| Summary of Significant Accounting Policies | Note 2 –
a)
Principles of Consolidation and Basis of Presentation The Consolidated Financial Statements are prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and include the accounts of the Company as well as the accounts of its majority-owned subsidiaries. All intercompany profits, transactions, and balances between the Company and its subsidiaries have been eliminated. It is the Company’s policy to reclassify prior year amounts to conform to the current year’s presentation for comparative purposes, if such a reclassification is warranted. The Company is a holding company with no direct operations. It holds as its sole asset an equity interest in J. Alexander’s Holdings, LLC, and relies on J. Alexander’s Holdings, LLC to provide it with funds necessary to meet any financial obligations.
b)
Fiscal Year The Company utilizes a 52- or 53-week accounting period which ends on the Sunday closest to December 31, and each quarter typically consists of 13 weeks. Fiscal year 2020 included 53 weeks of operations with the fiscal fourth quarter including 14 weeks. Fiscal years 2019 and 2018 each included 52 weeks of operations.
c)
Discontinued Operations and Restaurant Closures The Company remains party to a lease agreement for a location that was closed in 2013 and is accounted for as a discontinued operation. The $203, $236 and $459 losses from discontinued operations in fiscal years 2020, 2019 and 2018, respectively, consist solely of exit and disposal costs for this location.
d)
Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid investments with an original maturity of three months or less when purchased. Cash also consists of payments due from third‑party credit card issuers for purchases made by guests using the issuers’ credit cards. The issuers typically remit payment within three to four days of a credit card transaction.
e)
Accounts and Other Receivables Accounts receivable are primarily related to amounts due from various taxing jurisdictions, third-party online gift card sellers and expected workers’ compensation rebates and vendor rebates which have been earned but not yet received. Additionally, as discussed in Note 1 – “Organization and Business” above, the Company recorded a receivable in fiscal 2020 related to the ERC provided by the CARES Act. The Company also recorded taxes receivable which are reflected in this balance and discussed in Note 14 – Income Taxes. Due to the nature of the entities involved, the nature of the receivables and its past history with such receivables, the Company believes that an additional allowance against these recorded amounts is not warranted.
f)
Inventories Inventories are stated at the lower of cost or net realizable value, with cost being determined using an average cost method . At the beginning of fiscal 2020, the Company implemented a new inventory management system. In connection with this implementation, the Company changed its method of accounting for inventory from the lower of cost (first-in, first-out) or net realizable value method utilized by its legacy system to the lower of cost or net realizable value method, with cost being determined using an average cost method, effective December 30, 2019 (the first day of the current fiscal year). The Company believes this change in accounting principle is preferable, as it will result in greater precision in the costing of inventories. In addition, the average cost method better aligns with the functionality of the new inventory management system. The Company determined that the effects of adopting the average cost method were not material to its Consolidated Financial Statements. Prior to the conversion to the new inventory management system, the Company was not able to determine the impact of the change to the average cost method. Therefore, it did not retroactively apply the change to periods prior to fiscal year 2020.
g)
Property and Equipment, Net The Company states property and equipment at cost less accumulated depreciation and amortization. Depreciation and amortization expense is calculated using the straight‑line method. The useful lives of assets are typically 30-40 years for buildings and land improvements and two-10 years for furniture, fixtures, and equipment. Leasehold improvements are amortized over the lesser of the useful life or the remaining lease term, generally inclusive of renewal periods. Gains or losses are recognized upon the disposal of property and equipment, and the asset and related accumulated depreciation and amortization are removed from the accounts. Maintenance, repairs and betterments that do not enhance the value of or increase the life of the assets are expensed as incurred. The Company capitalizes all direct external costs associated with obtaining the land, building, and equipment for each new restaurant, as well as construction period interest. All direct external costs associated with obtaining the dining room and kitchen equipment, signage, and other assets and equipment are also capitalized. Certain direct and indirect costs are capitalized as building and leasehold improvement costs in conjunction with capital improvement projects at existing restaurants and acquiring and developing new restaurant sites. Such costs are amortized over the life of the related assets.
h)
Goodwill and Other Intangible Assets Goodwill recorded as of December 29, 2019 represented the excess of cost over fair value of net assets acquired in a previous acquisition of the Company’s predecessor in 2012. Intangible assets include trade names, deferred loan costs, purchased trademarks and liquor licenses at certain restaurants. Goodwill, trade names, trademarks and liquor licenses are not subject to amortization, but are tested for impairment annually as of the fiscal year ‑end date, or more frequently, if events or changes in circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount of the goodwill or indefinite ‑lived intangible asset exceeds its fair value. In light of the decline in the market price of the Company’s common stock, the impact of mandated dining room closures on financial results, the expected reduction in economic activity in the near term, and the general economic and market volatility, the Company determined that these factors constituted an interim triggering event as of the end of each of the Company’s quarters in fiscal 2020, and performed impairment analyses with regard to its indefinite-lived intangible assets, property and equipment (including its right-of-use assets for operating leases and goodwill. As a result, the Company recorded asset impairment charges totaling $16,426 in fiscal year 2020 The Company early adopted Accounting Standards Update (“ASU”) No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment The Company also performed a review of impairment for its other intangible assets at the end of each quarter in 2020, and it was determined that no impairment of these intangible assets existed in fiscal 2020. The same conclusion was reached as of December 29, 2019 and December 30, 2018 during the annual review for impairment in each of these years and, accordingly, no impairment losses were recorded. Deferred loan costs are subject to amortization and are classified in the “Long-term debt, net of portion classified as current and deferred loan costs” line item on the Consolidated Balance Sheets. Deferred loan costs are amortized over the life of the related debt.
i)
Impairment of Long‑Lived Assets In accordance with Accounting Standards Codification (“ASC”) Topic 360, Property, Plant, and Equipment The Company recorded a long-lived asset impairment charge of $689 to state the assets at its Lyndhurst Grill location in Cleveland, Ohio, at their fair value as of the end of the first quarter, which is presented as “Long-lived asset impairment charges and restaurant closing costs” on the Consolidated Statements of Operations and Comprehensive (Loss) Income. During the second quarter of 2020, the Company made the decision to permanently close this location after a review of its projected and historical financial performance. This location was also required to be temporarily closed in mid‑March 2020 due to COVID‑19-related traffic limitations unique to that specific restaurant which further impacted operating results. The Company assessed its other restaurant locations for indicators of impairment at the end of each quarter in fiscal year 2020 and assessed recoverability of certain fixed assets as warranted. No additional impairment was identified during the year ended January 3, 2021. No impairment charges were recorded for the years ended December 29, 2019 and December 30, 2018.
j)
Lease Accounting The Company through its subsidiaries has land only, building only, and land and building leases for a number of its restaurants and its corporate office that are recorded as operating leases. The Company determines if an arrangement meets the definition of a lease at inception, at which time it also performs an analysis to determine whether the lease qualifies as operating or financing. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease current and long-term liabilities on the Company’s Consolidated Balance Sheets. Lease expense for operating leases is generally recognized on a straight-line basis over the lease term and is included in other operating expenses (for restaurant properties) or general and administrative expense (for corporate office space) on the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income. The Company presents both the change in ROU assets and lease liabilities as a single line item in the Company’s Consolidated Statement of Cash Flows as the change in “Lease right-of-use assets and liabilities.” The Company does not currently have any arrangements that are classified as financing leases. Most of the Company’s leases have rent escalation clauses and some have rent holiday and contingent rent provisions. Terms for these leases are generally for 15 to 20 years and, in many cases, the leases provide for one or more five‑year Certain of the Company’s leases include both lease (i.e. fixed payments including rent) and non-lease components (e.g., common-area maintenance, marketing, and other miscellaneous fixed costs) which are accounted for as a single lease component as the Company has elected the practical expedient to combine lease and non-lease components for real estate leases. The Company is also a party to leases which have a non-cancelable lease term of less than one year with no option to purchase the underlying asset and, therefore, it has elected to exclude these short-term leases from its ROU assets and lease liabilities. For our existing operating leases that commenced prior to the adoption of ASC Topic 842, Leases In April 2020, the staff of the FASB issued a question-and-answer document that stated that entities may elect to account for lease concessions related to the effects of the COVID-19 pandemic as though the rights and obligations for those concessions existed as of the commencement of the contract rather than as a lease modification. Lessees may make the election for any lessor-provided lease concession related to the impact of the COVID-19 pandemic as long as the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee. The Company has made such elections.
k)
Revenue Recognition Restaurant sales are recognized at a point in time when food and service are provided to guests at one of the Company’s restaurants. Taxes assessed by a governmental authority that are imposed on the Company’s sales of its food and service and collected by the Company from the guest for remittance to such authorities, are excluded from net sales. Further, the Company excludes any discounts, such as management meals and employee meals, associated with each sale. Unearned revenue, as separately stated on the Company’s Consolidated Balance Sheets, represents the contract liability for gift cards, which have been sold but not redeemed. Upon redemption, when the guest presents a gift card as a form of payment for food and service provided at the restaurant, net sales are recorded and the contract liability is redu ced by the amount of card value redeemed. The Company considers its performance obligations associated with gift cards sold to guests to be met when food and service have been provided to its guests, and a gift card is presented as a form of payment. The amount of gift card revenue that was previously deferred is recognized based on the selling price of the menu items at each restaurant. Prior to the adoption of ASC Topic 606, Revenue from Contracts with Customers Breakage of $422, $443 and $378 related to gift cards was recorded in fiscal years 2020, 2019 and 2018, respectively. The Company’s net sales and net income have historically been subject to seasonal fluctuations. Net sales and operating income typically reach their highest levels during the fourth quarter of the fiscal year due to holiday business and the first quarter of the fiscal year due in part to the redemption of gift cards sold during the holiday season. The contract liability relative to gift cards and the recognition of revenue associated with such form of payment is impacted accordingly. The Company’s unearned revenue balance has historically decreased throughout the course of the fiscal year until the fourth quarter when an increase in the balance is typically experienced given the seasonality of gift card sales.
l)
Vendor Rebates Vendor rebates are received from various nonalcoholic beverage suppliers and suppliers of food products and supplies. Rebates are recognized as a reduction to cost of sales in the period in which they are earned.
m)
Advertising Costs Costs of advertising are charged to expense at the time the costs are incurred. Advertising expense totaled $160, $156 and $154 during fiscal years 2020, 2019 and 2018, respectively.
n)
Transaction, Contested Proxy and Other Related Expenses In fiscal year 2018, the Company incurred transaction expenses totaling $5,648, a portion of which related to a terminated merger agreement with Ninety Nine Restaurant and Pub concept disclosed in previous annual reports. Additionally, the Company incurred transaction costs associated with the termination agreement (the “Termination Agreement”) between J. Alexander’s Holdings, LLC and Black Knight Advisory Services, LLC (“Black Knight”) effective November 30, 2018 which resulted in the termination of the management consulting agreement. Pursuant to the Termination Agreement, the termination payment of $4,560, along with other legal and professional fees, is included in transaction expenses for fiscal year 2018. For fiscal year 2019, transaction, contested proxy and other related expenses totaled $1,178 and included legal, proxy solicitor, and other professional and consulting fees along with printing and postage costs and other miscellaneous costs associated with both soliciting shareholder proxies for the Company’s 2019 annual meeting of shareholders and the ongoing evaluation of strategic alternatives. Transaction costs totaled $645 for fiscal year 2020 and included legal, other professional and consulting fees related to the ongoing evaluation of strategic alternatives. During the first quarter of 2020, the Company announced that given the uncertainties in the business community, the restaurant industry and the financial markets as a result of the COVID-19 pandemic, the ongoing review of strategic alternatives by the Company’s Board of Directors (the “Board”) was not expected to be completed until the uncertainties are resolved.
o)
Income Taxes Income taxes are accounted for using the asset and liability method, whereby deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and for operating loss and tax credit carryforwards. The deferred taxes generated within the J. Alexander’s Holdings, LLC partnership are accounted for using the “outside basis” approach, and the deferred taxes outside of the partnership are accounted for using the “inside basis” approach. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized. The benefits of uncertain tax positions are recognized in the Consolidated Financial Statements only after determining a more likely than not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities. When facts and circumstances change, these probabilities are reassessed and any appropriate changes are recorded in the Consolidated Financial Statements. Uncertain tax positions are accounted for by determining the minimum recognition threshold that a tax position is required to meet before being recognized in the Consolidated Financial Statements. This determination requires the use of judgment in assessing the timing and amounts of deductible and taxable items. Tax positions that meet the more likely than not recognition threshold are recognized and measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. Interest and penalties accrued related to unrecognized tax benefits or income tax settlements are recognized as components of income tax expense.
p)
Concentration of Credit Risk Financial instruments that are potentially exposed to a concentration of credit risk are cash and cash equivalents and accounts receivable. Operating cash balances are maintained in noninterest‑bearing transaction accounts, which are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250. Further, a certain portion of the assets held in a rabbi trust established under a retirement benefit arrangement with certain of the Company’s current and former officers (the “Trust”) consists of cash and cash equivalents. The Company places cash with high‑credit‑quality financial institutions, and at times, such cash may be in excess of the federally insured limit. However, there have been no losses experienced related to these balances, and the credit risk is believed to be minimal. Also, the Company believes that its risk related to cash equivalents from third‑party credit card issuers for purchases made by guests using the issuers’ credit cards is not significant due to the number of banks involved and the fact that payment is typically received within three to four days of a credit card transaction. Therefore, the Company does not believe it has significant risk related to its cash and cash equivalents accounts. Another portion of the assets held in the Trust and the 409a Trust (each defined below) consist of U.S. Treasury bonds as well as a small number of corporate bonds with ratings no lower than BBB. The Company believes the credit risk associated with such bonds to be minimal given the historical stability of the U.S. government and the investment grade bond ratings relative to the corporate issuers. Concentrations of credit risk with respect to accounts receivable are related principally to receivables from governmental agencies related to refunds of franchise and income taxes and, in 2020, the ERC under the CARES Act. The Company does not believe it has significant risk related to accounts receivable due to the nature of the entities involved.
q)
Use of Estimates Management has made certain estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of net sales and expenses during the periods presented to prepare these Consolidated Financial Statements in conformity with GAAP. Significant items subject to such estimates and assumptions include those related to the accounting for gift card breakage, determination of uncertain tax positions and the valuation allowance relative to deferred tax assets, if any, estimates of useful lives of property and equipment and leasehold improvements, the carrying amount of intangible assets, fair market valuations, determination of lease terms, and accounting for impairment losses, contingencies, and litigation. Actual results could differ from these estimates.
r)
Sales Taxes As mentioned in Note 2 (k), revenues are presented net of sales taxes. The obligation for sales taxes is included in accrued expenses and other current liabilities until the taxes are remitted to the appropriate taxing authorities.
s)
Pre‑opening Expense Pre‑opening expenses are accounted for by expensing such costs as they are incurred.
t)
Comprehensive (Loss) Income Total comprehensive (loss) income consists solely of net income or net loss for all periods presented. Therefore, a separate statement of comprehensive (loss) income is not included in the accompanying Consolidated Financial Statements.
u)
Segment Reporting The Company through its subsidiaries owns and operates full‑service, upscale restaurants under various concepts exclusively in the United States that have similar economic characteristics, products and services, class of customer and distribution methods. The Company believes it meets the criteria for aggregating its operating segments into a single reportable segment.
v)
Non-controlling Interests Non-controlling interests on the Consolidated Balance Sheets represents the portion of the Company’s net assets attributable to the non-controlling J. Alexander’s Holdings, LLC Class B Unit holders. As of January 3, 2021 and December 29, 2019, the non-controlling interest presented on the Consolidated Balance Sheets is $1,558. On February 28, 2019, in conjunction with the Termination Agreement with Black Knight, the 1,500,024 Class B Units held by Black Knight were cancelled and forfeited for no consideration. Therefore, the share-based compensation expense associated with the Black Knight grant was reclassified to additional paid-in capital in fiscal year 2019, and as of January 3, 2021 and December 29, 2019, non-controlling interests consist solely of the non-cash compensation expense relative to the Class B Units held by management. The Hypothetical Liquidation of Book Value method was used as of January 3, 2021, December 29, 2019 and December 30, 2018 to determine allocations of non-controlling interests consistent with the terms of the Second Amended and Restated LLC Agreement of J. Alexander’s Holdings, LLC, and pursuant to that calculation, no allocation of net income was made to non-controlling interests for fiscal years 2020, 2019 or 2018, respectively.
w)
(Loss) Earnings per Share Basic (loss) earnings per share of common stock is computed by dividing net (loss) income by the weighted average number of shares outstanding for the reporting period. Diluted (loss) earnings per share of common stock is computed similarly to basic (loss) earnings per share except the weighted average shares outstanding are increased to include potential shares outstanding resulting from share-based compensation awards and additional shares from the assumed exercise of any common stock equivalents, if dilutive. In periods of net loss, no potential common shares are included in the diluted shares outstanding as the effect is anti-dilutive. J. Alexander’s Holdings, LLC Class B Units are considered common stock equivalents for this purpose. The number of additional shares of common stock related to these common stock equivalents is calculated using the if-converted method, if dilutive. The number of additional shares of common stock related to stock option awards and unvested restricted share awards subject to only a service condition is calculated using the treasury stock method, if dilutive. Unvested restricted share awards that are subject to a performance condition are regarded as contingently issuable common shares and are included in the denominator of the diluted earnings per share calculation using the treasury stock method as of the beginning of the period in which the performance condition has been satisfied, if dilutive. Refer to Note 3 – (Loss) Earnings per Share for the basic and diluted (loss) earnings per share calculations and additional discussion. x) On November 1, 2018, the Company’s Board authorized a share repurchase program which replaced the previous share repurchase program that expired on October 29, 2018, and allows for the repurchase of shares up to an aggregate purchase price of $15,000 over the three-year The repurchase program does not obligate the Company to acquire any particular amount of stock. There was no common stock repurchase activity under the program during fiscal year 20 20 , 2019, or 2018 .
y )
Recently Issued Accounting Standards In June 2016, the Financial Accounting Standards Board (the “FASB”) Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) (“ASU No. 2020-04”). This update provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in ASU No. 2020-04 apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. An entity may elect to apply the amendments for contract modifications by the impacted ASC topic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued through December 31, 2022. Once elected for an ASC topic, the amendments in ASU No. 2020-04 must be applied prospectively for all eligible contract modifications for that ASC topic. The Company has not adopted and continues to assess the potential impact of ASU No. 2020-04 on its Consolidated Financial Statements and related disclosures. |
