Nathan Famous : 2021 Annual Report (Interactive)

A N N U A L R E P O R T

C O R P O R A T E P R O F I L E

Over one hundred years ago, Nathan's began as a nickel hot dog stand on Coney Island in 1916 and, over the past century, has become a much-loved "New York institution" that has evolved into a highly recognized brand throughout the United States and the world.

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 Beef Hot Dogs, crinkle-cut French fries and other famous favorites to retail and food-service locations nationwide and within sixteen foreign territories and countries. In total, Nathan's products are marketed for sale in approximately 79,000 locations, including supermarkets, mass merchandisers and club stores throughout the United States.

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.

2 0 2 1 F I N A N C I A L H I G H L I G H T S

		2021			Fiscal Year(1)
(In thousands, except share and per share amounts)		2020		2019		2018	2017
Selected Consolidated Financial Data:
As reported	$	75,839
Total revenues	$	103,325	$	101,849	$	104,201	$	96,256
Income from operations(2)	$	25,515	$	27,172	$	27,976	$	27,100	$	26,280
Net income	$	11,075	$	13,435	$	21,493	$	2,630	$	7,485
Income per share	$	2.69
	Basic	$	3.19	$	5.13	$	0.63	$	1.79
	Diluted	$	2.69	$	3.19	$	5.09	$	0.62	$	1.78
Weighted average shares used in computing income per share		4,116
	Basic			4,216		4,187		4,181		4,172
	Diluted		4,116		4,216		4,220		4,221		4,206
Supplemental Non-GAAP information(3)	$	27,109
EBITDA(4)	$	29,848	$	41,414	$	19,055	$	27,766
Adjusted EBITDA(5)	$	27,225	$	29,964	$	30,399	$	29,115	$	28,348

1. Our fiscal year ends on the last Sunday in March, which results in a 52- or 53-week year. The fiscal years ended March 28, 2021 and March 29, 2020 were each on the basis of a
   52-week reporting period. The fiscal year ended March 31, 2019 was on the basis of a 53-week reporting period. The fiscal years ended March 25, 2018 and March 26, 2017 were each on the basis of a 52-week reporting period.
2. Represents total revenues less (i) cost of sales; (ii) restaurant operating expenses; (iii) general and administrative expenses; (iv) depreciation and amortization and (v) Advertising fund expense.
3. EBITDA and Adjusted EBITDA are non-GAAP financial measures. The Company has provided EBITDA and Adjusted EBITDA that the Company believes will impact the comparabil- ity of its results of operations. The Company believes that EBITDA and Adjusted EBITDA are useful to investors to assist in assessing and understanding the Company's operating performance and underlying trends in the Company's business because EBITDA and Adjusted EBITDA are (i) among the measures used by management in evaluating performance and (ii) are frequently used by securities analysts, investors and other interested parties as a common performance measure. EBITDA and Adjusted EBITDA are not recognized terms under US GAAP and should not be viewed as alternatives to net income or other measures of financial performance or liquidity in conformity with US GAAP. Additionally, our defini- tions of EBITDA and Adjusted EBITDA may differ from other companies. Analysis of results and outlook on a non-US GAAP basis should be used as a complement to, and in con- junction with, data presented in accordance with US GAAP. Please see a reconciliation of EBITDA and Adjusted EBITDA to net income in the Annual Report on Form 10-K for the fiscal year ended March 28, 2021, included herein.
4. EBITDA represents net income adjusted for the reversal of (i) interest expense; (ii) provision for income taxes and (iii) depreciation and amortization expense.
5. Adjusted EBITDA represents EBITDA adjusted for the reversal of (i) gain on sale of property and equipment in fiscal 2019; (ii) loss on debt extinguishment in fiscal 2018; (iii) impair- ment charge on long-lived assets in fiscal 2018; and (iv) share-based compensation.

Total Revenues

($ in millions)

$96.3	$104.2	$101.8	$103.3
				$75.8
'17	'18	'19	'20	'21

Income From Operations(2)

($ in millions)

$26.3	$27.1	$28.0	$27.2	$25.5
'17	'18	'19	'20	'21

Adjusted EBITDA(5)

($ in millions)

$28.3	$29.1	$30.4	$30.0	$27.2
'17	'18	'19	'20	'21

S H A R E H O L D E R ' S L E T T E R

Fiscal 2021 was another successful year for Nathan's Famous, despite the enormous challenges presented by the global COVID-19 pandemic.

Our business model is aimed at increasing the number of distribution points for our signature products in three distinct business channels. As of March 28, 2021: (1) our consumer-packaged goods were sold through more than 65,000 locations in supermarket/grocery channels in the United States; (2) our bulk foodservice-packaged goods were sold through 14,000 locations in foodservice channels in North America; and (3) the Company had 4 company-owned restaurants in the United States and 213 franchised restaurants and 130 "ghost" kitchens throughout the world. The diversity of these business lines drove the Company's performance in fiscal 2021, as our increases in grocery channels offset a significant amount of the unavoidable and expected declines caused by the pandemic in our foodservice and restaurant businesses.

OPERATIONAL AND FINANCIAL RESULTS

On an overall basis, results for fiscal 2021 compared to fiscal 2020 were as follows: (1) controllable operating income was $25.88 Million, a decrease of only 1.3%;

1. EBITDA1, a non-GAAP financial measure, was $27.1
   Million, a decrease of 9.2%; (3) pre-tax income was $15.3 Million, a decrease of 14.9%; (4) net income was $11.08
   Million, a decrease of 17.5%; and (5) diluted earnings per share were $2.69, a decrease of 15.7%.

Product Licensing

Our licensing program, which consists primarily of the sale of Nathan's Famous branded consumer packaged goods through supermarkets, club stores and mass merchandisers, is the largest part of our business today, both from the perspective of profit contribution and points of distribution. Overall, license royalties during fiscal 2021 increased 21.3% to $31.37 Million.

Our most significant licensing agreement is with Smithfield Foods, and covers the sale of our portfolio of consumer packaged and certain bulk packaged Nathan's Famous hot dog products to retailers throughout the United States. In fiscal 2021, royalties earned under this agreement increased by 24.5% to $27.8 Million.

Other licenses in our licensing program include licenses to sell at retail Nathan's Famous Crinkle Cut French Fries, Nathan's Famous Beer Batter Onion Rings, mustards, pickles, franks 'n blankets, mini bagel dogs and mozza- rella sticks.

Clearly, this part of our business benefited during the pandemic as people were forced and/or chose to eat more at home.

The Branded Products Program

The Branded Products Program is our foodservice sales program which features the bulk sale of Nathan's Famous hot dogs to the food service industry. Our products are sold through the Branded Products Program at over 14,000 points of distribution, to include several large national and regional restaurant, movie theater and convenience store chains, as well as thousands of other locations including ballparks, arenas, amusement parks, college campuses, hospitals, casinos, resorts and school systems. Through the Branded Products Program, we do business with all of the major foodservice distributors in the United States, including SYSCO, US Foodservice, PFG and McLane, as well as many regional distributors.

Fiscal 2021 was a challenging year for the Branded Products Program, as a significant component of this part of our business is focused on venues where people

1Please see definition of EBITDA and the reconciliation of EBITDA to net income in the Annual Report on Form 10-K for the fiscal year ended March 28, 2021, included herein.

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NATHAN'S FAMOUS, INC.

congregate, such as malls, sports stadiums, amusement parks and airports. Due to the various shut-down orders across the country during the pandemic, the unit volume of products sold during the year fell 40.9%, and, as a conse- quence, operating profit fell 38.9% to $6.38 Million.

Restaurant Operations

As of the end of fiscal 2021, our Restaurant Operations consisted of 4 Company-owned locations, 213 franchised units and 130 licensed "ghost kitchen" locations. Revenues from Restaurant Operations in fiscal 2021 declined 46.9% to $9.31 Million.

In fiscal 2020, we undertook activities to re-position our restaurant system, developing new, higher quality menu items and modern prototypes and were preparing to roll the results out just as COVID-19 hit. Given the significant impact we knew the pandemic would have on our restaurant operations and development activities, we chose to wait on the roll-out of our new prototypes and instead focus on developing a "ghost kitchen" program to offer our existing "Nathan's Famous" menu and our brand new "Wings of New York" menu virtually through delivery services and apps such as DoorDash and UberEats. We opened our first "ghost kitchen" in October of 2020, and by the end of fiscal 2021 in March we had 130 in operation.

RETURNING CAPITAL TO SHAREHOLDERS

The success of our current business model has allowed us to return significant capital to our shareholders. Since the early 2000s, we have repurchased more than 5.2 million shares of our common stock. At an average price of just over $16.13 per share, we reduced our outstanding share count by more than 50%, creating, we believe, significant value for all of our shareholders.

In fiscal 2015, our capital return strategy shifted to divi- dends. At that time, and again in fiscal 2018, we paid onetime special dividends to all of our shareholders. Together, more than $137 Million, or $30 per share, was returned to shareholders in a tax efficient manner through dividends. In Fiscal 2019, we declared and paid the first regular quarterly dividend in the Company's long history - $0.25 per share per quarter, or $1.00 per share for the fiscal year. In fiscal 2020, we raised that quarterly dividend to $0.35 per share, or $1.40 for the fiscal year.

In all, between stock buybacks and cash dividends, a total of approximately $238 Million has been returned to shareholders over the last 20 years - almost 12 times more than the company's market capitalization of less than $30 Million at the beginning of those 20 years!

IN CONCLUSION

Our focused strategies, creative approaches, and ever- expanding opportunities should 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 responsibly. We remain extremely appreciative of your continued support.

Eric Gatoff

Chief Executive Officer

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