Flanigan’s Enterprises, Inc. — FY2011 Form 10-K Summary
Reporting period: Fiscal year ended October 1, 2011, comprising 52 weeks. The filing includes fourth-quarter results; it is an annual report, not a standalone quarterly filing. Financial comparisons are with the 52 weeks ended October 2, 2010. Amounts are in U.S. dollars.
Business context
Flanigan’s operates casual seafood restaurants and Big Daddy’s package liquor stores, primarily in South Florida. At year-end, it operated or managed 24 units, owned but did not operate one Atlanta club, and franchised five units. Its restaurants and package stores are reported across two business segments; certain affiliated limited-partnership restaurants are consolidated because Flanigan’s controls their operations.
Key financial results
| Metric | FY2011 | FY2010 | Change |
|---|---|---|---|
| Total revenue | $72.309 million | $69.993 million | +3.3% |
| Income from operations | $3.127 million | $3.615 million | −13.5% |
| Net income attributable to stockholders | $1.449 million | $1.679 million | −13.7% |
| Basic and diluted earnings per share | $0.78 | $0.90 | Down $0.12 |
| Operating cash flow | $4.352 million | $7.122 million | −38.9% |
| Cash and cash equivalents at year-end | $4.264 million | $6.447 million | −$2.183 million |
| Total debt at year-end | $8.757 million | $8.053 million | +$0.704 million |
| Working capital | $1.820 million | $3.381 million | −46.2% |
Restaurant food sales were $45.951 million, beverage sales $11.814 million, and package-goods sales $13.141 million. Same-store weekly food sales increased 3.59% and same-store package-store sales increased 2.02%. Operating costs and expenses rose 4.2% to $69.182 million, faster than revenue; operating margin consequently declined to approximately 4.3% from 5.2%. Restaurant food-and-bar gross margin was 65.54%, versus 65.64%; package-store gross margin was 33.34%, versus 33.49%. Net income attributable to stockholders was 2.0% of revenue, compared with 2.4%.
Capital expenditures were approximately $4.586 million, including $1.261 million for restaurant renovations. Net cash used in investing activities was $4.172 million and net cash used in financing activities was $2.363 million. The current ratio was approximately 1.28, based on reported current assets of $8.293 million and current liabilities of $6.473 million.
Material changes and unusual items
- Revenue increased, supported by comparable restaurant food and beverage sales and package-store sales; however, income from operations and earnings attributable to stockholders declined as expenses grew faster than sales.
- Payroll and related costs increased 5.1% to $21.712 million, and selling, general and administrative expenses rose 5.2% to $14.538 million. Interest expense increased to $615,000 from $483,000, mainly reflecting mortgages associated with property purchases.
- FY2011 included $231,000 of other income from the sale of a guaranteed leasehold interest. Management said net income attributable to stockholders would have been $1.285 million, down 23.5% year over year, excluding this item.
- The company bought the operating assets of its Stuart restaurant from an affiliated limited partnership for $664,000; it became company-owned in July 2011. No new restaurants opened in FY2011 or FY2010.
- Fourth-quarter revenue was $17.237 million and net income attributable to stockholders was $19,000, versus $16.517 million and $295,000, respectively, in the prior-year quarter.
Liquidity, debt and outlook
Management stated that cash on hand and expected cash from operations should fund operations and planned capital expenditures for at least the next 12 months. It budgeted approximately $600,000 for FY2012 refurbishments. Debt maturities at year-end included $1.151 million due in FY2012 and $1.058 million in FY2013; the debt schedule also included several mortgage balloon payments.
After year-end, the company completed a $6.14 million purchase of a Miami shopping center that includes its affiliated partnership’s Kendall restaurant and space leased to 12 other tenants. Financing included a $4.5 million mortgage, guaranteed by the company, and a separate $1.6 million term loan. Interest-rate swaps fixed rates at 4.51% on $3.75 million of the mortgage and 3.43% on the term loan; the remaining $750,000 mortgage portion remained variable at the rate reported as of November 30, 2011. The term loan is secured by substantially all company assets.
Management expected restaurant food-and-bar gross profit to benefit from FY2011 fourth-quarter menu price increases, partly offset by higher food costs, including ribs. It anticipated stable package-store sales but lower package-store margins due to reduced availability of closeout inventory. Management also expected higher food costs and overall expenses to pressure net income, and noted a 4.9% Florida minimum-wage increase effective January 1, 2012. The company intended to limit further menu-price increases where possible, continued to seek restaurant locations that would not require extensive renovation, and expected future restaurant expansion to rely on limited partnerships. It had no restaurants under development.
Risks, contingencies and governance
- Key risks include intense competition, regional economic weakness, food and commodity cost inflation, labor availability and wage increases, changing consumer preferences, and hurricane-related disruption or inadequate windstorm coverage.
- Alcohol sales are subject to licensing and regulatory requirements; loss or suspension of licenses could harm operations. The company also disclosed dram-shop, food-safety, employment, ADA, and customer-data security risks.
- The company retained self-insured liability exposure of $50,000 per occurrence (limited partnerships: $10,000); insurance coverage was described as up to $7 million, with exposure above that amount uninsured. Management said no dram-shop claims were then pending.
- At year-end, approximately $1.2 million remained payable under a fixed-price 2011 rib purchase agreement. A separate agreement committed the company to approximately $3.1 million of rib purchases during calendar 2012.
- Ordinary-course litigation was not expected by management to have a material effect. The filing reported no material pending license matters and no off-balance-sheet arrangements.
- Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation. The financial statements received an unqualified audit opinion.
Most important facts for investors to verify
- Whether restaurant pricing and sales growth can offset rising food, labor, insurance, and other operating costs, particularly the projected rib-cost increases.
- Actual cash generation, working-capital needs, and debt service after the post-year-end property purchase and new borrowing, including mortgage balloon maturities and variable-rate exposure.
- Whether the Kendall shopping-center purchase produces sufficient rental and restaurant returns to justify its price and financing.
- The impact of the $231,000 leasehold-sale income on reported earnings, and the performance of the weak fourth quarter.
- How consolidated limited partnerships, noncontrolling interests, related-party relationships, and franchise arrangements affect reported earnings and cash flows.