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COMMITMENTS, CONTINGENCIES AND OTHER MATTERS | 12 Months Ended
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Sep. 28, 2024
Commitments, Contingencies and Other Matters [Abstract] |
COMMITMENTS, CONTINGENCIES AND OTHER MATTERS | NOTE 12. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS Construction Contracts (a) 2505 N. University Drive, Hollywood, Florida (Store #19 – “Flanigan’s”) During the first quarter of our fiscal year 2022, we entered into an agreement with a third party unaffiliated general contractor to re-build our restaurant located at 2505 N. University Drive, Building B, Hollywood, Florida (Store #19R), which had been closed since October 2, 2018 due to damage caused by a fire and re-opened March 26, 2024. The contract totaled $2,515,000 and through our fiscal year 2024 we agreed to change orders increasing the total contract price by $1,512,000 to $4,027,000, of which $3,905,000 has been paid through September 28, 2024. Subsequent to the end of our fiscal year 2024, we agreed to final change orders increasing the total contract price by $3,000 to $4,030,000 and the balance of the contract price of $125,000 has been paid subsequent to the end of our fiscal year 2024. ERP Contract In the third quarter of our fiscal year 2024, we entered into an agreement with Oracle, an unrelated third party vendor for the licensing and support of NetSuite, a cloud-based Oracle ERP solution to replace our general ledger. The agreement is for a period of five years at a fixed rate of approximately $40,000 annually, with a cap on the percentage increase to our fees for our options to extend the term of the agreement for years six and seven. The fee for the five year agreement will be paid to the unrelated third party vendor over a period of five years, with a deferral of any payments for the first six months of the agreement. We do not expect the implementation of NetSuite to be complete and functional until the second quarter of our fiscal year 2025. In the third quarter of our fiscal year 2024, we also entered into an agreement with an unrelated third party implementation partner for the implementation of NetSuite. The fee for its implementation services will be approximately $237,000, payable as hourly services are performed and billed. Legal Matters Our sale of alcoholic beverages subjects us to “dram shop” statutes, which allow an injured person to recover damages from an establishment that served alcoholic beverages to an intoxicated person. If we receive a judgment substantially in excess of our insurance coverage or if we fail to maintain our insurance coverage, our business, financial condition, operating results or cash flows could be materially and adversely affected. There are currently no “dram shop” claims pending against us. We are a party to various other claims, legal actions and complaints arising in the ordinary course of our business. It is our opinion that all such matters are without merit or involve such amounts that an unfavorable disposition would not have a material adverse effect on our financial position or results of operations. Leases To conduct certain of our operations, we lease restaurant and package liquor store space in South Florida from unrelated third parties. Our leases have remaining lease terms of up to 48 years, some of which include options to renew and extend the lease terms for up to an additional 26 years. We presently intend to renew some of the extension options available to us and for purposes of computing the right-of-use assets and lease liabilities required by ASC 842, we have incorporated into all lease terms which may be extended, an additional term of the lesser of (i) the amount of years the lease may be extended; or (ii) 15 years. Following adoption of ASC 842 during our fiscal year ended October 3, 2020, common area maintenance and property taxes are not considered to be lease components. The components of lease expense are as follows:
|  | (in thousands) |
|  | 52 Weeks |  |  | 52 Weeks |
|  | Ended September 28, 2024 |  |  | Ended September 30, 2023 |
Operating Lease Expense, which is included in occupancy costs |  | $ | 3,852 |  |  | $ | 3,822 |
Variable Lease Expense, which is included in occupancy costs |  | $ | 918 |  |  | $ | 1,035 |
|  | (in thousands) |
Classification on the Condensed Consolidated Balance Sheets |  | September 28, 2024 |  |  | September 30, 2023 |
Assets |  |  |  |  |  |  |  |
Operating lease assets |  | $ | 26,828 |  |  | $ | 26,987 |
Liabilities |  |  |  |  |  |  |  |
Operating lease current liabilities |  | $ | 2,467 |  |  | $ | 2,385 |
Operating lease non-current liabilities |  | $ | 25,847 |  |  | $ | 25,850 |
Weighted Average Remaining Lease Term: |  |  |  |  |  |  |  |
Operating Leases |  |  | 10.17 Years |  |  |  | 9.86 Years |
Weighted Average Discount: |  |  |  |  |  |  |  |
Operating leases |  |  | 5.02% |  |  |  | 4.75% |
The following table outlines the minimum future lease payments for the next five years and thereafter:
|  | (in thousands) |
For fiscal year |  | Operating |
2025 |  |  | 3,776 |
2026 |  |  | 3,860 |
2027 |  |  | 3,765 |
2028 |  |  | 3,780 |
2029 |  |  | 3,800 |
Thereafter |  |  | 20,231 |
Total lease payments (undiscounted cash flows) |  |  | 39,212 |
Less imputed interest |  |  | (10,898 | )
Total operating lease liabilities |  | $ | 28,314 |
Purchase Commitments In order to fix the cost and ensure adequate supply of baby back ribs for our restaurants for calendar year 2025, we entered into a purchase agreement with a new rib supplier, whereby we agreed to purchase approximately $7.8 million of “2.5 & Down Baby Back Ribs” (weight range in which baby back ribs are sold) during calendar year 2025, at a prescribed cost, which we believe is competitive. For calendar year 2024, we entered into a purchase agreement with our current rib supplier, whereby we agreed to purchase approximately $7.0 million of “2.25 & Down Baby Back Ribs” during calendar year 2024, at a prescribed cost, which we also believe is competitive. The increase in our cost of baby back ribs for calendar year 2025 compared to calendar year 2024 is due to our purchase of larger sized baby back ribs and the purchase of baby back ribs for Store #19R, Hollywood, Florida for the entire calendar year, offset by a decrease in market price. Flanigan’s Fish Company, LLC As of September 28, 2024, Flanigan’s Fish Company, LLC, a Florida limited liability company (“FFC”), supplies certain fish to all of our restaurants. Since we hold the controlling interest in FFC, the balance sheet and operating results of this entity are consolidated into the accompanying consolidated financial statements of the Company. Sales and purchases of fish are recognized in restaurant food sales and restaurant (cost of merchandise sold), respectively, in the consolidated statements of income at the time of sale to the restaurant. In addition, the 49% of FFC owned by the unrelated third party is recognized as a noncontrolling interest in our consolidated financial statements. Franchise Program At September 28, 2024 and September 30, 2023, we were the franchisor of five units under franchise agreements. Of the five franchised stores, three are combination restaurant/package liquor stores and two are restaurants (one of which we operate). Four franchised stores are owned and operated by related parties as follows: • James G. Flanigan, our Chairman of the Board of Directors, Chief Executive Officer and President of the Company, and Michael B. Flanigan, a member of our Board of Directors and James G. Flanigan’s brother, are each a 35.24% owner of a company which has a franchise arrangement with us for the operation of a restaurant and adjacent package liquor store located in Coconut Grove, Florida (Store #18). • Patrick J. Flanigan, brother to both James G. Flanigan and Michael B. Flanigan and a member of our Board of Directors, owns 100% of a company which has a franchise arrangement with us for the operation of a combination restaurant/package liquor store located in Pompano Beach, Florida (Store #43). • Our officers and directors collectively own 30% of the shareholder interest of a company which has a franchise arrangement with us for the operation of a restaurant located in Deerfield Beach, Florida. The shareholder interest of James G. Flanigan’s family represents an additional 60% of the total invested capital in this franchised location (Store #14). • Patrick J. Flanigan is the sole general partner and a 25% limited partner in a limited partnership which has a franchise arrangement with us for the operation of a restaurant located in Fort Lauderdale, Florida. The Company is a 25% limited partner in this limited partnership and officers and directors of the Company (excluding Patrick J. Flanigan) own an additional 31.9% limited partnership interest in this franchised location (Store #15). Under the franchise agreements, we provide guidance, advice and management assistance to the franchisees. In addition and for an additional annual fee of approximately $25,000, we also act as fiscal agent for the franchisees whereby we collect all revenues and pay all expenses and distributions. We also, from time to time, advance funds on behalf of the franchisees for the cost of renovations. The resulting amounts receivable from and payable to these franchisees are reflected in the accompanying consolidated balance sheet as either an asset or a liability. We also agree to sponsor and manage cooperative buying groups on behalf of the franchisees for the purchase of inventory. The franchise agreements provide for royalties to us of approximately 3% of gross restaurant sales and 1% of gross package liquor sales. During our fiscal years 2024 and 2023, we earned royalties of $1,195,000 and $1,163,000, respectively, from our related franchises, which royalties are included in Franchise-related revenues in our Consolidated Statements of Income. We are not currently offering or accepting new franchises. Employment Agreements/Bonuses As of September 28, 2024 and September 30, 2023, we had no employment agreements. Our Board of Directors approved an annual performance bonus, with 14.75% of the corporate pre-tax net income, plus or minus non-recurring items, but before depreciation and amortization in excess of $650,000 paid to the Chief Executive Officer and 5.25% paid to other members of management, (the “Officers Bonus”). Officers Bonuses for our fiscal years 2024 and 2023 amounted to approximately $1,434,000 and $1,604,000, respectively. Our Board of Directors also approved an additional annual performance bonus, with 5% of the pre-tax net income before depreciation and amortization from our restaurants in excess of $1,875,000 and our share of the pre-tax net income before depreciation and amortization from the restaurants owned by the limited partnerships paid to the Chief Operating Officer and 5% paid to the Chief Financial Officer (the “Restaurant Bonus’'). Restaurant Bonuses for our fiscal years 2024 and 2023 amounted to approximately $1,037,000 and $1,090,000, respectively. Management Agreements Deerfield Beach, Florida Since January 2006, we have managed “The Whale’s Rib”, a casual dining restaurant located in Deerfield Beach, Florida, pursuant to a management agreement. We paid $500,000 in exchange for our rights to manage this restaurant. The management agreement was amortized and paid on a straight-line basis over the life of the initial term of the agreement, ten (10) years. The restaurant is owned by a third party unaffiliated with us. In exchange for providing management, bookkeeping and related services, we receive one-half (½) of the net profit, if any, from the operation of the restaurant. During the third quarter of our fiscal year 2011, the term of the management agreement was extended through January 9, 2036. For the fiscal years ended September 28, 2024 and September 30, 2023, we generated $200,000 and $400,000 of revenue, respectively, from providing these management services.

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