Forward-Looking Statements
This Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1933, as amended, that involve risks and uncertainties. You can identify forward-looking statements because they contain words such as "believes", "expects", "projects", "may", "would", "should", "seeks", "intends", "plans", "estimates", "anticipates" or similar expressions that relate to our strategy, plans or intentions. All statements we make relating to our estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results or to our expectations regarding future industry trends are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may change at any time, and, therefore, our actual results may differ materially from those that we expected. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements contained in this Form 10-Q are based upon information available to us on the date of this Form 10-Q. Statements in this Form 10-Q quarterly report may be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These risks and uncertainties, many of which are not within our control, include but are not limited to: the impact of the COVID-19 pandemic; economic, weather (including the affects on the supply of cattle and the impact of weather on sales at our restaurants, particularly during the Summer months), and change in the price of beef trimmings; our ability to pass on the cost of any price increases in beef and beef trimmings, or labor costs; legislative, business conditions or tariffs; the collectibility of receivables; changes in consumer tastes; the status of our licensing and supply agreements, including our licensing revenue and overall profitability being substantially dependent on our agreement withJohn Morrell & Co. , the impact of our debt service and repayment obligations under the 2025 Notes; the impact of the Tax Cuts and Jobs Act ("the Tax Act"); the continued viability ofConey Island as a destination location for visitors; the ability to continue to attract franchisees; the impact of the new minimum wage legislation inNew York State or other changes in labor laws, including court decisions which could render a franchisor as a "joint employee" or the impact of our new union contracts; our ability to attract competent restaurant and managerial personnel; the enforceability of international franchising agreements and the future effects of any food borne illness; such as bovine spongiform encephalopathy, BSE or e-coli; as well as those risks discussed from time to time in this Form 10-Q and our Form 10-K annual report for the year endedMarch 29, 2020 , and in other documents we file with theSecurities and Exchange Commission . Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements. We generally identify forward-looking statements with the words "believe," "intend," "plan," "expect," "anticipate," "estimate," "will," "should" and similar expressions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-Q. Introduction As used in this Report, the terms "we", "us", "our", "Nathan's" or the "Company" meanNathan's Famous, Inc. and its subsidiaries (unless the context indicates a different meaning). We are engaged primarily in the marketing of the "Nathan's Famous" brand and the sale of products bearing the "Nathan's Famous" trademarks through several different channels of distribution. Historically, our business has been the operation and franchising of quick-service restaurants featuring Nathan's World Famous Beef Hot Dogs, crinkle-cut French-fried potatoes, and a variety of other menu offerings. Our Company-owned and franchised units operate under the name "Nathan's Famous ," the name first used at our originalConey Island restaurant opened in 1916. Nathan's product licensing program sells packaged hot dogs and other meat products to retail customers through supermarkets or grocery-type retailers for off-site consumption. Our Branded Product Program enables foodservice retailers and others to sell some of Nathan's proprietary products outside of the realm of a traditional franchise relationship. In conjunction with this program, purchasers of Nathan's products are granted a limited use of theNathan's Famous trademark with respect to the sale of the purchased products, including Nathan's World Famous Beef Hot Dogs, certain other proprietary food items and paper goods. Our Branded Menu Program is a limited franchise program, under which foodservice operators may sell a greater variety ofNathan's Famous menu items than under the Branded Product Program. -21- --------------------------------------------------------------------------------
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).
AtJune 28, 2020 , our restaurant system consisted of 217 Nathan's franchised units, including 95 Branded Menu units, and four Company-owned units (including one seasonal unit), located in 20 states, and 9 foreign countries. AtJune 30, 2019 , our restaurant system consisted of 253 Nathan's franchised units, including 111 Branded Menu units, and four Company-owned units (including one seasonal unit), located in 22 states, and 14 foreign countries. Over the past several years, our strategic emphasis has been to increase the number of distribution points for our products across all of our business platforms, including our Licensing Program for distribution ofNathan's Famous branded consumer packaged goods, our Branded Products Program for distribution ofNathan's Famous branded bulk products to the foodservice industry, and our namesake restaurant system comprised of both Company-owned and franchised units. The primary drivers of our recent growth have been our Licensing and Branded Product Programs which have been the largest contributors to the Company's profits. We remain committed to these parts of our business and we continue to reinvigorate our restaurant system. The operating plan we have adopted in this regard is focused on surrounding our core items, Nathan's World Famous beef hot dogs and crinkle-cut French fried potatoes, with other much higher quality menu items developed to deliver best-in-class customer experience and greater customer frequency. Menu development activities have been combined with concept positioning efforts, operational improvements and more effective digital and social marketing campaigns. The goal is to improve the performance of the existing restaurant system and to grow it through franchising efforts. Additionally, while we do not expect to significantly increase the number of company-owned units, we do expect to opportunistically and strategically invest in a small number of new units as showcase locations for prospective franchisees and master developers as we seek to grow our franchise system. As described in our Annual Report on Form 10-K for the year endedMarch 29, 2020 , our future results could be materially impacted by many developments including the impact of the COVID-19 pandemic on our business, our dependence onJohn Morrell & Co. as our principal supplier and the dependence of our licensing revenue and overall profitability on our agreement withJohn Morrell & Co. In addition, our future operating results could be impacted by supply constraints on beef or by increased costs of beef compared to earlier periods in addition to the potential impact that any future tariffs may have on the business. OnNovember 1, 2017 , the Company issued$150,000,000 of 6.625% Senior Secured Notes due 2025 (the "2025 Notes") and used the majority of the proceeds of this offering to redeem (the "Redemption") the Company's 10.000% Senior Secured Notes due 2020 (the "2020 Notes"), paid a portion of the special$5.00 cash dividend and used any remaining proceeds for general corporate purposes, including working capital. Our future results could also be impacted by our obligations under the 2025 Notes. As a result of the issuance of the 2025 Notes, Nathan's incurs interest expense of$9,937,500 per annum, which reduced our cash interest expense by$3,562,500 per annum as compared to our annual interest requirements under the 2020 Notes. Nathan's expects to incur annual amortization of debt issuance costs of approximately$691,000 throughNovember 1, 2025 .
As described below, we are also including information relating to EBITDA and Adjusted EBITDA, which are non-GAAP financial measures, in this Form 10-Q quarterly report. See "Reconciliation of GAAP and Non-GAAP Measures."
Impact of COVID-19 pandemic on our business
The COVID-19 pandemic has had an impact on the Company's business, financial condition, cash flows and results of operations for the thirteen weeks endedJune 28, 2020 ("fiscal 2021 period") and continues into the second quarter of fiscal 2021. Governmental restrictions and public perceptions of the risks associated with COVID-19 have caused consumers to avoid or limit nonessential travel, gatherings in public places and other social interactions, which has adversely affected, and could continue to adversely affect, our business. The COVID-19 pandemic, has and may continue to impact customer traffic at our Company-owned restaurants and franchised restaurants, as well as our Branded Product Program customers. Three of our four Company-owned restaurants remained open throughout the fiscal 2021 period and continued to offer food primarily through take-out and delivery. Our seasonal location on the Coney IslandBoardwalk opened onMay 15, 2020 . As governmental restrictions ease, we expect to offer dine-in seating and service at reduced capacity at our restaurants. The majority of our franchised locations were temporarily closed during the fiscal 2021 period due to their locations in venues that are closed (such as shopping malls and movie theaters) or venues operating at significantly reduced traffic (such as airports and highway travel plazas). Such closures and disruptions have materially impacted franchise fees and royalties, as compared to the same period last year. We are principally focused on the well-being and safety of our guests, franchisees, restaurant associates and all other employees. Approximately 52% of our franchised locations have reopened as of the date of this report. -22-
-------------------------------------------------------------------------------- The sales and profits from our Branded Product Program have been impacted as many of our customers operate in venues that are currently closed and may be slow to reopen, such as professional sports venues, amusement parks, shopping malls and movie theaters.
To help mitigate the impact of the COVID-19 pandemic, we have taken the following decisive actions which are on-going:
? Reduced payroll costs, through salary reductions and furloughs
? Reduced discretionary operating expenses, including marketing and travel
? Postponed non-essential capital spending
? Launched curbside delivery at three of our four Company-owned restaurants
? Introduced "ghost kitchens" whereby well-known restaurants will have the
ability to market our products for pick-up or in the form of meal-kits for at
home preparation ? Implemented enhanced health and safety protocols across the Company While there is significant uncertainty as to the duration and extent of the impact of the COVID-19 pandemic, we expect the pandemic will continue to have a negative impact on our revenue and net income for the remainder of fiscal 2021. Even as government restrictions are lifted, the ongoing economic impacts and health concerns associated with the pandemic may continue to affect consumer behavior, spending levels, and could result in reduced restaurant traffic and consumer spending trends that may adversely impact our financial position and results of operations.
Critical Accounting Policies and Estimates
As discussed in our Form 10-K for the fiscal year endedMarch 29, 2020 , the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted inthe United States of America . The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses reported in those consolidated financial statements. These judgments can be subjective and complex, and consequently, actual results could differ from those estimates. Our most critical accounting policies and estimates relate to revenue recognition; leases; impairment of goodwill and other intangible assets; impairment of long-lived assets; share-based compensation and income taxes (including uncertain tax positions). Except for the adoption in Note B - simplifying the testing for goodwill impairment, there have been no other significant changes to the Company's accounting policies subsequent toMarch 29, 2020 .
Adoption of New Accounting Standards
Please refer to Note B of the preceding consolidated financial statements for our discussion of the Adoption of the New Accounting Standard.
New Accounting Standards Not Yet Adopted
Please refer to Note C of the preceding consolidated financial statements for our discussion of New Accounting Standards Not Yet Adopted.
EBITDA and Adjusted EBITDA 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.
Reconciliation of GAAP and Non-GAAP Measures
The following is provided to supplement certain Non-GAAP financial measures.
In addition to disclosing results that are determined in accordance with Generally Accepted Accounting Principles inthe 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. The Company has also provided Adjusted EBITDA, a non-GAAP financial measure, which is defined as EBITDA, excluding share-based compensation that the Company believes will impact the comparability of its results of operations. -23- -------------------------------------------------------------------------------- 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. 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. The following is a reconciliation of Net income to EBITDA and Adjusted EBITDA (in thousands): Thirteen weeks ended June 28, 2020 June 30, 2019 (unaudited) Net income $ 4,000 $ 5,369 Interest expense 2,650 2,650 Provision for income taxes 1,561 1,816 Depreciation and amortization 310 310 EBITDA 8,521 10,145 Share-based compensation 29 28 Adjusted EBITDA $ 8,550$ 10,173 Results of Operations
Thirteen weeks ended
Revenues Total sales decreased by 67% to$6,683,000 for the thirteen weeks endedJune 28, 2020 ("fiscal 2021 period") as compared to$20,237,000 for the thirteen weeks endedJune 30, 2019 ("fiscal 2020 period"). Foodservice sales from the Branded Product Program decreased by 70.5% to$4,749,000 for the fiscal 2021 period as compared to sales of$16,113,000 in the fiscal 2020 period. The sales from our Branded Product Program have been impacted by the COVID-19 pandemic as many of our customers operate in venues that are currently closed and may be slow to reopen, such as professional sports venues, amusement parks, shopping malls and movie theatres. Our average selling prices increased by approximately 7.0%. During the fiscal 2021 period, the volume of business decreased by approximately 71% as compared to the fiscal 2020 period.Total Company -owned restaurant sales decreased by 53.1% to$1,934,000 during the fiscal 2021 period as compared to$4,124,000 during the fiscal 2020 period. The decrease was primarily due to a decline in traffic related to the impact of the COVID-19 pandemic during the fiscal 2021 period. Due to governmental restrictions, our Company-owned restaurants have been only offering food through take-out and delivery services. License royalties increased by 20.6%, to$10,523,000 in the fiscal 2021 period as compared to$8,722,000 in the fiscal 2020 period. Total royalties earned on sales of hot dogs from our license agreement withJohn Morrell & Co. at retail and foodservice, substantially from sales of hot dogs toSam's Club and WalMart, increased 19.5% to$9,744,000 for the 2021 fiscal period as compared to$8,157,000 in the fiscal 2020 period. As consumers shelter at home, our licensing business continues to show strong consumer demand. The increase is due to a 7.1% increase in retail volume during the fiscal 2021 period and a 15.3% increase in average net selling price as compared to the fiscal 2020 period. Additionally, the foodservice business earned lower royalties of$267,000 as compared to the fiscal 2020 period due to a shift in theSam's Club business. Royalties earned from all other licensing agreements for the manufacture and sale of Nathan's products increased by$214,000 during the fiscal 2021 period as compared to the fiscal 2020 period primarily due to additional royalties earned on sales of French fries, cocktail franks and mozzarella sticks. Franchise fees and royalties were$191,000 in the fiscal 2021 period as compared to$1,077,000 in the fiscal 2020 period. Total royalties were$110,000 in the fiscal 2021 period as compared to$980,000 in the fiscal 2020 period. Royalties earned under the Branded Menu program were$17,000 in the fiscal 2021 period as compared to$209,000 in the fiscal 2020 period. Royalties earned under the Branded Menu Program are not based upon a percentage of restaurant sales but are based upon product purchases. Traditional franchise royalties were$93,000 in the fiscal 2021 period as compared to$771,000 in the fiscal 2020 period. Franchise restaurant sales declined to$2,218,000 in the fiscal 2021 period as compared to$17,516,000 in the fiscal 2020 period primarily due to mandated shutdowns and stay at home orders across the country as a result of the COVID-19 pandemic. Comparable domestic franchise sales (consisting of 29 Nathan's outlets, excluding sales under the Branded Menu Program) were$1,479,000 in the fiscal 2021 period as compared to$7,600,000 in the fiscal 2020 period. AtJune 28, 2020 , 217 franchised outlets, including domestic, international and Branded Menu Program outlets were operating compared to 253 franchised outlets, including domestic, international and Branded Menu Program outlets atJune 30, 2019 . Total franchise fee income was$81,000 in the fiscal 2021 period as compared to$97,000 in the fiscal 2020 period. Domestic franchise fee income was$33,000 in the fiscal 2021 period as compared to$38,000 in the fiscal 2020 period. International franchise fee income was$25,000 in the fiscal 2021 period as compared to$41,000 during the fiscal 2020 period. We recognized$23,000 and$18,000 in forfeited fees in the fiscal 2021 and fiscal 2020 periods, respectively. During the fiscal 2021 period, two new traditional franchised outlets opened, domestically. During the fiscal 2020 period, four new traditional franchised outlets opened, domestically. -24- --------------------------------------------------------------------------------
Advertising fund revenue, after eliminating Company contributions, was
Costs and Expenses Overall, our cost of sales decreased by 65.7% to$5,297,000 in the fiscal 2021 period as compared to$15,422,000 in the fiscal 2020 period. Our gross profit (representing the difference between sales and cost of sales) decreased to$1,386,000 or 20.7% of sales during the fiscal 2021 period as compared to$4,815,000 or 23.8% of sales during the fiscal 2020 period. The reduction in margin was primarily due to the higher cost of beef in the Branded Product Program and higher prime restaurant costs associated with new menu offerings. Cost of sales in the Branded Product Program decreased by approximately$9,178,000 during the fiscal 2021 period as compared to the fiscal 2020 period, primarily due to the 10.4% increase in the average cost per pound of our hot dogs offset by the 71% decrease in the volume of product sold due to the COVID-19 pandemic as discussed above. We did not make any purchase commitments of beef during the fiscal 2021 and 2020 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.
Beginning in
With respect to Company-owned restaurants, our cost of sales during the fiscal 2021 period was$1,344,000 or 69.5% of restaurant sales, as compared to$2,291,000 or 55.6% of restaurant sales in the fiscal 2020 period. We experienced higher food costs driven by the higher commodity costs of beef, and higher labor costs in connection with training associated with the introduction of new menu offerings. We expect that our future labor costs will continue to be impacted by the remaining multi-year increase in minimum wage requirements inNew York State as well as other new labor regulations and our food costs may be impacted by increases in commodity costs.
Restaurant operating expenses were
Depreciation and amortization was
General and administrative expenses decreased by$1,093,000 or 27.8% to$2,844,000 in the fiscal 2021 period as compared to$3,937,000 in the fiscal 2020 period. The decrease in general and administrative expenses was primarily attributable to reduced corporate payroll expenses through salary reductions and furloughs, a lower incentive compensation accrual, reduced tradeshow expenses in light of the COVID-19 pandemic and reductions in other discretionary expenses including marketing and travel.
Advertising fund expense, after eliminating Company contributions, was
Other Items
Interest expense of
Interest income was
Other income, which primarily relates to a sublease of a franchised restaurant,
was
Provision for Income Taxes The income tax provision for the thirteen-week periods endedJune 28, 2020 andJune 30, 2019 reflect effective tax rates of 28.1% and 25.3%, respectively. Nathan's effective tax rate for the thirteen-week periodJune 30, 2019 was reduced by 3.2%, as a result of the tax benefits associated with stock compensation. For the thirteen weeks endedJune 30, 2019 , excess tax benefits of$228,000 , were reflected in the Consolidated Statements of Earnings as a reduction to the provision for income taxes. Nathan's effective tax rate without this adjustment would have been 28.5% for the fiscal 2020 period. InNovember 2019 , theState of New Jersey notified Nathan's that our tax returns for the fiscal years endedMarch 27, 2016 ,March 26, 2017 , andMarch 25, 2018 will be audited. The audit is ongoing. -25- -------------------------------------------------------------------------------- The amount of unrecognized tax benefits atJune 28, 2020 was$321,000 all of which would impact Nathan's effective tax rate, if recognized. As ofJune 28, 2020 , Nathan's had$274,000 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 endingMarch 28, 2021 .
Off-Balance Sheet Arrangements
At
Liquidity and Capital Resources
Cash and cash equivalents atJune 28, 2020 aggregated$76,941,000 , a$176,000 decrease during the fiscal 2021 period as compared to cash and cash equivalents of$77,117,000 atMarch 29, 2020 . Net working capital increased to$76,404,000 from$75,165,000 atMarch 29, 2020 . OnMay 1, 2020 , we paid our first semi-annual interest payment of$4,968,750 for fiscal 2021. We paid our first quarter dividend of$1,440,000 onJune 26, 2020 .
In
The 2025 Notes bear interest at 6.625% per annum, payable semi-annually onMay 1st andNovember 1st of each year, beginning onMay 1, 2018 . Semi-annual interest payments are$4,968,750 . During the thirteen-week period endedJune 28, 2020 , we paid interest of$4,968,750 onMay 1, 2020 for the 2025 Notes. The 2025 Notes have no scheduled principal amortization payments prior to its final maturity onNovember 1, 2025 . Cash provided by operations of$3,002,000 in the fiscal 2021 period is primarily attributable to net income of$4,000,000 in addition to other non-cash operating items of$584,000 , offset by changes in other operating assets and liabilities of$1,582,000 . Non-cash operating expenses consist principally of$310,000 of depreciation and amortization,$173,000 amortization of debt issuance costs, share-based compensation expense of$29,000 , non-cash rental expense of$66,000 , and bad debts of$14,000 . In the fiscal 2021 period, accounts and other receivables decreased by$2,870,000 due primarily to lower Branded Product Program receivables of$3,231,000 due to reduced sales as a result of the COVID-19 pandemic, offset, in part, by higher franchise and license royalty receivables and higher seasonal receivables due on behalf of theAdvertising Fund . In the fiscal 2021 period, accounts payable, accrued expenses and other current liabilities decreased by$4,127,000 due to the reduction in accrued interest of$2,491,000 resulting from ourMay 2020 debt service payment. Accrued payroll and other benefits declined by$1,929,000 resulting from the payment of year-end compensation. This was offset by higher accrued corporate taxes of$1,199,000 . Accounts payable decreased by$790,000 due principally to reduced product purchases made for the Branded Product Program due to the slowdown resulting from the COVID-19 pandemic. Rebates due under the Branded Product Program were lower by$337,000 due primarily to reduced sales as a result of the COVID-19 pandemic. Partially offsetting this reduction were increased accrued expenses for construction costs and other items. -26- --------------------------------------------------------------------------------
Cash used in investing activities was
Cash used in financing activities of$2,941,000 in the fiscal 2021 period relates to the payment of the Company's regular$0.35 per share cash dividend of$1,440,000 . Additionally, during the fiscal 2021 period, Nathan's repurchased 26,676 shares of common stock for$1,501,000 . During the period fromOctober 2001 throughJune 28, 2020 , Nathan's purchased 5,254,081 shares of its common stock at a cost of approximately$84,770,000 pursuant to its stock repurchase plans previously authorized by the Board of Directors. SinceMarch 26, 2007 , we have repurchased 3,362,981 shares at a total cost of approximately$77,612,000 , reducing the number of shares then-outstanding by 55.9%. In 2016, the Company's Board of Directors authorized increases to the sixth stock repurchase plan for the purchase of up to 1,200,000 shares of its common stock on behalf of the Company. As ofJune 28, 2020 , Nathan's has repurchased 1,066,450 shares at a cost of$37,108,000 under the sixth stock repurchase plan. AtJune 28, 2020 , there were 133,550 shares remaining to be repurchased pursuant to the sixth stock repurchase plan. The plan does not have a set expiration date. Purchases under the Company's stock repurchase program may be made from time to time, depending on market conditions, in open market or privately-negotiated transactions, at prices deemed appropriate by management. There is no set time limit on the repurchases. OnMarch 13, 2020 , The Company's Board of Directors approved a 10b5-1 stock plan (the "10b5-1 Plan") which will expire on the earlier of (a)August 12, 2020 or (b) the earlier of when (i) the aggregate purchase price of all shares of common stock purchased under the 10b5-1 Plan equals$5,550,000 and (ii) the aggregate purchases under the 10b5-1 Plan equals 100,000 shares unless terminated earlier by the Company's Board of Directors. During the thirteen weeks endedJune 28, 2020 , the Company repurchased in open market transactions 26,676 shares of the Company's common stock at an average share price of$56.26 for a total cost of$1,501,000 under the 10b5-1 Plan. AtJune 28, 2020 ,$1,322,000 or 22,406 shares were available for repurchase under the 10b5-1 Plan. EffectiveJune 1, 2020 , Nathan's Board of Directors authorized the repurchase of up to$10,000,000 of the 2025 Notes by the Company (at a price equal to or less than par) from time to time. There is no set time limit on the repurchases. As discussed above, we had cash and cash equivalents atJune 28, 2020 aggregating$76,941,000 . Our Board routinely monitors and assesses its cash position and our current and potential capital requirements. InNovember 2017 , we refinanced our 2020 Notes through the issuance of the 2025 Notes and, our Board of Directors announced the payment of a$5.00 per share special dividend to the shareholders of record as of the close of business onDecember 22, 2017 . OnMay 31, 2018 , Nathan's Board of Directors authorized the commencement of a regular dividend of$1.00 per share per annum, payable at the rate of$0.25 per share per quarter. OnJune 14, 2019 , Nathans' Board of Directors authorized the increase of its regular quarterly dividend to$0.35 from$0.25 . The Company paid its first quarter fiscal 2021 dividend of$1,440,000 onJune 26, 2020 . EffectiveAugust 7, 2020 , the Company declared its second quarter dividend of$0.35 per common share to stockholders of record as of the close of business onAugust 24, 2020 , which is payable onSeptember 4, 2020 . We expect that in the future we will make investments in certain existing restaurants, support the growth of the Branded Product and Branded Menu Programs, service the outstanding debt, fund our dividend program and may continue our stock repurchase programs, funding those investments from our operating cash flow. We may also incur capital and other expenditures or engage in investing activities in connection with opportunistic situations that may arise on a case-by-case basis. During the fiscal year endingMarch 28, 2021 , we will be required to make interest payments of$9,937,500 , of which$4,968,750 has been made onMay 1, 2020 . Management believes that available cash, cash equivalents and cash generated from operations should provide sufficient capital to finance our operations, satisfy our debt service requirements, fund dividend distributions and stock repurchases for at least the next 12 months. AtJune 28, 2020 , we sublet one property to a franchisee that we lease from a third party. We remain contingently liable for all costs associated with this property including: rent, property taxes and insurance. We may incur future cash payments with respect to such property, consisting primarily of future lease payments, including costs and expenses associated with terminating such lease. -27-
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The following schedule represents Nathan's cash contractual obligations and
commitments by maturity as of
Payments Due by Period Cash Contractual Less than More than Obligations Total 1 Year 1-3 Years 3-5 Years 5 Years Long term debt (a)$ 150,000 $ - $ - $ -$ 150,000 Employment Agreements (b) 3,892 1,292 2,000 400 200 Operating Leases (c) 13,775 1,702 3,691 3,417 4,965 Gross Cash Contractual Obligations 167,667 2,994 5,691 3,817 155,165 Sublease Income (c) 1,275 246 381 338 310 Net Cash Contractual Obligations$ 166,392 $ 2,748 $ 5,310 $ 3,479 $ 154,855
a) Represents the principal due on the 2025 Notes, but does not include interest
expense.
b) Reflects the temporary salary reductions implemented in response to COVID-19,
estimated to remain in place for six months. c) See Note R to the Consolidated Financial Statements for additional information on the Company's lease commitments. AtJune 28, 2020 , the Company had unrecognized tax benefits of$321,000 . The Company believes that is reasonably possible that the unrecognized tax benefits may decrease by$16,000 within the next year. A reasonable estimate of the timing of the remaining liabilities is not practicable. OnFebruary 27, 2017 , a wholly-owned subsidiary of the Company executed a Guaranty of Lease (the "Brooklyn Guaranty") in connection with its re-franchising of a restaurant located inBrooklyn, New York . The Company is obligated to make payments under the Brooklyn Guaranty in the event of a default by the tenant/franchisee. The Brooklyn Guaranty has an initial term of 10 years and one 5-year option and is limited to 24 months of rent for the first three years of the term. For the remainder of the term, the Brooklyn Guaranty is limited to 12 months of rent plus reasonable costs of collection and attorney's fees. As ofJune 28, 2020 , Nathan's has recorded a liability of$110,000 in connection with the Brooklyn Guaranty which does not include potential percentage rent, real estate tax increases, attorney's fees and other costs as these amounts are not reasonably determinable at this time. Nathan's has received a personal guaranty from the franchisee for all obligations under the Brooklyn Guaranty. Inflationary Impact We do not believe that general inflation has materially impacted earnings since 2006. However, we have experienced significant volatility in our costs for our hot dogs and certain food products, distribution costs and utilities. BetweenApril 2018 andMarch 2020 , beef prices traded within a range of + or - 10%. Prices were at the lowest levels betweenOctober 2018 andMarch 2019 as compared to higher levels betweenOctober 2019 andMarch 2020 . Our average cost of hot dogs betweenOctober 2019 andMarch 2020 was approximately 11.2% higher than betweenOctober 2018 andMarch 2019 . Our average cost of hot dogs betweenApril 2020 andJune 2020 was approximately 9.1% higher than betweenApril 2019 andJune 2019 .
Beginning in
We are unable to predict the future cost of our hot dogs and expect to experience price volatility for our beef products during fiscal 2021. To the extent that beef prices increase as compared to earlier periods, it could impact our results of operations. 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. 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.New York State passed legislation increasing the minimum hourly wage for fast food workers of restaurant chains with 30 or more locations nationwide. The increase is being phased in differently betweenNew York City and the rest ofNew York State . EffectiveDecember 31, 2019 , the minimum wage was$15.00 inNew York City and increased to$13.75 per hour for the remainder ofNew York State .
The minimum hourly rate of pay for the remainder of
-28- -------------------------------------------------------------------------------- All of Nathan's Company-operated restaurants are withinNew York State , two of which operate withinNew York City that have been significantly affected by this new legislation. The Company is further studying the impact on the Company's operations and is developing strategies and tactics, including pricing and potential operating efficiencies, to minimize the effects of these increases and future increases. We have recently increased certain selling prices to pass on recent cost of sales increases. However, if we are unable to fully offset these and future increases through pricing and operating efficiencies, our margins and profits will be negatively affected.
Effective
EffectiveNovember 27, 2017 , the City of New York Fair Work Week Legislation package of bills took effect that the city estimates will cover some 65,000 fast food workers by giving them more predictable work schedules. A key component of the package is a requirement that fast food restaurants schedule their workers at least two weeks in advance or pay employees between$10 to$75 per scheduling change, depending on the situation. Due to Nathan's dependency on weather conditions at our twoConey Island beach locations during the summer season, we are unable to determine the potential impact on our results of operations, which could be material. We believe that we have been able to implement tools to minimize the financial impact of this legislation. Nevertheless, we incurred approximately$1,000 of additional costs due to this legislation during the fiscal 2021 period. Continued increases in labor, food and other operating expenses, including health care, could adversely affect our operations and those of the restaurant industry and we might have to further reconsider our pricing strategy as a means to offset reduced operating margins. We believe that these increases in the minimum wage and other changes in employment law have had a significant financial impact on our financial results and the results of our franchisees that operate inNew York State . Our business could be 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 franchised restaurants. The Company's business, financial condition, operating results and cash flows can be impacted by a number of factors, including but not limited to those set forth above in "Management's Discussion and Analysis of Financial Condition and Results of Operations," any one of which could cause our actual results to vary materially from recent results or from our anticipated future results. For a discussion identifying additional risk factors and important factors that could cause actual results to differ materially from those anticipated, also see the discussions in "Forward-Looking Statements" and "Notes to Consolidated Financial Statements" in this Form 10-Q and "Risk Factors" in our Form 10-K for our fiscal year endedMarch 29, 2020 . -29-
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