UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
x ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended March 29, 2009
or
¨ TRANSITION REPORT
PURSUANT TO SECTION 13 or 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
transition period from _________to__________
Commission
File No. 0-3189
NATHAN’S
FAMOUS, INC.
|
(Exact
name of registrant as specified in its
charter)
|
Delaware
|
|
11-3166443
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification No.)
|
1400 Old Country Road, Westbury, New
York
|
|
11590
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(Address of principal
executive offices)
|
|
(Zip
Code)
|
Registrant’s
telephone number, including area code:
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516-338-8500
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Securities
registered pursuant to Section 12(g) of the Act:
Common Stock – par value
$.01
|
Nasdaq Stock Market
|
(Title
of class)
|
Name
of each exchange on which
registered
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15 (d) of the Act. Yes ¨ No x
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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
Large
Accelerated Filer ¨
|
Accelerated
Filer x
|
Non-accelerated
Filer ¨
|
Smaller
reporting company ¨
|
(Do
not check if a smaller reporting
company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨ No x
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of the last business day of the Registrant’s
most recently completed second fiscal quarter – September 28, 2008 - was
approximately $79,580,000.
As of
June 4, 2009, there were outstanding 5,611,877 shares of
Common Stock, par value $.01 per share.
DOCUMENTS
INCORPORATED BY REFERENCE– The information required by Part III, Items 10, 11,
12, 13 and 14 is incorporated by reference from the registrant’s definitive
proxy statement for the 2009 Annual Meeting of Shareholders to be filed pursuant
to Regulation 14A of the Securities Exchange Act of 1934.
Forward-Looking
Statements
Statements in this Form 10-K annual
report may be “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements
include, but are not limited to, statements that express our intentions,
beliefs, expectations, strategies, predictions or any other statements relating
to our future activities or other future events or conditions. These statements
are based on current expectations, estimates and projections about our business
based, in part, on assumptions made by management. These statements
are not guarantees of future performance and involve risks, uncertainties and
assumptions that are difficult to predict. 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;
changes in consumer tastes; the ability to continue to attract franchisees; no
material increases in the minimum wage; our ability to attract competent
restaurant and managerial personnel; and the future effects of bovine spongiform
encephalopathy, BSE, first identified in the United States on December 23,
2003; as well as those risks discussed from time to time in this Form
10-K annual report for the year ended March 29, 2009, and in other documents
which we file with the Securities and Exchange Commission. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in the forward-looking statements. We generally identify forward-looking
statements with the words “believe,” “intend,” “plan,” “expect,” “anticipate,”
“estimate,” “will,” “should” and similar expressions. Any forward-looking
statements speak only as of the date on which they are made, and we do not
undertake any obligation to update any forward-looking statement to reflect
events or circumstances after the date of this Form 10-K.
Item
1. Business.
As used herein, unless we otherwise
specify, the terms “we,” “us,” “our,” “Nathan’s”, “Nathan’s Famous” and the
“Company” mean Nathan’s Famous, Inc. and its subsidiaries, including NF
Treachers Corp., owner of the Arthur Treachers brand, Miami Subs Corporation
through May 30, 2007, owner of the Miami Subs brand and NF Roasters Corp.
through April 23, 2008, owner of the Kenny Rogers Roasters brand.
We are
engaged primarily in the marketing of the “Nathan’s Famous” brand and the sale
of products bearing the “Nathan’s Famous” trademarks through several different
channels of distribution. Historically, our business has been the
operation and franchising of quick-service restaurant units featuring Nathan’s
World Famous Beef Hot Dogs, crinkle-cut French-fried potatoes, and a variety of
other menu offerings. Our Nathan’s brand Company-owned and franchised
units operate under the name "Nathan’s Famous," the name first used at our
original Coney Island restaurant which opened in 1916.
In addition to our Company-owned and
franchised traditional restaurant operations, we introduced our Branded Menu
Program, previously known as our Limited-menu Frank and Fry Franchise Program,
in 2007. Pursuant to this program, qualified foodservice operators
are offered the ability to offer a menu of Nathan’s World Famous Beef Hot Dogs,
crinkle-cut French fries, proprietary toppings and other Nathan’s Famous menu
offerings.
We and certain authorized third
parties also sell Nathan’s World Famous Beef Hot Dogs to foodservice operators
outside of the realm of a traditional franchise relationship. We
refer to this line of business as the Branded Product
Program. Introduced in fiscal 1998, our Branded Product Program
allows foodservice operators to prepare and sell Nathan’s World Famous Beef Hot
Dogs and certain other proprietary products while making limited use of the
Nathan’s Famous trademark.
Finally, certain authorized third
parties also manufacture, market and distribute various packaged products
bearing the Nathan’s Famous trademarks to retail customers through supermarkets,
club stores and other grocery-type outlets. Our retail program began
in 1978 with the introduction at supermarkets of packaged Nathan’s World Famous
Beef Hot Dogs and other meat products.
We also own the Arthur Treacher’s brand
and trademarks, which our NF Treachers Corp. subsidiary acquired on February 28,
2006. Before the acquisition, we were party to a licensing
arrangement with the prior owners of Arthur Treacher’s that permitted us to
include limited menu Arthur Treacher’s operations within our restaurant
system. Today, we continue to use the Arthur Treacher’s brand,
products and trademarks as a branded seafood menu-line extension for inclusion
in certain Nathan’s Famous restaurants.
We recently sold our interests in two
other branded restaurant systems. On June 7, 2007, Nathan’s completed
the sale of its wholly-owned subsidiary, Miami Subs Corporation, to Miami Subs
Capital Partners I, Inc. effective as of May 31, 2007. Pursuant to
the Stock Purchase Agreement, Nathan’s sold all of the stock of Miami Subs
Corporation in exchange for $3,250,000, consisting of $850,000 in cash and the
Purchaser’s promissory note in the principal amount of
$2,400,000. Miami Subs Corporation had been acquired by us in
September 1999.
Similarly, on April 23, 2008,
Nathan’s completed the sale of its wholly-owned subsidiary, NF Roasters Corp.,
to Roasters Asia Pacific (Cayman) Limited. Pursuant to the Stock
Purchase Agreement, Nathan’s sold its stock in NF Roasters Corp. in exchange for
approximately $4,000,000 in cash. NF Roasters Corp. was formed by Nathan’s in
1999 to become the franchisor of the Kenny Rogers Roasters restaurant system
through the acquisition of the intellectual property rights, including
trademarks, recipes and franchise agreements, of Roasters Corp. and Roasters
Franchise Corp., both of which were then involved in bankruptcy
proceedings. During our period of ownership, we used the Kenny Rogers
Roasters trademarks and products primarily as a branded chicken menu-line
extension for inclusion in certain Nathan’s Famous and Miami Subs
restaurants.
For the past several years, our primary
focus has been the expansion of the Nathan’s Famous
brand. Specifically, we have sought to maximize the number of points
of brand representation and product sales throughout our various channels of
distribution. In this regard, we have concentrated our efforts on:
expanding the number of foodservice locations participating in the Nathan’s
Famous Branded Product Program; expanding the number of domestic franchised and
licensed Nathan’s Famous restaurant units through the development and opening of
new and different types of locations, such as the Branded Menu Program, as well
as the development of an international franchising program; expanding our retail
licensing programs for packaged Nathan’s Famous products through new product
introductions and geographic expansion; and operating our existing Company-owned
restaurants. In addition, during the period that we owned the Miami Subs and
Kenny Rogers brands, we sought to expand our sales by introducing those brands
in Nathan’s locations and the Nathan’s brand in Miami Subs
locations.
As a result of our efforts to expand the
Nathan’s Famous brand, as of March 29, 2009, our Nathan’s Famous restaurant
system consisted of 249 franchised or licensed units and five Company-owned
units (including one seasonal unit) located in 25 states and four countries, our
Nathan’s Famous Branded Product Program had approximately 13,000 participating
foodservice locations throughout 50 states and the District of Columbia and
Nathan’s Famous packaged hot dogs and other products were offered for sale
within supermarkets and club stores in 39 states.
Our revenues are generated primarily
from sales of products pursuant to our Branded Product Program and in our
Company-owned restaurants, as well as from the fees, royalties and other sums we
earn from our franchising and retail licensing activities.
We plan to continue expanding the
scope and market penetration of our Branded Product and Branded Menu Programs,
further develop the restaurant operations of existing Nathan’s Famous franchised
and Company-owned outlets, open new Nathan’s Famous franchised outlets in
traditional or captive market environments and expand the Nathan’s Famous retail
licensing programs. We
may also selectively consider opening new Company-owned
restaurants. We expect to further seek to develop our international
presence through the use of franchising and distribution agreements based upon
individual or combined use of our business alternatives.
We were
incorporated in Delaware on July 10, 1992 under the name “Nathan’s Famous
Holding Corporation” to act as the parent of a Delaware corporation then-known
as Nathan’s Famous, Inc. On December 15, 1992, we changed our name to
Nathan’s Famous, Inc. and our Delaware subsidiary changed its name to
Nathan’s Famous Operating Corporation. The Delaware subsidiary was
organized in October 1989 in connection with its re-incorporation in Delaware
from that of a New York corporation named “Nathan’s Famous, Inc.” The
New York Nathan’s was incorporated on July 10, 1925 as a successor to the sole
proprietorship that opened the first Nathan’s restaurant in Coney Island in
1916. On July 23, 1987, Equicor Group, Ltd. was merged with and into
the New York Nathan’s in a “going private” transaction. The New York
Nathan’s, the Delaware subsidiary and Equicor may all be deemed to be our
predecessors.
Restaurant
Operations
Nathan’s
Concept and Menus
Our
Nathan’s concept offers a wide range of facility designs and sizes, suitable to
a vast variety of locations, and features a core menu consisting of Nathan’s
World Famous Beef Hot Dogs, crinkle-cut French fries and
beverages. Nathan’s menu is designed to take advantage of
site-specific market opportunities by adding complementary food items to the
core menu. The Nathan’s concept is suitable to stand-alone or can be
co-branded with other nationally recognized brands.
Nathan’s
World Famous Beef Hot Dogs are flavored with the original secret blend of spices
provided by Ida Handwerker in 1916, which historically have distinguished
Nathan’s World Famous Beef Hot Dogs. Our hot dogs are prepared and
served in accordance with procedures which have not varied significantly in more
than 90 years. Our signature crinkle-cut French fried potatoes are
featured at each Nathan’s restaurant. Nathan’s French fried potatoes are cooked
in 100% cholesterol-free oil. We believe that the majority of sales
in our Company-owned units consist of Nathan’s World Famous Beef Hot Dogs,
crinkle-cut French fried potatoes and beverages.
Individual
Nathan’s restaurants supplement their core menu of hot dogs, French fries and
beverages with a variety of other quality menu choices including: char-grilled
hamburgers, crispy chicken tenders, char-grilled chicken sandwiches, Philly
cheese-steaks, selected seafood items, a breakfast menu and assorted desserts
and snacks. While the number of supplemental menu items carried
varies with the size of the unit, the specific supplemental menus chosen are
tailored to local food preferences and market conditions. Each of
these supplemental menu options consists of a number of individual items; for
example, the hamburger menu may include char-grilled bacon cheeseburgers,
double-burgers and super cheeseburgers. We maintain the same quality standard
with each of Nathan’s supplemental menus as we do with Nathans’ core hot dog and
French fried potato menu. Thus, for example, hamburgers and
sandwiches are prepared to order and not pre-wrapped or kept warm under
lights. Nathan’s also has a “Kids Meal” program in which various menu
alternatives are combined with toys designed to appeal to the children’s market.
Soft drinks, iced tea, coffee and old fashioned lemonade and orangeade are also
offered. The Company continually evaluates new products. In the
course of its evaluations, the Company is cognizant of consumer trends,
including a trend toward perceived “healthier” products. In addition
to its well-established, signature products, the Company offers for sale in many
of its restaurants up to seven chicken products, six fish products, and five
salad, soup, and vegetable products. Additionally, in all restaurants
French fries are prepared in cholesterol-free oil.
Nathan’s restaurant designs are
available in a range of sizes from 300 to 4,000 square feet. We have also
developed various Nathan’s carts, kiosks, and modular units. Our
smaller units may not have customer seating areas, although they may often share
seating areas with other fast food outlets in food court
settings. Other units generally provide seating for 45 to 125
customers. Carts, kiosks and modular units generally carry only the
core menu. This menu is supplemented by a number of other menu
selections in our other restaurant types.
We
believe Nathan’s carts, kiosks, modular units and food court designs are
particularly well-suited for placement in non-traditional sites, such as
airports, travel plazas, stadiums, schools, convenience stores, entertainment
facilities, military facilities, business and industry foodservice, within
larger retail operations and other captive markets. Many of these
settings may also be appropriate for our expanding Branded Menu Program or
Branded Product Program. All of these units feature the Nathan’s logo and
utilize a contemporary design.
Arthur
Treacher’s Fish-n-Chips Concept and Menu
Arthur
Treacher’s Fish-n-Chips, Inc. was originally founded in 1969. Arthur Treacher's
main product is its "Original Fish N Chips" consisting of fish fillets coated
with a special batter prepared under a proprietary formula, deep-fried golden
brown, and served with English-style chips and corn meal "hush puppies." The
full menu restaurants emphasize the preparation and sale of batter-dipped fried
seafood and chicken dishes served in a quick-service environment. Other Arthur
Treacher's products that may be offered in full menu restaurants include
chicken, shrimp, clams and an assortment of other seafood combination
dishes. The full menu restaurants operate a sit-down style, quick
serve operation under a uniform business format consisting of methods,
procedures, building designs, décor, color schemes and trade dress. The
restaurant format also utilizes certain service marks, logos, copyrights and
commercial symbols. Currently, Arthur Treacher’s products are served
within 58 Nathan’s Famous and 42 Miami Subs restaurants, whereby the menu
generally consists of fish fillets, shrimp, clams and hush puppies. The Arthur
Treacher’s brand is generally represented in these restaurants by the use of
limited trade dress, certain service marks, logos, copyrights and commercial
symbols.
Kenny
Rogers Roasters Menu
Over the last five years, Nathan’s
focused the use of the Kenny Roger Roasters brand as a co-brand that was located
within its restaurants utilizing certain Kenny Rogers Roasters products, which
included chicken sandwiches, chicken tenders and chicken wings, as part of the
restaurant’s menu offering.
At March
30, 2008, the Kenny Rogers Roasters restaurant system consisted primarily of
approximately 98 traditional restaurants operating internationally and
approximately 100 co-branded representations whereby certain signature items
were included on the menu within the Nathan’s Famous and Miami Subs domestic
restaurant systems. On April 23, 2008, we sold NF Roasters Corp., our Kenny
Rogers Roasters subsidiary, but retained the right to continue using the Kenny
Rogers Roasters trademarks for the continued sale of the Kenny Rogers Roasters
products in the then-existing Nathan’s Famous and Miami Subs restaurants, where
the Kenny Rogers products had already been introduced.
Miami
Subs Menu
Prior to the sale of Miami Subs
effective May 31, 2007, Nathan’s operated Miami Subs as the franchisor of the
Miami Subs concept, which featured a wide variety of moderately-priced lunch,
dinner and snack foods, including hot and cold submarine sandwiches, various
ethnic foods such as gyros and pita sandwiches, flame grilled hamburgers and
chicken breast sandwiches, cheese-steaks, chicken wings, fresh salads, ice cream
and other desserts and beverages. Nathan’s also introduced its Nathan’s, Kenny
Rogers Roasters and Arthur Treacher’s signature products into a number of Miami
Subs restaurants.
At the
time of sale, the Miami Subs restaurant system consisted of approximately
65 restaurants. In
connection with the sale, Miami Subs retained the right to continue offering the
Nathan’s, Kenny Rogers Roasters and Arthur Treacher’s signature
products within their restaurant system. At March 29, 2009, Nathan’s and Arthur
Treacher’s products were sold in 41 and 42 Miami Subs locations,
respectively.
Franchise
Operations
At March
29, 2009, our Nathan’s Famous franchise system, including our Branded Menu
Program, consisted of 249 units operating in 25 states and four foreign
countries.
Our
franchise system counts among its 127 franchisees and licensees such well-known
companies as HMS Host, ARAMARK Leisure Services, Inc., Delaware North,
Centerplate (formerly known as Service America Corp.), Culinart, National
Amusements, Hershey Entertainment and Six Flags Theme Parks. We continue to seek
to market our franchising programs to larger, experienced and successful
operators with the financial and business capability to develop multiple
franchise units, as well as to individual owner-operators with evidence of
restaurant management experience, net worth and sufficient capital.
During
our fiscal year ended March 29, 2009, no single franchisee accounted for over
10% of our consolidated revenue. At March 29, 2009, HMS
Host operated 71 outlets, including nine franchised units at airports, 13
franchised units within highway travel plazas and four franchised units within
malls. Additionally, at March 29, 2009, HMS Host operated 45 locations featuring
Nathan’s products pursuant to our Branded Product Program. At March 29, 2009,
there were also 45 Brusters Real Ice Cream locations selling Nathan’s products
under our Branded Menu Program.
Nathan’s
Standard Franchise Program
Franchisees
are required to execute a standard franchise agreement prior to opening each
Nathan’s Famous unit. Our current standard Nathan’s Famous franchise
agreement provides for, among other things, a one-time $30,000 franchise fee
payable upon execution of the agreement, a monthly royalty payment based on 5.5%
of restaurant sales and the expenditure of up to 2.0% of restaurant sales on
advertising. We may offer alternatives to the standard franchise
agreement, having to do with franchise fees or advertising requirements. The
initial term of the typical franchise agreement is 20 years, with a 15-year
renewal option by the franchisee, subject to conditions contained in the
franchise agreement.
Franchisees
are approved on the basis of their business background, evidence of restaurant
management experience, net worth and capital available for investment in
relation to the proposed scope of the development agreement.
We
provide numerous support services to our Nathan’s Famous
franchisees. We assist in and approve all site
selections. Thereafter, we provide architectural plans suitable for
restaurants of varying sizes and configurations for use in food court, in-line
and free standing locations. We also assist in establishing building
design specifications, reviewing construction compliance, equipping the
restaurant and providing appropriate menus to coordinate with the restaurant
design and location selected by the franchisee. We typically do not
sell food, equipment or supplies to our standard franchisees.
We offer
various management-training courses for management personnel of Company-owned
and franchised Nathan’s Famous restaurants. A restaurant manager from
each restaurant must successfully complete our mandated management-training
program. We also offer additional operations and general management
training courses for all restaurant managers and other managers with supervisory
responsibilities. We provide standard manuals to each franchisee covering
training and operations, products and equipment and local marketing
programs. We also provide ongoing advice and assistance to
franchisees. We host periodic “Focus on Food” meetings with our franchisees to
discuss upcoming marketing events, menu development and other topics, each of
which is designed to provide system-wide benefits.
Franchised
restaurants are required to be operated in accordance with uniform operating
standards and specifications relating to the selection, quality and preparation
of menu items, signage, decor, equipment, uniforms, suppliers, maintenance and
cleanliness of premises and customer service. All standards and
specifications are developed by us and applied on a system-wide
basis. We regularly monitor franchisee operations and inspect
restaurants. Franchisees are required to furnish us with detailed
monthly sales or operating reports which assist us in monitoring the
franchisee’s compliance with its franchise agreement. We make both
announced and unannounced inspections of restaurants to ensure that our
practices and procedures are being followed. We have the right to
terminate a franchise if a franchisee does not operate and maintain a restaurant
in accordance with the requirements of its franchise agreement, including for
non-payment of royalties, sale of unauthorized products, bankruptcy or
conviction of a felony. During the fiscal year ended March 29, 2009, (“fiscal
2009") franchisees opened 46 new Nathan’s Famous
franchised units in the United States (including 30 Branded Menu Program units)
and no agreements were terminated for non-compliance.
Franchisees
who desire to open multiple units in a specific territory within the United
States may enter into an area development agreement under which we would expect
to receive an advance fee based upon the number of proposed units which the
franchisee is authorized to open. As units are opened under such
agreements, a portion of such advance may be credited against the franchise fee
payable to us, as provided in the standard franchise agreement. We may also
grant exclusive territorial rights in foreign countries for the development of
Nathan’s units based upon compliance with a predetermined development schedule.
Additionally, we may further grant exclusive manufacturing and distribution
rights in foreign countries. In all international situations, we expect to
require an exclusivity fee to be conveyed for such exclusive
rights.
Nathan’s
Branded Menu Program
The Nathan’s Famous Branded Menu
Program was being tested at the end of our fiscal year ended March 25, 2007.
During our fiscal year ended March 30, 2008, we began marketing our
Branded Menu Program that provides qualified foodservice operators the ability
to offer a Nathan’s Famous menu of hot dogs, crinkle cut French fries,
proprietary toppings, and perhaps corn dog nuggets, corn dogs on a stick,
chicken tenders and old fashioned lemonade and orangeade. Under the Nathan’s
Famous Branded Menu Program, the operator may use Nathan’s Famous trademarks on
signage and as a part of its menu boards. Additionally, the operator
may use Nathan’s Famous paper goods and point of sale marketing
materials. Nathan’s also provides architectural and design services,
training and operation manuals in conjunction with this program. The
operator provides Nathan’s with a fee and is required to sign a 10-year license
agreement. Nathan’s does not collect a royalty directly from the
operator and the operator is not required to report sales to Nathan’s as
required by the standard franchise arrangements. The Branded Menu Program
operator is required to purchase products from Nathan’s approved distributors;
we derive our profit from such purchases.
As of March 29, 2009, the Branded Menu
Program was comprised of 57 outlets. Brusters Real Ice Cream, a
premium ice cream franchisor headquartered in Western Pennsylvania with more
than 250 Company-owned and franchised ice cream shops located largely in the
southeast United States, has adopted the Nathan’s Famous Branded Menu Program as
a means to add incremental sales and profits to its existing ice cream
shops. As of March 29, 2009, Brusters Real Ice Cream shops operated
45 Nathan’s Famous Branded Menu operations with an additional two under
development. We anticipate this program will continue to grow during
the next fiscal year.
Arthur
Treacher’s
At the
time of our acquisition of Miami Subs in fiscal 2000, Miami Subs had an existing
co-branding agreement with the franchisor of the Arthur Treacher’s Fish N Chips
restaurant system permitting Miami Subs to include limited-menu Arthur
Treacher’s restaurant operations within Miami Subs restaurants (the “AT
Co-Branding Agreement”). Through our acquisition of Miami Subs, we
were able to extend the terms of the AT Co-Branding Agreement to allow the
inclusion of a limited number of Arthur Treacher’s menu items within Nathan’s
Famous restaurants as well. Since that time, our co-branding efforts
with the Arthur Treacher’s concept have been extremely successful. As
of March 29, 2009, there were Arthur Treacher’s co-branded operations included
within 58 Nathan’s Famous and 42 Miami Subs
restaurants.
To enable
us to further benefit from the use of the Arthur Treacher’s brand, we acquired
all trademarks and other intellectual property relating to the Arthur Treacher’s
brand from PAT Franchise Systems, Inc. (“PFSI”) on February 28, 2006 and
terminated the AT Co-Branding Agreement. Simultaneously, we granted
back to PFSI a limited license to use the Arthur Treacher’s intellectual
property solely for the purposes of: (a) PFSI continuing to permit
the operation of its then-existing Arthur Treacher’s franchised restaurant
system (which PFSI informed us consisted of approximately 60 restaurants); and
(b) PFSI granting rights to third parties who wish to develop new
traditional Arthur Treacher’s quick-service restaurants in Indiana, Maryland,
Michigan, Ohio, Pennsylvania, Virginia, Washington D.C. and areas of Northern
New York State (collectively, the “PFSI Markets”). Due to
non-compliance with PFSI’s development schedule, the ability to grant
development rights to third parties in the States of Maryland, Virginia,
Washington D.C. and Northern New York State, reverted back to Nathan’s. We retained certain
rights to sell franchises for the operation of Arthur Treacher’s restaurants in
certain circumstances within the geographic scope of the PFSI
Markets.
As a result of this transaction, we are
now the sole owner of all rights to the Arthur Treacher’s brand and the
exclusive franchisor of the Arthur Treacher’s restaurant system (subject to the
limited license granted back to PFSI for the PFSI Markets). We no
longer have any ongoing obligation to pay fees or royalties to PFSI in
connection with our use of the Arthur Treacher’s system. Similarly,
PFSI has no obligation to pay fees or royalties to us in connection with its use
of the Arthur Treacher’s system within the PFSI Markets.
Currently,
our primary intention is to continue to include co-branded Arthur Treacher’s
operations within existing and new Nathan’s Famous restaurants, as well as to
explore alternative distribution channels for Arthur Treacher’s
products. Additionally, we may explore in the future a franchising
program focused on the expansion of traditional, full-menu Arthur Treacher’s
restaurants outside of the PFSI Markets.
Kenny
Rogers Roasters Domestic Franchise Program
Subsequent to our acquisition of the
Kenny Rogers Roasters brand out of the bankruptcies of Roasters Corp. and
Roasters Franchise Corp., we emphasized co-branding certain signature items from
the Kenny Rogers Roasters menu into the Nathan’s Famous and Miami Subs
restaurant systems and we did not generally seek to add new franchisees of
traditional Kenny Rogers Roasters restaurants to the franchise
system. Nevertheless, franchisees of approximately 60
traditional domestic Kenny Rogers Roasters restaurants operated under the
previous franchise system elected to “opt-in” to our bankruptcy reorganization
plan in March of 2000. On April 23, 2008, we sold NF Roasters Corp.,
our Kenny Rogers Roasters subsidiary, and retained the right to continue using
the Kenny Rogers Roasters trademarks for the continued sale of the Kenny Rogers
Roasters products in the then-existing Nathan’s Famous and Miami Subs
restaurants.
Company-owned
Nathan’s Restaurant Operations
As of
March 29, 2009, we operated five Company-owned Nathan’s units, including one
seasonal location, in New York. Four of our Company-owned restaurants
range in size from approximately 2,500 square feet to 10,000 square feet and are
all free-standing buildings. Our one seasonal location is
approximately 440 square feet. Four of our Company-owned restaurants
have seating to accommodate between 60 and 350 customers. These
restaurants are open seven days a week on a year-round basis and are designed to
appeal to all ages of consumers. We have established high standards
for food quality, cleanliness, and service at our restaurants and regularly
monitor the operations of our restaurants to insure adherence to these
standards.
Three of
our Company-owned restaurants have contemporary service areas, seating, signage,
and general decor. Our Coney Island restaurant, which was first
opened in 1916, remains unique in its presentation and operations.
Our
Company-owned restaurants typically carry a broader selection of menu items than
our newer franchise restaurants and generally attain sales levels higher than
the average of our newer franchise restaurants. The items offered at
these restaurants, other than the core menu, tend to have lower margins than the
core menu. To duplicate these older units would require significantly
higher levels of initial investment than current franchise restaurants and may
operate at a lower sales/investment ratio. Consequently, we do not
intend to replicate these older units in future Company-owned
restaurants.
International
Development
As of
March 29, 2009, Nathan’s Famous franchisees operated 18 units in four foreign
countries, having significant operations within Kuwait. During the current
fiscal year our international franchising program consisted of the openings of
three Nathan’s
Famous restaurants in Kuwait, the closing of one restaurant in Kuwait and the
closing of the remaining four Nathan’s Famous restaurants in Japan.
During
fiscal 2003, we executed a Master Franchise Agreement and a Distribution and
Manufacturing Agreement for the Nathan’s Famous and Miami Subs rights in Japan,
which we terminated during fiscal 2008 for non-compliance with the development
schedule. During fiscal 2007, we executed a Master Franchise Agreement and a
Distribution Agreement for Nathan’s rights in the United Arab Emirates, pursuant
to which our first unit opened in Dubai in April 2008. We may
continue to grant exclusive territorial rights for franchising and for the
manufacturing and distribution rights in foreign countries, which would require
that an exclusivity fee be conveyed for these rights. We plan to develop the
restaurant franchising system internationally through the use of master
franchising agreements based upon individual or combined use of our existing
restaurant concepts and for the distribution of Nathan’s products. During the fiscal years
ended March 29, 2009, March 30, 2008 and March 25, 2007, total revenue derived
from Nathan’s international operations, was approximately 2.0%, 1.6% and
2.6% respectively,
of total revenue. See Item 1A-“Risk Factors.”
Location
Summary
The following table shows the number of
our Company-owned and franchised or licensed units in operation at March 29,
2009 and their geographical distribution:
|
|
|
|
|
Franchise
|
|
|
|
|
|
|
Company
|
|
|
or License (1)
|
|
|
Total
|
|
Domestic Locations
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama
|
|
|
- |
|
|
|
2 |
|
|
|
2 |
|
Arizona
|
|
|
- |
|
|
|
2 |
|
|
|
2 |
|
California
|
|
|
- |
|
|
|
5 |
|
|
|
5 |
|
Connecticut
|
|
|
- |
|
|
|
6 |
|
|
|
6 |
|
Delaware
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
Florida
|
|
|
- |
|
|
|
29 |
|
|
|
29 |
|
Georgia
|
|
|
- |
|
|
|
23 |
|
|
|
23 |
|
Kentucky
|
|
|
- |
|
|
|
6 |
|
|
|
6 |
|
Maine
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
Massachusetts
|
|
|
- |
|
|
|
5 |
|
|
|
5 |
|
Michigan
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
Mississippi
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
Missouri
|
|
|
- |
|
|
|
3 |
|
|
|
3 |
|
Nevada
|
|
|
- |
|
|
|
8 |
|
|
|
8 |
|
New
Hampshire
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
New
Jersey
|
|
|
- |
|
|
|
35 |
|
|
|
35 |
|
New
York
|
|
|
5 |
|
|
|
61 |
|
|
|
66 |
|
North
Carolina
|
|
|
- |
|
|
|
4 |
|
|
|
4 |
|
Ohio
|
|
|
- |
|
|
|
8 |
|
|
|
8 |
|
Pennsylvania
|
|
|
- |
|
|
|
15 |
|
|
|
15 |
|
Rhode
Island
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
South
Carolina
|
|
|
- |
|
|
|
4 |
|
|
|
4 |
|
Tennessee
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
Texas
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
Virginia
|
|
|
- |
|
|
|
7 |
|
|
|
7 |
|
Domestic
Subtotal
|
|
|
5 |
|
|
|
231 |
|
|
|
236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Locations
|
|
|
|
|
|
|
|
|
|
|
|
|
Dominican
Republic
|
|
|
- |
|
|
|
3 |
|
|
|
3 |
|
Egypt
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
Kuwait
|
|
|
- |
|
|
|
13 |
|
|
|
13 |
|
United
Arab Emirates
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
International
Subtotal
|
|
|
- |
|
|
|
18 |
|
|
|
18 |
|
Grand
Total
|
|
|
5 |
|
|
|
249 |
|
|
|
254 |
|
(1)
|
Amounts
include 57 units operated
pursuant to our Branded Menu Program and excludes units operating pursuant
to our Branded Product Program.
|
Branded
Product Program
The
“Branded Product Program” was launched during fiscal 1998. The
program was expressly created to provide a new vehicle for the sale of Nathan’s
World Famous Beef Hot Dogs and other proprietary items. Through this
program, Nathan’s provides qualified foodservice operators in a variety of
venues the opportunity to capitalize on Nathan’s valued brand by marketing and
selling certain Nathan’s Famous signature products. In conjunction with the
program, the operators are granted a limited use of the Nathan’s Famous
trademark, as well as Nathan’s point of purchase materials. We earn income by
selling our products either directly to the end users or to various foodservice
distributors who provide the products to retailers.
As of
March 29, 2009, the Branded Product Program was comprised of approximately
13,000 points of sale. We believe that the program is unique in its
flexibility and broad appeal. Hot dogs are offered in a variety of
sizes and even come packaged with buns for vending machine use. The
Canteen Corporation, reportedly America’s largest vending Company, uses Nathan’s
packaged hot dogs as part of its system. During fiscal 2009, Nathan’s World
Famous Beef Hot Dogs continued to be promoted as part of the pretzel dogs sold
at over 730 Auntie Anne’s, which honored Nathan’s as the “Vendor of the Year”
for 2005. Nathan’s World Famous Beef Hot Dogs are featured in over 1,700 Subway
restaurants operating within Wal-Mart stores and approximately 760 K-Mart
stores.
During
the past three years, the number of locations offering Nathan’s branded products
has continued to expand. Today, Nathan’s World Famous Beef Hot Dogs
are being offered in major hotel and casino operations such as Foxwoods Casino
in Connecticut and several others in Las Vegas, California and Mississippi.
National movie theaters, such as National Amusements, Century/Cinemark Theaters
and Muvico, also offer Nathan’s World Famous Beef Hot Dogs at their concession
stands. A wide variety of colleges and universities serve Nathan’s
World Famous Beef Hot Dogs. Our products are also offered in the
cafeteria at the House of Representatives and the Bethesda Naval
Hospital. Nathan’s and New York Baseball first teamed-up in 2001,
when Nathan’s was named as the official non-kosher hot dog of the New York
Yankees for the 2001-2008 baseball seasons. Nathan’s was also named as the
official hot dog of the New York Mets for the 2005 - 2008 baseball seasons.
Recently, Nathan’s was named the official hot dog of both teams for the 2009
through 2018 baseball seasons.
Additionally,
Nathan’s is offered in retail environments, universities, entertainment centers,
casinos, airport and travel plazas, restaurants and convenience stores
throughout the nation. Nathan’s World Famous Beef Hot Dogs are currently being
offered at a variety of restaurant chains.
Nathan’s
expects to seek out and evaluate a variety of alternative means designed to
maximize the value of our Branded Product Program.
Expansion
Program
We expect
to continue the growth of our Branded Product Program through the addition of
new points of sale. We are targeting sales to a broad line of
food distributors which we believe compliments our prior strategy of focusing on
sales to various retail chains. We continue to believe that as consumers look to
assure confidence in the quality of the food that they purchase, there is great
potential to increase our sales by converting existing sales of non-branded
products to Nathan’s branded products throughout the foodservice
industry.
We also
expect to continue opening traditional and Branded Menu Nathan’s Famous
franchised units individually and on a co-branded basis, expanding product
distribution through various means such as branded products and retail licensing
arrangements, developing master franchising programs in foreign countries and
introducing our Arthur Treacher’s signature products within our restaurant
system.
We may
selectively consider opening new Company-owned Nathan’s units on an
opportunistic basis. Existing Company-owned units are located in the New York
metropolitan area, where we have extensive experience in operating restaurants.
We may consider new opportunities in both traditional and captive market
settings.
We
believe that our international development efforts will continue to garner a
variety of interest as a result of the unique product distribution opportunities
that we now offer. Because of the scalability of our concept and menu offerings,
we believe that there are also opportunities to co-brand our restaurant concept
and/or menu items with other restaurant concepts internationally. We believe
that in addition to restaurant franchising, there is the opportunity to further
increase revenues by offering master development agreements to qualified persons
or entities allowing for the operation of franchised restaurants,
sub-franchising of restaurants to others, licensing the manufacture of our
signature products, selling our signature products through supermarkets or other
retail venues and further developing our Branded Product
Program. Qualified persons or entities must have satisfactory
foodservice experience managing multiple units, the appropriate infrastructure
and the necessary financial resources to support the anticipated development of
the business.
During
fiscal 2004, we first test marketed the sale of Nathan’s World Famous Beef Hot
Dogs on the QVC television network. Since then, we have sought to capitalize on
this opportunity by working closely with QVC and developing new
products. During fiscal 2009, we had 50 airings on QVC, including a
“Today’s Special Value” on December 1, 2008 featuring a Sampler Pack. QVC
reduced its number of special food airings during the fiscal 2008 and 2009
periods. Nathan’s Famous products were on air 55 times during the fiscal 2008
period, which included eight “Today’s Special Value” airings. We have continued
to develop new products for sale by QVC, such as pretzel dogs, “Franks ‘n
Blankets” and a sampler package, which were very successful. We intend to
continue to work with QVC to develop new products to expand this distribution
channel throughout fiscal 2010. In May 2009, our quarter pound hot
dogs were marketed as a “Today’s Special Value.”
Co-branding
We
believe that there is a continuing opportunity for co-branding our restaurant
concept and/or menu items with other restaurant concepts, as well as within our
restaurant system. Franchisees that
have co-branded a Nathan’s Famous restaurant with our other brands received a
current Uniform Franchise Offering Circular (“UFOC”) and executed a
participation agreement as a rider to their franchise
agreement. Since fiscal 2002, we executed our co-branding strategy
within the Nathan’s Famous restaurant system by adding the Arthur Treacher’s and
Kenny Rogers Roasters brands into Nathan’s Famous restaurants. We
intend to continue a co-branding effort with the Arthur Treacher’s brand with
new and existing Nathan’s Famous franchisees in the future. We also
intend to expand our co-branding efforts beyond the Nathan’s restaurant system,
with the Branded Menu Program and traditional franchising programs by seeking to
market these programs to multi-unit restaurant operators.
At March
29, 2009, the Arthur Treacher’s brand was being sold within 58 Nathan’s
restaurants and the Kenny Rogers Roasters brand was being sold within 56
Nathan’s restaurants. After the sale of Miami Subs effective May 31, 2007, we
continued to co-brand Nathan’s and Arthur Treacher’s products within their
restaurant system. At March 29, 2009, Nathan’s and Arthur Treacher’s products
were sold in 41 and 42 Miami Subs locations,
respectively. Notwithstanding our sale of the Kenny Rogers franchisor
in April 2008, we have the right to continue to sell Kenny Rogers products in
our then-existing Nathan’s locations and to receive the revenue from those
sales. Consequently, we intend to perpetuate co-branding with Kenny
Rogers products within those Nathan’s Famous locations.
We
believe that our diverse brand offerings compliment each other, which has
enabled us to market franchises of co-branded units and continue co-branding
within existing franchised units. We also believe that our various restaurants’
products provide us with strong lunch and dinner day-parts.
We
continue to market co-branded Nathan’s units with Arthur Treacher’s within the
United States and internationally. We believe that a multi-branded restaurant
concept offering strong lunch and dinner day-parts is very appealing to both
consumers and potential franchisees. Such restaurants are designed to allow the
operator to increase sales and leverage the cost of real estate and other fixed
costs to provide superior investment returns as compared to many restaurants
that are single branded.
We
license SMG, Inc. and its affiliates (collectively, “SFG”) to produce packaged
hot dogs and other beef products according to Nathans’ proprietary recipes and
spice formulations, and to use “Nathan’s Famous” and related trademarks to sell
these products on an exclusive basis in the United States to supermarkets, club
stores and grocery stores. The supply/license agreement with SFG (the
“License Agreement”) provides for royalties ranging between 3% and 5% of
sales. The percentage varies based on sales volume, with escalating
annual minimum royalties. Earned royalties of approximately
$3,329,000 in fiscal 2009 and $3,154,000 in fiscal 2008 exceeded the contractual
minimums established under the License Agreement. Historically,
supermarket sales of our hot dogs were concentrated in the New York metropolitan
area. However, over the past several years, Nathan’s own marketing
efforts have dramatically increased brand awareness and allowed significant
geographic expansion. As of March 29, 2009, packaged Nathan’s World
Famous Beef Hot Dogs were being sold within supermarkets located in 39 states. We
believe that the overall exposure of the brand and opportunity for consumers to
enjoy the Nathan’s World Famous Beef Hot Dogs in their homes helps promote
“Nathan’s Famous” restaurant patronage. Royalties earned from this
product line were approximately 55.4% of our fiscal 2009 retail license
revenues. The License Agreement was scheduled to expire in 2014. (See
Item 1A - “Risk Factors” and Item 3 - “Legal Proceedings.”)
We
license the manufacture of the proprietary spices which are used to produce
Nathan’s World Famous Beef Hot Dogs. During fiscal 2009 and 2008, we earned
$771,000 and
$470,000, respectively, under this agreement, which in fiscal 2009 included a
$234,000 settlement of a multi-year discrepancy under that agreement related to
the unauthorized use of certain ingredients.
We
license the manufacture and sale of hot dogs by John Morrell and Company at
retail. During fiscal 2009 and 2008, we earned $1,245,000 and $462,000
respectively, under this agreement. The increase in revenue in fiscal 2009 was
due to the introduction of Nathan’s World Famous Beef Hot Dogs into over 500
foodservice cafes located in Sam’s Club stores throughout the United
States.
During
fiscal 2009, our licensee ConAgra Foodservice continued to produce and
distribute Nathan’s Famous frozen French fries for retail sale pursuant to a
license agreement. During fiscal 2008, Nathan’s Famous onion rings
and potato pancakes were introduced into the market. These products were
distributed primarily in New York City supermarkets during fiscal
2008. Distribution of our products has been expanded to 16 states
primarily on the East Coast of the United States. During fiscal 2009 and 2008,
we earned our minimum royalties of $203,000 and $180,000, respectively, under
this agreement. During fiscal 2009,
ConAgra Foodservice exercised its first option to extend the license agreement
through July 2013.
During
fiscal 2009, we continued to license the right to manufacture and sell miniature
bagel dogs, franks-in-a-blanket and other hors d’oeuvres through club stores,
supermarkets and other retail food stores solely for off-site consumption and
the right to manufacture and sell a variety of snack foods such as beef sticks
and gummy dogs, as well as pet snack food treats. Royalties earned under these
agreements were approximately $221,000 during fiscal 2009 and $285,000 during
fiscal 2008.
During
fiscal 2009, certain products were also distributed under various other
licensing agreements with Hermann Pickle Packers, Inc., Gold Pure Food Products
Co., Inc. and others. These companies licensed the “Nathan’s Famous” name for
the manufacture and sale of various condiments including mustard, salsa,
sauerkraut, pickles and hot dog rolls. These products have been
distributed on a limited basis. Fees and royalties earned were
approximately $240,000 during fiscal 2009 and $298,000 during fiscal
2008.
Provisions
and Supplies
Our
proprietary hot dogs for sale by our restaurant system, Branded Product Program
and at retail are produced primarily by SFG Inc. in accordance with Nathans’
recipes, quality standards and proprietary spice formulations. Nathan’s World
Famous Beef Hot Dogs are also manufactured by John Morrell and Company in
connection with sales pursuant to our Branded Product Program. Nathan’s believes
that it has reliable sources of supply; however, in the event of any significant
disruption in supply, management believes that alternative sources of supply are
available. (See Item 1A - “Risk Factors.”) Saratoga Specialties has
continued to produce Nathans’ proprietary spice formulations. Our
frozen French fries are produced exclusively by ConAgra Foodservice. Most other
Company provisions are purchased or may be obtained from multiple sources to
prevent disruption in supply and to obtain competitive prices. We
approve all products and product specifications. We negotiate directly with our
suppliers on behalf of the entire system for all primary food ingredients and
beverage products sold in the restaurants in an effort to ensure adequate supply
of high quality items at competitive prices.
We
utilize a unified source for the distribution needs of our restaurant system
pursuant to a national food distribution contract with US Foodservice, Inc.
Effective July 1, 2006, we entered into a new agreement with US Foodservice,
Inc. The term continues through October 30, 2009, unless terminated
earlier in accordance with the provisions of the agreement. This agreement
enables our restaurant operators to order and receive deliveries for the
majority of their food and paper products directly through this distributor. We
believe that this arrangement not only ensures availability of product but is
more efficient and cost effective than having multiple distributors for our
restaurant system. We believe that we will be able to enter into a new agreement
with US Foodservice, Inc. prior to the expiration of our current agreement
on similar terms to those in the current agreement. Our Branded Products are
delivered to our ultimate customers throughout the country by numerous
distributors, including US Foodservice, Inc. and SYSCO Corporation.
Marketing, Promotion and
Advertising
Nathan’s
Nathan’s
believes that an integral part of its brand marketing strategy is to continue to
build brand awareness through its complimentary points of distribution strategy
of selling its signature products through restaurants, the Branded Product
Program, the Branded Menu Program, within supermarkets and club stores and also
on television. We believe that as we continue to build brand awareness and
expand our reputation for quality and value, we have been able to further
penetrate the markets that we serve and have also entered new markets. We also
derive further brand recognition from the Nathan’s Famous Hot Dog eating
contests. Last year, we hosted 18 regional contests in a
variety of high profile locations such as Independence Mall, PA, Hard Rock Park,
Myrtle Beach, SC, New York New York Hotel and Casino, Las Vegas and Citifield,
as well as within the cities of San Francisco, CA, Tempe, AZ, New York, NY, and
Atlanta, GA. These regional contests culminate on the Fourth of July as the
regional champions converge at our flagship restaurant in Coney Island, NY, to
compete for the coveted “Mustard Yellow Belt.” The regional contests typically
garner significant amounts of local publicity and the national championship
contest that is held on the Fourth of July generates significant nationwide
publicity. The national championship contest has been broadcast live on ESPN
since 2004.
Nathan’s Famous continues to look to
sports sponsorships as a strategic marketing opportunity to further our brand
recognition. In addition to the branded signage opportunity at
each stadium, Nathan’s is given the opportunity to sell its Nathan’s World
Famous Beef Hot Dog and crinkle cut French fries. In most venues,
Nathan’s World Famous Beef Hot Dogs and French fries are sold at Nathan’s Famous
trade-dressed concession stands and as menu items that are served in suites and
premium seating areas. Some of Nathan’s current sports sponsorships
include: Professional Baseball: Yankee Stadium-New York Yankees, Citifield-New
York Mets; Professional Hockey and Basketball: Nassau Coliseum-New York
Islanders, TD Bank North Arena-Boston Celtics and Boston Bruins, American
Airlines Arena-Miami Heat and the Prudential Center - New Jersey
Devils. In addition to marketing our products to a combined
attendance at these venues exceeding 10,000,000 fans per year, the Nathan’s
Famous brand has also been televised regionally, nationally and
internationally.
We
maintain an advertising fund for local, regional and national advertising under
the Nathan’s Famous Systems, Inc. Franchise Agreement. Nathans’ Famous
franchisees are generally required to spend on local marketing activities or
contribute to the advertising funds up to 2.0% of restaurant sales for
advertising and promotion. Franchisee contributions to the
advertising fund for national marketing support are generally based upon the
type of restaurant and its location. The difference, if any, between 2.0% and
the contribution to the advertising fund must be expended on local programs
approved by us as to form, content and method of dissemination.
Throughout
fiscal 2009, Nathans’ primary restaurant marketing emphasis continued to be
focused on local store marketing campaigns featuring a value-oriented strategy
supplemented with promotional “Limited Time Offers.” We anticipate
that near-term marketing efforts for Nathan’s will continue to emphasize local
store marketing activities.
Beginning
April through June 2009, Nathan’s has expanded its marketing efforts through the
use of free-standing inserts with coupons in Sunday newspapers. This
media campaign is expected to reach more than eight million homes per month,
surrounding more than 100 Nathan’s Company-owned and franchised
restaurants. This program features heavily discounted coupon offers,
designed to drive customers to our restaurants.
The
objective of our Branded Product Program has historically been to provide our
foodservice operator customers with value added, high quality products that are
supported with high quality and attractive point of sale materials and other
forms of operational support.
During
the fiscal 2009 period, Nathan’s marketing efforts for the Branded Product
Program concentrated primarily on participation in national, regional and local
distributor trade shows. We have also advertised our products in distributor and
trade periodicals and initiated distributor sales incentive
contests.
Most of
the sales of franchises and our arrangements with Branded Product Program points
of sale are achieved through the direct effort of Company personnel. In
addition, we engage a network of foodservice brokers and distributors who also
are responsible for direct sales to national, regional and “street”
accounts.
During
fiscal 2010, we expect to utilize our network of foodservice brokers and
distributors more extensively. We plan
to further expand our broker network, which may emphasize specific venues,
realign broker responsibilities employing a centralized broker management system
and the use of expanded sales incentive programs.
We
believe that the Company’s overall sales and exposure have also been
complemented by the sales of Nathan’s World Famous Beef Hot Dogs and other
Nathan’s products on the QVC Network, through the publicity generated by our Hot
Dog Eating Contests and our affiliation with a number of high profile sports
arenas.
Miami
Subs
We sold
our Miami Subs operations effective May 31, 2007. Prior to the sale, we
maintained two advertising funds for the creation and development of
advertising, marketing, public relations, research and related programs for the
Miami Subs system, as well as for other activities that were deemed
appropriate. The unexpended funds were transferred to the acquirer in
connection with the sale.
Kenny Rogers
Roasters
We sold
our Kenny Rogers Roasters operations effective April 23, 2008. Prior to the sale, we
maintained an advertising fund on behalf of the Kenny Rogers Roasters franchise
system for regional and national advertising under the NF Roasters Corp.
Franchise Agreement. The unexpended funds were transferred to the acquirer in
connection with the sale.
We are
subject to Federal Trade Commission (“FTC”) regulation and several states’ laws
that regulate the offer and sale of franchises. We are also subject
to a number of state laws which regulate substantive aspects of the
franchisor-franchisee relationship.
The FTC’s
“Trade Regulation Rule Concerning Disclosure Requirements and Prohibitions
Concerning Franchising and Business Opportunity Ventures” (the “FTC Rule”)
requires us to disclose certain information to prospective
franchisees. Fifteen states, including New York, also require similar
disclosure. While the FTC Rule does not require registration or
filing of the disclosure document, 14 states require
franchisors to register the disclosure document (or obtain exemptions from that
requirement) before offering or selling a franchise. The laws of 17
other states require some form of registration (or a determination that a
company is exempt or otherwise not required to register) under “business
opportunity” laws, which sometimes apply to franchisors such as the
Company.
Laws that
regulate one or another aspect of the franchisor-franchisee relationship
presently exist in 24 states and the District
of Columbia. These laws regulate the franchise relationship by, for
example, requiring the franchisor to deal with its franchisees in good faith,
prohibiting interference with the right of free association among franchisees,
limiting the imposition of standards of performance on a franchisee, and
regulating discrimination among franchisees. These laws have not
precluded us from seeking franchisees in any given area. Although
these laws may also restrict a franchisor in the termination of a franchise
agreement by, for example, requiring “good cause” to exist as a basis for the
termination, advance notice to the franchisee of the termination, an opportunity
to cure a default and repurchase of inventory or other compensation, these
provisions have not had a significant effect on our operations.
We are
not aware of any pending franchise legislation in the U.S. that we believe is
likely to significantly affect our operations.
Each
Company-owned and franchised restaurant is subject to regulation as to
operational matters by federal agencies and to licensing and regulation by state
and local health, sanitation, safety, fire and other departments.
We are
subject to the Federal Fair Labor Standards Act, which governs minimum wages,
overtime, working conditions and other matters. We are also subject
to federal and state environmental regulations, which have not had a material
effect on our operations. More stringent and varied requirements of
local governmental bodies with respect to zoning, land use and environmental
factors could delay or prevent development of new restaurants in particular
locations. In addition, the Federal Americans with Disabilities Act applies with
respect to the design, construction and renovation of all restaurants in the
United States.
Each
company that manufactures, supplies or sells our products is subject to
regulation by federal agencies and to licensing and regulation by state and
local health, sanitation, safety and other departments.
Alcoholic
beverage control regulations require each restaurant that sells such products to
apply to a state authority and, in certain locations, county and municipal
authorities, for a license or permit to sell alcoholic beverages on the
premises. Typically, licenses must be renewed annually and may be
revoked or suspended for cause at any time. Alcoholic beverage control
regulations relate to numerous aspects of the daily operations of the
restaurants, including minimum age of customers and employees, hours of
operation, advertising, wholesale purchasing, inventory control and handling,
storage and dispensing of alcoholic beverages. At March 29, 2009, we
offered beer or wine coolers for sale in two of our existing
Company-owned restaurants. Each of these restaurants has current alcoholic
beverage licenses permitting the sale of these beverages. We have never had an
alcoholic beverage license revoked.
We may be
subject in certain states to “dram-shop” statutes, which generally provide a
person injured by an intoxicated person the right to recover damages from an
establishment which wrongfully served alcoholic beverages to such
person. We carry liquor liability coverage as part of our existing
comprehensive general liability insurance and have never been named as a
defendant in a lawsuit involving "dram-shop" statutes.
The
Sarbanes-Oxley Act of 2002 and rules promulgated thereunder by the SEC and the
Nasdaq Stock Market have imposed substantial new or enhanced regulations and
disclosure requirements in the areas of corporate governance (including director
independence, director selection and audit, corporate governance and
compensation committee responsibilities), equity compensation plans, auditor
independence, pre-approval of auditor fees and services and disclosure and
internal control procedures. Nathan’s first became subject to Section
404 of the Sarbanes-Oxley Act of 2002 beginning with our fiscal year ended in
March 2008. We are committed to industry best practices in these
areas.
We
believe that we operate in substantial compliance with applicable laws and
regulations governing our operations, including the FTC Rule and state franchise
laws.
Employees
At March
29, 2009, we had 216 employees, 38 of whom were corporate management and
administrative employees, 24 of whom were restaurant
managers and 154 of whom were hourly full-time and part-time foodservice
employees. We may also employ as many as 71 seasonal employees during
the summer months. Foodservice employees at four Company-owned locations are
currently represented by Local 1102 RWSDU UFCW AFL-CIO, CLC, Retail, Wholesale
and Department Store Union, under an agreement that expires in June 2010. We
consider our employee relations to be good and have not suffered any strike or
work stoppage for more than 36 years.
We
provide a training program for managers and assistant managers of our new
Company-owned and franchised restaurants. Hourly food workers are
trained on site by managers and crew trainers following Company practices and
procedures outlined in our operating manuals.
Trademarks
We hold
trademark and/or service mark registrations for NATHAN'S, NATHAN'S FAMOUS,
NATHAN'S FAMOUS and design, NATHAN'S and Coney Island design, SINCE 1916
NATHAN'S FAMOUS and design, and THE ORIGINAL SINCE 1916 NATHAN'S FAMOUS and
design within the United States, with some of these marks holding corresponding
foreign trademark and service mark registrations in more than 60 international
jurisdictions. We also hold various related marks, FRANKSTERS, FROM A HOT DOG TO
AN INTERNATIONAL HABIT, MORE THAN JUST THE BEST HOT DOG! and design, and Mr.
Frankie design, for restaurant services and some food items.
We hold trademark and/or service mark
registrations for the marks ARTHUR TREACHER'S (stylized), ARTHUR TREACHER'S FISH
& CHIPS (stylized), KRUNCH PUP and ORIGINAL within the United
States. We hold service mark registrations for ARTHUR TREACHER'S in
China and Japan. We also hold service mark registrations for ARTHUR TREACHER'S
FISH & CHIPS in Canada and ARTHUR TREACHER'S FISH & CHIPS and design in
Kuwait. We have pending service mark applications for ARTHUR TREACHER'S FISH
& CHIPS and design in Canada and the United Arab Emirates.
Prior to
the sale of Miami Subs effective May 31, 2007, and NF Roasters Corp. on April
23, 2008, we owned registered trademarks and service marks used in connection
with our Miami Subs and Kenny Rogers operations, respectively. We now
have licenses to use the Kenny Rogers trademarks and service marks in the
then-existing Nathan's restaurants.
Our
trademark and service mark registrations were granted and expire on various
dates. We believe that these trademarks and service marks provide significant
value to us and are an important factor in the marketing of our products and
services. We believe that we do not infringe on the trademarks or
other intellectual property rights of any third parties.
Seasonality
Our business is affected by seasonal
fluctuations, the effects of weather and economic
conditions. Historically, restaurant sales from Company-owned
restaurants, franchised restaurants from which royalties are earned and the
Company’s earnings have been highest during our first two fiscal quarters, with
the fourth fiscal quarter typically representing the slowest
period. This seasonality is primarily attributable to weather
conditions in the marketplace for our Company-owned and franchised Nathan’s
restaurants, which is principally the New York metropolitan area. We believe
that future revenues and profits will continue to be highest during our first
two fiscal quarters, with the fourth fiscal quarter representing the slowest
period.
The fast
food restaurant industry is highly competitive and can be significantly affected
by many factors, including changes in local, regional or national economic
conditions, changes in consumer tastes, consumer concerns about the nutritional
quality of quick-service food and increases in the number of, and particular
locations of, competing restaurants.
Our
restaurant system competes with numerous restaurants and drive-in units
operating on both a national and local basis, including major national chains
with greater financial and other resources than ours. We also compete
with local restaurants and diners on the basis of menu diversity, food quality,
price, size, site location and name recognition. There is also active
competition for management personnel, as well as for suitable commercial sites
for owned or franchised restaurants.
We
believe that our emphasis on our signature products and the reputation of these
products for taste and quality set us apart from our major
competitors. As fast food companies have experienced flattening
growth rates and declining average sales per restaurant, many of them have
adopted “value pricing” and or deep discount strategies. Nathan’s
markets our own form of “value pricing,” selling combinations of different menu
items for a total price lower than the usual sale price of the individual items
and other forms of price sensitive promotions. Our value pricing
strategy offers multi-sized alternatives to our value-priced combo
meals.
We also
compete with many franchisors of restaurants and other business concepts for the
sale of franchises to qualified and financially capable
franchisees.
Our
Branded Product Program competes directly with a variety of other nationally
recognized hot dog companies. Our products primarily compete based upon price,
quality and value to the foodservice operator and consumer. We believe that
Nathan’s reputation for superior quality, along with the unique operational
support provided to the foodservice operator, provides Nathan’s with a
competitive advantage.
Our retail licensing program for the
sale of packaged foods within supermarkets competes primarily on the basis of
reputation, flavor, quality and price. In most cases, we compete against other
nationally recognized brands that have significantly greater resources than
those at our disposal.
Available
Information
We file reports with the SEC,
including Annual Report’s on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and a proxy
statement on Schedule 14A. The public may read and copy any materials filed by
us with the SEC at the SEC’s public reference room at 100 F Street, NE,
Washington D.C., 20549. The public may obtain information about the
operation of the SEC’s public reference rooms by calling the SEC at
1-800-SEC-0330. The SEC also maintains a website at http://www.sec.gov
that contains reports, proxy and information statements and other information
about issuers such as us that file electronically with the SEC.
In
addition, electronic copies of our Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K, proxy statement on Schedule 14A and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) under the Exchange Act are available free of charge on our website as soon
as reasonably practicable after we electronically file such material with, or
furnish it to, the SEC.
The Board
of Directors has also adopted, and we have posted in the Investor Relations
section of our website, written Charters for each of the Board’s standing
committees. We will provide without charge, upon a stockholder’s request to us
at Nathan’s Famous, Inc., 1400 Old Country Road, Westbury, New York 11590,
Attention: Secretary, a copy of the Charter of any standing committee of the
Board.
For
financial information regarding our results of operations, please see our
consolidated financial statements beginning on page F-1.
Item 1A. Risk
Factors.
Nathan’s competes for the sale of its
products in many ways throughout the foodservice industry. Certain risk factors
are specific to each way we do business, such as through Company-owned
restaurants, franchised restaurants, Branded Products and retail, while other
risks, such as health-related or economic risks, may affect all of the ways that
we do business.
The following list of risk factors is
not exhaustive. There can be no assurance that Nathan’s has correctly identified
and appropriately assessed all factors affecting its business operations or that
the publicly available and other information with respect to these matters is
complete and correct. Additional risks and uncertainties not presently known to
Nathan’s or that it currently believes to be immaterial also may adversely
impact the business. Should any risks or uncertainties develop into actual
events, these developments could have material adverse effects on Nathan’s
business, financial condition and results of operations.
The
quick-service restaurant segment is highly competitive, and that competition
could lower revenues, margins and market share.
The quick-service restaurant segment of
the foodservice industry is intensely competitive regarding price, service,
location, personnel and type and quality of food. Nathan’s and its franchisees
compete with international, national, regional and local retailers primarily
through the quality, variety and value perception of food products offered.
Other key competitive factors include the number and location of restaurants,
quality and speed of service, attractiveness of facilities, effectiveness of
advertising and marketing programs, and new product development. Nathan’s
anticipates competition will continue to focus on pricing. Many of Nathan’s
competitors have substantially larger marketing budgets, which may provide them
with a competitive advantage. Changes in pricing or other marketing strategies
by these competitors can have an adverse impact on our sales, earnings and
growth. For example, many of those competitors have adopted “value pricing”
strategies intended to lure customers away from other companies, including
Nathan’s. Consequently, these strategies could have the effect of drawing
customers away from companies which do not engage in discount pricing and could
also negatively impact the operating margins of competitors which attempt to
match their competitors’ price reductions. Extensive price
discounting in the fast food industry could have an adverse effect on our
financial results.
In
addition, Nathan’s system competes within the foodservice market and the
quick-service restaurant segment not only for customers but also for management
and hourly employees and qualified franchisees. If Nathan’s is unable to
maintain its competitive position, it could experience downward pressure on
prices, lower demand for products, reduced margins, the inability to take
advantage of new business opportunities and the loss of market
share.
Changes
in economic, market and other conditions could adversely affect Nathan’s and its
franchisees, and thereby Nathan’s operating results.
The
quick-service restaurant industry is affected by changes in international,
national, regional, and local economic conditions, consumer preferences and
spending patterns, demographic trends, consumer perceptions of food safety,
weather, traffic patterns, the type, number and location of competing
restaurants, and the effects of war or terrorist activities and any governmental
responses thereto. Factors such as inflation, higher costs for each of food,
labor, benefits and utilities, the availability and cost of suitable sites,
fluctuating insurance rates, state and local regulations and licensing
requirements, legal claims, and the availability of an adequate number of
qualified management and hourly employees also affect restaurant operations and
administrative expenses. The ability of Nathan’s and its franchisees to finance
new restaurant development, improvements and additions to existing restaurants,
and the acquisition of restaurants from, and sale of restaurants to, franchisees
is affected by economic conditions, including interest rates and other
government policies impacting land and construction costs and the cost and
availability of borrowed funds.
Current
restaurant locations may become unattractive, and attractive new locations may
not be available for a reasonable price, if at all, which may reduce Nathan’s
revenue.
The
success of any restaurant depends in substantial part on its location. There can
be no assurance that current locations will continue to be attractive as
demographic patterns change. Neighborhood or economic conditions where
restaurants are located could decline in the future, thus resulting in
potentially reduced sales in those locations. If Nathan’s and its franchisees
cannot obtain desirable additional and alternative locations at reasonable
prices, Nathan’s results of
operations would be adversely affected.
Any
perceived or real health risks related to the food industry could adversely
affect our ability to sell our products.
We are
subject to risks affecting the food industry generally, including risks posed by
the following:
* food spoilage or food
contamination;
* consumer product liability
claims;
* product tampering; and
* the potential cost and disruption of
a product recall.
Our products are susceptible to
contamination by disease-producing organisms, or pathogens, such as listeria
monocytogenes, salmonella, campylobacter, hepatitis A, trichinosis and
generic E. coli. Because these pathogens are generally found in the
environment, there is a risk that these pathogens could be introduced to our
products as a result of improper handling at the manufacturing, processing,
foodservice or consumer level. Our suppliers’ manufacturing facilities and
products, as well as our franchisee and Company-operated restaurant operations,
are subject to extensive laws and regulations relating to health, food
preparation, sanitation and safety standards. Difficulties or failures by these
companies in obtaining any required licenses or approvals or otherwise complying
with such laws and regulations could adversely affect our revenue that is
generated from these companies. Furthermore, we cannot assure you that
compliance with governmental regulations by our suppliers or in connection with
restaurant operations will eliminate the risks related to food safety. In
addition, our beef products are also subject to the risk of contamination from
bovine spongiform encephalopathy.
Events reported in the media, such as
incidents involving food-borne illnesses or food tampering, whether or not
accurate, can cause damage to each of Nathan’s brand’s reputation and affect
sales and profitability. Reports, whether true or not, of food-borne
illnesses (such as e-coli, avian flu, bovine spongiform encephalopathy,
hepatitis A, trichinosis or salmonella) and injuries caused by food tampering
have in the past severely injured the reputations of participants in the
quick-service restaurant segment and could in the future affect Nathan’s as
well. Each of Nathan’s brand’s reputation is an important asset to the business;
as a result, anything that damages a brand’s reputation could immediately and
severely hurt systemwide sales and, accordingly, revenue and profits. If
customers become ill from food-borne illnesses, Nathan’s could also be forced to
temporarily close some restaurants. In addition, instances of food-borne
illnesses or food tampering, even those occurring solely at the restaurants of
competitors, could, by resulting in negative publicity about the restaurant
industry, adversely affect system sales on a local, regional or systemwide
basis. A decrease in customer traffic as a result of these health concerns or
negative publicity, or as a result of a temporary closure of any of Nathan’s
restaurants, could materially harm Nathan’s business, results of operations and
financial condition.
Additionally,
the Company may be subject to liability if the consumption of any of its
products causes injury, illness, or death. A significant product liability
judgment or a widespread product recall may negatively impact the Company's
sales and profitability for a period of time depending on product availability,
competitive reaction, and consumer attitudes. Even if a product liability claim
is unsuccessful or is not fully pursued, the negative publicity surrounding any
assertion that Company products caused illness or injury could adversely affect
the Company's reputation with existing and potential customers and its corporate
and brand image. Injury to Nathan’s or a brand’s reputation would likely reduce
revenue and profits.
Changing
health or dietary preferences may cause consumers to avoid products offered by
Nathan’s in favor of alternative foods.
The
foodservice industry is affected by consumer preferences and perceptions. If
prevailing health or dietary preferences and perceptions cause consumers to
avoid the products offered by Nathan’s restaurants in favor of alternative or
healthier foods, demand for Nathan’s products may be reduced and its business
could be harmed.
Nathan’s
is subject to health, employment, environmental and other government
regulations, and failure to comply with existing or future government
regulations could expose Nathan’s to litigation, damage Nathan’s or its brand’s
reputation and lower profits.
Nathan’s
and its franchisees are subject to various federal, state and local laws, rules
or regulations affecting their businesses. To the extent that the standards
imposed by local, state and federal authorities are inconsistent, they can
adversely affect popular perceptions of our business and increase our exposure
to litigation or governmental investigations or proceedings. We may be unable to
manage effectively the impact of new, potential or changing regulation that
affects or restricts elements of our business. The successful
development and operation of restaurants depend to a significant extent on the
selection and acquisition of suitable sites, which are subject to zoning, land
use (including the placement of drive-thru windows), environmental (including
litter), traffic and other regulations. There can be no assurance that we and
our franchisees will not experience material difficulties or failures in
obtaining the necessary licenses or approvals for new restaurants which could
delay the opening of such restaurants in the future. Restaurant operations are
also subject to licensing and regulation by state and local departments relating
to health, food preparation, sanitation and safety standards, federal and state
labor laws (including applicable minimum wage requirements, overtime, working
and safety conditions and citizenship requirements), federal and state laws
prohibiting discrimination and other laws regulating the design and operation of
facilities, such as the Federal Americans with Disabilities Act of 1990. If
Nathan’s fails to comply with any of these laws, it may be subject to
governmental action or litigation, and accordingly its reputation could be
harmed.
Injury to
Nathan’s or a brand’s reputation would, in turn, likely reduce revenue and
profits. In addition, difficulties or failures in obtaining any required
licenses or approvals could delay or prevent the development or opening of a new
restaurant or renovations to existing restaurants, which would adversely affect
our revenue.
In recent
years, there has been an increased legislative, regulatory and consumer focus on
nutrition and advertising practices in the food industry, particularly among
quick-service restaurants. As a result, Nathan’s may become subject to
regulatory initiatives in the area of nutrition disclosure or advertising, such
as requirements to provide information about the nutritional content of its food
products, which could increase expenses. The operation of Nathan’s franchise
system is also subject to franchise laws and regulations enacted by a number of
states and rules promulgated by the U.S. Federal Trade Commission. Any future
legislation regulating franchise relationships may negatively affect Nathan’s
operations, particularly its relationship with its franchisees. Failure to
comply with new or existing franchise laws and regulations in any jurisdiction
or to obtain required government approvals could result in a ban or temporary
suspension on future franchise sales. Changes in applicable accounting rules
imposed by governmental regulators or private governing bodies could also affect
Nathan’s reported results of operations, which could cause its stock price to
fluctuate or decline.
Nathan’s
may not be able to adequately protect its intellectual property, which could
decrease the value of Nathan’s or its brands and products.
The
success of Nathan’s business depends on the continued ability to use existing
trademarks, service marks and other components of each of Nathan’s brands in
order to increase brand awareness and further develop branded products. Nathan’s
may not be able to adequately protect its trademarks, and the use of these
trademarks may result in liability for trademark infringement, trademark
dilution or unfair competition. All of the steps Nathan’s has taken to protect
its intellectual property may not be adequate.
Nathan’s
earnings and business growth strategy depends in large part on the success of
its franchisees and licensees, and on new restaurant openings. Nathan’s or a
brand’s reputation may be harmed by actions taken by franchisees or licensees or
that are otherwise outside of Nathan’s control.
A portion
of Nathan’s earnings comes from royalties, rents and other amounts paid by
Nathan’s franchisees and licensees. Both franchisees and licensees are
independent contractors, and their employees are not employees of Nathan’s.
Nathan’s provides training and support to, and monitors the operations of, its
franchisees, but the quality of their restaurant operations may be diminished by
any number of factors beyond Nathan’s control. Consequently, franchisees may not
successfully operate stores in a manner consistent with Nathan’s high standards
and requirements and franchisees may not hire and train qualified managers and
other restaurant personnel. Similarly, Nathan’s monitors the operations of its
licensees, including licensees that are part of the Branded Product Program, but
cannot necessarily control the quality of the licensed products produced and/or
sold by such licensees. Any operational shortcoming of a franchised restaurant
or quality problem of a licensed product is likely to be attributed by consumers
to an entire brand or Nathan’s system, thus damaging Nathan’s or a brand’s
reputation and potentially adversely affecting Nathans’ business, results of
operations and financial condition.
Growth in
our restaurant revenue and earnings is significantly dependent on new restaurant
openings. Numerous factors beyond our control may affect restaurant
openings. These factors include but are not limited to:
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our ability to attract new
franchisees;
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the
availability of site locations for new
restaurants;
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the
ability of potential restaurant owners to obtain financing, which has
become more difficult due to current market conditions and operating
results;
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the
ability of restaurant owners to hire, train and retain qualified operating
personnel;
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construction
and development costs of new restaurants, particularly in
highly-competitive markets;
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the
ability of restaurant owners to secure required governmental approvals and
permits in a timely manner, or at all;
and
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adverse
weather conditions.
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Leasing
of real estate exposes Nathan’s to possible liabilities and losses.
Nathan’s
leases land and/or buildings for certain restaurants, which can include the
sub-letting of leased land and or buildings to franchisees or companies other
than Nathan’s franchisees. Accordingly, Nathan’s is subject to all of
the risks associated with owning, leasing and sub-leasing real estate.
Nathan’s generally cannot cancel these leases. If an existing or future store is
not profitable, and Nathan’s decides to close it, Nathan’s may nonetheless be
committed to perform its obligations under the applicable lease including, among
other things, paying the base rent for the balance of the lease term.
Alternatively, as each of the leases expires, Nathan’s may fail to negotiate
renewals, either on commercially acceptable terms or at all, which could cause
Nathan’s to close stores in desirable locations.
Nathan’s
may evaluate acquisitions, joint ventures and other strategic initiatives, any
of which could distract management or otherwise have a negative effect on
revenue, costs and stock price.
Nathan’s
future success may depend on opportunities to buy or obtain rights to other
businesses that could complement, enhance or expand its current business or
products or that might otherwise offer growth opportunities. In particular,
Nathan’s may evaluate potential mergers, acquisitions, joint venture
investments, strategic initiatives, alliances, vertical integration
opportunities and divestitures. Any attempt by Nathan’s to engage in these
transactions may expose it to various inherent risks, including:
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not
accurately assessing the value, future growth potential, strengths,
weaknesses, contingent and other liabilities and potential
profitability of acquisition
candidates;
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the
potential loss of key personnel of an acquired
business;
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the
ability to achieve projected economic and operating
synergies;
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difficulties
in successfully integrating, operating, maintaining and managing
newly-acquired operations or
employees;
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difficulties
maintaining uniform standards, controls, procedures and
policies;
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unanticipated
changes in business and economic conditions affecting an acquired
business;
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the
possibility of impairment charges if an acquired business performs below
expectations; and
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the
diversion of management’s attention from the existing business to
integrate the operations and personnel of the acquired or combined
business or implement the strategic
initiative.
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Nathan’s
annual and quarterly financial results may fluctuate depending on various
factors, many of
which are beyond its control, and, if Nathan’s fails to meet the expectations
of investors, Nathan’s share price may decline.
Nathan’s
sales and operating results can vary from quarter to quarter and year to year
depending on various factors, many of which are beyond its control. Certain
events and factors may directly and immediately decrease demand for Nathan’s
products. If customer demand decreases rapidly, Nathan’s results of operations
would also decline. These events and factors include:
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variations
in the timing and volume of Nathan’s sales and franchisees’
sales;
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sales
promotions by Nathan’s and its
competitors;
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changes
in average same-store sales and customer
visits;
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variations
in the price, availability and shipping costs of
supplies;
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seasonal
effects on demand for Nathan’s
products;
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unexpected
slowdowns in new store development
efforts;
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changes
in competitive and economic conditions
generally;
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changes
in the cost or availability of ingredients or
labor;
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weather
and acts of God; and
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changes
in the number of franchise agreement
renewals.
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Nathan’s
operations are influenced by adverse weather conditions.
Weather,
which is unpredictable, can impact Nathan’s restaurant sales. Harsh
weather conditions that keep customers from dining out result in lost
opportunities for our restaurants. A heavy snowstorm in the Northeast
or a hurricane in the Southeast can shut down an entire metropolitan area,
resulting in a reduction in sales in that area. Our fourth quarter
includes winter months and historically has a lower level of sales at
Company-owned and franchised
restaurants. Because a significant portion of our restaurant
operating costs is fixed or semi-fixed in nature, the loss of sales during these
periods hurts our operating margins, and can result in restaurant operating
losses. For these reasons, a quarter-to-quarter comparison may not be
a good indication of Nathan’s performance or how it may perform in the
future.
Due
to the concentration of Nathan’s restaurants in particular geographic regions,
our business results could be impacted by the adverse economic conditions
prevailing in those regions regardless of the state of the national economy as a
whole.
As of
March 29, 2009, we and our franchisees (including units operated pursuant
to our Branded Menu Program) operated Nathan’s restaurants in 25 states and 4
foreign countries. As of March 29, 2009, the five leading states
by number of operating units were: New York, New Jersey,
Florida, Georgia and Pennsylvania. This geographic concentration in
the Northeast and Southeast can cause economic conditions in particular areas of
the country to have a disproportionate impact on our overall results of
operations. It is possible that adverse economic conditions in states
or regions that contain a high concentration of Nathan’s restaurants could have
a material adverse impact on our results of operations in the
future.
We
rely exclusively on computer systems and information technology to manage our
business. Any disruption in our computer systems or information
technology may adversely affect our ability to run our business.
We are
significantly dependent upon our computer systems and information technology to
properly conduct our business. A failure or interruption of computer
systems or information technology could result in the loss of data, business
interruptions or delays in business operations. Further, despite our
considerable efforts and technological resources to secure our computer systems
and information technology, security breaches, such as unauthorized access and
computer viruses, may occur resulting in system disruptions, shutdowns or
unauthorized disclosure of confidential information. Any security
breach of our computer systems or information technology may result in adverse
publicity, loss of sales and profits, penalties or loss resulting from
misappropriation of information.
We
may be required to recognize additional asset impairment and other asset-related
charges.
We have
significant amounts of long-lived assets, goodwill and intangible assets and
have incurred impairment charges in the past with respect to those
assets. In accordance with applicable accounting standards, we test
for impairment annually, or more frequently, if there are indicators of
impairment, such as
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significant
adverse changes in the business
climate;
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current
period operating or cash flow losses combined with a history of operating
or cash flow losses or a projection or forecast that demonstrates
continuing losses associated with long-lived
assets;
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a
current expectation that more-likely-than-not (e.g., a likelihood that is
more than 50%) long-lived assets will be sold or otherwise disposed of
significantly before the end of their previously estimated useful life;
and
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a significant drop in our stock
price.
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Based
upon future economic and capital market conditions, future impairment charges
could be incurred.
Catastrophic
events may disrupt Nathan’s business.
Unforeseen
events, or the prospect of such events, including war, terrorism and other
international conflicts, public health issues such as epidemics or pandemics,
labor unrest and natural disasters such as earthquakes, hurricanes or other
extreme adverse weather and climate conditions, whether occurring in the United
States or abroad, could disrupt Nathan’s operations, disrupt the operations of
franchisees, suppliers or customers, or result in political or economic
instability. These events could negatively impact consumer spending, thereby
reducing demand for Nathan’s products, or the ability to receive
products from suppliers. Our receipt of proceeds under any insurance policies we
maintain with respect to these risks may be delayed or the proceeds may be
insufficient to offset our losses fully.
Nathan’s
international operations are subject to various factors of
uncertainty.
Nathan’s
business outside of the United States is subject to a number of additional
factors, including international economic and political conditions, differing
cultures and consumer preferences, currency regulations and fluctuations,
diverse government regulations and tax systems, uncertain or differing
interpretations of rights and obligations in connection with international
franchise agreements and the collection of royalties from international
franchisees, the availability and cost of land and construction costs, and the
availability of appropriate franchisees. In developing markets, we may face
risks associated with new and untested laws and judicial systems.
Although Nathan’s believes it has developed the support structure required for
international growth, there is no assurance that such growth will occur or that
international operations will be profitable.
Increases
in the cost of food and paper products could harm our profitability and
operating results.
The cost
of the food and paper products we use depends on a variety of factors, many of
which are beyond our control. Food and paper products typically
represent approximately 25% to 30% of our cost of restaurant sales. We purchase
large quantities of beef and our beef costs in the United States represent
approximately 80% to 90% of our food costs. The market for beef is particularly
volatile and is subject to significant price fluctuations due to seasonal
shifts, climate conditions, industry demand and other factors beyond our
control. For example, in the past, reduced supply and increased demand in beef
resulted in shortages, which required us to pay significantly higher prices for
the beef we purchased. We were unable to pass all of the price increases to our
customers. As the price of beef or other food products that we use in
our operations increases significantly, particularly in the Branded Product
Program, and we choose not to pass, or cannot pass, these increases on to our
customers, our operating margins would decrease.
Fluctuations
in weather, supply and demand and economic conditions could adversely affect the
cost, availability and quality of some of our critical products, including beef.
Our inability to obtain requisite quantities of high-quality ingredients would
adversely affect our ability to provide the menu items that are central to our
business, and the highly competitive nature of our industry may limit our
ability to pass through increased costs to our customers. Continuing
increases in the cost of fuel would increase the distribution costs of our prime
products thereby increasing the food and paper cost to us and to our
franchisees, thus negatively affecting profitability.
Recently
Nathan’s has sought to lock in the cost of a portion of its beef purchases by
entering into a commitment to purchase 1,785,000 pounds of hot dogs for the
period from April through August 2008 and in January 2009, entering into an
additional purchase commitment, as amended, to acquire approximately 2,600,000
pounds of hot dogs at a cost of approximately $4,368,000, for the period April
through September 2009. Nevertheless, Nathan’s does not have the ability to
effectively hedge all of its beef purchases using futures or forward contracts
without incurring undue financial cost and risk.
Labor
shortages or increases in labor costs could slow our growth or harm our
business.
Our
success depends in part upon our ability and the ability of our franchisees to
continue to attract, motivate and retain regional operational and restaurant
general managers with the qualifications to succeed in our industry and the
motivation to apply our core service philosophy. If we or our franchisees are
unable to continue to recruit and retain sufficiently qualified managers or to
motivate our employees to achieve sustained high service levels, our business
and our growth could be adversely affected. Competition for these employees
could require the payment of higher wages that could result in higher
labor costs. In addition, increases in the minimum wage or labor regulation
could increase labor costs. We may be unable to increase our prices in order to
pass these increased labor costs on to our customers, in which case our margins
and our franchisees’ margins would be negatively affected.
We
face risks of litigation and pressure tactics, such as strikes, boycotts and
negative publicity from customers, franchisees, suppliers, employees and others,
which could divert our financial and management resources and which may
negatively impact our financial condition and results of
operations.
Class
action lawsuits have been filed, and may continue to be filed, against various
quick-service restaurants alleging, among other things, that quick-service
restaurants have failed to disclose the health risks associated with high-fat
foods and that quick-service restaurant marketing practices have targeted
children and encouraged obesity. In addition, we face the risk of lawsuits and
negative publicity resulting from injuries, including injuries to infants and
children, allegedly caused by our products, toys and other promotional items
available in our restaurants or by our playground equipment.
In
addition to decreasing our sales and profitability and diverting our management
resources, adverse publicity or a substantial judgment against us could
negatively impact our business, results of operations, financial condition and
brand reputation, hindering our ability to attract and retain franchisees,
expand our Branded Product Program and otherwise grow our business in the United
States and internationally.
In
addition, activist groups, including animal rights activists and groups acting
on behalf of franchisees, the workers who work for our suppliers and others,
have in the past, and may in the future, use pressure tactics to generate
adverse publicity by alleging, for example, inhumane treatment of animals by our
suppliers, poor working conditions or unfair purchasing policies. These groups
may be able to coordinate their actions with other groups, threaten strikes or
boycotts or enlist the support of well-known persons or organizations in order
to increase the pressure on us to achieve their stated aims. In the future,
these actions or the threat of these actions may force us to change our business
practices or pricing policies, which may have a material adverse effect on our
business, results of operations and financial condition.
Further,
we may be subject to employee, franchisee and other claims in the future based
on, among other things, mismanagement of the system, unfair or unequal
treatment, discrimination, harassment, wrongful termination and wage, rest break
and meal break issues, including those relating to overtime compensation. We
have been subject to these types of claims in the past, and if one or more of
these claims were to be successful or if there is a significant increase in the
number of these claims, our business, results of operations and financial
condition could be harmed.
Although our primary supplier of hot
dogs currently has two manufacturing facilities, a significant interruption of
its main facility could potentially disrupt our operations.
Our primary hot dog supplier currently
has two manufacturing facilities; however, a significant interruption in its
main facility, whether as a result of a natural disaster or other causes, could
significantly impair our ability to operate our business on a day-to-day basis
because its secondary facility is not large enough to absorb the entire capacity
of its main facility.
The
loss of one or more of our key suppliers could lead to supply disruptions,
increased costs and lower operating results.
The
Company relies on one supplier for the majority of its hot dogs and another
supplier for its supply of frozen French fries. An interruption in
the supply of product from either one of these suppliers without the Company
obtaining an alternative source of supply on comparable terms could lead to
supply disruptions, increased costs and lower operating results.
The
Company is currently engaged in litigation with its primary supplier of hot dogs
for each of the Company’s major lines of business. The Company is seeking a
judicial declaration that it is entitled to terminate its License Agreement with
such supplier. In anticipation of such termination, the Company is
seeking one or more alternative sources of supply to commence immediately
following the termination of the License Agreement (or sooner if necessary);
however, the termination of the License Agreement presents a number of risks to
the Company and its operations.
Although
the Company believes that its hot dog supplier is contractually obligated to
perform its obligations under the License Agreement until its termination and
the Company expects its hot dog supplier to continue to discharge those
obligations, there is no assurance that the supplier will do so. In
the event that the hot dog supplier breaches its contractual obligations under
the License Agreement by failing or refusing to manufacture and supply hot dogs
for the Company’s restaurant and Branded Product Program operations or to
manufacture, distribute, market and sell Nathan’s Famous hot dogs to the retail
trade, there is no assurance that the Company could secure an alternate source
of supply in a timely manner. In addition, Nathan’s hot
dog supplier is also the supplier of hot dogs under the forward commitment
entered into in January 2009. In the event the hot dog supplier
breaches its obligation under the forward commitment, Nathan’s will not obtain
the expected benefit of the lower cost of beef, which would adversely affect the
Company’s results of operations.
Additionally,
all of the frozen French fries sold through its franchised restaurants are
obtained from one supplier. In the event that the French fry supplier is unable
to fulfill Nathan’s requirements for any reasons, including due to a significant
interruption in its manufacturing operations, whether as a result of a natural
disaster or for other reasons, such interruption could significantly impair the
Company’s ability to operate its business on a day-to-day basis.
In the
event that the Company is unable to find one or more alternative suppliers of
hot dogs or French fries on a timely basis, there could be a disruption in the
supply of product to Company-owned restaurants, franchised restaurants and
Branded Product accounts, which would damage the Company, its franchisees and
Branded Product customers and, in turn, negatively impact the Company’s
financial results. In addition, any gap in supply to retail customers
would result in lost royalty payments to the Company, which could have a
significant adverse financial impact on the Company’s results from
operations. Furthermore, any gap in supply to retail customers may
damage the Nathan’s Famous trademarks in the eyes of consumers and the retail
trade, which damage might negatively impact the Company’s overall business in
general and impair the Company’s ability to continue its retail licensing
program.
Additionally,
once secured, there is no assurance that any alternate sources of supply would
be capable of meeting the Company’s specifications and quality standards on a
timely and consistent basis or that the financial terms of such supply
arrangement will be as favorable as the Company’s present terms with its hot dog
or French fry supplier, as the case may be.
Any of
the foregoing occurrences may cause disruptions in supply of the Company’s hot
dog or French fry products, as the case may be, damage the Company’s franchisees
and Branded Product customers, adversely impact the Company’s financial results
and/or damage the Nathan’s Famous trademarks.
The
closure of a Coney Island amusement park, and the redevelopment of the Coney
Island amusement district, may have a material adverse effect on Nathan's
financial results.
The
original, flagship Nathan's Famous restaurant is located in the Coney Island
amusement district in Coney Island, New York. We believe that
customer traffic at this location depends, in part, on the operation of the
various area amusements and attractions. One such attraction, the
Astroland Amusement Park, has reportedly been closed permanently as of September
2008. Additionally, the City of New York and a private real estate
developer have proposed competing plans to redevelop the entire Coney Island
amusement district. We are unable to determine the impact of the
closing of Astroland and/or the redevelopment of the Coney Island amusement
district; however, any substantial decrease in the number of visitors to Coney
Island would likely have a material adverse effect on our financial
results.
Our
certificate of incorporation and by-laws and other corporate documents include
anti-takeover provisions which may deter or prevent a takeover
attempt.
Some
provisions of our certificate of incorporation, by-laws, other corporate
documents and provisions of Delaware law may discourage takeover attempts and
hinder a merger, tender offer or proxy contest targeting us, including
transactions in which stockholders might receive a premium for their
shares. This may limit the ability of stockholders to approve a
transaction that they may think is in their best interest. These
provisions include:
|
·
|
Classified Board of
Directors. Our certificate of incorporation provides for
a board which is divided into three classes, so not all of the directors
are subject to election at the same time. As a result, someone
who wishes to take control of the Company by electing a majority of the
board of directors must do so over a two-year
period.
|
|
·
|
Shareholder Rights
Agreement. We adopted a rights agreement which provided
for a dividend distribution of one right for each share to holders of
record of common stock on June 5, 2008. The rights become
exercisable in the event any person or group accumulates 15% or more of
our common stock, or if any person or group announces an offer which would
result in it owning 15% or more of our common stock and our management
does not approve of the proposed
ownership.
|
Employment
Contracts. The employment agreements between us and each of
Wayne Norbitz, Donald L. Perlyn, Howard M. Lorber and Eric Gatoff provide that
in the event there is a change in control of Nathan’s, the employee has the
option, exercisable within six months for Mr. Norbitz, 30 days for Mr. Perlyn
and one year for each of Messrs. Gatoff and Lorber, of his becoming aware of the
change in control, to terminate his employment agreement. Upon such
termination, Messrs. Norbitz and Perlyn each have the right to receive a lump
sum payment equal to three times his respective salary. Mr. Gatoff
has the right to receive a lump sum payment equal to his salary and annual bonus
for a one-year period, and Mr. Lorber has the right to receive a lump sum
payment equal to the greater of (i) his salary and annual bonuses for the
remainder of the employment term or (ii) 2.99 times his salary and annual bonus
plus the difference between the exercise price of any exercisable options having
an exercise price of less than the then current market price of our common stock
and such current market price. Mr. Lorber will also receive a tax
gross up payment to cover any excise tax.
The recent
economic crisis and erosion of consumer confidence has negatively
impacted the Company’s profitability and operating results and may continue to
do so.
Recently,
the United States economy has experienced a severe recession, resulting in
rising unemployment, an upheaval in the credit markets and an erosion in
consumer confidence. The Company believes this has resulted in reduced sales at
the Company’s owned and franchised restaurants, an increase in uncollectible
accounts receivable and adversely affected the ability of an existing franchisee
and a potential new franchisee to obtain funding, all of which have adversely
affected the Company’s operating results. If the recent economic crisis
continues to result in reduced sales at our Company-owned and franchised
restaurants and adversely impact franchisees’ ability to finance purchases or
restructurings of restaurant franchises, or if it begins to affect sales of
licensed products for which we receive royalties, it will negatively impact the
Company’s business and operating results.
Item
2. Properties.
Our
principal executive offices consist of approximately 9,700 square feet of leased
space in a modern office building in Westbury, NY, which lease expires in
November 2009. We believe that we can renew or replace our office lease on terms
no less favorable to the Company than those currently in effect. We also own a
regional office building consisting of approximately 9,500 square feet in Fort
Lauderdale, Florida. We currently own one restaurant property
consisting of a 2,650 square foot Nathan’s restaurant at 86th Street in
Brooklyn, NY, located on a 25,000 square foot lot.
At March
29, 2009, other Company-owned restaurants that were operating were located in
leased space with terms expiring as shown in the following table:
|
|
|
|
Current
Lease
|
|
Approximate
|
|
Nathan’s
Restaurants
|
|
Location
|
|
Expiration
Date
|
|
Square
Footage
|
|
Coney
Island
|
|
Brooklyn,
NY
|
|
December
2027
|
|
|
10,000 |
|
Coney
Island Boardwalk (a)
|
|
Brooklyn,
NY
|
|
December
2009
|
|
|
440 |
|
Long
Beach Road
|
|
Oceanside,
NY
|
|
May
2011(b)
|
|
|
7,300 |
|
Central
Park Avenue
|
|
Yonkers,
NY
|
|
April
2010 (c)
|
|
|
10,000 |
|
.
|
(a)
|
Seasonal
satellite location. We are currently unable to determine if we will be
able to renew this lease. We do not believe that the inability
to renew this agreement would have a material affect on our results of
operations or financial condition.
|
|
(b)
|
Lease
may be extended through May 2026 based upon current lease
options.
|
|
(c)
|
Lease
may be extended through April 2020 based upon current lease
options.
|
Leases
for Nathan’s restaurants typically provide for a base rent plus real estate
taxes, insurance and other expenses and, in some cases, provide for an
additional percentage rent based on the restaurants’ revenues.
At March
29, 2009, in addition to the leases listed above, we were the sub-lessor of four
properties which are located within the metropolitan New York area.
Aggregate
rental expense, net of sublease income, under all current leases amounted to
$1,215,000 in fiscal 2009.
Item
3. Legal
Proceedings.
We and
our subsidiaries are from time to time involved in ordinary and routine
litigation. Management presently believes that the ultimate outcome
of these proceedings, individually or in the aggregate, will not have a material
adverse effect on our financial position, cash flows or results of
operations. Nevertheless, litigation is subject to inherent
uncertainties and unfavorable rulings could occur. An unfavorable
ruling could include money damages and, in such event, could result in a
material adverse impact on our results of operations for the period in which the
ruling occurs.
The
Company is also involved in the following legal proceedings:
On March
20, 2007, a personal injury lawsuit was initiated seeking unspecified
damages against the Company's subtenant and the Company's master
landlord at a leased property in Huntington, New York. The claim relates
to damages suffered by an individual as a result of an alleged "trip and fall"
on the sidewalk in front of the leased property, maintenance of which is the
subtenant's responsibility. Although the Company was not named as a
defendant in the lawsuit, under its master lease agreement the Company may have
an obligation to indemnify the master landlord in connection with this
claim. The Company did not maintain its own insurance on the property
concerned at the time of the incident; however, the Company is named as an
additional insured under its subtenant's liability policy.
Accordingly, if the master landlord is found liable for damages and seeks
indemnity from the Company, the Company believes that it would be entitled to
coverage under the subtenant's insurance policy. Additionally, under
the terms of the sublease, the subtenant is required to indemnify the
Company, regardless of insurance coverage.
The
Company is party to a License Agreement with SMG, Inc. ("SMG") dated as of
February 28, 1994, as amended (the "License Agreement") pursuant to which: (i)
SMG acts as the Company's exclusive licensee for the manufacture, distribution,
marketing and sale of packaged Nathan's Famous hot dog product at supermarkets,
club stores and other retail outlets in the United States; and (ii) the Company
has the right, but not the obligation, to require SMG to produce hot dogs for
the Nathan's Famous restaurant system and Branded Product Program. On
July 31, 2007, the Company provided notice to SMG that the Company has elected
to terminate the License Agreement, effective July 31, 2008, due to SMG's breach
of certain provisions of the License Agreement. SMG has disputed that a breach
has occurred and has commenced, together with certain of its affiliates, an
action in state court in Illinois seeking, among other things, a declaratory
judgment that SMG did not breach the License Agreement. The Company
has answered SMG's complaint and asserted its own counterclaims which seek,
among other things, a declaratory judgment that SMG did breach the License
Agreement and that the Company has properly terminated the License Agreement. On
July 31, 2008, SMG and Nathan’s entered into a stipulation pursuant to which
Nathan’s agreed that it would not effectuate the termination of the License
Agreement on the grounds alleged in the present litigation until such litigation
has been successfully adjudicated, and SMG agreed that in such event, Nathan’s
shall have the option to require SMG to continue to perform under the License
Agreement for an additional period of up to six months to ensure an orderly
transition of the business to a new licensee/supplier. The parties
are currently proceeding with the process of the litigation. See Item 1A
- - “Risk Factors”.
Item
4. Submission of Matters to a
Vote of Security Holders.
No matters were submitted to a vote of
shareholders during the quarter ended March 29, 2009.
PART
II
Item
5. Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
Common
Stock Prices
Our
common stock began trading on the over-the-counter market on February 26, 1993
and is quoted on the Nasdaq National Market System (“Nasdaq”) under the symbol
“NATH.” The following table sets forth the high and low closing sales
prices per share for the periods indicated:
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
Fiscal
year ended March 29, 2009
|
|
|
|
|
|
|
First
quarter
|
|
$ |
15.00 |
|
|
$ |
12.96 |
|
Second
quarter
|
|
|
16.04 |
|
|
|
14.25 |
|
Third
quarter
|
|
|
15.89 |
|
|
|
12.34 |
|
Fourth
quarter
|
|
|
13.98 |
|
|
|
11.56 |
|
|
|
|
|
|
|
|
|
|
Fiscal
year ended March 30, 2008
|
|
|
|
|
|
|
|
|
First
quarter
|
|
$ |
15.79 |
|
|
$ |
14.16 |
|
Second
quarter
|
|
|
19.20 |
|
|
|
15.01 |
|
Third
quarter
|
|
|
17.87 |
|
|
|
16.25 |
|
Fourth
quarter
|
|
|
17.86 |
|
|
|
13.03 |
|
At June
4, 2009, the closing price per share for our common stock, as reported by
Nasdaq, was $13.25.
Dividend
Policy
We have
not declared or paid a cash dividend on our common stock since our initial
public offering and do not anticipate that we will pay any dividends in the
foreseeable future. It is our Board of Directors’ policy to retain all available
funds to finance the development and growth of our business and to purchase
stock pursuant to our stock buyback program. The payment of any cash dividends
in the future will be dependent upon our earnings and financial
requirements.
Shareholders
As of
June 4, 2009, we
had approximately 728 shareholders of record, excluding shareholders whose
shares were held by brokerage firms, depositories and other institutional firms
in “street name” for their customers.
ISSUER
PURCHASES OF EQUITY SECURITIES
For the
thirteen weeks and fiscal year ended March 29, 2009, the Company repurchased
104,013 shares at a cost of $1,269,000 and 693,806 shares at a cost of
$9,712,000, respectively. Through March 29, 2009, Nathan’s purchased a total of
2,693,806 shares of common stock at a cost of approximately $18,798,000 under
all of its stock repurchase programs, which included the shares purchased during
the thirteen weeks and fiscal year ended March 29, 2009, as well as the
completion of the third stock repurchase plan previously authorized by the Board
of Directors. On November 13, 2008, Nathan’s Board of Directors authorized a
fourth stock repurchase plan for the purchase of up to 500,000 shares of its
common stock on behalf of the Company; there have been purchases of 193,806
shares at a cost of $2,400,000 under such plan as of March 29,
2009. Purchases may be made from time to time, depending on market
conditions, in open market or privately negotiated transactions, at prices
deemed appropriate by management. There is no set time limit on the
repurchases.
ISSUER PURCHASES OF EQUITY
SECURITIES
Period
(A)
|
|
(a)
Total
Number of
Shares
Purchased
|
|
|
(b)
Average
Price Paid
per
Share
|
|
|
(c)
Total
Number of
Shares
Purchased as
Part
of Publicly
Announced
Plans
|
|
|
(d)
Maximum
Number
of
Shares that May
Yet
Be Purchased
Under
the Plan
|
|
December
29, 2008 - January
25, 2009
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
410,207 |
|
January
26, 2009 - February
22, 2009
|
|
|
24,184 |
|
|
$ |
11.9111 |
|
|
|
24,184 |
|
|
|
386,023 |
|
February
23, 2009 - March
29, 2009
|
|
|
79,829 |
|
|
$ |
12.2526 |
|
|
|
79,829 |
|
|
|
306,194 |
|
Total
|
|
|
104,013 |
|
|
$ |
12.2035 |
|
|
|
104,013 |
|
|
|
306,194 |
|
A) Represents
the Company’s fiscal periods during the fourth quarter ended March 29,
2009.
Item 6. Selected Consolidated
Financial Data
|
|
Fiscal
years ended (1)
|
|
|
|
March
29,
|
|
|
March
30,
|
|
|
March
25,
|
|
|
March
26,
|
|
|
March
27,
|
|
|
|
2009
|
|
|
2008
(2)
|
|
|
2007
(2)
|
|
|
2006
(2)
|
|
|
2005
(2)
|
|
|
|
(In
thousands, except per share amounts)
|
|
Statement
of Earnings Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
37,480 |
|
|
$ |
36,259 |
|
|
$ |
33,425 |
|
|
$ |
29,785 |
|
|
$ |
23,296 |
|
Franchise
fees and royalties
|
|
|
4,613 |
|
|
|
4,962 |
|
|
|
4,439 |
|
|
|
4,169 |
|
|
|
3,709 |
|
License
royalties, interest and other income
|
|
|
7,128 |
|
|
|
6,004 |
|
|
|
4,939 |
|
|
|
4,092 |
|
|
|
3,664 |
|
Total
revenues
|
|
|
49,221 |
|
|
|
47,225 |
|
|
|
42,803 |
|
|
|
38,046 |
|
|
|
30,669 |
|
Costs
and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
28,774 |
|
|
|
27,070 |
|
|
|
24,080 |
|
|
|
22,225 |
|
|
|
17,266 |
|
Restaurant
operating expenses
|
|
|
3,361 |
|
|
|
3,257 |
|
|
|
3,187 |
|
|
|
3,172 |
|
|
|
3,054 |
|
Depreciation
and amortization
|
|
|
809 |
|
|
|
764 |
|
|
|
742 |
|
|
|
760 |
|
|
|
856 |
|
General
and administrative expenses
|
|
|
9,299 |
|
|
|
8,926 |
|
|
|
8,216 |
|
|
|
7,484 |
|
|
|
7,060 |
|
Interest
expense
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
Recovery
of Property Taxes
|
|
|
(441 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
costs and expenses
|
|
|
41,802 |
|
|
|
40,017 |
|
|
|
36,225 |
|
|
|
33,641 |
|
|
|
28,238 |
|
Income
from continuing operations before provision
for income taxes
|
|
|
7,419 |
|
|
|
7,208 |
|
|
|
6,578 |
|
|
|
4,405 |
|
|
|
2,431 |
|
Income
tax expense
|
|
|
2,461 |
|
|
|
2,427 |
|
|
|
2,306 |
|
|
|
1,609 |
|
|
|
738 |
|
Income
from continuing operations
|
|
|
4,958 |
|
|
|
4,781 |
|
|
|
4,272 |
|
|
|
2,796 |
|
|
|
1,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations before provision
for income taxes (3)
|
|
|
3,914 |
|
|
|
2,824 |
|
|
|
2,104 |
|
|
|
4,733 |
|
|
|
1,781 |
|
Provision
for income taxes
|
|
|
1,390 |
|
|
|
1,050 |
|
|
|
833 |
|
|
|
1,852 |
|
|
|
737 |
|
Income
from discontinued operations
|
|
|
2,524 |
|
|
|
1,774 |
|
|
|
1,271 |
|
|
|
2,881 |
|
|
|
1,044 |
|
Net
income (5)
|
|
$ |
7,482 |
|
|
$ |
6,555 |
|
|
$ |
5,543 |
|
|
$ |
5,677 |
|
|
$ |
2,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations
|
|
$ |
0.84 |
|
|
$ |
0.79 |
|
|
$ |
0.73 |
|
|
$ |
0.50 |
|
|
$ |
0.32 |
|
Income from
discontinued operations
|
|
|
0.43 |
|
|
|
0.29 |
|
|
|
0.22 |
|
|
|
0.52 |
|
|
|
0.20 |
|
Net
income (5)
|
|
$ |
1.27 |
|
|
$ |
1.08 |
|
|
$ |
0.95 |
|
|
$ |
1.02 |
|
|
$ |
0.52 |
|
Diluted
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations
|
|
$ |
0.80 |
|
|
$ |
0.74 |
|
|
$ |
0.67 |
|
|
$ |
0.43 |
|
|
$ |
0.28 |
|
Income from
discontinued operations
|
|
|
0.41 |
|
|
|
0.27 |
|
|
|
0.20 |
|
|
|
0.44 |
|
|
|
0.17 |
|
Net
income (5)
|
|
$ |
1.21 |
|
|
$ |
1.01 |
|
|
$ |
0.87 |
|
|
$ |
0.87 |
|
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Weighted
average shares used in computing net
income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,898 |
|
|
|
6,085 |
|
|
|
5,836 |
|
|
|
5,584 |
|
|
|
5,307 |
|
Diluted
|
|
|
6,180 |
|
|
|
6,502 |
|
|
|
6,341 |
|
|
|
6,546 |
|
|
|
6,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data at End of Fiscal Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital
|
|
$ |
35,303 |
|
|
$ |
35,650 |
|
|
$ |
27,375 |
|
|
$ |
19,075 |
|
|
$ |
14,009 |
|
Total
assets
|
|
|
49,824 |
|
|
|
51,202 |
|
|
|
46,575 |
|
|
|
37,423 |
|
|
|
31,269 |
|
Long
term debt, net of current maturities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
31 |
|
|
|
692 |
|
Stockholders’
equity
|
|
$ |
41,849 |
|
|
$ |
42,608 |
|
|
$ |
35,879 |
|
|
$ |
28,048 |
|
|
$ |
21,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Restaurant Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned
Restaurant Sales (4)
|
|
$ |
12,511 |
|
|
$ |
13,142 |
|
|
$ |
11,863 |
|
|
$ |
11,419 |
|
|
$ |
11,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Units Open at End of Fiscal Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned
restaurants
|
|
|
5 |
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
Franchised
|
|
|
249 |
|
|
|
224 |
|
|
|
196 |
|
|
|
192 |
|
|
|
174 |
|
Notes to
Selected Financial Data
(1)
|
Our
fiscal year ends on the last Sunday in March, which results in a 52 or
53-week year. The fiscal year ended March 29, 2009 is on the
basis of a 52-week reporting period as were the fiscal years ended March
25, 2007, March 26, 2006 and March 27, 2005 whereas the fiscal year ended
March 30, 2008 was on the basis of 53-week reporting
period.
|
(2)
|
Results
have been adjusted to reflect the sales of NF Roasters Corp. during the
fiscal year ended March 29, 2009 and Miami Subs Corporation, including
leasehold interest during the fiscal year ended March 30, 2008, the sale
of vacant land and an adjacent leasehold interest during the fiscal years
ended March 25, 2007 and March 26, 2006, and the closure of one restaurant
during the fiscal year ended March 27, 2005, in each case for
the reclassification of the operating results to discontinued
operations.
|
(3)
|
The
fiscal years ended March 29, 2009, March 30, 2008, March 25, 2007, and
March 26, 2006, include gains of $3,906, $2,489, $400 and $2,917
respectively, from the sales of NF Roasters Corp. in April 2008, Miami
Subs Corporation in May 2007 and the sale of a vacant piece of land in
Coney Island, NY, including an adjacent leasehold interest in July
2005.
|
(4)
|
Company-owned
restaurant sales represent sales from restaurants presented within
continuing operations and discontinued
operations.
|
(5)
|
See
Notes A, B and G of the Consolidated Financial Statements for any
accounting changes, business combinations or dispositions of business
operations that materially affect the comparability of the information
reflected in this Item 6.
|
Item
7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
Introduction
We are engaged primarily in the
marketing of the “Nathan’s Famous” brand and the sale of products bearing the
“Nathan’s Famous” trademarks through several different channels of
distribution. Historically, our business has been the operation and
franchising of quick-service restaurants featuring Nathan’s World Famous Beef
Hot Dogs, crinkle-cut French-fried potatoes, and a variety of other menu
offerings. Our Company-owned and franchised units operate under the
name “Nathan’s Famous,” the name first used at our original Coney Island
restaurant opened in 1916. Nathan’s licensing program began in 1978 by selling
packaged hot dogs and other meat products to retail customers through
supermarkets or grocery-type retailers for off-site consumption. During fiscal
1998, we introduced our Branded Product Program, which enables foodservice
retailers to sell some of Nathan’s proprietary products outside of the realm of
a traditional franchise relationship. In conjunction with this program,
foodservice operators are granted a limited use of the Nathan’s Famous trademark
with respect to the sale of Nathan’s World Famous Beef Hot Dogs and certain
other proprietary food items and paper goods. During fiscal 2008, we launched
our Branded Menu Program, under which foodservice operators may sell a greater
variety of Nathan’s Famous menu items than under the Branded Product
Program.
In addition to the Nathan’s Famous
brand, we have also had involvement with a number of other restaurant concepts
and/or 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 completed our
acquisition of the outstanding common stock of Miami Subs Corporation, which
also provided us with co-branding rights to the Arthur Treacher’s brand in the
United States allowing us to franchise and co-brand the Miami Subs and Arthur
Treacher’s brands. On February 28, 2006, we acquired all of the intellectual
property rights, including, but not limited to, trademarks, trade names, and
recipes, of the Arthur Treacher’s Fish N Chips Brand. On June 7,
2007, Nathan’s completed the sale of its wholly-owned subsidiary, Miami Subs Corporation, the
franchisor of the Miami Subs brand, effective as of May 31, 2007 in exchange for
$3,250,000, consisting of $850,000 cash and the purchaser’s promissory note in
the principal amount of $2,400,000 (the “MSC Note”). On April 23, 2008, Nathan’s
completed the sale of its wholly-owned subsidiary, NF Roasters Corp., franchisor
of the Kenny Rogers brand in exchange for approximately $4,000,000 in
cash. Notwithstanding the sale of Miami Subs Corporation and NF
Roasters Corp., we are entitled to continue using the Kenny Rogers trademarks
and service marks in our then-existing Nathan’s restaurant
locations.
Our
revenues are generated primarily from selling products under Nathan’s Branded
Product Program, operating Company-owned restaurants, franchising the Nathan’s
restaurant concept (including under the Branded Menu Program) and licensing
agreements for the sale of Nathan’s products within supermarkets and club
stores, the manufacture of certain proprietary spices and the sale of Nathan’s
products directly to other foodservice operators.
In addition to plans for expansion
through franchising, licensing and our Branded Product Program, Nathan’s
continues to co-brand within its restaurant system. At March 29, 2009, the
Arthur Treacher’s brand was being sold within 58 Nathan’s
restaurants.
The
following summary reflects the franchise openings and closings, excluding
the Kenny Rogers Roasters franchise system which was sold on April 23,
2008, for the fiscal years ended March 29, 2009, March 30, 2008, March 25, 2007,
March 26, 2006 and March 27, 2005.
|
|
March
29,
2009
|
|
|
March
30,
2008
|
|
|
March
25,
2007
|
|
|
March
26,
2006
|
|
|
March
27,
2005
|
|
Franchised
restaurants operating at the beginning of the period
|
|
|
224 |
|
|
|
196 |
|
|
|
192 |
|
|
|
174 |
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
franchised restaurants opened during the period
|
|
|
46 |
|
|
|
46 |
|
|
|
21 |
(A) |
|
|
27 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchised
restaurants closed during the period
|
|
|
(21 |
) |
|
|
(18 |
) |
|
|
(17 |
) |
|
|
( 9 |
) |
|
|
( 9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchised
restaurants operating at the end of the period
|
|
|
249 |
|
|
|
224 |
|
|
|
196 |
|
|
|
192 |
|
|
|
174 |
|
(A)
Includes the opening of two test Branded Menu Program outlets.
At March
29, 2009, our franchise system consisted of 249 Nathan’s Famous franchised units
located in 25 states and four foreign
countries. We also operated five Company-owned Nathan’s units, including one
seasonal location, within the New York metropolitan area.
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 judgment
due to the sensitivity of the methods, assumptions and estimates necessary in
determining the related asset and liability amounts.
Revenue
Recognition
Sales
by Company-owned restaurants, which are typically paid in cash by the customer,
are recognized upon the performance of services. Sales are presented
net of applicable sales tax.
In
connection with its franchising operations, Nathan’s receives initial franchise
fees, development fees, royalties, 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, which are non-refundable, 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. The following
services are typically provided by Nathan’s prior to the opening of a franchised
restaurant:
|
·
|
Approval
of all site selections to be
developed.
|
|
·
|
Provision
of architectural plans suitable for restaurants to be
developed.
|
|
·
|
Assistance
in establishing building design specifications, reviewing construction
compliance and equipping the
restaurant.
|
|
·
|
Provision
of appropriate menus to coordinate with the restaurant design and location
to be developed.
|
|
·
|
Provision
of management training for the new franchisee and selected
staff.
|
|
·
|
Assistance
with the initial operations and marketing of restaurants being
developed.
|
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 Nathan’s may cancel the agreements. Revenue
from development agreements is deferred and recognized ratably over the term of
the agreement or 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.
Nathan’s
recognizes franchise royalties, which are generally based upon a percentage of
sales made by Nathan’s franchisees, 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, or until collectibility is
deemed to be reasonably assured. The number of non-performing units is
determined by analyzing the number of months that royalties have been paid
during a period. When royalties have been paid for less than the majority of the
time frame reported, such location is deemed
non-performing. Accordingly, the number of non-performing units may
differ between the quarterly results and year-to-date results.
Nathan’s recognizes revenue from the
Branded Product Program when it is determined that the products have been
delivered via third party common carrier to Nathan’s customers. Rebates to
customers are recorded as a reduction to sales. Nathan’s recognizes revenue from
its Branded Menu Program for the sale of hot dogs in the same way as for its
Branded Product Program, and royalty income when it has been determined that
other qualifying products have been sold by the manufacturer to Nathan’s Branded
Menu Program franchisees.
Revenue from sub-leasing properties 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 consolidated statements of earnings.
Nathan’s
recognizes revenue from royalties on the licensing of the use of its name on
certain products produced and sold by outside vendors. The use of the Nathan’s
name and symbols must be approved by Nathan’s prior to each specific application
to ensure proper quality and project a consistent image. Revenue from license
royalties is recognized when it is earned and deemed collectible.
In the
normal course of business, we extend credit to franchisees and licensees for the
payment of ongoing royalties and to trade customers of our Branded Product
Program. Accounts and other receivables, 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 at the date of the transaction 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.” The
Company writes off accounts receivable when they are deemed
uncollectible.
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 not be amortized but tested annually (or more
frequently if events or changes in circumstances indicate the carrying value may
not be recoverable) 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, impairment charges
may be required in the future. We conducted our annual impairment tests and no
goodwill or other intangible assets were determined to be impaired during the
fifty-two week period ended March 29, 2009, the fifty-three week period ended
March 30, 2008 and the fifty-two week period ended March 25, 2007.
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 to make
judgments regarding the future operating and disposition plans for
under-performing assets, and estimates of expected realizable values for assets
to be sold. 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 fifty-two
week period ended March 29, 2009, the fifty-three week period ended March 30,
2008 and the fifty-two week period ended March 25, 2007, no impairment charges
on long-lived assets were recorded.
Impairment
of Notes Receivable
Statement
of Financial Accounting Standards No. 114, “Accounting by Creditors for
Impairment of a Loan,” as amended, requires management judgments 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 payment history, operating losses, marginal working capital, inadequate
cash flow or business interruptions; b) whether the loan is secured by
collateral that is not readily marketable; and/or c) whether the collateral is
susceptible to deterioration in realizable value. When determining
possible impairment, we also expect to assess the debtor’s ability to meet its
obligation over the projected note term and our future intention to enter into a
new lease or extend the lease beyond the minimum lease term, if applicable.
During the fifty-two week period ended March 29, 2009, the fifty-three week
period ended March 30, 2008 and the fifty-two week period ended March 25, 2007,
no impairment charges on notes receivable were recorded.
Stock-Based
Compensation
As
discussed in Note B of the Notes to Consolidated Financial Statements, we have
various share-based compensation plans that provide stock options and restricted
stock awards for certain employees and non-employee directors to acquire shares
of our common stock. We consider the following factors in determining
the value of stock based compensation:
|
a)
|
expected
option term based upon expected termination
behavior;
|
|
b)
|
volatility
based upon historical price changes of the Company’s common stock over a
period equal to the expected life of the
option;
|
|
c)
|
expected
dividend yield; and
|
|
d)
|
risk
free interest rate on date of
grant.
|
During fiscal years ended March 29,
2009, March 30, 2008, and March 25, 2007, we recorded share-based compensation
expense of $492,000, $432,000, and $367,000, respectively. (See Note
B of the Notes to Consolidated Financial Statements for a discussion of
assumptions used to determine the fair value of share-based
compensation.)
Income
Taxes
The
Company’s current provision for income taxes is based upon its estimated taxable
income in each of the jurisdictions in which it operates, after considering the
impact on our taxable income of temporary differences resulting from different
treatment of items such as depreciation, estimated self-insurance liabilities,
allowance for doubtful accounts and tax credits and net operating losses (“NOL”)
for tax and reporting purposes. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carry-forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the year in which
those temporary differences are expected to be recovered or
settled.
Uncertain
Tax Positions
The
Financial Accounting Standards Board issued Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109
(“FASB”), Accounting for Income Taxes” (“FIN No. 48”), which was adopted by the
Company on March 26, 2007. FIN No. 48 addresses the determination of
whether tax benefits claimed or expected to be claimed on a tax return should be
recorded in the financial statements. Under FIN No. 48, the Company
may recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the
taxing authorities based on the technical merits of the position. The
tax benefits recognized in the financial statements from such position should be
measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. FIN No. 48
also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods and disclosure requirements. (See Note J of the
Notes to Consolidated Financial Statements.)
Adoption
of New Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “Fair Value Measurements” (“SFAS No. 157”), to
eliminate the diversity in practice that existed due to the different
definitions of fair value. SFAS No. 157 retained the exchange price notion in
earlier definitions of fair value, but clarified that the exchange price is the
price in an orderly transaction between market participants to sell an asset or
liability in the principal or most advantageous market for the asset or
liability. SFAS No. 157 stated that the transaction is hypothetical at the
measurement date, considered from the perspective of the market participant who
holds the asset or liability. As such, fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (an exit price),
as opposed to the price that would be paid to acquire the asset or received to
assume the liability at the measurement date (an entry price). SFAS No. 157
also established a three-level hierarchy which requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value.
In
February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date of
FASB Statement No. 157,” which delayed the
effective date of SFAS No. 157 for all non-financial assets and
non-financial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least
annually). Nathan’s adopted the provisions of SFAS No. 157 on March
31, 2008 and elected the deferral option for non-financial assets and
liabilities. The effect on our consolidated financial position and results of
operations of adopting this standard was not significant.
In
October 2008, the FASB issued FASB Staff Position No. 157-3, “Determining the
Fair Value of a Financial Asset When the Market for That Asset Is Not Active”
(“FSP No. 157-3”). FSP No. 157-3 applies to financial assets within
the scope of accounting pronouncements that require or permit fair value
measurements in accordance with SFAS No. 157. FSP No. 157-3 clarifies
the application of SFAS No. 157 in a market that is not active and provides an
example to illustrate key conditions in determining the fair value of a
financial asset when the market for that financial asset is not
active. FSP No. 157-3 became effective upon issuance, including prior
periods for which financial statements have not been issued. Nathan’s
adopted the provisions of FSP No. 157-3 effective September 28, 2008. The effect
on our consolidated financial position and results of operations of adopting
this standard was not significant.
The
effect on our consolidated financial position and results of operations of
adopting these standards was not significant.
The
valuation hierarchy established by SFAS No. 157 is based upon the transparency
of inputs to the valuation of an asset or liability on the measurement date. The
three levels are defined as follows:
· Level
1 - inputs to the valuation methodology are quoted prices (unadjusted) for an
identical asset or liability in an active market.
· Level
2 - inputs to the valuation methodology include quoted prices for a similar
asset or liability in an active market or model-derived valuations in which all
significant inputs are observable for substantially the full term of the asset
or liability.
· Level
3 - inputs to the valuation methodology are unobservable and significant to the
fair value measurement of the asset or liability.
The
following table presents the Company’s assets and liabilities measured at fair
value on a recurring basis as of March 29, 2009 by SFAS No. 157 valuation
hierarchy: (in thousands)
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
$ |
- |
|
|
$ |
25,670 |
|
|
$ |
- |
|
|
$ |
25,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets at fair value
|
|
$ |
- |
|
|
$ |
25,670 |
|
|
$ |
- |
|
|
$ |
25,670 |
|
Nathan’s
marketable securities, which primarily represent municipal bonds, are not
actively traded. The valuation of such bonds is based upon quoted
market prices for similar bonds currently trading in an active
market.
The
carrying amounts of cash equivalents, accounts receivable and accounts payable
approximate fair value due to the short-term maturity of the
instruments. The carrying amount of the MSC Note receivable
approximates fair value as determined using level three inputs as the current
interest rate on such instrument approximates current market interest rates on
similar instruments.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities — Including an amendment of FASB
Statement No. 115” (“SFAS No. 159”). This standard amends SFAS No.
115, “Accounting for Certain Investments in Debt and Equity Securities,” with
respect to accounting for a transfer to the trading category for all entities
with available-for-sale and trading securities electing the fair value option.
SFAS No. 159 allows companies to elect fair value accounting for many financial
instruments and other items that currently are not required to be accounted for
as such, allows different applications for electing the option for a single item
or groups of items, and requires disclosures to facilitate comparisons of
similar assets and liabilities that are accounted for differently in relation to
the fair value option. Nathan’s adopted the provisions of SFAS No.
159 on March 31, 2008. The adoption of SFAS No. 159 had no impact on our
consolidated financial position and results of operations as Nathan’s did not
elect the fair value option to report its financial assets and liabilities at
fair value and elected to continue the treatment of its marketable securities as
available-for-sale securities with unrealized gains and losses recorded in
accumulated other comprehensive income.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP. SFAS No. 162 became effective on
November 15, 2008. We adopted SFAS No. 162 during our fiscal quarter
ended December 28, 2008. Our adoption of SFAS No. 162 did not have
any effect on our consolidated financial position and results of
operations.
New
Accounting Pronouncements Not Yet Adopted
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”),
which establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in an acquiree, including
the recognition and measurement of goodwill acquired in a business
combination.
The
requirements of SFAS No. 141R and FSP No. 141R-1 are effective for fiscal years
beginning on or after December 15, 2008, which for us is fiscal 2010.
Earlier adoption is prohibited. The adoption of SFAS No. 141R and FSP No. 141R-1
will impact our accounting for future business combinations, if
any.
In December 2007, the FASB issued
SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements —
an amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 amends ARB No.
51 to establish accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. It
clarifies that a noncontrolling interest in a subsidiary, which is sometimes
referred to as minority interest, is an ownership interest in the consolidated
entity that should be reported as equity in the consolidated financial
statements. Among other requirements, this statement requires consolidated net
income to be reported at amounts that include the amounts attributable to both
the parent and the noncontrolling interest. It also requires disclosure, on the
face of the consolidated income statement, of the amounts of consolidated net income
attributable to the parent and to the noncontrolling interest. SFAS No. 160 is
effective for fiscal years and interim periods within those fiscal years,
beginning on or after December 15, 2008, which for us is the first quarter
of fiscal 2010. Earlier adoption is prohibited. Based upon Nathan’s current
organization structure, we do not expect the implementation of SFAS No. 160 to
have any impact on our consolidated financial position and results of
operations.
In April 2008, the FASB issued FASB
Staff Position No. 142-3 (“FSP No. 142-3”), “Determination of the Useful Life of
Intangible Assets,” which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible
Assets.” FSP No. 142-3 is effective for fiscal years beginning after
December 15, 2008, which for us is the first quarter of fiscal
2010. We do not expect the adoption of FSP No. 142-3 to have a
material effect on our consolidated financial position and results of
operations.
In June 2008, the FASB ratified
Emerging Issues Task Force 08-3 (“EITF 08-3”), “Accounting by Lessees for
Maintenance Deposits,” which provides guidance for accounting for maintenance
deposits paid by a lessee to a lessor. EITF 08-3 is effective for
fiscal years beginning after December 15, 2008, which for us is the first
quarter of fiscal 2010. We do not expect the adoption of EITF 08-3 to
have a significant impact on our consolidated financial position and results of
operations.
In April
2009, the FASB issued FASB Staff Position No.141R-1, “Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arises from
Contingencies” (“FSP No. 141R-1”), which provides guidelines on the initial
recognition and measurement, subsequent measurement and accounting, and
disclosure of assets and liabilities arising from contingencies in a business
combination. FSP No. 141R-1 provides that an acquirer shall recognize an asset
acquired or a liability assumed in a business combination that arises from a
contingency at fair value, at the acquisition date, if the acquisition-date fair
value of that asset or liability can be determined during the measurement
period. FSP No. 141R-1 provides guidance in the event that the fair value of an
asset acquired or liability assumed cannot be determined during the measurement
period. FSP No. 141R-1 provides that an acquirer shall develop a systematic and
rational basis for subsequently measuring and accounting for assets and
liabilities arising from contingencies and also provides for the disclosure
requirements. FSP No. 141R-1 is effective for assets or liabilities arising from
contingencies in business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008.
In April
2009, the FASB issued FASB Staff Position No. 157-4, “Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly,”
(“FSP No. 157-4”) which provides guidelines for a broad interpretation of when
to apply market-based fair value measurements. FSP No. 157-4 reaffirms
management’s need to use judgment to determine when a market that was once
active has become inactive and in determining fair values in markets that are no
longer active. FSP No. 157-4 is effective for interim and annual periods ending
after June 15, 2009, but may be early adopted for the interim and annual periods
ending after March 15, 2009. Nathan’s will adopt the provisions of FSP No. 157-4
on March 30, 2009. We do not expect the adoption of FSP No. 157-4 to have a
material effect on our consolidated financial position and results of
operations.
In April
2009, the FASB issued FASB Staff Position Nos. FAS 115-2 and FAS 124-2,
“Recognition and Presentation of Other-Than-Temporary Impairments,” (“FSP No.
115-2 and FSP No. 124-2”) which segregate credit and noncredit components of
impaired debt securities that are not expected to be sold. Impairments will
still have to be measured at fair value in other comprehensive income. The FSPs
also require some additional disclosures regarding expected cash flows, credit
losses, and an aging of securities with unrealized losses. These FSPs are
effective for interim and annual periods ending after June 15, 2009, but may be
early adopted for the interim and annual periods ending after March 15, 2009.
Nathan’s will adopt the provisions of FSP No. 115-2 and FSP No. 124-2 on March
30, 2009. We do not expect the adoption of FSP No. 115-2 and FSP No. 124-2 to
have a material effect on our consolidated financial position and results of
operations.
In April
2009, the FASB issued FASB Staff Position Nos. FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments, increases the frequency
of fair value disclosures to a quarterly basis instead of annually. The guidance
relates to fair value disclosures for any financial instruments that are not
currently reflected on the balance sheet at fair value. Prior to these FSP’s, fair values for
these assets and liabilities were only disclosed once a year. These FSPs are
effective for interim and annual periods ending after June 15, 2009, but may be
early adopted for the interim and annual periods ending after March 15,
2009. Nathan’s will adopt the provisions of FSP No. 107-1
and APB No. 28-1 on March 30, 2009. We do not expect the adoption of FSP
No. 107-1 and APB No. 28-1 to have a material effect on our consolidated
financial position and results of operations.
Fiscal
year ended March 29, 2009 compared to Fiscal year ended March 30,
2008
Revenues from Continuing
Operations
Total sales increased by $1,221,000 or
3.4% to $37,480,000 for the fifty-two weeks ended March 29, 2009 (“fiscal 2009
period”) as compared to $36,259,000 for the fifty-three weeks ended March 30,
2008 (“fiscal 2008 period”). Total sales generated during the
extra week during the fiscal 2008 period were approximately
$528,000. On a comparative basis, the sales increase would have been
approximately $1,749,000 or 4.9%. Sales from the Branded Product
Program increased by 12.3% to $23,182,000 for the fiscal 2009 period as compared
to sales of $20,647,000 in the fiscal 2008 period. This increase was primarily
attributable to price increases of 6.3%, increased sales volume of approximately
5.2% and the reversal of rebate accruals and forfeitures in the amount of
0.9%. Sales of Branded Products during the extra week in fiscal 2008
were approximately $316,000. Total Company-owned restaurant sales (representing
four comparable Nathan’s restaurants, one seasonal restaurant and one restaurant
that was transferred to a franchisee on January 26, 2009) were $12,511,000 for
the fiscal 2009 period as compared to $13,142,000 during the fiscal 2008 period.
Sales at the five remaining Company-owned restaurants were $11,955,000 during
the fiscal 2009 period, as compared to $12,382,000 during the fiscal 2008
period. Sales during the extra week in fiscal 2008 were approximately
$212,000. Sales declined at our four comparable Company-owned restaurants
commencing in September 2008 for the balance of the fiscal 2009 period, with the
most severe decline during September and October 2008, with declines of 18.6%
and 11.6%, respectively, from the same months in the fiscal 2008 period. We
also realized a sales decline of 6.8% during the period from January through
March 2009, after adjusting for the additional week in the fiscal 2008 period.
We believe these declines were primarily due to the economic recession. During
the fiscal 2009 period, sales to our television retailer were approximately
$683,000 lower than the fiscal 2008 period. Nathan’s products were on air 50
times during the fiscal 2009 period as compared to 55 times during the fiscal
2008 period, last year’s airings included 15 “Try Me” special promotions and
two, half-hour food shows, which have historically produced higher
sales.
Franchise
fees and royalties decreased by $349,000 or 7.0% to $4,613,000 in the fiscal 2009
period as compared to $4,962,000 in the fiscal 2008 period. Total royalties were
$3,966,000 in the fiscal 2009 period as compared to $4,131,000 in the fiscal
2008 period. During the fiscal 2009 period, we did not recognize revenue of
$198,000 for royalties deemed to be uncollectible as compared to the fiscal 2008
period, when we did not recognize $19,000 of royalty income. Total royalties,
excluding the adjustments for royalties deemed uncollectible as described above,
were $4,164,000 in the fiscal 2009 period as compared to $4,150,000 in the
fiscal 2008 period. Royalties earned during the extra week in fiscal 2008 were
approximately $59,000. During the fiscal 2009 period, Nathan’s earned
$142,000 of higher royalties from sales by our manufacturers and primary
distributor under our Branded Menu Program. Franchise restaurant
sales were $92,408,000 in the fiscal 2009 period as compared to $96,713,000
including approximately $1,500,000 from the extra week, in the fiscal 2008
period. Comparable domestic franchise sales (consisting of 133 Nathan’s
outlets, excluding sales under the Branded Menu Program) were $67,145,000 in the
fiscal 2009 period as compared to $72,267,000 in the fiscal 2008
period. Franchise sales have been negatively affected since September
2008, which we believe is due to the economic
recession. Approximately 87% of the sales decline during the fiscal
2009 period occurred from September through March 2009, predominantly at our
travel, retail and entertainment venues. At March 29, 2009, 249 domestic and
international franchised or Branded Menu Program franchise outlets
were operating as compared to 224 domestic and
international franchised or Branded Menu Program franchise outlets at March
30, 2008. Royalty income from 14 domestic franchised
outlets was deemed unrealizable during the fifty-two weeks ended March 29, 2009,
as compared to two franchised outlets during the fifty-three weeks ended March
30, 2008. Domestic franchise fee income was $504,000 in the fiscal 2009 period
as compared to $586,000 in the fiscal 2008 period, due to lower average fee per
domestic opening and lower fees earned from restaurant transfers of $31,000.
International franchise fee income was $97,000 in the fiscal 2009 period, as
compared to $160,000 during the fiscal 2008 period primarily due to fewer
openings of international franchised restaurants. During the fiscal 2009 period,
46 new franchised
outlets opened, including 30 Branded Menu Program outlets, two units in Kuwait and one
unit in Dubai. During the fiscal 2008
period, 46 new franchised outlets were opened, including 28 Branded Menu Program
outlets, four units in Kuwait and one unit in the Dominican
Republic.
License
royalties increased by $1,160,000 or 23.9% to $6,009,000 in the fiscal 2009
period as compared to $4,849,000 in the fiscal 2008 period. Generally, our
licensees report sales and royalties based on their own fiscal periods or a
calendar basis. Therefore we do not believe the additional week in the fiscal
2008 period had a significant impact on royalties. Total royalties earned on
sales of hot dogs from our retail and foodservice license agreements of
$4,574,000 increased 26.5% from $3,616,000 as a result of higher licensee sales
during the fiscal 2009 period. Royalties earned from SFG, primarily
from the retail sale of hot dogs, were $3,329,000 during the fiscal 2009 period
as compared to $3,154,000 during the fiscal 2008 period. Royalties earned from
another licensee, substantially from sales of hot dogs to Sam’s Club, were
$1,245,000 during the fiscal 2009 period as compared to $462,000 during the
fiscal 2008 period. Beginning March 2008, Nathan’s World Famous Beef Hot Dogs
were introduced into over 500 of the foodservice cafes operating in Sam’s Clubs
throughout the United States. We earned higher revenues of $301,000 from our
agreement for the manufacture of Nathan’s proprietary ingredients, including
$234,000 received as a result of the settlement of a multi-year discrepancy
under that agreement related to the unauthorized use of certain ingredients. We
earned lower royalties of $61,000 from our agreement for the sale of Nathan’s
pet treats, primarily because there was a substantial sales promotion supporting
the introduction of our pet treats into Wal-Mart during the fiscal 2008 period
that did not occur in fiscal 2009. Net royalties from our other seven license
agreements in the fiscal 2009 period were $38,000 less than the fiscal 2008
period.
Interest
income was $1,056,000 in the fiscal 2009 period as compared to $1,084,000 in the
fiscal 2008 period, primarily due to lower interest income on our invested cash
and marketable securities due primarily to the reduced interest rate environment
and the liquidity crisis which caused Nathan’s to shift its short-term
investments into more secure, but low yielding, Treasury Bills earlier in the
year. During the second and third quarters of the fiscal 2009 period,
we began investing additional cash into longer-term municipal
securities. Interest earned on our MSC Note (as defined) receivable,
received in connection with the sale of Miami Subs on June 7, 2007, was $152,000
in the fiscal 2009 period as compared to $155,000 in the fiscal 2008
period. This decrease was primarily due to the principal payments received on
the MSC Note even though the note was outstanding for 12 months during the
fiscal 2009 period as compared to nine months during the fiscal 2008 period due
to the fact that the MSC Note is self-amortizing.
Other
income was $63,000 in the fiscal 2009 period as compared to $71,000 in the
fiscal 2008 period. During the fiscal 2008 period, Nathan’s earned a $30,000
consent fee in connection with a licensee’s refinancing.
Costs and Expenses from
Continuing Operations
Overall,
our cost of sales increased by $1,704,000 to $28,774,000 in the fiscal 2009
period as compared to $27,070,000 in the fiscal 2008 period. Our gross profit
(representing the difference between sales and cost of sales) was $8,706,000 or
23.2% of sales during the fiscal 2009 period as compared to $9,189,000 or 25.3%
of sales during the fiscal 2008 period. In the Branded Product Program, our cost
of sales increased by approximately $2,512,000 during the fiscal 2009 period
when compared to the fiscal 2008 period, primarily as a result of an approximate
10.7% increase in the cost of our hot dogs, as well as increased sales
volume. The increase in the cost of our hot dogs would have been
approximately 13.5% but for the purchase commitment we entered into in January
2008, which locked in a fixed cost on approximately 1.8 million pounds of hot
dogs and resulted in a savings of approximately $462,000 during the fiscal 2009
period. These savings offset some of the effects of the substantially higher
commodity costs for beef and beef trimmings. The cost of beef and beef trimmings
increased through August 2008, reaching the highest level since the inception of
the Branded Product Program. During the fourth quarter of the fiscal 2009
period, these costs have declined by approximately 17.5% from August 2008.
However, despite this decline, the cost of beef and beef trimmings in the fiscal
2009 period is still significantly higher than the prior year. Since January
2009, the cost of beef and beef trimmings have increased, causing our per-pound
beef costs to increase by approximately 7% over the fourth quarter of the fiscal
2008 period. In an effort to offset the increased cost of our hot
dogs, beginning in July 2008, we initiated price increases in our Branded
Product Program. If the cost of beef and beef trimmings does not
decline and we are unable to pass on these higher costs through price increases,
our margins will continue to be adversely impacted.
With
respect to our Company-owned restaurants, our cost of sales during the fiscal
2009 period was $7,582,000 or 60.6% of restaurant sales, as compared to
$7,856,000 or 59.8% of restaurant sales in the fiscal 2008
period. During the fiscal 2009 period, our Company-owned stores
experienced higher food and direct labor costs, which were partly offset by
other slightly lower labor-related costs as a percentage of sales. The higher
food cost as a percentage of sales was due primarily to the higher commodity
cost of our hot dogs, hamburgers, cooking oil, bread and fish, which were
partially mitigated by our sales price increases for select menu items of
between 3.0% and 7.3%. Cost of sales to our television retailer declined by
$534,000 in the fiscal 2009 period, primarily due to lower sales volume which
was partly offset by our higher cost of hot dogs.
Restaurant
operating expenses increased by $104,000 to $3,361,000 in the fiscal 2009 period
as compared to $3,257,000 in the fiscal 2008 period. The increase during the
fiscal 2009 period when compared to the fiscal 2008 period resulted primarily
from higher utility costs of $88,000, occupancy costs of $28,000 and various
other costs of $63,000, which were partly offset by lower marketing costs of
$36,000 and insurance costs of $12,000. During the fiscal 2009 period
our utility costs were approximately 12.8% higher than the fiscal 2008 period.
Despite reductions in the commodity markets for oil and natural gas over the
past nine months, we remain concerned over the uncertain market conditions for
oil and natural gas. We may continue to incur higher utility costs in
the future.
Depreciation
and amortization was $809,000 in the fiscal 2009 period as compared to $764,000
in the fiscal 2008 period.
General
and administrative expenses increased by $373,000 or 4.2% to $9,299,000 in the
fiscal 2009 period as compared to $8,926,000 in the fiscal 2008
period. The difference in general and administrative expenses was due to an
increase in bad debts of $172,000 and higher legal fees of $83,000 during the
fiscal 2009 period primarily associated with Nathan’s litigation against SFG
(see Part II, Item 1). The actual amount and timing of future SFG litigation
costs is not presently determinable. We also incurred higher accounting fees of
$78,000 in the fiscal 2009 period related to Nathan’s compliance with Section
404 of the Sarbanes-Oxley Act of 2002 (“SOX”), requiring Nathan’s auditor to
audit Nathan’s internal controls over financial reporting, a $61,000 increase in
Nathan’s stock-based compensation expense and higher income tax preparation fees
of $53,000 due partly to the fiscal 2009 tax examinations which were partly
offset by various reductions, principally $82,000 of expense incurred during the
additional week of the fiscal 2008 period.
Recovery
of property taxes of $441,000 recorded in the second quarter fiscal 2009 period
represents the settlement of a multi-year certiorari proceeding at one of the
Company-owned restaurants, net of fees.
Provision for Income Taxes
from Continuing Operations
In the
fiscal 2009 period, the income tax provision was $2,461,000 or 33.2% of income
from continuing operations before income taxes as compared to $2,427,000 or
33.7% of income from continuing operations before income taxes in the fiscal
2008 period. For the fiscal years ended March 29, 2009 and March 30, 2008,
Nathan’s tax provision, excluding the effects of tax-exempt interest income,
was 37.7% and 38.5%, respectively.
Discontinued
Operations
On April 23, 2008, Nathan’s completed the
sale of its wholly-owned subsidiary, NF Roasters Corp. (“NF Roasters”), to
Roasters Asia Pacific (Cayman) Limited. Pursuant to the Stock
Purchase Agreement, Nathan’s sold all of the stock of NF Roasters for $4,000,000
in cash.
Nathan’s
realized a gain on the sale of NF Roasters of $3,656,000 net of professional fees
of $39,000, and recorded income
taxes of $1,289,000 on the gain during the fifty-two weeks ended March 29,
2009. Nathan’s has
determined that it will not have any significant cash flows or continuing
involvement in the ongoing operations of NF Roasters. Therefore, the results of
operations for NF Roasters, including the gains on disposal, have been presented
as discontinued operations for all periods presented.
On June
7, 2007, Nathan’s completed the sale of Miami Subs to Miami Subs Capital
Partners I, Inc. (“Purchaser”). Pursuant to the Stock Purchase Agreement (“MSC
Agreement”), Nathan’s sold all of the stock of Miami Subs in exchange for
$3,250,000, consisting of $850,000 in cash and the MSC Note. The MSC
Note bears interest at 8% per annum, and is secured by a lien on all of the
assets of the Purchaser and by the personal guarantees of two principals of the
Purchaser. The Purchaser may also prepay the MSC Note at any time. In the event
the MSC Note was fully repaid within one year of the sale, Nathan’s had agreed
to reduce the amount due by $250,000. Due to the ability to prepay the loan and
reduce the amount due, the recognition of the additional $250,000 was initially
deferred. The MSC Note was not prepaid within the requisite timeframe and
Nathan’s recognized the deferred amount of $250,000 as additional gain and
initially recorded estimated income taxes of $92,000 during the first quarter
ended June 29, 2008. Effective August 31, 2008, Nathan’s and the Purchaser
agreed to extend the due date of the MSC Note from its initial four-year term
until April 2014, to reduce the monthly payments and to settle certain claims
under the MSC Agreement. In accordance with the MSC Agreement,
Nathan’s retained ownership of Miami Subs’ then-owned corporate office in Fort
Lauderdale, Florida.
Nathan’s
initially realized a gain on the sale of Miami Subs of $983,000, net of
professional fees of $37,000 and recorded income taxes of $356,000 on the gain
during the fiscal 2008 period. Nathan’s also recognized an additional gain of
$250,000, or $153,000 net of tax, during the fiscal 2009 period, resulting from
the contingent consideration which was deferred at the time of sale. Nathan’s
has determined that it will not have any significant cash flows or continuing
involvement in the ongoing operations of Miami Subs. Therefore, the results of
operations for Miami Subs, including the gains on disposal, have been presented
as discontinued operations for all periods presented.
During the fiscal 2008 period, Nathan’s
completed a Lease Termination Agreement with respect to three leased
properties in Fort Lauderdale, Florida, with its landlord, and CVS 3285 FL,
L.L.C., (“CVS”) to sell its leasehold interests to CVS for $2,000,000. As the
properties were subject to certain sublease and management agreements between
Nathan’s and the then-current occupants, Nathan’s made payments to, or forgave
indebtedness of, the then-current occupants of the properties and paid brokerage
commissions of $494,000 in the aggregate. Nathan’s made the
properties available to CVS by May 29, 2007, and Nathan’s received
the proceeds of the sale on June 5, 2007. Nathan’s recognized a gain of
$1,506,000 and recorded income taxes of $557,000 during the fiscal 2008 period.
The results of operations for these properties, including the gain on disposal,
have been included as discontinued operations for all periods
presented.
Fiscal
year ended March 30, 2008 compared to Fiscal year ended March 25,
2007
Revenues from Continuing
Operations
Total
sales increased by $2,834,000 or 8.5% to $36,259,000 for the fifty-three weeks
ended March 30, 2008 ("fiscal 2008 period") as compared to $33,425,000 for the
fifty-two weeks ended March 25, 2007 ("fiscal 2007 period"). We
estimate that sales which arose during the additional week included in the
fiscal 2008 period were approximately $528,000. Sales from the Branded Product
Program increased by 10.0% to $20,647,000 for the fiscal 2008 period as compared
to sales of $18,774,000 in the fiscal 2007 period. This increase was primarily
attributable to increased sales volume of 8.3%. During the fiscal
2008 period, approximately 1,200 new accounts were opened. Total Company-owned
restaurant sales (representing five comparable Nathan’s restaurants and one
seasonal restaurant) increased by 10.8% to $13,142,000 as compared to
$11,863,000 during the fiscal 2007 period. During the fiscal 2008 period, we
experienced very favorable weather conditions during the summer season that had
a positive impact on sales at our Coney Island locations. However, during
December 2007, the unfavorable weather conditions in the Northeast had a
negative impact on sales at our Company-owned locations as compared to December
2006. Nevertheless, the overall weather conditions during the fiscal
2008 period had a positive impact on the sales of our Company-owned restaurants.
During the fiscal 2008 period, sales to our television retailer were
approximately $318,000 lower than the fiscal 2007 period. Our television
retailer reduced its number of special food airings during the fiscal 2008
period. As a result, Nathan’s did not run a “Today’s Special Value” which ran
during the first quarter fiscal 2007. Nathan’s products were on air 55 times
during the fiscal 2008 period as compared to 59 times during the fiscal 2007
period, which included eight “Today’s Special Value” airings.
Franchise
fees and royalties increased by $523,000 or 11.8% to $4,962,000 in the fiscal
2008 period compared to $4,439,000 in the fiscal 2007 period. Franchise
royalties were $4,131,000 in the fiscal 2008 period as compared to $3,950,000 in
the fiscal 2007 period. Franchise restaurant sales increased by $3,034,000 to
$96,713,000 in the fiscal 2008 period as compared to $93,679,000 in the fiscal
2007 period. Comparable domestic franchise sales (consisting of 136 Nathan’s
restaurants) increased by $3,318,000 or 4.4% to $78,763,000 in the fiscal 2008
period as compared to $75,445,000 in the fiscal 2007 period. Approximately
$1,500,000 of the increase was attributable to the additional week in the fiscal
2008 period. During December 2007, the unfavorable weather conditions in the
Northeast had a negative impact on sales at a number of franchised locations as
compared to December 2006. Based upon the overall comparable restaurant sales
increase during the fiscal 2008 period, we believe that weather conditions had a
positive impact on franchised restaurant sales. During the fiscal 2008 period,
Nathan’s earned $56,000 of distributor royalties from sales pursuant to our
Branded Menu Program as compared to $17,000 during the fiscal 2007 period. From
June 1, 2007 through the end of the fiscal 2008 period, we earned monthly
royalties totaling $60,000 from the sale of our products within the Miami Subs
restaurant system. During the fiscal 2008 period, we also recorded reserves of
$19,000 for royalties deemed to be uncollectible as compared to the fiscal 2007
period, when we recognized $36,000 of royalty income that was previously deemed
to be uncollectible. At March 30, 2008, 224 domestic and
international franchised or Branded Menu Program franchised outlets were
operating as compared to 196 domestic and
international franchised or licensed units at March 25, 2007. Royalty income
from two domestic
franchised locations was deemed unrealizable during the fifty-three weeks ended
March 30, 2008. No domestic franchised locations were deemed non-performing
during the fifty-two weeks ended March 25, 2007. Domestic franchise fee income
was $586,000 in the fiscal 2008 period as compared to $331,000 in the fiscal
2007 period. International franchise fee income was $160,000 in the fiscal 2008
period, as compared to $158,000 during the fiscal 2007 period. During the fiscal
2008 period, 46 new franchised units opened, including 28 Branded Menu Program
outlets, four units in Kuwait and one unit in the Dominican Republic. During the fiscal 2007
period, 21 new franchised units were opened including two test Branded Menu
Program outlets, four units in Kuwait, and one unit in the Dominican Republic
and Japan. We also
recognized $85,000 in connection with a forfeited franchise agreement and a
development agreement during the fiscal 2008 period.
License
royalties increased by $618,000 or 14.6% to $4,849,000 in the fiscal 2008 period
as compared to $4,231,000 in the fiscal 2007 period. Generally, our licensees
report sales and royalties based on their own fiscal periods or a calendar
basis. Therefore we do not believe the additional week in the fiscal 2008 period
had a significant impact on royalties. Total royalties earned on sales of hot
dogs from our retail and foodservice license agreements of $3,616,000 increased
by $279,000 or 8.4% as a result of higher licensee sales during the fiscal 2008
period. Royalties earned from SFG, primarily from the retail sale of
hot dogs, were $3,154,000 during the fiscal 2008 period as compared to
$2,975,000 during the fiscal 2007 period. The fiscal 2007 period included
approximately $168,000 relating to prior year pricing discrepancies, resulting
from an internal review performed by our hot dog licensee of its reported
sales. We also earned higher royalties of $219,000 from our agreements for the
sale of Nathan’s pet treats, hors d’oeuvres and sales of hot dog and hamburger
rolls at retail. Net royalties from all other license agreements in the fiscal
2008 period were $15,000 higher than the fiscal 2007 period.
Interest
income was $1,084,000 in the fiscal 2008 period versus $648,000 in the fiscal
2007 period, primarily due to higher interest earned on the increased amount of
marketable securities owned during the fiscal 2008 period as compared to the
fiscal 2007 period. Interest income during the fiscal 2008 period
also included $155,000 earned on the MSC Note held in connection with the sale
of Miami Subs on June 7, 2007.
Other
income was $71,000 in the fiscal 2008 period versus $60,000 in the fiscal 2007
period. This increase was primarily due to a one-time $30,000 consent fee earned
in connection with a licensee’s refinancing.
Costs and Expenses from
Continuing Operations
Cost of
sales increased by $2,990,000 to $27,070,000 in the fiscal 2008 period from
$24,080,000 in the fiscal 2007 period. Our gross profit (representing the
difference between sales and cost of sales) was $9,189,000 or 25.3% during the
fiscal 2008 period as compared to $9,345,000 or 28.0% during the fiscal 2007
period. This reduced margin is primarily due to the higher cost of beef,
especially in connection with the Branded Product Program, where the cost of our
hot dogs was approximately 8.2% higher during the fiscal 2008 period than the
fiscal 2007 period. Commodity costs of our hot dogs during the fiscal
2007 period had decreased until January 2007, when prices began to increase.
During the first quarter of the fiscal 2008 period, our cost of hot dogs
continued to escalate, hitting a peak in May 2007. Since then, prices were
lower, but were still higher than they were during the comparable fiscal 2007
period. In addition, during the second quarter of the fiscal 2008 period, we
implemented a price increase for our Branded Product Program in an effort to
mitigate the increased cost of beef. Overall, our Branded Product
Program incurred higher costs totaling approximately $2,402,000. This increase
is the result of the increased cost of product and higher sales volume during
the fiscal 2008 period as compared to the fiscal 2007 period. Beginning with the
second quarter of the fiscal 2008 period, we began to realize the effects of the
Branded Products price increase that took effect on June 15,
2007. During the fiscal 2008 period, the cost of restaurant sales at
our six Company-owned units was $7,856,000 or 59.8% of restaurant sales as
compared to $7,088,000 or 59.7% of restaurant sales in the fiscal 2007
period. During the fiscal 2008 period, we experienced higher food
costs which were partly offset by lower labor costs as a percentage of sales.
During the first quarter of the fiscal 2008 period, we increased select menu
prices between 5% and 10% in an attempt to offset some of the increased cost of
product in our Company-owned restaurants. Cost of sales also decreased by
$180,000 in the fiscal 2008 period primarily due to lower sales volume to our
television retailer.
Restaurant
operating expenses increased by $70,000 to $3,257,000 in the fiscal 2008 period
from $3,187,000 in the fiscal 2007 period. The increase during the fiscal 2008
period when compared to the fiscal 2007 period resulted primarily from higher
marketing costs of $40,000, utility costs of $32,000, and maintenance costs of
$21,000, which were partly offset by lower insurance costs of
$50,000. During the fiscal 2008 period our utility costs were
approximately 4.8% higher than the fiscal 2007 period.
Depreciation
and amortization was $764,000 in the fiscal 2008 period as compared to $742,000
in the fiscal 2007 period.
General
and administrative expenses increased by $710,000 to $8,926,000 in the fiscal
2008 period as compared to $8,216,000 in the fiscal 2007
period. The difference in general and administrative expenses was due to higher
legal fees of $280,000 during the fiscal 2008 period primarily associated with
Nathan’s litigation against SFG, higher compensation costs of $172,000
(approximately $82,000 relates to the additional week), higher business
development costs of $72,000 in connection with franchising and the Branded
Product Program and a $64,000 increase in Nathans’ stock-based compensation
expense. These cost increases were partly offset by lower accounting fees. We
incurred $93,000 in costs related to compliance with SOX during the fiscal 2008
period compared to $172,000 incurred in the fiscal 2007 period. These savings
were partly offset by higher audit fees in the fiscal 2008 period, related to
Nathans’ first audit under SOX Section 404, requiring Nathans’ auditor to audit
Nathans’ internal controls over financial reporting.
Provision for Income Taxes
from Continuing Operations
In the
fiscal 2008 period, the income tax provision was $2,427,000 or 33.7% of income
from continuing operations before income taxes as compared to $2,306,000 or
35.1% of income from continuing operations before income taxes in the fiscal
2007 period. For the fifty-three weeks ended March 30, 2008, Nathans’ tax
provision, excluding the effects of tax-exempt interest income, was 38.5% during
the fiscal 2008 period as compared to 38.9% for the fifty-two weeks ended March
25, 2007 during the fiscal 2007 period.
Discontinued
Operations
On June
7, 2007, Nathan’s completed the sale of its wholly-owned subsidiary, Miami Subs
to Miami Subs Capital Partners I, Inc. effective as of May 31, 2007. Pursuant to
the MSC Agreement, Nathan’s sold all of the stock of Miami Subs in exchange for
$3,250,000, consisting of $850,000 in cash and the MSC Note in the principal
amount of $2,400,000. Nathan’s realized a gain on the sale of $983,000, net of
professional fees of $37,000, and recorded income taxes of $356,000 on the gain
during the fifty-three week period ended March 30, 2008. The results of Miami
Subs, including the fiscal 2008 period gain on disposal, have been included as
discontinued operations for the fiscal 2008 and fiscal 2007
periods.
On
January 26, 2006, two of Nathan’s wholly-owned subsidiaries entered into a Lease
Termination Agreement with respect to three leased properties in Fort
Lauderdale, Florida, with its landlord and CVS to sell our leasehold interests
to CVS for $2,000,000. As the properties were subject to certain sublease and
management agreements between Nathan’s and the then-current occupants, Nathan’s
made payments to, or forgave indebtedness of, the then-current occupants of the
properties and paid brokerage commissions of $494,000 in the aggregate. The
properties were made available to the buyer by May 29, 2007 and we received the
sale proceeds on June 5, 2007. Nathan’s
recognized a gain of $1,506,000 and recorded income taxes of $557,000 during the
fiscal 2008 period. The results of operations for these properties, including
the gain on disposal, have been included as discontinued operations for the
fiscal 2008 and fiscal 2007 periods.
During
the fiscal 2007 period, income of $39,000 and a gain of $400,000 were recorded
into income from discontinued operations resulting from the collection of
proceeds from the sale of our leasehold interest and certain reimbursable
operating expenses that were not reasonably assured as of March 26, 2006 in
connection with the fiscal 2006 sale of vacant property at Coney
Island.
Off-Balance
Sheet Arrangements
At March
29, 2009, we were not a party to any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on the Company’s
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to investors. We previously guaranteed a severance agreement
totaling $115,000 which had been recorded by Nathan’s on the accompanying
balance sheet. The severance agreement has been fully satisfied without any
payments being made by Nathan’s under the guaranty. We have concluded our
purchase commitment to acquire a total of 1,785,000 pounds of hot
dogs through August 2008. In January 2009, the Company
entered into another commitment, as modified, to purchase approximately 2.6
million pounds of hot dogs through September 2009.
Liquidity
and Capital Resources
Cash and
cash equivalents at March 29, 2009 aggregated $8,679,000, decreasing by
$5,702,000 during the fiscal 2009 period. At March 29, 2009,
marketable securities were $25,670,000 compared to $20,950,000 at March 30, 2008
and net working capital decreased to $35,303,000 from $35,650,000 at March 30,
2008.
Cash
provided by operations of $4,101,000 in the fiscal 2009 period is primarily
attributable to net income of $7,482,000, less gains of $3,906,000 from the
sales of NF Roasters and Miami Subs, which were partly offset by other non-cash
items of $1,688,000, net. Changes in Nathan’s
operating assets and liabilities decreased cash by $1,163,000, resulting
primarily from increased accounts and other receivables of $1,211,000, which
were partly offset by decreases in prepaid expenses of $167,000 and inventory of
$160,000. The net increase in accounts and other receivables relates primarily
to a receivable of $516,000 for a property tax recovery and sales from the
Branded Product Program of $595,000.
Cash used
in investing activities was $961,000 in the fiscal 2009 period, primarily
related to our investment of $8,497,000 in available-for-sale securities. We
received cash proceeds from the sale of NF Roasters in the amount of $3,961,000,
$3,682,000 from the redemption of maturing available-for-sale securities and
$406,000 from the receipt of all scheduled payments on the MSC Note
receivable. We also incurred capital expenditures of $513,000.
Cash was
used in financing activities of $8,842,000 in the fiscal 2009 period, primarily
for the purchase of 693,806 shares of the Company’s common stock at a
cost of $9,712,000 pursuant to stock repurchase plans authorized by the Board of
Directors. Cash was received from the proceeds of employee stock
option exercises of $413,000 and the expected realization of the associated tax
benefit of $457,000.
For the
thirteen weeks and fiscal year ended March 29, 2009, the Company repurchased
104,013 shares at a cost of $1,269,000 and 693,806 shares at a cost of
$9,712,000, respectively. Through March 29, 2009, Nathan’s purchased a total of
2,693,806 shares of common stock at a cost of approximately $18,798,000 under
all of its stock repurchase programs, which included the shares purchased during
the thirteen weeks and fiscal year ended March 29, 2009, as well as completion
of the third stock repurchase plan previously authorized by the Board of
Directors. On November 13, 2008, Nathan’s Board of Directors authorized a fourth
stock repurchase plan for the purchase of up to 500,000 shares of its common
stock on behalf of the Company; there have been purchases of 193,806 shares at a
cost of $2,400,000 under such plan as of March 29, 2009. There are 306,194
remaining shares authorized to be repurchased under Nathan’s fourth stock
repurchase plan.
Purchases may be made from time to time, depending on market conditions, in open
market or privately negotiated transactions, at prices deemed appropriate by
management. There is no set time limit on the
repurchases.
On
February 5, 2009, Nathan’s and Mutual Securities, Inc. (“MSI”) entered into an
agreement (the 10b5-1 Agreement”) pursuant to which MSI has been authorized to
purchase shares of the Company’s common stock, having a value of up
to an aggregate $3.6 million, which purchases may commence on March 16,
2009. The 10b5-1 Agreement shall terminate no later than March 15,
2010. The 10b5-1 Agreement was adopted under the safe harbor provided by Rule
10b5-1 of the Securities Exchange Act of 1934 in order to assist the Company in
implementing its previously announced fourth stock purchase plan for the
purchase of up to 500,000 shares.
Management
believes that available cash, marketable securities and cash generated from
operations should provide sufficient capital to finance our operations and stock
repurchases for at least the next twelve months. Effective October 1,
2008, Nathan’s decided that it would not extend its $7,500,000 uncommitted bank
line of credit, having never borrowed any funds under that line of
credit.
Nathan’s
philosophy with respect to maintaining a balance sheet with a significant amount
of cash and marketable securities reflects our views of maintaining readily
available capital to expand our existing business and pursue any new business
opportunities which might present themselves. Nathan’s believes in
the value of returning its cash to its shareholders through the repurchase of
its outstanding common stock and continuously evaluates this opportunity.
Nathan’s routinely assesses its investment management approach with respect to
our current and potential capital requirements.
We expect
that we will continue the stock repurchase program, make additional investments
in certain existing restaurants and support the growth of the Branded Product
Program in the future and fund those investments from our operating cash flow.
We may also incur capital expenditures in connection with opportunistic
investments on a case-by-case basis.
At March
29, 2009, there were four restaurant properties that we lease from third
parties which we sublease to franchisees and a non-franchisee. We remain
contingently liable for all costs associated with these properties including
rent, property taxes and insurance. We may incur future cash payments with
respect to such properties, consisting primarily of future lease payments,
including costs and expenses associated with terminating any of such
leases.
The following schedule represents
Nathan’s cash contractual obligations and commitments by maturity (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
Cash Contractual Obligations
(A)
|
|
Total
|
|
|
1 Year
|
|
|
1 - 3 Years
|
|
|
3 - 5 Years
|
|
|
5 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment
Agreements
|
|
$ |
3,511 |
|
|
$ |
1,236 |
|
|
$ |
1,375 |
|
|
$ |
500 |
|
|
$ |
400 |
|
Operating
Leases
|
|
|
10,980 |
|
|
|
1,429 |
|
|
|
1,410 |
|
|
|
1,085 |
|
|
|
7,056 |
|
Gross
Cash Contractual Obligations
|
|
|
14,491 |
|
|
|
2,665 |
|
|
|
2,785 |
|
|
|
1,585 |
|
|
|
7,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sublease
Income
|
|
|
1,276 |
|
|
|
390 |
|
|
|
502 |
|
|
|
286 |
|
|
|
98 |
|
Net
Cash Contractual Obligations
|
|
$ |
13,215 |
|
|
$ |
2,275 |
|
|
$ |
2,283 |
|
|
$ |
1,299 |
|
|
$ |
7,358 |
|
(A)
|
In
January 2009, Nathan’s entered into a purchase commitment, as amended, to
acquire 2,600,000 pounds of hot dogs at a cost of approximately
$4,368,000.
|
Inflationary
Impact
We
do not believe that general inflation has materially impacted earnings during
the fiscal years ended March 29, 2009, March 30, 2008 and March 25,
2007. However, during the fiscal 2009 period, we have experienced
significant cost increases for certain food products, distribution costs and
utilities. Our commodity costs for beef have been very volatile since fiscal
2004 and the cost of beef continued to set new highs during the summer of 2008,
before declining during the third quarter fiscal 2009. These costs
have declined by approximately 17.5% from September 2008 through the end of the
fiscal 2009 period. Nathan’s was able to partly mitigate some of the
increase by entering into a purchase commitment in January 2008 for
approximately 35% of its projected hot dog purchases during the period from
April through August 2008. As a result of the
purchase commitment, Nathan’s actual cost of hot dogs for its Branded Product
Program was approximately 10.7% higher than its cost during the fiscal 2008
period, instead of being approximately 13.5% higher. In addition, the cost of
beef for our fiscal 2008 period was approximately 8.2% higher than our prior
fiscal year. Although we are
unable to predict the future cost of our hot dogs, we expect to experience continued price
volatility for our beef products during fiscal 2010. Since January 2008, we
have experienced cost increases for a number of our other food products. We
expect to incur higher commodity costs for poultry, fish and potatoes during
fiscal 2010. In January 2009, we entered into an additional purchase
commitment to acquire approximately 2,600,000 pounds of hot dogs, as
amended at a cost of approximately $4,368,000 for the period April
to September 2009. We are presently unable to determine if the existing
purchase commitment will reduce our costs during the fiscal 2010
period. Historically, Nathan’s increased beef prices in response to
the increased commodity costs and will seek to do so in future periods to the
extent commercially feasible. In addition, notwithstanding the decline in the
price of oil over the past nine months, for the past four years we have
continued to experience the impact of higher oil prices in the form of higher
distribution costs for our food products and higher utility costs in our
Company-owned restaurants.
From time
to time, various Federal and New York State legislators have proposed changes to
the minimum wage requirements. On May 25, 2007, former President Bush signed
legislation which increased the Federal minimum wage to $5.85 per hour,
effective July 24, 2007, with increases to $6.55 per hour effective July 24,
2008 and to $7.25 per hour effective July 24, 2009. The New York State minimum
wage, where our Company-owned restaurants are located, was increased to $7.15
per hour on January 1, 2007 and will increase to $7.25 per hour on July 24,
2009. These wage increases have not had a material impact on our results of
operations or financial position as the vast majority of our employees are paid
at a rate higher than the minimum wage. Although we currently
only operate five Company-owned restaurants, we believe that significant
increases in the minimum wage could have a significant financial impact on our
financial results and the results of our franchisees. Continued increases in
labor, food and other operating expenses could adversely affect our operations
and those of the restaurant industry and we might have to further reconsider our
pricing strategy as a means to offset reduced operating margins.
The
Company’s business, financial condition, operating results and cash flows can be
impacted by a number of factors, including but not limited to those set forth
above in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” any one of which could cause our actual results to vary
materially from recent results or from our anticipated future results. For a
discussion identifying additional risk factors and important factors that could
cause actual results to differ materially from those anticipated, also see the
discussions in “Forward-Looking Statements,” “Risk Factors” and “Notes to
Consolidated Financial Statements” in this Form 10-K.
Item 7A. Quantitative and
Qualitative Disclosures About Market Risk.
Cash
and Cash Equivalents
We have
historically invested our cash and cash equivalents in money market funds or
short term, fixed rate, highly rated and highly liquid instruments which are
reinvested when they mature. Although these 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
March 29, 2009, Nathan’s cash and cash equivalents aggregated $8,679,000.
Earnings on these cash and cash equivalents would increase or decrease by
approximately $22,000 per annum for each 0.25% change in interest
rates.
Marketable
Securities
We have
invested our marketable securities in intermediate term, fixed rate, highly
rated and highly liquid instruments. These investments are subject to
fluctuations in interest rates. As of March 29, 2009, the market value of
Nathan’s marketable securities aggregated $25,670,000. Interest income on these
marketable securities would increase or decrease by approximately $64,000 per
annum for each 0.25% change in interest rates. The following chart presents the
hypothetical changes in the fair value of the marketable investment securities
held at March 29, 2009 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
|
|
Fair
|
|
Increase of X Basis points
|
|
|
(150BPS)
|
|
(100BPS)
|
|
(50BPS)
|
|
Value
|
|
+50BPS
|
|
+100BPS
|
|
+150BPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
notes and bonds
|
$
|
26,728,000
|
|
$
|
26,484,000
|
|
$
|
26,116,000
|
|
$
|
25,670,000
|
|
$
|
25,215,000
|
|
$
|
24,756,000
|
|
$
|
24,301,000
|
|
Borrowings
The
interest rate on our prior borrowings was generally determined based upon the
prime rate and was subject to market fluctuation as the prime rate changed, as
determined within each specific agreement. At March 29, 2009, we had
no outstanding indebtedness. If we were to borrow money in the future, such
borrowings would be based upon the then prevailing interest rates. We do not
anticipate entering into interest rate swaps or other financial instruments to
hedge our borrowings. We maintained a $7,500,000 credit line at the prime rate,
which we decided to let expire as of October 1, 2008. We never borrowed any
funds under this credit line. Accordingly, we do not believe that
fluctuations in interest rates would have a material impact on our financial
results.
Commodity
Costs
The cost
of commodities is subject to market fluctuation. In January 2008, we entered
into a purchase commitment to acquire approximately 1,785,000 pounds of hot dogs
at $1.535 per pound through August 2008. In January 2009, we entered an
additional purchase commitment, as amended, to acquire 2,600,000 pounds of
hot dogs through September 2009. We may attempt to enter into similar
arrangements in the future. With the exception of those commitments,
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, we expect that the majority of our future
commodities purchases will be subject to changes in the prices of such
commodities. Generally, we have attempted 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 10.0%
in the cost of our food and paper products for the fifty-two weeks ended March
29, 2009 would have increased or decreased our cost of sales by approximately
$2,306,000.
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 8. Financial Statements and
Supplementary Data.
The
consolidated financial statements and supplementary data are submitted as a
separate section of this report beginning on Page F-1.
Item
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None
Item 9A. Controls and
Procedures.
Evaluation
of 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 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, as of the end of the period covered by
this report, our disclosure controls and procedures were effective to ensure
that the 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 and that such
information is accumulated and communicated to our management, including our
principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure.
Management’s
Annual Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining an adequate system of
internal control over financial reporting. Our internal control over financial
reporting includes those policies and procedures that:
|
·
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of our
assets;
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of our financial statements in accordance with generally
accepted accounting principles in the United States, and that our receipts
and expenditures are being made only in accordance with authorizations of
our management and directors; and
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on the financial
statements.
|
Management
has assessed the effectiveness of our system of internal control over financial
reporting as of March 29, 2009. In making this assessment, management
used the framework in Internal
Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). Based on our
assessment and the criteria set forth by COSO, management believes that Nathan’s
maintained effective internal control over financial reporting as of March 29,
2009. The effectiveness of our internal control over financial
reporting as of March 29, 2009, has been audited by Grant Thornton LLP, an
independent registered public accounting firm which has also audited our
consolidated financial statements, as stated in its attestation report which is
included herein.
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal controls over financial reporting that occurred
during the thirteen weeks ended March 29, 2009 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. Our
disclosure controls and procedures are designed to provide reasonable assurance
of achieving their objectives and our Chief Executive Officer, Chief Operating
Officer and Chief Financial Officer have concluded that such controls and
procedures are effective at the reasonable assurance level.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Shareholders
Nathan’s Famous, Inc. and
Subsidiaries
We have
audited Nathan’s Famous, Inc. (a Delaware Corporation) and subsidiaries (the
“Company”) internal control over financial reporting as of March 29, 2009, based
on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. In our opinion, Nathan’s
Famous, Inc. maintained, in all material respects, effective internal control
over financial reporting as of March 29, 2009, based on criteria established in
Internal Control—Integrated
Framework issued by COSO.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets as of March 29,
2009 and March 30, 2008, and the related consolidated statements of earnings,
stockholders’ equity and cash flows for the fifty-two weeks ended March 29,
2009, the fifty-three weeks ended March 30, 2008 and the fifty-two weeks ended
March 25, 2007 and our report dated June 9, 2009 expressed an unqualified
opinion thereon and contains an explanatory paragraph related to the adoption of
Financial Accounting Standards Board Statement No. 123(R), Share-Based Payment
on March 27, 2006 and Financial Accounting Standards Board Interpretation No.
48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB
Statement No. 109, Accounting for Income Taxes” on March 26, 2007.
/s/ GRANT THORNTON LLP
Melville,
New York
June 9,
2009
PART
III
Item 10. Directors,
Executive Officers and Corporate Governance.
The
information required in response to this Item is incorporated herein by
reference from our proxy statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, not later than 120 days after the end of
the fiscal year covered by this Report.
Our Board
of Directors has adopted a Financial Officer Code of Ethics applicable to the
Company’s Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer and all other members of the Company’s Finance Department. This Code of
Ethics is posted on the Company’s website within a broader Code of Business
Conduct and Ethics at www.nathansfamous.com in the Investor Relations section.
We intend to satisfy the disclosure requirement under Item 10 of Form 8-K
regarding an amendment to, or a waiver from, the provision of our Code of Ethics
that applies to our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions and that relates to any element of such provision of our Code of
Ethics by posting such information on our website within four business days of
the date of such amendment or waiver. In the case of a waiver, the nature of the
waiver, the name of the person to whom the waiver was granted and the date of
the waiver will also be disclosed.
Item
11. Executive
Compensation.
The
information required in response to this Item is incorporated herein by
reference from our proxy statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, not later than 120 days after the end of
the fiscal year covered by this Report.
Item
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
The
information required in response to this Item is incorporated herein by
reference from our proxy statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, not later than 120 days after the end of
the fiscal year covered by this Report.
Item 13. Certain
Relationships and Related Transactions, and Director
Independence.
The
information required in response to this Item is incorporated herein by
reference from our proxy statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, not later than 120 days after the end of
the fiscal year covered by this Report.
Item
14. Principal Accountant Fees and
Services.
Audit
Fees
We were
billed by Grant Thornton LLP the aggregate amount of approximately $369,000 in
respect of fiscal 2009 and $352,000 in respect of fiscal 2008 for fees for
professional services rendered for the audit of our annual financial statements
and review of our financial statements included in our Forms 10-Q.
Audit-Related
Fees
Grant
Thornton LLP did not render any assurance and related services reasonably
related to the performance of the audit and review of our financial statements,
other than as set forth above, for fiscal 2009 and 2008 and, accordingly, did
not bill for any such services.
Tax
Fees
Grant
Thornton LLP did
not render any tax compliance, tax advice or tax planning services for fiscal
2009 and 2008 and, accordingly, did not bill for any such
services.
All
Other Fees
Grant
Thornton LLP did not render any other services, other than as set forth above,
for fiscal 2009 and 2008 and, accordingly, did not bill for any such
services.
Pre-Approval
Policies
Our Audit
Committee has not adopted any pre-approval policies. Instead, the Audit
Committee will specifically pre-approve the provision by Grant Thornton LLP of
all audit and non-audit services.
Our Audit
Committee approved all of the services provided by Grant Thornton LLP and
described in the preceding paragraphs.
PART
IV
Item
15. Exhibits and Financial Statement
Schedules.
(a)
(1) Consolidated Financial Statements
The
consolidated financial statements listed in the accompanying index to the
consolidated financial statements and schedule on Page F-1 are filed as part of
this Report.
(2) Financial
Statement Schedule
The consolidated financial statement
schedule listed in the accompanying index to the consolidated financial
statements and schedule on Page F-1 is filed as part of this
Report.
(3) Exhibits
Certain of the following exhibits were
previously filed as exhibits to other reports or registration statements filed
by the Registrant under the Securities Act of 1933 or under the Securities
Exchange Act of 1934 and are therefrom incorporated by
reference.
Exhibit
|
|
|
No.
|
|
Exhibit
|
|
|
|
3.1
|
|
Certificate
of Incorporation. (Incorporated by reference to Exhibit 3.1 to
Registration Statement on Form S-1 No. 33- 56976.)
|
3.2
|
|
Amendment
to the Certificate of Incorporation, filed December 15, 1992.
(Incorporated by reference to Exhibit 3.2 to Registration Statement on
Form S-1 No. 33-56976.)
|
3.3
|
|
By-Laws,
as amended. (Incorporated by reference to Exhibit 3.1 to Form 8-K dated
November 1, 2006.)
|
4.1
|
|
Specimen
Stock Certificate. (Incorporated by reference to Exhibit 4.1 to
Registration Statement on Form S-1 No. 33-56976.)
|
4.2
|
|
Specimen
Rights Certificate. (Incorporated by reference to Exhibit 2 to
Form 8-A/A dated December 10, 1999.)
|
4.3
|
|
Third
Amended and Restated Rights Agreement dated as of December 10, 1999
between Nathan’s Famous, Inc. and American Stock Transfer and Trust
Company (Incorporated by reference to Exhibit 2 to Registration Statement
on Form 8-A/A dated December 10, 1999.)
|
4.4
|
|
Amendment
No. 1 to Third Amended and Restated Rights Agreement dated as of June 15,
2005 between Nathan’s Famous, Inc. and American Stock Transfer and Trust
Company. (Incorporated by reference to Exhibit 4.1 to Current
Report filed on Form 8-K dated June 15, 2005.)
|
4.5
|
|
Amendment
No. 2 to Third Amended and Restated Rights Agreement dated as of June 4,
2008 between Nathan’s Famous, Inc. and American Stock Transfer and Trust
Company. (Incorporated by reference to Exhibit 4.1 to Current Report filed
on Form 8-K dated June 6, 2008.)
|
4.6
|
|
Rights
Agreement dated as of June 4, 2008 between Nathan’s Famous, Inc. and
American Stock Transfer and Trust Company. (Incorporated by reference to
Exhibit 4.2 to Current Report filed on Form 8-K dated June 6,
2008.)
|
10.1
|
|
Employment
Agreement with Wayne Norbitz, dated December 28,
1992. (Incorporated by reference to Exhibit 10.1 to
Registration Statement on Form S-1 No. 33-56976.)
|
10.2
|
|
Leases
for premises at Coney Island, New York, as follows:
(Incorporated by reference to Exhibit 10.3 to Registration Statement on
Form S-1 No. 33-56976.)
|
|
|
a) Lease,
dated November 22, 1967, between Nathan’s Realty Associates and the
Company.
|
|
|
b) Lease,
dated November 22, 1967, between Ida's Realty Associates and the
Company.
|
10.3
|
|
Leases
for the premises at Yonkers, New York, as
follows: (Incorporated by reference to Exhibit 10.4 to
Registration Statement on Form S-1 No. 33-56976.)
|
|
|
a) Lease
Modification of Land and Building Lease between the Yonkers Corp. and the
Company, dated November 19, 1980;
|
|
|
b)
Lease Modification of Land and Building Lease between 787 Central Park
Avenue, Inc., and the Company dated May 1,
1980.
|
10.4
|
|
Lease
with NWCM Corp. for premises at Oceanside, New York, dated March 14,
1975. (Incorporated by reference to Exhibit 10.5 to
Registration Statement on Form S-1 No. 33-56976.)
|
10.5
|
|
1992
Stock Option Plan, as amended. (Incorporated by reference to Exhibit 10.8
to Registration Statement on Form S-8 No.
33-93396.)
|
10.6
|
|
Form
of Standard Franchise Agreement. (Incorporated by reference to
Exhibit 10.12 to Registration Statement on Form S-1 No.
33-56976.)
|
10.7
|
|
401K
Plan and Trust. (Incorporated by reference to Exhibit 10.5 to
Registration Statement on Form S-1 No. 33-56976.)
|
10.8
|
|
Amendment
dated November 8, 1993, to the Employment Agreement, dated December 28,
1992, with Wayne Norbitz. (Incorporated by reference to Exhibit
10.19 to the Annual Report filed on Form 10-K for the fiscal year ended
March 27, 1994.)
|
10.9
|
|
License
Agreement dated as of February 28, 1994, among Nathan’s Famous Systems,
Inc. and SMG, Inc., including amendments and waivers
thereto. (Incorporated by reference to Exhibit 10.21 to the
Annual Report filed on Form 10-K for the fiscal year ended March 27,
1994.)
|
10.10
|
|
Modification
Agreement dated December 31, 1996 to the Employment Agreement
with Wayne Norbitz. (Incorporated by reference to Exhibit 10.1
to the Quarterly Report filed on Form 10-Q for
the fiscal quarter ended December 29, 1996.)
|
10.11
|
|
Amendment
to License Agreement dated as of February 28, 1994, among Nathan’s Famous
Systems, Inc. and SMG, Inc. including waivers and amendments thereto.
(Incorporated by reference to Exhibit 10.2 to the Quarterly Report filed
on Form 10-Q for the fiscal quarter ended December 29,
1996.)
|
10.12
|
|
1998
Stock Option Plan. (Incorporated by reference to Exhibit 4 to Registration
Statement on Form S-8 No. 333-86195.)
|
10.13
|
|
North
Fork Bank Promissory Note. (Incorporated by reference to Exhibit 10.21 to
the Annual Report filed on Form 10-K for the fiscal year ended March 28,
1999.)
|
10.14
|
|
Amendment
No 1. to Employment Agreement with Donald L. Perlyn. (Incorporated by
reference to Exhibit 10.1 to Current Report on Form 8-K dated July 12,
2005.)
|
10.15
|
|
Letter
Agreement between Nathan's Famous, Inc. and Donald Perlyn relating to sale
of Miami Subs Corporation (Incorporated by reference to Exhibit 10.2 to
Current Report on Form 8-K dated July 12, 2005.)
|
10.16
|
|
Employment
Agreement with Donald L. Perlyn effective November 6, 2007. (Incorporated
by reference to Exhibit 10.1 to the Quarterly Report filed on Form 10-Q
for the fiscal quarter ended September 23, 2007.)
|
10.17
|
|
Common
Stock Purchase Warrant issued to Howard M. Lorber dated July 17, 1997.
(Incorporated by reference to Exhibit 4 to Registration Statement on Form
S-8 No. 333-86043.)
|
10.18
|
|
Marketing
Agreement with beverage supplier. (Incorporated by reference to Exhibit
10.25 to the Quarterly Report filed on Form 10-Q for
the fiscal quarter ended June 25, 2000.)
|
10.19
|
|
2001
Stock Option Plan, as amended. (Incorporated by reference to Exhibit 10.1
to Form 8-K dated September 12, 2007.)
|
10.20
|
|
2002
Stock Incentive Plan. (Incorporated by reference to Exhibit 4
to Registration Statement on Form S-8 No.
333-101355.)
|
10.21
|
|
Master
Distributor Agreement with U.S. Foodservice, Inc. dated February 5, 2003.
(Incorporated by reference to Exhibit 10.24 to the Annual Report filed on
Form 10-K for the fiscal year ended March 30, 2003.)
|
10.22
|
|
Restricted
Stock Agreement with Howard M. Lorber. (Incorporated by reference to
Exhibit 10.25 to Annual Report on Form 10-K for the fiscal year ended
March 27, 2005).
|
10.23
|
|
Employment
Agreement with Howard M. Lorber, dated as of December 15,
2006. (Incorporated by reference to Exhibit 10.1 to Form
8-K dated December 15, 2006.)
|
10.24
|
|
Employment
Agreement with Eric Gatoff, dated as of December 15,
2006. (Incorporated by reference to Exhibit 10.2 to Form
8-K dated December 15, 2006.)
|
10.25
|
|
Stock
Purchase Agreement entered into June 7, 2007 effective as of May 31, 2007
by and among Miami Subs Capital Partners I, Inc., Miami Subs Corporation
and Nathan’s Famous, Inc. (Incorporated by reference to Exhibit 10.1 to
Form 8-K dated June 7, 2007.)
|
10.26
|
|
Promissory
Note of Miami Subs Capital Partners I, Inc. (Incorporated by reference to
Exhibit 10.2 to Form 8-K dated June 7,
2007.)
|
10.27
|
|
Stock
Purchase Agreement dated April 23, 2008 by and among Roasters Asia Pacific
(Cayman) Limited, NF Roasters Corp. and Nathan’s Famous, Inc.
(Incorporated by reference to Exhibit 10.1 to Form 8-K dated April 23,
2008.)
|
10.28
|
|
License
Agreement dated April 23, 2008 between Roasters Asia Pacific (Cayman)
Limited and Nathan’s Famous, Inc. (Incorporated by reference to Exhibit
10.2 to Form 8-K dated April 23, 2008.)
|
10.29
|
|
Issuer
Securities Repurchase Instructions, dated June 11, 2008 between Nathan’s
Famous, Inc. and Mutual Securities, Inc. (Incorporated by reference to
Exhibit 10.33 to Form 10-K dated March 30, 2008.)
|
10.30
|
|
10b-5
Issuer Repurchase Instructions, dated February 5, 2009, between Nathan’s
Famous, Inc. and Mutual Securities, Inc. (Incorporated by
reference to Exhibit 10.3 to Form 10-Q for the fiscal quarter ended
December 28, 2008.)
|
10.31
|
|
Settlement
Agreement and Release between Miami Subs Capital Partners I, Inc. dated
October 28, 2008. (Incorporated by reference to Exhibit 10.1 to Form 10-Q
for the fiscal quarter ended September 28, 2008.)
|
10.32
|
|
Amended
and Restated Promissory Note of Miami Subs Capital Partners I, Inc.
(Incorporated by reference to Exhibit 10.2 to Form 10-Q for the fiscal
quarter ended September 28, 2008.)
|
21
|
|
*List
of Subsidiaries of the Registrant.
|
23
|
|
*Consent
of Grant Thornton LLP dated June 9, 2009.
|
31.1
|
|
*Certification
by Eric Gatoff, Chief Executive Officer, pursuant to Rule 13a -
14(a).
|
31.2
|
|
*Certification
by Ronald G. DeVos, Chief Financial Officer, pursuant to Rule 13a -
14(a).
|
32.1
|
|
*Certification
by Eric Gatoff, Chief Executive Officer of 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, Chief Financial Officer of 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.
|
*
Filed herewith.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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 on the 10th day of June,
2009.
Nathan’s
Famous, Inc.
/s/ ERIC GATOFF
|
|
Eric
Gatoff
|
Chief
Executive Officer
|
(Principal
Executive
Officer)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on the 10th day of June, 2009.
/s/ ERIC GATOFF
|
|
Eric
Gatoff
|
Chief
Executive Officer
|
(Principal
Executive Officer)
|
|
|
/s/ HOWARD M. LORBER
|
|
Howard
Lorber
|
Executive
Chairman
|
|
|
/s/ WAYNE NORBITZ
|
|
Wayne
Norbitz
|
President,
Chief Operating Officer and Director
|
|
|
/s/ RONALD G. DEVOS
|
|
Ronald
G. DeVos
|
Vice
President - Finance and Chief Financial Officer
|
(Principal
Financial and Accounting Officer)
|
|
|
/s/ DONALD L. PERLYN
|
|
Donald
L. Perlyn
|
Executive
Vice President and Director
|
|
|
/s/ ROBERT J. EIDE
|
|
Robert
J. Eide
|
Director
|
|
|
/s/ BARRY LEISTNER
|
|
Barry
Leistner
|
Director
|
|
|
/s/ BRIAN GENSON
|
|
Brian
Genson
|
Director
|
|
|
/s/ ATTILIO F. PETROCELLI
|
|
Attilio
F. Petrocelli
|
Director
|
|
|
|
|
Charles
Raich
|
|
Director
|
Nathan’s
Famous, Inc. and Subsidiaries
TABLE
OF CONTENTS
|
|
Page
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-2
|
|
|
|
Consolidated
Balance Sheets
|
|
F-3
|
|
|
|
Consolidated
Statements of Earnings
|
|
F-4
|
|
|
|
Consolidated
Statements of Stockholders’ Equity
|
|
F-5
– F-7
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
F-8
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
F-9
|
|
|
|
Schedule
II - Valuation and Qualifying Accounts
|
|
F-49
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Shareholders
Nathan’s Famous, Inc. and
Subsidiaries
We have
audited the accompanying consolidated balance sheets of Nathan’s Famous, Inc. (a
Delaware Corporation) and subsidiaries (the “Company”) as of March 29, 2009 and
March 30, 2008, and the related consolidated statements of earnings,
stockholders’ equity and cash flows for the fifty-two weeks ended March 29,
2009, the fifty-three weeks ended March 30, 2008 and the fifty-two weeks ended
March 25, 2007. Our audits of the basic financial statements included the
financial statement Schedule II, Valuation and Qualifying Accounts. These
financial statements and financial statement schedule are the responsibility of
the Company’s management. Our responsibility is to express an opinion
on these financial statements and financial statement schedule based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Nathan’s Famous, Inc. and
subsidiaries as of March 29, 2009 and March 30, 2008, and the results of their
operations and their cash flows for the fifty-two weeks ended March 29, 2009,
the fifty-three weeks ended March 30, 2008 and the fifty-two weeks ended March
25, 2007 in conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein
As
discussed in Note B of the notes to consolidated financial statements, on March
27, 2006 the Company has adopted Financial Accounting Standards Board Statement
No. 123(R), Share-Based Payment and on March 26, 2007 the Company adopted
Financial Accounting Standards Board Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109,
Accounting for Income Taxes”.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Nathan’s Famous, Inc.’s internal control over
financial reporting as of March 29, 2009, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO)
and our report dated June 9, 2009 expressed an unqualified opinion
thereon.
/s/ GRANT THORNTON LLP
Melville,
New York
June 9,
2009
Nathan’s
Famous, Inc. and Subsidiaries
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except share and per share amounts)
|
|
March 29, 2009
|
|
|
March 30, 2008
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
8,679 |
|
|
$ |
14,371 |
|
Marketable
securities
|
|
|
25,670 |
|
|
|
20,950 |
|
Accounts
and other receivables, net
|
|
|
4,869 |
|
|
|
3,830 |
|
Note
receivable
|
|
|
290 |
|
|
|
606 |
|
Inventories
|
|
|
668 |
|
|
|
822 |
|
Prepaid
expenses and other current assets
|
|
|
1,326 |
|
|
|
1,493 |
|
Deferred
income taxes
|
|
|
696 |
|
|
|
697 |
|
Current
assets held for sale
|
|
|
- |
|
|
|
13 |
|
Total
current assets
|
|
|
42,198 |
|
|
|
42,782 |
|
|
|
|
|
|
|
|
|
|
Note
receivable
|
|
|
1,466 |
|
|
|
1,305 |
|
Property
and equipment, net
|
|
|
4,126 |
|
|
|
4,428 |
|
Goodwill
|
|
|
95 |
|
|
|
95 |
|
Intangible
asset, net
|
|
|
1,353 |
|
|
|
1,353 |
|
Deferred
income taxes
|
|
|
428 |
|
|
|
436 |
|
Other
assets
|
|
|
158 |
|
|
|
150 |
|
Non-current
assets held for sale
|
|
|
- |
|
|
|
653 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
49,824 |
|
|
$ |
51,202 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
2,857 |
|
|
$ |
2,805 |
|
Accrued
expenses and other current liabilities
|
|
|
3,867 |
|
|
|
4,014 |
|
Deferred
franchise fees
|
|
|
171 |
|
|
|
284 |
|
Current
liabilities held for sale
|
|
|
- |
|
|
|
29 |
|
Total
current liabilities
|
|
|
6,895 |
|
|
|
7,132 |
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
1,080 |
|
|
|
1,137 |
|
Non-current
liabilities held for sale
|
|
|
- |
|
|
|
325 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
7,975 |
|
|
|
8,594 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES (Note L)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value; 30,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
8,305,683 and
8,180,683 shares issued; and 5,611,877 and 6,180,683
|
|
|
|
|
|
|
|
|
shares
outstanding at March 29, 2009 and March 30, 2008,
respectively
|
|
|
83 |
|
|
|
82 |
|
Additional
paid-in capital
|
|
|
49,001 |
|
|
|
47,704 |
|
Deferred
compensation
|
|
|
- |
|
|
|
( 63 |
) |
Retained
earnings
|
|
|
11,228 |
|
|
|
3,746 |
|
Accumulated
other comprehensive income
|
|
|
335 |
|
|
|
225 |
|
|
|
|
60,647 |
|
|
|
51,694 |
|
Treasury
stock, at cost, 2,693,806 and 2,000,000 shares at March 29,
2009
and
March 30, 2008, respectively.
|
|
|
(18,798 |
) |
|
|
(9,086 |
) |
Total
stockholders’ equity
|
|
|
41,849 |
|
|
|
42,608 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
49,824 |
|
|
$ |
51,202 |
|
The
accompanying notes are an integral part of these statements.
Nathan’s
Famous, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF EARNINGS
(in
thousands, except share and per share amounts)
|
|
Fifty-Two
|
|
|
Fifty-Three
|
|
|
Fifty-Two
|
|
|
|
weeks
ended
|
|
|
weeks
ended
|
|
|
weeks
ended
|
|
|
|
March 29, 2009
|
|
|
March 30, 2008
|
|
|
March 25, 2007
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
37,480 |
|
|
$ |
36,259 |
|
|
$ |
33,425 |
|
Franchise
fees and royalties
|
|
|
4,613 |
|
|
|
4,962 |
|
|
|
4,439 |
|
License
royalties
|
|
|
6,009 |
|
|
|
4,849 |
|
|
|
4,231 |
|
Interest
income
|
|
|
1,056 |
|
|
|
1,084 |
|
|
|
648 |
|
Other
income
|
|
|
63 |
|
|
|
71 |
|
|
|
60 |
|
Total
revenues
|
|
|
49,221 |
|
|
|
47,225 |
|
|
|
42,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
28,774 |
|
|
|
27,070 |
|
|
|
24,080 |
|
Restaurant
operating expenses
|
|
|
3,361 |
|
|
|
3,257 |
|
|
|
3,187 |
|
Depreciation
and amortization
|
|
|
809 |
|
|
|
764 |
|
|
|
742 |
|
General
and administrative expenses
|
|
|
9,299 |
|
|
|
8,926 |
|
|
|
8,216 |
|
Recovery
of property taxes
|
|
|
(441 |
) |
|
|
- |
|
|
|
- |
|
Total
costs and expenses
|
|
|
41,802 |
|
|
|
40,017 |
|
|
|
36,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before provision for income
taxes
|
|
|
7,419 |
|
|
|
7,208 |
|
|
|
6,578 |
|
Provision
for income taxes
|
|
|
2,461 |
|
|
|
2,427 |
|
|
|
2,306 |
|
Income
from continuing operations
|
|
|
4,958 |
|
|
|
4,781 |
|
|
|
4,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations, including gains on disposal of discontinued
operations before income taxes of $3,906 in 2009, $2,489 in 2008 and $400
in 2007.
|
|
|
3,914 |
|
|
|
2,824 |
|
|
|
2,104 |
|
Provision
for income taxes
|
|
|
1,390 |
|
|
|
1,050 |
|
|
|
833 |
|
Income
from discontinued operations
|
|
|
2,524 |
|
|
|
1,774 |
|
|
|
1,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
7,482 |
|
|
$ |
6,555 |
|
|
$ |
5,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER
SHARE INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
0.84 |
|
|
$ |
0.79 |
|
|
$ |
0.73 |
|
Income
from discontinued operations
|
|
|
0.43 |
|
|
|
0.29 |
|
|
|
0.22 |
|
Net
income
|
|
$ |
1.27 |
|
|
$ |
1.08 |
|
|
$ |
0.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
0.80 |
|
|
$ |
0.74 |
|
|
$ |
0.67 |
|
Income
from discontinued operations
|
|
|
0.41 |
|
|
|
0.27 |
|
|
|
0.20 |
|
Net
income
|
|
$ |
1.21 |
|
|
$ |
1.01 |
|
|
$ |
0.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares used in computing income
per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,898,000 |
|
|
|
6,085,000 |
|
|
|
5,836,000 |
|
Diluted
|
|
|
6,180,000 |
|
|
|
6,502,000 |
|
|
|
6,341,000 |
|
The
accompanying notes are an integral part of these statements.
Nathan’s
Famous, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
Fifty-two
weeks ended March 29, 2009, Fifty-three weeks ended March 30, 2008 and Fifty-two
weeks ended March 25, 2007
(in
thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid-in
|
|
|
Deferred
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Treasury
Stock, at Cost
|
|
|
Stockholders’
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Compensation
|
|
|
Deficit
|
|
|
(Loss) Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 26, 2006
|
|
|
7,600,399 |
|
|
$ |
76 |
|
|
$ |
43,699 |
|
|
$ |
(208 |
) |
|
$ |
(8,197 |
) |
|
$ |
(164 |
) |
|
|
1,891,100 |
|
|
$ |
(7,158 |
) |
|
$ |
28,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in connection with exercise of employee stock
options
|
|
|
308,784 |
|
|
|
3 |
|
|
|
719 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit on stock option exercises
|
|
|
- |
|
|
|
- |
|
|
|
1,079 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
Based Compensation
|
|
|
- |
|
|
|
- |
|
|
|
295 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation relating to restricted
stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
72 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains on marketable securities, net of deferred income tax of
$80
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
120 |
|
|
|
- |
|
|
|
- |
|
|
|
120 |
|
|
$ |
120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,543 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,543 |
|
|
|
5,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
5,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 25, 2007
|
|
|
7,909,183 |
|
|
$ |
79 |
|
|
$ |
45,792 |
|
|
$ |
(136 |
) |
|
$ |
(2,654 |
) |
|
$ |
(44 |
) |
|
|
1,891,100 |
|
|
$ |
(7,158 |
) |
|
$ |
35,879 |
|
|
|
|
|
The
accompanying notes are an integral part of this statement.
Nathan’s
Famous, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
Fifty-two
weeks ended March 29, 2009, Fifty-three weeks ended March 30, 2008 and Fifty-two
weeks ended March 25, 2007
(in
thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Earnings
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid-in
|
|
|
Deferred
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Treasury
Stock, at Cost
|
|
|
Stockholders’
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Compensation
|
|
|
(Deficit)
|
|
|
Income/(Loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 25, 2007
|
|
|
7,909,183 |
|
|
$ |
79 |
|
|
$ |
45,792 |
|
|
$ |
(136 |
) |
|
$ |
(2,654 |
) |
|
$ |
(44 |
) |
|
|
1,891,100 |
|
|
$ |
(7,158 |
) |
|
$ |
35,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in connection with exercise of employee stock options and
warrants
|
|
|
271,500 |
|
|
|
3 |
|
|
|
921 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
of common stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
108,900 |
|
|
|
(1,928 |
) |
|
|
(1,928 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit on stock option exercises
|
|
|
- |
|
|
|
- |
|
|
|
632 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
based compensation
|
|
|
- |
|
|
|
- |
|
|
|
359 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation relating to restricted stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
73 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains on marketable securities, net of deferred income tax of
$184
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
269 |
|
|
|
- |
|
|
|
- |
|
|
|
269 |
|
|
$ |
269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of the adoption of FIN No. 48 as of March 26, 2007(Note
J)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(155 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(155 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,555 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,555 |
|
|
|
6,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
6,824 |
|
Balance,
March 30, 2008
|
|
|
8,180,683 |
|
|
$ |
82 |
|
|
$ |
47,704 |
|
|
$ |
(63 |
) |
|
$ |
3,746 |
|
|
$ |
225 |
|
|
|
2,000,000 |
|
|
$ |
(9,086 |
) |
|
$ |
42,608 |
|
|
|
|
|
The
accompanying notes are an integral part of this statement.
Nathan’s
Famous, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
Fifty-two
weeks ended March 29, 2009, Fifty-three weeks ended March 30, 2008 and Fifty-two
weeks ended March 25, 2007
(in
thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid-in
|
|
|
Deferred
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
Stock, at Cost
|
|
|
Stockholders’
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Compensation
|
|
|
Earnings
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 30, 2008
|
|
|
8,180,683 |
|
|
$ |
82 |
|
|
$ |
47,704 |
|
|
$ |
(63 |
) |
|
$ |
3,746 |
|
|
$ |
225 |
|
|
|
2,000,000 |
|
|
$ |
(9,086 |
) |
|
$ |
42,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in connection with exercise of employee stock options and
warrants
|
|
|
125,000 |
|
|
|
1 |
|
|
|
412 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
of common stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
693,806 |
|
|
|
(9,712 |
) |
|
|
(9,712 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit on stock option exercises
|
|
|
- |
|
|
|
- |
|
|
|
457 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
based compensation
|
|
|
- |
|
|
|
- |
|
|
|
428 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation relating to restricted stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
63 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains on marketable securities, net of deferred income tax of
$71
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
110 |
|
|
|
- |
|
|
|
- |
|
|
|
110 |
|
|
$ |
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,482 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,482 |
|
|
|
7,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
7,592 |
|
Balance,
March 29, 2009
|
|
|
8,305,683 |
|
|
$ |
83 |
|
|
$ |
49,001 |
|
|
$ |
0 |
|
|
$ |
11,228 |
|
|
$ |
335 |
|
|
|
2,693,806 |
|
|
$ |
(18,798 |
) |
|
$ |
41,849 |
|
|
|
|
|
|
|
Year
ended
|
|
|
|
March
29,
|
|
|
March
30,
|
|
|
|
2009
|
|
|
2008
|
|
Disclosure
of reclassification amount:
|
|
|
|
|
|
|
Unrealized
gain on marketable securities
|
|
|
120 |
|
|
|
269 |
|
Less:
reclassification adjustments for (loss) included in net
income
|
|
|
( 10 |
) |
|
|
- |
|
Net
unrealized gain on marketable securities, net of tax
|
|
|
110 |
|
|
|
269 |
|
The
accompanying notes are an integral part of this statement.
Nathan’s
Famous, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
Fifty-two
|
|
|
Fifty-three
|
|
|
Fifty-two
|
|
|
|
weeks
ended
|
|
|
weeks
ended
|
|
|
weeks
ended
|
|
|
|
March 29, 2009
|
|
|
March 30, 2008
|
|
|
March 25, 2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
7,482 |
|
|
$ |
6,555 |
|
|
$ |
5,543 |
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
provided
by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
809 |
|
|
|
766 |
|
|
|
791 |
|
Amortization
of intangible assets
|
|
|
2 |
|
|
|
78 |
|
|
|
262 |
|
Amortization
of bond premium
|
|
|
259 |
|
|
|
278 |
|
|
|
269 |
|
Amortization
of deferred compensation
|
|
|
63 |
|
|
|
73 |
|
|
|
72 |
|
Gain
on sale of subsidiary and leasehold interests
|
|
|
(3,906 |
) |
|
|
(2,489 |
) |
|
|
(400 |
) |
Gain
on disposal of fixed assets
|
|
|
- |
|
|
|
- |
|
|
|
(29 |
) |
Loss
on sale of available-for-sale securities
|
|
|
17 |
|
|
|
- |
|
|
|
- |
|
Share-based
compensation expense
|
|
|
428 |
|
|
|
359 |
|
|
|
295 |
|
Provision
for doubtful accounts
|
|
|
173 |
|
|
|
- |
|
|
|
(6 |
) |
Deferred
income taxes
|
|
|
(63 |
) |
|
|
682 |
|
|
|
(180 |
) |
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
and other receivables, net
|
|
|
(1,211 |
) |
|
|
(362 |
) |
|
|
(117 |
) |
Inventories
|
|
|
160 |
|
|
|
(32 |
) |
|
|
27 |
|
Prepaid
expenses and other current assets
|
|
|
167 |
|
|
|
(526 |
) |
|
|
243 |
|
Other
assets
|
|
|
(8 |
) |
|
|
(2 |
) |
|
|
32 |
|
Accounts
payable, accrued expenses and other current liabilities
|
|
|
(104 |
) |
|
|
(904 |
) |
|
|
1,374 |
|
Deferred
franchise fees
|
|
|
(113 |
) |
|
|
(76 |
) |
|
|
156 |
|
Other
liabilities
|
|
|
(54 |
) |
|
|
452 |
|
|
|
(141 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
4,101 |
|
|
|
4,852 |
|
|
|
8,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of available-for-sale securities
|
|
|
3,682 |
|
|
|
3,100 |
|
|
|
- |
|
Purchase
of available-for-sale securities
|
|
|
(8,497 |
) |
|
|
(1,089 |
) |
|
|
(5,972 |
) |
Purchase
of intellectual property
|
|
|
- |
|
|
|
- |
|
|
|
(7 |
) |
Purchase
of property and equipment
|
|
|
(513 |
) |
|
|
(972 |
) |
|
|
(539 |
) |
Payments
received on notes receivable
|
|
|
406 |
|
|
|
239 |
|
|
|
88 |
|
Proceeds
from sale of subsidiaries and leasehold interests
|
|
|
3,961 |
|
|
|
1,691 |
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by investing activities
|
|
|
(961 |
) |
|
|
2,969 |
|
|
|
(6,030 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
repayments of notes payable and capitalized lease
obligations
|
|
|
- |
|
|
|
- |
|
|
|
(39 |
) |
Repurchase
of treasury stock
|
|
|
(9,712 |
) |
|
|
(1,928 |
) |
|
|
- |
|
Income
tax benefit on stock option exercises
|
|
|
457 |
|
|
|
632 |
|
|
|
1,079 |
|
Proceeds
from the exercise of stock options and warrant
|
|
|
413 |
|
|
|
924 |
|
|
722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by financing activities
|
|
|
(8,842 |
) |
|
|
(372 |
) |
|
|
1,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(5,702 |
) |
|
|
7,449 |
|
|
|
3,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of year
|
|
|
14,381 |
|
|
|
6,932 |
|
|
|
3,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of year
|
|
$ |
8,679 |
|
|
$ |
14,381 |
|
|
$ |
6,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1 |
|
Income
taxes
|
|
$ |
3,190 |
|
|
$ |
2,942 |
|
|
$ |
1,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
made in connection with the sale of subsidiary
|
|
$ |
250 |
|
|
$ |
2,150 |
|
|
$ |
- |
|
The
accompanying notes are an integral part of these statements.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
A - DESCRIPTION AND ORGANIZATION OF BUSINESS
Nathan’s
Famous, Inc. and subsidiaries (collectively the “Company” or “Nathan’s”) has
historically operated or franchised a chain of retail fast food restaurants
featuring the Nathan’s World Famous Beef Hot Dog, crinkle-cut French-fried
potatoes and a variety of other menu offerings. Nathan’s has also
established a Branded Product Program, which enables foodservice retailers to
sell select Nathan’s proprietary products outside of the realm of a traditional
franchise relationship. The Company is also the owner of the Arthur
Treacher’s brand. Arthur Treacher's main product is its "Original Fish &
Chips" product consisting of fish fillets coated with a special batter prepared
under a proprietary formula, deep-fried golden brown, and served with
English-style chips and corn meal "hush puppies." The Company, through
wholly-owned subsidiaries, was also the franchisor of Kenny Rogers Roasters
(“Roasters”) and Miami Subs through April 23, 2008 and May 30, 2007,
respectively. (See Note
G for discussion of the sales of these subsidiaries.) The Company considers
itself to be in the foodservice industry, and has pursued co-branding and
co-hosting initiatives; accordingly, management has evaluated the Company as a
single reporting unit.
At March
29, 2009, the Company’s restaurant system included five Company-owned units in
the New York City metropolitan area (including one seasonal location) and 249
franchised or licensed units, located in 25 states
and four foreign
countries.
NOTE B - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The
following significant accounting policies have been applied in the preparation
of the consolidated financial statements:
|
1.
|
Principles
of Consolidation
|
The
consolidated financial statements include the accounts of the Company and all of
its wholly-owned subsidiaries. All significant inter-company balances
and transactions have been eliminated in consolidation.
The
Company’s fiscal year ends on the last Sunday in March, which results in a 52-
or 53-week reporting period. The results of operations and cash flows
for the fiscal year ended March 29, 2009 are on the basis of a 52-week reporting
period, the results of operations and cash flows for the fiscal year ended March
30, 2008 are on the basis of a 53-week reporting period and the
results of operations and cash flows for the fiscal year ended March 25,
2007 are on the basis of a 52-week reporting period.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
B (continued)
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Significant estimates made by management in preparing the
consolidated financial statements include revenue recognition, the allowance for
doubtful accounts, valuation of notes receivable, valuation of stock-based
compensation, income taxes, and the valuation of goodwill, other intangible
assets and other long-lived assets.
|
4.
|
Cash
and Cash Equivalents
|
The
Company considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents. Cash
equivalents amounted to $5,352 and $11,100 at March 29, 2009 and
March 30, 2008, respectively. The majority of the cash and cash
equivalents are in excess of government insurance. Included in cash and cash
equivalents is cash restricted for untendered shares associated with the
acquisition of Nathan’s in 1987 of $54 at March 29, 2009 and March 30,
2008.
|
5.
|
Impairment
of Notes Receivable
|
Nathan's
follows the guidance in Statement of Financial Accounting Standards (“SFAS”) No.
114 ("SFAS No. 114") "Accounting by Creditors for Impairment of a Loan," as
amended. Pursuant to SFAS No. 114, a loan is impaired when, based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual terms of the loan agreement. When
evaluating a note for impairment, the factors considered include: (a)
indications that the borrower is experiencing business problems such as late
payments, operating losses, marginal working capital, inadequate cash flow or
business interruptions, (b) loans secured by collateral that is not readily
marketable, or (c) loans that are susceptible to deterioration in realizable
value. When determining impairment, management's assessment may include its
intention to extend its lease beyond the minimum lease term and the debtor's
ability to meet its obligation over any extended term. The Company records
interest income on its impaired notes receivable on a cash basis, based on the
present value of the estimated cash flows of identified impaired notes
receivable. Based on the Company's analysis, it has determined that
its note receivable is not impaired at March 29, 2009 or March 30, 2008. (See
Note G.)
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
B (continued)
Inventories,
which are stated at the lower of cost or market value, consist primarily of food
items and supplies. Inventories also include equipment and marketing items in
connection with the Branded Product Program. Cost is determined using
the first-in, first-out method.
In
accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and
Equity Securities,” the Company determines the appropriate classification of
securities at the time of purchase and reassesses the appropriateness of the
classification at each reporting date. At March 29, 2009 and March 30, 2008, all
marketable securities held by the Company have been classified as
available-for-sale and, as a result, are stated at fair value, based upon quoted
market prices for similar assets as determined in active markets or
model-derived valuations in which all significant inputs are observable, for
substantially the full-term of the asset, in the accompanying
consolidated balance sheets, with unrealized gains and losses included as a
component of accumulated other comprehensive income. Realized gains and losses
on the sale of securities, as determined on a specific identification basis, are
included in the accompanying consolidated statements of earnings. (See Note
E.)
The
Company observes the provisions of SFAS No. 66, “Accounting for Sales of Real
Estate,” (“SFAS No. 66”) 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 obliged 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 the full accrual method, the installment
method and the deposit method, depending on the specific terms of each
sale. The Company records 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.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
B (continued)
|
9.
|
Property
and Equipment
|
Property
and equipment are stated at cost less accumulated depreciation and amortization.
Major improvements are capitalized and minor replacements, maintenance and
repairs are charged to expense as incurred. Depreciation and amortization are
calculated on the straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized over the shorter of the
estimated useful life or the lease term of the related asset. The estimated
useful lives are as follows:
Building
and improvements
|
5 –
25 years
|
Machinery,
equipment, furniture and fixtures
|
3 –
15 years
|
Leasehold
improvements
|
5 –
20 years
|
|
10.
|
Goodwill
and Intangible Asset
|
Goodwill
and intangible assets primarily consist of (i) goodwill of $95 resulting from
the acquisition of Nathan’s in 1987; and (ii) trademarks, trade names and other
intellectual property of $1,353 in connection with Arthur Treacher’s as of March 29,
2009 and March 30, 2008.
The
Company’s goodwill and intangible assets are deemed to have indefinite lives
and, accordingly, are not amortized, but are evaluated for impairment at least
annually, but more often whenever changes in facts and circumstances occur which
may indicate that the carrying value may not be recoverable. As of March 29,
2009 and March 30, 2008, the Company has performed its required annual
impairment test of goodwill and intangible assets and has determined no
impairment is deemed to exist.
Total
amortization expense for intangible assets included within discontinued
operations was $2, $77 and $261, respectively, for each of the fiscal years
ended March 29, 2009, March 30, 2008 and March 25, 2007. As a result
of the April 23, 2008 sale of Roasters (Note G), the Company will no longer have
any amortizable intangibles and, as a result, no amortization expense is
currently expected in the next five years.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
B (continued)
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Impairment
is measured by comparing the carrying value of the long-lived assets to the
estimated undiscounted future cash flows expected to result from use of the
assets and their ultimate disposition. In instances where impairment
is determined to exist, the Company writes down the asset to its fair value
based on the present value of estimated future cash flows.
Impairment
losses are recorded on long-lived assets on a restaurant-by-restaurant basis
whenever impairment factors are determined to be present. The Company
considers a history of restaurant operating losses to be its primary indicator
of potential impairment for individual restaurant locations. No units
were deemed impaired during the fiscal years ended March 29, 2009, March 30,
2008 and March 25, 2007.
The
Company is self-insured for portions of its general liability and its medical
benefits coverage. As part of Nathan's risk management strategy, its general
liability insurance programs include deductibles for each incident and in the
aggregate for a policy year. As such, Nathan's accrues estimates of its ultimate
self-insurance costs throughout the policy year. These estimates have been
developed based upon historical trends and expectations, however, the final cost
of some of these liability claims may not be known for five years or longer.
Accordingly, Nathan's annual self-insurance costs may be subject to adjustment
from previous estimates as facts and circumstances change. The self-insurance
accruals at March 29, 2009 and March 30, 2008 were $51 and $107, respectively,
and are included in "Accrued expenses and other current liabilities" in the
accompanying consolidated balance sheets.
During
the fiscal years ended March 29, 2009, March 30, 2008 and March 25, 2007, the
Company reversed approximately $61, $61, and $53 respectively, of previously
recorded insurance accruals to reflect the revised estimated cost of
claims.
|
13.
|
Fair
Value of Financial Instruments
|
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “Fair Value Measurements” (“SFAS No. 157”), to
eliminate the diversity in practice that existed due to the different
definitions of fair value. SFAS No. 157 retained the exchange price notion in
earlier definitions of fair value, but clarified that the exchange price is the
price in an orderly transaction between market participants to sell an asset or
liability in the principal or most advantageous market for the asset or
liability. SFAS No. 157 stated that the transaction is hypothetical at the
measurement date, considered from the perspective of the market participant who
holds the asset or liability. As such, fair value is defined as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date (an exit price),
as opposed to the price that would be paid to
acquire the asset or received to assume the liability at the measurement date
(an entry price). SFAS No. 157 also established a three-level hierarchy,
which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
B (continued)
In
February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective Date of
FASB Statement No. 157,” which delayed the
effective date of SFAS No. 157 for all non-financial assets and
non-financial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis (at least
annually). Nathan’s adopted the provisions of SFAS No. 157 on March
31, 2008 and elected the deferral option for non-financial assets and
liabilities. The effect on our consolidated financial position and results of
operations of adopting this standard was not significant.
In
October 2008, the FASB issued FASB Staff Position No. 157-3, “Determining the
Fair Value of a Financial Asset When the Market for That Asset Is Not Active”
(“FSP No. 157-3”). FSP No. 157-3 applies to financial assets within
the scope of accounting pronouncements that require or permit fair value
measurements in accordance with SFAS No. 157. FSP No. 157-3 clarifies
the application of SFAS No. 157 in a market that is not active and provides an
example to illustrate key conditions in determining the fair value of a
financial asset when the market for that financial asset is not
active. FSP No. 157-3 became effective upon issuance, including prior
periods for which financial statements have not been issued. Nathan’s
adopted the provisions of FSP No. 157-3 effective September 28, 2008. The effect
on our consolidated financial position and results of operations of adopting
this standard was not significant.
In April
2009, the FASB issued FASB Staff Position No. 157-4, “Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly,”
(“FSP No. 157-4”), which provides guidelines for a broad interpretation of when
to apply market-based fair value measurements. FSP No. 157-4 reaffirms
management’s need to use judgment to determine when a market that was once
active has become inactive and in determining fair values in markets that are no
longer active. FSP No. 157-4 is effective for interim and annual periods ending
after June 15, 2009, but may be early adopted for the interim and annual periods
ending after March 15, 2009. Nathan’s will adopt the provisions of FSP No. 157-4
on March 30, 2009. We do not expect the adoption of FSP No. 157-4 to have a
material effect on our consolidated financial position and results of
operations.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
B (continued)
The
effect on our consolidated financial position and results of operations of
adopting these standards was not significant.
The
valuation hierarchy established by SFAS No. 157 is based upon the transparency
of inputs to the valuation of an asset or liability on the measurement date. The
three levels are defined as follows:
|
·
|
Level
1 - inputs to the valuation methodology are quoted prices (unadjusted) for
an identical asset or liability in an active
market
|
|
·
|
Level
2 - inputs to the valuation methodology include quoted prices for a
similar asset or liability in an active market or model-derived valuations
in which all significant inputs are observable for substantially the full
term of the asset or liability
|
|
·
|
Level
3 - inputs to the valuation methodology are unobservable and significant
to the fair value measurement of the asset or
liability
|
The
following table presents assets and liabilities measured at fair value on a
recurring basis as of March 29, 2009 by SFAS No. 157 valuation hierarchy: (in
thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Carrying Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
- |
|
|
$ |
25,670 |
|
|
$ |
- |
|
|
$ |
25,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets at fair value
|
|
$ |
- |
|
|
$ |
25,670 |
|
|
$ |
- |
|
|
$ |
25,670 |
|
Nathan’s
marketable securities, which primarily represent municipal bonds, are not
actively traded. The valuation of such bonds is based upon quoted
market prices for similar bonds currently trading in an active
market.
The
carrying amounts of cash equivalents, accounts receivable and accounts payable
approximate fair value due to the short-term maturity of the
instruments. The carrying amount of the note receivable approximates
fair value as determined using level three inputs as the current interest rate
on such instrument approximates current market interest rates on similar
instruments.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
B (continued)
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities — Including an amendment of FASB
Statement No. 115” (“SFAS No. 159”). This standard amends SFAS No.
115, “Accounting for Certain Investments in Debt and Equity Securities,” with
respect to accounting for a transfer to the trading category for all entities
with available-for-sale and trading securities electing the fair value option.
SFAS No. 159 allows companies to elect fair value accounting for many financial
instruments and other items that currently are not required to be accounted for
as such, allows different applications for electing the option for a single item
or groups of items, and requires disclosures to facilitate comparisons of
similar assets and liabilities that are accounted for differently in relation to
the fair value option. Nathan’s adopted the provisions of SFAS No.
159 on March 31, 2008. The adoption of SFAS No. 159 had no impact on our
consolidated financial position and results of operations as Nathan’s did not
elect the fair value option to report its financial assets and liabilities at
fair value and elected to continue the treatment of its marketable securities as
available-for-sale securities with unrealized gains and losses recorded in
accumulated other comprehensive income.
Pre-opening
and similar costs are expensed as incurred.
|
15.
|
Revenue Recognition - Branded
Products Operations
|
The
Company recognizes revenue from the Branded Product Program when it is
determined that the products have been delivered via third party common carrier
to Nathans’ customers. Rebates provided to customers are classified as a
reduction of revenues.
|
16.
|
Revenue
Recognition - Company-owned
Restaurants
|
Sales by
Company-owned restaurants, which are typically paid in cash or credit card by
the customer, are recognized upon the performance of services. Sales are
presented, net of sales tax, pursuant to EITF Issue 06-3, “How Taxes Collected
from Customers and Remitted to Governmental Authorities Should Be Presented in
the Income Statement (That Is, Gross versus Net Presentation).”
|
17.
|
Revenue
Recognition - Franchising
Operations
|
In
connection with its franchising operations, the Company receives initial
franchise fees, development fees, royalties, 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 initially recorded as deferred revenue.
Initial franchise fees, which are
non-refundable, are initially 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.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
B (continued)
The
following services are typically provided by the Company prior to the opening of
a franchised restaurant:
|
o
|
Approval
of all site selections to be
developed.
|
|
o
|
Provision
of architectural plans suitable for restaurants to be
developed.
|
|
o
|
Assistance
in establishing building design specifications, reviewing construction
compliance and equipping the
restaurant.
|
|
o
|
Provision
of appropriate menus to coordinate with the restaurant design and location
to be developed.
|
|
o
|
Provide
management training for the new franchisee and selected
staff.
|
|
o
|
Assistance with the initial
operations of restaurants being
developed.
|
At March
29, 2009 and March 30, 2008, $171 and $284, respectively, of deferred
franchise fees are included
in the accompanying consolidated balance sheets. For the fiscal years ended
March 29, 2009, March 30, 2008 and March 25, 2007, the Company earned
franchise fees of $647, $831 and $488, respectively, from
new unit openings, transfers, co-branding and forfeitures.
Development
fees are nonrefundable 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 ratably over the term of
the agreement, or, 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. At March 29, 2009
and March 30, 2008, $193 and $214, respectively, of deferred development
fee revenue is included in “Other liabilities” in the accompanying consolidated
balance sheets.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
B (continued)
The
following is a summary of franchise openings and closings for the Nathan’s
Franchise restaurant system for the fiscal years ended March 29, 2009, March 30,
2008 and March 25, 2007:
|
|
March
29,
2009
|
|
|
March
30,
2008
|
|
|
March
25,
2007
|
|
|
|
|
|
|
|
|
|
|
|
Franchised
restaurants operating at the beginning of the period
|
|
|
224 |
|
|
|
196 |
|
|
|
192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
franchised restaurants opened during the period
|
|
|
46 |
|
|
|
46 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchised
restaurants closed during the period
|
|
|
(21 |
) |
|
|
(18 |
) |
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchised
restaurants operating at the end of the period
|
|
|
249 |
|
|
|
224 |
|
|
|
196 |
|
The
Company recognizes franchise royalties, which are generally based upon a
percentage of sales made by the Company’s franchisees, when they are earned and
deemed collectible. The Company recognizes revenue from its Branded Menu Program
directly from its product manufacturers upon their sales of Nathan’s products.
Franchise fees and royalties that are not deemed to be collectible are not
recognized as revenue until paid by the franchisee or until collectibility is
deemed to be reasonably assured. Revenue from sub-leasing properties is
recognized in 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.
|
18.
|
Revenue
Recognition – License Royalties
|
The
Company earns revenue from royalties on the licensing of the use of its name on
certain products produced and sold by outside vendors. The use of the
Company name and symbols must be approved by the Company prior to each specific
application to ensure proper quality and project a consistent
image. Revenue from license royalties is recognized when it is earned
and deemed collectible.
Interest
income is recorded when it is earned and deemed realizable by the
Company.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
B (continued)
The
Company recognizes gains on the sale of fixed assets under the full accrual
method, installment method or deposit method in accordance with provisions of
SFAS No. 66 (See Note B-8).
Deferred
revenue associated with supplier contracts is generally amortized into income on
a straight-line basis over the life of the contract.
Other
income for the fiscal years ended March 29, 2009, March 30, 2008 and March 25,
2007 consists of the following:
|
|
March 29,
2009
|
|
|
March 30,
2008
|
|
|
March 25,
2007
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of supplier contributions
|
|
$ |
41 |
|
|
$ |
34 |
|
|
$ |
52 |
|
Other
income
|
|
|
22 |
|
|
|
37 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
63 |
|
|
$ |
71 |
|
|
$ |
60 |
|
|
21.
|
Business
Concentrations and Geographical
Information
|
The
Company’s accounts receivable consist principally of receivables from
franchisees for royalties and advertising contributions, from sales under the
Branded Product Program, and for royalties from retail licensees. At
March 29, 2009, one retail licensee and two Branded Products distributors each
represented 12%, 15% and 15%, respectively, of accounts receivable. At March 30,
2008, one retail licensee and three Branded Product customers each represented
19%, 15%, 11% and 10%, respectively, of accounts receivable. No franchisee,
retail licensee or Branded Product customer accounted for 10% or more of
revenues during the fiscal years ended March 29, 2009, March 30, 2008 and
March 25, 2007.
The
Company’s primary supplier of frankfurters represented 81%, 77% and 74% of
product purchases for the fiscal years ended March 29, 2009, March 30, 2008 and
March 25, 2007, respectively. The Company’s distributor of product to
its Company-owned restaurants represented 12%, 15%, and 16% of product
purchases for the fiscal years ended March 29, 2009, March 30, 2008 and March
25, 2007, respectively.
The
Company’s revenues for the fiscal years ended March 29, 2009, March 30, 2008 and
March 25, 2007 were derived from the following geographic areas:
|
|
March 29,
2009
|
|
|
March 30,
2008
|
|
|
March 25,
2007
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
(United States)
|
|
$ |
48,423 |
|
|
$ |
46,489 |
|
|
$ |
41,705 |
|
Non-domestic
|
|
|
798 |
|
|
|
736 |
|
|
|
1,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
49,221 |
|
|
$ |
47,225 |
|
|
$ |
42,803 |
|
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
B (continued)
The Company administers an advertising
fund on behalf of its franchisees to coordinate the marketing efforts of the
Company. Under this arrangement, the Company collects and disburses fees paid by
manufacturers, franchisees and Company-owned stores for national and regional
advertising, promotional and public relations programs. Contributions to the
advertising funds are based on specified percentages of net sales, generally
ranging up to 2%. Net
Company-owned store advertising expense was $188, $224, and $184, for the fiscal
years ended March 29, 2009, March 30, 2008 and March 25, 2007,
respectively.
|
23.
|
Stock-Based
Compensation
|
At March
29, 2009, the Company had several stock-based employee compensation plans in
effect which are more fully described in Note K. As of the beginning of fiscal
2007, Nathan’s adopted SFAS No. 123R, “Share-based Payment,” (“SFAS No. 123R”)
using the modified prospective method.
SFAS No.
123R requires the cost of all share-based payments to employees, including
grants of employee stock options, to be recognized in the financial statements
based on their fair values measured at the grant date, or the date of later
modification, over the requisite service period. The Company utilizes the
straight-line attribution method to recognize the expense associated with awards
with graded vesting terms. In addition, under the modified prospective approach,
SFAS No. 123R requires unrecognized cost (based on the amounts previously
disclosed in pro forma footnote disclosures) related to awards vesting after the
date of initial adoption to be recognized by the Company in the financial
statements over the remaining requisite service period.
Stock-based
compensation, including amortization of deferred compensation relating to
restricted stock, recognized during the fiscal years ended March 29, 2009, March
30, 2008 and March 25, 2007 was $492, $432 and $367 respectively, is
included in general and administrative expense in the accompanying Consolidated
Statements of Earnings. As of March 29, 2009, there was $899 of
unamortized compensation expense related to stock options. The
Company expects to recognize this expense over approximately two years, six
months, which represents the remaining requisite service periods for
such awards.
No stock-based awards were granted
during the fiscal year ended March 29, 2009.
During
the fiscal year ended March 30, 2008, the Company granted 110,000 stock options
having an exercise price of $17.43 per share, all of which expire five years
from the date of grant. 60,000 of the options granted will be vested
as follows: 25% on the first anniversary of the grant, 50% on the second
anniversary of the grant, 75% on the third anniversary of the grant and 100% on
the fourth anniversary of the grant. 50,000 of the options granted will be
vested as follows: 33.3% on the first anniversary of the grant, 66.7% on the
second anniversary of the grant and 100% on the third anniversary of the
grant.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
B (continued)
During
the fiscal year ended March 25, 2007, the Company granted 197,500 stock options
having an exercise price of $13.08 per share, all of which expire ten years from
the date of grant. All 197,500 options granted will be vested as
follows: 20% on the first anniversary of the grant, 40% on the second
anniversary of the grant, 60% on the third anniversary of the grant, 80% on the
fourth anniversary of the grant and 100% on the fifth anniversary of the
grant.
The
weighted-average option fair values, as determined using the Black-Scholes
option valuation model, and the assumptions used to estimate these values for
stock options granted during the fiscal years ended March 30,
2008 and March 25, 2007 are as follows:
|
|
Fiscal
year ended
|
|
|
|
March 30,
2008
|
|
|
March 25,
2007
|
|
Weighted-average option
fair values
|
|
$ |
5.8270 |
|
|
$ |
6.1686 |
|
Expected
life (years)
|
|
|
4.25 |
|
|
|
7.0 |
|
Interest
rate
|
|
|
4.21 |
% |
|
|
5.21 |
% |
Volatility
|
|
|
32.93 |
% |
|
|
34.33 |
% |
Dividend
yield
|
|
|
0 |
% |
|
|
0 |
% |
The
expected dividend yield is based on historical and projected dividend
yields. The Company estimates expected volatility based primarily on
historical monthly price changes of the Company’s stock equal to the expected
life of the option. The risk free interest rate is based on the U.S.
Treasury yield in effect at the time of the grant. The expected
option term is the number of years the Company estimates the options will be
outstanding prior to exercise based on expected employment termination
behavior.
|
24.
|
Classification
of Operating Expenses
|
Cost of
sales consists of the following:
|
o
|
The
cost of products sold by the Company-operated restaurants, through the
Branded Product Program and other distribution
channels.
|
|
o
|
The
cost of labor and associated costs of in-store restaurant management and
crew.
|
|
o
|
The
cost of paper products used in Company-operated
restaurants.
|
|
o
|
Other
direct costs such as fulfillment, commissions, freight and
samples.
|
Restaurant
operating expenses consist of the following:
|
o
|
Occupancy
costs of Company-operated
restaurants.
|
|
o
|
Utility
costs of Company-operated
restaurants.
|
|
o
|
Repair
and maintenance expenses of the Company-operated restaurant
facilities.
|
|
o
|
Marketing
and advertising expenses done locally and contributions to advertising
funds for Company-operated
restaurants.
|
|
o
|
Insurance
costs directly related to Company-operated
restaurants.
|
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
B (continued)
The
Company’s current provision for income taxes is based upon its estimated taxable
income in each of the jurisdictions in which it operates, after considering the
impact on taxable income of temporary differences resulting from different
treatment of items such as depreciation, estimated self-insurance liabilities,
allowance for doubtful accounts and any tax credits or net operating losses
(“NOL”) for tax and reporting purposes. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and any operating loss or tax credit
carry-forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to
taxable income in the year in which those temporary differences are expected to
be recovered or settled.
Uncertain Tax Positions
The
Financial Accounting Standards Board issued Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109,
Accounting for Income Taxes” (“FIN No. 48”) which was adopted by the Company on
March 26, 2007. FIN No. 48 addresses the determination of whether tax
benefits claimed or expected to be claimed on a tax return should be recorded in
the financial statements. Under FIN No. 48, the Company may recognize
the tax benefit from an uncertain tax position only if it is more likely than
not that the tax position will be sustained on examination by the taxing
authorities based on the technical merits of the position. The tax
benefits recognized in the financial statements from such position should be
measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. FIN No. 48
also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods and disclosure requirements. (See Note
J.)
Certain
prior years’ balances related to discontinued operations (See Note G) have been
reclassified to conform with Nathan’s current year presentation.
|
27.
|
Recently
Issued Accounting Standards Not Yet
Adopted
|
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”),
which establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in an acquiree, including
the recognition and measurement of goodwill acquired in a business
combination.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
B (continued)
In April
2009, the FASB issued FASB Staff Position No.141R-1, “Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arises from
Contingencies” (“FSP No. 141R-1”), which provides guidelines on the initial
recognition and measurement, subsequent measurement and accounting, and
disclosure of assets and liabilities arising from contingencies in a business
combination. FSP No. 141R-1 provides that an acquirer shall recognize an asset
acquired or a liability assumed in a business combination that arises from a
contingency at fair value, at the acquisition date, if the acquisition-date fair
value of that asset or liability can be determined during the measurement
period. FSP No. 141R-1 provides guidance in the event that the fair value of an
asset acquired or liability assumed cannot be determined during the measurement
period. FSP No. 141R-1 provides that an acquirer shall develop a systematic and
rational basis for subsequently measuring and accounting for assets and
liabilities arising from contingencies and also provides for the disclosure
requirements. FSP No. 141R-1 is effective for assets or liabilities arising from
contingencies in business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008.
The
requirements of SFAS No. 141R and FSP No. 141R-1 are effective for fiscal years
beginning on or after December 15, 2008, which for us is fiscal 2010.
Earlier adoption is prohibited. The adoption of SFAS No. 141R and FSP No. 141R-1
will impact our accounting for future business combinations, if
any.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS No.
160”). SFAS No. 160 amends ARB No. 51 to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. Among other requirements, this
statement requires consolidated net income to be reported at amounts that
include the amounts attributable to both the parent and the noncontrolling
interest. It also requires disclosure, on the face of the consolidated income
statement, of the amounts of consolidated net income attributable to the parent
and to the noncontrolling interest. SFAS No. 160 is effective for fiscal years
and interim periods within those fiscal years, beginning on or after
December 15, 2008, which for us is the first quarter of fiscal 2010.
Earlier adoption is prohibited. Based upon Nathan’s current organization
structure, we do not expect the implementation of SFAS No. 160 to have any
impact on our consolidated financial position and results of
operations.
In April
2008, the FASB issued FASB Staff Position No. 142-3 (“FSP No. 142-3”),
“Determination of the Useful Life of Intangible Assets”, which amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, “Goodwill and Other Intangible Assets.” FSP No. 142-3 is
effective for fiscal years beginning after December 15, 2008, which for us is
the first quarter of fiscal 2010. We do not expect the adoption of
FSP No. 142-3 to have a material effect on our consolidated financial position
and results of operations.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
B (continued)
In June
2008, the FASB ratified Emerging Issues Task Force 08-3 (“EITF 08-3”),
“Accounting by Lessees for Maintenance Deposits,” which provides guidance for
accounting for maintenance deposits paid by a lessee to a
lessor. EITF 08-3 is effective for fiscal years beginning after
December 15, 2008, which for us is the first quarter of fiscal
2010. We do not expect the adoption of EITF 08-3 to have a
significant impact on our consolidated financial position and results of
operations.
In April
2009, the FASB issued FASB Staff Position Nos. FAS 115-2 and FAS 124-2,
“Recognition and Presentation of Other-Than-Temporary Impairments,” (“FSP No.
115-2 and FSP No. 124-2”) which segregates credit and noncredit components of
impaired debt securities that are not expected to be sold. Impairments will
still have to be measured at fair value in other comprehensive income. The FSPs
also require some additional disclosures regarding expected cash flows, credit
losses, and an aging of securities with unrealized losses. These FSPs are
effective for interim and annual periods ending after June 15, 2009, but may be
early adopted for the interim and annual periods ending after March 15, 2009.
Nathan’s will adopt the provisions of FSP No. 115-2 and FSP No. 124-2 on March
30, 2009. We do not expect the adoption of FSP No. 115-2 and FSP No. 124-2 to
have a material effect on our consolidated financial position and results of
operations.
In April
2009, the FASB issued FASB Staff Position Nos. FAS 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments, increases the frequency
of fair value disclosures to a quarterly basis instead of annually. The guidance
relates to fair value disclosures for any financial instruments that are not
currently reflected on the balance sheet at fair value. Prior to this FSP, fair
values for these assets and liabilities were only disclosed once a year. These
FSPs are effective for interim and annual periods ending after June 15, 2009,
but may be early adopted for the interim and annual periods ending after March
15, 2009. Nathan’s will adopt the provisions of FSP No. 107-1 and APB
No. 28-1 on March 30, 2009. We do not expect the adoption of FSP No. 107-1 and
APB No. 28-1 to have a material effect on our consolidated financial position
and results of operations.
NOTE
C - INCOME PER SHARE
Basic
income per common share is calculated by dividing income by the weighted-average
number of common shares outstanding and excludes any dilutive effects of stock
options or warrants. Diluted 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
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 fiscal years ended March 29, 2009, March 30, 2008 and
March 25, 2007, respectively:
|
|
Income
from continuing operations
|
|
|
Shares
|
|
|
Income per share
from continuing operations
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
calculation
|
|
$ |
4,958 |
|
|
$ |
4,781 |
|
|
$ |
4,272 |
|
|
|
5,898,000 |
|
|
|
6,085,000 |
|
|
|
5,836,000 |
|
|
$ |
.84 |
|
|
$ |
.79 |
|
|
$ |
.73 |
|
Effect
of dilutive employee stock options and warrants
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
282,000 |
|
|
|
417,000 |
|
|
|
505,000 |
|
|
|
(.04 |
) |
|
|
(.05 |
) |
|
|
(.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
calculation
|
|
$ |
4,958 |
|
|
$ |
4,781 |
|
|
$ |
4,272 |
|
|
|
6,180,000 |
|
|
|
6,502,000 |
|
|
|
6,341,000 |
|
|
$ |
.80 |
|
|
$ |
.74 |
|
|
$ |
.67 |
|
Options
and warrants to purchase 196,833, 55,000 and 98,750 shares of common stock
for the years ended March 29, 2009, March 30, 2008 and March 25, 2007,
respectively, were not included in the computation of diluted earnings per share
because the exercise prices exceeded the average market price of common shares
during the respective periods.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
D - ACCOUNTS AND OTHER RECEIVABLES, NET
Accounts
and other receivables, net, consist of the following:
|
|
March 29,
|
|
|
March 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Franchise
and license royalties
|
|
$ |
1,672 |
|
|
$ |
1,721 |
|
Branded
product sales
|
|
|
2,686 |
|
|
|
2,118 |
|
Real
estate tax refund, net
|
|
|
516 |
|
|
|
- |
|
Other
|
|
|
200 |
|
|
|
95 |
|
|
|
|
5,074 |
|
|
|
3,934 |
|
|
|
|
|
|
|
|
|
|
Less:
allowance for doubtful accounts
|
|
|
205 |
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
Accounts
and other receivables, net
|
|
$ |
4,869 |
|
|
$ |
3,830 |
|
Accounts
receivable are due within 30 days and are stated at amounts due from
franchisees, retail licensees and Branded Product Program customers, net of an
allowance for doubtful accounts. Accounts outstanding longer than the
contractual payment terms are considered past due. The Company determines its
allowance by considering a number of factors, including the length of time
accounts receivable are past due, the Company’s previous loss history, the
customer’s current and expected future ability to pay its obligation
to the Company, and the condition of the general economy and the industry as a
whole. The Company writes off accounts receivable when they are
deemed to be uncollectible.
Real
estate tax refund, net represents the settlement of a multi-year certiorari
proceeding at a Company-owned restaurant, net of associated fees.
Changes
in the Company’s allowance for doubtful accounts for the fiscal years ended
March 29, 2009, March 30, 2008 and March 25, 2007 are as follows:
|
|
March 29,
2009
|
|
|
March 30,
2008
|
|
|
March 25,
2007
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
104 |
|
|
$ |
94 |
|
|
$ |
128 |
|
Bad
debt expense
|
|
|
173 |
|
|
|
- |
|
|
|
- |
|
Uncollectible
marketing fund contributions
|
|
|
27 |
|
|
|
20 |
|
|
|
- |
|
Accounts
written off
|
|
|
(99 |
) |
|
|
(10 |
) |
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$ |
205 |
|
|
$ |
104 |
|
|
$ |
94 |
|
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
E - MARKETABLE SECURITIES
The cost,
gross unrealized gains, gross unrealized losses and fair market value for
marketable securities, which consists entirely of municipal bonds which are
classified as available-for-sale securities are as follows:
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Market
Value
|
|
March
29, 2009
|
|
$ |
25,130 |
|
|
$ |
625 |
|
|
$ |
(85 |
) |
|
$ |
25,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
30, 2008
|
|
$ |
20,590 |
|
|
$ |
365 |
|
|
$ |
(5 |
) |
|
$ |
20,950 |
|
As of
March 29, 2009, there were four securities in an unrealized loss position.
Management has evaluated the securities, individually and in the aggregate, for
other than temporary impairment. No such impairment existed at March 29, 2009
based on management’s intent and ability to hold the securities until market
conditions recover and the market value of the securities is at a minimum equal
to their cost basis. As of March 29, 2009, all securities in an unrealized loss
position have been in an unrealized loss position for less than one
year.
As of
March 29, 2009, the bonds mature at various dates between April 2009 and October 2019. The
following represents the bond maturities by period as follows:
Fair value of Bonds
|
|
Total
|
|
|
Less than
1 Year
|
|
|
1 – 5 Years
|
|
|
5 – 10 Years
|
|
|
After
10 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
29, 2009
|
|
$ |
25,670 |
|
|
$ |
1,049 |
|
|
$ |
15,795 |
|
|
$ |
7,577 |
|
|
$ |
1,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
30, 2008
|
|
$ |
20,950 |
|
|
$ |
2,235 |
|
|
$ |
11,124 |
|
|
$ |
6,346 |
|
|
$ |
1,245 |
|
Proceeds
from the sale of available-for-sale securities and the resulting gross realized
gains and losses included in the determination of net income are as
follows:
|
|
March 29,
2009
|
|
|
March 30,
2008
|
|
|
March 25,
2007
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
Proceeds
|
|
$ |
3,681 |
|
|
$ |
3,100 |
|
|
|
- |
|
Gross
realized losses
|
|
|
(17 |
) |
|
|
- |
|
|
|
- |
|
The
change in net unrealized gains on available-for-sale securities for the fiscal
years ended March 29, 2009, March 30, 2008 and March 25, 2007, of $120, $269,
and $120, respectively, which is net of deferred income taxes, have been
included as a component of comprehensive income.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
F - PROPERTY AND EQUIPMENT, NET
Property
and equipment consists of the following:
|
|
March 29,
|
|
|
March 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
1,094 |
|
|
$ |
1,094 |
|
Building
and improvements
|
|
|
2,164 |
|
|
|
2,130 |
|
Machinery,
equipment, furniture and fixtures
|
|
|
6,290 |
|
|
|
5,931 |
|
Leasehold
improvements
|
|
|
3,834 |
|
|
|
3,817 |
|
Construction-in-progress
|
|
|
3 |
|
|
|
18 |
|
|
|
|
13,385 |
|
|
|
12,990 |
|
Less: accumulated
depreciation and amortization
|
|
|
9,259 |
|
|
|
8,562 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,126 |
|
|
$ |
4,428 |
|
Depreciation
and amortization expense on property and equipment was $809, $764 and $742 for
the fiscal years ended March 29, 2009, March 30, 2008, and March 25, 2007,
respectively.
NOTE
G – DISCONTINUED OPERATIONS
The
Company follows the provisions of SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" ("SFAS No. 144"), related to the accounting
and reporting for components of a business to be disposed of. In
accordance with SFAS No. 144, the definition of discontinued operations includes
components of an entity whose cash flows are clearly identifiable. SFAS No. 144
requires the Company to classify as discontinued operations any restaurant,
property or business outlet that Nathan’s sells, abandons or otherwise disposes
of where the Company will have no further involvement in the operation of, or
cash flows from, such restaurant, property or business outlet
operations.
1.
|
Sale
of NF Roasters Corp.
|
On April 23, 2008, Nathan’s completed the
sale of its wholly-owned subsidiary, NF Roasters Corp. (“NF Roasters”), the
franchisor of the Kenny Rogers Roasters concept, to Roasters Asia Pacific
(Cayman) Limited. Pursuant to the Stock
Purchase Agreement (“NFR Agreement”), Nathan’s sold all of the stock of NF
Roasters for $4,000 in cash.
In
connection with the NFR Agreement, Nathan’s and its previously-owned subsidiary,
Miami Subs, may continue to sell Kenny Rogers products within the then existing
restaurants without payment of royalties.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
G (continued)
The
following is a summary of the assets and liabilities of NF Roasters, as of the
date of sale, that were sold:
Cash
|
|
$ |
8 |
(A) |
Accounts
receivable, net
|
|
|
1 |
|
Deferred
income taxes, net
|
|
|
230 |
|
Intangible
assets, net
|
|
|
391 |
|
Other
assets
|
|
|
30 |
|
Total
assets sold
|
|
|
660 |
|
|
|
|
|
|
Accrued
expenses
|
|
|
27 |
(B) |
Other
liabilities
|
|
|
328 |
|
Total
liabilities sold
|
|
|
355 |
|
|
|
|
|
|
Net
assets sold
|
|
$ |
305 |
|
|
(A)
|
–
Represents unexpended marketing
funds.
|
|
(B)
|
–
Includes unexpended marketing funds of
$8.
|
Nathan’s
realized a gain on the sale of NF Roasters of $3,656 net of professional fees
of $39 and recorded income
taxes of $1,289 on the gain during fiscal year ended 2009. Nathan’s has determined
that it will not have any significant cash flows or continuing involvement in
the ongoing operations of NF Roasters.
Therefore,
the results of operations for NF Roasters, including the gain on disposal, have
been presented as discontinued operations for all periods presented. The
accompanying balance sheet for the fiscal year ended March 30, 2008 has been
revised to reflect the assets and liabilities of NF Roasters that were
subsequently sold, as held for sale as of that date.
2.
|
Sale
of Miami Subs Corporation
|
On June
7, 2007, Nathan’s completed the sale of its wholly-owned subsidiary, Miami Subs
Corporation (“Miami Subs”) to Miami Subs Capital Partners I, Inc. (“Purchaser”).
Pursuant to the Stock Purchase Agreement (“MSC Agreement”), Nathan’s sold all of
the stock of Miami Subs in exchange for $3,250, consisting of $850 in cash and
the Purchaser’s promissory note in the principal amount of $2,400 (the “MSC
Note”). The MSC Note bears interest at 8% per annum and is secured by
a lien on all of the assets of Miami Subs and by the personal guarantees of two
principals of the Purchaser. The Purchaser may also prepay the MSC Note at any
time. In the event the MSC Note was fully repaid within one year of the sale,
Nathan’s would have been required to reduce the amount due by $250. Due to the
ability to prepay the loan and reduce the amount due, the recognition of $250
was initially deferred. The MSC Note was not prepaid within the requisite
timeframe and Nathan’s recognized the deferred amount of $250 as additional gain
and recorded income taxes of $97 during the fiscal year ended March 29,
2009.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
G (continued)
Effective
August 31, 2008, Nathan’s and the Purchaser agreed to extend the due date of the
MSC Note from its initial four-year term until April 2014, to reduce the monthly
payment and to settle certain claims under the MSC Agreement. At that time,
management evaluated the restructured MSC Note for impairment by comparing the
present value of the future cash flows on the MSC Note to the current carrying
value and determined that no impairment existed. The current and
long-term portions of the MSC Note as of March 29, 2009 reflect the terms of the
restructured MSC Note.
In
accordance with the MSC Agreement, Nathan’s retained ownership of Miami Subs’
then-owned corporate office in Fort Lauderdale, Florida.
The
following is a summary of the assets and liabilities of Miami Subs, as of the
date of sale, that were sold:
Cash
|
|
$ |
674 |
(A) |
Accounts
receivable, net
|
|
|
213 |
|
Notes
receivable, net
|
|
|
153 |
|
Prepaid
expenses and other current assets
|
|
|
119 |
|
Deferred
income taxes, net
|
|
|
719 |
|
Property
and equipment, net
|
|
|
48 |
|
Intangible
assets, net
|
|
|
1,803 |
|
Other
assets, net
|
|
|
46 |
|
Total
assets sold
|
|
|
3,775 |
|
|
|
|
|
|
Accounts
payable
|
|
|
27 |
|
Accrued
expenses
|
|
|
1,373 |
(A) |
Other
liabilities
|
|
|
395 |
|
Total
liabilities sold
|
|
|
1,795 |
|
|
|
|
|
|
Net
assets sold
|
|
$ |
1,980 |
|
(A) –
Includes unexpended marketing funds of $565.
In
connection with the MSC Agreement, the Purchaser may continue to sell
Nathan’s Famous and Arthur Treacher’s products within
the existing restaurant system in exchange for a royalty payment of $6 per
month.
Nathan’s
initially realized a gain on the sale of Miami Subs of $983, net of professional
fees of $37, and recorded income taxes of $356 on the gain during fiscal year
ended March 30, 2008. Nathan’s also recognized an additional gain of $250, or
$153 net of tax, during the fiscal year ended March 29, 2009, resulting from the
contingent consideration which was deferred at the time of sale. Nathan’s has
determined that it will not have any significant cash flows or continuing
involvement in the ongoing operations of Miami Subs. Therefore, the results of
operations for Miami Subs, including the gains on disposal, have been presented
as discontinued operations for all periods presented.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
G (continued)
3.
|
Sale
of Leasehold Interest
|
During
the fiscal year ended March 30, 2008, Nathan’s completed a Lease Termination
Agreement with respect to three leased properties in Fort Lauderdale,
Florida, with its landlord, and CVS 3285 FL, L.L.C., (“CVS”) to sell its
leasehold interests to CVS for $2,000. As the properties were subject to certain
sublease and management agreements between Nathan’s and the then-current
occupants, Nathan’s made payments to, or forgave indebtedness of, the
then-current occupants of the properties and paid brokerage commissions of
$494 in the aggregate. Nathan’s made the properties available to CVS
by May 29, 2007, and Nathan’s received the proceeds of the sale on June 5, 2007.
Nathan’s recognized a gain of $1,506 and recorded income taxes of $557 during
the fiscal year ended March 30, 2008. The results of operations for these
properties, including the gain on disposal, have been included as discontinued
operations for all periods presented.
On July
13, 2005, Nathan’s sold all of its right, title and interest in and to a vacant
real estate parcel previously utilized as a parking lot, adjacent to a
Company-owned restaurant, located in Brooklyn, New York. Nathan’s
also entered into an agreement pursuant to which an affiliate of the buyer
assumed all of Nathan’s rights and obligations under a lease for an adjacent
property and agreed to pay $500 to Nathan’s for its leasehold interest on the
earlier of (i) three years after closing or (ii) six months after the closing of
the adjacent property. On January 17, 2006, the adjacent property was
sold. The Company received $100 during fiscal 2006 and the remaining
balance of $400 was received in October 2006 and is included as a gain from
discontinued operations during fiscal 2007.
5.
|
Summary Financial
Information
|
The
following is a summary of all discontinued operations for fiscal years ended
March 29, 2009, March 30, 2008 and March 25, 2007:
|
|
March 29,
2009
|
|
|
March 30,
2008
|
|
|
March 25,
2007
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
(excluding gains from dispositions)
|
|
$ |
10 |
|
|
$ |
593 |
|
|
$ |
3,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
from dispositions before income taxes
|
|
$ |
3,906 |
|
|
$ |
2,489 |
|
|
$ |
400 |
|
Income
before income taxes
|
|
$ |
3,914 |
|
|
$ |
2,824 |
|
|
$ |
2,104 |
|
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
G (continued)
The
following is a summary of the assets and liabilities held for sale as of March
30, 2008
Cash
|
|
$ |
10 |
(A) |
Accounts
receivable, net
|
|
|
3 |
|
Deferred
income taxes
|
|
|
230 |
|
Intangible
assets, net
|
|
|
393 |
|
Other
assets, net
|
|
|
30 |
|
Total
assets held for sale
|
|
|
666 |
|
|
|
|
|
|
Accrued
expenses
|
|
|
29 |
(A) |
Other
liabilities
|
|
|
325 |
|
Total
liabilities held for sale
|
|
|
354 |
|
|
|
|
|
|
Net
assets held for sale
|
|
$ |
312 |
|
(A)
–
Includes unexpended marketing funds of $8.
NOTE
H – ACCRUED EXPENSES, OTHER CURRENT LIABILITIES AND OTHER LIABILITIES
Accrued
expenses and other current liabilities consist of the following:
|
|
March 29,
|
|
|
March 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Payroll
and other benefits
|
|
$ |
1,770 |
|
|
$ |
1,803 |
|
Accrued
operating expenses
|
|
|
926 |
|
|
|
1,029 |
|
Professional
and legal costs
|
|
|
137 |
|
|
|
234 |
|
Self-insurance
costs
|
|
|
51 |
|
|
|
107 |
|
Rent
and occupancy costs
|
|
|
119 |
|
|
|
153 |
|
Taxes
payable
|
|
|
50 |
|
|
|
60 |
|
Unexpended
advertising funds
|
|
|
46 |
|
|
|
236 |
|
Deferred
revenue
|
|
|
634 |
|
|
|
188 |
|
Other
|
|
|
134 |
|
|
|
204 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,867 |
|
|
$ |
4,014 |
|
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
H (continued)
Other
liabilities consist of the following:
|
|
March 29,
|
|
|
March 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Deferred
income – supplier contracts
|
|
$ |
4 |
|
|
$ |
38 |
|
Deferred
development fees
|
|
|
193 |
|
|
|
214 |
|
Reserve
for uncertain tax positions (Note J)
|
|
|
841 |
|
|
|
773 |
|
Deferred
rental liability
|
|
|
24 |
|
|
|
81 |
|
Deferred
royalty
|
|
|
18 |
|
|
|
31 |
|
|
|
$ |
1,080 |
|
|
$ |
1,137 |
|
NOTE
I - INDEBTEDNESS
The
Company maintained a $7,500 line of credit with its primary banking
institution. Borrowings under the line of credit were intended to be
used to meet the normal short-term working capital needs of the
Company. The line of credit was not a commitment and, therefore,
credit availability was subject to ongoing approval. The line of
credit expired on October 1, 2008, as the Company elected not to renew the line
of credit. There were no borrowings outstanding under this line of credit as of
March 30, 2008.
NOTE
J - INCOME TAXES
Income
tax provision (benefit) consists of the following for the fiscal years ended
March 29, 2009, March 30, 2008, and March 25, 2007:
|
|
March 29,
2009
|
|
|
March
30,
2008
|
|
|
March
25,
2007
|
|
Federal
|
|
|
|
|
|
|
|
|
|
Current
|
|
$ |
2,012 |
|
|
$ |
1,314 |
|
|
$ |
1,954 |
|
Deferred
|
|
|
(53 |
) |
|
|
523 |
|
|
|
(329 |
) |
|
|
|
1,959 |
|
|
|
1,837 |
|
|
|
1,625 |
|
State
and local
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
511 |
|
|
|
497 |
|
|
|
739 |
|
Deferred
|
|
|
(9 |
) |
|
|
93 |
|
|
|
(58 |
) |
|
|
|
502 |
|
|
|
590 |
|
|
|
681 |
|
|
|
$ |
2,461 |
|
|
$ |
2,427 |
|
|
$ |
2,306 |
|
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
J (continued)
Total
income tax provision (benefit) for the fiscal years ended March 29, 2009, March
30, 2008 and March 25, 2007 differs from the amounts computed by applying the
United States Federal income tax rate of 34% to income before income taxes
as a result of the following:
|
|
March 29,
2009
|
|
|
March 30,
2008
|
|
|
March 25,
2007
|
|
|
|
|
|
|
|
|
|
|
|
Computed
“expected” tax expense
|
|
$ |
2,522 |
|
|
$ |
2,450 |
|
|
$ |
2,237 |
|
State
and local income taxes, net of Federal income tax benefit
|
|
|
314 |
|
|
|
360 |
|
|
|
245 |
|
Tax-exempt
investment earnings
|
|
|
(305 |
) |
|
|
(309 |
) |
|
|
(220 |
) |
Nondeductible
meals and entertainment and other
|
|
|
(70 |
) |
|
|
(74 |
) |
|
|
44 |
|
|
|
$ |
2,461 |
|
|
$ |
2,427 |
|
|
$ |
2,306 |
|
The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities are presented
below:
|
|
March 29,
|
|
|
March 30,
|
|
|
|
2009
|
|
|
2008
|
|
Deferred
tax assets
|
|
|
|
|
|
|
Accrued
expenses
|
|
$ |
180 |
|
|
$ |
331 |
|
Allowance
for doubtful accounts
|
|
|
82 |
|
|
|
37 |
|
Deferred
revenue
|
|
|
404 |
|
|
|
275 |
|
Depreciation
expense
|
|
|
752 |
|
|
|
894 |
|
Expenses
not deductible until paid
|
|
|
21 |
|
|
|
43 |
|
Deferred
Stock Compensation
|
|
|
433 |
|
|
|
261 |
|
Excess
of straight line over actual rent
|
|
|
32 |
|
|
|
63 |
|
Other
|
|
|
7 |
|
|
|
10 |
|
Total
gross deferred tax assets
|
|
$ |
1,911 |
|
|
$ |
1,914 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
|
Difference
in tax bases of installment gains not yet recognized
|
|
|
282 |
|
|
|
347 |
|
Deductible
prepaid expense
|
|
|
172 |
|
|
|
209 |
|
Unrealized
gain on marketable securities
|
|
|
224 |
|
|
|
152 |
|
Other
|
|
|
109 |
|
|
|
73 |
|
Total
gross deferred tax liabilities
|
|
|
787 |
|
|
|
781 |
|
Net
deferred tax asset
|
|
|
1,124 |
|
|
|
1,133 |
|
Less
current portion
|
|
|
(696 |
) |
|
|
(697 |
) |
Long-term
portion
|
|
$ |
428 |
|
|
$ |
436 |
|
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
J (continued)
A
valuation allowance is provided when it is more likely than not that some
portion, or all, of the deferred tax assets will not be realized. Based upon
anticipated taxable income, management believes that it is more likely than not
that the Company will realize the benefit of this net deferred tax asset
of $1,124 and $1,333 at March 29, 2009 and March 30, 2008,
respectively.
In July
2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes” ("FIN No. 48"), which clarified the accounting and disclosures for
uncertainty in income taxes recognized in the financial statements in accordance
with SFAS No. 109, "Accounting for Income Taxes." FIN No. 48 also provided
guidance on the derecognition of uncertain tax positions, financial statement
classification, accounting for interest and penalties, accounting for interim
periods and added new disclosure requirements.
In May
2007, the FASB issued FASB Staff Position (“FSP”) No. FIN 48-1, “Definition of Settlement in
FASB Interpretation No. 48”, an amendment of FASB
Interpretation FIN No. 48, “Accounting for Uncertainty in Income Taxes”, (“FIN
No. 48-1”) to clarify that a tax position is effectively settled for the purpose
of recognizing previously unrecognized tax benefits in accordance with paragraph
10(b) of that Interpretation if (a) the taxing authority has completed all of
its required or expected examination procedures, (b) the enterprise does not
intend to appeal or litigate any aspect of the tax position, and (c) it is
considered remote that the taxing authority would reexamine the tax position.
FIN No. 48-1 also conforms to the terminology used in FIN No. 48 to describe
measurement and recognition to the conclusions reached in the
FSP. FIN No. 48-1 is effective as of the same dates as FIN No. 48,
with retrospective application required for entities that have not applied FIN
No. 48 in a manner consistent with the provisions of the FSP.
Nathan’s
adopted the provisions of FIN No. 48 and FIN No. 48-1 on March 26, 2007 which
resulted in a $155 adjustment to increase tax liabilities and decrease opening
retained earnings in connection with a cumulative effect of a change in
accounting principle.
The
following is a tabular reconciliation of the total amounts of unrecognized tax
benefits excluding interest and penalties for the fiscal years ended March 29,
2009 and March 30, 2008.
|
|
March
29,
|
|
|
March
30,
|
|
|
|
2009
|
|
|
2008
|
|
Balance
at beginning of year
|
|
$ |
466 |
|
|
$ |
517 |
|
Increases
based on tax positions taken in prior years
|
|
|
14 |
|
|
|
- |
|
Decreases
based on tax positions taken in prior years
|
|
|
- |
|
|
|
- |
|
Increase
based on tax positions taken in current year
|
|
|
21 |
|
|
|
21 |
|
Reductions
of tax positions taken in prior years
|
|
|
- |
|
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
Unrecognized
tax benefits, end of year
|
|
$ |
501 |
|
|
$ |
466 |
|
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
J (continued)
The
amount of unrecognized tax benefits at March 29, 2009 and March 30, 2008
was $501 and $466, respectively, all of which would impact Nathan’s
effective tax rate, if recognized. Nathan’s recognizes accrued
interest and penalties associated with unrecognized tax benefits as part of the
income tax provision. As of March 29, 2009 and March 30, 2008, the
Company had $370 and $307, respectively, accrued for the payment of
interest and penalties. The Company does not expect its unrecognized
tax benefits to change significantly over the next 12 months.
Nathan’s
is subject to tax in the U.S. and various state and local
jurisdictions. The Company is currently under audit by the Internal
Revenue Service for the fiscal year ended March 25, 2007. New York
State completed an examination of fiscal years ending March 2005
through March 2007, resulting in no changes to the returns as filed. The
earliest tax years’ that are still subject to examination by taxing authorities
by major jurisdictions are as follows:
Jurisdiction
|
|
Fiscal Year
|
Federal
|
|
2006
|
New
York State
|
|
2008
|
New
York City
|
|
2006
|
NOTE
K – STOCKHOLDERS’ EQUITY, STOCK PLANS AND OTHER EMPLOYEE BENEFIT
PLANS
On
December 15, 1992, the Company adopted the 1992 Stock Option Plan (the “1992
Plan”), which provided for the issuance of incentive stock options (“ISOs”) to
officers and key employees and nonqualified stock options to directors, officers
and key employees. Up to 525,000 shares of common stock were reserved
for issuance for the exercise of options granted under the 1992 Plan. The 1992
Plan expired with respect to granting of new options on December 2,
2002.
In April
1998, the Company adopted the Nathan’s Famous, Inc. 1998 Stock Option Plan (the
“1998 Plan”), which provides for the issuance of nonqualified stock options to
directors, officers and key employees. Up to 500,000 shares of common
stock were reserved for issuance upon the exercise of options granted under the
1998 Plan. The 1998 Plan expired with respect to granting
of new options on April 5, 2008.
In June
2001, the Company adopted the Nathan’s Famous, Inc. 2001 Stock Option Plan (the
“2001 Plan”), which provides for the issuance of nonqualified stock options to
directors, officers and key employees. Up to 350,000 shares of common
stock were originally reserved for issuance upon the exercise of options granted
and for future issuance in connection with awards under the 2001
Plan. On September 12, 2007, Nathan’s shareholders approved certain
modifications to the 2001 Plan, which increased the number of options available
for future grant by 275,000 shares. On September 17, 2007, 110,000 stock options
were granted and as of March 29, 2009, there were 168,500 shares available to be
issued for future grants under the 2001 Plan.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
K (continued)
In June
2002, the Company adopted the Nathan’s Famous, Inc. 2002 Stock Incentive Plan
(the “2002 Plan”), which provides for the issuance of nonqualified stock options
or restricted stock awards to directors, officers and key
employees. Up to 300,000 shares of common stock have been reserved
for issuance in connection with awards under the 2002 Plan. As of March 29,
2009, there were 2,500 shares available to be issued for future grants under the
2002 Plan.
The 2001
Plan and the 2002 Plan expire on June 13, 2011 and June 17, 2012, respectively,
unless terminated earlier by the Board of Directors under conditions specified
in the respective Plan.
The
Company has outstanding 222,558 of stock options previously issued
upon the acquisition of Miami Subs during the fiscal year ended March 26, 2000.
These options have an exercise price of $3.1875 and expire on September 30,
2009.
In
general, options granted under the Company’s stock incentive plans have terms of
five or ten years and vest over periods of between three and five years. The
Company has historically issued new shares of common stock for options that have
been exercised and determined the grant date fair value of options and warrants
granted using the Black-Scholes option valuation model.
On July
17, 1997, the Company granted its Chairman and then Chief Executive Officer a
warrant to purchase 150,000 shares of the Company’s common stock at an exercise
price of $3.25 per share, representing the market price of the Company’s common
stock on the date of grant. The warrant was exercised in July
2007.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
K (continued)
A summary
of the status of the Company’s stock options and warrants at March 29, 2009,
March 30, 2008 and March 25, 2007 and changes during the fiscal years then ended
is presented in the tables below:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
price
|
|
|
Shares
|
|
|
price
|
|
|
Shares
|
|
|
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding – beginning of year
|
|
|
1,152,308 |
|
|
$ |
6.54 |
|
|
|
1,172,308 |
|
|
$ |
5.21 |
|
|
|
1,332,024 |
|
|
$ |
3.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
- |
|
|
|
|
|
|
|
110,000 |
|
|
|
17.43 |
|
|
|
197,500 |
|
|
|
13.08 |
|
Expired
|
|
|
- |
|
|
|
|
|
|
|
(8,500 |
) |
|
|
6.20 |
|
|
|
(4,000 |
) |
|
|
6.20 |
|
Exercised
|
|
|
125,000 |
|
|
|
3.30 |
|
|
|
(121,500 |
) |
|
|
3.59 |
|
|
|
(353,216 |
) |
|
|
3.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding - end of year
|
|
|
1,027,308 |
|
|
$ |
6.94 |
|
|
|
1,152,308 |
|
|
$ |
6.54 |
|
|
|
1,172,308 |
|
|
$ |
5.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable - end of year
|
|
|
830,475 |
|
|
$ |
5.07 |
|
|
|
884,306 |
|
|
$ |
4.02 |
|
|
|
943,141 |
|
|
$ |
3.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
fair value of options granted
|
|
|
|
|
|
$ |
- |
|
|
|
|
|
|
$ |
5.83 |
|
|
|
|
|
|
$ |
6.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
outstanding – beginning of year
|
|
|
|
|
|
$ |
- |
|
|
|
150,000 |
|
|
$ |
3.25 |
|
|
|
150,000 |
|
|
$ |
3.25 |
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
(150,000 |
) |
|
|
(3.25 |
) |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
outstanding - end of year
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
150,000 |
|
|
$ |
3.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
exercisable - end of year
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
150,000 |
|
|
$ |
3.25 |
|
During
the fiscal years ended March 29, 2009, March 30, 2008 and March 25, 2007,
125,000, 271,500 and 308,784 stock options and warrants were exercised which
aggregated proceeds of $413, $924 and $722, respectively, to the
Company.
The
aggregate intrinsic values of the stock options exercised during the fiscal
years ended March 29, 2009, March 30, 2008 and March 25, 2007 were $1,250,
$3,169 and $2,658 respectively.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
K (continued)
The
following table summarizes information about stock options at March 29,
2009:
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Contractual Life
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at March 29, 2009
|
|
|
1,027,308 |
|
|
$ |
6.94 |
|
|
|
2.93 |
|
|
$ |
6,723,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at March 29, 2009
|
|
|
830,475 |
|
|
$ |
5.07 |
|
|
|
2.26 |
|
|
$ |
6,723,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
prices ranges from $3.19 to $17.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
Common
Stock Purchase Rights
|
On June
20, 1995, the Board of Directors declared a dividend distribution of one common
stock purchase right (the “Rights”) for each outstanding share of common stock
of the Company. The distribution was paid on June 20, 1995 to the
shareholders of record on June 20, 1995. The terms of the Rights were
amended on April 6, 1998, December 8, 1999, June 15, 2005 and June 4, 2008.
Pursuant to the June 4, 2008 amendment, the final expiration date of the Rights
was accelerated to June 4, 2008 thereby terminating the Rights. Each Right, as
amended, entitled the registered holder thereof to purchase from the Company one
share of the common stock at a price of $4.00 per share, subject to adjustment
for anti-dilution. New Common Stock certificates issued after June
20, 1995 upon transfer or new issuance of the common stock contained a notation
incorporating the Rights Agreement by reference.
The
Rights were not exercisable until the Distribution Date. The
Distribution Date was the earlier to occur of (i) ten days following a public
announcement that a person or group of affiliated or associated persons (an
“Acquiring Person”) acquired, or obtained the right to acquire, beneficial
ownership of 15% or more of the outstanding shares of the common stock, as
amended, or (ii) ten business days (or such later date as may be determined by
action of the Board of Directors prior to such time as any person becomes an
Acquiring Person) following the commencement, or announcement of an intention to
make a tender offer or exchange offer by a person (other than the Company, any
wholly-owned subsidiary of the Company or certain employee benefit plans) which,
if consummated, would result in such person becoming an Acquiring
Person. Prior to the June 4, 2008 amendment, the Rights were
scheduled to expire on June 19, 2010.
At any
time prior to the time at which a person or group or affiliated or associated
persons acquired beneficial ownership of 15% or more of the outstanding shares
of the common stock of the Company, the Board of Directors of the Company had
the ability to redeem the Rights in whole, but not in part, at a price of $.001
per Right. In addition, the Rights Agreement, as amended, permitted
the Board of Directors, following the acquisition by a person or group of
beneficial ownership of 15% or more of the common stock (but before an
acquisition of 50% or more of common stock), to exchange the Rights (other than
Rights owned by such 15% person or group), in whole or in part, for common
stock, at an exchange ratio of one share of common stock per Right.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
K (continued)
Until a
Right was exercised, the holder thereof, as such, had no rights as a shareholder
of the Company, including, without limitation, the right to vote or to receive
dividends. The Company had reserved 9,501,491 shares of common stock
for issuance upon exercise of the Rights.
On June
4, 2008, Nathan’s approved the amendment of its then-existing shareholder rights
plan to accelerate the final expiration date of the common stock purchase rights
to June 4, 2008, thereby terminating the then-existing Rights, as well as the
adoption of a new stockholder rights plan (the “New Rights Plan”) under which
all stockholders of record as of June 5, 2008 received rights to purchase shares
of common stock (the “New Rights”). The New Rights Plan replaced and updated the
Company’s previously existing Rights plan.
The New
Rights were distributed as a dividend. Initially, the New Rights will attach to,
and trade with, the Company’s common stock. Subject to the terms,
conditions and limitations of the New Rights Plan, the New Rights will become
exercisable if (among other things) a person or group acquires 15% or more of
the Company’s common stock. Upon such an event and payment of the purchase price
of $30 (the “New Right Purchase Price”), each New Right (except those held by
the acquiring person or group) will entitle the holder to acquire one share of
the Company’s common stock (or the economic equivalent thereof) or, if the
then-current market price is less than the New Right Purchase Price, a number of
shares of the Company’s common stock which at the time of the transaction has a
market value equal to the New Right Purchase Price. Based on the market price of
the Company’s common stock on June 4, 2008, the date the New Rights Plan was
adopted, of $13.41 per share, and due to the fact that the Company is not
required to issue fractional shares, the current exchange ratio is two shares of
common stock per New Right. The Company’s Board of Directors may redeem the New
Rights prior to the time they are triggered. Upon adoption of the New Rights
Plan, the Company reserved 16,589,516 shares of common stock for issuance upon
exercise of the New Rights. At March 29, 2009, the Company reserved
15,727,910 shares of common stock, based upon the closing market price per share
on Friday, March 27, 2009 of $12.99. The New Rights will expire on June 5, 2013
unless earlier redeemed or exchanged by the Company.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
K (continued)
|
4.
|
Stock
Repurchase Program
|
Through
March 29, 2009, Nathan’s purchased a total of 2,693,806 shares of common stock
at a cost of approximately $18,798 in completion of the first, second and
third stock repurchase plans previously authorized by the Board of
Directors. Of these repurchased shares, 693,806 shares were
repurchased at a cost of $9,712 during the year ended March 29,
2009. On November 5, 2007, Nathan’s Board of Directors authorized a
third stock repurchase plan for the purchase of up to 500,000 shares of the
Company’s common
stock, under which 500,000 shares were repurchased at a cost of
$7,312 during the fiscal year ended March 29, 2009. On
November 13, 2008, Nathan’s Board of Directors authorized
a fourth stock repurchase plan for the purchase of up to 500,000
shares of the Company’s common stock,
under which 193,806 shares were repurchased at a cost of $2,400 during the
fiscal year ended March 29, 2009
On June
11, 2008, Nathan’s and Mutual Securities, Inc. (“MSI”) entered into an agreement
(the “10b5-1 Agreement”) pursuant to which MSI was authorized to purchase shares
of the Company’s common stock, par value $.01 per share (“Common Stock”) having
a value of up to an aggregate $6 million.
On
February 5, 2009, Nathan’s and MSI entered into another agreement (the “second
10b5-1 Agreement”) pursuant to which MSI was authorized to purchase shares
of the Company’s common stock, having a value of up to an aggregate $3.6
million, which purchases may commence on March 16, 2009. Both the
first and second 10b5-1 Agreements were adopted under the safe harbor provided
by Rule 10b5-1 of the Securities Exchange Act of 1934 in order to assist the
Company in implementing its previously announced stock purchase plans, in each
case for the purchase of up to 500,000 shares. The second 10b5-1
Agreement shall terminate no later than March 15, 2010.
Purchases
may be made from time to time, depending on market conditions, in open market or
privately negotiated transactions, at prices deemed appropriate by
management. There is no set time limit on the repurchases to be made
under the fourth stock repurchase plan.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
K (continued)
Effective
January 1, 2007, Howard M. Lorber, previously Chairman of the Board and Chief
Executive Officer, assumed the newly-created position of Executive Chairman of
the Board of Nathan’s and Eric Gatoff, previously Vice President and Corporate
Counsel, became Chief Executive Officer of Nathan’s.
In
connection with the foregoing, the Company entered into an employment agreement
with each of Messrs. Lorber (as amended, the “Lorber Employment Agreement”) and
Gatoff (the “Gatoff Employment Agreement”). Under the terms of the
Lorber Employment Agreement, Mr. Lorber will serve as Executive Chairman of the
Board from January 1, 2007 until December 31, 2012, unless his employment is
terminated in accordance with the terms of the Lorber Employment Agreement.
Pursuant to the Lorber Employment Agreement, Mr. Lorber receives a base salary
of $400, and will not receive a contractually-required bonus. The Lorber
Employment Agreement provides for a three-year consulting period after the
termination of employment during which Mr. Lorber will receive a consulting fee
of $200 per year in exchange for his agreement to provide no less than 15 days
of consulting services per year, provided, Mr. Lorber is not required to provide
more than 50 days of consulting services per year.
The
Lorber Employment Agreement provides Mr. Lorber with the right to participate in
employment benefits offered to other Nathan’s executives. During and
after the contract term, Mr. Lorber is subject to certain confidentiality,
non-solicitation and non-competition provisions in favor of the
Company.
In the
event that Mr. Lorber’s employment is terminated without cause, he is entitled
to receive his salary and bonus for the remainder of the contract term. The
employment agreement further provides that in the event there is a change in
control, as defined in the agreement, Mr. Lorber has the option, exercisable
within one year after such event, to terminate his employment agreement. Upon
such termination, he has the right to receive a lump sum cash payment equal to
the greater of (A) his salary and annual bonuses for the remainder of the
employment term (including a prorated bonus for any partial fiscal year), which
bonus shall be equal to the average of the annual bonuses awarded to him during
the three fiscal years preceding the fiscal year of termination; or (B) 2.99
times his salary and annual bonus for the fiscal year immediately preceding the
fiscal year of termination, as well as a lump sum cash payment equal to the
difference between the exercise price of any exercisable options having an
exercise price of less than the then current market price of the Company’s
common stock and such then current market price. In addition, Nathan’s will
provide Mr. Lorber with a tax gross-up payment to cover any excise tax due. In
the event of termination due to Mr. Lorber’s death or disability, he is entitled
to receive an amount equal to his salary and annual bonuses for a three-year
period, which bonus shall be equal to the average of the annual bonuses awarded
to him during the three fiscal years preceding the fiscal year of
termination.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
K (continued)
In
connection with Mr. Lorber’s prior employment agreement dated January 1, 2005,
we issued to Mr. Lorber 50,000 shares of restricted common stock, which
vest ratably over
the 5 years. A charge of $363 based on the fair market value of the Company’s
common stock of $7.25 on grant date has been charged to earnings ratably over
the vesting period. As of March 29, 2009, March 30, 2008 and March 25, 2007,
50,000, 40,000 and 30,000 shares have been vested with none, 10,000 and 20,000
shares non-vested, at March 29, 2009, March 30, 2008 and March 25,2007,
respectively.
Under the
terms of the Gatoff Employment Agreement, Mr. Gatoff will serve as Chief
Executive Officer from January 1, 2007 until December 31, 2008, which
period shall extend for additional one-year periods unless either party delivers
notice of non-renewal no less than 180 days prior to the end of the term then in
effect. Consequently, the Gatoff Employment Agreement has been extended through
December 31, 2009, based on the original terms, and no non-renewal notice has
been given as of June 9, 2009. Pursuant to the agreement, Mr.
Gatoff will receive a base salary of $225 and an annual bonus equal in an amount
of up to 100% of his base salary, depending upon the Company’s achievement of
performance goals established and agreed to by the Compensation Committee and
Mr. Gatoff for each fiscal year during the employment term. and further, that
Mr. Gatoff will be entitled to a minimum bonus of 50% of his base salary for the
first two years of the Gatoff Employment Agreement. The Gatoff agreement
provides for an automobile allowance and the right of Mr. Gatoff to participate
in employment benefits offered to other Nathan’s executives. During and after
the contract term, Mr. Gatoff is subject to certain confidentiality,
non-solicitation and non-competition provisions in favor of the
Company.
The
Company and its President and Chief Operating Officer entered into an employment
agreement on December 28, 1992 for a period commencing on January 1, 1993 and
ending on December 31, 1996. The employment agreement automatically
extends for successive one-year periods unless notice of non-renewal is provided
in accordance with the agreement. Consequently, the employment agreement has
been extended annually through December 31, 2009, based on the original terms,
and no non-renewal notice has been given as of June 9, 2009. The
agreement provides for annual compensation of $275, which has been increased to
$289 as a result of pay raises, plus certain other benefits. In
November 1993, the Company amended this agreement to include a provision under
which the officer has the right to terminate the agreement and receive payment
equal to approximately three times annual compensation upon a change in control,
as defined.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
K (continued)
As a
result of the sale of Miami Subs, the employment agreement between Miami Subs
and its then President and Chief Operating Officer (who also serves as an
executive officer of Nathan’s) was cancelled and a new employment agreement was
entered into with Nathan’s effective May 31, 2007. The agreement provides for
annual compensation of $210 plus certain other benefits and automatically renews
annually unless 180 days prior written notice is given to the employee. No
non-renewal notice has been given as of June 9, 2009. Consequently, the
employment agreement has been extended through September 30, 2010. The agreement
includes a provision under which the officer has the right to terminate the
agreement and receive payment equal to approximately three times his annual
compensation upon a change in control, as defined. In the event a non-renewal
notice is delivered, the Company must pay the officer an amount equal to the
employee’s base salary as then in effect.
The
Company and one employee of Nathan’s entered into a change of control agreement
effective May 31, 2007 for annual compensation of $136 per year. The
agreement additionally includes a provision under which the employee has the
right to terminate the agreement and receive payment equal to approximately
three times his annual compensation upon a change in control, as
defined.
Each
employment agreement terminates upon death or voluntary termination by the
respective employee or may be terminated by the Company on up to 30-days’ prior
written notice by the Company in the event of disability or “cause,” as defined
in each agreement.
The
Company has a defined contribution retirement plan under Section 401(k) of the
Internal Revenue Code covering all nonunion employees over age 21 who have been
employed by the Company for at least one year. Employees may
contribute to the plan, on a tax-deferred basis, up to 20% of their total annual
salary. The Company matches contributions at a rate of $.25 per
dollar contributed by the employee on up to a maximum of 3% of the employee’s
total annual salary. Employer contributions for the fiscal years
ended March 29, 2009, March 30, 2008 and March 25, 2007 were $27, $29, and $32,
respectively.
The
Company provides, on a contributory basis, medical benefits to active
employees. The Company does not provide medical benefits to
retirees.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
L - COMMITMENTS AND CONTINGENCIES
The
Company’s operations are principally conducted in leased premises. The leases
generally have initial terms ranging from 5 to 20 years and usually provide for
renewal options ranging from 5 to 20 years. Most of the leases
contain escalation clauses and common area maintenance charges (including taxes
and insurance). Certain of the leases require additional (contingent)
rental payments if sales volumes at the related restaurants exceed specified
limits.
As of
March 29, 2009, the
Company has noncancelable operating lease commitments, net of certain sublease
rental income, as follows:
|
|
Lease
|
|
|
Sublease
|
|
|
Net lease
|
|
|
|
commitments
|
|
|
income
|
|
|
commitments
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$ |
1,429 |
|
|
$ |
390 |
|
|
$ |
1,039 |
|
2011
|
|
|
809 |
|
|
|
282 |
|
|
|
527 |
|
2012
|
|
|
601 |
|
|
|
220 |
|
|
|
381 |
|
2013
|
|
|
544 |
|
|
|
190 |
|
|
|
354 |
|
2014
|
|
|
541 |
|
|
|
96 |
|
|
|
445 |
|
Thereafter
|
|
|
7,056 |
|
|
|
98 |
|
|
|
6,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10,980 |
|
|
$ |
1,276 |
|
|
$ |
9,704 |
|
Aggregate
rental expense, net of sublease income, under all current leases amounted to
$1,215, $1,204, and $1,174 for the fiscal years ended March 29, 2009, March 30,
2008, and March 25, 2007, respectively. Sublease rental income was
$203, $194 and $140 for the fiscal years ended March 29, 2009, March 30, 2008
and March 25, 2007, respectively.
Contingent
rental payments on building leases are typically made based on the percentage of
gross sales on the individual restaurants that exceed predetermined
levels. The percentage of gross sales to be paid and related gross
sales level vary by unit. Contingent rental expense, which is
inclusive of common area maintenance charges, was approximately $147, $59 and
$70 for the fiscal years ended March 29, 2009, March 30, 2008, and March 25,
2007 respectively.
The
Company leases three sites, which it in turn subleases to franchisees, which
expire on various dates through 2018 exclusive of renewal options. The Company
remains liable for all lease costs when properties are subleased to
franchisees.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
L (continued)
The
Company also subleases a restaurant location to a third party. This sub-lease
provides for minimum annual rental payments by the Company aggregating
approximately $102 and expires in 2013 exclusive of renewal
options.
The
Company leases the majority of its Corporate office in Florida to the purchaser
of Miami Subs, which lease provides for lease payments of $108 per annum and
charges for Common Area expenses. The lease expires in 2014 exclusive
of renewal options.
In
January 2009, the Company entered into a commitment, as amended, to purchase
2,592,000 pounds of hot dogs for $4,368 from its primary hot dog manufacturer.
Nathan’s has the right to order this product between April through September
2009. The hot dogs to be purchased represent approximately 43% of
Nathan’s estimated usage during the period of the commitment.
The
Company and its subsidiaries are from time to time involved in ordinary and
routine litigation. Management presently believes that the ultimate
outcome of these proceedings, individually or in the aggregate, will not have a
material adverse effect on the Company’s financial position, cash flows or
results of operations. Nevertheless, litigation is subject to
inherent uncertainties and unfavorable rulings could occur. An
unfavorable ruling could include money damages and, in such event, could result
in a material adverse impact on the Company’s results of operations for the
period in which the ruling occurs.
The
Company is also involved in the following legal proceedings:
On March
20, 2007, a personal injury lawsuit was initiated seeking unspecified
damages against the Company's subtenant and the Company's master
landlord at a leased property in Huntington, New York. The claim relates
to damages suffered by an individual as a result of an alleged "trip and fall"
on the sidewalk in front of the leased property, maintenance of which is the
subtenant's responsibility. Although the Company was not named as a
defendant in the lawsuit, under its master lease agreement the Company may have
an obligation to indemnify the master landlord in connection with this
claim. The Company did not maintain its own insurance on the property
concerned at the time of the incident; however, the Company is named as an
additional insured under its subtenant's liability
policy.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
L (continued)
Accordingly, if
the master landlord is found liable for damages and seeks indemnity from the
Company, the Company believes that it would be entitled to coverage under the
subtenant's insurance policy. Additionally, under the terms of the
sublease, the subtenant is required to indemnify the Company, regardless of
insurance coverage.
The
Company is party to a License Agreement with SMG, Inc. ("SMG") dated as of
February 28, 1994, as amended (the "License Agreement") pursuant to which: (i)
SMG acts as the Company's exclusive licensee for the manufacture, distribution,
marketing and sale of packaged Nathan's Famous frankfurter product at
supermarkets, club stores and other retail outlets in the United States; and
(ii) the Company has the right, but not the obligation, to require SMG to
produce hot dogs for the Nathan's Famous restaurant system and Branded Product
Program. On July 31, 2007, the Company provided notice to SMG that
the Company has elected to terminate the License Agreement, effective July 31,
2008, due to SMG's breach of certain provisions of the License Agreement. SMG
has disputed that a breach has occurred and has commenced, together with certain
of its affiliates, an action in state court in Illinois seeking, among other
things, a declaratory judgment that SMG did not breach the License
Agreement. The Company has answered SMG's complaint and asserted its
own counterclaims which seek, among other things, a declaratory judgment that
SMG did breach the License Agreement and that the Company has properly
terminated the License Agreement. On July 31, 2008, SMG and Nathan’s entered
into a stipulation pursuant to which Nathan’s agreed that it would not
effectuate the termination of the License Agreement on the grounds alleged in
the present litigation until such litigation has been successfully adjudicated,
and SMG agreed that in such event, Nathan’s shall have the option to require SMG
to continue to perform under the License Agreement for an additional period of
up to six months to ensure an orderly transition of the business to a new
licensee/supplier. The parties are currently proceeding with the
process of the litigation.
At the
time of the sale of Miami Subs, a severance agreement, previously entered into
between Miami Subs and one executive of Miami Subs, remained in force along with
the guaranty by Nathan’s of Miami Subs’ obligations under that
agreement. The agreement provided for a severance payment of $115,000
payable in six (6) monthly installments and payment for post-employment health
benefits for the employee and dependants for the maximum period permitted under
Federal Law. The executive terminated his employment with Miami Subs,
effective October 5, 2007 and agreed to receive his severance payment over a
56-week period. Nathan’s had the right to seek reimbursement from
Miami Subs in the event that Nathan’s was required to make payments
under the guarantee of the agreement. Nathan’s initially recorded a liability of
$115,000 at the date of sale in connection with this guarantee. The severance
obligation was fully satisfied by Miami Subs during the fiscal year ended March
29, 2009. Nathan’s was not required to make any payments under this
guarantee.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
M - RELATED PARTY TRANSACTIONS
An
accounting firm of which Charles Raich, who serves on Nathan’s Board of
Directors serves as Managing Partner, received ordinary tax preparation and
other consulting fees of $146, $182, and $128 for the fiscal years ended March
29, 2009, March 30, 2008 and March 25, 2007, respectively.
A
firm which Mr. Lorber serves as a consultant to (and, prior to
January 2005, was the Chairman of), and the firm’s affiliates, received ordinary
and customary insurance commissions aggregating approximately $15, $12, and $23
for the fiscal years ended March 29, 2009, March 30, 2008, and March 25, 2007,
respectively.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 29,
2009, March 30, 2008 and March 25, 2007
NOTE
N - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$ |
14,040 |
(a) |
|
$ |
14,523 |
|
|
$ |
10,619 |
|
|
$ |
10,039 |
|
Gross
profit (b)
|
|
|
2,684 |
|
|
|
2,817 |
|
|
|
1,652 |
|
|
|
1,553 |
|
Net
income
|
|
|
3,822 |
(d) |
|
|
1,859 |
|
|
|
857 |
|
|
|
944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(c)
|
|
$ |
.62 |
|
|
$ |
.31 |
|
|
$ |
.15 |
|
|
$ |
.17 |
|
Diluted
(c)
|
|
$ |
.59 |
|
|
$ |
.29 |
|
|
$ |
.14 |
|
|
$ |
.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computation of net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(c)
|
|
|
6,165,000 |
|
|
|
5,984,000 |
|
|
|
5,756,000 |
|
|
|
5,685,000 |
|
Diluted
(c)
|
|
|
6,473,000 |
|
|
|
6,309,000 |
|
|
|
6,022,000 |
|
|
|
5,915,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues (a)
|
|
$ |
12,737 |
|
|
$ |
14,019 |
|
|
$ |
10,240 |
|
|
$ |
10,229 |
|
Gross
profit (a)(b)
|
|
|
2,393 |
|
|
|
3,274 |
|
|
|
1,892 |
|
|
|
1,630 |
|
Net
income
|
|
|
3,152 |
(e) |
|
|
1,774 |
|
|
|
877 |
|
|
|
752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(c)
|
|
$ |
.52 |
|
|
$ |
.29 |
|
|
$ |
.14 |
|
|
$ |
.12 |
|
Diluted
(c)
|
|
$ |
.48 |
|
|
$ |
.27 |
|
|
$ |
.14 |
|
|
$ |
.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computation of net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(c)
|
|
|
6,018,000 |
|
|
|
6,119,000 |
|
|
|
6,092,000 |
|
|
|
6,109,000 |
|
Diluted
(c)
|
|
|
6,499,000 |
|
|
|
6,562,000 |
|
|
|
6,492,000 |
|
|
|
6,457,000 |
|
|
(a)
|
Total
revenues and gross profit were adjusted from amounts previously reported
on Forms 10-Q to reflect a reclassification of continuing operations to
discontinued operations in the fiscal years
shown.
|
|
(b)
|
Gross
profit represents the difference between sales and cost of
sales.
|
|
(c)
|
The
sum of the quarters may not equal the full year per share amounts included
in the accompanying consolidated statements of earnings due to the effect
of the weighted average number of shares outstanding during the fiscal
years as compared to the quarters.
|
|
(d) |
Includes
gains of disposal of discontinued operations, net of tax, of
$2,519.
|
|
(e)
|
Includes
gains of disposal of discontinued operations, net of tax, of
$1,568.
|
Nathan’s
Famous, Inc. and Subsidiaries
SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS
March 29,
2009, March 30, 2008 and March 25, 2007
(in
thousands)
COL. A
|
|
COL. B
|
|
|
COL. C
|
|
|
COL. D
|
|
|
COL. E
|
|
|
|
|
|
|
(1)
|
|
|
(2)
|
|
|
|
|
|
|
|
Description
|
|
Balance
at
beginning
of
period
|
|
|
Additions
charged
to
costs
and
expenses
|
|
|
Additions
charged
to
other
accounts
|
|
|
Deductions
|
|
|
Balance
at
end
of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fifty-two
weeks ended March 29, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts - accounts receivable
|
|
$ |
104 |
|
|
|
173 |
|
|
$27(b)
|
|
|
$99(a)
|
|
|
$ |
205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fifty-three
weeks ended March 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts - accounts receivable
|
|
$ |
94 |
|
|
$ |
- |
|
|
$20(b)
|
|
|
$10(a)
|
|
|
$ |
104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fifty-two
weeks ended March 25, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts - accounts receivable
|
|
$ |
128 |
|
|
$ |
- |
|
|
$-
|
|
|
$34(a)
|
|
|
$ |
94 |
|
(a)
|
Uncollectible
amounts written off.
|
(b)
|
Uncollectible
marketing fund contributions.
|
21
|
List
of Subsidiaries of the Registrant.
|
23
|
Consent
of Grant Thornton LLP dated June 9, 2009.
|
31.1
|
Certification
by Eric Gatoff, Chief Executive Officer, pursuant to Rule 13a -
14(a).
|
31.2
|
Certification
by Ronald G. DeVos, Chief Financial Officer, pursuant to Rule 13a -
14(a).
|
32.1
|
Certification
by Eric Gatoff, Chief Executive Officer of 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, Chief Financial Officer of 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.
|
Unassociated Document
Exhibit
21
Nathan's Famous,
Inc.
SUBSIDIARIES
|
State
of
|
Company Name
|
Incorporation
|
|
|
Nathan's
Famous, Inc.
|
Delaware
|
Nathan's
Famous Operating Corp.
|
Delaware
|
Nathan's
Famous Systems, Inc.
|
Delaware
|
Nathan's
Famous Services, Inc.
|
Delaware
|
Nathan's
Famous of Times Square, Inc.
|
New
York
|
Nathan's
Famous of New Jersey, Inc.
|
New
Jersey
|
Nathan's
Roadside Rest, Inc.
|
New
York
|
Nathan's
Famous of Yonkers, Inc.
|
New
York
|
Nathan's
Famous of Kings Plaza, Inc.
|
New
York
|
Nathan's
Famous of Farmingdale, Inc.
|
New
York
|
Namasil
Realty Corp.
|
New
York
|
Nathan's
Famous, of Lynbrook, Inc.
|
Delaware
|
NF
Treachers Corp.
|
Delaware
|
6300
NW 31 Avenue Corp.
|
Florida
|
EXHIBIT
23
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have
issued our reports dated June 9, 2009, with respect to the consolidated
financial statements, schedule, and internal control over financial reporting,
included in the Annual Report of Nathan’s Famous, Inc. and subsidiaries on Form
10-K for the year ended March 29, 2009. We hereby consent to the
incorporation by reference of said reports in the Registration Statements of
Nathan’s Famous, Inc. on Forms S-8 (Registration Nos. 33-72066 effective
November 22, 1993, 33-93396 effective June 8, 1995, 333-86043
effective August 27, 1999, 333-86195 effective August 30, 1999, 333-92995
effective December 17, 1999, 333-82760 effective February 14, 2002 333-101355
effective November 20, 2002 and File No. 333-155171 effective November 7,
2008).
/s/ GRANT
THORNTON LLP
Melville,
New York
June 9,
2009
Unassociated Document
EXHIBIT
31.1
CERTIFICATION
I, Eric
Gatoff, Chief Executive Officer, of Nathan’s Famous, Inc., certify
that:
1. I
have reviewed this annual report on Form 10-K for the fiscal year ended March
29, 2009 of Nathan’s Famous, Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant's other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being
prepared;
(b)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The
registrant's other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal control over financial
reporting.
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Date:
June 10, 2009
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By:
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/s/ Eric
Gatoff |
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Eric
Gatoff |
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Chief
Executive Officer
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EXHIBIT
31.2
CERTIFICATION
I, Ronald
G. DeVos, Chief Financial Officer, of Nathan’s Famous, Inc., certify
that:
1. I
have reviewed this annual report on Form 10-K for the fiscal year ended March
29, 2009 of Nathan’s Famous, Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The
registrant's other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being
prepared;
(b)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The
registrant's other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b) Any
fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant's internal control over financial
reporting.
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By:
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/s/ Ronald
G. DeVos |
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Ronald
G. DeVos |
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Chief
Financial Officer
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Unassociated Document
EXHIBIT
32.1
CERTIFICATION
PURSUANT TO
18 U.S.C.
SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
I, Eric
Gatoff, Chief Executive Officer of Nathan’s Famous, Inc., certify
that:
The Form
10-K of Nathan’s Famous, Inc. for the fiscal year ended March 29, 2009 fully
complies with the
requirements of Section 13(a) of the Securities Exchange Act of 1934;
and
The
information contained in such report fairly presents, in all material respects,
the financial condition
and results of operations of Nathan’s Famous, Inc.
/s/ Eric
Gatoff
Name:
Eric Gatoff
Date:
June 10, 2009
A signed
original of this written statement required by Section 906 has been provided to
Nathan’s Famous, Inc. and will be retained by Nathan’s Famous, Inc. and
furnished to the Securities and Exchange Commission or its staff upon
request.
Unassociated Document
EXHIBIT
32.2
CERTIFICATION
PURSUANT TO
18 U.S.C.
SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
I,
Ronald, G. DeVos, Chief Financial Officer of Nathan’s Famous, Inc., certify
that:
The Form
10-K of Nathan’s Famous, Inc. for the fiscal year ended March 29, 2009 fully
complies with the
requirements of Section 13(a) of the Securities Exchange Act of 1934;
and
The
information contained in such report fairly presents, in all material respects,
the financial condition
and results of operations of Nathan’s Famous, Inc.
/s/ Ronald G.
DeVos
Name:
Ronald G. DeVos
Date:
June 10, 2009
A signed
original of this written statement required by Section 906 has been provided to
Nathan’s Famous, Inc. and will be retained by Nathan’s Famous, Inc. and
furnished to the Securities and Exchange Commission or its staff upon
request.