Back to GetFilings.com
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Act of
1934 for the quarterly period ended JUNE 27, 2004.
[ ] 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 Exchange 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 August 2, 2004, an aggregate of 5,213,904 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 27, 2004 and
March 28, 2004 3
Consolidated Statements of Operations - Thirteen Weeks
Ended June 27, 2004 and June 29, 2003 4
Consolidated Statement of Stockholders' Equity -
Thirteen Weeks Ended June 27, 2004 5
Consolidated Statements of Cash Flows -Thirteen Weeks
Ended June 27, 2004 and June 29, 2003 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
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 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities 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 27, March 28,
2004 2004
---- ----
(Unaudited)
Current assets:
Cash and cash equivalents including restricted cash
of $83 $ 3,641 $ 3,449
Marketable securities 6,654 7,477
Notes and accounts receivable, net 3,458 2,352
Inventories 644 743
Assets held for sale 506 507
Prepaid expenses and other current assets 529 463
Deferred income taxes 1,328 1,326
-------- --------
Total current assets 16,760 16,317
Notes receivable, net 259 313
Property and equipment, net 5,138 5,094
Goodwill 95 95
Intangible assets, net 2,997 3,063
Deferred income taxes 2,507 2,452
Other assets, net 251 250
-------- --------
$ 28,007 $ 27,584
======== ========
Current liabilities:
Current maturities of notes payable and capital lease obligations $ 173 $ 173
Accounts payable 1,752 1,950
Accrued expenses and other current liabilities 4,638 4,836
Deferred franchise fees 302 173
-------- --------
Total current liabilities 6,865 7,132
Notes payable and capital lease obligations, less current maturities 823 866
Other liabilities 2,104 2,234
-------- --------
Total liabilities 9,792 10,232
-------- --------
Stockholders' equity:
Common stock, $.01 par value - 30,000,000 shares authorized;
7,065,205 and 7,065,202 shares issued;
5,213,904 and 5,213,901 shares outstanding at June 27, 2004 and
March 28, 2004, respectively 71 71
Additional paid-in capital 40,746 40,746
Accumulated deficit (15,661) (16,611)
Accumulated other comprehensive (loss) income (20) 67
-------- --------
25,136 24,273
Treasury stock at cost, 1,851,301 shares (6,921) (6,921)
-------- --------
Total stockholders' equity 18,215 17,352
-------- --------
$ 28,007 $ 27,584
======== ========
See accompanying notes to consolidated financial statements.
-3-
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Thirteen weeks ended June 27, 2004 and June 29, 2003
(In thousands, except per share amounts)
(Unaudited)
2004 2003
------ ------
Sales $6,654 $6,308
Franchise fees and royalties 1,665 1,561
License royalties 939 870
Investment and other income 178 188
Interest income 48 64
------ ------
Total revenues 9,484 8,991
------ ------
Costs and expenses:
Cost of sales 4,762 4,308
Restaurant operating expenses 838 1,182
Depreciation and amortization 218 257
Amortization of intangible assets 65 65
General and administrative expenses 2,024 1,919
Interest expense 12 14
------ ------
Total costs and expenses 7,919 7,745
------ ------
Income before income taxes 1,565 1,246
Provision for income taxes 615 502
------ ------
Net income $ 950 $ 744
====== ======
PER SHARE INFORMATION
Net income per share
Basic $ 0.18 $ 0.14
====== ======
Diluted $ 0.16 $ 0.14
====== ======
Weighted average shares used in computing per share information
Basic 5,214 5,370
====== ======
Diluted 5,913 5,478
====== ======
See accompanying notes to consolidated financial statements.
-4-
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Thirteen weeks ended June 27, 2004
(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 28, 2004 7,065,202 $ 71 $ 40,746 $ (16,611) $ 67 1,851,301 $ (6,921) $ 17,352
Warrants exercised 3
Unrealized losses on available for
sale securities, net of tax
benefit of $55 (87) (87)
Net income 950 950
--------- ------ ---------- ----------- ----------- --------- -------- -------------
Balance at
June 27, 2004 7,065,205 $ 71 $ 40,746 $ (15,661) $ (20) 1,851,301 $ (6,921) $ 18,215
========= ====== ========== =========== =========== ========= ======== =============
See accompanying notes to consolidated financial statements.
-5-
NATHAN'S FAMOUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirteen weeks ended June 27, 2004 and June 29, 2003
(In thousands)
(Unaudited)
2004 2003
------- -------
Cash flows from operating activities:
Net income $ 950 $ 744
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Depreciation and amortization 218 257
Amortization of intangible assets 65 65
Amortization of bond premium 32 14
Provision for doubtful accounts 6 13
Loss on sale of available for sale securities - 5
Gain on disposal of fixed assets (24) (94)
Deferred income taxes (2) 6
Changes in operating assets and liabilities:
Notes and accounts receivable, net (1,135) (392)
Inventories 99 7
Prepaid expenses and other current assets (66) 85
Accounts payable and accrued expenses (396) (110)
Deferred franchise fees 129 4
Other assets, net (1) 8
Other non current liabilities (110) 304
------- -------
Net cash (used in) provided by operating activities (235) 916
------- -------
Cash flows from investing activities:
Proceeds from sale of available for sale securities 650 500
Purchase of available for sale securities -- (1,099)
Purchase of property and equipment (262) (116)
Proceeds from sale of restaurants, net 5 423
Payments received on notes receivable 77 73
------- -------
Net cash provided by (used in) investing activities 470 (219)
------- -------
Cash flows from financing activities:
Repurchase of common stock -- (211)
Principal repayment of borrowings and obligations under capital leases (43) (43)
------- -------
Net cash used in financing activities (43) (254)
------- -------
Net increase in cash and cash equivalents 192 443
Cash and cash equivalents, beginning of period 3,449 1,415
------- -------
Cash and cash equivalents, end of period $ 3,641 $ 1,858
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $ 30 $ 22
======= =======
Cash paid during the period for interest $ 12 $ 15
======= =======
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 27, 2004
(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 27, 2004 and June 29, 2003 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
28, 2004.
NOTE B - ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB issued a revision to FASB Interpretation No.
46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51" ("FIN No. 46(R)" or the "Interpretation"). FIN No. 46(R) clarifies the
application of ARB No. 51, "Consolidated Financial Statements," to certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support. FIN No. 46(R) requires the consolidation of these entities, known as
variable interest entities, by the primary beneficiary of the entity. The
primary beneficiary is the entity, if any, that will absorb a majority of the
entity's expected losses, receive a majority of the entity's expected residual
returns, or both.
The revisions of FIN No. 46(R) (a) clarified some requirements of the
original FIN No. 46, which had been issued in January 2003, (b) simplified some
of the implementation problems, and (c) added new scope exceptions. FIN No.
46(R) delayed the effective date of the FIN No. 46 for public companies, to the
end of the first reporting period ending after March 15, 2004, except that all
public companies must at a minimum apply the unmodified provisions of FIN No.
46(R) to entities that were previously considered "special-purpose entities" in
practice and under the FASB literature prior to the issuance of FIN No. 46(R) by
the end of the first reporting period ending after December 15, 2003.
FIN No. 46(R) added several new scope exceptions, including one which
states that companies are not required to apply the provisions to an entity that
meets the criteria to be considered a "business" as defined in FIN No. 46(R)
unless one or more of four named conditions exist.
The Company has no equity ownership interests in its franchisees, and has
not consolidated any of these entities in the Company's financial statements.
The Company does not provide more than half of the equity, subordinated debt or
other subordinated financial support to any franchise entity. The Company has
further concluded that the franchise entities were not designed such that
substantially all of their activities either involve or are conducted on behalf
of Nathan's. As such, the Company has not consolidated any franchised entity in
the financial statements. If, at some future date, Nathan's does provide more
than half of the subordinated financial support to a franchise entity,
consolidation would not be automatic. The franchise entity would then be subject
to further testing under the guidelines of FIN No.46(R). The Company will
continue to monitor developments regarding the Interpretation as they occur. The
Company adopted the provisions of FIN No. 46(R) in its fourth fiscal quarter of
2004.The adoption of FIN No. 46(R) did not have a material impact on the
Company's financial position and results of operations.
-7-
NOTE C - NET INCOME PER SHARE
Basic net income per common share is calculated by dividing net income by
the weighted-average number of common shares outstanding and excludes any
dilutive effect of stock options or warrants. Diluted net income 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 net income per common share result from the assumed exercise of stock
options and warrants, using the treasury stock method.
The following chart provides a reconciliation of information used in
calculating the per share amounts for the thirteen week periods ended June 27,
2004 and June 29, 2003, respectively.
THIRTEEN WEEKS
Net Income Number of Shares Net Income
(In thousands) (In thousands) Per Share
-------------- ---------------- -----------------
2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
Basic EPS
Basic calculation $ 950 $ 744 5,214 5,370 $ 0.18 $ 0.14
Effect of dilutive employee stock
options and warrants - - 699 108 (0.02) -
----- ----- ----- ----- ------- --------
Diluted EPS
Diluted calculation $ 950 $ 744 5,913 5,478 $ 0.16 $ 0.14
===== ===== ===== ===== ======= ========
Options and warrants to purchase 761,909 and 835,566 shares of common stock in
the thirteen week periods ended June 27, 2004 and June 29, 2003, 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 27, 2004, 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 Statement of Financial
Accounting Standards ("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 SFAS No.
123, "Accounting for Stock-Based Compensation," to stock-based employee
compensation.
Thirteen Weeks Ended
(In thousands)
June 27, June 29,
2004 2003
----------- --------
Net income, as reported $ 950 $ 744
Deduct: Total stock-based employee
compensation expense determined under
fair value-based method for all awards (51) (41)
----------- -------
Pro forma net income $ 899 $ 703
=========== =======
Earnings per Share
Basic - as reported $ 0.18 $ 0.14
=========== =======
Diluted - as reported $ 0.16 $ 0.14
=========== =======
Basic - pro forma $ 0.17 $ 0.13
=========== =======
Diluted - pro forma $ 0.15 $ 0.13
=========== =======
-8-
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.
During the thirteen weeks ended June 27, 2004 and June 29, 2003, the
Company granted 95,000 and 40,000 options having exercise prices of $5.62 and
$3.81 per share, respectively. All of the options granted are vested as follows:
33 1/3% on the first anniversary of the date of grant, 66 2/3% on the second
anniversary of the date of grant and 100% on the third anniversary of the date
of grant. All options have an expiration date of ten years from the date of
grant.
The weighted average option fair values and the assumptions used to
estimate these values are as follows:
Thirteen Weeks Ended
(In thousands)
---------------------
June 27, June 29,
2004 2003
--------- ---------
Option fair values $ 2.87 $ 1.48
Expected life (years) 7.0 7.0
Interest rate 4.50% 3.83%
Volatility 29.9% 30.8%
Dividend yield 0.0% 0.0%
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. As the Company expects to have a continuing stream of cash flows
from these restaurants, the results of operations for these Company-operated
restaurants are included in "Income before income taxes" in the accompanying
consolidated statements of operations for the thirteen week period ended June
29, 2003 through the date of sale. There have been no sales of Company-owned
restaurants during the thirteen weeks ended June 27, 2004.
The results of operations for these Company-owned restaurants for the
thirteen week period ended June 29, 2003 are as follows (in thousands):
June 29,
2003
---------
Sales $ 287
=========
Loss from continuing operations before income taxes $ (31)
=========
-9-
NOTE F - - STOCK REPURCHASE PROGRAM
On September 14, 2001, Nathan's was authorized to purchase up to
one million shares of its common stock. Pursuant to its stock repurchase
program, it 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
27, 2004, Nathan's purchased 851,301 shares of common stock at a cost of
approximately $3,251,000. To date, Nathan's has purchased a total of 1,851,301
shares of common stock at a cost of approximately $6,921,000. There were no
repurchases of the Company's common stock during the thirteen weeks ended June
27, 2004. 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 G - COMPREHENSIVE (LOSS) INCOME
The components of comprehensive income are as follows:
Thirteen Weeks Ended
(In thousands)
June 27, June 29,
2004 2003
-------- --------
Net income $ 950 $ 744
Unrealized (loss) gain on available-for-sale securities, net
of tax (benefit) provision of $(55) and $9, respectively (87) 12
Reclassification adjustments for net losses realized in net
income, net of tax benefit of $0 and $2, respectively - 3
-------- --------
Comprehensive income $ 863 $ 759
======== ========
Accumulated other comprehensive income at June 27, 2004 and June 29, 2003
consists entirely of unrealized (losses) and gains on available-for-sale
securities, net of deferred taxes.
NOTE I - COMMITMENTS AND CONTINGENCIES
1. CONTINGENCIES
An employee of a Miami Subs franchised restaurant commenced an action for
unspecified damages in the United States District Court, Southern District of
Florida in January 2004 against Miami Subs Corporation, Miami Subs USA, Inc.,
and two Miami Subs franchisees, Nadia M. Investments, Inc. and DYV SYS
International, Inc.(the "franchisees"), claiming that he was not paid overtime
when he worked in excess of 40 hours per week, in violation of the Fair Labor
Standards Act. The action also seeks damages for any other employees of the
defendants who would be similarly entitled to overtime. Pursuant to the terms of
the Miami Subs Franchise Agreement, the franchisees are obligated to operate
their Miami Subs franchises in compliance with the law, including all labor
laws. Miami Subs intends to assert that it is not an appropriate party to this
litigation, to deny any liability to Plaintiff and defend against this action
vigorously. On July 27, 2004, this action was settled without payment to the
plaintiffs by Miami Subs Corporation.
An action has been commenced, 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 for unspecified damages. Pursuant to the terms of the
Miami Subs Franchise Agreement, the franchisee is obligated to indemnify Miami
Subs and hold it harmless against claims asserted and procure an insurance
policy which names 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.
Miami Subs has received a claim from a landlord for a franchised location
that Miami Subs owes the landlord $150,000 in connection with the construction
of the leased premises. Miami Subs has been the primary tenant at the location
since 1993, when the
-10-
lease was assigned to Miami Subs by the initial tenant under the lease, the
party to whom the construction loan was made. To date, the landlord has not
commenced legal action. Miami Subs intends to continue to dispute its liability
for the construction loan and to vigorously defend any legal action.
Ismael Rodriguez commenced an action, in the Supreme Court of the State of
New York, Kings County, in May 2004 against Nathan's Famous, Inc. seeking
damages of $1,000,000 for claims of age discrimination in connection with the
termination of Mr. Rodriguez's employment. Mr. Rodriguez was terminated from his
position in connection with his repeated violation of company policies and
failure to follow company-mandated procedures. Nathan's intends to deny any
liability and defend this action vigorously. Nathan's has submitted this claim
to its insurance carrier and expects that it will not incur any material
liability that is not covered by its employment practices liability insurance
policy.
The Company is involved in various other litigation in the normal course
of business, none of which, in the opinion of management, will have a
significant adverse impact on its financial position or results of operations.
2. GUARANTEES
The Company guarantees certain equipment financing for franchisees with a
third-party lender. The Company's maximum obligation, should the franchisees
default on the required monthly payment to the third-party lender, for loans
funded by the lender, as of June 27, 2004 was approximately $252,000. The
equipment financing expires at various dates through fiscal 2008.
The Company also guarantees a franchisee's note payable with a bank. the
note payable matures in April 2007. The Company's maximum obligation, should the
franchisee default on the required monthly payments to the bank, for loans
funded by the lender, as of June 27, 2004, was approximately $205,000.
NOTE J - RECLASSIFICATIONS
Certain reclassifications of prior period balances have been made to
conform to the June 27, 2004 presentation.
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 restaurant system.
Currently, the Arthur Treacher's brand is being sold within 115 Nathan's, Kenny
Rogers Roasters and Miami Subs restaurants, the Nathan's brand is included on
the menu of 66 Miami Subs and Kenny Rogers restaurants, while the Kenny Rogers
Roasters brand is being sold within 90 Miami Subs and Nathan's restaurants.
At June 27, 2004, our combined system consisted of 345 franchised or
licensed units, 7 Company-owned units and over 4,100 Nathan's Branded Product
points of sale that feature Nathan's world famous all-beef hot dogs, located in
45 states, the District of Columbia and 12 foreign countries. At June 27, 2004,
our Company-owned restaurant system included seven Nathan's units, as compared
to seven Nathan's units and two Miami Subs units at June 29, 2003.
-11-
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. No goodwill
or other intangible assets were determined to be impaired during the thirteen
weeks ended June 27, 2004.
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. No restaurants were determined to be impaired
during the thirteen weeks ended June 27, 2004.
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
notes receivable were determined to be impaired during the thirteen weeks ended
June 27, 2004.
Revenue Recognition
Sales by Company-owned restaurants, which are typically paid in cash by the
customer, are recognized upon the performance of services.
In connection with its franchising operations, the Company receives initial
franchise fees, development fees, royalties, contributions to marketing funds,
and in certain cases, revenue from sub-leasing restaurant properties to
franchisees.
Franchise and area development fees, which are typically received prior to
completion of the revenue recognition process, are recorded as deferred revenue.
Initial franchise fees are recognized as income when substantially all services
to be performed by Nathan's and conditions relating to the sale of the franchise
have been performed or satisfied, which generally occurs when the franchised
restaurant commences operations.
Development fees are non-refundable and the related agreements require the
franchisee to open a specified number of restaurants in the development area
within a specified time period or the agreements may be canceled by the Company.
Revenue from development agreements is deferred and recognized as restaurants in
the development area commence operations on a pro rata basis to the minimum
number of restaurants required to be open, or at the time the development
agreement is effectively canceled.
-12-
Nathan's recognizes franchise royalties when they are earned and deemed
collectible. Franchise fees and royalties that are not deemed to be collectible
are not recognized as revenue until paid by the franchisee. Revenue from
sub-leasing properties to franchisees is recognized as income as the revenue is
earned and becomes receivable and deemed collectible. Sub-lease rental income is
presented net of associated lease costs in the accompanying consolidated
statements of operations.
Nathan's recognizes revenue from the Branded Product Program when it is
determined by the manufacturer that the products have been delivered via third
party common carrier to Nathans' customers. An accrual for the cost of the
product to the Company is recorded simultaneously with the revenue.
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.
104, "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 27, 2004 COMPARED TO THIRTEEN WEEKS ENDED JUNE 29,
2003
Revenues
Total sales increased by $346,000 or 5.5% to $6,654,000 for the thirteen
weeks ended June 27, 2004 ("first quarter fiscal 2005") as compared to
$6,308,000 for the thirteen weeks ended June 29, 2003 ("first quarter fiscal
2004"). Sales from the Branded Product Program increased by 14.8% to $2,548,000
for the first quarter fiscal 2005 as compared to sales of $2,220,000 in the
first quarter fiscal 2004. This increase was attributable to the impact of price
increases implemented in the second half of fiscal 2004 and higher sales volume.
Company-owned restaurant sales decreased by $671,000 or 16.4% to $3,417,000 from
$4,088,000 primarily due to the operation of four fewer Company-owned stores as
compared to the prior fiscal year which was partly offset by an 8.0% sales
increase at our comparable restaurants (consisting of seven Nathan's). The
reduction in Company-owned stores is the result of our franchising the four
restaurants mentioned above. The financial impact associated with these four
restaurants lowered restaurant sales by $925,000 and improved restaurant
operating profits by $30,000 versus the first quarter fiscal 2004. During the
first quarter fiscal 2005 we realized sales of $689,000 arising from our QVC
marketing program which was introduced in September 2003. The majority of the
sales generated by QVC were in connection with the "Today's Special Value"
program held on May 20, 2004.
Franchise fees and royalties increased by $104,000 or 6.7% to $1,665,000
in the first quarter fiscal 2005 compared to $1,561,000 in the first quarter
fiscal 2004. Franchise royalties increased by $99,000 or 7.1% to $1,497,000 in
the first quarter fiscal 2005 as compared to $1,398,000 in the first quarter
fiscal 2004. This increase is due to higher domestic franchise sales and an
improvement 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 2005 as compared to the first quarter fiscal
2004. Domestic franchise restaurant sales increased by 4.1% to $41,500,000 in
the first quarter fiscal 2005 as compared to $39,870,000 in the first quarter
fiscal 2004. Comparable domestic franchise sales (consisting 174 restaurants)
increased by $2,043,000 or 6.4% to $34,146,000 in the first quarter fiscal 2005
as compared to $32,103,000 in the first quarter fiscal 2004. At June 27, 2004,
345 domestic and international franchised or licensed restaurants were operating
as compared to 349 domestic and international franchised or licensed restaurants
at June 29, 2003. During the thirteen weeks ended June 27, 2004, royalty income
from 30 domestic franchised locations have been deemed unrealizable as compared
to 44 domestic franchised locations during the thirteen weeks ended June 29,
2003. Franchise fee income was $168,000 in the first quarter fiscal 2005 as
compared to $163,000 in the first quarter fiscal 2004. During the first quarter
fiscal 2005, 11 new franchised units opened as compared to opening 10 new
franchised units and franchising two Company-owned restaurants during the first
quarter fiscal 2004.
-13-
License royalties were $939,000 in the first quarter fiscal 2005 as
compared to $870,000 in the first quarter fiscal 2004. This increase is
primarily attributable to higher royalties earned from the sale of Nathan's
frankfurters within supermarkets and club stores and from our license agreements
for Nathan's condiments which were partly offset by lower royalties earned from
the sale of Nathan's non-food items.
Investment and other income was $178,000 in the first quarter fiscal 2005
versus $188,000 in the first quarter fiscal 2004. During the first quarter
fiscal 2005, income from subleasing activities and other income was
approximately $57,000 higher than the first quarter fiscal 2004. Gains
associated with the sale of fixed assets were approximately $70,000 lower during
the first quarter fiscal 2005 than during the first quarter fiscal 2004,
primarily due to a net gain of $94,000 in the first quarter fiscal 2004, in
connection with the sale of a Company-owned restaurant to a franchisee.
Interest income was $48,000 in the first quarter fiscal 2005 versus
$64,000 in the first quarter fiscal 2004 due primarily to earning lower interest
income from notes receivable which were determined to be impaired during the
fiscal year ended March 28, 2004.
Costs and Expenses
Cost of sales increased by $454,000 to $4,762,000 in the first quarter
fiscal 2005 from $4,308,000 in the first quarter fiscal 2004 . During the first
quarter fiscal 2005, restaurant cost of sales were lower than the first quarter
fiscal 2004 by approximately $477,000. Cost of sales were lower by approximately
$634,000 as a result of operating four fewer Company-owned restaurants during
the first quarter fiscal 2005. The cost of restaurant sales at our comparable
units as a percentage of restaurant sales was 58.9% in the first quarter fiscal
2005 as compared to 58.7% in the first quarter fiscal 2004. Higher costs of
approximately $931,000 were incurred in connection with the growth of our
Branded Product Program, our QVC marketing program and higher commodity costs
during the first quarter fiscal 2005. Commodity costs of our hot dogs were
approximately 8.4% higher during the first quarter fiscal 2005 than the first
quarter fiscal 2004. The financial impact of these commodity cost increases was
offset by the increases to our selling prices implemented in the second half of
fiscal 2004.
Restaurant operating expenses decreased by $344,000 to $838,000 in the
first quarter fiscal 2005 from $1,182,000 in the fiscal 2004, $323,000 of which
reduction is the result of operating four fewer restaurants.
Depreciation and amortization decreased by $39,000 to $218,000 in the
first quarter fiscal 2005 from $257,000 in the first quarter fiscal 2004.
Depreciation expense was lower by approximately $22,000 as a result of operating
four fewer Company-owned restaurants and $12,000 as a result of the impairment
charges on long-lived assets recorded in the fourth quarter fiscal 2004.
Amortization of intangible assets was $65,000 in both the first quarter
fiscal 2005 and first quarter fiscal 2004.
General and administrative expenses increased by $105,000 to $2,024,000 in
the first quarter fiscal 2005 as compared to $1,919,000 in the first quarter
fiscal 2004. The increase in general and administrative expenses was due
primarily to higher personnel and incentive compensation expense of
approximately $68,000 and higher corporate insurance expense of approximately
$27,000.
Interest expense was $12,000 during the first quarter fiscal 2005 as
compared to $14,000 during the first quarter fiscal 2004. The reduction in
interest expense relates primarily to the repayment of outstanding loans between
the two periods.
Provision for Income Taxes
In the first quarter fiscal 2005, the income tax provision was $615,000 or
39.3% of income before income taxes as compared to $502,000 or 40.3% of income
before income taxes in the first quarter fiscal 2004.
OFF-BALANCE SHEET ARRANGEMENTS
We are not a party to any off-balance sheet arrangements.
-14-
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at June 27, 2004 aggregated $3,641,000,
increasing by $192,000 during the first quarter fiscal 2005. At June 27, 2004,
marketable securities decreased by $823,000 from March 28, 2004 to $6,654,000
and net working capital increased to $9,895,000 from $9,185,000 at March 28,
2004.
Cash used in operations of $235,000 in the first quarter fiscal 2005 is
primarily attributable to increased accounts receivable of $1,135,000 due
primarily to seasonal sales and royalty increases and the reduction of accounts
payable and accrued expenses of $396,000, including lease termination costs of
$333,000 that were accrued for at March 28, 2004, in connection with three
locations having future minimum rents of $2,514,000 which was partly offset by
net income of $950,000 and other non-cash expenses of $295,000.
Cash provided by investing activities of $470,000 is comprised primarily
of proceeds from the sale of securities of $650,000, repayments on notes
receivable of $77,000 and proceeds from the sale of other fixed assets of $5,000
which were partly offset by capital expenditures of $262,000.
Cash used in financing activities was $43,000 representing repayments of
notes payable and obligations under capital leases. During the first quarter
fiscal 2005, we did not repurchase any shares of the Company's common stock.
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 27, 2004,
Nathan's purchased 851,301 shares of common stock at a cost of approximately
$3,251,000. Nathan's has not purchased any additional shares of common stock
after June 27, 2004. To date, Nathan's has purchased a total of 1,851,301 shares
of common stock at a cost of approximately $6,921,000. 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.
We expect that we will make additional investments in certain existing
restaurants and support the growth of the Branded Product Program in the future
and to fund those investments from our operating cash flow. We may further incur
additional capital expenditures in connection with the replacement of a
Company-owned restaurant whose lease will expire in September 2004.
There are currently 29 properties that we either own or lease from third
parties which we lease or sublease to franchisees, operating managers and
non-franchisees. Additionally, there is currently one vacant leased property
which was previously sublet to a franchisee. 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 27, 2004 was approximately $457,000.
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 $ 944 $ 167 $ 333 $ 333 $ 111
Capital Lease Obligations 52 6 16 19 11
Employment Agreements 532 479 53 - -
Operating Leases 18,283 3,763 6,937 4,394 3,189
------- --------- ----------- --------- -------------
Gross Cash Contractual Obligations 19,811 4,415 7,339 4,746 3,311
Sublease Income 10,688 2,093 3,866 2,484 2,245
------- --------- ----------- --------- -------------
Net Cash Contractual Obligations $ 9,123 $ 2,322 $ 3,473 $ 2,262 $ 1,066
======= ========= =========== ========= =============
-15-
Amount of Commitment Expiration Per Period
Total ------------------------------------------
Amounts Less than
Other Contractual Commitments Committed 1 Year 1 - 3 Years 4-5 Years After 5 Years
- ----------------------------- --------- -------- ----------- --------- -------------
Loan Guarantees $ 457 $ 170 $ 287 $ - -
--------- -------- ----------- --------- -------------
Total Commercial Commitments $ 457 $ 170 $ 287 $ - -
========= ======== =========== ========= =============
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 $5,000,000
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 27, 2004, Nathans' cash and cash equivalents aggregated $3,641,000.
Earnings on these cash and cash equivalents would increase or decrease by
approximately $9,100 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 27, 2004, the market
value of Nathans' marketable investment securities aggregated $6,654,000.
Interest income on these marketable investment securities would increase or
decrease by approximately $16,600 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 27, 2004 that are sensitive
to interest rate fluctuations (in thousands):
Valuation of securities Valuation of securities
Given an interest rate Given an interest rate
Decrease of X Basis points Increase of X Basis points
------------------------------- Fair --------------------------
(150BPS) (100BPS) (50BPS) Value +50BPS +100BPS +150BPS
-------- -------- ------- ------ ------ ------- -------
Municipal notes and bonds $ 6,987 $ 6,873 $ 6,762 $6,654 $6,549 $ 6,447 $ 6,347
======== ======== ======= ====== ====== ======= =======
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 27, 2004, total outstanding debt, including capital leases,
aggregated $996,000 of which $944,000 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 January 2009 to prime plus .25%. Nathan's also maintains a $5,000,000
credit line which bears interest at the prime rate plus 1.00% (5.25% at June 30,
2004). The Company has never borrowed any funds under this credit 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 thirteen weeks ended June 27,
2004 would have increased or decreased cost of sales by approximately $328,000.
-16-
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
EVALUATION AND DISCLOSURE CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer,
Chief Operating Officer and Chief Financial Officer, conducted an evaluation of
the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this quarterly report on Form
10-Q as required by Exchange Act Rule 13a-15. Based on that evaluation, the
Chief Executive Officer, Chief Operating Officer and Chief Financial Officer
have concluded that our disclosure controls and procedures were effective to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified by the SEC's rules and forms.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in our internal controls over financial
reporting that occurred during the quarter ended June 27, 2004 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS
We believe that a control system, no matter how well designed and
operated, cannot provide absolute assurance that the objectives of the control
system are met, and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a company have
been detected.
FORWARD LOOKING STATEMENTS
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: the future effects of the first case of bovine spongiform
encephalopathy, BSE, identified in the United States on December 23, 2003;
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.
-17-
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:
An employee of a Miami Subs franchised restaurant commenced an action for
unspecified damages in the United States District Court, Southern District of
Florida in January 2004 against Miami Subs Corporation, Miami Subs USA, Inc.,
and two Miami Subs franchisees, Nadia M. Investments, Inc. and DYV SYS
International, Inc.(the "franchisees"), claiming that he was not paid overtime
when he worked in excess of 40 hours per week, in violation of the Fair Labor
Standards Act. The action also seeks damages for any other employees of the
defendants who would be similarly entitled to overtime. Pursuant to the terms of
the Miami Subs Franchise Agreement, the franchisees are obligated to operate
their Miami Subs franchises in compliance with the law, including all labor
laws. Miami Subs intends to assert that it is not an appropriate party to this
litigation, to deny any liability to Plaintiff and defend against this action
vigorously. On July 27, 2004, this action was settled without payment to the
plaintiffs by Miami Subs Corporation.
An action has been commenced, 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 for unspecified damages. Pursuant to the terms of the
Miami Subs Franchise Agreement, the franchisee is obligated to indemnify Miami
Subs and hold it harmless against claims asserted and procure an insurance
policy which names 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.
Ismael Rodriguez commenced an action, in the Supreme Court of the State of
New York, Kings County, in May 2004 against Nathan's Famous, Inc. seeking
damages of $1,000,000 for claims of age discrimination in connection with the
termination of Mr. Rodriguez's employment. Mr. Rodriguez was terminated from his
position in connection with his repeated violation of company policies and
failure to follow company-mandated procedures. Nathan's intends to deny any
liability and defend this action vigorously. Nathan's has submitted this claim
to its insurance carrier and expects that it will not incur any material
liability that is not covered by its employment practices liability insurance
policy.
ITEM 2: CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
(e) The Company has not repurchased any equity securities during the
quarter ended June 27, 2004.
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 27,
2004.
-18-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATHAN'S FAMOUS, INC.
Date: August 9, 2004 By: /s/Wayne Norbitz
-------------------------------------------
Wayne Norbitz
President and Chief Operating Officer
(Principal Executive Officer)
Date: August 9, 2004 By: /s/Ronald G. DeVos
--------------------------------------------
Ronald G. DeVos
Vice President - Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
-19-