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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Act of
1934 for the quarterly period ended JUNE 29, 2003.
[ ] 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
-----------------------------------------------
(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 ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ___ No X
At June 29, 2003, an aggregate of 5,366,364 shares of the registrant's common
stock, par value of $.01, were outstanding.
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited) 3
Consolidated Balance Sheets - June 29, 2003 and
March 30, 2003 3
Consolidated Statements of Operations - Thirteen Weeks
Ended June 29, 2003 and June 30, 2002 4
Consolidated Statement of Stockholders' Equity -
Thirteen Weeks Ended June 29, 2003 5
Consolidated Statements of Cash Flows -Thirteen Weeks
Ended June 29, 2003 and June 30, 2002 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Qualitative and Quantitative Disclosures about Market Risk 16
Item 4. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 4. Submission of Matter to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
-2-
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
June March
29, 2003 30, 2003
-------- --------
(Unaudited)
Current assets:
Cash and cash equivalents including restricted cash
of $83 and $83, respectively $ 1,858 $ 1,415
Marketable securities 5,229 4,623
Notes and accounts receivable, net 3,076 2,607
Inventories 382 389
Assets held for sale 265 799
Prepaid expenses and other current assets 557 642
Deferred income taxes 2,079 2,079
-------- --------
Total current assets 13,446 12,554
Notes receivable, net 877 740
Property and equipment, net 6,136 6,263
Goodwill 95 95
Intangible assets, net 3,254 3,319
Deferred income taxes 2,630 2,647
Other assets, net 260 268
-------- --------
$ 26,698 $ 25,886
======== ========
Current liabilities:
Current maturities of notes payable and capital lease obligations $ 173 $ 173
Accounts payable 1,150 1,377
Accrued expenses and other current liabilities 5,059 4,942
Deferred franchise fees 131 127
-------- --------
Total current liabilities 6,513 6,619
Notes payable and capital lease obligations, less current maturities 1,010 1,053
Other liabilities 2,244 1,831
-------- --------
Total liabilities 9,767 9,503
-------- --------
Stockholders' equity:
Common stock, $.01 par value - 30,000,000 shares authorized;
7,065,202 shares issued; 5,366,364 and 5,423,964 shares outstanding
at June 29, 2003 and March 30, 2003, respectively 71 71
Additional paid-in capital 40,746 40,746
Accumulated deficit (17,761) (18,505)
Accumulated other comprehensive income 79 64
-------- --------
23,135 22,376
Treasury stock at cost, 1,698,838 and 1,641,238 at June 29, 2003
and March 30, 2003, respectively (6,204) (5,993)
-------- --------
Total stockholders' equity 16,931 16,383
-------- --------
$ 26,698 $ 25,886
======== ========
See accompanying notes to consolidated financial statements.
-3-
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Thirteen weeks ended June 29, 2003 and June 30, 2002 (In thousands,
except per share amounts)
(Unaudited)
2003 2002
---- ----
Sales $ 6,335 $ 7,111
Franchise fees and royalties 1,561 1,542
License royalties 870 811
Investment and other income 188 127
Interest income 64 75
-------- --------
Total revenues 9,018 9,666
-------- --------
Costs and expenses:
Cost of sales 4,335 4,714
Restaurant operating expenses 1,182 1,468
Depreciation and amortization 257 355
Amortization of intangible assets 65 70
General and administrative expenses 1,919 2,102
Interest expense 14 39
Impairment charge on long-lived assets -- 421
-------- --------
Total costs and expenses 7,772 9,169
-------- --------
Income from continuing operations before income taxes 1,246 497
Provision for income taxes 502 205
-------- --------
Income from continuing operations 744 292
Discontinued operations
Income from discontinued operations before income taxes -- 89
Provision for income taxes -- 35
-------- --------
Income from discontinued operations -- 54
Income from operations before cumulative effect of change in
accounting principle 744 346
Cumulative effect of change in accounting principle, net of
income tax benefit of $854 in 2002 -- (12,338)
-------- --------
Net income (loss) $ 744 $(11,992)
======== ========
PER SHARE INFORMATION
Basic income (loss) per share
Income from continuing operations $ 0.14 $ 0.04
Income from discontinued operations 0.00 0.01
Cumulative effect of change in accounting principle 0.00 (1.94)
-------- --------
Net income (loss) $ 0.14 $ (1.89)
======== ========
Diluted income (loss) per share
Income from continuing operations $ 0.14 $ 0.04
Income from discontinued operations 0.00 0.01
Cumulative effect of change in accounting principle 0.00 (1.87)
-------- --------
Net income (loss) $ 0.14 $ (1.82)
======== ========
Weighted average shares used in computing per share information
Basic 5,370 6,354
======== ========
Diluted 5,478 6,573
======== ========
See accompanying notes to consolidated financial statements.
-4-
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Thirteen weeks ended June 29, 2003
(In thousands, except share amounts)
(Unaudited)
Accumulated
Other
Additional Comprehen- Treasury Total
Common Common Paid-in Accumulated sive Treasury Stock, Stockholders'
Shares Stock Capital Deficit Income Shares at cost Equity
------ ----- ------- ------- ------ ------ ------- ------
Balance at
March 30, 2003 7,065,202 $71 $40,746 $(18,505) $64 1,641,238 $(5,993) $16,383
Purchase of
treasury stock 57,600 (211) (211)
Comprehensive
earnings:
Net income 744 744
Unrealized gains
on available for
sale securities,
net of tax
provision of $11 15 15
--------- --- ------- -------- --- --------- ------- -------
Balance at
June 29, 2003 7,065,202 $71 $40,746 $(17,761) $79 1,698,838 $(6,204) $16,931
========= === ======= ======== === ========= ======= =======
See accompanying notes to consolidated financial statements.
-5-
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirteen weeks ended June 29, 2003 and June 30, 2002
(In thousands)
(Unaudited)
2003 2002
---- ----
Cash flows from operating activities:
Net income (loss) $ 744 $(11,992)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Cumulative effect of change in accounting principle, net of
deferred taxes -- 12,338
Depreciation and amortization 257 410
Amortization of intangible assets 65 70
Amortization of bond premium 14 33
Provision for doubtful accounts 13 74
Loss (gain) on sale of available for sale securities 5 (10)
Gain on sale of restaurant (94) --
Impairment charge on long-lived assets -- 421
Deferred income taxes 6 (198)
Changes in operating assets and liabilities:
Marketable securities and investment in limited partnership -- 77
Notes and accounts receivable, net (392) (479)
Inventories 7 51
Prepaid expenses and other current assets 85 450
Accounts payable and accrued expenses (110) (1,325)
Deferred franchise fees 4 (11)
Other assets, net 8 --
Other non current liabilities 304 (170)
-------- --------
Net cash provided by (used in) operating activities 916 (261)
-------- --------
Cash flows from investing activities:
Proceeds from sale of available for sale securities 500 3,572
Purchase of available for sale securities (1,099) (376)
Purchase of property and equipment (116) (116)
Proceeds from sale of restaurants, net 423 --
Payments received on notes receivable 73 87
-------- --------
Net cash (used in) provided by investing activities (219) 3,167
-------- --------
Cash flows from financing activities:
Repurchase of common stock (211) (2,855)
Principal repayment of borrowings and obligations under capital leases (43) (46)
-------- --------
Net cash used in financing activities (254) (2,901)
-------- --------
Net increase in cash and cash equivalents 443 5
Cash and cash equivalents, beginning of period 1,415 1,834
-------- --------
Cash and cash equivalents, end of period $ 1,858 $ 1,839
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $ 22 $ 24
======== ========
Cash paid during the period for interest $ 15 $ 40
======== ========
NONCASH FINANCING ACTIVITIES:
Loan to franchisee in connection with sale of restaurant $ 300 $ --
======== ========
See accompanying notes to consolidated financial statements.
-6-
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 29, 2003
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements of Nathan's Famous,
Inc. and subsidiaries (collectively "Nathan's" or the "Company") for the
thirteen week periods ended June 29, 2003 and June 30, 2002 have been prepared
in accordance with accounting principles generally accepted in the United States
of America. 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 accounting principles generally accepted
in the United States of America 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
30, 2003.
NOTE B - ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143").
SFAS No. 143 addresses financial and reporting obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. It applies to legal obligations associated with the retirement of
long-lived assets that result from acquisition, construction, development and/or
the normal operation of a long-lived asset, except for certain obligations of
lessees. SFAS No. 143 is effective for financial statements issued for fiscal
years beginning after June 15, 2002. Nathan's has evaluated the effect of
adoption on its financial position and results of operations, and it has not had
a material impact on the financial position and results of operations of the
Company.
In April 2002, the FASB issued Statement of Financial Accounting
Standards No. 145 ("SFAS No. 145"), "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No.
145 eliminates the current requirement that gains and losses on debt
extinguishment must be classified as extraordinary items in the income
statement. Instead, such gains and losses will be classified as extraordinary
items only if they are deemed to be unusual and infrequent, in accordance with
the current criteria for extraordinary classification. Additionally, any gain or
loss on extinguishment of debt that was classified as an extraordinary item in
prior periods presented that does not meet the criteria in APB Opinion No. 30
for classification as an extraordinary item shall be reclassified. In addition,
SFAS No. 145 eliminates an inconsistency in lease accounting by requiring that
modifications of capital leases that result in reclassification as operating
leases be accounted for consistent with sale-leaseback accounting rules. SFAS
No. 145 also contains other nonsubstantive corrections to authoritative
accounting literature. The changes related to debt extinguishment will be
effective for fiscal years beginning after May 15, 2002, and the changes related
to lease accounting will be effective for transactions occurring after May 15,
2002. SFAS No. 145 has not had a material impact on the financial position and
results of operations of the Company.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148 ("SFAS No. 148"), "Accounting for Stock-Based
Compensation-Transition and Disclosure" which addresses financial accounting and
reporting for recording expenses for the fair value of stock options. SFAS No.
148 provides alternative methods of transition for a voluntary change to fair
value based method of accounting for stock-based employee compensation.
Additionally, SFAS No. 148 requires more prominent and more frequent disclosures
in financial statements about the effects of stock-based compensation. The
adoption of SFAS No. 148 had no impact on the financial position and results of
operations of the Company.
-7-
NOTE C - INCOME FROM CONTINUING OPERATIONS PER SHARE
Basic income from continuing operations per common share is calculated
by dividing income from continuing operations by the weighted-average number of
shares outstanding and excludes any dilutive effect of stock options or
warrants. Diluted income from continuing operations per common share gives
effect to all potentially dilutive common shares that were outstanding during
the period. Dilutive common shares used in the computation of diluted income
from continuing operations per common share result from the assumed exercise of
stock options and warrants, using the treasury stock method. Income from
continuing operations was the controlling number in determining the number of
shares outstanding used in the calculation of diluted earnings per share for the
quarter ended June 30, 2002.
The following chart provides a reconciliation of information used in
calculating the per share amounts for the thirteen week periods ended June 29,
2003 and June 30, 2002, respectively.
THIRTEEN WEEKS
Income from Income from
Continuing Operations Number of Shares Continuing Operations
(In thousands) (In thousands) Per Share
-------------- -------------- ---------
2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ----
Basic EPS
Basic calculation $744 $292 5,370 6,354 $0.14 $0.04
Effect of dilutive employee stock
options and warrants -- -- 108 219 -- --
---- ---- ----- ----- ----- ------
Diluted EPS
Diluted calculation $744 $292 5,478 6,573 $0.14 $0.04
==== ==== ===== ===== ===== ======
Options and warrants to purchase 835,566 and 902,838 shares of common stock in
the thirteen week periods ended June 29, 2003 and June 30, 2002, respectively,
were not included in the computation of diluted EPS because the exercise prices
exceeded the average market price of common shares during the respective
periods. These options and warrants were still outstanding at the end of the
respective periods.
NOTE D - STOCK BASED COMPENSATION
At June 29, 2003, the Company had five stock-based employee compensation plans.
The Company accounts for stock-based compensation using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations ("APB
No. 25") and has adopted the disclosure provisions of SFAS No. 148 "Accounting
for Stock-Based Compensation-Transition and Disclosure." Under APB No. 25, when
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized. Accordingly, no compensation expense has been recognized in the
consolidated financial statements in connection with employee stock option
grants.
The following table illustrates the effect on net income and earnings per share
had the Company applied the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", to stock-based employee compensation.
Thirteen Weeks Ended
(In thousands)
June. 29, June 30,
2003 2002
---- ----
Net income (loss), as reported $ 744 $(11,992)
Deduct: Total stock-based employee
compensation expense determined under
fair value-based method for all awards (41) (41)
------ --------
Pro forma net income (loss) $ 703 $(12,033)
====== ========
-8-
Earnings (loss) per Share
Basic - as reported $ 0.14 $ (1.89)
====== ========
Diluted - as reported $ 0.14 $ (1.82)
====== ========
Basic - pro forma $ 0.13 $ (1.89)
====== ========
Diluted - pro forma $ 0.13 $ (1.83)
====== ========
Pro forma compensation expense may not be indicative of pro forma expense in
future years. For purposes of estimating the fair value of each option on the
date of grant, the Company utilized the Black-Scholes option-pricing model.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
NOTE E - SALES OF RESTAURANTS
The Company observes the provisions of SFAS No. 66, "Accounting for
Sales of Real Estate," which establishes accounting standards for recognizing
profit or loss on sales of real estate. SFAS No. 66 provides for profit
recognition by the full accrual method, provided (a) the profit is determinable,
that is, the collectibility of the sales price is reasonably assured or the
amount that will not be collectible can be estimated, and (b) the earnings
process is virtually complete, that is, the seller is not obligated to perform
significant activities after the sale to earn the profit. Unless both conditions
exist, recognition of all or part of the profit shall be postponed and other
methods of profit recognition shall be followed. In accordance with SFAS No. 66,
the Company recognizes profit on sales of restaurants under both the installment
method and the deposit method, depending on the specific terms of each sale. The
Company continues to record depreciation expense on the property subject to the
sales contracts that are accounted for under the deposit method and records any
principal payments received as a deposit until such time that the transaction
meets the sales criteria of SFAS No. 66.
During the thirteen weeks ended June 29, 2003, the Company sold two
Company-owned restaurants for total consideration of $713,000 and entered into a
management agreement with a franchisee to operate a third Company-owned
restaurant. During the fiscal year ended March 30, 2003, the Company sold two
Company-operated restaurants and one non-operated restaurant for a total of
$591,000, none of which were sold during the thirteen weeks ended June 30, 2002.
As these restaurants were either classified as held-for-sale prior to the
adoption of SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No. 144") or the Company expects to have a continuing
stream of cash flows in the case of the franchised restaurants, the results of
operations for these Company-operated restaurants are included in "Income from
continuing operations before income taxes" in the accompanying consolidated
statements of operations for the thirteen week periods ended June 29, 2003 and
June 30, 2002. During the thirteen weeks ended June 29, 2003 and June 30, 2002
restaurant sales were $287,000 and $1,272,000, respectively, from the operation
of the two and five restaurants referred to above. The assets associated with
the restaurants that were sold during the quarter ended June 29, 2003 were
included in assets held for sale in the March 30, 2003 consolidated balance
sheet. Results of operations of the eight restaurants that have been abandoned
subsequent to the adoption of SFAS No. 144 have been included in results from
discontinued operations (See Note F).
The results of operations for these Company-owned restaurants for the thirteen
week periods ended June 29, 2003 and June 30, 2002 are as follows (in
thousands):
June 29, June 30,
2003 2002
---- ----
Sales $287 $1,272
==== ======
(Loss) from continuing
operations before income taxes $(31) $ (28)
==== ======
-9-
NOTE F - DISCONTINUED OPERATIONS
On April 1, 2002, the Company adopted the provisions of SFAS No. 144. This
statement supersedes SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" and Accounting Principles
Board Opinion No. 30, "Reporting Results of Operations - Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions". SFAS No. 144 retained the
fundamental provisions of SFAS No. 121 for recognition and measurement of
impairment, but amended the accounting and reporting standards for segments of a
business to be disposed of. SFAS No. 144 has broadened the definition of
discontinued operations to include components of an entity whose cash flows are
clearly identifiable, as compared to a segment of a business. SFAS No. 144
requires the Company to classify as discontinued operations any restaurant that
it sells, abandons or otherwise disposes of where the Company has no further
involvement in such restaurant's operations. In the case of restaurants to be
abandoned, depreciation expense is to be revised based upon the expected
remaining useful lives of the affected restaurants. In August 2002, the Company
received written notice from Home Depot U.S.A., Inc. ("Home Depot") that Home
Depot terminated seven License Agreements with the Company pursuant to which the
Company operated Nathan's restaurants in certain Home Depot Improvement Centers.
During the second quarter fiscal 2003, the Company revised its depreciation
estimate on eight restaurants which were closed during the fiscal year ended
March 30, 2003. During the first quarter fiscal 2003, eight Company-owned
restaurants which were not considered available for sale at March 31, 2002 were
presented as discontinued operations.
Following is a summary of the results of operations for these eight
restaurants for the thirteen week period ended June 30, 2002 (in thousands):
Sales $1,248
======
Income from discontinued operations before income taxes $ 89
======
NOTE G - STOCK REPURCHASE PROGRAM
On September 14, 2001, Nathan's was authorized to purchase up to one million
shares of its common stock. Pursuant to our stock repurchase program, we
repurchased one million shares of common stock in open market transactions and a
private transaction at a total cost of $3,670,000 through the quarter ended
September 29, 2002. On October 7, 2002, Nathan's was authorized to purchase up
to one million additional shares of its common stock. Through June 29, 2003,
Nathan's purchased 698,838 shares of common stock at a cost of approximately
$2,534,000. Subsequent to June 29, 2003, Nathan's purchased an additional 46,681
shares of common stock at a cost of approximately $171,000. To date, Nathan's
has purchased a total of 1,745,519 shares of common stock at a cost of
approximately $6,375,000. Nathan's expects to make additional purchases of stock
from time to time, depending on market conditions, in open market or in
privately negotiated transactions, at prices deemed appropriate by management.
There is no set time limit on the purchases. Nathan's expects to fund these
stock repurchases from its operating cash flow.
NOTE H - COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) are as follows:
Thirteen Weeks Ended
(In thousands)
June. 29, June 30,
2003 2002
---- ----
Net income (loss) $744 $(11,992)
Unrealized gain on available-for-sale securities,
Net of tax provision of $11 and $25, respectively 15 35
---- --------
Comprehensive income (loss) $759 $(11,957)
==== ========
-10-
Accumulated other comprehensive income at June 29, 2003 and March 30, 2003
consists entirely of unrealized gains on available-for-sale securities, net of
deferred taxes.
NOTE I - COMMITMENTS AND CONTINGENCIES
CONTINGENCIES
Elizabeth B. Jackson and Joseph Jackson commenced an action, for
unspecified damages, in the Circuit Court of the Fifteenth Judicial Circuit,
Palm Beach County, Florida in September 2001 against Miami Subs and EKFD
Corporation, a Miami Subs franchisee ("the franchisee") claiming negligence in
connection with a slip and fall which allegedly occurred on the premises of the
franchisee. Pursuant to the terms of the Miami Subs Franchise Agreement, the
franchisee is obligated to indemnify Miami Subs and hold them harmless against
claims asserted and procure an insurance policy which named Miami Subs as an
additional insured. Miami Subs has denied any liability to Plaintiffs and has
made demand upon the franchisee's insurer to indemnify and defend against the
claims asserted. The insurer has agreed to indemnify and defend Miami Subs and
has assumed the defense of this action for Miami Subs.
NOTE J - RECLASSIFICATIONS
Certain reclassifications of prior period balances have been made to
conform to the June 29, 2003 presentation.
NOTE K - RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2003, the FASB issued Statement of Financial Accounting
Standards No. 149, "Amendment of Statement No. 133 on Derivative Instruments and
Hedging Activities" ("SFAS No. 149"), which amends and clarifies financial
accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003 except for the provisions that were cleared by the
FASB in prior pronouncements. The Company is currently evaluating the effect of
the adoption of SFAS No. 149 on its financial position and results of
operations.
In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity"("SFAS No. 150"). This statement
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. In accordance with the standard, financial instruments
that embody obligations for the issuer are required to be classified as
liabilities. This Statement shall be effective for financial instruments entered
into or modified after May 31, 2003, and otherwise shall be effective for the
year ended December 31, 2003.The adoption of SFAS No. 150 has not had, and is
not expected to have, a material effect on Nathan's financial position and
results of operations.
In January 2003, the FASB issued FASB Interpretation No. 46
"Consolidation of Variable Interest Entities" ("FIN No. 46"). In general, a
variable interest entity is a corporation, partnership, trust, or any other
legal structure used for business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities. A
variable interest entity often holds financial assets, including loans or
receivables, real estate or other property. A variable interest entity may be
essentially passive or it may engage in activities on behalf of another company.
Until now, a company generally has included another entity in its consolidated
financial statements only if it controlled the entity through voting interests.
FIN No. 46 changes that by requiring a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. FIN No. 46's consolidation
requirements apply immediately to variable interest entities created or acquired
after January 31, 2003. The consolidation requirements apply to older entities
in the first fiscal year or interim period beginning after June 15, 2003.
Certain of the disclosure requirements apply to all financial statements issued
after January 31, 2003, regardless of when the variable interest entity was
established. The Company has adopted FIN No. 46 effective January 31, 2003. The
adoption of FIN No. 46 has not had, and is not expected, to have a material
effect on the Nathan's financial position and results of operations.
-11-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
INTRODUCTION
As used in this Report, the terms "we", "us", "our" and "Nathan's" mean
Nathan's Famous, Inc. and its subsidiaries (unless the context indicates a
different meaning).
During the fiscal year ended March 26, 2000, we completed two
acquisitions that provided us with two highly recognized brands. On April 1,
1999, we 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, we acquired the remaining 70% of the outstanding common stock of Miami
Subs Corporation we did not already own. Our revenues are generated primarily
from operating company-owned restaurants and franchising the Nathan's, Miami
Subs and Kenny Rogers restaurant concepts, licensing agreements for the sale of
Nathan's products within supermarkets and selling products under Nathan's
Branded Product Program. The Branded Product Program enables foodservice
operators to offer Nathans' hot dogs and 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.
In addition to plans for expansion through franchising and our Branded
Product Program, Nathan's continues to co-brand within its existing restaurant
system. Currently, the Arthur Treacher's brand is being sold within 124
Nathan's, Kenny Rogers Roasters and Miami Subs restaurants, the Nathan's brand
is included on the menu of 79 Miami Subs and Kenny Rogers restaurants, while the
Kenny Rogers Roasters brand is being sold within 81 Miami Subs and Nathan's
restaurants.
At June 29, 2003, our combined system consisted of 349 franchised or
licensed units, 9 company-owned units and over 2,500 Nathan's Branded Product
points of sale that feature Nathan's world famous all-beef hot dogs, located in
41 states, the District of Columbia and 12 foreign countries. At June 29, 2003,
our company-owned restaurant system included seven Nathan's units and two Miami
Subs units, as compared to 16 Nathan's units, four Miami Subs units and two
Kenny Rogers Roasters units at June 30, 2002.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements and the notes to our consolidated
financial statements contain information that is pertinent to management's
discussion and analysis. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities. We
believe the following critical accounting policies involve additional management
judgement due to the sensitivity of the methods, assumptions and estimates
necessary in determining the related asset and liability amounts.
Impairment of Goodwill and Other Intangible Assets
Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets," ("SFAS No. 142") requires that goodwill and intangible
assets with indefinite lives will no longer be amortized but will be reviewed
annually (or more frequently if impairment indicators arise) for impairment. The
most significant assumptions which are used in this test are estimates of future
cash flows. We typically use the same assumptions for this test as we use in the
development of our business plans. If these assumptions differ significantly
from actual results, additional impairment expenses may be required. In the
first quarter of fiscal 2003, Nathan's adopted SFAS No. 142. In connection with
the implementation of this new standard, Goodwill, Trademarks, Trade Names and
Recipes were deemed to be impaired and their carrying value was written down by
$13,192,000, or $12,338,000, net of income tax benefit of $854,000.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," ("SFAS No. 144") requires
management judgements regarding the future operating and disposition plans for
underperforming assets, and estimates of expected realizable values for assets
to be sold. The application of SFAS No. 144 has affected the amounts and timing
of charges to operating results in recent years. We evaluate possible impairment
of each restaurant individually, and record an impairment charge whenever we
determine that impairment factors exist. We consider a history of restaurant
operating losses to be the primary indicator of potential impairment of a
restaurant's carrying value. During the thirteen week period ended June 30,
2002, we identified three restaurants that had been impaired and recorded
impairment charges of approximately $421,000. No restaurants were
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determined to be impaired during the thirteen weeks ended June 29, 2003.
Impairment of Notes Receivable
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan," requires management judgements regarding
the future collectibility of notes receivable and the underlying fair market
value of collateral. We consider the following factors when evaluating a note
for impairment: a) indications that the borrower is experiencing business
problems, such as operating losses, marginal working capital, inadequate cash
flow or business interruptions; b) whether the loan is secured by collateral
that is not readily marketable; or c) whether the collateral is susceptible to
deterioration in realizable value. When determining possible impairment, we also
assess our future intention to extend certain leases beyond the minimum lease
term and the debtor's ability to meet its obligation over that extended term. No
additional notes receivable were determined to be impaired during the thirteen
weeks ended June 29, 2003.
Revenue Recognition
In the normal course of business, we extend credit to franchisees for
the payment of ongoing royalties and to trade customers of our Branded Product
Program. Notes and accounts receivable, net, as shown on our consolidated
balance sheets are net of allowances for doubtful accounts. An allowance for
doubtful accounts is determined through analysis of the aging of accounts
receivable at the date of the financial statements, assessment of collectibility
based upon historical trends and an evaluation of the impact of current and
projected economic conditions. In the event that the collectibility of a
receivable is doubtful, the associated revenue is not recorded until the facts
and circumstances change in accordance with Staff Accounting Bulletin SAB No.
101, "Revenue Recognition."
Self-insurance Liabilities
We are self-insured for portions of our general liability coverage. As
part of our risk management strategy, our insurance programs include deductibles
for each incident and in the aggregate for a policy year. As such, we accrue
estimates of our ultimate self insurance costs throughout the policy year. These
estimates have been developed based upon our historical trends, however, the
final cost of many of these claims may not be known for five years or longer.
Accordingly, our annual self insurance costs may be subject to adjustment from
previous estimates as facts and circumstances change.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED JUNE 29, 2003 COMPARED TO THIRTEEN WEEKS ENDED JUNE 30,
2002
Revenues from Continuing Operations
Total sales from continuing operations decreased by 10.9% or $776,000
to $6,335,000 for the thirteen weeks ended June 29, 2003 ("first quarter fiscal
2004") as compared to $7,111,000 for the thirteen weeks ended June 30, 2002
("first quarter fiscal 2003"). Sales from the Branded Product Program increased
by 34.9% to $2,247,000 for the first quarter fiscal 2004 as compared to sales of
$1,666,000 in the first quarter fiscal 2003. Company-owned restaurant sales
decreased 24.9% or $1,357,000 to $4,088,000 from $5,445,000 primarily due to the
operation of five fewer company-owned stores as compared to the prior fiscal
year and an 8.9% sales decrease at our comparable restaurants (consisting of
seven Nathan's and two Miami Subs restaurants). The sales decline at our
comparable restaurants was primarily due to the unseasonable weather experienced
in the Northeast during the spring of 2003, where the majority of our
Company-owned restaurants are located. The reduction in company-owned stores is
the result of our franchising four restaurants and selling one restaurant. The
financial impact associated with these five restaurants lowered restaurant sales
by $985,000 and lowered restaurant operating profits by $3,000 versus the first
quarter fiscal 2003.
Franchise fees and royalties increased by $19,000 or 1.2% to $1,561,000
in the first quarter fiscal 2004 compared to $1,542,000 in the first quarter
fiscal 2003. Franchise royalties decreased by $88,000 or 5.9% to $1,398,000 in
the first quarter fiscal 2004 as compared to $1,486,000 in the first quarter
fiscal 2003. This decline is due to the decrease in the amount of franchise
sales and the increase in royalties deemed unrealizable which are not recognized
as revenues, primarily in the South Florida marketplace for the Miami Subs
brand, during the first quarter fiscal 2004 as compared to the first quarter
fiscal 2003. Domestic franchise restaurant sales decreased by 4.2% to
$39,870,000 in the first quarter fiscal 2004 as compared to $41,628,000 in the
first quarter fiscal 2003. At June 29, 2003, 349 franchised or licensed
restaurants were operating as compared to 354 franchised or licensed restaurants
at June 30, 2002. At June 29, 2003, royalties from 44 domestic franchised
locations have been deemed unrealizable as compared to 39 domestic franchised
locations at June 30, 2002. Franchise fee income derived from new openings and
our co-branding activities was $163,000
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in the first quarter fiscal 2004 as compared to $56,000 in the first quarter
fiscal 2003. This increase was primarily attributable to the increase in the
number of franchised units opened between the two periods. During the first
quarter fiscal 2004, 10 new franchised units opened and two company-owned
restaurants were franchised as compared to one new franchise opening during the
first quarter fiscal 2003.
License royalties were $870,000 in the first quarter fiscal 2004 as
compared to $811,000 in the first quarter fiscal 2003. The majority of this
increase is attributable to revenues from new license agreements which were
partly offset by a decrease in royalties earned from SFG, Inc., (previously
known as SMG, Inc.), Nathans' licensee for the sale of Nathan's frankfurters
within supermarkets and club stores.
Investment and other income increased by $61,000 to $188,000 in the
first quarter fiscal 2004 versus $127,000 in the first quarter fiscal 2003.
During the first quarter fiscal 2004, Nathan's recognized a net gain of $94,000
primarily in connection with the sale of a company-owned restaurant to a
franchisee. In the first quarter fiscal 2003, Nathan's realized a gain of
$135,000 in connection with the early termination of a Branded Product Program
sales agreement. During the first quarter fiscal 2003, Nathans' investment loss
of approximately $100,000 was primarily attributable to the Company's investment
in limited partnership, which was liquidated during the third and fourth
quarters of fiscal 2003.
Interest income was $64,000 in the first quarter fiscal 2004 versus
$75,000 in the first quarter fiscal 2003 due primarily to lower interest income
earned on its notes receivable as a result of the impairment charges recorded
during the fiscal year ended March 30, 2003.
Costs and Expenses from Continuing Operations
Cost of sales from continuing operations decreased by $379,000 from
$4,714,000 in the first quarter fiscal 2003 to $4,335,000 in the first quarter
fiscal 2004. During the first quarter fiscal 2004, restaurant cost of sales were
lower than the first quarter fiscal 2003 by approximately $869,000. Cost of
sales were lower by approximately $645,000 as a result of operating fewer
company-owned restaurants during the first quarter fiscal 2004. The cost of
restaurant sales at our comparable units as a percentage of restaurant sales was
60.1% in the first quarter fiscal 2004 as compared to 60.2% in the first quarter
fiscal 2003 due primarily to lower labor and related costs which were partly
offset by higher food costs. Higher costs of approximately $490,000 were
incurred in connection with the growth of our Branded Product Program and higher
commodity costs during the first quarter fiscal 2004. Commodity costs of our hot
dogs were higher during the first quarter fiscal 2004 than the first quarter
fiscal 2003 as a result of supply shortages.
Restaurant operating expenses decreased by $286,000 from $1,468,000 in
the first quarter fiscal 2003 to $1,182,000 in the first quarter fiscal 2004.
Restaurant operating costs were lower in the first quarter fiscal 2004 by
approximately $345,000, as compared to the first quarter fiscal 2003 as a result
of operating fewer restaurants. The reduction in restaurant operating expenses
from operating fewer restaurants was partially offset by higher insurance costs
during the first quarter fiscal 2004.
Depreciation and amortization decreased by $98,000 from $355,000 in the
first quarter fiscal 2003 to $257,000 in the first quarter fiscal 2004.
Depreciation expense was lower by approximately $41,000 as a result of operating
fewer company-owned restaurants and $42,000 as a result of the impairment
charges on long-lived assets recorded during fiscal 2003.
Amortization of intangibles was $70,000 in the first quarter fiscal
2003 as compared to $65,000 in the first quarter fiscal 2004.
General and administrative expenses decreased by $183,000 to $1,919,000
in the first quarter fiscal 2004 as compared to $2,102,000 in the first quarter
fiscal 2003. The decrease in general and administrative expenses was due
primarily to lower personnel and incentive compensation expense of approximately
$96,000 resulting from the implementation of an expense reduction plan and lower
bad debts expense of approximately $61,000 which were partially offset by higher
professional fees of approximately $53,000.
Interest expense was $14,000 during the first quarter fiscal 2004 as
compared to $39,000 during the first quarter fiscal 2003. The reduction in
interest expense relates primarily to the repayment of outstanding loans between
the two periods.
Impairment charge on long-lived assets of $421,000 during the first
quarter fiscal 2003 represents the write-down relating to three under-performing
stores.
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Provision for Income Taxes from Continuing Operations
In the first quarter fiscal 2004, the income tax provision on earnings
before cumulative effect of change in accounting principle was $502,000 or 40.3%
of income before income taxes as compared to $205,000 or 41.2% of income before
income taxes in the first quarter fiscal 2003.
Discontinued operations
The first quarter fiscal 2003 included the results of operations of
eight Company-owned restaurants, all of which were abandoned by March 30, 2003,
including seven which were abandoned in connection with the Home Depot early
lease terminations. Revenues generated by these eight restaurants were
$1,248,000 during the first quarter fiscal 2003. Income before income taxes from
these restaurants was $89,000 during the first quarter fiscal 2003.
Cumulative effect of change in accounting principle
In the first quarter fiscal 2003, we adopted SFAS No. 142, "Accounting
for Goodwill and Other Intangibles." In connection with the implementation of
this new standard, Goodwill, Trademarks, Trade Names and Recipes were deemed to
be impaired and their carrying value was written down by $13,192,000, or
$12,338,000, net of tax.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at June 29, 2003 aggregated $1,858,000,
increasing by $443,000 during the first quarter fiscal 2004. At June 29, 2003,
marketable securities and investment in limited partnership increased by
$606,000 from March 30, 2003 to $5,229,000 and net working capital increased to
$6,933,000 from $5,935,000 at March 30, 2003.
Cash provided by operations of $916,000 in the first quarter fiscal
2004 is primarily attributable to net income of $744,000, non-cash charges of
$349,000, including depreciation and amortization of $336,000 and provision for
doubtful accounts of $13,000, in addition to decreases in prepaid expenses and
other current assets of $85,000 and an increase in other liabilities of
$304,000, which were partly offset by a decrease in accounts payable and accrued
expenses of $110,000, and an increase in notes and accounts receivable of
$392,000.
Cash used in investing activities of $219,000 is comprised primarily of
the purchase of available-for-sale securities of $1,099,000, and capital
expenditures of $116,000 which were partly offset from proceeds from the sale of
securities of $500,000, proceeds from the sale of restaurants and other fixed
assets of $423,000 and repayments on notes receivable of $73,000.
Cash used in financing activities of $254,000 represents repurchases of
57,600 shares of common stock at a total cost of $211,000 and repayments of
notes payable and obligations under capital leases in the amount of $43,000.
On September 14, 2001, Nathan's was authorized to purchase up to one
million shares of its common stock. Pursuant to our stock repurchase program, we
repurchased one million shares of common stock in open market transactions and a
private transaction at a total cost of $3,670,000 through the quarter ended
September 29, 2002. On October 7, 2002, Nathan's was authorized to purchase up
to one million additional shares of its common stock. Through June 29, 2003,
Nathan's purchased 698,838 shares of common stock at a cost of approximately
$2,534,000. Subsequent to June 29, 2003, Nathan's purchased an additional 46,681
shares of common stock at a cost of approximately $171,000. To date, Nathan's
has purchased a total of 1,745,519 shares of common stock at a cost of
approximately $6,375,000. We expect to make additional purchases of stock from
time to time, depending on market conditions, in open market or in privately
negotiated transactions, at prices deemed appropriate by management. There is no
set time limit on the purchases. Nathan's expects to fund these stock
repurchases from its operating cash flow.
We expect that we will make additional investments in certain existing
restaurants in the future and to fund those investments from our operating cash
flow. We do not expect to incur significant capital expenditures to develop new
company-owned restaurants through March 29, 2004.
In connection with our acquisition of Miami Subs, we determined that up
to 18 underperforming restaurants would be closed pursuant to our divestiture
plan. To date, we have terminated leases on 16 of those properties, sold one of
the remaining properties to a non-franchisee and are continuing to market the
remaining property for sale. The sale of the restaurant was consummated on
October 4, 2002. Since acquiring Miami Subs, we have accrued approximately
$1,461,000 and made payments of approximately $1,273,000 for
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lease obligations and termination costs, as part of the acquisition, for units
having total future minimum lease obligations of $7,680,000 that had remaining
lease terms of one year up to approximately 17 years. We may incur future cash
payments, consisting primarily of future lease payments, including costs and
expenses associated with terminating additional leases, that were not part of
our divestiture plan.
There are currently 32 properties that we either own or lease from
third parties which we lease or sublease to franchisees, operating managers and
non-franchisees. Additionally, there are currently 3 vacant properties which
were previously sublet to franchisees. We remain contingently liable for all
costs associated with these properties including: rent, property taxes and
insurance. Additionally, we guaranteed financing on behalf of certain
franchisees with two third-party lenders. Our maximum obligation for loans
funded by the lenders as of June 29, 2003 was approximately $818,000.
The following schedules represent Nathan's cash contractual obligations and the
expiration of other contractual commitments by maturity (in thousands):
Payments Due by Period
----------------------
Less than
Cash Contractual Obligations Total 1 Year 1 - 3 Years 4-5 Years After 5 Years
- ---------------------------- ----- ------ ----------- --------- -------------
Long-Term Debt $ 1,125 $ 167 $ 333 $ 333 $ 292
Capital Lease Obligations 58 6 14 17 21
Employment Agreements 1,061 748 313 -- --
Operating Leases 25,032 4,234 8,167 6,660 5,971
------- ------- ------- ------- -------
Gross Cash Contractual Obligations 27,276 5,155 8,827 7,010 6,284
Sublease Income 13,879 2,213 4,298 3,558 3,810
------- ------- ------- ------- -------
Net Cash Contractual Obligations $13,397 $ 2,942 $ 4,529 $ 3,452 $ 2,474
======= ======= ======= ======= =======
Total Amount of Commitment Expiration Per Period
Amounts Less than
Other Contractual Commitments Committed 1 Year 1 - 3 Years 4-5 Years After 5 Years
- ----------------------------- --------- ------ ----------- --------- -------------
Loan Guarantees $ 818 $ 304 $ 322 $ 192 --
----- ----- ----- ----- -----
Total Commercial Commitments $ 818 $ 304 $ 322 $ 192 --
===== ===== ===== ===== =====
Management believes that available cash, marketable investment
securities, and internally generated funds should provide sufficient capital to
finance our operations for at least the next twelve months. We maintain a
$7,500,000 uncommitted bank line of credit and have never borrowed any funds
under this line of credit.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
CASH AND CASH EQUIVALENTS
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.
As of June 29, 2003, Nathans' cash and cash equivalents aggregated $1,858,000.
Earnings on these cash and cash equivalents would increase or decrease by
approximately $4,600 per annum for each .25% change in interest rates.
MARKETABLE INVESTMENT SECURITIES
We have invested our marketable investment securities in intermediate
term, fixed rate, highly rated and highly liquid instruments. These investments
are subject to fluctuations in interest rates. As of June 29, 2003, the market
value of Nathans' marketable investment securities aggregated $5,229,000.
Interest income on these marketable investment securities would increase or
decrease by approximately $13,100 per annum for each .25% change in interest
rates. The following chart presents the hypothetical changes in the fair value
of the marketable investment securities held at June 29, 2003 that are
sensitive to interest rate fluctuations (in thousands):
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Valuation of securities Valuation of securities
Given an interest rate Given an interest rate
Decrease of X Basis points Fair Increase of X Basis points
-------------------------- ---- --------------------------
(150BPS) (100BPS) (50BPS) Value +50BPS +100BPS +150BPS
-------- -------- ------- ----- ------ ------- -------
Municipal notes and bonds $5,446 $5,366 $5,287 $5,211 $5,137 $5,065 $4,994
====== ====== ====== ====== ====== ====== ======
BORROWINGS
The interest rate on our borrowings are generally determined based upon
the 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. At June 29, 2003, total outstanding debt, including capital leases,
aggregated $1,183,000 of which $1,125,000 is at risk due to changes in interest
rates. The current interest rate is 4.50% per annum and will adjust in January
2006 and 2009 to prime plus .25%. Nathan's also maintains a $7,500,000 credit
line which bears interest at the prime rate (4.25% at June 29, 2003). The
Company has never borrowed any funds under this line. Accordingly, the Company
does not believe that fluctuations in interest rates would have a material
impact on its financial results.
COMMODITY COSTS
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. Generally, we attempt to pass through permanent increases in our
commodity prices to our customers, thereby reducing the impact of long-term
increases on our financial results. A short term increase or decrease of 10% in
the cost of our food and paper products for the entire fifty-two weeks ended
June 29, 2003 would have increased or decreased cost of sales by approximately
$287,000.
FOREIGN CURRENCIES
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 and we do not believe fluctuations in the value of foreign
currencies would have a material impact on our financial results.
Item 4. Controls and Procedures
(a) Under the supervision and with the participation of our Chief
Executive Officer ("CEO"), Chief Operating Officer ("COO") and Chief Financial
Officer ("CFO") the Company's disclosure controls and procedures were evaluated
as of a date 90 days prior to the filing of this report. Based on that
evaluation, the Company's CEO, COO and CFO concluded that the company's
disclosure controls and procedures were effective.
(b) Our CEO, COO and CFO are involved in ongoing evaluations of our
internal controls. There have been no significant changes in our internal
controls or in other factors that could significantly affect our internal
controls subsequent to their last evaluation.
FORWARD LOOKING STATEMENT
Certain statements contained in this report are forward-looking
statements. Forward-looking statements represent our current judgment regarding
future events. Although we would not make forward-looking statements unless we
believe we have a reasonable basis for doing so, we cannot guarantee their
accuracy and actual results may differ materially from those we anticipated due
to a number of uncertainties, many of which we are not aware. These risks and
uncertainties, many of which are not within our control, include, but are not
limited to: economic, weather, legislative and business conditions; the
collectibility of receivables; the availability of suitable restaurant sites on
reasonable rental terms; changes in consumer tastes; the 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 our ability
to attract competent restaurant and managerial personnel. We generally identify
forward-looking statements with the words "believe," "intend," "plan," "expect,"
"anticipate," "estimate," "will," "should" and similar expressions.
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PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
We and our subsidiaries are from time to time involved in ordinary and
routine litigation. We are also involved in the following litigation:
Elizabeth B. Jackson and Joseph Jackson commenced an action, for
unspecified damages, in the Circuit Court of the Fifteenth Judicial Circuit,
Palm Beach County, Florida in September 2001 against Miami Subs and EKFD
Corporation, a Miami Subs franchisee ("the franchisee") claiming negligence in
connection with a slip and fall which allegedly occurred on the premises of the
franchisee. Pursuant to the terms of the Miami Subs Franchise Agreement, the
franchisee is obligated to indemnify Miami Subs and hold them harmless against
claims asserted and procure an insurance policy which named Miami Subs as an
additional insured. Miami Subs has denied any liability to Plaintiffs and has
made demand upon the franchisee's insurer to indemnify and defend against the
claims asserted. The insurer has agreed to indemnify and defend Miami Subs and
has assumed the defense of this action for Miami Subs.
ITEM 4: SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Operating Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.3 Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification by Howard M. Lorber, CEO, Nathan's Famous, Inc.,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification by Ronald G. DeVos, CFO, Nathan's Famous, Inc.,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) No reports on Form 8-K were filed during the quarter ended June 29,
2003.
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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 12, 2003 By: /s/Wayne Norbitz
--------------------------------------------
Wayne Norbitz
President and Chief Operating Officer
(Principal Executive Officer)
Date: August 12, 2003 By: /s/Ronald G. DeVos
--------------------------------------------
Ronald G. DeVos
Vice President - Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
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