Notes to Consolidated Financial Statements
December 29, 2013 and December 30, 2012
(Dollar amounts in thousands, except per-share amounts)
(1) Nature of Business and Summary of Significant Accounting Policies
(a) Nature of Business
References in these financial statement footnotes to “company”, “we”, “us”, and “our” refer to the business of Buffalo Wild Wings, Inc. and our subsidiaries. We were organized for the purpose of operating Buffalo Wild Wings
®
restaurants, as well as selling Buffalo Wild Wings restaurant franchises. In exchange for the initial and continuing franchise fees received, we give franchisees the right to use the name Buffalo Wild Wings. We operate as a single segment for reporting purposes.
At December 29, 2013, December 30, 2012, and December 25, 2011, we operated 434, 381, and 319 company-owned restaurants, respectively, and had 559, 510, and 498 franchised restaurants, respectively.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of Buffalo Wild Wings, Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Our franchise and license arrangements provide our franchisee and licensee entities the power to direct the activities that most significantly impact their economic performance; therefore, we do not consider ourselves to be the primary beneficiary of any such entity that might be a variable interest entity. The renewal option terms in certain of our operating lease agreements give us a variable interest in the lessor entity, however we have concluded that we do not have the power to direct the activities that most significantly impact the lessor entities’ economic performance and as a result do not consider ourselves to be the primary beneficiary of such entities.
(c) Accounting Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(d) Fiscal Year
We utilize a 52- or 53-week accounting period that ends on the last Sunday in December. Each of the fiscal years ended December 29, 2013 and December 25, 2011 were comprised of 52 weeks. The fiscal year ended December 30, 2012 was a 53-week year. The 53
rd
week of fiscal 2012 contributed $22,316 in restaurant sales and $1,536 in franchise royalties and fees.
(e) Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original maturities of three months or less.
(f) Marketable Securities
Marketable securities consist of available-for-sale securities and trading securities that are carried at fair value and held-to-maturity securities that are stated at amortized cost, which approximates market.
Available-for-sale securities are classified as current assets based upon our intent and ability to use any and all of the securities as necessary to satisfy the operational requirements of our business. Realized gains and losses from the sale of available-for-sale securities were not material for fiscal 2013, 2012, and 2011. Unrealized losses are charged against net earnings when a decline in fair value is determined to be other than temporary. The available-for-sale investments carry short-term repricing features which generally result in these investments having a value at or near par value (cost).
Trading securities are stated at fair value, with gains or losses resulting from changes in fair value recognized currently in earnings as investment income. We have funded a deferred compensation plan using trading assets in a marketable equity portfolio. This portfolio is held to generate returns that seek to offset changes in liabilities related to the equity market risk of certain deferred compensation arrangements. These deferred compensation liabilities were $7,409 and $6,172 as of December 29, 2013 and December 30, 2012, respectively, and are included in accrued compensation and benefits in the accompanying consolidated balance sheets.
(g) Accounts Receivable
Accounts receivable consists primarily of credit card receivables, franchise royalties, contractually-determined receivables for leasehold improvements, and vendor allowances. Cash flows related to accounts receivable are classified in net cash provided by operating activities in the Consolidated Statements of Cash Flows.
(h) Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. Cash flows related to inventory sales are classified in net cash provided by operating activities in the Consolidated Statements of Cash Flows.
We purchase products from a number of suppliers and believe there are alternative suppliers. We have minimum purchase commitments from some of our vendors but the terms of the contracts and nature of the products are such that purchase requirements do not create a market risk. The primary food product used by company-owned and franchised restaurants is chicken wings. Current month chicken wing prices are determined based on the average of the previous month’s spot rates. For fiscal 2013, 2012, and 2011, chicken wings were 25%, 27%, and 19%, respectively, of cost of sales.
(i) Property and Equipment
Property and equipment are recorded at cost. Leasehold improvements, which include the cost of improvements funded by landlord incentives or allowances, are amortized using the straight-line method over the lesser of the term of the lease, without consideration of renewal options, or the estimated useful lives of the assets, which typically range from five to ten years. Leasehold improvements related to remodels are depreciated using the straight-line method over the estimated useful life, which is typically 5 years. Buildings are depreciated using the straight-line method over the estimated useful life, which ranges from 10 to 20 years. Furniture and equipment are depreciated using the straight-line method over the estimated useful lives of the assets, which range from two to eight years. Maintenance and repairs are expensed as incurred. Upon retirement or disposal of assets, the cost and accumulated depreciation are eliminated from the respective accounts and the related gains or losses are credited or charged to earnings.
We review property and equipment, along with other long-lived assets, quarterly to determine if triggering events have occurred which would require a test to determine if the carrying value of these assets may not be recoverable based on estimated future undiscounted cash flows. Assets are reviewed at the lowest level for which cash flows can be identified, which is the individual restaurant level. In determining future cash flows, significant estimates are made by us with respect to future operating results of each restaurant over its remaining lease term. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value is generally determined by estimated discounted future cash flows.
(j) Goodwill, Reacquired Franchise Rights, and Other Assets
Goodwill represents the excess of cost over the fair value of identified net assets of businesses acquired. Goodwill and indefinite-life purchased liquor licenses are subject to an annual impairment analysis. We identify potential impairments of goodwill by comparing the fair value of the reporting unit to its carrying amount, which includes goodwill and other intangible assets. The fair value of the reporting unit is calculated using a market approach. If the fair value of the reporting unit exceeds the carrying amount, the assets are not impaired. If the carrying amount exceeds the fair value, this is an indication that impairment may exist. We calculate the amount of the impairment by comparing the fair value of the assets and liabilities to the fair value of the reporting unit. The fair value of the reporting unit in excess of the value of the assets and liabilities is the implied fair value of the goodwill. If this amount is less than the carrying amount of goodwill, impairment is recognized for the difference. All goodwill was considered recoverable as of December 29, 2013.
Reacquired franchise rights are amortized over the life of the related franchise agreement. We evaluate reacquired franchise rights in conjunction with our impairment evaluation of long-lived assets.
Other assets consist primarily of liquor licenses and investments in affiliates. Liquor licenses are either amortized over their annual renewal period or, if purchased, are carried at the lower of fair value or cost. We identify potential impairments for liquor licenses by comparing the fair value with its carrying amount. If the fair value exceeds the carrying amount, the liquor licenses are not impaired. If the carrying amount exceeds the fair value, we calculate the possible impairment by comparing the fair value of the liquor licenses with the carrying amount. If the fair value of the asset is less than the carrying amount, an impairment is recorded. The carrying amount of the liquor licenses not subject to amortization as of December 29, 2013 and December 30, 2012 was $4,834 and $3,867, respectively, and is included in other assets in the accompanying consolidated balance sheets.
(k) Fair Value of Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We use a three-tier fair value hierarchy based upon observable and non-observable inputs that prioritizes the information used to develop our assumptions regarding fair value. Fair value measurements are separately disclosed by level within the fair value hierarchy.
The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities approximate fair value because of their short-term maturity.
(l) Asset Retirement Obligations
An asset retirement obligation associated with the retirement of a tangible long-lived asset is recognized as a liability in the period incurred or when it becomes determinable, with an associated increase in the carrying amount of the related long-lived asset. We must recognize a liability for the fair value of a conditional asset retirement obligation when incurred, if the liability’s fair value can be reasonably estimated. Conditional asset retirement obligations are legal obligations to perform asset retirement activities when the timing and/or method of settlement are conditional on a future event or may not be within our control. Asset retirement costs are depreciated over the useful life of the related asset. As of December 29, 2013 and December 30, 2012, we had asset retirement obligations of $443 and $357, respectively.
(m) Foreign Currency
Our reporting currency is the U.S. dollar, while the functional currency of our Canadian operations is the Canadian dollar. Our assets and liabilities denominated in foreign currencies are translated at the rate of exchange on the balance sheet date. Revenues, costs and expenses, and cash flows are translated using the average exchange rate for the period.
(n) Revenue Recognition
Franchise agreements have terms ranging from 10 to 20 years. These agreements also convey multiple extension terms of five or ten years, depending on contract terms if certain conditions are met. We provide the use of the Buffalo Wild Wings trademarks, system, training, preopening assistance, and restaurant operating assistance in exchange for area development fees, franchise fees, and royalties of 5% of a restaurant’s sales.
Franchise fee revenue from individual franchise sales is recognized upon the opening of the franchised restaurant when we have performed all of our material obligations and initial services. Area development fees are dependent upon the number of restaurants in the territory, as are our obligations under the area development agreement. Consequently, as our obligations are met, area development fees are recognized in relation to the expenses incurred with the opening of each new restaurant and any royalty-free periods. Royalties are accrued as earned and are calculated each period based on reported franchisees’ sales.
Sales from company-owned restaurant revenues are recognized as revenue at the point of the delivery of meals and services. All sales taxes are presented on a net basis and are excluded from revenue.
(o) Franchise Operations
We enter into franchise agreements with unrelated third parties to build and operate restaurants using the Buffalo Wild Wings brand within a defined geographical area. We believe that franchising is an effective and efficient means to expand the Buffalo Wild Wings brand. The franchisee is required to operate its restaurants in compliance with its franchise agreement that includes adherence to operating and quality control procedures established by us. We do not provide loans, leases, or guarantees to the franchisee or the franchisee’s employees and vendors. If a franchisee becomes financially distressed, we do not provide financial assistance. If financial distress leads to a franchisee’s noncompliance with the franchise agreement and we elect to terminate the franchise agreement, we have the right but not the obligation to acquire the assets of the franchisee at fair value as determined by an independent appraiser. We have financial exposure for the collection of the royalty payments. Franchisees generally remit royalty payments weekly for the prior week’s sales, which substantially minimizes our financial exposure. Historically, we have experienced insignificant write-offs of franchisee royalties. Franchise and area development fees are paid upon the signing of the related agreements.
(p) Advertising Costs
Contributions from franchisees related to the national advertising fund constitute agency transactions and are not recognized as revenues and expenses. Related advertising obligations are accrued and the costs expensed at the same time the related contributions are recognized. These advertising fees are recorded as a liability against which specific costs are charged.
Contributions to the national advertising fund related to company-owned restaurants are expensed as contributed and local advertising costs for company-owned restaurants are expensed as incurred. These costs totaled $44,025, $35,080, and $26,127, in fiscal years 2013, 2012, and 2011, respectively.
(q) Preopening Costs
Costs associated with the opening of new company-owned restaurants are expensed as incurred.
(r) Payments Received from Vendors
Vendor allowances include allowances and other funds received from vendors. Certain of these funds are determined based on various quantitative contract terms. We also receive vendor allowances from certain manufacturers and distributors calculated based upon purchases made by franchisees. Amounts that represent a reimbursement of costs incurred, such as advertising, are recorded as a reduction of the related expense. Amounts that represent a reduction of inventory purchase costs are recorded as a reduction of inventoriable costs. We record an estimate of earned vendor allowances that are calculated based upon monthly purchases. We generally receive payment from vendors approximately 30 days from the end of a month for that month’s purchases. During fiscal 2013, 2012, and 2011, vendor allowances were recorded as a reduction in inventoriable costs, and cost of sales was reduced by $8,548, $8,731, and $7,032, respectively.
(s) Restricted Assets and System-wide Payables
We have a system-wide marketing and advertising fund. Company-owned and franchised restaurants are required to remit a designated portion of restaurant sales to a national advertising fund that is used for marketing and advertising efforts throughout the system. That amount was 3% of restaurant sales in all years presented. Certain payments received from various vendors are also deposited into the national advertising fund. These funds are used for development and implementation of brand initiatives and programs. As of December 29, 2013 and December 30, 2012, the national advertising fund liability was $15,579 and $12,865, respectively.
We have a system-wide gift card fund which consists of a cash balance, which is restricted to funding of future gift card redemptions and gift card related costs as well as receivables from retail gift card partners, and a corresponding liability for those outstanding gift cards which we believe will be redeemed in the future. As of December 29, 2013 and December 30, 2012, the gift card liability was $51,439 and $38,699, respectively. Recognized gift card breakage is transferred to the national advertising fund.
We account for the assets and liabilities of these funds as “restricted assets” and “system-wide payables” on our accompanying consolidated balance sheets.
(t) Earnings Per Common Share
Basic earnings per common share excludes dilution and is computed by dividing the net earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include dilutive common stock equivalents consisting of stock options determined by the treasury stock method. Restricted stock units are contingently issuable shares subject to vesting based on performance criteria. Vesting typically occurs in the fourth quarter of the year when income targets have been met. Upon vesting, the shares to be issued are included in the diluted earnings per share calculation as of the beginning of the period in which the vesting conditions are satisfied. Restricted stock units included in diluted earnings per share are net of the required minimum employee withholding taxes.
(u) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the balance sheet carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effects of changes in income tax rates or law changes are included in the provision for income taxes in the period enacted. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized.
(v) Deferred Lease Credits
Deferred lease credits consist of reimbursement of costs of leasehold improvements from our lessors and adjustments to recognize rent expense on a straight-line basis. Reimbursements are amortized on a straight-line basis over the term of the applicable lease, without consideration of renewal options. Leases typically have an initial lease term of between 10 and 15 years and contain renewal options under which we may extend the terms for periods of three to five years. Certain leases contain rent escalation clauses that require higher rental payments in later years. Leases may also contain rent holidays, or free rent periods, during the lease term. Rent expense is recognized on a straight-line basis over the term of the lease commencing at the start of our construction period for the restaurant, without consideration of renewal options, unless renewals are reasonably assured because failure to renew would result in an economic penalty.
(w) Stock-Based Compensation
We maintain a stock equity incentive plan under which we may grant non-qualified stock options, incentive stock options, and restricted stock units to employees, non-employee directors and consultants. We also have an employee stock purchase plan (ESPP).
Stock-based compensation expense is recognized in the consolidated financial statements for granted, modified, or settled stock options, and for expense related to the ESPP since the related purchase discounts exceeded the amount allowed for non-compensatory treatment. Restricted stock units vesting upon the achievement of certain performance targets are expensed based on the fair value on the date of grant, net of estimated forfeitures. All stock-based compensation is recognized as general and administrative expense.
Total stock-based compensation expense recognized in the consolidated statement of earnings for fiscal year 2013 was $11,496 before income taxes and consisted of restricted stock units, stock options, and ESPP expense of $9,899, $948 and $649, respectively. The related total tax benefit recognized in 2013 was $3,913.
Total stock-based compensation expense recognized in the consolidated statement of earnings for fiscal year 2012 was $8,119 before income taxes and consisted of restricted stock units, stock options, and ESPP expense of $6,710, $879 and $530, respectively. The related total tax benefit recognized in 2012 was $2,670.
Total stock-based compensation expense recognized in the consolidated statement of earnings for fiscal year 2011 was $11,383 before income taxes and consisted of restricted stock units, stock options, and ESPP expense of $9,985, $920 and $478, respectively. The related total tax benefit recognized in 2011 was $3,929.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes-Merton option valuation model with the following assumptions:
|
|
Stock Options
|
|
|
|
December 29,
2013
|
|
|
December 30,
2012
|
|
|
December 25,
2011
|
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected stock price volatility
|
|
|
48.5
|
%
|
|
|
53.6
|
%
|
|
|
54.1
|
%
|
Risk-free interest rate
|
|
|
0.8
|
%
|
|
|
1.1
|
%
|
|
|
2.2
|
%
|
Expected life of options
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
Employee Stock Purchase Plan
|
|
|
|
December 29,
2013
|
|
|
December 30,
2012
|
|
|
December 25,
2011
|
|
Expected dividend yield
|
|
|
0.0%
|
|
|
|
|
0.0%
|
|
|
|
|
0.0%
|
|
|
Expected stock price volatility
|
|
46.4
|
-
|
47.2%
|
|
|
48.1
|
-
|
48.7%
|
|
|
49.2
|
-
|
50.1%
|
|
Risk-free interest rate
|
|
|
0.08%
|
|
|
|
|
0.15%
|
|
|
|
0.04
|
-
|
0.07%
|
|
Expected life of options
|
|
|
0.5
|
|
|
|
|
0.5
|
|
|
|
|
0.5
|
|
|
The expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. Expected stock price volatility is based on historical volatility of our stock. The risk-free interest rate is based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term. We have not paid dividends in the past.
(x) New Accounting Pronouncements
We reviewed all significant newly-issued accounting pronouncements and concluded that they either are not applicable to our operations or that no material effect is expected on our consolidated financial statements as a result of future adoption.
(2) Fair Value Measurements
The guidance for fair value measurements establishes the authoritative definition of fair value, sets out a framework for measuring fair value, and outlines the required disclosures regarding fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We use a three-tier fair value hierarchy based upon observable and non-observable inputs as follows:
•
|
Level 1 – Observable inputs such as quoted prices in active markets;
|
•
|
Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
•
|
Level 3 – Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
The following table summarizes the financial instruments measured at fair value in our consolidated balance sheet as of December 29, 2013:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Equivalents
|
|
$
|
33,587
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33,587
|
|
Marketable Securities
|
|
|
7,584
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,584
|
|
Restricted Assets
|
|
|
5,823
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,823
|
|
The following table summarizes the financial instruments measured at fair value in our consolidated balance sheet as of December 30, 2012:
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Equivalents
|
|
$
|
5,280
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,280
|
|
Marketable Securities
|
|
|
6,297
|
|
|
|
512
|
|
|
|
—
|
|
|
|
6,809
|
|
Restricted Assets
|
|
|
1,138
|
|
|
|
4,675
|
|
|
|
—
|
|
|
|
5,813
|
|
We classified a portion of our marketable securities as available-for-sale and trading securities which were reported at fair market value, using the “market approach” valuation technique. The “market approach” valuation method uses prices and other relevant information observable in market transactions involving identical or comparable assets to determine fair market value. Our cash equivalents are comprised of money market funds which are valued using the Level 1 approach. Our trading securities are valued using the Level 1 approach. Our available-for-sale marketable securities are valued using a Level 2 approach, using observable direct and indirect inputs for municipal bonds. Our restricted assets include money market mutual funds and variable rate demand obligations and are valued using either the Level 1 or Level 2 approach.
There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the fiscal years ended December 29, 2013, December 30, 2012, and December 25, 2011.
Our financial assets and liabilities requiring a fair-value measurement on a non-recurring basis were not significant as of December 29, 2013 or December 30, 2012.
Assets and liabilities that are measured at fair value on a recurring basis
At December 29, 2013, we did not have any significant nonfinancial assets or liabilities that required a fair-value measurement on a recurring basis.
Assets and liabilities that are measured at fair value on a non-recurring basis
We generally estimate long-lived asset fair values, including property, plant and equipment and leasehold improvements, using the income approach. The inputs used to determine fair value relate primarily to future assumptions regarding restaurant sales and profitability. These inputs are categorized as Level 3 inputs. The inputs used represent management’s assumptions about what information market participants would use in pricing the assets and are based upon the best information available at the balance sheet date.
During 2013, we recorded an impairment charge of $1,118 for the assets of two underperforming restaurants.
Financial assets and liabilities not measured at fair value
Certain of our financial assets and liabilities are recorded at their carrying amounts which approximate fair value, based on their short-term nature or variable interest rate. These financial assets and liabilities include cash, accounts receivable, accounts payable, and other current assets and liabilities.
(3) Marketable Securities
Marketable securities consisted of the following:
|
|
December 29,
2013
|
|
|
December 30,
2012
|
|
Held-to-maturity
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
$
|
—
|
|
|
|
2,770
|
|
Available-for-sale
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
|
—
|
|
|
|
512
|
|
Trading
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
7,584
|
|
|
|
6,297
|
|
Total
|
|
$
|
7,584
|
|
|
|
9,579
|
|
Sales of available for-sale securities totaled $512 and there were no purchases in 2013. Proceeds from maturities of held-to-maturity securities totaled $2,770 and there were no purchases in 2013.
Purchases of available for-sale securities totaled $115,737 and sales totaled $115,151 in 2012. Purchases of held-to-maturity securities totaled $17,000 and proceeds from maturities totaled $48,357 in 2012. All held-to-maturity debt securities mature within one year and had an aggregate fair value of $2,770 at December 30, 2012.
Purchases of available for-sale securities totaled $58,932 and sales totaled $70,955 in 2011. Purchases of held-to-maturity securities totaled $38,142 and proceeds from maturities totaled $43,383 in 2011. All held-to-maturity debt securities mature within one year and had an aggregate fair value of $34,640 at December 25, 2011.
Trading securities represent investments held for future needs of our non-qualified deferred compensation plan.
(4) Property and Equipment
Property and equipment consisted of the following:
|
|
December 29,
2013
|
|
|
December 30,
2012
|
|
Construction in process
|
|
$
|
18,792
|
|
|
|
23,744
|
|
Buildings
|
|
|
72,939
|
|
|
|
53,962
|
|
Furniture, fixtures, and equipment
|
|
|
254,484
|
|
|
|
212,729
|
|
Leasehold improvements
|
|
|
380,155
|
|
|
|
313,354
|
|
Property and equipment, gross
|
|
|
726,370
|
|
|
|
603,789
|
|
Less accumulated depreciation
|
|
|
(285,832
|
)
|
|
|
(217,219
|
)
|
Property and equipment, net
|
|
$
|
440,538
|
|
|
|
386,570
|
|
(5) Goodwill and Other Intangible Assets
Goodwill is summarized below:
|
|
December 29,
2013
|
|
|
December 30,
2012
|
|
Beginning of year
|
|
$
|
32,365
|
|
|
|
17,770
|
|
Additions
|
|
|
160
|
|
|
|
14,588
|
|
Adjustments
|
|
|
8
|
|
|
|
7
|
|
End of year
|
|
$
|
32,533
|
|
|
|
32,365
|
|
Goodwill is not subject to amortization but nearly all is deductible for tax purposes.
Reacquired franchise rights consisted of the following:
|
|
December 29,
2013
|
|
|
December 30,
2012
|
|
Reacquired franchise rights
|
|
$
|
44,150
|
|
|
|
43,020
|
|
Accumulated amortization
|
|
|
(10,747
|
)
|
|
|
(5,650
|
)
|
Reacquired franchise rights, net
|
|
$
|
33,403
|
|
|
|
37,370
|
|
Amortization expense related to reacquired franchise rights for fiscal 2013, 2012, and 2011 was $5,097, $3,308, and $910, respectively. The weighted average amortization period is 13 years. Estimated future amortization expense as of December 29, 2013 was as follows:
Fiscal year ending:
|
|
|
|
|
2014
|
|
$
|
4,533
|
|
2015
|
|
|
4,139
|
|
2016
|
|
|
3,793
|
|
2017
|
|
|
3,392
|
|
2018
|
|
|
3,127
|
|
Thereafter
|
|
|
14,419
|
|
Total future amortization expense
|
|
$
|
33,403
|
|
(6) Investments in Affiliates
In March 2013, we acquired a minority equity investment in PizzaRev, a California-based restaurant concept, as well as licensing rights for $6,000. As of December 29, 2013, PizzaRev had six fast casual pizza restaurants in California. If certain financial thresholds are met, we have the obligation to make additional investments in PizzaRev. We also have the right to open company-owned locations in certain states. Investments in affiliates is included in other assets in our Consolidated Balance Sheets.
(7) Lease Commitments
We have operating leases related to all of our restaurants and corporate offices that have various expiration dates. Most of these operating leases contain renewal options. In addition to base rents, leases typically require us to pay our share of common area maintenance, insurance, real estate taxes, and other operating costs. Certain leases also include provisions for contingent rentals based upon sales.
Future minimum rental payments due under noncancelable operating leases for existing restaurants and commitments for restaurants under development as of December 29, 2013 were as follows:
|
|
Operating
leases
|
|
|
Restaurants
under
development
|
|
Fiscal year ending:
|
|
|
|
|
|
|
|
|
2014
|
|
$
|
57,859
|
|
|
|
2,783
|
|
2015
|
|
|
56,828
|
|
|
|
4,699
|
|
2016
|
|
|
54,991
|
|
|
|
4,708
|
|
2017
|
|
|
52,168
|
|
|
|
4,722
|
|
2018
|
|
|
47,318
|
|
|
|
4,737
|
|
Thereafter
|
|
|
271,876
|
|
|
|
45,333
|
|
Total future minimum lease payments
|
|
$
|
541,040
|
|
|
|
66,982
|
|
In 2013, 2012, and 2011, we rented office space under operating leases which, in addition to the minimum lease payments, require payment of a proportionate share of the real estate taxes and building operating expenses. We also rent restaurant space under operating leases, some of which, in addition to the minimum lease payments and proportionate share of real estate and operating expenses, require payment of percentage rents based upon sales levels. Rent expense, excluding our proportionate share of real estate taxes and building operating expenses, was as follows:
|
|
Fiscal Years Ended
|
|
|
|
December 29,
2013
|
|
|
December 30,
2012
|
|
|
December 25,
2011
|
|
Minimum rents
|
|
$
|
53,651
|
|
|
|
43,780
|
|
|
|
36,647
|
|
Percentage rents
|
|
|
715
|
|
|
|
608
|
|
|
|
371
|
|
Total
|
|
$
|
54,366
|
|
|
|
44,388
|
|
|
|
37,018
|
|
Equipment and auto leases
|
|
$
|
1,000
|
|
|
|
479
|
|
|
|
452
|
|
(8) Revolving Credit Facility
In February 2013, we entered into a three-year $100,000 unsecured revolving credit facility. A loan under the facility shall bear interest at a rate per annum equal to, at our election, either (i) LIBOR for an interest period of one month, reset daily, plus 0.875%, if our consolidated total leverage ratio is less than or equal to 0.50, or plus 1.125% if our total leverage ratio is greater than or equal to 0.51, or (ii) LIBOR for an interest period of one, two, three, six, or twelve months, reset at the end of the selected interest period, plus 0.875%, if our consolidated total leverage ratio is less than or equal to 0.50, or plus 1.125% if our consolidated total leverage ratio is greater than or equal to 0.51. As of December 29, 2013, we had no outstanding balance on the facility.
There is a commitment fee on the average unused portion of the facility at a rate per annum equal to 0.15% if our consolidated total leverage ratio is less than or equal to 0.50, or 0.20% if our consolidated total leverage ratio is greater than or equal to 0.51.
The Credit Agreement requires us to maintain (a) consolidated coverage ratio as of the end of each fiscal quarter at no less than 2.50 to 1.00, (b) consolidated total leverage ratio as of the end of each fiscal quarter at no more than 2.00 to 1.00, and (c) minimum EBITDA during any consecutive four-quarter period at no less than $100,000. The Credit Agreement also contains other customary affirmative and negative covenants, including covenants that restrict the right of the Company and its subsidiaries to merge, to lease, sell, or otherwise dispose of assets, to make investments and to grant liens on their assets. As of December 29, 2013, we were in compliance with all of these covenants.
(9) Income Taxes
The components of earnings (loss) before taxes were as follows:
|
|
Fiscal Years Ended
|
|
|
|
December 29,
2013
|
|
|
December 30,
2012
|
|
|
December 25,
2011
|
|
United States
|
|
$
|
111,011
|
|
|
|
89,430
|
|
|
|
75,813
|
|
Foreign
|
|
|
(9,476
|
)
|
|
|
(6,062
|
)
|
|
|
(2,911
|
)
|
Total earnings before taxes
|
|
$
|
101,535
|
|
|
|
83,368
|
|
|
|
72,902
|
|
The provision for income taxes consisted of the following:
|
|
Fiscal Years Ended
|
|
|
|
December 29,
2013
|
|
|
December 30,
2012
|
|
|
December 25,
2011
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
26,598
|
|
|
|
22,642
|
|
|
|
6,009
|
|
State
|
|
|
5,592
|
|
|
|
4,285
|
|
|
|
3,651
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
728
|
|
|
|
1,286
|
|
|
|
13,297
|
|
State
|
|
|
(737
|
)
|
|
|
(525
|
)
|
|
|
394
|
|
Foreign
|
|
|
(2,200
|
)
|
|
|
(1,595
|
)
|
|
|
(875
|
)
|
Total income tax expense
|
|
$
|
29,981
|
|
|
|
26,093
|
|
|
|
22,476
|
|
The following is a reconciliation of the expected federal income taxes (benefits) at the statutory rate of 35% to the actual provision for income taxes:
|
|
Fiscal Years Ended
|
|
|
|
December 29,
2013
|
|
|
December 30,
2012
|
|
|
December 25,
2011
|
|
Expected federal income tax expense
|
|
$
|
35,537
|
|
|
|
29,179
|
|
|
|
25,516
|
|
State income tax expense, net of federal effect
|
|
|
3,145
|
|
|
|
2,433
|
|
|
|
2,660
|
|
General business credits
|
|
|
(8,097
|
)
|
|
|
(6,006
|
)
|
|
|
(5,808
|
)
|
Other, net
|
|
|
(604
|
)
|
|
|
487
|
|
|
|
108
|
|
Total income tax expense
|
|
$
|
29,981
|
|
|
|
26,093
|
|
|
|
22,476
|
|
Deferred tax assets and liabilities are classified as current and noncurrent on the basis of the classification of the related asset or liability for financial reporting. Deferred income taxes are provided for temporary differences between the basis of assets and liabilities for financial reporting purposes and income tax purposes. Temporary differences comprising the net deferred tax assets and liabilities on the accompanying consolidated balance sheets are as follows:
|
|
December 29,
2013
|
|
|
December 30,
2012
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Unearned revenue
|
|
$
|
1,201
|
|
|
|
919
|
|
Accrued compensation and benefits
|
|
|
4,181
|
|
|
|
3,570
|
|
Deferred lease credits
|
|
|
11,633
|
|
|
|
8,450
|
|
Stock-based compensation
|
|
|
3,020
|
|
|
|
2,362
|
|
Advertising costs
|
|
|
1,061
|
|
|
|
733
|
|
Foreign NOL/Other
|
|
|
4,670
|
|
|
|
2,470
|
|
Other
|
|
|
2,734
|
|
|
|
2,501
|
|
Total
|
|
$
|
28,500
|
|
|
|
21,005
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
50,974
|
|
|
|
48,423
|
|
Goodwill and other amortization
|
|
|
1,391
|
|
|
|
1,466
|
|
Future taxes on foreign earnings
|
|
|
4,670
|
|
|
|
2,470
|
|
Total
|
|
$
|
57,035
|
|
|
|
52,359
|
|
A valuation allowance is established when it is more likely than not that some portion of the deferred tax assets will not be realized. Realization is dependent upon the generation of future taxable income or the reversal of deferred tax liabilities during the periods in which those temporary differences become deductible. We consider the reversal of deferred tax liabilities, projected future taxable income and tax planning strategies. Since we believe sufficient future taxable income will be generated to utilize the benefits of the deferred tax assets, a valuation allowance has not been recognized. Our foreign net operating losses begin expiring in 2030.
The following is a reconciliation of the beginning and ending amount of unrecognized tax benefits:
|
|
Fiscal Years Ended
|
|
|
|
December 29,
2013
|
|
|
December 30,
2012
|
|
Beginning of year
|
|
$
|
782
|
|
|
$
|
732
|
|
Additions based on tax positions related to the current year
|
|
|
206
|
|
|
|
179
|
|
Reductions based on tax positions related to prior years
|
|
|
(1
|
)
|
|
|
—
|
|
Reductions based on expiration of statute of limitations
|
|
|
(162
|
)
|
|
|
(129
|
)
|
End of year
|
|
$
|
825
|
|
|
$
|
782
|
|
We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. During fiscal 2013, 2012, and 2011, interest and penalties of $2, ($5), and ($18), respectively, were included in income tax expense. As of December 29, 2013, and December 30, 2012, interest and penalties related to unrecognized tax benefits totaled $71 and $68, respectively. Included in the balance at December 29, 2013, December 30, 2012, and December 25, 2011, are unrecognized tax benefits of $545, $509, and $476, respectively, which if recognized, would affect the annual effective tax rate. The difference between these amounts and the amount reflected in the reconciliation above relates to the deferred U.S. federal income tax benefit on unrecognized tax benefits related to U.S. state income taxes.
Our income tax returns are subject to examination in both the U.S., by federal, state and local jurisdictions, and in Canada. With few exceptions, we are no longer subject to U.S. federal, state, or local examinations for years prior to fiscal 2010. The Canadian income tax returns are subject to review for fiscal years 2010 through 2013.
Our federal income tax return for fiscal year 2011 is currently under exam by the IRS, which resulted from a carryback claim to 2010 that requires Joint Committee of Taxation approval. We also have various state tax jurisdictions under exam. We regularly assess and reevaluate tax uncertainties by considering changes in current tax law, recent court decisions, and changes in the business. Although we expect our exams will settle in the next twelve months, we cannot reasonably estimate the potential change to our unrecognized tax benefits at this time.
(10) Stockholders’ Equity
(a) Stock Options
We have 5.4 million shares of common stock reserved for issuance under the Equity Incentive Plan (Plan) for our employees, officers, and directors. The exercise price for stock options issued under the Plan is to be not less than the fair market value on the date of grant with respect to incentive and nonqualified stock options. Incentive stock options become exercisable in four equal installments from the date of the grant and have a contractual life of seven to ten years. Nonqualified stock options issued pursuant to the Plan have varying vesting periods from immediately to four years and have a contractual life of seven to ten years. Incentive stock options may be granted under this plan until March 12, 2022. We issue new shares of common stock upon exercise of stock options. Option activity is summarized for the year ended December 29, 2013 as follows:
|
|
Number
of shares
|
|
|
Weighted
average
exercise price
|
|
|
Average
remaining
contractual
life (years)
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding, December 30, 2012
|
|
|
151,897
|
|
|
$
|
47.97
|
|
|
|
3.9
|
|
|
$
|
4,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
39,498
|
|
|
|
87.53
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(25,391
|
)
|
|
|
26.57
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(2,395
|
)
|
|
|
59.68
|
|
|
|
|
|
|
|
|
|
Outstanding, December 29, 2013
|
|
|
163,609
|
|
|
$
|
60.67
|
|
|
|
3.9
|
|
|
$
|
13,974
|
|
Exercisable, December 29, 2013
|
|
|
113,752
|
|
|
|
50.42
|
|
|
|
3.2
|
|
|
|
10,882
|
|
The aggregate intrinsic value in the table above is before applicable income taxes, based on our closing stock price of $146.08 as of the last business day of the year ended December 29, 2013, which would have been received by the optionees had all options been exercised on that date. As of December 29, 2013, total unrecognized stock-based compensation expense related to nonvested stock options was approximately $1,590, which is expected to be recognized over a weighted average period of approximately 2.4 years. During 2013, 2012, and 2011, the total intrinsic value of stock options exercised was $2,159, $2,887, and $1,700, respectively. During 2013, 2012, and 2011, the total fair value of options vested was $1,028, $852, and $751, respectively. During 2013, 2012, and 2011, the weighted average grant date fair value of options granted was $37.09, $43.97, and $26.07, respectively.
The following table summarizes our stock options outstanding at December 29, 2013:
|
|
|
|
Options outstanding
|
|
|
Options exercisable
|
|
Range
|
|
Shares
|
|
|
Average
remaining
contractual
life (years)
|
|
|
Weighted
average
exercise
price
|
|
|
Shares
|
|
|
Weighted
average
exercise
price
|
|
$14.05
|
–
|
30.87
|
|
|
35,113
|
|
|
|
1.6
|
|
|
$
|
28.65
|
|
|
|
35,113
|
|
|
$
|
28.65
|
|
31.00
|
–
|
48.35
|
|
|
35,685
|
|
|
|
2.8
|
|
|
|
44.29
|
|
|
|
35,685
|
|
|
|
44.29
|
|
51.42
|
–
|
53.75
|
|
|
28,384
|
|
|
|
4.0
|
|
|
|
53.72
|
|
|
|
20,648
|
|
|
|
53.73
|
|
87.53
|
–
|
94.42
|
|
|
64,427
|
|
|
|
5.6
|
|
|
|
90.26
|
|
|
|
22,306
|
|
|
|
91.41
|
|
|
|
|
|
|
163,609
|
|
|
|
|
|
|
|
|
|
|
|
113,752
|
|
|
|
|
|
The Plan has 1,335,277 shares available for grant as of December 29, 2013.
(b) Restricted Stock Units
Restricted stock units are granted annually under the Plan at the discretion of the Compensation Committee of the Board of Directors.
In 2013, 2012, and 2011, we granted restricted stock units subject to three-year cliff vesting and a cumulative three-year earnings target. The number of units which vest at the end of the three-year period is based on performance against the target. These restricted stock units are subject to forfeiture if they have not vested at the end of the three-year period. Stock-based compensation is recognized for the number of units expected to vest at the end of the period and is expensed beginning on the grant date through the end of the performance period.
For each grant, restricted stock units meeting the performance criteria will vest as of the end of our fiscal year. The distribution of vested restricted stock units as common stock typically occurs in March of the following year. The common stock is issued to participants net of the number of shares needed for the required minimum employee withholding taxes. We issue new shares of common stock upon the disbursement of restricted stock units. Restricted stock units are contingently issuable shares, and the activity for fiscal 2013 is as follows:
|
|
Number
of shares
|
|
|
Weighted
average
grant date
fair value
|
|
Outstanding, December 30, 2012
|
|
|
282,093
|
|
|
$
|
70.64
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
163,066
|
|
|
|
87.49
|
|
Vested
|
|
|
(147,876
|
)
|
|
|
54.99
|
|
Cancelled
|
|
|
(18,163
|
)
|
|
|
73.85
|
|
Outstanding, December 29, 2013
|
|
|
279,120
|
|
|
$
|
88.57
|
|
As of December 29, 2013, the stock-based compensation expense related to nonvested awards not yet recognized was $12,372, which is expected to be recognized over a weighted average period of 1.8 years. During fiscal years 2013 and 2012 the total grant date fair value of shares vested was $8,132 and $7,585, respectively. The weighted average grant date fair value of restricted stock units granted during 2013, 2012, and 2011 was $87.49, $92.71, and $53.94, respectively. During 2013 and 2012, we recognized $9,899 and $6,710, respectively, of stock-based compensation expense related to restricted stock units.
(c) Employee Stock Purchase Plan
We have reserved 600,000 shares of common stock for issuance under the ESPP. The ESPP is available to substantially all employees subject to employment eligibility requirements. Participants may purchase our common stock at 85% of the beginning or ending closing price, whichever is lower, for each six-month period ending in May and November. During 2013, 2012, and 2011, we issued 26,612, 26,742, and 30,127 shares, respectively, of common stock. As of December 29, 2013, we had 221,308 shares available for future issuance under the ESPP.
(11) Earnings Per Common Share
The following is a reconciliation of basic and fully diluted earnings per common share for fiscal 2013, 2012, and 2011:
|
|
Fiscal year ended December 29, 2013
|
|
|
|
Earnings
(numerator)
|
|
|
Shares
(denominator)
|
|
|
Per-share
amount
|
|
Net earnings
|
|
$
|
71,554
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
71,554
|
|
|
|
18,770,317
|
|
|
$
|
3.81
|
|
Effect of dilutive securities – stock options
|
|
|
—
|
|
|
|
67,933
|
|
|
|
|
|
Effect of dilutive securities – restricted stock units
|
|
|
—
|
|
|
|
33,915
|
|
|
|
|
|
Earnings per common share – assuming dilution
|
|
$
|
71,554
|
|
|
|
18,872,165
|
|
|
$
|
3.79
|
|
|
|
Fiscal year ended December 30, 2012
|
|
|
|
Earnings
(numerator)
|
|
|
Shares
(denominator)
|
|
|
Per-share
amount
|
|
Net earnings
|
|
$
|
57,275
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
57,275
|
|
|
|
18,582,205
|
|
|
$
|
3.08
|
|
Effect of dilutive securities – stock options
|
|
|
—
|
|
|
|
79,693
|
|
|
|
|
|
Effect of dilutive securities – restricted stock units
|
|
|
—
|
|
|
|
42,764
|
|
|
|
|
|
Earnings per common share – assuming dilution
|
|
$
|
57,275
|
|
|
|
18,704,662
|
|
|
$
|
3.06
|
|
|
|
Fiscal year ended December 25, 2011
|
|
|
|
Earnings
(numerator)
|
|
|
Shares
(denominator)
|
|
|
Per-share
amount
|
|
Net earnings
|
|
$
|
50,426
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
50,426
|
|
|
|
18,337,433
|
|
|
$
|
2.75
|
|
Effect of dilutive securities – stock options
|
|
|
—
|
|
|
|
73,249
|
|
|
|
|
|
Effect of dilutive securities – restricted stock units
|
|
|
—
|
|
|
|
72,415
|
|
|
|
|
|
Earnings per common share – assuming dilution
|
|
$
|
50,426
|
|
|
|
18,483,097
|
|
|
$
|
2.73
|
|
The following is a summary of those securities outstanding at the end of the respective periods, which have been excluded from the fully diluted calculations because the effect on net earnings per common share would have been anti-dilutive or were performance-granted shares for which the performance criteria had not yet been met:
|
|
December 29,
2013
|
|
|
December 30,
2012
|
|
|
December 25,
2011
|
|
Stock options
|
|
|
63,744
|
|
|
|
20,484
|
|
|
|
11,233
|
|
Restricted stock units
|
|
|
279,120
|
|
|
|
282,093
|
|
|
|
360,280
|
|
(12) Supplemental Disclosures of Cash Flow Information
|
|
Fiscal Years Ended
|
|
|
|
December 29,
2013
|
|
|
December 30,
2012
|
|
|
December 25,
2011
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
27,361
|
|
|
|
19,675
|
|
|
|
6,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash financing and investing transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment not yet paid for
|
|
|
(3,039
|
)
|
|
|
3,138
|
|
|
|
(5,211
|
)
|
Tax withholding for restricted stock units
|
|
|
7,200
|
|
|
|
4,418
|
|
|
|
5,828
|
|
Goodwill adjustment
|
|
|
8
|
|
|
|
7
|
|
|
|
—
|
|
(13) Loss on Asset Disposals and Impairment
In 2013, 2012, and 2011, we closed restaurants resulting in a charge to earnings for remaining lease obligations, utilities, and other related costs. These charges were recognized as a part of the loss on asset disposals and impairment on our accompanying consolidated statements of earnings.
The following is a rollforward of the store closing reserve:
|
|
Fiscal Years Ended
|
|
|
|
December 29,
2013
|
|
|
December 30,
2012
|
|
|
December 25,
2011
|
|
Beginning reserve balance
|
|
$
|
22
|
|
|
|
18
|
|
|
|
60
|
|
Store closing costs incurred
|
|
|
38
|
|
|
|
413
|
|
|
|
205
|
|
Costs paid
|
|
|
(47
|
)
|
|
|
(409
|
)
|
|
|
(247
|
)
|
Ending reserve balance
|
|
$
|
13
|
|
|
|
22
|
|
|
|
18
|
|
During 2013, we recorded an impairment charge for the assets of two underperforming restaurants. An impairment charge of $1,118 was recorded to the extent that the carrying amount of the assets was not considered recoverable based on estimated discounted future cash flows and the underlying fair value of the assets. There was no impairment during 2012 or 2011.
The following is a summary of the loss on asset disposals and impairment charges recognized by us:
|
|
Fiscal Years Ended
|
|
|
|
December 29,
2013
|
|
|
December 30,
2012
|
|
|
December 25,
2011
|
|
Store closing charges
|
|
$
|
38
|
|
|
|
413
|
|
|
|
205
|
|
Long-lived asset impairment
|
|
|
1,118
|
|
|
|
—
|
|
|
|
—
|
|
Miscellaneous asset write-offs
|
|
|
2,106
|
|
|
|
2,878
|
|
|
|
1,724
|
|
Loss on asset disposals and impairment
|
|
$
|
3,262
|
|
|
|
3,291
|
|
|
|
1,929
|
|
(14) Defined Contribution Plans
We have a defined contribution 401(k) plan whereby eligible employees may contribute pretax wages in accordance with the provisions of the plan. We match 100% of the first 3% and 50% of the next 2% of contributions made by eligible employees. Matching contributions of approximately $1,710, $1,660, and $1,249 were made by us during fiscal 2013, 2012, and 2011, respectively.
Under our Management Deferred Compensation Plan, our executive officers and certain other individuals are entitled to receive an amount equal to a percentage of their base salary ranging from 5.0% to 12.5% which is credited on a monthly basis to their deferred compensation account. Cash contributions of $584, $517, and $435 were made by us during 2013, 2012, and 2011, respectively. Such amounts are subject to certain vesting provisions, depending on length of employment and circumstances of employment termination. In addition, individuals may elect to defer a portion or all of their cash compensation.
(15) Related Party Transactions
It is our policy that all related party transactions must be disclosed and approved by the disinterested directors. We have evaluated the terms and considerations for such related party transactions and compared and evaluated these terms to amounts that would have to be paid or received, as applicable, in arms-length transactions with independent third-parties. We believe all related party transactions are comparable to arms-length.
A member of our board of directors, Warren Mack, is an officer at one of our law firms. Another member of our board of directors, Jerry Rose, was an officer at one of our suppliers.
(16) Contingencies
We are involved in various legal matters arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
(17)
Acquisition of Franchised Restaurants
During 2013, we acquired 3 Buffalo Wild Wings franchised restaurants through one acquisition. During 2012, we also acquired 18 Buffalo Wild Wings franchised restaurants through three acquisitions. The total purchase price in 2013 and 2012 was $4,297 and $43,580, respectively, and was paid in cash and was funded by cash from operations and the sale of marketable securities. The acquisitions were accounted for as business combinations. The assets acquired and liabilities assumed were recorded based on their fair values at the time of the acquisitions as detailed below:
|
|
Fiscal Years Ended
|
|
|
|
December 29,
2013
|
|
|
December 30,
2012
|
|
Inventory, prepaids, and other assets
|
|
$
|
181
|
|
|
$
|
563
|
|
Equipment and leasehold improvements
|
|
|
2,826
|
|
|
|
9,529
|
|
Lease liabilities
|
|
|
—
|
|
|
|
(750
|
)
|
Reacquired franchise rights
|
|
|
1,130
|
|
|
|
19,650
|
|
Goodwill
|
|
|
160
|
|
|
|
14,588
|
|
Total purchase price
|
|
$
|
4,297
|
|
|
$
|
43,580
|
|
The excess of the purchase price over the aggregate fair value of assets acquired was allocated to goodwill. The assessment of the valuation of certain assets acquired and liabilities assumed during 2013 is preliminary; if new information is obtained about facts and circumstances that existed at the acquisition date, the acquisition accounting may be revised to reflect the resulting adjustments to current estimates of these items. The results of operations of these locations are included in our consolidated statement of earnings as of the date of acquisition.