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| ARKR > SEC Filings for ARKR > Form 10-Q on 12-May-2009 | All Recent SEC Filings |
12-May-2009
Quarterly Report
Certain reclassifications of prior years balances have been made to conform to the current year discontinued operations presentation. In connection with the planned or actual sale or closure of various restaurants, the operations of these businesses have been presented as discontinued operations in the consolidated financial statements. Accordingly, the Company has reclassified its statements of operations and cash flow data for the prior periods presented, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). These dispositions are discussed below in "Recent Restaurant Dispositions."
Revenues
During the Company's second fiscal quarter of 2009, total revenues of $23,756,000 decreased 2.5% compared to total revenues of $24,369,000 in the second fiscal quarter of 2008. The Company had a net loss of $712,000 in the second fiscal quarter of 2009 compared to net income of $346,000 in the second fiscal quarter of 2008. Net income was negatively affected during the 13-week period ended March 28, 2009 as a result of $309,000 in legal expenses resulting from litigation related to one restaurant in New York City and a $220,000 expense resulting from a real estate tax adjustment related to one restaurant in Washington D.C..
On a company wide basis same store sales decreased 10.0% during the second fiscal quarter of 2009 compared to the same period last year. Same store sales in Las Vegas decreased by $1,554,000 or 10.6% in the second fiscal quarter of 2009 compared to the second fiscal quarter of 2008. Same store sales in Las Vegas were negatively affected by the unwillingness of the public to engage in gaming activities and a decrease in tourism and convention business, all related to the current economic conditions. Same store sales in New York decreased $641,000 or 14.3% during the second quarter. Same store sales in New York were particularly negatively affected by large amounts of layoffs in the financial sector, a decrease in corporate parties as well as a decrease in tourism and convention business related to the current economic conditions. Same store sales in Washington D.C. increased by $209,000 or 7.3% during the second quarter as the current economic conditions do not seem to have effected the region as much as other regions. Same store sales in Atlantic City decreased by $270,000, or 31.4%, in the second quarter. Same store sales in Atlantic City were negatively affected by the unwillingness of the public to engage in gaming activities and a decrease in tourism and convention business related to the current economic conditions as well as the introduction of slot machine parlors in nearby Pennsylvania. Same store sales in Connecticut decreased by $58,000, or 13.4%, in the second quarter. Same store sales in Connecticut were negatively affected by the unwillingness of the public to engage in gaming activities related to the current economic conditions. Same store sales in Boston decreased $104,000 or 14.0% during the second quarter. Same store sales in Boston were negatively affected by the current economic conditions.
During the Company's 26-week period ended March 28, 2009, total revenues of $50,549,000 decreased 7.6% compared to total revenues of $54,687,000 in the 26-week period ended March 29, 2008. The Company had net income of $136,000 in the 26-week period ended March 28, 2009 compared to net income of $1,830,000 in the 26-week period ended March 29, 2008. Net income was negatively affected during the 13-week period ended March 28, 2009 as a result of approximately $300,000 in legal expenses resulting from litigation related to one restaurant in New York City and a $220,000 expense resulting from a real estate tax adjustment related to one restaurant in Washington D.C..
Costs and Expenses
Food and beverage costs for the second quarter of 2009 as a percentage of total revenues were 25.6% compared to 26.4% in the second quarter of 2008. These costs for the 26-weeks ended March 28, 2009 as a percentage of total revenues were 25.3% compared to 25.9% in the 26-week period ended March 29, 2008.
Payroll expenses as a percentage of total revenues were 34.2% for the second quarter of 2009 as compared to 34.3% in the second quarter of 2008. Payroll expenses as a percentage of total revenues were 33.7% for the 26-week period ended March 28, 2009 as compared to 32.7% for the 26-week period ended March 29, 2008. The increase in payroll expenses as a percentage of revenue, for the 26-week period ended March 28, 2009, was primarily due to a decrease in sales. Occupancy expenses as a percentage of total revenues were 15.7% during the second fiscal quarter of 2009 compared to 14.5% in the second quarter of 2008. During the second fiscal quarter of 2009 the Company incurred a $220,000 expense for a real estate tax adjustment related to a restaurant in Washington D.C. which negatively affected occupancy expenses. Occupancy expenses as a percentage of total revenues were 14.9% during the 26-week period ended March 28, 2009 compared 13.8% for the 26-week period ended March 29, 2008. Other operating costs and expenses as a percentage of total revenues were 16.2% during the second fiscal quarter of 2009 compared to 12.6% in the second quarter of 2008. The increase in other operating costs and expenses as a percentage of revenue was due to decreased sales and $309,000 of legal costs associated with litigation incurred related to a New York City restaurant during the second fiscal quarter of 2009. Other operating costs and expenses as a percentage of total revenues were 15.5% for the 26-week period ended March 28, 2009 compared to 13.1% for the 26-week period ended March 29, 2008. General and administrative expenses as a percentage of total revenues were 10.7% during the second fiscal quarter of 2009 compared to 9.0% in the second quarter of 2008. General and administrative expenses as a percentage of total revenue were 9.2% for the 26-week period ended March 28, 2009 compared to 7.9% for the 26-week period ended March 29, 2008. The increase in general and administrative expenses as a percentage of revenue was primarily due to decreased sales.
Income Taxes
The provision for income taxes reflects Federal income taxes calculated on a consolidated basis and state and local income taxes calculated by each New York subsidiary on a non-consolidated basis. Most of the restaurants owned or managed by the Company are owned or managed by separate subsidiaries.
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 operating in the District of Columbia. Accordingly, the Company's overall effective tax rate has varied depending on the results of operations 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, the utilization of state and local net operating loss carryforwards and the utilization of FICA tax credits. 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. In order to utilize more effectively tax loss carryforwards at restaurants that were unprofitable, the Company has merged certain profitable subsidiaries with certain loss subsidiaries.
The income tax provisions on continuing operations for the 26-week periods ended March 28, 2009 and March 29, 2008 reflect effective tax rates of 53.6% and 35.6%, respectively. The Company expects its annual tax rate for its current fiscal year to be approximately 34.0% to 36.0% . The final annual tax rate cannot be determined until the end of the fiscal year; therefore, the actual tax rate could differ from our current estimates.
During the thirteen weeks ended March 28, 2009, the Company recognized a tax benefit of $97,000 principally as a result of reducing its long term income tax liability for unrecognized tax benefits due to the resolution of a tax audit.
Liquidity and Capital Resources
The Company's primary source of capital has been cash provided by operations. The Company has, from time to time, utilized equipment financing in connection with the construction of a restaurant and seller financing in connection with the acquisition of a restaurant. The Company utilizes cash from operations primarily to fund the cost of developing and opening new restaurants, acquiring existing restaurants owned by others and remodeling existing restaurants owned by the Company.
The Company had a working capital surplus of $7,659,000at March 28, 2009 as compared to a working capital surplus of $9,144,000at September 27, 2008.
The Company's Revolving Credit and Term Loan Facility matured on March 12, 2005. The Company does not currently plan to enter into another credit facility and expects required cash to be provided by operations.
Restaurant Expansion
In 2006, the Company entered into an agreement to lease space for a Mexican restaurant, Yolos, at the Planet Hollywood Resort and Casino (formerly known as the Aladdin Resort and Casino) in Las Vegas, Nevada. The obligation to pay rent for Yolos commenced when the restaurant opened for business in January 2008.
In June 2007, the Company entered into an agreement to design and lease a food court at the MGM Grand Casino at the Foxwoods Resort Casino which commenced operations during the third fiscal quarter of 2008. A limited liability company has been established to develop, construct, operate and manage the food court. The Company, through a wholly-owned subsidiary, is the managing member of this limited liability company and has an aggregate ownership interest in the food court operations of 67% and accordingly such operations have been consolidated.
In June 2008, the Company signed two successive one-year agreements to use certain deck space adjacent to the Sequoia location in New York City as a Café.
In June 2008, the Company entered into an agreement to design and lease a restaurant at The Museum of Arts & Design at Columbus Circle in New York City. The initial term of the lease for this facility will expire on December 31 sixteen years after the date the Museum first opens for business to the public following its current refurbishment and will have two five-year renewals. The Company anticipates the restaurant will open during the third quarter of the 2009 fiscal year.
Recent Restaurant Dispositions
During the first fiscal quarter of 2008, we discontinued the operation of our Columbus Bakery retail and wholesale bakery located in New York City. Columbus Bakery was originally intended to serve as the bakery that would provide all of our New York restaurants with baked goods as well as being a retail bakery operation. As a result of the sale and closure of several of our restaurants in New York City during the last several years, this bakery operation was no longer profitable.
During the second fiscal quarter of 2008 we opened, along with certain third party investors, a new concept at this location called "Pinch & S'Mac" which features pizza and macaroni and cheese. We contributed Columbus Bakery's net fixed assets and cash into this venture and received an ownership interest of 37.5%. These operations are not consolidated in the Company's financial statements.
Effective June 30, 2008, the lease for our Stage Deli facility at the Forum Shops in Las Vegas, Nevada expired. The landlord for this facility offered to renew the lease at this location prior to its expiration at a significantly increased rent. The Company determined that it would not be able to operate this facility profitably at this location at the rent offered in the landlord's renewal proposal. As a result, the Company discontinued these operations during the third fiscal quarter of 2008 and took a charge for the impairment of goodwill of $294,000 and a loss on disposal of $19,000. The impairment charge and disposal loss are included in discontinued operations. Operations for the 13-week and 26-week periods ended March 29, 2008 have been reclassified as discontinued operations.
Critical Accounting Policies
The preparation of financial statements requires the application of certain accounting policies, which may require the Company to make estimates and assumptions of future events. In the process of preparing its consolidated financial statements, the Company estimates the appropriate carrying value of certain assets and liabilities, which are not readily apparent from other sources. The primary estimates underlying the Company's financial statements include allowances for potential bad debts on accounts and notes receivable, the useful lives and recoverability of its assets, such as property and intangibles, fair values of financial instruments, the realizable value of its tax assets and other matters. Management bases its estimates on certain assumptions, which they believe are reasonable in the circumstances, and actual results, could differ from those estimates. Although management does not believe that any change in those assumptions in the near term would have a material effect on the Company's consolidated financial position or the results of operation, differences in actual results could be material to the financial statements.
The Company's critical accounting policies are described in the Company's Form 10-K for the year ended September 27, 2008. There have been no significant changes to such policies during fiscal 2009, other than the implementation of FASB Interpretation No. 157, "Fair Value Measurements."
Recent Accounting Developments
The Financial Accounting Standards Board has recently issued the following accounting pronouncements:
In December 2007, the FASB issued SFAS No. 141 (Revised), "Business Combinations" (SFAS 141R), which establishes principles and requirements for the reporting entity in a business combination, including recognition and measurement in the financial statements of the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. This statement also establishes disclosure requirements to enable financial statement users to evaluate
the nature and financial effects of the business combination. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS 141R will become effective for our fiscal year beginning October 4, 2009.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB" No. 51, ("SFAS 160"), which amends Accounting Research Bulletin No. 51, "Consolidated Financial Statements" ("ARB No. 51"), to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This standard defines a noncontrolling interest, previously referred to as minority interest, as the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. SFAS 160 requires, among other items, that a noncontrolling interest be included in the consolidated balance sheet within equity separate from the parent's equity; consolidated net income to be reported at amounts inclusive of both the parent's and noncontrolling interest's shares and, separately, the amounts of consolidated net income attributable to the parent and noncontrolling interest all on the consolidated statement of income; and if a subsidiary is deconsolidated, any retained noncontrolling equity investment in the former subsidiary be measured at fair value and a gain or loss be recognized in net income based on such fair value. SFAS 160 is effective for fiscal years beginning after December 15, 2008, which corresponds to the Company's fiscal year beginning October 4, 2009. The Company is currently evaluating the potential impact of adopting SFAS 160 on its consolidated financial statements.
In April 2008, the FASB issued FASB Staff Position 142-3, "Determination of
the Useful Life of Intangible Assets" ("FSP FAS 142-3"), which amends the list
of factors an entity should consider in developing renewal or extension
assumptions in determining the useful life of recognized intangible assets under
FAS No. 142, Goodwill and Other Intangible Assets. The new guidance applies to
(1) intangible assets that are acquired individually or with a group of other
assets and (2) intangible assets acquired in both business combinations and
asset acquisitions. Under FSP FAS 142-3, entities estimating the useful life of
a recognized intangible asset must consider their historical experience in
renewing or extending similar arrangements or, in the absence of historical
experience, must consider assumptions that market participants would use about
renewal or extension. FSP FAS 142-3 is effective for fiscal years beginning
after December 15, 2008, which corresponds to the Company's fiscal year
beginning October 4, 2009. The Company is currently evaluating the impact that
the adoption of FSP FAS 142-3 may have on its consolidated financial statements
and related disclosures.
On April 9, 2009 the FASB issued Staff Position ("FSP") No. 107-1 and APB 28-1 "Interim Disclosures about Fair Value of Financial Instruments". This FSP shall be effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company has not elected to early adopt this pronouncement and is currently evaluating the impact of this pronouncement on its consolidated financial statements.
On April 9, 2009 the FASB issued Staff Position No. 115-2 and FAS 124-2 "Recognition and Presentation of Other-Than-Temporary-Impairments". This FSP shall be effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company has not elected to early adopt this pronouncement and is currently evaluating the impact of this pronouncement on its consolidated financial statements.
On April 9, 2009 the FASB issued FSP FAS 157-4 "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly". This FSP shall be effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company has not elected to early adopt this pronouncement and is currently evaluating the impact of this pronouncement on its consolidated financial statements.
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