Buffalo Wild Wings 2008 Annual Report Download

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 28, 2008
or
Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to .
Commission File Number: 000-24743
BUFFALO WILD WINGS, INC.
(Exact name of registrant as specified in its charter)
Minnesota No. 31-1455915
(State or Other Jurisdiction of
Incorporation or Organization) (IRS Employer
Identification No.)
5500 Wayzata Boulevard, Suite 1600, Minneapolis, MN 55416
(Address of Principal Executive Offices)
Registrant’s telephone number (952) 593-9943
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, no par value Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES NO
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. YES NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’ s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer, ” “accelerated filer,” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act.
Large Accelerated Filer Accelerated Filer Non-Accelerated Filer Smaller Reporting Company
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange
Act). YES NO
The aggregate market value of the voting stock held by non-affiliates was $449 million based on the closing sale price of the
Company’ s Common Stock as reported on the NASDAQ Stock Market on June 27, 2008.
The number of shares outstanding of the registrant’ s common stock as of February 19, 2009: 17,887,419 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2009 Annual Meeting of Shareholders are incorporated by reference into Part III of this
report.

Table of contents

  • Page 1
    ...(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 28, 2008 or Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from Commission File Number: 000-24743 to . BUFFALO WILD WINGS, INC. (Exact name of registrant as...

  • Page 2
    ... Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 3
    ... a publicly-held company. Our Concept and Business Strategy Our goal is to continue to grow and develop the Buffalo Wild Wings Grill & Bar® concept into a leading national restaurant chain. To do so, we plan to execute the following strategies Open restaurants in new and existing markets; Offer...

  • Page 4
    ... by opening several restaurants within a one-year period to quickly build our brand awareness. We intend to grow our franchise system through the development of new restaurants by existing and new franchisees, focusing on multiple-unit area development agreements. The Buffalo Wild Wings® Menu Our...

  • Page 5
    ... same-store sales through additional visits by our existing guests and visits by new guests, ii) increase margins, iii) increase average order size, and iv) support strong restaurant openings. Marketing Campaigns. Our primary marketing campaigns focus on our experience or a particular menu item, day...

  • Page 6
    ... with minimal wait times. We also believe the ease of our kitchen operations creates a competitive advantage for our concept. Training. We provide thorough training for management and hourly Team Members, with the goal of providing an excellent guest experience based on our service, food quality and...

  • Page 7
    ...cost of sales. We work to counteract the effect of the volatility of chicken wing prices, which can significantly change our cost of sales and cash flow, with the introduction of popular new menu items, effective marketing promotions, focused efforts on food costs and waste, and menu price increases...

  • Page 8
    ... 2008, we employed approximately 12,000 employees. We have 1,000 full-time and 10,800 parttime employees working in our company-owned restaurants and 200 employees based out of our home office or field support management positions. Our employees are not covered by any collective bargaining agreement...

  • Page 9
    ... food product used by our company-owned and franchised restaurants is fresh chicken wings. We work to counteract the effect of the volatility of chicken wing prices, which can significantly change our cost of sales and cash flow, with the introduction of popular new menu items, effective marketing...

  • Page 10
    ... restaurant sites due to tightening credit markets; Negotiating acceptable lease or purchase terms for new restaurants; Recruiting, training and retaining qualified home office, field and restaurant personnel; Attracting and retaining qualified franchisees; Cost effective and timely planning, design...

  • Page 11
    ... to price, service, location, concept and the type and quality of food. We also face intense competition for real estate sites, qualified management personnel and hourly restaurant staff. A reduction in vendor allowances currently received could affect our costs of goods sold. During fiscal 2008...

  • Page 12
    ... same-store sales; Fluctuations in food costs, particularly fresh chicken wings; The timing of new restaurant openings, which may impact margins due to the related preopening costs and initially higher restaurant level operating expense ratios; Labor availability and costs for hourly and management...

  • Page 13
    ...New York-style chicken wings, our other menu items, sports bars and casual dining restaurant styles. We also depend on trends toward consumers eating away from home more often. Shifts in these consumer preferences could negatively affect our future profitability. Such shifts could be based on health...

  • Page 14
    ...business adversely. There are health risks associated with eating contaminated or improperly handled or prepared food items. Negative publicity over illness caused by improper handling or preparation of food items could harm our future revenue and profitability. While we currently maintain insurance...

  • Page 15
    ... gain control of a restaurant site in the event of default under the lease or franchise agreement. The following table sets forth the 38 states in which Buffalo Wild Wings restaurants are located and the number of restaurants in each state as of December 28, 2008: Number of Restaurants Open Company...

  • Page 16
    ...including claims arising from personal injuries, contract claims, franchise-related claims, dram shop claims, employment-related claims and claims from guests or employees alleging injury, illness or other food quality, health or operational concerns. To date, none of these types of litigation, most...

  • Page 17
    ...name and/or street name brokerage accounts. Dividends We have never declared or paid cash dividends on our Common Stock. It is our policy to preserve cash for development and other working capital needs and, therefore, do not currently have plans to pay any cash dividends. Our future dividend policy...

  • Page 18
    ...Buffalo Wild Wings, Inc. NASDAQ Composite S&P 600 Restaurants *$100 invested on 12/28/03 in stock ...set forth in any of our previous filings made under the Securities Act of 1933 or the Securities Exchange Act of 1934 that incorporate future filings made by us under those statutes, the above stock...

  • Page 19
    ... and related notes thereto set forth in Item 8 of this Form 10-K. Fiscal Years Ended (1) Dec. 28, 2008 Consolidated Statements of Earnings Data: Revenue: Restaurant sales Franchising royalties and fees Total revenue Costs and expenses: Restaurant operating costs: Cost of sales Labor Operating...

  • Page 20
    ...restaurant sales, same-store sales, and average weekly sales volumes. Management believes such sales information is an important measure of our performance, and is useful in assessing consumer acceptance of the Buffalo Wild Wings® Grill & Bar concept and the overall health of the concept. Franchise...

  • Page 21
    ... review the overall trend in average weekly sales as an indicator of our ability to increase the sales volume, and, therefore, cash flow per location. We remain committed to high quality operations and guest hospitality. Our revenue is generated by: • Sales at our company-owned restaurants, which...

  • Page 22
    ... We provide training, preopening assistance and restaurant operating assistance in exchange for area development fees, franchise fees and royalties of 5% of the franchised restaurant' s sales. Franchise fee revenue from individual franchise sales is recognized upon the opening of the restaurant when...

  • Page 23
    ... Years Ended Dec. 28, 2008 Dec. 30, 2007 Dec. 31, 2006 Revenue: Restaurant sales Franchising royalties and fees Total revenue Costs and expenses: Restaurant operating costs: Cost of sales Labor Operating Occupancy Depreciation and amortization General and administrative Preopening Loss on asset...

  • Page 24
    ...follows (based on restaurants operating at least fifteen months): Fiscal Years Ended Dec. 28, 2008 Dec. 30, 2007 Dec. 31, 2006 Company-owned same-store sales Franchised same-store sales 5.9% 2.8 6.9% 3.9 10.4% 6.1 The annual average price paid per pound for fresh chicken wings for company-owned...

  • Page 25
    ... in investment income was primarily due to lower rates of return on investments and lower overall cash and marketable securities balances. Cash and marketable securities balances at the end of the year were $44.5 million in 2008 compared to $68.0 million in 2007. Provision for income taxes increased...

  • Page 26
    ...larger number of restaurants in operation, the amount of construction activity at the end of 2008, and the timing of payments. The increase in accrued expenses was due primarily to higher utility accruals and losses related to future natural gas contracts. The decrease in refundable income taxes was...

  • Page 27
    ...insurance costs. The increase in income taxes payable and decrease in accounts payable was due to timing of payments. The increase in accounts receivable was due to higher credit card sales and tenant allowances compared to prior year. The purchase of marketable securities in 2006 relates to trading...

  • Page 28
    ... annual operating results may fluctuate significantly as a result of a variety of factors, including increases or decreases in same-store sales, changes in fresh chicken wing prices, the timing and number of new restaurant openings and their related expenses, asset impairment charges, store closing...

  • Page 29
    ...30, 2008 Jun. 29, 2008 Sep. 28, 2008 Dec. 28, 2008 Revenue: Restaurant sales Franchise royalties and fees Total revenue Costs and expenses: Restaurant operating costs: Cost of sales Labor Operating Occupancy Depreciation and amortization General and administrative Preopening Loss on asset disposals...

  • Page 30
    ...30, 2008 Jun. 29, 2008 Sep. 28, 2008 Dec. 28, 2008 Revenue: Restaurant sales Franchise royalties and fees Total revenue Costs and expenses: Restaurant operating costs: Cost of sales Labor Operating Occupancy Depreciation and amortization General and administrative Preopening Loss on asset disposals...

  • Page 31
    ... product used by company-owned and franchised restaurants is fresh chicken wings. We work to counteract the effect of the volatility of chicken wing prices, which can significantly change our cost of sales and cash flow, with the introduction of popular new menu items, effective marketing promotions...

  • Page 32
    ...owning or controlling the stock of any corporation controlling a gaming licensee. Buffalo Wild Wings and our subsidiary that owns and operates gaming restaurants in Nevada have obtained from the Nevada Gaming Authorities the various registrations, approvals, permits and licenses required in order to...

  • Page 33
    ... investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of our board of directors, any change in our corporate charter, bylaws, management, policies, or operations or our gaming subsidiary, or any other action that the Nevada Commission...

  • Page 34
    ... by which securities are offered or the investment merits of the securities offered. Any representation to the contrary is unlawful. Changes in control of Buffalo Wild Wings through merger, consolidation, stock, or asset acquisitions, management or consulting agreements, or any act or conduct by...

  • Page 35
    ... of cheating at gambling. The sale of alcoholic beverages by the licensed subsidiary is subject to licensing, control, and regulation by the applicable local authorities. All licenses are revocable and are not transferable. The agencies involved have full power to limit, condition, suspend, or...

  • Page 36
    ...to Item 7, "Results of Quarterly Operations." BUFFALO WILD WINGS, INC. Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 28, 2008 and December 30, 2007 Consolidated Statements of Earnings for the Fiscal Years...

  • Page 37
    ... position of Buffalo Wild Wings, Inc. and subsidiaries as of December 28, 2008 and December 30, 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 28, 2008, in conformity with U.S. generally accepted accounting principles...

  • Page 38
    BUFFALO WILD WINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 28, 2008 and December 30, 2007 (Dollar amounts in thousands) December 28, 2008 December 30, 2007 Assets Current assets: Cash and cash equivalents Marketable securities Accounts receivable - franchisees, net of allowance ...

  • Page 39
    ... except per share data) Fiscal years ended December 28, 2008 December 30, 2007 December 31, 2006 Revenue: Restaurant sales Franchise royalties and fees Total revenue Costs and expenses: Restaurant operating costs: Cost of sales Labor Operating Occupancy Depreciation and amortization General and...

  • Page 40
    ...2007 Net earnings Shares issued under employee stock purchase plan Shares issued from restricted stock units Units effectively repurchased for required employee withholding taxes Exercise of stock options Tax benefit from stock issued Stock-based compensation Balance at December 28, 2008 16,979,900...

  • Page 41
    ...credits Deferred income taxes Stock-based compensation Excess tax benefit from stock issuance Change in operating assets and liabilities, net of effect of acquisition: Trading securities Accounts receivable Inventory Prepaid expenses Other assets Unearned franchise fees Accounts payable Income taxes...

  • Page 42
    ... 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 28, 2008...

  • Page 43
    ... are such that purchase requirements do not create a market risk. The primary food product used by Company-owned and franchised restaurants is fresh chicken wings. Fresh chicken wings are purchased by us at market prices. In 2007 and early 2008, we purchased chicken wings based on a contract which...

  • Page 44
    ... directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument' s anticipated life. Level 3 - Inputs reflected management' s best estimate of what market participants would use in pricing the asset...

  • Page 45
    ...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...

  • Page 46
    ... of the period in which the vesting conditions are satisfied. Restricted stock units included in the diluted earnings per share are net of the required employee withholding taxes. (t) Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable...

  • Page 47
    ... for fiscal year 2008 was $4,900 before income taxes and consisted of restricted stock, stock options, and employee stock purchase plan (ESPP) expense of $4,510, $138 and $252, respectively. The related total tax benefit was $615 during 2008. All stock-based compensation is recognized as general and...

  • Page 48
    BUFFALO WILD WINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 28, 2008 and December 30, 2007 (Dollar amounts in thousands, except per-share amounts) The expected term of the options represents the estimated period of time until exercise and is based on historical ...

  • Page 49
    ...2006. Trading securities represent investments held for future needs of a non-qualified deferred compensation plan. The fair value of available-for-sale investments in debt securities by contractual maturities at December 28, 2008, was as follows: Maturity date Fair Value 1-5 years 5-10 years After...

  • Page 50
    ... and corporate offices under operating leases that have various expiration dates. In addition to base rents, leases typically require us to pay our share of maintenance and real estate taxes and certain leases include provisions for contingent rentals based upon sales. Future minimum rental payments...

  • Page 51
    ... 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...

  • Page 52
    ... rate of 35% to the actual provision for income taxes is as follows: Fiscal Years Ended December 28, 2008 December 30, 2007 December 31, 2006 Expected federal income tax expense State income tax expense, net of federal effect Nondeductible expenses Tax exempt income General business credits...

  • Page 53
    ... income taxes, based on our closing stock price of $24.72 as of the last business day of the year ended December 28, 2008, which would have been received by the optionees had all options been exercised on that date. As of December 28, 2008, total unrecognized stock-based compensation expense related...

  • Page 54
    ...the required 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 2008 is as follows: Weighted average grant date fair value Number of shares Outstanding...

  • Page 55
    ... per common share for fiscal 2008, 2007, and 2006: Fiscal year ended December 28, 2008 Earnings (numerator) Shares (denominator) Per-share amount Net earnings Earnings per common share Effect of dilutive securities - stock options Effect of dilutive securities - restricted stock units Earnings per...

  • Page 56
    ...Information Fiscal Years Ended December 28, 2008 December 30, 2007 December 31, 2006 Cash paid during the period for: Income taxes Noncash financing and investing transactions: Property and equipment not yet paid for Tax withholding for restricted stock units Adjustment of restricted stock units to...

  • Page 57
    ... us is as follows: Fiscal Years Ended December 28, 2008 December 30, 2007 December 31, 2006 Store closing charges Long-lived asset impairment Other asset write-offs $ 85 549 1,449 2,083 $ 85 - 902 987 $ 54 481 473 1,008 $ (12) Defined Contribution Plans $ $ We have a defined contribution...

  • Page 58
    ... assets of nine Buffalo Wild Wings franchised restaurants located in Las Vegas, Nevada. The total purchase price of $23,071, which includes direct acquisition costs of $426, was paid in cash and was funded by cash and the sale of marketable securities. The acquisition was accounted for as a business...

  • Page 59
    ... the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC' s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as...

  • Page 60
    ... sheets of Buffalo Wild Wings, Inc. and subsidiaries as of December 28, 2008 and December 30, 2007, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 28, 2008, and our report dated February 27...

  • Page 61
    ... by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required by this item is contained in the section entitled "Independent Registered Public Accounting Firm" appearing in our Proxy Statement to be delivered to shareholders in connection with the 2009 Annual Meeting of...

  • Page 62
    ...and can be found at Item 8 of this Form 10-K. Report of Independent Registered Public Accounting Firm dated February 27, 2009 Consolidated Balance Sheets as of December 28, 2008 and December 30, 2007 Consolidated Statements of Earnings for the Fiscal Years Ended December 28, 2008 , December 30, 2007...

  • Page 63
    SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 27, 2009 BUFFALO WILD WINGS, INC. By /s/ SALLY J. SMITH Sally J. Smith Chief Executive Officer and ...

  • Page 64
    Buffalo Wild Wings, Inc. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Balance at Beginning of Period Additions Charged to Costs and Expenses Description Deductions From Reserves Balance at End of Period Allowance for doubtful accounts 2008 2007 2006 2008 2007 2006 $ 25 47 25 - 54 - 544 - ...

  • Page 65
    ... current report on Form 8-K filed February 28, 2007) Form of specimen certificate representing Buffalo Wild Wings, Inc.' s common stock (1) Forms of stock option agreements under 2003 Equity Incentive Plan (1)(2) Employee Stock Purchase Plan and Amendment No. 1 (1) (2) Form of 2005 Restricted Stock...

  • Page 66
    ... Executive Cash Incentive Program(2) 21.1 List of Subsidiaries (incorporated by reference to Exhibit 21.1 to our Form 10-K for the fiscal year ended December 26, 2004) 23.1* Consent of KPMG LLP, Independent Registered Public Accounting Firm 24.1* Power of Attorney (included on the signature page...