UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 3, 2017
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______
Commission file number 0-21423
BJ’S RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
California |
33‑0485615 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
7755 Center Avenue, Suite 300
Huntington Beach, California 92647
(714) 500-2400
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company, or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
☑ |
Large accelerated filer |
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☐ |
Accelerated filer |
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Non-accelerated filer (do not check if smaller reporting company) |
☐ |
Smaller reporting company |
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☐ |
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑.
As of November 3, 2017, there were 20,633,394 shares of Common Stock of the Registrant outstanding.
TABLE OF CONTENTS
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Page |
PART I. |
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Item 1. |
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Consolidated Balance Sheets – |
1 |
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2 |
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3 |
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4 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
10 |
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Item 3. |
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19 |
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Item 4. |
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20 |
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PART II. |
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Item 1. |
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20 |
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Item 1A. |
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20 |
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Item 2. |
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20 |
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Item 6. |
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21 |
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23 |
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
BJ’S RESTAURANTS, INC.
(In thousands)
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October 3, 2017 |
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January 3, 2017 |
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(unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
28,694 |
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$ |
22,761 |
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Accounts and other receivables, net |
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12,537 |
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14,698 |
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Inventories, net |
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10,226 |
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9,907 |
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Prepaid expenses and other current assets |
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8,368 |
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11,324 |
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Total current assets |
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59,825 |
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58,690 |
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Property and equipment, net |
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599,450 |
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601,324 |
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Goodwill |
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4,673 |
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4,673 |
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Other assets, net |
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29,118 |
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26,625 |
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Total assets |
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$ |
693,066 |
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$ |
691,312 |
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Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Accounts payable (1) |
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$ |
23,984 |
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$ |
31,145 |
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Accrued expenses |
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83,634 |
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94,553 |
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Total current liabilities |
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107,618 |
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125,698 |
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Deferred income taxes |
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37,073 |
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37,587 |
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Deferred rent |
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32,047 |
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30,424 |
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Deferred lease incentives |
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53,951 |
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54,119 |
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Long-term debt |
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194,000 |
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148,000 |
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Other liabilities |
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23,199 |
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20,587 |
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Total liabilities |
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447,888 |
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416,415 |
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Commitments and contingencies |
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Shareholders’ equity: |
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Preferred stock, 5,000 shares authorized, none issued or outstanding |
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— |
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— |
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Common stock, no par value, 125,000 shares authorized and 20,746 and 22,332 shares issued and outstanding as of October 3, 2017 and January 3, 2017, respectively |
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— |
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— |
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Capital surplus |
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68,228 |
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66,200 |
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Retained earnings |
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176,950 |
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208,697 |
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Total shareholders’ equity |
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245,178 |
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274,897 |
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Total liabilities and shareholders’ equity |
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$ |
693,066 |
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$ |
691,312 |
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See accompanying notes to unaudited consolidated financial statements.
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(1) |
Included in accounts payable as of October 3, 2017 and January 3, 2017 is $3,816 and $5,782, respectively, of related party trade payables. See Note 4 for further information. |
1
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
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For the Thirteen |
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For the Thirty-Nine |
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Weeks Ended |
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Weeks Ended |
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October 3, 2017 |
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September 27, 2016 |
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October 3, 2017 |
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September 27, 2016 |
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Revenues |
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$ |
247,009 |
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$ |
233,702 |
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$ |
770,642 |
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$ |
727,431 |
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Restaurant operating costs (excluding depreciation and amortization): |
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Cost of sales (1) |
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65,553 |
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59,882 |
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200,465 |
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183,091 |
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Labor and benefits |
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91,228 |
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82,034 |
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277,724 |
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252,793 |
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Occupancy and operating (1) |
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55,238 |
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50,474 |
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164,054 |
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149,691 |
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General and administrative |
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13,035 |
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12,921 |
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41,536 |
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41,050 |
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Depreciation and amortization |
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17,430 |
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16,292 |
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51,231 |
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47,930 |
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Restaurant opening |
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534 |
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2,218 |
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3,205 |
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5,216 |
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Loss on disposal and impairment of assets |
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1,070 |
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810 |
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4,168 |
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2,266 |
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Natural disaster and related |
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905 |
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— |
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905 |
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— |
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Severance and legal settlements |
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423 |
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— |
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423 |
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369 |
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Total costs and expenses |
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245,416 |
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224,631 |
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743,711 |
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682,406 |
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Income from operations |
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1,593 |
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9,071 |
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26,931 |
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45,025 |
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Other (expense) income: |
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Interest expense, net |
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(1,177 |
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(344 |
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(3,178 |
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(1,100 |
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Other income, net |
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423 |
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378 |
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1,474 |
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813 |
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Total other (expense) income |
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(754 |
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34 |
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(1,704 |
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(287 |
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Income before income taxes |
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839 |
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9,105 |
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25,227 |
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44,738 |
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Income tax (benefit) expense |
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(1,550 |
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1,868 |
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3,933 |
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12,068 |
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Net income |
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$ |
2,389 |
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$ |
7,237 |
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$ |
21,294 |
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$ |
32,670 |
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Net income per share: |
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Basic |
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$ |
0.11 |
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$ |
0.30 |
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$ |
0.98 |
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$ |
1.35 |
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Diluted |
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$ |
0.11 |
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$ |
0.30 |
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$ |
0.97 |
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$ |
1.33 |
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Weighted average number of shares outstanding: |
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Basic |
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21,354 |
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24,091 |
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21,620 |
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24,172 |
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Diluted |
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21,670 |
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24,486 |
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22,032 |
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24,589 |
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See accompanying notes to unaudited consolidated financial statements.
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(1) |
Related party costs included in cost of sales are $20,487 and $19,240 for the thirteen weeks ended October 3, 2017 and September 27, 2016, respectively, and $62,376 and $60,410 for the thirty-nine weeks ended October 3, 2017 and September 27, 2016, respectively. Related party costs included in operating and occupancy are $2,325 and $2,169 for the thirteen weeks ended October 3, 2017 and September 27, 2016, respectively, and $6,868 and $6,543 for the thirty-nine weeks ended October 3, 2017 and September 27, 2016, respectively. See Note 4 for further information. |
2
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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For the Thirty-Nine Weeks Ended |
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October 3, 2017 |
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September 27, 2016 |
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Cash flows from operating activities: |
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Net income |
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$ |
21,294 |
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$ |
32,670 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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51,231 |
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47,930 |
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Deferred income taxes |
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(514 |
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4,117 |
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Stock-based compensation expense |
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5,271 |
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4,580 |
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Loss on disposal and impairment of assets |
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4,168 |
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2,266 |
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Natural disaster and related |
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194 |
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— |
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Changes in assets and liabilities: |
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Accounts and other receivables |
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2,559 |
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12,844 |
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Landlord contribution for tenant improvements |
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124 |
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559 |
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Inventories, net |
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(319 |
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(620 |
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Prepaid expenses and other current assets |
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2,603 |
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3,891 |
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Other assets, net |
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(3,509 |
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(3,729 |
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Accounts payable |
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(4,788 |
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(3,172 |
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Accrued expenses |
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(10,919 |
) |
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4,895 |
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Deferred rent |
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1,623 |
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2,225 |
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Deferred lease incentives |
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(168 |
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660 |
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Other liabilities |
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204 |
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(485 |
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Net cash provided by operating activities |
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69,054 |
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108,631 |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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(57,358 |
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(80,682 |
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Proceeds from sale of assets |
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4,739 |
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— |
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Net cash used in investing activities |
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(52,619 |
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(80,682 |
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Cash flows from financing activities: |
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Borrowings on line of credit |
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1,604,600 |
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749,700 |
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Payments on line of credit |
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(1,558,600 |
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(740,900 |
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Excess tax benefit from stock-based compensation |
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— |
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289 |
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Taxes paid on vested stock units under employee plans |
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(248 |
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(208 |
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Proceeds from exercise of stock options |
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1,029 |
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1,890 |
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Repurchases of common stock |
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(57,283 |
) |
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(47,376 |
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Net cash used in financing activities |
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(10,502 |
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(36,605 |
) |
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Net increase (decrease) in cash and cash equivalents |
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5,933 |
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(8,656 |
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Cash and cash equivalents, beginning of period |
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22,761 |
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34,604 |
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Cash and cash equivalents, end of period |
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$ |
28,694 |
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$ |
25,948 |
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Supplemental disclosure of cash flow information: |
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Cash paid for income taxes |
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$ |
4,909 |
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$ |
6,786 |
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Cash paid for interest, net of capitalized interest |
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$ |
2,968 |
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$ |
904 |
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Supplemental disclosure of non-cash investing and financing activities: |
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Property and equipment acquired and included in accounts payable |
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$ |
6,947 |
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$ |
14,802 |
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Stock-based compensation capitalized |
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$ |
218 |
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$ |
226 |
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See accompanying notes to unaudited consolidated financial statements.
3
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the accounts of BJ’s Restaurants, Inc. (referred to herein as the “Company,” “we,” “us” and “our”) and our wholly owned subsidiaries. The consolidated financial statements presented herein include all material adjustments which are, in the opinion of management, necessary for a fair presentation of our financial condition, results of operations and cash flows for the period. Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in consolidated financial statements in accordance with U.S. GAAP have been omitted pursuant to the U.S. Securities and Exchange Commission (“SEC”) rules. The preparation of financial statements in accordance with U.S. GAAP requires us to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual amounts could differ from these estimates.
A description of our accounting policies and other financial information is included in our audited consolidated financial statements filed with the SEC on Form 10-K for the year ended January 3, 2017. The disclosures included in our accompanying interim consolidated financial statements and footnotes should be read in conjunction with our consolidated financial statements and notes thereto included in the Annual Report on Form 10-K and our other reports filed from time to time with the Securities and Exchange Commission.
Reclassifications
As a result of the adoption of the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740), reclassifications of financial statement amounts have been made to the prior period to conform to the current period’s presentation. The adoption of this standard resulted in the reclassification of $18.4 million from current to long-term deferred taxes on January 3, 2017.
Recently Issued Accounting Standards
In February 2016, the FASB issued Accounting Standards Update ASU 2016-02, Leases (Topic 842). This guidance requires the recognition of most leases on the balance sheet to give investors, lenders, and other financial statement users a more comprehensive view of a company’s long-term financial obligations as well as the assets it owns versus leases. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Currently, all of our restaurant and our restaurant support center leases are accounted for as operating leases, and therefore are not recorded within our balance sheet. We are currently evaluating the impact that this guidance will have on our consolidated financial statements as well as the expected adoption method.
In April 2016, the FASB issued ASU 2016-10, an amendment to ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 provides a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services and expands related disclosure requirements. ASU 2016-10 clarifies ASU 2014-09 to address the potential for diversity in practice at the adoption. ASUs 2016-10 and 2014-09 are effective for annual and interim reporting periods beginning after December 15, 2017, and early application is permitted.
4
The majority of the Company’s revenues are from food and beverage sales at our restaurants. ASU 2014-09 will not have an impact on revenue recognition related to food and beverage sales unless the sales are to a customer participating in our loyalty program. Currently, we measure our total loyalty rewards obligation based on the estimated number of customers who will ultimately claim the rewards earned under the program using the estimated cost of the rewards. Under this approach, we estimate the cost of a loyalty point based on the equivalent cost of the food and beverage earned by our customers. These expenses are accrued for and recorded as marketing expenses and are included in “Occupancy and operating” expenses on our Consolidated Statements of Income. Under ASU 2016-10, we will be required to allocate the transaction price between the goods delivered and the future goods that will be delivered, using the loyalty points earned, on a relative standalone selling price basis. The portion of the transaction price allocated to the future loyalty rewards will be deferred until the related loyalty rewards are redeemed. We will no longer record a marketing expense related to loyalty points earned. These new standards will not impact the way we account for gift card breakage. We are in the process of quantifying the impact of adopting this new standard as well as determining the adoption method.
2. LONG-TERM DEBT
Line of Credit
Our Credit Facility, which matures on November 18, 2021, provides us with revolving loan commitments totaling $250 million, of which $50 million may be used for the issuance of letters of credit. Availability under the Credit Facility is reduced by outstanding letters of credit, which are used to support our self-insurance programs. Our obligations under the Credit Facility are unsecured. As of October 3, 2017, there were borrowings of $194.0 million and letters of credit totaling approximately $14.4 million outstanding under the Credit Facility. Available borrowings under the Credit Facility were $41.6 million as of October 3, 2017. The Credit Facility bears interest at our choice of LIBOR plus a percentage not to exceed 1.75%, or at a rate ranging from Bank of America’s prime rate to 0.75% above Bank of America’s prime rate, based on our level of lease and debt obligations as compared to EBITDA plus lease expenses. The weighted average interest rate during the thirty-nine weeks ended October 3, 2017 was approximately 2.2%.
The Credit Facility contains provisions requiring us to maintain compliance with certain covenants, including a Fixed Charge Coverage Ratio and a Lease Adjusted Leverage Ratio. At October 3, 2017, we were in compliance with these covenants.
Interest expense and commitment fees under the Credit Facility for the thirty-nine weeks ended October 3, 2017 and September 27, 2016 was approximately $3.2 million and $1.1 million, respectively. We capitalized approximately $0.1 million and $0.2 million of interest expense related to new restaurant construction during the thirty-nine weeks ended October 3, 2017, and September 27, 2016, respectively.
3. NET INCOME PER SHARE
Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share reflects the potential dilution that could occur if in-the-money stock options issued by us to sell common stock at set prices were exercised and if restrictions on restricted stock units issued by us were to lapse (collectively, equity awards) using the treasury stock method. Performance-based restricted stock units have been excluded from the diluted income per share computation because the performance-based criteria have not yet been met.
The following table presents a reconciliation of basic and diluted net income per share, including the number of dilutive equity awards that were included in the dilutive net income per share computation (in thousands):
|
|
For the Thirteen |
|
|
For the Thirty-Nine |
|
||||||||||
|
|
Weeks Ended |
|
|
Weeks Ended |
|
||||||||||
|
|
October 3, 2017 |
|
|
September 27, 2016 |
|
|
October 3, 2017 |
|
|
September 27, 2016 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,389 |
|
|
$ |
7,237 |
|
|
$ |
21,294 |
|
|
$ |
32,670 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding – basic |
|
|
21,354 |
|
|
|
24,091 |
|
|
|
21,620 |
|
|
|
24,172 |
|
Dilutive effect of equity awards |
|
|
316 |
|
|
|
395 |
|
|
|
412 |
|
|
|
417 |
|
Weighted-average shares outstanding – diluted |
|
|
21,670 |
|
|
|
24,486 |
|
|
|
22,032 |
|
|
|
24,589 |
|
5
For the thirteen weeks ended October 3, 2017 and September 27, 2016, there were approximately 1.1 million and 0.4 million shares of common stock equivalents, respectively, that were excluded from the calculation of diluted net income per share because they are anti-dilutive. For the thirty-nine weeks ended October 3, 2017 and September 27, 2016, there were approximately 0.5 million and 0.3 million shares of common stock equivalents, respectively, that were excluded from the calculation of diluted net income per share because they are anti-dilutive.
4. RELATED PARTY
The Jacmar Companies and their affiliates (collectively referred to herein as “Jacmar”) is one of our shareholders and James Dal Pozzo, the Chief Executive Officer of Jacmar, is a member of our Board of Directors. Jacmar, through its affiliation with Distribution Market Advantage (“DMA”), a consortium of large, regional food distributors located throughout the United States, is currently our largest supplier of food, beverage, paper products and supplies. In 2006, we began using DMA to deliver the majority of our food products to our restaurants. In July 2017, after conducting a market evaluation, we entered into a new five-year agreement with DMA. The new agreement expires in June 2022.
Jacmar services our restaurants in California and Nevada, while other DMA distributors service our restaurants in all other states. Under the terms of our agreement with DMA, Jacmar is required to sell products to us at the same prices as the other DMA distributors. Jacmar does not provide us with any produce, liquor, wine or beer products, all of which are provided by other third party vendors and are included in “Cost of sales” on the Consolidated Statements of Income.
The cost of food, beverage, paper products and supplies provided by Jacmar included within cost of sales and occupancy and operating expenses consisted of the following (in thousands):
|
|
For the Thirteen |
|
|
For the Thirty-Nine |
|
||||||||||||||||||||||||||
|
|
Weeks Ended |
|
|
Weeks Ended |
|
||||||||||||||||||||||||||
|
|
October 3, 2017 |
|
|
September 27, 2016 |
|
|
October 3, 2017 |
|
|
September 27, 2016 |
|
||||||||||||||||||||
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party suppliers |
|
$ |
45,066 |
|
|
|
68.7 |
% |
|
$ |
40,642 |
|
|
|
67.9 |
% |
|
$ |
138,089 |
|
|
|
68.9 |
% |
|
$ |
122,681 |
|
|
|
67.0 |
% |
Jacmar |
|
|
20,487 |
|
|
|
31.3 |
|
|
|
19,240 |
|
|
|
32.1 |
|
|
|
62,376 |
|
|
|
31.1 |
|
|
|
60,410 |
|
|
|
33.0 |
|
Total cost of sales |
|
$ |
65,553 |
|
|
|
100.0 |
% |
|
$ |
59,882 |
|
|
|
100.0 |
% |
|
$ |
200,465 |
|
|
|
100.0 |
% |
|
$ |
183,091 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy and operating: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party suppliers |
|
$ |
52,913 |
|
|
|
95.8 |
% |
|
$ |
48,305 |
|
|
|
95.7 |
% |
|
$ |
157,186 |
|
|
|
95.8 |
% |
|
$ |
143,148 |
|
|
|
95.6 |
% |
Jacmar |
|
|
2,325 |
|
|
|
4.2 |
|
|
|
2,169 |
|
|
|
4.3 |
|
|
|
6,868 |
|
|
|
4.2 |
|
|
|
6,543 |
|
|
|
4.4 |
|
Total occupancy and operating |
|
$ |
55,238 |
|
|
|
100.0 |
% |
|
$ |
50,474 |
|
|
|
100.0 |
% |
|
$ |
164,054 |
|
|
|
100.0 |
% |
|
$ |
149,691 |
|
|
|
100.0 |
% |
The amounts included in trade payables related to Jacmar consisted of the following (in thousands):
|
|
October 3, 2017 |
|
|
January 3, 2017 |
|
||
Third party suppliers |
|
$ |
20,168 |
|
|
$ |
25,363 |
|
Jacmar |
|
|
3,816 |
|
|
|
5,782 |
|
Total accounts payable |
|
$ |
23,984 |
|
|
$ |
31,145 |
|
5. STOCK-BASED COMPENSATION
Our current shareholder approved stock-based compensation plan is the 2005 Equity Incentive Plan (as amended from time to time, “the Plan”). Under the Plan, we may issue shares of our common stock to employees, officers, directors and consultants. We have granted incentive stock options, non-qualified stock options, and performance and time-based restricted stock units. Stock options and stock appreciation rights, if any, are charged against the Plan share reserve on the basis of one share for each share granted. Other types of grants, including restricted stock units (“RSUs”), are currently charged against the Plan share reserve on the basis of 1.5 shares for each share granted. The Plan also contains other limits on the terms of incentive grants such as limits on the number that can be granted to an employee during any fiscal year. All options granted under the Plan expire within 10 years of their date of grant.
6
Under the Plan, we issue non-qualified stock options as well as time-based and performance-based RSUs to vice presidents and above. We issue time-based RSUs, and/or non-qualified stock options to other support employees. We also issue RSUs and non-qualified stock options in connection with the BJ’s Gold Standard Stock Ownership Program (the “GSSOP”). The GSSOP is a long-term equity incentive program for our restaurant general managers, executive kitchen mangers, directors of operations and directors of kitchen operations. GSSOP grants are dependent on the length of each participant’s service with us and position. All GSSOP participants are required to remain in good standing during their service period.
The Plan permits us to set the vesting terms and exercise period for awards at our discretion. Stock options and time-based RSUs vest ratably over three or five years for non-GSSOP participants and either cliff vest at five years or cliff vest at 33% on the third anniversary and 67% on the fifth anniversary for GSSOP participants. Performance-based RSUs generally cliff vest on the third anniversary of the grant date in an amount from 0% to 150% of the grant quantity, dependent on the level of performance target achievement.
The following table presents the stock-based compensation recognized within our consolidated financial statements (in thousands):
|
|
For the Thirteen |
|
|
For the Thirty-Nine |
|
||||||||||
|
|
Weeks Ended |
|
|
Weeks Ended |
|
||||||||||
|
|
October 3, 2017 |
|
|
September 27, 2016 |
|
|
October 3, 2017 |
|
|
September 27, 2016 |
|
||||
Labor and benefits |
|
$ |
406 |
|
|
$ |
413 |
|
|
$ |
1,404 |
|
|
$ |
1,321 |
|
General and administrative |
|
$ |
1,335 |
|
|
$ |
1,061 |
|
|
$ |
3,867 |
|
|
$ |
3,259 |
|
Capitalized (1) |
|
$ |
75 |
|
|
$ |
64 |
|
|
$ |
218 |
|
|
$ |
226 |
|
|
(1) |
Capitalized stock-based compensation relates to our restaurant development personnel and is included in “Property and equipment, net” on the Consolidated Balance Sheets. |
Stock Options
The fair value of each stock option was estimated on the grant date using the Black‑Scholes option-pricing model with the following weighted average assumptions:
|
|
For the Thirty-Nine Weeks Ended |
|
|||||
|
|
October 3, 2017 |
|
|
September 27, 2016 |
|
||
Expected volatility |
|
|
34.7 |
% |
|
|
35.9 |
% |
Risk free interest rate |
|
|
1.9 |
% |
|
|
1.5 |
% |
Expected option life |
|
5 years |
|
|
5 years |
|
||
Dividend yield |
|
|
0 |
% |
|
|
0 |
% |
Fair value of options granted |
|
$ |
12.12 |
|
|
$ |
14.30 |
|
U.S. GAAP requires us to make certain assumptions and judgments regarding the grant date fair value. These judgments include expected volatility, risk free interest rate, expected option life, and dividend yield. These estimations and judgments are determined by us using assumptions that, in many cases, are outside of our control. The changes in these variables or trends, including stock price volatility and risk free interest rate, may significantly impact the fair value of future grants, resulting in a significant impact to our financial results.
7
The exercise price of our stock options under our stock-based compensation plan is required to equal or exceed the market close fair value of our shares on the option grant date or the most recent trading day when grants take place on market holidays. The following table presents stock option activity:
|
|
Options Outstanding |
|
|
Options Exercisable |
|
||||||||||
|
|
Shares (in thousands) |
|
|
Weighted Average Exercise Price |
|
|
Shares (in thousands) |
|
|
Weighted Average Exercise Price |
|
||||
Outstanding at January 3, 2017 |
|
|
1,227 |
|
|
$ |
31.95 |
|
|
|
802 |
|
|
$ |
27.73 |
|
Granted |
|
|
168 |
|
|
|
36.25 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(38 |
) |
|
|
27.08 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(23 |
) |
|
|
39.67 |
|
|
|
|
|
|
|
|
|
Outstanding at October 3, 2017 |
|
|
1,334 |
|
|
$ |
32.50 |
|
|
|
880 |
|
|
$ |
29.42 |
|
As of October 3, 2017, total unrecognized stock-based compensation expense related to non-vested stock options was approximately $3.6 million, which is generally expected to be recognized over the next five years.
Restricted Stock Units
Time-Based Restricted Stock Units
The following table presents time-based restricted stock unit activity:
|
|
Shares (in thousands) |
|
|
Weighted Average Fair Value |
|
||
Outstanding at January 3, 2017 |
|
|
460 |
|
|
$ |
39.75 |
|
Granted |
|
|
157 |
|
|
|
37.26 |
|
Vested or released |
|
|
(76 |
) |
|
|
43.70 |
|
Forfeited |
|
|
(50 |
) |
|
|
39.82 |
|
Outstanding at October 3, 2017 |
|
|
491 |
|
|
$ |
38.34 |
|
The fair value of our time-based RSUs is equal to the fair value of our common stock at market close on the date of grant or the most recent trading day when grants take place on market holidays. The fair value of each time-based RSU is expensed over the vesting period (e.g., three or five years). As of October 3, 2017, total unrecognized stock-based compensation expense related to non-vested RSUs was approximately $9.4 million, which is generally expected to be recognized over the next five years.
Performance-Based Restricted Stock Units
The following table presents performance-based restricted stock unit activity:
|
|
Shares (in thousands) |
|
|
Weighted Average Fair Value |
|
||
Outstanding at January 3, 2017 |
|
|
54 |
|
|
$ |
37.87 |
|
Granted |
|
|
40 |
|
|
|
35.95 |
|
Vested or released |
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
(24 |
) |
|
|
32.49 |
|
Outstanding at October 3, 2017 |
|
|
70 |
|
|
$ |
38.68 |
|
The fair value of our performance-based RSUs is equal to the fair value of our common stock at market close on the date of grant or the most recent trading day when grants take place on market holidays. The fair value of each performance-based RSU is expensed based on management’s current estimate of the level that the performance goal will be achieved. As of October 3, 2017, based on the target level of performance, the total unrecognized stock-based compensation expense related to non-vested
8
performance-based RSUs was approximately $1.2 million, which is generally expected to be recognized over the next three years.
6. INCOME TAXES
We calculate our interim income tax provision in accordance with ASC Topic 270, “Interim Reporting” and ASC Topic 740, “Accounting for Income Taxes.” At the end of each interim period, we estimate the annual effective tax rate and apply that rate to our ordinary year to date earnings. The related tax expense or benefit is recognized in the interim period in which it occurs. The effect of changes in enacted tax laws, rates or tax status is recognized in the interim period in which the change is effective. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including the expected operating income for the year, permanent and temporary differences as a result of differences between amounts measured and recognized in accordance with tax laws and financial accounting standards, and the likelihood of recovering deferred tax assets generated in the current fiscal year. The accounting estimates used to compute income tax expense may change as new events occur, additional information is obtained or the tax environment changes.
As of October 3, 2017, we had unrecognized tax benefits of approximately $1.3 million, of which approximately $0.9 million, if reversed, would impact our effective tax rate.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is the following (in thousands):
Balance at January 3, 2017 |
|
$ |
1,245 |
|
Decrease for tax positions taken in prior years |
|
|
(3 |
) |
Increase for tax positions taken in current year |
|
|
96 |
|
Decrease for statute expiration |
|
|
(64 |
) |
Balance at October 3, 2017 |
|
$ |
1,274 |
|
Our uncertain tax positions are related to tax years that remain subject to examination by tax agencies. As of October 3, 2017, the earliest tax year still subject to examination by the Internal Revenue Service is 2014. The earliest year still subject to examination by a significant state or local taxing jurisdiction is 2012.
7. LEGAL PROCEEDINGS
We are subject to lawsuits, administrative proceedings and demands that arise in the ordinary course of our business and which typically involve claims from customers, employees and others related to operational, employment, real estate and intellectual property issues common to the foodservice industry. A number of these claims may exist at any given time. We are self-insured for a portion of our general liability, our employee workers’ compensation and our employment practice requirements. We maintain coverage with a third party insurer to limit our total exposure. We believe that most of our customer claims will be covered by our general liability insurance, subject to coverage limits and the portion of such claims that are self-insured. Punitive damages awards and employee unfair practice claims, however, are not covered by our general liability insurance. To date, we have not been ordered to pay punitive damages with respect to any claims, but there can be no assurance that punitive damages will not be awarded with respect to any future claims. We could be affected by adverse publicity resulting from allegations in lawsuits, claims and proceedings, regardless of whether these allegations are valid or whether we are ultimately determined to be liable. We currently believe that the final disposition of these types of lawsuits, proceedings and claims will not have a material adverse effect on our financial position, results of operations or liquidity. It is possible, however, that our future results of operations for a particular quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, proceedings or claims.
8. STOCK REPURCHASES
During the thirty-nine weeks ended October 3, 2017, we repurchased and retired approximately 1.7 million shares of our common stock at an average price of $34.02 per share for a total of $57.3 million, which is recorded as a reduction in common stock, with any excess charged to retained earnings. In March 2017, the Company’s Board of Directors approved an expansion of the authorized share repurchase program by $50 million to $400 million in the aggregate. As of October 3, 2017, approximately $52.2 million remains available for additional repurchases under our share repurchase program.
9
9. SUBSEQUENT EVENTS
On October 24, 2017, our Board of Directors authorized and declared a quarterly cash dividend of $0.11 per share of common stock payable on December 4, 2017, to shareholders of record at the close of business on November 13, 2017. While the Company intends to pay regular quarterly cash dividends in future periods, any decisions to pay or to increase or decrease cash dividends will be reviewed quarterly and declared by the Board of Directors at its discretion.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
Certain information included in this Form 10-Q and other filings with the Securities and Exchange Commission, in our press releases, in other written communications, and in oral statements made by or with the approval of one of our authorized officers may contain “forward-looking” statements about our current and expected performance trends, growth plans, business goals and other matters. Words or phrases such as “believe,” “plan,” “will likely result,” “expect,” “intend,” “will continue,” “is anticipated,” “estimate,” “project,” “may,” “could,” “would,” “should,” and similar expressions are intended to identify “forward-looking” statements. These statements, and any other statements that are not historical facts, are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended from time to time (the “Act”). The cautionary statements made in this Form 10-Q should be read as being applicable to all related “forward-looking” statements wherever they appear in this Form 10-Q.
The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this Form 10-Q, our Annual Report on Form 10-K for the fiscal year ended January 3, 2017, and our other reports filed from time to time with the Securities and Exchange Commission. Except for the historical information contained herein, the discussion in this Form 10-Q contains certain “forward-looking” statements that involve known and unknown risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. The risks described in this Form 10-Q, as well as the risks identified in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 3, 2017, are not the only risks we face. These statements reflect our current perspectives and outlook with respect to the Company’s future expansion plans, key business initiatives, expected operating conditions and other factors. We operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. Additional risks and uncertainties that we are currently unaware of, or that we currently deem immaterial, also may become important factors that affect us. It is not possible for us to predict the impact of all of these factors on our business, financial condition or results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any “forward-looking” statements. Given the volatility of the operating environment and its associated risks and uncertainties, investors should not rely on “forward-looking” statements as any prediction or guarantee of actual results.
“Forward-looking” statements include, among others, statements concerning:
|
• |
our restaurant concept, its competitive advantages and our strategies for its continued evolution and expansion; |
|
• |
the rate and scope of our future restaurant development; |
|
• |
the total domestic capacity for our restaurants; |
|
• |
dates on which we will commence or complete the development and opening of new restaurants; |
|
• |
expectations for consumer spending on casual dining restaurant occasions; |
|
• |
the availability and cost of key commodities used in our restaurants and brewing operations; |
|
• |
menu price increases and their effect, if any, on revenue and results of operations; |
|
• |
the effectiveness of our planned operational, menu, marketing and capital expenditure initiatives; |
|
• |
capital requirement expectations and actual or available borrowings on our line of credit; |
10
|
• |
projected shareholder dividend frequency and amount; and |
|
• |
other statements of expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts. |
These “forward-looking” statements are subject to risks and uncertainties, including financial, regulatory, consumer behavior, demographic, industry growth and trend projections, that may cause actual events or results to differ materially from those expressed or implied by the statements. Significant factors that may prevent us from achieving our stated goals include, but are not limited to:
|
• |
Failure to maintain a favorable image, credibility and the value of the BJ’s brand and our reputation for offering customers a higher quality more differentiated total dining experience at a good value. |
|
• |
Any inability or failure to recognize, respond to and effectively manage the accelerated impact of social media. |
|
• |
Any deterioration in general economic conditions, which may affect consumer spending. |
|
• |
Any deterioration in general economic conditions, which may also have a material adverse impact on our landlords or on businesses neighboring our locations. |
|
• |
Any inability or failure to successfully expand our restaurant operations. |
|
• |
Any inability to open new restaurants on schedule in accordance with our targeted capacity growth or problems associated with securing suitable restaurant locations, leases and licenses, recruiting and training qualified managers and hourly employees and other factors, some of which are beyond our control and difficult to forecast accurately. |
|
• |
Any inability to access sources of capital or to raise required capital in the future. |
|
• |
Any failure of our existing or new restaurants to achieve expected results. |
|
• |
Any strain on our infrastructure and resources due to growth, which may slow our development of new restaurants and adversely affect our ability to manage our existing restaurants. |
|
• |
Any decision to either reduce or accelerate the pace of openings. |
|
• |
Any fluctuation in our future operating results due to the expenditures required to open new restaurants. |
|
• |
Our concentration of a significant number of our restaurants in California, Texas and Florida, which makes us particularly sensitive to economic, regulatory, weather and other risk factors and conditions that are more prevalent in those states. |
|
• |
Any negative publicity about us, our restaurants, other restaurants, or others across the food supply chain, due to food borne illness or other reasons, whether or not accurate. |
|
• |
Any adverse changes in the cost of food, labor and related employee benefits (including, but not limited to, group health insurance coverage for our employees), brewing and energy. |
|
• |
Any inability of our independent third party brewers and manufacturers to timely supply our beer. |
|
• |
Periodic reviews and audits of our internal brewing, independent third party brewing and beer distribution arrangements by various federal, state and local governmental and regulatory agencies, which may be adversely affected by different interpretations of the laws and regulations that govern such arrangements or by new laws and regulations. |
|
• |
Government laws and regulations affecting the operation of our restaurants, including but not limited to those that apply to the acquisition and maintenance of our brewing and retail liquor licenses, minimum wages, federal or state exemption rules, health insurance coverage, or other employment benefits such as paid time off, consumer health and safety, nutritional disclosures, and employment eligibility-related documentation requirements, which may increase our operating costs, cause unexpected disruptions to our operations and restrict our growth. |
|
• |
Heavy dependence of our operations, including our loyalty and employee engagement programs on information technology, which may be adversely affected by any material failure of such technology, including but not limited to cyber-attacks. |
11
|
• |
Any suspension of, or failure to pay regular dividends or to repurchase the Company’s stock up to the maximum amounts permitted under, our previously announced repurchase program, either of which may negatively impact investor perceptions of us. |
For a more detailed description of these risk factors and other considerations, see Part II, Item 1A – “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended January 3, 2017.
GENERAL
As of November 6, 2017, we owned and operated 195 restaurants located in the 25 states of Alabama, Arizona, Arkansas, California, Colorado, Florida, Indiana, Kansas, Kentucky, Louisiana, Maryland, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and Washington. Each of our restaurants is operated either as a BJ’s Restaurant & Brewhouse®, a BJ’s Restaurant & Brewery®, a BJ’s Pizza & Grill®, or a BJ’s Grill® restaurant. Currently, the BJ’s Restaurant & Brewhouse® format represents our primary future expansion vehicle. Our proprietary craft beer is produced at several of our BJ’s Restaurant & Brewery® locations, our Temple, Texas brewpub locations and by independent third party brewers using our proprietary recipes. Our BJ’s Pizza & Grill® restaurants are smaller format, full-service restaurants relative to our BJ’s Restaurant & Brewhouse® and BJ’s Restaurant & Brewery® locations and reflect the original format of the BJ’s restaurant concept that was first introduced in 1978. Our BJ’s Grill® restaurant is a slightly smaller footprint restaurant, compared to our BJ’s Restaurant & Brewhouse® format, featuring all the amenities of our Brewhouse locations.
The first BJ’s restaurant opened in 1978 in Orange County, California, featuring Chicago style deep-dish pizza with a unique California twist. Over the years we expanded the BJ’s concept from its beginnings as a small pizzeria to a full-service, high energy casual dining restaurant with a broad menu including our BJ’s award‑winning, signature deep-dish pizza, our proprietary craft and other beers, as well as a large selection of appetizers, entrées, pastas, burgers and sandwiches, specialty salads and desserts, including our made to order, warm pizza cookie dessert, the Pizookie®.
Our revenues are comprised of food and beverage sales at our restaurants. Revenues from restaurant sales are recognized when payment is tendered at the point of sale. Amounts paid with a credit card are recorded in accounts and other receivables until payment is collected. Revenues from our gift cards are recognized upon redemption in our restaurants. Gift card breakage is recognized as a component of “Other income, net” on our Consolidated Statements of Income. Gift card breakage is recorded when the likelihood of redemption becomes remote, which is typically after 24 months from the original gift card issuance date.
All of our restaurants are Company-owned. In calculating comparable restaurant sales, we include a restaurant in the comparable base once it has been open for 18 months. Customer traffic for our restaurants is estimated based on individual customer checks.
Cost of sales is comprised of food and beverage costs, including the cost to produce and distribute our proprietary craft beer, soda and ciders. The components of cost of sales are variable and typically fluctuate directly with sales volumes, but may be impacted by changes in commodity prices, a shift in sales mix to higher cost proteins or other higher cost items, or varying levels of promotional activities.
Labor and benefit costs include direct hourly and management wages, bonuses, payroll taxes, fringe benefits and stock-based compensation and workers’ compensation expense that is directly related to restaurant level employees.
Occupancy and operating expenses include restaurant supplies, credit card fees, marketing costs, fixed rent, percentage rent, common area maintenance charges, utilities, real estate taxes, repairs and maintenance and other related restaurant costs.
General and administrative costs include all corporate, field supervision and administrative functions that support existing operations and provide infrastructure to facilitate our future growth. Components of this category include corporate management, field supervision and corporate hourly staff salaries and related employee benefits (including stock-based compensation expense and cash-based incentive compensation), travel and relocation costs, information systems, the cost to recruit and train new restaurant management employees, corporate rent, certain brand marketing-related expenses and legal, professional and consulting fees.
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Depreciation and amortization are composed primarily of depreciation of capital expenditures for restaurant and brewing equipment and leasehold improvements.
Restaurant opening expenses, which are expensed as incurred, consist of the costs of hiring and training the initial hourly work force for each new restaurant, travel, the cost of food and supplies used in training, grand opening promotional costs, the cost of the initial stock of operating supplies and other direct costs related to the opening of a restaurant, including rent during the construction and in-restaurant training period.
While we currently expect to pursue the renewal of substantially all of our expiring restaurant leases, there is no guarantee that we can mutually agree to a new lease that is satisfactory to our landlord and us or that, if renewed, rents will not increase substantially.
RESULTS OF OPERATIONS
The following table provides, for the periods indicated, our unaudited Consolidated Statements of Income expressed as percentages of total revenues. The results of operations for the thirteen and thirty-nine weeks ended October 3, 2017 September 27, 2016, are not necessarily indicative of the results to be expected for the full fiscal year. Percentages below may not reconcile due to rounding.
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