Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW
The
following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
is intended to help the reader understand RCI Hospitality Holdings, Inc., our operations and our present business environment.
MD&A is provided as a supplement to — and should be read in conjunction with — our consolidated financial statements
and the accompanying notes thereto contained in Item 8 – “Financial Statements and Supplementary Data” of this
report. This overview summarizes the MD&A, which includes the following sections:
|
●
|
Our
Business — a general description of our business and the adult nightclub industry, our objective, our strategic priorities,
our core capabilities, and challenges and risks of our business.
|
|
|
|
|
●
|
Critical
Accounting Policies and Estimates — a discussion of accounting policies that require critical judgments and estimates.
|
|
|
|
|
●
|
Operations
Review — an analysis of our Company’s consolidated results of operations for the three years presented in our
consolidated financial statements.
|
|
|
|
|
●
|
Liquidity
and Capital Resources — an analysis of cash flows, aggregate contractual obligations, and an overview of financial position.
|
OUR
BUSINESS
The
following are our operating segments:
Nightclubs
|
|
Our
wholly owned subsidiaries own and/or operate upscale adult nightclubs serving primarily businessmen and professionals. These
nightclubs are in Houston, Austin, San Antonio, Dallas, Fort Worth, Beaumont, Longview, Harlingen, Edinburg, Tye, Lubbock,
El Paso and Odessa, Texas; Charlotte, North Carolina; Minneapolis, Minnesota; New York, New York; Miami Gardens, Florida;
Philadelphia, Pennsylvania; and Phoenix, Arizona. No sexual contact is permitted at any of our locations.
|
|
|
|
Bombshells
Restaurants and Sports Bars
|
|
Our
wholly owned subsidiaries own and operate non-adult nightclubs, restaurants, and sports bars in Houston, Dallas, Austin, Spring,
and Fort Worth, Texas under the brand names Bombshells and Vee Lounge (reconcepted in October 2016 as Studio 80).
|
|
|
|
Media
Group
|
|
Our
wholly owned subsidiaries own a media division, including the leading trade magazine serving the multi-billion-dollar adult
nightclubs industry. We also own an industry trade show, one other industry trade publications and more than 15 industry websites.
|
Our
revenues are derived from the sale of liquor, beer, wine, food, merchandise, cover charges, membership fees, facility use fees,
commissions from vending and ATM machines, valet parking and other products and services for both nightclub and restaurant/sports
bar operations. Media Group revenues include the sale of advertising content and revenues from our annual Expo convention. Our
fiscal year end is September 30.
We
calculate same-store sales by comparing year-over-year revenues from nightclubs and restaurants/sports bars operating at least
12 full months. We exclude from a particular month’s calculation units previously included in the same-store sales base
that have closed temporarily for more than 15 days until its next full month of operations. We also exclude from the same-store
sales base units that are being reconcepted or are closed due to renovations or remodels. Acquired units are included in the same-store
sales calculation as long as they qualify based on the definition stated above. Revenues from non-nightclub and non-restaurant/sports
bar operations are excluded from same-store sales calculation.
Our
goal is to use our Company’s assets — our brands, financial strength, and the talent and strong commitment of our
management and associates — to become more competitive and to accelerate growth in a manner that creates value for our shareholders.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Management’s
discussion and analysis of financial condition and results of operations are based upon our financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation
of these consolidated financial statements requires our management to make assumptions and estimates about future events, and
apply judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. These estimates are based on management’s historical industry experience and on various other assumptions
that are believed to be reasonable under the circumstances. On a regular basis, we evaluate these accounting policies, assumptions,
estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because
future events and their effects cannot be determined with certainty, actual results may differ from our estimates, and such differences
could be material.
A
full discussion of our significant accounting policies is contained in Note B – Summary of Significant Accounting Policies,
which is included in Item 8 – “Financial Statements and Supplementary Data” of this report. We believe that
the following accounting estimates are the most critical to aid in fully understanding and evaluating our financial results. These
estimates require our most difficult, subjective or complex judgments because they relate to matters that are inherently uncertain.
We have reviewed these critical accounting policies and estimates and related disclosures with our Audit Committee.
Impairment
of Long-Lived Assets
We
review long-lived assets, such as property and equipment, and purchased intangible assets subject to amortization, for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows,
an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or
fair value less costs to sell, and are no longer depreciated. We impaired one property held for sale by $1.4 million based on
estimated realizable value less costs to sell.
Goodwill
and intangible assets that have indefinite useful lives are tested annually for impairment, and are tested for impairment more
frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent
that the carrying amount of the reporting unit exceeds its fair value.
Our
impairment calculations require management to make assumptions and to apply judgment in order to estimate fair values. If our
actual results are not consistent with our estimates and assumptions, we may be exposed to impairments that could be material.
We do not believe that there is a reasonable likelihood that there will be a material change in the estimates or assumptions we
used to calculate impairment charges.
To
begin the review, we determine the cash flows from each unit and compare these to prior periods along with comparisons of gross
margin and same store sales comparisons. For any of these units that we believe require further analysis as a result of the comparisons
made, we prepare an estimated discounted future cash flows expected to be generated by the asset to determine the estimated fair
value of the unit. This is compared to the carrying value of the unit and reviewed for reasonableness. If necessary, an impairment
charge is recognized by the amount by which the carrying amount of any unit exceeds the fair value of the assets. For the year
ended September 30, 2016, we impaired one unit in this manner in the amount of $2.1 million. There were no other units in which
the estimated fair value was not substantially in excess of the carrying value.
Income
Taxes
We
estimate certain components of our provision for income taxes. These estimates include depreciation and amortization expense allowable
for tax purposes, allowable tax credits for items such as taxes paid on employee tip income, effective rates for state and local
income taxes, and the deductibility of certain other items, among others. We adjust our annual effective income tax rate as additional
information on outcomes or events becomes available.
Legal
and Other Contingencies
As
mentioned in Item 3 – “Legal Proceedings” and in a more detailed discussion in Note K to our consolidated financial
statements, we are involved in various suits and claims in the normal course of business. We record a liability when it is probable
that a loss has been incurred and the amount is reasonably estimable. There is significant judgment required in both the probability
determination and as to whether an exposure can be reasonably estimated. In the opinion of management, there was not at least
a reasonable possibility that we may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect
to loss contingencies for asserted legal and other claims. However, the outcome of legal proceedings and claims brought against
the Company is subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome
to be remote, if one or more of these legal matters were resolved against the Company in a reporting period for amounts in excess
of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially
adversely affected.
OPERATIONS
REVIEW
The
following tables presents a comparison of our results of operations as a percentage of total revenues for the past three fiscal
years:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Sales of alcoholic beverages
|
|
|
42.4
|
%
|
|
|
41.2
|
%
|
|
|
39.4
|
%
|
Sales of food and merchandise
|
|
|
13.3
|
%
|
|
|
13.8
|
%
|
|
|
12.1
|
%
|
Service revenues
|
|
|
38.0
|
%
|
|
|
39.1
|
%
|
|
|
42.8
|
%
|
Other
|
|
|
6.3
|
%
|
|
|
5.8
|
%
|
|
|
5.7
|
%
|
Total
revenues
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
15.2
|
%
|
|
|
15.0
|
%
|
|
|
13.5
|
%
|
Salaries and wages
|
|
|
27.8
|
%
|
|
|
27.9
|
%
|
|
|
26.8
|
%
|
Selling, general and administrative
|
|
|
31.9
|
%
|
|
|
32.2
|
%
|
|
|
33.8
|
%
|
Depreciation and amortization
|
|
|
5.3
|
%
|
|
|
5.1
|
%
|
|
|
5.2
|
%
|
Other charges
|
|
|
4.3
|
%
|
|
|
4.5
|
%
|
|
|
5.2
|
%
|
Total
operating expenses
|
|
|
84.5
|
%
|
|
|
84.6
|
%
|
|
|
84.5
|
%
|
Income from operations
|
|
|
15.5
|
%
|
|
|
15.4
|
%
|
|
|
15.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
-5.9
|
%
|
|
|
-5.1
|
%
|
|
|
-6.4
|
%
|
Interest income
|
|
|
0.1
|
%
|
|
|
0.0
|
%
|
|
|
0.1
|
%
|
Non-operating
gains
|
|
|
0.0
|
%
|
|
|
0.2
|
%
|
|
|
4.6
|
%
|
Income before income taxes
|
|
|
9.6
|
%
|
|
|
10.4
|
%
|
|
|
13.9
|
%
|
Income taxes
|
|
|
2.0
|
%
|
|
|
3.8
|
%
|
|
|
4.9
|
%
|
Net income
|
|
|
7.7
|
%
|
|
|
6.6
|
%
|
|
|
9.1
|
%
|
*
Percentages may not foot due to rounding.
Below
is a table presenting the changes in each line item of the income statement for the last three fiscal years (dollar amounts in
thousands)
|
|
Increase
(Decrease)
|
|
|
|
2016
vs. 2015
|
|
|
2015
vs. 2014
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Sales of alcoholic beverages
|
|
$
|
1,387
|
|
|
|
2.5
|
%
|
|
$
|
7,936
|
|
|
|
16.6
|
%
|
Sales of food and merchandise
|
|
|
(813
|
)
|
|
|
-4.3
|
%
|
|
|
4,044
|
|
|
|
27.6
|
%
|
Service revenues
|
|
|
(1,738
|
)
|
|
|
-3.3
|
%
|
|
|
1,042
|
|
|
|
2.0
|
%
|
Other
|
|
|
575
|
|
|
|
7.3
|
%
|
|
|
995
|
|
|
|
14.4
|
%
|
Total
revenues
|
|
|
(589
|
)
|
|
|
-0.4
|
%
|
|
|
14,017
|
|
|
|
11.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
229
|
|
|
|
1.1
|
%
|
|
|
3,891
|
|
|
|
23.7
|
%
|
Salaries and wages
|
|
|
(275
|
)
|
|
|
-0.7
|
%
|
|
|
5,175
|
|
|
|
15.9
|
%
|
Selling, general and administrative
|
|
|
(523
|
)
|
|
|
-1.2
|
%
|
|
|
2,609
|
|
|
|
6.4
|
%
|
Depreciation and amortization
|
|
|
279
|
|
|
|
4.0
|
%
|
|
|
578
|
|
|
|
9.2
|
%
|
Other charges,
net
|
|
|
(269
|
)
|
|
|
-4.5
|
%
|
|
|
(239
|
)
|
|
|
-3.8
|
%
|
Total
operating expenses
|
|
|
(559
|
)
|
|
|
-0.5
|
%
|
|
|
12,014
|
|
|
|
11.7
|
%
|
Income from operations
|
|
|
(30
|
)
|
|
|
-0.1
|
%
|
|
|
2,003
|
|
|
|
10.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,013
|
)
|
|
|
14.5
|
%
|
|
|
783
|
|
|
|
-10.1
|
%
|
Interest income
|
|
|
116
|
|
|
|
773.3
|
%
|
|
|
(133
|
)
|
|
|
-89.9
|
%
|
Non-operating
gains
|
|
|
(229
|
)
|
|
|
-100.0
|
%
|
|
|
(5,413
|
)
|
|
|
-95.9
|
%
|
Income before income taxes
|
|
|
(1,156
|
)
|
|
|
-8.2
|
%
|
|
|
(2,760
|
)
|
|
|
-16.3
|
%
|
Income taxes
|
|
|
(2,507
|
)
|
|
|
-48.5
|
%
|
|
|
(752
|
)
|
|
|
-12.7
|
%
|
Net income
|
|
$
|
1,351
|
|
|
|
15.0
|
%
|
|
$
|
(2,008
|
)
|
|
|
-18.3
|
%
|
Revenues
Our
total consolidated revenues for fiscal 2016 amounted to $134.9 million compared to $135.4 million for fiscal 2015 and $121.4 million
for fiscal 2014. The $0.6 million, or 0.4%, decrease from 2015 to 2016 was primarily due to a 1.3% decrease in same-store sales
partially offset by an increase in rental income and sale of energy drinks. The $14.0 million, or 11.5%, increase from 2014 to
2015 was primarily due to revenues generated in our new units opened or acquired in 2015, a full year of revenues from units opened
or purchased in 2014 and increases in revenues from certain of our existing units, especially from our Temptations Beaumont, Onyx
Houston and Bombshells Dallas locations. Revenues from nightclub and restaurant/sports bar operations for same-location same-period
decreased by 1.3% in 2016 and 0.6% in 2015, and increased by 4.5% in 2014.
By
reportable segment, revenues were as follows (in thousands):
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Business segment revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nightclubs
|
|
$
|
113,941
|
|
|
$
|
115,493
|
|
|
$
|
114,157
|
|
Bombshells
|
|
|
18,690
|
|
|
|
17,639
|
|
|
|
5,768
|
|
Other
|
|
|
2,229
|
|
|
|
2,317
|
|
|
|
1,507
|
|
|
|
$
|
134,860
|
|
|
$
|
135,449
|
|
|
$
|
121,432
|
|
Operating
Costs and Expenses
Cost
of goods sold includes cost of alcoholic and non-alcoholic beverages, food, cigars and cigarettes, merchandise, media printing/binding
and media. As a percentage of revenues, 2016 cost of goods sold was flat at 15.2% compared to 2015 at 15.0%, while 2015 had a
substantial increase versus 2014 at 13.5%. The increase percentage in 2015 was mainly due to higher cost of goods sold for new
Bombshells opened.
The
increase in salaries and wages from 2014 to 2015 was primarily driven by higher unit count. The decrease in salaries and wages
from 2015 to 2016 was primarily due to closures of club or restaurant units, whether permanently or temporarily for remodel or
reconcepting.
The
components of selling, general and administrative expenses are in the tables below (dollars in thousands):
|
|
Years
Ended September 30,
|
|
|
Percentage
of Revenues
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Taxes and permits
|
|
$
|
8,089
|
|
|
$
|
8,031
|
|
|
$
|
8,222
|
|
|
|
6.0
|
%
|
|
|
5.9
|
%
|
|
|
6.8
|
%
|
Advertising and marketing
|
|
|
5,374
|
|
|
|
5,610
|
|
|
|
5,578
|
|
|
|
4.0
|
%
|
|
|
4.1
|
%
|
|
|
4.6
|
%
|
Supplies
|
|
|
4,815
|
|
|
|
4,726
|
|
|
|
4,023
|
|
|
|
3.6
|
%
|
|
|
3.5
|
%
|
|
|
3.3
|
%
|
Legal and professional
|
|
|
4,483
|
|
|
|
4,581
|
|
|
|
3,416
|
|
|
|
3.3
|
%
|
|
|
3.4
|
%
|
|
|
2.8
|
%
|
Insurance
|
|
|
3,575
|
|
|
|
3,364
|
|
|
|
3,994
|
|
|
|
2.7
|
%
|
|
|
2.5
|
%
|
|
|
3.3
|
%
|
Rent
|
|
|
3,278
|
|
|
|
4,526
|
|
|
|
4,804
|
|
|
|
2.4
|
%
|
|
|
3.3
|
%
|
|
|
4.0
|
%
|
Utilities
|
|
|
2,871
|
|
|
|
2,999
|
|
|
|
2,684
|
|
|
|
2.1
|
%
|
|
|
2.2
|
%
|
|
|
2.2
|
%
|
Charge cards fees
|
|
|
2,252
|
|
|
|
2,176
|
|
|
|
1,790
|
|
|
|
1.7
|
%
|
|
|
1.6
|
%
|
|
|
1.5
|
%
|
Security
|
|
|
2,042
|
|
|
|
1,905
|
|
|
|
1,641
|
|
|
|
1.5
|
%
|
|
|
1.4
|
%
|
|
|
1.4
|
%
|
Repairs and maintenance
|
|
|
2,088
|
|
|
|
1,916
|
|
|
|
1,719
|
|
|
|
1.5
|
%
|
|
|
1.4
|
%
|
|
|
1.4
|
%
|
Other
|
|
|
4,208
|
|
|
|
3,764
|
|
|
|
3,118
|
|
|
|
3.1
|
%
|
|
|
2.8
|
%
|
|
|
2.6
|
%
|
|
|
$
|
43,075
|
|
|
$
|
43,598
|
|
|
$
|
40,989
|
|
|
|
31.9
|
%
|
|
|
32.2
|
%
|
|
|
33.8
|
%
|
The
significant variances in selling, general and administrative expenses are as follows:
The
decrease in the percentage of rent expense to revenues is principally due to the sale/closure of certain clubs in 2014, and the
acquisition of the New York property in 2015 through 2016.
Legal
and professional expenses increased by $1.2 million in 2015 compared to 2014 principally due to increased activity and settlement
in the New York labor lawsuit.
The
decrease in insurance expense is principally due to a general liability insurance premium decrease in 2015 compared to 2014.
We
consider rent plus interest expense as our occupancy costs since most of our debt are for real property where our clubs and restaurants
are located. As a percentage of revenues, rent has consistently dropped as we bought properties and interest expense has increased,
but in total, occupancy costs have gone down.
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Rent
|
|
|
2.4
|
%
|
|
|
3.3
|
%
|
|
|
4.0
|
%
|
Interest
|
|
|
5.9
|
%
|
|
|
5.1
|
%
|
|
|
6.4
|
%
|
Total occupancy
cost
|
|
|
8.3
|
%
|
|
|
8.5
|
%
|
|
|
10.3
|
%
|
Depreciation
and amortization slightly increased consistent with the higher long-lived asset base.
The
components of other charges, net are in the tables below (dollars in thousands):
|
|
Years
Ended September 30,
|
|
|
Percentage
of Revenues
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Impairment of assets
|
|
$
|
4,317
|
|
|
$
|
1,705
|
|
|
$
|
2,294
|
|
|
|
3.2
|
%
|
|
|
1.3
|
%
|
|
|
1.9
|
%
|
Settlement of lawsuits and other one-time
costs
|
|
|
1,881
|
|
|
|
11,684
|
|
|
|
3,696
|
|
|
|
1.4
|
%
|
|
|
8.6
|
%
|
|
|
3.0
|
%
|
Loss (gain) on sale of assets
|
|
|
(437
|
)
|
|
|
808
|
|
|
|
279
|
|
|
|
-0.3
|
%
|
|
|
0.6
|
%
|
|
|
0.2
|
%
|
Gain on settlement
of patron tax
|
|
|
-
|
|
|
|
(8,167
|
)
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
-6.0
|
%
|
|
|
0.0
|
%
|
Total other charges,
net
|
|
$
|
5,761
|
|
|
$
|
6,030
|
|
|
$
|
6,269
|
|
|
|
4.3
|
%
|
|
|
4.5
|
%
|
|
|
5.2
|
%
|
The
significant variances in other charges, net are as follows:
See
Note P - Impairment of Assets of Notes to Consolidated Financial Statements for an explanation of the impairment of assets.
Settlement
of lawsuits and other one-time costs in 2015 consists principally of settlement of suits relating to the New York based federal
wage and hour class and collective action, as explained in Note K - Commitments and Contingencies of Notes to Consolidated Financial
Statements.
See
Note N – Acquisitions and Dispositions of Notes to Consolidated Financial Statements for an explanation of the gain/loss
on sale of assets, particularly relating to the sale of our controlling interest in Robust in 2016.
See
Note K - Commitments and Contingencies of Notes to Consolidated Financial Statements for an explanation of the gain on settlement
of patron tax in 2015.
Income
from Operations
Our
operating margin (income from operations divided by total revenues) was 15.5% in 2016, 15.4% in 2015 and 15.5% in 2014. The main
drivers of the net change in the components of operating margin are the increase in the number of Bombshells, the settlement of
the New York lawsuit in 2015, and the gain on settlement of patron tax in 2015.
Below
is a table which reflects segment contribution to income from operations (in thousands):
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Business segment operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Nightclubs
|
|
$
|
33,227
|
|
|
$
|
30,444
|
|
|
$
|
25,970
|
|
Bombshells
|
|
|
1,291
|
|
|
|
1,773
|
|
|
|
(315
|
)
|
Other
|
|
|
(2,650
|
)
|
|
|
(1,921
|
)
|
|
|
(246
|
)
|
General corporate
|
|
|
(11,020
|
)
|
|
|
(9,418
|
)
|
|
|
(6,534
|
)
|
|
|
$
|
20,848
|
|
|
$
|
20,878
|
|
|
$
|
18,875
|
|
Excluding
the impact of other charges attributable to specific segments, operating margin for the Nightclub segment was 32.3%, 30.9%
and 28.0% for 2016, 2015 and 2014, respectively, while the Bombshells segment was 14.3%, 14.6% and (5.5%) for 2016, 2015
and 2014, respectively.
Non-Operating
Items
See
Note Q - Gain on Contractual Debt Reduction of Notes to Consolidated Financial Statements, for an explanation of the $5.6 million
contractual debt reduction item in fiscal 2014.
Interest
expense decreased in 2015 due to the significant paydown and refinance of high-interest debt during the last two years. We are
now able to finance property acquisition with bank debt which is at significantly lower rates than the debt we previously had.
We added more debt in 2016 to acquire certain properties, which in turn increased our interest expense and also decreased rent
expense.
Income
Taxes
Income
tax expense decreased by $2.5 million from 2015 to 2016 and by $0.8 million from 2014 to 2015. Our effective income tax rate was
20.4%, 36.5% and 35.0% during fiscal 2016, 2015 and 2014, respectively. The difference in our annual effective income tax rate
was primarily due to the impact of tax credit carryforwards and the transfer of deferred tax liabilities related to sold subsidiaries,
offset by state income taxes in 2016; and the impact of stock-based compensation and other permanent differences in 2015.
Non-GAAP
Financial Measures
In
addition to our financial information presented in accordance with GAAP, management uses certain non-GAAP financial measures,
within the meaning of the SEC Regulation G, to clarify and enhance understanding of past performance and prospects for the future.
Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position
or cash flows that excludes or includes amounts that are included in or excluded from the most directly comparable measure calculated
and presented in accordance with GAAP. We monitor non-GAAP financial measures because it describes the operating performance of
the Company and helps management and investors gauge our ability to generate cash flow, excluding some non-recurring items that
are included in the most directly comparable measures calculated and presented in accordance with GAAP. Relative to each of the
non-GAAP financial measures, we further set forth our rationale as follows:
Non-GAAP
Operating Income and Non-GAAP Operating Margin.
We exclude from non-GAAP operating income and non-GAAP operating margin amortization
of intangibles, gain on settlement of patron tax case, gains and losses from asset sales, impairment of assets, stock-based compensation
charges, and litigation and other one-time legal settlements. We believe that excluding these items assists investors in evaluating
period-over-period changes in our operating income and operating margin without the impact of items that are not a result of our
day-to-day business and operations. While we were in litigation in the patron tax case, we also included patron taxes as an exclusion,
but after settlement of the case, we no longer exclude patron taxes from operating income.
Non-GAAP
Net Income and Non-GAAP Net Income per Diluted Share
. We exclude from non-GAAP net income and non-GAAP net income per diluted
share amortization of intangibles, gain on settlement of patron tax case, income tax expense, impairment charges, gain on acquisition/loss
on disposition of controlling interest in subsidiary, gains and losses from asset sales, stock-based compensation, litigation
and other one-time legal settlements, and gain on contractual debt reductions, and include the non-GAAP provision for current
and deferred income taxes, calculated as the tax effect at 35% effective tax rate of the pre-tax non-GAAP income before taxes,
because we believe that excluding such measures helps management and investors better understand our operating activities. While
we were in litigation in the patron tax case, we also included patron taxes as an exclusion, but after settlement of the case,
we no longer exclude patron taxes from net income.
Adjusted
EBITDA
. We exclude from adjusted EBITDA depreciation expense, amortization of intangibles, income tax, interest expense, interest
income, gains and losses from asset sales, litigation and other one-time legal settlements, gain on settlement of patron tax case,
gain on acquisition/loss on disposition of controlling interest in subsidiary, gain on contractual debt reduction and impairment
charges because we believe that adjusting for such items helps management and investors better understand operating activities.
Adjusted EBITDA provides a core operational performance measurement that compares results without the need to adjust for federal,
state and local taxes which have considerable variation between domestic jurisdictions. The results are, therefore, without consideration
of financing alternatives of capital employed. We use adjusted EBITDA as one guideline to assess our unleveraged performance return
on our investments. Adjusted EBITDA is also the target benchmark for our acquisitions of nightclubs.
We
also use certain non-GAAP cash flow measures such as free cash. See “Liquidity and Capital Resources” section for
further discussion.
The
following tables present our non-GAAP performance measures for the periods indicated (in thousands, except per share amounts and
percentages):
|
|
For
the Year Ended
|
|
|
|
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Reconciliation of GAAP net income to Adjusted
EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net income
|
|
$
|
11,089
|
|
|
$
|
9,312
|
|
|
$
|
11,240
|
|
Income tax expense
|
|
|
2,657
|
|
|
|
5,164
|
|
|
|
5,916
|
|
Interest expense and income
|
|
|
7,851
|
|
|
|
6,954
|
|
|
|
7,604
|
|
Litigation and other one-time settlements
|
|
|
1,881
|
|
|
|
11,684
|
|
|
|
3,696
|
|
Gain on settlement of patron tax case
|
|
|
-
|
|
|
|
(8,167
|
)
|
|
|
-
|
|
Impairment of assets
|
|
|
4,317
|
|
|
|
1,705
|
|
|
|
2,294
|
|
Loss (gain) on sale of property
|
|
|
(437
|
)
|
|
|
808
|
|
|
|
279
|
|
Depreciation and amortization
|
|
|
7,173
|
|
|
|
6,894
|
|
|
|
6,316
|
|
Gain on acquisition of controlling interest
in subsidiary
|
|
|
-
|
|
|
|
(229
|
)
|
|
|
-
|
|
Gain on contractual
debt reduction
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,642
|
)
|
Adjusted EBITDA
|
|
$
|
34,531
|
|
|
$
|
34,125
|
|
|
$
|
31,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of GAAP net income to non-GAAP
net income
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net income
|
|
$
|
11,089
|
|
|
$
|
9,312
|
|
|
$
|
11,240
|
|
Amortization of intangibles
|
|
|
752
|
|
|
|
737
|
|
|
|
336
|
|
Stock-based compensation
|
|
|
360
|
|
|
|
480
|
|
|
|
282
|
|
Litigation and other one-time settlements
|
|
|
1,881
|
|
|
|
11,684
|
|
|
|
3,696
|
|
Gain on settlement of patron tax case
|
|
|
-
|
|
|
|
(8,167
|
)
|
|
|
-
|
|
Impairment of assets
|
|
|
4,317
|
|
|
|
1,705
|
|
|
|
2,294
|
|
Income tax expense
|
|
|
2,657
|
|
|
|
5,164
|
|
|
|
5,916
|
|
Loss (gain) on sale of property
|
|
|
(437
|
)
|
|
|
808
|
|
|
|
279
|
|
Gain on acquisition of controlling interest
in subsidiary
|
|
|
-
|
|
|
|
(229
|
)
|
|
|
-
|
|
Gain on contractual debt reduction
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,642
|
)
|
Non-GAAP provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(5,053
|
)
|
|
|
(6,095
|
)
|
|
|
(5,273
|
)
|
Deferred
|
|
|
(2,164
|
)
|
|
|
(1,428
|
)
|
|
|
(1,167
|
)
|
Non-GAAP net income
|
|
$
|
13,402
|
|
|
$
|
13,971
|
|
|
$
|
11,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of GAAP diluted net income
per share to non-GAAP diluted net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted
shares
|
|
|
10,229
|
|
|
|
10,406
|
|
|
|
10,637
|
|
GAAP net income
|
|
$
|
1.10
|
|
|
$
|
0.90
|
|
|
$
|
1.13
|
|
Amortization of intangibles
|
|
|
0.07
|
|
|
|
0.07
|
|
|
|
0.03
|
|
Stock-based compensation
|
|
|
0.04
|
|
|
|
0.05
|
|
|
|
0.03
|
|
Litigation and other one-time settlements
|
|
|
0.18
|
|
|
|
1.12
|
|
|
|
0.35
|
|
Gain on settlement of patron tax case
|
|
|
-
|
|
|
|
(0.78
|
)
|
|
|
-
|
|
Impairment of assets
|
|
|
0.42
|
|
|
|
0.16
|
|
|
|
0.22
|
|
Income tax expense
|
|
|
0.26
|
|
|
|
0.50
|
|
|
|
0.56
|
|
Loss (gain) on sale of property
|
|
|
(0.04
|
)
|
|
|
0.08
|
|
|
|
0.03
|
|
Gain on acquisition of controlling interest
in subsidiary
|
|
|
-
|
|
|
|
(0.02
|
)
|
|
|
-
|
|
Gain on contractual debt reduction
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.53
|
)
|
Non-GAAP provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(0.49
|
)
|
|
|
(0.58
|
)
|
|
|
(0.49
|
)
|
Deferred
|
|
|
(0.21
|
)
|
|
|
(0.14
|
)
|
|
|
(0.11
|
)
|
Non-GAAP diluted
net income per share
|
|
$
|
1.32
|
|
|
$
|
1.35
|
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of GAAP operating income to
non-GAAP operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating income
|
|
$
|
20,848
|
|
|
$
|
20,878
|
|
|
$
|
18,875
|
|
Amortization of intangibles
|
|
|
752
|
|
|
|
737
|
|
|
|
336
|
|
Stock-based compensation
|
|
|
360
|
|
|
|
480
|
|
|
|
282
|
|
Litigation and other one-time settlements
|
|
|
1,881
|
|
|
|
11,684
|
|
|
|
3,696
|
|
Gain on settlement of patron tax case
|
|
|
-
|
|
|
|
(8,167
|
)
|
|
|
-
|
|
Impairment of assets
|
|
|
4,317
|
|
|
|
1,705
|
|
|
|
2,294
|
|
Loss (gain) on
sale of property
|
|
|
(437
|
)
|
|
|
808
|
|
|
|
279
|
|
Non-GAAP operating
income
|
|
$
|
27,721
|
|
|
$
|
28,125
|
|
|
$
|
25,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of GAAP operating margin to
non-GAAP operating margin
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating income
|
|
|
15.5
|
%
|
|
|
15.4
|
%
|
|
|
15.5
|
%
|
Amortization of intangibles
|
|
|
0.6
|
%
|
|
|
0.5
|
%
|
|
|
0.3
|
%
|
Stock-based compensation
|
|
|
0.3
|
%
|
|
|
0.4
|
%
|
|
|
0.2
|
%
|
Litigation and other one-time settlements
|
|
|
1.4
|
%
|
|
|
8.6
|
%
|
|
|
3.0
|
%
|
Gain on settlement of patron tax case
|
|
|
0.0
|
%
|
|
|
-6.0
|
%
|
|
|
0.0
|
%
|
Impairment of assets
|
|
|
3.2
|
%
|
|
|
1.3
|
%
|
|
|
1.9
|
%
|
Loss (gain) on
sale of property
|
|
|
-0.3
|
%
|
|
|
0.6
|
%
|
|
|
0.2
|
%
|
Non-GAAP operating
margin
|
|
|
20.6
|
%
|
|
|
20.8
|
%
|
|
|
21.2
|
%
|
*
Per share amounts and percentages may not foot due to rounding.
The
adjustments to reconcile GAAP net income to non-GAAP net income exclude the impact of adjustments related to noncontrolling interests,
which is immaterial. In the calculation of non-GAAP diluted net income per share, we also take into consideration the adjustment
to net income from assumed conversion of debentures (see Note B to the consolidated financial statements).
During
the current year, we have excluded pre-opening and acquisitions costs, which were previously included, and have included gain/loss
on sale of controlling interest in subsidiary, which were previously excluded, in our adjustments for non-GAAP financial performance
measures since we believe that these are recurring cash operating expenses that are necessary to operate our business. We have
appropriately included or excluded the same items from prior year comparable non-GAAP financial performance measure to conform
to the current year presentation.
LIQUIDITY
AND CAPITAL RESOURCES
We
believe our ability to generate cash from operating activities is one of our fundamental financial strengths. Refer to the heading
“Cash Flows from Operating Activities” below. The near-term outlook for our business remains strong, and we expect
to generate substantial cash flows from operations in fiscal 2017. As a result of our expected cash flows from operations, we
have significant flexibility to meet our financial commitments. The Company has not recently raised capital through the issuance
of equity securities. Instead, we use debt financing to lower our overall cost of capital and increase our return on stockholders’
equity. Refer to the heading “Cash Flows from Financing Activities” below. We have a history of borrowing funds in
private transactions and from sellers in acquisition transactions and continue to have the ability to borrow funds at reasonable
interest rates in that manner. We have historically utilized these cash flows to invest in property and equipment, adult nightclubs
and restaurants/sports bars. Refer to the heading “Cash Flows from Investing Activities” below.
As
of September 30, 2016, we had a working capital deficit of $2.7 million (excluding the impact of assets held for sale amounting
to $7.7 million) compared to a working capital deficit of $5.7 million as of September 30, 2015. The decrease in deficit is principally
due the following items:
|
●
|
Operating
cash flow for the year;
|
|
|
|
|
●
|
Net
increase in liabilities due to the settlement payment of the New York lawsuit and reclassification of its long-term portion
to current;
|
|
|
|
|
●
|
Increase
in current portion of long-term debt
|
Cash
Flows from Operating Activities
Following
are our summarized cash flows from operating activities (in thousands):
|
|
Year
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net income
|
|
$
|
10,340
|
|
|
$
|
8,989
|
|
|
$
|
10,997
|
|
Depreciation and amortization
|
|
|
7,173
|
|
|
|
6,894
|
|
|
|
6,316
|
|
Deferred taxes
|
|
|
1,427
|
|
|
|
3,935
|
|
|
|
937
|
|
Stock compensation expense
|
|
|
360
|
|
|
|
480
|
|
|
|
282
|
|
Gain on contractual debt reduction
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,642
|
)
|
Gain on settlement of patron tax
|
|
|
-
|
|
|
|
(8,167
|
)
|
|
|
-
|
|
Impairment of assets
|
|
|
4,317
|
|
|
|
1,705
|
|
|
|
2,294
|
|
Change in operating assets and liabilities
|
|
|
(503
|
)
|
|
|
1,951
|
|
|
|
4,900
|
|
Other
|
|
|
(83
|
)
|
|
|
577
|
|
|
|
351
|
|
|
|
$
|
23,031
|
|
|
$
|
16,364
|
|
|
$
|
20,435
|
|
Cash
Flows from Investing Activities
Following
are our summarized cash flows from investing activities (in thousands):
|
|
Year
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net activities in marketable
securities and other assets
|
|
$
|
4,048
|
|
|
$
|
-
|
|
|
$
|
438
|
|
Acquisition of development rights in
New York Building
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,325
|
)
|
Additions to property and equipment
|
|
|
(28,148
|
)
|
|
|
(19,259
|
)
|
|
|
(16,034
|
)
|
Additions of
businesses, net of cash acquired
|
|
|
-
|
|
|
|
(2,328
|
)
|
|
|
(500
|
)
|
|
|
$
|
(24,100
|
)
|
|
$
|
(21,587
|
)
|
|
$
|
(21,421
|
)
|
Following
is a reconciliation of our additions to property and equipment for the years ended September 30, 2016, 2015 and 2014 (in thousands):
|
|
Year
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Acquisition of real estate
|
|
$
|
22,174
|
|
|
$
|
23,843
|
|
|
$
|
3,348
|
|
Capital expenditures funded by debt
|
|
|
-
|
|
|
|
(7,978
|
)
|
|
|
(4,879
|
)
|
New capital expenditures in new clubs and purchase
of aircraft
|
|
|
3,456
|
|
|
|
1,919
|
|
|
|
15,864
|
|
Maintenance capital
expenditures
|
|
|
2,518
|
|
|
|
1,475
|
|
|
|
1,701
|
|
Total capital
expenditures in consolidated statement of cash flows
|
|
$
|
28,148
|
|
|
$
|
19,259
|
|
|
$
|
16,034
|
|
Cash
Flows from Financing Activities
Following
are our summarized cash flows from financing activities (in thousands):
|
|
Year
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Proceeds from long-term
debt
|
|
$
|
32,049
|
|
|
$
|
18,283
|
|
|
$
|
7,025
|
|
Payment of dividends
|
|
|
(862
|
)
|
|
|
-
|
|
|
|
-
|
|
Payments on long-term debt
|
|
|
(19,159
|
)
|
|
|
(12,579
|
)
|
|
|
(8,473
|
)
|
Purchase of treasury stock
|
|
|
(7,311
|
)
|
|
|
(2,296
|
)
|
|
|
(1,150
|
)
|
Exercise of stock options and warrants
|
|
|
500
|
|
|
|
87
|
|
|
|
3,126
|
|
Payment of loan origination costs
|
|
|
(624
|
)
|
|
|
-
|
|
|
|
-
|
|
Distribution
of noncontrolling interests
|
|
|
(217
|
)
|
|
|
(216
|
)
|
|
|
(216
|
)
|
|
|
$
|
4,376
|
|
|
$
|
3,279
|
|
|
$
|
312
|
|
The
following table presents a summary of our cash flows from operating, investing, and financing activities (in thousands):
|
|
Year
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Operating activities
|
|
$
|
23,031
|
|
|
$
|
16,364
|
|
|
$
|
20,435
|
|
Investing activities
|
|
|
(24,100
|
)
|
|
|
(21,587
|
)
|
|
|
(21,421
|
)
|
Financing activities
|
|
|
4,376
|
|
|
|
3,279
|
|
|
|
312
|
|
Net increase
(decrease) in cash
|
|
$
|
3,307
|
|
|
$
|
(1,944
|
)
|
|
$
|
(674
|
)
|
We
require capital principally for the acquisition of new units, renovation of older units and investments in technology. We may
also utilize capital to repurchase our common stock as part of our share repurchase program and to pay our quarterly dividends.
Non-GAAP
Cash Flow Measure:
Management
also uses certain non-GAAP cash flow measures such as free cash flows. Free cash flows is derived from net cash provided by operating
activities less maintenance capital expenditures.
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net cash provided by operating
activities
|
|
$
|
23,031
|
|
|
$
|
16,364
|
|
|
$
|
20,435
|
|
Less: Maintenance
capital expenditures
|
|
|
2,518
|
|
|
|
1,475
|
|
|
|
1,701
|
|
Free
cash flows
|
|
$
|
20,513
|
|
|
$
|
14,889
|
|
|
$
|
18,734
|
|
Debt
Financing:
See
Note H - Long-term Debt of Notes to Consolidated Financial Statements for detail regarding our long-term debt activity.
Contractual
obligations and commitments
:
We
have long term contractual obligations primarily in the form of debt obligations and operating leases. The following table (in
thousands) summarizes our contractual obligations and their aggregate maturities as well as future minimum rent payments. Future
interest payments related to variable interest rate debt were estimated using the interest rate in effect at September 30, 2016.
|
|
Payments
Due by Period
|
|
|
|
Total
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
Long-term debt - regular
|
|
$
|
47,088
|
|
|
$
|
7,793
|
|
|
$
|
8,102
|
|
|
$
|
8,130
|
|
|
$
|
8,514
|
|
|
$
|
5,324
|
|
|
$
|
9,225
|
|
Long-term debt - balloon
|
|
|
59,490
|
|
|
|
2,157
|
|
|
|
12,419
|
|
|
|
2,344
|
|
|
|
18,354
|
|
|
|
5,211
|
|
|
|
19,005
|
|
Interest payments
|
|
|
30,362
|
|
|
|
7,719
|
|
|
|
6,666
|
|
|
|
5,982
|
|
|
|
4,583
|
|
|
|
3,317
|
|
|
|
2,095
|
|
Operating leases
|
|
|
25,107
|
|
|
|
1,863
|
|
|
|
1,800
|
|
|
|
1,674
|
|
|
|
1,727
|
|
|
|
1,718
|
|
|
|
16,325
|
|
In
October 2016, the Company refinanced $8.0 million of long-term debt by borrowing $9.9 million. The new unsecured debt is payable
$118,817 per month, including interest at 12%, and matures in five years with a balloon payment for the remaining balance at maturity.
The refinanced debt was comprised of interest-only notes that were scheduled to mature with full principal payments in
fiscal 2018.
We
are not aware of any event or trend that would potentially significantly affect liquidity. In the event such a trend develops,
we believe our working capital and capital expenditure requirements will be adequately met by cash flows from operations. In our
opinion, working capital is not a true indicator of our financial status. Typically, businesses in our industry carry current
liabilities in excess of current assets because businesses in our industry receive substantially immediate payment for sales,
with nominal receivables, while inventories and other current liabilities normally carry longer payment terms. Vendors and purveyors
often remain flexible with payment terms, providing businesses in our industry with opportunities to adjust to short-term business
down turns. We consider the primary indicators of financial status to be the long-term trend of revenue growth, the mix of sales
revenues, overall cash flow, profitability from operations and the level of long-term debt.
The
following table presents a summary of such indicators (dollars in thousands):
|
|
|
|
|
Increase
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
2016
|
|
|
(Decrease)
|
|
|
2015
|
|
|
(Decrease)
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of alcoholic beverages
|
|
$
|
57,216
|
|
|
|
2.5
|
%
|
|
$
|
55,829
|
|
|
|
16.6
|
%
|
|
$
|
47,893
|
|
Sales of food and merchandise
|
|
|
17,900
|
|
|
|
-4.3
|
%
|
|
|
18,713
|
|
|
|
27.6
|
%
|
|
|
14,669
|
|
Service Revenues
|
|
|
51,276
|
|
|
|
-3.3
|
%
|
|
|
53,014
|
|
|
|
2.0
|
%
|
|
|
51,972
|
|
Other
|
|
|
8,468
|
|
|
|
7.3
|
%
|
|
|
7,893
|
|
|
|
14.4
|
%
|
|
|
6,898
|
|
Total
Revenues
|
|
$
|
134,860
|
|
|
|
-0.4
|
%
|
|
$
|
135,449
|
|
|
|
11.5
|
%
|
|
$
|
121,432
|
|
Net cash provided by operating activities
|
|
$
|
23,031
|
|
|
|
40.7
|
%
|
|
$
|
16,364
|
|
|
|
-19.9
|
%
|
|
$
|
20,435
|
|
Adjusted EBITDA
|
|
$
|
34,531
|
|
|
|
1.2
|
%
|
|
$
|
34,125
|
|
|
|
7.6
|
%
|
|
$
|
31,703
|
|
Long-term debt
|
|
$
|
105,886
|
|
|
|
12.2
|
%
|
|
$
|
94,349
|
|
|
|
34.6
|
%
|
|
$
|
70,092
|
|
*
See definition of Adjusted EBITDA above under Results of Operations.
We
have not established lines of credit or financing other than the above mentioned notes payable and our existing debt. There can
be no assurance that we will be able to obtain additional financing on reasonable terms in the future, if at all, should the need
arise.
Share
repurchase
As
part of our capital allocation strategy, we buy back shares in the open market or through negotiated purchases, as authorized
by our Board of Directors. During fiscal years 2016, 2015 and 2014, we paid for treasury stock amounting to $7.3 million, $2.3
million and $1.2 million representing 747,081 shares, 225,280 shares and 101,330 shares, respectively. We have $4.2 million remaining
to purchase additional shares as of September 30, 2016.
For
additional details regarding our Board approved share repurchase plans, please refer to Item 5 – Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
IMPACT
OF INFLATION
We
have not experienced a material overall impact from inflation in our operations during the past several years. To the extent permitted
by competition, we have managed to recover increased costs through price increases and may continue to do so. However, there can
be no assurance that we will be able to do so in the future.
SEASONALITY
Our
nightclub operations are affected by seasonal factors. Historically, we have experienced reduced revenues from April through September
with the strongest operating results occurring during October through March.
GROWTH
STRATEGY
We
believe that our nightclub operations can continue to grow organically and through careful entry into markets and demographic
segments with high growth potential. Our growth strategy is: (i) to open new units after market analysis, (ii) to acquire existing
units in locations that are consistent with our growth and income targets and which appear receptive to our capital allocation
strategy (see discussion in Item 1 – Business), (iii) to form joint ventures or partnerships to reduce start-up and operating
costs, with us contributing equity in the form of our brand name and management expertise, (iv) to develop new club concepts that
are consistent with our management and marketing skills, and/or (v) to acquire real estate in connection with club operations,
although some units may be in leased premises.
Additionally,
we believe that our restaurants/sports bars can also grow organically and through careful entry into markets and demographic segments
with high growth potential. Our growth strategy is to diversify our operations with these units which do not require SOB licenses,
which are sometimes difficult to obtain. While we are searching for adult nightclubs to acquire, we are able to also search for
restaurant/sports bar locations that are consistent with our income targets.
We
also expect to develop our franchising business through Bombshells. In November 2016, we started to formally organize our franchising
department through the hiring of a new Vice President of Franchise and Development, who has vast experience in all aspects of
retail franchising. We target franchise Bombshell units to have average unit volumes of approximately $4.0 million.
During
fiscal 2016, we did not acquire any new club, restaurant or investment, in adherence to our capital allocation strategy. We acquired
land for $5.9 million for future Bombshells sites. In September 2016, we opened Hoops Cabaret and Sports Bar in New York City.
We
continue to evaluate opportunities to acquire new nightclubs and anticipate acquiring new locations that fit our business model
as we have done in the past. The acquisition of additional clubs may require us to obtain additional debt or issuance of our common
stock, or both. There can be no assurance that we will be able to obtain additional financing on reasonable terms in the future,
if at all, should the need arise. An inability to obtain such additional financing could have an adverse effect on our growth
strategy.
Item
8. Financial Statements and Supplementary Data.
The
information required by this Item begins on page 35.
RCI
HOSPITALITY HOLDINGS, INC.
CONSOLIDATED
FINANCIAL STATEMENTS
Table
of Contents
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
RCI
Hospitality Holdings, Inc.
We
have audited the accompanying consolidated balance sheets of RCI Hospitality Holdings, Inc. and subsidiaries (the “Company”),
as of September 30, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in stockholders’
equity, and cash flows for each of the years in the three-year period ended September 30, 2016. The Company’s management
is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of RCI Hospitality Holdings, Inc. and subsidiaries, as of September 30, 2016 and 2015, and the results of their operations and
their cash flows for each of the years in the three-year period ended September 30, 2016, in conformity with accounting principles
generally accepted in the United States of America.
We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s
internal control over financial reporting as of September 30, 2016, based on criteria established in
Internal Control—Integrated
Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated December
13, 2016, expressed an unqualified opinion.
/s/
Whitley Penn LLP
|
|
Dallas, Texas
|
|
December 13, 2016
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders
RCI
Hospitality Holdings, Inc.
We
have audited RCI Hospitality Holdings, Inc. and subsidiaries’ (the “Company”) internal control over financial
reporting as of September 30, 2016, based on criteria established in
Internal Control—Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying
Management’s Report on Internal Control Over Financial Reporting
.
Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
A
company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September
30, 2016, based on criteria established in
Internal Control—Integrated Framework (2013)
issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
balance sheets and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity
and cash flows of the Company, and our report dated December 13, 2016, expressed an unqualified opinion on those consolidated
financial statements.
/s/
Whitley Penn LLP
|
|
Dallas, Texas
|
|
December 13, 2016
|
|
RCI
HOSPITALITY HOLDINGS, INC.
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except per share data)
|
|
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,327
|
|
|
$
|
8,020
|
|
Marketable securities
|
|
|
-
|
|
|
|
614
|
|
Accounts receivable, net
|
|
|
4,365
|
|
|
|
2,154
|
|
Inventories
|
|
|
2,019
|
|
|
|
2,368
|
|
Prepaid expenses and other current assets
|
|
|
4,005
|
|
|
|
3,779
|
|
Assets held for sale
|
|
|
7,671
|
|
|
|
-
|
|
Total current assets
|
|
|
29,387
|
|
|
|
16,935
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
142,003
|
|
|
|
134,150
|
|
Notes receivable
|
|
|
4,800
|
|
|
|
-
|
|
Goodwill
|
|
|
45,921
|
|
|
|
52,641
|
|
Intangibles, net
|
|
|
52,189
|
|
|
|
60,997
|
|
Other
|
|
|
2,188
|
|
|
|
2,076
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
276,488
|
|
|
$
|
266,799
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,701
|
|
|
$
|
2,164
|
|
Accrued liabilities
|
|
|
12,806
|
|
|
|
10,990
|
|
Current portion of long-term debt
|
|
|
9,950
|
|
|
|
9,469
|
|
Total current liabilities
|
|
|
24,457
|
|
|
|
22,623
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability
|
|
|
25,470
|
|
|
|
28,087
|
|
Long-term debt
|
|
|
95,936
|
|
|
|
84,880
|
|
Other long-term liabilities
|
|
|
483
|
|
|
|
2,723
|
|
Total liabilities
|
|
|
146,346
|
|
|
|
138,313
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note
K)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.10 par, 1,000 shares
authorized; none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.01 par, 20,000 shares
authorized; 9,808 and 10,285 shares issued and outstanding, respectively
|
|
|
97
|
|
|
|
103
|
|
Additional paid-in capital
|
|
|
64,552
|
|
|
|
69,729
|
|
Retained earnings
|
|
|
62,909
|
|
|
|
52,682
|
|
Accumulated other comprehensive income
|
|
|
-
|
|
|
|
109
|
|
Total RCIHH stockholders’ equity
|
|
|
127,558
|
|
|
|
122,623
|
|
Noncontrolling interests
|
|
|
2,584
|
|
|
|
5,863
|
|
Total stockholders’ equity
|
|
|
130,142
|
|
|
|
128,486
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’
equity
|
|
$
|
276,488
|
|
|
$
|
266,799
|
|
See
accompanying notes to consolidated financial statements.
RCI
HOSPITALITY HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF INCOME
(in
thousands, except per share data)
|
|
Year
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of alcoholic beverages
|
|
$
|
57,216
|
|
|
$
|
55,829
|
|
|
$
|
47,893
|
|
Sales of food and merchandise
|
|
|
17,900
|
|
|
|
18,713
|
|
|
|
14,669
|
|
Service revenues
|
|
|
51,276
|
|
|
|
53,014
|
|
|
|
51,972
|
|
Other
|
|
|
8,468
|
|
|
|
7,893
|
|
|
|
6,898
|
|
Total revenues
|
|
|
134,860
|
|
|
|
135,449
|
|
|
|
121,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
20,546
|
|
|
|
20,317
|
|
|
|
16,426
|
|
Salaries and wages
|
|
|
37,457
|
|
|
|
37,732
|
|
|
|
32,557
|
|
Selling, general and administrative
|
|
|
43,075
|
|
|
|
43,598
|
|
|
|
40,989
|
|
Depreciation and amortization
|
|
|
7,173
|
|
|
|
6,894
|
|
|
|
6,316
|
|
Other charges, net
|
|
|
5,761
|
|
|
|
6,030
|
|
|
|
6,269
|
|
Total operating expenses
|
|
|
114,012
|
|
|
|
114,571
|
|
|
|
102,557
|
|
Income from operations
|
|
|
20,848
|
|
|
|
20,878
|
|
|
|
18,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
131
|
|
|
|
15
|
|
|
|
148
|
|
Interest expense
|
|
|
(7,982
|
)
|
|
|
(6,969
|
)
|
|
|
(7,752
|
)
|
Non-operating gains
|
|
|
-
|
|
|
|
229
|
|
|
|
5,642
|
|
Income before income taxes
|
|
|
12,997
|
|
|
|
14,153
|
|
|
|
16,913
|
|
Income tax expense
|
|
|
2,657
|
|
|
|
5,164
|
|
|
|
5,916
|
|
Net income
|
|
|
10,340
|
|
|
|
8,989
|
|
|
|
10,997
|
|
Net loss attributable to noncontrolling
interests
|
|
|
749
|
|
|
|
323
|
|
|
|
243
|
|
Net income attributable to RCIHH common
shareholders
|
|
$
|
11,089
|
|
|
$
|
9,312
|
|
|
$
|
11,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to RCIHH
common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.12
|
|
|
$
|
0.90
|
|
|
$
|
1.15
|
|
Diluted
|
|
$
|
1.10
|
|
|
$
|
0.90
|
|
|
$
|
1.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,941
|
|
|
|
10,359
|
|
|
|
9,816
|
|
Diluted
|
|
|
10,229
|
|
|
|
10,406
|
|
|
|
10,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share
|
|
$
|
0.09
|
|
|
$
|
-
|
|
|
$
|
-
|
|
See
accompanying notes to consolidated financial statements.
RCI
HOSPITALITY HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
(in
thousands)
|
|
Year
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,340
|
|
|
$
|
8,989
|
|
|
$
|
10,997
|
|
Amounts reclassified from accumulated
other comprehensive income
|
|
|
(109
|
)
|
|
|
-
|
|
|
|
-
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain on securities
available for sale
|
|
|
-
|
|
|
|
18
|
|
|
|
41
|
|
Comprehensive income
|
|
|
10,231
|
|
|
|
9,007
|
|
|
|
11,038
|
|
Less comprehensive loss attributable
to noncontrolling interests
|
|
|
749
|
|
|
|
323
|
|
|
|
243
|
|
Comprehensive income to common stockholders
|
|
$
|
10,980
|
|
|
$
|
9,330
|
|
|
$
|
11,281
|
|
See
accompanying notes to consolidated financial statements.
RCI
HOSPITALITY HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Years
Ended September 30, 2016, 2015 and 2014
(in
thousands)
|
|
Common
Stock
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Treasury
Stock
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Additional
Paid-In
Capital
|
|
|
Other Comprehensive
Income(Loss)
|
|
|
Retained
Earnings
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Noncontrolling
Interests
|
|
|
Total
Stockholders’
Equity
|
|
Balance at September 30, 2013
|
|
|
9,504
|
|
|
$
|
95
|
|
|
$
|
61,506
|
|
|
$
|
50
|
|
|
$
|
32,130
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
3,334
|
|
|
$
|
97,115
|
|
Purchase of treasury shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(101
|
)
|
|
|
(1,150
|
)
|
|
|
-
|
|
|
|
(1,150
|
)
|
Cancelled treasury shares
|
|
|
(101
|
)
|
|
|
(1
|
)
|
|
|
(1,149
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
101
|
|
|
|
1,150
|
|
|
|
-
|
|
|
|
-
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
282
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
282
|
|
Stock options exercised
|
|
|
370
|
|
|
|
4
|
|
|
|
3,122
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,126
|
|
Common stock issued for debt and interest
|
|
|
294
|
|
|
|
3
|
|
|
|
2,966
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,969
|
|
Noncontrolling interest at acquisition
of business
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
135
|
|
|
|
135
|
|
Payments to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(216
|
)
|
|
|
(216
|
)
|
Change in marketable securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,240
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(243
|
)
|
|
|
10,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2014
|
|
|
10,067
|
|
|
|
101
|
|
|
|
66,727
|
|
|
|
91
|
|
|
|
43,370
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,010
|
|
|
|
113,299
|
|
Purchase of treasury shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(225
|
)
|
|
|
(2,296
|
)
|
|
|
-
|
|
|
|
(2,296
|
)
|
Cancelled treasury shares
|
|
|
(225
|
)
|
|
|
(2
|
)
|
|
|
(2,294
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
225
|
|
|
|
2,296
|
|
|
|
-
|
|
|
|
-
|
|
Stock options exercised
|
|
|
10
|
|
|
|
-
|
|
|
|
87
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87
|
|
Common stock issued for acquisition
|
|
|
200
|
|
|
|
2
|
|
|
|
2,373
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,375
|
|
Common stock issued for debt and interest
|
|
|
233
|
|
|
|
2
|
|
|
|
2,356
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,358
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
480
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
480
|
|
Payments to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(216
|
)
|
|
|
(216
|
)
|
Noncontrolling interests at acquisition
of business
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,392
|
|
|
|
3,392
|
|
Change in marketable securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18
|
|
Net income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,312
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(323
|
)
|
|
|
8,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2015
|
|
|
10,285
|
|
|
|
103
|
|
|
|
69,729
|
|
|
|
109
|
|
|
|
52,682
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,863
|
|
|
|
128,486
|
|
Purchase of treasury shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(747
|
)
|
|
|
(7,311
|
)
|
|
|
-
|
|
|
|
(7,311
|
)
|
Cancelled treasury shares
|
|
|
(747
|
)
|
|
|
(8
|
)
|
|
|
(7,303
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
747
|
|
|
|
7,311
|
|
|
|
-
|
|
|
|
-
|
|
Restricted stock vesting
|
|
|
96
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common stock issued for debt and interest
|
|
|
125
|
|
|
|
1
|
|
|
|
1,267
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,268
|
|
Warrants exercised
|
|
|
49
|
|
|
|
-
|
|
|
|
500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
500
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
360
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
360
|
|
Payment of dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(862
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(862
|
)
|
Payments to noncontrolling interests
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(217
|
)
|
|
|
(217
|
)
|
Sale of controlling interest in subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,313
|
)
|
|
|
(2,313
|
)
|
Change in marketable securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(109
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(109
|
)
|
Net income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,089
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(749
|
)
|
|
|
10,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2016
|
|
|
9,808
|
|
|
$
|
97
|
|
|
$
|
64,552
|
|
|
$
|
-
|
|
|
$
|
62,909
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
2,584
|
|
|
$
|
130,142
|
|
See
accompanying notes to consolidated financial statements.
RCI
HOSPITALITY HOLDINGS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
Years
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,340
|
|
|
$
|
8,989
|
|
|
$
|
10,997
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
7,173
|
|
|
|
6,894
|
|
|
|
6,316
|
|
Deferred taxes
|
|
|
1,427
|
|
|
|
3,935
|
|
|
|
937
|
|
Loss (gain) on sale of property
|
|
|
(437
|
)
|
|
|
808
|
|
|
|
279
|
|
Gain on contractual debt reduction
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,642
|
)
|
Impairment of assets
|
|
|
4,317
|
|
|
|
1,705
|
|
|
|
2,294
|
|
Amortization of note discount and beneficial
conversion
|
|
|
455
|
|
|
|
36
|
|
|
|
87
|
|
Gain from acquisition of controlling interest
in subsidiary
|
|
|
-
|
|
|
|
(229
|
)
|
|
|
-
|
|
Gain on settlement of patron tax
|
|
|
-
|
|
|
|
(8,167
|
)
|
|
|
-
|
|
Gain on sale of marketable securities
|
|
|
(116
|
)
|
|
|
-
|
|
|
|
-
|
|
Deferred rents
|
|
|
15
|
|
|
|
(38
|
)
|
|
|
(15
|
)
|
Stock compensation expense
|
|
|
360
|
|
|
|
480
|
|
|
|
282
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,986
|
)
|
|
|
(339
|
)
|
|
|
(36
|
)
|
Inventories
|
|
|
(124
|
)
|
|
|
54
|
|
|
|
(407
|
)
|
Prepaid expenses
and other assets
|
|
|
(18
|
)
|
|
|
852
|
|
|
|
(2,256
|
)
|
Accounts payable
and accrued liabilities
|
|
|
3,625
|
|
|
|
1,384
|
|
|
|
7,599
|
|
Net cash provided by operating activities
|
|
|
23,031
|
|
|
|
16,364
|
|
|
|
20,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of property
|
|
|
3,427
|
|
|
|
-
|
|
|
|
438
|
|
Proceeds from sale marketable securities
|
|
|
621
|
|
|
|
-
|
|
|
|
-
|
|
Acquisition of development rights in New York
building
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,325
|
)
|
Additions to property and equipment
|
|
|
(28,148
|
)
|
|
|
(19,259
|
)
|
|
|
(16,034
|
)
|
Acquisition of businesses, net of cash acquired
|
|
|
-
|
|
|
|
(2,328
|
)
|
|
|
(500
|
)
|
Net cash used in investing activities
|
|
|
(24,100
|
)
|
|
|
(21,587
|
)
|
|
|
(21,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
32,049
|
|
|
|
18,283
|
|
|
|
7,025
|
|
Exercise of stock options and warrants
|
|
|
500
|
|
|
|
87
|
|
|
|
3,126
|
|
Payments on long-term debt
|
|
|
(19,159
|
)
|
|
|
(12,579
|
)
|
|
|
(8,473
|
)
|
Purchase of treasury stock
|
|
|
(7,311
|
)
|
|
|
(2,296
|
)
|
|
|
(1,150
|
)
|
Payment of dividends
|
|
|
(862
|
)
|
|
|
-
|
|
|
|
-
|
|
Payment of loan origination costs
|
|
|
(624
|
)
|
|
|
-
|
|
|
|
-
|
|
Distribution to noncontrolling interests
|
|
|
(217
|
)
|
|
|
(216
|
)
|
|
|
(216
|
)
|
Net cash provided by financing activities
|
|
|
4,376
|
|
|
|
3,279
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
3,307
|
|
|
|
(1,944
|
)
|
|
|
(674
|
)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
8,020
|
|
|
|
9,964
|
|
|
|
10,638
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
11,327
|
|
|
$
|
8,020
|
|
|
$
|
9,964
|
|
CASH PAID DURING PERIOD FOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
7,719
|
|
|
|
6,540
|
|
|
|
7,315
|
|
Income taxes
|
|
$
|
1,914
|
|
|
|
3,776
|
|
|
|
3,953
|
|
Non-cash
transactions:
|
|
Years
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Issue of shares of common stock for debt and
interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
|
125
|
|
|
|
233
|
|
|
|
294
|
|
Value of shares
|
|
$
|
1,268
|
|
|
$
|
2,358
|
|
|
$
|
2,969
|
|
Debt incurred with seller in connection with
acquisition of businesses and property and equipment
|
|
$
|
-
|
|
|
$
|
3,379
|
|
|
$
|
4,879
|
|
Notes receivable received as
proceeds from sale of assets
|
|
$
|
4,800
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Reduction of debt in sale of aircraft and property
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,128
|
|
Accrued liabilities due settled with debt
|
|
$
|
-
|
|
|
|
7,234
|
|
|
$
|
-
|
|
Unrealized gain on marketable securities
|
|
$
|
-
|
|
|
$
|
18
|
|
|
$
|
41
|
|
Issue of shares of common stock for acquiring
a business
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
-
|
|
|
|
200
|
|
|
|
-
|
|
Value of shares
|
|
$
|
-
|
|
|
$
|
2,375
|
|
|
$
|
-
|
|
See
accompanying notes to consolidated financial statements.
A.
Nature of Business
RCI
Hospitality Holdings, Inc. (the “Company”) is a Texas corporation incorporated in 1994. Through its subsidiaries,
the Company currently owns and operates establishments that offer live adult entertainment, restaurant, and/or bar operations.
These establishments are located in Houston, Austin, San Antonio, Dallas, Fort Worth, Odessa, Lubbock, Longview, Tye, Edinburg,
El Paso, Harlingen, Lubbock and Beaumont, Texas, as well as Minneapolis, Minnesota; Philadelphia, Pennsylvania; Charlotte, North
Carolina; New York, New York; Miami Gardens, Florida; Phoenix, Arizona; and Sulphur, Louisiana. The Company also owns and operates
media businesses for adults. The Company’s corporate offices are located in Houston, Texas.
B.
Summary of Significant Accounting Policies
Basis
of Accounting
The
accounts are maintained and the consolidated financial statements have been prepared using the accrual basis of accounting in
accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its subsidiaries in which a controlling interest is
owned. Intercompany accounts and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions
that affect certain reported amounts in the consolidated financial statements and accompanying notes. Estimates and assumptions
are based on historical experience, forecasted future events and various other assumptions that we believe to be reasonable under
the circumstances. Estimates and assumptions may vary under different circumstances and conditions. We evaluate our estimates
and assumptions on an ongoing basis. We believe the accounting policies below are critical in the portrayal of our financial condition
and results of operations.
Cash
and Cash Equivalents
The
Company considers as cash equivalents all highly liquid investments with a maturity of three months or less when purchased. The
Company maintains deposits in several financial institutions, which may at times exceed amounts covered by insurance provided
by the U.S. Federal Deposit Insurance Corporation (“FDIC”). The Company has not experienced any losses related to
amounts in excess of FDIC limits.
Accounts
and Notes Receivable
Accounts
receivable for the nightclub operation is primarily comprised of credit card charges, which are generally converted to cash in
two to five days after a purchase is made. The media division’s accounts receivable is primarily comprised of receivables
for advertising sales and Expo registration. Accounts receivable also include employee advances and other miscellaneous receivables.
Long-term notes receivable include consideration from the sale of certain investment interest entities and real estate. The Company
recognizes interest income on notes receivable based on the terms of the agreement and based upon management’s evaluation
that the notes receivable and interest income will be collected. The Company recognizes allowances for doubtful accounts or notes
when, based on management judgment, circumstances indicate that accounts or notes receivable will not be collected.
B.
Summary of Significant Accounting Policies - continued
Inventories
Inventories
include alcoholic beverages, energy drinks, food, and Company merchandise. Inventories are carried at the lower of cost (on a
first-in, first-out (“FIFO”) basis), or market.
Property
and Equipment
Property
and equipment are stated at cost. Provisions for depreciation and amortization are made using straight-line rates over the estimated
useful lives of the related assets, and the shorter of useful lives or terms of the applicable leases for leasehold improvements.
Buildings have estimated useful lives ranging from 29 to 40 years. Furniture, equipment and leasehold improvements have estimated
useful lives between 5 and 40 years. Expenditures for major renewals and betterments that extend the useful lives are capitalized.
Expenditures for normal maintenance and repairs are expensed as incurred. The cost of assets sold, retired or abandoned and the
related accumulated depreciation are eliminated from the accounts and any gains or losses are charged or credited in the accompanying
consolidated statement of income of the respective period.
Goodwill
and Intangible Assets
Goodwill
and intangible assets with indefinite lives are not amortized, but reviewed on an annual basis for impairment. Definite-lived
intangible assets are amortized on a straight-line basis over their estimated lives.
The
costs of purchasing transferable licenses through open markets are capitalized as indefinite-lived intangible assets. The costs
of obtaining non-transferable licenses that are directly issued by local government agencies are expensed as incurred. Annual
license renewal fees are expensed over their renewal term.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets, such as property, plant, and equipment, and purchased intangible assets subject to amortization,
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the
asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount
or fair value less costs to sell, and are no longer depreciated. For assets held for sale or disposal, we measure fair value using
an estimation of net realizable value. The assets and liabilities of a disposal group classified as held for sale would be presented
separately in the appropriate asset and liability sections of the balance sheet. The Company impaired one property held for sale
by $1.4 million based on estimated realizable value less costs to sell.
Goodwill
and intangible assets that have indefinite useful lives are tested annually for impairment, and are tested for impairment more
frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent
that the carrying amount exceeds the asset’s fair value.
For
goodwill, the impairment determination is made at the reporting unit level. The implied fair value of goodwill is determined by
allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after
this allocation is the implied fair value of the reporting unit goodwill. The Company’s annual evaluation for goodwill and
indefinite-lived intangible assets was performed as of September 30, 2016. The Company recognized intangible asset impairments
in the years ended September 30, 2016, 2015 and 2014 related to specific reporting units. See Note P - Impairment of Assets. All
of the Company’s goodwill and intangible assets relate to the nightclubs segment, except for $567,000 related to the acquisition
of the media division. Definite-lived intangible assets are amortized on a straight-line basis over their estimated lives. Fully
amortized assets are written-off against accumulated amortization.
B.
Summary of Significant Accounting Policies - continued
Fair
Value of Financial Instruments
The
Company calculates the fair value of its assets and liabilities which qualify as financial instruments and includes this additional
information in the notes to consolidated financial statements when the fair value is different than the carrying value of these
financial instruments. The estimated fair value of accounts receivable, accounts payable and accrued liabilities approximate their
carrying amounts due to the relatively short maturity of these instruments. The carrying value of notes receivable and short and
long-term debt also approximates fair value since these instruments bear market rates of interest. None of these instruments are
held for trading purposes.
Comprehensive
Income
Comprehensive
income is the total of net income or loss and all other changes in net assets arising from non-owner sources, which are referred
to as items of other comprehensive income. An analysis of changes in components of accumulated other comprehensive income is presented
in the consolidated statements of comprehensive income.
Revenue
Recognition
The
Company recognizes revenue from the sale of alcoholic beverages, food and merchandise, other revenues and services at the point-of-sale
upon receipt of cash, check, or credit card charge, net of discounts and promotional allowances. Sales and liquor taxes collected
from customers and remitted to governmental authorities are presented on a net basis in the accompanying consolidated statements
of income.
Revenues
from the sale of magazines and advertising content are recognized when the issue is published and shipped. Revenues and external
expenses related to the Company’s annual Expo convention are recognized upon the completion of the convention. Other rental
revenues are recognized when earned.
Advertising
and Marketing
Advertising
and marketing expenses are primarily comprised of costs related to public advertisements and giveaways, which are used for promotional
purposes. Advertising and marketing expenses are expensed as incurred and are included in operating expenses in the accompanying
consolidated statements of income.
Income
Taxes
Deferred
income taxes are determined using the liability method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In addition,
a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not
that some portion of the deferred tax asset will not be realized.
US
GAAP creates a single model to address accounting for uncertainty in tax positions by prescribing a minimum recognition threshold
a tax position is required to meet before being recognized in the financial statements. There are no unrecognized tax benefits
to disclose in the notes to the consolidated financial statements.
B.
Summary of Significant Accounting Policies - continued
Investments
Investments
in companies in which the company has a 20% to 50% interest are accounted for using the equity method, which are carried at cost
and adjusted for the Company’s proportionate share of their undistributed earnings or losses. Investments in companies in
which the Company owns less than a 20% interest, or where the Company does not exercise significant influence, are accounted for
at cost and reviewed for any impairment. Cost and equity method investments are included in other assets in the Company’s
consolidated balance sheets. During the year ended September 30, 2013, the Company acquired approximately 12% of Drink Robust,
Inc. (“Robust”) for $600,000. This investment was increased to 15% during the year ended September 30, 2014, and to
51% in October 2014, at which time the subsidiary became part of the consolidated group. The Company sold 31% of this company
on September 29, 2016, retaining 20% (see additional discussion in Note N – Acquisitions and Dispositions). Because the
Company has no ability to direct the management of the investee company or exert significant influence, the investment is being
accounted for at cost beginning on the date of sale. The carrying value of the cost-method investment was $1.2 million as of September
30, 2016.
Earnings
Per Common Share
Basic
earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that
could share in the earnings of the Company. Potential common stock shares consist of shares that may arise from outstanding dilutive
common restricted stock, stock options and warrants (the number of which is computed using the “treasury stock method”)
and from outstanding convertible debentures (the number of which is computed using the “if converted method”). Diluted
earnings per share (“EPS”) considers the potential dilution that could occur if the Company’s outstanding common
restricted stock, stock options, warrants and convertible debentures were converted into common stock that then shared in the
Company’s earnings or losses (as adjusted for interest expense, that would no longer occur if the debentures were converted).
Net
earnings applicable to common stock and the weighted average number of shares used for basic and diluted earnings (loss) per share
computations are summarized in the table that follows (in thousands, except per share data):
|
|
FOR
THE YEAR ENDED
|
|
|
|
SEPTEMBER
30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Basic earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
RCIHH shareholders
|
|
$
|
11,089
|
|
|
$
|
9,312
|
|
|
$
|
11,240
|
|
Average number of common shares outstanding
|
|
|
9,941
|
|
|
|
10,359
|
|
|
|
9,816
|
|
Basic earnings (loss) per share
|
|
$
|
1.12
|
|
|
$
|
0.90
|
|
|
$
|
1.15
|
|
Diluted earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to RCIHH shareholders
|
|
$
|
11,089
|
|
|
$
|
9,312
|
|
|
$
|
11,240
|
|
Adjustment to net earnings from assumed conversion
of debentures (1)
|
|
|
153
|
|
|
|
29
|
|
|
|
821
|
|
Adjusted net income attributable to RCIHH shareholders
|
|
|
11,242
|
|
|
|
9,341
|
|
|
|
12,061
|
|
Average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding
|
|
|
9,941
|
|
|
|
10,359
|
|
|
|
9,816
|
|
Effect of potentially dilutive restricted
stock, warrants and options (2)
|
|
|
60
|
|
|
|
-
|
|
|
|
9
|
|
Effect of potentially dilutive convertible
debentures (1)
|
|
|
228
|
|
|
|
47
|
|
|
|
812
|
|
Total average number of common shares outstanding
used for dilution
|
|
|
10,229
|
|
|
|
10,406
|
|
|
|
10,637
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to RCIHH shareholders
|
|
$
|
1.10
|
|
|
$
|
0.90
|
|
|
$
|
1.13
|
|
*EPS
may not foot due to rounding.
B.
Summary of Significant Accounting Policies - continued
(1)
Represents interest expense on dilutive convertible securities that would not occur if they were assumed converted.
(2)
All outstanding warrants and options were considered for the EPS computation.
Additional
shares for options, warrants and debentures amounting to 72,400, 353,400 and 234,189 for the year ended September 30, 2016, 2015
and 2014 were not considered since they would be antidilutive.
Convertible
debentures (principal and accrued interest) outstanding at September 30, 2016, 2015 and 2014 totaling $0.5 million, $4.6 million
and, $9.3 million, respectively, were convertible into common stock at prices ranging from $10.00 to $12.50 in each year. Convertible
debentures amounting to $0.5 million, $0.5 million, $9.3 million were dilutive in 2016, 2015 and 2014, respectively.
Stock
Options
At
September 30, 2016, the Company has no stock options outstanding. The Company recognizes all employee stock-based compensation
as a cost in the consolidated financial statements. Equity-classified awards are measured at the grant date fair value of the
award and recognized as expense over their vesting period. The Company estimates grant date fair value using the Black-Scholes
option-pricing model. The critical estimates are volatility, expected life and risk-free rate.
Legal
and Other Contingencies
The
Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. There is
significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated.
In the opinion of management, there was not at least a reasonable possibility that we may have incurred a material loss, or a
material loss in excess of a recorded accrual, with respect to loss contingencies for asserted legal and other claims. The Company
recognizes legal fees and expenses, including those related to legal contingencies, as incurred.
Generally,
the Company recognizes gain contingencies when they are realized or when all related contingencies have been resolved.
Fair
Value Accounting
The
Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to
the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset
or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements,
the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the
following levels.
US
GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring
fair value:
|
●
|
Level
1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
|
|
●
|
Level
2 – Include other inputs that are directly or indirectly observable in the marketplace.
|
|
|
|
|
●
|
Level
3 – Unobservable inputs which are supported by little or no market activity.
|
The
fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value.
B.
Summary of Significant Accounting Policies - continued
We
classify our marketable securities as available-for-sale, which are reported at fair value. Unrealized holding gains and losses,
net of the related income tax effect, if any, on available-for-sale securities are excluded from income and are reported as accumulated
other comprehensive income in stockholders’ equity. Realized gains and losses from securities classified as available for-sale
are included in comprehensive income. We measure the fair value of our marketable securities based on quoted prices for identical
securities in active markets, or Level 1 inputs. Available-for-sale securities had zero balance as of September 30, 2016. As of
September 30, 2015, available-for-sale securities consisted of the following (in thousands):
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Cost
|
|
|
Unrealized
|
|
|
Fair
|
|
Available
for Sale
|
|
Basis
|
|
|
Gains
|
|
|
Value
|
|
Tax-Advantaged Bond Fund
|
|
$
|
505
|
|
|
$
|
109
|
|
|
$
|
614
|
|
In
accordance with US GAAP, we review our marketable securities to determine whether a decline in fair value of a security below
the cost basis is other than temporary. Should the decline be considered other than temporary, we write down the cost basis of
the security and include the loss in current earnings as opposed to an unrealized holding loss. No losses for other than temporary
impairments in our marketable securities portfolio were recognized during the years ended September 30, 2016 and 2015.
Financial
assets and liabilities measured at fair value on a recurring basis are summarized below:
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
September
30, 2015
|
|
Amount
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Marketable securities
|
|
$
|
614
|
|
|
$
|
614
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Assets
and Liabilities that are Measured at Fair Value on a Nonrecurring Basis
Assets
and liabilities that are measured at fair value on a nonrecurring basis relate primarily to tangible fixed assets, goodwill and
other intangible assets, which are remeasured when the derived fair value is below carrying value in the consolidated balance
sheets. For these assets, the Company does not periodically adjust carrying value to fair value except in the event of impairment.
If it is determined that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference
is recorded within income before interest, other income (expense) and income taxes in the consolidated statements of income (in
thousands).
|
|
|
|
|
Fair
Value at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
September 30
|
|
|
Identical Asset
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
2016
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Goodwill
|
|
$
|
45,921
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
45,921
|
|
Property and equipment, net (including
assets held for sale of $7,671)
|
|
|
149,674
|
|
|
|
-
|
|
|
|
-
|
|
|
|
149,674
|
|
Indefinite-lived intangibles
|
|
|
51,775
|
|
|
|
-
|
|
|
|
-
|
|
|
|
51,775
|
|
Definite-lived intangibles, net
|
|
|
414
|
|
|
|
-
|
|
|
|
-
|
|
|
|
414
|
|
|
|
|
|
|
Fair
Value at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
September 30
|
|
|
Identical Asset
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
2015
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Goodwill
|
|
$
|
52,641
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
52,641
|
|
Property and equipment, net
|
|
|
134,150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
134,150
|
|
Indefinite-lived intangibles
|
|
|
55,828
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,828
|
|
Definite-lived intangibles, net
|
|
|
5,169
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,169
|
|
B.
Summary of Significant Accounting Policies - continued
|
|
Total
Gains (Losses)
|
|
(in
thousands)
|
|
Years
Ended September 30,
|
|
Description
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Goodwill
|
|
$
|
(6,720
|
)
|
|
$
|
-
|
|
|
$
|
(613
|
)
|
Property and equipment, net (including assets
held for sale)
|
|
|
(1,400
|
)
|
|
|
-
|
|
|
|
-
|
|
Indefinite-lived intangibles
|
|
|
(4,053
|
)
|
|
|
(1,654
|
)
|
|
|
(1,263
|
)
|
Definite-lived intangibles, net
|
|
|
(4,003
|
)
|
|
|
-
|
|
|
|
-
|
|
Impact
of Recently Issued Accounting Standards
In
May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers
(“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle
of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects
the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process
to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process
than are required under existing GAAP. The standard’s effective date has been deferred by the issuance of ASU No. 2015-14,
and is effective for annual periods beginning after December 15, 2017, and interim periods therein. The guidance permits using
either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each
prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative
effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures).
Early application is permitted but not before December 15, 2016, the ASU’s original effective date. The Company is currently
evaluating the impact of its pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined
the method by which it will adopt the standard in fiscal year 2019.
In
April 2015, the FASB issued ASU 2015-03,
Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation
of Debt Issuance Costs
. The new standard requires that all costs incurred to issue debt be presented in the balance sheet
as a direct deduction from the carrying value of the debt. The standard is effective for interim and annual periods beginning
after December 31, 2015 and is required to be applied on a retrospective basis. We adopted the guidance as of October 1, 2015.
We reclassified $340,000 of debt issuance costs related to certain long-term debt from other asset to reduce the carrying value
of long-term debt as of September 30, 2015 to conform to current financial statement presentation.
In
February 2015, the FASB issued ASU No. 2015-02, which amends FASB ASU Topic 810,
Consolidations
. This ASU amends the current
consolidation guidance, including introducing a separate consolidation analysis specific to limited partnerships and other similar
entities. This ASU requires that limited partnerships and similar legal entities provide partners with either substantive kick-out
rights or substantive participating rights over the general partner in order to be considered a voting interest entity. The specialized
consolidation model and guidance for limited partnerships and similar legal entities have been eliminated. There is no longer
a presumption that a general partner should consolidate a limited partnership. For limited partnerships and similar legal entities
that qualify as voting interest entities, a limited partner with a controlling financial interest should consolidate a limited
partnership. A controlling financial interest may be achieved through holding a limited partner interest that provides substantive
kick-out rights. The standard is effective for annual periods beginning after December 15, 2015. The Company is currently evaluating
the standard, but does not, at this time, anticipate a material impact to the financial statements and footnote disclosures once
implemented.
B.
Summary of Significant Accounting Policies - continued
In
July 2015, the FASB issued ASU No. 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory
. This ASU does
not apply to inventory that is measured using last-in, first-out (“LIFO”) or the retail inventory method. The amendments
apply to all other inventory, which includes inventory that is measured using FIFO or average cost. This ASU eliminates from U.S.
GAAP the requirement to measure inventory at the lower of cost or market. Market under the previous requirement could be replacement
cost, net realizable value, or net realizable value less an approximately normal profit margin. Entities within scope of this
update will now be required to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated
selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
Subsequent measurement is unchanged for inventory using LIFO or the retail inventory method. The amendments in this update are
effective for fiscal years beginning after December 15, 2016, with early adoption permitted, and should be applied prospectively.
The adoption of this guidance by the Company is not expected to have a material impact on its consolidated financial statements.
In
September 2015, the FASB issued ASU No. 2015-16,
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period
Adjustments
. The ASU requires an acquirer to recognize adjustments to provisional amounts that are identified during the measurement
period in the reporting period in which the adjustment amounts are determined. Acquirers must recognize, in the same reporting
period, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change
to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. This ASU is effective
for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The adoption of this
guidance by the Company is not expected to have a material impact on its consolidated financial statements.
In
November 2015, the FASB issued ASU No. 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
.
The ASU requires entities to classify deferred tax liabilities and assets as noncurrent in a classified statement of financial
position. This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods.
Early adoption is permitted for all entities as of the beginning of an interim or annual reporting period. We early adopted this
guidance as of October 1, 2015. Our adoption of this guidance did not have a material impact on our consolidated financial statements.
We reclassified $3.4 million of current deferred tax assets from current assets to reduce the carrying value of noncurrent deferred
tax liability as of September 30, 2015 to conform to current financial statement presentation.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, on accounting for leases which requires lessees to
recognize most leases on their balance sheets for the rights and obligations created by those leases. The guidance requires enhanced
disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases, and will be effective for interim
and annual periods beginning after December 15, 2018. Early adoption is permitted. The guidance requires the use of a modified
retrospective approach. We are evaluating the impact of the guidance on our consolidated financial position, results of operations
and related disclosures.
In
March 2016, the FASB issued amended guidance ASU No. 2016-09,
Compensation–Stock Compensation (Topic 718): Improvement
to Employee Share-Based Payment Accounting
. The guidance requires all income tax effects of awards to be recognized in the
income statement on a prospective basis. The guidance also requires presentation of excess tax benefits as an operating activity
on the statement of cash flows rather than as a financing activity, and can be applied retrospectively or prospectively. The guidance
increases the amount companies can withhold to pay income taxes on awards without triggering liability classification for shares
used to satisfy statutory income tax withholding obligations, and requires application of a modified retrospective transition
method. The amended guidance will be effective for interim and annual periods beginning after December 15, 2016; early adoption
is permitted if all provisions are adopted in the same period. We are evaluating the impact of the amended guidance on our consolidated
financial position, results of operations and related disclosures.
B.
Summary of Significant Accounting Policies - continued
In
August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments (a consensus of the Emerging Issues Task Force)
. The ASU intends to reduce diversity in practice on how
the following cash activities are presented in the statement of cash flows: (1) debt prepayment or debt extinguishment costs;
(2) settlement of zero-coupon debt instruments; (3) contingent considerations payments made after a business combination; (4)
proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate and bank-owned life insurance
policies; (6) distributions received from equity method investments; and (7) beneficial interests in securitization transactions.
The guidance also describes a predominance principle in which cash flows with aspects of more than one class that cannot be separated
should be classified based on the activity that is likely to be the predominant source or use of cash flow. The guidance is effective
for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted,
provided that all of the amendments are adopted in the same period, and must be applied using a retrospective transition method.
We are evaluating the impact of the guidance on our consolidated financial position, results of operations and related disclosures.
C.
Change in Accounting Policy
In
prior years, the Company had included sales taxes and other revenue-related taxes that are collected on behalf of third parties
in both revenues and expenses. Due to a change in accounting policy as of October 1, 2015, the Company has reported revenues for
2016 net of these taxes in the accompanying statements of income, with a consequent reduction in taxes and permits expense. Reporting
revenues at net of taxes collected from customers and remitted to governmental authorities reflect the cash expected to be realized
in the revenue transaction. The Company reclassified sales and other revenue-related taxes amounting to $9.2 million and $7.7
million for 2015 and 2014, respectively, as a reduction to both total revenues and taxes and permits to conform to current financial
statement presentation.
D.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current year financial statement presentation.
E.
Selected Account Information
The
components of accrued liabilities are as follows (in thousands):
|
|
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
Lawsuit settlements
|
|
$
|
2,704
|
|
|
$
|
2,328
|
|
Insurance
|
|
|
2,303
|
|
|
|
2,278
|
|
Patron tax
|
|
|
1,559
|
|
|
|
1,364
|
|
Payroll and related costs
|
|
|
1,506
|
|
|
|
1,616
|
|
Property taxes
|
|
|
1,017
|
|
|
|
1,273
|
|
Sales and liquor taxes
|
|
|
889
|
|
|
|
828
|
|
Unearned revenues
|
|
|
256
|
|
|
|
168
|
|
Other
|
|
|
2,572
|
|
|
|
1,135
|
|
|
|
$
|
12,806
|
|
|
$
|
10,990
|
|
E.
Selected Account Information - continued
The
components of selling, general and administrative expenses are as follows (in thousands):
|
|
Years
Ended September 30,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Taxes and permits
|
|
$
|
8,089
|
|
|
$
|
8,031
|
|
|
$
|
8,222
|
|
Advertising and marketing
|
|
|
5,374
|
|
|
|
5,610
|
|
|
|
5,578
|
|
Supplies
|
|
|
4,815
|
|
|
|
4,726
|
|
|
|
4,023
|
|
Legal and professional
|
|
|
4,483
|
|
|
|
4,581
|
|
|
|
3,416
|
|
Insurance
|
|
|
3,575
|
|
|
|
3,364
|
|
|
|
3,994
|
|
Rent
|
|
|
3,278
|
|
|
|
4,526
|
|
|
|
4,804
|
|
Utilities
|
|
|
2,871
|
|
|
|
2,999
|
|
|
|
2,684
|
|
Charge cards fees
|
|
|
2,252
|
|
|
|
2,176
|
|
|
|
1,790
|
|
Repairs and maintenance
|
|
|
2,088
|
|
|
|
1,916
|
|
|
|
1,719
|
|
Security
|
|
|
2,042
|
|
|
|
1,905
|
|
|
|
1,641
|
|
Other
|
|
|
4,208
|
|
|
|
3,764
|
|
|
|
3,118
|
|
|
|
$
|
43,075
|
|
|
$
|
43,598
|
|
|
$
|
40,989
|
|
The
components of other charges, net are as follows (in thousands):
|
|
Years
Ended September 30,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Impairment of assets
|
|
$
|
4,317
|
|
|
$
|
1,705
|
|
|
$
|
2,294
|
|
Settlement of lawsuits and other one-time
costs
|
|
|
1,881
|
|
|
|
11,684
|
|
|
|
3,696
|
|
Loss (gain) on sale of assets
|
|
|
(437
|
)
|
|
|
808
|
|
|
|
279
|
|
Gain on settlement
of patron tax
|
|
|
-
|
|
|
|
(8,167
|
)
|
|
|
-
|
|
|
|
$
|
5,761
|
|
|
$
|
6,030
|
|
|
$
|
6,269
|
|
F.
Property and Equipment
Property
and equipment consisted of the following (in thousands):
|
|
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
Buildings and land
|
|
$
|
121,645
|
|
|
$
|
108,967
|
|
Equipment
|
|
|
27,218
|
|
|
|
26,239
|
|
Leasehold improvements
|
|
|
24,942
|
|
|
|
28,273
|
|
Furniture
|
|
|
8,009
|
|
|
|
7,596
|
|
Total property and equipment
|
|
|
181,814
|
|
|
|
171,075
|
|
Less accumulated
depreciation
|
|
|
(39,811
|
)
|
|
|
(36,925
|
)
|
|
|
|
|
|
|
|
|
|
Property and
equipment, net
|
|
$
|
142,003
|
|
|
$
|
134,150
|
|
During
the year ended September 30, 2016, Company management has approved the sale of seven properties. The aggregate fair value of these
properties has been reclassified as assets held for sale amounting to $7.7 million, and are included as current assets in the
Company’s consolidated balance sheets as of September 30, 2016. The assets held for sale consist principally of land and
buildings.
G.
Goodwill and Intangible Assets
Goodwill
and intangible assets consisted of the following (in thousands):
|
|
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
Indefinite useful lives:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
45,921
|
|
|
$
|
52,641
|
|
Licenses
|
|
|
51,775
|
|
|
|
55,828
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
|
|
|
|
|
Definite useful lives:
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
agreement
|
|
10 years
|
|
|
|
-
|
|
|
|
2,688
|
|
Trademarks
|
|
10 years
|
|
|
|
-
|
|
|
|
1,791
|
|
Discounted leases
|
|
18 & 6 years
|
|
|
|
123
|
|
|
|
148
|
|
Unamortized
non-compete agreements
|
|
5
years
|
|
|
|
291
|
|
|
|
542
|
|
|
|
|
|
|
|
414
|
|
|
|
5,169
|
|
Total goodwill
and intangible assets
|
|
|
|
|
$
|
98,110
|
|
|
$
|
113,638
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Definite-
Lived Intangibles
|
|
|
Licenses
|
|
|
Goodwill
|
|
|
Definite-
Lived Intangibles
|
|
|
Licenses
|
|
|
Goodwill
|
|
Beginning balance
|
|
$
|
5,169
|
|
|
$
|
55,828
|
|
|
$
|
52,641
|
|
|
$
|
675
|
|
|
$
|
53,968
|
|
|
$
|
43,374
|
|
Intangibles acquired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,231
|
|
|
|
3,565
|
|
|
|
9,267
|
|
Impairment and disposal
|
|
|
(4,003
|
)
|
|
|
(4,053
|
)
|
|
|
(6,720
|
)
|
|
|
-
|
|
|
|
(1,654
|
)
|
|
|
-
|
|
Amortization and
other
|
|
|
(752
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(737
|
)
|
|
|
(51
|
)
|
|
|
-
|
|
Ending balance
|
|
$
|
414
|
|
|
$
|
51,775
|
|
|
$
|
45,921
|
|
|
$
|
5,169
|
|
|
$
|
55,828
|
|
|
$
|
52,641
|
|
Future
amortization expense related to definite-lived intangible assets that are subject to amortization at September 30, 2016 is: 2017
- $164,000; 2018 - $72,000; 2019 - $54,000; 2020 - $31,000; 2021 - $7,000; and thereafter - $86,000.
Indefinite-lived
intangible assets consist of sexually oriented business licenses, which were obtained as part of acquisitions. These licenses
are the result of zoning ordinances, thus are valid indefinitely, subject to filing annual renewal applications, which are done
at minimal costs to the Company. The discounted cash flow method of income approach was used in calculating the value of these
licenses in a business combination. The Company impaired one reporting unit during the year ended September 30, 2016 in the aggregate
amount of $2.1 million for indefinite-lived intangibles. The Company impaired two reporting units during the year ended September
30, 2015 in the aggregate amount of $1.7 million for indefinite-lived intangible and zero for goodwill. The Company impaired two
reporting units during the year ended September 30, 2014 in the aggregate amount of $1.3 million for indefinite-lived intangible
and $613,000 for goodwill (Note P - Impairment of Assets).
H.
Long-term Debt
Long-term
debt consisted of the following (in thousands):
|
|
|
|
|
September
30,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable at 10-11%,
mature August 2022 and December 2024
|
|
*
|
|
|
$
|
2,662
|
|
|
$
|
2,938
|
|
Note payable at 7%, matures December 2019
|
|
*
|
|
|
|
133
|
|
|
|
169
|
|
Note payable at 7.25%, matures May 2016
|
|
*
|
|
|
|
-
|
|
|
|
218
|
|
Note payable at the greater of 2% above prime
or 7.5%, paid in 2016
|
|
*
|
|
|
|
-
|
|
|
|
2,891
|
|
Note payable at the greater of 2% above prime
or 7.5%, paid in 2016
|
|
*
|
|
|
|
-
|
|
|
|
3,482
|
|
Note payable at 8%, paid in 2016
|
|
*
|
|
|
|
-
|
|
|
|
2,292
|
|
Notes payable at 5.5%, matures January 2023
|
|
|
|
|
|
1,238
|
|
|
|
1,315
|
|
Notes payable at 5.5%, matures January 2023
and January 2022
|
|
*
|
|
|
|
4,864
|
|
|
|
5,698
|
|
Note payable refinanced at 6.25%, matures July
2018
|
|
*
|
|
|
|
1,227
|
|
|
|
1,328
|
|
Note payable at 6.3%, matures June 2030, collateralized
by aircraft
|
|
|
|
|
|
422
|
|
|
|
440
|
|
10% convertible debentures matures August 2016
|
|
|
|
|
|
-
|
|
|
|
1,000
|
|
Note payable at 9.5%, matures August 2024
|
|
**
|
|
|
|
10,642
|
|
|
|
12,607
|
|
Notes payable at 9.5%, mature September 2024
|
|
*
|
|
|
|
7,040
|
|
|
|
7,601
|
|
6% convertible debentures, mature March 2023
|
|
**
|
|
|
|
406
|
|
|
|
482
|
|
Notes payable at 13%, matures October 2016 and
2017
|
|
**
|
|
|
|
4,000
|
|
|
|
4,000
|
|
Notes payable at 5-7%, mature from 2018 to 2028
|
|
*
|
|
|
|
1,867
|
|
|
|
2,043
|
|
Note payable at 11%, matures June 2018
|
|
*
|
|
|
|
1,500
|
|
|
|
2,500
|
|
Convertible note payable from a related party
at 10%, matures October, 2017
|
|
|
|
|
|
-
|
|
|
|
750
|
|
9% convertible debentures matures October 2016
|
|
|
|
|
|
452
|
|
|
|
2,270
|
|
7.45% note payable collateralized by aircraft,
matures 2019
|
|
|
|
|
|
3,013
|
|
|
|
3,265
|
|
Notes payable at 12%, mature December 2017 and
September 2018
|
|
**
|
|
|
|
4,000
|
|
|
|
4,000
|
|
Non interest-bearing debt to State of Texas,
matures May 2022, interest imputed at 9.6%
|
|
|
|
|
|
6,201
|
|
|
|
6,
988
|
|
Note payable at 6.5%, matures January 2020
|
|
*
|
|
|
|
4,621
|
|
|
|
4,748
|
|
Note payable at 6%, matures January 2019
|
|
*
|
|
|
|
857
|
|
|
|
1,189
|
|
Notes payable at 5.5%, matures May 2020
|
|
*
|
|
|
|
5,493
|
|
|
|
5,656
|
|
Note payable at 6%, matures May 2020
|
|
*
|
|
|
|
1,386
|
|
|
|
1,714
|
|
Note payable at 5.3%, matures December 2024
|
|
*
|
|
|
|
1,842
|
|
|
|
1,901
|
|
Note payable at 5.45%, matures July 2020
|
|
*
|
|
|
|
10,962
|
|
|
|
11,273
|
|
Note payable at the greater of 2% above prime
or 5% (5.5% at September 30, 2016), matures October 2025
|
|
*
|
|
|
|
4,430
|
|
|
|
-
|
|
Note payable at 5%, matures January 2026
|
|
*
|
|
|
|
9,882
|
|
|
|
-
|
|
Note payable at 5.25%, matures October 2026
|
|
*
|
|
|
|
4,442
|
|
|
|
-
|
|
Note payable at 5%, matures July 2017
|
|
*
|
|
|
|
2,157
|
|
|
|
-
|
|
Note payable at 5%, matures February 2018
|
|
*
|
|
|
|
1,894
|
|
|
|
-
|
|
Note payable at 5.95%, matures August 2026
|
|
*
|
|
|
|
8,945
|
|
|
|
-
|
|
Other notes
|
|
|
|
|
|
-
|
|
|
|
162
|
|
Total debt
|
|
|
|
|
|
106,578
|
|
|
|
94,920
|
|
Less unamortized debt issuance costs
|
|
|
|
|
|
(692
|
)
|
|
|
(571
|
)
|
Less current portion
|
|
|
|
|
|
(9,950
|
)
|
|
|
(9,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term
debt
|
|
|
|
|
$
|
95,936
|
|
|
$
|
84,880
|
|
*
Collateralized by real estate
**
Collateralized by stock in subsidiary
H.
Long-term Debt - continued
Following
is a summary of long-term debt at September 30 (in thousands):
|
|
2016
|
|
|
2015
|
|
Secured by real estate
|
|
$
|
76,204
|
|
|
$
|
57,641
|
|
Secured by stock in subsidiary
|
|
|
19,048
|
|
|
|
21,089
|
|
Secured by other assets
|
|
|
3,435
|
|
|
|
3,705
|
|
Unsecured
|
|
|
7,891
|
|
|
|
12,485
|
|
|
|
$
|
106,578
|
|
|
$
|
94,920
|
|
As
part of the acquisition of the Platinum Club II in Dallas, the Company acquired the Real Property from Wire Way, LLC, a Texas
limited liability company (“Wire Way”). Pursuant to a Real Estate Purchase and Sale Agreement (the “Real Estate
Agreement”) dated May 10, 2008, the Company paid total consideration of $ 6 million, which was paid $1.6 million in cash
and $ 4.4 million through the issuance of a promissory note (the “Promissory Note”). The Promissory Note bears interest
at a varying rate at the greater of (i) two percent (2%) above the Prime Rate or (ii) seven and one-half percent (7.5%), which
is guaranteed by the Company and by Eric Langan, the Company’s Chief Executive Officer, individually. The note is payable
in monthly installments of $34,999 until June 2017. This note was paid off in a refinance of the property in August 2016.
In
April 2010, the Company acquired the real estate for the club in Austin, Texas formerly known as Rick’s Cabaret. In connection
with the purchase, the Company executed a note to the seller amounting to $ 2.2 million. The note was collateralized by the real
estate and was payable in monthly installments through April 2025 of $19,774, including principal and interest at the prime rate
plus 4.5% with a minimum rate of 7%. The Company refinanced this debt in 2013 with a note of $1.5 million, payable in monthly
installments of $15,090 through July 2018, including principal and interest at 6.25%.
In
June 2010, the Company borrowed $518,192 from a lender. The funds were used to purchase an aircraft. The debt bears interest at
6.30% with monthly principal and interest payments of $3,803 beginning July 2010. The note matures in June 2030.
In
August 2011, the Company borrowed $750,000 from an employee. The note bore interest at the rate of 10% per annum and matured on
August 1, 2014. The note was payable with one initial payment of interest only due January 1, 2012, and, thereafter in ten interest-only
quarterly payments. The principal was payable on August 1, 2014. The note was extended in 2014 under the same terms until maturity
in October 2017. At the option of the holder, the principal amount of the note and the accrued but unpaid interest thereon could
have been converted into shares of the Company’s common stock at $10.00 per share. The note was redeemable by the Company
after six months at any time if the closing price of its common stock for 20 consecutive trading days is at least $13.00 per share.
The note was converted into shares during 2016.
On
December 2, 2011, RCI Holdings entered into a Real Estate Sales Agreement with Bryan S. Foster, providing for RCI Holdings to
purchase from Mr. Foster the real properties located at 12325 Calloway Cemetery Road, Fort Worth, Texas and 2151 Manana Drive,
Dallas, Texas, for the aggregate purchase price of $5,500,000, including $ 2,000,000 cash and $ 3,500,000 in the form of an 8%
promissory note that is payable over 10 years at $42,465 per month including interest. The Fort Worth property represents the
land for Cabaret East, one of our clubs, and the Dallas property represents the land at another gentlemen’s club. This transaction
closed on January 13, 2012. This note was refinanced in October 2015.
In
connection with the acquisition of Silver City in January 2012, the Company executed notes to the seller in the amount of $ 1.5
million. The notes are payable over eleven years at $12,256 per month including interest and have an adjustable interest rate
of 5.5%. The rate adjusts to prime plus 2.5% in the 61st month, not to exceed 9%. In the same transaction, the Company also acquired
the related real estate and executed notes to the seller for $6.5 million. The notes are also payable over eleven years at $53,110
per month including interest and have the same adjustable interest rate of 5.5%.
H.
Long-term Debt - continued
As
consideration for the purchase of nine operating adult cabarets and two other licensed location under development at that time
(collectively, the “Foster Clubs”), a subsidiary paid to the sellers at closing $3.5 million cash and $22.0 million
pursuant to a secured promissory note (the “Club Note”). The Club Note bears interest at the rate of 9.5% per annum,
is payable in 144 equal monthly installments of $ 256,602 per month and is secured by the assets purchased from the Companies.
In
connection with the acquisition of the Foster Clubs, as explained above, the Company’s wholly owned subsidiary, Jaguars
Holdings, Inc. (“JHI”), entered into a Commercial Contract (the “Real Estate Agreement”), which agreement
provided for JHI to purchase the real estate where the Foster Clubs are located. The transactions contemplated by the Real Estate
Agreement closed on October 16, 2012. The purchase price of the real estate was $10.1 million (discounted to $9.6 million as explained
below) and was paid with $350,000 in cash, $9.1 million in mortgage notes, and an agreement to make a one-time payment of $650,000
in twelve years that bears no interest. The note bears interest at the rate of 9.5%, is payable in 143 equal monthly installments
and is secured by the real estate properties. The Company has recorded a debt discount of $431,252 related to the one-time payment
of $650,000.
The
Club Note from the Jaguars acquisition also provides that in the event any regulatory or administrative authority seeks to enforce
or attempts to collect any tax or obligation or liability that may be due pursuant to the Texas Patron Tax (sometimes referred
to as the “Pole Tax”) or related legislation, then the then outstanding principal amount of the Club Note, as of the
date the tax is enforced, will immediately be reduced by an amount calculated by multiplying 1,200,000 by the dollar amount of
the per-person tax implemented (the “Reduction Amount”). The Reduction Amount cannot exceed $6.0 million. By way of
example, if exactly two years after closing, a $2.00 per person tax is implemented and enforced, the Reduction Amount would be
$2.4 million and the then principal amount of the Club Note would be reduced $2,400,000. The Texas Patron Tax is currently enacted
to be $5 per person which equates to a $6.0 million Reduction Amount. The State of Texas has demanded payment and this provision
was invoked in July 2014 and the Company recorded a gain of $6 million, less related debt discount.
During
the year ended September 30, 2013, the Company acquired four parcels of real estate at a cost aggregating $3,230,000 and incurred
debt aggregating $2.6 million in connection therewith. The notes bear interest at rates ranging from 5 - 7% and are payable $25,660
monthly, including principal and interest. The notes mature from 2018 to 2028.
On
August 24, 2013, we sold to an investor (i) a 10 % Convertible Debenture with a principal amount of $2.5 million (the “Debenture”),
under the terms and conditions set forth in the Debenture, and (ii) a warrant to purchase a total of 48,780 shares of our common
stock (the “Warrant”), under the terms and conditions set forth in the Warrant. The Debenture has a term of two years,
is convertible into shares of our common stock at a conversion price of $10.25 per share (subject to adjustment), and has an annual
interest rate of 10%, with one initial payment of interest only due February 28, 2014, and thereafter, the principal amount is
payable in six equal quarterly principal payments of $250,000 plus accrued and unpaid interest. Six months after the issue date
of the Debenture, we have the right to redeem the Debenture if our common stock has a closing price of $13.33 (subject to adjustment)
for 20 consecutive trading days. The Warrant has an exercise price of $10.25 per share (subject to adjustment) and expires on
August 28, 2016. In the event there is an effective registration statement registering the shares of common stock underlying the
Warrant, we have the right to require exercise of the Warrant if our common stock has a closing price of $13.33 (subject to adjustment)
for 20 consecutive trading days. We sold the Debenture and Warrant to the investor in a private transaction and received consideration
of $2.5 million. The notes were paid off in 2016 through payments of cash and conversion to shares.
The
fair value of the warrants was estimated to be $61,735 using a Black-Scholes option-pricing model using the following weighted
average assumptions:
Volatility
|
|
|
26
|
%
|
Expected life
|
|
|
1.5 years
|
|
Expected dividend yield
|
|
|
-
|
|
Risk free rate
|
|
|
0.38
|
%
|
H.
Long-term Debt – continued
The
cost of the warrants has been recognized as a discount on the related debt and will be amortized to interest expense over the
life of the debt. The warrants expired in August 2016.
The
Debenture also had a beneficial conversion feature, valued at $32,467, which has been recognized as a discount on the related
debt and will be amortized to interest expense over the life of the debt.
On
October 15, 2013, the Company sold to certain investors (i) 9% Convertible Debentures with an aggregate principal amount of $4,525,000
(the “Debentures”), under the terms and conditions set forth in the Debentures, and (ii) warrants to purchase a total
of 72,400 shares of the Company’s common stock (the “Warrants”), under the terms and conditions set forth in
the Warrants. Each of the Debentures has a term of three years, is convertible into shares of our common stock at a conversion
price of $12.50 per share (subject to adjustment), and has an annual interest rate of 9%, with one initial payment of interest
only due April 15, 2014. Thereafter, the principal amount is payable in 10 equal quarterly principal payments, which amounts to
a total of $452,500, plus accrued and unpaid interest. Six months after the issue date of the Debentures, we have the right to
redeem the Debentures if the Company’s common stock has a closing price of $16.25 (subject to adjustment) for 20 consecutive
trading days. The Warrants have an exercise price of $12.50 per share (subject to adjustment) and expire on October 15, 2016.
In the event there is an effective registration statement registering the shares of common stock underlying the Warrants, we have
the right to require exercise of the Warrants if our common stock has a closing price of $16.25 (subject to adjustment) for 20
consecutive trading days. The Company sold the Debentures and Warrants to the investors in a private transaction and received
consideration of $4,525,000. The notes were paid off in October 2016.
The
fair value of the warrants was estimated to be $105,318 using a Black-Scholes option-pricing model using the following weighted
average assumptions:
Volatility
|
|
|
28
|
%
|
Expected life
|
|
|
1.5 years
|
|
Expected dividend yield
|
|
|
-
|
|
Risk free rate
|
|
|
0.33
|
%
|
The
cost of the warrants has been recognized as a discount on the related debt and will be amortized to interest expense over the
life of the debt. The warrants expired in October 2016.
In
December 2013, the Company borrowed $3.6 million from a lender. The funds were used to purchase an aircraft. The debt bears interest
at 7.45% with monthly principal and interest payments of $40,653 beginning March 2012. The note matures in January 2019.
In
December 2014, the Company refinanced certain real estate debt amounting to $2.1 million with new bank debt of $2.0 million. The
new debt is payable $13,270 per month, including interest at 5.25% and matures in ten years.
In
December 2014, the Company borrowed $1.0 million from an individual. The note is collateralized by certain real estate, is payable
$13,215 per month, including interest at 10% and matures in ten years.
On
January 13, 2015 a Company subsidiary purchased Down in Texas Saloon gentlemen’s club in an Austin, Texas suburb. As part
of the transaction, another subsidiary also purchased the club’s real estate. Total consideration of $6.8 million consisted
of $3.5 million for the club business and $3.3 million for its 3.5 acres of real estate. Payment was in the form of $1 million
in cash and $1.4 million in seller financing at 6% annual interest, with the balance provided by commercial bank financing in
the form of a note at a variable interest rate equal to the prime rate plus 2%, but in no event less than 6.5%. Payments on these
notes aggregate $68,829 per month.
H.
Long-term Debt – continued
On
May 4, 2015 a Company subsidiary purchased The Seville gentlemen’s club in Minneapolis Minnesota. As part of the transaction,
another subsidiary also purchased the club’s real estate. Total consideration of $8.5 million consisted of $4.5 million
for the assets of the club business and $4.0 million for the real estate. Payment was made through bank financing of $5.7 million
at 5.5% interest, seller financing of $1.8 million at 6% and cash of $1.1 million. There are certain financial covenants with
which the Company must be in compliance related to this financing. The Company is in compliance with such covenants as of September
30, 2016. Payments on these notes aggregate $65,355 per month.
On
July 30, 2015, a subsidiary of the Company acquired the building in which the Company’s Miami Gardens, Florida nightclub
operates. The cost was $15,300,000 and was purchased with an $11,325,000 note, payable in monthly installments of approximately
$78,000, including interest at 5.45% and matures in five years and the balance with cash. The building has several other third-party
tenants in addition to the Company’s nightclub. There are certain financial covenants with which the Company must be
in compliance related to this financing. The Company is in compliance with such covenants as of September 30, 2016.
The
Company has reached a settlement with the State of Texas over payment of the state’s Patron Tax on adult club customers.
To resolve the issue of taxes owed, the Company agreed to pay $10.0 million in equal monthly installments of $119,000, without
interest, over the next 84 months for all but two nonsettled locations. Going forward, the Company agreed to remit the Patron
Tax on a monthly basis, based on the current rate of $5 per customer. For accounting purposes, the Company has discounted the
$10.0 million at an imputed interest rate of 9.6%, establishing a net present value for the settlement of $7.2 million. This is
included as long-term debt in the consolidated balance sheets.
In
October 2015, the Company refinanced certain real estate debt amounting to $2.3 million with new bank debt of $4.6 million. After
closing costs, the Company received $2.0 million in cash from the transaction. The new debt is payable $30,244 per month, including
interest at the prime rate plus 2% (5.5% at September 30, 2016) and matures in ten years. There are certain financial covenants
with which the Company must be in compliance related to this financing. The Company is in compliance with such covenants as of
September 30, 2016.
In
October 2015, the Company entered into a $4.7 million construction loan with a commercial bank for a new corporate headquarters
building. The note, which was fully funded upon the finish of construction of the building in October 2016, is payable over 20
years at $31,988 per month including interest and has an adjustable interest rate of 5.25%. The rate adjusts to prime plus 1%
in the 61st month, with a floor of 5.25%.
In
January 2016, a subsidiary of the Company acquired the building in which the Company’s Rick’s Cabaret New York nightclub
operates. The cost was $10.5 million, including closing costs and was purchased with a $10.0 million note, payable in monthly
installments of approximately $59,000, including interest at 5.0% and matures in ten years. There are certain financial covenants
with which the Company must be in compliance related to this financing. The Company is in compliance with such covenants as of
September 30, 2016.
In
July 2016, the Company acquired certain land for future development of a Bombshells in Harris County, Texas for $3.3 million,
financed with a bank note for $2.2 million, payable interest only at 5.0% monthly until its maturity in 12 months.
In
August 2016, the Company acquired certain land for future development of a Bombshells in Harris County, Texas for $2.5 million,
financed with a bank note for $1.9 million, payable interest only at 5.0% monthly until its maturity in 18 months.
In
August 2016, the Company refinanced two notes payable with an aggregate carrying value of $6.1 million with a $9.0 million bank
note at an interest rate of 5.95%. The note matures in 10 years with monthly installments of $100,062 and a balloon payment at
maturity for the remaining balance.
H.
Long-term Debt – continued
Future
maturities of long-term debt consist of the following, net of debt discount (in thousands):
|
|
Regular
|
|
|
Balloon
|
|
|
Total
|
|
|
|
Amortization
|
|
|
Payments
|
|
|
Payments
|
|
2017
|
|
$
|
7,793
|
|
|
$
|
2,157
|
|
|
$
|
9,950
|
|
2018
|
|
|
8,102
|
|
|
|
12,419
|
|
|
|
20,521
|
|
2019
|
|
|
8,130
|
|
|
|
2,344
|
|
|
|
10,474
|
|
2020
|
|
|
8,514
|
|
|
|
18,354
|
|
|
|
26,868
|
|
2021
|
|
|
5,324
|
|
|
|
5,211
|
|
|
|
10,535
|
|
Thereafter
|
|
|
9,225
|
|
|
|
19,005
|
|
|
|
28,230
|
|
|
|
$
|
47,088
|
|
|
$
|
59,490
|
|
|
$
|
106,578
|
|
In
October 2016, the Company refinanced $8.0 million of long-term debt by borrowing $9.9 million. The new unsecured debt is payable
$118,817 per month, including interest at 12%, and matures in five years with a balloon payment for the remaining balance at maturity.
The refinanced debt was comprised of interest-only notes that were scheduled to mature with full principal payments in
fiscal 2018.
I.
Income Taxes
The
provision for income taxes consisted of the following (in thousands):
|
|
Years
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
260
|
|
|
$
|
894
|
|
|
$
|
4,613
|
|
State
and local
|
|
|
970
|
|
|
|
335
|
|
|
|
366
|
|
Total
current income tax expense
|
|
|
1,230
|
|
|
|
1,229
|
|
|
|
4,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,427
|
|
|
|
3,935
|
|
|
|
937
|
|
Total
deferred income tax expense
|
|
|
1,427
|
|
|
|
3,935
|
|
|
|
937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
income tax expense
|
|
$
|
2,657
|
|
|
$
|
5,164
|
|
|
$
|
5,916
|
|
Income
tax expense differs from the “expected” income tax expense computed by applying the U.S. federal statutory rate of
34% to earnings before income taxes for the years ended September 30 as a result of the following (in thousands):
|
|
Years
Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Computed expected income
tax expense
|
|
$
|
4,419
|
|
|
$
|
4,812
|
|
|
$
|
5,750
|
|
State income taxes, net of federal benefit
|
|
|
970
|
|
|
|
221
|
|
|
|
242
|
|
Transfer of deferred tax liabilities with
subsidiaries sold
|
|
|
(841
|
)
|
|
|
-
|
|
|
|
-
|
|
Permanent
differences
|
|
|
122
|
|
|
|
131
|
|
|
|
(76
|
)
|
Tax credits
|
|
|
(2,013
|
)
|
|
|
-
|
|
|
|
-
|
|
Total income tax
expense
|
|
$
|
2,657
|
|
|
$
|
5,164
|
|
|
$
|
5,916
|
|
I.
Income Taxes - continued
During
the fiscal year ended September 30, 2016 the Company deconsolidated three subsidiaries. Two of these subsidiaries were 100 percent
owned subsidiaries, 100 percent of the stock of both of these subsidiaries were sold to third parties. The third subsidiary was
a 51 percent owned subsidiary that was accounted for under the consolidated method; 31 percent of the 51 percent ownership of
the stock was sold during the year to a third party, and the investment is now accounted for under the cost method. In
accordance with US GAAP, the company has elected to account for the deferred taxes on the inside basis differences of all three
deconsolidated subsidiaries as a component of the gain or loss on the sale of the shares. All outside basis differences in the
investment in subsidiaries stock are accounted for as a component of the tax provision.
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The significant components of the Company’s deferred tax
assets and liabilities were as follows (in thousands):
|
|
September
30,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets (liabilities):
|
|
|
|
|
|
|
|
|
Intangibles
|
|
$
|
(19,034
|
)
|
|
$
|
(21,359
|
)
|
Property and equipment
|
|
|
(10,682
|
)
|
|
|
(10,302
|
)
|
Patron tax
|
|
|
2,074
|
|
|
|
2,712
|
|
Other
|
|
|
2,172
|
|
|
|
862
|
|
Net
deferred tax liability
|
|
$
|
(25,470
|
)
|
|
$
|
(28,087
|
)
|
The
Company has recognized a tax benefit in the amount of $2.0 million during the year ended September 30, 2016, representing the
net amount to be realized from the current year and from amending certain prior year federal tax returns to take the available
FICA tip tax credits which were not taken in prior years. The Company will continue to utilize FICA tip credits in future tax
filings.
Included
in the Company’s deferred tax liabilities at September 30, 2016 and 2015 is approximately $16.3 million and $16.4 million,
respectively, representing the tax effect of indefinite-lived intangible assets from club acquisitions which are not deductible
for tax purposes. These deferred tax liabilities will remain in the Company’s consolidated balance sheet until the related
clubs are sold.
The
Company may recognize the tax benefit from uncertain tax positions only if it is at least more likely than not that the tax position
will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized
in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty
percent likelihood of being realized upon settlement with the taxing authorities. We recognize accrued interest related to unrecognized
tax benefits as a component of interest expense. We recognize penalties related to unrecognized tax benefits as a component of
miscellaneous income (expense) in accordance with regulatory requirements.
The
Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
During the years ended September 30, 2016, 2015 and 2014, the Company recognized no interest and penalties for unrecognized tax
benefits. The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states.
The years ended September 30, 2015 and 2014 remain open to tax examination. The Company’s federal income tax return for
the year ended September 30, 2013 was examined by the internal revenue service with no changes.
J.
Stock-Based Compensation
In
2010, the Company’s Board of Directors approved the 2010 Stock Option Plan (the “2010 Plan”). The 2010 Plan
was approved by the shareholders of the Company at the 2011 Annual Meeting of Stockholders. At the 2012 Annual Meeting of Stockholders,
shareholders approved amending the 2010 Plan to increase the maximum aggregate number of shares of common stock that may be optioned
and sold from 500,000 to 800,000. The options granted under the Plans may be either incentive stock options or non-qualified options.
The 2010 Plan is administered by the Board of Directors or by a compensation committee of the Board of Directors. The Board of
Directors has the exclusive power to select individuals to receive grants, to establish the terms of the options granted to each
participant, provided that all options granted shall be granted at an exercise price not less than of the fair market value of
the common stock covered by the option on the grant date and to make all determinations necessary or advisable under the 2010
Plan. There were no options outstanding as of September 30, 2016 or 2015.
In
July 2014, the Company granted to an executive officer and an officer of a subsidiary an aggregate total of 96,325 shares of restricted
stock. The total grant date fair value of all of these awards was $963,000 and vest in two years. Restricted stock awards are
awards of common stock that are subject the restrictions on transfer and to a risk of forfeiture if the awardee terminates employment
with the Company prior to the lapse of the restrictions. The fair value of such stock was determined using the closing price on
the grant date and compensation expense is recorded over the applicable vesting periods. Forfeitures are recognized as a reversal
of expense of any unvested amounts in the period incurred.
The
following table reflects the restricted stock activity for the fiscal year ended September 30, 2016 (shares in thousands):
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number
of
|
|
|
Grant
Date
|
|
|
|
Shares
|
|
|
Fair
Value
|
|
Restricted
stock at September 30, 2015
|
|
|
96,325
|
|
|
$
|
10.21
|
|
Vested
|
|
|
(96,325
|
)
|
|
$
|
10.21
|
|
Restricted
stock at September 30, 2016
|
|
|
-
|
|
|
|
|
|
During
fiscal 2016, the total intrinsic value of restricted stock that vested was $1.0 million.
The
following table summarizes the stock-based compensation expense recorded during the last three fiscal years (in thousands):
|
|
For
the Year Ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Restricted stock
|
|
$
|
360
|
|
|
$
|
480
|
|
|
$
|
123
|
|
Stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
159
|
|
Total
stock-based compensation expense
|
|
$
|
360
|
|
|
$
|
480
|
|
|
$
|
282
|
|
As
of September 30, 2016, the Company had no remaining unrecognized stock-based compensation expense and had no shares available
for future grants under its equity plans.
K.
Commitments and Contingencies
Leases
The
Company leases certain equipment and facilities under operating leases, of which rent expense was approximately $3.3 million,
$4.5 million and $4.8 million for the years ended September 30, 2016, 2015 and 2014, respectively. Rent expense for the Company’s
operating leases, which generally have escalating rentals over the term of the lease, is recorded using the straight-line method
over the initial lease term whereby an equal amount of rent expense is attributed to each period during the term of the lease,
regardless of when actual payments are made. Generally, this results in rent expense in excess of cash payments during the early
years of a lease and rent expense less than cash payments in the later years. The difference between rent expense recognized and
actual rental payments is recorded as other long-term liabilities in the consolidated balance sheets.
Future
minimum annual lease obligations as of September 30, 2016 are as follows:
2017
|
|
$
|
1,863
|
|
2018
|
|
|
1,800
|
|
2019
|
|
|
1,674
|
|
2020
|
|
|
1,727
|
|
2021
|
|
|
1,718
|
|
Thereafter
|
|
|
16,325
|
|
Total
future minimum lease obligations
|
|
$
|
25,107
|
|
Legal
Matters
Texas
Patron Tax
In
2015, the Company has reached a settlement with the State of Texas over the payment of the state’s Patron Tax on adult club
customers. To resolve the issue of taxes owed, the Company agreed to pay $10.0 million in equal monthly installments of $119,000,
without interest, over the next 84 months for all but two nonsettled locations. Going forward, the Company agreed to remit the
Patron Tax on a monthly basis, based on the current rate of $5 per customer. For accounting purposes, the Company has discounted
the $10.0 million at an imputed interest rate of 9.6%, establishing a net present value for the settlement of $7.2 million. This
is included as long-term debt in the consolidated balance sheets. As a consequence, the Company has recorded an $8.2 million pre-tax
gain for the third quarter ending June 30, 2015, representing the difference between the $7.2 million and the amount previously
accrued for the tax.
New
York Settlement
Filed
in 2009, the case claimed Rick’s Cabaret New York misclassified entertainers as independent contractors. Plaintiffs sought
minimum wage for the hours they danced and return of certain fees. RCI Entertainment (New York), Inc. and Peregrine Enterprises,
Inc. maintained the dancers were properly classified, and alternatively, amounts earned were well in excess of the minimum wage
and should satisfy any obligations.
On
April 1, 2015, we and our subsidiaries, RCI Entertainment (New York), Inc. and Peregrine Enterprises, Inc., entered into an agreement
to settle in full a New York based federal wage and hour class and collective action filed in the United States District Court
for the Southern District of New York. Trial was scheduled to begin April 27, 2015. On September 22, 2015, the Court granted final
approval of the settlement. Under the terms of the agreement, Peregrine Enterprises, Inc. was to make up to $15.0 million available
to class members and their attorneys. The actual amount paid was determined based on the number of class members responding by
the end of a two-month notice period which ended on December 4, 2015. Unclaimed checks or payments reverted back to Peregrine
at that time. Based on the current schedule, an initial payment for attorneys’ fees of $1,833,333 was made in October 2015,
with two subsequent payments of $1,833,333 each being made in equal annual installments. As part of the settlement, we were required
to guarantee the obligations of RCI Entertainment (New York), Inc. and Peregrine Enterprises, Inc. under the settlement.
Legal
Matters – continued
The
Company expensed $11.1 million during the year ended September 30, 2015 as the final liability for its obligations under the settlement.
This is included as settlement of lawsuits and other one-time costs in the consolidated statement of income. Of this amount $5.6
million was paid to entertainers and $5.5 million has been or will be paid to the lawyers. As of September 30, 2016, the Company
has a total amount of $2.7 million recorded in accrued liabilities on the Company’s consolidated balance sheets for future
payments to the lawyers.
Indemnity
Insurance Corporation
As
previously reported, the Company and its subsidiaries were insured under a liability policy issued by Indemnity Insurance Corporation,
RRG (“IIC”) through October 25, 2013. The Company and its subsidiaries changed insurance companies on that date.
On
November 7, 2013, the Court of Chancery of the State of Delaware entered a Rehabilitation and Injunction Order (“Rehabilitation
Order”), which declared IIC impaired, insolvent and in an unsafe condition and placed IIC under the supervision of the Insurance
Commissioner of the State of Delaware (“Commissioner”) in her capacity as receiver (“Receiver”). The Rehabilitation
Order empowered the Commissioner to rehabilitate IIC through a variety of means, including gathering assets and marshaling those
assets as necessary. Further, the order stayed or abated pending lawsuits involving IIC as the insurer until May 6, 2014.
On
April 10, 2014, the Court of Chancery of the State of Delaware entered a Liquidation and Injunction Order With Bar Date (“Liquidation
Order”), which ordered the liquidation of IIC and terminated all insurance policies or contracts of insurance issued by
IIC. The Liquidation Order further ordered that all claims against IIC must have been filed with the Receiver before the close
of business on January 16, 2015 and that all pending lawsuits involving IIC as the insurer were further stayed or abated until
October 7, 2014. As a result, the Company and its subsidiaries no longer have insurance coverage under the liability policy with
IIC. Currently, there are several civil lawsuits pending against the Company and its subsidiaries. The Company has retained counsel
to defend against and evaluate these claims and lawsuits. We are funding 100% of the costs of litigation and will seek reimbursement
from the bankruptcy receiver. The Company filed the appropriate claims against IIC with the Receiver before the January 16, 2015
deadline; however, there are no assurances of any recovery from these claims. It is unknown at this time what effect this uncertainty
will have on the Company. As previously stated, since October 25, 2013, the Company has obtained general liability coverage from
other insurers, which have covered and/or will cover any claims arising from actions after that date.
General
The
Company is involved in various suits and claims arising in the normal course of business. The ultimate outcome of these items
will not have a material adverse effect on the Company’s consolidated statements of income or financial position.
The
Company has been sued by a landlord in the 33rd Judicial District Court of Harris County, Texas for a Houston Bombshells which
was under renovation in 2015. The plaintiff alleges RCI Hospitality Holdings, Inc.’s subsidiary, BMB Dining Services (Willowbrook),
Inc., breached a lease agreement by constructing an outdoor patio, which allegedly interfered with the common areas of the shopping
center, and by failing to provide Plaintiff with proposed plans before beginning construction. Plaintiff also asserts RCI Hospitality
Holdings, Inc. is liable as guarantor of the lease. The lease was for a Bombshells restaurant to be opened in the Willowbrook
Shopping Center in Houston, Texas. Both RCI Hospitality Holdings, Inc. and BMB Dining Services (Willowbrook), Inc. have denied
liability and assert that Plaintiff has failed to mitigate its claimed damages. Further, BMB Dining Services (Willowbrook), Inc.
asserts that Plaintiff affirmatively represented that the patio could be constructed under the lease and has filed counter claims
and third-party claims against Plaintiff, Plaintiff’s manager, and Plaintiff’s broker asserting that they committed
fraud and that the landlord breached the applicable agreements. It is unknown at this time whether the resolution of this uncertainty
will have a material effect on the Company’s financial condition.
Settlements
of lawsuits for the years ended September 30, 2016, 2015 and 2014 total $1.9 million, $11.7 million, and $3.7 million, respectively.
As of September 30, 2016 and 2015, the Company has accrued $2.7 million and $2.3 million in accrued liabilities, respectively,
and as of September 30, 2015, the Company has accrued $1.8 million in other long-term liabilities related to settlement of lawsuits.
L.
Common Stock
During
the year ended September 30, 2014, the following common stock transactions occurred:
|
●
|
The
Company acquired 101,330 shares of its own common stock at a cost of $1.2 million. These shares were subsequently retired.
|
|
|
|
|
●
|
The
Company issued 295,061 common shares for the conversion of debt and interest in the aggregate amount of $2,968,750.
|
|
|
|
|
●
|
Options
exercised during the year amounted to 369,665 shares and $3,125,403.
|
During
the year ended September 30, 2015, the following common stock transactions occurred:
|
●
|
The
Company acquired 225,280 shares of its own common stock at a cost of $2.3 million. These shares were subsequently retired.
|
|
|
|
|
●
|
The
Company issued 232,506 common shares for the conversion of debt and interest in the aggregate amount of $2.4 million.
|
|
|
|
|
●
|
The
Company issued 200,000 common shares for a portion of the acquisition cost of an energy drink company. The value of the shares
was $2.4 million.
|
|
|
|
|
●
|
Options
exercised during the year amounted to 10,000 shares and $86,900.
|
During
the year ended September 30, 2016, the following common stock transactions occurred:
|
●
|
The
Company acquired 747,081 shares of its own common stock at a cost of $7.3 million. These shares were subsequently retired.
|
|
|
|
|
●
|
The
Company issued 125,610 common shares for the conversion of debt and interest in the aggregate amount of $1.3 million.
|
|
|
|
|
●
|
Warrants
exercised during the year amounted to 48,780 shares amounting to $500,000.
|
|
|
|
|
●
|
The
Company paid quarterly dividends of $0.03 per share starting the second quarter for an aggregate amount of $862,000.
|
M.
Employee Retirement Plan
The
Company sponsors a Simple IRA plan (the “Plan”), which covers all of the Company’s corporate employees. The
Plan allows the corporate employees to contribute up to the maximum amount allowed by law, with the Company making a matching
contribution of 3% of the employee’s salary. Expenses related to matching contributions to the Plan approximated $108,000,
$94,000 and $83,000 for the years ended September 30, 2016, 2015 and 2014, respectively.
N.
Acquisitions and Dispositions
2014
Acquisitions and Openings
In
October 2013, the Company purchased 49 percent of a corporation that operates the Dallas club “PT’s Platinum”
and also acquired the building and personal property. Total cost of the transaction was $500,000. This subsidiary is being consolidated
in the Company’s consolidated financial statements, effective as of the date of the purchase.
N.
Acquisitions and Dispositions - continued
The
following information summarizes the allocation of fair values assigned to the assets at the purchase date.
Buildings and land
|
|
$
|
350
|
|
Property and equipment
|
|
|
20
|
|
SOB license
|
|
|
265
|
|
Noncontrolling
interest
|
|
|
(135
|
)
|
Net assets
|
|
$
|
500
|
|
A
subsidiary of the Company closed a transaction involving the air rights above the Company’s 33rd Street club in Manhattan
in October 2013. The subsidiary entered into a contract to buy the land and building for $ 10 million at any time in the next
five years. Concurrent with the building transaction, a third party (the “Third Party Purchaser”) purchased the balance
of the air rights of the property that are not subject to the Option Agreement. The purchase price for these air rights was $13,000,000,
of which the Company’s subsidiary contributed $5,200,000 in connection with the overall business transaction. The transactions
are part of a previously announced transaction under which the Company agreed to purchase the land and building for $23.0 million,
which closed in January 2016. The new agreement also amends the lease for the three-story building at 50 West 33rd Street to $100,000
per month for the next five years rather than the $180,000 per month called for in the original agreement.
2015
Acquisitions and Openings
On
October 30, 2014, a 51% owned subsidiary of the Company acquired certain assets and liabilities of Robust Energy LLC for
$200,000 in cash and 200,000 shares of its restricted common stock for a total purchase price of $3.6 million. The Company has
also agreed to issue 50,000 shares of RCIHH common stock each to the two principals of Robust Energy LLC if Robust has net income
of at least $1 million during the 2015 calendar year. The principals entered into a Lock-Up Agreement with the Company in connection
with the issuance by the Company of its shares of common stock as explained above, which will provide that none of the shares
will be sold for a period of one year after the date of issuance and, thereafter, neither principal will sell more than 1/6th
of their respective shares per month that they receive in connection herewith. Robust is an energy drink distributor, targeting
the on premises bar and mixer market.
The
following information summarizes the preliminary allocation of fair values assigned to the assets and liabilities at the purchase
date (in thousands).
Inventory and accounts receivable
|
|
$
|
500
|
|
Equipment, furniture and fixtures
|
|
|
356
|
|
Definite-lived intangibles
|
|
|
4,931
|
|
Goodwill
|
|
|
5,326
|
|
Accounts payable
|
|
|
(1,482
|
)
|
Notes payable
|
|
|
(963
|
)
|
Deferred tax liability
|
|
|
(1,726
|
)
|
Noncontrolling
interest
|
|
|
(3,392
|
)
|
Net assets
|
|
$
|
3,550
|
|
In
accordance with US GAAP, the Company recorded a gain of approximately $229,000 on the value of its earlier 15% ($750,000) investment
in this company.
Goodwill
from this transaction is deductible for tax purposes.
On
January 13, 2015 a Company subsidiary purchased Down in Texas Saloon gentlemen’s club in an Austin, Texas suburb. As part
of the transaction, another subsidiary also purchased the club’s real estate. Total consideration of $6.8 million consisted
of $3.5 million for the club business and $3.3 million for its 3.5 acres of real estate. Payment was in the form of $1 million
in cash and $1.4 million in seller financing at 6% annual interest, with the balance provided by commercial bank financing at
a variable interest rate equal to the prime rate plus 2%, but in no event less than 6.5%.
N.
Acquisitions and Dispositions - continued
The
following information summarizes the allocation of fair values assigned to the assets at the purchase date (in thousands).
Buildings and land
|
|
$
|
3,130
|
|
Furniture and fixtures
|
|
|
20
|
|
Inventory
|
|
|
4
|
|
SOB license
|
|
|
3,546
|
|
Noncompete
|
|
|
100
|
|
Net assets
|
|
$
|
6,800
|
|
On
May 4, 2015, a Company subsidiary purchased The Seville gentlemen’s club in Minneapolis, Minnesota. As part of the transaction,
another subsidiary also purchased the club’s real estate. Total consideration of $8.5 million consisted of $4.5 million
for the assets of the club business and $4.0 million for the real estate. Payment was made through bank financing of $5.7 million
at 5.5% interest, seller financing of $1.8 million at 6% and cash of $1.1 million.
The
following information summarizes the allocation of fair values assigned to the assets at the purchase date (in thousands).
Buildings and land
|
|
$
|
4,050
|
|
Furniture and fixtures
|
|
|
200
|
|
Inventory
|
|
|
109
|
|
Goodwill
|
|
|
3,941
|
|
Noncompete
|
|
|
200
|
|
Net assets
|
|
$
|
8,500
|
|
Goodwill
from this transaction is deductible for tax purposes.
2016
Dispositions
In
September 2016, we sold a 31% interest in Robust for a $2.0 million note back to its former owner, retaining a 20% interest in
the business. We recorded a $641,000 gain on the sale (including a $1.7 million tax credit for deferred taxes transferred
with the entity) and recognized an impairment charge of $825,000 on the residual interest owned. Beginning as of the date
of sale, we have begun to account for Robust as a cost method investment as we do not have significant influence.
In
September 2016, the Company sold two adult clubs and closed a Bombshells location. Following are the aggregate details of the
sales:
|
●
|
Sales price —
$6.3 million
|
|
|
|
|
●
|
Cash received —
$3.5 million
|
|
|
|
|
●
|
Notes receivable —
$2.8 million
|
|
|
|
|
●
|
Gain on sale —
$1.1 million of adult club
|
|
|
|
|
●
|
Loss on closure of
Bombshells — $550,000
|
|
|
|
|
●
|
Deferred gain on sale
of adult club (gain recognized as note collected) — $399,000
|
The
notes receivable are payable as follows:
|
●
|
$1.8 million payable
at 6% over 240 months.
|
|
|
|
|
●
|
$1.0 million payable
at 9% over 120 months.
|
The
gain/loss on sale transactions above include a tax benefit of the deferred tax liabilities amounting to $2.5 million, which were
released upon the sale of the entities.
O.
Quarterly Results of Operations (Unaudited)
The
following tables summarize unaudited quarterly data for fiscal 2016, 2015 and 2014 (in thousands, except per share data):
|
|
For
the Three Months Ended
|
|
|
|
December
31, 2015
|
|
|
March
31, 2016
|
|
|
June
30, 2016
|
|
|
September
30, 2016
|
|
Revenues
|
|
$
|
33,475
|
|
|
$
|
34,396
|
|
|
$
|
33,952
|
|
|
$
|
33,037
|
|
Income
from operations
|
|
$
|
5,717
|
|
|
$
|
7,550
|
|
|
$
|
6,657
|
|
|
$
|
924
|
|
Net
income attributable to RCIHH shareholders
|
|
$
|
2,552
|
|
|
$
|
5,505
|
|
|
$
|
2,653
|
|
|
$
|
379
|
|
Earnings
per share attributable to RCIHH shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.25
|
|
|
$
|
0.55
|
|
|
$
|
0.27
|
|
|
$
|
0.04
|
|
Diluted
|
|
$
|
0.25
|
|
|
$
|
0.54
|
|
|
$
|
0.27
|
|
|
$
|
0.04
|
|
Weighted average
number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,296
|
|
|
|
10,013
|
|
|
|
9,906
|
|
|
|
9,839
|
|
Diluted
|
|
|
10,635
|
|
|
|
10,215
|
|
|
|
10,047
|
|
|
|
9,840
|
|
|
|
For
the Three Months Ended
|
|
|
|
December
31, 2014
|
|
|
March
31, 2015
|
|
|
June
30, 2015
|
|
|
September
30, 2015
|
|
Revenues
|
|
$
|
34,204
|
|
|
$
|
34,989
|
|
|
$
|
33,466
|
|
|
$
|
32,790
|
|
Income
(loss) from operations
|
|
$
|
6,140
|
|
|
$
|
(2,616
|
)
|
|
$
|
14,152
|
|
|
$
|
3,202
|
|
Net
income (loss) attributable to RCIHH shareholders
|
|
$
|
3,360
|
|
|
$
|
(2,841
|
)
|
|
$
|
8,267
|
|
|
$
|
526
|
|
Earnings
(loss) per share attributable to RCIHH shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.33
|
|
|
$
|
(0.28
|
)
|
|
$
|
0.81
|
|
|
$
|
0.05
|
|
Diluted
|
|
$
|
0.32
|
|
|
$
|
(0.28
|
)
|
|
$
|
0.78
|
|
|
$
|
0.05
|
|
Weighted average
number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,264
|
|
|
|
10,275
|
|
|
|
10,245
|
|
|
|
10,363
|
|
Diluted
|
|
|
10,929
|
|
|
|
10,275
|
|
|
|
10,707
|
|
|
|
10,363
|
|
|
|
For
the Three Months Ended
|
|
|
|
December
31, 2013
|
|
|
March
31, 2014
|
|
|
June
30, 2014
|
|
|
September
30, 2014
|
|
Revenues
|
|
$
|
27,962
|
|
|
$
|
30,817
|
|
|
$
|
31,207
|
|
|
$
|
31,446
|
|
Income
from operations
|
|
$
|
5,614
|
|
|
$
|
7,459
|
|
|
$
|
2,892
|
|
|
$
|
2,910
|
|
Net
income attributable to RCIHH shareholders
|
|
$
|
2,404
|
|
|
$
|
3,722
|
|
|
$
|
691
|
|
|
$
|
4,423
|
|
Earnings
per share attributable to RCIHH shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.25
|
|
|
$
|
0.39
|
|
|
$
|
0.07
|
|
|
$
|
0.44
|
|
Diluted
|
|
$
|
0.25
|
|
|
$
|
0.37
|
|
|
$
|
0.07
|
|
|
$
|
0.42
|
|
Weighted average
number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,546
|
|
|
|
9,661
|
|
|
|
9,883
|
|
|
|
10,179
|
|
Diluted
|
|
|
9,855
|
|
|
|
10,853
|
|
|
|
9,968
|
|
|
|
11,014
|
|
P.
Impairment of Assets
The
Company reviews property and equipment and intangible assets with definite lives for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison
of its carrying amounts to future undiscounted cash flows the assets are expected to generate. If property and equipment and intangible
assets with definite lives are considered to be impaired, the impairment to be recognized equals the amount by which the carrying
value of the asset exceeds its fair value.
During
the year ended September 30, 2016, we recorded an impairment of $4.3 million, of which $2.1 million was for indefinite-lived intangible
assets of one club, $1.4 million was for one property held for sale, while the other $825,000 was for the impairment of our remaining
investment in Drink Robust.
During
the year ended September 30, 2015, we recorded an impairment of $1.7 million for the indefinite-lived intangible assets at two
clubs that were closed.
At
September 30, 2014, the Company recognized impairment aggregating $2.3 million on two properties, one which it closed and one
which it sold in October 2014. These impairments were the result of the sale and closure and not from any goodwill impairment
analysis.
Q.
Gain on Contractual Debt Reduction
The
Club Note from the Jaguars acquisition (see Note N – Acquisitions and Dispositions) also provides that in the event any
regulatory or administrative authority seeks to enforce or attempts to collect any tax or obligation or liability that may be
due pursuant to the Texas Patron Tax (sometimes referred to as the “Pole Tax”) or related legislation, then the then
outstanding principal amount of the Club Note, as of the date the tax is enforced, will immediately be reduced by an amount calculated
by multiplying 1,200,000 by the dollar amount of the per-person tax implemented (the “Reduction Amount”). The Reduction
Amount cannot exceed $6,000,000. By way of example, if exactly two years after closing, a $2.00 per person tax is implemented
and enforced, the Reduction Amount would be $2,400,000 and the then principal amount of the Club Note would be reduced $2,400,000.
The Texas Patron Tax is currently enacted to be $5 per person which equates to a $6,000,000 Reduction Amount. The State of Texas
has demanded payment and this provision was invoked in July 2014 and the Company recorded a gain of $6 million, less related debt
discount.
R.
Segment Information
The
Company is engaged in adult nightclubs and Bombshells Restaurants and Bars. The Company has identified such segments based on
management responsibility and the nature of the Company’s products, services and costs. There are no major distinctions
in geographical areas served as all operations are in the United States. The Company measures segment profit (loss) as income
(loss) from operations. Total assets are those assets controlled by each reportable segment. The other category below includes
our media and energy drink divisions that are not significant to the consolidated financial statements.
R.
Segment Information - continued
Below
is the financial information related to the Company’s segments (in thousands):
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Business segment revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nightclubs
|
|
$
|
113,941
|
|
|
$
|
115,493
|
|
|
$
|
114,157
|
|
Bombshells
|
|
|
18,690
|
|
|
|
17,639
|
|
|
|
5,768
|
|
Other
|
|
|
2,229
|
|
|
|
2,317
|
|
|
|
1,507
|
|
|
|
$
|
134,860
|
|
|
$
|
135,449
|
|
|
$
|
121,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business segment operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Nightclubs
|
|
$
|
33,227
|
|
|
$
|
30,444
|
|
|
$
|
25,970
|
|
Bombshells
|
|
|
1,291
|
|
|
|
1,773
|
|
|
|
(315
|
)
|
Other
|
|
|
(2,650
|
)
|
|
|
(1,921
|
)
|
|
|
(246
|
)
|
General corporate
|
|
|
(11,020
|
)
|
|
|
(9,418
|
)
|
|
|
(6,534
|
)
|
|
|
$
|
20,848
|
|
|
$
|
20,878
|
|
|
$
|
18,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business segment capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nightclubs
|
|
$
|
22,136
|
|
|
$
|
16,578
|
|
|
$
|
11,834
|
|
Bombshells
|
|
|
609
|
|
|
|
1,448
|
|
|
|
8,195
|
|
Other
|
|
|
10
|
|
|
|
973
|
|
|
|
8
|
|
General corporate
|
|
|
5,393
|
|
|
|
260
|
|
|
|
1,322
|
|
|
|
$
|
28,148
|
|
|
$
|
19,259
|
|
|
$
|
21,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business segment depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nightclubs
|
|
$
|
4,992
|
|
|
$
|
4,630
|
|
|
$
|
3,453
|
|
Bombshells
|
|
|
933
|
|
|
|
727
|
|
|
|
429
|
|
Other
|
|
|
684
|
|
|
|
627
|
|
|
|
20
|
|
General corporate
|
|
|
564
|
|
|
|
910
|
|
|
|
2,414
|
|
|
|
$
|
7,173
|
|
|
$
|
6,894
|
|
|
$
|
6,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business segment assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nightclubs
|
|
$
|
244,464
|
|
|
$
|
230,051
|
|
|
$
|
200,456
|
|
Bombshells
|
|
|
8,673
|
|
|
|
9,875
|
|
|
|
9,074
|
|
Other
|
|
|
896
|
|
|
|
9,721
|
|
|
|
996
|
|
General corporate
|
|
|
22,455
|
|
|
|
17,152
|
|
|
|
22,978
|
|
|
|
$
|
276,488
|
|
|
$
|
266,799
|
|
|
$
|
233,504
|
|
General
corporate expenses include corporate salaries, health insurance and social security taxes for officers, legal, accounting and
information technology employees, corporate taxes and insurance, legal and accounting fees, depreciation and other corporate costs
such as automobile and travel costs. Management considers these to be non-allocable costs for segment purposes.