NATHANS FAMOUS, INC. 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk. Cash and Cash Equivalents We have historically invested our cash in money market accounts, money market funds or short-term, fixed rate, highly rated and highly liquid instruments which are generally reinvested when they mature. 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 September 28, 2025, Nathan’s cash and cash equivalents balance aggregated $32,175,000. Earnings on this cash would increase or decrease by approximately $80,000 per annum for each 0.25% change in interest rates. Borrowings On July 10, 2024, we entered into a Credit Agreement and borrowed $60,000,000 in Term Loan borrowings to refinance and redeem the 2025 Notes. Our Credit Agreement bears interest at a fluctuating interest rate based on SOFR or a base rate plus a spread adjustment. Accordingly, a rising interest rate environment would result in higher interest expense due on borrowings. A hypothetical 100 bps increase in the interest rate on our $49,600,000 of outstanding unsecured Term Loan borrowings at September 28, 2025 would lead to an increase of approximately $496,000 in cash interest costs over the next twelve months. We currently do not anticipate entering into interest rate swaps or other financial instruments to hedge our borrowings. Commodity Costs We are exposed to market price fluctuations in commodities, most notably beef and beef trimmings. Inflationary pressures on commodity prices have directly impacted our consolidated results of operations during the fiscal 2026 period, most notably within our Branded Product Program segment. This trend may continue for the remainder of fiscal 2026. Our average cost of hot dogs during the fiscal 2026 period was approximately 16% higher than during the fiscal 2025 period. We are unable to predict the future cost of our hot dogs and may continue to experience price volatility for our beef products for the remainder of fiscal 2026. 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. 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. Additionally, we may continue experiencing volatility in oil and gas prices on our distribution costs for our food products and utility costs in the Company-owned restaurants, as well as volatile insurance costs resulting from rising rates. We have not attempted to hedge against fluctuations in the prices of the commodities we purchase using future, forward, option or other instruments. As a result, we expect that the majority of our future commodity purchases will be subject to market changes in the prices of such commodities. We have attempted to enter into sales agreements with our Branded Product Program customers that are correlated to our cost of beef, thus reducing our market volatility, or have passed through permanent increases in our commodity prices to our Branded Product Program customers that are not on formula pricing, thereby reducing the impact of long-term increases on our financial results. A short-term increase or decrease of 10% in the cost of our food and paper products for the period ended September 28, 2025 would have increased or decreased our cost of sales by approximately $5,680,000. -33- Foreign Currencies Foreign franchisees generally conduct business with us and make payments in United States dollars, reducing the risks inherent with changes in the values of foreign currencies. As a result, we have not purchased future contracts, options or other instruments to hedge against changes in values of foreign currencies and we do not believe fluctuations in the value of foreign currencies would have a material impact on our financial results.