Ark Restaurants Corp. 10-K Summary
Business Context and Reporting Period
Company: Ark Restaurants Corp.
Filing Type: Form 10-K (Annual Report)
Period Ended: October 2, 1999 (52-week fiscal year)
Business Overview: A holding company owning and operating 22 restaurants and managing five others. Operations are concentrated in New York City (14 locations), Washington, D.C. (4), Las Vegas (4), Boston (3), and single locations in Virginia and Florida. The company is shifting strategy from smaller neighborhood restaurants to larger "destination" restaurants in high-traffic locations, particularly in Las Vegas.
Key Financial Metrics (Fiscal Year 1999)
| Metric | Value |
|---|---|
| Net Sales | $110,800,913 |
| Gross Restaurant Profit | $81,499,610 |
| Operating Income | $6,833,874 |
| Net Income | $4,494,731 |
| Diluted EPS | $1.29 |
| Total Assets | $47,379,103 |
| Working Capital | ($3,044,204) Deficit |
| Long-Term Debt | $7,655,406 |
| Shareholders' Equity | $29,513,971 |
Cost Structure: Cost of sales was 26.4% of net sales. Operating expenses were 62.7% of net sales. Pre-opening expenses for new restaurants totaled approximately $400,000.
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 5.6% to $110.8 million from $117.4 million in fiscal 1998. This was primarily due to the sale of two restaurants (B. Smith's and Perretti's) and the fact that fiscal 1998 included 53 weeks while 1999 had 52.
- Profitability: Net income decreased slightly to $4.49 million from $4.61 million. Operating income declined to $6.83 million from $7.59 million.
- Liquidity: Working capital deficit widened significantly from ($719,343) to ($3,044,204), driven by cash expenditures for construction projects in Las Vegas and Michigan.
- Debt: Long-term debt increased to $7.66 million from $5.01 million to fund expansion.
- Share Repurchases: The company repurchased 422,700 shares of common stock for $4.23 million.
Guidance, Outlook, and Risks
Expansion Outlook: The company is heavily invested in new construction. Key projects include three restaurants and four food court facilities at the Venetian Casino Resort in Las Vegas (expected completion in fiscal 2000), four restaurants at a theater development in Southfield, Michigan (joint venture), and facilities at the Aladdin Resort & Casino. Management expects to spend up to $15 million on the Venetian project and $8.5 million on its share of the Michigan project.
Recent Developments: In December 1999, the company secured a new credit agreement increasing borrowing capacity to $28 million.
Risks and Contingencies:
- Legal Proceedings: Pending class-action lawsuits regarding wage and hour violations in New York and Nevada, and unfair labor practice charges by the Culinary Workers Union in Las Vegas. Management does not believe these will have a material adverse effect.
- Tax Examination: The IRS is examining returns from 1991-1994 regarding capitalization of pre-opening expenses and record-keeping for travel/meal expenses. An agreement in principle has been reached.
- Seasonality: The business is highly seasonal, with the second quarter (Jan-Mar) typically being the poorest performing due to cold weather in key markets.
- Key Personnel: Significant dependence on President Michael Weinstein.
Investor Verification Checklist
- Construction Progress: Verify the opening dates and initial performance of the Venetian and Aladdin facilities in Las Vegas, as these represent significant capital outlays.
- Legal Exposure: Monitor the status of the wage/hour class actions and NLRB unfair labor practice charges to assess potential liability.
- Debt Covenants: Review compliance with the new $28 million credit facility covenants, particularly regarding debt-to-net-worth ratios and cash flow requirements.
- Asset Sales: Confirm the status of the pending sale of the America restaurant in Tyson's Corner, Virginia, which is currently under contract but has not closed.
- Working Capital: Assess the sustainability of the negative working capital position given the heavy investment in fixed assets.