<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 SEPTEMBER 24, 2000.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Act of 1934 for the transition period from to .
Commission File Number 0-3189
NATHAN'S FAMOUS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 11-3166443
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(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
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(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
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At September 24, 2000, an aggregate of 7,065,199 shares of the registrant's
common stock, par value of $.01, were outstanding.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - September 24, 2000 and
March 26, 2000 3
Consolidated Statements of Earnings - Thirteen Weeks
Ended September 24, 2000 and September 26, 1999 4
Consolidated Statements of Earnings - Twenty-six Weeks
Ended September 24, 2000 and September 26, 1999 5
Consolidated Statements of Stockholders' Equity -
Twenty-six Weeks Ended September 24, 2000 6
Consolidated Statements of Cash Flows - Twenty-six Weeks
Ended September 24, 2000 and September 26, 1999 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 4 Submission of Matter to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Item 7A. Qualitative and Quantitative Disclosures about Market Risk 16
SIGNATURES 17
</TABLE>
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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>
Sept. 24, March 26,
2000 2000
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(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents including unexpended
marketing fund contributions of $2,865 and $509 and
restricted cash of $83 and $83, respectively $ 4,700 $ 2,397
Marketable securities and investment in limited partnership 5,135 2,997
Notes and accounts receivables, net 3,563 2,618
Inventories 597 543
Prepaid expenses and other current assets 573 635
Deferred income taxes 1,578 1,578
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Total current assets 16,146 10,768
Notes receivable, net 2,352 2,527
Property and equipment, net 13,788 13,977
Assets held for sale 745 945
Intangible assets, net 18,743 19,092
Deferred income taxes 711 711
Other assets, net 516 563
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$ 53,001 $ 48,583
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable and capital lease obligations $ 285 $ 279
Accounts payable 1,530 1,727
Accrued expenses and other current liabilities 10,111 8,398
Deferred franchise fees 519 686
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Total current liabilities 12,445 11,090
Notes payable and capital lease obligations, less current maturities 2,987 3,131
Other liabilities 2,466 1,015
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Total liabilities 17,898 15,236
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Stockholders' equity:
Common stock, $.01 par value - 30,000,000 and 30,000,000 shares
authorized, 7,065,199 and 7,040,196 issued and
outstanding, respectively 71 70
Additional paid-in capital 40,746 40,669
Accumulated deficit (5,714) (7,392)
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Total stockholders' equity 35,103 33,347
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$ 53,001 $ 48,583
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Thirteen weeks ended September 24, 2000 and September 26, 1999
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Sales $ 9,752 $ 6,671
Franchise fees and royalties 2,119 967
License royalties 600 508
Equity in earnings of unconsolidated affiliate -- 69
Investment and other income 396 4
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Total revenues 12,867 8,219
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Costs and expenses:
Cost of sales 6,236 4,086
Restaurant operating expenses 2,216 1,515
Depreciation and amortization 471 260
Amortization of intangible assets 201 112
General and administrative expenses 2,138 1,240
Interest expense 74 --
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Total costs and expenses 11,336 7,213
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Income before income taxes 1,531 1,006
Provision for income taxes 598 390
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Net income $ 933 $ 616
======= =======
PER SHARE INFORMATION
Net income per share
Basic $ 0.13 $ 0.13
======= =======
Diluted $ 0.13 $ 0.13
======= =======
Shares used in computing net income per share
Basic 7,065 4,722
======= =======
Diluted 7,155 4,722
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Twenty-six weeks ended September 24, 2000 and September 26, 1999
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Sales $19,653 $13,279
Franchise fees and royalties 4,408 1,930
License royalties 1,177 914
Equity in earnings of unconsolidated affiliate -- 59
Investment and other income 733 111
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Total revenues 25,971 16,293
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Costs and expenses:
Cost of sales 12,650 8,166
Restaurant operating expenses 4,673 3,044
Depreciation and amortization 939 519
Amortization of intangible assets 402 225
General and administrative expenses 4,379 2,523
Interest expense 146 --
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Total costs and expenses 23,189 14,477
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Income before income taxes 2,782 1,816
Provision for income taxes 1,104 731
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Net income $ 1,678 $ 1,085
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PER SHARE INFORMATION
Net income per share
Basic $ 0.24 $ 0.23
======= =======
Diluted $ 0.24 $ 0.23
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Shares used in computing net income per share
Basic 7,053 4,722
======= =======
Diluted 7,099 4,722
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</TABLE>
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Twenty-six weeks ended September 24, 2000
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Total
Additional Accum- Stock-
Common Common Paid in- ulated holders'
Shares Stock Capital Deficit Equity
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, March 26, 2000 7,040,196 $ 70 $ 40,669 $ (7,392) $ 33,347
Warrants exercised in connection
with Miami Subs acquisition 3 -- -- -- --
Stock compensation 25,000 1 77 -- 78
Net income 1,678 1,678
--------- --------- --------- --------- ---------
Balance, Sept. 24, 2000 7,065,199 $ 71 $ 40,746 $ (5,714) $ 35,103
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Twenty-six weeks ended September 24, 2000 and September 26, 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,678 $ 1,085
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 939 519
Amortization of intangible assets 402 225
Provision for doubtful accounts 27 38
Stock compensation expense 78 --
Equity in earnings of unconsolidated affiliate -- (59)
Changes in operating assets and liabilities, net of effects from acquisition of
business:
Marketable securities and investment in limited partnership (2,138) 30
Notes and accounts receivables, net (1,045) (605)
Inventories (54) (40)
Prepaid expenses and other current assets 62 161
Accounts payable and accrued expenses 1,516 206
Deferred franchise and area development fees (167) (19)
Other assets, net 47 134
Other non current liabilities 1,451 5
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Net cash provided by operating activities 2,796 1,680
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Cash flows from investing activities:
Purchase of property and equipment (778) (387)
Purchase of intellectual property -- (1,590)
Investment in unconsolidated affiliate -- (147)
Proceeds from sale of assets held for sale 45
Payments received on notes receivable 378 --
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Net cash used in investing activities (355) (2,124)
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Cash flows from financing activities:
Principal repayment of borrowings and obligations under capital leases (138) --
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Net cash used in financing activities (138) --
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Net increase (decrease) in cash and cash equivalents 2,303 (444)
Cash and cash equivalents, beginning of period 2,397 2,165
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Cash and cash equivalents, end of period $ 4,700 $ 1,721
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $ 1,041 $ 302
======= =======
Cash paid during the period for interest $ 149 $ --
======= =======
NONCASH FINANCING ACTIVITIES:
Loan to franchisee in connection with restaurant sale $ 130 $ --
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 24, 2000
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements of Nathan's Famous, Inc. and
subsidiaries (collectively "Nathan's") for the thirteen and twenty-six week
periods ended September 24, 2000 and September 26, 1999 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 Nathan's Annual Report on Form 10-K for
the fiscal year ended March 26, 2000.
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 of
approximately $340,000. NF Roasters Corp., a wholly owned subsidiary, was
created for the purpose of acquiring these assets. The acquired assets are
recorded as intangibles in the accompanying balance sheet and are being
amortized on a straight-line basis over 10 - 20 years. Results of operations are
included in these consolidated financial statements as of April 1, 1999. No
company-owned restaurants were acquired in this transaction. On November 17,
1999, NF Roasters Corp. acquired two restaurants from a franchisee for
approximately $400,000, which opened in March and April 2000.
NOTE C -MIAMI SUBS CORPORATION MERGER
On September 30, 1999, Nathan's completed the acquisition of Miami Subs and
acquired the remaining outstanding common stock of Miami Subs in exchange for
2,317,980 shares of Nathan's common stock, 579,040 warrants to purchase Nathan's
common stock, and the assumption of existing employee options and warrants to
purchase 542,284 shares of Miami Subs' common stock in connection with the
merger. The total purchase price was approximately $13,000,000 including
acquisition costs. In addition, Nathan's also assumed $5,340,000 of existing
Miami Subs debt. The acquisition was accounted for as a purchase under
Accounting Principles Board ("APB") Opinion No. 16, "Accounting for Business
Combinations". In accordance with APB No. 16, Nathan's allocated the purchase
price of Miami Subs based on the estimated fair value of the assets acquired and
liabilities assumed. Portions of the purchase price allocations were determined
by professional appraisers utilizing recognized valuation procedures and
techniques.
In connection with the acquisition of Miami Subs, Nathan's is executing its
plans to permanently close up to 18 underperforming company-owned restaurants.
Nathan's expects to sell such related assets at amounts below the historical
carrying amounts recorded by Miami Subs. In accordance with APB 16 "Business
Combinations" the write down of these assets is reflected as part of the
preliminary purchase price allocations and are included in assets held for sale
in the accompanying balance sheet. To date, Nathan's
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<PAGE> 9
has sold assets available for sale valued at March 26, 2000 at $200,000 for
$175,000. As of September 24, 2000, Nathan's has accrued approximately $785,000
for lease termination costs, as part of the acquisition. Nathan's also expects
to further accrue, as part of the acquisition, the estimated future cash
payments, consisting primarily of future lease payments including costs and
expenses associated with terminating such leases when it can be reasonably
estimated. Accordingly, excess purchase price associated with this acquisition
will increase based upon the reserve for the closing of acquired company-owned
restaurants. As of November 1, 2000, Nathan's has terminated 8 of these leases
at a total cost of $437,000. As of September 24, 2000, minimum annual lease
payments for the remaining stores was approximately $776,000, with remaining
lease terms ranging from 1 year up to approximately 11 years. Preliminary
goodwill of $2,318,000 resulted from the acquisition of Miami Subs and is being
amortized over 20 years.
NOTE D - UNAUDITED PRO FORMA INFORMATION
Summarized below are the unaudited pro forma results of operations for the
thirteen and twenty-six weeks ended September 26, 1999 of Nathan's as though the
Miami Subs acquisition had occurred at the beginning of that period presented.
Adjustments have been made for amortization of goodwill based upon a preliminary
allocation of the purchase price, reversal of Miami Subs merger costs and
elimination of Nathan's 30% equity earnings.
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
September 26 September 26
1999 1999
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Proforma Proforma
<S> <C> <C>
Total revenues $ 14,008 $28,106
=========== =======
Income before income taxes $ 559 $ 1,326
=========== =======
Net income $ 340 $ 800
=========== =======
Net earnings per share
Basic $ 0.05 $ 0.11
=========== =======
Diluted $ 0.05 $ 0.11
=========== =======
Shares used in computing net income
Basic 7,065 7,053
=========== =======
Diluted 7,155 7,099
=========== =======
</TABLE>
The unaudited pro forma information for the thirteen and twenty-six weeks ended
September 26, 1999 combines Nathan's results of operations for the thirteen and
twenty-six weeks ended September 26, 1999 with Miami Subs' results of operations
for the three and six months ended September 30, 1999, respectively.
The pro forma results of operations have been prepared for comparative purposes
only and are not necessarily indicative of actual results of operations that
would have occurred had the acquisition been made at the beginning of the period
presented or of the results which may occur in the future.
NOTE E - EARNINGS PER SHARE
The following chart provides a reconciliation of information used in calculating
the per share amounts for the thirteen and twenty-six week periods ended
September 24, 2000 and September 26, 1999, respectively.
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THIRTEEN WEEKS
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<TABLE>
<CAPTION>
Net Income
Net Income Number of Shares Per Share
---------- ---------------- ---------
2000 1999 2000 1999 2000 1999
----- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Basic calculation $ 933 $ 616 7,065 4,722 $.13 $.13
Effect of dilutive employee stock
options and warrants -- -- 90 -- -- --
----- ----- ----- ----- ---- ----
Diluted EPS
Diluted calculation $ 933 $ 616 7,155 4,722 $.13 $.13
===== ===== ===== ===== ==== ====
</TABLE>
TWENTY-SIX WEEKS
----------------
<TABLE>
<CAPTION>
Net Income
Net Income Number of Shares Per Share
---------- ---------------- ---------
2000 1999 2000 1999 2000 1999
------ ------ ------ ------ ---- ----
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Basic calculation $1,678 $1,085 7,053 4,722 $.24 $.23
Effect of dilutive employee stock
options and warrants -- -- 46 -- -- --
------ ------ ------ ------ ---- ----
Diluted EPS
Diluted calculation $1,678 $1,085 7,099 4,722 $.24 $.23
====== ====== ====== ====== ==== ====
</TABLE>
NOTE F - CONTINGENCIES
On January 5, 1999, Miami Subs was served with a class action lawsuit entitled
Robert J. Feeney, on behalf of himself and all others similarly situated vs.
Miami Subs Corporation, et al., in Circuit Court, in Broward County, Florida,
which was filed against Miami Subs, its directors and Nathan's in a Florida
state court by a shareholder of Miami Subs. Since that time, Nathan's and its
designees to the Miami Subs board have also been served. The suit alleged that
the proposed merger between Miami Subs and Nathan's, as contemplated by the
companies' non-binding letter of intent, was unfair to Miami Subs' shareholders
based on the price that Nathan's is paying to the Miami Subs' shareholders for
their shares and constituted a breach by the defendants of their fiduciary
duties to the shareholders of Miami Subs. The plaintiff sought among other
things:
1. class action status;
2. preliminary and permanent injunctive relief against
consummation of the proposed merger; and
3. unspecified damages to be awarded to the shareholders of Miami
Subs.
On March 19, 1999, the court granted the plaintiff leave to amend
his complaint. The plaintiff then filed an amended complaint. Miami Subs moved
to dismiss the complaint on April 13, 1999. Nathan's and its designees on the
Miami Subs' board moved to dismiss the complaint on April 29, 1999. The court
denied the motions. On February 4, 2000, the court held an evidentiary hearing.
As a result of the hearing, the court struck the class action allegations from
the plaintiff's complaint. On April 7, 2000, the plaintiff filed his dismissal
without prejudice of the action, effectively ending the case against all
defendants.
NOTE - G - MIAMI SUBS TAX AUDIT
As of the date of acquisition, Miami Subs' tax returns reflected net operating
loss carry-forwards of approximately $5.7 million which are available to reduce
future taxable income through 2019 (subject to limitations imposed under the
Internal Revenue Code regarding changes in ownership which limits utilization of
$2.8 million of the carry-forwards on an annual basis to approximately
$340,000). Miami Subs also has general business credit carry-forwards of
approximately $274,000 which can be used to offset tax liabilities
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through 2010. Miami Subs' federal income tax returns for fiscal years 1991
through 1996, inclusive, have been examined by the Internal Revenue Service. The
reports of the examining agent issued in connection with these examinations
indicate that additional taxes and penalties totaling approximately $2.4 million
are due for such years. The Company is appealing substantially all of the
proposed adjustments. Due to net operating losses anticipated to be lost in
connection with the examination, Nathan's has accrued $345,000 for this matter
in the accompanying consolidated balance sheet. Due to the uncertain outcome of
the IRS examination and Section 382 limitation, Nathan's has recorded a
valuation allowance for the deferred tax asset related to Miami Subs
carry-forwards. Pursuant to SFAS No. 109 "Accounting for Income Taxes", any
future reduction in the acquired Miami Subs valuation allowance will reduce
goodwill.
NOTE H - RECLASSIFICATIONS
Certain reclassifications of prior period balances have been made to conform to
the March 26, 2000 presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
INTRODUCTION
During the prior fiscal year, Nathan's completed the acquisition of two highly
recognized brands. On April 1, 1999, Nathan's became the franchisor of the Kenny
Rogers Roasters restaurant system by acquiring the intellectual property rights,
including trademarks, recipes and franchise agreements of Roasters Corp. and
Roasters Franchise Corp. On September 30, 1999, Nathan's acquired the remaining
70% of the outstanding common stock of Miami Subs Corporation it did not already
own. Revenues of the combined company are generated primarily from operating
company-owned restaurants, restaurant franchising under the Nathan's, Kenny
Rogers and Miami Subs brands, licensing agreements for the sale of Nathan's
products within supermarkets and sales under Nathan's Branded Product Program.
The branded product program enables foodservice operators to offer Nathans' hot
dogs and certain other proprietary items for sale within their facilities. In
conjunction with this program, foodservice operators are granted a limited use
of the Nathans' trademark with respect to the sale of hot dogs and certain other
proprietary food items and paper goods.
At September 24, 2000, Nathan's combined systems consisted of twenty-eight
company-owned units, three hundred ninety-six franchised or licensed units in
addition to over eleven hundred Branded Product points of sale that feature
Nathan's world famous all- beef hot dogs, located in forty-two states, the
District of Columbia and sixteen foreign countries. At September 24, 2000,
Nathan's company-owned restaurant system included eighteen Nathan's units, eight
Miami Subs units and 2 Kenny Rogers Roasters units as compared to twenty-five
Nathan's units at September 26, 1999.
In addition to plans for expansion, we are in the process of capitalizing on
co-branding opportunities within our existing restaurant system. To date, the
Arthur Treachers brand has been introduced within 88 Nathan's and Miami Subs
restaurants , the Nathan's brand has been added to the menu of 16 Miami Subs and
Kenny Rogers restaurants, while Kenny Rogers Roasters brand has been introduced
into 15 Miami Subs and Nathan's restaurants. We expect to accelerate the level
of co-branding within Miami Subs' restaurants by introducing a new co-branding
initiative to the franchise system.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED SEPTEMBER 24, 2000 COMPARED TO SEPTEMBER 26, 1999
Revenues
Total sales increased by 46.2% or $3,081,000 to $9,752,000 for the thirteen
weeks ended September 24, 2000 ("second quarter fiscal 2001") as compared to
$6,671,000 for the thirteen weeks ended September 26, 1999 ("second quarter
fiscal 2000"). Of the total increase, sales increased by $2,764,000 as a result
of the Miami Subs acquisition made last year. Company-owned restaurant sales of
the Nathan's brand decreased 15.9% or $940,000 to $4,972,000 from $5,912,000.
This restaurant sales decline is primarily due to the loss of revenue from 8
company-owned stores compared to the prior fiscal period as follows: the
franchising of three company-
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<PAGE> 12
owned restaurants, the closing of three unprofitable company-owned units, the
closing of one unit due to its lease expiration and the temporary closing of one
additional unit for renovation. The impact of these actions lowered restaurant
sales by $837,000 and improved restaurant operating profits by $30,000 versus
the second quarter fiscal 2000. Comparable restaurant sales of the Nathan's
brand also declined by 2.3% versus the second quarter fiscal 2000, due in part
to competitive factors in two locations. Also, three restaurants have reached
the anniversary date of introducing Arthur Treachers products whereby sales of
those products have begun to level off which have also unfavorably affected the
year over year sales comparisons. Nathan's has continued to emphasize local
store marketing activities, new product introductions, value pricing strategies
and introduce Arthur Treachers products into its company-owned restaurants.
During the second quarter fiscal 2001, sales from the two recently opened Kenny
Rogers Roasters restaurants were $687,000. Sales from the Branded Product
Program increased by 75.1% to $1,329,000 for the second quarter fiscal 2001 as
compared to sales of $759,000 in the second quarter fiscal 2000.
Franchise fees and royalties increased by 119.1% or $1,152,000 to $2,119,000 in
the second quarter fiscal 2001 compared to $967,000 in the second quarter fiscal
2000. Increases in franchise fees and royalties resulting from the Miami Subs
acquisition made last year was $1,160,000. Franchise sales of our branded
restaurant concepts increased by 93.1% to $43,699,000 in the second quarter
fiscal 2001 as compared to $22,627,000 in the second quarter fiscal 2000.
Franchise royalties of the Nathan's and Kenny Rogers Roasters brands were
$891,000 in the second quarter fiscal 2001 as compared to $892,000 in the second
quarter fiscal 2000. Franchise fee income derived from openings excluding the
impact of Miami Subs was $68,000 in the second quarter fiscal 2001 as compared
to $75,000 in the second quarter fiscal 2000. During the second quarter fiscal
2001, five new franchised or licensed units opened.
License royalties were $600,000 in the second quarter fiscal 2001 as compared to
$508,000 in the second quarter fiscal 2000. The majority of this increase is
attributable to sales by SMG, Inc., Nathans' licensee for the sale of Nathan's
frankfurters within supermarkets and club stores.
Investment and other income increased by $392,000 to $396,000 in the second
quarter fiscal 2001 versus $4,000 in the second quarter fiscal 2000. Increases
in other income as a result of the Miami Subs acquisition made last year was
$266,000. The majority of the remaining increase is attributable to a benefit
derived in connection with the introduction of a single master food and paper
distributor for Nathans' three branded restaurant concepts. During the second
quarter fiscal 2001 Nathans' investment income was approximately $12,000 lower
than in the second quarter fiscal 2000 due to the difference in performance of
the financial markets between the two periods.
Costs and Expenses
Cost of sales increased by $2,150,000 from $4,086,000 in the second quarter
fiscal 2000 to $6,236,000 in the second quarter fiscal 2001. Of the total
increase, cost of sales increased by $1,806,000 as a result of the Miami Subs
acquisition made last year. During the second quarter fiscal 2001, restaurant
cost of sales, excluding Miami Subs, were lower than the second quarter fiscal
2000 by approximately $53,000. Cost of sales attributable to the two new Kenny
Rogers Roasters restaurants along with higher food and labor costs in the
Nathan's restaurants offset most of the lower costs of operating fewer
company-owned Nathan's restaurants as compared to the second quarter fiscal
2000. The cost of restaurant sales at Nathans' comparable units was 58.5% as a
percentage of restaurant sales in the second quarter fiscal 2001 as compared to
57.9% as a percentage of restaurant sales in the second quarter fiscal 2000 due
primarily to higher labor and associated labor costs. Higher costs of
approximately $397,000 were incurred in connection with the growth of the
Branded Product Program.
Restaurant operating expenses increased by $701,000 from $1,515,000 in the
second quarter fiscal 2000 to $2,216,000 in the second quarter fiscal 2001. Of
the total increase, restaurant operating expenses increased by $754,000 as a
result of the Miami Subs acquisition made last year. Restaurant operating
expenses, excluding Miami Subs, were $1,462,000 during the second quarter fiscal
2001 as compared to $1,515,000 during the second quarter fiscal 2000. Costs
attributable to the two new Kenny Rogers Roasters restaurants offset much of the
lower costs of operating fewer company-owned Nathan's restaurants as compared to
the second quarter fiscal 2000.
Depreciation and amortization increased by $211,000 from $260,000 in the second
quarter fiscal 2000 to $471,000 in the second quarter fiscal 2001. Depreciation
expense increased by $200,000 as a result of the Miami Subs acquisition made
last year. Depreciation expense attributable the two new Kenny Rogers Roasters
restaurants more than offset the lower depreciation expense of operating fewer
company-owned Nathan's restaurants versus the second quarter fiscal 2000.
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Amortization of intangibles increased by $89,000 from $112,000 in the second
quarter fiscal 2000 to $201,000 in the second quarter fiscal 2001. Amortization
of intangibles increased by $85,000 as a result of the Miami Subs acquisition
made last year which is attributable to intangible assets acquired and the
amortization of the excess purchase price.
General and administrative expenses increased by $898,000 to $2,138,000 in the
second quarter fiscal 2001 as compared to $1,240,000 in the second quarter
fiscal 2000. Of the total increase, general and administrative expenses
increased by approximately $771,000 as a result of the Miami Subs acquisition
made last year. General and administrative expenses, excluding the impact of
Miami Subs, increased by $127,000 primarily due to higher spending in connection
with personnel costs and incentive compensation of approximately $65,000, Kenny
Rogers administrative costs of $45,000, and increased corporate development
expenditures of approximately $37,000 which were partially offset by reduced
insurance costs and certain rebates.
Interest expense of $74,000 relates to the Miami Subs indebtedness as of the
date of the acquisition.
Income Tax Expense
In the second quarter fiscal 2001, the income tax provision was $598,000 or
39.1% of income before income taxes as compared to $390,000 or 38.8% of income
before income taxes in the second quarter fiscal 2000.
TWENTY-SIX WEEKS ENDED SEPTEMBER 24, 2000 COMPARED TO SEPTEMBER 26, 1999
Revenues
Total sales increased by 48.0% or $6,374,000 to $19,653,000 for the twenty-six
weeks ended September 24, 2000 ("fiscal 2001 period") as compared to $13,279,000
for the twenty-six weeks ended September 26, 1999 ("fiscal 2000 period"). Of the
total increase, sales increased by $5,968,000 as a result of the Miami Subs
acquisition made last year. Company-owned restaurant sales of the Nathan's brand
decreased 15.6% or $1,815,000 to $9,842,000 from $11,657,000. This restaurant
sales decline is primarily due to the loss of revenue from 8 company-owned
stores compared to the prior fiscal period as follows: the franchising of three
company-owned restaurants, the closing of three unprofitable company-owned
units, the closing of one unit due to its lease expiration and the temporary
closing of one additional unit for renovation. The impact of these actions
lowered restaurant sales by $1,637,000 and improved restaurant operating profits
by $32,000 versus the fiscal 2000 period. Comparable restaurant sales of the
Nathan's brand also declined by 1.9% versus the fiscal 2000 period, due
principally to weakness experienced at the Coney Island restaurant primarily
attributable to the unfavorable weather conditions experienced this year.
Nathan's continues to emphasize local store marketing activities, new product
introductions and value pricing strategies. Pursuant to Miami Subs' exclusive
co-branding agreement with Arthur Treachers, Nathan's introduced Arthur
Treachers signature products in eight company-owned restaurants which has helped
fuel sales increases in those units. During the fiscal 2001 period, sales from
the two recently opened Kenny Rogers Roasters restaurants were $1,330,000. Sales
from the Branded Product Program increased by 54.9% to $2,513,000 for the fiscal
2001 period as compared to sales of $1,622,000 in the fiscal 2000 period.
Franchise fees and royalties increased by 128.4% or $2,478,000 to $4,408,000 in
the fiscal 2001 period compared to $1,930,000 in the fiscal 2000 period.
Increases in franchise fees and royalties resulting from the Miami Subs
acquisition made last year was $2,397,000, which includes a royalty
reconciliation of approximately $54,000. Franchise sales of our branded
restaurant concepts increased by 117.6% to $98,505,000 in the fiscal 2001 period
as compared to $45,262,000 in the fiscal 2000 period. Franchise royalties of the
Nathan's and Kenny Rogers Roasters brands increased by $156,000 or 9.3% to
$1,834,000 in the fiscal 2001 period as compared to $1,678,000 in the fiscal
2000 period. Franchise fee income derived from openings excluding the impact of
Miami Subs was $177,000 in the fiscal 2001 period as compared to $252,000 in the
fiscal 2000 period. This decrease was primarily attributable to the difference
between expired franchise fees recognized into income and number of franchised
units open between the two periods. During the fiscal 2001 period, nine new
franchised or licensed units opened.
License royalties were $1,177,000 in the fiscal 2001 period as compared to
$914,000 in the fiscal 2000 period. The majority of this increase is
attributable to sales by SMG, Inc., Nathans' licensee for the sale of Nathan's
frankfurters within supermarkets and club stores.
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<PAGE> 14
Investment and other income increased by $622,000 to $733,000 in the fiscal 2001
period versus $111,000 in the fiscal 2000 period. Increases in other income as a
result of the Miami Subs acquisition made last year was $392,000. The majority
of the remaining increase is attributable to a benefit derived in connection
with the introduction of a single master food and paper distributor for Nathans'
three branded restaurant concepts. During the fiscal 2001 period Nathans'
investment income was approximately $129,000 lower than in the fiscal 2000
period due to the difference in performance of the financial markets between the
two periods.
Costs and Expenses
Cost of sales increased by $4,484,000 from $8,166,000 in the fiscal 2000 period
to $12,650,000 in the fiscal 2001 period. Of the total increase, cost of sales
increased by $3,837,000 as a result of the Miami Subs acquisition made last
year. During the fiscal 2001 period, restaurant cost of sales, excluding Miami
Subs, were higher than the fiscal 2000 period by approximately $54,000. Cost of
sales attributable to the two new Kenny Rogers Roasters restaurants along with
higher food and labor costs in the Nathan's brand more than offset lower costs
of operating fewer company-owned Nathan's restaurants as compared to the fiscal
2000 period. The cost of restaurant sales at Nathans' comparable units was 58.8%
as a percentage of restaurant sales in the fiscal 2001 period as compared to
57.6% as a percentage of restaurant sales in the fiscal 2000 period due
primarily to higher food and labor costs. Higher costs of approximately $592,000
were incurred in connection with the growth of the Branded Product Program.
Restaurant operating expenses increased by $1,629,000 from $3,044,000 in the
fiscal 2000 period to $4,673,000 in the fiscal 2001 period. Of the total
increase, restaurant operating expenses increased by $1,687,000 as a result of
the Miami Subs acquisition made last year. Restaurant operating expenses,
excluding Miami Subs, were $2,986,000 during the fiscal 2001 period as compared
to $3,044,000 during the fiscal 2000 period. Costs attributable the two new
Kenny Rogers Roasters restaurants offset much of the lower costs of operating
fewer company-owned Nathan's restaurants as compared to the fiscal 2000 period.
Depreciation and amortization increased by $420,000 from $519,000 in the fiscal
2000 period to $939,000 in the fiscal 2001 period. Depreciation expense
increased by $403,000 as a result of the Miami Subs acquisition made last year.
Depreciation expense attributable the two new Kenny Rogers Roasters restaurants
more than offset the lower depreciation expense of operating fewer company-owned
Nathan's restaurants versus the fiscal 2000 period.
Amortization of intangibles increased by $177,000 from $225,000 in the fiscal
2000 period to $402,000 in the fiscal 2001 period. Amortization of intangibles
increased by $169,000 as a result of the Miami Subs acquisition made last year
which is attributable to intangible assets acquired and the amortization of the
excess purchase price.
General and administrative expenses increased by $1,856,000 to $4,379,000 in the
fiscal 2001 period as compared to $2,523,000 in the fiscal 2000 period. Of the
total increase, general and administrative expenses increased by approximately
$1,562,000 as a result of the Miami Subs acquisition made last year. General and
administrative expenses, excluding the impact of Miami Subs, increased by
$294,000 primarily due to higher spending in connection with personnel costs and
incentive compensation of approximately $201,000, Kenny Rogers administrative
costs of $113,000, increased corporate development expenditures of approximately
$50,000 which were partially offset by reduced insurance costs and certain
rebates.
Interest expense of $146,000 relates to the Miami Subs indebtedness as of the
date of the acquisition.
Income Tax Expense
In the fiscal 2001 period, the income tax provision was $1,104,000 or 39.7% of
income before income taxes as compared to $731,000 or 40.3% of income before
income taxes in the fiscal 2000 period. A significant portion of Nathans' income
before income taxes has been earned by Miami Subs which is a Florida corporation
and is generally subject to lower state taxes, thereby lowering the effective
tax rate of the consolidated entity.
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<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at September 24, 2000 aggregated $4,700,000,
increasing by $2,303,000 during the fiscal 2001 period. At September 24, 2000,
marketable securities and investment in limited partnership totalled $5,135,000
and net working capital increased to $3,701,000 from a deficit of $322,000 at
March 26, 2000. Cash and cash equivalents at September 24, 2000 included
$2,865,000 held on behalf of the Miami Subs Advertising Funds. A corresponding
accrual has been recorded within accrued expenses and other current liabilities.
Cash provided by operations of $2,796,000 in the fiscal 2001 period is primarily
attributable to net income of $1,678,000, non-cash charges of $1,446,000,
including depreciation and amortization of $1,341,000 and allowance for doubtful
accounts of $27,000, increases in accounts payable and accrued expenses of
$1,516,000, an increase in other non current liabilities of $1,451,000, a
decrease in other assets of $47,000, a decrease in prepaid expenses and other
current assets of $62,000, all of which were partially offset by an increase in
marketable securities and investment in limited partnership of $2,138,000, an
increase in franchise and other receivables of $1,045,000, an increase in
inventories of $54,000 and a decrease in deferred franchise and area development
fees of $167,000. During fiscal 2001 we received a marketing advance from our
beverage supplier in connection with a newly executed marketing agreement.
Cash used in investing activities of $355,000 is comprised primarily of $778,000
relating to capital improvements of the company-owned restaurants and other
fixed asset additions, cash received on notes receivable of $378,000 and
proceeds from the sale of assets of $45,000.
Cash used in financing activities of $138,000 represents repayments of notes
payable and obligations under capital leases.
In connection with the acquisition of Miami Subs, Nathan's is executing its
plans to permanently close up to 18 underperforming company-owned restaurants.
Accordingly, Nathan's expects to incur estimated future cash payments,
consisting primarily of future lease payments including costs and expenses
associated with terminating such leases. At present Nathan's is unable to
reasonably estimate these total costs, however, as of November 1, 2000, Nathan's
has terminated 8 of these leases at a total cost of $437,000. As of September
24, 2000, minimum annual lease payments for the remaining stores was
approximately $776,000, with remaining lease terms ranging from 1 year up to
approximately 11 years.
Management believes that available cash, marketable investment securities, and
internally generated funds should provide sufficient capital to finance Nathan's
operations through fiscal 2001. Nathan's is currently in the process of
replacing its expired $5,000,000 uncommitted bank line with a $7,500,000
uncommitted bank line of credit. Nathan's had not borrowed any funds under its
previous line of credit.
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 Nathan'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 Nathan'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 Nathan's ability to attract competent
restaurant, and managerial personnel.
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<PAGE> 16
PART II. OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
(a) The Registrant held its Annual Meeting of
Stockholders on September 14, 2000.
(b) Seven Directors were elected at the Annual
Meeting to serve until the Annual Meeting of
Stockholders in 2001. The names of these
Directors and votes cast in favor of their
election and shares withheld are as follows:
<TABLE>
<CAPTION>
NAME FOR WITHHELD
---- ---------- --------
<S> <C> <C>
Howard M. Lorber 4,911,386 1,168,578
Wayne Norbitz 4,911,736 1,168,228
Donald Perlyn 4,911,736 1,168,228
Robert J. Eide 4,911,736 1,168,228
Brian Gensen 4,911,736 1,168,228
Barry Leistner 4,911,736 1,168,228
A.F. Petrocelli 4,911,736 1,168,228
</TABLE>
(d) Not applicable.
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
September 24, 2000.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We have historically invested our cash and cash equivalents in short
term, fixed rate, highly rated and highly liquid instruments which are
reinvested when they mature throughout the year. Although our existing
investments are not considered at risk with respect to changes in interest rates
or markets for these instruments, our rate of return on short-term investments
could be affected at the time of reinvestment as a result of intervening events.
We have invested our marketable investment securities in
intermediate term, fixed rate, highly rated and highly liquid instruments and a
highly liquid investment limited partnership that invests principally in
equities. These investments are subject to fluctuations in interest rates and
the performance of the equity markets.
The interest rate on our borrowings are generally determined based
upon prime rate and may be subject to market fluctuation as the prime rate
changes as determined within each specific agreement. We do not anticipate
entering into interest rate swaps or other financial instruments to hedge our
borrowings.
The cost of commodities are subject to market fluctuation. We have
not attempted to hedge against fluctuations in the prices of the commodities we
purchase using future, forward, option or other instruments. As a result, our
future commodities purchases are subject to changes in the prices of such
commodities.
Foreign franchisees generally conduct business with us and make
payments in, United States dollars, reducing the risks inherent with changes in
the values of foreign currencies. As a result, we have not purchased future
contracts, options or other instruments to hedge against changes in values of
foreign currencies.
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<PAGE> 17
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.
<TABLE>
<S> <C>
NATHAN'S FAMOUS, INC.
Date: November 7, 2000 By: /s/ Wayne Norbitz
-------------------------------------------------
Wayne Norbitz
President and Chief Operating Officer
(Principal Executive Officer)
Date: November 7, 2000 By: /s/ Ronald G. DeVos
----------------------------------------------------
Ronald G. DeVos
Vice President - Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
</TABLE>
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