PART I. FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements.) This section presents the unaudited consolidated financial statements for the thirteen weeks ended June 30, 2019, including the impact of adopting the new lease accounting standard (Topic 842) [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$105.0 million** as of June 30, 2019, primarily due to the recognition of operating lease assets, while the stockholders' deficit improved to **$(65.1) million** Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 (Unaudited) | March 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | **$105,001** | **$94,306** | | Cash and cash equivalents | $73,903 | $75,446 | | Operating lease assets | $7,655 | - | | **Total Liabilities** | **$170,149** | **$164,450** | | Long-term debt, net | $145,622 | $145,449 | | Operating lease liabilities (Current & Long-term) | $8,373 | - | | **Total stockholders' deficit** | **$(65,148)** | **$(70,144)** | - The company adopted the new lease guidance (Topic 842) in the first quarter of fiscal 2020, resulting in the recognition of operating lease assets of **$7.8 million** and liabilities of **$8.5 million** as of April 1, 2019[21](index=21&type=chunk)[23](index=23&type=chunk) [Consolidated Statements of Earnings](index=6&type=section&id=Consolidated%20Statements%20of%20Earnings) Total revenues slightly increased to **$30.5 million** for the thirteen weeks ended June 30, 2019, with net income growing to **$5.4 million** or **$1.28 per diluted share** Consolidated Earnings Summary (in thousands, except per share data) | Metric | Thirteen Weeks Ended June 30, 2019 | Thirteen Weeks Ended June 24, 2018 | | :--- | :--- | :--- | | Total Revenues | $30,518 | $30,168 | | Income from Operations | $9,448 | $9,087 | | Net Income | $5,369 | $4,795 | | Diluted EPS | $1.28 | $1.13 | | Dividends declared per share | $0.35 | $0.25 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The company experienced a net decrease in cash and cash equivalents of **$1.5 million**, ending the quarter with **$73.9 million**, primarily due to operating and financing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Thirteen Weeks Ended June 30, 2019 | Thirteen Weeks Ended June 24, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,036) | $(2,812) | | Net cash used in investing activities | $(106) | $(138) | | Net cash used in financing activities | $(401) | $(1,371) | | **Net decrease in cash** | **$(1,543)** | **$(4,321)** | | **Cash at end of period** | **$73,903** | **$53,018** | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes detail the adoption of Topic 842, disaggregated revenues by segment, long-term debt, and segment performance, highlighting the Branded Product Program and Product Licensing as key drivers Disaggregated Revenues by Segment (in thousands) | Segment | Thirteen weeks ended June 30, 2019 | Thirteen weeks ended June 24, 2018 | | :--- | :--- | :--- | | Branded Product Program | $16,113 | $16,445 | | Product licensing | $8,722 | $8,098 | | Restaurant operations | $5,201 | $5,130 | | **Total Revenues** | **$30,518** | **$30,168** | Income from Operations by Segment (in thousands) | Segment | Thirteen weeks ended June 30, 2019 | Thirteen weeks ended June 24, 2018 | | :--- | :--- | :--- | | Branded Product Program | $2,203 | $2,531 | | Product licensing | $8,676 | $8,053 | | Restaurant operations | $750 | $750 | | Corporate | $(2,181) | $(2,247) | | **Total Income from Operations** | **$9,448** | **$9,087** | - The company has **$150 million** of **6.625%** Senior Secured Notes due in 2025, and as of June 30, 2019, was in compliance with all associated covenants[68](index=68&type=chunk)[71](index=71&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management analyzes the company's financial performance for the quarter, highlighting increased license royalties, improved profitability, and the impact of commodity costs and labor wage increases [Results of Operations](index=29&type=section&id=Results%20of%20Operations) Total revenues increased by **1.1%** to **$30.5 million**, driven by higher license royalties, while gross profit margin slightly decreased to **23.8%** due to increased beef costs - License royalties increased by **7.7%** to **$8.7 million**, primarily due to an **8.2%** increase in royalties from the John Morrell & Co agreement, driven by a **6.6%** increase in retail volume[116](index=116&type=chunk) - Foodservice sales from the Branded Product Program decreased by **2.0%** to **$16.1 million**, attributed to a **0.9%** decrease in volume and a **0.5%** decrease in average selling prices[113](index=113&type=chunk) - Gross profit margin decreased to **23.8%** from **24.5%** year-over-year, mainly due to higher beef costs in the Branded Product Program, which was partially offset by higher margins from company-operated restaurants[121](index=121&type=chunk) [EBITDA and Adjusted EBITDA (Non-GAAP Measures)](index=27&type=section&id=EBITDA%20and%20Adjusted%20EBITDA) The company's non-GAAP EBITDA increased to **$10.1 million** and Adjusted EBITDA rose to **$10.2 million** for the thirteen weeks ended June 30, 2019 Reconciliation of Net Income to EBITDA and Adjusted EBITDA (in thousands) | Metric | Thirteen weeks ended June 30, 2019 | Thirteen weeks ended June 24, 2018 | | :--- | :--- | :--- | | Net income | $5,369 | $4,795 | | Interest expense | $2,650 | $2,650 | | Provision for income taxes | $1,816 | $1,724 | | Depreciation and amortization | $310 | $345 | | **EBITDA** | **$10,145** | **$9,514** | | Share-based compensation | $28 | $81 | | **Adjusted EBITDA** | **$10,173** | **$9,595** | [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and cash equivalents decreased to **$73.9 million** due to debt service and dividend payments, with management affirming sufficient liquidity to fund operations and obligations for the next 12 months - Cash and cash equivalents decreased by **$1.5 million** during the quarter to **$73.9 million** at June 30, 2019[133](index=133&type=chunk) - The company has **$150 million** of **6.625%** Senior Secured Notes due 2025, with semi-annual interest payments of approximately **$5.0 million**[134](index=134&type=chunk)[135](index=135&type=chunk) - The Board declared a quarterly cash dividend of **$0.35 per share**, with the first quarter dividend of **$1,479,000** paid on June 28, 2019[64](index=64&type=chunk)[133](index=133&type=chunk) - As of June 30, 2019, **245,868 shares** remained available for repurchase under the company's sixth stock repurchase plan[67](index=67&type=chunk)[152](index=152&type=chunk) [Inflationary Impact](index=36&type=section&id=Inflationary%20Impact) The company faces inflationary pressures from escalating beef prices, resulting in a **0.7%** higher hot dog market price, and increased labor costs due to New York State minimum wage legislation - Beef prices moderately escalated between January and June 2019, causing the market price for hot dogs to be approximately **0.7%** higher than in the prior-year period[161](index=161&type=chunk)[177](index=177&type=chunk) - New York State legislation increased the minimum wage for fast-food workers, reaching **$15.00/hour** in New York City effective December 31, 2018, significantly affecting the company's two restaurants there[164](index=164&type=chunk)[167](index=167&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) The company's primary market risks include interest rate fluctuations affecting cash and fixed-rate debt, and significant commodity price volatility, particularly in beef, impacting cost of sales - A **0.25%** change in interest rates would impact annual earnings on cash by approximately **$185,000** and annual interest expense on borrowings by **$375,000**[175](index=175&type=chunk)[176](index=176&type=chunk) - The company faces significant volatility in beef costs, where a **10%** short-term change in food and paper product costs would have impacted the cost of sales for the quarter by approximately **$1,370,000**[177](index=177&type=chunk)[179](index=179&type=chunk) [Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period, the company's disclosure controls and procedures were effective[181](index=181&type=chunk) - No changes in internal controls over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal control[182](index=182&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings.) The company reported no material legal proceedings for the period - None[185](index=185&type=chunk) [Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors.) The company refers investors to the comprehensive risk factors detailed in its Annual Report on Form 10-K for the fiscal year ended March 31, 2019 - The company refers to the risk factors discussed in its Annual Report on Form 10-K for the fiscal year ended March 31, 2019[185](index=185&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) The company reported no unregistered sales of equity securities or use of proceeds during the quarter - None[186](index=186&type=chunk) [Other Information](index=31&type=section&id=Item%205.%20Other%20Information.) The Board of Directors declared a second quarterly cash dividend of **$0.35 per share**, payable on September 6, 2019 - Effective August 9, 2019, the Board declared a quarterly cash dividend of **$0.35 per share**, payable on September 6, 2019[189](index=189&type=chunk) [Exhibits](index=32&type=section&id=Item%206.%20Exhibits.) This section lists the exhibits filed with the Form 10-Q report, including CEO and CFO certifications and XBRL-formatted financial statements - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL data files (101.1)[193](index=193&type=chunk)

Franchise Operations - The franchise system consisted of 255 Nathan's franchised units located in 22 states and 14 foreign countries as of March 31, 2019, down from 276 units the previous year, reflecting a net decrease of 21 units [227]. - During the fiscal year ended March 31, 2019, Nathan's opened 13 franchised restaurants but closed 34, resulting in a net loss of 21 units [227]. - The company had 276 franchised restaurants operating at the beginning of the fiscal year ended March 31, 2018, indicating a decline in franchise operations over the subsequent year [227]. - Franchise restaurant sales decreased to $65,607,000 in fiscal 2019 from $69,838,000 in fiscal 2018, primarily due to unit closures [282]. - Comparable domestic franchise sales for fiscal 2019 were $51,038,000, a slight increase from $50,253,000 in fiscal 2018, reflecting a 0.4% decline on a 52-week basis [282]. - Franchise restaurant sales decreased to $69,838,000 in the fiscal 2018 period from $74,553,000 in the fiscal 2017 period, primarily due to unit closures [307]. Revenue Generation - The company generated revenues primarily from the Branded Product Program, restaurant operations, and product licensing agreements, with a focus on selling Nathan's products in supermarkets and club stores [225]. - The Branded Product Program allows foodservice retailers to sell Nathan's proprietary products, which has been a significant revenue source since its introduction in 1998 [224]. - License royalties increased to $23,615,000 in fiscal 2019 from $23,020,000 in fiscal 2018, driven by a 2.2% increase in volume [281]. - License royalties rose to $23,020,000 in the fiscal 2018 period, compared to $20,368,000 in the fiscal 2017 period, driven by a 9.3% increase in volume [306]. Financial Performance - Total sales for fiscal 2019 were $71,561,000, a decrease from $76,708,000 in fiscal 2018, with foodservice sales from the Branded Product Program dropping from $62,623,000 to $57,960,000 [278]. - Gross profit for fiscal 2019 was $18,782,000, representing 26.2% of sales, an improvement from $17,956,000 or 23.4% of sales in fiscal 2018 [287]. - Total cost of sales decreased by $5,973,000 to $52,779,000 in fiscal 2019 compared to $58,752,000 in fiscal 2018 [287]. - General and administrative expenses increased by $360,000 or 2.7% to $13,851,000 in fiscal 2019, primarily due to higher marketing and professional fees [292]. - Interest expense for fiscal 2019 was $10,792,000, down from $13,591,000 in fiscal 2018, reflecting changes in debt structure [296]. - Cash provided by operations for fiscal 2019 was $11,156,000, driven by net income of $21,493,000 and non-cash operating items of $2,561,000 [324]. Debt and Interest Expenses - Nathan's expects to incur annual interest expense of $9,937,500 and approximately $690,000 in annual amortization of debt issuance costs due to the issuance of $150 million in 6.625% Senior Secured Notes due 2025 [234]. - The company made required semi-annual interest payments of $4,968,750 on the 2025 Notes during the fiscal year ended March 31, 2019 [231]. - Nathan's has no scheduled principal amortization payments on the 2025 Notes prior to its final maturity on November 1, 2025 [232]. - The company expects to incur interest payments of $9,937,500 for the fiscal year ending March 29, 2020 [331]. - As of March 31, 2019, the company had $150.0 million of 2025 Notes outstanding, with interest expense fluctuating by approximately $375,000 per annum for each 0.25% change in interest rates [350]. Asset Management - The company recorded an impairment charge of $790,000 for long-lived assets at one restaurant during the fiscal year ended March 25, 2018 [268]. - Upon adopting new lease accounting standards, the company expects to recognize additional operating lease liabilities of approximately $8,500,000 and a Right of Use asset of approximately $7,800,000 [275]. - The company recorded a gain on the sale of property and equipment of $11,177,000 in fiscal 2019, related to the sale of a restaurant and a regional office [294]. Cash Flow and Dividends - Cash and cash equivalents increased to $75,446,000 as of March 31, 2019, up by $18,107,000 from $57,339,000 at March 25, 2018 [323]. - Net working capital rose to $72,237,000 from $53,702,000 at March 25, 2018 [323]. - The company declared and paid four regular dividends of $0.25 per common share, totaling $4,187,000 during the fiscal year ended March 31, 2019 [323]. - Cash provided by investing activities was $12,328,000, primarily from the sale of a restaurant in Bay Ridge, Brooklyn, NY for $11,445,000 [325]. - Cash used in financing activities totaled $5,377,000, including regular cash dividends of $4,187,000 and stock repurchases of 14,390 shares for $1,000,000 [326]. Market Conditions and Risks - The company has a critical dependency on its agreement with John Morrell & Co. for the manufacturing and sale of hot dogs, sausage, and corned beef, which poses risks related to product quality and supply availability [228]. - The company anticipates continued volatility in beef prices, which could impact operational results [339]. - The company expects to experience price volatility for beef products during fiscal 2020, which could impact operational results [352]. - A short-term increase or decrease of 10.0% in the cost of food and paper products for the year ended March 31, 2019 would have increased or decreased the cost of sales by approximately $4,706,000 [353]. - Foreign franchisees generally conduct business in United States dollars, reducing risks from foreign currency fluctuations, which are not expected to materially impact financial results [355].

Sales Performance - Total sales decreased by 13.8% to $14,404,000 for the thirteen weeks ended December 23, 2018, compared to $16,705,000 for the same period in 2017[128] - Total sales decreased by 10.9% to $56,448,000 for the thirty-nine weeks ended December 23, 2018, compared to $63,327,000 for the same period in 2017[149] - Foodservice sales from the Branded Product Program decreased by 15.1% to $12,453,000 for the third quarter fiscal 2019, down from $14,674,000 in the third quarter fiscal 2018[128] - Foodservice sales from the Branded Product Program decreased by 12.7% to $44,308,000 for the fiscal 2019 period compared to $50,741,000 in fiscal 2018[149] Profitability - EBITDA for the thirteen weeks ended December 23, 2018, was $16,277,000, compared to a loss of $3,116,000 for the same period in 2017[127] - Adjusted EBITDA for the thirty-nine weeks ended December 23, 2018, was $35,377,000, compared to $24,085,000 for the same period in 2017[127] - Gross profit decreased to $15,182,000 or 26.9% of sales during the fiscal 2019 period, compared to $15,474,000 or 24.4% of sales during fiscal 2018[157] Costs and Expenses - Average selling prices decreased by approximately 4.3%, correlating with a 5.5% decrease in the cost of beef during the third quarter fiscal 2019 compared to the same period in 2018[128] - Cost of sales decreased by 13.8% to $41,266,000 in the fiscal 2019 period compared to $47,853,000 in fiscal 2018[157] - Restaurant operating expenses increased to $2,817,000 in fiscal 2019 from $2,769,000 in fiscal 2018, primarily due to higher home delivery costs, occupancy costs, and insurance[160] - General and administrative expenses rose by $290,000 or 2.9% to $10,354,000 in fiscal 2019, attributed to higher marketing expenses and professional fees related to ASC 606[161] Franchise and Royalties - License royalties increased to $4,316,000 in the third quarter fiscal 2019, compared to $4,228,000 in the third quarter fiscal 2018[130] - Total royalties earned on sales of hot dogs from the license agreement with John Morrell & Co. were $3,741,000 for the third quarter fiscal 2019, up from $3,680,000 in the same period of 2018[130] - Franchise fees and royalties were $911,000 in the third quarter fiscal 2019, down from $1,088,000 in the third quarter fiscal 2018[131] - Traditional franchise royalties decreased to $638,000 in the third quarter fiscal 2019 from $704,000 in the third quarter fiscal 2018[131] - Comparable domestic franchise sales were $11,413,000 in the third quarter fiscal 2019, compared to $11,098,000 in the third quarter fiscal 2018[132] Cash Flow and Financing - Cash and cash equivalents increased by $15,493,000 to $72,832,000 as of December 23, 2018, compared to $57,339,000 at March 25, 2018[174] - Cash provided by operations was $7,373,000 in fiscal 2019, primarily driven by net income of $19,001,000[182] - Cash provided by investing activities totaled $12,449,000, mainly from the sale of the Company-owned restaurant in Bay Ridge, Brooklyn, NY, generating $11,445,000[183] - Cash used in financing activities was $4,329,000, primarily for dividend payments totaling $3,139,000[184] - The Company repurchased 14,390 shares of common stock for $1,000,000 during fiscal 2019, continuing its stock repurchase program[184] Tax and Interest - The income tax provision for the thirteen weeks ended December 23, 2018 was $3,627,000 or 27.2% of earnings before income taxes[147] - The effective tax rate for the thirty-nine week period ended December 23, 2018 was 27.8%, reflecting the impact of the Tax Cuts and Jobs Act[167] - Interest expense was $2,650,000 in the third quarter fiscal 2019, compared to $3,650,000 in the third quarter fiscal 2018[142] - Interest expense decreased to $7,951,000 in fiscal 2019 from $10,976,000 in fiscal 2018, reflecting a reduction in interest rates following the refinancing of the 2020 Notes[164] - Interest payments of $9,937,500 are required for the fiscal year ending March 31, 2019, and the same amount is expected for the fiscal year ending March 29, 2020[189] Market Conditions and Strategies - The market price for hot dogs during the fiscal 2019 period was approximately 8.7% lower than the fiscal 2018 period, reflecting volatility in commodity costs[206] - A short-term increase or decrease of 10.0% in the cost of food and paper products for the thirty-nine weeks ended December 23, 2018 would have impacted the cost of sales by approximately $3,656,000[208] - The minimum hourly wage for fast food workers in New York City increased to $15.00 effective December 31, 2018, with further increases planned for the rest of New York State[195][196] - The company is developing strategies to mitigate the financial impact of increased labor costs and other operating expenses[197] - The company has not hedged against fluctuations in commodity prices, exposing it to market volatility for future purchases[208]