FORM
10-Q
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
(Mark
One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
|
|
For
the quarterly period ended December 26,
2010.
|
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
|
|
For
the transition period from
to .
|
Commission
file number 0-3189
NATHAN'S FAMOUS,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
|
11-3166443
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
No.)
|
One Jericho Plaza, Second
Floor – Wing A, Jericho, New York 11753
(Address
of principal executive offices)
(Zip
Code)
(516)
338-8500
(Registrant's
telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ¨ No ¨
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
At February 4, 2011, an
aggregate of 5,082,313
shares of the registrant's common stock, par value of $.01, were
outstanding.
NATHAN'S
FAMOUS, INC. AND SUBSIDIARIES
INDEX
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Page
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Number
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PART
I.
|
FINANCIAL
INFORMATION
|
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|
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|
Item
1.
|
Financial
Statements.
|
|
3
|
|
|
|
|
|
Consolidated
Financial Statements
|
|
|
|
Consolidated
Balance Sheets – December 26, 2010 (Unaudited) and March 28,
2010
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|
3
|
|
|
|
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|
Consolidated
Statements of Operations (Unaudited) - Thirteen Weeks Ended December 26,
2010 and December 27, 2009
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4
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|
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|
Consolidated
Statements of Operations (Unaudited) – Thirty-nine Weeks Ended December
26, 2010 and December 27, 2009
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5
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|
|
|
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|
Consolidated
Statement of Stockholders’ Equity (Unaudited) – Thirty-nine Weeks Ended
December 26, 2010
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6
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|
|
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Consolidated
Statements of Cash Flows (Unaudited) – Thirty-nine Weeks Ended December
26, 2010 and December 27, 2009
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7
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|
|
|
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Notes
to Consolidated Financial Statements
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8
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Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
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15
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|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk.
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23
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|
|
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|
Item
4.
|
Controls
and Procedures.
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|
24
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|
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PART
II.
|
OTHER
INFORMATION
|
|
|
|
|
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|
Item
1.
|
Legal
Proceedings.
|
|
24
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|
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|
Item
1A.
|
Risk
Factors.
|
|
25
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|
|
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|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
|
27
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|
|
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|
Item
5.
|
Other
Information. |
|
28
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|
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|
Item
6.
|
Exhibits.
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|
29
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|
SIGNATURES
|
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|
30
|
|
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Exhibit
Index
|
|
|
31
|
Nathan’s
Famous, Inc. and Subsidiaries
CONSOLIDATED
BALANCE SHEETS
December
26, 2010 and March 28, 2010
(in
thousands, except share and per share amounts)
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements.
|
|
Dec. 26, 2010
|
|
|
March 28, 2010
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
10,919 |
|
|
$ |
11,609 |
|
Marketable
securities
|
|
|
22,022 |
|
|
|
24,317 |
|
Accounts
and other receivables, net
|
|
|
6,412 |
|
|
|
5,225 |
|
Note
receivable – current portion
|
|
|
114 |
|
|
|
115 |
|
Inventories
|
|
|
913 |
|
|
|
1,018 |
|
Prepaid
expenses and other current assets
|
|
|
2,405 |
|
|
|
1,428 |
|
Deferred
income taxes
|
|
|
112 |
|
|
|
111 |
|
Total
current assets
|
|
|
42,897 |
|
|
|
43,823 |
|
|
|
|
|
|
|
|
|
|
Note
receivable
|
|
|
1,095 |
|
|
|
1,175 |
|
Property
and equipment, net
|
|
|
5,537 |
|
|
|
5,467 |
|
Goodwill
|
|
|
95 |
|
|
|
95 |
|
Intangible
assets, net
|
|
|
1,353 |
|
|
|
1,353 |
|
Deferred
income taxes
|
|
|
1,283 |
|
|
|
1,093 |
|
Other
assets
|
|
|
403 |
|
|
|
368 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
52,663 |
|
|
$ |
53,374 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
2,949 |
|
|
$ |
3,069 |
|
Accrued
expenses and other current liabilities
|
|
|
8,002 |
|
|
|
3,771 |
|
Deferred
franchise fees
|
|
|
288 |
|
|
|
315 |
|
Total
current liabilities
|
|
|
11,239 |
|
|
|
7,155 |
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
2,034 |
|
|
|
1,907 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
13,273 |
|
|
|
9,062 |
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES (Note L)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
Common
stock, $.01 par value; 30,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
8,800,491
and 8,773,241 shares issued; and 5,183,368 and 5,594,448
shares
|
|
|
|
|
|
|
|
|
outstanding
at December 26, 2010 and March 28, 2010, respectively
|
|
|
88 |
|
|
|
88 |
|
Additional
paid-in capital
|
|
|
52,523 |
|
|
|
52,003 |
|
Retained
earnings
|
|
|
18,455 |
|
|
|
16,797 |
|
Accumulated
other comprehensive income
|
|
|
508 |
|
|
|
616 |
|
|
|
|
71,574 |
|
|
|
69,504 |
|
Treasury
stock, at cost, 3,617,123 and 3,178,793 shares at December 26, 2010
and March 28, 2010, respectively.
|
|
|
(32,184 |
) |
|
|
(25,192 |
) |
Total
stockholders’ equity
|
|
|
39,390 |
|
|
|
44,312 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
52,663 |
|
|
$ |
53,374 |
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these statements.
Nathan’s
Famous, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF OPERATIONS
Thirteen
weeks ended December 26, 2010 and December 27, 2009
(in
thousands, except share and per share amounts)
(Unaudited)
|
|
Dec. 26, 2010
|
|
|
Dec. 27, 2009
|
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
|
|
Sales
|
|
$ |
10,237 |
|
|
$ |
8,375 |
|
Franchise
fees and royalties
|
|
|
1,241 |
|
|
|
1,313 |
|
License
royalties
|
|
|
1,387 |
|
|
|
1,297 |
|
Interest
income
|
|
|
195 |
|
|
|
224 |
|
Other
income
|
|
|
19 |
|
|
|
15 |
|
Total
revenues
|
|
|
13,079 |
|
|
|
11,224 |
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
7,961 |
|
|
|
6,235 |
|
Restaurant
operating expenses
|
|
|
625 |
|
|
|
805 |
|
Depreciation
and amortization
|
|
|
231 |
|
|
|
214 |
|
General
and administrative expenses
|
|
|
2,440 |
|
|
|
2,408 |
|
Litigation
accrual (Note L)
|
|
|
1,996 |
|
|
|
- |
|
Total
costs and expenses
|
|
|
13,253 |
|
|
|
9,662 |
|
|
|
|
|
|
|
|
|
|
(Loss)
income before (benefit) provision for income taxes
|
|
|
(174 |
) |
|
|
1,562 |
|
(Benefit)
provision for income taxes
|
|
|
(21 |
) |
|
|
510 |
|
Net
(loss) income
|
|
$ |
(153 |
) |
|
$ |
1,052 |
|
|
|
|
|
|
|
|
|
|
PER
SHARE INFORMATION
|
|
|
|
|
|
|
|
|
Basic
(loss) income per share:
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(.03 |
) |
|
$ |
.19 |
|
|
|
|
|
|
|
|
|
|
Diluted
(loss) income per share:
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(.03 |
) |
|
$ |
.19 |
|
|
|
|
|
|
|
|
|
|
Weighted
average shares used in computing (loss) income per share
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,352,000 |
|
|
|
5,603,000 |
|
Diluted
|
|
|
5,352,000 |
|
|
|
5,680,000 |
|
The
accompanying notes are an integral part of these statements.
Nathan’s
Famous, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF OPERATIONS
Thirty-nine
weeks ended December 26, 2010 and December 27, 2009
(in
thousands, except share and per share amounts)
(Unaudited)
|
|
Dec. 26, 2010
|
|
|
Dec. 27, 2009
|
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
|
|
Sales
|
|
$ |
35,543 |
|
|
$ |
31,148 |
|
Franchise
fees and royalties
|
|
|
3,924 |
|
|
|
3,779 |
|
License
royalties
|
|
|
4,865 |
|
|
|
4,672 |
|
Interest
income
|
|
|
620 |
|
|
|
704 |
|
Other
income
|
|
|
35 |
|
|
|
49 |
|
Total
revenues
|
|
|
44,987 |
|
|
|
40,352 |
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
26,864 |
|
|
|
22,437 |
|
Restaurant
operating expenses
|
|
|
2,417 |
|
|
|
2,601 |
|
Depreciation
and amortization
|
|
|
688 |
|
|
|
614 |
|
General
and administrative expenses
|
|
|
7,636 |
|
|
|
7,275 |
|
Litigation
accrual (Note L)
|
|
|
4,910 |
|
|
|
- |
|
Total
costs and expenses
|
|
|
42,515 |
|
|
|
32,927 |
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
|
2,472 |
|
|
|
7,425 |
|
Provision
for income taxes
|
|
|
814 |
|
|
|
2,647 |
|
Net
income
|
|
$ |
1,658 |
|
|
$ |
4,778 |
|
|
|
|
|
|
|
|
|
|
PER
SHARE INFORMATION
|
|
|
|
|
|
|
|
|
Basic
income per share:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
.30 |
|
|
$ |
.86 |
|
|
|
|
|
|
|
|
|
|
Diluted
income per share:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
.30 |
|
|
$ |
.84 |
|
|
|
|
|
|
|
|
|
|
Weighted
average shares used in computing income per share
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,506,000 |
|
|
|
5,545,000 |
|
Diluted
|
|
|
5,608,000 |
|
|
|
5,718,000 |
|
The
accompanying notes are an integral part of these statements.
Nathan’s
Famous, Inc. and Subsidiaries
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY
Thirty-nine
weeks ended December 26, 2010
(in
thousands, except share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury Stock, at Cost
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 28, 2010
|
|
|
8,773,241 |
|
|
$ |
88 |
|
|
$ |
52,003 |
|
|
$ |
16,797 |
|
|
$ |
616 |
|
|
|
3,178,793 |
|
|
$ |
(25,192 |
) |
|
$ |
44,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in connection with exercise of employee stock
options
|
|
|
27,250 |
|
|
|
- |
|
|
|
87 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit on stock option exercises
|
|
|
- |
|
|
|
- |
|
|
|
137 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
of common stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
438,330 |
|
|
|
(6,992 |
) |
|
|
(6,992 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
- |
|
|
|
- |
|
|
|
296 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
losses on available for sale securities, net of deferred income tax
(benefit) of $(71)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(108 |
) |
|
|
- |
|
|
|
- |
|
|
|
(108 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,658 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 26, 2010
|
|
|
8,800,491 |
|
|
$ |
88 |
|
|
$ |
52,523 |
|
|
$ |
18,455 |
|
|
$ |
508 |
|
|
|
3,617,123 |
|
|
$ |
(32,184 |
) |
|
$ |
39,390 |
|
The
accompanying notes are an integral part of these statements.
Nathan’s
Famous, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Thirty-nine
weeks ended December 26, 2010 and December 27, 2009
(in
thousands, except share and per share amounts)
(Unaudited)
|
|
Dec. 26, 2010
|
|
|
Dec. 27, 2009
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
1,658 |
|
|
$ |
4,778 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
688 |
|
|
|
614 |
|
Amortization
of bond premium
|
|
|
216 |
|
|
|
218 |
|
Share
based compensation expense
|
|
|
296 |
|
|
|
321 |
|
Provision
for doubtful accounts
|
|
|
20 |
|
|
|
181 |
|
Deferred
income taxes
|
|
|
(120 |
) |
|
|
(128 |
) |
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
and other receivables, net
|
|
|
(1,207 |
) |
|
|
(1,728 |
) |
Inventories
|
|
|
107 |
|
|
|
(25 |
) |
Prepaid
expenses and other current assets
|
|
|
(977 |
) |
|
|
142 |
|
Other
assets
|
|
|
(35 |
) |
|
|
(210 |
) |
Accounts
payable, accrued expenses and other current liabilities
|
|
|
4,111 |
|
|
|
(450 |
) |
Deferred
franchise fees
|
|
|
(27 |
) |
|
|
34 |
|
Other
liabilities
|
|
|
127 |
|
|
|
392 |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
4,857 |
|
|
|
4,139 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from the sale of available-for-sale securities
|
|
|
1,900 |
|
|
|
1,035 |
|
Purchase
of property and equipment
|
|
|
(760 |
) |
|
|
(1,992 |
) |
Payments
received on note receivable
|
|
|
81 |
|
|
|
215 |
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used in) investing activities
|
|
|
1,221 |
|
|
|
(742 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Repurchase
of common stock
|
|
|
(6,992 |
) |
|
|
(5,701 |
) |
Proceeds
from the exercise of stock options
|
|
|
87 |
|
|
|
1,533 |
|
Income
tax benefits on stock option exercises
|
|
|
137 |
|
|
|
1,096 |
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
(6,768 |
) |
|
|
(3,072 |
) |
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(690 |
) |
|
|
325 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
11,609 |
|
|
|
8,679 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$ |
10,919 |
|
|
$ |
9,004 |
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
- |
|
|
$ |
- |
|
Income
taxes
|
|
$ |
2,014 |
|
|
$ |
1,830 |
|
The
accompanying notes are an integral part of these statements.
NATHAN'S
FAMOUS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
26, 2010
(Unaudited)
NOTE A -
BASIS OF PRESENTATION
The
accompanying consolidated financial statements of Nathan's Famous, Inc. and
subsidiaries (collectively “Nathan’s,” the “Company,” “we,” “us” or
“our”) as of and for the thirteen and thirty-nine week periods ended December
26, 2010 and December 27, 2009 have been prepared in accordance with accounting
principles generally accepted in the United States of America. The
unaudited financial statements include all adjustments (consisting of normal
recurring adjustments) which, in the opinion of management, are necessary for a
fair presentation of financial condition, results of operations and cash flows
for the periods presented. However, these results are not necessarily
indicative of results for any other interim period or the full fiscal
year.
Certain
information and footnote disclosures normally included in financial statements
in accordance with accounting principles generally accepted in the United States
of America have been omitted pursuant to the requirements of the Securities and
Exchange Commission. Management believes that the disclosures
included in the accompanying interim financial statements and footnotes are
adequate to make the information not misleading, but should be read in
conjunction with the consolidated financial statements and notes thereto
included in Nathan’s Annual Report on Form 10-K for the fiscal year ended March
28, 2010.
A summary
of the Company’s significant accounting policies is identified in Note B of the
Notes to Consolidated Financial Statements included in the Company’s 2010 Annual
Report on Form 10-K. There have been no changes to the Company’s significant
accounting policies subsequent to March 28, 2010.
NOTE B –
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In July
2010, the Financial Accounting Standards Board issued guidance that will enhance
future disclosure about the credit quality of a creditor’s financing receivables
and the adequacy of its allowance for credit losses. The amended guidance will
be effective for period end balances beginning with the first quarterly or
annual reporting period ending on or after December 15, 2010. The amended
guidance is effective for activity during a reporting period beginning with the
first quarterly or annual period beginning on or after December 15, 2010. The
Company adopted the provisions of the new accounting standard for disclosures
about the credit quality of financing receivables and the allowance for credit
losses beginning with the period ended December 26, 2010. The adoption of this
new accounting standard increased the required disclosures, but did not have a
material effect on our consolidated results of operations or financial position
(See Notes E and F.)
NOTE C –
FAIR VALUE MEASUREMENTS
Nathan’s
follows a three-level fair value hierarchy that prioritizes the inputs to
measure fair value. This hierarchy requires entities to maximize the use of
“observable inputs” and minimize the use of “unobservable inputs.” 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, quoted prices in markets that are not active, 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 December 26, 2010 based upon the valuation hierarchy (in
thousands):
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Carrying Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
$ |
- |
|
|
$ |
22,022 |
|
|
$ |
- |
|
|
$ |
22,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets at fair value
|
|
$ |
- |
|
|
$ |
22,022 |
|
|
$ |
- |
|
|
$ |
22,022 |
|
Nathan’s
marketable securities, which consist primarily of 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 or
model-derived valuations in which all significant inputs are observable for
substantially the full term of the asset or liability.
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.
Certain
non-financial assets and liabilities are measured at fair value on a
nonrecurring basis; that is, the assets and liabilities are not measured at fair
value on an ongoing basis but are subject to fair value adjustments in certain
circumstances, such as when evidence of impairment exists. At December 26, 2010,
no fair value adjustment or material fair value measurements were required for
non-financial assets or liabilities.
NOTE D –
MARKETABLE SECURITIES
The
Company determines the appropriate classification of securities at the time of
purchase and reassesses the appropriateness of the classification at each
reporting date. At December 26, 2010 and March 28, 2010, 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 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 (in
thousands):
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Market
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
26, 2010
|
|
$ |
21,192 |
|
|
$ |
830 |
|
|
$ |
- |
|
|
$ |
22,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
28, 2010
|
|
$ |
23,308 |
|
|
$ |
1,009 |
|
|
$ |
- |
|
|
$ |
24,317 |
|
As of
December 26, 2010 and March 28, 2010 none of the securities held by the Company
were in an unrealized loss position.
The
municipal bonds held at December 26, 2010, mature at various dates between
January 2011 and October 2019. The following represents the bond maturities by
period (in thousands):
Fair value of Municipal
Bonds
|
|
Total
|
|
|
Less than
1 Year
|
|
|
1 – 5 Years
|
|
|
5 – 10 Years
|
|
|
After
10 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
26, 2010
|
|
$ |
22,022 |
|
|
$ |
5,126 |
|
|
$ |
11,270 |
|
|
$ |
5,626 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
28, 2010
|
|
$ |
24,317 |
|
|
$ |
2,984 |
|
|
$ |
12,354 |
|
|
$ |
8,979 |
|
|
$ |
- |
|
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 (in
thousands):
|
|
Thirty-nine
weeks ended
|
|
|
|
Dec.
26,
2010
|
|
|
Dec.
27,
2009
|
|
Available-for-sale
securities:
|
|
|
|
|
|
|
Proceeds
|
|
$ |
1,900 |
|
|
$ |
1,035 |
|
Gross
realized gains
|
|
$ |
- |
|
|
$ |
- |
|
The
change in net unrealized losses on available-for-sale securities for the
thirteen-week periods ended December 26, 2010 and December 27, 2009 of $(226)
and $(116), respectively, which are net of deferred income taxes, have been
included as a component of comprehensive income. The change in net unrealized
(losses) gains on available-for-sale securities for the thirty-nine week periods
ended December 26, 2010 and December 27, 2009 of $(108) and $301, respectively,
which are net of deferred income taxes, have been included as a component of
comprehensive income. (See Note K.)
NOTE E –
ACCOUNTS AND OTHER RECEIVABLES, NET
Accounts
and other receivables, net, consist of the following (in
thousands):
|
|
Dec.
26,
|
|
|
March
28,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Franchise
and license royalties
|
|
$ |
1,803 |
|
|
$ |
2,271 |
|
Branded
product sales
|
|
|
4,133 |
|
|
|
2,841 |
|
Other
|
|
|
592 |
|
|
|
528 |
|
|
|
|
6,528 |
|
|
|
5,640 |
|
Less:
allowance for doubtful accounts
|
|
|
(116 |
) |
|
|
(415 |
) |
Accounts
and other receivables, net
|
|
$ |
6,412 |
|
|
$ |
5,225 |
|
Accounts
receivable are due within 30 days and are stated at amounts due from
franchisees, retail licensees, product manufacturers and Branded Product Program
customers, net of an allowance for doubtful accounts. Accounts that are
outstanding longer than the contractual payment terms are considered past due.
The Company does not recognize franchise and license royalties that are not
deemed to be realizable. The Company individually reviews each past due account
and determines its allowance for doubtful accounts 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, the condition of the general
economy and the industry as a whole. Based on management’s
assessment, the Company provides for estimated uncollectable amounts through a
charge to earnings. After the Company has used reasonable collection efforts it
writes off accounts receivable through a charge to the allowance for doubtful
accounts.
The
Company’s delinquent franchise and license royalty receivables at December 26,
2010 and March 28, 2010, are as follows (in thousands):
|
|
Dec.
26,
|
|
|
March
28,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Investment
in franchise and license royalties that are 90 days past due that are
still being accrued
|
|
$ |
75 |
|
|
$ |
241 |
|
|
|
|
|
|
|
|
|
|
Investment
in unrecognized franchise and license royalties
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Unrecognized
franchise and license royalties
|
|
$ |
110 |
|
|
$ |
331 |
|
Changes
in the Company’s allowance for doubtful accounts for the thirty-nine week period
ended December 26, 2010 and the fiscal year ended March 28, 2010 are as follows
(in thousands):
|
|
Dec.
26,
2010
|
|
|
March
28,
2010
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
415 |
|
|
$ |
205 |
|
Bad
debt expense
|
|
|
20 |
|
|
|
181 |
|
Uncollectible
marketing fund contributions
|
|
|
5 |
|
|
|
50 |
|
Accounts
written off
|
|
|
(324 |
) |
|
|
(21 |
) |
Ending
balance
|
|
$ |
116 |
|
|
$ |
415 |
|
NOTE F –
NOTE RECEIVABLE
Nathan’s
determines that a note 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 note 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, or (b) notes 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.
Based on
the Company's analysis, it has determined that its note receivable was impaired
at March 28, 2010 and recorded an impairment charge of $250,000 during the
fiscal year ended March 28, 2010. Following (in thousands) is a
summary of impaired note receivable:
|
|
Dec. 26,
|
|
|
March 28,
|
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
Total
recorded investment in impaired note receivable
|
|
$ |
1,459 |
|
|
$ |
1,540 |
|
Allowance
for impaired note receivable
|
|
|
(250 |
) |
|
|
(250 |
) |
|
|
|
1,209 |
|
|
|
1,290 |
|
Less:
current portion
|
|
|
(114 |
) |
|
|
(115 |
) |
Note
receivable
|
|
$ |
1,095 |
|
|
$ |
1,175 |
|
The
Company has recognized approximately $62 and $98 of interest income on this note
for the thirty-nine weeks ended December 26, 2010 and December 27, 2009,
respectively. The average recorded investment in impaired notes receivable was
$1,242 and $1,523 at December 26, 2010 and March 28, 2010,
respectively.
NOTE G –
INCOME (LOSS) PER SHARE
Basic
income (loss) per common share is calculated by dividing income by the
weighted-average number of common shares outstanding and excludes any dilutive
effect of stock options or warrants. Diluted income (loss) 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 (loss) per common share result from the assumed exercise of stock options
and warrants, as determined using the treasury stock method.
The
following chart provides a reconciliation of information used in calculating the
per-share amounts for the thirteen- and thirty-nine- week periods ended December
26, 2010 and December 27, 2009, respectively.
Thirteen
weeks
|
|
Net (Loss) Income
|
|
|
Number of Shares
|
|
|
Net (Loss) Income
Per Share
|
|
|
|
2010
|
|
|
2009
|
|
|
2010(a)
|
|
|
2009
|
|
|
2010(a)
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
calculation
|
|
$ |
(153 |
) |
|
$ |
1,052 |
|
|
|
5,352 |
|
|
|
5,603 |
|
|
$ |
(0.03 |
) |
|
$ |
0.19 |
|
Effect
of dilutive employee stock options
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
77 |
|
|
|
- |
|
|
|
- |
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
calculation
|
|
$ |
(153 |
) |
|
$ |
1,052 |
|
|
|
5,352 |
|
|
|
5,680 |
|
|
$ |
(0.03 |
) |
|
$ |
0.19 |
|
Thirty-nine
weeks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
Net Income
|
|
|
Number of Shares
|
|
|
Per Share
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in
thousands)
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
calculation
|
|
$ |
1,658 |
|
|
$ |
4,778 |
|
|
|
5,506 |
|
|
|
5,545 |
|
|
$ |
0.30 |
|
|
$ |
0.86 |
|
Effect
of dilutive employee stock options
|
|
|
- |
|
|
|
- |
|
|
|
102 |
|
|
|
173 |
|
|
|
- |
|
|
|
(.02 |
) |
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
calculation
|
|
$ |
1,658 |
|
|
$ |
4,778 |
|
|
|
5,608 |
|
|
|
5,718 |
|
|
$ |
0.30 |
|
|
$ |
0.84 |
|
|
(a)
|
102,000
Common stock equivalents have been excluded from the computation for net
(loss) per share for the thirteen week period ended December 26, 2010 as
their inclusion would have been
anti-dilutive.
|
Options
to purchase 110,000 shares of common stock in
the thirteen-week and thirty-nine-week periods ended December 26, 2010 and
December 27, 2009 were not included in the computation of diluted EPS because
the exercise prices exceeded the average market price of common shares during
the periods.
NOTE H –
INCOME TAXES
The
income tax provisions for the thirty-nine week periods ended December 26, 2010
and December 27, 2009 reflect effective tax rates of 32.9% and 35.6%,
respectively, which have been reduced by 9.6% and 3.2% for the differing effects
of tax exempt interest income, respectively. During the thirty-nine
week period ended December 26, 2010, Nathan’s recorded additional taxes of
$85,000 in connection with the filing of its March 2010 tax returns, increasing
the effective tax rate by 3.4%. Nathan’s estimates that its annual tax rate for
the fiscal year ending March 27, 2011 will be in the range of approximately
30.0% to 34.0%. The final annual tax rate is subject to many
variables, including the effect of tax-exempt interest earned, among other
factors, and therefore cannot be determined until the end of the fiscal year;
therefore, the actual tax rate could differ from our current
estimates.
The
amount of unrecognized tax benefits at December 26, 2010 was $338,000, all of
which would impact Nathan’s effective tax rate, if recognized. As of
December 26, 2010, Nathan’s had $373,000 of accrued interest and penalties in
connection with unrecognized tax benefits.
During
the thirty-nine-week period ended December 26, 2010, Nathan’s settled uncertain
tax positions with one state jurisdiction and has accordingly reduced the
associated unrecognized tax benefits, including the related accrued interest and
penalties, by approximately $79,000. During the fiscal year ending March 27,
2011, Nathan’s is seeking to settle additional uncertain tax positions with the
tax authorities. As a result, it is reasonably possible that the amount of
unrecognized tax benefits, including the related accrued interest and penalties,
could be reduced by up to $50,000, which would favorably impact Nathan’s
effective tax rate, although no assurances can be given in this
regard.
NOTE I –
SHARE-BASED COMPENSATION
Total
share-based compensation during the thirteen-week periods ended December 26,
2010 and December 27, 2009 was $82,000 and $107,000, respectively. Total
share-based compensation during the thirty-nine week periods ended December 26,
2010 and December 27, 2009 was $296,000 and $321,000,
respectively. Total share-based compensation is included in general
and administrative expense in our accompanying Consolidated Statements of
Operations. As of December 26, 2010, there was $175,000 of unamortized
compensation expense related to stock options. We expect to recognize this
expense over approximately nine months, which represents the requisite service
periods for such awards.
On
September 14, 2010, the Company adopted the 2010 Stock Incentive Plan (“the 2010
Plan”) which provides for the ability to issue up to 150,000 additional options
pursuant to the 2010 Plan together with 171,000 shares that have not been issued
under the 2001 Stock Option Plan and the 2002 Stock Incentive Plan plus any
shares subject to any outstanding options or restricted stock grants under
the 2001 Stock Option Plan and the 2002 Stock Incentive Plan that
subsequently expire unexercised or are otherwise forfeited up to a maximum of an
additional 100,000 shares.
There
were no share-based awards granted during the thirteen-week or thirty-nine-week
periods ended December 26, 2010 or December 27, 2009.
Stock options
outstanding:
Transactions
with respect to stock options for the thirty-nine weeks ended December 26, 2010
are as follows:
|
|
|
|
|
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 |
|
|
$ |
2,879,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Expired
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Exercised
|
|
|
(27,250 |
) |
|
|
3.20 |
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at December 26, 2010
|
|
|
507,500 |
|
|
$ |
10.70 |
|
|
|
3.51 |
|
|
$ |
3,004,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at December 26, 2010
|
|
|
453,000 |
|
|
$ |
10.27 |
|
|
|
3.40 |
|
|
$ |
2,873,000 |
|
NOTE J –
STOCKHOLDERS’ EQUITY
During
the period from October 2001 through December 26, 2010, Nathan’s purchased a
total of 3,617,123 shares of its common stock at a cost of approximately $32,184,000 pursuant to its
stock repurchase plans previously authorized by the Board of
Directors. During the thirteen-week period ended December 26, 2010,
we repurchased 373,995 shares at a total cost of $5,990,000. During the
thirty-nine-week period ended December 26, 2010, we repurchased 438,330 shares
at a total cost of $6,992,000.
As of
December 26, 2010, an aggregate of 382,877 shares are remaining to be purchased
pursuant to such plans.
On February 1, 2011, Nathan’s Board of
Directors has authorized the purchase of its common stock by an additional
300,000 shares. After giving effect to this increase, an aggregate of 581,822
shares remain available for purchase under Nathan’s stock buy-back
programs, to date.
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 these stock-repurchase plans.
On
September 10, 2010, Nathan’s entered into an agreement with Mutual
Securities, Inc. (“MSI”) pursuant to which MSI has
been authorized to purchase shares of the Company’s common stock, having a value
of up to an aggregate $4.8 million, which purchases were able to commence
on September 20, 2010. On February 3, 2011, Nathan’s and MSI amended
this agreement to increase the aggregate value to approximately $7.5 million.
This agreement will terminate on September 19, 2011. The agreement was
adopted under the safe harbor provided by Rule 10b5-1 and Rule 10b-18
of the Securities Exchange Act of 1934.
At
December 26, 2010, the Company has reserved 11,004,029 shares of common stock
for issuance upon exercise of the Common Stock Purchase Rights approved by the
Board of Directors on June 4, 2008.
NOTE K -
COMPREHENSIVE INCOME (LOSS)
The
components of comprehensive income (loss) are as follows (in
thousands):
|
|
Thirteen
weeks ended
December 26,
2010
|
|
|
Thirteen
weeks ended
December 27,
2009
|
|
|
Thirty-nine
weeks ended
December 26,
2010
|
|
|
Thirty-nine
weeks ended
December 27,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(153 |
) |
|
$ |
1,052 |
|
|
$ |
1,658 |
|
|
$ |
4,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on available-for-sale securities, net of tax (benefit) provision of
$(148), $(77), $(71), and $200, respectively
|
|
|
(226 |
) |
|
|
(116 |
) |
|
|
(108 |
) |
|
|
301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
(loss) income
|
|
$ |
(379 |
) |
|
$ |
936 |
|
|
$ |
1,550 |
|
|
$ |
5,079 |
|
Accumulated
other comprehensive income at December 26, 2010 and March 28, 2010 consists
entirely of unrealized gains and losses on available-for-sale securities, net of
deferred taxes.
NOTE L -
COMMITMENTS AND CONTINGENCIES
In
February 2010, the Company entered into a commitment, as amended, to purchase
585,000 pounds of hot dogs for approximately $1,012,000 from its primary hot dog
manufacturer. Nathan’s completed the purchase of this product, in addition to
approximately 162,000 pounds of hot dogs pursuant to a prior agreement, during
the fiscal period ended December 26, 2010, in satisfaction of all of its
outstanding purchase commitments. The hot dogs purchased represent
approximately 11.5% of Nathan’s usage during the thirty-nine week period ended
December 26, 2010. During the thirteen-week period ended December 26, 2010, we
entered into two purchase commitments to purchase a total of 1,486,000 pounds of
hot dogs at a total cost of $2,629,000, for purchase between January and April
2011. Nathan’s may enter into additional purchase commitments in the future as
favorable market conditions become available.
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:
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
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. On September 17, 2010, SMG
filed a motion for summary judgment with respect to the claims relating to the
sale of Nathan’s proprietary seasonings to SMG. On October 5, 2010,
Nathan’s filed an opposition to SMG’s motion for summary judgment, and itself
cross-moved for summary judgment. A trial on the claims relating to
Nathan’s termination of the License Agreement took place between October 6 and
October 13, 2010. Oral argument on the claims relating to the sale of
Nathan’s proprietary seasonings took place prior to the start of the
trial. On October 13, 2010, an Order was entered with the Court
denying Nathan’s cross-motion and granting SMG’s motion for summary judgment
with respect to SMG’s claims relating to the sale of Nathan’s proprietary
seasonings to SMG. On December 17, 2010, the Court ruled that
Nathan’s was not entitled to terminate the License Agreement. On
January 19, 2011, the parties submitted an agreed upon order which, among other
things, assessed damages against Nathan’s of approximately $4,910,000, inclusive
of pre-judgment interest, which has been accrued in the accompanying
consolidated financial statements of December 26, 2010. The
Order was expected to be entered on February 3, 2011, however, due to
weather conditions, the court was closed. Nathan’s expects that the Order will
be entered in February 2011. Nathan’s is considering whether to
appeal this Order.
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, alleged copyright infringement and asserted 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 $10,500,000. In May 2010,
this action was settled whereby Nathan’s agreed to purchase these assets for
$140,000.
On
December 1, 2009, a wholly-owned subsidiary of the Company executed a Guaranty
of Lease (the “Guaranty”) in connection with its re-franchising of a restaurant
located in West Nyack, New York. The Guaranty 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 the 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 Guaranty. To date, Nathan’s has not
been required to make any payments pursuant to the
Guaranty.
NOTE M –
CREDIT LINE
Effective
August 3, 2010, we entered into an agreement with a Bank pursuant to which the
Bank agreed to provide an uncommitted line of credit of $10,000,000, which was
scheduled to expire on June 30, 2011. On November 4, 2010, the Company
terminated this agreement.
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Forward-Looking
Statements
Statements
in this Form 10-Q quarterly 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: the adverse effect that increasing commodity costs have
on our profitability and operating results; the pending litigation with the
primary supplier of hot dogs to our Branded Product Program may result in a
disruption in that supply or increased costs, either of which would
adversely affect our operating results; the outcome of any appeal of the court’s
ruling in such litigation; the timing of any such cash payment under the court
ruling in such litigation and the tax impact of the ruling; current economic
conditions could result in decreased consumer spending on discretionary
products, such as fast food; as well as those risks discussed from time to time
in the Company’s 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-Q.
Introduction
As used
in this Report, the terms “we”, “us”, “our”, “Nathan’s” or “the Company” mean
Nathan’s Famous, Inc. and its subsidiaries (unless the context indicates a
different meaning).
We are
engaged primarily in the marketing of the “Nathan’s Famous” brand and the sale
of products bearing the “Nathan’s Famous” trademarks through several different
channels of distribution. Historically, our business has been the
operation and franchising of quick-service restaurants featuring Nathan’s World
Famous Beef Hot Dogs, crinkle-cut French-fried potatoes, and a variety of other
menu offerings. Our Company-owned and franchised units operate under
the name “Nathan’s Famous,” the name first used at our original Coney Island
restaurant opened in 1916. Nathan’s licensing program began in 1978 by selling
packaged hot dogs and other meat products to retail customers through
supermarkets or grocery-type retailers for off-site consumption. During fiscal
1998, we introduced our Branded Product Program, which currently enables
foodservice retailers and others to sell some of Nathan’s proprietary products
outside of the realm of a traditional franchise relationship. In conjunction
with this program, purchasers of Nathan’s products are granted a limited use of
the Nathan’s Famous trademark with respect to the sale of the purchased
products, including Nathan’s World Famous Beef Hot Dogs, certain other
proprietary food items and paper goods. During fiscal 2008, we launched our
Branded Menu Program, which is a limited franchise program, under which
foodservice operators may sell a greater variety of Nathan’s Famous menu items
than under the Branded Product Program.
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 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 seek to co-brand within its restaurant
system. Nathan’s is also the owner of the Arthur Treacher’s brand. At
December 26, 2010, the Arthur Treacher’s brand was being sold within 60 Nathan’s
restaurants.
At
December 26, 2010, our restaurant system consisted of 263 Nathan’s franchised
units, including 83 Branded Menu units and five Company-owned units (including
one seasonal unit), located in 26 states, the Cayman Islands and five foreign
countries. At December 27, 2009, our restaurant system consisted of 246
Nathan’s franchised
units, including 65 Branded Menu units and five Company-owned units (including
one seasonal unit), located in 24 states, the Cayman Islands and four foreign
countries.
A trial
on the claims relating to Nathan’s termination of its existing License Agreement
with SMG, Inc. (“SMG”) took place between October 6 and October 13, 2010 (as
more fully described in Note L of the Notes to Consolidated Statements included
in Item 1). On October 13, 2010, an order was entered with the Court
denying Nathan’s cross-motion and granting SMG’s motion for summary judgment
with respect to SMG’s claims relating to the sale of Nathan’s proprietary
seasonings to SMG. On December 17, 2010, the Court ruled that
Nathan’s was not entitled to terminate the License Agreement. On
January 19, 2011, the parties submitted an agreed- upon order (the “Order”)
which, among other things, assessed damages against Nathan’s of approximately
$4,910,000, inclusive of pre-judgment interest which has been accrued in the
accompanying consolidated financial statements as of December 26, 2010, and the
manner in which Nathan’s will secure its obligation to pay such
damages. The Order was expected to be entered on February
3, 2011, however, due to weather conditions, the court was closed. Nathan’s
expects that the Order will be entered in February 2011. Nathan’s is
considering whether to appeal this Order.
Critical
Accounting Policies and Estimates
As discussed in our Form 10-K for the
fiscal year ended March 28, 2010, the discussion and analysis of our financial
condition and results of operations are based upon our consolidated financial
statements, which have been prepared in conformity with accounting principles
generally accepted in the United States of America. The preparation
of these financial statements requires us to make estimates and assumptions that
affect the amounts of assets, liabilities, revenues and expenses reported in
those financial statements. These judgments can be subjective and complex, and
consequently, actual results could differ from those estimates. Our most
critical accounting policies and estimates relate to revenue recognition;
impairment of goodwill and other intangible assets; impairment of long-lived
assets; impairment of notes receivable; share-based compensation and income
taxes (including uncertain tax positions). Since March 28, 2010,
there have been no changes
in our critical accounting policies or significant changes to the assumptions
and estimates related to them.
Adoption
of New Accounting Pronouncements
In July
2010, the Financial Accounting Standards Board issued guidance that will enhance
future disclosure about the credit quality of a creditor’s financing receivables
and the adequacy of its allowance for credit losses. The amended guidance became
effective beginning with the first quarterly or annual reporting period ending
on or after December 15, 2010. The amended guidance is effective for activity
during a reporting period beginning for the period end balances with the first
quarterly or annual period beginning on or after December 15, 2010. The Company
adopted the provisions of the new accounting standard on disclosures about the
credit quality of financing receivables and the allowance for credit losses
beginning with the period ended December 26, 2010. The adoption of this new
accounting standard increased the amount of required disclosure, but did not
have a material effect on our consolidated results of operations or financial
position (See Notes E and F).
Results
of Operations
Thirteen
weeks ended December 26, 2010 compared to thirteen weeks ended December 27,
2009
Revenues
Total
sales increased by 22.2% to $10,237,000 for the thirteen weeks ended December
26, 2010 (“third quarter fiscal 2011”) as compared to $8,375,000 for the
thirteen weeks ended December 27, 2009 (“third quarter fiscal
2010”). Foodservice sales from the Branded Product and Branded
Menu Programs increased by 34.2% to $8,015,000 for the third quarter fiscal 2011
as compared to sales of $5,974,000 in the third quarter fiscal 2010. This
increase was primarily attributable to a 25.4% increase in the volume of
products ordered. Total Company-owned restaurant sales, which was comprised of
five comparable Nathan’s restaurants in both periods (including one seasonal
restaurant), and two restaurants that we temporarily operated during part of the
third quarter fiscal 2010, decreased by 6.6% to $1,997,000 during the third
quarter fiscal 2011 as compared to $2,138,000 during the third quarter fiscal
2010. Sales increased at our five comparable Company-owned restaurants by
approximately 3.8% due to higher customer counts of approximately 3.9% which
were partly offset by lower check averages of approximately 0.1%. During the third quarter
fiscal 2011, sales to our television retailer were approximately $38,000 lower
than the third quarter fiscal 2010. Nathan’s products were on air five times
during the third quarter fiscal 2011 as compared to six times during the third
quarter fiscal 2010.
Franchise
fees and royalties were $1,241,000 in the third quarter fiscal 2011 as compared
to $1,313,000 in the third quarter fiscal 2010. Total royalties were $1,014,000
in the third quarter fiscal 2011 as compared to $952,000 in the third quarter
fiscal 2010. During the third quarter fiscal 2011, we recovered royalty revenue
of $10,000 previously deemed to be uncollectible as compared to not recording
royalty revenue of $13,000 deemed uncollectible during the third quarter fiscal
2010. Total royalties, excluding the adjustments for royalties deemed
uncollectible as described above, were $1,004,000 in the third quarter fiscal
2011 as compared to $965,000 in the third quarter fiscal 2010. Franchise
restaurant sales were $20,726,000 in the third quarter fiscal 2011 as compared
to $21,355,000 in the third quarter fiscal 2010. Comparable domestic franchise
sales (consisting of 127 Nathan’s outlets,
excluding sales under the Branded Menu Program) were $16,103,000 in the third
quarter fiscal 2011 as compared to 16,371,000 in the third quarter fiscal 2010,
a decrease of 1.6%. (Royalties earned under the Branded Menu Program
are not based upon retail sales but are based on the manufacturers’ sales).
Franchise sales within retail environments have declined by approximately 3.7%
compared to the prior period primarily due to the continuing adverse economic
environment, however, sales at our travel and entertainment venues were higher
by approximately 4.3% compared to the third quarter fiscal 2010. International
franchise sales, principally the Middle East, declined by approximate $142,000
or 14.2% during the third quarter fiscal 2011 as compared to the third quarter
fiscal 2010. At December 26, 2010, 263 domestic and international franchised or
Branded Menu Program franchise outlets were operating as compared to 246
domestic and international franchised or Branded Menu Program franchise outlets at
December 27, 2009. Royalty income from two franchised outlets was deemed
unrealizable during the third quarter fiscal 2011 as compared to 10 franchised
outlets during the third quarter fiscal 2010. Total franchise fee income was
$227,000 in the third quarter fiscal 2011 as compared to $361,000 in the third
quarter fiscal 2010. Domestic franchise fee income was $174,000 in the third
quarter fiscal 2011 as compared to $291,000 in the third quarter fiscal 2010
primarily due to higher opening fees earned from the five re-franchised
locations opened during the third quarter fiscal 2010. International franchise
fee income was $53,000 in the third quarter fiscal 2011, as compared to $15,000
during the third quarter fiscal 2010. During the third quarter fiscal 2010, we
recognized $55,000 in forfeited franchise fees. During the third quarter fiscal
2011, 15 new franchised outlets opened, including two locations in China and
eight Branded Menu Program outlets. During the third quarter fiscal 2010, 13 new
franchised outlets were opened, including nine Branded Menu Program
outlets.
License
royalties were $1,387,000 in the third quarter fiscal 2011 as compared to
$1,297,000 in the third quarter fiscal 2010. Total royalties earned on sales of
hot dogs from our retail and foodservice license agreements increased 4.4% to
$1,024,000 from $981,000 primarily due to higher sales volume by both of
our licensees in the third quarter fiscal 2011. Royalties earned from
our primary licensee, SMG, Inc. primarily from the retail sale of hot dogs, were
$667,000 during the third quarter fiscal 2011 as compared to $633,000 during the
third quarter fiscal 2010. Royalties earned from another licensee, substantially
from sales of hot dogs to Sam’s Club, were $357,000 during the third quarter
fiscal 2011 as compared to $348,000 during the third quarter fiscal 2010.
Royalties earned from all other licensing agreements for the manufacture and
sale of Nathan’s products increased by 14.9% or $47,000 during the third quarter
fiscal 2011, as compared to the third quarter fiscal 2010.
Interest
income was $195,000 in the third quarter fiscal 2011 as compared to $224,000 in
the third quarter fiscal 2010, primarily due to lower interest income on our
cash and cash equivalents as a result of the reduced amount of marketable
securities, the current reduced interest rate environment for reinvested
securities and less interest earned on the reduced balance of the note
receivable received in connection with the sale of Miami Subs on June 7,
2007.
Other
income was $19,000 in the third quarter fiscal 2011 as compared to $15,000 in
the third quarter fiscal 2010.
Costs and
Expenses
Overall,
our cost of sales increased by $1,726,000 to $7,961,000 in the third quarter
fiscal 2011 as compared to $6,235,000 in the third quarter fiscal 2010. Our
gross profit (representing the difference between sales and cost of sales) was
$2,276,000 or 22.2% of sales during the third quarter fiscal 2011 as compared to
$2,140,000 or 25.6% of sales during the third quarter fiscal 2010. The reduced
margin was primarily due to the higher cost of hot dogs for our Branded Product
Program.
Cost of
sales in the Branded Product Program increased by approximately $1,833,000
during the third quarter fiscal 2011 as compared to the third quarter fiscal
2010, primarily as a result of the higher sales volume and the approximately
13.2% increased cost of hot dogs. During the third quarter fiscal 2011, the
market price of hot dogs was approximately 12.3% higher than during the third
quarter fiscal 2010. During the third quarter fiscal 2011, we did not have any
purchase commitments in place. However, during the
third quarter fiscal 2010 our purchase commitments reduced our costs by
approximately $35,000 as compared to purchasing all of our products at
then-prevailing market prices. If the cost of beef and beef trimmings increases
and we are unable to pass on these higher costs through price increases or
otherwise reduce any increase in our costs through the use of purchase
commitments, our margins will be adversely impacted. In an effort to reduce the
negative impact on our profit margin of any future price increases, we have
entered into two additional purchase commitments for the purchase of hot dogs.
We are currently unable to determine the impact such commitments will have on
our future profit margin.
With
respect to our Company-owned restaurants, our cost of sales during the third
quarter fiscal 2011 was $1,375,000 or 68.9% of restaurant sales, as compared to
$1,450,000 or 67.8% of restaurant sales in the third quarter fiscal
2010. The primary reason for the increase in the cost of sales
percentage in the third quarter fiscal 2011 was higher labor and associated
costs. Cost of sales to our television retailer declined by $32,000 in the third
quarter fiscal 2011, primarily due to lower sales volume.
Restaurant
operating expenses were $625,000 in the third quarter fiscal 2011 as compared to
$805,000 in the third quarter fiscal 2010. The difference in restaurant
operating costs was primarily due to cost savings of $123,000 from not operating
two restaurants during the third quarter fiscal 2011 that had been taken back
from a franchisee in a prior fiscal period and were re-franchised by the end
of the third quarter fiscal 2010, in addition to a reduction in
previously accrued self-insurance costs of $54,000. Although utility costs did
not increase significantly during the third quarter fiscal 2011, we continue to
be concerned about the uncertain market conditions for oil and natural
gas.
Depreciation
and amortization was $231,000 in the third quarter fiscal 2011 as compared to
$214,000 in the third quarter fiscal 2010. This increase is primarily
attributable to higher depreciation expense at our corporate office and to
newly-added consigned equipment by our Branded Product Program, which was partly
offset by lower restaurant depreciation.
General
and administrative expenses increased by $32,000 or 1.3% to $2,440,000 in the
third quarter fiscal 2011 as compared to $2,408,000 in the third quarter fiscal
2010. The increase in general and administrative expenses was primarily due to
the incremental cost of the litigation with SMG, Inc. of $82,000 in connection
with the trial that began in October 2010. Additionally, we incurred higher
marketing costs of $150,000, bad debt expense of $34,000 and personnel costs of
$33,000, which were offset by lower occupancy costs of $72,000, other
professional fees of $71,000 and the effect of an un-leased property expense of
$117,000 that was recorded during the third quarter fiscal 2010.
During
the third quarter fiscal 2011, we recorded an additional litigation accrual of
$1,996,000 as a result of the unfavorable ruling by the court in connection with
our litigation with SMG, Inc. (refer to Note L of the Notes to Consolidated
Financial Statements in Item 1) representing the additional damages payable to
SMG in excess of the estimated damages recorded in a prior period.
(Benefit) Provision for
Income Taxes
In the
third quarter fiscal 2011, the income tax (benefit) was $(21,000) or (12.1)% of
(loss) before income taxes as compared to the income tax provision of $510,000
or 32.7% of income before income taxes in the third quarter fiscal 2010. Nathan’s
effective tax rate was reduced by 8.8% during the third quarter fiscal 2011 and
reduced by 4.6% during the third quarter fiscal 2010, due to the differing
effects of tax-exempt interest income. During the third quarter fiscal 2011,
Nathan’s recorded additional taxes of $85,000 in connection with the filing of
its March 2010 tax returns, increasing the effective tax rate by 48.9%. During
the third quarter fiscal 2010, Nathan’s also resolved certain uncertain tax
positions, reducing the associated unrecognized tax benefits, along with the
related accrued interest and penalties, by approximately $41,000, which lowered
the effective tax rate by 2.6%. Nathan’s effective tax rates without these
adjustments would have been (52.2)% for the third quarter fiscal 2011 and 39.9%
for the third quarter fiscal 2010.
Thirty-nine
weeks ended December 26, 2010 compared to thirty-nine weeks ended December 27,
2009
Revenues
Total
sales were $35,543,000 for the thirty-nine weeks ended December 26, 2010
(“fiscal 2011 period”) as compared to $31,148,000 for the thirty-nine weeks
ended December 27, 2009 (“fiscal 2010 period”). Foodservice
sales from the Branded Product and Branded Menu Programs increased by 20.9% to
$23,199,000 for the fiscal 2011 period as compared to sales of $19,189,000 in
the fiscal 2010 period. This increase was primarily attributable to higher
volume of product ordered during the period. Total Company-owned restaurant
sales, which was comprised of five comparable Nathan’s restaurants in both
periods (including one seasonal restaurant), and two restaurants that we
temporarily operated during part of the second and third quarters of fiscal
2010, increased by 7.2% to $11,310,000 during the fiscal 2011 period as compared
to $10,554,000 during the fiscal 2010 period. Sales increased at our five
comparable Company-owned restaurants by approximately 11.3% due to higher
customer counts of approximately 10.3% and higher check averages of
approximately 1.0%. The sales increase arose primarily at our Coney Island
restaurant, which we believe was primarily attributable to favorable weather
conditions throughout the summer season and due to the success of the first
phase of a renovation at a neighboring amusement park. During the fiscal 2011
period, sales to our television retailer were approximately $371,000 lower than
the fiscal 2010 period. Nathan’s products were on air 60 times during the fiscal
2011 period as compared to 63 times during the fiscal 2010 period. During the
fiscal 2011 period our products were not featured in any special airings as they
were during the fiscal 2010 period.
Franchise
fees and royalties increased by 3.8% to $3,924,000 in the fiscal 2011 period as
compared to $3,779,000 in the fiscal 2010 period. Total royalties were
$3,353,000 in the fiscal 2011 period as compared to $3,151,000 in the fiscal
2010 period. During the fiscal 2011 period, we recovered net royalty revenue of
$4,000 previously deemed to be uncollectible as compared to not recording
royalty revenue of $138,000 deemed uncollectible during the fiscal 2010 period.
Total royalties, excluding the adjustments for royalties deemed uncollectible as
described above, were $3,349,000 in the fiscal 2011 period as compared to
$3,289,000 in the fiscal 2010 period. Franchise restaurant sales were
$69,572,000 in the fiscal 2011 period as compared to $70,523,000 in the fiscal
2010 period. Comparable domestic franchise sales (consisting of 127 Nathan’s outlets,
excluding sales under the Branded Menu Program) were $55,472,000 in the fiscal
2011 period as compared to $56,000,000 in the fiscal 2010 period, a decrease of
0.9%. (Royalties earned under the Branded Menu Program are not based
upon retail sales but are based on the manufacturers’ sales). Franchise sales
within retail environments have declined by approximately 4.5% primarily due to
the continuing adverse economic environment, however sales at our travel and
entertainment venues were higher by approximately 3.2% compared to the fiscal
2010 period. International franchise sales, principally the Middle East,
declined by approximately $552,000 or 18.9% during the fiscal 2011 period as
compared to the fiscal 2010 period. At December 26, 2010, 263 domestic and
international franchised or Branded Menu Program franchise outlets were
operating as compared to 246 domestic and international franchised or Branded
Menu Program franchise
outlets at December 27, 2009. Royalty income from three franchised outlets was
deemed unrealizable during the fiscal 2011 period as compared to 10 franchised
outlets during the fiscal 2010 period. Total franchise fee income was $561,000
in the fiscal 2011 period as compared to $573,000 in the fiscal 2010 period.
Domestic franchise fee income was $481,000 in the fiscal 2011 period as compared
to $495,000 in the fiscal 2010 period due primarily to higher opening fees
earned from the five re-franchised locations opened during the fiscal 2010
period. International franchise fee income was $80,000 in the fiscal 2011
period, as compared to $78,000 during fiscal 2010. During fiscal 2011 and fiscal
2010 periods, we recognized forfeited fees of $10,000 and $55,000, respectively.
During the fiscal 2011 period, 32 new franchised outlets opened, including one
re-franchised location, two units in China and 16 Branded Menu Program outlets.
During the fiscal 2010 period, 26 new franchised outlets were opened, including
five re-franchised locations, one unit in Kuwait, one unit in the Dominican
Republic and 11 Branded Menu Program outlets.
License
royalties were $4,865,000 in the fiscal 2011 period as compared to $4,672,000 in
the fiscal 2010 period. Total royalties earned on sales of hot dogs from our
retail and foodservice license agreements increased 0.7% to $3,764,000 from
$3,736,000. Royalties earned from our primary licensee, SMG, Inc. primarily from
the retail sale of hot dogs, were $2,634,000 during the fiscal 2011 period as
compared to $2,653,000 during the fiscal 2010 period. Royalties earned from
another licensee, substantially from sales of hot dogs to Sam’s Club, were
$1,130,000 during the fiscal 2011 period as compared to $1,083,000 during the
fiscal 2010 period. During the fiscal 2011 period, we recovered $75,000 of
license royalties from one licensee that had been previously deemed
unrealizable. Royalties earned from all other licensing agreements for the
manufacture and sale of Nathan’s products increased by $90,000 during the fiscal
2011 period as compared to the fiscal 2010 period.
Interest
income was $620,000 in the fiscal 2011 period as compared to $704,000 in the
fiscal 2010 period, primarily due to lower interest income on our cash and cash
equivalents as a result of the reduced amount of marketable securities, the
current reduced interest rate environment for reinvested securities and less
interest earned on the reduced balance of the note receivable received in
connection with the sale of Miami Subs on June 7, 2007.
Other
income was $35,000 in the fiscal 2011 period as compared to $49,000 in the
fiscal 2010 period.
Costs and
Expenses
Overall,
our cost of sales increased by $4,427,000 to $26,864,000 in the fiscal 2011
period as compared to $22,437,000 in the fiscal 2010 period. Our gross profit
(representing the difference between sales and cost of sales) was $8,679,000 or
24.4% of sales during the fiscal 2011 period as compared to $8,711,000 or 28.0%
of sales during the fiscal 2010 period. The reduced margin was primarily due to
the higher cost of hot dogs for our Branded Product Program.
Cost of
sales in the Branded Product Program increased by approximately $4,268,000
during the fiscal 2011 period as compared to the fiscal 2010 period, primarily
as a result of the higher sales volume and the approximately 8.8% increase in
the cost of hot dogs. During the fiscal 2011 period, the market price of hot
dogs was approximately 9.9% higher than during the fiscal 2010 period. The
Company’s purchase commitments reduced the impact of the increased market price
in the fiscal 2011 period. During the fiscal 2011 period, our purchase
commitments to acquire 747,000 pounds of hot dogs yielded savings of
approximately $146,000 as compared to
adding approximately $17,000 to our cost due to the market’s decline during the
fiscal 2010 period. If the cost of beef and beef trimmings increases and we are
unable to pass on these higher costs through price increases or otherwise reduce
the impact of such increased costs through the use of purchase commitments, our
margins will be adversely impacted. In an effort to reduce the negative impact
on our profit margin of any future price increases, we have entered into two
additional purchase commitments for the purchase of hot dogs. We are
currently unable to determine the impact such commitments will have on our
future profit margin.
With
respect to our Company-owned restaurants, our cost of sales during the fiscal
2011 period was $6,429,000 or 56.8% of restaurant sales, as compared to
$6,035,000 or 57.2% of restaurant sales in the fiscal 2010
period. The primary reason for the decrease in the cost as a
percentage of sales in the fiscal 2011 period, was the greater margins achieved
from higher sales on labor costs, the recent actions taken to reduce food and
paper costs and a one-time opportunistic purchase of certain paper products
below market. Cost
of sales to our television retailer declined by $235,000 in the fiscal 2011
period, primarily due to lower sales volume.
Restaurant
operating expenses were $2,417,000 in the fiscal 2011 period as compared to
$2,601,000 in the fiscal 2010 period. The difference in restaurant operating
costs was primarily due to cost savings of $232,000 due to the elimination of
the costs of operating two restaurants during the second quarter and third
quarter fiscal 2011 which were re-franchised during that period, mostly offset
by higher costs at our five comparable restaurants for higher maintenance costs
of $46,000, operating supply costs of $27,000, utility costs of $24,000 which
were partly offset by lower insurance costs due primarily to a reduction in
previously accrued self insurance costs of $54,000. During the fiscal 2011
period our utility costs were approximately 5.3% higher than the fiscal 2010
period. We continue to be concerned about the uncertain market conditions for
oil and natural gas.
Depreciation
and amortization was $688,000 in the fiscal 2011 period as compared to $614,000
in the fiscal 2010 period. This increase is primarily attributable to higher
depreciation expense at our corporate office and for newly-added consigned
equipment by our Branded Product Program, which were partly offset by lower
restaurant depreciation.
General
and administrative expenses increased by $361,000 to $7,636,000 in the fiscal
2011 period as compared to $7,275,000 in the fiscal 2010 period. The increase in
general and administrative expenses was primarily due to the incremental cost of
the litigation with SMG, Inc. of $364,000 in connection with the trial that
began in October 2010. Additionally, we incurred higher marketing costs of
$224,000 and personnel costs of $152,000, which were partly offset by lower bad
debt expense of $161,000, other professional fees of $105,000, occupancy costs
of $73,000 and the effect of an un-leased property expense of $117,000 that was
recorded during the third quarter fiscal 2010.
During
the fiscal 2011 period, we recorded a litigation accrual of $4,910,000 as the
result of the unfavorable ruling by the court in connection our litigation with
SMG, Inc. (Refer to Note L of the Notes to Consolidated Financial
Statements in Item 1.)
Provision for Income
Taxes
In the
fiscal 2011 period, the income tax provision was $814,000 or 32.9% of income
before income taxes as compared to $2,647,000 or 35.6% of income before income
taxes in the fiscal 2010 period. Nathan’s
effective tax rate was reduced by 9.6% and 3.2% during the fiscal 2011 and
fiscal 2010 periods, respectively, due to the differing effects of tax-exempt
interest income. During the third quarter fiscal 2011, Nathan’s recorded
additional taxes of $85,000 in connection with the filing of its March 2010 tax
returns, increasing the effective tax rate by 3.4%. Additionally, during the
fiscal 2011 period, Nathan’s resolved certain uncertain tax positions, reducing
the associated unrecognized tax benefits, along with the related accrued
interest and penalties, by approximately $79,000, which lowered the effective
tax rate by 3.2%. During the fiscal 2010 period, Nathan’s also
resolved certain uncertain tax positions, reducing the associated unrecognized
tax benefits, along with the related accrued interest and penalties, by
approximately $91,000, which lowered the effective tax rate by 1.3%. Nathan’s
effective tax rates without these adjustments would have been 42.3% for the
fiscal 2011 period and 40.1% for the fiscal 2010 period. Nathan’s is
seeking to 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 $50,000
during the remainder of this fiscal year, although no assurances can be given in
this regard.
Off-Balance
Sheet Arrangements
During
the third quarter fiscal 2011, we entered into two purchase commitments to
purchase a total of 1,486,000 pounds of hot dogs at a total cost of $2,629,000,
for purchase between January and April 2011. Nathan’s may enter into additional
purchase commitments in the future as favorable market conditions become
available. See Note L to the Consolidated Financial Statements
contained in Item 1 of this Form 10-Q.
Liquidity
and Capital Resources
Cash and
cash equivalents at December 26, 2010 aggregated $10,919,000, decreasing by
$690,000 during the fiscal 2011 period. At December 26, 2010,
marketable securities were $22,022,000 compared to $24,317,000 at March 28, 2010
and net working capital decreased to $31,658,000 from $36,668,000 at March 28,
2010.
Cash
provided by operations of $4,857,000 in the fiscal 2011 period is primarily
attributable to net income of $1,658,000 and other non-cash items of $1,100,000, net. Changes in Nathan’s
operating assets and liabilities increased cash by $2,099,000, primarily
resulting from increased accounts payable and accrued expenses of $4,111,000,
which were partly offset by increased accounts and
other receivables, net of $1,207,000 and increased prepaid expenses and other
current assets of $977,000. The increase in accounts payable and accrued
expenses primarily relates to the litigation accrual of $4,910,000 arising from
the unfavorable ruling in connection with the SMG, Inc. litigation. The increase in accounts
and other receivables is primarily due to increased Branded Product Program
sales. The increase in prepaid expenses is primarily due to the increased
prepaid income taxes of $1,171,000 which was partly offset by the utilization of
various prepaid expenses of $155,000.
Cash
provided by investing activities was $1,221,000 in the fiscal 2011 period. We
received cash proceeds of $1,900,000 from the redemption of a maturing
available-for-sale security and $81,000 from the receipt of payments on the note
receivable received in connection with the sale of Miami Subs. We incurred
capital expenditures of $760,000 primarily in connection with our Branded
Product Program and capital maintenance projects at our
restaurants.
Cash was
used in financing activities of $6,768,000 in the fiscal 2011 period, primarily
for the purchase of 438,330 shares of Company Common Stock at a cost of
$6,992,000 pursuant to the stock repurchase plans as authorized by the Board of
Directors, as more fully described below. Cash was received from the
proceeds of employee stock option exercises of $87,000 and the expected
realization of the associated tax benefit of $137,000.
Beginning
October 2001 through December 26, 2010, Nathan’s purchased a total of 3,617,123
shares of common stock at a cost of approximately $32,184,000 pursuant to its
stock repurchase plans previously authorized by the Board of
Directors. Of these repurchased shares, 438,330 shares of common
stock were repurchased at a cost of approximately $6,992,000 during the
thirty-nine-week period ended December 26, 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. As of
December 26, 2010, the Company has completed its repurchase of 500,000 shares at
a cost of $7,279,000 under the fourth stock repurchase plan.
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.
As of December 26, 2010, the Company has completed its repurchase of 500,000
shares at a cost of $6,637,000 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. As of December 26, 2010, the Company has repurchased
117,123 shares at a cost of $1,872,000 under the sixth stock repurchase
plan.
On
September 10, 2010, Nathan’s entered into a new 10b5-1 Agreement with
Mutual Securities, Inc. (“ MSI”), authorizing the purchase of shares of the
Company’s common stock, having a value of up to an aggregate $4,800,000. Such
purchases were able to commence on September 20, 2010. On February 3, 2011,
Nathan’s and MSI amended this agreement to increase the aggregate value to
approximately $7.5 million. This agreement will terminate on September 19,
2011. As of December 26, 2010, the Company has repurchased shares
aggregating $587,000 pursuant to this 10b5-1 Agreement. The 10b5-1 Agreement was
adopted under the safe harbor provided by Rule 10b5-1 and Rule 10b-18
of the Securities Exchange Act of 1934.
As of
December 26, 2010, an aggregate of 382,877 shares are remaining to be purchased
pursuant to the Company’s previously-adopted stock repurchase plans.
On February 1, 2011, Nathan’s Board of
Directors has authorized the purchase of its common stock by an additional
300,000 shares. After giving effect to this increase, an aggregate of 581,822
shares remain available for purchase under Nathan’s stock buy-back
programs, to date.
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 these 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 12 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 to expand our
business. 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 the 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
December 26, 2010, there were three 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
|
|
$ |
2,096 |
|
|
$ |
1,096 |
|
|
$ |
600 |
|
|
$ |
400 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Leases
|
|
|
17,972 |
|
|
|
1,456 |
|
|
|
2,709 |
|
|
|
2,765 |
|
|
|
11,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Cash Contractual Obligations
|
|
|
20,068 |
|
|
|
2,552 |
|
|
|
3,309 |
|
|
|
3,165 |
|
|
|
11,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sublease
Income
|
|
|
676 |
|
|
|
333 |
|
|
|
239 |
|
|
|
48 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Contractual Obligations
|
|
$ |
19,392 |
|
|
$ |
2,219 |
|
|
$ |
3,070 |
|
|
$ |
3,117 |
|
|
$ |
10,986 |
|
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 the fiscal 2011 period,
the market price of hot dogs was approximately 9.9% higher than during the
fiscal 2010 period. However, as a result of the effects of the Company’s
purchase commitments during fiscal 2011, our cost of beef was only approximately
8.8% higher than the fiscal 2010 period. The purchase commitments yielded a
higher benefit to the Company during the fiscal 2011 period as compared to the
purchase commitment in effect during the fiscal 2010 period. During the fiscal
2011 period, our costs were approximately 0.8% lower than if our purchases were
made at the prevailing market prices as compared to the fiscal 2010 period, when
our costs were higher by 0.1%. During the first six months of calendar 2010, the
cost of beef and beef trimmings rose significantly, well ahead of the normal
seasonal fluctuations, testing the all-time highs reached in the summer of 2008.
Since September 2010, market prices have been fairly stable. Prices
during the October through December 2010 period were approximately 12.3% higher
than the comparable 2009 period. We are unable to predict
the future cost of our hot dogs and expect to experience price volatility for
our beef products during the balance of fiscal 2011 and fiscal 2012. During the
third quarter fiscal 2011, we entered into two additional purchase commitments.
We may attempt to enter into similar purchase arrangements for hot dogs and
other products in the future. Additionally, we expect to continue experiencing
volatility in oil and gas prices on our distribution costs for our food products
and utility costs in the Company-owned restaurants.
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. As Nathan’s workforce includes numerous part-time
workers that typically are not offered healthcare coverage, we may be forced to
expand healthcare coverage or incur these new penalties which may increase our
health care costs.
From time
to time, various Federal and New York State legislators have proposed changes to
the minimum wage requirements. 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, including health care,
could adversely affect our operations and those of the restaurant industry and
we might have to further reconsider our pricing strategy as a means to offset
reduced operating margins.
The
Company’s business, financial condition, operating results and cash flows can be
impacted by a number of factors, including but not limited to those set forth
above in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” any one of which could cause our actual results to vary
materially from recent results or from our anticipated future results. For a
discussion identifying additional risk factors and important factors that could
cause actual results to differ materially from those anticipated, also see the
discussions in “Forward-Looking Statements” and “Notes to Consolidated Financial
Statements” in this Form 10-Q and “Risk Factors” in this Form 10-Q and our Form
10-K for our fiscal year ended March 28, 2010.
Item
3.
|
Quantitative and
Qualitative Disclosures About Market
Risk.
|
Cash
and Cash Equivalents
We have
historically invested our cash and cash equivalents in short term, fixed rate,
highly rated and highly liquid instruments which are generally reinvested when
they mature throughout the year. Although our existing investments
are not considered at risk with respect to changes in interest rates or markets
for these instruments, our rate of return on short-term investments could be
affected at the time of reinvestment as a result of intervening events. As of
December 26, 2010, Nathan’s cash and cash equivalents aggregated
$10,919,000. Earnings on this cash
and cash equivalents would increase or decrease by approximately $27,000 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 December 26, 2010, the market value of
Nathan’s marketable securities aggregated $22,022,000. These marketable
securities are considered at risk with respect to interest rates to determine
their current market value. Our future rate of return could also be
affected at the time of reinvestment as a result of intervening events. Interest
income on these marketable securities would increase or decrease by
approximately $55,000 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 December 26, 2010 that are sensitive to
interest rate fluctuations (in thousands):
|
|
Valuation
of securities
|
|
|
|
|
|
Valuation
of securities
|
|
|
|
Given
an interest rate
|
|
|
|
|
|
Given
an interest rate
|
|
|
|
Decrease of X Basis points
|
|
|
Fair
|
|
|
Increase of X Basis points
|
|
|
|
(150BPS)
|
|
|
(100BPS)
|
|
|
(50BPS)
|
|
|
Value
|
|
|
+50BPS
|
|
|
+100BPS
|
|
|
+150BPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds
|
|
$ |
22,655 |
|
|
$ |
22,502 |
|
|
$ |
22,285 |
|
|
$ |
22,022 |
|
|
$ |
21,750 |
|
|
$ |
21,479 |
|
|
$ |
21,213 |
|
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. Effective August 3, 2010,
we established an uncommitted line of credit of $10,000,000 at either the prime
rate (3.25% as of December 26, 2010) or the 1-month LIBOR
rate plus 200 basis points (2.25625% as of December 26, 2010), which was set to
expire on June 30, 2011. On November 4, 2010, the Company terminated this
agreement. We do not anticipate entering into interest rate swaps or other
financial instruments to hedge any future borrowings. At December 26, 2010, we
had no outstanding bank indebtedness. If we were to borrow money in the future,
such borrowings would be based upon the then-prevailing interest rates.
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. Our commodity costs for beef
have been especially volatile since fiscal 2004. In January 2008, we began a
program of entering into purchase commitments with our primary supplier to
produce and deliver hot dogs at agreed-upon prices. In January 2009,
we entered a purchase
commitment, as amended, to acquire 2,592,000 pounds of hot dogs for $4,368,000
which were purchased between April 2009 and September 2009. In February 2010, we
entered into a purchase commitment to acquire 585,000 pounds of hot dogs for
$1,013,000, in addition to the remaining product to be purchased pursuant to our
prior purchase commitment for approximately 162,000 pounds of hot dogs for
approximately $262,000, including over-production. All of this product was
purchased between April 2010 and June 2010. During the fiscal 2011 period, the
market price of hot dogs was approximately 9.9% higher than during the fiscal
2010 period. However, during that same period, due to our purchase commitments,
our cost of beef was only approximately 8.8% higher than the fiscal 2010 period.
During the third quarter fiscal 2011, we entered into two purchase commitments
to purchase a total of 1,486,000 pounds of hot dogs at a total cost of
$2,629,000, for purchase between January and April 2011. 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 commodity purchases will be
subject to market changes in the prices of such commodities. Generally, we have
attempted to pass through permanent increases in our commodity prices to our
customers, thereby reducing the impact of long-term increases on our financial
results. A short-term increase or decrease of 10.0% in the cost of our food and
paper products for the thirty-nine weeks ended December 26, 2010 would have
increased or decreased our cost of sales by approximately
$2,178,000.
Foreign
Currencies
Foreign
franchisees generally conduct business with us and make payments in United
States dollars, reducing the risks inherent with changes in the values of
foreign currencies. As a result, we have not purchased future
contracts, options or other instruments to hedge against changes in values of
foreign currencies and we do not believe fluctuations in the value of foreign
currencies would have a material impact on our financial results.
Item
4. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive 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 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.
Changes
in Internal Controls
There
were no changes in our internal controls over financial reporting that occurred
during the thirteen weeks ended December 26, 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 and Chief
Financial Officer have concluded that such controls and procedures are effective
at the reasonable assurance level.
PART
II. OTHER INFORMATION
Item 1. 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 such ordinary and routine litigation, 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 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
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. On September 17, 2010, SMG
filed a motion for summary judgment with respect to the claims relating to the
sale of Nathan’s proprietary seasonings to SMG. On October 5, 2010,
Nathan’s filed an opposition to SMG’s motion for summary judgment, and itself
cross-moved for summary judgment. A trial on the claims relating to
Nathan’s termination of the License Agreement took place between October 6 and
October 13, 2010. Oral argument on the claims relating to the sale of
Nathan’s proprietary seasonings took place prior to the start of the
trial. On October 13, 2010, an Order was entered with the Court
denying Nathan’s cross-motion and granting SMG’s motion for summary judgment
with respect to SMG’s claims relating to the sale of Nathan’s proprietary
seasonings to SMG. On December 17, 2010, the Court ruled that
Nathan’s was not entitled to terminate the License Agreement. On
January 19, 2011, the parties submitted an agreed upon order which, among other
things, assessed damages against Nathan’s of approximately $4,910,000 inclusive
of pre-judgment interest, which has been accrued in the accompanying
consolidated financial statements of December 26, 2010. The
Order was expected to be entered on February 3, 2011, however, due to
weather conditions, the court was closed. Nathan’s expects that the Order will
be entered in February 2011. Nathan’s is considering whether to
appeal this Order.
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, alleged copyright infringement and asserted 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 $10,500,000. In May
2010, this action was settled whereby Nathan’s agreed to purchase these assets
for $140,000.
Item
1A. Risk Factors.
In
addition to the other information set forth in this report, you should carefully
consider the factors described below, as well as those discussed in Part I,
“Item 1A. Risk Factors” in the Annual Report on Form 10-K for the fiscal year
ended March 28, 2010, which could materially affect our business, financial
condition or future results. The risks described below and in our Annual Report
on Form 10-K are not the only risks facing Nathan's. Additional risks and
uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial
condition and/or operating results.
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 was seeking the
right to terminate its License Agreement with the supplier prior to the
scheduled expiration date of the License Agreement in February 2014. However, on
October 13, 2010, the court presiding over that litigation granted the
supplier’s motion for summary judgment with respect to the supplier’s claims
relating to the sale to it of Nathan's proprietary seasonings and on December
17, 2010, the court determined that the Company was not entitled to terminate
its License Agreement with such supplier. Subsequently, on January
19, 2011, the parties submitted an agreed-upon order which, among other things,
assessed damages against Nathan's for the seasonings claims in the amount of
$4,909,701.44, inclusive of pre-judgment interest, which order is expected to be
entered in February 2011. The Company is considering whether to
appeal the court’s orders.
In the
event that the Company appeals the court’s orders, then notwithstanding the fact
that the Company’s hot dog supplier is contractually obligated to perform its
obligations under the License Agreement until its termination in 2014 and the
Company expects the hot dog supplier to continue to discharge those obligations,
there is no assurance that the supplier will do so. In addition, in
the event that the Company determines to appeal the court’s orders and is
successful, the Company would be entitled to terminate the License
Agreement. In anticipation of such termination, the Company has been
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.
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, or if the Company is successful in its appeal of the court’s orders and
terminates the License Agreement, there is no assurance that the Company could
secure an alternate source of supply in a timely manner or on terms as
advantageous to the Company as those with the current supplier.
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.
Nathan’s
earnings and business growth strategy depends in large part on the success of
its restaurant franchisees and on new restaurant openings. Nathan’s or its
brand’s reputation may be harmed by actions taken by restaurant franchisees that
are otherwise outside of Nathans’ control.
A
significant portion of Nathans’ earnings comes from royalties, fees and other
amounts paid by Nathan’s restaurant franchisees. Nathan’s franchisees 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, the franchisees may
not successfully operate their restaurants in a manner consistent with Nathans’
high standards and requirements, and franchisees may not hire and train
qualified managers and other restaurant personnel. Any operational shortcoming
of a franchised restaurant is likely to be attributed by consumers to an entire
brand or Nathan’s system, thus damaging Nathan’s or a brand’s reputation,
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:
|
·
|
our
ability to attract new franchisees;
|
|
·
|
the
availability of site locations for new
restaurants;
|
|
·
|
the
ability of potential restaurant owners to obtain financing, which has
become more difficult due to current market conditions and operating
results;
|
|
·
|
the
ability of restaurant owners to hire, train and retain qualified operating
personnel;
|
|
·
|
construction
and development costs of new restaurants, particularly in
highly-competitive markets;
|
|
·
|
the
ability of restaurant owners to secure required governmental approvals and
permits in a timely manner, or at all;
and
|
|
·
|
adverse
weather conditions.
|
Nathan’s
earnings and business growth strategy depends in large part on the success of
its product licensees, and product manufacturers. Nathan’s or its brand’s
reputation may be harmed by actions taken by its product licensees or
product manufacturers that are otherwise outside of Nathans’
control.
A
significant portion of Nathans’ earnings comes from royalties paid by Nathan’s
product licensees such as SMG, Inc., John Morrell and Company and ConAgra Foods
Lamb Weston, Inc. Although our agreements with these licensees contain numerous
controls and safeguards, and Nathan’s monitors the operations of its product
licensees, Nathan’s licensees are independent contractors, and their employees
are not employees of Nathan’s. Accordingly, Nathan’s cannot necessarily control
the performance of its licensees under their license agreements, including
without limitation, the licensee’s continued best efforts to manufacture
Nathan’s products for retail distribution and our foodservice businesses, market
the licensed products and assure the quality of the licensed products produced
and/or sold by a product licensee. Any shortcoming to the quality and or
quantity of a licensed product is likely to be attributed by consumers to an
entire brand’s reputation, potentially adversely affecting Nathans’ business,
results of operations and financial condition.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept.
28, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oct.
25, 2010
|
|
|
19,915 |
|
|
$ |
15.945 |
|
|
|
19,915 |
|
|
|
736,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oct.
26, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nov.
22, 2010
|
|
|
303,080 |
|
|
$ |
16.023 |
|
|
|
303,080 |
|
|
|
433,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nov.
23, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
26, 2010
|
|
|
51,000 |
|
|
$ |
16.003 |
|
|
|
51,000 |
|
|
|
382,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
373,995 |
|
|
$ |
15.990 |
|
|
|
373,995 |
|
|
|
382,877 |
|
A) Represents the Company’s fiscal
periods during the third quarter ended December 26, 2010.
On
September 14, 2001, Nathan’s was authorized to purchase up to 1,000,000 shares
of its common stock. Pursuant to its first stock repurchase program, Nathan’s
repurchased 1,000,000 shares of common stock in open market transactions and a
private transaction at a total cost of $3,670,000. On October 7, 2002, Nathan’s
was authorized to purchase up to 1,000,000 additional shares of its common
stock. Nathan’s concluded the second authorized stock repurchase program of
1,000,000 shares of common stock at a cost of approximately $5,416,000. On
November 5, 2007, Nathan’s Board of Directors authorized the purchase of up to
an additional 500,000 shares of its common stock on behalf of the
Company. On June 11, 2008, Nathan’s and Mutual Securities, Inc.
(“MSI”) entered into an agreement (the “first 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 $6 million. Purchases under the first
10b5-1 Agreement have been completed. On February 5, 2009, Nathan’s and MSI
entered into a second agreement (the “second 10b5-1 Agreement”) pursuant to
which MSI was authorized to purchase shares of the Company’s common stock,
having a value of up to an aggregate $3.6 million, which purchases commenced on
March 16, 2009. Both the first and the second 10b5-1 Agreements were
adopted under the safe harbor provided by Rule 10b5-1 of the Securities Exchange
Act of 1934 in order to assist the Company in implementing its
previously-announced stock repurchase plans, for the purchase of up to 500,000
shares. The first 10b5-1 plan was completed. The second
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
second 10b5-1 Agreement to increase the aggregate amount to $4.2 million and
extend the termination date to no later than August 10, 2010, which at such time
did terminate. On September 10, 2010, Nathan’s entered into its third agreement
(the “third 10b5-1 Agreement”) pursuant to which MSI has been authorized to
purchase shares of the Company’s common stock, having a value of up to an
aggregate $4.8 million, which purchases commenced on September 20, 2010. As of
December 26, 2010, the Company has repurchased shares aggregating $587,000
pursuant to the third 10b5-1 Agreement. On
February 3, 2011, Nathan’s and MSI amended the third 10b5-1 Agreement to
increase the aggregate value to approximately $7.5 million. The third
10b5-1 Agreement is scheduled to expire on September 19, 2011.
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. As of
December 26, 2010, the Company has completed its repurchase of 500,000 at a cost
of $7,279,000 under the fourth stock repurchase plan.
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.
As of December 26, 2010, the Company has completed its repurchase of 500,000
shares at a cost of $6,637,000 as of December 26, 2010, 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. As of December 26, 2010,
the Company has repurchased 117,123 shares at a cost of $1,872,000 under the
sixth stock repurchase plan.
Through
December 26, 2010, Nathan’s purchased a total of 3,617,123 shares of common
stock at a cost of approximately $32,184,000 pursuant to its
stock repurchase plans previously authorized by the Board of
Directors.
As of
December 26, 2010, an aggregate of 382,877 shares remain to be purchased
pursuant to the Company’s previously-adopted stock repurchase plans.
On February 1, 2011, Nathan’s Board of
Directors has authorized the purchase of its common stock by an additional
300,000 shares. After giving effect to this increase, an aggregate of 581,822
shares remain available for purchase under Nathan’s stock buy-back
programs, to date.
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 these stock-repurchase plans.
Item
5. Other Information.
Item 1.01
Entry into a Material Definitive Agreement.
On
February 3, 2011, Nathan’s and Mutual Securities, Inc. (“MSI”) entered into an
amendment (the “Amendment”) to the Issuer Repurchase Agreement between Nathan’s
and MSI dated September 10, 2010 (the “Issuer Repurchase Agreement”). Pursuant
to the Amendment, the aggregate value of the shares purchasable under the Issuer
Repurchase Agreement was increased to $7,514,252.03.
Both the Issuer Repurchase Agreement and the Amendment were adopted under the
safe harbor provided by Rule 10b5-1 of the Securities Exchange Act of 1934 in
order to assist the Company in implementing its previously announced stock
purchase plans.
Item
6. Exhibits.
|
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
|
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
|
*First
Amendment to 10b5-1 Issuer Repurchase Instructions between Nathan’s
Famous, Inc. and Mutual Securities, Inc. dated September 10,
2010.
|
|
31.1
|
*Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
|
*Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
|
*Certification
by Eric Gatoff, CEO, Nathan’s Famous, Inc., pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
32.2
|
*Certification
by Ronald G. DeVos, CFO, Nathan’s Famous, Inc., pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
*Filed herewith.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
NATHAN'S
FAMOUS, INC.
|
|
|
|
|
Date:
February 4, 2011
|
|
By:
|
/s/ Eric Gatoff
|
|
|
|
Eric
Gatoff
|
|
|
|
Chief
Executive Officer
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
Date:
February 4, 2011
|
|
By:
|
/s/ Ronald G. DeVos
|
|
|
|
Ronald
G. DeVos
|
|
|
|
Vice
President - Finance
|
|
|
|
and
Chief Financial Officer
|
|
|
|
(Principal
Financial and Accounting Officer)
|
Exhibit
Index.
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
|
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
|
*First
Amendment to 10b5-1 Issuer Repurchase Instructions between Nathan’s
Famous, Inc. and Mutual Securities, Inc. dated September 10,
2010.
|
31.1
|
*Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
*Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32.1
|
*Certification
by Eric Gatoff, CEO, Nathan’s Famous, Inc., pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2
|
*Certification
by Ronald G. DeVos, CFO, Nathan’s Famous, Inc., pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
*Filed herewith.
Exhibit
10.1
Amendment to 10b5-1 Issuer
Repurchase Instructions
This
amendment to Issuer Securities Repurchase Instructions between Nathan’s Famous,
Inc. (the “Issuer”) and Mutual Securities, Inc. (the “Broker”) is dated as of
February 3, 2011.
WITNESSETH
WHEREAS, the Issuer and the
Broker are parties to 10b5-1 Issuer Repurchase Instructions dated September 10,
2010 (the “Instructions”);
WHEREAS, the Issuer and the
Broker desire to amend the Instructions in accordance with the terms
hereof (the “Amendment”).
NOW, THEREFORE, the Issuer and
Broker hereby agree as follows:
|
1.
|
Subsection
2(b) of the Instructions is hereby amended to read as
follows:
|
“such
time as the aggregate purchase price for all shares of Common Stock purchased
under these Instructions equals an aggregate Seven Million Five Hundred Fourteen
Thousand Two Hundred Fifty-Two and 03/100 Dollars ($7,514,252.03), including
without limitation all applicable fees, costs and expenses, of which Two Million
Two Hundred Six Thousand Five Hundred Forty Six and 03/100 Dollars
($2,206,546.03) has been expended through February 2, 2011;”
|
2.
|
Exhibit
A is hereby replaced in the form annexed
hereto.
|
|
3.
|
Except
as specifically amended by this Amendment, the Instructions shall remain
in full force and effect in all respects as originally
executed.
|
|
4.
|
This
Amendment may be executed in several counterparts, each of which shall be
deemed an original and all of which shall constitute one and the same
instrument. This Amendment shall be governed by the laws of the
State of New York.
|
IN WITNESS WHEREOF, the
parties have duly executed this Amendment on this 3rd day of
February, 2011.
|
Nathan’s
Famous, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Ronald DeVos
|
|
|
|
Name:
|
Ronald
DeVos
|
|
|
|
Title:
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
Mutual
Securities, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Mitch Voss
|
|
|
|
Name:
|
Mitchell
C. Voss
|
|
|
|
Title:
|
President
|
|
Exhibit
31.1
CERTIFICATION
I, Eric Gatoff, certify
that:
|
1.
|
I
have reviewed this quarterly report on Form 10-Q for the quarter ended
December 26, 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 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 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:
February 4, 2011
|
/s/ Eric Gatoff
|
|
Eric
Gatoff
|
|
Chief
Executive Officer
|
Exhibit
31.2
CERTIFICATION
I, Ronald G. DeVos, certify
that:
|
1.
|
I
have reviewed this quarterly report on Form 10-Q for the quarter ended
December 26, 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 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 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:
February 4, 2011
|
/s/ Ronald G. DeVos
|
|
Ronald
G. DeVos
|
|
Chief
Financial Officer
|
Exhibit
32.1
CERTIFICATION
PURSUANT TO
18 U.S.C.
SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
I, Eric
Gatoff, Chief Executive Officer of Nathan’s Famous, Inc., certify
that:
The
quarterly report on Form 10-Q of Nathan’s Famous, Inc. for the period ended
December 26, 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:
February 4, 2011
|
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.
Exhibit
32.2
CERTIFICATION
PURSUANT TO
18 U.S.C.
SECTION 1350
AS
ADOPTED PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
I, Ronald
G. DeVos, Chief Financial Officer of Nathan’s Famous, Inc., certify
that:
The
quarterly report on Form 10-Q of Nathan’s Famous, Inc. for the period ended
December 26, 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
|
|
Date:
February 4, 2011
|
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.