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 December 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 January 31, 1997, 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
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - December 29, 1996 and
March 31, 1996 3
Consolidated Statements of Earnings - Thirteen Weeks
Ended December 29, 1996 and December 24, 1995 4
Consolidated Statements of Earnings - Thirty-nine Weeks
Ended December 29, 1996 and December 24, 1995 5
Consolidated Statements of Stockholders' Equity -
Thirty-nine Weeks Ended December 29, 1996 6
Consolidated Statements of Cash Flows - Thirty-nine Weeks
Ended December 29, 1996 and December 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 1. Legal Proceedings 13
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)
December March
29, 1996 31, 1996
--------- ----------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents including restricted
cash of $280 and $280, respectively $1,899 $ 801
Marketable investment securities 6,483 6,128
Franchise and other receivables 1,342 1,108
Inventory 223 226
Prepaid income taxes 319 746
Prepaid expenses and other current assets 293 331
Deferred income taxes 571 571
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Total current assets 11,130 9,911
Property and equipment, net 5,511 5,615
Intangible assets, net 11,737 12,025
Other assets, net 196 214
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$28,574 $27,765
======= =======
Current liabilities:
Current maturities of long-term debt $18 $23
Accounts payable 731 1,003
Accrued expenses and other current liabilities 4,927 4,671
Deferred franchise fees 198 277
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Total current liabilities 5,874 5,974
Long-term debt, net of current maturities 23 35
Deferred area development fees 44 200
Deferred income taxes --- ---
Other Liabilities 395 414
------- -------
Total liabilities 6,336 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 32,296 32,261
Accumulated deficit (10,105) (11,166)
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Total stockholders' equity 22,238 21,142
------- -------
$28,574 $27,765
======= =======
See accompanying notes to consolidated financial statements.
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THIRTEEN WEEKS ENDED DECEMBER 29, 1996 AND DECEMBER 24, 1995
(In thousands, except per share amounts)
(Unaudited)
1996 1995
---- ----
Sales $5,304 $5,104
Franchise fees and royalties 862 870
License royalties 299 365
Other income 134 190
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Total revenues 6,599 6,529
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Costs and expenses:
Cost of restaurant sales 3,262 3,205
Restaurant operating expenses 1,623 1,706
Depreciation and amortization 253 395
Amortization of intangible assets, debt
issuance and pre-opening costs 107 156
General and administrative 1,030 1,052
Interest expense 1 5
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Total costs and expenses 6,276 6,519
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Earnings before income taxes 323 10
Provision for income taxes 137 4
------- -------
Net earnings $ 186 $ 6
======= =======
Net earnings per common share $ 0.04 $ 0.00
======= =======
Weighted average number of common and
common equivalent shares outstanding 4,722 4,722
======= =======
See accompanying notes to consolidated financial statements.
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THIRTY-NINE WEEKS ENDED DECEMBER 29, 1996 AND DECEMBER 24, 1995 (In thousands,
except per share amounts)
(Unaudited)
1996 1995
---- ----
Sales $17,034 $16,389
Franchise fees and royalties 2,556 2,570
License royalties 857 1,086
Other income 486 648
------- -------
Total revenues 20,933 20,693
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Costs and expenses:
Cost of restaurant sales 10,002 9,638
Restaurant operating expenses 5,068 5,090
Depreciation and amortization 774 1,260
Amortization of intangible assets, debt
issuance and pre-opening costs 306 450
General and administrative 2,953 3,365
Interest expense 15 17
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Total costs and expenses 19,118 19,820
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Earnings before income taxes 1,815 873
Provision for income taxes 754 399
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Net earnings $ 1,061 $ 474
======= =======
Net earnings per common share $ 0.22 $ 0.10
======= =======
Weighted average number of common and
common equivalent shares outstanding 4,722 4,722
======= =======
See accompanying notes to consolidated financial statements.
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THIRTY-NINE WEEKS ENDED DECEMBER 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 35 35
1,061 1,061
Net earnings --------- -------- --------- --------- --------- ---------
Balance, Dec.
29, 1996 4,722,216 $ 47 $ 32,388 $ (92) $(10,105) $22,238
========= ======== ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTY-NINE WEEKS ENDED DECEMBER 29, 1996 AND DECEMBER 24, 1995
(In thousands)
(Unaudited)
1996 1995
---- ----
Cash flows from operating activities:
Net earnings $ 1,061 474
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 774 1,260
Amortization of intangible assets 306 450
Provision for doubtful accounts 45 83
Other 35 35
Changes in assets and liabilities:
Marketable investment securities (355) (2,683)
Franchise and other receivables (279) (679)
Inventory 3 (273)
Prepaids and other current assets 465 52
Deferred income taxes - (41)
Accounts payable and accrued expenses (16) (77)
Deferred franchise fees (79) 2
Other assets 18 (33)
Deferred area development fees (156) (82)
Other non current liabilities (19) (59)
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Net cash (used in) provided by
operating activities 1,803 (1,571)
------- -------
Cash flows from investing activities:
Purchase of property and equipment (688) (1,889)
Purchase of franchise restaurants - (150)
------- -------
Net cash used in investing activities (688) (2,039)
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Cash flows from financing activities:
Principal repayment of borrowings (17) (46)
Net cash used in financing activities (17) (46)
------- -------
Net increase (decrease) in cash and cash
equivalents 1,098 (3,656)
Cash and cash equivalents, beginning of period 801 4,086
------- -------
Cash and cash equivalents, end of period $1,899 $ 430
======= =======
Cash paid / (refunded) during the period for:
Interest $ 16 $ 17
Income taxes (181) 631
See accompanying notes to consolidated financial statements.
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 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 thirty-nine week periods ended
December 29, 1996 and December 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 December 29, 1996 presentation.
NOTE C - EARNINGS PER SHARE
Weighted average common shares outstanding for the thirteen and thirty-nine
weeks ended December 29, 1996 and December 24, 1995 were 4,722,216. There were
no common stock equivalents for the thirteen and thirty-nine weeks ended
December 29, 1996 and December 24, 1995.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Thirteen weeks ended December 29, 1996 compared to December 24, 1995
Revenues
Company-owned restaurant sales increased 3.9% or $200,000 to $5,304,000 for the
thirteen weeks ended December 29, 1996 ("third quarter fiscal 1997") from
$5,104,000 for the thirteen weeks ended December 24, 1995 ("third quarter fiscal
1996"). The Company opened one new unit during the current fiscal year which
generated sales of $122,000 during the third quarter fiscal 1997. Comparable
unit sales (units operating for 18 months or longer as of the beginning of the
current fiscal year) increased $118,000 or 2.8% during the quarter. Throughout
the third quarter fiscal 1997, the Company continued to focus on its aggressive
local store marketing campaigns and value pricing strategy in order to address
the competitive environment. In March 1996, the Company completed the renovation
of two of its larger restaurants and since that time has experienced sales
increases at such stores. Plans are currently being developed to renovate and
modernize the appearance of certain other Company-owned units. At December 29,
1996 and December 24, 1995, there were 26 and 27 Company-owned units,
respectively.
Franchise fees and royalties decreased by $8,000 or 0.9% to $862,000 in the
third quarter fiscal 1997 compared to $870,000 in the third quarter fiscal 1996.
Franchise royalties decreased by $4,000 or 0.6% to $689,000 in the third quarter
fiscal 1997 as compared to $693,000 in the third quarter fiscal 1996. Franchisee
sales upon which royalties are based decreased to $17,128,000 in the third
quarter fiscal 1997 as compared to $17,587,000 in the third quarter fiscal 1996
due primarily to lower comparable sales which were partially offset by sales
from the new units opened during the current fiscal year. At December 29, 1996
there were 180 franchise units as compared to 176 at December 24, 1995.
Franchise fee income was $173,000 in the third quarter fiscal 1997 as compared
to $177,000 in the third quarter fiscal 1996. During the third quarter fiscal
1997 franchisees and licensees opened 7 new units as compared to 10 new units
opened during the third quarter fiscal 1996. Franchise fees earned during fiscal
1996 also included revenue earned from a non refundable deposit associated with
the sale of certain exclusive rights for development within Russia.
License royalties decreased by $66,000 or 18.1% to $299,000 in the third quarter
1997 as compared to $365,000 in the third quarter fiscal 1996. This decrease
primarily 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 $134,000 in the third quarter fiscal 1997 from
$190,000 in the third quarter fiscal 1996 primarily due to reduced investment
income.
Costs and Expenses
Cost of restaurant sales increased by $57,000 from $3,205,000 in the third
quarter fiscal 1996 to $3,262,000 in the third quarter fiscal 1997. As a
percentage of restaurant sales, cost of restaurant sales decreased to 61.5% in
the third quarter fiscal 1997 as compared to 62.8% in the third quarter fiscal
1996 due principally to the net impact of higher percentage costs of food and
paper resulting from the Company's marketing strategies which were offset by
reduced labor and benefit costs as a percentage of restaurant sales.
Restaurant operating expenses decreased as a percentage of restaurant sales from
33.4% in the third quarter fiscal 1996 to 30.6% in the third 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 $142,000 or 35.9% from $395,000 in
the third quarter fiscal 1996 to $253,000 in the third quarter fiscal 1997.
Amortization of intangibles, debt issuance and pre-opening costs decreased by
$49,000 or 31.4% from $156,000 in the third quarter fiscal 1996 to $107,000 in
the third 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 $22,000 or 2.1% to $1,030,000
in the third quarter fiscal 1997 as compared to $1,052,000 in the third quarter
fiscal 1996. This decrease partially results from corporate staff reductions
made during fiscal 1997. As a percentage of total revenues, general &
administrative costs for the third quarter fiscal 1997 were 15.6% as compared to
16.1% for the third quarter fiscal 1996.
Income Tax Provision
In the third quarter fiscal 1997, the income tax provision was $137,000 or 42.4%
of income before income taxes. In the third quarter fiscal 1996, the income tax
provision was $4,000 or 40.0% of income before income taxes.
Thirty-nine weeks ended December 29, 1996 compared to December 24, 1995
Revenues
Restaurant sales increased 3.9% or $645,000 to $17,034,000 for the thirty-nine
weeks ended December 29, 1996 ("fiscal 1997") from $16,389,000 for the
thirty-nine weeks ended December 24, 1995 ("fiscal 1996"). The Company opened
one new unit during fiscal 1997 which generated sales of $270,000. Comparable
unit sales (units operating for 18 months or longer as of the beginning of the
current fiscal year) declined $61,000 or 0.4% during the period. Sales continue
to be challenged by the discount strategies of the Company's principal
competitors, increased competition and certain external factors affecting
specific restaurants. During fiscal 1997, 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 its 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 Company-owned units.
Franchise fees and royalties decreased by $14,000 or 0.5% to $2,556,000 in
fiscal 1997 compared to $2,570,000 in fiscal 1996. Franchise royalties declined
to $2,005,000 in fiscal 1997 as compared to $2,050,000 in fiscal 1996,
representing a decrease of 2.2% or $45,000. Franchise restaurant sales upon
which royalties are based decreased to $50,293,000 in fiscal 1997 as compared to
$52,213,000 in fiscal 1996 primarily due to lower comparable sales which were
partially offset by sales from the new units opened during the current fiscal
year. Franchise fee income increased to $551,000 in fiscal 1997 as compared to
$520,000 in fiscal 1996. During fiscal 1997, franchisees and licensees opened 29
new units versus fiscal 1996 in which 30 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.
Franchise fees earned during fiscal 1996 also included revenue earned from a non
refundable deposit associated with the sale of certain exclusive rights for
development within Russia.
License royalties decreased by $229,000 or 21.1% to $857,000 in fiscal 1997 as
compared to $1,086,000 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 $486,000 in fiscal 1997 from $648,000 in fiscal 1996
primarily due to reduced investment income.
Costs and Expenses
Cost of restaurant sales increased by $364,000 from $9,638,000 in fiscal 1996 to
$10,002,000 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 decreased to 58.7% in fiscal 1997
as compared to 58.8% in fiscal 1996 due principally to the net impact of higher
percentage costs of food and paper resulting from the Company's marketing
strategies which were offset by lower labor and benefit costs as a percentage of
sales.
Restaurant operating expenses decreased as a percentage of restaurant sales from
31.1% in fiscal 1996 to 29.8% 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 $486,000 or 38.6% from $1,260,000 in
fiscal 1996 to $774,000 in fiscal 1997. Amortization of intangibles, debt
issuance and pre-opening costs decreased by $144,000 or 32.0% from $450,000 in
fiscal 1996 to $306,000 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 $412,000 or 12.2% to $2,953,000
in fiscal 1997 as compared to $3,365,000 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 and administrative costs for fiscal
1997 were 14.1% as compared to 16.3% in fiscal 1996.
Income Tax Provision
In fiscal 1997 the income tax provision was $754,000 or 41.5% of income before
income taxes. In fiscal 1996 the income tax provision was $399,000 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 December 29, 1996 aggregated $1,899,000, increasing
by $1,098,000 during fiscal 1997. At December 29, 1996, marketable investment
securities totalled $6,483,000 and net working capital increased to $5,256,000
from $3,937,000 at March 31, 1996.
Cash provided by operations of $1,791,000 in fiscal 1997 is primarily
attributable to net income of $1,061,000, non-cash charges of $1,160,000,
including depreciation and amortization of $1,080,000, a decrease in prepaids
and other current assets of $465,000, increases in marketable investment
securities of $355,000, and franchise and other receivables of $279,000 and
decreases in deferred area development fees and deferred franchise fees of
$156,000 and $79,000, respectively.
Cash used in investing activities of $688,000 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 1: Legal Proceedings
CSX Transportation v. Nathan's et al.
The Company has been named as one of several "generator defendants" in an
action brought by CSX Transportation, Inc. ("CSX") and Staten Island -
Arlington, Inc. ("Arlington") in the Supreme Court of the State of New York,
County of New York.
According to the complaint, CSX, through its wholly owned subsidiary,
Arlington, owned certain property in Staten Island (the "Arlington Yard") which,
according to the complaint, during the period May 15, 1988 through September 14,
1988 was the site of illegal solid waste dumping activity allegedly orchestrated
by certain defendants convicted of such activity in United States v. Paccione,
et al. (the "Paccione Defendants").
Pursuant to an Order on Consent into which CSX alleges it entered with the
NYS Dept. of Environmental Conservation ("DEC"), CSX undertook to remediate the
site and to reimburse the DEC for amounts expended in connection with a
preliminary investigation of the site. CSX is now suing several "transporter
defendants" (ie., those who allegedly had wastes generated by them transported
to Arlington Yard), for damages and injunctive relief based upon various
theories of law, including private and public nuisance, restitution, equitable
indemnity and trespass.
The Company has filed an answer in which it denied generally involvement
with the site and perforce, any liability to the plaintiffs under the theories
advanced, asserted affirmatively several legal and equitable defenses to
liability in these circumstances, and alternatively, interposed cross claims for
contribution against other defendants.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Modification Agreement to the Employment Agreement between the
Company and Wayne Norbitz dated December 28, 1992.
10.2 Amendment to License Agreement dated as of February 28,
1994, among Nathan's Famous Systems, Inc. and SMG, Inc.,
including waivers and amendments thereto.
(b) No reports on Form 8-K were filed during the quarter ended December
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: February 4, 1997 By: /s/ Wayne Norbitz
Wayne Norbitz
President and Chief Operating Officer
(Principal Executive Officer)
Date: February 4, 1997 By: /s/ Ronald DeVos
Ronald DeVos
Vice President - Finance
and Chief Financial Officer