| The Company and Summary of Significant Accounting Policies | 1. The Company and Summary of Significant Accounting Policies Description of Business BJ’s Restaurants, Inc. (referred to herein as the “Company,” “BJ’s,” “we,” “us” and “our”) was incorporated in California on October 1, 1991, to assume the management of five “BJ’s Chicago Pizzeria” restaurants and to develop additional BJ’s restaurants. As of January 1, 2019, w e owned and operated 202 restaurants located in 27 states. During fiscal 2018, we opened five new restaurants Several of our locations, in addition to our two brewpub locations in Texas, brew our signature, proprietary craft BJ’s beer All of our other restaurants receive their BJ’s beer either from one of our restaurant brewing operations, our Texas brewpubs and/or independent third party brewers using our proprietary recipes. Basis of Presentation The accompanying consolidated financial statements include the accounts of BJ’s Restaurants, Inc. and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The financial statements presented herein include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations and cash flows for the period. The consolidated financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The Company had no components of other comprehensive income (loss) during any of the years presented, as such; a consolidated statement of comprehensive income (loss) is not presented. The preparation of financial statements in conformity U.S. GAAP requires management to make estimates and assumptions for the reporting period and as of the financial statement date. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Our fiscal year consists of 52 or 53 weeks and ends on the Tuesday closest to December 31 for financial reporting purposes. Fiscal year 2018 and 2017 ended on January 1, 2019, and January 2, 2018, respectively, and consisted of 52 weeks of operations, fiscal year 2016 ended on January 3, 2017 and consisted of 53 weeks of operations. Reclassifications Certain reclassifications of prior year’s balance sheet amounts have been made to conform to the current year’s format. Segment Disclosure The FASB Accounting Standards Codification (“ASC”) Topic No. 280, Segment Reporting Recently Issued Accounting Standards In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This guidance requires the recognition of most leases on the balance sheet to give investors, lenders, and other financial statement users a more comprehensive view of a company’s long-term financial obligations as well as the assets it owns versus leases. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We will adopt ASU 2016-02 during the first quarter of fiscal 2019. Currently, all of our restaurant and our restaurant support center leases are accounted for as operating leases, and therefore are not recorded within our balance sheets. We expect this adoption will result in a material increase in the assets and liabilities on our consolidated balance sheets, but will likely have an insignificant impact on our Consolidated Statements of Income or Consolidated Statements of Cash Flows. In preparation for the adoption of the guidance, we are implementing controls and key system changes to enable the preparation of financial information. The adoption of ASU 2016-02 will have a significant impact on our consolidated balance sheet as we will record material assets and obligations primarily related to our restaurant and corporate office operating leases and we will recognize the cumulative effect of our total deferred sales-leaseback gains as an adjustment to retained earnings. We expect to record operating lease liabilities of approximately $455 to $480 million, based on the present value of the remaining minimum rental payments using discount rates as of the effective date. We expect to record corresponding right-of-use assets of approximately $ to $ 380 million, based upon the operating lease liabilities adjusted for prepaid and deferred rent, unamortized initial direct costs, liabilities associated with lease termination costs and impairment of right-of-use assets recognized in retained earnings as of January 2 , 2019. We also expect to recognize approximately $ million as a cumulative effect adjustment to retained earnings for deferred sale-leaseback gains recorded as of January 2, 2018. As a result of losing the deferred gain amortization related to our sales-leaseback gains, we will recognize higher rent expense and lower income from operations by approximately $ 1.7 million in fiscal 2019. In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). This update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 will be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. We will adopt ASU 2018-15 the first quarter of fiscal 2020. We are currently evaluating the impact this guidance will have on our consolidated financial statements. Recently Adopted Accounting Standards In April 2016, the FASB issued ASU 2016-10, an amendment to ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”). ASU 2014-09 provides a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services and expands related disclosure requirements. ASU 2016-10 clarified ASU 2014-09 to address the potential for diversity in practice at the adoption. The standard also requires gift card breakage to be recognized as revenue in proportion to the pattern of gift card redemptions exercised by our customers. ASUs 2016-10 and 2014-09 were effective for annual and interim reporting periods beginning after December 15, 2017, and were permitted to be applied retrospectively to each prior period presented or retrospectively with the cumulative adjustment to opening retained earnings as of the date of adoption (modified retrospective approach). We adopted ASU 2016-10 on January 3, 2018, and elected the modified retrospective adoption method. As a result, we recorded a net cumulative adjustment of $4.6 million to opening retained earnings. We now allocate loyalty member transaction amounts between the goods delivered and the future goods that will be delivered, on a relative standalone selling price basis. For fiscal 2018, approximately $0.9 million of net revenues have been deferred until those loyalty points are redeemed in the future and approximately $1.4 million of gift card breakage has been recorded as revenues. Under the previous standard, we estimated the cost of the loyalty reward based on the equivalent cost of the food and beverage earned and recorded this cost as a marketing expense included in “Occupancy and operating” on our Consolidated Statements of Income. Additionally, under the previous standard we recorded gift card breakage as other income included within “Other (expense) income, net” on our Consolidated Statements of Income. ASU 2016-10 does not impact the calculation of our comparable restaurant sales or how we calculate gift card breakage. Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid investments and money market funds with an original maturity of three months or less when purchased. Cash and cash equivalents are stated at cost, which approximates fair market value. Concentration of Credit Risk Financial instruments which subject us to a concentration of credit risk principally consist of cash and cash equivalents and receivables. We currently maintain our day-to-day operating cash balances with a major financial institution. At times, our operating cash balances may be in excess of the FDIC insurance limit. Inventories Inventories are comprised primarily of food and beverage products and are stated at the lower of cost (first-in, first-out) or net realizable value. Property and Equipment Property and equipment are recorded at cost and depreciated over their estimated useful lives. Leasehold improvements are amortized over the estimated useful life of the asset or the lease term, including reasonably assured renewal periods or exercised options, of the respective lease, whichever is shorter. Renewals and betterments that materially extend the life of an asset are capitalized while maintenance and repair costs are expensed as incurred. When property and equipment are sold or otherwise disposed of, the asset accounts and related accumulated depreciation or amortization accounts are relieved, and any gain or loss is included in earnings. Depreciation and amortization are recorded using the straight-line method over the following estimated useful lives:
Furniture and fixtures
10 years
Equipment
5‑10 years
Brewing equipment
10-20 years
Building improvements
the shorter of 20 years or the remaining lease term
Leasehold improvements
the shorter of the useful life or the lease term,
including reasonably assured renewal periods Goodwill We perform impairment testing annually, during the fourth quarter, and more frequently if factors and circumstances indicate impairment may have occurred. When evaluating goodwill for impairment, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of our reporting unit is less than its carrying value. We currently have one reporting unit, which is casual dining company-owned restaurants in the United States of America. If it is concluded that the fair value of our reporting unit is less than the goodwill carrying value, we estimate the fair value of the reporting unit and compare it to the carrying value of the reporting unit, including goodwill. If the carrying value of the reporting unit is greater than the estimated fair value, an impairment charge is recorded for the difference between the implied fair value of goodwill and its carrying amount. To calculate the implied fair value of the reporting unit’s goodwill, the fair value of the reporting unit is first allocated to all of the other assets and liabilities of that unit based on their relative fair values. The excess of the reporting unit’s fair value over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value. This adjusted carrying value becomes the new goodwill accounting basis value. We did not record any impairment to goodwill during fiscal 2018, 2017 or 2016. Long-Lived Assets We assess the potential impairment of our long-lived assets whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. These assets are generally reviewed for impairment on a restaurant by restaurant basis. Factors considered include, but are not limited to, significant underperformance by the restaurant relative to expected historical or projected future operating results, significant changes in the manner of use of the acquired assets or the strategy for the overall business, and significant negative industry or economic trends. The recoverability is assessed by comparing the carrying value of the asset to the undiscounted cash flows expected to be generated by the asset. If the carrying amount is greater than the anticipated undiscounted cash flows, an impairment charge is recorded as the difference between the carrying amount and the assets estimated fair value. Revenue Recognition Revenues from food and beverage sales at restaurants are recognized when payment is tendered at the point of sale. Amounts paid with a credit card are recorded in accounts and other receivables until payment is collected from the credit card processor. We sell gift cards which do not have an expiration date and we do not deduct non-usage fees from outstanding gift card balances. Gift card sales are recorded as a liability and recognized as revenues upon redemption in our restaurants. Deferred gift card revenue, included in “Accrued expenses” on the accompanying Consolidated Balance Sheets, was $17.2 million and $15.0 million as of January 1, 2019 and January 2, 2018, respectively. Estimated gift card breakage is recorded as “Revenues” on our Consolidated Statements of Income and recognized in proportion to our historical redemption pattern. The estimated gift card breakage is based on when the likelihood of redemption becomes remote, which has typically been 24 months after the original gift card issuance date. Our “BJ’s Premier Rewards” customer loyalty program enables participants to earn points for qualifying purchases that can be redeemed for food and beverages in the future. We allocate the transaction price between the goods delivered and the future goods that will be delivered, on a relative standalone selling price basis, and defer the revenues allocated to the points , less expected expirations, until such points are redeemed. Cost of Sales Cost of sales is comprised of food and beverage costs, including the cost to produce and distribute our proprietary craft beer, soda and ciders. The components of cost of sales are variable and typically fluctuate directly with sales volumes, but may be impacted by changes in commodity prices or promotional activities. Sales Taxes Revenues are presented net of sales tax collected. The obligations to the appropriate tax authorities are included in other accrued expenses until the taxes are remitted to the appropriate taxing authorities. Advertising Costs Advertising costs are expensed as incurred. Advertising expense for fiscal 2018, 2017, and 2016 was approximately $24.5 million, $21.0 million and $18.9 million, respectively. Advertising costs are primarily included in “Occupancy and operating” expenses on our Consolidated Statements of Income. Income Taxes We utilize the liability method of accounting for income taxes. Deferred income taxes are recognized based on the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted We provide for income taxes based on our expected federal and state tax liabilities. Our estimates include, but are not limited to, effective federal, state and local income tax rates, allowable tax credits for items such as FICA taxes paid on reported tip income and estimates related to depreciation expense allowable for tax purposes. We usually file our income tax returns several months after our fiscal year-end. All tax returns are subject to audit by federal and state governments for years after the returns are filed, and could be subject to differing interpretations of the tax laws. We recognize the impact of a tax position in our financial statements if that position is more likely than not of being sustained through an audit, based on the technical merits of the position. Interest and penalties related to uncertain tax positions are included in “Income tax expense (benefit)” on our Consolidated Statements of Income. Restaurant Opening Expense Restaurant payroll, supplies, training, other start-up costs and rent expense incurred prior to the opening of a new restaurant are expensed as incurred. Leases We lease the majority of our restaurant locations. We account for our leases in accordance with U.S. GAAP, which require that our leases be evaluated and classified as operating or capital leases for financial reporting purposes. The lease term used for this evaluation includes renewal option periods when the exercise of the renewal option can be reasonably assured and failure to exercise the option would result in an economic penalty. All of our restaurant leases are classified as operating leases. Tenant improvement allowance incentives may be available to partially offset the cost of developing and opening our restaurants, pursuant to agreed-upon terms in our leases. Tenant improvement allowances can take the form of cash payments upon the opening of the related restaurants, full or partial credits against minimum or percentage rents otherwise payable by us or a combination thereof. All tenant improvement allowances received by us are recorded as a deferred lease incentive and amortized over the term of the lease. The related cash received from the landlord is reflected as “Landlord contribution for tenant improvements” within the “Cash flow from operating activities” section of our Consolidated Statements of Cash Flows. The lease term used for straight-line rent expense is calculated from the date we obtain possession of the leased premises through the lease termination date. We expense rent from possession date through the restaurant opening date as restaurant opening expense within our statement of operations. Once a restaurant opens for business, we record straight-line rent over the probable lease term plus contingent rent to the extent it exceeds the minimum rent obligation per the lease agreement. Cash rent payments are not typically due under the terms of our leases during the rent holiday period, which begins on the possession date and ends on the restaurant opening date. Factors that may affect the length of the rent holiday period include construction related delays. Extension of the rent holiday period due to delays in a restaurant opening will result in greater preopening rent expense recognized during the rent holiday period and lesser occupancy expense during the remainder of the lease term (post-opening). For leases that contain rent escalations in which the amount of future rent can be reasonably calculated, we record the total rent payable under the lease on a straight-line basis over the probable term (including the rent holiday period beginning upon our possession of the premises). Differences between rent payments and the straight-line rent expense are recorded as deferred rent. Certain leases contain provisions that require additional rent payments based upon a restaurant’s sales volume (“contingent rent”). Contingent rent is accrued each period based on the actual sales, in addition to the straight-line rent expense noted above. This results in some variability in occupancy expense over the term of the lease in restaurants where we pay contingent rent. Management makes judgments regarding the probable term for each restaurant property lease and applies these selected terms consistently to each lease. These judgments can impact the classification and accounting for a lease as capital or operating, the calculation of straight-line rent, and the term over which leasehold improvements are amortized. These judgments produce materially different amounts of depreciation, amortization and rent expense than would be reported if different lease terms were used. Net Income Per Share Basic net income per share is computed by dividing the net income by the weighted average number of common shares outstanding during the period. Diluted net income per share reflects the potential dilution that could occur if in-the-money stock options issued by us to sell common stock at set prices were exercised and if restrictions on restricted stock units issued by us were to lapse (collectively, equity awards) using the treasury stock method. The following table presents a reconciliation of basic and diluted net income per share, including the number of dilutive equity awards that were included in the dilutive net income per share computation (in thousands):
Fiscal Year
2018
2017
2016
Numerator:
Net income for basic and diluted net income per share
$
50,810
$
44,780
$
45,557
Denominator:
Weighted-average shares outstanding - basic
20,958
21,374
23,824
Dilutive effect of equity awards
626
398
409
Weighted-average shares outstanding - diluted
21,584
21,772
24,233
At January 1, 2019, January 2, 2018, and January 3, 2017, there were approximately 0.03 million, 0.6 million, and 0.3 million shares of common stock equivalents, respectively, that have been excluded from the calculation of diluted net income per share because they are anti-dilutive. Stock‑Based Compensation Under our shareholder approved stock-based compensation plans, we have granted incentive stock options, non-qualified stock options, and restricted stock units (“RSUs”), including performance and time-based restricted stock units, that generally vest over three to five years. Incentive and non-qualified stock options expire ten years from the date of grant. Stock-based compensation is recorded in accordance with U.S. GAAP based on the underlying estimated fair value of the awards granted. In valuing stock options, we are required to make certain assumptions and judgments regarding the inputs to the Black-Scholes option-pricing model. These inputs include expected volatility, risk free interest rate, expected option life, dividend yield and expected vesting percentage. These estimations and judgments involve many different variables that, in many cases, are outside of our control. Changes in these variables may significantly impact the compensation cost recognized for these grants resulting in a significant impact to our financial results. The tax benefits resulting from tax deductions in excess of the compensation cost recognized (excess tax benefits) are classified as “Cash flows from financing activities” within our Consolidated Statements of Cash Flows and “Income tax expense (benefit)” within the Consolidated Statements of Income for the period realized. |
