<PAGE> 1
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 28, 1998.
[ ] 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 28, 1998, 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 28, 1998 and
March 29, 1998 3
Consolidated Statements of Earnings - Thirteen Weeks
Ended June 28, 1998 and June 29, 1997 4
Consolidated Statements of Stockholders' Equity -
Thirteen Weeks Ended June 28, 1998 5
Consolidated Statements of Cash Flows - Thirteen Weeks
Ended June 28, 1998 and June 29, 1997 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 11
SIGNATURES 12
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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)
<TABLE>
<CAPTION>
June March
28, 1998 29, 1998
-------- --------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents including restricted cash of
$272 and $273, respectively $ 1,105 $ 1,306
Marketable investment securities 8,228 8,514
Franchise and other receivables, net 1,627 976
Inventory 352 356
Prepaid expenses and other current assets 44 276
Deferred income taxes 522 478
-------- --------
Total current assets 11,878 11,906
Property and equipment, net 6,252 6,171
Intangible assets, net 11,173 11,270
Other assets, net 194 192
-------- --------
$ 29,497 $ 29,539
======== ========
Current liabilities:
Accounts payable $ 661 $ 956
Accrued expenses and other current liabilities 4,289 4,708
Deferred franchise fees 185 125
Current installments of obligations under capital leases 12 12
-------- --------
Total current liabilities 5,147 5,801
Obligations under capital leases, net of current installments 6 9
Other liabilities 173 143
-------- --------
Total liabilities 5,326 5,953
-------- --------
Stockholders' equity:
Common stock, $.01 par value - 20,000,000 shares
authorized, 4,722,216 issued and outstanding 47 47
Additional paid-in-capital 32,400 32,389
Accumulated deficit (8,276) (8,850)
-------- --------
Total stockholders' equity 24,171 23,586
-------- --------
$ 29,497 $ 29,539
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 4
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THIRTEEN WEEKS ENDED JUNE 28, 1998 AND JUNE 29, 1997
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Sales $6,568 $5,907
Franchise fees and royalties 738 671
License royalties 381 405
Investment and other income 134 379
------ ------
Total revenues 7,821 7,362
------ ------
Costs and expenses:
Cost of sales 4,008 3,503
Restaurant operating expenses 1,451 1,613
Depreciation and amortization 254 252
Amortization of intangible assets 96 96
General and administrative 1,248 1,103
Interest expense 1 1
------ ------
Total costs and expenses 7,058 6,568
------ ------
Earnings before income taxes 763 794
Provision for income taxes 189 320
------ ------
Net earnings $ 574 $ 474
====== ======
PER SHARE INFORMATION
Net earnings per share
Basic $ 0.12 $ 0.10
====== ======
Diluted $ 0.12 $ 0.10
====== ======
Shares used in computing net income
Basic 4,722 4,722
====== ======
Diluted 4,762 4,766
====== ======
</TABLE>
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 28, 1998
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Total
Additional Deferred Accum- Stock-
Common Common Paid in- Compen- ulated holders'
Shares Stock Capital sation Deficit Equity
<S> <C> <C> <C> <C> <C> <C>
Balance, March
29, 1998 4,722,216 $ 47 $ 32,423 $ (34) $ (8,850) $ 23,586
Amortization
of deferred
compensation
relating to
restricted stock 11 11
Net earnings 574 574
--------- --------- --------- --------- --------- ---------
Balance, June
28, 1998 4,722,216 $ 47 $ 32,423 $ (23) $ (8,276) $ 24,171
========= ========= ========= ========= ========= =========
</TABLE>
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 28, 1998 AND JUNE 29, 1997
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 574 $ 474
Adjustments to reconcile net earnings to
net cash provided by / (used in) operating activities:
Depreciation 254 252
Amortization of intangible assets 96 96
Provision for doubtful accounts 15 15
Amortization of deferred compensation 12 12
Gain on the sale of restaurant -- (130)
Deferred income taxes (44) --
Changes in assets and liabilities:
Marketable investment securities 286 (210)
Franchise and other receivables (666) (327)
Inventory 4 (4)
Prepaid and other current assets 232 244
Accounts payable and accrued expenses (714) (297)
Deferred franchise fees 60 14
Other assets (2) 26
Other non current liabilities 30 1
------- -------
Net cash provided by operating activities 137 166
------- -------
Cash flows from investing activities:
Purchase of property and equipment (336) (699)
Proceeds from the sale of property and equipment -- 130
------- -------
Net cash used in investing activities (336) (569)
------- -------
Cash flows from financing activities:
Principal repayment of obligations under capital leases (2) (3)
------- -------
Net cash used in financing activities (2) (3)
------- -------
Net decrease in cash and cash equivalents (201) (406)
Cash and cash equivalents, beginning of period 1,306 647
------- -------
Cash and cash equivalents, end of period $ 1,105 $ 241
======= =======
Cash paid during the period for:
Interest $ 1 $ 1
Income taxes 263 260
</TABLE>
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 28, 1998
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 28, 1998
and June 29, 1997 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 29, 1998.
NOTE B - RECLASSIFICATIONS
Certain reclassifications of prior period balances have been made to conform to
the June 28, 1998 presentation.
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 28, 1998 and June
29, 1997, respectively.
<TABLE>
<CAPTION>
Net Income
Net Income Number of Shares Per Share
---------- ---------------- ---------
1998 1997 1998 1997 1998 1997
----- ----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Basic calculation $ 574 $ 474 4,722 4,722 $ .12 $ .10
Effect of dilutive employee stock
Options and warrants -- -- 40 44 -- --
----- ----- ----- ----- -------- --------
Diluted EPS
Diluted calculation $ 574 $ 474 4,762 4,766 $ .12 $ .10
</TABLE>
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NOTE D - COMPREHENSIVE INCOME
In the first quarter of fiscal 1999, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income", which requires companies to report all changes
in equity during a period, except those resulting from investment by owners and
distribution to owners, in a financial statement for the period in which they
are recognized. Comprehensive income is the total of net income and all nonowner
changes in equity (or other comprehensive income) such as unrealized gains /
losses on securities available-for-sale, foreign currency translation
adjustment and minimum pension liability adjustments. Comprehensive and other
comprehensive income must be reported on the face of the annual financial
statements or in the case of interim reporting, in the footnotes to the
financial statements. For fiscal 1998 and for the quarters ended June 28, 1998
and June 29, 1997, the Company's operations did not give rise to items
includible in comprehensive income which were not already included in net
income. Therefore, the Company's comprehensive income is the same as its net
income for all periods presented.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Thirteen weeks ended June 28, 1998 compared to June 29, 1997
Revenues
Total sales increased 11.2% or $661,000 to $6,568,000 for the thirteen weeks
ended June 28, 1998 ("first quarter fiscal 1999") from $5,907,000 for the
thirteen weeks ended June 29, 1997 ("first quarter fiscal 1998"). Company-owned
restaurant sales increased 2.9% or $168,000 to $5,992,000 from $5,824,000.
Comparable unit sales (units operating for 18 months or longer as of the
beginning of the fiscal year), were flat in the first quarter fiscal 1999 versus
the first quarter fiscal 1998. The Company continues to emphasize local store
marketing activities and value pricing strategies and will be complimenting
these activities with a radio and billboard campaign during the summer 1998. The
Company has recently completed the renovation of its 86th Street restaurant in
Brooklyn, NY, including a drive-thru operation, and is currently renovating its
restaurant in the Kings Plaza Shopping Center. Plans are currently being
considered to renovate and modernize the appearance and design of certain other
Company-owned units. At June 28, 1998 and June 29, 1997, there were 27 and 24
Company-owned units, respectively. Sales from the Branded Product Program which
was introduced in the first quarter fiscal 1998 were $576,000 for the first
quarter fiscal 1999 as compared to sales of $ 83,000 in the first quarter fiscal
1998.
Franchise fees and royalties increased by $67,000 or 10.0% to $738,000 in the
first quarter fiscal 1999 compared to $671,000 in the first quarter fiscal 1998.
Franchise royalties increased by $70,000 or 12.3% to $638,000 in the first
quarter fiscal 1999 as compared to $568,000 in the first quarter fiscal 1998.
Franchise restaurant sales, upon which royalties are based, increased by
$1,637,000, to $15,598,000 in the first quarter fiscal 1999 as compared to
$13,961,000 in the first quarter fiscal 1998. The majority of the sales increase
can be attributed to the new franchised and licensed units operating during the
first quarter fiscal 1999. At June 28, 1998 there were
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<PAGE> 9
158 franchised or licensed restaurants as compared to 150 at June 29, 1997.
Franchise fee income was $100,000 in the first quarter fiscal 1999 as compared
to $103,000 in the first quarter fiscal 1998. During the first quarter fiscal
1999, 3 new franchised or licensed units opened.
License royalties decreased by $24,000 or 5.9% to $381,000 in the first quarter
fiscal 1999 as compared to $405,000 in the first quarter fiscal 1998. This
decrease is partially attributable to lower sales by the Company's licensee,
SMG, Inc., for the sale of Nathan's frankfurters in supermarkets. In the first
quarter fiscal 1999, the Company earned royalties of approximately $50,000 in
connection with a new license agreement for the sale of Nathan's home meal
replacements in supermarkets. During the first quarter fiscal 1998 the Company
recognized income of $60,000 from the amortization of the deferred fee received
from SMG, Inc. which was fully amortized in March 1998.
Investment and other income was $134,000 in the first quarter fiscal 1999 versus
$379,000 in the first quarter fiscal 1998. Approximately $120,000 of the
decrease is the result of lower earnings on the Company's marketable investment
securities as a result of the change in performance of the financial markets.
During fiscal 1998, the Company also recognized a gain of approximately $130,000
from the sale of an underperforming restaurant.
Costs and Expenses
Cost of sales increased by $505,000 from $3,503,000 in the first quarter fiscal
1998 to $4,008,000 in the first quarter fiscal 1999. Higher costs were incurred
in conjunction with the growth of the Branded Product Program and the three
additional restaurants operating during the first quarter fiscal 1999. The cost
of restaurant sales was 59.6% of restaurant sales in the first quarter fiscal
1999 as compared to 58.9% of restaurant sales in the first quarter fiscal 1998.
This increase is due primarily to higher food and labor costs associated with
the Company's ongoing promotional activities and the impact of the minimum wage
increase which took effect in September 1997. 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 decreased by $162,000 from $1,613,000 in the first
quarter fiscal 1998 to $1,451,000 in the first quarter fiscal 1999. This
decrease can be partly attributed to reduced costs resulting from the closure of
two unprofitable restaurants in June 1997 and April 1998. As a percentage of
restaurant sales, restaurant operating expenses were 24.2% in the first quarter
fiscal 1999 as compared to 27.7% in the first quarter fiscal 1998.
Depreciation and amortization increased by $2,000 or 0.8% from $252,000 in the
first quarter fiscal 1998 to $254,000 in the first quarter fiscal 1999.
Amortization of intangibles was $96,000 in both fiscal years.
General and administrative expenses increased by $145,000 or 13.1% to $1,248,000
in the first quarter fiscal 1999 as compared to $1,103,000 in the first quarter
fiscal 1998. Approximately $71,000 of the increase relates to salaries primarily
to support the Company's new growth initiatives, $29,000 relates to
international
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<PAGE> 10
development efforts and $24,000 is associated with management incentive plans
based upon the achievement of predetermined financial targets.
Income Tax Provision
In the first quarter fiscal 1999, the income tax provision was $189,000 or 24.8%
of earnings before income taxes. In fiscal 1998, management of the Company
determined that, more likely than not, a portion of its previously-reserved
deferred tax assets would be realized and, accordingly, reduced the related
valuation allowance. Management continues to monitor the likelihood of the
realizability of its deferred tax asset and has recognized, based upon the
current facts and circumstances, further adjustment to its deferred tax
valuation allowance in accordance with Financial Accounting Standards Board
Statement No. 109 "Accounting for Income Taxes". In the first quarter fiscal
1999 the Company reduced its valuation allowance by $136,000. The first quarter
fiscal 1999 provision before adjustment for the valuation allowance was $325,000
or 42.5% of income before taxes. In the first quarter fiscal 1998, the income
tax provision was $320,000 or 40.3% of income before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at June 28, 1998 aggregated $1,105,000, decreasing by
$201,000 during the fiscal 1999 period. At June 28, 1998, marketable investment
securities totalled $8,228,000 and net working capital increased to $6,731,000
from $6,105,000 at March 29, 1998.
Cash provided by operations of $137,000 in the fiscal 1999 period is primarily
attributable to net income of $574,000, non-cash charges of $377,000, including
depreciation and amortization of $350,000, decreases in marketable investment
securities of $286,000 and prepaid and other current assets of $232,000, a
decrease in accounts payable and accrued expenses of $714,000, and an increase
in franchise and other receivables of $666,000.
Cash used in investing activities of $336,000 represents capital acquisitions
relating to the renovations of a Company-owned 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 1999. 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
The Company has undergone an internal evaluation of its computer systems and has
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 the growing business requirements and assure Year 2000 compliance,
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<PAGE> 11
the Company has decided to replace its existing accounting systems. In July
1998, the Company entered into a contract to license Lawson Accounting software
which has been assured to be Year 2000 compliant. A consultant is currently
implementing the Lawson software and will assist in the conversion of the
Company's old accounting information. The Company believes that the
implementation can be accomplished in a timely manner. The Company estimates the
capital cost associated with this effort to be approximately $350,000, however,
there can be no assurance to this effect. Additionally, the Company has
addressed the Year 2000 issue with its Point of Sale provider and has been
assured that their systems will be Year 2000 compliant. The Company cannot
predict the effect of the Year 2000 problem on the vendors and others with which
the Company transacts business and there can be no assurance that the effect of
the Year 2000 problem on such entities will not have a material adverse effect
on the Company'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
None.
(b) No reports on Form 8-K were filed during the quarter ended June 28,
1998.
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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 7, 1998 By: /s/ Wayne Norbitz
--------------------
Wayne Norbitz
President and Chief Operating Officer
(Principal Executive Officer)
Date: August 7, 1998 By: /s/ Ronald G. DeVos
----------------------
Ronald G. DeVos
Vice President - Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-28-1999
<PERIOD-START> MAR-30-1998
<PERIOD-END> JUN-28-1998
<CASH> 1105
<SECURITIES> 8228
<RECEIVABLES> 2185
<ALLOWANCES> 558
<INVENTORY> 352
<CURRENT-ASSETS> 11878
<PP&E> 14118
<DEPRECIATION> 7866
<TOTAL-ASSETS> 29497
<CURRENT-LIABILITIES> 5147
<BONDS> 0
0
0
<COMMON> 47
<OTHER-SE> 24124
<TOTAL-LIABILITY-AND-EQUITY> 29497
<SALES> 6568
<TOTAL-REVENUES> 7821
<CGS> 4008
<TOTAL-COSTS> 1801
<OTHER-EXPENSES> 1233
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 763
<INCOME-TAX> 189
<INCOME-CONTINUING> 574
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 574
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
