Flanigan’s Enterprises, Inc. — FY2012 Form 10-K
Reporting period: Fiscal year ended September 29, 2012 (52 weeks), with fourth-quarter results for the 13 weeks ended that date. The filing was signed December 28, 2012. The company operates restaurants and package liquor stores, primarily in South Florida, and reports restaurant and package-store segments. Its consolidated results include controlled limited partnerships; franchisee operations generally are not consolidated.
Financial performance
| Metric | FY2012 | FY2011 | Change |
|---|---|---|---|
| Total revenue | $77.335 million | $72.309 million | +6.95% |
| Operating income | $3.571 million | $3.127 million | +14.2% |
| Net income attributable to stockholders | $1.413 million | $1.449 million | -2.5% |
| Basic and diluted EPS | $0.76 | $0.78 | Down $0.02 |
| Cash from operations | $6.212 million | $4.352 million | +$1.860 million |
| Cash and equivalents, year-end | $7.221 million | $4.264 million | +$2.957 million |
| Total debt, year-end | $13.418 million | $8.757 million | +$4.661 million |
| Working capital, year-end | $3.150 million | $1.820 million | +$1.330 million |
- Restaurant food revenue was $48.943 million (+6.5%); beverage revenue was $13.255 million (+12.2%); package-goods revenue was $13.214 million (+0.6%). Revenue growth was primarily attributed to menu and bar-price increases. Same-store weekly restaurant food sales rose 6.8%, and bar sales rose 12.27%; same-store weekly package-store sales were approximately flat.
- Restaurant food-and-beverage gross margin declined to 64.41% from 65.54%. Package-store gross margin fell to 31.04% from 33.34%, partly because FY2011 included close-out and inventory-reduction merchandise purchases unavailable in FY2012.
- Operating margin was approximately 4.6% of revenue; net income attributable to stockholders was 1.83% of revenue. Payroll costs rose 7.56% to $23.354 million, and interest expense increased to $806,000 from $615,000. Operating costs and expenses rose 6.62% to $73.764 million.
- Investing activities used $2.030 million and financing activities used $1.225 million. Reported property and equipment acquisitions were $7.8 million, including $6.1 million financed, principally related to the Miami shopping-center purchase. Capital expenditures in the cash-flow statement were $1.670 million; the filing’s broader acquisition figure includes financed property.
- Current assets were $11.433 million and current liabilities $8.283 million. Debt covenants were reported in compliance. Four interest-rate swaps were in place; the company stated that swaps covering the relevant borrowings managed exposure to variable rates.
Fourth-quarter results and changes
FY2012 fourth-quarter revenue was $18.383 million, operating income was $829,000, net income attributable to stockholders was $332,000, and EPS was $0.18. In the comparable FY2011 quarter, revenue was $17.237 million, operating income $430,000, attributable net income $19,000, and EPS $0.01.
Full-year revenue and operating income increased, but attributable net income and EPS declined modestly. Management noted that FY2011 included a $231,000 gain on sale of a guaranteed leasehold, offset by $67,000 of tax expense; excluding that item, management said FY2012 attributable net income increased by $128,000, or 9.96%, versus adjusted FY2011.
Outlook, risks and unusual items
- Management expected restaurant food and bar sales to increase in FY2013, while restaurant gross profit could decline from higher food costs, including poultry, partly offset by lower rib costs. Package-store sales and gross margin were expected to stabilize. Higher food and overall expenses were expected to pressure net income; further menu-price increases might be necessary.
- The company anticipated FY2013 operating expenses would increase, planned approximately $850,000 for refurbishments, and expected to fund operations and capital spending from cash and operating cash flow. It also planned a restaurant point-of-sale system costing approximately $415,000. No specific earnings or revenue guidance was provided.
- A new limited-partnership restaurant opened in Miami on December 27, 2012. The venture reported $107,000 of losses during FY2012, primarily from pre-opening costs; the company recorded approximately $83,000 of pre-opening rent expense.
- In November 2011, the company acquired a Miami shopping center for $6.14 million, financed in part with a $4.5 million mortgage and a $1.6 million term loan. The $4.5 million mortgage included a $3.75 million portion fixed at 4.51% through a swap. Debt rose substantially year over year.
- After year-end, the company bought adjacent North Miami property for $2.9 million, including $1.95 million of seller financing at 7.5%. It was also in the process of finalizing a $500,000 line of credit at prime plus 1%, due in four months and secured by substantially all company assets.
- The company committed to purchase approximately $3.8 million of baby back ribs at a fixed cost during calendar 2013. It relied substantially on one food supplier but stated alternative vendors were available.
- Risks include intense competition, consumer spending and commodity-cost pressures, minimum-wage increases, dependence on liquor licenses, South Florida hurricane exposure and insurance availability, food-safety and reputational risks, and liability claims. The company disclosed two dram-shop claims it was vigorously defending; it is uninsured for liability above $7 million per occurrence and in aggregate, subject to a stated limited-partnership exception.
- There were no cash dividends in FY2012. The company repurchased 800 shares for $6,000. Four of five franchise arrangements were with related parties or their affiliates; some limited-partnership investors also were related to officers or directors.
Important facts for investors to verify
- Review the FY2013 impact of food, labor and insurance costs on restaurant margins, and whether package-store margins stabilized as management expected.
- Track debt service and refinancing needs, including the $2.833 million balloon payment due in October 2013 on an existing mortgage, alongside the post-year-end property financing and short-term line of credit.
- Assess the Miami restaurant’s opening performance and the return on the shopping-center and adjacent-property investments.
- Review the status and potential exposure of the two dram-shop claims, other contingencies, and the adequacy and cost of insurance coverage.
- Check related-party limited-partnership arrangements and distributions, and note that management reported effective disclosure controls and internal control; the auditor issued an unqualified opinion on the financial statements but did not attest to internal-control effectiveness.