Item 1. Financial Statements
BOJANGLES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except
per share amounts)
|
|
|
|
|
|
|
|
|
|
|
June 25,
2017
|
|
|
December 25,
2016
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14,765
|
|
|
|
13,898
|
|
Accounts and vendor receivables, net of allowance for doubtful accounts of $151 and $135
|
|
|
6,252
|
|
|
|
5,421
|
|
Accounts receivable, related parties, net of allowance for doubtful accounts of $22 and
$22
|
|
|
410
|
|
|
|
386
|
|
Inventories, net
|
|
|
3,290
|
|
|
|
3,326
|
|
Other current assets
|
|
|
5,269
|
|
|
|
3,033
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
29,986
|
|
|
|
26,064
|
|
Property and equipment, net
|
|
|
55,300
|
|
|
|
52,275
|
|
Goodwill
|
|
|
161,140
|
|
|
|
161,140
|
|
Brand
|
|
|
290,500
|
|
|
|
290,500
|
|
Franchise rights, net
|
|
|
23,695
|
|
|
|
24,243
|
|
Favorable leases, net
|
|
|
826
|
|
|
|
981
|
|
Other noncurrent assets
|
|
|
3,989
|
|
|
|
4,569
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
565,436
|
|
|
|
559,772
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
11,505
|
|
|
|
16,818
|
|
Accrued expenses
|
|
|
23,329
|
|
|
|
17,940
|
|
Current maturities of long-term debt
|
|
|
|
|
|
|
2,132
|
|
Current maturities of capital lease obligations
|
|
|
7,895
|
|
|
|
7,299
|
|
Other current liabilities
|
|
|
4,798
|
|
|
|
4,390
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
47,527
|
|
|
|
48,579
|
|
Long-term debt, less current maturities and deferred debt issuance costs, net
|
|
|
141,924
|
|
|
|
153,630
|
|
Deferred income taxes
|
|
|
111,190
|
|
|
|
111,312
|
|
Capital lease obligations, less current maturities
|
|
|
22,887
|
|
|
|
22,524
|
|
Other noncurrent liabilities
|
|
|
13,267
|
|
|
|
12,937
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
336,795
|
|
|
|
348,982
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (notes 2, 11 and 12)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 25,000 shares authorized and no shares issued and outstanding as
of both June 25, 2017 and December 25, 2016
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 150,000 shares authorized and 36,867 and 36,547 shares issued and
outstanding as of June 25, 2017 and December 25, 2016, respectively
|
|
|
368
|
|
|
|
365
|
|
Additional
paid-in
capital
|
|
|
126,412
|
|
|
|
124,802
|
|
Retained earnings
|
|
|
101,611
|
|
|
|
85,377
|
|
Accumulated other comprehensive income
|
|
|
250
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
228,641
|
|
|
|
210,790
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
565,436
|
|
|
|
559,772
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
1
BOJANGLES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
(in thousands, except
per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
Ended
|
|
|
Twenty-Six
Weeks
Ended
|
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant revenues
|
|
$
|
127,058
|
|
|
|
124,674
|
|
|
|
251,841
|
|
|
|
246,088
|
|
Franchise royalty revenues
|
|
|
6,978
|
|
|
|
6,621
|
|
|
|
13,491
|
|
|
|
12,793
|
|
Other franchise revenues
|
|
|
338
|
|
|
|
300
|
|
|
|
538
|
|
|
|
370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
134,374
|
|
|
|
131,595
|
|
|
|
265,870
|
|
|
|
259,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Food and supplies costs
|
|
|
39,998
|
|
|
|
39,020
|
|
|
|
78,683
|
|
|
|
77,541
|
|
Restaurant labor costs
|
|
|
36,937
|
|
|
|
34,525
|
|
|
|
73,284
|
|
|
|
67,861
|
|
Operating costs
|
|
|
29,741
|
|
|
|
26,607
|
|
|
|
59,432
|
|
|
|
55,020
|
|
Depreciation and amortization
|
|
|
3,374
|
|
|
|
3,124
|
|
|
|
6,581
|
|
|
|
6,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Company restaurant operating expenses
|
|
|
110,050
|
|
|
|
103,276
|
|
|
|
217,980
|
|
|
|
206,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before other operating expenses
|
|
|
24,324
|
|
|
|
28,319
|
|
|
|
47,890
|
|
|
|
52,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
9,817
|
|
|
|
9,402
|
|
|
|
18,770
|
|
|
|
18,912
|
|
Depreciation and amortization
|
|
|
753
|
|
|
|
716
|
|
|
|
1,478
|
|
|
|
1,433
|
|
Impairment
|
|
|
700
|
|
|
|
187
|
|
|
|
996
|
|
|
|
389
|
|
(Gain) loss on disposal of property and equipment and other
|
|
|
(125
|
)
|
|
|
10
|
|
|
|
(104
|
)
|
|
|
(189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating expenses
|
|
|
11,145
|
|
|
|
10,315
|
|
|
|
21,140
|
|
|
|
20,545
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
13,179
|
|
|
|
18,004
|
|
|
|
26,750
|
|
|
|
32,077
|
|
Amortization of deferred debt issuance costs
|
|
|
(176
|
)
|
|
|
(222
|
)
|
|
|
(294
|
)
|
|
|
(369
|
)
|
Interest income
|
|
|
12
|
|
|
|
2
|
|
|
|
13
|
|
|
|
3
|
|
Interest expense
|
|
|
(1,614
|
)
|
|
|
(1,937
|
)
|
|
|
(3,281
|
)
|
|
|
(3,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
11,401
|
|
|
|
15,847
|
|
|
|
23,188
|
|
|
|
27,749
|
|
Income taxes
|
|
|
2,784
|
|
|
|
5,816
|
|
|
|
6,954
|
|
|
|
9,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
8,617
|
|
|
|
10,031
|
|
|
|
16,234
|
|
|
|
17,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value on interest rate swaps, net of income tax benefit (expense) of $48, $219,
$(2) and $474
|
|
|
(79
|
)
|
|
|
(356
|
)
|
|
|
4
|
|
|
|
(771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
8,538
|
|
|
|
9,675
|
|
|
|
16,238
|
|
|
|
17,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.23
|
|
|
|
0.28
|
|
|
|
0.44
|
|
|
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.22
|
|
|
|
0.27
|
|
|
|
0.42
|
|
|
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
2
BOJANGLES, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders Equity
Twenty-Six
Weeks Ended June 25, 2017
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
Additional
paid-in
capital
|
|
|
Retained
earnings
|
|
|
Accumulated
other
comprehensive
income
|
|
|
Total
stockholders
equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
Balance as of December 25, 2016
|
|
|
36,547
|
|
|
$
|
365
|
|
|
|
124,802
|
|
|
|
85,377
|
|
|
|
246
|
|
|
|
210,790
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,234
|
|
|
|
|
|
|
|
16,234
|
|
Change in fair value on interest rate swaps, net of income tax expense of $2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
Stock option exercises
|
|
|
297
|
|
|
|
3
|
|
|
|
1,032
|
|
|
|
|
|
|
|
|
|
|
|
1,035
|
|
Vesting of restricted stock units
|
|
|
23
|
|
|
|
|
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
(103
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
681
|
|
|
|
|
|
|
|
|
|
|
|
681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 25, 2017
|
|
|
36,867
|
|
|
$
|
368
|
|
|
|
126,412
|
|
|
|
101,611
|
|
|
|
250
|
|
|
|
228,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
3
BOJANGLES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six
Weeks
Ended
|
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
16,234
|
|
|
|
17,875
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Deferred income tax benefit
|
|
|
(125
|
)
|
|
|
(775
|
)
|
Depreciation and amortization
|
|
|
8,059
|
|
|
|
7,640
|
|
Amortization of deferred debt issuance costs
|
|
|
294
|
|
|
|
369
|
|
Impairment
|
|
|
996
|
|
|
|
389
|
|
Gain on disposal of property and equipment and other
|
|
|
(104
|
)
|
|
|
(189
|
)
|
Provision (benefit) for doubtful accounts
|
|
|
16
|
|
|
|
(138
|
)
|
(Benefit) provision for inventory spoilage
|
|
|
(2
|
)
|
|
|
3
|
|
Benefit for closed stores
|
|
|
|
|
|
|
(51
|
)
|
Stock-based compensation
|
|
|
681
|
|
|
|
549
|
|
Excess tax benefit from stock-based compensation
|
|
|
|
|
|
|
(1,573
|
)
|
Changes in operating assets and liabilities
|
|
|
(1,964
|
)
|
|
|
1,188
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
24,085
|
|
|
|
25,287
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(6,472
|
)
|
|
|
(3,950
|
)
|
Proceeds from disposition of property and equipment
|
|
|
41
|
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(6,431
|
)
|
|
|
(3,901
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt
|
|
|
(14,132
|
)
|
|
|
(17,669
|
)
|
Stock option exercises
|
|
|
1,035
|
|
|
|
756
|
|
Vesting of restricted stock units
|
|
|
(103
|
)
|
|
|
|
|
Excess tax benefit from stock-based compensation
|
|
|
|
|
|
|
1,573
|
|
Principal payments on capital lease obligations
|
|
|
(3,587
|
)
|
|
|
(2,885
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(16,787
|
)
|
|
|
(18,225
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
867
|
|
|
|
3,161
|
|
Cash and cash equivalents balance, beginning of fiscal period
|
|
|
13,898
|
|
|
|
14,263
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents balance, end of fiscal period
|
|
$
|
14,765
|
|
|
|
17,424
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
3,258
|
|
|
|
3,957
|
|
Cash paid for income taxes
|
|
|
8,485
|
|
|
|
7,923
|
|
Assets acquired under capital leases
|
|
|
4,679
|
|
|
|
3,799
|
|
Net change in assets under financing obligations
|
|
|
554
|
|
|
|
808
|
|
Reduction of capital lease obligations upon return of assets
|
|
|
102
|
|
|
|
138
|
|
Reduction of capital lease obligations upon early termination of lease
|
|
|
|
|
|
|
288
|
|
See accompanying notes to condensed consolidated financial statements.
4
BOJANGLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(1)
|
Summary of Significant Operations and Accounting Policies
|
Bojangles, Inc. (formerly known as BHI Holding Corp.) (together
with its subsidiaries, Bojangles, the Company, we or our) was formed on June 28, 2011 as a Delaware corporation. The Companys principal business is the operations and development and
franchising, as franchisor, of limited service restaurants. As of June 25, 2017, there were 314 Company-operated restaurants, 61 related party franchised restaurants, and 365 independent franchised restaurants operating under the
Bojangles
®
name. The restaurants are located principally in the Southeastern United States. The Companys franchising activity is regulated by the laws of the various states
in which it is registered to sell franchises, as well as rules promulgated by the Federal Trade Commission. The legislation and rules, among other things, establish minimum disclosure requirements to a prospective franchisee and require periodic
registration by the Company with state administrative agencies.
The following is the number of Bojangles franchised,
Company-operated
and system-wide restaurants at the beginning and end of the thirteen and
twenty-six
weeks ended June 25, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
June 25, 2017
|
|
|
Twenty-Six
Weeks Ended
June 25, 2017
|
|
|
|
Franchised
|
|
|
Company-
Operated
|
|
|
System-
Wide
|
|
|
Franchised
|
|
|
Company-
Operated
|
|
|
System-
Wide
|
|
Restaurants at the beginning of the period
|
|
|
414
|
|
|
|
314
|
|
|
|
728
|
|
|
|
407
|
|
|
|
309
|
|
|
|
716
|
|
Opened during the period
|
|
|
7
|
|
|
|
7
|
|
|
|
14
|
|
|
|
14
|
|
|
|
13
|
|
|
|
27
|
|
Closed during the period
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Refranchised during the period
|
|
|
5
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
5
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurants at the end of the period
|
|
|
426
|
|
|
|
314
|
|
|
|
740
|
|
|
|
426
|
|
|
|
314
|
|
|
|
740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurants closed during the period reflects permanent closures and excludes any temporary closures for items
such as remodels, scrape and rebuilds, casualty events, severe weather conditions or any other short-term closure. A relocation results in a closure and an opening. During the thirteen and
twenty-six
weeks
ended June 25, 2017, we closed two and three Company-operated restaurants, respectively, of which one and two, respectively, were relocations.
|
(b)
|
Basis of Presentation and Consolidation
|
The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with generally accepted accounting principles and practices of the United States of America (GAAP) for interim financial information. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included.
Certain information and footnote disclosures normally included in audited consolidated financial statements presented in accordance with GAAP
have been condensed or omitted pursuant to rules and regulations of the SEC.
5
BOJANGLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
These condensed consolidated financial statements should be read in conjunction with the
Companys results of operations, financial positions and cash flows in the Companys financial statements as of and for the fiscal year ended December 25, 2016. Certain prior period balances have been reclassified to conform to
current period presentation.
The results of operations and cash flows reported in these condensed consolidated financial statements
should not be regarded as necessarily indicative of results that may be expected for the entire fiscal year.
The Company consolidates
entities in which we have a controlling financial interest, the usual condition of which is ownership of a majority voting interest. All significant intercompany accounts and transactions are eliminated in consolidation.
The Company operates on a
52-
or
53-week
fiscal year ending on the last Sunday of December. Fiscal year 2017 will end on December 31, 2017 and will consist of 53 weeks. Fiscal year 2016
ended on December 25, 2016 and consisted of 52 weeks. The first three fiscal quarters of fiscal year 2017 are each comprised of thirteen weeks, and the fourth fiscal quarter of fiscal year 2017 is comprised of fourteen weeks. Fiscal quarters
within fiscal year 2016 are each comprised of thirteen weeks.
|
(d)
|
Use of Accounting Estimates
|
The preparation of condensed consolidated financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period. Accordingly, the actual amounts could differ from those estimates. Any adjustments applied to estimated amounts are recognized in the fiscal year in which such
adjustments are determined.
|
(e)
|
New Accounting Pronouncements
|
In May 2014, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update (ASU)
No. 2014-09,
Revenue from Contracts with Customers
(ASU
2014-09).
This update was issued to replace the current revenue recognition guidance, creating a more comprehensive revenue model. This update was originally to be effective in fiscal periods beginning after December 15, 2016 and early application was
not permitted. In July 2015, the FASB affirmed its proposal to defer the effective date by one year to annual reporting periods beginning after December 15, 2017. The FASB also affirmed its proposal to permit early adoption of the standard, but
not before the original effective date of December 15, 2016. The Company will not early adopt ASU
2014-09.
ASU
2014-09
permits two transition approaches: full
retrospective or modified retrospective. The Company expects to utilize the full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients. The Company has
completed a preliminary review of ASU
2014-09
and does not expect the adoption of ASU
2014-09
to have a material impact on its company restaurant revenues or franchise
royalty revenues. The Company expects the adoption of ASU
2014-09
will require the Company to recognize initial and renewal franchisee fees on a straight-line basis over the life of the franchise agreement,
which will impact its other franchise revenues. In addition, the Company anticipates funds contributed by franchisees to the advertising funds managed by the Company, as well as the associated advertising fund expenditures, will be reported on a
gross basis, and the advertising fund revenues and expenses may be reported in different periods.
6
BOJANGLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic 842)
(ASU
2016-02),
which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. ASU
2016-02
establishes a
right-of-use
model (ROU) that requires a lessee to recognize a ROU asset and corresponding
lease liability on the balance sheet for all leases with a term longer than twelve months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of
operations. ASU
2016-02
is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company expects to adopt
ASU
2016-02
on December 31, 2018, which is the first day of its fiscal year 2019. A modified retrospective transition is required for leases existing at, or entered into after, the beginning of the
earliest comparative period presented in the financial statements, with certain practical expedients available. The Company expects that ASU
2016-02
will have a material effect on its condensed consolidated
financial statements. While the Company is continuing to assess the impact of adoption, it currently believes the most significant changes relate to (1) the recognition of new ROU assets and lease liabilities on the Companys condensed
consolidated balance sheet for real estate and equipment operating leases and (2) the derecognition of existing assets and liabilities for certain assets under construction in
build-to-suit
lease arrangements that the Company will lease when construction is complete.
In March 2016, the FASB issued ASU
2016-09,
Improvements to Employee Share-Based Payment
Accounting
(ASU
2016-09),
which simplifies several aspects of the accounting for employee share-based payment transactions. ASU
2016-09
addresses several
aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. ASU
2016-09
is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted ASU
2016-09
prospectively during the first fiscal quarter of 2017, and the adoption did not have a significant impact on the condensed consolidated financial statements. The Company expects the adoption of ASU
2016-09
to
cause volatility in its effective tax rates and diluted net income per share due to the tax effects related to share-based payments being recorded to the condensed consolidated statement of operations and comprehensive income. The volatility in
future periods will depend on the Companys stock price on the date awards are exercised or vest and the number of awards that are exercised or vest in each period. In addition, the adoption of ASU
2016-09
resulted in an increase in the weighted average number of common shares outstanding used for computing diluted net income per share as tax effects related to share-based payments are no longer
considered assumed proceeds when calculating dilutive potential common shares using the treasury-stock method.
The FASB has recently
issued or discussed a number of proposed standards on such topics as consolidation, financial statement presentation, financial instruments and hedging. Some of the proposed changes are significant and could have a material impact on our reporting.
The Company has not yet fully evaluated the potential impact of all of these proposals, but will make such an evaluation as the standards are finalized.
7
BOJANGLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
Long-term
debt consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 25,
2017
|
|
|
December 25,
2016
|
|
Term Loan, due October 9, 2020
|
|
$
|
143,326
|
|
|
|
157,458
|
|
Revolving line of credit, due October 9, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
143,326
|
|
|
|
157,458
|
|
Less: Current maturities of long term debt
|
|
|
|
|
|
|
(2,132
|
)
|
Less: Deferred debt issuance costs, net
|
|
|
(1,402
|
)
|
|
|
(1,696
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities and deferred debt issuance costs, net
|
|
$
|
141,924
|
|
|
|
153,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 25,
2017
|
|
|
December 25,
2016
|
|
Deferred debt issuance costs
|
|
$
|
4,809
|
|
|
|
4,809
|
|
Less accumulated amortization
|
|
|
(3,407
|
)
|
|
|
(3,113
|
)
|
|
|
|
|
|
|
|
|
|
Deferred debt issuance costs, net
|
|
$
|
1,402
|
|
|
|
1,696
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Term Loan and Revolving Line of Credit
|
On October 9, 2012, the Company
entered into a credit agreement (Credit Agreement) with several financial institutions, collateralized by all of the assets of the Company. The Credit Agreement contains both a term loan component and a revolving line of credit. The
Credit Agreement was subsequently amended on May 15, 2013, April 11, 2014, July 23, 2015, September 25, 2015 and October 19, 2016.
As of June 25, 2017, there were outstanding balances under the term loan in
one-month
Eurodollar
loans of $143.3 million, all of which were accruing interest at a rate of approximately 3.04%. As of December 25, 2016, there were outstanding balances under the term loan in
one-month
Eurodollar
loans of $157.5 million, all of which were accruing interest at a rate of approximately 2.61%.
As of June 25, 2017 and
December 25, 2016, there were no outstanding balances under the revolving line of credit.
Pursuant to the Credit Agreement, certain
covenants restrict the Company from exceeding a maximum consolidated total lease adjusted leverage ratio, require the Company to maintain a minimum consolidated fixed charge coverage ratio, and place certain limitations on cash capital expenditures.
The Company was not in violation of any covenants under the Credit Agreement as of June 25, 2017.
Debt issuance costs are
capitalized and amortized using the effective interest method over the term of the related loan.
|
(b)
|
Interest Rate Swap Agreements
|
The Company enters into interest-rate-related
derivative instruments to manage its exposure related to changes in interest rates on its variable-rate debt instruments. The Company does not enter into derivative instruments for any purpose other than cash flow hedging. The Company does not
speculate using derivative instruments.
8
BOJANGLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
By using derivative financial instruments to hedge exposures to changes in interest rates,
the Company exposes itself to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which
creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, the Company is not exposed to the counterpartys credit risk in those circumstances. The Company
minimizes counterparty credit risk in derivative instruments by entering into transactions with high-quality counterparties. The derivative instruments entered into by the Company do not contain credit-risk-related contingent features.
The Company assesses interest rate risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact
expected future cash flows and by evaluating hedging opportunities. The Company maintains risk management control systems to monitor interest rate risk attributable to both the Companys outstanding or forecasted debt obligations as well as the
Companys offsetting hedge positions.
The Company enters into variable-rate LIBOR debt under the term loan portion of the Credit
Agreement. The debt obligations expose the Company to variability in interest payments due to changes in interest rates. Management believes that it is prudent to limit the variability of a portion of its interest payments. To meet this objective,
management entered into LIBOR-based interest rate swap agreements to manage fluctuations in cash flows resulting from changes in the benchmark interest rate of LIBOR. These swaps change the variable-rate cash flow exposure on part of the debt
obligations to fixed cash flows. Under the terms of the interest rate swaps, the Company receives LIBOR-based variable interest rate payments and makes fixed interest rate payments, thereby creating the equivalent of fixed-rate debt for the notional
amount of its debt hedged.
In connection with the Credit Agreement, as of June 25, 2017, the Company has two
variable-to-fixed
interest rate swap agreements to manage fluctuations in cash flows resulting from changes in the benchmark interest rate of LIBOR. On May 17, 2013, the
Company entered into an interest rate swap contract with a notional amount of $50.0 million, an effective date of November 30, 2015 and a termination date of September 29, 2017, under which the Company pays interest fixed at 1.3325%
and receives the
one-month
LIBOR rate. On October 26, 2015, the Company entered into another interest rate swap contract with an effective date of October 30, 2015, a termination date of
October 31, 2019 and a notional amount of $50.0 million, under which the Company pays interest fixed at 1.115% and receives the
one-month
LIBOR rate.
The activity in accumulated other comprehensive income is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six
Weeks
Ended
June 25,
2017
|
|
|
Fiscal Year
Ended
December 25,
2016
|
|
Opening balance, accumulated other comprehensive income
|
|
$
|
246
|
|
|
|
19
|
|
Unrealized gain from effective interest rate swap, net of tax
|
|
|
4
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
|
Ending balance, accumulated other comprehensive income
|
|
$
|
250
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Fair Value Measurements
|
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
|
|
|
Cash and cash equivalents, accounts and vendor receivables, other assets (nonderivatives), notes payable to financial institutions, trade accounts payable, and accrued expenses (nonderivatives): The carrying amounts, at
face value or cost plus accrued interest, approximate fair value because of the short maturity of these instruments.
|
9
BOJANGLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
|
|
|
Interest rate swaps: The fair value of interest rate swaps is determined using an income approach using the following significant inputs: the term of the swaps, the notional amount of the swaps, the rate on the fixed
leg of the swaps and counterparty credit worthiness. There were two interest rate swaps outstanding as of June 25, 2017.
|
The following
table presents financial assets and liabilities measured at fair value on a recurring basis, which include derivatives designated as cash flow hedging instruments, and other investments, which consists of money market accounts and mutual funds held
in a rabbi trust established by the Company to fund a portion of the Companys current and future obligations under its deferred compensation plan (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
value
|
|
|
Quoted
Prices in
active
markets for
identical
instruments
(Level 1)
|
|
|
Significant
other
observable
inputs
(Level 2)
|
|
|
Significant
unobservable
inputs
(Level 3)
|
|
Fair value measurement as of June 25, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments for nonqualified deferred compensation plan (included with other noncurrent assets on
the consolidated balance sheets)
|
|
$
|
2,852
|
|
|
|
2,852
|
|
|
|
|
|
|
|
|
|
Interest rate swap (included with other noncurrent assets on the consolidated balance
sheets)
|
|
|
416
|
|
|
|
|
|
|
|
416
|
|
|
|
|
|
Interest rate swap (included with other current liabilities on the consolidated balance
sheets)
|
|
|
(15
|
)
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
Fair value measurement as of December 25, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments for nonqualified deferred compensation plan (included with other noncurrent assets on
the consolidated balance sheets)
|
|
$
|
3,112
|
|
|
|
3,112
|
|
|
|
|
|
|
|
|
|
Interest rate swap (included with other current assets and other other noncurrent assets on the
consolidated balance sheets)
|
|
|
561
|
|
|
|
|
|
|
|
561
|
|
|
|
|
|
Interest rate swap (included with other current liabilities on the consolidated balance
sheets)
|
|
|
(166
|
)
|
|
|
|
|
|
|
(166
|
)
|
|
|
|
|
There were no transfers into or out of Level 1 and Level 2 fair value measurements during the
twenty-six
weeks ended June 25, 2017.
Our investments for the nonqualified deferred compensation
plan are comprised of investments held in a rabbi trust. These investments consist of money market funds and mutual funds and the fair value measurements are derived using quoted prices in active markets for the specific funds which are based on
Level 1 inputs of the fair value hierarchy.
10
BOJANGLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
Our interest rate swaps are valued using a discounted cash flow analysis that incorporates
observable market parameters, such as interest rate yield curves and currency rates, classified as Level 2 within the valuation hierarchy. Derivative valuations incorporate credit risk adjustments that are necessary to reflect the probability
of default by us or the counterparty.
Other current assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 25,
2017
|
|
|
December 25,
2016
|
|
Prepaid expenses
|
|
$
|
2,357
|
|
|
|
1,517
|
|
Income taxes refundable
|
|
|
2,912
|
|
|
|
1,505
|
|
Interest rate swap asset
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
$
|
5,269
|
|
|
|
3,033
|
|
|
|
|
|
|
|
|
|
|
(5)
|
Property and Equipment, Net
|
Property and equipment, net consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Useful lives
|
|
June 25,
2017
|
|
|
December 25,
2016
|
|
Land
|
|
|
|
$
|
1,509
|
|
|
|
1,509
|
|
Buildings
|
|
Up to 40 years
|
|
|
1,330
|
|
|
|
1,330
|
|
Furniture, fixtures and equipment
|
|
Up to 5 years
|
|
|
19,850
|
|
|
|
18,342
|
|
Computer hardware and software
|
|
Up to 5 years
|
|
|
10,117
|
|
|
|
9,673
|
|
Leasehold improvements
|
|
Up to 20 years
|
|
|
29,662
|
|
|
|
25,171
|
|
Capital leases, buildings
|
|
Lesser of lease term or 40 years
|
|
|
8,286
|
|
|
|
8,286
|
|
Capital leases, equipment
|
|
Lesser of lease term or 5 years
|
|
|
31,810
|
|
|
|
28,707
|
|
Capital leases, automobiles
|
|
Lesser of lease term or 5 years
|
|
|
3,534
|
|
|
|
3,478
|
|
Construction-in-progress
|
|
|
|
|
7,718
|
|
|
|
8,086
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
113,816
|
|
|
|
104,582
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
|
|
(37,196
|
)
|
|
|
(33,462
|
)
|
Accumulated amortization
|
|
|
|
|
(21,320
|
)
|
|
|
(18,845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
$
|
55,300
|
|
|
|
52,275
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense related to property and equipment was $3.9 million and
$3.6 million for the thirteen weeks ended June 25, 2017 and June 26, 2016, respectively, and $7.5 million and $7.1 million for the
twenty-six
weeks ended June 25, 2017 and
June 26, 2016, respectively.
11
BOJANGLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
(6)
|
Franchise Rights, Net
|
Franchise rights, net are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 25,
2017
|
|
|
December 25,
2016
|
|
Franchise rights, including reacquired franchise rights
|
|
$
|
29,623
|
|
|
|
29,623
|
|
Less accumulated amortization
|
|
|
(5,928
|
)
|
|
|
(5,380
|
)
|
|
|
|
|
|
|
|
|
|
Franchise rights, net
|
|
$
|
23,695
|
|
|
|
24,243
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to franchise rights was $0.3 million during each of the thirteen weeks ended
June 25, 2017 and June 26, 2016, and $0.5 million during each of the
twenty-six
weeks ended June 25, 2017 and June 26, 2016.
(7)
|
Other Noncurrent Assets
|
Other noncurrent assets consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
June 25,
2017
|
|
|
December 25,
2016
|
|
Investments for nonqualified deferred compensation plan
|
|
$
|
2,852
|
|
|
|
3,112
|
|
Interest rate swap asset
|
|
|
416
|
|
|
|
550
|
|
Other noncurrent assets
|
|
|
721
|
|
|
|
907
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
$
|
3,989
|
|
|
|
4,569
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 25,
2017
|
|
|
December 25,
2016
|
|
Payroll & related
|
|
$
|
10,185
|
|
|
|
9,791
|
|
Sales and property taxes
|
|
|
5,662
|
|
|
|
2,620
|
|
Gift cards
|
|
|
823
|
|
|
|
1,135
|
|
Utilities
|
|
|
1,317
|
|
|
|
1,232
|
|
Occupancy
|
|
|
515
|
|
|
|
445
|
|
Interest
|
|
|
639
|
|
|
|
616
|
|
Bank fees
|
|
|
711
|
|
|
|
711
|
|
Other
|
|
|
3,477
|
|
|
|
1,390
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
23,329
|
|
|
|
17,940
|
|
|
|
|
|
|
|
|
|
|
12
BOJANGLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
(9)
|
Other Current Liabilities
|
Other current liabilities consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
June 25,
2017
|
|
|
December 25,
2016
|
|
Financing obligations under
build-to-suit
transactions
|
|
$
|
4,668
|
|
|
|
4,114
|
|
Closed store obligation
|
|
|
115
|
|
|
|
110
|
|
Interest rate swap liability
|
|
|
15
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
$
|
4,798
|
|
|
|
4,390
|
|
|
|
|
|
|
|
|
|
|
(10)
|
Other Noncurrent Liabilities
|
Other noncurrent liabilities consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
June 25,
2017
|
|
|
December 25,
2016
|
|
Deferred rents
|
|
$
|
8,120
|
|
|
|
7,434
|
|
Unfavorable lease liability, net
|
|
|
1,390
|
|
|
|
1,527
|
|
Deferred compensation
|
|
|
2,852
|
|
|
|
3,112
|
|
Deferred revenue
|
|
|
665
|
|
|
|
565
|
|
Closed store obligation
|
|
|
188
|
|
|
|
246
|
|
Other noncurrent liabilities
|
|
|
52
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent liabilities
|
|
$
|
13,267
|
|
|
|
12,937
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue includes initial franchise license fees that have been received, but for which the Company
has not completed its obligations under these franchise agreements; therefore, revenue has not been recognized.
(11)
|
Commitments and Contingencies
|
The Company is subject to various claims and litigation that arise in
the normal course of business. Management is of the opinion that, although the outcome of the litigation cannot be predicted with any certainty, the ultimate liability, if any, will not have a material adverse effect on the Companys financial
position, results of operations or cash flows.
|
(b)
|
Concentration of Credit Risk
|
Certain financial instruments potentially subject
the Company to a concentration of credit risk. These financial instruments consist primarily of cash and cash equivalents and accounts and vendor receivables. The Company places its cash and cash equivalents with high-credit, quality financial
institutions. At times, the balances in the accounts exceed the amounts insured by the Federal Deposit Insurance Corporation.
Concentration of credit risk with respect to receivables is primarily limited to franchisees, which are primarily located in the Southeastern
United States, and certain vendors. Royalty revenues from three
13
BOJANGLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
franchisees, one of which is a related party, accounted for approximately 43% and 44% of the Companys total franchise royalty revenues for the thirteen weeks ended June 25, 2017 and
June 26, 2016, respectively, and approximately 43% and 44% of the Companys total franchise royalty revenues for the
twenty-six
weeks ended June 25, 2017 and June 26, 2016, respectively.
Royalty and franchise fee accounts receivable from three franchisees, one of which is a related party, accounted for approximately 41% and 40% of the Companys gross royalty and franchise fee accounts receivable as of June 25, 2017 and
December 25, 2016, respectively. The Company continually evaluates and monitors the credit history of its franchisees and believes it has an adequate allowance for bad debts.
Prior to July 25, 2011, a franchisee of the Company assumed
a portion of the Companys then outstanding term debt, which the Company guarantees through 2018. The Company may be required to perform under this guarantee in the event of default or nonperformance by this franchisee. The Company has
determined that default by the franchisee is unlikely due to its timely and consistent payments; therefore, the Company has not recorded a liability for this guarantee on its condensed consolidated balance sheets. The carrying value of debt covered
by this additional guarantee of the Company was $42 thousand and $0.1 million as of June 25, 2017 and December 25, 2016, respectively.
On May 5, 2017, the Company entered into an agreement with a financial
institution providing for up to $2.1 million for leasing of equipment, which is scheduled to expire on September 30, 2017. Under this leasing arrangement, each of the scheduled leases has a
60-month
term, a fixed interest rate equal to the three-year interest rate swap rate as published by the Intercontinental Exchange, Inc. on the lease commencement date for the specific equipment project plus 275 basis points, and a bargain purchase option at
the end of the lease of $1. As a result of the bargain purchase option, the Company has classified the leases under this leasing arrangement as capital leases.
On May 5, 2017, the Company entered into an agreement with another financial institution providing for up to $3.0 million for
leasing of equipment, which is scheduled to expire on June 30, 2018. Under this leasing arrangement, each of the scheduled leases has a
60-month
term, a fixed interest rate equal to the average of
two-
and three-year interest rate swap rates as published by the Bloomberg Swap report on the lease commencement date for the specific equipment project plus 300 basis points, and a bargain purchase option at the
end of the lease of $1. As a result of the bargain purchase option, the Company has classified the leases under this leasing arrangement as capital leases.
The Company has an agreement with another financial institution providing for up to $3.5 million for leasing of equipment that was
originally scheduled to expire on March 1, 2016, which was initially extended to September 30, 2016. As the Company had utilized all capacity under this agreement, on June 27, 2016, the financial institution increased the capacity
under this agreement by an additional $8.1 million and further extended the expiration of the agreement to June 1, 2017. On May 31, 2017, the financial institution replaced the agreement scheduled to expire on June 1, 2017 with a new
agreement providing for up to $10.0 million of leasing capacity, which is scheduled to expire on June 1, 2018. Under this leasing arrangement, each of the scheduled leases has a
60-month
term, a fixed
interest rate equal to the interest rate swap for a 2.61 year weighted average life as published by the Bloomberg Swap report on the lease commencement date for the specific equipment project plus 300 basis points, and a bargain purchase option at
the end of the lease of $1. As a result of the bargain purchase option, the Company has classified the leases under this leasing arrangement as capital leases.
14
BOJANGLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
(13)
|
Net Income per Share
|
Basic net income per share is calculated using the
weighted-average number of shares of common stock outstanding during the thirteen and
twenty-six
weeks ended June 25, 2017 and June 26, 2016.
Diluted net income per share is calculated using the weighted-average number of shares of common stock outstanding and potentially dilutive
during the period, using the treasury stock method.
The computations of basic and diluted net income per share for the thirteen and
twenty-six
weeks ended June 25, 2017 and June 26, 2016 are as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
Ended
|
|
|
Twenty-Six
Weeks
Ended
|
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
Net income
|
|
$
|
8,617
|
|
|
|
10,031
|
|
|
|
16,234
|
|
|
|
17,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding-basic
|
|
|
36,701
|
|
|
|
36,207
|
|
|
|
36,634
|
|
|
|
36,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average dilutive effect of stock-based compensation
|
|
|
1,887
|
|
|
|
1,385
|
|
|
|
1,964
|
|
|
|
1,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding-diluted
|
|
|
38,588
|
|
|
|
37,592
|
|
|
|
38,598
|
|
|
|
37,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share-basic
|
|
$
|
0.23
|
|
|
|
0.28
|
|
|
|
0.44
|
|
|
|
0.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share-diluted
|
|
$
|
0.22
|
|
|
|
0.27
|
|
|
|
0.42
|
|
|
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys effective income tax rates were 24.4% and 36.7% for the
thirteen weeks ended June 25, 2017 and June 26, 2016, respectively, and 30.0% and 35.6% for the
twenty-six
weeks ended June 25, 2017 and June 26, 2016, respectively. The effective income
tax rates for the thirteen and
twenty-six
weeks ended June 25, 2017 and June 26, 2016 reflect the recognition of certain tax credits. In addition, the effective income tax rates for the thirteen and
twenty-six
weeks ended June 25, 2017 reflect the recognition of $1.1 million and $1.3 million, respectively, of excess tax benefits associated with the exercise of stock options and the vesting of
restricted stock units.
(15)
|
Stock Compensation Plan
|
Under the Amended and Restated 2011 Equity Incentive Plan (the
Amended 2011 Plan), the Companys board of directors may grant awards representing up to 8.5 million shares of the Companys common stock in the form of stock options, restricted stock awards, restricted stock units and
performance awards to officers, directors, employees, and consultants of the Company and its subsidiaries. At June 25, 2017, there were 3.7 million additional shares available for grant under the Amended 2011 Plan.
Stock Options
Stock options are granted at a price determined by the board of directors or a committee designated by the board at not less than the fair
market value of a share on the date of grant. The term of each option shall be determined by the board of directors or a committee designated by the board at the time of grant and shall be no greater than ten years.
15
BOJANGLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
Stock option activity during the period indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
shares
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
contractual
term
|
|
|
Aggregate
intrinsic value
(in thousands)
|
|
Balance as of December 25, 2016
|
|
|
3,767,273
|
|
|
$
|
4.59
|
|
|
|
6.0
|
|
|
$
|
55,023
|
|
Granted
|
|
|
275,925
|
|
|
|
17.10
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(297,234
|
)
|
|
|
3.48
|
|
|
|
|
|
|
|
4,257
|
|
Repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(66,124
|
)
|
|
|
11.03
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 25, 2017
|
|
|
3,679,840
|
|
|
$
|
5.51
|
|
|
|
5.7
|
|
|
$
|
38,665
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of June 25, 2017
|
|
|
2,183,148
|
|
|
$
|
4.58
|
|
|
|
5.2
|
|
|
$
|
24,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On June 8, 2017, the Company granted a total of 275,925 stock options to certain employees of the Company
to purchase shares of its common stock at a price of $17.10 per share. The fair value of the stock options on the date of the grant was $5.03 per share. The stock options will vest in equal annual installments over four years, subject to continued
service to the Company.
As of June 25, 2017, there was $2.7 million of total unrecognized compensation cost related to time
based stock options, which is expected to be recognized over a weighted average period of approximately 3.0 years. As of June 25, 2017, there was approximately $2.5 million of total unrecognized compensation cost related to
0.9 million unvested performance based stock options. These performance based stock options will vest and become exercisable upon the achievement of certain performance metrics indicated in the stock option grant.
Restricted Stock Units
Restricted stock unit activity during the period indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
|
Weighted
average
fair value
at grant
date
|
|
Nonvested as of December 25, 2016
|
|
|
81,850
|
|
|
$
|
18.05
|
|
Granted
|
|
|
155,507
|
|
|
|
17.10
|
|
Forfeited
|
|
|
(9,500
|
)
|
|
|
18.05
|
|
Vested
|
|
|
(28,470
|
)
|
|
|
18.05
|
|
|
|
|
|
|
|
|
|
|
Nonvested as of June 25, 2017
|
|
|
199,387
|
|
|
$
|
17.31
|
|
|
|
|
|
|
|
|
|
|
On June 8, 2017, the Company granted a total of 137,969 restricted stock units to certain employees of
the Company. The restricted stock units will vest in equal annual installments over four years, subject to continued service to the Company. Vested shares will be delivered within ten days of the vesting date of such restricted stock unit.
16
BOJANGLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
On June 8, 2017, the Company granted 2,923 restricted stock units to each of its six
non-employee
directors who are not affiliated with Advent International Corporation. The restricted stock units will vest on the date of the Companys next annual meeting, subject to continued service to the
Company. Vested shares will be delivered within ten days of the vesting date of such restricted stock unit.
As of June 25, 2017,
there was $3.4 million of total unrecognized compensation cost related to restricted stock units, which is expected to be recognized over a weighted average period of approximately 3.5 years.
(16)
|
Related Party Transactions
|
Panthers Football, LLC (The Panthers) is owned
by family members of certain indirect stockholders of the Company. The Company has a marketing and sponsorship agreement with The Panthers.
Cajun Jacks, LLC (Cajun) is owned by family members of certain indirect stockholders and a member of the board of directors
of the Company. Cajun is a franchisee of the Company. Cajun remits payments to the Company for royalties, marketing, and franchise license fees.
New Generation Foods, LLC (New Generation) is owned by family members of certain indirect stockholders and a member of the board
of directors of the Company. New Generation is a franchisee of the Company. New Generation remits payments to the Company for royalties, marketing, and franchise license fees.
Tri-Arc
Food Systems, Inc.
(Tri-Arc)
owns an
interest in the Company. In addition, an owner of
Tri-Arc
is a member of the board of directors of the Company.
Tri-Arc
is a franchisee of the Company.
Tri-Arc
remits payments to the Company for royalties, marketing, and franchise license fees. In addition, the Company reimburses
Tri-Arc
for shared marketing costs.
JZF Properties, LLC (JZF) is owned by family members of certain indirect stockholders and a member of the board of directors of
the Company. JZF leases a building and land to the Company for use as a restaurant operated by the Company.
MAR Real Estate, LLC
(MRE) is owned by a certain indirect stockholder of the Company. MRE leases land and buildings to the Company for use as restaurants operated by the Company.
Catco Bo Memorial, LLC (CBM) is owned by a certain indirect stockholder of the Company. CBM leases land, equipment and a building
to the Company for use as a restaurant operated by the Company.
MRMJ Holdings, LLC (MRMJ) is owned by a certain indirect
stockholder of the Company. MRMJ leases land and a building to the Company for use as a restaurant operated by the Company.
17
BOJANGLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited) (continued)
The following table presents expenses incurred and payments made in transactions with the
Companys related parties (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
Ended
|
|
|
Twenty-Six
Weeks
Ended
|
|
Related Party
|
|
Description
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
The Panthers
|
|
Marketing/sponsorship expense
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
Tri-Arc
|
|
Marketing expense
|
|
|
18
|
|
|
|
18
|
|
|
|
36
|
|
|
|
36
|
|
JZF
|
|
Rent payments
|
|
|
79
|
|
|
|
74
|
|
|
|
127
|
|
|
|
121
|
|
MRE
|
|
Rent payments
|
|
|
76
|
|
|
|
35
|
|
|
|
152
|
|
|
|
70
|
|
CBM
|
|
Rent payments
|
|
|
25
|
|
|
|
25
|
|
|
|
50
|
|
|
|
50
|
|
MRMJ
|
|
Rent payments
|
|
|
15
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
The following tables present franchise royalty revenues and other franchise revenues from transactions with
the Companys related parties (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise Royalty Revenues
|
|
|
|
Thirteen Weeks
Ended
|
|
|
Twenty-Six
Weeks
Ended
|
|
Related Party
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
Cajun
|
|
$
|
25
|
|
|
|
25
|
|
|
|
48
|
|
|
|
48
|
|
New Generation
|
|
|
150
|
|
|
|
140
|
|
|
|
292
|
|
|
|
276
|
|
Tri-Arc
|
|
|
1,317
|
|
|
|
1,279
|
|
|
|
2,562
|
|
|
|
2,501
|
|
|
|
|
|
Other Franchise Revenues
|
|
|
|
Thirteen Weeks
Ended
|
|
|
Twenty-Six
Weeks
Ended
|
|
Related Party
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
Cajun
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Generation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tri-Arc
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
The following table presents accounts receivable from transactions with the Companys related parties (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Gross Accounts
Receivable
|
|
Related Party
|
|
June 25,
2017
|
|
|
December 25,
2016
|
|
Cajun
|
|
$
|
9
|
|
|
|
8
|
|
New Generation
|
|
|
52
|
|
|
|
51
|
|
Tri-Arc
|
|
|
387
|
|
|
|
382
|
|
18
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of the consolidated financial condition and results of operations for Bojangles,
Inc. (Bojangles or the Company) should be read in conjunction with the financial statements of the Company and notes thereto included elsewhere in this Quarterly Report. In this Quarterly Report, unless the context
otherwise requires, references to we, us, and our mean the Company, together with its subsidiaries, on a consolidated basis.
Operating results for any one fiscal quarter are not necessarily indicative of results to be expected for any other fiscal quarter or for the fiscal year, and
our key performance indicators, as discussed below, may decrease for any future period. Unless otherwise stated, comparable restaurant sales and average unit volumes are presented on a system-wide basis, which means they include sales at both
company-operated restaurants and franchised restaurants. Franchise sales represent sales at all franchised restaurants and are revenues to our franchisees. We do not record franchise sales as revenues; however, our franchise royalty revenues include
royalties based on a percentage of franchise sales.
Overview
Bojangles is a highly differentiated and growing restaurant operator and franchisor dedicated to serving customers high-quality, craveable food made from
our Southern recipes. We opened our first store in Charlotte, North Carolina in 1977 and, as of June 25, 2017, have expanded our system-wide restaurants to 740 across eleven states, the District of Columbia and Roatan Island, Honduras. Our
system of restaurants, which includes both company-operated and franchised restaurants, generated approximately $318.0 million and $619.8 million of system-wide sales during the thirteen and
twenty-six
weeks ended June 25, 2017, respectively. We offer fast-casual quality food and preparation combined with quick-service speed, convenience and value.
Key Performance Indicators
To evaluate the performance
of our business, we utilize a variety of financial and performance measures. These key measures include company restaurant revenues, franchise royalty and other franchise revenues, system-wide average unit volumes (AUVs), comparable
restaurant sales, restaurant openings and net income. In addition, we also evaluate Adjusted Net Income and Adjusted Diluted Net Income per Share, EBITDA and Adjusted EBITDA, and restaurant contribution and restaurant contribution margin, which are
considered to be
non-GAAP
financial measures.
Company Restaurant Revenues
Company restaurant revenues consists of sales of food and beverages in company-operated restaurants. Company restaurant revenues in a period are influenced by
several factors, including the number of operating weeks in such period, the number of open restaurants and comparable restaurant sales.
Seasonal factors
cause our revenues to fluctuate from quarter to quarter. Our revenues per restaurant are typically lower in the first quarter. As a result, our quarterly and annual operating results and key performance indicators may fluctuate significantly.
Franchise Royalty and Other Franchise Revenues
Franchise royalty and other franchise revenues represents royalty income and initial and renewal franchise fees. While we expect the majority of our total
revenue growth will be driven by company-operated restaurants, our franchised restaurants and growth in franchise royalty and other franchise revenues remain an important part of our financial success.
19
System-wide Average Unit Volumes
We measure system-wide AUVs on a fiscal year basis and on a trailing twelve-month basis for each
non-fiscal
year-end
period for system-wide restaurants. Annual AUVs are calculated using the following methodology: first, we determine the domestic free-standing restaurants with both a drive-thru and interior seating that
have been open for a full twelve-month period (excluding express units); and second, we calculate the revenues for these restaurants and divide by the number of restaurants in that base to arrive at our AUV calculation. Refranchised restaurants are
excluded from our AUV calculation for the twelve-month period following the date of the refranchising. This methodology is similar for each trailing twelve-month period outside the fiscal year end.
|
|
|
|
|
|
|
|
|
|
|
Trailing Twelve
Months Ended
|
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
(Dollar amounts in thousands)
|
|
Average Unit Volumes
|
|
|
|
|
|
|
|
|
Total system-wide
|
|
$
|
1,794
|
|
|
|
1,830
|
|
Comparable Restaurant Sales
Comparable restaurant sales reflects the change in year-over-year sales for the comparable restaurant base. A restaurant enters our comparable restaurant base
the first full day of the month after being open for fifteen months using a
mid-month
convention. Refranchised restaurants are excluded from our comparable restaurant base for the twelve-month period following
the date of the refranchising. If a company-operated restaurant is temporarily closed for a full calendar week due to items such as a remodel, scrape and rebuild, casualty event, severe weather conditions or any other short-term closure, it is
removed from the comparable restaurant sales calculations for such period it is temporarily closed. If a franchised restaurant is temporarily closed for a full calendar week due to items such as a remodel, scrape and rebuild, casualty event, severe
weather conditions or any other short-term closure, it is removed from the comparable restaurant sales calculations for the entire month(s) impacted by the temporary closure. While we do not record franchised restaurant sales as revenues, our
royalty revenues are calculated based on a percentage of franchised restaurant sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
Ended
|
|
|
Twenty-Six
Weeks
Ended
|
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
Comparable Restaurant Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated
|
|
|
(3.3
|
)%
|
|
|
0.9
|
%
|
|
|
(3.4
|
)%
|
|
|
1.8
|
%
|
Franchised
|
|
|
(0.1
|
)%
|
|
|
(0.2
|
)%
|
|
|
(0.3
|
)%
|
|
|
0.6
|
%
|
Total system-wide
|
|
|
(1.4
|
)%
|
|
|
0.2
|
%
|
|
|
(1.6
|
)%
|
|
|
1.1
|
%
|
Restaurant Openings
The number of restaurant openings reflects the number of restaurants opened during a particular reporting period. Before we open company-operated restaurants,
we incur preopening costs. System-wide, some of our restaurants open with an initial
start-up
period of higher than normal sales volume, which subsequently decreases to stabilized levels. Newly opened
restaurants typically have lower annual sales volumes than our established company-operated restaurants. Newly opened company-operated restaurants typically experience normal inefficiencies such as higher food and supplies, labor and other direct
operating costs and, as a result, restaurant contribution margins are typically lower during the
start-up
period of operations. In addition, newly opened restaurants typically have high occupancy costs
compared to existing restaurants and may cannibalize sales of existing restaurants. When entering new markets, we may be exposed to longer
start-up
times and lower contribution margins than reflected in our
average historical experience.
20
The following is the number of Bojangles franchised,
company-operated
and system-wide restaurants at the beginning and end of the thirteen and
twenty-six
weeks ended June 25, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
June 25, 2017
|
|
|
Twenty-Six
Weeks Ended
June 25, 2017
|
|
|
|
Franchised
|
|
|
Company-
Operated
|
|
|
System-
Wide
|
|
|
Franchised
|
|
|
Company-
Operated
|
|
|
System-
Wide
|
|
Restaurants at the beginning of the period
|
|
|
414
|
|
|
|
314
|
|
|
|
728
|
|
|
|
407
|
|
|
|
309
|
|
|
|
716
|
|
Opened during the period
|
|
|
7
|
|
|
|
7
|
|
|
|
14
|
|
|
|
14
|
|
|
|
13
|
|
|
|
27
|
|
Closed during the period
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Refranchised during the period
|
|
|
5
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
5
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurants at the end of the period
|
|
|
426
|
|
|
|
314
|
|
|
|
740
|
|
|
|
426
|
|
|
|
314
|
|
|
|
740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurants closed during the period reflects permanent closures and excludes any temporary closures for items such as
remodels, scrape and rebuilds, casualty events, severe weather conditions or any other short-term closure. A relocation results in a closure and an opening. During the thirteen and
twenty-six
weeks ended
June 25, 2017, we closed two and three company-operated restaurants, respectively, of which one and two, respectively, were relocations.
Net
Income, Adjusted Net Income, Adjusted Diluted Net Income per Share, EBITDA and Adjusted EBITDA
We consider net income to be a key performance
indicator that shows the overall health of our entire business. We typically utilize net income in conjunction with the
non-GAAP
financial measures Adjusted Net Income, Adjusted Diluted Net Income per Share,
EBITDA and Adjusted EBITDA when assessing the operational strength and the performance of our business.
Adjusted Net Income represents company net income
before items that we do not consider representative of our ongoing operating performance as identified in the reconciliation table below. Adjusted Diluted Net Income per Share represents company diluted net income per share before items that we do
not consider representative of our ongoing operating performance as identified in the reconciliation table below.
EBITDA represents company net income
before interest expense (net of interest income), provision for income taxes and depreciation and amortization. Adjusted EBITDA represents company net income before interest expense (net of interest income), provision for income taxes, depreciation
and amortization, items that we do not consider representative of our ongoing operating performance and certain
non-cash
items, as identified in the reconciliation table below.
Adjusted Net Income, Adjusted Diluted Net Income per Share, EBITDA and Adjusted EBITDA as presented in this Form
10-Q
are supplemental measures of our performance that are neither required by, nor presented in accordance with, GAAP. Adjusted Net Income, Adjusted Diluted Net Income per Share, EBITDA and Adjusted EBITDA are not measurements of our financial
performance under GAAP and should not be considered as alternatives to net income, operating income or any other performance measures derived in accordance with GAAP or as alternatives to cash flow from operating activities as a measure of our
liquidity. In addition, in evaluating Adjusted Net Income, Adjusted Diluted Net Income per Share, EBITDA and Adjusted EBITDA, you should be aware that in the future we will incur expenses or charges such as those added back to calculate Adjusted Net
Income, Adjusted Diluted Net Income per Share, EBITDA and Adjusted EBITDA. Our presentation of Adjusted Net Income, Adjusted Diluted Net Income per Share, EBITDA and Adjusted EBITDA should not be construed as an inference that our future results
will be unaffected by unusual or
non-recurring
items.
21
Adjusted Net Income, Adjusted Diluted Net Income per share, EBITDA and Adjusted EBITDA have limitations as
analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are (i) they do not reflect our cash expenditures, or future requirements for
capital expenditures or contractual commitments, (ii) they do not reflect changes in, or cash requirements for, our working capital needs, (iii) EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal payments, on our debt, (iv) although depreciation and amortization are
non-cash
charges, the assets being depreciated and amortized will often have
to be replaced in the future, and Adjusted Net Income, Adjusted Diluted Net Income per Share, EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements, (v) they do not adjust for all
non-cash
income or expense items that are reflected in our statements of cash flows, (vi) they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of
our ongoing operations, and (vii) other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.
We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from such
non-GAAP
financial measures. We further compensate for the limitations in our use of
non-GAAP
financial measures by presenting comparable GAAP measures more prominently.
We believe Adjusted Net Income, Adjusted Diluted Net Income per Share, EBITDA and Adjusted EBITDA facilitate operating performance comparisons from
period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary significantly among similar companies. These potential differences may be caused by variations
in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting
relative depreciation expense). We also present EBITDA and Adjusted EBITDA because (i) we believe these measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry,
(ii) we believe investors will find these measures useful in assessing our ability to service or incur indebtedness, and (iii) we use EBITDA and Adjusted EBITDA internally as benchmarks to evaluate our operating performance or compare our
performance to that of our competitors.
22
The following tables set forth reconciliations of net income to Adjusted Net Income and diluted net income per
share to Adjusted Diluted Net Income per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
Ended
|
|
|
Twenty-Six
Weeks
Ended
|
|
(Dollar amounts in thousands)
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
Net income
|
|
$
|
8,617
|
|
|
|
10,031
|
|
|
$
|
16,234
|
|
|
|
17,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain professional and transaction costs
(a)
|
|
|
|
|
|
|
9
|
|
|
|
3
|
|
|
|
42
|
|
Payroll taxes associated with stock option
exercises
(b)
|
|
|
71
|
|
|
|
51
|
|
|
|
97
|
|
|
|
71
|
|
Distributor transition costs
(c)
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
81
|
|
Executive separation expenses
(d)
|
|
|
546
|
|
|
|
|
|
|
|
551
|
|
|
|
|
|
Tax impact of adjustments
(e)
|
|
|
(233
|
)
|
|
|
(29
|
)
|
|
|
(244
|
)
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
384
|
|
|
|
47
|
|
|
|
407
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net Income
|
|
$
|
9,001
|
|
|
|
10,078
|
|
|
$
|
16,641
|
|
|
|
17,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
Ended
|
|
|
Twenty-Six
Weeks
Ended
|
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
Diluted net income per share
|
|
$
|
0.22
|
|
|
|
0.27
|
|
|
$
|
0.42
|
|
|
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain professional and transaction costs
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll taxes associated with stock option
exercises
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributor transition costs
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive separation expenses
(d)
|
|
|
0.02
|
|
|
|
|
|
|
|
0.02
|
|
|
|
|
|
Tax impact of adjustments
(e)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
0.01
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Diluted Net Income per Share
|
|
$
|
0.23
|
|
|
|
0.27
|
|
|
$
|
0.43
|
|
|
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes costs associated with third-party consultants for
one-time
projects and public offering expenses. We could incur similar expenses in future periods if we commence
additional public offerings, financing transactions or other
one-time
projects.
|
(b)
|
Represents payroll taxes associated with stock option exercises related to stock options that were outstanding prior to our initial public offering (IPO). We expect to incur similar expenses in future
periods when our directors or employees exercise stock options that were outstanding prior to our IPO.
|
(c)
|
Includes expenses incurred in connection with the transition to our new distributor.
|
(d)
|
Represents severance and legal fees associated with a former executives departure from the Company.
|
(e)
|
Represents the income tax expense associated with the adjustments in (a) through (d) that are deductible for income tax purposes.
|
23
The following table sets forth reconciliations of net income to EBITDA and Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
Ended
|
|
|
Twenty-Six
Weeks
Ended
|
|
(Dollar amounts in thousands)
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
Net income
|
|
$
|
8,617
|
|
|
|
10,031
|
|
|
$
|
16,234
|
|
|
|
17,875
|
|
Income taxes
|
|
|
2,784
|
|
|
|
5,816
|
|
|
|
6,954
|
|
|
|
9,874
|
|
Interest expense, net
|
|
|
1,602
|
|
|
|
1,935
|
|
|
|
3,268
|
|
|
|
3,959
|
|
Depreciation and amortization
(a)
|
|
|
4,303
|
|
|
|
4,062
|
|
|
|
8,353
|
|
|
|
8,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
17,306
|
|
|
|
21,844
|
|
|
|
34,809
|
|
|
|
39,717
|
|
Non-cash
rent
(b)
|
|
|
363
|
|
|
|
394
|
|
|
|
768
|
|
|
|
771
|
|
Stock-based compensation
(c)
|
|
|
307
|
|
|
|
272
|
|
|
|
681
|
|
|
|
549
|
|
Payroll taxes associated with stock option exercises
(d)
|
|
|
71
|
|
|
|
51
|
|
|
|
97
|
|
|
|
71
|
|
Preopening expenses
(e)
|
|
|
350
|
|
|
|
379
|
|
|
|
724
|
|
|
|
596
|
|
Certain professional and transaction costs
(f)
|
|
|
|
|
|
|
9
|
|
|
|
3
|
|
|
|
42
|
|
Distributor transition costs
(g)
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
81
|
|
Executive separation expenses
(h)
|
|
|
546
|
|
|
|
|
|
|
|
551
|
|
|
|
|
|
Impairment and dispositions
(i)
|
|
|
601
|
|
|
|
237
|
|
|
|
933
|
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
19,544
|
|
|
|
23,202
|
|
|
$
|
38,566
|
|
|
|
42,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes amortization of deferred debt issuance costs.
|
(b)
|
Includes deferred rent, which represents the extent to which our rent expense has been above or below our cash rent payments, amortization of favorable (unfavorable) leases and closed store reserves for rent net of cash
payments. We expect to continue to incur similar expenses in future periods as we record rent expense in accordance with GAAP, as well as continue to amortize favorable (unfavorable) leases and record closed store reserves.
|
(c)
|
Represents
non-cash,
stock-based compensation. We expect to incur similar expenses in future periods as we record stock-based compensation related to existing grants (and any
potential future grants) in accordance with GAAP.
|
(d)
|
Represents payroll taxes associated with stock option exercises related to stock options that were outstanding prior to our IPO. We expect to incur similar expenses in future periods when our directors or employees
exercise stock options that were outstanding prior to our IPO.
|
(e)
|
Includes expenses directly associated with the opening of company-operated restaurants and incurred prior to the opening of a company-operated restaurant. We expect to continue to incur similar expenses as we open
company-operated restaurants.
|
(f)
|
Includes costs associated with third-party consultants for
one-time
projects and public offering expenses. We could incur similar expenses in future periods if we commence
additional public offerings, financing transactions or other
one-time
projects.
|
(g)
|
Includes expenses incurred in connection with the transition to our new distributor.
|
(h)
|
Represents severance and legal fees associated with a former executives departure from the Company.
|
(i)
|
Includes (gain) loss on disposal of property and equipment and other, impairment and cash proceeds on disposals from disposition of property and equipment. We could continue to record impairment expense in future
periods if performance of company-operated restaurants is not sufficient to recover the carrying amount of the related long-lived assets. We may incur future (gains) losses and receive cash proceeds on disposal of property and equipment associated
with retirement, replacement or
write-off
of fixed assets.
|
24
Restaurant Contribution and Restaurant Contribution Margin
Restaurant contribution and restaurant contribution margin are neither required by, nor presented in accordance with, GAAP. Restaurant contribution is defined
as company restaurant revenues less food and supplies costs, restaurant labor costs, and operating costs. Restaurant contribution margin is defined as restaurant contribution as a percentage of company restaurant revenues. Fluctuations in restaurant
contribution and restaurant contribution margin can be attributed to company comparable restaurant sales, sales volumes of newly opened company restaurants, and changes in company food and supplies costs, restaurant labor costs and operating costs.
Restaurant contribution and restaurant contribution margin are supplemental measures of operating performance of our restaurants and our calculations
thereof may not be comparable to those reported by other companies. Restaurant contribution and restaurant contribution margin have limitations as analytical tools, and should not be considered in isolation or as substitutes for analysis of our
results as reported under GAAP. We believe that restaurant contribution and restaurant contribution margin are important tools for investors as they are widely-used metrics within the restaurant industry to evaluate restaurant-level productivity,
efficiency and performance. We use restaurant contribution and restaurant contribution margin as key metrics to evaluate profitability and performance of our restaurants across periods and to evaluate our restaurant financial performance compared to
our competitors.
The following table reconciles our restaurant contribution to the line item on the condensed consolidated statements of operations and
comprehensive income entitled Company restaurant revenues, which we believe is the most directly comparable GAAP measure on our condensed consolidated statements of operations and comprehensive income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks
Ended
|
|
|
Twenty-Six
Weeks
Ended
|
|
(Dollar amounts in thousands)
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
Company restaurant revenues
|
|
$
|
127,058
|
|
|
|
124,674
|
|
|
$
|
251,841
|
|
|
|
246,088
|
|
Food and supplies costs
|
|
|
(39,998
|
)
|
|
|
(39,020
|
)
|
|
|
(78,683
|
)
|
|
|
(77,541
|
)
|
Restaurant labor costs
|
|
|
(36,937
|
)
|
|
|
(34,525
|
)
|
|
|
(73,284
|
)
|
|
|
(67,861
|
)
|
Operating costs
|
|
|
(29,741
|
)
|
|
|
(26,607
|
)
|
|
|
(59,432
|
)
|
|
|
(55,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant contribution
|
|
$
|
20,382
|
|
|
|
24,522
|
|
|
$
|
40,442
|
|
|
|
45,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant contribution margin
|
|
|
16.0
|
%
|
|
|
19.7
|
%
|
|
|
16.1
|
%
|
|
|
18.6
|
%
|
Key Financial Definitions
Total Revenues
Our revenues are derived from two
primary sources: company restaurant revenues and franchise revenues. Franchise revenues are comprised of franchise royalty revenues and, to a lesser extent, other franchise revenues which include initial and renewal franchisee fees.
Food and Supplies Costs
Food and supplies costs
include the direct costs associated with food, beverage and packaging of our menu items at company-operated restaurants. The components of food and supplies are variable in nature, change with sales volume, are affected by menu mix and are subject
to fluctuations in commodity costs.
Restaurant Labor Costs
Restaurant labor costs, including preopening labor, consist of company-operated restaurant-level management and hourly labor costs, including salaries, wages,
payroll taxes, workers compensation expense, benefits and bonuses paid to our company-operated restaurant-level team members. Like other cost items, we expect restaurant labor costs at our company-operated restaurants to grow due to inflation
and as our company restaurant
25
revenues grows. Factors that influence labor costs include minimum wage and employer payroll tax legislation, exempt versus
non-exempt
classification, a
tightening labor market, employee turnover levels, health care costs and the performance of our restaurants. In addition, the Patient Protection and Affordable Care Act (PPACA) has increased health care costs for our restaurants, and we
expect the PPACA will continue to result in increased health care costs for our restaurants in the future.
Although the implementation of the Department
of Labor (DOL) regulations related to overtime and exempt versus
non-exempt
classification that were scheduled to become effective December 1, 2016 were enjoined, we increased the salaries of
certain of our team members during the fourth fiscal quarter of fiscal 2016 in response to these regulations. Increasing the salary of these employees and overall labor inflation, along with various labor initiatives we intend to implement,
including service enhancements and employing more full-time versus part-time team members, and higher health care costs will increase our restaurant labor costs. Our restaurant labor costs could increase further if the DOL regulations related to
overtime and exempt versus
non-exempt
classification that were scheduled to become effective December 1, 2016 ultimately go in to effect.
Operating Costs
Restaurant operating costs
include all other company-operated restaurant-level operating expenses, such as repairs and maintenance, utilities, credit and debit card processing, occupancy expenses and other restaurant operating costs. In addition, our advertising costs are
included in operating costs and are comprised of our company-operated restaurants portion of spending on all advertising which includes, but is not limited to, television, radio, social media, billboards,
point-of-sale
materials, sponsorships, and creation of media, such as commercials and marketing campaigns.
Company Restaurant Depreciation and Amortization
Company restaurant depreciation and amortization primarily consists of the depreciation of property and equipment and amortization of intangible assets at the
restaurant level. We expect that growth in company-operated restaurant count, as well as restaurant remodels, investments in technology and other initiatives, will increase company restaurant depreciation and amortization.
General and Administrative Expenses
General and
administrative expenses include expenses associated with corporate and administrative functions that support our operations, including compensation and benefits, travel expense, stock-based compensation expense, legal and professional fees,
training, and other corporate costs. We expect we will incur incremental increases in general and administrative expenses as a result of being a public company.
Other Depreciation and Amortization
Other
depreciation and amortization primarily consists of the depreciation of property and equipment and amortization of intangible assets not directly located at company-operated restaurants. We expect that growth in system-wide restaurant count, as well
as investments in technology and other initiatives, will increase other depreciation and amortization.
Impairment
Long-lived assets such as property, equipment and intangible assets are reviewed on a
unit-by-unit
basis for impairment. When circumstances indicate the carrying value of the assets may not be recoverable, an appropriate impairment is recorded.
Impairments could increase if performance of company-operated restaurants is not sufficient to recover the carrying amount of the related long-lived assets.
26
Loss (Gain) on Disposal of Property and Equipment and Other
Loss (gain) on disposal of property and equipment and other includes the net loss (gain) on disposal of assets related to retirements and replacements or
write-off
of leasehold improvements, equipment and other fixed assets. These losses (gains) are related to normal disposals in the ordinary course of business and gains from insurance proceeds, if any.
Amortization of Deferred Debt Issuance Costs
Deferred debt issuance costs are amortized over the term of the related debt on the effective interest method.
Interest Expense
Interest expense primarily
consists of interest on our debt outstanding under our credit facility and capital lease obligations.
Income Taxes
Income taxes represent federal, state, and local current and deferred income tax expense.
27
Results of Operations
Thirteen Weeks Ended June 25, 2017 Compared with the Thirteen Weeks Ended June 26, 2016
Our operating results for the thirteen weeks ended June 25, 2017 and June 26, 2016 are compared below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
|
Increase/
(Decrease)
|
|
|
Percentage
Change
|
|
|
|
(Dollar amounts in thousands)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Company restaurant revenues
|
|
$
|
127,058
|
|
|
$
|
124,674
|
|
|
$
|
2,384
|
|
|
|
1.9
|
%
|
Franchise royalty revenues
|
|
|
6,978
|
|
|
|
6,621
|
|
|
|
357
|
|
|
|
5.4
|
%
|
Other franchise revenues
|
|
|
338
|
|
|
|
300
|
|
|
|
38
|
|
|
|
12.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
134,374
|
|
|
|
131,595
|
|
|
|
2,779
|
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant operating expenses:
|
|
|
|
|
|
|
|
|
Food and supplies costs
|
|
|
39,998
|
|
|
|
39,020
|
|
|
|
978
|
|
|
|
2.5
|
%
|
Restaurant labor costs
|
|
|
36,937
|
|
|
|
34,525
|
|
|
|
2,412
|
|
|
|
7.0
|
%
|
Operating costs
|
|
|
29,741
|
|
|
|
26,607
|
|
|
|
3,134
|
|
|
|
11.8
|
%
|
Depreciation and amortization
|
|
|
3,374
|
|
|
|
3,124
|
|
|
|
250
|
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total company restaurant operating expenses
|
|
|
110,050
|
|
|
|
103,276
|
|
|
|
6,774
|
|
|
|
6.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before other operating expenses
|
|
|
24,324
|
|
|
|
28,319
|
|
|
|
(3,995
|
)
|
|
|
(14.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
9,817
|
|
|
|
9,402
|
|
|
|
415
|
|
|
|
4.4
|
%
|
Depreciation and amortization
|
|
|
753
|
|
|
|
716
|
|
|
|
37
|
|
|
|
5.2
|
%
|
Impairment
|
|
|
700
|
|
|
|
187
|
|
|
|
513
|
|
|
|
274.3
|
%
|
(Gain) loss on disposal of property and equipment and other
|
|
|
(125
|
)
|
|
|
10
|
|
|
|
(135
|
)
|
|
|
n/m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating expenses
|
|
|
11,145
|
|
|
|
10,315
|
|
|
|
830
|
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
13,179
|
|
|
|
18,004
|
|
|
|
(4,825
|
)
|
|
|
(26.8
|
)%
|
Amortization of deferred debt issuance costs
|
|
|
(176
|
)
|
|
|
(222
|
)
|
|
|
46
|
|
|
|
(20.7
|
)%
|
Interest income
|
|
|
12
|
|
|
|
2
|
|
|
|
10
|
|
|
|
n/m
|
|
Interest expense
|
|
|
(1,614
|
)
|
|
|
(1,937
|
)
|
|
|
323
|
|
|
|
(16.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
11,401
|
|
|
|
15,847
|
|
|
|
(4,446
|
)
|
|
|
(28.1
|
)%
|
Income taxes
|
|
|
2,784
|
|
|
|
5,816
|
|
|
|
(3,032
|
)
|
|
|
(52.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
8,617
|
|
|
$
|
10,031
|
|
|
$
|
(1,414
|
)
|
|
|
(14.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/m = not meaningful
Company Restaurant Revenues
Company restaurant revenues increased $2.4 million, or 1.9%, during the thirteen weeks ended June 25, 2017 compared to the thirteen
weeks ended June 26, 2016. The growth in company restaurant revenues was primarily due to an increase in the
non-comparable
restaurant base (net additions of 19 company-operated restaurants at
June 25, 2017 compared to June 26, 2016) accounting for $6.3 million, partially offset by a decrease in comparable company restaurant sales of $3.9 million, or 3.3%, due to a decrease in transactions, partially offset by
increases in price and mix at our comparable restaurants.
Franchise Royalty Revenues
Franchise royalty revenues increased $0.4 million during the thirteen weeks ended June 25, 2017 compared to the thirteen weeks ended
June 26, 2016. The increase was primarily due to a net additional 32 franchised restaurants at June 25, 2017 compared to June 26, 2016, partially offset by a decrease in franchised comparable restaurant sales of 0.1%.
28
Other Franchise Revenues
Other franchise revenues increased 12.7% during the thirteen weeks ended June 25, 2017 compared to the thirteen weeks ended June 26,
2016. The increase was primarily due to franchise fees related to the refranchising of five Company-operated restaurants, partially offset by a decrease due to the timing of the opening of franchised restaurants.
Food and Supplies Costs
Food and supplies costs increased $1.0 million during the thirteen weeks ended June 25, 2017 compared to the thirteen weeks ended
June 26, 2016. This increase was primarily driven by an increase in company restaurant revenues. Food and supplies costs as a percentage of company restaurant revenues during the thirteen weeks ended June 25, 2017 was 31.5% versus 31.3%
during the thirteen weeks ended June 26, 2016. This increase was primarily due to menu mix changes, partially offset by our menu price increases.
Restaurant Labor Costs
Company-operated restaurant labor costs increased $2.4 million during the thirteen weeks ended June 25, 2017 compared to the thirteen
weeks ended June 26, 2016, primarily due to an increase in the number of company-operated restaurants. As a percentage of company restaurant revenues, restaurant labor costs increased to 29.1% during the thirteen weeks ended June 25, 2017
from 27.7% during the thirteen weeks ended June 26, 2016. This increase was primarily driven by an increase in direct labor, partially offset by lower incentive compensation.
We expect that our restaurant labor costs will continue to increase due to the tightening labor market and higher medical costs, as well as
certain labor initiatives across company-operated restaurants, including service enhancements and increasing the number of full-time versus part-time team members. In addition, we expect that our restaurant labor costs will increase as a result of
increasing the salaries of certain of our team members in response to the DOL regulations related to overtime and exempt versus
non-exempt
classification that were scheduled to go in to effect December 1,
2016 and overall labor inflation. Our restaurant labor costs could increase further if these DOL regulations ultimately go in to effect.
Operating Costs
Operating costs increased $3.1 million during the thirteen weeks ended June 25, 2017 compared to the thirteen weeks ended
June 26, 2016, primarily due to an increase in the number of company-operated restaurants and an increase in marketing costs as a result of the timing of expenses incurred during the thirteen weeks ended June 26, 2016. As a percentage of
company restaurant revenues, operating costs increased to 23.4% during the thirteen weeks ended June 25, 2017 from 21.3% during the thirteen weeks ended June 26, 2016. The increase was primarily due to higher marketing, occupancy and
utilities costs.
Restaurant Depreciation and Amortization
Restaurant depreciation and amortization increased $0.3 million during the thirteen weeks ended June 25, 2017 compared to the
thirteen weeks ended June 26, 2016, due primarily to the increased number of company-operated restaurants. As a percentage of company restaurant revenues, depreciation and amortization was 2.7% and 2.5% during the thirteen weeks ended
June 25, 2017 and June 26, 2016, respectively.
29
General and Administrative Expenses
General and administrative expenses increased $0.4 million during the thirteen weeks ended June 25, 2017 compared to the thirteen
weeks ended June 26, 2016. The increase during the thirteen weeks ended June 25, 2017 was due primarily to $0.5 million of executive separation expenses, $0.2 million of expense recorded in connection with the identification and
due diligence of potential new locations for company-operated restaurants that we ultimately decided not to pursue, $0.2 million of higher meetings and convention expenses (primarily due to our
bi-annual
convention), and headcount added to support an increased number of restaurants in our system, partially offset by lower incentive compensation. As a percentage of total revenues, general and administrative expenses were 7.3% and 7.1% during the
thirteen weeks ended June 25, 2017 and June 26, 2016, respectively.
We expect our recurring general and administrative expenses
will increase as we grow our business and incur additional expenses related to being a newer public company.
Impairment
Impairment expense increased $0.5 million during the thirteen weeks ended June 25, 2017 compared to the thirteen weeks
ended June 26, 2016. The increase was primarily due to the refranchising of five company-operated restaurants.
Interest
Expense
Interest expense decreased $0.3 million during the thirteen weeks ended June 25, 2017 compared to the thirteen
weeks ended June 26, 2016. The decrease was due primarily to principal payments of $39.2 million on our long-term debt from June 27, 2016 to June 25, 2017, a reduction in our applicable rate and lower interest expense associated
with interest rate swaps, partially offset by an increase in the LIBOR rate.
Income Taxes
Income taxes decreased $3.0 million during the thirteen weeks ended June 25, 2017 compared to the thirteen weeks ended June 26,
2016. Our effective income tax rates were 24.4% and 36.7% during the thirteen weeks ended June 25, 2017 and June 26, 2016, respectively. The effective income tax rate for both of the thirteen weeks ended June 25, 2017 and
June 26, 2016 reflects the recognition of certain tax credits. In addition, the income tax rate for the thirteen weeks ended June 25, 2017 reflects the recognition of $1.1 million of excess tax benefits associated with the exercise of
stock options and vesting of restricted stock units.
30
Twenty-six
Weeks Ended June 25, 2017 Compared
with the
Twenty-six
Weeks Ended June 26, 2016
Our operating results for the
twenty-six
weeks ended June 25, 2017 and June 26, 2016 are compared below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six
Weeks Ended
|
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
|
Increase/
(Decrease)
|
|
|
Percentage
Change
|
|
|
|
(Dollar amounts in thousands)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Company restaurant revenues
|
|
$
|
251,841
|
|
|
$
|
246,088
|
|
|
$
|
5,753
|
|
|
|
2.3
|
%
|
Franchise royalty revenues
|
|
|
13,491
|
|
|
|
12,793
|
|
|
|
698
|
|
|
|
5.5
|
%
|
Other franchise revenues
|
|
|
538
|
|
|
|
370
|
|
|
|
168
|
|
|
|
45.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
265,870
|
|
|
|
259,251
|
|
|
|
6,619
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company restaurant operating expenses:
|
|
|
|
|
|
|
|
|
Food and supplies costs
|
|
|
78,683
|
|
|
|
77,541
|
|
|
|
1,142
|
|
|
|
1.5
|
%
|
Restaurant labor costs
|
|
|
73,284
|
|
|
|
67,861
|
|
|
|
5,423
|
|
|
|
8.0
|
%
|
Operating costs
|
|
|
59,432
|
|
|
|
55,020
|
|
|
|
4,412
|
|
|
|
8.0
|
%
|
Depreciation and amortization
|
|
|
6,581
|
|
|
|
6,207
|
|
|
|
374
|
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total company restaurant operating expenses
|
|
|
217,980
|
|
|
|
206,629
|
|
|
|
11,351
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income before other operating expenses
|
|
|
47,890
|
|
|
|
52,622
|
|
|
|
(4,732
|
)
|
|
|
(9.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
18,770
|
|
|
|
18,912
|
|
|
|
(142
|
)
|
|
|
(0.8
|
)%
|
Depreciation and amortization
|
|
|
1,478
|
|
|
|
1,433
|
|
|
|
45
|
|
|
|
3.1
|
%
|
Impairment
|
|
|
996
|
|
|
|
389
|
|
|
|
607
|
|
|
|
156.0
|
%
|
Gain on disposal of property and equipment
|
|
|
(104
|
)
|
|
|
(189
|
)
|
|
|
85
|
|
|
|
(45.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other operating expenses
|
|
|
21,140
|
|
|
|
20,545
|
|
|
|
595
|
|
|
|
2.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
26,750
|
|
|
|
32,077
|
|
|
|
(5,327
|
)
|
|
|
(16.6
|
)%
|
Amortization of deferred debt issuance costs
|
|
|
(294
|
)
|
|
|
(369
|
)
|
|
|
75
|
|
|
|
(20.3
|
)%
|
Interest income
|
|
|
13
|
|
|
|
3
|
|
|
|
10
|
|
|
|
n/m
|
|
Interest expense
|
|
|
(3,281
|
)
|
|
|
(3,962
|
)
|
|
|
681
|
|
|
|
(17.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
23,188
|
|
|
|
27,749
|
|
|
|
(4,561
|
)
|
|
|
(16.4
|
)%
|
Income taxes
|
|
|
6,954
|
|
|
|
9,874
|
|
|
|
(2,920
|
)
|
|
|
(29.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
16,234
|
|
|
$
|
17,875
|
|
|
$
|
(1,641
|
)
|
|
|
(9.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
n/m = not meaningful
Company Restaurant Revenues
Company restaurant revenues increased $5.8 million, or 2.3%, during the
twenty-six
weeks ended
June 25, 2017 compared to the
twenty-six
weeks ended June 26, 2016. The growth in company restaurant revenues was primarily due to an increase in the
non-comparable
restaurant base (net additions of 19 company-operated restaurants at June 25, 2017 compared to June 26, 2016) accounting for $13.8 million, partially offset by a decrease in
comparable company restaurant sales of $8.0 million, or 3.4%, composed of a decrease in transactions, partially offset by increases in price and mix at our comparable restaurants.
Franchise Royalty Revenues
Franchise royalty revenues increased $0.7 million during the
twenty-six
weeks ended June 25,
2017 compared to the
twenty-six
weeks ended June 26, 2016. The increase was primarily due to a net additional 32 franchised restaurants at June 25, 2017 compared to June 26, 2016, partially
offset by a decrease in franchised comparable restaurant sales of 0.3%.
31
Other Franchise Revenues
Other franchise revenues increased $0.2 million during the
twenty-six
weeks ended June 25,
2017 compared to the
twenty-six
weeks ended June 26, 2016. The increase was primarily due to franchise fees related to the refranchising of five company-operated restaurants, as well as the timing of the
opening of franchised restaurants.
Food and Supplies Costs
Food and supplies costs increased $1.1 million during the
twenty-six
weeks ended June 25,
2017 compared to the
twenty-six
weeks ended June 26, 2016. This increase was primarily driven by an increase in company restaurant revenues. Food and supplies costs as a percentage of company restaurant
revenues during the
twenty-six
weeks ended June 25, 2017 was 31.2% versus 31.5% during the
twenty-six
weeks ended June 26, 2016. This decrease was primarily
due to our menu price increases and lower commodity costs, partially offset by menu mix changes.
Restaurant Labor Costs
Company-operated restaurant labor costs increased $5.4 million during the
twenty-six
weeks ended June 25, 2017 compared to the
twenty-six
weeks ended June 26, 2016, primarily due to an increase in the number of company-operated restaurants. As a percentage of company restaurant
revenues, restaurant labor costs increased to 29.1% during the
twenty-six
weeks ended June 25, 2017 from 27.6% during the
twenty-six
weeks ended June 26, 2016.
This increase was primarily driven by an increase in direct labor, partially offset by lower incentive compensation.
We expect that our
restaurant labor costs will continue to increase due to the tightening labor market and higher medical costs, as well as certain labor initiatives across company-operated restaurants, including service enhancements and increasing the number of
full-time versus part-time team members. In addition, we expect that our restaurant labor costs will increase as a result of increasing the salaries of certain of our team members in response to the DOL regulations related to overtime and exempt
versus
non-exempt
classification that were scheduled to go in to effect December 1, 2016 and overall labor inflation. Our restaurant labor costs could increase further if these DOL regulations ultimately
go in to effect.
Operating Costs
Operating costs increased $4.4 million during the
twenty-six
weeks ended June 25, 2017
compared to the
twenty-six
weeks ended June 26, 2016, primarily due to an increase in the number of company-operated restaurants. As a percentage of company restaurant revenues, operating costs increased
to 23.6% during the
twenty-six
weeks ended June 25, 2017 from 22.4% during the
twenty-six
weeks ended June 26, 2016. This increase was primarily due to higher
occupancy and utilities costs.
Restaurant Depreciation and Amortization
Restaurant depreciation and amortization increased $0.4 million during the
twenty-six
weeks ended
June 25, 2017 compared to the
twenty-six
weeks ended June 26, 2016, due primarily to the increased number of company-operated restaurants. As a percentage of company restaurant revenues, depreciation
and amortization was 2.6% and 2.5% during the
twenty-six
weeks ended June 25, 2017 and June 26, 2016, respectively.
General and Administrative Expenses
General and administrative expenses decreased $0.1 million during the
twenty-six
weeks ended
June 25, 2017 compared to the
twenty-six
weeks ended June 26, 2016. The decrease during the
twenty-six
weeks ended June 25, 2017 was due primarily to
lower incentive compensation, partially offset by $0.5 million of executive separation expenses, $0.2 million of expense recorded in connection with the identification and due diligence of potential new locations for company-operated
restaurants that we ultimately decided not to pursue, $0.2 million
32
of higher meetings and convention expenses (primarily due to our
bi-annual
convention) and headcount added to support an increased number of restaurants in
our system. As a percentage of total revenues, general and administrative expenses were 7.1% and 7.3% during the
twenty-six
weeks ended June 25, 2017 and June 26, 2016, respectively.
We expect our recurring general and administrative expenses will increase as we grow our business and incur additional expenses related to
being a newer public company.
Impairment
Impairment expense increased $0.6 million during the
twenty-six
weeks ended June 25, 2017
compared to the
twenty-six
weeks ended June 26, 2016. The increase was primarily due to the refranchising of five company-operated restaurants.
Interest Expense
Interest expense decreased $0.7 million during the
twenty-six
weeks ended June 25, 2017
compared to the
twenty-six
weeks ended June 26, 2016. The decrease was due primarily to principal payments of $39.2 million on our long-term debt from June 27, 2016 to June 25, 2017, a
reduction in our applicable rate and lower interest expense associated with interest rate swaps, partially offset by an increase in the LIBOR rate.
Income Taxes
Income taxes decreased $2.9 million during the
twenty-six
weeks ended June 25, 2017 compared
to the
twenty-six
weeks ended June 26, 2016. Our effective income tax rates were 30.0% and 35.6% during the
twenty-six
weeks ended June 25, 2017 and
June 26, 2016, respectively. The effective income tax rate for both of the
twenty-six
weeks ended June 25, 2017 and June 26, 2016 reflects the recognition of certain tax credits. In addition,
the income tax rate for the
twenty-six
weeks ended June 25, 2017 reflects the recognition of $1.3 million of excess tax benefits associated with the exercise of stock options and vesting of
restricted stock units.
Contractual Obligations
During the
twenty-six
weeks ended June 25, 2017, there were no material changes to the contractual
obligations as disclosed in the Annual Report on Form
10-K
for the fiscal year ended December 25, 2016, other than those made in the ordinary course of business.
Off-Balance
Sheet Arrangements
We have guaranteed through 2018 debt from a previous credit facility which was assumed by a franchisee. We may be required to perform this
guarantee in the event of default or nonperformance by this franchisee. We have determined that default by the franchisee is unlikely due to its timely and consistent payments and have therefore not recorded a liability for the debt assumed by this
franchisee on our condensed consolidated balance sheets. The carrying value of debt covered by this additional guarantee by us was approximately $42 thousand and $0.1 million at June 25, 2017 and December 25, 2016, respectively.
Emerging Growth Company
We are an emerging growth company, as defined in Section 2(a) of the Securities Act of 1933, as amended (the Securities
Act) and as modified by the Jumpstart our Business Startups Act of 2012, or the JOBS Act (the JOBS Act). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to
other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a
non-binding
advisory vote on executive compensation and
of stockholder approval of any golden parachute payments not previously approved.
33
In addition, Section 107 of the JOBS Act provides that an emerging growth
company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the
adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption, and, therefore, we will be subject to the same new or revised accounting
standards as other public companies that are not emerging growth companies.
We will remain an emerging growth
company until the earliest of (a) December 27, 2020, (b) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (c) the date that we become a large accelerated filer as
defined in Rule
12b-2
under the Securities Exchange Act of 1934, as amended (the Exchange Act), which would occur if the market value of our common stock that is held by
non-affiliates
exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (d) the date on which we have issued more than $1 billion in
non-convertible
debt securities in the preceding three-year period.
Critical Accounting Policies and
Use of Estimates
Our discussion and analysis of operating results and financial condition are based upon our consolidated financial
statements. The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of
contingent assets and liabilities. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.
Accounting policies are an integral part of our consolidated financial statements. A thorough understanding of these accounting policies is
essential when reviewing our reported results of operations and our financial position. Management believes that the critical accounting policies and estimates discussed herein involve the most difficult management judgments due to the sensitivity
of the methods and assumptions used. Our significant accounting policies are described in Note 1 to our condensed consolidated financial statements contained elsewhere in this Form
10-Q.
There have been no material changes to our critical accounting policies described in our Annual Report on Form
10-K
for the fiscal year ended December 25, 2016.
New Accounting Standards
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2014-09,
Revenue from Contracts with Customers
(ASU
2014-09).
This update was issued to replace the current revenue recognition guidance, creating
a more comprehensive revenue model. This update was originally to be effective in fiscal periods beginning after December 15, 2016 and early application was not permitted. In July 2015, the FASB affirmed its proposal to defer the effective date
by one year to annual reporting periods beginning after December 15, 2017. The FASB also affirmed its proposal to permit early adoption of the standard, but not before the original effective date of December 15, 2016. We will not early
adopt ASU
2014-09.
ASU
2014-09
permits two transition approaches: full retrospective or modified retrospective. We expect to utilize the full retrospective approach
reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients. We have completed a preliminary review of ASU
2014-09
and do not expect the
adoption of ASU
2014-09
to have a material impact on our company restaurant revenues or franchise royalty revenues. We expect the adoption of ASU
2014-09
will require us
to recognize initial and renewal franchisee fees on a straight-line basis over the life of the franchise agreement, which will impact our other franchise revenues. In addition, we anticipate funds contributed by franchisees to the advertising funds
we manage, as well as the associated advertising fund expenditures, will be reported on a gross basis, and the advertising fund revenues and expenses may be reported in different periods.
34
In February 2016, the FASB issued ASU
2016-02,
Leases
(Topic 842)
(ASU
2016-02),
which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. ASU
2016-02
establishes a
right-of-use
model (ROU) that requires a lessee to recognize a ROU asset and corresponding
lease liability on the balance sheet for all leases with a term longer than twelve months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of
operations. ASU
2016-02
is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. We expect to adopt ASU
2016-02
on December 31, 2018, which is the first day of our fiscal year 2019. A modified retrospective transition is required for leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the financial statements, with certain practical expedients available. We expect that ASU
2016-02
will have a material effect on our condensed consolidated financial statements.
While we are continuing to assess the impact of adoption, we currently believe the most significant changes relate to (1) the recognition of new ROU assets and lease liabilities on our condensed consolidated balance sheet for real estate and
equipment operating leases and (2) the derecognition of existing assets and liabilities for certain assets under construction in
build-to-suit
lease arrangements
that we will lease when construction is complete.
In March 2016, the FASB issued ASU
2016-09,
Improvements to Employee Share-Based Payment Accounting
(ASU
2016-09),
which simplifies several aspects of the accounting for employee share-based payment transactions. ASU
2016-09
addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and
(c) classification on the statement of cash flows. ASU
2016-09
is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. We adopted ASU
2016-09
prospectively during the first fiscal quarter of 2017, and the adoption did not have a significant impact on the condensed consolidated financial statements. We expect the adoption of ASU
2016-09
to cause volatility in our effective tax rates and diluted net income per share due to the tax effects related to share-based payments being recorded to the condensed consolidated statement of operations and
comprehensive income. The volatility in future periods will depend on the price of our common stock on the date awards are exercised or vest and the number of awards that are exercised or vest in each period. In addition, the adoption of ASU
2016-09
resulted in an increase in the weighted average number of common shares outstanding used for computing diluted net income per share as tax effects related to share-based payments are no longer considered
assumed proceeds when calculating dilutive potential common shares using the treasury-stock method.
The FASB has recently issued or
discussed a number of proposed standards on such topics as consolidation, financial statement presentation, financial instruments and hedging. Some of the proposed changes are significant and could have a material impact on our reporting. We have
not yet fully evaluated the potential impact of all of these proposals, but will make such an evaluation as the standards are finalized.
Liquidity and Capital Resources
Our primary requirements for liquidity and capital are new company-operated restaurants, existing restaurant capital investments (remodels and
maintenance), information technology investments, principal and interest payments on our term debt and capital lease obligations, operating lease obligations and working capital and general corporate needs. Our customers primarily pay for their
purchases in cash or by payment card (credit or debit) at the time of sale. Therefore, we are able to sell many of our inventory items before we have to pay our suppliers for such items. Our restaurants do not require significant inventories or
receivables. We do have accounts receivable from our franchisees, which are primarily related to royalty revenues, as well as from certain vendors.
Our growth plan is dependent upon many factors, including economic conditions, real estate markets, restaurant locations and the nature of our
lease agreements. Our capital expenditure outlays are also dependent on costs for
35
maintenance in our existing restaurants as well as information technology and other general corporate expenditures. We primarily utilize
build-to-suit
developments and equipment financing leases for our new company-operated restaurants, requiring minimal upfront cash investment. While we currently utilize a
build-to-suit
development strategy, our new restaurant strategy may change over time. The average investment for new company-operated restaurants has increased during fiscal year 2017 primarily due to higher
land costs, inflation and the incorporation of certain design features of our Bojangles of the Future into our company-operated restaurant construction projects.
We currently expect our cash capital expenditures for fiscal year 2017 will range between $17.5 million and $18.0 million excluding
approximately $1.5 million to $1.6 million of restaurant preopening costs for restaurants that are not capitalized. These capital estimates are based on restaurant capital expenditures for the opening of 25 to 26 company-operated
restaurants as well as investments to remodel and improve our existing restaurants, investments in technology and expenditures for general corporate purposes. We continue to evaluate our long-term growth strategy related to the opening of new
company-operated restaurants and the proportion of company-operated restaurants and franchised units. During fiscal year 2018, and for the foreseeable future, we expect to open fewer new company-operated restaurants than we have in recent fiscal
years.
We believe that cash and cash equivalents and expected cash flow from operations are adequate to fund debt service requirements,
capital lease obligations, operating lease obligations, capital expenditures and working capital needs for at least the next twelve months. However, our ability to continue to meet these requirements and obligations will depend on, among other
things, our ability to achieve anticipated levels of revenues and cash flow from operations, our ability to manage costs and working capital successfully and the continued availability of
build-to-suit
and equipment financing leases for our new company-operated restaurants. We have used excess cash flows to make payments on our outstanding long-term debt in advance of the required due date,
and we may continue to do so in future periods.
The following table presents summary cash flow information for the periods indicated (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six
Weeks
Ended
|
|
|
|
June 25,
2017
|
|
|
June 26,
2016
|
|
Net cash provided by (used in)
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
24,085
|
|
|
$
|
25,287
|
|
Investing activities
|
|
|
(6,431
|
)
|
|
|
(3,901
|
)
|
Financing activities
|
|
|
(16,787
|
)
|
|
|
(18,225
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
$
|
867
|
|
|
$
|
3,161
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
Net cash provided by operating activities decreased from $25.3 million during the
twenty-six
weeks
ended June 26, 2016 to $24.1 million during the
twenty-six
weeks ended June 25, 2017. The increase was primarily attributable to a decrease in cash generated from our operations, partially
offset by an increase in franchise royalty revenues.
Investing Activities
Net cash used in investing activities increased from $3.9 million during the
twenty-six
weeks
ended June 26, 2016 to $6.4 million during the
twenty-six
weeks ended June 25, 2017. The increase was attributable to higher purchases of property and equipment, including expenditures related
to new and remodeled company-operated restaurants, as well as our technology initiatives.
Financing Activities
Net cash used in financing activities decreased from $18.2 million during the
twenty-six
weeks
ended June 26, 2016 to $16.8 million during the thirteen weeks ended June 25, 2017. This decrease was primarily due to $3.5
36
million of lower principal payments on long-term debt, partially offset by $0.7 million of higher principal payments on capital lease obligations and a $1.6 million decrease in the
excess tax benefit from stock-based compensation which, beginning in fiscal year 2017, is now recorded in the condensed consolidated statement of operations and comprehensive income.
Debt and Other Obligations
Credit Agreement
On October 9, 2012, we entered into a credit agreement (Credit Agreement) with several financial institutions. The Credit
Agreement is secured by substantially all of our assets and originally provided for borrowings under a term loan of $175.0 million and a revolving credit facility of $25.0 million, with an initial maturity date of October 9, 2017. In
May 2013, we amended the Credit Agreement to provide for an additional $50.0 million term loan, the proceeds of which were used to fund a distribution to the holders of our Series A preferred stock. In April 2014, we further amended the Credit
Agreement to provide for an additional $50.0 million term loan, the proceeds of which were also used to fund a distribution to the holders of our Series A preferred stock, and to extend the maturity date to October 9, 2018. On
July 23, 2015, we amended the Credit Agreement in order to permit the merger of BHI Intermediate Holding Corp., our former wholly owned subsidiary, into us. On September 25, 2015, we further amended the Credit Agreement to, among other
things, extend the maturity date on the Credit Agreement to October 9, 2020 and lower the applicable interest rate. On October 19, 2016, we further amended the Credit Agreement to, among other things, increase allowable indebtedness
associated with capital lease obligations, synthetic lease obligations and purchase money obligations, as well as to increase allowable cash capital expenditures during each fiscal year. We had $143.3 million of outstanding term loans and no
outstanding borrowings under our revolving credit facility as of June 25, 2017.
Borrowings under the Credit Agreement are allowed
under base rate and Eurodollar rate loans. Base rate loans bear interest at the higher of (1) the Bank of America prime rate, (2) the Federal Funds Rate plus 0.50%, or (3) the LIBOR rate for
one-month
loans plus 1.00% and an applicable rate. Eurodollar rate loans may be entered or converted into
one-,
two-,
three-, or
six-month
periods and are charged interest at the LIBOR rate on the effective date for the period selected, plus an applicable rate. As of June 25, 2017, all of our outstanding term loan debt was in
one-month
Eurodollar loans with an interest rate of approximately 3.04%.
Debt Covenants
Our Credit Agreement contains various covenants that, among other things, do not allow us to exceed a maximum consolidated total
lease adjusted leverage ratio, require us to maintain a minimum consolidated fixed charge coverage ratio, and place certain limitations on cash capital expenditures. We were in compliance with all of the covenants under our Credit Agreement as of
June 25, 2017.
Hedging Arrangements
In connection with our Credit Agreement, as of June 25, 2017, we have two
variable-to-fixed
interest rate swap agreements to manage fluctuations in cash flows resulting from changes in the benchmark interest rate of LIBOR. On May 17,
2013, we entered into an interest rate swap contract with a notional amount of $50.0 million, an effective date of November 30, 2015 and a termination date of September 29, 2017, under which we pay interest fixed at 1.3325% and
receive the
one-month
LIBOR rate. On October 26, 2015, we entered into another interest rate swap contract with an effective date of October 30, 2015, a termination date of October 31, 2019 and
a notional amount of $50.0 million, under which we pay interest fixed at 1.115% and receive the
one-month
LIBOR rate.
37