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 DECEMBER 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 December 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 - December 28, 1997 and
March 30, 1997 3
Consolidated Statements of Earnings - Thirteen Weeks
Ended December 28, 1997 and December 29, 1996 4
Consolidated Statements of Earnings - Thirty-nine Weeks
Ended December 28, 1997 and December 29, 1996 5
Consolidated Statements of Stockholders' Equity -
Thirty-nine Weeks Ended December 28, 1997 6
Consolidated Statements of Cash Flows - Thirty-nine Weeks
Ended December 28, 1997 and December 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 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
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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)
December March
28, 1997 30, 1997
-------- --------
(Unaudited)
Current assets:
Cash and cash equivalents including restricted cash of
$273 and $280, respectively $ 744 $ 647
Marketable investment securities 8,460 7,640
Franchise and other receivables 1,306 1,039
Inventory 285 213
Prepaid expenses and other current assets 370 502
Deferred income taxes 415 415
-------- --------
Total current assets 11,580 10,456
Property and equipment, net 6,048 5,480
Intangible assets, net 11,362 11,640
Other assets, net 193 218
-------- --------
$ 29,183 $ 27,794
======== ========
Current liabilities:
Current maturities of long-term debt $ 12 $ 17
Accounts payable 668 754
Accrued expenses and other current liabilities 4,699 4,614
Deferred franchise fees 155 269
-------- --------
Total current liabilities 5,534 5,654
Long-term debt, net of current maturities 18 21
Other Liabilities 294 143
-------- --------
Total liabilities 5,846 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 32,343 32,307
Accumulated deficit (9,053) (10,378)
-------- --------
Total stockholders' equity 23,337 21,976
-------- --------
$ 29,183 $ 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 DECEMBER 28, 1997 AND DECEMBER 29, 1996
(In thousands, except per share amounts)
(Unaudited)
1997 1996
------ ------
Sales $5,638 $5,304
Franchise fees and royalties 863 862
License royalties 252 299
Investment and other income 72 134
------ ------
Total revenues 6,825 6,599
------ ------
Costs and expenses:
Cost of sales 3,515 3,262
Restaurant operating expenses 1,434 1,623
Depreciation and amortization 246 253
Amortization of intangible assets 112 107
General and administrative 1,106 1,030
Interest expense 0 1
------ ------
Total costs and expenses 6,413 6,276
------ ------
Earnings before income taxes 412 323
Provision for income taxes 170 137
------ ------
Net earnings $ 242 $ 186
====== ======
Basic earnings per common share $ 0.05 $ 0.04
====== ======
Diluted earnings per common share $ 0.05 $ 0.04
====== ======
Shares used to compute basic earnings per share 4,722 4,722
====== ======
Shares used to compute diluted earnings per share 4,771 4,722
====== ======
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THIRTY-NINE WEEKS ENDED DECEMBER 28, 1997 AND DECEMBER 29, 1996
(In thousands, except per share amounts)
(Unaudited)
1997 1996
------- -------
Sales $18,137 $17,034
Franchise fees and royalties 2,337 2,556
License royalties 1,194 857
Investment and other income 617 486
------- -------
Total revenues 22,285 20,933
------- -------
Costs and expenses:
Cost of sales 10,911 10,002
Restaurant operating expenses 4,727 5,068
Depreciation and amortization 758 774
Amortization of intangible assets 311 306
General and administrative 3,359 2,953
Interest expense 4 15
------- -------
Total costs and expenses 20,070 19,118
------- -------
Earnings before income taxes 2,215 1,815
Provision for income taxes 890 754
------- -------
Net earnings $ 1,325 $ 1,061
======= =======
Basic earnings per common share $ 0.28 $ 0.22
======= =======
Diluted earnings per common share $ 0.28 $ 0.22
======= =======
Shares used to compute basic earnings per share 4,722 4,722
======= =======
Shares used to compute diluted earnings per share 4,773 4,722
======= =======
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THIRTY-NINE WEEKS ENDED DECEMBER 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 36 36
Net earnings 1,325 1,325
--------- --------- --------- --------- --------- ---------
Balance, Dec
28, 1997 4,722,216 $ 47 $ 32,388 $ (45) $ (9,053) $ 23,337
========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTY-NINE WEEKS ENDED DECEMBER 28, 1997 AND DECEMBER 29, 1996
(In thousands)
(Unaudited)
1997 1996
------- -------
Cash flows from operating activities:
Net earnings $ 1,325 $ 1,061
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 758 774
Amortization of intangible assets 311 306
Provision for doubtful accounts 45 45
Other 36 35
Changes in assets and liabilities:
Marketable investment securities (820) (355)
Franchise and other receivables (312) (279)
Inventory (72) 3
Prepaids and other current assets 132 465
Accounts payable and accrued expenses (1) (16)
Deferred franchise fees (114) (79)
Other assets 25 18
Deferred area development fees -- (156)
Other liabilities 151 (19)
------- -------
Net cash provided by operating activities 1,464 1,803
------- -------
Cash flows from investing activities:
Purchase of property and equipment (1,359) (688)
------- -------
Net cash used in investing activities (1,359) (688)
------- -------
Cash flows from financing activities:
Principal repayment of borrowings (8) (17)
------- -------
Net cash used in financing activities (8) (17)
------- -------
Net increase in cash and cash equivalents 97 1,098
Cash and cash equivalents, beginning of period 647 801
------- -------
Cash and cash equivalents, end of period $ 744 $ 1,899
======= =======
Cash paid during the period for:
Interest $ 1 $ 16
Income taxes $ 416 $ (181)
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 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 thirty-nine week periods ended
December 28, 1997 and December 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.
NOTE B - EARNINGS PER SHARE
In March 1997, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. This
statement establishes standards for computing and presenting earnings per share
("EPS"), replacing the presentation of primary EPS with a presentation of basic
EPS. For entities with complex capital structures, the statement requires the
dual presentation of both Basic EPS and Diluted EPS on the face of the statement
of earnings. SFAS No. 128 is effective for financial statements issued for the
periods ending after December 15, 1997, including interim periods.
The following charts provide the reconciliations of information used in
calculating the per share amounts:
FOR THE QUARTER ENDED FOR THE THIRTY-NINE WEEKS ENDED
DECEMBER 28, 1997 DECEMBER 28, 1997
----------------- -----------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ ------ ------ ------ ------
Net Income $ 242,000 $1,325,000
BASIC EPS
Income available to
common stockholders $ 242,000 4,722,216 $ 0.05 $1,325,000 4,722,216 $ 0.28
EFFECT OF DILUTIVE SECURITIES
Options 48,336 50,558
--------- ---------
DILUTED EPS
Income available to
common stockholders $ 242,000 4,770,552 $ 0.05 $1,325,000 4,772,774 $ 0.28
========== ========= ========== ========== ========= ==========
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FOR THE QUARTER ENDED FOR THE THIRTY-NINE WEEKS ENDED
DECEMBER 29, 1996 DECEMBER 29, 1996
----------------- -----------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ ------ ------ ------ ------
Net Income $ 186,000 $1,061,000
BASIC EPS
Income available to
common stockholders $ 186,000 4,722,216 $ 0.04 $1,061,000 4,722,216 $ 0.22
EFFECT OF DILUTIVE SECURITIES
Options -0- -0-
--------- ---------
DILUTED EPS
Income available to
common stockholders $ 186,000 4,772,216 $ 0.04 $1,061,000 4,722,216 $ 0.22
========== ========= ========== ========== ========= ==========
Options to purchase 552,831 shares of common stock at prices ranging between
$4.00 and $8.00 per share were outstanding as of December 28, 1997 but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of common shares. The options
typically have a ten year life and expire at dates ranging between December 2002
and March 2007.
Warrants to purchase 350,000 shares of common stock at prices ranging between
$3.25 and $4.50 per share were outstanding as of December 28, 1997 but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of common shares. The warrants have a
life of five or ten years and expire at dates ranging between November 2001 and
July 2007.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED DECEMBER 28, 1997 COMPARED TO DECEMBER 29, 1996
Revenues
Total sales increased 6.3% or $334,000 to $5,638,000 for the thirteen weeks
ended December 28, 1997 ("third quarter fiscal 1998") from $5,304,000 for the
thirteen weeks ended December 29, 1996 ("third quarter fiscal 1997").
Company-owned restaurant sales increased 0.7% or $38,000 to $5,342,000 from
$5,304,000. Comparable unit sales (units operating for 18 months or longer as of
the beginning of the fiscal year), increased by $166,000 or 3.6% in the third
quarter fiscal 1998 versus the third quarter fiscal 1997. The Company continues
to expand its local store marketing activities and value pricing strategies that
were implemented last year. At December 28, 1997 and December 29, 1996, there
were 25 and 26 Company-owned units, respectively. Sales from the Branded Product
Program that was implemented in April 1997 were $296,000 for the third quarter
fiscal 1998.
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Franchise fees and royalties increased by $1,000 or 0.1% to $863,000 in the
third quarter fiscal 1998 compared to $862,000 in the third quarter fiscal 1997.
Franchise royalties increased by $6,000 or 0.9% to $695,000 in the third quarter
fiscal 1998 as compared to $689,000 in the third quarter fiscal 1997. In the
third quarter fiscal 1998, the Company recorded additional royalty income of
approximately $40,000 from a reconciliation of prior royalties. Franchise
restaurant sales, upon which royalties are based, were $15,505,000 in the third
quarter fiscal 1998 as compared to $16,935,000 in the third quarter fiscal 1997.
During the third quarter fiscal 1997, the 53 Caldor units which were closed
between November 1996 and February 1997 generated sales and royalties of
approximately $2,174,000 and $87,000, respectively. During the third quarter
fiscal 1998, franchisees and licensees opened 4 new units. At December 28, 1997,
there were 154 franchised or licensed restaurants as compared to 180 at December
29, 1996. Franchise fee income was $168,000 in the third quarter fiscal 1998 as
compared to $173,000 in the third quarter fiscal 1997.
License royalties decreased by $47,000 or 15.7% to $252,000 in the third quarter
fiscal 1998 as compared to $299,000 in the third quarter fiscal 1997. This
decrease is primarily attributed to lower royalties earned from sales to
supermarkets by the Company's licensee, SMG, Inc., which was partially offset by
$60,000 from the amortization of the deferred fee received from SMG, Inc. in
conjunction with the renegotiation of their contract which took effect January
1, 1997. In the third quarter fiscal 1998 the Company earned license fees of
$10,000 as compared to $30,000 in the third quarter fiscal 1997.
Investment and other income was $72,000 in the third quarter fiscal 1998 as
compared to $134,000 in the third quarter fiscal 1997. The Company's investment
income in the third quarter fiscal 1998 was lower than the third quarter fiscal
1997 by $67,000 due primarily to the disparity in the performance of the
financial markets.
Costs and Expenses
Cost of sales increased by $253,000 from $3,262,000 in the third quarter fiscal
1997 to $3,515,000 in the third 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 61.4% in the third quarter fiscal 1998 and 61.5% in the third quarter
fiscal 1997. The Company continues to take steps to reverse the margin pressures
which have become essential in order 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 $189,000 from $1,623,000 in the third
quarter fiscal 1997 to $1,434,000 in the third quarter fiscal 1998. This
decrease can be primarily attributed to the closure of two unprofitable
restaurants earlier in this fiscal year. As a percentage of restaurant sales,
restaurant operating expenses were 26.8% in the third quarter fiscal 1998 as
compared to 30.6% in the third quarter fiscal 1997.
Depreciation and amortization was $246,000 in the third quarter fiscal 1998 and
$253,000 in the third quarter fiscal 1997. Amortization of intangibles of
$112,000 in the third quarter fiscal 1998 and $107,000 in the third quarter
fiscal 1997.
General and administrative expenses were $1,106,000 in the third quarter fiscal
1998 as compared to $1,030,000 in the third quarter fiscal 1997.
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Income Tax Provision
In the third quarter fiscal 1998, the income tax provision was $170,000 or 41.3%
of income before income taxes. In the third quarter fiscal 1997, the income tax
provision was $137,000 or 42.4% of income before income taxes.
THIRTY-NINE WEEKS ENDED DECEMBER 28, 1997 COMPARED TO DECEMBER 29, 1996
Revenues
Total sales increased 6.5% or $1,103,000 to $18,137,000 for the thirty-nine
weeks ended December 28, 1997 ("fiscal 1998") from $17,034,000 for the
thirty-nine weeks ended December 29, 1996 ("fiscal 1997"). Company-owned
restaurant sales increased 1.4% or $241,000 to $17,275,000 from $17,034,000.
Comparable unit sales (units operating for 18 months or longer as of the
beginning of the fiscal year), increased by $443,000 or 2.9% 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. Construction is currently underway for
three new units within Home Depot Improvement Centers. Additionally, 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 $862,000 for fiscal 1998.
Franchise fees and royalties decreased by $219,000 or 8.6% to $2,337,000 in
fiscal 1998 compared to $2,556,000 in fiscal 1997. Franchise royalties decreased
by $120,000 or 6.0% to $1,885,000 in fiscal 1998 as compared to $2,005,000 in
fiscal 1997. Franchise restaurant sales, upon which royalties are based, were
$44,482,000 in fiscal 1998 as compared to $50,100,000 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
$6,042,000 and $242,000, respectively. During fiscal 1998, franchisees and
licensees opened 20 new units. At December 28, 1997, there were 154 franchised
or licensed restaurants as compared to 180 at December 29, 1996. Franchise fee
income was $452,000 in fiscal 1998 as compared to $551,000 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 $337,000 or 39.3% to $1,194,000 in fiscal 1998 as
compared to $857,000 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 $337,000 increase, $180,000
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 $617,000 in fiscal 1998 as compared to $486,000
in fiscal 1997. The Company's investment income in fiscal 1998 was higher than
in fiscal 1997 by $143,000 due in part to the increased amount of marketable
investment securities and the disparity in the performance of the financial
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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 $909,000 from $10,002,000 in fiscal 1997 to
$10,911,000 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 59.2% in fiscal 1998 as
compared to 58.7% in fiscal 1997. The Company continues to take steps to reverse
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.
Restaurant operating expenses decreased by $341,000 from $5,068,000 in fiscal
1997 to $4,727,000 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 27.4% in fiscal 1998 as
compared to 29.8% in fiscal 1997.
Depreciation and amortization was $758,000 in fiscal 1998 as compared to
$774,000 in fiscal 1997. Amortization of intangibles was $311,000 in fiscal 1998
as compared to $306,000 in fiscal 1997.
General and administrative expenses were $3,359,000 in fiscal 1998 as compared
to $2,953,000 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 $890,000 or 40.2% of income before
income taxes. In fiscal 1997, the income tax provision was $754,000 or 41.5% of
income before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at December 28, 1997 aggregated $744,000, increasing
by $97,000 during the fiscal 1998 period. At December 28, 1997, marketable
investment securities totalled $8,460,000 and net working capital increased to
$6,046,000 from $4,802,000 at March 30, 1997.
Cash provided by operations of $1,464,000 in fiscal 1998 to date is primarily
attributable to net income of $1,325,000, total non-cash charges of $1,150,000,
including depreciation and amortization of $1,069,000, an increase in other
noncurrent liabilities of $151,000 and a decrease in prepaid expenses and other
current assets of $132,000 which were offset by increases in marketable
investment securities of $820,000 and franchise and other receivables of
$312,000 and a decrease in deferred franchise fees of $114,000.
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Cash used in investing activities of $1,359,000 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 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No. Description
27. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter
ended December 28, 1997.
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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: February 2, 1998 By: /s/ Wayne Norbitz
------------------------------------------
Wayne Norbitz
President and Chief Operating Officer
(Principal Executive Officer)
Date: February 2, 1998 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
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