6 million bucks down the toilet. Hope they are at least able to get out of license agreement, and work out a better deal with someone else. You'd think they would have some kinda insurance to help out with the charge too. Anyway, on the bright side, it looks like Mario Gabelli has bought some more.
I was surprised to see this news, based on the language in the annual reports, I wasn't even aware that an outcome of paying millions to SMG unrelated to the agreement termination was a possibility. Was anyone actually aware that this was a potential outcome? I would think that this decision makes it more unlikely that the courts will favor Nathan's argument to end the license agreement.
I've read through it a few times, and I still don't have a good sense of why SMG is receiving money. The 8-K says, "whether Nathan’s was entitled to receive financial benefit in connection with the sale of its proprietary seasonings to SMG." My current interpretation is that Nathan's was charging SMG twice in the license agreement, once based on output with a royalty of 3-5% based on sales, but also on the input end charging them for the seasonings used in making the Nathan's product. Is that what other people are getting from this?
Also, there is some hit to future income since they will no longer be receiving proceeds for the sale of these proprietary seasonings to SMG. I don't have a sense of how much they were making from them, but if they owe SMG the upper-end of $6 million, it was probably in the hundreds of thousands a year, which was probably close to 100% profit, which could be a few cents a year after-tax.