Buffalo Wild Wings 2015 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 27, 2015.
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 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 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 $3.0 billion based on the closing sale price of the Company’s
Common Stock as reported on the NASDAQ Global Market on June 28, 2015.
The number of shares outstanding of the registrant’s common stock as of February 19, 2016: 18,828,772 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2016 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.

Table of contents

  • Page 1
    ... 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 $3.0 billion based on the closing sale price of the Company's Common Stock as reported on the NASDAQ Global Market on June 28, 2015. The number of shares outstanding...

  • 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
    ...boldly-flavored, crave-able menu items including our Buffalo, New York-style chicken wings spun in any of our 16 signature sauces or 5 signature seasonings. Buffalo Wild Wings restaurants create a welcoming neighborhood atmosphere that includes an extensive multi-media system, a full bar and an open...

  • Page 4
    ... guest experiences; Offer crave-able menu items with broad appeal; Create an inviting neighborhood atmosphere; Focus on operational excellence; Open restaurants in new and existing domestic and international markets; and Increase same-store sales, average unit volumes, and profitability. Buffalo...

  • Page 5
    ... BBQ, Spicy Garlic, Asian Zing®, Caribbean Jerk, Thai Curry™, Hot BBQ, Hot, Mango Habanero™, Wild® and Blazin'®; or signature seasonings: Buffalo, Desert Heat®, Chipotle BBQ, Lemon Pepper and Salt & Vinegar. Our chicken wings can be ordered by the portion, ranging from Snack-sized to Large...

  • Page 6
    .... Our marketing programs are designed to build awareness of our brand with sports fans, encouraging them to visit and ultimately develop a personal connection to Buffalo Wild Wings. These programs are developed to drive first-time guest sales, same-store sales and average check increase, and support...

  • Page 7
    ...: Team, Guest, Quality Operations and Sales and Profits. This includes experience in both hourly and management functions. After successful completion of the manager training program, the new managers work with their General Managers to build a tailored program to meet their training and development...

  • Page 8
    ... promotions, focused efforts on food costs and waste, and menu price increases. We also identify and implement purchasing strategies in order to mitigate the impact of cost increases and market fluctuations. The price we pay on chicken wings changes monthly and is determined based on the average...

  • Page 9
    ...level financial statements on a quarterly and annual basis. Our international franchised restaurants also utilize this point-of-sale system, allowing their sales information to be automatically obtained by our central office systems on a daily basis. Our online ordering system allows guests to place...

  • Page 10
    .... In general, these laws and regulations impose specific disclosure and registration requirements prior to the sale and marketing of franchises and regulate certain aspects of the relationship between franchisor and franchisee. Because of gaming operations in our Nevada Buffalo Wild Wings facilities...

  • Page 11
    ... in tax, has an accounting degree from the University of Wisconsin-Platteville and is a CPA, inactive. Ms. Twinem will be retiring on February 29, 2016. Kathleen M. Benning, 53, has served as our Executive Vice President, Chief Strategy Officer and New Business Development since January 2014. She...

  • Page 12
    ...food product used by our Buffalo Wild Wings® restaurants. 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, focused efforts on food costs...

  • Page 13
    ... to obtain and lease sites may increase, or we may not be able to obtain certain sites due to unacceptable costs. Our inability to obtain suitable restaurant sites at reasonable costs may reduce our growth. To successfully expand our business, we must open new Buffalo Wild Wings® restaurants on...

  • Page 14
    ... guest visits for existing restaurants in those markets. In addition, new restaurants added in existing markets may not achieve sales and operating performance at the same level as established restaurants in the market. Failure of our internal control over financial reporting could harm our business...

  • Page 15
    ...decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates. Any adverse change in these factors...

  • Page 16
    ..., minimum wages, employee benefits, insurance arrangements, construction, utilities, and other key operating costs. If our selection and amount of menu price increases are not accepted by consumers and reduce guest traffic, or are insufficient to counter increased costs, our financial results...

  • Page 17
    ... 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; Potential distraction or unusual expenses associated with our expansion into international markets...

  • Page 18
    ... Changes in consumer preferences or discretionary consumer spending could harm our performance. The success of Buffalo Wild Wings depends, in part, upon the continued popularity of our Buffalo, New York-style chicken wings, our boneless wings, other food and beverage items, and appeal of sports bars...

  • Page 19
    ... in prices, our profitability may decline. In addition, the current premiums that we pay for our insurance (including workers' compensation, general liability, property, health, and directors' and officers' liability) may increase at any time, thereby further increasing our costs. The dollar amount...

  • Page 20
    ..., and may be required to license additional technology in the future for use in managing our Internet sites and providing related services to users and customers. These third-party technology licenses may not continue to be available to us on acceptable commercial terms or at all. The inability to...

  • Page 21
    ... or 15-year terms, generally including options to extend the terms. We typically lease our restaurant facilities under "triple net" leases that require us to pay minimum rent, real estate taxes, maintenance costs and insurance premiums and, in some instances, percentage rent based on sales in excess...

  • Page 22
    ... of our business, including claims arising from personal injuries, contract claims, franchise-related claims, dram shop claims, wage and hour and other employment-related claims, and claims from guests or employees alleging injury, illness or other food quality, health or operational concerns. To...

  • Page 23
    ... of Equity Securities The table below provides information with respect to our purchase of shares of Buffalo Wild Wings common stock during the three months ended December 27, 2015: Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans(a) - - $175,000,146 $175,000,146 Period...

  • Page 24
    ...percentage change in the cumulative total shareholder return on our Common Stock for the five-year period ended December 27, 2015 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 25
    ... Financial Statements and related notes thereto set forth in Item 8 of this Form 10-K. Fiscal Years Ended (1) Dec 27, 2015 Consolidated Statements of Earnings Data: Revenue: Restaurant sales Franchise royalties and fees Total revenue Costs and expenses: Restaurant operating costs: Cost of sales...

  • Page 26
    ... wings by portion, new purchasing strategies, menu price increases, and reduced food waste, as well as marketing promotions, menu additions, and menu changes that affect the percentage that chicken wings represent of total restaurant sales. We will continue to monitor the cost of chicken wings...

  • Page 27
    ... the costs associated with normal asset retirements, asset impairment charges, and closures of locations. General and administrative expenses are related to home office and field support provided to both company-owned restaurants and franchising operations. We utilize a 52- or 53-week accounting...

  • Page 28
    ... reserve based on current market conditions. During 2015, 2014, and 2013, we recorded expenses of $503,000, $315,000, and $38,000, respectively, for restaurants that closed. Stock-Based Compensation We account for stock-based compensation for options in accordance with the fair value recognition...

  • Page 29
    ... of restaurant sales. Fiscal Years Ended December 27, December 28, December 29, 2015 2014 2013 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 30
    ... Wings locations in the United States and Canada are as follows (based on restaurants operating at least fifteen months): Fiscal Years Ended Dec 27, Dec 28, 2015 2014 4.2% 6.5% 2.5% 5.6% Company-owned same-store sales Franchised same-store sales Dec 29, 2013 3.9% 3.3% The annual average prices...

  • Page 31
    ... for 48 new company-owned restaurants and costs of $300,000 for restaurants that opened in 2015. Average preopening cost per new company-owned Buffalo Wild Wings restaurant in 2015 and 2014 was $271,000 and $299,000, respectively. Loss on asset disposals and impairment increased by $3.6 million...

  • Page 32
    ... restaurant sales increased to 31.2% in 2014 compared to 30.4% in 2013. Cost of labor as a percentage of restaurant sales increased primarily due to higher hourly labor costs related to the implementation of our Guest Experience Business Model, minimum wage increases in Minnesota and California, and...

  • Page 33
    ... expenses and income taxes. The increase in accrued expenses was primarily due to higher payroll-related costs including higher incentive compensation and wages. The increase in income taxes was primarily due to timing of payments. Net cash used in investing activities for 2015, 2014, and 2013, was...

  • Page 34
    ... of businesses, investments in affiliates, and share repurchases. There is a commitment fee on the average unused portion of the facility at a rate per annum between 0.125% and 0.200%, which is dependent on our consolidated total leverage ratio. Our future cash outflows related to income tax...

  • Page 35
    ... of factors, including increases or decreases in same-store sales, changes in commodity prices, the timing and number of new restaurant openings and related preopening expenses, asset impairment charges, store closing charges, general economic conditions, and stock-based compensation. As a result...

  • Page 36
    ...2014 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 and impairment Total costs and expenses Income...

  • Page 37
    ...2014 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 and impairment Total costs and expenses Income...

  • Page 38
    ... 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 39
    ... Quarterly Operations." BUFFALO WILD WINGS, INC. Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 40 Consolidated Balance Sheets as of December 27, 2015 and December 28, 2014 41 Consolidated Statements of Earnings for the Fiscal Years Ended December...

  • Page 40
    ...with the standards of the Public Company Accounting Oversight Board (United States), Buffalo Wild Wings, Inc. and subsidiaries internal control over financial reporting as of December 27, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of...

  • Page 41
    ... Property and equipment, net Reacquired franchise rights, net Other assets Goodwill Total assets Liabilities and Stockholders' Equity Current liabilities: Unearned franchise fees Accounts payable Accrued compensation and benefits Accrued expenses Current portion of long-term debt and capital lease...

  • Page 42
    BUFFALO WILD WINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS Fiscal years ended December 27, 2015, December 28, 2014, and December 29, 2013 (Amounts in thousands except per share data) Fiscal years ended December 27, 2015 Revenue: Restaurant sales Franchise royalties and fees Total ...

  • Page 43
    ... CONSOLIDATED STATEMENTS OF TOTAL EQUITY Fiscal years ended December 27, 2015, December 28, 2014, and December 29, 2013 (Dollar amounts in thousands) Buffalo Wild Wings Stockholders' Equity Accumulated Other Comprehensive (Loss) Income (125) Common Stock Shares Balance at December 30, 2012 18...

  • Page 44
    ... Stock-based compensation Excess tax benefit from stock issuance Loss on investments in affiliates Change in operating assets and liabilities, net of effect of acquisitions: Trading securities Accounts receivable Inventory Prepaid expenses Other assets Unearned franchise fees Accounts payable Income...

  • Page 45
    ... 27, 2015, December 28, 2014, and December 29, 2013, we operated 596, 491, and 434 company-owned restaurants, respectively, and had 579, 591, and 559 franchised restaurants, respectively. (b) Principles of Consolidation The consolidated financial statements include the accounts of Buffalo Wild Wings...

  • Page 46
    ... 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. The price we pay for chicken wings is determined based on the average of the previous month's wing market plus mark-up...

  • Page 47
    ... 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 27, 2015 and December 28, 2014, we had asset retirement obligations of...

  • Page 48
    ... 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...

  • Page 49
    ... 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...

  • Page 50
    ... rate Expected life of options December 27, 2015 0.0% 34.3% 1.4% 5 December 29, 2013 0.0% 48.5% 0.8% 5 Expected dividend yield Expected stock price volatility Risk-free interest rate Expected life of options Employee Stock Purchase Plan December 27, December 28, December 29, 2015 2014 2013...

  • Page 51
    ... comprised of investments held for future needs of our non-qualified deferred compensation plan and 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...

  • Page 52
    ... 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 2015 and 2014...

  • Page 53
    ... depreciation Property and equipment, net December 27, December 28, 2015 2014 $ 18,662 12,391 92,603 80,811 25,105 369,344 301,568 553,736 461,155 1,059,450 855,925 (454,738) (361,524) $ 604,712 494,401 As of December 27, 2015, we recorded assets under capital lease of $21,770 and related...

  • Page 54
    ... fair market value. 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 the majority of our restaurants and corporate offices that...

  • Page 55
    ...building operating expenses, was as follows: Fiscal Years Ended December 27, December 28, December 29, 2015 2014 2013 $ 75,515 61,286 53,651 1,409 1,019 715 $ 76,924 62,305 54,366 $ 1,411 1,194 1,000 Minimum rents Percentage rents Total Equipment and auto leases (8) Long-Term Debt and Capital Lease...

  • Page 56
    ... Thereafter Total future maturities of long-term debt and capital lease obligations $ $ 2,147 2,561 37,279 3,043 3,407 24,664 73,101 (9) Income Taxes The components of earnings (loss) before taxes were as follows: Fiscal Years Ended December 27, December 28, December 29, 2015 2014 2013 $ 140,737...

  • Page 57
    ... consolidated balance sheets are as follows: December 27, 2015 Deferred tax assets: Unearned revenue Accrued compensation and benefits Deferred lease credits Stock-based compensation Advertising costs Insurance reserves Capital lease and deemed landlord financing Foreign NOL/Other Other Total...

  • Page 58
    ...income taxes, based on our closing stock price of $162.28 as of the last business day of the year ended December 27, 2015, which would have been received by the optionees had all options been exercised on that date. As of December 27, 2015, total unrecognized stock-based compensation expense related...

  • Page 59
    ... restricted stock units granted during 2015, 2014, and 2013 was $180.60, $147.46, and $87.49, respectively. During 2015, 2014, and 2013, we recognized $11,454, $12,474, and $9,899 respectively, of stock-based compensation expense related to restricted stock units. (c) Employee Stock Purchase Plan We...

  • Page 60
    ...2013: Fiscal year ended December 27, 2015 Earnings Shares Per-share (numerator) (denominator) amount $ 95,069 95,069 19,013,426 $ 5.00 - 69,219 - 48,849 $ 95,069 19,131,494 $ 4.97 Net earnings attributable to Buffalo Wild Wings Earnings per common share Effect of dilutive securities - stock options...

  • Page 61
    ... Cash Flow Information Fiscal Years Ended December 27, December 28, December 29, 2015 2014 2013 Cash paid during the period for: Income taxes Interest Noncash financing and investing transactions: Property and equipment not yet paid for Tax withholding for restricted stock units Goodwill adjustment...

  • Page 62
    ... Taco restaurants as of the acquisition date. During 2014, we also acquired 13 Buffalo Wild Wings franchised restaurants through two acquisitions. The total purchase price in 2015 and 2014 was $205,193 and $30,497, respectively, and was primarily paid in cash funded by cash from operations, the sale...

  • Page 63
    ...assumed. The fair values of acquired assets and liabilities related to these acquisitions, comprising 47 Buffalo Wild Wings restaurants, were revised from the estimated values disclosed in the financial statements in our quarterly report Form 10-Q for the quarter ended September 27, 2015 as a result...

  • Page 64
    ...business activities and the related impact on internal control over financial reporting. This material weakness contributed to inadequately designed controls over (1) the accounting for lease arrangements, including controls over the designation of leases as capital or operating, evaluation of build...

  • Page 65
    ... of improving its policies and procedures relating to the recognition and measurement of new and modified lease transactions originated by the Company or acquired through business combinations. Management plans to enhance its internal controls by a) adding controls to ensure proper review of new and...

  • Page 66
    ... related to a lack of sufficient resources to identify and analyze changes in business activities and the impact on internal controls over financial reporting; ineffective design and operation of process level controls over accounting for lease arrangements entered into by the Company and acquired...

  • Page 67
    ... 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 2016 Annual Meeting of...

  • Page 68
    ...Report of Independent Registered Public Accounting Firm dated February 25, 2016 Consolidated Balance Sheets as of December 27, 2015 and December 28, 2014 Consolidated Statements of Earnings for the Fiscal Years Ended December 27, 2015, December 28, 2014, and December 29, 2013 Consolidated Statements...

  • Page 69
    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 25, 2016 BUFFALO WILD WINGS, INC. By SALLY J. SMITH Sally J. Smith Chief Executive Officer and President ...

  • Page 70
    ... Proxy Statement filed on March 22, 2012)(1) Form of Notice of Performance-Based Restricted Stock Unit Award (Officer Level) as of March 1, 2009 (incorporated by reference to Exhibit 10.2 to our Form 10-Q for the fiscal quarter ended March 29, 2009) (1) Form of Notice of Incentive Stock Option Award...

  • Page 71
    ...-Oxley Act of 2002 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Nevada Gaming Regulation The following financial statements from the Company's 10-K for the fiscal year ended December 27, 2015, formatted in XBRL: (i) Consolidated Balance Sheets...

  • Page 72
    * Filed herewith. (1) Management contract or compensatory arrangement required to be filed as an exhibit. 72