Quarterly Report (10-q)

Date : 05/07/2019 @ 11:05AM
Source : Edgar (US Regulatory)
Stock : Bjs Restaurants, Inc. (BJRI)
Quote : 40.19  -0.73 (-1.78%) @ 8:48PM

Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q  

(Mark One)

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

   For the Quarterly Period Ended April 2, 2019

 

OR

 

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to ______  

Commission file number 0-21423

BJ’S RESTAURANTS, INC .

(Exact name of registrant as specified in its charter)  

 

California

33‑0485615

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

7755 Center Avenue, Suite 300

Huntington Beach, California 92647

(714) 500-2400

(Address, including zip code, and telephone number, including

area code, of registrant’s principal executive offices)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes No

 

Indicate by check mark whether the registrant has submitted electronically every interactive data file required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes     No     

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

 

Trading

Symbol

 

Name of each exchange on which registered

Common Stock, No Par Value

 

BJRI

 

NASDAQ Global Select Market

 

As of May 3, 2019, there were 20,734,231 shares of Common Stock of the Registrant outstanding.  


BJ’S RESTAURANTS, INC.

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

Consolidated Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets –
   April 2, 2019 (Unaudited) and January 1, 2019

1

 

 

 

 

 

 

Unaudited Consolidated Statements of Income –
   Thirteen Weeks Ended April 2, 2019 and April 3, 2018

2

 

 

 

Unaudited Consolidated Statements of Shareholders’ Equity –
   Thirteen Weeks Ended April 2, 2019 and April 3, 2018

3

 

 

 

Unaudited Consolidated Statements of Cash Flows –
   Thirteen Weeks Ended April 2, 2019 and April 3, 2018

4

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

5

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

22

 

 

 

 

Item 4.

 

Controls and Procedures

22

 

 

 

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

22

 

 

 

 

Item 1A.

 

Risk Factors

23

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

23

 

 

 

 

Item 6.

 

Exhibits

24

 

 

 

 

 

 

 

 

 

 

SIGNATURES

25

 

 

 


 

 

PART I. FINANCIAL INFORMATION

 

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

 

BJ’S RESTAURANTS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

April 2, 2019

 

 

January 1, 2019

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

25,673

 

 

$

29,224

 

Accounts and other receivables, net

 

 

15,440

 

 

 

31,190

 

Inventories, net

 

 

10,678

 

 

 

10,133

 

Prepaid expenses and other current assets

 

 

6,548

 

 

 

7,940

 

Total current assets

 

 

58,339

 

 

 

78,487

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

582,509

 

 

 

582,754

 

Operating lease assets

 

 

380,240

 

 

 

 

Goodwill

 

 

4,673

 

 

 

4,673

 

Other assets, net

 

 

32,487

 

 

 

29,193

 

Total assets

 

$

1,058,248

 

 

$

695,107

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable (1)

 

$

32,942

 

 

$

36,505

 

Accrued expenses

 

 

88,939

 

 

 

113,920

 

Current operating lease obligations

 

 

26,013

 

 

 

 

Total current liabilities

 

 

147,894

 

 

 

150,425

 

 

 

 

 

 

 

 

 

 

Long-term operating lease obligations

 

 

446,081

 

 

 

 

Deferred income taxes

 

 

22,132

 

 

 

15,977

 

Deferred rent

 

 

 

 

 

35,088

 

Deferred lease incentives

 

 

 

 

 

54,264

 

Long-term debt

 

 

102,000

 

 

 

95,000

 

Other liabilities

 

 

10,873

 

 

 

35,132

 

Total liabilities

 

 

728,980

 

 

 

385,886

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, 5,000 shares authorized, none issued or outstanding

 

 

 

 

 

 

Common stock, no par value, 125,000 shares authorized and 20,909

   and 21,058 shares issued and outstanding as of April 2, 2019 and

   January 1, 2019, respectively

 

 

 

 

 

 

Capital surplus

 

 

61,683

 

 

 

64,342

 

Retained earnings

 

 

267,585

 

 

 

244,879

 

Total shareholders’ equity

 

 

329,268

 

 

 

309,221

 

Total liabilities and shareholders’ equity

 

$

1,058,248

 

 

$

695,107

 

 

See accompanying notes to unaudited consolidated financial statements.

 

 

(1)

Included in accounts payable as of April 2, 2019 and January 1, 2019 is $4,817 and $6,110, respectively, of related party trade payables. See Note 6 for further information.

1

 


 

BJ’S RESTAURANTS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

 

 

 

For the Thirteen Weeks Ended

 

 

 

 

April 2, 2019

 

 

April 3, 2018

 

 

Revenues

 

$

290,554

 

 

$

278,523

 

 

Restaurant operating costs (excluding depreciation and amortization):

 

 

 

 

 

 

 

 

 

Cost of sales (1)

 

 

73,326

 

 

 

69,971

 

 

Labor and benefits

 

 

105,221

 

 

 

100,433

 

 

Occupancy and operating (1)

 

 

61,591

 

 

 

57,503

 

 

General and administrative

 

 

16,896

 

 

 

15,131

 

 

Depreciation and amortization

 

 

17,642

 

 

 

17,454

 

 

Restaurant opening

 

 

448

 

 

 

597

 

 

Loss on disposal of assets

 

 

1,645

 

 

 

1,061

 

 

Total costs and expenses

 

 

276,769

 

 

 

262,150

 

 

Income from operations

 

 

13,785

 

 

 

16,373

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(1,070

)

 

 

(1,387

)

 

Other income (expense), net

 

 

1,097

 

 

 

(100

)

 

Total other income (expense)

 

 

27

 

 

 

(1,487

)

 

Income before income taxes

 

 

13,812

 

 

 

14,886

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

948

 

 

 

222

 

 

Net income

 

$

12,864

 

 

$

14,664

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.61

 

 

$

0.71

 

 

Diluted

 

$

0.60

 

 

$

0.70

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

 

21,056

 

 

 

20,586

 

 

Diluted

 

 

21,448

 

 

 

21,063

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.12

 

 

$

0.11

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

(1)

Related party costs included in cost of sales are $21,762 and $21,302 for the thirteen weeks ended April 2, 2019 and April 3, 2018, respectively.  Related party costs included in occupancy and operating are $2,427 and $2,463 for the thirteen weeks ended April 2, 2019 and April 3, 2018, respectively. See Note 6 for further information.

 


2

 


 

BJ’S RESTAURANTS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands)

 

 

 

For the Thirteen Weeks Ended

 

 

 

Common Stock

 

 

Capital

 

 

Retained

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Surplus

 

 

Earnings

 

 

Total

 

Balance, January 2, 2018

 

 

20,485

 

 

$

 

 

$

68,904

 

 

$

189,825

 

 

$

258,729

 

Exercise of stock options

 

 

283

 

 

 

9,443

 

 

 

(3,543

)

 

 

 

 

 

5,900

 

Issuance of restricted stock units

 

 

36

 

 

 

284

 

 

 

(649

)

 

 

 

 

 

(365

)

Repurchase and retirement of common stock

 

 

(135

)

 

 

(9,727

)

 

 

 

 

 

4,161

 

 

 

(5,566

)

Stock-based compensation

 

 

 

 

 

 

 

 

2,376

 

 

 

 

 

 

2,376

 

Cumulative effect of adopting revenue recognition standard

 

 

 

 

 

 

 

 

 

 

 

(4,598

)

 

 

(4,598

)

Dividends paid or payable, $0.11 per share

 

 

 

 

 

 

 

 

 

 

 

(2,353

)

 

 

(2,353

)

Net income

 

 

 

 

 

 

 

 

 

 

 

14,664

 

 

 

14,664

 

Balance, April 3, 2018

 

 

20,669

 

 

$

 

 

$

67,088

 

 

$

201,699

 

 

$

268,787

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2019

 

 

21,058

 

 

$

 

 

$

64,342

 

 

$

244,879

 

 

$

309,221

 

Cumulative effect of adopting lease standard

 

 

 

 

 

 

 

 

 

 

 

19,963

 

 

 

19,963

 

Exercise of stock options

 

 

16

 

 

 

683

 

 

 

(169

)

 

 

 

 

 

514

 

Issuance of restricted stock units

 

 

84

 

 

 

3,649

 

 

 

(4,652

)

 

 

 

 

 

(1,003

)

Repurchase and retirement of common stock

 

 

(249

)

 

 

(4,332

)

 

 

 

 

 

(7,562

)

 

 

(11,894

)

Stock-based compensation

 

 

 

 

 

 

 

 

2,162

 

 

 

 

 

 

2,162

 

Dividends paid or payable, $0.12 per share

 

 

 

 

 

 

 

 

 

 

 

(2,559

)

 

 

(2,559

)

Net income

 

 

 

 

 

 

 

 

 

 

 

12,864

 

 

 

12,864

 

Balance, April 2, 2019

 

 

20,909

 

 

$

 

 

$

61,683

 

 

$

267,585

 

 

$

329,268

 

 

See accompanying notes to unaudited consolidated financial statements.

 

3

 


 

BJ’S RESTAURANTS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

For the Thirteen Weeks Ended

 

 

 

April 2, 2019

 

 

April 3, 2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

12,864

 

 

$

14,664

 

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

17,642

 

 

 

17,454

 

Non-cash lease expense

 

 

6,595

 

 

 

 

Deferred income taxes

 

 

(344

)

 

 

(2,490

)

Stock-based compensation expense

 

 

2,084

 

 

 

2,283

 

Loss on disposal of assets

 

 

1,645

 

 

 

1,061

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts and other receivables

 

 

16,750

 

 

 

2,977

 

Landlord contribution for tenant improvements

 

 

 

 

 

(2,637

)

Inventories, net

 

 

(545

)

 

 

354

 

Prepaid expenses and other current assets

 

 

1,304

 

 

 

(397

)

Other assets, net

 

 

(3,767

)

 

 

(604

)

Accounts payable

 

 

(4,292

)

 

 

(2,815

)

Accrued expenses

 

 

(18,120

)

 

 

(5,614

)

Operating lease obligations

 

 

(12,552

)

 

 

 

Deferred rent

 

 

 

 

 

509

 

Deferred lease incentives

 

 

 

 

 

1,356

 

Other liabilities

 

 

2,792

 

 

 

(347

)

Net cash provided by operating activities

 

 

22,056

 

 

 

25,754

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(17,674

)

 

 

(14,064

)

Net cash used in investing activities

 

 

(17,674

)

 

 

(14,064

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Borrowings on line of credit

 

 

260,500

 

 

 

485,500

 

Payments on line of credit

 

 

(253,500

)

 

 

(490,500

)

Taxes paid on vested stock units under employee plans

 

 

(1,003

)

 

 

(365

)

Proceeds from exercise of stock options

 

 

514

 

 

 

5,900

 

Cash dividends paid

 

 

(2,550

)

 

 

(2,289

)

Repurchases of common stock

 

 

(11,894

)

 

 

(5,566

)

Net cash used in financing activities

 

 

(7,933

)

 

 

(7,320

)

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

(3,551

)

 

 

4,370

 

Cash and cash equivalents, beginning of period

 

 

29,224

 

 

 

24,335

 

Cash and cash equivalents, end of period

 

$

25,673

 

 

$

28,705

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

1,184

 

 

$

2,702

 

Cash paid for interest, net of capitalized interest

 

$

1,026

 

 

$

1,147

 

Supplemental disclosure of non-cash operating, investing and financing activities:

 

 

 

 

 

 

 

 

Operating lease assets obtained in exchange for operating lease obligations

 

$

9,800

 

 

$

 

Property and equipment acquired and included in accounts payable

 

$

11,089

 

 

$

5,596

 

Stock-based compensation capitalized

 

$

78

 

 

$

93

 

 

See accompanying notes to unaudited consolidated financial statements.

4

 


 

BJ’S RESTAURANTS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

1.  BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include the accounts of BJ’s Restaurants, Inc. (referred to herein as the “Company,” “we,” “us” and “our”) and our wholly owned subsidiaries. The consolidated financial statements presented herein include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of our financial condition, results of operations, cash flows for the period and statements of shareholders’ equity. Our consolidated financial statements and accompanying notes 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 conformity 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 and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of 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 1, 2019. The disclosures included in our accompanying interim consolidated 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 and our other reports filed from time to time with the Securities and Exchange Commission.  

 

Recently Issued Accounting Standards

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). This update clarifies the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 will be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. We will adopt ASU 2018-15 the first quarter of fiscal 2020. We are currently evaluating the impact this guidance will have on our consolidated financial statements.

 

Recently Adopted Accounting Standards

On January 2, 2019, the first day of fiscal 2019, we adopted ASU 2016-02, Leases (Topic 842), along with related clarifications and improvements. This pronouncement requires lessees to recognize a liability for lease obligations, which represents the discounted obligation to make future lease payments, and a corresponding right-of-use asset on the balance sheet. The guidance requires disclosure of key information about leasing arrangements that is intended to give financial statement users the ability to assess the amount, timing, and potential uncertainty of cash flows related to leases. We elected the optional transition method to apply the standard as of the effective date and therefore, we have not applied the standard to the comparative periods presented on our consolidated financial statements.

Our practical expedient implications as of January 2, 2019 were as follows:

   

 

 

Practical expedient package

 

We have not reassessed whether any expired or existing contracts are, or contain, leases.



 

We have not reassessed the lease classification for any expired or existing leases.



 

We have not reassessed initial direct costs for any expired or existing leases.

Hindsight practical expedient

 

We have not elected the hindsight practical expedient, which permits the use of hindsight when determining lease term, including option periods, and impairment of operating lease assets. 

Related to the adoption of Topic 842, our policy elections were as follows:

   

 

 

5

 


 

Separation of lease and non-lease components

 

We elected to account for lease and non-lease components as a single component for office and beverage gas equipment .

Short-term policy

 

We have elected the short-term lease recognition exemption for all classes of underlying assets. E xpense for short-term leases is recognized on a straight-line basis over the lease term. L eases with an initial term of 12 months or less and that do not include an option to purchase the underlying asset that we are reasonably certain to exercise are not recorded on the balance sheet.

 

The impact on our consolidated opening balance sheet was as follows:

 

 

 

January 1, 2019

 

 

Topic 842 Adjustments

 

 

January 2, 2019

 

 

 

 

 

 

 

(1)

 

 

(unaudited)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

29,224

 

 

$

 

 

$

29,224

 

Accounts and other receivables, net

 

 

31,190

 

 

 

 

 

 

31,190

 

Inventories, net

 

 

10,133

 

 

 

 

 

 

10,133

 

Prepaid expenses and other current assets

 

 

7,940

 

 

 

 

 

 

7,940

 

Total current assets

 

 

78,487

 

 

 

 

 

 

78,487

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

582,754

 

 

 

 

 

 

582,754

 

Operating lease assets

 

 

 

 

 

377,035

 

 

 

377,035

 

Goodwill

 

 

4,673

 

 

 

 

 

 

4,673

 

Other assets, net

 

 

29,193

 

 

 

 

 

 

29,193

 

Total assets

 

$

695,107

 

 

$

377,035

 

 

$

1,072,142

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

36,505

 

 

$

 

 

$

36,505

 

Accrued expenses

 

 

113,920

 

 

 

(6,869

)

 

 

107,051

 

Current operating lease obligation

 

 

 

 

 

30,529

 

 

 

30,529

 

Total current liabilities

 

 

150,425

 

 

 

23,660

 

 

 

174,085

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term operating lease obligation

 

 

 

 

 

443,316

 

 

 

443,316

 

Deferred income taxes

 

 

15,977

 

 

 

6,499

 

 

 

22,476

 

Deferred rent

 

 

35,088

 

 

 

(35,088

)

 

 

 

Deferred lease incentives

 

 

54,264

 

 

 

(54,264

)

 

 

 

Long-term debt

 

 

95,000

 

 

 

 

 

 

95,000

 

Other liabilities

 

 

35,132

 

 

 

(27,051

)

 

 

8,081

 

Total liabilities

 

 

385,886

 

 

 

357,072

 

 

 

742,958

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, 5,000 shares authorized, none issued or outstanding

 

 

 

 

 

 

 

 

 

Common stock, no par value, 125,000 shares authorized and 21,058 shares issued and outstanding as of January  1, 2019 and January 2, 2019

 

 

 

 

 

 

 

 

 

Capital surplus

 

 

64,342

 

 

 

 

 

 

64,342

 

Retained earnings

 

 

244,879

 

 

 

19,963

 

(2)

 

264,842

 

Total shareholders’ equity

 

 

309,221

 

 

 

19,963

 

 

 

329,184

 

Total liabilities and shareholders’ equity

 

$

695,107

 

 

$

377,035

 

 

$

1,072,142

 

6

 


 

 

(1)

Adjustments represent non-cash activities for Consolidated Statements of Cash Flow purposes.

 

 

(2)

Primarily composed of an increase of $28.8 million for deferred sale-leaseback gains no longer amortizable, a decrease of $2.3 million to impair the right-of-use asset related to previously impaired properties and a $6.5 million decrease for the deferred tax impact of the cumulative effect adjustments.

 

2.  REVENUE RECOGNITION

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 from the credit card processor. We sell gift cards which do not have an expiration date and we do not deduct non-usage fees from outstanding gift card balances. Gift card sales are recorded as a liability and recognized as revenues upon redemption in our restaurants. Estimated gift card breakage is recorded as revenue and recognized in proportion to our historical redemption pattern. The estimated gift card breakage is based on when the likelihood of redemption becomes remote, which has typically been 24 months after the original gift card issuance date.

Our “BJ’s Premier Rewards Plus” customer loyalty program enables participants to earn points for qualifying purchases that can be redeemed for food and beverages in the future. We allocate the transaction price between the goods delivered and the future goods that will be delivered, on a relative standalone selling price basis, and defer the revenues allocated to the points, less expected expirations, until such points are redeemed.

 

The liability related to our gift card and loyalty program, included in “Accrued expenses,” on our Consolidated Balance Sheets is as follows (in thousands):

 

 

 

April 2, 2019

 

 

January 1, 2019

 

Gift card liability

 

$

12,877

 

 

$

17,201

 

Deferred loyalty revenue (post-adoption of ASU 2016-10)

 

$

10,291

 

 

$

10,066

 

 

Revenue recognized on our Consolidated Statements of Income for the redemption of gift cards and loyalty rewards deferred at the beginning of each respective fiscal year is as follows (in thousands):

 

 

 

For the Thirteen Weeks Ended

 

 

 

April 2, 2019

 

 

April 3, 2018

 

Revenue recognized from gift card liability

 

$

7,605

 

 

$

5,932

 

Revenue recognized from customer loyalty program

 

$

4,073

 

 

$

2,331

 

 

3.  LEASES

We determine if a contract contains a lease at inception. Our material operating leases consist of restaurant locations and office space. U.S. GAAP requires that our leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which we have the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option would result in an economic penalty. All of our restaurant leases and office space are classified as operating leases. As of April 2, 2019, we did not have any finance leases.

We disburse cash for leasehold improvements, furniture and fixtures and equipment to build out and equip our leased premises. Tenant improvement allowance incentives may be available to partially offset the cost of developing and opening the related restaurants, pursuant to agreed-upon terms in our leases. Tenant improvement allowances can take the form of cash payments upon the opening of the related restaurants, full or partial credits against minimum or percentage rents otherwise payable by us, or a combination thereof. All tenant improvement allowances received by us are recorded as a contra right-of-use asset and amortized over the term of the lease.

The lease term used for straight-line rent expense is calculated from the commencement date (the date the lessor makes the underlying asset available for use) through the lease termination date (including any options where exercise is reasonably certain and failure to exercise such option would result in an economic penalty). We expense rent from commencement date through restaurant open date as preopening expense. Once a restaurant opens for business, we record straight-line rent expense plus any additional variable contingent rent expense to the extent it is due under the lease agreement.

There is potential for variability in the rent holiday period, which begins on the commencement date and ends on the restaurant open date, during which no cash rent payments are typically due under the terms of the lease. Factors that may affect the length

7

 


 

of the rent holiday period generally pertain to construction related delays. Extension of the rent holiday period due to delays in restaurant opening will result in greater preopening rent expense recognized during the rent holiday period and lesser occupancy expense during the rest of the lease term (post-opening).

We record total rent payable during the lease term, including rent escalations in which the amount of future rent is certain or fixed on the straight-line basis over the term of the lease (including the rent holiday period beginning upon our possession of the premises, and any fixed payments stated in the lease). A related lease liability is recorded on the balance sheet at the present value of future payments discounted at the estimated fully collateralized incremental borrowing rate (discount rate) corresponding with the lease term. In addition, a right-of-use asset is recorded as the initial amount of the lease liability, plus any lease payments made to the lessor before or at the lease commencement date and any initial direct costs incurred, less any lease incentives received. The difference between the minimum rents paid and the straight-line rent is reflected within the associated right-of-use asset.  Certain leases contain provisions that require additional rent payments based upon restaurant sales volume (“variable lease cost”). Contingent rent is accrued each period as the liabilities are incurred, in addition to the straight-line rent expense noted above. This results in some variability in occupancy expense as a percentage of revenues over the term of the lease in restaurants where we pay contingent rent.

Management makes judgments regarding the reasonably certain lease term for each restaurant property lease, which can impact the classification and accounting for a lease as finance or operating, the rent holiday and/or escalations in payments that are taken into consideration when calculating straight-line rent, and the term over which leasehold improvements for each restaurant are amortized. These judgments may produce materially different amounts of depreciation, amortization and rent expense than would be reported if different assumed lease terms were used.

To determine the incremental borrowing rates used to discount the lease payments, the Company estimated its synthetic credit rating. Rates will be updated quarterly and have been applied based on the remaining lease term of each respective lease on the implementation date of January 2, 2019.

Supplemental balance sheet information related to leases was as follows (in thousands):

 

Operating Leases

 

Classification

 

April 2, 2019

 

Right-of-use assets

 

Operating lease assets

 

$

380,240

 



 

 

 

 

 

 

Current lease liabilities

 

Current operating lease obligations

 

 

26,013

 

Non-current lease liabilities

 

Long-term operating lease obligations

 

 

446,081

 

Total lease liabilities

 

 

 

$

472,094

 

 

Weighted-average lease terms and discount rates as of April 2, 2019 were as follows:

 

Weighted-average remaining lease term

 

12.9 Years

Weighted-average discount rate

 

5.7%

Lease cost included in “Occupancy & Operating” costs on the Consolidated Statements of Income consisted of the following (in thousands):

 

 

 

For the Thirteen Weeks Ended

 

 

 

April 2, 2019

 

Lease cost

 

$

13,240

 

Variable lease cost

 

 

855

 

Total lease cost

 

$

14,095

 

Supplemental disclosures of cash flow information related to leases were as follows (in thousands):

 

 

 

For the Thirteen Weeks Ended

 

 

 

April 2, 2019

 

Cash paid for operating lease obligations