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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Act
of 1934 for the quarterly period ended JUNE 27, 1999.
[ ] 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 June 27, 1999, 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 - June 27, 1999 and
March 28, 1999 3
Consolidated Statements of Earnings - Thirteen Weeks
Ended June 27, 1999 and June 28, 1998 4
Consolidated Statements of Stockholders' Equity -
Thirteen Weeks Ended June 27, 1999 5
Consolidated Statements of Cash Flows - Thirteen Weeks
Ended June 27, 1999 and June 28, 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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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)
June March
27, 1999 28, 1999
-------- --------
(Unaudited)
Current assets:
Cash and cash equivalents including restricted
cash of $83 and $83, respectively $ 1,600 $ 2,165
Marketable investment securities 3,296 3,267
Franchise and other receivables, net 1,808 1,578
Inventory 422 374
Prepaid expenses and other current assets 267 411
Deferred income taxes 622 622
-------- --------
Total current assets 8,015 8,417
Investment in unconsolidated affiliate 4,461 4,441
Property and equipment, net 6,166 6,293
Intangible assets, net 12,634 10,882
Deferred income taxes 892 892
Other assets, net 190 325
-------- --------
$ 32,358 $ 31,250
======== ========
Current liabilities:
Accounts payable $ 1,157 $ 1,053
Accrued expenses and other current liabilities 4,054 3,434
Deferred franchise fees 136 222
-------- --------
Total current liabilities 5,347 4,709
Other liabilities 194 193
-------- --------
Total liabilities 5,541 4,902
-------- --------
Stockholders' equity:
Common stock, $.01 par value - 20,000,000 shares
authorized, 4,722,216 issued and outstanding 47 47
Additional paid-in-capital 32,423 32,423
Accumulated deficit (5,653) (6,122)
-------- --------
Total stockholders' equity 26,817 26,348
-------- --------
$ 32,358 $ 31,250
======== ========
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THIRTEEN WEEKS ENDED JUNE 27, 1999 AND JUNE 28, 1998
(In thousands, except per share amounts)
(Unaudited)
1999 1998
------ ------
Sales $6,608 $6,568
Franchise fees and royalties 963 738
License royalties 406 381
Investment and other income 97 134
------ ------
Total revenues 8,074 7,821
------ ------
Costs and expenses:
Cost of sales 4,080 4,008
Restaurant operating expenses 1,529 1,451
Depreciation and amortization 259 254
Amortization of intangible assets 113 96
General and administrative 1,283 1,248
Interest expense -- 1
------ ------
Total costs and expenses 7,264 7,058
------ ------
Earnings before income taxes 810 763
Provision for income taxes 341 189
------ ------
Net earnings $ 469 $ 574
====== ======
PER SHARE INFORMATION
Net earnings per share
Basic $ 0.10 $ 0.12
====== ======
Diluted $ 0.10 $ 0.12
====== ======
Shares used in computing net income
Basic 4,722 4,722
====== ======
Diluted 4,744 4,762
====== ======
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THIRTEEN WEEKS ENDED JUNE 27, 1999
(In thousands, except share amounts)
(Unaudited)
Total
Additional Accum- Stock-
Common Common Paid in- ulated holders'
Shares Stock Capital Deficit Equity
--------- --------- --------- --------- ---------
Balance, March
28, 1999 4,722,216 $ 47 $ 32,423 $ (6,122) $ 26,348
Net earnings 469 469
--------- --------- --------- --------- ---------
Balance, June
27, 1999 4,722,216 $ 47 $ 32,423 $ (5,653) $ 26,817
========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTEEN WEEKS ENDED JUNE 27, 1999 AND JUNE 28, 1998
(In thousands)
(Unaudited)
1999 1998
------- -------
Cash flows from operating activities:
Net earnings $ 469 $ 574
Adjustments to reconcile net earnings to
net cash provided by / (used in) operating activities:
Depreciation 259 254
Amortization of intangible assets 113 96
Provision for doubtful accounts 18 15
Amortization of deferred compensation -- 12
Deferred income taxes -- (44)
Changes in assets and liabilities:
Marketable investment securities (29) 286
Franchise and other receivables (248) (666)
Inventory (48) 4
Prepaid and other current assets 144 232
Accounts payable and accrued expenses 724 (714)
Deferred franchise fees (86) 60
Other assets 135 (2)
Other non current liabilities 1 30
------- -------
Net cash provided by operating activities 1,452 137
------- -------
Cash flows from investing activities:
Purchase of property and equipment (148) (336)
Investment in wholly owned subsidiary (1,849) --
Investment in unconsolidated affiliate (20) --
------- -------
Net cash used in investing activities (2,017) --
------- -------
Cash flows from financing activities:
Principal repayment of obligations under capital leases -- (2)
------- -------
Net cash used in financing activities -- (2)
------- -------
Net decrease in cash and cash equivalents (565) (201)
Cash and cash equivalents, beginning of period 2,165 1306
------- -------
Cash and cash equivalents, end of period $ 1,600 $ 1,105
======= =======
Cash paid during the period for:
Interest $ -- $ 1
Income taxes 102 263
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 27, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements of Nathan's Famous, Inc. and
subsidiaries (the "Company") for the thirteen week periods ended June 27, 1999
and June 28, 1998 have been prepared in accordance with generally accepted
accounting principles. The unaudited financial statements include all
adjustments (consisting of normal recurring adjustments) which, in the opinion
of management, were necessary for a fair presentation of financial condition,
results of operations and cash flows for such periods presented. 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 28, 1999.
NOTE B - NF ROASTERS CORP. ACQUISITION
On February 19, 1999, the U. S. Bankruptcy Court for the Middle District of
North Carolina, Durham Division, confirmed the Joint Plan of Reorganization of
the Official Committee of Franchisees of Roasters Corp. and Roasters Franchise
Corp., operators of Kenny Rogers Roasters Restaurants. Under the joint plan of
reorganization, on April 1, 1999, Nathan's acquired the intellectual property
rights, including trademarks, recipes and franchise agreements of Roasters Corp.
and Roasters Franchise Corp. for $1,250,000 in cash plus related expenses, which
was paid out of Nathans' working capital. NF Roasters Corp., a wholly owned
subsidiary, was created for the purpose of acquiring these assets. Results of
operations are included in these consolidated financial statements as of the
date of acquisition. No Company-owned restaurants were acquired in this
transaction.
NOTE C - EARNINGS PER SHARE
The following chart provides a reconciliation of information used in calculating
the per share amounts for the thirteen week periods ended June 27, 1999 and June
28, 1998, respectively.
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Net Income
Net Income Number of Shares Per Share
---------- ---------------- ---------
1999 1998 1999 1998 1999 1998
----- ----- ----- ----- -------- --------
Basic EPS
Basic calculation $ 469 $ 574 4,722 4,722 $ .10 $ .12
Effect of dilutive employee stock
options and warrants -- -- 22 40 -- --
----- ----- ----- ----- -------- --------
Diluted EPS
Diluted calculation $ 469 $ 574 4,744 4,762 $ .10 $ .12
===== ===== ===== ===== ======== ========
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
INTRODUCTION
On November 25, 1998, Nathan's acquired 8,121,000 shares, or approximately 29.9%
of the outstanding common stock, of Miami Subs Corporation for $4,200,000,
excluding transaction costs, and entered into a non-binding letter of intent
which contemplated the acquisition of the remaining outstanding shares of Miami
Subs. After giving effect to Miami Subs one-for-four reverse stock split in
January 1999, Nathan's now owns 2,030,250 shares of Miami Subs common stock. On
January 15, 1999, Nathan's and Miami Subs entered into a definitive merger
agreement under which Nathan's is expected to acquire the remaining outstanding
shares of Miami Subs in exchange for approximately 2,319,000 shares of Nathan's
common stock and warrants to acquire approximately 580,000 shares of Nathan's
common stock at a price of $6.00 per share. The merger is subject to certain
conditions, including approval by a majority of the stockholders of Nathan's and
Miami Subs. On June 30, 1999, Nathan's and Miami Subs successfully completed
their due diligence.
RESULTS OF OPERATIONS
Thirteen weeks ended June 27, 1999 compared to June 28, 1998
Revenues
Total sales increased $40,000 to $6,608,000 for the thirteen weeks ended June
27, 1999 ("first quarter fiscal 2000") from $6,568,000 for the thirteen weeks
ended June 28, 1998 ("first quarter fiscal 1999"). Company-owned restaurant
sales decreased 4.1% or $248,000 to $5,744,000 from $5,992,000. Restaurant sales
declined because two Company-owned restaurants were closed during fiscal 1999
due to the expiration of the leases for the locations.. These two stores
generated sales and profits of $460,000 and $105,000, respectively, during the
first quarter of fiscal 1999. At June 27, 1999 there were 25 company-owned units
as compared to 27 units at June 28, 1998. Comparable unit sales (units operating
for 18 months or longer as of the beginning of the fiscal year)
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increased 3.6% in the first quarter fiscal 2000 versus the first quarter fiscal
1999. The Company continues to emphasize local store marketing activities, new
product introductions and value pricing strategies. These activities are being
complimented by a regional newsprint campaign during the summer of 1999. Sales
from the Branded Product Program increased by 50.0% to $864,000 for the first
quarter fiscal 2000 as compared to sales of $576,000 in the first quarter fiscal
1999.
Franchise fees and royalties increased by $225,000 or 30.5% to $963,000 in the
first quarter fiscal 2000 compared to $738,000 in the first quarter fiscal 1999.
Franchise royalties increased by $148,000 to $786,000 in the first quarter
fiscal 2000 as compared to $638,000 in the first quarter fiscal 1999. Royalties
earned from the recently acquired Kenny Rogers Roasters restaurant system were
approximately $144,000 in the first quarter fiscal 2000. Franchise restaurant
sales of the Nathan's brand, were $15,538,000 in the first quarter fiscal 2000
as compared to $15,598,000 in the first quarter fiscal 1999. At June 27, 1999
there were 163 franchised or licensed restaurants within the Nathan's franchise
system as compared to 158 at June 28, 1998. Franchise fee income was $177,000 in
the first quarter fiscal 2000 as compared to $100,000 in the first quarter
fiscal 1999.This increase was primarily attributable to the difference between
expired franchise fees recognized between the two years. During the first
quarter fiscal 2000, 5 new Nathan's franchised or licensed units opened.
License royalties were $406,000 in the first quarter fiscal 2000 as compared to
$381,000 in the first quarter fiscal 1999.
Investment and other income was $97,000 in the first quarter fiscal 2000 versus
$134,000 in the first quarter fiscal 1999. Approximately $50,000 of the decrease
resulted from lower earnings from the reduced face value of marketable
investment securities and the difference in performance of the financial markets
between the two years.
Costs and Expenses
Cost of sales increased by $72,000 from $4,008,000 in the first quarter fiscal
1999 to $4,080,000 in the first quarter fiscal 2000. Higher costs were incurred
due to the growth of the Branded Product Program and the increase in comparable
store sales which were offset by the closure of two Company-owned restaurants.
The cost of restaurant sales was 58.1% of restaurant sales in the first quarter
fiscal 2000 as compared to 59.6% of restaurant sales in the first quarter fiscal
1999. The decrease, as a percentage of restaurant sales, is due primarily to,
increases in the Company's average check over the prior year without
proportionate percentage increases in direct costs resulting from the Company's
promotional activities. The Company continues to seek to operate more
efficiently as a means to minimize the margin pressures which have become an
integral part of competing in the current value conscious marketplace.
Restaurant operating expenses increased by $78,000 from $1,451,000 in the first
quarter fiscal 1999 to $1,529,000 in the first quarter fiscal 2000. This
increase is primarily attributed to higher store marketing expenses of $64,000,
higher occupancy costs of $41,000 at a restaurant that was renovated last year
and a fiscal 1999
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property tax recovery of $30,000. Restaurant operating costs for the two closed
restaurants were $78,000 for the first quarter of fiscal 1999.
Depreciation and amortization increased by $5,000 or 2.0% from $254,000 in the
first quarter fiscal 1999 to $259,000 in the first quarter fiscal 2000.
Amortization of intangibles increased by $17,000 or 17.7% from $96,000 in the
first quarter fiscal 1999 to $113,000 in the first quarter fiscal 2000. This
increase is due to the amortization, based upon the preliminary purchase price
allocation, of the Kenny Rogers Roasters intellectual property acquired on April
1, 1999.
General and administrative expenses increased by $35,000 or 2.8% to $1,283,000
in the first quarter fiscal 2000 as compared to $1,248,000 in the first quarter
fiscal 1999. Approximately $98,000 of incremental expenses were incurred in the
first quarter fiscal 2000 associated with Kenny Rogers Roasters. The Company
plans to increase quarterly spending throughout the balance of the year in
connection with research & development of the Kenny Rogers Brand, although no
assurances can be given to this effect. General and administrative expenses,
excluding Kenny Rogers Roasters, decreased by $63,000 or 5.1% primarily due to
lower spending in connection with international development of approximately
$25,000, reduced additional compensation of approximately $22,000 and lower
corporate insurance of approximately $9,000.
Income Tax Provision
In the first quarter fiscal 2000, the income tax provision was $341,000 or 42.1%
of earnings before income taxes as compared to $189,000 or 24.8% of earnings
before income taxes in the first quarter fiscal 1999. The income tax provision
in the first quarter fiscal 1999 included a reduction to the Company's deferred
tax valuation allowance of $136,000. The first quarter fiscal 1999 provision
before adjustment for the valuation allowance was $325,000 or 42.5%.
Management of the Company had determined that, more likely than not, a portion
of its previously-reserved deferred tax assets would be realized and,
accordingly, initially reduced the related valuation allowance in fiscal 1998.
Throughout fiscal 1999, management continued to monitor the likelihood of the
realizability of its deferred tax asset, and in the fourth quarter fiscal 1999,
fully recognized, based upon the current facts and circumstances, adjustment to
its deferred tax valuation allowance in accordance with Financial Accounting
Standards Board Statement No. 109 "Accounting for Income Taxes".
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at June 27, 1999 aggregated $1,600,000, decreasing by
$565,000 during the fiscal 2000 period. At June 27, 1999, marketable investment
securities totalled $3,296,000 and net working capital decreased to $2,668,000
from $3,708,000 at March 28, 1999.
Cash provided by operations of $1,452,000 in the fiscal 2000 period is primarily
attributable to net income of $469,000, non-cash charges of $390,000, including
depreciation and amortization of $372,000, decreases in
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prepaid and other current assets of $144,000, a decrease in other assets of
$135,000, increases in accounts payable and accrued expenses of $724,000, an
increase in franchise and other receivables of $248,000 and a decrease in
deferred franchise fees of $86,000.
Cash used in investing activities of $2,017,000 includes $1,849,000 for the
acquisition of the intellectual property of the Kenny Rogers Roasters restaurant
system and $168,000 primarily relating to capital improvements of the
Company-owned restaurants 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 2000. 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.
YEAR 2000
Nathan's performed an internal evaluation of its computer systems and determined
that its existing computer systems would require a significant amount of effort
and cost in order to make them Year 2000 compliant. Accordingly, in order to
meet its growing business requirements and assure Year 2000 compliance, Nathan's
decided to replace its existing accounting systems and modify its other
technology systems, other than its point of sale system as discussed below. In
July 1998, Nathan's entered into a contract to license Lawson Accounting
software which has been certified to be Year 2000 compliant. Nathan's
successfully completed the conversion of its financial systems in January 1999
and the remaining aspects of the complete Lawson implementation, were completed
in June 1999. With the implementation of this new system, all of Nathan's major
financial systems have been certified to be Year 2000 complaint; however, since
Nathan's has not conducted its own testing, no assurance can be given in this
regard. Nathan's has spent approximately $349,000 to date and estimates that the
total cost associated with ensuring compliance of its internal systems to be
approximately $375,000. Nathan's doesn't expect the final cost to vary
materially; however, there can be no assurance to this effect.
Nathan's has addressed the Year 2000 issue with its Point of Sale
provider and has received assurance that their hardware is Year 2000 compliant
and that the software corrections already installed will make the POS systems
Year 2000 compliant; however, since Nathan's has not conducted its own testing,
no assurance can be given in this regard. Nathan's has notified its franchisees,
in the most recent monthly franchise mailing, that they should contact their
Point of Sale provider to be sure that they have received and installed the
correction software mentioned above.
Nathan's has received assurance from its financial institutions that
their systems are or will be Year 2000 compliant before the end of the year.
Nathan's has begun to contact key suppliers and distributors about their state
of readiness and is seeking their assurances with respect to their Year 2000
compliance and contingency plans. No assurances can be given that such suppliers
and distributors will in fact be Year 2000 compliant. Nathan's believes that its
primary Year 2000 risk relating to its operations is centered upon the ability
of its suppliers and distributors to continue to receive Nathan's orders by
telephone and have the product delivered by
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truck. Nathan's expects to conclude evaluating this Year 2000 risk by the end of
September 1999 and thereafter will develop any necessary contingency plans to
assure continued supply of products to its restaurants. Nathan's cannot predict
the effect of the Year 2000 problem on the vendors and others with which
Nathan's transacts business and there can be no assurance that the effect of the
Year 2000 problem on the entities Nathan's does business with will not have a
material adverse effect on Nathan's business, operating results and financial
position.
FORWARD LOOKING STATEMENT
Certain statements contained in this report are forward-looking statements which
are subject to a number of known and unknown risks and uncertainties that could
cause the Company's actual results and performance to differ materially from
those described or implied in the forward looking statements. These risks and
uncertainties, many of which are not within the Company's control, include, but
are not limited to economic, weather, legislative and business conditions; the
availability of suitable restaurant sites on reasonable rental terms; changes in
consumer tastes; ability to continue to attract franchisees; the ability to
purchase our primary food and paper products at reasonable prices; no material
increases in the minimum wage; and the Company's ability to attract competent
restaurant, and managerial personnel.
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Assignment and Assumption of "Kenny Rogers Roaster" Franchise
Agreements, Master Development Agreements, and Intellectual Property.
(b) No reports on Form 8-K were filed during the quarter ended June 27,
1999.
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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: August 9, 1999 By: /s/ Wayne Norbitz
------------------------------------------------
Wayne Norbitz
President and Chief Operating Officer
(Principal Executive Officer)
Date: August 9, 1999 By: /s/ Ronald G. DeVos
------------------------------------------------
Ronald G. DeVos
Vice President - Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
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