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 28, 2010
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
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11-3166443
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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One Jericho Plaza, Jericho, New
York
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11753
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(Address of principal
executive offices)
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(Zip
Code)
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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
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Nasdaq Stock Market
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(Title
of class)
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Name
of each exchange on which
registered
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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 27, 2009 - was
approximately $65,057,000.
As of
June 4, 2010, there were outstanding 5,594,448 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 2010 Annual Meeting of Shareholders to be filed pursuant
to Regulation 14A of the Securities Exchange Act of 1934.
PART I
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 28, 2010, 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
Treacher’s
brand since February 28, 2006, and its former subsidiaries, Miami Subs
Corporation, owner of the Miami Subs brand through May 30, 2007 and NF Roasters
Corp., owner of the Kenny Rogers Roasters brand, through April 23,
2008.
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:
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The
operation and franchising of quick-service restaurants featuring Nathan’s
World Famous Beef Hot Dogs, crinkle-cut French-fries, and a variety of
other menu offerings, which operate under the name "Nathan’s Famous," the
name first used at our original Coney Island restaurant which opened in
1916.
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The
expansion of our Franchise program with the introduction of the Branded
Menu Program, previously known as our Limited-menu Frank and Fry Franchise
Program, in fiscal 2007. Pursuant to this program, qualified
foodservice operators are provided with 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.
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The
Branded Product Program, introduced in fiscal 1998, which allows
foodservice operators to prepare and sell Nathan’s World Famous Beef Hot
Dogs and certain other proprietary products outside of the realm of a
traditional franchise relationship while making limited use of the
Nathan’s Famous trademark.
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A
licensing program which began in 1978, which authorizes various third
parties to manufacture, market and distribute various bulk and packaged
products bearing the Nathan’s Famous trademarks to food service customers
and retail customers through supermarkets, club stores and other
grocery-type outlets.
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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 and are planning
to introduce an Arthur Treacher’s Branded Menu program during fiscal
2011.
We
previously operated in two other branded restaurant systems which we sold during
the past three years. On June 7, 2007, we completed the sale of our
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, we 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, as amended. We had acquired Miami Subs
Corporation in September 1999.
Similarly,
on April 23, 2008, we completed the sale of our wholly-owned subsidiary, NF
Roasters Corp., to Roasters Asia Pacific (Cayman) Limited. Pursuant
to the stock purchase agreement, we sold all of our stock in NF Roasters Corp.
in exchange for approximately $4,000,000 in cash. We formed NF Roasters Corp. 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.
Since
fiscal 2003, our primary focus has been to expand the market penetration of the
Nathan’s Famous brand. Specifically, we have sought to increase 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:
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expanding
the number of foodservice locations participating in the Nathan’s Famous
Branded Product Program;
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expanding
the number of domestic franchised Nathan’s Famous restaurant units through
the opening of new and innovative types of locations, such as the Branded
Menu Program, as well as the development of an international franchising
program;
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expanding
our licensing programs for packaged Nathan’s Famous products through new
product introductions and geographic expansion;
and
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operating
our existing Company-owned restaurants and, during the period that we
owned the Miami Subs and Kenny Rogers brands, seeking to expand our
sales by introducing those brands in Nathan’s locations and the Nathan’s
brand in Miami Subs locations.
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As a
result of our efforts to expand the Nathan’s Famous brand, as of March 28,
2010:
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our
Nathan’s Famous restaurant system consisted of 246 franchised units and
five Company-owned units (including one seasonal unit) located in 25
states and four foreign countries;
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our
Nathan’s Famous Branded Product Program distributes our Nathan’s World
Famous Beef Hot Dogs throughout 50 states, the District of Columbia,
Puerto Rico, Guam, the US Virgin Islands and Canada;
and
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Nathan’s
Famous packaged hot dogs and other products were offered for sale within
supermarkets and club stores in 41
states.
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Our
revenues are generated primarily from sales of products sold through our Branded
Product Program and within our Company-owned restaurants, as well as from the
royalties, fees and other sums we earn from our franchising and 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 begin
developing franchised locations in Canada and China during fiscal 2011 and
further seek to develop an expanded 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
Currently,
our restaurant operations are comprised solely of Nathan’s Famous, which have
been co-branded with Arthur Treacher’s and Kenny Rogers Roasters menu items in
60 and 57 units, respectively.
Nathan’s
Concept and Menus
Our
Nathan’s concept is scalable, offering a wide range of facility designs and
sizes, suitable to a vast variety of locations, featuring 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 its 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 in our Company-owned and franchised restaurants. Our signature crinkle-cut
French fries are featured at each Nathan’s restaurant. Nathan’s crinkle-cut
French fries are cooked in 100% trans-fat-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 fries and beverages.
Individual
Nathan’s restaurants supplement their core menu of Nathan’s World Famous Beef
Hot Dogs, crinkle-cut French fries and beverages with a variety of other quality
menu choices including: char-grilled hamburgers, crispy chicken tenders, crispy
chicken and 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 seek to maintain the same quality standard with each
of Nathan’s supplemental menus as we do with Nathans’ core hot dog and French
fries 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 seeks to respond to changing 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, our crinkle-cut French fries are
prepared in trans-fat-free oil in all restaurants.
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 that 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 60 Nathan’s Famous 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
Prior to
the sale of NF Roasters Corp. on April 23, 2008, the Kenny Roger Roasters brand
was used primarily as a co-brand that was located within Nathan’s and Miami Subs
domestic 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 the time of sale, the Kenny Rogers Roasters
restaurant system consisted primarily of approximately 98 traditional
restaurants operating internationally and approximately 100 co-branded
representations within the Nathan’s Famous and Miami Subs domestic restaurant
systems. In connection with the sale, we 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 Corporation 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 its restaurant system.
Franchise
Operations
At March
28, 2010, our Nathan’s Famous franchise system, including our Branded Menu
Program, consisted of 246 units operating in 25 states and four foreign
countries.
Our
franchise system counts among its 140 franchisees 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 28, 2010, no single franchisee accounted for over
10% of our consolidated revenue. At March 28, 2010, HMS
Host operated 23 franchised outlets, including nine units at airports, 10 units
within highway travel plazas and four units within malls. Additionally, at March
28, 2010, HMS Host operated 50 locations featuring Nathan’s products pursuant to
our Branded Product Program. HMS Host currently is in the process of opening two
seasonal franchised units and five Branded Product Program units. At March 28,
2010, there were also 49 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 meet 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 to be applied on a system-wide
basis. We regularly monitor franchisee operations and inspect
restaurants. Franchisees are required to furnish us with 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 28, 2010, (“fiscal
2010") franchisees opened 33 new Nathan’s Famous franchised units in the United
States (including 17 Branded Menu Program units) and six agreements were
terminated for non-compliance.
A
franchisee who desires 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 area development 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, which we expect will require an
exclusivity fee to be conveyed for such exclusive rights.
Nathan’s
Branded Menu Program
During
our fiscal year ended March 30, 2008, we began marketing the Nathan’s Famous
Branded Menu Program that provides qualified foodservice operators the ability
to offer a Nathan’s Famous menu of Nathan’s World Famous Beef Hot Dogs,
crinkle-cut French fries, proprietary toppings, and a limited menu of other
Nathan’s products. Under the Branded Menu Program, the operator may use the
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 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 28, 2010, the Branded Menu Program was comprised of 69
outlets. Brusters Real Ice Cream, a premium ice cream franchisor
headquartered in Western Pennsylvania with approximately 235 Company-owned and
franchised ice cream shops located largely in the southeast United States, has
adopted the Nathan’s Famous Branded Menu Program. As of March 28,
2010, Brusters Real Ice Cream shops operated 49 Nathan’s Famous Branded Menu
operations with three additional units under
development. We anticipate expanding this program during fiscal
2011.
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 28, 2010, there were Arthur Treacher’s co-branded operations included
within 60 Nathan’s
Famous 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 our 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 where the Kenny Rogers products had already been
introduced.
Company-owned
Nathan’s Restaurant Operations
As of
March 28, 2010, 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, are
all free-standing buildings and 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. Our one seasonal location is approximately 440 square
feet. 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 designs in any future Company-owned
restaurants.
International
Development
As of
March 28, 2010, Nathan’s Famous franchisees operated 20 units in four foreign
countries, having significant operations within Kuwait. During the current
fiscal year, our international franchising program included opening
two Nathan’s
Famous restaurants in Kuwait, one restaurant in each of the Dominican Republic
and the Cayman Islands and closing our only restaurant in the United Arab
Emirates.
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 a
unit opened in Dubai in April 2008. During fiscal 2010, we entered
into Master Agreements for development of Nathan’s in Canada and China; pursuant
to the development schedules, we expect the first franchised locations to open
in Canada and China during fiscal 2011. These agreements provide for the
development of Nathan’s restaurants to be owned and operated by the developer,
with each agreement providing the developer with the right to sub-franchise the
development of Nathan’s units to qualified third
parties. Additionally, the Canadian developer also entered into a
Distribution Agreement with us for the development of a Branded Product Program
in Canada. Each agreement requires the payment of a master
development fee to Nathan’s in addition to ongoing opening fees and
royalties. We may
continue to grant exclusive territorial rights for franchising and for the
manufacturing and distribution rights in foreign countries, which we expect will
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. Following is the summary
of our international operations for the fiscal years ended March 28, 2010, March
29, 2009 and March 30, 2008. See Item 1A-“Risk Factors.”
|
|
March 28, 2010 |
|
|
March
29, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
|
1,129,000 |
|
|
|
798,000 |
|
|
|
736,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit (a)
|
|
|
438,000 |
|
|
|
399,000 |
|
|
|
401,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Gross profit
represents the difference between revenue and cost of
sales.
|
Location
Summary
The
following table shows the number of our Company-owned and franchised units in
operation at March 28, 2010 and their geographical distribution:
Domestic Locations
|
|
Company
|
|
|
Franchise (1)
|
|
|
Total (1)
|
|
Alabama
|
|
|
- |
|
|
|
2 |
|
|
|
2 |
|
Arizona
|
|
|
- |
|
|
|
2 |
|
|
|
2 |
|
Arkansas
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
California
|
|
|
- |
|
|
|
3 |
|
|
|
3 |
|
Connecticut
|
|
|
- |
|
|
|
5 |
|
|
|
5 |
|
Florida
|
|
|
- |
|
|
|
21 |
|
|
|
21 |
|
Georgia
|
|
|
- |
|
|
|
23 |
|
|
|
23 |
|
Kentucky
|
|
|
- |
|
|
|
4 |
|
|
|
4 |
|
Massachusetts
|
|
|
- |
|
|
|
8 |
|
|
|
8 |
|
Michigan
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
Mississippi
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
Missouri
|
|
|
- |
|
|
|
3 |
|
|
|
3 |
|
Nevada
|
|
|
- |
|
|
|
9 |
|
|
|
9 |
|
New
Hampshire
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
New
Jersey
|
|
|
- |
|
|
|
34 |
|
|
|
34 |
|
New
York
|
|
|
5 |
|
|
|
61 |
|
|
|
66 |
|
North
Carolina
|
|
|
- |
|
|
|
4 |
|
|
|
4 |
|
Ohio
|
|
|
- |
|
|
|
10 |
|
|
|
10 |
|
Pennsylvania
|
|
|
- |
|
|
|
17 |
|
|
|
17 |
|
Rhode
Island
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
South
Carolina
|
|
|
- |
|
|
|
5 |
|
|
|
5 |
|
Tennessee
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
Texas
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
Virginia
|
|
|
- |
|
|
|
7 |
|
|
|
7 |
|
West
Virginia
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
Domestic
Subtotal
|
|
|
5 |
|
|
|
226 |
|
|
|
231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Locations
|
|
|
|
|
|
|
|
|
|
|
|
|
Dominican
Republic
|
|
|
- |
|
|
|
3 |
|
|
|
3 |
|
Egypt
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
Kuwait
|
|
|
- |
|
|
|
15 |
|
|
|
15 |
|
Cayman
Islands
|
|
|
- |
|
|
|
1 |
|
|
|
1 |
|
International
Subtotal
|
|
|
- |
|
|
|
20 |
|
|
|
20 |
|
Grand
Total
|
|
|
5 |
|
|
|
246 |
|
|
|
251 |
|
(1)
|
Amounts
include 69 units operated pursuant to our Branded Menu Program. Units
operating pursuant to our Branded Product Program are
excluded.
|
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 28, 2010, the Branded Product Program distributed product in all 50
states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam and
Canada. 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. During fiscal 2010,
Nathan’s World Famous Beef Hot Dogs continued to be promoted as part of the
pretzel dogs sold at Auntie Anne’s, which honored Nathan’s as the “Vendor of the
Year” for 2005. Nathan’s World Famous Beef Hot Dogs are also featured in Subway
restaurants operating within Wal-Marts, Race Trac convenience stores and K-Mart
foodservice 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, Harrah’s and several others throughout the country. National
movie theaters, such as National Amusements and Century/Cinemark Theaters, 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 numerous
foodservice operations including snack bars, cafeterias, vending machines,
military installations and VA hospitals throughout the
country. 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 - 2009 baseball seasons. Last season
Nathan’s was named the official hot dog of both teams for the 2009 through 2018
baseball seasons. Nathan’s hot dogs are sold at the Nassau Long Island Coliseum,
home of the New York Islanders and the Prudential Center, home of the New Jersey
Devils. Nathan’s hot dogs were also introduced into the new Dallas Cowboys
stadium for the 2009 football season.
Additionally,
Nathan’s is offered in retail environments, entertainment centers, 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
including 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 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 continuing to offer 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 2010, we had 65 airings on QVC, including
eight airings on the May 15, 2009, “Today’s Special Value” featuring
our quarter pound hot dogs. QVC has continued to reduce its emphasis on special
food airings which began during our fiscal 2008 period. Nathan’s Famous products
were on air 50 times during the fiscal 2009 period, which included a “Today’s
Special Value” featuring our Sampler Pack. 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 2011.
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
then-current Uniform Franchise Offering Circular (“UFOC”)
or Franchise Disclosure Document (“FDD”) and executed a participation
agreement as a rider to their franchise agreement. Beginning fiscal 2002, we
have continued with 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. Upon the sale of the Kenny
Rogers Roasters brand in April 2008, we discontinued co-branding that brand in
the Nathan’s Famous system. We intend to continue our 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 single and
multi-unit restaurant operators.
At March
28, 2010, the Arthur Treacher’s brand was being sold within 60 Nathan’s
restaurants and the Kenny Rogers Roasters brand was being sold within 57
Nathan’s restaurants. After the sale of Miami Subs effective May 31, 2007,
Nathan’s and Arthur Treacher’s products have continued to be co-branded within
their restaurant system. 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, “SMG”) to produce packaged
hot dogs and other beef products according to Nathan’s 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 SMG (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
$3,746,000 in fiscal 2010 and $3,329,000 in fiscal 2009 exceeded the contractual
minimums established under the License Agreement. As of March 28,
2010, packaged Nathan’s World Famous Beef Hot Dogs were being sold in over
33,000 supermarkets and mass merchandisers including Costco, Wal-Mart, Sam’s
Clubs and BJ’s located in 41 states. We believe that the overall
exposure of the brand and opportunity for consumers to enjoy the Nathan’s World
Famous Beef Hot Dog in their homes helps promote “Nathan’s Famous” restaurant
patronage. Royalties earned from this product line were approximately
58% of our fiscal 2010 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 and sale of hot dogs by John Morrell and Company for
food service. During fiscal 2010 and 2009, we earned $1,420,000 and $1,245,000
respectively, under this agreement. During fiscal 2009 Nathan’s World Famous
Beef Hot Dogs were introduced into over 500 club store foodservice cafes
located throughout the United States. The majority of
royalties were earned from this account.
We
license the manufacture of the proprietary spices which are used to produce
Nathan’s World Famous Beef Hot Dogs to Saratoga Specialties. During fiscal 2010
and 2009, we earned $554,000 and $771,000. We have
also licensed Newly Weds Foods, Inc. as a secondary source of
supply.
During
fiscal 2010, our licensee ConAgra Foods Lamb Weston, Inc., continued to produce
and distribute Nathan’s Famous frozen French fries, onion rings and potato
pancakes for retail sale pursuant to a license agreement. During
fiscal 2008, Nathan’s Famous onion rings and potato pancakes were first
introduced into the market. These products were distributed primarily in New
York City supermarkets during fiscal 2008. Our products have been
distributed within 13 states primarily on the East Coast of the United States
during fiscal 2010. During fiscal 2010 and
2009, we earned our minimum royalties of $223,000 and $203,000, respectively,
under this agreement. Last year, ConAgra Foods Lamb Weston, Inc. exercised its
first option to extend the license agreement through July 2013, pursuant to
which the minimum royalties shall increase 10% annually.
During
fiscal 2010, 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 $267,000 during fiscal 2010 and $221,000 during
fiscal 2009.
During
fiscal 2010, 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 $242,000 during fiscal 2010 and $240,000 during fiscal
2009.
Provisions
and Supplies
Our
proprietary hot dogs for sale by our restaurant system, Branded Product Program
and at retail are produced primarily by SMG in accordance with Nathan’s 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 and we have also engaged Newly
Weds Foods, Inc. as a secondary source of supply. Our frozen
crinkle-cut French fries are produced exclusively by ConAgra Foods Lamb Weston,
Inc. 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 original term of this agreement expired on October 30, 2009.
Since then, the contract has been extended on a month-to-month basis as
negotiations are finalized. We expect to successfully complete a new contract
under similar economic terms and conditions as the prior 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. 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 17 regional contests in a
variety of high profile locations such as Trump Plaza, Atlantic City,
NJ, Dorney Park, Allentown, PA, New York New York Hotel and Casino,
Las Vegas, NV, and Citifield, Queens, NY, as well as within the cities of
San Francisco, CA, Tempe, AZ, New York, NY, and Boston, MA. 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
crinkle-cut 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 Nathans’ 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, Time Warner Cable Arena-Charlotte
Bobcats and the Prudential Center - New Jersey Devils;
and
|
|
·
|
Professional
Football: Cowboys Stadium – Dallas
Cowboys
|
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. Nathan’s Famous
franchisees are generally required to spend on local marketing activities or
contribute to the advertising fund 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 2010, Nathan’s 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. Nathan’s offered a free-standing insert in March 2010 and
plans to continue these efforts which are scheduled to again offer multiple
free-standing inserts in June, August and October 2010. These media
campaigns are expected to reach more than eight million homes per month in the
area surrounding more than 100 Nathan’s Company-owned and franchised
restaurants. These programs feature heavily discounted coupon offers
that are designed to attract customers to our restaurants. We monitor the
results of these campaigns and may add additional campaigns in the
future.
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 2010 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 2011, we intend to seek to further expand our internal
marketing resources along with our network of foodservice brokers and
distributors. We may attempt to emphasize specific venues as we expand our
broker network, realign management and broker responsibilities on a regional
basis and expand the use of 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 state 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 28, 2010, 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
28, 2010, we had 215 employees, 38 of whom were corporate management and
administrative employees, 22 of whom were restaurant managers and 155 of whom
were hourly full-time and part-time foodservice employees. We may
also employ approximately 100 – 125 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 have entered into a new
contract with the Union through June 2014. We do not believe that the
new contract will have a material impact on our financial condition. We consider
our employee relations to be good and have not suffered any strike or work
stoppage for more than 37 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, including Canada and China. 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 have a pending application in the
U.S. for the mark IT’S OUR FOOD THAT MAKES US FAMOUS.
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 and the United Arab Emirates.
We have a pending service mark application for ARTHUR TREACHER'S FISH &
CHIPS and design in Canada.
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, including 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 Northeast. 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 may offer 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 ability to
provide operational support 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 Reports 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 Room 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., One Jericho Plaza, Second Floor - Wing A, Jericho, NY
11753, 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, Nathans’ 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:
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food
spoilage or food contamination;
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consumer
product liability claims;
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the
potential cost and disruption of a product
recall.
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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 Nathans’ 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 brands’
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 regulations that
affect or restrict 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 Nathans’
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
Nathans’ 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 Nathans’ 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 Nathans’ control.
A portion
of Nathans’ 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 Nathans’ control. Consequently, franchisees may not
successfully operate stores in a manner consistent with Nathans’ 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, Nathans’ results of operations
would also decline. These events and factors include:
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variations
in the timing and volume of Nathans’ 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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Nathans’
operations are influenced by adverse weather conditions.
Weather,
which is unpredictable, can impact Nathans’ restaurant sales. Harsh
weather conditions that keep customers from dining out result in lost
opportunities for our restaurants. A heavy snowstorm in the Northeast
can shut down an entire metropolitan area, resulting in a reduction in sales in
that area at Company-owned and franchised restaurants. Our fourth
quarter includes winter months and historically has a lower level of sales at
Company-owned and franchised restaurants. Additionally, our
Company-owned restaurants at Coney Island are heavily dependent on favorable
weather conditions during the summer season. Rain during the weekends and
unseasonably cold temperatures will negatively impact the number of patrons
going to this beach location. 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 Nathans’ 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 28, 2010, we and our franchisees (excluding units operated pursuant to our
Branded Menu Program) operated Nathan’s restaurants in 25 states and four
foreign countries. As of March 28, 2010, 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
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:
|
·
|
significant
adverse changes in the business
climate;
|
|
·
|
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;
|
|
·
|
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
|
|
·
|
a significant drop in our stock
price.
|
Based
upon future economic and capital market conditions, future impairment charges
could be incurred.
Catastrophic
events may disrupt Nathans’ 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 Nathans’ 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.
Nathans’
international operations are subject to various factors of
uncertainty.
Nathans’
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 various commitments to purchase hot dogs during certain
periods in an effort to ensure supply of product at a
fixed cost of product. However, 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 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, which represents
approximately 50% of our fiscal 2010 licensing revenue, 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 February
2010. 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 crinkle-cut French fries sold through Nathan’s franchised
restaurants are obtained from one supplier. In the event that the French fry
supplier is unable to fulfill Nathan’s requirements for any reason, 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.
A
significant amount of our licensing and Branded Product Program (“BPP”) revenue is
from a small number of licensees and BPP accounts. The loss of any one or more
of those licensees or BPP accounts could harm our profitability and operating
results.
One of
our licensees accounted for approximately 22% of our licensing revenue; this
licensee in turn sold our product primarily to one customer. That
licensee’s business is weighted towards one high volume user which has a
relatively short-term contract. In the event that this licensee or
any other significant licensee, or its customers, experience financial
difficulties or is not willing to do business with us in the future on
terms acceptable to management, there could be a material adverse effect on our
business, results of operations or financial condition.
In
addition, approximately 59% of our Branded Product Program business is from five
accounts with which we have relatively short-term contracts. In the
event that these BPP customers experience financial difficulties or, upon the
expiration of their existing agreements are not willing to do business with us
in the future on terms acceptable to management, there could be a material
adverse effect on our business, results of operations or financial
condition.
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:
|
·
|
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.
Changes
in the U.S. healthcare system could increase our cost of doing
business.
In March
2010, the Federal government passed new legislation to reform the U.S. health
care system. As part of the plan, employers will be expected to
provide their employees with minimum levels of healthcare coverage or incur
certain financial penalties. Nathan’s workforce includes numerous
part-time workers, which may increase our health care costs.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties.
Our
principal executive offices consist of approximately 9,300 square feet of leased
space in a modern office building in Jericho, NY. The Lease commenced on January
1, 2010, has a ten (10) year term, with a five (5) year renewal right. 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
28, 2010, 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
|
|
Brooklyn,
NY
|
|
October
2010 (a)
|
|
|
440 |
|
Long
Beach Road
|
|
Oceanside,
NY
|
|
May
2021(b)
|
|
|
7,300 |
|
Central
Park Avenue
|
|
Yonkers,
NY
|
|
April
2010 (c)
|
|
|
10,000 |
|
|
(a)
|
Seasonal
satellite location. We are seeking to enter into a long-term lease for
this property in the future.
|
|
(b)
|
Nathan’s
has exercised its option to extend the current lease through May
2021.
|
|
(c)
|
Nathan’s
has provided notice to its landlord, exercising its option to extend the
current lease through April 2020. We continue to operate this
restaurant and are awaiting receipt of the countersigned agreement from
the landlord.
|
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
28, 2010, 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
$1,350,000 in fiscal 2010.
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 related
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
had 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 was named as an
additional insured under its subtenant's liability policy. This claim was
satisfied by the subtenant's insurance company without any payment by
Nathan’s.
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 frankfurters 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 (the “Termination Date”), 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 filed its own action on August 2,
2007, in New York State court seeking a declaratory judgment that SMG has
breached the License Agreement and that the Company has properly terminated the
License Agreement. On January 23, 2008, the New York court granted SMG’s motion
to dismiss the Company’s case in New York on the basis that the dispute was
already the subject of a pending lawsuit in Illinois. The
Company has answered SMG’s complaint in Illinois 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. On June 30, 2009, SMG and Nathan’s each filed
motions for summary judgment. Both motions for summary judgment were
ultimately denied on February 25, 2010. On January 28, 2010, SMG
filed a motion for leave to file a Second Amended Complaint and Amended Answer,
which sought to assert new claims and affirmative defenses based on Nathan’s
alleged breach of the parties’ License Agreement in connection with the manner
in which Nathan’s profits from the sale of its proprietary seasonings to
SMG. On February 25, 2010, the court granted SMG’s motion for leave,
and its Second Amended Complaint and Amended Answer were filed with the
court. On March 29, 2010, Nathan’s filed an answer to SMG’s Second
Amended Complaint, which denied substantially all of the allegations in the
complaint. The parties are presently conducting discovery on these
new claims and defenses. Nathan’s expects a trial in this action to
be completed before the end of calendar 2010.
On July
31, 2009, the Company was served with a class action complaint filed in the
Superior Court of the State of New Jersey, Essex County (the "Complaint").
In addition to Nathan's Famous, Inc., the Complaint names as defendants Kraft
Foods, Sara Lee Corporation, ConAgra Foods, Inc., and Marathon Enterprises, Inc.
(and together with Nathan's Famous, Inc., the "Defendants").
The named
class plaintiffs purport to represent consumers who have purchased processed
meat products that were distributed and sold in New Jersey from July 22, 2003
through July 22, 2009. The Complaint alleges, among other things, that
Defendants violated the New Jersey Consumer Fraud Act (N.J.S.A. 56:8-2) (the
"Act") by omitting material information about their respective processed meat
products for the purpose of inducing consumers to purchase the products.
The Complaint sought injunctive relief, attorneys' fees and costs incurred in
bringing the lawsuit. The named plaintiffs were further seeking combined
damages in the amount of $900.00 If a violation of the Act was found to have
occurred, named plaintiffs are entitled to trebled damages in the combined
amount of $2,700.00. The Company, along with all of the defendants, made a
motion to dismiss this Complaint on October 9, 2009 and such motion was
granted.
On
October 5, 2009, the Company was served with a summons and complaint filed in
the Supreme Court of Suffolk County, New York. The plaintiff, Painted Pieces
LTD, alleges copyright infringement and asserts causes of action for breach of
contract, unjust enrichment, willful wrongful use of plaintiff’s artwork, and
violation of the New York general business law, in each case due to the
reproduction of certain artwork used by the Company in its advertising.
The complaint sought damages of an aggregate $10.5 million. On November 2,
2009, the Company removed the action to the United States district Court,
Eastern District of New York and on November 9, 2009, filed a motion to dismiss.
The Company denied all of the claims asserted against it in this litigation. The
Company has submitted the claim to its various insurance carriers for defense
and indemnification. The majority of Nathan’s insurance carriers have
initially declined coverage and the Company is presently reviewing its rights in
relation thereto. In May 2010, this action was settled whereby Nathan’s
agreed to purchase the claimants rights in the intellectual property for
$140,000. The complaint was dismissed with prejudice on or about May 13,
2010.
Item
4. Removed and
Reserved.
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 28, 2010
|
|
|
|
|
|
|
First
quarter
|
|
$ |
14.90 |
|
|
$ |
12.39 |
|
Second
quarter
|
|
|
14.75 |
|
|
|
12.08 |
|
Third
quarter
|
|
|
15.35 |
|
|
|
14.12 |
|
Fourth
quarter
|
|
|
15.79 |
|
|
|
14.70 |
|
|
|
|
|
|
|
|
|
|
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 |
|
At June
4, 2010, the closing price per share for our common stock, as reported by
Nasdaq, was $15.04.
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 programs. The payment of any cash dividends
in the future will be dependent upon our earnings and financial
requirements.
Shareholders
As of
June 4, 2010, we
had approximately 727 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 28, 2010, the Company repurchased
46,471 shares at a cost of $693,000 and 484,987 shares at a cost of $6,394,000,
respectively. Since, the commencement of the Company’s stock buyback program in
September 2001, through March 28, 2010, Nathan’s purchased a total of 3,178,793
shares of common stock at a cost of approximately $25,192,000 under all of its
stock repurchase programs, which includes the shares purchased during the
thirteen weeks and fiscal year ended March 28, 2010. On
November 3, 2009, Nathans’ Board of Directors authorized a sixth stock
repurchase plan for the purchase of up to 500,000 shares of its common stock on
behalf of the Company; no purchases have been made under the sixth plan as of
March 28, 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.
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 Plans
|
|
December
28, 2009 -
January
24, 2010
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
867,678 |
|
January
25, 2010 -
February
21, 2010
|
|
|
46,471 |
(B) |
|
$ |
14.9101 |
|
|
|
46,471 |
|
|
|
821,207 |
|
February
22, 2010 -
March
28, 2010
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
821,207 |
|
Total
|
|
|
46,471 |
|
|
$ |
14.9101 |
|
|
|
46,471 |
|
|
|
821,207 |
|
A)
|
Represents
the Company’s fiscal periods during the fourth quarter ended March 28,
2010.
|
B)
|
Shares
were repurchased under the fifth stock option repurchase plan that was
authorized on June 30, 2009, for up to 500,000 shares. There are 21,516
shares remaining to be repurchased pursuant to the plan. The plan does not
have a set expiration date.
|
Item 6. Selected Financial
Data.
|
|
|
|
|
Fiscal years ended (1)
|
|
|
|
March 28,
|
|
|
March 29,
|
|
|
March 30,
|
|
|
March 25,
|
|
|
March 26,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In
thousands, except per share amounts)
|
|
Statement
of Earnings Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
38,685 |
|
|
$ |
37,480 |
|
|
$ |
36,259 |
|
|
$ |
33,425 |
|
|
$ |
29,785 |
|
Franchise
fees and royalties
|
|
|
4,758 |
|
|
|
4,613 |
|
|
|
4,962 |
|
|
|
4,439 |
|
|
|
4,169 |
|
License
royalties
|
|
|
6,452 |
|
|
|
6,009 |
|
|
|
4,849 |
|
|
|
4,231 |
|
|
|
3,558 |
|
Interest
and other income
|
|
|
981 |
|
|
|
1,119 |
|
|
|
1,155 |
|
|
|
708 |
|
|
|
534 |
|
Total
revenues
|
|
|
50,876 |
|
|
|
49,221 |
|
|
|
47,225 |
|
|
|
42,803 |
|
|
|
38,046 |
|
Costs
and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
28,513 |
|
|
|
28,774 |
|
|
|
27,070 |
|
|
|
24,080 |
|
|
|
22,225 |
|
Restaurant
operating expenses
|
|
|
3,285 |
|
|
|
3,361 |
|
|
|
3,257 |
|
|
|
3,187 |
|
|
|
3,172 |
|
Depreciation
and amortization
|
|
|
843 |
|
|
|
809 |
|
|
|
764 |
|
|
|
742 |
|
|
|
760 |
|
General
and administrative expenses
|
|
|
9,708 |
|
|
|
9,299 |
|
|
|
8,926 |
|
|
|
8,216 |
|
|
|
7,484 |
|
Impairment
charge on note receivable
|
|
|
250 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Recovery
of property taxes
|
|
|
(13 |
) |
|
|
(441 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
costs and expenses
|
|
|
42,586 |
|
|
|
41,802 |
|
|
|
40,017 |
|
|
|
36,225 |
|
|
|
33,641 |
|
Income
from continuing operations before provision for income
taxes
|
|
|
8,290 |
|
|
|
7,419 |
|
|
|
7,208 |
|
|
|
6,578 |
|
|
|
4,405 |
|
Income
tax expense
|
|
|
2,721 |
|
|
|
2,461 |
|
|
|
2,427 |
|
|
|
2,306 |
|
|
|
1,609 |
|
Income
from continuing operations
|
|
|
5,569 |
|
|
|
4,958 |
|
|
|
4,781 |
|
|
|
4,272 |
|
|
|
2,796 |
|
Discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations before provision for income
taxes(2)
|
|
|
- |
|
|
|
3,914 |
|
|
|
2,824 |
|
|
|
2,104 |
|
|
|
4,733 |
|
Provision
for income taxes
|
|
|
- |
|
|
|
1,390 |
|
|
|
1,050 |
|
|
|
833 |
|
|
|
1,852 |
|
Income
from discontinued operations
|
|
|
- |
|
|
|
2,524 |
|
|
|
1,774 |
|
|
|
1,271 |
|
|
|
2,881 |
|
Net
income (3)
|
|
$ |
5,569 |
|
|
$ |
7,482 |
|
|
$ |
6,555 |
|
|
$ |
5,543 |
|
|
$ |
5,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations
|
|
$ |
1.00 |
|
|
$ |
0.84 |
|
|
$ |
0.79 |
|
|
$ |
0.73 |
|
|
$ |
0.50 |
|
Income from
discontinued operations
|
|
|
0.00 |
|
|
|
0.43 |
|
|
|
0.29 |
|
|
|
0.22 |
|
|
|
0.52 |
|
Net
income (3)
|
|
$ |
1.00 |
|
|
$ |
1.27 |
|
|
$ |
1.08 |
|
|
$ |
0.95 |
|
|
$ |
1.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations
|
|
$ |
0.97 |
|
|
$ |
0.80 |
|
|
$ |
0.74 |
|
|
$ |
0.67 |
|
|
$ |
0.43 |
|
Income from
discontinued operations
|
|
|
0.00 |
|
|
|
0.41 |
|
|
|
0.27 |
|
|
|
0.20 |
|
|
|
0.44 |
|
Net
income (3)
|
|
$ |
0.97 |
|
|
$ |
1.21 |
|
|
$ |
1.01 |
|
|
$ |
0.87 |
|
|
$ |
0.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Weighted
average shares used in computing net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,563 |
|
|
|
5,898 |
|
|
|
6,085 |
|
|
|
5,836 |
|
|
|
5,584 |
|
Diluted
|
|
|
5,716 |
|
|
|
6,180 |
|
|
|
6,502 |
|
|
|
6,341 |
|
|
|
6,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data at End of Fiscal Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital
|
|
$ |
36,668 |
|
|
$ |
34,816 |
|
|
$ |
35,650 |
|
|
$ |
27,375 |
|
|
$ |
19,075 |
|
Total
assets
|
|
|
53,374 |
|
|
|
49,824 |
|
|
|
51,202 |
|
|
|
46,575 |
|
|
|
37,423 |
|
Long-term
debt, net of current maturities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
31 |
|
Stockholders’
equity
|
|
$ |
44,312 |
|
|
$ |
41,849 |
|
|
$ |
42,608 |
|
|
$ |
35,879 |
|
|
$ |
28,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
Restaurant Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned
restaurant sales (4)
|
|
$ |
12,377 |
|
|
$ |
12,511 |
|
|
$ |
13,142 |
|
|
$ |
11,863 |
|
|
$ |
11,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Units Open at End of Fiscal Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned
restaurants
|
|
|
5 |
|
|
|
5 |
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
Franchised
|
|
|
246 |
|
|
|
249 |
|
|
|
224 |
|
|
|
196 |
|
|
|
192 |
|
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 28, 2010 is on the
basis of a 52-week reporting period as were the fiscal years ended March
29, 2009, March 25, 2007 and March 26, 2006 whereas the fiscal year ended
March 30, 2008 was on the basis of 53-week reporting
period.
|
(2)
|
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.
|
(3)
|
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.
|
(4)
|
Company-owned
restaurant sales represent sales from restaurants presented within
continuing operations and discontinued
operations.
|
Item
7. Management’s Discussion and
Analysis of Financial Condition and Results of Operation.
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-fries, 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 been involved 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 28, 2010, the Arthur Treacher’s brand was being sold within 60 Nathan’s
restaurants.
The
following summary reflects the franchise openings and closings, of the Nathan's
franchise system for the fiscal years ended March 28, 2010, March 29, 2009,
March 30, 2008, March 25, 2007 and March 26, 2006.
|
|
March 28,
2010
|
|
|
March 29,
2009
|
|
|
March 30,
2008
|
|
|
March 25,
2007
|
|
|
March 26,
2006
|
|
Franchised restaurants operating
at the beginning of the period
|
|
|
249 |
|
|
|
224 |
|
|
|
196 |
|
|
|
192 |
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchised
restaurants opened during the period
|
|
|
33 |
|
|
|
46 |
|
|
|
46 |
|
|
|
21 |
(a) |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchised
restaurants closed during the period
|
|
|
(36 |
) |
|
|
(21 |
) |
|
|
(18 |
) |
|
|
(17 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchised
restaurants operating at the end of the period
|
|
|
246 |
|
|
|
249 |
|
|
|
224 |
|
|
|
196 |
|
|
|
192 |
|
(a)
Includes the opening of two test Branded Menu Program outlets.
At March
28, 2010, our franchise system consisted of 246 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 either upon its sale of
hot dogs or 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
intellectual property in connection with certain products produced and sold by
outside vendors. The use of the Nathan’s intellectual property 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 the
applicable accounting standards. The Company writes off accounts
receivable when they are deemed uncollectible.
Impairment
of Goodwill and Other Intangible Assets
Goodwill
and intangible assets with indefinite lives are not 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 28, 2010,
fifty-two week period ended March 29, 2009 or the fifty-three week period ended
March 30, 2008.
Impairment
of Long-Lived Assets
We 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. No impairment charges
on long-lived assets were recorded during the fifty-two week period ended March
28, 2010, fifty-two week period ended March 29, 2009 or the fifty-three week
period ended March 30, 2008.
Impairment
of Notes Receivable
Nathan’s
determines that a loan is impaired when, based on current information and
events, it is probable that the Company 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. The
Company records interest income on its impaired notes receivable on an accrual
basis, when collection is assured, based on the present value of the estimated
cash flows of identified impaired notes receivable. During the
fifty-two week period ended March 28, 2010, we recorded an impairment charge on
a note receivable of $250,000. No impairment charges on notes receivable were
recorded during the fifty-two week period ended March 29, 2009 or the
fifty-three week period ended March 30, 2008.
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.
|
(See Note
B of the 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
carryforwards. 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
Financial
Accounting Standards establish guidance for the determination of whether tax
benefits claimed or expected to be claimed on a tax return should be recorded in
the financial statements. 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. Financial Accounting Standards also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods and disclosure requirements. (See Note I of the Notes to
Consolidated Financial Statements.)
Adoption
of New Accounting Pronouncements
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued an amendment to
its existing accounting standard on business combinations, which establishes new
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. In April 2009, the
FASB also issued new guidelines on the initial recognition and measurement,
subsequent measurement and accounting, and disclosure of assets and liabilities
arising from contingencies in a business combination, which provide 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. New guidance is also provided in the
event that the fair value of an asset acquired or liability assumed cannot be
determined during the measurement period. An acquirer shall also develop a
systematic and rational basis for subsequently measuring and accounting for
assets and liabilities arising from contingencies and also provide for the
disclosure requirements. Nathan’s adopted the provisions of the new accounting
standards on business combinations on March 30, 2009, the adoption of which had
no impact on our consolidated financial position or results of
operations.
In
December 2007, the FASB issued a new accounting standard which establishes
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 standard 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. Nathan’s adopted
the provisions of this new accounting standard on March 30, 2009, the adoption
of which had no impact on our consolidated financial position or results of
operations.
In April
2008, the FASB issued new guidance 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. Nathan’s adopted the
new guidance on March 30, 2009, the adoption of which had no impact on our
consolidated financial position or results of operations.
In June
2008, the FASB issued new guidance for the accounting for maintenance deposits
paid by a lessee to a lessor. Nathan’s adopted these provisions on March 30,
2009, the adoption of which had no impact on our consolidated financial position
or results of operations.
In April
2009, the FASB issued new guidance on the recognition and presentation of
other-than-temporary impairments, 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. These accounting standards also require some additional disclosures
regarding expected cash flows, credit losses, and an aging of securities with
unrealized losses. Nathan’s adopted the new guidance effective March 30, 2009,
the adoption of which had no impact on our consolidated financial position or
results of operations.
In April
2009, the FASB issued new requirements for interim disclosures about fair value
of financial instruments, which increase the frequency of fair value disclosures
to a quarterly basis instead of annually. The requirements relate to fair value
disclosures for any financial instruments that are not currently reflected on
the balance sheet at fair value. Prior to these changes, fair values for these
assets and liabilities were only disclosed annually. Nathan’s adopted the
provisions of these accounting standards effective March 30, 2009. The
newly-required interim disclosures had no impact on our consolidated financial
position or results of operations.
In May
2009, the FASB issued a new accounting standard on subsequent events,
which establishes general standards of accounting for, and disclosure of, events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. This accounting standard establishes: (1)
the period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements; (2) the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements; and (3) the disclosures that
an entity should make about events or transactions that occurred after the
balance sheet date. This accounting standard also requires disclosure of the
date through which an entity has evaluated subsequent events. Nathan’s adopted
the provisions of this accounting standard effective for its first quarter ended
June 28, 2009.
In June
2009, the FASB issued a new accounting standard which establishes the FASB Accounting Standards
CodificationTM
(“Codification”) as the source of authoritative U.S. Generally Accepted
Accounting Principles (GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the Securities and
Exchange Commission (“SEC”) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. Nathan’s adopted the
provisions of this accounting standard on June 29, 2009. The adoption of this
accounting standard did not have any impact on our consolidated financial
position and results of operations.
We do not
believe that any recently issued, but not yet effective accounting standards, if
adopted, would have a material effect on the accompanying financial
statements.
Results
of Operations
Fiscal
year ended March 28, 2010 compared to fiscal year ended March 29,
2009
Revenues from Continuing
Operations
Total
sales increased by $1,205,000 or 3.2% to $38,685,000 for the fifty-two weeks
ended March 28, 2010 (“fiscal 2010”) as compared to $37,480,000 for the
fifty-two weeks ended March 29, 2009 (“fiscal 2009”). Sales
from the Branded Product and Branded Menu Programs increased by 6.7% to
$24,738,000 for fiscal 2010 as compared to sales of $23,182,000 in fiscal 2009.
This increase was primarily attributable to higher average selling prices of
4.4% and higher volume. Total Company-owned restaurant sales, which includes
five comparable Nathan’s restaurants (including one seasonal restaurant), two
restaurants that the Company operated during fiscal 2010, from August 2009
through November 2009 (due to the default of a franchisee on its franchise
agreement), that were re-franchised to a different franchisee and one restaurant
that the Company operated during fiscal 2009 until it was transferred to a
franchisee on January 26, 2009, were $12,377,000 for fiscal 2010 as compared to
$12,511,000 during fiscal 2009. Sales at the five comparable Company-owned
restaurants (including one seasonal restaurant) were $11,986,000 during fiscal
2010, as compared to $11,955,000 during fiscal 2009. Sales at our five
comparable Company-owned restaurants were adversely affected during June 2009,
December 2009 and February 2010, which we believe was primarily attributable to
poor weather conditions, consisting of rain in June and snowstorms in December
and February. Sales at our comparable restaurants during the nine
months of fiscal 2010, excluding June 2009, December 2009 and February 2010,
increased by approximately 4.1% over the same period last year. During fiscal
2010, sales to our television retailer were approximately $217,000 lower than
fiscal 2009. Although Nathan’s products were on air 65 times during fiscal 2010
as compared to 50 times during fiscal 2009, the fiscal 2010 offerings did not
yield the same sales results in part because more of the 2010 airings
occurred between 1AM and 6AM which generally have not been very strong
for our products.
Franchise
fees and royalties were $4,758,000 in fiscal 2010 as compared to $4,613,000 in
fiscal 2009. Total royalties were $4,080,000 in fiscal 2010 as compared to
$3,966,000 in fiscal 2009. During fiscal 2010, we did not recognize revenue of
$166,000 for royalties deemed to be uncollectible as compared to $198,000 of
royalty income deemed uncollectible during fiscal 2009. Total royalties,
excluding the adjustments for royalties deemed uncollectible as described above,
were $4,246,000 in fiscal 2010 as compared to $4,164,000 in fiscal 2009. During
fiscal 2010, Nathan’s earned $31,000 of higher royalties from sales by our
manufacturers and primary distributor under our Branded Menu Program, primarily
due to the increase in the number of Branded Menu
locations. Franchise restaurant sales were $91,197,000 in fiscal 2010
as compared to $92,408,000 in fiscal 2009. Comparable domestic franchise sales
(consisting of 127 Nathan’s outlets, excluding sales under the Branded Menu
Program) were $61,843,000 in fiscal 2010 as compared to $65,845,000 in fiscal
2009, a decrease of 6.1%. Franchise sales have been negatively
affected by the adverse economic environment, particularly at our travel, retail
and entertainment venues, where sales are lower by approximately 6.3% compared
to fiscal 2009. However, during the fourth quarter fiscal 2010, we began to see
higher sales from our Las Vegas franchise locations. At March 28, 2009, 246
domestic and international franchised or Branded Menu Program franchise outlets
were operating as compared to 249 domestic and international franchised or
Branded Menu Program franchise outlets at March 29, 2009. Royalty income
from 13 domestic franchised outlets was deemed unrealizable during fiscal 2010
as compared to 14 franchised outlets during fiscal 2009. Domestic franchise fee
income was $531,000 in fiscal 2010 as compared to $504,000 in fiscal 2009, the
increase was due primarily to the re-franchising of five locations and higher
opening fees earned from conventional franchised locations during fiscal 2010.
International franchise fee income was $92,000 in fiscal 2010, as compared to
$97,000 during fiscal 2009 primarily due to fewer openings of international
franchised restaurants. During fiscal 2010, 33 new franchised outlets opened,
including five re-franchised locations, 17 Branded Menu Program outlets, one
unit in Kuwait and one unit in the Dominican Republic. During fiscal 2009, 46
new franchised outlets were opened, including 28 Branded Menu Program outlets,
two units in Kuwait and one unit in Dubai.
License
royalties increased by $443,000 or 7.4% to $6,452,000 in fiscal 2010 as compared
to $6,009,000 in fiscal 2009. Total royalties earned on sales of hot dogs from
our retail and foodservice license agreements increased 12.9% to $5,166,000 from
$4,574,000 as a result of higher licensee sales during fiscal
2010. Royalties earned from SFG, primarily from the retail sale of
hot dogs, were $3,746,000 during fiscal 2010 as compared to $3,329,000 during
fiscal 2009. Royalties earned from another licensee, substantially from sales of
hot dogs to Sam’s Club, were $1,420,000 during fiscal 2010 as compared to
$1,245,000 during fiscal 2009. 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. The Sam’s Club introduction was
substantially completed by June 2008. We earned lower royalties of
$217,000 from the sale of proprietary ingredients during fiscal
2010. During fiscal 2009, we earned $234,000 in settlement of a
multi-year dispute under that agreement related to the unauthorized use of
certain ingredients. During fiscal 2010, revenues from this agreement for the
manufacture of Nathan’s proprietary ingredients increased by $17,000 when
compared to revenues in fiscal 2009.
Interest
income was $916,000 in fiscal 2010 as compared to $1,056,000 in fiscal 2009,
primarily due to lower interest income on our cash and cash equivalents as a
result of the lower current interest rate environment and the MSC Note (as
defined) receivable, received in connection with the sale of Miami Subs on June
7, 2007.
Other
income was $65,000 in fiscal 2010 as compared to $63,000 in fiscal
2009.
Costs and Expenses from
Continuing Operations
Overall,
our cost of sales decreased by $261,000 to $28,513,000 in fiscal 2010 as
compared to $28,774,000 in fiscal 2009. Our gross profit (representing the
difference between sales and cost of sales) was $10,172,000 or 26.3% of sales
during fiscal 2010 as compared to $8,706,000 or 23.2% of sales during fiscal
2009. The improved margin was due primarily to average higher selling prices of
our Branded Product Program and lower food costs.
Cost of
sales in the Branded Product Program increased by approximately $167,000 during
fiscal 2010 as compared to fiscal 2009, primarily as a result of the increased
sales volume which was partially offset by the decrease in our average cost of
our hot dogs of approximately 2.4% as a percentage of sales or $425,000. During
fiscal 2010 and fiscal 2009, we entered into certain purchase commitments which
had varying effects on our average hot dog costs during the fiscal 2010 and
fiscal 2009 periods, as compared to purchasing all of our products at the
then-prevailing market price. During fiscal 2010, approximately 42% of our hot
dogs were purchased pursuant to forward commitments yielding savings of
approximately $180,000 as compared to fiscal 2009, when we purchased
approximately 17.2% of our hot dogs pursuant to a purchase commitment saving
approximately $462,000. During fiscal 2010, the market price of hot dogs
declined during the summer, before rebounding later in the year and increasing
through March 2010. During fiscal 2009, the market price of hot dogs continued
to escalate into the summer of 2008, where it remained at record levels until
softening during late fall and winter of 2009. Beginning in July 2008, we
initiated price increases in our Branded Product Program, in an effort to offset
the increased cost of our hot dogs, which has improved margins. We continue to
be concerned over the volatility in the cost of beef and beef trimmings. If
costs for the product remain at very high levels and we are unable to pass on
these higher costs through price increases, our margins will be adversely
impacted.
With
respect to our Company-owned restaurants, our total cost of sales during fiscal
2010 was $7,380,000 or 59.6% of restaurant sales, as compared to $7,581,000 or
60.6% of restaurant sales in fiscal 2009. The primary reason for the
decreased amount of cost of sales in fiscal 2010 was that the cost reduction
related to the restaurant that was transferred to a franchisee in January 2009
was greater than the additional cost of sales incurred while temporarily
operating two restaurants between August and November 2009. The improved margin
was primarily attributable to lower food and paper costs as a percentage of
sales at our comparable restaurants. The lower food cost as a percentage of
sales was due primarily to the slightly lower commodity cost of our products and
the effect of the sales price increases and certain menu changes. Cost of sales
to our television retailer declined by $227,000 in fiscal 2010, primarily due to
lower sales volume.
Restaurant
operating expenses decreased by $76,000 to $3,285,000 in fiscal 2010 as compared
to $3,361,000 in fiscal 2009. The decrease during fiscal 2010 when compared to
fiscal 2009 results primarily from lower utility costs at our comparable
restaurants of approximately $123,000 together with a net reduction in costs
related to the lower costs of operating the restaurant that was transferred to a
franchisee in January 2009 compared to the additional expenses
incurred while temporarily operating two restaurants between August and November
2009. Our utility costs were approximately 16.6% lower during fiscal 2010 than
fiscal 2009 due primarily to lower commodity costs and lower consumption. We
continue to be concerned about the uncertain market conditions for oil and
natural gas.
Depreciation
and amortization was $843,000 in fiscal 2010 as compared to $809,000 in fiscal
2009.
General
and administrative expenses increased by $409,000 or 4.4% to $9,708,000 in
fiscal 2010 as compared to $9,299,000 in fiscal 2009. The difference in general
and administrative expenses was due primarily to an un-leased property expense
of $117,000, higher professional fees of $93,000, higher payroll taxes mostly
attributable to stock option exercises of $85,000, higher marketing and related
expenses of $47,000 and a one-time higher occupancy expense of
$34,000. We believe that the occupancy cost of our new corporate
office will be approximately $85,000 less than our prior location, which will be
offset by higher depreciation and amortization expense from the construction
costs.
Impairment
charge on note receivable of $250,000 during fiscal 2010 represents the
write-down of a note in connection with a troubled debt
restructuring.
Recovery
of property taxes of $13,000 recorded in fiscal 2010 represents the final
settlement of a multi-year certiorari proceeding in addition to $441,000 that
was initially recorded in fiscal 2009 at one of the Company-owned restaurants,
net of fees.
Provision for Income Taxes
from Continuing Operations
In fiscal
2010, the income tax provision was $2,721,000 or 32.8% of income from continuing
operations before income taxes as compared to $2,461,000 or 33.2% of income from
continuing operations before income taxes in fiscal 2009. Nathan’s effective tax
rate was reduced by 3.5% and 4.6% during fiscal 2010 and fiscal 2009,
respectively, due to the differing effects of tax-exempt interest income.
Additionally, during fiscal 2010, Nathan’s resolved uncertain tax positions,
reducing the associated unrecognized tax benefits along with the related accrued
interest and penalties by approximately $198,000, which lowered the effective
tax rate by 2.4%. Nathan’s effective tax rates without these adjustments would
have been 38.7% for the fiscal 2010 period and 37.7% for the fiscal 2009
period. Nathan’s is seeking to further resolve additional uncertain
tax positions during the year ending March 27, 2011. Nathan’s estimates that its
unrecognized tax benefits and the related accrued interest and penalties could
be further reduced by up to $130,000 during the next fiscal year.
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. The results of operations for NF Roasters,
including the gains on disposal, have been presented as discontinued operations
for fiscal 2009.
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
fiscal year 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.
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”) as compared to $36,259,000 for the
fifty-three weeks ended March 30, 2008 (“fiscal 2008”). Total
sales generated during the extra week during fiscal 2008 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 fiscal 2009 as compared to sales
of $20,647,000 in fiscal 2008. 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 fiscal
2009 as compared to $13,142,000 during fiscal 2008. Sales at the five remaining
Company-owned restaurants were $11,955,000 during fiscal 2009, as compared to
$12,382,000 during fiscal 2008. 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 fiscal
2009, with the most severe decline during September and October 2008, with
declines of 18.6% and 11.6%, respectively, from the same months in fiscal
2008. We also realized a sales decline of 6.8% during the period from January
through March 2009, after adjusting for the additional week in fiscal 2008. We
believe these declines were primarily due to the economic recession. During
fiscal 2009, sales to our television retailer were approximately $683,000 lower
than fiscal 2008. Nathan’s products were on air 50 times during fiscal 2009 as
compared to 55 times during fiscal 2008. The fiscal 2008 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 fiscal 2009 as
compared to $4,962,000 in fiscal 2008. Total royalties were $3,966,000 in fiscal
2009 as compared to $4,131,000 in fiscal 2008. During fiscal 2009, we did not
recognize revenue of $198,000 for royalties deemed to be uncollectible as
compared to fiscal 2008, 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 fiscal 2009 as compared to $4,150,000 in
fiscal 2008. Royalties earned during the extra week in fiscal 2008 were
approximately $59,000. During fiscal 2009, 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 fiscal 2009 as compared to $96,713,000 in fiscal 2008 including
approximately $1,500,000 from the extra week. Comparable domestic franchise
sales (consisting of 133 Nathan’s outlets, excluding sales under the
Branded Menu Program) were $67,145,000 in fiscal 2009 as compared to $72,267,000
in fiscal 2008. Franchise sales had been negatively affected since
September 2008, which we believe is due to the economic
recession. Approximately 87% of the sales decline during fiscal 2009
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 fiscal 2009 as compared
to $586,000 in fiscal 2008, 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 fiscal 2009, as compared to $160,000 during fiscal
2008 primarily due to fewer openings of international franchised restaurants.
During fiscal 2009, 46 new franchised outlets
opened, including 30 Branded Menu Program outlets, two units in Kuwait and one
unit in Dubai. During fiscal 2008, 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 fiscal 2009 as compared to
$4,849,000 in fiscal 2008. 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 fiscal 2008 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 fiscal 2009. Royalties
earned from SFG, primarily from the retail sale of hot dogs, were $3,329,000
during fiscal 2009 as compared to $3,154,000 during fiscal 2008. Royalties
earned from another licensee, substantially from sales of hot dogs to Sam’s
Club, were $1,245,000 during fiscal 2009 as compared to $462,000 during fiscal
2008. 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 fiscal 2008 that did not
occur in fiscal 2009. Net royalties from our other seven license agreements in
fiscal 2009 were $38,000 less than fiscal 2008.
Interest
income was $1,056,000 in fiscal 2009 as compared to $1,084,000 in fiscal 2008,
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 fiscal 2009, 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 fiscal 2009 as compared to $155,000 in fiscal 2008. This decrease was
primarily due to the principal payments received on the MSC Note even though the
note was outstanding for 12 months during fiscal 2009 as compared to nine months
during fiscal 2008 due to the fact that the MSC Note is
self-amortizing.
Other
income was $63,000 in fiscal 2009 as compared to $71,000 in fiscal 2008. During
fiscal 2008, 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 fiscal 2009 as
compared to $27,070,000 in fiscal 2008. Our gross profit (representing the
difference between sales and cost of sales) was $8,706,000 or 23.2% of sales
during fiscal 2009 as compared to $9,189,000 or 25.3% of sales during fiscal
2008. In the Branded Product Program, our cost of sales increased by
approximately $2,512,000 during fiscal 2009 when compared to fiscal 2008,
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 fiscal 2009. 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 fiscal 2009, these costs declined by approximately 17.5% from August
2008. However, despite this decline, the cost of beef and beef trimmings in
fiscal 2009 was still significantly higher than the prior year. Since January
2009, the cost of beef and beef trimmings had increased, causing our per-pound
beef costs to increase by approximately 7% over the fourth quarter of fiscal
2008. 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.
With
respect to our Company-owned restaurants, our cost of sales during fiscal 2009
was $7,582,000 or 60.6% of restaurant sales, as compared to $7,856,000 or 59.8%
of restaurant sales in fiscal 2008. During fiscal 2009, 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 fiscal 2009, 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 fiscal 2009 as
compared to $3,257,000 in fiscal 2008. The increase during fiscal 2009 when
compared to fiscal 2008 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 fiscal 2009 our utility costs were approximately
12.8% higher than fiscal 2008. Depreciation and amortization was
$809,000 in fiscal 2009 as compared to $764,000 in fiscal 2008.
General
and administrative expenses increased by $373,000 or 4.2% to $9,299,000 in
fiscal 2009 as compared to $8,926,000 in fiscal 2008. 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 fiscal 2009 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 fiscal 2009 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 fiscal 2008.
Recovery
of property taxes of $441,000 recorded in fiscal 2009 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
fiscal 2009, 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 fiscal 2008. 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. 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 Purchaser’s note in the
initial principal amount of $2,400,000 (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. Effective April 1, 2010, Nathan’s and the Purchaser agreed to
further modify the terms of the MSC Note extending the due date of the MSC Note
until June 2015, to reduce the monthly payments, increase the interest rate to
8.5% and agreed to reduce the balance of the note by $250,000, if the MSC Note
is paid in full on or before the maturity date. 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 fiscal 2008. Nathan’s also recognized an additional gain of $250,000, or
$153,000 net of tax, during fiscal 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.
During
fiscal 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
$2,000,000. 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
fiscal 2008. The results of operations for these properties, including the gain
on disposal, have been included as discontinued operations for all periods
presented.
Off-Balance
Sheet Arrangements
At March
28, 2010, we were not a party to any off-balance sheet arrangements, other than
our remaining purchase commitment to acquire approximately 742,000 pounds of hot
dogs which are expected to be purchased between April 2010 and June 2010,
pursuant to a purchase commitment that Nathan’s entered in February 2010.
Nathan’s has entered into certain purchase commitments in an effort to mitigate
the effect of increases in the price of beef and beef trimmings over the past
two years. These purchase commitments had varying effects on our hot
dog costs during the fiscal 2010 and fiscal 2009 periods, as compared to
purchasing all of our products at the then-prevailing market price. During
fiscal 2010, the market price of hot dogs declined during the summer, before
rebounding later in the year and increasing through March 2010. As a result, the
purchase commitments saved the Company approximately $180,000, primarily during
the period of January through March 2010. During fiscal 2009, the market price
of hot dogs continued to escalate and the 2008 purchase commitment yielded
savings of $462,000. Nathan’s may enter into additional purchase commitments in
the future as favorable market conditions become available.
On
December 1, 2009, a wholly-owned subsidiary of the Company executed a Guaranty
of Lease in connection with its re-franchising of a restaurant located in West
Nyack, New York. The Guaranty of Lease could be called upon in the
event of a default by the tenant/franchisee. The guaranty extends
through the fifth Lease Year, as defined in the lease, and shall not exceed an
amount equal to the highest amount of the annual minimum rent, percentage rent
and any additional rent payable pursuant to the lease and reasonable attorney’s
fees and other costs. We have recorded a liability of $207,700 in
connection with this guaranty, which does not include potential real estate tax
increases and attorney’s fees and other costs as these amounts are not
reasonably determinable at this time. In connection with Nathan’s
Franchise Agreement, Nathan’s has received a personal guaranty from the
franchisee for all obligations under the agreement.
Liquidity
and Capital Resources
Cash and
cash equivalents at March 28, 2010 aggregated $11,609,000, increasing by
$2,930,000 during fiscal 2010. At March 28, 2010, marketable
securities were $24,317,000 compared to $25,670,000 at March 29, 2009 and net
working capital increased to $36,668,000 from $34,816,008 at March 29,
2009.
Cash
provided by operations of $7,179,000 in fiscal 2010 is primarily attributable to
net income of $5,569,000 and other non-cash items of $1,721,000,
net. Changes in Nathan’s operating assets and liabilities decreased
cash by $111,000, resulting primarily from increased accounts and other
receivables of $536,000, increased inventory of $350,000, and increased other
assets of $210,000 resulting from a lease guaranty, which were partly offset by
increases in other non-current liabilities of $827,000 and deferred franchise
fees of $144,000, primarily from landlord construction contributions, master
development fees received for Canada and sections of China and a contingent
lease guaranty. The increase in accounts and other receivables relates primarily
to increased sales by our product licensees of $299,000, claims receivable from
insurers or pursuant to indemnification agreements of $244,000, increased sales
under the Branded Product Program of $194,000, and advances to Nathan’s
advertising fund of $125,000. These increased receivables were partly reduced by
the receipt of $516,000 from our successful property tax challenge.
Cash used
in investing activities was $434,000 in fiscal 2010. We incurred capital
expenditures of $2,184,000 primarily in connection with our office relocation,
our Branded Product Program and capital maintenance projects at our restaurants.
We received cash proceeds of $1,535,000 from the redemption of maturing
available-for-sale securities and $215,000 from the receipt of payments on the
MSC Note receivable. Effective March 31, 2010, Nathan’s and the maker agreed to
modify the MSC Note to reduce the monthly payment through December 31, 2011,
extend the repayment term until June 30, 2015, increase the interest rate by
0.5% and reduce the principal amount by $250,000 subject to certain
conditions.
Cash used
in financing activities was $3,815,000 in fiscal 2010, primarily for the
purchase of 484,987 treasury shares of the Company’s Common Stock at a cost of
$6,394,000 pursuant to the stock repurchase plans authorized by the Board of
Directors on November 5, 2007 and June 30, 2009, as more fully described
below. Cash was received from the proceeds of employee stock option
exercises of $1,533,000 and the expected realization of the associated tax
benefit of $1,046,000.
Through
March 28, 2010, Nathan’s purchased a total of 3,178,793 shares of common stock
at a cost of approximately $25,192,000 pursuant to its stock repurchase
plans previously authorized by the Board of Directors. Of these
repurchased shares, 484,987 shares of common stock at a cost of approximately
$6,394,000 were repurchased during the fifty-two-week period ended March 28,
2010.
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 200,309 shares were
repurchased at a cost of $2,494,000 as of March 28, 2010.
On
February 5, 2009, Nathan’s and Mutual Securities, Inc. (“MSI”) entered into an
agreement which, as amended to date, (the “10b5-1 Agreement”) authorizes MSI to
purchase shares of the Company’s common stock, having a value of up to an
aggregate $4.2 million, commencing on March 16, 2009 through August 10,
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 repurchase plan
for the purchase of up to 500,000 shares.
On June
30, 2009, Nathan’s Board of Directors authorized its fifth stock repurchase plan
for the purchase of up to 500,000 shares of its common stock on behalf of the
Company and the Company repurchased 238,129 shares of common stock at a cost of
$3,015,000 in a privately-negotiated transaction with Prime Logic Capital, LLC.
The Company has repurchased 478,484 shares at a cost of $6,301,000 as of March
28, 2010, under the fifth stock repurchase plan.
On
November 3, 2009, Nathan’s Board of Directors authorized its sixth stock
repurchase plan for up to 500,000 shares of its common stock on behalf of the
Company. No repurchases have been made under the sixth stock repurchase
plan.
There are
299,691, 21,516 and 500,000 shares remaining to be purchased pursuant to the
fourth, fifth and sixth stock repurchase plans, respectively.
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, fifth and sixth stock-repurchase plans.
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.
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 routinely
assesses its investment management approach with respect to our current and
potential capital requirements.
We expect
that in the future we will continue to purchase stock under stock repurchase
programs, make investments in certain existing restaurants, support the growth
of the Branded Product and Branded Menu Programs and fund those investments from
our operating cash flow. We may also incur capital and other expenditures or
engage in investing activities in connection with opportunistic situations that
may arise on a case-by-case basis.
At March
28, 2010, there were four properties that we lease from third parties which we
sublease to two 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
|
|
Total
|
|
|
1 Year
|
|
|
1 - 3 Years
|
|
|
3 - 5 Years
|
|
|
5 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment
Agreements
|
|
$ |
2,485 |
|
|
$ |
1,080 |
|
|
$ |
805 |
|
|
$ |
400 |
|
|
$ |
200 |
|
Operating
Leases
|
|
|
17,443 |
|
|
|
1,163 |
|
|
|
2,516 |
|
|
|
2,597 |
|
|
|
11,167 |
|
Purchase
Commitment (A)
|
|
|
1,264 |
|
|
|
1,264 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Gross
Cash Contractual Obligations
|
|
|
21,192 |
|
|
|
3,507 |
|
|
|
3,321 |
|
|
|
2,997 |
|
|
|
11,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sublease
Income
|
|
|
723 |
|
|
|
226 |
|
|
|
336 |
|
|
|
87 |
|
|
|
74 |
|
Net
Cash Contractual Obligations
|
|
$ |
20,469 |
|
|
$ |
3,281 |
|
|
$ |
2,985 |
|
|
$ |
2,910 |
|
|
$ |
11,293 |
|
(A)
|
At
March 28, 2010, Nathan’s was committed to acquire approximately 742,000
pounds of hot dogs at a cost of approximately
$1,264,000
|
Inflationary
Impact
We do not
believe that general inflation has materially impacted earnings since 2006.
However, since then, we have experienced volatility in our costs for certain
food products, distribution costs and utilities. Our commodity costs for beef
have been especially volatile since fiscal 2004. During fiscal 2010, the market
price of hot dogs was approximately 3.8% lower than during fiscal 2009. However,
as a result of the Company’s purchase commitment during the same periods, our
cost of beef was only approximately 2.3% lower than fiscal 2009. During the
first nine months of fiscal 2010, the cost of hot dogs did not increase as
rapidly as we experienced during the period May 2008 through September 2008,
when the cost of hot dogs reached the highest level since the inception of our
Branded Product Program. However, during the January through March 2010 period,
the cost of hot dogs increased significantly. Consequently, the purchase
commitments did not yield the same benefit to the Company during fiscal 2010 as
the purchase commitment in effect during fiscal 2009, with the majority of the
benefit of the purchase commitments occurring during the fourth quarter of
fiscal 2010. During fiscal 2010, our costs were approximately 1.0% lower than if
our purchases were made at the prevailing market prices as compared to the
fiscal 2009 period, when our costs were lowered by 2.5%. During calendar 2009,
the cost of beef and beef trimmings has been relatively stable, experiencing
normal seasonal fluctuations, with increasing costs during the October through
December period. However, we are unable
to predict the future cost of our hot dogs and expect to experience price volatility for our
beef products during fiscal 2011. During fiscal 2010, we
experienced lower costs for corn oil and cheese, which were partly offset by
higher costs for potatoes. We may seek to enter into additional purchase
commitments for both hot dogs and other products in the future. Additionally, we
continue to experience the volatility in oil and gas prices on our distribution
costs for our food products and 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. The Federal and New York State minimum wages were
increased to $7.25 per hour, effective July 24, 2009. This increase
was the final scheduled increase pursuant to existing legislation where our
Company-owned restaurants are located. This wage increase did not have 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 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 Operation,” 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 28, 2010, Nathan’s cash and cash equivalents aggregated $11,609,000.
Earnings on these cash and cash equivalents would increase or decrease by
approximately $29,000 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 28, 2010, the market value of
Nathan’s marketable securities aggregated $24,317,000. Interest income on these
marketable securities would increase or decrease by approximately $61,000 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 28, 2010 that are sensitive to interest rate
fluctuations:
|
|
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
|
|
$ |
25,209,000 |
|
|
$ |
24,943,000 |
|
|
$ |
24,361,000 |
|
|
$ |
24,317,000 |
|
|
$ |
23,963,000 |
|
|
$ |
23,608,000 |
|
|
$ |
23,248,000 |
|
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 28, 2010, 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. Since January 2008, we have
begun a program of entering into purchase commitments with our primary supplier
to produce and deliver hot dogs at an agreed-upon price. In January
2008, we entered into a purchase commitment to acquire approximately 1,785,000
pounds of hot dogs for approximately $2,740,000, which were purchased from April
through August 2008. In January 2009, we entered a purchase commitment, as
amended, to acquire 2,592,000 pounds of hot dogs for $4,368,000 from April 2009
through September 2009. In October 2009, we entered into two purchase
commitments to acquire 760,000 pounds of hot dogs for $1,150,000, which were
purchased between November 2009 and January 2010 and to acquire 1,205,000 pounds
of hot dogs for $1,915,000, the majority of which were expected to be purchased
in January through March 2010. At March 28, 2010, Nathan’s had approximately
157,000 pounds of hot dogs remaining to be purchased. Nathan’s also entered into
a new purchase commitment, as amended in February 2010, for 585,000 pounds of
hot dogs that Nathan’s expects to purchase between May and June 2010 at a total
cost of approximately $1,012,000. During fiscal 2010, the market price of hot
dogs was approximately 3.8% lower than during fiscal 2009. However, during
fiscal 2010, due to our purchase commitment, our cost of beef was only
approximately 2.3% lower than fiscal 2009. We may attempt to enter into similar
arrangements for hot dogs and other products 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 fiscal 2010
would have increased or decreased our cost of sales by approximately
$2,278,000.
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 28, 2010. 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 28,
2010. The effectiveness of our internal control over financial
reporting as of March 28, 2010, 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 28, 2010 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.
We have
audited Nathan’s Famous, Inc. (a Delaware Corporation) and subsidiaries’ (the
“Company”) internal control over financial reporting as of March 28, 2010, 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. and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of March 28,
2010, 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 28,
2010 and March 29, 2009, and the related consolidated statements of earnings,
stockholders’ equity and cash flows for the fifty-two weeks ended March 28, 2010
and March 29, 2010 and for the fifty-three weeks ended March 30, 2008 and our
report dated June 11, 2010 expressed an unqualified opinion thereon and contains
an explanatory paragraph related to the adoption of new accounting guidance
issued related to the accounting for uncertainty in income taxes on March 26,
2007.
Melville,
New York
June 11,
2010
PART
III
Item
10. Directors, Executive Officers and Corporate
Governance.
The
information required in response to this Item is incorporated herein by
reference from the discussion under the caption Proposal 1 - Election of Directors, Corporate Governance and Security Ownership in 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 the discussion under the caption Executive Compensation in 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 the discussion under the caption Equity Plan Information and Security Ownership in 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 the discussion under the caption Corporate Governance - Director
Independence and Corporate
Governance - Certain Relationships and Related Persons Transactions in
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 $236,000 in
respect of fiscal 2010 and $369,000 in respect of fiscal 2009 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 2010 and 2009 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
2010 and 2009 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 2010 and 2009 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.
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.
|
|
|
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 10.3 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.)
|
10.33
|
|
*Second
Amended and Restated Promissory Note of Miami Subs Capital Partners I,
Inc. dated April 1, 2010.
|
10.34
|
|
Stock
Purchase Agreement dated June 30, 2009, among Nathan’s Famous, Inc., Prime
Logic Capital LLC and Cantor Fitzgerald & Co. (Incorporated by
reference to Exhibit 10.1 to Form 10-Q for the fiscal quarter ended June
28, 2009.)
|
10.35
|
|
Agreement
of Lease between One-Two Jericho Plaza Owner LLC and Nathan’s Famous
Services, Inc. dated September 11, 2009, (Incorporated by reference to
Exhibit 10.2 to Form 10-Q for the quarter ended September 27,
2009.)
|
10.36
|
|
Guaranty
by Nathan’s Famous, Inc. of Agreement of Lease with One-Two Jericho Plaza
Owner LLC dated September 11, 2009 (Incorporated by reference to Exhibit
10.3 to Form 10-Q for the quarter ended September 27,
2009.)
|
10.37
|
|
First
Amendment to 10b5-1 Issuer Repurchase Instructions between Nathan’s
Famous, Inc. and Mutual Securities, Inc. dated November 6, 2009
(Incorporated by reference to Exhibit 10.4 to Form 10-Q for the quarter
ended September 27, 2009.
|
21
|
|
*List
of Subsidiaries of the Registrant.
|
23
|
|
*Consent
of Grant Thornton LLP dated June 11, 2010.
|
|
|
*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 11th day of
June, 2010.
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 11th day of
June, 2010.
/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
/s/ CHARLES
RAICH
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-47
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Shareholders
Nathan’s Famous, Inc.
We have
audited the accompanying consolidated balance sheets of Nathan’s Famous, Inc. (a
Delaware Corporation) and subsidiaries (the “Company”) as of March 28, 2010 and
March 29, 2009, and the related consolidated statements of earnings,
stockholders’ equity and cash flows for the fifty-two weeks ended March 28, 2010
and March 29, 2009 and for the fifty-three weeks ended March 30, 2008. Our
audits of the basic financial statements included the financial statement
schedule listed in the index appearing under Item 15(a)(2). 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 28, 2010 and March 29, 2009, and the results of their
operations and their cash flows for the fifty-two weeks ended March 28, 2010 and
March 29, 2009 and for the fifty-three weeks ended March 30, 2008 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
described in Note I of the notes to consolidated financial statements, effective
March 26, 2007, the Company adopted new accounting guidance related to the
accounting for uncertainty in income taxes.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Nathan’s Famous, Inc. and subsidiaries’
internal control over financial reporting as of March 28, 2010, 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 11, 2010 expressed an unqualified opinion
thereon.
Melville,
New York
June 11,
2010
Nathan’s
Famous, Inc. and Subsidiaries
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except share and per share amounts)
|
|
March 28, 2010
|
|
|
March 29, 2009
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
11,609 |
|
|
$ |
8,679 |
|
Marketable
securities
|
|
|
24,317 |
|
|
|
25,670 |
|
Accounts
and other receivables, net
|
|
|
5,225 |
|
|
|
4,869 |
|
Note
receivable – current portion
|
|
|
115 |
|
|
|
290 |
|
Inventories
|
|
|
1,018 |
|
|
|
668 |
|
Prepaid
expenses and other current assets
|
|
|
1,428 |
|
|
|
1,326 |
|
Deferred
income taxes
|
|
|
111 |
|
|
|
209 |
|
Total
current assets
|
|
|
43,823 |
|
|
|
41,711 |
|
|
|
|
|
|
|
|
|
|
Note
receivable
|
|
|
1,175 |
|
|
|
1,466 |
|
Property
and equipment
|
|
|
5,467 |
|
|
|
4,126 |
|
Goodwill
|
|
|
95 |
|
|
|
95 |
|
Intangible
assets
|
|
|
1,353 |
|
|
|
1,353 |
|
Deferred
income taxes
|
|
|
1,093 |
|
|
|
915 |
|
Other
assets
|
|
|
368 |
|
|
|
158 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
53,374 |
|
|
$ |
49,824 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
3,069 |
|
|
$ |
2,857 |
|
Accrued
expenses and other current liabilities
|
|
|
3,771 |
|
|
|
3,867 |
|
Deferred
franchise fees
|
|
|
315 |
|
|
|
171 |
|
Total
current liabilities
|
|
|
7,155 |
|
|
|
6,895 |
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
1,907 |
|
|
|
1,080 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
9,062 |
|
|
|
7,975 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES (Note K)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value; 30,000,000 shares authorized; 8,773,241 and 8,305,683 shares issued; and
5,594,448 and 5,611,877 shares outstanding at March 28, 2010 and March 29,
2009, respectively
|
|
|
88 |
|
|
|
83 |
|
Additional
paid-in capital
|
|
|
52,003 |
|
|
|
49,001 |
|
Retained
earnings
|
|
|
16,797 |
|
|
|
11,228 |
|
Accumulated
other comprehensive income
|
|
|
616 |
|
|
|
335 |
|
|
|
|
69,504 |
|
|
|
60,647 |
|
Treasury
stock, at cost, 3,178,793 and 2,693,806 shares at March 28, 2010 and March
29, 2009, respectively.
|
|
|
(25,192 |
) |
|
|
(18,798 |
) |
Total
stockholders’ equity
|
|
|
44,312 |
|
|
|
41,849 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
53,374 |
|
|
$ |
49,824 |
|
|
|
|
|
|
|
|
|
|
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-Two
|
|
|
Fifty-Three
|
|
|
|
weeks ended
|
|
|
weeks ended
|
|
|
weeks ended
|
|
|
|
March 28, 2010
|
|
|
March 29, 2009
|
|
|
March 30, 2008
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$ |
38,685 |
|
|
$ |
37,480 |
|
|
$ |
36,259 |
|
Franchise
fees and royalties
|
|
|
4,758 |
|
|
|
4,613 |
|
|
|
4,962 |
|
License
royalties
|
|
|
6,452 |
|
|
|
6,009 |
|
|
|
4,849 |
|
Interest
income
|
|
|
916 |
|
|
|
1,056 |
|
|
|
1,084 |
|
Other
income
|
|
|
65 |
|
|
|
63 |
|
|
|
71 |
|
Total
revenues
|
|
|
50,876 |
|
|
|
49,221 |
|
|
|
47,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
28,513 |
|
|
|
28,774 |
|
|
|
27,070 |
|
Restaurant
operating expenses
|
|
|
3,285 |
|
|
|
3,361 |
|
|
|
3,257 |
|
Depreciation
and amortization
|
|
|
843 |
|
|
|
809 |
|
|
|
764 |
|
General
and administrative expenses
|
|
|
9,708 |
|
|
|
9,299 |
|
|
|
8,926 |
|
Impairment
charge on note receivable
|
|
|
250 |
|
|
|
- |
|
|
|
- |
|
Recovery
of property taxes
|
|
|
(13 |
) |
|
|
(441 |
) |
|
|
- |
|
Total
costs and expenses
|
|
|
42,586 |
|
|
|
41,802 |
|
|
|
40,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before provision for income
taxes
|
|
|
8,290 |
|
|
|
7,419 |
|
|
|
7,208 |
|
Provision
for income taxes
|
|
|
2,721 |
|
|
|
2,461 |
|
|
|
2,427 |
|
Income
from continuing operations
|
|
|
5,569 |
|
|
|
4,958 |
|
|
|
4,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations, including gains on disposal of discontinued
operations before income taxes of $3,906 in 2009 and $2,489 in
2008.
|
|
|
- |
|
|
|
3,914 |
|
|
|
2,824 |
|
Provision
for income taxes
|
|
|
- |
|
|
|
1,390 |
|
|
|
1,050 |
|
Income
from discontinued operations
|
|
|
- |
|
|
|
2,524 |
|
|
|
1,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
5,569 |
|
|
$ |
7,482 |
|
|
$ |
6,555 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER
SHARE INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
1.00 |
|
|
$ |
0.84 |
|
|
$ |
0.79 |
|
Income
from discontinued operations
|
|
|
- |
|
|
|
0.43 |
|
|
|
0.29 |
|
Net
income
|
|
$ |
1.00 |
|
|
$ |
1.27 |
|
|
$ |
1.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
0.97 |
|
|
$ |
0.80 |
|
|
$ |
0.74 |
|
Income
from discontinued operations
|
|
|
- |
|
|
|
0.41 |
|
|
|
0.27 |
|
Net
income
|
|
$ |
0.97 |
|
|
$ |
1.21 |
|
|
$ |
1.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares used in computing income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,563,000 |
|
|
|
5,898,000 |
|
|
|
6,085,000 |
|
Diluted
|
|
|
5,716,000 |
|
|
|
6,180,000 |
|
|
|
6,502,000 |
|
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 28, 2010, Fifty-two weeks ended March 29, 2009 and Fifty-three
weeks ended March 30, 2008
(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 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 new accounting guidance regarding uncertainty in
income tax as of March 26, 2007 (Note I)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(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 these statements.
Nathan’s
Famous, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
Fifty-two
weeks ended March 28, 2010, Fifty-two weeks ended March 29, 2009 and Fifty-three
weeks ended March 30, 2008
(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 |
|
|
$ |
- |
|
|
$ |
11,228 |
|
|
$ |
335 |
|
|
|
2,693,806 |
|
|
$ |
(18,798 |
) |
|
$ |
41,849 |
|
|
|
|
|
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 28, 2010, Fifty-two weeks ended March 29, 2009 and Fifty-three
weeks ended March 30, 2008
(in
thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury Stock, at Cost
|
|
|
Stockholders’
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 29, 2009
|
|
|
8,305,683 |
|
|
$ |
83 |
|
|
$ |
49,001 |
|
|
$ |
11,228 |
|
|
$ |
335 |
|
|
|
2,693,806 |
|
|
$ |
(18,798 |
) |
|
$ |
41,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in connection with exercise of employee stock
options
|
|
|
467,558 |
|
|
|
5 |
|
|
|
1,528 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
of common stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
484,987 |
|
|
|
(6,394 |
) |
|
|
(6,394 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit on stock option exercises
|
|
|
- |
|
|
|
- |
|
|
|
1,046 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
- |
|
|
|
- |
|
|
|
428 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gains on marketable securities, net of deferred income tax of
$187
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
281 |
|
|
|
- |
|
|
|
- |
|
|
|
281 |
|
|
$ |
281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,569 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,569 |
|
|
|
5,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
5,850 |
|
Balance,
March 28, 2010
|
|
|
8,773,241 |
|
|
$ |
88 |
|
|
$ |
52,003 |
|
|
$ |
16,797 |
|
|
$ |
616 |
|
|
|
3,178,793 |
|
|
$ |
(25,192 |
) |
|
$ |
44,312 |
|
|
|
|
|
|
|
Year ended
|
|
|
|
March 28,
|
|
|
March 29
|
|
|
March 30
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Disclosure
of reclassification amount:
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on marketable securities
|
|
$ |
281 |
|
|
$ |
100 |
|
|
$ |
269 |
|
Reclassification
adjustments for loss, net of tax, included in net income
|
|
|
- |
|
|
|
10 |
|
|
|
- |
|
Net
unrealized gain on marketable securities, net of tax
|
|
$ |
281 |
|
|
$ |
110 |
|
|
$ |
269 |
|
The
accompanying notes are an integral part of these statements.
Nathan’s
Famous, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
Fifty-two
|
|
|
Fifty-two
|
|
|
Fifty-three
|
|
|
|
weeks ended
|
|
|
weeks ended
|
|
|
weeks ended
|
|
|
|
March 28, 2010
|
|
|
March 29, 2009
|
|
|
March 30, 2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
5,569 |
|
|
$ |
7,482 |
|
|
$ |
6,555 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
843 |
|
|
|
809 |
|
|
|
766 |
|
Amortization
of intangible assets
|
|
|
- |
|
|
|
2 |
|
|
|
78 |
|
Amortization
of bond premium
|
|
|
286 |
|
|
|
259 |
|
|
|
278 |
|
Share-based
compensation expense
|
|
|
428 |
|
|
|
428 |
|
|
|
359 |
|
Amortization
of deferred compensation
|
|
|
- |
|
|
|
63 |
|
|
|
73 |
|
Gain
on sale of subsidiary and leasehold interests
|
|
|
- |
|
|
|
(3,906 |
) |
|
|
(2,489 |
) |
Loss
on sale of marketable securities
|
|
|
- |
|
|
|
17 |
|
|
|
- |
|
Provision
for doubtful accounts
|
|
|
181 |
|
|
|
173 |
|
|
|
- |
|
Impairment
charge on note receivable
|
|
|
250 |
|
|
|
- |
|
|
|
- |
|
Deferred
income taxes
|
|
|
(267 |
) |
|
|
(63 |
) |
|
|
682 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
and other receivables, net
|
|
|
(536 |
) |
|
|
(1,211 |
) |
|
|
(362 |
) |
Inventories
|
|
|
(350 |
) |
|
|
160 |
|
|
|
(32 |
) |
Prepaid
expenses and other current assets
|
|
|
(102 |
) |
|
|
167 |
|
|
|
(526 |
) |
Other
assets
|
|
|
(210 |
) |
|
|
(8 |
) |
|
|
(2 |
) |
Accounts
payable, accrued expenses and other current liabilities
|
|
|
116 |
|
|
|
(104 |
) |
|
|
(904 |
) |
Deferred
franchise fees
|
|
|
144 |
|
|
|
(113 |
) |
|
|
(76 |
) |
Other
liabilities
|
|
|
827 |
|
|
|
(54 |
) |
|
|
452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
7,179 |
|
|
|
4,101 |
|
|
|
4,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of marketable securities
|
|
|
1,535 |
|
|
|
3,682 |
|
|
|
3,100 |
|
Purchase
of marketable securities
|
|
|
- |
|
|
|
(8,497 |
) |
|
|
(1,089 |
) |
Purchase
of property and equipment
|
|
|
(2,184 |
) |
|
|
(513 |
) |
|
|
(972 |
) |
Payments
received on notes receivable
|
|
|
215 |
|
|
|
406 |
|
|
|
239 |
|
Proceeds
from sale of subsidiaries and leasehold interests
|
|
|
- |
|
|
|
3,961 |
|
|
|
1,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by investing activities
|
|
|
(434 |
) |
|
|
(961 |
) |
|
|
2,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
of treasury stock
|
|
|
(6,394 |
) |
|
|
(9,712 |
) |
|
|
(1,928 |
) |
Income
tax benefit on stock option exercises
|
|
|
1,046 |
|
|
|
457 |
|
|
|
632 |
|
Proceeds
from the exercise of stock options and warrant
|
|
|
1,533 |
|
|
|
413 |
|
|
|
924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
(3,815 |
) |
|
|
(8,842 |
) |
|
|
(372 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
2,930 |
|
|
|
(5,702 |
) |
|
|
7,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of year
|
|
|
8,679 |
|
|
|
14,381 |
|
|
|
6,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of year
|
|
$ |
11,609 |
|
|
$ |
8,679 |
|
|
$ |
14,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Income
taxes
|
|
$ |
2,239 |
|
|
$ |
3,190 |
|
|
$ |
2,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 28,
2010, March 29, 2009 and March 30, 2008
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
28, 2010, the Company’s restaurant system included five Company-owned units in
the New York City metropolitan area (including one seasonal location) and 246
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 years ended March 28, 2010 and 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.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
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, accounting for income taxes, and the valuation of goodwill,
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 $3,052 and $5,352 at March 28, 2010 and
March 29, 2009, respectively. Substantially all of the Company’s 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 28, 2010 and March
29, 2009.
|
5.
|
Impairment
of Notes Receivable
|
Nathan’s
determines that a loan is impaired when, based on current information and
events, it is probable that the Company 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. The
Company records interest income on its impaired notes receivable on an accrual
basis, when collection is assured, based on the present value of the estimated
cash flows of identified impaired notes receivable.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
B (continued)
Based on
the Company's analysis, it has determined that its note receivable (See Note G)
is impaired at March 28, 2010 and recorded an impairment charge of $250 during
the fiscal year ended March 28, 2010. Following is a summary of
impaired note receivable:
|
|
2010
|
|
|
|
|
|
Total
recorded investment in impaired note receivable
|
|
$ |
1,540 |
|
Allowance
for impaired note receivable
|
|
|
( 250 |
) |
Recorded
investment in impaired note receivable, net
|
|
|
1,290 |
|
Less
current portion
|
|
|
(115 |
) |
|
|
$ |
1,175 |
|
The
Company has recognized approximately $115 of interest income on this note for
the fiscal year ended March 28, 2010. The average recorded investment in
impaired notes receivable was $1,523.
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.
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 28, 2010 and March 29, 2009, 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,
with unrealized gains and losses included as a component of accumulated other
comprehensive income. Realized gains and losses on the sale of securities are
determined on a specific identification basis.
The
Company recognizes profit on sales of restaurants or real estate under the full
accrual method, the installment method and the deposit method, depending on the
specific terms of each sale. Profit recognition by the full accrual
method is appropriate 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.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
B (continued)
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 appropriate sales criteria.
|
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 Assets
|
Goodwill
and intangible assets 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.
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 28,
2010 and March 29, 2009, the Company has performed its required annual
impairment test of goodwill and intangible assets and has determined no
impairment is deemed to exist.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
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 28, 2010, March 29,
2009 and March 30, 2008.
|
12.
|
Fair
Value of Financial Instruments
|
In September 2006, the Financial
Accounting Standards Board (“FASB”) issued a
new accounting standard on fair value measurements which defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value. This accounting standard eliminates the diversity in practice that
exists due to the different definitions of fair value. This accounting standard
retains the exchange price notion in earlier definitions of fair value, but
clarifies 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. This accounting standard states
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). This
accounting standard also establishes 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 delayed the effective date of the provisions of this accounting standard
for certain non-financial assets and non-financial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (i.e., at least annually) for one year. Nathan’s adopted the
provisions of this accounting standard for financial assets and liabilities on
March 31, 2008 and adopted the remaining provisions for non-financial assets and
liabilities on March 30, 2009.
In April 2009, the FASB issued new
guidelines for a broad interpretation of when to apply market-based fair value
measurements. The new guidance 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. Nathan’s adopted
the new guidance on March 30, 2009, the adoption of which did not have a
significant impact 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 28,
2010, March 29, 2009 and March 30, 2008
NOTE
B (continued)
The valuation hierarchy 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 28, 2010
based upon the valuation hierarchy:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Carrying Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
$ |
- |
|
|
$ |
24,317 |
|
|
$ |
- |
|
|
$ |
24,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair
value
|
|
$ |
- |
|
|
$ |
24,317 |
|
|
$ |
- |
|
|
$ |
24,317 |
|
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.
In February 2007, the FASB issued a new
accounting standard which amended the prior accounting standard 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. The
new standard 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 this new accounting standard
on March 31, 2008, which 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.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
B (continued)
Pre-opening
and similar costs are expensed as incurred.
|
14.
|
Revenue Recognition - Branded
Products Operations
|
The
Company recognizes sales from the Branded Product Program and certain products
sold from the Branded Menu Program when it is determined that the products the
Company has sold have been delivered via third party common carrier to Nathan’s
customers. Rebates provided to customers are classified as a reduction to
sales.
|
15.
|
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.
|
16.
|
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.
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
|
Provision
of management training for the new franchisee and selected
staff.
|
|
o
|
Assistance with the initial
operations of restaurants being
developed.
|
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
B (continued)
At March
28, 2010 and March 29, 2009, $315 and $171,
respectively, of deferred franchise fees are included in the accompanying
consolidated balance sheets. For the fiscal years ended March 28, 2010, March
29, 2009 and March 30, 2008, the Company earned franchise fees of
$678, $647 and $831, 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 28, 2010
and March 29, 2009, $536 and $193,
respectively, of deferred development fee revenue is included in the
accompanying consolidated balance sheets.
The
following is a summary of franchise openings and closings for the Nathan’s
Franchise restaurant system for the fiscal years ended March 28, 2010, March 29,
2009 and March 30, 2008:
|
|
March 28,
|
|
|
March 29,
|
|
|
March 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
Franchised
restaurants operating at the beginning of the period
|
|
|
249 |
|
|
|
224 |
|
|
|
196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New
franchised restaurants opened during the period
|
|
|
33 |
|
|
|
46 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchised
restaurants closed during the period
|
|
|
(36 |
) |
|
|
(21 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchised
restaurants operating at the end of the period
|
|
|
246 |
|
|
|
249 |
|
|
|
224 |
|
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
B (continued)
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 royalty revenue from its Branded Menu
Program directly from the sale of Nathan’s product by the manufacturers.
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.
|
17.
|
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.
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 28, 2010, March 29, 2009 and March 30,
2008 consists
of the following:
|
|
March 28,
2010
|
|
|
March 29,
2009
|
|
|
March 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of supplier contributions
|
|
$ |
36 |
|
|
$ |
41 |
|
|
$ |
34 |
|
Other
income
|
|
|
29 |
|
|
|
22 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
65 |
|
|
$ |
63 |
|
|
$ |
71 |
|
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
B (continued)
|
20.
|
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 from royalties from retail licensees. At
March 28, 2010, one retail licensee and two Branded Products customers each
represented 15%, 14% and 11%, respectively, of accounts receivable. At March 29,
2009, one retail licensee and two Branded Product customers each represented
12%, 15% and 15%, 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 28, 2010, March 29, 2009 and March 30,
2008.
The
Company’s primary supplier of frankfurters represented 82%, 81% and 77% of product
purchases for the fiscal years ended March 28, 2010, March 29, 2009 and March
30, 2008, respectively. The Company’s distributor of product to its
Company-owned restaurants represented 11%, 12%, and 15% of
product purchases for the fiscal years ended March 28, 2010, March 29, 2009 and
March 30, 2008, respectively.
The
Company’s revenues for the fiscal years ended March 28, 2010, March 29, 2009 and
March 30, 2008 were derived from the following geographic areas:
|
|
March 28,
2010
|
|
|
March 29,
2009
|
|
|
March 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
(United States)
|
|
$ |
49,747 |
|
|
$ |
48,423 |
|
|
$ |
46,489 |
|
Non-domestic
|
|
|
1,129 |
|
|
|
798 |
|
|
|
736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
50,876 |
|
|
$ |
49,221 |
|
|
$ |
47,225 |
|
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 fund are based on specified percentages of net sales, generally
ranging up to 2%. Net Company-owned store advertising expense, which is expensed
as incurred, was $247, $188, and $224, for the fiscal
years ended March 28, 2010, March 29, 2009 and March 30, 2008,
respectively.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
B (continued)
|
22.
|
Stock-Based
Compensation
|
At March
28, 2010, the Company had several stock-based employee compensation plans in
effect which are more fully described in Note J.
The cost
of all share-based payments to employees, including grants of employee stock
options, is 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.
Stock-based
compensation, including amortization of deferred compensation relating to
restricted stock, recognized during the fiscal years ended March 28, 2010, March
29, 2009 and March 30, 2008 was $428, $492 and $432
respectively, and is included in general and administrative expense in the
accompanying Consolidated Statements of Earnings. As of March 28,
2010, there was $471
of unamortized compensation expense related to stock options. The
Company expects to recognize this expense over approximately one year, nine
months, which represents the remaining requisite service periods for such
awards.
No
stock-based awards were granted during the fiscal years ended March 28, 2010 and
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.
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 year ended March 30, 2008
were:
|
|
March 30,
2008
|
|
Weighted-average option
fair values
|
|
$ |
5.8270 |
|
Expected
life (years)
|
|
|
4.25 |
|
Interest
rate
|
|
|
4.21 |
% |
Volatility
|
|
|
32.93 |
% |
Dividend
yield
|
|
|
0 |
% |
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
B (continued)
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.
|
23.
|
Classification
of Operating Expenses
|
Cost of
sales consists of the following:
|
o
|
The
cost of products sold by 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 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.
|
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
carryforwards. 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. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income in those periods in which temporary differences became
deductible. Should the management determine that it is more likely than not that
some portion of the deferred tax assets will not be realized, a valuation
allowance against the deferred tax assets would be established in the period
such determination was made.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
B (continued)
Uncertain
Tax Positions
We have
recorded liabilities for underpayment of income taxes and related interest and
penalties, if any, for uncertain tax positions based on the determination of
whether tax benefits claimed or expected to be claimed on a tax return should be
recorded in the financial statements. 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. Guidance was also provided
on derecognition, classification, interest and penalties, accounting in interim
periods and disclosure requirements. (See Note I.)
Certain
prior years’ balances have been reclassified to conform with Nathan’s current
year presentation.
|
26.
|
Adoption
of New Accounting
Pronouncements
|
In
December 2007, the FASB issued an amendment to its existing accounting
standard on business combinations, which establishes new 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. In April 2009, the
FASB also issued new guidelines on the initial recognition and measurement,
subsequent measurement and accounting, and disclosure of assets and liabilities
arising from contingencies in a business combination, which provide 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. New guidance is also provided in the
event that the fair value of an asset acquired or liability assumed cannot be
determined during the measurement period. An acquirer shall also develop a
systematic and rational basis for subsequently measuring and accounting for
assets and liabilities arising from contingencies and also provide for the
disclosure requirements. Nathan’s adopted the provisions of the new accounting
standards on business combinations on March 30, 2009, the adoption of which had
no impact on our consolidated financial position or results of
operations.
In
December 2007, the FASB issued a new accounting standard which establishes
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.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
B (continued)
Among
other requirements, this standard 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. Nathan’s adopted
the provisions of this new accounting standard on March 30, 2009, the adoption
of which had no impact on our consolidated financial position or results of
operations.
In April
2008, the FASB issued new guidance 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. Nathan’s adopted the
new guidance on March 30, 2009, the adoption of which had no impact on our
consolidated financial position or results of operations.
In June
2008, the FASB issued new guidance for the accounting for maintenance deposits
paid by a lessee to a lessor. Nathan’s adopted these provisions on March 30,
2009, the adoption of which had no impact on our consolidated financial position
or results of operations.
In April
2009, the FASB issued new guidance on the recognition and presentation of
other-than-temporary impairments, 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. These accounting standards also require some additional disclosures
regarding expected cash flows, credit losses, and an aging of securities with
unrealized losses. Nathan’s adopted the new guidance effective March 30, 2009,
the adoption of which had no impact on our consolidated financial position or
results of operations.
In April
2009, the FASB issued new requirements for interim disclosures about fair value
of financial instruments, which increase the frequency of fair value disclosures
to a quarterly basis instead of annually. The requirements relate to fair value
disclosures for any financial instruments that are not currently reflected on
the balance sheet at fair value. Prior to these changes, fair values for these
assets and liabilities were only disclosed annually. Nathan’s adopted the
provisions of these accounting standards effective March 30, 2009. The
newly-required interim disclosures had no impact on our consolidated financial
position or results of operations.
In May
2009, the FASB issued a new accounting standard on subsequent events,
which establishes general standards of accounting for, and disclosure of, events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. This accounting standard establishes: (1)
The period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements; (2) the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
B (continued)
its
financial statements; and (3) the disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. This
accounting standard also requires disclosure of the date through which an entity
has evaluated subsequent events. Nathan’s adopted the provisions of this
accounting standard effective for its first quarter ended June 28,
2009.
In June
2009, the FASB issued a new accounting standard which establishes the FASB Accounting Standards
CodificationTM
(“Codification”) as the source of authoritative U.S. Generally Accepted
Accounting Principles (GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the Securities and
Exchange Commission (“SEC”) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. Nathan’s adopted the
provisions of this accounting standard on June 29, 2009. The adoption of this
accounting standard did not have any impact on our consolidated financial
position and results of operations.
We do not
believe that any recently issued, but not yet effective accounting standards, if
adopted, would have a material effect on the accompanying financial
statements.
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 28, 2010, March 29, 2009 and
March 30, 2008, respectively:
|
|
Income
from continuing operations
|
|
|
Shares
|
|
|
Income per share
from continuing operations
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
calculation
|
|
$ |
5,569 |
|
|
$ |
4,958 |
|
|
$ |
4,781 |
|
|
|
5,563,000 |
|
|
|
5,898,000 |
|
|
|
6,085,000 |
|
|
$ |
1.00 |
|
|
$ |
.84 |
|
|
$ |
.79 |
|
Effect
of dilutive employee stock options and warrants
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
153,000 |
|
|
|
282,000 |
|
|
|
417,000 |
|
|
|
(.03 |
) |
|
|
(.04 |
) |
|
|
(.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
calculation
|
|
$ |
5,569 |
|
|
$ |
4,958 |
|
|
$ |
4,781 |
|
|
|
5,716,000 |
|
|
|
6,180,000 |
|
|
|
6,502,000 |
|
|
$ |
.97 |
|
|
$ |
.80 |
|
|
$ |
.74 |
|
Options
and warrants to purchase 110,000, 196,833 and 55,000 shares
of common stock for the years ended March 28, 2010, March 29, 2009 and March 30,
2008, 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 28,
2010, March 29, 2009 and March 30, 2008
NOTE
D - MARKETABLE SECURITIES
The cost,
gross unrealized gains, gross unrealized losses and fair market value for
marketable securities, which consist entirely of municipal bonds that are
classified as available-for-sale securities are as follows:
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Market
Value
|
|
March
28, 2010
|
|
$ |
23,308 |
|
|
$ |
1,009 |
|
|
$ |
- |
|
|
$ |
24,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
29, 2009
|
|
$ |
25,130 |
|
|
$ |
625 |
|
|
$ |
(85 |
) |
|
$ |
25,670 |
|
As of
March 28, 2010, none of the securities held by the Company were in an
unrealized loss position. As of March 29, 2009, there were four
securities in an unrealized loss position. Management had evaluated the
securities, individually and in the aggregate, for other than temporary
impairment. 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 it was determined by
management that no other then temporary impairment existed at March 29, 2009. As
of March 29, 2009, all securities in an unrealized loss position had been in
such position for less than one year.
As of
March 28, 2010, the municipal bonds mature at various dates between August 2010
and October 2019. The
following represents the bond maturities by period:
Fair value of Municipal Bonds
|
|
Total
|
|
|
Less than
1 Year
|
|
|
1 – 5 Years
|
|
|
5 – 10 Years
|
|
|
After
10 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
28, 2010
|
|
$ |
24,317 |
|
|
$ |
2,984 |
|
|
$ |
12,354 |
|
|
$ |
8,979 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
29, 2009
|
|
$ |
25,670 |
|
|
$ |
1,049 |
|
|
$ |
15,795 |
|
|
$ |
7,577 |
|
|
$ |
1,249 |
|
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 28,
2010
|
|
|
March 29,
2009
|
|
|
March 30,
2008
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
Proceeds
|
|
$ |
1,535 |
|
|
$ |
3,681 |
|
|
$ |
3,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
realized losses
|
|
|
- |
|
|
$ |
(17 |
) |
|
|
- |
|
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
The
change in net unrealized gains on available-for-sale securities for the fiscal
years ended March 28, 2010, March 29, 2009 and March 30, 2008, of $281, $120,
and $269, respectively, which is net of deferred income taxes, has been included
as a component of comprehensive income.
NOTE
E - ACCOUNTS AND OTHER RECEIVABLES, NET
Accounts
and other receivables, net, consist of the following:
|
|
March 28,
|
|
|
March 29,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Franchise
and license royalties
|
|
$ |
2,271 |
|
|
$ |
1,672 |
|
Branded
product sales
|
|
|
2,841 |
|
|
|
2,686 |
|
Real
estate tax refund, net
|
|
|
- |
|
|
|
516 |
|
Other
|
|
|
528 |
|
|
|
200 |
|
|
|
|
5,640 |
|
|
|
5,074 |
|
|
|
|
|
|
|
|
|
|
Less:
allowance for doubtful accounts
|
|
|
415 |
|
|
|
205 |
|
|
|
|
|
|
|
|
|
|
Accounts
and other receivables, net
|
|
$ |
5,225 |
|
|
$ |
4,869 |
|
|
|
|
|
|
|
|
|
|
Real
estate tax refund, net, as at March 29, 2009 represents the settlement of a
multi-year certiorari proceeding at a Company-owned restaurant, net of
associated fees. The balance was collected in full during the year ended March
28, 2010.
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.
Changes
in the Company’s allowance for doubtful accounts for the fiscal years ended
March 28, 2010, March 29, 2009 and March 30, 2008 are as follows:
|
|
March 28,
2010
|
|
|
March 29,
2009
|
|
|
March 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
205 |
|
|
$ |
104 |
|
|
$ |
94 |
|
Bad
debt expense
|
|
|
181 |
|
|
|
173 |
|
|
|
- |
|
Uncollectible
marketing fund contributions
|
|
|
50 |
|
|
|
27 |
|
|
|
20 |
|
Accounts
written off
|
|
|
(21 |
) |
|
|
(99 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$ |
415 |
|
|
$ |
205 |
|
|
$ |
104 |
|
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
F - PROPERTY AND EQUIPMENT, NET
Property
and equipment consists of the following:
|
|
March 28,
|
|
|
March 29,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
1,094 |
|
|
$ |
1,094 |
|
Building
and improvements
|
|
|
2,139 |
|
|
|
2,164 |
|
Machinery,
equipment, furniture and fixtures
|
|
|
5,623 |
|
|
|
6,290 |
|
Leasehold
improvements
|
|
|
3,835 |
|
|
|
3,834 |
|
Construction-in-progress
|
|
|
- |
|
|
|
3 |
|
|
|
|
12,691 |
|
|
|
13,385 |
|
Less: accumulated
depreciation and amortization
|
|
|
7,224 |
|
|
|
9,259 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,467 |
|
|
$ |
4,126 |
|
NOTE
G – DISCONTINUED 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 NF Roasters products within the then-existing
restaurants without payment of royalties.
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
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
G (continued)
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 the fiscal year 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 gain on disposal, have been presented as discontinued
operations for all periods presented.
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 originally bore 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. 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 the fiscal year ended March 30, 2008. 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.
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.
Effective
April 1, 2010, Nathan’s and the Purchaser agreed to further modify the terms of
the MSC Note extending the due date of the MSC Note until June 2015, to reduce
the monthly payments, increase the interest rate to 8.5% and agreed to reduce
the balance of the note by $250, if the MSC Note is paid in full on or before
the maturity date. Management evaluated the restructured MSC Note for impairment
by comparing the present value of the expected future cash flows on the MSC Note
to the current carrying value and recorded an impairment charge of
$250.
The
current and long-term portions of the MSC Note as of March 28, 2010 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.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
G (continued)
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, as amended, 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 $2 per
month.
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 gain on disposal, have been presented
as discontinued operations for all periods presented.
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.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
G (continued)
4. Summary Financial
Information
The
following is a summary of all discontinued operations for the fiscal years ended
March 29, 2009 and March 30, 2008:
|
|
March 29,
2009
|
|
|
March 30,
2008
|
|
|
|
|
|
|
|
|
Revenues
(excluding gains from dispositions)
|
|
$ |
10 |
|
|
$ |
593 |
|
|
|
|
|
|
|
|
|
|
Gain
from dispositions before income taxes
|
|
$ |
3,906 |
|
|
$ |
2,489 |
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
$ |
3,914 |
|
|
$ |
2,824 |
|
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
H – ACCRUED EXPENSES, OTHER CURRENT LIABILITIES AND OTHER
LIABILITIES
Accrued
expenses and other current liabilities consist of the following:
|
|
March 28,
|
|
|
March 29,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Payroll
and other benefits
|
|
$ |
1,807 |
|
|
$ |
1,770 |
|
Accrued
rebates
|
|
|
656 |
|
|
|
816 |
|
Professional
and legal costs
|
|
|
163 |
|
|
|
137 |
|
Self-insurance
costs
|
|
|
36 |
|
|
|
51 |
|
Rent
and occupancy costs
|
|
|
231 |
|
|
|
119 |
|
Taxes
payable
|
|
|
53 |
|
|
|
50 |
|
Unexpended
advertising funds
|
|
|
- |
|
|
|
46 |
|
Deferred
revenue
|
|
|
501 |
|
|
|
634 |
|
Other
|
|
|
324 |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,771 |
|
|
$ |
3,867 |
|
Other
liabilities consist of the following:
|
|
March 28,
|
|
|
March 29,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Deferred
income – supplier contracts
|
|
$ |
- |
|
|
$ |
4 |
|
Deferred
development fees
|
|
|
480 |
|
|
|
193 |
|
Reserve
for uncertain tax positions (Note I)
|
|
|
648 |
|
|
|
841 |
|
Deferred
rental liability
|
|
|
563 |
|
|
|
24 |
|
Contingent
guaranty
|
|
|
208 |
|
|
|
- |
|
Deferred
royalty
|
|
|
8 |
|
|
|
18 |
|
|
|
$ |
1,907 |
|
|
$ |
1,080 |
|
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
I - INCOME TAXES
Income
tax provision (benefit) consists of the following for the fiscal years ended
March 28, 2010, March 29, 2009, and March 30, 2008:
|
|
March 28,
2010
|
|
|
March 29,
2009
|
|
|
March 30,
2008
|
|
Federal
|
|
|
|
|
|
|
|
|
|
Current
|
|
$ |
2,538 |
|
|
$ |
2,012 |
|
|
$ |
1,314 |
|
Deferred
|
|
|
(212 |
) |
|
|
(53 |
) |
|
|
523 |
|
|
|
|
2,326 |
|
|
|
1,959 |
|
|
|
1,837 |
|
State
and local
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
452 |
|
|
|
511 |
|
|
|
497 |
|
Deferred
|
|
|
(57 |
) |
|
|
(9 |
) |
|
|
93 |
|
|
|
|
395 |
|
|
|
502 |
|
|
|
590 |
|
|
|
$ |
2,721 |
|
|
$ |
2,461 |
|
|
$ |
2,427 |
|
Total
income tax provision (benefit) for the fiscal years ended March 28, 2010, March
29, 2009 and March 30, 2008 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 28,
2010
|
|
|
March 29,
2009
|
|
|
March 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
Computed
“expected” tax expense
|
|
$ |
2,819 |
|
|
$ |
2,522 |
|
|
$ |
2,450 |
|
State
and local income taxes, net of Federal income tax benefit
|
|
|
391 |
|
|
|
314 |
|
|
|
360 |
|
Reduction in
uncertain tax positions
|
|
|
(198 |
) |
|
|
- |
|
|
|
- |
|
Tax-exempt
investment earnings
|
|
|
(272 |
) |
|
|
(305 |
) |
|
|
(309 |
) |
Nondeductible
meals and entertainment and other
|
|
|
(19 |
) |
|
|
(70 |
) |
|
|
(74 |
) |
|
|
$ |
2,721 |
|
|
$ |
2,461 |
|
|
$ |
2,427 |
|
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March
28, 2010, March 29, 2009 and March 30, 2008
NOTE
I (continued)
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 28,
|
|
|
March 29,
|
|
|
|
2010
|
|
|
2009
|
|
Deferred
tax assets
|
|
|
|
|
|
|
Accrued
expenses
|
|
$ |
208 |
|
|
$ |
180 |
|
Allowance
for doubtful accounts
|
|
|
266 |
|
|
|
82 |
|
Deferred
revenue
|
|
|
516 |
|
|
|
404 |
|
Depreciation
expense
|
|
|
356 |
|
|
|
752 |
|
Expenses
not deductible until paid
|
|
|
32 |
|
|
|
21 |
|
Deferred
stock compensation
|
|
|
604 |
|
|
|
433 |
|
Excess
of straight line over actual rent
|
|
|
178 |
|
|
|
32 |
|
Other
|
|
|
46 |
|
|
|
7 |
|
Total
gross deferred tax assets
|
|
$ |
2,206 |
|
|
$ |
1,911 |
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
|
|
|
|
|
|
Difference
in tax bases of installment gains not yet recognized
|
|
|
248 |
|
|
|
282 |
|
Deductible
prepaid expense
|
|
|
203 |
|
|
|
172 |
|
Unrealized
gain on marketable securities
|
|
|
403 |
|
|
|
224 |
|
Other
|
|
|
148 |
|
|
|
109 |
|
Total
gross deferred tax liabilities
|
|
|
1,002 |
|
|
|
787 |
|
Net
deferred tax asset
|
|
|
1,204 |
|
|
|
1,124 |
|
Less
current portion
|
|
|
(111 |
) |
|
|
(209 |
) |
Long-term
portion
|
|
$ |
1,093 |
|
|
$ |
915 |
|
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 $1,204 and $1,124 at March 28, 2010 and March 29, 2009,
respectively.
Nathan’s
adopted the accounting guidance for uncertainty in income taxes 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.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
I (continued)
The
following is a tabular reconciliation of the total amounts of unrecognized tax
benefits excluding interest and penalties for the fiscal years ended March 28,
2010 and March 29, 2009.
|
|
March
28,
|
|
|
March
29,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Unrecognized
tax benefits, beginning of year
|
|
$ |
501 |
|
|
$ |
466 |
|
Increases
based on tax positions taken in prior years
|
|
|
6 |
|
|
|
14 |
|
Increase
based on tax positions taken in current year
|
|
|
15 |
|
|
|
21 |
|
Lapse
of statute of limitations
|
|
|
(52 |
) |
|
|
- |
|
Reductions of
tax positions taken in prior years |
|
|
( 49 |
) |
|
|
- |
|
Settlements
of tax positions taken in prior years
|
|
|
( 43 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Unrecognized
tax benefits, end of year
|
|
$ |
378 |
|
|
$ |
501 |
|
The
amount of unrecognized tax benefits at March 28, 2010 and March 29, 2009
was $378 and $501, 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 28, 2010 and March 29, 2009, the Company had
$378 and $458, respectively, accrued for the payment of interest and
penalties. The Company believes that it is reasonably possible that
decreases in unrecognized tax benefits of up to $60 may be recorded within the
next year.
Nathan’s
is subject to tax in the U.S. and various state and local jurisdictions.
Effective May 28, 2010, the Company concluded its audit by the Internal Revenue
Service for the fiscal year ended March 25, 2007, which resulted in no changes
to the return as filed. 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 subject to examination by
taxing authorities by major jurisdictions are as follows:
Jurisdiction
|
|
Fiscal Year
|
Federal
|
|
2007
|
New
York State
|
|
2007
|
New
York City
|
|
2007
|
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
J – 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. As of March 29, 2009, there were 168,500 shares available to be
issued for future grants under the 2001 Plan.
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 were 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.
All of
the stock options previously issued upon the acquisition of Miami Subs during
the fiscal year ended March 26, 2000 have been exercised or forfeited. These
options had an exercise price of $3.1875 and had an expiration date of 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.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
J (continued)
A summary
of the status of the Company’s stock options at March 28, 2010, March 29, 2009
and March 30, 2008 and changes during the fiscal years then ended is presented
in the tables below:
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
price
|
|
|
Shares
|
|
|
price
|
|
|
Shares
|
|
|
price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding – beginning of year
|
|
|
1,027,308 |
|
|
$ |
6.94 |
|
|
|
1,152,308 |
|
|
$ |
6.54 |
|
|
|
1,172,308 |
|
|
$ |
5.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
110,000 |
|
|
|
17.43 |
|
Expired
|
|
|
(25,000 |
) |
|
|
3.19 |
|
|
|
- |
|
|
|
- |
|
|
|
(8,500 |
) |
|
|
6.20 |
|
Exercised
|
|
|
(467,558 |
) |
|
|
3.28 |
|
|
|
(125,000 |
) |
|
|
3.30 |
|
|
|
(121,500 |
) |
|
|
3.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding - end of year
|
|
|
534,750 |
|
|
$ |
10.31 |
|
|
|
1,027,308 |
|
|
$ |
6.94 |
|
|
|
1,152,308 |
|
|
$ |
6.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable - end of year
|
|
|
409,083 |
|
|
$ |
8.97 |
|
|
|
830,475 |
|
|
$ |
5.07 |
|
|
|
884,306 |
|
|
$ |
4.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
fair value of options granted
|
|
|
- |
|
|
$ |
- |
|
|
|
|
|
|
$ |
- |
|
|
|
|
|
|
$ |
5.83 |
|
During
the fiscal years ended March 28, 2010, March 29, 2009 and March 30, 2008,
467,558, 125,000, and 271,500 stock options and warrants were exercised which
aggregated proceeds of $1,533, $413 and $924, respectively, to the
Company.
The
aggregate intrinsic values of the stock options exercised during the fiscal
years ended March 28, 2010, March 29, 2009 and March 30, 2008 were $4,929,
$1,250 and $3,169 respectively.
The
following table summarizes information about stock options at March 28,
2010:
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Contractual Life
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at March 28, 2010
|
|
|
534,750 |
|
|
$ |
10.31 |
|
|
|
4.12 |
|
|
$ |
2,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at March 28, 2010
|
|
|
409,083 |
|
|
$ |
8.97 |
|
|
|
3.90 |
|
|
$ |
2,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
prices range from $3.20 to $17.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
J (continued)
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.
|
3.
|
Common
Stock Purchase Rights
|
On June
4, 2008, Nathan’s approved an amendment of its then-existing shareholder rights
plan (“Former Rights Plan”) to accelerate the final expiration date of the
then-outstanding 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 its Former Rights
Plan. The Company had reserved 9,501,491 shares of common stock for
issuance upon exercise of the Rights under its Former 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 28, 2010, the Company reserved
12,485,250 shares of common stock, based upon the closing market price per share
on Friday, March 26, 2010 of $15.25. 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 28,
2010, March 29, 2009 and March 30, 2008
NOTE
J (continued)
|
4.
|
Stock
Repurchase Programs
|
Through
March 28, 2010, Nathan’s purchased a total of 3,178,793 shares of common stock
at a cost of approximately $25,192 in completion of the various stock
repurchase plans previously authorized by the Board of Directors. Of these
repurchased shares, 484,987 shares were repurchased at a cost of $6,394
during the year ended March 28, 2010. 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 200,309 shares were
repurchased at a cost of $2,494 through the fiscal year ended March 28,
2010.
On June
30, 2009, Nathan’s Board of Directors authorized its fifth stock repurchase plan
for the purchase of up to 500,000 shares of its common stock on behalf of the
Company and the Company repurchased 238,129 shares of common stock at a cost of
$3,015 in a privately-negotiated transaction with Prime Logic Capital, LLC. As
of March 28, 2010, the Company has repurchased 478,484 shares at a cost of
$6,301 under the fifth stock repurchase plan.
On
November 3, 2009, Nathan’s Board of Directors authorized its sixth stock
repurchase plan for the purchase of up to 500,000 shares of its common stock on
behalf of the Company. No shares have been repurchased under the sixth stock
repurchase plan.
On
February 5, 2009, 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, having a value of up to an
aggregate $3.6 million, which commenced on March 16, 2009. 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 repurchase plan, for the purchase of up to
500,000 shares. The 10b5-1 Agreement was originally due to terminate no
later than March 15, 2010. On November 6, 2009, Nathan’s and MSI amended
the terms of the 10b5-1 Agreement to increase the aggregate amount to $4.2
million and extend the termination date to no later than August 10,
2010.
There are
299,691, 21,516 and 500,000 shares remaining to be purchased pursuant to the
fourth, fifth and sixth stock repurchase plans, respectively.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
J (continued)
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 stock repurchase plans.
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
Lorber 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 the 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.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
J (continued)
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.
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. At March 28, 2010 and March 29, 2009, all 50,000 shares were
fully vested and as of March 30, 2008, 40,000 shares were vested and 10,000
shares were not vested.
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, 2010, based on the original terms, and no non-renewal notice has
been given through June 10, 2010. 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 is 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, 2010, based on the original terms,
and no non-renewal notice has been given through June 10, 2010. 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 28,
2010, March 29, 2009 and March 30, 2008
NOTE
J (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. Consequently, the employment agreement has
been extended through September 30, 2011. 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 28, 2010,
March 29, 2009 and March 30, 2008 were $28, $27, and $29,
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 28,
2010, March 29, 2009 and March 30, 2008
NOTE
K - 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).
As of
March 28, 2010, the
Company has noncancelable operating lease commitments, net of certain sublease
rental income, as follows:
|
|
Lease
|
|
|
Sublease
|
|
|
Net lease
|
|
|
|
commitments
|
|
|
income
|
|
|
commitments
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$ |
1,163 |
|
|
$ |
226 |
|
|
$ |
937 |
|
2012
|
|
|
1,240 |
|
|
|
196 |
|
|
|
1,044 |
|
2013
|
|
|
1,276 |
|
|
|
140 |
|
|
|
1,136 |
|
2014
|
|
|
1,289 |
|
|
|
63 |
|
|
|
1,226 |
|
2015
|
|
|
1,308 |
|
|
|
24 |
|
|
|
1,284 |
|
Thereafter
|
|
|
11,167 |
|
|
|
74 |
|
|
|
11,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,443 |
|
|
$ |
723 |
|
|
$ |
16,720 |
|
Aggregate
rental expense, net of sublease income, under all current leases amounted to
$1,350, $1,215 and $1,204 for the fiscal years ended March 28, 2010, March 29,
2009 and March 30, 2008, respectively. Sublease rental income was $334,
$203 and $194 for the fiscal years ended March 28, 2010, March 29, 2009 and
March 30, 2008, 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 $205, $147 and $59 for the
fiscal years ended March 28, 2010, March 29, 2009 and March 30, 2008,
respectively.
The
Company leases four sites, three of 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 28,
2010, March 29, 2009 and March 30, 2008
NOTE
K (continued)
The
Company also subleases a restaurant location to a third party. This sublease
provides for minimum annual rental payments by the Company aggregating
approximately $1,091 and expires in 2028 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 $58 per annum
including charges for common area expenses. The lease expires in 2014
exclusive of renewal options.
In
February 2010, the Company entered into a commitment, as amended, to purchase
585,000 pounds of hot dogs for approximately $1,012 from its primary hot dog
manufacturer. Nathan’s has the right to order this product between April through
June 2010. The hot dogs to be purchased represent approximately 19% 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 related
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
had 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 was named as an
additional insured under its subtenant's liability policy. This claim was
satisfied by the subtenant's insurance company without any payment by
Nathan’s.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
K (continued)
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 frankfurters 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 (the “Termination Date”), 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 filed its own action on August 2,
2007, in New York State court seeking a declaratory judgment that SMG has
breached the License Agreement and that the Company has properly terminated the
License Agreement. On January 23, 2008, the New York court granted SMG’s motion
to dismiss the Company’s case in New York on the basis that the dispute was
already the subject of a pending lawsuit in Illinois. The Company
has answered SMG’s complaint in Illinois 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.
On June 30, 2009, SMG and Nathan’s each filed motions for summary
judgment. Both motions for summary judgment were ultimately denied on
February 25, 2010. On January 28, 2010, SMG filed a motion for leave to
file a Second Amended Complaint and Amended Answer, which sought to assert new
claims and affirmative defenses based on Nathan’s alleged breach of the parties’
License Agreement in connection with the manner in which Nathan’s profits from
the sale of its proprietary seasonings to SMG. On February 25, 2010, the
court granted SMG’s motion for leave, and its Second Amended Complaint and
Amended Answer were filed with the court. On March 29, 2010, Nathan’s
filed an answer to SMG’s Second Amended Complaint, which denied substantially
all of the allegations in the complaint. The parties are presently
conducting discovery on these new claims and defenses. Nathan’s expects a
trial in this action to be completed before the end of calendar
2010.
On July
31, 2009, the Company was served with a class action complaint filed in the
Superior Court of the State of New Jersey, Essex County (the "Complaint").
In addition to Nathan's Famous, Inc., the Complaint names as defendants Kraft
Foods, Sara Lee Corporation, ConAgra Foods, Inc., and Marathon Enterprises, Inc.
(and together with Nathan's Famous, Inc., the "Defendants").
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
K (continued)
The named
class plaintiffs purport to represent consumers who have purchased processed
meat products that were distributed and sold in New Jersey from July 22, 2003
through July 22, 2009. The Complaint alleges, among other things, that
Defendants violated the New Jersey Consumer Fraud Act (N.J.S.A. 56:8-2) (the
"Act") by omitting material information about their respective processed meat
products for the purpose of inducing consumers to purchase the products.
The Complaint sought injunctive relief, attorneys' fees and costs incurred in
bringing the lawsuit. The named plaintiffs were further seeking combined
damages in the amount of $.9 If a violation of the Act was found to have
occurred, named plaintiffs are entitled to trebled damages in the combined
amount of $2.7. The Company, along with all of the defendants made a
motion to dismiss this Complaint on October 9, 2009 and such motion was
granted.
On
October 5, 2009, the Company was served with a summons and complaint filed in
the Supreme Court of Suffolk County, New York. The plaintiff, Painted Pieces
LTD, alleges copyright infringement and asserts causes of action for breach of
contract, unjust enrichment, willful wrongful use of plaintiff’s artwork, and
violation of the New York general business law, in each case due to the
reproduction of certain artwork used by the Company in its advertising.
The complaint sought damages of an aggregate $10,500. On November 2, 2009,
the Company removed the action to the United States District Court, Eastern
District of New York and on November 9, 2009, filed a motion to dismiss. The
Company denied all of the claims asserted against it in this litigation. The
Company has submitted the claim to its various insurance carriers for defense
and indemnification. The majority of Nathan’s insurance carriers have
initially declined coverage and the Company is presently reviewing its rights in
relation thereto. In May 2010, this action was settled whereby Nathan’s
agreed to purchase the claimants rights in the intellectual property for $140.
The complaint was dismissed with prejudice on or about May 13,
2010.
On
December 1, 2009, a wholly-owned subsidiary of the Company executed a Guaranty
of Lease in connection with its re-franchising of a restaurant located in West
Nyack, New York. The Guaranty of Lease could be called upon in the event
of a default by the tenant/franchisee. The guaranty extends through the
fifth Lease Year, as defined in the lease, and shall not exceed an amount equal
to the highest amount of the annual minimum rent, percentage rent and any
additional rent payable pursuant to the lease and reasonable attorney’s fees and
other costs. Nathan’s has recorded a liability of $208 in connection with
this guaranty, which does not include potential real estate tax increases and
attorney’s fees and other costs as these amounts are not reasonably determinable
at this time. Nathan’s has not made any payments pursuant to this guaranty. In
connection with Nathan’s Franchise Agreement, Nathan’s has received a personal
guaranty from the franchisee for all obligations under the
agreement.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
L - 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 $149, $146, and $182 for the fiscal years ended March
28, 2010, March 29, 2009 and March 30, 2008, respectively.
A firm to
which Mr. Lorber serves as a consultant (and, prior to January 2005, as the
Chairman), and the firm’s affiliates, received ordinary and customary insurance
commissions aggregating approximately $13, $15, and $12 for the fiscal years
ended March 28, 2010, March 29, 2009 and March 30, 2008,
respectively.
Nathan’s
Famous, Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
March 28,
2010, March 29, 2009 and March 30, 2008
NOTE
M - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$ |
14,232 |
|
|
$ |
14,896 |
|
|
$ |
11,224 |
|
|
$ |
10,524 |
|
Gross
profit (a)
|
|
|
2,906 |
|
|
|
3,665 |
|
|
|
2,140 |
|
|
|
1,461 |
|
Net
income
|
|
|
1,563 |
|
|
|
2,163 |
|
|
|
1,052 |
|
|
|
791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(b)
|
|
$ |
.28 |
|
|
$ |
.40 |
|
|
$ |
.19 |
|
|
$ |
.14 |
|
Diluted
(b)
|
|
$ |
.27 |
|
|
$ |
.39 |
|
|
$ |
.19 |
|
|
$ |
.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computation of net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(b)
|
|
|
5,612,000 |
|
|
|
5,420,000 |
|
|
|
5,603,000 |
|
|
|
5,618,000 |
|
Diluted
(b)
|
|
|
5,879,000 |
|
|
|
5,594,000 |
|
|
|
5,680,000 |
|
|
|
5,710,000 |
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$ |
14,040 |
|
|
$ |
14,523 |
|
|
$ |
10,619 |
|
|
$ |
10,039 |
|
Gross
profit (a)
|
|
|
2,684 |
|
|
|
2,817 |
|
|
|
1,652 |
|
|
|
1,553 |
|
Net
income
|
|
|
3,822 |
(c) |
|
|
1,859 |
|
|
|
857 |
|
|
|
944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(b)
|
|
$ |
.62 |
|
|
$ |
.31 |
|
|
$ |
.15 |
|
|
$ |
.17 |
|
Diluted
(b)
|
|
$ |
.59 |
|
|
$ |
.29 |
|
|
$ |
.14 |
|
|
$ |
.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computation of net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(b)
|
|
|
6,165,000 |
|
|
|
5,984,000 |
|
|
|
5,756,000 |
|
|
|
5,685,000 |
|
Diluted
(b)
|
|
|
6,473,000 |
|
|
|
6,309,000 |
|
|
|
6,022,000 |
|
|
|
5,915,000 |
|
|
(a)
|
Gross
profit represents the difference between sales and cost of
sales.
|
|
(b)
|
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.
|
|
(c)
|
Includes
gains of disposal of discontinued operations, net of tax, of
$2,519.
|
Nathan’s
Famous, Inc. and Subsidiaries
SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS
March 28,
2010, March 29, 2009 and March 30, 2008
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
beginning
of period
|
|
|
Additions
charged to
costs and
expenses
|
|
|
Additions
charged to
other accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fifty-two weeks ended March 28,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts - accounts receivable
|
|
$ |
205 |
|
|
|
181 |
|
|
$ |
50 |
(b) |
|
$ |
21 |
(a) |
|
$ |
415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
(a)
Uncollectible
amounts written off.
(b)
Uncollectible marketing fund contributions.
10.33
|
Second
Amended and Restated Promissory Note of Miami Subs Capital Partners I,
Inc. dated April 1, 2010.
|
21
|
List
of Subsidiaries of the Registrant.
|
23
|
Consent
of Grant Thornton LLP dated June 11, 2010.
|
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.
|
EXHIBIT
10.33
SECOND
AMENDED
AND RESTATED
PROMISSORY
NOTE
$1,540,300.04 |
Jericho, New
York
|
|
April 1,
2010
|
FOR VALUE RECEIVED, MIAMI SUBS
CAPITAL PARTNERS I, INC., a Florida corporation with an office at 6300 NW
31st
Avenue, Fort Lauderdale, Florida (the “Maker”), promises to pay
to the order of NATHAN’S
FAMOUS, INC., a Delaware corporation (the “Payee”), the principal amount
of ONE MILLION FIVE HUNDRED FORTY
THOUSAND THREE HUNDRED
AND 04/100 DOLLARS
($1,540,300.04), on or before June 30, 2015 (the “Maturity
Date”), in lawful
money of the United States of America, together with interest on the unpaid
principal amount hereof, from time to time outstanding, from the date hereof
through and including the date that this Note is paid in full, at a rate of
eight and one-half percent (8.5%) per annum.
The Maker
promises to pay to the Payee the principal amount hereof plus interest in
installments, as follows: one payment of $51,000.00 (FIFTY-ONE THOUSAND AND
00/100 DOLLARS) on the date hereof; twenty-one (21) monthly payments of
$17,000.00 (SEVENTEEN THOUSAND AND 00/100 DOLLARS) each, due on the last day of
each calendar month commencing on April 30, 2010 and ending December 31, 2011;
thirty-six (36) monthly payments of $34,271.28 (THIRTY-FOUR THOUSAND TWO HUNDRED
SEVENTY-ONE AND 28/100 DOLLARS) each, due on the last day of each calendar month
commencing on January 31, 2012 and ending December 31, 2014; and a final payment
of principal in the amount of $250,000 (TWO HUNDRED FIFTY THOUSAND DOLLARS)
(such principal amount being the “Balloon”), to be paid on the Maturity
Date. Interest hereunder shall be computed on the actual number of
days elapsed over a year comprised of 365 days. Nothing herein shall
be deemed to require Maker to make payments of interest which exceed the maximum
permitted by law. In any such event, this Note shall be deemed
automatically amended to require payment of interest at the maximum amount
permitted by law.
All
amounts payable hereunder shall be made in lawful money of the United States of
America at such place as may be designated to the Maker in writing by the Payee
from time to time. If any payment hereunder becomes due and payable
on a day other than a Business Day (hereafter defined), such payment shall be
extended to the next succeeding Business Day. “Business Day” shall
mean a day other than a Saturday, Sunday or other day on which commercial banks
in New York State are authorized or required by law to close. Upon the occurrence of
an Event of Default, as that term is defined below, interest payable on this
Note shall be at the rate of twelve percent (12%) per annum or the maximum rate
allowed to be charged by law, whichever is lower.
This Note
may be prepaid at the option of the Maker in whole or in part at any time
without penalty or premium. All prepayments shall be accompanied by
accrued interest on the principal amount repaid to the date of
repayment.
This Note
shall be subject to mandatory prepayment in full upon the settlement or the
adjudication of the litigation entitled Ontario Superior Court of
Justice-Commercial Litigation, Court File No. 06-00CL6270, Lawrence
B. Austin, Plaintiff v. Michael Overs, Tesari Holdings, Ltd., & Pizza Pizza,
Ltd., Defendants at which time all amounts payable hereunder shall be due
and payable.
Solely in
the event that at the Maturity Date (i) the Payee has not at any time prior
thereto commenced any legal action to enforce this Note or to enforce, declare
or adjudicate any rights or obligations under this Note, whether through a
lawsuit or foreclosure and (ii) the Maker and its affiliates are not in default
under this Note or under any other financial obligation owed to Payee or its
affiliates, then Payee agrees that the obligation of Maker to pay the Balloon
shall be forgiven at the Maturity Date and, notwithstanding such forgiveness,
the Note will be fully paid and Maker will have no further obligations
hereunder.
Maker
acknowledges and agrees that: (i) nothing contained in the immediately preceding
paragraph shall in any way limit (A) Maker’s obligation to make the payments
described herein on the due date thereof, as set forth in the second paragraph
of this Note or upon any settlement or adjudication of the litigation described
above or (B) Payee’s rights and remedies in the event that any such payment is
not so timely made; and (ii) the payment of the Balloon is a financial
obligation of the Maker hereunder, and its non-forgiveness if the conditions
described in the immediately preceding paragraph are not met shall not be
construed in any manner as a penalty.
Payee may
declare the entire unpaid principal balance of the Note, together with interest
accrued thereon, to be immediately due and payable upon the occurrence of any of
the following events (each an “Event of Default”): (a) the
failure of Maker to pay the principal of, or interest on, this Note within five
(5) days of the due date thereof; (b) any petition in bankruptcy being filed by
or against the Maker, or any proceedings in bankruptcy, or under any law
relating to the relief of debtors, being commenced for the relief or
readjustment of any indebtedness of the Maker; provided, with respect to any
such petition filed against Maker, such petition shall continue undismissed for
a period of 30 days from the date of entry thereof; (c) the making by the Maker
of an assignment for the benefit of creditors; (d) the appointment of a receiver
of all or substantially all of the property of the Maker; (e) the merger,
consolidation, or sale of all or substantially all of the assets of the Maker to
any third party; (f) any breach of any representation, warranty or covenant of
the Maker contained in the Security Agreement, dated as of June 7, 2007 between
Maker and Payee, which breach, if capable of cure, shall not have been cured
within twenty (20) days following delivery of written notice to Maker; (g) any
breach by Miami Subs Real Estate Corp. of any representation, warranty or
covenant contained in the Business Lease with 6300 NW 31st Avenue
dated May 6, 2008, as the same has been and may continue to be
amended from time-to-time, (h) any breach by the Maker or Miami Subs Corporation
to pay amounts due under the Amended and Restated Arrearage Agreement dated as
of October 27, 2009 or (i) the guaranty executed by either Lawrence Austin or
Bruce Galloway (each, a “Guarantor”) with respect to Maker’s obligations
hereunder shall cease to be in full force and effect or any Guarantor shall so
assert in writing.
Maker
agrees that whenever an attorney is used to collect or enforce this Note or to
enforce, declare or adjudicate any rights or obligations under this Note whether
by suit or any other means whatsoever, the Maker shall pay all of the legal fees
of the attorneys for the Payee, together with all costs and expenses of such
collection, enforcement or adjudication, which obligation shall constitute part
of the principal obligation hereunder.
Maker
hereby waives diligence, presentment, protest, demand and notice of every kind
except as otherwise expressly required herein. This Note may not be
modified orally.
No course
of dealing between the Maker and Payee or any delay on the Payee’s part in
exercising any rights hereunder shall operate as a waiver of any of the rights
and/or remedies of the Payee under this Note or under any and all other
agreements that now or hereafter may in any way evidence, govern and/or secure
any obligations to the Payee. No term shall be waived, altered,
modified or amended except in writing and no delay by the Payee in exercising
any of its rights hereunder or under any other document shall constitute a
waiver of such right. No waiver by the Payee of any default or event
of default shall operate as a waiver of any other default and/or
breach.
THIS
NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK WITHOUT REFERENCE TO CONFLICT OF LAW
PRINCIPLES. Maker hereby consents to the jurisdiction of the state
courts of and federal courts located in Nassau or New York County in the State
of New York for the enforcement of the obligations evidenced by this Note and
expressly waives any defense based upon venue or forum non
conveniens.
This
Note is an amendment and restatement of, and is being issued in replacement of
and substitution for, the Promissory Note, dated June 7, 2007, in the original
principal amount of $2,400,000 issued by the Maker in favor of Payee (the
“Original Note”) and the Amended and Restated Promissory Note dated October 31,
2008, effective as of August 31, 2008 in the original principal amount of
$1,892,210.54 issued by the Maker in favor of Payee (the “Amended Note”). The
execution and delivery of this Note shall not be construed to have constituted a
repayment of any principal of, or interest on, the Original Note or the Amended
Note.
|
MIAMI SUBS CAPITAL PARTNERS I,
INC.,
/s/ Bernard
Vogel
Bernard
Vogel
|
Exhibit
21
Nathan's Famous,
Inc.
SUBSIDIARIES
Company
Name
|
State
of
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 11, 2010, with respect to the consolidated
financial statements, schedule, and internal control over financial reporting,
included in the Annual Report of Nathan’s Famous, Inc. on Form 10-K for the year
ended March 28, 2010. We hereby consent to the incorporation by
reference of said reports in the Registration Statements of Nathan’s Famous,
Inc. on Forms S-8 (File No. 33-72066, effective November 22, 1993, File No.
33-93396, effective June 8, 1995, File No. 333-86043, effective August 27, 1999,
File No. 333-86195, effective August 30, 1999, File No. 333-92995, effective
December 17, 1999, File No. 333-82760, effective February 14, 2002, File No.
333-101355, effective November 20, 2002 and File No. 333-155171, effective
November 7, 2008).
Melville,
New York
June 11,
2010
CERTIFICATION
I, Eric Gatoff,
certify that:
1. I
have reviewed this Annual Report on Form 10-K for the fiscal year ended March
28, 2010 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.
Date:
June 11, 2010
|
By:
|
/s/ ERIC
GATOFF |
|
|
|
Eric
Gatoff |
|
|
|
Chief
Executive Officer |
|
|
|
|
|
CERTIFICATION
I, Ronald G. DeVos,
certify that:
1. I
have reviewed this Annual Report on Form 10-K for the fiscal year ended March
28, 2010 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.
Date:
June 11, 2010
|
By:
|
/s/ RONALD
G. DEVOS |
|
|
|
Ronald
G. DeVos |
|
|
|
Chief Financial
Officer |
|
|
|
|
|
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 Annual Report on Form 10-K of Nathan’s Famous, Inc.
for the fiscal year ended March 28, 2010 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 11, 2010
|
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.
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 Annual Report on Form 10-K of Nathan’s Famous, Inc.
for the fiscal year ended March 28, 2010 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
|
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.