Significant Accounting Policies (Policies)

12 Months Ended

Mar. 25, 2018

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

Fiscal Period, Policy [Policy Text Block]

Fiscal Year

The Company’s fiscal year ends on the last Sunday in

March,

which results in a

-week reporting period. The results of operations and cash flows for the fiscal years ended

March 25, 2018,

March 26, 2017

and

March 27, 2016

are on the basis of a

-week reporting period.

Reclassification, Policy [Policy Text Block]

Reclassifications

We have reclassified certain items in the Consolidated Statements of Earnings for prior periods to be comparable with the classification for the fiscal year ended

March 25, 2018.

These reclassifications had

effect on previously reported net income.

Use of Estimates, Policy [Policy Text Block]

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 disclosure 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 stock-based compensation, accounting for income taxes, and the valuation of goodwill, intangible assets and other long-lived assets.

Inventory, Policy [Policy Text Block]

Inventories

Inventories, which are stated at the lower of cost or net realizable value, consist primarily of food items and supplies. Cost is determined using the

first

-in,

first

-out method.

Property, Plant and Equipment, Policy [Policy Text Block]

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 estimated useful life or the lease term of the related asset. The estimated useful lives are as follows:

Building and improvements (in years)	5	–	25
Machinery, equipment, furniture and fixtures (in years)	3	–	15
Leasehold improvements (in years)	5	–	20

Goodwill and Intangible Assets, Policy [Policy Text Block]

Goodwill and Intangible Asset

Goodwill and intangible assets consist of (i) goodwill of

$95

resulting from the acquisition of Nathan’s in

1987;

and (ii) trademarks, trade names and other intellectual property of

$1,353

in connection with Arthur Treacher’s.

The Company’s goodwill and intangible assets are deemed to have indefinite lives and, accordingly, are

not

amortized, but are evaluated for impairment at least annually, but more often whenever changes in facts and circumstances occur which

may

indicate that the carrying value

may

not

be recoverable. As of

March 25, 2018

and

March 26, 2017,

the Company performed its required annual impairment test of goodwill and intangible assets and has determined

impairment is deemed to exist.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Lon

g-lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value

may

not

be recoverable.

Each reporting period, management reviews the carrying value of its investments based upon the financial information provided by the investment’s management and considers whether indicators of an other-than-temporary impairment exists. If an impairment indicator exists, management evaluates the fair value of its investment to determine if an, other-than-temporary impairment in value has occurred. We are required to recognize an impairment on the investment if such impairment is considered to be other-than-temporary.

Impairment losses are recorded on long-lived assets on a restaurant-by-restaurant basis whenever impairment factors are determined to be present. The Company tests the recoverability of its long-lived assets with finite useful lives whenever events or changes in circumstances indicate that the carrying value of the asset

may

not

be recoverable. The Company tests for recoverability based on the projected undiscounted cash flows to be derived from such asset. If the projected undiscounted future cash flows are less than the carrying value of the asset, the Company will record an impairment loss, if any, based on the difference between the estimated fair value and the carrying value of the asset. The Company generally measures fair value by considering discounted estimated future cash flows from such asset. Cash flow projections and fair value estimates require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company

may

be required to record impairments in future periods and such impairments could be material. The Company considers a history of restaurant operating losses to be its primary indicator of potential impairment for individual restaurant locations. At

March 25, 2018,

we performed our annual impairment evaluation and recorded an impairment charge of

$790

to write down the value of the long-lived assets at

one

of our restaurants.

long-lived assets were deemed impaired during the fiscal years

March 26, 2017

and

March 27, 2016.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

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 market participants at the measurement date (an exit price).

The fair value hierarchy, as outlined in the applicable accounting guidance, is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions.

The fair value hierarchy consists of the following

three

levels:

●

Level

- inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market

●

Level

- inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability

●

Level

- inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability

The use of observable market inputs (quoted market prices) when measuring fair value and, specifically, the use of Level

quoted prices to measure fair value are required whenever possible. The determination of where an asset or liability falls in the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures quarterly and based on various factors, it is possible that an asset or liability

may

be classified differently from year to year.

March 25, 2018

and

March 26, 2017,

we did

not

have any assets or liabilities that were recorded at fair value.

The Company’s long-term debt had a face value of

$150,000

as of

March 25, 2018

and a fair value of

$150,750

as of

March 25, 2018.

The Company estimates the fair value of its long-term debt based upon review of observable pricing in secondary markets as of the last trading day of the fiscal period. Accordingly, the Company classifies its long-term debt as Level

The carrying amounts of cash, accounts receivable and accounts payable approximate fair value due to the short-term maturity of the instruments.

The majority of the Company’s non-financial assets and liabilities are

not

required to be carried at fair value on a recurring basis. However, the Company is required on a non-recurring basis to use fair value measurements when analyzing asset impairment as it relates to goodwill and other indefinite-lived intangible assets and long-lived assets. The Company utilized the income approach (Level

inputs) which utilized cash flow forecasts for future income and were discounted to present value in performing its annual impairment testing of intangible assets.

Start-up Activities, Cost Policy [Policy Text Block]

Start-up Costs

Pre-opening and similar restaurant costs are expensed as incurred.

Revenue Recognition, Policy [Policy Text Block]

11.

Revenue Recognition - Branded Product

Program

The Company recognizes sales from the Branded Product Program and certain products sold from the Branded Menu Program upon delivery to Nathan’s customers via

third

party common carrier. Rebates provided to customers are classified as a reduction to sales.

Revenue Recognition - Company-owned Restaurants

Sales by Company-owned restaurants, which are typically paid in cash or credit card by the customer, are recognized at the point of sale. Sales are presented net of sales tax.

Revenue Recognition - Franchising Operations

In connection with its franchising operations, the Company receives initial franchise fees, international development fees, royalties, and in certain cases, revenue from sub-leasing restaurant properties to franchisees.

Franchise and international 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 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 operations.

The following services are typically provided by the Company prior to the opening of a franchised restaurant:

Approval of all site selections to be developed.

Provision of architectural plans suitable for restaurants to be developed.

Assistance in establishing building design specifications, reviewing construction compliance and equipping the restaurant.

Provision of appropriate menus to coordinate with the restaurant design and location to be developed.

Provision of management training for the new franchisee and selected staff.

Assistance with the initial operations of restaurants being developed.

International development fees are recognized, net of direct expenses, upon the opening of the

first

restaurant within the territory. In each case, this is when the Company has performed substantially all initial services required by the agreements.

March 25, 2018

and

March 26, 2017,

$193

and

$98,

respectively, of deferred franchise fees are included in the accompanying consolidated balance sheets. For the fiscal years ended

March 25, 2018,

March 26, 2017

and

March 27, 2016,

the Company earned franchise fees of

$334,

$778

and

$751,

respectively, from new unit openings, transfers, co-branding and forfeitures.

Development fees are non-refundable and the related agreements require the franchisee to open a specified number of restaurants in the development area within a specified time period or the agreements

may

be canceled by the Company. Revenue from development agreements is deferred and shall be recognized, with an appropriate provision for estimated uncollectible amounts, when all material services or conditions to the sale have been substantially performed by the franchisor.

If substantial obligations under the development agreement are

not

dependent on the number of individual franchise locations to be opened, substantial performance shall be determined using the same criteria applicable to an individual franchise, which is generally the opening of the

first

location pursuant to the development agreement. If substantial performance is dependent on the number of locations, then the development fee is deferred and recognized ratably over the term of the agreement, 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 25, 2018

and

March 26, 2017,

$238

and

$67,

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 franchise restaurant system for the fiscal years ended

March 25, 2018,

March 26, 2017

and

March 27, 2016:

	March 2 5,			March 26,			March 27,
	201 8			2017			2016

Franchised restaurants operating at the beginning of the period		279			259			296

New franchised restaurants opened during the period		40			53			56

Franchised restaurants closed during the period		(43	)		(33	)		(93	)

Franchised restaurants operating at the end of the period		276			279			259

The Company recognizes franchise royalties on a monthly basis, which are generally based upon a percentage of sales made by the Company’s franchisees, when they are earned and deemed collectible. The Company recognizes royalty revenue from its Branded Menu Program directly from the sale of Nathan’s products by its primary distributor or directly from the manufacturers.

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.

(See Note

B.21

for further discussion about the future impact of the new revenue recognition accounting standard.)

Revenue Recognition – License Royalties

The Company earns revenue from royalties on the licensing of the use of its intellectual property in connection with certain products produced and sold by outside vendors. The use of the Company’s intellectual property must be approved by the Company prior to each specific application to ensure proper quality and a consistent image. Revenue from license royalties is generally based on a percentage of sales, subject to certain annual minimum royalties, recognized on a monthly basis when it is earned and deemed collectible.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Business Concentrations and Geographical Information

March 25, 2018

and

March 26, 2017

the Company maintained cash balances which are in excess of Federal government insurance limits. The Company does

not

believe that it is exposed to any significant risk on these balances.

The Company’s accounts receivable consist principally of receivables from franchisees for royalties and advertising contributions, from sales under the Branded Product Program, and from royalties from retail licensees. At

March 25, 2018,

three

Branded Product customers represented

41%,

20%

and

8%,

of accounts receivable. At

March 26, 2017,

four

Branded Product customers represented

21%,

15%,

12%

and

8%,

of accounts receivable. One Branded Products customer accounted for

19%,

12%

and

14%

of total revenue for the years ended

March 25, 2018,

March 26, 2017

and

March 27, 2016,

respectively. One retail licensee accounted for

21%,

20%

and

19%

of the total revenue for the years ended

March 25, 2018,

March 26, 2017

and

March 27, 2016,

respectively.

The Company’s primary supplier of hot dogs represented

92%,

91%

and

90%

of product purchases for the fiscal years ended

March 25, 2018,

March 26, 2017

and

March 27, 2016,

respectively. The Company’s distributor of products to its Company-owned restaurants represented

4%,

and

of product purchases for each of the fiscal years ended

March 25, 2018,

March 26, 2017

and

March 27, 2016,

respectively.

The Company’s revenues for the fiscal years ended

March 25, 2018,

March 26, 2017

and

March 27, 2016

were derived from the following geographic areas:

	March 25, 2018		March 26, 2017		March 27, 2016

Domestic (United States)	$	97,661	$	90,070	$	95,214
Non-domestic		6,540		6,186		5,235
	$	104,201	$	96,256	$	100,449

The Company’s sales for the fiscal years ended

March 25, 2018,

March 26, 2017

and

March 27, 2016

were derived from the following:

	March 25, 2018		March 26, 2017		March 27, 2016

Branded Products	$	62,623	$	55,960	$	58,545
Company-owned restaurants		14,085		14,646		16,222
Other		-		214		823
	$	76,708	$	70,820	$	75,590

Advertising Costs, Policy [Policy Text Block]

Advertising

The Company administers an advertising fund on behalf of its restaurant system to coordinate the marketing efforts of the Company. Under this arrangement, the Company collects and disburses fees paid by manufacturers, franchisees and Company-owned stores for national and regional advertising, promotional and public relations programs. Contributions to the advertising fund are based on specified percentages of net sales, generally ranging up to

2%.

Company-owned store advertising expense, which is expensed as incurred, was

$117,

$182

and

$191,

for the fiscal years ended

March 25, 2018,

March 26, 2017

and

March 27, 2016,

respectively, and have been included within restaurant operating expenses in the accompanying Consolidated Statements of Earnings.

(See Note

B.21

for further discussion about the future impact of the new revenue recognition accounting standard.)

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

March 25, 2018,

the Company had

one

stock-based compensation plan in effect which is more fully described in Note

M.2.

The cost of all share-based payments, including grants of restricted stock and stock options, is recognized in the financial statements based on their fair values measured at the grant date, or the date of any later modification, over the requisite service period. The Company recognizes compensation cost for unvested stock awards on a straight-line basis over the requisite vesting period.

Cost of Sales, Policy [Policy Text Block]

Classification of Operating Expenses

Cost of sales consists of the following:

○

The cost of food and other products sold by Company-operated restaurants, through the Branded Product Program and through other distribution channels.

○

The cost of labor and associated costs of in-store restaurant management and crew.

○

The cost of paper products used in Company-operated restaurants.

○

Other direct costs such as fulfillment, commissions, freight and samples.

Restaurant operating expenses consist of the following:

○

Occupancy costs of Company-operated restaurants.

○

Utility costs of Company-operated restaurants.

○

Repair and maintenance expenses of Company-operated restaurant facilities.

○

Marketing and advertising expenses done locally and contributions to advertising funds for Company-operated restaurants.

○

Insurance costs directly related to Company-operated restaurants.

Income Tax, Policy [Policy Text Block]

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 for tax and financial reporting purposes and income tax benefits from share-based payments. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and any operating loss or tax credit carryforwards. 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. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible. Should management determine that it is more likely than

not

that some portion of the deferred tax assets will

not

be realized, a valuation allowance against the deferred tax assets would be established in the period such determination was made.

Uncertain Tax Positions

The Company has recorded liabilities for underpayment of income taxes and related interest and penalties for uncertain tax positions based on the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. 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 largest benefit that has a greater than

fifty

percent likelihood of being realized upon ultimate settlement. Nathan’s recognizes accrued interest and penalties associated with unrecognized tax benefits as part of the income tax provision.

See Note J for a further discussion of our income taxes.

New Accounting Pronouncements, Policy [Policy Text Block]

20.

Adoption of New Accounting Pronouncements

July 2015,

the Financial Accounting Standards Board (“FASB”) updated U.S. accounting guidance to simplify the ways businesses measure inventory. Companies that use the

first

-in,

first

-out (FIFO) method or the average cost method will measure inventory at the lower of its cost or net realizable value. Net realizable value is the estimated selling price in the normal course of business, minus the cost of completion, disposal, and transportation. Companies will

longer consider replacement cost or net realizable value less a normal profit margin when measuring inventory. The guidance was effective for the Company beginning in the quarter ended

June 25, 2017

and did

not

have a material impact on its results of operations or financial position.

August 2016,

the FASB issued ASU

2016

15,

“

Statement of Cash Flows (Topic

230

): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)

”. This update addresses

eight

specific cash flow topics with the objective of reducing the existing diversity in practice for certain aspects under Topic

230.

ASU

2016

is effective for annual reporting periods, and interim periods therein, beginning after

December 15, 2017.

The Company elected to early adopt ASU

2016

during the quarter ending

December 24, 2017.

The adoption of this guidance did

not

have a significant impact on the Company’s consolidated financial statements.

New Accounting Pronouncements

Not

Yet

Adopt

May 2014,

the FASB issued a new accounting standard ASU

No.

2014

09,

“

Revenue from Contracts with Customers (Topic

606

)

”, that attempts to establish a uniform basis for recording revenue to virtually all industries’ financial statements. The revenue standard’s core principle is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration expected to be received for those goods or services. Additionally, the new guidance requires enhanced disclosure to help financial statement users better understand the nature, amount, timing and uncertainty of the revenue recorded.

Public companies were originally expected to apply the new standard for annual periods beginning after

December 15, 2016.

However, the FASB agreed to delay the standard’s effective date to annual reporting periods beginning after

December 15, 2017.

The Company will adopt the standard commencing our

first

quarter (

June 2018)

of our fiscal year ending

March 31, 2019.

There are

two

basic transition methods that are available – full retrospective, or modified retrospective transition methods. We will adopt the standards using the modified retrospective approach.

The Company has determined that this standard will

not

impact the recognition of revenue for its Company-owned restaurants, the revenues from its Branded Product Program or its recognition of royalties from its franchised restaurants or retail licenses, which are based on a percentage of sales.

The new standard will change how the Company records initial restaurant fees from franchisees, renewal fees and international development fees. Through

March 25, 2018,

we recognized these fees in full when the related services have been provided, which was when a store opened or when renewal options become effective. We also recorded international development fees, net of direct expenses, upon the completion of all of Nathan’s obligations, typically upon the opening of the

first

unit in the respective country.

The standard requires that the transaction price received from customers be allocated to each separate and distinct performance obligation. The transaction price attributable to each separate and distinct performance obligation would then be recognized as the performance obligations are satisfied. The services we provide related to upfront fees we receive from franchisees do

not

contain separate and distinct performance obligations from the franchise right and as of

March 26, 2018,

initial restaurant fees, renewal fees and international development fees shall be recognized over the term of the respective agreement. The Company does

not

incur significant upfront costs to obtain new domestic franchises.

Upon adoption, we expect to record deferred revenue for the unamortized portion of fees received on behalf of the then operating franchise agreements of

$2,735,

net deferred tax assets of

$731

and a cumulative effect adjustment to increase accumulated deficit by approximately

$2,004

on our Consolidated Balance Sheet.

The adoption of the new guidance will also change the reporting of advertising fund contributions from franchisees and the related advertising fund expenditures, which are

not

currently included in the Consolidated Statements of Earnings, but are reported on the Consolidated Balance Sheet. The new guidance requires these advertising fund contributions and expenditures to be reported on a gross basis in the Consolidated Statements of Earnings, which will impact our total revenues and expenses although we do

not

expect a material impact on net income as the fund is managed such that revenues and expenses are generally offsetting over the year. If the new guidance had been in effect during fiscal

2018,

consolidated revenues would have increased by approximately

$2,500.

We are finalizing the impact of the standards on our disclosures of the Company’s revenues. Further, we are currently implementing internal controls related to the recognition and presentation of the Company’s revenues under these new standards.

February 2016,

the FASB issued a new accounting standard on leases. The new standard, among other changes, will require lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases. The lease liability will be measured at the present value of the lease payments over the lease term. The right-of-use asset will be measured at the lease liability amount, adjusted for lease prepayments, lease incentives received and the lessee’s initial direct costs (e.g. commissions). The new standard is effective for annual reporting periods beginning after

December 15, 2018,

including interim reporting periods within those annual reporting periods. This standard is required to take effect in Nathan’s

first

quarter (

June 2019)

of our fiscal year ending

March 29, 2020.

The adoption currently requires a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest period presented. In

March 2018,

the FASB has tentatively approved an exposure draft which provides an alternative transition method of adoption that permits the recognition of a cumulative-effect adjustment to retained earnings on the date of adoption. The Company is currently evaluating the transition methods of the standard to determine the impact of the adoption on its consolidated financial statements but expects that the standard will result in a significant increase to its other assets and other liabilities.

January 2017,

the FASB issued a new accounting standard that narrows the definition of a business. The concept is fundamental in determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The ASU revised the definition of a business to consist of the following key concepts:

● A business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants.

● To be capable of being conducted and managed for the purposes described above, an integrated set of activities and assets requires

two

essential elements–inputs and a substantive process(es) applied to those inputs.

The amendment is effective prospectively for public business entities for annual reporting periods beginning after

December 15, 2017.

This standard is required to take effect in Nathan’s

first

quarter ending (

June 2018)

of our fiscal year ending

March 31, 2019.

The Company does

not

expect this new accounting standard will have a material effect on the Company’s results of operations, cash flows or financial position. Early adoption is permitted when certain criteria are met.

January 2017,

the FASB issued an update to the accounting guidance to simplify the testing for goodwill impairment. The update removes the requirement to determine the implied fair value of goodwill to measure the amount of impairment loss, if any, under the

second

step of the current goodwill impairment test. A company will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment charge will be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value,

not

to exceed the carrying amount of the goodwill. The guidance is effective prospectively for public business entities for annual reporting periods beginning after

December 15, 2019.

This standard is required to take effect in Nathan’s

first

quarter (

June 2020)

of our fiscal year ending

March 28, 2021.

Nathan’s does

not

expect the adoption of this new guidance to have a material impact on its results of operations or financial position.

The Company does

not

believe that any other recently issued, but

not

yet effective accounting standards, when adopted, will have a material effect on the accompanying financial statements.