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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10K
|X| ANNUAL REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the fiscal year ended September 27,2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of the SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number I-6836
Flanigan's Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Florida 59-0877638
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5059 N.E. 18th Avenue, Fort Lauderdale, FL 33334
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code, (954) 377-1961
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.10 Par Value American Stock Exchange
Title of each Class Name of each exchange
on which registered
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $6,453,361 as of January 6, 2004.
There were 1,926,470 shares of the Registrant's Common Stock ($0.10) Par Value
outstanding as of September 27, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the Registrant's 2004 definitive proxy material has
been incorporated by reference in Items 10, 11, 12 and 13 of Part III of this
Annual Report on Form 10-K.
Exhibit Index Begins on Page 35
PART I
Item 1. Business
When used in this report, the words "anticipate", "believe", "estimate",
"will", "may", "intend" and "expect" and similar expressions identify
forward-looking statements. Forward-looking statements in this report include,
but are not limited to, those relating to the general expansion of the Company's
business. Although we believe that our plans, intentions and expectations
reflected in these forward-looking statements are reasonable, we can give no
assurance that these plans, intentions or expectations will be achieved.
General
Flanigan's Enterprises, Inc., (the "Company") owns and/or operates
restaurants with lounges, package liquor stores and an entertainment oriented
club (collectively the "units"). At September 27, 2003, the Company operated 16
units, and had equity interests in seven additional units which have been
franchised by the Company. The table below summarizes the type and number of
units being operated during each of the last three fiscal years.
FISCAL FISCAL FISCAL
YEAR YEAR YEAR NOTE
2003 2002 2001 NUMBER
TYPES OF UNITS
- ----------------------------------------------------------------------
Company Owned:
Combination package
and restaurant 4 4 4
Restaurant only 2 2 2
Package store only 4 4 3 (1)(2)(3)(4)
Company Managed
Restaurants Only:
Limited partnerships 4 4 4 (5)(6)(7)(8)
Franchise 1 1 1
Company Owned Club: 1 1 1
- ----------------------------------------------------------------------
TOTAL - Company
Owned/Operated Units: 16 16 15
FRANCHISED - units 7 7 7 (9)
-- --
Notes:
(1) During the fourth quarter of fiscal year 2000, the Company entered
into a lease for the operation of a package liquor store in Hialeah, Florida.
This package liquor store opened for business during the first quarter of fiscal
year 2002.
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(2) The lease for one (1) package liquor store owned and operated by the
Company in Lake Worth, Florida expired on December 31, 2000 and the Company
elected not to exercise its five year renewal option to extend the terms of the
same. Consequently the package liquor store was closed permanently, at the close
of business on December 31, 2000, and is not included in the table of units.
(3) During the fourth quarter of fiscal year 2001, the Company entered
into a ground lease for an out parcel in Hollywood, Florida. The Company has
constructed a building on the out parcel, one-half (1/2) of which will be used
by the Company for the operation of a package liquor store and the other
one-half (1/2) will be subleased by the Company as retail space. The package
store opened for business on November 17, 2003. This unit is not included in the
table of units.
(4) During the second quarter of fiscal year 2001, the Company completed
renovations to its new corporate offices and relocated to the same. The new
corporate offices consist of a two (2) story building, with space set aside on
the ground floor for a package liquor store. The Company filed the application
for its building permits during the third quarter of fiscal year 2002, but is
still involved in litigation with the adjacent shopping center over the
Company's right to non-exclusive parking in the shopping center. The
construction of the package liquor store has been postponed until the litigation
is concluded, which should occur during fiscal year 2004. The package liquor
store is not included in the table of units.
(5) During the third quarter of fiscal year 2001, the Company formed a
limited partnership which raised funds through a private offering to purchase
the assets of a restaurant in West Miami, Florida and renovate the same for
operation under the "Flanigan's Seafood Bar and Grill" servicemark. The Company
acts as general partner and has a twenty five percent ownership of the
partnership. The restaurant opened for business on October 11, 2001.
(6) During fiscal year 2000, the Company received official notification
from the State of Transportation, Department of Transportation, ("DOT"), that
the DOT was exercising its right of eminent domain to "take" the hotel property
upon which a restaurant, operated by the Company as general partner of a limited
partnership, was located. The restaurant was closed at the end of business on
March 30, 2002 and is not included in the table of units.
(7) During the fourth quarter of fiscal year 2001, a limited partnership
was formed with the Company as general partner, which limited partnership
entered into a sublease agreement to own and operate an existing restaurant in
Weston, Florida. During the fourth quarter of fiscal year 2002, the sublessor
resolved the zoning and related matters and the limited partnership began
raising funds to renovate the business premises for operation as a "Flanigan's
Seafood Bar and Grill" restaurant. The Company continues to act as the general
partner and has a 28 percent ownership interest in the limited partnership. The
restaurant, which had operated under its existing servicemark, was closed on
July 13, 2002 and building permits were issued to the limited partnership at the
start of fiscal year 2003. The restaurant opened for business on January 20,
2003.
(8) During the third quarter of fiscal year 2003, a limited partnership
was formed with the Company as general partner, which limited partnership
entered into a lease agreement to own and operate a restaurant in a Howard
Johnson's Hotel in Stuart, Florida. During the fourth quarter of fiscal year
2003, the limited partnership raised funds through a private offering to
renovate the business premises for operation as a "Flanigan's Seafood Bar and
Grill" restaurant. The Company continues to act as general partner and owns a
twelve percent limited partnership interest. It is anticipated that the
renovated restaurant will be open for business during
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the second quarter of fiscal year 2004 and is not included in the table of
units.
(9) Since the fourth quarter of 1999, the Company has managed the
restaurant for a franchisee. The franchised restaurant is included in the table
of units as a restaurant operated by the Company and the franchise is also
included as a unit franchised by the Company and in which the Company has an
interest.
All of the Company's package liquor stores, restaurants and clubs are
operated on leased properties.
The Company was incorporated in Florida in 1959 and operated in South
Florida as a chain of small cocktail lounges and package liquor stores. By 1970,
the Company had established a chain of "Big Daddy's" lounges and package liquor
stores between Vero Beach and Homestead, Florida. From 1970 to 1979, the Company
expanded its package liquor store and lounge operations throughout Florida and
opened clubs in five other "Sun Belt" states. In 1975, the Company discontinued
most of its package store operations in Florida except in the South Florida
areas of Dade, Broward, Palm Beach and Monroe Counties. In 1982 the Company
expanded its club operations into the Philadelphia, Pennsylvania area as general
partner of several limited partnerships organized by the Company. In March 1985
the Company began franchising its package liquor stores and lounges in the South
Florida area. See Note 9 to the consolidated financial statements and the
discussion of franchised units on page 5.
During fiscal year 1987, the Company began renovating its lounges to
provide full restaurant food service, and subsequently renovated and added food
service to most of its lounges. The restaurant concept, as the Company offers
it, has been so well received by the public that food sales now represent
approximately 80% of total restaurant sales.
The Company's package liquor stores emphasize high volume business by
providing customers with a wide variety of brand name and private label
merchandise at discount prices. The Company's restaurants provide efficient
service of alcoholic beverages and full food service with abundant portions,
reasonably priced, served in a relaxed, friendly and casual atmosphere.
The Company's principal sources of revenue are the sale of food and
alcoholic beverages.
The Company conducts its operations directly and through a number of joint
ventures and wholly owned subsidiaries. The joint ventures and operating
subsidiaries are as follows:
STATE OF PERCENTAGE
ENTITY ORGANIZATION OWNED
------ ------------ -----
Flanigan's Management Services, Inc. Florida 100
Flanigan's Enterprises, Inc. of Georgia Georgia 100
Seventh Street Corp. Florida 100
Flanigan's Enterprises, Inc. of Pa. Pennsylvania 100
CIC Investors #13 Limited Partnership Florida 100
CIC Investors #60 Limited Partnership Florida 42
CIC Investors #70 Limited Partnership Florida 40
CIC Investors #75 Limited Partnership Florida 12
CIC Investors #80 Limited Partnership Florida 25
CIC Investors #95 Limited Partnership Florida 28
The income derived and expenses incurred by the Company relating to the
aforementioned joint ventures and subsidiaries are consolidated for
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accounting purposes with the income and expenses of the Company in the
consolidated financial statements in this Form 10-K.
The Company's executive offices, which are owned by the Company, are
located in a two story building at 5059 N.E. 18th Avenue, Fort Lauderdale,
Florida 33334 and its telephone number at such address is (954) 377-1961.
Corporate Reorganization
On November 4, 1985, the Company, not including any of its subsidiaries,
filed a Voluntary Petition in the United States Bankruptcy Court for the
Southern District of Florida seeking to reorganize under Chapter 11 of the
Federal Bankruptcy Code. The Company's action was a result of significant
escalations of rent on certain of the Company's leases which made continued
profitable operations at those locations impossible and jeopardized the
Company's financial position. The major purpose of the reorganization was to
reject such leases. In addition, the Company also sought its release from lease
agreements for businesses sold, which sales included the assignment of the lease
for the business premises. On April 13, 1987, the Company's Amended Plan of
Reorganization was confirmed and the Bankruptcy Court entered its Order of
Confirmation on May 5, 1987. The effective date of the Amended Plan of
Reorganization was June 30, 1987 and the Bankruptcy Court ratified the initial
disbursements made by the Disbursing Agent by its Order dated December 21, 1987
and entered its Order of Discharge of the Company on December 28, 1987.
During fiscal year 1991 and again during fiscal year 1992, the Company and
Class 6 and Class 8 Creditors under the Company's Amended Plan of Reorganization
modified the schedule for the payment of bankruptcy damages, reducing the amount
of the quarterly payments by extending the term of the same, but without
reducing the total amount of bankruptcy damages, which modifications provided
the Company with needed capital. During the third quarter of fiscal year 2002,
the remaining liabilities under the Amended Plan of Reorganization were paid in
full.
Financial Information Concerning Industry Segments
The Company's business is carried out principally in two segments: the
restaurant segment and the package liquor store segment.
Financial information broken into these two principal industry segments
for the three fiscal years ended September 27, 2003, September 28, 2002 and
September 29, 2001 is set forth in the consolidated financial statements which
are attached hereto, and incorporated herein by reference.
The Company's Package Liquor Stores and Restaurants
The Company's package liquor stores are operated under the "Big Daddy's
Liquors" servicemark and the Company's restaurants are operated under the
"Flanigan's Seafood Bar and Grill" servicemark. The Company's package liquor
stores emphasize high volume business by providing customers with a wide
selection of brand name and private label liquors, beer and wines. The Company
has a policy of meeting the published sales prices of its competitors. The
Company provides extensive sales training to its package liquor store personnel.
All package liquor stores are open six or seven days a week from 9:00-10:00 a.m.
to 9:00-10:00 p.m., depending upon demand and local law. Approximately half of
the Company's units have "night windows" with extended evening hours.
-4-
The Company's restaurants offer full food and alcoholic beverage service
with approximately 77% of their sales being food items. These restaurants are
operated under the "Flanigan's Seafood Bar and Grill" servicemark. Although
these restaurants provide a neighborhood atmosphere, they have the degree of
standardization prevalent in casual dining restaurant chains, including menu.
The interior decor is nautical with numerous fishing and boating pictures and
decorations. Drink prices may vary between locations to meet local conditions.
Food prices are standardized. The restaurants' hours of operation are from 11:00
a.m. to 1:00-5:00 a.m. The Company continues to develop strong customer
recognition of its "Flanigan's Seafood Bar and Grill" servicemark through very
competitive pricing and efficient and friendly service. The Company's package
liquor stores and restaurants were designed to permit minor modifications
without significant capital expenditures. However, from time to time the Company
is required to redesign and refurbish its units at significant cost. See Item 2,
Properties and Item 7 for further discussion.
Franchised Package Liquor Stores and Restaurants
In March 1985, the Company's Board of Directors approved a plan to sell,
on a franchise basis, up to 26 of the Company's package liquor stores and
lounges in the South Florida area. The Company had limited response to its
franchise offering and suspended its franchise plan at the end of fiscal year
1986. Many of the units that were originally offered as franchises have been
sold outright and are no longer operated as Flanigan's or Big Daddy's stores. As
of the end of fiscal year 2003, seven units were franchised, of which five units
were franchised to members of the family of the Chairman of the Board and
Officers and Directors of the Company.
During fiscal year 1995, the Company completed its new franchise agreement
for a franchisee to operate a restaurant under the "Flanigan's Seafood Bar and
Grill" servicemark pursuant to a license from the Company. The new franchise
agreement provides the Company with the ability to maintain a high level of food
quality and service at its franchised restaurants, which are essential to a
successful operation. A franchisee is required to execute a new franchise
agreement for the balance of the term of its lease for the business premises,
extended by the franchisee's continued occupancy of the business premises
thereafter, whether by lease or ownership. The new franchise agreement provides
for a royalty to the Company in the amount of approximately 3% of gross sales
plus a contribution to advertising in an amount between 1-1/2% to 3% of gross
sales. All existing franchisees who operate restaurants under the "Flanigan's
Seafood Bar and Grill" or other authorized servicemarks have executed new
franchise agreements.
The units that continue to be franchised are doing well and continue to
generate income for the Company.
Investment in Joint Ventures
Beginning with the limited partnership which owns the restaurant in
Kendall, Florida and for all limited partnerships formed subsequent thereto for
the purpose of owning and operating a restaurant under the "Flanigan's Seafood
Bar and Grill" servicemark, a standard financial arrangement has been used in
each limited partnership agreement. Under this financial arrangement, until the
limited partnership has received an aggregate sum equal to the initial
investment of all limited partners from the net profit from the operation of the
restaurant, the limited partnership receives an aggregate sum equal to 25% of
the initial investment of all limited partners first each year, with any
additional net profit divided equally between the Company, as manager of the
restaurant, and the limited partnership. Once the
-5-
limited partnership has received an aggregate sum equal to the initial
investment of all limited partners from the net profit from the operation of the
restaurant, the net profit is divided equally between the Company, as manager of
the restaurant, and the limited partnership. As of September 27, 2003, only the
limited partnership which owns the restaurant in Kendall, Florida has received
an aggregate sum equal to the initial investment of all limited partners from
the net profit from the operation of the restaurant and the Company receives
one-half (1/2) of the net profit as manager of the restaurant. The Company plans
to continue forming limited partnerships to raise funds to own and operate
restaurants under the "Flanigan's Seafood Bar and Grill" servicemark using the
same financial arrangement.
The Company operated a restaurant in Miami, Florida under the "Flanigan's
Seafood Bar and Grill" servicemark pursuant to a limited partnership agreement
through the end of the second quarter of fiscal year 2002. The Company acts as
the general partner and owned a fifty percent limited partnership interest. The
State of Florida, Department of Transportation, ("DOT"), exercised its right of
eminent domain to "take" the hotel property upon which this restaurant was
located. During fiscal year 2002, the Company, as general partner of the limited
partnership, settled its apportionment claim against the hotel owner for
$700,000, which settlement resulted in a gain from disposition of approximately
$459,000 to the Company during the fiscal year ended September 28, 2002, which
is included in "Other Income (Expense) on Page F-3 of this report. During fiscal
year 2003, the limited partnership settled all claims for additional
compensation from the DOT for $27,000 and is still pursuing a claim for $10,000
as reimbursement of expenses incurred by the limited partnership during the
eminent domain proceedings. The additional compensation from the DOT belongs
solely to the Company, as will the anticipated reimbursement of expenses. The
unrelated joint venture partner received $350,000 in full settlement of its
interest and the Company controls 100% of the partnership as of September 27,
2003.
During the third quarter of fiscal year 2003, the Company, as general
partner of the limited partnership, entered into a Sale of Business Agreement
for the purchase of an existing restaurant in Pinecrest, Florida, which
transaction closed during the first quarter of fiscal year 2004. The Company
agreed to unconditionally guaranty the lease for the business premises in order
to procure the _consent of the landlord to the assignment of the lease. During
the second quarter of fiscal year 2004, the limited partnership intends to raise
funds through a private offering to renovate the business premises for operation
as a "Flanigan's Seafood Bar & Grill" restaurant. The Company continues to act
as general partner and will also be the owner of up to a thirty three and
one-third percent limited partnership interest. The limited partnership
agreement gives the partnership the right to use the "Flanigan's Seafood Bar and
Grill" servicemark for a fee equal to 3% of the gross sales from the operation
of the restaurant, while the Company acts as general partner only. It is
anticipated that the renovated restaurant will be open for business during the
fourth quarter of the fiscal year 2004.
A related third party acts as general partner of a limited partnership
which owns and operates a franchised restaurant in Fort Lauderdale, Florida
under the "Flanigan's Seafood Bar and Grill" servicemark. The Company is a
twenty five percent owner of the limited partnership as are other related
parties, including, but not limited to officers and directors of the Company and
their families. This joint venture is not consolidated on the accompanying
consolidated financial statements of the Company.
The Company acts as general partner of a limited partnership which owns
and operates a restaurant in Surfside, Florida under the "Flanigan's Seafood Bar
and Grill" servicemark. The Company is also a forty two percent owner of the
limited partnership as are other related parties, including, but not limited to
officers and directors of the Company and their families. The
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limited partnership agreement gives the limited partnership the right to use the
"Flanigan's Seafood Bar and Grill" servicemark for a fee equal to 3% of the
gross sales from the operation of the restaurant, while the Company acts as
general partner only. This restaurant opened for business in the second quarter
of fiscal year 1998.
The Company acts as general partner of a limited partnership which owns
and operates a restaurant in Kendall, Florida under the "Flanigan's Seafood Bar
and Grill" servicemark. The Company is also a forty percent owner of the limited
partnership as are other related parties, including, but not limited to officers
and directors of the Company and their families. The limited partnership
agreement gives the limited partnership the right to use the "Flanigan's Seafood
Bar and Grill" servicemark for a fee equal to 3% of the gross sales from the
operation of the restaurant, while the Company acts as general partner only.
This restaurant opened for business on April 9, 2000.
The Company acts as general partner of a limited partnership which owns
and operates a restaurant in West Miami, Florida under the "Flanigan's Seafood
Bar and Grill" servicemark. The Company is also a twenty five percent owner of
the limited partnership as are other related parties, including, but not limited
to officers and directors of the Company and their families. The limited
partnership agreement gives the limited partnership the right to use the
"Flanigan's Seafood Bar and Grill" servicemark for a fee equal to 3% of the
gross sales from the operation of the restaurant, while the Company acts as
general partner only. This restaurant opened for business on October 11, 2001.
During the fourth quarter of fiscal year 2002, the Company, as general
partner of a limited partnership, began raising funds to renovate the business
premises of an existing restaurant in Weston, Florida for operation as a
"Flanigan's Seafood Bar and Grill" restaurant. The Company is also the owner of
twenty eight percent of the limited partnership, as are other related parties,
including but not limited to officers and directors of the Company and their
families. The limited partnership agreement gives the partnership the right to
use the "Flanigan's Seafood Bar and Grill" servicemark for a fee equal to 3% of
the gross sales from the operation of the restaurant, while the Company acts as
general partner only. The restaurant, which had operated under its existing
servicemark, was closed on July 13, 2002 and building permits were issued to the
limited partnership at the start of fiscal year 2003. The restaurant opened for
business on January 20, 2003.
During the third quarter of fiscal year 2003, a limited partnership was
formed with the Company as general partner, which limited partnership entered
into a lease agreement to own and operate a restaurant in a Howard Johnson's
Hotel in Stuart, Florida. During the fourth quarter of fiscal year 2003, the
limited partnership began raising funds through a private offering to renovate
the business premises for operation as a "Flanigan's Seafood Bar and Grill"
restaurant. As of the end of fiscal year 2003, the Company had advanced the sum
of $501,000 to the limited partnership to commence renovations to the business
premises, which advance represented one third of the funds to be raised through
the private offering to renovate and prepare the restaurant to open for
business, including working capital. Subsequent to the end of fiscal year 2003,
the limited partnership completed its private offering, raising the sum of
$1,500,000. The Company continues to act as general partner and is also the
owner of a twelve percent limited partnership interest, as are other related
parties, including but not limited to officers and directors of the Company and
their families. The limited partnership agreement gives the partnership the
right to use the "Flanigan's Seafood Bar and Grill" service mark for a fee equal
to 3% of the gross sales from the operation of the restaurant, while the Company
acts as general partner only. The renovated restaurant opened for business on
January 11, 2004.
-7-
Clubs
As of the end of fiscal year 2003, the Company owned one club in Atlanta,
Georgia, which was operated by an unaffiliated third party, as discussed below.
Operation of Unit by Unaffiliated Third Party
During fiscal year 1992, the Company entered into a Management Agreement
with Mardi Gras Management, Inc. for the operation of the Company's club in
Atlanta, Georgia through the balance of the initial term of the lease, unless
sooner terminated by Mardi Gras Management, Inc. upon thirty days prior written
notice, with or without cause. Mardi Gras Management, Inc. assumed the
management of this club effective November 1, 1991 and is currently operating
the club under an adult entertainment format. During fiscal year 1997, the
Company agreed to modify the Management Agreement to give Mardi Gras Management,
Inc. one five year renewal option to extend the term of the same, without the
right to terminate the same upon thirty days prior written notice, with or
without cause, provided the Company was satisfied with the financial condition
of Mardi Gras Management, Inc. within its sole discretion, and Mardi Gras
Management, Inc. agreed to modify the owner's fee to $150,000 per year versus
ten percent of gross sales from the club, whichever is greater. Pursuant to the
Management Agreement, as modified, the Company receives a monthly owner's fee of
$12,500, subject to adjustment each year on or about July 1, with an additional
owners fee equal to 10% of the gross sales exceeding $1,500,000 for the prior 12
month period, being due the Company. During the first quarter of fiscal year
2001, the Company accepted the exercise of the five year renewal option by Mardi
Gras Management upon its receipt of a security deposit of $200,000.
Simultaneously, with its acceptance of the exercise of the renewal option by
Mardi Gras Management, the Company exercised its five year renewal option under
the ground lease for the business premises.
Operations and Management
The Company emphasizes systematic operations and control of all units.
Each unit has its own manager who is responsible for monitoring inventory
levels, supervising sales personnel, food preparation and service in restaurants
and generally assuring that the unit is managed in accordance with Company
guidelines and procedures. The Company has in effect an incentive cash bonus
program for its managers and salespersons based upon various performance
criteria. The Company's operations are supervised by area supervisors. Each area
supervisor supervises the operations of the units within his or her territory
and visits those units to provide on-site management and support. There are four
area supervisors responsible for package store, restaurant and club operations
in specific geographic districts.
All of the Company's managers and salespersons receive extensive training
in sales techniques. The Company arranges for independent third parties, or
"shoppers", to inspect each unit in order to evaluate the unit's operations,
including the handling of cash transactions.
-8-
Purchasing and Inventory
The package liquor business requires a constant substantial capital
investment in inventory in the units. Liquor inventory purchased can normally be
returned only if defective or broken.
All Company purchases of liquor inventory are made through its purchasing
department from the Company's corporate headquarters. The major portion of
inventory is purchased under individual purchase orders with licensed
wholesalers and distributors who deliver the merchandise within one or two days
of the placing of an order. Frequently there is only one wholesaler in the
immediate marketing area with an exclusive distributorship of certain liquor
product lines. Substantially all of the Company's liquor inventory is shipped by
the wholesalers or distributors directly to the Company's units. The Company
significantly increases its inventory prior to Christmas, New Year's eve and
other holidays. Pursuant to Florida law, the Company pays for its liquor
purchases within ten days of delivery.
In September 2002, the Company changed the accounting method for valuing
inventories from first in first out to average cost.
All negotiations with food suppliers are handled by the Company's
purchasing department at the Company's corporate headquarters. This ensures that
the best quality and prices will be available to each unit. Orders for food
products are prepared by each unit's kitchen manager and reviewed by the unit's
general manager before being placed with the approved vendor. Merchandise is
delivered by the supplier directly to each unit. Orders are placed several times
a week to ensure product freshness. Food inventory is primarily paid for
monthly.
Government Regulation
The Company is subject to various federal, state and local laws affecting
its business. In particular, the units operated by the Company are subject to
licensing and regulation by the alcoholic beverage control, health, sanitation,
safety and fire department agencies in the state or municipality where located.
Alcoholic beverage control regulations require each of the Company's units
to apply to a state authority and, in certain locations, county and municipal
authorities, for a license or permit to sell alcoholic beverages on the
premises.
In the State of Florida, which represents all but one of the total liquor
licenses held by the Company, most of the Company's liquor licenses are issued
on a "quota license" basis. Quota licenses are issued on the basis of a
population count established from time to time under the latest applicable
census. Because the total number of liquor licenses available under a quota
license system is limited and restrictions placed upon their transfer, the
licenses have purchase and resale value based upon supply and demand in the
particular areas in which they are issued. The quota licenses held by the
Company allow the sale of liquor for on and off premises consumption only. In
Florida, the other liquor licenses held by the Company or limited partnerships
of which the Company is the general partner are restaurant liquor licenses,
which do not have quota restrictions and no purchase or resale value. A
restaurant liquor license is issued to every applicant who meets all of the
state and local licensing requirements, including, but not limited to zoning and
minimum restaurant size, seating and menu. The restaurant liquor licenses held
by the Company allow the sale of liquor for on premises consumption only.
-9-
In the State of Georgia, the other state in which the Company operates,
licensed establishments also do not have quota restrictions for on-premises
consumption and such licenses are issued to any applicant who meets all of the
state and local licensing requirements based upon extensive license application
filings and investigations of the applicant.
All licenses must be renewed annually and may be revoked or suspended for
cause at any time. Suspension or revocation may result from violation by the
licensee or its employees of any federal, state or local law regulation
pertaining to alcoholic beverage control. Alcoholic beverage control regulations
relate to numerous aspects of the daily operations of the Company's units,
including, minimum age of patrons and employees, hours of operations,
advertising, wholesale purchasing, inventory control, handling, storage and
dispensing of alcoholic beverages, internal control and accounting and
collection of state alcoholic beverage taxes.
As the sale of alcoholic beverages constitutes a large share of the
Company's revenue, the failure to receive or retain, or a delay in obtaining a
liquor license in a particular location could adversely affect the Company's
operations in that location and could impair the Company's ability to obtain
licenses elsewhere.
The Company is subject in certain states to "dram shop" or "liquor
liability" statutes, which generally provide a person injured by an intoxicated
person the right to recover damages from an establishment that wrongfully served
alcoholic beverages to such person. See Item 1, Insurance and Item 3, Legal
Proceedings for further discussion. The Company maintains a continuous program
of training and surveillance from its corporate headquarters to assure
compliance with all applicable liquor laws and regulations. During the fiscal
years ended September 29, 2001, September 28, 2002 and September 27, 2003 and
through the present time, no significant pending matters have been initiated by
the Department of Alcohol, Beverages and Tobacco concerning any of the Company's
licenses which might be expected to result in a revocation of a liquor license
or other significant actions against the Company.
The Company is not aware of any statute, ordinance, rule or regulation
under present consideration which would significantly limit or restrict its
business as now conducted. However, in view of the number of jurisdictions in
which the Company does business, and the highly regulated nature of the liquor
business, there can be no assurance that additional limitations may not be
imposed in the future, even though none are presently anticipated.
Federal and state environmental regulations have not had a material effect
on the Company's operation.
Insurance
The Company has general liability insurance which incorporates a
semi-self-insured plan under which the Company assumes the full risk of the
first $50,000 of exposure per occurrence. The Company's insurance carrier is
responsible for $1,000,000 coverage per occurrence above the Company's
self-insured deductible, up to a maximum aggregate of $2,000,000 per year.
During fiscal year 2001, fiscal year 2002, and again in fiscal year 2003 the
Company was able to purchase excess liability insurance at a reasonable premium,
whereby the Company's excess insurance carrier is responsible for $5,000,000
coverage above the Company's primary general liability insurance coverage. The
Company is self-insured against liability claims in excess of $6,000,000.
-10-
The Company's general policy is to settle only those legitimate and
reasonable claims asserted and to aggressively defend and go to trial, if
necessary, on frivolous and unreasonable claims. The Company has established a
select group of defense attorneys which it uses in conjunction with this
program. Under the Company's current liability insurance policy, any expense
incurred by the Company in defending a claim, including adjusters and attorney's
fees, are a part of the $50,000 self-insured retention.
An accrual for the Company's estimated liability claims is included in the
consolidated balance sheets in the caption " Accounts payable and accrued
expenses". A significant unfavorable judgment or settlement against the Company
in excess of its liability insurance coverage could have a materially adverse
effect on the Company.
Competition and the Company's Market
The liquor and hospitality industries are highly competitive and are often
affected by changes in taste and entertainment trends among the public, by
local, national and economic conditions affecting spending habits, and by
population and traffic patterns. The Company believes that the principal means
of competition among package liquor stores is price and that, in general, the
principal means of competition among restaurants include location, type and
quality of facilities and type, quality and price of beverage and food served.
The Company's package liquor stores compete directly or indirectly with
local retailers and discount "superstores". Due to the competitive nature of the
liquor industry in South Florida, the Company has had to adjust its pricing to
stay competitive, including meeting all competitor's advertisements. Such
practices will continue in the package liquor business. It is the opinion of the
Company's management that the Company has a competitive position in its market
because of widespread consumer recognition of the "Big Daddy's" and "Flanigan's"
names.
As previously noted, at September 27, 2003 the Company owned and operated
six restaurants, all of which had formerly been lounges and were renovated to
provide full food service, operated one restaurant for a franchisee and operated
an additional four restaurants as general partner of limited partnerships. These
restaurants compete directly with other restaurants serving liquor in the area.
The Company's restaurants are competitive due to four factors; product quality,
portion size, moderate pricing and a standardization throughout the Company
owned and operated restaurants and most of the franchises.
The Company's business is subject to seasonal effects, in that liquor
purchases tend to increase during the holiday seasons.
Trade Names
The Company operates principally under three servicemarks; "Flanigan's",
"Big Daddy's", and "Flanigan's Seafood Bar and Grill". Throughout Florida the
Company's package liquor stores are operated under the "Big Daddy's Liquors"
servicemark. The Company's rights to the use of the "Big Daddy's" servicemark
are set forth under a consent decree of a Federal Court entered into by the
Company in settlement of federal trademark litigation. The consent decree and
the settlement agreement allow the Company to continue, and expand, its use of
the "Big Daddy's" servicemark in connection with limited food and liquor sales
in Florida. The consent decree further contained a restriction upon all future
sales of distilled spirits in
-11-
Florida under the "Big Daddy's" name by the other party who has a federally
registered servicemark for "Big Daddy's" use in the restaurant business. The
Federal Court retained jurisdiction to enforce the consent decree. The Company
has acquired a registered Federal trademark on the principal register for its
"Flanigan's" servicemark.
The standard symbolic trademark associated with the Company and its
facilities is the bearded face and head of "Big Daddy" which is predominantly
displayed at all "Flanigan's" facilities and all "Big Daddy's" facilities
throughout the country. The face comprising this trademark is that of the
Company's founder, Joseph "Big Daddy" Flanigan, and is a federally registered
trademark owned by the Company.
Employees
As of year end, the Company employed 651 employees, of which 472 were
full-time and 179 were part-time. Of these, 28 were employed at the corporate
offices. Of the remaining employees, 43 were employed in package liquor stores
and 580 in restaurants.
None of the Company's employees are represented by collective bargaining
organizations. The Company considers its labor relations to be favorable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Positions and Offices Office or Position
Name Currently Held Age Held Since
---- --------------------- --- ------------------
Joseph G. Flanigan Chairman of the Board 74 1959
of Directors, Chief
Executive Officer
James G. Flanigan President 39 2002
August Bucci Chief Operating Officer 59 2002
and Executive Vice
President
William Patton Vice President 80 1975
Community Relations
Edward A. Doxey Chief Financial Officer 62 1992
and Secretary
Jeffrey D. Kastner Assistant Secretary 50 1995
Jean Picard Vice President of 65 2002
Package Store
Operations
Item 2. Properties
The Company's operations are all conducted on leased property with the
exception of the Corporate Headquarters Office Building which was
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purchased in December, 1999 and has been occupied by the Company since April
2001. Initially most of these properties were leased by the Company on long-term
ground and building leases with the buildings either constructed by the lessors
under build-to-suit leases or constructed by the Company. A relatively small
number of business locations involve the lease or acquisition of existing
buildings. In almost every instance where the Company initially owned the land
or building on leased property, the Company entered into a sale and lease-back
transaction with investors to recover a substantial portion of its per unit
investment.
All of the Company's units require periodic refurbishing in order to
remain competitive. The Company has budgeted $350,000 for its refurbishing
program for fiscal year 2004. See Item 7, "Liquidity and Capital Resources" for
discussion of the amounts spent in fiscal year 2003.
The following table summarizes the Company's properties as of September
27, 2003 including franchise locations, a club and Company managed locations.
Square License Lease
Name and Location Footage Seats Owned by Terms
- ----------------- ------- ----- -------- -----
Big Daddy's Liquors #4 2,100 N/A Company 3/1/02 to 2/28/27
Flanigan's Enterprises and Options to
Inc. (10) 2/28/37
7003 Taft Street
Hollywood, FL
Big Daddy's Liquors #7 1,450 N/A Company 11/1/00 to 10/31/05
Flanigan's Enterprises and Options to
Inc. 10/31/15
1550 W. 84th Street
Hialeah, FL
Big Daddy's Liquors #8 1,800 N/A Company 5/1/99 to 4/30/14
Flanigan's Enterprises
Inc.
959 State Road 84
Fort Lauderdale, FL
Flanigan's Seafood 4,300 130 Company 10/1/71 to 12/31/04
Bar and Grill #9 and Option to
Flanigan's Enterprises 12/31/09
Inc. (1)
1550 W.84th Street
Hialeah, FL
Flanigan's Legends 5,000 150 Franchise 1/4/00 to 1/3/20
Seafood Bar and Grill Option to 1/3/25
#11, 11 Corporation (3)
330 Southern Blvd.
W. Palm Beach, FL
Flanigan's Legends 5,000 180 Franchise 11/15/92 to
Seafood Bar and Grill 11/15/12
#12 Galeon Tavern, Inc.(3)
2401 Tenth Ave. North
Lake Worth, FL
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Square License Lease
Name and Location Footage Seats Owned by Terms
- ----------------- ------- ----- -------- -----
Flanigan's Seafood 3,320 90 Franchise 6/1/79 to 6/1/04
Bar and Grill #14, Option to 6/1/09
Big Daddy's #14, Inc.(2)(3)(5)(9)
2041 NE Second St.
Deerfield Beach, FL
Franchise/
Piranha Pats II-#15 4,000 90 Joint 3/2/76 to 8/31/06
CIC Investors #15 Ltd.(3)(5) Venture Option to 8/31/11
1479 E. Commercial Blvd.
Ft. Lauderdale, FL
Flanigan's Seafood 4,300 100 Franchise 2/15/72 to12/31/05
Bar and Grill #18 Options to 12/31/20
Twenty Seven Birds Option to purchase
Corp. (2)(3)(5)
2721 Bird Avenue
Miami, FL
Flanigan's Seafood 4,500 160 Company 3/1/72 to 12/31/05
Bar and Grill #19
Flanigan's Enterprises
Inc. (2)(4)
2505 N. University Dr.
Hollywood, FL
Flanigan's Seafood 5,100 140 Company 7/15/68 to 12/31/04
Bar and Grill #20 Annual options
Flanigan's Enterprises until the Company
Inc. (2) fails to exercise
13205 Biscayne Blvd. Additional Lease
North Miami, FL 5/1/69 to 12/31/04
Annual options
until the Company
fails to exercise
Flanigan's Seafood 4,100 200 Company 12/16/68 to
Bar and Grill #22 12/31/05
Flanigan's Enterprises Options to 12/31/20
Inc. (2)(4) Option to purchase
2600 W. Davie Blvd.
Ft. Lauderdale, FL
Flanigan's Enterprises 3,000 90 Company 7/1/50 to 6/30/49
Inc. #27 (8)
732-734 NE 125th St.
North Miami, FL
Flanigan's Seafood 4,600 150 Company 9/6/68 to 12/31/05
Bar and Grill #31 Options to 12/31/20
Flanigan's Enterprises Option to purchase
Inc. (2)
4 N. Federal Highway
Hallandale, FL
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Square License Lease
Name and Location Footage Seats Owned by Terms
- ----------------- ------- ----- -------- -----
Flanigan's Guppy's 4,620 130 Franchise 11/1/03 to 4/30/11
Seafood Bar and Grill #33
Guppies, Inc. (2)(3)(5)
45 S. Federal Highway
Boca Raton, FL
Big Daddy's Liquors 3,000 N/A Company 5/29/97 to 5/28/07
#34, Flanigan's Options to 5/28/17
Enterprises, Inc. (1)
9494 Harding Ave.
Surfside, FL
Flanigan's Seafood 4,600 140 Company 4/1/71 to 12/31/05
Bar and Grill #40 Options to 12/31/15
Flanigan's Enterprises
Inc. (2)
5450 N. State Road 7
Ft. Lauderdale, FL
Piranha Pat's #43 4,500 90 Franchise 12/1/72 to 11/30/07
BD 43 Corporation (2)(3)(5) Option to 11/30/12
2500 E. Atlantic Blvd.
Pompano Beach, FL
Big Daddy's Liquors 6,000 N/A Company 12/21/68 to 1/1/10
#47, Flanigan's Options to 1/1/60
Enterprises, Inc. (6)
8600 Biscayne Blvd.
Miami, FL
Flanigan's Seafood 6,800 200 Joint 8/1/97 to 12/31/11
Bar and Grill #60, Venture
CIC Investors #60 Ltd.
9516 Harding Avenue
Surfside, FL
Flanigan's Seafood 4,850 161 Joint 4/1/98 to 3/31/08
Bar and Grill #70 Venture Options to 3/31/28
CIC Investors #70 Ltd.
12790 SW 88 St
Kendall, FL
Flanigan's Seafood 7,000 200 Joint 10/1/03 to 9/30/06
Bar and Grill #75 (11) Venture Options to 9/30/27
CIC Investors # 75 Ltd.
950 S. Federal Highway
Stuart, FL 34994
Flanigan's Seafood 5,000 165 Joint 4/15/01 to 12/14/05
Bar and Grill #80 Venture Options to 12/14/20
CIC Investors #80 Ltd.
8695 N.W. 12th St
Miami, FL
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Square License Lease
Name and Location Footage Seats Owned by Terms
- ----------------- ------- ----- -------- -----
Flanigan's Seafood 5,700 235 Joint 7/29/01 to 7/28/16
Bar and Grill #95 Venture Options to 7/28/31
CIC Investors #95 Ltd.
2460 Weston Road
Weston, FL
Flanigan's Enterprises 10,000 400 Company 5/1/76 to 4/30/06
#600 (7)
Powers Ferry Landing
Atlanta, GA
(1) License subject to chattel mortgage.
(2) License pledged to secure lease rental.
(3) Franchised by Company.
(4) Former franchised unit returned and now operated by Company.
(5) Lease assigned to franchisee
(6) During fiscal year 1996, the Company purchased 37% of the underlying
leasehold from the unaffiliated third parties to whom the lease had been
assigned and subleased back. An additional 11% was purchased during fiscal
year 1997, bringing the total interest purchased to 48%.
(7) Location managed by an unaffiliated third party.
(8) Location was closed in May 1998. The Company entered into a five year
sub-lease agreement, with two five year options, with an unaffiliated
third party who is presently operating a restaurant at this location.
(9) Effective December 1, 1998, the Company purchased the Management Agreement
to operate the franchised restaurant for the franchisee.
(10) Ground lease executed by the Company on September 25, 2001. The Company
constructed a building of approximately 4200 square feet, one half (1/2)
to be used by the Company for the operation of a package liquor store and
the other one half (1/2) to be subleased as retail space. The package
liquor store opened for business on November 17,2003.
(11) Location scheduled to open for business on January 11, 2004.
Item 3. Legal Proceedings.
Due to the nature of the business, the Company is sued from time to time
by patrons, usually for alleged personal injuries occurring at the Company's
business locations. The Company has liability insurance which incorporates a
semi-self-insured plan under which the Company assumes the full risk of the
first $50,000 of exposure per occurrence. The Company's primary general
liability insurance carrier is responsible for $1,000,000 coverage per
occurrence above the Company's self-insured deductible, up to a maximum
aggregate of $2,000,000 per year. During the fiscal year 2001, fiscal year 2002,
and again in fiscal year 2003, the Company was able to purchase excess liability
insurance, at a reasonable premium, whereby the Company's excess insurance
carrier is responsible for $5,000,000 coverage above the Company's primary
general liability insurance coverage. Certain states have
-16-
liquor liability (dram shop) laws which allow a person injured by an "obviously
intoxicated person" to bring a civil suit against the business (or social host)
who had served intoxicating liquors to an already "obviously intoxicated
person". Dram shop claims normally involve traffic accidents and the Company
generally does not learn of dram shop claims until after a claim is filed and
then the Company vigorously defends these claims on the grounds that its
employee did not serve an "obviously intoxicated person". Damages in most dram
shop cases are substantial. At the present time, there are no dram shop cases
pending against the Company. The Company has in place insurance coverage to
protect it from losses, if any.
During fiscal year 2000, the Company was served with several complaints
alleging violations of the Americans with Disabilities Act, ("ADA"), at all of
its locations. The lawsuits included the restaurants owned by the limited
partnerships and franchises. The ADA has no notice provision and the first time
that the Company received notice of any ADA violations was when it was served
with a copy of the complaint. Of the law suits filed, only a few have been
actively pursued. The Company retained an ADA expert who has inspected locations
involved in active lawsuits, including the limited partnerships and franchises,
and provided a report setting forth ADA violations which need to be corrected.
The Company agreed to correct ADA violations noted by its ADA expert and then
vigorously defended the lawsuits arguing that the locations were in compliance.
During fiscal year 2001 and fiscal year 2002, the Company, including three (3)
of its franchises, settled all active law suits alleging ADA violations.
During fiscal year 2003, the Company was served with a complaint alleging
violations of the ADA at one of its locations. The Company corrected all
violations noted in the complaint and is arguing that the location is in
compliance.
During fiscal year 2003, the Company, as general partner of one of its
limited partnerships, and one of its franchisees, received notifications
alleging their failure to complete correcting ADA violations pursuant to their
respective settlement agreements from previous lawsuits alleging ADA violations.
The Company, as general partner of the limited partnership, and the franchisee
corrected any uncorrected ADA violations and are arguing that the locations are
in compliance with their respective settlement agreements.
Item 4. Submission of Matters to a Vote of Security Holders.
During the fourth quarter of fiscal year 2003 the Company did not submit
any matter to a vote of the security holders.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
-17-
Fiscal 2003 Fiscal 2002 Fiscal 2001
----------- ----------- -----------
High Low High Low High Low
---- --- ---- --- ---- ---
First quarter 6.10 4.90 6.20 4.25 4.38 3.75
Second quarter 6.10 5.50 6.21 5.65 4.65 3.75
Third quarter 6.37 5.99 7.20 6.00 5.00 4.06
Fourth quarter 6.60 6.00 6.85 5.40 6.45 4.35
On February 13, 2001, the Company declared a cash dividend of 12 cents per
share payable March 17, 2001 to shareholders of record as of March 1, 2001.
On December 13, 2001 the Company declared a cash dividend of 25 cents per
share payable on January 17, 2002 to shareholders of record on December 30,
2001.
On April 30, 2002, the Company purchased 36,000 shares of the Company's
common stock from the Company's Chief Executive Officer at $6.60 per share which
was the fair market price as of that date.
On December 19, 2002, the Company declared a cash dividend of 27 cents per
share payable on January 30, 2003 to shareholders of record on January 17, 2003.
On December 18, 2003 the Company declared a cash dividend of 30 cents per
share payable on January 15, 2004 to shareholders of record on December 30,
2003.
Item 6. Selected Financial Data.
- --------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003
- --------------------------------------------------------------------------------------------
Statement of Operations Data
- --------------------------------------------------------------------------------------------
Revenue $29,523,000 $32,640,000 $36,038,000 $39,124,000 $40,253,000
- --------------------------------------------------------------------------------------------
Income from Operations
$ 1,835,000 $ 2,216,000 $ 2,583,000 $ 2,788,000 $ 2,024,000
- --------------------------------------------------------------------------------------------
Net income $ 2,368,000 $ 1,364,000 $ 1,529,000 $ 1,383,000 $ 888,000
- --------------------------------------------------------------------------------------------
Earnings per share $ 1.21 $ 0.73 $ 0.80 $ 0.71 $ 0.46
- --------------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------------------
Balance Sheet Data
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Total assets $14,168,000 $15,477,000 $16,728,000 $17,367,000 $18,733,000
- --------------------------------------------------------------------------------------------
Long term liabilities
$ 1,528,000 $ 1,672,000 $ 2,010,000 $ 1,593,000 $ 1,314,000
- --------------------------------------------------------------------------------------------
Net working capital
$ 1,429,000 $ 1,373,000 $ 2,436,000 $ 2,980,000 $ 2,093,000
- --------------------------------------------------------------------------------------------
Stockholders' equity
$ 6,980,000 $ 7,667,000 $ 8,968,000 $ 9,957,000 $10,351,000
- --------------------------------------------------------------------------------------------
Dividends declared
$ 186,000 $ 215,000 $ 231,000 $ 499,000 $ 520,000
- --------------------------------------------------------------------------------------------
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
As of September 27, 2003, the Company was operating sixteen units. The
Company had interests in an additional seven units which had been franchised by
the Company, which interests include the franchised restaurant managed by the
Company. Of the units operated by the Company, four were combination package
liquor store and restaurant, seven were restaurants only and four were package
liquor stores only. There was one club operated by an unaffiliated third party
under a management agreement. During fiscal year 2001, one package liquor store
only was closed with the expiration of its lease and the liquor license was sold
during the first quarter of fiscal year 2002 to an unaffiliated third party.
During fiscal year 2001, one restaurant only was acquired by a limited
partnership of which the Company acts as general partner. The restaurant, which
was being operated by the Company under the restaurant's servicemark, was closed
during the fourth quarter of fiscal year 2002, renovated for operation under the
"Flanigan's Seafood Bar and Grill" servicemark and re-opened for business during
the second quarter of fiscal year 2003. During fiscal year 2001, the Company
also entered into a ground lease and constructed a building for the operation of
a package liquor store only from one half (1/2) of the building and to sublease
retail space from the other one half (1/2). At the start of fiscal year 2001,
one restaurant only, owned by a limited partnership of which the Company acts as
general partner, was opened for business.
Liquidity and Capital Resources
Cash Flows
The following table is a summary of the Company's cash flows for the
fiscal years ended September 27, 2003, September 28, 2002 and September 29,
2001:
- --------------------------------------------------------------------------------
Fiscal Years Ended
- --------------------------------------------------------------------------------
2003 2002 2001
- --------------------------------------------------------------------------------
(in thousands)
- --------------------------------------------------------------------------------
Net cash provided by
operating activities $4,418 $2,495 $2,476
- --------------------------------------------------------------------------------
Net cash used in
investing activities (3,108) (2,009) (1,665)
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Fiscal Years Ended
- --------------------------------------------------------------------------------
2003 2002 2001
- --------------------------------------------------------------------------------
(in thousands)
- --------------------------------------------------------------------------------
Net cash used in
financing activities (866) (892) (168)
- --------------------------------------------------------------------------------
Net increase (decrease)
in cash and equivalents 444 (406) 643
- --------------------------------------------------------------------------------
Cash and equivalents
beginning of year 1,143 1,549 906
- --------------------------------------------------------------------------------
Cash and equivalents
end of year $ 1,587 $ 1,143 $ 1,549
- --------------------------------------------------------------------------------
Beginning with the limited partnership which owns the restaurant in Kendall,
Florida and for all limited partnerships formed subsequent thereto for the
purpose of owning and operating a restaurant under the "Flanigan's Seafood Bar
and Grill" servicemark, a standard financial arrangement has been used in each
limited partnership agreement. Under this financial arrangement, until the
limited partnership has received an aggregate sum equal to the initial
investment of all limited partners from the net profit from the operation of the
restaurant, the limited partnership receives an aggregate sum equal to 25% of
the initial investment of all limited partners first each year, with any
additional net profit divided equally between the Company, as manager of the
restaurant, and the limited partnership. Once the limited partnership has
received an aggregate sum equal to the initial investment of all limited
partners from the net profit from the operation of the restaurant, the net
profit is divided equally between the Company, as manager of the restaurant, and
the limited partnership. The Company plans to continue forming limited
partnerships to raise funds to own and operate restaurants under the "Flanigan's
Seafood Bar and Grill" servicemark using the same financial arrangement.
Contractual Cash Obligations
Less Than 1-5 After
Total 1 Year Years 5 Years
----- ------ ----- -------
Employment contract $ 150,000 $ 150,000
Long-term debt 1,592,000 278,000 $ 363,000 $ 951,000
Operating leases 11,170,000 1,647,000 4,389,000 5,134,000
Subtotal 12,912,000 2,075,000 4,752,000 6,085,000
Operating Lease guarantees for Franchisees 3,290,000 698,000 2,071,000 521,000
----------- ----------- ----------- -----------
$16,202,000 $ 2,773,000 $ 6,823,000 $ 6,606,000
=========== =========== =========== ===========
Improvements
Capital expenditures were $3,028,000,$1,216,000 and $2,560,000 during
fiscal years 2003, 2002 and 2001, respectively. The capital expenditures for
each fiscal year included upgrading existing units serving food, improvements to
package liquor stores and the replacement of the corporate computer system. The
capital expenditures for fiscal year 2003 included renovations to their
respective business premises by the joint
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ventures in Weston, Florida, ($820,000), and Stuart, Florida, ($284,000), and
the construction of the building in Hollywood, Florida for the operation of a
package liquor store, ($515,000).
All of the Company's units require periodic refurbishing in order to
remain competitive . During fiscal 1992, as cash flow improved, the Company
embarked on a refurbishing program which continues. The budget for fiscal year
2004 includes approximately $ 350,000 for this purpose. The Company expects the
funds for these improvements to be provided from operations. In addition it is
anticipated that two new joint ventures will require approximately $4,000,000 in
capital expenditures during fiscal year 2004, the majority of which will be
raised through private offerings.
Long Term Debt
During the fourth quarter of fiscal year 2002, the Company closed on an
unsecured $456,000 loan from BankAtlantic, which loan was used to prepay the
principal balance due on a $1,000,000 loan from Bank of America, (formerly
NationsBank), which loan originated during the second quarter of fiscal year
2000. The promissory note earns interest at prime rate, (4.0% at September 27,
2003), per annum and is fully amortized over 19 months, with equal monthly
payments of principal and interest. The principal balance due as of September
27, 2003 was $190,209.
During the fourth quarter of fiscal year 2001, the Company borrowed the
sum of $895,000 from Bank of America (formerly Nations Bank). The promissory
note earns interest at the rate of 8.62% per annum, amortized over 20 years with
principal and interest payable monthly, with the entire unpaid principal balance
and all accrued interest due on August 1, 2008. The promissory note is secured
by a mortgage on the office building purchased by the Company for its corporate
offices, which office building was released from the lien granted by the Company
to Bank of America (formerly Nations Bank), as collateral for the $1,000,000
loan in the second quarter of fiscal year 2000. In order to achieve the fixed
interest rate, the Company entered into an ISDA Master Agreement with Bank of
America, ("SWAP Agreement"), and in the event the Company elects to prepay the
promissory note, there may be a prepayment penalty associated therewith. The
outstanding balance as of the end of fiscal year 2003 was $ 856,578.
During the fourth quarter of fiscal year 1997, the Company, as general
partner of a limited partnership, purchased the assets of an existing restaurant
in Surfside, Florida for renovation and operation as a "Flanigan's Seafood Bar
and Grill" restaurant. The purchase price was seller financed, secured by a
chattel mortgage upon the assets of the limited partnership, bearing interest at
the rate of 8% per annum and being fully amortized over 10 years with equal
monthly installments of principal and interest, each in the amount of $6,066.40.
The principal balance due as of September 27, 2003 was $243,000.
During the fourth quarter of fiscal year 1997, the Company borrowed
$375,000 from investors, in units of $5,000, which loan was fully secured by
specific receivables owned by the Company. The loan was paid in full during the
fourth quarter of fiscal year 2002.
During the third quarter of fiscal year 1997, the Company purchased
unimproved real property adjacent to one of its units to ensure adequate parking
for the restaurant. The purchase price was seller financed, secured by a
mortgage upon the real property purchased, bearing interest at the rate of 8%
per annum and being payable in equal monthly installments of principal and
interest, each in the amount of $3,042.55, until April 24, 2007, when the
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entire principal balance and all accrued interest is due in full. The principal
balance due as of September 27, 2003 was $302,000.
The Company repaid long term debt, including the Bank of America note
payable, the Bank Atlantic note payable, mortgages, capital lease obligations
and Chapter 11 bankruptcy damages in the amount of $ 346,000, $498,000 and
$835,000 in fiscal years 2003, 2002 and 2001 respectively.
Working capital
The table below summarizes the current assets, current liabilities and
working capital for the fiscal years 2003, 2002 and 2001:
Sept. 27 Sept. 28 Sept.29
2003 2002 2001
Current assets $4,958,000 $5,354,000 $4,745,000
Current liabilities 2,865,000 2,374,000 2,309,000
Working capital 2,093,000 2,980,000 2,436,000
Working capital for the fiscal year ended September 27, 2003 decreased by
29.8% and 14.1% from the working capital for the fiscal years ended September
28, 2002 and September 27, 2001, respectively. The decrease in working capital
is attributed to capital improvements made by the limited partnership owning the
restaurant in Stuart, Florida, and the construction of the building in
Hollywood, Florida from which the Company operates a package liquor store.
Subsequent to the end of fiscal year 2003 and the completion of the private
offering by the limited partnership owning the restaurant in Stuart, Florida,
the Company was reimbursed for advances made in excess of its investment
($376,000), thereby improving working capital. The Company currently has no
plans to construct another building for the purpose of operating a package
liquor store.
Management believes that positive cash flow from operations will
adequately fund operations, debt reductions and planned capital expenditures in
fiscal year 2004. However, it is also anticipated that during fiscal year 2004,
working capital will be adversely effected by the annual dividend, provided the
dividend is approved by the Board of Directors, and investments and/or advances
made by the Company to limited partnerships pending reimbursement of advances
made by the Company in excess of its investment once the private offering by the
limited partnership is completed.
Income Taxes
Financial Accounting Standards Board Statement No. 109, Accounting for
Income Taxes requires, among other things, recognition of future tax benefits
measured at enacted rates attributable to deductible temporary differences
between financial statement and income tax bases of assets and liabilities and
to tax net operating loss and tip credit carryforwards to the extent that
realization of said benefits is more likely than not. For discussion regarding
the Company's carryforwards refer to Note 7 to the consolidated financial
statements for fiscal year ended September 27, 2003.
-22-
Critical Accounting Policies
The Company's significant accounting policies are more fully described in
Note 1 to the Company's consolidated financial statements located in Item 8 of
this Annual Report on Form 10-K. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, and expenses, and the related
disclosures of contingent assets and liabilities. Actual results could differ
from those estimates under different assumptions or conditions. The Company
believes that the following critical accounting policies are subject to
estimates and judgments used in the preparation of its consolidated financial
statements:
Depreciation
The estimate of useful lives for tangible and intangible assets are significant
estimates. Expenditures for the leasehold improvements and equipment when a
restaurant is first constructed are material. In addition. periodic refurbishing
takes place and those expenditures can be material. Management estimates the
useful life of those assets by considering, among other things, expected use,
life of the lease on the building, and warranty period, if applicable. The
assets are then depreciated using a straight line method over those estimated
lives. These estimated lives are reviewed periodically and adjusted if
necessary. Any necessary adjustment to depreciation expense is made in the
income statement of the period in which the adjustment is determined to be
necessary.
In fiscal 2003, management reviewed the estimated useful lives for leasehold
improvements and recorded an adjustment which was not significant.
Deferred Tax Assets
Deferred tax assets result primarily from timing differences relating to
depreciation and tip credits. The calculations are reviewed periodically by
management and the estimates are adjusted as the assumptions or conditions
indicate.
Consolidation
The Company operates 4 restaurants as general partner for the limited
partnership that owns the operations of these restaurants. The Company refers to
these entities as joint ventures or limited partnerships. Additionally, the
Company expects that any expansion which takes place in opening new restaurants
will also result in the Company operating the restaurants as general partner. In
addition to the general partnership interest the Company also purchases limited
partnership units ranging from 12% to 42% of the total units outstanding. As a
result of these controlling interests, the Company consolidates the operations
of these limited partnerships with those of the Company despite the fact the
Company does not own in excess of 50% of the equity interests. All intercompany
transactions are eliminated in consolidation. The minority interests in the
earnings of these joint ventures are removed from net income and are not
included in the calculation of earnings per share.
-23-
Results of Operations
REVENUES (in thousands):
- --------------------------------------------------------------------------------
Fifty Two Fifty Two Fifty Two
Weeks Ended Weeks Ended Weeks Ended
Sept.27, 2003 Sept. 28, 2002 Sept. 29, 2001
Sales
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Restaurant, food $22,489 57.7% $22,086 58.4% $19,976 57.6%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Restaurant, bar 6,705 17.2% 6,533 17.3% 5,806 16.7%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Package goods 9,777 25.1% 9,174 24.3% 8,907 25.7%
- --------------------------------------------------------------------------------
Total 38,971 100% 37,793 100.0% 34,689 100.0%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Franchise revenues 904 985 977
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Owners fee 260 251 269
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Other operating
income 118 95 103
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Revenues $40,253 $39,124 $36,038
- --------------------------------------------------------------------------------
As the table above illustrates, total revenues have increased when
compared to fiscal years ended September 28, 2002 and September 29, 2001. During
fiscal year 2004, total revenues are expected to continue increasing primarily
due to the restaurant in Weston, Florida being open for the entire year, the
opening of the new restaurant in Stuart, Florida and the opening of a new
package liquor store in Hollywood, Florida.
Restaurant food sales represented 57.7% of total sales for the fiscal year
ended September 27, 2003 as compared to 58.4% and 57.6% of total sales in the
fiscal years ended September 28, 2002 and September 29, 2001 respectively. The
weekly average of same store restaurant food sales was $273,000 for the fiscal
year ended September 27, 2003 as compared to $264,000 and $255,000 for the
fiscal years ended September 28, 2002 and September 29, 2001, respectively, an
increase of 3.4% and 7.1% from the fiscal years ended September 28, 2002 and
September 29, 2001, respectively. The weekly average of restaurant food sales
increased for the fiscal year ending September 27, 2003 as compared to the
fiscal years ending September 28, 2002 and September 29, 2001, while the
percentage of restaurant food sales to total sales decreased due to increased
package store sales. During fiscal year 2004,
-24-
restaurant food sales are expected to increase primarily due to the restaurant
in Weston, Florida being open for the entire year and the opening of the new
restaurant in Stuart, Florida and the continued increase in the weekly average
of same store restaurant food sales.
Restaurant bar sales represented 17.2% of total sales for the fiscal year
ended September 27, 2003 as compared to 17.3% and 16.7% of total sales in the
fiscal years ended September 28, 2002 and September 29, 2001, respectively. The
weekly average of same store restaurant bar sales was $73,000 for the fiscal
year ended September 27, 2003 as compared to $74,000 and $75,000 for the fiscal
years ended September 28, 2002 and September 29, 2001 respectively, a decrease
of 1.4% from fiscal year 2002 and 2.7% from fiscal year 2001. During fiscal year
2004, restaurant bar sales are expected to increase primarily due to the
restaurant in Weston, Florida being open for the entire year and the opening of
the new restaurant in Stuart, Florida, although the weekly average of same store
restaurant bar sales is expected to remain constant.
Package store sales represented 25.1% of total sales for the fiscal year
ended September 27, 2003 as compared to 24.3% and 25.7% of total sales in the
fiscal years ended September 28, 2002 and September 29, 2001, respectively. The
weekly average of same store package sales was $177,000 for the fiscal year
ended September 27, 2003 as compared to $170,000 and $168,000 for the fiscal
years ended September 28, 2002 and September 29, 2001 respectively, an increase
of 4.1% and 5.4% from fiscal years ended September 28, 2002 and September 29,
2001, respectively. During fiscal year 2004, package store sales are expected to
increase primarily due to the opening of a new package liquor store during the
first quarter and the continued increase in the weekly average of same store
package stores.
Franchise revenue, which includes but is not limited to rental income and
franchise-related income such as franchise royalties, bookkeeping and accounting
fees and reimbursement of attorney's fees, decreased to $904,000 for the fiscal
year ended September 27, 2003 as compared to $985,000 and $977,000 for the
fiscal years ended September 28, 2002 and September 29, 2001, respectively, a
decrease of 8.2% and 7.5% for fiscal years ended September 28, 2002 and
September 29, 2001, respectively.
Owner's fee represents fees received pursuant to a Management Agreement
from the operation of a club owned by the Company in Atlanta, Georgia. The
Management Agreement was amended effective July 1, 1996, whereby the Company
also receives ten percent of sales exceeding $1,500,000 per annum as additional
owner's fees. Income from this club was $260,000 for the fiscal year ended
September 27, 2003 as compared to $251,000 and $269,000 for the fiscal years
ended September 28, 2002 and September 29, 2001, respectively.
The gross profit margin for restaurant sales was 65.8% for the fiscal year
ended September 27, 2003 as compared to 66.6% and 63.58% for the fiscal years
ended September 28, 2002 and September 29, 2001, respectively. The gross profit
margin for restaurant sales for the fiscal year ended September 27, 2003 was
adversely effected by increasing costs, a trend which is expected to continue
during fiscal year 2004. The Company offsets increased costs by price increases,
whenever possible.
The gross profit margin for package goods sales was 27.0% for the fiscal
year ended September 27, 2003 as compared to 25.9% and 27.2% for the fiscal
years ended September 28, 2002 and September 29, 2001, respectively. For the
fiscal year ended September 28, 2002, the gross profit margin for package good
sales was adversely effected by a charge due to a change in accounting method.
Otherwise, the gross profit margin for package good sales has remained constant
for each of the three fiscal years and is expected to remain constant during
fiscal year 2004.
-25-
Overall gross profits were 56.1% for the fiscal year ended September 27,
2003, as compared to 57.1% and 54.2% for the fiscal years ended September 28,
2002 and September 29, 2001, respectively.
Operating Costs and Expenses
Operating costs and expenses for the fiscal year ended September 27, 2003
were $38,229,000 as compared to $36,336,000 and $33,445,000 for the fiscal years
ended September 28, 2002 and September 29, 2001, respectively. Operating
expenses are comprised of the cost of merchandise sold, payroll and related
costs, occupancy costs and selling, general and administrative expenses.
Operating costs and expenses for the fiscal year ended September 27, 2003
increased by 5.2% and 14.3% as compared to operating costs and expenses for the
fiscal years ended September 28, 2002 and September 29, 2001, primarily due to
the opening of the new restaurants and package stores, as well as a general
increase in overall operating costs and expenses. During fiscal year 2004,
operating costs and expenses are expected to continue increasing primarily due
to the restaurant in Weston, Florida being open for the entire year, the opening
of the new restaurant in Stuart, Florida and the opening of a new package liquor
store in Hollywood, Florida. Overall operating costs and expenses are also
expected to continue increasing slightly.
Payroll and related costs were $11,423,000 for the fiscal year ended
September 27, 2003, as compared to $11,377,000 and $10,346,000 for the fiscal
years September 28, 2002 and September 29, 2001, respectively. Payroll and
related costs for the fiscal year ended September 27, 2003 increased as compared
to payroll and related costs for the fiscal years ended September 28, 2002 and
September 29, 2001, primarily due to the opening of the new restaurants and
package stores. During fiscal year 2004, payroll and related costs are expected
to continue increasing primarily due to the restaurant in Weston, Florida being
open for the entire year, the opening of the new restaurant in Stuart, Florida
and the opening of a new package liquor store in Hollywood, Florida.
Occupancy costs, which include rent, common area maintenance, repairs and
taxes were $2,158,000 for the fiscal year ended September 27, 2003 as compared
to $1,756,000 and $1,373,000 for the fiscal years ended September 28, 2002 and
September 29, 2001, respectively. The increase in occupancy costs during the
fiscal year ended September 27, 2003 was due primarily to the payment of rent
for the restaurant in Weston, Florida commencing at the start of the second
quarter of fiscal year 2003. During fiscal year 2004, occupancy costs are
expected to continue increasing with the payment of rent for the restaurant in
Weston, Florida for the entire year, the payment of rent for the new restaurant
in Stuart, Florida and the payment of rent for a new restaurant location in
Pinecrest, Florida commencing at the start of the second quarter of fiscal year
2004.
Selling, general and administrative expenses were $7,534,000 for the
fiscal year ended September 27, 2003 as compared to $6,785,000 and $5,832,000
for the fiscal years ended September 28, 2002 and September 29, 2001,
respectively. The increase in selling, general and administrative expenses
during the fiscal year ended September 27, 2003 was primarily due to the opening
of the new restaurants and package stores. During fiscal year 2004, selling,
general and administrative expenses are expected to continue increasing
primarily due to the restaurant in Weston, Florida being open for the entire
year, the opening of the new restaurant in Stuart, Florida and the opening of a
new package liquor store in Hollywood, Florida.
-26-
Other Income and Expenses
Other income and expenses were an expense of ($594,000) for the fiscal
year ended September 27, 2003 as compared to ($717,000) and ($565,000) for the
fiscal years ended September 28, 2002 and September 29, 2001, respectively.
Other income and expenses, which include minority interest in consolidated
limited partnerships, were an expense of ($594,000) for the fiscal year ended
September 27, 2003 as compared to ($659,000) and ($565,000) for the fiscal years
ended September 28, 2002 and September 29, 2001, respectively. Other income and
expenses for the fiscal year ended September 28, 2002 includes the gain of
$459,000 on disposition relating to the eminent domain proceedings. During
fiscal year 2004, other income and expenses are expected to show increased
expense primarily due to the restaurant in Weston, Florida being open for the
entire year and the opening of the new restaurant in Stuart, Florida.
Interest expense, net of interest income, was $95,000 for the fiscal year
ended September 27, 2003 as compared to $115,000 and $153,000 for each of the
fiscal years ended September 28, 2002 and September 29, 2001, respectively.
The category "Other, net" was $80,000 for the fiscal year ended September
27, 2003 as compared with $559,000,and $160,000 for the fiscal years ended
September 28, 2002 and ended September 29, 2001, respectively. The increase for
the fiscal year ending September 28, 2002 was attributed to the gain of $456,000
on disposition relating to the eminent domain proceedings which did not reoccur.
Trends
During the next twelve months management expects continued increases in
restaurant sales, due primarily to the restaurant in Weston, Florida being open
for the entire year, the opening of the new restaurant in Stuart, Florida and
continued increases in same store sales. Package goods sales are also expected
to increase due primarily to the opening of a new package store in Hollywood,
Florida and continued increases in same store sales. Franchise royalties are
expected to increase due to restaurant in Weston, Florida being open for the
entire year, the opening of the new restaurant in Stuart, Florida and continued
increases in same store sales for the limited partnerships and franchises. At
the same time, management also expects higher food costs, especially the cost of
ribs, and overall expenses to increase generally. The Company has already raised
some of its menu prices to offset the higher food costs and will continue to do
so wherever competitively possible. During the next twelve months, management
projects an increase in overall profit before income tax.
The provision for income taxes was $542,000 for the fiscal year ended
September 27, 2003, $688,000 for fiscal year ended September 28, 2002 and
$489,000 for the fiscal year ended September 29, 2001.
Subsequent to the end of fiscal year 2003, the Company, as general partner
of the limited partnership which was forced to close its restaurant due to
eminent domain proceedings, closed on the purchase of an existing restaurant in
Pinecrest, Florida to renovate and operate as a "Flanigan's Seafood Bar and
Grill" restaurant. It is anticipated that funds will be raised through a private
offering and the restaurant will be open for business during the fourth quarter
of fiscal year 2004. The Company intends to open additional restaurants as
suitable locations become available, using limited partnerships, of which it is
the general partner, to raise funds to own and operate the same.
-27-
The Company does not plan to construct any more buildings for the
operation of a package store and is not actively searching for locations, but if
an appropriate location for a package store becomes available, the Company will
consider the same.
Other Matters
Impact of Inflation
The Company does not believe that inflation has had any material effect
during the past three fiscal years. To the extent allowed by competition, the
Company recovers increased costs by increasing prices.
Item 7A. Quantative and Qualitative Disclosures About Market Risk
The Company does not ordinarily hold market risk sensitive instruments for
trading purposes, but holds one equity security, at a cost of $144,000, for
dividend payments. Even if the price of the equity securities decreased by 10%,
results of operations would be reduced by $14,400, an amount management
considers immaterial.
The Company recognizes market risk from interest rate exposure. The
Company has two debt arrangements which have variable interest rates. For one of
these instruments, a mortgage note, the Company has entered into an interest
rate swap agreement to hedge the interest rate risk. The other debt instrument
has an outstanding principal balance at September 27, 2003 of $ 190,000. Even if
interest rates increased by 10%, results of operations would be reduced by only
$ 4,000 an amount management considers immaterial.
Interest Rate Risk
At September 27, 2003, the Company's cash resources earn interest at variable
rates. Accordingly, the Company's return on these funds is affected by
fluctuations in interest rates. Any decrease in interest rates will have a
negative effect on the Company's earnings. In addition, the Company incurs
interest charges on debt at variable rates, which to the extent that the Company
has not entered into interest rate swap agreements to hedge this risk, could
negatively impact the Company's earnings. There is no assurance that interest
rates will increase or decrease over the next fiscal year.
Item 8. Financial Statements and Supplementary Data.
Financial statements of the Company at September 27, 2003, September 28,
2002 and September 29, 2001, which include each of the three years in the period
ended September 27, 2003 and the independent certified public accountants'
report thereon, are included herein.
-28-
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information set forth under the caption "Election of Directors" in the
Company's definitive Proxy Statement for its 2004 Annual Meeting of
Shareholders, filed with the Securities and Exchange Commission pursuant to
regulation 14A under the Securities and Exchange Act of 1934, as amended (the
2004 Proxy Statement), is incorporated herein by reference. See also "Executive
Officers of the Registrant" included in Part I hereof.
Item 11. Executive Compensation.
The information set forth in the 2004 Proxy Statement under the caption
"Executive Compensation" is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the 2004 Proxy Statement is incorporated by
reference.
Item 13. Certain Relationships and Related Transactions.
The information set forth under the caption "Election of Directors --
Certain Relationships and Related Transactions" in the 2004 Proxy Statement is
incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K.
(a) 1. Financial Statements
All the financial statements, financial statement schedule and
supplementary data listed in the accompanying Index to Exhibits are filed as
part of this Annual Report.
2. Exhibits
The exhibits listed on the accompanying Index to Exhibits are filed as
part of this Annual Report.
(b) Reports on Form 8-K
No reports on form 8-K were filed during the fourth quarter of fiscal year
2003 or subsequent to year end.
-29-
Index to Exhibits
Item (14) (a) (2)
Description
(2) Plan of Reorganization, Amended Disclosure Statement, Amended Plan of
reorganization, Modification of Amended Plan of Reorganization, Second
Modification of Amended Plan of Reorganization, Order Confirming Plan of
Reorganization, (Item 7 (c) of Quarterly Report on Form 8-K filed May 5, 1987 is
incorporated herein by reference).
(3) Restated Articles of Incorporation (Part IV, Item 4 (a) (2) of Annual Report
on Form 10-K filed on December 29, 1982 is incorporated herein by reference).
(10)(a)(1) Employment Agreement with Joseph G. Flanigan (Exhibit A of the Proxy
Statement dated January 27, 1988 is incorporated herein by reference).
(10)(a)(2) Form of Employment Agreement between Joseph G. Flanigan and the
Company (as ratified and amended by the stockholders at the 1988 annual meeting
is incorporated herein by reference).
(10)(c) Consent Agreement regarding the Company's Trademark Litigation (Part
7(c)(19) of the Form 8-K dated April 10, 1985 is incorporated herein by
reference).
(10)(d) King of Prussia (#850) Partnership Agreement (Part 7 (c) (19) of the
Form 8-K dated April 10, 1985 is incorporated herein by reference).
(10)(o) Management Agreement for Atlanta, Georgia, (#600) (Item 14(a)(10)(o) of
the Form 10-K dated October 3, 1992 is incorporated herein by reference).
(10)(p) Settlement Agreement with Former Vice Chairman of the Board of Directors
(re #5) (Item 14 (a)(10)(p) of the Form 10-K dated October 3, 1992 is
incorporated herein by reference).
(10)(q) Hardware Purchase Agreement and Software License Agreement for
restaurant point of sale system. (Item 14(a)(10)(g) of Form 10-KSB dated October
2, 1993 is incorporated herein by reference).
(10)(a)(3) Key Employee Incentive Stock Option Plan (Exhibit A of the Proxy
Statement dated January 26, 1994 is incorporated herein by reference).
(10)(r) Limited Partnership Agreement of CIC Investors #13, Ltd,. between
Flanigan's Enterprises, Inc., as General Partner and fifty percent owner of the
limited partnership, and Hotel Properties, LTD. (Item 14 (a)(10)(r) of the Form
10-KSB dated September 30, 1995 is incorporated herein by reference).
(10)(s) Form of Franchise Agreement between Flanigan's Enterprises, Inc. and
Franchisees. (Item 14 (a)(10)(s) of the Form 10-KSB dated September 30, 1995 is
incorporated herein by reference).
(10)(t) Licensing Agreement between Flanigan's Enterprises, Inc. and James B.
Flanigan, dated November 4, 1996, for non-exclusive use of the servicemark
"Flanigan's" in the Commonwealth of Pennsylvania. (Item 14 (a)(10)(t) of the
Form 10-KSB dated September 28, 1996 is incorporated herein by reference).
(10)(u) Limited Partnership Agreement of CIC Investors #15 Ltd., dated March 28,
1997, between B.D. 15 Corp. as General Partner and numerous limited partners,
including Flanigan's Enterprises, Inc. as a limited partner owning twenty five
percent of the limited partnership (Item 14 (a)(10)(u) of the Form 10-KSB dated
September 27, 1997 is incorporated herein by reference).
(10)(v) Limited Partnership Agreement of CIC Investors #60 Ltd., dated July 8,
1997, between Flanigan's Enterprises, Inc., as General Partner and numerous
limited partners, including Flanigan's Enterprises, Inc. as limited
-30-
partner owning forty percent of the limited partnership (Item 14 (a)(10)(v) of
Form 10-KSB dated September 27, 1997 is incorporated herein by reference).
(10)(w) Stipulated Agreed Order of Dismissal upon Mediation with former
franchisee (Item 14 (a)(10)(w) of Form 10-KSB dated September 27, 1997 is
incorporated herein by reference).
(10)(x) Limited Partnership Agreement of CIC Investors #70, Ltd. dated February
1999 between Flanigan's Enterprises, Inc. as General Partner and numerous
limited partners, including Flanigan's Enterprises, Inc. as limited partner
owning forty percent of the limited partnership. (Item 14 (a) (10) (x) of Form
10-KSB dated October 2, 1999 is incorporated herein by reference)
(10)(y) Limited Partnership Agreement of CIC Investors #80, Ltd., dated May
2001, between Flanigan's Enterprises, Inc. as General Partner and numerous
limited partners, including Flanigan's Enterprises, Inc., as limited partner
owning twenty five percent of the limited partnership. (Item 14(a) (10)(y) of
Form 1--KSB dated September 29, 2001 is incorporated herein by reference.)
(10)(z) Limited Partnership Agreement of CIC Investors #95, Ltd., dated July
2001, between Flanigan's Enterprises, Inc., as General Partner and numerous
limited partners, including Flanigan's Enterprises, Inc. as limited partner
owning twenty eight percent of the limited partnership.(Item 14 (a) (10)(z) of
Form 10-KSB dated September 29, 2001 is incorporated herein by reference.)
(10)(aa) Limited Partnership Agreement of CIC Investors #75, Ltd., dated June
17, 2003, between Flanigan's Enterprises, Inc., as General Partner, and numerous
limited partners, including Flanigan's Enterprises, Inc. as limited partner
owning twelve percent of the limited partnership.
(13) Registrant's Form 10-K constitutes the Annual Report to Shareholders for
the fiscal year ended September 27, 2003.
(22)(a) Company's subsidiaries are set forth in this Annual Report on Form 10-K.
31.1 CERTIFICATION PURSUANT TO 302 OF SARBANES-OXLEY ACT OF 2002 OF CHIEF
EXECUTIVE OFFICER
31.2 CERTIFICATION PURSUANT TO 302 OF SARBANES-OXLEY ACT OF 2002 OF CHIEF
FINANCIAL OFFICER
32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 the registrant had duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Flanigan's Enterprises, Inc.
Registrant
By: /s/ JOSEPH G. FLANIGAN
------------------------
JOSEPH G. FLANIGAN
Chief Executive Officer
-31-
Date: 1/12/04
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amended report has been signed below by the following persons on behalf of the
registrant and in their capacities and on the dates indicated.
/s/ JOSEPH G. FLANIGAN Chairman of the Board, Date: 1/12/04
- ---------------------- Chief Executor Officer,
Joseph G. Flanigan and Director
/s/ EDWARD A. DOXEY Chief Financial Officer Date: 1/12/04
- ---------------------- Secretary and Director
Edward A. Doxey
/s/ MICHAEL ROBERTS Director Date: 1/12/04
- ----------------------
MICHAEL ROBERTS
/s/ GERMAINE M. BELL Director Date: 1/12/04
- ----------------------
Germaine M. Bell
/s/ CHARLES E. MCMANUS Director Date: 1/12/04
- ----------------------
Charles E. McManus
/s/ JEFFREY D. KASTNER Assistant Secretary Date: 1/12/04
- ---------------------- and Director
Jeffrey D. Kastner
WILLIAM PATTON Vice President, Public Date: 1/12/04
- ---------------------- Relations and Director
William Patton
/s/ JAMES G. FLANIGAN President and Director Date: 1/12/04
- ----------------------
James G. Flanigan
/s/ PATRICK J. FLANIGAN Director Date: 1/12/04
- -----------------------
Patrick J. Flanigan
-32-
================================================================================
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 2003, SEPTEMBER 28, 2002, AND SEPTEMBER 29, 2001
================================================================================
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets F-2
Statements of Income F-3
Statements of Stockholders' Equity F-4
Statements of Cash Flows F5-F-6
Notes to Financial Statements F-7-F-29
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Flanigan's Enterprises, Inc.
Fort Lauderdale, Florida
We have audited the accompanying consolidated balance sheets of Flanigan's
Enterprises, Inc. and Subsidiaries as of September 27, 2003 and September 28,
2002, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended September 27,
2003. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Flanigan's
Enterprises, Inc. and Subsidiaries as of September 27, 2003 and September 28,
2002, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended September 27, 2003 in conformity
with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been restated as
discussed in Note 1.
RACHLIN COHEN & HOLTZ LLP
Fort Lauderdale, Florida
December 11, 2003
F-1
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 27, 2003 AND SEPTEMBER 28, 2002
2003 2002
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $ 1,587,000 $ 1,143,000
Investments:
Cetificate of deposit 354,000 350,000
Marketable securities 185,000 --
Notes and mortgages receivable, current maturities, net 23,000 85,000
Due from franchisees 16,000 156,000
Other receivables 361,000 445,000
Inventories 1,362,000 1,422,000
Refundable deposit, major supplier 77,000 979,000
Prepaid expenses 881,000 535,000
Deferred tax assets 112,000 239,000
------------ ------------
Total current assets 4,958,000 5,354,000
------------ ------------
Property and Equipment 12,413,000 10,514,000
------------ ------------
Investments in Joint Ventures 320,000 142,000
------------ ------------
Other Assets:
Liquor licenses, net 347,000 347,000
Notes and mortgages receivable, net 149,000 167,000
Deferred tax assets 208,000 248,000
Other 338,000 595,000
------------ ------------
Total other assets 1,042,000 1,357,000
------------ ------------
Total assets $ 18,733,000 $ 17,367,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 2,108,000 $ 1,905,000
Due to franchisees 409,000 49,000
Current portion of long-term debt 278,000 345,000
Deferred revenues 70,000 75,000
------------ ------------
Total current liabilities 2,865,000 2,374,000
------------ ------------
Long-Term Debt, Net of Current Maturities 1,314,000 1,593,000
------------ ------------
Minority Interest in Equity of Consolidated Joint Ventures 4,203,000 3,443,000
------------ ------------
Commitments, Contingencies and Other Matters -- --
Stockholders' Equity:
Common stock, $.10 par value; 5,000,000 shares authorized;
4,197,642 shares issued 420,000 420,000
Capital in excess of par value 6,103,000 6,103,000
Retained earnings 9,115,000 8,747,000
Accumulated other comprehensive income 26,000 --
Treasury stock, at cost, 2,271,172 shares (5,313,000) (5,313,000)
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Total stockholders' equity 10,351,000 9,957,000
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Total liabilities and stockholders' equity $ 18,733,000 $ 17,367,000
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See notes to consolidated financial statements.
F-2
FLANIGAN'S ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 27, 2003, SEPTEMBER 28, 2002 AND SEPTEMBER 29, 2001
2003 2002 2001
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(Restated)
Revenues:
Restaurant food sales $ 22,489,000 $ 22,086,000 $ 19,976,000
Restaurant beverage sales 6,705,000 6,533,000 5,806,000
Package goods sales 9,777,000 9,174,000 8,907,000
Franchise-related revenues 904,000 985,000 977,000
Owner's fee 260,000 251,000 269,000
Other operating income 118,000 95,000 103,000
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40,253,000 39,124,000 36,038,000
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Costs and Expenses:
Cost of merchandise sold:
Restaurants and lounges 9,978,000 9,620,000 9,417,000
Package goods 7,136,000 6,798,000 6,487,000
Payroll and related costs 11,423,000 11,377,000 10,346,000
Occupancy costs 2,158,000 1,756,000 1,373,000
Selling, general and administrative expenses 7,534,000 6,785,000 5,832,000