Notes to Consolidated Financial Statements
December 31, 2017, January 1, 2017 and January 3, 2016
(Dollars in thousands)
Note 1 – Organization and Business
Separation from FNF and Equity Structure
On August 15, 2014, J. Alexander’s Holdings, Inc. (the “Company”) was incorporated in the state of Tennessee as a wholly-owned subsidiary of Fidelity National Financial, Inc. (“FNF”). On September 16, 2015, the Company entered into a separation and distribution agreement with FNF, pursuant to which FNF agreed to distribute one hundred percent of its shares of the Company’s common stock, par value $0.001, on a pro rata basis, to the holders of then Fidelity National Financial Ventures, LLC (“FNFV”) Group common stock, FNF’s then tracking stock traded on The New York Stock Exchange (“The NYSE”). Holders of then FNFV Group common stock received, as a distribution from FNF, approximately 0.17271 shares of the Company’s common stock for every one share of FNFV Group common stock held at the close of business on September 22, 2015, the record date for the distribution (the “Distribution”). Note that FNFV is now conducting business independently as Cannae Holdings, Inc., (“Cannae”) subsequent to its split-off from FNF effective November 20, 2017. Concurrent with the Distribution, certain reorganization changes were made, resulting in the Company owning all of the outstanding Class A Units and becoming the sole managing member of J. Alexander’s Holdings, LLC, the parent company of all operating subsidiaries. Also concurrent with the Distribution, the Second Amended and Restated LLC Agreement of J. Alexander’s Holdings, LLC was entered into, resulting in a total number of Class A Units outstanding of 15,000,235. Additionally, a total of 833,346 Class B Units granted to certain members of management effective on January 1, 2015 were also outstanding at the date of Distribution. The Distribution was completed on September 28, 2015.
On September 28, 2015, immediately prior to the Distribution, J. Alexander’s Holdings, LLC entered into the Management Consulting Agreement with Black Knight Advisory Services, LLC (“Black Knight”), pursuant to which Black Knight provides corporate and strategic advisory services to J. Alexander’s Holdings, LLC. In accordance with the Management Consulting Agreement, J. Alexander’s Holdings, LLC granted 1,500,024 Class B Units to Black Knight as a profits interest grant on October 6, 2015.
As a result of the Distribution, effective September 29, 2015, the Company is an independent public company and its common stock is listed on the NYSE under the symbol “JAX”. As of December 31, 2017, a total of 14,695,176 shares of the Company’s common stock, par value $0.001, were outstanding.
On October 29, 2015, the Company’s Board of Directors (the “Board”) authorized a share repurchase program for up to 1,500,000 shares of the Company’s outstanding common stock over the three years ending October 29, 2018. Share repurchases under the program have been made and are expected to be made solely from cash on hand and available operating cash flow. Repurchases will be made in accordance with applicable securities laws and may be made from time to time in the open market. The timing, prices and amount of repurchases will depend upon prevailing market prices, general economic and market conditions and other considerations. The repurchase program does not obligate the Company to acquire any particular amount of stock. As of December 31, 2017, 305,059 shares have been repurchased and retired under this program at an aggregate purchase price of $3,203.
Business of J. Alexander’s
The Company, through J. Alexander’s Holdings, LLC and its subsidiaries, owns and operates full service, upscale restaurants under the J. Alexander’s, Redlands Grill, Lyndhurst Grill and Stoney River Steakhouse and Grill (“Stoney River”) concepts. At December 31, 2017 and January 1, 2017, restaurants operating within the J. Alexander’s concept consisted of 19 and 20 restaurants, in 11 and 10 states, respectively,
as one new J. Alexander’s restaurant began operations during the first quarter of 2017 in Lexington, Kentucky, one J. Alexander’s restaurant closed during the first quarter of 2017 in Houston, Texas and one J. Alexander’s restaurant converted to a Lyndhurst Grill in the first quarter of 2017 in Lyndhurst, Ohio.
At December 31, 2017 and January 1, 2017, restaurants operating within the Stoney River concept consisted of 12 and
11 locations within seven and six states
, respectively, as one new Stoney River restaurant began operations during the first quarter of 2017 in Chapel Hill, North Carolina
. At December 31, 2017, and January 1, 2017, restaurants operating within the Redlands Grill concept consisted of 12 locations within eight states. Each concept’s restaurants are concentrated primarily in the East, Southeast, and Midwest regions of the United States. The Company does not have any restaurants operating under franchise agreements.
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Note 2
–
Summary of Significant Accounting Policies
|
a)
|
Principles of Consolidation and Basis of Presentation
|
The Consolidated Financial Statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”), and include the accounts of the Company as well as the accounts of its majority-owned subsidiaries. All intercompany profits, transactions, and balances between the Company and its subsidiaries have been eliminated. It is the Company’s policy to reclassify prior year amounts to conform to the current year’s presentation for comparative purposes, if such a reclassification is warranted.
As discussed in Note 1, as a result of the Distribution, certain reorganization changes were made resulting in the Company owning all of the outstanding Class A Units and becoming the sole managing member of J. Alexander’s Holdings, LLC. The reorganization transactions were accounted for as a non-substantive transaction in a manner similar to a transaction between entities under common control pursuant to Accounting Standards Codification (“ASC”) 805-50
Transactions between Entities under Common Control
, and as such, recognized the assets and liabilities transferred at their carrying amounts on the date of transfer. The Company is a holding company with no direct operations that holds as its sole asset an equity interest in J. Alexander’s Holdings, LLC, and relies on J. Alexander’s Holdings, LLC to provide it with funds necessary to meet any financial obligations. The Consolidated Financial Statements for periods prior to the Distribution date of September 28, 2015 represents the historical operating results and financial position of J. Alexander’s Holdings, LLC.
The Company utilizes a 52- or 53-week accounting period which ends on the Sunday closest to December 31, and each quarter typically consists of 13 weeks. Fiscal years 2017 and 2016 each included 52 weeks of operations, and fiscal year 2015 included 53 weeks of operations, including a 14-week fourth quarter.
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c)
|
Discontinued Operations and Restaurant Closing Costs
|
During 2013, three J. Alexander’s restaurants were closed, and two of these restaurants were considered to be discontinued operations.
Additionally, the Company closed one J. Alexander’s location during the first quarter of 2017 as the restaurant’s lease had reached the end of its term. Since the closure of this restaurant does not represent a strategic shift that will have a major effect on the Company’s operations and financial results, its results of operations and expenses associated with its closure have not been included in discontinued operations. Income (loss) from continuing operations before income taxes associated with this location was $30, $(179) and $47 for fiscal years 2017, 2016 and 2015, respectively.
During fiscal years 2017, 2016 and 2015, restaurant closing costs totaled $571, $437 and $432, respectively, $439, $434 and $429, respectively, of which related to locations included in discontinued operations and consist solely of exit and disposal costs which are primarily related to a continuing obligation under a lease agreement for one of these closed locations. The remaining costs associated with the two locations which are not considered discontinued operations are presented in the “General and administrative expenses” line item
on the Consolidated Statements of Income and Comprehensive Income, and consist largely of restaurant employee severance, travel costs and various other exit and disposal expenses.
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d)
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Cash and Cash Equivalents
|
Cash and cash equivalents consist of highly liquid investments with an original maturity of three months or less when purchased. Cash also consists of payments due from third‑party credit card issuers for purchases made by guests using the issuers’ credit cards. The issuers typically remit payment within three to four days of a credit card transaction.
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e)
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Accounts and Notes Receivable
|
Accounts receivable are primarily related to amounts due from third-party gift card sellers, expected workers’ compensation rebates and vendor rebates, which have been earned but not yet received.
Inventories are stated at the lower of cost or net realizable value, with cost being determined on a first‑in, first‑out basis.
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|
g)
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Property and Equipment, Net
|
The Company states property and equipment at cost less accumulated depreciation and amortization. Depreciation and amortization expense is calculated using the straight‑line method. The useful lives of assets are typically 30–40 years for buildings and land improvements and two–10 years for furniture, fixtures, and equipment. Leasehold improvements are amortized over the lesser of the useful life or the remaining lease term, generally inclusive of renewal periods. Equipment under capital leases is amortized to its expected residual value at the end of the lease term. Gains or losses are recognized upon the disposal of property and equipment, and the asset and related accumulated depreciation and amortization are removed from the accounts. Maintenance, repairs and betterments that do not enhance the value of or increase the life of the assets are expensed as incurred. The Company capitalizes all direct external costs associated with obtaining the land, building, and equipment for each new restaurant, as well as construction period interest. All direct external costs associated with obtaining the dining room and kitchen equipment, signage, and other assets and equipment are also capitalized.
Certain direct and indirect costs are capitalized as building and leasehold improvement costs in conjunction with capital improvement projects at existing restaurants and acquiring and developing new restaurant sites. Such costs are amortized over the life of the related assets.
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h)
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Goodwill and Other Intangible Assets
|
Goodwill represents the excess of cost over fair value of net assets acquired in a previous acquisition of the Company’s predecessor by FNF in 2012. Intangible assets include trade names, deferred loan costs, and liquor licenses at certain restaurants. Goodwill, trade names, and liquor licenses are not subject to amortization, but are tested for impairment annually as of the fiscal year‑end date, or more frequently, if events or changes in circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount of the goodwill or indefinite‑lived intangible asset exceeds its fair value.
The Company performed the fiscal year 2017 annual review of goodwill in accordance with Accounting Standards Update (“ASU”) No. 2011‑08,
Testing Goodwill for Impairment
, which allows for the performance of a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount prior to performing the two‑step goodwill impairment test. The qualitative assessment includes an analysis of macroeconomic factors, industry and market conditions, internal cost factors, overall financial performance and entity‑specific events. ASU No. 2012‑02, Testing Indefinite‑lived Intangible Assets for Impairment, also provides an entity the option to perform a qualitative assessment with regard to the testing of its indefinite‑lived intangible assets. The Company performed the fiscal year 2017 annual review of impairment for its indefinite‑lived intangibles in accordance with this guidance. It was determined that no impairment of goodwill or indefinite‑lived intangible assets existed as of December 31, 2017, January 1, 2017 or January 3, 2016 and, accordingly, no impairment losses were recorded.
Deferred loan costs are subject to amortization and are classified in the “Long-term debt, net of portion classified as current and deferred loan costs” line item on the Consolidated Balance Sheets. Deferred loan costs are amortized principally by the interest method over the life of the related debt. For the next five fiscal years, scheduled amortization of deferred loan costs is as follows: 2018 – $86; 2019 – $83; 2020 – $22; 2021 – $0; 2022 and thereafter – $0.
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i)
|
Impairment of Long‑Lived Assets
|
In accordance with ASC Topic 360,
Property, Plant, and Equipment
, long‑lived assets, such as property and equipment and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated future cash flows, an impairment charge may be recognized for the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group based upon the future highest and best use of the impaired asset or asset group. Fair value is determined by projected future discounted cash flows for each location or the estimated market value of the assets. The asset impairment charges are generally recorded in the Consolidated Statements of Income and Comprehensive Income in the financial statement line item “Asset impairment charges and restaurant closing costs,” but are also recorded in the line item “Loss from discontinued operations, net” when applicable. Assets to be disposed of are separately presented in the Consolidated Balance Sheets and reported at the lower of carrying amount or fair value less costs to sell, and are no longer depreciated.
No impairment charges were recorded for the years ended December 31, 2017, January 1, 2017 or January 3, 2016.
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The Company through its subsidiaries has land only, building only, and land and building leases that are recorded as operating leases. Most of the leases have rent escalation clauses and some have rent holiday and contingent rent provisions. The rent expense under these leases is recognized on the straight‑line basis over an expected lease term, including cancelable option periods
when it is reasonably assured that such option periods will be exercised because failure to do so would result in a significant economic penalty
. The Company begins recognizing rent expense on the date that it or its subsidiaries become legally obligated under the lease and takes possession of or is given control of the leased property.
Rent expense incurred during the construction period for a leased restaurant location is included in pre‑opening expense.
Contingent rent expense is based upon sales levels and is typically accrued when it is deemed probable that it will be payable. Tenant improvement allowances received from landlords under operating leases are recorded as deferred rent obligations.
The same lease life that is used for the straight‑line rent calculation is also used for assessing leases for capital or operating lease accounting.
Restaurant revenues are recognized when food and service are provided. Unearned revenue represents the liability for gift cards, which have been sold but not redeemed. Upon redemption, net sales are recorded and the liability is reduced by the amount of card values redeemed. Reductions in liabilities for gift cards that, although they do not expire, are considered to be only remotely likely to be redeemed and for which there is no legal obligation to remit balances under unclaimed property laws of the relevant jurisdictions (breakage), have been recorded as revenue and are included in net sales in the Consolidated Statements of Income and Comprehensive Income. Based on historical experience, management currently considers the probability of redemption of a gift card to be remote when it has been outstanding for 24 months.
The Company records breakage related to sold gift cards when the likelihood of redemption becomes remote. Breakage of $311, $347 and $343 related to gift cards was recorded in fiscal years 2017, 2016 and 2015, respectively.
Vendor rebates are received from various nonalcoholic beverage suppliers and suppliers of food products and supplies. Rebates are recognized as a reduction to cost of sales in the period in which they are earned.
Costs of advertising are charged to expense at the time the costs are incurred. Advertising expense totaled $124, $92 and $76, during fiscal years 2017, 2016 and 2015, respectively.
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n)
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Transaction and Integration Costs
|
The Company and its subsidiaries have historically grown through improving operations, food quality and the guest experience. However, the Company has experienced recent transactions and proposed transactions which have resulted in certain nonrecurring transaction and integration costs being incurred. Transaction costs typically consist primarily of legal and consulting costs, accounting fees, and to a lesser extent other professional fees and miscellaneous costs. Integration costs typically consist primarily of consulting and legal costs.
During fiscal year 2015, transaction costs associated with the Distribution discussed in Note 1 in the amount of $7,181 were incurred, $1,675 of which represented the write-off of deferred offering costs previously capitalized in 2014 as a result of the abandonment of the initial public offering in 2015. Deferred offering costs primarily consisted of direct, incremental legal and accounting fees relating to the pursuit of an initial public offering. During fiscal year 2016, transaction and integration costs of $64 were incurred related to the finalization of the Distribution transaction.
In addition, the Company incurred transaction costs associated with the proposed acquisition of the Ninety Nine Restaurant and Pub concept (“99 Restaurants”) totaling $3,529 in fiscal year 2017. Such costs consisted primarily of fairness opinion fees, legal, accounting, and consulting fees as well as other miscellaneous costs. During fiscal year 2018, the Company announced that it did not receive the required number of disinterested shareholder votes to approve the proposed acquisition, and the merger agreement was thereafter terminated. Refer to Note 20 – Subsequent Events for additional discussion of the proposed acquisition.
68
Income taxes are accounted for using the assets and liability method, whereby deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and for operating loss and tax credit carryforwards. The deferred taxes generated within the J. Alexander’s Holdings, LLC partnership are accounted for using the “outside basis” approach, and the deferred taxes outside of the partnership are accounted for using the “inside basis” approach. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized.
The benefits of uncertain tax positions are recognized in the Consolidated Financial Statements only after determining a more likely than not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities. When facts and circumstances change, these probabilities are reassessed and any appropriate changes are recorded in the Consolidated Financial Statements. Uncertain tax positions are accounted for by determining the minimum recognition threshold that a tax position is required to meet before being recognized in the Consolidated Financial Statements. This determination requires the use of judgment in assessing the timing and amounts of deductible and taxable items. Tax positions that meet the more likely than not recognition threshold are recognized and measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. Interest and penalties accrued related to unrecognized tax benefits or income tax settlements are recognized as components of income tax expense.
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p)
|
Concentration of Credit Risk
|
Financial instruments that are potentially exposed to a concentration of credit risk are cash and cash equivalents and accounts receivable. Operating cash balances are maintained in noninterest‑bearing transaction accounts, which are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250. Further, a certain portion of the assets held in a rabbi trust (the “Trust”) consists of cash and cash equivalents. The Company places cash with high‑credit‑quality financial institutions, and at times, such cash may be in excess of the federally insured limit. However, there have been no losses experienced related to these balances, and the credit risk is believed to be minimal. Also, the Company believes that its risk related to cash equivalents from third‑party credit card issuers for purchases made by guests using the issuers’ credit cards is not significant due to the number of banks involved and the fact that payment is typically received within three to four days of a credit card transaction. Therefore, the Company does not believe it has significant risk related to its cash and cash equivalents accounts. Another portion of the assets held in the Trust consists of U.S. Treasury bonds as well as a small number of corporate bonds with ratings no lower than BBB+. The Company believes the credit risk associated with such bonds to be minimal given the historical stability of the U.S. government and the investment grade bond ratings relative to the corporate issuers. Concentrations of credit risk with respect to accounts receivable are related principally to receivables from governmental agencies related to refunds of franchise and income taxes. The Company does not believe it has significant risk related to accounts receivable due to the nature of the entities involved.
Management has made certain estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the periods presented to prepare these Consolidated Financial Statements in conformity with GAAP. Significant items subject to such estimates and assumptions include those related to the accounting for gift card breakage, determination of uncertain tax positions and the valuation allowance relative to deferred tax assets, if any, estimates of useful lives of property and equipment and leasehold improvements, the carrying amount of intangible assets, fair market valuations, determination of lease terms, and accounting for impairment losses, contingencies, and litigation. Actual results could differ from these estimates.
Revenues are presented net of sales taxes. The obligation for sales taxes is included in accrued expenses and other current liabilities until the taxes are remitted to the appropriate taxing authorities.
Pre‑opening costs are accounted for by expensing such costs as they are incurred.
69
Total comprehensive income or loss is comprised solely of net income or net loss for all periods presented. Therefore, a separate statement of comprehensive income is not included in the accompanying Consolidated Financial Statements.
The Company through its subsidiaries owns and operates full‑service, upscale restaurants under four concepts exclusively in the United States that have similar economic characteristics, products and services, class of customer and distribution methods. The Company believes it meets the criteria for aggregating its operating segments into a single reportable segment.
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v)
|
Non-controlling Interests
|
Non-controlling interests on the Consolidated Balance Sheets represents the portion of the Company’s net assets of attributable to the non-controlling J. Alexander’s Holdings, LLC Class B Unit holders. As of December 31, 2017 and January 1, 2017, the non-controlling interest presented on the Consolidated Balance Sheets is $5,200 and $3,740, respectively, and consists solely of the non-cash compensation expense relative to the profits interest awards to management and Black Knight discussed in Note 14 – Share-based Compensation below. The Hypothetical Liquidation of Book Value method was used as of December 31, 2017 and January 1, 2017 to determine allocations of non-controlling interests consistent with the terms of the Second Amended and Restated LLC Agreement of J. Alexander’s Holdings, LLC, and pursuant to that calculation, no allocation of net income was made to non-controlling interests for fiscal years 2017 and 2016, respectively.
Basic earnings per share is computed by dividing net income by the weighted average number of shares outstanding for the reporting period. Diluted earnings per share gives effect during the reporting period to all dilutive potential shares outstanding resulting from share-based compensation awards. Diluted earnings per share of common stock is computed similarly to basic earnings per share except the weighted average shares outstanding are increased to include additional shares from the assumed exercise of any common stock equivalents, if dilutive. J. Alexander’s Holdings, LLC Class B Units are considered common stock equivalents for this purpose. The number of additional shares of common stock related to these common stock equivalents is calculated using the if-converted method, if dilutive. The number of additional shares of common stock related to stock option awards is calculated using the treasury method, if dilutive. Refer to Note 3 – Earnings per Share for the basic and diluted earnings per share calculations and additional discussion.
As stated above, the periods prior to the Distribution presented in the accompanying Consolidated Financial Statements represents the historical operating results and financial position of J. Alexander’s Holdings, LLC. For comparison purposes, earnings per share amounts are calculated for such periods using a weighted-average number of common shares outstanding based on the number of shares outstanding on the Distribution date as if all shares had been outstanding since the first day of the earliest period presented.
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x)
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Recently Issued Accounting Standards
|
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09,
Revenue from Contracts with Customers
(“ASU No. 2014-09”) which created ASC Topic 606. The core principle of the standard is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 will replace most existing revenue recognition guidance in GAAP. New qualitative and quantitative disclosure requirements aim to enable financial statement users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Since the issuance of ASU No. 2014-09, certain updates have been issued to clarify the implementation guidance, and the effective dates for ASU No. 2014-09 have been updated by ASU No. 2015-14,
Deferral of the Effective Date
. The requirements are effective for annual and interim periods in fiscal years beginning after December 15, 2017 for public business entities. Earlier application is permitted for annual and interim reporting periods in fiscal years beginning after December 15, 2016. ASU No. 2014-09 permits the use of either the retrospective or cumulative effect transition method. The Company has selected the cumulative effect transition method. The Company does not currently have any franchise or similar arrangements that will need to be evaluated under ASU No. 2014-09, and the Company does not believe that this guidance will materially impact the recognition of revenue from sales within our restaurant operations. Gift card breakage has historically been recognized when redemption is unlikely to occur and there is no legal obligation to remit the value of the unredeemed gift cards. Based on our historical experience, we have considered the probability of redemption of our concepts’ gift cards to be remote when cards have been outstanding for 24 months. With the adoption of ASU No. 2014-09 during the first quarter of 2018, the Company will analyze gift card breakage
based upon
70
company-specific historical redempti
on patterns, and gift card breakage will be recognized in revenue in proportion to redemptions
. The Company does not believe that the adoption of ASU No. 2014-09 in fiscal year 2018 will have a significant effect on the Company’s Consolidated Financial Sta
tements and related disclosures.
In
January 2016, the FASB issued
ASU No.
2016-01
, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities
(“ASU No. 2016-01”). The pronouncement requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. These changes become effective for the Company’s 2018 fiscal year. The expected adoption method of
ASU No.
2016-01 is being evaluated by the Company, and the adoption is not expected to have a significant impact on its Consolidated Financial Statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
(“ASU No. 2016-02”), which supersedes ASC Topic 840,
Leases,
and creates a new topic, ASC Topic 842,
Leases
. This update requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier adoption permitted. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the Consolidated Financial Statements. The Company anticipates that the adoption of ASU No. 2016-02 will materially increase the assets and liabilities on the Company’s Consolidated Balance Sheets and related disclosures since the Company has a significant number of operating lease arrangements for which it is the lessee. The Company is still evaluating the impact that the adoption of this ASU will have on the Company’s Consolidated Statements of Income and Comprehensive Income. The impact of this ASU is non-cash in nature, and as such, it is not expected to have a material impact on the Company’s cash flows and liquidity. The Company is assessing this ASU’s impact, if any, on our existing debt covenants. However, the Company anticipates that consideration will be given by its lender with respect to the adoption of this ASU and its impact on components within the related debt covenant calculation once the ASU becomes effective in fiscal year 2019.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments
(“ASU No. 2016-15”). This update is intended to clarify the presentation of cash receipts and payments in specific situations. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2017, including interim periods within those annual periods, and early application is permitted. The Company does not expect the adoption of ASU No. 2016-15 to have a significant impact on its Consolidated Financial Statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-04,
Intangibles – Goodwill and Other
(Topic 350)
: Simplifying the Test for Goodwill Impairment
(“ASU No. 2017-04”). This update simplifies the subsequent measurement of goodwill by eliminating the second step of the two-step quantitative goodwill impairment test. An entity will no longer perform a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured at the amount by which the carrying value exceeds the fair value of a reporting unit. The option remains for an entity to perform a qualitative assessment of a reporting unit to determine if the quantitative impairment test is necessary. ASU No. 2017-04 requires prospective adoption and is effective commencing in fiscal years beginning after December 15, 2019. The Company does not expect the adoption of this guidance to have an impact on its Consolidated Financial Statements and related disclosures.
In May 2017, the FASB issued ASU No. 2017-09,
Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting
(“ASU No. 2017-09”), which provides clarity and reduces complexity when an entity has changes to the terms or conditions of a share-based payment award, and when an entity should apply modification accounting. The amendments in ASU No. 2017-09 are effective for financial statements issued for annual periods beginning after December 15, 2017, including interim periods within those annual periods, and early adoption is permitted for interim or annual periods. The Company is evaluating the impact that the adoption of ASU No. 2017-09 will have on its Consolidated Financial Statements and related disclosures.
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y)
|
Recently
Adopted Accounting Standards
|
In July 2015, the FASB issued ASU No. 2015-11,
Simplifying the Measurement of Inventory
(“ASU No. 2015-11”). ASU No. 2015-11 states that entities should measure inventory that is not measured using last-in, first-out or the retail inventory method, including inventory that is measured using first-in, first-out or average cost, at the lower of cost or net realizable
71
value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs
of completion, disposal and transportation. ASU No. 2015-11 is effective for reporting periods beginning after December 15, 2016 and is to be applied prospectively. The Company adopted this guidance during fiscal year 2017, and it did not have a significa
nt impact on the Company’s Consolidated Financial Statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation - Stock Compensation
(Topic 718), Improvements to Employee Share-Based Payment Accounting (“ASU No. 2016-09”), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, forfeitures and statutory withholding requirements and classification on the statement of cash flows. This update also impacts the earnings per share calculation. ASU No. 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods therein. Early application is permitted. The Company adopted this guidance in fiscal year 2016, and no cumulative-effect adjustments were required to be recorded upon adoption of any of the provisions of ASU No. 2016-09. Further, ASU No. 2016-09 did not have a significant impact on the Company’s Consolidated Financial Statements and related disclosures.
Note 3 – Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share:
|
|
Year Ended
|
|
(Dollars and shares in thousands, except per share amounts)
|
|
December 31,
|
|
|
January 1,
|
|
|
January 3,
|
|
|
|
2017
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax
|
|
$
|
7,773
|
|
|
$
|
7,477
|
|
|
$
|
5,784
|
|
Loss from discontinued operations, net
|
|
|
(439
|
)
|
|
|
(434
|
)
|
|
|
(429
|
)
|
Net income
|
|
$
|
7,334
|
|
|
$
|
7,043
|
|
|
$
|
5,355
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares (denominator for basic earnings per share)
|
|
|
14,695
|
|
|
|
14,821
|
|
|
|
15,000
|
|
Effect of dilutive securities
|
|
|
73
|
|
|
|
19
|
|
|
|
37
|
|
Adjusted weighted average shares and assumed conversions
(denominator for diluted earnings per share)
|
|
|
14,768
|
|
|
|
14,840
|
|
|
|
15,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax
|
|
$
|
0.53
|
|
|
$
|
0.50
|
|
|
$
|
0.39
|
|
Loss from discontinued operations, net
|
|
|
(0.03
|
)
|
|
|
(0.03
|
)
|
|
|
(0.03
|
)
|
Basic earnings per share
|
|
$
|
0.50
|
|
|
$
|
0.48
|
|
|
$
|
0.36
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations, net of tax
|
|
$
|
0.53
|
|
|
$
|
0.50
|
|
|
$
|
0.38
|
|
Loss from discontinued operations, net
|
|
|
(0.03
|
)
|
|
|
(0.03
|
)
|
|
|
(0.03
|
)
|
Diluted earnings per share
|
|
$
|
0.50
|
|
|
$
|
0.47
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Per share amounts may not sum due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock is computed similarly to basic earnings per share except the weighted average shares outstanding are increased to include additional shares from the assumed exercise of any common stock equivalents, if dilutive. The J. Alexander’s Holdings, LLC Class B Units are considered common stock equivalents for this purpose. The number of additional shares of common stock related to these common stock equivalents is calculated using the if-converted method. The 833,346 Class B Units associated with management’s profits interest awards are not considered to be dilutive as the applicable hurdle rate had not been met as of December 31, 2017, January 1, 2017 or January 3, 2016, and, therefore, are excluded for the purpose of the diluted earnings per share calculation. However, the Black Knight profits interest Class B Units are considered to be dilutive for certain quarterly periods within the years ended December 31, 2017, January 1, 2017 and January 3, 2016, and are included in the diluted earnings per share calculation for each of the years then ended accordingly. The impact of the exchange of the 1,500,024 Black Knight Class B Units on the diluted earnings per share calculation was additional shares of 72,579, 18,519 and 36,776 for the years ended December 31, 2017, January 1, 2017 and January 3, 2016, respectively. The number of additional shares of common stock related to stock option awards is calculated using the treasury method, if dilutive. The 985,750, 990,750 and 437,000 stock option awards outstanding as of December 31, 2017, January 1, 2017 and January 3, 2016, respectively, were considered anti-dilutive and, therefore, are excluded from the diluted earnings per share calculation for the years then ended.
72
The
periods
prior to the Distribution presented in the accompanying Consolidated Financial Statements represent the historical operating results and financial position of J. Alexander’s Holdings, LLC. For comparison purposes, earnings per share amounts are calculate
d for such periods using a weighted-average number of common shares outstanding based on the number of shares outstanding on the Distribution date as if all shares had been outstanding since the first day of the earliest period presented.
Also, on February 21, 2018, the Company issued 510,000 stock option awards to purchase common stock at an exercise price of $9.55. These awards are not reflected in the calculations of earnings per share presented for fiscal year 2017.
Note 4 – Fair Value Measurements
The Company utilizes the following fair value hierarchy, which prioritizes the inputs into valuation techniques used to measure fair value. Accordingly, the Company uses valuation techniques which maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value. The three levels of the hierarchy are as follows:
Level 1
|
Defined as observable inputs such as quoted prices in active markets for identical assets or liabilities.
|
Level 2
|
Defined as observable inputs other than Level 1 prices. These include quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
Level 3
|
Defined as unobservable inputs for which little or no market data exists, therefore, requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk.
|
The following tables present our financial assets and liabilities measured at fair value on a recurring basis as of the dates indicated:
|
|
December 31, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash and cash equivalents*
|
|
$
|
212
|
|
|
$
|
-
|
|
|
$
|
-
|
|
U.S. government obligations*
|
|
|
397
|
|
|
|
-
|
|
|
|
-
|
|
Corporate bonds*
|
|
|
1,841
|
|
|
|
-
|
|
|
|
-
|
|
Cash surrender value - life insurance*
|
|
|
-
|
|
|
|
2,106
|
|
|
|
-
|
|
Total
|
|
$
|
2,450
|
|
|
$
|
2,106
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash and cash equivalents*
|
|
$
|
45
|
|
|
$
|
-
|
|
|
$
|
-
|
|
U.S. government obligations*
|
|
|
700
|
|
|
|
-
|
|
|
|
-
|
|
Corporate bonds*
|
|
|
1,683
|
|
|
|
-
|
|
|
|
-
|
|
Cash surrender value - life insurance*
|
|
|
-
|
|
|
|
2,017
|
|
|
|
-
|
|
Total
|
|
$
|
2,428
|
|
|
$
|
2,017
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* - As held in the Trust as defined below.
|
|
|
|
|
|
|
|
|
|
|
|
|
As discussed in Note 15 below, the Distribution triggered the obligation of J. Alexander’s, LLC, the operating subsidiary of the Company, to establish and fund the Trust under the Amended and Restated Salary Continuation Agreements. On October 19, 2015 the Trust was funded with a total of $4,304, which was comprised of $2,415 in cash and $1,889 in cash surrender values of whole life insurance policies. Subsequent to that date, a portion of the cash was invested in certain marketable securities at the direction of the Trust manager. Such investments include U.S. government agency obligations and corporate bonds. The remaining portion is held as cash and cash equivalents.
Cash and cash equivalents are classified as Level 1 in the fair value hierarchy as they represent cash held in a trust managed by our bank. Cash held in the Trust is invested through an overnight repurchase agreement the investments of which may include U.S. Treasury securities, such as bonds or Treasury bills, and other agencies of the U.S. government. Such investments are valued using quoted market prices in active markets.
U.S. government obligations held in the Trust include U.S. Treasury Bonds. These bonds as well as the corporate bonds listed above are classified as Level 1 in the fair value hierarchy given their readily available quoted prices in active markets.
73
Cash surrender value - life insurance is classified as Level 2 in the fair value hierarchy. The
value of each policy was determined by MassMutual Financial Group, an A-rated insurance company, which provides the value of these policies to the Company on a regular basis by which the Company adjusts the recorded value accordingly.
There were no transfers between the levels listed above during either of the reporting periods.
Unrealized gains or losses on investments held in the Trust are presented as a component of “Other, net” on the Consolidated Statements of Income and Comprehensive Income.
As of December 31, 2017 and January 1, 2017, the fair value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximated their carrying value due to their short-term nature. The carrying amounts of the long-term debt approximate fair value as interest rates, and negotiated terms and conditions are consistent with current market rates, because of the close proximity of recent refinancing transactions and the quotes obtained for potential financings to the dates of these Consolidated Financial Statements.
There were no assets and liabilities measured at fair value on a nonrecurring basis during the years ended December 31, 2017 and January 1, 2017.
Note 5 – Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2017
|
|
|
2017
|
|
Prepaid insurance
|
|
$
|
1,239
|
|
|
$
|
1,180
|
|
Prepaid rent
|
|
|
986
|
|
|
|
902
|
|
Payroll taxes
|
|
|
1,252
|
|
|
|
1,183
|
|
Other
|
|
|
292
|
|
|
|
383
|
|
Prepaid expenses and other current assets
|
|
$
|
3,769
|
|
|
$
|
3,648
|
|
Note 6 – Other Assets
Other assets consisted of the following:
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2017
|
|
|
2017
|
|
Favorable operating leases, net
|
|
$
|
351
|
|
|
$
|
803
|
|
Cash, cash equivalents and securities held in the Trust
|
|
|
2,450
|
|
|
|
2,428
|
|
Cash surrender value of life insurance
|
|
|
2,106
|
|
|
|
2,017
|
|
Deferred tax assets
|
|
|
522
|
|
|
|
221
|
|
Other
|
|
|
754
|
|
|
|
543
|
|
Other assets
|
|
$
|
6,183
|
|
|
$
|
6,012
|
|
Note 7 – Property and Equipment
Property and equipment, at cost, less accumulated depreciation and amortization, consisted of the following:
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2017
|
|
|
2017
|
|
Land
|
|
$
|
20,204
|
|
|
$
|
20,204
|
|
Buildings
|
|
|
31,057
|
|
|
|
29,879
|
|
Leasehold improvements
|
|
|
58,233
|
|
|
|
48,978
|
|
Restaurant and other equipment
|
|
|
32,036
|
|
|
|
26,893
|
|
Construction in progress
|
|
|
5,569
|
|
|
|
9,680
|
|
|
|
|
147,099
|
|
|
|
135,634
|
|
Less accumulated depreciation and amortization
|
|
|
(43,484
|
)
|
|
|
(34,164
|
)
|
Property and equipment, net
|
|
$
|
103,615
|
|
|
$
|
101,470
|
|
74
For fiscal years 2017, 2016 and 2015, depreciation expense from continuing operations was $10,287, $9,110 and $8,523
, respectively. The loss on disposition of assets from continuing operations included in the “Other operating expenses” line item of the Statements of Income and Comprehensive Income, primarily related to the refreshing of assets through store remodels, wa
s $147, $251 and $256 for fiscal years 2017, 2016 and 2015, respectively.
No impairment charges were recorded during fiscal years 2017, 2016 or 2015.
Note 8 – Goodwill and Indefinite‑Lived Intangible Assets
Goodwill and indefinite-lived intangible assets consisted of the following:
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2017
|
|
|
2017
|
|
Goodwill
|
|
$
|
15,737
|
|
|
$
|
15,737
|
|
Tradename
|
|
|
25,053
|
|
|
|
25,053
|
|
Liquor licenses
|
|
|
149
|
|
|
|
102
|
|
Intangible assets
|
|
$
|
40,939
|
|
|
$
|
40,892
|
|
Note 9 – Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2017
|
|
|
2017
|
|
Taxes, other than income taxes
|
|
$
|
4,236
|
|
|
$
|
4,093
|
|
Salaries, wages, vacation, and incentive compensation
|
|
|
2,995
|
|
|
|
2,954
|
|
Transaction costs
|
|
|
1,060
|
|
|
|
-
|
|
Other
|
|
|
2,454
|
|
|
|
2,439
|
|
Accrued expenses and other current liabilities
|
|
$
|
10,745
|
|
|
$
|
9,486
|
|
Note 10 – Debt
Debt consisted of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
January 1,
|
|
|
|
2017
|
|
|
2017
|
|
|
2017
|
|
|
2017
|
|
|
|
Current
|
|
|
Long-term
|
|
|
Current
|
|
|
Long-term
|
|
Mortgage Loan, LIBOR + 2.5% (floor of 3.25%,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ceiling of 6.25%), at 3.94% and 3.25% at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017 and January 1, 2017,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
respectively, payable through 2020
|
|
$
|
1,667
|
|
|
$
|
6,250
|
|
|
$
|
1,667
|
|
|
$
|
7,916
|
|
Term Loan, LIBOR + 2.2% on a floating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basis at 3.64% and 2.86% at December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and January 1, 2017, respectively, payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
through 2020
|
|
|
3,333
|
|
|
|
4,722
|
|
|
|
2,222
|
|
|
|
7,778
|
|
Development Revolving Promissory Note, LIBOR +
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.2% on a floating basis at 3.64% and 2.86%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at December 31, 2017 and January 1, 2017,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
respectively, payable through 2020
|
|
|
4,000
|
|
|
|
-
|
|
|
|
4,000
|
|
|
|
-
|
|
Less: Net deferred loan costs
|
|
|
-
|
|
|
|
(191
|
)
|
|
|
-
|
|
|
|
(276
|
)
|
Total debt
|
|
$
|
9,000
|
|
|
$
|
10,781
|
|
|
$
|
7,889
|
|
|
$
|
15,418
|
|
In 2013, a previous line of credit agreement from Pinnacle Bank was refinanced, and a new $16,000 credit facility that provided two new loans from Pinnacle Bank was obtained. The borrower under this credit facility was J. Alexander’s, LLC, and the credit facility
75
was guaranteed by J. Alexander’s Holdings, LLC and all of its significant subsidiaries. The credit facility consisted of a three-year $1,000 revolving line o
f credit (“Revolving Line of Credit”), which replaced the previous line of credit and may be used for general corporate purposes, and a seven-year $15,000 term loan which is secured by liens on certain properties of J. Alexander’s, LLC (“Mortgage Loan”). E
ffective December 9, 2014, J. Alexander’s LLC executed an Amended and Restated Loan Agreement which encompassed the two existing credit facilities discussed above dated September 3, 2013 and also included a five-year, $15,000 development line of credit (“D
evelopment Line of Credit”). Effective May 20, 2015, J. Alexander’s, LLC executed a Second Amended and Restated Loan Agreement (the “Loan Agreement”), which increased the Development Line of Credit to $20,000 over a five-year term and also included a five
year, $10,000 term loan (the “Term Loan”), the proceeds of which were used to repay in full the $10,000 outstanding under a note to FNF, discussed in greater detail below, which was scheduled to mature January 31, 2016. Effective September 3, 2016, J. Ale
xander’s, LLC executed a modification agreement with respect to the $1,000 Revolving Line of Credit originally entered into on September 3, 2013. This modification agreement extended the term of this line of credit from September 3, 2016 to September 3, 20
19, with no additional significant changes to the terms of the agreement. The indebtedness outstanding under these facilities is secured by liens on certain personal property of the Company and its subsidiaries, subsidiary guaranties, and a mortgage lien o
n certain real property.
Any amount borrowed under the Revolving Line of Credit bears interest at an annual rate of 30 day LIBOR plus a margin equal to 2.50%, with a minimum interest rate of 3.25% per annum. The Mortgage Loan bears interest at an annual rate of 30 day LIBOR plus a margin equal to 2.50%, with a minimum and maximum interest rate of 3.25% and 6.25% per annum, respectively. Both the Development Line of Credit and the Term Loan bear interest at 30 day LIBOR plus 2.2% per annum. The Term Loan is structured on an interest only basis for the first 24 months of the term, followed by a 36-month amortization. The Loan Agreement, among other things, permits payments of tax dividends to members, limits capital expenditures, asset sales and liens and encumbrances, prohibits dividends, and contains certain other provisions customarily included in such agreements.
In 2013, J. Alexander’s Holdings, LLC entered into a $20,000 note payable to FNF (the “FNF Note”). The note accrued interest at 12.5% annually, and the interest and principal were payable in full on January 31, 2016. Under the terms of the Mortgage Loan dated September 3, 2013, the FNF Note was subordinated to the Mortgage Loan. On December 15, 2014, a payment of $14,569, representing $10,000 of principal on the FNF Note and $4,569 of accrued interest, was made to FNF. As noted above, on May 20, 2015, J. Alexander’s, LLC entered into a new $10,000 Term Loan the purpose of which was to refinance the remaining $10,000 principal balance of the existing FNF Note. On May 20, 2015, the Company paid the remaining principal balance of $10,000 as well as accrued interest of $542 to FNF which resulted in the FNF Note being paid in full.
The Loan Agreement also includes certain financial covenants. A fixed charge coverage ratio of at least 1.25 to 1 as of the end of any fiscal quarter based on the four quarters then ending must be maintained. The fixed charge coverage ratio is defined in the Loan Agreement as the ratio of (a) the sum of net income for the applicable period (excluding the effect on such period of any extraordinary or nonrecurring gains or losses, including any asset impairment charges, restaurant closing expenses (including lease buy‑out expenses), changes in valuation allowance for deferred tax assets, and noncash deferred income tax benefits and expenses and up to $1,000 (in the aggregate for the 5-year term of the Development Loan) in uninsured losses) plus depreciation and amortization plus interest expense plus rent payments plus noncash compensation expense plus any other noncash expenses or charges and plus expenses associated with the public offering/Spin-off process of the Company minus the greater of either actual total store maintenance capital expenditures (excluding major remodeling or image enhancements) or the total number of stores in operation for at least 18 months multiplied by $40, to (b) the sum of interest expense during such period plus rent payments made during such period plus payments of long‑term debt and capital lease obligations made during such period, all determined in accordance with GAAP.
In addition, the maximum adjusted debt to EBITDAR ratio must not exceed 4.0 to 1 at the end of any fiscal quarter. Under the Loan Agreement, EBITDAR is measured based on the then‑ending four fiscal quarters and is defined as the sum of net income for the applicable period (excluding the effect on such period of any extraordinary or nonrecurring gains or losses, including any asset impairment charges, restaurant closing expenses (including lease buy‑out expenses), changes in valuation allowance for deferred tax assets and noncash deferred income tax benefits and expenses and up to $1,000 (in the aggregate for the term of the loans) in uninsured losses) plus an amount that in the determination of net income for the applicable period has been deducted for (i) interest expense; (ii) total federal, state, foreign, or other income taxes; (iii) all depreciation and amortization; (iv) rent payments; and (v) noncash compensation expenses, plus any other noncash expenses or charges and plus expenses associated with the public offering/Spin-off process, all as determined in accordance with GAAP. Adjusted debt is (i) funded debt obligations net of any short‑term investments, cash and cash equivalents plus (ii) rent payments multiplied by seven.
If an event of default shall occur and be continuing under the Loan Agreement, the commitment under the Loan Agreement may be terminated and any principal amount outstanding, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable. J. Alexander’s, LLC was in compliance with these financial covenants as of December 31, 2017 and for all reporting periods during the year then ended.
76
At December 31, 2017, the amounts outstanding under the Development Line of Credit and Revolving Line of Credit were $4,000 and $0, respectively, and a total of $17,000 was available to us for borrowing under these lines of credit on this date.
At Dec
ember 31, 2017, $7,917 was outstanding under the Mortgage Loan and an additional $8,055 was outstanding under the Term Loan. The Second Amended and Restated Loan Agreement in place at December 31, 2017 is secured by the real estate, equipment and other per
sonal property of 12 restaurant locations
with an aggregate net book value of $32,789 at December 31, 2017.
Deferred loan costs are $465 and $463, net of accumulated amortization expense of $274 and $187 at December 31, 2017 and January 1, 2017, respectively. Deferred loan costs are being amortized to interest expense using the effective-interest method over the life of the related debt.
The carrying value of the debt balance under both the Mortgage Loan and Term Loan as of December 31, 2017 and January 1, 2017 are considered to approximate their fair value because of the proximity of the debt refinancing and the quotes obtained for potential financings discussed above to the 2017 and 2016 fiscal year-ends.
The aggregate maturities of long‑term debt for the five fiscal years succeeding December 31, 2017 are as follows: 2018 – $9,000; 2019 – $5,000; 2020 – $5,972; 2021 – $0; 2022 and thereafter – $0.
Note 11 - Other Long‑Term Liabilities
Other long‑term liabilities consisted of the following:
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2017
|
|
|
2017
|
|
Deferred rent
|
|
$
|
6,094
|
|
|
$
|
4,735
|
|
Unfavorable lease liabilities, net
|
|
|
347
|
|
|
|
563
|
|
Uncertain tax positions
|
|
|
15
|
|
|
|
257
|
|
Other long-term liabilities
|
|
$
|
6,456
|
|
|
$
|
5,555
|
|
Note 12 - Leases
At December 31, 2017, subsidiaries of the Company were lessees under both ground leases (the subsidiaries lease the land and build their own buildings) and improved leases (lessor owns the land and buildings) for restaurant locations. These leases are operating leases.
Terms for these leases are generally for 15 to 20 years and, in many cases, the leases provide for rent escalations and for one or more five‑year renewal options. The Company and its subsidiaries are generally obligated for the cost of property taxes, insurance, and maintenance. Certain real property leases provide for contingent rentals based upon a percentage of sales. In addition, a subsidiary of the Company is a lessee under other noncancelable operating leases, principally for office space. Amortization of leased assets is included in depreciation and amortization of restaurant property and equipment expense and general and administrative expense in the Consolidated Statements of Income and Comprehensive Income.
The following table summarizes future minimum lease payments under operating leases (excluding renewal options), including those restaurants reported as discontinued operations, having an initial term of one year or more:
|
|
December 31,
|
|
|
|
2017
|
|
2018
|
|
$
|
7,774
|
|
2019
|
|
|
6,937
|
|
2020
|
|
|
5,902
|
|
2021
|
|
|
4,721
|
|
2022
|
|
|
3,710
|
|
2023 and thereafter
|
|
|
14,793
|
|
Total minimum lease payments
(1)
|
|
$
|
43,837
|
|
(1)
Total minimum lease payments under operating leases have not been reduced by minimum sublease rentals of $256 due in future periods under noncancelable subleases.
For fiscal years 2017, 2016 and 2015, straight‑line base rent expense included in continuing operations was $7,814, $7,490 and $6,934, respectively. In addition to the aforementioned amounts, there was straight‑line base rent expense included in discontinued
77
operations of $266 for each of fiscal years 2017, 2016 and 2015, respectively. There was no significant contingent rent expense for the any of the periods presented. During fiscal year
s 2017 and 2016, the Company received a tenant improvement allowance of $799 and $590, respectively, which were each recorded as a deferred rent obligation, and are being credited to straight-line rent expense over the term of the associated leases.
Note 13 – Income Taxes
Significant components of the Company’s income tax expense (benefit) for the periods indicated below are as follows
:
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
January 3,
|
|
|
|
2017
|
|
|
2017
|
|
|
2016
|
|
Current income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
264
|
|
|
$
|
2,189
|
|
|
$
|
946
|
|
State and local
|
|
|
743
|
|
|
|
774
|
|
|
|
359
|
|
Total current income taxes
|
|
|
1,007
|
|
|
|
2,963
|
|
|
|
1,305
|
|
Deferred income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(1,881
|
)
|
|
|
(922
|
)
|
|
|
217
|
|
State and local
|
|
|
(473
|
)
|
|
|
21
|
|
|
|
33
|
|
Total deferred income taxes
|
|
|
(2,354
|
)
|
|
|
(901
|
)
|
|
|
250
|
|
Income tax expense (benefit)
|
|
$
|
(1,347
|
)
|
|
$
|
2,062
|
|
|
$
|
1,555
|
|
The Company’s effective tax rate differs from the federal statutory rate as set forth in the following table for the periods indicated:
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
January 1,
|
|
|
January 3,
|
|
|
|
2017
|
|
|
2017
|
|
|
2016
|
|
Federal income tax
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
34.0
|
%
|
Federal tax reform
|
|
|
(22.4
|
)%
|
|
|
-
|
|
|
|
-
|
|
Effect of rates due to pass-through entities
|
|
|
-
|
|
|
|
-
|
|
|
|
(14.7
|
)%
|
State income tax
|
|
|
6.4
|
%
|
|
|
6.5
|
%
|
|
|
6.9
|
%
|
Transaction costs
|
|
|
-
|
|
|
|
-
|
|
|
|
2.0
|
%
|
FICA tip credit
|
|
|
(32.8
|
)%
|
|
|
(20.1
|
)%
|
|
|
(6.9
|
)%
|
Uncertain tax positions
|
|
|
(3.9
|
)%
|
|
|
(0.1
|
)%
|
|
|
(1.3
|
)%
|
Return to provision
|
|
|
(4.5
|
)%
|
|
|
-
|
|
|
|
-
|
|
Rate differential between current and deferred taxes
|
|
|
(1.7
|
)%
|
|
|
-
|
|
|
|
2.5
|
%
|
Incentive stock options
|
|
|
2.0
|
%
|
|
|
0.9
|
%
|
|
|
|
|
Other
|
|
|
(0.6
|
)%
|
|
|
0.4
|
%
|
|
|
-
|
|
Effective tax rate
|
|
|
(22.5
|
)%
|
|
|
22.6
|
%
|
|
|
22.5
|
%
|
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act includes a number of changes to the U.S. tax code that affected fiscal year 2017, most notably a reduction of the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017 and the acceleration of depreciation for certain assets placed into service after September 27, 2017.
In connection with its initial analysis of the impact of the Tax Act, the Company has recorded a net tax benefit of $(1,345) in fiscal year 2017 related to the revaluation of the Company's deferred tax assets and liabilities. Since the Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid, the Company’s deferred tax assets and liabilities were re-measured to reflect the reduction in the U.S. corporate income tax rate from 35% to 21%, resulting in a $(1,345) decrease in income tax expense for the year ended December 31, 2017, and a corresponding decrease in net deferred tax liabilities as of December 31, 2017.
There are also provisions in the Tax Act that are effective for tax years beginning after December 31, 2017, that have no impact on the deferred tax balance for fiscal year 2017. Therefore, the tax impact of these provisions will be reflected in the fiscal year 2018 Consolidated Financial Statements. The accounting for the income tax effects of these provisions is not yet complete.
78
The SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address situations where a registrant does not have the necessary information available, prepared,
or analyzed (including computations) in reasonable detail to complete the accounting under ASC Topic 740 for certain income tax effects of the Tax Act for the reporting period of enactment. SAB 118 allows the Company to provide a provisional estimate of t
he impacts of the Tax Act during a measurement period similar to the measurement period used when accounting for business combinations. Adjustments to provisional estimates and additional impacts from the Tax Act must be recorded as they are identified dur
ing the measurement period as provided for in SAB 118. The Company has not completed its accounting for the income tax effects of the Tax Act, including, but not limited to, the impacts of depreciation, compensation and fringe benefits. Where the Company
has been able to make reasonable estimates of the effects for which its analysis is not yet complete, the Company has recorded provisional amounts in accordance with SAB 118.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2017, and January 1, 2017, are as follows:
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2017
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
173
|
|
|
$
|
182
|
|
Accrued bonuses
|
|
|
17
|
|
|
|
108
|
|
Stock options
|
|
|
159
|
|
|
|
97
|
|
State bonus depreciation
|
|
|
400
|
|
|
|
74
|
|
Other
|
|
|
-
|
|
|
|
8
|
|
Total deferred tax assets
|
|
|
749
|
|
|
|
469
|
|
Less: deferred tax assets valuation allowance
|
|
|
(105
|
)
|
|
|
(68
|
)
|
Total net deferred tax assets
|
|
|
644
|
|
|
|
401
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Partnership differences
|
|
|
(2,119
|
)
|
|
|
(4,211
|
)
|
Other
|
|
|
(78
|
)
|
|
|
-
|
|
Total deferred tax liabilities
|
|
|
(2,197
|
)
|
|
|
(4,211
|
)
|
Net deferred tax (liability) asset
|
|
$
|
(1,553
|
)
|
|
$
|
(3,810
|
)
|
ASC Topic 740, Income Taxes, establishes procedures to measure deferred tax assets and liabilities and assess whether a valuation allowance relative to existing deferred tax assets is necessary. Management assesses the likelihood of realization of the Company’s deferred tax assets and the need for a valuation allowance with respect to those assets based on the weight of available positive and negative evidence. As of December 31, 2017, management determined that a valuation allowance of $105 was necessary relative to certain state net operating loss carryforwards which are not expected to be realized. Management also determined at December 31, 2017 that it is more likely than not that the results of future operations and reversal of deferred tax liabilities will generate sufficient taxable income to realize the remaining deferred tax assets not covered by this valuation allowance.
As of December 31, 2017, the Company has state gross operating loss carryforwards gross of the valuation allowance discussed above of approximately $3,570 expiring in years 2027 through 2037, and federal gross operating loss carryforwards of $195 expiring in year 2037.
Additionally, the Company recorded a liability (including interest) in connection with uncertain tax positions related to state tax issues totaling $66 and $299 as of December 31, 2017 and January 1, 2017, respectively. The Company elected to accrue interest and penalties related to unrecognized tax benefits in its provision for income taxes. The Company accrued interest related to unrecognized tax benefits of approximately $3 and $109 as of December 31, 2017 and January 1, 2017, respectively. A reconciliation of the beginning and ending unrecognized tax benefit associated with these positions (excluding federal benefit and the aforementioned accrued interest) is as follows:
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2017
|
|
|
2017
|
|
Balance at the beginning of the year
|
|
$
|
294
|
|
|
$
|
228
|
|
Changes based on tax positions taken during the current year
|
|
|
-
|
|
|
|
-
|
|
Changes based on tax positions taken during prior years
|
|
|
-
|
|
|
|
66
|
|
Reductions related to settlements with taxing authorities and
|
|
|
|
|
|
|
|
|
lapses of statutes of limitations
|
|
|
(214
|
)
|
|
|
-
|
|
Balance at the end of the year
|
|
$
|
80
|
|
|
$
|
294
|
|
79
As of December 31, 2017, the total amount of gross unrecognized tax benefit that, if recognized, would impact the effective tax rate was $15.
Within the next twelve months, the Company estimates that the gross unrecognized benefits will decrease by $15 due to state statute expiration.
The Company and its subsidiaries file a partnership federal income tax return, consolidated corporate federal income tax return, and a separate corporate federal income tax return as well as various state and local income tax returns. The earliest year open to examination in the Company’s major jurisdictions is 2014 for federal and state income tax returns.
Since the proposed acquisition of 99 Restaurants was abandoned in fiscal year 2018, as discussed in Notes 2 and 20, the transaction costs that were treated as a deferred tax asset in fiscal 2017 will be deductible in fiscal year 2018, and, therefore, should have no impact on the 2018 effective tax rate.
Note 14 – Share-based Compensation
For the years ended December 31, 2017, January 1, 2017 and January 3, 2016, the Company recorded total share-based compensation expense of $2,207, $2,996 and $1,256, respectively, the components of which are discussed in further detail below.
Stock Option Awards
Under the J. Alexander’s Holdings, Inc. 2015 Equity Incentive Plan, directors, officers and key employees of the Company may be granted equity incentive awards, such as stock options, restricted stock and stock appreciation rights in an effort to retain qualified management and personnel. This plan authorizes a maximum of 1,500,000 shares of the Company’s common stock to be issued to holders of these equity awards. No awards were made by the Company under this plan during fiscal year 2017. During fiscal years 2016 and 2015, the Compensation Committee and the Board of the Company awarded stock option grants totaling 553,750 and 467,000 options, respectively, to certain members of management and the members of the Board, and the contractual term for each grant is seven years. The requisite service period for each grant is four years with each vesting in four equal installments on the first four anniversaries of their respective grant dates
.
The Company uses the Black-Scholes-Merton option pricing model to estimate the fair value of stock option awards and used the following assumptions for the indicated periods during which grants were made as noted above:
|
|
Year Ended
|
|
|
|
January 1, 2017
|
|
|
January 3, 2016
|
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Volatility factor
|
|
|
34.51
|
%
|
|
|
35.00
|
%
|
Risk-free interest rate
|
|
|
1.34
|
%
|
|
|
1.36
|
%
|
Expected life of options (in years)
|
|
|
4.75
|
|
|
|
4.75
|
|
Weighted-average grant date fair value
|
|
$
|
2.82
|
|
|
$
|
3.33
|
|
The expected life of stock options granted during the periods presented was calculated in accordance with the simplified method described in SEC Staff Accounting Bulletin (“SAB”) Topic 14.D.2 in accordance with SAB 110. This approach was utilized due to the lack of exercise history and the anticipated behavior of the overall group of grantees. The risk-free rate for periods within the contractual life of the options is based on the 5-year U.S. Treasury bond rate in effect at the time of grant. The Company utilized a weighted rate for expected volatility based on a representative peer group within the industry. The dividend yield was set at zero as the underlying security does not pay a dividend. Additionally, management has made an accounting policy election in accordance with ASU No. 2016-09 to account for forfeitures when they occur. A grant of 5,000 shares was forfeited during fiscal year 2017. No such forfeitures occurred during 2016, and no cumulative-effect adjustment to equity was required upon adoption of this policy in 2016 as the previously assumed forfeiture rate in 2015 was 0% for then outstanding awards.
80
A summary of stock options under the Company’s equity incentive plan is as follows:
|
|
Number of
Shares
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at December 28, 2014
|
|
|
-
|
|
|
$
|
-
|
|
Issued
|
|
|
467,000
|
|
|
|
10.39
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(30,000
|
)
|
|
|
10.39
|
|
Outstanding at January 3, 2016
|
|
|
437,000
|
|
|
|
10.39
|
|
Issued
|
|
|
553,750
|
|
|
|
8.93
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Outstanding at January 1, 2017
|
|
|
990,750
|
|
|
|
9.58
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(5,000
|
)
|
|
|
8.90
|
|
Outstanding at December 31, 2017
|
|
|
985,750
|
|
|
$
|
9.58
|
|
At December 31, 2017, stock options exercisable and shares available for future grant were 355,687 and 514,250, respectively.
At January 1, 2017, stock options exercisable and shares available for future grant were 109,250 and 509,250, respectively. At January 3, 2016, stock options exercisable and shares available for future grant were zero and 1,063,000, respectively.
As these awards contain only service conditions for vesting purposes and have a graded vesting schedule, the Company has elected to recognize the expense over the requisite service period for the entire award. Stock option expense totaling $747, $439 and $72 was recognized for fiscal years 2017, 2016 and 2015, respectively, which is included in the “General and administrative expenses” line item on the Consolidated Statements of Income and Comprehensive Income. At December 31, 2017, the Company had $1,743 of unrecognized compensation cost related to these share-based payments which is expected to be recognized over a period of approximately 2.85 years.
The aggregate intrinsic value of stock options represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options. This amount changes based on the fair market value of the Company’s common stock and totaled $428, $1,163 and $232 at December 31, 2017 January 1, 2017 and January 3, 2016, respectively, for options outstanding. The intrinsic value of options exercisable at December 31, 2017 and January 1, 2017 totaled $107 and $39, respectively. No options were exercised in fiscal years 2017 or 2016.
The following table summarizes the Company’s non-vested stock option activity for the year ended December 31, 2017:
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
Non-vested stock options at January 1, 2017
|
|
|
881,500
|
|
|
$
|
3.01
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(246,437
|
)
|
|
|
3.05
|
|
Forfeited
|
|
|
(5,000
|
)
|
|
|
2.81
|
|
Non-vested stock options at December 31, 2017
|
|
|
630,063
|
|
|
$
|
3.00
|
|
The total fair value of stock options vested during fiscal years 2017, 2016 and 2015 was $751, $364 and $0, respectively.
81
The following table summarizes information about the Company’s stock options outstanding at December 31, 2017:
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Range of Exercise Prices
|
|
Number Outstanding at December 31, 2017
|
|
|
Weighted Average Remaining Contractual Life
|
|
Weighted Average Exercise Price
|
|
|
Number Exercisable at December 31, 2017
|
|
|
Weighted Average Remaining Contractual Life
|
|
Weighted Average Exercise Price
|
|
$8.90
|
|
|
535,000
|
|
|
5.85 years
|
|
$
|
8.90
|
|
|
|
133,750
|
|
|
5.85 years
|
|
$
|
8.90
|
|
$10.24
|
|
|
13,750
|
|
|
5.32 years
|
|
|
10.24
|
|
|
|
3,437
|
|
|
5.32 years
|
|
|
10.24
|
|
$10.39
|
|
|
437,000
|
|
|
4.78 years
|
|
|
10.39
|
|
|
|
218,500
|
|
|
4.78 years
|
|
|
10.39
|
|
$8.90 - $10.39
|
|
|
985,750
|
|
|
5.37 years
|
|
$
|
9.58
|
|
|
|
355,687
|
|
|
5.19 years
|
|
$
|
9.83
|
|
Management Profits Interest Plan
On January 1, 2015, J. Alexander’s Holdings, LLC adopted its 2015 Management Incentive Plan and granted equity incentive awards to certain members of its management in the form of Class B Units. The Class B Units are profits interests in J. Alexander’s Holdings, LLC. Class B Units in the amount of 1,770,000 were reserved for issuance under the plan and a total of 885,000 Class B Units were granted on January 1, 2015. Each Class B Unit represents a non-voting equity interest in J. Alexander’s Holdings, LLC that entitles the holder to a percentage of the profits and appreciation in the equity value of J. Alexander’s Holdings, LLC arising after the date of grant and after such time as an applicable hurdle amount is met. The hurdle amount for the Class B Units issued to our management in January 2015 was set at $180,000, which at such time was a reasonable premium to the estimated liquidation value of the equity of J. Alexander’s Holdings, LLC. The Class B Units issued to management vested with respect to 50% of the grant units on the second anniversary of the date of grant and with respect to the remaining 50% on the third anniversary of the date of grant and require a six-month holding period post vesting.
Vested Class B Units may be exchanged for, at the Company’s option, either (i) cash in an amount equal to the amount that would be distributed to the holder of those Class B Units by J. Alexander’s Holdings, LLC upon a liquidation of J. Alexander’s Holdings, LLC assuming the aggregate amount to be distributed to all members of J. Alexander’s Holdings, LLC were equal to the Company’s market capitalization on the date of exchange, (net of any assets and liabilities of the Company that are not assets or liabilities of J. Alexander’s Holdings, LLC) or (ii) shares of the Company’s common stock with a fair market value equal to the cash payment under (i) above.
The Class B Units issued to the Company’s management have been classified as equity awards and share-based compensation expense is based on the grant date fair value of the awards. At December 31, 2017, the applicable hurdle rate for these Class B Units was not met.
The Company used the Black-Scholes-Merton pricing model to estimate the fair value of management profits interest awards and used the following assumptions:
|
|
Grant Date
|
|
|
|
Fair Value
|
|
Member equity price per unit
|
|
$
|
10.00
|
|
Class B hurdle price
|
|
$
|
11.30
|
|
Dividend yield
|
|
|
0
|
%
|
Volatility factor
|
|
|
35
|
%
|
Risk-free interest rate
|
|
|
1.24
|
%
|
Time to liquidity (in years)
|
|
|
3.5
|
|
Lack of marketability discount
|
|
|
23
|
%
|
Grant date fair value
|
|
$
|
1.76
|
|
The member equity price per unit was based on a recent enterprise valuation of J. Alexander’s Holdings, LLC divided by the number of Class A Units outstanding at the date of grant. The Class B hurdle price is based on the hurdle rate divided by the number of Class A Units outstanding at the time of grant. The expected life of management profits interest awards granted during the period presented was determined based on the vesting term of the award which also includes a six-month holding period subsequent to meeting the requisite vesting period. The risk-free rate for periods within the contractual life of the profit interest award is based on an extrapolated 4-year U.S. Treasury bond rate in effect at the time of grant given the expected time to liquidity. The Company utilized a weighted rate for expected volatility based on a representative peer group of comparable public companies. The dividend yield was set at zero as the underlying security does not pay a dividend. The protective put method was used to estimate the discount for lack of marketability
82
inherent to the awards due to the lack of liquidity associated with the post-vesting requirement and other restrictions on the Class B Units.
As a result of the reorganization transactions on September 28, 2015 and as evidenced in the executed Second Amended and Restated LLC Agreement of J. Alexander’s Holdings, LLC, entered into in connection with the reorganization transactions, the members’ equity of J. Alexander’s Holdings, LLC was recapitalized such that the total outstanding Class B Units granted to management as discussed above was reduced on a pro rata basis from 885,000 to 833,346 which is also the number of Class B Units outstanding as of December 31, 2017, and resulted in an adjusted grant date fair value relative to these units of $1.87.
The following table summarizes the Management Incentive Plan activity:
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Units
|
|
|
Fair Value
|
|
Non-vested management profits interest awards at January 1, 2017
|
|
|
416,673
|
|
|
$
|
1.87
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Non-vested management profits interest awards at December 31, 2017
|
|
|
416,673
|
|
|
$
|
1.87
|
|
As these awards contain only service conditions for vesting purposes and have a graded vesting schedule, the Company has elected to recognize the expense over the requisite service period for the entire award. Management profits interest expense totaling $518, $517 and $523 was recognized for fiscal year 2017, 2016 and 2015, respectively, which is included in the “General and administrative expense” line item on the Consolidated Statements of Income and Comprehensive Income. At December 31, 2017, the Company had $0 of unrecognized compensation cost related to these awards as the remaining unvested units vest on January 1, 2018. The total grant date fair value of units vested during fiscal years 2017, 2016 and 2015 was $0, $779 and $0, respectively. There was no redemption value of the outstanding management profits interest awards as of December 31, 2017 as the fair value was less than the hurdle rate.
Black Knight Advisory Services Profits Interest Plan
On September 28, 2015, immediately prior to the Distribution, J. Alexander’s Holdings, LLC entered into a Management Consulting Agreement with Black Knight, pursuant to which Black Knight provides corporate and strategic advisory services to J. Alexander’s Holdings, LLC. Pursuant to the terms of the Management Consulting Agreement between Black Knight and J. Alexander’s Holdings, LLC, a significant portion of the compensation to Black Knight for services rendered under the agreement was to be in the form of a profits interest grant, the terms of which are outlined in the Management Company Grant Agreement.
On October 6, 2015, J. Alexander’s Holdings, LLC granted 1,500,024 Class B Units representing profits interests to Black Knight. The hurdle rate stated in the agreement of $151,052 was determined based on the number of shares of the Company’s common stock issued multiplied by $10.07, which was the volume weighted average closing price of the common stock over the five days following the reorganization transaction discussed in Note 1 above. The awards vest at a rate of one-third of the Class B Units on each of the first, second and third anniversaries of the grant date and require a six-month holding period post vesting. The Class B Units contain exchange rights which will allow for them to be converted once vested into shares of the Company’s common stock based upon the value of the Class B Units at that date. The value is determined in reference to the market capitalization of the Company, with certain adjustments made for assets or liabilities contained at the Company’s level which are not also assets and liabilities of J. Alexander’s Holdings, LLC. These awards may not be settled with a cash payment.
The Class B Units issued to Black Knight have been classified as equity awards. Because the hurdle amount for these awards had been met at January 1, 2017 and January 3, 2016, the awards had intrinsic value of $1,020 and $1,275, respectively. The hurdle rate had not been met as of December 31, 2017, and, therefore, the intrinsic value as of this date was $0.
83
The Company used the Black-Scholes
-Merton pricing model to estimate the fair value of Black Knight profits interest awards which included the following assumptions for the indicated period:
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2017
|
|
Member equity price per unit
|
|
$
|
9.70
|
|
Class B hurdle price
|
|
$
|
10.07
|
|
Dividend yield
|
|
|
0
|
%
|
Volatility factor
|
|
|
38
|
%
|
Risk-free interest rate
|
|
|
2.20
|
%
|
Time to liquidity (in years)
|
|
|
4.5
|
|
Estimated fair value
|
|
$
|
3.25
|
|
The member equity price per unit represents the share price of the Company on the reporting date. The Class B hurdle price represents the market value of J. Alexander’s Holdings, LLC on the grant date. The expected term of the Black Knight profits interest awards granted during the period presented was determined based on the mid-point between the full remaining economic term of the Management Consulting Agreement and the full vesting term of three years plus the six-month holding period. The risk-free rate is based on the U.S. Treasury bond rates in effect at the reporting date given the expected time to liquidity. A rate for expected volatility was based on a historical volatility analysis using daily stock price information for select comparable public companies based on the relative expected holding period of the Units. The dividend yield was set at zero as the underlying security does not pay a dividend.
The following table summarizes the Black Knight profits interest plan activity:
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
Units
|
|
|
Fair Value
|
|
Non-vested Black Knight profits interest awards at January 1, 2017
|
|
|
1,000,016
|
|
|
$
|
4.34
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Vested
|
|
|
(500,008
|
)
|
|
|
3.25
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Non-vested Black Knight profits interest awards at December 31, 2017
|
|
|
500,008
|
|
|
$
|
3.25
|
|
These awards constitute nonemployee awards. Therefore, the Company will remeasure the fair value of the awards at each reporting date until performance is complete using the valuation model applied in previous periods. The portion of services rendered to each reporting date will be applied to the current measure of fair value to determine the expense for the relevant period. Because these awards have a graded vesting schedule, the Company has elected to recognize the compensation cost on a straight-line basis over the three-year requisite service period for the entire award. Black Knight profits interest expense totaling $942, $2,039 and $661 was recognized for fiscal years 2017, 2016 and 2015, respectively, which is included in the “General and administrative expense” line item on the Consolidated Statements of Income and Comprehensive Income. Based on the valuation of the awards at December 31, 2017, the Company had $1,233 of unrecognized compensation cost related to these awards which is expected to be recognized over a period of approximately 0.75 years. The total weighted average fair value of units vested during fiscal years 2017, 2016 and 2015 was $1,625, $2,170 and $0, respectively.
Note 15 –
Other Employee Benefits
A subsidiary of the Company maintains a Savings Incentive and Salary Deferral Plan under Section 401(k) of the Internal Revenue Code (the “Plan”) for the benefit of its employees and their beneficiaries. Under the Plan, qualifying employees can defer a portion of their income on a pretax basis through contributions to the Plan, subject to an annual statutory limit. All employees with at least 1,000 hours of service during the 12‑month period subsequent to their hire date, or any calendar year thereafter, and who are at least 21 years of age are eligible to participate. For each dollar of participant contributions, up to 3% of each participant’s salary, the Company makes a minimum 25% matching contribution to the Plan. Matching contributions vest according to a vesting schedule defined in the plan document. Matching contributions totaled $130, $115 and $105 for fiscal years 2017, 2016 and 2015, respectively.
A subsidiary of the Company also has a nonqualified deferred compensation plan under which executive officers and certain senior managers may defer receipt of their compensation, including up to 25% of applicable salaries and bonuses, and be credited with matching contributions under the same matching formula and limitations as the Savings Incentive and Salary Deferral Plan. Amounts that are deferred under this plan, and any matching contributions, are increased by earnings and decreased by losses based on the performance of one or more investment measurement funds elected by the participants from a group of funds, which the plan
84
administrator has determined to make available for this purpose. Participant account balances totaled $668 and $507 at December 31, 2017 and January 1, 2017, respectively.
A subsidiary of the Company has Salary Continuation Agreements, which provide retirement and death benefits to certain executive officers and certain other members of management. The recorded liability associated with these agreements totaled $5,782 and $5,503 at December 31, 2017 and January 1, 2017, respectively. The expense recognized under these agreements was $336, $175 and $72 for fiscal years 2017, 2016 and 2015, respectively.
Due to the Distribution discussed in Note 1 above, FNF no longer retains a beneficial ownership of at least 40% of J. Alexander’s Holdings, LLC, and as such, the Distribution triggered the obligation of J. Alexander’s, LLC, the operating subsidiary of the Company, to establish and fund the Trust (as defined in Note 2 above) under the Amended and Restated Salary Continuation Agreements with each of the named executive officers and one former executive officer. On October 19, 2015, the Trust was funded with a total of $4,304, which was comprised of $2,415 in cash and $1,889 in aggregate cash surrender value of whole life insurance policies. These assets are classified as noncurrent within the Company’s Consolidated Financial Statements. J. Alexander’s, LLC made an additional contribution of $63 to the Trust in fiscal year 2017, and will continue to make additional contributions to the Trust in the future in order to maintain the level of funding required by the agreements. The Trust is subject to creditor claims in the event of insolvency, but the assets held in the Trust are not available for general corporate purposes. The Trust investments consisted of cash and cash equivalents, U.S government agency obligations and corporate bonds. The aforementioned securities are designated as trading securities and carried at fair value. Refer to Note 4 – Fair Value Measurements for additional discussion regarding fair value considerations. As of December 31, 2017, the Trust balance was $4,556 consisting of $2,106 in aggregate cash surrender value of whole life insurance policies and $2,450 in Trust investments. The Company records changes in the fair value of assets held in the Trust in the “Other, net” line item on the Consolidated Statements of Income and Comprehensive Income.
Note 16 – Members’ and Stockholders’ Equity
Prior to the Distribution discussed in Note 1 above, the Members constituted a single class or group of members of J. Alexander’s Holdings, LLC, which was formed with a perpetual life. Except as may be provided by the Delaware Limited Liability Company Act, as amended (the “Act”), no Member of J. Alexander’s Holdings, LLC was obligated personally for any debt, obligation, or liability of J. Alexander’s Holdings, LLC or of any other Member solely by reason of being a Member of J. Alexander’s Holdings, LLC. No Member had any responsibility to restore any negative balance in its capital account or contribute to the liabilities or obligations of J. Alexander’s Holdings, LLC or return distributions made by J. Alexander’s Holdings, LLC, except as may be required by the Act or other applicable law. No Member had any right to resign or withdraw from J. Alexander’s Holdings, LLC without the consent of the other Members or to receive any distribution or the repayment of the Member’s contribution except as provided in the Amended and Restated Limited Liability Company Agreement.
As a result of the Distribution and reorganization changes discussed in Note 1 above, the Company is an independent public company, and its common stock is listed under the symbol “JAX” on The NYSE, effective September 29, 2015. The Company also now owns, directly or indirectly, all of the outstanding Class A Units and is the sole managing member of J. Alexander’s Holdings, LLC. The Company is authorized to issue 40,000,000 shares of capital stock, consisting of 30,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. As of December 31, 2017 and January 1, 2017, a total of 14,695,176 shares of the Company’s common stock were outstanding, respectively. No shares of preferred stock were outstanding during either of the periods presented.
The pertinent rights and privileges of the Company’s outstanding common stock are as follows:
Voting rights.
The holders of common stock are entitled to one vote per share on all matters to be voted upon by the shareholders.
Dividend rights.
Subject to preferences that may be applicable to any outstanding preferred stock, the holders of shares of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available therefor. However, the Company does not intend to pay dividends for the foreseeable future.
Rights upon liquidation.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of affairs, the holders of common stock are entitled to share ratably in all assets remaining after payment of debts and other liabilities, subject to prior distribution rights of preferred stock then outstanding, if any.
Other rights.
The holders of common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of holders of common stock will be subject to those of the holders of any shares of preferred stock the Company may issue in the future.
85
Note 17 - Commitments and Contingencies
As a result of the disposition of the Company’s predecessor’s Wendy’s operations in 1996, subsidiaries of the Company may remain secondarily liable for certain real property leases with remaining terms of one to five years. The total estimated amount of lease payments remaining on these six leases at December 31, 2017 was approximately $620. In connection with the sale of the Company’s predecessor’s Mrs. Winner’s Chicken & Biscuit restaurant operations in 1989 and certain previous dispositions, subsidiaries of the Company also may remain secondarily liable for a certain real property lease. The total estimated amount of lease payments remaining on this lease at December 31, 2017 was approximately $65. Additionally, in connection with the previous disposition of certain other Wendy’s restaurant operations, primarily the southern California restaurants in 1982, subsidiaries of the Company may remain secondarily liable for certain real property leases with remaining terms of one to five years. The total estimated amount of lease payments remaining on these three leases as of December 31, 2017 was approximately $200. There have been no payments by subsidiaries of the Company of such contingent liabilities in the history of the Company or its predecessor. Management does not believe any significant loss is likely.
The Company is subject to real property, personal property, business, franchise and income, and sales and use taxes in various jurisdictions within the United States and is regularly under audit by tax authorities. This is believed to be common for the restaurant industry. Management believes the ultimate disposition of these matters will not have a material adverse effect on the consolidated financial position or results of operations for the Company.
(c)
|
Litigation Contingencies
|
The Company and its subsidiaries are defendants from time to time in various claims or legal proceedings arising in the ordinary course of business, including claims relating to workers’ compensation matters, labor-related claims, discrimination and similar matters, claims resulting from guest accidents while visiting a restaurant, claims relating to lease and contractual obligations, federal and state tax matters, and claims from guests or employees alleging illness, injury or other food quality, health or operational concerns, and injury or wrongful death under “dram shop” laws that allow a person to sue the Company based on any injury caused by an intoxicated person who was wrongfully served alcoholic beverages at one of its restaurants.
On December 8, 2017, Margie Elstein, a purported shareholder of the Company, filed a putative class action lawsuit in the Tennessee Chancery Court for Davidson County, 20th Judicial District (the “Elstein Action”) against the Company, members of the Board, Fidelity Newport Holdings, LLC (“FNH”), then FNFV and FNF. The Elstein Action alleges that the members of the Board breached their fiduciary duties to shareholders because the directors of the Company and Stephens, Inc. have conflicts of interest related to the Company’s acquisition of 99 Restaurants. The Elstein Action also alleges that the Board and the Company made materially inadequate disclosures and material omissions in its preliminary proxy statement for the acquisition of 99 Restaurants. The Elstein Action further alleges that the FNH, then FNFV and FNF defendants aided and abetted the Board’s purported breach of its fiduciary duties. As discussed in Note 20 – Subsequent Events, in fiscal year 2018, the merger agreement was terminated. However, this case was pending as of December 31, 2017.
Management does not believe that any of the legal proceedings pending against it as of the date of this report will have a material adverse effect on its liquidity or financial condition. The Company may incur liabilities, receive benefits, settle disputes, sustain judgments, or accrue expenses relating to legal proceedings in a particular fiscal year, which may adversely affect its results of operations, or on occasion, receive settlements that favorably affect its results of operations.
Note 18 – Related-Party Transactions
In 2013, J. Alexander’s Holdings, LLC assumed the FNF Note. The $20,000 FNF Note accrued interest at 12.5% annually, and the interest and principal were payable in full on January 31, 2016. Under the terms of J. Alexander’s, LLC’s Mortgage Loan dated September 3, 2013, the FNF Note was subordinated to the Mortgage Loan. On December 15, 2014, a payment of $14,569, representing $10,000 of principal on the FNF Note and $4,569 of accrued interest, was made to FNF. Further, as discussed in Note 11, on May 20, 2015, J. Alexander’s, LLC entered into a financing arrangement with its lender on its existing Mortgage Loan and lines of credit. Under the terms of the new credit facility, a new $10,000 Term Loan was put into place, the purpose of which was to refinance the remaining $10,000 principal balance of the existing FNF Note. On May 20, 2015, J. Alexander’s Holdings, LLC paid the remaining principal balance of $10,000 as well as accrued interest of $542 to FNF which resulted in the FNF Note being paid in full.
During fiscal years 2017, 2016 and 2015, interest expense of $0, $0 and $493, respectively, was recorded relative to the FNF Note.
86
As discussed in Note 1 above, on September 28, 2015, immediately prior to th
e Distribution, J. Alexander’s Holdings, LLC entered into a Management Consulting Agreement with Black Knight, pursuant to which Black Knight will provide corporate and strategic advisory services to J. Alexander’s Holdings, LLC. The principal member of Bl
ack Knight is William P. Foley, II, Chairman of the board and Chief Executive Officer of Cannae and non-Executive Chairman of the board of FNF. The other members of Black Knight consist of Lonnie J. Stout II, our President, Chief Executive Officer and one
of our directors, and other officers of Cannae and FNF.
As discussed above, under the Management Consulting Agreement, J. Alexander’s Holdings, LLC has issued Black Knight non-voting Class B Units and is required to pay Black Knight an annual fee equal to 3% of the Company’s Adjusted EBITDA for each fiscal year during the term of the Management Consulting Agreement. J. Alexander’s Holdings, LLC also reimburses Black Knight for its direct out-of-pocket costs incurred for management services provided to J. Alexander’s Holdings, LLC. Under the Management Consulting Agreement, “Adjusted EBITDA” means the Company’s net income (loss) before interest expense, income tax (expense) benefit, depreciation and amortization, and adding asset impairment charges and restaurant closing costs, loss on disposals of fixed assets, transaction and integration costs, non-cash compensation, loss from discontinued operations, gain on debt extinguishment, pre-opening costs and certain unusual items.
The Management Consulting Agreement will continue in effect for an initial term of seven years and be renewed for successive one-year periods thereafter unless earlier terminated (i) by J. Alexander’s Holdings, LLC upon at least six months’ prior notice to Black Knight or (ii) by Black Knight upon 30 days’ prior notice to us. In the event that the Management Consulting Agreement is terminated by J. Alexander’s Holdings, LLC prior to the tenth anniversary thereof, or Black Knight terminates the Management Consulting Agreement within 180 days after a change of control, J. Alexander’s Holdings, LLC will be obligated to pay to Black Knight an early termination payment equal to the product of (i) the annual base fee for the most recent fiscal year and (ii) the difference between 10 and the number of years that have elapsed under the Management Consulting Agreement, provided that in the event of such a termination following a change of control event, the multiple of the annual base fee to be paid shall not exceed three.
During fiscal years 2017, 2016 and 2015, management fees and reimbursable out-of-pocket costs of $809, $700 and $262, respectively, were incurred relative to the Black Knight Management Consulting Agreement. Such costs are presented as a component of “General and administrative expenses” on the Consolidated Statements of Income and Comprehensive Income.
As discussed in Note 14 above, a grant of an additional 1,500,024 Class B Units in J. Alexander’s Holdings, LLC was made to Black Knight on October 6, 2015 in accordance with the terms of the Management Consulting Agreement (the “Black Knight Grant”). The Black Knight Grant has a hurdle rate of approximately $151,052, which was calculated as the product of the number of shares of the Company’s common stock issued and outstanding and $10.07, which represents the volume weighted average of the closing price of the Company’s common stock over the five trading days following the distribution date of September 28, 2015. The Class B Units granted to Black Knight vest in equal installments on the first, second, and third anniversaries of the grant date, and will be subject to acceleration upon a change in control of the Company or J. Alexander’s Holdings, LLC, the termination of the Management Consulting Agreement by J. Alexander’s Holdings, LLC without cause or the termination of the Management Consulting Agreement by Black Knight as a result of J. Alexander’s Holdings, LLC’s breach of the Management Consulting Agreement. The Black Knight Grant will be measured at fair value at each reporting date through the date of vesting, and will be recognized as a component of continuing income in future Consolidated Financial Statements of the Company. As of December 31, 2017, the Black Knight Grant was valued at $4,876. Vested Class B Units held by Black Knight may be exchanged for shares of the Company’s common stock. However, upon termination of the Management Consulting Agreement for any reason, Black Knight must exchange its Class B Units within 90 days or such units will be forfeited for no consideration.
During fiscal years 2017, 2016 and 2015, Black Knight profits interest expense of $942, $2,039 and $661, respectively, was recorded relative to the Black Knight Grant. Such expense is presented as a
component
of “General and administrative expenses” on the Consolidated Statements of Income and Comprehensive Income.
Note 19 –Non-controlling Interest
As discussed in Note 14 above, on January 1, 2015, J. Alexander’s Holdings, LLC adopted its 2015 Management Incentive Plan and granted equity incentive awards to certain members of management in the form of Class B Units. The Class B Units are profits interests in J. Alexander’s Holdings, LLC. Additionally, on October 6, 2015, J. Alexander’s Holdings, LLC granted Class B Units representing profits interests to Black Knight. The aforementioned awards allow for the distribution of earnings in J. Alexander’s Holdings, LLC in the event that the hurdle amounts and vesting requirements of each respective grant are met and, as such, represent non-controlling interests in J. Alexander’s Holdings, LLC. The Hypothetical Liquidation of Book Value method was used as of December 31, 2017 and January 1, 2017 to determine allocations of non-controlling interests consistent with the terms of the Second Amended and Restated LLC Agreement of J. Alexander’s Holdings, LLC, and pursuant to that calculation, no allocation of net income was made to non-controlling interests for fiscal years 2017 and 2016, respectively. For fiscal year 2015, no income was attributed to the non-controlling interest as the vesting requirements necessitating such an allocation had not been met. However, a non-controlling interest balance has been presented on the Consolidated Balance Sheets and Statements of Membership /
87
Stockholders’ Equity in the amount of $5,200 and $3,740 as of December 31, 2017 and January 1, 2017, respectively, which represents profits interest compensation expense recorded by the Company. Such compensation costs have been reflected in the “G
eneral and administrative expenses” line item of the Consolidated Statements of Income and Comprehensive Income for fiscal years 2017 and 2016.
Note 20 – Subsequent Events
On August 3, 2017, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) to acquire 99 Restaurants from FNH and Cannae Holdings, LLC formerly known as Fidelity National Financial Ventures, LLC (“Cannae LLC”), in exchange for the issuance of 16.3 million shares of Class B Common Stock of the Company and an equal number of Class B partnership units of J. Alexander’s Holdings, LLC to FNH and Cannae LLC. On February 1, 2018, the Merger Agreement was terminated by the parties pursuant to Section 9.1(b)(iii) thereof as a result of the failure to obtain the requisite disinterested shareholder vote at the Company’s special meeting of shareholders convened on such date for purpose of voting on the terms of the proposed Merger Agreement.
Refer to the Company’s Current Report on Form 8-K filed with the SEC on February 2, 2018 for additional information.
Note 21 – Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the years ended December 31, 2017 and January 1, 2017 (in thousands, except per share amounts):
|
|
2017 Quarter Ended
|
|
|
|
April 2
|
|
|
July 2
|
|
|
October 1
|
|
|
December 31
|
|
Net sales
|
|
$
|
59,822
|
|
|
$
|
58,216
|
|
|
$
|
53,879
|
|
|
$
|
61,338
|
|
Operating income (loss)
|
|
|
3,794
|
|
|
|
215
|
|
|
|
(1,392
|
)
|
|
|
4,507
|
|
Income (loss) from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before income taxes
|
|
|
3,641
|
|
|
|
42
|
|
|
|
(1,597
|
)
|
|
|
4,340
|
|
Net income (loss)
|
|
|
2,684
|
|
|
|
186
|
|
|
|
(876
|
)
|
|
|
5,340
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax
|
|
$
|
0.19
|
|
|
$
|
0.02
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.37
|
|
Loss from discontinued operations, net
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
Basic earnings (loss) per share
|
|
$
|
0.18
|
|
|
$
|
0.01
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.36
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax
|
|
$
|
0.19
|
|
|
$
|
0.02
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.37
|
|
Loss from discontinued operations, net
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
Diluted earnings (loss) per share
|
|
$
|
0.18
|
|
|
$
|
0.01
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Quarter Ended
|
|
|
|
April 3
|
|
|
July 3
|
|
|
October 2
|
|
|
January 1
|
|
Net sales
|
|
$
|
56,879
|
|
|
$
|
53,921
|
|
|
$
|
51,459
|
|
|
$
|
57,323
|
|
Operating income
|
|
|
3,172
|
|
|
|
1,822
|
|
|
|
1,306
|
|
|
|
3,794
|
|
Income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
before income taxes
|
|
|
2,999
|
|
|
|
1,684
|
|
|
|
1,177
|
|
|
|
3,679
|
|
Net income
|
|
|
2,290
|
|
|
|
1,087
|
|
|
|
945
|
|
|
|
2,721
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax
|
|
$
|
0.16
|
|
|
$
|
0.08
|
|
|
$
|
0.07
|
|
|
$
|
0.19
|
|
Loss from discontinued operations, net
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
Basic earnings per share
|
|
$
|
0.15
|
|
|
$
|
0.07
|
|
|
$
|
0.06
|
|
|
$
|
0.19
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax
|
|
$
|
0.16
|
|
|
$
|
0.08
|
|
|
$
|
0.07
|
|
|
$
|
0.19
|
|
Loss from discontinued operations, net
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
Diluted earnings per share
|
|
$
|
0.15
|
|
|
$
|
0.07
|
|
|
$
|
0.06
|
|
|
$
|
0.18
|
|
88