1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 290549
Mark One
[ x ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Act
of 1934 for the quarterly period ended SEPTEMBER 28, 1997.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Act
of 1934 for the transition period from to .
Commission File Number 1-3189
NATHAN'S FAMOUS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-3166443
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
1400 OLD COUNTRY ROAD, WESTBURY, NEW YORK 11590
(Address of principal executive offices including zip code)
(516) 338-8500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
--- ---
At September 28, 1997, an aggregate of 4,722,216 shares of the registrant's
common stock, par value of $.01, were outstanding.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - September 28, 1997 and
March 30, 1997 3
Consolidated Statements of Earnings - Thirteen Weeks
Ended September 28, 1997 and September 29, 1996 4
Consolidated Statements of Earnings - Twenty-six Weeks
Ended September 28, 1997 and September 29, 1996 5
Consolidated Statements of Stockholders' Equity -
Twenty-six Weeks Ended September 28, 1997 6
Consolidated Statements of Cash Flows - Twenty-six Weeks
Ended September 28, 1997 and September 29, 1996 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBIT INDEX 15
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
September March
28, 1997 30, 1997
--------- --------
(Unaudited)
Current assets:
Cash and cash equivalents including restricted cash of
$273 and $280, respectively $ 577 $ 647
Marketable investment securities 8,099 7,640
Franchise and other receivables 1,306 1,039
Inventory 223 213
Prepaid expenses and other current assets 258 502
Deferred income taxes 415 415
-------- --------
Total current assets 10,878 10,456
Property and equipment, net 6,132 5,480
Intangible assets, net 11,458 11,640
Other assets, net 191 218
-------- --------
$ 28,659 $ 27,794
======== ========
Current liabilities:
Current maturities of long-term debt $ 12 $ 17
Accounts payable 702 754
Accrued expenses and other current liabilities 4,521 4,614
Deferred franchise fees 170 269
-------- --------
Total current liabilities 5,405 5,654
Long-term debt, net of current maturities 21 21
Other Liabilities 150 143
-------- --------
Total liabilities 5,576 5,818
-------- --------
Stockholders' equity:
Common stock, $.01 par value - 20,000,000
shares authorized, 4,722,216 issued and outstanding 47 47
Additional paid-in-capital 32,331 32,307
Accumulated deficit (9,295) (10,378)
-------- --------
Total stockholders' equity 23,083 21,976
-------- --------
$ 28,659 $ 27,794
======== ========
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THIRTEEN WEEKS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996
(In thousands, except per share amounts)
(Unaudited)
1997 1996
------ ------
Sales $6,592 $5,957
Franchise fees and royalties 803 881
License royalties 537 304
Investment and other income 166 220
------ ------
Total revenues 8,098 7,362
------ ------
Costs and expenses:
Cost of sales 3,893 3,427
Restaurant operating expenses 1,680 1,780
Depreciation and amortization 260 260
Amortization of intangible assets 103 103
General and administrative 1,150 947
Interest expense 3 12
------ ------
Total costs and expenses 7,089 6,529
------ ------
Earnings before income taxes 1,009 833
Provision for income taxes 400 353
------ ------
Net earnings $ 609 $ 480
====== ======
Net earnings per common share $ 0.13 $ 0.10
====== ======
Weighted average number of common and
common equivalent shares outstanding 4,782 4,722
====== ======
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
TWENTY-SIX WEEKS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996
(In thousands, except per share amounts)
(Unaudited)
1997 1996
------- -------
Sales $12,499 $11,730
Franchise fees and royalties 1,474 1,694
License royalties 942 558
Investment and other income 545 352
------- -------
Total revenues 15,460 14,334
------- -------
Costs and expenses:
Cost of sales 7,396 6,740
Restaurant operating expenses 3,293 3,445
Depreciation and amortization 512 521
Amortization of intangible assets 199 199
General and administrative 2,253 1,923
Interest expense 4 14
------- -------
Total costs and expenses 13,657 12,842
------- -------
Earnings before income taxes 1,803 1,492
Provision for income taxes 720 617
------- -------
Net earnings $ 1,083 $ 875
======= =======
Net earnings per common share $ 0.23 $ 0.19
======= =======
Weighted average number of common and
common equivalent shares outstanding 4,774 4,722
======= =======
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TWENTY-SIX WEEKS ENDED SEPTEMBER 28, 1997
(In thousands, except share amounts)
(Unaudited)
Total
Additional Deferred Accum- Stock-
Common Common Paid-in Compen- ulated holders'
Shares Stock Capital sation Deficit Equity
------ ----- ------- ------ ------- ------
Balance, March
30, 1997 4,722,216 $ 47 $ 32,388 $ (81) $(10,378) $21,976
Amortization
of deferred
compensation
relating to
restricted stock 24 24
Net earnings 1,083 1,083
--------- -------- -------- ------ -------- -------
Balance, Sept.
28, 1997 4,722,216 $ 47 $ 32,388 $ (57) $ (9,295) $23,083
========= ======== ======== ====== ======== =======
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
TWENTY-SIX WEEKS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996
(In thousands)
(Unaudited)
1997 1996
------- -------
Cash flows from operating activities:
Net earnings $ 1,083 $ 875
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 512 521
Amortization of intangible assets 199 199
Provision for doubtful accounts 30 30
Other 24 24
Changes in assets and liabilities:
Marketable investment securities (459) 285
Franchise and other receivables (297) 74
Inventory (10) (49)
Prepaids and other current assets 244 (30)
Accounts payable and accrued expenses (145) 143
Deferred franchise fees (99) (25)
Other assets 27 21
Deferred area development fees -- (102)
Other liabilities 7 (87)
------- -------
Net cash provided by operating activities 1,116 1,879
------- -------
Cash flows from investing activities:
Purchase of property and equipment (1,181) (616)
------- -------
Net cash used in investing activities (1,181) (616)
------- -------
Cash flows from financing activities:
Principal repayment of borrowings (5) (14)
------- -------
Net cash used in financing activities (5) (14)
------- -------
Net (decrease) increase in cash and cash equivalents (70) 1,249
Cash and cash equivalents, beginning of period 647 801
------- -------
Cash and cash equivalents, end of period $ 577 $ 2,050
======= =======
Cash paid during the period for:
Interest $ 4 $ 3
Income taxes 359 90
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 1997
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements of Nathan's Famous, Inc. and
Subsidiaries (the "Company") for the thirteen and twenty-six week periods ended
September 28, 1997 and September 29, 1996 have been prepared in accordance with
generally accepted accounting principles. These financial statements include all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of financial condition,
results of operations and cash flows for such periods. However, these results
are not necessarily indicative of results for any other interim period or the
full year.
Certain information and footnote disclosures normally included in financial
statements in accordance with generally accepted accounting principles have been
omitted pursuant to the requirements of the Securities and Exchange Commission.
Management believes that the disclosures included in the accompanying interim
financial statements and footnotes are adequate to make the information not
misleading, but should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended March 30, 1997.
In February, 1997, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. SFAS No.
128 replaces the standard for computing earnings per share. SFAS No. 128 is
effective for financial statements issued for the periods ending after December
15, 1997, including interim periods, and earlier adoption is permitted. The
Company does not expect the adoption of this statement to have a material impact
to its reported results.
NOTE B - RECLASSIFICATIONS
Certain reclassifications of prior period balances have been made to conform to
the September 28, 1997 presentation.
NOTE C - EARNINGS PER SHARE
Weighted average common shares outstanding for the thirteen weeks ended
September 28, 1997 and September 29, 1996 were 4,782,219 and 4,722,216,
respectively, including common stock equivalents of 60,003 and 0, respectively.
Weighted average common shares outstanding for the twenty-six weeks ended
September 28, 1997 and September 29, 1996 were 4,773,886 and 4,722,216,
respectively including common stock equivalents of 51,670 and 0, respectively.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED SEPTEMBER 28, 1997 COMPARED TO SEPTEMBER 29, 1996
Revenues
Total sales increased 10.7% or $635,000 to $6,592,000 for the thirteen weeks
ended September 28, 1997 ("second quarter fiscal 1998") from $5,957,000 for the
thirteen weeks ended September 29, 1996 ("second quarter fiscal 1997").
Company-owned restaurant sales increased 2.6% or $152,000 to $6,109,000 from
$5,957,000. Comparable unit sales (units operating for 18 months or longer as of
the beginning of the fiscal year), increased by $233,000 or 4.4% in the second
quarter fiscal 1998 versus the second quarter fiscal 1997. The Company continues
to expand its local store marketing activities and value pricing strategies that
were implemented last year. In August 1997, the Company opened its eighth
Company-owned Home Depot restaurant in Staten Island, NY. At September 28, 1997
and September 29, 1996, there were 25 and 26 Company-owned units, respectively.
Sales from the Branded Product Program that was implemented in April 1997 were
$483,000 for the second quarter fiscal 1998.
Franchise fees and royalties decreased by $78,000 or 8.9% to $803,000 in the
second quarter fiscal 1998 compared to $881,000 in the second quarter fiscal
1997. Franchise royalties decreased by $71,000 or 10.3% to $621,000 in the
second quarter fiscal 1998 as compared to $692,000 in the second quarter fiscal
1997. Franchise restaurant sales, upon which royalties are based, were
$15,015,000 in the second quarter fiscal 1998 as compared to $17,312,000 in the
second quarter fiscal 1997. During the second quarter fiscal 1997, the 53 Caldor
units which were closed between November 1996 and February 1997 generated sales
and royalties of approximately $1,736,000 and $70,000, respectively. During the
second quarter fiscal 1998, franchisees and licensees opened 7 new units. At
September 28, 1997 there were 154 franchised or licensed restaurants as compared
to 180 at September 29, 1996. Franchise fee income was $182,000 in the second
quarter fiscal 1998 as compared to $189,000 in the second quarter fiscal 1997.
License royalties increased by $233,000 or 76.6% to $537,000 in the second
quarter fiscal 1998 as compared to $304,000 in the second quarter fiscal 1997.
The majority of this increase is a result of the Company's license arrangement
with SMG, Inc., for the sale of Nathan's frankfurters in supermarkets. Of the
total $233,000 increase, $60,000 represents amortization of the deferred fee
received from SMG, Inc. in conjunction with the renegotiation of their contract
which took effect January 1, 1997. The remainder of the increase is primarily
attributed to royalties earned from higher sales to supermarkets by the
licensee.
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Investment and other income was $166,000 in the second quarter fiscal 1998 as
compared to $220,000 in the second quarter fiscal 1997. The Company's investment
income in the second quarter fiscal 1998 was higher than the second quarter
fiscal 1997 by $82,000 due in part to the increased amount of marketable
investment securities and the diverse performance of the financial markets.
Other income in the second quarter fiscal 1998 was approximately $136,000 lower
than the second quarter fiscal 1997. This is due primarily to lower sources
of miscellaneous revenue in the second quarter fiscal 1998 and the impact of
reversing an accrual for expected restaurant closing costs in the second quarter
fiscal 1997.
Costs and Expenses
Cost of sales increased by $466,000 from $3,427,000 in the second quarter fiscal
1997 to $3,893,000 in the second quarter fiscal 1998. The majority of this
increase is attributable to cost of product associated with the new Branded
Product Program. As a percentage of restaurant sales, cost of restaurant sales
were 57.5% in each of the second quarter fiscal 1998 and second quarter fiscal
1997. The Company continues to take steps to improve the margin pressures which
have become essential to remain competitive in the current value conscious
marketplace and to also offset the impact of the recent minimum wage increase.
Restaurant operating expenses decreased by $100,000 from $1,780,000 in the
second quarter fiscal 1997 to $1,680,000 in the second quarter fiscal 1998. This
decrease can be attributed to the closure of two unprofitable restaurants
earlier in this fiscal year. As a percentage of restaurant sales, restaurant
operating expenses were 27.5% in the second quarter fiscal 1998 as compared to
29.9% in the second quarter fiscal 1997.
Depreciation and amortization was $260,000 in the second quarter fiscal 1997 and
in the second quarter fiscal 1998. Amortization of intangibles of $103,000 also
remained constant in both fiscal periods.
General and administrative expenses were $1,150,000 in the second quarter fiscal
1998 as compared to $947,000 in the second quarter fiscal 1997. Approximately
$70,000 of the increase relates to the effect of certain one-time benefits
recognized in the second quarter fiscal 1997.
Income Tax Provision
In the second quarter fiscal 1998, the income tax provision was $400,000 or
39.6% of income before income taxes. In the second quarter fiscal 1997, the
income tax provision was $353,000 or 42.4% of income before income taxes.
TWENTY-SIX WEEKS ENDED SEPTEMBER 28, 1997 COMPARED TO SEPTEMBER 29, 1996
Revenues
Total sales increased 6.6% or $769,000 to $12,499,000 for the twenty-six weeks
ended September 28, 1997 ("fiscal 1998") from $11,730,000 for the twenty-six
weeks ended September 29, 1996 ("fiscal 1997"). Company-owned restaurant sales
increased 1.7% or $203,000 to $11,933,000 from $11,730,000. Comparable unit
sales (units operating for 18 months or longer as of the beginning of the fiscal
year), increased by $277,000 or 2.7%
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in fiscal 1998 versus fiscal 1997. The Company has continued to expand its local
store marketing activities and value pricing strategies that were implemented
last year. In August 1997, the Company opened its eighth Company-owned Home
Depot restaurant in Staten Island, NY. Additionally, in June 1997, the Company
completed the renovation of its Yonkers, NY restaurant which is now operated as
a co-branded Nathan's / Pizza Hut / TCBY. Plans are currently being developed to
renovate and modernize the appearance and design of certain other units. Sales
from the Branded Product Program that was implemented in April 1997 were
$566,000 for fiscal 1998.
Franchise fees and royalties decreased by $220,000 or 13.0% to $1,474,000 in
fiscal 1998 compared to $1,694,000 in fiscal 1997. Franchise royalties decreased
by $126,000 or 9.6% to $1,190,000 in fiscal 1998 as compared to $1,316,000 in
fiscal 1997. Franchise restaurant sales, upon which royalties are based, were
$28,976,000 in fiscal 1998 as compared to $33,165,000 in fiscal 1997. The
reductions in systemwide sales and franchise royalties are primarily attributed
to the 53 Caldor units that were closed between November 1996 and February
1997. In fiscal 1997, these units generated sales and royalties of
approximately $3,869,000 and $155,000, respectively. During fiscal 1998,
franchisees and licensees opened 16 new units. At September 28, 1997, there
were 154 franchised or licensed restaurants as compared to 180 at September 29,
1996. Franchise fee income was $284,000 in fiscal 1998 as compared to $378,000
in fiscal 1997. The majority of this difference is due to higher franchise fees
being earned in fiscal 1997 associated with expired development agreements.
License royalties increased by $384,000 or 68.8% to $942,000 in fiscal 1998 as
compared to $558,000 in fiscal 1997. The majority of this increase is a result
of the Company's license arrangement with SMG, Inc., for the sale of Nathan's
frankfurters in supermarkets. Of the total $384,000 increase, $120,000
represents amortization of the deferred fee received from SMG, Inc. in
conjunction with the renegotiation of their contract which took effect January
1, 1997. The remainder of the difference is primarily attributed to royalties
earned from higher sales to supermarkets by the licensee.
Investment and other income was $545,000 in fiscal 1998 as compared to $352,000
in fiscal 1997. The Company's investment income in fiscal 1998 was higher than
in fiscal 1997 by $210,000 due in part to the increased amount of marketable
investment securities and the diverse performance of the financial markets. The
Company recognized a gain of approximately $130,000 from the sale of an
underperforming restaurant in fiscal 1998 and the reversal of an accrual for
expected restaurant closing costs in fiscal 1997.
Costs and Expenses
Cost of sales increased by $656,000 from $6,740,000 in fiscal 1997 to $7,396,000
in fiscal 1998. The majority of this increase is attributable to cost of product
associated with the new Branded Product Program. As a percentage of restaurant
sales, cost of restaurant sales were 58.2% in fiscal 1998 as compared to 57.5%
in fiscal 1997. The Company continues to take steps to improve the margin
erosion which has become necessary to remain competitive in the current value
conscious marketplace and to offset the impact of the recent minimum wage
increase.
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Restaurant operating expenses decreased by $152,000 from $3,445,000 in fiscal
1997 to $3,293,000 in fiscal 1998. This decrease can be attributed to the
closure of two unprofitable restaurants in fiscal 1998. As a percentage of
restaurant sales, restaurant operating expenses were 27.6% in fiscal 1998 as
compared to 29.4% in fiscal 1997.
Depreciation and amortization was $512,000 in fiscal 1998 as compared to
$521,000 in fiscal 1997. Amortization of intangibles of $199,000 remained
constant in both fiscal years.
General and administrative expenses were $2,253,000 in fiscal 1998 as compared
to $1,923,000 in fiscal 1997. Approximately $145,000 of the increase relates to
the effect of certain one-time benefits recognized in fiscal 1997.
Income Tax Provision
In fiscal 1998, the income tax provision was $720,000 or 39.9% of income before
income taxes. In fiscal 1997, the income tax provision was $617,000 or 41.4% of
income before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at September 28, 1997 aggregated $577,000, decreasing
by $70,000 during the fiscal 1998 period. At September 28, 1997, marketable
investment securities totalled $8,099,000 and net working capital increased to
$5,473,000 from $4,802,000 at March 30, 1997.
Cash provided by operations of $1,116,000 in fiscal 1998 to date is primarily
attributable to net income of $1,083,000, non-cash charges of $765,000,
including depreciation and amortization of $711,000, an increase in marketable
investment securities of $459,000, an increase in franchise and other
receivables of $297,000, a decrease in accounts payable and accrued expenses of
$145,000, a decrease in deferred franchise fees of $99,000 which was offset by a
decrease in prepaid expenses and other current assets of $244,000.
Cash used in investing activities of $1,181,000 represents property and
equipment purchases relating to the construction of a new Company-owned unit
which opened in August 1997, the renovation of the Yonkers, NY restaurant and
other fixed asset additions.
Management believes that available cash, marketable investment securities, and
internally generated funds should provide sufficient capital for its planned
operations and expansion program through fiscal 1998. The Company also maintains
a $5,000,000 uncommitted bank line of credit, which has been extended to
September 30, 1998. The Company has not borrowed any funds to date under this
line of credit.
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PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
In the summer of 1997, the action brought by the Company against Bay
Plaza Famous, Inc. ("Bay Plaza"), Daniel Rappaport and Theodore Wenacur in the
Civil Court of the City of New York, Bronx County and the counterclaims brought
against the Company by Bay Plaza and Rappaport were settled for nominal
consideration.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No. Description
27. Financial Data Schedule
(b) Reports on Form 8-K. The Company filed the following
report on Form 8-K during the period for which this
report is filed.
1. Form 8-K dated September 9, 1997 relating to item
5, Extension Agreement to the employment
agreement with the Chairman of the Board.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATHAN'S FAMOUS, INC.
Date: November 10, 1997 By: /s/ Wayne Norbitz
-----------------------------------------
Wayne Norbitz
President and Chief Operating Officer
(Principal Executive Officer)
Date: November 10, 1997 By: /s/ Ronald DeVos
-----------------------------------------
Ronald DeVos
Vice President - Finance
and Chief Financial Officer
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EXHIBIT INDEX
Exhibit
No. Exhibit
- ------- -------
27 Financial Data Schedule
-15-
5
1,000
3-MOS 6-MOS
MAR-29-1998 MAR-29-1998
JUN-30-1997 MAR-31-1997
SEP-28-1997 SEP-28-1997
0 577
0 8,099
0 2,017
0 711
0 223
0 10,878
0 13,214
0 7,082
0 28,659
0 5,405
0 0
0 0
0 0
0 47
0 23,036
0 28,659
6,592 12,499
8,098 15,460
3,893 7,396
2,043 4,004
1,135 2,223
15 30
3 4
1,009 1,803
400 720
609 1,083
0 0
0 0
0 0
609 1,083
0.13 0.23
0.00 0.00
