of that bid was an expensive excursion.
Obviously, outside influences do not give management permission to ignore some core problems. We remain
committed to our restaurant Clyde’s but are still suffering substantial losses while trying to find an economic
and marketing equation that works. This year was better for Clyde’s than last and there is progress but losses
are never comfortable. Also, we are finding it difficult to increase revenues in operations outside New York.
Las Vegas is a big footprint for our company and remains a challenging environment. Customer counts are
flat or slightly in the negative, and without pressure from demand we are not confident to increase pricing.
We need price increases to maintain operating profits. Despite our efforts to control operating costs they
inevitably have the wind at their back and head higher. Our Florida operations had their first down year in
revenue after years of double digit increases in comparative sales. The casinos we service in Florida changed
their policy on couponing meals which had a negative impact. Our restaurants in Washington D.C. and
Boston saw slight sales declines as well. And finally in the last couple of years we have lost some restaurants
that were EBITDA productive as the term on leases ran out and we were unable to renegotiate to keep us in
those locations.
This all leads to related questions. The first, what was the economic justification to turn away a bid for our
company and does management have a sufficient level of confidence in the assets of the company that further
lends support to its decision. The second is if the business is not for sale at the current market capitalization
what is the plan going forward.
For fiscal 2013 we had operating income at the restaurants of approximately $21 million (this is before
depreciation and General and Administrative costs). Most of this operating income came from leases that
have reasonable term remaining. Of the $21 million approximately $8.7 million is generated from Las Vegas
which has been under revenue pressure for the last six years. We believe that a new development project
underway at New York New York in Las Vegas will bring that property new relevance and increased demand
for our operations. We therefore are projecting better results in Vegas once the construction is completed
albeit not a full recovery to the 2007 level. Not being in the fortune telling business it is somewhat difficult to
forecast the liquidity of assets in our portfolio at any moment in time but economic returns do have value to
rational buyers. We have strong long term tenant leases in New York, Vegas and Florida. We believe those
leases which come with substantial operating profit would be of greater value if sold to a rational buyer than
the bid for the entire company which we rejected. Further we strongly believe that other assets held have
promise to deliver additional shareholder value and the combination of these factors more than suggested that
the proposed bid for our company was inadequate.
Operating profits from leases are not always depreciating values subject to discounting when real estate
values and rents are relatively stable. In such an economic environment leases that come due can generally be
extended at reasonable rents. But when commercial real estate pricing outperforms our ability to increase
pricing for our products then a discount applied to operating profits is totally appropriate in assessing the
value of leases to ownership. In the past two fiscal years lease terms offered by landlord/developers for
renewal of several of our operations were decisively onerous which led us to shrink our portfolio. As we
remain conservative it is increasingly difficult to find opportunities where rents fit our equation and allow
-3-
expansion of our portfolio with a favorable risk reward ratio. Despite our current losses at Clyde’s the saving
grace is an exceptionally favorable rent which allows us the time to work at it.
The reality of escalating market rents has altered our thought process and guided us to look at our business
differently. We have proceeded on two new ventures that represent a rethinking of how we should proceed to
add value. We have closed on a limited partnership in which we are an 11.6% partner for the operation of the
New Meadowlands Racetrack in northern New Jersey. We did this with the expectation, not the certainty,
that this location has an opportunity to be granted a casino license in the next several years. If a casino license
is granted to this limited partnership our 11.6% partnership interest will likely be diluted as substantial
additional capital will be needed for construction. However we strongly believe that this partnership interest
will be of significant value. Also as a condition to our investment in the limited partnership we received
exclusive rights to the food and beverage operations in the casino if it becomes a reality. This exclusive is
subject to one exception. Hard Rock is also a partner in the venture and will operate a Hard Rock Café. The
Limited Partnership has a favorable 40 year lease with the State of New Jersey and our leases for the casino’s
food and beverage operations will fit well within the parameters of our conservative thinking. In addition to
the New Meadowlands Racetrack partnership we presently have a signed contract for the purchase of the
Rustic Inn in Fort Lauderdale Florida. This has been a successful business for decades and comes with hard
working and intelligent management. The purchase price includes the ownership of the land and buildings as
well as the restaurant operation. We believe that the success of the Rustic Inn can be extended to other
locations in the Florida market.
To the extent that we succeed in these ventures our future operating profits should be more reliable and not
subject to the discounted valuations we face with shorter term leases. The lease at the racetrack with the State
of New Jersey is of a longer term than any lease in our current portfolio. Owning the property of the Rustic
Inn eliminates future renegotiation of lease terms. Obviously we are interested in securing more situations
that give us longer term expectations. These will be hard to find but we have found two so I suspect there are
more to come. We want to be working for the long term interest of our shareholders.
Sincerely,
Michael Weinstein,
Chairman and Chief Executive Officer
-4-
ARK RESTAURANTS CORP.
Corporate Office
Michael Weinstein, Chairman and Chief Executive Officer
Robert Stewart, President, Chief Financial Officer and Treasurer
Vincent Pascal, Senior Vice President and Chief Operating Officer
Paul Gordon, Senior Vice President-Director of Las Vegas Operations
Walter Rauscher, Vice President-Corporate Sales & Catering
Nancy Alvarez, Controller
Marilyn Guy, Director of Human Resources
Jennifer Sutton, Director of Operations-Washington D.C.
Donna McCarthy, Director of Operations – Atlantic City
Scott Moon, Director of Catering-Washington D.C.
Andrea O’Brien, Director of Tour and Travel
John Oldweiler, Director of Purchasing
Luis Gomes, Director of Purchasing – Las Vegas Operations
Linda Clous, Director of Facilities Management
Evyette Ortiz, Director of Marketing
Veronica Mijelshon, Director of Architecture and Design
Oona Cassidy, Counsel and Secretary
Teresita Mendoza, Controller – Las Vegas Operations
Craig Tribus, Director of Operations – Las Vegas Operations
Welner Villatoro, Director of Maintenance – Las Vegas Operations
Nicole Calix Coy, Director of Human Resources – Las Vegas Operations
Corporate Executive Chef
David Waltuck
Executive Chefs
Damien McEvoy, Las Vegas
Sergio Soto, Atlantic City, NJ
Restaurant General Managers-New York
Ruperto Ramirez, Canyon Road
Dianne Ashe-Giovannone, El Rio Grande
Donna Simms, Bryant Park Grill
Ana Harris, Robert
Jennifer Jordan, Clyde Frazier’s Wine and Dine
Bridgeen Rice, Clyde Frazier’s Wine and Dine
Restaurant General Managers-Washington D.C.
Bender Gamiao, Thunder Grill & Center Café
Maurizio Reyes, Sequoia
Restaurant General Manager-Atlantic City, NJ
Rosalina Iannucci, Gallagher’s Steakhouse and Gallagher’s Burger Bar
Restaurant General Managers-Las Vegas
Charles Gerbino, Las Vegas Employee Dining Facility
John Hausdorf, Las Vegas Room Service
-5-
Restaurant General Managers-Las Vegas (continued)
Geri Ohta, Director of Sales and Catering
Kelly Rosas, America
Mary Massa, Gonzalez y Gonzalez
Craig Tribus, Gallagher’s Steakhouse
Ivonne Escobedo, Village Streets
Jeff Stein, Broadway Burger Bar & Grill
Fidencio Chavez, Venetian Food Court
Christopher Waltrip, V-Bar
Staci Green, Yolos Mexican Grill
Restaurant General Manager-Boston
Patricia Reyes, Durgin-Park
Restaurant Chef-Boston
Melicia Phillips, Durgin-Park
Restaurant General Managers-Florida
Darvin Prats, Tampa Food Court
Restaurant General Manager-Foxwoods
Matilda Santana, Manager of Connecticut Operations
Keri House, The Grill at Two Trees
Restaurant Chefs-New York
Fermin Ramirez, El Rio Grande
Ruperto Ramirez, Canyon Road Grill
Gadi Weinreich, Bryant Park Grill
Louisa Fernandez, Robert
Armando Cortes, Clyde Frazier’s Wine and Dine
Restaurant Chefs-Washington D.C.
Michael Foo, Thunder Grill & Center Café
Fanor Baldarrama, Sequoia
Restaurant Chefs-Las Vegas
Jerome Lingle, America
Paul Savoy, Gallagher’s Steakhouse
Richard Harris, Banquets
Steve Shoun, Las Vegas Employee Dining Facility
Sergio Salazar, Gonzalez y Gonzalez
Justin Vega, Yolos Mexican Grill
Adam Payne, The Sporting House
Bernard Camat, Broadway Burger Bar & Grill
Restaurant Chefs-Florida
Artemio Espinoza, Hollywood Food Court
Nolberto Vernal, Tampa Food Court
Restaurant Chef-Foxwoods
Rosalio Fuentes, The Grill at Two Trees
-6-
Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
As of September 28, 2013, the Company owned and operated 20 restaurants and bars, 22 fast food concepts
and catering operations, exclusively in the United States, that have similar economic characteristics, nature of
products and service, class of customer and distribution methods. The Company believes it meets the criteria
for aggregating its operating segments into a single reporting segment in accordance with applicable
accounting guidance.
Accounting Period
Our fiscal year ends on the Saturday nearest September 30. We report 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 28, 2013 and September 29, 2012 included 52 weeks.
Seasonality
The Company has substantial fixed costs that do not decline proportionally with sales. The first and second
fiscal quarters, which include the winter months, usually reflect lower customer traffic than in the third and
fourth fiscal quarters. In addition, sales in the third and fourth fiscal quarters can be adversely affected by
inclement weather due to the significant amount of outdoor seating at the Company’s restaurants.
Results of Operations
The Company’s operating income of $6,606,000 for the year ended September 28, 2013 decreased 33.9%
compared to operating income of $9,991,000 for the year ended September 29, 2012. This decrease resulted
from a combination of factors including: (i) decreased traffic at our properties in Washington, DC due to poor
weather and increased competition, (ii) increased competition and a decrease in the usage of complimentaries
by the ownership of the casinos at our Florida properties, (iii) professional fees related to the unsolicited bid
made for the Company by Landry’s, (iv) the negative impact of additional competition without a
corresponding increase in overall traffic in Las Vegas, (v) the closure of our properties Red and Sequoia
located in New York, NY in October 2012 as a result of a hurricane, and (vi) early operating losses in the
amount of $100,000 at our new restaurant, Broadway Burger Bar, at the Tropicana Hotel and Casino in
Atlantic City, NJ, all partially offset by strong catering revenues in NY combined with a significant
improvement in the performance of Clyde Frazier’s Wine and Dine, which opened in March 2012.
-7-
The following table summarizes the significant components of the Company’s operating results for the years
ended September 28, 2013 and September 29, 2012, respectively:
Year Ended
Variance
S eptember 28,
2013
S eptember 29,
2012
(in thousands)
$
%
REVENUES:
Food and beverage sales
Other revenue
Total revenues
COSTS AND EXPENSES:
Food and beverage cost of sales
Payroll expenses
Occupancy expenses
Other operating costs and expenses
General and administrative expenses
Impairment loss
Depreciation and amortization
$
129,122
1,476
$
136,914
1,114
$ (7,792)
362
130,598
138,028
(7,430)
32,791
42,488
17,533
17,085
9,792
-
4,303
35,157
43,406
17,702
17,915
9,368
379
4,110
(2,366)
(918)
(169)
(830)
424
193
(379)
-100.0%
-5.7%
32.5%
-5.4%
-6.7%
-2.1%
-1.0%
-4.6%
4.5%
4.7%
-3.2%
Total costs and expenses
123,992
128,037
(4,045)
OPERATING INCOM E
$
6,606
$
9,991
$ (3,385)
-33.9%
Revenues
During the Company’s year ended September 28, 2013, revenues decreased 5.4% compared to the year ended
September 29, 2012. This decrease is primarily due to: (i) a net decrease in same store sales of $3,827,000, as
discussed below and (ii) the closure of our properties Red and Sequoia located in New York, NY in October
2012 as a result of Hurricane Sandy, partially offset by revenues related to our new restaurants in New York
City, Clyde Frazier’s Wine and Dine (opened in March 2012), and Atlantic City, NJ, The Burger Bar and
Grill at the Tropicana Hotel and Casino (opened in June 2013).
-8-
Food and Beverage Same-Store Sales
On a Company-wide basis, same store food and beverage sales decreased 3.0% for the year ended September
28, 2013 as compared to the year ended September 29, 2012 as follows:
Year Ended
Variance
S eptember 28,
2013
S eptember 29,
2012
(in thousands)
$
%
$
55,100
31,413
14,744
3,078
3,767
3,751
13,739
$
57,150
29,128
16,506
3,485
3,792
3,855
15,503
$
(2,050)
2,285
(1,762)
(407)
(25)
(104)
(1,764)
125,592
3,530
129,419
$
(3,827)
7,495
-3.6%
7.8%
-10.7%
-11.7%
-0.7%
-2.7%
-11.4%
-3.0%
Las Vegas
New York
Washington, DC
Atlantic City, NJ
Boston
Connecticut
Florida
Same store sales
Other
Food and beverage sales
$
129,122
$
136,914
Same store sales in Las Vegas decreased by 3.6% in fiscal 2013 compared to fiscal 2012 primarily as a result
of the negative impact of additional competition without a corresponding increase in overall traffic. Same-
store sales in New York (which exclude the Red and Sequoia properties as they were closed in October 2012)
increased 7.8% as a result of strong catering revenues. Same-store sales in Washington, DC decreased 10.7%
primarily as a result of decreased traffic due to poor weather as compared to last year and increased
competition. Same-store sales in Atlantic City decreased 11.7% due to the continued decline in overall traffic
in Atlantic City, NJ. Same-store sales in Boston were consistent from year to year as expected. Same-store
sales in Connecticut decreased 2.7% due to declining traffic at the Foxwoods Resort and Casino where our
properties are located. Same-store sales in Florida decreased 11.4% due to increased competition at one of
our properties combined with a decrease in the usage of complimentaries by the ownership of the casinos
where our properties are located. Other food and beverage sales consist of sales related to new restaurants
opened during the applicable period and sales related to properties that were closed during the period due to
lease expiration and other closures and, therefore, not included in discontinued operations.
Our restaurants generally do not achieve substantial increases in revenue from year to year, which we
consider to be typical of the restaurant industry. To achieve significant increases in revenue or to replace
revenue of restaurants that lose customer favor or which close because of lease expirations or other reasons,
we would have to open additional restaurant facilities or expand existing restaurants. There can be no
assurance that a restaurant will be successful after it is opened, particularly since in many instances we do not
operate our new restaurants under a trade name currently used by us, thereby requiring new restaurants to
establish their own identity.
Other Revenue
The increase in Other Revenue for fiscal 2013 as compared to fiscal 2012 is primarily due to an increase in
purchase service fees.
-9-
Costs and Expenses
Costs and expenses from continuing operations for the years ended September 28, 2013 and September 29,
2012 were as follows (in thousands):
Year Ended
S eptember 28,
2013
%
to Total
Re ve nue s
Year Ended
S eptember 29,
2012
%
to Total
Re ve nue s
Increase
(Decrease)
$
%
Food and beverage cost of sales
Payroll expenses
Occupancy expenses
Other operating costs and expenses
General and administrative expenses
Impairment loss from write-down of long-lived assets
Depreciation and amortization
$
32,791
42,488
17,533
17,085
9,792
-
4,303
25.1%
32.5%
13.4%
13.1%
7.5%
0.0%
3.3%
$
35,157
43,406
17,702
17,915
9,368
379
4,110
25.5%
31.4%
12.8%
13.0%
6.8%
0.3%
3.0%
$
(2,366)
(918)
(169)
(830)
424
(379)
193
-6.7%
-2.1%
-1.0%
-4.6%
4.5%
-100.0%
4.7%
$
123,992
$
128,037
$
(4,045)
Food and beverage costs as a percentage of total revenues for the year ended September 28, 2013 decreased as
compared to the year ended September 29, 2012 as a result of improved menu costing partially offset by
higher commodity prices.
Payroll expenses as a percentage of total revenues for the year ended September 28, 2013 increased as
compared to the year ended September 29, 2012 due primarily to severance payments to employees of closed
properties.
Occupancy expenses as a percentage of total revenues for the year ended September 28, 2013 increased as
compared to the year ended September 29, 2012 as a result of lower sales at properties where rents are
relatively fixed partially offset by a reduction in costs related to properties that were closed (as discussed
above) due to flooding from Hurricane Sandy.
Other operating costs and expenses as a percentage of total revenues for the year ended September 28, 2013
remained static as compared to the year ended September 29, 2012. A slight decrease in total costs were the
result of: (i) non-recurring expenses in the prior period associated with one of our properties, and (ii) a
reduction in other operating costs and expenses related to properties that were closed (as discussed above) due
to flooding from Hurricane Sandy, partially offset by losses related to the closure of the two properties in
New York combined with expenses associated with the opening of Clyde Frazier’s Wine & Dine in March
2012.
During the year ended September 29, 2012, the Company recorded a charge of $379,000 to impair the
leasehold improvements and equipment of an underperforming restaurant.
General and administrative expenses (which relate solely to the corporate office in New York City) as a
percentage of total revenues for the year ended September 28, 2013 increased as compared to the year ended
September 29, 2012 primarily as a result of share-based compensation and professional fees related to the
unsolicited bid made for the Company by Landry’s, Inc. partially offset by the inclusion of our former
President’s severance in the prior period in connection with his resignation in December 2011.
-10-
Income Taxes
The provision for income taxes reflects federal income taxes calculated on a consolidated basis and state and
local income taxes which are calculated on a separate entity basis. Most of the restaurants we own or manage
are owned or managed by a separate legal entity.
For state and local income tax purposes, certain 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, our overall effective tax rate has varied depending on the level of income and losses incurred at
individual subsidiaries.
Our overall effective tax rate in the future will be affected by factors such as the level of losses incurred at our
New York City 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 we operate 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, we have merged certain profitable subsidiaries with certain loss subsidiaries.
The Revenue Reconciliation Act of 1993 provides tax credits to us for FICA taxes paid on tip income of
restaurant service personnel. The net benefit to us was $531,000 and $564,000 in fiscal 2013 and 2012,
respectively.
Liquidity and Capital Resources
Our primary source of capital has been cash provided by operations. We utilize cash generated from
operations to fund the cost of developing and opening new restaurants, acquiring existing restaurants owned
by others and remodeling existing restaurants we own; however, in recent years, we have utilized bank and
other borrowings to finance specific transactions.
Net cash flow provided by operating activities for the year ended September 28, 2013 was $13,059,000,
compared to $13,423,000 for the prior year. This decrease was primarily attributable to the decrease in
operating income as discussed above, partially offset by changes in net working capital.
Net cash used in investing activities for the year ended September 28, 2013 was $10,380,000 and resulted
primarily from the purchases of fixed assets at existing restaurants, the construction of the Broadway Burger
Bar and Grill in Atlantic City, NJ, the purchase of the Florida membership interests and the investment in
New Meadowlands Racetrack LLC.
Net cash used in investing activities for the year ended September 29, 2012 was $5,862,000 and resulted from
the purchases of fixed assets at existing restaurants and the construction of Clyde Frazier’s Wine and Dine in
New York City offset by net proceeds from the sales of investment securities.
Net cash used in financing activities for the year ended September 28, 2013 of $2,636,000 resulted from the
payment of dividends, principal payments on notes payable and distributions to non-controlling interests
offset by proceeds of $3,000,000 from the issuance of a note payable to a bank.
Net cash used in financing activities for the year ended September 29, 2012 of $6,636,000 was principally
used for the payment of dividends, purchase of treasury stock and distributions to non-controlling interests.
The Company had a working capital surplus of $306,000 at September 28, 2013 as compared to a working
capital surplus of $4,061,000 at September 29, 2012. We believe that our existing cash balances, cash
provided by operations and availability of bank borrowings, as needed, will be sufficient to meet our liquidity
and capital spending requirements at least through the next 12 months.
On December 28, 2012, April 4, 2013, July 2, 2013 and October 8, 2013, the Company paid quarterly cash
dividends in the amount of $0.25 per share on the Company’s common stock. The Company intends to
-11-
continue to pay such quarterly cash dividend for the foreseeable future, however, the payment of future
dividends is at the discretion of the Company’s Board of Directors and is based on future earnings, cash flow,
financial condition, capital requirements, changes in U.S. taxation and other relevant factors
On June 7, 2011, the Company entered into a 10-year exclusive agreement to manage a yet to be constructed
restaurant and catering service at Basketball City in New York City in exchange for a fee of $1,000,000 (all of
which was been paid as of September 29, 2012 and is included in Intangible Assets in the accompanying
Consolidated Balance Sheet as of September 29, 2012). Under the terms of the agreement, the owner of the
property was to construct the facility at their expense and the Company was to pay the owner an annual fee
based on sales, as defined in the agreement. As of September 28, 2013, the owner had not delivered the
facility to the Company and the parties executed a promissory note for repayment of the $1,000,000
exclusivity fee. The note bears interest at 4.0% per annum and is payable in 48 equal monthly installments of
$22,579, commencing on December 1, 2013.
Restaurant Expansion
On March 18, 2011, a subsidiary of the Company entered into a lease agreement to operate a restaurant and
bar in New York City named Clyde Frazier’s Wine and Dine. In connection with the agreement, the landlord
contributed $1,800,000 towards the construction of the property (which has been deferred over the lease
term), which totaled approximately $7,000,000. The initial term of the lease for this facility expires on March
31, 2027 and has one five-year renewal. This restaurant opened during the second quarter of fiscal 2012 and,
as a result, the Consolidated Statement of Income for the year ended September 29, 2012 includes
approximately $1,800,000 of pre-opening and operating losses related to this property.
On November 28, 2012, a subsidiary of the Company entered into an agreement to design and lease a
restaurant at the Tropicana Hotel and Casino in Atlantic City, NJ. The cost to construct this restaurant was
approximately $1,500,000. The initial term of the lease for this facility expires June 7, 2023 and has two five-
year renewals. The restaurant, Broadway Burger Bar and Grill, opened during the third quarter of fiscal 2013
and, as a result, the Consolidated Statement of Income for the year ended September 28, 2013 includes
approximately $100,000 of pre-opening and early operating losses related to this property.
On November 22, 2013, the Company, through a wholly-owned subsidiary, Ark Rustic Inn LLC, entered into
an Asset Purchase Agreement with W and O, Inc. to purchase the Rustic Inn Crab House, a restaurant and bar
in Dania Beach, Florida, for $7,500,000 plus inventory. The acquisition is scheduled to close on or before
February 28, 2014, subject to satisfactory completion of due diligence, execution of employment and non-
competition agreements, Florida Liquor Authority approval and customary closing conditions.
The opening of a new restaurant is invariably accompanied by substantial pre-opening expenses and early
operating losses associated with the training of personnel, excess kitchen costs, costs of supervision and other
expenses during the pre-opening period and during a post-opening “shake out” period until operations can be
considered to be functioning normally. The amount of such pre-opening expenses and early operating losses
can generally be expected to depend upon the size and complexity of the facility being opened.
Our restaurants generally do not achieve substantial increases in revenue from year to year, which we
consider to be typical of the restaurant industry. To achieve significant increases in revenue or to replace
revenue of restaurants that lose customer favor or which close because of lease expirations or other reasons,
we would have to open additional restaurant facilities or expand existing restaurants. There can be no
assurance that a restaurant will be successful after it is opened, particularly since in many instances we do not
operate our new restaurants under a trade name currently used by us, thereby requiring new restaurants to
establish their own identity.
We may take advantage of other opportunities we consider to be favorable, when they occur, depending upon
the availability of financing and other factors.
-12-
Cost Method Investment
On March 12, 2013, the Company made a $4,200,000 investment in the New Meadowlands Racetrack LLC
(“NMR”) through its purchase of a membership interest in Meadowlands Newmark, LLC, an existing
member of NMR. In conjunction with this investment, the Company also entered into a long-term agreement
with NMR to provide food and beverage services for the new racing facilities at the Meadowlands Racetrack
in northern New Jersey. NMR has a long-term lease with the State of New Jersey and the new facility opened
in November 2013. The Company’s agreement extends to any future development at the race track site. On
November 19, 2013, the Company invested an additional $464,000 in NMR through a purchase of an
additional membership interest in Meadowlands Newmark, LLC, resulting in a total ownership of 11.6%.
Recent Restaurant Dispositions and Charges
Lease Expirations – On July 8, 2011, the Company entered into an agreement with the landlord of The Grill
Room property located in New York City, whereby in exchange for a payment of $350,000 the Company
vacated the property on October 31, 2011. Such payment and the related loss on closure of the property, in
the amount of $179,000, are included in Other Operating Costs and Expenses in the Consolidated Statement
of Income for the year ended September 29, 2012. This lease was scheduled to expire on December 31,
2011.
The Company was advised by the landlord that it would have to vacate the America property located in
Washington, DC, which was on a month-to-month lease. The closure of this property occurred on November
7, 2011. The related loss on closure of this property, in the amount of $186,000, is included in Other
Operating Costs and Expenses in the Consolidated Statement of Income for the year ended September 29,
2012.
Discontinued Operations – Effective March 15, 2012, the Company vacated its food court operations at the
MGM Grand Casino at the Foxwoods Resort Casino in Ledyard, CT. The Company determined that it would
not be able to operate this facility profitably at this location at the current rent. As a result, the Company
recorded a disposal loss in the amount of $270,000, which was recorded during the second quarter of fiscal
2012, as well as operating losses of $155,000 for the year ended September 29, 2012, all of which are
included in discontinued operations, net of tax, in the Consolidated Statement of Income for the year ended
September 29, 2012. Included in Net Income Attributable to Non-controlling Interests in the accompanying
Consolidated Statement of Income for the year ended September 29, 2012 are losses of $33,000 attributable to
the limited partners in this property.
Other – On October 29, 2012, the Company suffered a flood at its Red and Sequoia properties located in New
York, NY as a result of a hurricane. The Company did not reopen these properties as the underlying leases
were due to expire in the second quarter of fiscal 2013. Losses related to the closure of these properties, in
the amount of $256,000, are included in Other Operating Costs and Expenses in the Consolidated Statement
of Income for the year ended September 28, 2013.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 1 to our consolidated financial
statements. While all these significant accounting policies impact our financial condition and results of
operations, we view certain of these policies as critical. Policies determined to be critical are those policies
that have the most significant impact on our consolidated financial statements and require management to use
a greater degree of judgment and estimates. Actual results may differ from those estimates.
We believe that given current facts and circumstances, it is unlikely that applying any other reasonable
judgments or estimate methodologies would cause a material effect on our consolidated results of operations,
financial position or cash flows for the periods presented in this report.
Below are listed certain policies that management believes are critical:
-13-
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires us to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. The accounting estimates
that require our most difficult and subjective judgments include allowances for potential bad debts on
receivables, inventories, the useful lives and recoverability of our assets, such as property and intangibles, fair
values of financial instruments and share-based compensation, the realizable value of our tax assets and other
matters. Because of the uncertainty in such estimates, actual results may differ from these estimates.
Long-Lived Assets
Long-lived assets, such as property, plant and equipment, and purchased intangibles subject to amortization,
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. In the evaluation of the fair value and future benefits of long-lived assets,
we perform 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 estimated future sales growth and estimated profit margins are
included in this analysis.
Management continually evaluates unfavorable cash flows, if any, related to underperforming restaurants.
Periodically it is concluded that certain properties have become impaired based on their existing and
anticipated future economic outlook in their respective markets. In such instances, we may impair assets to
reduce their carrying values to fair values. Estimated fair values of impaired properties are based on
comparable valuations, cash flows and/or management judgment. During the year ended September 29, 2012,
the Company recorded a charge of $379,000 to impair the leasehold improvements and equipment of an
underperforming restaurant. No impairment charges were necessary for the year ended September 28, 2013.
Leases
We recognize rent expense on a straight-line basis over the expected lease term, including option periods as
described below. Within the provisions of certain leases there are escalations in payments over the base lease
term, as well as renewal periods. The effects of the escalations have been reflected in rent expense on a
straight-line basis over the expected lease term, which includes option periods when it is deemed to be
reasonably assured that we would incur an economic penalty for not exercising the option. Percentage rent
expense is generally based upon sales levels and is expensed as incurred. Certain leases include both base
rent and percentage rent. We record rent expense on these leases based upon reasonably assured sales levels.
The consolidated financial statements reflect the same lease terms for amortizing leasehold improvements as
were used in calculating straight-line rent expense for each restaurant. Our judgments may produce materially
different amounts of amortization and rent expense than would be reported if different lease terms were used.
Deferred Income Tax Valuation Allowance
We provide 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 carryforwards, 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.
Goodwill and Trademarks
Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the
net identified tangible and intangible assets acquired. Trademarks, which were acquired in connection with
the Durgin Park acquisition, are considered to have an indefinite life. Goodwill and trademarks are not
amortized, but are subject to impairment analysis at least once annually or more frequently upon the
-14-
occurrence of an event or when circumstances indicate that a reporting unit's carrying amount is greater than
its fair value. At September 28, 2013, the Company performed both a qualitative and quantitative assessment
of factors to determine whether further impairment testing is required. Based on the results of the work
performed, the Company has concluded that no impairment loss was warranted at September 28, 2013.
Qualitative factors considered in this assessment include industry and market considerations, overall financial
performance and other relevant events, management expertise and stability at key positions. Additional
impairment analyses at future dates may be performed to determine if indicators of impairment are present,
and if so, such amount will be determined and the associated charge will be recorded to the Consolidated
Statements of Income.
Share-Based Compensation
The Company measures share-based compensation cost at the grant date based on the fair value of the award
and recognizes it as expense over the applicable vesting period using the straight-line method. Excess income
tax benefits related to share-based compensation expense that must be recognized directly in equity are
considered financing rather than operating cash flow activities.
The fair value of each of the Company’s stock options is estimated on the date of grant using a Black-Scholes
option-pricing model that uses assumptions that relate to the expected volatility of the Company’s common
stock, the expected dividend yield of our stock, the expected life of the options and the risk free interest rate.
During fiscal 2012, options to purchase 251,500 shares of common stock were granted and are exercisable as
to 50% of the shares commencing on the first anniversary of the date of grant and as to an additional 50%
commencing on the second anniversary of the date of grant. The Company did not grant any options during
fiscal 2013. The Company generally issues new shares upon the exercise of employee stock options.
Recent Developments
On November 22, 2013, the Company, through a wholly-owned subsidiary, Ark Rustic Inn LLC, entered into
an Asset Purchase Agreement with W and O, Inc. to purchase the Rustic Inn Crab House, a restaurant and bar
in Dania Beach, Florida, for $7,500,000 plus inventory. The acquisition is scheduled to close on or before
February 28, 2014, subject to satisfactory completion of due diligence, execution of employment and non-
competition agreements, Florida Liquor Authority approval and customary closing conditions.
On November 19, 2013, the Company invested an additional $464,000 in the New Meadowlands Racetrack
LLC (“NMR”) through a purchase of an additional membership interest in Meadowlands Newmark, LLC, an
existing member of NMR, resulting in a total ownership of 11.6%.
On December 4, 2013, the Board of Directors declared a quarterly dividend of $0.25 per share on the
Company's common stock to be paid on December 30, 2013 to shareholders of record at the close of business
on December 16, 2013.
Recently Adopted and Issued Accounting Standards
See Notes 1 and 2 of Notes to Consolidated Financial Statements for a description of recent accounting
pronouncements, including those adopted in 2013 and the expected dates of adoption and the anticipated
impact on the Consolidated Financial Statements.
Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
-15-
Market For The Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market for Our Common Stock
Our 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 our Common Stock from October 2,
2011 through September 28, 2013 are as follows:
Calendar 2011
Fourth Quarter
Calendar 2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Calendar 2013
First Quarter
Second Quarter
Third Quarter
Dividend Policy
High
Low
$
14.64
$
12.70
16.40
16.20
16.85
17.14
21.64
21.97
22.25
13.30
14.09
14.13
15.61
16.77
20.23
20.05
On December 7, 2011, March 7, 2012, May 29, 2012, September 4, 2012, November 29, 2012, March 6,
2013, June 12, 2013 and September 17, 2013 our Board of Directors declared quarterly cash dividends in the
amount of $0.25 per share. We intend to continue to pay such quarterly cash dividends for the foreseeable
future; however, the payment of future dividends is at the discretion of our Board of Directors and is based on
future earnings, cash flow, financial condition, capital requirements, changes in U.S. taxation and other
relevant factors.
-16-
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Ark Restaurants Corp.
We have audited the accompanying consolidated balance sheets of Ark Restaurants Corp. and Subsidiaries as
of September 28, 2013 and September 29, 2012, and the related consolidated statements of income,
comprehensive income, changes in equity and cash flows for each of the years in the two-year period ended
September 28, 2013. Ark Restaurants Corp. and Subsidiaries’ management is responsible for these
consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the auditing 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. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion. 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, 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 September 28, 2013 and
September 29, 2012, and their consolidated results of operations and cash flows for each of the years in the
two-year period ended September 28, 2013 in conformity with accounting principles generally accepted in the
United States of America.
/s/ CohnReznick LLP
Jericho, New York
December 23, 2013
-17-
ARK RES TAURANTS CORP. AND S UBS IDIARIES
CONS OLIDATED BALANCE S HEETS
(In Thousands, Except Per Share Amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (includes $637 at September 28, 2013 and
$714 at September 29, 2012 related to VIEs)
Short-term investments in available-for-sale securities
Accounts receivable (includes $317 at September 28, 2013 and $1,776 at September 29, 2012 related to VIEs)
Employee receivables
Inventories (includes $16 at September 28, 2013 and $28 at September 29, 2012 related to VIEs)
Prepaid and refundable income taxes (includes $163 at September 28, 2013
and $235 at September 29, 2012 related to VIEs)
Prepaid expenses and other current assets (includes $13 at September 28, 2013 and
September 29, 2012 related to VIEs)
Current portion of note receivable
Total current assets
FIXED ASSETS - Net (includes $89 at September 28, 2013 and $3,189 at September 29, 2012 related to VIEs)
NOTE RECEIVABLE, LESS CURRENT PORTION
INTANGIBLE ASSETS - Net
GOODWILL
TRADEM ARKS
DEFERRED INCOM E TAXES
OTHER ASSETS (includes $71 at September 28, 2013 and September 29, 2012 related to VIEs)
TOTAL ASSETS
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable - trade (includes $70 at September 28, 2013 and
$153 at September 29, 2012 related to VIEs)
Accrued expenses and other current liabilities (includes $140 at September 28, 2013 and
$1,950 at September 29, 2012 related VIEs)
Dividend payable
Current portion of notes payable
Total current liabilities
OPERATING LEASE DEFERRED CREDIT
NOTES PAYABLE, LESS CURRENT PORTION
TOTAL LIABILITIES
COM M ITM ENTS AND CONTINGENCIES
EQUITY:
Common stock, par value $.01 per share - authorized, 10,000 shares; issued, 4,610 shares at
at September 28, 2013 and 4,601 shares at September 29, 2012; outstanding, 3,254 shares
at September 28, 2013 and 3,245 shares at September 29, 2012
Additional paid-in capital
Retained earnings
Less treasury stock, at cost, of 1,356 shares at September 28, 2013
and September 29, 2012
Total Ark Restaurants Corp. shareholders' equity
NON-CONTROLLING INTERESTS
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
See notes to consolidated financial statements.
September 28,
2013
September 29,
2012
$
8,748
-
2,712
346
1,579
$
8,705
75
3,790
339
1,567
567
1,038
226
15,216
25,017
774
13
4,813
721
4,806
5,098
985
1,087
-
16,548
26,194
-
1,021
4,813
721
4,960
907
$
56,458
$
55,164
$
2,758
$
2,729
9,275
814
2,063
14,910
4,606
8,873
-
885
12,487
4,650
1,594
1,240
21,110
18,377
46
22,978
22,950
45,974
46
23,410
22,372
45,828
(13,220)
32,754
(13,220)
32,608
2,594
4,179
35,348
36,787
$
56,458
$
55,164
-18-
ARK RES TAURANTS CORP. AND S UBS IDIARIES
CONS OLIDATED S TATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
REVENUES:
Food and beverage sales
Other revenue
Total revenues
COSTS AND EXPENSES:
Food and beverage cost of sales
Payroll expenses
Occupancy expenses
Other operating costs and expenses
General and administrative expenses
Impairment loss from write-down of long-lived assets
Depreciation and amortization
Total costs and expenses
OPERATING INCOM E
OTHER (INCOM E) EXPENSE:
Interest expense
Interest income
Other income, net
Total other income, net
INCOM E BEFORE PROVISION FOR INCOM E TAXES
Provision for income taxes
INCOM E FROM CONTINUING OPERATIONS
Loss from discontinued operations, net of tax
CONSOLIDATED NET INCOM E
Net income attributable to non-controlling interests
Year Ended
September 28,
2013
September 29,
2012
$
129,122
1,476
$
136,914
1,114
130,598
138,028
32,791
42,488
17,533
17,085
9,792
-
4,303
123,992
6,606
62
-
(508)
(446)
7,052
1,941
5,111
-
5,111
(1,286)
35,157
43,406
17,702
17,915
9,368
379
4,110
128,037
9,991
23
(33)
(454)
(464)
10,455
3,013
7,442
(292)
7,150
(1,661)
NET INCOM E ATTRIBUTABLE TO ARK RESTAURANTS CORP.
$
3,825
$
5,489
AM OUNTS ATTRIBUTABLE TO ARK RESTAURANTS CORP.:
Income from continuing operations
Loss from discontinued operations, net of tax
Net income
NET INCOM E (LOSS) PER ARK RESTAURANTS CORP. COM M ON SHARE:
From continuing operations:
Basic
Diluted
From discontinued operations:
Basic
Diluted
From net income:
Basic
Diluted
WEIGHTED AVERAGE NUM BER OF COM M ON SHARES OUTSTANDING:
Basic
Diluted
-19-
See notes to consolidated financial statements.
$
3,825
$
5,748
-
3,825
$
(259)
5,489
$
$
$
1.18
1.13
$
$
1.75
1.73
-
$
$
-
$
$
(0.08)
(0.08)
$
$
1.18
1.13
$
$
1.67
1.65
3,246
3,371
3,292
3,327
ARK RES TAURANTS CORP. AND S UBS IDIARIES
CONS OLIDATED S TATEMENTS OF COMPREHENS IVE INCOME
(In Thousands)
Year Ended
September 28,
2013
September 29,
2012
Consolidated net income
$
5,111
$
7,150
Other comprehensive loss, net of taxes:
Unrealized loss on available-for-sale securities
Total other comprehensive loss, net of taxes
Comprehensive income
Comprehensive income attributable to non-controlling interests
-
-
5,111
(1,286)
(3)
(3)
7,147
(1,661)
Comprehensive income attributable to Ark Restaurants Corp.
$
3,825
$
5,486
See notes to consolidated financial statements.
-20-
l
a
t
o
T
y
t
i
u
q
E
-
n
o
N
k
r
A
l
a
t
o
T
s
t
n
a
r
u
a
t
s
e
R
.
p
r
o
C
g
n
i
l
l
o
r
t
n
o
c
'
s
r
e
d
l
o
h
e
r
a
h
S
y
r
u
s
a
e
r
T
k
c
o
t
S
n
o
i
t
p
O
s
t
s
e
r
e
t
n
I
y
t
i
u
q
E
k
c
o
t
S
e
l
b
a
v
i
e
c
e
R
d
e
n
i
a
t
e
R
s
g
n
i
n
r
a
E
e
v
i
s
n
e
h
e
r
p
m
o
C
e
m
o
c
n
I
n
I
-
d
i
a
P
l
a
t
i
p
a
C
d
e
t
a
l
u
m
u
c
c
A
r
e
h
t
O
l
a
n
o
i
t
i
d
d
A
k
c
o
t
S
n
o
m
m
o
C
t
n
u
o
m
A
s
e
r
a
h
S
6
8
1
,
8
3
$
1
3
8
,
4
$
5
5
3
,
3
3
$
)
5
9
0
,
0
1
(
$
)
9
2
(
$
8
2
1
,
0
2
$
3
$
2
0
3
,
3
2
$
6
4
$
1
0
6
,
4
1
1
0
2
,
1
r
e
b
o
t
c
O
-
E
C
N
A
L
A
B
2
1
0
2
,
9
2
R
E
B
M
E
T
P
E
S
D
N
A
3
1
0
2
,
8
2
R
E
B
M
E
T
P
E
S
D
E
D
N
E
S
R
A
E
Y
Y
T
I
U
Q
E
N
I
S
E
G
N
A
H
C
F
O
S
T
N
E
M
E
T
A
T
S
D
E
T
A
D
I
L
O
S
N
O
C
S
E
I
R
A
I
D
I
S
B
U
S
D
N
A
.
P
R
O
C
S
T
N
A
R
U
A
T
S
E
R
K
R
A
)
s
d
n
a
s
u
o
h
T
n
I
(
)
3
(
9
2
8
0
1
)
5
2
1
,
3
(
)
3
1
3
,
2
(
)
5
4
2
,
3
(
7
8
7
,
6
3
1
2
1
4
4
1
1
1
,
5
)
5
6
9
,
2
(
0
8
0
,
1
7
1
3
-
)
0
0
9
,
1
(
)
7
4
2
,
3
(
-
-
-
-
)
3
1
3
,
2
(
-
9
7
1
,
4
6
8
2
,
1
-
-
)
0
8
2
(
)
1
9
6
(
-
-
)
0
0
9
,
1
(
-
)
3
(
9
2
8
0
1
-
)
5
4
2
,
3
(
-
-
-
)
5
2
1
,
3
(
)
5
2
1
,
3
(
8
0
6
,
2
3
)
0
2
2
,
3
1
(
1
2
1
4
4
5
2
8
,
3
)
5
8
6
,
2
(
0
8
0
,
1
1
9
6
7
1
3
-
)
7
4
2
,
3
(
-
-
-
-
-
-
-
-
-
0
5
1
,
7
1
6
6
,
1
9
8
4
,
5
-
-
-
9
2
-
-
8
4
3
,
5
3
$
4
9
5
,
2
$
4
5
7
,
2
3
$
)
0
2
2
,
3
1
(
$
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9
8
4
,
5
-
-
-
-
-
)
5
4
2
,
3
(
2
7
3
,
2
2
5
2
8
,
3
-
-
-
-
-
-
-
)
7
4
2
,
3
(
$
0
5
9
,
2
2
$
)
3
(
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1
2
1
4
4
-
)
5
8
6
,
2
(
0
8
0
,
1
1
9
6
7
1
3
-
-
-
-
-
-
8
0
1
-
-
0
1
4
,
3
2
6
4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
s
e
i
t
i
r
u
c
e
s
e
l
a
s
-
r
o
f
-
e
l
b
a
l
i
a
v
a
n
o
s
s
o
l
d
e
z
i
l
a
e
r
n
U
e
l
b
a
v
i
e
c
e
r
n
o
i
t
p
o
k
c
o
t
s
f
o
f
f
o
-
e
t
i
r
W
e
m
o
c
n
i
t
e
N
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
n
o
t
s
n
o
i
t
u
b
i
r
t
s
i
D
e
r
a
h
s
r
e
p
0
0
.
1
$
-
s
d
n
e
d
i
v
i
d
f
o
t
n
e
m
y
a
P
k
c
o
t
s
y
r
u
s
a
e
r
t
f
o
e
s
a
h
c
r
u
P
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
k
c
o
t
S
1
0
6
,
4
2
1
0
2
,
9
2
r
e
b
m
e
t
p
e
S
-
E
C
N
A
L
A
B
9
-
-
-
-
-
-
-
-
y
r
a
i
d
i
s
b
u
s
n
i
s
t
s
e
r
e
t
n
i
r
e
b
m
e
m
f
o
e
s
a
h
c
r
u
p
f
o
t
i
f
e
n
e
b
x
a
T
y
r
a
i
d
i
s
b
u
s
n
i
s
t
s
e
r
e
t
n
i
r
e
b
m
e
m
f
o
e
s
a
h
c
r
u
P
s
n
o
i
t
p
o
k
c
o
t
s
f
o
e
s
i
c
r
e
x
e
n
o
t
i
f
e
n
e
b
x
a
T
s
n
o
i
t
p
o
k
c
o
t
s
f
o
e
s
i
c
r
e
x
E
e
m
o
c
n
i
t
e
N
n
o
i
t
a
r
e
p
o
d
e
u
n
i
t
n
o
c
s
i
d
n
i
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
n
f
o
n
o
i
t
a
n
i
m
i
l
E
e
r
a
h
s
r
e
p
0
0
.
1
$
-
s
d
n
e
d
i
v
i
d
d
e
u
r
c
c
a
d
n
a
d
i
a
P
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
n
o
t
s
n
o
i
t
u
b
i
r
t
s
i
D
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
k
c
o
t
S
$
8
7
9
,
2
2
$
6
4
$
0
1
6
,
4
3
1
0
2
,
8
2
r
e
b
m
e
t
p
e
S
-
E
C
N
A
L
A
B
.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
f
d
e
t
a
d
i
l
o
s
n
o
c
o
t
s
e
t
o
n
e
e
S
-
1
2
-
ARK RES TAURANTS CORP. AND S UBS IDIARIES
CONS OLIDATED S TATEMENTS OF CAS H FLOWS
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Year Ended
September 28,
2013
September 29,
2012
$
5,111
$
7,150
Impairment loss from write-down of long-lived assets
Write-off of notes receivable from former president
Loss on closure of restaurants
Loss on disposal of discontinued operation
Deferred income taxes
Stock-based compensation
Depreciation and amortization
Operating lease deferred charge (credit)
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid, refundable and accrued income taxes
Prepaid expenses and other current assets
Other assets
Accounts payable - trade
Accrued expenses and other liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets
Purchase of management rights
Loans and advances made to employees
Payments received on employee receivables
Purchase of member interests in subsidiary
Purchase of member interest in New M eadowlands Racetrack LLC
Purchases of investment securities
Proceeds from sales of investment securities
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable
Principal payments on notes payable
Dividends paid
Proceeds from issuance of stock upon exercise of stock options
Excess tax benefits related to stock-based compensation
Purchase of treasury shares
Distributions to non-controlling interests
Net cash used in financing activities
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, Beginning of year
CASH AND CASH EQUIVALENTS, End of year
SUPPLEM ENTAL DISCLOSURES OF CASH FLOW INFORM ATION:
Cash paid during the period for:
Interest
Income taxes
Non-cash investing activity:
Note payable in connection with purchase of treasury shares
Tax benefit of purchase of member interests in subsidiary
Liquidation of non-controlling interest in discontinued operation
Conversion of intangible asset to note receivable
Non-cash financing activity:
Accrued dividend
- 22 -
See notes to consolidated financial statements.
-
-
256
-
1,234
317
4,303
(44)
1,078
(103)
418
(51)
109
29
402
13,059
(3,283)
-
(124)
117
(2,965)
(4,200)
-
75
(10,380)
3,000
(1,468)
(2,433)
121
44
-
(1,900)
(2,636)
43
8,705
379
66
365
270
2,293
108
4,110
1,409
(112)
(232)
(1,129)
(675)
(14)
207
(772)
13,423
(7,995)
(400)
(175)
87
-
-
(441)
3,062
(5,862)
-
(78)
(3,245)
-
-
(1,000)
(2,313)
(6,636)
925
7,780
$
8,748
$
8,705
$
62
$
23
$
379
$
2,363
$
-
$
2,125
$
1,080
$
-
$
691
$
-
$
1,000
$
-
$
814
$
-
ARK RESTAURANTS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
As of September 28, 2013, Ark Restaurants Corp. and Subsidiaries (the “Company”) owned
and operated 20 restaurants and bars, 22 fast food concepts and catering operations,
exclusively in the United States, that have similar economic characteristics, nature of
products and service, class of customers and distribution methods. The Company believes it
meets the criteria for aggregating its operating segments into a single reporting segment in
accordance with applicable accounting guidance.
The Company operates five restaurants in New York City, three in Washington, D.C., seven
in Las Vegas, Nevada, three in Atlantic City, New Jersey, one at the Foxwoods Resort
Casino in Ledyard, Connecticut and one in Boston, Massachusetts. The Las Vegas
operations include five restaurants within the New York-New York Hotel & Casino Resort
and operation of the hotel's room service, banquet facilities, employee dining room and six
food court concepts; one bar within the Venetian Casino Resort as well as three food court
concepts; and one restaurant within the Planet Hollywood Resort and Casino. In Atlantic
City, New Jersey, the Company operates a restaurant and a bar in the Resorts Atlantic City
Hotel and Casino and a restaurant and bar at the Tropicana Hotel and Casino. The operation
at the Foxwoods Resort Casino consists of one fast food concept and a restaurant. In
Boston, Massachusetts, the Company operates a restaurant in the Faneuil Hall Marketplace.
The Florida operations under management include five fast food facilities in Tampa, Florida
and seven fast food facilities in Hollywood, Florida, each at a Hard Rock Hotel and Casino.
Basis of Presentation — The accompanying consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC") and accounting principles generally accepted in the United States of America
("GAAP"). The Company's reporting currency is the United States dollar.
Accounting Period — The Company’s fiscal year ends on the Saturday nearest September
30. The fiscal years ended September 28, 2013 and September 29, 2012 included 52 weeks.
Use of Estimates — The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting
period. The accounting estimates that require management’s most difficult and subjective
judgments include allowances for potential bad debts on receivables, inventories, the useful
lives and recoverability of its assets, such as property and intangibles, fair values of
financial instruments and share-based compensation, the realizable value of its tax assets
and other matters. Because of the uncertainty in such estimates, actual results may differ
from these estimates.
Principles of Consolidation — The consolidated financial statements include the accounts
of Ark Restaurants Corp. and all of its wholly-owned subsidiaries, partnerships and other
entities in which it has a controlling interest. Also included in the consolidated financial
statements are certain variable interest entities (“VIEs”). All significant intercompany
balances and transactions have been eliminated in consolidation.
-23-
Non-Controlling Interests — Non-controlling interests represent capital contributions,
income and loss attributable to the shareholders of less than wholly-owned and consolidated
entities.
Seasonality — The Company has substantial fixed costs that do not decline proportionally
with sales. The first and second fiscal quarters, which include the winter months, usually
reflect lower customer traffic than in the third and fourth fiscal quarters. In addition, sales
in the third and fourth fiscal quarters can be adversely affected by inclement weather due to
the significant amount of outdoor seating at the Company’s restaurants.
Fair Value of Financial Instruments — The carrying amount of cash and cash equivalents,
investments, receivables, accounts payable, and accrued expenses approximate fair value
due to the immediate or short-term maturity of these financial instruments. The fair values
of notes receivable and payable are determined using current applicable rates for similar
instruments as of the balance sheet date and approximates the carrying value of such debt.
Cash and Cash Equivalents — Cash and cash equivalents include cash on hand, deposits
with banks and highly liquid investments generally with original maturities of three months
or less. Outstanding checks in excess of account balances, typically vendor payments,
payroll and other contractual obligations disbursed after the last day of a reporting period
are reported as a current liability in the accompanying consolidated balance sheets.
Concentrations of Credit Risk — Financial instruments that potentially subject the
Company to concentrations of credit risk consist primarily of cash and cash equivalents.
The Company reduces credit risk by placing its cash and cash equivalents with major
financial institutions with high credit ratings. At times, such amounts may exceed Federally
insured limits.
For the years ended September 28, 2013 and September 29, 2012, the Company made
purchases from one vendor that accounted for approximately 12% and 13%, respectively, of
total purchases in each year.
Accounts Receivable — Accounts receivable is primarily comprised of normal business
receivables such as credit card receivables that are paid off in a short period of time and
amounts due from the hotels operators where the Company has a location, and are recorded
when the products or services have been delivered. The Company reviews the collectability
of its receivables on an ongoing basis, and provides for an allowance when it considers the
entity unable to meet its obligation.
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.
Revenue Recognition — Company-owned restaurant sales are comprised almost entirely of
food and beverage sales. The Company records revenue at the time of the purchase of
products by customers. Included in Other Revenues are purchase service fees which
represent commissions earned by a subsidiary of the Company for providing purchasing
services to other restaurant groups.
The Company offers customers the opportunity to purchase gift certificates. At the time of
purchase by the customer, the Company records a gift certificate liability for the face value
of the certificate purchased. The Company recognizes the revenue and reduces the gift
certificate liability when the certificate is redeemed. The Company does not reduce its
recorded liability for potential non-use of purchased gift cards. The Company also issues
-24-
gift cards to service providers and to others for no consideration. Costs associated with
these issuances are recognized at the time of redemption.
Additionally, the Company presents sales tax on a net basis in its consolidated financial
statements.
Fixed Assets — Leasehold improvements and furniture, fixtures and equipment are stated at
cost less accumulated depreciation and amortization. Depreciation of furniture, fixtures and
equipment 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 30 years. For leases with renewal periods at the Company’s option, if failure to exercise
a renewal option imposes an economic penalty to the Company, management may
determine at the inception of the lease that renewal is reasonably assured and include the
renewal option period in the determination of appropriate estimated useful lives. Routine
expenditures for repairs and maintenance are charged to expense when incurred. Major
replacements and improvements are capitalized. Upon retirement or disposition of fixed
assets, the cost and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is recognized in the Consolidated Statements of Income.
The Company includes in construction in progress improvements to restaurants that are
under construction. Once the projects have been completed, the Company begins
depreciating and amortizing the assets. Start-up costs incurred during the construction
period of restaurants, including rental of premises, training and payroll, are expensed as
incurred.
Intangible Assets — Intangible assets consist principally of purchased leasehold rights,
operating rights and covenants not to compete. Costs associated with acquiring leases and
subleases, principally purchased leasehold rights, and operating 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 9 to 20 years. Covenants not to compete
arising from restaurant acquisitions are amortized over the contractual period, typically five
years.
Long-lived Assets — Long-lived assets, such as property, plant and equipment, and
purchased intangibles subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. 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 estimated future sales growth and
estimated profit margins are included in this analysis. No impairment charges were
necessary for the year ended September 28, 2013. See Note 6 for a discussion of
impairment charges for long-lived assets recorded in fiscal 2012.
Goodwill and Trademarks — Goodwill is recorded when the purchase price paid for an
acquisition exceeds the estimated fair value of the net identified tangible and intangible
assets acquired. Trademarks, which were acquired in connection with the Durgin Park
acquisition, are considered to have an indefinite life. Goodwill and trademarks are not
-25-
amortized, but are subject to impairment analysis at least once annually or more frequently
upon the occurrence of an event or when circumstances indicate that a reporting unit's
carrying amount is greater than its fair value. At September 28, 2013, the Company
performed both a qualitative and quantitative assessment of factors to determine whether
further impairment testing is required. Based on the results of the work performed, the
Company has concluded that no impairment loss was warranted at September 28, 2013.
Qualitative
industry and market
considerations, overall financial performance and other relevant events, management
expertise and stability at key positions. Additional impairment analyses at future dates may
be performed to determine if indicators of impairment are present, and if so, such amount
will be determined and the associated charge will be recorded to the Consolidated
Statements of Income.
factors considered
this assessment
include
in
Leases — The Company recognizes rent expense on a straight-line basis over the expected
lease term, including option periods as described below. Within the provisions of certain
leases there are escalations in payments over the base lease term, as well as renewal periods.
The effects of the escalations have been reflected in rent expense on a straight-line basis
over the expected lease term, which includes option periods when it is deemed to be
reasonably assured that the Company would incur an economic penalty for not exercising
the option. Tenant allowances are included in the straight-line calculations and are being
deferred over the lease term and reflected as a reduction in rent expense. Percentage rent
expense is generally based upon sales levels and is expensed as incurred. Certain leases
include both base rent and percentage rent. The Company records rent expense on these
leases based upon reasonably assured sales levels. The consolidated financial statements
reflect the same lease terms for amortizing leasehold improvements as were used in
calculating straight-line rent expense for each restaurant. The judgments of the Company
may produce materially different amounts of amortization and rent expense than would be
reported if different lease terms were used.
Occupancy Expenses — Occupancy expenses include rent, rent taxes, real estate taxes,
insurance and utility costs.
Defined Contribution Plans — The Company offers a defined contribution savings plan
(the “Plan”) to all of its full-time employees. Eligible employees may contribute pre-tax
amounts to the Plan subject to the Internal Revenue Code limitations. Company
contributions to the Plan are at the discretion of the Board of Directors. During the years
ended September 28, 2013 and September 29, 2012, the Company did not make any
contributions to the Plan.
Income Taxes — Income taxes are accounted for under the asset and liability method
whereby 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.
The Company has recorded a liability for unrecognized tax benefits resulting from tax
positions taken, or expected to be taken, in an income tax return. It is the Company’s policy
to recognize interest and penalties related to uncertain tax positions as a component of
-26-
income tax expense. Uncertain tax positions are evaluated and adjusted as appropriate,
while taking into account the progress of audits of various taxing jurisdictions.
Non-controlling interests relating to the income or loss of consolidated partnerships includes
no provision for income taxes as any tax liability related thereto is the responsibility of the
individual minority investors.
Income Per Share of Common Stock — Basic net income per share is calculated on the
basis of the weighted average number of common shares outstanding during each period.
Diluted net income per share reflects the additional dilutive effect of potentially dilutive
shares (principally those arising from the assumed exercise of stock options).
Share-based Compensation — The Company measures share-based compensation cost at
the grant date based on the fair value of the award and recognizes it as expense over the
applicable vesting period using the straight-line method. Upon exercise of options, excess
income tax benefits related to share-based compensation expense that must be recognized
directly in equity are considered financing rather than operating cash flow activities.
During fiscal 2012, options to purchase 251,500 shares of common stock were granted at an
exercise price of $14.40 per share and are exercisable as to 50% of the shares commencing
on the first anniversary of the date of grant and as to an additional 50% commencing on the
second anniversary of the date of grant. Such options had an aggregate grant date fair value
of approximately $646,000. The Company did not grant any options during the fiscal year
2013. The Company generally issues new shares upon the exercise of employee stock
options.
The fair value of each of the Company’s stock options is estimated on the date of grant
using a Black-Scholes option-pricing model that uses assumptions that relate to the expected
volatility of the Company’s common stock, the expected dividend yield of the Company’s
stock, the expected life of the options and the risk free interest rate. The assumptions used
for the 2012 grant include a risk free interest rate of 1.67%, volatility of 36.2%, a dividend
yield of 6.13% and an expected life of 6.25 years.
New Accounting Standards Adopted in Fiscal 2013 — In June 2011, the Financial
Accounting Standards Board (the “FASB”) issued new accounting guidance on the
presentation of other comprehensive income. The new guidance eliminated the option to
present the components of other comprehensive income as part of the statement of changes
in equity. Instead, an entity has the option to present the total of comprehensive income, the
components of net income and the components of other comprehensive income either in a
single continuous statement of comprehensive income or in two separate but consecutive
statements. The new accounting guidance became effective for fiscal years, and interim
periods within those years, beginning after December 15, 2011, with early adoption
permitted. Full retrospective application is required. The adoption of this guidance did not
have a material impact on the Company’s financial statements, and the statements of
comprehensive income were presented as a separate consecutive statement following the
Consolidated Statements of Income.
New Accounting Standards Not Yet Adopted — In December 2011, the FASB issued
amended standards to increase the prominence of offsetting assets and liabilities reported in
financial statements. These amendments require an entity to disclose information about
offsetting and the related arrangements to enable users of its financial statements to
understand the effect of those arrangements on its financial position. These revised
standards are effective for annual reporting periods beginning on or after January 1, 2013,
-27-
and interim periods within those annual periods are to be retrospectively applied. These
amended standards may require additional footnote disclosures for these enhancements;
however they will not affect our consolidated financial position or results of operations.
In February 2013, the FASB issued guidance for the recognition, measurement, and
disclosure of obligations resulting from joint and several liability arrangements for which
the total amount of the obligation is fixed at the reporting date, except for obligations
addressed within existing guidance. This guidance is effective for fiscal years ending after
December 15, 2014 and is required to be applied retrospectively to all prior periods
presented for those obligations that existed upon adoption. The Company does not expect
the adoption this guidance to have a significant impact on its consolidated financial
condition or results of operations.
In July 2013, the FASB issued new accounting guidance which requires entities to present
unrecognized tax benefits as a reduction of a deferred tax asset for a net operating loss
carryforward, a similar tax loss, or a tax credit carryforward, except to the extent the net
operating loss carryforwards or tax credit carryforwards are not available to be used at the
reporting date to settle additional income taxes, and the entity does not intend to use them
for this purpose. The new accounting guidance is consistent with how the Company has
historically accounted for unrecognized tax benefits, therefore the Company does not expect
the adoption of this guidance to have a significant impact on its consolidated financial
statements.
2. CONSOLIDATION OF VARIABLE INTEREST ENTITIES
Upon adoption of the accounting guidance for VIEs on October 3, 2010, the
Company determined that it was the primary beneficiary of two VIEs which had not
been previously consolidated, Ark Hollywood/Tampa Investment, LLC and Ark
Connecticut Investment, LLC, as the guidance requires that a single party (including
its related parties and de facto agents) be able to exercise their rights to remove the
decision maker in order for the “kick-out” rights to be considered substantive.
Previously, a simple majority of owners that could exercise kick-out rights was
considered a substantive right. This change resulted in the need for consolidation.
During the year ended September 28, 2013, the Company purchased an additional
14.39% of the membership interests of Ark Hollywood/Tampa Investment, LLC,
directly from the individuals that held such interests, for an aggregate consideration
of $2,964,512. In connection with this transaction, the Company recorded a
reduction to additional paid-in capital of $2,684,896 representing the excess of the
amount paid over the carrying value ($279,616) of the non-controlling interests
acquired as the acquisition of an additional interest in a less than wholly-owned
subsidiary where control is maintained is treated as an equity transaction. In
addition, the Company also recorded an increase to additional paid-in capital in the
amount of $1,079,591 representing the related deferred tax benefit of the transaction.
As a result of the above, Ark Hollywood/Tampa Investment, LLC is no longer
considered a VIE as the Company now owns 64.39% of the voting membership
interests. However, the Company continues to consolidate this entity as a result of
its majority ownership. Accordingly, the following disclosures associated with the
-28-
Company’s VIEs do not include Ark Hollywood/Tampa Investment, LLC as of
September 28, 2013:
S eptember 28,
2013
S eptember 29,
2012
(in thousands)
$
$
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid income taxes
Prepaid expenses and other current assets
Due from Ark Restaurants Corp. and affiliates (1)
Fixed assets, net
Other long-term assets
Total assets
Accounts payable
Accrued expenses and other liabilities
Total liabilities
Equity of variable interest entities
Total liabilities and equity
637
317
16
163
13
157
89
71
1,463
714
1,776
28
235
13
288
3,189
71
6,314
$
$
$
70
140
210
1,253
$
1,463
$
153
1,950
2,103
4,211
$
6,314
(1) Amounts due from Ark Restaurants Corp. and affiliates are eliminated upon consolidation.
The liabilities recognized as a result of consolidating these VIEs do not represent
additional claims on the Company’s general assets; rather, they represent claims
against the specific assets of the consolidated VIEs. Conversely, assets recognized as
a result of consolidating these VIEs do not represent additional assets that could be
used to satisfy claims against the Company’s general assets.
3. RECENT RESTAURANT EXPANSION
On March 18, 2011, a subsidiary of the Company entered into a lease agreement to
operate a restaurant and bar in New York City named Clyde Frazier’s Wine and
Dine. In connection with the agreement, the landlord contributed $1,800,000
towards the construction of the property (which has been deferred over the lease
term), which totaled approximately $7,000,000. The initial term of the lease for this
facility expires on March 31, 2027 and has one five-year renewal. This restaurant
opened during the second quarter of fiscal 2012 and, as a result, the Consolidated
Statement of Income for the year ended September 29, 2012 includes approximately
$1,800,000 of pre-opening and early operating losses related to this property.
On November 28, 2012, a subsidiary of the Company entered into an agreement to
design and lease a restaurant at the Tropicana Hotel and Casino in Atlantic City, NJ.
The cost to construct this restaurant was approximately $1,500,000. The initial term
of the lease for this facility expires June 7, 2023 and has two five-year renewals.
The restaurant, Broadway Burger Bar and Grill, opened during the third quarter of
fiscal 2013 and, as a result, the Consolidated Statement of Income for the year ended
September 28, 2013 includes approximately $100,000 of pre-opening and early
operating losses related to this property.
-29-
4. RECENT RESTAURANT DISPOSITIONS
Lease Expirations – On July 8, 2011, the Company entered into an agreement with
the landlord of The Grill Room property located in New York City, whereby in
exchange for a payment of $350,000 the Company vacated the property on October
31, 2011. Such payment and the related loss on closure of the property, in the
amount of $179,000, are included in Other Operating Costs and Expenses in the
Consolidated Statement of Income for the year ended September 29, 2012. This
lease expired on December 31, 2011.
The Company was advised by the landlord that it would have to vacate the America
property located in Washington, DC, which was on a month-to-month lease. The
closure of this property occurred on November 7, 2011. The related loss on closure
of this property, in the amount of $186,000, is included in Other Operating Costs
and Expenses in the Consolidated Statement of Income for the year ended
September 29, 2012.
Discontinued Operations – Effective March 15, 2012, the Company vacated its
food court operations at the MGM Grand Casino at the Foxwoods Resort Casino in
Ledyard, CT. The Company determined that it would not be able to operate this
facility profitably at this location at the current rent. As a result, the Company
recorded a disposal loss in the amount of $270,000, which was recorded during the
second quarter of fiscal 2012, as well as operating losses of $155,000 for the year
ended September 29, 2012, all of which are included in discontinued operations, net
of tax, in the Consolidated Statement of Income for the year ended September 29,
2012. Included in the Net Income Loss Attributable to Non-controlling Interests in
the accompanying Consolidated Statement of Income for the year ended September
29, 2012 are losses of $33,000 attributable to the limited partners in this property.
The results of discontinued operations were as follows:
Revenues
Costs and expenses
Loss before income taxes
Income tax benefit
Net loss
Year Ended
S eptember 28,
2013
S eptember 29,
2012
(In thousands)
$
-
-
-
-
$
910
1,335
(425)
(133)
$
-
$
(292)
Other – On October 29, 2012, the Company suffered a flood at its Red and Sequoia
properties located in New York, NY as a result of a hurricane. The Company did
not reopen these properties as the underlying leases were due to expire in the second
-30-
quarter of fiscal 2013. Losses related to the closure of these properties, in the
amount of $256,000, are included in Other Operating Costs and Expenses in the
Consolidated Statement of Income for the year ended September 28, 2013.
5. COST METHOD INVESTMENT
On March 12, 2013, the Company made a $4,200,000 investment in the New Meadowlands
Racetrack LLC (“NMR”) through its purchase of a membership interest in Meadowlands
Newmark, LLC, an existing member of NMR. In conjunction with this investment, the
Company also entered into a long-term agreement with NMR to provide food and beverage
services for the new racing facilities at the Meadowlands Racetrack in northern New Jersey.
NMR has a long-term lease with the State of New Jersey and the new facility opened in
November 2013. The Company’s agreement extends to any future development at the race
track site.
This investment has been accounted for based on the cost method and is included in Other
Assets in the accompanying Consolidated Balance Sheet at September 28, 2013. The
Company periodically reviews its investments for impairment. If the Company determines
that an other-than-temporary impairment has occurred, it will write-down the investment to
its fair value. No indication of impairment was noted as of September 28, 2013.
6. FIXED ASSETS
Fixed assets consist of the following:
Leasehold improvements
Furniture, fixtures and equipment
Less: accumulated depreciation and amortization
S eptember 28,
2013
S eptember 29,
2012
(In thousands)
$
41,987
$
41,028
33,249
75,236
50,219
34,161
75,189
48,995
$
25,017
$
26,194
Depreciation and amortization expense related to fixed assets for the years ended
September 28, 2013 and September 29, 2012 was $4,295,000 and $4,102,000,
respectively.
Management continually evaluates unfavorable cash flows, if any, related to
underperforming restaurants. Periodically it is concluded that certain properties have
become impaired based on their existing and anticipated future economic outlook in
their respective markets. In such instances, we may impair assets to reduce their
carrying values to fair values. Estimated fair values of impaired properties are based
on comparable valuations, cash flows and/or management judgment. During the
year ended September 29, 2012, the Company recorded a charge of $379,000 to
impair the leasehold improvements and equipment of an underperforming restaurant.
No impairment charges were necessary for the year ended September 28, 2013.
-31-
7. NOTE RECEIVABLE
On June 7, 2011, the Company entered into a 10-year exclusive agreement to
manage a yet to be constructed restaurant and catering service at Basketball City in
New York City in exchange for a fee of $1,000,000 (all of which was paid as of
September 29, 2012 and is included in Intangible Assets in the accompanying
Consolidated Balance Sheet as of September 29, 2012). Under the terms of the
agreement the owner of the property was to construct the facility at their expense
and the Company was to pay the owner an annual fee based on sales, as defined in
the agreement. As of September 28, 2013, the owner had not delivered the facility
to the Company and the parties executed a promissory note for repayment of the
$1,000,000 exclusivity fee. The note bears interest at 4.0% per annum and is
payable in 48 equal monthly installments of $22,579, commencing on December 1,
2013.
8.
INTANGIBLE ASSETS
Intangible assets consist of the following:
Purchased leasehold rights (a)
Operating rights (b)
Noncompete agreements and other
S eptember 28,
2013
S eptember 29,
2012
(In thousands)
$
2,343
-
283
2,626
$
2,343
1,000
283
3,626
Less accumulated amortization
2,613
2,605
Total intangible assets
$
13
$
1,021
(a)
Purchased leasehold rights arose from acquiring leases and subleases of various restaurants.
(b) Amounts paid in connection with Basketball City agreement and converted to a note receivable in fiscal
2013 – see Note 7.
Amortization expense related to intangible assets for each of the years ended September 28,
2013 and September 29, 2012 was $8,000.
-32-
9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
September 28,
2013
September 29,
2012
(In thousands)
Sales tax payable
Accrued wages and payroll related costs
Customer advance deposits
Accrued occupancy, gift cards and other operating expenses
$
783
1,435
3,356
3,701
$
852
1,475
2,811
3,735
$
9,275
$
8,873
10. NOTES PAYABLE
Treasury Stock Repurchase – On December 12, 2011, the Company, in a private
transaction, purchased 250,000 shares of its common stock at a price of $12.50 per
share, or a total of $3,125,000. Upon the closing of the purchase, the Company paid
the seller $1,000,000 in cash and issued an unsecured promissory note to the seller
for $2,125,000. The note bears interest at 0.19% per annum, and is payable in 24
equal monthly installments of $88,541, commencing on December 1, 2012. As of
September 28, 2013, the outstanding note payable balance was approximately
$1,240,000.
Bank – On February 25, 2013, the Company issued a promissory note, secured by
all assets of the Company, to a bank for $3,000,000. The note bears interest at
LIBOR plus 3.0% per annum, and is payable in 36 equal monthly installments of
$83,333, commencing on March 25, 2013. As of September 28, 2013, the
outstanding balance of this note payable was approximately $2,417,000. The
agreement provides, among other things, that the Company meet minimum quarterly
tangible net worth amounts, as defined, and minimum annual net income amounts,
and contains customary representations, warranties and affirmative covenants. The
agreement also contains customary negative covenants, subject to negotiated
exceptions, on liens, relating to other indebtedness, capital expenditures, liens,
affiliate transactions, disposal of assets and certain changes in ownership. The
Company was in compliance with all debt covenants as of September 28, 2013.
-33-
As of September 28, 2013, the aggregate amounts of notes payable maturing in the
next three years are as follows:
2014
2015
2016
Total
$
2,063
1,174
420
$
3,657
11. COMMITMENTS AND CONTINGENCIES
Leases — The Company leases its restaurants, bar facilities, and administrative headquarters
through its subsidiaries under terms expiring at various dates through 2032. Most of the
leases provide for the payment of base rents plus real estate taxes, insurance and other
expenses and, in certain instances, for the payment of a percentage of the restaurants’ sales in
excess of stipulated amounts at such facility and in one instance based on profits.
As of September 28, 2013, future minimum lease payments under noncancelable leases are as
follows:
Fiscal Year
2014
2015
2016
2017
2018
Thereafter
Amount
(In thousands)
$
8,289
7,623
7,056
5,811
3,929
22,538
Total minimum payments
$
55,246
In connection with certain of the leases included in the table above, the Company obtained
and delivered irrevocable letters of credit in the aggregate amount of approximately $388,000
as security deposits under such leases.
Rent expense from continuing operations was approximately $14,117,000 and $14,619,000
for the fiscal years ended September 28, 2013 and September 29, 2012, respectively.
Contingent rentals, included in rent expense, were approximately $4,811,000 and $5,055,000
for the fiscal years ended September 28, 2013 and September 29, 2012, respectively.
Legal Proceedings — In the ordinary course 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. Management believes, based
in part on the advice of counsel, that the ultimate resolution of these matters will not have a
material adverse effect on the Company’s consolidated financial position, results of
operations or cash flows.
-34-
12. STOCK OPTIONS
The Company has options outstanding under two stock option plans, the 2004 Stock Option
Plan (the “2004 Plan”) and the 2010 Stock Option Plan (the “2010 Plan”), which was
approved by shareholders in the second quarter of 2010. Effective with this approval, the
Company terminated the 2004 Plan. This action terminated the 400 authorized but unissued
options under the 2004 Plan, but it did not affect any of the options previously issued under
the 2004 Plan. Options granted under the 2004 Plan 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
ten years after the date of grant.
The 2010 Stock Option Plan is the Company’s only equity compensation plan currently in
effect. Under the 2010 Stock Option Plan, 500,000 options were authorized for future grant.
Options granted under the 2010 Plan 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 ten years after
the date of grant.
During fiscal 2012, options to purchase 251,500 shares of common stock were granted and
are exercisable as to 50% of the shares commencing on the first anniversary of the date of
grant and as to an additional 50% commencing on the second anniversary of the date of grant.
No options were granted during the fiscal year ended September 28, 2013.
The following table summarizes stock option activity under all plans:
2013
Weighted
Average
Exercise
Price
Shares
Aggregate
Intrinsic
Value
Shares
2012
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
Outstanding, beginning of year
648,100
$
19.56
396,600
$
22.82
Options:
Granted
Exercised
Canceled or expired
Outstanding and expected to vest,
end of year (a)
-
(9,300)
(15,700)
$
$
13.11
17.87
$
14.40
251,500
-
-
623,100
$
19.69
$
3,264,802
648,100
$
19.56
$
1,415,116
Exercisable, end of year (a)
503,950
$
20.95
$
2,396,199
396,600
$
22.82
$
798,941
Weighted average remaining
contractual life
5.5 Years
Shares available for future grant
248,500
6.5 Years
248,500
(a) Options become exercisable at various times and expire at various dates through 2022.
-35-
The following table summarizes information about stock options outstanding as of
September 28, 2013 (shares in thousands):
Options Outstanding
Options Exercisable
Range of Exercise Prices
Number of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
contractual
life (in years)
$12.04
$14.40
$29.60
$32.15
158,300
238,300
136,500
90,000
$
$
$
$
12.04
14.40
29.60
32.15
623,100
$
19.69
5.6
8.7
1.2
3.2
5.5
Weighted
Average
Exercise
Price
$
$
$
$
12.04
14.40
29.60
32.15
Number of
Shares
158,300
119,150
136,500
90,000
503,950
$
20.95
Weighted
Average
Remaining
contractual
life (in years)
5.6
8.7
1.2
3.2
4.7
Compensation cost charged to operations for the fiscal years ended September 28, 2013 and
September 29, 2012 for share-based compensation programs was approximately $317,000
and $108,000, respectively. The compensation cost recognized is classified as a general and
administrative expense in the Consolidated Statements of Income.
there was approximately $221,000 of unrecognized
As of September 28, 2013,
compensation cost related to unvested stock options, which is expected to be recognized
over a period of approximately one year.
13. INCOME TAXES
The provision for income taxes attributable to continuing operations consists of the
following:
Current provision:
Federal
State and local
Deferred provision:
Federal
State and local
Year Ended
S eptember 28,
2013
S eptember 29,
2012
(In thousands)
$
518
188
706
$
469
251
720
984
251
1,235
3,140
(847)
2,293
$
1,941
$
3,013
-36-
The effective tax rate differs from the U.S. income tax rate as follows:
Provision at Federal statutory rate
(34% in 2013 and 2012)
State and local income taxes, net of
tax benefits
Tax credits
Income attributable to non-controlling interest
Other
Year Ended
S eptember 28,
2013
S eptember 29,
2012
(In thousands)
$
2,398
$
3,555
265
(531)
(437)
246
312
(565)
(576)
287
$
1,941
$
3,013
Deferred income taxes reflect the net effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting and tax purposes. Significant
components of the Company’s deferred tax assets and liabilities are as follows:
Long-term deferred tax assets (liabilities):
State net operating loss carryforwards
Operating lease deferred credits
Depreciation and amortization
Deferred compensation
Partnership investments
Other
Total long-term deferred tax assets
Valuation allowance
S eptember 28,
2013
S eptember 29,
2012
(In thousands)
$
3,665
974
(464)
1,524
(460)
95
$
3,357
1,069
(358)
1,431
(413)
108
5,334
(528)
5,194
(234)
Total net deferred tax assets
$
4,806
$
4,960
In assessing the realizability of deferred tax assets, Management considers whether it is more
likely than not that the deferred tax assets will be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income. The deferred
tax valuation allowance of $528,000 and $234,000 as of September 28, 2013 and September
29, 2012, respectively, was attributable to state and local net operating loss carryforwards
which are not realizable on a more-likely-than-not basis.
-37-
A reconciliation of the beginning and ending amount of unrecognized tax benefits excluding
interest and penalties is as follows:
September 28,
2013
September 29,
2012
(In thousands)
Balance at beginning of year
$
209
$
209
Reductions due to settlements with taxing authorities
Reductions as a result of a lapse of the statute of limitations
Interest accrued during the current year
(31)
(16)
-
-
-
-
Balance at end of year
$
162
$
209
The entire amount of unrecognized tax benefits if recognized would reduce our annual
effective tax rate. As of September 28, 2013, the Company accrued approximately $96,000
of interest and penalties. The Company does not expect its unrecognized tax benefits to
change significantly over the next 12 months. Inherent uncertainties exist in estimates of tax
contingencies due to changes in tax law, both legislated and concluded through the various
jurisdictions’ tax court systems.
The Company files tax returns in the U.S. and various state and local jurisdictions with
varying statutes of limitations. An examination of the Company’s Federal tax returns for the
fiscal years 2008 and 2009 was recently completed by the Internal Revenue Service and did
not result in a material adjustment to the Company’s consolidated financial position or results
of operations. The 2010, 2011 and 2012 fiscal years remain subject to examination by the
Internal Revenue Service. The 2009 through 2012 fiscal years generally remain subject to
examination by most state and local tax authorities.
14. OTHER INCOME
Other income consists of the following:
Video arcade sales
Other rentals
Insurance proceeds
Other
Year Ended
S eptember 28,
2013
S eptember 29,
2012
(In thousands)
$
22
5
393
88
$
74
35
325
20
$
508
$
454
-38-
15. 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 September 28, 2013 and September 29, 2012 follows:
Year ended September 28, 2013
From continuing operations:
Basic EPS
Stock options
Diluted EPS
From discontinued operations:
Basic EPS
Stock options
Diluted EPS
From net income:
Basic EPS
Stock options
Diluted EPS
Year ended September 29, 2012
From continuing operations:
Basic EPS
Stock options
Diluted EPS
From discontinued operations:
Basic EPS
Stock options
Diluted EPS
From net income:
Basic EPS
Stock options
Diluted EPS
Net Income (Loss)
Attributable to Ark
Restaurants Corp.
(Numerator)
Shares
(Denominator)
Per Share
Amount
(In thousands, except per share amounts)
$
3,825
-
3,246
125
$
1.18
(0.05)
$
3,825
3,371
$
1.13
$
-
-
3,246
125
$
-
-
$
-
3,371
$
-
$
3,825
-
3,246
125
$
1.18
(0.05)
$
3,825
3,371
$
1.13
$
5,748
-
3,292
35
$
1.75
(0.02)
$
5,748
3,327
$
1.73
$
(259)
-
3,292
35
$
(0.08)
-
$
(259)
3,327
$
(0.08)
$
5,489
-
3,292
35
$
1.67
(0.02)
$
5,489
3,327
$
1.65
-39-
For the year ended September 28, 2013, options to purchase 158,300 shares of common stock
at a price of $12.04 and options to purchase 238,300 shares of common stock at a price of
$14.40 were included in diluted earnings per share. Options to purchase 136,500 shares of
common stock at a price of $29.60 and options to purchase 90,000 shares of common stock at
a price of $32.15 per share were not included in diluted earnings per share as their impact
would be anti-dilutive.
For the year ended September 29, 2012, options to purchase 166,100 shares of common stock
at a price of $12.04 and options to purchase 251,500 shares of common stock at a price of
$14.40 were included in diluted earnings per share. Options to purchase 140,500 shares of
common stock at a price of $29.60 and options to purchase 90,000 shares of common stock at
a price of $32.15 per share were not included in diluted earnings per share as their impact
would be anti-dilutive.
16. RELATED PARTY TRANSACTIONS
The Company’s former President and Chief Operating Officer resigned effective January 1,
2012. In connection therewith, the Company forgave loans due totaling $66,000 ($29,000 for
stock option exercises receivable and $37,000 for other loans) and has recorded additional
compensation in the amount of $475,400 in accordance with his separation agreement and
release. Such amounts are included in General and Administrative Expenses in the
Consolidated Statement of Income for the year ended September 29, 2012.
Receivables due from the former President, excluding stock option receivables, totaled
$37,000 at October 1, 2011. Such amount was forgiven during the year ended September 29,
2012 in connection with his resignation. Other employee loans totaled approximately
$346,000 and $339,000 at September 28, 2013 and September 29, 2012, respectively. Such
amounts are payable on demand and bear interest at the minimum statutory rate (0.16% at
September 28, 2013 and 0.19% at September 29, 2012).
17. SUBSEQUENT EVENTS
On November 22, 2013, the Company, through a wholly-owned subsidiary, Ark Rustic Inn
LLC, entered into an Asset Purchase Agreement with W and O, Inc. to purchase the Rustic
Inn Crab House, a restaurant and bar in Dania Beach, Florida, for $7,500,000 plus inventory.
The acquisition is scheduled to close on or before February 28, 2014, subject to satisfactory
completion of due diligence, execution of employment and non-competition agreements,
Florida Liquor Authority approval and customary closing conditions.
On November 19, 2013, the Company invested an additional $464,000 in the New
Meadowlands Racetrack LLC (“NMR”) through a purchase of an additional membership
interest in Meadowlands Newmark, LLC, an existing member of NMR, resulting in a total
ownership of 11.6%.
On December 4, 2013, the Board of Directors declared a quarterly dividend of $0.25 per
share on the Company's common stock to be paid on December 30, 2013 to shareholders of
record at the close of business on December 16, 2013.
******
-40-
[This Page Intentionally Left Blank]
[This Page Intentionally Left Blank]
CORPORATE INFORMATION
BOARD OF DIRECTORS
Michael Weinstein
Chairman and Chief Executive Officer
Robert J. Stewart
President, Chief Financial Officer and Treasurer
Vincent Pascal
Senior Vice President --- Chief Operating Officer
Paul Gordon
Senior Vice President --- Director of Las Vegas Operations
Marcia Allen
Chief Executive Officer, Allen & Associates
Bruce R. Lewin
Chairman and President, Continental Hosts, Ltd.
Steve Shulman
President, Managing Director, Hampton Group Inc.
Arthur Stainman
Senior Managing Director, First Manhattan Co.
Stephen Novick
Senior Advisor, Andrea and Charles Bronfman Philanthropies
EXECUTIVE OFFICE
AUDITORS
85 Fifth Avenue
New York, NY 10003
(212) 206-8800
TRANSFER AGENT
Continental Stock Transfer & Trust Company
17 Battery Place
New York, NY 10004
Cohn Reznick LLP
1212 Avenue of the Americas
New York, NY 10036