Buffalo Wild Wings 2010 Annual Report Download

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3
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 26, 2010
or
2
22
2 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 2 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 2 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 2
Indicate by a checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES 2 NO 2
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. 2
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 2 Accelerated Filer Non-Accelerated Filer 2 Smaller Reporting Company 2
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange
Act). YES 2 NO
The aggregate market value of the voting stock held by non-affiliates was $676 million based on the closing sale price of the
Company’s Common Stock as reported on the NASDAQ Stock Market on June 25, 2010.
The number of shares outstanding of the registrant’s common stock as of February 18, 2011: 18,224,156 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2011 Annual Meeting of Shareholders are incorporated by reference into Part III of this
report.

Table of contents

  • Page 1
    ... sale price of the Company's Common Stock as reported on the NASDAQ Stock Market on June 25, 2010. The number of shares outstanding of the registrant's common stock as of February 18, 2011: 18,224,156 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 2011 Annual...

  • Page 2
    ... About Market Risk Item 8. Consolidated Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers and Corporate...

  • Page 3
    ...-0330. We are an established and growing owner, operator, and franchisor of restaurants featuring a variety of boldly-flavored, cravable menu items including our Buffalo, New York-style chicken wings spun in any of our 14 signature sauces or 4 signature seasonings. Our restaurants create a welcoming...

  • Page 4
    ... international unit in Toronto, Canada in 2011 and anticipate opening a total of 50 units in Canada over the next 5 years. The Buffalo Wild Wings® Menu Our restaurants feature a variety of menu items including our Buffalo, New York-style chicken wings spun in one of our signature sauces from sweet...

  • Page 5
    ... typically open on a daily basis from 11 a.m. to 2 a.m., although closing times vary depending on the day of the week and applicable regulations governing the sale of alcoholic beverages. Our franchise agreements require franchisees to operate their restaurants for a minimum of 12 hours a day. Site...

  • Page 6
    ... Operations and Sales and Profits. This includes experience in both hourly and management functions. This year, our management team from Canada joined us in the United States for a shared learning experience. After successful completion of the Manager-In-Training program, the new managers work...

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

  • Page 8
    ... company-owned restaurant management through web-based decision support and analysis tools. Franchisees are required to report sales on a daily basis through an on-line reporting network and submit their restaurant-level financial statements on a quarterly and annual basis. Based on custom-developed...

  • Page 9
    ...gaming in our Nevada facilities can be found in Exhibit 99.1 to this Form 10-K. Employees As of December 26, 2010, we employed approximately 15,900 employees. We have 1,500 full-time and 14,100 parttime employees working in our company-owned restaurants and 300 employees based out of our home office...

  • Page 10
    ...could," "possible," "plan," "project," "will," "forecast" and similar words or expressions. Our forward-looking statements generally relate to our growth strategy, financial results, sales efforts, franchise expectations, restaurant openings and related expense, and cash requirements. Although it is...

  • Page 11
    ... food product used by our company-owned and franchised restaurants is 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 new menu items, effective marketing promotions...

  • Page 12
    ... cost of items we buy and the operations of our restaurants. Our inability to effectively manage supply chain risk could increase our costs and limit the availability of products critical to our restaurant operations. We may experience higher-than-anticipated costs associated with the opening of new...

  • Page 13
    ... between the purchase price of acquired companies and the related fair values of net assets acquired. We test goodwill for impairment annually and whenever events or changes in circumstances indicate that impairment may have occurred. We compare the carrying value of a reporting unit, including...

  • Page 14
    ... in food costs, particularly 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 personnel; Changes in competitive...

  • Page 15
    ... restaurant employees, including restaurant managers, and hourly team members. The inability to recruit, develop and retain these individuals may delay the planned openings of new restaurants or result in high employee turnover in existing restaurants, thus increasing the cost to efficiently operate...

  • Page 16
    ... consumption at our restaurants or increase the number of dram shop claims made against us, either of which may negatively impact operations or result in the loss of liquor licenses. We are carefully monitoring new laws regulating the preparation and sale of food items and alcohol. A regional or...

  • Page 17
    ... follow our stock lower their ratings of our stock, the market price of our stock is likely to drop significantly. We may be subject to increased labor and insurance costs. Our restaurant operations are subject to federal and state laws governing such matters as minimum wages, working conditions...

  • Page 18
    ...agreements, we have certain rights to gain control of a restaurant site in the event of default under the lease or franchise agreement. The following table sets forth the 44 states in which Buffalo Wild Wings restaurants are located and the number of restaurants in each state as of December 26, 2010...

  • Page 19
    ...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 of which are typically covered by insurance, has...

  • Page 20
    ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 20

  • Page 21
    ..., RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our Common Stock trades on the NASDAQ Global Market under the symbol "BWLD". The following table sets forth the high and low closing sale prices of our Common Stock. 2010 High Low High 2009 Low First Quarter...

  • Page 22
    ...percentage change in the cumulative total shareholder return on our Common Stock for the five-year period ended December 26, 2010 with the cumulative total return on the Nasdaq Composite and the S&P 600 Restaurants Index. The comparison assumes $100 was invested in Buffalo Wild Wings Common Stock on...

  • Page 23
    ... Item 8 of this Form 10-K. Fiscal Years Ended (1) Dec. 26, 2010 Consolidated Statements of Earnings Data: 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...

  • Page 24
    ... of restaurant sales per quarter in 2010 and 2009, mostly due to the price fluctuation in chicken wings. We are working to counteract the volatility of chicken wing prices with the introduction of new menu items, effective marketing promotions, focused efforts on food costs and waste, and menu price...

  • Page 25
    ... statement of earnings under "Restaurant operating costs." Nearly all of our depreciation expense relates to assets used by our companyowned restaurants. Preopening costs are those costs associated with opening new company-owned restaurants and will vary annually based on the number of new locations...

  • Page 26
    ...days after the end of a month for that month's purchases. During fiscal 2010, 2009, and 2008, vendor allowances were recorded as a reduction in inventoriable costs, and cost of sales was reduced by $6.4 million, $6.0 million, and $5.2 million, respectively. Revenue Recognition - Franchise Operations...

  • Page 27
    ...Fiscal Years Ended Dec. 26, 2010 Dec. 27, 2009 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...

  • Page 28
    ...same-store sales are as follows (based on restaurants operating at least 15 months): Fiscal Years Ended Dec. 26, 2010 Dec. 27, 2009 Dec. 28, 2008 Company-owned same-store sales Franchised same-store sales 0.6% (0.2) 3.1% 3.4 5.9% 2.8 The annual average price paid per pound for chicken wings for...

  • Page 29
    ... to additional royalties collected from the 59 new franchised restaurants that opened in 2009 and a full year of operations for the 46 franchised restaurants that opened in 2008. Same-store sales for franchised restaurants increased 3.4%. Cost of sales increased by $34.4 million, or 30.4%, to $147...

  • Page 30
    ...accounts payable was primarily due to an increase in the number of restaurants and the timing of payments. The increase in refundable income taxes was due to benefits received from tax laws changed in late 2010. The increase in trading securities was due to additional contributions to and investment...

  • Page 31
    ... our corporate offices. Lease terms are generally 10 to 15 years with renewal options and generally require us to pay a proportionate share of real estate taxes, insurance, common area maintenance and other operating costs. Some restaurant leases provide for contingent rental payments based on sales...

  • Page 32
    ... share amounts, are expressed in thousands. Quarterly and annual operating results may fluctuate significantly as a result of a variety of factors, including increases or decreases in same-store sales, changes in chicken wing prices, the timing and number of new restaurant openings and their related...

  • Page 33
    ... Restaurant operating costs: Cost of sales Labor Operating Occupancy Depreciation and amortization General and administrative Preopening Loss on asset disposals and impairment Total costs and expenses Income from operations Investment income (loss) Earnings before income taxes Income tax expense Net...

  • Page 34
    ... Restaurant operating costs: Cost of sales Labor Operating Occupancy Depreciation and amortization General and administrative Preopening Loss on asset disposals and impairment Total costs and expenses Income from operations Investment income (loss) Earnings before income taxes Income tax expense Net...

  • Page 35
    ... primary food product used by company-owned and franchised restaurants is 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 new menu items, effective marketing promotions...

  • 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 26, 2010 and December 27, 2009 Consolidated Statements of Earnings for the Fiscal Years...

  • Page 37
    ... schedule and an opinion on the Company's internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain...

  • Page 38
    BUFFALO WILD WINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 26, 2010 and December 27, 2009 (Dollar amounts in thousands) December 26, 2010 December 27, 2009 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 26, 2010 December 27, 2009 December 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...

  • Page 40
    ... 27, 2009 Net earnings Other comprehensive loss Comprehensive income 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...

  • Page 41
    ... taxes Stock-based compensation Excess tax benefit from the exercise of stock options 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 Refundable income...

  • Page 42
    ... 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 26, 2010, December 27, 2009, and December 28, 2008, we operated...

  • Page 43
    ... that purchase requirements do not create a market risk. The primary food product used by company-owned and franchised restaurants is chicken wings. Chicken wings are purchased by us at market prices. For fiscal 2010, 2009, and 2008, chicken wings were 24%, 25%, and 21% of restaurant cost of sales...

  • Page 44
    ... 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...

  • Page 45
    ... 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...

  • Page 46
    ... in the consolidated statement of earnings for fiscal year 2010 was $7,712 before income taxes and consisted of restricted stock, stock options, and employee stock purchase plan (ESPP) expense of $6,519, $560 and $633, respectively. The related total tax benefit recognized in 2010 was $1,242. 46

  • Page 47
    ...respectively. The related total tax benefit was $2,298 during 2009. Total stock-based compensation expense recognized in the consolidated statement of earnings for fiscal year 2008 was $4,900 before income taxes and consisted of restricted stock, stock options, and employee stock purchase plan (ESPP...

  • Page 48
    ... 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...

  • Page 49
    BUFFALO WILD WINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 26, 2010 and December 27, 2009 (Dollar amounts in thousands, except per-share amounts) Financial assets and liabilities not measured at fair value Certain of our financial assets and liabilities are ...

  • Page 50
    BUFFALO WILD WINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 26, 2010 and December 27, 2009 (Dollar amounts in thousands, except per-share amounts) (4) Property and Equipment Property and equipment consisted of the following: December 26, 2010 December 27, 2009 ...

  • Page 51
    ... have various expiration dates. 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...

  • Page 52
    ...-share amounts) (8) Income Taxes We file income tax returns in the U.S. federal and state jurisdictions and Canada and provincial jurisdictions. The Internal Revenue Service completed their examination of our 2008 U.S. federal income tax return in 2010. We received a refund for employment related...

  • Page 53
    BUFFALO WILD WINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 26, 2010 and December 27, 2009 (Dollar amounts in thousands, except per-share amounts) Deferred tax assets and liabilities are classified as current and noncurrent on the basis of the classification of the ...

  • Page 54
    ... income taxes, based on our closing stock price of $44.97 as of the last business day of the year ended December 26, 2010, which would have been received by the optionees had all options been exercised on that date. As of December 26, 2010, total unrecognized stock-based compensation expense related...

  • Page 55
    ... 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 2010 is as follows: Weighted average grant date fair value Number of shares Outstanding...

  • Page 56
    ... per common share for fiscal 2010, 2009, and 2008: Fiscal year ended December 26, 2010 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 57
    ... Information Fiscal Years Ended December 26, 2010 December 27, 2009 December 28, 2008 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 Goodwill adjustment (12) Loss on Asset...

  • 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
    ... information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission's rules and forms. Management's Report on Internal Control...

  • Page 60
    ... in Internal Control Over Financial Reporting There were no changes in the our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B...

  • Page 61
    ... a Code of Ethics & Business Conduct for all employees and directors. A copy of this document is available on our website at www.buffalowildwings.com, free of charge, under the Corporate Governance Investors section. We will satisfy any disclosure requirements under Item 10 or Form 8-K regarding an...

  • Page 62
    ... and can be found at Item 8 of this Form 10-K. Report of Independent Registered Public Accounting Firm dated February 25, 2011 Consolidated Balance Sheets as of December 26, 2010 and December 27, 2009 Consolidated Statements of Earnings for the Fiscal Years Ended December 26, 2010, December 27, 2009...

  • Page 63
    ...Date: February 25, 2011 BUFFALO WILD WINGS, INC. By /s/ SALLY J. SMITH Sally J. Smith Chief Executive Officer and President In accordance with the Exchange Act, this report has been signed...in the undersigned's name, place and stead, in any and all amendments to this Annual Report on Form 10-K 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 2010 2009 2008 2010 2009 2008 $ 25 25 25 - - - - - 544...

  • Page 65
    ... 10-Q for the fiscal quarter ended June 29, 2008) Amended and Restated Bylaws, as Amended (incorporated by reference to Exhibit 3.1 to our current report on Form 8-K filed May 27, 2009) Form of specimen certificate representing Buffalo Wild Wings, Inc.'s common stock (incorporated by reference to...