Minnesota
|
No.
31-1455915
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
(IRS
Employer
Identification
No.)
|
Page
|
||
PART
I – FINANCIAL INFORMATION
|
||
Item 1.
|
Financial
Statements
|
3
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
12
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
18
|
Item
4.
|
Controls
and Procedures
|
19
|
PART
II – OTHER INFORMATION
|
|
|
Item
1.
|
Legal
Proceedings
|
20
|
Item
6.
|
Exhibits
|
20
|
|
||
Signatures
|
21
|
|
Exhibit
Index
|
22
|
September
27,
2009
|
December
28,
2008
|
|||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 12,083 | 8,347 | |||||
Marketable
securities
|
40,283 | 36,157 | ||||||
Accounts
receivable – franchisees, net of allowance of $25
|
1,037 | 895 | ||||||
Accounts
receivable – other
|
7,669 | 5,759 | ||||||
Inventory
|
3,227 | 3,104 | ||||||
Prepaid
expenses
|
3,512 | 3,294 | ||||||
Refundable
income taxes
|
1,510 | 1,611 | ||||||
Deferred
income taxes
|
4,935 | 1,731 | ||||||
Total
current assets
|
74,256 | 60,898 | ||||||
Property
and equipment, net
|
181,186 | 154,432 | ||||||
Restricted
cash
|
21,325 | 7,670 | ||||||
Other
assets
|
9,439 | 9,846 | ||||||
Goodwill
|
11,246 | 10,972 | ||||||
Total
assets
|
$ | 297,452 | 243,818 | |||||
Liabilities
and Stockholders’ Equity
|
||||||||
Current
liabilities:
|
||||||||
Unearned
franchise fees
|
$ | 2,769 | 2,514 | |||||
Accounts
payable
|
19,682 | 16,691 | ||||||
Accrued
compensation and benefits
|
15,968 | 14,155 | ||||||
Accrued
expenses
|
6,487 | 7,116 | ||||||
Current
portion of deferred lease credits
|
76 | 56 | ||||||
Total
current liabilities
|
44,982 | 40,532 | ||||||
Long-term
liabilities:
|
||||||||
Other
liabilities
|
1,388 | 1,270 | ||||||
System-wide
payables
|
21,325 | 7,670 | ||||||
Deferred
income taxes
|
15,119 | 8,916 | ||||||
Deferred
lease credits, net of current portion
|
15,595 | 13,837 | ||||||
Total
liabilities
|
98,409 | 72,225 | ||||||
Commitments
and contingencies (note 10)
|
||||||||
Stockholders’
equity:
|
||||||||
Undesignated
stock, 1,000,000 shares authorized; none issued
|
— | — | ||||||
Common
stock, no par value. Authorized 44,000,000 shares; issued and outstanding
18,025,351 and 17,887,271 respectively
|
91,435 | 86,318 | ||||||
Retained
earnings
|
107,608 | 85,275 | ||||||
Total
stockholders’ equity
|
199,043 | 171,593 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 297,452 | 243,818 |
Three months
ended
|
Nine months
ended
|
|||||||||||||||
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
|||||||||||||
Revenue:
|
||||||||||||||||
Restaurant
sales
|
$ | 120,290 | 95,492 | 357,477 | 269,850 | |||||||||||
Franchise
royalties and fees
|
12,451 | 10,582 | 36,441 | 31,354 | ||||||||||||
Total
revenue
|
132,741 | 106,074 | 393,918 | 301,204 | ||||||||||||
Costs
and expenses:
|
||||||||||||||||
Restaurant
operating costs:
|
||||||||||||||||
Cost
of sales
|
35,809 | 28,422 | 107,939 | 81,085 | ||||||||||||
Labor
|
36,369 | 29,289 | 107,974 | 82,167 | ||||||||||||
Operating
|
19,416 | 15,675 | 55,369 | 42,807 | ||||||||||||
Occupancy
|
8,256 | 6,273 | 23,774 | 17,872 | ||||||||||||
Depreciation
and amortization
|
8,267 | 5,971 | 23,650 | 16,720 | ||||||||||||
General
and administrative (1)
|
12,943 | 10,684 | 36,136 | 29,072 | ||||||||||||
Preopening
|
1,149 | 2,476 | 5,231 | 5,419 | ||||||||||||
Loss
on asset disposals and impairment
|
842 | 930 | 1,289 | 2,068 | ||||||||||||
Total
costs and expenses
|
123,051 | 99,720 | 361,362 | 277,210 | ||||||||||||
Income
from operations
|
9,690 | 6,354 | 32,556 | 23,994 | ||||||||||||
Investment
income
|
379 | 264 | 868 | 1,096 | ||||||||||||
Earnings
before income taxes
|
10,069 | 6,618 | 33,424 | 25,090 | ||||||||||||
Income
tax expense
|
3,197 | 2,050 | 11,091 | 8,382 | ||||||||||||
Net
earnings
|
$ | 6,872 | 4,568 | 22,333 | 16,708 | |||||||||||
Earnings per common share –
basic
|
$ | 0.38 | 0.26 | 1.24 | 0.94 | |||||||||||
Earnings
per common share – diluted
|
0.38 | 0.25 | 1.24 | 0.93 | ||||||||||||
Weighted
average shares outstanding – basic
|
18,024 | 17,823 | 18,001 | 17,800 | ||||||||||||
Weighted
average shares outstanding – diluted
|
18,098 | 17,920 | 18,068 | 17,903 |
Nine months
ended
|
||||||||
September
27,
2009
|
September
28,
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
earnings
|
$ | 22,333 | 16,708 | |||||
Adjustments
to reconcile net earnings to cash provided by operations:
|
||||||||
Depreciation
|
23,191 | 16,720 | ||||||
Amortization
|
459 | 80 | ||||||
Loss
on asset disposals and impairment
|
1,289 | 2,068 | ||||||
Deferred
lease credits
|
1,705 | 1,426 | ||||||
Deferred
income taxes
|
2,999 | 3,929 | ||||||
Stock-based
compensation
|
4,278 | 3,221 | ||||||
Excess
tax benefit from the exercise of stock options
|
(418 | ) | (435 | ) | ||||
Change
in operating assets and liabilities, net of effect of
acquisition:
|
||||||||
Trading
securities
|
(1,731 | ) | (164 | ) | ||||
Accounts
receivable
|
(1,979 | ) | (62 | ) | ||||
Inventory
|
(123 | ) | (327 | ) | ||||
Prepaid
expenses
|
(218 | ) | 438 | |||||
Other
assets
|
(52 | ) | (429 | ) | ||||
Unearned
franchise fees
|
255 | 53 | ||||||
Accounts
payable
|
2,792 | 2,519 | ||||||
Refundable
income taxes
|
519 | 1,016 | ||||||
Accrued
expenses
|
2,662 | 1,511 | ||||||
Net
cash provided by operating activities
|
57,961 | 47,272 | ||||||
Cash
flows from investing activities:
|
||||||||
Acquisition
of property and equipment
|
(51,309 | ) | (48,378 | ) | ||||
Acquisition
of franchised restaurants
|
— | (23,071 | ) | |||||
Purchase
of marketable securities
|
(39,115 | ) | (98,984 | ) | ||||
Proceeds
of marketable securities
|
36,720 | 125,156 | ||||||
Net
cash used in investing activities
|
(53,704 | ) | (45,277 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Issuance
of common stock
|
574 | 569 | ||||||
Tax
payments for restricted stock units
|
(1,513 | ) | (989 | ) | ||||
Excess
tax benefit from the exercise of stock options
|
418 | 435 | ||||||
Net
cash provided by (used in) financing activities
|
(521 | ) | 15 | |||||
Net
increase in cash and cash equivalents
|
3,736 | 3,010 | ||||||
Cash
and cash equivalents at beginning of period
|
8,347 | 1,521 | ||||||
Cash
and cash equivalents at end of period
|
$ | 12,083 | 4,531 |
(1)
|
Basis
of Financial Statement Presentation
|
(2)
|
Summary
of Significant Accounting Policies
|
|
(a)
Inventories
|
|
(b)
Fair
Values of Financial
Instruments
|
Fair
Value Measurements
|
||||||||||||||||
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
Assets
|
||||||||||||||||
Short-term
investments (1)
|
$ | 3,298 | $ | 23,707 | $ | - | $ | 27,005 |
(1)
|
We
classified a portion of our marketable securities as available-for-sale
and trading securities which were reported at fair market value, using the
“market approach” valuation technique. The “market approach” valuation
method used prices and other relevant information observable in market
transactions involving identical or comparable assets. Our trading
securities are valued using the
Level
1 approach. Our available-for-sale marketable securities are valued using
a Level 2 approach.
|
|
(c)
New
Accounting
Pronouncements
|
(3)
|
Marketable
Securities
|
As
of
|
||||||||
September
27,
2009
|
December
28,
2008
|
|||||||
Held-to-maturity:
|
||||||||
Municipal
securities
|
$ | 13,278 | $ | 17,254 | ||||
Available-for-sale:
|
||||||||
Municipal
securities
|
23,707 | 17,336 | ||||||
Trading:
|
||||||||
Mutual
funds
|
3,298 | 1,567 | ||||||
Total
|
$ | 40,283 | $ | 36,157 |
(4)
|
Property and
Equipment
|
As
of
|
||||||||
September
27,
2009
|
December
28,
2008
|
|||||||
Construction
in-process
|
$ | 11,113 | $ | 10,703 | ||||
Buildings
|
14,624 | 6,639 | ||||||
Furniture,
fixtures, and equipment
|
112,795 | 95,460 | ||||||
Leasehold
improvements
|
143,123 | 122,796 | ||||||
281,655 | 235,598 | |||||||
Less
accumulated depreciation
|
(100,469 | ) | (81,166 | ) | ||||
$ | 181,186 | $ | 154,432 |
(5)
|
Derivative
Instruments
|
(6)
|
Stockholders’
Equity
|
|
(a)
|
Stock
Options
|
Number
of
shares
|
Weighted
average
exercise price
|
Average
Remaining
Contractual
Life (years) |
Aggregate
Intrinsic
Value
|
|||||||||||||
Outstanding,
December 28, 2008
|
146,548 | $ | 13.71 | 4.5 | $ | 1,627 | ||||||||||
Granted
|
56,302 | 30.90 | ||||||||||||||
Exercised
|
(3,050 | ) | 11.61 | |||||||||||||
Cancelled
|
(3,962 | ) | 23.22 | |||||||||||||
Outstanding,
September 27, 2009
|
195,838 | $ | 18.49 | 4.4 | $ | 4,509 | ||||||||||
Exercisable,
September 27, 2009
|
99,994 | 9.04 | 3.1 | 3,248 |
|
(b)
|
Restricted
Stock Units
|
Number
of
shares
|
Weighted
average
grant
date
fair
value
|
|||||||
Outstanding,
December 28, 2008
|
284,852 | $ | 20.19 | |||||
Granted
|
341,802 | 33.30 | ||||||
Vested
|
(10,440 | ) | 34.48 | |||||
Cancelled
|
(38,954 | ) | 27.00 | |||||
Outstanding,
September 27, 2009
|
577,260 | $ | 27.23 |
|
(c)
|
Employee
Stock Purchase Plan
|
(7)
|
Earnings Per
Share
|
Three
months ended September 27, 2009
|
||||||||||||
Earnings
(numerator)
|
Shares
(denominator)
|
Per-share
amount
|
||||||||||
Net
earnings
|
$ | 6,872 | ||||||||||
Earnings
per common share – basic
|
18,024,346 | $ | 0.38 | |||||||||
Effect
of dilutive securities – stock options
|
— | 73,856 | ||||||||||
Earnings
per common share – diluted
|
$ | 6,872 | 18,098,202 | 0.38 |
Three
months ended September 28, 2008
|
||||||||||||
Earnings
(numerator)
|
Shares
(denominator)
|
Per-share
amount
|
||||||||||
Net
earnings
|
$ | 4,568 | ||||||||||
Earnings
per common share – basic
|
17,822,536 | $ | 0.26 | |||||||||
Effect
of dilutive securities – stock options
|
— | 97,327 | ||||||||||
Earnings
per common share – diluted
|
$ | 4,568 | 17,919,863 | 0.25 |
Nine
months ended September 27, 2009
|
||||||||||||
Earnings
(numerator)
|
Shares
(denominator)
|
Per-share
amount
|
||||||||||
Net
earnings
|
$ | 22,333 | ||||||||||
Earnings
per common share – basic
|
18,001,176 | $ | 1.24 | |||||||||
Effect
of dilutive securities – stock options
|
— | 66,643 | ||||||||||
Earnings
per common share – diluted
|
$ | 22,333 | 18,067,819 | 1.24 |
Nine
months ended September 28, 2008
|
||||||||||||
Earnings
(numerator)
|
Shares
(denominator)
|
Per-share
amount
|
||||||||||
Net
earnings
|
$ | 16,708 | ||||||||||
Earnings
per common share – basic
|
17,799,752 | $ | 0.94 | |||||||||
Effect
of dilutive securities – stock options
|
— | 102,772 | ||||||||||
Earnings
per common share – diluted
|
$ | 16,708 | 17,902,524 | 0.93 |
(8)
|
Supplemental Disclosures of
Cash Flow Information
|
Nine months
ended
|
||||||||
September
27,
2009
|
September
28,
2008
|
|||||||
Cash
paid during the period for:
|
||||||||
Income
taxes
|
$ | 7,692 | 3,498 | |||||
Noncash
financing and investing transactions:
|
||||||||
Property
and equipment not yet paid for
|
199 | 5,122 | ||||||
Purchase
price allocated to goodwill reducing fixed assets
|
274 | — |
(9)
|
Income Taxes
|
(10)
|
Contingencies
|
|
•
|
Sales
at our company-owned restaurants, which were 91% of total revenue in the
third quarter of 2009. Food and nonalcoholic beverages accounted for 77%
of restaurant sales. The remaining 23% of restaurant sales was from
alcoholic beverages. The menu item with the highest sales volume is
traditional wings at 21% of total restaurant
sales.
|
|
•
|
Royalties
and franchise fees received from our
franchisees.
|
Three
months ended
|
Nine
months ended
|
|||||||||||||||
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
|||||||||||||
Revenue:
|
||||||||||||||||
Restaurant
sales
|
90.6 | % | 90.0 | % | 90.7 | % | 89.6 | % | ||||||||
Franchising
royalties and fees
|
9.4 | 10.0 | 9.3 | 10.4 | ||||||||||||
Total
revenue
|
100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
Costs
and expenses:
|
||||||||||||||||
Restaurant
operating costs:
|
||||||||||||||||
Cost
of sales
|
29.8 | 29.8 | 30.2 | 30.0 | ||||||||||||
Labor
|
30.2 | 30.7 | 30.2 | 30.4 | ||||||||||||
Operating
|
16.1 | 16.4 | 15.5 | 15.9 | ||||||||||||
Occupancy
|
6.9 | 6.6 | 6.7 | 6.6 | ||||||||||||
Depreciation
and amortization
|
6.2 | 5.6 | 6.0 | 5.6 | ||||||||||||
General
and administrative
|
9.8 | 10.1 | 9.2 | 9.7 | ||||||||||||
Preopening
|
0.9 | 2.3 | 1.3 | 1.8 | ||||||||||||
Loss
on asset disposals and impairment
|
0.6 | 0.9 | 0.3 | 0.7 | ||||||||||||
Total
costs and expenses
|
92.7 | 94.0 | 91.7 | 92.0 | ||||||||||||
Income
from operations
|
7.3 | 6.0 | 8.3 | 8.0 | ||||||||||||
Investment
income
|
0.3 | 0.2 | 0.2 | 0.4 | ||||||||||||
Earnings
before income taxes
|
7.6 | 6.2 | 8.5 | 8.3 | ||||||||||||
Income
tax expense
|
2.4 | 1.9 | 2.8 | 2.8 | ||||||||||||
Net
earnings
|
5.2 | 4.3 | 5.7 | 5.5 |
As
of
|
||||||||
September
27,
2009
|
September
28,
2008
|
|||||||
Company-owned
restaurants
|
220 | 187 | ||||||
Franchised
restaurants
|
400 | 348 |
Three months
ended
|
Nine months
ended
|
|||||||||||||||
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
|||||||||||||
Company-owned
restaurant sales
|
$ | 120,290 | 95,492 | 357,477 | 269,850 | |||||||||||
Franchised
restaurant sales
|
244,470 | 212,408 | 725,071 | 626,018 |
Three months ended
|
Nine months ended
|
|||||||||||||||
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
|||||||||||||
Company-owned
same-store sales
|
0.8 | % | 6.8 | % | 3.3 | % | 6.4 | % | ||||||||
Franchised
same-store sales
|
1.9 | 2.1 | 3.8 | 2.9 |
Three months ended
|
Nine months ended
|
|||||||||||||||
September
27,
2009
|
September
28,
2008
|
September
27,
2009
|
September
28,
2008
|
|||||||||||||
Average
price per pound
|
$ | 1.67 | 1.17 | 1.66 | 1.21 |
Payments Due
By Period (in thousands)
|
||||||||||||||||||||
Total
|
Less than
One
year
|
1-3 years
|
3-5 years
|
After 5
years
|
||||||||||||||||
Operating
lease obligations
|
$ | 227,873 | 27,203 | 51,344 | 46,188 | 103,138 | ||||||||||||||
Lease
commitments for restaurants under development
|
37,139 | 1,768 | 5,302 | 5,366 | 24,703 | |||||||||||||||
Total
|
$ | 265,012 | 28,971 | 56,646 | 51,554 | 127,841 |
|
·
|
Fluctuations
in traditional wing prices could reduce our operating
income.
|
|
·
|
If
we are unable to successfully open new restaurants, our revenue growth
rate and profits may be reduced.
|
|
·
|
We
must identify and obtain a sufficient number of suitable new restaurant
sites for us to sustain our revenue growth
rate.
|
|
·
|
Our
restaurants may not achieve market acceptance in the new geographic
regions we enter.
|
|
·
|
New
restaurants added to our existing markets may take sales from existing
restaurants.
|
|
·
|
Implementing
our expansion strategy may strain our
resources.
|
|
·
|
We
are dependent on franchisees and their
success.
|
|
·
|
Franchisees
may take actions that could harm our
business.
|
|
·
|
We
could face liability from our
franchisees.
|
|
·
|
We
may be unable to compete effectively in the restaurant
industry.
|
|
·
|
A
reduction in vendor allowances currently received could affect our costs
of goods sold.
|
|
·
|
Our
quarterly operating results may fluctuate due to the timing of special
events and other factors, including the recognition of impairment
losses.
|
|
·
|
We
may not be able to attract and retain qualified personnel to operate and
manage our restaurants.
|
|
·
|
We
may not be able to obtain and maintain licenses and permits necessary to
operate our restaurants.
|
|
·
|
Changes
in employment laws or regulation could harm our
performance.
|
|
·
|
Changes
in consumer preferences, consumer confidence, or discretionary consumer
spending could harm our
performance.
|
|
·
|
We
are susceptible to adverse trends in
Ohio.
|
|
·
|
Changes
in public health concerns may impact our
performance.
|
|
·
|
A
decline in visitors to any of the business districts near the locations of
our restaurants could negatively affect our restaurant
sales.
|
|
·
|
The
acquisition of existing restaurants from our franchisees or other
acquisitions may have unanticipated consequences that could harm our
business and our financial
condition.
|
|
·
|
Improper
food handling may affect our business
adversely.
|
|
·
|
Complaints
or litigation may hurt us.
|
|
·
|
Our
current insurance may not provide adequate levels of coverage against
claims.
|
|
·
|
Natural
disasters and other events could harm our
performance.
|
|
·
|
We
may not be able to protect our trademarks, service marks or trade
secrets.
|
Date:
November 3, 2009
|
BUFFALO
WILD WINGS, INC.
|
||
By:
|
/s/
Sally J. Smith
|
||
Sally
J. Smith, President and Chief Executive Officer
(principal
executive officer)
|
|||
By:
|
/s/
Mary J. Twinem
|
||
Mary
J. Twinem, Executive Vice President, Chief
Financial
Officer and Treasurer (principal financial and
accounting
officer)
|
Exhibit
Number
|
Description
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act
|
|
32.1
|
Certification
of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act
|
|
32.2
|
Certification
of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act
|