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| ARKR > SEC Filings for ARKR > Form 10-Q on 11-Aug-2009 | All Recent SEC Filings |
11-Aug-2009
Quarterly Report
Certain reclassifications of prior period balances have been made to conform to the current period 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 third fiscal quarter of 2009, total revenues of $31,123,000 decreased 13.7% compared to total revenues of $36,077,000 in the third fiscal quarter of 2008. The Company had net income of $1,597,000 in the third fiscal quarter of 2009 compared to net income of $3,136,000 in the third fiscal quarter of 2008. Net income was negatively affected during the 13-week period ended June 27, 2009 as a result of $100,000 in legal expenses resulting from litigation related to one restaurant in New York City.
On a company wide basis same store sales decreased 14.3% during the third fiscal quarter of 2009 compared to the same period last year. Same store sales in Las Vegas decreased by $1,484,000 or 10.3% in the third fiscal quarter of 2009 compared to the third 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 $2,487,000 or 24.1% during the third quarter. Same store sales in New
During the Company's 39-week period ended June 27, 2009, total revenues of $81,672,000 decreased 10% compared to total revenues of $90,764,000 in the 39-week period ended June 28, 2008. The Company had net income of $1,733,000 in the 39-week period ended June 27, 2009 compared to net income of $4,966,000 in the 39-week period ended June 28, 2008. Net income was negatively affected during the 39-week period ended June 27, 2009 as a result of approximately $400,000 in legal expenses resulting from litigation related to one restaurant in New York City.
Costs and Expenses
Food and beverage costs for the third quarter of 2009 as a percentage of total revenues were 25.5% compared to 25.6% in the third quarter of 2008. These costs for the 39-weeks ended June 27, 2009 as a percentage of total revenues were 25.4% compared to 25.8% in the 39-week period ended June 28, 2008.
Payroll expenses as a percentage of total revenues were 30.8% for the third quarter of 2009 as compared to 28.1% in the third quarter of 2008. Payroll expenses as a percentage of total revenues were 32.6% for the 39-week period ended June 27, 2009 as compared to 30.9% for the 39-week period ended June 28, 2008. The increase in payroll expenses as a percentage of revenue, for the 39-week period ended June 27, 2009, was primarily due to a decrease in sales. Occupancy expenses as a percentage of total revenues were 13.3% during the third fiscal quarter of 2009 compared to 13.0% in the third quarter of 2008. Occupancy expenses as a percentage of total revenues were 15.1% during the 39-week period ended June 27, 2009 compared 13.5% for the 39-week period ended June 28, 2008. Other operating costs and expenses as a percentage of total revenues were 12.4% during the third fiscal quarter of 2009 compared to 11.3% in the third quarter of 2008. The increase in other operating costs and expenses as a percentage of revenue was due to decreased sales and $100,000 of legal costs associated with litigation incurred related to a New York City restaurant during the third fiscal quarter of 2009. Other operating costs and expenses as a percentage of total revenues were 13.5% for the 39-week period ended June 27, 2009 compared to 12.3% for the 39-week period ended June 28, 2008. General and administrative expenses as a percentage of total revenues were 7.1% during the third fiscal quarter of 2009 compared to 6.3% in the third quarter of 2008. General and administrative expenses as a percentage of total revenue were 8.4% for the 39-week period ended June 27, 2009 compared to 7.3% for the 39-week period ended June 28, 2008. The increase in general and administrative expenses as a percentage of revenue was primarily due to decreased sales.
Income Taxes
The income tax provisions on continuing operations for the 39-week periods ended June 27, 2009 and June 28, 2008 reflect effective tax rates of 32.5% and 34.5%, respectively. The Company expects its annual tax rate for its current fiscal year to be approximately 34% to 38%. 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 39-week period ended June 27, 2009, the Company recognized a tax benefit of $118,000 principally as a result of reducing its long term income tax liability for unrecognized tax benefits due to the resolution of a tax audit.
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.
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'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.
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 which have not yet been adopted:
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.
In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)" ("SFAS 167"). SFAS 167 amends the consolidation guidance applicable to variable interest entities and is effective as of the beginning of the first annual reporting period that begins after November 15, 2009, which corresponds to the Company's fiscal year beginning October
In June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162" ("SFAS 168"). The FASB Accounting Standards Codification (the Codification) will become the source of authoritative U.S. generally accepted accounting principles (U.S. GAAP). The Codification, which changes the referencing of financial standards, is effective for interim or annual financial periods ending after September 15, 2009. The Codification is not intended to change or alter existing U.S. GAAP.
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