Item 1. CONSOLIDATED FINANCIAL STATEMENTS
BJS RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
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April 4,
2017
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January 3,
2017
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(unaudited)
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Assets
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Current assets:
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Cash and cash equivalents
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$23,562
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$22,761
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Accounts and other receivables, net
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12,668
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14,698
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Inventories, net
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10,192
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9,907
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Prepaid expenses and other current assets
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10,624
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11,324
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Total current assets
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57,046
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58,690
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Property and equipment, net
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609,836
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601,324
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Goodwill
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4,673
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4,673
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Other assets, net
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27,520
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26,625
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Total assets
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$699,075
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$691,312
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Liabilities and Shareholders Equity
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Current liabilities:
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Accounts payable (1)
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$32,341
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$31,145
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Accrued expenses
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82,416
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94,553
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Total current liabilities
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114,757
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125,698
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Deferred income taxes
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39,201
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37,587
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Deferred rent
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31,038
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30,424
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Deferred lease incentives
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53,654
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54,119
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Long-term debt
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182,700
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148,000
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Other liabilities
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20,931
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20,587
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Total liabilities
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442,281
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416,415
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Commitments and contingencies
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Shareholders equity:
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Preferred stock, 5,000 shares authorized, none issued or outstanding
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Common stock, no par value, 125,000 shares authorized and 21,572 and 22,332 shares issued and
outstanding as of April 4, 2017 and January 3, 2017, respectively
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Capital surplus
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66,084
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66,200
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Retained earnings
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190,710
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208,697
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Total shareholders equity
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256,794
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274,897
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Total liabilities and shareholders equity
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$699,075
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$691,312
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See accompanying notes to unaudited consolidated financial statements.
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(1)
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Included in accounts payable as of April 4, 2017 and January 3, 2017 is $4,202 and $5,782, respectively, of related party trade payables. See Note 4 for further information.
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1
BJS RESTAURANTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
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For The Thirteen Weeks Ended
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April 4, 2017
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March 29, 2016
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Revenues
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$257,816
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$243,401
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Restaurant operating costs (excluding depreciation and amortization):
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Cost of sales (1)
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65,395
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60,640
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Labor and benefits
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92,383
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84,778
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Occupancy and operating (1)
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53,944
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49,073
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General and administrative
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14,296
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14,362
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Depreciation and amortization
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16,749
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15,598
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Restaurant opening
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1,413
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1,439
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Loss on disposal and impairment of assets
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687
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749
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Legal and other settlements
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369
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Total costs and expenses
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244,867
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227,008
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Income from operations
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12,949
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16,393
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Other (expense) income:
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Interest expense, net
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(888)
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(387)
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Other income, net
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785
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397
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Total other (expense) income
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(103)
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10
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Income before income taxes
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12,846
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16,403
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Income tax expense
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3,580
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4,759
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Net income
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$9,266
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$11,644
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Net income per share:
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Basic
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$0.42
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$0.48
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Diluted
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$0.42
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$0.47
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Weighted average number of shares outstanding:
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Basic
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21,932
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24,278
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Diluted
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22,313
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24,691
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See accompanying notes to unaudited consolidated financial statements.
(1)
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Included in cost of sales for the thirteen weeks ended April 4, 2017 and March 29, 2016 are $20,077 and $20,119, respectively, of related party costs. Included in operating and occupancy for the thirteen weeks
ended April 4, 2017 and March 29, 2016 are $2,279 and $2,159, respectively, of related party costs. See Note 4 for further information.
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2
BJS RESTAURANTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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For The Thirteen Weeks Ended
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April 4, 2017
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March 29, 2016
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Cash flows from operating activities:
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Net income
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$9,266
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$11,644
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation and amortization
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16,749
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15,598
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Deferred income taxes
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1,614
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1,891
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Stock-based compensation expense
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1,636
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1,550
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Loss on disposal and impairment of assets
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687
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749
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Changes in assets and liabilities:
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Accounts and other receivables
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2,493
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10,715
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Landlord contribution for tenant improvements
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(463)
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1,589
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Inventories, net
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(285)
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(333)
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Prepaid expenses and other current assets
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562
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1,150
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Other assets, net
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(1,018)
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(726)
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Accounts payable
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1,829
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252
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Accrued expenses
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(12,137)
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1,991
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Deferred rent
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614
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652
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Deferred lease incentives
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(465)
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(37)
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Other liabilities
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344
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132
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Net cash provided by operating activities
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21,426
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46,817
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Cash flows from investing activities:
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Purchases of property and equipment
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(26,254)
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(25,333)
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Net cash used in investing activities
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(26,254)
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(25,333)
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Cash flows from financing activities:
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Borrowings on line of credit
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528,400
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200,000
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Payments on line of credit
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(493,700)
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(205,000)
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Excess tax benefit from stock-based compensation
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45
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Taxes paid on vested stock units under employee plans
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(235)
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(196)
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Proceeds from exercise of stock options
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159
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543
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Repurchases of common stock
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(28,995)
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(24,530)
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Net cash provided by (used in) financing activities
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5,629
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(29,138)
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Net increase (decrease) in cash and cash equivalents
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801
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(7,654)
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Cash and cash equivalents, beginning of period
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22,761
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34,604
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Cash and cash equivalents, end of period
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$23,562
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$26,950
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Supplemental disclosure of cash flow information:
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Cash paid for income taxes
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$2,284
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$2,106
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Cash paid for interest, net of capitalized interest
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$726
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$325
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Supplemental disclosure of
non-cash
investing and
financing activities:
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Property and equipment acquired and included in accounts payable
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$7,852
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$11,939
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Stock-based compensation capitalized
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$66
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$78
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See accompanying notes to unaudited consolidated financial statements.
3
BJS RESTAURANTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying
unaudited consolidated financial statements include the accounts of BJs Restaurants, Inc. (referred to herein as the Company, we, us and our) and our wholly owned subsidiaries. The financial
statements presented herein include all material adjustments which are, in the opinion of management, necessary for a fair presentation of our financial condition, results of operations and cash flows for the period. Our consolidated financial
statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form
10-Q
and Rule
10-01
of Regulation
S-X.
Certain information and footnote disclosures normally included in consolidated financial statements in accordance with U.S. GAAP have been omitted
pursuant to the U.S. Securities and Exchange Commission (SEC) rules. The preparation of financial statements in accordance with U.S. GAAP requires us to make certain estimates and assumptions for the reporting periods covered by the
financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual amounts could differ from these estimates.
A description of our accounting policies and other financial information is included in our audited consolidated financial statements filed with the SEC on
Form
10-K
for the year ended January 3, 2017. The disclosures included in our accompanying interim financial statements and footnotes should be read in conjunction with our consolidated financial
statements and notes thereto included in the Annual Report on Form
10-K.
Reclassifications
Certain reclassifications of prior periods financial statement amounts have been made to conform to the current periods format.
Recently Issued Accounting Standards
In February
2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2016-02,
Leases (Topic 842). This guidance requires the recognition of most leases on the
balance sheet to give investors, lenders, and other financial statement users a more comprehensive view of a companys long-term financial obligations as well as the assets it owns versus leases. ASU
2016-02
will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Currently, all of our restaurant and our restaurant support center leases are
accounted for as operating leases, and therefore are not recorded within our balance sheet. We are currently evaluating the impact that this guidance will have on our consolidated financial statements as well as the expected adoption method.
In April 2016, the FASB issued ASU
2016-10,
an amendment to ASU
2014-09,
Revenue from Contracts with Customers (Topic 606). ASU
2014-09
provides a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to
a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services and expands related disclosure requirements. ASU 2016-10 clarifies ASU
2014-09
to address
the potential for diversity in practice at the adoption. ASU
2016-10
is effective for annual and interim reporting periods beginning after December 15, 2017, and early application is permitted. We expect
to adopt this standard using the full retrospective method.
The majority of the Companys revenues are from food and beverage sales at our
restaurants. ASU 2014-09 will not have an impact on revenue recognition related to food and beverage sales unless the sales are to a customer participating in our loyalty program. Currently, we measure our total loyalty rewards obligation based on
the estimated number of customers who will earn and ultimately claim rewards under the program, and we record the estimated related expense as reward points accumulate. These expenses are accrued for and recorded as marketing expenses and are
included in Occupancy and operating expenses on our Consolidated Statements of Income. Under ASU
2016-10,
we will be required to allocate the transaction price between the goods delivered and the
future goods that will be delivered, using the loyalty points earned, on a relative standalone selling price basis. The portion of the transaction price allocated to the future loyalty rewards will be deferred until the related loyalty rewards are
redeemed. We will no longer record marketing expense related to loyalty points earned. The new standard will not impact the way we account for gift card breakage. We are in the process of quantifying the impact of adopting the new standard.
4
Recently Adopted Accounting Standards
In March 2016, the FASB issued ASU
2016-09,
Improvements to Employee Share-Based Payment Accounting (Topic 718). This
guidance changed how companies account for certain aspects of share-based payments to employees. Companies are now required to recognize the difference between the estimated and the actual tax impact of awards within the income statement when the
awards vest or are settled, and additional
paid-in
capital (APIC) pools are eliminated. This ASU also impacted the classification of awards as either equity or liabilities and the classification of
share-based transactions within the statement of cash flows. We adopted ASU
2016-09
during the quarter. The impact of the adoption of this standard was $0.08 million of additional income tax expense
within our consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740).
This guidance requires deferred tax liabilities and assets to be classified as non-current in a classified balance sheet. We adopted
ASU 2015-17
during the quarter. The adoption of this standard resulted
in the reclassification of $18.4 million from current to long-term deferred taxes on April 4, 2017, and January 3, 2017.
2. LONG-TERM DEBT
Line of Credit
Our Credit Facility, which matures on November 18, 2021, provides us with revolving loan commitments totaling $250 million, of which
$50 million may be used for the issuance of letters of credit. Availability under the Credit Facility is reduced by outstanding letters of credit, which are used to support our self-insurance programs. Our obligations under the Credit Facility
are unsecured. As of April 4, 2017, there were borrowings of $182.7 million and letters of credit totaling approximately $14.5 million outstanding under the Credit Facility. Available borrowings under the Credit Facility were
$52.8 million as of April 4, 2017. The Credit Facility bears interest at our choice of LIBOR plus a percentage not to exceed 1.75%, or at a rate ranging from Bank of Americas prime rate to 0.75% above Bank of Americas prime
rate, based on our level of lease and debt obligations as compared to EBITDA plus lease expenses. The weighted average interest rate during the thirteen weeks ended April 4, 2017 was approximately 1.90%.
The Credit Facility contains provisions requiring us to maintain compliance with certain covenants, including a Fixed Charge Coverage Ratio and a Lease
Adjusted Leverage Ratio. At April 4, 2017, we were in compliance with these covenants.
Interest expense and commitment fees under the Credit
Facility for the thirteen weeks ended April 4, 2017 and March 29, 2016 was approximately $0.9 million and $0.4 million, respectively. We capitalized approximately $0.04 million of interest expense related to new restaurant
construction during the thirteen weeks ended March 29, 2016.
3. NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net
income per share reflects the potential dilution that could occur if
in-the-money
stock options issued by us to sell common stock at set prices were exercised and if restrictions on restricted stock units
issued by us were to lapse (collectively, equity awards) using the treasury stock method. Performance-based restricted stock units have been excluded from the diluted income per share computation because the performance-based criteria have not yet
been met.
The following table presents a reconciliation of basic and diluted net income per share, including the number of dilutive equity awards that
were included in the dilutive net income per share computation (in thousands):
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For The Thirteen Weeks Ended
|
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April 4, 2017
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March 29, 2016
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Numerator:
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Net income
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$9,266
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$11,644
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Denominator:
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Weighted-average shares outstanding basic
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21,932
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24,278
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Dilutive effect of equity awards
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381
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413
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Weighted-average shares outstanding diluted
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22,313
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24,691
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For the thirteen weeks ended April 4, 2017 and March 29, 2016, there were approximately 0.5 million and
0.3 million shares of common stock equivalents, respectively, that were excluded from the calculation of diluted net income per share because they are anti-dilutive.
5
4. RELATED PARTY
The Jacmar Companies and their affiliates (collectively referred to herein as Jacmar) is one of our shareholders and James Dal Pozzo, the Chief
Executive Officer of Jacmar, is a member of our Board of Directors. Jacmar, through its affiliation with Distribution Market Advantage (DMA), a consortium of large, regional food distributors located throughout the United States, is
currently our largest supplier of food, beverage, paper products and supplies. In July 2006, we began using DMA to deliver the majority of our food products to our restaurants. In July 2012, we finalized a new five-year agreement with DMA, after
conducting another extensive competitive bidding process. We are currently in the final stages of renewing our existing agreement with DMA to extend our program an additional five years so as to expire in June 2022.
Jacmar services our restaurants in California and Nevada, while other DMA distributors service our restaurants in all other states. Under the terms of our
agreement with DMA, Jacmar is required to sell products to us at the same prices as the other DMA distributors. Jacmar does not provide us with any produce, liquor, wine or beer products, all of which are provided by other third party vendors and
are included in Cost of sales on the Consolidated Statements of Income.
The cost of food, beverage, paper products and supplies provided by
Jacmar included within cost of sales and occupancy and operating expenses consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Thirteen Weeks Ended
|
|
|
|
April 4, 2017
|
|
|
|
|
March 29, 2016
|
|
Cost of Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party suppliers
|
|
|
$45,318
|
|
|
|
69.3%
|
|
|
|
|
|
$40,521
|
|
|
|
66.8%
|
|
Jacmar
|
|
|
20,077
|
|
|
|
30.7
|
|
|
|
|
|
20,119
|
|
|
|
33.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cost of Sales
|
|
|
$65,395
|
|
|
|
100.0%
|
|
|
|
|
|
$60,640
|
|
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy and Operating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party suppliers
|
|
|
$51,665
|
|
|
|
95.8%
|
|
|
|
|
|
$46,914
|
|
|
|
95.6%
|
|
Jacmar
|
|
|
2,279
|
|
|
|
4.2
|
|
|
|
|
|
2,159
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Occupancy and Operating
|
|
|
$53,944
|
|
|
|
100.0%
|
|
|
|
|
|
$49,073
|
|
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts included in trade payables related to Jacmar consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
April 4,
2017
|
|
|
January 3,
2017
|
|
Third party suppliers
|
|
|
$28,139
|
|
|
|
$25,363
|
|
Jacmar
|
|
|
4,202
|
|
|
|
5,782
|
|
|
|
|
|
|
|
|
|
|
Total Accounts Payable
|
|
|
$32,341
|
|
|
|
$31,145
|
|
|
|
|
|
|
|
|
|
|
5. STOCK-BASED COMPENSATION
Our current shareholder approved stock-based compensation plan is the 2005 Equity Incentive Plan, (as amended from time to time, the Plan). Under
the Plan, we may issue shares of our common stock to employees, officers, directors and consultants. We have granted incentive stock options,
non-qualified
stock options, and performance and time-based
restricted stock units. Stock options and stock appreciation rights are charged against the Plan share reserve on the basis of one share for each share granted. Other types of grants, including restricted stock units (RSUs), are
currently charged against the Plan share reserve on the basis of 1.5 shares for each share granted. The Plan also contains other limits on the terms of incentive grants such as limits on the number that can be granted to an employee during any
fiscal year. All options granted under the Plan expire within 10 years of their date of grant.
Under the Plan, we issue stock options as well as
time-based and performance-based RSUs to officers. We issue time-based RSUs and stock options to other support employees. We also issue RSUs and stock options in connection with the BJs Gold Standard Stock Ownership Program (the
GSSOP). The GSSOP is a long-term equity incentive program for our restaurant general managers, executive kitchen managers and restaurant field supervision. GSSOP grants are dependent on the length of each participants service with
us and position. All GSSOP participants must remain in good standing during their service period.
6
The Plan permits us to set the vesting terms and exercise period for awards at our discretion. Stock options and
time-based RSUs generally vest ratably over three or five years for
non-GSSOP
participants and either cliff vest at five years or cliff vest at 33% on the third anniversary and 67% on the fifth anniversary for
GSSOP participants. Performance-based RSUs generally cliff vest on the third anniversary of the grant date in an amount from 0% to 150% of the grant quantity, dependent on the level of target achievement.
The following table presents information related to stock-based compensation (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Thirteen Weeks Ended
|
|
|
|
|
April 4,
2017
|
|
|
March 29,
2016
|
|
|
Labor and benefits
|
|
|
$468
|
|
|
|
$403
|
|
|
General and administrative
|
|
|
$1,168
|
|
|
|
$1,147
|
|
|
Capitalized (1)
|
|
|
$66
|
|
|
|
$78
|
|
|
(1)
|
Capitalized stock-based compensation relates to our restaurant development personnel and is included in Property and equipment, net on the Consolidated Balance Sheets.
|
Stock Options
The fair value of each stock
option grant issued is estimated on the date of grant using the
Black-Scholes
option-pricing model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Thirteen Weeks Ended
|
|
|
|
|
April 4, 2017
|
|
|
March 29, 2016
|
|
|
Expected volatility
|
|
|
34.7%
|
|
|
|
35.9%
|
|
|
Risk free interest rate
|
|
|
1.9%
|
|
|
|
1.5%
|
|
|
Expected option life
|
|
|
5 years
|
|
|
|
5 years
|
|
|
Dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
|
Fair value of options granted
|
|
|
$12.03
|
|
|
|
$14.37
|
|
U.S. GAAP requires us to make certain assumptions and judgments regarding the grant date fair value. These judgments include
expected volatility, risk free interest rate, expected option life, and dividend yield. These estimations and judgments are determined by us using assumptions that, in many cases, are outside of our control. The changes in these variables or trends,
including stock price volatility and risk free interest rate, may significantly impact the grant date fair value, resulting in a significant impact to our financial results.
The exercise price of our stock options under our stock-based compensation plan is required to equal or exceed the fair market value of the shares on the
option grant date or the most recent trading day when grants take place on market holidays. The following table represents stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Shares
(in thousands)
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
Outstanding at January 3, 2017
|
|
|
1,227
|
|
|
|
$31.95
|
|
|
|
802
|
|
|
|
$27.73
|
|
Granted
|
|
|
153
|
|
|
|
35.95
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(7)
|
|
|
|
24.20
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(3)
|
|
|
|
45.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at April 4, 2017
|
|
|
1,370
|
|
|
|
$32.40
|
|
|
|
901
|
|
|
|
$29.27
|
|
|
|
|
|
|
As of April 4, 2017, total unrecognized stock-based compensation expense related to
non-vested
stock options was $4.8 million, which is generally expected to be recognized over the next five years.
Restricted Stock Units
7
Time-Based Restricted Stock Units
The following table represents time-based restricted stock unit activity:
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
|
Weighted
Average
Fair Value
|
|
|
|
|
|
|
Outstanding at January 3, 2017
|
|
|
460
|
|
|
|
$39.75
|
|
Granted
|
|
|
90
|
|
|
|
35.95
|
|
Vested or released
|
|
|
(50)
|
|
|
|
44.77
|
|
Forfeited
|
|
|
(12)
|
|
|
|
39.03
|
|
|
|
|
|
|
Outstanding at April 4, 2017
|
|
|
488
|
|
|
|
$38.56
|
|
|
|
|
|
|
The fair value of our time-based RSUs is the quoted market value of our common stock on the date of grant or the most recent
trading day when grants take place on market holidays. The fair value of each time-based RSU is expensed over the vesting period (e.g., three or five years). As of April 4, 2017, total unrecognized stock-based compensation expense related to
non-vested
RSUs was approximately $10.3 million, which is generally expected to be recognized over the next five years.
Performance-Based Restricted Stock Units
The following
table represents performance-based restricted stock unit activity:
|
|
|
|
|
|
|
|
|
|
|
Shares
(in thousands)
|
|
|
Weighted
Average
Fair Value
|
|
|
|
|
|
|
Outstanding at January 3, 2017
|
|
|
54
|
|
|
|
$37.87
|
|
Granted
|
|
|
40
|
|
|
|
35.95
|
|
Vested or released
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(24)
|
|
|
|
32.49
|
|
|
|
|
|
|
Outstanding at April 4, 2017
|
|
|
70
|
|
|
|
$38.68
|
|
|
|
|
|
|
The fair value of our performance-based RSUs is the quoted market value of our common stock on the date of grant or the most
recent trading day when grants take place on market holidays. The fair value of each performance-based RSU is recognized when it is probable the performance goal will be achieved. As of April 4, 2017, total unrecognized stock-based compensation
expense related to
non-vested
performance-based RSUs was approximately $1.5 million, which is generally expected to be recognized over the next three years.
6. INCOME TAXES
We calculate our interim
income tax provision in accordance with ASC Topic 270, Interim Reporting and ASC Topic 740, Accounting for Income Taxes. At the end of each interim period, we estimate the annual effective tax rate and apply that rate to our
ordinary year to date earnings. The related tax expense or benefit is recognized in the interim period in which it occurs. In addition, the effect of changes in enacted tax laws, rates or tax status is recognized in the interim period in which the
change occurs. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including the expected operating income for the year, permanent and temporary differences as a
result of differences between amounts measured and recognized in accordance with tax laws and financial accounting standards, and the likelihood of recovering deferred tax assets generated in the current fiscal year. The accounting estimates used to
compute income tax expense may change as new events occur, additional information is obtained or the tax environment changes.
As of April 4, 2017,
the unrecognized tax benefits recorded was approximately $1.3 million, of which approximately $1.0 million, if reversed would impact our effective tax rate.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
|
|
|
Balance at January 3, 2017
|
|
|
$1,245
|
|
Decrease for tax positions taken in prior years
|
|
|
(1)
|
|
8
|
|
|
|
|
Increase for tax positions taken in current year
|
|
|
33
|
|
|
|
|
|
|
Balance at April 4, 2017
|
|
|
$1,277
|
|
|
|
|
|
|
Our uncertain tax positions are related to tax years that remain subject to examination by tax agencies. As of April 4,
2017, the earliest tax year still subject to examination by the Internal Revenue Service is 2013. The earliest year still subject to examination by a significant state or local taxing jurisdiction is 2012.
7. LEGAL PROCEEDINGS
We are subject to
lawsuits, administrative proceedings and demands that arise in the ordinary course of our business and which typically involve claims from customers, employees and others related to operational, employment, real estate and intellectual property
issues common to the foodservice industry. A number of these claims may exist at any given time. We are self-insured for a portion of our general liability and our employee workers compensation requirements. We maintain coverage with a third
party insurer to limit our total exposure. We believe that most of our customer claims will be covered by our general liability insurance, subject to coverage limits and the portion of such claims that are self-insured. Punitive damages awards and
employee unfair practice claims, however, are not covered by our general liability insurance. To date, we have not been ordered to pay punitive damages with respect to any claims, but there can be no assurance that punitive damages will not be
awarded with respect to any future claims. We could be affected by adverse publicity resulting from allegations in lawsuits, claims and proceedings, regardless of whether these allegations are valid or whether we are ultimately determined to be
liable. We currently believe that the final disposition of these types of lawsuits, proceedings and claims will not have a material adverse effect on our financial position, results of operations or liquidity. It is possible, however, that our
future results of operations for a particular quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, proceedings or claims.
8. STOCK REPURCHASES
During the thirteen
weeks ended April 4, 2017, we repurchased and retired approximately 0.8 million shares of our common stock at an average price of $36.39 per share for a total of $29.0 million, which is recorded as a reduction in common stock, with any
excess charged to retained earnings. In March 2017, the Companys Board of Directors approved an expansion of the share repurchase program by $50 million. As of April 4, 2017, approximately $80.5 million remains available for
additional repurchases under our $400 million authorized share repurchase program.
Item 2. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
Certain information included in this Form
10-Q
and other filings with the Securities and Exchange Commission, in our
press releases, in other written communications, and in oral statements made by or with the approval of one of our authorized officers may contain forward-looking statements about our current and expected performance trends, growth
plans, business goals and other matters. Words or phrases such as believe, plan, will likely result, expect, intend, will continue, is anticipated,
estimate, project, may, could, would, should, and similar expressions are intended to identify forward-looking statements. These statements, and any other statements
that are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934, as amended from time to time (the Act). The cautionary statements made in this Form
10-Q
should be read as being applicable to all related forward-looking statements
wherever they appear in this Form
10-Q.
The following discussion and analysis should be read in conjunction with
our consolidated financial statements and notes thereto included elsewhere in this Form
10-Q
and our Annual Report on Form
10-K
for the fiscal year ended January 3,
2017. Except for the historical information contained herein, the discussion in this Form
10-Q
contains certain forward-looking statements that involve known and unknown risks and uncertainties,
such as statements of our plans, objectives, expectations and intentions. The risks described in this Form
10-Q,
as well as the risks identified in Item 1A of our Annual Report on Form
10-K
for the fiscal year ended January 3, 2017, are not the only risks we face. These statements reflect our current perspectives and outlook with respect to the Companys future expansion plans, key
business initiatives, expected operating conditions and other factors. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. Additional risks and uncertainties that we are currently
unaware of, or that we currently deem immaterial, also may become important factors that affect us. It is not possible for us to predict the impact of all of these factors on our business, financial condition or results of operations or the extent
to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given the volatility of the operating environment and its associated risks and
uncertainties, investors should not rely on forward-looking statements as any prediction or guarantee of actual results.
9
Forward-looking statements include, among others, statements concerning:
|
|
|
our restaurant concept, its competitive advantages and our strategies for its continued evolution and expansion;
|
|
|
|
the rate and scope of our future restaurant development;
|
|
|
|
the total domestic capacity for our restaurants;
|
|
|
|
dates on which we will commence or complete the development and opening of new restaurants;
|
|
|
|
expectations for consumer spending on casual dining restaurant occasions;
|
|
|
|
the availability and cost of key commodities used in our restaurants and brewing operations;
|
|
|
|
menu price increases and their effect, if any, on revenue and results of operations;
|
|
|
|
the effectiveness of our planned operational, menu, marketing and capital expenditure initiatives;
|
|
|
|
capital requirement expectations and actual or available borrowings on our line of credit;
|
|
|
|
projected revenues, operating costs and expenses; and
|
|
|
|
other statements of expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts.
|
These forward-looking statements are subject to risks and uncertainties, including financial, regulatory, consumer behavior, demographic, industry
growth and trend projections, that could cause actual events or results to differ materially from those expressed or implied by the statements. Some, but not all, significant factors that could prevent us from achieving our stated goals include, but
are not limited to:
|
|
|
Failure to maintain a favorable image, credibility and the value of the BJs brand and our reputation for offering customers a higher quality more differentiated total dining experience at a good value could
adversely affect our business.
|
|
|
|
Our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could adversely impact our business.
|
|
|
|
Any deterioration in general economic conditions may affect consumer spending and may adversely affect our revenues, operating results and liquidity.
|
|
|
|
Any deterioration in general economic conditions could also have a material adverse impact on our landlords or on businesses neighboring our locations, which could adversely affect our revenues and results of
operations.
|
|
|
|
If we do not successfully expand our restaurant operations, our growth rate and results of operations will be adversely affected.
|
|
|
|
Our ability to open new restaurants on schedule in accordance with our targeted capacity growth rate may be adversely affected by delays or problems associated with securing suitable restaurant locations, leases and
licenses, recruiting and training qualified managers and hourly employees and by other factors, some of which are beyond our control and difficult to forecast accurately.
|
|
|
|
Access to sources of capital and our ability to raise capital in the future may be limited, which may adversely affect our business and our expansion plans.
|
|
|
|
Any failure of our existing or new restaurants to achieve expected results may have a negative impact on our consolidated revenues and financial results, including the potential impairment of long-lived assets.
|
|
|
|
Our growth may strain our infrastructure and resources, which could slow our development of new restaurants and adversely affect our ability to manage our existing restaurants.
|
|
|
|
Any decision to either reduce or accelerate the pace of openings may positively or adversely affect our comparative financial performance.
|
|
|
|
Our future operating results may fluctuate significantly due to the expenditures required to open new restaurants.
|
10
|
|
|
A significant number of our restaurants are concentrated in California, Texas and Florida, which makes us particularly sensitive to economic, regulatory, weather and other risk factors and conditions that are more
prevalent in those states.
|
|
|
|
Negative publicity about us, our restaurants, other restaurants, or others across the food supply chain, due to food borne illness or other reasons, whether or not accurate, could adversely affect the reputation and
popularity of our restaurants and our results of operations.
|
|
|
|
Our operations are susceptible to changes in the cost of food, labor and related employee benefits (including, but not limited to, group health insurance coverage for our employees), brewing and energy which may
adversely affect our profitability.
|
|
|
|
Our dependence on independent third party brewers and manufacturers for some of our beer could have an adverse effect on our operations if they cease to supply us with our proprietary craft beer.
|
|
|
|
Our internal brewing, independent third party brewing and beer distribution arrangements are subject to periodic reviews and audits by various federal, state and local governmental and regulatory agencies and could be
adversely affected by different interpretations of the laws and regulations that govern such arrangements or by new laws and regulations.
|
|
|
|
Government laws and regulations affecting the operation of our restaurants, including but not limited to those that apply to the acquisition and maintenance of our brewing and retail liquor licenses, minimum wages,
federal or state exemption rules, consumer health and safety, health insurance coverage, or other employment benefits such as paid time off, nutritional disclosures, and employment eligibility-related documentation requirements could increase our
operating costs, cause unexpected disruptions to our operations and restrict our growth.
|
|
|
|
Our operations, including our loyalty and employee engagement programs, are heavily dependent on information technology. Any material failure of such technology, including but not limited to cyber-attacks, could
adversely affect our revenues and impair our ability to efficiently operate our business.
|
|
|
|
Unsolicited takeover proposals, governance change proposals, proxy contests and certain proposals/actions by activist investors may create additional risks and uncertainties with respect to the Companys financial
position, operations, strategies and management, and may adversely affect our ability to attract and retain key employees. Any perceived uncertainties may affect the market price and volatility of our securities.
|
|
|
|
Any suspension of, or failure to repurchase the Companys stock up to the maximum amounts permitted under, our previously announced repurchase program may negatively impact investor perceptions of us and could
therefore affect the market price and volatility of our stock.
|
For a more detailed description of these risk factors and other
considerations, see Part II, Item 1A Risk Factors of this Form
10-Q
and the risk factors identified in Item 1A of our Annual Report on Form
10-K
for
the fiscal year ended January 3, 2017.
GENERAL
As of May 8, 2017, we owned and operated 192 restaurants located in the 24 states of Alabama, Arizona, Arkansas, California, Colorado, Florida, Indiana,
Kansas, Kentucky, Louisiana, Maryland, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Virginia and Washington. Each of our restaurants is operated either as a BJs
Restaurant & Brewhouse®, a BJs Restaurant & Brewery®, a BJs Pizza & Grill®, or a BJs Grill® restaurant. Currently, the BJs Restaurant & Brewhouse® format represents our
primary future expansion vehicle. Our proprietary craft beer is produced at several of our BJs Restaurant & Brewery® locations, our Temple, Texas brewpub location and by independent third party brewers using our proprietary
recipes. Our BJs Pizza & Grill® restaurants are smaller format, full-service restaurants relative to our BJs Restaurant & Brewhouse® and BJs Restaurant & Brewery® locations and reflect the
original format of the BJs restaurant concept that was first introduced in 1978. Our BJs Grill® restaurant is a slightly smaller footprint restaurant, compared to our BJs Restaurant & Brewhouse® format, featuring
all the amenities of our Brewhouse locations.
The first BJs restaurant opened in 1978 in Orange County, California, featuring Chicago style
deep-dish pizza with a unique California twist. Over the years we expanded the BJs concept from its beginnings as a small pizzeria to a full-service, high energy casual dining restaurant with a broad menu including our BJs
award-winning,
signature deep-dish pizza, our proprietary craft and other beers, as well as a large selection of appetizers, entrées, pastas, burgers and sandwiches, specialty salads and desserts, including
our made to order, warm pizza cookie dessert, the Pizookie®.
11
Our revenues are comprised of food and beverage sales at our restaurants. Revenues from restaurant sales are
recognized when payment is tendered at the point of sale. Amounts paid with a credit card are recorded in accounts and other receivables until payment is collected. Revenues from our gift cards are recognized upon redemption in our restaurants. Gift
card breakage is recognized as a component of Other income, net on our Consolidated Statements of Income. Gift card breakage is recorded when the likelihood of redemption becomes remote, which is typically after 24 months from the
original gift card issuance date.
In calculating comparable company-owned restaurant sales, we include a restaurant in the comparable base once it has
been open for 18 months. Customer traffic for our restaurants is estimated based on individual customer checks.
Cost of sales is comprised of food and
beverage costs, including the cost to produce and distribute our proprietary craft beer, soda and ciders. The components of cost of sales are variable and typically fluctuate directly with sales volumes, but may be impacted by changes in commodity
prices or varying levels of promotional activities.
Labor and benefit costs include direct hourly and management wages, bonuses, payroll taxes, fringe
benefits and stock-based compensation and workers compensation expense that is directly related to restaurant level employees.
Occupancy and
operating expenses include restaurant supplies, credit card fees, marketing costs, fixed rent, percentage rent, common area maintenance charges, utilities, real estate taxes, repairs and maintenance and other related restaurant costs.
General and administrative costs include all corporate, field supervision and administrative functions that support existing operations and provide
infrastructure to facilitate our future growth. Components of this category include corporate management, field supervision and corporate hourly staff salaries and related employee benefits (including stock-based compensation expense and cash-based
incentive compensation), travel and relocation costs, information systems, the cost to recruit and train new restaurant management employees, corporate rent, certain brand marketing-related expenses and legal, professional and consulting fees.
Depreciation and amortization are composed primarily of depreciation on capital expenditures for restaurant and brewing equipment and leasehold improvements.
Restaurant opening expenses, which are expensed as incurred, consist of the costs of hiring and training the initial hourly work force for each new
restaurant, travel, the cost of food and supplies used in training, grand opening promotional costs, the cost of the initial stock of operating supplies and other direct costs related to the opening of a restaurant, including rent during the
construction and
in-restaurant
training period.
While we currently expect to pursue the renewal of substantially
all of our expiring restaurant leases, there is no guarantee that we can mutually agree to a new lease that is satisfactory to our landlord and us or that, if renewed, rents will not increase substantially.
RESULTS OF OPERATIONS
The following table sets forth,
for the periods indicated, our unaudited Consolidated Statements of Income expressed as percentages of total revenues. The results of operations for the thirteen weeks ended April 4, 2017 and March 29, 2016, are not necessarily indicative
of the results to be expected for the full fiscal year. Percentages below may not reconcile due to rounding.
|
|
|
|
|
|
|
|
|
For The Thirteen Weeks Ended
|
|
|
April 4, 2017
|
|
|
|
March 29, 2016
|
Revenues
|
|
100.0%
|
|
|
|
100.0%
|
Restaurant operating costs (excluding depreciation and amortization):
|
|
|
|
|
|
|
Cost of sales
|
|
25.4
|
|
|
|
24.9
|
Labor and benefits
|
|
35.8
|
|
|
|
34.8
|
Occupancy and operating
|
|
20.9
|
|
|
|
20.2
|
General and administrative
|
|
5.5
|
|
|
|
5.9
|
Depreciation and amortization
|
|
6.5
|
|
|
|
6.4
|
Restaurant opening
|
|
0.5
|
|
|
|
0.6
|
12
|
|
|
|
|
|
|
Loss on disposal of assets and impairments
|
|
0.3
|
|
|
|
0.3
|
Legal and other settlements
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
95.0
|
|
|
|
93.3
|
|
|
|
|
|
|
|
Income from operations
|
|
5.0
|
|
|
|
6.7
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
Interest expense, net
|
|
(0.3)
|
|
|
|
(0.2)
|
Other income, net
|
|
0.3
|
|
|
|
0.2
|
|
|
|
|
|
|
|
Total other (expense) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
5.0
|
|
|
|
6.7
|
|
|
|
|
Income tax expense
|
|
1.4
|
|
|
|
2.0
|
|
|
|
|
|
|
|
Net income
|
|
3.6%
|
|
|
|
4.8%
|
|
|
|
|
|
|
|
Thirteen Weeks Ended April 4, 2017 Compared to Thirteen Weeks Ended March 29, 2016.
Revenues
. Total revenues increased by $14.4 million, or 5.9%, to $257.8 million during the thirteen weeks ended April 4, 2017, from
$243.4 million during the comparable thirteen week period of 2016. The increase in revenues primarily consisted of an approximate $18.6 million increase in sales from new restaurants not yet in our comparable restaurant sales base, partially
offset by an approximate 1.3%, or $3.0 million decrease in comparable restaurant sales, a $0.8 million decrease related to the shift in weeks as a result of our 53
rd
week in fiscal 2016
and a $0.4 million decrease in restaurant sales due to the closure of our Century City, California restaurant in January 2016. The decrease in comparable restaurant sales resulted from a reduction in customer traffic of approximately 4.0%,
partially offset by an increase in the average check of 2.7%.
Cost of Sales.
Cost of sales increased by $4.8 million, or 7.8%, to $65.4 million
during the thirteen weeks ended April 4, 2017, from $60.6 million during the comparable thirteen week period of 2016. This increase was primarily due to the opening of 16 new restaurants since the thirteen weeks ended March 29, 2016. As a
percentage of revenues, cost of sales increased to 25.4% for the current thirteen week period from 24.9% for the prior year comparable period. The increase in cost of sales, as a percentage of revenues, was primarily due to an increase in commodity
costs coupled increased promotional activities and menu mix shifts.
Labor and Benefits.
Labor and benefit costs for our restaurants increased by
$7.6 million, or 9.0%, to $92.4 million during the thirteen weeks ended April 4, 2017, from $84.8 million during the comparable thirteen week period of 2016. This increase was primarily due to the opening of 16 new restaurants since
the thirteen weeks ended March 29, 2016. As a percentage of revenues, labor and benefit costs increased to 35.8% for the current thirteen week period from 34.8% for the prior year comparable period. The percentage increase was driven by higher
hourly labor and increased training labor related to our sales building initiatives. Included in labor and benefits for the thirteen weeks ended April 4, 2017 and March 29, 2016, was approximately $0.5 million and $0.4 million,
respectively, or 0.2% of revenues, of stock-based compensation expense related to equity awards granted in accordance with our Gold Standard Stock Ownership Program for certain restaurant management team members.
Occupancy and Operating.
Occupancy and operating expenses increased by $4.9 million, or 9.9%, to $53.9 million during the thirteen weeks ended
April 4, 2017, from $49.1 million during the comparable thirteen week period of 2016. This increase was primarily due to the opening of 16 new restaurants since the thirteen weeks ended March 29, 2016. As a percentage of revenues,
occupancy and operating expenses increased to 20.9% for the current thirteen week period from 20.2% for the prior year comparable period. This percentage increase was due to the deleveraging of the fixed component of these expenses as a result of
negative comparable restaurant sales.
General and Administrative.
General and administrative expenses decreased by $0.07 million, or 0.5%, to
$14.3 million during the thirteen weeks ended April 4, 2017, from $14.4 million during the comparable thirteen week period of 2016. The slight decrease in general and administrative costs was primarily due to lower personnel expenses.
Also included in general and administrative costs for the thirteen weeks ended April 4, 2017 and March 29, 2016, was approximately $1.2 million and $1.1 million, respectively
,
or 0.5% and of revenues, of stock-based
compensation expense. As a percentage of revenues, general and administrative expenses decreased to 5.5% for the current thirteen week period from 5.9% for the prior year comparable period. This percentage decrease was primarily due to lower costs
over a higher revenue base.
13
Depreciation and Amortization.
Depreciation and amortization increased by $1.2 million, or 7.4%, to
$16.7 million during the thirteen weeks ended April 4, 2017, compared to $15.6 million during the comparable thirteen week period of 2016. This increase was primarily due to depreciation expense related to the 16 new restaurants opened
since the thirteen weeks ended March 29, 2016. As a percentage of revenues, depreciation and amortization increased to 6.5% for the current thirteen week period from 6.4% for the prior year comparable period. This increase is primarily due to
the deleveraging of the fixed component of these expenses as a result of negative comparable restaurant sales.
Restaurant Opening
. Restaurant
opening expense was $1.4 million for both the thirteen weeks ended April 4, 2017, and the comparable thirteen week period of 2016.
Loss on
Disposal and Impairment of Assets.
The loss on disposal and impairment of assets was $0.7 million for both the thirteen weeks ended April 4, 2017, and the comparable thirteen week period of 2016. These costs primarily related to the
disposal of certain unproductive restaurant assets.
Interest Expense, Net
. Interest expense, net increased by $0.5 million, or 129.7%, to $0.9
million during the thirteen weeks ended April 4, 2017, compared to $0.4 million during the comparable thirteen week period of 2016. This increase was due to increased borrowings under our Credit Facility.
Other Income, Net
. Other income, net increased by $0.4 million, or 97.7%, to $0.8 million during the thirteen weeks ended April 4, 2017, compared
to $0.4 million during the comparable thirteen week period of 2016. This increase was primarily due to greater gift card breakage income coupled with an increase in the cash surrender value of certain life insurance programs under our deferred
compensation plan.
Income Tax Expense
. Our effective income tax rate for the thirteen weeks ended April 4, 2017, was 27.9% compared to
29.0% for the comparable thirteen week period of 2016. The effective income tax rate for the thirteen weeks ended April 4, 2017, differed from the statutory income tax rate primarily due to the level of tax credits.
LIQUIDITY AND CAPITAL RESOURCES
The following tables set
forth, for the periods indicated, a summary of our key liquidity measurements (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
April 4, 2017
|
|
|
|
January 3, 2017
|
Cash and cash equivalents
|
|
$23,562
|
|
|
|
$22,761
|
Net working capital
|
|
$(57,711)
|
|
|
|
$(67,008)
|
Current ratio
|
|
0.5:1.0
|
|
|
|
0.5:1.0
|
|
|
|
|
For The Thirteen Weeks Ended
|
|
|
April 4, 2017
|
|
|
|
March 29, 2016
|
Cash provided by operating activities
|
|
$21,426
|
|
|
|
$46,817
|
Capital expenditures
|
|
$26,254
|
|
|
|
$25,333
|
Our capital requirements are driven by our fundamental financial objective to improve total shareholder return through new
restaurant expansion plans and restaurant enhancements and initiatives. In addition, we want to maintain a flexible and prudent balance sheet to provide the financial resources necessary to manage the risks and uncertainty of conducting our business
operations in a mature segment of the restaurant industry. In order to achieve these objectives, we use a combination of operating cash flows, funded debt and landlord allowances. Over the last several years we have been augmenting our cash flow
from operations by increasing our funded debt and using these proceeds to return capital to shareholders in the form of share repurchases.
We currently
estimate the total domestic capacity for BJs restaurants to be at least 425, given the size of our current restaurant prototype and the current structure of the BJs concept and menu. We expect to fund our growth plans from our ongoing
operations, our cash balance on hand, proceeds from employee stock option exercises, tenant improvement allowances from our landlords and our $250 million Credit Facility. However, depending on the expected level of new restaurant development,
tenant improvement allowances that we receive from our landlords, other planned capital investments including ongoing maintenance capital expenditures, and results from our ongoing operations, we may not generate enough cash flow from operations to
completely fund our plans. In addition, any significant increase in our share repurchase activity may impact our capital resources available. Accordingly, we continue to actively monitor overall conditions in the capital and credit markets with
respect to the potential sources and the timing of additional financing in order to enhance total shareholder return. However, there can be no assurance that such financing will be available when required or available on terms acceptable to us. If
we are unable to secure additional capital resources, we may be required to reduce our planned rate of expansion, share repurchase activity or other shareholder return initiatives.
14
Similar to many restaurant chains, we typically utilize operating lease arrangements (principally ground leases)
for the majority of our restaurant locations. We believe our operating lease arrangements provide appropriate leverage for our capital structure in a financially efficient manner. However, we are not limited to the use of lease arrangements as our
only method of opening new restaurants and from time to time have purchased the underlying land for new restaurants. While our operating lease obligations are not required to be reflected as indebtedness on our Consolidated Balance Sheets, the
minimum rents and other related lease obligations, such as common area expenses, under our lease agreements must be satisfied by cash flows from our ongoing operations. Accordingly, our lease arrangements reduce, to some extent, our capacity to
utilize debt in our capital structure.
We typically lease our restaurant locations for periods of 10 to 20 years under operating lease arrangements. Our
rent structures vary from lease to lease, but generally provide for the payment of both minimum and contingent (percentage) rent based on sales, as well as other expenses related to the leases (for example, our
pro-rata
share of common area maintenance, property tax and insurance expenses). Many of our lease arrangements include the opportunity to secure tenant improvement allowances to partially offset the cost of
developing and opening the related restaurants. Generally, landlords recover the cost of such allowances from increased minimum rents. However, there can be no assurance that such allowances will be available to us on each project. From time to
time, we may also decide to purchase the underlying land for a new restaurant if that is the only way to secure a highly desirable site. Currently, we own the underlying land for five of our operating restaurants and our Texas brewpub locations. We
also own two parcels of land adjacent to two of our operating restaurants. It is not our current strategy to own a large number of land parcels that underlie our restaurants. Therefore, in many cases we subsequently enter into sale-leaseback
arrangements for land parcels that we may purchase. We disburse cash for certain site-related work, buildings, leasehold improvements, furnishings, fixtures and equipment to build our leased and owned premises. We own substantially all of the
equipment, furniture and trade fixtures in our restaurants and currently plan to do so in the future.
We also require capital resources to evolve,
maintain and increase the productive capacity of our existing base of restaurants and brewing operations and to further expand and strengthen the capabilities of our corporate and information technology infrastructures. Our requirement for working
capital is not significant since our restaurant customers pay for their food and beverage purchases in cash or credit cards at the time of the sale. Thus, we are able to sell many of our inventory items before we are required to pay our suppliers
for such items.
Our cash flows from operating activities, as detailed in the Consolidated Statements of Cash Flows, provided $21.4 million during
the thirteen weeks ended April 4, 2017, representing a $25.4 million decrease from the $46.8 million provided during the thirteen weeks ended March 29, 2016. The decrease in cash from operating activities for the thirteen weeks
ended April 4, 2017, in comparison the thirteen weeks ended March 29, 2016, is primarily due to the collection of our $6.0 million lease termination fee in the prior year, coupled with a reduction in payroll related accruals as a
result of the impact of the 53
rd
week in fiscal 2016.
For the thirteen weeks ended April 4,
2017, total capital expenditures were approximately $26.3 million, of which expenditures for the purchase of the underlying land for new restaurants as well as the acquisition of restaurant and brewing equipment and leasehold improvements to
construct new restaurants were $12.6 million. These expenditures were primarily related to the construction of our three new restaurants that opened during the thirteen weeks ended April 4, 2017, as well as expenditures related to
restaurants expected to open later in fiscal 2017. In addition, total capital expenditures related to the maintenance and key productivity initiatives of existing restaurants and expenditures for restaurant and corporate systems were
$13.2 million and $0.5 million, respectively.
We have a $250 million unsecured revolving line of credit that expires on November 18,
2021, and may be used for working capital and other general corporate purposes. We utilize the Credit Facility principally for letters of credit that are required to support certain of our self-insurance programs, to fund a portion of the
Companys announced stock repurchase program and for working capital and construction requirements as needed.
We expect to open 10 new restaurants
in fiscal 2017, and we have entered into signed leases, land purchase agreements or letters of intent for all of our potential 2017 restaurant locations. While we expect our capital expenditures to remain significant, the reduction of restaurant
openings in fiscal 2017 will reduce our capital expenditure spend as compared to fiscal 2016. The decision to reduce our pace of expansion will generate increased free cash flow and provide added financial flexibility. It will also allow us to
allocate greater resources to our core base of established restaurants to improve sales and profitability. While our new restaurant unit economics remain solid and warrant continued capital allocation, we will also opportunistically repurchase
shares funded by our excess cash flow from operations, combined with a prudent amount of funded debt, to support our commitment to drive total shareholder returns.
15
We currently anticipate our total capital expenditures for fiscal 2017, including all expenditure categories, to
be approximately $80 million to $85 million. We expect to fund our anticipated capital expenditures for fiscal 2017 with our current cash balance on hand, expected cash flows from operations, proceeds from sale-leaseback transactions,
expected tenant improvement allowances and our line of credit. Our future cash requirements will depend on many factors, including the pace of our expansion, conditions in the retail property development market, construction costs, the nature of the
specific sites selected for new restaurants, and the nature of the specific leases and associated tenant improvement allowances available, if any, as negotiated with landlords.
From time to time, we will evaluate opportunities to acquire and convert other restaurant locations or entire restaurant chains to the BJs restaurant
concept. In the future we may consider joint venture arrangements to augment BJs expansion into new markets or we may evaluate
non-controlling
investments in other emerging restaurant concepts that offer
complementary growth opportunities to our BJs restaurant operations. Currently, we have no binding commitments (other than the signed leases or land purchase agreements set forth in Item 1 - Business - Restaurant Site Selection and
Expansion Objectives in our Annual Report on Form
10-K
for the fiscal year ended January 3, 2017) or agreements to acquire or convert any other restaurant locations or chains to our concept, or to
enter into any joint ventures or
non-controlling
investments. However, we would likely require additional capital resources to take advantage of any of these growth opportunities should they become feasible.
We depend on our expected cash flows from operations, coupled with agreed-upon landlord tenant improvement allowances and sale-leaseback proceeds, to
fund the majority of our planned capital expenditures. If our business does not generate enough cash flows from operations as expected, or if our landlords are unable to honor their agreements with us, or if we are unable to successfully enter in a
sale-leaseback transaction and replacement funding sources are not otherwise available to us from borrowings under our Credit Facility or other alternatives, we may not be able to expand our operations at the pace currently planned.
We currently do not pay any dividends to our shareholders. Any determination to pay dividends in the future will be at the discretion of our Board of
Directors and will depend upon our financial condition, operating results, contractual restrictions, restrictions imposed by applicable law and other factors our Board of Directors deems relevant. Our Credit Facility contains, and debt instruments
that we enter into in the future may contain, covenants that place limitations on the amount of dividends we may pay.
As of April 4, 2017, we have
cumulatively repurchased approximately $319.5 million shares in accordance with our approved share repurchase plan. We repurchased approximately $29.0 million of these shares during the thirteen weeks ended April 4, 2017. The share
repurchases were executed through open market purchases, and future share repurchases may be completed through the combination of individually negotiated transactions, accelerated share buyback, and/or open market purchases. In March 2017, the
Companys Board of Directors approved an expansion of the share repurchase program by $50 million. As of April 4, 2017, we have approximately $80.5 million available under our current $400 million share repurchase plan
approved by our Board of Directors. Our Credit Facility does not contain any restrictions on the amount of borrowings that can be used to make share repurchases as long as we are in compliance with our financial and
non-financial
covenants.
OFF-BALANCE
SHEET ARRANGEMENTS
We do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to
as structured finance or variable interest entities (VIEs), which would have been established for the purpose of facilitating
off-balance
sheet arrangements or other contractually narrow limited
purposes. As of April 4, 2017, we are not involved in any
off-balance
sheet arrangements.
IMPACT OF
INFLATION
Inflation on food, labor, energy and occupancy costs can significantly affect the profitability of our restaurant operations. Our
profitability is dependent, among other things, on our ability to anticipate and react to changes in the cost of key operating resources, including food and other raw materials, labor, energy and other supplies and services. Substantial increases in
costs and expenses could impact our operating results to the extent that such increases cannot be passed along to our restaurant customers. While we have taken steps to enter into agreements for some of the commodities used in our restaurant
operations, there can be no assurance that future supplies and costs for such commodities will not fluctuate due to weather or other market conditions outside of our control. We are currently unable to contract for certain commodities, such as fluid
dairy, fresh seafood and most fresh produce items for long periods of time. Consequently, such commodities can be subject to unforeseen supply and cost fluctuations.
16
Many of our restaurant employees are paid hourly rates subject to the federal, state or local minimum wage
requirements. Numerous state and local governments have their own minimum wage requirements that are generally greater than the federal minimum wage and are subject to annual increases based on changes in their local consumer price indices.
Additionally, a general shortage in the availability of qualified restaurant management and hourly workers in certain geographic areas in which we operate has caused increases in the costs of recruiting and compensating such employees. Certain
operating and other costs, including health benefits in compliance with the Patient Protection and Affordable Care Act, taxes, insurance, federal and state exemption rules, and regulatory requirements relating to employees and other outside
services, continue to increase with the general level of inflation and may also be subject to other cost and supply fluctuations outside of our control.
While we have been able to partially offset inflation and other changes in the costs of key operating resources by gradually increasing prices of our menu
items, coupled with more efficient purchasing practices, productivity improvements and greater economies of scale, there can be no assurance that we will be able to continue to do so in the future. From time to time, competitive conditions will
limit our menu pricing flexibility. In addition, macroeconomic conditions that impact consumer discretionary spending for food away from home could make additional menu price increases imprudent. There can be no assurance that all of our future cost
increases can be offset by higher menu prices or that higher menu prices will be accepted by our restaurant customers without any resulting changes in their visit frequencies or purchasing patterns. Many of the leases for our restaurants provide for
contingent rent obligations based on a percentage of sales. As a result, rent expense will absorb a proportionate share of any menu price increases in our restaurants. There can be no assurance that we will continue to generate increases in
comparable restaurant sales in amounts sufficient to offset inflationary or other cost pressures.
SEASONALITY AND ADVERSE WEATHER
Our business is impacted by weather and other seasonal factors that typically impact other restaurant operations. Holidays (and shifts in the holiday
calendar) and severe weather including hurricanes, tornados, thunderstorms and similar conditions may impact restaurant sales volumes in some of the markets where we operate. Many of our restaurants are located in or near shopping centers and malls
that typically experience seasonal fluctuations in sales. Quarterly results have been and will continue to be significantly impacted by the timing of new restaurant openings and their associated restaurant opening expenses. As a result of these and
other factors, our financial results for any given quarter may not be indicative of the results that may be achieved for a full fiscal year.