Note 6 - Capital Expenditures

9 Months Ended

Nov. 10, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

NOTE 6 – CAPITAL EXPENDITURES

The Company is required by its franchise agreements to periodically bring its restaurants up to the required image of the franchisor. This typically involves a new dining room décor and seating package and exterior changes and related items but can, in some cases, require the relocation of the restaurant. If the Company deems a particular image enhancement expenditure to be inadvisable, it has the option to cease operations at that restaurant. Over time, the estimated cost and time deadline for each restaurant may change due to a variety of circumstances and the Company revises its requirements accordingly. Also, significant numbers of restaurants may have image enhancement deadlines that coincide, in which case, the Company will adjust the actual timing of the image enhancements in order to facilitate an orderly construction schedule. During the image enhancement process, each restaurant is normally closed for up to two weeks, which has a negative impact on the Company’s revenues and operating efficiencies. At the time a restaurant is closed for a required image enhancement, the Company may deem it advisable to make other capital expenditures in addition to those required for the image enhancement.

The franchise agreements with KFC and Taco Bell Corporation require the Company to upgrade and remodel its restaurants to comply with the franchisors’ current standards within agreed upon timeframes and the franchisor may terminate the franchise agreement for failure to meet those requirements. In the case of a restaurant containing two concepts, even though only one is required to be remodeled, additional costs will be incurred because the dual concept restaurant is generally larger and contains more equipment and signage than the single concept restaurant. If a property is of usable size and configuration, the Company can perform an image enhancement to bring the building to the current image of the franchisor. If the property has a deficiency which would render it unsuitable, the Company would need to relocate the restaurant to another location within the trade area to meet the franchisor’s requirements. The capital requirements for the KFC branded restaurants are included in the schedule based on the requirements of the KFC Remodel Agreement as amended and the Taco Bell restaurants are shown at the time required by the Taco Bell remodel program implemented during the fiscal 2014 third quarter.

	Number of Units		Period	Type	Capital Cost (1)
		4	Fiscal 2015	Remodels		900,000
		7	Fiscal 2016	Remodels		1,655,000
		4	Fiscal 2017	Remodels		1,000,000
		1	Fiscal 2017	Refresh (2)		100,000
		1	Fiscal 2017	Taco Bell		350,000
			Total 2017			1,450,000
		3	Fiscal 2018	Remodels		790,000
		1	Fiscal 2018	Refresh (2)		100,000
		1	Fiscal 2018	Taco Bell		350,000
			Total 2018			1,240,000
		4	Fiscal 2019	Remodels		940,000
		1	Fiscal 2019	Taco Bell		350,000
			Total 2019			1,290,000
		7	Fiscal 2020	Refresh (2)		675,000
		7	Fiscal 2021	Refresh (2)		675,000
		7	Fiscal 2022	Refresh (2)		650,000
		1	Fiscal 2022	Taco Bell		350,000
			Total 2022			1,000,000
		8	Fiscal 2023	Refresh (2)		725,000
		1	Fiscal 2023	Taco Bell		350,000
			Total 2023			1,075,000
		1	Fiscal 2024	Taco Bell		350,000
		1	Fiscal 2025	Refresh (2)		75,000
		1	Fiscal 2025	Taco Bell		350,000
			Total 2025			425,000
		61	Total		$	10,735,000
(1) These amounts are based on estimates of current construction costs and actual costs may vary.
(2) Reflects the estimated cost of dining room update and exterior paint and refurbishment on restaurants previously remodeled to the current image. Costs may also include the addition of equipment such as coolers necessary to meet Franchisor standards.

In addition to the various facilities actions listed on the table above, the Company is obligated to spend an additional amount of approximately $1,000,000 by the end of calendar year 2014 to install the KFC operations platform consisting of a new point of sale system and related reporting and management systems, new food holding cabinets that improve the quality of product held for sale and a new drive-thru speed of service system in all of its KFC and KFC/Taco Bell "2n1" restaurants. The Company has spent approximately $1,425,000 to date on the operations platform and POS devices for its KFC and Taco Bell restaurants. During the third quarter, the Company completed the relocation of one of its restaurants in Pennsylvania. The new restaurant is a leased facility and the Company owns the land and building of the former location which is under contract to be sold but the transaction had not closed as of the date of this report.

Capital expenditures to meet the image requirements of the franchisors and additional capital expenditures on those same restaurants being image enhanced are a large portion of the Company’s annual capital expenditures. However, the Company also has made and may make capital expenditures on restaurant properties not included on the foregoing schedule for upgrades or replacement of capital items appropriate for the continued successful operation of its restaurants. The Company may not be able to finance capital expenditures in the volume and time horizon required by the image enhancement deadlines solely from existing cash balances and existing cash flow and the Company may have to utilize financing for a portion of the capital expenditures. The Company may use debt and build to suit or sale/leaseback financing but has no commitments for any financing at this time.

There can be no assurance that the Company will be able to accomplish the image enhancements and relocations required in the franchise agreements on terms acceptable to the Company. If the Company is unable to meet the requirements of a franchise agreement, the franchisor may choose to extend the time allowed for compliance or may terminate the franchise agreement for the affected location.