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What changed in NATHANS FAMOUS, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of NATHANS FAMOUS, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+385 added−462 removedSource: 10-K (2023-06-08) vs 10-K (2022-06-10)

Top changes in NATHANS FAMOUS, INC.'s 2023 10-K

385 paragraphs added · 462 removed · 312 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

111 edited+24 added−46 removed62 unchanged
Biggest changeThe following table is a summary of our international operations for the fiscal years ended March 27, 2022 and March 28, 2021: See Item 1A-“Risk Factors.” March 27, March 28, 2022 2021 Total revenue $ 3,223,000 $ 1,102,000 Gross profit (a) $ 1,023,000 $ 383,000 (a) Gross profit represents the difference between revenue and cost of sales. 12 Location Summary The following table shows the number of our Company-owned and franchised units in operation at March 27, 2022 and their geographical distribution: Domestic Locations Company Franchise (1) Total (1) Connecticut - 2 2 Florida - 23 23 Georgia - 5 5 Illinois - 1 1 Kentucky - 3 3 Maryland - 2 2 Massachusetts - 5 5 Missouri - 1 1 Nevada - 7 7 New Jersey - 22 22 New York 4 74 78 North Carolina - 4 4 Ohio - 2 2 Pennsylvania - 8 8 Rhode Island - 2 2 South Carolina - 3 3 Texas - 2 2 Virginia - 2 2 Domestic Subtotal 4 168 172 International Locations Company Franchise (1) Total (1) Brazil - 1 1 Dominican Republic - 6 6 France - 8 8 Kazakhstan - 3 3 Kingdom of Saudi Arabia - 10 10 Malaysia - 3 3 Panama - 4 4 Philippines - 4 4 Spain - 1 1 Ukraine (2) - 27 27 United Arab Emirates - 2 2 United Kingdom - 2 2 International Subtotal - 71 71 Grand Total 4 239 243 (1) Amounts include 122 units operated pursuant to our Nathan’s and Arthur Treacher’s Branded Menu Programs.
Biggest changeLocation Summary The following table shows the number of our Company-owned restaurants and franchised locations in operation at March 26, 2023 and their geographical distribution: Domestic Locations Company Franchise (1) Total (1) Connecticut - 2 2 Florida - 21 21 Georgia - 5 5 Kentucky - 2 2 Maryland - 1 1 Massachusetts - 4 4 Missouri - 1 1 Nevada - 7 7 New Jersey - 23 23 New York 4 69 73 North Carolina - 4 4 Ohio - 2 2 Pennsylvania - 8 8 Rhode Island - 2 2 South Carolina - 3 3 Texas - 2 2 Virginia - 2 2 Domestic Subtotal 4 158 162 10 International Locations Company Franchise (1) Total (1) Brazil - 3 3 Dominican Republic - 6 6 Egypt - 1 1 France - 8 8 Kazakhstan - 3 3 Kingdom of Saudi Arabia - 10 10 Mexico - 1 1 Panama - 4 4 Philippines - 4 4 Spain - 1 1 Ukraine (2) - 27 27 United Arab Emirates - 3 3 United Kingdom - 3 3 International Subtotal - 74 74 Grand Total 4 232 236 (1) Amounts include 120 locations operated pursuant to our Nathan’s and Arthur Treacher’s Branded Menu Programs.
We believe that the program has broad appeal to foodservice operators due to its flexibility to deliver our products to a wide variety of distribution channels. In conjunction with the program, operators are granted a limited use of the Nathan’s Famous trademark, as well as Nathan’s point of purchase materials.
We believe that the program has broad appeal to foodservice operators due to its flexibility to deliver our products to a wide variety of distribution channels. In conjunction with the program, operators are granted a limited use of the Nathan’s Famous trademark, as well as Nathan’s Famous point of purchase materials.
We may offer alternatives to the standard franchise agreement, having to do with franchise royalties, fees or advertising requirements. The initial term of the typical franchise agreement is 10 years, with a 5-year renewal option by the franchisee, subject to conditions contained in the franchise agreement.
The initial term of the typical franchise agreement is 10 years, with a 5-year renewal option by the franchisee, subject to conditions contained in the franchise agreement. We may offer alternatives to the standard franchise agreement, having to do with the term, franchise royalties, fees or advertising requirements.
Alcoholic beverage control regulations require each restaurant that sells such products to apply to a state authority and, in certain locations, county and municipal authorities, for a license or permit to sell alcoholic beverages on the premises. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time.
Alcoholic beverage control regulations require that each restaurant that sells such products apply to a state authority and, in certain locations, county and municipal authorities, for a license or permit to sell alcoholic beverages on the premises. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time.
We are committed to industry best practices in these areas. We believe that we operate in substantial compliance with applicable laws and regulations governing our operations, including the FTC Rule and state franchise laws.
We are committed to industry best practices in these areas. We believe that we operate in substantial compliance with applicable laws and regulations governing our operations, including the FTC Franchise Rule and state franchise laws.
We have historically used the Arthur Treacher’s brand, products and trademarks as a branded seafood menu-line extension for inclusion in certain Nathan’s Famous restaurants, as well as virtual kitchens. We also partner with major third-party delivery service providers, such as DoorDash, UberEats, GrubHub, and Postmates, providing multiple options for our guests to continue to enjoy Nathan’s Famous products at home.
We have historically used the Arthur Treacher’s brand, products and trademarks as a branded seafood menu-line extension for inclusion in certain Nathan’s Famous restaurants, as well as virtual kitchens. We also partner with major third-party delivery service providers, such as DoorDash, UberEats, GrubHub, and Postmates, providing multiple options for our guests to enjoy Nathan’s Famous products at home.
Seasonality Our routine business pattern is affected by seasonal fluctuations, including the effects of weather and economic conditions. Historically, sales from our Company-owned locations, principally at Coney Island, and franchised restaurants from which franchise royalties are earned and the Company’s earnings have been highest during our first two fiscal quarters, with the fourth fiscal quarter typically representing the slowest period.
Seasonality Our routine business pattern is affected by seasonal fluctuations, including the effects of weather and economic conditions. Historically, sales from our Company-owned restaurants, principally at Coney Island, and franchised restaurants from which franchise royalties are earned and the Company’s earnings have been highest during our first two fiscal quarters, with the fourth fiscal quarter typically representing the slowest period.
There is also active competition for management personnel, as well as for suitable commercial sites for owned or franchised restaurants. We believe that our emphasis on our signature products and the reputation of these products for taste and quality set us apart from our major competitors. Many fast-food companies have adopted “value pricing” and/or deep discount strategies.
There is also active competition for management personnel, as well as for suitable commercial sites for Company-owned or franchised restaurants. We believe that our emphasis on our signature products and the reputation of these products for taste and quality set us apart from our major competitors. Many fast-food companies have adopted “value pricing” and/or deep discount strategies.
Franchisees are approved on the basis of their business background, evidence of restaurant management experience, net worth and capital available for investment in relation to the proposed scope of the development agreement. We provide numerous support services to our Nathan’s Famous franchisees. We assist in and approve all site selections.
Franchisees are approved on the basis of their business background, evidence of restaurant management experience, net worth and capital available for investment in relation to the proposed scope of the development agreement. 8 We provide numerous support services to our Nathan’s Famous franchisees. We assist in and approve all site selections.
Unlike our licensing and franchise programs, we do not generate revenue from royalties, but rather by selling our hot dog products either directly to foodservice operators or to various foodservice distributors who resell the products to foodservice operators. 4 ● Operating quick-service restaurants featuring Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries, and a variety of other menu offerings, which operate under the name “Nathan’s Famous,” the name first used at our original Coney Island restaurant which opened in 1916. ● Our franchised restaurant operations are comprised predominately of our Nathan’s Famous concept, which features a menu consisting of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries and beverages as well as other items.
Unlike our licensing and franchise programs, we do not generate revenue from royalties, but rather by selling our hot dog products either directly to foodservice operators or to various foodservice distributors who resell the products to foodservice operators. 3 ● Operating quick-service restaurants featuring Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries, and a variety of other menu offerings, which operate under the name “Nathan’s Famous,” the name first used at our original Coney Island restaurant which opened in 1916. ● Our franchised restaurant operations are comprised predominately of our Nathan’s Famous concept, which features a menu consisting of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries and beverages as well as other items.
We continue to monitor the dynamic nature of the COVID-19 pandemic on our business; however, due to the continuous development and fluidity of this pandemic and resurgences of new variants of the virus we cannot determine the ultimate impact that the COVID-19 pandemic will have on our business, results of operations and financial condition.
We continue to monitor the dynamic nature of the COVID-19 pandemic on our business; however, due to the continuous development and fluidity of this pandemic and potential resurgences of new variants of the virus we cannot determine the ultimate impact that the COVID-19 pandemic will have on our business, results of operations and financial condition.
We earn revenue through royalties on products sold by our licensees. ● The Branded Product Program (“BPP”) provides foodservice operators in a variety of venues the opportunity to capitalize on our Nathan’s Famous brand by marketing and selling certain Nathan’s Famous hot dog products.
We earn revenue through royalties on products sold by our licensees. ● Our Branded Product Program provides foodservice operators in a variety of venues the opportunity to capitalize on our Nathan’s Famous brand by marketing and selling certain Nathan’s Famous hot dog products.
The Company attempts to provide a range of benefits to its corporate and nonunion employees and their families, including medical and prescription drug, dental and vision, long-term disability coverage, as well as a 401(k) savings and flexible spending accounts.
The Company attempts to provide a range of benefits to its corporate and nonunion employees and their families, including medical and prescription drug, dental and vision, long-term disability coverage, as well as a 401(k) savings plan and flexible spending accounts.
We also hold service mark registrations for ARTHUR TREACHER’S FISH & CHIPS in Canada, ARTHUR TREACHER’S FISH & CHIPS and design in Canada and Mexico, and ARTHUR TREACHER’S FISH & CHIPS and design in Colombia, Costa Rica, Kuwait, Malaysia, Singapore and the United Arab Emirates. Our trademark and service mark registrations were granted and expire on various dates.
We also hold service mark registrations for ARTHUR TREACHER’S FISH & CHIPS in Canada, ARTHUR TREACHER’S FISH & CHIPS and design in Canada and Mexico, and ARTHUR TREACHER’S FISH & CHIPS and design in Colombia, Costa Rica, Kuwait, Malaysia, Singapore and the United Arab Emirates. 17 Our trademark and service mark registrations were granted and expire on various dates.
We will provide without charge a copy of the Charter of any standing committee of the Board upon a stockholder’s request to us at Nathan’s Famous, Inc., One Jericho Plaza, Second Floor - Wing A, Jericho, NY 11753, Attention: Secretary. For financial information regarding our results of operations, please see our consolidated financial statements beginning on page F-1. 21
We will provide without charge a copy of the Charter of any standing committee of the Board upon a stockholder’s request to us at Nathan’s Famous, Inc., One Jericho Plaza, Second Floor - Wing A, Jericho, NY 11753, Attention: Secretary. For financial information regarding our results of operations, please see our consolidated financial statements beginning on page F-1. 19
Vendors that supply products to the Company and our restaurant system also contribute to the advertising fund based upon purchases made by our franchisees and at Company-owned restaurants.
Some vendors that supply products to the Company and our restaurant system also contribute to the advertising fund based upon purchases made by our franchisees and at Company-owned restaurants.
We are also subject to a number of state laws which regulate substantive aspects of the franchisor-franchisee relationship. The FTC’s “Trade Regulation Rule Concerning Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures” (the “FTC Rule”) requires us to disclose certain information to prospective franchisees. Fifteen states, including New York, also require similar disclosure.
We are also subject to a number of state laws which regulate substantive aspects of the franchisor-franchisee relationship. 15 The FTC’s “Trade Regulation Rule Concerning Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures” (the “FTC Franchise Rule”) requires us to disclose certain information to prospective franchisees. Fifteen states, including New York, also require similar disclosure.
Our products are currently marketed for sale in approximately 79,000 locations, including supermarkets, mass merchandisers and club stores, selected foodservice locations and our Company-owned and franchised restaurants throughout the United States and in seventeen foreign countries. The Company considers itself to be in the foodservice industry and has pursued co-branding initiatives within other foodservice environments.
Our products are currently marketed for sale in approximately 79,000 locations, including supermarkets, mass merchandisers and club stores, selected foodservice locations and our Company-owned and franchised restaurants throughout the United States and in eighteen foreign countries. The Company considers itself to be in the foodservice industry and has pursued co-branding initiatives within other foodservice environments.
The difference, if any, between 2.0% and the contribution to the advertising fund are to be expended on local programs approved by us as to form, content and method of dissemination. Certain franchisees, including those operating pursuant to our Branded Menu Program were not obligated to contribute to the advertising fund during fiscal 2022.
The difference, if any, between 2.0% and the contribution to the advertising fund are to be expended on local programs approved by us as to form, content and method of dissemination. Certain franchisees, including those operating pursuant to our Branded Menu Program were not obligated to contribute to the advertising fund during fiscal 2023.
During fiscal 2022, Nathan’s marketing efforts for the Branded Product Program concentrated primarily on participation in national industry trade shows, and regional, local distributor trade events, some of which were held virtually due to the COVID-19 pandemic. We have also advertised our products in distributor and trade periodicals.
During fiscal 2023, Nathan’s marketing efforts for the Branded Product Program concentrated primarily on participation in national industry trade shows, and regional, local distributor trade events, some of which were held virtually due to the COVID-19 pandemic. We have also advertised our products in distributor and trade periodicals.
Nathan’s World Famous Beef Hot Dogs are flavored with our secret blend of spices provided by Ida Handwerker in 1916, which historically have distinguished Nathan’s World Famous Beef Hot Dogs. Our hot dogs are prepared and served in accordance with procedures which have not varied significantly since our inception over 100 years ago in our Company-owned and franchised restaurants.
Nathan’s World Famous Beef Hot Dogs are flavored with our secret blend of spices created by Ida Handwerker in 1916, which historically have distinguished Nathan’s World Famous Beef Hot Dogs. Our hot dogs are prepared and served in accordance with procedures which have not varied significantly since our inception over 100 years ago in our Company-owned and franchised restaurants.
With respect to our international development, we generally grant exclusive territorial rights in foreign countries for the development of Nathan’s units based upon compliance with a predetermined development schedule. Additionally, we may further grant exclusive manufacturing and distribution rights in foreign countries, and we may require an exclusivity fee to be conveyed for such exclusive rights.
With respect to our international development, we generally grant exclusive territorial rights in foreign countries for the development of Nathan’s locations based upon compliance with a predetermined development schedule. Additionally, we may further grant exclusive manufacturing and distribution rights in foreign countries, and we may require an exclusivity fee to be conveyed for such exclusive rights.
During fiscal 2023, we may seek to further expand our internal marketing resources along with our network of foodservice brokers and distributors. We may attempt to emphasize specific venues as we expand our broker network, focus management and broker responsibilities on a regional basis and expand the use of sales incentive programs.
During fiscal 2024, we may seek to further expand our internal marketing resources along with our network of foodservice brokers and distributors. We may attempt to emphasize specific venues as we expand our broker network, focus management and broker responsibilities on a regional basis and expand the use of sales incentive programs.
In addition to competitive hourly rates and base salaries, all management employees at our Company-operated restaurants are eligible for performance-based cash incentive bonuses based on the attainment of certain financial metrics, along with all corporate management and administrative employees, at the discretion of our Board of Directors.
In addition to competitive hourly rates and base salaries, all management employees at our Company-owned restaurants are eligible for performance-based cash incentive bonuses based on the attainment of certain financial metrics, along with all corporate management and administrative employees, at the discretion of our Board of Directors.
Franchising – We expect to continue to market our franchise program and Branded Menu Program to large, experienced and successful operators with the financial and business capability to develop multiple franchise units, as well as to individual-owner operators with evidence of restaurant management experience, net worth and sufficient capital.
Franchising – We expect to continue to market our franchise program and Branded Menu Program to large, experienced and successful operators with the financial and business capability to develop multiple franchise locations, as well as to individual-owner operators with evidence of restaurant management experience, net worth and sufficient capital.
A franchisee who desires to open multiple units in a specific territory within the United States may enter into an area development agreement under which we would expect to receive an area development fee based upon the number of proposed units which the franchisee is authorized to open.
A franchisee who desires to open multiple locations in a specific territory within the United States may enter into an area development agreement under which we would expect to receive an area development fee based upon the number of proposed locations which the franchisee is authorized to open.
In addition, references to the “ Notes ” , “ 2025 Notes ” or the “ 2025 Senior Secured Notes ” refer to the $110,000,000 6.625% Senior Secured Notes due 2025 and references to the “ 2020 Notes ” or the “ 2020 Senior Secured Notes ” refer to the $135,000,000 10.000% Senior Secured Notes which were redeemed on November 16, 2017.
In addition, references to the “ Notes ” , “ 2025 Notes ” or the “ 2025 Senior Secured Notes ” refer to the $80,000,000 6.625% Senior Secured Notes due 2025 and references to the “ 2020 Notes ” or the “ 2020 Senior Secured Notes ” refer to the $135,000,000 10.000% Senior Secured Notes which were redeemed on November 16, 2017.
The impact of the COVID-19 pandemic on our results of operations and liquidity is discussed in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K.
The impact of the COVID-19 pandemic and inflationary pressures on our results of operations and liquidity is discussed in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K.
We currently utilize a cooperative distribution system pursuant to an agreement with UniPro Foodservice, Inc., the Multi-Unit Group, which is comprised of institutional food and non-food distributors organized to procure, distribute, and market food service and non-food merchandise for the distribution needs of our domestic restaurant system.
We currently utilize a cooperative distribution system pursuant to an agreement with UniPro Foodservice, Inc., National Distribution Alliance (formerly the Multi-Unit Group), which is comprised of institutional food and non-food distributors organized to procure, distribute, and market food service and non-food merchandise for the distribution needs of our domestic restaurant system.
Lamb Weston, Inc. exercised its third option to extend the license agreement through July 2023, pursuant to which the minimum royalties will increase 4% annually. During fiscal 2022, our licensee, Bran-Zan Holdings, LLC continued to produce and distribute miniature bagel dogs, franks-in-a-blanket, mozzarella sticks and other hors d’oeuvres through club stores, supermarkets, and other retail food stores.
Lamb Weston, Inc. exercised its fourth option to extend the license agreement through July 2024, pursuant to which the minimum royalties will increase 4% annually. During fiscal 2023, our licensee, Bran-Zan Holdings, LLC continued to produce and distribute miniature bagel dogs, franks-in-a-blanket, mozzarella sticks and other hors d’oeuvres through club stores, supermarkets, and other retail food stores.
Individual Nathan’s restaurants supplement their core menu of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries and beverages with a variety of other quality menu choices including: the Nathan’s Famous NY Cheesesteak by Pat LaFreida, our fresh angus hamburger program and our hand-dipped chicken program.
Individual Nathan’s restaurants supplement their core menu of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries and beverages with a variety of other quality menu choices including: the Nathan’s Famous NY Cheesesteak by Pat LaFreida, our fresh angus hamburgers and our hand-dipped chicken.
Our major channels of distribution are as follows: ● Our licensing program contracts with certain third parties to manufacture, distribute, market and sell a broad variety of Nathan’s Famous branded products including our hot dogs, sausage and corned beef products, frozen crinkle-cut French fries and additional products through retail grocery channels and club stores throughout the United States.
Our major channels of distribution are as follows: ● Our licensing program contracts with certain third parties to manufacture, distribute, market and sell a broad variety of Nathan’s Famous branded products including our hot dogs, sausages, frozen crinkle-cut French fries and additional products through retail grocery channels and club stores throughout the United States.
We believe that the overall exposure of the brand and opportunity for consumers to enjoy the Nathan’s World Famous Beef Hot Dog in their homes helps promote “Nathan’s Famous” restaurant patronage. Royalties earned under the retail agreement, including the foodservice program, were approximately 91% of our fiscal 2022 period license revenues.
We believe that the overall exposure of the brand and opportunity for consumers to enjoy the Nathan’s World Famous Beef Hot Dog in their homes helps promote “Nathan’s Famous” restaurant patronage. Royalties earned under the retail agreement, including the foodservice program, were approximately 90% of our fiscal 2023 period license revenues.
Nathan’s expects to continue to seek out and evaluate a variety of alternative environments designed to maximize and grow our Branded Product Program. 14 Licensing Program Pursuant to an Agreement expiring in March 2032, John Morrell & Co., a subsidiary of Smithfield Foods, Inc., has been granted, among other things, (i) the exclusive right and obligation to manufacture, distribute, market and sell “Nathan’s Famous” branded hot dog, sausage and corned beef products in refrigerated consumer packages to be resold through retail channels (e.g., supermarkets, groceries, mass merchandisers and club stores) within the United States, (ii) a right of first offer to license any other “Nathan’s Famous” branded refrigerated meat products in consumer packages to be resold through retail channels within the United States, on terms to be negotiated in good faith, (iii) the right and obligation to manufacture “Nathan’s Famous” branded hot dog and sausage products in bulk for use in the food service industry within the United States, and (iv) the non-exclusive right and obligation to supply “Nathan’s Famous” natural casing and skinless hot dogs in bulk for use in the “Nathan’s Famous” restaurant system within the United States.
Nathan’s expects to continue to seek out and evaluate a variety of alternative environments designed to maximize and grow our Branded Product Program. 11 Licensing Program Pursuant to an agreement expiring in March 2032, Smithfield Foods, Inc., has been granted, among other things, (i) the exclusive right and obligation to manufacture, distribute, market and sell “Nathan’s Famous” branded hot dogs, and sausages in refrigerated consumer packages to be resold through retail channels (e.g., supermarkets, groceries, mass merchandisers and club stores) within the United States, (ii) a right of first offer to license any other “Nathan’s Famous” branded refrigerated meat products in consumer packages to be resold through retail channels within the United States, on terms to be negotiated in good faith, (iii) the right and obligation to manufacture “Nathan’s Famous” branded hot dog and sausage products in bulk for use in the food service industry within the United States, and (iv) the non-exclusive right and obligation to supply “Nathan’s Famous” natural casing and skinless hot dogs in bulk for use in the “Nathan’s Famous” restaurant system within the United States.
Marketing, Promotion and Advertising Nathan’s believes that an integral part of its brand marketing strategy is to continue to build brand awareness through its complimentary points of distribution strategy of selling its signature products through Company-owned and franchised restaurants (including virtual kitchens), the Branded Product Program, the Branded Menu Program, and within supermarkets and club stores.
Marketing, Promotion and Advertising Nathan’s believes that an integral part of its brand marketing strategy is to continue to build brand awareness through its complimentary points of distribution strategy of selling its signature products through Company-owned and franchised restaurants (including virtual kitchens), the Branded Product Program, the Branded Menu Program, and through retail grocery channels including supermarkets and club stores.
In fiscal 2021, we opened our first virtual kitchens (existing kitchens with no Nathan’s Famous branded store front presence, used to fill online orders). We earn royalties on sales at these franchise locations and virtual kitchens.
In fiscal 2021, we opened our first virtual kitchens (existing kitchens with no Nathan’s Famous branded storefront presence, used to fill online orders). We earn royalties on sales at these franchise locations and virtual kitchens.
Pursuant to the Branded Product Program, Nathan’s World Famous Beef Hot Dogs are being offered in national restaurant chains such as Auntie Anne’s, Hot Dog On A Stick and Johnny Rockets; national movie theater chains such as Regal Entertainment, National Amusements and Cinemex in Mexico; amusement parks such as Six Flags and Universal Studios; casino hotels such as Foxwoods Casino in Connecticut; and convenience store chains such as Race Trac and Holiday Station stores.
Pursuant to the Branded Product Program, Nathan’s World Famous Beef Hot Dogs are being offered in national restaurant chains such as Auntie Anne’s, Hot Dog On A Stick and Johnny Rockets; national movie theater chains such as Regal Entertainment, National Amusements and Cinemex in Mexico; amusement parks such as Universal Studios; casino hotels such as Foxwoods Casino in Connecticut; and convenience store chains such as RaceTrac and Holiday Station stores.
As of March 27, 2022, packaged Nathan’s World Famous Beef Hot Dogs continued to be sold in supermarkets, mass merchandisers and club stores including Walmart, Kroger, Ahold, Publix, Albertsons, Safeway, ShopRite, Target, Sam’s Club, Costco and BJ’s Wholesale Club located in all 50 states.
As of March 26, 2023, packaged Nathan’s World Famous Beef Hot Dogs continued to be sold in supermarkets, mass merchandisers and club stores including Walmart, Kroger, Ahold, Publix, Albertsons, Safeway, ShopRite, Target, Sam’s Club, Costco and BJ’s Wholesale Club located in all 50 states.
As of March 27, 2022, packaged Nathan’s World Famous Beef Hot Dogs continued to be sold in supermarkets, mass merchandisers and club stores including Walmart, Kroger, Ahold, Publix, Albertsons, Safeway, ShopRite, Target, Sam’s Club, Costco and BJ’s Wholesale Club located in all 50 states.
As of March 26, 2023, packaged Nathan’s World Famous Beef Hot Dogs continued to be sold in supermarkets, mass merchandisers and club stores including Walmart, Kroger, Ahold, Publix, Albertsons, Safeway, ShopRite, Target, Sam’s Club, Costco and BJ’s Wholesale Club located in all 50 states.
The Branded Products Program also distributes product in professional sports arenas with Nathan’s World Famous Beef Hot Dogs being served in stadiums and arenas that host the New York Yankees, New York Mets, Brooklyn Nets, Dallas Cowboys, Miami Marlins, Colorado Rockies and Green Bay Packers.
The Branded Products Program also distributes product in professional sports arenas with Nathan’s World Famous Beef Hot Dogs being served in stadiums and arenas that host the New York Yankees, New York Mets, Miami Marlins, Tampa Bay Rays, Brooklyn Nets, Dallas Cowboys, and Green Bay Packers.
Nathans’ current professional sports sponsorships include: ● Baseball: Yankee Stadium – New York Yankees; Citi Field – New York Mets; Marlins Park – Miami Marlins; Coors Field – Colorado Rockies; Tropicana Field – Tampa Bay Rays; and ● Basketball: The Barclays Center – Brooklyn Nets; and ● Football: AT&T Stadium – Dallas Cowboys; Lambeau Field – Green Bay Packers. 16 We believe that the Company’s overall sales and exposure have also been complemented by the sales of Nathan’s World Famous Beef Hot Dogs and other Nathan’s products through the publicity generated by our Hot Dog Eating Contests and our affiliation with a number of high profile sports arenas.
Our current professional sports sponsorships include: ● Baseball: Yankee Stadium – New York Yankees; Citi Field – New York Mets; Loan Depot Park – Miami Marlins; Tropicana Field – Tampa Bay Rays; and ● Basketball: The Barclays Center – Brooklyn Nets; and ● Football: AT&T Stadium – Dallas Cowboys; Lambeau Field – Green Bay Packers. 13 We believe that the Company’s overall sales and exposure have also been complemented by the sales of Nathan’s World Famous Beef Hot Dogs and other Nathan’s products through the publicity generated by our Hot Dog Eating Contests and our affiliation with a number of high profile sports arenas.
During fiscal 2022 and 2021, we earned royalties of $333,000 and $211,000, respectively, under this agreement. During fiscal 2022, our licensee, Hermann Pickle Packers, Inc. continued to produce and distribute Nathan’s Famous sauerkraut and pickles pursuant to a license agreement.
During fiscal 2023 and 2022, we earned royalties of $340,000 and $333,000, respectively, under this agreement. During fiscal 2023, our licensee, Hermann Pickle Packers, Inc. continued to produce and distribute Nathan’s Famous sauerkraut and pickles pursuant to a license agreement.
We believe John Morell & Co. expects to continue to leverage this relationship with continued full-scale marketing efforts, both inside and outside of stores, highlighted by exciting customer events and brand representation and support of our Nathan’s Famous Hot Dog Eating Contests. We may offer the licensing of other signature products to other qualified manufacturers.
We believe Smithfield Foods, Inc. expects to continue to leverage this relationship with continued full-scale marketing efforts, both inside and outside of stores, highlighted by exciting customer events and brand representation and support of our Nathan’s Famous Hot Dog Eating Contests. We may offer the licensing of other signature products to other qualified manufacturers.
During fiscal 2022, our licensee, Lamb Weston, Inc., continued to produce and distribute Nathan’s Famous frozen crinkle-cut French fries and onion rings for retail sale pursuant to a license agreement. These products were distributed within 39 states, primarily on the East Coast and in the Southwest and West Coast during fiscal 2022.
During fiscal 2023, our licensee, Lamb Weston, Inc., continued to produce and distribute Nathan’s Famous frozen crinkle-cut French fries and onion rings for retail sale pursuant to a license agreement. These products were distributed within thirty-nine states, primarily on the East Coast, Southwest and West Coast during fiscal 2023.
Most of the sales of new restaurant franchises to franchisees are achieved through the direct effort of Company personnel. New arrangements with Branded Product Program points of sale are achieved through the combined efforts of Company personnel and a network of foodservice brokers and distributors who also are responsible for direct sales to national, regional and “street” accounts.
New arrangements with Branded Product Program points of sale are achieved through the combined efforts of Company personnel and a network of foodservice brokers and distributors who are also responsible for direct sales to national, regional and “street” accounts.
During fiscal 2022 and 2021, we earned royalties of $954,000 and $1,137,000, respectively, under this agreement. For the contract year ended in July 2021 we earned royalties of $603,000 in excess of the annual minimum. Lamb Weston, Inc. continues to seek to further expand its market penetration throughout the United States.
During fiscal 2023 and 2022, we earned royalties of $1,501,000 and $954,000, respectively, under this agreement. For the contract year ended in July 2022 we earned royalties of $581,000 in excess of the annual minimum. Lamb Weston, Inc. continues to seek to further expand its market penetration throughout the United States.
Item 1. Business . As used herein, unless we otherwise specify, the terms “ we, ” “ us, ” “ our, ” “ Nathan ’ s, ” “ Nathan ’ s Famous ” and the “ Company ” mean Nathan ’ s Famous, Inc. and its subsidiaries, including NF Treacher ’ s Corp.
Item 1. Business . As used herein, unless we otherwise specify, the terms “ we, ” “ us, ” “ our, ” “ Nathan ’ s, ” “ Nathan ’ s Famous ” and the “ Company ” mean Nathan ’ s Famous, Inc. and its subsidiaries.
While the FTC Rule does not require registration or filing of the disclosure document, 14 states require franchisors to register the disclosure document (or obtain exemptions from that requirement) before offering or selling a franchise.
While the FTC Franchise Rule does not require registration or filing of the disclosure document at the federal level, 14 states require franchisors to register the disclosure document (or obtain exemptions from that requirement) before offering or selling a franchise in that state.
As a result of our partnership with John Morrell & Co., we expect Nathan’s Famous products to continue penetrating the grocery, mass merchandising and club channels by expanding points of distribution in targeted, underpenetrated regions and through the development of new products.
As a result of our partnership with Smithfield Foods, Inc., we expect Nathan’s Famous products to continue penetrating the grocery, mass merchandising and club channels by expanding points of distribution in targeted, underpenetrated regions and through the development of new products.
We believe our future operating results will continue to be substantially impacted by the terms and conditions of the agreement with John Morrell & Co., but there can be no assurance thereof (See Item 1A - “Risk Factors”).
We believe our future operating results will continue to be substantially impacted by the terms and conditions of the agreement with Smithfield Foods, Inc., but there can be no assurance thereof (See Item 1A - “Risk Factors”).
In fiscal 2022, Nathan’s marketing efforts were largely focused on the annual July 4 th Hot Dog Eating Contest and its sports sponsorships, as well as advertising spending online to drive customers directly to the online menus of our franchisees. This included geo-targeted efforts to generate awareness and sales through third party delivery platforms.
In fiscal 2023, Nathan’s marketing efforts were largely focused on the annual July 4 th Hot Dog Eating Contest and its sports sponsorships, as well as digital and social media to drive customers directly to the online menus of our franchisees. This included geo-targeted efforts and direct mail to generate awareness and sales through third party delivery platforms.
Employees at a third location are represented by the same union pursuant to a different agreement that expires on November 30, 2022. 17 We believe that our efforts to manage our workforce have been effective as evidenced by the fact that the Company has not suffered any strike or work stoppage for more than 48 years.
Employees at a third Company-owned restaurant are represented by the same union pursuant to a different agreement that expires on November 30, 2025. 14 We believe that our efforts to manage our workforce have been effective as evidenced by the fact that the Company has not suffered any strike or work stoppage for more than 49 years.
John Morrell & Co. brings superior sales and marketing resources to our brand through its national scale, broad distribution platform, strong retail relationships and research and development infrastructure capable of developing and introducing new products.
Smithfield Foods, Inc. brings superior sales and marketing resources to our brand through its national scale, broad distribution platform, strong retail relationships and research and development infrastructure capable of developing and introducing new products.
We have never had an alcoholic beverage license revoked . 19 We may be subject in certain states to “dram-shop” statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment which wrongfully served alcoholic beverages to such person.
We may be subject in certain states to “dram-shop” statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment which wrongfully served alcoholic beverages to such person.
Our signature crinkle-cut French fries, cooked in 100% trans-fat-free corn oil, are featured at each Nathan’s restaurant. We believe the majority of sales in our Company-owned restaurants consist of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries and beverages.
Our signature crinkle-cut French fries are featured at each Nathan’s restaurant. We believe the majority of sales in our Company-owned restaurants consist of Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries and beverages.
Through licensing programs with such companies as John Morrell & Co., a subsidiary of Smithfield Foods, Inc., and Lamb Weston, Inc., over twenty Nathan’s Famous branded SKUs are sold through grocery retail channels.
Through licensing programs with such companies as Smithfield Foods, Inc., and Lamb Weston, Inc., over twenty Nathan’s Famous branded SKUs are sold through grocery retail channels.
We license the manufacture of the proprietary spices which are used to produce Nathan’s World Famous Beef Hot Dogs to Saratoga Specialties, Inc., a wholly-owned subsidiary of John Morrell & Co. During fiscal 2022 and 2021, we earned royalties of $1,216,000 and $1,022,000, respectively, from this license. Through this agreement, we control the manufacture of all Nathan’s hot dogs.
We license the manufacture of the proprietary spices which are used to produce Nathan’s World Famous Beef Hot Dogs to Saratoga Specialties, Inc., a wholly-owned subsidiary of Solina. During fiscal 2023 and 2022, we earned royalties of $1,298,000 and $1,216,000, respectively, from this license. Through this agreement, we control the manufacture of all “Nathan’s Famous” branded hot dogs.
Food service employees at two Company-owned locations are currently represented by Local 1102 RWSDU UFCW AFL-CIO, CLC, Retail, Wholesale and Department Store Union, under an agreement that expires on June 30, 2023.
Food service employees at two Company-owned restaurants are currently represented by Local 1102 RWSDU UFCW AFL-CIO, CLC, Retail, Wholesale and Department Store Union, under an agreement that expires on June 30, 2023. We expect to renew this agreement prior to its expiration.
References to the fiscal 2022 period mean the fiscal year ended March 27, 2022 and references to the fiscal 2021 period mean the fiscal year ended March 28, 2021.
References to the fiscal 2023 period mean the fiscal year ended March 26, 2023 and references to the fiscal 2022 period mean the fiscal year ended March 27, 2022.
We also provide ongoing advice and assistance to franchisees. We meet with our franchisees to discuss upcoming marketing events, menu development and other topics, each of which is designed to provide individual restaurant and system-wide benefits.
We provide standard manuals to each franchisee covering training and operations, products and equipment and local marketing programs. We also provide ongoing advice and assistance to franchisees. We meet with our franchisees to discuss upcoming marketing events, menu development and other topics, each of which is designed to provide individual restaurant and system-wide benefits.
During fiscal 2022 and 2021, we earned royalties of $291,000 and $262,000, respectively, under this agreement. 15 Provisions and Supplies Nathan’s World Famous Beef Hot Dogs are primarily manufactured by John Morrell & Co. for sale by our Branded Product Program, our restaurant system, and at retail.
During fiscal 2023 and 2022, we earned royalties of $318,000 and $291,000, respectively, under this agreement. 12 Provisions and Supplies Nathan’s World Famous Beef Hot Dogs are primarily manufactured by Smithfield Foods, Inc. for sale by our Branded Product Program, our restaurant system, and at retail.
The operator provides Nathan’s with a fee and is required to sign a 10-year agreement. Nathan’s does not collect a royalty based on the operator’s sales and the operator is not required to report sales to Nathan’s as required by the standard franchise arrangements.
The operator provides Nathan’s with a fee and is required to sign a 10-year agreement. We may offer alternatives to the term of the typical Branded Menu Program agreement. Nathan’s does not collect a royalty based on the operator’s sales and the operator is not required to report sales to Nathan’s as required by the standard franchise arrangements.
The Agreement provides for royalties on packaged products sold to supermarkets, club stores and grocery stores, payable on a monthly basis to the Company equal to 10.8% of net sales, subject to minimum annual guaranteed royalties of at least $10 million in the first year of the term and which minimum guaranteed royalties increase annually throughout the term.
The agreement provides for royalties on packaged products sold to supermarkets, club stores and grocery stores, payable on a monthly basis to the Company equal to 10.8% of net sales, subject to minimum annual guaranteed royalties.
Since 2002, John Morrell & Co. has licensed from us the right to manufacture and sell branded hot dogs and sausages to selected foodservice accounts. Pursuant to this arrangement, we earned royalties of $1,063,000 and $916,000 during the fiscal 2022 and 2021 period, respectively. The majority of these royalties were earned from one company.
Since 2002, Smithfield Foods, Inc. has licensed from us the right to manufacture and sell branded hot dogs and sausages to select foodservice accounts. Pursuant to this arrangement, we earned royalties of $1,310,000 and $1,063,000 during the fiscal 2023 and 2022 periods, respectively. The majority of these royalties were earned from one company.
The laws of 17 other states require some form of registration (or a determination that a company is exempt or otherwise not required to register) under “business opportunity” laws, which sometimes apply to franchisors such as the Company.
The laws of 17 other states require some form of registration (or a determination that a company is exempt or otherwise not required to register) under “business opportunity” laws, which sometimes apply to franchisors such as the Company. These laws have not precluded us from seeking or awarding franchisees in any given area.
We also own, through our subsidiary NF Treacher’s Corp., the Arthur Treacher’s brand and trademarks. We use the Arthur Treacher’s brand, products and trademarks as a branded seafood menu-line extension for inclusion in certain Nathan’s Famous restaurants, as well as virtual kitchens. Currently, there are seven Arthur Treacher’s BMP locations.
We also own the Arthur Treacher’s brand and trademarks. We use the Arthur Treacher’s brand, products and trademarks as a branded seafood menu-line extension for inclusion in certain Nathan’s Famous restaurants, as well as virtual kitchens.
Pursuant to this Agreement, Nathan’s earned royalties of approximately $27,907,000 in fiscal 2022 and $27,778,000 in fiscal 2021 representing 24.3% and 36.6% of total revenues, respectively.
Pursuant to this agreement, Nathan’s earned royalties of approximately $28,688,000 in fiscal 2023 and $27,907,000 in fiscal 2022 representing 21.9% and 24.3% of total revenues, respectively.
Human Capital As of March 27, 2022, the Company employed 131 people, 32 of whom were corporate management and administrative employees, 23 of whom were restaurant managers and 76 of whom were hourly full-time and part-time foodservice employees.
Human Capital As of March 26, 2023, the Company employed 138 people, 32 of whom were corporate management and administrative employees, 17 of whom were restaurant managers and 89 of whom were hourly full-time and part-time foodservice employees.
John Morrell & Co. and other hot dog manufacturers supply the hot dogs for our Company-operated and franchise-operated restaurants. All hot dogs are manufactured in accordance with Nathan’s recipes, quality standards and proprietary spice formulations.
Smithfield Foods, Inc. and another hot dog manufacturer supply the hot dogs for our Company-owned and franchise-operated restaurants. All hot dogs are manufactured in accordance with Nathan’s recipes, quality standards and proprietary spice formulations.
Carts, kiosks and modular units generally carry only the core menu. Our food trucks may carry the full Nathan’s Famous menu.
Other units generally provide seating for 45 to 125 customers. Carts, kiosks and modular units generally carry only the core menu. Our food trucks may carry the full Nathan’s Famous menu.
On July 23, 1987, Equicor Group, Ltd. merged with and into the New York Nathan’s in a “going private” transaction. The New York Nathan’s, the Delaware subsidiary and Equicor may all be deemed to be our predecessors.
On July 23, 1987, Equicor Group, Ltd. merged with and into the New York Nathan’s in a “going private” transaction. The New York Nathan’s, the Delaware subsidiary and Equicor may all be deemed to be our predecessors. Fiscal Year Our fiscal year ends on the last Sunday in March, which will result in a 52 or 53 week year.
These laws have not precluded us from seeking or awarding franchisees in any given area. 18 Laws that regulate one or another aspect of the franchisor-franchisee relationship presently exist in 24 states as well as Puerto Rico and the U.S. Virgin Islands.
Laws that regulate one or another aspect of the franchisor-franchisee relationship presently exist in 24 states as well as Puerto Rico and the U.S. Virgin Islands.
We continue to market our franchising programs to larger, experienced and successful operators with the financial and business capability to develop multiple franchise units, as well as to individual owner-operators with evidence of restaurant management experience, net worth and sufficient capital. During the fiscal 2022 period, no single franchisee accounted for over 10% of our consolidated revenue.
We continue to seek out and to market our franchising programs to larger, experienced and successful operators with the financial and business capability to develop multiple franchise locations, as well as to individual owner-operators with evidence of restaurant management experience, net worth and sufficient capital.
We may seek to continue granting exclusive territorial rights for franchising and for the manufacturing and distribution rights in foreign countries, and we expect to require that an exclusivity fee be conveyed for these rights.
We continue to pursue international expansion opportunities. During fiscal 2023, we opened franchised locations in the following international markets: Egypt and Mexico. We may seek to continue granting exclusive territorial rights for franchising and for the manufacturing and distribution rights in foreign countries, and we expect to require that an exclusivity fee be conveyed for these rights.
It also included 287 virtual kitchens located in 20 states and 6 foreign countries. 8 Our franchise system includes among its franchisees such well-known companies as Applegreen USA Welcome Centres, LLC, HMS Host, Areas USA, National Amusements, Inc., Hershey Entertainment & Resorts Company, and Bruster’s Real Ice Cream.
Our franchise system includes among its franchisees such well-known companies as Applegreen USA Welcome Centres, LLC, HMS Host, Areas USA, National Amusements, Inc., Hershey Entertainment & Resorts Company, Bruster’s Real Ice Cream, and Frisch’s Big Boy.
Each of these restaurants has current alcoholic beverage licenses permitting the sale of these beverages.
Each of these restaurants has current alcoholic beverage licenses permitting the sale of these beverages. We have never had an alcoholic beverage license revoked .
We have also developed various Nathan’s carts, kiosks, mobile food carts, trucks and modular units. Our smaller units may not have customer seating areas, although they may often share seating areas with other fast food or quick service outlets in food court settings. Other units generally provide seating for 45 to 125 customers.
Nathan’s restaurant designs are available in a range of sizes from 300 to 4,000 square feet. We have also developed various Nathan’s carts, kiosks, mobile food carts, trucks and modular units. Our smaller units may not have customer seating areas, although they may often share seating areas with other fast food or quick service outlets in food court settings.
Talent Development We offer various management training courses for management personnel of our Company-owned and franchised Nathan’s Famous restaurants. A restaurant manager from each restaurant must successfully complete our mandated management training program.
We offer various management training courses for management personnel of Company-owned and franchised restaurants. A restaurant manager from each restaurant must successfully complete our mandated management training program. We also offer additional operations and general management training courses for all restaurant managers and other managers with supervisory responsibilities.
Available Information We file reports with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and a proxy statement on Schedule 14A. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information about issuers such as us that file electronically with the SEC.
The SEC also maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information about issuers such as us that file electronically with the SEC.
As of March 27, 2022, more than 51% of our employees were female and approximately 74% of our employee population were comprised of racial and ethnic minorities. We generally employ approximately 250-275 seasonal employees during the spring and summer months.
As of March 26, 2023, approximately 47% of our employees were female and approximately 69% of our employee population were comprised of racial and ethnic minorities. We generally employ approximately 270-300 seasonal employees during the spring and summer months.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeChanges in franchise regulation laws could impact our ability to obtain or retain licenses or approvals and adversely affect our business, financial condition, results of operations and prospects. We are also subject to federal statutes and regulations, including the rules promulgated by the U.S. Federal Trade Commission, as well as certain state laws governing the offer and sale of franchises.
Biggest changeWe are subject to federal statutes and regulations, including the rules promulgated by the U.S. Federal Trade Commission, as well as certain state laws governing the offer and sale of franchises. Many state franchise laws impose substantive requirements on franchise agreements, including limitations on non-competition provisions and on provisions concerning the termination or non-renewal of a franchise.
Furthermore, any gap in supply to retail customers may damage our brand in the eyes of consumers and the retail trade, which damage might negatively impact our overall business in general and impair our ability to continue our retail licensing program.
Furthermore, any gap in supply to retail customers may damage our brand in the eyes of consumers and the retail trade, which might negatively impact our overall business in general and impair our ability to continue our retail licensing program.
A security breach could result in operational disruptions, theft or fraud, or exposure of sensitive information to unauthorized parties. Such events could result in additional costs related to operational inefficiencies, or damages, claims or fines. Catastrophic events may disrupt our business.
A security breach could result in operational disruptions, theft or fraud, or exposure of sensitive information to unauthorized parties. Such events could result in additional costs related to operational inefficiencies, damages, claims or fines. Catastrophic events may disrupt our business.
Mr. Lorber will also receive a tax gross up payment to cover any excise tax. While we have approved a quarterly dividend policy, there can be no assurance as to the declaration of future dividends or the amount of such dividend.
Mr. Lorber will also receive a tax gross up payment to cover any excise tax. While we have approved a quarterly dividend policy, there can be no assurance as to the declaration of future dividends or the amount of such dividends.
To the extent that our franchisees use the cash from their Nathan’s restaurants to subsidize their other businesses or experience financial distress, due to over-leveraging, delayed or reduced payments of royalties, advertising fund contributions and rents for properties we lease to them, or otherwise, it could have a material adverse effect on our business, financial condition, results of operations and prospects.
To the extent that our franchisees use the cash from their Nathan’s restaurants to subsidize their other businesses or experience financial distress, due to over-leveraging, delayed or reduced payments of royalties, advertising fund contributions and rents for properties we lease to them, or otherwise, it could have a material adverse effect on our business, results of operations and financial condition.
We sell our products to retail outlets and wholesale distributors including, traditional supermarkets, mass merchandisers, warehouse clubs, wholesalers, food service distributors and convenience stores. The replacement by or poor performance of our major wholesalers, retailers or chains or our inability to collect accounts receivable from our customers could materially and adversely affect our results of operations and financial condition.
We sell our products to retail outlets and wholesale distributors including, traditional supermarkets, mass merchandisers, warehouse clubs, wholesalers, food service distributors and convenience stores. The replacement by or poor performance of our major wholesalers, retailers or chains or our inability to collect accounts receivable from our customers could materially and adversely affect our business, results of operations and financial condition.
Such factors may have a material adverse effect on our business, results of operations and financial condition. We are subject to many federal, state and local laws, as well as statutory and regulatory requirements. Failure to comply with, or changes in these laws or requirements, could have an adverse impact on our business.
Such factors may have a material adverse effect on our business, results of operations and financial condition. 30 We are subject to many federal, state and local laws, as well as statutory and regulatory requirements. Failure to comply with, or changes in these laws or requirements, could have an adverse impact on our business.
Also, to the extent that the terms and conditions of any of these license agreements change or we change any of our product licensees, our business, results of operations and financial condition could be materially affected. The quick-service restaurant business is highly competitive, and that competition could lower revenues, margins and market share.
Also, to the extent that the terms and conditions of any of these license agreements change or we change any of our product licensees, our business, results of operations and financial condition could be materially affected. 22 The quick-service restaurant business is highly competitive, and that competition could lower revenues, margins and market share.
Although we have taken measures to protect our technology systems and infrastructure, including continuously working to upgrade our existing information technology systems and provide employee training around phishing, malware and other cyber risks, there can be no assurance that we will be successful and fully protected against cyber risks and security breaches.
Although we have taken measures to protect our technology systems and infrastructure, including working to upgrade our existing information technology systems and provide employee training around phishing, malware and other cyber risks, there can be no assurance that we will be successful and fully protected against cyber risks and security breaches.
The Company’s business, financial condition, results of operations or prospects could be materially adversely affected by any of these risks. In that case, the trading price of the Company’s common stock could decline. This Form 10-K also contains forward-looking statements that involve risks and uncertainties.
The Company’s business, financial condition, results of operations or prospects could be adversely affected by any of these risks. In that case, the trading price of the Company’s common stock could decline. This Form 10-K also contains forward-looking statements that involve risks and uncertainties.
In the event that our franchisees and licensees fail to do so, our trademark and service mark rights could be diluted. 27 Our earnings and business growth strategy depend in large part on the success of our restaurant franchisees and on new restaurant openings.
In the event that our franchisees and licensees fail to do so, our trademark and service mark rights could be diluted. Our earnings and business growth strategy depend in large part on the success of our restaurant franchisees and on new restaurant openings.
Risks Related to Regulatory Matters Recent changes to minimum wage rates have increased our labor costs. We must comply with the Fair Labor Standards Act and various federal and state laws governing minimum wages. Increases in the minimum wage and labor regulations have increased our labor costs.
Risks Related to Regulatory Matters Changes to minimum wage rates have increased our labor costs. We must comply with the Fair Labor Standards Act and various federal and state laws governing minimum wages. Increases in the minimum wage and labor regulations have increased our labor costs.
Our corporate reputation or brand reputation may be harmed by actions taken by restaurant franchisees that are otherwise outside of our control. A significant portion of our earnings comes from royalties, fees and other amounts paid by our restaurant franchisees.
Our corporate reputation or brand reputation may be harmed by actions taken by restaurant franchisees that are otherwise outside of our control. A portion of our earnings comes from royalties, fees and other amounts paid by our restaurant franchisees.
Further, we cannot assure you that competitors will not infringe our marks, or that we will have adequate resources to enforce our trademarks or service marks. We also license third party franchisees and other licensees to use our trademarks and service marks.
Further, we cannot assure you that competitors will not infringe upon our marks, or that we will have adequate resources to enforce our trademarks or service marks. We also license third party franchisees and other licensees to use our trademarks and service marks.
If any of our critical information technology systems were to become unreliable, unavailable, compromised or otherwise fail, and we were unable to recover in a timely manner, we could experience an interruption that could have a material adverse effect on our business, results of operations and financial condition. 30 Cyberattacks and breaches could cause operational disruptions, fraud or theft of sensitive information.
If any of our critical information technology systems were to become unreliable, unavailable, compromised or otherwise fail, and we were unable to recover in a timely manner, we could experience an interruption that could have a material adverse effect on our business, results of operations and financial condition. 27 Cyberattacks and breaches could cause operational disruptions, fraud or theft of sensitive information.
We have registered or applied to register many of our trademarks and service marks both in the United States and in foreign countries. Because of the differences in foreign trademark laws, our trademark rights may not receive the same degree of protection in foreign countries as they would in the United States.
We have registered or applied to register many of our trademarks and service marks both in the United States and in foreign countries. Due to the differences in foreign trademark laws, our trademark rights may not receive the same degree of protection in foreign countries as they would in the United States.
A significant amount of our Branded Product Program ( “ BPP ” ) revenue is from a small number of BPP accounts. The loss of any one or more of those BPP accounts could harm our profitability and operating results. A small number of our BPP customers account for a significant portion of our BPP revenues.
A significant amount of our Branded Product Program revenue is from a small number of accounts. The loss of any one or more of those accounts could harm our profitability and operating results. A small number of our Branded Product Program customers account for a significant portion of our Branded Product Program revenues.
In the event that we are 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 BPP accounts, which would damage our business, our franchisees and our BPP customers and, in turn, negatively impact our financial results.
In the event that we are 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 our Company-owned restaurants, franchised restaurants and Branded Product Program accounts, which would damage our business, our franchisees and our Branded Product Program customers and, in turn, negatively impact our financial results.
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 may 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.
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 may become more difficult due to current market conditions and rising interest rates; 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.
Despite our considerable efforts and technological resources to secure our computer systems and these third-party systems, security breaches, such as unauthorized access and computer viruses, may occur resulting in system disruptions, shutdowns or unauthorized disclosure of confidential information.
Despite our considerable efforts to secure our computer systems and these third-party systems, security breaches, such as unauthorized access and computer viruses, may occur resulting in system disruptions, shutdowns or unauthorized disclosure of confidential information.
Any inability to generate sufficient cash flow or refinance our indebtedness on favorable terms could have a material adverse effect on our business and financial condition. 36
Any inability to generate sufficient cash flow or refinance our indebtedness on favorable terms could have a material adverse effect on our business and financial condition. 33
We remain in regular contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain; however, in the latter part of fiscal 2022 costs for certain supplies and ingredients, such as packaging, beef and beef trimmings, and freight, increased materially and rapidly, which combined with inflationary pressures could continue.
We remain in regular contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain; however, beginning in the latter part of fiscal 2022 and continuing during fiscal 2023 costs for certain supplies and ingredients, such as packaging, beef and beef trimmings, and freight, increased materially and rapidly, which combined with inflationary pressures could continue.
In 2021 and beyond, if the United States Department of Labor and agencies such as OSHA and the NLRB take a more aggressive position on defining and enforcing joint employer status, or if Congress passes the proposed “PRO Act,” and it is signed into law, that might change the status quo and expose Nathan’s to the possibility of being deemed a “joint employer” of our franchisees’ staff together with our franchisees and possibly to some franchisees being reclassified as “employees.” Among other things, a determination that Nathan's and its franchisees are joint employers of one or more franchisees’ staff may make it easier to organize our franchisees’ staff into unions, provide the staff and their union representatives with bargaining power to request that we have our franchisees raise wages, and make it more expensive and less profitable to operate a Nathan’s franchised restaurant.
If the United States Department of Labor and agencies such as the Occupational Safety and Health Administration and the NLRB take a more aggressive position on defining and enforcing joint employer status, or if Congress passes the proposed “PRO Act,” and it is signed into law, that might change the status quo and expose Nathan’s to the possibility of being deemed a “joint employer” of our franchisees’ staff together with our franchisees and possibly to some franchisees being reclassified as “employees.” Among other things, a determination that Nathan's and its franchisees are joint employers of one or more franchisees’ staff may make it easier to organize our franchisees’ staff into unions, provide the staff and their union representatives with bargaining power to request that we have our franchisees raise wages, and make it more expensive and less profitable to operate a Nathan’s franchised restaurant.
We are experiencing and have experienced certain supply chain disruptions resulting from, among other things, capacity, transportation, fuel costs, staffing, and other COVID-19 related challenges, which have and may continue to increase the cost of food and paper products and, in turn, may adversely affect our business, results of operations and financial condition.
We have experienced and may continue to experience certain supply chain disruptions resulting from, among other things, capacity, transportation, fuel costs, staffing, and other COVID-19 related challenges, which have and may continue to increase the cost of food, commodity and paper products and, in turn, may adversely affect our business, results of operations and financial condition.
The loss of the services of any of our executive officers could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as our ability to satisfy our obligations under the Notes, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all. 31 Additionally, our Company-owned restaurants and franchised restaurants are highly service-oriented, and our success depends in part upon the ability to attract, retain and motivate a sufficient number of qualified employees, including franchisee management, restaurant managers and other crew members.
The loss of the services of any of our executive officers could have a material adverse effect on our business, financial condition, results of operations and prospects, as we may not be able to find suitable individuals to replace such personnel on a timely basis or without incurring increased costs, or at all. 28 Additionally, our Company-owned restaurants and franchised restaurants are highly service-oriented, and our success depends in part upon the ability to attract, retain and motivate a sufficient number of qualified employees, including franchisee management, restaurant managers and other crew members.
If the price of beef or other food products that we use in our operations significantly increases, particularly in the BPP, and we choose not to pass, or cannot pass, these increases on to our customers, our operating margins will decrease and such decrease in operating margins could have a material adverse effect on our business, results of operations or financial condition.
If the price of beef or other food products that we use in our operations significantly increases, particularly in the Branded Product Program, and we choose not to pass, or cannot pass, these increases on to our customers, our operating margins will decrease and such decrease in operating margins could have a material adverse effect on our business, results of operations or financial condition.
A longer-term significant interruption at either of these production facilities, whether as a result of a natural disaster or other causes, could significantly impair our ability to operate our business on a day-to-day basis while John Morrell & Co. determines how to make up for any lost production capabilities, during which time we may not be able to secure sufficient alternative sources of supply on acceptable terms, if at all.
A longer-term significant interruption at either of these production facilities, whether as a result of a natural disaster or other causes, could significantly impair our ability to operate our business on a day-to-day basis while Smithfield Foods, Inc. determines how to make up for any lost production capabilities, during which time we may not be able to secure sufficient alternative sources of supply on acceptable terms, if at all.
In addition, any gap in supply to retail customers would result in lost royalty payments to us, which could have a significant adverse financial impact on our results of operations.
In addition, any gap in supply to retail customers would result in lost license royalty income to us, which could have a significant adverse financial impact on our results of operations.
Other key competitive factors include the number and location of restaurants, quality and speed of service, attractiveness of facilities, effectiveness of advertising and marketing programs, and new product development. We anticipate competition will continue to focus on convenience and pricing. Many of our competitors have substantially larger marketing budgets, which may provide them with a competitive advantage.
Other key competitive factors include the number and location of restaurants, quality and speed of service, attractiveness of facilities, effectiveness of digital and social media engagement, and new product development. We anticipate competition will continue to focus on quality, convenience and pricing. Many of our competitors have substantially larger marketing budgets, which may provide them with a competitive advantage.
Specifically, our high level of indebtedness could have important potential consequences, including, but not limited to: ● increasing our vulnerability to, and reducing our flexibility to plan for and respond to, adverse economic and industry conditions and changes in our business and the competitive environment, including ongoing adverse economic conditions arising from the COVID-19 pandemic; ● make it more difficult for us to satisfy our other financial obligations, including our obligations relating to the Notes; ● requiring the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures, acquisitions, dividends, share repurchases or other corporate purposes; ● make it more difficult for us to satisfy our obligations to the holders of the Notes, resulting in possible defaults on and acceleration of such indebtedness; ● limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; ● place us at a competitive disadvantage compared to our competitors that have less debt; ● increasing our vulnerability to a downgrade of our credit rating, which could adversely affect our cost of funds, liquidity, value and trading of the Notes and access to capital markets; ● restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; ● limit our ability to borrow additional funds or increase our cost of borrowing; ● placing us at a disadvantage compared to other less leveraged competitors or competitors with comparable debt at more favorable interest rates; ● increasing our exposure to the risk of increased interest rates insofar as current and future borrowings are subject to variable rates of interest; ● making it more difficult for us to repay, refinance or satisfy our obligations relating to the Notes; ● limiting our ability to borrow additional funds in the future and increasing the cost of any such borrowing; ● imposing restrictive covenants on our operations as the result of the terms of our indebtedness, which, if not complied with, could result in an event of default, which in turn, if not cured or waived, could result in the acceleration of our debts, including the Notes.
If new debt is added to our existing debt levels, the related risks that we face would intensify and we may not be able to meet all our debt obligations, including the repayment of the Notes. 32 Specifically, our high level of indebtedness could have important potential consequences, including, but not limited to: ● increasing our vulnerability to, and reducing our flexibility to plan for and respond to, adverse economic and industry conditions and changes in our business and the competitive environment; ● make it more difficult for us to satisfy our other financial obligations, including our obligations relating to the Notes; ● requiring the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures, acquisitions, dividends, share repurchases or other corporate purposes; ● make it more difficult for us to satisfy our obligations to the holders of the Notes, resulting in possible defaults on and acceleration of such indebtedness; ● limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; ● place us at a competitive disadvantage compared to our competitors that have less debt; ● increasing our vulnerability to a downgrade of our credit rating, which could adversely affect our cost of funds, liquidity, value and trading of the Notes and access to capital markets; ● restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; ● limit our ability to borrow additional funds or increase our cost of borrowing; ● placing us at a disadvantage compared to other less leveraged competitors or competitors with comparable debt at more favorable interest rates; ● increasing our exposure to the risk of increased interest rates insofar as current and future borrowings are subject to variable rates of interest; ● making it more difficult for us to repay, refinance or satisfy our obligations relating to the Notes; ● limiting our ability to borrow additional funds in the future and increasing the cost of any such borrowing; ● imposing restrictive covenants on our operations as the result of the terms of our indebtedness, which, if not complied with, could result in an event of default, which in turn, if not cured or waived, could result in the acceleration of our debts, including the Notes.
The market for qualified employees in the retail food industry is very competitive. We are experiencing and may continue to experience a shortage of labor for positions in our Company-owned restaurants and franchised restaurants, due to the current competitive labor market, and ongoing concerns around COVID-19.
The market for qualified employees in the retail food industry is very competitive. We are experiencing and may continue to experience a shortage of labor for positions in our Company-owned restaurants and franchised restaurants, due to the current competitive labor market.
Restaurant operations are also subject to licensing and regulation by state and local departments relating to health, food preparation, sanitation and safety standards, federal and state labor laws (including applicable minimum wage requirements, overtime, working and safety conditions and citizenship requirements), federal and state laws prohibiting discrimination and other laws regulating the design and operation of facilities, such as the Federal Americans with Disabilities Act of 1990.
Restaurant operations are also subject to licensing and regulation by state and local departments relating to health, food preparation, sanitation and safety standards, federal and state labor laws (including applicable minimum wage requirements, overtime, working and safety conditions and citizenship requirements), federal and state laws prohibiting discrimination and other laws regulating the design and operation of facilities.
As of March 27, 2022, we had total outstanding indebtedness of $110,000,000 which is due in 2025. Subject to the terms of any future agreements, we and our subsidiaries may be able to incur additional indebtedness in the future, which would increase the risks related to our high level of indebtedness.
As of March 26, 2023, we had total outstanding indebtedness of $80,000,000 which is due in 2025. Subject to the terms of any future agreements, we and our subsidiaries may be able to incur additional indebtedness in the future, which would increase the risks related to our high level of indebtedness.
These events and factors include: ● continued recovery from the COVID-19 pandemic; ● changes in customer demand; ● sales promotions by Nathan’s and its competitors; ● variations in the timing and volume of Nathan’s sales and franchisees’ sales; 29 ● changes in the terms of our existing license/supply agreements and/or the replacement of existing licenses or suppliers; ● changes in average same-store sales and customer visits; ● variations in the price, availability and shipping costs of supplies; ● seasonal effects on demand for Nathan’s products; ● unexpected slowdowns in new store development efforts; ● changes in competitive and macroeconomic conditions in the United States and in other regions of the world, including the Russia-Ukraine conflict; ● changes in the cost or availability of ingredients or labor; ● weather and acts of God; and ● changes in the number of franchises sold and in franchise agreement renewals.
These events and factors include: ● continued recovery from the COVID-19 pandemic; ● changes in customer demand; ● sales promotions by Nathan’s and its competitors; ● variations in the timing and volume of Nathan’s sales and franchisees’ sales; ● changes in the terms of our existing license/supply agreements and/or the replacement of existing licenses or suppliers; 26 ● changes in average same-store sales and customer visits; ● variations in the price, availability and shipping costs of supplies; ● tax expense, asset impairment charges and other non-operating costs; ● seasonal effects on demand for Nathan’s products; ● unexpected slowdowns in new store development efforts; ● changes in competitive and macroeconomic conditions in the United States and in other regions of the world, including the Russia-Ukraine conflict; ● changes in the cost or availability of ingredients or labor and our inability to offset these higher costs with price increases; ● weather and acts of God; and ● changes in the number of franchises sold and franchise agreement renewals.
In the event that these BPP customers experience financial difficulties or, upon the expiration of their existing agreements, if applicable, are not willing to do business with us in the future on terms acceptable to management, there could be a material adverse effect on our business, results of operations and financial condition.
In the event that any one of these Branded Product Program customers experience financial difficulties or, upon the expiration of their existing agreements, if applicable, are not willing to do business with us in the future on terms acceptable to the Company, there could be a material adverse effect on our business, results of operations and financial condition.
We also face growing competition from food delivery services, particularly in urbanized areas, and this trend, which has accelerated following the onset of the COVID-19 pandemic, is expected to continue to increase. Changes in economic, market and other conditions could adversely affect us and our franchisees, and thereby our operating results.
We also face growing competition from food delivery services including virtual kitchens, particularly in urbanized areas, and this trend, which accelerated following the onset of the COVID-19 pandemic, may continue. Changes in economic, market and other conditions could adversely affect us and our franchisees, and thereby our operating results.
John Morrell & Co. currently has two manufacturing facilities producing different Nathan ’ s products and a long-term significant interruption of a primary facility could potentially disrupt our operations. John Morrell & Co. currently has two manufacturing facilities producing different Nathan’s products.
Smithfield Foods, Inc. currently has two manufacturing facilities producing different Nathan ’ s products and a long-term significant interruption of a primary facility could potentially disrupt our operations. Smithfield Foods, Inc. currently has two manufacturing facilities producing different Nathan’s products.
A significant portion of our earnings has come from royalties paid by our product licensees, such as John Morrell & Co., Saratoga Food Specialties, Inc., a wholly-owned subsidiary of John Morrell & Co., and Lamb Weston, Inc.
A significant portion of our earnings has come from royalties paid by our product licensees, such as Smithfield Foods, Inc., Saratoga Food Specialties, Inc., a wholly-owned subsidiary of Solina, and Lamb Weston Holdings, Inc.
Because these pathogens are generally found in the environment, there is a risk that these pathogens could be introduced to our products as a result of improper handling at the manufacturing, processing, foodservice or consumer level.
In addition, our beef products are also subject to the risk of contamination from bovine spongiform encephalopathy. Because these pathogens are generally found in the environment, there is a risk that these pathogens could be introduced to our products as a result of improper handling at the manufacturing, processing, foodservice or consumer level.
If prevailing health or dietary preferences, perceptions and governmental regulation cause consumers to avoid the products we offer in favor of alternative or healthier foods, demand for our products may be reduced and could materially adversely affect our business, results of operations and financial condition.
If prevailing health or dietary preferences, perceptions and governmental regulation cause consumers to avoid the products we offer in favor of alternative or healthier foods, demand for our products may be reduced and could materially adversely affect our business, results of operations and financial condition. 24 We may not be able to adequately protect our intellectual property, which could decrease the value of our business or the value of our brands and products.
Accordingly, in the event that (i) John Morrell & Co. or its customers experience financial difficulties, (ii) there is a disruption or termination of the John Morrell & Co. agreement or (iii) there is a significant decrease in our revenue from John Morrell & Co., it would have a material adverse effect on our business, results of operations and financial condition.
Accordingly, in the event that (i) Smithfield Foods, Inc. experiences financial difficulties, (ii) there is a disruption or termination of the Smithfield Foods, Inc. agreement or (iii) there is a significant decrease in our revenue from Smithfield Foods, Inc., it would have a material adverse effect on our business, results of operations and financial condition.
Any discontinuance of the payment of a dividend or changes to the amount of a dividend compared to prior dividends could cause our stock price to decline. 35 Risks Related to the Notes Our substantial indebtedness makes us more sensitive to adverse economic conditions, may limit our ability to plan for or respond to significant changes in our business, and requires a significant amount of cash to service our debt payment obligations that we may be unable to generate or obtain.
Risks Related to the Notes Our substantial indebtedness makes us more sensitive to adverse economic conditions, may limit our ability to plan for or respond to significant changes in our business, and requires a significant amount of cash to service our debt payment obligations that we may be unable to generate or obtain.
Our principal competitors may have greater influence over their respective restaurant systems than we do because of their significantly higher percentage of company restaurants and/or ownership of franchisee real estate and, as a result, may have a greater ability to implement operational initiatives and business strategies, including their marketing and advertising programs.
Our principal competitors may have greater influence over their respective restaurant systems than we do because of their significantly higher percentage of company restaurants and/or ownership of franchisee real estate and, as a result, may have a greater ability to implement operational initiatives and business strategies, including their marketing and advertising programs. 25 As our franchisees are independent operators, we have limited influence over their ability to invest in other businesses or incur excessive indebtedness.
The Company cannot predict if new variants of COVID-19, in addition to the Delta variant, Omicron variant, and Omicron subvariant BA.2, will be discovered or if there will be another surge, what additional restrictions may be enacted, to what extent it can maintain off-premises sales volumes, whether it can maintain sufficient staffing levels, or if individuals will be comfortable returning to our dining rooms or venues such as professional sports arenas, amusement parks, shopping malls or movie theaters or following social distancing protocols, and what long-lasting effects the COVID-19 pandemic may have on the Company as a whole.
The Company cannot predict if new variants of COVID-19 will be discovered, what additional restrictions may be enacted by local, state and the federal government, to what extent it can maintain off-premises sales volumes, whether it can maintain sufficient staffing levels at our Company-owned restaurants, or if individuals will be comfortable congregating in our dining rooms or venues such as professional sports arenas, amusement parks, shopping malls or movie theaters or following social distancing protocols, and what long-lasting effects the COVID-19 pandemic may have on the Company as a whole.
In recent years, there has been an increasing focus by stakeholders – including employees, franchisees, customers, suppliers, governmental and non-governmental organizations, and investors – on ESG matters.
Our business is subject to an increasing focus on Environmental, Social, and Governance (ESG) matters. In recent years, there has been an increasing focus by stakeholders – including employees, franchisees, customers, suppliers, governmental and non-governmental organizations, and investors – on ESG matters.
Any of the foregoing occurrences may cause disruptions in the supply of our hot dog or French fry products, as the case may be, and may damage our franchisees and our BPP customers, which could result in a material adverse effect on our business, results of operations or financial condition. 24 Our earnings and business growth strategy depend in large part on the success of our product licensees and product manufacturers.
Any of the foregoing occurrences may cause disruptions in the supply of our hot dog or French fry products, as the case may be, and may damage our franchisees and our Branded Product Program customers, which could result in a material adverse effect on our business, results of operations or financial condition.
Furthermore, a supply disruption or other events might affect our brand in the eyes of consumers and the retail trade, which damage might negatively impact our overall business in general, which could result in a material adverse effect on our business, results of operations or financial condition.
Furthermore, a supply disruption or other events might affect our brand in the eyes of consumers and the retail trade, which damage might negatively impact our overall business in general, which could result in a material adverse effect on our business, results of operations or financial condition. 21 The loss of one or more of our key suppliers could lead to supply disruptions, increased costs and lower operating results.
As our franchisees are independent operators, we have limited influence over their ability to invest in other businesses or incur excessive indebtedness. Some of our franchisees have invested in other businesses, including other restaurant concepts. Such franchisees may use the cash generated by their Nathan’s restaurants to expand their other businesses or to subsidize losses incurred by such businesses.
Some of our franchisees have invested in other businesses, including other restaurant concepts. Such franchisees may use the cash generated by their Nathan’s restaurants to expand their other businesses or to subsidize losses incurred by such businesses. Additionally, as independent operators, franchisees do not require our consent to incur indebtedness.
Failure by any of our manufacturers or other suppliers to comply with regulations, or allegations of compliance failure, may disrupt their operations. Disruption of the operations of a manufacturer or other suppliers could disrupt our supply of product or raw materials, which could have an adverse effect on our business, results of operations, and financial condition.
Disruption of the operations of a manufacturer or other suppliers could disrupt our supply of product or raw materials, which could have an adverse effect on our business, results of operations, and financial condition.
As of March 27, 2022, we and our franchisees (including units operated pursuant to our BMP) operated Nathan’s restaurants in 18 states and 12 foreign countries. As of March 27, 2022, the highest concentration of operating units was in the Northeast, principally in New York and New Jersey.
As of March 26, 2023, we and our franchisees (including locations operated pursuant to our Branded Menu Program) operated Nathan’s restaurants in 17 states and 13 foreign countries. As of March 26, 2023, the highest concentration of operating units was in the Northeast, principally in New York and New Jersey.
In addition, the increase in our adjusted EBITDA (a non-GAAP financial measure (see Reconciliation of GAAP and Non-GAAP measures on page 39 of this report)) from $27,225,000 in fiscal 2021 to $31,153,000 in fiscal 2022 and income from operations from $25,515,000 in fiscal 2021 to $29,863,000 in fiscal 2022 was partially attributable to the license royalties earned from John Morrell & Co.
In addition, the increase in our adjusted EBITDA (a non-GAAP financial measure (see Reconciliation of GAAP and Non-GAAP measures on page 44 of this report)) from $31,153,000 in fiscal 2022 to $36,383,000 in fiscal 2023 and income from operations from $29,863,000 in fiscal 2022 to $34,445,000 in fiscal 2023 was partially attributable to the license royalties earned from Smithfield Foods, Inc.
Our reputation and the reputation of our brand may be harmed by actions taken by our product licensees or product manufacturers that are otherwise outside of our control.
Our earnings and business growth strategy depend in large part on the success of our product licensees and product manufacturers. Our reputation and the reputation of our brand may be harmed by actions taken by our product licensees or product manufacturers that are otherwise outside of our control.
Our ability and our franchisees’ ability to finance new restaurant development, to make improvements and additions to existing restaurants, and the acquisition of restaurants from, and sale of restaurants to, franchisees is affected by economic conditions, including interest rates and other government policies impacting land and construction costs and the cost and availability of borrowed funds. 25 Further, we are dependent upon consumer discretionary spending and are subject to changes in or uncertainty regarding macroeconomic conditions in the United States and in other regions of the world.
Our ability and our franchisees’ ability to finance new restaurant development, to make improvements and additions to existing restaurants, and the acquisition of restaurants from, and sale of restaurants to, franchisees is affected by economic conditions, including interest rates and other government policies impacting land and construction costs and the cost and availability of borrowed funds.
A decrease in customer traffic as a result of these health concerns or negative publicity, or as a result of a temporary closure of any of our Company-owned restaurants or our franchisees’ restaurants, could materially harm our business, results of operations and financial condition. 26 Additionally, we may be subject to liability if the consumption of any of our products causes injury, illness, or death.
A decrease in customer traffic as a result of these health concerns or negative publicity, or as a result of a temporary closure of any of our Company-owned restaurants or our franchisees’ restaurants, could materially harm our business, results of operations and financial condition.
There can be no assurance our Board of Directors will approve the payment of cash dividends in the future or the amount of a cash dividend.
There can be no assurance our Board of Directors will approve the payment of cash dividends in the future or the amount of a cash dividend. Any discontinuance of the payment of a dividend or changes to the amount of a dividend compared to prior dividends could cause our stock price to decline.
Additionally, as independent operators, franchisees do not require our consent to incur indebtedness. Consequently, our franchisees have in the past, and may in the future, experience financial distress as a result of over-leveraging.
Consequently, our franchisees have in the past, and may in the future, experience financial distress as a result of over-leveraging.
A significant product liability judgment or a widespread product recall may negatively impact our sales and profitability for a period of time depending on product availability, competitive reaction, and consumer attitudes.
Additionally, we may be subject to liability if the consumption of any of our products causes injury, illness, or death. A significant product liability judgment or a widespread product recall may negatively impact our sales and profitability for a period of time depending on product availability, competitive reaction, and consumer attitudes.
The National Labor Relations Board (“NLRB”) previously considered whether to hold certain franchisors responsible as a “joint employer” of its franchisees’ staff under certain fact patterns. McDonald’s USA LLC and their franchisees were the subject of administrative litigation with the NLRB.
The National Labor Relations Board (“NLRB”) is considering, and has previously considered whether to hold certain franchisors responsible as a “joint employer” of its franchisees’ staff under certain fact patterns.
The loss of one or more of our key suppliers could lead to supply disruptions, increased costs and lower operating results. We have historically relied on one supplier for the majority of our hot dogs and another supplier for a majority of our supply of frozen crinkle-cut French fries for our restaurant system.
We have historically relied on one supplier for the majority of our hot dogs and another supplier for a majority of our supply of frozen crinkle-cut French fries for our restaurant system.
Our tax returns and positions (including positions regarding jurisdictional authority of foreign governments to impose tax) are subject to review and audit by federal, state, local and international taxing authorities. An unfavorable outcome to a tax audit could result in higher tax expense, thereby negatively impacting our results of operations.
Our tax returns and positions (including positions regarding jurisdictional authority of foreign governments to impose tax) are subject to review and audit by federal, state, local and international taxing authorities.
We cannot assure that our Company-owned restaurants or our franchised restaurants will be able to purchase its food or paper products at reasonable prices, or that the cost of such food or paper products will remain stable in the future.
We cannot assure that our Company-owned restaurants or our franchised restaurants will be able to purchase its food, commodity or paper products at reasonable prices, or that the cost of such food, commodity or paper products will remain stable in the future. 20 We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2024.
The COVID-19 pandemic has and may continue to impact customer traffic at our Company-owned restaurants and franchised restaurants, as well as sales to our Branded Product Program customers and royalties from our licensing activities.
A recurrence of COVID-19 or new variants of COVID-19 could substantially impact customer traffic at our Company-owned restaurants and franchised restaurants, as well as sales to our Branded Product Program customers and royalties earned from our licensing activities.
We are subject to risks affecting the food industry generally, including risks posed by the following: food spoilage or food contamination; consumer product liability claims; product tampering; and the potential cost and disruption of a product recall.
We are subject to risks affecting the food industry generally, including risks posed by the following: food spoilage or food contamination; consumer product liability claims; product tampering; and the potential cost and disruption of a product recall. 23 Our products are susceptible to contamination by disease-producing organisms, or pathogens, such as salmonella, norovirus, hepatitis A, trichinosis and generic E. coli.
There has been a marked increase in the use of social media platforms and similar devices, including blogs, social media websites and other forms of internet-based communications that allow individuals to access a broad audience of consumers and other interested persons.
There has been a marked increase in the use of social media platforms and other forms of internet-based communications, including video sharing and instant messaging platforms that allow individuals to access a broad audience of consumers and other interested persons. The availability of information on these social media platforms and internet-based communications is virtually immediate, as is its impact.
Information posted may be adverse to our interests or may be inaccurate, each of which may harm our performance, prospects or business. The harm may be immediate without affording us an opportunity for redress or correction. Such platforms could also be used for dissemination of trade secret information, compromising valuable Company assets.
The harm may be immediate without affording us an opportunity for redress or correction. Such platforms could also be used for dissemination of trade secret information, compromising valuable Company assets. The dissemination of information online, regardless of its accuracy, could harm our business, results of operations and financial condition.
We purchase large quantities of beef and our beef costs in the United States represent approximately 80% to 90% of our food costs. The market for beef is particularly volatile and is subject to significant price fluctuations due to seasonal shifts, climate conditions, industry demand and other macroeconomic factors beyond our control.
The market for beef is particularly volatile and is subject to significant price fluctuations due to seasonal shifts, climate conditions, industry demand, inflationary pressures and other macroeconomic factors beyond our control.
Risks Related to Organizational Structure Our certificate of incorporation and by-laws and other corporate documents include anti-takeover provisions which may deter or prevent a takeover attempt.
An unfavorable outcome to a tax audit could result in higher tax expense, thereby negatively impacting our results of operations. 31 Risks Related to Organizational Structure Our certificate of incorporation and by-laws and other corporate documents include anti-takeover provisions which may deter or prevent a takeover attempt.
In addition, lenders to our franchisees may be less likely to provide current or prospective franchisees necessary financing on favorable terms, or at all, due to market conditions and operating results. 28 We rely on the performance of major retailers, wholesalers, specialty distributors and mass merchants for the success of our business, and should they perform poorly or give higher priority to other brands or products, our business could be adversely affected.
We rely on the performance of major retailers, wholesalers, specialty distributors and mass merchants for the success of our business, and should they perform poorly or give higher priority to other brands or products, our business could be adversely affected.
The failure to obtain or retain licenses or approvals to sell franchises could have a material adverse effect on our business, financial condition, results of operations and prospects.
Some states require that certain materials be filed for a franchisor to be registered and approved, before franchises can be offered or sold in that state. The failure to obtain or retain licenses or approvals to sell franchises could have a material adverse effect on our business, financial condition, results of operations and prospects.
Continuing increases in the cost of fuel may increase the distribution costs of our prime products thereby increasing the food and paper cost to us and to our franchisees, thus negatively affecting profitability. 23 From time to time, we have sought to lock in the cost of a portion of our beef purchases by entering into various commitments to purchase hot dogs during certain periods in an effort to ensure supply of product at a fixed cost of product.
From time to time, we have sought to lock in the cost of a portion of our beef purchases by entering into various commitments to purchase hot dogs during certain periods in an effort to ensure supply of product at a fixed cost of product. However, we may be unable to enter into similar purchase commitments in the future.
The COVID-19 pandemic has heightened many of the other risks described in this Item 1A, “Risk Factors.” 22 Our licensing revenue and overall profitability is substantially dependent on our agreement with John Morrell & Co. and the loss or a significant reduction of this revenue would have a material adverse effect on our financial condition and results of operations.
Our licensing revenue and overall profitability is substantially dependent on our agreement with Smithfield Foods, Inc. and the loss or a significant reduction of this revenue would have a material adverse effect on our financial condition and results of operations.
Our suppliers’ manufacturing facilities and products, as well as our franchisee and Company-operated restaurant operations, are subject to extensive laws and regulations relating to health, food preparation, sanitation and safety standards.
Our suppliers’ manufacturing facilities and products, as well as our franchisee and Company-owned restaurant operations, are subject to extensive laws and regulations relating to health, food preparation, sanitation and safety standards. Difficulties or failures in obtaining any required licenses or approvals or otherwise complying with such laws and regulations could adversely affect our revenue.
In addition, difficulties or failures in obtaining any required licenses or approvals could delay or prevent the development or opening of a new restaurant or renovations to existing restaurants, which would adversely affect our revenue. 33 Failure by third-party manufacturers or suppliers of raw materials to comply with food safety, environmental or other regulations may disrupt our supply of certain products and adversely affect our business.
In addition, difficulties or failures in obtaining any required licenses or approvals could delay or prevent the development or opening of a new restaurant or renovations to existing restaurants, which would adversely affect our revenue.
Events reported in the media, or incidents involving food-borne illnesses or food tampering, whether or not accurate, can cause damage to our brand’s reputation and affect sales and profitability.
Furthermore, we cannot assure you that compliance with governmental regulations by our suppliers or in connection with restaurant operations will eliminate the risks related to food safety. Events reported in the media, or incidents involving food-borne illnesses or food tampering, whether or not accurate, can cause damage to our brand’s reputation and affect sales and profitability.
In addition, the federal government and a number of other states are evaluating various proposals to increase their respective minimum wage. As minimum wage rates increase, we may need to increase not only the wages of our minimum wage employees but also the wages paid to employees at wage rates that are above minimum wage.
As minimum wage rates increase, we may need to increase not only the wages of our minimum wage employees but also the wages paid to employees at wage rates that are above minimum wage. As a result, we anticipate that our labor costs will continue to increase.
The quick-service restaurant business of the foodservice industry is intensely competitive regarding price, service, location, personnel and type and quality of food. We and our franchisees compete with international, national, regional and local retailers primarily through the quality, variety and value perception of food products offered.
The quick-service restaurant business of the foodservice industry is intensely competitive with respect to taste preferences, price, service, location, brand reputation, advertising and promotional initiatives, personnel, and the type and quality of menu offerings. We and our franchisees compete with international, national, regional and local restaurant chains.
Sales to our five largest BPP customers were 77.6% and 70.4% of our BPP revenues in fiscal 2022 and fiscal 2021, respectively.
Sales to our five largest Branded Product Program customers were 76% and 78% of our Branded Product Program revenues in fiscal 2023 and fiscal 2022, respectively.
Many social media platforms immediately publish the content their subscribers and participants can post, often without filters or checks on accuracy of the content posted. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and readily available. Information concerning our business and products may be posted on such platforms at any time.
The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and readily available. Information concerning our business and products may be posted on such platforms at any time. Information posted may be adverse to our interests or may be inaccurate, each of which may harm our performance, prospects or business.
We rely on third-party manufacturers to produce our products and on other suppliers to supply raw materials. Such manufacturers and other suppliers, whether in the United States or outside the United States, are subject to a number of regulations, including food safety and environmental regulations.
Such manufacturers and other suppliers, whether in the United States or outside the United States, are subject to a number of regulations, including food safety and environmental regulations. Failure by any of our manufacturers or other suppliers to comply with regulations, or allegations of compliance failure, may disrupt their operations.
Our business could be further negatively impacted if the decrease in margins for our franchisees results in the potential loss of new franchisees or the closing of a significant number of existing franchised restaurants. 32 Increases in labor costs due to new regulations or labor shortages could slow our growth or harm our business.
Our business could be further negatively impacted if the decrease in margins for our franchisees results in the potential loss of new franchisees or the closing of a significant number of existing franchised restaurants. 29 Changes in franchise regulations and laws could impact our ability to obtain or retain licenses or approvals and adversely affect our business, financial condition, results of operations and prospects.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties. Our principal executive offices consist of approximately 9,300 square feet of leased space in Jericho, NY. The lease commenced on January 1, 2010, had a ten (10) year term, with a five (5) year renewal right.
Biggest changeItem 2. Properties. We currently lease approximately 9,300 square feet of space for our executive offices in Jericho, New York for approximately $397,000 per year, under a lease agreement which expires on March 31, 2029.
At March 27, 2022, other Company-owned restaurants that were operating were located in leased space with terms expiring as shown in the following table: Nathan’s Restaurants Location Current Lease Expiration Date Approximate Square Footage Coney Island Brooklyn, NY December 2027 10,000 Coney Island Boardwalk (a) Brooklyn, NY November 2028 3,800 Long Beach Road Oceanside, NY April 2030 4,100 Central Park Avenue Yonkers, NY December 2023 3,500 (a) Seasonal satellite location.
At March 26, 2023, other Company-owned restaurants that were operating were located in leased space with terms expiring as shown in the following table: Nathan’s Restaurants Location Current Lease Expiration Date Approximate Square Footage Coney Island Brooklyn, NY December 2027 10,000 Coney Island Boardwalk (a) Brooklyn, NY November 2028 3,800 Long Beach Road Oceanside, NY April 2030 4,100 Central Park Avenue (b) Yonkers, NY December 2023 3,500 (a) Seasonal satellite location.
At March 27, 2022, in addition to the leases listed above, we were the sub-lessor of one property to a franchisee located within the metropolitan New York area. Aggregate rental expense, net of sublease income, under all current leases amounted to $1,494,000 in fiscal 2022.
At March 26, 2023, in addition to the leases listed above, we were the sub-lessor of one property to a franchisee located within the metropolitan New York area. Aggregate rental expense, net of sublease income, under all current leases amounted to $1,615,000 in fiscal 2023.
Removed
Effective April 1, 2019, we executed the first amendment to the lease extending the lease for an additional ten (10) year term to expire on March 31, 2029.
Added
(b) Effective May 3, 2023, we notified the landlord that the Company would exercise its first option to extend the term of its lease for an additional five (5) years to expire in December 2028.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDuring fiscal 2022, the Company declared and paid three quarterly dividends of $0.35 per share and one quarterly dividend of $0.45 per share. Our ability to pay future dividends is limited by the terms of an indenture , dated November 1, 2017, between the Company, certain of its wholly-owned subsidiaries, as guarantors and U.S.
Biggest changeOur ability to pay future dividends is limited by the terms of an Indenture , dated November 1, 2017, between the Company, certain of its wholly-owned subsidiaries, as guarantors and U.S. Bank Trust Company, National Association (formerly known as U.S. Bank National Association), as Trustee and Collateral Trustee (the “Indenture”).
In addition to the terms of the Indenture, the payment of any cash dividends in the future will be dependent upon our earnings and financial requirements and there can be no assurance that we will declare and pay any dividends subsequent to the June 24, 2022 dividend.
In addition to the terms of the Indenture, the payment of any cash dividends in the future will be dependent upon our earnings and financial requirements and there can be no assurance that we will declare and pay any dividends subsequent to the June 28, 2023 dividend.
Effective June 10, 2022, the Board declared its first quarterly cash dividend of $0.45 per share for fiscal year 2023 which is payable on June 24, 2022 to stockholders of record as of the close of business on June 20, 2022.
Effective June 8, 2023, the Board declared its first quarterly cash dividend of $0.50 per share for fiscal year 2024 which is payable on June 28, 2023 to stockholders of record as of the close of business on June 20, 2023.
Bank National Association, as trustee and collateral trustee (the “Indenture”). It has been the Board’s policy to return capital to our shareholders primarily through the purchase of stock pursuant to our stock buyback programs.
It has been the Board’s policy to return capital to our shareholders primarily through the purchase of stock pursuant to our stock buyback programs.
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Common Stock Prices Our common stock is quoted on the NASDAQ Global Market (“Nasdaq”) under the symbol “NATH.” Dividend Policy Historically, Nathan’s had not paid or declared any regular dividends on our common stock since our initial public offering in 1993.
Common Stock Prices Our common stock is quoted on the NASDAQ Global Market (“Nasdaq”) under the symbol “NATH.” Dividend Policy During fiscal 2023, the Company declared and paid three quarterly dividends of $0.45 per share and one quarterly dividend of $0.50 per share.
Removed
However, we paid two special dividends, a $5.00 per share special dividend in January 2018 and a $25.00 per share special dividend in March 2015. On May 31, 2018, Nathan’s Board of Directors (“the Board”) authorized the commencement of a regular dividend of $1.00 per share per annum, payable at the rate of $0.25 per quarter.
Added
Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Removed
On June 14, 2019, the Board authorized the increase of its regular dividend from $0.25 to $0.35 per quarter. Effective February 4, 2022, the Board authorized the increase of its regular dividend from $0.35 to $0.45 per quarter. During fiscal 2021, the Company declared and paid four quarterly dividends of $0.35 per share.
Added
Shareholders As of June 2, 2023 we had approximately 323 shareholders of record, excluding shareholders whose shares were held by brokerage firms, depositories and other institutional firms in “street name” for their customers. Issuer Purchases of Equity Securities The Company did not repurchase any of its common stock during the quarter ended March 26, 2023.
Removed
Shareholders As of June 3, 2022 we had approximately 342 shareholders of record, excluding shareholders whose shares were held by brokerage firms, depositories and other institutional firms in “street name” for their customers. 38 Reconciliation of GAAP and Non-GAAP Measures In addition to disclosing results that are determined in accordance with Generally Accepted Accounting Principles in the United States of America ("US GAAP"), the Company has provided EBITDA, a non-GAAP financial measure, which is defined as net income excluding (i) interest expense; (ii) provision for income taxes and (iii) depreciation and amortization expense.
Removed
The Company has also provided Adjusted EBITDA, a non-GAAP financial measure, which is defined as EBITDA, excluding (i) gain on sale of property and equipment; (ii) loss on debt extinguishment; (iii) impairment charge long-lived assets; and (iv) share-based compensation that the Company believes will impact the comparability of its results of operations.
Removed
The Company believes that EBITDA and Adjusted EBITDA, which are non-GAAP financial measures, are useful to investors to assist in assessing and understanding the Company's operating performance and underlying trends in the Company's business because EBITDA and Adjusted EBITDA are (i) among the measures used by management in evaluating performance and (ii) are frequently used by securities analysts, investors and other interested parties as a common performance measure.
Removed
EBITDA and Adjusted EBITDA are not recognized terms under US GAAP and should not be viewed as alternatives to net income or other measures of financial performance or liquidity in conformity with US GAAP. Additionally, our definitions of EBITDA and Adjusted EBITDA may differ from other companies.
Removed
Analysis of results and outlook on a non-US GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with US GAAP.
Removed
Fiscal Year (1) (In thousands) 2022 2021 2020 2019 2018 Net income $ 13,596 $ 11,075 $ 13,435 $ 21,493 $ 2,630 Interest expense 10,135 10,601 10,601 10,792 13,591 Income taxes 4,940 4,250 4,579 7,917 1,482 Depreciation & amortization 1,054 1,183 1,233 1,212 1,352 EBITDA 29,725 27,109 29,848 41,414 19,055 Gain on sale of property and equipment - - - (11,177 ) - Loss on debt extinguishment 1,354 - - - 8,872 Impairment charge long-lived assets - - - - 790 Share-based compensation 74 116 116 162 398 ADJUSTED EBITDA $ 31,153 $ 27,225 $ 29,964 $ 30,399 $ 29,115 (1) Our fiscal year ends on the last Sunday in March, which results in a 52- or 53-week year.
Removed
The fiscal years ended March 27, 2022, March 28, 2021 and March 29, 2020 were each on the basis of a 52-week reporting period. The fiscal year ended March 31, 2019 was on the basis of a 53-week reporting period. The fiscal year ended March 25, 2018 was on the basis of a 52-week reporting period.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

96 edited+28 added−54 removed24 unchanged
Biggest changeOperating lease assets and liabilities are recognized at time of lease inception. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for any payments made before the commencement date, initial direct costs and lease incentives earned.
Biggest changeOperating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for any payments made before the commencement date, initial direct costs and lease incentives earned. 38 The lease liability equals 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.
Historically, our business has been the operation and franchising of quick-service restaurants featuring Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries, and a variety of other menu offerings. Our Company-owned and franchised units operate under the name “Nathan’s Famous,” the name first used at our original Coney Island restaurant opened in 1916.
Historically, our business has been the operation and franchising of quick-service restaurants featuring Nathan’s World Famous Beef Hot Dogs, crinkle-cut French fries, and a variety of other menu offerings. Our Company-owned restaurants and franchised units operate under the name “Nathan’s Famous,” the name first used at our original Coney Island restaurant opened in 1916.
Our revenues are generated primarily from selling products under Nathan’s Branded Product Program, operating Company-owned restaurants, licensing agreements for the sale of Nathan’s products within supermarkets and club stores, the sale of Nathan’s products directly to other foodservice operators and the manufacture of certain proprietary spices by third parties and franchising the Nathan’s restaurant concept (including the Branded Menu Program and virtual kitchens).
Our revenues are generated primarily from selling products under Nathan’s Branded Product Program, operating Company-owned restaurants, licensing agreements for the sale of Nathan’s products within supermarkets and club stores, the sale of Nathan’s products directly to other foodservice operators, the manufacture of certain proprietary spices by third parties and franchising the Nathan’s restaurant concept (including the Branded Menu Program and virtual kitchens).
We may also generate revenues from advertising contributions which are made to the Company’s Advertising Fund which are also generally based on a percentage of sales. Some vendors that supply products to the Company and our restaurant system may also contribute to the Advertising Fund based upon purchases made by our franchisees and at Company-owned restaurants.
We may also generate revenues from advertising contributions which are made to the Company’s advertising fund which are also generally based on a percentage of sales. Some vendors that supply products to the Company and our restaurant system also contribute to the advertising fund based upon purchases made by our franchisees and at Company-owned restaurants.
The Company tests the recoverability of its long-lived assets with finite useful lives whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company tests for recoverability based on the projected undiscounted cash flows to be derived from such asset.
The Company tests the recoverability of its long-lived assets with finite useful lives whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company tests for recoverability based on the projected undiscounted cash flows to be derived from such assets.
Our strategic emphasis is focused on increasing the number of distribution points for our products across all of our business platforms, including our Licensing Program for distribution of Nathan’s Famous branded consumer packaged goods, our Branded Products Program for distribution of Nathan’s Famous branded bulk products to the foodservice industry, and our namesake restaurant system comprised of both Company-owned and franchised units, including virtual kitchens.
Our strategic emphasis is focused on increasing the number of distribution points for our products across all of our business platforms, including our Licensing Program for distribution of Nathan’s Famous branded consumer packaged goods, our Branded Products Program for distribution of Nathan’s Famous branded bulk products to the foodservice industry, and our namesake restaurant system comprised of both Company-owned restaurants and franchised units, including virtual kitchens.
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.
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 consolidated financial instruments that are in the scope of this update, including trade receivables.
We continue to follow guidance from health officials in determining the appropriate restrictions, if any, to place within our operations. Our Company-owned and franchised restaurants have been and could continue to be disrupted by COVID-19 related employee absences or due to changes in the availability and cost of labor.
We continue to follow guidance from health officials in determining the appropriate restrictions, if any, to place within our operations. Our Company-owned and franchised restaurants could be disrupted by COVID-19 related employee absences or due to changes in the availability and cost of labor.
Our real estate leases typically provide for fixed minimum rent payments and/or contingent rent payments based upon sales in excess of specified thresholds. Fixed minimum rent payments are recognized on a straight-line basis over the lease term. Contingent rent payments are recognized each period as the liability is incurred or the asset is earned.
Our real estate leases typically provide for fixed minimum rent payments and/or contingent rent payments based upon sales in excess of specified thresholds. Fixed minimum rent payments are recognized on a straight-line basis over the lease term. Contingent rent payments are recognized each period as the liability is incurred.
The Company currently intends to declare and pay quarterly cash dividends; however, there can be no assurance that any additional quarterly dividends will be declared or paid or of the amount or timing of such dividends, if any. 50 Our ability to pay future dividends is limited by the terms of the Indenture for the 2025 Notes.
The Company intends to declare and pay quarterly cash dividends; however, there can be no assurance that any additional quarterly dividends will be declared or paid or of the amount or timing of such dividends, if any. Our ability to pay future dividends is limited by the terms of the Indenture for the 2025 Notes.
For a discussion identifying additional risk factors and important factors that could cause actual results to differ materially from those anticipated, also see the discussions in “Forward-Looking Statements”, “Risk Factors”, and “Notes to Consolidated Financial Statements” in this Form 10-K. 52
For a discussion identifying additional risk factors and important factors that could cause actual results to differ materially from those anticipated, also see the discussions in “Forward-Looking Statements”, “Risk Factors”, and “Notes to Consolidated Financial Statements” in this Form 10-K. 47
If the projected undiscounted future cash flows are less than the carrying value of the asset, the Company will record an impairment loss, if any, based on the difference between the estimated fair value and the carrying value of the asset. The Company generally measures fair value by considering discounted estimated future cash flows from such asset.
If the projected undiscounted future cash flows are less than the carrying value of the assets, the Company will record an impairment loss, if any, based on the difference between the estimated fair value and the carrying value of the assets. The Company generally measures fair value by considering discounted estimated future cash flows from such assets.
The 2025 Notes were issued pursuant to an indenture, dated November 1, 2017, (the “Indenture”) by and among the Company, certain of its wholly-owned subsidiaries, as guarantors, and U.S. Bank National Association, as trustee and collateral trustee.
The 2025 Notes were issued pursuant to an indenture, dated November 1, 2017, (the “Indenture”) by and among the Company, certain of its wholly-owned subsidiaries, as guarantors, and U.S. Bank Trust Company, National Association (formerly U.S. Bank National Association), as trustee and collateral trustee.
Our contractual obligations primarily consist of the 2025 Notes and the related interest payments, operating leases, and employment agreement with certain executive officers. These contractual obligations impact our short-term and long-term liquidity and capital resource needs.
Our contractual obligations primarily consist of the 2025 Notes and the related interest payments, operating leases, and employment agreements with certain executive officers. These contractual obligations impact our short-term and long-term liquidity and capital resource needs.
The Company tested for recoverability of its definite-lived intangible asset based on the projected undiscounted cash flows to be derived from such co-branding agreements. Based on the quantitative test performed, the Company determined that the definite-lived intangible asset was recoverable and no impairment charge was recorded for the fiscal years ended March 27, 2022 and March 28, 2021.
The Company tested for recoverability of its definite-lived intangible asset based on the projected undiscounted cash flows to be derived from such co-branding agreements. Based on the quantitative test performed, the Company determined that the definite-lived intangible asset was recoverable and no impairment charge was recorded for the fiscal years ended March 26, 2023 and March 27, 2022.
On November 1, 2017, the Company issued $150.0 million 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”).
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”).
Goodwill is not amortized, but is tested for impairment annually during the fourth quarter, or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired. As of March 27, 2022 and March 28, 2021, the Company performed its annual impairment test of goodwill and has determined that no impairment is deemed to exist.
Goodwill is not amortized, but is tested for impairment annually during the fourth quarter, or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired. As of March 26, 2023 and March 27, 2022, the Company performed its annual impairment test of goodwill and has determined no impairment was deemed to exist.
The Company has recorded amortization expense of $113,000 during each of the fiscal years ending March 27, 2022 and March 28, 2021. The Company’s definite-lived intangible asset is tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired.
The Company has recorded amortization expense of $174,000 and $113,000 during each of the fiscal years ending March 26, 2023 and March 27, 2022. The Company’s definite-lived intangible asset is tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired.
Management believes that available cash, cash equivalents, and cash generated from operations should provide sufficient capital to finance our operations, satisfy our debt service requirements, fund dividend distributions and stock repurchases for at least the next 12 months. At March 27, 2022, we sublet one property to a franchisee that we lease from a third party.
Management believes that available cash and cash generated from operations should provide sufficient capital to finance our operations, satisfy our debt service requirements, fund dividend distributions and stock repurchases for at least the next 12 months. At March 26, 2023, we sublet one property to a franchisee that we lease from a third party.
Royalties earned under the Branded Menu Program were $580,000 in the fiscal 2022 period as compared to $220,000 in the fiscal 2021 period. Royalties earned under the Branded Menu Program are not based upon a percentage of restaurant sales but are based upon product purchases.
Royalties earned under the Branded Menu Program were $630,000 in the fiscal 2023 period as compared to $580,000 in the fiscal 2022 period. Royalties earned under the Branded Menu Program are not based upon a percentage of restaurant sales but are based upon product purchases.
The Company determined its intangible asset to have a finite useful life based on the expected future use of this intangible asset. Based upon the review of the current Arthur Treacher’s co-branding agreements, the Company determined that the remaining useful lives of these agreements is twelve years and the intangible asset is subject to annual amortization.
The Company determined its intangible asset to have a finite useful life based on the expected future use of this intangible asset. Based upon the review of the current Arthur Treacher’s co-branding agreements, the Company determined that the remaining useful lives of these agreements is six years concluding in fiscal 2028 and the intangible asset is subject to annual amortization.
Retail sales from Company-owned restaurants are recognized at the point-of-sale. Royalty revenues resulting from the retail sales from franchised restaurants and virtual kitchens are generally based on a percentage of sales and recognized on a monthly basis when it is earned and deemed collectible.
Royalty revenues resulting from the retail sales from franchised restaurants and virtual kitchens are generally based on a percentage of sales and recognized on a monthly basis when it is earned and deemed collectible.
Impairment of Goodwill and Other Intangible Assets Goodwill and intangible assets consist of (i) goodwill of $95,000 resulting from the acquisition of Nathan’s in 1987; and (ii) trademarks, trade names and other intellectual property of $1,043,000 in connection with Arthur Treacher’s.
Impairment of Goodwill and Other Intangible Assets Goodwill and intangible assets consist of (i) goodwill of $95,000 resulting from the acquisition of Nathan’s in 1987; and (ii) trademarks, and the trade name and other intellectual property of $869,000 in connection with Arthur Treacher’s.
We continue to seek opportunities to drive sales in a variety of ways as we adapt to the ever-changing consumer and business climate.
We continue to seek opportunities to drive sales in a variety of ways as we adapt to the ever-changing consumer and business climate. 37 As described in Item 1A.
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. In the fiscal year ending March 27, 2022, we were required to make interest payments of $10,563,000, all of which have been made as of January 26, 2022.
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. In the fiscal year ending March 26, 2023, we were required to make interest payments of $8,061,000, all of which have been made as of March 21, 2023.
If the Company pays regular quarterly cash dividends for the remainder of fiscal 2023 at the same rate as declared in the first quarter of fiscal 2023, the Company’s total cash requirement for dividends for all of fiscal 2023 would be approximately $7,407,000 based on the number of shares of its common stock outstanding at June 3, 2022.
If the Company pays regular quarterly cash dividends for the remainder of fiscal 2024 at the same rate as declared in the first quarter of fiscal 2024, the Company’s total cash requirement for dividends for all of fiscal 2024 would be approximately $8,159,000 based on the number of shares of common stock outstanding at June 2, 2023.
We did not make any purchase commitments for beef during the fiscal 2022 and 2021 periods. 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.
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.
During the fiscal 2022 period, the total pounds of hot dogs sold in the Branded Product Program increased by approximately 78% as compared to the fiscal 2021 period. Our average selling prices, which are partially correlated to the beef markets, increased by approximately 10% as compared to the fiscal 2021 period.
During the fiscal 2023 period, the total volume of hot dogs sold in the Branded Product Program increased by approximately 15% as compared to the fiscal 2022 period. Our average selling prices, which are partially correlated to the beef markets, increased by approximately 4% as compared to the fiscal 2022 period.
We remain in regular contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain; however, we have experienced rising transportation costs, rising costs of hot dogs due to the higher costs for beef and beef trimmings, and other food costs and paper products, which could continue to increase as the impacts of COVID-19 continue across the global supply chain.
Inflation We remain in regular contact with our major suppliers and to date we have not experienced significant disruptions in our supply chain; however, we have experienced rising transportation costs, rising costs of hot dogs due to the higher costs for beef and beef trimmings, and other food costs and paper products, which could continue into fiscal 2024.
Effective June 10, 2022, the Board declared its first quarterly cash dividend of $0.45 per share for fiscal 2023 which is payable on June 24, 2022 to stockholders of record as of the close of business on June 20, 2022.
Effective June 8, 2023, the Board declared its first quarterly cash dividend of $0.50 per share for fiscal 2024 which is payable on June 28, 2023 to stockholders of record as of the close of business on June 20, 2023.
New Accounting Standard Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, “ Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ” which significantly changes the impairment model for most financial instruments.
See Note H of the notes to our consolidated financial statements. 40 New Accounting Standard Not Yet Adopted In June 2016, the FASB issued ASU 2016-13, “ Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, ” which significantly changes the impairment model for most financial instruments.
In connection with the partial redemption, the Company recorded a loss on early extinguishment of debt of $1,354,000 that primarily reflected the redemption premium of $662,000 and the write-off of a portion of previously recorded debt issuance costs of $692,000.
On January 26, 2022, the Company completed the partial redemption, in the principal amount of $40,000,000, of the 2025 Notes. In connection with the partial redemption, the Company recorded a loss on early extinguishment of debt of $1,354,000 that primarily reflected the redemption premium of $662,000 and the write-off of a portion of previously recorded debt issuance costs of $692,000.
Offsetting these increases was a reduction in accrued interest expense of $1,089,000 due to the partial redemption of our 2025 Notes. Cash used in investing activities was $636,000 in the fiscal 2022 period primarily in connection with capital expenditures incurred for our Branded Product Program and our Coney Island restaurants.
Offsetting these increases was a reduction in accrued interest expense of $825,000 due to the partial redemption of our 2025 Notes. Cash used in investing activities was $584,000 in the fiscal 2023 period primarily in connection with capital expenditures incurred for our Branded Product Program, our Coney Island restaurants and our general ledger and accounting system upgrade.
The primary drivers of our recent growth have been our Licensing and Branded Product Programs, which are the largest contributors to the Company’s revenues and profits. 41 We continue to reinvigorate our restaurant system.
The primary drivers of our growth have been our Licensing and Branded Product Programs, which are the largest contributors to the Company’s revenues and profits.
Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by $180,000 during the fiscal 2022 period as compared to the fiscal 2021 period primarily due to additional royalties earned on sales of proprietary spices, cocktail franks and mozzarella sticks, offset, in part, by lower royalties earned on French fries.
Royalties earned from all other licensing agreements for the manufacture and sale of Nathan’s products increased by $603,000 during the fiscal 2023 period as compared to the fiscal 2022 period primarily due to additional royalties earned on sales of French fries, cocktail franks, mozzarella sticks, pickles and seasonings.
With respect to Company-owned restaurants, our cost of sales during the fiscal 2022 period was $7,222,000 or 66.2% of restaurant sales, as compared to $5,295,000 or 68.7% of restaurant sales in the fiscal 2021 period. The increase in cost of sales during the fiscal 2022 period was primarily due to the 41% increase in sales discussed above.
With respect to Company-owned restaurants, our cost of sales during the fiscal 2023 period was $7,526,000 or 62% of restaurant sales, as compared to $7,222,000 or 66% of restaurant sales in the fiscal 2022 period. The increase in cost of sales during the fiscal 2023 period was primarily due to the 12% increase in sales discussed above.
On May 1, 2022, the Company paid its first semi-annual interest payment of fiscal 2023. The 2025 Notes have no scheduled principal amortization payments prior to its final maturity on November 1, 2025. Our future results may be impacted by our interest obligations under the 2025 Notes.
The 2025 Notes have no scheduled principal amortization payments prior to its final maturity on November 1, 2025. Our future results may be impacted by our interest obligations under the 2025 Notes.
Depreciation and amortization, which primarily consists of the depreciation of fixed assets, including leasehold improvements and equipment, were $1,054,000 in the fiscal 2022 period as compared to $1,183,000 in the fiscal 2021 period. General and administrative expenses increased $1,104,000 or 9% to $13,145,000 in the fiscal 2022 period as compared to $12,041,000 in the fiscal 2021 period.
Depreciation and amortization, which primarily consists of the depreciation of fixed assets, including leasehold improvements and equipment, were $1,135,000 in the fiscal 2023 period as compared to $1,054,000 in the fiscal 2022 period. General and administrative expenses increased $916,000 or 7% to $14,061,000 in the fiscal 2023 period as compared to $13,145,000 in the fiscal 2022 period.
Please refer to Note J – Long-Term Debt in the accompanying consolidated financial statements for a further discussion regarding the Company’s indebtedness. 49 Cash provided by operations of $16,477,000 in the fiscal 2022 period is primarily attributable to net income of $13,596,000 in addition to other non-cash operating items of $2,751,000, and increases in changes in other operating assets and liabilities of $130,000.
Please refer to Note J – Long-Term Debt in the accompanying consolidated financial statements for a further discussion regarding the Company’s indebtedness. 44 Cash provided by operations of $19,837,000 in the fiscal 2023 period is primarily attributable to net income of $19,623,000 in addition to other non-cash operating items of $2,856,000, offset by changes in other operating assets and liabilities of $2,642,000.
This 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.
This 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. If the estimate of our incremental borrowing rate was changed, our operating lease assets and liabilities could differ materially.
Our gross profit (representing the difference between sales and cost of sales) was $12,063,000 or 15.6% of sales during the fiscal 2022 period as compared to $8,790,000 or 21.3% of sales during the fiscal 2021 period.
Our gross profit (representing the difference between sales and cost of sales) was $15,873,000 or 17% of sales during the fiscal 2023 period as compared to $12,063,000 or 16% of sales during the fiscal 2022 period.
Total franchise fee income was $555,000 in the fiscal 2022 period as compared to $284,000 in the fiscal 2021 period. Domestic franchise fee income was $133,000 in the fiscal 2022 period and the fiscal 2021 period. International franchise fee income was $241,000 in the fiscal 2022 period as compared to $103,000 in the fiscal 2021 period.
Total franchise fee income was $656,000 in the fiscal 2023 period as compared to $555,000 in the fiscal 2022 period. Domestic franchise fee income was $110,000 in the fiscal 2023 period as compared to $133,000 in the fiscal 2022 period. International franchise fee income was $280,000 in the fiscal 2023 period as compared to $241,000 in the fiscal 2022 period.
On May 1, 2022, we made the first semi-annual interest payment of fiscal 2023. On December 15, 2021, the Company announced its intent to complete the partial redemption, in the principal amount of $40,000,000, of the 2025 Notes.
On May 1, 2023, we made the first semi-annual interest payment of $2,650,000 for fiscal 2024. On February 14, 2023, the Company announced its intent to complete the partial redemption, in the principal amount of $30,000,000, of the 2025 Notes.
As a result of the 2025 Notes and the subsequent partial redemption which occurred on January 26, 2022, the Company expects to incur annual interest expense of $7,287,500 per annum and annual amortization of debt issuance costs of approximately $507,000.
As a result of the 2025 Notes and the subsequent partial redemption which occurred on March 21, 2023, the Company expects to incur annual interest expense of $5,300,000 per annum and annual amortization of debt issuance costs of approximately $369,000.
The following summary reflects the franchise openings and closings of the Nathan’s franchise system (including the Branded Menu Program) for the fiscal years ended March 27, 2022, March 28, 2021, March 29, 2020, March 31, 2019, and March 25, 2018.
The following summary reflects the openings and closings of the Nathan’s franchise system (including the Branded Menu Program) for the fiscal years ended March 26, 2023 and March 27, 2022.
Cost of sales in the Branded Product Program increased by approximately $30,701,000 during the fiscal 2022 period as compared to the fiscal 2021 period, primarily due to the 78% increase in the volume of product sold as discussed above, as well as a 19% increase in the average cost per pound of our hot dogs.
Cost of sales in the Branded Product Program increased by 17% to $67,646,000 during the fiscal 2023 period as compared to $57,942,000 in the fiscal 2022 period, primarily due to the 15% increase in the volume of hot dogs sold as discussed above, as well as a 1.4% increase in the average cost per pound of our hot dogs.
Interest expense of $10,135,000 in fiscal 2022 represented accrued interest of $9,475,000 on the 2025 Notes and amortization of debt issuance costs of $660,000. Interest expense of $10,601,000 in fiscal 2021 represented accrued interest of $9,910,000 on the 2025 Notes and amortization of debt issuance costs of $691,000.
Interest expense of $7,742,000 in fiscal 2023 represented interest expense of $7,234,000 on the 2025 Notes and amortization of debt issuance costs of $508,000. Interest expense of $10,135,000 in fiscal 2022 represented interest expense of $9,475,000 on the 2025 Notes and amortization of debt issuance costs of $660,000.
During the fiscal year ended March 27, 2022, the Company made its required semi-annual interest payments on May 1, 2021 and November 1, 2021, as well as its required interest payment of $626,000 on January 26, 2022 in connection with the partial redemption of its 2025 Notes.
During the fiscal 2023 period, the Company made its required semi-annual interest payments on the 2025 Notes of $3,643,750 on May 1, 2022 and November 1, 2022, as well as its required interest payment of $773,000 on March 21, 2023 in connection with the partial redemption of its 2025 Notes.
The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures. 46 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.
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.
Total royalties earned on sales of hot dogs from our license agreement with John Morrell & Co. at retail and foodservice, substantially from sales of hot dogs to WalMart, increased to $28,970,000 for the fiscal 2022 period as compared to $28,694,000 for the fiscal 2021 period.
Total royalties earned on sales of hot dogs from our license agreement with Smithfield Foods, Inc. at retail and foodservice, increased 4% to $29,998,000 for the fiscal 2023 period as compared to $28,970,000 for the fiscal 2022 period.
As described in Risk Factors and other sections in this Annual Report on Form 10-K for the year ended March 27, 2022, our future results could be impacted by many developments including the impact of the COVID-19 pandemic on our business, as well as our dependence on John Morrell & Co. as our principal supplier.
"Risk Factors" and other sections in this Annual Report on Form 10-K for the year ended March 26, 2023, our future results could be impacted by many developments including the impact of the COVID-19 pandemic and inflationary pressures on our business, as well as our dependence on Smithfield Foods, Inc. as our principal supplier, and the dependence of our licensing revenue and overall profitability on our agreement with Smithfield Foods, Inc.
On January 26, 2022, the Company completed the redemption by paying cash of $41,288,000, inclusive of the redemption premium and accrued interest, and recognized a loss on early extinguishment of approximately $1,354,000 that primarily reflected the redemption premium of $662,000 and the write-off of a portion of previously recorded debt issuance costs of $692,000.
On March 21, 2023, the Company completed the redemption by paying cash of $30,773,000, inclusive of accrued interest, and recognized a loss on early extinguishment of approximately $357,000 that primarily reflected the write-off of a portion of previously recorded debt issuance costs.
Delays in implementing price increases may limit our ability to offset these rising costs. Volatility in commodity prices, including beef and beef trimmings could have a significant adverse effect on our results of operations.
We attempt to manage inflationary pressures and rising commodity costs, at least in part, through raising prices. Delays in implementing price increases, competitive pressures, consumer spending levels and other factors may limit our ability to offset these rising costs. Volatility in commodity prices, including beef and beef trimmings could have a significant adverse effect on our results of operations.
The Company considers a history of restaurant operating losses to be its primary indicator of potential impairment for individual restaurant locations.
Impairment losses are recorded on long-lived assets whenever impairment factors are determined to be present. The Company considers a history of restaurant operating losses to be its primary indicator of potential impairment for individual restaurant locations.
Ghost kitchen royalties were $318,000 in the fiscal 2022 period as compared to $49,000 in the fiscal 2021 period. Traditional franchise royalties were $2,406,000 in the fiscal 2022 period as compared to $1,048,000 in the fiscal 2021 period.
Virtual kitchen royalties were $149,000 in the fiscal 2023 period as compared to $318,000 in the fiscal 2022 period. Traditional franchise royalties were $2,857,000 in the fiscal 2023 period as compared to $2,406,000 in the fiscal 2022 period.
During the fiscal year ending March 26, 2023, we will be required to make interest payments of $7,287,500. On May 1, 2022, we made the first semi-annual interest payment of fiscal 2023.
During the fiscal year ending March 31, 2024, we will be required to make interest payments of $5,300,000. On May 1, 2023, we made the first semi-annual interest payment of $2,650,000 for fiscal 2024.
(B) Excluding our virtual kitchens. At March 27, 2022, our franchise system consisted of 239 Nathan’s franchised units, including 122 Branded Menu units located in 18 states, and twelve foreign countries. We also operate four Company-owned restaurants (including one seasonal unit), within the New York metropolitan area.
(b) Units operating pursuant to our Branded Product Program and our virtual kitchens are excluded. At March 26, 2023, our franchise system consisted of 232 Nathan’s franchised locations, including 120 Branded Menu locations located in 17 states, and 13 foreign countries. We also operate four Company-owned restaurants (including one seasonal unit), within the New York metropolitan area.
Cash used in financing activities of $46,842,000 in the fiscal 2022 period relates primarily to the payment of $40,000,000 in connection with the partial redemption of the 2025 Notes; the payment of the related redemption premium of $662,000; and the payments of the Company’s quarterly $0.35 per share cash dividends on June 25, 2021, September 3, 2021, December 3, 2021 and the Company’s quarterly $0.45 per share cash dividend on March 4, 2022 totaling $6,173,000.
Cash used in financing activities of $39,455,000 in the fiscal 2023 period relates primarily to the payment of $30,000,000 in connection with the partial redemption of the 2025 Notes and the payments of the Company’s quarterly $0.45 per share cash dividends on June 24, 2022, September 2, 2022, December 2, 2022 and the Company’s quarterly $0.50 per share cash dividend on March 3, 2023 totaling $7,563,000.
To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations. In the past, we have entered into purchase commitments for a portion of our hot dogs to reduce the impact of increasing market prices. Our most recent purchase commitment was completed in 2016 for approximately 2,600,000 pounds of hot dogs.
To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations. In the past, we have entered into purchase commitments for a portion of our hot dogs to reduce the impact of increasing market prices. We may attempt to enter into purchase arrangements for hot dogs and other products in the future.
The ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior, spending levels, and may result in reduced customer traffic and consumer spending trends that may adversely impact our financial condition and results of operations. 40 Overview 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.
The ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior, spending levels, and may result in reduced customer traffic and consumer spending trends that may adversely impact our financial condition and results of operations.
We may also return capital to our stockholders through stock repurchases, subject to any restrictions in the Indenture, although there is no assurance that the Company will make any repurchases under its existing stock repurchase plan.
We may also return capital to our stockholders through stock repurchases, subject to any restrictions in the Indenture, although there is no assurance that the Company will make any repurchases under its existing stock repurchase plan. 45 We may from time to time seek to redeem additional portions of our 2025 Notes, through open market purchases, privately negotiated transactions or otherwise.
We recognized $181,000 and $48,000 of forfeited fees in the fiscal 2022 and fiscal 2021 periods, respectively. During the fiscal 2022 period, 54 franchised outlets opened, including 37 new Branded Menu Program outlets. Additionally, 179 new virtual kitchens opened. During the fiscal 2021 period, seven franchised outlets opened, including two new Branded Menu Program outlets.
We recognized $266,000 and $181,000 of forfeited fees in the fiscal 2023 and fiscal 2022 periods, respectively. During the fiscal 2023 period, 11 franchise locations opened, including 3 new Branded Menu Program outlets. Additionally, 18 franchise locations closed, including 5 Branded Menu Program outlets. During the fiscal 2022 period, 54 franchised locations opened, including 37 Branded Menu Program outlets.
Comparable domestic franchise sales (consisting of 55 Nathan’s outlets, excluding sales under the Branded Menu Program) were $39,677,000 during the fiscal 2022 period as compared to $16,998,000 during the fiscal 2021 period. 47 At March 27, 2022, 239 franchised outlets, including domestic, international and Branded Menu Program outlets were operating compared to 213 franchised outlets, including domestic, international and Branded Menu Program outlets at March 28, 2021.
Comparable domestic franchise sales (consisting of 63 Nathan’s locations, excluding sales under the Branded Menu Program) were $51,926,000 during the fiscal 2023 period as compared to $40,112,000 during the fiscal 2022 period. 41 At March 26, 2023, 232 franchised locations, including domestic, international and Branded Menu Program outlets were operating as compared to 239 franchised locations, including domestic, international and Branded Menu Program outlets at March 27, 2022.
Franchise fees and royalties were $3,859,000 in the fiscal 2022 period as compared to $1,601,000 in the fiscal 2021 period. Total royalties were $3,304,000 in the fiscal 2022 period as compared to $1,317,000 in the fiscal 2021 period.
Franchise fees and royalties increased by 11% to $4,292,000 in the fiscal 2023 period as compared to $3,859,000 in the fiscal 2022 period. Total royalties were $3,636,000 in the fiscal 2023 period as compared to $3,304,000 in the fiscal 2022 period.
As of March 27, 2022, Nathan’s had $271,000 of accrued interest and penalties in connection with unrecognized tax benefits. Nathan’s estimates that its unrecognized tax benefit excluding accrued interest and penalties could be further reduced by up to $16,000 during the fiscal year ending March 26, 2023.
Nathan’s estimates that its unrecognized tax benefit excluding accrued interest and penalties could be further reduced by up to $19,000 during the fiscal year ending March 31, 2024.
In the fiscal 2022 period, accounts and other receivables increased by $1,908,000 due primarily to higher Branded Product Program receivables of $2,838,000 offset, in part, by lower franchise and license royalty receivables of $1,301,000 .
In the fiscal 2023 period, accounts and other receivables increased by $2,149,000 due primarily to higher Branded Product Program receivables of $1,788,000.
Cash flow projections and fair value estimates require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record impairments in future periods and such impairments could be material.
Cash flow projections and fair value estimates require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record impairment charges in future periods and such impairments could be material. No long-lived assets were deemed impaired during the fiscal years ended March 26, 2023 and March 27, 2022.
Accounts payable, accrued expenses and other current liabilities increased by $1,695,000 due principally to an increase in accrued payroll and other benefits of $316,000 due primarily to higher incentive compensation accruals; and an increase in accounts payable of $2,340,000 due to the timing of seasonal product purchases for our Branded Product Program.
Accounts payable, accrued expenses and other current liabilities increased by $377,000 due principally to an increase in accrued payroll and other benefits of $301,000 due primarily to higher incentive compensation accruals; an increase in accrued rebates of $532,000 due under the Branded Product Program; and an increase in deferred revenue of $530,000.
If the estimate of our incremental borrowing rate was changed, our operating lease assets and liabilities could differ materially. 44 Revenue Recognition We earn revenues through our Company-owned restaurants, franchised restaurants and virtual kitchens. Retail sales from franchised restaurants and virtual kitchens are reported to us by our franchisees and virtual kitchen operators and are not included in our revenues.
Revenue Recognition We earn revenues through our Company-owned restaurants, franchised restaurants and virtual kitchens. Retail sales from franchised restaurants and virtual kitchens are reported to us by our franchisees and virtual kitchen operators and are not included in our revenues. Retail sales from Company-owned restaurants are recognized at the point of sale.
The increase is due to a 0.3% increase in retail volume during the fiscal 2022 period, as well as a 1.1% increase in average net selling price as compared to the fiscal 2021 period. The foodservice business earned higher royalties of $147,000 as compared to the fiscal 2021 period.
The increase is due to a 7% increase in average net selling price as compared to the fiscal 2022 period which was offset, in part, by a 4% decrease in retail volume. The foodservice business earned higher royalties of $247,000 as compared to the fiscal 2022 period.
Additionally, 130 new virtual kitchens opened. Advertising fund revenue, after eliminating Company contributions, was $1,972,000 in the fiscal 2022 period and $1,544,000 during the fiscal 2021 period. Costs and Expenses Overall, our cost of sales increased by $32,628,000 to $65,164,000 in the fiscal 2022 period as compared to $32,536,000 in the fiscal 2021 period.
Additionally, 28 franchise locations closed, including 9 Branded Menu Program outlets. Advertising fund revenue, after eliminating Company contributions, was $1,993,000 in the fiscal 2023 period and $1,972,000 during the fiscal 2022 period. Costs and Expenses Overall, our cost of sales increased by 15% to $75,172,000 in the fiscal 2023 period as compared to $65,164,000 in the fiscal 2022 period.
Non-cash operating expenses consist principally of a loss on debt extinguishment of $1,354,000, depreciation and amortization of $1,054,000, amortization of debt issuance costs of $660,000, share-based compensation expense of $74,000, bad debts of $186,000, offset by deferred income taxes of $444,000.
Non-cash operating expenses consist principally of a loss on debt extinguishment of $357,000, depreciation and amortization of $1,135,000, amortization of debt issuance costs of $508,000, share-based compensation expense of $258,000, bad debts of $457,000 and a loss on disposal of assets of $87,000.
Our average cost of hot dogs between April 2021 and March 2022 was approximately 19% higher than between April 2020 and March 2021.
Our average cost of hot dogs during fiscal 2023 was approximately 1.4% higher than during fiscal 2022. Our average cost of hot dogs during fiscal 2022 was approximately 19% higher than during fiscal 2021.
March 27, 2022 March 28, 2021 March 29, 2020 March 31, 2019 March 25, 2018 Beginning balance 213 216 255 276 279 Opened 54 7 16 13 40 Closed (28 ) (10 ) (55 ) (34 ) (43 ) Ending balance (A) (B) 239 213 216 255 276 (A) Including 27 Branded Menu Program locations in Ukraine which are temporarily closed as a result of the Russia-Ukraine conflict.
March 26, 2023 March 27, 2022 Beginning balance 239 213 Opened 11 54 Closed (18 ) (28 ) Ending balance ( A) (B ) 232 239 (a) Including two Branded Menu Program locations in Ukraine which are temporarily closed as a result of the Russia-Ukraine conflict.
Prepaid expenses and other current assets increased by $116,000 due principally to an increase in prepaid marketing and other expenses of $473,000 offset, in part, by reductions in prepaid income taxes of $280,000, prepaid real estate taxes of $16,000 and prepaid insurance expenses of $61,000.
Prepaid expenses and other current assets increased by $454,000 due primarily to an increase in prepaid income taxes of $146,000; an increase in prepaid marketing and other expenses of $239,000 and an increase in prepaid insurance expenses of $62,000.
There continues to be uncertainty around the COVID-19 pandemic as variants including Omicron and BA.2, a subvariant of Omicron, have caused increases in the number of reported COVID-19 cases. We cannot predict the ultimate duration, scope and severity of the COVID-19 pandemic or its ultimate impact on our business in the short or long-term.
We cannot predict the ultimate duration, scope and severity of the COVID-19 pandemic or its ultimate impact on our business in the short or long-term.
Total sales were $77,227,000 for the fifty-two weeks ended March 27, 2022 as compared to $41,326,000 for the fifty-two weeks ended March 28, 2021. Foodservice sales from the Branded Product Program were $66,322,000 for the fiscal 2022 period as compared to sales of $33,617,000 for the fiscal 2021 period.
Total sales increased by 18% to $91,045,000 for the fiscal 2023 period as compared to $77,227,000 for the fiscal 2022 period. Foodservice sales from the Branded Product Program were $78,884,000 for the fiscal 2023 period as compared to sales of $66,322,000 for the fiscal 2022 period.
Results of Operations Fiscal year ended March 27, 2022 compared to fiscal year ended March 28, 2021 Revenues Total revenues increased by $39,043,000 to $114,882,000 for the fifty-two weeks ended March 27, 2022 as compared to $75,839,000 for the fifty-two weeks ended March 28, 2021 as we lapped the significant impact of COVID-19 on our results beginning in March 2020.
Results of Operations Fiscal year ended March 26, 2023 compared to fiscal year ended March 27, 2022 Revenues Total revenues increased by 14% to $130,785,000 for the fifty-two weeks ended March 26, 2023 ("fiscal 2023") as compared to $114,882,000 for the fifty-two weeks ended March 27, 2022 ("fiscal 2022").
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. Critical Accounting Policies and Estimates Our consolidated financial statements and the notes to our consolidated financial statements contain information that is pertinent to management’s discussion and analysis.
Critical Accounting Policies and Estimates Our consolidated financial statements and the notes to our consolidated financial statements contain information that is pertinent to management’s discussion and analysis.
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 and volatile insurance costs resulting from rising rates.
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 and volatile insurance costs resulting from the uncertainty of the insurance markets. 46 Continued increases in labor costs, commodity prices and other operating expenses, including health care, could adversely affect our operations.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+1 added−2 removed4 unchanged
Biggest changeWe are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2023. To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations.
Biggest changeOur average cost of hot dogs during fiscal 2023 was approximately 1.4% higher than during fiscal 2022. We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2024.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Cash and Cash Equivalents We have historically invested our cash and cash equivalents in money market funds or short-term, fixed rate, highly rated and highly liquid instruments which are generally reinvested when they mature.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Cash and Cash Equivalents We have historically invested our cash in money market funds or short-term, fixed rate, highly rated and highly liquid instruments which are generally reinvested when they mature.
We currently do not anticipate entering into interest rate swaps or other financial instruments to hedge our borrowings. Commodity Costs Inflationary pressures on labor and rising commodity prices have directly impacted our consolidated results of operation during fiscal 2022, most notably within our restaurant operations and Branded Product Program segments. We expect this trend to continue into fiscal 2023.
We currently do not anticipate entering into interest rate swaps or other financial instruments to hedge our borrowings. Commodity Costs Inflationary pressures on labor and rising commodity prices have directly impacted our consolidated results of operation during fiscal 2023, most notably within our restaurant operations and Branded Product Program segments. We expect this trend to continue into fiscal 2024.
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. 53
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. 48
Although these existing investments are not considered at risk with respect to changes in interest rates or markets for these instruments, our rate of return on short-term investments could be affected at the time of reinvestment as a result of intervening events. As of March 27, 2022, Nathan’s cash and cash equivalents aggregated $50,063,000.
Although these existing investments are not considered at risk with respect to changes in interest rates or markets for these instruments, our rate of return on short-term investments could be affected at the time of reinvestment as a result of intervening events. As of March 26, 2023, Nathan’s cash balance aggregated $29,861,000.
Earnings on this cash would increase or decrease by approximately $125,000 per annum for each 0.25% change in interest rates. Borrowings At March 27, 2022, we had $110,000,000 of 6.625% 2025 Notes outstanding which are due in November 2025. Interest expense on these borrowings would increase or decrease by approximately $275,000 per annum for each 0.25% change in interest rates.
Earnings on this cash would increase or decrease by approximately $75,000 per annum for each 0.25% change in interest rates. Borrowings At March 26, 2023, we had $80,000,000 of 6.625% 2025 Notes outstanding which are due in November 2025. Interest expense on these borrowings would increase or decrease by approximately $200,000 per annum for each 0.25% change in interest rates.
A short-term increase or decrease of 10% in the cost of our food and paper products for the year ended March 27, 2022 would have increased or decreased our cost of sales by approximately $5,984,000.
A short-term increase or decrease of 10% in the cost of our food and paper products for the year ended March 26, 2023 would have increased or decreased our cost of sales by approximately $6,934,000.
In the past, we entered into purchase commitments for a portion of our hot dogs to reduce the impact of increasing market prices. Our most recent purchase commitment was completed in 2016 for approximately 2,600,000 pounds of hot dogs. We may attempt to enter into similar purchase arrangements for hot dogs and other products in the future.
In the past, we have entered into purchase commitments for a portion of our hot dogs to reduce the impact of increasing market prices. We may attempt to enter into purchase arrangements for hot dogs and other products in the future.
Removed
Our average cost of hot dogs between April 2021 and March 2022 was approximately 19% higher than between April 2020 and March 2021.
Added
Factors that affect beef prices are outside of our control and include foreign and domestic supply and demand, inflation, weather and seasonality. To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations.
Removed
Beginning July 2021, the cost of hot dogs has increased significantly due to higher costs for beef and beef trimmings, labor, packaging and transportation, as well as supply chain challenges associated with increased consumer demand as a result of the continued recovery from the COVID-19 pandemic.

Other NATH 10-K year-over-year comparisons