NATHANS FAMOUS, INC.NATH
NATHANS FAMOUS, INC. Revenue Disclosure
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.1 2. | 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.
1 3 . | 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:
| o | Approval of all site selections to be developed. |
| o | Provision of architectural plans suitable for restaurants to be developed. |
| o | Assistance in establishing building design specifications, reviewing construction compliance and equipping the restaurant. |
| o | Provision of appropriate menus to coordinate with the restaurant design and location to be developed. |
| o | Provision of management training for the new franchisee and selected staff. |
| o | 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.At
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.)1 4 . | 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.
About Revenue Disclosures
Revenue disclosures under ASC 606 explain how a company identifies performance obligations, allocates transaction prices, and determines when revenue is recognized. This section is essential for understanding whether reported revenue reflects genuine economic activity or aggressive accounting choices. Analysts examine the mix of point-in-time versus over-time recognition, which directly affects revenue timing and comparability.
Key signals: rising contract liabilities (deferred revenue) suggest strong future revenue visibility, while declining contract assets may indicate slowing project milestones. Watch for variable consideration estimates — rebates, returns, and performance bonuses that require management judgment. Significant changes in disaggregated revenue by geography or product line can reveal shifting business mix before it appears in headline numbers. Compare revenue growth against contract liability growth to assess sustainability, and scrutinize any changes in the timing of recognition that coincide with earnings pressure.