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 29, 1996.
[ ] 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 29, 1996, an aggregate of 4,722,216 shares of the registrant's
common stock, par value of $.01, were outstanding.
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - September 29, 1996 and
March 31, 1996 3
Consolidated Statements of Earnings - Thirteen Weeks
Ended September 29, 1996 and September 24, 1995 4
Consolidated Statements of Earnings - Twenty-six Weeks
Ended September 29, 1996 and September 24, 1995 5
Consolidated Statements of Stockholders' Equity -
Twenty-six Weeks Ended September 29, 1996 6
Consolidated Statements of Cash Flows - Twenty-six Weeks
Ended September 29, 1996 and September 24, 1995 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 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
September March
29, 1996 31, 1996
(Unaudited)
Assets
Current assets:
Cash and cash equivalents including restricted cash
of $280 and $280, respectively $2,050 $ 801
Marketable investment securities 5,843 6,128
Franchise and other receivables 1,004 1,108
Inventory 275 226
Prepaid income taxes 893 746
Prepaid expenses and other current assets 210 331
Deferred income taxes 571 571
Total current assets 10,846 9,911
Property and equipment, net 5,707 5,615
Intangible assets, net 11,833 12,025
Other assets, net 193 214
$28,579 $27,765
Current liabilities:
Current maturities of long-term debt $17 $23
Accounts payable 700 1,003
Accrued expenses and other current liabilities 5,117 4,671
Deferred franchise fees 252 277
Total current liabilities 6,086 5,974
Long-term debt, net of current maturities 27 35
Deferred area development fees 98 200
Deferred income taxes --- ---
Other Liabilities 327 414
Total liabilities 6,538 6,623
Stockholders' equity:
Common stock, $.01 par value - 20,000,000
shares authorized, 4,722,216 issued
and outstanding 47 47
Additional paid-in-capital 32,285 32,261
Accumulated deficit (10,291) (11,166)
Total stockholders' equity 22,041 21,142
$28,579 $27,765
<FN>
See accompanying notes to consolidated financial statements.
</FN>
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THIRTEEN WEEKS ENDED SEPTEMBER 29, 1996 AND SEPTEMBER 24, 1995
(In thousands, except per share amounts)
(Unaudited)
1996 1995
Sales $5,957 $5,911
Franchise fees and royalties 881 895
License royalties 304 363
Other income 220 172
Total revenues 7,362 7,341
Costs and expenses:
Cost of restaurant sales 3,427 3,367
Restaurant operating expenses 1,780 1,840
Depreciation and amortization 260 444
Amortization of intangible assets, debt
issuance and pre-opening costs 103 154
General and administrative 947 1,107
Interest expense 12 6
Total costs and expenses 6,529 6,918
Earnings before income taxes 833 423
Provision for income taxes 353 187
Net earnings $ 480 $ 236
Net earnings per common share $ 0.10 $ 0.05
Weighted average number of common and
common equivalent shares outstanding 4,722 4,722
<FN>
See accompanying notes to consolidated financial statements.
</FN>
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
TWENTY-SIX WEEKS ENDED SEPTEMBER 29, 1996 AND SEPTEMBER 24, 1995
(In thousands, except per share amounts)
(Unaudited)
1996 1995
Sales $11,730 $11,286
Franchise fees and royalties 1,694 1,700
License royalties 558 721
Other income 352 457
Total revenues 14,334 14,164
Costs and expenses:
Cost of restaurant sales 6,740 6,433
Restaurant operating expenses 3,445 3,384
Depreciation and amortization 521 865
Amortization of intangible assets, debt
issuance and pre-opening costs 199 295
General and administrative 1,923 2,313
Interest expense 14 11
Total costs and expenses 12,842 13,301
Earnings before income taxes 1,492 863
Provision for income taxes 617 394
Net earnings $ 875 $ 469
Net earnings per common share $ 0.19 $ 0.10
Weighted average number of common and
common equivalent shares outstanding 4,722 4,722
<FN>
See accompanying notes to consolidated financial statements.
</FN>
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TWENTY-SIX WEEKS ENDED SEPTEMBER 29, 1996
(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
31, 1996 4,722,216 $ 47 $ 32,388 $(127) $(11,166) $21,142
Amortization
of deferred
compensation
relating to
restricted stock 24 24
Net earnings 875 875
--------- ----- -------- ------ -------- -------
Balance, Sept.
29, 1996 4,722,216 $ 47 $ 32,388 $(103) $(10,291) $22,041
--------- ----- -------- ------ -------- -------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
TWENTY-SIX WEEKS ENDED SEPTEMBER 29, 1996 AND SEPTEMBER 24, 1995
(In thousands)
(Unaudited)
1996 1995
Cash flows from operating activities:
Net earnings $ 875 469
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 521 865
Amortization of intangible assets 199 295
Provision for doubtful accounts 30 104
Other 24 23
Changes in assets and liabilities:
Marketable investment securities 285 (3,674)
Franchise and other receivables 74 (515)
Inventory (49) (347)
Prepaids and other current assets (30) 138
Deferred income taxes - 105
Accounts payable and accrued expenses 143 210
Deferred franchise fees (25) -
Other assets 21 10
Deferred area development fees (102) (77)
Other non current liabilities (87) 34
Net cash (used in) provided by
operating activities 1,879 (2,360)
Cash flows from investing activities:
Purchase of property and equipment (616) (1,140)
Purchase of franchise restaurants - (150)
Net cash used in investing activities (616) (1,290)
Cash flows from financing activities:
Principal repayment of borrowings (14) (30)
Net cash used in financing activities (14) (30)
Net increase (decrease) in cash and
cash equivalents 1,249 (3,680)
Cash and cash equivalents, beginning of period 801 4,086
Cash and cash equivalents, end of period $ 2,050 $ 406
Cash paid during the period for:
Interest $ 3 $ 11
Income taxes 90 458
<FN>
See accompanying notes to consolidated financial statements.
</FN>
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1996
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 29, 1996 and September 24, 1995 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 31, 1996.
NOTE B - RECLASSIFICATIONS
Certain reclassifications of prior period balances have been made to
conform to the September 29, 1996 presentation.
NOTE C - EARNINGS PER SHARE
Weighted average common shares outstanding for the thirteen and twenty-six
weeks ended September 29, 1996 and September 24, 1995 were 4,722,216. There were
no common stock equivalents for the thirteen and twenty-six weeks ended
September 29, 1996 and September 24, 1995.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Thirteen weeks ended September 29, 1996 compared to September 24, 1995
Revenues
Company-owned restaurant sales increased 0.8% or $46,000 to $5,957,000 for the
thirteen weeks ended September 29, 1996 ("second quarter fiscal 1997") from
$5,911,000 for the thirteen weeks ended September 24, 1995 ("second quarter
fiscal 1996"). The Company opened one new unit during fiscal 1997 which
generated sales of $148,000 during the quarter. Comparable unit sales (units
operating for 18 months or longer as of the beginning of the fiscal year)
declined $132,000 or 2.5% during the quarter. The Company has implemented a more
aggressive local store marketing campaign and value pricing strategy in order to
address the sales softness. In March 1996 the Company completed the renovation
of two of it's larger restaurants and has experienced sales increases at such
stores thus far. Plans are currently being developed to renovate and modernize
the appearance of certain other units. At September 29, 1996 and September 24,
1995, there were 26 and 27 Company-owned units, respectively.
Franchise fees and royalties decreased by $14,000 or 1.6% to $881,000 in the
second quarter fiscal 1997 compared to $895,000 in the second quarter fiscal
1996. Franchise royalties decreased by $3,000 or 0.5% to $692,000 in the second
quarter fiscal 1997 as compared to $695,000 in the second quarter fiscal 1996.
Franchisee sales upon which royalties are based decreased to $17,312,000 in the
second quarter fiscal 1997 as compared to $17,689,000 in the second quarter
fiscal 1996 due primarily to lower comparable sales which were partially offset
by sales from the new units. At September 29, 1996 there were 180 franchise
units as compared to 168 at September 24, 1995. Franchise fee income was
$189,000 in the second quarter fiscal 1997 as compared to $200,000 in the second
quarter fiscal 1996. During the second quarter fiscal 1997 franchisees and
licensees opened 15 new units as compared to 11 new units opened during the
second quarter fiscal 1996. Lower franchise fees were earned during the second
quarter fiscal 1997 due mostly to the type of units opened which are smaller,
offer a limited menu and provide lower initial fees but ongoing royalties based
on a higher percentage of sales.
License royalties decreased by $59,000 or 16.3% to $304,000 in the second
quarter 1996 as compared to $363,000 in the second quarter fiscal 1996. This
decrease results from the Company no longer amortizing the deferred fee received
from SMG, Inc., in connection with their license agreement for the sale of
Nathan's frankfurters in supermarkets. The amortization period concluded in
February 1996.
Other income increased to $220,000 in the second quarter fiscal 1997 from
$172,000 in the second quarter fiscal 1996 primarily due to reversing an accrual
for expected costs in connection with the closing of a restaurant.
Costs and Expenses
Cost of restaurant sales increased by $60,000 from $3,367,000 in the second
quarter fiscal 1996 to $3,427,000 in the second quarter fiscal 1997. As a
percentage of restaurant sales, cost of restaurant sales increased to 57.5% in
the second quarter fiscal 1997 as compared to 57.0% in the second quarter fiscal
1996 due principally to the net impact of higher percentage food costs resulting
from the Company's pricing strategies which were mostly offset by reduced labor
costs.
Restaurant operating expenses decreased as a percentage of restaurant sales from
31.1% in the second quarter fiscal 1996 to 29.9% in the second quarter fiscal
1997. This decrease primarily resulted from the benefit derived from closing two
unprofitable restaurants in the first quarter of fiscal 1997.
Depreciation and amortization decreased by $184,000 or 41.4% from $444,000 in
the second quarter fiscal 1996 to $260,000 in the second quarter fiscal 1997.
Amortization of intangibles, debt issuance and pre-opening costs decreased by
$51,000 or 33.1% from $154,000 in the second quarter fiscal 1996 to $103,000 in
the second quarter fiscal 1997. These decreases are primarily attributable to
the reduced depreciation and amortization expense resulting from the
implementation of Financial Accounting Standards Board Statement No. 121 during
the fourth quarter of fiscal 1996.
General and administrative expenses decreased by $160,000 or 14.5% to $947,000
in the second quarter fiscal 1997 as compared to $1,107,000 in the second
quarter fiscal 1996. This decrease partially results from corporate staff
reductions made during fiscal 1997. Additionally, certain one-time benefits and
timing differences further lowered general and administrative expenses for the
second quarter fiscal 1997. As a percentage of total revenues, general &
administrative costs for the second quarter fiscal 1997 were 12.9% as compared
to 15.1% for the second quarter fiscal 1996.
Income Tax Provision
In the second quarter fiscal 1997, the income tax provision was $353,000 or
42.4% of income before income taxes. In the second quarter fiscal 1996, the
income tax provision was $187,000 or 44.2% of income before income taxes. The
fiscal 1997 tax rate has been reduced to reflect the Company's estimated
effective state tax rate.
Twenty-six weeks ended September 29, 1996 compared to September 24, 1995
Revenues
Restaurant sales increased 3.9% or $444,000 to $11,730,000 for the twenty-six
weeks ended September 29, 1996 ("fiscal 1997") from $11,286,000 for the
twenty-six weeks ended September 24, 1995 ("fiscal 1996"). The Company opened
one new unit during fiscal 1997 which generated sales of $148,000. Comparable
unit sales (units operating for 18 months or longer as of the beginning of the
fiscal year) declined $178,000 or 1.8% during the period. Sales continue to be
adversely affected by the discount strategies of the Company's principal
competitors, increased competition and certain external factors affecting
specific restaurants. The Company has implemented a more aggressive local store
marketing campaign and value pricing strategy in order to address the sales
softness. In March 1996 the Company completed the renovation of two of it's
larger restaurants and has experienced sales increases at such stores thus far.
Plans are currently being developed to renovate and modernize the appearance of
certain other units.
Franchise fees and royalties decreased by $6,000 or 0.4% to $1,694,000 in fiscal
1997 compared to $1,700,000 in fiscal 1996. Franchise royalties declined to
$1,316,000 in fiscal 1997 as compared to $1,357,000 in fiscal 1996, representing
a decrease of 3.0% or $41,000. Franchise restaurant sales upon which royalties
are based decreased to $33,165,000 in fiscal 1997 as compared to $34,626,000 in
fiscal 1996 primarily due to lower comparable sales which were partially offset
by sales from the new units. Franchise fee income increased to $378,000 in
fiscal 1997 as compared to $343,000 in fiscal 1996. During fiscal 1997,
franchisees and licensees opened 22 new units versus fiscal 1996 in which 20 new
units were opened. Higher franchise fees were earned during fiscal 1997 as
compared to fiscal 1996 due primarily to the higher recognition of fees
associated with expired development agreements.
License royalties decreased by $163,000 or 22.6% to $558,000 in fiscal 1997 as
compared to $721,000 in fiscal 1996. The majority of this decrease results from
the Company no longer amortizing the deferred fee received from SMG, Inc., in
connection with their license agreement for the sale of Nathan's frankfurters in
supermarkets. The amortization period concluded in February 1996.
Other income decreased to $352,000 in fiscal 1997 from $457,000 in fiscal 1996
primarily due to reduced investment income.
Costs and Expenses
Cost of restaurant sales increased by $307,000 from $6,433,000 in fiscal 1996 to
$6,740,000 in fiscal 1997. This increase primarily results from costs associated
with operating different units during fiscal 1997. As a percentage of restaurant
sales, the cost of restaurant sales increased to 57.5% in fiscal 1997 as
compared to 57.0% in fiscal 1996 due principally to the net impact of higher
percentage food costs resulting from the Company's pricing strategies which were
mostly offset by reduced labor costs.
Restaurant operating expenses decreased as a percentage of restaurant sales from
30.0% in the fiscal 1996 period to 29.4% in the fiscal 1997. This decrease
primarily resulted from the benefit derived from closing two unprofitable
restaurants in the first quarter of fiscal 1997.
Depreciation and amortization decreased by $344,000 or 39.8% from $865,000 in
fiscal 1996 to $521,000 in fiscal 1997. Amortization of intangibles, debt
issuance and pre-opening costs decreased by $96,000 or 32.5% from $295,000 in
fiscal 1996 to $199,000 in fiscal 1997. These decreases are primarily
attributable to the reduced depreciation and amortization expense resulting from
the implementation of Financial Accounting Standards Board Statement No. 121
during the fourth quarter of fiscal 1996.
General and administrative expenses decreased by $390,000 or 16.9% to $1,923,000
in fiscal 1997 as compared to $2,313,000 in fiscal 1996. This decrease partially
results from corporate staff reductions made during fiscal 1996 and the first
quarter fiscal 1997. Additionally, certain one-time benefits and timing
differences further lowered general and administrative expenses for fiscal 1997.
As a percentage of total revenues, general & administrative costs for fiscal
1997 was 13.4% as compared to 16.3% in fiscal 1996.
Income Tax Provision
In fiscal 1997 the income tax provision was $617,000 or 41.4% of income before
income taxes. In fiscal 1996 the income tax provision was $394,000 or 45.7% of
income before income taxes. The fiscal 1997 tax rate has been reduced to reflect
the Company's estimated effective state tax rate.
Liquidity and Capital Resources
Cash and cash equivalents at September 29, 1996 aggregated $2,050,000,
increasing by $1,249,000 during the fiscal 1997 period. At September 29, 1996,
marketable investment securities totalled $5,843,000 and net working capital
increased to $4,760,000 from $3,937,000 at March 31, 1996.
Cash provided by operations of $1,879,000 in fiscal 1997 to date is primarily
attributable to net income of $875,000, non-cash charges of $774,000, including
depreciation and amortization of $720,000, a decrease in marketable investment
securities of $285,000, an increase in accounts payable and accrued expenses of
$143,000, a decrease in franchise and other receivables of $74,000 and decreases
in deferred area development fees and other non current liabilities of $102,000
and $87,000, respectively.
Cash used in investing activities of $616,000 represents property and equipment
purchases relating to the construction of a new Company-owned unit which opened
in July 1996, 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 1997. The Company also maintains
a $5,000,000 uncommitted bank line of credit. The Company has not borrowed any
funds to date under this line of credit.
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended September 29,
1996.
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 4, 1996 By: /s/ Wayne Norbitz
Wayne Norbitz
President and Chief Operating Officer
(Principal Executive Officer)
Date: November 4, 1996 By: /s/ Ronald DeVos
Ronald DeVos
Vice President - Finance
and Chief Financial Officer