F I NA NCI A L H IGH L IGH T S
(in thousands, except per share amounts)
Selected Consolidated Financial Data:
Revenues from continuing operations
Income from continuing operations(2)
Income from discontinued operations(2), (3)
Net income(3)
Basic income per share
Income from continuing operations(2)
Income from discontinued operations(2), (3)
Net income per share(3)
Diluted income per share (2), (3)
Income from continuing operations(2)
Income from discontinued operations(2), (3)
Net income per share(3)
Weighted average shares used in computing income per share
Basic
Diluted
Total assets
Stockholders’ equity
Fiscal Year(1)
2008
2007
2006
2005
$47,395
$ 4,849
$ 1,706
$ 6,555
$42,969
$ 4,341
$ 1,202
$ 5,543
$38,285
$ 2,884
$ 2,793
$ 5,677
$30,912
$ 1,788
$
949
$ 2,737
$
$
$
$
$
$
0.80
0.28
1.08
0.75
0.26
1.01
$
$
$
$
$
$
0.74
0.21
0.95
0.68
0.19
0.87
$
$
$
$
$
$
0.52
0.50
1.02
0.44
0.43
0.87
$
$
$
$
$
$
0.34
0.18
0.52
0.29
0.16
0.45
6,085
6,502
$51,202
$42,608
5,836
6,341
$46,575
$35,879
5,584
6,546
$37,423
$28,048
5,307
6,080
$31,269
$21,356
(1) Our fiscal year ends on the last Sunday in March which results in a 52- or 53-week year. Fiscal year 2008 consisted of 53 weeks. Fiscal years 2007, 2006 and 2005
were 52-week years.
(2) Results have been adjusted to reflect the sale of Miami Subs Corporation, including a leasehold interest in May 2007, the sale of vacant land and an adjacent
leasehold interest during the fiscal years ended March 25, 2007 and March 26, 2006, and the closure of one restaurant during the fiscal year ended March 27,
2005 for the reclassification of the operating results of these three properties to discontinued operations.
(3) The fiscal year ended March 30, 2008, includes gains of $2,489, before income taxes, from the sale of Miami Subs Corporation, including a leasehold interest in
May 2007. The fiscal year ended March 25, 2007 and March 26, 2006, includes gains of $400 and $2,919, respectively, before income taxes, from the sale of a
vacant piece of land in Coney Island, NY and an adjacent leasehold interest.
Corporate Profile
Nathan’s began as a nickel hot dog stand in Coney Island in 1916 and has become a much-loved “New York institution” now available through-
out the United States and overseas.
Through our innovative points-of-distribution strategies, Nathan’s products are marketed within our restaurant system and throughout a broad
spectrum of other food-service and retail environments. Our Programs provide for the sale of Nathan’s world famous hot dogs and crinkle-cut
French fries to food-service locations nationwide. Nathan’s products are also featured in supermarkets and club stores throughout the United
States and are being marketed on television by QVC. In total, Nathan’s products are marketed for sale in over 35,000 locations.
Successful market penetration of our highly recognized valued brand and products, through a wide variety of distribution channels, continues
to provide new and exciting growth opportunities for our Company.
Revenues from
Continuing Operations
($ in millions)
Income from
Continuing Operations
($ in millions)
Stockholders’ Equity
($ in millions)
$47.4
$43.0
$4.8
$4.3
$38.3
$30.9
$2.9
$1.8
$42.6
$35.9
$28.0
$21.4
’05
’06
’07
’08
’05
’06
’07
’08
’05
’06
’07
’08
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
SH A R E HOL DE R’S L ET T E R
Fiscal 2008 was another successful
and exciting year for Nathan’s
Famous.
We achieved our fifth consecutive
year of increased profits from con-
tinuing operations and, once again,
experienced year-over-year revenue
increases in all four of our major
profit centers: franchised restaurant operations, company-
owned restaurants, the branded products program and retail
licensing.
Eric Gatoff
Strategically, we continued to successfully implement our
brand marketing and points-of-distribution strategy. Today,
Nathan’s Famous is much more than just a quick service
restaurant concept. We are engaged in the business of
marketing a powerful and unique brand to sell a variety of
products throughout varied channels of distribution. As a
result of our efforts, at year’s end, Nathan’s Famous prod-
ucts were marketed for sale at over 35,000 retail and food
service locations.
From a marketing perspective, many of our efforts have
proven successful, but none more so than the annual
Nathan’s Famous July 4th International Hot Dog Eating
Contest. The contest has become a truly singular event,
forming the centerpiece of our marketing efforts and pro-
viding global visibility for the Nathan’s Famous brand. This
past year, we were joined by more than 30,000 spectators in
Coney Island, as well as millions more tuning in to watch
live on ESPN. The event culminated with a new World
Record (66 Nathan’s Famous hot dogs in 12 minutes!) and
the return of the coveted Mustard Yellow Belt to American
soil as Joey Chestnut dethroned the great, 5-time defending
champion Takeru Kobayashi. We look forward to continu-
ing this rite of summer well into the future.
Although never complacent due to
past accomplishments, we were
pleased with our overall results this
year and were thrilled to be included
by Forbes on its Forbes 200 Up and
Comers List of the best small busi-
nesses in America for 2007.
Wayne Norbitz
Financial Results:
For fiscal 2008, earnings from continuing operations
increased by $508,000 or 11.7% to $4,849,000. Total reve-
nue from continuing operations increased by $4,426,000 or
10.3% to $47,395,000. Net income increased by $1,012,000
or 18.3% to $6,555,000, and earnings per share increased
$0.14, or 16.1%, to $1.01 per diluted share.
Restaurant Operations:
Revenues derived from our system of franchised and
licensed restaurant units increased by $544,000 or 11.9%
during fiscal 2008. During the year, we opened forty-six
new Nathan’s Famous franchised units, including forty-one
domestically, four in Kuwait and one in the Dominican
Republic.
Growth in fiscal 2008 included the initial rollout of our
Frank & Fry program, which involves the franchising of a
new, streamlined Nathan’s Famous prototype featuring our
signature, world-famous hot dogs and French fries. We
believe the structure of the program (reduced initial fee, no
royalties and limited space and capital requirements) makes
it very attractive to many operators in different segments of
the food service industry, and in our first full year operating
the program, we successfully opened twenty-eight units.
In our company-owned restaurants, which were comprised
of six restaurants (including one seasonal location in Coney
Island), sales increased by $1,279,000 or 10.8%.
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
1
SH A R E HOL DE R’S L ET T E R
The Branded Products Program:
Sales in the branded products program, which features the
sale of Nathan’s Famous hot dogs to the food service indus-
try, increased by $1,873,000 or 10% during fiscal 2008.
Pursuant to our branded products program, Nathan’s Famous
hot dogs are sold in over twelve hundred Subway sandwich
shops located inside Wal-Marts, in more than seven hun-
dred K-Marts and Sears Grand retail locations, in about
seven hundred and fifty Auntie Anne’s pretzel outlets, and
in approximately five hundred and seventy Sam’s Club
stores. Our hot dogs are now available for sale by many of
the largest U.S. food service distributors and may be found
in many movie theaters, convenience stores, amusement
venues and sports stadiums, including Yankee Stadium and
Shea Stadium.
Retail Licensing:
During fiscal 2008, license royalties increased by $513,000
or 12.1%. Leveraging our highly-visible and valued Nathan’s
Famous brand at retail continues to provide increased sales
and profits. Today, a sample of the most popular products
sold include a wide variety of Nathan’s Famous hot dogs, as
well as Nathan’s Famous French fries, mustards, pickles,
potato pancakes, onion rings, potato chips, franks ’n blan-
kets, mini bagel dogs, beef sticks, gummy dogs, and pet-
food treats.
Strategic Developments:
As mentioned above, we have continued to implement our
brand marketing and points-of-distribution strategy. As a
result, the prominence of the Nathan’s Famous brand and
the presentation of Nathan’s Famous products are greater
today than ever before. We intend to devote our energies
and resources to the continuation of this successful strategy.
Consistent with this outlook, we announced the sale of
our Miami Subs Corporation subsidiary on June 8, 2007,
which resulted in a pre-tax gain during fiscal 2008 of
$2,489,000 (including a gain relating to the sale of a certain
Miami Subs-related leasehold interest). Additionally, we
announced the sale of our NF Roasters Corp. subsidiary on
April 23, 2008.
In Conclusion:
Our focused strategies, creative approaches, and ever-
expanding opportunities are expected to afford us with the
ability to continue to expose the Nathan’s Famous brand and
advance the sale of Nathan’s Famous products through a
broad variety of environments and distribution channels.
As we seek to continue to expand and pursue profitable,
new opportunities, we will retain our steadfast commitment
to quality and endeavor to serve our shareholders respon-
sibly. We remain extremely appreciative of your continued
support.
E R I C G ATO F F
Chief Executive Officer
WAY N E N O R B I T Z
President and Chief Operating Officer
2
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share amounts)
S T A T E M E N T O F E A R N I N G S D A T A :
Revenues:
Sales
Franchise fees and royalties
License royalties, interest and other income
Total revenues
Costs and Expenses:
Cost of sales
Restaurant operating expenses
Depreciation and amortization
Amortization of intangible assets
General and administrative expenses
Interest expense
Total costs and expenses
Income from discontinued operations before provision for income taxes
Income tax expense
Income from continuing operations
Discontinued Operations:
Income from discontinued operations before provision for
income taxes(3)
Provision for income taxes
Income from discontinued operations
Net income
Basic Income Per Share:
Income from continuing operations
Income from discontinued operations
Net income
Diluted Income Per Share:
Income from continuing operations
Income from discontinued operations
Net income
Dividends
Weighted average shares used in computing net income per share
Basic
Diluted
Fiscal Years Ended(1)
March 30,
2008
March 25,
2007(2)
March 26,
2006(2)
March 27,
2005(2)
March 28,
2004(2)
$36,259
5,132
6,004
47,395
$33,425
4,588
4,956
$29,785
4,407
4,093
$23,296
3,918
3,698
$18,714
3,618
3,412
42,969
38,285
30,912
25,744
27,070
3,265
763
34
8,942
—
40,074
7,321
2,472
4,849
2,711
1,005
1,706
24,080
3,194
741
34
8,228
—
36,277
6,692
2,351
4,341
1,990
788
1,202
22,225
3,180
759
34
7,538
—
33,736
4,549
1,665
2,884
4,589
1,796
2,793
17,266
3,063
854
35
7,115
2
28,335
2,577
789
1,788
1,635
686
949
13,366
3,025
815
33
6,141
13
23,393
2,351
798
1,553
643
302
341
$ 6,555
$ 5,543
$ 5,677
$ 2,737
$ 1,894
$ 0.80
0.28
$ 1.08
$ 0.75
0.26
$ 1.01
—
6,085
6,502
$ 0.74
0.21
$ 0.52
0.50
$ 0.34
0.18
$ 0.29
0.07
$ 0.95
$ 1.02
$ 0.52
$ 0.36
$ 0.68
0.19
$ 0.44
0.43
$ 0.29
0.16
$ 0.27
0.06
$ 0.87
$ 0.87
$ 0.45
$ 0.33
—
—
—
—
5,836
6,341
5,584
6,546
5,307
6,080
5,306
5,678
(continued)
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
3
SELECTED CONSOLIDATED FINANCIAL DATA (continued)
(in thousands, except per share amounts)
B A L A N C E S H E E T D A T A A T E N D O F F I S C A L Y E A R :
Working capital
Total assets
Long-term debt, net of current maturities
Stockholders’ equity
S E L E C T E D R E S T A U R A N T O P E R A T I N G D A T A :
Company-owned Restaurant Sales(4)
N U M B E R O F U N I T S O P E N A T E N D O F F I S C A L Y E A R :
Company-owned Nathan’s restaurants
Franchised(5)
Franchised Nathan’s Brand only
Fiscal Years Ended(1)
March 30,
2008
March 25,
2007(2)
March 26,
2006(2)
March 27,
2005(2)
March 28,
2004(2)
$35,650
51,202
—
$42,608
$27,375
46,575
—
$35,879
$19,075
37,423
31
$28,048
$14,009
31,269
692
$21,356
$ 9,185
27,584
866
$17,352
$13,142
$11,863
$11,419
$11,538
$12,780
6
322
224
6
292
193
6
290
192
6
271
174
7
247
147
Notes to Selected Financial Data
(1) Our fiscal year ends on the last Sunday in March, which results in a 52- or 53-week year. The fiscal year ended March 30, 2008 is on the basis of a 53-week
reporting period whereas March 25, 2007, March 26, 2006, March 27, 2005, and March 28, 2004, are on the basis of 52-week reporting period.
(2) Results have been adjusted to reflect the sale of Miami Subs Corporation, including leasehold interest in May 2007, the sale of vacant land and an adjacent
leasehold interest during the fiscal years ended March 25, 2007 and March 26, 2006, and the closure of one restaurant during the fiscal year ended March 27,
2005 for the reclassification of the operating results of these three properties to discontinued operations.
(3) The fiscal years ended March 30, 2008, March 25, 2007 and March 26, 2006, include gains of $2,489, $400 and $2,917 respectively, from the sale of Miami Subs
Corporation in May 2007 and the sale of a vacant piece of land in Coney Island, NY, including an adjacent leasehold interest.
(4) Company-owned restaurant sales represent sales from restaurants presented within continuing operations and discontinued operations.
(5) Represents the Nathan’s and Kenny Rogers restaurant systems.
4
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPER ATIONS
Introduction
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 distri-
bution. Historically, our business has been the operation and fran-
chising of quick service restaurant units featuring Nathan’s Famous
brand all beef frankfurters, crinkle-cut French-fried potatoes, and
a variety of other menu offerings. Our Nathan’s brand 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. Nathan’s licensing program began in 1978
by selling packaged hot dogs and other meat products to retail
customers through supermarkets or grocery-type retailers for off-
site consumption. During fiscal 1998, we introduced our Branded
Product Program, which enables foodservice retailers to sell some
of Nathan’s proprietary products outside of the realm of a traditional
franchise relationship. In conjunction with this program, foodservice
operators are granted a limited use of the Nathan’s Famous trade-
mark with respect to the sale of hot dogs and certain other proprie-
tary food items and paper goods.
On April 1, 1999, we became the franchisor of the Kenny
Rogers Roasters restaurant system by acquiring the intellectual prop-
erty rights, including trademarks, recipes and franchise agreements
of Roasters Corp. and Roasters Franchise Corp. On September 30,
1999, we acquired the remaining 70% of the outstanding common
stock of Miami Subs Corporation we did not already own, which
also provided us with co-branding rights to the Arthur Treachers
brand in the United States. On February 28, 2006, we acquired
all of the intellectual property rights, including, but not limited
to, trademarks, trade names, and recipes, of the Arthur Treachers
Fish N Chips Brand. On June 7, 2007, Nathan’s completed the
sale of its wholly-owned subsidiary, Miami Subs Corporation, the
franchisor of the Miami Subs brand effective as of May 31, 2007.
On April 23, 2008, Nathan’s completed the sale of its wholly-
owned subsidiary, NF Roasters Corp., franchisor of the Kenny
Rogers brand. Notwithstanding the sale of Miami Subs Corporation
and NF Roasters Corp., we are entitled to continue using the Kenny
Rogers trademarks and service marks in our existing Nathan’s
restaurant locations.
Our revenues are generated primarily from selling products
under Nathan’s Branded Product Program, operating Company-
owned restaurants, franchising the Nathan’s and Kenny Rogers
restaurant concepts and licensing agreements for the sale of
Nathan’s products within supermarkets and club stores and for the
manufacturing of certain proprietary spices and also for the sale
of Nathan’s products directly to other foodservice operators.
In addition to plans for expansion through franchising,
licensing and our Branded Product Program, Nathan’s continues
to co-brand within its existing restaurant system. At March 30,
2008, the Arthur Treacher’s brand was being sold within 57
Nathan’s restaurants and the Kenny Rogers Roasters brand was
being sold within 56 Nathan’s restaurants.
At March 28, 2004, Nathan’s owned seven Company-operated
restaurants. During the fiscal year ended March 27, 2005, Nathan’s
closed one Company-operated restaurant due to its lease expiration.
The remaining six restaurants are presented as continuing opera-
tions in the accompanying financial statements.
At March 30, 2008, our franchise system consisted of 224
Nathan’s Famous franchised units and 98 Kenny Rogers Roasters
franchised units located in 22 states and 11 foreign countries. We
also operated six Company-owned Nathan’s units, including one
seasonal location, within the New York metropolitan area.
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. The preparation
of financial statements in conformity with accounting principles
generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and
liabilities. We believe the following critical accounting policies
involve additional management judgment due to the sensitivity of
the methods, assumptions and estimates necessary in determining
the related asset and liability amounts.
Revenue Recognition
Sales by Company-owned restaurants, which are typically
paid in cash by the customer, are recognized upon the performance
of services.
In connection with its franchising operations, Nathan’s receives
initial franchise fees, development fees, royalties, and in certain
cases, revenue from sub-leasing restaurant properties to franchisees.
Franchise and area development fees, which are typically
received prior to completion of the revenue recognition process,
are recorded as deferred revenue. Initial franchise fees, which are
non-refundable, are recognized as income when substantially all
services to be performed by Nathan’s and conditions relating to
the sale of the franchise have been performed or satisfied, which
generally occurs when the franchised restaurant commences opera-
tions. The following services are typically provided by Nathan’s
prior to the opening of a franchised restaurant:
(cid:0)
(cid:0)
(cid:115)(cid:0) (cid:0)(cid:33)(cid:80)(cid:80)(cid:82)(cid:79)(cid:86)(cid:65)(cid:76)(cid:0)(cid:79)(cid:70)(cid:0)(cid:65)(cid:76)(cid:76)(cid:0)(cid:83)(cid:73)(cid:84)(cid:69)(cid:0)(cid:83)(cid:69)(cid:76)(cid:69)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:66)(cid:69)(cid:0)(cid:68)(cid:69)(cid:86)(cid:69)(cid:76)(cid:79)(cid:80)(cid:69)(cid:68)(cid:14)
(cid:115)(cid:0) (cid:0)(cid:48)(cid:82)(cid:79)(cid:86)(cid:73)(cid:83)(cid:73)(cid:79)(cid:78)(cid:0) (cid:79)(cid:70)(cid:0) (cid:65)(cid:82)(cid:67)(cid:72)(cid:73)(cid:84)(cid:69)(cid:67)(cid:84)(cid:85)(cid:82)(cid:65)(cid:76)(cid:0) (cid:80)(cid:76)(cid:65)(cid:78)(cid:83)(cid:0) (cid:83)(cid:85)(cid:73)(cid:84)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0) (cid:70)(cid:79)(cid:82)(cid:0) (cid:82)(cid:69)(cid:83)(cid:84)(cid:65)(cid:85)(cid:82)(cid:65)(cid:78)(cid:84)(cid:83)(cid:0) (cid:84)(cid:79)(cid:0)
(cid:0)
(cid:0)
be developed.
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:115)(cid:0) (cid:0)(cid:33)(cid:83)(cid:83)(cid:73)(cid:83)(cid:84)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0) (cid:73)(cid:78)(cid:0) (cid:69)(cid:83)(cid:84)(cid:65)(cid:66)(cid:76)(cid:73)(cid:83)(cid:72)(cid:73)(cid:78)(cid:71)(cid:0) (cid:66)(cid:85)(cid:73)(cid:76)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0) (cid:68)(cid:69)(cid:83)(cid:73)(cid:71)(cid:78)(cid:0) (cid:83)(cid:80)(cid:69)(cid:67)(cid:73)(cid:70)(cid:73)(cid:67)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:12)(cid:0)
reviewing construction compliance, and equipping the
restaurant.
(cid:115)(cid:0) (cid:0)(cid:48)(cid:82)(cid:79)(cid:86)(cid:73)(cid:83)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:65)(cid:80)(cid:80)(cid:82)(cid:79)(cid:80)(cid:82)(cid:73)(cid:65)(cid:84)(cid:69)(cid:0)(cid:77)(cid:69)(cid:78)(cid:85)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:67)(cid:79)(cid:79)(cid:82)(cid:68)(cid:73)(cid:78)(cid:65)(cid:84)(cid:69)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:82)(cid:69)(cid:83)(cid:84)(cid:65)(cid:85)-
rant design and location to be developed.
(cid:115)(cid:0) (cid:0)(cid:48)(cid:82)(cid:79)(cid:86)(cid:73)(cid:83)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:77)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)(cid:84)(cid:82)(cid:65)(cid:73)(cid:78)(cid:73)(cid:78)(cid:71)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:78)(cid:69)(cid:87)(cid:0)(cid:70)(cid:82)(cid:65)(cid:78)(cid:67)(cid:72)(cid:73)(cid:83)(cid:69)(cid:69)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)
selected staff.
(cid:115)(cid:0) (cid:0)(cid:33)(cid:83)(cid:83)(cid:73)(cid:83)(cid:84)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0) (cid:87)(cid:73)(cid:84)(cid:72)(cid:0) (cid:84)(cid:72)(cid:69)(cid:0) (cid:73)(cid:78)(cid:73)(cid:84)(cid:73)(cid:65)(cid:76)(cid:0) (cid:79)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:0) (cid:65)(cid:78)(cid:68)(cid:0) (cid:77)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0) (cid:79)(cid:70)(cid:0) (cid:82)(cid:69)(cid:83)-
taurants being developed.
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
5
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPER ATIONS
(continued)
Development fees are non-refundable and the related agree-
ments require the franchisee to open a specified number of
restaurants in the development area within a specified time
period or Nathan’s may cancel the agreements. Revenue from
development agreements is deferred and recognized as restaurants
in the development area commence operations on a pro rata basis to
the minimum number of restaurants required to be open, or at the
time the development agreement is effectively canceled.
Nathan’s recognizes franchise royalties, which are generally
based upon a percentage of sales made by Nathan’s franchisees
when they are earned and deemed collectible. Franchise fees and
royalties that are not deemed to be collectible are not recognized as
revenue until paid by the franchisee, or until collectibility is deemed
to be reasonably assured. The number of non-performing units is
determined by analyzing the number of months that royalties have
been paid during a period. When royalties have been paid for less
than the majority of the time frame reported, such location is deemed
non-performing. Accordingly, the number of non-performing units
may differ between the quarterly results and year to date results.
Nathan’s recognizes revenue from the Branded Product
Program when it is determined that the products have been delivered
via third party common carrier to Nathans’ customers. Rebates to
customers are recorded as a reduction to sales. Nathan’s recognizes
revenue from its Frank and Fry Program for the sale of hot dogs
in the same way as for its Branded Product Program, described
below, and royalty income when it has been determined that other
qualifying products have been sold by the manufacturer to Nathan’s
limited-menu franchisees.
Revenue from sub-leasing properties is recognized as income
as the revenue is earned and becomes receivable and deemed
collectible. Sub-lease rental income is presented net of associated
lease costs in the consolidated statements of earnings.
Nathan’s recognizes revenue from royalties on the licensing of
the use of its name on certain products produced and sold by outside
vendors. The use of Nathan’s name and symbols must be approved
by Nathan’s prior to each specific application to ensure proper qual-
ity and project a consistent image. Revenue from license royalties is
recognized when it is earned and deemed collectible.
In the normal course of business, we extend credit to franchi-
sees for the payment of ongoing royalties and to trade customers of
our Branded Product Program. Accounts receivable, net, as shown
on our consolidated balance sheets are net of allowances for doubt-
ful accounts. An allowance for doubtful accounts is determined
through analysis of the aging of accounts receivable at the date of
the financial statements, assessment of collectibility based upon
historical trends and an evaluation of the impact of current and
projected economic conditions. In the event that the collectibility of
a receivable at the date of the transaction is doubtful, the associated
revenue is not recorded until the facts and circumstances change
in accordance with Staff Accounting Bulletin (“SAB”) No. 104,
“Revenue Recognition.” The Company writes-off accounts receiv-
able when they are deemed uncollectible.
Impairment of Goodwill and Other Intangible Assets
Statement of Financial Accounting Standards No. 142, “Good-
will and Other Intangible Assets,” (“SFAS No. 142”) requires that
goodwill and intangible assets with indefinite lives not to be amor-
tized but tested annually (or more frequently if events or changes in
circumstances indicate the carrying value may not be recoverable)
for impairment. The most significant assumptions, which are used
in this test, are estimates of future cash flows. We typically use the
same assumptions for this test as we use in the development of
our business plans. If these assumptions differ significantly from
actual results, impairment charges may be required in the future.
We conducted our annual impairment tests and no goodwill or
other intangible assets were determined to be impaired during the
fifty-three week period ended March 25, 2008, and the fifty-two
week periods ended March 25, 2007 and March 26, 2006.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets,”
(“SFAS No. 144”) requires management to make judgments regard-
ing the future operating and disposition plans for underperforming
assets, and estimates of expected realizable values for assets to be
sold. We evaluate possible impairment of each restaurant indi-
vidually and record an impairment charge whenever we determine
that impairment factors exist. We consider a history of restaurant
operating losses to be the primary indicator of potential impairment
of a restaurant’s carrying value. During the fifty-three week period
ended March 30, 2008, and the fifty-two week periods ended March
25, 2007 and March 26, 2006, no impairment charges on long-lived
assets were recorded.
Impairment of Notes Receivable
Statement of Financial Accounting Standards No. 114,
“Accounting by Creditors for Impairment of a Loan,” as amended,
requires management judgments regarding the future collectibility
of notes receivable and the underlying fair market value of collat-
eral. We consider the following factors when evaluating a note
for impairment: a) indications that the borrower is experiencing
business problems, such as operating losses, marginal working
capital, inadequate cash flow or business interruptions; b) whether
the loan is secured by collateral that is not readily marketable;
and/or c) whether the collateral is susceptible to deterioration in
realizable value. When determining possible impairment, we also
expect to assess our future intention to enter into a new lease or
extend the lease beyond the minimum lease term and the debtor’s
ability to meet its obligation over the projected term. During the
fifty-three week period ended March 30, 2008, and the fifty-two
week periods ended March 25, 2007 and March 26, 2006, no impair-
ment charges on notes receivable were recorded.
6
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
Stock-Based Compensation
As discussed in Note B of Notes to Consolidated Financial
Statements, we have various share-based compensation plans that
provide stock options and restricted awards for certain employees
and non-employee directors to acquire shares of our common stock.
Prior to our adoption of SFAS 123R at the beginning of fiscal 2007,
we accounted for share-based compensation in accordance with
APB 25, which utilizes the intrinsic value method of accounting, as
opposed to using the fair-value method prescribed in SFAS 123R.
During fiscal years ended March 30, 2008 and March 25, 2007, we
recorded share-based compensation expense of $432,000 and
$367,000, respectively. (See Note B for a discussion of assumptions
used to determine the fair value of share-based compensation.)
Income Taxes
The Company’s current provision for income taxes is based
upon its estimated taxable income in each of the jurisdictions in
which it operates, after considering the impact on our taxable income
of temporary differences resulting from different treatment of items
such as depreciation, estimated self-insurance liabilities, allowance
for doubtful accounts and tax credits and net operating losses
(“NOL”) for tax and reporting purposes. Deferred tax assets and
liabilities are recognized for the future tax consequences attribut-
able to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carry-forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the year in which those temporary differences are
expected to be recovered or settled.
Uncertain Tax Positions
The Financial Accounting Standards Board issued Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes—an interpre-
tation of FASB Statement No. 109, Accounting for Income Taxes”
(“FIN No. 48”) which was adopted by the Company on March 26,
2007. FIN No. 48 addresses the determination of whether tax
benefits claimed or expected to be claimed on a tax return should
be recorded in the financial statements. Under FIN No. 48, the
Company may recognize the tax benefit from an uncertain tax posi-
tion only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities based on the
technical merits of the position. The tax benefits recognized in the
financial statements from such position should be measured based
on the largest benefit that has a greater than fifty percent likelihood
of being realized upon ultimate settlement. FIN No. 48 also
provides guidance on derecognition, classification, interest and pen-
alties, accounting in interim periods and disclosure requirements.
(See Note K.)
Adoption of New Accounting Pronouncements
In July 2006, the FASB issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (“FIN No. 48”),
which clarified the accounting and disclosures for uncertainty in
income taxes recognized in the financial statements in accordance
with SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48
also provided guidance on the de-recognition of uncertain tax posi-
tions, financial statement classification, accounting for interest and
penalties, accounting for interim periods and added new disclosure
requirements.
Nathan’s adopted the provisions of FIN No. 48, as amended, on
March 26, 2007 which resulted in a $155,000 adjustment to increase
tax liabilities and decrease opening retained earnings in connection
with a cumulative effect of a change in accounting principle.
Nathan’s recognizes accrued interest and penalties associated with
unrecognized tax benefits as part of the income tax provision. (Refer
to Note K to the Consolidated Financial Statements.)
As of the beginning of fiscal year ended March 25, 2007,
Nathan’s adopted SFAS No. 123R, “Share-Based Payment,” (“SFAS
No. 123R”) using the modified prospective method. SFAS No. 123R
replaces SFAS No. 123, “Accounting for Stock-Based Compensation,
(“SFAS No. 123”) and supersedes Accounting Principles Board
Opinion 25, “Accounting for Stock Issued to Employees” (“APB No.
25”). SFAS No. 123R requires the cost of all share-based payments
to employees, including grants of employee stock options, to be rec-
ognized in the financial statements based on their fair values mea-
sured at the grant date, or the date of later modification, over the
requisite service period. In addition, under the modified prospective
approach, SFAS No. 123R requires unrecognized cost (based on the
amounts previously disclosed in pro forma footnote disclosures)
related to awards vesting after the date of initial adoption to be rec-
ognized by the Company in the financial statements over the remain-
ing requisite service period. Therefore, the amount of compensation
costs to be recognized over the requisite service period on a pro-
spective basis after March 26, 2006 includes: (i) previously unrec-
ognized compensation cost for all share-based payments granted
prior to, but not yet vested as of, March 26, 2006 based on their fair
values measured at the grant date, (ii) compensation cost of all
share-based payments granted subsequent to March 26, 2006 based
on their respective grant date fair value, and (iii) the incremental fair
value of awards modified subsequent to March 26, 2006 measured
as of the date of such modification.
In November 2005, the FASB issued Staff Position No. FAS
123R-3, “Transition Election Related to Accounting for the Tax
Effects of Share-Based Payment Awards.” FAS 123R-3 provides
that companies may elect to use a specified alternative method to
calculate the historical APIC Pool of excess tax benefits available
to absorb tax deficiencies recognized upon adoption of SFAS
No. 123R.
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPER ATIONS
(continued)
Share-based compensation recognized pursuant to the adoption
of SFAS 123R during the fiscal years ended March 30, 2008
and March 25, 2007 was $359,000 and $295,000, respectively,
is included in general and administrative expense in the accom-
panying Consolidated Statements of Earnings. As of March 30,
2008, there was $1,324,000 of unamortized compensation expense
related to stock options. The Company expects to recognize this
expense over approximately three years, eight months, which repre-
sents the weighted average remaining requisite service periods for
such awards.
New Accounting Pronouncements Not Yet Adopted
In September 2006, the FASB issued SFAS No. 157, “Fair
Value Measurements,” (“SFAS No. 157”), to eliminate the diversity
in practice that exists due to the different definitions of fair value.
SFAS No. 157 retains the exchange price notion in earlier defini-
tions of fair value, but clarifies that the exchange price is the price
in an orderly transaction between market participants to sell an asset
or liability in the principal or most advantageous market for the
asset or liability. SFAS No. 157 states that the transaction is hypo-
thetical at the measurement date, considered from the perspective of
the market participant who holds the asset or liability. As such, fair
value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between mar-
ket participants at the measurement date (an exit price), as opposed
to the price that would be paid to acquire the asset or received to
assume the liability at the measurement date (an entry price). SFAS
No. 157 is effective for fiscal years beginning after November 15,
2007, which is the first quarter of fiscal 2009, except for, with respect
to certain non-financial assets and liabilities, for which the effective
date will be our first quarter of fiscal 2010. The Company has not
yet evaluated the impact of the adoption of SFAS No. 157 on the
Company’s financial position or results of operations.
In February 2007, the FASB issued SFAS No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities—
Including an amendment of FASB Statement No. 115”, (“SFAS No.
159”). This standard amends SFAS No. 115, “Accounting for Certain
Investment in Debt and Equity Securities,” with respect to account-
ing for a transfer to the trading category for all entities with avail-
able-for-sale and trading securities electing the fair value option.
This standard allows companies to elect fair value accounting for
many financial instruments and other items that currently are not
required to be accounted for as such, allows different applications
for electing the option for a single item or groups of items, and
requires disclosures to facilitate comparisons of similar assets and
liabilities that are accounted for differently in relation to the fair
value option. SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007, which is the first quarter of fiscal 2009.
The adoption will not have a material impact on the Company’s
financial position or results of operations.
In December 2007, the FASB issued SFAS No. 141 (revised
2007), “Business Combinations” (“SFAS No. 141R”), which estab-
lishes principles and requirements for how an acquirer recognizes
and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in
an acquiree, including the recognition and measurement of goodwill
acquired in a business combination. The requirements of SFAS No.
141R are effective for fiscal years beginning on or after December
15, 2008, which for us is fiscal 2010. Earlier adoption is prohibited.
The Company has not yet evaluated the impact of SFAS No. 141R on
its consolidated financial position and results of operations.
In December 2007, the FASB issued SFAS No. 160, “Non-
controlling Interests in Consolidated Financial Statements—an
amendment of ARB No. 51” (“SFAS No.160”). SFAS No. 160
amends ARB No. 51 to establish accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsoli-
dation of a subsidiary. It clarifies that a noncontrolling interest in a
subsidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported
as equity in the consolidated financial statements. Among other
requirements, this statement requires consolidated net income to be
reported at amounts that include the amounts attributable to both the
parent and the noncontrolling interest. It also requires disclosure, on
the face of the consolidated income statement, of the amounts of
consolidated net income attributable to the parent and to the non-
controlling interest. SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008, which for us is the first quarter of fiscal 2010.
Earlier adoption is prohibited. The Company has not yet evaluated
the impact of SFAS No. 160 on its consolidated financial position
and results of operations.
Results of Operations
Fiscal Year Ended March 30, 2008 Compared to Fiscal Year
Ended March 25, 2007
Revenues from Continuing Operations
Total sales increased by $2,834,000 or 8.5% to $36,259,000 for
the fifty-three weeks ended March 30, 2008 (“fiscal 2008 period”)
as compared to $33,425,000 for the fifty-two weeks ended March
25, 2007 (“fiscal 2007 period”). We estimate that sales which arose
during the additional week included in the fiscal 2008 period were
approximately $528,000. Sales from the Branded Product Program
increased by 10.0% to $20,647,000 for the fiscal 2008 period
as compared to sales of $18,774,000 in the fiscal 2007 period.
This increase was primarily attributable to increased sales volume
of 8.3%. During the fiscal 2008 period, approximately 1,200 new
accounts were opened. Total Company-owned restaurant sales
(representing five comparable Nathan’s restaurants and one seasonal
restaurant) increased by 10.8% to $13,142,000 as compared to
8
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
$11,863,000 during the fiscal 2007 period. During the fiscal 2008
period, we experienced very favorable weather conditions during the
summer season that had a positive impact on sales at our Coney
Island locations. However, during December 2007, the unfavorable
weather conditions in the Northeast had a negative impact on sales
at our Company-owned locations as compared to December 2006.
Nevertheless, the overall weather conditions during the fiscal 2008
period had a positive impact on the sales of our Company-owned
restaurants. During the fiscal 2008 period, sales to our television
retailer were approximately $318,000 lower than the fiscal 2007
period. Our television retailer reduced its number of special food
airings during the fiscal 2008 period. As a result, Nathan’s did not
run a “Today’s Special Value” which ran during the first quarter
fiscal 2007. Nathan’s products were on air 55 times during the fiscal
2008 period as compared to 59 times during the fiscal 2007 period,
which included eight “Today’s Special Value” airings.
Franchise fees and royalties increased by $544,000 or 11.9% to
$5,132,000 in the fiscal 2008 period compared to $4,588,000 in the
fiscal 2007 period. Franchise royalties were $4,161,000 in the fiscal
2008 period as compared to $3,966,000 in the fiscal 2007 period.
Franchise restaurant sales increased by $2,939,000 to $97,487,000
in the fiscal 2008 period as compared to $94,548,000 in the fiscal
2007 period. Comparable domestic franchise sales (consisting of
137 Nathan’s restaurants) increased by $3,223,000 or 4.2% to
$79,537,000 in the fiscal 2008 period as compared to $76,314,000 in
the fiscal 2007 period. During December 2007, the unfavorable
weather conditions in the Northeast had a negative impact on sales
at a number of franchised locations as compared to December 2006.
Based upon the overall comparable restaurant sales increase during
the fiscal 2008 period, we believe that weather conditions had a
positive impact on franchised restaurant sales. During the fiscal
2008 period, Nathan’s earned $56,000 of distributor royalties from
sales to our Frank and Fry franchisees as compared to $17,000 dur-
ing the fiscal 2007 period. From June 1, 2007 through the end of the
fiscal 2008 period, we earned monthly royalties totaling $60,000
from the sale of our products within the Miami Subs restaurant sys-
tem. During the fiscal 2008 period, we also recorded reserves of
$19,000 for royalties deemed to be uncollectible as compared to the
fiscal 2007 period, when we recognized $36,000 of royalty income
that was previously deemed to be uncollectible. At March 30, 2008,
322 domestic and international franchised or limited-menu licensed
units were operating as compared to 292 domestic and international
franchised or licensed units at March 25, 2007. Royalty income from
two domestic franchised locations was deemed unrealizable during
the fifty-three weeks ended March 30, 2008. No domestic franchised
locations were deemed non-performing during the fifty-two weeks
ended March 25, 2007. Domestic franchise fee income was $586,000
in the fiscal 2008 period as compared to $331,000 in the fiscal 2007
period. International franchise fee income was $300,000 in the
fiscal 2008 period, as compared to $291,000 during the fiscal 2007
period. During the fiscal 2008 period, 46 new franchised units
opened, including 28 limited-menu licensed units, four units in
Kuwait and one unit in the Dominican Republic. During the fiscal
2007 period, 21 new franchised units were opened including two
test Frank and Fry units, four units in Kuwait, and one unit in the
Dominican Republic and Japan. We also recognized $85,000 in
connection with a forfeited franchise agreement and a development
agreement during the fiscal 2008 period.
License royalties increased by $513,000 or 12.1% to $4,752,000
in the fiscal 2008 period as compared to $4,239,000 in the fiscal
2007 period. Generally, our licensees report sales and royalties
based on their own fiscal periods or a calendar basis. Therefore we
do not believe the additional week in the fiscal 2008 period had a
significant impact on royalties. Total royalties earned on sales of
hot dogs from our retail and foodservice license agreements of
$3,616,000 increased by $279,000 or 8.4% as a result of higher
licensee sales during the fiscal 2008 period. Royalties earned from
SFG, primarily from the retail sale of hot dogs, were $3,154,000
during the fiscal 2008 period as compared to $2,975,000 during the
fiscal 2007 period. The fiscal 2007 period included approximately
$168,000 relating to prior year pricing discrepancies, resulting from
an internal review performed by our hot dog licensee of their
reported sales. We also earned higher royalties of $219,000 from our
agreements for the sale of Nathan’s pet treats, hors d’oeuvres and
sales of hot dog and hamburger rolls at retail. Net royalties from all
other license agreements in the fiscal 2008 period were $15,000
higher than the fiscal 2007 period.
Interest income was $1,084,000 in the fiscal 2008 period
versus $648,000 in the fiscal 2007 period primarily due to higher
interest earned on the increased amount of marketable securities
owned during the fiscal 2008 period as compared to the fiscal 2007
period. Interest income during the fiscal 2008 period also included
$158,000 earned on the promissory note held in connection with the
sale of Miami Subs on June 7, 2007.
Other income was $168,000 in the fiscal 2008 period versus
$69,000 in the fiscal 2007 period. This increase was primarily due
to increased amounts earned on our Arthur Treachers’ products sold
by other restaurant companies and a one-time $30,000 consent fee
earned in connection with a licensee’s refinancing.
Costs and Expenses from Continuing Operations
Cost of sales increased by $2,990,000 to $27,070,000 in the
fiscal 2008 period from $24,080,000 in the fiscal 2007 period. Our
gross profit (representing the difference between sales and cost of
sales) was $9,189,000 or 25.3% during the fiscal 2008 period as
compared to $9,345,000 or 28.0% during the fiscal 2007 period.
This reduced margin is primarily due to the higher cost of beef,
especially in connection with the Branded Product Program, where
the cost of our hot dogs was approximately 8.2% higher during the
fiscal 2008 period than the fiscal 2007 period. Commodity costs of
our hot dogs during the fiscal 2007 period had decreased until
January 2007, when prices began to increase. During the
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
9
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPER ATIONS
(continued)
first quarter fiscal 2008, our cost of hot dogs continued to escalate,
hitting a peak in May 2007. Since then, prices have been lower, but
are still higher than they were during the comparable fiscal 2007
period. In addition, during the second quarter fiscal 2008, we imple-
mented a price increase for our Branded Product Program in an
effort to mitigate the increased cost of beef. We are uncertain about
the future cost of our hot dogs. Overall, our Branded Product
Program incurred higher costs totaling approximately $2,402,000.
This increase is the result of the increased cost of product and higher
sales volume during the fiscal 2008 period as compared to the fiscal
2007 period. Beginning with the second quarter fiscal 2008, we
began to realize the effects of the Branded Products price increase
that took effect on June 15, 2007. During the fiscal 2008 period, the
cost of restaurant sales at our six Company-owned units was
$7,856,000 or 59.8% of restaurant sales as compared to $7,088,000
or 59.7% of restaurant sales in the fiscal 2007 period. During the
fiscal 2008 period, we experienced higher food costs which were
partly offset by lower labor costs as a percentage of sales. During
the first quarter fiscal 2008, we increased select menu prices
between 5% and 10% in an attempt to offset some of the increased
cost of product in our Company-owned restaurants. Cost of sales
also decreased by $180,000 in the fiscal 2008 period primarily due
to lower sales volume to our television retailer.
Restaurant operating expenses increased by $71,000 to
$3,265,000 in the fiscal 2008 period from $3,194,000 in the fiscal
2007 period. The increase during the fiscal 2008 period when
compared to the fiscal 2007 period resulted primarily from higher
marketing costs of $40,000, utility costs of $32,000, and mainte-
nance costs of $21,000, which were partly offset by lower insurance
costs of $50,000. During the fiscal 2008 period our utility costs
were approximately 4.8% higher than the fiscal 2007 period. Based
upon uncertain market conditions for oil and natural gas, we may
continue to incur higher utility costs in the future.
Depreciation and amortization was $763,000 in the fiscal 2008
period as compared to $741,000 in the fiscal 2007 period.
Amortization of intangible assets was $34,000 in both the
fiscal 2008 period and the fiscal 2007 period.
General and administrative expenses increased by $714,000 to
$8,942,000 in the fiscal 2008 period as compared to $8,228,000
in the fiscal 2007 period. The difference in general and administra-
tive expenses was due to higher legal fees of $280,000 during the
fiscal 2008 period primarily associated with Nathan’s litigation
against SFG, higher compensation costs of $172,000 (approximately
$82,000 relates to the additional week), higher business develop-
ment costs of $72,000 in connection with Franchising and the
Branded Product Program and a $64,000 increase in Nathan’s
stock-based compensation expense. These cost increases were partly
offset by lower accounting fees. We incurred $93,000 in costs related
to compliance with the Sarbanes-Oxley Act of 2002 (“SOX”)
during the fiscal 2008 period compared to $172,000 incurred in the
fiscal 2007 period. These savings were partly offset by higher audit
fees in the fiscal 2008 period, related to Nathan’s first audit under
SOX Section 404, requiring Nathan’s auditor to audit Nathan’s inter-
nal controls over financial reporting. The actual amount of future
SFG litigation costs is not presently determinable.
Provision for Income Taxes from Continuing Operations
In the fiscal 2008 period, the income tax provision was
$2,472,000 or 33.8% of income from continuing operations before
income taxes as compared to $2,351,000 or 35.1% of income from
continuing operations before income taxes in the fiscal 2007 period.
For the fifty-three weeks ended March 30, 2008, Nathan’s tax provi-
sion, excluding the effects of tax-exempt interest income, was 38.6%
during the fiscal 2008 period as compared to 38.9% for the fifty-two
weeks ended March 25, 2007 during the fiscal 2007 period.
Discontinued Operations
On June 7, 2007, Nathan’s completed the sale of its wholly-
owned subsidiary, Miami Subs to Miami Subs Capital Partners I,
Inc. effective as of May 31, 2007. Pursuant to the Stock Purchase
Agreement, Nathan’s sold all of the stock of Miami Subs in exchange
for $3,250,000, consisting of $850,000 in cash and the Purchaser’s
promissory note in the principal amount of $2,400,000 (the “MSC
Note”). Nathan’s realized a gain on the sale of $983,000, net of
professional fees of $37,000, and recorded income taxes of $356,000
on the gain during the fifty-three week period ended March 30,
2008. The results of Miami Subs, including the fiscal 2008 period
gain on disposal, have been included as discontinued operations for
the fiscal 2008 and fiscal 2007 periods.
On January 26, 2006, two of Nathan’s wholly-owned subsidiar-
ies entered into a Lease Termination Agreement with respect to
three leased properties in Fort Lauderdale, Florida, with its landlord
and CVS 3285 FL, L.L.C., (“CVS”) to sell our leasehold interests
to CVS for $2,000,000. As the properties were subject to certain
sublease and management agreements between Nathan’s and the
then-current occupants, Nathan’s made payments to, or forgave
indebtedness of, the then-current occupants of the properties and
paid brokerage commissions of $494,000 in the aggregate. The
property was made available to the buyer by May 29, 2007 and we
received the sale proceeds on June 5, 2007. Nathan’s recognized a
gain of $1,506,000 and recorded income taxes of $557,000 during
the fiscal 2008 period. The results of operations for these properties,
including the gain on disposal, have been included as discontinued
operations for the fiscal 2008 and fiscal 2007 periods.
During the fiscal 2007 period, income of $39,000 and a gain of
$400,000 were recorded into income from discontinued operations
resulting from the collection of proceeds from the sale of our lease-
hold interest and certain reimbursable operating expenses that were
not reasonably assured as of March 26, 2006 in connection with the
fiscal 2006 sale of vacant property at Coney Island.
10
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
Fiscal Year Ended March 25, 2007 Compared to Fiscal Year
Ended March 26, 2006
Revenues from Continuing Operations
Total sales increased by $3,640,000 or 12.2% to $33,425,000
for the fiscal year ended March 25, 2007 (“fiscal 2007 period”)
as compared to $29,785,000 for the fiscal year ended March 26,
2006 (“fiscal 2006 period”). Sales from the Branded Product Pro-
gram increased by 13.9% to $18,774,000 for the fiscal 2007 period
as compared to sales of $16,476,000 in the fiscal 2006 period. This
increase was primarily attributable to increased volume of approxi-
mately 16.4%, which was partly offset by higher rebates to various
large customers in connection with the Branded Product Program.
During the fiscal 2007 period, approximately 1,800 new points of
distribution were opened under our Branded Product Program,
including approximately 750 units within K-Mart stores. Total
Company-owned restaurant sales (representing six comparable
Nathan’s restaurants, including one seasonal unit) increased by 3.9%
to $11,863,000 as compared to $11,419,000 during the fiscal 2006
period. During the second and third quarters of fiscal 2007, we
experienced favorable weather conditions in the northeastern United
States, which we believe was a contributing factor to the sales
increase at our Company-owned restaurants. Direct sales, predomi-
nantly to our television retailer, were approximately $898,000 higher
during the fiscal 2007 period than the fiscal 2006 period resulting
from the introduction of new products offered and 20 more Nathan’s
television airings during the fiscal 2007 period.
Franchise fees and royalties were $4,588,000 in the fiscal 2007
period compared to $4,407,000 in the fiscal 2006 period. Franchise
royalties were $3,966,000 in the fiscal 2007 period as compared to
$3,671,000 in the fiscal 2006 period. Domestic franchise restaurant
sales increased by 1.3% to $94,548,000 in the fiscal 2007 period, as
compared to $93,325,000 in the fiscal 2006 period. This increase of
$1,223,000 represents the net sales difference between new units
that have opened and the units that have closed between the periods,
which were partly offset by higher sales from our comparable
restaurants. Comparable domestic franchise sales (consisting of 127
restaurants) were $75,162,000 in the fiscal 2007 period as compared
to $74,817,000 in the fiscal 2006 period. On October 24, 2005,
during fiscal 2006, Hurricane Wilma hit southern Florida, where
Nathan’s franchisees operated 13 restaurants. Most of these restau-
rants were affected by the storm and were temporarily closed during
the fiscal 2006 period. We estimated that franchisee sales from the
affected stores were reduced during the third quarter fiscal 2006 by
approximately $117,000 due to the period that the restaurants were
closed. During the fiscal 2007 period, we realized $36,000 of royal-
ties that were previously deemed to be uncollectible and recorded
increased royalty income of approximately $82,000 as a result of
our acquisition of the Arthur Treacher’s intellectual property. At
March 25, 2007, 292 domestic and international franchised or
licensed units were operating as compared to 290 domestic and
international franchised or licensed units at March 26, 2006.
No royalty income from domestic franchised locations was deemed
as unrealizable during the fiscal year ended March 25, 2007, as
compared to three domestic franchised locations during the fiscal
year ended March 26, 2006. Domestic franchise fee income was
$331,000 in the fiscal 2007 period, as compared to $319,000 in the
fiscal 2006 period. International franchise fee income was $291,000
in the fiscal 2007 period, as compared to $314,000 during the fiscal
2006 period. During the fiscal 2007 period, 19 new franchised units
opened, including four units in Kuwait, one unit in Japan and one
unit in the Dominican Republic. During the fiscal 2006 period, 27
new franchised units were opened, including five units in Kuwait,
three units in Japan, two units in the United Arab Emirates, and one
unit in the Dominican Republic. During the fiscal 2006 period,
Nathan’s also recognized $104,000 in connection with three for-
feited franchise fees.
License royalties were $4,239,000 in the fiscal 2007 period as
compared to $3,569,000 in the fiscal 2006 period. This increase
was attributable to higher royalties from the sale of hot dogs,
including the newly introduced Nathan’s Kosher Hot Dogs, and new
agreements to license our trademarks for use with hors d’oeuvres
and other items. We also recovered royalties of approximately
$168,000 relating to prior year pricing discrepancies, resulting from
an internal review performed by our hot dog licensee of their
reported sales.
Interest income was $648,000 in the fiscal 2007 period versus
$450,000 in the fiscal 2006 period, primarily due to higher interest
earned on the increased amount of cash and marketable securities
that were invested at higher rates during the fiscal 2007 period as
compared to the fiscal 2006 period.
During the fiscal 2007 period, other income was $69,000 as
compared to $74,000 in the fiscal 2006 period. During fiscal 2006,
we recognized gains of $35,000 from the sale of fixed assets.
Revenue under supplier contracts was higher than the fiscal 2006
period by $29,000.
Costs and Expenses from Continuing Operations
Cost of sales increased by $1,855,000 to $24,080,000 in the
fiscal 2007 period from $22,225,000 in the fiscal 2006 period.
Overall, during the fiscal 2007 period, our Branded Product Program
incurred higher product costs totaling approximately $830,000. This
increase is the result of the higher volume during the fiscal 2007
period than in the fiscal 2006 period; however, the increase was
significantly reduced because of the lower cost of product during the
fiscal 2007 period. Our gross profit (representing the difference
between sales and cost of sales) was $9,345,000 or 28.0% of sales
during the fiscal 2007 period as compared to $7,560,000 or 25.4%
of sales during the fiscal 2006 period. The primary reason for this
improved margin was the impact that the lower cost of beef had
on our Branded Product Program during the fiscal 2007 period.
Commodity costs of our hot dogs had continuously risen during the
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
11
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPER ATIONS
(continued)
prior three consecutive years. Beginning in the summer of 2005,
prices began to soften and that trend continued during most of the
fiscal 2007 period. Our cost of hot dogs was approximately 10.0%
lower during the fiscal 2007 period than the fiscal 2006 period.
Beginning February 2007, we experienced an increase in costs for
our product, as compared to the previous seven months. During
the fiscal 2007 period, the cost of restaurant sales at our six com-
parable Company-owned units was $7,087,000, or 59.7% of restau-
rant sales, as compared to $6,694,000, or 58.6% of restaurant sales
in the fiscal 2006 period. The increase was primarily due to higher
labor and related costs. Cost of sales also increased by $632,000 in
the fiscal 2007 period primarily due to higher sales volume to our
television retailer.
Restaurant operating expenses were $3,194,000 in the fiscal
2007 period as compared to $3,180,000 in the fiscal 2006 period.
During the fiscal 2007 period, we incurred higher costs of $47,000
in connection with recruiting and maintenance at our Coney Island
restaurant in preparation for the summer season, which were partly
offset by lower self-insurance costs and utility costs.
Depreciation and amortization was $741,000 in the fiscal 2007
period as compared to $759,000 in the fiscal 2006 period.
Amortization of intangible assets was $34,000 in both the fis-
cal 2007 and fiscal 2006 periods.
General and administrative expenses increased by $690,000 to
$8,228,000 in the fiscal 2007 period as compared to $7,538,000 in
the fiscal 2006 period. During the fiscal 2007 period we incurred a
new expense of $295,000 in connection with the adoption of SFAS
No. 123R “Share Based Payment,” which now requires Nathan’s to
record an expense for the fair value of options granted over the vest-
ing period (See Note E to the Consolidated Financial Statements).
In June 2006, Nathan’s granted 197,500 options having a total fair
value of $1,218,000. We also incurred a new expense of $172,000
for professional services in connection with our ongoing SOX
Section 404 compliance efforts, higher business development costs
of $97,000 in connection with our Branded Product Program during
the fiscal 2007 period than during the fiscal 2006 period, severance
costs of $73,000, and higher professional fees of $7,000.
Provision for Income Taxes from Continuing Operations
In the fiscal 2007 period, the income tax provision was
$2,351,000 or 35.1% of income from continuing operations before
income taxes as compared to $1,665,000 or 36.6% of income from
continuing operations before income taxes in the fiscal 2006 period.
Nathan’s tax provision, excluding the effects of tax-exempt interest
income, was 38.9% during the fiscal period 2007 as compared to
40.5% for the fiscal 2006 period.
Discontinued Operations
Total revenues and income from discontinued operations of
Miami Subs for the fifty-two weeks ended March 25, 2007 was
$2,887,000 and $940,000, respectively, compared to $3,075,000
and $1,061,000, respectively, for the fifty-two weeks ended March
26, 2006.
On January 26, 2006, two of Nathan’s wholly-owned subsid-
iaries entered into a Lease Termination Agreement with respect to
three (3) leased properties in Fort Lauderdale, Florida, with its land-
lord, and CVS to sell our leasehold interests to CVS for $2,000,000
before expenses. Pursuant to the Lease Termination Agreement,
within 180 days following delivery of notice from CVS to Nathan’s,
we were required to deliver the vacated properties to CVS. On
November 30, 2006, CVS provided Nathan’s with notice that all
necessary permits and approvals had been obtained and that all
contingencies were either waived or satisfied. This transaction was
concluded on June 5, 2007. During the third quarter fiscal 2007, we
reclassified the results of operations based upon the November 30
notice. Total revenues from these three properties were $100,000
and $84,000 for the fiscal year ended March 25, 2007 and March
26, 2006, respectively. Income before taxes from these three proper-
ties were $93,000 and $78,000 for the fiscal 2007 and fiscal 2006
period respectively.
On July 13, 2005, we sold a vacant piece of property in
Brooklyn, New York, to a third party. We also sold our leasehold
interest in an adjacent property on January 17, 2006 to the same
buyer. During the fiscal 2006 period, we recognized a gain of
$2,919,000, net of associated expenses in connection with the sale
of our vacant piece of property, which was partly offset by an oper-
ating loss of $80,000 during the fiscal 2006 period, in connection
with this property. At March 26, 2006, the buyer owed Nathan’s
$439,000 from the sale of our leasehold interest and certain reim-
bursable operating expenses, whose collectibility was not then rea-
sonably assured and therefore not included in income. In July 2006,
we received $39,000 for the reimbursement of operating expenses
from December 2005 and January 2006. In October 2006, we
received $400,000 relating to the sale of our leasehold interest,
which was due in July 2006. During the fiscal 2007 period, income
of $39,000 and a gain of $400,000 were recorded into income from
discontinued operations resulting from these collections.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements, other
than a guarantee of a severance agreement as discussed in Note I
of the Notes to Consolidated Financial Statements and a purchase
commitment to acquire 1,785,000 lbs. of hot dogs between April and
August 2008, as discussed in Note M to the Consolidated Financial
Statements. Based upon market conditions subsequent to March 30,
2008, Nathan’s expects to realize cost savings of between $100,000
to $300,000 in connection with this transaction.
Liquidity and Capital Resources
Cash and cash equivalents at March 30, 2008 aggregated
$14,381,000, increasing by $7,449,000 during the fiscal 2008 period.
At March 30, 2008, marketable securities were $20,950,000 and
net working capital increased to $35,650,000 from $27,375,000 at
March 25, 2007.
12
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
Cash provided by operations of $4,852,000 in the fiscal 2008
period is primarily attributable to net income of $6,555,000 less
gains of $2,489,000 from the sale of Miami Subs and sales of our
leasehold interests, plus other non-cash items of $2,236,000.
Changes in Nathan’s operating assets and liabilities decreased cash
by $1,450,000, resulting principally from decreased accounts pay-
able and other current liabilities of $904,000, increased accounts
receivable of $362,000, increased prepaid expenses and other
current assets of $526,000 and decreased deferred franchise fees of
$76,000 which were partly offset by an increase in other liabilities
of $452,000. The net decrease in accounts payable, other current
liabilities and other long-term liabilities of $980,000 is primarily
due to the reduction in accrued income taxes payable. Accounts
receivable increased primarily from the higher sales of the Branded
Product Program. Deferred franchise fees decreased as a result of
the franchised restaurant openings during the period.
Cash was provided from investing activities of $2,969,000 in
the fiscal 2008 period, primarily from the redemption of $3,100,000
of maturing available-for-sale securities and due to the sale of a
leasehold interest and the sale of our subsidiary, Miami Subs total-
ing $1,691,000. During the period, Nathan’s liquidated all of its
floating rate securities, at full value, and reinvested the proceeds in
short-term securities. We invested $1,089,000 in available-for-sale
securities, incurred capital expenditures of $972,000 and received
all scheduled payments of $239,000 on the MSC Note receivable.
Cash was used in financing activities of $372,000 in the fiscal
2008 period, primarily from the purchase of 108,900 treasury
shares at a cost of $1,928,000 as Nathan’s completed a prior stock
repurchase plan as authorized by the Board of Directors. Cash
was received from the proceeds of employee stock option and war-
rant exercises of $924,000 and the associated income tax benefit
of $632,000.
From the commencement of its stock repurchase program in
September 2001 through March 30, 2008, Nathan’s purchased a
total of 2,000,000 shares of common stock at a cost of approxi-
mately $9,086,000, concluding the second stock repurchase plan
previously authorized by the Board of Directors. During the fiscal
2008 period the Company repurchased 108,900 shares of its com-
mon stock at a total cost of $1,928,000. On November 5, 2007,
Nathan’s Board of Directors authorized the purchase of up to an
additional 500,000 shares of its common stock on behalf of the
Company; there have been no purchases as of March 30, 2008.
Purchases may be made from time to time, depending on market
conditions, in open market or privately negotiated transactions, at
prices deemed appropriate by management.
On June 11, 2008, Nathan’s and Mutual Securities, Inc. (“MSI”)
entered into an agreement (the “10b5-1 Agreement”) pursuant to
which MSI has been authorized to purchase shares of the Company’s
common stock, par value $.01 per share (“Common Stock”) having
a value of up to an aggregate $6 million. The 10b5-1 Agreement was
adopted under the safe harbor provided by Rule 10b5-1 of the
Securities Exchange Act of 1934 in order to assist the Company in
implementing its previously announced stock purchase plan for
the purchase of up to 500,000 shares. There is no set time limit on
the repurchases.
Management believes that available cash, marketable securities
and cash generated from operations should provide sufficient capital
to finance our operations and stock repurchases for at least the next
twelve months. We currently maintain a $7,500,000 uncommitted
bank line of credit and have never borrowed any funds under this
line of credit.
Nathan’s philosophy with respect to maintaining a balance
sheet with a significant amount of cash and marketable securities
reflects our views of maintaining readily available capital to expand
our existing business and any new business opportunities, which
might present themselves to expand our business. Nathan’s routinely
assesses its investment management approach with respect to our
current and potential capital requirements.
We expect that we will make additional investments in certain
existing restaurants and support the growth of the Branded Product
Program in the future and fund those investments from our operat-
ing cash flow. We may also incur capital expenditures in connection
with opportunistic investments on a case-by-case basis.
At March 30, 2008, there were three properties that we lease
from third parties which we sublease to franchisees and a non-
franchisee. We remain contingently liable for all costs associated
with these properties including: rent, property taxes and insurance.
We may incur future cash payments with respect to such properties,
consisting primarily of future lease payments, including costs and
expenses associated with terminating any of such leases.
The following schedule represents Nathan’s cash contractual obligations by maturity at March 30, 2008 (in thousands):
Cash Contractual Obligations
Employment Agreements
Operating Leases
Gross Cash Contractual Obligations
Sublease Income
Net Cash Contractual Obligations
Payments Due by Period
Less than
1 Year
$1,080
1,551
2,631
313
1–3
Years
$ 905
2,138
3,043
624
3–5
Years
$ 700
1,145
1,845
362
More than
5 Years
$ 600
7,597
8,197
72
$2,318
$2,419
$1,483
$8,125
Total
$ 3,285
12,431
15,716
1,371
$14,345
(continued)
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
13
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPER ATIONS
(continued)
Other Contractual Commitment
Commitment to Purchase
Total Other Contractual Commitment
Inflationary Impact
We do not believe that general inflation has materially impacted
earnings during fiscal 2008, 2007 and 2006. However, during fiscal
2008, we have experienced significant cost increases for certain
food products, distribution costs and utilities. Our commodity costs
for beef have been very volatile and increased significantly during
the fiscal 2008 period. Beginning with fiscal 2004, throughout fis-
cal 2005 and into the first half of fiscal 2006, the price of our beef
products rose dramatically over historical norms before softening
somewhat during the second half of fiscal 2006 and continued soft-
ening until January 2007, which is when beef costs again began to
increase. Costs continued to escalate, peaking in June 2007, before
trending lower until November 2007 where costs remained constant
through January 2008. Since January 2008, beef costs have begun
to increase. Beef costs for fiscal 2008 were approximately 8.2%
higher than fiscal 2007. Since January 2008, we have experienced
cost increases for a number of our other food products. We expect
to incur higher commodity costs for cooking oil, fish, potatoes
and paper products in addition to continued price volatility for our
beef products during fiscal 2009. As previously discussed, Nathan’s
increased prices in response to the increased commodity costs. In
addition, for the past four years we have continued to realize the
impact of higher oil prices in the form of higher distribution costs
for our food products and higher utility costs in our Company-owned
restaurants. From time to time, various Federal and New York State
legislators have proposed changes to the minimum wage require-
ments. On May 25, 2007, President Bush signed legislation which
increased the Federal minimum wage to $5.85 per hour, effective
July 24, 2007, with increases to $6.55 per hour, effective July 24,
2008 and to $7.25 per hour effective July 24, 2009. The New York
State minimum wage, where our Company-owned restaurants are
located, was increased to $7.15 per hour on January 1, 2007 and will
increase to $7.25 per hour on July 24, 2009. These increases have
not had a material impact on our results of operations or financial
position as the vast majority of our employees are paid at a rate
Amount of Commitment Expiration Per Period
Total
Amounts
Committed
$ 2,740
$ 2,740
Less than
1 Year
1–3
Years
3–5
Years
More than
5 Years
$2,740
$ — $ —
$ —
$2,740
$ — $ —
$ —
higher than the minimum wage. Although we only operate six
Company-owned restaurants, we believe that significant increases
in the minimum wage could have a significant financial impact on
our financial results and the results of our franchisees. Continued
increases in labor, food and other operating expenses 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.
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 dis-
cussion identifying additional risk factors and important factors
that could cause actual results to differ materially from those antici-
pated, also see the discussions in “Forward-Looking Statements,”
“Risk Factors” and “Notes to Consolidated Financial Statements” in
this annual report.
Quantitative and Qualitative Disclosures About Market Risk
Cash and Cash Equivalents
We have historically invested our cash and cash equivalents
in short-term, fixed rate, highly rated and highly liquid instru-
ments which are reinvested when they mature throughout the year.
Although our 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 30, 2008, Nathans’ cash and cash equivalents aggregated
$14,381,000. Earnings on these cash and cash equivalents would
increase or decrease by approximately $35,950 per annum for each
0.25% change in interest rates.
14
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
Marketable Securities
We have invested our marketable securities in intermediate-term, fixed rate, highly rated and highly liquid instruments. These invest-
ments are subject to fluctuations in interest rates. As of March 30, 2008, the market value of Nathans’ marketable securities aggregated
$20,950,000. Interest income on these marketable securities would increase or decrease by approximately $52,400 per annum for each 0.25%
change in interest rates. The following chart presents the hypothetical changes in the fair value of the marketable investment securities held at
March 30, 2008 that are sensitive to interest rate fluctuations (in thousands):
Municipal notes and bonds
$21,804
$21,512
$21,228
$20,950
$20,678
$20,414
$20,155
Valuation of Securities
Given an Interest Rate
Decrease of X Basis Points
(150BPS)
(100BPS)
(50BPS)
Valuation of Securities
Given an Interest Rate
Increase of X Basis Points
+50BPS
+100BPS
+150BPS
Fair
Value
Borrowings
The interest rate on our prior borrowings was generally deter-
mined based upon the prime rate and was subject to market fluctua-
tion as the prime rate changed, as determined within each specific
agreement. At March 30, 2008, we had no outstanding indebtedness.
If we were to borrow money in the future, such borrowings would be
based upon the then prevailing interest rates. We do not anticipate
entering into interest rate swaps or other financial instruments to
hedge our borrowings. We maintain a $7,500,000 credit line at the
prime rate (5.25% as of March 30, 2008), which expires in October
2008. We have never borrowed any funds under this credit line.
Accordingly, we do not believe that fluctuations in interest rates
would have a material impact on our financial results.
Commodity Costs
The cost of commodities is subject to market fluctuation. 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, our future commodities purchases are sub-
ject to changes in the prices of such commodities. Generally, we
attempt to pass through permanent increases in our commodity
prices to our customers, thereby reducing the impact of long-term
increases on our financial results. A short-term increase or decrease
of 10.0% in the cost of our food and paper products for the fifty-
three weeks ended March 30, 2008 would have increased or
decreased our cost of sales by approximately $2,094,000.
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.
Forward-Looking Statements
Statements in this annual 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: economic, weather, legislative
and business conditions; the collectibility of receivables; changes in
consumer tastes; the ability to continue to attract franchisees; no
material increases in the minimum wage; our ability to attract
competent restaurant and managerial personnel; and the future
effects of bovine spongiform encephalopathy, BSE, first identified
in the United States on December 23, 2003; as well as those risks
discussed from time to time in this annual report for the year ended
March 30, 2008, and in other documents which we file with the
Securities 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 annual report.
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
15
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
A S S E T S
Current Assets
Cash and cash equivalents
Marketable securities
Accounts receivable, net
Note receivable
Inventories
Prepaid expenses and other current assets
Deferred income taxes
Current assets held for sale
Total current assets
Note receivable
Property and equipment, net
Goodwill
Intangible assets, net
Deferred income taxes
Other assets, net
Non-current assets held for sale
L I A B I L I T I E S A N D S T O C K H O L D E R S ’ E Q U I T Y
Current Liabilities
Accounts payable
Accrued expenses and other current liabilities
Deferred franchise fees
Current liabilities held for sale
Total current liabilities
Other liabilities
Non-current liabilities held for sale
Total liabilities
Commitments and Contingencies (Note M)
Stockholders’ Equity
Common stock, $.01 par value; 30,000,000 shares authorized; 8,180,683 and 7,909,183 shares issued;
and 6,180,683 and 6,018,083 shares outstanding at March 30, 2008 and March 25, 2007, respectively
Additional paid-in capital
Deferred compensation
Retained earnings/(accumulated deficit)
Accumulated other comprehensive income (loss)
Treasury stock, at cost, 2,000,000 and 1,891,100 shares at March 30, 2008 and March 25, 2007, respectively
Total stockholders’ equity
The accompanying notes are an integral part of these statements.
16
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
March 30,
2008
March 25,
2007
$14,381
20,950
3,833
606
822
1,493
697
—
42,782
1,305
4,428
95
1,747
665
180
—
$ 6,278
22,785
3,261
—
790
994
1,174
1,539
36,821
—
4,222
95
1,781
990
178
2,488
$51,202
$46,575
$ 2,805
4,028
299
—
7,132
1,462
—
8,594
$ 2,298
4,767
375
2,006
9,446
873
377
10,696
82
47,704
(63)
3,746
225
51,694
(9,086)
42,608
79
45,792
(136)
(2,654)
(44)
43,037
(7,158)
35,879
$51,202
$46,575
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except share and per share amounts)
Revenues
Sales
Franchise fees and royalties
License royalties
Interest income
Other income
Total revenues
Costs and Expenses
Cost of sales
Restaurant operating expenses
Depreciation and amortization
Amortization of intangible assets
General and administrative expenses
Total costs and expenses
Income from continuing operations before provision for income taxes
Provision for income taxes
Income from continuing operations
Income from discontinued operations, including gains on disposal of discontinued
operations before income taxes of $2,489 in 2008, $400 in 2007 and $2,919 in 2006
Income tax expense
Income from discontinued operations
Net income
Per Share Information
Basic income per share:
Income from continuing operations
Income from discontinued operations
Net income
Diluted income per share:
Income from continuing operations
Income from discontinued operations
Net income
Weighted average shares used in computing income per share
Basic
Diluted
The accompanying notes are an integral part of these statements.
Fifty-Three
Weeks Ended
Fifty-Two
Weeks Ended
Fifty-Two
Weeks Ended
March 30,
2008
March 25,
2007
March 26,
2006
$36,259
5,132
4,752
1,084
168
47,395
27,070
3,265
763
34
8,942
40,074
7,321
2,472
4,849
2,711
1,005
1,706
$33,425
4,588
4,239
648
69
42,969
24,080
3,194
741
34
8,228
36,277
6,692
2,351
4,341
1,990
788
1,202
$29,785
4,407
3,569
450
74
38,285
22,225
3,180
759
34
7,538
33,736
4,549
1,665
2,884
4,589
1,796
2,793
$ 6,555
$ 5,543
$ 5,677
$ 0.80
0.28
$ 1.08
$ 0.75
0.26
$ 1.01
$ 0.74
0.21
$ 0.95
$ 0.68
0.19
$ 0.87
$ 0.52
0.50
$ 1.02
$ 0.44
0.43
$ 0.87
6,085,000
5,836,000
5,584,000
6,502,000
6,341,000
6,546,000
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
17
17
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
Fifty-Three Weeks Ended March 30, 2008, and Fifty-Two Weeks Ended March 25, 2007 and March 26, 2006
Common Common
Shares
Stock
Additional
Paid-in
Capital Compensation
Deferred
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Treasury Stock,
at Cost
Shares Amount
Total
Stockholders’ Comprehensive
Income (Loss)
Equity
7,440,317
$74
$42,665
$(281)
$(13,874)
$ (70)
1,891,100 $(7,158)
$21,356
Balance, March 27, 2005
Shares issued in connection with exercise
of employee stock options
160,082
Income tax benefit on stock option
exercises
Amortization of deferred compensation
relating to restricted stock
Unrealized (losses) on marketable
securities, net of deferred income
tax (benefit) of ($63)
Net income
Comprehensive income
—
—
—
—
—
2
—
—
—
—
—
640
394
—
—
—
—
—
—
73
—
—
—
—
—
—
—
5,677
—
—
—
—
(94)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
642
394
73
(94)
5,677
—
(94)
5,677
$5,583
Balance, March 26, 2006
7,600,399
$76
$43,699
$(208)
$ (8,197)
$(164)
1,891,100 $(7,158)
$28,048
Shares issued in connection with exercise
of employee stock options
308,784
Income tax benefit on stock option
exercises
Share-based compensation
Amortization of deferred compensation
relating to restricted stock
Unrealized gains on marketable securi-
ties, net of deferred income tax of $80
Net income
Comprehensive income
—
—
—
—
—
—
3
—
—
—
—
—
—
719
1,079
295
—
—
—
—
—
—
—
72
—
—
—
—
—
—
—
—
5,543
—
—
—
—
—
120
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
722
1,079
295
72
120
5,543
—
Balance, March 25, 2007
7,909,183
$79
$45,792
$(136)
$ (2,654)
$ (44)
1,891,100 $(7,158)
$35,879
Shares issued in connection with exercise
of employee stock options and
warrants
Repurchase of common stock
Income tax benefit on stock option
exercises
Share-based compensation
Amortization of deferred compensation
relating to restricted stock
Unrealized gains on marketable securi-
ties, net of deferred income tax of $184
Cumulative effect of the adoption of FIN
No. 48 as of March 26, 2007 (Note K)
Net income
Comprehensive income
271,500
—
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
—
921
—
632
359
—
—
—
—
—
—
—
—
—
73
—
—
—
—
—
—
—
—
—
—
(155)
6,555
—
—
—
—
—
—
269
—
—
—
—
108,900
—
(1,928)
924
(1,928)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
632
359
73
269
(155)
6,555
—
Balance, March 30, 2008
8,180,683
$82
$47,704
$ (63)
$ 3,746
$ 225
2,000,000 $(9,086)
$42,608
The accompanying notes are an integral part of these statements.
120
5,543
$5,663
269
6,555
$6,824
18
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization
Amortization of intangible assets
Amortization of bond premium
Amortization of deferred compensation
Gain on sale of subsidiary and leasehold interests
Gain on disposal of fixed assets
Loss on sale of available for sale securities
Share-based compensation expense
Provision for doubtful accounts
Income tax benefit on stock option exercises
Deferred income taxes
Changes in operating assets and liabilities:
Notes and accounts receivable, net
Inventories
Prepaid expenses and other current assets
Other assets
Accounts payable, accrued expenses and other current liabilities
Deferred franchise fees
Other liabilities
Net cash provided by operating activities
Cash Flows from Investing Activities:
Proceeds from sale of available-for-sale securities
Purchase of available-for-sale securities
Purchase of intellectual property
Purchase of property and equipment
Payments received on notes receivable
Proceeds from sales of subsidiary and leasehold interest
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Principal repayments of notes payable and capitalized lease obligations
Repurchase of treasury stock
Income tax benefit on stock option exercises
Proceeds from the exercise of stock options and warrant
Net cash provided by (used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Cash paid during the year for:
Interest
Income taxes
Noncash Financing Activities:
Loan made in connection with the sale of subsidiary
The accompanying notes are an integral part of these statements.
Fifty-Three
Weeks Ended
Fifty-Two
Weeks Ended
Fifty-Two
Weeks Ended
March 30,
2008
March 25,
2007
March 26,
2006
$ 6,555
$ 5,543
$ 5,677
766
78
278
73
(2,489)
—
—
359
—
—
682
(362)
(32)
(526)
(2)
(904)
(76)
452
4,852
3,100
(1,089)
—
(972)
239
1,691
2,969
—
(1,928)
632
924
(372)
7,449
6,932
791
262
269
72
(400)
(29)
—
295
(6)
—
(180)
(117)
27
243
32
1,374
156
(141)
8,191
—
(5,972)
(7)
(539)
88
400
(6,030)
(39)
—
1,079
722
1,762
3,923
3,009
812
262
232
73
(2,919)
(66)
2
—
10
394
175
(567)
(129)
(223)
(11)
600
(119)
(142)
4,061
2,245
(7,877)
(1,346)
(795)
350
3,621
(3,802)
(827)
—
—
642
(185)
74
2,935
$14,381
$ 6,932
$ 3,009
$ —
$ 2,942
$ 1
$ 1,353
$ 31
$ 3,040
$ 2,150
$ —
$ —
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts) March 30, 2008, March 25, 2007 and March 26, 2006
Note A—Description and Organization of Business
Nathan’s Famous, Inc. and subsidiaries (collectively the “Com-
pany” or “Nathan’s”) has historically operated or franchised a chain
of retail fast food restaurants featuring the Nathan’s Famous brand
of all beef frankfurters, fresh crinkle-cut French-fried potatoes and
a variety of other menu offerings. Nathan’s has also established a
Branded Product Program, which enables foodservice retailers to
sell some of Nathan’s proprietary products outside of the realm of
a traditional franchise relationship. The Company is also the owner
of the Arthur Treacher’s brand (See Note C). Arthur Treacher’s
main product is its “Original Fish & Chips” product consisting of
fish fillets coated with a special batter prepared under a proprietary
formula, deep-fried golden brown, and served with English-style
chips and corn meal “hush puppies.” The Company, through wholly-
owned subsidiaries, was also the franchisor of Kenny Rogers
Roasters (“Roasters”) and Miami Subs through April 23, 2008 and
May 30, 2007, respectively. (See Notes P and H for discussion of the
sales of these subsidiaries.) The Company considers its subsidiaries
to be in the food service industry, and has pursued co-branding and
co-hosting initiatives; accordingly, management has evaluated the
Company as a single reporting unit.
At March 30, 2008, the Company’s restaurant system included
six company-owned units in the New York City metropolitan area
and 322 franchised or licensed units, located in 22 states and 11
foreign countries.
Note B—Summary of Significant Accounting Policies
The following significant accounting policies have been applied
in the preparation of the consolidated financial statements:
1. Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and all of its wholly-owned subsidiaries. All signifi-
cant inter-company balances and transactions have been eliminated
in consolidation.
2. Fiscal Year
The Company’s fiscal year ends on the last Sunday in March,
which results in a 52- or 53-week reporting period. The results of
operations and cash flows for the fiscal year ended March 30, 2008
are on the basis of a 53-week reporting period and the results of
operations and cash flows for the fiscal years ended March 25, 2007
and March 26, 2006 are on the basis of 52-week reporting periods.
3. Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclo-
sure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Significant estimates made by management in preparing
the consolidated financial statements include revenue recognition,
the allowance for doubtful accounts, valuation of notes receivable,
valuation of stock-based compensation, income taxes and valuation
of goodwill, other intangible assets and other long-lived assets.
4. Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased
with an original maturity of three months or less to be cash equiva-
lents. Cash equivalents amounted to $11,100 and $3,294 at March
30, 2008 and March 25, 2007, respectively. Included in cash and
cash equivalents is cash restricted for untendered shares associated
with the acquisition of Nathan’s in 1987 of $54 at March 30, 2008
and March 25, 2007.
5. Impairment of Notes Receivable
Nathan’s follows the guidance in Statement of Financial
Accounting Standards (“SFAS”) No. 114 (“SFAS No. 114”) “Account-
ing by Creditors for Impairment of a Loan,” as amended. Pursuant
to SFAS No. 114, a loan is impaired when, based on current infor-
mation and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the
loan agreement. When evaluating a note for impairment, the factors
considered include: (a) indications that the borrower is experiencing
business problems such as operating losses, marginal working capi-
tal, inadequate cash flow or business interruptions, (b) loans secured
by collateral that is not readily marketable, or (c) loans that are
susceptible to deterioration in realizable value. When determining
impairment, management’s assessment includes its intention to
extend certain leases beyond the minimum lease term and the debt-
or’s ability to meet its obligation over that extended term. In certain
cases where Nathan’s has determined that a loan has been impaired,
it generally does not expect to extend or renew the underlying leases.
Based on the Company’s analysis, it has determined that no notes
receivable are impaired at March 30, 2008. At March 25, 2007, there
were certain notes that were deemed to be impaired which are pre-
sented, net of an allowance of $1,628 for impaired notes receivable,
as a component of assets held for sale.
Based on the present value of the estimated cash flows of iden-
tified impaired notes receivable, the Company records interest
income on its impaired notes receivable on a cash basis.
6. Inventories
Inventories, which are stated at the lower of cost or market
value, consist primarily of food items and supplies. Inventories also
include equipment and marketing items in connection with the
Branded Product Program. Cost is determined using the first-in,
first-out method.
20
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
7. Marketable Securities
In accordance with SFAS No. 115, “Accounting for Certain
Investments in Debt and Equity Securities,” the Company deter-
mines the appropriate classification of securities at the time of
purchase and reassesses the appropriateness of the classification at
each reporting date. At March 30, 2008 and March 25, 2007, all
marketable securities held by the Company have been classified as
available-for-sale and, as a result, are stated at fair value, based upon
quoted market price as determined in active markets, with unreal-
ized gains and losses included as a component of accumulated other
comprehensive income (loss) in the accompanying consolidated bal-
ance sheets. Realized gains and losses on the sale of securities, as
determined on a specific identification basis, are included in the
accompanying consolidated statements of earnings (See Note F).
8. Sales of Restaurants
The Company obser ves the provisions of SFAS No. 66,
“Accounting for Sales of Real Estate,” (“SFAS No. 66”) which
establishes accounting standards for recognizing profit or loss on
sales of real estate. SFAS No. 66 provides for profit recognition by
the full accrual method, provided (a) the profit is determinable, that
is, the collectibility of the sales price is reasonably assured or the
amount that will not be collectible can be estimated, and (b) the
earnings process is virtually complete, that is, the seller is not
obliged to perform significant activities after the sale to earn the
profit. Unless both conditions exist, recognition of all or part of the
profit shall be postponed and other methods of profit recognition
shall be followed. In accordance with SFAS No. 66, the Company
recognizes profit on sales of restaurants under the full accrual
method, the installment method and the deposit method, depending
on the specific terms of each sale. The Company records deprecia-
tion expense on the property subject to the sales contracts that are
accounted for under the deposit method and records any principal
payments received as a deposit until such time that the transaction
meets the sales criteria of SFAS No. 66.
9. Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Major improvements are capitalized
and minor replacements, maintenance and repairs are charged to
expense as incurred. Depreciation and amortization are calculated
on the straight-line basis over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of the esti-
mated useful life or the lease term of the related asset. The estimated
useful lives are as follows:
Building and improvements
Machinery, equipment, furniture and fixtures
Leasehold improvements
5–25 years
3–15 years
5–20 years
10. Goodwill and Intangible Assets
Intangible assets primarily consist of (i) goodwill of $95
resulting from the acquisition of Nathan’s in 1987; (ii) trademarks,
trade names and franchise rights of $394 in connection with
Roasters, (See Note P) and (iii) trademarks, trade names and other
intellectual property of $1,353 in connection with Arthur Treacher’s
(See Note C).
The table below presents amortized and unamortized intangible assets as of March 30, 2008 and March 25, 2007:
Amortized intangible assets:
Royalty streams
Other
Unamortized intangible assets:
Trademarks and tradenames
Goodwill
March 30, 2008
March 25, 2007
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$666
6
$672
$(299)
(6)
$(305)
$666
6
$672
$(266)
(5)
$(271)
$ 367
—
$ 367
1,380
$1,747
$ 95
$ 400
1
$ 401
1,380
$1,781
$ 95
As of March 30, 2008 and March 25, 2007, the Company has
performed its required annual impairment test of goodwill and
other intangible assets, and has determined no impairment is deemed
to exist.
Total amortization expense for intangible assets was $34 for
each of the fiscal years ended March 30, 2008, March 25, 2007 and
March 26, 2006. As a result of the April 23, 2008 sale of Roasters
(Note P), the Company will no longer have any amortizable intan-
gibles and, as a result, no amortization expense is currently expected
in the next five years.
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share amounts) March 30, 2008, March 25, 2007 and March 26, 2006
15. Revenue Recognition—Branded Products Operations
The Company recognizes revenue from the Branded Product
Program when it is determined that the products have been delivered
via third party common carrier to Nathans’ customers. Rebates pro-
vided to customers are classified as a reduction of revenues.
16. Revenue Recognition—Company-owned Restaurants
Sales by Company-owned restaurants, which are typically paid
in cash by the customer, are recognized upon the performance of
services. Sales are presented, net of sales tax, pursuant to EITF
Issue 06-3.
17. Revenue Recognition—Franchising Operations
In connection with its franchising operations, the Company
receives initial franchise fees, development fees, royalties, and in
certain cases, revenue from sub-leasing restaurant properties to
franchisees.
Franchise and area development fees, which are typically
received prior to completion of the revenue recognition process, are
initially recorded as deferred revenue. Initial franchise fees, which
are non-refundable, are initially recognized as income when sub-
stantially all services to be performed by Nathan’s and conditions
relating to the sale of the franchise have been performed or satisfied,
which generally occurs when the franchised restaurant commences
operations.
The following services are typically provided by the Company
prior to the opening of a franchised restaurant:
(cid:0)
(cid:0)
(cid:115)(cid:0) (cid:0)(cid:33)(cid:80)(cid:80)(cid:82)(cid:79)(cid:86)(cid:65)(cid:76)(cid:0)(cid:79)(cid:70)(cid:0)(cid:65)(cid:76)(cid:76)(cid:0)(cid:83)(cid:73)(cid:84)(cid:69)(cid:0)(cid:83)(cid:69)(cid:76)(cid:69)(cid:67)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:66)(cid:69)(cid:0)(cid:68)(cid:69)(cid:86)(cid:69)(cid:76)(cid:79)(cid:80)(cid:69)(cid:68)(cid:14)
(cid:115)(cid:0) (cid:0)(cid:48)(cid:82)(cid:79)(cid:86)(cid:73)(cid:83)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:65)(cid:82)(cid:67)(cid:72)(cid:73)(cid:84)(cid:69)(cid:67)(cid:84)(cid:85)(cid:82)(cid:65)(cid:76)(cid:0)(cid:80)(cid:76)(cid:65)(cid:78)(cid:83)(cid:0)(cid:83)(cid:85)(cid:73)(cid:84)(cid:65)(cid:66)(cid:76)(cid:69)(cid:0)(cid:70)(cid:79)(cid:82)(cid:0)(cid:82)(cid:69)(cid:83)(cid:84)(cid:65)(cid:85)(cid:82)(cid:65)(cid:78)(cid:84)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:66)(cid:69)(cid:0)
(cid:0)
(cid:0)
developed.
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:115)(cid:0) (cid:0)(cid:33)(cid:83)(cid:83)(cid:73)(cid:83)(cid:84)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0) (cid:73)(cid:78)(cid:0) (cid:69)(cid:83)(cid:84)(cid:65)(cid:66)(cid:76)(cid:73)(cid:83)(cid:72)(cid:73)(cid:78)(cid:71)(cid:0) (cid:66)(cid:85)(cid:73)(cid:76)(cid:68)(cid:73)(cid:78)(cid:71)(cid:0) (cid:68)(cid:69)(cid:83)(cid:73)(cid:71)(cid:78)(cid:0) (cid:83)(cid:80)(cid:69)(cid:67)(cid:73)(cid:70)(cid:73)(cid:67)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:12)(cid:0)
reviewing construction compliance and equipping the
restaurant.
(cid:115)(cid:0) (cid:0)(cid:48)(cid:82)(cid:79)(cid:86)(cid:73)(cid:83)(cid:73)(cid:79)(cid:78)(cid:0)(cid:79)(cid:70)(cid:0)(cid:65)(cid:80)(cid:80)(cid:82)(cid:79)(cid:80)(cid:82)(cid:73)(cid:65)(cid:84)(cid:69)(cid:0)(cid:77)(cid:69)(cid:78)(cid:85)(cid:83)(cid:0)(cid:84)(cid:79)(cid:0)(cid:67)(cid:79)(cid:79)(cid:82)(cid:68)(cid:73)(cid:78)(cid:65)(cid:84)(cid:69)(cid:0)(cid:87)(cid:73)(cid:84)(cid:72)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:82)(cid:69)(cid:83)(cid:84)(cid:65)(cid:85)-
rant design and location to be developed.
(cid:115)(cid:0) (cid:0)(cid:48)(cid:82)(cid:79)(cid:86)(cid:73)(cid:68)(cid:69)(cid:0) (cid:77)(cid:65)(cid:78)(cid:65)(cid:71)(cid:69)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0) (cid:84)(cid:82)(cid:65)(cid:73)(cid:78)(cid:73)(cid:78)(cid:71)(cid:0) (cid:70)(cid:79)(cid:82)(cid:0) (cid:84)(cid:72)(cid:69)(cid:0) (cid:78)(cid:69)(cid:87)(cid:0) (cid:70)(cid:82)(cid:65)(cid:78)(cid:67)(cid:72)(cid:73)(cid:83)(cid:69)(cid:69)(cid:0) (cid:65)(cid:78)(cid:68)(cid:0)
selected staff.
(cid:115)(cid:0) (cid:0)(cid:33)(cid:83)(cid:83)(cid:73)(cid:83)(cid:84)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0) (cid:87)(cid:73)(cid:84)(cid:72)(cid:0) (cid:84)(cid:72)(cid:69)(cid:0) (cid:73)(cid:78)(cid:73)(cid:84)(cid:73)(cid:65)(cid:76)(cid:0) (cid:79)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:83)(cid:0) (cid:79)(cid:70)(cid:0) (cid:82)(cid:69)(cid:83)(cid:84)(cid:65)(cid:85)(cid:82)(cid:65)(cid:78)(cid:84)(cid:83)(cid:0) (cid:66)(cid:69)(cid:73)(cid:78)(cid:71)(cid:0)
developed.
At March 30, 2008 and March 25, 2007, $299 and $375, respec-
tively, of deferred franchise fees are included in the accompanying
consolidated balance sheets. For the fiscal years ended March 30,
2008, March 25, 2007 and March 26, 2006, the Company earned
franchise fees of $970, $622 and $665, respectively, from new unit
openings, transfers, co-branding and forfeitures.
11. Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying value may not
be recoverable. Impairment is measured by comparing the carrying
value of the long-lived assets to the estimated undiscounted future
cash flows expected to result from use of the assets and their ulti-
mate disposition. In instances where impairment is determined to
exist, the Company writes down the asset to its fair value based on
the present value of estimated future cash flows.
Impairment losses are recorded on long-lived assets on a
restaurant-by-restaurant basis 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. No units were
deemed impaired during the fiscal years, ended March 30, 2008,
March 25, 2007 and March 26, 2006.
12. Self-Insurance
The Company is self-insured for portions of its general liability
coverage. As part of Nathan’s risk management strategy, its insur-
ance programs include deductibles for each incident and in the
aggregate for a policy year. As such, Nathan’s accrues estimates of
its ultimate self-insurance costs throughout the policy year. These
estimates have been developed based upon Nathan’s historical
trends, however, the final cost of many of these claims may not be
known for five years or longer. Accordingly, Nathan’s annual self-
insurance costs may be subject to adjustment from previous esti-
mates as facts and circumstances change. The self-insurance accruals
at March 30, 2008 and March 25, 2007 were $107 and $197, respec-
tively, and are included in “Accrued expenses and other current lia-
bilities” in the accompanying consolidated balance sheets.
During the fiscal years ended March 30, 2008, March 25, 2007
and March 26, 2006, the Company reversed approximately $61, $53,
and $55 respectively, of previously recorded insurance accruals to
reflect the revised estimated cost of claims.
13. Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, marketable
securities, accounts receivable and accounts payable approximate
fair value due to the short-term maturities of the instruments. The
carrying amount of the note receivable approximates its fair value as
the current interest rate on such instrument approximates current
market interest rates on similar instruments.
14. Start-up Costs
Pre-opening and similar costs are expensed as incurred.
22
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
Development fees are nonrefundable and the related agree-
ments require the franchisee to open a specified number of restau-
rants in the development area within a specified time period or the
agreements may be canceled by the Company. Revenue from devel-
opment agreements is deferred and recognized as restaurants in the
development area commence operations on a pro rata basis to the
minimum number of restaurants required to be open, or at the time
the development agreement is effectively canceled. At March 30,
2008 and March 25, 2007, $214 and $306, respectively, of deferred
development fee revenue is included in “Other liabilities” in the
accompanying consolidated balance sheets.
The following is a summary of franchise openings and closings
for the Nathan’s and Kenny Rogers restaurant systems for the fiscal
years ended March 30, 2008, March 25, 2007 and March 26, 2006:
March 30,
2008
March 25,
2007
March 26,
2006
Franchised restaurants operating
at the beginning of the period
New franchised restaurants
opened during the period
Franchised restaurants closed
during the period
Franchised restaurants operating
at the end of the period
294
46
(18)
322
290
21
271
30
(17)
(11)
294
290
The Company recognizes franchise royalties, which are gen-
erally based upon a percentage of sales made by the Company’s
franchisees, when they are earned and deemed collectible. Franchise
fees and royalties that are not deemed to be collectible are not recog-
nized as revenue until paid by the franchisee or until collectibility
is deemed to be reasonably assured. Revenue from sub-leasing
properties to franchisees is recognized in income as the revenue is
earned and becomes receivable and deemed collectible. Sub-lease
rental income is presented net of associated lease costs in the accom-
panying consolidated statements of operations.
18. Revenue Recognition—License Royalties
The Company earns revenue from royalties on the licensing
of the use of its name on certain products produced and sold by out-
side vendors. The use of the Company name and symbols must be
approved by the Company prior to each specific application to
ensure proper quality and project a consistent image. Revenue from
license royalties is recognized when it is earned and deemed
collectible.
19. Interest Income
Interest income is recorded when it is earned and deemed real-
izable by the Company.
20. Other income
The Company recognizes gains on the sale of fixed assets
under the full accrual method, installment method or deposit method
in accordance with provisions of SFAS No. 66 (See Note B-8).
Deferred revenue associated with supplier contracts is gener-
ally amortized into income on a straight-line basis over the life of
the contract.
Other income for the fiscal years ended March 30, 2008, March
25, 2007 and March 26, 2006 consists of the following:
Gain on disposal of fixed assets
Amortization of supplier
contributions
Other income
March 30,
2008
March 25,
2007
March 26,
2006
$ —
34
134
$168
$—
52
17
$ 69
$35
30
9
$74
21. Business Concentrations and Geographical Information
The Company’s accounts receivable consist principally of
receivables from franchisees for royalties and advertising contribu-
tions, from sales under the Branded Product Program, and for royal-
ties from retail licensees. At March 30, 2008, one retail licensee and
three Branded Product customers each represented 19%, 15%, 11%
and 10%, respectively, of accounts receivable. At March 25, 2007,
one retail licensee and two Branded Products distributors repre-
sented 21%, 16% and 13%, respectively, of accounts receivable.
No franchisee, retail licensee or Branded Product customer
accounted for 10% or more of revenues during the fiscal years ended
March 30, 2008, March 25, 2007 and March 26, 2006.
The Company’s primary supplier of frankfurters represented
77%, 74% and 77% of product purchases for the fiscal years ended
March 30, 2008, March 25, 2007 and March 26, 2006, respectively.
The Company’s distributor of product to its Company-owned restau-
rants represented 15%, 16%, and 13% of product purchases for the
fiscal years ended March 30, 2008, March 25, 2007 and March 26,
2006, respectively.
The Company’s revenues for the fiscal years ended March 30,
2008, March 25, 2007 and March 26, 2006 were derived from the
following geographic areas:
Domestic (United States)
Non-domestic
March 30,
2008
March 25,
2007
March 26,
2006
$46,520
875
$41,738
1,231
$36,907
1,378
$47,395
$42,969
$38,285
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share amounts) March 30, 2008, March 25, 2007 and March 26, 2006
22. Advertising
The Company administers various advertising funds on behalf
of its subsidiaries and franchisees to coordinate the marketing efforts
of the Company. Under these arrangements, the Company collects
and disburses fees paid by franchisees and Company-owned stores
for national and regional advertising, promotional and public rela-
tions programs. Contributions to the advertising funds are based on
specified percentages of net sales, generally ranging up to 3%. Net
Company-owned store advertising expense was $224, $184, and
$194, for the fiscal years ended March 30, 2008, March 25, 2007
and March 26, 2006, respectively.
23. Stock-Based Compensation
At March 30, 2008, the Company had several stock-based
employee compensation plans in effect which are more fully
described in Note L. As of the beginning of fiscal 2007, Nathan’s
adopted SFAS No. 123R, “Share-Based Payment,” (“SFAS No.
123R”) using the modified prospective method. SFAS No. 123R
replaces SFAS No. 123, “Accounting for Stock-Based Compen-
sation,” (“SFAS No. 123”) and supersedes Accounting Principles
Board Opinion 25, “Accounting for Stock Issued to Employees”
(“APB No. 25”). Prior to March 27, 2006, Nathan’s accounted for
stock-based compensation using the intrinsic value method pursuant
to ABP No. 25 and related interpretations by disclosing the pro-
forma net income (loss) and net income (loss) per share as if the fair
value method had been applied in accordance with SFAS No. 123.
Under the intrinsic value method, no compensation expense was
recognized if the exercise price of the grant equaled or exceeded the
market price of the underlying stock on the date of grant. Nathan’s
has issued all stock option grants at prices equal to or in excess of
the market price on the date of grant.
SFAS No. 123R requires the cost of all share-based payments
to employees, including grants of employee stock options, to be
recognized in the financial statements based on their fair values
measured at the grant date, or the date of later modification, over the
requisite service period. The Company utilizes the straight-line
attribution method to recognize the expense associated with awards
with graded vesting terms. In addition, under the modified prospec-
tive approach, SFAS No. 123R requires unrecognized cost (based
on the amounts previously disclosed in pro forma footnote disclo-
sures) related to awards vesting after the date of initial adoption to
be recognized by the Company in the financial statements over the
remaining requisite service period. Therefore, the amount of com-
pensation costs to be recognized over the requisite service period on
a prospective basis after March 26, 2006 includes: (i) previously
unrecognized compensation cost for all share-based payments
granted prior to, but not yet vested as of, March 26, 2006 based on
their fair values measured at the grant date, (ii) compensation cost of
all share-based payments granted subsequent to March 26, 2006
based on their respective grant date fair value, and (iii) the incre-
mental fair value of awards modified subsequent to March 26, 2006
measured as of the date of such modification.
Share-based compensation recognized pursuant to the adoption
of SFAS 123R during the fiscal years ended March 30, 2008 and
March 25, 2007 was $359 and $295, respectively, is included in gen-
eral and administrative expense in the accompanying Consolidated
Statements of Earnings. As of March 30, 2008, there was $1,324 of
unamortized compensation expense related to stock options. The
Company expects to recognize this expense over approximately
three years, eight months, which represents the weighted average
remaining requisite service periods for such awards.
During the fiscal year ended March 30, 2008, the Company
granted 110,000 stock options having an exercise price of $17.43 per
share, all of which expire five years from the date of grant. 60,000
of the options granted will be vested as follows: 25% on the first
anniversary of the grant, 50% on the second anniversary of the
grant, 75% on the third anniversary of the grant and 100% on the
fourth anniversary of the grant. 50,000 of the options granted will
be vested as follows: 33.3% on the first anniversary of the grant,
66.7% on the second anniversary of the grant and 100% on the third
anniversary of the grant.
During the fiscal year ended March 25, 2007, the Company
granted 197,500 stock options having an exercise price of $13.08
per share, all of which expire ten years from the date of grant.
All 197,500 options granted will be vested as follows: 20% on the
first anniversary of the grant, 40% on the second anniversary of
the grant, 60% on the third anniversary of the grant, 80% on the
fourth anniversary of the grant and 100% on the fifth anniversary of
the grant.
No options were granted during the fiscal year ended March
26, 2006.
The weighted-average option fair values, as determined using
the Black-Scholes option valuation model, and the assumptions used
to estimate these values for stock options granted during the fiscal
years ended March 30, 2008 and March 25, 2007 are as follows:
Weighted-average option fair values
Expected life (years)
Interest rate
Volatility
Dividend yield
Fiscal Year Ended
March 30,
2008
March 25,
2007
$5.8270
4.25
4.21%
32.93%
0%
$6.1686
7.0
5.21%
34.33%
0%
24
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
The following table illustrates the effect on net income and
income per share had the fair value-based method prescribed by
SFAS No. 123, been applied to stock-based employee compensation
during the year ended March 26, 2006.
Net income, as reported
Add: Stock-based compensation included in net income
Deduct: Total stock-based employee compensation expense
determined under fair value-based method for all awards
Pro forma net income
Net income per share
Basic—as reported
Diluted—as reported
Basic—pro forma
Diluted—pro forma
March 26,
2006
$5,677
44
(132)
$5,589
$ 1.02
$ 0.87
$ 1.00
$ 0.85
24. Classification of Operating Expenses
Cost of sales consists of the following:
(cid:0)
(cid:0)
(cid:115)(cid:0) (cid:0)(cid:52)(cid:72)(cid:69)(cid:0) (cid:67)(cid:79)(cid:83)(cid:84)(cid:0) (cid:79)(cid:70)(cid:0) (cid:80)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:83)(cid:0) (cid:83)(cid:79)(cid:76)(cid:68)(cid:0) (cid:66)(cid:89)(cid:0) (cid:84)(cid:72)(cid:69)(cid:0) (cid:35)(cid:79)(cid:77)(cid:80)(cid:65)(cid:78)(cid:89)(cid:13)(cid:79)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0) (cid:82)(cid:69)(cid:83)(cid:84)(cid:65)(cid:85)-
rants, through the Branded Product Program and other distri-
bution channels.
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:0)
(cid:115)(cid:0) (cid:0)(cid:52)(cid:72)(cid:69)(cid:0)(cid:67)(cid:79)(cid:83)(cid:84)(cid:0)(cid:79)(cid:70)(cid:0)(cid:76)(cid:65)(cid:66)(cid:79)(cid:82)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:65)(cid:83)(cid:83)(cid:79)(cid:67)(cid:73)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:67)(cid:79)(cid:83)(cid:84)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:73)(cid:78)(cid:13)(cid:83)(cid:84)(cid:79)(cid:82)(cid:69)(cid:0)(cid:82)(cid:69)(cid:83)(cid:84)(cid:65)(cid:85)(cid:82)(cid:65)(cid:78)(cid:84)(cid:0)
management and crew.
(cid:115)(cid:0) (cid:0)(cid:52)(cid:72)(cid:69)(cid:0) (cid:67)(cid:79)(cid:83)(cid:84)(cid:0) (cid:79)(cid:70)(cid:0) (cid:80)(cid:65)(cid:80)(cid:69)(cid:82)(cid:0) (cid:80)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:83)(cid:0) (cid:85)(cid:83)(cid:69)(cid:68)(cid:0) (cid:73)(cid:78)(cid:0) (cid:35)(cid:79)(cid:77)(cid:80)(cid:65)(cid:78)(cid:89)(cid:13)(cid:79)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)
restaurants.
(cid:115)(cid:0) (cid:0)(cid:47)(cid:84)(cid:72)(cid:69)(cid:82)(cid:0) (cid:68)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:0) (cid:67)(cid:79)(cid:83)(cid:84)(cid:83)(cid:0) (cid:83)(cid:85)(cid:67)(cid:72)(cid:0) (cid:65)(cid:83)(cid:0) (cid:70)(cid:85)(cid:76)(cid:70)(cid:73)(cid:76)(cid:76)(cid:77)(cid:69)(cid:78)(cid:84)(cid:12)(cid:0) (cid:67)(cid:79)(cid:77)(cid:77)(cid:73)(cid:83)(cid:83)(cid:73)(cid:79)(cid:78)(cid:83)(cid:12)(cid:0) (cid:70)(cid:82)(cid:69)(cid:73)(cid:71)(cid:72)(cid:84)(cid:0)
and samples.
Restaurant operating expenses consist of the following:
(cid:115)(cid:0) (cid:0)(cid:47)(cid:67)(cid:67)(cid:85)(cid:80)(cid:65)(cid:78)(cid:67)(cid:89)(cid:0)(cid:67)(cid:79)(cid:83)(cid:84)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:35)(cid:79)(cid:77)(cid:80)(cid:65)(cid:78)(cid:89)(cid:13)(cid:79)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:82)(cid:69)(cid:83)(cid:84)(cid:65)(cid:85)(cid:82)(cid:65)(cid:78)(cid:84)(cid:83)(cid:14)
(cid:0)
(cid:115)(cid:0) (cid:0)(cid:53)(cid:84)(cid:73)(cid:76)(cid:73)(cid:84)(cid:89)(cid:0)(cid:67)(cid:79)(cid:83)(cid:84)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:35)(cid:79)(cid:77)(cid:80)(cid:65)(cid:78)(cid:89)(cid:13)(cid:79)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)(cid:82)(cid:69)(cid:83)(cid:84)(cid:65)(cid:85)(cid:82)(cid:65)(cid:78)(cid:84)(cid:83)(cid:14)
(cid:0)
(cid:115)(cid:0) (cid:0)(cid:50)(cid:69)(cid:80)(cid:65)(cid:73)(cid:82)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:77)(cid:65)(cid:73)(cid:78)(cid:84)(cid:69)(cid:78)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0)(cid:69)(cid:88)(cid:80)(cid:69)(cid:78)(cid:83)(cid:69)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:35)(cid:79)(cid:77)(cid:80)(cid:65)(cid:78)(cid:89)(cid:13)(cid:79)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)
(cid:0)
restaurant facilities.
(cid:0)
(cid:0)
(cid:115)(cid:0) (cid:0)(cid:45)(cid:65)(cid:82)(cid:75)(cid:69)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0) (cid:65)(cid:78)(cid:68)(cid:0) (cid:65)(cid:68)(cid:86)(cid:69)(cid:82)(cid:84)(cid:73)(cid:83)(cid:73)(cid:78)(cid:71)(cid:0) (cid:69)(cid:88)(cid:80)(cid:69)(cid:78)(cid:83)(cid:69)(cid:83)(cid:0) (cid:68)(cid:79)(cid:78)(cid:69)(cid:0) (cid:76)(cid:79)(cid:67)(cid:65)(cid:76)(cid:76)(cid:89)(cid:0) (cid:65)(cid:78)(cid:68)(cid:0) (cid:67)(cid:79)(cid:78)(cid:13)
tributions to advertising funds for Company-operated
restaurants.
(cid:115)(cid:0) (cid:0)(cid:41)(cid:78)(cid:83)(cid:85)(cid:82)(cid:65)(cid:78)(cid:67)(cid:69)(cid:0) (cid:67)(cid:79)(cid:83)(cid:84)(cid:83)(cid:0) (cid:68)(cid:73)(cid:82)(cid:69)(cid:67)(cid:84)(cid:76)(cid:89)(cid:0) (cid:82)(cid:69)(cid:76)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0) (cid:84)(cid:79)(cid:0) (cid:35)(cid:79)(cid:77)(cid:80)(cid:65)(cid:78)(cid:89)(cid:13)(cid:79)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:69)(cid:68)(cid:0)
restaurants.
25. Income Taxes
The Company’s current provision for income taxes is based
upon its estimated taxable income in each of the jurisdictions in
which it operates, after considering the impact on taxable income of
temporary differences resulting from different treatment of items
such as depreciation, estimated self-insurance liabilities, allowance
for doubtful accounts and tax credits and net operating losses
(“NOL”) for tax and reporting purposes. Deferred tax assets and
liabilities are recognized for the future tax consequences attribut-
able to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carry-forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the year in which those temporary differences are
expected to be recovered or settled.
Uncertain Tax Positions
The Financial Accounting Standards Board issued Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes—an interpre-
tation of FASB Statement No. 109, Accounting for Income Taxes”
(“FIN No. 48”) which was adopted by the Company on March 26,
2007. FIN No. 48 addresses the determination of whether tax ben-
efits claimed or expected to be claimed on a tax return should be
recorded in the financial statements. Under FIN No. 48, the Company
may recognize the tax benefit from an uncertain tax position only
if it is more likely than not that the tax position will be sustained
on examination by the taxing authorities based on the technical
merits of the position. The tax benefits recognized in the financial
statements from such position should be measured based on the larg-
est benefit that has a greater than fifty percent likelihood of being
realized upon ultimate settlement. FIN No. 48 also provides guid-
ance on derecognition, classification, interest and penalties, account-
ing in interim periods and disclosure requirements. (See Note K.)
26. Reclassifications
Certain prior years’ balances related to discontinued operations
(See Note H) have been reclassified to conform with Nathan’s cur-
rent year presentation.
27. Recently Issued Accounting Standards Not Yet Adopted
In September 2006, the FASB issued SFAS No. 157, “Fair
Value Measurements,” (“SFAS No. 157”), to eliminate the diversity
in practice that exists due to the different definitions of fair value.
SFAS No. 157 retains the exchange price notion in earlier defini-
tions of fair value, but clarifies that the exchange price is the price in
an orderly transaction between market participants to sell an asset or
liability in the principal or most advantageous market for the asset
or liability. SFAS No. 157 states that the transaction is hypothetical
at the measurement date, considered from the perspective of the
market participant who holds the asset or liability. As such, fair
value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between mar-
ket participants at the measurement date (an exit price), as opposed
to the price that would be paid to acquire the asset or received to
assume the liability at the measurement date (an entry price). SFAS
No. 157 is effective for fiscal years beginning after November 15,
2007, which is the first quarter of fiscal 2009, except for, with
respect to certain non-financial assets and liabilities, for which the
effective date will be our first quarter of fiscal 2010. The Company
has not yet evaluated the impact of the adoption of SFAS No. 157 on
the Company’s financial position or results of operations.
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share amounts) March 30, 2008, March 25, 2007 and March 26, 2006
In February 2007, the FASB issued SFAS No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities—
Including an amendment of FASB Statement No. 115,” (“SFAS
No. 159”). This standard amends SFAS No. 115, “Accounting for
Certain Investment in Debt and Equity Securities,” with respect to
accounting for a transfer to the trading category for all entities with
available-for-sale and trading securities electing the fair value
option. This standard allows companies to elect fair value account-
ing for many financial instruments and other items that currently are
not required to be accounted for as such, allows different applica-
tions for electing the option for a single item or groups of items, and
requires disclosures to facilitate comparisons of similar assets and
liabilities that are accounted for differently in relation to the fair
value option. SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007, which is the first quarter of fiscal 2009.
The adoption will not have a material impact on the Company’s
financial position or results of operations.
In December 2007, the FASB issued SFAS No. 141 (revised
2007), “Business Combinations” (“SFAS No. 141R”), which estab-
lishes principles and requirements for how an acquirer recognizes
and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in
an acquiree, including the recognition and measurement of goodwill
acquired in a business combination. The requirements of SFAS No.
141R are effective for fiscal years beginning on or after December
15, 2008, which for us is fiscal 2010. Earlier adoption is prohibited.
The Company has not yet evaluated the impact of SFAS No. 141R on
its consolidated financial position and results of operations.
In December 2007, the FASB issued SFAS No. 160, “Noncon-
trolling Interests in Consolidated Financial Statements—an amend-
ment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 amends
ARB No. 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation
of a subsidiary. It clarifies that a noncontrolling interest in a sub-
sidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported
as equity in the consolidated financial statements. Among other
requirements, this statement requires consolidated net income to be
reported at amounts that include the amounts attributable to both the
parent and the noncontrolling interest. It also requires disclosure,
on the face of the consolidated income statement, of the amounts
of consolidated net income attributable to the parent and to the non-
controlling interest. SFAS No. 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008, which for us is the first quarter of fiscal 2010.
Earlier adoption is prohibited. The Company has not yet evaluated
the impact of SFAS No. 160 on its consolidated financial position
and results of operations.
Note C—Acquisition
On February 28, 2006, the Company acquired all trademarks
and other intellectual property relating to the Arthur Treacher’s
brand from PAT Franchise Systems, Inc. (“PFSI”) for $1,250 in cash
plus related expenses of approximately $103 and terminated its
Co-Branding Agreement with PFSI. Since fiscal 2000, the Company
has successfully co-branded certain Arthur Treacher’s signature
products in Nathan’s franchise system. Based upon such co-branding
success, the Company acquired these assets to continue its co-
branding efforts and seek new means of distribution.
The Company simultaneously granted back to PFSI a limited
license to use the Arthur Treacher’s intellectual property solely for
the purposes of: (a) continuing to permit PFSI to operate its
then existing Arthur Treacher’s franchised restaurant system
(approximately 60 restaurants); and (b) PFSI granting rights to third
parties who wish to develop new traditional Arthur Treacher’s quick
service restaurants in Indiana, Maryland, Michigan, Ohio,
Pennsylvania, Virginia, Washington D.C. and areas of Northern
New York State (collectively, the “PFSI Markets”). The Company
also retained certain rights to sell franchises for the operation of
Arthur Treacher’s restaurants in certain circumstances within the
geographic scope of the PFSI Markets. PFSI has no obligation to pay
fees or royalties to the Company in connection with its use of the
Arthur Treacher’s system within the PFSI Markets.
NF Treacher’s Corp., a wholly-owned subsidiary, was created
for the purpose of acquiring these assets. The acquired assets have
been recorded as trademarks and trade names. No restaurants were
acquired in this transaction. Results of operations are included in
these consolidated financial statements since February 28, 2006.
The following presents the pro forma results of operations,
which are not necessarily indicative of the results that would have
been attained, had the acquisition actually taken place, as if the
Company had owned these assets at the beginning of the fiscal year
ended March 26, 2006:
Total revenues
Income from continuing operations
Net income
Basic income per share:
Income from continuing operations
Net income
Diluted income per share:
Income from continuing operations
Net income
Fifty-Two
Weeks Ended
March 26,
2006
$38,421
2,969
$ 5,762
$ .53
$ 1.03
$ .45
$ .88
26
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
Note D—Income Per Share
Basic income per common share is calculated by dividing
income by the weighted-average number of common shares out-
standing and excludes any dilutive effects of stock options or war-
rants. Diluted income per common share gives effect to all potentially
dilutive common shares that were outstanding during the period.
Dilutive common shares used in the computation of diluted income
per common share result from the assumed exercise of stock options
and warrants, using the treasury stock method.
The following chart provides a reconciliation of information used in calculating the per share amounts for the fiscal years ended March
30, 2008, March 25, 2007 and March 26, 2006, respectively:
Income from
Continuing Operations
2008
2007
2006
2008
Shares
2007
Income Per Share from
Continuing Operations
2006
2008
2007
2006
Basic EPS
Basic calculation
Effect of dilutive employee stock options and warrants
$4,849
—
$4,341
—
$2,884
—
6,085,000
417,000
5,836,000
505,000
5,584,000
962,000
$ .80
(.05)
$ .74
(.06)
$ .52
(.08)
Diluted EPS
Diluted calculation
$4,849
$4,341
$2,884
6,502,000
6,341,000
6,546,000
$ .75
$ .68
$ .44
Options and warrants to purchase 55,000, 98,750 and 19,500
shares of common stock for the years ended March 30, 2008, March
25, 2007 and March 26, 2006, respectively, were not included in the
computation of diluted earnings per share because the exercise
prices exceeded the average market price of common shares during
the respective periods.
Note E—Accounts Receivable, Net
Accounts receivable, net, consist of the following:
Beginning balance
Bad debt expense
Uncollectible marketing
fund contributions
Accounts written off
Ending balance
March 30,
2008
March 25,
2007
March 26,
2006
$ 94
—
20
(10)
$104
$128
—
—
(34)
$119
10
1
(2)
$ 94
$128
Franchise and license royalties
Branded product sales
Other
Less: allowance for doubtful accounts
March 30,
2008
March 25,
2007
$1,424
2,118
395
3,937
104
$1,290
1,717
348
3,355
94
Accounts receivable, net
$3,833
$3,261
Accounts receivable are due within 30 days and are stated at
amounts due from franchisees, retail licensees and Branded Product
Program customers, net of an allowance for doubtful accounts.
Accounts outstanding longer than the contractual payment terms are
considered past due. The Company determines its allowance by con-
sidering a number of factors, including the length of time accounts
receivable are past due, the Company’s previous loss history, the
customer’s current and expected future ability to pay its obligation
to the Company, and the condition of the general economy and the
industry as a whole. The Company writes-off accounts receivable
when they are deemed to be uncollectible.
Changes in the Company’s allowance for doubtful accounts for
the fiscal years ended March 30, 2008, March 25, 2007 and March
26, 2006 are as follows:
Note F—Marketable Securities
The cost, gross unrealized gains, gross unrealized losses and
fair market value for marketable securities, which consists entirely
of bonds which are classified as available-for-sale securities are
as follows:
Gross
Unrealized
Gains
Gross
Unrealized
Losses
$365
$ 44
$ (5)
$(137)
Fair
Market
Value
$20,950
$22,785
Cost
$20,590
$22,878
March 30, 2008
March 25, 2007
As of March 30, 2008, the bonds mature at various dates
between July 2007 and April 2017. The following represents the
bond maturities by period as follows:
Fair Value of Bonds
Total
Less than
1 Year
1–5
Years
5–10
Years
After 10
Years
March 30, 2008
$20,950
$2,235
$11,124
$6,346
$1,245
March 25, 2007
$22,785
$3,128
$12,320
$6,258
$1,079
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share amounts) March 30, 2008, March 25, 2007 and March 26, 2006
Proceeds from the sale of available-for-sale securities and the
resulting gross realized gains and losses included in the determina-
tion of net income are as follows:
March 30,
2008
March 25,
2007
March 26,
2006
Available-for-sale securities:
Proceeds
Gross realized gains
Gross realized losses
$3,100
—
—
—
—
—
$2,245
—
(2)
The change in net unrealized gains (losses) on available-for-
sale securities for the fiscal years ended March 30, 2008, March 25,
2007 and March 26, 2006, respectively, of $269, $120, and $(94),
which is net of deferred income taxes, have been included as a com-
ponent of comprehensive income.
Note G—Property and Equipment, Net
Property and equipment consists of the following:
Land
Building and improvements
Machinery, equipment, furniture and fixtures
Leasehold improvements
Construction-in-progress
Less: accumulated depreciation and
amortization
March 30,
2008
March 25,
2007
$ 1,094
2,130
5,931
3,817
18
$ 1,094
1,972
5,353
3,608
89
12,990
12,116
8,562
7,894
$ 4,428
$ 4,222
Depreciation and amortization expense on property and equip-
ment was $763, $741, and $759 for the fiscal years ended March 30,
2008, March 25, 2007, and March 26, 2006, respectively.
1. Sale of Miami Subs
On June 7, 2007, Nathan’s completed the sale of its wholly-
owned subsidiary, Miami Subs Corporation (“Miami Subs”) to
Miami Subs Capital Partners I, Inc. (“Purchaser”). Pursuant to the
Stock Purchase Agreement (“Agreement”), Nathan’s sold all of the
stock of Miami Subs in exchange for $3,250 consisting of $850 in
cash and the Purchaser’s promissory note in the principal amount of
$2,400 (the “Note”). The Note bears interest at 8% per annum, is
payable over a four-year term and is secured by a lien on all of the
assets of Miami Subs and by the personal guarantees of two princi-
pals of the Purchaser. The Purchaser may also prepay the Note at
any time. In the event the Note is fully repaid within one year,
Nathan’s will reduce the amount due by $250. Due to the ability to
prepay the loan and reduce the amount due, the recognition of the
additional $250 has been deferred. In accordance with the
Agreement, Nathan’s retained ownership of Miami Subs’ then cor-
porate office in Fort Lauderdale, Florida (the “Corporate Office”).
The following is a summary of the assets and liabilities of
Miami Subs, as of the date of sale, that were sold:
Cash
Accounts receivable, net
Notes receivable, net
Prepaid expenses and other current assets
Deferred income taxes, net
Property and equipment, net
Intangible assets, net
Other assets, net
Total assets sold
Accounts payable
Accrued expenses
Other liabilities
Total liabilities sold
Net assets sold
$ 674(a)
213
153
119
719
48
1,803
46
3,775
27
1,373(a)
395
1,795
$1,980
Note H—Discontinued Operations
(a) Includes unexpended marketing funds of $565.
The Company follows the provisions of SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets”
(“SFAS No. 144”), related to the accounting and reporting for seg-
ments of a business to be disposed of. In accordance with SFAS No.
144, the definition of discontinued operations includes components
of an entity whose cash flows are clearly identifiable. SFAS No. 144
requires the Company to classify as discontinued operations any res-
taurant, investment or other property that Nathan’s sells, abandons
or otherwise disposes of where the Company will have no further
involvement in the operation of, or cash flows from, such restaurant,
investment or other property.
In connection with the Agreement, Purchaser may continue to
sell Nathan’s Famous and Arthur Treacher’s products within the
existing restaurant system in exchange for a royalty payment of 35%
of all royalties contractually due from Miami Subs franchisees on
such sales.
Nathan’s has realized a gain on the sale of Miami Subs of $983,
net of professional fees of $37 and recorded income taxes of $356 on
the gain. Nathan’s has determined that it will not have any signifi-
cant cash flows or continuing involvement in the ongoing operations
of Miami Subs. Therefore, the results of operations for Miami Subs,
including the gain on disposal, have been presented as discontinued
operations for all periods presented. The accompanying balance
sheet for the fiscal year ended March 25, 2007, has been revised to
reflect the assets and liabilities of Miami Subs that were subse-
quently sold, as held for sale as of that date. (See Note H-5).
28
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
2. Sale of Leasehold Interest
5. Summary Financial Information
On January 26, 2006, two of Nathan’s wholly-owned subsid-
iaries entered into a Lease Termination Agreement with respect to
three leased properties in Fort Lauderdale, Florida, with its landlord
and CVS 3285 FL, L.L.C., (“CVS”) to sell their leasehold interests
to CVS for $2,000. As the properties were subject to certain
sublease and management agreements between Nathan’s and the
then-current occupants, Nathan’s made payments to, or forgave
indebtedness of, the then-current occupants of the properties and
paid brokerage commissions of $494 in the aggregate. Nathan’s
made the property available to the buyer by May 29, 2007, and
Nathan’s received the proceeds of the sale on June 5, 2007. Nathan’s
recognized a gain of $1,506 and recorded income taxes of $557
during the year ended March 30, 2008. The results of operations for
these properties, including the gain on disposal, have been included
as discontinued operations for all periods presented as the Company
will have no continuing involvement in the operation of, or cash
flows from, these properties.
3. Sale of Real Estate
On July 13, 2005, Nathan’s sold all of its right, title and interest
in and to a vacant real estate parcel previously utilized as a parking
lot, adjacent to a Company-owned restaurant, located in Brooklyn,
New York, in exchange for a cash payment of $3,100. A gain of
$2,819 was recognized into income during the year ended March
26, 2006. Nathan’s also entered into an agreement pursuant to which
an affiliate of the buyer assumed all of Nathan’s rights and obli-
gations under a lease for an adjacent property and agreed to pay
$500 to Nathan’s for its leasehold interest on the earlier of (i) three
years after closing or (ii) six months after the closing of the adjacent
property. On January 17, 2006, the adjacent property was sold.
The Company received $100 during fiscal 2006 and the remaining
balance of $400 was received in October 2006 and is included as a
gain from discontinued operations during fiscal 2007. The operating
expenses for these properties have been included in discontinued
operations for all periods presented as the Company has no con-
tinuing involvement in the operation of, or cash flows from, these
properties.
4. Sale of Restaurant
During the year ended March 26, 2006, the Company sold one
Company-owned restaurant that it had previously leased to the oper-
ator pursuant to management agreement for total cash consideration
of $515 and entered into a franchise agreement with the buyer to
continue operating the restaurant. As this restaurant was a Miami
Subs location and the Miami Subs subsidiary was sold during the
fiscal year ended March 30, 2008 and is included as a component of
discontinued operations, this sales transaction has been included in
such discontinued operations.
The following is a summary of all discontinued operations
for fiscal years ended March 30, 2008, March 25, 2007 and March
26, 2006:
March 30,
2008
March 25,
2007
March 26,
2006
Revenues (excluding gains
from dispositions)
Gain from dispositions before
income taxes
Income before income taxes
$ 430
$2,926
$2,995
$2,489
$2,711
$ 400
$1,990
$2,919
$4,589
The following is a summary of the assets and liabilities held for
sale as of March 25, 2007
Cash
Accounts receivable, net
Notes receivable, net
Prepaid expenses and other current assets
Deferred income taxes
Property and equipment, net
Intangible assets, net
Other assets, net
Total assets held for sale
Accounts payable
Accrued expenses
Other liabilities
Total liabilities held for sale
Net assets held for sale
(a) Includes unexpended marketing funds of $627.
$ 654(a)
456
120
26
784
94
1,847
46
4,027
135
1,871(a)
377
2,383
$1,644
Note I—Accrued Expenses, Other Current Liabilities and
Other Liabilities
Accrued expenses and other current liabilities consist of the
following:
Payroll and other benefits
Accrued operating expenses
Professional and legal costs
Self-insurance costs
Rent and occupancy costs
Taxes payable
Unexpended advertising funds
Deferred revenue
Other
March 30,
2008
March 25,
2007
$1,803
1,029
234
107
153
65
244
188
205
$4,028
$1,684
851
266
197
106
1,010
297
215
141
$4,767
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share amounts) March 30, 2008, March 25, 2007 and March 26, 2006
Other liabilities consist of the following:
Deferred income—supplier contracts
Deferred development fees
Reserve for uncertain tax positions (Note K)
Deferred rental liability
Tenant’s security deposits on subleased
property
March 30,
2008
March 25,
2007
$ 363
214
773
81
31
$1,462
$363
306
—
158
46
$873
Note J—Indebtedness
The Company maintains a $7,500 line of credit with its pri-
mary banking institution. Borrowings under the line of credit are
intended to be used to meet the normal short-term working capital
needs of the Company. The line of credit is not a commitment and,
therefore, credit availability is subject to ongoing approval. The line
of credit expires on October 1, 2008, and bears interest at the prime
rate (5.25% at March 30, 2008). There were no borrowings out-
standing under this line of credit as of March 30, 2008 and March
25, 2007.
Note K—Income Taxes
Income tax provision (benefit) consists of the following for
the fiscal years ended March 30, 2008, March 25, 2007, and March
26, 2006:
March 30,
2008
March 25,
2007
March 26,
2006
Federal
Current
Deferred
State and local
Current
Deferred
$1,327
548
1,875
500
97
597
$1,968
(304)
1,664
$1,252
(47)
1,205
741
(54)
687
467
(7)
460
$2,472
$2,351
$1,665
Total income tax provision (benefit) for the fiscal years ended
March 30, 2008, March 25, 2007 and March 26, 2006 differs from
the amounts computed by applying the United States Federal income
tax rate of 34% to income before income taxes as a result of the
following:
March 30,
2008
March 25,
2007
March 26,
2006
Computed “expected” tax
expense
Nondeductible amortization
State and local income taxes, net
of Federal income tax benefit
Tax-exempt investment earnings
Nondeductible meals and enter-
tainment and other
$2,489
7
$2,275
7
$1,546
7
359
(309)
(74)
245
(220)
44
277
(150)
(15)
$2,472
$2,351
$1,665
The tax effects of temporary differences that give rise to sig-
nificant portions of the deferred tax assets and deferred tax liabili-
ties are presented below:
March 30,
2008
March 25,
2007
Deferred tax assets
Accrued expenses
Allowance for doubtful accounts
Deferred revenue
Depreciation expense
Expenses not deductible until paid
Deferred stock compensation
Amortization of intangibles
Unrealized loss on marketable securities
Excess of straight line over actual rent
Other
Total gross deferred tax assets
Deferred tax liabilities
Difference in tax bases of installment gains
not yet recognized
Deductible prepaid expense
Unrealized gain on marketable securities
Other
Total gross deferred tax liabilities
Net deferred tax asset
Less current portion
Long-term portion
$ 331
37
404
894
43
261
100
—
63
10
$2,143
347
209
152
73
781
$ 616
38
530
720
79
118
129
29
85
12
$ 2,356
—
154
—
38
192
1,362
(697)
2,164
(1,174)
$ 665
$ 990
30
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
A valuation allowance is provided when it is more likely than
not that some portion, or all, of the deferred tax assets will not be
realized. Based upon anticipated taxable income, management
believes that it is more likely than not that the Company will realize
the benefit of this net deferred tax asset of $1,362 and $2,164 at
March 30, 2008 and March 25, 2007, respectively.
In July 2006, the FASB issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes” (“FIN No. 48”),
which clarified the accounting and disclosures for uncertainty in
income taxes recognized in the financial statements in accordance
with SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48
also provided guidance on the derecognition of uncertain tax posi-
tions, financial statement classification, accounting for interest and
penalties, accounting for interim periods and added new disclosure
requirements.
In May 2007, the FASB issued FASB Staff Position (“FSP”)
No. FIN 48-1, “Definition of Settlement in FASB Interpretation No.
48,” an amendment of FASB Interpretation FIN No. 48, “Accounting
for Uncertainty in Income Taxes,” (“FIN No. 48-1”) to clarify that
a tax position is effectively settled for the purpose of recognizing
previously unrecognized tax benefits in accordance with paragraph
10(b) of that Interpretation if (a) the taxing authority has completed
all of its required or expected examination procedures, (b) the
enterprise does not intend to appeal or litigate any aspect of the tax
position, and (c) it is considered remote that the taxing authority
would reexamine the tax position. FIN No. 48-1 also conforms to
the terminology used in FIN No. 48 to describe measurement and
recognition to the conclusions reached in the FSP. FIN No. 48-1 is
effective as of the same dates as FIN No. 48, with retrospective
application required for entities that have not applied FIN No. 48 in
a manner consistent with the provisions of the FSP.
Nathan’s adopted the provisions of FIN No. 48 and FIN No.
48-1 on March 26, 2007 which resulted in a $155 adjustment to
increase tax liabilities and decrease opening retained earnings
in connection with a cumulative effect of a change in accounting
principle.
The following is a tabular reconciliation of the total amounts of
unrecognized tax benefits excluding interest and penalties since
the inception of FIN No. 48 on March 26, 2007 through March
30, 2008.
Balance at March 26, 2007
Additions based on tax positions taken in the current year
Reductions of tax positions taken in prior years
Unrecognized tax benefits, end of year
$517
21
(72)
$466
The amount of unrecognized tax benefits at March 30, 2008
was $466 all of which would impact Nathan’s effective tax rate,
if recognized. Nathan’s recognizes accrued interest and penalties
associated with unrecognized tax benefits as part of the income tax
provision. As of March 30, 2008, the Company had $307 accrued
for the payment of interest and penalties. The Company does not
expect its unrecognized tax benefits to change significantly over the
next 12 months.
Nathan’s is subject to tax in the U.S. and various state and
local jurisdictions. The Company is not currently under audit by the
Internal Revenue Service but remains subject to examination for
fiscal years 2005 through 2007. Nathan’s is not currently under audit
by any state and local jurisdictions but remains subject to examina-
tion for years open by statute to examination by taxing authorities
by major jurisdictions are as follows:
Jurisdiction
Federal
New York State
New York City
Fiscal Year
2005
2005
2005
Note L—Stockholders’ Equity, Stock Plans and Other Employee
Benefit Plans
1. Stock Option Plans
On December 15, 1992, the Company adopted the 1992 Stock
Option Plan (the “1992 Plan”), which provided for the issuance of
incentive stock options (“ISOs”) to officers and key employees and
nonqualified stock options to directors, officers and key employees.
Up to 525,000 shares of common stock were reserved for issuance
for the exercise of options granted under the 1992 Plan. The 1992
Plan expired with respect to granting of new options on December
2, 2002.
In April 1998, the Company adopted the Nathan’s Famous, Inc.
1998 Stock Option Plan (the “1998 Plan”), which provides for the
issuance of nonqualified stock options to directors, officers and key
employees. Up to 500,000 shares of common stock were reserved
for issuance upon the exercise of options granted under the 1998
Plan. As of March 30, 2008, no shares were available to be issued
for future grants under the 1998 Plan.
In June 2001, the Company adopted the Nathan’s Famous, Inc.
2001 Stock Option Plan (the “2001 Plan”), which provides for the
issuance of nonqualified stock options to directors, officers and key
employees. Up to 350,000 shares of common stock were originally
reserved for issuance upon the exercise of options granted and for
future issuance in connection with awards under the 2001 Plan. As
of March 25, 2007, there were 3,500 shares available to be issued in
the future under this plan. On September 12, 2007, Nathan’s share-
holders approved certain modifications to the 2001 Plan, which
increased the number of options available for future grant by 275,000
shares. On September 17, 2007, 110,000 stock options were granted
and as of March 30, 2008, there were 168,500 shares available to be
issued for future grants under the 2001 Plan.
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share amounts) March 30, 2008, March 25, 2007 and March 26, 2006
In June 2002, the Company adopted the Nathan’s Famous, Inc.
2002 Stock Incentive Plan (the “2002 Plan”), which provides for the
issuance of nonqualified stock options or restricted stock awards to
directors, officers and key employees. Up to 300,000 shares of com-
mon stock have been reserved for issuance in connection with
awards under the 2002 Plan. As of March 30, 2008, there were 2,500
shares available to be issued for future grants under the 2002 Plan.
The 1998 Plan, the 2001 Plan and the 2002 Plan expire on
April 5, 2008, June 13, 2011 and June 17, 2012, respectively, unless
terminated earlier by the Board of Directors under conditions speci-
fied in the respective Plan.
The Company has outstanding 262,558 of stock options previ-
ously issued upon the acquisition of Miami Subs during the fiscal
year ended March 26, 2000. These options have an exercise price of
$3.1875 and expire on September 30, 2009.
In general, options granted under the Company’s stock incen-
tive plans have terms of five or ten years and vest over periods of
between three and five years. The Company has historically issued
new shares of common stock for options that have been exercised
and determined the grant date fair value of options and warrants
granted using the Black-Scholes option valuation model.
2. Warrant
On July 17, 1997, the Company granted its Chairman and then
Chief Executive Officer a warrant to purchase 150,000 shares of the
Company’s common stock at an exercise price of $3.25 per share,
representing the market price of the Company’s common stock on
the date of grant. The warrant was exercised in July 2007.
A summary of the status of the Company’s stock options and warrants at March 30, 2008, March 25, 2007 and March 26, 2006 and
changes during the fiscal years then ended is presented in the tables below:
Options outstanding—beginning of year
Granted
Expired
Exercised
Options outstanding—end of year
Options exercisable—end of year
Weighted-average fair value of options granted
Warrants outstanding—beginning of year
Exercised
Warrants outstanding—end of year
Warrants exercisable—end of year
2008
2007
2006
Weighted-
Average
Exercise
Price
$ 5.21
17.43
6.20
3.59
Weighted-
Average
Exercise
Price
$ 3.78
13.08
6.20
3.69
Shares
1,332,024
197,500
(4,000)
(353,216)
Weighted-
Average
Exercise
Price
$ 3.81
—
9.09
4.01
Shares
1,494,796
—
(2,690)
(160,082)
Shares
1,172,308
110,000
(8,500)
(121,500)
1,152,308
$ 6.54
1,172,308
$ 5.21
1,332,024
$ 3.78
884,308
$ 4.02
943,141
$ 3.48
1,247,025
$ —
$ 5.83
$ 3.25
(3.25)
—
—
150,000
(150,000)
—
—
$ 6.16
$ 3.25
—
$ —
$ 4.73
16.55
168,750
(18,750)
150,000
—
150,000
$ 3.25
150,000
$ 3.25
150,000
$ 3.25
150,000
$ 3.25
At March 30, 2008, 171,000 common shares were reserved for
The following table summarizes information about stock options
future restricted stock or stock option grants, as detailed above.
at March 30, 2008:
During the fiscal years ended March 30, 2008, March 25, 2007
and March 26, 2006, 271,500, 308,784 and 160,082 stock options
and warrants were exercised which aggregated proceeds of $924,
$722 and $642, respectively, to the Company.
The aggregate intrinsic values of the stock options exercised
during the fiscal years ended March 30, 2008, March 25, 2007 and
March 26, 2006 are $3,169, $2,658 and $1,015 respectively.
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
Shares
Options outstanding at
March 30, 2008
1,152,308
$6.54
3.67
$8,521
Options exercisable at
March 30, 2008
Exercise prices ranges
from $3.19 to $17.43
884,308
$4.02
2.76
$8,443
32
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
3. Common Stock Purchase Rights
On June 20, 1995, the Board of Directors declared a dividend
distribution of one common stock purchase right (the “Rights”)
for each outstanding share of common stock of the Company. The
distribution was paid on June 20, 1995 to the shareholders of record
on June 20, 1995. The terms of the Rights were amended on April 6,
1998, December 8, 1999, June 15, 2005 and June 4, 2008. Pursuant
to the June 4, 2008 amendment, the final expiration date of the
Rights was accelerated to June 4, 2008 thereby terminating the
Rights. Each Right, as amended, entitled the registered holder
thereof to purchase from the Company one share of the common
stock at a price of $4.00 per share, subject to adjustment for anti-
dilution. New Common Stock certificates issued after June 20, 1995
upon transfer or new issuance of the common stock contained a
notation incorporating the Rights Agreement by reference.
The Rights were not exercisable until the Distribution Date.
The Distribution Date was the earlier to occur of (i) ten days follow-
ing a public announcement that a person or group of affiliated or
associated persons (an “Acquiring Person”) acquired, or obtained
the right to acquire, beneficial ownership of 15% or more of the
outstanding shares of the common stock, as amended, or (ii) ten
business days (or such later date as may be determined by action of
the Board of Directors prior to such time as any person becomes an
Acquiring Person) following the commencement, or announcement
of an intention to make a tender offer or exchange offer by a person
(other than the Company, any wholly-owned subsidiary of the
Company or certain employee benefit plans) which, if consum-
mated, would result in such person becoming an Acquiring Person.
Prior to the June 4, 2008 amendment, the Rights were scheduled to
expire on June 19, 2010.
At any time prior to the time at which a person or group or
affiliated or associated persons has acquired beneficial ownership of
15% or more of the outstanding shares of the common stock of the
Company, the Board of Directors of the Company had the ability to
redeem the Rights in whole, but not in part, at a price of $.001 per
Right. In addition, the Rights Agreement, as amended, permitted
the Board of Directors, following the acquisition by a person or
group of beneficial ownership of 15% or more of the common stock
(but before an acquisition of 50% or more of common stock), to
exchange the Rights (other than Rights owned by such 15% person
or group), in whole or in part, for common stock, at an exchange
ratio of one share of common stock per Right.
Until a Right was exercised, the holder thereof, as such, had no
rights as a shareholder of the Company, including, without limita-
tion, the right to vote or to receive dividends. The Company had
reserved 9,501,491 shares of common stock for issuance upon exer-
cise of the Rights.
At the time the Nathan’s Board of Directors approved the June
4, 2008 amendment of Nathan’s then-existing shareholder rights
plan to accelerate the final expiration date of the common stock
purchase rights to June 4, 2008, thereby terminating the existing
rights, it also approved the adoption of a new stockholder rights plan
(the “New Rights Plan”) under which all stockholders of record
as of June 5, 2008 will receive rights to purchase shares of common
stock (the “New Rights”). The New Rights Plan replaced and
updated the Company’s then-existing rights plan.
The New Rights were distributed as a dividend. Initially, the
New Rights will attach to, and trade with, the Company’s common
stock. Subject to the terms, conditions and limitations of the New
Rights Plan, the New Rights will become exercisable if (among
other things) a person or group acquires 15% or more of the
Company’s common stock. Upon such an event and payment of the
purchase price of $30 (the “New Right Purchase Price”), each
New Right (except those held by the acquiring person or group) will
entitle the holder to acquire one share of the Company’s common
stock (or the economic equivalent thereof) or, if the then-current
market price is less than the New Right Purchase Price, a number of
shares of the Company’s common stock which at the time of the
transaction has a market value equal to the New Right Purchase
Price. Based on the market price of the Company’s common stock
on June 4, 2008, the date the New Rights Plan was adopted, of
$13.41 per share, and due to the fact that the Company is not required
to issue fractional shares, the current exchange ratio is two shares of
common stock per New Right. The Company’s board of directors
may redeem the New Rights prior to the time they are triggered.
Upon adoption of the New Rights Plan, the Company reserved
16,589,516 shares of common stock for issuance upon exercise of the
New Rights.
4. Stock Repurchase Program
Through March 30, 2008, Nathan’s purchased a total of
2,000,000 shares of common stock at a cost of approximately $9,086
in completion of the second stock repurchase plan previously autho-
rized by the Board of Directors. Of these repurchased shares,
108,900 shares were repurchased at a cost of $1,928 during the year
ended March 30, 2008. On November 5, 2007, Nathan’s Board of
Directors authorized a third stock repurchase plan for the purchase
of up to 500,000 shares of its common stock on behalf of the
Company, under which there have been no purchases as of year
ended March 30, 2008. Purchases may be made from time to time,
depending on market conditions, in open market or privately negoti-
ated transactions, at prices deemed appropriate by management.
There is no set time limit on the repurchases.
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share amounts) March 30, 2008, March 25, 2007 and March 26, 2006
On June 11, 2008, Nathan’s and Mutual Securities, Inc. (“MSI”)
entered into an agreement (the “10b5-1 Agreement”) pursuant to
which MSI has been authorized to purchase shares of the Company’s
common stock, par value $.01 per share (“Common Stock”) having
a value of up to an aggregate $6 million. The 10b5-1 Agreement was
adopted under the safe harbor provided by Rule 10b5-1 of the
Securities Exchange Act of 1934 in order to assist the Company in
implementing its previously announced stock purchase plan for the
purchase of up to 500,000 shares. There is no set time limit on the
repurchases.
5. Employment Agreements
Effective January 1, 2007, Howard M. Lorber, previously,
Chairman of the Board and Chief Executive Officer, assumed the
newly created position of Executive Chairman of the Board of
Nathan’s and Eric Gatoff, previously Vice President and Corporate
Counsel, became Chief Executive Officer of Nathan’s.
In connection with the foregoing, the Company entered into an
employment agreement with each of Messrs. Lorber (as amended,
the “Lorber Employment Agreement”) and Gatoff (the “Gatoff
Employment Agreement”). Under the terms of the Lorber Employ-
ment Agreement, Mr. Lorber will serve as Executive Chairman of
the Board from January 1, 2007 until December 31, 2012, unless his
employment is terminated in accordance with the terms of the
Lorber Employment Agreement. Pursuant to the Lorber Employment
Agreement, Mr. Lorber receives a base salary of $400, and will not
receive a contractual bonus. The Lorber Employment Agreement
provides for a three-year consulting period after the termination of
employment during which Mr. Lorber will receive a consulting fee
of $200 per year in exchange for his agreement to provide no less
than 15 days of consulting services per year, provided, Mr. Lorber
is not required to provide more than 50 days of consulting services
per year. The Lorber Employment Agreement provides Mr. Lorber
with the right to participate in employment benefits offered to
other Nathan’s executives. During and after the contract term,
Mr. Lorber is subject to certain confidentiality, non-solicitation and
non-competition provisions in favor of the Company.
In connection with Mr. Lorber’s prior employment agreement
dated January 1, 2005, we issued to Mr. Lorber 50,000 shares of
restricted common stock, which vest ratably over the 5 years. A
charge of $363 based on the fair market value of the Company’s
common stock of $7.25 on grant date has been recorded to deferred
compensation and is being amortized to earnings ratably over the
vesting period. As of March 30, 2008, March 25, 2007 and March
26, 2006, 40,000, 30,000 and 20,000 shares have been vested with
10,000, 20,000 and 30,000 shares non-vested, respectively.
In the event that Mr. Lorber’s employment is terminated with-
out cause, he is entitled to receive his salary and bonus for the
remainder of the contract term. The employment agreement further
provides that in the event there is a change in control, as defined in
the agreement, Mr. Lorber has the option, exercisable within one
year after such event, to terminate his employment agreement. Upon
such termination, he has the right to receive a lump sum cash pay-
ment equal to the greater of (A) his salary and annual bonuses for
the remainder of the employment term (including a prorated bonus
for any partial fiscal year), which bonus shall be equal to the aver-
age of the annual bonuses awarded to him during the three fiscal
years preceding the fiscal year of termination; or (B) 2.99 times his
salary and annual bonus for the fiscal year immediately preceding
the fiscal year of termination, as well as a lump sum cash payment
equal to the difference between the exercise price of any exercisable
options having an exercise price of less than the then current market
price of the Company’s common stock and such then current market
price. In addition, Nathan’s will provide Mr. Lorber with a tax gross-
up payment to cover any excise tax due. In the event of termination
due to Mr. Lorber’s death or disability, he is entitled to receive an
amount equal to his salary and annual bonuses for a three-year
period, which bonus shall be equal to the average of the annual
bonuses awarded to him during the three fiscal years preceding the
fiscal year of termination.
Under the terms of the Gatoff Employment Agreement,
Mr. Gatoff will serve as Chief Executive Officer from January 1,
2007 until December 31, 2008, which period shall extend for addi-
tional one-year periods unless either party delivers notice of non-
renewal no less than 180 days prior to the end of the term then in
effect. Pursuant to the agreement, Mr. Gatoff will receive a base
salary of $225 and an annual bonus equal in an amount of up to
100% of his base salary, depending upon the Company’s achieve-
ment of performance goals established and agreed to by the
Compensation Committee and Mr. Gatoff for each fiscal year
during the employment term, and further, that Mr. Gatoff will be
entitled to a minimum bonus of 50% of his base salary for the
first two years of the Gatoff Employment Agreement. The Gatoff
agreement provides for an automobile allowance and the right of
Mr. Gatoff to participate in employment benefits offered to
other Nathan’s executives. During and after the contract term,
Mr. Gatoff is subject to certain confidentiality, non-solicitation and
non-competition provisions in favor of the Company.
The Company and its President and Chief Operating Officer
entered into an employment agreement on December 28, 1992 for a
period commencing on January 1, 1993 and ending on December 31,
1996. The employment agreement automatically extends for succes-
sive one-year periods unless notice of non-renewal is provided in
34
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
accordance with the agreement. Consequently, the employment
agreement has been extended annually through December 31, 2008,
based on the original terms, and no non-renewal notice has been
given as of June 11, 2008. The agreement provides for annual com-
pensation of $289 plus certain other benefits. In November 1993, the
Company amended this agreement to include a provision under
which the officer has the right to terminate the agreement and
receive payment equal to approximately three times annual compen-
sation upon a change in control, as defined.
As a result of the sale of Miami Subs, the employment agree-
ment between Miami Subs and its then President and Chief Operating
Officer (who also serves as an executive officer of Nathan’s), was
cancelled and a new employment agreement was entered into with
Nathan’s effective May 31, 2007. The agreement provides for annual
compensation of $210 plus certain other benefits and automatically
renews annually unless 180 days prior written notice is given to the
employee. No non-renewal notice has been given as of June 11,
2008. Consequently, the employment agreement has been extended
through September 30, 2009. The agreement includes a provision
under which the officer has the right to terminate the agreement and
receive payment equal to approximately three times his annual
compensation upon a change in control, as defined. In the event a
non-renewal notice is delivered, the Company must pay the officer
an amount equal to the employee’s base salary as then in effect.
The Company and one employee of Nathan’s entered into a
change of control agreement effective May 31, 2007 for annual com-
pensation of $136 per year. The agreement additionally includes a
provision under which the employee has the right to terminate the
agreement and receive payment equal to approximately three times
his annual compensation upon a change in control, as defined.
Each employment agreement terminates upon death or volun-
tary termination by the respective employee or may be terminated
by the Company on up to 30-days’ prior written notice by the
Company in the event of disability or “cause,” as defined in each
agreement.
6. 401(k) Plan
The Company has a defined contribution retirement plan under
Section 401(k) of the Internal Revenue Code covering all nonunion
employees over age 21 who have been employed by the Company
for at least one year. Employees may contribute to the plan, on a tax-
deferred basis, up to 20% of their total annual salary. The Company
matches contributions at a rate of $.25 per dollar contributed by the
employee on up to a maximum of 3% of the employee’s total annual
salary. Employer contributions for the fiscal years ended March 30,
2008, March 25, 2007 and March 26, 2006 were $29, $32, and
$26, respectively.
7. Other Benefits
The Company provides, on a contributory basis, medical bene-
fits to active employees. The Company does not provide medical
benefits to retirees.
Note M—Commitments and Contingencies
1. Commitments
The Company’s operations are principally conducted in leased
premises. The leases generally have initial terms ranging from 5 to
20 years and usually provide for renewal options ranging from 5
to 20 years. Most of the leases contain escalation clauses and com-
mon area maintenance charges (including taxes and insurance).
Certain of the leases require additional (contingent) rental payments
if sales volumes at the related restaurants exceed specified limits.
As of March 30, 2008, the Company has noncancelable oper-
ating lease commitments, net of certain sublease rental income,
as follows:
Lease
Commitments
Sublease
Income
Net Lease
Commitments
2009
2010
2011
2012
2013
Thereafter
$ 1,551
1,329
809
601
544
7,597
$12,431
$ 313
366
258
196
166
72
$1,371
$ 1,238
963
551
405
378
7,525
$11,060
Aggregate rental expense, net of sublease income, under all
current leases amounted to $1,204, $1,174, and $1,179 for the fiscal
years ended March 30, 2008, March 25, 2007, and March 26, 2006,
respectively.
Contingent rental payments on building leases are typically
made based on the percentage of gross sales on the individual res-
taurants that exceed predetermined levels. The percentage of gross
sales to be paid and related gross sales level vary by unit. Contingent
rental expense, which is inclusive of common area maintenance
charges, was approximately $59, $70 and $73 for the fiscal years
ended March 30, 2008, March 25, 2007, and March 26, 2006
respectively.
The Company also owns or leases sites, which it in turn sub-
leases to franchisees, which expire on various dates through 2010
exclusive of renewal options. The Company remains liable for all
lease costs when properties are subleased to franchisees.
The Company also subleases a location to a third party. This
sublease provides for minimum annual rental payments by the
Company aggregating approximately $135 and expires in 2013
exclusive of renewal options.
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share amounts) March 30, 2008, March 25, 2007 and March 26, 2006
The Company entered into a commitment to purchase 1,785,000
pounds of hot dogs for $2,740 from its primary hot dog manufac-
turer. Nathan’s has the right to order this product between April
through August 2008. The hot dogs to be purchased represent
approximately 36% of Nathan’s estimated usage during the period
of the commitment.
2. Contingencies
The Company and its subsidiaries are from time to time
involved in ordinary and routine litigation. Management presently
believes that the ultimate outcome of these proceedings, individ-
ually or in the aggregate, will not have a material adverse effect
on the Company’s financial position, cash flows or results of opera-
tions. Nevertheless, litigation is subject to inherent uncertainties
and unfavorable rulings could occur. An unfavorable ruling could
include money damages and, in such event, could result in a material
adverse impact on the Company’s results of operations for the period
in which the ruling occurs.
The Company is also involved in the following legal proceedings:
On March 20, 2007, a personal injury lawsuit was initiated
seeking unspecified damages against the Company’s subtenant and
the Company’s master landlord at a leased property in Huntington,
New York. The claim relates to damages suffered by an individual
as a result of an alleged “trip and fall” on the sidewalk in front of the
leased property, maintenance of which is the subtenant’s responsi-
bility. Although the Company was not named as a defendant in the
lawsuit, under its master lease agreement the Company may have an
obligation to indemnify the master landlord in connection with this
claim. The Company did not maintain its own insurance on the
property concerned at the time of the incident; however, the
Company is named as an additional insured under its subtenant’s
liability policy. Accordingly, if the master landlord is found liable
for damages and seeks indemnity from the Company, the Company
believes that it would be entitled to coverage under the subtenant’s
insurance policy. Additionally, under the terms of the sublease, the
subtenant is required to indemnify the Company, regardless of insur-
ance coverage.
The Company is party to a License Agreement with SMG, Inc.
(“SMG”) dated as of February 28, 1994, as amended (the “License
Agreement”) pursuant to which: (i) SMG acts as the Company’s
exclusive licensee for the manufacture, distribution, marketing and
sale of packaged Nathan’s Famous frankfurter product at super-
markets, club stores and other retail outlets in the United States; and
(ii) the Company has the right, but not the obligation, to require
SMG to produce frankfurters for the Company’s Nathan’s Famous
restaurant system and Branded Products Program. On July 31, 2007,
the Company provided notice to SMG that the Company has elected
to terminate the License Agreement, effective July 31, 2008 (the
“Termination Date”), due to SMG’s breach of certain provisions of
the License Agreement. SMG has disputed that a breach has
occurred and has commenced, together with certain of its affiliates,
an action in state court in Illinois seeking, among other things, a
declaratory judgment that SMG did not breach the License Agree-
ment. The Company’s filed its own action on August 2, 2007, in
New York State court seeking a declaratory judgment that SMG has
breached the License Agreement and that the Company has properly
terminated the License Agreement. On January 23, 2008, the New
York court granted SMG’s motion to dismiss the Company’s case
in New York on the basis that the dispute was already the subject of
a pending lawsuit in Illinois. The Company has answered SMG’s
complaint and asserted its own counterclaims which seek, among
other things, a declaratory judgment that SMG did breach the
License Agreement and that that the Company has properly termi-
nated the License Agreement. SMG has also asked the Illinois court
for a preliminary injunction to prevent the Company from effectu-
ating the termination of the License Agreement prior to the case
being adjudicated. The parties are currently proceeding with the
discovery process.
3. Guarantees
At the time of the sale of Miami Subs (Note H), a severance
agreement, previously entered into between Miami Subs and one
executive of Miami Subs, remained in force along with the guaranty
by Nathan’s of Miami Subs’ obligations under that agreement. The
agreement provided for a severance payment of $115 payable in six
(6) monthly installments and payment for post-employment health
benefits for the employee and dependants for the maximum period
permitted under Federal Law. The executive terminated his employ-
ment with Miami Subs, effective October 5, 2007 and agreed to
receive his severance payment over a 56-week period. Nathan’s has
the right to seek reimbursement from Miami Subs in the event that
Nathan’s must make payments under the guarantee of the agree-
ment. Nathan’s initially recorded a liability of $115, for this guaran-
tee at the date of sale, of which $66 remains outstanding at March
30, 2008, due to payments made by Miami Subs. Nathan’s has not
been required to make any payments under this guarantee.
Note N—Related Party Transactions
An accounting firm of which Mr. Raich, who serves on Nathan’s
Board of Directors serves as Managing Partner, received ordinary
tax preparation and other consulting fees of $182, $128, and $108
for the fiscal years ended March 30, 2008, March 25, 2007 and
March 26, 2006, respectively.
A firm which Mr. Lorber serves as a consultant to (and, prior
to January 2005, was the Chairman of), and the firm’s affiliates,
received ordinary and customary insurance commissions aggregat-
ing approximately $12, $23, and $25 for the fiscal years ended
March 30, 2008, March 25, 2007, and March 26, 2006, respectively.
36
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
Note O—Quarterly Financial Information (Unaudited)
Fiscal Year 2008
Total revenues(a)
Gross profit(a)(b)
Net income
Per share information
Net income per share
Basic(c)
Diluted(c)
Shares used in computation of net income per share
Basic(c)
Diluted(c)
Fiscal Year 2007
Total revenues(a)
Gross profit(a)(b)
Net income
Per share information
Net income per share
Basic(c)
Diluted(c)
Shares used in computation of net income per share
Basic(c)
Diluted(c)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$12,779
2,393
3,152(d)
$14,062
3,274
1,774
$10,280
1,892
877
$10,274
1,630
752
$ .52
$ .29
$ .14
$ .12
$ .48
$ .27
$ .14
$ .12
6,018,000
6,119,000
6,092,000
6,109,000
6,499,000
6,562,000
6,492,000
6,457,000
$11,598
2,543
1,396
$12,534
3,325
1,844(e)
$ 9,875
2,006
1,061
$ 8,962
1,471
1,242
$ .24
$ .32
$ .18
$ .21
$ .22
$ .30
$ .17
$ .19
5,733,000
5,773,000
5,892,000
5,945,000
6,316,000
6,227,000
6,401,000
6,430,000
(a) Total revenues and gross profit were adjusted from amounts previously reported on Forms 10-Q to reflect a reclassification of continuing operations to discontinued operations in the fiscal
years shown.
(b) Gross profit represents the difference between sales and cost of sales.
(c) The sum of the quarters may not equal the full year per share amounts included in the accompanying consolidated statements of earnings due to the effect of the weighted average number
of shares outstanding during the fiscal years as compared to the quarters.
(d) Includes gains of disposal of discontinued operations, net of tax, of $1,576.
(e) Includes gains of disposal of discontinued operations, net of tax, of $239.
Note P—Subsequent Events—Unaudited
1. Sale of Roasters
On April 23, 2008, Nathan’s completed the sale of its wholly-
owned subsidiary, NF Roasters Corp. to Roasters Asia Pacific
(Cayman) Limited, its Master Developer of franchised Kenny
Rogers Roasters restaurants in Malaysia and certain other foreign
territories. The purchase price was approximately $4,000 in cash
plus certain accruals.
In connection with the sale, NF Roasters Corp. entered into a
license agreement with a subsidiary of Nathan’s, pursuant to which
NF Roasters Corp. licensed to the Nathan’s subsidiary certain intel-
lectual property necessary for Nathan’s to continue to make available
“Kenny Rogers” products at existing Nathan’s Famous and Miami
Subs restaurants without the payment of royalties by either party.
Based upon SFAS No. 144, the Company has assessed the meas-
urement date in accounting for the sale transaction as April 23,
2008, which represents the date on which Board approval was
obtained by Management.
The following is a summary of the assets and liabilities as of
March 30, 2008 of NF Roasters that were sold:
Cash
Accounts receivable, net
Deferred income taxes
Intangible assets, net
Other assets, net
Total assets sold
Accrued expenses
Other liabilities
Total liabilities sold
Net assets sold
(a) Includes unexpended marketing funds of $10.
$ 10(a)
3
229
394
30
666
14(a)
340
354
$312
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except share and per share amounts) March 30, 2008, March 25, 2007 and March 26, 2006
2. Other
On June 4, 2008, the Company approved the amendment of its
existing shareholder rights plan to accelerate the final expiration
date of the common stock purchase rights to June 4, 2008, thereby
terminating the existing rights, as well as the adoption of a new
stockholder rights plan (the “New Rights Plan”) under which all
stockholders of record as of June 5, 2008 will receive rights to pur-
chase shares of common stock (the “Rights”). The New Rights Plan
will replace and update the Company’s existing rights plan, which
was in place since 1995, and which was previously scheduled to
expire on June 19, 2010 (See Note L-3).
On June 11, 2008, Nathan’s and Mutual Securities, Inc. (“MSI”)
entered into an agreement (the “10b5-1 Agreement”) pursuant to
which MSI has been authorized to purchase shares of the Company’s
common stock, par value $.01 per share (“Common Stock”) having
a value of up to an aggregate $6 million. The 10b5-1 Agreement was
adopted under the safe harbor provided by Rule 10b5-1 of the
Securities Exchange Act of 1934 in order to assist the Company in
implementing its previously announced stock purchase plan for the
purchase of up to 500,000 shares. There is no set time limit on the
repurchases.
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Nathan’s Famous, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets
of Nathan’s Famous, Inc. (a Delaware Corporation) and subsidiaries
(the “Company”) as of March 30, 2008 and March 25, 2007, and the
related consolidated statements of earnings, stockholders’ equity
and cash flows for the fifty-three weeks ended March 30, 2008
and fifty-two weeks ended March 25, 2007 and March 26, 2006.
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the account-
ing principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position
of Nathan’s Famous, Inc. and subsidiaries as of March 30, 2008 and
March 25, 2007, and the results of their operations and their cash
flows for the fifty-three weeks ended March 30, 2008 and fifty-two
weeks ended March 25, 2007 and March 26, 2006 in conformity
with accounting principles generally accepted in the United States
of America.
As discussed in Note B of the notes to consolidated financial
statements, on March 27, 2006 the Company has adopted Financial
Accounting Standards Board Statement No. 123(R), Share-Based
Payment and on March 26, 2007 the Company adopted Financial
Accounting Standards Board Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes—an interpretation of FASB Statement
No. 109, Accounting for Income Taxes.”
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Nathan’s Famous, Inc. and subsidiaries’ internal control over finan-
cial reporting as of March 30, 2008, based on criteria established in
Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO)
and our report dated June 11, 2008 expressed an unqualified opinion
thereon.
GRANT THORNTON LLP
Melville, New York
June 11, 2008
38
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Nathan’s Famous, Inc. and Subsidiaries
We have audited Nathan’s Famous, Inc. (a Delaware Corporation)
and subsidiaries’ (the “Company”) internal control over financial
reporting as of March 30, 2008, based on criteria established in
Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).
The Company’s management is responsible for maintaining effec-
tive internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on
Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain rea-
sonable assurance about whether effective internal control over finan-
cial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal
control based on the assessed risk, and performing such other proce-
dures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a proc-
ess designed to provide reasonable assurance regarding the reliabil-
ity of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted account-
ing principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the mainte-
nance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over finan-
cial reporting may not prevent or detect misstatements. Also, projec-
tions of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or
procedures may deteriorate. In our opinion, Nathan’s Famous, Inc.
and subsidiaries maintained, in all material respects, effective inter-
nal control over financial reporting as of March 30, 2008, based
on criteria established in Internal Control—Integrated Framework
issued by COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets as of March 30, 2008 and March 25,
2007, and the related consolidated statements of earnings, stock-
holders’ equity and cash flows for the fifty-three weeks ended March
30, 2008 and fifty-two weeks ended March 25, 2007 and March 26,
2006 and our report dated June 11, 2008 expressed an unqualified
opinion thereon and contains an explanatory paragraph related to
the adoption of Financial Accounting Standards Board Statement
No. 123(R), Share-Based Payment on March 27, 2006 and Financial
Accounting Standards Board Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes—an interpretation of FASB Statement
No. 109, Accounting for Income Taxes” on March 26, 2007.
GRANT THORNTON LLP
Melville, New York
June 11, 2008
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
39
MARKET FOR REGISTR ANT’S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
Common Stock Prices
Dividend Policy
Our common stock began trading on the over-the-counter mar-
ket on February 26, 1993 and is quoted on the Nasdaq National
Market System (“Nasdaq”) under the symbol “NATH.” The follow-
ing table sets forth the high and low closing sales prices per share for
the periods indicated:
Fiscal year ended March 30, 2008
First quarter
Second quarter
Third quarter
Fourth quarter
Fiscal year ended March 25, 2007
First quarter
Second quarter
Third quarter
Fourth quarter
High
Low
$15.79
19.20
17.87
17.86
$13.66
13.50
14.65
15.44
$14.16
15.01
16.25
13.03
$11.94
12.28
12.84
14.01
At June 5, 2008, the closing price per share for our common
stock, as reported by Nasdaq was $13.83.
We have not declared or paid a cash dividend on our common
stock since our initial public offering and do not anticipate that we
will pay any dividends in the foreseeable future. It is our Board of
Directors’ policy to retain all available funds to finance the devel-
opment and growth of our business and to purchase stock pursuant
to our stock buyback program. The payment of any cash dividends
in the future will be dependent upon our earnings and financial
requirements.
Shareholders
As of June 5, 2008, we had approximately 751 shareholders of
record, excluding shareholders whose shares were held by brokerage
firms, depositories and other institutional firms in “street name” for
their customers.
Annual Shareholders’ Meeting
The Annual Meeting of Shareholders of the Company will be
held at 10:00 a.m., EST on Tuesday, September 9, 2008, in the
Conference Room on the lower level of 1400 Old Country Road,
Westbury, New York.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN*
Among Nathan’s Famous, Inc., the S&P 500 Index and the S&P Restaurants Index
$450
400
350
300
250
200
150
100
50
0
3/30/03
3/28/04
3/27/05
3/29/06
3/25/07
3/30/08
Nathan’s Famous, Inc.
S&P 500
S&P Restaurants
*$100 invested on 3/30/03 in stock or 3/31/03 in index-including reinvestment of dividends. Indexes calculated on month-end basis.
40
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
COR P OR AT E DI R E CT ORY
List of Directors
Howard M. Lorber
Executive Chairman of the Board,
Nathan’s Famous, Inc.
Eric Gatoff
Chief Executive Officer,
Nathan’s Famous, Inc.
List of Officers
Howard M. Lorber
Executive Chairman of the Board
Eric Gatoff
Chief Executive Officer
Wayne Norbitz
President & Chief Operating Officer
Wayne Norbitz
President & Chief Operating Officer,
Nathan’s Famous, Inc.
Donald L. Perlyn
Executive Vice President
Ronald G. DeVos
Vice President—Finance,
Chief Financial Officer & Secretary
Randy K. Watts
Vice President—Franchise Operations
Donald P. Schedler
Vice President—Development,
Architecture & Construction
Donald L. Perlyn
Executive Vice President,
Nathan’s Famous, Inc.
Robert J. Eide
Chairman & Chief Executive Officer,
AEGIS Capital Corp.
Barry Leistner
President & Chief Executive Officer,
Koenig Iron Works, Inc.
Brian S. Genson
President,
Motorsport Investments
A.F. Petrocelli
Chairman, President &
Chief Executive Officer,
United Capital Corp.
Charles Raich
Managing Partner,
Raich, Ende, Malter & Co. LLP
Independent Registered Public
Accounting Firm
Grant Thornton LLP
445 Broadhollow Road
Melville, New York 11747
Corporate Counsel
Farrell Fritz, PC
1320 RexCorp Plaza
Uniondale, New York 11556
Transfer Agent
American Stock Transfer
& Trust Company
59 Maiden Lane
New York, New York 10038
FORM 10-K
THE COMPANY’S ANNUAL
REPORT ON FORM 10-K AS FILED
WITH THE SECURITIES AND
EXCHANGE COMMISSION, IS
AVAILABLE UPON WRITTEN
REQUEST:
SECRETARY
NATHAN’S FAMOUS, INC.
1400 OLD COUNTRY ROAD
WESTBURY, NEW YORK 11590
Quarterly Shareholder Letter
Will be available on our website.
Copies will be provided upon request.
Corporate Headquarters
1400 Old Country Road
Westbury, New York 11590
516-338-8500 Telephone
516-338-7220 Facsimile
Company Website
www.nathansfamous.com
N AT H A N ’ S FA M O U S , I N C . & S U B S I D I A R I E S 2 0 0 8 A N N U A L R E P O R T
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1400 Old Country Road, Suite 400
Westbury, New York 11590
www.nathansfamous.com