Significant Accounting Policies (Policies)

12 Months Ended

Mar. 26, 2023

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

1. Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and 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]

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 fiscal years ended March 26, 2023 and March 27, 2022 are on the basis of a 52 week reporting period. All references to years and quarters relate to fiscal periods rather than calendar periods.

Use of Estimates, Policy [Policy Text Block]

3. Use of Estimates

The preparation of financial statements in conformity with GAAP 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 due to risks and uncertainties, including uncertainty in the current economic environment due to the COVID-19 pandemic, inflation, and other factors.

Significant estimates made by management in preparing the consolidated financial statements include revenue recognition, the allowance for doubtful accounts, accounting for income taxes, and the valuation of an intangible asset and other long-lived assets.

Cash and Cash Equivalents, Policy [Policy Text Block]

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 equivalents. The Company did not have any cash equivalents at March 26, 2023 or March 27, 2022. The Company’s cash balances principally consist of cash in bank and money market accounts.

At March 26, 2023 and March 27, 2022, substantially all of the Company’s cash balances are in excess of Federal government insurance limits. The Company has not experienced any losses in such accounts.

Inventory, Policy [Policy Text Block]

5. Inventories

Inventories, which are stated at the lower of cost or net realizable value, consist primarily of food, beverages, and paper supplies. Cost is determined using the first-in, first-out method.

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

6. 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 remaining lease term of the related asset. The estimated useful lives are as follows:

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

Goodwill and Intangible Assets, Policy [Policy Text Block]

7. 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, and the trade name and other intellectual property of $869 in connection with Arthur Treacher’s.

Goodwill is not amortized, but is tested for impairment annually during the fourth quarter, or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired. As of March 26, 2023, and March 27, 2022 the Company performed its annual quantitative impairment test of goodwill and has determined no impairment is deemed to exist.

Based upon the review of the current Arthur Treacher’s co-branding agreements, the Company determined that the remaining useful lives of these agreements is six years concluding in fiscal year 2028, and the intangible asset is subject to annual amortization. The Company has recorded amortization expense of $174 and $113 for each of the fiscal years ending March 26, 2023 and March 27, 2022, respectively.

The Company’s definite-lived intangible asset is tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. The Company tested for recoverability of its definite-lived intangible asset based on the projected undiscounted cash flows to be derived from such co-branding agreements. Based on the quantitative test performed, the Company determined that the definite-lived intangible asset was recoverable and no impairment charge was recorded for the fiscal years ended March 26, 2023 and March 27, 2022. Cash flow projections require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, the Company may be required to record an impairment charge in future periods and such impairment could be material.

Annual amortization of the intangible asset for the next five years will approximate the following:

	Estimate for fiscal year
2024	$	174
2025		174
2026		174
2027		174
2028		173
Total	$	869

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

8. Long-lived Assets

Long-lived assets on a restaurant-by-restaurant basis are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Long-lived assets include property, equipment and right-of-use assets for operating leases with finite useful lives. Assets are grouped at the individual restaurant level which represents the lowest level for which cash flows can be identified largely independent of the cash flows of other assets and liabilities. The Company generally considers a history of restaurant operating losses to be its primary indicator of potential impairment for individual restaurant locations.

The Company tests for recoverability based on the projected undiscounted cash flows to be derived from such assets. If the projected undiscounted future cash flows are less than the carrying value of the assets, the Company will record on a restaurant-by-restaurant basis, an impairment loss, if any, based on the difference between the estimated fair value and the carrying value of the assets. The Company generally measures fair value by considering discounted estimated future cash flows from such assets. 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 impairment charges in future periods and such impairments could be material. No long-lived assets were deemed impaired during the fiscal years ended March 26, 2023 and March 27, 2022.

Lessee, Leases [Policy Text Block]

9. Leases

Determination of Whether a Contract Contains a Lease

We determine if an arrangement is a lease at inception or modification of a contract and classify each lease as either an operating or finance lease at commencement. The Company only reassesses lease classifications subsequent to commencement upon a change to the expected lease term or the contract being modified. Operating leases represent the Company’s right to use an underlying asset as lessee for the lease term, and lease obligations represent the Company’s obligation to make lease payments arising from the lease.

ROU Model and Determination of Lease Term

The Company uses the right-of-use (“ROU”) model to account for leases where the Company is the lessee, which requires an entity to recognize a lease liability and ROU asset on the lease commencement date. A lease liability is measured equal to the present value of the remaining lease payments over the lease term and is discounted using the incremental borrowing rate, as the rate implicit in the Company’s leases is not readily determinable. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease payments include payments made before the commencement date and any residual value guarantees, if applicable. The initial ROU asset consists of the initial measurement of the lease liability, adjusted for any payments made before the commencement date, initial direct costs and lease incentives earned. When determining the lease term, as both lessee and lessor, the Company includes option periods when it is reasonably certain that those options will be exercised.

Operating Leases

For operating leases, minimum lease payments or receipts, including minimum scheduled rent increases, are recognized as rent expense where the Company is a lessee, or income where the Company is a lessor, as applicable, on a straight-line basis (“Straight-Line Rent”) over the applicable lease terms. There is a period under certain lease agreements referred to as a rent holiday (“Rent Holiday”) that generally begins on the possession date and ends on the rent commencement date. During a Rent Holiday, no cash rent payments are typically due under the terms of the lease; however, rent expense is recorded for that period on a straight-line basis. The excess of the Straight-Line Rent over the minimum rents paid is included in the ROU asset where the Company is a lessee. The excess of the Straight-Line Rent over the minimum rents received is recorded as a deferred lease asset and is included in “Other Assets” where the Company is a lessor. The Company recorded $29 and $35 in Other Assets at March 26, 2023 and March 27, 2022, respectively. Certain leases contain provisions, referred to as contingent rent (“Contingent Rent”), that require additional rental payments based upon restaurant sales volume. Contingent Rent is recognized each period as the liability is incurred or the asset is earned.

Lease cost for operating leases is recognized on a straight-line basis and includes the amortization of the ROU asset and interest expense relating to the operating lease liability. Variable lease cost for operating leases include Contingent Rent and payments for executory costs such as real estate taxes, insurance and common area maintenance, which are excluded from the measurement of the lease liability. Short-term lease cost for operating leases includes rental expense for leases with a term of less than 12 months. Leases with an initial expected term of 12 months or less are not recorded in the Consolidated Balance Sheets and the related lease expense is recognized on a straight-line basis over the lease term. Lease costs are recorded in the Consolidated Statements of Earnings based on the nature of the underlying leases as follows: (1) rental expense related to leases for Company-owned restaurants is recorded to “Restaurant operating expenses,” (2) rental expense for leased properties that are subsequently subleased to franchisees is recorded to “Other Income, net” and (3) rental expense related to leases for corporate offices and equipment is recorded to “General and administrative expenses.”

Rental income for operating leases on properties subleased to franchisees is recorded net of associated lease costs to “Other income, net.” At March 26, 2023, the Company leases one site which it in turn subleases to a franchisee, which expires in April 2027 exclusive of renewal options. The Company remains liable for all lease costs when property is subleased to a franchisee.

Significant Assumptions and Judgement

Management makes certain estimates and assumptions regarding each new lease and sublease agreement, renewal and amendment, including, but not limited to, property values, market rents, property lives, discount rates and probable term, all of which can impact (1) the classification and accounting for a lease or sublease as operating or finance, (2) the Rent Holiday and escalations in payment that are taken into consideration when calculating Straight-Line Rent, (3) the term over which leasehold improvements for each restaurant are amortized and (4) the values and lives of adjustments to the initial ROU asset where the Company is the lessee, or favorable and unfavorable leases where the Company is the lessor. The amount of depreciation and amortization, interest and rent expense and income would vary if different estimates and assumptions were used.

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

10. 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 1 - inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market

● Level 2 - 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 3 - 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 1 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.

At March 26, 2023 and March 27, 2022, 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 $80,000 as of March 26, 2023 and a fair value of $80,080 as of March 26, 2023. 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 2.

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

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 definite- lived assets and long-lived assets. The Company utilized the income approach (Level 3 inputs) which utilized projected undiscounted cash flows in performing its annual impairment testing of the Company’s intangible asset and long-lived assets.

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

11. Start-up Costs

Pre-opening and similar restaurant costs are expensed as incurred and are included in “Restaurant operating expenses” in the accompanying Consolidated Statement of Earnings.

Revenue from Contract with Customer [Policy Text Block]

12. 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.

13. Revenue Recognition - Company-owned Restaurants

Sales by Company-owned restaurants, which are typically paid in cash or with credit card by the customer, are recognized at the point of sale. Sales are presented net of sales tax collected from customers and remitted to governmental taxing authorities.

14. 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, and is recognized on a monthly basis when it is earned and deemed collectible.

15. 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.

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 locations to be developed.

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

● Assistance with the initial operations of restaurants being developed.

The services provided in exchange for these upfront restaurant franchise fees do not contain separate and distinct performance obligations from the franchising right and these initial franchise fees, renewal fees and transfer fees are deferred and recognized over the term of each respective agreement, or upon termination of the franchise agreement.

The services provided in exchange for these international development fees do not contain separate and distinct performance obligations from the franchising right and these international development fees are deferred and recognized over the term of each respective agreement, or upon termination of the franchise agreement. Certain other costs, such as legal expenses, are expensed as incurred.

The Company recognizes franchise royalties on a monthly basis, which are generally based upon a percentage of sales made by the Company’s franchisees, including virtual kitchens, 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 distributors or directly from the manufacturers.

Franchise fees and royalties that are subsequently deemed to be not collectible are recorded as bad debts until paid by the franchisee or until collectability is deemed to be reasonably assured.

The following is a summary of franchise openings and closings (excluding virtual kitchens) for the Nathan’s franchise restaurant system for the fiscal years ended March 26, 2023 and March 27, 2022:

	March 26,			March 27,
	2023			2022
Franchised restaurants operating at the beginning of the period		239			213
New franchised restaurants opened during the period		11			54
Franchised restaurants closed during the period		(18	)		(28	)
Franchised restaurants operating at the end of the period		232			239

Contract balances

The following table provides information about contract liabilities from contracts with customers:

	March 26, 2023		March 27, 2022
Deferred franchise fees (a)	$	1,608	$	2,097
Deferred revenues, which are included in
“Accrued expenses and other current liabilities” (b)	$	1,406	$	876

(a)  Deferred franchise fees of $336 and $1,272 as of March 26, 2023 and $349 and $1,748 as of March 27, 2022 are included in Deferred franchise fees – current and long term, respectively.

(b)  Includes $906 of deferred license royalties and $500 of deferred advertising fund revenue as of March 26, 2023 and $876 of deferred license royalties as of March 27, 2022.

Significant changes in deferred franchise fees for the fiscal years ended March 26, 2023 and March 27, 2022 are as follows:

	March 26, 2023			March 27, 2022
Deferred franchise fees at beginning of period	$	2,097		$	1,773
New deferrals due to cash received and other		167			879
Revenue recognized during the period		(656	)		(555	)
Deferred franchise fees at end of period	$	1,608		$	2,097

Significant changes in deferred revenues for the fiscal years ended March 26, 2023 and March 27, 2022 are as follows:

	March 26, 2023			March 27, 2022
Deferred revenues at beginning of period	$	876		$	841
New deferrals due to cash received and other		1,828			1,251
Revenue recognized during the period		(1,298	)		(1,216	)
Deferred revenues at end of period	$	1,406		$	876

Anticipated future recognition of deferred franchise fees

The following table reflects the estimated franchise fees to be recognized in the future related to performance obligations that are unsatisfied at the end of the period:

 

	Estimate for fiscal year
2024	$	336
2025		320
2026		289
2027		172
2028		78
Thereafter		413
Total	$	1,608

We have applied the optional exemption, as provided for under ASC Topic 606, “Revenues from Contracts with Customers,” which allows us not to disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty.

16. Revenue Recognition – National Advertising Fund

The Company maintains a national advertising fund (the “Advertising Fund”) established to collect and administer funds contributed for use in advertising and promotional programs for Company-owned and franchised restaurants.

The revenue, expenses and cash flows of the Advertising Fund are fully consolidated into the Company’s Consolidated Statements of Earnings and Statements of Cash Flows.

While this treatment impacts the gross amount of reported advertising fund revenue and related expenses, the impact is expected to approximately offset the increase to both revenue and expense, with minimal impact to income from operations or net income because the Company attempts to manage the Advertising Fund to breakeven over the course of the fiscal year. However, any surplus or deficit in the Advertising Fund will impact income from operations and net income.

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

17. Business Concentrations and Geographical Information

The Company’s accounts receivable consists principally of receivables from franchisees, including virtual kitchens, for royalties and advertising contributions, from sales under the Branded Product Program, and from royalties from retail licensees. At March 26, 2023, three Branded Product customers represented 23%, 13% and 12%, of accounts receivable. At March 27, 2022, three Branded Product customers represented 19%, 14% and 13%, of accounts receivable. One Branded Products customer accounted for 18% and 16% of total revenue for the fiscal years ended March 26, 2023 and March 27, 2022, respectively. One retail licensee accounted for 24% and 26% of the total revenue for the fiscal years ended March 26, 2023 and March 27, 2022, respectively.

The Company’s primary supplier of hot dogs represented 95% and 94% of product purchases for each of the fiscal years ended March 26, 2023 and March 27, 2022, respectively. The Company’s primary distributor of products to its Company-owned restaurants represented 3% and 4% of product purchases for each of the fiscal years ended March 26, 2023 and March 27, 2022, respectively. If a disruption of service from a primary supplier or distributor was to occur, we could experience short-term increases in our costs while supply or distribution channels were adjusted.

The Company’s revenues for the fiscal years ended March 26, 2023 and March 27, 2022 were derived from the following geographic areas:

	March 26, 2023		March 27, 2022
Domestic (United States)	$	124,887	$	111,659
Non-domestic		5,898		3,223
	$	130,785	$	114,882

The Company’s sales for the fiscal years ended March 26, 2023 and March 27, 2022 were derived from the following:

	March 26, 2023		March 27, 2022
Branded Products	$	78,884	$	66,322
Company-owned restaurants		12,161		10,905
Total sales	$	91,045	$	77,227
License royalties	$	33,455	$	31,824
Royalties		3,636		3,304
Franchise fees		656		555
Total franchise fees and royalties	$	4,292	$	3,859
Advertising fund revenue	$	1,993	$	1,972
Total revenues	$	130,785	$	114,882

Advertising Cost [Policy Text Block]

18. 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 restaurants 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 restaurant advertising expense, which is expensed as incurred, was $126 and $67, for the fiscal years ended March 26, 2023 and March 27, 2022, respectively, and have been included in “Restaurant operating expenses” in the accompanying Consolidated Statements of Earnings.

Share-Based Payment Arrangement [Policy Text Block]

19. Share-Based Compensation

At March 26, 2023, the Company had one share-based compensation plan in effect which is more fully described in Note L.2.

The cost of all share-based payments, including grants of restricted stock units and stock options, is recognized in the consolidated 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 Goods and Service [Policy Text Block]

20. Classification of Operating Expenses

Cost of sales consists of the following:

●  The cost of food and other products sold by Company-owned 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-owned restaurants.

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

Restaurant operating expenses consist of the following:

●  Occupancy costs of Company-owned restaurants.

●  Utility costs of Company-owned restaurants.

●  Repair and maintenance expenses of Company-owned restaurants.

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

●  Insurance costs directly related to Company-owned restaurants.

Income Tax, Policy [Policy Text Block]

21. 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. 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 consolidated 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 consolidated 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 H for a further discussion of our income taxes.

New Accounting Pronouncements, Policy [Policy Text Block]

22. New Accounting Standard Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which significantly changes the impairment model for most financial instruments. Current guidance requires the recognition of credit losses based on an incurred loss impairment methodology that reflects losses once the losses are probable. Under the new standard, the Company will be required to use a current expected credit loss model (“CECL”) that will immediately recognize an estimate of credit losses that are expected to occur over the life of the consolidated financial instruments that are in the scope of this update, including trade receivables. The CECL model uses a broader range of reasonable and supportable information in the development of credit loss estimates. The Company will adopt the new guidance on a modified retrospective basis beginning with its first fiscal quarter of 2024. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

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 consolidated financial statements.