Company Quick10K Filing
Nathans Famous
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 4 $292
10-Q 2019-11-08 Quarter: 2019-09-29
10-Q 2019-08-09 Quarter: 2019-06-30
10-K 2019-06-14 Annual: 2019-03-31
10-Q 2019-02-01 Quarter: 2018-12-23
10-Q 2018-11-07 Quarter: 2018-09-23
10-Q 2018-08-03 Quarter: 2018-06-24
10-K 2018-06-08 Annual: 2018-03-25
10-Q 2018-02-02 Quarter: 2017-12-24
10-Q 2017-11-03 Quarter: 2017-09-24
10-Q 2017-08-04 Quarter: 2017-06-25
10-K 2017-06-09 Annual: 2017-03-26
10-Q 2017-02-03 Quarter: 2016-12-25
10-Q 2016-11-04 Quarter: 2016-09-25
10-Q 2016-08-05 Quarter: 2016-06-26
10-K 2016-06-10 Annual: 2016-03-27
10-Q 2016-02-05 Quarter: 2015-12-27
10-Q 2015-11-05 Quarter: 2015-09-27
10-Q 2015-08-07 Quarter: 2015-06-28
10-K 2015-06-12 Annual: 2015-03-29
10-Q 2015-02-06 Quarter: 2014-12-28
10-Q 2014-11-07 Quarter: 2014-09-28
10-Q 2014-08-08 Quarter: 2014-06-29
10-K 2014-06-13 Annual: 2014-03-30
10-Q 2014-02-07 Quarter: 2013-12-29
10-Q 2013-11-08 Quarter: 2013-09-29
10-Q 2013-08-09 Quarter: 2013-06-30
10-K 2013-06-14 Annual: 2013-03-31
10-Q 2013-02-01 Quarter: 2012-12-23
10-Q 2012-11-02 Quarter: 2012-09-23
10-Q 2012-08-03 Quarter: 2012-06-24
10-K 2012-06-07 Annual: 2012-03-25
10-Q 2012-02-03 Quarter: 2011-12-25
10-Q 2011-11-04 Quarter: 2011-09-25
10-Q 2011-08-05 Quarter: 2011-06-26
10-K 2011-06-09 Annual: 2011-03-27
10-Q 2011-02-04 Quarter: 2010-12-26
10-Q 2010-11-05 Quarter: 2010-09-26
10-Q 2010-08-06 Quarter: 2010-06-27
10-K 2010-06-11 Annual: 2010-03-28
10-Q 2010-02-04 Quarter: 2009-12-27
8-K 2019-12-13 Officers, Exhibits
8-K 2019-09-18 Officers, Shareholder Vote
8-K 2019-01-08 Other Events
8-K 2018-10-23 M&A
8-K 2018-09-12 Shareholder Vote
8-K 2018-09-04 Officers
8-K 2018-06-29 Accountant, Exhibits
8-K 2018-06-14 Enter Agreement, Shareholder Rights, Exhibits
8-K 2018-02-08 Other Events
NATH 2019-09-29
Part I. Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
EX-31.1 ex_162285.htm
EX-31.2 ex_162286.htm
EX-32.1 ex_162287.htm
EX-32.2 ex_162288.htm

Nathans Famous Earnings 2019-09-29

NATH 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
RRGB 406 1,260 890 1,320 0 -7 74 562 0% 7.6 -1%
CHUY 379 455 257 413 236 5 26 367 57% 13.9 1%
TAST 359 1,690 1,364 1,264 259 -10 77 809 21% 10.4 -1%
NDLS 337 381 334 460 0 -0 26 379 0% 14.8 -0%
NYNY 305 876 691 230 0 -154 -47 814 0% -17.3 -18%
FRGI 297 610 397 680 467 -47 -1 354 69% -337.1 -8%
NATH 292 105 170 102 42 22 31 368 42% 11.8 21%
DFRG 265 897 698 481 349 -100 -71 608 72% -8.6 -11%
LIVX 217 54 52 36 4 -38 -31 219 11% -7.1 -70%
JAX 174 246 119 247 0 6 8 178 0% 21.0 3%

10-Q 1 nath20190929_10q.htm FORM 10-Q nath20190929_10q.htm
 

 

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  For the quarterly period ended September 29, 2019.

OR

 

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934

  For the transition period from                            to                           .

 

Commission File No. 001-35962

 

NATHAN'S FAMOUS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   11-3166443
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

One Jericho Plaza, Second Floor – Wing A, Jericho, New York 11753

(Address and Zip Code of principal executive offices)

 

(516) 338-8500

(Registrant's telephone number, including area code)

________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $.01 per share

 

NATH

 

The NASDAQ Global Market

 

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 every Interactive Data File required to be submitted 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 such files). Yes X No __

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer     Accelerated filer X  
Non-accelerated filer          
Smaller reporting company X   Emerging growth company    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ___

 

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 November 8, 2019, an aggregate of 4,227,029 shares of the registrant's common stock, par value of $.01, were outstanding.

 

1

 

 

 

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

 

INDEX

 

     

Page

Number

PART I.   FINANCIAL INFORMATION

 

       
Item 1.    Financial Statements. 3
       
   

Consolidated Financial Statements

Consolidated Balance Sheets – September 29, 2019 (Unaudited) and

March 31, 2019 

3
       
   

Consolidated Statements of Earnings (Unaudited) – Thirteen and Twenty-six

Weeks Ended September 29, 2019 and September 23, 2018 

4
       
   

Consolidated Statements of Stockholders’ (Deficit) (Unaudited) –

Thirteen Weeks Ended September 29, 2019 and September 23, 2018

5
       
   

Consolidated Statements of Stockholders’ (Deficit) (Unaudited) –

Twenty-six Weeks Ended September 29, 2019 and September 23, 2018

6
       
   

Consolidated Statements of Cash Flows (Unaudited) – Twenty-six Weeks

Ended September 29, 2019 and September 23, 2018

7
       
    Notes to Consolidated Financial Statements 8
       
Item 2.   

Management's Discussion and Analysis of Financial

Condition and Results of Operations. 

20
       
Item 3.    Quantitative and Qualitative Disclosures About Market Risk. 31
       
Item 4.     Controls and Procedures. 31
       
PART II.    OTHER INFORMATION  
       
Item 1.     Legal Proceedings.  32
       
Item 1A.    Risk Factors.  32
       
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.  32
       
Item 3.   Defaults Upon Senior Securities.  32
       
Item 4.   Mine Safety Disclosures. 32
       
Item 5.   Other Information.  32
       
Item 6.   Exhibits.  33
       
SIGNATURES      34
       
Exhibit Index       35

 

2

 

 

 

Nathan’s Famous, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

September 29, 2019 and March 31, 2019

(in thousands, except share and per share amounts)

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

 

 

September 29,

2019

   

March 31,

2019

 
   

(Unaudited)

         
ASSETS                
                 

CURRENT ASSETS

               

Cash and cash equivalents (Note F)

  $ 79,471     $ 75,446  

Accounts and other receivables, net (Note H)

    12,170       10,173  

Inventories

    615       535  

Prepaid expenses and other current assets (Note I)

    595       1,007  

Total current assets

    92,851       87,161  
                 

Property and equipment, net of accumulated depreciation of $9,221 and $8,611, respectively

    4,450       4,889  

Operating lease assets (Note P)

    7,520       -  

Goodwill

    95       95  

Intangible asset, net

    1,325       1,353  

Deferred income taxes

    359       343  

Other assets

    460       465  
                 

Total assets

  $ 107,060     $ 94,306  
                 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT)

               
                 

CURRENT LIABILITIES

               

Current portion of operating lease liabilities (Note P)

  $ 1,009     $ -  

Accounts payable

    4,914       5,222  

Accrued expenses and other current liabilities (Note J)

    7,749       9,384  

Deferred franchise fees

    301       318  

Total current liabilities

    13,973       14,924  
                 

Long-term debt, net of unamortized debt issuance costs of $4,205 and $4,551, respectively (Note O)

    145,795       145,449  

Long-term operating lease liabilities (Note P)

    7,251       -  

Other liabilities (Note J)

    773       1,390  

Deferred franchise fees

    2,215       2,687  
                 

Total liabilities

    170,007       164,450  
                 

COMMITMENTS AND CONTINGENCIES (Note Q)

               
                 

STOCKHOLDERS’ (DEFICIT)

               

Common stock, $.01 par value; 30,000,000 shares authorized; 9,368,792 and 9,336,338 shares issued; and 4,227,029 and 4,194,575 shares outstanding at September 29, 2019 and March 31, 2019, respectively

    94       93  

Additional paid-in capital

    62,072       60,945  

(Accumulated deficit)

    (46,810 )     (52,879 )

Stockholders’ equity before treasury stock

    15,356       8,159  
                 

Treasury stock, at cost, 5,141,763 shares at September 29, 2019 and March 31, 2019

    (78,303 )     (78,303 )

Total stockholders’ (deficit)

    (62,947 )     (70,144 )
                 

Total liabilities and stockholders’ (deficit)

  $ 107,060     $ 94,306  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3

 

 

 

Nathan’s Famous, Inc. and Subsidiaries

 

CONSOLIDATED STATEMENTS OF EARNINGS

Thirteen and Twenty-six weeks ended September 29, 2019 and September 23, 2018

(in thousands, except share and per share amounts)

(Unaudited)

 

    Thirteen weeks ended       Twenty-six weeks ended  
   

September 29,

2019

   

September 23,

2018

   

September 29,

2019

   

September 23,

2018

 
                                 

REVENUES

                               

Sales

  $ 22,106     $ 21,573     $ 42,343     $ 42,044  

License royalties

    5,425       5,746       14,147       13,844  

Franchise fees and royalties

    1,498       1,239       2,575       2,343  

Advertising fund revenue

    697       772       1,179       1,267  

Total revenues

    29,726       29,330       60,244       59,498  
                                 

COSTS AND EXPENSES

                               

Cost of sales

    16,289       15,160       31,711       30,606  

Restaurant operating expenses

    1,108       1,141       2,027       2,051  

Depreciation and amortization

    337       339       647       684  

General and administrative expenses

    3,559       3,438       7,496       7,323  

Advertising fund expense

    1,067       772       1,549       1,267  

Total costs and expenses

    22,360       20,850       43,430       41,931  
                                 

Income from operations

    7,366       8,480       16,814       17,567  
                                 

Gain (loss) on disposal of property and equipment

    (2 )     323       (2 )     323  

Interest expense

    (2,651 )     (2,651 )     (5,301 )     (5,301 )

Interest income

    370       115       736       176  

Other income, net

    20       196       41       217  
                                 

Income before provision for income taxes

    5,103       6,463       12,288       12,982  

Provision for income taxes

    1,445       1,979       3,261       3,703  

Net income

  $ 3,658     $ 4,484     $ 9,027     $ 9,279  
                                 

PER SHARE INFORMATION

                               

Weighted average shares used in computing income per share:

                               

Basic

    4,227,000       4,188,000       4,216,000       4,187,000  

Diluted

    4,227,000       4,231,000       4,216,000       4,229,000  
                                 

Income per share:

                               

Basic

  $ .87     $ 1.07     $ 2.14     $ 2.22  

Diluted

  $ .87     $ 1.06     $ 2.14     $ 2.19  
                                 

Dividends declared per share

  $ .35     $ .25     $ .70     $ .50  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4

 

 

 

Nathan’s Famous, Inc. and Subsidiaries

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT)

Thirteen weeks ended September 29, 2019 and September 23, 2018

(in thousands, except share amounts)

(Unaudited)

 

                   

Additional

                           

Total

 
   

Common

   

Common

   

Paid-in

   

(Accumulated

   

Treasury Stock, at Cost

   

Stockholders’

 
   

Shares

   

Stock

   

Capital

   

Deficit)

   

Shares

   

Amount

   

(Deficit)

 
                                                         

Balance, June 30, 2019

    9,368,572     $ 94     $ 62,050     $ (48,989 )     5,141,763     $ (78,303 )   $ (65,148 )
                                                         

Shares issued in connection with share-based compensation plans

    220       -       -       -       -       -       -  

Withholding tax on net share settlement of share-based compensation plans

     -        -       (8 )      -        -        -       (8 )

Dividends on common stock

    -       -       -       (1,479 )     -       -       (1,479 )

Share-based compensation

    -       -       30       -       -       -       30  

Net income

    -       -       -       3,658       -       -       3,658  

Balance, September 29, 2019

    9,368,792     $ 94     $ 62,072     $ (46,810 )     5,141,763     $ (78,303 )   $ (62,947 )

 

 

                   

Additional

                           

Total

 
   

Common

   

Common

   

Paid-in

   

(Accumulated

   

Treasury Stock, at Cost

   

Stockholders’

 
   

Shares

   

Stock

   

Capital

   

Deficit)

   

Shares

   

Amount

   

(Deficit)

 
                                                         

Balance, June 24, 2018

    9,314,912     $ 93     $ 60,730     $ (66,437 )     5,127,373     $ (77,303 )   $ (82,917 )
                                                         

Shares issued in connection with share-based compensation plans

    4,030       -       134       -       -       -       134  

Dividends on common stock

    -       -       -       (1,047 )     -       -       (1,047 )

Share-based compensation

    -       -       23       -       -       -       23  

Net income

    -       -       -       4,484       -       -       4,484  

Balance, September 23, 2018

    9,318,942     $ 93     $ 60,887     $ (63,000 )     5,127,373     $ (77,303 )   $ (79,323 )

               

  The accompanying notes are an integral part of these consolidated financial statements.

 

5

 

 

 Nathan’s Famous, Inc. and Subsidiaries

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT)

Twenty-six weeks ended September 29, 2019 and September 23, 2018

(in thousands, except share amounts)

(Unaudited)

 

                   

Additional

                           

Total

 
   

Common

   

Common

   

Paid-in

   

(Accumulated

   

Treasury Stock, at Cost

   

Stockholders’

 
   

Shares

   

Stock

   

Capital

   

Deficit)

   

Shares

   

Amount

   

(Deficit)

 
                                                         

Balance, March 31, 2019

    9,336,338     $ 93     $ 60,945     $ (52,879 )     5,141,763     $ (78,303 )   $ (70,144 )
                                                         

Shares issued in connection with share-based compensation plans

    32,454       1       1,077       -       -       -       1,078  

Withholding tax on net share settlement of share-based compensation plans

     -        -       (8 )      -        -        -       (8 )

Dividends on common stock

    -       -       -       (2,958 )     -       -       (2,958 )

Share-based compensation

    -       -       58       -       -       -       58  

Net income

    -       -       -       9,027       -       -       9,027  

Balance, September 29, 2019

    9,368,792     $ 94     $ 62,072     $ (46,810 )     5,141,763     $ (78,303 )   $ (62,947 )

 

 

                   

Additional

                           

Total

 
   

Common

   

Common

   

Paid-in

   

(Accumulated

   

Treasury Stock, at Cost

   

Stockholders’

 
   

Shares

   

Stock

   

Capital

   

Deficit)

   

Shares

   

Amount

   

(Deficit)

 
                                                         

Balance, March 25, 2018

    9,311,922     $ 93     $ 60,823     $ (68,181 )     5,127,373     $ (77,303 )   $ (84,568 )
                                                         

Cumulative effect of the adoption of ASC 606

    -       -       -       (2,004 )     -       -       (2,004 )

Shares issued in connection with share-based compensation plans

    7,020       -       134       -       -       -       134  

Withholding tax on net share settlement of share-based compensation plans

    -       -       (174 )     -       -       -       (174 )

Dividends on common stock

    -       -       -       (2,094 )     -       -       (2,094 )

Share-based compensation

    -       -       104       -       -       -       104  

Net income

    -       -       -       9,279       -       -       9,279  

Balance, September 23, 2018

    9,318,942     $ 93     $ 60,887     $ (63,000 )     5,127,373     $ (77,303 )   $ (79,323 )

                

 The accompanying notes are an integral part of these consolidated financial statements.

 

6

 

 

 

Nathan’s Famous, Inc. and Subsidiaries

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

Twenty-six weeks ended September 29, 2019 and September 23, 2018

(in thousands)

(Unaudited)

 

   

September 29,

2019

   

September 23,

2018

 

Cash flows from operating activities:

               

Net income

  $ 9,027     $ 9,279  

Adjustments to reconcile net income to net cash provided by operating activities

               

Depreciation and amortization

    647       684  

(Gain) loss on disposal of property and equipment

    2       (323 )

Amortization of debt issuance costs

    346       346  

Share-based compensation expense

    58       104  

Income tax benefit on stock option exercises

    228       46  

Provision for doubtful accounts

    23       92  

Deferred income taxes

    (16 )     23  

Changes in operating assets and liabilities:

               

Accounts and other receivables, net

    (2,020 )     (310 )

Inventories

    (80 )     (168 )

Prepaid expenses and other current assets

    412       2,350  

Other assets

    5       (50 )

Accounts payable, accrued expenses and other current liabilities

    (2,171 )     (2,015 )

Deferred franchise fees

    (489 )     (3 )

Other liabilities

    123       (52 )
                 

Net cash provided by operating activities

    6,095       10,003  
                 

Cash flows from investing activities:

               

Proceeds from disposal of property and equipment

    -       1,330  

Purchase of property and equipment

    (182 )     (234 )
                 

Net cash (used in) provided by investing activities

    (182 )     1,096  
                 

Cash flows from financing activities:

               

Dividends paid to stockholders

    (2,958 )     (2,244 )

Proceeds from exercise of stock options

    1,078       134  

Payments of withholding tax on net share settlement of share-based compensation plans

    (8 )     (174 )
                 

Net cash (used in) financing activities

    (1,888 )     (2,284 )
                 

Net increase in cash and cash equivalents

    4,025       8,815  
                 

Cash and cash equivalents, beginning of period

    75,446       57,339  
                 

Cash and cash equivalents, end of period

  $ 79,471     $ 66,154  
                 

Cash paid during the period for:

               

Interest

  $ 4,969     $ 4,968  

Income taxes paid

  $ 2,955     $ 1,319  
                 

Noncash financing activity:

               

Dividends declared per share

  $ .70     $ .50  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7

 

 

NATHAN'S FAMOUS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 29, 2019

(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 twenty-six week periods ended September 29, 2019 and September 23, 2018 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, our results of operations are seasonal in nature, and the results of any interim period 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. 

 

We have reclassified certain prior period items in the Consolidated Statement of Earnings for the thirteen and twenty-six week periods ended September 23, 2018 to conform with the classifications for the thirteen and twenty-six week periods ended September 29, 2019. We have reclassified certain prior period items in the Consolidated Statement of Cash Flows in the twenty-six week period ended September 23, 2018 to conform with the classifications for the fiscal year ended March 31, 2019. These reclassifications had no effect on previously reported net income or cash flows. Management believes that the disclosures included in the accompanying consolidated 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 31, 2019.

 

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 Annual Report on Form 10-K for the fiscal year ended March 31, 2019.

 

 

NOTE B – ADOPTION OF NEW ACCOUNTING STANDARDS

 

Leases

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance on leases, Topic 842, which outlines principles for the recognition, measurement, presentation and disclosure of leases applicable to both lessors and lessees. The new guidance requires lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by finance and operating leases. The Company adopted the new guidance during the first quarter of fiscal 2020 using the effective date of April 1, 2019 as the date of initial application; therefore, the comparative period has not been adjusted and continues to be reported under the previous lease guidance.

 

The new standard provides for a number of practical expedients upon adoption. The Company elected the package of practical expedients, which permits the Company not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. For those leases that fall under the definition of a short-term lease, the Company elected the short-term lease recognition exemption. Under this practical expedient, for those leases that qualify, we did not recognize right-of-use (“ROU”) assets or liabilities. The Company also elected the practical expedient for lessees to account for lease components and non-lease components as a single lease component for all underlying classes of assets. The Company did not elect the use-of-hindsight practical expedient.

 

As a result of adopting this new guidance on the first day of fiscal year 2020, substantially all of the Company's operating lease commitments were subject to the new guidance and were recognized as operating lease assets and liabilities, initially measured as the present value of future lease payments for the remaining lease term discounted using the Company’s incremental borrowing rate based on the remaining lease term as of the adoption date. The Company recognized operating lease assets and liabilities of $7,804,000 and $8,533,000, respectively, as of the first day of fiscal year 2020. The difference between the assets and liabilities is attributable to the reclassification of certain existing lease-related assets and liabilities as an adjustment to the right-of-use assets.

 

The effects of the changes made to the Company's consolidated balance sheet as of April 1, 2019 for the adoption of the new lease guidance were as follows (in thousands):

 

   

 

Balance at

March 31, 2019

   

Adjustments due to

adoption of the

new lease guidance

   

 

 

Reclassifications

   

 

Balance at

April 1, 2019

 

Other Assets

                               

Operating lease assets

    -       7,804       -       7,804  

Other assets

    465       -       31       496  
                                 

Current Liabilities

                               

Current portion of operating lease liabilities

    -       1,162       -       1,162  
                                 

Long Term Liabilities

                               

Long-term operating lease liabilities

    -       7,371       -       7,371  

Other liabilities

    1,390       (729 )     31       692  

 

The adoption of the new guidance is non-cash in nature and had no impact on net cash flows from operating, investing, or financing activities.

 

See Note P for additional information regarding our lease arrangements and the Company's updated lease accounting policies.

 

8

 

 

 

NOTE C – NEW ACCOUNTING STANDARDS NOT YET ADOPTED

 

In June 2016, the FASB issued new guidance on the measurement of credit losses, which significantly changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. Under the new standard, the Company will be required to use a current expected credit loss model (“CECL”) that will immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments that are in the scope of this update, including trade receivables. The CECL model uses a broader range of reasonable and supportable information in the development of credit loss estimates. This guidance is effective for public business entities for annual reporting periods beginning after December 15, 2019. This standard is required to take effect in Nathan’s first quarter (June 2020) of our fiscal year ending March 28, 2021. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

 

In January 2017, the FASB issued an update to the accounting guidance to simplify the testing for goodwill impairment. The update removes the requirement to determine the implied fair value of goodwill to measure the amount of impairment loss, if any, under the second step of the current goodwill impairment test. A company will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment charge will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of the goodwill. The guidance is effective prospectively for public business entities for annual reporting periods beginning after December 15, 2019. This standard is required to take effect in Nathan’s first quarter (June 2020) of our fiscal year ending March 28, 2021. Nathan’s does not expect the adoption of this new guidance to have a material impact on its results of operations or financial position.

 

The Company does not believe that any other recently issued, but not yet effective accounting standards, when adopted, will have a material effect on the accompanying consolidated financial statements.

 

 

NOTE D – REVENUES

 

The Company’s disaggregated revenues for the thirteen and twenty-six weeks ended September 29, 2019 and September 23, 2018 are as follows (in thousands):

                          

    Thirteen weeks ended     Twenty-six weeks ended  
   

September 29,

2019

   

September 23,

2018

   

September 29,

2019

   

September 23,

2018

 
                                 

Branded Products

  $ 16,182     $ 15,410     $ 32,295     $ 31,855  

Company-operated restaurants

    5,924       6,163       10,048       10,189  

Total sales

    22,106       21,573       42,343       42,044  
                                 

License royalties

    5,425       5,746       14,147       13,844  
                                 

Franchise royalties

    1,047       1,104       2,027       2,101  

Franchise fees

    451       135       548       242  

Total franchise fees and royalties

    1,498       1,239       2,575       2,343  
                                 

Advertising fund revenue

    697       772       1,179       1,267  
                                 

Total revenues

  $ 29,726     $ 29,330     $ 60,244     $ 59,498  

 

The following table disaggregates revenues by primary geographical market (in thousands):

 

    Thirteen weeks ended     Twenty-six weeks ended  
   

September 29,

2019

   

September 23,

2018

   

September 29,

2019

   

September 23,

2018

 
                                 

United States

  $ 28,235     $ 28,620     $ 57,622     $ 57,476  

International

    1,491       710       2,622       2,022  

Total revenues

  $ 29,726     $ 29,330     $ 60,244     $ 59,498  

 

Contract balances

 

The following table provides information about contract liabilities (Deferred franchise fees) from contracts with customers (in thousands):

 

   

September 29,

2019

   

March 31,

2019

 

Deferred franchise fees (a)

  $ 2,516     $ 3,005  

 

 

(a)

Deferred franchise fees of $301 and $2,215 as of September 29, 2019 and $318 and $2,687 as of March 31, 2019 are included in Deferred franchise fees – current and long term, respectively.

 

9

 

 

Significant changes in Deferred franchise fees are as follows (in thousands):

 

    Twenty-six weeks ended  
   

September 29,

2019

   

September 23,

2018

 
Deferred franchise fees at beginning of period     3,005       3,139 (a )

Revenue recognized during the period

    (548 )     (242 )

New deferrals due to cash received and other

    59       706  

Deferred franchise fees at end of period

  $ 2,516     $ 3,603  

 

 

(a)

Includes the cumulative effect of adopting Topic 606 of $2,735.

 

Anticipated Future Recognition of Deferred Franchise Fees

 

The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied at the end of the period (in thousands):

 

   

Estimate for fiscal year

 

2020 (a)

  $ 152  

2021

    296  

2022

    286  

2023

    249  

2024

    233  

Thereafter

    1,300  

Total

  $ 2,516  

 

 

(a)

Represents franchise fees expected to be recognized for the remainder of the 2020 fiscal year, which includes international development fees expected to be recognized over the duration of one year or less. Amount does not include $548 of franchise fee revenue recognized for the twenty-six weeks ended September 29, 2019.

 

We have applied the optional exemption, as provided for under Topic 606, which allows us not to disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty.

 

 

NOTE E – INCOME PER SHARE

 

Basic income per common share is calculated by dividing income by the weighted-average number of common shares outstanding and excludes any dilutive effect of stock options. Diluted income per common share gives effect to all potentially dilutive common shares that were outstanding during the period. Dilutive common shares used in the computation of diluted income per common share result from the assumed exercise of stock options and warrants, 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 twenty-six week periods ended September 29, 2019 and September 23, 2018, respectively.

 

Thirteen weeks

                                               
                                   

Net Income

 
   

Net Income

   

Number of Shares

   

Per Share

 
   

2019

   

2018

   

2019

   

2018

   

2019

   

2018

 
   

(in thousands)

   

(in thousands)

                 

Basic EPS

                                               

Basic calculation

  $ 3,658     $ 4,484       4,227       4,188     $ 0.87     $ 1.07  

Effect of dilutive employee stock options

    -       -       -       43       -       (0.01 )

Diluted EPS

                                               

Diluted calculation

  $ 3,658     $ 4,484       4,227       4,231     $ 0.87     $ 1.06  

 

Twenty-six weeks

                                               
                                   

Net Income

 
   

Net Income

   

Number of Shares

   

Per Share

 
   

2019

   

2018

   

2019

   

2018

   

2019

   

2018

 
   

(in thousands)

   

(in thousands)

                 

Basic EPS

                                               

Basic calculation

  $ 9,027     $ 9,279       4,216       4,187     $ 2.14     $ 2.22  

Effect of dilutive employee stock options

    -       -       -       42       -       (0.03 )

Diluted EPS

                                               

Diluted calculation

  $ 9,027     $ 9,279       4,216       4,229     $ 2.14     $ 2.19  

 

Options to purchase 10,000 shares of common stock in the thirteen and twenty-six week periods ended September 29, 2019 were not included in the computation of diluted EPS because the exercise price exceeded the average market price of common shares during the period.

 

10

 

 

 

NOTE F – CASH AND CASH EQUIVALENTS

 

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents at September 29, 2019 and March 31, 2019 were $20,000,000. Substantially all of the Company’s cash and cash equivalents are in excess of government insurance.

 

 

NOTE G – 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 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 face value and fair value of long-term debt as of September 29, 2019 and March 31, 2019 were as follows (in thousands):

 

   

September 29, 2019

   

March 31, 2019

 
   

Face value

   

Fair value

   

Face Value

   

Fair value

 
                                 

Long-term debt

  $ 150,000     $ 149,250     $ 150,000     $ 145,688  

 

The Company estimates the fair value of its long-term debt based upon review of observable pricing in secondary markets as of the last trading day of the fiscal period. Accordingly, the Company classifies its long-term debt as Level 2.

 

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of the instruments.

 

Certain non-financial assets and liabilities are measured at fair value on a non-recurring 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 September 29, 2019, no fair value adjustment or material fair value measurements were required for non-financial assets or liabilities.

 

 

NOTE H – ACCOUNTS AND OTHER RECEIVABLES, NET          

 

Accounts and other receivables, net, consist of the following (in thousands):

 

   

September 29,

   

March 31,

 
   

2019

   

2019

 
                 

Branded product sales

  $ 8,724     $ 7,432  

Franchise and license royalties

    2,552       2,661  

Other

    1,502       665  
      12,778       10,758  
                 

Less: allowance for doubtful accounts

    608       585  

Accounts and other receivables, net

  $ 12,170     $ 10,173  

 

Accounts receivable are due within 30 days and are stated at amounts due from franchisees, retail licensees and Branded Product Program customers, net of an allowance for doubtful accounts. Accounts that are outstanding longer than the contractual payment terms are generally considered past due. The Company does not recognize franchise and license royalties that are not deemed to be realizable.

 

11

 

 

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 uncollectible 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.

 

Changes in the Company’s allowance for doubtful accounts for the twenty-six week period ended September 29, 2019 and the fiscal year ended March 31, 2019 are as follows (in thousands):     

 

   

September 29,

2019

   

March 31,

2019

 
                 

Beginning balance

  $ 585     $ 468  

Reclassification to conform with Topic 606

    -       77  

Bad debt expense

    23       100  

Accounts written off

    -       (60 )

Ending balance

  $ 608     $ 585  

 

 

NOTE I – PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets consist of the following (in thousands):

 

   

September 29,

   

March 31,

 
   

2019

   

2019

 
                 

Income taxes

  $ -     $ 106  

Insurance

    94       244  

Other

    501       657  

Total prepaid expenses and other current assets

  $ 595     $ 1,007  

 

 

NOTE J – ACCRUED EXPENSES, OTHER CURRENT LIABILITIES AND OTHER LIABILITIES

 

Accrued expenses and other current liabilities consist of the following (in thousands):

 

   

September 29,

   

March 31,

 
   

2019

   

2019

 

Payroll and other benefits

  $ 1,972     $ 3,150  

Accrued rebates

    654       770  

Rent and occupancy costs

    117       113  

Deferred revenue

    256       807  

Construction costs

    58       58  

Interest

    4,098       4,111  

Professional fees

    106       146  

Sales, use and other taxes

    104       27  

Corporate income taxes

    176       -  

Other

    208       202  

Total accrued expenses and other current liabilities

  $ 7,749     $ 9,384  

 

Other liabilities consist of the following (in thousands):

 

   

September 29,

   

March 31,

 
   

2019

   

2019

 

Reserve for uncertain tax positions

  $ 537     $ 496  

Deferred rental liability

    -       670  

Other

    236       224  

Total other liabilities

  $ 773     $ 1,390  

 

12

 

 

 

NOTE K – INCOME TAXES

 

The income tax provisions for the twenty-six periods ended September 29, 2019 and September 23, 2018 reflect effective tax rates of 26.5% and 28.5%, respectively.

 

Nathan’s effective tax rates for the twenty-six week periods ended September 29, 2019 and September 23, 2018 were reduced by 1.9% and 0.4%, respectively, as a result of the tax benefits associated with stock compensation. For the twenty-six week periods ended September 29, 2019 and September 23, 2018, excess tax benefits of $228,000 and $46,000, respectively, were reflected in the Consolidated Statements of Earnings as a reduction in determining the provision for income taxes. Nathan’s effective tax rates without these adjustments would have been 28.4% for the fiscal 2020 period and 28.9% for the fiscal 2019 period.

 

The amount of unrecognized tax benefits at September 29, 2019 was $280,000 all of which would impact Nathan’s effective tax rate, if recognized. As of September 29, 2019, Nathan’s had $267,000 of accrued interest and penalties in connection with unrecognized tax benefits.

 

 

NOTE L – SEGMENT INFORMATION

 

Nathan’s considers itself to be a brand marketer of the Nathan’s Famous signature products to the foodservice industry pursuant to its various business structures. Nathan’s sells its products directly to consumers through its restaurant operations segment consisting of Company-operated and franchised restaurants, to distributors that resell our products to the foodservice industry through the Branded Product Program (“BPP”) and by third party manufacturers pursuant to license agreements that sell our products to club stores and grocery stores nationwide. The Company’s Chief Executive Officer has been identified as the Chief Operating Decision Maker (“CODM”) who evaluates performance and allocates resources for the Branded Product Program, Product Licensing and Restaurant Operations segments based upon a number of factors, the primary profit measure being income from operations. Certain administrative expenses are not allocated to the segments and are reported within the Corporate segment.

 

Branded Product Program – This segment derives revenue principally from the sale of hot dog products either directly to foodservice operators or to various foodservice distributors who resell the products to foodservice operators.

 

Product licensing – This segment derives revenue, primarily in the form of royalties, from licensing a broad variety of Nathan’s Famous branded products, including our hotdogs, sausage and corned beef products, frozen French fries and additional products through retail grocery channels and club stores throughout the United States.

 

Restaurant operations – This segment derives revenue from sale of our products at Company-owned restaurants and earns fees and royalties from its franchised restaurants.

 

Revenues from operating segments are from transactions with unaffiliated third parties and do not include any intersegment revenues.

 

Income from operations attributable to Corporate consists principally of administrative expenses not allocated to the operating segments such as executive management, finance, information technology, legal, insurance, corporate office costs, corporate incentive compensation, compliance costs and the operating results of the advertising fund.

 

Interest expense, interest income, gain (loss) on disposal of property and equipment, and other income, net, are managed centrally at the corporate level, and, accordingly, such items are not presented by segment since they are excluded from the measure of profitability reviewed by the CODM.

 

Operating segment information is as follows (in thousands):

 

   

Thirteen weeks ended

   

Twenty-six weeks ended

 
   

Sept. 29, 2019

   

Sept. 23, 2018

   

Sept. 29, 2019

   

Sept. 23, 2018

 
                                 

Revenues

                               

Branded Product Program

  $ 16,182     $ 15,410     $ 32,295     $ 31,855  

Product licensing

    5,425       5,746       14,147       13,844  

Restaurant operations

    7,422       7,402       12,623       12,532  

Corporate (1)

    697       772       1,179       1,267  

Total revenues

  $ 29,726     $ 29,330     $ 60,244     $ 59,498  
                                 

Income from operations

                               

Branded Product Program

  $ 2,124     $ 2,730     $ 4,327     $ 5,261  

Product licensing

    5,380       5,700       14,056       13,753  

Restaurant operations

    2,103       2,095       2,853       2,845  

Corporate

    (2,241 )     (2,045 )     (4,422 )     (4,292 )

Income from operations

  $ 7,366     $ 8,480     $ 16,814     $ 17,567  
                                 

Gain (loss) on disposal of property and equipment

    (2 )     323       (2 )     323  

Interest expense

    (2,651 )     (2,651 )     (5,301 )     (5,301 )

Interest income

    370       115       736       176  

Other income, net

    20       196       41       217  

Income before provision for income taxes

  $ 5,103     $ 6,463     $ 12,288     $ 12,982  

 

 

(1)

Represents advertising fund revenue

 

13

 

 

 

NOTE M– SHARE-BASED COMPENSATION

 

Total share-based compensation during the thirteen-week periods ended September 29, 2019 and September 23, 2018 was $30,000 and $23,000, respectively. Total share-based compensation during the twenty-six week periods ended September 29, 2019 and September 23, 2018 was $58,000 and $104,000, respectively. Total share-based compensation is included in general and administrative expenses in our accompanying Consolidated Statements of Earnings. As of September 29, 2019, there was $226,000 of unamortized compensation expense related to share-based incentive awards. We expect to recognize this expense over approximately twenty-three months, which represents the weighted average remaining requisite service periods for such awards.

 

The Company recognizes compensation cost for unvested stock-based incentive awards on a straight-line basis over the requisite service period. Compensation cost charged to expense under all stock-based incentive awards is as follows (in thousands):

 

     Thirteen weeks ended       Twenty-six weeks ended  
   

Sept. 29, 2019

   

Sept. 23, 2018

   

Sept. 29, 2019

   

Sept. 23, 2018

 
                                 

Stock options

  $ 22     $ 22     $ 43     $ 60  

Restricted stock

    8       1       15       44  

Total compensation cost

  $ 30     $ 23     $ 58     $ 104  

 

Stock options: 

 

There were no new share-based awards granted during the twenty-six week period September 29, 2019.

 

During the fiscal year March 31, 2019, the Company granted options to purchase 10,000 shares at an exercise price of $89.90 per share, all of which expire five years from the date of grant. All such stock options vest ratably over a three-year period commencing September 12, 2019.

 

Transactions with respect to stock options for the twenty-six weeks ended September 29, 2019 are as follows:

 

           

Weighted-

   

Weighted-

   

Aggregate

 
           

Average

   

Average

   

Intrinsic

 
           

Exercise

   

Remaining

   

Value

 
   

Shares

   

Price

   

Contractual Life

   

(in thousands)

 
                                 

Options outstanding at March 31, 2019 fiscal year (A)

    42,234     $ 46.807       1.32     $ 1,127  

Granted

    -       -       -       -  

Exercised

    (32,234 )   $ 33.438       -       1,134  

Options outstanding at September 29, 2019

    10,000     $ 89.90       3.95       -  
                                 

Options exercisable at September 29, 2019

    3,333     $ 89.90       3.95       -  

 

 

A-

Represents outstanding options after giving effect to the replacement options issued in connection with the Company’s special dividend to shareholders of record on December 22, 2017.

 

Restricted stock: 

 

Transactions with respect to restricted stock for the twenty-six weeks ended September 29, 2019 are as follows:

 

           

Weighted-

 
           

Average

 
           

Grant-date

Fair value

 
   

Shares

   

Per share

 

Unvested restricted stock at March 31, 2019

    1,000     $ 89.90  

Granted

    -       -  

Vested

    (333 )   $ 89.90  

Unvested restricted stock at September 29, 2019

    667     $ 89.90  

 

 

NOTE N– STOCKHOLDERS’ EQUITY

 

1. Dividends

 

Effective June 14, 2019, the Board declared its first quarterly cash dividend of $0.35 per share for fiscal year 2020, aggregating $1,479,000, which was paid on June 28, 2019 to stockholders of record as of the close of business on June 24, 2019.

 

Effective August 9, 2019 the Board declared its second quarterly cash dividend of $0.35 per share, aggregating $1,479,000, which was paid on September 6, 2019 to stockholders of record as of the close of business on August 26, 2019.

 

Effective November 8, 2019 the Board declared its third quarterly cash dividend of $0.35 per share payable on December 6, 2019 to stockholders of record as of the close of business on November 25, 2019.

 

Our ability to pay future dividends is limited by the terms of the Indenture with U.S. Bank National Association, as trustee and collateral trustee (see Note O). In addition to the terms of the Indenture, the declaration and payment of any cash dividends in the future are subject to final determination of the Board and will be dependent upon our earnings and financial requirements.

 

14

 

 

2. Stock Incentive Plans

 

On September 13, 2012, the Company amended the Nathan’s Famous, Inc. 2010 Stock Incentive Plan (the “2010 Plan”) increasing the number of shares available for issuance by 250,000 shares. Shares to be issued under the 2010 Plan may be made available from authorized but unissued stock, common stock held by the Company in its treasury, or common stock purchased by the Company on the open market or otherwise. The number of shares issuable and the grant, purchase or exercise price of outstanding awards are subject to adjustment in the amount that the Company’s Compensation Committee considers appropriate upon the occurrence of certain events, including stock dividends, stock splits, mergers, consolidations, reorganizations, recapitalizations, or other capital adjustments. In the event that the Company issues restricted stock awards pursuant to the 2010 Plan, each share of restricted stock would reduce the amount of available shares for issuance by either 3.2 shares for each share of restricted stock granted or 1 share for each share of restricted stock granted.

 

On September 18, 2019, the Company’s shareholders approved the Nathan’s Famous, Inc. 2019 Stock Incentive Plan (the “2019 Plan”). The 2019 Plan will be effective as of July 1, 2020 (the "Effective Date"). Following the Effective Date, (i) no additional stock awards shall be granted under the 2010 Plan and (ii) all outstanding stock awards previously granted under the 2010 Plan shall remain subject to the terms of the 2010 Plan. All awards granted on or after the Effective Date of the 2019 Plan shall be subject to the terms of the 2019 Plan.

 

Once effective, we will be able to issue up to: (a) 369,584 shares of common stock under the 2019 Plan which includes: (i) shares that have been authorized but not issued pursuant to the 2010 Plan as of July 1, 2020 up to a maximum of an additional 208,584 shares and (ii) any shares subject to any outstanding options or restricted stock grants under any plan of the Company that were outstanding as of July 1, 2020 and that subsequently expire unexercised, or are otherwise forfeited, up to a maximum of an additional 11,000 shares. As of September 29, 2019, there were up to 208,584 shares available to be issued for future option grants or up to 184,808 shares of restricted stock that may be granted under the 2010 Plan.

 

3. Stock Repurchase Programs

 

During the period from October 2001 through September 29, 2019, Nathan’s purchased 5,141,763 shares of common stock at a cost of approximately $78,303,000 pursuant to various stock repurchase plans previously authorized by the Board of Directors. During the twenty-six week period ended September 29, 2019, we did not repurchase any shares of common stock.

 

In 2016, the Company’s Board of Directors authorized increases to the sixth stock repurchase plan for the purchase of up to 1,200,000 shares of its common stock on behalf of the Company. As of September 29, 2019, Nathan’s had repurchased 954,132 shares at a cost of $30,641,000 under the sixth stock repurchase plan. At September 29, 2019, there were 245,868 shares remaining to be repurchased pursuant to the sixth stock repurchase plan. The plan does not have a set expiration date. Purchases under the Company’s stock repurchase program 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.

 

 

NOTE O – LONG-TERM DEBT

 

Long-term debt consists of the following (in thousands):

   

September 29,

   

March 31,

 
   

2019

   

2019

 
                 

6.625% Senior Secured Notes due 2025

  $ 150,000     $ 150,000  

Less: unamortized debt issuance costs

    (4,205 )     (4,551 )

Long-term debt, net

  $ 145,795     $ 145,449  

 

On November 1, 2017, the Company issued $150,000,000 of 6.625% Senior Secured Notes due 2025 (the "2025 Notes") in a private offering in accordance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The 2025 Notes were issued pursuant to an indenture dated as of November 1, 2017 by and among the Company, certain of its wholly-owned subsidiaries and U.S. Bank National Association (the “Indenture”). The Company used the net proceeds of the 2025 Notes offering to satisfy and discharge the Indenture relating to the $135,000,000 of 10.000% Senior Secured Notes due 2020 and redeem such notes (the "Redemption"), paid a portion of a special $5.00 per share cash dividend to Nathan's stockholders of record, with the remaining net proceeds for general corporate purposes, including working capital. The Company also funded the majority of the special dividend of $5.00 per share through its existing cash. The Redemption occurred on November 16, 2017.

 

The 2025 Notes bear interest at 6.625% per annum, payable semi-annually on May 1st and November 1st of each year. The Company made its required semi-annual interest payments of $4,968,750 on May 1, 2019 and November 1, 2019.

 

The 2025 Notes have no scheduled principal amortization payments prior to its final maturity on November 1, 2025.

 

A summary of certain terms and conditions of the 2025 Notes is as follows (terms not defined shall have the meanings set forth in the Indenture):

 

There are no financial maintenance covenants associated with the 2025 Notes. As of September 29, 2019, Nathan’s was in compliance with all covenants associated with the 2025 Notes.

 

The Indenture contains certain covenants limiting the Company’s ability and the ability of its restricted subsidiaries (as defined in the Indenture) to, subject to certain exceptions and qualifications: (i) incur additional indebtedness; (ii) pay dividends or make other distributions on, redeem or repurchase, capital stock; (iii) make investments or other restricted payments; (iv) create or incur certain liens; (v) incur restrictions on the payment of dividends or other distributions from its restricted subsidiaries; (vi) enter into certain transactions with affiliates; (vii) sell assets; or (viii) effect a consolidation or merger. Certain Restricted Payments which may be made or indebtedness incurred by Nathan’s or its Restricted Subsidiaries may require compliance with the following financial ratios:

 

15

 

 

Fixed Charge Coverage Ratio: the ratio of the Consolidated Cash Flow to the Fixed Charges for the relevant period, currently set at 2.0 to 1.0 in the Indenture. The Fixed Charge Coverage Ratio applies to determining whether additional Restricted Payments may be made, certain additional debt may be incurred and acquisitions may be made.

 

Priority Secured Leverage Ratio: the ratio of (a) Consolidated Net Debt outstanding as of such date that is secured by a Priority Lien to (b) Consolidated Cash Flow of Nathan’s for the Test Period then most recently ended, in each case with such pro forma adjustments as are appropriate; currently set at 0.40 to 1.00 in the Indenture.

 

Secured Leverage Ratio: the ratio of (a) Consolidated Net Debt outstanding as of such date that is secured by a Lien on any property of Nathan’s or any Guarantor to (b) Consolidated Cash Flow of Nathan’s for the Test Period then most recently ended, in each case with such pro forma adjustments as are appropriate. The Secured Leverage Ratio under the Indenture is 3.75 to 1.00 and applies if Nathan’s wants to incur additional debt on the same terms as the 2025 Notes.

 

The Indenture also contains customary events of default, including, among other things, failure to pay interest, failure to comply with agreements related to the Indenture, failure to pay at maturity or acceleration of other indebtedness, failure to pay certain judgments, and certain events of insolvency or bankruptcy. Generally, if any event of default occurs, the Trustee or the holders of at least 25% in principal amount of the 2025 Notes may declare the 2025 Notes due and payable by providing notice to the Company. In case of default arising from certain events of bankruptcy or insolvency, the 2025 Notes will become immediately due and payable.

 

The 2025 Notes are general senior secured obligations, are fully and unconditionally guaranteed by substantially all of the Company’s wholly-owned subsidiaries and rank pari passu in right of payment with all of the Company’s existing and future indebtedness that is not subordinated, are senior in right of payment to any of the Company’s existing and future subordinated indebtedness, are structurally subordinated to any existing and future indebtedness and other liabilities of the Company’s subsidiaries that do not guarantee the 2025 Notes, and are effectively junior to all existing and future indebtedness that is secured by assets other than the collateral securing the 2025 Notes.

 

Pursuant to the terms of a collateral trust agreement, the liens securing the 2025 Notes and the guarantees will be contractually subordinated to the liens securing any future credit facility.

 

The 2025 Notes and the guarantees are the Company and the guarantors’ senior secured obligations and will rank:

 

 

senior in right of payment to all of the Company and the guarantors’ future subordinated indebtedness;

     
 

effectively senior to all unsecured senior indebtedness to the extent of the value of the collateral securing the 2025 Notes and the guarantees;

     
 

pari passu with all of the Company and the guarantors’ other senior indebtedness;

     
 

effectively junior to any future credit facility to the extent of the value of the collateral securing any future credit facility and the 2025 Notes and the guarantees and certain other assets;

     
 

effectively junior to any of the Company and the guarantors’ existing and future indebtedness that is secured by assets other than the collateral securing the 2025 Notes and the guarantees to the extent of the value of any such assets; and

     
 

structurally subordinated to the indebtedness of any of the Company’s current and future subsidiaries that do not guarantee the 2025 Notes.

 

The Company may redeem the 2025 Notes in whole or in part prior to November 1, 2020, at a redemption price of 100% of the principal amount of the 2025 Notes redeemed plus the Applicable Premium, plus accrued and unpaid interest. An Applicable Premium is the greater of 1% of the principal amount of the 2025 Notes; or the excess of the present value at such redemption date of (i) the redemption price of the 2025 Notes at November 1, 2020 plus (ii) all required interest payments due on the 2025 Notes through November 1, 2020 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over the then outstanding principal amount of the 2025 Notes.

 

Prior to November 1, 2020, if using the net cash proceeds of certain equity offerings, the Company has the option to redeem up to 35% of the aggregate principal amount of the 2025 Notes at a redemption price equal to 106.625% of the principal amount of the 2025 Notes redeemed, plus accrued and unpaid interest and any additional interest.

 

16

 

 

On or after November 1, 2020, the Company may redeem some or all of the 2025 Notes at a decreasing premium over time, plus accrued and unpaid interest as follows:

 

 

YEAR

 

PERCENTAGE

 

On or after November 1, 2020 and prior to November 1, 2021

   103.313%  

On or after November 1, 2021 and prior to November 1, 2022

   101.656%  

On or after November 1, 2022

   100.000%  

 

In certain circumstances involving a change of control, the Company will be required to make an offer to repurchase all or, at the holder’s option, any part, of each holder’s 2025 Notes pursuant to the offer described below (the “Change of Control Offer”). In the Change of Control Offer, the Company will be required to offer payment in cash equal to 101% of the aggregate principal amount of 2025 Notes repurchased plus accrued and unpaid interest, to the date of purchase.

 

If the Company sells certain assets and does not use the net proceeds as required, the Company will be required to use such net proceeds to repurchase the 2025 Notes at 100% of the principal amount thereof, plus accrued and unpaid interest and additional interest penalty, if any, to the date of repurchase.

 

The 2025 Notes may be traded between qualified institutional buyers pursuant to Rule 144A of the Securities Act. We have recorded the 2025 Notes at cost.

 

 

NOTE P – LEASES

 

The Company is party as lessee to various leases for its Company-operated restaurants and lessee/sublessor to one franchised location property, including land and buildings, as well as leases for its corporate office and certain office equipment.

 

Determination of Whether a Contract Contains a Lease

 

We determine if an arrangement is a lease at inception or modification of a contract, and classify each lease as either an operating or finance lease at commencement. The Company only reassesses lease classification subsequent to commencement upon a change to the expected lease term or the contract being modified. Operating leases represent the Company’s right to use an underlying asset as lessee for the lease term, and lease obligations represent the Company’s obligation to make lease payments arising from the lease.

 

A contract contains a lease if the contract conveys the right to control the use of the identified property, plant or equipment for a period of time in exchange for consideration. At commencement, contracts containing a lease are further evaluated for classification as an operating lease or finance lease where the Company is a lessee, or as an operating, sales-type or direct financing lease where the Company is a lessor, based on their terms.

 

ROU Model and Determination of Lease Term

 

The Company uses the ROU model to account for leases where the Company is the lessee, which requires an entity to recognize a lease liability and ROU asset on the lease commencement date. A lease liability is measured equal to the present value of the remaining lease payments over the lease term and is discounted using the incremental borrowing rate, as the rate implicit in the Company’s leases is not readily determinable. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease payments include payments made before the commencement date and any residual value guarantees, if applicable. The initial ROU asset consists of the initial measurement of the lease liability, adjusted for any payments made before the commencement date, initial direct costs and lease incentives earned. When determining the lease term, as both lessee and lessor, the Company includes option periods when it is reasonably certain that those options will be exercised.

 

17

 

 

Operating leases

 

For operating leases, minimum lease payments or receipts, including minimum scheduled rent increases, are recognized as rent expense where the Company is a lessee, or income where the Company is a lessor, as applicable, on a straight-line basis (“Straight-Line Rent”) over the applicable lease terms. There is a period under certain lease agreements referred to as a rent holiday (“Rent Holiday”) that generally begins on the possession date and ends on the rent commencement date. During a Rent Holiday, no cash rent payments are typically due under the terms of the lease; however, rent expense is recorded for that period on a straight-line basis. The excess of the Straight-Line Rent over the minimum rents paid is included in the ROU asset where the Company is a lessee. The excess of the Straight-Line Rent over the minimum rents received is recorded as a deferred lease asset and is included in “Other Assets” where the Company is a lessor. The Company recorded $31,000 in Other Assets at September 29, 2019. Certain leases contain provisions, referred to as contingent rent (“Contingent Rent”), that require additional rental payments based upon restaurant sales volume. Contingent Rent is recognized each period as the liability is incurred or the asset is earned.

 

Lease cost for operating leases is recognized on a straight-line basis and includes the amortization of the ROU asset and interest expense relating to the operating lease liability. Variable lease cost for operating leases include Contingent Rent and payments for executory costs such as real estate taxes, insurance and common area maintenance, which are excluded from the measurement of the lease liability. Short-term lease cost for operating leases includes rental expense for leases with a term of less than 12 months. Leases with an initial expected term of 12 months or less are not recorded in the Consolidated Balance Sheets and the related lease expense is recognized on a straight-line basis over the lease term. Lease costs are recorded in the Consolidated Statements of Earnings based on the nature of the underlying lease as follows: (1) rental expense related to leases for Company-operated restaurants is recorded to “Restaurant Operating Expenses,” (2) rental expense for leased properties that are subsequently subleased to franchisees is recorded to “Other income, net” and (3) rental expense related to leases for corporate offices and equipment is recorded to “General and administrative expenses.”

 

Rental income for operating leases on properties subleased to franchisees is recorded to “Other income, net.”

 

Significant Assumptions and Judgement

 

Management makes certain estimates and assumptions regarding each new lease and sublease agreement, renewal and amendment, including, but not limited to, property values, market rents, property lives, discount rates and probable term, all of which can impact (1) the classification and accounting for a lease or sublease as operating or finance, (2) the Rent Holiday and escalations in payment that are taken into consideration when calculating Straight-Line Rent, (3) the term over which leasehold improvements for each restaurant are amortized and (4) the values and lives of adjustments to the initial ROU asset where the Company is the lessee, or favorable and unfavorable leases where the Company is the lessor. The amount of depreciation and amortization, interest and rent expense and income would vary if different estimates and assumptions were used.

 

Company as lessee

 

The components of the net lease cost for the thirteen and twenty-six week periods ended September 29, 2019 were as follows (in thousands):

 

    Thirteen weeks ended     Twenty-six weeks ended  
    September 29, 2019    

September 29, 2019

 

Statement of Earnings

               

Operating lease cost

  $ 278     $ 560  

Short term lease cost

    4       10  

Variable lease cost

    537       960  

Less: Sublease income, net

    (20 )     (41 )
                 

Total net lease cost (a)

  $ 799     $ 1,489  

 

 

(a)

The thirteen and twenty-six week periods ended September 29, 2019 include $669, net and $1,209, net recorded to

“Restaurant Operating Expenses” for leases for Company-operated restaurants, $150 and $321 recorded to

“General and administrative expenses” for leases for corporate offices and equipment and $20 and $41 recorded to “Other income, net” for leased properties that are leased to franchisees:

 

Cash paid for amounts included in the measurement of lease liabilities were as follows (in thousands):

 

   

Thirteen weeks ended

   

Twenty-six weeks ended

 
   

September 29, 2019

   

September 29, 2019

 
                 

Operating cash flows from operating leases

  $ 131     $ 291  

 

18

 

 

The weighted average remaining lease term and weighted-average discount rate for operating leases as of September 29, 2019 were as follows:

 

Weighted average remaining lease term (years):

       

Operating leases

    9.0  
         

Weighted average discount rate:

       

Operating leases

    9.079 %

 

Future lease commitments to be paid and received by the Company as of September 29, 2019 were as follows (in thousands):

 

   

Payments

   

Receipts

         
   

Operating Leases

   

Subleases

   

Net Leases

 
                         

Fiscal year:

                       

2020 (a)

  $ 494     $ 77     $ 417  

2021

    1,256       270       986  

2022

    1,510       272       1,238  

2023

    1,523       168       1,355  

2024

    1,453       169       1,284  

Thereafter

    5,868       521       5,347  

Total lease commitments

  $ 12,104     $ 1,477     $ 10,627  

Less: Amount representing interest

    3,844                  

Present value of lease liabilities (b)

  $ 8,260                  

 

 

(a)

Represents the remainder of fiscal year 2020 which excludes the twenty-six weeks ended September 29, 2019.

  (b) The present value of minimum operating lease payments of $1,009 and $7,251 are included in “Current portion of operating lease liabilities” and “Long-term operating lease liabilities,” respectively.

 

Future lease commitments to be paid and received by the Company as of March 31, 2019 were as follows (in thousands):

 

   

Payments

   

Receipts

         
   

Operating Leases

   

Subleases

   

Net Leases

 
                         

Fiscal year:

                       

2020

  $ 1,162     $ 273     $ 889  

2021

    1,249       270       979  

2022

    1,503       272       1,231  

2023

    1,520       168       1,352  

2024

    1,453       169       1,284  

Thereafter

    5,868       521       5,347  

Total lease commitments

  $ 12,755     $ 1,673     $ 11,082  

 

Company as lessor

 

The components of lease income for the thirteen week and twenty-six week periods ended September 29, 2019 were as follows (in thousands):

 

   

Thirteen weeks ended

   

Twenty-six weeks ended

 
   

September 29, 2019

   

September 29, 2019

 
                 

Operating lease income, net

  $ 20     $ 41  

 

 

NOTE Q – COMMITMENTS AND CONTINGENCIES

 

1. Commitments 

 

On February 27, 2017, a wholly-owned subsidiary of the Company executed a Guaranty of Lease (the “Brooklyn Guaranty”) in connection with its re-franchising of a restaurant located in Brooklyn, New York. The Company is obligated to make payments under the Brooklyn Guaranty in the event of a default by the tenant/franchisee. The Brooklyn Guaranty has an initial term of 10 years and one 5-year option and is limited to 24 months of rent for the first three years of the term. Nathan’s has recorded a liability of $217,000 in connection with the Brooklyn Guaranty which does not include potential percentage rent, real estate tax increases, attorney’s fees and other costs as these amounts are not reasonably determinable at this time. Nathan’s has received a personal guaranty from the franchisee for all obligations under the Brooklyn Guaranty. For the remainder of the term, the Brooklyn Guaranty is limited to 12 months of rent plus reasonable costs of collection and attorney’s fees.                 

 

2. Contingencies

 

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.

 

19

 

 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Statements

 

This Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1933, as amended, that involve risks and uncertainties. You can identify forward-looking statements because they contain words such as “believes”, “expects”, “projects”, “may”, “would”, “should”, “seeks”, “intends”, “plans”, “estimates”, “anticipates” or similar expressions that relate to our strategy, plans or intentions. All statements we make relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results or to our expectations regarding future industry trends are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may change at any time, and, therefore, our actual results may differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements contained in this Form 10-Q are based upon information available to us on the date of this Form 10-Q.

 

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: economic, weather (including the affects on the supply of cattle and the impact of weather on sales at our restaurants, particularly during Summer months), and change in the price of beef trimmings; our ability to pass on the cost of any price increases in beef and beef trimmings, or labor costs; legislative, business conditions or tariffs; the collectibility of receivables; changes in consumer tastes; the status of our licensing and supply agreements, including our licensing revenue and overall profitability being substantially dependent on our agreement with John Morrell & Co., the impact of our debt service and repayment obligations under the 2025 Notes; the impact of the Tax Cuts and Jobs Act (“the Tax Act”); the continued viability of Coney Island as a destination location for visitors; the ability to continue to attract franchisees; the impact of the new minimum wage legislation in New York State or other changes in labor laws, including court decisions which could render a franchisor as a “joint employee” or the impact of our new union contracts; our ability to attract competent restaurant and managerial personnel; the enforceability of international franchising agreements and the future effects of any food borne illness; such as bovine spongiform encephalopathy, BSE or e-coli; as well as those risks discussed from time to time in this Form 10-Q and our Form 10-K annual report for the year ended March 31, 2019, and in other documents 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 product licensing program sells packaged hot dogs and other meat products to retail customers through supermarkets or grocery-type retailers for off-site consumption. Our Branded Product Program 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 wi