ITEM 1. FINANCIAL STATEMENTS
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
September 25,
2016
|
|
December 27,
2015
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
14,758
|
|
|
11,220
|
|
Marketable securities
|
—
|
|
|
9,043
|
|
Accounts receivable, net of allowance of $251 and $25, respectively
|
42,707
|
|
|
34,087
|
|
Inventory
|
13,437
|
|
|
15,351
|
|
Prepaid expenses
|
7,674
|
|
|
6,386
|
|
Refundable income taxes
|
543
|
|
|
21,591
|
|
Restricted assets
|
22,240
|
|
|
100,073
|
|
Total current assets
|
101,359
|
|
|
197,751
|
|
|
|
|
|
Property and equipment, net
|
605,188
|
|
|
604,712
|
|
Reacquired franchise rights, net
|
122,100
|
|
|
129,282
|
|
Other assets
|
38,590
|
|
|
26,536
|
|
Goodwill
|
117,228
|
|
|
114,101
|
|
Total assets
|
$
|
984,465
|
|
|
1,072,382
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Current liabilities:
|
|
|
|
Unearned franchise fees
|
$
|
2,621
|
|
|
2,144
|
|
Accounts payable
|
42,963
|
|
|
44,760
|
|
Accrued compensation and benefits
|
35,360
|
|
|
55,578
|
|
Accrued expenses
|
25,831
|
|
|
21,678
|
|
Current portion of long-term debt and capital lease obligations
|
7,302
|
|
|
2,147
|
|
Current portion of deferred lease credits
|
511
|
|
|
59
|
|
System-wide payables
|
59,813
|
|
|
137,257
|
|
Total current liabilities
|
174,401
|
|
|
263,623
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
Other liabilities
|
15,796
|
|
|
16,473
|
|
Deferred income taxes
|
24,689
|
|
|
23,726
|
|
Long-term debt and capital lease obligations, net of current portion
|
93,380
|
|
|
70,954
|
|
Deferred lease credits, net of current portion
|
44,310
|
|
|
41,869
|
|
Total liabilities
|
352,576
|
|
|
416,645
|
|
|
|
|
|
Commitments and contingencies (note 11)
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
Undesignated stock, 1,000,000 shares authorized, none issued
|
—
|
|
|
—
|
|
Common stock, no par value. Authorized 44,000,000 shares; issued and outstanding 18,278,601 and 18,917,776 shares, respectively
|
156,872
|
|
|
160,353
|
|
Retained earnings
|
478,805
|
|
|
499,085
|
|
Accumulated other comprehensive loss
|
(3,782
|
)
|
|
(4,094
|
)
|
Total stockholders’ equity
|
631,895
|
|
|
655,344
|
|
Noncontrolling interests
|
(6
|
)
|
|
393
|
|
Total equity
|
631,889
|
|
|
655,737
|
|
Total liabilities and equity
|
$
|
984,465
|
|
|
1,072,382
|
|
See accompanying notes to consolidated financial statements.
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 25,
2016
|
|
September 27,
2015
|
|
September 25,
2016
|
|
September 27,
2015
|
Revenue:
|
|
|
|
|
|
|
|
Restaurant sales
|
$
|
470,648
|
|
|
431,763
|
|
|
1,421,142
|
|
|
1,248,595
|
|
Franchise royalties and fees
|
23,519
|
|
|
23,763
|
|
|
71,460
|
|
|
73,904
|
|
Total revenue
|
494,167
|
|
|
455,526
|
|
|
1,492,602
|
|
|
1,322,499
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
Restaurant operating costs:
|
|
|
|
|
|
|
|
Cost of sales
|
136,185
|
|
|
126,878
|
|
|
418,488
|
|
|
370,398
|
|
Labor
|
150,813
|
|
|
138,897
|
|
|
449,317
|
|
|
398,585
|
|
Operating
|
73,435
|
|
|
63,343
|
|
|
211,295
|
|
|
178,716
|
|
Occupancy
|
27,396
|
|
|
24,210
|
|
|
81,324
|
|
|
68,554
|
|
Depreciation and amortization
|
38,345
|
|
|
33,610
|
|
|
113,847
|
|
|
90,887
|
|
General and administrative
|
32,264
|
|
|
33,714
|
|
|
93,750
|
|
|
97,937
|
|
Preopening
|
1,490
|
|
|
4,777
|
|
|
5,191
|
|
|
9,251
|
|
Loss on asset disposals
|
1,393
|
|
|
1,269
|
|
|
4,489
|
|
|
4,180
|
|
Total costs and expenses
|
461,321
|
|
|
426,698
|
|
|
1,377,701
|
|
|
1,218,508
|
|
Income from operations
|
32,846
|
|
|
28,828
|
|
|
114,901
|
|
|
103,991
|
|
Interest and other expense
|
528
|
|
|
1,400
|
|
|
2,375
|
|
|
1,434
|
|
Earnings before income taxes
|
32,318
|
|
|
27,428
|
|
|
112,526
|
|
|
102,557
|
|
Income tax expense
|
9,814
|
|
|
8,261
|
|
|
33,799
|
|
|
32,973
|
|
Net earnings including noncontrolling interests
|
22,504
|
|
|
19,167
|
|
|
78,727
|
|
|
69,584
|
|
Net earnings attributable to noncontrolling interests
|
(147
|
)
|
|
(69
|
)
|
|
(399
|
)
|
|
(214
|
)
|
Net earnings attributable to Buffalo Wild Wings
|
$
|
22,651
|
|
|
19,236
|
|
|
79,126
|
|
|
69,798
|
|
Earnings per common share – basic
|
$
|
1.24
|
|
|
1.01
|
|
|
4.25
|
|
|
3.67
|
|
Earnings per common share – diluted
|
$
|
1.23
|
|
|
1.00
|
|
|
4.24
|
|
|
3.65
|
|
Weighted average shares outstanding – basic
|
18,296
|
|
|
19,022
|
|
|
18,609
|
|
|
19,006
|
|
Weighted average shares outstanding – diluted
|
18,353
|
|
|
19,167
|
|
|
18,650
|
|
|
19,118
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings including noncontrolling interests
|
$
|
22,504
|
|
|
19,167
|
|
|
78,727
|
|
|
69,584
|
|
Other comprehensive loss (income):
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax
|
69
|
|
|
705
|
|
|
(312
|
)
|
|
1,370
|
|
Other comprehensive loss (income), net of tax
|
69
|
|
|
705
|
|
|
(312
|
)
|
|
1,370
|
|
Comprehensive income including noncontrolling interests
|
22,435
|
|
|
18,462
|
|
|
79,039
|
|
|
68,214
|
|
Comprehensive earnings attributable to noncontrolling interests
|
(147
|
)
|
|
(69
|
)
|
|
(399
|
)
|
|
(214
|
)
|
Comprehensive income attributable to Buffalo Wild Wings
|
$
|
22,582
|
|
|
18,531
|
|
|
79,438
|
|
|
68,428
|
|
See accompanying notes to consolidated financial statements.
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
September 25,
2016
|
|
September 27,
2015
|
Cash flows from operating activities:
|
|
|
|
Net earnings including noncontrolling interests
|
$
|
78,727
|
|
|
69,584
|
|
Adjustments to reconcile net earnings to net cash provided by operations:
|
|
|
|
Depreciation and amortization
|
113,847
|
|
|
90,887
|
|
Loss on asset disposals
|
4,489
|
|
|
4,180
|
|
Deferred lease credits
|
4,095
|
|
|
4,260
|
|
Deferred income taxes
|
962
|
|
|
(13,561
|
)
|
Stock-based compensation
|
2,453
|
|
|
11,689
|
|
Excess tax benefit from stock issuance
|
57
|
|
|
(1,088
|
)
|
Change in fair value of contingent consideration
|
(1,591
|
)
|
|
—
|
|
Loss on investments in affiliates
|
1,904
|
|
|
—
|
|
Change in operating assets and liabilities, net of effect of acquisitions:
|
|
|
|
Trading securities
|
—
|
|
|
(173
|
)
|
Accounts receivable
|
(5,025
|
)
|
|
(4,982
|
)
|
Inventory
|
1,954
|
|
|
(421
|
)
|
Prepaid expenses
|
(1,273
|
)
|
|
(868
|
)
|
Other assets
|
(4,450
|
)
|
|
74
|
|
Unearned franchise fees
|
477
|
|
|
104
|
|
Accounts payable
|
6,465
|
|
|
6,901
|
|
Income taxes
|
20,991
|
|
|
545
|
|
Accrued expenses
|
(10,145
|
)
|
|
(248
|
)
|
Net cash provided by operating activities
|
213,937
|
|
|
166,883
|
|
Cash flows from investing activities:
|
|
|
|
Acquisition of property and equipment
|
(117,850
|
)
|
|
(124,233
|
)
|
Acquisition of businesses
|
(3,862
|
)
|
|
(209,713
|
)
|
Purchase of marketable securities
|
(488
|
)
|
|
(12,301
|
)
|
Proceeds from marketable securities
|
1,205
|
|
|
23,300
|
|
Net cash used in investing activities
|
(120,995
|
)
|
|
(322,947
|
)
|
Cash flows from financing activities:
|
|
|
|
Proceeds from credit facility
|
464,521
|
|
|
197,422
|
|
Repayments of credit facility
|
(440,448
|
)
|
|
(150,467
|
)
|
Borrowings from restricted funds
|
1,478
|
|
|
31,634
|
|
Repurchases of common stock
|
(105,852
|
)
|
|
—
|
|
Other financing activities
|
(1,557
|
)
|
|
(580
|
)
|
Issuance of common stock
|
2,199
|
|
|
2,903
|
|
Excess tax benefit from stock issuance
|
(57
|
)
|
|
1,088
|
|
Tax payments for restricted stock units
|
(9,317
|
)
|
|
(7,847
|
)
|
Net cash provided by (used in) financing activities
|
(89,033
|
)
|
|
74,153
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(371
|
)
|
|
61
|
|
Net increase (decrease) in cash and cash equivalents
|
3,538
|
|
|
(81,850
|
)
|
Cash and cash equivalents at beginning of period
|
11,220
|
|
|
93,329
|
|
Cash and cash equivalents at end of period
|
$
|
14,758
|
|
|
11,479
|
|
See accompanying notes to consolidated financial statements.
BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
NINE
MONTHS ENDED
SEPTEMBER 25, 2016
AND
SEPTEMBER 27, 2015
(Dollar amounts in thousands except share and per share data)
(unaudited)
|
|
(1)
|
Basis of Financial Statement Presentation
|
The consolidated financial statements as of
September 25, 2016
and
December 27, 2015
, and for the three-month and
nine
-month periods ended
September 25, 2016
and
September 27, 2015
have been prepared by Buffalo Wild Wings, Inc. pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The financial information as of
September 25, 2016
and for the three-month and
nine
-month periods ended
September 25, 2016
and
September 27, 2015
is unaudited, but, in the opinion of management, reflects all adjustments and accruals necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods.
References in the remainder of this document to “the Company,” “we,” “us” and “our” refer to the business of Buffalo Wild Wings, Inc. and its wholly and majority owned subsidiaries. We operate Buffalo Wild Wings
®
, R Taco
®
, and PizzaRev
®
restaurants as well as sell Buffalo Wild Wings and R Taco restaurant franchises. In exchange for initial and continuing franchise fees, we give franchisees the right to use the brand names. We operate as a single segment for reporting purposes.
At
September 25, 2016
and
September 27, 2015
, we operated
617
and
573
company-owned restaurants, respectively, and had
602
and
569
franchised restaurants, respectively.
The financial information as of
December 27, 2015
is derived from our audited consolidated financial statements and notes thereto for the fiscal year ended
December 27, 2015
, which are included in Part II, Item 8, of our Annual Report on Form 10-K for the fiscal year ended
December 27, 2015
, and should be read in conjunction with such financial statements.
The results of operations for the three-month and
nine
-month periods ended
September 25, 2016
are not necessarily indicative of the results of operations that may be achieved for the entire year ending
December 25, 2016
.
Certain amounts as of
December 27, 2015
have been reclassified to conform to the current year presentation. The Company reclassified amounts previously presented separately on the consolidated balance sheets as amounts due to restricted funds into our system-wide payables, to which they were related. Also, the Company previously classified depreciation and amortization separately on the consolidated statements of cash flows. The changes in classification do not affect previously reported cash flows from operations, investing or financing activities in the consolidated statement of cash flows, or the previously reported consolidated statement of earnings for any period.
|
|
(2)
|
Summary of Significant Accounting Policies
|
Our significant accounting policies are disclosed in Part II, Item 8, of our Annual Report on Form 10-K for the fiscal year ended
December 27, 2015
. There has been no significant change in our accounting policies since
December 27, 2015
.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09 “Revenue with Contracts from Customers (Topic 606).” ASU 2014-09 supersedes the current revenue recognition guidance, including industry-specific guidance. The guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In March 2016, the FASB issued ASU 2016-04, “Liabilities - Extinguishments of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products.” ASU 2016-04 provides specific guidance for the derecognition of prepaid stored-value product liabilities. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” ASU 2016-08 provides specific guidance to determine whether an entity is providing a specified good or service itself or is arranging for the good or service to be provided by another party. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing.” ASU 2016-10 provides clarification on the subjects of identifying performance obligations and licensing implementation guidance.
The requirements for these standards relating to Topic 606 will be effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted for interim and annual periods beginning after December 15, 2016. The Company expects to adopt these standards upon their effective date. We do not believe the new revenue recognition standard will materially impact our recognition of restaurant sales from company-owned restaurants or our recognition of continuing royalty fees from franchisees. We believe adoption of the new revenue recognition standard will impact our accounting for other fees charged to franchisees and transactions involving our advertising funds. We are currently unable to estimate the impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 requires for lease arrangements spanning more than 12 months, an entity to recognize an asset and liability. The updated guidance is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. We believe the adoption of ASU 2016-02 will materially impact our consolidated financial statements by significantly increasing our non-current assets and non-current liabilities on our consolidated balance sheets in order to record the right of use assets and related lease liabilities for our existing operating leases. We are currently unable to estimate the impact on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation: Improvement to Employee Share-Based Payment Accounting.” ASU 2016-09 provides guidance intended to simplify accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is effective for interim and annual periods beginning after December 15, 2016. Early adoption is permitted for any entity in any interim or annual period. We are currently evaluating the impact of the updated guidance and believe the adoption of the guidance will impact our accounting for excess tax benefits and deficiencies. We are in the process of determining the financial statement impact and are currently unable to estimate the impact on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Payments.” ASU 2016-15 provides guidance on eight specific cash flow issues with the objective of reducing diversity in practice. The guidance is effective for interim and and annual periods beginning after December 15, 2017. Early adoption is permitted for any entity in any interim or annual period. We are currently evaluating the impact of the guidance, but do not believe it will materially impact our consolidated financial statements.
We reviewed all other recently issued accounting pronouncements and concluded they are not applicable or not expected to be significant to our operations.
|
|
(3)
|
Fair Value Measurements
|
The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to the valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under Accounting Standards Codification 820 are described as follows:
|
|
•
|
Level 1 – Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
|
|
|
•
|
Level 2 – Inputs to the valuation methodology include:
|
|
|
◦
|
Quoted prices for similar assets or liabilities in active markets
|
|
|
◦
|
Quoted prices for identical or similar assets or liabilities in inactive markets
|
|
|
◦
|
Inputs other than quoted prices that are observable for the asset or liability
|
|
|
◦
|
Inputs that are derived principally from or corroborated by observable market data by correlation or other means
|
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
|
|
•
|
Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The asset or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs.
The following table summarizes the financial instruments measured at fair value in our consolidated balance sheet as of
September 25, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
Deferred compensation
|
$
|
8,921
|
|
|
—
|
|
|
—
|
|
|
8,921
|
|
Contingent consideration
|
—
|
|
|
—
|
|
|
40
|
|
|
40
|
|
Liabilities
|
|
|
|
|
|
|
|
Deferred compensation
|
8,745
|
|
|
—
|
|
|
—
|
|
|
8,745
|
|
The following table summarizes the financial instruments measured at fair value in our consolidated balance sheet as of
December 27, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets
|
|
|
|
|
|
|
|
Deferred compensation
|
$
|
9,043
|
|
|
—
|
|
|
—
|
|
|
9,043
|
|
Liabilities
|
|
|
|
|
|
|
|
Contingent consideration
|
—
|
|
|
—
|
|
|
1,551
|
|
|
1,551
|
|
Deferred compensation
|
8,958
|
|
|
—
|
|
|
—
|
|
|
8,958
|
|
Our deferred compensation assets and liabilities were composed of investments held for future needs of our non-qualified deferred compensation plan and are reported at fair market value, using the “market approach” valuation method. The “market approach” valuation method uses prices and other relevant information observable in market transactions involving identical assets and is a Level 1 approach. Our contingent consideration assets and liabilities represent amounts due and owed in association with a fiscal year 2015 acquisition. These assets and liabilities were valued using a Level 3 approach that utilizes an option pricing model and the projected future performance of certain restaurants we acquired. The future performance of these acquired restaurants will ultimately determine the settlement amount of these assets and liabilities. Estimates of fair value are inherently uncertain and represent only management's reasonable expectation regarding future developments. These estimates and the judgments and assumptions upon which the estimates are based will, in all likelihood, differ in some respects from actual future results.
The following table summarizes the activity within Level 3 instruments:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 25,
2016
|
|
September 25,
2016
|
Beginning balance
|
$
|
(445
|
)
|
|
$
|
(1,551
|
)
|
Mark to market adjustment
|
485
|
|
|
1,591
|
|
Ending balance
|
$
|
40
|
|
|
$
|
40
|
|
Adjustments to the contingent consideration assets and liabilities are recognized in interest and other expense on the consolidated statements of earnings. There was no significant activity within Level 3 instruments during the three-month or
nine
-month periods ended
September 27, 2015
.
There were no significant transfers between the levels of the fair value hierarchy during either of the
nine
-month periods ended
September 25, 2016
and
September 27, 2015
.
|
|
(4)
|
Marketable Securities
|
Marketable securities consisted of the following:
|
|
|
|
|
|
|
|
|
September 25,
2016
|
|
December 27,
2015
|
Trading
|
|
|
|
Mutual funds
|
$
|
—
|
|
|
9,043
|
|
Total
|
$
|
—
|
|
|
9,043
|
|
The Company reclassified amounts previously presented on the consolidated balance sheets as marketable securities to other assets. The amounts represent investments held in our non-qualified deferred compensation plan. We concluded that prior period balances were immaterial to current assets and total assets on our consolidated balance sheet and therefore, we did not reclassify the marketable securities balance in prior periods.
|
|
(5)
|
Property and Equipment
|
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
September 25,
2016
|
|
December 27,
2015
|
Construction in process
|
$
|
34,686
|
|
|
18,662
|
|
Buildings
|
98,295
|
|
|
92,603
|
|
Capital leases and buildings under deemed landlord financing
|
26,671
|
|
|
25,105
|
|
Furniture, fixtures, and equipment
|
376,550
|
|
|
369,344
|
|
Leasehold improvements
|
596,871
|
|
|
553,736
|
|
Property and equipment, gross
|
1,133,073
|
|
|
1,059,450
|
|
Less accumulated depreciation and amortization
|
(527,885
|
)
|
|
(454,738
|
)
|
Property and equipment, net
|
$
|
605,188
|
|
|
604,712
|
|
|
|
(6)
|
Reacquired Franchise Rights
|
Reacquired franchise rights consisted of the following:
|
|
|
|
|
|
|
|
|
September 25,
2016
|
|
December 27,
2015
|
Reacquired franchise rights
|
$
|
153,960
|
|
|
152,070
|
|
Accumulated amortization
|
(31,860
|
)
|
|
(22,788
|
)
|
Reacquired franchise rights, net
|
$
|
122,100
|
|
|
129,282
|
|
Amortization expense primarily related to amortization of reacquired franchise rights, and also included amortization of capital lease assets and software licenses. Amortization expense for the
nine
-month periods ended
September 25, 2016
and
September 27, 2015
was
$13,601
and
$4,768
, respectively.
|
|
(7)
|
Long-Term Debt and Capital Lease Obligations
|
Our long-term debt and capital lease obligations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average interest rate for the nine months ended September 25, 2016
|
|
Maturity
|
|
September 25,
2016
|
|
December 27, 2015
|
Revolving credit facility
|
1.4%
|
|
July 2018
|
|
$
|
58,603
|
|
|
34,530
|
|
Capital lease and deemed landlord financing obligations
|
7.1%
|
|
Various through November 2030
|
|
42,079
|
|
|
38,571
|
|
Total debt and capital lease obligations
|
|
|
|
|
100,682
|
|
|
73,101
|
|
Less current maturities
|
|
|
|
|
(7,302
|
)
|
|
(2,147
|
)
|
Total long-term debt and capital lease obligations
|
|
|
|
|
$
|
93,380
|
|
|
70,954
|
|
During the nine month period ended September 25, 2016, we had a
$200,000
unsecured revolving credit facility. Interest was charged at LIBOR plus an applicable margin based on our consolidated total leverage ratio. We also paid a commitment fee on the average unused portion of the facility at a rate per annum based on our consolidated total leverage ratio.
The revolving credit facility contained covenants that required us to maintain certain financial ratios, including consolidated coverage, consolidated total leverage and minimum EBITDA. The revolving credit facility also had other customary affirmative and negative covenants, including covenants that restricted the right of the Company and its subsidiaries to merge, to lease, sell or otherwise dispose of assets, to make investments and to grant liens on their assets. As of
September 25, 2016
, we were in compliance with all of these covenants.
On October 6, 2016, we terminated the unsecured revolving credit facility and entered into a new credit agreement (see note 13).
During the
nine
-month period ended
September 25, 2016
, we repurchased
758,894
shares of our common stock for an aggregate purchase price of
$105,852
. The repurchased shares were concurrently retired and credited to authorized, but unissued stock. The repurchase of these shares resulted in a decrease in common stock of
$6,446
and a decrease in retained earnings of
$99,406
for the same period.
We have
1.6 million
shares of common stock reserved for issuance under our current Equity Incentive Plan (Plan) for our employees, officers, and directors. The Plan had
652,019
shares available for grant as of
September 25, 2016
.
Stock Options
The exercise price for stock options issued under the Plan is to be not less than the fair market value on the date of grant with respect to incentive and nonqualified stock options. Stock options vest in
four
equal annual installments and have a contractual life of
seven
years. We issue new shares of common stock upon the exercise of stock options. Option activity for the
nine
months ended
September 25, 2016
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
Weighted
average
exercise price
|
|
Average remaining contractual life
(years)
|
|
Aggregate intrinsic value
|
Outstanding, December 27, 2015
|
131,248
|
|
|
$
|
113.12
|
|
|
4.0
|
|
$
|
7,051
|
|
Granted
|
33,996
|
|
|
147.55
|
|
|
|
|
|
Exercised
|
(10,215
|
)
|
|
71.43
|
|
|
|
|
|
Cancelled
|
(4,612
|
)
|
|
152.42
|
|
|
|
|
|
Expired
|
(535
|
)
|
|
147.52
|
|
|
|
|
|
Outstanding, September 25, 2016
|
149,882
|
|
|
$
|
122.44
|
|
|
4.0
|
|
$
|
5,683
|
|
Exercisable, September 25, 2016
|
76,934
|
|
|
$
|
96.14
|
|
|
2.6
|
|
$
|
4,758
|
|
The aggregate intrinsic value in the table above is before applicable income taxes, based on our closing stock price of
$155.38
as of the last business day of the
nine
-month period ended
September 25, 2016
, which would have been received by the optionees had all options been exercised and sold on that date. As of
September 25, 2016
, total unrecognized stock-based compensation expense related to nonvested stock options was approximately
$2,378
, which is expected to be recognized over a weighted average period of approximately
2.5 years
. During the
nine
-month periods ended
September 25, 2016
and
September 27, 2015
, the total intrinsic value of stock options exercised was
$848
and
$4,012
, respectively. During the
nine
-month periods ended
September 25, 2016
and
September 27, 2015
, the weighted average grant date fair value of options was
$47.67
and
$59.11
, respectively. No shares vested during either of the
nine
-month periods ended
September 25, 2016
or
September 27, 2015
.
Restricted Stock Units
Restricted stock units are granted annually under the Plan at the discretion of the Compensation Committee of our Board of Directors.
We grant restricted stock units subject to
three
-year cliff vesting and a cumulative
three
-year earnings target. The number of units that vest at the end of the three-year period is based on performance against the target. These restricted stock units are subject to forfeiture if they have not vested at the end of the three-year period. Stock-based compensation is recognized for the number of units expected to vest at the end of the period and is expensed beginning on the grant date through the end of the performance period.
For each grant, restricted stock units meeting the performance criteria will vest as of the end of the third fiscal year in the performance period, subject to a Plan-specified maximum number of shares that may be issued to any individual in any year in settlement of restricted stock units. The distribution of vested restricted stock units as common stock typically occurs in March of the following year. The common stock is issued to participants net of the number of shares needed for the required minimum employee withholding taxes. We issue new shares of common stock upon the disbursement of restricted stock units. Restricted stock units are contingently issuable shares, and the activity for the
nine
months ended
September 25, 2016
was as follows:
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
Weighted
average
grant date
fair value
|
Outstanding, December 27, 2015
|
190,120
|
|
|
$
|
161.06
|
|
Granted
|
122,911
|
|
|
147.02
|
|
Vested
|
(7,449
|
)
|
|
122.43
|
|
Cancelled
|
(17,579
|
)
|
|
161.64
|
|
Outstanding, September 25, 2016
|
288,003
|
|
|
$
|
156.04
|
|
As of
September 25, 2016
, the total stock-based compensation expense related to nonvested awards not yet recognized was
$7,225
, which is expected to be recognized over a weighted average period of
2.0
years. The weighted average grant date fair value of restricted stock units granted during the
nine
-month periods ended
September 25, 2016
and
September 27, 2015
was
$147.02
and
$180.60
, respectively. During the
nine
-month periods ended
September 25, 2016
and
September 27, 2015
, we recognized
$862
and
$10,214
, respectively, of stock-based compensation expense related to restricted stock units. The
nine
-month period ended
September 25, 2016
included reversals of previously recognized expenses as we reduced our estimate of financial performance.
Employee Stock Purchase Plan
We have reserved
600,000
shares of common stock for issuance under our Employee Stock Purchase Plan (ESPP). The ESPP is available to substantially all employees subject to employment eligibility requirements. Participants may purchase our common stock at
85%
of the beginning or ending closing price, whichever is lower, for each six-month period ending in May and November. During the
nine
-month periods ended
September 25, 2016
, and
September 27, 2015
, we issued
12,857
and
8,747
shares of common stock, respectively, under the ESPP. As of
September 25, 2016
, we had
172,901
shares available for future issuance under the ESPP.
|
|
(9)
|
Earnings Per Common Share
|
The following is a reconciliation of basic and fully diluted earnings per common share for the three-month and
nine
-month periods ended
September 25, 2016
and
September 27, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 25, 2016
|
|
Earnings
(numerator)
|
|
Shares
(denominator)
|
|
Per-share
amount
|
Net earnings attributable to Buffalo Wild Wings
|
$
|
22,651
|
|
|
|
|
|
Earnings per common share
|
22,651
|
|
|
18,295,694
|
|
|
$
|
1.24
|
|
Effect of dilutive securities – stock options
|
—
|
|
|
33,928
|
|
|
|
|
Effect of dilutive securities – restricted stock units
|
—
|
|
|
23,874
|
|
|
|
Earnings per common share – assuming dilution
|
$
|
22,651
|
|
|
18,353,496
|
|
|
$
|
1.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 27, 2015
|
|
Earnings
(numerator)
|
|
Shares
(denominator)
|
|
Per-share
amount
|
Net earnings attributable to Buffalo Wild Wings
|
$
|
19,236
|
|
|
|
|
|
Earnings per common share
|
19,236
|
|
|
19,022,111
|
|
|
$
|
1.01
|
|
Effect of dilutive securities – stock options
|
—
|
|
|
74,204
|
|
|
|
|
Effect of dilutive securities – restricted stock units
|
—
|
|
|
70,344
|
|
|
|
Earnings per common share – assuming dilution
|
$
|
19,236
|
|
|
19,166,659
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 25, 2016
|
|
Earnings
(numerator)
|
|
Shares
(denominator)
|
|
Per-share
amount
|
Net earnings attributable to Buffalo Wild Wings
|
$
|
79,126
|
|
|
|
|
|
Earnings per common share
|
79,126
|
|
|
18,608,533
|
|
|
$
|
4.25
|
|
Effect of dilutive securities – stock options
|
—
|
|
|
33,359
|
|
|
|
|
Effect of dilutive securities – restricted stock units
|
—
|
|
|
7,958
|
|
|
|
Earnings per common share – assuming dilution
|
$
|
79,126
|
|
|
18,649,850
|
|
|
$
|
4.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 27, 2015
|
|
Earnings
(numerator)
|
|
Shares
(denominator)
|
|
Per-share
amount
|
Net earnings attributable to Buffalo Wild Wings
|
$
|
69,798
|
|
|
|
|
|
Earnings per common share
|
69,798
|
|
|
19,005,859
|
|
|
$
|
3.67
|
|
Effect of dilutive securities – stock options
|
—
|
|
|
76,080
|
|
|
|
|
Effect of dilutive securities – restricted stock units
|
—
|
|
|
35,932
|
|
|
|
Earnings per common share – assuming dilution
|
$
|
69,798
|
|
|
19,117,871
|
|
|
$
|
3.65
|
|
The following is a summary of those securities outstanding at the end of the respective periods, which have been excluded from the fully diluted calculations because the effect on net earnings per common share would have been antidilutive or were performance-granted shares for which the performance criteria had not yet been met:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
|
Nine months ended
|
|
September 25,
2016
|
|
September 27,
2015
|
|
September 25,
2016
|
|
September 27,
2015
|
Stock options
|
78,070
|
|
|
33,327
|
|
|
71,863
|
|
|
37,986
|
|
Restricted stock units
|
264,129
|
|
|
257,904
|
|
|
280,045
|
|
|
292,316
|
|
|
|
(10)
|
Supplemental Disclosures of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
September 25,
2016
|
|
September 27,
2015
|
Cash paid during the period for:
|
|
|
|
Income taxes
|
$
|
11,724
|
|
|
45,777
|
|
Interest
|
2,563
|
|
|
586
|
|
Noncash financing and investing transactions:
|
|
|
|
Decrease in property and equipment not yet paid for
|
8,299
|
|
|
10,888
|
|
Increase in asset retirement obligation asset and liability
|
89
|
|
|
1,096
|
|
Increase in deemed owner assets and obligations
|
5,729
|
|
|
—
|
|
Increase in other assets and liabilities from hosted software arrangements
|
1,550
|
|
|
—
|
|
Increase in capital leases
|
888
|
|
|
—
|
|
(11)
Contingencies
We have a limited guarantee of the borrowings of Pie Squared Pizza, LLC, a subsidiary of Pie Squared Holdings, LLC, in the amount of
$575
. We do not believe that payment under this guarantee is probable as of
September 25, 2016
.
On June 2, 2015, two of our former employees (the “plaintiffs”) filed a collective action under the Fair Labor Standards Act (“FLSA”) and putative class action under New York state law against us in the United States District Court for the Western District of New York. The claim alleges that we have a policy or procedure requiring employees who receive compensation in part through tip credits to perform work that is ineligible for tip credit compensation at a tip credit rate in violation of the FLSA and New York state law. We intend to vigorously defend this lawsuit. We believe there is a reasonable possibility of loss related to these claims, however, given the early stage of the case, we are currently unable to determine the potential range of exposure, if any.
In addition to the litigation described above, we are involved in various other legal matters arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these other matters will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
(12)
Acquisition of Businesses
During the
nine
-month periods ended
September 25, 2016
and
September 27, 2015
, we acquired
1
and
54
existing, franchised Buffalo Wild Wings restaurants, respectively. We also acquired
1
R Taco franchised restaurant and
4
Buffalo Wild Wings restaurants under construction during the nine-month period ended September 27, 2015. The total purchase prices of
$3,862
and
$209,713
for franchised restaurants acquired during the
nine
-month periods ended
September 25, 2016
, and
September 27, 2015
, respectively, were funded by cash from operations, the sale of marketable securities and proceeds from our revolving credit facility. The acquisitions were accounted for as business combinations.
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
September 25,
2016
|
|
September 27,
2015
|
Inventory, prepaids, and other assets
|
$
|
38
|
|
|
14,036
|
|
Property and equipment
|
224
|
|
|
65,623
|
|
Lease and other liabilities
|
(14
|
)
|
|
(1,690
|
)
|
Reacquired franchise rights
|
1,890
|
|
|
100,090
|
|
Capital lease obligations
|
—
|
|
|
(29,975
|
)
|
Goodwill
|
1,724
|
|
|
61,629
|
|
|
$
|
3,862
|
|
|
209,713
|
|
The excess of the purchase price over the aggregate fair value of assets acquired and liabilities assumed was allocated to goodwill. The goodwill shown in the table above is not subject to amortization but is deductible for tax purposes. The results of operations of these locations are included in our consolidated statements of earnings as of the date of acquisition.
(13)
Subsequent Event
On
October 6, 2016
, we terminated our existing revolving credit facility (see note 7) and entered into a new credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association and other lenders. The Credit Agreement provides the Company with a committed
$500,000
unsecured revolving credit facility (“Facility”), which expires on
October 6, 2021
. The Facility includes a letter of credit subfacility of
$40,000
and a swingline loan subfacility of
$20,000
. Amounts borrowed on the Facility bear interest at either a base rate as set forth in the Credit Agreement plus an applicable margin ranging between
0.00%
and
0.75%
, or a LIBOR rate plus an applicable margin ranging between
1.00%
and
1.75%
, at the Company's option. The applicable margins are based on our consolidated total leverage ratio. We also pay a commitment fee ranging from
0.125%
to
0.250%
on the average unused portion of the facility at a rate per annum based on our consolidated total leverage ratio. As of
October 23, 2016
, we had an outstanding balance of
$100,000
under the Facility.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in Item 1 of Part 1 of this Quarterly Report and the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended
December 27, 2015
. This discussion and analysis contains certain statements that are not historical facts, including, among others, those relating to our anticipated financial performance for
2016
, cash requirements, and our expected store openings and preopening costs. Such statements are forward-looking and speak only as of the date on which they are made. Actual results are subject to various risks and uncertainties including, but not limited to, those discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations as well as in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 27, 2015. Information included in this discussion and analysis includes commentary on company-owned and franchised restaurant units, restaurant sales, same-store sales, and average weekly sales volumes. Management believes such sales information is an important measure of our performance, and is useful in assessing consumer acceptance of the Buffalo Wild Wings, Inc. concepts and the overall health of the concepts. Franchise information also provides an understanding of our revenues because franchise royalties and fees are based on the opening of franchised units and their sales. However, franchised restaurant sales and same-store sales information does not represent sales in accordance with U.S. generally accepted accounting principles (GAAP), should not be considered in isolation or as a substitute for other measures of performance prepared in accordance with GAAP and may not be comparable to financial information as defined or used by other companies.
Critical Accounting Estimates
Our most critical accounting estimates, which are those that require significant judgment, include: valuation of long-lived assets, business combinations, lessee involvement in construction, and stock-based compensation. An in-depth description of these can be found in our Annual Report on Form 10-K for the fiscal year ended
December 27, 2015
. There have been no changes to those policies during this period.
We are currently monitoring several restaurants in regards to the valuation of long-lived assets. Based on our current estimates of the future operating results of these restaurants, we believe that the assets at these restaurants are not impaired. As we periodically refine our estimated future operating results, changes in our estimates and assumptions may cause us to realize impairment charges in the future.
Overview
As of
September 25, 2016
, we owned and operated
617
company-owned restaurants, including
608
Buffalo Wild Wings
®
,
7
R Taco
®
, and
2
PizzaRev
®
restaurants in the United States and Canada. We also franchised an additional
602
restaurants, including
595
Buffalo Wild Wings restaurants and
7
R Taco restaurants. We are building for long-term future earnings growth by investing in Buffalo Wild Wings restaurants, domestic and international franchising, and emerging brands. These investments will help us to achieve our vision of being a company of 3,000 total restaurants worldwide.
In 2016, we expect to open approximately 35 company-owned Buffalo Wild Wings restaurants, and we expect our franchisees to open approximately 30 Buffalo Wild Wings restaurants in the United States and 10 Buffalo Wild Wings restaurants internationally. We anticipate coming in slightly below the low end of our 2016 earnings per diluted share guidance range of $5.65 to $5.85.
Our growth and success depend on several factors and trends. First, we will continue to focus on trends in company-owned and franchised same-store sales as an indicator of the continued acceptance of our concept by consumers. We also review the overall trend in average weekly sales as an indicator of our ability to increase the sales volume and, restaurant-level cash flow and restaurant-level margin as an indicator of the profitability of our company-owned restaurants. We remain committed to high-quality operations and guest experiences.
Our revenue is generated by:
|
|
•
|
Sales at our company-owned restaurants, which represented
95%
of total revenue in the
third
quarter of
2016
. Food and nonalcoholic beverages accounted for
80%
of restaurant sales. Alcoholic beverages accounted for
19%
of restaurant sales. Other items accounted for the remaining
1%
of restaurant sales. The menu items with the highest sales volumes in the
third
quarter of
2016
are boneless and traditional wings, representing
22%
and
21%
of restaurant sales, respectively.
|
|
|
•
|
Royalties and franchise fees received from our franchisees.
|
A second factor is our success in developing restaurants, including international locations. There are inherent risks in opening new restaurants, especially in new markets or countries, including the lack of experience, logistical support, and brand
awareness. These factors may result in lower-than-anticipated sales and cash flow for restaurants in new markets, along with higher preopening costs. We believe our focus on new restaurant opening procedures, along with our expanding domestic and international presence, will help to mitigate the overall risk associated with opening restaurants in new markets.
Third, we continue to monitor and react to changes in our cost of sales. The cost of sales is difficult to predict, as it has ranged from
28.9%
to
30.3%
of restaurant sales per quarter in our
2015
fiscal year and year-to-date in
2016
, mostly due to the price fluctuations in chicken wings. We are focused on minimizing the impact of rising costs per wing. Our efforts include selling wings by portion, new purchasing strategies, menu price increases, and reduced food waste, as well as marketing promotions, menu additions, and menu changes that affect the percentage that chicken wings represent of total restaurant sales. We will continue to monitor the cost of chicken wings, as it can significantly change our cost of sales and cash flow from company-owned restaurants. Current-month chicken wing prices are determined based on the average of the previous month’s wing market plus mark-up for processing and distribution. If the monthly average exceeds an upper threshold or falls below a lower threshold set in the contract, we split the impact with our suppliers, reducing our risk related to wing price fluctuations. We continually evaluate alternative pricing models in order to mitigate price volatility.
We generate cash from the operation of company-owned restaurants and from franchise royalties and fees. We highlight the specific costs associated with the ongoing operation of our company-owned restaurants in the consolidated statements of earnings under “Restaurant operating costs.” Our depreciation and amortization expense consists primarily of depreciation related to assets used by our company-owned restaurants and amortization of reacquired franchise rights. Preopening costs are those costs associated with opening new company-owned restaurants and will vary quarterly based on the number of new locations opening and under construction. Loss on asset disposals is related to company-owned restaurants and includes the costs associated with remodels, closures of locations, and normal asset retirements. General and administrative expenses are related to home office and field support provided to both company-owned restaurant and franchising operations.
We operate on a 52- or 53-week fiscal year ending on the last Sunday in December. Both of the
third
quarters of
2016
and
2015
consisted of 13 weeks.
Quarterly Results of Operations
Our operating results for the periods indicated are expressed below as a percentage of total revenue, except for the components of restaurant operating costs, which are expressed as a percentage of restaurant sales. The information for each three-month and
nine
-month period is unaudited, and we have prepared it on the same basis as the audited financial statements. In the opinion of management, all necessary adjustments, consisting only of normal recurring adjustments, have been included to fairly present the unaudited quarterly results.
Quarterly and annual operating results may fluctuate significantly as a result of a variety of factors, including increases or decreases in same-store sales, changes in commodity prices, the timing and number of acquisitions and new restaurant openings and related expenses, asset impairment charges, store closing charges, general economic conditions, stock-based compensation, and seasonal fluctuations. As a result, our quarterly results of operations are not necessarily indicative of the results that may be achieved for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 25,
2016
|
|
September 27,
2015
|
|
September 25,
2016
|
|
September 27,
2015
|
Revenue:
|
|
|
|
|
|
|
|
Restaurant sales
|
95.2
|
%
|
|
94.8
|
|
|
95.2
|
|
|
94.4
|
|
Franchise royalties and fees
|
4.8
|
|
|
5.2
|
|
|
4.8
|
|
|
5.6
|
|
Total revenue
|
100.0
|
|
|
100.0
|
|
|
100.0
|
|
|
100.0
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
Restaurant operating costs:
|
|
|
|
|
|
|
|
Cost of sales
|
28.9
|
|
|
29.4
|
|
|
29.4
|
|
|
29.7
|
|
Labor
|
32.0
|
|
|
32.2
|
|
|
31.6
|
|
|
31.9
|
|
Operating
|
15.6
|
|
|
14.7
|
|
|
14.9
|
|
|
14.3
|
|
Occupancy
|
5.8
|
|
|
5.6
|
|
|
5.7
|
|
|
5.5
|
|
Depreciation and amortization
|
7.8
|
|
|
7.4
|
|
|
7.6
|
|
|
6.9
|
|
General and administrative
|
6.5
|
|
|
7.4
|
|
|
6.3
|
|
|
7.4
|
|
Preopening
|
0.3
|
|
|
1.0
|
|
|
0.3
|
|
|
0.7
|
|
Loss on asset disposals
|
0.3
|
|
|
0.3
|
|
|
0.3
|
|
|
0.3
|
|
Total costs and expenses
|
93.4
|
|
|
93.7
|
|
|
92.3
|
|
|
92.1
|
|
Income from operations
|
6.6
|
|
|
6.3
|
|
|
7.7
|
|
|
7.9
|
|
Interest and other expense
|
0.1
|
|
|
0.3
|
|
|
0.2
|
|
|
0.1
|
|
Earnings before income taxes
|
6.5
|
|
|
6.0
|
|
|
7.5
|
|
|
7.8
|
|
Income tax expense
|
2.0
|
|
|
1.8
|
|
|
2.3
|
|
|
2.5
|
|
Net earnings including noncontrolling interests
|
4.6
|
|
|
4.2
|
|
|
5.3
|
|
|
5.3
|
|
Net earnings attributable to noncontrolling interests
|
(0.0
|
)
|
|
(0.0
|
)
|
|
(0.0
|
)
|
|
(0.0
|
)
|
Net earnings attributable to Buffalo Wild Wings
|
4.6
|
%
|
|
4.2
|
|
|
5.3
|
|
|
5.3
|
|
The number of company-owned and franchised restaurants open are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
September 25, 2016
|
|
September 27, 2015
|
|
Corporate
|
|
Franchise
|
|
Total
|
|
Corporate
|
|
Franchise
|
|
Total
|
Buffalo Wild Wings
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
590
|
|
573
|
|
1,163
|
|
487
|
|
584
|
|
1,071
|
Opened
|
19
|
|
25
|
|
44
|
|
29
|
|
37
|
|
66
|
Acquired
|
1
|
|
(1)
|
|
—
|
|
54
|
|
(54)
|
|
—
|
Closed/relocated
|
(2)
|
|
(2)
|
|
(4)
|
|
(2)
|
|
(4)
|
|
(6)
|
End of period
|
608
|
|
595
|
|
1,203
|
|
568
|
|
563
|
|
1,131
|
R Taco
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
4
|
|
6
|
|
10
|
|
2
|
|
7
|
|
9
|
Opened
|
3
|
|
1
|
|
4
|
|
—
|
|
—
|
|
—
|
Acquired
|
—
|
|
—
|
|
—
|
|
1
|
|
(1)
|
|
—
|
Closed/relocated
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
End of period
|
7
|
|
7
|
|
14
|
|
3
|
|
6
|
|
9
|
PizzaRev
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
2
|
|
n/a
|
|
2
|
|
2
|
|
n/a
|
|
2
|
Opened
|
—
|
|
n/a
|
|
—
|
|
—
|
|
n/a
|
|
—
|
Acquired
|
—
|
|
n/a
|
|
—
|
|
—
|
|
n/a
|
|
—
|
Closed/relocated
|
—
|
|
n/a
|
|
—
|
|
—
|
|
n/a
|
|
—
|
End of period
|
2
|
|
n/a
|
|
2
|
|
2
|
|
n/a
|
|
2
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
End of the period
|
617
|
|
602
|
|
1,219
|
|
573
|
|
569
|
|
1,142
|
The restaurant sales for company-owned and franchised restaurants are as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 25,
2016
|
|
September 27,
2015
|
|
September 25,
2016
|
|
September 27,
2015
|
Company-owned restaurant sales
|
$
|
470,648
|
|
|
431,763
|
|
|
1,421,142
|
|
|
1,248,595
|
|
Franchised restaurant sales
|
466,941
|
|
|
465,515
|
|
|
1,419,238
|
|
|
1,461,104
|
|
Increases (decreases) in comparable same-store sales for Buffalo Wild Wings restaurants in the United States and Canada are as follows (based on restaurants operating at least fifteen months):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 25,
2016
|
|
September 27,
2015
|
|
September 25,
2016
|
|
September 27,
2015
|
Company-owned same-store sales
|
(1.8
|
)%
|
|
3.9
|
|
(1.9
|
)
|
|
5.0
|
|
Franchised same-store sales
|
(1.6
|
)
|
|
1.2
|
|
(2.3
|
)
|
|
3.3
|
|
The average prices paid per pound for chicken wings for company-owned Buffalo Wild Wings restaurants are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Nine months ended
|
|
September 25,
2016
|
|
September 27,
2015
|
|
September 25,
2016
|
|
September 27,
2015
|
Average price per pound
|
$
|
1.72
|
|
|
1.79
|
|
|
1.87
|
|
|
1.83
|
|
Results of Operations for the Three Months Ended
September 25, 2016
and
September 27, 2015
Restaurant sales
increased
by
$38.9 million
, or
9.0%
, to
$470.6 million
in
2016
from
$431.8 million
in
2015
. The increase in restaurant sales was due to a
$46.0 million
increase associated with 23 company-owned restaurants that opened or were acquired in
2016
and the company-owned restaurants that opened or were acquired before
2016
that did not meet the criteria for same-store sales for all or part of the three-month period, partially offset by an
$7.1 million
decrease
related to a
1.8%
decrease in same-store sales at Buffalo Wild Wings restaurants.
Franchise royalties and fees
decreased
by
$0.2 million
, or
1.0%
, to
$23.5 million
in
2016
from
$23.8 million
in
2015
. The decrease was due to lower average weekly sales and a
1.6%
decrease in same-store sales for the franchised Buffalo Wild Wings restaurants in operation at the end of the period compared to the same period in
2015
.
Cost of sales
increased
by
$9.3 million
, or
7.3%
, to
$136.2 million
in
2016
from
$126.9 million
in
2015
due primarily to more company-owned restaurants being operated in
2016
. Cost of sales as a percentage of restaurant sales
decrease
d to
28.9%
in
2016
from
29.4%
in
2015
, due to menu price increases and adjustments of 3.6% compared to the
third
quarter of
2015
and lower chicken wing prices. During the
third
quarter of
2016
, the average cost per pound for traditional chicken wings was
$1.72
, a
3.9%
decrease
over the same period in
2015
.
Labor expenses
increased
by
$11.9 million
, or
8.6%
, to
$150.8 million
in
2016
from
$138.9 million
in
2015
due primarily to more restaurants being operated in
2016
. Labor expenses as a percentage of restaurant sales
decreased
to
32.0%
in
2016
from
32.2%
in
2015
. Cost of labor as a percentage of restaurant sales
decreased
primarily due to a decrease in bonus expenses and benefit costs, partially offset by a 5% increase in average rates of pay for our hourly employees and an increase in management salaries as a percentage of sales due to deleveraging salaries expense on the same-store sales decrease.
Operating expenses
increased
by
$10.1 million
, or
15.9%
, to
$73.4 million
in
2016
from
$63.3 million
in
2015
due primarily to more restaurants being operated in
2016
. Operating expenses as a percentage of restaurant sales
increased
to
15.6%
in
2016
from
14.7%
in
2015
. The increase in operating expenses as a percentage of restaurant sales was primarily due to increases in general liability insurance, fees for an additional pay-per-view event, and deleveraging repair and maintenance expenses on the same-store-sales decrease.
Occupancy expenses
increased
by
$3.2 million
, or
13.2%
, to
$27.4 million
in
2016
from
$24.2 million
in
2015
due primarily to more restaurants being operated in
2016
. Occupancy expenses as a percentage of restaurant sales
increased
to
5.8%
in
2016
from
5.6%
in
2015
primarily due to deleveraging rent costs on the same-store sales decrease.
Depreciation and amortization
increased
by
$4.7 million
, or
14.1%
, to
$38.3 million
in
2016
from
$33.6 million
in
2015
. The increase was primarily due to the additional depreciation related to the
44
additional company-owned restaurants compared to the same period in
2015
. Depreciation and amortization as a percentage of total revenue
increased
to
7.8%
in
2016
from
7.4%
in
2015
, due primarily to deleveraging on the same-store sales decrease.
General and administrative expenses
decreased
by
$1.5 million
, or
4.3%
, to
$32.3 million
in
2016
from
$33.7 million
in
2015
primarily due to decreased stock-based compensation, bonus, and travel expenses. Stock-based compensation totaled
$0.3 million
in the
third
quarter and
$4.5 million
in the prior year. The decrease in stock-based compensation included reversals of previously recognized expense as the estimate of financial performance was reduced for our restricted stock units. General and administrative expenses as a percentage of total revenue
decreased
to
6.5%
in
2016
from
7.4%
in
2015
primarily due to decreases in stock-based compensation and bonus expense, partially offset by an increase in professional fees.
Preopening costs
decreased
by
$3.3 million
to
$1.5 million
in
2016
from
$4.8 million
in
2015
. In
2016
, we incurred costs of
$1.2 million
for
nine
new company-owned restaurants opened in the
third
quarter of
2016
and costs of
$0.3 million
for restaurants that will open in the
fourth
quarter of
2016
or later. In
2015
, we incurred costs of
$3.3 million
for
17
new company-owned restaurants opened in the
third
quarter of
2015
and costs of
$1.5 million
for restaurants that opened in the
fourth
quarter of
2015
or later. Preopening costs per new company-owned Buffalo Wild Wings restaurant averaged
$276,000
and
$253,000
, in the
third
quarters of
2016
and
2015
, respectively.
Loss on asset disposals
increased
by
$0.1 million
to
$1.4 million
in
2016
from
$1.3 million
in
2015
. The expense in
2016
and
2015
represented disposals due to remodels, and the write-off of miscellaneous equipment.
Interest and other expenses
decreased
to
$0.5 million
in
2016
from other expense of
$1.4 million
in
2015
. Interest and other expenses in
2016
consisted of a loss on our minority investment in Pie Squared Holdings of $0.7 million and interest expense of $0.9 million, partially offset by a gain related to the increase in fair value of our contingent consideration.
Provision for income taxes
increased
$1.6 million
to
$9.8 million
in
2016
from
$8.3 million
in
2015
. The effective tax rate
increased
to
30.4%
in
2016
from
30.1%
in
2015
primarily due to employment credits. We estimate our effective tax rate in 2016 will be about 30.3% based on federal and state tax rates and credits currently in effect.
Results of Operations for the
Nine Months Ended
September 25, 2016
and
September 27, 2015
Restaurant sales
increased
by
$172.5 million
, or
13.8%
, to
$1.4 billion
in
2016
from
$1.2 billion
in
2015
. The increase in restaurant sales was due to a
$195.3 million
increase
associated with 23 new company-owned restaurants that opened or were acquired in
2016
and the company-owned restaurants that opened or were acquired before
2016
that did not meet the criteria for same-store sales for all or part of the
nine
-month period, partially offset by a
$22.7 million
decrease
related to a
1.9%
decrease in same-store sales.
Franchise royalties and fees
decreased
by
$2.4 million
, or
3.3%
, to
$71.5 million
in
2016
from
$73.9 million
in
2015
. The decrease was due to lower average weekly sales volumes and a
2.3%
decrease in same-store sales for the franchised Buffalo Wild Wings restaurants in operation at the end of the period compared to the same period in
2015
.
Cost of sales
increased
by
$48.1 million
, or
13.0%
, to
$418.5 million
in
2016
from
$370.4 million
in
2015
due primarily to more restaurants being operated in
2016
. Cost of sales as a percentage of restaurant sales
decreased
to
29.4%
in
2016
from
29.7%
in
2015
, primarily due to menu price increases and adjustments of approximately 3.4% taken over the same period in
2015
. During the first
nine
months of
2016
, the average cost per pound for traditional wings was
$1.87
, a
2.2%
increase
over the same period in
2015
and did not impact cost of sales as a percentage of restaurant sales.
Labor expenses
increased
by
$50.7 million
, or
12.7%
, to
$449.3 million
in
2016
from
$398.6 million
in
2015
due primarily to more restaurants being operated in
2016
. Labor expenses as a percentage of restaurant sales
decreased
to
31.6%
in
2016
from
31.9%
in
2015
. Cost of labor as a percentage of restaurant sales
decreased
primarily due to decreased bonus expenses and lower effective payroll tax rates, partially offset by deleveraging salaries expenses on the decrease in same-store sales.
Operating expenses
increased
by
$32.6 million
, or
18.2%
, to
$211.3 million
in
2016
from
$178.7 million
in
2015
due primarily to more restaurants being operated in
2016
. Operating expenses as a percentage of restaurant sales
increased
to
14.9%
in
2016
from
14.3%
in
2015
, due primarily to deleveraging repair and maintenance expenses.
Occupancy expenses
increased
by
$12.8 million
, or
18.6%
, to
$81.3 million
in
2016
from
$68.6 million
in
2015
due primarily to more restaurants being operated in
2016
. Occupancy expenses as a percentage of restaurant sales
increased
to
5.7%
in
2016
from
5.5%
in
2015
due primarily to deleveraging rent costs with the same-store sales decrease.
Depreciation and amortization
increased
by
$23.0 million
, or
25.3%
, to
$113.8 million
in
2016
from
$90.9 million
in
2015
. The increase was primarily due to the additional depreciation related to the
44
additional company-owned restaurants compared to the same period in
2015
. Depreciation and amortization as a percentage of total revenue
increased
to
7.6%
in
2016
from
6.9%
in
2015
. The increase was due to amortization of reacquired franchise rights and depreciation related to capital leases acquired as part of the acquisitions we completed in 2015.
General and administrative expenses
decreased
by
$4.2 million
, or
4.3%
, to
$93.8 million
in
2016
from
$97.9 million
in
2015
and
decreased
as a percentage of total revenue to
6.3%
in
2016
from
7.4%
in
2015
, primarily due to the decreases in stock-based compensation and bonus expenses. The decrease in stock-based compensation included reversals of previously recognized expense as the estimate of financial performance was reduced for our restricted stock units.
Preopening costs
decreased
by
$4.1 million
to
$5.2 million
in
2016
from
$9.3 million
in
2015
. In
2016
, we incurred costs of
$4.9 million
for
22
new company-owned restaurants opened in the first
nine
months of
2016
and costs of
$0.3 million
for restaurants that will open in the
fourth
quarter of
2016
or later. In
2015
, we incurred costs of
$7.6 million
for
29
new company-owned restaurants opened in the first
nine
months of
2015
and costs of
$1.7 million
for restaurants that opened in the
fourth
quarter of
2015
or later. Preopening costs per new company-owned Buffalo Wild Wings restaurant averaged
$276,000
and
$272,000
in
2016
and
2015
, respectively.
Loss on asset disposals and impairment
increased
by
$0.3 million
to
$4.5 million
in
2016
from
$4.2 million
in
2015
. The expense in
2016
represented disposals due to remodels and the write-off of miscellaneous equipment. The expense in
2015
represented two store closures, the write-off of miscellaneous equipment and disposals due to remodels.
Interest and other expenses
increased
to
$2.4 million
in
2016
from
$1.4 million
in
2015
. Interest and other expenses in
2016
consisted primarily of interest expense on our long-term debt and capital lease obligations of $2.6 million and a loss on our minority investment in Pie Squared Holdings of $1.9 million, partially offset by a gain related to an increase in the valuation of our contingent consideration of $1.6 million.
Provision for income taxes
increased
$0.8 million
to
$33.8 million
in
2016
from
$33.0 million
in
2015
. The effective tax rate
decreased
to
30.0%
in
2016
from
32.2%
in
2015
primarily due to employment credits.
Liquidity and Capital Resources
Our primary liquidity and capital requirements have been for constructing, remodeling and maintaining our new and existing company-owned restaurants; working capital; acquisitions; improving technology; share repurchases; and other general business needs. Depending on the size of the transaction, acquisitions of businesses or investments in affiliates and share repurchases are generally funded by our revolving credit facilities. Our other liquidity and capital requirements are primarily funded with cash from operations.
Our cash balance at
September 25, 2016
was
$14.8 million
. As of
September 25, 2016
, we had
$141.4 million
available under our revolving credit facility, which was terminated on October 6, 2016. As of
October 23, 2016
, we had
$400 million
available under our new revolving credit facility dated October 6, 2016.
For the
nine
months ended
September 25, 2016
, net cash provided by operating activities was
$213.9 million
. Net cash provided by operating activities consisted primarily of net earnings adjusted for non-cash expenses and a decrease in refundable income taxes, partially offset by a decrease in accrued expenses. The decrease in refundable income taxes was primarily due to the receipt of an expedited refund for a portion of the year-end receivable balance and the timing of estimated tax payments. The decrease in accrued expenses was primarily due to the timing of bonus and payroll payments.
For the
nine
months ended
September 27, 2015
, net cash provided by operating activities was
$166.9 million
. Net cash provided by operating activities consisted primarily of net earnings adjusted for non-cash expenses and an increase in accounts payable, partially offset by a decrease in deferred tax liabilities. The decrease in deferred tax liabilities was primarily due to lower bonus depreciation. The increase in accounts payable was primarily due to an increase in the number of restaurants.
For the
nine
months ended
September 25, 2016
and
September 27, 2015
, net cash used in investing activities was
$121.0 million
and
$322.9 million
, respectively. Investing activities included purchases of property and equipment related to the additional company-owned restaurants and restaurants under construction in both periods as well as the acquisition of 55 franchised restaurants in 2015. During the first
nine
months of
2016
and
2015
, we opened or acquired 23 and 84 restaurants, respectively. In
2016
, we expect capital expenditures of approximately $96.8 million for the cost of approximately 35 and 5 new or relocated company-owned Buffalo Wild Wings and R Taco restaurants, respectively, $7.3 million for technology improvements on our restaurant and corporate systems, and $53.8 million for capital expenditures at our existing restaurants. In the first
nine
months of
2015
, we purchased
$12.3 million
of marketable securities and received proceeds of
$23.3 million
for sales of marketable securities.
For the
nine
months ended
September 25, 2016
and
September 27, 2015
, net cash provided by (used in) financing activities was
$(89.0) million
and
$74.2 million
, respectively. Net cash used in financing activities for
2016
primarily consisted of repayments of our line of credit of
$440.4 million
and repurchases of our common stock of
$105.9 million
, partially offset by proceeds from our line of credit of
$464.5 million
and short-term borrowings from our national advertising and gift card funds of
$1.5 million
. We expect to repurchase $150 million worth of Buffalo Wild Wings shares in 2016. Additional cash used in financing activities was due to tax payments for restricted stock units of
$9.3 million
, partially offset by proceeds from the issuance of common stock of
$2.2 million
. Net cash provided by financing activities for
2015
primarily consisted of proceeds from our line of credit of $197.4 million and short-term borrowing from our national advertising and gift card funds of $31.6 million, partially offset by repayments of our line of credit of $150.5 million. Additional cash used in financing activities was due to tax payments for restricted stock units of
$7.8 million
, partially offset by proceeds from the issuance of common stock of
$2.9 million
and the excess tax benefit from stock issuance of
$1.1 million
. No additional funding from the issuance of common stock (other than from the exercise of options and purchase of stock under the employee stock purchase plan) is anticipated for the remainder of
2016
.
Our liquidity is impacted by minimum cash payment commitments resulting from lease obligations for our restaurants and our corporate office. Initial lease terms are generally 10 to 15 years with renewal options and generally require us to pay a proportionate share of real estate taxes, insurance, common area maintenance, and other operating costs. Some restaurant leases provide for contingent rental payments based on sales thresholds, which are excluded from the summary of contractual obligations and commitments below.
The following table presents a summary of our contractual obligations and commitments as of
September 25, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due By Period (in thousands)
|
|
Total
|
|
Less than
One year
|
|
1-3 years
|
|
3-5 years
|
|
After 5
years
|
Operating lease obligations
|
$
|
700,258
|
|
|
83,438
|
|
|
155,495
|
|
|
127,926
|
|
|
333,399
|
|
Capital lease obligations
|
45,750
|
|
|
4,770
|
|
|
9,681
|
|
|
9,530
|
|
|
21,769
|
|
Deemed landlord financing obligations
|
9,834
|
|
|
819
|
|
|
2,055
|
|
|
2,107
|
|
|
4,853
|
|
Commitments for restaurants under development
|
49,308
|
|
|
2,452
|
|
|
7,578
|
|
|
7,648
|
|
|
31,630
|
|
Revolving credit facility
|
58,603
|
|
|
—
|
|
|
58,603
|
|
|
—
|
|
|
—
|
|
Other commitments
|
9,000
|
|
|
1,000
|
|
|
4,000
|
|
|
4,000
|
|
|
—
|
|
Total
|
$
|
872,753
|
|
|
92,479
|
|
|
237,412
|
|
|
151,211
|
|
|
391,651
|
|
The maturity of the revolving credit facility in the table above reflects the contractual obligations of the company as of September 25, 2016. As described in note 13 to the consolidated financial statements, the revolving credit facility was terminated on October 6, 2016. The company also entered into an agreement for a new revolving credit facility on October 6, 2016 that expires on October 6, 2021.
We believe the cash flows from our operating activities will be sufficient to fund our operations and building commitments and meet our obligations for the foreseeable future. Depending on the size of the transaction, acquisitions or investments and share repurchases would generally be funded from cash balances or using our revolving credit facility. Our future cash outflows related to income tax uncertainties amounted to
$1,605
as of
September 25, 2016
. These amounts are excluded from the contractual obligations table due to the high degree of uncertainty regarding the timing of these liabilities.
Off-Balance Sheet Arrangements
As of
September 25, 2016
, we had no off-balance sheet arrangements or transactions.
Risk Factors/Forward-Looking Statements
The foregoing discussion and other statements in this report contain various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”). Forward-looking statements are based on current expectations or beliefs concerning future events. Such statements can be identified by the use of terminology such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “could,” “possible,” “plan,” “project,” “will,” “forecast” and similar words or expressions. Our forward-looking statements generally relate to our growth strategy, financial results, sales efforts, franchise expectations, restaurant openings and related expense, and cash requirements. Although we believe there is reasonable basis for the forward-looking statements, our actual results could be materially different. While it is not possible to foresee all of the factors that may cause actual results to differ from our forward-looking statements, such factors include, among others, the risk factors that follow (all of which are discussed in greater detail in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended
December 27, 2015
). Investors are cautioned that all forward-looking statements involve risks and uncertainties and speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement.
|
|
•
|
Unfavorable publicity could harm our business.
|
|
|
•
|
Fluctuations in chicken wing prices could impact our operating income.
|
|
|
•
|
If we are unable to identify and obtain suitable new restaurant sites and successfully open new restaurants, our revenue growth rate and profits may be reduced.
|
|
|
•
|
A security failure in our information technology systems could expose us to potential liability and loss of revenues.
|
|
|
•
|
Shortages or interruptions in the availability and delivery of food and other supplies may increase costs or reduce revenues.
|
|
|
•
|
Wage and hour litigation could negatively impact our performance.
|
|
|
•
|
Changes in employment laws or regulations could harm our performance.
|
|
|
•
|
Investments in new or emerging brands may not be successful.
|
|
|
•
|
Our restaurants may not achieve market acceptance in the new domestic and international geographic regions we enter.
|
|
|
•
|
New restaurants added to our existing markets may take sales from existing restaurants.
|
|
|
•
|
Failure of our internal control over financial reporting could harm our business and financial results.
|
|
|
•
|
If the material weaknesses we have identified in our internal control over financial reporting persist or if we fail to establish and maintain effective internal control over financial reporting, our ability to accurately report our financial results could be adversely affected.
|
|
|
•
|
Economic conditions could have a material adverse impact on our landlords or other tenants in retail centers in which we or our franchisees are located, which in turn could negatively affect our financial results.
|
|
|
•
|
An impairment in the carrying value of our goodwill or other intangible assets could adversely affect our financial condition and consolidated results of operations.
|
|
|
•
|
We may experience higher-than-anticipated costs associated with the opening of new restaurants or with the closing, relocating, and remodeling of existing restaurants, which may adversely affect our results of operations.
|
|
|
•
|
We may be dependent on franchisees and their success.
|
|
|
•
|
We could face liability from or as a result of our franchisees.
|
|
|
•
|
We may be unable to compete effectively in the restaurant industry.
|
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•
|
Our success depends substantially on the value of our brands and our reputation for offering guests a compelling guest experience.
|
|
|
•
|
Our inability to successfully and sufficiently raise menu prices could result in a decline in profitability.
|
|
|
•
|
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 Team Members and key executives to operate and manage our business.
|
|
|
•
|
We may not be able to obtain and maintain licenses and permits necessary to operate our restaurants.
|
|
|
•
|
The sale of alcoholic beverages at our restaurants subjects us to additional regulations and potential liability.
|
|
|
•
|
Changes in consumer preferences or discretionary consumer spending could harm our performance.
|
|
|
•
|
A regional or global health pandemic could severely affect our business.
|
|
|
•
|
The acquisition of existing restaurants from our franchisees or other acquisitions may have unanticipated consequences that could harm our business and our financial condition.
|
|
|
•
|
There is volatility in our stock price.
|
|
|
•
|
We may be subject to increased labor and insurance costs or current insurance may not provide adequate levels of coverage.
|
|
|
•
|
We are dependent on information technology and any material failure of that technology could impair our ability to efficiently operate our business.
|
|
|
•
|
If we are unable to maintain our rights to use key technologies of third parties, our business may be harmed.
|
|
|
•
|
We may not be able to protect our trademarks, service marks or trade secrets.
|