<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 25, 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.
---------------------
(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
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(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
----- -----
At June 25, 2000, an aggregate of 7,040,199 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
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - June 25, 2000 and
March 26, 2000 3
Consolidated Statements of Earnings - Thirteen Weeks
Ended June 25, 2000 and June 27, 1999 4
Consolidated Statements of Stockholders' Equity -
Thirteen Weeks Ended June 25, 2000 5
Consolidated Statements of Cash Flows - Thirteen Weeks
Ended June 25, 2000 and June 27, 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
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<PAGE> 3
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
25, 2000 26, 2000
-------- --------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents including unexpended
marketing fund contributions of $3,569 and $509 and
restricted cash of $83 and $83, respectively $ 7,047 $ 2,397
Marketable securities and investment in limited partnership 2,269 2,997
Notes and accounts receivables, net 4,632 2,618
Inventories 598 543
Prepaid expenses and other current assets 659 635
Deferred income taxes 1,578 1,578
------- -------
Total current assets 16,783 10,768
Notes receivable, net 2,455 2,527
Property and equipment, net 14,181 13,977
Assets held for sale 945 945
Intangible assets, net 18,891 19,092
Deferred income taxes 711 711
Other assets, net 520 563
------- -------
$54,486 $48,583
======= =======
Current liabilities:
Current maturities of notes payable and capital lease obligations $ 284 $ 279
Accounts payable 1,101 1,727
Accrued expenses and other current liabilities 12,672 8,398
Deferred franchise fees 552 686
------- -------
Total current liabilities 14,609 11,090
Notes payable and capital lease obligations, less current maturities 3,056 3,131
Other liabilities 2,729 1,015
------- -------
Total liabilities 20,394 15,236
------- -------
Stockholders' equity:
Common stock, $.01 par value - 30,000,000 and 30,000,000 shares
authorized, 7,040,199 and 7,040,196 issued and
outstanding, respectively 70 70
Additional paid-in-capital 40,669 40,669
Accumulated deficit (6,647) (7,392)
------- -------
Total stockholders' equity 34,092 33,347
------- -------
$54,486 $48,583
======= =======
</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 25, 2000 and June 27, 1999
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Sales $ 9,901 $ 6,608
Franchise fees and royalties 2,289 963
License royalties 577 406
Investment and other income 337 97
-------- -------
Total revenues 13,104 8,074
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Costs and expenses:
Cost of sales 6,414 4,080
Restaurant operating expenses 2,457 1,529
Depreciation and amortization 468 259
Amortization of intangible assets 201 113
General and administrative expenses 2,241 1,283
Interest expense 72 ---
-------- -------
Total costs and expenses 11,853 7,264
-------- -------
Income before income taxes 1,251 810
Provision for income taxes 506 341
-------- -------
Net income $ 745 $ 469
======== =======
PER SHARE INFORMATION
Net income per share
Basic $ 0.11 $ 0.10
======== =======
Diluted $ 0.11 $ 0.10
======== =======
Shares used in computing net income
Basic 7,040 4,722
======== =======
Diluted 7,044 4,744
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Thirteen weeks ended June 25, 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 -- -- --
Net income 745 745
--------- -------- -------- -------- --------
Balance, June. 25, 2000 7,040,199 $ 70 $ 40,669 $ (6,647) $ 34,092
========= ======== ======== ======== ========
</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 25, 2000 and June 27, 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income $ 745 $ 469
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 468 259
Amortization of intangible assets 201 113
Provision for doubtful accounts 21 18
Changes in operating assets and liabilities, net of effects from
acquisition of business:
Marketable securities and investment in limited partnership 728 (29)
Notes and accounts receivables, net (2,042) (248)
Inventories (55) (48)
Prepaid expenses and other current assets (24) 144
Accounts payable and accrued expenses 3,648 465
Deferred franchise and area development fees (134) (86)
Other assets, net 43 135
Other non current liabilities 1,714 1
------- -------
Net cash provided by operating activities 5,313 1,193
------- -------
Cash flows from investing activities:
Purchase of property and equipment (672) (148)
Purchase of intellectual property -- (1,590)
Investment in unconsolidated affiliate -- (20)
Payments received on notes receivable 79 --
------- -------
Net cash provided by (used in) investing activities (593) (1,758)
------- -------
Cash flows from financing activities:
Principal repayment of borrowings and obligations under capital leases (70) --
------- -------
Net cash used in financing activities (70) --
------- -------
Net increase (decrease) in cash and cash equivalents 4,650 (565)
Cash and cash equivalents, beginning of period 2,397 2,165
------- -------
Cash and cash equivalents, end of period $ 7,047 $ 1,600
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $ 209 $ 102
======= =======
Cash paid during the period for interest $ 75 $ --
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 7
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 25, 2000
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements of Nathan's Famous, Inc. and
subsidiaries (collectively "Nathan's") for the thirteen week periods ended June
25, 2000 and June 27, 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. These estimates of fair
value are preliminary and subject to adjustment for a period of up to one year
from the date of acquisition. 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 CORP. 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. Goodwill of $2,087,000 resulted from the acquisition of Miami Subs
and is being amortized over 20 years.
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<PAGE> 8
NOTE D - ACQUISITION RESERVE
In connection with the acquisition of Miami Subs, Nathan's is implementing 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 are reflected as part of the
preliminary purchase price allocations and are included in assets held for sale
in the accompanying balance sheet. As of March 26, 2000, Nathan's has accrued
approximately $660,000 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 August 1, 2000, Nathan's has terminated 6 of
these leases at a total cost of $266,000. As of March 26, 2000, minimum annual
lease payments for the remaining stores was approximately $992,000, with
remaining lease terms ranging from 2 years up to approximately 18 years.
NOTE E - UNAUDITED PRO FORMA INFORMATION
Summarized below are the unaudited pro forma results of operations for the
thirteen weeks ended June 27, 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
June 27
1999
Proforma
<S> <C>
Total revenues $14,098
=======
Income before extraordinary items $ 768
=======
Net income $ 431
=======
Net earnings per share
Basic $ 0.05
=======
Diluted $ 0.05
=======
Shares used in computing net income
Basic 7,040
=======
Diluted 7,062
=======
</TABLE>
The unaudited pro forma information for the thirteen weeks ended June 27, 1999
combines Nathan's results of operations for the thirteen weeks ended June 27,
1999 with Miami Subs' results of operations for the three months ended June 30,
1999.
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.
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NOTE F - 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 25, 2000 and June
27, 1999, respectively.
THIRTEEN WEEKS
<TABLE>
<CAPTION>
Net (Loss) / Income
Net (Loss) / Income Number of Shares Per Share
------------------- ---------------- ---------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
---------
Basic calculation $745 $469 7,040 4,722 $ .11 $ .10
Effect of dilutive employee stock
options and warrants - - 4 22 - -
---- ---- ----- ----- ------ -----
Diluted EPS
-----------
Diluted calculation $745 $469 7,044 4,744 $ .11 $ .10
==== ==== ===== ===== ====== =====
</TABLE>
NOTE G - 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 alleges that
the proposed merger between Miami Subs and Nathan's, as contemplated by the
companies' non-binding letter of intent, is unfair to Miami Subs' shareholders
based on the price that Nathan's is paying to the Miami Subs' shareholders for
their shares and constitutes a breach by the defendants of their fiduciary
duties to the shareholders of Miami Subs. The plaintiff seeks 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 - I - 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 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 J - RECLASSIFICATIONS
Certain reclassifications of prior period balances have been made to conform to
the March 26, 2000 presentation.
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<PAGE> 10
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 June 25, 2000, Nathan's combined systems consisted of thirty company-owned
units, four hundred twelve franchised or licensed units in addition to over one
thousand Branded Product points of sale that feature Nathan's world famous
all-beef hot dogs, located in forty-four states, the District of Columbia and
sixteen foreign countries. At June 25, 2000, Nathan's company-owned restaurant
system included eighteen Nathan's units, ten Miami Subs units and 2 Kenny Rogers
Roasters units as compared to twenty-five Nathan's units at June 27, 1999
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED JUNE 25, 2000 COMPARED TO JUNE 27, 1999
Revenues
Total sales increased by 49.8% or $3,293,000 to $9,901,000 for the thirteen
weeks ended June 25, 2000 ("first quarter fiscal 2001") as compared to
$6,608,000 for the thirteen weeks ended June 27, 1999 ("first quarter fiscal
2000"). Of the total increase, sales increased by $3,205,000 as a result of the
Miami Subs acquisition made last year. Company-owned restaurant sales of the
Nathan's brand decreased 15.2% or $875,000 to $4,869,000 from $5,744,000. This
restaurant sales decline is primarily due to the impact of franchising three
company-owned restaurants during the prior fiscal year, the closing of three
unprofitable company-owned units in the fourth quarter of the prior fiscal year,
the closing of one unit in the first quarter fiscal 2001 due to its lease
expiration and the temporary closing of one additional unit for renovation
during the first quarter fiscal 2001. The impact of these actions lowered
restaurant sales and restaurant operating profits by $800,000 and $2,000,
respectively, versus the first quarter fiscal 2000. Comparable restaurant sales
of the Nathan's brand also declined by 1.4% versus the first quarter fiscal
2000, due principally to weakness experienced at Coney Island due 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
seven company-owned restaurants which has helped fuel sales increases in those
units. During the first quarter fiscal 2001, sales from the two recently opened
Kenny Rogers Roasters restaurants were $643,000. Sales from the Branded Product
Program increased by 37.0% to $1,184,000 for the first quarter fiscal 2001 as
compared to sales of $864,000 in the first quarter fiscal 2000.
Franchise fees and royalties increased by 137.7% or $1,326,000 to $2,289,000 in
the first quarter fiscal 2001 compared to $963,000 in the first quarter fiscal
2000. Increases in franchise fees and royalties resulting from the Miami Subs
acquisition made last year was $1,238,000, which includes a royalty
reconciliation of approximately $54,000. Franchise royalties of the Nathan's and
Kenny Rogers Roasters brands increased by $156,000 or 19.8% to $942,000 in the
first quarter fiscal 2001 as compared to $786,000 in the first quarter fiscal
2000. Franchise restaurant sales of our brands increased by 142.1% to
$54,806,000 in the first quarter fiscal 2001 as compared to $22,635,000 in the
first quarter fiscal 2000. Franchise fee income derived from openings excluding
the impact of Miami Subs was $109,000 in the first quarter fiscal 2001 as
compared to $177,000 in the first quarter fiscal 2000. This decrease was
primarily attributable to the
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<PAGE> 11
difference between expired franchise fees recognized into income and number of
franchised units open between the two periods. During the first quarter fiscal
2001, four new franchised or licensed units opened.
License royalties were $577,000 in the first quarter fiscal 2001 as compared to
$406,000 in the first 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 $240,000 to $337,000 in the first
quarter fiscal 2001 versus $97,000 in the first quarter fiscal 2000. Increases
in other income as a result of the Miami Subs acquisition made last year was
$126,000. The majority of the total increase is attributable to a benefit
derived in connection with the introduction of a single master distributor for
Nathans' three brands. During the first quarter fiscal 2001 Nathans' investment
income was approximately $107,000 lower than in the first 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 $2,334,000 from $4,080,000 in the first quarter
fiscal 2000 to $6,414,000 in the first quarter fiscal 2001. Of the total
increase, cost of sales increased by $2,032,000 as a result of the Miami Subs
acquisition made last year. During the first quarter fiscal 2001, restaurant
cost of sales, excluding Miami Subs, were higher than the first quarter fiscal
2000 by approximately $107,000. 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
restaurants versus the first quarter fiscal 2000. The cost of restaurant sales
at Nathans' comparable units was 59.3% as a percentage of restaurant sales in
the first quarter fiscal 2001 as compared to 57.5% as a percentage of restaurant
sales in the first quarter fiscal 2000 due primarily to higher food and labor
costs. Higher costs of approximately $195,000 were incurred in connection with
the growth of the Branded Product Program.
Restaurant operating expenses increased by $928,000 from $1,529,000 in the first
quarter fiscal 2000 to $2,457,000 in the first quarter fiscal 2001. Of the total
increase, restaurant operating expenses increased by $933,000 as a result of the
Miami Subs acquisition made last year. Restaurant operating expenses, excluding
Miami Subs, were $1,524,000 during the first quarter fiscal 2001 versus
$1,529,000 during the first quarter fiscal 2000. Costs attributable the two new
Kenny Rogers Roasters restaurants offset the lower costs of operating fewer
company-owned restaurants versus the first quarter fiscal 2000.
Depreciation and amortization increased by $209,000 from $259,000 in the first
quarter fiscal 2000 to $468,000 in the first quarter fiscal 2001. Depreciation
expense increased by $203,000 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 restaurants versus the first quarter fiscal 2000.
Amortization of intangibles increased by $88,000 from $113,000 in the first
quarter fiscal 2000 to $201,000 in the first 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 $958,000 to $2,241,000 in the
first quarter fiscal 2001 as compared to $1,283,000 in the first quarter fiscal
2000. Of the total increase, general and administrative expenses increased by
$791,000 as a result of the Miami Subs acquisition made last year. General and
administrative expenses, excluding the impact of Miami Subs, increased by
$167,000 or 13.0% primarily due to higher spending in connection with Kenny
Rogers administrative costs of $68,000 and personnel and incentive compensation
expense of approximately $136,000.
Interest expense of $72,000 relates to the Miami Subs indebtedness as of the
date of the acquisition.
Income Tax Expense
In the first quarter fiscal 2001, the income tax provision was $506,000 or 40.4%
of income before income taxes as compared to $341,000 or 42.1% of income before
income taxes in the first quarter fiscal 2000. A significant portion of Nathans'
income before
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<PAGE> 12
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.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at June 25, 2000 aggregated $7,047,000, increasing by
$4,650,000 during the fiscal 2001 period. At June 25, 2000, marketable
securities and investment in limited partnership totalled $2,269,000 and net
working capital increased to $2,174,000 from a deficit of $322,000 at March 26,
2000. Cash and cash equivalents at June 25, 2000 included $3,659,000 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 $5,313,000 in the fiscal 2001 period is primarily
attributable to net income of $745,000, non-cash charges of $690,000, including
depreciation and amortization of $669,000 and allowance for doubtful accounts of
$21,000, increases in accounts payable and accrued expenses of $3,648,000, an
increase in other non current liabilities of $1,714,000, decreases in marketable
securities and investment in limited partnership of $728,000, a decrease in
other assets of $43,000, an increase in franchise and other receivables of
$2,042,000, an increase in inventories of $55,000 and a decrease in deferred
franchise and area development fees of $134,000. During fiscal 2001 we also
received a marketing advance from our beverage supplier in connection with
executing a newly executed marketing agreement.
Cash used in investing activities of $593,000 is comprised primarily of $672,000
relating to capital improvements of the company-owned restaurants and other
fixed asset additions and cash received on notes receivable of $79,000.
Cash used in financing activities of $70,000 represents repayments of notes
payable and obligations under capital leases.
In connection with the acquisition of Miami Subs, Nathan's is implementing 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 August 1, 2000, Nathan's
has terminated 6 of these leases at a total cost of $266,000. As of March 26,
2000, minimum annual lease payments for the remaining stores was approximately
$992,000, with remaining lease terms ranging from 2 years up to approximately 18
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 maintains a $5,000,000 uncommitted bank
line of credit and it has not borrowed any funds to date under this 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> 13
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.25 Marketing Agreement with beverage supplier.
(b) No reports on Form 8-K were filed during the quarter ended June 25,
2000.
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<PAGE> 14
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, 2000 By: /s/Wayne Norbitz
--------------------------
Wayne Norbitz
President and Chief Operating Officer
(Principal Executive Officer)
Date: August 7, 2000 By: /s/Ronald G. DeVos
--------------------------
Ronald G. DeVos
Vice President - Finance
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
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