SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 29, 2001
[ ] 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 0-14030
ARK RESTAURANTS CORP.
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(Exact name of registrant as specified in its charter)
New York 13-3156768
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
85 Fifth Avenue, New York, New York 10003
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code (212) 206-8800
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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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding shares at February 8, 2002
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(Common stock, $.01 par value) 3,181,299
ARK RESTAURANTS CORP. AND SUBSIDIARIES
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INDEX
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PART I - FINANCIAL INFORMATION: Page
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Item 1. Consolidated Financial Statements:
Consolidated Condensed Balance Sheets - December 29, 2001
(Unaudited) and September 29, 2001 2
Consolidated Condensed Statements of Operations and
Retained Earnings - 13-Week Periods Ended December 29, 2001
(Unaudited) and December 30, 2000 (Unaudited) 3
Consolidated Condensed Statements of Cash Flows - 13-Week Periods
Ended December 29, 2001 (Unaudited) and December 30, 2000 (Unaudited) 4
Notes to Consolidated Condensed Financial Statements (Unaudited) 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II - OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 11
1
Part I - Financial Information
Item 1. Financial Statements
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ARK RESTAURANTS CORP. AND SUBSIDIARIES
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CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
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December 29, September 29,
2001 2001
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(Unaudited)
ASSETS
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CURRENT ASSETS:
Cash and cash equivalents $ -- $ --
Accounts receivable 3,940 3,049
Inventories 2,060 2,110
Current portion of long-term receivables 197 203
Prepaid expenses and other current assets 729 655
Refundable and prepaid income taxes 854 1,119
Deferred income taxes 278 278
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Total current assets 8,058 7,414
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LONG-TERM RECEIVABLES 1,035 1,082
FIXED ASSETS - At Cost:
Leasehold improvements 33,699 33,699
Furniture, fixtures and equipment 27,972 27,972
Leasehold improvements in progress 101 93
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61,772 61,764
Less accumulated depreciation and
amortization 28,268 27,035
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33,504 34,729
INTANGIBLE ASSETS - Less accumulated
amortization of $3,688 and $3,589 4,076 4,175
OTHER ASSETS, net 389 395
DEFERRED INCOME TAXES 5,857 6,056
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TOTAL ASSETS $52,919 $53,851
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES:
Accounts payable - trade $ 3,617 $ 4,232
Accrued expenses and other current
liabilities 5,595 6,744
Current maturities of long-term debt 4,016 2,247
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Total current liabilities 13,228 13,223
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LONG-TERM DEBT - net of current maturities 19,789 21,700
OPERATING LEASE DEFERRED CREDIT 995 995
COMMITMENTS AND CONTINGENCIES -- --
SHAREHOLDERS' EQUITY:
Common stock, par value $.01 per share -
authorized, 10,000 shares;
issued, 5,249 shares 52 52
Additional paid-in capital 14,743 14,743
Retained earnings 12,463 11,489
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27,258 26,284
Less treasury stock, 2,068 shares 8,351 8,351
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Total shareholders' equity 18,907 17,933
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $52,919 $53,851
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See notes to consolidated condensed financial statements
2
ARK RESTAURANTS CORP. AND SUBSIDIARIES
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CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS & RETAINED EARNINGS (Unaudited)
(In Thousands, Except per share amounts)
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13 Weeks Ended
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December 29, December 30,
2001 2000
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NET SALES $25,780 $30,815
COST OF SALES 6,310 7,854
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GROSS RESTAURANT PROFIT 19,470 22,961
MANAGEMENT FEE INCOME 55 138
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19,525 23,099
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OPERATING EXPENSES
Payroll and payroll benefits 8,481 11,207
Occupancy 3,925 4,152
Depreciation and amortization 1,339 1,438
Other 2,621 3,647
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16,366 20,444
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INCOME FROM RESTAURANT OPERATIONS 3,159 2,655
GENERAL AND ADMINISTRATIVE EXPENSES 1,396 1,632
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OPERATING INCOME 1,763 1,023
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OTHER EXPENSE (INCOME):
Interest expense, net 321 710
Other income (181) (50)
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140 660
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INCOME BEFORE INCOME TAXES 1,623 363
PROVISION FOR INCOME TAXES 649 138
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NET INCOME 974 225
RETAINED EARNINGS, Beginning of period 11,489 18,337
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RETAINED EARNINGS, End of period $12,463 $18,562
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PER SHARE INFORMATION - BASIC & DILUTED:
NET INCOME $.31 $.07
WEIGHTED AVERAGE NUMBER OF SHARES - BASIC 3,181 3,182
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WEIGHTED AVERAGE NUMBER OF SHARES - DILUTED 3,184 3,182
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See notes to consolidated condensed financial statements
3
ARK RESTAURANTS CORP. AND SUBSIDIARIES
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
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13 Weeks Ended
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December 29, December 30,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 974 $ 225
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of fixed assets 1,233 1,332
Amortization of intangibles 106 106
Deferred income taxes 199 --
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable (891) 1,025
Decrease (Increase) in inventories 50 (198)
Decrease (Increase) in prepaid expenses & other
current assets (82) (108)
Decrease (Increase) in refundable & prepaid taxes 265 (27)
Decrease (Increase) in other assets 6 (129)
Increase (Decrease) in accounts payable - trade (615) (604)
Increase (Decrease) in accrued expenses and other
current liabilities (1,149) (1,386)
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Net cash provided by (used in) operating activities 96 236
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets (8) (1,105)
Issuance of long-term receivables (23) (25)
Payments received on long-term receivables 77 93
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Net cash provided by (used in) investing activities 46 (1,037)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 1,000 1,450
Proceeds from sale leaseback -- 1,559
Principal payment on long-term debt (1,142) (1,773)
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Net cash provided by (used in) financing activities (142) 1,236
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS -- 435
CASH AND CASH EQUIVALENTS, beginning of period -- 697
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CASH AND CASH EQUIVALENTS, end of period $ -- $ 1,132
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest $ 355 $ 744
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Income taxes $ 185 $ 360
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See notes to consolidated condensed financial statements.
4
ARK RESTAURANTS CORP. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
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1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The consolidated condensed financial statements have been prepared by Ark
Restaurants Corp. (the "Company"), without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position at December 29, 2001 and results of
operations and changes in cash flows for the periods ended December 29, 2001 and
December 30, 2000 have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's annual report on Form 10-K for the year
ended September 29, 2001. The results of operations for the period ended
December 29, 2001 are not necessarily indicative of the operating results for
the full year.
2. IMPACT OF NEW ACCOUNTING STANDARDS
SFAS No. 142, Goodwill and Other Intangible Assets, addresses financial
accounting and reporting for acquired goodwill and other intangible assets.
Under SFAS No. 142, goodwill and some intangible assets will no longer be
amortized, but rather reviewed for impairment on a periodic basis. Impairment
losses for goodwill and certain intangible assets that arise due to the initial
application of this Statement are to be reported as resulting from a change in
accounting principle. The provisions of this Statement will be applied at the
beginning of the Company's 2003 fiscal year. The Company is in the process of
evaluating the financial statement impact from adopting this standard.
SFAS No. 143, Accounting for Asset Retirement Obligations, requires the
recording of the fair value of a liability for an asset retirement obligation in
the period in which it is incurred. The Statement is effective for the Company
at the beginning of fiscal year 2004. The Company does not expect the adoption
of this standard to have a material impact on the Company's financial position
or results of operations.
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, supersedes existing accounting literature dealing with impairment and
disposal of long-lived assets, including discontinued operations. It addresses
financial accounting and reporting for the impairment of long-lived assets and
for long-lived assets to be disposed of and expands current reporting for
discontinued operations to include disposals of a "component" of an entity that
has been disposed of or is classified as held for sale. The Statement is
effective for the Company at the beginning of fiscal year 2003. The Company is
in the process of evaluating the financial statement impact of this standard.
3. EFFECTS OF THE SEPTEMBER 11, 2001 TERRORISTS ATTACKS
One Company restaurant, the Grill Room, suffered some damage. The restaurant
is located in an office building adjacent to the World Trade Center (in 2 World
Financial Center) and will likely not reopen until late in fiscal 2002 due to
the damage sustained by the office building. Several other restaurants were
5
also closed from several days to a month due to their proximity to the World
Trade Center. The Company has extensive property and business interruption
insurance policies and the Company ultimately expects to recover a substantial
portion of its physical costs and business interruption losses at these
restaurants. The Company has recorded $250,000 in the quarter ended December 29,
2001 for partial insurance recoveries of certain out of pocket costs incurred.
Additional recoveries are expected in future quarters.
4. LONG-TERM DEBT
The Company's Revolving Credit and Term Loan Facility with its main bank
(Bank Leumi USA), as amended November 2001 and December 2001, includes a
$26,000,000 facility to finance the development and construction of new
restaurants and for working capital purposes at the Company's existing
restaurants. The Company had borrowings of $22,600,000 outstanding on this
facility at December 29, 2001. Outstanding loans bear interest at 1/2% above the
bank's prime rate and at December 29, 2001 the interest rate on outstanding
loans was 5.25%. Any outstanding loans on June 30, 2002 in excess of $22,000,000
are due in full and the balance can be converted into a term loan payable over
36 months. The facility also includes a $1,000,000 letter of credit facility for
use in lieu of lease security deposits. The Company generally is required to pay
commissions of 1 1/2% per annum on outstanding letters of credit.
The Company's subsidiaries each guaranteed the obligations of the Company
under the foregoing facilities and granted security interests in their
respective assets as collateral for such guarantees. In addition, the Company
pledged stock of such subsidiaries as security for obligations of the Company
under such facilities.
The agreement includes restrictions relating to, among other things,
indebtedness for borrowed money, capital expenditures, mergers, sale of assets,
dividends and liens on the property of the Company. The agreement also contains
financial covenants such as minimum cash flow in relation to the Company's debt
service requirements, ratio of debt to equity, and the maintenance of minimum
shareholders' equity. The Company was in compliance with all covenants at
December 29, 2001.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements. Certain of these risks are
discussed under the heading "forward-looking statements" in the Company's annual
report on form 10-K for the fiscal year ended September 29, 2001.
Net Sales
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Net sales at restaurants and bars owned by the Company decreased by 16.3%,
from $30,815,000 to $25,780,000, in the 13-week period ended December 29, 2001
from the comparable period last year. The Company's primary markets, New York,
Washington DC and Las Vegas rely heavily on tourism and corporate business, and
therefore the terrorist attacks of September 11th greatly impacted the sales
results for the quarter. Net sales decreased by $1,060,000 as a restaurant (the
Grill Room) located in an office building adjacent to the World Trade Center was
closed due to damage sustained by the office building. Such restaurant (the
Grill Room) will likely not reopen until late in fiscal 2002. Net sales also
decreased by $3,770,000 from a 13% decrease in same store sales on a
Company-wide basis. The decrease in same store sales was 11.3% in Las Vegas,
12.7% in New York City and 19.6% in Washington, D.C.
Costs and Expenses
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The Company's cost of sales consists only of food and beverage costs at
restaurants and bars owned by the Company. For the 13-week period ended December
29, 2001 cost of sales as a percentage of net sales decreased to 24.5% from
25.5% for the comparable period last year.
Operating expenses of the Company, consisting of restaurant payroll,
occupancy and other expenses at restaurants and bars owned by the Company, as a
percentage of net sales, decreased to 63.5% for the 13-week period ended
December 29, 2001 from 66.3% last year. Restaurant payroll as a percentage of
net sales decreased to 32.9% from 36.4% in the prior year and other operating
expenses as a percentage of net sales decreased to 10.2% as compared to 11.8% in
the prior year. The Company aggressively adapted its cost structure in response
to lowered sales expectations following September 11th. Occupancy expense, as a
percentage of net sales, increased to 15.2% as compared to 13.5% last year. A
significant portion of occupancy costs are fixed, thus the 16.3% decline in net
sales was offset by only a 5.5% decrease in occupancy expenses.
General and administrative expenses, as a percentage of net sales, remained
constant at approximately 5.4% for the 13-week period ended December 29, 2001 as
compared to last year. The Company has reduced its general and administrative
structure in response to September 11th.
The Company had net income of $974,000 for the 13-week period ended
December 29, 2001 as compared to net income of $225,000 last year.
Net sales of managed restaurants were $667,000 during the 13-week period
ended December 29, 2001 as compared to $1,572,000 last year. Three restaurants,
which the Company managed at one site in Boston, Massachusetts, closed in
December 2000 as the lease expired and was not renewed by the landlord. The
Company managed one restaurant at December 29, 2001. Net sales of managed
restaurants are not included in consolidated net sales.
7
Interest expense was $355,000 for the 13-week period ended December 29,
2001 as compared to $744,000 last year. The significant decrease in interest
expense is principally due to lower outstanding borrowings on the Company's
revolving credit facility and the effect of numerous reductions in the prime
borrowing rate over the past year.
Income Taxes
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The provision for income taxes reflects Federal income taxes calculated on
a consolidated basis and state and local income taxes calculated by each
subsidiary on a non consolidated basis. Most of the restaurants owned or managed
by the Company are owned or managed by a separate subsidiary.
For state and local income tax purposes, the losses incurred by a
subsidiary may only be used to offset that subsidiary's income, with the
exception of the restaurants, which operate in the District of Columbia.
Accordingly, the Company's overall effective income tax rate has varied
depending on the level of the losses incurred at individual subsidiaries.
The Company's overall effective tax rate in the future will be affected by
factors such as the level of losses incurred at the Company's New York
facilities (which cannot be consolidated for state and local tax purposes),
pre-tax income earned outside of New York City (Nevada has no state income tax
and other states in which the Company operates have income tax rates
substantially lower in comparison to New York) and the utilization of state and
local net operating loss carry forwards. In order to more effectively utilize
tax loss carry forwards at restaurants that were unprofitable, the Company has
merged certain profitable subsidiaries with certain loss subsidiaries.
The Revenue Reconciliation Act of 1993 provides a tax credit for FICA taxes
paid by the Company on tip income of restaurant service personnel. The Company
estimates that this credit will be in excess of $500,000 for the current year.
The Internal Revenue Service is currently examining the Company's Federal
Income Tax returns for the fiscal years ended September 30, 1995 through October
3, 1998. The Company does not expect the results from such examination to have a
material effect on the Company's financial condition.
Liquidity and Sources of Capital
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The Company's primary source of capital is cash provided by operations and
funds available from the revolving credit agreement with its main bank, Bank
Leumi USA. The Company from time to time also utilizes equipment financing in
connection with the construction of a restaurant and seller financing in
connection with the acquisition of a restaurant. The Company utilizes capital
primarily to fund the cost of developing and opening new restaurants and
acquiring existing restaurants.
As a result of amendments to the Revolving Credit Facility in November 2001
and December 2001, the financial covenants were amended for forthcoming periods,
the conversion date of the existing facility was postponed from December 27,
2001 to June 30, 2002, and the Company may borrow up to $26,000,000 until June
30, 2002. At June 30, 2002, the Company is required to repay any borrowings to
the extent such borrowings exceed $22,000,000 and the revolving loans can be
converted into term loans payable over 36 months.
8
The Company had a working capital deficit of $5,170,000 at December 29,
2001, as compared to a working capital deficit of $5,809,000 at September 29,
2001. The restaurant business does not require the maintenance of significant
inventories or receivables, thus the Company is able to operate with minimal and
even negative working capital.
The Revolving Credit Facility limits the amount of indebtedness that may be
incurred by the Company. Certain provisions of the agreement may impair the
Company's ability to borrow funds. The agreement contains certain financial
covenants such as minimum cash flow in relation to the Company's debt service
requirements, ratio of debt to equity, and the maintenance of minimum
shareholders' equity. The Company was in compliance with all covenants at
December 29, 2001.
The Company does not anticipate any capital-intensive projects during
fiscal 2002 and expects that a significant portion of its projected cash flow
will be applied to debt reduction.
Restaurant Expansion
- --------------------
The Company will shortly begin constructing a 200-seat restaurant and bar
at the Neonopolis Center at Fremont Street in downtown Las Vegas, Nevada. The
Company received a $2,400,000 construction and operating allowance from the
landlord and expects to construct and open the restaurant within the limits of
that allowance.
The Company is not currently committed to any other projects.
Events of September 11, 2001
- ----------------------------
The Company experienced severe sales decreases in the immediate aftermath
of the September 11th terrorist attacks. The Company continues to experience
negative same store sales, although on a much improved level as compared to the
immediate weeks following the attack. The Company has aggressively reduced its
cost structure at restaurants and at the corporate level. In addition, the
Company's Revolving Credit Facility has been amended in the manner described
above under "Liquidity and Sources of Capital". As a result and given recent
sales trends, the Company believes that it will generate sufficient cash flow in
fiscal 2002 to meet its debt obligations.
One Company restaurant, the Grill Room, suffered some damage. The
restaurant is located in an office building adjacent to the World Trade Center
(in 2 World Financial Center) and will likely not reopen until late in fiscal
2002 due to the damage sustained by the office building. Several other Company
restaurants were closed from several days to a month due to their proximity to
the World Trade Center. The Company has extensive property and business
interruption insurance policies and the Company ultimately expects to recover a
substantial portion of its physical costs and business interruption losses at
these restaurants. The Company has recorded $250,000 in the quarter ended
December 29, 2001 for partial insurance recoveries of certain out of pocket
costs incurred. Additional recoveries are expected in future quarters.
The Company believes that its restaurant and food court operations at the
Aladdin in Las Vegas, Nevada were significantly impaired by the events of
September 11th. The restaurant and food court operations experienced severe
sales declines in the aftermath of September 11th and the Aladdin itself
declared bankruptcy on September 28, 2001. The Company continues to operate the
business
9
pending the resolution of the Aladdin bankruptcy proceedings, but an impairment
charge of $10,045,000 was recorded in fiscal 2001.
The long-term effects of the terrorist attacks cannot yet be determined.
The Company's restaurants in travel destinations, consisting of all of its
restaurants in Washington and Las Vegas and certain restaurants in New York, are
intended to benefit from high tourist traffic. The decline in travel resulting
from the attacks has had a material adverse effect on revenues from those
restaurants. Recovery of those restaurants depends upon restoration of public
confidence in the air transportation system and its willingness and inclination
to resume vacation and convention travel.
Recent Developments
The Financial Accounting Standards Board has recently issued the following
accounting pronouncements:
SFAS No. 142 "Goodwill and Other Intangible Assets" addresses financial
accounting and reporting for acquired goodwill and other intangible assets.
Under SFAS No. 142, goodwill and some intangible assets will no longer be
amortized, but rather reviewed for impairment on a periodic basis. Impairment
losses for goodwill and certain intangible assets that arise due to the initial
application of this statement are to be reported as resulting from a change in
accounting principle. The provisions of this statement will be applied at the
beginning of the Company's 2003 fiscal year. The Company is in the process of
evaluating the financial statement impact from adopting this standard.
SFAS No. 143 "Accounting for Asset Retirement Obligations" requires the
recording of the fair value of a liability for an asset retirement obligation in
the period in which it is incurred. This statement is effective for the Company
at the beginning of the Company's 2004 fiscal year. The Company does not expect
the adoption of this standard to have a material impact on the Company's
financial position or results of operations.
SFAS No. 144 "Accounting for the Impairment or Disposal of Long Lived
Assets" supersedes existing accounting literature dealing with impairment and
disposal of long-lived assets, including discontinued operations. It addresses
financial accounting and reporting for the impairment of long-lived assets and
for long-lived assets to be disposed of, and expands current reporting for
discontinued operations to include disposals of a "component" of an entity that
has been disposed of or is classified as held for sale. This statement is
effective for the Company at the beginning of the Company's 2003 fiscal year.
The Company is in the process of evaluating the financial statement impact of
this standard.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company is exposed to market risk from changes in interest rates with
respect to its outstanding credit agreement with its main bank, Bank Leumi USA.
The revolving credit line bears interest at prime plus one-half percent. See
"Liquidity and Sources of Capital" above.
10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits - None
(b) Reports on Form 8-K - none
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: February 8, 2002
ARK RESTAURANTS CORP.
By /S/ Michael Weinstein
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Michael Weinstein, President and
Chief Executive Officer
By /S/ Andrew B. Kuruc
--------------------
Andrew B. Kuruc
Senior Vice President, Chief Financial
Officer and Controller
12